Dillard's 2007 Annual Report Download

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2007
annualreport

Table of contents

  • Page 1
    2007 a n n u a l r e p o r t

  • Page 2
    ... by exceptional customer service and presented in an attractive store. Accordingly, in 2007 we opened nine new stores in some of the nation's most vibrant communities and in exciting centers where customers live, work and shop. To date in 2008, we have opened five such locations with four...

  • Page 3
    ... (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...

  • Page 4

  • Page 5
    ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors and Executive Officers of the Registrant ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 6

  • Page 7
    ... 2008, we operated 326 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 8
    ...the proprietary cards in our stores as a convenience to customers who prefer to pay in person rather than by mailing their payments to GE. We seek to expand the number and use of the proprietary cards by, among other things, providing incentives to sales associates to open new credit accounts, which...

  • Page 9
    ... 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 February 2, 2008...

  • Page 10
    ... other things, paying the base rent for the balance of the lease term. In addition, as each of the leases expires, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close stores in desirable locations. If an existing owned store is not...

  • Page 11
    ...events and factors include variations in the timing and volume of our sales; sales promotions by us or our competitors; changes in average same-store sales and customer visits; variations in the price, availability and shipping costs of supplies; seasonal effects on demand for our products; changes...

  • Page 12
    ... the United States of which we own six and lease two from third parties. Our principal executive 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...

  • Page 13
    ... 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 ...Steven K. Nelson...

  • Page 14
    ...ITEM 5. MARKET FOR REGISTRANT'S COMMON 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...

  • Page 15
    ... Department Stores Index. The cumulative total return on the Company's Class A Common Stock assumes $100 invested in such stock on February 2, 2003 and assumes reinvestment of dividends. Stock Performance Graph $300 $250 $200 Dollars $150 $100 $50 $0 2003 Dillard 2004 S&P 500 2005 2006 2007...

  • Page 16
    ...,598 Gross square footage (in thousands) ...56,300 56,500 56,400 56,300 56,000 Number of stores Opened ...9 8 9 8 5 Closed (2) ...11 10 8 7 10 Total - end of year ...326 328 330 329 328 * 53 weeks (1) During fiscal 2004, the Company sold its private label credit card business to GE Consumer Finance...

  • Page 17
    ... 14 of the Notes to Consolidated Financial Statements). a $12.0 million income tax benefit ($0.15 per diluted share) primarily due to state administrative settlement, federal credits and the change in a capital loss valuation allowance. • • 2006 The items below amount to a net $9.1 million...

  • Page 18
    ... OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. EXECUTIVE OVERVIEW Dillard's, Inc. operates 326 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 offer an...

  • Page 19
    ... our customers' business. These include other department stores, specialty retailers, discounters, internet and mail order retailers. In accordance with the National Retail Federation fiscal reporting calendar, the 2007 and 2005 reporting periods presented and discussed below ended February 2, 2008...

  • Page 20
    ... 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 alliance between the Company and GE. Other income relates...

  • Page 21
    ... sales return provision have been insignificant for the years ended February 2, 2008, February 3, 2007 and January 28, 2006. 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 ("proprietary...

  • Page 22
    ... to changes in tax laws, new 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 Financial Accounting Standards Board issued...

  • Page 23
    ... 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 had increased to 6.30% as of February 2, 2008 from 5.90% as of February 3, 2007...

  • Page 24
    ... change by category in the Company's sales for the past two years is as follows: Percent Change Fiscal 2007-2006 Fiscal 2007-2006* Fiscal 2006-2005 Fiscal 2006-2005** Cosmetics ...Ladies' Apparel and Accessories ...Juniors' and Children's Apparel ...Men's Apparel and Accessories ...Shoes ...Home...

  • Page 25
    ... merchandise for the fiscal years 2007, 2006 and 2005 was 24.2%, 23.8% and 24.0% of total net sales, respectively. Service Charges and Other Income 2007 2006 2005 Dollar Change 2007-2006 2006-2005 (in millions of dollars) Percent Change 2007-2006 2006-2005 Leased department income ...Income from GE...

  • Page 26
    ... the year ended February 3, 2007 compared to the year ended January 28, 2006. Gross margins were higher in cosmetics, ladies' apparel and accessories, juniors' and children's apparel and shoes compared to the prior year with lower gross margins noted in men's apparel and accessories and home and...

  • Page 27
    ... 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 28
    ...an increase in the state effective tax rate, and a $24.4 million tax benefit related to the decrease in a capital loss valuation allowance due to capital gain income. LIQUIDITY AND CAPITAL RESOURCES Financial Position Summary 2007 Dollar 2006 Change (in thousands of dollars) Percent Change Cash and...

  • Page 29
    ... to help the Company better serve its customers; Debt reduction; Stock repurchase plan; and Dividend payments to shareholders. • • • Cash flows for the three fiscal years ended were as follows: 2007 2006 2005 (in thousands of dollars) Percent Change 2007-2006 2006-2005 Operating Activities...

  • Page 30
    ... Park ...Hill Country Galleria ...Fallen Timbers* ...Santan Village ...Promenade at Casa Grande ...Total new square footage ...Closed Locations-Fiscal 2007 Evansville, Indiana Murfreesboro, Tennessee Burlington, North Carolina Frisco, Texas Newnan, Georgia West Austin, Texas Toledo, Ohio Gilbert...

  • Page 31
    ... 2007, the Company's Board of Directors authorized a new share repurchase plan under which the Company may repurchase up to $200 million of its Class A common stock. The new open-ended authorization permits the Company to repurchase its Class A common stock in the open market or through privately...

  • Page 32
    ... used to refinance current indebtedness or other corporate purposes. OFF-BALANCE-SHEET ARRANGEMENTS The Company has not created, and is not party to, any special-purpose or off-balance-sheet entities for the purpose of raising capital, incurring debt or operating the Company's business. The Company...

  • Page 33
    ...to the consolidated financial statements). We are not able to reasonably estimate the timing of future cash flows and have excluded these liabilities from the table above; however, at this time, we do not expect a significant payment relating to these obligations within the next year. (4) Other long...

  • Page 34
    ...and related benefits; system failures or data security; possible future acquisitions of store properties from other department store operators; the continued availability of financing in amounts and at the terms necessary to support the Company's future business; fluctuations in LIBOR and other base...

  • Page 35
    ..., with the participation of Company's management, including William Dillard, II, Chairman of the Board of Directors and Chief Executive Officer (principal executive officer) and James I. Freeman, Senior Vice-President and Chief Financial Officer (principal financial officer), of the effectiveness of...

  • Page 36
    ... the Board of Directors and Chief Executive Officer, has certified to the New York Stock Exchange that he is not aware of any violations by the Company of the exchange's corporate governance listing standards. Attached as an exhibit to this annual report is the certification of Mr. Dillard required...

  • Page 37
    ...The Company's Board 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...

  • Page 38
    PART IV ITEM 15. EXHIBITS. (a)(1) and (2) Financial Statements An "Index of Financial Statements" has been filed as a part of this Report beginning on page F-1 hereof. (a)(3) Exhibits and Management Compensatory Plans An "Exhibit Index" has been filed as a part of this Report beginning on page E-1 ...

  • Page 39
    ... authorized. DILLARD'S, INC. Registrant /S/ Date: April 2, 2008 JAMES I. FREEMAN 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...

  • Page 40

  • Page 41
    ... STATEMENT SCHEDULE DILLARD'S, INC. AND SUBSIDIARIES Year Ended February 2, 2008 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 42
    ... position of Dillard's, Inc. and subsidiaries as of February 2, 2008 and February 3, 2007, and the results of their operations and their cash flows for each of the three years in the period ended February 2, 2008, in conformity with accounting principles generally accepted in the United States...

  • Page 43
    ..., as of February 2, 2008, the Company's internal control over financial reporting is effective. Deloitte & Touche LLP, an independent registered public accounting firm, has audited the financial statements of the Company for the fiscal years ended February 2, 2008, February 3, 2007, and January 28...

  • Page 44
    ... Company Accounting Oversight Board (United States), the consolidated balance sheets as of February 2, 2008 and February 3, 2007 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...

  • Page 45
    ... opinion and included an explanatory paragraph regarding the Company's adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, effective February 4, 2007. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP New York, New York April 2, 2008 F-5

  • Page 46
    CONSOLIDATED BALANCE SHEETS February 2, 2008 February 3, 2007 (As restated, see Note 2) Dollars in Thousands Assets Current assets: Cash and cash equivalents ...Accounts receivable ...Merchandise inventories ...Other current assets ...Total current assets ...Property and equipment: Land and land ...

  • Page 47
    CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended February 2, February 3, January 28, 2008 2007 2006 Dollars in Thousands, Except Per Share Data Net sales ...Service charges and other income ... $7,207,417 163,389 7,370,806 $7,636,056 174,011 7,810,067 5,032,351 2,096,018 301,147 55,480 87,642 (16...

  • Page 48
    ...and prior service cost related to pension plans, net of tax of $567 ...- Total comprehensive income ...Issuance of 227,850 shares under stock option and stock bonus plans ...Purchase of 5,202,699 shares of treasury stock ...Cumulative effect of accounting change related to adoption of FIN 48 ...Cash...

  • Page 49
    ... debt and capital lease obligations ...Payment on line of credit fees and expenses ...Cash dividends paid ...Proceeds from issuance of common stock ...Excess tax benefits from share-based compensation ...Purchase of treasury stock ...Increase in short-term borrowings ...Net cash used in financing...

  • Page 50
    ...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 51
    ... 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 52
    ... period in which the related sales are recorded. GE Consumer Finance ("GE") owns and manages Dillard's proprietary credit cards ("proprietary cards") under a long-term marketing and servicing alliance ("alliance") that expires in fiscal 2014. The Company's share of income earned under the alliance...

  • Page 53
    ... 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 54
    ... and Accessories ...Juniors' and Children's Apparel ...Men's Apparel and Accessories ...Shoes ...Home and Other ...Total ... 15% 37 9 18 13 8 100% 15% 36 10 18 13 8 100% 15% 36 10 18 12 9 100% New Accounting Pronouncements In December 2007, the Financial Accounting Standards Board ("FASB") issued...

  • Page 55
    ... FSP SFAS 157-2 as stated above. 2. Restatement Subsequent to the issuance of the Company's consolidated financial statements for the year ended February 3, 2007, the Company identified an error in accounting for its share of the equity in earnings of CDI Contractors LLC ("CDI"), a 50%-owned, equity...

  • Page 56
    ... for various banks, secured by the inventory of Dillard's, Inc. operating subsidiaries. The credit agreement expires December 12, 2012. Borrowings under the credit agreement accrue interest at either JPMorgan's Base Rate minus 0.5% or LIBOR plus 1.0% (4.14% at February 2, 2008) subject to certain...

  • Page 57
    ... FIN 48 liabilities /reserves Tax benefit of federal credits ...Nondeductible goodwill write off ...Changes in cash surrender value of life insurance policies ...Tax benefit of state restructuring ...Changes in tax rate ...Benefit of capital loss carrybacks ...Changes in valuation allowance ...Other...

  • Page 58
    ... changes in the State of Ohio, and a $45.4 million tax benefit related to the sale of a subsidiary of the Company. 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...

  • Page 59
    ... The Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 ("FIN 48") effective for fiscal years beginning after December 15, 2006. The Company adopted the new requirement as of February 4, 2007 with...

  • Page 60
    ... $13 million for fiscal 2007, 2006 and 2005, respectively. The Company has a nonqualified defined benefit plan for its officers. The plan is noncontributory and provides benefits based on years of service and compensation during employment. Pension expense is determined using various actuarial cost...

  • Page 61
    ... consolidated balance sheets are as follows: February 2, February 3, 2008 2007 (in thousands of dollars) Change in benefit obligation: Benefit obligation at beginning of year ...Service cost ...Interest cost ...Actuarial loss ...Benefits paid ...Benefit obligation at end of year ...Change in plan...

  • Page 62
    ... expected cash flows of the benefit plans by annual periods. The discount rate determined on this basis had increased to 6.3% as of February 2, 2008 from 5.9% as of February 3, 2007. Weighted average assumptions are as follows: Fiscal 2007 Fiscal 2006 Fiscal 2005 Discount rate-net periodic pension...

  • Page 63
    ... 2007, the Company's board of directors authorized a new share repurchase plan under which the Company may repurchase up to $200 million of its Class A common stock. The new open-ended authorization permits the Company to repurchase its Class A common stock in the open market or through privately...

  • Page 64
    ... is estimated using the Black-Scholes option-pricing model and amortized to expense over the options' vesting periods. Fiscal 2005 (in thousands of dollars, except per share data) Net income: As reported ...Add: Total stock bonus expense, net of tax ...Add: Stock-based employee compensation expense...

  • Page 65
    ... benefit, if any, that may be received by the option holder. Stock option transactions are summarized as follows: Fiscal 2007 Weighted Average Shares Exercise Price Fixed Options Outstanding, beginning of year ...Granted ...Exercised ...Forfeited ...Outstanding, end of year ...Options exercisable...

  • Page 66
    ... commitments as of February 2, 2008 for all noncancelable leases for buildings and equipment are as follows: Fiscal Year Operating Capital Leases Leases (in thousands of dollars) 2008 ...2009 ...2010 ...2011 ...2012 ...After 2012 ...Total minimum lease payments ...Less amount representing interest...

  • Page 67
    ... service charges and other income. On July 29, 2002, a Class Action Complaint (followed on December 13, 2004 by a Second Amended Class Action Complaint) was filed in the United States District Court for the Southern District of Ohio against the Company, the Mercantile Stores Pension Plan (the "Plan...

  • Page 68
    ... 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 characteristics and maturity (for bank notes and mortgage notes). The fair value of the Company's cash and cash...

  • Page 69
    ... 2008 and February 3, 2007 was $200 million. 17. Quarterly Results of Operations (unaudited) Fiscal 2007, Three Months Ended May 5 August 4 November 3 February 2 (in thousands of dollars, except per share data) Net sales ...Gross profit ...Net income (loss) ...Diluted earnings per share: Net income...

  • Page 70
    ...the Company completed the cleanup of the damaged location during the year. • Fourth Quarter 2007 • • a $16.1 million pretax charge ($10.1 million after tax or $0.13 per diluted share) for asset impairment and store closing charges related to certain stores. a $10.3 million income tax benefit...

  • Page 71
    ... Stock Option Plan (Exhibit 10(e) to Form 10-K for the 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...

  • Page 72
    ...). Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). * ** Incorporated by reference as indicated. A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of...

  • Page 73

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  • Page 75
    ...Eldredge & Clark, Attorneys ~ Little Rock, Arkansas J.C. Watts, Jr. ~ Former Member of Congress & Chairman of J.C. Watts Companies ~ Washington, D.C. corporate organization William Dillard, II ~ Chief Executive Officer Alex Dillard ~ President Mike Dillard ~ Executive Vice President Drue Corbusier...

  • Page 76
    ... site: www.rtco.com Please refer to Dillard's, Inc. on all correspondence and have available your name as printed on your stock certificate, your Social Security number, your address and phone number. corporate headquarters 1600 Cantrell Road Little Rock, Arkansas 72201 mailing address Post Office...