form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended August
2, 2008
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.
þ Yes ¨ No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer þ
|
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨ (Do
not check if a smaller reporting company)
|
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12-b-2 of the Exchange Act).
¨ Yes þ 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 30, 2008
|
|
69,443,560
|
|
CLASS
B COMMON STOCK as of August 30, 2008
|
|
4,010,929
|
|
DILLARD'S,
INC.
PART
I. FINANCIAL INFORMATION
|
Page
Number
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Item
1.
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3
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4
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5
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6
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Item
2.
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11
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Item
3.
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25
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Item
4.
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25
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PART
II. OTHER INFORMATION
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Item
1.
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26
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Item
1A.
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26
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Item
2.
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26
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Item
3.
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26
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Item
4.
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27
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Item
5.
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27
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Item
6.
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28
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28
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PART
I. FINANCIAL INFORMATION
Item 1. Financial
Statements
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In
Thousands)
|
|
August 2,
2008
|
|
|
February 2,
2008
|
|
|
August 4,
2007
|
|
|
|
|
|
|
|
|
|
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|
Assets
|
|
|
|
|
|
|
|
(As
restated. See Note 1)
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
108,429 |
|
|
$ |
88,912 |
|
|
$ |
91,926 |
|
Accounts
receivable
|
|
|
9,263 |
|
|
|
10,880 |
|
|
|
10,193 |
|
Merchandise
inventories
|
|
|
1,750,488 |
|
|
|
1,779,279 |
|
|
|
1,803,953 |
|
Other
current assets
|
|
|
51,173 |
|
|
|
66,117 |
|
|
|
41,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,919,353 |
|
|
|
1,945,188 |
|
|
|
1,947,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
3,154,661 |
|
|
|
3,190,444 |
|
|
|
3,243,775 |
|
Goodwill
|
|
|
31,912 |
|
|
|
31,912 |
|
|
|
34,511 |
|
Other
assets
|
|
|
159,765 |
|
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|
170,585 |
|
|
|
175,884 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total
Assets
|
|
$ |
5,265,691 |
|
|
$ |
5,338,129 |
|
|
$ |
5,402,154 |
|
|
|
|
|
|
|
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|
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|
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|
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Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
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Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts payable and accrued expenses
|
|
$ |
744,162 |
|
|
$ |
753,309 |
|
|
$ |
774,216 |
|
Current
portion of capital lease obligations
|
|
|
1,953 |
|
|
|
2,613 |
|
|
|
2,940 |
|
Current
portion of long-term debt
|
|
|
101,611 |
|
|
|
196,446 |
|
|
|
96,415 |
|
Other
short-term borrowings
|
|
|
285,000 |
|
|
|
195,000 |
|
|
|
171,200 |
|
Federal
and state income taxes including current deferred taxes
|
|
|
27,288 |
|
|
|
36,802 |
|
|
|
23,453 |
|
|
|
|
|
|
|
|
|
|
|
|
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Total
current liabilities
|
|
|
1,160,014 |
|
|
|
1,184,170 |
|
|
|
1,068,224 |
|
|
|
|
|
|
|
|
|
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|
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Long-term
debt
|
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|
782,410 |
|
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|
760,165 |
|
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|
860,521 |
|
Capital
lease obligations
|
|
|
24,956 |
|
|
|
25,739 |
|
|
|
26,908 |
|
Other
liabilities
|
|
|
218,595 |
|
|
|
217,403 |
|
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|
221,894 |
|
Deferred
income taxes
|
|
|
421,796 |
|
|
|
436,541 |
|
|
|
426,780 |
|
Guaranteed
preferred beneficial interests in the Company's subordinated
debentures
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
200,000 |
|
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|
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|
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Stockholders'
equity:
|
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|
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|
|
|
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Common
stock
|
|
|
1,206 |
|
|
|
1,205 |
|
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|
1,204 |
|
Additional
paid-in capital
|
|
|
781,055 |
|
|
|
778,987 |
|
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|
779,210 |
|
Accumulated
other comprehensive loss
|
|
|
(21,361 |
) |
|
|
(22,211 |
) |
|
|
(20,374 |
) |
Retained
earnings
|
|
|
2,639,021 |
|
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|
2,680,690 |
|
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|
2,650,755 |
|
Less
treasury stock, at cost
|
|
|
(942,001 |
) |
|
|
(924,560 |
) |
|
|
(812,968 |
) |
|
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|
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|
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Total
stockholders' equity
|
|
|
2,457,920 |
|
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|
2,514,111 |
|
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|
2,597,827 |
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Total
Liabilities and Stockholders' Equity
|
|
$ |
5,265,691 |
|
|
$ |
5,338,129 |
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$ |
5,402,154 |
|
See notes
to condensed consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
(In
Thousands, Except Per Share Data)
|
|
Three
Months Ended
|
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|
Six
Months Ended
|
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|
|
August
2,
|
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|
August
4,
|
|
|
August
2,
|
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|
August
4,
|
|
|
|
2008
|
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|
2007
|
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|
2008
|
|
|
2007
|
|
Net
sales
|
|
$ |
1,607,823 |
|
|
$ |
1,648,533 |
|
|
$ |
3,283,377 |
|
|
$ |
3,411,487 |
|
Service
charges and other income
|
|
|
38,679 |
|
|
|
40,550 |
|
|
|
76,723 |
|
|
|
77,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,646,502 |
|
|
|
1,689,083 |
|
|
|
3,360,100 |
|
|
|
3,488,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
1,129,366 |
|
|
|
1,128,679 |
|
|
|
2,247,668 |
|
|
|
2,254,770 |
|
Advertising,
selling, administrative and general expenses
|
|
|
479,328 |
|
|
|
496,460 |
|
|
|
960,249 |
|
|
|
995,147 |
|
Depreciation
and amortization
|
|
|
73,021 |
|
|
|
74,863 |
|
|
|
145,096 |
|
|
|
149,795 |
|
Rentals
|
|
|
14,442 |
|
|
|
13,557 |
|
|
|
30,119 |
|
|
|
26,755 |
|
Interest
and debt expense, net
|
|
|
23,026 |
|
|
|
22,741 |
|
|
|
45,139 |
|
|
|
43,477 |
|
Gain
on disposal of assets
|
|
|
(17,902 |
) |
|
|
(583 |
) |
|
|
(18,001 |
) |
|
|
(583 |
) |
Asset
impairment and store closing charges
|
|
|
9,809 |
|
|
|
- |
|
|
|
10,734 |
|
|
|
688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes and equity in earnings of joint
ventures
|
|
|
(64,588 |
) |
|
|
(46,634 |
) |
|
|
(60,904 |
) |
|
|
18,488 |
|
Income
taxes (benefit)
|
|
|
(27,260 |
) |
|
|
(17,350 |
) |
|
|
(25,650 |
) |
|
|
8,040 |
|
Equity
in earnings of joint ventures
|
|
|
(1,012 |
) |
|
|
4,118 |
|
|
|
(393 |
) |
|
|
7,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
(38,340 |
) |
|
|
(25,166 |
) |
|
|
(35,647 |
) |
|
|
17,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings at beginning of period
|
|
|
2,680,373 |
|
|
|
2,679,135 |
|
|
|
2,680,690 |
|
|
|
2,640,224 |
|
Cash
dividends declared
|
|
|
(3,012 |
) |
|
|
(3,214 |
) |
|
|
(6,022 |
) |
|
|
(6,424 |
) |
Cumulative
effect of accounting change related to adoption of FIN
48
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(803 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings at end of period (as restated)
|
|
$ |
2,639,021 |
|
|
$ |
2,650,755 |
|
|
$ |
2,639,021 |
|
|
$ |
2,650,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$ |
(0.51 |
) |
|
$ |
(0.31 |
) |
|
$ |
(0.47 |
) |
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
$ |
0.04 |
|
|
$ |
0.04 |
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
See notes
to condensed consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In
Thousands)
|
|
Six
Months Ended
|
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(35,647 |
) |
|
$ |
17,758 |
|
Adjustments
to reconcile net (loss) income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and deferred financing
|
|
|
146,021 |
|
|
|
150,782 |
|
Share-based
compensation
|
|
|
17 |
|
|
|
47 |
|
Excess
tax benefits from share-based compensation
|
|
|
- |
|
|
|
(577 |
) |
(Gain)
loss on disposal of property and equipment
|
|
|
(18,001 |
) |
|
|
2,469 |
|
Gain
from hurricane insurance proceeds
|
|
|
- |
|
|
|
(7,123 |
) |
Proceeds
from hurricane insurance
|
|
|
- |
|
|
|
5,881 |
|
Asset
impairment and store closing charges
|
|
|
10,734 |
|
|
|
688 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease
in accounts receivable
|
|
|
1,617 |
|
|
|
315 |
|
Decrease
(increase) in merchandise inventories and other current
assets
|
|
|
34,477 |
|
|
|
(24,221 |
) |
Decrease
(increase) in other assets
|
|
|
7,061 |
|
|
|
(8,670 |
) |
Decrease
in trade accounts payable and accrued expenses, other liabilities and
income taxes
|
|
|
(36,613 |
) |
|
|
(101,246 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
109,666 |
|
|
|
36,103 |
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(104,341 |
) |
|
|
(228,607 |
) |
Proceeds
from hurricane insurance
|
|
|
- |
|
|
|
16,101 |
|
Proceeds
from sale of property and equipment
|
|
|
45,333 |
|
|
|
5,874 |
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(59,008 |
) |
|
|
(206,632 |
) |
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Principal
payments on long-term debt and capital lease obligations
|
|
|
(97,606 |
) |
|
|
(102,470 |
) |
Increase
in short-term borrowings
|
|
|
90,000 |
|
|
|
171,200 |
|
Proceeds
from issuance of common stock
|
|
|
- |
|
|
|
6,028 |
|
Excess
tax benefits from share-based compensation
|
|
|
- |
|
|
|
577 |
|
Cash
dividends paid
|
|
|
(6,022 |
) |
|
|
(6,424 |
) |
Purchase
of treasury stock
|
|
|
(17,441 |
) |
|
|
- |
|
Payment
of line of credit fees and expenses
|
|
|
(72 |
) |
|
|
(450 |
) |
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(31,141 |
) |
|
|
68,461 |
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
19,517 |
|
|
|
(102,068 |
) |
Cash
and cash equivalents, beginning of period
|
|
|
88,912 |
|
|
|
193,994 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
108,429 |
|
|
$ |
91,926 |
|
|
|
|
|
|
|
|
|
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
|
Accrued
capital expenditures
|
|
$ |
14,836 |
|
|
$ |
12,570 |
|
Property
and equipment financed by note payable
|
|
|
23,573 |
|
|
|
- |
|
Stock
awards
|
|
|
2,051 |
|
|
|
1,418 |
|
See notes
to condensed consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 six months ended August
2, 2008 are not necessarily indicative of the results that may be expected for
the fiscal year ending January 31, 2009 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 2, 2008 filed with the
Securities and Exchange Commission on April 2, 2008.
Reclassification – Asset
impairment and store closing charges of $0.7 million were reclassed from
advertising, selling, administrative and general expenses to their own line item
in the Company's Condensed Consolidated Statement of Operations for the six
months ended August 4, 2007 to conform to the 2008 presentation.
Restatement – As previously
reported in Note 2 of the Company's annual report on Form 10-K for the fiscal
year ended February 2, 2008 filed with the Securities and Exchange Commission on
April 2, 2008, property and equipment, deferred income taxes and retained
earnings were restated on the Company's Condensed Consolidated Balance Sheet as
of February 3, 2007. The Company identified an error in accounting
for its share of the equity in earnings of CDI Contractors LLC ("CDI"), a
50%-owned, equity method joint venture investment of the Company that is also a
general contractor that constructs stores for the Company. The
Company discovered that CDI had recorded profit on the Company's construction
projects in excess of what CDI had previously reported and which, therefore, was
not properly eliminated.
The
following table reflects the effects of the restatement on the Condensed
Consolidated Balance Sheet and the Condensed Consolidated Statement of Retained
Earnings as of August 4, 2007 (in thousands):
|
|
As
Previously
Reported
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
Property
and equipment, net
|
|
$ |
3,255,055 |
|
|
$ |
(11,280 |
) |
|
$ |
3,243,775 |
|
Total
assets
|
|
|
5,413,434 |
|
|
|
(11,280 |
) |
|
|
5,402,154 |
|
Deferred
income taxes
|
|
|
430,896 |
|
|
|
(4,116 |
) |
|
|
426,780 |
|
Retained
earnings
|
|
|
2,657,919 |
|
|
|
(7,164 |
) |
|
|
2,650,755 |
|
Total
stockholders' equity
|
|
|
2,604,991 |
|
|
|
(7,164 |
) |
|
|
2,597,827 |
|
Total
liabilities and stockholders' equity
|
|
|
5,413,434 |
|
|
|
(11,280 |
) |
|
|
5,402,154 |
|
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 six months ended August 2, 2008 and August 4,
2007.
Stock
option transactions for the three months ended August 2, 2008 are summarized as
follows:
Fixed
Options
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
beginning of period
|
|
|
5,336,375 |
|
|
$ |
25.92 |
|
Granted
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
(75,000 |
) |
|
|
25.74 |
|
Outstanding,
end of period
|
|
|
5,261,375 |
|
|
$ |
25.92 |
|
Options
exercisable at period end
|
|
|
5,261,375 |
|
|
$ |
25.92 |
|
At August
2, 2008, the intrinsic value of outstanding stock options and exercisable stock
options was $0.
Note
3. Asset Impairment and Store Closing Charges
During
the three months ended August 2, 2008, the Company recorded a pretax charge of
$9.8 million for an accrual of rent for one store closed during the quarter and
for a write-down of property and equipment on four stores scheduled to be closed
during the last half of fiscal 2008.
During
the six months ended August 2, 2008, the Company recorded a pretax charge of
$10.7 million for asset impairment and store closing costs. The
charge consists of the $9.8 million mentioned above and $0.9 million relating to
the write-off of equipment and an accrual for future rent on a distribution
center that was closed during the first quarter of fiscal 2008.
During
the six months ended August 4, 2007, the Company recorded a pretax charge of
$0.7 million for asset impairment costs relating to the write-down of property
and equipment for a store that had been closed. There were no asset
impairment and store closing charges for the three months ended August 4,
2007.
Following
is a summary of the activity in the reserve established for store closing
charges for the three months ended August 2, 2008:
(in
thousands)
|
|
Balance
Beginning
of
Quarter
|
|
|
Charges
|
|
|
Cash Payments
|
|
|
Balance
End
of
Quarter
|
|
Rent,
property taxes and utilities
|
|
$ |
4,555 |
|
|
$ |
1,117 |
|
|
$ |
718 |
|
|
$ |
4,954 |
|
Reserve
amounts are included in trade accounts payable and accrued expenses and other
liabilities.
Note
4. Earnings Per Share Data
The
following table sets forth the computation of basic and diluted earnings per
share ("EPS") for the periods indicated (in thousands, except per share
data).
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(38,340 |
) |
|
$ |
(25,166 |
) |
|
$ |
(35,647 |
) |
|
$ |
17,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding
|
|
|
75,005 |
|
|
|
80,342 |
|
|
|
75,102 |
|
|
|
80,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(loss) earnings per share
|
|
$ |
(0.51 |
) |
|
$ |
(0.31 |
) |
|
$ |
(0.47 |
) |
|
$ |
0.22 |
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(38,340 |
) |
|
$ |
(25,166 |
) |
|
$ |
(35,647 |
) |
|
$ |
17,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding
|
|
|
75,005 |
|
|
|
80,342 |
|
|
|
75,102 |
|
|
|
80,270 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,394 |
|
Total
weighted average equivalent shares
|
|
|
75,005 |
|
|
|
80,342 |
|
|
|
75,102 |
|
|
|
81,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
(loss) earnings per share
|
|
$ |
(0.51 |
) |
|
$ |
(0.31 |
) |
|
$ |
(0.47 |
) |
|
$ |
0.22 |
|
Total
stock options outstanding were 5,261,375 and 5,732,194 at August 2, 2008 and
August 4, 2007, respectively. No stock options were included in the
computations of diluted earnings per share for the three and six months ended
August 2, 2008 and
the three months ended August 4, 2007 because they would be antidilutive due to
the net losses. All stock options outstanding were included in the
computation of diluted earnings per share for the six months ended August 4,
2007 as none were antidilutive.
Note
5. Comprehensive (Loss) Income
Comprehensive
(loss) income only consists of the minimum pension liability, which is
calculated as of the last day of the Company's fiscal year. The
following table shows the computation of comprehensive income (in
thousands):
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(38,340 |
) |
|
$ |
(25,166 |
) |
|
$ |
(35,647 |
) |
|
$ |
17,758 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of minimum pension liability adjustment, net of taxes
|
|
|
425 |
|
|
|
462 |
|
|
|
850 |
|
|
|
855 |
|
Total
comprehensive (loss) income
|
|
$ |
(37,915 |
) |
|
$ |
(24,704 |
) |
|
$ |
(34,797 |
) |
|
$ |
18,613 |
|
Note
6. Commitments and Contingencies
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 August
2, 2008, letters of credit totaling $95.5 million were issued under the
Company's $1.2 billion revolving credit facility.
Note 7. Benefit
Plans
The
Company has a nonqualified defined benefit plan for its 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 allocates this cost to service periods. The pension
plan is unfunded. The actuarial assumptions used to calculate pension
costs are reviewed annually. The Company made contributions to the
pension plan of $1.0 million and $1.9 million during the three and six months
ended August 2, 2008, respectively. The Company expects to make a
contribution to the pension plan of approximately $2.1 million for the remainder
of fiscal 2008.
The
components of net periodic benefit costs are as follows (in
thousands):
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
Components
of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
626 |
|
|
$ |
517 |
|
|
$ |
1,251 |
|
|
$ |
1,034 |
|
Interest
cost
|
|
|
1,764 |
|
|
|
1,501 |
|
|
|
3,528 |
|
|
|
3,001 |
|
Net
actuarial loss
|
|
|
513 |
|
|
|
517 |
|
|
|
1,027 |
|
|
|
1,035 |
|
Amortization
of prior service cost
|
|
|
157 |
|
|
|
157 |
|
|
|
313 |
|
|
|
314 |
|
Net
periodic benefit costs
|
|
$ |
3,060 |
|
|
$ |
2,692 |
|
|
$ |
6,120 |
|
|
$ |
5,384 |
|
Note
8. Recently Issued Accounting Standards
In March
2008, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an Amendment of FASB Statement
No. 133 ("SFAS
161"). SFAS 161 requires entities to provide enhanced disclosures
related to how an entity uses derivative instruments, how derivatives are
accounted for under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities and how derivative instruments and the
related hedged items impact an entity's financial statements. The
provisions of SFAS 161 are effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
adoption encouraged. We expect that the adoption of SFAS 161 will not
have a material impact on our consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS
141(R)"). SFAS 141(R)'s objective is to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its
effects. SFAS 141(R) applies prospectively to business combinations
for which the acquisition date is on or after December 31, 2008. We
expect that the adoption of SFAS 141(R) will not have a material impact on our
consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements ("SFAS 160"). SFAS 160's
objective is to improve the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 will be effective for fiscal years and interim periods
within those fiscal years, beginning on or after December 15, 2008. We expect
that the adoption of SFAS 160 will not have a material impact on our
consolidated financial statements.
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 was effective February 3, 2008, and we have
elected not to measure any financial instruments or certain other items at fair
value.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS 157").
This statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
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. This statement was effective for financial
assets and liabilities in financial statements issued for fiscal years beginning
after November 15, 2007. The adoption of this portion of the
statement did not have a material impact on our consolidated financial
statements.
In
February 2008, the FASB issued FSP SFAS 157-2, Effective Date for FASB Statement
No. 157. This FSP permits the delayed application of SFAS 157
for all nonrecurring fair value measurements of nonfinancial assets and
nonfinancial liabilities until fiscal years beginning after November 15,
2008. We have chosen to adopt SFAS 157 in accordance with the
guidance of FSP SFAS 157-2 as stated above.
Note
9. Revolving Credit Agreement
At August
2, 2008, the Company maintained a $1.2 billion revolving credit facility
("credit agreement") with JPMorgan Chase Bank ("JPMorgan") as agent for various
banks, secured by the inventory of Dillard's, Inc. operating
subsidiaries. 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% (3.46% at August 2, 2008)
subject to certain availability thresholds as defined in the credit
agreement. Limited to 85% of the inventory of certain Company
subsidiaries, availability for borrowings and letter of credit obligations under
the credit agreement was approximately $1.0 billion at August 2,
2008. Borrowings of $285.0 million were outstanding and letters of
credit totaling $95.5 million were issued under this credit agreement leaving
unutilized availability under the facility of $637.5 million at August 2,
2008. 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
10. Share Repurchase Program
The
Company was authorized by its board of directors in November 2007 to repurchase
up to $200 million of its Class A Common Stock under an open-ended
plan. During the three and six months ended August 2, 2008, the
Company repurchased 1,826,600 shares of Class A Common Stock under the plan for
$17.4 million at an average price of $9.55 per share leaving $182.6 million in
share repurchase authorization remaining at August 2, 2008. No shares
were repurchased during the three and six months ended August 4, 2007 under
previous plans.
Note
11. Other Revenue
During
the three months ended August 2, 2008, the Company purchased a corporate
aircraft by exercising its option under a synthetic lease and by issuing a $23.6
million note payable, secured by letters of credit. The Company then
sold the aircraft for $44.5 million. A gain of $17.6 million was
recognized related to the sale and was recorded in gain on disposal of
assets.
Note
12. Income Taxes
FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes ("FIN 48") clarifies the accounting for uncertainty in income tax
recognized in an entity's financial statements in accordance with SFAS No.
109. The Company classifies accrued interest and penalties relating
to income tax in the financial statements as income tax expense. The
total amount of unrecognized tax benefits as of August 2, 2008 was $24.9
million, of which $17.0 million would, if recognized, affect the effective tax
rate. The total amount of accrued interest and penalties as of August
2, 2008 was $9.3 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. The Company has taken
positions in certain taxing jurisdictions for which it is reasonably possible
that the total amounts of unrecognized tax benefits may decrease within the next
twelve months. The possible decrease could result from the
finalization of the Company's federal and various state income tax
audits. The Company's federal income tax audit uncertainties
primarily relate to research and development credits, while various state income
tax audit uncertainties primarily relate to income from
intangibles. The estimated range of the reasonably possible uncertain
tax benefit decrease in the next twelve months is between $2 million and $5
million.
The
federal and state income tax rates were approximately 41.5% and 40.8% for the
three months ended August 2, 2008 and August 4, 2007,
respectively. During the three months ended August 2, 2008, income
taxes included the net increase in FIN 48 liabilities of approximately $0.2
million and included the net recognition of tax benefits of approximately $3.6
million for the change in a capital loss valuation allowance due to capital gain
income and $0.4 million due to tax credits. During the three months
ended August 4, 2007, income taxes included the net increase in FIN 48
liabilities of approximately $0.6 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 and approximately $1.3 million
for a reduction in state tax liabilities due to a restructuring that occurred
during this period.
The
federal and state income tax rates were approximately 41.8% and 31.2% for the
six months ended August 2, 2008 and August 4, 2007,
respectively. During the six months ended August 2, 2008, income
taxes included the net increase in FIN 48 liabilities of approximately $0.4
million and included the net recognition of tax benefits of approximately $3.6
million for the change in a capital loss valuation allowance due to capital gain
income and $0.6 million due to tax credits. During the six months
ended August 4, 2007, income taxes included the net increase in FIN 48
liabilities of approximately $0.8 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 and approximately $1.3 million
for a reduction in state tax liabilities due to a restructuring that occurred
during this period.
Note
13. Subsequent Events
Hurricane
Gustav disrupted operations in 24 of the Company's Gulf-area stores beginning on
or around Wednesday, August 27, 2008. Dillard's closed 13 of these
stores more directly in Gustav's path for varying amounts of time beginning on
Saturday, August 30, 2008. Most of these stores were reopened by
Wednesday, September 3 with the exception of the Houma, Louisiana store which
reopened on Sunday, September 7 when electricity was restored to the
area. Property damage as a result of Hurricane Gustav was
minimal.
At August
2, 2008, the Company owned a 50% interest in CDI Contractors, LLC and CDI
Contractors, Inc. ("CDI"), an equity method joint venture investment
of the Company that is also a general contractor that constructs stores for the
Company. On August 29, 2008, the Company purchased the remaining 50%
interest in CDI.
On August
29, 2008, the Company announced plans to immediately close its Dillard's Travel
agency which operates in 43 stores and employs approximately 160 associates
nationwide. The agency closure is a result of the Company's ongoing
review and closure of under-performing units under appropriate
conditions.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
EXECUTIVE
OVERVIEW
Dillard's,
Inc. (the "Company", "we", "us" or "our") operated 318 Dillard's locations and
nine clearance centers spanning 29 states as of August 2, 2008. Our
stores are located in fashion-oriented shopping malls and open-air centers and
offer a broad selection of fashion apparel and home furnishings. We
offer an appealing and attractive assortment of merchandise to our customers at
a fair price. We seek to enhance our income by maximizing the sale of
this merchandise to our customers. We do this by promoting and
advertising our merchandise and by making our stores an attractive and
convenient place for our customers to shop.
Fundamentally,
our business model is to offer the customer a compelling price/value
relationship through the combination of high quality, fashionable products and
services at a competitive price. We seek to deliver a high level of
profitability and cash flow.
In the
prevailing economic uncertainty of the second quarter of 2008, we continued to
manage our business conservatively. However, our accomplishments with
expense reduction were not sufficient to offset large disappointments in sales
and gross margin. Clearly, we believe our continued efforts to reduce
both capital and operating expenditures and to close under-performing stores are
appropriate as we weather challenging economic times. At the same
time, we remain focused on fashion and on presenting our customers with an
exciting and differentiated assortment storewide, as emphasized in our
"Dillard's – The Style of Your Life." campaign which features our new looks in
top fashion publications and online and is supported by in-store
events.
Highlights
of the second quarter of 2008 include:
|
·
|
Control
of inventory in a difficult retail environment with comparable inventory
declining 5% compared to the end of the second quarter of the prior
year.
|
|
·
|
Reduction
of advertising, selling, administrative and general expenses of $17.1
million compared to the second quarter of the prior
year.
|
|
·
|
Closure
of four under-performing stores during the quarter with one more store
closed shortly thereafter and plans to close ten more under-performing
stores by the end of fiscal 2008.
|
|
·
|
Repurchase
of $17.4 million (1.8 million shares) of Class A Common Stock under the
Company's $200 million share repurchase
plan.
|
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.
|
|
·
|
Pricing
– 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 income statement will
correspondingly rise, thus reducing our
income.
|
|
·
|
Success
of brand – The success of our exclusive brand merchandise as well as
merchandise we source from national vendors is dependent upon customer
fashion preferences.
|
|
·
|
Sourcing
– Our store merchandise selection is dependent upon our ability to acquire
compelling products from a number of sources. Our ability to
attract and retain compelling vendors as well as in-house design talent
combined with adequate and stable availability of materials and production
facilities from which we source our merchandise has a significant impact
on our merchandise mix and, thus, our ability to sell merchandise at
profitable prices.
|
|
·
|
Store
growth – Although store growth is presently not a near-term goal, such
growth is dependent upon a number of factors which could impede our
ability to open new stores, such as the identification of suitable markets
and locations and the availability of shopping developments, especially in
a weakened economic environment.
|
2008
Guidance
A summary
of guidance on key financial measures for 2008, in conformity with accounting
principles generally accepted in the United States of America ("GAAP"), is shown
below. See "forward-looking information" below.
(in
millions of dollars)
|
|
2008
Estimated
|
|
|
2007
Actual
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$ |
290 |
|
|
$ |
299 |
|
Rental
expense
|
|
|
62 |
|
|
|
60 |
|
Interest
and debt expense, net
|
|
|
92 |
|
|
|
92 |
|
Capital
expenditures
|
|
|
204 |
|
|
|
396 |
|
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 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 other 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 consist 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 2, 2008. As disclosed in this
note, the preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions about future events that affect the
amounts reported in the consolidated financial statements and accompanying
notes. 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. Since future events and their effects cannot be
determined with absolute certainty, actual results will differ from those
estimates.
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 the 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 the lower of cost or market using the specific identified cost
method. A 1% change in markdowns would have impacted net loss by
approximately $3 million and $5 million for the three and six months ended
August 2, 2008, respectively.
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 $7.3 million and $7.5 million as of August 2, 2008 and August 4,
2007, respectively. Adjustments to earnings resulting from revisions
to estimates on our sales return provision have been insignificant for the three
and six months ended August 2, 2008 and August 4, 2007.
The
Company's share of income earned under the long-term marketing and servicing
alliance with GE involving the Dillard's branded proprietary credit cards is
included as a component of service charges and other income. The
Company received income of approximately $53.5 million and $58.5 million from GE
during the six months ended August 2, 2008 and August 4, 2007,
respectively. Further pursuant to this agreement, the Company has no
continuing involvement other than to honor the proprietary credit cards in its
stores. Although not obligated to a specific level of marketing
commitment, the Company participates in the marketing of the proprietary credit
cards and accepts payments on the proprietary 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 revenues, 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 six months ended August 2, 2008
and August 4, 2007.
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 August 2, 2008
and August 4, 2007, insurance accruals of $56.4 million and $56.3 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 six months
ended August 2, 2008 and August 4, 2007.
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, 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.
FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, clarifies the accounting for uncertainty in income tax recognized
in an entity's financial statements in accordance with SFAS No.
109. 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 August 2, 2008 was $24.9 million, of
which $17.0 million would, if recognized, affect the effective tax
rate. The total amount of accrued interest and penalties as of August
2, 2008 was $9.3 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. The Company has taken
positions in certain taxing jurisdictions for which it is reasonably possible
that the total amounts of unrecognized tax benefits may decrease within the next
twelve months. The possible decrease could result from the
finalization of the Company's federal and various state income tax
audits. The Company's federal income tax audit uncertainties
primarily relate to research and development credits, while various state income
tax audit uncertainties primarily relate to income from
intangibles. The estimated range of the reasonably possible uncertain
tax benefit decrease in the next twelve months is between $2 million and $5
million.
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
6.3% as of February 2, 2008 from 5.9% as of February 3, 2007. We
believe that these assumptions have been appropriate and that, based on these
assumptions, the pension liability of $114 million was appropriately stated as
of February 2, 2008; 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 $8.0
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 such factors 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
|
|
|
Six
Months Ended
|
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
% |
|
|
100.0
|
% |
|
|
100.0
|
% |
|
|
100.0
|
% |
Service
charges and other income
|
|
|
2.4 |
|
|
|
2.5 |
|
|
|
2.3 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102.4 |
|
|
|
102.5 |
|
|
|
102.3 |
|
|
|
102.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
70.2 |
|
|
|
68.5 |
|
|
|
68.5 |
|
|
|
66.1 |
|
Advertising,
selling, administrative and general expenses
|
|
|
29.8 |
|
|
|
30.1 |
|
|
|
29.2 |
|
|
|
29.2 |
|
Depreciation
and amortization
|
|
|
4.6 |
|
|
|
4.5 |
|
|
|
4.4 |
|
|
|
4.4 |
|
Rentals
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
0.9 |
|
|
|
0.8 |
|
Interest
and debt expense, net
|
|
|
1.4 |
|
|
|
1.4 |
|
|
|
1.4 |
|
|
|
1.2 |
|
Gain
on disposal of assets
|
|
|
(1.1 |
) |
|
|
0.0 |
|
|
|
(0.5 |
) |
|
|
0.0 |
|
Asset
impairment and store closing charges
|
|
|
0.6 |
|
|
|
0.0 |
|
|
|
0.3 |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes and equity in earnings of joint
ventures
|
|
|
(4.0 |
) |
|
|
(2.8 |
) |
|
|
(1.9 |
) |
|
|
0.5 |
|
Income
taxes (benefit)
|
|
|
(1.7 |
) |
|
|
(1.0 |
) |
|
|
(0.8 |
) |
|
|
0.2 |
|
Equity
in earnings of joint ventures
|
|
|
(0.1 |
) |
|
|
0.3 |
|
|
|
0.0 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
(2.4 |
)
% |
|
|
(1.5 |
)
% |
|
|
(1.1 |
)
% |
|
|
0.5
|
% |
Net
Sales
(in
thousands of dollars)
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
$
Change
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
$ |
1,607,823 |
|
|
$ |
1,648,533 |
|
|
$ |
(40,710 |
) |
Six
Months
|
|
|
3,283,377 |
|
|
|
3,411,487 |
|
|
|
(128,110 |
) |
The
percent change by category in the Company's sales for the three and six months
ended August 2, 2008 compared to the three and six months ended August 4,
2007 is as
follows:
|
|
%
Change
08-07
|
|
|
|
Three
Months
|
|
|
Six
Months
|
|
Cosmetics
|
|
|
0.5 |
% |
|
|
(1.4 |
)% |
Ladies'
apparel and accessories
|
|
|
(1.7 |
) |
|
|
(2.2 |
) |
Juniors'
and children's apparel
|
|
|
(7.8 |
) |
|
|
(7.9 |
) |
Men's
apparel and accessories
|
|
|
(3.5 |
) |
|
|
(4.1 |
) |
Shoes
|
|
|
0.1 |
|
|
|
(2.9 |
) |
Home
and furniture
|
|
|
(8.8 |
) |
|
|
(10.6 |
) |
The
percent change by region in the Company's total sales for the three and six
months ended August 2, 2008 compared to the three and six months ended August 4,
2007 is as follows:
|
|
%
Change
08-07
|
|
|
|
Three
Months
|
|
|
Six
Months
|
|
Eastern
|
|
|
(5.0 |
)% |
|
|
(5.6 |
)% |
Central
|
|
|
(0.3 |
) |
|
|
(2.1 |
) |
Western
|
|
|
(4.8 |
) |
|
|
(4.6 |
) |
Net
sales, exclusive of adjustments to the sales reserve, declined 3% in total
stores and 4% in comparable stores during the three months ended August 2, 2008
compared to the three months ended August 4, 2007. Net sales declined
4% in total stores and 5% in comparable stores during the six months ended
August 2, 2008 compared to the six months ended August 4, 2007. With
the exception of some small sales improvements in cosmetics and shoes during the
three months ended August 2, 2008, all product categories experienced sales
declines in both of the three and six-month periods, with the most significant
declines noted in the home and furniture and junior's and children's apparel
categories.
During
the three and six months ended August 2, 2008, net sales in the Central region
were above the Company's average performance trend for the periods while sales
in the Western and Eastern regions were below trend.
Storewide
sales penetration of exclusive brand merchandise for the six months ended August
2, 2008 was 24.0% compared to 23.8% during the six months ended August 4,
2007.
Service
Charges and Other Income
(in
thousands of dollars)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
$
Change
08-07
|
|
|
$
Change
08-07
|
|
Leased
department income
|
|
$ |
3,278 |
|
|
$ |
2,579 |
|
|
$ |
6,544 |
|
|
$ |
5,206 |
|
|
$ |
699 |
|
|
$ |
1,338 |
|
Income
from GE marketing and servicing alliance
|
|
|
27,039 |
|
|
|
30,669 |
|
|
|
53,478 |
|
|
|
58,493 |
|
|
|
(3,630 |
) |
|
|
(5,015 |
) |
Other
|
|
|
8,362 |
|
|
|
7,302 |
|
|
|
16,701 |
|
|
|
13,351 |
|
|
|
1,060 |
|
|
|
3,350 |
|
Total
|
|
$ |
38,679 |
|
|
$ |
40,550 |
|
|
$ |
76,723 |
|
|
$ |
77,050 |
|
|
$ |
(1,871 |
) |
|
$ |
(327 |
) |
Service
charges and other income decreased for the three and six months ended August 2,
2008 compared to the three and six months ended August 4, 2007 primarily as a
result of a reduction of the income from the marketing and servicing alliance
with GE. This reduction was primarily caused by a lower penetration
rate of Dillard's branded proprietary credit card.
Gross
Margin/Cost of Sales
Cost of
sales increased to 70.2% of net sales for the three months ended August 2, 2008
from 68.5% for the three months ended August 4, 2007. The gross
margin decline of 170 basis points of sales was primarily driven by higher
markdowns as the Company worked during the quarter to control inventory levels
in a notably difficult sales environment. In anticipation of the
weakened economy, the Company purchased less inventory for 2008 compared to
2007. Gross margin improved in the men's apparel and accessories
category and a small improvement was noted in cosmetics while all other
categories experienced declines, with the largest decline in the home and
furniture category.
Cost of
sales increased to 68.5% of net sales for the six months ended August 2, 2008
from 66.1% for the six months ended August 4, 2007 resulting in gross margin
decline of 240 basis points of sales. The gross margin decline was
primarily driven by higher markdowns. A slight gross margin
improvement was noted in cosmetics while all other merchandise categories
experienced declines, with the weakest performances noted in the junior's and
children's apparel, home and furniture and ladies' apparel and accessories
categories.
Inventory
levels decreased 3% in total stores and 5% in comparable stores as of August 2,
2008 compared to August 4, 2007.
Advertising,
Selling, Administrative and General Expenses
(in
thousands of dollars)
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
SG&A:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
$ |
479,328 |
|
|
$ |
496,460 |
|
|
$ |
(17,132 |
) |
|
|
(3.5 |
)% |
Six
Months
|
|
|
960,249 |
|
|
|
995,147 |
|
|
|
(34,898 |
) |
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
29.8 |
% |
|
|
30.1 |
% |
|
|
- |
|
|
|
- |
|
Six
Months
|
|
|
29.2 |
|
|
|
29.2 |
|
|
|
- |
|
|
|
- |
|
The
three-month decline of advertising, selling, administrative and general expenses
("SG&A") was primarily a result of savings in payroll and related payroll
taxes ($15.6 million), supplies ($3.5 million) and advertising ($1.8 million)
partially offset by higher utility costs ($3.5 million).
The
six-month dollar decline of SG&A expenses was primarily a result of savings
in payroll and related payroll taxes ($24.1 million), supplies ($5.9 million),
advertising ($4.9 million) and insurance ($3.9 million) partially offset by
higher utility costs ($5.0 million). SG&A as a percent of sales
remained unchanged at 29.2% of net sales between the two periods due to a lack
of sales leverage in 2008.
Depreciation
and Amortization Expense
(in
thousands of dollars)
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Depreciation
and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
$ |
73,021 |
|
|
$ |
74,863 |
|
|
$ |
(1,842 |
) |
|
|
(2.5 |
)% |
Six
Months
|
|
|
145,096 |
|
|
|
149,795 |
|
|
|
(4,699 |
) |
|
|
(3.1 |
) |
The
decrease of depreciation and amortization expense for the three and six-month
periods was primarily due to the Company's shift from purchasing new equipment
to leasing new equipment, which began in the second quarter of 2007, and the
Company's continued efforts to reduce capital expenditures.
Rentals
(in
thousands of dollars)
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Rentals:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
$ |
14,442 |
|
|
$ |
13,557 |
|
|
$ |
885 |
|
|
|
6.5 |
% |
Six
Months
|
|
|
30,119 |
|
|
|
26,755 |
|
|
|
3,364 |
|
|
|
12.6 |
|
The
increase in rentals for the three and six-month periods is mainly due to the
increase of leased equipment.
Interest
and Debt Expense, Net
(in
thousands of dollars)
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Interest
and debt expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
$ |
23,026 |
|
|
$ |
22,741 |
|
|
$ |
285 |
|
|
|
1.3 |
% |
Six
Months
|
|
|
45,139 |
|
|
|
43,477 |
|
|
|
1,662 |
|
|
|
3.8 |
|
The
increase of net interest and debt expense for the six-month period is primarily
attributable to higher average debt levels, lower interest income and lower
capitalized interest partially offset by a lower average interest
rate. Total weighted average debt outstanding at August 2, 2008
increased approximately $69.1 million and $48.4 million during the three and six
months ending August 2, 2008 compared to the three and six months ending August
4, 2007, respectively.
Gain
on Disposal of Assets
(in
thousands of dollars)
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
$
Change
|
|
Gain
on disposal of assets:
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
$ |
17,902 |
|
|
$ |
583 |
|
|
$ |
17,319 |
|
Six
Months
|
|
|
18,001 |
|
|
|
583 |
|
|
|
17,418 |
|
During
the three months ended August 2, 2008, the Company purchased a corporate
aircraft by exercising its option under a synthetic lease and by issuing a $23.6
million note payable, secured by letters of credit. The Company then
sold the aircraft for $44.5 million. A gain of $17.6 million was
recognized related to the sale and was recorded in gain on disposal of
assets.
Asset
Impairment and Store Closing Charges
(in
thousands of dollars)
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
$
Change
|
|
Asset
impairment and store closing charges:
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
$ |
9,809 |
|
|
$ |
- |
|
|
$ |
9,809 |
|
Six
Months
|
|
|
10,734 |
|
|
|
688 |
|
|
|
10,046 |
|
During
the three months ended August 2, 2008, the Company recorded a pretax charge of
$9.8 million for an accrual of rent for one store closed during the quarter and
for a write-down of property and equipment on four stores scheduled to close
during the last half of fiscal 2008.
During
the six months ended August 2, 2008, the Company recorded a pretax charge of
$10.7 million for asset impairment and store closing costs. The
charge consists of the $9.8 million mentioned above and $0.9 million relating to
the write-off of equipment and an accrual for future rent on a distribution
center that was closed during the first quarter of fiscal 2008.
During
the six months ended August 4, 2007, the Company recorded a pretax charge of
$0.7 million for asset impairment costs relating to the write-down of property
and equipment for a store that had been closed. There were no asset
impairment and store closing charges for the three months ended August 4,
2007.
Income
Taxes
The
federal and state income tax rates were approximately 41.5% and 40.8% for the
three months ended August 2, 2008 and August 4, 2007,
respectively. During the three months ended August 2, 2008, income
taxes included the net increase in FIN 48 liabilities of approximately $0.2
million and included the net recognition of tax benefits of approximately $3.6
million for the change in a capital loss valuation allowance due to capital gain
income and $0.4 million due to tax credits. During the three months
ended August 4, 2007, income taxes included the net increase in FIN 48
liabilities of approximately $0.6 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 and approximately $1.3 million
for a reduction in state tax liabilities due to a restructuring that occurred
during this period.
The
federal and state income tax rates were approximately 41.8% and 31.2% for the
six months ended August 2, 2008 and August 4, 2007,
respectively. During the six months ended August 2, 2008, income
taxes included the net increase in FIN 48 liabilities of approximately $0.4
million and included the net recognition of tax benefits of approximately $3.6
million for the change in a capital loss valuation allowance due to capital gain
income and $0.6 million due to tax credits. During the six months
ended August 4, 2007, income taxes included the net increase in FIN 48
liabilities of approximately $0.8 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 and approximately $1.3 million
for a reduction in state tax liabilities due to a restructuring that occurred
during this period.
Our
income tax rate for the remainder of fiscal 2008 is dependent upon results of
operations and may change if the results for fiscal 2008 are different from
current expectations. We currently estimate that our effective rate for the
remainder of fiscal 2008 will approximate 37%.
FINANCIAL
CONDITION
Financial Position
Summary
(in
thousands of dollars)
|
|
August
2,
2008
|
|
|
February
2,
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
Cash
and cash equivalents
|
|
$ |
108,429 |
|
|
$ |
88,912 |
|
|
$ |
19,517 |
|
|
|
22.0 |
% |
Other
short-term borrowings
|
|
|
285,000 |
|
|
|
195,000 |
|
|
|
90,000 |
|
|
|
46.2 |
|
Current
portion of long-term debt
|
|
|
101,611 |
|
|
|
196,446 |
|
|
|
(94,835 |
) |
|
|
(48.3 |
) |
Long-term
debt
|
|
|
782,410 |
|
|
|
760,165 |
|
|
|
22,245 |
|
|
|
2.9 |
|
Guaranteed
preferred beneficial interests
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
- |
|
|
|
- |
|
Stockholders'
equity
|
|
|
2,457,920 |
|
|
|
2,514,111 |
|
|
|
(56,191 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
ratio
|
|
|
1.65 |
|
|
|
1.64 |
|
|
|
|
|
|
|
|
|
Debt
to capitalization
|
|
|
35.8 |
% |
|
|
35.0 |
% |
|
|
|
|
|
|
|
|
(in
thousands of dollars)
|
|
August
2,
2008
|
|
|
August
4,
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Cash
and cash equivalents
|
|
$ |
108,429 |
|
|
$ |
91,926 |
|
|
$ |
16,503 |
|
|
|
18.0 |
% |
Other
short-term borrowings
|
|
|
285,000 |
|
|
|
171,200 |
|
|
|
113,800 |
|
|
|
66.5 |
|
Current
portion of long-term debt
|
|
|
101,611 |
|
|
|
96,415 |
|
|
|
5,196 |
|
|
|
5.4 |
|
Long-term
debt
|
|
|
782,410 |
|
|
|
860,521 |
|
|
|
(78,111 |
) |
|
|
(9.1 |
) |
Guaranteed
preferred beneficial interests
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
- |
|
|
|
- |
|
Stockholders'
equity
|
|
|
2,457,920 |
|
|
|
2,597,827 |
|
|
|
(139,907 |
) |
|
|
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
ratio
|
|
|
1.65 |
|
|
|
1.82 |
|
|
|
|
|
|
|
|
|
Debt
to capitalization
|
|
|
35.8 |
% |
|
|
33.8 |
% |
|
|
|
|
|
|
|
|
Net cash
flows from operations increased to $109.7 million during the six months ended
August 2, 2008 compared to $36.1 million for the six months ended August 4,
2007. This increase of $73.6 million was largely a result of an
increase of $140.4 million related to changes in working capital items,
primarily of changes in inventory as the Company worked to control inventory
levels and of changes in accounts payable and income tax
accruals. These increases were partially offset by lower net income,
as adjusted for non-cash items, of $60.9 million. Hurricane insurance
proceeds of $5.9 million received during the prior year relating to recovery
from damages incurred during the hurricanes of 2005 also contributed to the
offset.
GE owns
and manages the Company's private label credit card business under a long-term
marketing and servicing alliance ("alliance") that expires in fiscal
2014. The alliance provides for certain payments to be made by GE to
the Company, including a revenue sharing and marketing
reimbursement. The Company received income of approximately $53.5
million and $58.5 million from GE during the six months ended August 2, 2008 and
August 4, 2007, respectively. Future cash flows under the alliance
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.
During
the three months ended August 2, 2008, the Company purchased a corporate
aircraft by exercising its option under a synthetic lease and by issuing a $23.6
million note payable, secured by letters of credit. The Company then
sold the aircraft for $44.5 million. A gain of $17.6 million was
recognized related to the sale and was recorded in gain on disposal of
assets.
During
the six months ended August 4, 2007, the Company received insurance proceeds of
$22.0 million related to reimbursement for inventory and property damages
incurred during the 2005 hurricane season. A gain of $7.1 million was
recognized related to these proceeds.
During
the six months ended August 4, 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 $104.3 million and $228.6 million for the six months ended
August 2, 2008 and August 4, 2007, respectively. These expenditures
consisted primarily of the construction of new stores, remodeling of existing
stores and investments in technology. The Company expanded two
locations totaling 100,000 square feet and opened the following six locations
during the six months ended August 2, 2008:
New
Locations
|
City
|
|
Square
Feet
|
|
Market
Street at Heath Brook
|
Ocala,
Florida
|
|
|
126,000 |
|
Shops
at Lake Havasu
|
Lake
Havasu, Arizona
|
|
|
98,000 |
|
Shoppes
at River Crossing
|
Macon,
Georgia
|
|
|
162,000 |
|
Pier
Park
|
Panama
City Beach, Florida
|
|
|
126,000 |
|
Uptown
Village at Cedar Hill
|
Cedar
Hill, Texas
|
|
|
145,000 |
|
Edgewater
Mall*
|
Biloxi,
Mississippi
|
|
|
180,000 |
|
Total
new square footage
|
|
|
|
837,000 |
|
*This
store was previously closed as a result of Hurricane Katrina.
During
the third quarter of 2008, the Company plans to open four additional locations
totaling 450,000 square feet, net of replaced square footage.
Capital
expenditures for fiscal 2008 are expected to be approximately $204 million
compared to actual expenditures of $396 million during fiscal
2007. The reduction in capital expenditures is a part of the
Company's plan to control costs in 2008 given the weak economic
environment.
During
the six months ended August 2, 2008, the Company closed the following
locations:
Closed
Locations
|
City
|
|
Square
Feet
|
|
Indian
Mall (clearance center)
|
Jonesboro,
Arkansas
|
|
|
75,000 |
|
Turfland
Mall
|
Lexington,
Kentucky
|
|
|
214,000 |
|
Greeley
Mall
|
Greeley,
Colorado
|
|
|
124,000 |
|
McFarland
Mall
|
Tuscaloosa,
Alabama
|
|
|
180,000 |
|
Pine
Ridge Mall
|
Pocatello,
Idaho
|
|
|
120,000 |
|
Total
closed square footage
|
|
|
|
713,000 |
|
In August
2008, the Company also closed its location at Rivercenter in San Antonio, Texas
totaling 120,000 square feet. The Company has announced the plans to
close the following ten under-performing stores during fiscal 2008:
Locations
to Close
|
City
|
|
Square
Feet
|
|
Chesterfield
Town Center
|
Richmond,
Virginia
|
|
|
110,000 |
|
Towne
Mall
|
Franklin,
Ohio
|
|
|
113,000 |
|
Knoxville
Center
|
Knoxville,
Tennessee
|
|
|
115,000 |
|
Hickory
Hollow Mall
|
Antioch,
Tennessee
|
|
|
200,000 |
|
Eastland
Mall (clearance center)
|
Charlotte,
North Carolina
|
|
|
162,000 |
|
Crossroads
Mall
|
Omaha,
Nebraska
|
|
|
200,000 |
|
Valley
View Mall
|
Dallas,
Texas
|
|
|
300,000 |
|
Boulevard
Mall
|
Las
Vegas, Nevada
|
|
|
200,000 |
|
Palm
Beach Mall
|
West
Palm Beach, Florida
|
|
|
200,000 |
|
Columbia
Place
|
Columbia,
South Carolina
|
|
|
180,000 |
|
Total
square footage to close
|
|
|
|
1,780,000 |
|
The
Company remains committed to aggressively closing under-performing stores under
the right terms and is expecting to announce additional closures during fiscal
2008.
Cash used
in financing activities for the six months ended August 2, 2008 totaled $31.1
million compared to cash provided by financing activities of $68.5 million for
the six months ended August 4, 2007. This decrease of cash flow was
primarily due to a smaller increase in short-term borrowings and purchases of
treasury stock.
During
the six months ended August 2, 2008 and August 4, 2007, the Company made
principal payments on long-term debt and capital leases of $97.6 million and
$102.5 million, respectively, at their normal maturities. No debt was
repurchased during the six months ended August 2, 2008 and August 4,
2007.
During
the six months ended August 2, 2008, the Company repurchased 1,826,600 shares of
Class A Common Stock for $17.4 million at an average price of $9.55 per share
under its $200 million program, which was authorized by the board of directors
in November 2007. Approximately $182.6 million in share repurchase
authorization remained under this open-ended plan at August 2,
2008. No shares were repurchased during the six months ended August
4, 2007 under previous plans.
The
Company had cash on hand of $108 million as of August 2, 2008. As
part of its overall liquidity management strategy and for peak working capital
requirements, the Company has a $1.2 billion credit facility. Limited
to 85% of the inventory of certain Company subsidiaries, availability for
borrowings and letter of credit obligations under the credit agreement was
approximately $1.0 billion at August 2, 2008. Borrowings of $285.0
million were outstanding and letters of credit totaling $95.5 million were
issued under this credit agreement leaving unutilized availability under the
facility of $637.5 million as of August 2, 2008.
During
fiscal 2008, 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. The Company expects peak funding
requirements of approximately $500 million during fiscal
2008. Depending on conditions in the capital markets and other
factors, the Company will from time to time consider possible other financing
transactions, the proceeds of which could be used to refinance current
indebtedness or for 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 the
Company's Annual Report on Form 10-K for the fiscal year ended February 2,
2008.
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 March
2008, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an Amendment of FASB Statement
No. 133 ("SFAS
161"). SFAS 161 requires entities to provide enhanced disclosures
related to how an entity uses derivative instruments, how derivatives are
accounted for under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities and how derivative instruments and the
related hedged items impact an entity's financial statements. The
provisions of SFAS 161 are effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
adoption encouraged. The Company expects that the adoption of SFAS
161 will not have a material impact on its consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS
141(R)"). SFAS 141(R)'s objective is to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its
effects. SFAS 141(R) applies prospectively to business combinations
for which the acquisition date is on or after December 31, 2008. The
Company expects that the adoption of SFAS 141(R) will not have a material impact
on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements ("SFAS 160"). SFAS 160's
objective is to improve the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 will be effective for fiscal years and interim periods
within those fiscal years, beginning on or after December 15, 2008. The Company
expects that the adoption of SFAS 160 will not have a material impact on its
consolidated financial statements.
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 was effective February 3, 2008, and the
Company has elected not to measure any financial instruments or certain other
items at fair value.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS 157").
This statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
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. This statement was effective for financial
assets and liabilities in financial statements issued for fiscal years beginning
after November 15, 2007. The adoption of this portion of the
statement did not have a material impact on the Company's consolidated financial
statements.
In
February 2008, the FASB issued FSP SFAS 157-2, Effective Date for FASB Statement
No. 157. This FSP permits the delayed application of SFAS 157
for all nonrecurring fair value measurements of nonfinancial assets and
nonfinancial liabilities until fiscal years beginning after November 15,
2008. The Company has chosen to adopt SFAS 157 in accordance with the
guidance of FSP SFAS 157-2 as stated above.
FORWARD-LOOKING
INFORMATION
This
report contains certain forward-looking statements. The following are
or may constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995: (a) words such as "may,"
"will," "could," "believe," "expect," "future," "potential," "anticipate,"
"intend," "plan," "estimate," "continue," or the negative or other variations
thereof, and (b) statements regarding matters that are not historical
facts. Some examples of forward-looking statements contained in this
report are: the Company's plans to close under-performing stores, to
reduce capital expenditures, to reduce operating expenses, and to make changes
to its merchandise mix; opinions on the potential effects of disposition of
legal proceedings and tax matters; the estimated effective income tax rate;
estimates of peak borrowing requirements and estimates provided under "2008
Guidance". The Company cautions that forward-looking statements
contained in this report are based on estimates, projections, beliefs and
assumptions of management and information available to management at the time of
such statements and are not guarantees of future performance. The Company
disclaims any obligation to update or revise any forward-looking statements
based on the occurrence of future events, the receipt of new information, or
otherwise.
Forward-looking
statements of the Company involve risks and uncertainties and are subject to
change based on various important factors. Actual future performance, outcomes
and results may differ materially from those expressed in forward-looking
statements made by the Company and its management as a result of a number of
risks, uncertainties and assumptions. Representative examples of
those factors include (without limitation) 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, including the effect of changes in
prices and availability of oil and natural gas; 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, debt levels and their ability to meet credit
obligations; adequate and stable availability of materials, production
facilities and labor from which the Company sources its merchandise; changes in
operating expenses, including employee wages, commission structures and related
benefits; system failures or data security issues; possible future acquisitions
of store properties from other department store operators; 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; epidemic, pandemic or other public health issues; 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. The
Company's filings with the Securities and Exchange Commission, including its
report on From 10-K for the fiscal year ended February 2, 2008, contain other
information on factors that may affect financial results or cause actual results
to differ materially from forward-looking statements.
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 2,
2008.
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
August 2, 2008, 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 August 2, 2008 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
From time
to time, we are involved in 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 September 11, 2008, 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 2, 2008.
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
|
|
May
4, 2008 through May 31, 2008
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
200,000,000 |
|
June
1, 2008 through July 5, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
200,000,000 |
|
July
6, 2008 through August 2, 2008
|
|
|
1,826,600 |
|
|
|
9.55 |
|
|
|
1,826,600 |
|
|
|
182,558,219 |
|
Total
|
|
|
1,826,600 |
|
|
$ |
9.55 |
|
|
|
1,826,600 |
|
|
$ |
182,558,219 |
|
In
November 2007, the Company's board of directors authorized the Company to
repurchase up to $200 million of the Company's Class A Common
Stock. The plan has no expiration date.
None.
The
annual meeting of the stockholders of the Company was held on May 17,
2008. The matters submitted to a vote of the stockholders were as
follows:
|
|
Votes
For
|
|
|
Votes
Against
|
|
|
Votes
Abstained
|
|
|
|
|
|
|
|
|
|
|
|
Election of
Directors
|
|
|
|
|
|
|
|
|
|
Class
A Nominees
|
|
|
|
|
|
|
|
|
|
James
Haslam
|
|
|
47,457,855 |
|
|
|
3,118,207 |
|
|
|
0 |
|
Brad
Martin
|
|
|
47,452,013 |
|
|
|
3,124,049 |
|
|
|
0 |
|
Frank
Mori
|
|
|
47,285,089 |
|
|
|
3,290,973 |
|
|
|
0 |
|
Nick
White
|
|
|
47,266,457 |
|
|
|
3,309,605 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B Nominees
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
C. Connor
|
|
|
4,010,568 |
|
|
|
0 |
|
|
|
0 |
|
Drue
Corbusier
|
|
|
4,010,568 |
|
|
|
0 |
|
|
|
0 |
|
Alex
Dillard
|
|
|
4,010,568 |
|
|
|
0 |
|
|
|
0 |
|
William
Dillard, II
|
|
|
4,010,568 |
|
|
|
0 |
|
|
|
0 |
|
Mike
Dillard
|
|
|
4,010,568 |
|
|
|
0 |
|
|
|
0 |
|
James
I. Freeman
|
|
|
4,010,568 |
|
|
|
0 |
|
|
|
0 |
|
Peter
Johnson
|
|
|
4,010,568 |
|
|
|
0 |
|
|
|
0 |
|
Warren
A. Stephens
|
|
|
4,010,568 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Proposals
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratification
of Auditors
|
|
|
53,903,671 |
|
|
|
246,054 |
|
|
|
436,905 |
|
Ratio of
Earnings to Fixed Charges:
The
Company has calculated the ratio of earnings to fixed charges pursuant to Item
503 of Regulation S-K of the Securities and Exchange Act as
follows:
Six
Months Ended
|
|
|
Fiscal
Years Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
2,
2008A
|
|
August
4,
2007
|
|
|
February
2,
2008
|
|
|
February
3,
2007B
|
|
|
January
28,
2006
|
|
|
January
29,
2005
|
|
|
January
31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02)
|
|
|
1.28 |
|
|
|
1.54 |
|
|
|
3.34 |
|
|
|
2.01 |
|
|
|
2.12 |
|
|
|
1.05 |
|
A The
earnings were insufficient to cover fixed charges by approximately $57.7
million.
B 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: September 11,
2008
|
/s/
James I. Freeman
|
|
James
I. Freeman
|
|
Senior
Vice-President & Chief Financial Officer
|
|
(Principal
Financial and Accounting Officer)
|