Dillard's 2011 Annual Report Download

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2011 Annual Report

Table of contents

  • Page 1
    2011 Annual Report

  • Page 2
    ...fidently purchase $491 million of our Class A Common Stock under our share repurchase programs. With increased commitment to the growth of our online store at www.dillards.com, we are nearing completion of our new Internet Fulfillment Center in Maumelle, Arkansas. This 850,000-square-foot facility...

  • Page 3
    ... 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 Identification No.) 72201 (Zip Code) DILLARD'S, INC. Registrant's telephone number, including area code (501...

  • 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
    ... Statements'' in Item 8 hereof. Most of our stores are located in suburban shopping malls and open-air centers. Our customers may also purchase merchandise on-line at our website, www.dillards.com, which features on-line gift registries and a variety of other services. We operate retail department...

  • Page 6
    ... paying online or 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 generally can be opened while a customer is visiting one of our stores. Customers who open...

  • Page 7
    ... compete with our individual stores, including specialty, off-price, discount, Internet and mail-order retailers. Competition is characterized by many factors including location, reputation, fashion, merchandise assortment, advertising, price, quality, service and credit availability. We anticipate...

  • Page 8
    ... such as inflation, apparel costs, labor and benefit costs, legal claims, and the availability 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...

  • Page 9
    ... changes in average same-store sales and customer visits; • changes in legislation, affecting such matters as credit card income; • variations in the price (including purchase discounts), availability and shipping costs of merchandise; • seasonal effects on demand for our products; • changes...

  • Page 10
    ... a revenue sharing and marketing reimbursement. The income and cash flow that the Company receives from the Alliance is dependent upon a number of factors including the level of sales on GE accounts, the level of balances carried on the GE accounts by GE customers, payment rates on GE accounts...

  • Page 11
    ... accounts, GE's ability to extend credit to our customers as well as GE's funding costs, all of which can vary based on changes in federal and state banking and consumer protection laws and from a variety of economic, legal, social and other factors that we cannot control. If the income or cash flow...

  • Page 12
    ... for rental payments based on a percentage of net sales with a guaranteed minimum annual rent. 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...

  • Page 13
    ...The Company's new 850,000 square foot internet fulfillment center located in Maumelle, Arkansas is expected to be fully operational by the end of the first fiscal quarter of 2012. Additional property information is contained in Notes 1, 12 and 13 of ''Notes to Consolidated Financial Statements,'' in...

  • Page 14
    ... to CEO William Dillard, II ...Alex Dillard ...Mike Dillard ...Drue Matheny ...James I. Freeman ... 67 62 60 65 62 Director; Chief Executive Officer Director; President Director; Executive Vice President Director; Executive Vice President Director; Senior Vice President; Chief Financial Officer...

  • Page 15
    ... AND ISSUER PURCHASES OF EQUITY SECURITIES. Market and Dividend Information for Common Stock 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...

  • Page 16
    ... total return on the Company's Class A Common Stock assumes $100 invested in such stock on February 4, 2007 and assumes reinvestment of dividends. Stock Performance Graph $160 $140 $120 $100 Dollars $80 $60 $40 $20 $0 2007 2008 2009 Fiscal Year Dillard's S&P 500 S&P 500 Dept Stores 2010 2011...

  • Page 17
    ...'', our consolidated audited financial statements and notes thereto and the other information contained elsewhere in this report. (Dollars in thousands of dollars, except per share data) 2011 2010 2009 2008 2007 Net sales ...Percent change ...Cost of sales ...Percent of sales ...Interest and debt...

  • Page 18
    ...the sale of two former retail store locations. • a $1.2 million pretax charge ($0.8 million after tax or $0.01 per share) for asset impairment and store closing charges related to the write-down of one property held for sale (see Note 13 of the Notes to Consolidated Financial Statements). 2010 The...

  • Page 19
    ... after tax or $0.14 per share) related to reimbursement for inventory and property damages incurred during the 2005 hurricane season. • a $12.0 million income tax benefit ($0.15 per share) primarily due to state administrative settlement, federal credits and the change in a capital loss valuation...

  • Page 20
    ... 29 states and an Internet store. Our retail stores are located in fashion-oriented shopping malls and open-air centers and offer a broad selection of fashion apparel, cosmetics and home furnishings. We offer an appealing and attractive assortment of merchandise to our customers at a fair price...

  • Page 21
    ... Year Ended January 29, January 30, 2011 2010 (retail segment only, excluding cash flow data) Net sales (in millions) ...Gross profit (in millions) ...Gross profit as a percentage of net sales Cash flow from operations (in millions) . Total store count at end of period ...Sales per square foot...

  • Page 22
    ..., our ability to sell merchandise at profitable prices. • Store growth-Although store growth is presently not a near-term goal, such growth is dependent upon a number of factors which could impede our ability to open new stores, such as the identification of suitable markets and locations and the...

  • Page 23
    ... 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 charges and other income include income generated through the Alliance with GE. Other income includes...

  • Page 24
    ... for the years ended January 28, 2012, January 29, 2011 and January 30, 2010. 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
    ..., were recorded in trade accounts payable and accrued expenses and other liabilities. Adjustments resulting from changes in historical loss trends have helped control expenses during fiscal 2011 and 2010, partially due to Company programs that have helped decrease both the number and cost of claims...

  • Page 26
    ... statements of income. Pension obligations. The discount rate that the Company utilizes for determining future pension obligations is based on the Citigroup Above Median Pension Index Curve on its annual measurement date and is matched to the future expected cash flows of the benefit plans by annual...

  • Page 27
    ... indicated: January 28, 2012 % of Net Amount Sales For the years ended January 29, 2011 % of Net Amount Sales January 30, 2010 % of Net Amount Sales (in thousands of dollars) Net sales ...Service charges and other income ...Cost of sales ...Advertising, selling, administrative and general expenses...

  • Page 28
    ... in the Company's retail operations segment sales for the past two years is as follows: Percent Change Fiscal Fiscal 2011 - 2010 2010 - 2009 Cosmetics ...Ladies' apparel and accessories Juniors' and children's apparel . Men's apparel and accessories . Shoes ...Home and furniture ...2011 Compared to...

  • Page 29
    ... Other Income (in millions of dollars) Fiscal 2011 Fiscal 2010 Fiscal 2009 Dollar Change Percent Change 2011 - 2010 2010 - 2009 2011 - 2010 2010 - 2009 Service charges and other income: Retail operations segment Income from GE marketing and servicing alliance ...Leased department income ...Shipping...

  • Page 30
    ... 29, 2011. During fiscal 2011, gross margin improved moderately in the home and furniture category and improved slightly in shoes. Men's apparel and accessories experienced a slight decline in gross margin while all other merchandise categories were flat. We believe that gross margin from retail...

  • Page 31
    ... 2.7 27.0 SG&A improved 60 basis points of sales during fiscal 2011 compared to fiscal 2010 while total SG&A dollars increased $5.1 million. The dollar increase was most noted in payroll and payroll related taxes ($14.2 million), primarily of selling payroll, services purchased ($7.3 million) and...

  • Page 32
    ...gain on prior year debt repurchases. Total weighted average debt outstanding during fiscal 2010 decreased approximately $63.4 million compared to fiscal 2009. Gain on Litigation Settlement (in thousands of dollars) Fiscal 2011 Fiscal 2010 Fiscal 2009 Gain on litigation settlement: Retail operations...

  • Page 33
    ... retail store locations located in West Palm Beach, Florida and Las Vegas, Nevada, resulting in gains totaling $1.3 million. Additionally, the Company received proceeds of $11.0 million from the sale of an interest in a mall joint venture, resulting in a gain of $2.1 million. Fiscal 2010 During...

  • Page 34
    ... beginning with the current year. Due to the uncertainty surrounding whether the REIT will dispose of any of its land assets in the future, the Company cannot estimate when or if the cash tax benefits related to the increased basis in land will be received. During fiscal 2011, income taxes included...

  • Page 35
    ...The Company is currently under examination by various state and local taxing jurisdictions for various fiscal years. At this time, the Company does not expect the results from any income tax audit to have a material impact on the Company's financial statements. Fiscal 2010 During fiscal 2010, income...

  • Page 36
    ...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 of approximately $96 million and $85 million from GE in fiscal 2011 and 2010, respectively. While future cash flows under this Alliance are...

  • Page 37
    ... for the remodeling of stores, purchase of equipment, including the buyout of certain leased equipment, and completion of the new internet fulfillment center. There are no planned store openings for fiscal 2012. During fiscal 2011, 2010 and 2009, we received proceeds from the sale of property and...

  • Page 38
    ... its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act or through privately negotiated transactions. During fiscal 2011, the Company repurchased 6.0 million shares for $250.0 million at an average price of...

  • Page 39
    ... interest payments. Fiscal 2012 During fiscal 2012, 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...

  • Page 40
    ... possible uncertain tax benefit decrease in the next twelve months is between $0.5 million and $2.0 million. (4) The Company is unable to reasonably estimate the timing of future cash flows of workers' compensation and general liability insurance reserves of $33.1 million, gift card liabilities of...

  • Page 41
    ...'s expectations and forecasts for fiscal 2012. The Company cautions that forward-looking statements contained in this report are based on estimates, projections, beliefs and assumptions of management and information available to management at the time of such statements and are not guarantees of...

  • Page 42
    ... 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 43
    ... as of the end of the fiscal year covered by this annual report, and based on that evaluation, the Company's CEO and CFO have concluded that these disclosure controls and procedures were effective. Management's Report on Internal Control over Financial Reporting Our management is responsible for...

  • Page 44
    ... 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 above. ITEM 11. EXECUTIVE COMPENSATION. The information called for...

  • Page 45
    ... OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Equity Compensation Plan Information Number of securities to be issued upon exercise of outstanding options Weighted average exercise prices of outstanding options Number of securities available for future...

  • Page 46
    ... IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (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...

  • Page 47
    ...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 22, 2012 Pursuant to the requirements of the Securities...

  • Page 48
    ... Income-Fiscal years ended January 28, 2012, January 29, 2011 and January 30, 2010 ...Consolidated Statements of Cash Flows-Fiscal years ended January 28, 2012, January 29, 2011 and January 30, 2010 ...Notes to Consolidated Financial Statements-Fiscal years ended January 28, 2012, January 29, 2011...

  • Page 49
    ... the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Dillard's, Inc. and subsidiaries as of January 28, 2012, the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for the fiscal year then ended, and...

  • Page 50
    ... fiscal year then ended, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of January 28, 2012, based on...

  • Page 51
    ... two years in the period ended January 29, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based...

  • Page 52
    ... January 28, 2012 January 29, 2011 Assets Current assets: Cash and cash equivalents Accounts receivable ...Merchandise inventories . Other current assets ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... $ 224...

  • Page 53
    Consolidated Statements of Income Dollars in Thousands, Except Per Share Data Years Ended January 29, 2011 January 28, 2012 January 30, 2010 Net sales ...Service charges and other income ...Cost of sales ...Advertising, selling, administrative and general expenses ...Depreciation and amortization...

  • Page 54
    ... 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, January 31, 2009 ...$1,166 Net income ...- Amortization of retirement plan and other retiree benefit adjustments, net of...

  • Page 55
    ... and store closing charges ...Excess tax benefits from share-based compensation ...Gain on repurchase of debt ...Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ...(Increase) decrease in merchandise inventories ...Decrease in federal income tax receivable...

  • Page 56
    ... Business-Dillard's, Inc. (''Dillard's'' or the ''Company'') operates retail department stores, located primarily in the Southeastern, Southwestern and Midwestern areas of the United States, and a general contracting construction company based in Little Rock, Arkansas. The Company's fiscal year ends...

  • Page 57
    ... in fiscal 2009. For financial reporting purposes, depreciation is computed by the straight-line method over estimated useful lives: Buildings and leasehold improvements ...Furniture, fixtures and equipment ...20 - 40 years 3 - 10 years Properties leased by the Company under lease agreements which...

  • Page 58
    Notes to Consolidated Financial Statements (Continued) 1. Description of Business and Summary of Significant Accounting Policies (Continued) shopping malls located in Denver, Colorado and Bonita Springs, Florida and one property located in Toledo, Ohio. During fiscal 2011, the Company sold its ...

  • Page 59
    ... collected from customers are excluded from revenue and are recorded in trade accounts payable and accrued expenses until remitted to the taxing authorities. GE owns and manages Dillard's branded proprietary cards under the Alliance that expires in fiscal 2014. The Company's share of income earned...

  • Page 60
    ... of Significant Accounting Policies (Continued) Income Taxes-Income taxes are recognized for the amount of taxes payable for the current year and deferred tax assets and liabilities for the future tax consequence of events that have been recognized differently in the financial statements than for...

  • Page 61
    ... are aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of consumer, nature of products and distribution methods. Revenues from external customers are derived from merchandise sales, and the Company does not rely...

  • Page 62
    ... summarizes the percentage of net sales by segment and major product line: Percentage of Net Sales Fiscal Fiscal Fiscal 2011 2010 2009 Retail operations segment: Cosmetics ...Ladies' apparel and accessories Juniors' and children's apparel Men's apparel and accessories . Shoes ...Home and furniture...

  • Page 63
    ...construction revenues of $37.3 million, $28.8 million and $51.9 million were eliminated during consolidation and have been excluded from net sales for the years ended January 28, 2012, January 29, 2011 and January 30, 2010, respectively. 3. Revolving Credit Agreement At January 28, 2012, the Company...

  • Page 64
    ...rate of 5.93% ...Mortgage note, payable monthly through fiscal 2012 and bearing interest at a rate of 9.25% ...Current portion ... $670,155 20,413 1,006 691,574 (76,789) $614,785 $723,194 21,295 1,923 746,412 (49,166) $697,246 During fiscal 2011, the Company repurchased $5.7 million face amount of...

  • Page 65
    ... expenses consist of the following: (in thousands of dollars) January 28, 2012 January 29, 2011 Trade accounts payable ...Accrued expenses: Taxes, other than income ...Salaries, wages and employee benefits Liability to customers ...Interest ...Rent ...Other ... ... $452,408 67,822 64,544 42,173...

  • Page 66
    Notes to Consolidated Financial Statements (Continued) 6. Income Taxes (Continued) In January 2011, the Company formed a wholly-owned subsidiary intended to operate as a real estate investment trust (''REIT'') and transferred certain properties to this subsidiary. The Company made a tax election in...

  • Page 67
    ... The Company classifies accrued interest expense and penalties relating to income tax in the consolidated financial statements as income tax expense. The total interest and penalties recognized in the consolidated statements of income as of January 28, 2012, January 29, 2011 and January 30, 2010 was...

  • Page 68
    ... relate to research and development credits, while various state income tax audit uncertainties primarily relate to income from intangible assets. The estimated range of the reasonably possible uncertain tax benefit decrease in the next twelve months is between $0.5 million and $2.0 million. Changes...

  • Page 69
    ... 50%. The Company matching contributions are used to purchase Class A Common Stock of the Company for the benefit of the employee. The terms of the plan provide a two-year vesting schedule for the Company matching contribution portion of the plan. The Company incurred benefit plan expense of $16...

  • Page 70
    ... benefit obligation, change in Pension Plan assets, funded status, and reconciliation to amounts recognized in the consolidated balance sheets are as follows: (in thousands of dollars) January 28, 2012 January 29, 2011 Change in benefit obligation: Benefit obligation at beginning of year Service...

  • Page 71
    ...as of the 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 4.3% as of January 28, 2012 from 5.5% as of January 29, 2011. Weighted average assumptions are as follows: Fiscal 2011 Fiscal 2010 Fiscal 2009...

  • Page 72
    ... its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act or through privately negotiated transactions. During fiscal 2011, the Company repurchased 6.0 million shares for $250.0 million at an average price of...

  • Page 73
    ... computed based upon the weighted average of Class A and Class B common shares outstanding. Diluted earnings per share gives effect to outstanding stock options. Earnings per common share has been computed as follows: (in thousands, except per share data) Fiscal 2011 Basic Diluted Fiscal 2010 Basic...

  • Page 74
    ... to Consolidated Financial Statements (Continued) 11. Stock-Based Compensation (Continued) The following table summarizes information about stock options outstanding at January 28, 2012: Options Outstanding Weighted-Average Remaining Weighted-Average Contractual Life (Yrs.) Exercise Price Options...

  • Page 75
    ... of amounts the Company could 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...

  • Page 76
    Notes to Consolidated Financial Statements (Continued) 14. Fair Value Disclosures (Continued) The fair value of the Company's cash and cash equivalents and trade accounts receivable approximates their carrying values at January 28, 2012 and January 29, 2011 due to the short-term maturities of these...

  • Page 77
    ... per share) related to the sale of an interest in a mall joint venture. 2010 • a $4.0 million pretax gain ($2.6 million after 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...

  • Page 78
    ... to the sale of two former retail store locations. 2010 • a $1.1 million pretax loss ($0.7 million after tax or $0.02 per share) related to the sale of a closed store. • a $1.2 million income tax benefit ($0.02 per share) for a decrease in a capital loss valuation allowance. Fourth Quarter 2011...

  • Page 79
    ...3, 2005 in 1-6140). Purchase, Sale and Servicing Transfer Agreement among GE Capital Consumer Card Co., General Electric Capital Corporation, Dillard's, 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...

  • Page 80
    ... A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K. *** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or...

  • Page 81
    ... Holding Corp. - Little Rock, Arkansas J.C. Watts, Jr. - Former Member of Congress, Chairman of J.C. Watts Companies - Washington, D.C. Nick White - President & Chief Executive Officer, White & Associates - Rogers, Arkansas CORPORATE ORGANIZATION William Dillard, II - Chief Executive Officer Alex...

  • Page 82
    ... Arkansas 72201 MAILING ADDRESS Post Office Box 486 Little Rock, Arkansas 72203 Telephone: 501.376.5200 Fax: 501.376.5917 LISTING New York Stock Exchange Ticker Symbol "DDS" Dillard's, Inc. ranks among the nation's largest fashion apparel, cosmetics and home furnishings retailers with annual sales...