Dillard's 2005 Annual Report Download

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lifestyle
05
Dillard’s Inc. | Annual Report | 20

Table of contents

  • Page 1
    Dillard's Inc. | Annual Report | 20 05

  • Page 2
    ...to change, as well, embracing the revolution of our sector as opportunity to reach more and more customers. With the continuing support of our shareholders and associates, we will solidify our place as America's choice for fashion. William Dillard, II Chairman of the Board & Chief Executive Officer...

  • Page 3
    ... President, Merchandising Louise Platt Director of Sales Promotion Dillard's Inc. | Annual Report | 20 Peter R. Johnson Chairman of PRJ Holdings, Inc. San Francisco, California Warren A. Stephens President & Chief Executive Officer of Stephens Group, Inc. & Stephens, Inc. Little Rock, Arkansas...

  • Page 4
    ... and exclusive brand sources. The Company operates 330 Dillard's locations spanning 29 states, all with one nameplate - Dillard's. Annual Meeting Saturday, May 20, 2006, at 9:30 a.m. Dillard's Corporate Office 1600 Cantrell Road Little Rock, Arkansas 72201 Individuals or securities analysts with...

  • Page 5
    ...DELAWARE (State or other jurisdiction of incorporation or organization) (Address of principal executive office) (Zip Code) 71-0388071 (IRS Employer Identification Number) 1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201 (501) 376-5200 (Registrant's telephone number, including area code) Securities...

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  • Page 7
    ...and Related Matters and Issuer Purchases of Equity Securities ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative and Qualitative Disclosures about Market Risk ...Financial Statements and Supplementary Data ...Changes in...

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    ... by size of store, merchandising character and character of community served. Most stores are located at suburban shopping malls. Customers may also purchase products online at our website, and we offer an on-line bridal registry to customers. We operate retail department stores located primarily in...

  • Page 10
    ... incentives to sales associates to open new credit accounts, which generally can be opened while a customer is visiting one of our stores. Customers who open accounts are entitled to discounts on initial purchases. Proprietary credit card customers are sometimes offered private shopping nights...

  • Page 11
    ... of management and hourly employees also affect store operations and administrative expenses. Our ability to finance new store development, improvements and additions to existing stores, and the acquisition of stores from competitors is affected by economic conditions, including interest rates and...

  • Page 12
    ... projected economic and operating synergies; difficulties successfully integrating, operating, maintaining and managing newly acquired operations or employees; difficulties maintaining uniform standards, controls, procedures and policies; unanticipated changes in business and economic conditions...

  • Page 13
    ... products; changes in competitive and economic conditions generally; changes in the cost or availability of material or labor; and weather and acts of God. Litigation from customers, employees and others could harm our reputation and impact operating results. Class action lawsuits have been filed...

  • Page 14
    ...executive offices are approximately 300,000 square feet located in Little Rock, Arkansas. Additional information is contained in Notes 1, 3, 13 and 14 of "Notes to Consolidated Financial Statements," in Item 8 hereof, and reference is made to information contained under the heading "Number of stores...

  • Page 15
    ...vote of security holders during the fourth quarter of the year ended January 28, 2006. Executive Officers of the Company 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...

  • Page 16
    ...EQUITY, AND RELATED MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. The Company's Class A Common Stock trades on the New York Stock Exchange under the Ticker Symbol "DDS". No public market currently exists for the Class B Common Stock. The high and low sales prices of the Company's Class A Common...

  • Page 17
    ... 57,257 Gross square footage (in thousands) ...56,400 56,300 56,000 56,700 56,800 Number of stores Opened ...9 8 5 4 6 Acquired ...0 0 0 0 4 Closed ...8 7 10 9 9 Total-end of year ...330 329 328 333 338 (1) During fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 142...

  • Page 18
    ... to the Company's sale of it private label credit card business to GE Consumer Finance (see Note 2 of the Notes to Consolidated Financial Statements). a $19.4 million pretax charge ($11.6 million after tax or $0.14 per diluted share) for asset impairment and store closing charges related to certain...

  • Page 19
    ... OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. EXECUTIVE OVERVIEW Dillard's, Inc. operates 326 retail department stores in 29 states, net of four locations closed due to hurricane damage in 2005. Our stores are located in suburban shopping malls and offer a broad selection of fashion apparel and...

  • Page 20
    ... managing our operating costs without sacrificing service to our customers. Items of note for the year ended January 28, 2006 include the following: • The announcement of an American Express-branded credit card in the United States issued by GE Consumer Finance with the first product to be offered...

  • Page 21
    ..., sales from new stores opened in the current fiscal year and sales in the previous fiscal year for stores that were closed in the current fiscal year. Service Charges, Interest and Other Income. Service Charges, Interest and Other Income includes income generated through the long-term marketing and...

  • Page 22
    (including payroll and employee benefits), insurance, employment taxes, advertising, management information systems, legal, bad debt costs and other corporate level expenses. Buying expenses consist of payroll, employee benefits and travel for design, buying and merchandising personnel. Depreciation...

  • Page 23
    ... discounted cash flows and are based on our best estimate of future revenue and operating costs and general market conditions. These estimates are subject to review and approval by senior management. This approach uses significant assumptions, including projected future cash flows, the discount rate...

  • Page 24
    ...percent change by category in the Company's sales for the past two years is as follows: Percent Change Fiscal Fiscal 2005-2004 2004-2003 Cosmetics ...Ready to Wear ...Lingerie and Accessories ...Juniors ...Children's Clothing ...Men's Clothing and Accessories ...Shoes ...Decorator Home ...Furniture...

  • Page 25
    ...the 52-week period ended January 28, 2006 compared to the 52-week period ended January 29, 2005 on both a total and comparable store basis. Sales were strongest in shoes and accessories and lingerie with sales increases also noted in cosmetics, junior's clothing and men's clothing. Sales declined in...

  • Page 26
    ...impairment and store closing charges is a pre-tax loss on the disposition of all the outstanding capital stock of an indirect wholly-owned subsidiary in the amount of $40.1 million. The Company realized an income tax benefit of $45.4 million for the year ended January 28, 2006 related to the sale of...

  • Page 27
    ... data line expenses. As a result of the Company's improved performance, incentive compensation to store managers, merchants and management significantly increased during the year ended January 29, 2005. Also during the year, Dillard's increased its provision for workers' compensation self-insurance...

  • Page 28
    ... The Company completed its sale of its credit card business to GE and entered into a ten year marketing and servicing alliance. GE will own the accounts and balances generated during the term of the alliance and will provide all key customer service functions supported by ongoing credit marketing...

  • Page 29
    ... associated center in Brownsville, Texas. Due to the sale of the credit card business, service charge income will be non-recurring in fiscal 2005; however, income from the marketing and servicing alliance will be expected for the full fiscal year. Income Taxes The federal and state income tax rates...

  • Page 30
    ...During 2005, the Company opened eight new stores, Imperial Valley in El Centro, California; St. Johns Towne Center in Jacksonville, Florida; Perimeter Mall in Atlanta, Georgia; Northlake Mall in North Charlotte, North Carolina; The Shops at La Cantera in San Antonio, Texas; Firewheel Towne Center in...

  • Page 31
    ... card business to GE (see Note 2 of the Notes to Consolidated Financial Statements). Financing Activities Historically, cash inflows from financing activities generally included borrowing under the Company's accounts receivable conduit facilities, the issuance of new mortgage notes or long-term...

  • Page 32
    ... 2006. Depending on conditions in the capital markets and other factors, the Company will from time to time consider possible financing transactions, the proceeds of which could be used to refinance current indebtedness or other corporate purposes. Off-Balance-Sheet Arrangements The Company has not...

  • Page 33
    ... debt ...Guaranteed beneficial interests in the Company's subordinated debentures ...Capital lease obligations, including interest ...Defined benefit plan payments ...Purchase Obligations (1) ...Operating leases (2) ...Total contractual cash obligations ... $1,257,424 911,627 200,000 37,735 59,946...

  • Page 34
    ... effect on the Company's financial position, results of operations or cash flows. In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123-R"). SFAS No. 123-R requires all forms of share-based payment to employees, including employee stock options, be...

  • Page 35
    ... the Company sources its merchandise; changes in operating expenses, including employee wages, commission structures and related benefits; possible future acquisitions of store properties from other department store operators and the continued availability of financing in amounts and at the terms...

  • Page 36
    ... public accounting firm, on management's assessment of internal control over financial reporting is incorporated herein by reference from pages F-3 and F-4 of this report. William Dillard, II, Chairman of the Board of Directors and Chief Executive Officer, has certified to the New York Stock...

  • Page 37
    ... Company's Directors, CEO and senior financial officers. The current version of such Code of Conduct is available free of charge on Dillard's, Inc. web site, www.dillards.com, and is available in print to any shareholder who requests copies by contacting Julie J. Bull, Director of Investor Relations...

  • Page 38
    ... AND FINANCIAL STATEMENT SCHEDULE. (a)(1) and (2) Financial Statements and Financial Statement Schedule An "Index of Financial Statements" and "Financial Statement Schedule" has been filed as a part of this Report beginning on page F-1 hereof. (a)(3) Exhibits and Management Compensatory Plans...

  • Page 39
    ... authorized. Dillard's, Inc. Registrant /s/ JAMES I. FREEMAN Date: March 31, 2006 James I. Freeman, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

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    ... Registered Public Accounting Firm ...Management's Report on Internal Control over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets-January 28, 2006 and January 29, 2005 ...Consolidated Statements of Operations-Fiscal years ended January...

  • Page 42
    ... of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those...

  • Page 43
    ... registered public accounting firm, has audited the financial statements of the Company for the fiscal years ended January 28, 2006, January 29, 2005 and January 31, 2004 and has attested to management's assertion regarding the effectiveness of the Company's internal control over financial reporting...

  • Page 44
    ...audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended January 28, 2006 of the Company and our report dated March 31, 2006 expressed an unqualified...

  • Page 45
    ... in the Company's Subordinated Debentures ...Stockholders' Equity: Common stock, Class A-115,237,382 and 114,581,524 shares issued; 75,283,433 and 79,194,675 shares outstanding ...Common stock, Class B (convertible)-4,010,929 shares issued and outstanding ...Additional paid-in capital ...Accumulated...

  • Page 46
    Consolidated Statements of Operations Dollars in Thousands, Except Per Share Data January 28, 2006 Years Ended January 29, 2005 January 31, 2004 Net Sales ...Service Charges, Interest and Other Income ...Costs and Expenses: Cost of sales ...Advertising, selling, administrative and general expenses ...

  • Page 47
    ...Balance, January 29, 2005 ...1,146 Net income ...- Minimum pension liability adjustment, net of tax of $698 ...- Total comprehensive income ...Issuance of 655,858 shares under stock option plan ...Purchase of 4,567,100 shares of treasury stock ...Cash dividends declared: Common stock, $.16 per share...

  • Page 48
    ... sale of credit card business ...Proceeds from sale of joint venture ...Net cash (used in) provided by investing activities ...Financing Activities: Principal payments on long-term debt and capital lease obligations ...Payment of line of credit fees and expenses ...(Decrease) increase in short-term...

  • Page 49
    ...Statements 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...

  • Page 50
    ... received $14.1 million as a return of capital from a joint venture during 2005. The Company also recorded a $15.6 million pretax gain for the year ended January 31, 2004 from the sale of its interest in Sunrise Mall and its associated center in Brownsville, Texas for $80.7 million including the...

  • Page 51
    ...the sale of its credit card business to GE, finance charge revenue earned on customer accounts, serviced by the Company under its proprietary credit card program, was recognized in the period in which it was earned. Beginning November 1, 2004, the Company's share of income earned under the long-term...

  • Page 52
    ... by the option holder. Segment Reporting-The Company operates in a single operating segment-the operation of retail department stores. Revenues from customers are derived from merchandise sales and service charges and interest on the Company's proprietary credit card prior to November 1, 2004. The...

  • Page 53
    ... effect on the Company's financial position, results of operations or cash flows. In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123-R"). SFAS No. 123-R requires all forms of share-based payments to employees, including employee stock options, be...

  • Page 54
    ... balance at January 28, 2006 ...4. Revolving Credit Agreement At January 28, 2006, the Company maintained a $1.2 billion revolving credit facility with JPMorgan Chase Bank ("JPMorgan"). Borrowings under the credit agreement accrue interest at JPMorgan's Base Rate or LIBOR plus 1.25% (currently...

  • Page 55
    ... consist of the following: (in thousands of dollars) January 28, 2006 January 29, 2005 Trade accounts payable ...Accrued expenses: Taxes, other than income ...Salaries, wages, and employee benefits ...Liability to customers ...Interest ...Rent ...Other ... $630,694 71,110 52,728 59,995 30,046...

  • Page 56
    ...taxes using the federal statutory income tax rate is presented below: (in thousands of dollars) Fiscal 2005 Fiscal 2004 Fiscal 2003 Income tax at the statutory federal rate ...State income taxes, net of federal benefit ...Nondeductible goodwill write off ...Changes in tax rate ...Benefit of capital...

  • Page 57
    ... employees with one year of service may elect to make a contribution of up to 5% of eligible pay which will be matched 100% only if invested in the Company's common stock. The Company contributions are used to purchase Class A Common Stock of the Company for the account of the employee. The terms...

  • Page 58
    ... the Company utilizes for determining future pension obligations is based on the Citigroup High Grade Corporate Yield Curve on its annual measurement date and is matched to the future expected cash flows of the benefit plans by annual periods. The discount rate determined on this basis had increased...

  • Page 59
    ... A at the rate of one share of Class B for one share of Class A. On March 2, 2002, the Company adopted a shareholder rights plan under which the Board of Directors declared a dividend of one preferred share purchase right for each outstanding share of the Company's Common Stock, which includes both...

  • Page 60
    ... the Board of Directors authorized the repurchase of up to an additional $200 million of its Class A Common Stock. During fiscal 2005 and fiscal 2004, the Company repurchased approximately $100.9 million and $40.4 million of Class A Common Stock, representing 4.6 million and 2.0 million shares at...

  • Page 61
    ... to purchase shares of Class A Common Stock to certain key employees of the Company. Exercise and vesting terms for options granted under the plans are determined at each grant date. All options were granted at not less than fair market value at dates of grant. At the end of fiscal 2005, 7,896...

  • Page 62
    ... Wilma interrupted operations in approximately 60 of the Company's stores for varying amounts of time. Ten stores suffered damage to either merchandise or property related to the hurricanes. Three stores remain closed as a result of Hurricane Katrina. These stores are located in the New Orleans area...

  • Page 63
    .... In the opinion of management, disposition of these matters is not expected to materially affect the Company's financial position, cash flows or results of operations. 14. Asset Impairment and Store Closing Charges During fiscal 2005, the Company recorded a pre tax charge of $61.7 million for...

  • Page 64
    ... 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 and...

  • Page 65
    ... closing charges related to certain stores. a pretax gain of $28.2 million ($18.0 million after tax or $0.23 per diluted share) related to insurance proceeds received from Hurricanes Katrina and Rita (see Note 13 of the Notes to Consolidated Financial Statements). a $45.4 million net tax benefit...

  • Page 66
    ... diluted share) related to the sale of the Company's credit card business to GE Consumer Finance (see Note 2 of the Notes to Consolidated Financial Statements). a $14.7 million pretax charge ($8.6 million after tax or $0.10 per diluted share) for asset impairment and store closing charges related to...

  • Page 67
    ... Column C Column D Additions Charged to Charged to Costs and Other Expenses Accounts Column E Column F Balance at End of Period (2) Description Deductions (1) Allowance for losses on accounts receivable: Year Ended January 28, 2006 ...Year Ended January 29, 2005 ...Year Ended January 31, 2004...

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    ... fiscal year ended February 3, 2001 in 1-6140). Second Amendment to Amended and Restated Credit Agreement among Dillard's, Inc. and JPMorgan Chase Bank (Exhibit 10 to Form 8-K dated June 3, 2005 in 1-6140). Purchase, Sale and Servicing Transfer Agreement among GE Capital Consumer Card Co., General...

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