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 3, 1997 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) DILLARD DEPARTMENT STORES, INC. (Former name if changed since last report) 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 3, 1997 107,696,901 CLASS B COMMON STOCK as of May 3, 1997 4,016,929
PART I FINANCIAL INFORMATION ITEM 1 Financial Statements CONSOLIDATED BALANCE SHEETS DILLARD'S, INC. (Unaudited) (Thousands) May 3 February 1 May 4 1997 1997 1996 ASSETS CURRENT ASSETS Cash and cash equivalents $72,246 $64,094 $70,696 Trade accounts receivable 1,046,856 1,130,504 1,038,569 Merchandise inventories 1,874,310 1,556,958 1,750,318 Other current assets 9,897 9,080 6,237 TOTAL CURRENT ASSETS 3,003,309 2,760,636 2,865,820 INVESTMENTS AND OTHER ASSETS 106,553 107,157 87,803 PROPERTY AND EQUIPMENT, NET 2,191,609 2,131,843 2,010,346 CONSTRUCTION IN PROGRESS 107,221 55,024 38,975 BUILDINGS UNDER CAPITAL LEASES 4,823 5,066 9,347 $5,413,515 $5,059,726 $5,012,291 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses $793,654 $536,695 $700,305 Commercial paper 194,653 128,738 165,503 Federal and state income taxes 58,751 46,220 43,805 Current portion of long-term debt 106,564 181,564 206,378 Current portion of capital lease obligations 1,559 1,529 1,835 TOTAL CURRENT LIABILITIES 1,155,181 894,746 1,117,826 LONG-TERM DEBT 1,271,409 1,173,018 1,081,004 CAPITAL LEASE OBLIGATIONS 13,330 13,690 18,400 DEFERRED INCOME TAXES 261,094 261,094 252,503 STOCKHOLDERS' EQUITY Preferred Stock 440 440 440 Common Stock 1,136 1,136 1,135 Additional paid-in capital 641,437 641,388 636,475 Retained earnings 2,127,980 2,074,214 1,904,508 Less Treasury Stock (58,492) 0 0 2,712,501 2,717,178 2,542,558 $5,413,515 $5,059,726 $5,012,291 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 3 May 4 May 3 May 4 1997 1996 1997 1996 Net sales $1,515,344 $1,453,302 $6,289,627 $6,044,586 Service charges, interest and other 47,213 48,451 183,237 180,029 1,562,557 1,501,753 6,472,864 6,224,615 Cost and expenses: Cost of sales 995,203 955,797 4,164,171 3,967,655 Advertising, selling, administrative and general expenses 382,590 366,353 1,554,687 1,475,339 Depreciation and amortization 51,202 50,334 194,587 194,323 Rentals 10,630 11,158 55,238 58,364 Interest and debt expense 30,459 28,585 122,473 121,225 Impairment charges 0 0 0 126,559 1,470,084 1,412,227 6,091,156 5,943,465 INCOME BEFORE INCOME TAXES 92,473 89,526 381,708 281,150 Income taxes 34,215 33,125 141,230 105,945 NET INCOME 58,258 56,401 240,478 175,205 Retained earnings at beginning of period 2,074,214 1,851,507 1,904,508 1,742,899 2,132,472 1,907,908 2,144,986 1,918,104 Cash dividends declared (4,492) (3,400) (17,006) (13,596) RETAINED EARNINGS AT END OF PERIOD $2,127,980 $1,904,508 $2,127,980 $1,904,508 Net income per common share $0.52 $0.50 $2.11 $1.55 Cash dividends declared per common share $0.04 $0.03 $0.15 $0.12 Average shares outstanding 112,996 113,794 113,789 113,331 See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS DILLARD'S, INC. (Unaudited) (Thousands) Three Months Ended May 3 May 4 1997 1996 OPERATING ACTIVITITES Net income $58,258 $56,401 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 51,487 50,716 Changes in operating assets and liabilities: Decrease in trade accounts receivable 83,648 65,006 Increase in merchandise inventories and other current assets (318,169) (260,347) Decrease (Increase) in investments and other assets 319 (3,413) Increase in trade accounts payable and accrued expenses and income taxes 274,044 133,267 NET CASH PROVIDED BY OPERATING ACTIVITIES 149,587 41,630 INVESTING ACTIVITIES Purchase of property and equipment (162,922) (73,464) NET CASH USED IN INVESTING ACTIVITIES (162,922) (73,464) FINANCING ACTIVITIES Net increase in commercial paper 65,915 40,193 Proceeds from long-term borrowings 100,000 0 Principal payments on long-term debt and capital lease obligations (76,939) (3,935) Dividends paid (9,046) (3,400) Common stock issued 49 11,230 Purchase of treasury stock (58,492) 0 NET CASH PROVIDED BY FINANCING ACTIVITIES 21,487 44,088 INCREASE (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 8,152 12,254 Cash and cash equivalents at beginning of period 64,094 58,442 CASH AND CASH EQUIVALENTS AT END OF PERIOD $72,246 $70,696 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 3, 1997 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 1998 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 February 1, 1997. 2. On May 19, 1997 the Company amended its Certificate of Incorporation in order to change its name to Dillard's, Inc. 3. On February 4, 1997, the Company issued $100 million aggregate principal amount of its 7.15% notes due February 1, 2007. The notes were sold in an underwritten public offering. 4. On February 21, 1997, the Board of Directors authorized the implementation of a Class A common stock repurchase program of up to $300 million. For the quarter ended May 3, 1997, a total of 1.9 million shares were purchased for a total of $58.5 million. 5. On March 31, 1997, the Company purchased seven stores in Virginia from Proffitt's, Inc. and on April 14, 1997 the Company purchased ten Mervyn's stores in Florida.
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 3 May 4 May 3 May 4 1997 1996 1997 1996 Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 65.7 65.8 66.2 65.6 Gross Profit 34.3 34.2 33.8 34.4 Advertising, selling, administrative and general expenses 25.2 25.2 24.7 24.4 Depreciation and amortization 3.4 3.4 3.1 3.2 Rentals 0.7 0.8 0.9 1.0 Interest and debt expense 2.0 1.9 1.9 2.0 Impairment charges 0.0 0.0 0.0 2.1 Total operating expenses 31.3 31.3 30.6 32.7 Other income 3.1 3.3 2.9 3.0 Income before income taxes 6.1 6.2 6.1 4.7 Income taxes 2.3 2.3 2.3 1.8 Net income 3.8 3.9 3.8 2.9
Sales for the first quarter of 1997 were $1,515.3 million as compared to $1,453.3 million for the first quarter of 1996. This is an increase of 4%. The sales in comparable stores were flat for the period versus last year. The twelve month sales increase for 1997 over 1996 was 4%; 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. Cost of sales decreased slightly from 65.8% of net sales for the first quarter of 1996 to 65.7% for the first quarter of 1997. For the twelve months ended May 3, 1997 and May 4, 1996, the cost of sales increased from 65.6% to 66.2% of net sales. This increase was due to a higher level of markdowns in the current year than in the prior year. Advertising, selling, administrative and general expenses remained constant at 25.2% of net sales for the first quarters of 1997 and 1996. For the twelve months ended May 3, 1997 and May 4, 1996 these expenses increased from 24.4% to 24.7% of net sales. Bad debt expense and payroll expense in the selling area were higher as a percentage of net sales for the twelve months ended May 3, 1997 as compared to the twelve months ended May 4, 1996. Depreciation and amortization expense was constant as a percentage of sales for the three months ended May 3, 1997 compared to the three months ended May 4, 1996 and decreased slightly as a percentage of sales from 1996 in the twelve month period ended May 3, 1997. This decrease was due to the write down of certain impaired assets in the fourth quarter of 1995, somewhat offset by the fact that a higher proportion of the Company's properties are owned rather than leased. Rental expense decreased slightly from .8% of net sales for the first quarter of 1996 to .7% for the first quarter of 1997. For the twelve months ended May 3, 1997 and May 4, 1996 the decrease was from 1.0% to .9% of net sales. This was due to a higher proportion of the Company's properties being owned rather than leased. Interest and debt expense increased slightly from 1.9% of net sales for the first quarter of 1996 to 2.0% of net sales for the first quarter of 1997 due to a relatively higher level of debt for 1997 versus 1996. For the twelve months ended May 4, 1997 and May 3, 1996 it decreased slightly from 2.0% to 1.9% of net sales. Service charges, interest and other income decreased from 3.3% of net sales for the first quarter of 1996 to 3.1% of net sales for the first quarter of 1997. For the twelve months ended May 3, 1997 and May 4, 1996 the decrease was from 3.0% to 2.9% of net sales. The primary cause for this decrease was a decline in proprietary credit card sales as a percentage of total sales. The effective federal and state income tax rate was 37% for the first quarter of 1997 and 1996.
Financial Condition The Company's working capital was $1.8 billion at May 3, 1997, $1.9 billion at February 1, 1997, and $1.7 billion at May 4, 1996. The current ratio for these periods was 2.6, 3.1 and 2.6, respectively. The changes in working capital and current ratio were caused by a higher level of inventory at May 3, 1997 compared to February 1, 1997. The long-term debt to capitalization ratio was 32.1%, 30.4% and 30.2% at May 3, 1997, February 1, 1997, and May 4, 1996, respectively. The ratio of long-term debt to capitalization is calculated by dividing the total amount of long-term debt and capitalized lease obligations by the sum of the total amount of long-term debt and capitalized lease obligations plus total equity. The increase in this ratio at May 3, 1997 was caused by a higher level of long-term debt as well as the repurchase of $58.5 million of the Company's Class A common stock during the quarter. On February 4, 1997, the Company issued $100 million 7.15% notes due February 1, 2007. On May 15, 1997, the Company issued $100 million 7.75% notes due May 15, 2027. The proceeds were used to reduce short term borrowings. The Company invested $162.9 million in capital expenditures for the three months ended May 3, 1997 as compared to $73.5 million for the three months ended May 4, 1996. In the first quarter of 1997, the Company opened five new stores. During 1997, the Company plans to build six additional new stores and expand and remodel four existing stores. Also, during the first quarter of 1997 the Company completed the acquisition of seven stores in Virginia from Proffitt's, Inc. and ten Mervyn's stores in Florida.These stores are being remodeled and most will open during the third quarter of 1997.In June 1997, the Company plans to complete the purchase of three Houston area stores from Macy's. In 1996, the Company opened sixteen new stores (one of which was a replacement store), expanded six stores and closed three stores. Merchandise inventories increased by 7% from $1.75 million at May 4, 1996 to $1.87 million at May 3, 1997. The Company operated 10 more stores at May 3, 1997 versus May 4, 1996. This was the primary reason for the increase in inventory. On a comparable store basis, the rate of increase in merchandise inventories was 2%. The Company's Registration Statement registering an additional $400 million in debt securities went effective on May 9, 1997. Fluctuations in certain other balance sheet accounts between February 1, 1997 and May 3, 1997 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. Item 3. Quantitative and Qualitative Disclosure About Market Risk. Interim information is not required until after the first fiscal year end in which this item is applicable.
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 3 May 4 Feb. 1 Feb. 3 Jan. 28 Jan. 29 Jan. 30 1997 1996 1997 1996 1995 1994 1993 3.63 3.69 3.61 2.86 3.72 3.57 3.59 ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibit (3): Restated Certificate of Incorporation, as amended Exhibit (11): Statement re: Computation of Per Share Earnings Exhibit (12): Statement re: Computation of Ratio of Earnings to Fixed Charges (b) Reports on Form 8-K filed during the first quarter: The Company filed a report on February 3, 1997 relating to the issue of $100 million aggregate principal amount of 7.15% Notes maturing on February 1, 2007.
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 6, 1997 /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 3 Restated Certificate of Incorporation, as amended 11 Statement re: Computation of Per Share Earnings 12 Statement re: Computation of Ratio of Earnings to Fixed Charges