Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended October 27, 2012

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     .

 

Commission File Number:  1-6140

 

DILLARD’S, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE

 

71-0388071

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification No.)

 

1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS  72201

(Address of principal executive offices)

(Zip Code)

 

(501) 376-5200

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

CLASS A COMMON STOCK as of November 24, 2012

43,235,431

 

CLASS B COMMON STOCK as of November 24, 2012

4,010,929

 

 

 

 



Table of Contents

 

Index

 

DILLARD’S, INC.

 

 

Page
Number

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

 

Condensed Consolidated Balance Sheets as of October 27, 2012, January 28, 2012 and October 29, 2011

3

 

 

 

 

Condensed Consolidated Statements of Income and Retained Earnings for the Three and Nine Months Ended October 27, 2012 and October 29, 2011

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended October 27, 2012 and October 29, 2011

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 27, 2012 and October 29, 2011

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

27

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 6.

Exhibits

29

 

 

 

SIGNATURES

29

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

DILLARD’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands)

 

 

 

October 27,

 

January 28,

 

October 29,

 

 

 

2012

 

2012

 

2011

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

124,794

 

$

224,272

 

$

106,383

 

Restricted cash

 

 

 

24,901

 

Accounts receivable

 

30,755

 

28,708

 

20,262

 

Merchandise inventories

 

1,722,443

 

1,304,124

 

1,756,526

 

Other current assets

 

66,594

 

34,625

 

63,069

 

 

 

 

 

 

 

 

 

Total current assets

 

1,944,586

 

1,591,729

 

1,971,141

 

 

 

 

 

 

 

 

 

Property and equipment (net of accumulated depreciation and amortization of $2,411,756, $2,235,610 and $2,393,778)

 

2,345,908

 

2,440,266

 

2,476,363

 

Other assets

 

268,873

 

274,142

 

269,626

 

 

 

 

 

 

 

 

 

Total assets

 

$

4,559,367

 

$

4,306,137

 

$

4,717,130

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Trade accounts payable and accrued expenses

 

$

1,028,163

 

$

655,653

 

$

1,028,555

 

Current portion of long-term debt

 

260

 

76,789

 

57,219

 

Current portion of capital lease obligations

 

2,099

 

2,312

 

2,279

 

Other short-term borrowings

 

27,000

 

 

142,000

 

Federal and state income taxes including current deferred taxes

 

79,989

 

135,610

 

68,996

 

 

 

 

 

 

 

 

 

Total current liabilities

 

1,137,511

 

870,364

 

1,299,049

 

 

 

 

 

 

 

 

 

Long-term debt

 

614,785

 

614,785

 

634,812

 

Capital lease obligations

 

7,705

 

9,153

 

9,723

 

Other liabilities

 

247,633

 

245,218

 

206,534

 

Deferred income taxes

 

282,319

 

314,598

 

333,055

 

Subordinated debentures

 

200,000

 

200,000

 

200,000

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock

 

1,228

 

1,225

 

1,225

 

Additional paid-in capital

 

838,264

 

828,796

 

828,796

 

Accumulated other comprehensive loss

 

(36,280

)

(39,034

)

(16,597

)

Retained earnings

 

3,274,629

 

3,107,344

 

2,968,076

 

Less treasury stock, at cost

 

(2,008,427

)

(1,846,312

)

(1,747,543

)

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

2,069,414

 

2,052,019

 

2,033,957

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

4,559,367

 

$

4,306,137

 

$

4,717,130

 

 

See notes to condensed consolidated financial statements.

 

3



Table of Contents

 

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

(Unaudited)

(In Thousands, Except Per Share Data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 27,

 

October 29,

 

October 27,

 

October 29,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net sales

 

$

1,449,623

 

$

1,382,612

 

$

4,486,867

 

$

4,293,557

 

Service charges and other income

 

36,722

 

35,008

 

110,672

 

100,135

 

 

 

 

 

 

 

 

 

 

 

 

 

1,486,345

 

1,417,620

 

4,597,539

 

4,393,692

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

919,623

 

881,079

 

2,864,338

 

2,744,627

 

Advertising, selling, administrative and general expenses

 

404,637

 

404,766

 

1,196,663

 

1,190,070

 

Depreciation and amortization

 

65,798

 

64,734

 

194,033

 

192,862

 

Rentals

 

7,624

 

11,229

 

24,530

 

34,798

 

Interest and debt expense, net

 

17,011

 

17,750

 

52,139

 

54,447

 

Gain on disposal of assets

 

(1,072

)

(1,456

)

(2,211

)

(3,847

)

Asset impairment and store closing charges

 

 

 

 

1,200

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and income on and equity in losses of joint ventures

 

72,724

 

39,518

 

268,047

 

179,535

 

Income taxes (benefit)

 

24,231

 

(188,360

)

94,531

 

(138,640

)

Income on and equity in losses of joint ventures

 

21

 

293

 

1,003

 

4,238

 

 

 

 

 

 

 

 

 

 

 

Net income

 

48,514

 

228,171

 

174,519

 

322,413

 

 

 

 

 

 

 

 

 

 

 

Retained earnings at beginning of period

 

3,228,474

 

2,742,624

 

3,107,344

 

2,653,437

 

Cash dividends declared

 

(2,359

)

(2,719

)

(7,234

)

(7,774

)

 

 

 

 

 

 

 

 

 

 

Retained earnings at end of period

 

$

3,274,629

 

$

2,968,076

 

$

3,274,629

 

$

2,968,076

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

1.03

 

$

4.38

 

$

3.62

 

$

5.90

 

Diluted

 

$

1.01

 

$

4.31

 

$

3.55

 

$

5.80

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.05

 

$

0.05

 

$

0.15

 

$

0.14

 

 

See notes to condensed consolidated financial statements.

 

4



Table of Contents

 

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In Thousands)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 27,

 

October 29,

 

October 27,

 

October 29,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

48,514

 

$

228,171

 

$

174,519

 

$

322,413

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Amortization of retirement plan and other retiree benefit adjustments (net of tax of $522, $237, $1,566 and $712)

 

918

 

411

 

2,754

 

1,233

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

49,432

 

$

228,582

 

$

177,273

 

$

323,646

 

 

See notes to condensed consolidated financial statements.

 

5



Table of Contents

 

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in Thousands)

 

 

 

Nine Months Ended

 

 

 

October 27,

 

October 29,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

Net income

 

$

174,519

 

$

322,413

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization of property and deferred financing costs

 

195,489

 

194,272

 

Gain on disposal of assets

 

(2,211

)

(3,847

)

Gain on repurchase of debt

 

 

(173

)

Excess tax benefits from share-based compensation

 

(2,376

)

(10,171

)

Asset impairment and store closing charges

 

 

1,200

 

Changes in operating assets and liabilities:

 

 

 

 

 

(Increase) decrease in accounts receivable

 

(2,047

)

5,688

 

Increase in merchandise inventories

 

(418,319

)

(466,379

)

Increase in other current assets

 

(31,969

)

(20,531

)

Decrease (increase) in other assets

 

9,264

 

(205,503

)

Increase in trade accounts payable and accrued expenses and other liabilities

 

383,047

 

338,632

 

Decrease in income taxes payable

 

(85,524

)

(20,048

)

 

 

 

 

 

 

Net cash provided by operating activities

 

219,873

 

135,553

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(111,910

)

(80,304

)

Proceeds from disposal of assets

 

11,978

 

22,966

 

Restricted cash

 

 

(24,901

)

Distribution from joint venture

 

 

2,481

 

 

 

 

 

 

 

Net cash used in investing activities

 

(99,932

)

(79,758

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Purchase of treasury stock

 

(162,115

)

(392,388

)

Principal payments on long-term debt and capital lease obligations

 

(78,190

)

(55,773

)

Cash dividends paid

 

(7,364

)

(7,533

)

Increase in short-term borrowings

 

27,000

 

142,000

 

Issuance cost of line of credit

 

(5,373

)

 

Proceeds from stock issuance

 

4,247

 

10,820

 

Excess tax benefits from share-based compensation

 

2,376

 

10,171

 

 

 

 

 

 

 

Net cash used in financing activities

 

(219,419

)

(292,703

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(99,478

)

(236,908

)

Cash and cash equivalents, beginning of period

 

224,272

 

343,291

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

124,794

 

$

106,383

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

Accrued capital expenditures

 

$

4,900

 

$

6,796

 

Stock awards

 

2,848

 

2,762

 

 

See notes to condensed consolidated financial statements.

 

6



Table of Contents

 

DILLARD’S, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.  Basis of Presentation

 

The accompanying unaudited interim condensed consolidated financial statements of Dillard’s, Inc. (the “Company”) have been prepared in accordance with the rules of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included.  Operating results for the three and nine months ended October 27, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending February 2, 2013 due to the seasonal nature of the business.

 

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012 filed with the SEC on March 22, 2012.

 

Reclassifications — Certain items have been reclassified from their prior year classifications to conform to the current year presentation.  These reclassifications had no effect on net income or stockholders’ equity as previously reported.

 

Note 2.  Business Segments

 

The Company operates in two reportable segments:  the operation of retail department stores (“retail operations”) and a general contracting construction company (“construction”).

 

For the Company’s retail operations, the Company determined its operating segments on a store by store basis.  Each store’s operating performance has been aggregated into one reportable segment.  The Company’s operating segments 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 on any major customers as a source of revenue. Across all stores, the Company operates one store format under the Dillard’s name where each store offers the same general mix of merchandise with similar categories and similar customers.  The Company believes that disaggregating its operating segments would not provide meaningful additional information.

 

7



Table of Contents

 

The following tables summarize certain segment information, including the reconciliation of those items to the Company’s consolidated operations:

 

(in thousands of dollars)

 

Retail
Operations

 

Construction

 

Consolidated

 

Three Months Ended October 27, 2012:

 

 

 

 

 

 

 

Net sales from external customers

 

$

1,424,722

 

$

24,901

 

$

1,449,623

 

Gross profit

 

528,971

 

1,029

 

530,000

 

Depreciation and amortization

 

65,742

 

56

 

65,798

 

Interest and debt expense (income), net

 

17,042

 

(31

)

17,011

 

Income (loss) before income taxes and income on and equity in losses of joint ventures

 

72,760

 

(36

)

72,724

 

Income on and equity in losses of joint ventures

 

21

 

 

21

 

Total assets

 

4,514,849

 

44,518

 

4,559,367

 

 

 

 

 

 

 

 

 

Three Months Ended October 29, 2011:

 

 

 

 

 

 

 

Net sales from external customers

 

$

1,366,362

 

$

16,250

 

$

1,382,612

 

Gross profit

 

501,058

 

475

 

501,533

 

Depreciation and amortization

 

64,689

 

45

 

64,734

 

Interest and debt expense (income), net

 

17,791

 

(41

)

17,750

 

Income (loss) before income taxes and income on and equity in losses of joint ventures

 

40,041

 

(523

)

39,518

 

Income on and equity in losses of joint ventures

 

293

 

 

293

 

Total assets

 

4,686,248

 

30,882

 

4,717,130

 

 

 

 

 

 

 

 

 

Nine Months Ended October 27, 2012:

 

 

 

 

 

 

 

Net sales from external customers

 

$

4,402,721

 

$

84,146

 

$

4,486,867

 

Gross profit

 

1,618,751

 

3,778

 

1,622,529

 

Depreciation and amortization

 

193,881

 

152

 

194,033

 

Interest and debt expense (income), net

 

52,241

 

(102

)

52,139

 

Income before income taxes and income on and equity in losses of joint ventures

 

267,756

 

291

 

268,047

 

Income on and equity in losses of joint ventures

 

1,003

 

 

1,003

 

Total assets

 

4,514,849

 

44,518

 

4,559,367

 

 

 

 

 

 

 

 

 

Nine Months Ended October 29, 2011:

 

 

 

 

 

 

 

Net sales from external customers

 

$

4,247,462

 

$

46,095

 

$

4,293,557

 

Gross profit

 

1,548,591

 

339

 

1,548,930

 

Depreciation and amortization

 

192,726

 

136

 

192,862

 

Interest and debt expense (income), net

 

54,567

 

(120

)

54,447

 

Income (loss) before income taxes and income on and equity in losses of joint ventures

 

182,733

 

(3,198

)

179,535

 

Income on and equity in losses of joint ventures

 

4,238

 

 

4,238

 

Total assets

 

4,686,248

 

30,882

 

4,717,130

 

 

Intersegment construction revenues of $10.5 million and $28.3 million for the three and nine months ended October 27, 2012, respectively, and intersegment construction revenues of $10.8 million and $25.8 million for the three and nine months ended October 29, 2011, respectively, were eliminated during consolidation and have been excluded from net sales for the respective periods.

 

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Table of Contents

 

Note 3.  Stock-Based Compensation

 

The Company has various stock option plans that provide for the granting of options to purchase shares of Class A Common Stock to certain key employees of the Company.  Exercise and vesting terms for options granted under the plans are determined at each grant date.  There were no stock options granted during the three and nine months ended October 27, 2012 and October 29, 2011.

 

Stock option transactions for the three months ended October 27, 2012 are summarized as follows:

 

 

 

 

 

Weighted Average

 

Stock Options

 

Shares

 

Exercise Price

 

Outstanding, beginning of period

 

2,100,000

 

$

25.74

 

Granted

 

 

 

Exercised

 

(20,000

)

25.74

 

Expired

 

 

 

Outstanding, end of period

 

2,080,000

 

$

25.74

 

Options exercisable at period end

 

2,080,000

 

$

25.74

 

 

During the three months ended October 27, 2012 and October 29, 2011, the intrinsic value of stock options exercised was $1.0 million and $0.6 million, respectively.  At October 27, 2012, the intrinsic value of outstanding and exercisable stock options was $103.9 million.

 

Note 4.  Asset Impairment and Store Closing Charges

 

There were no asset impairment and store closing costs recorded during the three and nine months ended October 27, 2012 and the three months ended October 29, 2011.

 

During the nine months ended October 29, 2011, the Company recorded a pretax charge of $1.2 million for asset impairment and store closing costs.  The charge was for the write-down of a property held for sale.

 

Following is a summary of the activity in the reserve established for store closing charges for the nine months ended October 27, 2012:

 

(in thousands)

 

Balance
Beginning
of Period

 

Adjustments
and Charges*

 

Cash Payments

 

Balance
End of Period

 

Rent, property taxes and utilities

 

$

738

 

$

833

 

$

922

 

$

649

 

 


*included in rentals

 

Reserve amounts are included in trade accounts payable and accrued expenses and other liabilities.

 

9



Table of Contents

 

Note 5.  Earnings Per Share Data

 

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data).

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 27,

 

October 29,

 

October 27,

 

October 29,

 

 

 

2012

 

2011

 

2012

 

2011

 

Basic:

 

 

 

 

 

 

 

 

 

Net income

 

$

48,514

 

$

228,171

 

$

174,519

 

$

322,413

 

Weighted average shares of common stock outstanding

 

47,127

 

52,107

 

48,265

 

54,611

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

1.03

 

$

4.38

 

$

3.62

 

$

5.90

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 27,

 

October 29,

 

October 27,

 

October 29,

 

 

 

2012

 

2011

 

2012

 

2011

 

Diluted:

 

 

 

 

 

 

 

 

 

Net income

 

$

48,514

 

$

228,171

 

$

174,519

 

$

322,413

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

47,127

 

52,107

 

48,265

 

54,611

 

Dilutive effect of stock-based compensation

 

978

 

843

 

951

 

963

 

Total weighted average equivalent shares

 

48,105

 

52,950

 

49,216

 

55,574

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

1.01

 

$

4.31

 

$

3.55

 

$

5.80

 

 

Total stock options outstanding were 2,080,000 and 2,245,000 at October 27, 2012 and October 29, 2011, respectively.

 

Note 6.  Commitments and Contingencies

 

Various legal proceedings, in the form of lawsuits and claims, which occur in the normal course of business, are pending against the Company and its subsidiaries.  In the opinion of management, disposition of these matters is not expected to have a material adverse effect on the Company’s financial position, cash flows or results of operations.

 

At October 27, 2012, letters of credit totaling $61.9 million were issued under the Company’s revolving credit facility.

 

Note 7.  Benefit Plans

 

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 various actuarial cost methods to estimate the total benefits ultimately payable to officers and allocates this cost to service periods.  The actuarial assumptions used to calculate pension costs are reviewed annually.  The Company made contributions to the Pension Plan of $1.2 million and $3.3 million during the three and nine months ended October 27, 2012, respectively.  The Company expects to make a contribution to the Pension Plan of approximately $1.1 million for the remainder of fiscal 2012.

 

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Table of Contents

 

The components of net periodic benefit costs are as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 27,

 

October 29,

 

October 27,

 

October 29,

 

 

 

2012

 

2011

 

2012

 

2011

 

Components of net periodic benefit costs:

 

 

 

 

 

 

 

 

 

Service cost

 

$

817

 

$

831

 

$

2,450

 

$

2,494

 

Interest cost

 

1,823

 

1,800

 

5,470

 

5,400

 

Net actuarial loss

 

1,283

 

492

 

3,849

 

1,475

 

Amortization of prior service cost

 

157

 

157

 

470

 

470

 

Net periodic benefit costs

 

$

4,080

 

$

3,280

 

$

12,239

 

$

9,839

 

 

Note 8.  Revolving Credit Agreement

 

At October 27, 2012, the Company maintained a $1.0 billion revolving credit facility (“credit agreement”) with J. P. Morgan Securities LLC (“JPMorgan”) and Wells Fargo Capital Finance, LLC as the lead agents for various banks, secured by the inventory of Dillard’s, Inc. operating subsidiaries.  The credit agreement expires April 11, 2017.

 

Borrowings under the credit agreement accrue interest at either JPMorgan’s Base Rate or LIBOR plus 1.5% (1.71% at October 27, 2012) subject to certain availability thresholds as defined in the credit agreement.

 

Limited to 90% of the inventory of certain Company subsidiaries, availability for borrowings and letter of credit obligations under the credit agreement was $1.0 billion at October 27, 2012.  Borrowings of $27.0 million were outstanding and letters of credit totaling $61.9 million were issued under this credit agreement leaving unutilized availability under the facility of approximately $911 million at October 27, 2012.  There are no financial covenant requirements under the credit agreement provided availability exceeds $100 million.  The Company pays an annual commitment fee to the banks of 0.375% of the committed amount less outstanding borrowings and letters of credit.

 

Note 9.  Stock Repurchase Program

 

2012 Stock Plan

 

In February 2012, the Company’s Board of Directors authorized the Company to repurchase of up to $250 million of the Company’s Class A Common Stock under an open-ended plan (“2012 Stock Plan”).  This authorization permits the Company to repurchase its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange Act”) or through privately negotiated transactions.  The 2012 Stock Plan has no expiration date.  During the nine months ended October 27, 2012, the Company repurchased 2.1 million shares for $134.6 million at an average price of $64.52 per share.  At October 27, 2012, $115.4 million of authorization remained under the 2012 Stock Plan.

 

May 2011 Stock Plan

 

In May 2011, the Company’s Board of Directors authorized the Company to repurchase up to $250 million of the Company’s Class A Common Stock under an open-ended plan (“May 2011 Stock Plan”).  This authorization permitted the Company to repurchase 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 the three months ended October 29, 2011, the Company repurchased 2.9 million shares for $123.7 million at an average price of $42.40 per share.  During the nine months ended October 27, 2012, the Company repurchased 439 thousand shares for $27.5 million at an average price of $62.71 per share, which completed the authorization under the May 2011 Stock Plan.

 

February 2011 Stock Plan

 

In February 2011, the Company’s Board of Directors authorized the Company to repurchase up to $250 million of the Company’s Class A Common Stock under an open-ended plan (“February 2011 Stock Plan”).  This authorization permitted the Company to repurchase 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 the nine months ended October 29, 2011, the Company repurchased 6.0 million shares for $250.0 million at an average price of $41.93 per share, which completed the authorization under the February 2011 Stock Plan.

 

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Table of Contents

 

2010 Stock Plan

 

In August 2010, the Company’s Board of Directors authorized the Company to repurchase up to $250 million of the Company’s Class A Common Stock under an open-ended plan (“2010 Stock Plan”).  During the nine months ended October 29, 2011, the Company repurchased 0.4 million shares for $18.7 million at an average price of $42.19 per share, which completed the remaining authorization under the 2010 Stock Plan.

 

Note 10.    Income Taxes

 

During the three months ended October 27, 2012, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes offset by a tax benefit recognized for an amended return filed where capital gain income was offset by a previously unrecognized capital loss carryforward available in the amended return year.  Certain federal tax credits were not extended into fiscal 2012 which negatively impacted the effective tax rate.  During the three months ended October 29, 2011, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes offset by tax benefits recognized for: (i) the reversal of a valuation allowance of approximately $201.6 million related to a capital loss carryforward, (ii) federal tax credits, and (iii) net decreases in unrecognized tax benefits, interest and penalties.

 

During the nine months ended October 27, 2012, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for: (i) an amended return filed where capital gain income was offset by a previously unrecognized capital loss carryforward available in the amended return year and (ii) net decreases in unrecognized tax benefits primarily related to statute lapses.  Certain federal tax credits were not extended into fiscal 2012 which negatively impacted the effective tax rate.  During the nine months ended October 29, 2011, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes offset by tax benefits recognized for: (i) the reversal of a valuation allowance of approximately $201.6 million related to a capital loss carryforward, (ii) federal tax credits, (iii) net decreases in unrecognized tax benefits, interest and penalties, and (iv) decreases in net deferred tax liabilities resulting from legislatively-enacted state tax rate reductions.

 

Note 11.  Income on Joint Venture

 

During the nine months ended October 29, 2011, the Company received a distribution of excess cash from a mall joint venture of $6.7 million and recorded a related gain of $4.2 million in income on and equity in losses of joint ventures.

 

Note 12.  Gain on Disposal of Assets

 

During the three months ended October 27, 2012, the Company received proceeds of $4.1 million from the sales of two former retail stores:  one location was in Charlotte, North Carolina and was held for sale and the other location was in Colonial Heights, Virginia, which was closed during the period.  The sales resulted in a net gain of $1.1 million that was recorded in gain on disposal of assets.

 

Additionally, during the nine months ended October 27, 2012, the Company received proceeds of $7.8 million from the sales of two former retail stores located in Cincinnati, Ohio and Antioch, Tennessee that were held for sale and one building that was formerly a portion of a currently operating retail location, resulting in a net gain of $0.9 million that was recorded in gain on disposal of assets.

 

During the three months ended October 29, 2011, the Company received proceeds of $10.3 million from the sale of two former retail store locations, resulting in gains totaling $1.3 million that were recorded in gain on disposal of assets.

 

Additionally, during the nine months ended October 29, 2011, 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 that was recorded in gain on disposal of assets.

 

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Note 13.  Note Repurchase

 

During the three months ended October 29, 2011, the Company repurchased $5.7 million face amount of 6.625% notes with an original maturity on January 15, 2018.  This repurchase resulted in a pretax gain of approximately $0.2 million which was recorded in net interest and debt expense during the three months ended October 29, 2011.

 

Note 14.  Fair Value Disclosures

 

The estimated fair values of financial instruments which are presented herein have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative 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 financial instruments with similar characteristics and maturities (for bank notes and mortgage notes).

 

The fair value of the Company’s cash and cash equivalents, accounts receivable and other short-term borrowings approximates their carrying values at October 27, 2012 due to the short-term maturities of these instruments.  The fair value of the Company’s long-term debt at October 27, 2012 was approximately $657 million.  The carrying value of the Company’s long-term debt at October 27, 2012 was $615 million.  The fair value of the Company’s subordinated debentures at October 27, 2012 was approximately $208 million.  The carrying value of the Company’s subordinated debentures at October 27, 2012 was $200 million.

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

 

The FASB’s accounting guidance utilizes a fair value hierarchy that prioritizes the inputs to the valuation techniques used to measure fair value into three broad levels:

 

·                        Level 1:  Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities

 

·                        Level 2:  Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active

 

·                        Level 3:  Unobservable inputs that reflect the reporting entity’s own assumptions

 

 

 

 

 

Basis of Fair Value Measurements

 

 

 

 

 

Quoted Prices

 

Significant

 

 

 

 

 

 

 

In Active

 

Other

 

Significant

 

 

 

Fair Value

 

Markets for

 

Observable

 

Unobservable

 

 

 

of Assets

 

Identical Items

 

Inputs

 

Inputs

 

(in thousands)

 

(Liabilities)

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets held for sale

 

 

 

 

 

 

 

 

 

As of October 27, 2012

 

$

11,889

 

$

 

$

 

$

11,889

 

As of January 28, 2012

 

17,348

 

 

 

17,348

 

 

 

 

 

 

 

 

 

 

 

As of October 29, 2011

 

$

17,348

 

$

 

$

 

$

17,348

 

As of January 29, 2011

 

27,548

 

 

 

27,548

 

 

During the nine months ended October 27, 2012, the Company sold three former retail store locations that were held for sale with carrying values totaling $5.5 million.

 

During the nine months ended October 29, 2011, the Company sold two former retail store locations with carrying values totaling $9.0 million.

 

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Table of Contents

 

During the nine months ended October 29, 2011, long-lived assets held for sale with a carrying value of $27.5 million were written down to their fair value of $26.3 million, resulting in an impairment charge of $1.2 million, which was included in earnings for the period.  The inputs used to calculate the fair value of these long-lived assets 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.

 

Note 15.  Recently Issued Accounting Standards

 

Fair Value Measurements and Disclosure

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  The amendments in this update change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS.  This update was effective for interim and annual periods beginning after December 15, 2011 and was to be applied prospectively.  The adoption of this standard did not have a significant impact on the Company’s financial statements.

 

Presentation of Comprehensive Income

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220)—Presentation of Comprehensive Income, to make the presentation of items within other comprehensive income (“OCI”) more prominent.  The new standard requires companies to present items of net income, items of OCI and total comprehensive income in one continuous statement or two separate consecutive statements, and companies will no longer be allowed to present items of OCI in the statement of stockholders’ equity.  This new update was effective for interim and annual periods beginning after December 15, 2011 and was applied retrospectively.  The adoption of this standard changed the order and placement where certain financial statement items are presented but did not have any other impact on the Company’s financial statements.

 

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-5 which deferred the requirement from the June 2011 guidance that related to the presentation of reclassification adjustments.  The amendment will allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented.

 

Note 16.  Subsequent Event

 

On November 26, 2012, the Company announced that its Board of Directors declared a special, one-time cash dividend of $5.00 per share. The dividend is payable on the Class A and Class B Common Stock of the Company on December 21, 2012 to shareholders of record as of December 7, 2012.

 

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Table of Contents

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with the condensed consolidated financial statements and the footnotes thereto included elsewhere in this report, as well as the financial and other information included in our Annual Report on Form 10-K for the year ended January 28, 2012.

 

EXECUTIVE OVERVIEW

 

Increased sales continued to headline our quarterly operating performance as comparable store sales were up for our ninth consecutive quarter.  Gross margin from retail operations also showed improvement while operating spending was down.  Net income for the quarter was $48.5 million, or $1.01 per share, and operating cash flow for the first nine months of the year improved 62.2% over the same prior year period.

 

Included in net income for the quarter ended October 27, 2012 are:

 

·                  a $1.1 million pretax gain ($0.7 million after tax or $0.01 per share) related to the sale of two former retail store locations and

·                  a $1.7 million tax benefit ($0.04 per share) due to a reversal of a valuation allowance related to a deferred tax asset consisting of a capital loss carryforward.

 

Included in net income of $228.2 million ($4.31 per share) for the quarter ended October 29, 2011 are:

 

·                  a $201.6 million tax benefit ($3.81 per share) due to a reversal of a valuation allowance related to the amount of the capital loss carryforward used to offset the capital gain income recognized on the taxable transfer of properties to our REIT and

·                  a $1.3 million pretax gain ($0.9 million after tax or $0.02 per share) related to the sale of two former retail store locations.

 

Highlights of the quarter ended October 27, 2012 included:

 

·                  a 5% increase in comparable store sales,

·                  gross margin from retail operations improvement of 40 basis points of sales,

·                  advertising, selling, administrative and general expenses improvement of 140 basis points of sales,

·                  net income of $48.5 million, or $1.01 per share, and

·                  cash flow from operations improvement of $84.3 million for the nine months ended October 27, 2012, a 62.2% increase over the comparable prior year period.

 

As of October 27, 2012, we had working capital of $807.1 million, cash and cash equivalents of $124.8 million and $842.0 million of total debt outstanding, excluding capital lease obligations.  Cash flows from operating activities were $219.9 million for the nine months ended October 27, 2012.  We operated 302 total stores, including 18 clearance centers, and one internet store as of October 27, 2012, a decrease of two stores from the comparable period last year.

 

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Table of Contents

 

Key Performance Indicators

 

We use a number of key indicators of financial condition and operating performance to evaluate our business, including the following:

 

 

 

Three Months Ended*

 

 

 

October 27,
2012

 

October 29,
2011

 

Net sales (in millions)

 

$

1,449.6

 

$

1,382.6

 

Net sales trend

 

5

%

3

%

Gross profit (in millions)

 

$

530.0

 

$

501.5

 

Gross profit as a percentage of net sales

 

36.6

%

36.3

%

Cash flow from operations (in millions)

 

$

219.9

 

$

135.6

 

Total retail store count at end of period

 

302

 

304

 

Retail sales per square foot

 

$

27

 

$

26

 

Retail store sales trend

 

4

%

4

%

Comparable retail store sales trend

 

5

%

5

%

Comparable retail store inventory trend

 

(1

)%

4

%

Retail merchandise inventory turnover

 

2.5

 

2.4

 

 


*Cash flow from operations data is for the nine months ended October 27, 2012 and October 29, 2011.

 

Net salesNet sales include merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of CDI Contractors, LLC (“CDI”), the Company’s general contracting construction company.  Comparable store sales include sales for those stores which were in operation for a full period in both the current month and the corresponding month for the prior year.  Comparable store sales exclude the change in the allowance for sales returns.  Non-comparable store sales include:  sales in the current fiscal year from stores opened during the previous fiscal year before they are considered 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; sales in clearance centers; and changes in the allowance for sales returns.

 

Service charges and other income.  Service charges and other income include income generated through the long-term marketing and servicing alliance (“Alliance”) with GE Consumer Finance (“GE”), which owns and manages the Dillard’s branded proprietary credit cards.  Other income includes rental income, shipping and handling fees, gift card breakage and lease income on leased departments.

 

Cost of sales.  Cost of sales includes the cost of merchandise sold (net of purchase discounts), bankcard fees, freight to the distribution centers, employee and promotional discounts, non-specific margin maintenance allowances and direct payroll for salon personnel.  Cost of sales also includes CDI contract costs, which comprise all direct material and labor costs, subcontract costs and those indirect costs related to contract performance, such as indirect labor, employee benefits and insurance program costs.

 

Advertising, selling, administrative and general expensesAdvertising, selling, administrative and general expenses include buying, occupancy, selling, distribution, warehousing, 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 personnel.

 

Depreciation and amortizationDepreciation and amortization expense includes depreciation and amortization on property and equipment.

 

Rentals.  Rentals include expenses for store leases, including contingent rent, and data processing and other equipment rentals.

 

Interest and debt expense, netInterest and debt expense includes interest, net of interest income, relating to the Company’s unsecured notes, mortgage note, term note, subordinated debentures and borrowings under the Company’s credit facility.  Interest and debt expense also includes gains and losses on note repurchases, if any, amortization of financing costs and interest on capital lease obligations.

 

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Table of Contents

 

Gain on disposal of assets.  Gain on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment and the gain on the sale of an interest in a mall joint venture, if any.

 

Asset impairment and store closing chargesAsset impairment and store closing charges consist of write-downs to fair value of under-performing or held for sale properties and exit costs associated with the closure of certain stores.  Exit costs include future rent, taxes and common area maintenance expenses from the time the stores are closed.

 

Income on and equity in losses of joint ventures.  Income on and equity in losses of joint ventures includes the Company’s portion of the income or loss of the Company’s unconsolidated joint ventures as well as a distribution of excess cash from one of the Company’s mall joint ventures.

 

Seasonality and Inflation

 

Our business, like many other retailers, is subject to seasonal influences, with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season.  Because of the seasonality of our business, results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

 

We do not believe that inflation has had a material effect on our results during the periods presented; however, our business could be affected by such in the future.

 

RESULTS OF OPERATIONS

 

The following table sets forth the results of operations as a percentage of net sales for the periods indicated.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 27,

 

October 29,

 

October 27,

 

October 29,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net sales

 

100.0

%

100.0

%

100.0

%

100.0

%

Service charges and other income

 

2.5

 

2.6

 

2.5

 

2.3

 

 

 

102.5

 

102.6

 

102.5

 

102.3

 

Cost of sales

 

63.4

 

63.7

 

63.8

 

63.9

 

Advertising, selling, administrative and general expenses

 

27.9

 

29.3

 

26.7

 

27.7

 

Depreciation and amortization

 

4.5

 

4.7

 

4.3

 

4.5

 

Rentals

 

0.5

 

0.8

 

0.5

 

0.8

 

Interest and debt expense, net

 

1.2

 

1.3

 

1.2

 

1.3

 

Gain on disposal of assets

 

0.0

 

(0.1

)

0.0

 

(0.1

)

Asset impairment and store closing charges

 

0.0

 

0.0

 

0.0

 

0.0

 

Income before income taxes and income on and equity in losses of joint ventures

 

5.0

 

2.9

 

6.0

 

4.2

 

Income taxes (benefit)

 

1.7

 

(13.6

)

2.1

 

(3.2

)

Income on and equity in losses of joint ventures

 

0.0

 

0.0

 

0.0

 

0.1

 

Net income

 

3.3

%

16.5

%

3.9

%

7.5

%

 

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Table of Contents

 

Net Sales — Three Month Comparison

 

 

 

Three Months Ended

 

 

 

 

 

October 27,

 

October 29,

 

 

 

(in thousands of dollars)

 

2012

 

2011

 

$ Change

 

Net sales:

 

 

 

 

 

 

 

Retail operations segment

 

$

1,424,722

 

$

1,366,362

 

$

58,360

 

Construction segment

 

24,901

 

16,250

 

8,651

 

Total net sales

 

$

1,449,623

 

$

1,382,612

 

$

67,011

 

 

The percent change by category in the Company’s retail operations segment sales for the three months ended October 27, 2012 compared to the three months ended October 29, 2011 as well as the percentage by segment and category to total net sales for the three months ended October 27, 2012 is as follows:

 

 

 

Three Months

 

 

 

% Change
2012-2011

 

% of
Net Sales

 

Retail operations segment

 

 

 

 

 

Cosmetics

 

2.7

%

15

%

Ladies’ apparel

 

2.1

 

22

 

Ladies’ accessories and lingerie

 

7.3

 

13

 

Juniors’ and children’s apparel

 

5.3

 

9

 

Men’s apparel and accessories

 

8.1

 

17

 

Shoes

 

5.4

 

17

 

Home and furniture

 

(6.1

)

5

 

 

 

 

 

98

 

Construction segment

 

53.2

 

2

 

Total

 

 

 

100

%

 

Net sales from the retail operations segment increased 4% during the three months ended October 27, 2012 compared to the three months ended October 29, 2011 while sales in comparable stores increased 5% between the same periods.  Sales of men’s apparel and accessories, ladies’ accessories and lingerie, shoes and juniors’ and children’s apparel increased significantly over the prior year period while sales of ladies’ apparel and cosmetics increased moderately.  Home and furniture sales decreased significantly between the periods.

 

The number of sales transactions increased 1% for the three months ended October 27, 2012 over the comparable prior year period while the average dollars per sales transaction increased 4%.  We recorded an allowance for sales returns of $7.0 million and $7.7 million as of October 27, 2012 and October 29, 2011, respectively.

 

We believe that we may continue to see some sales growth in the retail operations segment during fiscal 2012; however, there is no guarantee of improved sales performance.

 

Net sales from the construction segment increased $8.7 million or 53% during the three months ended October 27, 2012 compared to the three months ended October 29, 2011 due to an increase in new construction projects.  We believe that we will continue to see some sales growth in the construction segment during fiscal 2012; however, there is no guarantee of improved sales performance.  The backlog of awarded construction contracts at October 27, 2012 totaled $184.7 million.

 

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Table of Contents

 

Net Sales — Nine Month Comparison

 

 

 

Nine Months Ended

 

 

 

 

 

October 27,

 

October 29,

 

 

 

(in thousands of dollars)

 

2012

 

2011

 

$ Change

 

Net sales:

 

 

 

 

 

 

 

Retail operations segment

 

$

4,402,721

 

$

4,247,462

 

$

155,259

 

Construction segment

 

84,146

 

46,095

 

38,051

 

Total net sales

 

$

4,486,867

 

$

4,293,557

 

$

193,310

 

 

The percent change by category in the Company’s retail operations segment sales for the nine months ended October 27, 2012 compared to the nine months ended October 29, 2011 as well as the percentage by segment and category to total net sales for the nine months ended October 27, 2012 is as follows:

 

 

 

Nine Months

 

 

 

% Change
2012-2011

 

% of
Net Sales

 

Retail operations segment

 

 

 

 

 

Cosmetics

 

3.8

%

15

%

Ladies’ apparel

 

2.0

 

23

 

Ladies’ accessories and lingerie

 

7.3

 

14

 

Juniors’ and children’s apparel

 

2.0

 

9

 

Men’s apparel and accessories

 

4.4

 

17

 

Shoes

 

5.0

 

15

 

Home and furniture

 

(2.8

)

5

 

 

 

 

 

98

 

Construction segment

 

82.5

 

2

 

Total

 

 

 

100

%

 

Net sales from the retail operations segment increased 4% in both total and comparable stores during the nine months ended October 27, 2012 compared to the nine months ended October 29, 2011.  Sales of shoes and ladies’ accessories and lingerie increased significantly over the prior year period while sales of cosmetics, men’s apparel and accessories, juniors’ and children’s apparel and ladies’ apparel increased moderately.  Home and furniture sales decreased moderately between the periods.

 

The number of sales transactions decreased 2% for the nine months ended October 27, 2012 compared to the nine months ended October 29, 2011 while the average dollars per sales transaction increased 5%.

 

Net sales from the construction segment increased $38.1 million or 83% during the nine months ended October 27, 2012 compared to the nine months ended October 29, 2011 due to an increase in new construction contracts.

 

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Table of Contents

 

Service Charges and Other Income

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three
Months

 

Nine
Months

 

(in thousands of dollars)

 

October 27,
2012

 

October 29,
2011

 

October 27,
2012

 

October 29,
2011

 

$ Change
2012-2011

 

$ Change
2012-2011

 

Service charges and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail operations segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Leased department income

 

$

2,358

 

$

2,372

 

$

7,216

 

$

7,106

 

$

(14

)

$

110

 

Income from GE marketing and servicing alliance

 

27,301

 

25,297

 

78,731

 

70,515

 

2,004

 

8,216

 

Shipping and handling income

 

3,965

 

4,012

 

12,671

 

12,538

 

(47

)

133

 

Other

 

3,094

 

3,197

 

11,996

 

9,820

 

(103

)

2,176

 

 

 

36,718

 

34,878

 

110,614

 

99,979

 

1,840

 

10,635

 

Construction segment

 

4

 

130

 

58

 

156

 

(126

)

(98

)

Total

 

$

36,722

 

$

35,008

 

$

110,672

 

$

100,135

 

$

1,714

 

$

10,537

 

 

Service charges and other income is composed primarily of income from the Alliance with GE.  Income from the Alliance increased during the three and nine months ended October 27, 2012 compared to the three and nine months ended October 29, 2011 primarily due to increases in finance charge and late charge fee income and decreased credit losses.

 

Gross Profit

 

(in thousands of dollars)

 

October 27,
2012

 

October 29,
2011

 

$ Change

 

% Change

 

Gross profit:

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

Retail operations segment

 

$

528,971

 

$

501,058

 

$

27,913

 

5.6

%

Construction segment

 

1,029

 

475

 

554

 

116.6

 

Total gross profit

 

$

530,000

 

$

501,533

 

$

28,467

 

5.7

%

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

Retail operations segment

 

$

1,618,751

 

$

1,548,591

 

$

70,160

 

4.5

%

Construction segment

 

3,778

 

339

 

3,439

 

1,014.5

 

Total gross profit

 

$

1,622,529

 

$

1,548,930

 

$

73,599

 

4.8

%

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 27,
2012

 

October 29,
2011

 

October 27,
2012

 

October 29,
2011

 

Gross profit as a percentage of segment net sales:

 

 

 

 

 

 

 

 

 

Retail operations segment

 

37.1

%

36.7

%

36.8

%

36.5

%

Construction segment

 

4.1

 

2.9

 

4.5

 

0.7

 

Total gross profit as a percentage of net sales

 

36.6

 

36.3

 

36.2

 

36.1

 

 

Gross profit improved 30 basis points of sales and 10 basis points of sales during the three and nine months ended October 27, 2012 compared to the three and nine months ended October 29, 2011, respectively.

 

During the three months ended October 27, 2012 compared to the three months ended October 29, 2011, gross profit from retail operations improved 40 basis points of sales primarily as a result of decreased markdowns.  Gross margin improved moderately in men’s apparel and accessories and ladies’ accessories and lingerie.  Gross margin was essentially flat in most other product categories with the exception of home and furniture which experienced a significant decline.

 

During the nine months ended October 27, 2012 compared to the nine months ended October 29, 2011, gross profit from retail operations improved 30 basis points of sales as a result of increased markups.  Gross margin increased

 

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slightly in ladies’ accessories and lingerie.  Gross margin was essentially flat in most other product categories with the exception of home and furniture which experienced a moderate decline.

 

Inventory decreased 1% in comparable stores as of October 27, 2012 compared to October 29, 2011.  A 1% change in the dollar amount of markdowns would have impacted net income by approximately $2 million and $6 million for the three and nine months ended October 27, 2012, respectively.

 

We believe that gross margin from retail operations will improve slightly during fiscal 2012; however, there is no guarantee of improved gross margin performance.

 

Gross profit from the construction segment improved by $0.6 million (120 basis points of sales) and $3.4 million (380 basis points of sales) during the three and nine months ended October 27, 2012 compared to the three and nine months ended October 29, 2011, respectively.  The improvement in both periods was due to increased revenue and improved fee percentages on new contracts.  The nine-month improvement was also attributable to a $1.2 million loss that was recorded during the first quarter of fiscal 2011 on an electrical contract that was completed in 2011.

 

Advertising, Selling, Administrative and General Expenses (“SG&A”)

 

(in thousands of dollars)

 

October 27,
2012

 

October 29,
2011

 

$ Change

 

% Change

 

SG&A:

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

Retail operations segment

 

$

403,605

 

$

403,658

 

$

(53

)

0.0

%

Construction segment

 

1,032

 

1,108

 

(76

)

(6.9

)

Total SG&A

 

$

404,637

 

$

404,766

 

$

(129

)

0.0

%

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

Retail operations segment

 

$

1,193,205

 

$

1,186,492

 

$

6,713

 

0.6

%

Construction segment

 

3,458

 

3,578

 

(120

)

(3.4

)

Total SG&A

 

$

1,196,663

 

$

1,190,070

 

$

6,593

 

0.6

%

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 27,
2012

 

October 29,
2011

 

October 27,
2012

 

October 29,
2011

 

SG&A as a percentage of segment net sales:

 

 

 

 

 

 

 

 

 

Retail operations segment

 

28.3

%

29.5

%

27.1

%

27.9

%

Construction segment

 

4.1

 

6.8

 

4.1

 

7.8

 

Total SG&A as a percentage of net sales

 

27.9

 

29.3

 

26.7

 

27.7

 

 

SG&A improved 140 basis points of sales during the three months ended October 27, 2012 compared to the three months ended October 29, 2011.  The improvement was most noted in advertising ($6.1 million) and utilities ($1.5 million) mostly offset by increases in payroll and payroll related taxes ($4.6 million) and services purchased ($2.2 million).

 

SG&A improved 100 basis points of sales during the nine months ended October 27, 2012 compared to the nine months ended October 29, 2011 while total SG&A dollars increased $6.6 million.  The dollar increase was most noted in payroll and payroll related taxes ($10.3 million), services purchased ($8.4 million) and insurance ($5.3 million) partially offset by savings in advertising ($15.4 million) and utilities ($6.2 million).

 

We believe that SG&A for fiscal 2012 will improve slightly as a percentage of sales compared to fiscal 2011; however, there is no guarantee of improved SG&A performance.

 

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Table of Contents

 

Rentals

 

(in thousands of dollars)

 

October 27,
2012

 

October 29,
2011

 

$ Change

 

% Change

 

Rentals:

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

Retail operations segment

 

$

7,611

 

$

11,213

 

$

(3,602

)

(32.1

)%

Construction segment

 

13

 

16

 

(3

)

(18.8

)

Total rentals

 

$

7,624

 

$

11,229

 

$

(3,605

)

(32.1

)%

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

Retail operations segment

 

$

24,492

 

$

34,763

 

$

(10,271

)

(29.5

)%

Construction segment

 

38

 

35

 

3

 

8.6

 

Total rentals

 

$

24,530

 

$

34,798

 

$

(10,268

)

(29.5

)%

 

The decrease in rental expense for the three and nine months ended October 27, 2012 compared to the three and nine months ended October 29, 2011 was primarily due to a reduction in the amount of equipment leased by the Company.

 

We believe that rental expense for fiscal 2012 will be significantly less than fiscal 2011, with a current projected reduction of $14 million from fiscal 2011, primarily as a result of the expiration of certain equipment leases.

 

Interest and Debt Expense, Net

 

(in thousands of dollars)

 

October 27,
2012

 

October 29,
2011

 

$ Change

 

% Change

 

Interest and debt expense (income), net:

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

Retail operations segment

 

$

17,042

 

$

17,791

 

$

(749

)

(4.2

)%

Construction segment

 

(31

)

(41

)

10

 

24.4

 

Total interest and debt expense, net

 

$

17,011

 

$

17,750

 

$

(739

)

(4.2

)%

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

Retail operations segment

 

$

52,241

 

$

54,567

 

$

(2,326

)

(4.3

)%

Construction segment

 

(102

)

(120

)

18

 

15.0

 

Total interest and debt expense, net

 

$

52,139

 

$

54,447

 

$

(2,308

)

(4.2

)%

 

The decrease in net interest and debt expense for the three months ended October 27, 2012 is primarily attributable to lower average debt levels.  Total weighted average debt decreased approximately $122.1 million during the three months ended October 27, 2012 compared to the three months ended October 29, 2011.

 

The decrease in net interest and debt expense for the nine months ended October 27, 2012 is primarily attributable to lower average debt levels partially offset by increased credit facility fees and lower investment income.  Total weighted average debt decreased approximately $94.5 million during the nine months ended October 27, 2012 compared to the nine months ended October 29, 2011.

 

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Table of Contents

 

Gain on Disposal of Assets

 

(in thousands of dollars)

 

October 27,
2012

 

October 29,
2011

 

$ Change

 

Gain (loss) on disposal of assets:

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

Retail operations segment

 

$

1,071

 

$

1,456

 

$

(385

)

Construction segment

 

1

 

 

1

 

Total gain on disposal of assets

 

$

1,072

 

$

1,456

 

$

(384

)

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

Retail operations segment

 

$

2,210

 

$

3,911

 

$

(1,701

)

Construction segment

 

1

 

(64

)

65

 

Total gain on disposal of assets

 

$

2,211

 

$

3,847

 

$

(1,636

)

 

During the three months ended October 27, 2012, the Company received proceeds of $4.1 million from the sales of two former retail stores:  one location was in Charlotte, North Carolina and was held for sale and the other location was in Colonial Heights, Virginia, which was closed during the period.  The sales resulted in a net gain of $1.1 million that was recorded in gain on disposal of assets.

 

Additionally, during the nine months ended October 27, 2012, the Company received proceeds of $7.8 million from the sales of two former retail stores located in Cincinnati, Ohio and Antioch, Tennessee that were held for sale and one building that was formerly a portion of a currently operating retail location, resulting in a net gain of $0.9 million that was recorded in gain on disposal of assets.

 

During the three months ended October 29, 2011, the Company received proceeds of $10.3 million from the sale of two former retail store locations, resulting in gains totaling $1.3 million that were recorded in gain on disposal of assets.

 

Additionally, during the nine months ended October 29, 2011, 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 that was recorded in gain on disposal of assets.

 

Asset Impairment and Store Closing Charges

 

(in thousands of dollars)

 

October 27,
2012

 

October 29,
2011

 

$ Change

 

Asset impairment and store closing charges:

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

Retail operations segment

 

$

 

$

1,200

 

$

(1,200

)

Construction segment

 

 

 

 

Total asset impairment and store closing charges

 

$

 

$

1,200

 

$

(1,200

)

 

There were no asset impairment and store closing costs recorded during the three and nine months ended October 27, 2012 and the three months ended October 29, 2011.

 

During the nine months ended October 29, 2011, the Company recorded a pretax charge of $1.2 million for asset impairment and store closing costs.  The charge was for the write-down of a property held for sale.

 

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Table of Contents

 

Income Taxes

 

The Company’s estimated federal and state income tax rate, inclusive of income on and equity in losses of joint ventures, was approximately 33.3% and (473.1)% for the three months ended October 27, 2012 and October 29, 2011, respectively.  During the three months ended October 27, 2012, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes offset by a tax benefit recognized for an amended return filed where capital gain income was offset by a previously unrecognized capital loss carryforward available in the amended return year.  Certain federal tax credits were not extended into fiscal 2012 which negatively impacted the effective tax rate.  During the three months ended October 29, 2011, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes offset by tax benefits recognized for: (i) the reversal of a valuation allowance of approximately $201.6 million related to a capital loss carryforward, (ii) federal tax credits, and (iii) net decreases in unrecognized tax benefits, interest and penalties.

 

The Company’s estimated federal and state income tax rate, inclusive of income on and equity in losses of joint ventures, was approximately 35.1% and (75.4)% for the nine months ended October 27, 2012 and October 29, 2011, respectively.  During the nine months ended October 27, 2012, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for: (i) an amended return filed where capital gain income was offset by a previously unrecognized capital loss carryforward available in the amended return year and (ii) net decreases in unrecognized tax benefits primarily related to statute lapses.  Certain federal tax credits were not extended into fiscal 2012 which negatively impacted the effective tax rate.  During the nine months ended October 29, 2011, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes offset by tax benefits recognized for: (i) the reversal of a valuation allowance of approximately $201.6 million related to a capital loss carryforward, (ii) federal tax credits, (iii) net decreases in unrecognized tax benefits, interest and penalties, and (iv) decreases in net deferred tax liabilities resulting from legislatively-enacted state tax rate reductions.

 

The Company’s effective tax rate for fiscal 2012 is expected to approximate 36%. This rate may change if results of operations for fiscal 2012 differ from management’s current expectations.  Changes in the Company’s assumptions and judgments can materially affect amounts recognized in the condensed consolidated balance sheets and statements of income.

 

Income on Joint Venture

 

During the nine months ended October 29, 2011, the Company’s retail operations segment received a distribution of excess cash from a mall joint venture of $6.7 million and recorded a related gain of $4.2 million in income on and equity in losses of joint ventures.

 

FINANCIAL CONDITION

 

A summary of net cash flows for the nine months ended October 27, 2012 and October 29, 2011 follows:

 

 

 

Nine Months Ended

 

 

 

(in thousands of dollars)

 

October 27,
2012

 

October 29,
2011

 

$ Change

 

Operating Activities

 

$

219,873

 

$

135,553

 

$

84,320

 

Investing Activities

 

(99,932

)

(79,758

)

(20,174

)

Financing Activities

 

(219,419

)

(292,703

)

73,284

 

Total Cash Provided (Used)

 

$

(99,478

)

$

(236,908

)

$

137,430

 

 

Net cash flows from operations increased $84.3 million during the nine months ended October 27, 2012 compared to the nine months ended October 29, 2011.  This improvement was primarily attributable to higher net income, as adjusted for non-cash items, of $70.4 million for the nine months ended October 27, 2012 as compared to the nine months ended October 29, 2011.  This improvement was also attributable to an increase of $13.9 million related to

 

24



Table of Contents

 

changes in working capital items, primarily of slower seasonal buildup of inventory and increases in trade accounts payable and accrued expenses and other liabilities partially offset by decreases in income taxes payable.

 

GE owns and manages Dillard’s branded proprietary credit card business under the Alliance that expires in fiscal 2014.  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 $78.7 million and $70.5 million from GE during the nine months ended October 27, 2012 and October 29, 2011, respectively.  While future cash flows under this Alliance are difficult to predict and are not guaranteed, the Company expects income from the Alliance to improve moderately during fiscal 2012 compared to fiscal 2011.  The amount the Company receives is dependent on the level of sales on GE accounts, the level of balances carried on the GE accounts by GE customers, payment rates on GE accounts, finance charge rates and other fees on GE accounts, the level of credit losses for the GE accounts as well as GE’s funding costs.

 

During the nine months ended October 27, 2012, the Company received proceeds of $11.9 million from the sales of four former retail stores and one building that was formerly a portion of a currently operating retail location.  Three of the stores were held for sale and were located in Cincinnati, Ohio; Antioch, Tennessee and Charlotte, North Carolina.  The remaining store was located in Colonial Heights, Virginia and was closed during the period.  The sales resulted in a net gain of $2.0 million that was recorded in gain on disposal of assets.

 

During the nine months ended October 29, 2011, the Company received proceeds of $10.3 million from the sale of two former retail store locations, resulting in gains totaling $1.3 million that were recorded in gain on disposal of assets.  Additionally, during the nine months ended October 29, 2011, 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 that was recorded in gain on disposal of assets.

 

Capital expenditures were $111.9 million and $80.3 million for the nine months ended October 27, 2012 and October 29, 2011, respectively.  The current year expenditures were primarily for the remodeling of existing stores, purchase of equipment, including the buyout of certain leased equipment, and completion of the Company’s new internet fulfillment center located in Maumelle, Arkansas, which began processing merchandise during the first quarter of fiscal 2012.  This new 850,000 square foot internet fulfillment center has replaced the Company’s Nashville, Tennessee internet fulfillment center (285,000 square feet), which closed in July 2012.  During the nine months ended October 27, 2012, we also closed our Hutchinson Mall location in Hutchinson, Kansas (70,000 square feet) and our Southpark Mall location in Colonial Heights, Virginia (85,000 square feet).  We remain committed to closing under-performing stores where appropriate and may incur future closing costs related to these stores when they close.

 

Capital expenditures for fiscal 2012 are expected to be approximately $145 million compared to actual expenditures of $116 million during fiscal 2011.  There are no planned new store openings for fiscal 2012.

 

During the three months ended October 29, 2011, our wholly-owned captive insurance subsidiary entered into an agreement in which $24.9 million was placed into a trust for the benefit of a third party insurance provider.  The purpose of the trust (and additional standby letters of credit of $24.9 million) was to collateralize a third party insurer for workers’ compensation and general liability obligations under casualty insurance programs for policy years through fiscal 2011.  The cash in the trust was recorded as restricted cash.

 

During the nine months ended October 29, 2011, the Company received a distribution of excess cash from a mall joint venture of $6.7 million and recorded a related gain of $4.2 million in income on and equity in losses of joint ventures.

 

During the nine months ended October 27, 2012, the Company repurchased 2.5 million shares of its Class A Common Stock for $162.1 million at an average price of $64.21 per share under its 2012 and May 2011 Stock Plans.  During the nine months ended October 29, 2011, the Company repurchased 9.3 million shares of Class A Common Stock for $392.4 million at an average price of $42.09 per share under its 2010, February 2011 and May 2011 Stock Plans.  At October 27, 2012, no authorization remained under the 2010, February 2011 and May 2011 Stock Plans, and $115.4 million of authorization remained under the 2012 Stock Plan.  The ultimate disposition of the repurchased stock has not been determined.

 

During the nine months ended October 27, 2012, the Company made principal payments on long-term debt and capital lease obligations of $78.2 million at their normal maturities.  During the nine months ended October 29, 2011, the Company made principal payments on long-term debt and capital lease obligations of $55.8 million, including the

 

25



Table of Contents

 

repurchase of $5.7 million face amount of 6.625% notes with an original maturity on January 15, 2018.  This repurchase resulted in a pretax gain of approximately $0.2 million which was recorded in net interest and debt expense.

 

The Company had cash on hand of $124.8 million as of October 27, 2012.  As part of our overall liquidity management strategy and for peak working capital requirements, the Company has a $1.0 billion credit facility.  During the nine months ended October 27, 2012, the Company amended and extended this credit facility, which now has higher availability for the same amount of pledged inventory as the previous agreement and expires April 11, 2017.

 

Limited to 90% of the inventory of certain Company subsidiaries, availability for borrowings and letter of credit obligations under the credit agreement was $1.0 billion at October 27, 2012.  Borrowings of $27.0 million and $142.0 million were outstanding as of October 27, 2012 and October 29, 2011, respectively.  Letters of credit totaling $61.9 million were issued under this credit agreement as of October 27, 2012 leaving unutilized availability under the facility of approximately $911 million at October 27, 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.  During fiscal 2012, the Company expects peak borrowings to not exceed $125 million.  Depending on conditions in the capital markets and other factors, the Company will from time to time consider other possible financing transactions, the proceeds of which could be used to refinance current indebtedness or for other corporate purposes.

 

On November 26, 2012, the Company announced that its Board of Directors declared a special, one-time cash dividend of $5.00 per share. The dividend is payable on the Class A and Class B Common Stock of the Company on December 21, 2012 to shareholders of record as of December 7, 2012. The Company expects to fund the dividend from cash flows from normal operations.

 

There have been no material changes in the information set forth under the caption “Contractual Obligations and Commercial Commitments” in Item 7,  Management’s Discussion and Analysis of Financial Condition and Results of Operations,  in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

 

OFF-BALANCE-SHEET ARRANGEMENTS

 

The Company has not created, and is not party to, any special-purpose entities or off-balance-sheet arrangements for the purpose of raising capital, incurring debt or operating the Company’s business.  The Company does not have any off-balance-sheet arrangements or relationships that are reasonably likely to materially affect the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or the availability of capital resources.

 

NEW ACCOUNTING STANDARDS

 

Fair Value Measurements and Disclosure

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  The amendments in this update change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS.  This update was effective for interim and annual periods beginning after December 15, 2011 and was to be applied prospectively.  The adoption of this standard did not have a significant impact on the Company’s financial statements.

 

Presentation of Comprehensive Income

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220)—Presentation of Comprehensive Income, to make the presentation of items within other comprehensive income (“OCI”) more prominent.  The new standard requires companies to present items of net income, items of OCI and total comprehensive income in one continuous statement or two separate consecutive statements, and companies will no longer be allowed to present items of OCI in the statement of stockholders’ equity.  This new update was effective for interim and annual periods beginning after December 15, 2011 and was applied retrospectively.  The adoption of this standard changed the order and placement where certain financial statement items were presented but did not have any other impact on the Company’s financial statements.

 

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In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-5 which deferred the requirement from the June 2011 guidance that related to the presentation of reclassification adjustments.  The amendment will allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented.

 

FORWARD-LOOKING INFORMATION

 

This report contains certain forward-looking statements.  The following are or may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995:  (a) statements including words such as “may,” “will,” “could,” “believe,” “expect,” “future,” “potential,” “anticipate,” “intend,” “plan,” “estimate,” “continue,” or the negative or other variations thereof; (b) statements regarding matters that are not historical facts; and (c) statements about the Company’s future occurrences, plans and objectives, including statements regarding management’s expectations and forecasts for the remainder of fiscal 2012 and fiscal 2013.  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 future performance.  The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Forward-looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions.  Representative examples of those factors include (without limitation) general retail industry conditions and macro-economic conditions; economic and weather conditions for regions in which the Company’s stores are located and the effect of these factors on the buying patterns of the Company’s customers, including the effect of changes in prices and availability of oil and natural gas; the availability of consumer credit; the impact of competitive pressures in the department store industry and other retail channels including specialty, off-price, discount and Internet retailers; changes in consumer spending patterns, debt levels and their ability to meet credit obligations; changes in legislation, affecting such matters as the cost of employee benefits 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 str