-----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, JkLDezF4V2b+AwTG8mbNmS9GTmF0MHiVnl9e0PHImB8pLYt0Za0R9GTA5Q67c7+n 6UMOH24MLZhAKckqO1P4jw== 0000028917-99-000004.txt : 19990915 0000028917-99-000004.hdr.sgml : 19990915 ACCESSION NUMBER: 0000028917-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990914 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: 99711435 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 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 July 31, 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 July 31, 1999 111,391,068 CLASS B COMMON STOCK as of July 31, 1999 4,016,929 Index DILLARD'S, INC. Page Part I. Financial Information Number Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets as of July 31, 1999, January 30, 1999 and August 1, 1998. 3 Consolidated Statements of Income and Retained Earnings for the Three, Six and Twelve Month Periods Ended July 31, 1999 and August 1, 1998. 4 Consolidated Statements of Cash Flows for the Six Months Ended July 31, 1999 and August 1, 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. 13 Item 5. Other Information. 14 Item 6. Exhibits and Reports on Form 8-K. 14 Signatures 14 PART I. FINANCIAL INFORMATION ITEM 1 Financial Statements DILLARD'S, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in Thousands) July 31, January 30, August 1, 1999 1999 1998 Assets Current Assets: Cash and cash equivalents $ 138,546 $ 72,401 $ 65,019 Trade accounts receivable, net 987,986 1,192,572 1,027,344 Merchandise inventories 2,342,234 2,157,010 1,863,459 Other current assets 16,576 15,728 13,294 Total current assets 3,485,342 3,437,711 2,969,116 Property and Equipment, net 3,629,902 3,684,629 2,545,952 Goodwill, net 651,107 659,262 - Other Assets 461,414 395,957 113,462 Total Assets $ 8,227,765 $ 8,177,559 $ 5,628,530 Liabilities and Stockholders' Equity Current Liabilities: Trade accounts payable and accrued expenses $ 996,422 $ 921,187 $ 696,486 Commercial paper 17,794 - 229,366 Federal and state income taxes 20,343 5,930 26,782 Current portion of long-term debt 7,289 164,289 157,268 Current portion of capital lease obligations 2,433 2,396 1,596 Total current liabilities 1,044,281 1,093,802 1,111,498 Long-term Debt 2,999,498 3,002,595 1,362,173 Capital Lease Obligations 25,860 27,000 11,532 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 Common stock 1,154 1,150 1,149 Additional paid-in capital 692,140 682,313 677,708 Retained earnings 2,527,366 2,432,793 2,417,176 Less treasury stock (275,174) (275,174) (275,174) Total stockholder's equity 2,945,486 2,841,522 2,821,299 Total Liabilities and Stockholders' Equity $ 8,227,765 $ 8,177,559 $ 5,628,530 See notes to consolidated financial statements.
DILLARD'S, INC. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Unaudited) (Amounts in Thousands, except per share data) Three Months Ended Six Months Ended Twelve Months Ended July 31, August 1, July 31, August 1, July 31, August 1, 1999 1998 1999 1998 1999 1998 Net Sales $1,896,925 $1,504,504 $4,023,663 $3,186,720 $8,633,684 $6,849,976 Service Charges, Interest, and Other 61,333 47,496 126,201 95,165 246,019 186,921 1,958,258 1,552,000 4,149,864 3,281,885 8,879,703 7,036,897 Costs and Expenses: Cost of sales 1,230,628 964,144 2,630,015 2,081,365 5,766,745 4,533,334 Advertising, selling, administrative and general expenses 523,462 412,231 1,056,175 826,279 2,300,108 1,686,219 Depreciation and amortization 72,703 54,290 145,687 108,844 276,514 206,255 Rentals 15,673 9,892 31,503 20,183 79,302 53,402 Interest and debt expense 57,401 35,342 120,118 68,998 247,800 134,296 1,899,867 1,475,899 3,983,498 3,105,669 8,670,469 6,613,506 Income Before Income Taxes 58,391 76,101 166,366 176,216 209,234 423,391 Income taxes 22,185 28,155 63,215 65,200 81,840 156,650 Net Income 36,206 47,946 103,151 111,016 127,394 266,741 Retained Earnings At Beginning Of Period 2,495,461 2,373,513 2,432,793 2,314,709 2,417,176 2,167,838 2,531,667 2,421,459 2,535,944 2,425,725 2,544,570 2,434,579 Cash dividends declared (4,301) (4,283) (8,578) (8,549) (17,204) (17,403) Retained Earnings At End Of Period $2,527,366 $2,417,176 $2,527,366 $2,417,176 $2,527,366 $2,417,176 Earnings per common share: Basic $0.34 $0.45 $0.96 $1.03 $1.19 $2.44 Diluted $0.34 $0.45 $0.96 $1.03 $1.19 $2.43 Cash dividends declared per common share $0.04 $0.04 $0.08 $0.08 $0.16 $0.16 See notes to consolidated financial statements.
DILLARD'S, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Amounts in Thousands) Six Months Ended July 31, 1999 August 1, 1998 Operating Activities: Net income $ 103,151 $ 111,016 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 146,124 110,030 Changes in operating assets and liabilities: Decrease in trade accounts receivable, net 204,586 131,338 Increase in merchandise inventories and other current assets (186,072) (79,211) Increase in other assets (67,333) (22,350) Increase in trade accounts payable and accrued expenses and income taxes 89,648 167,363 Net cash provided by operating activities 290,104 418,186 Investing Activities: Purchases of property and equipment (81,366) (153,304) Net cash used in investing activities (81,366) (153,304) Financing Activities: Net increase (decrease) in commercial paper 17,794 (189,770) Principal payments on long-term debt and capital lease obligations (161,200) (54,271) Cash dividends paid (8,578) (8,549) Proceeds from issuance of common stock 9,831 20,577 Retirement of preferred stock (440) - Proceeds from long-term borrowings - 100,000 Purchase of treasury stock - (109,683) (109 Net cash used in financing activities (142,593) (241,696) Increase in cash and cash equivalents 66,145 23,186 Cash and cash equivalents, beginning of year 72,401 41,833 Cash and cash equivalents, end of year $ 138,546 $ 65,019 See notes to consolidated financial statements.
DILLARD'S, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 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, six and twelve month periods ended July 31, 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). Three Months Ended Six Months Ended Twelve Months Ended July 31, August 1, July 31, August 1, July 31, August 1 1999 1998 1999 1998 1999 1998 Basic: Net Income $36,206 $47,946 $103,151 $111,016 $127,394 $266,741 Preferred stock dividends (3) (6) (8) (11) (19) (22) Net earnings available for per-share calculations $36,203 $47,940 $103,143 $111,005 $127,375 $266,719 Average shares outstanding 107,186 106,727 107,055 107,525 106,947 109,110 Basic earnings per share $ .34 $ .45 $ .96 $ 1.03 $ 1.19 $ 2.44 Diluted: Net income $36,206 $47,946 $103,151 $111,016 $127,394 $266,741 Preferred stock dividends (3) (6) (8) (11) (19) (22) Net earnings available for per-share calculations $36,203 $47,940 $103,143 $111,005 $127,375 $266,719 Average shares outstanding 107,186 106,727 107,055 107,525 106,947 109,110 Stock options 515 882 279 755 216 858 Total average equivalent shares 107,701 107,609 107,334 108,280 107,163 109,968 Diluted earnings per share $ .34 $ .45 $ .96 $ 1.03 $ 1.19 $ 2.43
Options to purchase 3,490,861 and 1,695,225 shares of Class A common stock at prices ranging from $34.38 to $44.38 per share were outstanding at July 31, 1999 and August 1, 1998, respectively, but were not included in the computation of diluted earnings per share because they would be antidilutive. 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): Three Months Six Months Twelve Months Ended Ended Ended August 1, August 1, August 1, 1998 1998 1998 Net sales $1,971,895 $4,111,989 $8,970,301 Net income 43,527 98,482 287,736 income Basic EPS 0.41 0.92 2.64 Diluted eps 0.41 0.91 2.62 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. 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: Three Months Ended Six Months Ended Twelve Months Ended July 31, August 1, July 31, August 1, July 31, August 1, 1999 1998 1999 1998 1999 1998 Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales 64.9 64.1 65.4 65.3 66.8 66.2 Gross profit 35.1 35.9 34.6 34.7 33.2 33.8 Advertising, selling,administative and general expenses 27.6 27.4 26.2 25.9 26.6 24.6 Depreciation and amortization 3.8 3.6 3.6 3.4 3.2 3.0 Rentals 0.8 0.7 0.8 0.7 0.9 0.8 Interest and debt expense 3.0 2.3 3.0 2.2 2.9 1.9 Total operating expenses 35.2 34.0 33.6 32.2 33.6 30.3 Service charges, interest and other 3.2 3.2 3.1 3.0 2.8 2.7 Income before income taxes 3.1 5.1 4.1 5.5 2.4 6.2 Income taxes 1.2 1.9 1.5 2.0 0.9 2.3 Net income 1.9 % 3.2 % 2.6 % 3.5 % 1.5 % 3.9 %
Net Sales Net sales increased 26.1%, 26.3% and 26.0% for the three, six and twelve month periods ended July 31, 1999, respectively, compared to the three, six and twelve months periods ended August 1, 1998. These increases were primarily due to (i) increases in comparable store sales of 4%, 4% and 1% for the respective three, six and twelve month periods ended July 31, 1999 compared to the same periods in 1998 (ii) incremental revenue generated by the stores acquired in the Mercantile Acquisition (the "Acquired Stores") and (iii) incremental revenue generated from traditional new store openings. While comparable store sales for the Company increased 4% during the three months ended July 31, 1999, the Acquired Stores operated at approximately 19% below their previous year's sales levels. Although the Company anticipated a decline in sales at the Acquired Stores, management expected a more rapid improvement in sales activity during 1999. Accordingly, the Company funded inventory and sales personnel commitments beyond the level supported by actual sales. As a result of the lower than planned sales levels, the relationship of cost of sales to sales and advertising, selling, administrative and general expenses to sales was negatively impacted (see below). The Mercantile Acquisition, as well as traditional store openings and closings increased the number of stores in the Dillard's system by 23.5% to 336 stores at July 31, 1999 compared to 272 stores at August 1, 1998. Cost of Sales Cost of sales, as a percent of net sales, increased to 64.9% for the quarter ended July 31, 1999 from 64.1% for the quarter ended August 1, 1998. The increase in cost of sales was primarily due to specific factors inherent in the integration of the Acquired Stores into the Company's merchandising operations. The increase in cost of sales as a percentage of net sales was primarily due to lower than planned sales levels at the Acquired Stores, discussed above, as well as other factors inherent in the integration of the Acquired Stores into the Company's merchandising operations These factors include significant markdowns on spring season merchandise, discontinuation of merchandise subject to outstanding commitments with branded vendors and elimination of certain private label clothing lines, with resultant markdowns required to liquidate of these lines. These factors primarily impacted the Acquired Stores and resulted in the gross margin at the Acquired Stores being approximately $25 million lower than if these stores had realized the same gross margin as Dillard's core stores. Management expects cost of sales as a percent of net sales to continue at higher than historical levels through the third quarter of 1999 and to decrease to historical levels in the fourth quarter of 1999. Cost of sales, as a percentage of net sales, for the six months ended July 31, 1999 and August 1, 1998 was 65.4% and 65.3%, respectively. Cost of sales for the twelve months ended July 31, 1999 and August 1, 1998 was 66.8% and 66.2%, respectively. During the twelve month period ended July 31, 1999, the Company recorded an inventory valuation adjustment of $86.8 million resulting from the initial alignment of Acquired Store inventories to reflect the Company's merchandising philosophy. In addition to the factors mentioned above, cost of sales for the twelve months ended July 31, 1999 included a charge of $39 million for inventory valuation adjustments resulting from the alignment of Acquired Store inventories to reflect the Company's merchandising and pricing philosophy and was additionally impacted in the fourth quarter of 1998 by markdowns resulting from distribution and merchandise processing delays during the consolidation of distribution systems of the Acquired Stores into the Dillard's distribution system. 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. Advertising, Selling, Administrative and General Expenses The Company's historical relationship trends between advertising, selling, administrative and general ("SG&A") expenses and net sales were negatively impacted by business integration and consolidation issues involving the Acquired Stores during the twelve months ended July 31, 1999 when compared to the twelve months ended August 1, 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 of approximately $91 million. These charges increased SG&A expenses as a percentage of net sales to 26.6% for the twelve month period ended July 31, 1999 compared to 24.6% for the twelve month period ended August 1, 1998. 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 returning to more traditional levels. SG&A expenses as a percentage of net sales increased to 27.6% for the quarter ended July 31, 1999 from 27.4% for the quarter ended August 1, 1998. The increase is primarily attributable to higher levels of SG&A expenses in the Acquired Stores as compared to Dillard's core stores. Store level SG&A expenses were 27.2% of net sales in the Acquired Stores as compared to store level SG&A expenses of 23.9% of net sales for Dillard's core stores. This was caused by the factors discussed in the Net Sales section (see above). The comparable relationship between advertising, selling, administrative and general expenses and net sales for the six months ended July 31, 1999 and August 1, 1998, respectively, was 26.2% and 25.9%, with the increase due to the factors discussed above. Depreciation and Amortization Expense Depreciation and amortization expense, as a percent of net sales, increased for the three, six and twelve month periods ended July 31, 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, six and twelve month periods ended July 31, 1999 was .8% .8% and .9%, respectively, compared to .7%, .7% and .8%, respectively, for the three, six and twelve month periods ended August 1, 1998. The increase in rental expense is the result of higher levels of leased properties obtained as a result of the Mercantile Acquisition. Interest and Debt Expense Interest and debt expense, as a percent of net sales, reflects a general increase between the three, six and twelve month periods of 1999 compared to similar periods in 1998. The increase in interest and debt expense 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, as a percent of net sales, have remained generally constant between the three, six and twelve month periods of 1999 and 1998, indicating that the Company's credit operations are growing at approximately the same rate as the growth in total net sales. Income Taxes The effective federal and state income tax rates for the three, six and twelve month periods ended July 31, 1999 were 38%, 38% and 39%, respectively, compared to 37% for each of the three, six and twelve month periods ended August 1, 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 $290.1 million and $418.2 million for the six months ended July 31, 1999 and August 1, 1998, respectively. The reduction in cash provided by operating activities is due primarily to an increase in the number of stores operated by the Company, which resulted in a 25.7% increase in merchandise inventories. At July 31, 1999, the Company operated 64 stores more than it operated at August 1, 1998. The inventory increase, on a comparable store basis, during this period was 4%. The increase in inventories coupled with the significant markdowns discussed in the cost of sales section resulted in a decrease in the amount of cash provided by operating activities during 1999. The Company invested $81.4 million in capital expenditures for the six months ended July 31, 1999 compared to $153.3 million for the six months ended August 1, 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. During the six months ended July 31, 1999, the Company opened two stores: the Citrus Park Mall store in Tampa, Florida and the MacArthur Center store in Norfolk, Virginia. The Winter Park, Florida clearance store was closed in the second quarter of 1999 and the Main Street Store in Baton Rouge, Louisiana is scheduled to be closed in the third quarter of 1999. The Company anticipates opening three stores in the third quarter of 1999; the Mall of Georgia store in Atlanta, Georgia; the Arbor Place store in Douglasville, Georgia; and the Sierra Vista Towne Center store in Sierra Vista, Arizona. Anticipated store openings in the fourth quarter of 1999, in time for the holiday shopping season, should occur as follows: the Park 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. Cash used in financing activities totaled $142.6 million and $241.7 million for the six months ended July 31, 1999 and August 1, 1998, respectively. The reduction in cash used in financing activities during 1999 is due primarily to the discontinuation of Class A common stock repurchases. During the six months ended August 1, 1998, the Company repurchased 3 million Class A common shares for $109.7 million. The Company was authorized to repurchase up to $300 million of Class A common stock. The Company substantially completed this repurchase program by repurchasing $275 million of Class A Common Stock prior to August 1, 1998. This repurchase program was discontinued at the time of the Mercantile Acquisition. 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 with modifications or replacements of existing software and certain hardware, its Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or are not completed timely, 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 involves the following four phases: assessment, remediation, testing and implementation. In addition, the Company has gathered information about the Year 2000 compliance status of its significant vendors and monitors such status on a periodic basis. State of Readiness The Company began initial efforts to address the Year 2000 issue in 1996. Currently, the computer systems, including both information technology systems ("IT") and non-information technology systems ("non-IT"), have been assessed and work is in the final stages of remediation, testing and implementation of appropriate modifications or replacements for systems which were evaluated as not being Year 2000 compliant. Year 2000 remediation, testing and implementation for approximately 90% of the IT systems has been completed at this time. The remediation of the remaining IT systems is expected to be complete no later than October 1999. 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 has utilized both internal and external resources to reprogram, replace, test and implement hardware and software changes for Year 2000 modifications. The Company believes the external cost to remediate all computerized systems will not exceed $1.5 million. To date the Company has 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 has incurred and will continue to incur internal costs. These internal costs relate 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 are expensed as incurred. The costs associated with Year 2000 issues will be funded from the Company's existing sources of liquidity. The Company has not deferred 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 is closely monitoring the progress of Year 2000 compliance efforts. Additionally, the Audit Committee of the Board of Directors is periodically updated concerning the status of the Year 2000 project. 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 it has an effective program in place to resolve the Year 2000 issue. As noted above, the Company has not yet completed all necessary phases of its Year 2000 program. In addition, 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. 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 six months ended July 31, 1999, the Company paid-off repaid a $100 million unsecured 7.375% note and a $57 million unsecured 6.70% note in addition to remitting scheduled principal payments of $3.1 million on mortgage notes. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of the stockholders of the Company was held on May 15, 1999. The matters submitted to a vote of the stockholders were as follows: election of directors and a proposal by certain stockholders concerning child/convict labor. Votes Votes For Votes Against Abstained Election of Directors Class A Nominees Robert C. Connor 78,636,158 1,788,343 0 Will D. Davis 78,232,780 2,191,722 0 John Paul Hammerschmidt 78,613,650 1,810,852 0 William B. Harrison, Jr. 78,636,381 1,788,121 0 John H. Johnson 78,621,150 1,803,352 0 Class B Nominees William Dillard 4,008,760 0 0 Calvin N. Clyde, Jr. 4,008,760 0 0 Drue Corbusier 4,008,760 0 0 Alex Dillard 4,008,760 0 0 William Dillard, II 4,008,760 0 0 Mike Dillard 4,008,760 0 0 James I. Freeman 4,008,760 0 0 E. Ray Kemp 4,008,760 0 0 Jackson T. Stephens 4,008,760 0 0 William H. Sutton 4,008,760 0 0 Other Proposals Child/Convict Labor 2,941,754 62,352,901 4,148,059 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: Six Months Ended Fiscal Year Ended July 31, August 1, January 30, January 31, February 1, February 3, January 28, 1999 1998 1999 1998 1997 1996* 1995 2.24 3.25 1.97 3.69 3.61 2.86 3.72 * 53 week year. 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: September 14, 1999 /s/James I. Freeman James I. Freeman Senior Vice President & Chief Financial Officer (Principal Financial & Accounting Officer) Exhibit Index Exhibit Number Exhibit 12 Computation of Ratio of Earnings to Fixed Charges EX-12 2 EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED) Six Months Ended Fiscal Year Ended July 31 August 1 January 30 January 31 February 1 February 3 January 28 1999 1998 1999 1998 1997 1996 * 1995 Consolidated pretax income $166,366 $176,216 $219,084 $410,035 $378,761 $269,653 $406,110 Fixed charges (less capitalized interest) 130,619 75,726 219,341 147,466 139,188 139,666 145,921 EARNINGS $296,985 $251,942 $438,425 $557,501 $517,949 $409,319 $552,031 Interest $120,118 $68,998 $196,680 $129,237 $120,599 $120,054 $124,282 Capitalized interest 1,900 1,876 3,050 3,644 4,420 3,567 2,545 Interest factor in rent expense 10,501 6,728 22,661 18,229 18,589 19,612 21,639 FIXED CHARGES $132,519 $77,602 $222,391 $151,110 $143,608 $143,233 $148,466 Ratio of earnings to fixed charges 2.24 3.25 1.97 3.69 3.61 2.86 3.72 * 53 Weeks
EX-27 3
5 1000 6-MOS JAN-29-2000 JUL-31-1999 138,546 0 987,986 33,255 2,342,234 3,485,342 5,444,444 1,814,542 8,227,765 1,044,281 3,025,358 0 0 1,154 2,944,332 8,227,765 4,023,663 4,149,864 2,630,015 2,630,015 0 33,383 120,118 166,366 63,215 103,151 0 0 0 103,151 .96 .96
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