Dillard's 2006 Annual Report Download

Download and view the complete annual report

Please find the complete 2006 Dillard's annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 70

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70

The Style of Your Life.
2006
annual report

Table of contents

  • Page 1
    annual report 2006 The Style of Your Life.

  • Page 2
    ... mixed-use destinations. The other two locations, in Evansville, Indiana and Frisco, Texas, arise from our acquisition of stores in established, successful malls where the industry consolidation presented us with opportunities to enter promising new markets. The Dillard's nameplate, and the 68-year...

  • Page 3
    ... ROAD, LITTLE ROCK, ARKANSAS 72201 (501) 376-5200 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which registered Class A Common Stock New York Stock Exchange Securities registered...

  • Page 4
    ... Officers of the Registrant ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions ...Principal Accountant Fees and Services ...PART IV Exhibits and Financial Statement Schedule...

  • Page 5
    ... 2007, we operated 328 Dillard's stores offering a wide selection of merchandise including fashion apparel for women, men and children, accessories, cosmetics, home furnishings and other consumer goods. The following table summarizes the percentage of net sales by each major product line: Percentage...

  • Page 6
    ... their payments to GE. We seek to expand the number and use of the proprietary credit cards by, among other things, providing 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...

  • Page 7
    ...Our corporate offices are located at 1600 Cantrell Road, Little Rock, Arkansas 72201, telephone: 501-376-5200. ITEM 1A. RISK FACTORS. The Company cautions that forward-looking statements, as such term is defined in the Private Securities Litigation Reform Act of 1995, contained in this Annual Report...

  • Page 8
    ...annual and quarterly financial results may fluctuate depending on various factors, many of which are beyond our control, and if we fail to meet the expectations of securities analysts or investors, our share price may decline. Our sales and operating results can vary from quarter to quarter and year...

  • Page 9
    ... conditions, whether occurring in the United States or abroad, could disrupt our operations, disrupt international trade and supply chain efficiencies, suppliers or customers, or result in political or economic instability. These events could result in property losses, reduce demand for our products...

  • Page 10
    ... offices are approximately 300,000 square feet located in Little Rock, Arkansas. Additional information is contained in Notes 1, 3, 13, 14 and 15 of "Notes to Consolidated Financial Statements," in Item 8 hereof, and reference is made to information contained under the heading "Number of stores...

  • Page 11
    ... each person named. All of the Executive Officers listed below have been in managerial positions with the registrant for more than five years. Name Age Position & Office Family Relationship William Dillard, II ...Alex Dillard ...Mike Dillard ...G. Kent Burnett ...Drue Corbusier ...James I. Freeman...

  • Page 12
    ..., 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 Stock...

  • Page 13
    ... ...Capital lease obligations ...Deferred income taxes ...Guaranteed Preferred Beneficial Interests In the Company's Subordinated Debentures ...Stockholders' equity ...Number of employees - average ...Gross square footage (in thousands) ...Number of stores Opened ...Closed (3) ...Total - end of year...

  • Page 14
    ... million after tax or $0.50 per diluted share). • a pretax gain of $83.9 million ($53.7 million after tax or $0.64 per diluted share) pertaining to the Company's sale of its private label credit card business to GE Consumer Finance (see Note 2 of the Notes to Consolidated Financial Statements). 10

  • Page 15
    ... ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. EXECUTIVE OVERVIEW Dillard's, Inc. operates 328 retail department stores in 29 states. Our stores are located in suburban shopping malls and open-air lifestyle centers and offer a broad selection of fashion apparel and home furnishings. We...

  • Page 16
    ... operating cash flows into store growth, and distribution initiatives, and improving product quality in our exclusive brands; returning profits to shareholders through dividends, share repurchases and increased share price; and continuing to offer access to credit services and financial products...

  • Page 17
    ... stores, 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 and Other Income. Service Charges and Other Income include income generated through the long-term marketing and servicing...

  • Page 18
    ... sales return provision have been insignificant for the years ended February 3, 2007, and January 28, 2006 and January 29, 2005. Prior to 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...

  • Page 19
    ... from the current estimates. Estimates of fair value are primarily determined using projected 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...

  • Page 20
    ... reserves are based upon the Company's best estimation of the potential exposures associated with the timing and amount of deductions as well as various tax filing positions. Due to the complexity of these examination issues, for which reserves have been recorded, it may be several years before the...

  • Page 21
    ... The percent change by category in the Company's sales for the past two years is as follows: Fiscal 2006-2005 Percent Change Fiscal Fiscal 2006-2005* 2005-2004 Cosmetics ...Ladies' Apparel and Accessories ...Juniors' and Children's Apparel ...Men's Apparel and Accessories ...Shoes ...Home and Other...

  • Page 22
    ... margins improved in shoes and juniors' and children's apparel compared with the prior year with lower gross margins noted in cosmetics, ladies' apparel and accessories, men's apparel and accessories, and home and other categories. Expenses 2006 Compared to 2005 Advertising, selling, administrative...

  • Page 23
    ... impairment and store closing charges is a pretax 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 24
    ... of the increase of these charges. Service Charges and Other Income 2006 2005 2004 Dollar Change 2006-2005 2005-2004 (in millions of dollars) Percent Change 2006-2005 2005-2004 Leased department income ...Gain on sale of credit card business ...Service charge income ...Income from GE marketing and...

  • Page 25
    ....4% The Company's current non-operating priorities for its use of cash are Strategic investments to enhance the value of existing properties; Construction of new stores; Investment in high-return capital projects, particularly in investments in technology to improve merchandising and distribution...

  • Page 26
    ...in trade accounts payable as the Company focused on inventory control during fiscal 2006. The Company adopted FASB Statement No. 123 (revised 2004), Share-Based Payment ("SFAS 123-R") for its year ended February 3, 2007. As a result of this adoption, excess tax benefits from stock-based compensation...

  • Page 27
    ...as a return of capital from a joint venture. During 2004, investing cash flows were positively impacted by the net proceeds of $688 million received from the sale of the credit card business to GE (see Note 2 of the Notes to Consolidated Financial Statements). Financing Activities Historically, cash...

  • Page 28
    ... 2007. 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 29
    ... ...Interest on 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 ... $1,057,246 826,691 200,000...

  • Page 30
    ... Company's financial position, results of operations or cash flows. In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 ("FIN 48"), which seeks to reduce the diversity in practice associated with the accounting...

  • Page 31
    ... 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 necessary to support...

  • Page 32
    ... 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 33
    ... of Directors has adopted a Company Code of Conduct that applies to all Company employees including the 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. website, www.dillards.com, and is available in...

  • Page 34
    PART IV ITEM 15. EXHIBITS 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 ...

  • Page 35
    ... duly authorized. DILLARD'S, INC. Registrant /S/ JAMES I. FREEMAN Date: April 4, 2007 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...

  • Page 36
    ... STATEMENT SCHEDULE DILLARD'S, INC. AND SUBSIDIARIES Year Ended February 3, 2007 Page Report of Independent Registered Public Accounting Firm ...Management's Report on Internal Control over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Consolidated Balance...

  • Page 37
    ...3, 2007 and January 28, 2006, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the three years in the period ended February 3, 2007. Our audits also included the financial statement schedule of Dillard's, Inc. and...

  • Page 38
    ...registered public accounting firm, has audited the financial statements of the Company for the fiscal years ended February 3, 2007, January 28, 2006, and January 29, 2005 and has attested to management's assertion regarding the effectiveness of the Company's internal control over financial reporting...

  • Page 39
    ... PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Dillard's, Inc. Little Rock, Arkansas We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Dillard's, Inc. and subsidiaries (the "Company...

  • Page 40
    ... financial statements and financial statement schedule and includes an explanatory paragraph relating to the Company's adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, as revised, effective January 29, 2006, and the Company's adoption of Statement of Financial...

  • Page 41
    ...Long-term Debt ...Capital Lease Obligations ...Other Liabilities ...Deferred Income Taxes ...Operating Leases and Commitments Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures ...Stockholders' Equity: Common stock, Class A - 116,217,645 and 115,237,382 shares issued...

  • Page 42
    CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended February 3, January 28, January 29, 2007 2006 2005 Dollars in Thousands, Except Per Share Data Net Sales ...Service Charges and Other Income ... $7,636,056 174,011 7,810,067 $7,551,697 142,948 7,694,645 5,014,021 2,041,481 301,864 47,538 105,570 ...

  • Page 43
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) Accumulated Additional Other Paid-in ComprehenRetained Treasury Capital sive Loss Earnings Stock Dollars in Thousands, Except Per Share Data Common Stock Class A Class B Total Balance, January 31, 2004 Net income ......

  • Page 44
    ...card business ...Net cash (used in) provided by investing activities ...Financing Activities: Principal payments on long-term debt and capital lease obligations ...Issuance cost of line of credit ...Cash dividends paid ...Proceeds from issuance of common stock ...Excess tax benefits from share-based...

  • Page 45
    ...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 46
    ... No. 142. The Company identifies its reporting units under SFAS No. 142 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 businesses, where appropriate. Management believes at this time that the...

  • Page 47
    .... Prior to 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...

  • Page 48
    ... Service Charges and Other Income. The Company records shipping and handling costs in cost of sales. Stock-Based Compensation-On January 29, 2006, the first day of our 2006 fiscal year, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment...

  • Page 49
    ... Company's financial position, results of operations or cash flows. In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 ("FIN 48"), which seeks to reduce the diversity in practice associated with the accounting...

  • Page 50
    ..., letters of credit totaling $76.8 million were issued under this facility leaving unutilized availability under the facility of $947 million. There are no financial covenant requirements under the credit agreement provided availability exceeds $100 million. The Company pays an annual commitment fee...

  • Page 51
    ... accrued expenses consist of the following: February 3, 2007 January 28, 2006 (in thousands of dollars) Trade accounts payable ...Accrued expenses: Taxes, other than income ...Salaries, wages, and employee benefits ...Liability to customers ...Interest ...Rent ...Other ... $581,908 72,723 58,386 59...

  • Page 52
    ... of the Company's federal income tax returns for fiscal years 2003 through 2005. The Company is also under examination by various state and local taxing jurisdictions for various fiscal years. For fiscal 2005, the Company recognized a $45.4 million tax benefit relating to the sale of a subsidiary...

  • Page 53
    ...tax benefit relates to the decrease in a capital loss valuation allowance due to capital gain income. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax...

  • Page 54
    ... are used to purchase Class A Common Stock of the Company for the account of the employee. The terms of the plan provide a six-year graduated-vesting schedule for the Company contribution portion of the plan. The Company incurred expense of $13 million, $13 million and $11 million for fiscal 2006...

  • Page 55
    ... projected benefit obligation ("PBO"), change in plan assets, funded status, and reconciliation to amounts recognized in the consolidated balance sheets are as follows: February 3, January 28, 2007 2006 (in thousands of dollars) Change in benefit obligation: Benefit obligation at beginning of year...

  • Page 56
    ... 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 57
    ...to 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. Share Repurchase Program During 2006, the Company repurchased 133,500...

  • Page 58
    ... to be recognized over a period of 1.5 years. Beginning in the first quarter of 2006 in accordance with SFAS No. 123-R, the Company has presented excess tax benefits from the exercise of stock-based compensation awards as a financing activity in the consolidated statement of cash flows. F-23

  • Page 59
    ... have an effect on net income, basic earnings per share or diluted earnings per share for the years ended January 28, 2006 and January 29, 2005. The impact of this omission on the years ending January 28, 2006 and January 29, 2005 was an increase to pro forma stock-based compensation of $4,071,000...

  • Page 60
    ...information about stock options outstanding at February 3, 2007: Options Outstanding Weighted-Average Options Remaining Outstanding Contractual Life...$25.89 The intrinsic value of stock options exercised during the years ended February 3, 2007, January 28, 2006 and January 29, 2005 were approximately...

  • Page 61
    ...$14 million in cash and a $3 million promissory note. In connection with the transaction, various subsidiaries of the Company entered into an operating lease agreement with the purchaser whereby they agreed to lease each of the properties for a term of 20 years. The minimum future payments under the...

  • Page 62
    ... the Company's financial position, cash flows or results of operations. 14. Insurance Proceeds During the year ended January 28, 2006, Hurricane Katrina, Hurricane Rita and Hurricane Wilma interrupted operations in approximately 60 of the Company's stores for varying amounts of time. Ten stores...

  • Page 63
    ... 2006 Number of Locations Impairment Amount Fiscal 2005 Number of Impairment Locations Amount (in thousands of dollars) Fiscal 2004 Number of Impairment Locations Amount Stores closed during previous fiscal year ...Stores to close during current fiscal year ...Store impaired based on cash flows...

  • Page 64
    ... of the Company's long-term debt and Guaranteed Preferred Beneficial Interests in the Company's 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...

  • Page 65
    ... and store closing charges related to certain stores. Fourth Quarter 2006 • a $10.5 million pretax interest credit ($6.6 million after tax or $0.08 per diluted share) and a net income tax benefit of $64.0 million ($0.80 per diluted share) which includes $18.3 million for the change in a capital...

  • Page 66
    ... ...Year Ended January 29, 2005 ... $ - - 40,967 $ - - 14,704 $- - - $ - - 55,671 $- - - (1) Accounts written off and charged to allowance for losses on accounts receivable (net of recoveries). (2) On November 1, 2004, the Company sold substantially all the assets of its private label credit...

  • Page 67
    ... 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...

  • Page 68
    Number Description 23 31(a) 31(b) 32(a) 32(b) Consent of Independent Registered Public Accounting Firm. Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of...

  • Page 69
    ... Corporate Merchandising Product Development Vice Presidents, Merchandising: William T. Dillard, III ~ Accessories & Intimate Apparel Neil Christensen ~ Children's Apparel Ann Franzke ~ Cosmetics Richard Moore ~ Home Merchandise Christine A. Ferrari ~ Ladies' Apparel James D. Stockman ~ Ladies...

  • Page 70
    ... and other reports filed with the Securities and Exchange Commission are available by contacting: Dillard's, Inc. Investor Relations 1600 Cantrell Road Little Rock, Arkansas 72201 501.376.5544 E-mail: [email protected] Financial reports, press releases and other Company information are...