Dillard's 2002 Annual Report Download - page 17

The Company has reclassified interest expense related to its receivable financing from other revenue to interest
expense on its consolidated statements of operations for all periods presented. The Company reclassified $11.3
million and $15.0 million for fiscal 2001 and 2000, respectively.
During fiscal 2002, the Company recorded a pre-tax charge of $52.2 million for asset impairment and store closing
costs. The charge includes a write-down to fair value for certain under-performing properties in the amount of $55.8
million and exit costs to close four such properties in the amount of $4.4 million, all of which will be closed during
fiscal 2003, partially offset by forgiveness of a lease obligation of $8.0 million in connection with the sale of a closed
owned store in Memphis, Tennessee in satisfaction of that obligation. The Company does not expect to incur
significant additional exit costs upon the closing of these properties during fiscal 2003. During fiscal 2001, the
Company recorded a pre-tax charge of $3.8 million for asset impairment and store closing costs. The charge includes
a write-down to fair value for one under-performing store in the amount of $1.8 million and lease commitments of $2
million. During fiscal 2000, the Company recorded a pre-tax charge of $51 million for asset impairment and store
closing costs. The charge includes a write-down to fair value for certain under-performing properties in the amount of
$37 million and exit costs to close four such properties in the amount of $14 million, all of which were closed during
fiscal 2001.
Service Charges, Interest and Other Income
Service Charges, Interest and Other Income, as a percentage of net sales, was 4.1%, 3.0% and 3.1% for fiscal 2002,
2001 and 2000, respectively. Included in other income in fiscal 2002 is a $64.3 million gain pertaining to the
Company’s sale of its interest in the FlatIron Crossing joint venture located in Broomfield, Colorado. Service charge
income was $226 million in 2002 compared to $210 million in 2001. This increase is due to a $70 million increase in
the average amount of outstanding accounts receivable during 2002 compared to 2001. Service charge income was
$210 million in 2001 compared to $219 million in 2000. The decrease is due to the 53-week period in 2000 compared
to the 52-week period in 2001 and to a $29 million decrease in the average amount of outstanding accounts
receivable during 2001 compared to 2000. Sales on the Company’s proprietary credit cards as a percent of total sales
were 28.2%, 28.8% and 27.7% for fiscal 2002, 2001 and 2000, respectively. Earnings from joint ventures was $19.5
million, $11.6 million and $8.2 million for fiscal 2002, 2001 and 2000, respectively. Earnings from FlatIron
Crossing for fiscal 2002 were $13.6 million. Due to the Company’s sale of FlatIron Crossing in fiscal 2002, future
earnings from joint ventures are expected to be significantly reduced from fiscal 2002 levels.
Income Taxes
The Company’s actual federal and state income tax rate (exclusive of the effect of nondeductible goodwill
amortization) was 36% in fiscal 2002, 2001 and 2000. The Company’s actual federal and state income tax rate was
reduced from 37% in fiscal 1999 to 36% in fiscal 2000, as a result of lower effective combined income tax rates. The
effect of these reduced rates on the Company’s deferred income taxes was to reduce the income tax provision by $16
million in fiscal 2000.
Extraordinary Item
The 2002 extraordinary loss of $4.4 million (net of income tax benefit of $2.5 million) and the 2001 and 2000
extraordinary gains of $6 million and $27 million (net of taxes of $3.4 million and $15.4 million), respectively,
consist of gains (losses) on the retirement of Reset Put Securities (“REPS”) prior to their maturity dates and the
repurchase of outstanding unsecured notes prior to their related maturity dates net of the write-off of unamortized
deferred financing costs relating thereto.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operations were $357 million for 2002 and were adequate to fund the Company’s operations for
the year. Cash flows from operations declined from 2001 levels due primarily to a $102 million decrease in accounts
payable and accrued expenses in the current year compared to a $193 million increase in accounts payable and
accrued expenses in the prior year and an increase in inventories in the current year compared to a decrease in the
prior year. On a comparable stores basis, merchandise inventory increased 2% while the prior year comparable store
inventory decreased 5%. Accounts receivable were flat in the current year compared to a $117 million increase in the
prior year.
During 2002, the Company reduced its net level of outstanding debt and capital leases by $200 million through
scheduled debt maturities and repurchases of notes prior to their related maturity dates. Capital expenditures were
$233 million for 2002. During 2002, the Company opened four new stores, Randolph Mall in Asheboro, North
Carolina; Parkway Place in Huntsville, Alabama; Triangle Town Center in Raleigh, North Carolina and Prescott
Gateway in Prescott, Arizona and three replacement stores, Fashion Show Mall in Las Vegas, Nevada; Lynnhaven
Mall in Virginia Beach, Virginia and Gulf View Square Mall in Port Richey, Florida. These seven stores totaled
approximately 1.1 million square feet of retail space. In addition, the Company completed major expansions on five
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