UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number 1-6140
DILLARD'S, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 71-0388071
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201
(Address of principal executive office)
(Zip Code)
(501) 376-5200
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant (1)
has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter time that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes x No_
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
CLASS A COMMON STOCK as of October 30, 1999 100,890,118
CLASS B COMMON STOCK as of October 30, 1999 4,010,929
<PAGE>
Index
DILLARD'S, INC.
Page
Part I. Financial Information Number
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of October 30, 1999,
January 30, 1999 and October 31, 1998. 3
Consolidated Statements of Income and Retained Earnings
for the Three, Nine and Twelve Month Periods Ended
October 30, 1999 and October 31, 1998. 4
Consolidated Statements of Cash Flows for the Nine Months
Ended October 30, 1999 and October 31, 1998 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk 13
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 5. Other Information. 14
Item 6. Exhibits and Reports on Form 8-K. 14
Signatures 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 Financial Statements
DILLARD'S, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
<TABLE>
October 30, January 30, October 31,
1999 1999 1998
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $43,650 $72,401 $56,010
Trade accounts receivable, net 981,140 1,192,572 1,411,185
Merchandise inventories 2,929,451 2,157,010 2,608,041
Other current assets 48,469 15,728 55,326
Total current assets 4,002,710 3,437,711 4,130,562
Property and Equipment, net 3,657,964 3,684,629 3,731,555
Goodwill, net 647,030 659,262 648,966
Other Assets 421,928 395,957 418,343
Total Assets $8,729,632 $8,177,559 $8,929,426
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable and accrued expenses $1,520,462 $921,187 $1,315,473
Commercial paper 0 0 158,132
Short-term borrowings 0 0 865,001
Federal and state income taxes 4,313 5,930 126,248
Current portion of long-term debt 7,289 164,289 176,268
Current portion of capital lease obligations 2,463 2,396 2,409
Total current liabilities 1,534,527 1,093,802 2,643,531
Long-term Debt 2,997,276 3,002,595 2,648,838
Capital Lease Obligations 25,268 27,000 27,582
Deferred Income Taxes 714,154 681,061 642,706
Guaranteed Preferred Beneficial
Interests in Company's
Subordinated Debentures 531,579 531,579 200,000
Stockholders' Equity:
Preferred stock 0 440 440
Common stock 1,154 1,150 1,149
Additional paid-in capital 692,399 682,313 677,655
Retained earnings 2,557,859 2,432,793 2,362,699
Less treasury stock (324,584) (275,174) (275,174)
Total stockholders' equity 2,926,828 2,841,522 2,766,769
Total Liabilities and Stockholders' Equity $8,729,632 $8,177,559 $8,929,426
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DILLARD'S, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
(Amounts in Thousands, except per share data)
<TABLE>
Three Months Ended Nine Months Ended Twelve Months Ended
October 30, October 31, October 30, October 31, October 30, October 31,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net Sales $2,078,211 $2,021,299 $6,101,874 $5,208,019 $8,690,596 $7,279,156
Service Charges, Interest, and Other 53,818 63,125 180,019 158,290 236,712 202,830
2,132,029 2,084,424 6,281,893 5,366,309 8,927,308 7,481,986
Costs and Expenses:
Cost of sales 1,386,783 1,368,266 4,016,798 3,449,631 5,785,262 4,845,297
Advertising, selling, administrative
and general expenses 541,679 642,880 1,597,854 1,469,159 2,198,907 1,914,068
Depreciation and amortization 75,044 68,486 220,731 177,330 283,072 220,840
Rentals 16,170 17,616 47,673 37,799 77,856 60,524
Interest and debt expense 56,240 64,871 176,358 133,869 239,169 165,948
2,075,916 2,162,119 6,059,414 5,267,788 8,584,266 7,206,677
Income (Loss) Before Income Taxes 56,113 (77,695) 222,479 98,521 343,042 275,309
Income Taxes (Benefit) 21,325 (27,490) 84,540 37,710 130,655 103,120
Net Income (Loss) 34,788 (50,205) 137,939 60,811 212,387 172,189
Retained Earnings at Beginning of the Period 2,527,366 2,417,176 2,432,793 2,314,709 2,362,699 2,207,735
2,562,154 2,366,971 2,570,732 2,375,520 2,575,086 2,379,924
Cash Dividends Declared (4,295) (4,272) (12,873) (12,821) (17,227) (17,225)
Retained Earnings at End of Period $2,557,859 $2,362,699 $2,557,859 $2,362,699 $2,557,859 $2,362,699
Earnings (Loss) per common share:
Basic $0.33 ($0.47) $1.29 $0.57 $1.99 $1.59
Diluted $0.33 ($0.47) $1.29 $0.56 $1.98 $1.58
Cash Dividends Declared Per
Common Share $0.04 $0.04 $0.12 $0.12 $0.16 $0.16
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DILLARD'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
<TABLE>
Nine Months Ended
October 30, October 31,
1999 1998
<S> <C> <C>
Operating Activities:
Net income $137,939 $60,811
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 221,023 178,765
Changes in operating assets and liabilities:
Decrease in trade accounts receivable, net 211,432 191,490
Increase in merchandise inventories and other current assets (805,182) (401,480)
Increase in other assets (29,093) (8,931)
Increase in trade accounts payable and
accrued expenses and income taxes 630,751 529,889
Net cash provided by operating activities 366,870 550,544
Investing Activities:
Purchases of property and equipment (179,004) (237,147)
Acquisition, net of cash acquired and assets held for sale 0 (2,175,442)
Net cash used in investing activities (179,004) (2,412,589)
Financing Activities:
Net decrease in commercial paper 0 (261,004)
Net proceeds from short-term borrowings 0 865,001
Proceeds from long-term borrowings 0 1,250,000
Principal payments on long-term debt and capital lease (163,984) (75,625)
Proceeds from Guaranteed Preferred Beneficial Interests in the
Company's Subordinated Debentures 0 200,000
Cash dividends paid (12,873) (12,991)
Proceeds from issuance of common stock 10,090 20,524
Retirement of preferred stock (440) 0
Purchase of treasury stock (49,410) (109,683)
Net cash (used in) provided by financing activities (216,617) 1,876,222
(Decrease) Increase in Cash and Cash Equivalents (28,751) 14,177
Cash and Cash Equivalents, Beginning of Peroid 72,401 41,833
Cash and Cash Equivalents, End of Period $43,650 $56,010
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DILLARD'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 30, 1999
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements
of Dillard's, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have
been included. Operating results for the three, nine and
twelve month periods ended October 30, 1999 are not
necessarily indicative of the results that may be expected
for the fiscal year ending January 29, 2000 due to the
seasonal nature of the business. For further information,
refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K
for the fiscal year ended January 30, 1999.
Note 2. Earnings Per Share Data
The following table sets forth the computation of basic and
diluted earnings per share ("EPS") for the periods indicated
(in thousands, except per share data).
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended Twelve Months Ended
October 30, October 31, October 30, October 31, October 30, October 31,
1999 1998 1999 1998 1999 1998
Basic:
Net Income (Loss) $34,788 $(50,205) $137,939 $ 60,811 $212,387 $172,189
Preferred stock dividends - (6) (8) (17) (19) (22)
Net earnings (loss) available
for per-share calculations $34,788 $(50,211) $137,931 $ 60,794 $212,368 $172,167
Average shares outstanding 106,847 106,820 106,985 107,290 106,954 108,098
Basic earnings (loss) per share $ .33 $ (.47) $ 1.29 $ .57 $ 1.99 $ 1.59
Diluted:
Net income (Loss) $34,788 $(50,205) $137,939 $ 60,811 $212,387 $172,189
Preferred stock dividends - (6) (8) (17) (19) (22)
Net earnings (loss) available
for per-share calculations $34,788 $(50,211) $137,931 $ 60,794 $212,368 $172,167
Average shares outstanding 106,847 106,820 106,985 107,290 106,954 108,098
Stock options - - 187 567 168 594
Total average equivalent shares 106,847 106,820 107,172 107,857 107,122 108,692
Diluted earnings(loss) per share $ .33 $ (.47) $ 1.29 $ .56 $ 1.98 $ 1.58
</TABLE>
Options to purchase 8,074,946 and 4,845,690 shares of Class
A common stock at prices ranging from $25.13 to $44.38 per
share were outstanding at October 30, 1999 and October 31,
1998, respectively, but were not included in the computation
of diluted earnings per share because they would be
antidilutive.
<PAGE>
Note 3. Acquisition
The Company acquired the Mercantile Stores Company, Inc.
("Mercantile") on August 13, 1998 ("Mercantile
Acquisition"). The Mercantile Acquisition was accounted for
as a purchase and, accordingly, the results of operations of
Mercantile have been included in the Company's results of
operations from August 13, 1998. In connection with the
Mercantile Acquisition, the Company entered into two
separate agreements; whereby the Company either sold or
exchanged certain of the stores obtained in the Mercantile
Acquisition to other retailers. The results of operations
of the sold or exchanged stores are included in the
accompanying statements of operations from the date of
acquisition to the date of sale or exchange.
The following unaudited pro-forma condensed statements of
operations give effect to the Mercantile Acquisition and
related financing transactions as if such transactions had
occurred at the beginning of the periods presented (amounts
in thousands, except per share data):
Nine Months Twelve Months
Ended Ended
October 31, October 31,
1998 1998
Net sales $6,347,902 $9,152,166
Net income 36,335 181,829
Basic EPS 0.34 1.68
Diluted EPS 0.34 1.67
The pro-forma amounts reflect the results of operations of
the Company, the acquired business and the following
adjustments: (i) elimination of sales, cost of goods sold
and operating expenses related to the stores subsequently
sold, (ii) depreciation on property and equipment and
amortization of intangible assets based on the purchase
price allocation, (iii) interest expense on debt incurred in
connection with the Mercantile Acquisition, and (iv)
adjustment of income tax expense related to the above.
The foregoing unaudited pro-forma information is provided
for illustrative purposes only and does not purport to be
indicative of results that actually would have been achieved
had the Mercantile Acquisition been consummated on the first
day of the periods presented or of future results.
Note 4. Common Stock Repurchase
On September 14, 1999, the Company announced that the Board
of Directors had authorized the repurchase of up to $250
million of Class A Common Stock. During the quarter ended
October 30, 1999, the Company repurchased approximately $50
million of Class A Common Stock, representing 2.5 million
shares at an average price of $20.10 per share.
<PAGE>
ITEM 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
Results of Operations
The following table sets forth the results of operations,
expressed as a percentage of net sales, for the periods
indicated:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended Twelve Months Ended
October 30, October 31, October 30, October 31, October 30, October 31
1999 1998 1999 1998 1999 1998
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 66.7 67.7 65.8 66.2 66.6 66.6
Gross profit 33.3 32.3 34.2 33.8 33.4 33.4
Advertising, selling,
administrative
and general expenses 26.1 31.8 26.2 28.2 25.3 26.3
Depreciation and
amortization 3.6 3.4 3.6 3.4 3.3 3.0
Rentals 0.8 0.9 0.8 0.7 0.9 0.8
Interest and debt
expense 2.7 3.2 2.9 2.6 2.7 2.3
Total operating
expenses 33.2 39.3 33.5 34.9 32.2 32.4
Service charges,
interest and other 2.6 3.1 2.9 3.0 2.7 2.8
Income (loss) before
income taxes 2.7 (3.9) 3.6 1.9 3.9 3.8
Income taxes 1.0 (1.4) 1.3 0.7 1.5 1.4
Net income (loss) 1.7% (2.5)% 2.3% 1.2% 2.4% 2.4%
</TABLE>
Net Sales
Net sales increased 3%, 17% and 19% for the three, nine and
twelve month periods ended October 30, 1999, respectively,
compared to the three, nine and twelve month periods ended
October 31, 1998. These increases were primarily due to (i)
increases in comparable store sales, (ii) incremental revenue
generated in the nine and twelve month periods of 1999 by stores
acquired in the Mercantile Acquisition (the "Acquired Stores")
and (iii) incremental revenue generated from traditional new
store openings. The increase in net sales for the three month
period ended October 30, 1999 was partially offset by the sale of
a number of the Acquired Stores in the third quarter of 1998.
Comparable store sales for the Company increased 5%, 4% and 3%
during the three, nine and twelve month periods ended October 30,
1999 compared to the same periods of 1998.
The Company anticipated an initial decline in sales at the
Acquired Stores, due to changes from promotional merchandising
formats to more traditional balanced pricing formats. However,
management expected a more rapid improvement in sales during 1999
than has occurred. As a result of lower than planned sales
levels, the relationship of costs of sales to sales and
advertising, selling, administrative and general expenses to
sales continues to be negatively impacted (see below).
Cost of Sales
Cost of sales, as a percent of net sales, was 66.7%, 65.8% and
66.6% for the three, nine and twelve month periods ended October
30, 1999 compared to 67.7%, 66.2% and 66.6% for the three, nine
and twelve month periods ended October 31, 1998. Cost of sales
for the 1998 periods include a $39 million inventory valuation
charge resulting from alignment of Acquired Store inventories to
reflect the Company's merchandising and pricing philosophies.
Prior to this charge, cost of sales as a percent of net sales
would have been 65.8%, 65.4% and 66.0% for the three, nine and
twelve month periods ended October 31, 1998.
<PAGE>
The continuation of merchandising issues and lower than expected
sales levels in the Acquired Stores resulted in gross margin
pressures in the second and third quarters of 1999 compared to
the same quarters of 1998. Additionally, cost of sales for the
twelve months ended October 30, 1999 was impacted by markdowns
resulting from merchandise processing delays during the
consolidation of distribution systems of the Acquired Stores into
the Dillard's distribution system during the fourth quarter of
1998. The distribution and merchandise processing delays
resulted in later than planned store receipts and subsequent
higher levels of markdowns in the post-holiday selling season.
Management believes that integration of the Acquired Stores into
the Company's merchandising and distribution operations has been
substantially completed and that integration issues involving
significant merchandise markdowns, discontinuation of merchandise
subject to outstanding commitments with branded vendors,
elimination of certain private label clothing lines, with
resultant markdowns required to liquidate these lines and the
consolidation of distribution systems have been substantially
resolved. However, Management expects cost of sales will
continue at higher than historic Company levels since net sales
at the Acquired Stores have not yet improved in line with
management's expectations (see net sales comments, above).
Advertising, Selling, Administrative and General Expenses
Advertising, selling, administrative and general expenses ("SG&A
expenses"), as a percentage of net sales, were 26.1%, 26.2% and
25.3% for the three, nine and twelve month periods ended October
30, 1999 compared to 31.8%, 28.2% and 26.3% for the comparable
1998 periods. The decreases in SG&A expenses are due primarily to
inclusion of duplicate and closed facilities charges of $91
million, which were incurred in the third quarter of 1998.
Primary efforts to integrate the Acquired Stores into the
Dillard's system occurred in the third and fourth quarters of
1998 and involved the Company recording integration related
expenses, including charges for duplicate and closed facilities.
The process of integrating the Acquired Stores involved the
consolidation of various administrative support functions such as
marketing, buying, advertising, accounting and data processing,
as well as the alignment of store operating and distribution
methodologies. The alignment process continued during the first
and second quarters of 1999. However, this and process is
substantially complete at this time. and the Consequently, the
relationship between advertising, selling, administrative and
general expenses and net sales is beginning to return to more
traditional levels. The Company, however, continues to incur
higher levels of SG&A expenses at the Acquired Stores (26.4% of
net sales) compared to SG&A expenses of 24.7% of net sales for
Dillard's core stores. This trend is expected to continue, since
net sales at the Acquired Stores has not yet improved in line
with Management's expectations (see net sales comments, above).
Depreciation and Amortization Expense
Depreciation and amortization expense, as a percent of net sales,
increased for the three, nine and twelve month periods ended
October 30, 1999 compared to similar periods in 1998, due
primarily to the amortization of goodwill. Goodwill is being
amortized over a 40 year period, with quarterly amortization
expense approximating $4.1 million.
Rentals
Rental expense, as a percent of net sales, for the three, nine
and twelve month periods ended October 30, 1999 was .8% .8% and
.9%, respectively, compared to .9%, .7% and .8%, respectively,
for the three, nine and twelve month periods ended October 31,
1998. The general increase in rental expense between periods is
due to higher levels of leased properties obtained as a result of
the Mercantile Acquisition. During the third quarter of 1998,
the Company operated certain Acquired Stores which were sold to
other retailers at the end of the third quarter of 1998. Thereby
accounting for the decline in rent expense between the third
quarter of 1998 and 1999.
<PAGE>
Interest and Debt Expense
Interest and debt expense for the three months ended October 30,
1999 decreased to $56.2 million or 2.7% of net sales compared to
$64.9 million or 3.2% of net sales for the three months ended
October 31, 1998. This reduction is due primarily to a decrease
in the average amount of outstanding debt in the third quarter of
1999 compared to the third quarter of 1998. The debt reduction
was achieved through the sale of 26 of the Acquired Stores to
Proffitt's, Inc. and the May Department Store Company near the
end of the third quarter of 1998, sales of other duplicate and
surplus assets and a $300 million securitization of accounts
receivable, which occurred in the fourth quarter of 1998.
Interest and debt expense, as a percent of net sales, increased
in each of the nine and twelve month periods ended October 30,
1999, compared to similar periods in 1998. This increase is
directly related to the increased level of unsecured debt
incurred in connection with the Mercantile Acquisition.
Service Charges, Interest and Other Income
Service charges, interest and other income for the three months
ended October 30, 1999 decreased to $53.8 million or 2.6% of net
sales compared to $63.1 million or 3.1% of net sales for the
three months ended October 31, 1998. This decrease is due to a
$300 million account receivable securitization completed in the
fourth quarter of 1998, as a part of the funding structure of the
Mercantile acquisition as well as a decrease in the average
amount of outstanding accounts receivable in the third quarter of
1999 compared to the third quarter of 1998.
Income Taxes
The effective federal and state income tax rates for the three,
nine and twelve month periods ended October 30, 1999 was 38%,
compared to 37% for each of the three, nine and twelve month
periods ended October 31, 1998. The increase in the effective
tax rate is the result of the nondeductible nature of goodwill
amortization.
Financial Condition
Cash provided by operating activities totaled $366.9 million and
$550.5 million for the nine months ended October 30, 1999 and
October 31, 1998, respectively. The reduction in cash provided
by operating activities is due primarily to an increase in
merchandise inventories. Merchandise inventories increased 9%, on
a comparable store basis, between October 30, 1999 and October
31, 1998. This increase is due to (i) the impact of acquisition
related receiving delays which were experienced in September and
October 1998 and resulted in inventory levels during that time
being lower than normal, (ii) the acceleration into October of
merchandise purchased to be gift wrapped prior to sale, whereas,
in prior years this type of merchandise was not purchased until
November and (iii) the acquisition of Mercantile's licensed men's
shoe business and related inventory.
The Company invested $179.0 million in capital expenditures for
the nine months ended October 30, 1999 compared to $237.2 million
for the nine months ended October 31, 1998. Consistent with its
corporate plan, the Company has reduced its level of capital
spending, with current year emphasis placed on integrating the
Mercantile Stores. The Company completed its acquisition of
Mercantile on August 13, 1998, with the net effect of this
acquisition reflected as an investing activity in the October 31,
1998 Statement of Cash Flows.
During the nine months ended October 30, 1999, the Company opened
nine stores: the Citrus Park Mall store in Tampa, Florida; the
MacArthur Center store in Norfolk, Virginia; the Mall of Georgia
store in Atlanta, Georgia; the Arbor Place store in Douglasville,
Georgia; the Sierra Vista Towne Center store in Sierra Vista,
Arizona; the Park Place Mall store in Tucson, Arizona
(replacement store); the Boynton Beach store in Boynton Beach,
Florida; the Pemberton Square store in Vicksburg, Mississippi and
the Antelope Valley Mall store in Palmdale, California. The
Company anticipates opening five new stores in 2000, resulting in
an addition of approximately 800,000 square feet of retail space.
<PAGE>
Cash used in financing activities for the nine months ended
October 30, 1999 totaled $216.6 million compared to cash provided
by financing activities of $1.9 billion for the nine months ended
October 31, 1998. As was previously mentioned, the Company
completed its acquisition of Mercantile on August 13, 1998. The
various financing activities included in the Statement of Cash
Flows for the nine months ended October 31, 1998 include the
funding of long and short term financing conduits to facilitate
the Mercantile acquisition. Subsequent to the third quarter of
1998, the Company completed its long-term financing structure for
the Mercantile Acquisition and reduced its short-term debt by
approximately $1.2 billion, significantly improving the current
ratio of the Company at October 30, 1999 compared to October 31,
1998. The Company's long-term debt was generally issued as
unsecured notes in underwritten public offerings at fixed rates
of interest. During the twelve months ended October 30, 1999,
the Company also reduced its level of outstanding debt by
approximately $500 million.
On September 14, 1999, the Company announced that the Board of
Directors had authorized a Class A Common Stock repurchase
program, whereby the Company may repurchase up to $250 million of
Class A Common Stock. During the nine months ended October 30,
1999, the Company has repurchased approximately 2.5 million Class
A Common Shares for approximately $50.0 million.
During the nine months ended October 31, 1998, the Company
repurchased 3 million Class A Common Shares for $109.7 million
under a $300 million Class A Common Stock repurchase program.
This repurchase program was discontinued at the time of the
Mercantile Acquisition.
Management of the Company believes that cash generated from
operations, in conjunction with existing credit facilities, will
be sufficient to cover its reasonably foreseeable working
capital, capital expenditure and debt service requirements.
Depending on conditions in the capital markets and other factors,
the Company will from time to time consider the issuance of debt
or other securities, or other possible capital market
transactions, the proceeds of which could be used to refinance
current indebtedness or for other corporate purposes.
Year 2000 Readiness Disclosure
The Company has actively addressed the issues related to the date
change in the year 2000. This is necessary because many computer
systems were written using only two digits to contain the year in
date fields. On January 1, 2000, many of these programs could
fail to perform date calculations correctly and would, therefore,
produce erroneous results. This would temporarily prevent the
Company from processing business transactions.
Based on assessments of its computerized systems, the Company
determined that is was necessary to modify or replace portions of
it software and certain hardware so that applicable computerized
systems would properly utilize dates beyond December 31, 1999.
The Company presently believes that it has modified or replaced
the necessary software and hardware and that the Year 2000 issue
has been mitigated. However, if all modifications and
replacements have not been made, the Year 2000 issue could have a
material impact on the operations of the Company.
The Company's plan to resolve the Year 2000 issue is complete.
This plan involved the assessment, remediation, testing and
implementation of internal systems, as well as the evaluation of
the Year 2000 compliance status of significant vendors.
<PAGE>
State of Readiness
The Company began initial efforts to address the Year 2000 issue
in 1996. Since that time, the computer systems, including both
information technology systems ("IT") and non-information
technology systems ("non-IT"), have been assessed and appropriate
modifications or replacements, for those systems which were
evaluated as not being Year 2000 compliant, have been completed.
Additionally, the Company has obtained letters of certification
from its mission-critical computer system hardware and software
vendors indicating that such systems are Year 2000 compliant.
Non-IT systems are primarily systems with embedded processors
such as elevators, telephone systems and security systems. At
the present time, the non-IT systems have been substantially
remediated, tested and applicable corrections implemented.
Cost
The Company utilized both internal and external resources to
reprogram, replace, test and implement hardware and software
changes for Year 2000 modifications. The Company incurred
approximately, $1.4 million ($0.7 million expensed and $0.7
million capitalized for new systems and equipment), related to
all phases of the Year 2000 project. Additionally, the Company
incurred internal costs relating principally to payroll costs of
the information systems group and other costs related to the
normal operation of the Company's data centers. All internal
costs have been expensed as incurred. The costs associated with
Year 2000 issues were funded from the Company's existing sources
of liquidity. The Company did not defer any significant
information technology projects as a result of its Year 2000
compliance efforts.
Third Parties
There are significant third party risks associated with Year 2000
issues. Many of these risks, such as those associated with
electrical power and/or telecommunications, are outside the
reasonable control of the Company. Also, the failure of a
significant number of the Company's business partners could have
a material impact on the Company's operations. Although the
Company believes its contingency planning efforts adequately
identify and address the Year 2000 issues that are within the
Company's reasonable control, there can be no assurance that the
Company's efforts will be fully effective.
Due to the significant risks involved in the Year 2000 issue, the
Company's management continues to closely monitor Year 2000
related matters. Additionally, the Audit Committee of the Board
of Directors continues to receive status updates on Year 2000
matters.
Contingency Plan
Business resumption contingency plans have been completed for
bank related mission-critical systems. These plans address how
the Company will continue to do business until any mission-
critical system failure has been corrected. These plans are
periodically reviewed to determine if changing business
conditions necessitate a change in the contingency plan.
Summary
Management of the Company believes that its Year 2000 program has
been effective and that all significant systems are Year 2000
compliant. However, as is the case for most companies involved in
Year 2000 system modifications, disruptions in the general
economy resulting from Year 2000 issues could also materially
adversely affect the Company's ability to market and sell its
products. The Company could also be subject to litigation for
computer system failure, equipment shutdown at its stores or
failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably
estimated at this time.
The preceding Year 2000 discussion contains "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements including without
limitation, anticipated costs and the dates by which the Company
expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous
assumptions about future events, including the continued
availability of certain resources, representations received from
third parties, and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual
results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but
are not limited to, the ability to identify and remediate all
relevant information technology and non-information technology
systems, results of Year 2000 testing, adequate resolution of
Year 2000 issues by businesses and other third parties who are
service providers, suppliers or customers of the Company,
unanticipated system costs, the adequacy of and ability to
implement contingency plans as well as other uncertainties. The
"forward-looking statements" made in the foregoing Year 2000
discussion speak only as of the date on which such statements are
made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances
after the date on which such statement is made or to reflect the
occurrence of unanticipated events.
<PAGE>
Forward-Looking Information
Statements in the Management's Discussion and Analysis of
Financial Condition and Results of Operations include certain
"forward-looking statements", including (without limitation)
statements with respect to anticipated future operating and
financial performance, growth and acquisition opportunities and
other similar forecasts and statements of expectation. Words
such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," and "should" and variations of these words
and similar expressions, are intended to identify these forward-
looking statements. The Company cautions that forward-looking
statements, as such term is defined in the Private Securities
Litigation Reform Act of 1995, contained in this quarterly report
on Form 10-Q or made by management are based on estimates,
projections, beliefs and assumptions of management at the time of
such statements and are not guarantees of future performance.
The Company disclaims any obligation to update or revise any
forward-looking statements based on the occurrence of future
events, the receipt of new information, or otherwise. Forward-
looking statements of the Company involve risks and uncertainties
and are subject to change based on various important factors.
Actual future performance, outcomes and results may differ
materially from those expressed in forward-looking statements
made by the Company and its management as a result of a number of
risks, uncertainties and assumptions, including those relating to
Year 2000 considerations. Representative examples of those
factors (without limitation) include general industry and
economic conditions; economic and weather conditions for regions
in which the Company's stores are located and the effect of these
factors on the buying patterns of the Company's customers;
changes in consumer spending patterns and debt levels; trends in
personal bankruptcies; the impact of competitive market factors
and other economic and demographic changes of similar or
dissimilar nature; the Company's success, or lack thereof, to
remediate, test and implement necessary hardware and software
modifications to become Year 2000 compliant; changes in operating
expenses, including employee wages, commissions structures and
related benefits; the continued availability of financing in
amounts and at the terms necessary to support the Company's
future business; assumed cost savings and other synergistic
benefits of the Mercantile Acquisition and the success achieved
or problems encountered in the continued integration of
Mercantiles' operations.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
During the nine months ended October 30, 1999, the Company paid-
off repaid a $100 million unsecured 7.375% note at its maturity
date and a $57 million unsecured 6.70% note prior to its
scheduled maturity date, in addition to remitting scheduled
principal payments of $5.3 million on mortgage notes.
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Ratio of Earnings to Fixed Charges:
The Company has calculated the ratio of earnings to fixed charges
pursuant to Item 503 of Regulation S-K of the Securities and
Exchange Act as follows:
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended Fiscal Year Ended
October 31, October 30, January 30, January 31, February 1, February 3, January 28,
1999 1998 1999 1998 1997 1996* 1995
2.12 1.64 1.97 3.69 3.61 2.86 3.72
* 53 week year.
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (12): Statement re: Computation of Earnings to
Fixed Charges
(b) Reports of Form 8-K filed during the second quarter: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DILLARD'S, INC.
(Registrant)
DATE: December 14, 1999 /s/James I. Freeman
James I. Freeman
Senior Vice President & Chief
Financial Officer
(Principal Financial & Accounting Officer)
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED
CHARGES
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended Fiscal Year Ended
October 30, October 31, January 30 January 31 February 1 February 3 January 28
1999 1998 1999 1998 1997 1996 * 1995
Consolidated pretax income $ 222,479 $ 98,521 $ 219,084 $ 410,035 $ 378,761 $ 269,653 $ 406,110
Fixed charges (less capitalized
interest) 192,249 146,469 219,341 147,466 139,188 139,666 145,921
EARNINGS $ 414,728 $ 244,990 $ 438,425 $ 557,501 $ 517,949 $ 409,319 $ 552,031
Interest $ 176,358 $ 133,869 $ 196,680 $ 129,237 $ 120,599 $ 120,054 $ 124,282
Capitalized interest 3,693 2,631 3,050 3,644 4,420 3,567 2,545
Interest factor in rent expense 15,891 12,600 22,661 18,229 18,589 19,612 21,639
FIXED CHARGES $ 195,942 $ 149,100 $ 222,391 $ 151,110 $ 143,608 $ 143,233 $ 148,466
Ratio of earnings to fixed charges 2.12 1.64 1.97 3.69 3.61 2.86 3.72
* 53 Weeks
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> OCT-30-1999
<CASH> 43,650
<SECURITIES> 0
<RECEIVABLES> 981,140
<ALLOWANCES> 29,000
<INVENTORY> 2,929,451
<CURRENT-ASSETS> 4,002,710
<PP&E> 5,542,965
<DEPRECIATION> 1,885,001
<TOTAL-ASSETS> 8,729,632
<CURRENT-LIABILITIES> 1,534,527
<BONDS> 3,022,544
0
0
<COMMON> 1,154
<OTHER-SE> 2,927,674
<TOTAL-LIABILITY-AND-EQUITY> 8,729,632
<SALES> 6,101,874
<TOTAL-REVENUES> 6,281,893
<CGS> 4,016,798
<TOTAL-COSTS> 4,016,798
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 64,324
<INTEREST-EXPENSE> 176,358
<INCOME-PRETAX> 222,479
<INCOME-TAX> 84,540
<INCOME-CONTINUING> 137,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,939
<EPS-BASIC> 1.29
<EPS-DILUTED> 1.29
</TABLE>
