# Dillard'S, Inc.: Form 10-Q for the period ended May 5, 2018

- Company: [Dillard'S, Inc.](/companies/dds.md) (CIK 28917)
- Form: 10-Q
- Filed: 2018-06-08
- Accepted by EDGAR: Jun 8, 2018, 17:03 ET
- Period: 2018-05-05
- Accession: 0000028917-18-000262
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/28917/000002891718000262/dds-050518x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/28917/000002891718000262/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-05-05.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-02-04 to 2018-05-05 | $1.49bn | us-gaap:Revenues |
| Cost of revenue | 3 months, 2018-02-04 to 2018-05-05 | $903.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2018-02-04 to 2018-05-05 | $553.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2018-02-04 to 2018-05-05 | $405.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Interest expense | 3 months, 2018-02-04 to 2018-05-05 | $14.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-02-04 to 2018-05-05 | $22.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-02-04 to 2018-05-05 | $80.5m | us-gaap:NetIncomeLoss |
| Operating cash flow | 3 months, 2018-02-04 to 2018-05-05 | $55.4m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 3 months, 2018-02-04 to 2018-05-05 | $39.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2018-02-04 to 2018-05-05 | $2.8m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2018-02-04 to 2018-05-05 | $36.8m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2018-05-05 | $164.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-05-05 | $2.05bn | us-gaap:AssetsCurrent |
| Total assets | at 2018-05-05 | $3.78bn | us-gaap:Assets |
| Current liabilities | at 2018-05-05 | $1.28bn | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2018-05-05 | $365.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2018-05-05 | $160.9m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2018-05-05 | $1.68bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,656 characters.

The following discussion should be read in conjunction with the condensed consolidated financial statements and the footnotes thereto included elsewhere in this report, as well as the financial and other information included in our Annual Report on Form 10-K for the year ended February 3, 2018.

### EXECUTIVE OVERVIEW

The Company's first quarter performance of fiscal 2018 continued to reflect our positive sales momentum. During the three months ended May 5, 2018, comparable store sales increased 2% over last year's first quarter. Gross margin from retail operations decreased 31 basis points of net sales. Selling, general and administrative expenses from retail operations increased 13 basis points of net sales. Consolidated net income increased $14.2 million to $80.5 million ($2.89 per share) from $66.3 million ($2.12 per share) for the prior year first quarter.

During the three months ended May 5, 2018, the Company purchased $34.8 million of Class A Common Stock, completing the authorized purchases under the February 2016 $500 million stock repurchase plan. In March 2018, the Company's Board of Directors authorized a new $500 million stock repurchase plan, of which all of the authorization remained as of May 5, 2018.

As of May 5, 2018, the Company had working capital of $767.1 million, cash and cash equivalents of $164.1 million and $726.4 million of total debt outstanding, excluding capital lease obligations. Cash flows from operating activities were $55.4 million for the three months ended May 5, 2018.

The Company currently operates 267 Dillard's locations, 25 clearance centers and one internet store.

### Key Performance Indicators

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

|  | Three Months Ended May 5, 2018 | April 29, 2017 |
| --- | ---: | ---: |
| Net sales (in millions) | $1,456.3 | $1,418.1 |
| Retail stores sales trend | 2% | (4)% |
| Comparable retail stores sales trend | 2% | (4)% |
| Gross profit (in millions) | $553.3 | $548.2 |
| Gross profit as a percentage of net sales | 38.0% | 38.7% |
| Retail gross profit as a percentage of net sales | 39.1% | 39.5% |
| Selling, general and administrative expenses as a percentage of net sales | 27.9% | 28.0% |
| Cash flow from operations (in millions) | $55.4 | $83.4 |
| Total retail store count at end of period | 292 | 293 |
| Retail sales per square foot | $29 | $29 |
| Retail store inventory trend | 4% | 4% |
| Annualized retail merchandise inventory turnover | 2.1 | 2.1 |

### General

**Net sales.** Net sales includes merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of CDI Contractors, LLC (“CDI”), the Company’s general contracting construction company. Comparable store sales includes sales for those stores which were in operation for a full period in both the current quarter and the corresponding quarter for the prior year. Comparable store sales excludes changes in the allowance for sales returns. Non-comparable store sales includes: sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores; sales from new stores opened during the current fiscal year; sales in the previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores; sales in clearance centers; and changes in the allowance for sales returns.

**Service charges and other income.** Service charges and other income includes income generated through the long-term private label card alliance with Wells Fargo Bank, N.A. (“Wells Fargo Alliance”). Other income includes rental income, shipping and handling fees, gift card breakage and lease income on leased departments.

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

**Selling, general and administrative expenses.** Selling, general and administrative expenses include buying, occupancy, selling, distribution, warehousing, store and corporate expenses (including payroll and employee benefits), insurance, employment taxes, advertising, management information systems, legal and other corporate level expenses. Buying expenses consist of payroll, employee benefits and travel for design, buying and merchandising personnel.

**Depreciation and amortization.** Depreciation and amortization expenses include depreciation and amortization on property and equipment.

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

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

**Other expense.** Other expense includes the interest cost and net actuarial loss components of net periodic benefit costs related to the the Company's unfunded, nonqualified defined benefit plan and charges related to the write-off of deferred financing fees in connection with the amendment of the Company's senior unsecured revolving credit facility, if any.

**Gain on disposal of assets.** Gain on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment, as well as gains from insurance proceeds in excess of the cost basis of insured assets, if any.

**Income on and equity in earnings of joint ventures.** Income on and equity in earnings of joint ventures includes the Company's portion of the income or loss as well as any distributions of excess cash (excluding returns of investments) of the Company's unconsolidated joint ventures.

### Seasonality

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

### RESULTS OF OPERATIONS

The following table sets forth the results of operations as a percentage of net sales for the periods indicated (percentages may not foot due to rounding):

|  | Three Months Ended May 5, 2018 | April 29, 2017 |
| --- | ---: | ---: |
| Net sales | 100.0% | 100.0% |
| Service charges and other income | 2.4 | 2.4 |
|  | 102.4 | 102.4 |
| Cost of sales | 62.0 | 61.3 |
| Selling, general and administrative expenses | 27.9 | 28.0 |
| Depreciation and amortization | 3.8 | 4.2 |
| Rentals | 0.4 | 0.4 |
| Interest and debt expense, net | 1.0 | 1.1 |
| Other expense | 0.1 | 0.1 |
| Loss (gain) on disposal of assets | — | — |
| Income before income taxes and income on and equity in earnings of joint ventures | 7.1 | 7.2 |
| Income taxes | 1.6 | 2.6 |
| Income on and equity in earnings of joint ventures | — | — |
| Net income | 5.5% | 4.7% |

### Critical Accounting Policies and Estimates Updates

**Revenue recognition.** The Company's retail operations segment recognizes revenue upon the sale of merchandise to its customers, net of anticipated returns of merchandise. The asset and liability for sales returns are based on historical evidence of our return rate. We recorded a return asset of $11.7 million, $9.5 million and $11.6 million and an allowance for sales returns, of $20.0 million, $14.3 million and $20.0 million as of May 5, 2018, February 3, 2018 and April 29, 2017, respectively. The return asset and the allowance for sales returns are recorded in the condensed consolidated balance sheets in other current assets and trade accounts payable and accrued expenses, respectively. Adjustments to earnings resulting from revisions to estimates on our sales return provision were not material for the three months ended May 5, 2018 and April 29, 2017.

The Company's share of income earned under the Wells Fargo Alliance involving the Dillard's branded private label credit cards is included as a component of service charges and other income. The Company participates in the marketing of the private label credit cards, which includes the cost of customer reward programs. Through the reward programs, customers earn points that are redeemable for discounts on future purchases. The Company defers a portion of its net sales upon the sale of merchandise to its customer reward program members that is recognized in net sales when the reward is redeemed at a future date. The Company accepts payments on the private label credit cards in its stores as a convenience to customers who prefer to pay in person rather than by paying online or mailing their payments to Wells Fargo.

Revenues from CDI construction contracts are generally recognized by applying percentages of completion for each period to the total estimated revenue for the respective contracts. Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations based on standalone selling prices. Construction contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of our contract modifications are for goods and services that are not distinct from the existing contracts; therefore, the modifications are accounted for as if they were part of the existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation for which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. The length of each contract varies but is typically nine to eighteen months. The percentages of completion are determined by relating the actual costs of work performed to date to the current estimated total costs of the respective contracts. Any anticipated losses on completed contracts are recognized as soon as they are determined.

Construction contracts give rise to accounts receivable, contract assets and contract liabilities. We record accounts receivable based on amounts billed to customers. We also record costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) in other current assets and trade accounts payable and accrued expenses, respectively, on the condensed consolidated balance sheets.

### Net Sales

*(in thousands of dollars)*

| Net sales: | Three Months Ended May 5, 2018 | April 29, 2017 | $ Change |
| --- | ---: | ---: | ---: |
| Retail operations segment | $1,409,409 | $1,385,557 | $23,852 |
| Construction segment | 46,918 | 32,591 | 14,327 |
| Total net sales | $1,456,327 | $1,418,148 | $38,179 |

The percent change in the Company’s sales by segment and product category for the three months ended May 5, 2018 compared to the three months ended April 29, 2017 as well as the sales percentage by segment and product category to total net sales for the three months ended May 5, 2018 are as follows:

| Retail operations segment | % Change 2018 - 2017 | % of Net Sales |
| --- | ---: | ---: |
| Cosmetics | 0.6% | 14% |
| Ladies’ apparel | 1.2 | 24 |
| Ladies’ accessories and lingerie | 5.5 | 14 |
| Juniors’ and children’s apparel | 5.3 | 10 |
| Men’s apparel and accessories | 2.7 | 16 |
| Shoes | (2.8) | 16 |
| Home and furniture | 6.1 | 3 |
|  |  | 97 |
| Construction segment | 44.0 | 3 |
| Total |  | 100% |

Net sales from the retail operations segment increased $23.9 million during the three months ended May 5, 2018 compared to the three months ended April 29, 2017, increasing 2% in both total and comparable stores. Sales of ladies' accessories and lingerie, juniors' and children's apparel and home and furniture increased significantly over the first quarter last year. Sales of men's apparel and accessories increased moderately. Sales of ladies' apparel and cosmetics increased slightly, while sales of shoes decreased moderately.

The number of sales transactions decreased 2% for the three months ended May 5, 2018 compared to the three months ended April 29, 2017 while the average dollars per sales transaction increased 3%. We recorded a return asset of $11.7 million and $11.6 million and an allowance for sales returns of $20.0 million as of May 5, 2018 and April 29, 2017, respectively.

During the three months ended May 5, 2018, net sales from the construction segment increased $14.3 million or 44% compared to the three months ended April 29, 2017 due to an increase in construction projects. The backlog of awarded construction contracts at May 5, 2018 totaled $306.9 million, decreasing approximately 4% from February 3, 2018 and increasing approximately 49% from April 29, 2017. We expect the backlog to be earned over the next nine to twenty-four months.

### Service Charges and Other Income

*(in thousands of dollars)*

| Service charges and other income: Retail operations segment | Three Months Ended May 5, 2018 | April 29, 2017 | $ Change |
| --- | ---: | ---: | ---: |
| Income from Wells Fargo Alliance | $21,844 | $21,802 | $42 |
| Shipping and handling income | 6,965 | 7,512 | (547) |
| Leased department income | 1,219 | 1,432 | (213) |
| Other | 4,113 | 3,776 | 337 |
|  | 34,141 | 34,522 | (381) |
| Construction segment | 257 | 91 | 166 |
| Total service charges and other income | $34,398 | $34,613 | $(215) |

### Gross Profit

*(in thousands of dollars)*

| Gross profit: | Three Months Ended May 5, 2018 | April 29, 2017 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Retail operations segment | $551,625 | $546,650 | $4,975 | 0.9% |
| Construction segment | 1,656 | 1,526 | 130 | 8.5 |
| Total gross profit | $553,281 | $548,176 | $5,105 | 0.9% |

| Gross profit as a percentage of segment net sales: | Three Months Ended May 5, 2018 | April 29, 2017 |
| --- | ---: | ---: |
| Retail operations segment | 39.1% | 39.5% |
| Construction segment | 3.5 | 4.7 |
| **Total gross profit as a percentage of net sales** | 38.0 | 38.7 |

Gross profit increased by $5.1 million but decreased, on a percentage basis, by 66 basis points of net sales during the three months ended May 5, 2018 compared to the three months ended April 29, 2017.

Gross profit from retail operations decreased 31 basis points of net sales during the three months ended May 5, 2018 compared to the three months ended April 29, 2017 primarily due to increased markdowns. Gross margin decreased moderately in ladies' apparel, juniors' and children's apparel and home and furniture. Gross margin decreased slightly in cosmetics. Gross margin increased moderately in ladies' accessories and lingerie and men's apparel and accessories, while remaining essentially flat in shoes.

Gross profit from the construction segment decreased 115 basis points of construction sales for the three months ended May 5, 2018.

Inventory increased 4% in total as of May 5, 2018 compared to April 29, 2017. A 1% change in the dollar amount of markdowns would have impacted net income by approximately $2 million for the three months ended May 5, 2018.

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

*(in thousands of dollars)*

| SG&A: | Three Months Ended May 5, 2018 | April 29, 2017 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Retail operations segment | $403,970 | $395,292 | $8,678 | 2.2% |
| Construction segment | 1,900 | 1,353 | 547 | 40.4 |
| Total SG&A | $405,870 | $396,645 | $9,225 | 2.3% |

| SG&A as a percentage of segment net sales: | Three Months Ended May 5, 2018 | April 29, 2017 |
| --- | ---: | ---: |
| Retail operations segment | 28.7% | 28.5% |
| Construction segment | 4.0 | 4.2 |
| **Total SG&A as a percentage of net sales** | 27.9 | 28.0 |

SG&A decreased 10 basis points of net sales during the three months ended May 5, 2018 compared to the three months ended April 29, 2017. SG&A from retail operations increased 13 basis points of net sales during the three months ended May 5, 2018 compared to the three months ended April 29, 2017 mainly due to increases in payroll ($5.1 million), primarily selling payroll, and services purchased ($1.3 million).

### Depreciation and Amortization

*(in thousands of dollars)*

| Depreciation and amortization: | Three Months Ended May 5, 2018 | April 29, 2017 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Retail operations segment | $55,844 | $59,843 | $(3,999) | (6.7)% |
| Construction segment | 159 | 168 | (9) | (5.4) |
| Total depreciation and amortization | $56,003 | $60,011 | $(4,008) | (6.7)% |

Depreciation and amortization expense decreased $4.0 million during the three months ended May 5, 2018 compared to the three months ended April 29, 2017, primarily due to the timing and composition of capital expenditures.

### Interest and Debt Expense, Net

*(in thousands of dollars)*

| Interest and debt expense (income), net: | Three Months Ended May 5, 2018 | April 29, 2017 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Retail operations segment | $14,030 | $15,703 | $(1,673) | (10.7)% |
| Construction segment | (8) | (21) | 13 | 61.9 |
| Total interest and debt expense, net | $14,022 | $15,682 | $(1,660) | (10.6)% |

Net interest and debt expense decreased $1.7 million during the three months ended May 5, 2018 compared to the three months ended April 29, 2017, primarily due to lower average debt levels. Total weighted average debt decreased by $87.1 million during the three months ended May 5, 2018 compared to the three months ended April 29, 2017, primarily due to a note maturity in January 2018.

### Other Expense

*(in thousands of dollars)*

| Other expense: | Three Months Ended May 5, 2018 | April 29, 2017 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Retail operations segment | $1,915 | $1,807 | $108 | 6.0% |
| Construction segment | — | — | — | — |
| Total other expense | $1,915 | $1,807 | $108 | 6.0% |

During the three months ended May 5, 2018, the Company adopted ASU No. 2017-07 and applied the amendments retrospectively, as required (See Note 2, *Recently Issued Accounting Standards)*. As a result of the adoption of ASU No. 2017-07, the interest cost and net actuarial loss components of net periodic benefit costs, $1.9 million and $1.8 million for the three months ended May 5, 2018 and April 29, 2017, respectively, were included in other expense rather than selling, general and administrative expenses in the condensed consolidated statements of income and retained earnings.

### Income Taxes

The Tax Cuts and Jobs Act ( the “Act”) was signed into law on December 22, 2017. The Act’s primary impact to the Company’s consolidated financial statements was its reduction of the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. The Company determined a reasonable estimate of the income tax effects of the Act and recorded provisional amounts within its consolidated financial statements during fiscal 2017. During the three months ended May 5, 2018, no adjustments were made to the provisional amounts recorded. The Company continues to analyze additional information and guidance related to certain aspects of the Act, including, but not limited to, increased expensing of business assets, limitations on the deductibility of executive compensation, conformity or changes by state taxing authorities in response to the Act, and any impact on the final determination of the net deferred tax liabilities. The final income tax effects of the Act may differ from the provisional amounts recorded due to, among other factors, anticipated guidance to be released in the coming year, including IRS notices, and any resulting changes in the Company’s interpretation and application of the Act. The Company will finalize its accounting for the income tax effects of the Act within the one-year measurement period provided under SEC Staff Accounting Bulletin No. 118.

The Company’s estimated federal and state effective income tax rate, inclusive of income on and equity in earnings of joint ventures, was approximately 22.0% and 35.3% for the three months ended May 5, 2018 and April 29, 2017, respectively. The decline in the effective income tax rate primarily reflects the impact of the reduction of the federal corporate income tax rate from 35% to 21% pursuant to the Act. During the three months ended May 5, 2018 and April 29, 2017, income tax expense differed from what would be computed using the applicable statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for federal tax credits.

The Company expects the fiscal 2018 federal and state effective income tax rate to approximate 22% to 23%. This rate may change if results of operations for fiscal 2018 differ from management’s current expectations. Changes in the Company’s assumptions and judgments can materially affect amounts recognized in the condensed consolidated balance sheets and statements of income.

### FINANCIAL CONDITION

A summary of net cash flows for the three months ended May 5, 2018 and April 29, 2017 follows:

*(in thousands of dollars)*

|  | Three Months Ended May 5, 2018 | April 29, 2017 | $ Change |
| --- | ---: | ---: | ---: |
| Operating Activities | $55,391 | $83,443 | $(28,052) |
| Investing Activities | (36,508) | (32,254) | (4,254) |
| Financing Activities | (39,920) | (96,693) | 56,773 |
| Total Cash Used | $(21,037) | $(45,504) | $24,467 |

Net cash flows from operations decreased $28.1 million during the three months ended May 5, 2018 compared to the three months ended April 29, 2017. This decrease was primarily attributable to a decrease of $38.3 million related to changes in working capital items, primarily due to increases in accounts receivable and inventory and decreases in income taxes, which were partially offset by increases in accounts payable and accrued expenses.

Wells Fargo Bank, N.A. ("Wells Fargo") owns and manages Dillard’s private label credit cards under the Wells Fargo Alliance. Under the Wells Fargo Alliance, Wells Fargo establishes and owns private label card accounts for our customers, retains the benefits and risks associated with the ownership of the accounts, provides key customer service functions, including new account openings, transaction authorization, billing adjustments and customer inquiries, receives the finance charge income and incurs the bad debts associated with those accounts.

Pursuant to the Wells Fargo Alliance, we receive on-going cash compensation from Wells Fargo based upon the portfolio's earnings. The compensation earned on the portfolio is determined monthly and has no recourse provisions. The amount the Company receives is dependent on the level of sales on Wells Fargo accounts, the level of balances carried on Wells Fargo accounts by Wells Fargo customers, payment rates on Wells Fargo accounts, finance charge rates and other fees on Wells Fargo accounts, the level of credit losses for the Wells Fargo accounts as well as Wells Fargo's ability to extend credit to our customers. We participate in the marketing of the private label cards, which includes the cost of customer reward programs. We accept payments on the private label cards in our stores as a convenience to customers who prefer to pay in person rather than by paying online or mailing their payments to Wells Fargo. The Wells Fargo Alliance expires in fiscal 2024.

The Company recorded income of approximately $22 million from the Wells Fargo Alliance during both the three months ended May 5, 2018 and April 29, 2017.

Capital expenditures were $39.2 million and $34.5 million for the three months ended May 5, 2018 and April 29, 2017, respectively. The increase in capital expenditures was primarily related to the remodeling of existing stores during the current year. Capital expenditures for fiscal 2018 are expected to be approximately $140 million compared to actual expenditures of $130 million during fiscal 2017.

During the three months ended May 5, 2018, the Company received cash proceeds of $1.9 million from the sale of a location classified as an asset held for sale. These proceeds were being held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary. Pursuant to the like-kind exchange agreements, the cash is restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property. As of May 5, 2018, the acquisition of replacement property had not yet occurred; therefore, the proceeds were classified as restricted cash on the condensed consolidated balance sheet.

We remain committed to closing under-performing stores where appropriate and may incur future closing costs related to such stores when they close.

The Company had cash on hand of $164.1 million as of May 5, 2018. As part of our overall liquidity management strategy and for peak working capital requirements, the Company maintains an unsecured revolving credit facility that provides a borrowing capacity of $800 million with a $200 million expansion option ("credit agreement"). The credit agreement is available to the Company for general corporate purposes including, among other uses, working capital financing, the issuance of letters of credit, capital expenditures and, subject to certain restrictions, the repayment of existing indebtedness and share repurchases. The rate of interest on borrowings is LIBOR plus 1.375%, and the commitment fee for unused borrowings is 0.20% per annum. To be in compliance with the financial covenants of the credit agreement, the Company's total leverage ratio cannot exceed 3.5 to 1.0, and the Company's coverage ratio cannot be less than 2.5 to 1.0, as defined in the credit agreement. At May 5, 2018, the Company was in compliance with all financial covenants related to the credit agreement.

At May 5, 2018, no borrowings were outstanding, and letters of credit totaling $24.8 million were issued under the credit agreement leaving unutilized availability under the facility of $775.2 million.

During the three months ended May 5, 2018, the Company repurchased 0.5 million shares of Class A Common Stock at an average price of $72.77 per share for $34.8 million, completing the authorization under the February 2016 stock repurchase plan. Additionally, the Company paid $2.0 million for share repurchases that had not yet settled but were accrued at February 3, 2018. During the three months ended April 29, 2017 the Company repurchased 1.7 million shares of its Class A Common Stock at an average price of $53.79 for $91.1 million. Additionally, the Company paid $6.0 million for share repurchases that had not yet settled but were accrued at January 28, 2017. In March 2018, the Company's Board of Directors authorized a new $500 million stock repurchase plan (the "March 2018 Plan"). At May 5, 2018, $500 million of authorization remained under the March 2018 Plan. The ultimate disposition of the repurchased stock has not been determined.

During fiscal 2018, the Company expects to finance its capital expenditures, working capital requirements and stock repurchases from cash on hand, cash flows generated from operations and utilization of the credit facility. Depending on conditions in the capital markets and other factors, the Company may from time to time consider other possible financing transactions, the proceeds of which could be used to refinance current indebtedness or for other corporate purposes.

There have been no material changes in the information set forth under caption “Contractual Obligations and Commercial Commitments” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018.

### OFF-BALANCE-SHEET ARRANGEMENTS

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

### NEW ACCOUNTING STANDARDS

For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2, *Accounting Standards*, in the "Notes to Condensed Consolidated Financial Statements," in Part I, Item I hereof.

### FORWARD-LOOKING INFORMATION

This report contains certain forward-looking statements. The following are or may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (a) statements including words such as “may,” “will,” “could,” “should,” “believe,” “expect,” “future,” “potential,” “anticipate,” “intend,” “plan,” “estimate,” “continue,” or the negative or other variations thereof; (b) statements regarding matters that are not historical facts; and (c) statements about the Company’s future occurrences, plans and objectives, including statements regarding management’s expectations and forecasts for the remainder of fiscal 2018 and beyond, statements concerning the opening of new stores or the closing of existing stores, statements concerning capital expenditures and sources of liquidity, statements concerning share repurchases, statements concerning pension contributions and statements concerning estimated taxes. The Company cautions that forward-looking statements contained in this report are based on estimates, projections, beliefs and assumptions of management and information available to management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Forward-looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of those factors include (without limitation) general retail industry conditions and macro-economic conditions; economic and weather conditions for regions in which the Company's stores are located and the effect of these factors on the buying patterns of the Company's customers, including the effect of changes in prices and availability of oil and natural gas; the availability of consumer credit; the impact of competitive pressures in the department store industry and other retail channels including specialty, off-price, discount and Internet retailers; changes in consumer confidence, spending patterns, debt levels and their ability to meet credit obligations; high levels of unemployment; changes in tax legislation; changes in legislation, affecting such matters as the cost of employee benefits or credit card income; adequate and stable availability of materials, production facilities and labor from which the Company sources its merchandise at acceptable pricing; changes in operating expenses, including employee wages, commission structures and related benefits; system failures or data security breaches; possible future acquisitions of store properties from other department store operators; the continued availability of financing in amounts and at the terms necessary to support the Company's future business; fluctuations in LIBOR and other base borrowing rates; potential disruption from terrorist activity and the effect on ongoing consumer confidence; epidemic, pandemic or other public health issues; potential disruption of international trade and supply chain efficiencies; world conflict and the possible impact on consumer spending patterns and other economic and demographic changes of similar or dissimilar nature. The Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended February 3, 2018, contain other information on factors that may affect financial results or cause actual results to differ materially from forward-looking statements.

## Market risk

As filed, 235 characters.

There have been no material changes in the information set forth under caption “Item 7A-Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018.

## Controls and procedures

As filed, 875 characters.

The Company has established and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). The Company’s management, with the participation of our Principal Executive Officer and Co-Principal Financial Officers, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the fiscal quarter covered by this quarterly report, and based on that evaluation, the Company’s Principal Executive Officer and Co-Principal Financial Officers have concluded that these disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended May 5, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 189 characters.

There have been no material changes in the information set forth under caption “Item 1A-Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018.

Filed Jun 8, 2018.
Source: SEC EDGAR, the filing index for accession 0000028917-18-000262. Last ingested by Listed: Oct 27, 2026, 18:21 ET. No prices; not investment advice.