Commission File No. 1-13113
FORM 10Q
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 November 1, 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: November 1, 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):
750 Lakeshore Parkway, Birmingham, Alabama 35211
Registrant's telephone number, including area code:
(205) 940-4000
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 -- 61,404,708 shares as of November
1, 1997
PROFFITT'S, INC.
Index
PART I. FINANCIAL INFORMATION Page No.
---------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
November 1, 1997, February 1, 1997, and
November 2, 1996 3
Condensed Consolidated Statements of Income --
Three and Nine Months Ended November 1,
1997 and November 2, 1996 4
Condensed Consolidated Statements of Cash
Flows -- Nine Months Ended November 1, 1997
and November 2, 1996 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
11/1/97 2/1/97 11/2/96
--------- --------- ---------
ASSETS
Current assets
Cash and cash equivalents $8,617 $3,382 $7,773
Residual interest in trade
accounts receivable 58,441 85,400 62,645
Merchandise inventories 679,521 447,164 606,774
Other current assets 25,631 11,700 33,258
Deferred income taxes 14,799 48,317 34,128
-------- -------- --------
Total current assets 787,009 595,963 744,578
Property and equipment, net 544,143 510,502 504,253
Goodwill and tradenames, net 272,414 277,472 290,075
Other assets 28,287 19,859 23,393
-------- -------- --------
$1,631,853 $1,403,796 $1,562,299
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $260,967 $116,434 $225,895
Accrued expenses and other
current liabilities 117,609 122,604 134,369
Current portion of long-term
debt 7,336 12,515 42,258
-------- -------- --------
Total current liabilities 385,912 251,553 402,522
Senior debt 326,960 276,810 307,204
Deferred income taxes 66,394 62,000 60,478
Other long-term liabilities 51,745 47,768 50,543
Subordinated debt 111,334 225,767 225,633
Redeemable common stock held
in ESOP 59,744
Shareholders' equity 689,508 539,898 456,175
-------- -------- --------
$1,631,853 $1,403,796 $1,562,299
========= ========= =========
See notes to condensed consolidated financial statements.
<TABLE>
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ----------------------
11/1/97 11/2/96 11/1/97 11/2/96
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales $592,234 $453,256 $1,610,891 $1,161,794
Costs and expenses:
Cost of sales 373,986 290,467 1,022,741 748,707
Selling, general and administrative expenses 138,052 106,506 388,927 282,239
Other operating expenses 46,192 34,404 129,754 95,059
Store pre-opening costs 1,983 357 3,363 636
Merger, restructuring and integration costs 1,170 670 4,272 4,940
Loss (gain) on sale of assets 161 (337) 191 (2,597)
ESOP expenses 7,938 1,308 9,470 1,724
--------- -------- --------- ---------
Operating income 22,752 19,881 52,173 31,086
Other income (expense):
Finance charge income 14,818 11,512 45,148 33,269
Finance charge income allocated to
purchaser of accounts receivable (3,864) (3,663) (12,547) (10,541)
Interest expense (10,793) (6,737) (32,484) (16,648)
Other income (expense), net 293 (197) 682 516
--------- -------- --------- ---------
Income before provision for income taxes 23,206 20,796 52,972 37,682
Provision for income taxes 12,974 8,655 25,818 15,700
--------- -------- --------- ---------
Net income before extraordinary loss 10,232 12,141 27,154 21,982
Extraordinary loss on early extinguishment
of debt, net of tax 363 1,483
--------- -------- --------- ---------
NET INCOME 9,869 12,141 25,671 21,982
Preferred stock dividends 796
Payment for early conversion of Preferred Stock 3,032
--------- -------- --------- ---------
Net income available to common shareholders $9,869 $12,141 $25,671 $18,154
========= ========= ========= =========
Primary earnings per share:
Net income before extraordinary loss $0.17 $0.23 $0.47 $0.37
Extraordinary loss 0.01 0.03
--------- -------- --------- ---------
Net income $0.16 $0.23 $0.44 $0.37
========= ========= ========= =========
Fully diluted earnings per share:
Net income before extraordinary loss $0.17 $0.23 $0.47 $0.43
Extraordinary loss 0.01 0.03
--------- -------- --------- ---------
Net income $0.16 $0.23 $0.44 $0.43
========== ========= ========= ==========
Weighted average common shares:
Primary 60,332 52,128 58,360 49,202
Fully diluted 62,779 56,222 62,067 50,856
</TABLE>
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)(continued)
(in thousands, except per share amounts)
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 was effected in the form of a stock dividend and entitled 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.
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
November 1, November 2,
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $25,671 $21,982
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 32,899 30,107
Deferred income taxes 1,295 (3,068)
Losses (gains) from long-lived assets 191 (2,597)
Other non-cash charges 220 210
ESOP expenses 8,786 863
Changes in operating assets and
liabilities, net (36,961) (35,578)
---------- ----------
Net cash provided by (used in)
operating activities 32,101 11,919
INVESTING ACTIVITIES
Purchases of property and equipment, net (82,434) (43,138)
Proceeds from sale of assets 21,347 5,337
Acquisition of Parisian (119,070)
Increase in restricted cash and
short-term investments (2,090)
Other, net 331
---------- ----------
Net cash used in investing activities (61,087) (158,630)
FINANCING ACTIVITIES
Net borrowings under short-term
line of credit 21,325
Proceeds from long-term borrowings, net 122,446 116,600
Payments on long-term debt (110,895) (13,088)
Proceeds from issuance of stock 14,016 6,223
ESOP loan repayment 9,778
Purchase of treasury stock (2,057)
Payments to common and preferred
shareholders (1,124) (5,787)
---------- ----------
Net cash provided by (used in)
financing activities 34,221 123,216
Increase (decrease) in cash and
cash equivalents 5,235 (23,495)
Cash and cash equivalents at
beginning of period 3,382 29,178
---------- ----------
$8,617 $5,683
========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
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 nine month periods ended November 1, 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.
Three Months Ended Nine Months Ended
November 2, 1996 November 2, 1996
(in thousands, except per share amounts)
Pro forma:
Net sales $ 576,478 $ 1,592,970
Net income $ 6,983 $ 14,351
Earnings per common share:
Primary $ .13 $ .19
Fully diluted $ .13 $ .25
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 third quarter and nine month periods ended November 1, 1997
and November 2, 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 $1.2 million and $.7 million, respectively, for the
quarters ended November 1, 1997 and November 2, 1996, respectively,
and $4.3 million and $4.9 million, respectively, for the nine month
periods ended November 1, 1997 and November 2, 1996.
A reconciliation of the aforementioned charges to the amounts of
merger, restructuring, and integration costs remaining unpaid at
November 1, 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 nine months ended November 1, 1997 4,272
Amounts paid during the nine months ended
November 1, 1997 (8,435)
---------
Amounts unpaid at November 1, 1997 $ 5,228
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, the amortization of
goodwill and tradenames, and certain ESOP charges (see Note F)
which are 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 -- DEBT CONVERSION
In October 1997, the Company completed the call of $86.25 million
in principal amount of its 4-3/4% Convertible Subordinated
Debentures ("Debentures"). $86.225 in principal amount of the
Debentures were converted into an aggregate of 2,019,387 shares of
Proffitt's, Inc. Common Stock. Holders of $25,000 in principal
amount of the Debentures received a cash redemption.
NOTE E -- STOCK SPLIT
In August 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 was effected in the form of a stock dividend;
each shareholder received one additional share for each outstanding
share of Common Stock held of record as of the close of business on
October 15, 1997.
NOTE F -- ESOP TERMINATION
In August 1997, the Company announced the planned December 1997
termination of Herberger's Employee Stock Ownership Plan ("ESOP").
The planned termination resulted in a third quarter 1997 charge
(primarily non-cash) of approximately $7.9 million. As a result,
the Company received approximately $10 million in cash representing
payment of notes receivable from the ESOP. Certain unallocated
common shares of the Company held by the ESOP, with a value of
approximately $7.1 million, will be allocated to the ESOP
participants, resulting in the charge. Subsequent to this one-time
charge, the Company will incur no future ESOP related charges.
NOTE G -- CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables present condensed consolidating financial
information for: (i) Proffitt's, Inc.; (ii) 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
Proffitt's Credit Corporation ("PCC") and Younkers Credit
Corporation ("YCC")); and (iii) 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.
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 Proffitt's, Inc. revolving credit
facility are allocated to Proffitt's, Inc. and the guaranty
subsidiaries under an informal lending arrangement. There are also
management and royalty fee arrangements among Proffitt's, Inc. and
the subsidiaries.
<TABLE>
PROFFITT'S, INC.
Condensed Consolidating Balance Sheets (Unaudited) at November 1, 1997
(In Thousands)
<CAPTION>
Non-
Guarantor Garan-
Proffitt's, Subsid- tor Sub- Elimina- Consol-
Inc. iaries sidiaries tions idated
---------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $11,896 ($14,294) $11,015 $8,617
Residual interest in trade
receivables 33 73 58,335 58,441
Merchandise inventories 231,262 448,259 679,521
Deferred income taxes 5,018 9,471 310 14,799
Notes receivable from sale of
receivables 18,871 ($18,871)
Other current assets 6,087 19,544 25,631
--------- --------- --------- --------- ----------
Total current assets 254,296 481,924 69,660 (18,871) 787,009
Property and equipment, net 182,134 362,009 544,143
Goodwill and tradenames, net 7,825 264,589 272,414
Other assets 2,332 21,256 4,699 28,287
Investment in and advances to
subsidiaries 664,477 16,221 (680,698)
--------- --------- --------- --------- ----------
Total Assets $1,111,064 $1,145,999 $74,359 ($699,569) $1,631,853
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $83,088 $177,879 $260,967
Accrued expenses and other
current liabilities 22,317 84,098 $11,194 117,609
Notes payable from purchase of
receivables 18,871 ($18,871)
Current portion of long-term debt 452 6,884 7,336
--------- --------- --------- --------- ----------
Total current liabilities 105,857 268,861 30,065 (18,871) 385,912
Senior debt 283,494 43,466 326,960
Deferred income taxes 8,329 58,065 66,394
Other long-term liabilities 9,139 42,606 51,745
Subordinated debt 14,737 96,597 111,334
Investment by, and advances from parent 636,404 44,294 (680,698)
Shareholders' equity 689,508 689,508
--------- --------- --------- --------- ----------
Total liabilities and
shareholders equity $1,111,064 $1,145,999 $74,359 ($699,569) $1,631,853
</TABLE>
<TABLE>
PROFFITT'S, INC.
Condensed Consolidating Statements of Income (Unaudited)
For the Three Months Ended November 1, 1997
(In Thousands)
<CAPTION>
Non-
Guarantor Garan-
Proffitt's, Subsid- tor Sub- Elimina- Consol-
Inc. iaries sidiaries tions idated
---------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $186,710 $405,524 $592,234
Costs and Expenses
Cost of sales 117,839 256,147 373,986
Selling, general and administrative 35,668 94,340 $8,044 138,052
Other operating expenses 14,749 31,444 (1) 46,192
Store pre-opening costs 0 1,983 1,983
Merger, restructuring and
integration costs 0 1,170 1,170
Loss (gain) on sale of assets (3) 164 161
ESOP expenses 0 7,938 7,938
--------- --------- --------- --------- ----------
Operating income (loss) 18,457 12,338 (8,043) 22,752
Other income (expense)
Finance charge income 14,818 14,818
Finance charge income allocated (3,864) (3,864)
Gain (Loss) on sale of receivables (2,281) (4,177) 5,272 1,186
Servicer fees 2,924 (2,924)
Equity in earnings of subsidiaries 2,324 2,106 (4,430)
Interest expense, net (2,983) ($7,186) (624) (10,793)
Other income (expense), net (135) 429 (1) 293
--------- --------- --------- --------- ----------
Income before provision for income taxes 15,382 6,434 4,634 (3,244) 23,206
Provision for income taxes 6,124 5,950 449 451 12,974
--------- --------- --------- --------- ----------
Net income before extraordinary loss 9,258 484 4,185 (3,695) 10,232
Extraordinary loss on early
extinguishment of debt, net of tax 363 363
--------- --------- --------- --------- ----------
NET INCOME $9,258 $121 $4,185 ($3,695) $9,869
======== ======== ======== ======== ========
</TABLE>
<TABLE>
PROFFITT'S, INC.
Condensed Consolidating Statements of Income (Unaudited)
For the Nine Months Ended November 1, 1997
(In Thousands)
<CAPTION>
Non-
Guarantor Garan-
Proffitt's, Subsid- tor Sub- Elimina- Consol-
Inc. iaries sidiaries tions idated
---------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $496,667 $1,114,224 $1,610,891
Costs and Expenses
Cost of sales 318,702 704,039 1,022,741
Selling, general and administrative 112,558 264,556 $11,813 388,927
Other operating expenses 39,389 90,365 129,754
Store pre-opening costs 57 3,306 3,363
Merger, restructuring and integration
costs 98 4,174 4,272
Loss (gain) on sale of assets (8) 199 191
ESOP expenses 9,470 9,470
--------- --------- --------- --------- ----------
Operating income (loss) 25,871 38,115 (11,813) 52,173
Other income (expense)
Finance charge income 45,148 45,148
Finance charge income allocated (12,547) (12,547)
Gain (Loss) on sale of receivables (3,262) (9,867) 13,129
Servicer fees 5,791 (5,791)
Equity in earings of subsidiaries 17,773 6,424 (24,197)
Interest expense, net (9,082) (21,439) (1,963) (32,484)
Other income (expesne), net (271) 831 122 682
--------- --------- --------- --------- ----------
Income before provision for income taxes 31,029 19,855 26,285 (24,197) 52,972
Provision for income taxes 5,357 10,711 9,750 25,818
--------- --------- --------- --------- ----------
Net income before extraordinary loss 25,672 9,144 16,535 (24,197) 27,154
Extraordinary loss on early extinguishment
of debt, net of tax 1,483 1,483
--------- --------- --------- --------- ----------
NET INCOME $25,672 $7,661 $16,535 ($24,197) $25,671
======== ======== ======== ======== ========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 1, 1997
<CAPTION>
Non-
Guarantor Garan-
Proffitt's, Subsid- tor Sub- Elimina- Consol-
Inc. iaries sidiaries tions idated
---------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $25,672 $7,661 $16,535 ($24,197) $25,671
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Equity in earnings of subsidiaries (17,773) (6,424) 24,197
Depreciation and amortization 9,786 23,113 32,899
Deferred income taxes 3,559 (2,362) 98 1,295
Losses (Gains) from long lived assets (8) 199 191
ESOP expense 8,786 8,786
Other non-cash charges 220 220
Changes in operating assets and
liabilities, net 18,400 (75,313) 19,952 (36,961)
--------- --------- --------- --------- ----------
Net cash provided by
(used in) operating
activities 39,856 (44,340) 36,585 32,101
INVESTING ACTIVITIES
Purchase of property and
equipment, net (6,614) (75,820) (82,434)
Proceeds from sale of assets 21,347 21,347
--------- --------- --------- --------- ----------
Net cash provided by
(used in) investing
activities 14,733 (75,820) (61,087)
FINANCING ACTIVITIES
Inter-company borrowings (160,324) 190,188 (29,864)
Proceeds from long term borrowings 122,446 122,446
Payments on long term debt (30,709) (80,186) (110,895)
Proceeds from issuance of stock 14,016 14,016
ESOP loan repayment 9,778 9,778
Dividends paid to shareholders (1,124) (1,124)
--------- --------- --------- --------- ----------
Net cash provided by
(used in)financing
activities (54,571) 118,656 (29,864) 34,221
Increase (decrease) in
cash and cash equivalents 18 (1,504) 6,721 5,235
Cash and cash equivalents at
beginning of period 11,878 (12,790) (4,294) 3,382
--------- --------- --------- --------- ----------
Cash and cash equivalents at
end of period $11,896 ($14,294) $11,015 $ $8,617
======== ======== ======== ======== =======
</TABLE>
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.
November 1, 1997 merchandise inventory, property and equipment, and
accounts payable balances increased over November 2, 1996 balances
primarily due to four new store locations opened (net of closings)
during 1997.
November 1, 1997 subordinated debt decreased from the balances at
February 1, 1997 and November 2, 1996 primarily due to the
conversion of $86.225 million of subordinated debentures into
Common Stock; see Note D on page 8.
November 1, 1997 equity increased over the balances at February 1,
1997 and November 2, 1996 primarily due to net earnings and the
previously mentioned conversion of subordinated debentures into
Common Stock.
During the third quarter of 1997, the Company concluded its
assessment of the effect of the year 2000 on its information
systems. The cost of the assessment and the resulting systems
modifications will result in non-recurring charges of approximately
$1 million in 1997 and approximately $2 million in 1998.
Management expects to be year 2000 compliant upon the completion of
these modifications in the third quarter of 1998.
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 Nine Months Ended
------------------ ----------------
11/1/97 11/2/96 11/1/97 11/2/96
-------- -------- ------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 63.1 64.1 63.5 64.4
Selling, general &
administrative
expenses 23.3 23.5 24.1 24.3
Other operating
expenses 7.9 7.6 8.1 8.2
Store pre-opening
costs 0.3 0.1 0.2 0.1
Merger, restructuring
and integration
costs 0.2 0.1 0.3 0.4
Loss (gain) from long-
lived assets 0.0 (0.1) 0.0 (0.2)
ESOP expenses 1.3 0.3 0.6 0.1
-------- -------- ------- -------
Operating income 3.9 4.4 3.2 2.7
Other income (expense):
Finance charge income 2.5 2.5 2.8 2.8
Finance charge income
allocated to purch-
asers of accounts
receivable (0.7) (0.8) (0.7) (0.9)
Interest expense (1.8) (1.5) (2.0) (1.4)
Other income, net 0.0 0.0 0.0 0.0
-------- -------- ------- -------
Income before provision
for income taxes 3.9 4.6 3.3 3.2
Provision for income
taxes 2.2 1.9 1.6 1.3
-------- -------- ------- -------
Net income before extra-
ordinary loss 1.7 2.7 1.7 1.9
Extraordinary loss,
net of tax 0.1 0.0 0.1 0.0
-------- -------- ------- -------
NET INCOME 1.6% 2.7% 1.6% 1.9%
For the third quarter ended November 1, 1997, total Company sales
were $592.2 million, a 31% increase over $453.3 million in the
prior year. The third quarter sales increase was primarily
attributable to the inclusion of Parisian sales for the entire
period this year ($171.9 million) compared to the inclusion of
Parisian sales beginning on October 11 last year ($39.5 million) as
well as comparable store sales growth of 5%. Total and comparable
store sales by division were as follows:
Quarter Quarter Total Comparable
ended ended increase increase
11/1/97 11/2/96 (decrease) (decrease)
-------- -------- ------- -------
Proffitt's $ 59.6 $ 66.9 (10%) 9%
McRae's 118.9 111.0 8% 2%
Younkers 158.7 150.9 6% 5%
Herberger's 83.1 85.0 ( 2%) 6%
------- ------- ------- -------
Divisions in comp base $420.3 $413.8 2% 5%
Parisian 171.9 39.5 -- 4%
------- ------- ------- -------
Total Company $592.2 $453.3 31% --
On a year-to-date basis, total Company sales were $1,610.9 million,
a 39% increase over $1,161.8 million in the prior year. The year-to-date
sales increase was primarily attributable to the inclusion
of Parisian sales for the entire period this year ($479.6 million)
compared to the inclusion of Parisian sales beginning on October 11
last year ($39.5 million) as well as comparable store sales growth
of 5%. Total and comparable store sales by division were as
follows:
9 mos. 9 mos. Total Comparable
ended ended increase increase
11/1/97 11/2/96 (decrease) (decrease)
-------- -------- ------- -------
Proffitt's $163.1 $182.5 (10%) 8%
McRae's 326.8 313.3 4% 3%
Younkers 420.3 401.3 5% 6%
Herberger's 221.1 225.2 ( 2%) 3%
------- ------- ------- -------
Divisions in comp base $1,131.3 $1,122.3 1% 5%
Parisian 479.6 39.5 -- (1%)
------- ------- ------- -------
Total Company $1,610.9 $1,161.8 39% --
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, the closing of one
Herberger's store in January 1997, the closing of a McRae's store
and a Parisian store in October 1997. Total store sales
performance also reflects the opening of the following new units:
McRae's stores in March 1996 (one), August 1997 (one), and October
1997 (two); a Proffitt's Division store in October 1996; and new
Parisian stores in February 1997, April 1997, and October 1997 (one
each).
For the third quarter and nine months, gross margin percentages
increased 100 and 90 basis points, respectively, over the prior
year. This improvement was achieved through solid sales growth,
effective 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 third quarter and nine months by 20
basis points in each period. This expense leverage primarily
resulted from the early stages of targeted cost reductions related
to each of the Company's completed business combinations and was
achieved in spite of the inclusion this year of Parisian, which has
historically been a higher expense structure business.
Other operating expenses, which consist of rents, depreciation and
amortization, and taxes other than income taxes, increased as a
percentage of net sales for the third quarter by 30 basis points
and declined by 10 basis points on a year-to-date basis. The
increase in the third quarter was primarily due to the timing of
certain rental expenses. The year-to-date decrease was primarily
due to the effect of closed underperforming stores.
Store pre-opening costs increased by 20 and 10 basis points for the
third quarter and nine months, respectively, due to the increased
number of new stores opened in 1997 compared to 1996.
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 third
quarter and nine months by 20 and 40 basis points, respectively,
primarily due to additional borrowings related to the October 1996
purchase of Parisian.
Prior to the non-recurring items outlined below, third quarter net
income totaled $19.4 million, or $.32 per share, a 48% increase
over $13.2 million, or $.25 per share last year. Prior to non-recurring
items, net income for the nine months totaled $39.4
million, or $.66 per share, compared to $24.5 million, or $.48 per
share, for the same period last year, a 61% 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 November 1, 1997,
these charges totaled $1.2 million before tax, or 0.2% of net sales
($.7 million after tax, or $.01 per share). For the quarter ended
November 2, 1996, these charges totaled $.7 million before tax, or
0.1% of net sales ($.4 million after tax, or $.01 per share). For
the nine months ended November 1, 1997, these charges totaled $4.3
million before tax, or 0.3% of net sales ($2.6 million after tax,
or $.04 per share). For the nine months ended November 2, 1996,
these charges totaled $4.9 million before tax, or 0.4% of net sales
($2.9 million after tax, or $.06 per share).
For the nine months ended November 2, 1996, the Company realized
pre-tax gains of $2.6 million on the sale of assets ($1.6 million
after tax, or $.03 per share) primarily related to the Company's
March 1996 sale of two Younkers stores to Carson Pirie Scott & Co.
For the quarters ended November 1, 1997 and November 2, 1996, the
Company incurred expenses of $7.9 million, or 1.3% of net sales,
and $1.3 million, or 0.3% 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 $8.3 million, or $.14 per share, and $.8 million, or $.01
per share, respectively. For the nine months ended November 1,
1997 and November 2, 1996, the Company incurred ESOP expenses of
$9.5 million, or 0.6% of net sales, and $1.7 million, or 0.1% of
net sales, respectively. On an after-tax basis, these charges
totaled $9.5 million, or $.16 per share, and $1.1 million, or $.02
per share, respectively. The majority of the current year ESOP
charges ($7.9 million) related to the previously announced planned
December 31, 1997 termination of the ESOP and are not tax
deductible.
For the quarter and nine months ended November 1, 1997, the Company
incurred extraordinary losses on the early retirement of certain
indebtedness of $.4 million after tax, or $.01 per share, and $1.5
million after tax, or $.03 per share, respectively.
After these non-recurring items, net income for the quarter ended
November 1, 1997 totaled $9.9 million, or $.16 per share, compared
to $12.1 million, or $.23 per share, for the quarter ended November
2, 1996. On the same basis, for the nine months ended November 1,
1997, net income totaled $25.7 million, or $.44 per share, compared
to $22.0 million, or $.43 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Amended and Restated Charter of the Company,
incorporated by reference from the Form S-4
Registration Statement No. 333-41653 dated December
5, 1997
3.2 Amended and Restated Bylaws of the Company,
incorporated by reference from the Form S-4
Registration Statement No. 333-41563 dated December
5, 1997
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 October 17, 1997
regarding the Company's accounts receivable
master trust.
A report on Form 8-K was filed with the Commission on
October 30, 1997, regarding the Company's proposed
merger with Carson Pirie Scott & Co.
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
12/15/97
______________________________
Date
/s/ Douglas E. Coltharp
_______________________________
Douglas E. Coltharp
Executive Vice President
and Chief Financial Officer
<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 Nine Months Ended
------------------ ------------------
11/1/97 11/2/96 11/1/97 11/2/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 58,308 50,186 56,612 47,610
Net effect of dilutive stock options-based
on the treasury stock method using
average market price 2,024 1,942 1,748 1,592
-------- -------- -------- --------
Primary weighted average common shares 60,332 52,128 58,360 49,202
======== ======== ======== ========
Income before extraordinary loss $10,232 $12,141 $27,154 $21,982
Less preferred dividends (796)
Less payment for early conversion of
preferred stock (3,032)
-------- -------- -------- --------
Income available to common shareholders
before extraordinary loss 10,232 12,141 27,154 18,154
Extraordinary loss, net of tax (363) (1,483)
-------- -------- -------- --------
Net income available to common shareholders $9,869 $12,141 $25,671 $18,154
======== ======== ======== ========
Earnings per common share before
extraordinary loss $0.17 $0.23 $0.47 $0.37
Extraordinary loss, net of tax (0.01) - (0.03) -
-------- -------- -------- --------
Primary earnings per share $0.16 $0.23 $0.44 $0.37
======== ======== ======== ========
</TABLE>
<TABLE>
STATEMENT RE: COMPUTATION OF HISTORICAL EARNINGS PER COMMON SHARE
PROFFITT'S, INC. AND SUBSIDIARIES
(In Thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ------------------
11/1/97 11/2/96 11/1/97 11/2/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FULLY DILUTED:
Average shares outstanding 58,308 50,186 56,612 47,610
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 2,098 1,996 1,971 1,736
Assumed conversion of preferred stock 1,510
Assumed conversion of 4.75% subordinated
debentures 2,373 4,040 3,484
-------- -------- -------- --------
Fully diluted weighted average common
shares 62,779 56,222 62,067 50,856
====== ====== ====== ======
Income before extraordinary loss $10,232 $12,141 $27,154 $21,982
Add: Subordinated debentures interest,
net of federal income tax effect 458 625 1,708
-------- -------- -------- --------
Adjusted income before extraordinary loss 10,690 12,766 28,862 21,982
Extraordinary loss, net of tax (363) (1,483)
-------- -------- -------- --------
Adjusted net income $10,327 $12,766 $27,379 $21,982
======= ======= ======= =======
Fully diluted earnings per common share
before extraordinary loss $ 0.17 $ 0.23 $ 0.47 $ 0.43
Extraordinary loss, net of tax (0.01) (0.03)
-------- -------- -------- --------
Fully diluted earnings per share $ 0.16 $ 0.23 $ 0.44 $ 0.43
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet as of November 1, 1997 and the Condensed
Consolidated Statement of Income for the nine months ended November 1, 1997
(unaudited) an is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> NOV-01-1997
<CASH> 8,617,000
<SECURITIES> 0
<RECEIVABLES> 58,441,000
<ALLOWANCES> 0
<INVENTORY> 679,521,000
<CURRENT-ASSETS> 787,009,000
<PP&E> 544,143,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,631,583,000
<CURRENT-LIABILITIES> 385,912,000
<BONDS> 438,194,000
0
0
<COMMON> 0
<OTHER-SE> 689,508,000
<TOTAL-LIABILITY-AND-EQUITY> 1,631,583,000
<SALES> 1,610,891,000
<TOTAL-REVENUES> 1,643,983,000
<CGS> 1,022,741,000
<TOTAL-COSTS> 1,022,741,000
<OTHER-EXPENSES> 146,859,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,484,000
<INCOME-PRETAX> 52,972,000
<INCOME-TAX> 25,818,000
<INCOME-CONTINUING> 27,154,000
<DISCONTINUED> 0
<EXTRAORDINARY> (1,483,000)
<CHANGES> 0
<NET-INCOME> 25,671,000
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
