Dillard's 2005 Annual Report Download - page 29

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marketing and servicing alliance since the inception of the agreement of $14.2 million offset by a reduction in
service charge income due to the sale of the credit card business during the fourth quarter of 2004. Service charge
income decreased $66.7 million due to the decrease noted above and an average decrease of $135 million in the
amount of outstanding accounts receivable during 2004, prior to the sale, compared to 2003. Included in the gain
on sale of joint ventures and property and equipment in fiscal 2003 is a gain of $15.6 million relating to the sale
of the Company’s interest in Sunrise Mall and its 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 for fiscal 2005, 2004 and 2003 were 10.5%, 36% and 36%,
respectively. During the year ended January 28, 2006, income taxes include a $5.8 million reduction of reserves
for various federal and state tax contingencies, a $10.4 million increase of reserves for various federal and state
tax contingencies, a net $5.5 million increase in deferred liabilities due to an increase in the state effective tax
rate offset by a decrease reflecting the impact of tax law changes in the State of Ohio, and a $45.4 million tax
benefit related to the sale of a subsidiary of the Company. These changes and the effect of nondeductible
goodwill write off, reduced the estimated effective rate for the year ended January 28, 2006 by 25.9%. The
Company’s estimated federal and state income tax rate (exclusive of the effect of nondeductible goodwill write
off) was 36.0% in fiscal 2004 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Financial Position Summary
(in thousands of dollars) 2005 2004
Dollar
Change
Percent
Change
Cash and cash equivalents ............................. $ 299,840 $ 498,248 $(198,408) -39.8%
Current portion of long-term debt ....................... 198,479 91,629 106,850 116.6
Long-term debt ..................................... 1,058,946 1,322,824 (263,878) -19.9
Guaranteed Beneficial Interests ........................ 200,000 200,000 — —
Stockholders’ equity ................................. 2,340,541 2,324,697 15,844 0.7
Current ratio ....................................... 1.87% 2.19%
Debt to capitalization ................................ 38.4% 41.0%
The Company’s current priorities for its use of cash are:
• Investment in high-return capital projects, in particular in investments in technology to improve
merchandising and distribution, reduce costs, to improve efficiencies or to help the Company better
serve its customers;
• Strategic investments to enhance the value of existing properties;
• Construction of new stores;
• Dividend payments to shareholders;
• Debt reduction; and
• Stock repurchase plan.
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