-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A4YRqj3ug1fl+ef1V4cam4u6tUicFCqsvk/kCmjB/Cgr3nPmVHYg3cDJmZ6XU3AV /oxhILOJP20WhWGQxsTjiw== 0000028917-98-000004.txt : 19980427 0000028917-98-000004.hdr.sgml : 19980427 ACCESSION NUMBER: 0000028917-98-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980424 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DILLARD DEPARTMENT STORES INC CENTRAL INDEX KEY: 0000028917 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 710388071 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06140 FILM NUMBER: 98601079 BUSINESS ADDRESS: STREET 1: 1600 CANTRELL RD CITY: LITTLE ROCK STATE: AR ZIP: 72201 BUSINESS PHONE: 5013765200 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 1998 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 (IRS Employer of incorporation or organization) Identification Number) 1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201 (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code: (501) 376-5200 Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which registered Class A Common Stock New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 31, 1997: $3,744,035,235 Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of March 31, 1998: Class A Common Stock, $.01 par value 103,630,436 Class B Common Stock, $.01 par value 4,016,929 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Stockholders Report for the fiscal year ended January 31, 1998 (the "Report") are incorporated by reference into Parts I and II. Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held May 16, 1998 (the "Proxy Statement") are incorporated by reference into Part III. The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this report or made by management of the Company involve risks and uncertainties and are subject to change based on various important factors. The following factors, among others, could affect the Company's financial performance and could cause actual results for 1998 and beyond to differ materially from those expressed or implied in any such forward-looking statements: economic and weather conditions in the regions in which the Company's stores are located and their effect on the buying patterns of the Company's customers, changes in consumer spending patterns and debt levels, trends in personal bankruptcies and the impact of competitive market forces. PART I ITEM 1. BUSINESS. General Dillard's, Inc. ("Company" or "Registrant") is an outgrowth of a department store originally founded in 1938 by William Dillard. The Company was incorporated in Delaware in 1964. The Company operates retail department stores located primarily in the southwest, southeast and midwest. The department store business is highly competitive. The Company has several competitors on a national and regional level as well as numerous competitors on a local level. Many factors enter into competition for the consumer's patronage, including price, quality, style, service, product mix, convenience and credit availability. The Company's earnings depend to a significant extent on the results of operations for the last quarter of its fiscal year. Due to holiday buying patterns, sales for that period average approximately one-third of annual sales. For additional information with respect to the Registrant's business, reference is made to information contained on page 12, under the heading "Dillard's Locations," page 14 under the headings "Net Sales," "Net Income," "Total Assets" and "Number of Employees - Average," and page 32 of the Report, which information is incorporated herein by reference. Executive Officers of the Registrant The following table lists the names and ages of all Executive Officers of the Registrant, the nature of any family relationship between them, and all positions and offices with the Registrant presently held by each person named. All of the Executive Officers listed below have been in managerial positions with the Registrant for more than five years, except for Paul J. Schroeder, Jr.. Mr. Schroeder has been employed by the Registrant as Vice President since January, 1998. Prior to that employment, he was a Partner in St. Louis based, international law firm Bryan Cave, LLP specializing in labor and employment law. Name Age Position and Office Family Relationships William Dillard 83 Chairman of the Board; Father of William Chief Executive Officer Dillard II, Drue Corbusier, Alex Dillard and Mike Dillard William Dillard II 53 Director; President Son of & Chief Operating Officer William Dillard Alex Dillard 48 Director; Executive Son of Vice President William Dillard Mike Dillard 46 Director; Executive Son of Vice President William Dillard H. Gene Baker 59 Vice President None Joseph P. Brennan 53 Vice President None G. Kent Burnett 53 Vice President None Drue Corbusier 51 Director; Vice President Daughter of William Dillard David M. Doub 51 Vice President None John A. Franzke 66 Vice President None James I. Freeman 48 Director; Senior Vice None President; Chief Financial Officer Randal L. Hankins 47 Vice President None T. R. Gastman 68 Vice President None Paul J. Schroeder, Jr. 50 Vice President None ITEM 2. PROPERTIES. All of the Registrant's stores are owned or leased from a wholly-owned subsidiary or from third parties. The Registrant's third-party store leases typically provide for rental payments based upon a percentage of net sales with a guaranteed minimum annual rent, while the lease terms between the Registrant and its wholly-owned subsidiary vary. In general, the Company pays the cost of insurance, maintenance and any increase in real estate taxes related to these leases. At fiscal year end there were 270 stores in operation with gross square footage of 43,300,000. The Company owned or leased from a wholly-owned subsidiary a total of 204 stores with 33,200,000 square feet. The Company leased 66 stores from third parties which totalled 10,100,000 square feet. For additional information with respect to the Registrant's properties and leases, reference is made to information contained on page 12 under the heading "Dillard's Locations," and Notes 3, 9 and 10, "Notes to Consolidated Financial Statements," on pages 25, 26, 29 and 30 of the Report, which information is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS. The Company has no material legal proceedings pending against it. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. With respect to the market for the Company's common stock, market prices, and dividends, reference is made to information contained page 33 of the Report, which information is incorporated herein by reference. As of March 31, 1998, there were 5,527 record holders of the Company's Class A Common Stock and 10 record holders of the Company's Class B Common Stock. ITEM 6. SELECTED FINANCIAL DATA. Reference is made to information under the heading "Table of Selected Financial Data" on pages 14 and 15 of the Report, which information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Reference is made to information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operation" on pages 16 through 18 of the Report, which information is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Reference is made to information under the heading "Quantitative and Qualitative Disclosures About Market Risk" on page 18 of the Report, which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Reference is made to the consolidated financial statements and notes thereto included on pages 19 through 31 of the Report, which are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. A. Directors of the Registrant. Information regarding directors of the Registrant is incorporated herein by reference to the information on pages 5 through 7 under the heading "Nominees for Election as Directors" and page 12 under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement. B. Executive Officers of the Registrant. Information regarding executive officers of the Registrant is incorporated herein by reference to Item 1 of this report under the heading "Executive Officers of the Registrant." Reference additionally is made to the information under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 12 in the Proxy Statement, which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information regarding executive compensation and compensation of directors is incorporated herein by reference to the information beginning on page 8 under the heading "Compensation of Directors and Executive Officers" and concluding on page 10 under the heading "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference to the information on page 4 under the heading "Principal Holders of Voting Securities" and page 5 under the heading "Nominees for Election as Directors" and continuing through footnote 15 on page 7 in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is incorporated herein by reference to the information on page 12 under the heading "Certain Relationships and Transactions" in the Proxy Statement and to the information regarding Mr. Davis on page 10 under the heading "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) Financial Statements The following consolidated financial statements of the Registrant and its consolidated subsidiaries included in the Report are incorporated herein by reference to Item 8 of this report: Consolidated Balance Sheets - January 31, 1998 and February 1, 1997 Consolidated Statements of Income - Fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996 Consolidated Statements of Stockholders' Equity - Fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996 Consolidated Statements of Cash Flows - Fiscal years ended January 31, 1998, February 1,1997 and February 3, 1996 Notes to Consolidated Financial Statements - Fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996 (a)(2) Financial Statement Schedules The following consolidated financial statement schedule of the Registrant and its consolidated subsidiaries is filed pursuant to Item 14(d) (this schedule appears immediately following the signature page): Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a)(3) Exhibits and Management Compensatory Plans Exhibits The following exhibits are filed pursuant to Item 14(c): Number Description * 3(a) Restated Certificate of Incorporation (Exhibit 3 to Form 10-Q for the quarter ended August 1, 1992 in 1-6140) * 3(b) By-Laws as currently in effect. (Exhibit 3(b) to Form 10-K for the fiscal year ended January 30, 1993 in 1-6140) * 4(a) Indenture between the Registrant and Chemical Bank, Trustee, dated as of October 1, 1985 (Exhibit (4) in 2-85556) * 4(b) Indenture between the Registrant and Chemical Bank, Trustee, dated as of October 1, 1986 (Exhibit (4) in 33-8859) * 4(c) Indenture between Registrant and Chemical Bank, Trustee, dated as of April 15, 1987 (Exhibit 4.3 in 33-13534) * 4(d) Indenture between Registrant and Chemical Bank, Trustee, dated as of May 15, 1988, as supplemented (Exhibit 4 in 33-21671, Exhibit 4.2 in 33-25114 and Exhibit 4(c) to Current Report on Form 8-K dated September 26, 1990 in 1-6140) * 4(e) Indenture between Dillard Investment Co., Inc. and Chemical Bank, Trustee, dated as of April 15, 1987, as supplemented (Exhibit 4.1 in 33-13535 and Exhibit 4.2 in 33-25113) *10(a) Retirement Contract of William Dillard dated March 8, 1997 (Exhibit 10(a) to Form 10-K for the fiscal year ended February 1, 1997 in 1-6140) *10(b) 1990 Incentive and Nonqualified Stock Option Plan (Exhibit 10(b) to Form 10-K for the fiscal year ended January 30, 1993 in 1-6140) *10(c) Corporate Officers Non-Qualified Pension Plan (Exhibit 10(c) to Form 10-K for the fiscal year ended January 29, 1994 in 1-6140) *10(d) Senior Management Cash Bonus Plan (Exhibit 10(d) to Form 10-K for the fiscal year ended January 28, 1995 in 1-6140) 12 Statement Re: Computation of Ratio of Earnings to Fixed Charges 13 Incorporated portions of the Annual Stockholders Report for the fiscal year ended January 31, 1998 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors ____________ * Incorporated herein by reference as indicated. Management Compensatory Plans Listed below are the management contracts and compensatory plans which are required to be filed as exhibits pursuant to Item 14(c): Retirement Contract of William Dillard dated March 8, 1997 1990 Incentive and Nonqualified Stock Option Plan Corporate Officers Non-Qualified Pension Plan Senior Management Cash Bonus Plan (b) Reports on Form 8-K filed during the fourth quarter: The Company filed a report on January 9, 1998 relating to the issuance of $100 million aggregate principal amount of 6 5/8% Notes maturing on January 15, 2018. (c) Exhibits See the response to Item 14(a)(3). (d) Financial statement schedules See the response to Item 14(a)(2). SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 April 24, 1998 /s/ James I. Freeman Date James I. Freeman, Senior Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the date indicated. /s/ William Dillard /s/ Drue Corbusier William Dillard Drue Corbusier Chairman and Chief Executive Vice President and Director Officer (Principal Executive Officer) /s/ Calvin N. Clyde, Jr. /s/ Robert C. Connor Calvin N. Clyde, Jr. Robert C. Connor Director Director /s/ Will D. Davis /s/ Alex Dillard Will D. Davis Alex Dillard Director Executive Vice President and Director /s/ Mike Dillard /s/ William Dillard II Mike Dillard William Dillard II Executive Vice President and President and Chief Operating Director Officer and Director /s/ James I. Freeman /s/ William H. Sutton James I. Freeman William H. Sutton Senior Vice President and Chief Director Financial Officer and Director /s/ John Paul Hammerschmidt /s/ William B. Harrison, Jr. John Paul Hammerschmidt William B. Harrison, Jr. Director Director /s/ Jackson T. Stephens /s/ John H. Johnson Jackson T. Stephens John H. Johnson Director Director /s/ E. Ray Kemp E. Ray Kemp Director April 24, 1998 Date INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Dillard's, Inc. Little Rock, Arkansas We have audited the consolidated financial statements of Dillard's, Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and for each of the three years in the period ended January 31, 1998, and have issued our report thereon dated February 23, 1998; such consolidated financial statements and report (which report includes an explanatory paragraph relating to a change in accounting for the impairment of long-lived assets and for long-lived assets to be disposed of) are included in your 1997 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Dillard's, Inc. and subsidiaries, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP New York, New York February 23, 1998 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS DILLARD'S, INC. AND SUBSIDIARIES (DOLLAR AMOUNTS IN THOUSANDS) COL. A COL. B COL. C COL.D COL. E COL. F ADDITIONS BALANCE CHARGED TO CHARGED TO BALANCE AT BEGINNING COST AND OTHER ACCOUNTS DEDUCTIONS - AT END DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD Allowance for losses on accounts receivable: Year ended January 31, 1998: $24,169 55,816 52,176 (2) $27,809 Year ended February 1, 1997: $19,528 66,629 23 (1) 62,011 (2) $24,169 Year ended February 3, 1996: $15,307 52,522 708 (1) 49,009 (2) $19,528 (1) Represents the allowance for losses on accounts acquired. (2) Accounts written off and charged to allowance for losses on accounts receivable (net of recoveries).
EXHIBIT INDEX Number Description * 3(a) Restated Certificate of Incorporation (Exhibit 3 to Form 10-Q for the quarter ended August 1, 1992 in 1-6140) * 3(b) By-Laws as currently in effect (Exhibit 3(b) to Form 10-K for the fiscal year ended January 30, 1993, in 1-6140) * 4(a) Indenture between the Registrant and Chemical Bank, Trustee, dated as of October 1, 1985 (Exhibit (4) in 2-85556) * 4(b) Indenture between the Registrant and Chemical Bank, Trustee, dated as of October 1, 1986 (Exhibit (4) in 33-8859) * 4(c) Indenture between Registrant and Chemical Bank, Trustee, dated as of April 15, 1987 (Exhibit 4.3 in 33-13534) * 4(d) Indenture between Registrant and Chemical Bank, Trustee, dated as of May 15, 1988, as supplemented (Exhibit 4 in 33-21671, Exhibit 4.2 in 33-25114 and Exhibit 4(c) to Current Report on Form 8-K dated September 26, 1990 in 1-6140) * 4(e) Indenture between Dillard Investment Co., Inc. and Chemical Bank, Trustee, dated as of April 15, 1987, as supplemented (Exhibit 4.1 in 33-13535 and Exhibit 4.2 in 33-25113) *10(a) Retirement Contract of William Dillard dated March 8,1997 (Exhibit 10(a) to Form 10-K for the fiscal year ended February 1, 1997 in 1-6140) *10(b) 1990 Incentive and Nonqualified Stock Option Plan (Exhibit 10(b) to Form 10-K for the fiscal year ended January 30, 1993 in 1-6140) *10(c) Corporate Officers Non-Qualified Pension Plan (Exhibit 10(c) to Form 10-K for the fiscal year ended January 29, 1994 in 1-6140) *10(d) Senior Management Cash Bonus Plan (Exhibit 10(d) to Form 10-K for the fiscal year ended January 28, 1995 in 1-6140) 12 Statement Re: Computation of Ratio of Earnings to Fixed Charges 13 Incorporated portions of the Annual Stockholders Report for the fiscal year ended January 31, 1998 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors __________________ * Incorporated herein by reference as indicated. EX-12 2 EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLAR AMOUNTS IN THOUSANDS) Fiscal Year Ended JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29 1998 1997 1996 1995 1994 Consolidated pretax income $410,035 $378,761 $269,653 $406,110 $399,534 Fixed charges (less capitalized interest) 147,466 139,188 139,666 145,921 152,568 EARNINGS $557,501 $517,949 $409,319 $552,031 $552,102 Interest $129,237 $120,599 $120,054 $124,282 $130,915 Capitalized interest 3,644 4,420 3,567 2,545 1,882 Interest factor in rent expense 18,229 18,589 19,612 21,639 21,653 FIXED CHARGES $151,110 $143,608 $143,233 $148,466 $154,450 Ratio of earnings to fixed charges 3.69 3.61 2.86 3.72 3.57
EX-13 3 Dillard's Table of Contents Page 1 The Corporation Page 2 Letter to the Stockholders Page 4 Focused on Growth Page 6 Growth Through Development and Acquisition Page 8 New Stores, Stores Acquired and Stores Expanded Page 10 Corporate Organization Page 11 Board of Directors Page 12 Dillard's Store Locations Page 13 Financial Review The Corporation Sixty years ago, William Dillard established the first Dillard's store in Nashville, Arkansas. From this humble beginning, the Company has emerged as one of the most successful retail chains in the United States, with annual sales of more than $6.6 billion. Today, Dillard's, Inc., comprises 263 full-line, traditional stores and seven clearance centers in 27 states, offering a distinctive mix of name-brand and private-label merchandise. With everyday value pricing and special emphasis on fashion apparel and home furnishings, Dillard's appeals to middle and upper- middle income consumers. The Company's philosophy continues to embrace an ambitious program of expansion and remodeling, as well as aggressive responses to industry trends in merchandise and pricing. Letter to the Stockholders For nearly 60 years, Dillard's has grown steadily by delivering superior service to our customers on quality merchandise offered at an exceptional value. For 1997, I am pleased to report sales and net income reached record levels. Our sales grew to $6.6 billion, which is an overall growth rate of 6%. The sales for comparable stores increased by 2% in 1997, when compared with last year. Diluted earnings per share rose 10.5% to $2.31 in 1997, from $2.09 for 1996. During 1997, we constructed 12 new stores, growing opportunities in new markets and strengthening our presence in existing ones. We placed our footprint on the map in two new states, with our new stores constructed in Cheyenne, Wyoming, and Stockton, California. Our welcome in these new states by these communities was extremely enthusiastic and we were honored by the excitement of our new customers. In addition, stores were opened in Macon, Georgia; Memphis, Tennessee; Colorado Springs, Colorado; Longmont, Colorado; Waterloo, Iowa; Olathe, Kansas; Sandy, Utah; Meridian, Mississippi; Baton Rouge, Louisiana and Richmond, Indiana. We also expanded four stores and closed three stores during the year, two of which were clearance centers. Nineteen ninety-seven presented us with acquisition opportunities and, as planned, we were well-equipped to respond. We acquired seven stores in Virginia from Proffitt's, Inc., positioning Dillard's in Virginia for the first time. Additionally, ten Florida department store buildings from Dayton Hudson Corporation and three Macy's stores in Houston were purchased. Of these acquired stores, five were added to existing mall locations and four were not opened prior to the end of 1997. In total, we added 3.3 million square feet to our store base during the year. Continuing our pattern of growth, we plan to open eight new stores in 1998 (two of which will be replacement stores), and to expand and remodel an additional nine stores in key mall locations. This will add 1.7 million square feet to our store base of 43.3 million square feet at January 31, 1998. In February, 1997, our Board of Directors approved a $300 million Class A share repurchase program. During 1997, we repurchased a total of $165 million in Class A common shares at an average price of $33 per share. This program highlights our confidence in the financial strength of your Company. We remain poised for growth. Our purpose remains as clear as it was 60 years ago, superior service and exceptional value. It's what we do best. Any success your Company has achieved is a tribute to our 45,000 associates who, following this simple philosophy and with your support, have made it happen. William Dillard Chairman of the Board and Chief Executive Officer March 27, 1998 Focused On Growth Steady, controlled growth has long been an essential building block of the Dillard's success story. The Company began with a single store 60 years ago. Soon afterward, William Dillard set the course for prudent, determined growth by initiating a pattern of new store construction, acquisition and expansion that continues to this day. During 1997, several significant achievements occurred within Dillard's to bolster this strategy of growth, helping to position the Company for even greater success in the future. New market development. Nineteen ninety-seven will be remembered as a period of remarkable market development for Dillard's. In October, the Company secured a foothold in the far west with the opening of a 200,000-square-foot new store in Stockton, California. In addition, Dillard's established a strong new presence in Virginia by acquiring seven Proffitt's stores. By the start of 1998, six of these stores had opened, adding approximately 500,000 square feet. Wyoming was another new state the Company entered in 1997, with an 85,000-square-foot store in Cheyenne. In addition to new market penetration, Dillard's significantly strengthened its position in several existing markets. For example, in Houston, Texas, the Company made a major move toward establishing market dominance through the acquisition of three Macy's stores. Dillard's now operates a total of 11 stores in this lucrative area. In Florida, by year end, the Company was able to open seven of ten Mervyn's stores acquired from Dayton Hudson Corporation. This added approximately 700,000 square feet, further enhancing Dillard's already strong position in the region. Dillard's southeast region, which experienced notable growth through expansion into new markets, demonstrated particularly strong sales gains in 1997 - up 12% over the previous year. Sales in the more mature southwest region, which has consistently performed as the Company's stronghold of profitability, grew by 6%, while sales in the midwest region grew by 2%. "Double-header" dominance. Dillard's continues to pioneer a unique mall marketing concept the Company calls the "Dillard's double-header." By establishing dual anchor stores inside key shopping centers, the Company is able to offer superior inventory selections while creating retail dominance within an individual mall. Essentially, one Dillard's store is separated into two locations, each carrying non-competing merchandise under the Dillard's name. Typically, the Company places cosmetics, women's clothing, accessories and home furnishings in one location, and men's, juniors', young men's, and children's clothing at the other. Approximately 40 of these co-anchor configurations exist throughout the Dillard's chain. Examples of this concept in practice can be found in Pembroke Lakes Mall in Pembroke Pines, Florida, and Oak Park Mall in Overland Park, Kansas. Stock repurchase program. In 1997, to further enhance shareholder value, the Company implemented a Class A common share repurchase program of up to $300 million. This decision was authorized by the Board of Directors in the belief that Dillard's stock was underpriced in view of the Company's performance and potential. Taking advantage of a strong balance sheet, the Company had bought back $165 million at an average price of $33 per share, or approximately five million shares, in this repurchasing program by January 31, 1998. Restructuring of operating divisions. Continuing realignment efforts begun the previous year, the Company further restructured operations to enable regional and corporate management to concentrate on specific geographic and climatic areas. A series of executive management changes was effected late in fiscal 1997, to strengthen overall store performance and streamline merchandising operations. Today, three of Dillard's most dynamic and accomplished operations officers are working to enhance store operations through the formation of three corporate operating regions. All district managers report to one of these three corporate executives, who are charged with the continuing goal of effecting superior store performance. The realignment of Dillard's buying and merchandising functions, which began in March 1996, has continued to complement the Company's supply-chain efficiencies. Dillard's five regional buying offices continue to serve customers by providing them with an attractive selection of merchandise at an honest value. To further intensify the Company's merchandising effort in the midwest, one of Dillard's most successful managers has now assumed responsibility of the St. Louis Division. Streamlining distribution. In 1997, the Company began a series of moves to streamline distribution throughout the Dillard's network. Two distribution centers - in Charlotte, North Carolina, and Cleveland, Ohio - are currently being phased out. A new 440,000- square-foot facility located in Salisbury, North Carolina, will be completed and on line in April, 1998. This new center will feature advanced distribution technology and will enable the Company to provide a faster and more accurate flow of merchandise to customers. In 1998, the Company plans to equip other distribution centers with this improved delivery system. By the end of the year, Dillard's will utilize a total of six distribution centers strategically situated throughout the U. S. In addition to Salisbury, other locations include: Little Rock, Arkansas; Fort Worth, Texas; Phoenix, Arizona; Olathe, Kansas and Valdosta, Georgia. Growth Through Development and Acquisition Vigorously pursuing a strategy of growth through building, buying, integrating and upgrading superior store properties, Dillard's realized solid market gains during 1997. As of January, 1998, the Company operated 270 stores in 27 states, an increase from 250 stores in 24 states in 1996. In total, Dillard's added 3.3 million square feet to its store base during the year. In 1998, the Company plans an increase of 1.7 million square feet. New Stores. Dillard's constructed 12 new stores in 1997. The locations vary in size from a 209,000-square-foot unit in Colorado Springs, Colorado, to a 30,000-square-foot outlet unit in Olathe, Kansas. All of these newly constructed stores, with the exception of the outlet unit, are owned by the Company. For the year, Dillard's closed three stores, two of which were clearance centers. In 1998, Dillard's plans to build eight new stores, two of which will be replacement stores. Expansions. Dillard's expanded four stores in 1997, adding approximately 200,000 square feet of store space. In addition, the Company remodeled a number of stores throughout the year. For many years, Dillard's has followed a philosophy of expanding or updating stores on an ongoing basis. The Company expands existing locations to satisfy growing consumer demands and remodels other stores to keep them modern, efficient and competitive. During 1998, a number of stores in various markets are scheduled for improvements in keeping with this plan. Acquisitions. During 1997, Dillard's acquired a total of 20 stores: seven in Virginia from Proffitt's, Inc., ten in Florida from Dayton Hudson Corporation and three in Houston, Texas, from Macy's. Eleven of the stores provided the Company with a foothold in new mall locations and, in some cases, new markets. Another five of the acquisitions represented opportunities to expand Dillard's presence in existing mall locations. Of these, four locations embody the Company's "double-header" strategy. Four of the acquired stores were not yet opened prior to the end of the fiscal year. New Stores New Stores Constructed - 1997 Macon, Georgia - Macon Mall - February - 175,000 Memphis, Tennessee - Wolfchase Galleria - February - 200,000 Colorado Springs, Colorado - Chapel Hills Mall - March - 209,000 Cheyenne, Wyoming - Frontier Mall - March - 85,000 Longmont, Colorado - Twin Peaks Mall - March - 94,000 Waterloo, Iowa - Crossroads Mall - August - 150,000 Olathe, Kansas - Great Mall of the Great Plains - August - 30,000* Sandy, Utah - South Towne Square - September - 200,000 Meridian, Mississippi - Bonita Lakes Mall - October - 126,000 Stockton, California - Weberstown Mall - October - 200,000 Baton Rouge, Louisiana - Mall of Louisiana - October - 200,000 Richmond, Indiana - Richmond Square - November - 86,000 *Outlet center Store sizes are presented in square feet. Stores Acquired - 1997^ Richmond, Virginia - Chesterfield Towne Center - July - 65,000 Richmond, Virginia - Virginia Center Commons - July - 80,000 Chesapeake, Virginia - Chesapeake Square - August - 80,000 Hampton, Virginia - Coliseum Mall - August - 110,000 Chesapeake, Virginia - Greenbrier Mall - August - 79,000 Virginia Beach, Virginia - Pembroke Mall - August - 65,000 Miami, Florida - Cutler Ridge Mall - October - 93,000 Coral Springs, Florida - Coral Square Mall - October - 98,000 Miami, Florida - Miami International Mall - October - 100,000 Plantation, Florida - Broward Mall - November - 143,000 Houston, Texas - Deerbrook Mall - November - 210,000 ^The Company acquired 20 stores in 1997, four of which were not opened by year's end. Stores Acquired - 1997 (in existing locations)(a) Houston, Texas - Willowbrook Mall - July - 210,000 Houston, Texas - Baybrook Mall - July - 223,000 Melbourne, Florida - Melbourne Square - August - 100,000 Lakeland, Florida - Lakeland Square - August - 76,000 Pembroke Pines, Florida - Pembroke Lakes Mall - September - 77,000 (a)These stores were acquired within existing mall locations and represent no increase in total units. The Willowbrook Mall location replaces 120,000 square feet. Stores Expanded and Remodeled- 1997 Dallas, Texas - Redbird Mall - August - 60,000 Waco, Texas - Richland Mall - August - 63,000 Fort Smith, Arkansas - Central Mall - September - 35,000 Port Arthur, Texas - Central Mall - September - 36,000 Store sizes and expansions are presented in square feet. New Stores to be Opened - 1998 Oviedo, Florida - Marketplace at Oviedo - March - 214,000 Newport News, Virginia - Patrick Henry Mall - March - 65,000 Coralville, Iowa - Coral Ridge Mall - July - 126,000 Provo, Utah - Provo Towne Centre - August - 200,000 Boise, Idaho - Boise Towne Square - August - 180,000 Lake Charles, Louisiana - Prien Lake Mall - October - 158,000 Gastonia, North Carolina - Eastridge Mall - November - 204,000+ Scottsdale, Arizona - Fashion Square - August - 320,000++ +Replaces 92,000 square feet ++Replaces 234,000 square feet Senior Management William Dillard, Chairman of the Board and Chief Executive Officer William Dillard, II, President, Chief Operating Officer Alex Dillard, Executive Vice President Mike Dillard, Executive Vice President James I. Freeman, Senior Vice President, Chief Financial Officer Vice Presidents W.R. Appleby, II Gregg Athy H. Gene Baker Jan E. Bolton Michael Bowen Joseph P. Brennan Kent Burnett Larry Cailteux Wynelle Chapman James W. Cherry, Jr. Neil Christensen Drue Corbusier David M. Doub John A. Franzke T.R. Gastman Randal L. Hankins Marva Harrell G. William Haviland John Hawkins Mark Killingsworth Gaston Lemoine Denise Mahaffy Robert G. McGushin Michael S. McNiff Jeff Menn Anthony Menzie Cindy Myers-Ray Steven K. Nelson Steven T. Nicoll Tom C. Patterson M.E. Ritchie, Jr. Richard Roberds James Schatz Paul J. Schroeder, Jr. Linda Sholtis-Tucker Sandra Steinberg Burt Squires Joseph W. Story Ralph Stuart Julie A. Taylor David Terry Richard Vasey Keith White Richard B. Willey Linda Zwern Merchandising Divisions Fort Worth Drue Corbusier Chairman Gregg Athy Vice President, Merchandising Wynelle Chapman Vice President, Merchandising Gaston Lemoine District Manager Anthony Menzie District Manager Richard Roberds District Manager James Schatz District Manager William B. Warner Director of Sales Promotion Little Rock Mike Dillard Chairman David Terry Vice President, Merchandising Keith White Vice President, Merchandising Tom C. Patterson District Manager Burt Squires District Manager Richard Vasey District Manager Richard B. Willey District Manager Ken Eaton Director of Sales Promotion Phoenix Kent Burnett Chairman Julie A. Taylor Vice President, Merchandising Robert G. McGushin District Manager Jeff Menn District Manager Robert E. Baker Director of Sales Promotion St. Louis Joseph P. Brennan President Mark Killingsworth Vice President, Merchandising Larry Cailteux District Manager Neil Christensen District Manager Marva Harrell District Manager Cindy Myers-Ray District Manager Howard Hall Director of Sales Promotion Tampa David M. Doub President Linda Zwern Vice President, Merchandising W.R. Appleby, II District Manager Steven T. Nicoll District Manager Linda Sholtis-Tucker District Manager Sandra Steinberg District Manager Louise Platt Director of Sales Promotion Board Of Directors William Dillard Chairman of the Board Chief Executive Officer Dillard's, Inc. Calvin N. Clyde, Jr. Chairman of the Board T.B. Butler Publishing Co., Inc. Tyler, Texas Robert C. Connor Investments Drue Corbusier Vice President Dillard's, Inc. Will D. Davis Partner Heath, Davis & McCalla, Attorneys Austin, Texas Alex Dillard Executive Vice President Dillard's, Inc. Mike Dillard Executive Vice President Dillard's, Inc. William Dillard, II President Chief Operating Officer Dillard's, Inc. James I. Freeman Senior Vice President Chief Financial Officer Dillard's, Inc. John Paul Hammerschmidt Retired Member of Congress William B. Harrison, Jr. Vice Chairman Chase Manhattan Corporation New York, New York John H. Johnson President and Publisher Johnson Publishing Company, Inc. Chicago, Illinois E. Ray Kemp Retired Vice Chairman and Chief Administrative Officer Dillard's, Inc. Jackson T. Stephens Chairman Stephens Group, Inc. Little Rock, Arkansas William H. Sutton Managing Partner Friday, Eldredge & Clark, Attorneys Little Rock, Arkansas Dillard's Locations State 1997 1996 1995 1994 Texas 64 64 63 62 Florida 37 34 30 27 Louisiana 16 15 16 16 Missouri 16 16 16 16 Ohio 15 15 13 13 North Carolina 14 14 14 13 Oklahoma 14 14 14 14 Arizona 13 13 13 13 Tennessee 13 12 12 12 Kansas 9 9 9 9 Arkansas 7 7 7 7 South Carolina 7 7 6 6 Virginia 6 New Mexico 5 5 4 4 Colorado 4 2 1 Kentucky 4 4 3 1 Mississippi 4 3 3 3 Nebraska 4 4 4 4 Nevada 4 4 3 3 Utah 3 2 2 2 Georgia 2 1 Illinois 2 2 2 2 Indiana 2 1 1 Iowa 2 1 1 1 Alabama 1 1 1 1 California 1 Wyoming 1 Financial Review Table of Selected Financial Data Page 14 Management's Discussion and Analysis Page 16 Independent Auditors' Report Page 19 Consolidated Balance Sheets Page 20 Consolidated Statements of Income Page 21 Consolidated Statements of Stockholders' Equity Page 22 Consolidated Statements of Cash Flows Page 23 Notes to Consolidated Financial Statements Page 24 Annual Meeting and General Information Page 32 Stock Prices and Dividends by Quarter Inside Back Cover Table of Selected Financial Data Dillard's, Inc. And Subsidiaries (In thousands of dollars, except per share data) 1997 1996 1995* 1994 1993 Net Sales $6,631,752 $6,227,585 $5,918,038 $5,545,803 $5,130,648 Percent Increase 6% 5% 7% 8% 9% Cost of Sales 4,393,291 4,124,765 3,893,786 3,614,628 3,306,757 Percent of Sales 66.2% 66.2% 65.8% 65.2% 64.4% Interest and Debt Expense 129,237 120,599 120,054 124,282 130,915 Income Before Taxes 410,035 378,761 269,653 (a) 406,110 399,534 Income Taxes 151,710 140,140 102,470 154,320 158,400 Net Income 258,325 238,621 167,183 (a) 251,790 241,134 Per Common Share ** Diluted earnings per share 2.31 2.09 1.48 2.23 2.14 Dividends 0.14 0.14 0.12 0.10 0.08 Book Value 25.70 23.91 21.91 20.55 18.42 Average Number of Shares Outstanding ** 111,993,814 113,988,633 113,143,842 113,013,998 112,808,262 Accounts Receivable - Total 1,186,491 1,154,673 1,123,103 1,117,411 1,111,744 Merchandise Inventories 1,784,765 1,556,958 1,486,045 1,362,756 1,299,944 Property and Equipment 2,501,492 2,191,933 2,035,538 1,984,145 1,921,470 Total Assets 5,591,847 5,059,726 4,778,535 4,577,757 4,430,274 Long-term Debt 1,365,716 1,173,018 1,157,864 1,178,503 1,238,293 Capitalized Lease Obligations 12,205 13,690 20,161 22,279 31,621 Deferred Income Taxes - Total 314,971 261,094 248,469 302,801 284,981 Stockholders' Equity 2,807,938 2,717,178 2,478,327 2,323,567 2,081,647 Number of Employees - Average 44,616 43,470 40,312 37,832 35,536 Gross Square Footage (in thousands) 43,300 40,000 37,300 35,300 34,900 Number of Stores Opened 12 15 9 7 10 Acquired 11 0 0 0 0 Closed 3 3 0 5 1 Total - End of Year 270 250 238 229 227
Table of Selected Financial Data Dillard's, Inc. And Subsidiaries (In thousands of dollars, except per share data) 1992 1991 1990 1989* 1988 Net Sales $4,713,987 $4,036,392 $3,605,518 $3,049,062 $2,558,395 Percent Increase 17% 12% 18% 19% 16% Cost of Sales 3,043,348 2,565,904 2,287,891 1,926,971 1,636,861 Percent of Sales 64.5% 63.6% 63.5% 63.2% 64.0% Interest and Debt Expense 121,940 109,386 97,032 91,836 80,979 Income Before Taxes 375,330 322,157 280,778 227,892 172,529 Income Taxes 138,900 116,000 98,000 79,800 58,700 Net Income 236,430 206,157 182,778 148,092 113,829 Per Common Share ** Diluted earnings per share 2.11 1.84 1.67 1.45 1.18 Dividends 0.08 0.07 0.07 0.06 0.05 Book Value 16.28 14.19 12.31 10.23 7.80 Average Number of Shares Outstanding ** 112,292,575 111,832,758 109,351,914 101,890,272 96,655,737 Accounts Receivable - Total 1,106,710 1,004,496 932,544 759,803 654,333 Merchandise Inventories 1,178,562 1,052,683 889,333 716,054 527,931 Property and Equipment 1,688,682 1,338,434 1,088,753 921,820 804,676 Total Assets 4,107,114 3,498,506 3,007,979 2,496,277 2,067,517 Long-term Debt 1,381,676 1,008,967 839,490 739,597 620,956 Capitalized Lease Obligations 32,381 29,489 31,284 32,900 25,157 Deferred Income Taxes - Total 178,311 143,463 115,854 108,426 128,565 Stockholders' Equity 1,832,018 1,583,475 1,364,885 1,094,721 752,178 Number of Employees - Average 33,883 32,132 31,786 26,304 23,114 Gross Square Footage (in thousands) 33,200 29,100 26,600 23,500 20,800 Number of Stores Opened 11 10 4 3 7 Acquired 12 7 23 19 4 Closed 3 5 3 6 0 Total - End of Year 218 198 186 162 146 * 53 Weeks ** Restated 3 for 1 stock split (a) Includes Impairment charges of $126.6 million before taxes ($78.5 million after tax).
Management's Discussion And Analysis Of Financial Condition And Results Of Operations Dillard's, Inc. and Subsidiaries Sales Total sales increases on a comparable 52-week basis were 6%, 7% and 5% for 1997,1996 and 1995, respectively. The comparable store sales increase was 2% for all three years. Comparable store sales include sales for stores that were in operation for a full period in both the current quarter and the corresponding quarter for the prior year. Management believes that the majority of the increase in sales was attributable to an increase in the volume of goods sold rather than an increase in the price of goods. The sales mix for the past three years by category as a percent of total sales has been: 1997 1996 1995 Cosmetics 12.7% 12.9% 12.7% Women's & Juniors' Clothing 30.6% 29.9% 30.0% Children's Clothing 6.4% 6.5% 6.5% Men's Clothing & Accessories 19.5% 19.5% 18.9% Shoes, Accessories & Lingerie 20.2% 19.9% 19.5% Home 10.2% 10.8% 11.7% Leased Departments .4% .5% .7% Total 100.0% 100.0% 100.0% Cost of Sales Cost of sales as a percentage of sales was 66.2%, 66.2% and 65.8% for 1997, 1996 and 1995, respectively. Higher levels of markdowns necessitated by lower than expected sales caused the increases in the cost of sales percentage for 1997 and 1996 over 1995. Management cannot predict whether this trend will continue. Expenses Expenses as a percentage of sales for the past three years were as follows: 1997 1996 1995 Advertising, Selling, Administrative & General Expenses 24.6% 24.7% 24.3% Depreciation & Amortization 3.0% 3.1% 3.3% Rentals .8% .9% 1.0% Interest & Debt Expense 2.0% 2.0% 2.0% Advertising, selling, administrative and general expenses decreased as a percentage of sales during 1997 primarily due to a reduction in bad debt expense, offset by an increase in payroll expense. Payroll expense in the selling area increased as a percentage of sales in both 1997 and 1996 as the Company sought to invest more in its sales force. Additionally, bad debt expense increased as a percentage of sales in 1996 as compared to 1995. Management cannot predict whether the 1997 decline in bad debt expense as a percentage of sales will continue. Depreciation and amortization decreased as a percentage of sales during 1996. This was caused by the lower depreciation expense in 1996 due to the write down of the carrying values of property and equipment at certain stores in 1995. In connection with the adoption of Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in 1995, the Company recorded an after-tax charge of approximately $78.5 million, which represented the amount required to write down the carrying value of property and equipment to its then estimated fair value. Rentals continued to decrease slightly as a percentage of sales during 1997 and 1996, primarily due to a higher proportion of the Company's properties being owned rather than leased. Liquidity & Capital Resources Net cash flows from operations were $247 million for 1997. In addition to cash flows from operations, the Company borrowed $300 million by issuing unsecured notes in underwritten public offerings. The Company's commercial paper increased $290 million during the year. Capital expenditures were $509 million for 1997. During 1997, the Company constructed 12 new stores, acquired seven stores in Virginia from Proffitt's, Inc., acquired ten Florida department store buildings from Dayton Hudson Corporation and acquired three Macy's stores in Houston. Five of these acquired stores were added to existing locations and four were not opened prior to the end of the year. The Company also expanded and remodeled four stores during the year. During 1997, the Company repaid $183 million of its long-term debt and capitalized lease obligations. In February 1997, the Company announced that the Board of Directors had authorized the implementation of a Class A common share repurchase program of up to $300 million. As of January 31, 1998, the Company has purchased 5,044,500 shares of Class A common stock at a cost of $165 million. During 1997, the Company's merchandise inventories increased by $228 million. This 14 1/2% increase was caused primarily by the store expansions discussed above. On a comparable store basis, the merchandise inventories increased 6 1/2%. Trade accounts receivable increased by $28 million in 1997. For 1998, the Company plans to construct eight stores (two of which will be replacement stores), a distribution center and expand nine stores. Capital expenditures are projected to be approximately $320 million for 1998. Maturities of the Company's long-term debt over the next five years are $107 million, $108 million, $109 million, $60 million and $111 million, respectively. The Company has line of credit agreements with various banks aggregating $110 million. Additionally, the Company and DIC have a revolving line of credit in the amount of $750 million. The revolving line of credit requires that consolidated stockholders' equity be maintained at $1 billion or more. No funds were borrowed under the revolving line of credit or the line of credit agreements during fiscal 1997. At the end of 1997, the Company had an outstanding shelf registration for unsecured notes in the amount of $300 million. The Company expects to finance its capital expenditures, common stock repurchase activity, and working capital requirements, including required debt repayments from cash flows generated from operations and by issuing new debt. Quantitative and Qualitative Disclosures about Market Risk The table below provides information about the Company's debt obligations that are sensitive to changes in interest rates. The table presents maturities of the Company's long-term debt and related weighted average interest rates by expected maturity dates. Expected Maturity Date 1998 1999 2000 2001 2002 Thereafter Total Fair Value Long-Term Debt ($000) $107,268 $108,005 $108,788 $59,636 $110,555 $978,732 $1,472,984 $1,617,870 Average Interest Rate 8.5% 7.6% 9.3% 9.6% 7.5% 7.8% 8.0%
Year 2000 Compliance The Company has identified all significant applications that will require modification to insure year 2000 compliance. Internal resources are being used to make the required modifications and test year 2000 compliance. Management does not expect that either costs of modifications or consequences of any unsuccessful modifications should have a material adverse effect on the financial position, results of operations or liquidity of the Company. Recent Accounting Pronouncements In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" was issued and is effective for fiscal periods beginning after December 15, 1997. SFAS No. 131 established standards for the reporting of information about operating segments. The Company will adopt SFAS No. 131 in 1998 and is currently evaluating the disclosure requirements. Forward-Looking Information The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this report, the Company's annual report on Form 10-K or made by management of the Company involve risks and uncertainties and are subject to change based on various important factors. The following factors, among others, could affect the Company's financial performance and could cause actual results for 1998 and beyond to differ materially from those expressed or implied in any such forward-looking statements: economic and weather conditions in the regions in which the Company's stores are located and their effect on the buying patterns of the Company's customers, changes in consumer spending patterns and debt levels, trends in personal bankruptcies and the impact of competitive market factors. INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Dillard's, Inc. Little Rock, Arkansas We have audited the accompanying consolidated balance sheets of Dillard's, Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended January 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Dillard's, Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1998 in conformity with generally accepted accounting principles. As discussed in Note 10 to the consolidated financial statements, during fiscal 1995, the Company changed its method of accounting for the impairment of long-lived assets and for long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121. Deloitte & Touche LLP New York, New York February 23, 1998 DILLARD'S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands, Except Share Data) ASSETS January 31, 1998 February 1, 1997 CURRENT ASSETS: Cash and cash equivalents $ 41,833 $ 64,094 Trade accounts receivable (net of allowance for doubtful accounts of $27,809 and $24,169) 1,158,682 1,130,504 Merchandise inventories 1,784,765 1,556,958 Other current assets 12,777 9,080 Total current assets 2,998,057 2,760,636 PROPERTY AND EQUIPMENT Land and land improvements 36,045 37,038 Buildings and leasehold improvements 1,799,072 1,576,058 Furniture, fixtures and equipment 2,125,688 1,839,970 Buildings under construction 37,691 55,024 Buildings under capital leases 25,148 25,148 Less accumulated depreciation and amortization (1,522,152) (1,341,305) 2,501,492 2,191,933 OTHER ASSETS 92,298 107,157 TOTAL ASSETS $ 5,591,847 $5,059,726 LIABILITIES AND STOCKHOLDERS' EQUITY January 31, 1998 February 1, 1997 CURRENT LIABILITIES: Trade accounts payable and accrued expenses $ 530,034 $ 536,695 Commercial paper 419,136 128,738 Federal and state income taxes 40,761 46,220 Current portion of long-term debt 107,268 181,564 Current portion of capital lease obligations 1,651 1,529 Total current liabilities 1,098,850 894,746 LONG-TERM DEBT 1,365,716 1,173,018 CAPITAL LEASE OBLIGATIONS 12,205 13,690 DEFERRED INCOME TAXES 307,138 261,094 OPERATING LEASES AND COMMITMENTS STOCKHOLDERS' EQUITY Preferred stock - 4,400 shares issued and outstanding 440 440 Common stock, Class A - 110,251,634 and 109,594,496 shares issued; 105,207,134 and 109,594,496 shares outstanding 1,103 1,096 Common stock, Class B (convertible) - 4,016,929 shares issued and outstanding 40 40 Additional paid-in capital 657,137 641,388 Retained earnings 2,314,709 2,074,214 Less treasury stock, at cost, Class A - 5,044,500 shares (165,491) - Total stockholders' equity 2,807,938 2,717,178 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,591,847 $ 5,059,726 See notes to consolidated financial statements. DILLARD'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Per Share Data) Year Ended January 31, 1998 February 1, 1997 February 3, 1996 NET SALES $ 6,631,752 $ 6,227,585 $ 5,918,038 SERVICE CHARGES, INTEREST AND OTHER INCOME 185,157 184,475 179,100 6,816,909 6,412,060 6,097,138 COSTS AND EXPENSES: Cost of sales 4,393,291 4,124,765 3,893,786 Advertising, selling, administrative and general expenses 1,629,721 1,538,450 1,436,446 Depreciation and amortization 199,939 193,719 191,805 Rentals 54,686 55,766 58,835 Interest and debt expense 129,237 120,599 120,054 Impairment charges - - 126,559 Total costs and expenses 6,406,874 6,033,299 5,827,485 INCOME BEFORE INCOME TAXES 410,035 378,761 269,653 INCOME TAXES 151,710 140,140 102,470 NET INCOME $ 258,325 $ 238,621 $ 167,183 BASIC EARNINGS PER COMMON SHARE $ 2.32 $ 2.10 $ 1.48 DILUTED EARNINGS PER COMMON SHARE $ 2.31 $ 2.09 $ 1.48 See notes to consolidated financial statements. DILLARD'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Amounts in Thousands, Except Per Share Data) Additional Preferred Common Stock Paid-in Retained Treasury Stock Class A Class B Capital Earnings Stock Total BALANCE, JANUARY 28, 1995 $440 $1,090 $40 $624,086 $1,697,911 $ - $2,323,567 Issuance of 41,964 shares under stock option, employee savings and stock bonus plans - 1 - 1,163 - - 1,164 Net income - - - - 167,183 - 167,183 Cash dividends declared: Preferred stock, $5 per share - - - - (22) - (22) Common stock, $.12 per share - - - - (13,565) - (13,565) BALANCE, FEBRUARY 3, 1996 $440 $1,091 $ 40 $ 625,249 $1,851,507 $ - $2,478,327 Issuance of 523,805 shares under stock option, employee savings and stock bonus plans - 5 - 16,139 - - 16,144 Net income - - - - 238,621 - 238,621 Cash dividends declared: Preferred stock, $5 per share - - - - (22) - (22) Common stock, $.14 per share - - - - (15,892) - (15,892) BALANCE, FEBRUARY 1, 1997 $440 $ 1,096 $ 40 $ 641,388 $2,074,214 $ - $2,717,178 Issuance of 657,138 shares under stock option, employee savings and stock bonus plans - 7 - 15,749 - - 15,756 Purchase of treasury stock - - - - - (165,491) (165,491) Net income - - - - 258,325 - 258,325 Cash dividends declared: Preferred stock, $5 per share - - - - (22) - (22) Common stock, $.16 per share - - - - (17,808) - (17,808) BALANCE, JANUARY 31, 1998 $440 $ 1,103 $ 40 $ 657,137 $2,314,709 $(165,491) $2,807,938 See notes to consolidated financial statement
DILLARD'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Year Ended January 31, 1998 February 1, 1997 February 3, OPERATING ACTIVITIES: Net income $ 258,325 $ 238,621 $ 167,183 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 201,410 195,186 193,313 Deferred income taxes 53,877 12,625 (54,332) Impairment charges - - 126,559 Changes in operating assets and liabilities: Increase in trade accounts receivable (28,178) (26,929) (1,471) Increase in merchandise inventories (227,807) (70,913) (123,289) (Increase) decrease in other current assets (3,697) 1,083 (1,316) Decrease (increase) in other assets 13,388 (23,852) (23,176) (Decrease) increase in trade accounts payable and accrued expenses and income taxes (19,853) (36,516) 15,653 Net cash provided by operating activities 247,465 289,305 299,124 INVESTING ACTIVITIES: Purchase of property and equipment (509,498) (350,114) (347,202) Net cash used in investing activities (509,498) (350,114) (347,202) FINANCING ACTIVITIES: Net increase in commercial paper 290,398 3,428 35,404 Proceeds from long-term borrowings 300,000 200,000 100,000 Principal payments on long-term debt and capital lease obligations (182,961) (141,751) (64,155) Dividends paid (17,930) (11,360) (16,988) Common stock issued 15,756 16,144 1,164 Purchase of treasury stock (165,491) - - Net cash provided by financing activities 239,772 66,461 55,425 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (22,261) 5,652 7,347 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 64,094 58,442 51,095 CASH AND CASH EQUIVALENTS, END OF YEAR $ 41,833 $ 64,094 $ 58,442 See notes to consolidated financial statements.
DILLARD'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business - Dillard's, Inc. (the "Company") operates retail department stores located primarily in the Southeastern, Southwestern and Midwestern areas of the United States. The Company's fiscal year ends on the Saturday nearest January 31. Fiscal year 1997 ended on January 31, 1998 and included 52 weeks. Fiscal year 1996 ended on February 1, 1997 and included 52 weeks. Fiscal year 1995 ended on February 3, 1996 and included 53 weeks. Consolidation - The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including its real estate subsidiary, Construction Developers, Inc. (which leases property principally to the Company), its wholly-owned finance subsidiary, Dillard Investment Co., Inc. ("DIC"), and Dillard National Bank ("DNB"), a wholly- owned subsidiary of DIC (which grants credit card loans to the Company's customers). Intercompany accounts and transactions are eliminated in consolidation. Investments in and advances to joint ventures in which the Company has a 50% ownership interest are accounted for by the equity method. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Merchandise Inventories - The retail last-in, first-out ("LIFO") inventory method is used to value merchandise inventories. At January 31, 1998 and February 1, 1997, the LIFO cost of merchandise was approximately equal to the first-in, first-out ("FIFO") cost of merchandise. Property and Equipment - Property and equipment owned by the Company is stated at cost, which includes related interest costs incurred during the construction period, less accumulated depreciation and amortization. Capitalized interest was $3.6 million, $4.4 million and $3.6 million in fiscal 1997, 1996 and 1995, respectively. For tax reporting purposes, accelerated depreciation or cost recovery methods are used and the related deferred income taxes are included in noncurrent deferred income taxes in the consolidated balance sheets. For financial reporting purposes, depreciation is computed by the straight-line method over estimated useful lives: Buildings and leasehold improvements 20 - 40 years Furniture, fixtures and equipment 3 - 10 years Properties leased by the Company under lease agreements which are determined to be capital leases are stated at an amount equal to the present value of the minimum lease payments during the lease term, less accumulated amortization. The properties under capital leases and leasehold improvements under operating leases are being amortized on the straight-line method over the shorter of their useful lives or their related lease terms. The provision for amortization of leased properties is included in depreciation and amortization expense. Preopening Costs - Preopening costs of new stores are expensed in the quarter that the store opens. Income Taxes - Deferred income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at year-end. Accounts Receivable - Customer accounts receivable are classified as current assets and include some which are due after one year, consistent with industry practice. Concentrations of credit risk with respect to customer receivables are limited due to the large number of customers comprising the Company's credit card base, and their dispersion across the country. Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Employees' Retirement Plan - The Company has a retirement plan with a 401(k) salary deferral feature for eligible employees. Under the terms of the plan, employees may contribute up to 5% of gross earnings which will be matched 100% by the Company. The contributions are used to purchase Class A Common Stock of the Company for the account of the employee. The terms of the plan provide a five-year cliff vesting schedule for the Company contribution to the plan. Reclassification - Certain reclassifications have been made to prior year financial statements to conform with fiscal 1997 presentation. 2. COMMERCIAL PAPER AND REVOLVING CREDIT AGREEMENT DIC commercial paper generally matures within 45 days from the date of issue at effective interest rates ranging from 5.50% to 5.88% at January 31, 1998. At January 31, 1998 and February 1, 1997, the weighted average interest rate for outstanding commercial paper was 5.57% and 5.37%, respectively. The average amount of commercial paper outstanding during fiscal 1997 was $244 million, at a weighted average interest rate of 5.46%. The average amount of commercial paper outstanding during fiscal 1996 was $134 million, at a weighted average interest rate of 5.43%. At January 31, 1998, the Company and DIC had revolving line of credit agreements with various banks aggregating $750 million. The line of credit agreements require that consolidated stockholders' equity be maintained at $1 billion or more. These agreements expire on May 9, 2002. A commitment fee of .075% of the committed amount is paid to the banks to secure these line of credit agreements, which cannot be withdrawn except in the case of defaults by the Company or DIC. Interest may be fixed for periods from one to six months at the election of the Company or DIC. Interest is payable at the lead bank's certificate of deposit rate, alternative base rate or Eurodollar rate. In addition, at January 31, 1998, the Company had line of credit agreements with various banks aggregating $110 million. The agreements have no fixed date of expiration, and interest on amounts drawn fluctuates daily based on market rates. There were no funds borrowed under the revolving line of credit agreements or line of credit agreements during fiscal 1995 through fiscal 1997 3. LONG-TERM DEBT Long-term debt consists of the following (in thousands of dollars): January 31, 1998 February 1, 1997 Unsecured notes at rates ranging from 6.625% to 9.50%, due 1998 through 2027 $ 1,300,000 $ 1,100,000 Unsecured 9.25% note of DIC due 2001 100,000 175,000 Mortgage notes, payable monthly or quarterly (some with balloon payments) over periods up to 31 years from inception and bearing interest at rates ranging from 6.75% to 13.25% 72,984 79,582 1,472,984 1,354,582 Current portion (107,268) (181,564) $ 1,365,716 $ 1,173,018 Building, land, land improvements and equipment with a carrying value of $97.4 million at January 31, 1998 are pledged as collateral on the mortgage notes. Maturities of long-term debt over the next five years are $107.3 million, $108.0 million, $108.8 million, $59.6 million and $110.6 million. Interest and debt expense consists of the following (in thousands of dollars): Fiscal 1997 Fiscal 1996 Fiscal 1995 Long-term debt: Interest $ 118,466 $ 110,265 $107,572 Amortization of debt expense 1,471 1,422 1,400 119,937 111,687 108,972 Interest on capital lease obligations 1,626 1,813 2,241 Commercial paper interest 13,321 7,299 6,014 Other (5,647) (200) 2,827 $ 129,237 $ 120,599 $ 120,054 Interest paid during fiscal 1997, 1996 and 1995 was approximately $135.7 million, $129.4 million and $121.4 million, respectively. 4. TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES Trade accounts payable and accrued expenses consist of the following (in thousands of dollars): January 31, 1998 February 1, 1997 Trade accounts payable $ 317,774 $ 342,238 Accrued expenses: Taxes, other than income 48,497 41,528 Salaries, wages, and employee benefits 57,894 51,569 Interest 36,523 34,969 Rent 11,245 13,105 Other 58,101 53,286 $ 530,034 $ 536,695 5. INCOME TAXES The provision for Federal and state income taxes is summarized as follows (in thousands of dollars): Fiscal 1997 Fiscal 1996 Fiscal 1995 Current: Federal $ 89,839 $ 117,230 $ 138,102 State 7,994 10,285 18,700 97,833 127,515 156,802 Deferred: Federal 49,292 11,310 (47,832) State 4,585 1,315 (6,500) 53,877 12,625 (54,332) $ 151,710 $ 140,140 $ 102,470 A reconciliation between income taxes computed using the effective income tax rate and the Federal statutory income tax rates is presented below (in thousands of dollars): Fiscal 1997 Fiscal 1996 Fiscal 1995 Income tax at the statutory Federal rate $ 143,512 $ 132,377 $ 94,379 State income taxes, net of Federal benefit 8,176 7,584 7,970 Other 22 179 121 $ 151,710 $ 140,140 $ 102,470 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of January 31, 1998 and February 1, 1997 are as follows (in thousands of dollars): January 31, 1998 February 1, 1997 Property and equipment bases and depreciation differences $ 264,526 $244,076 State income taxes 24,018 21,111 Differences between book and tax basis of inventory 27,607 13,304 Other 2,789 3,016 Total deferred tax liabilities 318,940 281,507 Accruals not currently deductible (3,639) (18,715) State income taxes (330) (1,698) Total deferred tax assets (3,969) (20,413) Net deferred tax liabilities $ 314,971 $261,094 Deferred tax assets and liabilities are presented as follows in the accompanying consolidated balance sheets: January 31, 1998 February 1, 1997 Current deferred tax liabilities $ 7,833 $ - Non current deferred tax liabilities 307,138 261,094 Net deferred tax liabilities $ 314,971 $261,094 Income taxes paid during fiscal 1997, 1996 and 1995 were approximately $100.0 million, $116.4 million and $158.0 million, respectively. 6. STOCKHOLDERS' EQUITY Capital stock is comprised of the following: Type Par Value Shares Authorized Preferred (5% cumulative) $ 100 5,000 Additional preferred $ .01 10,000,000 Class A, common $ .01 289,000,000 Class B, common $ .01 11,000,000 Holders of Class A are empowered as a class to elect one-third of the members of the Board of Directors and the holders of Class B are empowered as a class to elect two-thirds of the members of the Board of Directors. Shares of Class B are convertible at the option of any holder thereof into shares of Class A at the rate of one share of Class B for one share of Class A. 7. EARNINGS PER SHARE During the fouth quarter of fiscal 1997, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." In accordance with SFAS No. 128, basic earnings per share has been computed based upon the weighted average of Class A and Class B common shares outstanding, after deducting preferred dividend requirements. Diluted earnings per share gives effect to outstanding stock options Earnings per common share have been computed as follows: (Dollar amounts and shares in thousands; per share Fiscal 1997 Fiscal 1996 Fiscal 1995 amounts in dollars) Basic Diluted Basic Diluted Basic Diluted Net income $ 258,325 $ 258,325 $ 238,621 $ 238,621 $ 167,183 $ 167,183 Preferred stock dividends (22) (22) (22) (22) (22) (22) Net earnings available for per-share calculation $ 258,303 $ 258,303 $ 238,599 $ 238,599 $ 167,161 $ 167,161 Average shares common stock outstanding 111,303 111,303 113,482 113,482 113,047 113,047 Stock options 691 507 97 Total average equivalent shares 111,303 111,994 113,482 113,989 113,047 113,144 Earnings per share $2.32 $2.31 $2.10 $2.09 $1.48 $1.48
Options to purchase 2,618,406, 4,806,120 and 4,245,797 shares of Class A common stock at prices ranging from $31.25 to $45.13 per share were outstanding in 1997, 1996 and 1995, respectively, but were not included in the computation of diluted earnings per share because the exercise price of the options exceed the average market price and would have been anitdilutive. 8. STOCK OPTIONS The Company's 1990 Incentive and Nonqualified Stock Option Plan provides for the granting of options to purchase 12 million shares of Class A common stock to certain key employees of the Company. Exercise and vesting terms for options granted under this plan are determined at each grant date. All options were granted at not less than fair market value at dates of grant. At the end of fiscal 1997, 1,600,925 shares were available for grant under the plan and 8,150,265 shares of Class A common stock were reserved for issuance under the 1990 stock option plan. Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" was effective for the Company for fiscal 1996. SFAS No. 123 encourages (but does not require) compensation expense to be measured based on the fair value of the equity instrument awarded. In accordance with APB No. 25, no compensation cost has been recognized in the Consolidated Statements of Income for the Company's stock option plans. If compensation cost for the Company's stock option plans had been determined in accordance with the fair value method prescribed by SFAS No. 123, the Company's net income would have been $245 million, $229 million and $164 million for 1997, 1996 and 1995 respectively. Diluted earnings per share would have been $2.18, $2.01 and $1.45 for 1997, 1996 and 1995, respectively. Basic earnings per share would have been $2.20, $2.02 and $1.45 for 1997, 1996 and 1995, respectively. This pro forma information may not be representative of the amounts to be expected in future years as the fair value method of accounting prescribed by SFAS No. 123 has not been applied to options granted prior to 1995. Stock option transactions are summarized as follows: Fiscal 1997 Fiscal 1996 Fiscal 1995 Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Fixed Option Shares Price Shares Price Shares Price Outstanding, beginning of year 7,058,685 $ 33.85 6,448,006 $ 33.08 4,537,521 $ 35.63 Granted 1,956,220 32.71 1,896,030 36.45 1,990,450 27.45 Exercised (1,815,180) 32.92 (848,366) 31.69 - - Forfeited (650,385) 39.05 (436,985) 37.91 (79,965) 37.69 Outstanding, end of year 6,549,340 $ 33.25 7,058,685 $ 33.85 6,448,006 $ 33.08 Options exercisable at year-end 3,245,640 $ 32.41 3,079,350 $ 35.57 3,946,866 $ 35.52 Weighted-average fair value of options granted during the year $7.78 $12.19 $9.26
The following table summarizes information about stock options outstanding at January 31, 1998: Options Outstanding Options Exercisable Weighted-Average Weighted- Weighted- Range of Options Remaining Average Options Average Exercise Prices Outstanding Contractual Life(Yrs) Exercise Price Exercisable Exercise Price $27.25-$32.25 3,930,934 4.8 $30.10 2,419,634 $ 30.11 $37.00-$39.50 2,618,406 4.4 37.98 826,006 39.14 6,549,340 4.6 $33.25 3,245,640 $ 32.41
The fair value of each option grant is estimated on the date of each grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1997, 1996, and 1995, respectively: risk free interest rate 6.13%, 6.27% and 6.32%; expected life 2.9 years, 4.3 years and 4.3 years; expected volatility of 25.9%, 29.4% and 29.9%; dividend yield .49%, .38% and .44%. The fair values generated by the Black-Scholes model may not be indicative of the future benefit, if any, that may be received by the option holder. 9. LEASES Rental expense consists of the following (in thousands of dollars): Fiscal 1997 Fiscal 1996 Fiscal 1995 Operating leases: Buildings: Minimum rentals $ 29,639 $ 28,842 $ 30,034 Contingent rentals 11,863 12,482 13,625 Equipment 11,661 13,100 14,015 53,163 54,424 57,674 Contingent rentals on capital leases 1,523 1,342 1,161 $ 54,686 $ 55,766 $ 58,835 Contingent rentals on certain leases are based on a percentage of annual sales in excess of specified amounts. Other contingent rentals are based entirely on a percentage of sales. The future minimum rental commitments as of January 31 1998 for all noncancelable leases for buildings and equipment are as follows (in thousands of dollars): Fiscal Year Operating Leases Capital Leases 1998 $ 36,257 $ 2,987 1999 33,821 2,711 2000 29,967 2,627 2001 26,530 2,371 2002 25,647 2,371 After 2002 136,301 11,092 Total minimum lease payments $ 288,523 $ 24,159 Less amount representing interest (10,303) Present value of net minimum lease payments (of which $1,651 is currently payable) $ 13,856 Renewal options from three to twenty-five years exist on the majority of leased properties. At January 31, 1998, the Company is committed to incur costs of approximately $227 million to acquire, complete and furnish certain stores. 10. IMPAIRMENT OF LONG-LIVED ASSETS In the fourth quarter of fiscal 1995, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires that long-lived assets and certain intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluated its investment in long-lived assets to be held and used in operations on an individual store basis and determined that, based upon the history of operating results and updated operating projections, the property and equipment at certain stores was impaired. The Company estimated the fair value of the assets at these stores based on operating projections and future discounted cash flows. As a result, the Company recorded an after-tax charge of approximately $78.5 million in 1995 ($.69 per share) representing the amount required to write down the carrying value of the property and equipment to their estimated fair value of approximately $112 million at February 3, 1996. The Company believes that no material impairment existed at January 31, 1998 and February 1, 1997. 11. FAIR VALUE DISCLOSURES The estimated fair values of financial instruments which are presented herein have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of amounts the Company could realize in a current market exchange. The fair value of trade accounts receivable is determined by discounting the estimated future cash flows at current market rates, after consideration of credit risks and servicing costs using historical rates. The fair value of the Company's long-term debt is based on market prices or dealer quotes (for publicly traded unsecured notes) and on discounted future cash flows using current interest rates for financial instruments with similar characteristics and maturity (for bank notes and mortgage notes). The fair value of the Company's cash and cash equivalents, trade accounts receivable and commercial paper borrowings approximates their carrying values at January 31, 1998 and February 1, 1997 due to the short-term maturities of these instruments. The fair value of the Company's long-term debt at January 31, 1998 and February 1, 1997 was $1,618 million and $1,435 million, respectively. The carrying value of the Company's long-term debt at January 31, 1998 and February 1, 1997 was $1,473 million and $1,355 million, respectively. 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the years ended January 31, 1998 and February 1, 1997 (in thousands, except per share data): Fiscal 1997 Three Months Ended May 3 August 2 November 1 January 31 Net sales $ 1,515,344 $ 1,453,152 $ 1,592,118 $ 2,071,138 Gross profit 520,141 507,033 535,815 675,472 Net income 58,258 44,342 44,347 111,378 Basic earnings per share .52 .40 .40 1.01 Diluted earnings per share .52 .40 .40 1.00 Fiscal 1996 Three Months Ended May 4 August 3 November 2 February 1 Net sales $ 1,453,302 $ 1,340,326 $ 1,496,578 $ 1,937,379 Gross profit 497,505 468,522 491,455 645,338 Net income 56,401 39,526 31,618 111,076 Basic earnings per share .50 .35 .28 .98 Diluted earnings per share .50 .35 .28 .98 Annual Meeting and General Information Annual Meeting Saturday, May 16, 1998, at 9:30 a.m., Auditorium, Dillard's Corporate Office 1600 Cantrell Road, Little Rock, Arkansas 72201 Form 10-K Copies of the Company's 10-K Annual Report may be obtained by written request to: James I. Freeman, Senior Vice President and Chief Financial Officer Post Office Box 486, Little Rock, Arkansas 72203 Corporate Headquarters 1600 Cantrell Road, Little Rock, Arkansas 72201 Mailing Address Post Office Box 486, Little Rock, Arkansas 72203 Telephone: 501-376-5200 Telex: 910-722-7322 Fax: 501-376-5917 Transfer Agent And Registrar ChaseMellon, 85 Challenger Road, Overpeck Centre, Ridgefield Park, New Jersey 07660 Listing New York Stock Exchange, Ticker Symbol "DDS" Stock Prices And Dividends By Quarter Sales Prices - Common Shares 1997 1996 Dividends Per Share Quarter High Low High Low 1997 1996 First $32.50 $28.00 $41.38 $29.75 $0.04 $0.03 Second 38.06 30.63 40.38 31.38 0.04 0.03 Third 44.75 34.00 34.88 30.88 0.04 0.04 Fourth 41.38 32.56 32.63 29.13 0.04 0.04 Inside Back Cover EX-21 4 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT. STATE OF NAME UNDER WHICH NAME INCORPORATION SUBSIDIARY IS DOING BUSINESS Dillard Investment Co., Inc. Delaware Dillard Investment Company Construction Developers, Incorporated Arkansas Dillard's The Higbee Company Delaware Dillard's J. B. Ivey & Company North Carolina Dillard's Dillard National Bank National Banking Dillard National Bank Association Dillard Travel, Inc. Arkansas Dillard Travel, Inc. Pulaski Realty Company Arkansas Pulaski Realty Company Dillard USA, Inc. Nevada Dillard's Dillard's Utah, Inc. Utah Dillard's Utah, Inc. Dillard International, Inc. Nevada Dillard International, Inc. Dillard Distribution, Inc. Arkansas Dillard Distribution, Inc. Dillard's Wyoming, Inc. Wyoming Dillard's Dillard Ticketing Systems, Inc. Arizona Dillard Ticketing Systems, Inc. EX-23 5 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in Registration Statement Number 33-42500 on Form S-8, in Registration Number 33-42553 on Form S-8, in Registration Statement Number 33-42499 on Form S-8, and in Registration Statement Number 333-26343 on Form S-3, of our reports (which express an unqualified opinion and include an explanatory paragraph relating to a change in accounting for the impairment of long-lived assets and for long-lived assets to be disposed of) dated February 23, 1998, appearing in and incorporated by reference in this Annual Report on Form 10-K of Dillard's, Inc. and subsidiaries for the year ended January 31, 1998. DELOITTE & TOUCHE LLP New York, New York April 20, 1998 EX-27 6
5 1000 YEAR JAN-31-1998 JAN-31-1998 41,833 0 1,158,682 27,809 1,784,765 2,998,057 4,002,591 1,501,099 5,591,847 1,098,850 1,377,921 0 440 1,143 2,806,355 5,591,847 6,631,752 6,816,909 4,393,291 4,393,291 0 55,816 129,237 410,035 151,710 258,325 0 0 0 258,325 2.32 2.31 BASIC PER SFAS NO. 128 DILUTED PER SFAS NO. 128
EX-27.1 7
5 1000 3-MOS 6-MOS 9-MOS YEAR JAN-31-1998 JAN-31-1998 JAN-31-1998 FEB-1-1997 MAY-3-1997 AUG-2-1997 NOV-01-1997 FEB-1-1997 72,246 73,225 65,509 64,094 0 0 0 0 1,046,856 1,031,524 1,054,062 1,130,504 25,277 26,751 25,923 24,169 1,874,310 1,750,239 2,255,564 1,556,958 3,003,309 2,864,269 3,410,152 2,760,636 3,675,899 3,811,712 3,912,754 3,513,155 1,372,246 1,419,304 1,458,890 1,321,222 5,413,515 5,347,080 5,967,141 5,059,726 1,155,181 1,040,997 1,617,359 894,746 1,284,739 1,332,721 1,330,747 1,186,708 0 0 0 0 440 440 440 440 1,136 1,138 1,143 1,136 2,710,925 2,710,690 2,756,358 2,715,602 5,413,515 5,347,080 5,967,141 5,059,726 1,515,344 2,968,496 4,560,615 6,227,585 1,562,557 3,061,897 4,701,232 6,412,060 995,203 1,941,322 2,997,625 4,124,765 995,203 1,941,322 2,997,625 4,124,765 0 0 0 0 14,989 28,057 40,462 66,629 30,459 63,939 97,158 120,599 92,473 162,860 233,247 378,761 34,215 60,260 86,300 140,140 58,258 102,600 146,947 238,621 0 0 0 0 0 0 0 0 0 0 0 0 58,258 102,600 146,947 238,621 .52 .92 1.32 2.10 .52 .91 1.31 2.09 EPS-BASIC PER SFAS NO. 128 EPS-DILUTED PER SFAS NO. 128
EX-27.2 8
5 1000 3-MOS 6-MOS 9-MOS YEAR FEB-1-1997 FEB-1-1997 FEB-1-1997 FEB-3-1996 MAY-4-1996 AUG-3-1996 NOV-2-1996 FEB-3-1996 70,696 68,768 65,217 58,442 0 0 0 0 1,038,569 1,008,554 1,028,652 1,103,575 18,272 16,797 17,618 19,528 1,750,318 1,618,252 2,046,085 1,486,045 2,865,820 2,708,989 3,162,936 2,658,225 3,266,958 3,358,722 3,432,224 3,215,126 1,208,290 1,250,028 1,283,333 1,179,588 5,012,291 4,906,586 5,413,956 4,778,535 1,117,826 804,604 1,340,024 869,680 1,099,404 1,294,437 1,239,247 1,178,025 0 0 0 0 440 440 440 440 1,135 1,136 1,136 1,131 2,540,983 2,579,280 2,606,420 2,476,756 5,012,291 4,906,586 5,413,956 4,778,535 1,453,302 2,793,628 4,290,206 5,918,038 1,501,753 2,888,582 4,431,849 6,097,138 955,797 1,827,601 2,832,724 3,893,786 955,797 1,827,601 2,832,724 3,893,786 0 0 0 0 15,710 31,281 52,470 52,522 28,585 58,809 89,117 120,054 89,526 152,262 202,450 269,653 33,125 56,335 74,905 102,470 56,401 95,927 127,545 167,183 0 0 0 0 0 0 0 0 0 0 0 0 56,401 95,927 127,545 167,183 .50 .85 1.12 1.48 .50 .84 1.12 1.48 EPS-BASIC PER SFAS NO. 128 EPS-DILUTED PER SFAS NO. 128
-----END PRIVACY-ENHANCED MESSAGE-----