-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AmPRkEwttT6wbdJiEkYK4+EJZz6YSh95utGjNAjW5GP154urxCso9Tbolg5s9hKv lm4+sZEN+ULAZkRqBt9KfQ== 0000028917-98-000022.txt : 19981216 0000028917-98-000022.hdr.sgml : 19981216 ACCESSION NUMBER: 0000028917-98-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DILLARDS INC CENTRAL INDEX KEY: 0000028917 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 710388071 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06140 FILM NUMBER: 98770231 BUSINESS ADDRESS: STREET 1: 1600 CANTRELL RD CITY: LITTLE ROCK STATE: AR ZIP: 72201 BUSINESS PHONE: 5013765200 FORMER COMPANY: FORMER CONFORMED NAME: DILLARD DEPARTMENT STORES INC DATE OF NAME CHANGE: 19920703 10-Q 1 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 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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 (IRS Employer jurisdiction of incorporation Identification Number) or organization) 1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201 (Address of principal executive offices) (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 period 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 31, 1998 102,802,724 CLASS B COMMON STOCK as of October 31, 1998 4,016,929 PART I FINANCIAL INFORMATION ITEM 1 Financial Statements CONSOLIDATED BALANCE SHEETS DILLARD'S, INC. (Unaudited) (Thousands) October 31 January 31 November 1 1998 1998 1997 ASSETS CURRENT ASSETS Cash and cash equivalents $56,010 $41,833 $65,509 Trade accounts receivable 1,411,185 1,158,682 1,054,062 Merchandise inventories 2,608,041 1,784,765 2,255,564 Other current assets 55,326 12,777 35,017 TOTAL CURRENT ASSETS 4,130,562 2,998,057 3,410,152 INVESTMENTS AND OTHER ASSETS 418,343 92,298 103,125 PROPERTY AND EQUIPMENT, NET 3,683,958 2,463,801 2,433,072 CONSTRUCTION IN PROGRESS 47,597 37,691 20,792 GOODWILL 648,966 - $8,929,426 $5,591,847 $5,967,141 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses $1,315,473 $530,034 $1,002,641 Commercial paper 158,132 419,136 463,209 Short-term borrowings 865,001 - Federal and state income taxes 126,248 40,761 43,325 Current portion of long-term debt 176,268 107,268 106,564 Current portion of capital lease obligations 2,409 1,651 1,620 TOTAL CURRENT LIABILITIES 2,643,531 1,098,850 1,617,359 LONG-TERM DEBT 2,648,838 1,365,716 1,318,159 CAPITAL LEASE OBLIGATIONS 27,582 12,205 12,588 DEFERRED INCOME TAXES 642,706 307,138 261,094 TOTAL LIABILITIES 5,962,657 2,783,909 3,209,200 COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY GRANTOR TRUSTS 200,000 - STOCKHOLDERS' EQUITY Preferred stock 440 440 440 Common stock 1,149 1,143 1,143 Additional paid-in capital 677,655 657,137 649,758 Retained earnings 2,362,699 2,314,709 2,207,735 Less treasury stock (275,174) (165,491) (101,135) 2,766,769 2,807,938 2,757,941 $8,929,426 $5,591,847 $5,967,141 See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS DILLARD'S, INC. (Unaudited) (Thousands, except per share data) Three Months Ended Nine Months Ended Twelve Months Ended October 31 November 1 October 31 November 1 October 31 November 1 1998 1997 1998 1997 1998 1997 Net sales $2,021,299 $1,592,118 $5,208,019 $4,560,615 $7,279,156 $6,497,994 Service charges, interest, and other 63,125 47,217 158,290 140,617 202,830 183,449 2,084,424 1,639,335 5,366,309 4,701,232 7,481,986 6,681,443 Cost and expenses: Cost of sales 1,368,266 1,056,303 3,449,631 2,997,625 4,845,297 4,289,666 Advertising, selling, administrative and general expenses 642,880 415,031 1,469,159 1,184,812 1,914,068 1,601,386 Depreciation and amortization 68,486 53,901 177,330 156,429 220,840 197,032 Rentals 17,616 10,494 37,799 31,961 60,524 55,161 Interest and debt expense 64,871 33,219 133,869 97,158 165,948 128,640 2,162,119 1,568,948 5,267,788 4,467,985 7,206,677 6,271,885 INCOME (LOSS) BEFORE INCOME TAXES (77,695) 70,387 98,521 233,247 275,309 409,558 Income taxes (benefit) (27,490) 26,040 37,710 86,300 103,120 151,535 NET INCOME (LOSS) (50,205) 44,347 60,811 146,947 172,189 258,023 Retained earnings at beginning of period 2,417,176 2,167,838 2,314,709 2,074,214 2,207,735 1,967,692 2,366,971 2,212,185 2,375,520 2,221,161 2,379,924 2,225,715 Cash dividends declared (4,272) (4,450) (12,821) (13,426) (17,225) (17,980) RETAINED EARNINGS AT END OF PERIOD $2,362,699 $2,207,735 $2,362,699 $2,207,735 $2,362,699 $2,207,735 BASIC INCOME (LOSS) PER SHARE ($0.47) $0.40 $0.57 $1.32 $1.59 $2.30 DILUTED INCOME (LOSS) PER SHARE ($0.47) $0.40 $0.56 $1.31 $1.58 $2.29 Cash dividends declared per common share $0.04 $0.04 $0.12 $0.12 $0.16 $0.16 See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS DILLARD'S, INC. (Unaudited) (Thousands) Nine Months Ended October 31 November 1 1998 1997 OPERATING ACTIVITITES Net income $60,811 $146,947 Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisition: Depreciation and amortization 178,765 157,552 Changes in operating assets and liabilities: Decrease in trade accounts receivable 191,490 76,442 Increase in merchandise inventories and other current assets (401,480) (724,543) (Increase) decrease in investments and other assets (8,931) 2,909 Increase in trade accounts payable and accrued expenses and income taxes 529,889 463,639 NET CASH PROVIDED BY OPERATING ACTIVITIES 550,544 122,946 INVESTING ACTIVITIES Purchase of property and equipment (237,147) (418,360) Acquisition, net of cash acquired and assets held for sale (2,175,442) NET CASH USED IN INVESTING ACTIVITIES (2,412,589) (418,360) FINANCING ACTIVITIES Net (decrease) increase in commercial paper (261,004) 334,471 Net proceeds from short-term borrowings 865,001 Proceeds from long-term borrowings 1,250,000 200,000 Proceeds from company-obligated mandatorily redeemable preferred securities of subsidiary grantor trusts 200,000 Principal payments on long-term debt and capital lease obligations (75,625) (130,870) Dividends paid (12,991) (14,014) Proceeds from sale of common stock 20,524 8,377 Purchase of treasury stock (109,683) (101,135) NET CASH PROVIDED BY FINANCING ACTIVITIES 1,876,222 296,829 INCREASE IN CASH AND CASH EQUIVALENTS 14,177 1,415 Cash and cash equivalents at beginning of period 41,833 64,094 CASH AND CASH EQUIVALENTS AT END OF PERIOD $56,010 $65,509 See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying unaudited consolidated financial statements 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 nine month period ended October 31, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending January 30, 1999 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 31, 1998. 2. During the thirteen weeks ended October 31, 1998, the Company completed its acquisition (the "Acquisition") of Mercantile Stores Company, Inc. ("Mercantile") pursuant to an Agreement and Plan of Merger dated May 16, 1998. Mercantile is a conventional department store retailer engaged in the general merchandising business, operating 119 department or home fashion stores under 13 different names in a total of 17 states. The Acquisition was accounted for under the purchase method and, accordingly, the results of operations have been included in the Company's results of operations since August 13, 1998, and the purchase price has been allocated to Mercantile's assets and liabilities based on their estimated fair values as of that date. Based upon management's initial estimates, the excess of cost over net assets acquired is approximately $652 million. Subsequent to the Acquisition, the Company entered into two separate agreements whereby the Company sold in the aggregate 26 of the acquired stores to Proffitt's, Inc. and the May Department Stores Company. In addition, the Company entered into an agreement with Belk, Inc. to exchange seven of the acquired stores for nine Belk, Inc. stores with a fair market value of approximately $70 million. 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 table sets forth the purchase price and preliminary purchase price allocation (certain fair values were based upon preliminary estimates and will be adjusted once final amounts are determined): (in millions) Cash paid for stock $ 2,940 Cash paid for outstanding stock options 3 Transaction expenses, including investment banking, legal and accounting 29 Transaction liabilities, primarily contractually obligated severance payments 20 Purchase price 2,992 Historical book value of assets acquired 1,653 Excess of purchase price over historical book value of assets acquired $ 1,339 ============ Allocation of excess purchase price: Assets held for sale $ 306 Elimination of LIFO inventory reserve 28 Increase property and equipment to fair value 444 Increase pension assets to fair value 86 Increase Investments and other assets to fair value 125 Other adjustments (30) Goodwill 652 Changes in deferred income taxes for the tax effect of above adjustments (except goodwill) (272) $ 1,339 =========== Goodwill is being amortized over 40 years on a straight line basis. The Company will assess the recoverability of costs in excess of net assets acquired annually based on existing facts and circumstances and projected earnings before interest, depreciation and amortization on an undiscounted basis. Should the Company's assessment indicate an impairment of this asset in the future, an appropriated write-down will be recorded. The following unaudited pro forma condensed statements of operations give effect to the Acquisition and related financing transactions as if such transactions had occurred at the beginning of the periods presented (in millions, except per share data): 39 Weeks Ended October 31, 1998 November 1, 1997 Net sales $6,057 $5,998 Net income (loss) (9) 58 Basic income (loss) per share (.08) .52 Diluted income (loss) per share (.08) .51 The pro forma amounts reflect the results of operations of the Company, the acquired business and the following adjustments: Elimination of sales, cost of goods sold and operating expenses related to the stores subsequently sold. Depreciation on property and equipment and amortization of intangible assets based on the estimated purchase price allocation. Interest expense on the debt incurred in connection with the Acquisition. 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 Acquisition been consummated on the first day of the periods presented or of future results. 3. The Company financed the Acquisition through the issuance of long-term notes, commercial paper and short-term borrowings. The Company's borrowing arrangements as of October 31, 1998 are as follows (in thousands): Short-term debt: Commercial paper $ 158,132 Receivables financing 865,001 Total short-term debt $ 1,023,133 =========== Long-term debt: Unsecured notes at rates ranging from 6.125% to 9.50% due 1999 through 2027 $ 2,000,000 Unsecured 9.25% note of DIC due 2001 100,000 Mortgage notes payable monthly or quarterly (some with balloon payments) over periods up to 31 years from inception and bearing interest at rates ranging from 6.25% to 13.25% 68,106 Coupon reset notes at rates ranging from 6.08% to 6.39% due 2010 through 2013 500,000 Unsecured Mercantile notes assumed at rates ranging from 6.70% to 8.20% due 2002 through 2022 157,000 Total long-term debt $ 2,825,106 =========== Capital Securities: Company-obligated mandatorily redeemable preferred securities of subsidiary grantor trusts $ 200,000 =========== Receivables financing - On August 14, 1998, a wholly-owned subsidiary of the Company entered into a liquidity facility with Park Avenue Receivables Corporation providing for a maximum borrowing of $1,350 million. Borrowings under the facility are secured by the credit card receivables of the Company, which are owned by its wholly-owned subsidiary. Capital Securities - The Capital Securities represent beneficial ownership interests in the assets of Dillard's Capital Trust I (the "Trust"), a wholly owned subsidiary of the Company. The Trust exists for the sole purpose of issuing the Capital Securities and investing the proceeds in 7.5% Subordinated Deferrable Interest Debentures (the "Subordinated Debentures") issued by the Company. The Subordinated Debentures will mature on August 1, 2038. Holders of the Capital Securities are entitled to receive cumulative cash distributions payable quarterly at the annual rate of 7.5% of the liquidation amount of $25 per Capital Security. The Capital Securities are subject to mandatory redemption upon repayment of the Subordinated Debentures. 4. On February 21, 1997, the Board of Directors authorized the implementation of a Class A common stock repurchase program of up to $300 million. For the quarter ended October 31, 1998, no additional shares were purchased. 5. Income Per Share The following table sets forth the computation of basic and diluted income (loss) per share. (thousands, except per share data) Three Months Ended Nine Months Ended October 31 November 1 October 31 November 1 1998 1997 1998 1997 Basic: Net Income (Loss) $ (50,205) $ 44,347 $ 60,811 $146,947 Average shares outstanding 106,820 110,869 107,290 111,564 Income (loss) per shares - basic ($.47) $.40 $.57 $1.32 Diluted: Net Income (Los s) $(50,205) $ 44,347 $ 60,811 $146,947 Preferred stock dividends (6) (6) (17) (17) Net income (loss) available for per-share calculations (50,211) 44,341 $60,794 $146,930 Average shares outstanding 106,820 110,869 107,290 111,564 Stock options - 1,246 567 696 Total average equivalent shares 106,820 112,115 107,857 112,260 Income (loss) per share - diluted ($.47) $ .40 $.56 $ 1.31
Twelve Months Ended October 31 November 1 1998 1997 Basic: Net Income $172,189 $258,023 Average shares outstanding 108,098 112,067 Income per share - basic $1.59 $2.30 Diluted: Net Income $172,189 $ 258,023 Preferred stock dividends (22) (22) Net income available for per-share calculations 172,167 258,001 Average shares outstanding 108,098 112,067 Stock options 594 577 Total average equivalent shares 108,692 112,644 Income per share - diluted $1.58 $ 2.29 Options to purchase 4,845,690 and 76,740 shares of Class A common stock at prices ranging from $32.25 to $45.13 per share were outstanding at October 31, 1998 and November 1, 1997, respectively, but were not included in the computation of diluted income per share because they would have been antidilutive. ITEM 2 Management's Discussion And Analysis Of Financial Condition And Results Of Operations Results of Operations The following table sets forth operating results expressed as a percentage of net sales for the periods indicated: Three Months Ended Nine Months Ended Twelve Months Ended October 31 November 1 October 31 November 1 October 31 November 1 1998 1997 1998 1997 1998 1997 Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales 67.7 66.3 66.2 65.7 66.6 66.0 Gross profit 32.3 33.7 33.8 34.3 33.4 34.0 Advertising, selling, administrative and general expenses 31.8 26.1 28.2 26.0 26.3 24.6 Depreciation and amortization 3.4 3.4 3.4 3.4 3.0 3.0 Rentals 0.9 0.7 0.7 0.7 0.8 0.9 Interest and debt expense 3.2 2.1 2.6 2.2 2.3 2.0 Total operating expenses 39.3 32.3 34.9 32.3 32.4 30.5 Other income 3.1 3.0 3.0 3.1 2.8 2.8 Income (loss) before income taxes (benefit) (3.9) 4.4 1.9 5.1 3.8 6.3 Income taxes (benefit) (1.4) 1.6 0.7 1.9 1.4 2.3 Net income (loss) (2.5) 2.8 1.2 3.2 2.4 4.0
During the thirteen weeks ended October 31, 1998, the Company completed its acquisition (the "Acquisition") of Mercantile Stores Company, Inc. ("Mercantile") pursuant to an Agreement and Plan of Merger dated May 16, 1998. Mercantile is a conventional department store retailer engaged in the general merchandising business, operating 119 department or home fashion stores under 13 different names in a total of 17 states. The Acquisition was accounted for under the purchase method and, accordingly, the results of operations have been included in the Company's results of operations since August 13, 1998, and the purchase price has been allocated to Mercantile's assets and liabilities based on their estimated fair values as of that date. Based upon management's initial estimates, the excess of cost over net assets acquired is approximately $652 million. Subsequent to the Acquisition, the Company entered into two separate agreements whereby the Company sold in the aggregate 26 of the acquired stores to Proffitt's, Inc. and the May Department Stores Company. In addition, The Company entered into an agreement with Belk, Inc. to exchange seven of the acquired stores for nine Belk, Inc. stores. 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. Net sales for the third quarter of 1998 were $2,021.3 million as compared to $1,592.1 million for the third quarter of 1997. This is an increase of 27%. The increase was primarily due to the additional number of retail stores operated by the Company (resulting from new store growth and the Acquisition), partially offset by a decline in comparable store sales of 1%. At October 31, 1998, the Company operated 343 stores, as compared to 268 stores at November 1, 1998. For the nine months ended October 31, 1998 the total sales increase 14% compared to the first nine months of 1997. The comparable stores increase for the nine months was 2%. For the twelve months ended October 31, 1998 the total sales increase was 12% compared to 1997. The comparable stores increase for this period was 2%. The majority of the increase in sales was attributable to an increase in the volume of goods sold rather than an increase in the price of goods. Cost of sales for the three, nine and twelve months ended October 31, 1998 included a charge of $39 million for inventory valuation adjustments resulting from the alignment of Mercantile inventories to reflect the Company's merchandising and pricing philosophy. Before this charge, cost of sales decreased to 65.8% of net sales for the third quarter of 1998 compared to 66.3% for the third quarter of 1997. Prior to the charge, cost of sales decreased to 65.4% of net sales for the nine months ended October 31, 1998 from 65.7% for the first nine months of 1997. Prior to the charge, cost of sales was constant at 66.0% of net sales for the twelve months ended October 31, 1998 and November 1, 1997 Included in selling, general and administrative expenses ("SG&A") for the three, nine and twelve months ended October 31, 1998 were certain business integration and consolidation expenses ("BICE") associated with the integration of Mercantile into the Company. BICE included $43 million of severance costs, $26 million of lease rejection costs for facilities closed subsequent to the Acquisition and $22 million of costs associated with operating Mercantile central office functions for a transitional period. Before such Acquisition related charges, SG&A expenses as a percentage of nets sales increase from 26.1% to 27.2% for the third quarter of 1998, from 26.0% to 26.5% for the first nine months of 1998, and from 24.6% to 25.0% for the twelve months ended October 31, 1998. The increases were primarily due to increase selling payroll expenses, as well as systems integration and other consolidation and integration expenses associated with the Acquisition. The Company is continuing the process of consolidating various administrative support functions such as marketing, buying, advertising, accounting and management information systems, as well as aligning store operating and distribution methodologies. The Company estimates that SG&A expenses for 1998 periods included addition payroll and other systems integration expenses associated with the Acquisition of approximately $20 million. The Company has taken steps to reduce payroll and other overhead expenses, and expects to achieve cost reductions as a result of a more efficient overhead expense structure and increase purchasing power derived from the combination of the two companies. Depreciation and amortization expense remained constant as a percentage of sales for the three, nine and twelve months ended October 31,1998 compared to the three, nine and twelve months ended November 1, 1997. Rental expense increased from .7% of net sales for the third quarter of 1997 to .9% for the third quarter of 1998. This increase reflects the relatively higher percentage of leased property of Mercantile. For the nine months ended October 31, 1998 and November 1, 1997, rental expense was .7% of net sales. For the twelve months ended October 31, 1998 and November 2, 1997, rental expense decreased from .9% to .8% of net sales. Interest and debt expense increased to 3.2% of net sales for the third quarter of 1998 from 2.1% in the third quarter of 1997. For the nine months ended October 31, 1998 interest and debt expense increased to 2.6% of net sales compared to 2.2% of net sales for the nine months ended November 1, 1997. For the twelve months ended October 31, 1998 and November 1, 1997 interest and debt expense increased from 2.0% to 2.3% of net sales. The increase in interest and debt expense was due to increased debt incurred to finance the Acquisition. Service charges, interest and other income increased to 3.1% of net sales for the third quarter of 1998 from 3.0% in the third quarter of 1997. For the nine months ended October 31, 1998 and November 1, 1997 service charges, interest and other income decreased from 3.1% to 3.0% of net sales. For the twelve months ended October 31, 1998 and November 1, 1997 the service charges, interest and other income was constant at 2.8% of net sales. The effective federal and state income tax rate was 37% for 1997. The effective federal and state income tax rate was 38.2% and 37.5% for the three and nine months ended October 31, 1998, respectively, giving effect to the non-deductibility of the amortization of goodwill. Financial Condition As discussed above, the Company completed its acquisition of Mercantile on August 13, 1998. Subsequent to the Acquisition, the Company entered into an agreement to dispose of 26 of the acquired stores. The Company funded the Acquisition by issuing $1.15 billion of debt in underwritten public offerings. In addition, a subsidiary of the Company issued $200 million in Capital Securities in an underwritten public offering. Additionally, a wholly owned subsidiary of the Company entered into a short term borrowing arrangement providing for a maximum funding of $1.35 billion. At October 31, 1998, $865 million remained outstanding under this facility. The Company invested $261 million in capital expenditures for the nine months ended October 31, 1998 as compared to $334 million for the nine months ended November 1, 1997. In the first nine months of 1998 the Company opened seven new stores (one of which was a replacement store) and expanded and remodeled two stores exclusive of the Mercantile acquisition. The Company closed two stores during the first nine months of 1998. During 1997, the Company built twelve new stores, expanded and remodeled four stores, acquired eleven stores and closed three. On February 21, 1997, the Board of Directors authorized the implementation of a Class A common stock repurchase program of up to $300 million. For the nine months of 1998, a total of 3.0 million shares were purchased for a total of $109.7 million. Merchandise inventories increased by 15% from $2.25 billion at November 1, 1997 to $2.6 billion at October 31, 1998. This increase reflects the Acquisition as well as other store openings. On a comparable store basis, merchandise inventories decreased by 4%. Increases in other balance sheet accounts between January 31, 1998 and October 31, 1998 reflect Mercantile balances obtained in the Acquisition and normal seasonal variations within the retail industry. The levels of merchandise inventories and accounts receivable fluctuate due to the seasonal nature of the retail business. Along with the fluctuations in these current assets, there is also a corresponding fluctuation in trade accounts payable and commercial paper. Subsequent to October 31, 1998, the Company issued debt in underwritten public offerings. On November 4, 1998, the Company issued $150 million of 5.79% Notes due November 15, 2001. On November 16, 1998, the Company issued $100 million of 6.625% Notes due November 15, 2008. On December 7, 1998, The Company issued $150 million 7% notes due December 1, 2028. After these offerings, the Company has an effective shelf registration for securities in the amount of $750 million. Year 2000 Readiness Statement The Company is actively addressing the issues related to the date change in 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 will fail to perform date calculations correctly and produce erroneous results. This could temporarily prevent the Company from processing business transactions. The Company began efforts as early as 1996 to address this issue. Currently, all computer systems including both IT and non-IT systems have been assessed and work is well under way to remediate the systems that are not year 2000 compliant. The non-IT systems are primarily systems with embedded processors such as telephone and security systems. The non-IT systems have substantially been remediated. Approximately 75% of the IT systems have been remediated or were originally developed as year 2000 compliant. The remediation of the remaining IT systems is expected to be complete no later than the second quarter of 1999. The Company has obtained letters of certification from its mission-critical computer systems and software vendors. The external cost (payments to equipment and service vendors) of remediating non-compliant systems incurred thus far is approximately $1.2 million. The Company believes the external cost to remediate all systems will not exceed $2.5 million in total. Additionally, the Company will incur internal costs in its remediation process. These internal costs relate principally to the payroll costs of the information systems group and other costs related to the normal operation of the Company's data centers. The Company does not track these costs separately. All costs associated with year 2000 issues will be funded from the Company's existing sources of liquidity. There are significant risks associated with the 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. These risks are largely outside the control of the Company. Although the Company believes its remediation and 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 these significant risks the Company's management is monitoring these efforts very closely. The Audit Committee of the Board of Directors is periodically updated concerning the status of the year 2000 efforts. Business resumption contingency plans have been completed for the mission-critical systems. These plans address how the Company will continue to do business until the mission-critical system that failed has been remediated. These plans will be periodically reviewed to determine if changing business conditions necessitate a change in the contingency plan. Forward- Looking Information The Company cautions that any 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 of the Company involve risks and uncertainties and are subject to change based on various important factors. The following factors, among others, could affect the Company's financial performance and could cause actual results for 1998 and beyond to differ materially from those expressed or implied in any such forward-looking statements: economic and weather conditions in the regions in which the Company's stores are located and their effect on the buying patterns of the Company's customers, changes in consumer spending patterns and debt levels, trends in personal bankruptcies and the impact of competitive market factors. Item 3. Quantitative and Qualitative Disclosure About Market Risk. During the nine months ended October 31, 1998, the Company issued a total of $1,450 million of securities as outlined below Amount Interest Description (millions) Rate Maturity Notes $ 100 6.30 % 2008 Notes 200 6.43 2004 Notes 100 6.69 2007 Debentures 200 7.13 2018 Reset Put Securities 100 6.08 2010 Reset Put Securities 100 6.17 2011 Reset Put Securities 150 6.31 2012 Reset Put Securities 150 6.39 2013 Notes 150 6.125 2003 Capital Securities of Subsidiary 200 7.50 2038 Item 4. Submission of matters to a Vote of Security Holders None PART II OTHER INFORMATION 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 Commission as follows: Three Months Ended Fiscal Year Ended October 31 November 1 January 31 February 1 February 3 January 28 January 29 1998 1997 1998 1997 1996 * 1995 1994 1.64 3.08 3.69 3.61 2.86 3.72 3.57 * 53 Weeks ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibit (12): Statement re: Computation of Ratio of Earnings to Fixed Charges (b) Reports on Form 8-K filed during the third quarter: The Company filed a report dated October 23, 1998, relating to the issue of $150 million aggregate principal amount of 6.125% Notes maturing on November 1,2003. The Company filed a report dated October 29, 1998, relating to the issue of $150 million aggregate principal amount of 5.790% Notes maturing on November 15, 2001. The Company filed a report dated November 10, 1998, relating to the issue of $100 million aggregate principal amount of 6.625% Notes maturing on November 15, 2008. The Company filed a report dated December 1, 1998, relating to the issue of $150 million aggregate principal amount of 7.0% Notes maturing on December 1, 2028. 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 15, 1998 /s/ James I. Freeman James I. Freeman Senior Vice President & Chief Financial Officer (Principal Financial & Accounting Officer) EXHIBIT INDEX Exhibits to Form 10-Q Exhibit Number Exhibit 12 Statement re: Computation of Ratio of Earnings to Fixed Charges EX-12 2 EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited) (Dollar amounts in thousands) Nine Months Ended Fiscal Year Ended October 31 November 1 January 31 February 1 February 3 January 28 January 29 1998 1997 1998 1997 1996 1995 1994 Consolidated pretax income $98,521 $233,247 $410,035 $378,761 $269,653 $406,110 $399,534 Fixed charges (less capitalized interest) 146,469 107,812 147,466 139,188 139,666 145,921 152,568 EARNINGS $244,990 $341,059 $557,501 $517,949 $409,319 $552,031 $552,102 Interest $133,869 $97,158 $129,237 $120,599 $120,054 $124,282 $130,915 Capitalized interest 2,631 3,012 3,644 4,420 3,567 2,545 1,882 Interest factor in rent expense 12,600 10,654 18,229 18,589 19,612 21,639 21,653 FIXED CHARGES $149,100 $110,824 $151,110 $143,608 $143,233 $148,466 $154,450 Ratio of earnings to fixed charg 1.64 3.08 3.69 3.61 2.86 3.72 3.57
EX-27 3
5 1000 9-MOS JAN-30-1999 OCT-31-1998 56,010 0 1,411,185 42,316 2,608,041 4,130,562 5,392,434 1,660,879 8,929,426 2,643,531 2,676,420 0 440 1,149 2,765,180 8,929,426 5,208,019 5,366,309 3,449,631 3,449,631 0 44,259 133,869 98,521 37,710 60,811 0 0 0 60,811 .57 .56
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