-----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, PuATOpI2CclMpuPVufu0n4C1O+qS2EshHy5vQ0CIAI42qmyXgdtBvcY0gmQH3EHH en73f+O02UAoCbj0+EZBOA== 0000028917-99-000003.txt : 19990616 0000028917-99-000003.hdr.sgml : 19990616 ACCESSION NUMBER: 0000028917-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990501 FILED AS OF DATE: 19990615 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: 99647040 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 May 1, 1999 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 May 1, 1999 102,906,719 CLASS B COMMON STOCK as of May 1, 1999 4,016,929 PART I FINANCIAL INFORMATION ITEM 1 Financial Statements CONSOLIDATED BALANCE SHEETS DILLARD'S, INC. (Unaudited) (Thousands) May 1 January 30 May 2 1999 1999 1998 ASSETS Current Assets Cash and cash equivalents $182,281 $72,401 $81,495 Trade accounts receivable 1,069,730 1,192,572 1,073,626 Merchandise inventories 2,564,669 2,157,010 2,063,898 Other current assets 16,085 15,728 13,176 Total current assets 3,832,765 3,437,711 3,232,195 Property and Equipment, net 3,631,273 3,684,629 2,503,466 Goodwill, net 655,185 659,262 - Other Assets 437,264 395,957 100,414 $8,556,487 $8,177,559 $5,836,075 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Trade accounts payable and accrued expenses $1,260,179 $921,187 $810,635 Commercial paper - - 288,429 Federal and state income taxes 42,446 5,930 50,548 Current portion of long-term debt 107,289 164,289 107,268 Current portion of capital lease obligations 2,332 2,396 1,624 Total current liabilities 1,412,246 1,093,802 1,258,504 Long - term Debt 3,000,893 3,002,595 1,463,968 Capital Lease Obligations 26,518 27,000 11,872 Deferred Income Taxes 681,061 681,061 322,028 Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures 531,579 531,579 - Stockholders' Equity Preferred stock 440 440 440 Common stock 1,150 1,150 1,143 Additional paid-in capital 682,313 682,313 659,331 Retained earnings 2,495,461 2,432,793 2,373,513 Less treasury stock (275,174) (275,174) (254,724) 2,904,190 2,841,522 2,779,703 $8,556,487 $8,177,559 $5,836,075 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 Twelve Months Ended May 1 May 2 May 1 May 2 1999 1998 1999 1998 Net sales $2,126,738 $1,682,216 $8,241,263 $6,798,624 Service charges, interest and other 64,868 47,669 232,182 185,613 2,191,606 1,729,885 8,473,445 6,984,237 Cost and expenses: Cost of sales 1,399,387 1,117,221 5,500,261 4,515,309 Advertising, selling, administrative and general expenses 532,713 414,048 2,188,877 1,661,179 Depreciation and amortization 72,984 54,554 258,101 203,291 Rentals 15,830 10,291 73,521 54,347 Interest and debt expense 62,717 33,656 225,741 132,434 2,083,631 1,629,770 8,246,501 6,566,560 INCOME BEFORE INCOME TAXES 107,975 100,115 226,944 417,677 Income taxes 41,030 37,045 87,810 154,540 NET INCOME 66,945 63,070 139,134 263,137 RETAINED EARNINGS AT BEGINNING OF PERIOD 2,432,793 2,314,709 2,373,513 2,127,980 2,499,738 2,377,779 2,512,647 2,391,117 Cash dividends declared (4,277) (4,266) (17,186) (17,604) RETAINED EARNINGS AT END OF PERIOD $2,495,461 $2,373,513 $2,495,461 $2,373,513 BASIC EARNINGS PER COMMON SHARE $0.63 $0.58 $1.30 $2.39 DILUTED EARNINGS PER COMMON SHARE $0.63 $0.58 $1.30 $2.37 Cash dividends declared per common share $0.04 $0.04 $0.16 $0.16 See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS DILLARD'S, INC. (Unaudited) (Thousands) Three Months Ended May 1 May 2 1999 1998 OPERATING ACTIVITITES Net income $66,945 $63,070 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 73,807 55,149 Changes in operating assets and liabilities: Decrease in trade accounts receivable 122,842 85,056 Increase in merchandise inventories and other current assets (408,016) (279,532) Increase in other assets (42,129) (8,711) Increase in trade accounts payable and accrued expenses and income taxes 375,517 309,732 NET CASH PROVIDED BY OPERATING ACTIVITIES 188,966 224,764 INVESTING ACTIVITIES Purchase of property and equipment (15,552) (56,528) NET CASH USED IN INVESTING ACTIVITIES (15,552) (56,528) FINANCING ACTIVITIES Net decrease in commercial paper - (130,707) Proceeds from long-term borrowings - 100,000 Principal payments on long-term debt and capital lease obligations (59,248) (2,108) Dividends paid (4,286) (8,720) Common stock issued - 2,194 Purchase of treasury stock - (89,233) NET CASH USED IN FINANCING ACTIVITIES (63,534) (128,574) INCREASE IN CASH AND CASH EQUIVALENTS 109,880 39,662 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,401 41,833 CASH AND CASH EQUIVALENTS AT END OF PERIOD $182,281 $81,495 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 three month period ended May 1, 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. 2. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share. (thousands, except per share data) Three Months Ended Twelve Months Ended May 1 May 2 May 1 May 2 1999 1998 1999 1998 Basic: Net Income $ 66,945 $ 63,070 $139,134 $263,137 Preferred stock dividends (6) (6) (22) (22) Net earnings available for per-share calculations 66,939 63,064 139,112 263,115 Average shares outstanding 106,924 108,323 106,832 110,185 Earnings per share - basic $.63 $.58 $1.30 $2.39 Diluted: Net Income $ 66,945 $ 63,070 $139,134 $263,137 Preferred stock dividends (6) (6) (22) (22) Net earnings available for per-share calculations 66,939 63,064 $139,112 $263,115 Average shares outstanding 106,924 108,323 106,832 110,185 Stock options 44 628 308 797 Total average equivalent shares 106,968 108,951 107,140 110,982 Earnings per share - diluted $.63 $ .58 $1.30 $ 2.37 Options to purchase 7,149,391 and 2,599,406 shares of Class A common stock at prices ranging from $27.25 to $40.22 per share were outstanding at May 1, 1999 and May 2, 1998, respectively, but were not included in the computation of diluted earnings per share because they would have been antidilutive. 3. Acquisition The Company acquired 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 sold certain of the acquired stores. In addition, the Company entered into an agreement to exchange certain acquired stores for stores owned by another retailer. 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:(in thousands, except per share data): Three Months Ended Twelve Months Ended May 2, 1998 May 1, 1999 May 2, 1998 Net Sales $2,140,094 $8,818,277 $8,927,524 Net Income 52,310 125,765 270,526 Basic income per share .48 1.18 2.45 Diluted income per share .48 1.17 2.44 The pro forma amounts reflect the results of operations of the Company, the acquired business and the following adjustments: (1) elimination of sales, cost of goods sold and operating expenses related to the stores subsequently sold, (2) depreciation on property and equipment and amortization of intangible assets based on the estimated purchase price allocation, (3) interest expense on the debt incurred in connection with the Mercantile Acquisition, and (4) 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. 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 Twelve Months Ended May 1 May 2 May 1 May 2 1999 1998 1999 1998 Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 65.8 66.4 66.7 66.4 Gross profit 34.2 33.6 33.3 33.6 Advertising, selling, administrative and general expenses 25.0 24.6 26.6 24.4 Depreciation and amortization 3.4 3.3 3.1 3.0 Rentals 0.8 0.6 0.9 0.8 Interest and debt expense 3.0 2.0 2.7 2.0 Total operating expenses 32.2 30.5 33.3 30.2 Service charges, interest and other 3.1 2.8 2.8 2.7 Income before income taxes 5.1 5.9 2.8 6.1 Income taxes 2.0 2.2 1.1 2.2 Net income 3.1 3.7 1.7 3.9 Net sales for the first quarter of 1999 were $2,126.7 million as compared to $1,682.2 million for the first quarter of 1998. This is an increase of 26%. The net sales in comparable stores increased 4% for the period versus last year. The twelve month sales increase for 1999 over 1998 was 21%; for comparable stores the increase was 1%. 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. The Company operated 65 more stores at May 1, 1999 versus May 2, 1998. The majority of the new stores relate to the Mercantile Acquisition. Cost of sales decreased from 66.4% of net sales for the first quarter of 1998 to 65.8% for the first quarter of 1999. Part of this decrease was caused by operation of the Company's hair and nail salons. These salons were obtained in the Mercantile acquisition. The effect of the salons was to decrease cost of sales by .2% of sales and increase advertising, selling, administrative and general expenses by .2% of sales. The balance of the improvement in the cost of sales resulted from a lower level of markdowns in the first quarter of 1999 compared to 1998. For the twelve months ended May 2, 1998 and May 1, 1999, the cost of sales increased from 66.4% to 66.7% of net sales. This increase was caused by inventory valuation adjustments in the last half of 1998 resulting from the alignment of Mercantile inventories to reflect the Company's merchandising and pricing philosophy. The Company also experienced delays in the processing of merchandise in the last half of 1998 brought about by the Mercantile acquisition. These delays resulted in higher levels of markdowns in the post- holiday selling season. Advertising, selling, administrative and general expenses increased from 24.6% of net sales for the first quarter of 1998 to 25.0% of net sales for the first quarter of 1999. Part of this increase was caused by the Company's hair and nail salons as discussed above. The balance of the increase was caused by higher than normal expense levels in the stores acquired from Mercantile as they make the transition to Dillard operating philosophies. For the twelve months ended May 1, 1999 and May 2, 1998 these expenses increased from 24.4% to 26.6% of net sales. This increase was caused by certain business integration and consolidation expenses recorded in the last half of 1998. Depreciation and amortization expense increased slightly as a percentage of sales for the three months ended May 1, 1999 compared to the three months ended May 2, 1998 and increased slightly as a percentage of sales from 1998 in the twelve month period ended May 1, 1999. This increase was primarily due to the amortization of goodwill related to the Mercantile Acquisition. Rental expense increased from .6% of net sales for the first quarter of 1998 to .8% for the first quarter of 1999. For the twelve months ended May 1, 1999 and May 2, 1998 the increase was from .8% to .9% of net sales. This increase was due to the relatively higher percentage of leased property of Mercantile. Interest and debt expense increased from 2.0% of net sales for the first quarter of 1998 to 3.0% for the first quarter of 1999. For the twelve months ended May 1, 1999 and May 2, 1998 it increased from 2.0% to 2.7% of net sales. The higher level of borrowing due to the Mercantile Acquisition caused the increase in interest and debt expense. Service charges, interest and other income increased from 2.8% of net sales for the first quarter of 1998 to 3.0% of net sales for the first quarter of 1999. For the twelve months ended May 1, 1999 and May 2, 1998 the increase was from 2.7% to 2.8% of net sales. The effective federal and state income tax rate was 38% for the first quarter of 1999, reflecting the nondeductibility of the goodwill amortization. The effective rate was 37% for the first quarter of 1998. Financial Condition Net cash flows from operations were $189 million for the first quarter of 1999. The Company invested $15.5 million in capital expenditures for the three months ended May 1, 1999 as compared to $56.5 million for the three months ended May 2, 1998. In the first quarter of 1999 the Company opened two new stores. During 1999, the Company plans to build eight additional stores (two of which will be replacement stores). During 1998, the Company opened seven stores (two of which were replacement stores), expanded and remodeled four stores, acquired 65 stores and closed five. Merchandise inventories increased by 24% from $2.06 million at May 2, 1998 to $2.56 million at May 1, 1999. The Company operated 65 more stores at May 1, 1999 versus May 2, 1998. This was the primary reason for the increase in inventory. On a comparable store basis, the rate of increase in merchandise inventories was 1.5%. Fluctuations in certain other balance sheet accounts between January 30, 1999 and May 1, 1999 reflect 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. Dillard's, Inc. 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 underway 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 85% 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 with the exception of four systems. These four systems are expected to be complete by the end of August. 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 $1.4 million. The Company believes the external cost to remediate all systems will not exceed $2.5 million in total. Additionally, the Company has incurred and will continue to 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 1999 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 quarter the Company made scheduled debt obligation payments of $57.0 million on the Company's unsecured 6.7% note and $1.7 million on mortgage notes. 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 May 1 May 2 January 30 January 31 February 1 February 3 January 28 1999 1998 1999 1998 1997 1996 * 1995 2.58 3.61 1.97 3.69 3.61 2.86 3.72 * 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 first 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: June 15, 1999 /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) Three Months Ended Fiscal Year Ended May 1 May 2 January 30 January 31 February 1 February 3 January 28 1999 1998 1999 1998 1997 1996 * 1995 Consolidated pretax income $107,975 $100,115 $219,084 $410,035 $378,761 $269,653 $406,110 Fixed charges (less capitalized interest) 67,994 37,086 219,341 147,466 139,188 139,666 145,921 EARNINGS $175,969 $137,201 $438,425 $557,501 $517,949 $409,319 $552,031 Interest $62,717 $33,656 $196,680 $129,237 $120,599 $120,054 $124,282 Capitalized interest 339 898 3,050 3,644 4,420 3,567 2,545 Interest factor in rent expense 5,277 3,430 22,661 18,229 18,589 19,612 21,639 FIXED CHARGES $68,333 $37,984 $222,391 $151,110 $143,608 $143,233 $148,466 Ratio of earnings to fixed charges 2.58 3.61 1.97 3.69 3.61 2.86 3.72 * 53 Weeks
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5 1000 3-MOS JAN-29-2000 MAY-1-1999 182,281 0 1,069,730 36,103 2,564,669 3,832,765 5,386,112 1,754,839 8,556,487 1,412,246 3,027,411 0 440 1,150 2,902,600 8,556,487 2,126,738 2,191,606 1,399,387 1,399,387 0 17,046 62,717 107,975 41,030 66,945 0 0 0 66,945 .63 .63
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