DILLARD'S, INC.
PROXY STATEMENT
DILLARD'S, INC.
POST OFFICE BOX 486
LITTLE ROCK, ARKANSAS 72203
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 2003
PROXY STATEMENT
DILLARD'S, INC.
POST OFFICE BOX 486
LITTLE ROCK, ARKANSAS 72203
TO THE HOLDERS OF CLASS A AND Little Rock, Arkansas
CLASS B COMMON STOCK: April 8, 2003
Notice is hereby given that the annual meeting of Stockholders of Dillard's, Inc., will be held at the
auditorium of Dillard's Corporate Office, 1600 Cantrell Road, Little Rock, Arkansas on Saturday, May 17, 2003, at
9:30 a.m. for the following purposes:
1. To elect 12 Directors of the Company (four Directors to represent Class A Stockholders and eight
Directors to represent Class B Stockholders).
2. To consider and act upon proposals by certain Stockholders.
3. To transact such other business as may properly come before the meeting or any adjournment
or adjournments thereof.
The stock transfer books of the Company will not be closed, but only stockholders of record at the close
of business on March 31, 2003, will be entitled to notice of, and to vote at, the meeting.
Your participation in the meeting is earnestly solicited. If you do not expect to be present in person
at the meeting, please sign, date, and fill in the enclosed Proxy and return it by mail in the enclosed envelope
to which no postage need be affixed if mailed in the United States of America.
By Order of the Board of Directors
JAMES I. FREEMAN
Senior Vice President,
Chief Financial Officer,
Assistant Secretary
DILLARD'S, INC.
POST OFFICE BOX 486
LITTLE ROCK, ARKANSAS 72203
Telephone (501) 376-5200
April 8, 2003
PROXY STATEMENT
The enclosed Proxy is solicited by and on behalf of the management of Dillard's, Inc. (the "Company"), a
Delaware corporation, for use at the annual meeting of stockholders to be held on Saturday, May 17, 2003, at 9:30
a.m. at the Dillard's Corporate Office, 1600 Cantrell Road, Little Rock, Arkansas, or at any adjournment or
adjournments thereof.
Any stockholder giving a Proxy has the power to revoke it, at any time before it is voted, by written
revocation delivered to the Secretary of the Company. Proxies solicited herein will be voted in accordance with
any directions contained therein, unless the Proxy is received in such form or at such time as to render it
ineligible to vote, or unless properly revoked. If no choice is specified, the shares will be voted in accordance
with the recommendations of the Board of Directors as described herein.
If matters of business other than those described in the Proxy properly come before the meeting, the
persons named in the Proxy will vote in accordance with their best judgment on such matters. The Proxies
solicited herein shall not confer any authority to vote at any meeting of stockholders other than the meeting to
be held on May 17, 2003, or any adjournment or adjournments thereof.
The cost of soliciting Proxies will be borne by the Company. The Company will reimburse brokers,
custodians, nominees and other fiduciaries for their charges and expenses in forwarding proxy material to
beneficial owners of shares. In addition to solicitation by mail, certain officers and employees of the Company
may solicit Proxies by telephone, telegraph and personally. These persons will receive no compensation other than
their regular salaries. The Company has retained D.F. King & Co., Inc., a professional proxy solicitation firm,
to assist in the solicitation of proxies. The fees of such firm are not expected to exceed $7,000.
OUTSTANDING STOCK; VOTING RIGHTS;
VOTE REQUIRED FOR APPROVAL
The stock transfer books of the Company will not be closed, but only stockholders of record at the close
of business on March 31, 2003, will be entitled to notice of, and to vote at, the meeting. At that date, there
were 80,747,732 shares of Class A Common Stock outstanding and 4,010,929 shares of Class B Common Stock
outstanding.
Each holder of Class A Common Stock and each holder of Class B Common Stock shall be entitled to one vote
on the matters presented at the meeting for each share standing in his name except that the holders of Class A
Common Stock are empowered as a class to elect one-third of the Directors and the holders of Class B Common Stock
are empowered as a class to elect two-thirds of the Directors. Stockholders will not be allowed to vote for a
greater number of nominees than those named in this proxy statement. Nominees for director of each class, to be
elected, must receive a plurality of the votes cast within that class. Cumulative voting for Directors is not
permitted. Approval of the Stockholder proposals requires the affirmative vote of the holders of a majority of
the shares of Common Stock represented at the meeting and entitled to vote. Under Delaware General Corporate Law,
if shares are held by a broker that has indicated that it does not have discretionary authority to vote on a
respect to that matter, but such shares will be counted with respect to determining whether a quorum is present.
Abstentions will not be counted as votes cast for election of directors and with respect to the Stockholder
proposals, abstentions will have the effect of a vote against such proposals.
The last date for the acceptance of Proxies by management is the close of business on May 16, 2003, and
no Proxy received after that date will be voted by management at the meeting.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth certain information regarding persons who beneficially owned five percent
(5%) or more of a class of the Company's outstanding voting securities at the close of business on February 1,
2003.
No. of Percent
Name and Address Class Shares Owned Of Class (1)
Dillard's, Inc. Retirement Trust Class A 10,646,883(2) 13.2%
1600 Cantrell Road
Little Rock, AR 72201
Dodge & Cox Class A 8,633,305(2) 10.7%
One Sansome St. 35th Floor
San Francisco, CA 94014
Flippin, Bruce & Porter, Inc. Class A 3,659,293(2) 4.5%
800 Main Street, Suite 200
Lynchburg, VA 24505
W.D. Company (3) Class A 41,496 *
Little Rock, Arkansas Class B 3,985,776 99.4%
Wellington Management Company, LLP Class A 8,111,570(2) 10.0%
75 State Street
Boston, MA 02109
* Denotes less than 0.1%
(1) At February 1, 2003 there were a total of 80,746,732 shares of the Company's Class A Common Stock and
4,010,929 shares of the Company's Class B Common Stock outstanding.
(2) Based on information contained in a Schedule 13G filed with the Securities and Exchange Commission.
(3) William Dillard II, Chief Executive Officer of the Company, Alex Dillard, President, and Mike Dillard,
Executive Vice President, are officers and directors of W.D. Company, Inc. and own 27.4%, 27.9% and
26.3%, respectively, of the outstanding voting stock of W.D. Company, Inc.
ELECTION OF DIRECTORS
Four Directors representing Class A Stockholders and eight Directors representing Class B Stockholders
are to be elected by the Class A Stockholders and the Class B Stockholders, respectively, at the annual meeting
for a term of one year and until the election and qualification of their successors. The Proxies solicited hereby
will be voted "FOR" the election as Directors of the 12 persons hereinafter identified under "Nominees for
Election as Directors" if not specified otherwise. Management does not know of any nominee who will be unable to
serve, but should any nominee be unable or decline to serve, the discretionary authority provided in the Proxy
will be exercised to vote for a substitute or substitutes. Management has no reason to believe that any
substitute nominee will be required.
In 1998, the Company adopted a resolution amending its by-laws to provide that nominations to represent
Class A stockholders shall be of independent persons only. For these purposes, independent shall mean a person
who: has not been employed by the Company or an affiliate in any executive capacity within the last five years;
was not, and is not a member of a corporation or firm that is one of the Company's paid advisers or consultants;
is not employed by a significant customer, supplier or provider of professional services; has no personal services
contract with the Company; is not employed by a foundation or university that receives significant grants or
endowments from the Company; is not a relative of the management of the Company; is not a shareholder who has
signed shareholder agreements legally binding him to vote with management; and is not the chairman of a company on
which Dillard's, Inc. Chief Executive Officer is also a board member.
All of the nominees to represent Class A Stockholders listed below qualify as independent persons as
defined in the above resolution
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION AS DIRECTORS OF THE 12 PERSONS HEREINAFTER
IDENTIFIED.
NOMINEES FOR ELECTION AS DIRECTORS
The following table briefly indicates the principal occupation of each nominee, the approximate number of
shares of Class A and Class B Common Stock of the Company beneficially owned by each nominee as of March 31, 2003,
and the year each nominee first was elected as a Director. The table also indicates the approximate number of
shares of Class A and Class B Common Stock of the Company beneficially owned by the executive officers named under
"Compensation of Directors and Executive Officers" and the number of shares beneficially owned by the directors
and executive officers, as a group, as of March 31, 2003.
Name Age Principal Director Shares of Common Stock Beneficially Percent of
Occupation Since Owned as of 3/31/2003(1) Class Owned as of 3/31/2003 (1) Class
Robert C. Connor (a) 61 Investments 1987 Class A 32,009 (2) *
Class B None
Drue Corbusier (b) 56 Executive Vice 1994 Class A 826,339 (3) 1.0%
President of the Company Class B None
Will D. Davis (a) 73 Partner, Heath, Davis & 1972 Class A 34,440 (4) *
McCalla, Attorneys, Class B None
Austin, TX
Alex Dillard (b)(5) 53 President of the Company 1975 Class A 1,947,414 (6) 2.4%
Class B 3,985,776 (6) 99.4%
Mike Dillard (b)(5) 51 Executive Vice 1976 Class A 1,325,117 (6) 1.6%
President of the Company Class B 3,985,776 (6) 99.4%
William Dillard II 58 Chief Executive Officer 1967 Class A 2,066,855 (6) 2.5%
(b)(5) of the Company Class B 3,985,776 (6) 99.4%
James I. Freeman (b) 53 Senior Vice President 1991 Class A 794,746 (7) 1.0%
and Chief Financial Class B None
Officer of the Company
John Paul Hammerschmidt (a) 80 Retired Member of 1992 Class A 24,000 (8) *
Congress Class B None
Bob L. Martin (a) 54 Business Consultant and - Class A 1,000 *
Retired Chief Executive Class B None
Officer of Wal-Mart
International
Warren A. Stephens (b) 46 President and Chief 2002 Class A 6,000 (9) *
Executive Officer, Class B None
Stephens Group and
Stephens, Inc., Little Rock, AR
William H. Sutton (b) 72 Managing Partner, 1994 Class A 33,000 (10) *
Friday, Eldredge & Class B None
Clark, Attorneys,
Little Rock, AR
J. C. Watts 45 Former Member of 2003 Class A 1,000 *
Congress & Chairman of Class B None
the J.C. Watts Companies
All Nominees and Executive Class A 8,521,628 (11)(12) 9.8%
Officers as a Group (a total Class B 3,985,776 (11) 99.4%
of 21 persons)
(a) Class A Director
(b) Class B Director
*Denotes less than 0.1%
(1) Based on information furnished by the respective individuals.
(2) Includes nine shares owned by his wife. Robert C. Connor owns 13,732 shares of Class A Common Stock and
has the right to acquire beneficial ownership of 18,268 shares pursuant to currently exercisable
options granted under Company stock option plans.
(3) Drue Corbusier owns 225,046 shares of Class A Common Stock and has the right to acquire beneficial
ownership of 601,293 shares pursuant to currently exercisable options granted under Company stock
option plans.
(4) Will D. Davis owns 13,440 shares of Class A Common Stock and has the right to acquire beneficial
ownership of 21,000 shares pursuant to currently exercisable options granted under Company stock
option plans.
(5) William Dillard II, Alex Dillard and Mike Dillard are directors and officers of W.D. Company, Inc. and
own 27.4%, 27.9% and 26.3%, respectively, of the outstanding voting stock of such company.
(6) Includes 41,496 shares of Class A Common Stock and 3,985,776 of Class B Common Stock owned by
W.D.Company, Inc., in which shares William Dillard II, Alex Dillard and Mike Dillard are each deemed to
have a beneficial interest due to their respective relationships with W.D. Company, Inc. See
"Principal Holders of Voting Securities." William Dillard II individually owns 600,359 shares of
Class A Common Stock and has the right to acquire beneficial ownership of 1,425,000 shares pursuant
to currently exercisable options granted under Company stock option plans. Alex Dillard and his wife
individually own 432,607 and 48,311 shares, respectively, of Class A Common Stock, and he has the
right to acquire beneficial ownership of 1,425,000 shares pursuant to currently exercisable options
granted under Company stock option plans. Mike Dillard and his wife individually own 329,681 and 335
shares, respectively of Class A Common Stock, he has sole voting power with respect to 43,605 shares
held in trust for three minor children and has the right to acquire beneficial ownership of 910,000
shares pursuant to currently exercisable options granted under Company stock option plans.
(7) James I. Freeman owns 162,257 shares of Class A Common Stock, has sole voting power with respect
to 14,150 shares held in trust for three minor children and has the right to acquire beneficial
ownership of 618,339 shares pursuant to currently exercisable options granted under Company stock
option plans.
(8) John Paul Hammerschmidt owns 5,097 shares of Class A Common Stock and has the right to acquire beneficial
ownership of 18,903 shares pursuant to currently exercisable options granted under Company stock
option plans.
(9) Warren A. Stephens owns 1,000 shares of Class A Common Stock and has the right to acquire beneficial
ownership of 5,000 shares pursuant to currently exercisable options granted under Company stock
option plans.
(10) William H. Sutton owns 12,000 shares of Class A Common Stock and has the right to acquire beneficial
ownership of 21,000 shares pursuant to currently exercisable options granted under Company stock
option plans.
(11) The shares in which William Dillard II, Alex Dillard and Mike Dillard are deemed to have a beneficial
interest due to their respective relationships with W.D. Company, Inc. have been included in this
computation only once and were not aggregated for such purpose.
(12) Includes the right to acquire beneficial ownership of 6,242,735 shares pursuant to currently exercisable
options granted under Company stock option plans.
The following nominees for director also hold directorships in the designated companies:
Name Director of
William Dillard, II Acxiom Corporation and Barnes & Noble, Inc.
John Paul Hammerschmidt First Federal Bank of Arkansas and Southwestern Energy Co.
Bob L. Martin Edgewater Technologies, Inc., Furniture Brands International, Inc.,
The Gap, Inc. and Sabre Holdings Corporation.
Warren A. Stephens Alltel Corporation, American Capital Access Holdings, Inc., Stephens
Group, Inc., Stephens Holding Company and Stephens, Inc.
J.C. Watts Terex Corporation
The business associations of the nominees as shown in the table under "Nominees for Election as Directors"
have been continued for more than five years, except that prior to 1998 Drue Corbusier was Vice President of the
Company, Alex Dillard was Executive Vice President of the Company and William Dillard II was President and Chief
Operating Officer of the Company. Mr. Martin retired from Wal-Mart International in 1999. Mr. Watts retired from
Congress in 2003. Each nominee for Director was elected to the Board of Directors at the annual meeting of
stockholders held May 18, 2002, except for Bob L. Martin and J.C. Watts.
The Board of Directors met four times during the Company's last fiscal year, on March 2, May 18, August 24,
and November 16, 2002.
Audit Committee members are Calvin N. Clyde, Jr., Robert C. Connor, Chairman; and John H. Johnson. The Audit
Committee held four meetings during the year.
The Executive Compensation Committee members are Robert C. Connor; Will D. Davis, Chairman and John Paul
Hammerschmidt. The Executive Compensation Committee held two meetings during the year.
The Stock Option Committee members are Robert C. Connor; Will D. Davis, Chairman and John Paul
Hammerschmidt. The Stock Option Committee held three meetings during the year.
All of the nominees for director attended at least 75% of the aggregate of (1) the total number of meetings
of the Board of Directors and (2) the total number of meetings held by all committees of the board on which they
served.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Cash and Other Compensation
The following table sets forth, for the fiscal years indicated, the cash and other compensation provided by
the Company and its subsidiaries to the Chief Executive Officer and each of the four most highly compensated
executive officers (the "named executive officers") of the Company in all capacities in which they served.
Summary Compensation Table
Long Term Compensation
---------------------------- ----------
Annual Compensation Awards Payouts
----------- ------------ ---------------- --------------- ------------ ----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted Securities LTIP All Other
Name and Principal Compensation Stock Underlying Payouts Compensa-
Position Year Salary($) Bonus($) ($) Award(s)($) Options/ ($) tion($)(1)
SARs(#)
--------------------------- ------- ----------- ------------ ---------------- --------------- ------------ ---------- ---------------
William Dillard II
Chief Executive Officer 2002 $710,000 $1,375,000 -- -- 300,000 -- $76,046
2001 710,000 0 -- -- 165,000 -- 93,446
2000 710,000 0 -- -- 160,000 -- 194,189
Alex Dillard 2002 620,000 1,375,000 -- -- 300,000 -- 51,410
President 2001 620,000 0 -- -- 165,000 -- 72,100
2000 620,000 0 -- -- 160,000 -- 182,250
Mike Dillard 2002 540,000 645,000 -- -- 150,000 -- 63,446
Executive Vice President 2001 540,000 0 -- -- 80,000 -- 35,027
2000 540,000 0 -- -- 80,000 -- 141,431
Drue Corbusier 2002 500,000 645,000 -- -- 150,000 -- 54,100
Executive Vice President 2001 500,000 0 -- -- 80,000 -- 54,100
2000 500,000 0 -- -- 80,000 -- 122,110
James I. Freeman 2002 500,000 555,000 -- -- 150,000 -- 54,100
Senior Vice President and 2001 500,000 0 -- -- 60,000 -- 54,100
Chief Financial Officer 2000 500,000 0 -- -- 80,000 -- 97,596
(1) Amounts represent the Company's defined contributions for the benefit of the named executive officers pursuant to its
Retirement Plans.
Stock Option Grants
The following table sets forth information concerning stock options granted under the Company's 2000 Stock
Option Plan to the named executive officers:
Option/SAR Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Individual Grants Appreciation for
Option Term
--------------------------------- ------------- ---------------- -------------- ------------- ------------ ------------
(a) (b) (c) (d) (e) (f) (g)
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to Exercise or Expiration
SARs Granted Employees in Base Price Date 5% ($) 10% ($)
Name (#)(1) Fiscal Year ($/Sh)
-------------------------------- --------------- -------------- ------------- ------------ ------------ --------------
William Dillard II 300,000 13.0% $24.01 5/14/2009 $2.932,800 $6,833,700
Alex Dillard 300,000 13.0 24.01 5/14/2009 2.932,800 6,833,700
Mike Dillard 150,000 6.5 24.01 5/14/2009 1,466,400 3,416,850
Drue Corbusier 150,000 6.5 24.01 5/14/2009 1,466,400 3,416,850
James I. Freeman 150,000 6.5 24.01 5/14/2009 1,466,400 3,416,850
(1) If payment for shares upon exercise of any of these options is made with shares of the Company's common stock
owned by the optionee, the optionee shall be granted on that date an option ("Reload Option") to purchase a
number of shares equal to the number of shares tendered to the Company. The exercise price of the Reload
Option shall be the market price of the Company's common stock on the Reload Option grant date, and the
expiration date of the Reload Option shall be the same as that of the original option.
Stock Option Exercises and Holdings
The following table sets forth information concerning stock options exercised during the last fiscal year and
stock options held as of the end of the last fiscal year by the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of Securities Underlying
Unexercised Options/ Value of Unexercised
SARs at FY-End (#) In-the-Money Options/
SARs at FY-End ($)(1)
Shares Acquired
Name on Exercise (#) Value Realized ($) Exercisable Exercisable
Unexercisable Unexercisable
----------------------------------- ------------------- ------------------- ---------------------------- ----------------------------
William Dillard II 150,000 $411,000 1,425,000 0 $ 754,000 0
Alex Dillard 150,000 411,000 1,425,000 0 754,000 0
Mike Dillard 150,000 411,000 910,000 0 377,000 0
Drue Corbusier 410,000 3,064,017 601,293 0 0 0
James I. Freeman 363,135 2,021,850 618,339 0 0 0
(1) Represents the amount by which the market price at fiscal year end of the shares underlying unexercised
options exceeds the exercise price for such shares.
Pension Plan
The following table shows the estimated annual benefits payable pursuant to the Company's pension plan to
persons in specified compensation and years of service categories upon retirement.
Pension Plan Table
Years of Service
Compensation 15 20 25 30 35
$500,000 $92,925 $123,900 $154,875 $185,850 $216,825
750,000 149,175 198,900 248,625 298,350 348,075
1,000,000 205,425 273,900 342,375 410,850 479,325
1,250,000 261,675 348,900 436,125 523,350 610,575
1,500,000 317,925 498,900 623,625 748,350 873,075
2,000,000 430,425 573,900 717,375 860,850 1,004,325
2,250,000 486,675 648,900 811,125 973,350 1,135,575
2,500,000 542,925 723,900 904,875 1,085,850 1,266,825
A participant's compensation covered by the Company's pension plan is his average salary and bonus (as
reported in the Summary Compensation Table) for the highest three years of his employment with the Company. The
credited years of service for each of the named executive officers is as follows: William Dillard II, 34 years;
Alex Dillard, 31 years; Mike Dillard, 31 years; Drue Corbusier, 34 years; and James I. Freeman, 14 years. Benefits
shown are computed as a single life annuity with five years term certain beginning at age 65 and are not subject to
deduction for social security or other offset amounts.
Compensation of Directors
Directors who are not officers of the Company each receive an annual retainer of $20,000 as well as 1,000
shares of Class A Common Stock. In addition, committee chairmen receive an annual retainer of $10,000. Directors
who are not officers also receive $1,500 for attendance at each board meeting, $1,000 for each committee meeting,
and actual travel expenses.
Report of Executive Compensation and Stock Option Committees
The following report addressing the Company's compensation policies for executive officers for fiscal 2002 is
submitted by the Executive Compensation and Stock Option Committees (the "Compensation Committee") of the Board of
Directors.
General
The Compensation Committee, which is composed of independent directors who are not employees of the Company,
establishes policies relating to the compensation of employees and oversees the administration of the Company's
employee benefit plans. The compensation program of the Company has been designed (1) to provide compensation
opportunities that are equivalent to those offered by comparable companies, thereby allowing the Company to compete
for and retain talented executives who are critical to the Company's long-term success, (2) to motivate key senior
officers by rewarding them for attainment of profitability of the Company, and (3) to align the interests of
executives with the long-term interests of stockholders by awarding stock options to executives as part of the
compensation provided to them.
In order to develop a competitive compensation package for the executive officers of the Company, the Compensation
Committee compares the Company's compensation package with those of a comparison group. The comparison group is
composed of department stores, specialty stores and other public companies that were family-founded and continue to
be family-managed. Not all of the companies in the comparison group are included in the Standard & Poor's
Supercomposite Department Stores Index. The Compensation Committee believes that the companies in the comparison
group are comparable to the Company in management style and management culture. Although the Compensation
Committee has made these comparisons, it also has taken into account that as the Company has grown in size, the
number of senior executives has not grown proportionately, so that the number of senior executives retained by the
Company is lower than the number of senior executives at other companies of similar size.
Currently, the Company's compensation program consists of salary, annual cash performance bonus based on the
profitability of the Company, and long-term incentive opportunities in the form of stock options. The compensation
program is focused both on short-term and long-term performance of the Company, rewarding executives for both
achievement of profitability and growth in stockholder value.
Salary -- Each year the Compensation Committee establishes the salary for all executive officers. Such salaries
are set at the discretion of the Compensation Committee and are not specifically related to any company performance
criteria, as are both the cash performance bonus and stock option portions of the compensation program, which are
discussed below. The Compensation Committee does, however, base any increase in salary on targets based on a
regression analysis of salaries paid versus total revenues for the comparison group. For fiscal 2002, the salaries
set by the Compensation Committee were below the target salaries produced by this analysis.
Cash Performance Bonus -- Cash performance bonuses may be paid annually to senior management. For bonuses to be
paid, however, the Company must have income before federal and state income taxes ("pre-tax income") for the fiscal
year. The Compensation Committee, within ninety (90) days after the start of a fiscal year, designates those
individuals in senior management eligible to receive a cash performance bonus. Bonuses are paid at the conclusion
of a fiscal year from a bonus pool, which is equal to one and one-half percent (1-1/2%) of the Company's pre-tax
income plus three and one-half (3-1/2%) of the increase in pre-tax income over the prior fiscal year. When the
Compensation Committee designates the individuals eligible to participate in the cash performance bonus program, it
also designates the percent of the bonus pool each individual will be entitled to receive. The Compensation
Committee retains at all times the authority to adjust downward the amount of bonus any individual may receive
pursuant to the above-described formula. For fiscal 2002, the Company experienced a pre-tax income of $211,100,000
and an increase in pre-tax income of $99,530,000.
The Compensation Committee decided to adjust downward by approximately $2,055,052 the amount of bonus, which the
named executive officers would receive for fiscal 2002.
Stock Options -- Stock option grants under the Company's 2000 Incentive and Non-Qualified Stock Option Plan are
utilized by the Company for long-term incentive compensation for executive officers. These stock option grants
relate their compensation directly to the performance of the Company's stock. The exercise price for the options
granted is one hundred percent (100%) of the fair market value of the shares underlying such options on the date of
grant and have value to the executive officers only if the Company's stock price increases. The stock options are
exercisable on or after May 14, 2002. When making option grants, the Stock Option Committee and the Compensation
Committee do not consider the number of options already held by an executive officer.
As discussed in previous Compensation Committee Reports, the Omnibus Budget Reconciliation Act of 1993 prevents
public corporations from deducting as a business expense that portion of compensation exceeding $1 million paid to
a named executive officer in the Summary Compensation Table. This deduction limit does not apply to
"performance-based compensation." The Compensation Committee believes that the necessary steps have been taken to
qualify as performance-based compensation the compensation paid under the cash performance bonus and stock option
portions of the Company's compensation program.
Chief Executive Officer
In setting the Chief Executive Officer's compensation, the Compensation Committee makes the same determination with
regard to salary, cash performance bonus and stock options as discussed above for the other named executive
officers. For fiscal 2002, the increase in the Chief Executive Officer's salary over the prior fiscal year
resulted in a salary lower than the target salary produced by the regression analysis discussed above
Robert C. Connor
John Paul Hammerschmidt
Will D. Davis, Chairman
Company Performance
The graph below compares for each of the last five fiscal years the cumulative total returns on the Company's
Class A Common Stock, the Standard & Poor's 500 Index and the Standard & Poor's Supercomposite Department Stores
Index. The cumulative total return on the Company's Class A Common Stock assumes $100 invested in such stock on
February 1, 1998 and assumes reinvestment of dividends.
Dillard's, Inc.
Proxy Graph Data Points
Base 1998 1999 2000 2001 2002
Dillard's, Inc. 100 70.91 55.35 44.7 35.78 37.82
S&P 500 100 132.59 142.74 139.78 117.15 90.76
S&P Supercomposite Dept. Strs 100 101.86 74.94 94.57 101.16 69.82
CERTAIN RELATIONSHIPS AND TRANSACTIONS
William Dillard II, Drue Corbusier, Alex Dillard and Mike Dillard are siblings.
Mr. William H. Sutton is Managing Partner of the law firm Friday, Eldredge & Clark, which is retained by the
Company for legal services.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers,
and persons who own more than 10% of the Company's Class A Common Stock, to file with the Securities and Exchange
Commission and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of
stock of the Company.
To the Company's knowledge, based solely on a review of copies of reports provided by such individuals to the
Company and written representations of such individuals that no other reports were required, during the fiscal year
ended February 1, 2003, all Section 16(a) filing requirements applicable to its officers, directors and greater
than 10% beneficial owners were complied with.
AUDIT COMMITTEE REPORT
The Audit Committee operates under a written charter adopted by the Board of Directors. Each of the
members of the Audit Committee is independent as defined under the listing standards of the New York Stock
Exchange.
The Audit Committee has reviewed and discussed the audited financial statements for the year ended
February 1, 2003 with management and the independent auditors, Deloitte & Touche LLP. Management represented to
the Audit Committee that the Company's consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America.
The discussions with Deloitte & Touche LLP included the matters required by Statement on Auditing
Standards No. 61, as amended (Communications with Audit Committees). Deloitte & Touche LLP provided to the Audit
Committee the written disclosures and the letter regarding its independence as required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees). The Audit Committee also considered
whether the provision of non-audit services by Deloitte & Touche LLP is compatible with maintaining the auditor's
independence.
Based upon the reviews and discussions noted above, the Audit Committee recommended to the Board of
Directors that the audited consolidated financial statements be included in the Company's Annual Report on Form
10-K to be filed with the Securities and Exchange Commission for the year ended February 1, 2003.
Robert C. Connor
Calvin N. Clyde
John H. Johnson
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of Deloitte & Touche LLP, the Company's independent public accountants for
fiscal year 2002 and the current year, will be present at the meeting, will have the opportunity to make a
statement, and also will be available to respond to appropriate questions.
Audit Fees
Deloitte & Touche LLP billed the Company a total of $567,106 for professional services rendered
for the audit of the Company's annual financial statements for the year ended February 1, 2003 and for the
review of the financial statements included in the Company's quarterly reports on Form 10-Q for fiscal 2002.
Financial Systems Design and Implementation Fees
No fees were paid to Deloitte & Touche LLP for any information technology services (of the type
described in Rule 2-01(c)(4)(ii)(B) of Regulation S-X) during 2002.
All Other Fees
The Company paid Deloitte & Touche LLP an aggregate of $1,202,157 for all services rendered by
Deloitte & Touche LLP other than the audit and financial systems design and implementation described above.
The Audit Committee of the Board of Directors has considered whether the provision of services
described above under "Financial Systems Design and Implementation Fees" and "All Other Fees" is compatible
with maintaining the independence of Deloitte & Touche LLP.
STOCKHOLDER PROPOSAL CONCERNING GLOBAL HUMAN RIGHTS STANDARDS
The New York City Pension Funds, 1 Centre Street, New York, NY 10007, owner of 295,482 shares of Class A
Common Stock, Christian Brothers Investment Services, Inc., 90 Park Avenue, 29th Floor, New York, NY 10016,
owner of 48,500 shares of Class A Common Stock and Aaron Merle Epstein, 13455 Ventura Boulevard, #209,
Sherman Oaks, CA 91423, owner of 185 shares of Class A Common Stock have indicated that they intend of
propose the following resolution for action at the meeting:
"Whereas, Dillard's, Inc. currently has extensive overseas operations, and
Whereas, reports of human rights abuses in the overseas subsidiaries and suppliers of
some U.S.-based corporations has led to an increased public awareness of the problems of child labor,
"sweatshop" conditions, and the denial of labor rights in U.S. corporate overseas operations, and
Whereas, corporate violations of human rights in these overseas operations can lead to negative publicity, public
protests, and a loss of consumer confidence which can have a
negative impact on shareholder value, and
Whereas, a number of corporations have implemented independent monitoring programs with respected human rights and
religious organizations to strengthen compliance with international human rights norms in subsidiary
and supplier factories, and
Whereas, these standards incorporate the conventions of the United Nations' International Labor Organization (ILO)
on workplace human rights which include the following principles:
1) All workers have the right to form and join trade unions and to bargain collectively. (ILO Conventions 87
and 98)
2) Workers representatives shall not be the subject of discrimination and shall have access to all
workplaces necessary to enable them to carry out their representation functions. (ILO Convention 135)
3) There shall be no discrimination or intimidation in employment. Equality of opportunity and treatment
shall be provided regardless of race, color, sex, religion, political opinion, age, nationality, social
origin, or other distinguishing characteristics. (ILO Convention 100 and 111)
4) Employment shall be freely chosen. There shall be no use of force, including bonded or prison labor.
(IL)Conventions 29 and 105
5) There shall be no use of child labor. (ILO Convention 138), and,
Whereas, independent monitoring of corporate adherence to these standards is essential
if consumer and investor confidence in our company's commitment to human rights is to be maintained,
Therefore, be it resolved that shareholders request that the company commit itself to the implementation of a
code of corporate conduct based on the aforementioned ILO human rights standards by its international suppliers
and in its own international production facilities and commit to a program of outside, independent monitoring of
compliance with these standards."
THE BOARD OF DIRECTORS FAVORS A VOTE AGAINST THE ADOPTION OF THIS PROPOSAL FOR THE FOLLOWING REASONS:
The Company recognizes the importance, as both an ethical and a business responsibility, of obtaining
assurances that the products it sells are manufactured in accordance with all applicable laws and that the
rights and welfare of workers around the world are respected.
The Company has always been committed to the highest ethical conduct and strict compliance with the
law in all its business dealings, including its relationships with its many suppliers. The Company is
deeply concerned about the issues raised in the Proposal and believes it has already adequately addressed
such issues as described below.
Products sold at the Company's stores are supplied by independent suppliers who also supply other
retail stores and chains. To a much lesser degree, the Company is also supplied by sources contracted by
buying agents for the Company. The Company does not engage directly in manufacturing.
The Company has previously addressed the concerns raised in the Proposal by implementation of the
following policies and procedures:
The Company has developed a formal business policy (the "Policy") which focuses on the workplace
conditions of, and legal compliance by, foreign vendors. The Policy was distributed to all of the
Company's foreign vendors to restate and reemphasize the Company's longstanding philosophy that no
merchandise purchased by the Company will be manufactured with the use of illegal labor conditions. In
addition, under the Policy the Company reserves the right not to contract with and to break contracts
with vendors who violate basic human rights.
In furtherance of the Policy, the Company's agreements with foreign buying agents (including a
buying office) include prohibitions against illegal child labor and other forms of illegal employment,
manufacturing, shipping, customs and environmental practices. Under the contract, a buying agent must
use its best efforts to ensure that each vendor is in full compliance with any current, or later adopted,
law of either the country of manufacture or the United States governing the use of child labor, prison
labor, and/or governing the importation into the United States of merchandise produced with child labor
as well as any other similar human rights statute, regulation or law. Buying agents must also follow
policies and procedures which the Company implements to ensure that all such statutes, laws or
regulations are followed. If a buying agent discovers a violation of such prohibitions, the buying agent
must immediately notify the Company of such violation(s) or evidence of violation(s), so that appropriate
action can be taken to rectify such violation(s). Under these agreements, among other measures, buying
agents are required to periodically inspect factories to ensure compliance with these standards.
Additionally, Company employees personally inspect selected factories to verify compliance.
The Company's philosophy also appears in the Company's Purchase Order Terms, Conditions &
Instructions, which is the Company's standard form of purchase order and which is applicable to all
transactions between the Company and all of its suppliers. The document explicitly requires each
supplier to warrant and represent that its merchandise is manufactured in compliance with any current, or
later adopted, law of either the country of manufacture or the United States governing the use of child
labor, prison labor, and/or governing the importation into the United States of merchandise produced with
child labor as well as any other similar human rights statute, regulation or law.
The Company has previously issued a press release announcing its business policy, which policy
contains prohibitions against workplace abuse and also contains the steps taken by the Company to implement
the policy. Furthermore, the Company has furnished a copy of that policy to interested shareholders, and
will continue to so provide copies of that policy.
The Company believes that it has already addressed the concerns raised in the Proposal without further
expenditure of valuable time and funds. As the above reflects, the Company is committed to assuring that
its suppliers treat their employees properly.
FOR THE ABOVE REASONS, THE BOARD RECOMMENDS VOTING AGAINST THE PROPOSAL.
INDEXED OPTIONS PROPOSAL
The Trust for the International Brotherhood of Electrical Workers' Pension Benefit Fund, 1125 Fifteenth
Street N.W., Washington, D.C. 20005 owner of 3,790 shares of Class A Common Stock have indicated that they
intend to propose the following resolution for action at the meeting:
"Resolved, that the shareholders of Dillard's (the "Company") request that the Board of Directors adopt an
executive compensation policy that all future stock option grants to senior executives shall be performance-based.
For the purposes of this resolution, a stock option is performance-based if the option exercise price is indexed
or linked to an industry peer group stock performance index so that the options have value only to the extent that
the Company's stock price performance exceeds the peer group performance level."
Statement of Support: As long-term shareholders of the Company, we support executive compensation policies
and practices that provide challenging performance objectives and serve to motivate executives to achieve long-term
corporate value maximization goals. It is our opinion that stock option grants can and do often provide levels of
compensation well beyond those merited. It is also our view that stock option grants without specific
performance-based targets often reward executives for stock price increases due solely to a general stock market
rise, rather than to extraordinary company performance.
Indexed stock options are one type of option whose exercise price moves with an appropriate peer group index
composed of a company's primary competitors. The resolution requests that the Company's Board ensure that future
senior executive stock option plans link the options exercise price to an industry performance index associated
with a peer group of companies selected by the Board, such as those companies used in the Company's proxy
statement to compare 5 year price performance.
Implementing an indexed stock option plan would mean that our Company's participating executives would receive
payouts only if the Company's stock price performance was better than that of the peer group average. By tying the
exercise price to a market index, indexed options reward participating executives for outperforming the
competition. Indexed options would have value when our Company's stock price rises in excess of its peer group
average or declines less that its peer group average stock price decline. By downwardly adjusting the exercise
price of the option during a downturn in the industry, indexed options remove pressure to re-price stock options.
In short, superior performance would be rewarded.
At present, stock options granted by the Company are not indexed to peer group performance standards. As long-term
owners, we feel strongly that our Company would benefit from the implementation of a stock option program that
rewarded superior long-term corporate performance. We urge your support for this important governance reform.
THE BOARD OF DIRECTORS FAVORS A VOTE AGAINST THE ADOPTION OF THIS PROPOSAL FOR THE FOLLOWING REASONS:
The Board believes that adopting a compensation policy that requires the Company to grant options with
conditions such as those contained in the shareholder proposal is inconsistent with competitive compensation
practices and, therefore, could place the Company at a substantial disadvantage in recruiting and retaining
talented executives.
In addition, indexing options in the manner set forth in the proposal -- disconnecting the options from
increases or decreases in the Company's stock price -- could undermine the entire incentive purpose of stock
options. For example, the Company's stock price could decrease, but less so than the contemplated industry peer
group, which would cause the Company's executives' options to have value and confer an economic benefit on the
executives even though the shareholders would suffer a loss. This clearly is not a result that aligns the
interests of the Company's executives with those of its shareholders, but instead disjoins those interests.
In addition to introducing potential competitive disadvantages and disjoining incentive compensation from
shareholder value, implementing the shareholder proposal would have negative financial consequences for the
Company and its shareholders. Internal Revenue Code Š162(m) limits the deductibility of compensation expense
over $1 million paid to certain executives. Specific performance-based compensation meeting IRS criteria is
excluded from the calculation to determine whether the $1 million cap has been exceeded. If the ultimate exercise
price of a stock option is less than the fair market value of the stock on the date of grant of the stock option,
all compensation arising from the exercise would fail to qualify as performance-based compensation and, thus,
would be includable as compensation subject to the $1 million limit on deductibility. The shareholder proposal
thereby potentially increases the Company's tax expense, to the ultimate disadvantage of shareholders.
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25")
and Financial Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an
interpretation of APB No. 25," provide the accounting and financial reporting guidance relative to the Company's
stock options. Assuming the exercise price of the senior executives' stock options were indexed in accordance
with the shareholder proposal, the stock option plan would be treated as a variable plan and compensation expense
would be measured, for all individuals who received grants under the plan, at each reporting period until the
option is exercised. Because the Company applies APB No. 25 to the compensation expense recorded in the income
statement, the calculation would be based on the intrinsic value method, the difference between the market value
and the exercise price of the stock at the reporting date. This accounting treatment could reduce earnings if the
Company's operating results outperform the industry peer group index, such that if the stock price increases and
the exercise price does not fluctuate the difference would cause additional compensation expense over the service
periods.
Moreover, the Compensation Committee--which is comprised of independent directors--has implemented
various measures to make sure that compensation provides executives with the appropriate incentives, while also
protecting shareholders. In fact, options granted under the Company's current incentive plan already provide for
performance-based compensation: because an option's exercise price is equal to the fair market value of the stock
underlying the option on the date of grant, executives receive an economic benefit from stock options only if the
stock price increases subsequent to a grant. As such, stock option grants under the incentive plan already
motivate executives to maximize long-term corporate value and directly link executives' interests to those of
shareholders.
In summary, the Board believes that implementation of the shareholder proposal could have serious
competitive and financial consequences and could undermine the incentive purpose of stock option compensation to
the detriment of the Company and its shareholders. The Board believes the right balance is currently being
achieved in the granting of stock options to executives under the incentive plan.
FOR THE ABOVE REASONS, THE BOARD RECOMMENDS VOTING AGAINST THE PROPOSAL.
OTHER MATTERS
Management of the Company knows of no other matters that may come before the meeting. However,
if any matters other than those referred to herein should properly come before the meeting, it is the
intention of the persons named in the enclosed Proxy to vote the Proxy in accordance with their judgment.
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
Proposals of stockholders intended to be presented at the Company's annual meeting of
stockholders in 2004 must be received by the Company at its principal executive offices not later than
December 9, 2003 in order to be included in the Company's Proxy Statement and form of Proxy relating to
that meeting.
ANNUAL REPORTS
The Company's annual report for the fiscal year ended February 1, 2003 is being mailed with
this Proxy Statement but is not to be considered as a part hereof.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, MAY BE OBTAINED
WITHOUT CHARGE BY ANY STOCKHOLDER WHOSE PROXY IS SOLICITED UPON WRITTEN REQUEST TO:
DILLARD'S, INC.
Post Office Box 486
Little Rock, Arkansas 72203
Attention: James I. Freeman,
Senior Vice President,
Chief Financial Officer
By Order of the Board of Directors
JAMES I. FREEMAN
Senior Vice President,
Chief Financial Officer,
Assistant Secretary
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Dillard's, Inc.
Post Office Box 486
Little Rock, Arkansas 72203 PROXY The undersigned hereby appoints
Telephone No.(501)376-5200 William Dillard II and James I. Freeman as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and vote,
as designated below, all the shares of the Class A Common
Stock of Dillard's, Inc., held of record by the undersigned
on March 31, 2003, at the annual meeting of stockholders to
be held on May 17, 2003, or any adjournment thereof.
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1. ELECTION OF DIRECTORS. ? FOR all Class A ? WITHHOLD AUTHORITY
nominees listed to vote for all below (except as Class A nominees
marked to the contrary below)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME
IN THE LIST BELOW.)
Class A Nominees
Robert C. Connor * Will D. Davis * John Paul Hammerschmidt * Bob L. Martin
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Management of the Company supports this proposal
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2. STOCKHOLDER PROPOSAL CONCERNING GLOBAL HUMAN RIGHTS STANDARDS.
(Management of the Company opposes this proposal.)
? FOR ? AGAINST ? ABSTAIN
3. STOCKHOLDER PROPOSAL CONCERNING INDEXED OPTIONS.
(Management of the Company opposes this proposal.)
? FOR ? AGAINST ? ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other business as may properly come
before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF
NO DIRECTION IS MADE, THE PROXY WILL BE VOTED FOR PROPOSAL 1 AND AGAINST PROPOSALS 2 AND 3.
Please sign exactly as name appears below. When shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation,
please sign in full corporate name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
DATED: , 2003
Signature
Signature, if jointly held
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Dillard's, Inc.
Post Office Box 486
Little Rock, Arkansas 72203 PROXY The undersigned hereby appoints
Telephone No.(501)376-5200 William Dillard II and James I. Freeman as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and vote, as designated below, all the
shares of the Class B Common Stock of Dillard's, Inc., held of record by the
undersigned on March 31, 2003, at the annual meeting of stockholders to be
held on May 17, 2003, or any adjournment thereof.
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1. ELECTION OF DIRECTORS. ? FOR all Class B ? WITHHOLD AUTHORITY nominees listed to
vote for all below (except as Class B nominees
marked to the contrary below)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
BELOW.)
Class B Nominees
Drue Corbusier * Alex Dillard * Mike Dillard * William Dillard II * James I. Freeman * Warren A. Stephens * William H. Sutton *
J.C. Watts
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Management of the Company supports this proposal.
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2. STOCKHOLDER PROPOSAL CONCERNING GLOBAL HUMAN RIGHTS STANDARDS.
(Management of the Company opposes this proposal.)
? FOR ? AGAINST ? ABSTAIN
3. STOCKHOLDER PROPOSAL CONCERNING INDEXED OPTIONS.
(Management of the Company opposes this proposal.)
? FOR ? AGAINST ? ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
MADE, THE PROXY WILL BE VOTED FOR PROPOSAL 1 AND AGAINST PROPOSALS 2 AND 3.
Please sign exactly as name appears below. When shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.
DATED: , 2003
Signature
Signature, if jointly held
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.