Dillard's 2010 Annual Report Download

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2010 ANNUAL REPORT

Table of contents

  • Page 1
    2010 ANNUAL REPORT

  • Page 2
    ... a comparable store merchandise sales increase of 3% which led the way to a significantly improved gross margin performance and profitability. With our strong cash flow, we were able to confidently execute our share repurchase program, acquiring $414 million of our Class A Common Stock as a vote...

  • Page 3
    ... period from to . Commission file number 1-6140 DILLARD'S, INC. (Exact name of registrant as specified in its charter) DELAWARE State or other jurisdiction of incorporation or organization 1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS (Address of principal executive offices) 71-0388071 (IRS Employer...

  • Page 4
    ...about Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III 10. 11. 12. 13. 14. Directors, Executive Officers and Corporate Governance ...Executive...

  • Page 5
    ... the percentage of net sales by segment and major product line: Percentage of Net Sales Fiscal Fiscal Fiscal 2010 2009 2008 BUSINESS. Retail operations segment: Cosmetics ...Ladies' apparel and accessories Juniors' and children's apparel Men's apparel and accessories . Shoes ...Home and furniture...

  • Page 6
    ... use the trademarks on the listed products. Our merchandising, sales promotion and store operating support functions are conducted primarily at our corporate headquarters. Our back office sales support functions for the Company, such as accounting, product development, store planning and information...

  • Page 7
    ... the Stock Option and Executive Compensation Committee. Our corporate offices are located at 1600 Cantrell Road, Little Rock, Arkansas 72201, telephone: 501-376-5200. ITEM 1A. RISK FACTORS. The risks described in Item 1A, Risk Factors, in this Annual Report on Form 10-K for the year ended January...

  • Page 8
    ... market share. We conduct our retail merchandise business under highly competitive conditions. Although we are a large regional department store, we have numerous competitors at the national and local level that compete with our individual stores, including specialty, off-price, discount, Internet...

  • Page 9
    ... which could distract management or otherwise have a negative effect on revenues, costs and stock price. Our future success may depend on opportunities to buy or obtain rights to other businesses or technologies that could complement, enhance or expand our current business or products or that might...

  • Page 10
    ... would negatively impact gross margin and operating income, or cause us to reduce merchandise purchases, which may cause a decline in sales. A privacy breach could adversely affect our business, reputation and financial condition. The protection of customer, employee and Company data is critical to...

  • Page 11
    ... systems and could result in a disruption of our operations, particularly our online sales operations. Changes in the income and cash flow from our long-term marketing and servicing alliance related to our proprietary credit cards could impact operating results and cash flows. GE owns and manages...

  • Page 12
    ...In general, the Company pays the cost of insurance, maintenance and real estate taxes related to the leases. The following table summarizes by state of operation the number of retail stores we operate and the corresponding owned and leased footprint at January 29, 2011: Owned Building on Leased Land...

  • Page 13
    ... Square Feet Owned / Leased Distribution Centers: ... Internet Fulfillment Center ...Dillard's Executive Offices ...CDI Contractors, LLC Executive Office . CDI Storage Facilities ... ... ... ... Mabelvale, AR Gilbert, AZ Valdosta, GA Olathe, KS Salisbury, NC Ft. Worth, TX Nashville, TN Little Rock...

  • Page 14
    ... to CEO William Dillard, II ...66 Director; Chief Executive Officer Alex Dillard ...61 Director; President Mike Dillard ...59 Director; Executive Vice President Drue Matheny ...64 Director; Executive Vice President James I. Freeman ...61 Director; Senior Vice President; Chief Financial Officer...

  • Page 15
    ... 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 Stock, and dividends declared on each class of common stock, for each quarter of fiscal 2010 and 2009...

  • Page 16
    ... Department Stores Index. The cumulative total return on the Company's Class A Common Stock assumes $100 invested in such stock on January 29, 2006 and assumes reinvestment of dividends. Stock Performance Graph $200 $150 Dollars $100 $50 $0 2006 Dillard 2007 S&P 500 2008 2009 2010...

  • Page 17
    ... audited financial statements and notes thereto and the other information contained elsewhere in this report. (Dollars in thousands of dollars, except per share data) 2010 2009 2008 2007 2006* Net sales ...Percent change ...Cost of sales ...Percent of sales ...Interest and debt expense, net Income...

  • Page 18
    ... or $0.05 per diluted share) related to the sale of five retail store locations. • a $9.7 million income tax benefit ($0.14 per diluted share) primarily related to net decreases in unrecognized tax benefits, interest and penalties due to resolutions of federal and state examinations; decreases in...

  • Page 19
    .... operates 308 retail department stores in 29 states. Our retail stores are located in fashion-oriented shopping malls and open-air centers and offer a broad selection of fashion apparel and home furnishings. We offer an appealing and attractive assortment of merchandise to our customers at a fair...

  • Page 20
    ..., 2009 and 2008 reporting periods presented and discussed below ended January 29, 2011, January 30, 2010 and January 31, 2009, respectively, and each contained 52 weeks. Fiscal 2010 A return of consumer confidence over the past year had a significant impact on the Company's operations. Retail sales...

  • Page 21
    ...of financial condition and operating performance to evaluate the performance of our business, including the following: January 29, 2011 Fiscal Year Ended January 30, January 31, 2010 2009 (retail segment only, excluding cash flow data) Net sales (in millions) ...Gross profit (in millions) ...Gross...

  • Page 22
    ... comparable stores; sales from new stores opened during the current fiscal year; sales in the previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores; and sales in clearance centers. Service charges and other income. Service...

  • Page 23
    ..., store and corporate expenses (including payroll and employee benefits), insurance, employment taxes, advertising, management information systems, legal and other corporate level expenses. Buying expenses consist of payroll, employee benefits and travel for design, buying and merchandising...

  • Page 24
    ... for the years ended January 29, 2011, January 30, 2010 and January 31, 2009. The Company's share of income earned under the Alliance with GE involving the Dillard's branded proprietary credit cards is included as a component of service charges and other income. The Company received income of...

  • Page 25
    ...in store locations or tax planning, the Company's effective tax rate and tax balances could be affected. As such, these estimates may require adjustment in the future as additional facts become known or as circumstances change. The total amount of unrecognized tax benefits as of January 29, 2011 and...

  • Page 26
    ..., 2011 and January 30, 2010 was $3.7 million and $7.1 million, respectively. The Company is currently being examined by the Internal Revenue Service (''IRS'') for the fiscal tax years 2008 through 2009. During fiscal 2010, the IRS completed its examination of the Company's federal income tax returns...

  • Page 27
    ... change by category in the Company's retail operations segment sales for the past two years is as follows: Percent Change Fiscal Fiscal 2010 - 2009 2009 - 2008 Cosmetics ...Ladies' apparel and accessories Juniors' and children's apparel . Men's apparel and accessories . Shoes ...Home and furniture...

  • Page 28
    ... 2009 while sales in comparable stores improved 3%. Sales of shoes were up significantly, and sales of ladies' apparel and accessories, men's apparel and accessories and juniors' and children's apparel were up moderately. Sales of cosmetics were flat while sales in the home and furniture category...

  • Page 29
    ... 2009, while cosmetics and home and furniture improved only slightly. Gross profit from the construction segment declined 250 basis points of sales during fiscal 2010 compared to fiscal 2009. This decrease was the result of the decline in demand for construction services that has created pricing...

  • Page 30
    ... 2009 compared to fiscal 2008. Gross profit from retail operations improved 410 basis points of sales during the same periods due to the Company's focused inventory management efforts resulting in lower inventory levels and decreased markdown activity. Inventory in both total and comparable stores...

  • Page 31
    ... to store closures that occurred during the second half of fiscal 2008 as the Company executed its plan to exit under-performing locations. Interest and Debt Expense, Net (in thousands of dollars) Fiscal 2010 Fiscal 2009 Fiscal 2008 Interest and debt expense (income), net: Retail operations segment...

  • Page 32
    .... The Company then sold the aircraft for $44.5 million. A pretax gain of $17.6 million was recognized related to the sale. Asset Impairment and Store Closing Charges (in thousands of dollars) Fiscal 2010 Fiscal 2009 Fiscal 2008 Asset impairment and store closing charges: Retail operations segment...

  • Page 33
    ... allowance resulting from capital gain income, $1.2 million for the increase in the cash surrender value of life insurance policies, and $2.5 million due to federal tax credits. The Company is currently being examined by the IRS for the fiscal tax years 2008 and 2009. During fiscal 2010, the IRS...

  • Page 34
    ... effect on our business, financial condition and results of operations, including our ability to access capital. Cash flows for the three fiscal years ended were as follows: (in thousands of dollars) Fiscal 2010 Fiscal 2009 Fiscal 2008 Percent Change 2010 - 2009 2009 - 2008 Operating Activities...

  • Page 35
    ... cash outflows include payments to vendors for inventory, services and supplies, payments to employees and payments of interest and taxes. The Alliance provides for certain payments to be made by GE to the Company, including a revenue sharing and marketing reimbursement. The Company received income...

  • Page 36
    ... on one store during Hurricane Ike. During fiscal 2010, the Company invested an additional $9.0 million in one of its shopping mall joint ventures. On August 29, 2008, the Company purchased the remaining interest in CDI for a cash purchase price of $9.8 million. This acquisition was accounted for...

  • Page 37
    ...of the Company. Fiscal 2011 During fiscal 2011, the Company expects to finance its capital expenditures and its working capital requirements, including required debt repayments and stock repurchases, from cash on hand, cash flows generated from operations and utilization of the credit facility. Peak...

  • Page 38
    ... lease obligations in fiscal 2010. (3) The total liability for unrecognized tax benefits is $12.8 million, including tax, penalty, and interest (refer to Note 7 to the consolidated financial statements). The Company is not able to reasonably estimate the timing of future cash flows and has excluded...

  • Page 39
    ... 29, 2011) which has not been reduced by outstanding letters of credit of $90.8 million. NEW ACCOUNTING PRONOUNCEMENTS Consolidation of Variable Interest Entities On January 31, 2010, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) relating to accounting for...

  • Page 40
    ... or credit card income; adequate and stable availability of materials, production facilities and labor from which the Company sources its merchandise at acceptable pricing; changes in operating expenses, including employee wages, commission structures and related benefits; system failures or data...

  • Page 41
    ...disclosed in the Company's current report on Form 8-K filed on May 7, 2009, the Company changed its independent registered public accountants effective for the fiscal year ended January 30, 2010. There were no disagreements or reportable events related to the change in accountants. ITEM 9A. CONTROLS...

  • Page 42
    .... The current version of the Code of Conduct is available free of charge on the Company's website, www.dillards.com, and is available in print to any shareholder who requests copies by contacting Julie J. Bull, Director of Investor Relations, at the Company's principal executive offices set forth...

  • Page 43
    ... Nonqualified Stock Option Plan There are no non-shareholder approved plans. Balances presented in the table above are as of January 29, 2011. (2) This column excludes shares reflected under the column ''Number of securities to be issued upon exercise of outstanding options''. Additional information...

  • Page 44
    ... 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 /s/ JAMES I. FREEMAN James I. Freeman, Senior Vice President and Chief Financial Officer Date: March 23, 2011 Pursuant to the requirements of the...

  • Page 45
    ... and Comprehensive Income (Loss)-Fiscal years ended January 29, 2011, January 30, 2010 and January 31, 2009 ...Consolidated Statements of Cash Flows-Fiscal years ended January 29, 2011, January 30, 2010 and January 31, 2009 ...Notes to Consolidated Financial Statements-Fiscal years ended January 29...

  • Page 46
    ... balance sheets and the related consolidated statements of operations, stockholder's equity and comprehensive income (loss) and cash flows for each of the two years in the period ended January 29, 2011 present fairly, in all material respects, the financial position of Dillard's, Inc. and its...

  • Page 47
    ... Dillard's, Inc. Little Rock, Arkansas We have audited the accompanying consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows of Dillard's, Inc. and subsidiaries (the ''Company'') for the year ended January 31, 2009. These consolidated financial...

  • Page 48
    Consolidated Balance Sheets Dollars in Thousands January 29, 2011 January 30, 2010 Assets Current assets: Cash and cash equivalents . Accounts receivable ...Merchandise inventories . . Other current assets ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...

  • Page 49
    Consolidated Statements of Operations Dollars in Thousands, Except Per Share Data Years Ended January 30, 2010 January 29, 2011 January 31, 2009 Net sales ...Service charges and other income ...Cost of sales ...Advertising, selling, administrative and general expenses ...Depreciation and ...

  • Page 50
    ... in Thousands, Except Per Share Data Accumulated Other Common Stock Additional Paid-in Comprehensive Class A Class B Capital Loss Retained Earnings Treasury Stock Total Balance, February 2, 2008 ...$1,165 Net loss ...- Amortization of retirement plan and other retiree benefit adjustments, net of...

  • Page 51
    Consolidated Statements of Cash Flows Dollars in Thousands Years Ended January 30, 2010 January 29, 2011 January 31, 2009 Operating activities: Net income (loss) ...Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of property ...

  • Page 52
    ... days. Accounts Receivable-Accounts receivable primarily consists of construction receivables of CDI and the monthly settlement with GE for Dillard's share of revenue from the long-term marketing and servicing alliance. Construction receivables are based on amounts billed to customers. The Company...

  • Page 53
    ... annually as of the last day of the fourth quarter using the two-step process prescribed by GAAP. The Company identifies its reporting units at the store unit level. The fair value of these reporting units are estimated using the expected discounted future cash flows and market values of related...

  • Page 54
    ... 323-10. During fiscal 2008, the investment in the properties in Toledo, Ohio and Denver, Colorado was determined to be impaired. The Company recorded asset impairment and store closing charges of $58.8 million to write down the investment. Vendor Allowances-The Company receives concessions from its...

  • Page 55
    ... Recognition-The Company's retail operations segment recognizes merchandise revenue at the ''point of sale.'' Allowance for sales returns are recorded as a component of net sales in the period in which the related sales are recorded. GE owns and manages Dillard's branded proprietary cards under the...

  • Page 56
    ... the current year presentation. These reclassifications had no effect on net income or stockholders' equity as previously reported. New Accounting Pronouncements Consolidation of Variable Interest Entities On January 31, 2010, the Company adopted changes issued by the Financial Accounting Standards...

  • Page 57
    ... financial statements. 2. Business Segments On August 29, 2008, the Company purchased the remaining interest in CDI, a former 50% equity method joint venture investment of the Company, for a cash purchase price of $9.8 million. CDI is a general contractor that also constructs and remodels stores...

  • Page 58
    ... summarizes the percentage of net sales by segment and major product line: Percentage of Net Sales Fiscal Fiscal Fiscal 2010 2009 2008 Retail operations segment: Cosmetics ...Ladies' apparel and accessories Juniors' and children's apparel Men's apparel and accessories . Shoes ...Home and furniture...

  • Page 59
    ... Financial Statements (Continued) 2. Business Segments (Continued) (in thousands of dollars) Retail Operations Fiscal 2008 Construction Consolidated Net sales from external customers ...Gross profit ...Depreciation and amortization ...Interest and debt expense (income), net ...(Loss) income...

  • Page 60
    ... 2009, the Company repurchased $8.4 million face amount of 9.125% notes with an original maturity on August 1, 2011. This repurchase resulted in a pretax gain of approximately $1.7 million which was recorded in net interest and debt expense. During fiscal 2008, the Company purchased a corporate...

  • Page 61
    ... expenses consist of the following: (in thousands of dollars) January 29, 2011 January 30, 2010 Trade accounts payable ...Accrued expenses: Taxes, other than income ...Salaries, wages and employee benefits Liability to customers ...Interest ...Rent ...Other ... ... $491,536 61,119 63,823 42,029...

  • Page 62
    ... cash surrender value of life insurance policies, and $2.5 million due to federal tax credits. During fiscal 2010, the Company reached settlements with federal and state taxing jurisdictions which resulted in reductions in the liability for unrecognized tax benefits. During fiscal 2009, income taxes...

  • Page 63
    ... Financial Statements (Continued) 7. Income Taxes (Continued) to federal tax credits. During fiscal 2009, the Company reached a settlement with a state taxing jurisdiction which resulted in a reduction in unrecognized tax benefits, interest, and penalties. During fiscal 2008, income taxes...

  • Page 64
    ...233 $27,276 Unrecognized tax benefits at end of period ... The Company is currently being examined by the IRS for the fiscal tax years 2008 through 2009. During fiscal 2010, the IRS completed its examination of the Company's federal income tax returns for the fiscal tax years 2006 through 2007. The...

  • Page 65
    ... fiscal 2010, 2009 and 2008, respectively. The Company has an unfunded, nonqualified defined benefit plan (''Pension Plan'') for its officers. The Pension Plan is noncontributory and provides benefits based on years of service and compensation during employment. Pension expense is determined using...

  • Page 66
    ...093) - Benefit obligation at end of year ...Change in Pension Plan assets: Fair value of Pension Plan assets at beginning of year ...Employer contribution ...Benefits paid ...Fair value of Pension Plan assets at end of year ...Funded status (benefit obligation less Unamortized prior service costs...

  • Page 67
    ...end of each fiscal year and is matched to the future expected cash flows of the benefit plans by annual periods. The discount rate had decreased to 5.5% as of January 29, 2011 from 5.7% as of January 30, 2010. Weighted average assumptions are as follows: Fiscal 2010 Fiscal 2009 Fiscal 2008 Discount...

  • Page 68
    ... receive, upon payment of the exercise price, shares of Class A Common Stock having a market value of two times the exercise price. The rights will expire, unless extended, redeemed or exchanged by the Company, on March 2, 2012. Stock Repurchase Programs 2007 Stock Plan In November 2007, the Company...

  • Page 69
    ... Class A Common Stock were reserved for issuance under the stock option plans. There were no stock options granted during fiscal 2010, 2009 and 2008. Stock option transactions are summarized as follows: Fiscal 2010 Weighted Average Shares Exercise Price Fixed Options Outstanding, beginning of year...

  • Page 70
    ...) Fiscal 2010 Fiscal 2009 Fiscal 2008 Operating leases: Buildings: Minimum rentals ...Contingent rentals ...Equipment ... $20,137 3,884 27,024 $51,045 $21,876 2,772 33,715 $58,363 $23,529 4,264 33,688 $61,481 Contingent rentals on certain leases are based on a percentage of annual sales in...

  • Page 71
    ... in service charges and other income. At January 29, 2011, letters of credit totaling $90.8 million were issued under the Company's $1.0 billion revolving credit facility. On May 27, 2009, a lawsuit was filed in the United States District Court for the Eastern District of Arkansas styled Steven...

  • Page 72
    ... realize in a current market exchange. The fair value of the Company's long-term debt and subordinated debentures 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...

  • Page 73
    ... in both periods included selling prices from commercial real estate transactions for similar assets in similar markets that we estimated would be used by a market participant in valuing these assets. During fiscal 2010, the Company also sold three vacant retail store properties with carrying values...

  • Page 74
    ... tax or $0.04 per share) related to the sale of a retail store location. • a $2.0 million income tax benefit ($0.03 per share) related to a state administrative settlement. Third Quarter 2010 • a $1.1 million loss ($0.7 million after tax or $0.02 per share) related to the sale of a closed store...

  • Page 75
    Notes to Consolidated Financial Statements (Continued) 16. Quarterly Results of Operations (unaudited) (Continued) 2009 • a $10.6 million income tax benefit ($0.14 per share) primarily due to state administrative settlement and a decrease in a capital loss valuation allowance. Fourth Quarter 2010...

  • Page 76
    ...6140). Purchase, Sale and Servicing Transfer Agreement among GE Capital Consumer Card Co., General Electric Capital Corporation, Dillards, Inc. and Dillard National Bank (Exhibit 2.1 to Form 8-K dated as of August 12, 2004 in 1-6140). Private Label Credit Card Program Agreement between Dillards, Inc...

  • Page 77
    ...Exhibit 10 to Form 10-Q dated August 28, 2009 in File No. 1-6140). Subsidiaries of Registrant. Consent of Independent Registered Public Accounting Firm. Consent of Independent Registered Public Accounting Firm. Certification of Chief Executive Officer Pursuant to Section 302 of the SarbanesOxley Act...

  • Page 78
    ... President of Dillard's, Inc. Frank R. Mori - Co-Chief Executive Officer & President of Takihyo, Inc. - New York, New York Warren A. Stephens - President & Chief Executive Officer of Stephens, Inc., Co-Chairman of SF Holding Corp. - Little Rock, Arkansas J.C. Watts, Jr. - Former Member of Congress...

  • Page 79
    ...of Gianni Bini as featured in "Dillard's - The Style of Your Life." Gianni Bini is available exclusively at Dillard's. MAILING ADDRESS Post Office Box 486 Little Rock, Arkansas 72201 Telephone: 501.376.5200 Fax: 501.376.5917 LISTING New York Stock Exchange, Ticker Symbol "DDS" CORPORATE HEADQUARTERS...