FORM 10-Q EXHIBIT INDEX
ON PAGE 11
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Commission file number 0-22682
CARSON PIRIE SCOTT & CO.
(Exact name of registrant as specified in its charter)
ILLINOIS 37-0175980
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
331 West Wisconsin Avenue, Milwaukee, Wisconsin 53203
(Address of principal executive offices) (Zip Code)
414-347-4141
(Registrant's telephone number, including area code)
--------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the contribution of securities under a plan
confirmed by a court.
Yes X No
Number of shares outstanding of each of the issuer's classes of common stock, as
of June 5, 1997:
Common Stock, $.01 par value 15,870,948 shares, exclusive
of 21,555,068 shares held by
subsidiaries of the registrant
Page 1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Carson Pirie Scott & Co. and Subsidiaries
Consolidated Balance Sheets
As of May 3, 1997
(Unaudited)
(dollars in thousands)
May 3, February 1,
Assets 1997 1997
- -------------------- ------- -----------
Current assets:
Cash and cash equivalents $ 23,070 20,618
Accounts receivable, net 252,828 267,433
Merchandise inventories 204,971 190,646
Other current assets 19,649 16,265
------- -------
Total current assets 500,518 494,962
Property, fixtures and
equipment, net 183,388 174,260
Net deferred tax assets 44,806 42,909
Other assets 11,023 11,916
------- -------
$ 739,735 724,047
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current maturities of
long-term debt $ 2,867 2,854
Accounts payable 76,243 58,178
Accrued expenses 101,257 96,978
------- -------
Total current liabilities 180,367 158,010
Long-term debt,
less current maturities 153,263 159,635
Other liabilities 47,866 47,585
------- -------
Total liabilities 381,496 365,230
------- -------
Shareholders' equity:
Common stock 159 159
Paid-in capital 173,694 176,954
Unamortized stock compensation (98) (167)
Unrealized gain on investments 100 96
Retained earnings 184,384 181,775
------- -------
Total shareholders' equity 358,239 358,817
------- -------
$ 739,735 724,047
======= =======
See accompanying notes to consolidated financial statements.
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Carson Pirie Scott & Co. and Subsidiaries
Consolidated Statements of Operations
Three months ended May 3, 1997 and May 4, 1996
(Unaudited)
(dollars in thousands, except per share amounts)
Three months ended
-----------------------
May 3, May 4,
1997 1996
-------- -------
Net sales $ 258,134 236,769
Cost of sales (167,755) (153,742)
Selling, general and
administrative expenses (76,292) (71,240)
Depreciation, amortization
and other (5,504) (4,125)
-------- --------
Income from operations 8,583 7,662
Interest expense, net (4,263) (3,744)
Gain on sale of
marketable securities, net - 14,892
Other expense - (2,827)
-------- --------
Income before income taxes 4,320 15,983
Income tax expense (1,711) (6,297)
-------- --------
Net income $ 2,609 9,686
======== ========
Primary net income
per share $ 0.16 0.58
======== ========
Weighted average number
of common and common
equivalent shares 16,509,604 16,800,488
=========== ===========
See accompanying notes to consolidated financial statements.
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<PAGE>
Carson Pirie Scott & Co. and Subsidiaries
Consolidated Statements of Cash Flows
Three months ended May 3, 1997 and May 4, 1996
(Unaudited)
(dollars in thousands)
Three months ended
------------------------
May 3, May 4,
1997 1996
------- -------
Net cash provided by
operating activities $ 25,362 15,900
------- -------
Cash flows from investing activities:
Proceeds from sale of
marketable securities 100 31,094
Purchases of property
and equipment (14,285) (12,720)
Proceeds from disposition
of assets - 603
------- --------
Net cash provided (used) by
investing activities (14,185) 18,977
------- --------
Cash flows from financing activities:
Stock options exercised 1,257 197
Repurchase of common stock (4,516) (3,383)
Repayments of long-term
debt and other obligations (724) (639)
Net repayments under
receivables facility (5,711) (37,000)
Debt issuance costs and other 969 (4,344)
------- -------
Net cash used by
financing activities (8,725) (45,169)
-------- -------
Net increase (decrease) in
cash and cash equivalents 2,452 (10,292)
Cash and cash equivalents at
beginning of the period 20,618 44,384
------- --------
Cash and cash equivalents
at end of the period $ 23,070 34,092
======= ========
See accompanying notes to consolidated financial statements.
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Carson Pirie Scott & Co. and Subsidiaries
Notes to Consolidated Financial Statements
May 3, 1997
(Unaudited)
(1) The Company
Carson Pirie Scott & Co.(CPS) and its subsidiaries (together, the Company)
operate 52 traditional department stores and four furniture stores which are
located in Illinois, Wisconsin, Indiana and Minnesota.
(2) Opinion of Management
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal recurring accruals,
considered necessary to present fairly the Company's consolidated financial
statements. All intercompany balances and transactions have been eliminated in
consolidation. The accompanying consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
filed in CPS's annual report on Form 10-K for the year ended February 1, 1997.
The results of operations for the three months ended May 3, 1997 are not
necessarily indicative of the results to be expected for the full year due to
the seasonal nature of the retail industry.
(3) Year 2000 Information System Preparation Costs
The Company records year 2000 information system preparation costs in
depreciation, amortization and other expense. The Company anticipates these
costs will be approximately $2.0 million in 1997, of which $0.6 million was
recorded for the quarter.
(4) Share Repurchases
During the three months ended May 3, 1997, the Company repurchased 150,000
shares of its common stock for $4.5 million under its $20.0 million buyback
program.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial information, discussion, and analysis which follow are based upon
and should be read in conjunction with the Consolidated Financial Statements and
the Notes thereto.
RESULTS OF OPERATIONS
Comparison of the three months ended May 3, 1997 and May 4, 1996
Net sales. Net sales were $258.1 million for the three months ended May 3, 1997
as compared to $236.8 million for the three months ended May 4, 1996, an
increase of $21.3 million or 9.0%. The net sales increase was due to new store
openings and a 4.0% comparable store sales increase. The Company opened
department store locations at the Cherryvale Mall located in Rockford, Illinois
in June 1996, and at the Fox Valley Mall located in Aurora, Illinois in October
1996. In addition, the Company opened a freestanding furniture location in
Brookfield, Wisconsin in October, 1996. The sales increase for the quarter was
broad-based encompassing most merchandise categories.
Gross margin. Gross margin was $90.4 million for the 1997 three-month period
versus $83.0 million for the 1996 three-month period, an increase of $7.4
million or 8.9%. Gross margin as a percentage of net sales was 35.0% for the
1997 three-month period compared to 35.1% for the comparable prior period. The
increase in gross margin dollars was attributable to the increase in net sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $76.3 million for the 1997 three-month period
versus $71.2 million for the 1996 three-month period, an increase of $5.1
million or 7.2%. Selling, general and administrative expenses as a percentage of
sales were 29.6% and 30.1% for the quarters ended May 3, 1997 and May 4, 1996,
respectively. The dollar increase in expenses was primarily due to costs
associated with new stores. The decrease in rate resulted from expense controls,
higher finance charge income and the spreading of fixed expenses across a larger
sales base.
Depreciation, amortization and other. Depreciation, amortization and other
expense increased to $5.5 million for the three months ended May 3, 1997 from
$4.1 million for the three months ended May 4, 1996. Depreciation expense
increased $1.0 million for the 1997 period as the Company's capital expenditure
program increased the carrying value of property, fixtures and equipment. The
Company anticipates that the level of depreciation expense will continue to rise
as the Company continues its capital expenditures for new store acquisitions and
store renovations. The Company recorded $0.6 million in year 2000 information
system preparation costs as other expense for the quarter.
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Interest expense, net. Interest expense, net increased to $4.3 million for the
three-month period ended May 3, 1997 as compared to $3.7 million for the
three-month period ended May 4, 1996. The increase was due primarily to the
absence of interest income in 1997 from the Company's interest in 9% Junior
Subordinated Exchange Debentures Due 2004 of County Seat Holding, Inc., which
were written down to zero in the third quarter of 1996 and subsequently sold in
the first quarter of 1997.
Gain on marketable securities, net. During the three months ended May 4, 1996,
the Company sold 1,026,550 shares of Proffitt's, Inc. common stock for $31.1
million and realized a gain of $14.9 million.
Other expense. The Company made a $2.5 million cash contribution to the Carson
Pirie Scott Foundation during the three months ended May 4, 1996.
Income tax expense. Income tax expense for the three months ended May 3, 1997
and May 4, 1996 was $1.7 million and $6.3 million respectively, resulting in
effective income tax rates of 39.6% and 39.4%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position on May 3, 1997 totaled $23.1
million and outstanding debt totaled $156.1 million, resulting in a net debt
position (Net Debt) of $133.0 million. Net Debt is outstanding debt less cash
and cash equivalents. The Company believes Net Debt is a useful measure of its
liquidity position given the Company's ability to apply cash to its outstanding
debt. For the three months ended May 3, 1997, Net Debt declined $8.9 million,
which is primarily due to net cash provided by operations, offset by
expenditures under the Company's capital expenditure program and CPS's
repurchase of its common stock.
National Bank of the Great Lakes (NBGL), the Company's wholly owned subsidiary,
extends credit to the Company's customers through the NBGL credit card program.
The NBGL credit card program is subject to economic and competitive factors,
many of which are beyond the Company's control, that may materially affect the
future profitability of the NBGL credit card program.
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<PAGE>
Among these factors are increasing competition from third party cards, which has
negatively affected the percentage of net sales transacted on the NBGL credit
card. The percentage of net sales transacted on NBGL credit cards declined 3.4
percentage points for the three months ended May 3, 1997 compared to the three
months ended May 4, 1996 and may continue to decline. Despite this decrease in
penetration, NBGL generated an additional $1.4 million in finance charge income
during the quarter on its credit card portfolio due to higher average balances.
Another factor is the increasing number of personal bankruptcy filings by
holders of NBGL's credit cards, which may continue to increase. NBGL write-offs
related to customer bankruptcy filings increased from $0.9 million for the three
months ended May 4, 1996 to $1.4 million for the three months ended May 3, 1997.
However, NBGL's net write-offs for the quarter declined $0.2 million as lower
write-offs for aging of accounts offset the increase in bankruptcy write-offs.
These factors and others could materially affect the profitability of the NBGL
credit operation.
A subsidiary of the Company has the right to borrow, subject to certain
limitations, including compliance with certain restrictive covenants, up to
$200.0 million under a receivables facility. As of May 3, 1997, borrowings under
the receivables facility totaled $107.8 million. In addition, the Company has
the right to borrow, subject to certain limitations, up to $150.0 million under
a working capital facility. The working capital facility had outstanding letters
of credit for $19.4 million as of May 3, 1997, which reduce availability. No
cash borrowings were outstanding under the working capital facility during the
three months ended May 3, 1997. In May 1997, after the end of the quarter, the
receivables and working capital facilities were amended. The working capital
facility was amended to reduce fees and extend the maturity of the facility to
June 2000. The receivables facility was amended to reduce fees, extend the
maturity of $125.0 million of the facility to June 2000 and adjust the maturity
on the remaining $75.0 million of the facility to May 1998.
In fiscal 1997, the Company anticipates spending $60 million for capital
expenditures which will be allocated as follows: store programs of $46 million
which includes the completion of five store renovations, and the purchase of one
store in February 1997 that was previously leased by the Company; technology
programs of $4 million; and other programs of $10 million.
As of February 1, 1997, the Company had federal and state net operating loss
(NOL) carryforwards of approximately $128 million. Although subject to
limitation, the future utilization of the NOL carryforwards and other tax
benefits will enable the Company to reduce its cash requirements for income tax
payments in the next several fiscal years from that which would otherwise be
payable.
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The Company believes that it will have sufficient funds available from cash on
hand, cash from operations, the receivables facility and the working capital
facility to satisfy the Company's needs for working capital, planned capital
expenditures, debt service and operations during the next several fiscal years.
However, the Company can give no assurance that the Company's future operating
performance, net sales and cash flows, all of which are subject to financial,
general and regional economic, competitive and other factors affecting the
Company, many of which are beyond its control, will be adequate to generate
sufficient funds to meet the Company's needs during the next several fiscal
years.
For the year ending January 31, 1998, or fiscal 1997, the Company will adopt the
Financial Accounting Standards Board's Statement of Financial Standards No. 128,
"Earnings per Share" (SFAS No. 128), which specifies changes in the computation,
presentation and disclosure requirements of earnings per share information. The
Company does not believe the adoption of SFAS No. 128 will have a material
impact on its annual earnings per share calculation.
SEASONALITY AND INFLATION
The Company's business is seasonal in nature with a high proportion of sales and
net income generated in November and December. Over the last several years, the
Company's customers have demonstrated an inclination to buy closer to the time
of need. In response, the Company has been adjusting the flow of merchandise to
better anticipate customer buying patterns.
Working capital requirements fluctuate during the year, increasing somewhat in
mid-summer in anticipation of the fall merchandising season and increasing
substantially prior to the Christmas season when the Company must carry
significantly higher inventory levels. Inflationary pressures on the cost of
merchandise inventory and operating expenses have been low, and historically,
have been offset by a combination of comparable-store sales increases and
improved productivity.
Page 9
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Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
----------
See Exhibit Index on page 11 of this Quarterly Report on Form 10-Q.
(b) Reports on Form 8-K
--------------------------
The following reports on Forms 8-K were filed on the dates indicated
below during the quarter ended May 3, 1997:
March 10, 1997 Reported under Item 5 the Company's earnings
for the fourth quarter and the fiscal year ended
February 1, 1997.
SIGNATURE
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 thereunder duly authorized.
Date: June 13, 1997
Carson Pirie Scott & Co.
/s/ David J. Biese
----------------------------
David J. Biese
Vice President, Controller
(chief accounting officer and
authorized officer)
Page 10
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EXHIBIT INDEX
Copies of documents listed below which are identified with an asterisk (*)have
previously been filed with the Securities and Exchange Commission (the
Commission) as exhibits to registration statements or reports filed with the
Commission and are incorporated into this Quarterly Report on Form 10-Q by
reference and made a part hereof. The exhibit number and the file number of each
document previously filed and incorporated into this Quarterly Report on Form
10-Q by reference are set forth below. Exhibits not identified with an asterisk
are filed with this Quarterly Report on Form 10-Q.
Exhibit Sequential Page
Number Description Numbers
- --------- --------------- --------------
11.1 Computation of
Per Share Earnings. 12
27 Financial Data Schedule. 13
Page 11
EXHIBIT 11.1
Carson Pirie Scott & Co. and Subsidiaries
Computation of Per Share Earnings
(dollars in thousands, except per share amounts)
Three months ended
-----------------------------
May 3, 1997 May 4, 1996
-----------------------------
Net income $2,609 $9,686
=========== ==========
Primary:
Weighted average number of
common shares outstanding 15,922,242 16,325,904
Weighted average number of
common share equivalents--
stock options 587,362 474,584
---------- ----------
Total common and
common share equivalents 16,509,604 16,800,488
---------- ----------
Primary net income per share $0.16 $0.58
========== ==========
Fully Diluted:
Weighted average number of
common shares outstanding 15,922,242 16,325,904
Weighted average number of
common share equivalents--
stock options 618,543 531,968
---------- ----------
Total common and common
share equivalents 16,540,785 16,857,872
---------- ----------
Fully diluted net
income per share $0.16 $0.57
========== ==========
Primary net income per share was computed using the treasury stock method,
assuming common share purchases at the average market price of the common shares
for the period.
Fully diluted net income per share was computed using the treasury stock method,
assuming common share purchases at the greater of the average market price of
the common shares for the period or the ending price of the common shares.
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF MAY 3, 1997 AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 3, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> MAY-03-1997
<CASH> 23,070
<SECURITIES> 0
<RECEIVABLES> 252,828
<ALLOWANCES> 0
<INVENTORY> 204,971
<CURRENT-ASSETS> 500,518
<PP&E> 183,388
<DEPRECIATION> 0
<TOTAL-ASSETS> 739,735
<CURRENT-LIABILITIES> 180,367
<BONDS> 0
0
0
<COMMON> 159
<OTHER-SE> 358,080
<TOTAL-LIABILITY-AND-EQUITY> 739,735
<SALES> 258,134
<TOTAL-REVENUES> 258,134
<CGS> 167,755
<TOTAL-COSTS> 167,755
<OTHER-EXPENSES> 81,796
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,263
<INCOME-PRETAX> 4,320
<INCOME-TAX> 1,711
<INCOME-CONTINUING> 2,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,609
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
