SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended August 2, 1997
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to ________________
For Quarter Ended: August 2, 1997
Commission File Number: 0-15907
Exact name of registrant as specified in its charter:
PROFFITT'S, INC.
State of Incorporation: Tennessee
I.R.S. Employer Identification Number: 62-0331040
Address of Principal Executive Offices (including zip code):
P.O. Box 20080, Jackson, Mississippi 39289
Registrant's telephone number, including area code:
(601) 968-4400
Indicate by check mark whether Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.10 Par Value -- 28,581,465 shares as of August 2,
1997
PROFFITT'S, INC.
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
-- August 2, 1997, February 1, 1997, and
August 3, 1996 3
Condensed Consolidated Statements of Income
-- Three and Six Months Ended August 2, 1997
and August 3, 1996 4
Condensed Consolidated Statements of Cash Flows
-- Six Months Ended August 2, 1997 and August
3, 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders16
Item 6. Exhibits and Reports on Form 8-K16
SIGNATURES 17
Commission File No. 0-15907
<TABLE>
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)
(in thousands)
<CAPTION>
8/2/97 2/1/97 8/3/96
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $15,813 $3,382 $5,119
Residual interest in trade
accounts receivable 79,978 85,400 25,817
Merchandise inventories 528,323 447,164 363,931
Deferred income taxes 15,709 11,700 27,313
Other current assets 43,942 48,317 9,996
------- ------- -------
Total current assets 683,765 595,963 432,176
Property and equipment, net 526,227 510,502 414,029
Goodwill and tradenames, net 273,844 277,472 52,063
Other assets 28,978 19,859 23,932
------- ------- -------
$1,512,814 $1,403,796 $922,200
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $179,866 $116,434 $100,391
Accrued expenses and other
current liabilities 100,395 122,604 74,773
Current portion of long-
term debt 7,356 12,515 30,532
------- ------- -------
Total current liabilities 287,617 251,553 205,696
Senior debt 338,548 276,810 153,555
Deferred income taxes 66,666 62,000 54,473
Other long-term liabilities 50,281 47,768 14,751
Subordinated debt 197,511 225,767 100,633
Redeemable common stock held
in ESOP 59,456
Shareholders' equity 572,191 539,898 333,636
------- ------- -------
$1,512,814 $1,403,796 $922,200
========= ========= =========
See notes to condensed consolidated financial statements.
</TABLE>
Commission File No. 0-15907
<TABLE>
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
------------------- -----------------
8/2/97 8/3/96 8/2/97 8/3/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $492,287 $343,359 $1,018,657 $708,538
Costs and expenses:
Cost of sales 312,873 221,039 648,755 458,240
Selling, general and administrative expenses 123,796 87,248 250,875 175,733
Other operating expenses 40,994 29,936 83,562 60,655
Store pre-opening costs 556 1,380 279
Merger, restructuring and integration costs 1,634 1,507 3,102 4,270
Loss (gain) on sale of assets 3 30 (2,260)
ESOP expenses 806 228 1,532 416
------- ------- -------- -------
Operating income 11,625 3,401 29,421 11,205
Other income (expense):
Finance charge income 15,093 11,123 30,330 21,757
Finance charge income allocated to
purchaser of accounts receivable (4,324) (3,404) (8,683) (6,878)
Interest expense (10,999) (5,205) (21,691) (9,911)
Other income (expense), net 253 215 389 713
------- ------- -------- -------
Income before provision for income taxes 11,648 6,130 29,766 16,886
Provision for income taxes 5,270 2,597 12,844 7,045
------- ------- -------- -------
Net income before extraordinary loss 6,378 3,533 16,922 9,841
Extraordinary loss on early extinguishment
of debt, net of tax 1,120 1,120
------- ------- -------- -------
NET INCOME $5,258 $3,533 $15,802 $9,841
Preferred stock dividends 308 796
Payment for early conversion of Preferred Stock 3,032 3,032
Net income available to common
shareholders $5,258 $193 $15,802 $6,013
======= ======== ======== ========
Primary earnings per share:
Net income before extraordinary loss $0.22 $0.01 $0.59 $0.25
Extraordinary loss 0.04 0.04
------- ------- ------- -------
Net income $0.18 $0.01 $0.55 $0.25
======= ======= ======== ========
Fully diluted earnings per share:
Net income before extraordinary loss $0.22 $0.14 $0.58 $0.39
Extraordinary loss 0.04 0.03
Net income $0.18 $0.14 $0.55 $0.39
======= ======= ======== ========
Weighted average common shares:
Primary 28,923 24,273 28,687 23,870
Fully diluted 29,151 25,117 28,990 25,097
Pro forma for 2-for-1 stock split
(effective 10/15/97):
Primary earnings per share:
Net income before extraordinary loss $0.11 $0.00 $0.30 $0.13
Extraordinary loss 0.02 0.02
------- ------- ------- -------
Net income $0.09 $0.00 $0.28 $0.13
======= ======= ======= =======
Fully diluted earnings per share:
Net income before extraordinary loss $0.11 $0.07 $0.29 $0.20
Extraordinary loss 0.02 0.02
------- ------- ------- -------
Net income $0.09 $0.07 $0.27 $0.20
======= ======= ======= =======
Weighted average common shares:
Primary 57,846 48,546 57,374 47,740
Fully diluted 58,302 50,234 57,980 50,194
</TABLE>
Notes:
1. On June 28, 1996, the Company converted 600 shares of Series
A Preferred Stock ("Preferred Stock") into 1,422 shares of
Proffitt's, Inc. Common Stock. In order to complete this
early conversion of the Preferred Stock, the Company paid
$3,032 to the holder of the Preferred Stock.
Primary earnings per share are based on earnings available to
common shareholders (net income reduced by preferred stock
dividends and payment for early conversion) and the weighted
average number of common shares and equivalents (stock
options) outstanding. Common Stock issued on June 28, 1996
for the conversion of the Preferred Stock has been included in
the weighted average number of shares outstanding subsequent
to that date.
As a result of the June 28, 1996 Preferred Stock conversion
and as required by generally accepted accounting principles,
fully diluted earnings per share has been presented for the
periods shown based upon an "as if the 1,422 shares issued in
the conversion were outstanding from the beginning of the
period" basis.
2. On August 20, 1997, the Company's Board of Directors approved
a 2-for-1 stock split of the outstanding shares of the
Company's Common Stock. The split will be effected in the
form of a stock dividend and entitles each shareholder to
receive one additional share for each outstanding share of
Common Stock held of record as of the close of business on
October 15, 1997.
3. See notes to condensed consolidated financial statements.
Commission File No. 0-15907
<TABLE>
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<CAPTION>
Six Months Ended
-----------------------
8/2/97 8/3/96
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $15,802 $9,841
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 21,820 20,206
Deferred income taxes 657 (3,733)
Losses (gains) from long-lived assets 30 (2,260)
Amortization of deferred compensation 694 575
Other non-cash charges 1,045 66
Changes in operating assets and
liabilities, net (23,316) (18,168)
--------- ---------
Net cash provided by (used in)
operating activities 16,732 6,527
INVESTING ACTIVITIES
Purchases of property and
equipment, net (53,896) (24,952)
Proceeds from sale of assets 21,347 5,000
Other, net (1,542) (130)
--------- ---------
Net cash used in investing
activities (34,091) (20,082)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 129,160 10,700
Payments on long-term debt (109,086) (15,669)
Proceeds from issuance of stock 10,840 2,303
Purchase of treasury stock 0 (2,051)
Payments to common and preferred
shareholders (1,124) (5,787)
--------- ---------
Net cash provided by (used in)
financing activities 29,790 (10,504)
Increase (decrease) in cash and
cash equivalents 12,431 (24,059)
Cash and cash equivalents at
beginning of period 3,382 29,178
--------- ---------
Cash and cash equivalents at
end of period $15,813 $5,119
========= =========
</TABLE>
Cash paid during the six months ended August 2, 1997 for interest
and income taxes totaled $20,377 and $14,768, respectively.
Cash paid during the six months ended August 3, 1996 for interest
and income taxes totaled $10,020 and $13,163, respectively.
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of the Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three and six month periods ended August 2, 1997
are not necessarily indicative of the results that may be expected
for the year ending January 31, 1998. The financial statements
include the accounts of Proffitt's, Inc. and its subsidiaries,
including its special purpose receivables financing subsidiaries.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended February 1, 1997.
The accompanying balance sheet at February 1, 1997 has been derived
from the audited financial statements at that date.
NOTE B -- BUSINESS COMBINATIONS
On October 11, 1996, Proffitt's, Inc. ("Proffitt's" or the
"Company") acquired Parisian, Inc. ("Parisian"), a specialty
department store chain currently operating 40 stores in the
southeast and midwest. The Parisian transaction was accounted for
as a purchase, and accordingly, financial results of the operations
of Parisian have been included in the Company's results of
operations since the acquisition date.
The following unaudited pro forma summary presents the consolidated
results of operations as if the Parisian acquisition had occurred
at the beginning of the periods presented and does not purport to
be indicative of what would have occurred had the acquisition been
made as of this date or results which may occur in the future.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 3, 1996 August 3, 1996
--------------- ----------------
(in thousands, except
per share amounts)
<S> <C> <C>
Pro forma:
Net sales $ 485,226 $ 1,016,492
Net (loss) income $ (1,609) $ 7,638
(Loss) earnings per common share:
Primary $ (.18) $ .13
Fully diluted $ (.06) $ .26
</TABLE>
Effective February 1, 1997, immediately before the Company's prior
fiscal year end, Proffitt's combined its business with G.R.
Herberger's, Inc. ("Herberger's"), a retail department store chain
currently operating 37 stores in the midwest. The merger has been
accounted for as a pooling of interests, and accordingly, the
consolidated financial statements have been restated for the prior
year to include the results of operations and financial position of
Herberger's.
For the second quarter and six month periods ended August 2, 1997
and August 3, 1996, the Company incurred certain integration costs
related to its business combinations with Younkers (completed
February 3, 1996), Parisian, and Herberger's. These pre-tax
charges totaled $1.6 million and $1.5 million, respectively, for
the quarters ended August 2, 1997 and August 3, 1996, respectively,
and $3.1 million and $4.3 million, respectively, for the six month
periods ended August 2, 1997 and August 3, 1996.
A reconciliation of the aforementioned charges to the amounts of
merger, restructuring, and integration costs remaining unpaid at
August 2, 1997 was as follows (in thousands):
Amounts unpaid at February 1, 1997 $ 9,391
Adjustments to amounts unpaid at
February 1, 1997 0
Amounts related to continuing integration
efforts for the six months ended August
2, 1997 3,102
Amounts paid during the six months ended
August 2, 1997 ( 7,175)
-----------
Amounts unpaid at August 2, 1997 $ 5,318
NOTE C -- INCOME TAXES
The difference between the actual income tax expense and the amount
expected by applying the statutory federal income tax rate is due
to the inclusion of state income taxes and the amortization of
goodwill and tradenames, which is not deductible for income tax
purposes.
The deferred income tax asset and liability amounts reflect the
impact of temporary differences between values recorded for assets
and liabilities for financial reporting purposes and values
utilized for measurement in accordance with tax laws. The major
components of these amounts result from the allocation of the
purchase price to the assets and liabilities related to the McRae's
acquisition in March 1994 and the Parisian acquisition in October
1996.
NOTE D -- RECENT FINANCINGS
In May 1997, the Company completed the sale of $125 million of
Series A 8.125% Senior Unsecured Notes, due 2004 (the "Series A
Senior Notes"). The Series A Senior Notes were offered in a
private placement to qualified institutional buyers, which
represented a 144A transaction. Proceeds from the Series A Senior
Notes were used to repay approximately $64 million of real estate
and mortgage notes and $3.8 million of unsecured notes payable,
with the balance used to reduce amounts outstanding under the
Company's revolving credit facility. In August 1997, the Company
completed its offer to exchange its registered Series B 8.125%
Senior Notes due 2004 ("Series B Senior Notes") for all outstanding
unregistered Series A Senior Notes. The Series B Senior Notes are
unconditionally guaranteed on a joint and several basis by all of
the Company's wholly-owned direct and indirect subsidiaries, other
than Proffitt's Credit Corporation ("PCC") and Younkers Credit
Corporation ("YCC"). PCC and YCC are special purpose entities that
serve as the conduit through which the Company sells its
proprietary credit card receivables under its receivables financing
facilities.
In May and June 1997, the Company purchased approximately $28.4
million of the existing 9-7/8% Parisian Senior Subordinated Notes
which resulted in an extraordinary loss from the early
extinguishment of debt of approximately $1.1 million after tax.
In June 1997, the Company amended and increased its unsecured
revolving credit facility, raising the facility limit to $400
million from $275 million, extending the maturity from 3 years to
5, and obtaining more favorable pricing.
In August 1997, the Company completed the issuance of $200 million
of 5-year term asset-backed securities against the Company's
proprietary credit card receivables, which replaced existing
commercial paper based financings. Concurrently, the Company
restructured its asset-backed commercial paper conduit financing
program, resizing this portion to $125 million with more favorable
terms.
NOTE E -- CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following table presents condensed consolidating financial
information for: (1) Proffitt's, Inc.; (2) on a combined basis,
the guarantors of Proffitt's, Inc.'s Senior Notes which are all of
the wholly-owned subsidiaries of Proffitt's, Inc., except for PCC
and YCC; and (3) on a combined basis, PCC and YCC, the only non-guarantor
subsidiaries of the Senior Notes. Separate financial
statements of the guarantor subsidiaries are not presented because
the guarantors are jointly, severally, and unconditionally liable
under the guarantees, and the Company believes the condensed
consolidating financial statements are more meaningful in
understanding the financial position of the guarantor subsidiaries
and separate financial statements and other disclosures regarding
the subsidiary guarantors are not material to invstors.
Proffitt's, Inc. is comprised of substantially all of the
Proffitt's and Younkers store operating divisions and certain
corporate management and financing functions. Borrowings and the
related interest expense under the Proffitt's, Inc. revolving
credit facility are allocated among Proffitt's, Inc. and the Guaranty
Subsidiaries. There are also management and royalty fee
arrangements among Proffitt's, Inc. and the subsidiaries.
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)
(in thousands)
at August 2, 1997
<CAPTION>
Proffitt's, Guarantor Non-Guarantor Elimin- Consoli-
Inc. Subsidiaries Subsidiaries ations dated
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 18,284 $ (6,503) $ 4,032 $ $15,813
Residual interest in trade
accounts receivable 29 387 79,562 79,978
Merchandise inventories 179,901 348,422 528,323
Deferred income taxes 7,691 7,810 208 15,709
Notes receivable from sale
of trade receivables 10,712 23,282 (33,994)
Other current assets 31,100 15,585 (2,743) 43,942
-------- --------- --------- --------- ---------
Total current assets 247,717 388,983 83,802 (36,737) 683,765
Property and equipment, net 183,193 343,034 526,227
Goodwill and tradenames, net 8,600 265,244 273,844
Other assets 2,497 26,428 53 28,978
Investment in, and advances
to, subsidiaries 614,933 14,116 (629,049)
-------- --------- --------- --------- ---------
$1,056,940 $1,037,805 $ 83,855 $(665,786) $1,512,814
========== =========== ========= ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 48,046 $ 131,820 $ $ $179,866
Accrued expenses and
other current liabil-
ities 24,663 68,722 9,753 (2,743) 100,395
Notes payable from pur-
chase of trade receivables 33,994 (33,994)
Current portion of long-
term debt 468 6,888 7,356
-------- --------- --------- --------- ---------
Total current liabilities 73,177 207,430 43,747 (36,737) 287,617
Senior debt 293,407 45,141 338,548
Deferred income taxes 8,300 58,366 66,666
Other long-term liabilities 8,951 41,330 50,281
Subordinated debt 100,914 96,597 197,511
Investment by, and advances
from, parent 588,941 40,108 (629,049)
Shareholders' equity 572,191 572,191
-------- --------- --------- --------- ----------
$1,056,940 $1,037,805 $ 83,855 $(665,786) $1,512,814
========== =========== ========== ========== ==========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
for the six months ended August 2,1997
<CAPTION>
Proffitt's, Guarantor Non-Guarantor Elimin- Consoli-
Inc. Subsidiaries Subsidiaries ations dated
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 16,414 $ 7,540 $ 12,350 $(20,502) $ 15,802
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Equity in earnings of
subsidiaries (15,449) (4,318) 19,767
Depreciation and amort-
ization 6,762 15,058 21,820
Deferred income taxes 857 (400) 200 657
Losses (gains) from long-
lived assets (5) 35 30
Amortization of deferred
compensation 694 694
Other non-cash charges 500 545 1,045
Changes in operating assets
and liabilities, net (6,750) (19,231) 1,930 735 (23,316)
-------- -------- --------- --------- ---------
Net cash provided by
(used in) operating
activities 2,329 (77) 14,480 16,732
INVESTING ACTIVITIES
Purchases of property and
equipment, net (5,424) (48,472) (53,896)
Proceeds from sale of
assets 21,347 21,347
Other, net (1,542) (1,542)
-------- --------- ---------- ---------- ----------
Net cash provided by(used in)
investing activities 15,923 (50,014) (34,091)
FINANCING ACTIVITIES
Inter-company borrowings (120,326) 135,068 (14,742)
Proceeds from long-term
borrowings 129,160 129,160
Payments on long-term
debt (31,520) (77,566) (109,086)
Proceeds from issuance
of stock 10,840 10,840
Dividends paid to share-
holders (1,124) (1,124)
--------- --------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities (11,846) 56,378 (14,742) 29,790
Increase (decrease) in cash
and cash equivalents 6,406 6,287 (262) 12,431
Cash and cash equivalents
at beginning of period 11,878 (12,790) 4,294 3,382
--------- --------- ---------- ---------- ---------
Cash and cash equivalents
at end of period $ 18,284 $ (6,503) $ 4,032 $ - $ 15,813
========= ========= ========== ========== ==========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATMENTS OF INCOME (UNAUDITED)
for the six months ended August 2, 1997
<CAPTION>
Proffitt's, Guarantor Non-Guarantor Elimin- Consoli-
Inc. Subsidiaries Subsidiaries ations dated
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales $309,957 $708,700 $ $ $1,018,657
Costs and expenses:
Cost of sales 200,863 447,892 648,755
Selling, general and
administrative expenses 76,890 170,216 3,769 250,875
Other operating expenses 24,640 58,921 1 83,562
Store pre-opening costs 57 1,323 1,380
Merger, restructuring and
integration costs 98 3,004 3,102
Loss (gain) on sale of
assets (5) 35 30
ESOP expenses 1,532 1,532
--------- --------- --------- ---------- ----------
Operating income (loss) 7,414 25,777 (3,770) 29,421
Other income (expense):
Finance charge income 30,330 30,330
Finance charge income all-
ocated to purchaser of
accounts receivable (8,683) (8,683)
Gain (loss) on sale of
receivables (981) (5,690) 7,857 (1,186)
Servicer fees 2,867 (2,867)
Equity in earnings of
subsidiaries 15,449 4,318 (19,767)
Interest expense, net (6,099) (14,253) (1,339) (21,691)
Other income (expense), net (136) 402 123 389
--------- --------- --------- ---------- ---------
Income before provision
for income taxes 15,647 13,421 21,651 (20,953) 29,766
Provision for income taxes (767) 4,761 9,301 (451) 12,844
--------- --------- --------- ---------- ---------
Net income before extra-
ordinary loss 16,414 8,660 12,350 (20,502) 16,922
Extraordinary loss on early
extinguishment of debt,
net of tax 1,120 1,120
--------- --------- --------- --------- ---------
NET INCOME $16,414 $7,540 $12,350 $(20,502) $15,802
========= ========= ========= ========= ==========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATMENTS OF INCOME (UNAUDITED)
for the three months ended August 2, 1997
<CAPTION>
Proffitt's, Guarantor Non-Guarantor Elimin- Consoli-
Inc. Subsidiaries Subsidiaries ations dated
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales $154,553 $337,734 $ $ $492,287
Costs and expenses:
Cost of sales 99,691 213,182 312,873
Selling, general and admin-
istrative expenses 38,067 84,026 1,703 123,796
Other operating expenses 12,206 28,787 1 40,994
Store pre-opening costs 57 499 556
Merger, restructuring and
integration costs 1,634 1,634
Loss (gain) on sale of
assets (3) 6 3
ESOP expenses 806 806
--------- --------- --------- ---------- ----------
Operating income (loss) 4,535 8,794 (1,704) 11,625
Other income (expense):
Finance charge income 15,093 15,093
Finance charge income
allocated to purchaser
of accounts receivable (4,324) (4,324)
Gain (loss) on sale of
receivables (481) (2,757) 3,804 (566)
Servicer fees 1,434 (1,434)
Equity in earnings of
subsidiaries 4,019 1,740 (5,759)
Interest expense, net (3,302) (7,048) (649) (10,999)
Other income (expense), net (95) 225 123 253
-------- --------- --------- --------- ---------
Income before provision
for income taxes 4,676 2,388 10,909 (6,325) 11,648
Provision for income taxes (810) 898 5,398 (216) 5,270
-------- --------- --------- --------- ---------
Net income before extra-
ordinary loss 5,486 1,490 5,511 (6,109) 6,378
Extraordinary loss on early
extinguishment of debt,
net of tax (1,120) 1,120
-------- --------- --------- --------- ---------
NET INCOME $5,486 $370 $5,511 $(6,109) $5,258
======== ========= ========= ========= =========<PAGE>
</TABLE>
NOTE F -- STOCK SPLIT
On August 20, 1997, the Company's Board of Directors approved a
2-for-1 stock split of the outstanding shares of the Company's
Common Stock. The split will be effected in the form of a stock
dividend and entitles each shareholder to receive one additional
share for each outstanding share of Common Stock held of record
as of the close of business on October 15, 1997.
NOTE G -- ESOP TERMINATION
In August 1997, the Company announced the planned December 1997
termination of Herberger's Employee Stock Ownership Plan
("ESOP"). The termination will result in a one-time third
quarter 1997 charge (primarily non-cash) of between $6.5 million
and $9.5 million. Certain unallocated common shares of the
Company held by the ESOP, with a value between $6.5 million and
$9.5 million, will be allocated to the ESOP participants,
resulting in the charge. However, upon termination of the ESOP,
the Company will receive approximately $10 million in cash
representing payment of a note receivable from the ESOP.
Subsequent to this one-time charge, the Company will incur no
future ESOP related charges.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Accounts receivable, inventory, accounts payable, and senior debt
balances fluctuate throughout the year due to the seasonal nature
of the retail industry.
The increase in the August 2, 1997 and February 1, 1997 asset,
liability, and shareholders' equity classifications over the
August 3, 1996 balances presented was largely attributable to the
acquisition and financing of the Parisian transaction completed
on October 11, 1996. See Note B on page 7 attached. For
example, August 2, 1997 trade receivables, merchandise
inventories, property and equipment, and accounts payable
balances increased over August 3, 1996 balances primarily due to
the value of the applicable acquired and assumed Parisian assets
and liabilities.
August 2, 1997 goodwill and tradenames increased over the balance
at August 3, 1996 due to goodwill of approximately $225 million
recorded in conjunction with the October 1996 Parisian
acquisition.
In May 1997, the Company completed the sale of $125 million of
8.125% Senior Unsecured Notes, due 2004 (the "Senior Notes").
Proceeds from the Senior Notes were used to repay approximately
$64 million of real estate and mortgage notes and $3.8 million of
unsecured notes payable, with the balance used to reduce amounts
outstanding under the Company's revolving credit facility. The
increase in the August 2, 1997 senior debt balance over the
February 1, 1997 balance primarily was due to the addition of the
Senior Notes netted against debt repayments.
August 2, 1997 subordinated debt increased over the balance at
August 3, 1996 due to the addition of approximately $96 million
of 9-7/8 % Parisian Senior Subordinated Notes due 2003. The
original assumed balance of $125 million was reduced by the
Company's purchase of $28.4 million in principal face amount of
notes; see Note D on page 8.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Prior year income statement information below has been restated
to reflect the February 1, 1997 merger with Herberger's, which
was accounted for as a pooling of interests. Prior year income
statement information below has not been restated to reflect the
October 11, 1996 merger with Parisian, which was accounted for as
a purchase.
The following table shows for the periods indicated, certain
items from the Company's Condensed Consolidated Statements of
Income expressed as percentages of net sales.
Three Months Ended Six Months Ended
------------------ ------------------
8/2/97 8/3/96 8/2/97 8/3/96
------- ------- ------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales 63.6 64.4 63.7 64.7
Selling, general & admin-
istrative expenses 25.1 25.4 24.6 24.8
Other operating expenses 8.3 8.7 8.2 8.5
Store pre-opening costs 0.1 0.0 0.1 0.0
Merger, restructuring and
integration costs 0.3 0.4 0.3 0.6
Loss (gain) from long-
lived assets 0.0 0.0 0.0 (0.3)
ESOP expenses 0.2 0.1 0.2 0.1
------ ------ ------ ------
Operating income 2.4 1.0 2.9 1.6
Other income (expense):
Finance charge income 3.1 3.2 3.0 3.1
Finance charge income
allocated to purchasers
of accounts receivable (0.9) (1.0) (0.9) (1.0)
Interest expense (2.2) (1.5) (2.1) (1.4)
Other income, net 1.0 0.1 0.0 0.1
------ ------ ------ ------
Income before provision
for income taxes 2.4 1.8 2.9 2.4
Provision for income taxes 1.1 0.8 1.2 1.0
------ ------ ------ ------
Net income before extra-
ordinary loss 1.3 1.0 1.7 1.4
Extraordinary loss,
net of tax 0.2 0.0 0.1 0.0
------ ------ ------ ------
NET INCOME 1.1% 1.0% 1.6% 1.4%
====== ====== ====== ======
For the second quarter ended August 2, 1997, total Company sales
were $492.3 million, a 43% increase over $343.4 million in the
prior year. Sales for the quarter included $141.2 million of
sales from the Parisian Division. On a comparable stores basis
(excluding Parisian), total Company sales increased 6% for the
quarter. Total and comparable store sales by division were as
follows:
Quarter Quarter Total Comparable
ended ended increase increase
8/2/97 8/3/96 (decrease) (decrease)
-------- -------- --------- ----------
Proffitt's $ 49.6 $ 55.1 (10%) (8%)
McRae's 97.0 92.8 5% 5%
Younkers 132.9 124.0 7% 7%
Herberger's 71.5 71.5 0% 4%
Divisions in comp base $351.0 $343.4 2% 6%
Parisian 141.3 -- -- (4%)
----- ----- ---- ----
Total Company $492.3 343.4 43% --
On a year-to-date basis, total Company sales were $1,018.7
million, a 44% increase over $708.5 million in the prior year.
Sales for the six months included $307.7 million of sales from
the Parisian Division. On a comparable stores basis (excluding
Parisian), total Company sales increased 5% for the six months.
Total and comparable store sales by division were as follows:
6 mos. 6 mos. Total Comparable
ended ended increase increase
8/2/97 8/3/96 (decrease) (decrease)
-------- -------- --------- ----------
Proffitt's $ 103.5 $ 115.6 (10%) 7%
McRae's 207.9 202.1 3% 3%
Younkers 261.5 250.5 4% 7%
Herberger's 138.0 140.3 (2%) 1%
----- -----
Divisions in comp base $ 710.9 $ 708.9 0% 5%
Parisian 307.8 -- -- (3%)
----- ----- ---- ----
Total Company $1,018.7 $ 708.5 44% --
The total store sales performance for the periods indicated
reflects the sale of two Younkers stores in March 1996, the
closing of one Younkers store in August 1996, the sale of the
inventory of seven Proffitt's Division stores in December 1996 in
connection with the March 1997 sale of those stores, and the
closing of one Herberger's store in January 1997. Total store
sales performance also reflects the opening of one McRae's store
in March 1996, one new Proffitt's Division store in October 1996,
and new Parisian stores in February 1997 and April 1997 (one
each).
For the second quarter and six months, gross margin percentages
increased 80 and 100 basis points, respectively, over the prior
year. This improvement resulted from proper inventory control,
the initial realization of benefits related to increased
purchasing scale, shifts in the merchandise mix of select stores,
and the effects of inventory repositioning at both the Parisian
and Herberger's businesses, which was initiated in late 1996.
Selling, general, and administrative expenses declined as a
percentage of net sales for the second quarter and six months by
30 and 20 basis points, respectively. This expense leverage
primarily resulted from the early stages of targeted cost
reductions related to each of the Company's recent business
combinations.
Other operating expenses, which consist of rents, depreciation
and amortization, and taxes other than income taxes, declined as
a percentage of net sales for the second quarter and six months
by 40 and 30 basis points, respectively. This reduction was
primarily due to the effect of closed underperforming stores.
Total financing costs, which include interest expense and finance
charge income allocated to the third party purchasers of accounts
receivable, increased as a percentage of net sales for the second
quarter and six months by 60 basis points each primarily due to
additional borrowings related to the October 1996 purchase of
Parisian.
Prior to the non-recurring items outlined below, second quarter
net income totaled $8.0 million, or $.28 per share, a 74%
increase over $4.6 million, or $.18 per share last year. Prior
to non-recurring items, net income for the six months totaled
$20.0 million, or $.68 per share, compared to $11.3 million, or
$.45 per share, for the same period last year, a 77% increase.
In conjunction with the Company's business combinations with
Younkers (completed February 3, 1996), Parisian, and Herberger's,
the Company incurred certain non-recurring integration charges in
each period presented. For the quarter ended August 2, 1997,
these charges totaled $1.6 million before tax, or 0.3% of net
sales ($1.0 million after tax, or $.04 per share). For the
quarter ended August 3, 1996, these charges totaled $1.5 million
before tax, or 0.4% of net sales ($.9 million after tax, or $.04
per share). For the six months ended August 2, 1997, these
charges totaled $3.1 million before tax, or 0.3% of net sales
($1.9 million after tax, or $.06 per share). For the six
months ended August 3, 1996, these charges totaled $4.3 million
before tax, or 0.6% of net sales ($2.6 million after tax, or $.10
per share).
For the six months ended August 3, 1996, the Company realized
pre-tax gains of $2.3 million ($1.4 million after tax, or $.05
per share) related to the Company's March 1996 sale of two
Younkers stores to Carson Pirie Scott & Co.
For the quarters ended August 2, 1997 and August 3, 1996, the
Company incurred pre-tax expenses of $.8 million, or 0.2% of net
sales, and $.2 million, or 0.1% of net sales, respectively,
related to the Company's Employee Stock Ownership Plan (ESOP)
maintained at the Herberger's Division. On an after-tax basis,
these charges totaled $.7 million, or $.02 per share, and $.1
million, or less than $.01 per share, respectively. For the six
months ended August 2, 1997 and August 3, 1996, the Company
incurred pre-tax ESOP expenses of $1.5 million, or 0.2% of net
sales, and $.4 million, or 0.1% of net sales, respectively. On
an after-tax basis, these charges totaled $1.1 million, or $.03
per share, and $.3 million, or $.01 per share, respectively.
For the quarter and six months ended August 2, 1997, the Company
incurred an extraordinary loss on the early retirement of a
portion of the Parisian Senior Subordinated Notes totaling $1.8
million on a pre-tax basis ($1.1 million after tax, or $.04 per
share).
After these non-recurring items, net income for the quarter ended
August 2, 1997 totaled $5.3 million, or $.18 per share, compared
to $3.5 million, or $.14 per share, for the quarter ended August
3, 1996. On the same basis, for the six months ended August 2,
1997, net income totaled $15.8 million, or $.55 per share,
compared to $9.8 million, or $.39 per share, last year. The
increase in earnings over the prior year primarily was due to
improved gross margin performance and leverage on operating
expenses netted against increased financing costs related to the
Parisian acquisition.
PROFFITT'S, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Shareholders of the Company was held on
June 19, 1997. 26,300,192 shares of the 28,128,846 shares of
Common Stock entitled to vote, or 93.5% were represented at the
meeting in person or by proxy. The matters submitted to a vote
of the shareholders and the vote on those matters were as
follows:
1. The vote for the Amendment to the Company's Charter to
divide the Board of Directors into three classes was as
follows: FOR 15,431,859; AGAINST 8,684,223; and
ABSTAIN 40,713.
2. All nominees for Directors listed in the proxy
statement were elected to hold office until the next
Annual Meeting of the Shareholders. Shareholders
holding at least 25,922,819 shares voted FOR,
shareholders holding no more than 31,014 shares voted
AGAINST, and shareholders holding no more than 346,200
shares ABSTAINED from the vote.
3. The vote for the Ratification of Appointment of
Independent Accountants (Coopers & Lybrand L.L.P.) for the
fiscal year ending January 31, 1998 was as follows: FOR
26,273,744; AGAINST 19,963; and ABSTAIN 6,485.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Charter Amendments
11.1 Statement re: Computation of Earnings per Common
Share
27.1 Financial Data Schedule
(b) Form 8-K Reports.
A report on Form 8-K was filed with the Commission on
May 21, 1997 regarding the completion of the senior
note offering.
A report on Form 8-K was filed with the Commission on
July 3, 1997, regarding the amendment and restatement
of the Company's revolving credit agreement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PROFFITT'S, INC.
_________________________
Registrant
9-12-97
__________________________
Date
/s/ Douglas E. Coltharp
__________________________
Douglas E. Coltharp
Executive Vice President and
Chief Financial Officer
ARTICLES OF AMENDMENT TO THE CHARTER
OF
PROFFITT'S, INC.
Pursuant to the provisions of Section 6.02 of the Tennessee
Business Corporation Act, the undersigned corporation adopts the
following Articles of Amendment to its Charter:
Article IX. Section 1. Number of Directors. The affairs of
this Corporation shall be managed by a Board of up to
fifteen (15) Directors.
Effective as of the Annual Meeting of Shareholders in 1997,
the Board shall be divided into three classes, designated as
Class I, Class II, and Class III, as nearly equal in number as
possible. The initial term of office of Class I shall expire
at the Annual Meeting of Shareholders in 1998, that of Class
II shall expire at the Annual Meeting in 1999, and that of
Class III shall expire at the Annual Meeting in 2000, and in
all cases as to each Director until his successor shall be
elected and shall qualify, or until his earlier resignation,
removal from office, death, or incapacity.
Subject to the foregoing, at each Annual Meeting of
Shareholders the successors to the class of Directors whose
term shall then expire shall be elected to hold office for a
term expiring at the third succeeding Annual Meeting and until
their successors shall be elected and qualified. Vacancies on
the Board, for any reason, and newly created directorships
resulting from any increase in the authorized number of
Directors may be filled by a vote of the majority of the
Directors then in office, although less than a quorum, or by
a sole remaining Director.
If the number of Directors is changed, the Board shall
determine the class or classes to which the increased or
decreased number of Directors shall be apportioned; provided
that the Directors in each class shall be as nearly equal in
number as possible. No decrease in the number of Directors
shall have the effect of shortening the term of any incumbent
Director.
Notwithstanding any other provisions of this Charter of the
bylaws of the Corporation (and notwithstanding that a lesser
percentage may be specified by law, this Charter or the bylaws
of the Corporation), the affirmative vote of the holders of
80% or more of the voting power of the shares of the then
outstanding Voting Stock, voting together as a single class,
shall be required to amend or repeal, or adopt any provisions
inconsistent with, this Article IX, Section 1 of this Charter.
Dated: June 19, 1997 PROFFITT'S, INC.
By:______________________________
Brian J. Martin, Assistant
Secretary and Executive Vice
President
ARTICLES OF AMENDMENT TO THE CHARTER
OF
PROFFITT'S, INC.
Pursuant to the provisions of Section 6.02 of the Tennessee
Business Corporation Act, the undersigned corporation adopts the
following Articles of Amendment to its Charter:
A. The name of the corporation is PROFFITT'S, INC. (the
"Corporation").
B. The Charter is amended by increasing the number of
authorized shares of Series C Junior Preferred Stock from 500,000
shares to 1,000,000 shares.
C. As of the date of this Amendment, no shares of Series C
Junior Preferred Stock have been issued.
D. The Corporation is a for-profit corporation.
E. The Amendment was duly adopted on August 20, 1997 by the
Board of Directors of the Corporation.
Dated: August 20, 1997 PROFFITT'S, INC.
By:______________________________
Brian J. Martin, Assistant
Secretary and Executive Vice
President
<TABLE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF HISTORICAL EARNINGS PER COMMON SHARE
PROFFITT'S, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Three Months Ended Six Months Ended
--------------------- -------------------
8/2/97 8/3/96 8/2/97 8/3/96
-------- -------- -------- -------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 28,041 23,445 27,882 23,162
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 822 828 805 708
------- ------- ------- -------
Primary weighted average common shares 28,923 24,273 28,687 23,870
======= ======= ======= =======
Income before extraordinary loss $ 6,378 $ 3,533 $ 16,922 $ 9,841
Less preferred dividends (308) (796)
Less payment for early conversion of
preferred stock (3,032) (3,032)
------- ------- ------- -------
Income available to common shareholders
before extraordinary loss 6,378 193 16,922 6,013
Extraordinary loss (1,120) (1,120)
------- ------- ------- -------
Net income available to common shareholders $ 5,258 $ 193 $ 15,802 $ 6,013
======= ======= ======= =======
Earnings per common share before
extraordinary loss $ 0.22 $ 0.01 $ 0.59 $ 0.25
Extraordinary Loss (0.04) (0.04)
------- ------- -------- -------
Primary earnings per share $ 0.18 $ 0.01 $ 0.55 $ 0.25
======= ======= ======= =======
</TABLE>
On June 28, 1996, the Company converted 600 shares of Series A
Preferred Stock ("preferred stock") into 1,422 shares of
Proffitt's, Inc. common stock. In order to complete this early
conversion of the preferred stock, the Company paid $3,032 to the
holder of the preferred stock.
Primary earnings per share are based on earnings available to
common shareholders (net income reduced by preferred stock
dividends and payment for early conversion) and the weighted
average number of common shares and equivalents (stock options)
outstanding. Common stock issued on June 28, 1996 for the
conversion of preferred stock has been included in the weighted
average number of shares outstanding subsequent to that date.
On August 20, 1997 the Company's Board of Directors approved a
2-for-1 stock split of the outstanding shares of the Company's
Common Stock. The split will be effected in the form of a stock
dividend and entitles each shareholder to receive one additional
share for each outstanding share of Common Stock held of record as
of the close of business on October 15, 1997. Primary
earnings-per-share restated to give effect to the split, would have
been $.09 and $.00 for the three month periods ended August 2, 1997
and August 3, 1996, respectively and $.28 and $.13 for the six
month periods ended August 2, 1997 and August 3, 1996 respectively.
<TABLE>
EXHIBIT 11.1 (continued)
STATEMENT RE: COMPUTATION OF HISTORICAL EARNINGS PER COMMON SHARE
PROFFITT'S, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Three Months Ended Six Months Ended
--------------------- -------------------
8/2/97 8/3/96 8/2/97 8/3/96
-------- -------- -------- --------
FULLY DILUTED:
<S> <C> <C> <C> <C>
Average shares outstanding 28,041 23,445 27,882 23,162
Net effect of dilutive stock options -
based on the treasury stock method
using year-end market price if higher
than average price 1,110 828 1,110 802
Assumed conversion of preferred stock 844 1,133
------- ------- ------- --------
Fully diluted weighted average common shares 29,151 25,117 28,992 25,097
======= ======= ======= ========
Income before extraordinary loss $ 6,378 $ 3,533 $16,922 $ 9,841
Extraordinary loss 1,120 1,120
------- ------- ------- -------
Adjusted net income $ 5,258 $ 3,533 $15,802 $ 9,841
======= ======= ======= =======
Fully diluted earnings per common
share before extraordinary loss $ 0.22 $ 0.14 $ 0.58 $ 0.39
Extraordinary loss (0.04) (0.03)
------- ------- -------- --------
Fully diluted earnings per share $ 0.18 $ 0.14 $ 0.55 $ 0.39
======= ======= ======== ========
</TABLE>
As a result of the June 28, 1996 preferred stock conversion and as
required by generally accepted accounting principles, fully diluted
earnings per share have been presented for the periods shown based
upon an "as if the 1,422 shares issued in the conversion were
outstanding from the beginning of the period" basis.
On August 20, 1997 the Company's Board of Directors approved a
2-for-1 stock split of the outstanding shares of the Company's
Common Stock. The split will be effected in the form of a stock
dividend and entitles each shareholder to receive one additional
share for each outstanding share of Common Stock held of record as
of the close of business on October 15, 1997. Fully diluted
earnings-per-share restated to give effect to the split, would have
been $.09 and $.07 for the three month periods ended August 2, 1997
and August 3, 1996, respectively and $.27 and $.20 for the six
month periods ended August 2, 1997 and August 3, 1996 respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet of August 2, 1997 and the Condensed
Statement of Income for the six months ended August 2, 1997 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> AUG-02-1997
<CASH> 15813000
<SECURITIES> 0
<RECEIVABLES> 79,978,000
<ALLOWANCES> 0
<INVENTORY> 528,323,000
<CURRENT-ASSETS> 683,765,000
<PP&E> 526,227,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,512,814,000
<CURRENT-LIABILITIES> 287,617,000
<BONDS> 536,059,000
0
0
<COMMON> 0
<OTHER-SE> 572,191,000
<TOTAL-LIABILITY-AND-EQUITY> 1,512,814,000
<SALES> 1,018,657,000
<TOTAL-REVENUES> 1,040,663,000
<CGS> 648,755,000
<TOTAL-COSTS> 648,755,000
<OTHER-EXPENSES> 89,576,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,691,000
<INCOME-PRETAX> 29,766,000
<INCOME-TAX> 12,844,000
<INCOME-CONTINUING> 16,922,000
<DISCONTINUED> 0
<EXTRAORDINARY> (1,120,000)
<CHANGES> 0
<NET-INCOME> 15,802,000
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
