Commission File No. 1-13113
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended August 1, 1998
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 1, 1998
Commission File Number: 1-13113
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 -- 90,780,270 shares as of August 1,
1998
PROFFITT'S, INC.
Index
PART I. FINANCIAL INFORMATION Page No.
---------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets August 1, 1998,
January 31, 1998, and August 2, 1997 3
Condensed Consolidated Statements of Income -- Three
and Six Months Ended August 1, 1998 and August 2, 19974
Condensed Consolidated Statements of Cash Flows -- Six
Months Ended August 1, 1998 and August 2, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
8/1/98 8/2/98
(unaudited) 1/31/98 (unaudited)
----------- ---------- ----------
ASSETS
Current assets
Cash and cash equivalents $23,721 $39,396 $33,700
Trade accounts receivable 69,565 342,513 317,376
Merchandise inventories 784,310 715,147 732,325
Other current assets 25,050 30,835 44,104
Deferred income taxes 19,039 23,970 20,359
--------- --------- ----------
Total current assets 921,685 1,151,861 1,147,864
Property and equipment, net 812,897 765,881 713,947
Goodwill and intangibles, net 280,424 273,857 273,844
Other assets 39,244 33,280 39,763
--------- --------- ----------
TOTAL ASSETS $2,054,250 $2,224,879 $2,175,418
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $192,653 $150,154 $223,893
Accrued expenses and other
current liabilities 241,615 295,216 204,257
Current portion of long-term
debt 9,184 8,600 10,121
--------- --------- ----------
Total current liabilities 443,452 453,970 438,271
Senior debt 318,243 541,661 478,373
Deferred income taxes 35,021 18,002 29,501
Other long-term liabilities 108,086 105,717 102,897
Subordinated debt 10,964 197,511
Shareholders' equity 1,149,448 1,094,565 928,865
--------- --------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,054,250 $2,224,879 $2,175,418
========== ========== ==========
See notes to condensed consolidated financial statements.
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- --------------------
8/1/98 8/2/97 8/1/98 8/2/97
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $777,127 $736,052 $1,610,276 $1,520,556
Costs and expenses:
Cost of sales 495,999 472,444 1,033,438 981,870
Selling, general and administr-
ative expenses 197,254 191,003 403,365 386,577
Other operating expenses 66,243 59,902 131,686 122,098
Store pre-opening costs 626 556 1,213 1,380
Merger, restructuring and
integration costs 3,995 1,634 5,951 3,102
Loss on long-lived assets 359 3 356 30
Year 2000 expenses 2,602 3,745 4,127 4,362
ESOP expenses 806 1,532
---------- ---------- ---------- ----------
Operating income 10,049 5,959 30,140 19,605
Other income (expense):
Finance charge income 31,658 27,607 63,834 55,677
Finance charge income allocated to
purchaser of accounts receivable (9,734) (4,324) (19,180) (8,683)
Interest expense (7,852) (15,054) (15,794) (30,009)
Other income, net 626 253 754 389
---------- ---------- ---------- ----------
Income before provision for
income taxes 24,747 14,441 59,754 36,979
Provision for income taxes 10,375 6,376 24,519 15,701
---------- ---------- ---------- ----------
Net income before extraordinary loss 14,372 8,065 35,235 21,278
Extraordinary loss on early exting-
uishment of debt, net of taxes 334 1,120 334 1,120
---------- ---------- ---------- ----------
NET INCOME $14,038 $6,945 $34,901 $20,158
========== ========== ========== ==========
Basic earnings per share:
Net income before extraordinary loss $0.16 $0.10 $0.39 $0.25
Extraordinary loss 0.00 0.02 0.00 0.01
---------- ---------- ---------- ----------
Net income $0.16 $0.08 $0.39 $0.24
========== ========== ========== ==========
Diluted earnings per share:
Net income before extraordinary loss $0.15 $0.09 $0.38 $0.25
Extraordinary loss 0.00 0.01 0.01 0.02
---------- ---------- ---------- ----------
Net income $0.15 $0.08 $0.37 $0.23
========== ========== ========== ==========
Weighted average common shares:
Basic 90,410 83,848 89,958 83,579
Diluted 94,005 86,511 93,708 86,211
See notes to condensed consolidated financial statements.
</TABLE>
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (UNAUDITED)
(in thousands)
Six Months Ended
-------------------------
8/1/98 8/2/98
--------- ----------
OPERATING ACTIVITIES
Net income $34,901 $20,158
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 36,117 31,870
Deferred income taxes 21,950 4,551
Losses from long-lived assets 356 30
ESOP expenses 694
Other 4,104
Changes in operating assets and
liabilities, net 201,187 6,317
-------- --------
Net cash provided by operating
activities 294,511 67,724
INVESTING ACTIVITIES
Purchases of property and equipment,
net (75,740) (81,452)
Proceeds from sale of assets 2,500 21,347
Acquisition of other assets (17,676)
Other, net (1,442)
-------- --------
Net cash used in investing
activities (90,916) (61,547)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 129,160
Payments on long-term debt and
capital lease obligations (111,628) (110,575)
Net repayments under receivables
facility (125,000) (19,242)
Proceeds from issuance of stock 17,358 12,749
Purchase of treasury stock (7,445)
Payments to preferred and common
shareholders (1,124)
-------- --------
Net cash (used in) provided
by financing activities (219,270) 3,523
(Decrease) increase in cash
and cash equivalents (15,675) 9,700
Cash and cash equivalents
at beginning of period 39,396 24,000
-------- --------
Cash and cash equivalents
at end of period $23,721 $33,700
======== ========
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- 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 1, 1998
are not necessarily indicative of the results that may be expected
for the year ending January 30, 1999. 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 January 31, 1998.
The accompanying balance sheet at January 31, 1998 has been derived
from the audited financial statements at that date.
NOTE 2 -- BUSINESS COMBINATIONS
Effective January 31, 1998, immediately before the Company's prior
fiscal year end, Proffitt's combined its business with Carson Pirie
Scott & Co. ("Carson's"), a retail department store chain currently
operating 55 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, financial position, and cash
flows of Carson's. Prior to the merger with Proffitt's, Carson's
financed its trade accounts receivables with a $200 million
receivables facility. In connection with the merger, the Carson's
receivables facility was terminated and the $125 million
outstanding balance was repaid in February 1998 with the proceeds
from the sale of Carson's receivables under the Company's existing
receivables securitization agreements.
On March 6, 1998, the Company acquired Brody Brothers Dry Goods
Company, Inc. ("Brody's"), which operated six department stores in
North Carolina. Consideration was paid in cash and was immaterial
to Proffitt's, Inc. Four of the Brody's locations were converted
into Proffitt's stores, and two stores were permanently closed.
For the three and six months ended August 1, 1998 and August 2,
1997, the Company incurred certain integration costs related to its
business combinations with Younkers (completed February 3, 1996),
Parisian (completed October 11, 1996), Herberger's (completed
February 1, 1997), Carson's, and Brody's. These pre-tax charges
totaled $4.0 million and $1.6 million for the three months ended
August 1, 1998 and August 2, 1997, respectively, and $6.0 million
and $3.1 million for the six months ended August 1, 1998 and August
2, 1997, respectively.
A reconciliation of the aforementioned charges to the amounts of
merger, restructuring, and integration costs remaining unpaid at
August 1, 1998 is as follows (in thousands):
Amounts unpaid at January 31, 1998 $ 25,094
Adjustments to amounts unpaid at January 31, 1998 0
Amounts related to continuing integration
efforts for the six months ended August 1, 1998 5,951
Amounts paid during the six months ended
August 1, 1998 (21,275)
---------
Amounts unpaid at August 1, 1998 $ 9,770
NOTE 3 PENDING TRANSACTIONS
In July 1998, the Boards of Directors of Proffitt's and Saks
Holdings, Inc. ("Saks"), the holding company for Saks Fifth Avenue,
unanimously approved the merger of the two companies. Under the
terms of the transaction, shareholders of Saks will receive .82 of
a share of Proffitt's, Inc. common stock for each share of Saks
Holdings, Inc. common stock. Proffitt's will issue approximately
52.5 million shares of common stock in the transaction. The
combination has been structured as a tax-free transaction and will
be accounted for as a pooling-of-interests. The shareholders of
both companies are scheduled to vote on the transaction on
September 16, 1998, and the effective date of the merger is
expected to be September 17. Upon completion of the merger, Saks
Fifth Avenue will become a subsidiary of Proffitt's, Inc., and the
corporate name of Proffitt's, Inc. will be changed to Saks
Incorporated.
In August 1998, the Company announced it had entered into an
agreement, subject to certain conditions, to acquire from
Dillard's, Inc. the real and personal property of 15 store
locations, along with certain inventory and accounts receivable.
The transaction is expected to be valued at $450 million to $550
million and is scheduled to close by the end of the third fiscal
quarter of 1998.
NOTE 4 - EARNINGS PER COMMON SHARE
Calculations of earnings per common share ("EPS") for the three and six
months ended August 1, 1998 and August 2, 1997 are as follows:
(net income and shares in thousands)
<TABLE>
<CAPTION>
For the Quarter Ended For the Quarter Ended
August 1, 1998 August 2, 1997
------------------------ -----------------------
Weighted Per Weighted Per
Income Average Share Income Average Share
(a) Shares Amount (a) Shares Amount
--------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Basis EPS $14,372 90,410 $0.16 $8,065 83,848 $0.10
Effect of dilutive stock options
(based on the treasury stock
method using the average price) 3,595 2,663
------- ------- ------- ------- ------- -------
Diluted EPS $14,372 94,005 $0.15 $8,065 86,511 $0.09
======= ======= ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
For the Quarter Ended For the Quarter Ended
August 1, 1998 August 2, 1997
------------------------ -----------------------
Weighted Per Weighted Per
Income Average Share Income Average Share
(a) Shares Amount (a) Shares Amount
--------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Basis EPS $35,235 89,958 $0.39 $21,278 83,579 $0.25
Effect of dilutive stock options
(based on the treasury stock
method using the average price) 3,750 2,632
------- ------- ------- ------- ------- -------
Diluted EPS $35,235 93,708 $0.38 $21,278 86,211 $0.25
======== ======= ====== ======== ======= ========
</TABLE>
(a) Income before extraordinary items.
NOTE 5 -- CONTINGENCIES
The Company is involved in several legal proceedings arising from
its normal course of business activities, and reserves have been
established where appropriate. Management believes that none of
these legal proceedings will have a material adverse effect on the
Company's consolidated financial condition, results of operations,
or liquidity.
NOTE 6 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 is effective for the Company in the third fiscal
quarter of 1999, and the Company is in the process of ascertaining
the impact that this new standard will have on its financial
statements.
NOTE 7 -- CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables present 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
Proffitt's Credit Corporation ("PCC"), Younkers Credit Corporation
("YCC"), and the National Bank of the Great Lakes ("NBGL")); and 3)
on a combined basis, PCC, YCC, and NBGL, 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
AT AUGUST 1, 1998
(In Thousands)
Non-
Guarantor Guarantor
Proffitt's Subsid- Subsid- Elimin- Consol-
Inc. iaries iaries ations idated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $14,318 ($17,641) $27,044 $23,721
Trade accounts receivable 1,588 252 67,725 69,565
Merchandise inventories 202,944 581,366 784,310
Deferred income taxes 6,901 8,727 3,411 19,039
Intercompany borrowings 20,465 ($20,465)
Other current assets 13,237 11,003 810 25,050
--------- --------- --------- --------- --------
Total Current Assets 259,453 583,707 98,990 (20,465) 921,685
Property and Equipment, net 195,960 616,937 812,897
Goodwill and Intangibles, net 19,389 261,035 280,424
Other Assets 4,127 28,941 6,176 39,244
Investment in and Advances to
Subsidiaries 1,037,763 25,720 (1,063,483)
--------- --------- --------- --------- --------
Total Assets $1,516,692 $1,516,340 $105,166 ($1,083,948) $2,054,250
=========== =========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $54,795 $137,858 $192,653
Accrued expenses and other
current liabilities 40,736 186,542 $14,337 241,615
Intercompany borrowings 20,465 ($20,465)
Current portion of long-term
debt 452 8,732 9,184
--------- --------- --------- --------- --------
Total Current Liabilities 95,983 333,132 34,802 (20,465) 443,452
Senior Debt 242,455 75,788 318,243
Deferred Income Taxes 16,291 18,730 35,021
Other Long-Term Liabilities 12,515 95,571 108,086
Investment by and Advances
from Parent 993,119 70,364 (1,063,483)
Shareholders' Equity 1,149,448 1,149,448
--------- --------- --------- --------- --------
Total Liabilities and
Shareholders' Equity $1,516,692 $1,516,340 $105,166 ($1,083,948) $2,054,250
=========== =========== ========== ========== ==========
</TABLE>
<TABLE>
PROFFITT'S, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED AUGUST 1, 1998
Non-
Guarantor Guarantor
Proffitt's Subsid- Subsid- Elimin- Consol-
Inc. iaries iaries ations idated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $163,524 $613,603 $777,127
Costs and Expenses
Cost of sales 104,023 391,976 495,999
Selling, general and admin-
istrative expenses 34,217 154,396 $8,641 197,254
Other operating expenses 13,970 52,273 66,243
Store pre-opening costs 162 464 626
Merger, restructuring and
integration costs 2,528 1,467 3,995
Losses from long-lived assets 359 359
Year 2000 expenses 553 2,049 2,602
--------- --------- --------- --------- --------
Operating income (loss) 7,712 10,978 (8,641) 10,049
Other Income (Expense)
Finance charge income, net 21,924 21,924
Gain (loss) on sale of
receivables (1,197) (3,589) 4,786
Servicer fees 6,701 (6,701)
Equity in earnings of sub-
sidiaries 10,667 2,705 ($13,372)
Interest expense, net (1,744) (6,071) (37) (7,852)
Other income (expense), net (102) 728 626
--------- --------- --------- --------- --------
Income before provision for
income taxes and extra-
ordinary item 15,336 11,452 11,331 (13,372) 24,747
Provision for income taxes 1,298 4,892 4,185 10,375
--------- --------- --------- --------- --------
Income before extraordinary
item 14,038 6,560 7,146 (13,372) 14,372
Extraordinary item, net of
taxes 334 334
--------- --------- --------- --------- --------
Net income $14,038 $6,226 $7,146 ($13,372) $14,038
</TABLE>
<TABLE>
PROFFITT'S, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED AUGUST 1, 1998
Non-
Guarantor Guarantor
Proffitt's Subsid- Subsid- Elimin- Consol-
Inc. iaries iaries ations idated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $337,832 $1,272,444 $1,610,276
Costs and Expenses
Cost of sales 218,829 814,609 1,033,438
Selling, general and admin-
istrative expenses 70,571 314,907 $17,887 403,365
Other operating expenses 27,808 103,878 131,686
Store pre-opening costs 624 589 1,213
Merger, restructuring and
integration costs 3,947 2,004 5,951
Losses from long-lived assets 356 356
Year 2000 expenses 884 3,243 4,127
--------- --------- --------- --------- ---------
Operating income (loss) 14,813 33,214 (17,887) 30,140
Other Income (Expense)
Finance charge income, net 44,654 44,654
Gain (loss) on sale of
receivables (2,731) (10,579) 13,310
Servicer fees 12,940 (12,940)
Equity in earnings of
subsidiaries 28,575 6,559 ($35,134)
Interest expense, net (2,967) (10,959) (1,868) (15,794)
Other income (expense), net 4 750 754
--------- --------- --------- --------- ---------
Income before provision for
income taxes and extra-
ordinary item 37,694 31,925 25,269 (35,134) 59,754
Provision for income taxes 2,793 12,494 9,232 24,519
--------- --------- --------- --------- ---------
Income before extraordinary item 34,901 19,431 16,037 (35,134) 35,235
Extraordinary item, net of taxes 334 334
--------- --------- --------- --------- ---------
Net income $34,901 $19,097 $16,037 ($35,134) $34,901
========= ========= ========= ========= =========
</TABLE>
<TABLE>
PROFFITT'S, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 1, 1998
(In Thousands)
Non-
Guarantor Guarantor
Proffitt's Subsid- Subsid- Elimin- Consol-
Inc. iaries iaries ations idated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $34,901 $19,097 $16,037 ($35,134) $34,901
Adjustments to reconcile net
income to net cash provided by
(used) in operating activities:
Equity in earnings of sub-
sidiaries (28,575) (6,559) 35,134
Depreciation and amortization 6,898 29,219 36,117
Deferred income taxes 7,504 13,555 891 21,950
(Gains) losses from long lived
assets 356 356
Changes in operating assets
and liabilities, net (22,190) (49,983) 273,360 201,187
-------- --------- -------- -------- ---------
Net cash provided by (used
in) operating activities (1,106) 5,329 290,288 294,511
INVESTING ACTIVITIES
Purchases of property and
equipment, net (18,226) (57,514) (75,740)
Proceeds from sale of assets 2,500 2,500
Acquisition of other assets (17,676) (17,676)
-------- --------- -------- -------- ---------
Net cash used in invest-
ing activities (33,402) (57,514) (90,916)
FINANCING ACTIVITIES
Inter-company borrowings,
contributions and distri-
butions 114,090 54,400 (168,490)
Payments on long-term debt (98,027) (13,601) (111,628)
Repayments under receivables
facility (125,000) (125,000)
Proceeds from issuance of
stock 17,358 17,358
-------- --------- -------- -------- ---------
Net cash provided by
(used in) financing
activities 33,421 40,799 (293,490) (219,270)
Decrease in cash and cash
equivalents (1,087) (11,386) (3,202) (15,675)
Cash and cash equivalents at
beginning of period 15,405 (6,255) 30,246 39,396
-------- --------- -------- -------- ---------
Cash and cash equivalents at
end of period $14,318 ($17,641) $27,044 $23,721
======== ========= ======== ======== ========
</TABLE>
<TABLE>
PROFFITT'S, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED AUGUST 2, 1997
(In Thousands)
Non-
Guarantor Guarantor
Proffitt's Subsid- Subsid- Elimin- Consol-
Inc. iaries iaries ations idated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $154,553 $581,499 $736,052
Costs and Expenses
Cost of sales 99,691 372,753 472,444
Selling, general and
administrative expenses 38,067 147,009 $5,927 191,003
Other operating expenses 12,206 47,695 1 59,902
Store pre-opening costs 57 499 556
Merger, restructuring and
integration costs 1,634 1,634
(Gains) losses from long-
lived assets (3) 6 3
Year 2000 expenses 3,745 3,745
ESOP expenses 806 806
-------- --------- -------- -------- --------
Operating income (loss) 4,535 7,352 (5,928) 5,959
Other Income (Expense)
Finance charge income, net 23,283 23,283
Gain (loss) on sale of
receivables (158) (2,757) 3,804 ($889)
Servicer fees 3,456 (3,456)
Equity in earnings of
subsidiaries 5,155 3,890 (9,045)
Interest expense, net (3,302) (8,392) (3,360) (15,054)
Other income (expense), net (95) 225 123 253
-------- --------- -------- -------- --------
Income before provision for
income taxes and extra-
ordinary item 6,135 3,774 14,466 (9,934) 14,441
Provision for income taxes (810) 597 6,805 (216) 6,376
-------- --------- -------- -------- --------
Income before extraordinary item 6,945 3,177 7,661 (9,718) 8,065
Extraordinary item 1,120 1,120
-------- --------- -------- -------- --------
Net income $6,945 $2,057 $7,661 ($9,718) $6,945
======== ========= ======== ======== ========
</TABLE>
<TABLE>
PROFFITT'S, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED AUGUST 2, 1997
(In Thousands)
Non-
Guarantor Guarantor
Proffitt's Subsid- Subsid- Elimin- Consol-
Inc. iaries iaries ations idated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $309,957 $1,210,599 $1,520,556
Costs and Expenses
Cost of sales 200,863 781,007 981,870
Selling, general and admini-
strative expenses 76,890 298,932 $10,755 386,577
Other operating expenses 24,640 97,457 1 122,098
Store pre-opening costs 57 1,323 1,380
Merger, restructuring and
integration costs 98 3,004 3,102
(Gains) losses from long-lived
assets (5) 35 30
Year 2000 expenses 4,362 4,362
ESOP expenses 1,532 1,532
-------- --------- --------- --------- ---------
Operating income (loss) 7,414 22,947 (10,756) 19,605
Other Income (Expense)
Finance charge income, net 46,994 46,994
Gain (loss) on sale of
receivables (1,043) (5,690) 7,857 ($1,124)
Servicer fees 6,206 (6,206)
Equity in earnings of
subsidiaries 19,255 9,937 (29,192)
Interest expense, net (6,099) (16,850) (7,060) (30,009)
Other income (expense), net (136) 402 123 389
-------- --------- --------- --------- ---------
Income before provision for
income taxes and extra-
ordinary item 19,391 16,952 30,952 (30,316) 36,979
Provision for income taxes (767) 3,936 12,983 (451) 15,701
-------- --------- --------- --------- ---------
Income before extraordinary item 20,158 13,016 17,969 (29,865) 21,278
Extraordinary item 1,120 1,120
-------- --------- --------- --------- ---------
Net income $20,158 $11,896 $17,969 ($29,865) $20,158
========= ========= ========= ========= =========
</TABLE>
<TABLE>
PROFFITT'S, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 2, 1997
(In Thousands)
Non-
Guarantor Guarantor
Proffitt's Subsid- Subsid- Elimin- Consol-
Inc. iaries iaries ations idated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $20,158 $11,896 $17,969 ($29,865) $20,158
Adjustments to reconcile net
income to net cash provided by
(used) in operating activities:
Equity in earnings of sub-
sidiaries (19,255) (9,937) 29,192
Depreciation and amortization 6,764 25,106 31,870
Deferred income taxes 857 3,423 271 4,551
Amortization of deferred comp 694 694
(Gains) losses from long lived
assets (5) 35 30
Other 500 3,604 4,104
Changes in operating assets and
liabilities, net (14,396) (15,403) 35,443 673 6,317
-------- -------- -------- --------- ---------
Net cash provided by (used
in) operating activities (5,377) 19,418 53,683 67,724
INVESTING ACTIVITIES
Purchases of property and
equipment, net (5,390) (76,062) (81,452)
Proceeds from sale of assets 21,347 21,347
Other, net (1,442) (1,442)
-------- -------- -------- --------- ---------
Net cash provided by (used in)
investing activities 15,957 (77,504) (61,547)
FINANCING ACTIVITIES
Inter-company borrowings, contr-
ibutions and distributions (107,119) 151,375 (44,256)
Proceeds from long-term
borrowings 129,160 129,160
Payments on long-term debt (31,520) (79,055) (110,575)
Net repayments under receiv-
ables facility (19,242) (19,242)
Proceeds from issuance of
stock 12,749 12,749
Purchase of treasury stock (7,445) (7,445)
Payments to preferred and
common shareholders (1,124) (1,124)
-------- -------- -------- --------- ---------
Net cash provided by (used in)
financing activities (4,175) 71,196 (63,498) 3,523
Increase (decrease) in cash and
cash equivalents 6,405 13,110 (9,815) 9,700
Cash and cash equivalents at
beginning of period 11,878 (1,725) 13,847 24,000
-------- -------- -------- --------- ---------
Cash and cash equivalents at
end of period $18,283 $11,385 $4,032 $33,700
======== ======== ======== ======== ========
</TABLE>
<TABLE>
PROFFITT'S, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AT JANUARY 31, 1998
(In Thousands)
Non-
Guarantor Guarantor
Proffitt's Subsid- Subsid- Elimin- Consol-
Inc. iaries iaries ations idated
<S> <C> <C> <C> <C> <C>
ASSETS -------- -------- -------- -------- --------
Current Assets
Cash and cash equivalents $15,405 ($6,255) $30,246 $39,396
Trade accounts receivable 113 273 342,127 342,513
Merchandise inventories 171,212 543,935 715,147
Deferred income taxes 6,797 12,871 4,302 23,970
Notes receivable from sale of
receivables and intercompany
borrowings 30,715 90,293 ($121,008)
Other current assets 6,777 24,051 7 30,835
-------- -------- --------- --------- ---------
Total Current Assets 231,019 665,168 376,682 (121,008) 1,151,861
Property and Equipment, net 186,266 579,615 765,881
Goodwill and Intangibles, net 7,340 266,517 273,857
Other Assets 2,297 24,312 6,671 33,280
Investment in and Advances to
Subsidiaries 1,109,362 18,346 (1,127,708)
-------- -------- --------- --------- ---------
Total Assets $1,536,284 $1,553,958 $383,353 ($1,248,716) $2,224,879
========== ========== ========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $39,713 $110,441 $150,154
Accrued expenses and other
current liabilities 45,563 234,582 $15,071 295,216
Notes payable from purchase
of receivables 121,008 ($121,008)
Current portion of long-term
debt 452 8,148 8,600
-------- -------- --------- --------- ---------
Total Current Liabilities 85,728 353,171 136,079 (121,008) 453,970
Senior Debt 336,545 80,116 125,000 541,661
Deferred Income Taxes 8,683 9,319 18,002
Other Long-Term Liabilities 10,763 94,954 105,717
Subordinated Debt 10,964 10,964
Investment by and Advances
from Parent 1,005,434 122,274 (1,127,708)
Shareholders' Equity 1,094,565 1,094,565
-------- -------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity $1,536,284 $1,553,958 $383,353 ($1,248,716) $2,224,879
=========== =========== ========= =========== ===========
</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.
The August 1, 1998 trade accounts receivable balance decreased from
the January 31, 1998 and August 2, 1997 balances due to selling a
higher percentage of the Company's receivables through its
securitization programs (primarily related to Carson's receivables
which were not previously securitized). The proceeds of these
additional sales of receivables were used to reduce senior debt
balances.
August 1, 1998 merchandise inventory and property and equipment
balances increased over January 31, 1998 and August 2, 1997
balances primarily due to four new store locations opened (net of
closings) during 1997, the acquisition of the Brody's stores in
March 1998, and the intensification of inventories at certain
stores, particularly at certain Parisian and Herberger's stores.
August 1, 1998 subordinated debt decreased from the balance at
August 2, 1997 due to the conversion of approximately $86 million
of subordinated debentures into Common Stock and the retirement of
approximately $128 million of additional debentures.
August 1, 1998 equity increased over the balances at January 31,
1998 and August 2, 1997 primarily due to net earnings and the
previously mentioned conversion of subordinated debentures into
common stock.
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 January 31, 1998 merger with Carson's, which was
accounted for as a pooling of interests.
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 (numbers may not foot due to
rounding).
<TABLE>
Three Months Ended Six Months Ended
-------------------- -----------------
8/1/98 8/2/97 8/1/98 8/2/97
--------- --------- -------- ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 63.8 64.2 64.2 64.6
Selling, general & administrative expenses 25.4 25.9 25.0 25.4
Other operating expenses 8.6 8.1 8.1 8.0
Store pre-opening costs 0.1 0.1 0.1 0.1
Merger, restructuring and integration cost 0.5 0.2 0.4 0.2
Year 2000 expenses 0.3 0.5 0.3 0.3
ESOP expenses 0.0 0.1 0.0 0.1
------ ------ ------ ------
Operating income 1.3 0.8 1.9 1.3
Other income (expense):
Finance charge income 4.1 3.8 4.0 3.7
Finance charge income allocated to purchasers
of accounts receivable (1.3) (0.6) (1.2) (0.6)
Interest expense (1.0) (2.0) (1.0) (2.0)
Other income, net 0.1 0.0 0.0 0.0
Income before provision for income taxes 3.2 2.0 3.7 2.4
Provision for income taxes 1.3 0.9 1.5 1.0
Net income before extraordinary loss 1.8 1.1 2.2 1.4
Extraordinary loss, net of tax 0.0 0.2 0.0 0.1
NET INCOME 1.8% 0.9% 2.2% 1.3%
====== ====== ====== ======
</TABLE>
For the second quarter ended August 1, 1998, total Company sales
were $777.1 million, a 6% increase over $736.1 million in the prior
year. For the six months ended August 1, 1998, total Company sales
were $1.61 billion, a 6% increase over $1.52 billion in the prior
year. The sales increases for the second quarter and six months
were primarily attributable to a comparable store sales growth of
4% for both periods, additional sales from new stores opened, and
sales from the Brody's stores acquired in March 1998.
For both the second quarter and the six months ended August 1,
1998, gross margin percentage increased 40 basis points over the
prior year. This increase was achieved through improved execution
of merchandising strategies, the realization of benefits related to
increased purchasing scale, and shifts in the merchandise mix of
select stores.
Selling, general, and administrative expenses declined as a
percentage of net sales for the second quarter and the six months
ended August 1, 1998 by 50 and 40 basis points, respectively. This
expense leverage primarily resulted from targeted cost reductions
related to each of the Company's completed business combinations
and certain productivity efficiencies.
Other operating expenses, which consist of rents, depreciation, and
taxes other than income taxes, increased by 50 and 10 basis points
for the second quarter and six months ended August 1, 1998,
respectively, over last year. These increases were largely
attributable to the effect of new store openings and the capital
expenditures related to store remodels and corporate infrastructure
enhancements, which increased rent and depreciation.
In conjunction with the Company's business combinations with
Younkers, Parisian, Herberger's, Carson's, and Brody's, the
Company incurred certain integration charges in each period
presented. For the quarters ended August 1, 1998 and August 2,
1997, these charges totaled $4.0 million, or 0.5% of net sales, and
$1.6 million, or 0.2% of net sales, respectively. For the six
month periods ended August 1, 1998 and August 2, 1997, these
charges totaled $6.0 million, or 0.4% of net sales, and $3.1
million, or $0.2% of net sales, respectively.
The Company has completed its assessment of the Year 2000 effect on
the Company's systems. Necessary systems modifications are
currently underway and are scheduled for completion by spring 1999.
For the quarters ended August 1, 1998 and August 2, 1997, Year 2000
expenses totaled $2.6 million, or 0.3% of net sales, and $3.7
million, or 0.5% of net sales, respectively. For the six month
periods ended August 1, 1998 and August 2, 1997, Year 2000 expenses
totaled $4.1 million, or 0.3% of net sales, and $4.4 million, or
0.3% of net sales, respectively. Management anticipates that
additional Year 2000 charges will total approximately $3.0 million
for the last two quarters of 1998 and $1.0 million for 1999.
For the quarter and six months ended August 1, 1997, the Company
incurred expenses of $.8 million, or 0.1% of net sales, and $1.5
million, or 0.1% of net sales, respectively, related to the
Company's Employee Stock Ownership Plan (the "ESOP") maintained at
Herberger's. The ESOP was terminated in December 1997.
For the both the quarter and six months ended August 1, 1998,
finance charge income, as a percent of net sales, increased 30
basis points over the prior year. These increases were primarily
due to the successful introduction of a proprietary charge card
program to the Company's Herberger's customers in May 1997 as well
as certain proprietary charge card term changes for most of the
Company's credit card programs effected in late 1997 and early
1998.
Total financing costs, which include interest expense and finance
charge income allocated to the third party purchasers of accounts
receivable, decreased as a percentage of net sales for the second
quarter and six months by 30 and 40 basis points, respectively, due
to lower average borrowings during the periods as well as more
favorable financing terms.
Net income for the quarter ended August 1, 1998 totaled $14.0
million, or $.15 per diluted share, compared to $6.9 million, or
$.08 per diluted share, for the quarter ended August 2, 1997. Net
income for the six months ended August 1, 1998 totaled $34.9
million, or $.37 per diluted share, compared to $20.2 million, or
$.23 per diluted share, in the prior year. The increase in
earnings over the prior year primarily was due to improved gross
margin performance, leverage on operating expenses, increased
finance charge income, and lower financing costs.
This Form 10-Q contains "forward-looking" statements within the
meaning of the federal securities laws. Forward-looking
information in this Form 10-Q is premised on many factors, some of
which are outlined below. Actual consolidated results might differ
materially from projected forward-looking information if there are
any material changes in management's assumptions.
The forward-looking information and statements are based on a
series of projections and estimates and involve certain risks and
uncertainties. Potential risks and uncertainties include such
factors as the level of consumer spending for apparel and other
merchandise carried by the Company; the competitive pricing
environment within the department and specialty store industries;
the effectiveness of planned advertising, marketing, and
promotional campaigns; appropriate inventory management;
realization of planned synergies; effective cost containment; and
solution of Year 2000 systems issues by the Company and its
suppliers. For additional information regarding these and other
risk factors, please refer to the Company's public filings with the
Securities and Exchange Commission, which may be accessed via EDGAR
through the internet at www.sec.gov.
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 10, 1998. 77,384,431 shares of the 89,637,101 shares of
Common Stock entitled to vote, or 86.3% 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. 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 64,900,150
shares voted FOR and shareholders holding no more than
12,484,281 shares WITHHELD from voting.
2. The vote for the 1998 Senior Executive Bonus Plan was as
follows: FOR: 76,540,079; AGAINST: 772,267; and ABSTAIN:
72,084.
3. The vote for the Ratification of Appointment of Independent
Accountants (PricewaterhouseCoopers LLP) for the fiscal year
ending January 30, 1999 was as follows: FOR: 77,340,250;
AGAINST: 26,463; and ABSTAIN: 17,718.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Form 8-K Reports.
Reports on Form 8-K were filed with the Commission on
July 8, 1998 and July 13, 1998 regarding the Company's
planned merger with Saks Holdings, Inc. A report on Form
8-K/A was filed with the Commission on July 14, 1998 to
correct certain information in the July 13, 1998 filing.
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
9/11/98
____________________________________
Date
/s/ Douglas E. Coltharp
____________________________________
Douglas E. Coltharp
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheets as of August 1, 1998 and August 2, 1997
and the Condensed Consolidated Statements of Income for the six months ended
August 1, 1998 and August 2, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JAN-30-1999 JAN-31-1998
<PERIOD-END> AUG-01-1998 AUG-02-1997
<CASH> 23,721,000 33,700,000
<SECURITIES> 0 0
<RECEIVABLES> 69,565,000 317,376,000
<ALLOWANCES> 0 0
<INVENTORY> 784,310,000 732,325,000
<CURRENT-ASSETS> 921,685,000 1,147,864,000
<PP&E> 812,897,000 713,947,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 2,054,250,000 2,175,418,000
<CURRENT-LIABILITIES> 443,452,000 438,271,000
<BONDS> 318,243,000 675,884,000
0 0
0 0
<COMMON> 9,066,000 5,623,000
<OTHER-SE> 1,140,382,000 923,243,000
<TOTAL-LIABILITY-AND-EQUITY> 2,054,250,000 2,175,418,000
<SALES> 1,610,276,000 1,520,556,000
<TOTAL-REVENUES> 1,610,276,000 1,520,556,000
<CGS> 1,033,438,000 981,870,000
<TOTAL-COSTS> 1,033,438,000 981,870,000
<OTHER-EXPENSES> 43,333,000 130,972,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15,794,000 30,009,000
<INCOME-PRETAX> 59,754,000 36,979,000
<INCOME-TAX> 24,519,000 15,701,000
<INCOME-CONTINUING> 35,235,000 21,278,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 334,000 1,120,000
<CHANGES> 0 0
<NET-INCOME> 34,901,000 20,158,000
<EPS-PRIMARY> .39 .24
<EPS-DILUTED> .37 .23
</TABLE>
