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 August 2, 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) 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 August 2, 1997 106,587,489 CLASS B COMMON STOCK as of August 2, 1997 4,016,929
<TABLE> PART I FINANCIAL INFORMATION ITEM 1 Financial Statements CONSOLIDATED BALANCE SHEETS DILLARD'S, INC. (Unaudited) (Thousands) August 2 February 1 August 3 1997 1997 1996 <C> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $73,225 $64,094 $68,768 Trade accounts receivable 1,031,524 1,130,504 1,008,554 Merchandise inventories 1,750,239 1,556,958 1,618,252 Other current assets 9,281 9,080 13,415 TOTAL CURRENT ASSETS 2,864,269 2,760,636 2,708,989 INVESTMENTS AND OTHER ASSETS 90,403 107,157 88,903 PROPERTY AND EQUIPMENT, NET 2,256,011 2,131,843 2,025,875 CONSTRUCTION IN PROGRESS 131,816 55,024 77,053 BUILDINGS UNDER CAPITAL LEASES 4,581 5,066 5,766 $5,347,080 $5,059,726 $4,906,586 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses $629,502 $536,695 $589,538 Commercial paper 234,829 128,738 129,952 Federal and state income taxes 18,513 46,220 2,429 Current portion of long-term debt 156,564 181,564 81,089 Current portion of capital lease obligations 1,589 1,529 1,596 TOTAL CURRENT LIABILITIES 1,040,997 894,746 804,604 LONG-TERM DEBT 1,319,758 1,173,018 1,279,648 CAPITAL LEASE OBLIGATIONS 12,963 13,690 14,789 DEFERRED INCOME TAXES 261,094 261,094 226,689 STOCKHOLDERS' EQUITY Preferred Stock 440 440 440 Common Stock 1,138 1,136 1,136 Additional paid-in capital 643,987 641,388 638,663 Retained earnings 2,167,838 2,074,214 1,940,617 Less Treasury Stock (101,135) 2,712,268 2,717,178 2,580,856 $5,347,080 $5,059,726 $4,906,586 See notes to consolidated financial statements. </TABLE>
<TABLE> CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS DILLARD'S, INC. (Unaudited) (Thousands, except per share data) Three Months Ended Six Months Ended Twelve Months Ended August 2 August 3 August 2 August 3 August 2 August 3 1997 1996 1997 1996 1997 1996 <S> <C> <C> <C> <C> <C> <C> Net sales $1,453,152 $1,340,326 $2,968,496 $2,793,628 $6,402,453 $6,119,846 Service charges, interest, and other 46,188 46,503 93,401 94,954 182,922 181,706 1,499,340 1,386,829 3,061,897 2,888,582 6,585,375 6,301,552 Cost and expenses: Cost of sales 946,119 871,804 1,941,322 1,827,601 4,238,486 4,014,513 Advertising, selling, administrative and general expenses 387,191 360,917 769,781 727,270 1,580,961 1,505,295 Depreciation and amortization 51,326 50,243 102,528 100,577 195,670 194,212 Rentals 10,837 10,905 21,467 22,063 55,170 58,084 Interest and debt expense 33,480 30,224 63,939 58,809 125,729 121,316 Impairment charges 0 0 0 0 0 126,559 1,428,953 1,324,093 2,899,037 2,736,320 6,196,016 6,019,979 INCOME BEFORE INCOME TAXES 70,387 62,736 162,860 152,262 389,359 281,573 Income taxes 26,045 23,210 60,260 56,335 144,065 105,475 NET INCOME 44,342 39,526 102,600 95,927 245,294 176,098 Retained earnings at beginning of period 2,127,980 1,904,508 2,074,214 1,851,507 1,940,617 1,778,129 2,172,322 1,944,034 2,176,814 1,947,434 2,185,911 1,954,227 Cash dividends declared (4,484) (3,417) (8,976) (6,817) (18,073) (13,610) RETAINED EARNINGS AT END OF PERIOD $2,167,838 $1,940,617 $2,167,838 $1,940,617 $2,167,838 $1,940,617 Net income per common share $0.40 $0.35 $0.91 $0.84 $2.17 $1.55 Cash dividends declared per common share $0.04 $0.03 $0.08 $0.06 $0.16 $0.12 Average shares outstanding 111,669 114,361 112,332 114,077 113,116 113,645 See notes to consolidated financial statements. </TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS DILLARD'S, INC. (Unaudited) (Thousands) Six Months Ended August 2 August 3 1997 1996 OPERATING ACTIVITITES Net income $102,600 $95,927 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 103,284 101,326 Changes in operating assets and liabilities: Decrease in trade accounts receivable 98,980 95,021 Increase in merchandise inventories and other current assets (193,482) (135,459) Decrease (Increase) in investments and other assets 15,998 (4,880) Increase (Decrease) in trade accounts payable and accrued expenses and income taxes 69,654 (44,690) NET CASH PROVIDED BY OPERATING ACTIVITIES 197,034 107,245 INVESTING ACTIVITIES Purchase of property and equipment (303,003) (173,733) NET CASH USED IN INVESTING ACTIVITIES (303,003) (173,733) FINANCING ACTIVITIES Net increase in commercial paper 106,091 4,642 Proceeds from long-term borrowings 200,000 200,000 Principal payments on long-term debt and capital lease obligations (78,927) (134,430) Dividends paid (13,530) (6,817) Common stock sold 2,601 13,419 Purchase of treasury stock (101,135) NET CASH PROVIDED BY FINIANCING ACTIVITIES 115,100 76,814 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,131 10,326 Cash and cash equivalents at beginning of period 64,094 58,442 CASH AND CASH EQUIVALENTS AT END OF PERIOD $73,225 $68,768 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 six month period ended August 2, 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. On May 15, 1997, the Company issued $100 million aggregate principal amount of its 7.75% notes due May 15, 2027. The notes were sold in underwritten public offerings. 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 six months ended August 2, 1997, a total of 3.2 million shares were purchased for a total of $101.1 million. 5. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, which will be effective for financial statements beginning after December 15, 1997. SFAS No. 131 redefines how operating segments are determined and requires expanded quantitative and qualitative disclosures relating to a company's operating segments. The Company has not yet completed its analysis of how its financial statements will be affected by SFAS No. 131.
<TABLE> 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 Six Months Ended Twelve Months Ended August 2 August 3 August 2 August 3 August 2 August 3 1997 1996 1997 1996 1997 1996 <S> <C> <C> <C> <C> <C> <C> Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales 65.1% 65.0% 65.4% 65.5% 66.2% 65.6% Gross profit 34.9% 35.0% 34.6% 34.5% 33.8% 34.4% Advertising, selling, administrative and general expenses 26.6% 26.9% 25.9% 26.0% 24.7% 24.6% Depreciation and amortization 3.5% 3.8% 3.5% 3.6% 3.1% 3.2% Rentals 0.8% 0.8% 0.7% 0.8% 0.8% 0.9% Interest and debt expense 2.3% 2.3% 2.2% 2.1% 2.0% 2.0% Impairment charges 2.1% Total operating expenses 33.2% 33.8% 32.3% 32.5% 30.6% 32.8% Other income 3.2% 3.5% 3.2% 3.4% 2.9% 3.0% Income before income taxes 4.9% 4.7% 5.5% 5.4% 6.1% 4.6% Income taxes 1.8% 1.7% 2.0% 2.0% 2.3% 1.7% Net income 3.1% 3.0% 3.5% 3.4% 3.8% 2.9% </TABLE>
Sales for the second quarter of 1997 were $1,453.2 million as compared to $1,340.3 million for the second quarter of 1996. This was an increase of 8%. The sales increase for comparable stores was 5%. For the six month period ended August 2, 1997 sales increased 6% over the first six months of 1996. The comparable stores increase for this period was 2%. For the twelve month period ended August 2, 1997 sales increased 5% over the same period for 1996. The comparable stores increase for this period was 1%. The majority of the increase in sales on a comparable store basis was attributable to an increase in the volume of goods sold rather than an increase in the price of goods. Cost of sales increased only slightly from 65.0% of net sales for the second quarter of 1996 to 65.1% for the second quarter of 1997. For the six months ended August 2, 1997 and August 3, 1996, the cost of sales decreased only slightly from 65.5% of net sales in 1996 to 65.4% of net sales in 1997. For the twelve months ended August 2, 1997 and August 3, 1996, the cost of sales increased from 65.6% of net sales in 1996 to 66.2% of net sales in 1997. The increase for this twelve month period was caused by a higher level of markdowns in the current year versus the prior year. Advertising, selling, administrative and general (SG&A) expenses decreased from 26.9% of net sales for the second quarter of 1996 to 26.6% of net sales for the second quarter of 1997. The Company saw improvement in payroll expense and bad debt expense components of SG&A expense as a percentage of sales compared to the prior year. For the six months ended August 2, 1997 and August 3, 1996, SG&A expense decreased slightly from 26.0% of net sales in 1996 to 25.9% of net sales in 1997. For the twelve months ended August 2, 1997 and August 3, 1996, SG&A expense increased slightly from 24.6% of net sales in 1996 to 24.7% of net sales in 1997. Depreciation and amortization expense decreased slightly as a percentage of sales from 1996 in the three, six and twelve month periods ended August 2, 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 was constant at .8% of net sales for the three months ended August 2, 1997 and August 3, 1996. For the six months ended August 2, 1997 and August 3, 1996 rental expense decreased from .8% of net sales in 1996 to .7% of net sales in 1997. For the twelve months ended August 2, 1997 and August 3, 1996, the decrease was from .9% to .8% of net sales. This was due to a higher proportion of the Company's properties being owned rather than leased. Interest and debt expense was constant as a percentage of net sales for the three and twelve months ended August 2, 1997 compared to the three and twelve months ended August 3, 1996. For the six months ended August 2, 1997 and August 3, 1996 interest and debt expense as a percentage of net sales increased only slightly from 2.1% in 1996 to 2.2% in 1997. Service charges, interest and other income decreased from 3.5% of net sales for the second quarter of 1996 to 3.2% of net sales for the second quarter of 1997. For the six months ended August 2, 1997 and August 3, 1996 the decrease was from 3.4% of net sales in 1996 to 3.2% of net sales in 1997. For the twelve months ended August 2, 1997 and August 3, 1996 this decrease was from 3.0% to 2.9%. 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 second quarter of 1997 and 1996.
Financial Condition The Company's working capital was $1.8 billion at August 2, 1997, $1.9 billion at February 1, 1997, and $1.9 billion at August 3, 1996. The current ratio for each of these periods was 2.8, 3.1 and 3.4, respectively. The changes in working capital and current ratio were caused by a higher level of inventory and an increase in trade accounts payable and commercial paper at August 2, 1997 compared to February 1, 1997 and August 3, 1996. The long-term debt to capitalization ratio was 33.0%, 30.4% and 33.4% at August 2, 1997, February 1, 1997, and August 3, 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. This ratio has increased due to the issuance of long-term debt as described below as well as the repurchase of $101.1 million of the Company's Class A common stock during 1997. 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 commercial paper borrowings. The Company invested $303 million in capital expenditures for the six months ended August 2, 1997 as compared to $173.7 million for the six months ended August 3, 1996. In the first half of 1997, the Company opened five new stores and completed the acquisition of seven stores in Virginia from Proffitt's, Inc., ten Mervyn's stores in Florida and three Macy's stores in Houston. Of these acquired stores, only two of the Proffitt's stores were opened prior to August 2, 1997. For the balance of the year, the Company plans to open seven new stores. Additionally, the Company plans to remodel and open the balance of the Proffitt's stores, the Macy's stores and seven of the Mervyn's stores. Also, the Company will expand and remodel two stores and close two stores. 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 8% from $1.6 billion at August 3, 1996 to $1.8 billion at August 2, 1997. The Company operated 11 more stores at August 2, 1997 versus August 3, 1996. This was the primary reason for the increase in inventory. On a comparable store basis, the rate of increase in merchandise inventories was 1.9%. At August 2, 1997, the Company had an outstanding shelf registration for unsecured notes in the amount of $400 million. Fluctuations in certain other balance sheet accounts between February 1, 1997 and August 2, 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 4 Submission of matters to a Vote of Security Holders The annual meeting of the stockholders of the Company was held on May 17, 1997. The matters submitted to a vote of the stockholders were as follows: election of directors, proposal to change the name of the Company to Dillard's, Inc., proposal to amend the 1990 Incentive and Nonqualified Stock Option Plan, proposal requesting the preparation of an employment practices report, proposal concerning child/convict labor and proposal concerning Class A independent directors. Election of Directors Nominee For Against Abstain Class A Nominees Robert C. Connor 96,199,728 2,996,850 0 Will D. Davis 95,510,250 3,686,328 0 John Paul Hammerschmidt 94,202,666 4,993,912 0 William B. Harrison, Jr. 76,142,556 23,054,022 0 Jackson T. Stephens 96,208,223 2,988,355 0 Class B Nominees William Dillard 4,007,760 0 0 Calvin N. Clyde, Jr. 4,007,760 0 0 Drue Corbusier 4,007,760 0 0 Alex Dillard 4,007,760 0 0 William Dillard, II 4,007,760 0 0 Mike Dillard 4,007,760 0 0 James I. Freeman 4,007,760 0 0 John H. Johnson 4,007,760 0 0 E. Ray Kemp 4,007,760 0 0 William H. Sutton 4,007,760 0 0 Other Proposals Company Name Change 102,644,765 264,918 294,654 Amend 1990 Incentive & Nonqualified Stock Option Plan 100,414,795 2,251,808 537,733 Employment Practices Report 10,671,833 76,532,656 8,969,289 Child/Convict Labor 3,854,812 81,456,017 10,862,900 Class A independent directors 41,241,623 48,834,892 2,089,504
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: Six Months Ended Fiscal Year Ended Aug. 2 Aug. 3 Feb.1 Feb. 3 Jan. 28 Jan. 29 Jan. 30 1997 1996 1997 1996 1995 1994 1993 3.21 3.20 3.61 2.86 3.72 3.57 3.59 ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibit (10): 1990 Incentive and NonQualified Stock Option Plan 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 second quarter: The Company filed a report on May 13, 1997 relating to the issuance of $100 million aggregate principal amount of 7.75% Notes maturing on May 15, 2027.
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 12, 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 10 1990 Incentive and NonQualified Stock Option Plan 11 Statement re: Computation of Per Share Earnings 12 Statement re: Computation of Ratio of Earnings to Fixed Charges