D I L L A R D ’ S
2002 Annual Report
C O R P O R A T E P R O F I L E
Dillard’s, Inc. ranks among the nations largest fashion apparel and home furnishings retailers with
annual revenues exceeding $8.2 billion. The Company focuses on delivering maximum value to its
shoppers, with fairly priced merchandise complemented by exceptional customer service. Dillard’s stores
offer a broad selection of merchandise, including products sourced and marketed under Dillard’s
private-brand names.
The Company comprises 333 stores, spanning 29 states, all operating with one name – Dillard’s.
F I N A N C I A L H I G H L I G H T S
(in thousands of dollars, except per share amounts)
Income Statement Data:
2002
2001
2000*
1999
1998
Net sales
$
7,910,996
$
8,154,911
$
8,566,560
$
8,676,711
$
7,762,778
Income before extraordinary item
and accounting change
Extraordinary gain (loss), net of taxes
Cumulative effect of accounting
change, net of taxes
Net income (loss)
Diluted earnings per common share:
Income before extraordinary item
and accounting change
Extraordinary gain (loss)
Cumulative effect of
accounting change
Net income (loss)
Balance Sheet Data:
Current assets
Current liabilities
Long-term debt
Guaranteed Preferred Beneficial
Interests in the Company’s
Subordinated Debentures
Stockholders’ equity
Operational Data:
Number of stores
Number of employees
Gross square footage (in thousands)
*53 Weeks
136,300
(4,374)
(530,331)(1)
(398,405)
1.60
(.05)
(6.22)
(4.67)
65,786
6,012
—
71,798
.78
.07
—
.85
96,830
27,311
(129,991)(2)
(5,850)
163,729
135,259
—
—
—
—
163,729
135,259
1.06
.30
(1.42)
(.06)
1.55
—
—
1.55
1.26
—
—
1.26
$
3,130,251
$
2,814,510
$
2,842,948
$
3,423,725
$
3,450,249
886,461
2,193,006
928,071
2,124,577
876,697
2,374,124
810,594
2,894,616
1,013,480
3,002,595
531,579
2,264,196
531,579
2,668,397
531,579
2,629,820
531,579
2,832,834
531,579
2,841,522
333
55,208
56,700
338
57,257
56,800
337
58,796
56,500
342
61,824
57,000
335
54,921
55,000
(1) During fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(2) During fiscal 2000, the Company changed its method of accounting for inventories under the retail method.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations.
T O O U R S H A R E H O L D E R S
W
e are pleased to report the Dillard’s team, with the
ongoing support of our shareholders, made notable
progress in 2002 and we did it in a very challenging
retail environment. We increased income before extraor-
dinary item and accounting change to $136.3 million
during the fiscal year ended February 1, 2003 from
$65.8 million in the prior year.
Throughout 2002, we executed key merchandising
initiatives, which were previously noted as crucial to the
continued success of our Company. These changes are
designed to significantly improve our supply chain – the
manner through which we provide our customers with
great merchandise and exceptional value. By strengthen-
ing the supply chain with better buying processes, we
are giving our customers more reasons to shop Dillard’s.
At the same time, we are responding to their prefer-
ences, distinguishing ourselves from our competitors
with our own private brand merchandise and giving our
customers a sense of true ownership of their hometown
Dillard’s store.
We know that one of the best ways to deliver value
and distinction is through our private brand assortments
and we made real progress in 2002 in building these
brands. We increased the storewide penetration of these
brands to 18.2% from 15.4% (of sales) in the prior year
– and we are not yet finished. We will continue to
replace underperforming brands with private brands.
We encourage you as shareholders and shoppers to take
a close look at our brands. We are confident you will
agree there is great potential in growing this part of
our business.
As a result of our initiatives to improve our supply
chain, we increased our gross margin 110 basis points
of sales in 2002. This is less improvement than we
had originally hoped, as we entered the year after a
record fourth quarter of 2001. However, the lackluster
retail sales climate which existed particularly during
the fourth quarter of 2002, and the resulting highly
competitive environment, was a hindrance to greater
gross margin improvement.
We remained focused on the balance sheet during
2002, executing good stewardship of our asset base and
Alex Dillard William Dillard, II
further reducing indebtedness. We closed nine under-
performing stores during the year, eliminating their
detrimental effect on future operating results, and we
sold a real estate joint venture at a substantial profit. We
reduced our indebtedness $193 million. Additionally,
we opened seven new stores in select markets, and we
continue to seek opportunities to replace under-perform-
ing stores with locations such as these where we see an
opportunity to maximize our return for our shareholders.
Moving ahead into 2003, we will continue to improve
merchandise assortments. Dillard’s merchandising pro-
fessionals are committed to listening to our customers
and providing the right merchandise mix with special
emphasis upon growing private brands, and we intend
to deliver these selections with great service supported
by the rest of the Dillard’s team. We thank our associ-
ates and our shareholders for their valued contributions
to our continuing success.
Regards,
William Dillard, II
Chairman of the Board
and Chief Executive Officer
Alex Dillard
President
1
Welcome to Dillard's.
Across the country, thousands of
dedicated Dillard's associates are
diligently working to establish
solid customer relationships. It is
our number one priority. We are
listening to our customers and
responding to their preferences
location by location – giving them
an ownership of participation in
their hometown Dillard’s store.
Millions of loyal shoppers, from
Palm Beach, Florida to Stockton,
California continue to dictate
new trends in our efforts to bring
America's shoppers the best we can
offer. We believe our private brand
merchandise is an excellent way to
respond to our customers’ increas-
ing desire for fine quality mer-
chandise at great prices.
During 2002, we increased
storewide penetration of our
private brand merchandise
to 18.2% of sales from
15.4% in 2001. We will
continue to replace
underperforming brands
with private brands.
Antonio Melani •Bechamel•Cabern
Cypress Links • Daniel Cremieux • G
Hart • Katherine Kelly • Michelle D
• Preston & York • Roundtree & Yo
Starting Out • The Main Ingredien
Cabernet • Cézanne • Clarity • Class
Cremieux • Gallery Design • Gianni
Michelle D • Murano • Nobilty • No
Roundtree & Yorke • Roundtree &
Main Ingredients • Westbound • An
Clarity • Class Club • Copper Key •C
Gianni Bini • Go Softly • Judith Ha
• Noble Excellence • Oak Creek • P
Yorke Outfitters • Sole Choice •Star
Antonio Melani •Bechamel•Cabern
Cypress Links • Daniel Cremieux • G
Hart • Katherine Kelly • Michelle D
• Preston & York • Roundtree & Yo
Starting Out • The Main Ingredien
Cabernet • Cézanne • Clarity • Class
Cremieux • Gallery Design • Gianni
Dillard’s continues to develop our
own exciting new shoe lines under
such exclusive names as Antonio
Melani and Gianni Bini.
2
Dillard’s is working to be the
hometown choice for fashion with
our Copper Key and Class Club
Baby children’s apparel and Noble
Excellence designs for the home.
Relaxation comes
home with our own
Noble Excellence home
fashions and fine
fragrances from our
cosmetic departments.
net • Cézanne • Clarity • Class Club • Copper Key •
Gallery Design • Gianni Bini • Go Softly • Judith
D • Murano • Nobilty • Noble Excellence • Oak Creek
orke • Roundtree & Yorke Outfitters • Sole Choice •
nts • Westbound • Antonio Melani •Bechamel•
Club • Copper Key •Cypress Links • Daniel
i Bini • Go Softly • Judith Hart • Katherine Kelly •
oble Excellence • Oak Creek • Preston & York •
Yorke Outfitters • Sole Choice •Starting Out • The
ntonio Melani •Bechamel•Cabernet • Cézanne •
Cypress Links • Daniel Cremieux • Gallery Design •
art • Katherine Kelly • Michelle D • Murano • Nobilty
Preston & York • Roundtree & Yorke • Roundtree &
rting Out • The Main Ingredients • Westbound •
net • Cézanne • Clarity • Class Club • Copper Key •
Gallery Design • Gianni Bini • Go Softly • Judith
D • Murano • Nobilty • Noble Excellence • Oak Creek
orke • Roundtree & Yorke, Outfitters • Sole Choice •
nts • Westbound • Antonio Melani •Bechamel•
Club • Copper Key •Cypress Links • Daniel
i Bini • Go Softly • Judith Hart • Katherine Kelly •
At Dillard’s, our male
shoppers can count on
finding their favorite
basic shirt style from
Roundtree & Yorke (left)
in the most current colors.
Daniel Cremieux (below),
available exclusively in
the United States at
Dillard’s, offers men
European style in contem-
porary classical lines with
impeccable fabric quality.
3
C O R P O R A T E O R G A N I Z A T I O N
William Dillard, II
Chief Executive Officer
Drue Corbusier
Executive Vice President
Alex Dillard
President
James I. Freeman
Chief Financial Officer
Mike Dillard
Executive Vice President
Paul J. Schroeder, Jr.
General Counsel
V I C E P R E S I D E N T S
W.R. Appleby, II
H. Gene Baker
Donald A. Bogart
Tom Bolin
Michael Bowen
Joseph P. Brennan
Kent Burnett
Larry Cailteux
Les Chandler
James W. Cherry, Jr.
Gene D. Heil
Neil Christensen
William T. Dillard, III William H. Hite
Gianni Duarte
Karl G. Ederer
Christine A. Ferrari
Ann Franzke
John Grahek, Jr.
Walter C. Grammer
Randal L. Hankins
Marva Harrell
William L. Holder, Jr.
Dan W. Jensen
Mark Killingsworth
Colleen Kirk
Gaston Lemoine
Denise Mahaffy
Paul E. McLynch
Michael S. McNiff
Jeff Menn
Anthony Menzie
Richard Moore
Cindy Myers-Ray
Steven K. Nelson
Tom C. Patterson
Michael E. Price
Grizelda Reeder
Robin Sanderford
Sidney A. Sanders
Linda Sholtis-Tucker
Terry Smith
Burt Squires
Alan Steinberg
Sandra Steinberg
James D. Stockman
Ralph Stuart
Tom Sullivan
Julie A. Taylor
David Terry
Charles O. Unfried
Phillip R. Watts
Kay White
Keith White
Ronald Wiggins
Kent Wiley
Richard B. Willey
Gary Wirth
Sherrill E. Wise
M E R C H A N D I S I N G D I V I S I O N M A N A G E M E N T
Ft. Worth Division
Little Rock Division
Phoenix Division
St. Louis Division
Tampa Division
Drue Corbusier
President
Jeff Menn
Vice President,
Merchandising
Anthony Menzie
Vice President,
Merchandising
Lloyd Tidmore
Director of
Sales Promotion
Mike Dillard
President
David Terry
Vice President,
Merchandising
Keith White
Vice President,
Merchandising
Ken Eaton
Director of
Sales Promotion
Kent Burnett
President
Tom Sullivan
Vice President,
Merchandising
Julie A. Taylor
Vice President,
Merchandising
James Benson
Director of
Sales Promotion
Joseph P. Brennan
President
Mark Killingsworth
Vice President,
Merchandising
Ronald Wiggins
Vice President,
Merchandising
Mark Gastman
Director of
Sales Promotion
Robin Sanderford
President
Sandra Steinberg
Vice President,
Merchandising
James D. Stockman
Vice President,
Merchandising
Louise Platt
Director of
Sales Promotion
B O A R D O F D I R E C T O R S
Calvin N. Clyde, Jr.
Chairman of the Board of
T. B. Butler Publishing Co., Inc.
Tyler, Texas
Robert C. Connor
Investments
Drue Corbusier
Executive Vice President of
Dillard’s, Inc.
Will D. Davis
Partner with Heath, Davis,
& McCalla, Attorneys
Austin, Texas
4
Alex Dillard
President
Dillard’s, Inc.
Mike Dillard
Executive Vice President of
Dillard’s, Inc.
William Dillard, II
Chairman of the Board and
Chief Executive Officer of
Dillard’s, Inc.
James I. Freeman
Senior Vice President and
Chief Financial Officer of
Dillard’s, Inc.
John Paul Hammerschmidt
Retired Member of Congress
Harrison, Arkansas
John H. Johnson
Chairman and Chief Executive
Officer of Johnson Publishing
Company, Inc.
Chicago, Illinois
Bob L. Martin
Independent Business Executive
Former President and
Chief Executive Officer Wal-Mart
International
Rogers, Arkansas
Warren A. Stephens
President and Chief Executive
Officer of Stephens Group and
Stephens, Inc.
Little Rock, Arkansas
William H. Sutton
Managing Partner of Friday,
Eldredge and Clark, Attorneys
Little Rock, Arkansas
J.C. Watts, Jr.
Former Member of Congress and
Chairman of J.C. Watts Companies
Arlington, Virginia
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 2003
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES
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
(State or other jurisdiction
of incorporation or organization)
71-0388071
(IRS Employer
Identification Number)
1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201
(Address of principal executive office)
(Zip Code)
(501) 376-5200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Class A Common Stock
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by checkmark 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. Yes x No_
Indicated by checkmark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule
12b-2). Yes X No _
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of February
28, 2003: $1,095,014,555.
Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of
February 28, 2003:
CLASS A COMMON STOCK, $.01 par value 80,746,732
CLASS B COMMON STOCK, $.01 par value 4,010,929
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held May 17, 2003 (the
"Proxy Statement") are incorporated by reference into Part III.
2
PART I
ITEM 1. BUSINESS.
General
Dillard's, Inc. (the "Company" or "Registrant") is an outgrowth of a department store originally founded in
1938 by William Dillard. The Company was incorporated in Delaware in 1964. The Company operates
retail department stores located primarily in the Southwest, Southeast and Midwest.
We conduct our retail merchandise business under highly competitive conditions. Although we are a large
regional department store, we have numerous competitors at the national and local level that compete with
our individual stores, including specialty, off-price, discount, internet, and mail-order retailers.
Competition is characterized by many factors including location, reputation, assortment, advertising, price,
quality, service and credit availability. We believe that our stores are in a strong competitive position with
regard to each of these factors. The Company's earnings depend to a significant extent on the results of
operations for the last quarter of its fiscal year. Due to holiday buying patterns, sales for that period
average approximately one-third of annual sales.
For additional information with respect to the Registrant's business, reference is made to information
contained under the headings “Net sales,” “Net income,” “Total assets” and “Number of employees-
average,” under item 6 hereof.
The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K are available free of charge on Dillard’s, Inc. Web site:
www.dillards.com
The information contained on the Company’s web site is not incorporated by reference into this Form
10-K and should not be considered to be a part of this Form 10-K.
Executive Officers of the Registrant
The following table lists the names and ages of all Executive Officers of the registrant, the nature of any
family relationship between them and all positions and offices with the Registrant presently held by each
person named. All of the Executive Officers listed below have been in managerial positions with the
registrant for more than five years except for Robin Sanderford, Paul J. Schroeder, Jr. and Charles Unfried.
Mr. Sanderford has been employed by the Registrant as Vice President since August 1998. Prior to
August 1998 he was employed as President of the Southeast Division of Mercantile Stores Company, Inc.
("Mercantile") (1995-1998) and as Vice President and Director of Real Estate and Long Range Planning
for Mercantile (1993-1995). Mr. Schroeder has been employed by the Registrant as Vice President since
January 1998. Prior to 1998 he was a partner with the St. Louis based, international law firm of Bryan
Cave, LLP, specializing in labor and employment law. Mr. Unfried has been employed by the Registrant
since August 1998. Prior to August 1998, he was President of Mercantile Credit Services and Mercantile
Stores National Bank, both subsidiaries of Mercantile.
3
The following is a listing of executive officers of the Company, their age, position and office, and family
relationship, if any.
Name
Age
Position & Office
Family Relationship
William Dillard, II
58 Director; Chief Executive Officer
None
Alex Dillard
53 Director; President
Brother of William Dillard, II
Mike Dillard
51 Director; Executive Vice President
Brother of William Dillard, II
H. Gene Baker
64 Vice President
Joseph P. Brennan
58 Vice President
G. Kent Burnett
58 Vice President
None
None
None
Drue Corbusier
56 Director; Executive Vice President
Sister of William Dillard, II
James I. Freeman
53 Director; Senior Vice President; Chief
None
Financial Officer
Randal L. Hankins
52 Vice President
Gaston Lemoine
59 Vice President
Steven K. Nelson
45 Vice President
Robin Sanderford
56 Vice President
Paul J. Schroeder
54 Vice President
Burt Squires
53 Vice President
Charles Unfried
56 Vice President
ITEM 2. PROPERTIES.
None
None
None
None
None
None
None
All of the Registrant's stores are owned or leased from a wholly owned subsidiary or from third parties.
The Registrant's third-party store leases typically provide for rental payments based on a percentage of net
sales with a guaranteed minimum annual rent. Lease terms between the Registrant and its wholly owned
subsidiary vary. In general, the Company pays the cost of insurance, maintenance and any increase in real
estate taxes related to the leases. At February 1, 2003 there were 333 stores in operation with gross square
footage approximating 56.7 million feet. The Company owned or leased, from a wholly owned subsidiary,
a total of 258 stores with 43.8 million square feet. The Company leased 75 stores from third parties, which
totaled 12.9 million square feet. Additional information is contained in Notes 1, 2, 12 and 13 of “Notes to
Consolidated Financial Statements,” in Item 8 hereof and reference is made to information contained under
the heading “Number of stores,” under item 6 hereof.
4
ITEM 3. LEGAL PROCEEDINGS.
From time to time, we are involved in litigation relating to claims arising out of our operations in the
normal course of business. Such issues may relate to litigation with customers, employment related
lawsuits, class action lawsuits, purported class action lawsuits and actions brought by governmental
authorities. As of March 28, 2003, we are not a party to any legal proceedings that, individually or in the
aggregate, are reasonably expected to have a material adverse effect on our business, results of operations,
financial condition or cash flows. However, the results of these matters cannot be predicted with certainty,
and an unfavorable resolution of one or more of these matters could have a material adverse effect on our
business, results of operations, financial condition or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth quarter of the year ended February
1, 2003.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company’s common stock trades on the New York Stock Exchange under the Ticker Symbol “DDS”.
Stock Prices and Dividends by Quarter
2002
High Low
$25.87 $12.94
30.47 21.70
27.98 15.59
19.32 15.00
2001
High Low
$22.00 $15.74
19.52 14.27
19.05 12.63
17.74 13.38
Dividends
per Share
2001
2002
$0.04 $0.04
0.04
0.04
0.04
0.04
0.04
0.04
First
Second
Third
Fourth
Equity Compensation Plan Information
Number of securities to
be issued upon exercise
of outstanding options
(a)
Equity compensation plans
approved by shareholders
Total
9,669,755
9,669,755
Weighted average
exercise prices of
outstanding options
(b)
$24.72
$24.72
Number of securities
available for future
issuance under equity
compensation
plans(excluding
securities reflected in
column (a))
(c)
8,096,500
8,096,500
As of February 28, 2003, there were 4,906 record holders of the Company's Class A Common Stock and 8
record holders of the Company's Class B Common Stock.
5
ITEM 6. SELECTED FINANCIAL DATA.
Table of Selected Financial Data
(In thousands of dollars, except per share data)
Net sales
Percent increase
Cost of sales
Percent of sales
Interest and debt expense
Income before taxes
Income taxes
Income before extraordinary item and
accounting change
Extraordinary gain (loss), net of taxes
Cumulative effect of accounting change
Net income (loss)
Pro forma inventory change
Pro forma net income (loss)
Per Diluted Common Share
Income before extraordinary item and
accounting change
Extraordinary gain (loss)
Cumulative effect of accounting change
Net income (loss)
Pro forma inventory change
Pro forma net income (loss)
Dividends
Book value
Average number of shares
outstanding
Accounts receivable
Merchandise inventories
Property and equipment
Total assets
Long-term debt
Capitalized lease obligations
Deferred income taxes
Guaranteed Preferred Beneficial Interests
in the Company's Subordinated Debentures
Stockholders' equity
Number of employees - average
Gross square footage (in thousands)
Number of stores
Opened
Acquired
Closed
Total - end of year
* 53 Weeks
2002
$7,910,996
-3%
5,254,134
66.4%
182,940
211,100
74,800
2001
$8,154,911
-5%
5,507,702
67.5%
201,736
111,571
45,785
2000*
$8,566,560
-1%
5,802,147
67.8%
239,280
140,860
44,030
1999
$8,676,711
12%
5,762,431
66.4%
249,514
283,949
120,220
1998
$7,762,778
17%
5,184,132
66.8%
196,680
219,084
83,825
136,300
(4,374)
(530,331) (1)
(398,405)
-
(398,405)
65,786
6,012
-
71,798
-
71,798
96,830
27,311
(129,991) (2)
(5,850)
-
(5,850)
163,729
-
-
163,729
(8,963) (3)
154,766
135,259
-
-
135,259
(15,106)
120,153
0.78
0.07
-
0.85
-
0.85
0.16
31.81
1.06
0.30
(1.42)
(0.06)
-
(0.06)
0.16
30.94
1.55
-
-
1.55
(0.08)
1.47
0.16
28.68
1.26
-
-
1.26
(0.14)
1.12
0.16
26.57
84,486,747
1,112,325
1,561,863
3,455,715
7,074,559
2,124,577
20,459
643,965
91,199,184
1,011,481
1,616,186
3,508,331
7,199,309
2,374,124
22,453
638,648
105,617,503
1,137,458
2,047,830
3,619,191
7,918,204
2,894,616
24,659
702,467
107,636,260
1,230,059
2,157,010
3,684,629
8,172,001
3,002,595
27,000
681,061
531,579
2,668,397
57,257
56,800
531,579
2,629,820
58,796
56,500
531,579
2,832,834
61,824
57,000
531,579
2,841,522
54,921
55,000
6
4
9
338
4
0
9
337
8
0
1
342
5
65
5
335
1.60
(0.05)
(6.22)
(4.67)
-
(4.67)
0.16
26.71
85,316,200
1,387,835
1,594,308
3,370,502
6,675,932
2,193,006
18,600
645,020
531,579
2,264,196
55,208
56,700
4
0
9
333
6
(1) During fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill
Intangible Assets”. See Management’s Discussion and Analysis of Financial Condition and
Other
and
Results of Operations.
(2) During fiscal 2000, the Company changed its method of accounting for inventories under the retail method.
See
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(3) Pro forma effect of applying the cumulative effect of accounting change for inventories in fiscal 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
Net Sales. Net sales include sales of comparable stores, non-comparable stores and lease income on leased
departments. 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. 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 in the current fiscal year and sales in the previous fiscal year for stores that were closed
in the current fiscal year.
Service Charges, Interest and Other Income. Service Charges, Interest and Other Income include interest and
service charges, net of service charge write-offs, related to the Company’s proprietary credit card sales. Other
income relates to joint ventures accounted for by the equity method, rental income, shipping and handling fees and
gains (losses) on the sale of property and equipment.
Cost of Sales. Cost of sales includes the cost of merchandise sold, bank card fees, freight to the distribution centers,
employee and promotional discounts and direct payroll for salon personnel.
Advertising, selling, administrative and general expenses. Advertising, selling, administrative and general
expenses include buying and occupancy, selling, distribution, warehousing, store management and corporate
expenses, including payroll and employee benefits, insurance, employment taxes, advertising, management
information systems, legal, bad debt costs and other corporate level expenses. Buying expenses consist of payroll,
employee benefits and travel for design, buying and merchandising personnel.
Depreciation and amortization. Depreciation and amortization expenses include depreciation on property and
equipment and amortization of goodwill prior to February 3, 2002.
Rentals. Rentals include expenses for store leases and data processing equipment rentals.
Interest and debt expense. Interest and debt expense includes interest relating to the Company’s unsecured notes,
mortgage notes, credit card receivables financing, the Guaranteed Beneficial Interests in the Company’s subordinated
debentures, amortization of financing intangibles and interest on capital lease obligations.
Asset impairment and store closing charges. Asset impairment and store closing charges consist of write downs to
fair value of under-performing properties including property and equipment 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.
Extraordinary gain (loss). Extraordinary gain (loss) consist of gains (losses) on the repurchase of outstanding
unsecured notes prior to their related maturity dates net of the write-off of unamortized deferred financing costs
relating thereto and the retirement of Reset Put Securities (“REPS”) prior to their maturity dates.
Cumulative effect of accounting change. Effective February 3, 2002, the Company adopted Statement of Financial
Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an “impairment only” approach. Under SFAS No. 142,
goodwill is no longer amortized but reviewed for impairment annually or more frequently if certain indicators arise.
The Company tested goodwill for impairment as of the adoption date using the two-step process prescribed in SFAS
No. 142. The Company identified its reporting units under SFAS No. 142 at the store unit level. The fair value of
7
these reporting units was estimated using the expected discounted future cash flows and market values of related
businesses, where appropriate. The cumulative effect of the accounting change as of February 3, 2002 was to
decrease net income for fiscal year 2002 by $530 million or $6.22 per diluted share.
Effective January 30, 2000, the Company changed its method of accounting for inventories under the retail inventory
method. The change principally relates to the Company’s accounting for vendor markdown allowances, from
recording these allowances directly as a reduction of cost of sales to recording such allowances as a reduction of
inventoriable product cost. The cumulative effect of the accounting change as of January 30, 2000 was to decrease
net income for fiscal year 2000 by $130 million, net of tax, or $1.42 per share. The effect of adopting the new
method was to increase both income before extraordinary item and net income for fiscal 2000 in the amount of $30
million ($.33 per share).
Critical Accounting Policies and Estimates
The Company’s accounting policies are more fully described in Note 1of Notes to Consolidated Financial Statements.
As disclosed in Note 1 of Notes to Consolidated Financial Statements, the preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions about future events that affect the amounts reported in the
consolidated financial statements and accompanying notes. Since future events and their effects cannot be determined
with absolute certainty, actual results will differ from those estimates. The Company evaluates its estimates and
judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the circumstances. Actual results will differ from these under
different assumptions or conditions.
Management of the Company believes the following critical accounting policies, among others, affect its more
significant judgments and estimates used in preparation of the Consolidated Financial Statements.
Merchandise inventory. Approximately 97% of the inventories are valued at lower of cost or market using the retail
last-in, first-out (“LIFO”) inventory method. Under the retail inventory method (“RIM”), the valuation of inventories
at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of
inventories. RIM is an averaging method that has been widely used in the retail industry due to its practicality.
Additionally, it is recognized that the use of RIM will result in valuing inventories at the lower of cost or market if
markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are
certain significant management judgments including, among others, merchandise markon, markups, and markdowns,
which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. Management
believes that the Company’s RIM provides an inventory valuation which results in a carrying value at the lower of
cost or market. The remaining 3% of the inventories are valued at lower of cost or market using the specific identified
cost method.
Allowance for doubtful accounts. The accounts receivable from the Company’s proprietary credit card sales are
subject to credit losses. The Company maintains allowances for uncollectible accounts for estimated losses resulting
from the inability of its customers to make required payments. The adequacy of the allowance is based on historical
experience with similar customers including bankruptcy and write-off trends, current aging information and year-end
balances. Management believes that the allowance for uncollectible accounts is adequate to cover anticipated losses
in the reported credit card receivable portfolio under current conditions; however, significant deterioration in any of
the above-noted factors or in the overall health of the economy could materially change these expectations.
Vendor Allowances. The Company receives concessions from its vendors through a variety of programs and
arrangements, including co-operative advertising and markdown reimbursement programs. Co-operative
advertising allowances are reported as a reduction of advertising expense in the period in which the advertising
occurred. All other vendor allowances are recognized as a reduction of cost purchases. Accordingly, a reduction or
increase in vendor concessions has an inverse impact on cost of sales and/or selling and administrative expenses.
The FASB’s EITF Issue 02-16, “Accounting By A Customer (Including A Reseller) For Cash Consideration
Received From A Vendor” addressed the accounting treatment for vendor allowances. The Company has not
completed the process of evaluating the impact of EITF Issue 02-16; however, the Company does not expect that its
adoption in 2003 will have a material impact on its financial position or results of operations.
Self insurance accruals. The Company purchases third-party insurance for workers’ compensation, automobile,
product and general liability claims that exceed a certain level. However, the Company is responsible for the payment
of claims under these insured limits. In estimating the obligation associated with incurred losses, the Company
utilizes loss development factors. These development factors utilize historical data to project the future development
of incurred losses. Loss estimates are adjusted based upon actual claims settlements and reported claims.
8
Long-lived assets excluding goodwill. In the evaluation of the fair value and future benefits of long-lived assets,
the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived
assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced
to its fair value. Various factors including future sales growth and profit margins are included in this analysis. To
the extent these future projections or our strategies change, the conclusion regarding impairment may differ from
the current estimates.
Goodwill. The Company evaluates goodwill whenever events and changes in circumstances suggest that the carrying
amount may not be recoverable from its estimated future cash flows. To the extent these future projections or our
strategies change, the conclusion regarding impairment may differ from the current estimates.
Stock Options. The Compensation Committee of the Board of Directors periodically grants employees of the
Company stock options. As allowed under GAAP, the Company does not record any compensation expense on the
income statement with respect to options granted to employees. Alternatively, under GAAP, the Company could
have recorded a compensation expense based on the fair value of employee stock options. As described in Note 11
in the Consolidated Financial Statements, had the Company recorded a fair value-based compensation expense for
stock options, diluted earnings per share would have been $0.11, $0.06, and $0.08 less than what was reported for
fiscal 2002, 2001 and 2000, respectively.
Income Taxes. The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for
Income Taxes,” which requires that deferred tax assets and liabilities be recognized using enacted rates for the
effect of temporary differences between the book and tax bases of recorded assets and liabilities in the multiple
taxing jurisdictions within which the Company operates. Future tax law changes may require adjustment to the
Company’s existing tax assets and liabilities.
RESULTS OF OPERATIONS
Sales
Sales decreased 3% for the 52-week period ended February 1, 2003 compared to the 52-week period ended February
2, 2002 on both a total and comparable store basis. The sales decrease for 2002 is due to lower levels of comparable
store sales particularly in the latter half of fiscal 2002 due to a notably weak retail environment. Sales declined in all
merchandising categories with the largest declines in men’s clothing and accessories and home, which decreased 6%
and 4%, respectively. The Company continues to emphasize its private brand merchandise in order to build
penetration and recognition of those private brands. During the fiscal years 2002, 2001 and 2000, sales of private
brand merchandise as a percent of total sales were 18.2%, 15.4% and 13.4%, respectively.
Sales for the 52-week period ended February 2, 2002 decreased 5% from the 53-week period ended February 3, 2001
on both a total and comparable store basis. Sales for the comparable 52-week period in 2001 declined in all
merchandise categories with the exception of cosmetics, which were unchanged. The weakest performing
merchandise categories for that period were men’s clothing and accessories and home, which each decreased 6%.
The sales mix by category as a percent of total sales for the past three years has been:
Cosmetics
Women’ s and Juniors’ Clothing
Children’s Clothing
Men's Clothing and Accessories
Shoes, Accessories and Lingerie
Home
Leased and Other
Total
2002
13.8%
30.8
6.9
18.3
20.7
8.9
.6
100.0
2001
13.7%
30.7
6.8
18.9
20.4
8.9
.6
100.0
2000
13.3%
30.6
6.7
19.5
20.0
9.2
.7
100.0
Cost of Sales
Cost of sales as a percentage of sales decreased to 66.4% during 2002 compared with 67.5% for 2001. The Company
experienced lower than expected consumer demand in its fourth quarter of 2002 necessitating increased promotional
efforts by the Company to clear slower moving merchandise. Significantly improved levels of markups offset this
promotional activity during 2002 compared with 2001. All product categories had improved gross margins during
2002 except cosmetics, which was unchanged from 2001. The Company has continued to build penetration and
recognition of its private brand merchandise as a means for increased control over merchandise mix and better gross
margin performance with the goal of replacing under-performing branded vendors with Dillard’s private brands.
9
Inventory in comparable stores at February 1, 2003 increased 2% comparing to inventory in comparable stores at
February 2, 2002. This increase was due to lower than expected sales in the fourth quarter of fiscal 2002.
Cost of sales as a percentage of sales decreased to 67.5% during 2001 compared with 67.8% for 2000. This decrease
is due to a higher level of markups and lower shrinkage levels, partially offset by slightly higher level of markdowns
during 2001 compared with 2000. The gross margin improvement is also attributable to a greater percentage of sales
in categories with higher gross margins such as cosmetics and shoes, accessories and lingerie. Comparable store
inventories for 2001 decreased by 5% from 2000 levels as the Company continued to focus on maintaining
appropriate inventory levels.
Effective January 30, 2000, the Company changed its method of accounting for inventories under the retail inventory
method. The change principally related to the Company’s accounting for vendor markdown allowances, from
recording these allowances directly as a reduction of cost of sales to recording such allowances as a reduction of
inventoriable product cost. Historically, the vendor/retailer arrangement provided for the Company to receive
allowances from vendors when gross margin rates fell below stipulated levels. During fiscal 2000, the Company and
certain vendors revised the vendor/retailer arrangement whereby the vendors were providing up-front allowances in
the form of a fixed percentage discount off of purchases. The Company viewed the changes in the vendor
arrangements as a new purchasing model that will enhance its merchandising decisions. Since the vendor allowances
were directly related to purchases, the Company accounted for such fixed discount arrangements as a reduction of
inventoriable product cost. As the Company moves toward the new purchasing model, it plans to continue to
negotiate up-front discounts with its vendors. As such, the Company no longer views vendor markdown allowances
as direct reductions of markdowns, but rather as overall vendor discounts on inventory purchases, along with the up-
front product discounts noted above. Accordingly, the Company has changed its accounting method for markdown
allowances to record such allowances as a reduction of inventoriable product cost. In addition, and as a result of this
change, the Company has also changed its method of accounting for certain retail price adjustments, from recording
such price adjustments as a reduction of initial markup to recording them as markdowns under the retail inventory
method. The Company believes that its change in accounting method will result in improved merchandising and
buying decisions. The cumulative effect of the accounting change as of January 30, 2000 was to decrease net income
for fiscal year 2000 by $130 million, net of tax, or $1.42 per share. The effect of adopting the new method was to
increase both income before extraordinary item and net income for fiscal 2000 in the amount of $30 million ($.33 per
share).
Expenses
Expenses as a percentage of sales for the past three years were as follows:
Advertising, selling, administrative and
general expenses
Depreciation and amortization
Rentals
Interest and debt expense
2002
2001
2000
27.3%
3.8
.9
2.3
26.9%
3.8
.9
2.5
25.9%
3.5
.9
2.8
Advertising, selling, administrative and general (“SG&A“) expenses increased to 27.3% of sales for fiscal 2002
compared to 26.9% for fiscal 2001. The percentage increase is primarily due to a lack of sales leverage as SG&A
expenses decreased $27.4 million in 2002 compared to 2001. On a dollar basis significant decreases were noted in
payroll, utilities and supplies partially offset by a $23.8 million increase in bad debt expenses, which includes an
increase in the allowance for doubtful accounts of $12.4 million during 2002 compared to 2001. Depreciation and
amortization as a percentage of sales remained flat during fiscal 2002 principally due to lower amortization expenses
during 2002 compared to 2001 as a result of the non-amortization provisions of SFAS No. 142 combined with a lack
of sales leverage from the 3% decline in comparable store sales during the year. Interest and debt expense as a
percentage of sales declined during fiscal 2002 as a result of the Company’s continuing focus on reducing its out-
standing debt levels and the reduction in variable short-term interest rates. The Company retired $340 million in long-
term debt and issued $40 million in new mortgage loans and $100 million in additional receivable financing during
2002.
SG&A expenses increased to 26.9% of sales for fiscal 2001 compared to 25.9% for fiscal 2000. This increase is due
principally to higher selling payroll, utilities, insurance and bad debt costs combined with a lack of sales leverage.
Depreciation and amortization as a percentage of sales increased during fiscal 2001 principally due to the 3% decline
in comparable store sales during the year and capital expenditures incurred to upgrade the Company’s store selling,
service and support systems. Interest and debt expense as a percentage of sales declined during fiscal 2001 as a result
of the Company’s continuing focus on reducing its outstanding debt levels and the reduction in variable short-term
interest rates. The Company retired $411 million in long-term debt and issued $50 million in new debt during 2001.
10
The Company has reclassified interest expense related to its receivable financing from other revenue to interest
expense on its consolidated statements of operations for all periods presented. The Company reclassified $11.3
million and $15.0 million for fiscal 2001 and 2000, respectively.
During fiscal 2002, the Company recorded a pre-tax charge of $52.2 million for asset impairment and store closing
costs. The charge includes a write-down to fair value for certain under-performing properties in the amount of $55.8
million and exit costs to close four such properties in the amount of $4.4 million, all of which will be closed during
fiscal 2003, partially offset by forgiveness of a lease obligation of $8.0 million in connection with the sale of a closed
owned store in Memphis, Tennessee in satisfaction of that obligation. The Company does not expect to incur
significant additional exit costs upon the closing of these properties during fiscal 2003. During fiscal 2001, the
Company recorded a pre-tax charge of $3.8 million for asset impairment and store closing costs. The charge includes
a write-down to fair value for one under-performing store in the amount of $1.8 million and lease commitments of $2
million. During fiscal 2000, the Company recorded a pre-tax charge of $51 million for asset impairment and store
closing costs. The charge includes a write-down to fair value for certain under-performing properties in the amount of
$37 million and exit costs to close four such properties in the amount of $14 million, all of which were closed during
fiscal 2001.
Service Charges, Interest and Other Income
Service Charges, Interest and Other Income, as a percentage of net sales, was 4.1%, 3.0% and 3.1% for fiscal 2002,
2001 and 2000, respectively. Included in other income in fiscal 2002 is a $64.3 million gain pertaining to the
Company’s sale of its interest in the FlatIron Crossing joint venture located in Broomfield, Colorado. Service charge
income was $226 million in 2002 compared to $210 million in 2001. This increase is due to a $70 million increase in
the average amount of outstanding accounts receivable during 2002 compared to 2001. Service charge income was
$210 million in 2001 compared to $219 million in 2000. The decrease is due to the 53-week period in 2000 compared
to the 52-week period in 2001 and to a $29 million decrease in the average amount of outstanding accounts
receivable during 2001 compared to 2000. Sales on the Company’s proprietary credit cards as a percent of total sales
were 28.2%, 28.8% and 27.7% for fiscal 2002, 2001 and 2000, respectively. Earnings from joint ventures was $19.5
million, $11.6 million and $8.2 million for fiscal 2002, 2001 and 2000, respectively. Earnings from FlatIron
Crossing for fiscal 2002 were $13.6 million. Due to the Company’s sale of FlatIron Crossing in fiscal 2002, future
earnings from joint ventures are expected to be significantly reduced from fiscal 2002 levels.
Income Taxes
The Company’s actual federal and state income tax rate (exclusive of the effect of nondeductible goodwill
amortization) was 36% in fiscal 2002, 2001 and 2000. The Company’s actual federal and state income tax rate was
reduced from 37% in fiscal 1999 to 36% in fiscal 2000, as a result of lower effective combined income tax rates. The
effect of these reduced rates on the Company’s deferred income taxes was to reduce the income tax provision by $16
million in fiscal 2000.
Extraordinary Item
The 2002 extraordinary loss of $4.4 million (net of income tax benefit of $2.5 million) and the 2001 and 2000
extraordinary gains of $6 million and $27 million (net of taxes of $3.4 million and $15.4 million), respectively,
consist of gains (losses) on the retirement of Reset Put Securities (“REPS”) prior to their maturity dates and the
repurchase of outstanding unsecured notes prior to their related maturity dates net of the write-off of unamortized
deferred financing costs relating thereto.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operations were $357 million for 2002 and were adequate to fund the Company’s operations for
the year. Cash flows from operations declined from 2001 levels due primarily to a $102 million decrease in accounts
payable and accrued expenses in the current year compared to a $193 million increase in accounts payable and
accrued expenses in the prior year and an increase in inventories in the current year compared to a decrease in the
prior year. On a comparable stores basis, merchandise inventory increased 2% while the prior year comparable store
inventory decreased 5%. Accounts receivable were flat in the current year compared to a $117 million increase in the
prior year.
During 2002, the Company reduced its net level of outstanding debt and capital leases by $200 million through
scheduled debt maturities and repurchases of notes prior to their related maturity dates. Capital expenditures were
$233 million for 2002. During 2002, the Company opened four new stores, Randolph Mall in Asheboro, North
Carolina; Parkway Place in Huntsville, Alabama; Triangle Town Center in Raleigh, North Carolina and Prescott
Gateway in Prescott, Arizona and three replacement stores, Fashion Show Mall in Las Vegas, Nevada; Lynnhaven
Mall in Virginia Beach, Virginia and Gulf View Square Mall in Port Richey, Florida. These seven stores totaled
approximately 1.1 million square feet of retail space. In addition, the Company completed major expansions on five
11
stores totaling 434,000 square feet of retail space. The Company closed twelve store locations, including the three
replacement stores, during the year totaling approximately 1.5 million square feet of retail space. Capital
expenditures for 2003 are expected to be approximately $250 million. The Company plans to open five new stores in
fiscal 2003 totaling 773,000 square feet, net of replaced square footage.
The Company recorded a gain of $64.3 million and received proceeds of $68.3 million from the sale of its interest in
FlatIron Crossing, a regional mall in Broomfield, Colorado.
During the year ended February 1, 2003, the Company issued $40 million of variable rate mortgage notes due 2004.
The Company also closed on an additional $200 million in long-term receivable financing and paid off $100 million
in short-term receivable financing bringing the total receivable financing recorded in long-term debt to $400 million.
The Company repurchased $111.9 million of its outstanding unsecured notes prior to their related maturity dates.
The Company also retired the remaining $143 million of its 6.31% Reset Put Securities (“REPS”) due August 1, 2012
prior to their maturity dates. Interest rates on the repurchased securities ranged from 6.13% to 9.50%. Maturity dates
ranged from 2002 to 2028. In connection with these transactions, the Company recorded an extraordinary loss of
$4.4 million (net of income tax benefit of $2.5 million).
In May 2002, the Company amended its conduit financing agreement in a manner that prevented future transfers of
accounts receivable from qualifying as a sale and thus receiving off-balance-sheet treatment. As a result of this
decision, the Company records all financing through this facility on the balance sheet at February 1, 2003 of which
$400 million is classified in long-term debt. At February 2, 2002, the Company had $300 million of off-balance-
sheet financing associated with its securitizations.
Maturities of the Company’s long-term debt over the next five years are $139 million, $207 million, $297 million,
$298 million and $201 million, respectively. The Company may elect to retire $146 million of its 6.39% REPS due
August 1, 2013 in August 2003. The REPS reprice on August 1, 2003 at a rate equal to 5.503% plus the Company’s
trading spread to the ten year treasury note. If the Company elects to call the REPS, the Company will pay a
premium.
During fiscal 2002, the Company closed on a new $400 million revolving credit facility with Fleet Retail Finance,
Inc. (“Fleet”). Borrowings under the facility accrue interest at Fleet’s Base Rate or the Eurodollar Rate plus 1.75%.
The line of credit agreement is secured by inventory of certain Company stores. The agreement expires on May 9,
2005.
The Company was in compliance with all the covenants under the line of credit agreement during fiscal 2002 and at
February 1, 2003. No funds were borrowed under the revolving line of credit during fiscal 2002. At the end of fiscal
2002, the Company had an outstanding shelf registration statement for securities in the amount of $750 million.
In May 2000, the Company announced that the Board of Directors authorized the repurchase of up to $200 million of
its Class A Common Stock. During fiscal 2001, the Company repurchased approximately $22.3 million of Class A
Common Stock, representing 1.3 million shares at an average price of $17.15 per share. Approximately $75 million
in share repurchase authorization remained under this open-ended plan at February 1, 2003.
During fiscal 2003, the Company expects to finance its capital expenditures and its working capital requirements
including required debt repayments and stock repurchases, if any, from cash flows generated from operations. As part
of its overall funding strategy and for peak working capital requirements, the Company expects to obtain funds
through its credit card receivable financing facilities. The Company’s available receivable financing facilities provide
for up to $600 million of which none was outstanding at February 1, 2003. The receivable financing facilities mature
in fiscal 2003. Management expects the $600 million available through its receivable financing facilities to meet
peak borrowing demand. The peak borrowings incurred under the facilities were $465 million during 2002. The
Company expects a comparable level of borrowings during fiscal 2003. The Company intends to renew maturing
receivable financing facilities as they become due. Other than peak working capital requirements, management
believes that cash generated from operations will be sufficient to cover its reasonably foreseeable working capital,
capital expenditure, stock repurchase and debt service requirements. Depending on conditions in the capital markets
and other factors, the Company will from time to time consider the issuance of debt or other securities, or other
possible capital market transactions, the proceeds of which could be used to refinance current indebtedness or other
corporate purposes.
12
Contractual Obligations and Commercial Commitments
To facilitate an understanding of the Company’s contractual obligations and commercial commitments, the following
data is provided:
(in thousands of dollars)
Contractual obligations
Long-term debt
Guaranteed beneficial interest in
the Company’s subordinated
debentures
Receivable financing facility
Capital lease obligations
Operating leases
Total contractual cash
obligations
PAYMENTS DUE BY PERIOD
Total
Within 1 year
2-3 years
4-5 years
After 5 years
$1,931,820
$138,814
$303,716
$299,123
$1,190,167
531,579
400,000
20,456
324,968
-
-
1,730
59,299
-
200,000
3,269
92,276
-
200,000
2,839
68,070
531,579
-
12,618
105,323
$3,208,823
$199,843
$599,261
$570,032
$1,839,687
(in thousands of dollars)
Other commercial commitments
$400 million line of credit, none
outstanding
$600 million receivables
financing facility, none
outstanding
Standby letters of credit
Import letters of credit
Total commercial commitments
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
Total
Amounts
Committed Within 1 year
2-3 years
4-5 years
After 5 years
$-
$-
-
51,020
44,480
$95,500
-
51,020
44,480
$95,500
$-
-
-
-
$-
$-
-
-
-
$-
$-
-
-
-
$-
New Accounting Pronouncements
In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets.” SFAS No. 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets.
The statement provides a single accounting model for long-lived assets to be disposed of. New criteria must be met to
classify the asset as an asset held-for-sale. This statement also focuses on reporting the effects of a disposal of a
segment of a business. This statement is effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 as of February 3, 2002, and the adoption did not have a material impact on the Company’s
financial position or results of operations.
In April 2002, SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections” (“SFAS No. 145”) was issued. SFAS No. 145 rescinds SFAS No. 4 and 64,
which required gains and losses from extinguishments of debt to be classified as extraordinary items. SFAS No. 145
also amends SFAS No. 13, eliminating inconsistencies in certain sale-leaseback transactions. The provisions of
SFAS No. 145 are effective for fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of
debt that was classified as an extraordinary item in prior periods presented shall be reclassified to interest expense.
In June 2002, SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”)
was issued. SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 supercedes EITF
Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 is to be applied prospectively to exit
or disposal activities initiated after December 31, 2002. This pronouncement will not have a material effect on the
Company’s financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and
Disclosure” (“SFAS No. 148”) which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS
No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements
13
of SFAS No. 123 to require more frequent and prominent disclosures in financial statements of the effects of stock-
based compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15, 2002. The Company has adopted
the disclosure provisions of SFAS No. 148 as of December 31, 2002 and has not adopted the fair-value based method
of accounting.
Financial Accounting Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”) was issued in
November 2002. FIN 45 requires the recognition of a liability for certain guarantee obligations issued or modified
after December 31, 2002. FIN 45 also clarifies disclosure requirements to be made by a guarantor for certain
guarantees. The disclosure provisions of FIN 45 are effective for fiscal years ending after December 15, 2002. FIN 45
is not expected to have a material impact on the Company’s results of operations, financial position or cash flows,
and the Company has adopted the disclosure provisions of FIN 45 as of December 31, 2002.
FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of APB No. 50” (“FIN
46”) was issued in January 2003. FIN 46 requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of FIN 46 is not
expected to have an impact on the Company’s results of operations, financial position or cash flows.
Forward-Looking Information
Statements in the Management’s Discussion and Analysis of Financial Condition and Results of Operations include
certain “forward-looking statements,” including (without limitation) statements with respect to anticipated future
operating and financial performance, growth and acquisition opportunities, financing requirements and other similar
forecasts and statements of expectation. Words such as “expects,” “anticipates,” “plans” and “believes,” and
variations of these words and similar expressions, are intended to identify these forward-looking statements. The
Company cautions that forward-looking statements, as such term is defined in the Private Securities Litigation
Reform Act of 1995, contained in this report, the Company’s annual report on Form 10-K, or made by management
are based on estimates, projections, beliefs and assumptions of 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 (without limitation) include 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; the impact of competitive
pressures in the department store industry and other retail channels including specialty, off-price, discount, internet,
and mail-order retailers; trends in personal bankruptcies and charge-off trends in the credit card receivables portfolio;
changes in consumer spending patterns and debt levels; adequate and stable availability of materials and production
facilities from which the Company sources its merchandise; changes in operating expenses, including employee
wages, commission structures and related benefits; possible future acquisitions of store properties from other
department store operators and the continued availability of financing in amounts and at the terms necessary to
support the Company’s future business; potential disruption from terrorist activity and the effect on ongoing
consumer confidence; potential disruption of international trade and supply chain efficiencies; world conflict,
including the war with Iraq and the possible impact on consumer spending patterns and other economic and
demographic changes of similar or dissimilar nature.
14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The table below provides information about the Company’s obligations that are sensitive to changes in interest rates.
The table presents maturities of the Company’s long-term debt and Guaranteed Beneficial Interests in the Company’s
Subordinated Debentures along with the related weighted-average interest rates by expected maturity dates.
(IN THOUSANDS OF DOLLARS)
Expected Maturity Date
(fiscal year)
Long-term debt
Average interest rate
Guaranteed Beneficial
Interests in the Company’s
Subordinated Debentures
Average interest rate
2003
2004
2006
$138,814 $207,041 $296,675 $298,483 $200,640 $1,190,167 $2,331,820
6.3%
5.0%
Thereafter
Total
7.2%
6.5%
6.9%
3.4%
6.2%
2005
2007
Fair Value
$2,241,471
$-
-%
$-
-%
$-
-%
$-
-%
$-
-%
$531,579
4.7%
$531,579
4.7%
$473,179
During the year ended February 1, 2003, the Company repurchased $111.9 million of its outstanding unsecured notes
prior to their related maturity dates. Interest rates on the repurchased securities ranged from 6.1% to 9.5%. Maturity
dates ranged from 2002 to 2028. The Company also retired the remaining $143 million of its 6.31% Reset Put
Securities due August 1, 2012 prior to their maturity date.
The Company is exposed to market risk from changes in the interest rates on certain receivable financing facilities
and $331.6 million of the Guaranteed Beneficial Interests in the Company’s Subordinated Debentures. Outstanding
balances under these facilities bear interest at a variable rate based on a spread over LIBOR. Based on the amount
outstanding as of February 1, 2003, a 100 basis point change in interest rates would result in an approximate $5.3
million annual change to interest expense.
The $331.6 million of the Guaranteed Beneficial Interests in the Company’s Subordinated Debentures are subject to
mandatory remarketing on January 29, 2004 if a financing extension agreement has not been reached. Solicited bids
are subject to maximum applicable rates in effect immediately prior to the remarketing date.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company and notes thereto are included in this report
beginning on page F-1.
ITEM 9. CHANGES IN AND DISGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISRTANT.
A.
Directors of the Registrant
Information regarding directors of the Registrant is incorporated herein by reference to the
information on pages 5 through 8 under the heading “Nominees for Election as Directors” and
page 14 under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the
Proxy Statement.
B.
Executive Officers of the Registrant
Information regarding executive officers of the Registrant is incorporated herein by reference to
Item 1 of this report under the heading “Executive Officers of the Registrant.” Reference
additionally is made to the information under the heading “Section 16(a) Beneficial Ownership
Reporting Compliance” on page 14 in the Proxy Statement, which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation and compensation of directors is incorporated herein by
reference to the information beginning on page 9 under the heading “Compensation of Directors and
Executive Officers” and concluding on page 11 under the heading “Compensation of Directors” in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Information regarding security ownership of certain beneficial owners and management is incorporated
herein by reference to the information on page 4 under the heading “Principal Holders of Voting
Securities” and page 5 under the heading “Nominees for Election as Directors” and continuing through
footnote 12 on page 7 in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is incorporated herein by reference to
the information on page 14 under the heading “Certain Relationships and Transactions” in the Proxy
Statement.
ITEM 14. CONTROLS AND PROCEDURES.
The Company maintains “disclosure controls and procedures,” as such term is defined in Rules 13a-14 and 15d-
14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that
information required to be disclosed in the Company’s reports, pursuant to the Exchange Act, is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to the Company’s management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required
disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well-designed and operated, can provide only reasonable
assurances of achieving the desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company’s management, including William Dillard, II, Chairman of the Board of Directors and Chief
Executive Officer (principal executive officer) and James I. Freeman, Senior Vice-President and Chief
Financial Officer (principal financial officer), have evaluated the effectiveness of the Company’s “disclosure
controls and procedures,” within 90 days of the filing date of this Annual Report on Form 10-K. Based on their
16
evaluation, the principal executive officer and principal financial officer concluded that the Company’s
disclosure controls and procedures are effective. There were no significant changes in the Company’s internal
controls or in other factors that could significantly affect these controls subsequent to the date the controls were
evaluated.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a)(1) and (2) Financial Statements and Financial Statement Schedules
An “Index to Financial Statements” and “Financial Statement Schedules” has been filed as a part of this
Report beginning on page F-1 hereof.
(a)(3) Exhibits and Management Compensatory Plans
An “Exhibit Index” has been filed as a part of this Report beginning on page E-1 hereof and is herein
incorporated by reference.
(b)
Reports on Form 8-K filed during the fourth quarter
Certification dated December 17, 2002 of Chief Executive Officer and Chief Financial Officer Pursuant to
Securities and Exchange Commission’s June 27, 2002 Order.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: April 8, 2003
Dillard’s, Inc.
Registrant
/s/ James I. Freeman
James I. Freeman, Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacity and on
the date indicated.
/s/ Calvin N. Clyde, Jr.
Calvin N. Clyde, Jr.
Director
/s/ Robert C. Connor
Robert C. Connor
Director
/s/ Alex Dillard
Alex Dillard
President and Director
/s/ Drue Corbusier
Drue Corbusier
Executive Vice President and Director
/s/ Will D. Davis
Will D. Davis
Director
/s/ Mike Dillard
Mike Dillard
Executive Vice President
and Director
17
/s/ William Dillard II
William Dillard II
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ James I. Freeman
James I. Freeman
Senior Vice President and Chief
Financial Officer and Director
/s/ John Paul Hammerschmidt
John Paul Hammerschmidt
Director
/s/ John H. Johnson
John H. Johnson
Director
/s/ Warren A. Stephens
Warren A. Stephens
Director
/s/ J.C. Watts, Jr.
J.C. Watts, Jr.
Director
Date: April 8, 2003
/s/ William H. Sutton
William H. Sutton
Director
/s/ Bob L. Martin
Bob L. Martin
Director
18
CERTIFICATIONS
I, William Dillard, II, certify that:
1. I have reviewed this annual report on Form 10-K of Dillard’s, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial information included in this
annual report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date
within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
(c) presented in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to
the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely
affect the registrant’s ability to record, process, summarize and report financial data and have
identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal controls; and;
6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there
were significant changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 8, 2003
/s/ William Dillard, II
William Dillard, II
Chairman of the Board and Chief Executive Officer
19
I, James I. Freeman, certify that:
1. I have reviewed this annual report on Form 10-K of Dillard’s, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial information included in this
annual report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date
within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
(c) presented in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to
the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely
affect the registrant’s ability to record, process, summarize and report financial data and have
identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal controls; and;
6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there
were significant changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 8, 2003
/s/ James I. Freeman
James I. Freeman
Senior Vice-President and Chief Financial Officer
20
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
DILLARD'S, INC. AND SUBSIDIARIES
Year Ended February 1, 2003
Independent Auditors' Report
Consolidated Balance Sheets – February 1, 2003 and February 2, 2002.
Consolidated Statements of Operations - Fiscal years ended February 1,
2003, February 2, 2002 and February 3, 2001.
Consolidated Statements of Stockholders' Equity and Comprehensive Loss -
Fiscal years ended February 1, 2003, February 2, 2002 and February 3, 2001.
Consolidated Statements of Cash Flows - Fiscal years ended February 1,
2003, February 2, 2002 and February 3, 2001.
Notes to Consolidated Financial Statements - Fiscal years ended February 1,
2003, February 2, 2002 and February 3, 2001.
Schedule II - Valuation and Qualifying Accounts
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-23
F-1
Independent Auditors' Report
Independent Auditors’ Report
To the Stockholders and Board of Directors of Dillard’s, Inc.
Little Rock, Arkansas
We have audited the accompanying consolidated balance sheets of Dillard’s, Inc. and subsidiaries as of February 1, 2003 and February
2, 2002, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss and cash flows for each of
the three fiscal years in the period ended February 1, 2003. Our audits also included the financial statement schedule of Dillard's, Inc.
and subsidiaries, listed in item 15. These financial statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted within the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of
Dillard’s, Inc. and subsidiaries as of February 1, 2003 and February 2, 2002, and the results of their operations and their cash flows for
each of the three fiscal years in the period ended February 1, 2003 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Notes 1 and 2 to the consolidated financial statements, the Company changed its method of accounting for goodwill
and other intangible assets in 2002 to conform to Statement of Financial Standards No. 142. Also, as discussed in Note 1 to the
consolidated financial statements, the Company changed its method of accounting for merchandise inventories under the retail
inventory method in 2000.
Deloitte & Touche LLP
Dallas, Texas
March 1, 2003
F-2
Consolidated Balance Sheets
Dollars in Thousands
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable (net of allowance for
doubtful accounts of $49,755 and $37,385)
Merchandise inventories
Other current assets
Total current assets
Property and Equipment:
Land and land improvements
Buildings and leasehold improvements
Furniture, fixtures and equipment
Buildings under construction
Buildings under capital leases
Less accumulated depreciation and amortization
Goodwill
Other Assets
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities:
Trade accounts payable and accrued expenses
Current portion of long-term debt
Current portion of capital lease obligations
Federal and state income taxes
Total current liabilities
Long-term Debt
Capital Lease Obligations
Other Liabilities
Deferred Income Taxes
Operating Leases and Commitments
Guaranteed Preferred Beneficial Interests in the
Company’s Subordinated Debentures
Stockholders’ Equity:
Common stock, Class A – 112,677,505 and 111,807,520 shares issued;
80,746,732 and 79,876,747 shares outstanding
Common stock, Class B (convertible) — 4,010,929 shares issued
and outstanding
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less treasury stock, at cost, Class A —31,930,773 shares
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
See notes to consolidated financial statements.
F-3
February 1, 2003
February 2, 2002
$142,356
$152,960
1,338,080
1,594,308
55,507
3,130,251
104,848
2,748,225
2,202,811
28,602
50,123
(1,764,107)
3,370,502
39,214
135,965
$6,675,932
$675,962
138,814
1,856
69,829
886,461
2,193,006
18,600
137,070
645,020
1,074,940
1,561,863
24,747
2,814,510
106,911
2,661,120
2,258,909
43,340
50,123
(1,664,688)
3,455,715
569,545
234,789
$7,074,559
$808,231
98,317
2,169
19,354
928,071
2,124,577
20,459
157,511
643,965
531,579
531,579
1,127
1,118
40
711,324
(4,496)
2,205,674
(649,473)
2,264,196
$6,675,932
40
699,104
-
2,617,608
(649,473)
2,668,397
$7,074,559
Consolidated Statements of Operations
Dollars in Thousands, Except Per Share Data
Net Sales
Service Charges, Interest and Other Income
Costs and Expenses:
Cost of sales
Advertising, selling, administrative and general expenses
Depreciation and amortization
Rentals
Interest and debt expense
Asset impairment and store closing charges
Total costs and expenses
Income Before Income Taxes
Income Taxes
Income before extraordinary item and accounting change
Extraordinary gain (loss), net of income tax expense (benefit) of
$(2,461), $3,382 and $15,363
Cumulative effect of accounting change, net of tax benefit
of $0, $0 and $73,120
Net Income (Loss)
Basic Earnings Per Common Share:
Income before extraordinary item and accounting change
Extraordinary gain (loss)
Cumulative effect of accounting change
Net Income (Loss)
Diluted Earnings Per Common Share:
Income before extraordinary item and accounting change
Extraordinary gain (loss)
Cumulative effect of accounting change
Net Income (Loss)
See notes to consolidated financial statements.
February 1, 2003
Years Ended
February 2, 2002
February 3, 2001
$7,910,996
322,943
8,233,939
5,254,134
2,164,033
301,407
68,101
182,940
52,224
8,022,839
211,100
74,800
136,300
(4,374)
(530,331)
$(398,405)
$1.61
(.05)
(6.27)
$(4.71)
$1.60
(.05)
(6.22)
$(4.67)
$8,154,911
244,776
8,399,687
$8,566,560
266,182
8,832,742
5,507,702
2,191,389
310,754
72,783
201,736
3,752
8,288,116
111,571
45,785
65,786
6,012
—
$71,798
$.78
.07
—
$.85
$.78
.07
—
$.85
5,802,147
2,219,818
303,198
76,043
239,280
51,396
8,691,882
140,860
44,030
96,830
27,311
(129,991)
$(5,850)
$1.06
.30
(1.42)
$(.06)
$1.06
.30
(1.42)
$(.06)
F-4
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss
Dollars in Thousands, Except Per Share Data
Additional
Accumulated
Other
Common Stock
Class A Class B
$40
$1,115
—
—
Paid-in Comprehen- Retained
Earnings
sive Loss
Capital
$2,579,567
$ —
$695,507
(5,850)
—
—
Treasury
Stock
$(443,395)
—
Total
$2,832,834
(5,850)
Balance, January 29, 2000
Net loss
Issuance of 116,275 shares
under stock option,
employee savings and
stock bonus plans
Purchase of 13,894,514 shares of
treasury stock
Cash dividends declared:
Common stock, $.16 per share
Balance, February 3, 2001
Net income
Issuance of 221,635 shares
under stock option,
employee savings and
stock bonus plans
Purchase of 1,333,959 shares of
treasury stock
Cash dividends declared:
Common stock, $.16 per share
Balance, February 2, 2002
Net loss
Minimum pension liability adjustment, net
Total comprehensive loss
Issuance of 869,985 shares
under stock option,
employee savings and
stock bonus plans
Cash dividends declared:
Common stock, $.16 per share
Balance, February 1, 2003
See notes to consolidated financial statements.
1
__
—
1,116
__
2
__
—
1,118
__
__
—
$1,127
—
__
—
40
__
__
__
—
40
__
__
1,372
__
—
__
—
__
—
1,373
(183,753)
(183,753)
—
696,879
__
—
—
__
(14,784)
2,558,933
71,798
—
(627,148)
__
(14,784)
2,629,820
71,798
2,225
__
__
__
__
__
__
2,227
(22,325)
(22,325)
—
699,104
__
__
—
—
(4,496)
(13,123)
2,617,608
(398,405)
__
—
(649,473)
__
__
(13,123)
2,668,397
(398,405)
(4,496)
(402,901)
9
__
12,220
__
__
__
12,229
—
$40
—
—
$711,324 $(4,496)
(13,529)
$2,205,674
—
$(649,473)
(13,529)
$2,264,196
F-5
Consolidated Statements of Cash Flows
Dollars in Thousands
Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization
Extraordinary loss (gain) on extinguishment of debt
Deferred income taxes
Impairment charges
Gain on sale of joint venture
Gain on sale of property and equipment
Provision for loan losses
Cumulative effect of accounting change, net of taxes
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable
(Increase) decrease in merchandise inventories
(Increase) decrease in other current assets
Decrease in other assets
(Decrease) increase in trade accounts payable
and accrued expenses, other liabilities and income taxes
Net cash provided by operating activities
Investing Activities:
Purchase of property and equipment
Proceeds from sale of joint venture
Net cash used in investing activities
Financing Activities:
Principal payments on long-term debt and capital lease obligations
Cash dividends paid
Proceeds from issuance of common stock
Proceeds from receivable financing, net
Proceeds from long-term borrowings
Purchase of treasury stock
Net cash used in financing activities
Decrease in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
See notes to consolidated financial statements.
February 1, 2003
Years Ended
February 2, 2002
February 3, 2001
$(398,405)
$71,798
$(5,850)
305,545
4,374
24,882
52,224
(64,295)
(1,103)
36,574
530,331
286
(32,445)
(30,760)
31,559
(101,825)
356,942
(233,268)
68,295
(164,973)
(340,081)
(13,529)
11,037
100,000
40,000
—
(202,573)
(10,604)
152,960
$142,356
313,711
(6,012)
2,045
3,752
__
(2,060)
21,286
__
(116,985)
54,323
28,794
53,504
192,825
616,981
(270,595)
—
(270,595)
(402,941)
(13,123)
983
—
50,000
(22,325)
(387,406)
(41,020)
193,980
$152,960
306,096
(27,311)
(6,325)
51,396
__
(7,750)
24,994
129,991
100,690
228,533
18,708
28,540
(43,083)
798,629
(225,525)
—
(225,525)
(379,308)
(14,784)
—
—
—
(183,753)
(577,845)
(4,741)
198,721
$193,980
F-6
Notes to Consolidated Financial Statements
1. Description of Business and Summary of Significant Accounting Policies
Description of Business – Dillard’s, Inc. (the “Company”) operates retail department stores located primarily in the Southeastern,
Southwestern and Midwestern areas of the United States. The Company’s fiscal year ends on the Saturday nearest January 31 of each
year. Fiscal years 2002, 2001 and 2000 ended on February 1, 2003, February 2, 2002, and February 3, 2001, respectively. Fiscal
years 2002 and 2001 included 52 weeks and fiscal year 2000 included 53 weeks.
Consolidation – The accompanying consolidated financial statements include the accounts of Dillard’s, Inc. and its wholly owned
subsidiaries. Intercompany accounts and transactions are eliminated in consolidation. Investments in and advances to joint ventures in
which the Company has a 50% ownership interest are accounted for by the equity method.
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include inventories, sales return, allowance for doubtful accounts, self-
insured accruals and lives of long-lived assets. Actual results could differ from those estimates.
Cash Equivalents – The Company considers all highly liquid investments with an original maturity of three months or less when
purchased to be cash equivalents.
Accounts Receivable – Customer accounts receivable are classified as current assets and include some which are due after one year,
consistent with industry practice. Credit card receivables are shown net of an allowance for uncollectible accounts. The Company
calculates the allowance for uncollectible accounts using a model that analyzes factors such as bankruptcy filings, delinquency rates,
historical charge-off patterns, recovery rates and other portfolio data. The calculation is then reviewed by management to assess
whether, based on recent economic events, additional analyses are required to appropriately estimate losses inherent in the portfolio.
The Company's current credit processing system charges off an account automatically when a customer has failed to make a required
payment in each of the six billing cycles following a missed payment. The Company also provides for the estimated uncollectible
portion of the finance charge revenue based upon our historical collection experience as part of the allowance for doubtful accounts.
This allowance represents amounts of credit card receivable balances (including billed but uncollected finance charges) which
management estimates will ultimately not be collected. Finance charge revenue is recorded until an account is charged off, at which
time uncollected finance charge revenue is recorded as a reduction of credit revenues.
The Company utilizes credit card securitizations as part of its overall funding strategy. The transfers were subject to the
grandfathering provisions of Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for Transfer and Servicing
of Financial Assets and Liabilities” until May 2002 and thus continued to be accounted for under the previous accounting standards
that existed under FAS 125. In May 2002, the Company amended its conduit financing agreement in a manner that prevented future
transfers of accounts receivable to its master trust from qualifying as a sale and thus receiving off-balance-sheet treatment. As a result
of this decision, the Company does not have any off-balance-sheet financing as it relates to new transfers to the Trust. Based upon the
expected average life of the credit card receivables, all financing through this facility is recorded on the balance sheet at February 1,
2003 (see Note 15).
Significant Group Concentrations of Credit Risk –The Company grants credit to customers throughout North America. There were
no Metropolitan Statistical Areas that comprised 10% of the Company’s managed credit card receivables at February 1, 2003 and
February 2, 2002.
Merchandise Inventories – The retail last-in, first-out (“LIFO”) inventory method is used to value merchandise inventories. At
February 1, 2003 and February 2, 2002, the LIFO cost of merchandise was approximately equal to the first-in, first-out (“FIFO”) cost
of merchandise.
Effective January 30, 2000, the Company changed its method of accounting for inventories under the retail inventory method. The
change principally relates to the Company’s accounting for vendor markdown allowances, from recording these allowances directly as
a reduction of cost of sales to recording such allowances as a reduction of inventoriable product cost. Historically, the vendor/retailer
arrangement provided for the Company to receive allowances from vendors when gross margin rates fell below stipulated levels.
During fiscal 2000, the Company and certain vendors revised the vendor/retailer arrangement whereby the vendors are providing up-
front allowances in the form of a fixed percentage discount off of purchases. The Company views the changes in the vendor
F-7
arrangements as a new purchasing model that will enhance its merchandising decisions. Since the vendor allowances are directly
related to purchases, the Company accounts for such fixed discount arrangements as a reduction of inventoriable product cost. As the
Company moves toward the new purchasing model, it plans to continue to negotiate up-front discounts with its vendors. As such, the
Company is no longer viewing vendor markdown allowances as direct reductions of markdowns, but rather as overall vendor
discounts on inventory purchases, along with the up-front product discounts noted above. Accordingly, the Company has changed its
accounting method for markdown allowances to record such allowances as a reduction of inventoriable product cost. In addition, and
as a result of this change, the Company has also changed its method of accounting for certain retail price adjustments, from recording
such price adjustments as a reduction of initial mark-up to recording them as markdowns under the retail inventory method. The
Company believes that its change in accounting method will result in improved merchandising and buying decisions. The cumulative
effect of the accounting change as of January 30, 2000 was to decrease net income for fiscal year 2000 by $130 million, net of tax, or
$1.42 per share. The effect of adopting the new method was to increase both income before extraordinary item and net income for
fiscal 2000 in the amount of $30 million ($.33 per share).
Property and Equipment – Property and equipment owned by the Company is stated at cost, which includes related interest costs
incurred during periods of construction, less accumulated depreciation and amortization. Capitalized interest was $2.5 million, $5.4
million and $4.7 million in fiscal 2002, 2001 and 2000, respectively. For tax reporting purposes, accelerated depreciation or cost
recovery methods are used and the related deferred income taxes are included in noncurrent deferred income taxes in the Consolidated
Balance Sheets. 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 are determined to be capital leases are stated at an amount equal to
the present value of the minimum lease payments during the lease term, less accumulated amortization. The properties under capital
leases and leasehold improvements under operating leases are amortized on the straight-line method over the shorter of their useful
lives or the related lease terms. The provision for amortization of leased properties is included in depreciation and amortization
expense.
Included in property and equipment as of February 1, 2003 are assets held for sale in the amount of $35.9 million. During fiscal 2002,
2001 and 2000, the Company realized gains on the sale of property and equipment of $1.1 million, $2.1 million and $7.8 million,
respectively.
Depreciation expense on property and equipment was $301 million, $295 million and $287 million for fiscal 2002, 2001 and 2000,
respectively.
Long-lived Assets Excluding Goodwill – The Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” which requires impairment losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying
amount. In the evaluation of the fair value and future benefits of long-lived assets, the Company performs an analysis of the
anticipated undiscounted future net cash flows of the related long-lived assets. This analysis is performed at the store unit level. If
the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value. Various
factors including future sales growth and profit margins are included in this analysis. Management believes at this time that the
carrying value and useful lives continue to be appropriate, after recognizing the impairment charge recorded in 2002, as disclosed in
Note 13.
Goodwill – The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” effective February 3, 2002. It changes
the accounting for goodwill from an amortization method to an “impairment only” approach. Under SFAS No. 142, goodwill is no
longer amortized but reviewed for impairment annually or more frequently if certain indicators arise. The Company tested goodwill
for impairment as of the adoption date using the two-step process prescribed in SFAS No. 142. The Company identified its reporting
units under SFAS No. 142 at the store unit level. The fair value of these reporting units was estimated using the expected discounted
future cash flows and market values of related businesses, where appropriate. Prior to the adoption of SFAS No. 142, goodwill, which
represents the cost in excess of fair value of net assets acquired, was amortized on the straight-line basis over 40 years. Accumulated
goodwill amortization was $55.6 million at February 2, 2002. Management believes at this time that the carrying value continues to
be appropriate, recognizing the impairment charge recorded in 2002, as disclosed in Note 2.
F-8
Other Assets – Other assets include investments in joint ventures accounted for by the equity method. These joint ventures, which
consist of malls and a general contracting company that constructs Dillard’s stores and other commercial buildings, had carrying
values of $97 million and $203 million at February 1, 2003 and February 2, 2002, respectively. The malls are located in Crestview
Hills, Kentucky; Toledo, Ohio and Denver, Colorado. Earnings from joint ventures was $19.5 million, $11.6 million and $8.2 million
for fiscal 2002, 2001 and 2000, respectively.
Vendor Allowances. The Company receives concessions from its vendors through a variety of programs and arrangements,
including co-operative advertising and markdown reimbursement programs. Co-operative advertising allowances are reported as a
reduction of advertising expense in the period in which the advertising occurred. All other vendor allowances are recognized as a
reduction of cost purchases. Accordingly, a reduction or increase in vendor concessions has an inverse impact on cost of sales
and/or selling and administrative expenses.
Revenue Recognition – The Company recognizes revenue at the “point of sale.” Finance charge revenue earned on customer
accounts, serviced by the Company under its proprietary credit card program, is recognized in the period in which it is earned.
Allowance for sales returns are recorded as a component of net sales in the period in which the related sales are recorded.
Advertising – Advertising and promotional costs, which include newspaper, television, radio and other media advertising, are
expensed as incurred and were $245 million, $245 million and $246 million for fiscal years 2002, 2001 and 2000, respectively.
Income Taxes – In accordance with SFAS No. 109, “Accounting for Income Taxes,” deferred income taxes reflect the future tax
consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at year-end.
Shipping and Handling – Emerging Issues Task Force (“EITF”) Issue 00-10, “Accounting for Shipping and Handling Fees and
Costs,” requires that all amounts billed to a customer in a sale transaction related to shipping and handling, if any, should be classified
as revenue. As required, the Company adopted this EITF in the fourth quarter of fiscal 2000 and has reclassified shipping and
handling reimbursements to Other Income for all periods. The Company recorded shipping and handling costs in Advertising, Selling,
General and Administrative Expenses for all periods presented.
Comprehensive Income – Comprehensive income is equivalent to the Company’s net income for fiscal years 2001 and 2000.
Stock-Based Compensation – The Company periodically grants stock options to employees. Pursuant to Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees,” the Company accounts for stock-based employee compensation
arrangements using the intrinsic value method. Accordingly, no compensation expense has been recorded in the Consolidated
Financial Statements with respect to option grants. The Company has adopted the disclosure only provisions of Financial Accounting
Standards Board Statement No. 123, “Accounting for Stock Based Compensation,” as amended by Financial Accounting Standards
Board Statement No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure, an Amendment of FASB
Statement No. 123”. See Note 11 to the Company’s Consolidated Financial Statements. If compensation cost for the Company’s
stock option plans had been determined in accordance with the fair value method prescribed by SFAS No. 123, the Company’s income
before extraordinary item and accounting change would have been:
(in thousands of dollars, except per share data)
Income before extraordinary item and accounting change
As reported
Deduct: Total stock based employee compensation expense
determined under fair value based method, net of taxes
Pro forma
Basic earnings per share:
As reported
Pro forma
Diluted earnings per share:
As reported
Pro forma
Fiscal 2002
Fiscal 2001
Fiscal 2000
$136,300
$65,786
$96,830
9,261
127,039
$1.61
1.50
$1.60
1.49
5,667
60,119
$0.78
0.71
$0.78
0.72
7,334
89,496
$1.06
0.98
$1.06
0.98
F-9
Segment Reporting – The Company operates in a single operating segment — the operation of retail department stores. Revenues
from external customers are derived from merchandise sales and service charges and interest on the Company’s proprietary credit
card. The Company’s merchandise sales mix by product category for the last three years was as follows:
Product Categories
Cosmetics
Women’s and Juniors’ Clothing
Children’s Clothing
Men’s Clothing and Accessories
Shoes, Accessories and Lingerie
Home
Leased and Other
Total Merchandise Sales
2002
13.8%
30.8
6.9
18.3
20.7
8.9
.6
100.0%
2001
13.7%
30.7
6.8
18.9
20.4
8.9
.6
100.0%
2000
13.3%
30.6
6.7
19.5
20.0
9.2
.7
100.0%
The Company does not rely on any major customers as a source of revenue.
New Accounting Pronouncements
In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No.
144 addresses the accounting and reporting for the impairment or disposal of long-lived assets. The statement provides a single
accounting model for long-lived assets to be disposed of. New criteria must be met to classify the asset as an asset held-for-sale. This
statement also focuses on reporting the effects of a disposal of a segment of a business. This statement is effective for fiscal years
beginning after December 15, 2001. The Company adopted SFAS No. 144 as of February 3, 2002, and the adoption did not have a
material impact on the Company’s financial position or results of operations.
In April 2002, SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections” (“SFAS No. 145”) was issued. SFAS No. 145 rescinds SFAS No. 4 and 64, which required gains and losses
from extinguishments of debt to be classified as extraordinary items. SFAS No. 145 also amends SFAS No. 13, eliminating
inconsistencies in certain sale-leaseback transactions. The provisions of SFAS No. 145 are effective for fiscal years beginning after
May 15, 2002. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented shall
be reclassified to interest expense.
In June 2002, SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”) was issued.
SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at
the date of a commitment to an exit or disposal plan. SFAS No. 146 supercedes EITF Issue No. 94-3, “Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).”
SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. This pronouncement will
not have a material effect on the Company’s financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS
No. 148”) which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 provides alternative methods
of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more frequent and prominent disclosures in financial
statements of the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15, 2002. The Company has adopted the disclosure
provisions of SFAS No. 148 as of December 31, 2002 and has not adopted the fair-based method accounting.
Financial Accounting Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”) was issued in November 2002. FIN 45 requires the
recognition of a liability for certain guarantee obligations issued or modified after December 31, 2002. FIN 45 also clarifies disclosure
requirements to be made by a guarantor for certain guarantees. The disclosure provisions of FIN 45 are effective for fiscal years
ending after December 15, 2002. FIN 45 is not expected to have a material impact on the Company’s results of operations, financial
position or cash flows, and the Company has adopted the disclosure provisions of FIN 45 as of December 31, 2002.
F-10
FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of APB No. 50” (“FIN 46”) was issued in
January 2003. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new
variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The
adoption of FIN 46 is not expected to have an impact on the Company’s results of operations, financial position or cash flows.
The FASB’s EITF Issue 02-16, “Accounting By A Customer (Including A Reseller) For Cash Consideration Received From A
Vendor” addressed the accounting treatment for vendor allowances. The Company has not completed the process of evaluating the
impact of EITF Issue 02-16, however, the Company does not expect that its adoption in 2003 will have a material impact on its
financial position or results of operations.
Reclassifications – Certain reclassifications have been made to prior year financial statements to conform with fiscal 2002
presentations.
2. Goodwill
The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” effective February 3, 2002. It changes the accounting
for goodwill from an amortization method to an “impairment only” approach. Under SFAS No. 142, goodwill is no longer amortized
but reviewed for impairment annually or more frequently if certain indicators arise. The Company tested goodwill for impairment as
of the adoption date using the two-step process prescribed in SFAS No. 142. The Company identified its reporting units under SFAS
No. 142 at the store unit level. The fair value of these reporting units was estimated using the expected discounted future cash flows
and market values of related businesses, where appropriate.
Related to the 1998 acquisition of Mercantile Stores Company Inc., the Company had $570 million in goodwill recorded in its
consolidated balance sheet at the beginning of 2002. The Company completed the required impairment tests of goodwill in the second
quarter of 2002 and determined that $530 million of goodwill was impaired under the fair value test. This impairment was the result
of sequential periods of declining profits in certain of these reporting units. In accordance with SFAS No. 142, the impairment loss for
goodwill was reflected as a cumulative effect of a change in accounting principle in the first quarter of 2002.
The changes in the carrying amount of goodwill for the year ended February 1, 2003 are as follows (in thousands):
Goodwill balance at February 2, 2002
Cumulative effect of adopting SFAS No. 142
Goodwill balance at February 1, 2003
$569,545
(530,331)
$ 39,214
F-11
The following pro forma financial information is presented as if the statement was adopted at January 30, 2000 (in thousands, except
per share amounts):
Reported net income (loss)
Cumulative effect of accounting change
Net income before the cumulative
effect of accounting change
Add back:
Goodwill amortization
Pro forma net income
Net income (loss) per share reported – basic
Cumulative effect of accounting change
Goodwill amortization
Pro forma net income per share – basic
Net income (loss) per share reported – diluted
Cumulative effect of accounting change
Goodwill amortization
Pro forma net income per share – diluted
Fiscal 2002
Fiscal 2001
Fiscal 2000
$(398,405)
530,331
$71,798
-
$(5,850)
-
131,926
71,798
(5,850)
-
$ 131,926
$ (4.71)
6.27
-
$ 1.56
$ (4.67)
6.22
-
$ 1.55
15,604
$87,402
$ 0.85
-
0.19
$ 1.04
$ 0.85
-
0.18
$ 1.03
15,858
$10,008
$ (0.06)
-
0.17
$ 0.11
$ (0.06)
-
0.17
$ 0.11
3. Revolving Credit Agreement
During fiscal 2002 and 2001, there were no commercial paper borrowings. The average amount of commercial paper outstanding
during fiscal 2000 was $14 million, at a weighted-average interest rate of 6.63%.
At February 1, 2003, the Company maintained a $400 million revolving credit facility with Fleet Retail Finance, Inc. (“Fleet”).
Borrowings under the facility accrue interest at Fleet’s Base Rate or Eurodollar Rate plus 1.75%. The line of credit agreement is
secured by inventory of certain Company stores. The agreement expires on May 9, 2005 and cannot be withdrawn except in the case
of defaults by the Company. The Company pays an annual commitment fee of 0.375% of the committed amount to the banks. At
February 1, 2003, inventory of $555 million was pledged as collateral on the revolving credit facility. There were no funds borrowed
under the revolving credit facility during fiscal 2002.
4. Long-term Debt
Long-term debt consists of the following:
(in thousands of dollars)
Unsecured notes
at rates ranging from
6.13% to 9.50%,
due 2003 through 2028
Receivable financing facilities
at rates ranging from 1.6% to
3.8% due 2005 through 2006
Mortgage notes, payable
monthly or quarterly
(some with balloon payments)
through 2013 and bearing
interest at rates ranging from
4.90% to 13.25%
Current portion
February 1, 2003
February 2, 2002
$1,823,429
$2,147,279
400,000
-
108,391
2,331,820
(138,814)
$2,193,006
75,615
2,222,894
(98,317)
$2,124,577
F-12
As of February 2, 2002, the Company had $300 million in off-balance-sheet receivable financing (See Note 15).
Building, land, and land improvements with a carrying value of $141.2 million at February 1, 2003 were pledged as collateral on the
mortgage notes. Maturities of long-term debt over the next five years are $139 million, $207 million, $297 million, $298 million and
$201 million. Outstanding letters of credit aggregated $95.5 million at February 1, 2003.
Interest and debt expense consists of the following:
(in thousands of dollars)
Long-term debt:
Interest
Amortization of
debt expense
Interest on capital
lease obligations
Interest on receivable financing
Commercial paper
interest
Fiscal
2002
Fiscal
2001
Fiscal
2000
$166,093
$180,918
$215,103
4,088
170,181
2,354
10,405
-
$182,940
4,204
185,122
2,560
14,054
-
$201,736
4,361
219,464
2,772
16,135
909
$239,280
Interest paid during fiscal 2002, 2001 and 2000 was approximately $158.6 million, $208.9 million and $302.5 million, respectively.
The interest paid during fiscal 2002 does not include a $28.4 million interest payment made on February 3, 2003 that would have been
due on the last day of the Company’s fiscal year had the date fallen on a business day.
The Company has reclassified interest expense related to its receivable financing from other revenue to interest expense on its
consolidated statements of operations for all periods presented. The Company reclassified $11.3 million and $15.0 million for the
twelve-month periods ended February 2, 2002 and February 3, 2001, respectively.
5. Trade Accounts Payable and Accrued Expenses
Trade accounts payable and accrued expenses consist of the following:
(in thousands of dollars)
Trade accounts payable
Accrued expenses:
Taxes, other than income
Salaries, wages,
and employee benefits
Interest
Rent
Other
February 1, 2003
$429,144
February 2, 2002
$562,516
66,890
53,560
46,138
11,685
68,545
$675,962
73,025
51,281
20,488
13,454
87,467
$808,231
F-13
6. Income Taxes
The provision for federal and state income taxes is summarized as follows:
(in thousands of dollars)
Current:
Federal
State
Deferred:
Federal
State
Fiscal
2002
$47,784
2,134
49,918
23,574
1,308
24,882
$74,800
Fiscal
2001
$41,869
1,871
43,740
1,694
351
2,045
$45,785
Fiscal
2000
$48,203
2,152
50,355
(5,459)
(866)
(6,325)
$44,030
A reconciliation between the Company’s income tax provision and income taxes using the federal statutory income tax rate is
presented below:
(in thousands of dollars)
Income tax at the
statutory federal rate
State income taxes,
net of federal benefit
Nondeductible
goodwill amortization
Impact of reduced effective income
tax rate on deferred taxes
Other
Fiscal
2002
Fiscal
2001
Fiscal
2000
$73,885
$39,050
$49,301
2,076
-
-
(1,161)
$74,800
1,226
5,461
-
48
$45,785
1,612
8,761
(15,693)
49
$44,030
In connection with the gain on the early extinguishment of debt and the loss on the cumulative effect of an accounting change, the
Company realized income tax expense of $15.4 million and income tax benefit of $73.1 million, respectively, in 2000. Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The Company’s actual federal and state income tax rate (exclusive
of the effect of non-deductible goodwill amortization) was 36% in fiscal 2002 and 2001. The Company’s actual federal and state
income tax rate was reduced from 37% in fiscal 1999 to 36% in fiscal 2000, as a result of lower effective combined income tax rates.
The effect of these reduced rates on the Company’s deferred income taxes was to reduce the income tax provision by $16 million in
fiscal 2000. Significant components of the Company’s deferred tax assets and liabilities as of February 2, 2002 and February 3, 2001
are as follows:
(in thousands of dollars)
Property and equipment
bases and depreciation
differences
State income taxes
Joint venture basis differences
Differences between
book and tax bases of inventory
Other
Total deferred tax liabilities
Accruals not currently deductible
State income taxes
Total deferred tax assets
Net deferred tax liabilities
February 1, 2003
February 2, 2002
$654,994
24,538
46,571
(11,337)
5,127
719,893
(73,320)
(2,608)
(75,928)
$643,965
$643,703
25,612
17,341
45,287
3,554
735,497
(72,657)
(2,641)
(75,298)
$660,199
F-14
Deferred tax assets and liabilities are presented as follows in the accompanying consolidated balance sheets:
(in thousands of dollars)
Net deferred tax liabilities-noncurrent
Net deferred tax liabilities-current
Net deferred tax liabilities
February 1, 2003
$645,020
15,179
$660,199
February 2, 2002
$643,965
-
$643,965
Income taxes paid during fiscal 2002, 2001 and 2000 were approximately $0, $22.9 million and $40.5 million, respectively.
7. Guaranteed Preferred Beneficial Interests in the Company’s Subordinated Debentures
Guaranteed Preferred Beneficial Interests in the Company’s Subordinated Debentures are comprised of $200 million liquidation
amount of 7.5% Capital Securities, due August 1, 2038 (the “Capital Securities”) representing beneficial ownership interest in the
assets of Dillard’s Capital Trust I, a wholly owned subsidiary of the Company, and $331.6 million liquidation amount of LIBOR plus
1.56% Preferred Securities, due January 29, 2009 (the “Preferred Securities”) by Horatio Finance V.O.F., a wholly owned subsidiary
of the Company.
Holders of the Capital Securities are entitled to receive cumulative cash distributions, payable quarterly, at the annual rate of 7.5% of
the liquidation amount of $25 per Capital Security. The subordinated debentures are the sole assets of the Trust, and the Capital
Securities are subject to mandatory redemption upon repayment of the subordinated debentures. Holders of the Preferred Securities are
entitled to receive quarterly dividends at LIBOR plus 1.56%. The Preferred Securities are subject to mandatory redemption upon
repayment of the debentures. The Company’s obligations under the debentures and related agreements, taken together, provide a full
and unconditional guarantee of payments due on the Capital and Preferred Securities. The $331.6 million of the Guaranteed Beneficial
Interests in the Company’s Subordinated Debentures are subject to mandatory remarketing on January 29, 2004 if a financing
extension agreement has not been reached. Solicited bids are subject to maximum applicable rates in effect immediately prior to the
remarketing date.
8. Benefit Plans
The Company has a retirement plan with a 401(k)-salary deferral feature for eligible employees. Under the terms of the plan, eligible
employees may contribute up to 20% of eligible pay. Eligible employees with one year of service may elect to make a Basic
Contribution of up to 5% of eligible pay which will be matched 100% only if invested in the Company’s common stock. The
Company contributions are used to purchase Class A Common Stock of the Company for the account of the employee. The terms of
the plan provide a six-year graduated-vesting schedule for the Company contribution portion of the plan. The Company incurred
expense of $18 million, $19 million and $19 million for fiscal 2002, 2001 and 2000, respectively, for the plan.
The Company has a nonqualified defined benefit plan for certain officers. The plan is noncontributory and provides benefits based on
years of service and compensation during employment. Pension expense is determined using various actuarial cost methods to
estimate the total benefits ultimately payable to officers and allocates this cost to service periods. The pension plan is unfunded. The
actuarial assumptions used to calculate pension costs are reviewed annually.
The accumulated benefit obligations (“ABO”), change in projected benefit obligation (“PBO”), change in plan assets, funded status,
and reconciliation to amounts recognized in the consolidated balance sheets are as follows:
(in thousands of dollars)
Change in projected benefit obligation:
PBO at beginning of year
Service cost
Interest cost
Plan amendments
Actuarial loss (gain)
Benefits paid
PBO at end of year
ABO at end of year
February 1, 2003
February 2, 2002
$46,682
1,255
3,287
-
(3,252)
(2,809)
$45,163
$39,961
$45,163
1,416
3,592
6,360
10,988
(3,159)
$64,360
$64,126
F-15
Change in plan assets:
Fair value of plan assets at beginning of year
Employer contribution
Benefits paid
Fair value of plan assets at end of year
Funded status (PBO less plan assets)
Unamortized prior service costs
Unrecognized net actuarial gain (loss)
Intangible asset
Unrecognized net loss
Accrued benefit cost
ABO in excess of plan assets
Amounts recognized in the balance sheets:
Accrued benefit liability
Intangible asset
Accumulated other comprehensive loss
Net amount recognized
February 1, 2003
February 2, 2002
$ -
3,159
(3,159)
$ -
$64,360
(6,360)
(5,715)
6,360
7,025
$65,670
$64,126
$52,285
6,360
7,025
$65,670
$ -
2,809
(2,809)
$ -
$45,163
-
5,429
-
-
$50,592
$39,961
$50,592
-
-
$50,592
Accrued benefit liability is included in other liabilities. Intangible asset is included in other assets. Accumulated other comprehensive
loss, net of tax benefit, is included in stockholders’ equity.
Weighted average assumptions are as follows:
Discount rate-net periodic pension cost
Discount rate-benefit obligations
Rate of compensation increases
Fiscal 2002
7.25%
6.75%
2.50%
Fiscal 2001
7.25%
7.25%
2.50%
Fiscal 2000
7.25%
7.25%
2.50%
The components of net periodic benefit costs are as follows:
(in thousands of dollars)
Components of net periodic benefit costs:
Service cost
Interest cost
Net actuarial loss
Amortization of transition obligation
Net periodic benefit costs
9. Stockholders’ Equity
Capital stock is comprised of the following:
Fiscal 2002
Fiscal 2001
Fiscal 2000
$1,416
3,592
(156)
-
$4,852
$1,255
3,287
(103)
2,688
$7,127
$1,197
3,326
(463)
2,688
$6,748
Type
Preferred (5% cumulative)
Additional preferred
Class A, common
Class B, common
Par
Value
$100
$ .01
$ .01
$ .01
Shares
Authorized
5,000
10,000,000
289,000,000
11,000,000
Holders of Class A are empowered as a class to elect one-third of the members of the Board of Directors and the holders of Class B
are empowered as a class to elect two-thirds of the members of the Board of Directors. Shares of Class B are convertible at the option
of any holder thereof into shares of Class A at the rate of one share of Class B for one share of Class A.
F-16
On March 2, 2002, the Company adopted a shareholder rights plan under which the Board of Directors declared a dividend of one
preferred share purchase right for each outstanding share of the Company’s Common Stock, which includes both the Company’s Class
A and Class B Common Stock, payable on March 18, 2002 to the shareholders of record on that date. Each right, which is not
presently exercisable, entitles the holder to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock for
$70 per one one-thousandth of a share of Preferred Stock, subject to adjustment. In the event that any person acquires 15% or more of
the outstanding shares of common stock, each holder of a right (other than the acquiring person or group) will be entitled to receive,
upon payment of the exercise price, shares of Class A common stock having a market value of two times the exercise price. The
rights will expire, unless extended, redeemed or exchanged by the Company, on March 2, 2012.
10. Earnings per Share
In accordance with SFAS No. 128, “Earnings Per Share,” basic earnings per share has been 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 of dollars, except per share data)
Earnings before extraordinary item and
accounting change
Extraordinary gain (loss)
Cumulative effect of accounting change
Net earnings (loss) available for
per-share calculation
Average shares of common
stock outstanding
Stock options
Total average equivalent shares
Per Share of Common Stock:
Earnings before extraordinary item and
accounting change
Extraordinary gain (loss)
Cumulative effect of accounting change
Net income (loss)
Fiscal 2002
Fiscal 2001
Fiscal 2000
Basic
Diluted
Basic
Diluted
Basic
Diluted
$ 136,300 $ 136,300
(4,374)
(530,331)
(4,374)
(530,331)
$65,786
6,012
-
$65,786
6,012
-
$ 96,830
27,311
(129,991)
$ 96,830
27,311
(129,991)
$(398,405) $(398,405)
$71,798
$71,798
$ (5,850)
$ (5,850)
84,513
-
84,513
84,513
803
85,316
84,020
-
84,020
84,020
467
84,487
91,171
-
91,171
91,171
28
91,199
$ 1.61
(0.05)
(6.27)
$(4.71)
$ 1.60
(0.05)
(6.22)
$(4.67)
$0.78
0.07
-
$0.85
$0.78
0.07
-
$0.85
$ 1.06
0.30
(1.42)
$(0.06)
$ 1.06
0.30
(1.42)
$(0.06)
Total stock options outstanding were 9,669,755, 10,708,646 and 11,270,261 at February 1, 2003, February 2, 2002 and February 3,
2001, respectively. Of these, options to purchase 8,974,174, 9,298,695 and 9,465,383 shares of Class A Common Stock at prices
ranging from $18.13 to $40.22, $15.74 to $40.22, $18.13 to $40.22 per share were outstanding in fiscal 2002, 2001 and 2000,
respectively, but were not included in the computation of diluted earnings per share because the exercise price of the options exceeds
the average market price and would have been antidilutive.
F-17
11. Stock Options
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. All options were granted at not less than fair market value at dates of grant. At the end of fiscal 2002, 8,096,500 shares were
available for grant under the plans and 17,766,255 shares of Class A Common Stock were reserved for issuance under the stock option
plans. Stock option transactions are summarized as follows:
Fiscal 2002
Fiscal 2001
Fiscal 2000
Fixed Options
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Options exercisable at year-end
Weighted-average fair value of
options granted during the year
Shares
10,708,646
2,312,375
(2,150,111)
(1,201,155)
9,669,755
6,793,960
$6.91
Weighted
Average
Exercise Price
$24.58
24.02
20.62
31.53
$24.72
$26.63
Shares
11,270,261
654,000
(345,675)
(869,940)
10,708,646
7,834,601
$3.91
Weighted
Average
Exercise Price
$ 25.30
15.74
12.93
31.98
$ 24.58
$ 26.73
Shares
10,093,594
2,173,925
-
(997,258)
11,270,261
7,174,551
$3.01
Weighted
Average
Exercise Price
$ 28.86
10.44
-
28.77
$ 25.30
$ 28.12
The following table summarizes information about stock options outstanding at February 1, 2003:
Range of
Exercise Prices
$10.44 - $15.74
$18.13 - $25.13
$28.19 - $40.22
Options Outstanding
Weighted-Average
Remaining
Contractual Life (Yrs.)
4.54
3.65
1.11
3.05
Options
Outstanding
1,886,591
4,838,949
2,944,215
9,669,755
Weighted-Average
Exercise Price
$11.69
22.31
37.01
$24.72
Options Exercisable
Options Weighted-Average
Exercise Price
$12.55
22.32
37.01
$26.63
Exercisable
1,116,366
2,942,594
2,735,000
6,793,960
SFAS No. 123, “Accounting for Stock Based Compensation,” permits compensation expense to be measured based on the fair value
of the equity instrument awarded. In accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees,” the Company uses the intrinsic value method of accounting for stock options. No compensation cost has been
recognized in the consolidated statements of operations for the Company’s stock option plans.
The fair value of each option grant is estimated on the date of each grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
Risk-free interest rate
Expected option life (years)
Expected volatility
Expected dividend yield
Fiscal 2002
1.96%
3.1
41.6%
0.67%
Fiscal 2001
2.27%
2.0
44.0%
1.02%
Fiscal 2000
4.47%
3.3
38.7%
1.53%
The fair values generated by the Black-Scholes model may not be indicative of the future benefit, if any, that may be received by the
option holder.
F-18
12. Leases and Commitments
Rental expense consists of the following:
(in thousands of dollars)
Operating leases:
Buildings:
Minimum rentals
Contingent rentals
Equipment
Contingent rentals
on capital leases
Fiscal
2002
Fiscal
2001
Fiscal
2000
$40,862
10,433
16,806
68,101
-
$68,101
$45,066
10,310
16,757
72,133
650
$72,783
$47,711
10,959
16,419
75,089
954
$76,043
Contingent rentals on certain leases are based on a percentage of annual sales in excess of specified amounts. Other contingent rentals
are based entirely on a percentage of sales.
The future minimum rental commitments as of February 1, 2003 for all noncancelable leases for buildings and equipment are as
follows:
(in thousands of dollars)
Fiscal Year
2003
2004
2005
2006
2007
After 2007
Total minimum lease payments
Less amount representing interest
Present value of net minimum
lease payments (of which
$1,856 is currently payable)
Operating
Leases
$59,299
50,479
41,797
38,588
29,482
105,323
$324,968
Capital
Leases
$3,806
3,622
3,339
3,232
2,578
21,595
38,172
(17,716)
$20,456
Renewal options from three to 25 years exist on the majority of leased properties. At February 1, 2003, the Company is committed to
incur costs of approximately $112.0 million to acquire, complete and furnish certain stores and equipment.
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 materially affect the
Company's financial position, cash flows or results of operations.
13. Asset Impairment and Store Closing Charges
In the evaluation of the fair value and future benefits of long-lived assets, the Company performs an analysis of the anticipated
undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the undiscounted
cash flows, the Company reduces the carrying value to its fair value, which is generally calculated using discounted cash flows.
During fiscal 2002, the Company recorded a pre-tax charge of $52.2 million for asset impairment and store closing costs. The charge
includes a write-down to fair value for certain under-performing properties in the amount of $55.8 million and exit costs to close four
such properties in the amount of $4.4 million, all of which will be closed during fiscal 2003, partially offset by the forgiveness of a
lease obligation of $8.0 million in connection with the sale of a closed owned store in Memphis, Tennessee in satisfaction of that
obligation. The Company does not expect to incur significant additional exit costs upon the closing of these properties during fiscal
2003. During fiscal 2001, the Company recorded a pre-tax charge of $3.8 million for asset impairment and store closing costs. The
charge includes a write-down to fair value for one under performing store in the amount of $1.8 million and lease commitments of $2
million. During fiscal 2000, the Company recorded a pre-tax charge of $51 million for asset impairment and store closing costs. The
F-19
charge includes a write-down to fair value for certain under-performing properties in the amount of $37 million and exit costs to close
four such properties in the amount of $14 million, all of which were closed during fiscal 2001.
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 trade accounts receivable is determined by discounting the estimated future cash flows at current market rates, after
consideration of credit risks and servicing costs using historical rates. The fair value of the Company’s long-term debt and Guaranteed
Preferred Beneficial Interests in the Company’s Subordinated Debentures is based on market prices or dealer quotes (for publicly
traded unsecured notes) and on discounted future cash flows using current interest rates for financial instruments with similar
characteristics and maturity (for bank notes and mortgage notes).
The fair value of the Company’s cash and cash equivalents and trade accounts receivable approximates their carrying values at
February 1, 2003 and February 2, 2002 due to the short-term maturities of these instruments. The fair value of the Company’s long-
term debt at February 1, 2003 and February 2, 2002 was $2.24 billion and $2.09 billion, respectively. The carrying value of the
Company’s long-term debt at February 1, 2003 and February 2, 2002 was $2.33 billion and $2.22 billion, respectively. The fair value
of the Guaranteed Preferred Beneficial Interests in the Company’s Subordinated Debentures at February 1, 2003 and February 2, 2002
was $473 million and $496 million, respectively. The carrying value of the Guaranteed Preferred Beneficial Interests in the
Company’s Subordinated Debentures at February 1, 2003 and February 2, 2002 was $532 million.
15. Securitizations of Assets
The Company utilizes credit card securitizations as a part of its overall funding strategy. In May 2002, the Company amended its
conduit financing agreement in a manner that prevented future transfers of accounts receivable to its master trust from qualifying as a
sale and thus receiving off-balance-sheet treatment. The Company decided not to amend its agreements to allow continuing off-
balance-sheet treatment but to allow accounts receivable and the related financing to be brought back onto the balance sheet. As a
result of this decision, the Company took a charge to its income statement in the amount of $5.4 million related to the amortization of
the beneficial interests recognized up front on the off-balance-sheet financing. The Company has $400 million of debt and the related
asset on its balance sheet as of February 1, 2003.
Under generally accepted accounting principles, if the structure of the securitization meets certain requirements, these transactions are
accounted for as sales of receivables. Prior to May 2002, the Company accounted for it securitizations of credit card receivables as
sales of receivables. As part of its credit card securitizations, the Company transferred credit card receivable balances to a Master
Trust ("Trust") in exchange for certificates representing undivided interests in such receivables. The Trust securitized balances by
issuing certificates representing undivided interests in the Trust’s receivables to outside investors. In each securitization the Company
retains certain subordinated interests that serve as a credit enhancement to outside investors and expose the Company’s Trust assets to
possible credit losses on receivables sold to outside investors. The investors and the Trust have no recourse against the Company
beyond Trust assets. In order to maintain the committed level of securitized assets, the Trust reinvests cash collections on securitized
accounts in additional balances. The Company also receives annual servicing fees as compensation for servicing the outstanding
balances.
F-20
The Company measured its net securitization gains using the present value of estimated future cash flows. The valuations technique
required the use of key economic assumptions about repayment rates, credit losses and interest rates. The following table shows the
key economic assumptions used in measuring the securitization gains and the fair value of retained interest for 2001. The table also
displays the sensitivity of the current fair values of residual cash flows to adverse changes in repayment, charge-off and discount rate
assumptions:
(dollars in thousands)
PORTFOLIO YIELD
REPAYMENT SPEED (MONTHLY RATE)
Impact of 5% change
Impact of 10% change
EXPECTED CREDIT LOSSES (ANNUAL RATE)
Impact of 5% change
Impact of 10% change
DISCOUNT RATE
Impact of 5% change
Impact of 10% change
Fiscal 2001
21.8%
17.7%
$454
909
7.0%
$373
745
6.1%
$70
141
These sensitivities are hypothetical and are presented for illustrative purposes only. Changes in fair value based on a change in
assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not
be linear. The changes in assumptions presented in the above table were calculated without changing any other assumption; in reality,
changes in one assumption may result in changes in another, which may magnify or counteract the sensitivities.
The table below summarizes certain cash flows received from and paid to securitization trusts for the year ended February 2, 2002.
Cash flow data had not been provided for 2002 as the securitization trust was consolidated beginning in the second quarter.
(dollars in thousands)
Proceeds from new securitization pool
Proceeds from collections reinvested in previous
credit card securitizations
Servicing fees received
Cash flows received on retained interests
$200,000
580,000
7,844
39,147
The following table presents information about principal balances of managed and securitized credit card receivables as of and for the
year ended February 2, 2002.
(dollars in thousands)
Receivables securitized, maturing in 2005
Retained interest in transferred credit card receivables
Other receivables owned
Allowance for doubtful accounts
Accounts receivable, net
Net charge-offs of managed credit card receivables
Delinquency rate on managed credit card receivables
$300,000
$1,087,561
24,764
(37,385)
$1,074,940
$73,246
6.5%
F-21
16. Quarterly Results of Operations (unaudited)
During the second quarter of 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill
and Other Intangible Assets.” The cumulative effect of the accounting change as of February 3, 2002 was to decrease net income for
fiscal year 2002 by $530 million or $6.22 per diluted share. The Company has restated the first quarter of 2002 in accordance with
SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” as follows:
(in thousands, except per share data)
May 4
August 3
November 2
February 1
Fiscal 2002, Three Months Ended
As
Restated
$1,910,879
684,451
As
Previously
Reported
$1,910,879
684,451
57,764
(472,219)
57,764
58,112
Net sales
Gross profit
Income (loss) before extraordinary item
and accounting change
Net income (loss)
Diluted earnings per share:
Income (loss) before extraordinary
item and accounting change
Net income (loss)
$1,817,976
620,677
12,501
6,666
$1,794,250
602,813
$2,387,891
748,921
(6,215)
(5,102)
72,250
72,250
.68
(5.56)
.68
.68
.15
.08
(.07)
(.06)
.85
.85
(in thousands, except per share data)
Net sales
Gross profit
Income (loss) before extraordinary item
Net income (loss)
Diluted earnings per share:
Income (loss) before extraordinary item
Net income (loss)
May 5
$1,920,309
667,302
25,834
28,993
.30
.34
Fiscal 2001, Three Months Ended
August 4
$1,828,304
589,934
(20,568)
(18,605)
November 3
$1,872,333
559,377
(40,241)
(40,116)
(.24)
(.22)
(.48)
(.48)
February 2
$2,533,965
830,596
100,761
101,526
1.20
1.21
Total of quarterly earnings per common share may not equal the annual amount because net income per common share is calculated
independently for each quarter.
F-22
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DILLARD'S, INC. AND SUBSIDIARIES
(DOLLAR AMOUNTS IN THOUSANDS)
Column A
Column B
Column C
Column D
Column E
Column F
Additions
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions (1)
Balance at
End of
Period
Description
Allowance for losses on accounts receivable:
Year Ended February 1, 2003
$37,385
$98,787
$ -
$86,417
$49,755
Year Ended February 2, 2002
32,240
78,121
-
72,976
37,385
Year Ended February 3, 2001
32,533
83,277
-
83,570
32,240
(1) Accounts written off and charged to allowance for losses on accounts receivable (net of recoveries).
F-23
Number
*3(a)
Exhibit Index
Description
Restated Certificate of Incorporation (Exhibit 3 to Form 10-Q for the quarter ended August 1,
1992 in 1-6140).
*3(b)
By-Laws as currently in effect (Exhibit 3.1 to Form 8-K dated as of March 2, 2002 in 1-6140).
*4(a)
*4(b)
*4(c)
*4(d)
Indenture between the Registrant and Chemical Bank, Trustee, dated as of October 1, 1985
(Exhibit (4) in 2-85556).
Indenture between the Registrant and Chemical Bank, Trustee, dated as of October 1, 1986
(Exhibit (4) in 33-8859).
Indenture between Registrant and Chemical bank, dated as of April 15, 1987 (Exhibit 4.3 in
33-13534).
Indenture between Registrant and Chemical bank, Trustee, dated as of May 15, 1988, as
supplemented (Exhibit 4 in 33-21671, Exhibit 4.2 in 33-25114 and Exhibit 4(c) to Current
Report on Form 8-K dated September 26, 1990 in 1-6140).
*4(e)
Rights Agreement between Dillard’s, Inc. and Registrar and Transfer Company, as Rights
Agent (Exhibit 4.1 to Form 8-K dated as of March 2, 2002 in 1-6140).
**10(a)
Retirement Contract of William Dillard dated March 8, 1997 (Exhibit 10(a) to Form 10-K for
the fiscal year ended February 1, 1997 in 1-6140).
**10(b)
1998 Incentive and Nonqualified Stock Option Plan (Exhibit 10 (b) to Form 10-K for the fiscal
year ended January 30, 1999 in 1-6140).
**10(c)
Corporate Officers Non-Qualified Pension Plan (Exhibit 10(c) to Form 10-K for the fiscal year
ended January 29, 1994 in 1-6140).
10(d) Amendment No. 1 to the Corporate Officers Non-Qualified Pension Plan.
**10(e)
Senior Management Cash Bonus Plan (Exhibit 10(d) to Form 10-K for the fiscal year ended
January 28, 1995 in 1-6140).
**10(f)
2000 Incentive and Nonqualified Stock Option Plan (Exhibit 10(e) to Form 10-K for the fiscal
year ended February 3, 2001 in 1-6140).
12
*18
21
23
Statement re: Computation of Ratio of Earnings to Fixed Charges.
Letter re: Change in Accounting Principles (Exhibit 18 to Form 10-K for the fiscal year ended
February 3, 2001 in 1-6140).
Subsidiaries of Registrant
Consent of Independent Auditors
E-1
99(a)
99(b)
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
* Incorporated by reference as indicated.
** A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant
to Item 14(c) of Form 10-K.
E-2
Corporate Headquarters
1600 Cantrell Road
Little Rock, 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”
Store Openings-2002
During 2002, Dillard's opened newly constructed stores in
these locations:
Location
City
Open
Square Ft
Gulf View Square*
Prescott Gateway
Lynnhaven Mall*
Triangle Town Center Raleigh, NC
Randolph Mall
Parkway Place
Fashion Show*
February
Port Richey, FL
March
Prescott, AZ
Virginia Beach, VA August
August
October
October
October
Asheboro, NC
Huntsville, AL
Las Vegas, NV
143,000
98,000
180,000
200,000
60,000
180,000
200,000
*Replacement store.
S H A R E H O L D E R I N F O R M A T I O N
Annual Meeting
Saturday, May 17, 2003, at 9:30 a.m.,
Dillard’s Corporate Office
1600 Cantrell Road,
Little Rock, Arkansas 72201
Financial and Other Information
Copies of financial documents and other company information
such as Dillard’s, Inc. reports on Form 10-K and 10-Q and
other reports filed with the Securities and Exchange
Commission are available by contacting:
Dillard’s, Inc.
Investor Relations
1600 Cantrell Road,
Little Rock, Arkansas 72201
501-376-5522
Monthly sales recording: 800-493-7952
E-mail: investor.relations@dillards.com
Financial reports, press releases and other Company informa-
tion are available on the Dillard’s, Inc. Web site:
www.dillards.com
Individuals or securities analysts with questions
regarding Dillard’s, Inc. may contact:
Julie J. Bull
Director of Investor Relations
1600 Cantrell Road
Little Rock, Arkansas 72201
Telephone: 501-376-5965
Fax: 501-376-5917
E-mail: julie.bull@dillards.com
Transfer Agent and Registrar
Registered shareholders should address communications
regarding address changes, lost certificates and other adminis-
trative matters to the Company’s Transfer Agent and
Registrar.
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Telephone: 800-368-5948
E-Mail: info@rtco.com
Web page: www.rtco.com
Please refer to Dillard’s, Inc. on all correspondence and have
available your name as printed on your stock certificate, your
Social Security number, your address and phone number.
On the cover:
Katherine Kelly, one of Dillard's premier private brands,
presents classically modern styling in luxurious fabrics.
Dillard’s, Inc.
1600 Cantrell Road
Little Rock, Arkansas 72201
www.dillards.com