-----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, Vdd+x18/BGfOKJcEwwwzMnJCAT9ArHT/lMfAtjZ8nc/Ap/a+D1D82luw1J9zzbhV bUieS/Xn3nD4pl2BEGw2+g== 0000028917-99-000006.txt : 19991215 0000028917-99-000006.hdr.sgml : 19991215 ACCESSION NUMBER: 0000028917-99-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991030 FILED AS OF DATE: 19991214 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: 99774439 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 October 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission file number 1-6140 DILLARD'S, INC. (Exact name of registrant as specified in its charter) DELAWARE 71-0388071 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification Number) 1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201 (Address of principal executive office) (Zip Code) (501) 376-5200 (Registrant's telephone number, including area code) Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter time that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No_ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS A COMMON STOCK as of October 30, 1999 100,890,118 CLASS B COMMON STOCK as of October 30, 1999 4,010,929 Index DILLARD'S, INC. Page Part I. Financial Information Number Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets as of October 30, 1999, January 30, 1999 and October 31, 1998. 3 Consolidated Statements of Income and Retained Earnings for the Three, Nine and Twelve Month Periods Ended October 30, 1999 and October 31, 1998. 4 Consolidated Statements of Cash Flows for the Nine Months Ended October 30, 1999 and October 31, 1998 5 Notes to Consolidated Financial Statements. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 Item 3. Quantitative and Qualitative Disclosure About Market Risk 13 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders. 14 Item 5. Other Information. 14 Item 6. Exhibits and Reports on Form 8-K. 14 Signatures 14 PART I. FINANCIAL INFORMATION ITEM 1 Financial Statements DILLARD'S, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in Thousands) October 30, January 30, October 31, 1999 1999 1998 Assets Current Assets: Cash and cash equivalents $43,650 $72,401 $56,010 Trade accounts receivable, net 981,140 1,192,572 1,411,185 Merchandise inventories 2,929,451 2,157,010 2,608,041 Other current assets 48,469 15,728 55,326 Total current assets 4,002,710 3,437,711 4,130,562 Property and Equipment, net 3,657,964 3,684,629 3,731,555 Goodwill, net 647,030 659,262 648,966 Other Assets 421,928 395,957 418,343 Total Assets $8,729,632 $8,177,559 $8,929,426 Liabilities and Stockholders' Equity Current Liabilities: Trade accounts payable and accrued expenses $1,520,462 $921,187 $1,315,473 Commercial paper 0 0 158,132 Short-term borrowings 0 0 865,001 Federal and state income taxes 4,313 5,930 126,248 Current portion of long-term debt 7,289 164,289 176,268 Current portion of capital lease obligations 2,463 2,396 2,409 Total current liabilities 1,534,527 1,093,802 2,643,531 Long-term Debt 2,997,276 3,002,595 2,648,838 Capital Lease Obligations 25,268 27,000 27,582 Deferred Income Taxes 714,154 681,061 642,706 Guaranteed Preferred Beneficial Interests in Company's Subordinated Debentures 531,579 531,579 200,000 Stockholders' Equity: Preferred stock 0 440 440 Common stock 1,154 1,150 1,149 Additional paid-in capital 692,399 682,313 677,655 Retained earnings 2,557,859 2,432,793 2,362,699 Less treasury stock (324,584) (275,174) (275,174) Total stockholders' equity 2,926,828 2,841,522 2,766,769 Total Liabilities and Stockholders' Equity $8,729,632 $8,177,559 $8,929,426
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 Nine Months Ended Twelve Months Ended October 30, October 31, October 30, October 31, October 30, October 31, 1999 1998 1999 1998 1999 1998 Net Sales $2,078,211 $2,021,299 $6,101,874 $5,208,019 $8,690,596 $7,279,156 Service Charges, Interest, and Other 53,818 63,125 180,019 158,290 236,712 202,830 2,132,029 2,084,424 6,281,893 5,366,309 8,927,308 7,481,986 Costs and Expenses: Cost of sales 1,386,783 1,368,266 4,016,798 3,449,631 5,785,262 4,845,297 Advertising, selling, administrative and general expenses 541,679 642,880 1,597,854 1,469,159 2,198,907 1,914,068 Depreciation and amortization 75,044 68,486 220,731 177,330 283,072 220,840 Rentals 16,170 17,616 47,673 37,799 77,856 60,524 Interest and debt expense 56,240 64,871 176,358 133,869 239,169 165,948 2,075,916 2,162,119 6,059,414 5,267,788 8,584,266 7,206,677 Income (Loss) Before Income Taxes 56,113 (77,695) 222,479 98,521 343,042 275,309 Income Taxes (Benefit) 21,325 (27,490) 84,540 37,710 130,655 103,120 Net Income (Loss) 34,788 (50,205) 137,939 60,811 212,387 172,189 Retained Earnings at Beginning of the Period 2,527,366 2,417,176 2,432,793 2,314,709 2,362,699 2,207,735 2,562,154 2,366,971 2,570,732 2,375,520 2,575,086 2,379,924 Cash Dividends Declared (4,295) (4,272) (12,873) (12,821) (17,227) (17,225) Retained Earnings at End of Period $2,557,859 $2,362,699 $2,557,859 $2,362,699 $2,557,859 $2,362,699 Earnings (Loss) per common share: Basic $0.33 ($0.47) $1.29 $0.57 $1.99 $1.59 Diluted $0.33 ($0.47) $1.29 $0.56 $1.98 $1.58 Cash Dividends Declared Per Common Share $0.04 $0.04 $0.12 $0.12 $0.16 $0.16
See notes to consolidated financial statements. DILLARD'S, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in Thousands) Nine Months Ended October 30, October 31, 1999 1998 Operating Activities: Net income $137,939 $60,811 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 221,023 178,765 Changes in operating assets and liabilities: Decrease in trade accounts receivable, net 211,432 191,490 Increase in merchandise inventories and other current assets (805,182) (401,480) Increase in other assets (29,093) (8,931) Increase in trade accounts payable and accrued expenses and income taxes 630,751 529,889 Net cash provided by operating activities 366,870 550,544 Investing Activities: Purchases of property and equipment (179,004) (237,147) Acquisition, net of cash acquired and assets held for sale 0 (2,175,442) Net cash used in investing activities (179,004) (2,412,589) Financing Activities: Net decrease in commercial paper 0 (261,004) Net proceeds from short-term borrowings 0 865,001 Proceeds from long-term borrowings 0 1,250,000 Principal payments on long-term debt and capital lease (163,984) (75,625) Proceeds from Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures 0 200,000 Cash dividends paid (12,873) (12,991) Proceeds from issuance of common stock 10,090 20,524 Retirement of preferred stock (440) 0 Purchase of treasury stock (49,410) (109,683) Net cash (used in) provided by financing activities (216,617) 1,876,222 (Decrease) Increase in Cash and Cash Equivalents (28,751) 14,177 Cash and Cash Equivalents, Beginning of Peroid 72,401 41,833 Cash and Cash Equivalents, End of Period $43,650 $56,010
See notes to consolidated financial statements. DILLARD'S, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) October 30, 1999 Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements of Dillard's, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three, nine and twelve month periods ended October 30, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending January 29, 2000 due to the seasonal nature of the business. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended January 30, 1999. Note 2. Earnings Per Share Data The following table sets forth the computation of basic and diluted earnings per share ("EPS") for the periods indicated (in thousands, except per share data). Three Months Ended Nine Months Ended Twelve Months Ended October 30, October 31, October 30, October 31, October 30, October 31, 1999 1998 1999 1998 1999 1998 Basic: Net Income (Loss) $34,788 $(50,205) $137,939 $ 60,811 $212,387 $172,189 Preferred stock dividends - (6) (8) (17) (19) (22) Net earnings (loss) available for per-share calculations $34,788 $(50,211) $137,931 $ 60,794 $212,368 $172,167 Average shares outstanding 106,847 106,820 106,985 107,290 106,954 108,098 Basic earnings (loss) per share $ .33 $ (.47) $ 1.29 $ .57 $ 1.99 $ 1.59 Diluted: Net income (Loss) $34,788 $(50,205) $137,939 $ 60,811 $212,387 $172,189 Preferred stock dividends - (6) (8) (17) (19) (22) Net earnings (loss) available for per-share calculations $34,788 $(50,211) $137,931 $ 60,794 $212,368 $172,167 Average shares outstanding 106,847 106,820 106,985 107,290 106,954 108,098 Stock options - - 187 567 168 594 Total average equivalent shares 106,847 106,820 107,172 107,857 107,122 108,692 Diluted earnings(loss) per share $ .33 $ (.47) $ 1.29 $ .56 $ 1.98 $ 1.58
Options to purchase 8,074,946 and 4,845,690 shares of Class A common stock at prices ranging from $25.13 to $44.38 per share were outstanding at October 30, 1999 and October 31, 1998, respectively, but were not included in the computation of diluted earnings per share because they would be antidilutive. Note 3. Acquisition The Company acquired the Mercantile Stores Company, Inc. ("Mercantile") on August 13, 1998 ("Mercantile Acquisition"). The Mercantile Acquisition was accounted for as a purchase and, accordingly, the results of operations of Mercantile have been included in the Company's results of operations from August 13, 1998. In connection with the Mercantile Acquisition, the Company entered into two separate agreements; whereby the Company either sold or exchanged certain of the stores obtained in the Mercantile Acquisition to other retailers. The results of operations of the sold or exchanged stores are included in the accompanying statements of operations from the date of acquisition to the date of sale or exchange. The following unaudited pro-forma condensed statements of operations give effect to the Mercantile Acquisition and related financing transactions as if such transactions had occurred at the beginning of the periods presented (amounts in thousands, except per share data): Nine Months Twelve Months Ended Ended October 31, October 31, 1998 1998 Net sales $6,347,902 $9,152,166 Net income 36,335 181,829 Basic EPS 0.34 1.68 Diluted EPS 0.34 1.67 The pro-forma amounts reflect the results of operations of the Company, the acquired business and the following adjustments: (i) elimination of sales, cost of goods sold and operating expenses related to the stores subsequently sold, (ii) depreciation on property and equipment and amortization of intangible assets based on the purchase price allocation, (iii) interest expense on debt incurred in connection with the Mercantile Acquisition, and (iv) adjustment of income tax expense related to the above. The foregoing unaudited pro-forma information is provided for illustrative purposes only and does not purport to be indicative of results that actually would have been achieved had the Mercantile Acquisition been consummated on the first day of the periods presented or of future results. Note 4. Common Stock Repurchase On September 14, 1999, the Company announced that the Board of Directors had authorized the repurchase of up to $250 million of Class A Common Stock. During the quarter ended October 30, 1999, the Company repurchased approximately $50 million of Class A Common Stock, representing 2.5 million shares at an average price of $20.10 per share. 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 Nine Months Ended Twelve Months Ended October 30, October 31, October 30, October 31, October 30, October 31 1999 1998 1999 1998 1999 1998 Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales 66.7 67.7 65.8 66.2 66.6 66.6 Gross profit 33.3 32.3 34.2 33.8 33.4 33.4 Advertising, selling, administrative and general expenses 26.1 31.8 26.2 28.2 25.3 26.3 Depreciation and amortization 3.6 3.4 3.6 3.4 3.3 3.0 Rentals 0.8 0.9 0.8 0.7 0.9 0.8 Interest and debt expense 2.7 3.2 2.9 2.6 2.7 2.3 Total operating expenses 33.2 39.3 33.5 34.9 32.2 32.4 Service charges, interest and other 2.6 3.1 2.9 3.0 2.7 2.8 Income (loss) before income taxes 2.7 (3.9) 3.6 1.9 3.9 3.8 Income taxes 1.0 (1.4) 1.3 0.7 1.5 1.4 Net income (loss) 1.7% (2.5)% 2.3% 1.2% 2.4% 2.4%
Net Sales Net sales increased 3%, 17% and 19% for the three, nine and twelve month periods ended October 30, 1999, respectively, compared to the three, nine and twelve month periods ended October 31, 1998. These increases were primarily due to (i) increases in comparable store sales, (ii) incremental revenue generated in the nine and twelve month periods of 1999 by stores acquired in the Mercantile Acquisition (the "Acquired Stores") and (iii) incremental revenue generated from traditional new store openings. The increase in net sales for the three month period ended October 30, 1999 was partially offset by the sale of a number of the Acquired Stores in the third quarter of 1998. Comparable store sales for the Company increased 5%, 4% and 3% during the three, nine and twelve month periods ended October 30, 1999 compared to the same periods of 1998. The Company anticipated an initial decline in sales at the Acquired Stores, due to changes from promotional merchandising formats to more traditional balanced pricing formats. However, management expected a more rapid improvement in sales during 1999 than has occurred. As a result of lower than planned sales levels, the relationship of costs of sales to sales and advertising, selling, administrative and general expenses to sales continues to be negatively impacted (see below). Cost of Sales Cost of sales, as a percent of net sales, was 66.7%, 65.8% and 66.6% for the three, nine and twelve month periods ended October 30, 1999 compared to 67.7%, 66.2% and 66.6% for the three, nine and twelve month periods ended October 31, 1998. Cost of sales for the 1998 periods include a $39 million inventory valuation charge resulting from alignment of Acquired Store inventories to reflect the Company's merchandising and pricing philosophies. Prior to this charge, cost of sales as a percent of net sales would have been 65.8%, 65.4% and 66.0% for the three, nine and twelve month periods ended October 31, 1998. The continuation of merchandising issues and lower than expected sales levels in the Acquired Stores resulted in gross margin pressures in the second and third quarters of 1999 compared to the same quarters of 1998. Additionally, cost of sales for the twelve months ended October 30, 1999 was impacted by markdowns resulting from merchandise processing delays during the consolidation of distribution systems of the Acquired Stores into the Dillard's distribution system during the fourth quarter of 1998. The distribution and merchandise processing delays resulted in later than planned store receipts and subsequent higher levels of markdowns in the post-holiday selling season. Management believes that integration of the Acquired Stores into the Company's merchandising and distribution operations has been substantially completed and that integration issues involving significant merchandise markdowns, discontinuation of merchandise subject to outstanding commitments with branded vendors, elimination of certain private label clothing lines, with resultant markdowns required to liquidate these lines and the consolidation of distribution systems have been substantially resolved. However, Management expects cost of sales will continue at higher than historic Company levels since net sales at the Acquired Stores have not yet improved in line with management's expectations (see net sales comments, above). Advertising, Selling, Administrative and General Expenses Advertising, selling, administrative and general expenses ("SG&A expenses"), as a percentage of net sales, were 26.1%, 26.2% and 25.3% for the three, nine and twelve month periods ended October 30, 1999 compared to 31.8%, 28.2% and 26.3% for the comparable 1998 periods. The decreases in SG&A expenses are due primarily to inclusion of duplicate and closed facilities charges of $91 million, which were incurred in the third quarter of 1998. Primary efforts to integrate the Acquired Stores into the Dillard's system occurred in the third and fourth quarters of 1998 and involved the Company recording integration related expenses, including charges for duplicate and closed facilities. The process of integrating the Acquired Stores involved the consolidation of various administrative support functions such as marketing, buying, advertising, accounting and data processing, as well as the alignment of store operating and distribution methodologies. The alignment process continued during the first and second quarters of 1999. However, this and process is substantially complete at this time. and the Consequently, the relationship between advertising, selling, administrative and general expenses and net sales is beginning to return to more traditional levels. The Company, however, continues to incur higher levels of SG&A expenses at the Acquired Stores (26.4% of net sales) compared to SG&A expenses of 24.7% of net sales for Dillard's core stores. This trend is expected to continue, since net sales at the Acquired Stores has not yet improved in line with Management's expectations (see net sales comments, above). Depreciation and Amortization Expense Depreciation and amortization expense, as a percent of net sales, increased for the three, nine and twelve month periods ended October 30, 1999 compared to similar periods in 1998, due primarily to the amortization of goodwill. Goodwill is being amortized over a 40 year period, with quarterly amortization expense approximating $4.1 million. Rentals Rental expense, as a percent of net sales, for the three, nine and twelve month periods ended October 30, 1999 was .8% .8% and .9%, respectively, compared to .9%, .7% and .8%, respectively, for the three, nine and twelve month periods ended October 31, 1998. The general increase in rental expense between periods is due to higher levels of leased properties obtained as a result of the Mercantile Acquisition. During the third quarter of 1998, the Company operated certain Acquired Stores which were sold to other retailers at the end of the third quarter of 1998. Thereby accounting for the decline in rent expense between the third quarter of 1998 and 1999. Interest and Debt Expense Interest and debt expense for the three months ended October 30, 1999 decreased to $56.2 million or 2.7% of net sales compared to $64.9 million or 3.2% of net sales for the three months ended October 31, 1998. This reduction is due primarily to a decrease in the average amount of outstanding debt in the third quarter of 1999 compared to the third quarter of 1998. The debt reduction was achieved through the sale of 26 of the Acquired Stores to Proffitt's, Inc. and the May Department Store Company near the end of the third quarter of 1998, sales of other duplicate and surplus assets and a $300 million securitization of accounts receivable, which occurred in the fourth quarter of 1998. Interest and debt expense, as a percent of net sales, increased in each of the nine and twelve month periods ended October 30, 1999, compared to similar periods in 1998. This increase is directly related to the increased level of unsecured debt incurred in connection with the Mercantile Acquisition. Service Charges, Interest and Other Income Service charges, interest and other income for the three months ended October 30, 1999 decreased to $53.8 million or 2.6% of net sales compared to $63.1 million or 3.1% of net sales for the three months ended October 31, 1998. This decrease is due to a $300 million account receivable securitization completed in the fourth quarter of 1998, as a part of the funding structure of the Mercantile acquisition as well as a decrease in the average amount of outstanding accounts receivable in the third quarter of 1999 compared to the third quarter of 1998. Income Taxes The effective federal and state income tax rates for the three, nine and twelve month periods ended October 30, 1999 was 38%, compared to 37% for each of the three, nine and twelve month periods ended October 31, 1998. The increase in the effective tax rate is the result of the nondeductible nature of goodwill amortization. Financial Condition Cash provided by operating activities totaled $366.9 million and $550.5 million for the nine months ended October 30, 1999 and October 31, 1998, respectively. The reduction in cash provided by operating activities is due primarily to an increase in merchandise inventories. Merchandise inventories increased 9%, on a comparable store basis, between October 30, 1999 and October 31, 1998. This increase is due to (i) the impact of acquisition related receiving delays which were experienced in September and October 1998 and resulted in inventory levels during that time being lower than normal, (ii) the acceleration into October of merchandise purchased to be gift wrapped prior to sale, whereas, in prior years this type of merchandise was not purchased until November and (iii) the acquisition of Mercantile's licensed men's shoe business and related inventory. The Company invested $179.0 million in capital expenditures for the nine months ended October 30, 1999 compared to $237.2 million for the nine months ended October 31, 1998. Consistent with its corporate plan, the Company has reduced its level of capital spending, with current year emphasis placed on integrating the Mercantile Stores. The Company completed its acquisition of Mercantile on August 13, 1998, with the net effect of this acquisition reflected as an investing activity in the October 31, 1998 Statement of Cash Flows. During the nine months ended October 30, 1999, the Company opened nine stores: the Citrus Park Mall store in Tampa, Florida; the MacArthur Center store in Norfolk, Virginia; the Mall of Georgia store in Atlanta, Georgia; the Arbor Place store in Douglasville, Georgia; the Sierra Vista Towne Center store in Sierra Vista, Arizona; the Park Place Mall store in Tucson, Arizona (replacement store); the Boynton Beach store in Boynton Beach, Florida; the Pemberton Square store in Vicksburg, Mississippi and the Antelope Valley Mall store in Palmdale, California. The Company anticipates opening five new stores in 2000, resulting in an addition of approximately 800,000 square feet of retail space. Cash used in financing activities for the nine months ended October 30, 1999 totaled $216.6 million compared to cash provided by financing activities of $1.9 billion for the nine months ended October 31, 1998. As was previously mentioned, the Company completed its acquisition of Mercantile on August 13, 1998. The various financing activities included in the Statement of Cash Flows for the nine months ended October 31, 1998 include the funding of long and short term financing conduits to facilitate the Mercantile acquisition. Subsequent to the third quarter of 1998, the Company completed its long-term financing structure for the Mercantile Acquisition and reduced its short-term debt by approximately $1.2 billion, significantly improving the current ratio of the Company at October 30, 1999 compared to October 31, 1998. The Company's long-term debt was generally issued as unsecured notes in underwritten public offerings at fixed rates of interest. During the twelve months ended October 30, 1999, the Company also reduced its level of outstanding debt by approximately $500 million. On September 14, 1999, the Company announced that the Board of Directors had authorized a Class A Common Stock repurchase program, whereby the Company may repurchase up to $250 million of Class A Common Stock. During the nine months ended October 30, 1999, the Company has repurchased approximately 2.5 million Class A Common Shares for approximately $50.0 million. During the nine months ended October 31, 1998, the Company repurchased 3 million Class A Common Shares for $109.7 million under a $300 million Class A Common Stock repurchase program. This repurchase program was discontinued at the time of the Mercantile Acquisition. Management of the Company believes that cash generated from operations, in conjunction with existing credit facilities, will be sufficient to cover its reasonably foreseeable working capital, capital expenditure and debt service requirements. Depending on conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital market transactions, the proceeds of which could be used to refinance current indebtedness or for other corporate purposes. Year 2000 Readiness Disclosure The Company has actively addressed the issues related to the date change in the year 2000. This is necessary because many computer systems were written using only two digits to contain the year in date fields. On January 1, 2000, many of these programs could fail to perform date calculations correctly and would, therefore, produce erroneous results. This would temporarily prevent the Company from processing business transactions. Based on assessments of its computerized systems, the Company determined that is was necessary to modify or replace portions of it software and certain hardware so that applicable computerized systems would properly utilize dates beyond December 31, 1999. The Company presently believes that it has modified or replaced the necessary software and hardware and that the Year 2000 issue has been mitigated. However, if all modifications and replacements have not been made, the Year 2000 issue could have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 issue is complete. This plan involved the assessment, remediation, testing and implementation of internal systems, as well as the evaluation of the Year 2000 compliance status of significant vendors. State of Readiness The Company began initial efforts to address the Year 2000 issue in 1996. Since that time, the computer systems, including both information technology systems ("IT") and non-information technology systems ("non-IT"), have been assessed and appropriate modifications or replacements, for those systems which were evaluated as not being Year 2000 compliant, have been completed. Additionally, the Company has obtained letters of certification from its mission-critical computer system hardware and software vendors indicating that such systems are Year 2000 compliant. Non-IT systems are primarily systems with embedded processors such as elevators, telephone systems and security systems. At the present time, the non-IT systems have been substantially remediated, tested and applicable corrections implemented. Cost The Company utilized both internal and external resources to reprogram, replace, test and implement hardware and software changes for Year 2000 modifications. The Company incurred approximately, $1.4 million ($0.7 million expensed and $0.7 million capitalized for new systems and equipment), related to all phases of the Year 2000 project. Additionally, the Company incurred internal costs relating principally to payroll costs of the information systems group and other costs related to the normal operation of the Company's data centers. All internal costs have been expensed as incurred. The costs associated with Year 2000 issues were funded from the Company's existing sources of liquidity. The Company did not defer any significant information technology projects as a result of its Year 2000 compliance efforts. Third Parties There are significant third party risks associated with Year 2000 issues. Many of these risks, such as those associated with electrical power and/or telecommunications, are outside the reasonable control of the Company. Also, the failure of a significant number of the Company's business partners could have a material impact on the Company's operations. Although the Company believes its contingency planning efforts adequately identify and address the Year 2000 issues that are within the Company's reasonable control, there can be no assurance that the Company's efforts will be fully effective. Due to the significant risks involved in the Year 2000 issue, the Company's management continues to closely monitor Year 2000 related matters. Additionally, the Audit Committee of the Board of Directors continues to receive status updates on Year 2000 matters. Contingency Plan Business resumption contingency plans have been completed for bank related mission-critical systems. These plans address how the Company will continue to do business until any mission- critical system failure has been corrected. These plans are periodically reviewed to determine if changing business conditions necessitate a change in the contingency plan. Summary Management of the Company believes that its Year 2000 program has been effective and that all significant systems are Year 2000 compliant. However, as is the case for most companies involved in Year 2000 system modifications, disruptions in the general economy resulting from Year 2000 issues could also materially adversely affect the Company's ability to market and sell its products. The Company could also be subject to litigation for computer system failure, equipment shutdown at its stores or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. The preceding Year 2000 discussion contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements including without limitation, anticipated costs and the dates by which the Company expects to complete certain actions, are based on management's best current estimates, which were derived utilizing numerous assumptions about future events, including the continued availability of certain resources, representations received from third parties, and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the ability to identify and remediate all relevant information technology and non-information technology systems, results of Year 2000 testing, adequate resolution of Year 2000 issues by businesses and other third parties who are service providers, suppliers or customers of the Company, unanticipated system costs, the adequacy of and ability to implement contingency plans as well as other uncertainties. The "forward-looking statements" made in the foregoing Year 2000 discussion speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. Forward-Looking Information Statements in the Management's Discussion and Analysis of Financial Condition and Results of Operations include certain "forward-looking statements", including (without limitation) statements with respect to anticipated future operating and financial performance, growth and acquisition opportunities and other similar forecasts and statements of expectation. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and "should" and variations of these words and similar expressions, are intended to identify these forward- looking statements. The Company cautions that forward-looking statements, as such term is defined in the Private Securities Litigation Reform Act of 1995, contained in this quarterly report on Form 10-Q or made by management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Forward- looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions, including those relating to Year 2000 considerations. Representative examples of those factors (without limitation) include general industry and economic conditions; economic and weather conditions for regions in which the Company's stores are located and the effect of these factors on the buying patterns of the Company's customers; changes in consumer spending patterns and debt levels; trends in personal bankruptcies; the impact of competitive market factors and other economic and demographic changes of similar or dissimilar nature; the Company's success, or lack thereof, to remediate, test and implement necessary hardware and software modifications to become Year 2000 compliant; changes in operating expenses, including employee wages, commissions structures and related benefits; the continued availability of financing in amounts and at the terms necessary to support the Company's future business; assumed cost savings and other synergistic benefits of the Mercantile Acquisition and the success achieved or problems encountered in the continued integration of Mercantiles' operations. Item 3. Quantitative and Qualitative Disclosure About Market Risk. During the nine months ended October 30, 1999, the Company paid- off repaid a $100 million unsecured 7.375% note at its maturity date and a $57 million unsecured 6.70% note prior to its scheduled maturity date, in addition to remitting scheduled principal payments of $5.3 million on mortgage notes. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information Ratio of Earnings to Fixed Charges: The Company has calculated the ratio of earnings to fixed charges pursuant to Item 503 of Regulation S-K of the Securities and Exchange Act as follows: Nine Months Ended Fiscal Year Ended October 31, October 30, January 30, January 31, February 1, February 3, January 28, 1999 1998 1999 1998 1997 1996* 1995 2.12 1.64 1.97 3.69 3.61 2.86 3.72 * 53 week year.
Item 6. Exhibits and Reports on Form 8-K (a) Exhibit (12): Statement re: Computation of Earnings to Fixed Charges (b) Reports of Form 8-K filed during the second quarter: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DILLARD'S, INC. (Registrant) DATE: December 14, 1999 /s/James I. Freeman James I. Freeman Senior Vice President & Chief Financial Officer (Principal Financial & Accounting Officer) EX-12 2 EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED) Nine Months Ended Fiscal Year Ended October 30, October 31, January 30 January 31 February 1 February 3 January 28 1999 1998 1999 1998 1997 1996 * 1995 Consolidated pretax income $ 222,479 $ 98,521 $ 219,084 $ 410,035 $ 378,761 $ 269,653 $ 406,110 Fixed charges (less capitalized interest) 192,249 146,469 219,341 147,466 139,188 139,666 145,921 EARNINGS $ 414,728 $ 244,990 $ 438,425 $ 557,501 $ 517,949 $ 409,319 $ 552,031 Interest $ 176,358 $ 133,869 $ 196,680 $ 129,237 $ 120,599 $ 120,054 $ 124,282 Capitalized interest 3,693 2,631 3,050 3,644 4,420 3,567 2,545 Interest factor in rent expense 15,891 12,600 22,661 18,229 18,589 19,612 21,639 FIXED CHARGES $ 195,942 $ 149,100 $ 222,391 $ 151,110 $ 143,608 $ 143,233 $ 148,466 Ratio of earnings to fixed charges 2.12 1.64 1.97 3.69 3.61 2.86 3.72 * 53 Weeks
EX-27 3
5 1000 9-MOS JAN-29-2000 OCT-30-1999 43,650 0 981,140 29,000 2,929,451 4,002,710 5,542,965 1,885,001 8,729,632 1,534,527 3,022,544 0 0 1,154 2,927,674 8,729,632 6,101,874 6,281,893 4,016,798 4,016,798 0 64,324 176,358 222,479 84,540 137,939 0 0 0 137,939 1.29 1.29
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