Dillard's 2004 Annual Report Download - page 21

additional exit costs upon the closing of these properties during fiscal 2005. A breakdown of the asset impairment and
store closing charges for fiscal 2004 is as follows:
(in thousands of dollars)
Number of
Locations
Impairment
Amount
Stores closed during fiscal 2004 3 $ 2,928
Stores to close during fiscal 2005 4 4,052
Store impaired based on cash flows 1 703
Non-operating facilities 2 4,170
Joint Venture 1 7,564
Total 9 $19,417
2003 Compared to 2002
Advertising, selling, administrative and general (“SG&A”) expenses increased to 27.6% of sales for fiscal 2003
compared to 27.3% for fiscal 2002. The percentage increase is primarily due to a lack of sales leverage as SG&A
expenses decreased $66.1 million in 2003 compared to 2002. On a dollar basis significant decreases were noted in
payroll, advertising and bad debt expense. Payroll, advertising and bad debt expense declined $37.0 million, $8.6
million and $9.5 million, respectively. The decrease in payroll was caused primarily by a reduction in incentive based
sales payroll which is directly tied to the decrease in sales during 2003. The decline in advertising expense resulted
primarily from a reduction in newspaper advertising as the Company considers which media more appropriately matches
its customers’ lifestyles. Improvement in the quality of accounts receivable through lower delinquencies as well as a
reduction in outstanding accounts receivable contributed to the lower bad debt expense. SG&A expenses in fiscal 2003
include a $12.3 million pretax credit recorded due to the resolution of certain liabilities originally recorded in
conjunction with the purchase of Mercantile Stores Company, Inc.
Depreciation and amortization as a percentage of sales remained flat during fiscal 2003 principally due to lower capital
expenditures in fiscal 2003 combined with a lack of sales leverage from the 4% decline in comparable store sales during
the year.
Interest and debt expense as a percentage of sales was unchanged from fiscal 2002 as a result of the Company’s lack of
sales leverage. Interest expense declined $9.0 million due to the Company’s continuing focus on reducing its out-
standing debt levels. Average debt outstanding declined approximately $226 million in fiscal 2003. Interest expense for
fiscal 2003 includes a credit of $4.1 million received from the Internal Revenue Service as a result of the Company’s
filing of an interest netting claim related to previously settled tax years. A call premium of $15.6 million related to the
early retirement of debt is included in interest expense for fiscal 2003 compared to a call premium of $11.6 million
related to the early retirement of debt for fiscal 2002. The Company has retired all the remaining debt associated with
the call premiums in fiscal 2003 and 2002 and did not have any similar call premiums in fiscal 2004. Also included in
interest expense for the fiscal 2002 is a pretax gain of $4.8 million related to the early extinguishment of debt. The
Company retired $272 million in long-term debt and issued $50 million in new short-term borrowings during 2003.
During fiscal 2003, the Company recorded a pre tax charge of $44 million for asset impairment and store closing costs.
The charge includes a write down to fair value for certain under-performing properties. The charge consists of a write
down for a joint venture in the amount of $5.5 million, a write down of goodwill on two stores to be closed of $2.5
million and a write down of property and equipment in the amount of $35.7 million. A breakdown of the asset
impairment and store closing charges for fiscal 2003 is as follows:
(in thousands of dollars)
Number of
Locations
Impairment
Amount
Stores closed during fiscal 2003 3 $ 3,809
Stores to close during fiscal 2004 4 17,115
Store impaired based on cash flows 1 1,293
Non-operating facilities 7 16,030
Joint Venture 1 5,480
Total 16 $43,727
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