form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
T
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended November 3, 2007.
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
jurisdiction of
incorporation or organization)
|
(IRS
Employer 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 check mark 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 T No £
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (See definition
of “accelerated filer and large accelerated filer” in Rule 12b-2 of
the Exchange Act). Check one:
Large
Accelerated Filer T
|
Accelerated
Filer £
|
Non-Accelerated
Filer £
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Exchange
Act Rule 12-b-2). Yes £ No T
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 December 1,
2007 71,155,347
CLASS
B
COMMON STOCK as of December 1,
2007 4,010,929
DILLARD’S,
INC.
PART
I. FINANCIAL
INFORMATION
|
Page
Number
|
|
|
|
Item
1.
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
6
|
|
|
|
Item
2.
|
|
11
|
|
|
|
Item
3.
|
|
22
|
|
|
|
Item
4.
|
|
22
|
|
|
|
PART
II. OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
|
23
|
|
|
|
Item
1A.
|
|
23
|
|
|
|
Item
2.
|
|
23
|
|
|
|
Item
3.
|
|
24
|
|
|
|
Item
4.
|
|
24
|
|
|
|
Item
5.
|
|
24
|
|
|
|
Item
6.
|
|
24
|
|
|
|
|
|
|
|
24
|
PART
I. FINANCIAL INFORMATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts
in Thousands)
|
|
November 3,
|
|
|
February 3,
|
|
|
October 28,
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
73,038
|
|
|
$ |
193,994
|
|
|
$ |
95,039
|
|
Accounts
receivable
|
|
|
9,985
|
|
|
|
10,508
|
|
|
|
10,733
|
|
Merchandise
inventories
|
|
|
2,363,176
|
|
|
|
1,772,150
|
|
|
|
2,392,557
|
|
Other
current assets
|
|
|
59,915
|
|
|
|
71,194
|
|
|
|
40,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,506,114
|
|
|
|
2,047,846
|
|
|
|
2,538,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
3,276,739
|
|
|
|
3,157,906
|
|
|
|
3,190,747
|
|
Goodwill
|
|
|
31,912
|
|
|
|
34,511
|
|
|
|
34,511
|
|
Other
assets
|
|
|
169,790
|
|
|
|
167,752
|
|
|
|
170,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
5,984,555
|
|
|
$ |
5,408,015
|
|
|
$ |
5,933,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts payable and accrued expenses
|
|
$ |
1,309,806
|
|
|
$ |
797,806
|
|
|
$ |
1,373,358
|
|
Current
portion of capital lease obligations
|
|
|
2,845
|
|
|
|
3,679
|
|
|
|
4,414
|
|
Current
portion of long-term debt
|
|
|
96,430
|
|
|
|
100,635
|
|
|
|
200,620
|
|
Other
short-term borrowings
|
|
|
340,000
|
|
|
|
-
|
|
|
|
-
|
|
Federal
and state income taxes
|
|
|
5,477
|
|
|
|
74,995
|
|
|
|
19,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,754,558
|
|
|
|
977,115
|
|
|
|
1,597,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
860,345
|
|
|
|
956,611
|
|
|
|
956,775
|
|
Capital
lease obligations
|
|
|
26,214
|
|
|
|
28,328
|
|
|
|
29,006
|
|
Other
liabilities
|
|
|
223,198
|
|
|
|
206,122
|
|
|
|
251,050
|
|
Deferred
income taxes
|
|
|
440,800
|
|
|
|
452,886
|
|
|
|
467,389
|
|
Guaranteed
preferred beneficial interests in the Company's subordinated
debentures
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
1,205
|
|
|
|
1,202
|
|
|
|
1,198
|
|
Additional
paid-in capital
|
|
|
779,225
|
|
|
|
772,560
|
|
|
|
762,782
|
|
Accumulated
other comprehensive loss
|
|
|
(19,946 |
) |
|
|
(21,229 |
) |
|
|
(14,574 |
) |
Retained
earnings
|
|
|
2,643,516
|
|
|
|
2,647,388
|
|
|
|
2,495,603
|
|
Less
treasury stock, at cost
|
|
|
(924,560 |
) |
|
|
(812,968 |
) |
|
|
(812,969 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
2,479,440
|
|
|
|
2,586,953
|
|
|
|
2,432,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$ |
5,984,555
|
|
|
$ |
5,408,015
|
|
|
$ |
5,933,985
|
|
See
notes
to condensed consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED
EARNINGS
(Unaudited)
(Amounts
in Thousands, Except Per Share Data)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
November 3,
|
|
|
October 28,
|
|
|
November 3,
|
|
|
October 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
sales
|
|
$ |
1,633,443
|
|
|
$ |
1,719,321
|
|
|
$ |
5,044,930
|
|
|
$ |
5,240,107
|
|
Service
charges and other income
|
|
|
40,716
|
|
|
|
40,013
|
|
|
|
117,766
|
|
|
|
129,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,674,159
|
|
|
|
1,759,334
|
|
|
|
5,162,696
|
|
|
|
5,369,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
1,070,661
|
|
|
|
1,118,313
|
|
|
|
3,325,431
|
|
|
|
3,420,023
|
|
Advertising,
selling, administrative and general expenses
|
|
|
521,001
|
|
|
|
513,182
|
|
|
|
1,516,148
|
|
|
|
1,518,428
|
|
Depreciation
and amortization
|
|
|
75,043
|
|
|
|
73,557
|
|
|
|
224,838
|
|
|
|
220,942
|
|
Rentals
|
|
|
13,952
|
|
|
|
12,842
|
|
|
|
40,707
|
|
|
|
36,033
|
|
Interest
and debt expense, net
|
|
|
23,121
|
|
|
|
23,435
|
|
|
|
66,598
|
|
|
|
71,632
|
|
Gain
on disposal of assets
|
|
|
(11,724 |
) |
|
|
(1,063 |
) |
|
|
(12,307 |
) |
|
|
(16,400 |
) |
Asset
impairment and store closing charges
|
|
|
3,666
|
|
|
|
-
|
|
|
|
4,354
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes and equity in earnings of joint
ventures
|
|
|
(21,561 |
) |
|
|
19,068
|
|
|
|
(3,073 |
) |
|
|
118,790
|
|
Income
taxes (benefit)
|
|
|
(6,830 |
) |
|
|
7,675
|
|
|
|
1,210
|
|
|
|
32,490
|
|
Equity
in earnings of joint ventures
|
|
|
3,390
|
|
|
|
2,216
|
|
|
|
10,700
|
|
|
|
4,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income
|
|
|
(11,341 |
) |
|
|
13,609
|
|
|
|
6,417
|
|
|
|
90,655
|
|
Retained
earnings at beginning of period
|
|
|
2,657,919
|
|
|
|
2,485,180
|
|
|
|
2,647,388
|
|
|
|
2,414,491
|
|
Cash
dividends declared
|
|
|
(3,062 |
) |
|
|
(3,186 |
) |
|
|
(9,486 |
) |
|
|
(9,543 |
) |
Cumulative
effect of accounting change related to adoption of FIN 48
|
|
|
-
|
|
|
|
-
|
|
|
|
(803 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
Earnings at End of Period
|
|
$ |
2,643,516
|
|
|
$ |
2,495,603
|
|
|
$ |
2,643,516
|
|
|
$ |
2,495,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.15 |
) |
|
$ |
0.17
|
|
|
$ |
0.08
|
|
|
$ |
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
(0.15 |
) |
|
$ |
0.17
|
|
|
$ |
0.08
|
|
|
$ |
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Declared Per Common Share
|
|
$ |
0.04
|
|
|
$ |
0.04
|
|
|
$ |
0.12
|
|
|
$ |
0.12
|
|
See
notes
to condensed consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts
in Thousands)
|
|
Nine
Months Ended
|
|
|
|
November 3,
|
|
|
October 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
6,417
|
|
|
$ |
90,655
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and deferred financing
|
|
|
226,294
|
|
|
|
222,468
|
|
Share-based
compensation
|
|
|
62
|
|
|
|
942
|
|
Excess
tax benefits from share-based compensation
|
|
|
(577 |
) |
|
|
(1,233 |
) |
Gain
from hurricane insurance proceeds
|
|
|
(18,181 |
) |
|
|
-
|
|
Proceeds
from hurricane insurance
|
|
|
5,881
|
|
|
|
-
|
|
Asset
impairment and store closing charges
|
|
|
4,354
|
|
|
|
-
|
|
Loss
(gain) on disposal of property and equipment
|
|
|
1,803
|
|
|
|
(2,590 |
) |
Gain
on sale of joint venture
|
|
|
-
|
|
|
|
(13,810 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease
in accounts receivable
|
|
|
523
|
|
|
|
1,790
|
|
Increase
in merchandise inventories and other current assets
|
|
|
(601,447 |
) |
|
|
(594,780 |
) |
Increase
in other assets
|
|
|
(2,978 |
) |
|
|
(4,146 |
) |
Increase
in trade accounts payable and accrued expenses, other liabilities
and
income taxes
|
|
|
433,740
|
|
|
|
411,475
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
55,891
|
|
|
|
110,771
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(326,855 |
) |
|
|
(258,905 |
) |
Proceeds
from sale of joint venture
|
|
|
-
|
|
|
|
19,990
|
|
Proceeds
from hurricane insurance
|
|
|
16,101
|
|
|
|
25,317
|
|
Proceeds
from sale of property and equipment
|
|
|
12,314
|
|
|
|
3,062
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(298,440 |
) |
|
|
(210,536 |
) |
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Principal
payments of long-term debt and capital lease obligations
|
|
|
(103,419 |
) |
|
|
(104,345 |
) |
Increase
in short-term borrowings
|
|
|
340,000
|
|
|
|
-
|
|
Proceeds
from issuance of common stock
|
|
|
6,028
|
|
|
|
11,544
|
|
Excess
tax benefits from share-based compensation
|
|
|
577
|
|
|
|
1,233
|
|
Cash
dividends paid
|
|
|
(9,486 |
) |
|
|
(9,543 |
) |
Purchase
of treasury stock
|
|
|
(111,591 |
) |
|
|
(3,332 |
) |
Payment
of line of credit fees and expenses
|
|
|
(516 |
) |
|
|
(593 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
121,593
|
|
|
|
(105,036 |
) |
|
|
|
|
|
|
|
|
|
Decrease
in Cash and Cash Equivalents
|
|
|
(120,956 |
) |
|
|
(204,801 |
) |
Cash
and Cash Equivalents, Beginning of Period
|
|
|
193,994
|
|
|
|
299,840
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents, End of Period
|
|
$ |
73,038
|
|
|
$ |
95,039
|
|
|
|
|
|
|
|
|
|
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
|
Accrued
capital expenditures
|
|
|
18,801
|
|
|
|
17,704
|
|
Cumulative
adjustment to retained earnings for adoption of FIN 48
|
|
|
803
|
|
|
|
-
|
|
See
notes
to condensed consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1. Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements of Dillard's,
Inc. (the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X, each as promulgated under the Securities Exchange Act of 1934, as
amended. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America 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 and nine months ended
November 3, 2007 are not necessarily indicative of the results that may be
expected for the fiscal year ending February 2, 2008 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 3,
2007 filed with the Securities and Exchange Commission on
April 4, 2007.
Reclassifications–
The following reclassifications were made to the prior periods’ condensed
consolidated statements of operations to conform to the 2007
presentation: (1) leased department income of $2.2 million and $6.6
million for the three and nine months ended October 28, 2006, respectively,
was
reclassified from net sales to service charges and other income, (2) gain on
disposal of assets was reclassified from service charges and other income to
its
own line item and (3) equity in earnings of joint ventures was reclassified
from
service charges and other income to its own line item below income
taxes. In the condensed consolidated statement of cash flows, line of
credit fee payments of $593,000 were reclassified in the prior period from
an
increase in other assets in operating activities to a separate line in financing
activities.
Note
2. Stock-Based Compensation
The
Company has various stock option plans that provide for the granting of options
to purchase shares of Class A common stock to certain key employees of the
Company. Exercise and vesting terms for options granted under the
plans are determined at each grant date. There were no stock options
granted during the three and nine months ended November 3, 2007 and October
28,
2006, respectively.
Stock
option transactions for the three months ended November 3, 2007 are summarized
as follows:
Fixed
Options
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding,
beginning of period
|
|
|
5,732,194
|
|
|
$ |
25.93
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(20,000 |
) |
|
|
25.74
|
|
Outstanding,
end of period
|
|
|
5,712,194
|
|
|
$ |
25.93
|
|
Options
exercisable at period end
|
|
|
5,692,194
|
|
|
$ |
25.94
|
|
The
following table summarizes information about stock options outstanding at
November 3, 2007:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
|
Options
Outstanding
|
|
|
Weighted-Average
Remaining Contractual Life (Yrs.)
|
|
|
Weighted-Average
Exercise Price
|
|
|
Options
Exercisable
|
|
|
Weighted-Average Exercise
Price
|
|
$24.01
- $24.73 |
|
|
|
146,867
|
|
|
|
1.39
|
|
|
$ |
24.36
|
|
|
|
126,867
|
|
|
$ |
24.41
|
|
$25.74
- $25.74 |
|
|
|
3,925,000
|
|
|
|
8.22
|
|
|
|
25.74
|
|
|
|
3,925,000
|
|
|
|
25.74
|
|
$25.95
- $30.47 |
|
|
|
1,640,327
|
|
|
|
1.71
|
|
|
|
26.52
|
|
|
|
1,640,327
|
|
|
|
26.52
|
|
|
|
|
|
|
5,712,194
|
|
|
|
6.18
|
|
|
$ |
25.93
|
|
|
|
5,692,194
|
|
|
$ |
25.94
|
|
There
was
no intrinsic value of outstanding or exercisable stock options at November
3,
2007.
Note
3. Asset Impairment and Store Closing Charges
During
the three and nine months ended November 3, 2007, the Company recorded pretax
expense of $3.7 million and $4.4 million, respectively, for asset impairment
and
store closing costs. The expense includes a $1.1 million future lease obligation
on a store closed during the third quarter of 2007 and a $2.6 million
write-off of goodwill for a leased store planned to close during the fourth
quarter of 2007 where the projected cash flows were unable to sustain the amount
of goodwill.
There
were no asset impairment and store closing charges recorded during the three
and
nine months ended October 28, 2006.
Following
is a summary of the activity in the reserve established for store closing
charges for the nine months ended November 3, 2007:
(in
thousands)
|
|
Balance,
February 3,
2007
|
|
|
Charges
|
|
|
Cash
Payments
|
|
|
Balance
November 3, 2007
|
|
Rent,
property taxes and utilities
|
|
$ |
3,406
|
|
|
$ |
1,068
|
|
|
$ |
999
|
|
|
$ |
3,475
|
|
Reserve
amounts are included in trade accounts payable and accrued expenses and other
liabilities.
Note
4. Note
Repurchase
During
the three and nine months ended October 28, 2006, the Company repurchased $1.7
million of its outstanding, unsecured notes prior to their maturity
dates. The notes bore interest at 6.3% and had a maturity date of
February 2008.
There
were no notes repurchased during the three and nine months ended November 3,
2007.
Note
5. 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
|
|
|
|
November 3,
|
|
|
October 28,
|
|
|
November 3,
|
|
|
October 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(11,341 |
) |
|
$ |
13,609
|
|
|
$ |
6,417
|
|
|
$ |
90,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares of common stock outstanding
|
|
|
77,919
|
|
|
|
79,633
|
|
|
|
79,486
|
|
|
|
79,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(loss) earnings per share
|
|
$ |
(0.15 |
) |
|
$ |
0.17
|
|
|
$ |
0.08
|
|
|
$ |
1.14
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
November
3,
|
|
|
October
28,
|
|
|
November
3,
|
|
|
October
28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(11,341 |
) |
|
$ |
13,609
|
|
|
$ |
6,417
|
|
|
$ |
90,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares of common stock outstanding
|
|
|
77,919
|
|
|
|
79,633
|
|
|
|
79,486
|
|
|
|
79,504
|
|
Effect
of dilutive securities: Stock options
|
|
|
-
|
|
|
|
1,279
|
|
|
|
930
|
|
|
|
690
|
|
Total
weighted-average equivalent shares
|
|
|
77,919
|
|
|
|
80,912
|
|
|
|
80,416
|
|
|
|
80,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
(loss) earnings per share
|
|
$ |
(0.15 |
) |
|
$ |
0.17
|
|
|
$ |
0.08
|
|
|
$ |
1.13
|
|
No
stock
options were included in the three months ended November 3, 2007 computation
of
diluted earnings per share because they would be antidilutive due to the net
loss.
Note
6. Comprehensive Income (Loss) and Accumulated Other Comprehensive
Loss
Accumulated
other comprehensive loss only consists of the minimum pension liability, which
is calculated annually in the fourth quarter. The following table
shows the computation of comprehensive income (in thousands):
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
November 3,
|
|
|
October 28,
|
|
|
November 3,
|
|
|
October 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(11,341 |
) |
|
$ |
13,609
|
|
|
$ |
6,417
|
|
|
$ |
90,655
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of minimum pension liability adjustment, net of taxes
|
|
|
427
|
|
|
|
-
|
|
|
|
1,282
|
|
|
|
-
|
|
Total
comprehensive (loss) income
|
|
$ |
(10,914 |
) |
|
$ |
13,609
|
|
|
$ |
7,699
|
|
|
$ |
90,655
|
|
Note
7. Commitments and Contingencies
On
July
29, 2002, a Class Action Complaint (followed on December 13, 2004 by a Second
Amended Class Action Complaint) was filed in the United States District Court
for the Southern District of Ohio against the Company, the Mercantile Stores
Pension Plan (the “Plan”) and the Mercantile Stores Pension Committee (the
“Committee”) on behalf of a putative class of former Plan participants. The
complaint alleged that certain actions by the Plan and the Committee violated
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), as a
result of amendments made to the Plan that allegedly were either improper and/or
ineffective and as a result of certain payments made to certain beneficiaries
of
the Plan that allegedly were improperly calculated and/or discriminatory on
account of age. The Second Amended Complaint did not specify any liquidated
amount of damages sought and sought recalculation of certain benefits paid
to
putative class members.
During
the year ended February 3, 2007, the Company signed a memorandum of
understanding and accrued $35.0 million to settle the case. The
settlement became final in early April 2007. As of November 3, 2007,
the Company had paid this settlement in full. The litigation
continues between the Company and the Plan’s actuarial firm over the Company’s
cross claim against the actuarial firm seeking reimbursement for the settlement
and additional damages.
Various
legal proceedings in the form of lawsuits and claims, which occur in the normal
course of business, are pending against the Company and its
subsidiaries. In the opinion of management, disposition of these
matters is not expected to materially affect the Company’s financial position,
cash flows or results of operations.
At
November 3, 2007, letters of credit totaling $73.9 million were issued under
the
Company’s $1.2 billion line of credit facility.
Note
8. Benefit
Plans
The
Company has a nonqualified defined benefit plan for certain
officers. The plan is noncontributory and provides benefits based on
years of service and compensation during employment. Pension expense
is determined using various actuarial cost methods to estimate the total
benefits ultimately payable to officers and is allocated to service
periods. The pension plan is unfunded. The actuarial
assumptions used to calculate pension costs are reviewed
annually. The Company made contributions of $0.9 million and $2.7
million during the three and nine months ended November 3, 2007,
respectively. The Company expects to make a contribution to the
pension plan of approximately $1.3 million for the remainder of fiscal
2007.
The
components of net periodic benefit costs are as follows (in
thousands):
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
November 3,
|
|
|
October 28,
|
|
|
November 3,
|
|
|
October 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Components
of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
517
|
|
|
$ |
545
|
|
|
$ |
1,551
|
|
|
$ |
1,636
|
|
Interest
cost
|
|
|
1,500
|
|
|
|
1,349
|
|
|
|
4,501
|
|
|
|
4,047
|
|
Net
actuarial gain
|
|
|
518
|
|
|
|
504
|
|
|
|
1,553
|
|
|
|
1,512
|
|
Amortization
of prior service cost
|
|
|
157
|
|
|
|
157
|
|
|
|
471
|
|
|
|
470
|
|
Net
periodic benefit costs
|
|
$ |
2,692
|
|
|
$ |
2,555
|
|
|
$ |
8,076
|
|
|
$ |
7,665
|
|
Note
9. Recently Issued Accounting Standards
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115 (“SFAS 159”). This statement permits entities
to choose to measure many financial instruments and certain other items at
fair
value. SFAS
159 is
effective at the beginning of an entity’s first fiscal year that begins after
November 15, 2007. We expect that the adoption of SFAS 159 will
not have a material impact on our consolidated financial
statements.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework
for measuring fair value and expands disclosure about such fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
concluded in those other accounting pronouncements that fair value is the
relevant measurement attribute. SFAS 157 is effective for financial
assets and liabilities in financial statements issued for fiscal years beginning
after November 15, 2007. It is effective for non-financial assets and
liabilities in financial statements issued for fiscal years beginning after
November 15, 2008. We expect that the adoption of SFAS 157 will not
have a material impact on our consolidated financial statements.
Note
10. Revolving Credit Agreement
At
November 3, 2007, the Company maintained a $1.2 billion revolving credit
facility (“credit agreement”) with JPMorgan Chase Bank (“JPMorgan”) as agent for
various banks. The credit agreement expires December 12,
2012. Borrowings under the credit agreement accrue interest at either
JPMorgan’s Base Rate minus 0.5% or LIBOR plus 1.0% (currently 5.68%) subject to
certain availability thresholds as defined in the credit
agreement. Availability for borrowings and letter of credit
obligations under the credit agreement is limited to 85% of the inventory of
certain Company subsidiaries (approximately $1.4 billion at November 3,
2007). At November 3, 2007, borrowings of $328.4 million were
outstanding and letters of credit totaling $73.9 million were issued under
this
credit agreement leaving unutilized availability under the facility of $798
million. There are no financial covenant requirements under the
credit agreement provided availability exceeds $100 million. The
Company pays an annual commitment fee to the banks of 0.25% of the committed
amount less outstanding borrowings and letters of
credit.
Note
11. Share Repurchase Program
During
the nine months ended October 28, 2006, the Company repurchased approximately
133,500 shares of Class A common stock for $3.3 million under its $200 million
program, which was authorized by the Board of Directors in May of 2005 (“2005
plan”). During the three and nine months ended November 3, 2007, the
Company repurchased approximately 5.2 million shares under the 2005 plan for
$111.6 million which completed the authorization under this plan.
In
November 2007, the Company’s Board of Directors authorized a new share
repurchase plan under which the Company may repurchase up to $200 million of
its
Class A common stock. The new open-ended authorization permits the
Company to repurchase its Class A common stock in the open market or through
privately negotiated transactions.
Note
12. Other Revenue
During
the three months ended November 3, 2007, the Company recorded a pretax gain
of
$11.1 relating to reimbursement for property damages incurred during the 2005
hurricane season as the Company completed the cleanup of the damaged location
during the year. The gain was recorded in gain on disposal of
assets.
During
the nine months ended October 28, 2006, the Company sold its interest in an
unconsolidated joint venture, Yuma Palms, for $20.0 million. The
Company recorded a pretax gain of $13.5 million related to the sale in gain
on
disposal of assets.
Note
13. Income Taxes
The
Financial Accounting Standards Board issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes—an Interpretation of FASB
Statement No. 109 (“FIN 48”) effective for fiscal years beginning after
December 15, 2006. The Company adopted the new requirement as of
February 4, 2007 with the cumulative effects recorded as an adjustment to
retained earnings as of the beginning of the period. The Company
classifies interest and penalties relating to income tax in the financial
statements as income tax expense. The total amount of unrecognized
tax benefits as of the date of adoption was $27.6 million, of which $17.8
million would, if recognized, affect the effective tax rate. The
total amount of accrued interest and penalty as of the date of adoption was
$13.7 million. The total amount of unrecognized tax benefits as of
November 3, 2007 was $28.5 million, of which $18.8 million would, if recognized,
affect the effective tax rate. The total amount of accrued interest
and penalties as of November 3, 2007 was $15.3 million.
The
Company is currently being examined by the Internal Revenue Service for the
fiscal tax years 2003 through 2005. The Company is also under
examination by various state and local taxing jurisdictions for various fiscal
years. The
tax years that remain subject to examination for major tax jurisdictions are
fiscal tax years 2003 and forward, with the exception of fiscal 1997 through
2002 amended state and local tax returns related to the reporting of federal
audit adjustments. With
the exception of amounts that are under examination or subject to administrative
proceedings by income tax authorities, for which an estimate cannot be made
due
to uncertainties, the Company does not believe it is reasonably possible that
its unrecognized tax benefits will significantly change within the next twelve
months.
The
federal and state income tax rates were approximately 37.6% and 36.1% for the
three months ended November 3, 2007 and October 28, 2006,
respectively. During the three months ended November 3, 2007, income
taxes included the net increase in FIN 48 liabilities of approximately $1.3
million and included recognition of tax benefits of approximately $1.6 million
due to additional tax credits on the prior year tax return. During
the three months ended October 28, 2006, income taxes included recognition
of
tax benefits of approximately $0.3 million for the change in a capital loss
valuation allowance due to capital gain income.
The
federal and state income tax rates were approximately 15.9% and 26.4% for the
nine months ended November 3, 2007 and October 28, 2006,
respectively. During the nine months ended November 3, 2007, income
taxes included the net increase in FIN 48 liabilities of approximately $2.2
million and included recognition of tax benefits of approximately $0.3 million
for the change in a capital loss valuation allowance due to capital gain income,
approximately $1.3 million for a reduction in state tax liabilities due to
a
restructuring that occurred during this period and approximately $1.6 million
due to additional tax credits on the prior year tax return. During
the nine months ended October 28, 2006, income taxes included recognition of
tax
benefits of approximately $6.1 million for the change in a capital loss
valuation allowance due to capital gain income and $7.5 million due to the
release of tax reserves resulting from resolution of various federal and state
income tax issues.
EXECUTIVE
OVERVIEW
Dillard’s,
Inc. (the “Company”, “we”, “us”, or “our”) operates 331 retail department stores
in 29 states. Our stores are located in suburban shopping malls and
open-air lifestyle centers and offer a broad selection of fashion apparel and
home furnishings.
Noteworthy
items for the three months ended November 3, 2007 include:
|
|
The
Company repurchased $111.6 million of its Class A common
stock.
|
|
|
A
pretax gain of $11.1 million was recognized relating to hurricane
recovery
regarding a store damaged by Hurricane Rita in 2005 as the Company
completed the cleanup of the damaged location during the
quarter.
|
|
|
Asset
impairment and store closing charges of $3.7 million were recorded
in
recognition of a $2.6 million write-off of goodwill for a store planned
to
close during the fourth quarter of 2007 and a $1.1 million future
lease
obligation on a store closed during the third quarter of
2007.
|
Trends
and uncertainties
We
have
identified the following key uncertainties whose fluctuations may have a
material effect on our operating results.
|
|
Cash
flow – Cash from operating activities is a primary source of liquidity
that is adversely affected when the industry faces market driven
challenges and new and existing competitors seek areas of growth
to expand
their businesses. If our customers do not purchase our merchandise
offerings in sufficient quantities, we respond by taking
markdowns. If we have to reduce our prices, the cost of goods
sold on our condensed consolidated statement of operations will
correspondingly rise, thus reducing our
income.
|
|
|
Success
of brand – The success of our exclusive brand merchandise is dependent
upon customer fashion preferences.
|
|
|
Store
growth – Our growth is dependent on a number of factors which could
prevent the opening of new stores, such as identifying suitable markets
and locations.
|
|
·
|
Sourcing
– Store merchandise is dependent upon adequate and stable availability
of
materials and production facilities from which we source our
merchandise.
|
2007
Guidance
A
summary
of guidance on key financial measures for 2007, in conformity with accounting
principles generally accepted in the United States of America (“GAAP”), is shown
below. See “forward-looking information” below.
|
|
2007
|
|
|
2006
|
|
(in
millions of dollars)
|
|
Estimated
|
|
|
Actual
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$ |
300
|
|
|
$ |
301
|
|
Rental
expense
|
|
|
60
|
|
|
|
55
|
|
Interest
and debt expense, net
|
|
|
91
|
|
|
|
88
|
|
Capital
expenditures
|
|
|
410
|
|
|
|
321
|
|
General
Net
sales. Net sales include sales of comparable and
non-comparable stores. Comparable store sales include sales for those
stores which were in operation for a full period in both the current month
and
the corresponding month for the prior year. Non-comparable store
sales include sales in the current fiscal year from stores opened during the
previous fiscal year before they are considered comparable stores, sales from
new stores opened in the current fiscal year and sales in the previous fiscal
year for stores that were closed in the current fiscal year.
Service
charges and other income. Service charges and other income
include income generated through the long-term marketing and servicing alliance
between the Company and GE Consumer Finance (“GE”). Other income
relates to rental income, shipping and handling fees and net lease income on
leased departments.
Cost
of sales. Cost of sales includes the cost of merchandise
sold (net of purchase discounts), bankcard fees, freight to the distribution
centers, employee and promotional discounts, non-specific vendor allowances
and
direct payroll for salon personnel.
Advertising,
selling, administrative and general
expenses. Advertising, selling, administrative and
general expenses include buying, occupancy, selling, distribution, warehousing,
store and corporate expenses (including payroll and employee benefits),
insurance, employment taxes, advertising, management information systems, legal,
and other corporate level expenses. Buying expenses consist of
payroll, employee benefits and travel for design, buying and merchandising
personnel.
Depreciation
and amortization. Depreciation and amortization
expenses include depreciation and amortization on property and
equipment.
Rentals. Rentals
include expenses for store leases and data processing and equipment
rentals.
Interest
and debt expense, net. Interest and debt expense
includes interest, net of interest income, relating to the Company’s unsecured
notes, mortgage notes, the guaranteed beneficial interests in the Company’s
subordinated debentures, gains and losses on note repurchases, amortization
of
financing costs, call premiums and interest on capital lease
obligations.
Gain
on disposal of assets. Gain on disposal of assets includes
the net gain or loss on the sale or disposal of property and equipment and
joint
ventures.
Asset
impairment and store closing charges. Asset impairment
and store closing charges consists of write-downs to fair value of
under-performing properties and exit costs associated with the closure of
certain stores. Exit costs include future rent, taxes and
common area maintenance expenses from the time the stores are
closed.
Equity
in earnings of joint ventures. Equity in earnings of joint
ventures includes the Company’s portion of the income or loss of the Company’s
unconsolidated joint ventures.
Critical
Accounting Policies and Estimates
The
Company’s accounting policies are more fully described in Note 1 of Notes to
Consolidated Financial Statements in the Company’s Annual Report on Form 10-K
for the fiscal year ended February 3, 2007. As disclosed in this
note, the preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions about future events that affect
the
amounts reported in the consolidated financial statements and accompanying
notes. Since future events and their effects cannot be determined with absolute
certainty, actual results will differ from those estimates. The Company
evaluates its estimates and judgments on an ongoing basis and predicates those
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances. Actual
results will differ from these under different assumptions or
conditions.
Management
of the Company believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in preparation
of the condensed consolidated financial statements.
Merchandise
inventory. Approximately 98% of the inventories are
valued at lower of cost or market using the retail last-in, first-out (“LIFO”)
inventory method. Under the retail inventory method (“RIM”), the
valuation of inventories at cost and the resulting gross margins are calculated
by applying a calculated cost to retail ratio to the retail value of
inventories. RIM is an averaging method that is widely used in the
retail industry due to its practicality. Additionally, it is
recognized that the use of RIM will result in valuing inventories at the lower
of cost or market if markdowns are currently taken as a reduction of the retail
value of inventories. Inherent in the RIM calculation are certain
significant management judgments including, among others, merchandise markon,
markups, and markdowns, which significantly impact the ending inventory
valuation at cost as well as the resulting gross margins. Management
believes that the Company’s RIM provides an inventory valuation which results in
a carrying value at the lower of cost or market. The remaining 2% of the
inventories are valued at lower of cost or market using the specific identified
cost method.
Revenue
recognition. The Company recognizes revenue upon the sale
of merchandise to its customers, net of anticipated returns. The
provision for sales returns is based on historical evidence of our return
rate. We recorded an allowance for sales returns of $7.4 million and
$7.7 million as of November 3, 2007 and October 28, 2006,
respectively. Adjustments to earnings resulting from revisions to
estimates on our sales return provision have been insignificant for the three
and nine months ended November 3, 2007 and October 28, 2006.
The
Company’s share of income earned under the long-term marketing and servicing
alliance with GE is included as a component of service charges and other
income. The Company received income of approximately $89.2 million
and $94.6 million from GE during the nine months ended November 3, 2007 and
October 28, 2006, respectively. Further pursuant to this agreement,
the Company has no continuing involvement other than to honor the GE credit
cards in its stores. Although not obligated to a specific level of
marketing commitment, the Company participates in the marketing of the GE credit
cards and accepts payments on the GE credit cards in its stores as a convenience
to customers who prefer to pay in person rather than by mailing their payments
to GE.
Merchandise
vendor allowances. The Company receives concessions
from its merchandise vendors through a variety of programs and arrangements,
including cooperative advertising, payroll reimbursements and margin maintenance
programs.
Cooperative
advertising allowances are reported as a reduction of advertising expense in
the
period in which the advertising occurred. If vendor advertising
allowances were substantially reduced or eliminated, the Company would likely
consider other methods of advertising as well as the volume and frequency of
our
product advertising, which could increase or decrease our
expenditures. Similarly, we are not able to assess the impact of
vendor advertising allowances on creating additional revenue as such allowances
do not directly generate revenue for our stores.
Payroll
reimbursements are reported as a reduction of payroll expense in the period
in
which the reimbursement occurred. All other merchandise vendor
allowances are recognized as a reduction of cost purchases when
received. Accordingly, a reduction or increase in vendor concessions
has an inverse impact on cost of sales and/or selling and administrative
expenses. The amounts recognized as a reduction in cost of sales have
not varied significantly during the three and nine months ended November 3,
2007
and October 28, 2006.
Insurance
accruals. The Company’s condensed consolidated
balance sheets include liabilities with respect to self-insured workers’
compensation (with a self-insured retention of $4 million per claim) and general
liability (with a self-insured retention of $1 million per claim) claims. The
Company estimates the required liability of such claims, utilizing an actuarial
method, based upon various assumptions, which include, but are not limited
to,
our historical loss experience, projected loss development factors, actual
payroll and other data. The required liability is also subject to adjustment in
the future based upon the changes in claims experience, including changes in
the
number of incidents (frequency) and changes in the ultimate cost per incident
(severity). As of November 3, 2007 and October 28, 2006, insurance
accruals of $57.0 million and $51.6 million, respectively, were recorded in
trade accounts payable and accrued expenses and other
liabilities. Adjustments to earnings resulting from changes in
historical loss trends have been insignificant for the three and nine months
ended November 3, 2007 and October 28, 2006.
Finite-lived
assets. The Company’s judgment regarding the
existence of impairment indicators is based on market and operational
performance. We assess the impairment of long-lived assets, primarily
fixed assets, annually and whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Factors we consider
important which could trigger an impairment review include the
following:
|
|
Significant
changes in the manner of our use of assets or the strategy for the
overall
business;
|
|
|
Significant
negative industry or economic trends;
or
|
The
Company performs an analysis of the anticipated undiscounted future net cash
flows of the related finite-lived assets. If the carrying value of the related
asset exceeds the undiscounted cash flows, the carrying value is reduced to
its
fair value. Various factors including future sales growth and profit margins
are
included in this analysis. To the extent these future projections or
the Company’s strategies change, the conclusion regarding impairment may differ
from the current estimates.
Goodwill. The
Company evaluates goodwill annually as of the last day of the fourth quarter
and
whenever events and changes in circumstances suggest that the carrying amount
may not be recoverable from its estimated future cash flows. To the
extent these future projections or our strategies change, the conclusion
regarding impairment may differ from the current estimates.
Estimates
of fair value are primarily determined using projected discounted cash flows
and
are based on our best estimate of future revenue and operating costs and general
market conditions. These estimates are subject to review and approval by senior
management. This approach uses significant assumptions, including projected
future cash flows, the discount rate reflecting the risk inherent in future
cash
flows and a terminal growth rate.
Income
taxes. Temporary differences
arising from differing treatment of income and expense items for tax and
financial reporting purposes result in deferred tax assets and liabilities
that
are recorded on the balance sheet. These balances, as well as income
tax expense, are determined through management’s estimations, interpretation of
tax law for multiple jurisdictions and tax planning. If the Company’s actual
results differ from estimated results due to changes in tax laws, new store
locations or tax planning, the Company’s effective tax rate and tax balances
could be affected. As such these estimates may require adjustment in
the future as additional facts become known or as circumstances
change.
The
Financial Accounting Standards Board issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes—an Interpretation of FASB
Statement No. 109 (“FIN 48”) effective for fiscal years beginning after
December 15, 2006. The Company adopted the new requirement as of
February 4, 2007 with the cumulative effects recorded as an adjustment to
retained earnings as of the beginning of the period. The Company
classifies interest and penalties relating to income tax in the financial
statements as income tax expense. The total amount of unrecognized
tax benefits as of the date of adoption was $27.6 million, of which $17.8
million would, if recognized, affect the effective tax rate. The
total amount of accrued interest and penalty as of the date of adoption was
$13.7 million. The total amount of unrecognized tax benefits as of
November 3, 2007 was $28.5 million, of which $18.8 million would, if recognized,
affect the effective tax rate. The total amount of accrued interest
and penalties as of November 3, 2007 was $15.3 million.
The
Company is currently being examined by the Internal Revenue Service for the
fiscal tax years 2003 through 2005. The Company is also under
examination by various state and local taxing jurisdictions for various fiscal
years. The
tax years that remain subject to examination for major tax jurisdictions are
fiscal tax years 2003 and forward, with the exception of fiscal 1997 through
2002 amended state and local tax returns related to the reporting of federal
audit adjustments. With
the exception of amounts that are under examination or subject to administrative
proceedings by income tax authorities, for which an estimate cannot be made
due
to uncertainties, the Company does not believe it is reasonably possible that
its unrecognized tax benefits will significantly change within the next twelve
months.
Discount
rate. The discount rate that the Company utilizes
for determining future pension obligations is based on the Citigroup High Grade
Corporate Yield Curve on its annual measurement date and is matched to the
future expected cash flows of the benefit plans by annual
periods. The discount rate had increased to 5.90% as of
February 3, 2007 from 5.60% as of January 28, 2006. We believe that
these assumptions have been appropriate and that, based on these assumptions,
the pension liability of $105 million was appropriately stated as of February
3,
2007; however, actual results may differ materially from those estimated and
could have a material impact on our consolidated financial
statements. A further 50 basis point change in the discount rate
would generate an experience gain or loss of approximately $6.3
million.
Seasonality
and Inflation
Our
business, like many other retailers, is subject to seasonal influences, with
the
major portion of sales and income typically realized during the last quarter
of
each fiscal year due to the holiday season. Because of the
seasonality of our business, results from any quarter are not necessarily
indicative of the results that may be achieved for a full fiscal
year.
We
do not
believe that inflation has had a material effect on our results during the
periods presented; however, there can be no assurance that our business will
not
be affected by this factor in the future.
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
|
|
|
|
November 3,
|
|
|
October 28,
|
|
|
November 3,
|
|
|
October 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Service
charges and other income
|
|
|
2.5
|
|
|
|
2.3
|
|
|
|
2.3
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102.5
|
|
|
|
102.3
|
|
|
|
102.3
|
|
|
|
102.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
65.5
|
|
|
|
65.0
|
|
|
|
65.9
|
|
|
|
65.3
|
|
Advertising,
selling, administrative and general expenses
|
|
|
31.9
|
|
|
|
29.8
|
|
|
|
30.1
|
|
|
|
29.0
|
|
Depreciation
and amortization
|
|
|
4.6
|
|
|
|
4.3
|
|
|
|
4.4
|
|
|
|
4.2
|
|
Rentals
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
0.7
|
|
Interest
and debt expense, net
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
1.4
|
|
Gain
on disposal of assets
|
|
|
(0.7 |
) |
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
Asset
impairment and store closing charges
|
|
|
0.2
|
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes and equity in earnings of joint
ventures
|
|
|
(1.3 |
) |
|
|
1.1
|
|
|
|
(0.1 |
) |
|
|
2.2
|
|
Income
taxes (benefit)
|
|
|
(0.4 |
) |
|
|
0.4
|
|
|
|
0.0
|
|
|
|
0.6
|
|
Equity
in earnings of joint ventures
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
(0.7 |
)% |
|
|
0.8 |
% |
|
|
0.1 |
% |
|
|
1.7 |
% |
Net
Sales
The
percent change by category in the Company’s sales for the three and nine months
ended November 3, 2007 compared to the three and nine months ended October
28,
2006 is as follows:
|
%
Change
|
|
07-06
|
|
Three
Months
|
Nine
Months
|
Cosmetics
|
-1.5%
|
-2.5%
|
Ladies’
apparel and accessories
|
-3.2%
|
-2.1%
|
Juniors’
and children’s apparel
|
-11.0%
|
-9.0%
|
Men’s
apparel and accessories
|
-7.1%
|
-5.2%
|
Shoes
|
-3.3%
|
-0.4%
|
Home
and other
|
-10.4%
|
-9.1%
|
The
percent change by region in the Company’s total sales for the three and nine
months ended November 3, 2007 compared to the three and nine months ended
October 28, 2006 is as follows:
|
%
Change
|
|
07-06
|
|
Three
Months
|
Nine
Months
|
Eastern
|
-6.3%
|
-4.7%
|
Central
|
-3.8%
|
-3.1%
|
Western
|
-5.6%
|
-3.3%
|
Net
sales
decreased 5% on a total basis and 6% on a comparable store basis for the three
months ended November 3, 2007 compared to the three months ended October 28,
2006. Net sales decreased 4% on a total basis and 5% on a comparable
store basis for the nine months ended November 3, 2007 compared to the nine
months ended October 28, 2006. During these periods, all product
categories experienced declines in net sales, with significant declines noted
in
the juniors’ and children’s apparel category and the home and other
category.
During
the three months ended November 3, 2007, net sales in the Central region were
slightly better than the Company’s total performance trend compared to the three
months ended October 28, 2006 while sales were slightly below trend in the
Eastern and Western regions for the same period.
During
the nine months ended November 3, 2007, net sales in the Central region were
slightly better than the Company’s total performance trend compared to the nine
months ended October 28, 2006 while sales were in line with trend in the Western
region and slightly below trend in the Eastern region for the same
period.
Service
Charges and Other Income
(in
millions of dollars)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
November 3,
2007
|
|
|
October 28,
2006
|
|
|
November 3,
2007
|
|
|
October 28,
2006
|
|
|
$
Change 07-06
|
|
|
$
Change 07-06
|
|
Leased
department income
|
|
$ |
3.2
|
|
|
$ |
2.2
|
|
|
$ |
8.4
|
|
|
$ |
6.6
|
|
|
$ |
1.0
|
|
|
$ |
1.8
|
|
Visa
Check/Mastermoney Antitrust settlement proceeds
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.5
|
|
|
|
-
|
|
|
|
(6.5 |
) |
Income
from GE marketing and servicing alliance
|
|
|
30.7
|
|
|
|
30.9
|
|
|
|
89.2
|
|
|
|
94.6
|
|
|
|
(0.2 |
) |
|
|
(5.4 |
) |
Other
|
|
|
6.8
|
|
|
|
6.9
|
|
|
|
20.2
|
|
|
|
21.6
|
|
|
|
(0.1 |
) |
|
|
(1.4 |
) |
Total
|
|
$ |
40.7
|
|
|
$ |
40.0
|
|
|
$ |
117.8
|
|
|
$ |
129.3
|
|
|
$ |
0.7
|
|
|
$ |
(11.5 |
) |
Service
charges and other income increased to $40.7 million during the three months
ended November 3, 2007 compared to $40.0 million for the three months ended
October 28, 2006. This increase of $0.7 million was primarily due to
an increase in leased department income over the prior year.
Service
charges and other income decreased to $117.8 million during the nine months
ended November 3, 2007 compared to $129.3 million for the nine months ended
October 28, 2006. This decrease of $11.5 million was due in part to
the $6.5 million recorded during the period in the prior year from the Visa
Check/Mastermoney Antitrust litigation settlement as well as a decrease of
$5.4
million in the income from the marketing and servicing alliance with GE compared
to the prior year.
Cost
of Sales
Cost
of
sales increased to 65.5% of net sales for the three months ended November 3,
2007 from 65.0% for the three months ended October 28, 2006. The
gross margin decline of 50 basis points of sales was primarily driven by higher
markdowns. Juniors’ and children’s apparel, ladies’ apparel and
accessories and the home and other categories posted the weakest performances
compared to the total decline for the period while gross margin performance
improved in shoes and men’s apparel and accessories categories during the
period.
Cost
of
sales increased to 65.9% of net sales for the nine months ended November 3,
2007
from 65.3% for the nine months ended October 28, 2006. The gross
margin decline of 60 basis points of sales was primarily driven by higher
markdowns. While all merchandise categories experienced declines in
gross margin, the weakest performance was noted in the home and other category,
which significantly exceeded the Company’s average decline for the
period.
Inventory
levels decreased 1% and 2% on total and comparable store bases, respectively,
as
of November 3, 2007 compared to October 28, 2006.
Advertising,
Selling, Administrative and General Expenses
Advertising,
selling, administrative and general (“SG&A”) expenses for the three months
ended November 3, 2007 increased $7.8 million to 31.9% of net sales from 29.8%
of net sales during the three months ended October 28, 2006. The
increase was driven primarily by increases in payroll ($4.3 million), services
purchased ($3.6 million) and pre-opening expenses ($1.8 million) partially
offset by declines in advertising expense ($1.8 million).
SG&A
expenses for the nine months ended November 3, 2007 decreased $2.3 million
compared to the nine months ended October 28, 2006 while SG&A expenses
increased to 30.1% of net sales from 29.0% for the same period. The
Company recorded a pretax charge of $21.7 million during the nine months ended
October 28, 2006 for a preliminary settlement agreement in a lawsuit filed
on
behalf of a putative class of former Mercantile Stores Pension Plan
participants. Exclusive of this prior year settlement charge,
SG&A expenses increased $19.4 million primarily as a result of increases in
payroll ($14.4 million), services purchased ($9.0 million), pension expense
($1.5 million) and pre-opening expenses ($1.3 million) partially offset by
a
decrease in advertising expense ($8.0 million).
Depreciation
and Amortization Expense
Depreciation
and amortization expense as a percentage of net sales was 4.6% for the three
months ended November 3, 2007 compared to 4.3% for the similar period of
2006. Depreciation and amortization expense as a percentage of net
sales was 4.4% for the nine months ended November 3, 2007 compared to 4.2%
for
the similar period of 2006. Depreciation expense increased $1.5
million and $3.9 million for the three and nine months ended November 3, 2007,
respectively, compared to the similar periods of 2006. This increase
in depreciation and amortization expense is primarily related to capital
expenditures incurred to continue to improve Dillard’s stores as well as to add
new stores.
Rentals
Rentals
were 0.9% and 0.8% of sales for the three and nine months ended November 3,
2007, respectively, compared to 0.8% and 0.7% of sales for the three and nine
months ended October 28, 2006, respectively. Rentals increased $1.1
million and $4.7 million for the three and nine months ended November 3, 2007,
respectively, compared to the same periods in 2006. The increase in
rentals is mainly due to an increase in leased equipment including upgrades
of
point-of-sale terminals at the stores.
Interest
and Debt Expense, Net
Interest
and debt expense decreased $0.3 million to $23.1 million during the three months
ended November 3, 2007 from $23.4 million during the three months ended October
28, 2006. Average long-term debt levels decreased during the period
due to normal maturities of various notes outstanding. Average
short-term borrowings, however, increased for the period.
Interest
and debt expense decreased $5.0 million to $66.6 million during the nine months
ended November 3, 2007 from $71.6 million during the nine months ended October
28, 2006. This decline in interest expense for the nine months ended
November 3, 2007 was a result of lower debt levels. Average debt
outstanding declined approximately $30.4 million during the nine months ended
November 3, 2007 compared to the similar periods of 2006. The debt
reduction was due to normal maturities of various outstanding
notes.
Gain
on Disposal of Assets
Gain
on
disposal of assets increased $10.7 million during the three months ended
November 3, 2007 compared to the same period of the prior year. This
increase was primarily a result of a gain of $11.1 million that was recorded
during the three months ended November 3, 2007 relating to reimbursement for
property damages incurred during the 2005 hurricane season as the Company
completed the cleanup of the damaged location during the current
year.
Gain
on
disposal of assets decreased $4.1 million for the nine months ended November
3,
2007 to $12.3 million compared to $16.4 million for the same period of the
prior
year. During the nine months ended October 28, 2006, the Company sold
its interest in the Yuma Palms joint venture for $20.0 million and recognized
a
pretax gain of $13.5 million related to the sale. The decrease
between the periods was further enhanced by the Company’s sale of properties in
Longmont, Colorado and Richardson, Texas for $5.8 million, resulting in a net
loss of $2.5 million on the sales. These decreases were partially
offset by the $11.1 million insurance recovery gain recorded during the nine
months ended November 3, 2007.
Asset
Impairment and Store Closing Charges
During
the three and nine months ended November 3, 2007, the Company recorded pretax
expense of $3.7 million (0.2% of net sales) and $4.4 million (0.1% of net
sales), respectively, for asset impairment and store closing costs. The expense
includes a $1.1 million future lease obligation on a store closed during
the third quarter of 2007 and a $2.6 million write-off of goodwill for a
leased store planned to close during the fourth quarter of 2007 where the
projected cash flows were unable to sustain the amount of goodwill.
There
were no asset impairment and store closing charges recorded during the three
and
nine months ended October 28, 2006.
Income
Taxes
The
federal and state income tax rates were approximately 37.6% and 36.1% for the
three months ended November 3, 2007 and October 28, 2006,
respectively. During the three months ended November 3, 2007, income
taxes included the net increase in FIN 48 liabilities of approximately $1.3
million and included recognition of tax benefits of approximately $1.6 million
due to additional tax credits on the prior year tax return. During
the three months ended October 28, 2006, income taxes included recognition
of
tax benefits of approximately $0.3 million for the change in a capital loss
valuation allowance due to capital gain income.
The
federal and state income tax rates were approximately 15.9% and 26.4% for the
nine months ended November 3, 2007 and October 28, 2006,
respectively. During the nine months ended November 3, 2007, income
taxes included the net increase in FIN 48 liabilities of approximately $2.2
million and included recognition of tax benefits of approximately $0.3 million
for the change in a capital loss valuation allowance due to capital gain income,
approximately $1.3 million for a reduction in state tax liabilities due to
a
restructuring that occurred during this period and approximately $1.6 million
due to additional tax credits on the prior year tax return. During
the nine months ended October 28, 2006, income taxes included recognition of
tax
benefits of approximately $6.1 million for the change in a capital loss
valuation allowance due to capital gain income and $7.5 million due to the
release of tax reserves resulting from resolution of various federal and state
income tax issues.
Our
income tax rate for the remainder of fiscal 2007 is dependent upon results
of
operations and may change if the results for fiscal 2007 are different from
current expectations. We currently estimate that our effective rate
for the remainder of fiscal 2007 will approximate 37.1%.
FINANCIAL
CONDITION
Financial
Position Summary
(in
thousands of dollars)
|
|
November 3,
2007
|
|
|
February 3,
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Cash
and cash equivalents
|
|
$ |
73,038
|
|
|
$ |
193,994
|
|
|
|
(120,956 |
) |
|
|
-62.4 |
% |
Other
short-term borrowings
|
|
|
340,000
|
|
|
|
-
|
|
|
|
340,000
|
|
|
|
-
|
|
Current
portion of long-term debt
|
|
|
96,430
|
|
|
|
100,635
|
|
|
|
(4,205 |
) |
|
|
-4.2 |
% |
Long-term
debt
|
|
|
860,345
|
|
|
|
956,611
|
|
|
|
(96,266 |
) |
|
|
-10.1 |
% |
Guaranteed
preferred beneficial interests
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
-
|
|
Stockholders’
equity
|
|
|
2,479,440
|
|
|
|
2,586,953
|
|
|
|
(107,513 |
) |
|
|
-4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
ratio
|
|
|
1.43
|
|
|
|
2.10
|
|
|
|
|
|
|
|
|
|
Debt
to capitalization
|
|
|
37.6 |
% |
|
|
32.7 |
% |
|
|
|
|
|
|
|
|
(in
thousands of dollars)
|
|
November 3,
2007
|
|
|
October 28,
2006
|
|
|
$
Change
|
|
|
%
Change
|
|
Cash
and cash equivalents
|
|
$ |
73,038
|
|
|
$ |
95,039
|
|
|
|
(22,001 |
) |
|
|
-23.1 |
% |
Other
short-term borrowings
|
|
|
340,000
|
|
|
|
-
|
|
|
|
340,000
|
|
|
|
-
|
|
Current
portion of long-term debt
|
|
|
96,430
|
|
|
|
200,620
|
|
|
|
(104,190 |
) |
|
|
-51.9 |
% |
Long-term
debt
|
|
|
860,345
|
|
|
|
956,775
|
|
|
|
(96,430 |
) |
|
|
-10.1 |
% |
Guaranteed
preferred beneficial interests
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
-
|
|
Stockholders’
equity
|
|
|
2,479,440
|
|
|
|
2,432,040
|
|
|
|
47,400
|
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
ratio
|
|
|
1.43
|
|
|
|
1.59
|
|
|
|
|
|
|
|
|
|
Debt
to capitalization
|
|
|
37.6 |
% |
|
|
35.8 |
% |
|
|
|
|
|
|
|
|
Cash
flows from operations decreased from 2006 levels largely due to a decrease
in
net income of $70.4 million (as adjusted for non-cash items) partially offset
by
an increase of $22.3 million related to trade accounts payable and accrued
expenses, other liabilities and income taxes compared with the prior
year.
The
Company entered into a long-term marketing and servicing alliance with GE
Consumer Finance (“GE”) following the sale of the Company’s assets of its
private label credit card business in 2004. The alliance provides for
certain payments to be made by GE to the Company, including revenue sharing
and
marketing reimbursements. The cash flows that the Company receives
under this alliance have been greater than the net cash flows provided by the
Company’s credit business prior to its sale to GE due to quicker cash
receipts. The Company received income of approximately $30.7 million
and $30.9 million from GE during the three months ended November 3, 2007 and
October 28, 2006, respectively. While the Company does not expect
future cash flows under this alliance to vary significantly from historical
levels, future amounts are difficult to predict. The amount the
Company receives is dependent on the level of sales on GE accounts, the level
of
balances carried on the GE accounts by GE customers, payment rates on GE
accounts, finance charge rates and other fees on GE accounts, the level of
credit losses for the GE accounts as well as GE’s funding costs.
For
the
nine months ended October 28, 2006, the Company recorded a gain from the sale
of
a joint venture of $13.5 million with proceeds of $20.0 million.
The
Company received insurance proceeds of $22.0 million and $25.3 million during
the nine months ended November 3, 2007 and October 28, 2006, respectively,
related to reimbursement for inventory and property damages incurred during
the
2005 hurricane season. A gain of $18.2 million was recognized during
the nine months ended November 3, 2007 related to these proceeds.
During
the nine months ended November 3, 2007, the Company received proceeds of $5.8
million relative to the sale of properties located in Longmont, Colorado and
Richardson, Texas. A net loss of $2.5 million was recognized in
conjunction with these sales.
Capital
expenditures were $326.9 million for the nine months ended November 3, 2007
compared to $258.9 million for the nine months ended October 28, 2006. These
expenditures consist primarily of the construction of new stores, remodeling
of
existing stores and investments in technology. During the nine months
ended November 3, 2007, the Company opened new locations at: Eastland
Mall in Evansville, Indiana; Alamance Crossing in Burlington, North Carolina;
Stonebriar Centre in Frisco, Texas; Ashley Park in Newnan, Georgia; Hill Country
Galleria in West Austin, Texas; Santan Village in Gilbert, Arizona and the
Promenade at Casa Grande in Casa Grande, Arizona. The Company also
opened two replacement stores: Stones River Mall in Murfreesboro,
Tennessee and Fallen Timbers in Maumee, Ohio. These nine locations
totaled approximately 1,069,000 square feet net of replaced square
footage. The Company closed five locations during the nine-month
period including: (1) a 156,000 square foot location in Louisville, Kentucky,
(2) a 158,000 square foot location in Elyria, Ohio, (3) a 170,000 square foot
location in St. Louis, Missouri, (4) a 160,000 square foot clearance center
in
Tulsa, Oklahoma and (5) a 160,000 square foot location in Dallas,
Texas. The Company plans to close four more locations in the fourth
quarter of 2007. These locations include: (1) a 170,000
square foot location in Nashville, Tennessee, (2) a 115,000 square foot location
in Augusta, Georgia, (3) a 170,000 square foot location in Tallahassee, Florida
and (4) a 70,000 square foot location in Ashtabula, Ohio. Capital
expenditures for fiscal 2007 are expected to be approximately $410 million
compared to actual expenditures of $321 million during fiscal 2006.
Cash
provided by financing activities for the nine months ended November 3, 2007
totaled $121.6 million compared to cash used of $105.0 million for the nine
months ended October 28, 2006. During the nine months ended November
3, 2007, the Company made principal payments of long-term debt and capital
leases of $103.4 at their normal maturities. During the nine months
ended October 28, 2006, the Company reduced its total level of outstanding
debt
and capital lease obligations by $104.3 million, including debt repurchases
and
repayments of $1.7 million. No debt was repurchased during the nine
months ended November 3, 2007.
During
the nine months ended October 28, 2006, the Company repurchased approximately
133,500 shares of Class A common stock for $3.3 million under our $200 million
program, which was authorized by our Board of Directors in May of 2005 (“2005
plan”). During the nine months ended November 3, 2007, the Company
repurchased approximately 5.2 million shares for $111.6 million, completing
the
authorization under the 2005 plan. In November 2007, the Board of
Directors authorized the Company to repurchase up to an additional $200 million
of the Company’s Class A common stock. This new plan has no
expiration date.
The
Company had cash on hand of $73.0 million as of November 3, 2007. As
part of its overall liquidity management strategy and for peak working capital
requirements, the Company has a $1.2 billion credit facility. The
Company expects peak funding requirements of approximately $430 million during
fiscal 2007. At November 3, 2007, borrowings of $328.4 million were
outstanding and letters of credit totaling $73.9 million were issued under
the
$1.2 billion revolving credit agreement. Availability for borrowings
and letter of credit obligations under the credit agreement is limited to 85%
of
the inventory of certain Company subsidiaries (approximately $1.4 billion at
November 3, 2007) leaving unutilized availability under the facility of $798
million. During fiscal 2007, the Company expects to finance its
capital expenditures and its working capital requirements including required
debt repayments and stock repurchases, if any, from cash on hand, cash flows
generated from operations and utilization of the credit
facility. Depending on conditions in the capital markets and other
factors, the Company will from time to time consider possible financing
transactions, the proceeds of which could be used to refinance current
indebtedness or other corporate purposes.
There
have been no material changes in the information set forth under the caption
“Contractual Obligations and Commercial Commitments” in Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations in
our
Annual Report on Form 10-K for the fiscal year ended February 3,
2007.
Hurricane
Update
One
store
remains closed as a result of Hurricane Katrina. This store is
located in Biloxi, Mississippi and is expected to re-open in early fiscal
2008.
The
Company has approximately 95 stores along the Gulf and Atlantic coasts that
are
covered by third party insurance but are self-insured for property and
merchandise losses related to “named storms” in fiscal
2007. Therefore, repair and replacement costs will be borne by the
Company for damage to any of these stores from “named storms” in fiscal
2007. The Company has created early response teams to assess and
coordinate clean up efforts should some stores be impacted by
storms. The Company has also redesigned certain store features to
lessen the impact of storms and has equipment available to assist in the efforts
to ready the stores for normal operations.
OFF-BALANCE-SHEET
ARRANGEMENTS
The
Company does not have any arrangements or relationships with entities that
are
not consolidated into the financial statements that are reasonably likely to
materially affect the Company’s liquidity or the availability of capital
resources.
NEW
ACCOUNTING STANDARDS
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115 (“SFAS 159”). This statement permits entities
to choose to measure many financial instruments and certain other items at
fair
value. SFAS
159 is
effective at the beginning of an entity’s first fiscal year that begins after
November 15, 2007. The Company expects that the adoption of
SFAS 159 will not have a material impact on its consolidated financial
statements.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework
for measuring fair value and expands disclosure about such fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
concluded in those other accounting pronouncements that fair value is the
relevant measurement attribute. SFAS 157 is effective for financial
assets and liabilities in financial statements issued for fiscal years beginning
after November 15, 2007. It is effective for non-financial assets and
liabilities in financial statements issued for fiscal years beginning after
November 15, 2008. The Company expects that the adoption of SFAS 157
will not have a material impact on its consolidated financial
statements.
FORWARD-LOOKING
INFORMATION
This
report contains certain “forward-looking statements” within the definition of
federal securities laws. Statements in the Management’s Discussion
and Analysis of Financial Condition and Results of Operations and elsewhere
in
this document include certain “forward-looking statements,” including (without
limitation) statements with respect to anticipated future operating and
financial performance, growth and acquisition opportunities, financing
requirements and other similar forecasts and statements of expectation. Words
such as “expects,” “anticipates,” “plans” and “believes,” and variations of
these words and similar expressions, are intended to identify these
forward-looking statements. Statements made in this report regarding
expected funding of cyclical working capital needs, expected contributions
to
the defined benefit plan, expected disposition of legal proceedings, expected
impact of recently issued accounting standards, income tax rate projections,
expectation of cash flows under the alliance with GE Consumer Finance and
information included herein under the heading “2007 Guidance” are examples of
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 report 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 or implied in
forward-looking statements made by the Company and its management as a result
of
a number of risks, uncertainties and assumptions, including the matters
described under the caption “Risk Factors” in the Company’s Annual Report on
Form 10-K for the fiscal year ended February 3, 2007. Representative
examples of those factors (without limitation) include general retail industry
conditions and macro-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; the impact of
competitive pressures in the department store industry and other retail channels
including specialty, off-price, discount, internet, and mail-order retailers;
changes in consumer spending patterns and debt levels; adequate and stable
availability of materials and production facilities from which the Company
sources its merchandise; changes in operating expenses, including employee
wages, commission structures and related benefits; possible future acquisitions
of store properties from other department store operators and the continued
availability of financing in amounts and at the terms necessary to support
the
Company’s future business; fluctuations in LIBOR and other base borrowing rates;
potential disruption from terrorist activity and the effect on ongoing consumer
confidence; potential disruption of international trade and supply chain
efficiencies; world conflict and the possible impact on consumer spending
patterns and other economic and demographic changes of similar or
dissimilar nature.
There
have been no material changes in the information set forth under caption “Item
7A-Quantitative and Qualitative Disclosures About Market Risk” in the Company’s
Annual Report on Form 10-K for the fiscal year ended February 3,
2007.
The
Company maintains “disclosure controls and procedures”, as such term is defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), that are designed to ensure that information
required to be disclosed in the Company’s reports, pursuant to the Exchange Act,
is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding the required disclosures. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls
and
procedures, no matter how well designed and operated, can provide only
reasonable assurances of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As
of
November 3, 2007, the Company carried out an evaluation, with the participation
of Company’s management, including William Dillard, II, Chairman of the Board of
Directors and Chief Executive Officer (principal executive officer), and James
I. Freeman, Senior Vice-President and Chief Financial Officer (principal
financial officer), of the effectiveness of the Company’s “disclosure controls
and procedures” pursuant to Securities Exchange Act Rule
13a-15. Based on their evaluation, the principal executive officer
and principal financial officer concluded that the Company’s disclosure controls
and procedures are effective at the reasonable assurance level. There
were no significant changes in the Company’s internal controls over financial
reporting that occurred during the quarter ended November 3, 2007 to which
this
report relates that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
PART
II. OTHER INFORMATION
On
July
29, 2002, a Class Action Complaint (followed on December 13, 2004 by a Second
Amended Class Action Complaint) was filed in the United States District Court
for the Southern District of Ohio against the Company, the Mercantile Stores
Pension Plan (the “Plan”) and the Mercantile Stores Pension Committee (the
“Committee”) on behalf of a putative class of former Plan participants. The
complaint alleged that certain actions by the Plan and the Committee violated
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), as a
result of amendments made to the Plan that allegedly were either improper and/or
ineffective and as a result of certain payments made to certain beneficiaries
of
the Plan that allegedly were improperly calculated and/or discriminatory on
account of age. The Second Amended Complaint did not specify any liquidated
amount of damages sought and sought recalculation of certain benefits paid
to
putative class members.
During
the year ended February 3, 2007, the Company signed a memorandum of
understanding and accrued $35.0 million to settle the case. The
settlement became final in early April 2007. The litigation continues
between the Company and the Plan’s actuarial firm over the Company’s cross claim
against the actuarial firm seeking reimbursement for the settlement and
additional damages.
From
time
to time, we are involved in other litigation relating to claims arising out
of
our operations in the normal course of business. Such issues may
relate to litigation with customers, employment related lawsuits, class action
lawsuits, purported class action lawsuits and actions brought by governmental
authorities. As of December 5, 2007, we are not a party to any legal
proceedings that, individually or in the aggregate, are reasonably expected
to
have a material adverse effect on our business, results of operations, financial
condition or cash flows. However, the results of these matters cannot
be predicted with certainty, and an unfavorable resolution of one or more of
these matters could have a material adverse effect on our business, results
of
operations, financial condition or cash flows.
There
have been no material changes in the information set forth under caption “Item
1A-Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year
ended February 3, 2007.
Issuer
Purchases of Equity Securities
Period
|
(a)
Total Number of Shares Purchased
|
(b)
Average Price Paid per Share
|
(c)Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
(d)
Approximate Dollar Value that May Yet Be Purchased Under the Plans
or
Programs
|
August
5, 2007 through September 1, 2007
|
-
|
$-
|
-
|
$111,590,819
|
September
2, 2007 through October 6, 2007
|
-
|
$-
|
-
|
111,590,819
|
October
7, 2007 through November 3, 2007
|
5,202,699
|
$21.45
|
5,202,699
|
-
|
Total
|
5,202,699
|
$21.45
|
5,202,699
|
$-
|
In
May
2005, the Board of Directors authorized the Company to repurchase up to $200
million of the Company’s Class A common stock. In November 2007, the
Board of Directors authorized the Company to repurchase up to an additional
$200
million of the Company’s Class A common stock. This new plan has no
expiration date.
None.
None.
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
Years Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3,
|
|
October 28,
|
|
February 3,
|
|
January 28,
|
|
January 29,
|
|
January 31,
|
|
February 1,
|
2007
|
|
2006
|
|
2007*
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.01
|
|
2.33
|
|
3.34
|
|
2.01
|
|
2.12
|
|
1.05
|
|
1.88
|
*53
Weeks
Number
|
Description
|
|
|
|
Statement
re: Computation of Earnings to Fixed
Charges.
|
|
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350).
|
|
|
|
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350).
|
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
5, 2007
|
/s/
James I. Freeman
|
|
James
I. Freeman
|
|
Senior
Vice-President & Chief Financial Officer
|
|
(Principal
Financial and Accounting Officer)
|
24