TABLE OF CONTENTS
Financial Highlights 1
Report to Shareholders 2
Five-Year Financial Summary 4
Management's Discussion
and Analysis 5
Consolidated Financial
Statements 11
Notes to Consolidated
Financial Statements 16
Report of Independent
Accountants 28
Report of Management 29
Market Information 30
Commitment to Growth 31
Store Locations 33
Directors and Officers 34
Corporate
Information inside back cover
The production of this Proffitt's, Inc.
Annual Report was based on our commitment to provide accurate,
timely information about the Company while incurring only
modest production costs.
The financial statements of this report are printed on 100%
recycled paper.
Proffitt's, Inc. is one of the fastest growing specialty retailers
in the United States. The Company's stores offer a wide selection
of fashion apparel, accessories, cosmetics, and decorative home
furnishings, featuring assortments of premier brands and unique
specialty merchandise. Proffitt's commitment to quality, service,
integrity, and style is the cornerstone of the Company's culture
and provides the foundation for its future growth.
Financial Highlights
Fiscal Year Ended
February 3, January 28, January 29,
1996 1995 1994
(in thousands, except per share amounts)
Net sales $1,333,498 $1,216,498 $ 798,779
Net income
(loss)* $ (6,399) $ 29,744 $ 19,245
Net income before
special and
and non-recurring
charges* $ 31,380 $ 29,744 $ 19,245
Earnings (loss)
per common share* $ (.43) $ 1.48 $ 1.09
Earnings per
common share
before special and
non-recurring
charges* $ 1.52 $ 1.48 $ 1.09
Weighted average
common shares 19,372 18,922 17,667
Total assets $ 835,666 $ 878,393 $ 575,449
Shareholders'
equity $ 356,852 $ 360,611 $ 290,309
*Prior to extraordinary loss and cumulative effect of changes in
accounting methods.
TO OUR PARTNERS
We experienced another very eventful year in 1995. In
spite of the difficult retail environment, Proffitt's, Inc. posted
solid comparable store sales gains and earnings prior to non-
recurring and other special charges recorded in conjunction with
our business combination with Younkers, Inc. Our results for the
year reflect this transaction, effective just prior to our
February 3, 1996 fiscal year end.
The Younkers transaction and the April 1995 acquisition of
the Parks-Belk Company permitted us essentially to double the size
of the Company during the year. Our operations now consist of 103
department stores in 16 states with nearly 10 million feet of
retail space.
Our strong cash flow and the Younkers transaction
permitted us to substantially strengthen our balance sheet during
the year. Debt as a percentage of capitalization declined to
approximately 40% at year end from nearly 60% a year ago.
Our merchants at Proffitt's, McRae's, and Younkers are
focused on the many opportunities to enhance sales and gross
margins through strengthened vendor relationships, increased buying
power, and selected private label development. In addition, the
scheduled August conversion of the Younkers leased shoe operation
to an owned business should increase sales and margins at this
division.
In 1996, store productivity will be enhanced through
focused merchandising strategies, increased sales associate
productivity, the implementation of certain best practices at the
store level, and the recent closing of certain unproductive units.
Our associates have identified synergies and best
practices throughout the organization which will allow us to reduce
total operating expenses in excess of $10 million on an annualized
basis. We are well along in this process and expect to realize
savings of at least $6 million during the transition year of 1996.
Cost reductions are occurring in a variety of areas--the
elimination of duplicate corporate expenses, economies of scale,
implementation of best practices, and consolidations of certain
back office functions. Each of these changes will deliver
meaningful continued leverage on expenses and contribute to the
competitive cost structure required in today's retail environment.
We continue to see numerous growth opportunities for the
business. In March 1996, we opened a new McRae's store in Selma,
Alabama. We will open a new Proffitt's store in Morgantown, West
Virginia this fall, and in 1997, we are scheduled to open McRae's
stores in Biloxi and Meridian, Mississippi and a Proffitt's store
in Parkersburg, West Virginia. We have also identified and are
currently negotiating several other new unit opportunities. In
addition, several store renovations and expansions are planned for
1996. We are excited about each of these projects and believe these
demonstrate the internal growth opportunities available to the
Company.
We also see opportunities for more strategic acquisitions
enabling us to extend our presence to nearby markets or to enhance
our presence in existing markets. Our strong balance sheet and free
cash flow provide us substantial capability to fund such
opportunities.
Proffitt's, Inc. has a very clear and focused operating
strategy. The effective execution of that strategy, along with our
commitment to the four cornerstones of the Company--Style, Quality,
Service, and Integrity--will create more value for our shareholders
and increased opportunities for our associates. I believe we have
a very bright future.
Sincerely,
R. Brad Martin
Chairman of the Board and
Chief Executive Officer
We continue to see numerous growth opportunities for the business.
FIVE-YEAR FINANCIAL SUMMARY
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
February 3, January 28, January 29, January 30, February 1,
1996 1995 1994 1993 (a) 1992 (b)
Consolidated Income
Statement Data:
Net sales, including
leased departments $1,333,498 $1,216,498 $ 798,779 $ 601,677 $ 435,284
Costs and expenses:
Cost of sales 873,218 795,353 520,987 362,620 273,040
Selling, general, and
administrative expenses 324,650 284,748 192,028 158,920 112,793
Other operating expenses 105,021 97,821 66,617 44,016 34,934
Expenses related to
hostile takeover
defense 3,182
Impairment of long-
lived assets 19,121
Merger, restructuring,
and integration costs 20,822
-------- -------- --------- -------- --------
Operating income (loss) (12,516) 38,576 19,147 36,121 14,517
Other income (expense):
Finance charge income,
net of allocation
to purchaser of
accounts receivab le 31,273 27,934 19,312 15,401 15,194
Interest expense (26,098) (20,781) (9,245) (9,445) (15,102)
Other income
(expense), net 2,848 3,865 2,923 (380) 1,817
------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes, extraordinary
loss, and cumulative
effect of changes
in accounting methods (4,493) 49,594 32,137 41,697 16,426
Provision for
income taxes 1,906 19,850 12,892 15,567 7,045
------ ------ ------- ------ ------
Income (loss)
before extraordinary
loss and cumulative
effect of changes in
accounting methods (6,399) 29,744 19,245 26,130 9,381
Extraordinary loss
(net of tax) (2,060) (1,088)
Cumulative effect of
changes in
accounting methods
(net of tax) 1,904 (1,794)
------- ------- ------- ------- -------
Net income (loss) $ (8,459) $29,744 $20,061 $24,336 $ 9,381
Earnings (loss) per
common share before
extraordinary loss
and cumulative effect
effect of changes in
accounting methods $ (.43) $ 1.48 $ 1.09 $ 2.06 $ 1.07
Extraordinary loss (.11) (.06)
Cumulative effect of
changes in
accounting methods .11 (.14)
Earnings (loss) per
common share $ (.54) $ 1.48 $ 1.14 $ 1.92 $ 1.07
Weighted average
common shares 19,372 18,992 17,667 12,707 8,788
Consolidated BALANCE
SHEET Data:
Trade accounts
receivable, less
allowance for
doubtful accounts $ 44,878 $120,185 $143,520 $128,965 $ 93,011
Working capital $ 212,122 $283,162 $286,351 $180,091 $126,026
Total assets $ 835,666 $878,393 $575,449 $455,295 $274,441
Senior long-term
debt, less current
portion $ 134,255 $190,216 $ 95,777 $193,555 $106,066
Subordinated
debentures $ 100,505 $100,269 $ 86,250
Shareholders' equity $ 356,852 $360,611 $290,309 $143,107 $101,229 <>
(a) Includes 53 weeks for Younkers.
(b) Includes 52 weeks ended January 25, 1992 for Younkers.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Proffitt's, Inc. is a leading regional department store company
primarily offering moderate to better brand name fashion apparel,
accessories, cosmetics, and decorative home furnishings. The
Company's stores are principally anchor stores in leading regional
or community malls. The Company operates three department store
divisions. The Proffitt's Division, headquartered in Knoxville,
Tennessee, operates 25 stores in Tennessee, Virginia, North
Carolina, Georgia, and Kentucky. The McRae's Division,
headquartered in Jackson, Mississippi, operates 29 stores in
Mississippi, Alabama, Louisiana, and Florida. The Younkers
Division, headquartered in Des Moines, Iowa, operates 49 stores in
Iowa, Wisconsin, Nebraska, Michigan, Illinois, Minnesota, and South
Dakota. On a combined basis, the Company currently operates 103
stores in 16 states.
Proffitt's, Inc. combined its business with Younkers, Inc., a
publicly-owned retail department store chain, effective February 3,
1996, immediately before the Company's fiscal year end. This
combination was structured as a tax-free transaction and has been
accounted for as a pooling of interests. Each outstanding share of
Younkers, Inc. Common Stock was converted into ninety eight one-
hundredths (.98) shares of Proffitt's, Inc. Common Stock, with
approximately 8.8 million shares issued in the transaction.
On April 12, 1995, the Company acquired the Parks-Belk Company, a
family-owned department store company with four stores in
northeastern Tennessee. Three stores were renovated and opened as
Proffitt's Division stores during 1995; one store was permanently
closed.
On March 31, 1994, the Company acquired all of the outstanding
Common Stock of Macco Investments, Inc., a holding company for
McRae's, Inc., a family-owned retail department store chain
headquartered in Jackson, Mississippi. The transaction was
accounted for as a purchase.
The Company closed three unproductive units (one Proffitt's store
and two Younkers stores) in January 1996. Two additional Younkers
units were sold to a third party subsequent to February 3, 1996.
Income statement information for each year presented has
been restated to reflect the Younkers merger, which was accounted
for as a pooling of interests. The operations of McRae's and Parks-
Belk have been included in the income statements subsequent to
their respective purchase dates. The following table sets forth,
for the periods indicated, certain items from the Company's
Consolidated Statements of Income, expressed as percentages of net
sales:
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
February 3, January 28, January 29,
1996 ("1995") 1995 ("1994") 1994 ("1993")
Net sale 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 65.5 65.4 65.2
Selling, general,
and administrative
expenses 24.3 23.4 24.0
Other operating
expenses 7.9 8.0 8.3
Expenses related
to hostile
takeover defense 0.2
Impairment of
long-lived assets 1.4
Merger,
restructuring, and
integration costs 1.6
---- ---- ----
Operating income
(loss) (0.9) 3.2 2.5
Other income
(expense):
Finance charge
income, net of
allocation
to purchaser of
accounts
receivable 2.3 2.3 2.4
Interest expense (2.0) (1.7) (1.2)
Other income
(expense), net 0.2 0.3 0.3
Income (loss)
before provision
for income taxes,
extraordinary
loss, and cumulative
effect of changes
in accounting
methods (0.4) 4.1 4.0
Provision for
income taxes (0.1) 1.6 1.6
Income (loss)
before extra-
ordinary loss]
and cumulative
effect of changes
in accounting
methods (0.5) 2.5 2.4
Extraordinary loss
(net of tax) (0.1) (0.1)
Cumulative effect of
changes in accounting
methods
(net of tax) 0.2
Net income (loss) (0.6)% 2.5% 2.5%
NET SALES
Total Company net sales increased by 10%, 52%, and 33% in 1995,
1994, and 1993, respectively. The 1995 sales increase was due to a
comparable store sales increase of 3%, revenues generated from the
Parks-Belk stores acquired in April 1995, and a full year of sales
generated from the McRae's stores acquired in March 1994. The 1995
sales performance was adversely affected by weak fourth quarter
sales due to a weak consumer climate and severe weather problems.
The 1994 sales increase was due to revenues of $379.1 million
generated from the McRae's stores acquired in March 1994, along
with a comparable store sales increase of 3% and volume generated
from new stores opened in 1994 not reflected in the comparable
stores sales gain.
GROSS MARGINS
Gross margins were 34.5%, 34.6%, and 34.8% in 1995, 1994, and 1993,
respectively. The Company uses a full-cost method to account for
inventories, which includes certain purchasing and distribution
costs. Costs related to obtaining merchandise and preparing it for
sale are included in cost of sales. The slight decrease in gross
margin percent from 34.8% in 1993 to 34.6% in 1994 and 34.5% in
1995 was primarily a result of increased markdowns over prior
years.
The Company is taking steps which may enhance gross margin
performance over time. The Younkers Division currently operates a
low margin, leased shoe business. The Company will convert the
Younkers shoe operation from leased to owned in August 1996. The
Company also intends, over time, to expand its higher margin
private label business, which currently represents approximately 5%
of total sales, to 10% or more of total sales. Management believes
the conversion of the leased shoe business and further private
label development, along with strengthened vendor relationships,
increased buying power, and appropriate inventory management, will
lead to enhancements in gross margins.
As of February 3, 1996, management believes the Company's
inventories were well balanced and appropriately assorted.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses ("SG&A") were 24.3%
of net sales in 1995, 23.4% of net sales in 1994, and 24.0% of net
sales in 1993. In 1995, in conjunction with the Younkers business
combination, the Company revised certain estimates and recorded
other charges to SG&A in the fourth quarter totaling $13.7 million,
or 1.0% of net sales. The most significant components of these
charges were: (i) a $2.4 million charge for the conversion of the
Younkers leased shoe operation; (ii) a $2.0 million charge to
strengthen the Company's bad debt reserve, and (iii) a $5.0 million
reserve for various Younkers legal claims. Excluding these charges,
SG&A was flat with the prior year, as a percent of net sales.
The Company consolidated certain administrative support areas for
the Proffitt's and McRae's Divisions during 1995. The Company
anticipated leverage of selling, general, and administrative
expense in 1995 due to these consolidations and expense control
efforts. However, leverage was not achieved primarily due to lower
than planned sales in the fourth quarter of 1995.
1993 SG&A included $5.0 million, or 0.6% of net sales, of store
pre-opening expenses. These expenses were immaterial for 1994 and
1995.
In conjunction with the Younkers merger, tangible synergies and
best practices have been identified that management believes will
reduce total operating expense by more than $10 million on an
annualized basis. Management believes $6 million of reductions
should be realized in the transition year of 1996. Cost reductions
have been targeted in several areas--the elimination of duplicate
corporate expenses, economies of scale, implementation of best
practices, and consolidation of certain administrative support
functions. These changes should deliver leverage on expenses and
will also contribute to the Company's competitive cost structure.
OTHER OPERATING EXPENSES
Other operating expenses were 7.9% of net sales in 1995, compared
to 8.0% in 1994 and 8.3% in 1993. The percent decline in 1995 over
1994 and 1993 levels resulted from leverage of these expenses over
a larger sales base, primarily due to the addition of the McRae's
stores in 1994.
EXPENSES RELATED TO HOSTILE TAKEOVER DEFENSE
During 1995, the Company incurred expenses of approximately $3.2
million, or 0.2% of net sales, related to the defense of the
attempted hostile takeover of Younkers by Carson Pirie Scott & Co.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." The Company adopted the provision of this new
accounting standard in the fourth quarter of 1995. As a result of
adopting this new accounting standard and as a result of closing
certain stores and warehouses, the Company incurred impairment
charges totaling $19.1 million, or 1.4% of net sales. Of the total,
$15.9 million related to the write-down in carrying value of six
store properties currently in operation and $3.2 million related to
the write-down of abandoned property.
MERGER, RESTRUCTURING, AND INTEGRATION COSTS
In connection with the merger of Proffitt's, Inc. and Younkers,
Inc., the two companies incurred certain costs to effect the merger
and other costs to restructure and integrate the combined operating
companies. Those costs totaled $20.8 million, or 1.6% of net sales,
and are comprised of $8.8 million of merger transaction costs
(principally investment banking, legal, and other direct merger
costs); $3.2 million of severance and related benefits; $7.4
million for the write-off of duplicate administrative facilities;
and $1.4 million of miscellaneous costs. Management also expects to
incur certain additional integration costs in 1996, such as
transition payroll, training, and relocation expenses.
FINANCE CHARGE INCOME, NET
Net finance charge income was 2.3% of net sales in 1995 and 1994
compared with 2.4% in 1993. For 1995, gross finance charge income
(before allocation to the third party purchasers of accounts
receivable (see "Liquidity") of finance charges) increased to 3.0%
of net sales from 2.8% in 1994. This increase was due to increased
customer usage of the Company's proprietary charge cards, increased
finance charge rates charged in certain states (McRae's Division),
the October 1995 implementation of late fee penalties on past due
charge account balances for the McRae's and Proffitt's Divisions,
and a full year's benefit of the May 1994 implementation of late
fee penalties on past due charge account balances at the Younkers
Division. For 1994, gross finance charge income (before allocation
to the third party) increased to 2.8% of net sales from 2.4% in
1993. The increase was due to increased customer usage of the
Company proprietary charge cards and the May 1994 implementation of
late fee penalties on past due charge account balances at the
Younkers Division.
The allocation to the third party purchaser of accounts receivable
of finance charges totaled approximately $8.8 million, or 0.7% of
net sales, in 1995 and $5.6 million, or 0.5% of net sales, in 1994.
There was no such allocation in 1993.
INTEREST EXPENSE
Interest expense as a percentage of net sales was 2.0% for 1995,
1.7% for 1994, and 1.2% for 1993. Total interest expense was $26.1
million, $20.8 million, and $9.2 million in 1995, 1994, and 1993,
respectively. The increase in interest expense in 1995 over 1994
was attributable to higher borrowings associated with the purchase
and operation of the Parks-Belk stores acquired in April 1995 and
the acquisition of McRae's in March 1994, along with higher
interest rates. The significant increase in interest expense in
1994 over 1993 primarily was attributable to larger borrowings
associated with the purchase and operation of the McRae's stores in
March 1994 and new stores opened in 1993.
INCOME TAXES
For 1995, excluding the special and other non-recurring charges
(previously outlined) which resulted in the net loss, the effective
tax rate was 40.2%. For 1994 and 1993, effective income tax rates
were 40.0% and 40.1%, respectively.
NET INCOME
Net loss (prior to extraordinary item) was $6.4 million in 1995, or
0.5% of net sales; net income totaled $29.7 million, or 2.5% of net
sales, in 1994 and $19.2 million, or 2.4% of net sales, in 1993.
1995 earnings were negatively affected by such items as fourth
quarter charges to SG&A in conjunction with the Younkers
transaction, expenses related to the Younkers hostile takeover
attempt, charges for the impairment of long-lived assets, and
merger, restructuring, and integration costs previously discussed.
Without these items, 1995 net income would have totaled $31.4
million, or 2.4% of net sales. Net income in 1994 rose over 1993
due to incremental sales and gross margin dollars and SG&A
reductions previously discussed.
EXTRAORDINARY ITEM
On February 3, 1996, Younkers replaced its debt financing of
accounts receivable with sales of ownership interests in its
accounts receivable. In addition, Younkers cancelled its $150
million revolving credit agreement. As a result of these early
extinguishments of debt, certain deferred costs associated with the
debt facilities, such as loan origination costs and a loss from an
interest rate swap, were written off. This write-off of $3.4
million ($2.1 million net of income taxes) was recorded as an
extraordinary item in 1995.
INFLATION
Inflation affects the costs incurred by the Company in its purchase
of merchandise and in certain components of its selling, general,
and administrative expenses. The Company attempts to offset the
effects of inflation through price increases and control of
expenses, although the Company's ability to increase prices is
limited by competitive factors in its markets.
SEASONALITY
The Company's business, like that of most retailers, is subject to
seasonal influences, with a significant portion of net sales and
net income realized during the fourth quarter of each year, which
includes the Christmas selling season. In light of these patterns,
selling, general, and administrative expenses are typically higher
as a percentage of net sales during the first three quarters of
each year, and working capital needs are greater in the last
quarter of each year. The fourth quarter increases in working
capital needs have typically been financed with internally
generated funds, the sale of interests in the Company's accounts
receivable, and borrowings under the Company's revolving credit
facility. Generally, more than 30% of the Company's net sales and
over 50% of net income are generated during the fourth quarter.
LIQUIDITY
The Company's primary needs for liquidity are to acquire, renovate,
or construct stores, to provide working capital for new and
existing stores, and to repay borrowings.
Net cash provided by operating activities was $55.1 million in 1995
and $131.7 million in 1994. In addition to the net loss,
depreciation and amortization charges, and the $19.1 million write-
down for impairment of long-lived assets, net cash provided in 1995
resulted from reduced working capital needs. In addition to net
income and depreciation and amortization charges, the net cash
provided in 1994 included $53.0 million generated from the sale of
ownership interests in the Company's accounts receivable (see
below) as well as a reduction in inventory levels over the prior
year.
Net cash used in investing activities for 1995 totaled $59.9
million, of which $49.5 million was for new store construction,
store renovations, systems enhancements, and other capital
expenditures, and $10.5 million was the cash portion of the Parks-
Belk acquisition purchase price. Net cash used in investing
activities for 1994 totaled $229.1 million, of which $184.1 million
was for the purchase of Macco Investments, Inc. and $43.3 million
was related to store renovation and construction, management
information systems enhancements, and other capital expenditures.
<Body text>Net cash provided by financing activities for 1995
totaled $15.8 million, which was primarily due to proceeds of $32.3
million from borrowings on long-term debt netted against payments
on long-term debt of $16.7 million. Net cash provided by financing
activities for 1994 totaled $85.7 million which was primarily a
result of proceeds from long-term borrowings of $91.0 million and
the issuance of a $30 million convertible preferred security netted
against debt payments of $33.5 million.
The Company utilizes a $175 million facility ("Accounts Receivable
Facility") with a financial institution for the sale of ownership
interests in accounts receivable (for the Proffitt's and McRae's
Divisions), which expires in September 1997. The Accounts
Receivable Facility requires a portion of finance charges earned be
allocated to the purchaser of the ownership interests in the
accounts receivable, sufficient to cover the yield on commercial
paper utilized by the purchaser to finance the transaction, plus
fees and expenses. As of March 27, 1996, the interest rate on the
Accounts Receivable Facility was 5.34%, and $134.1 million of
receivables were sold on the Accounts Receivable Facility at that
date. The maximum receivables sold on the Accounts Receivable
Facility during 1995 totaled $163.4 million. Amounts sold are
limited to between 94% and 96% of total accounts receivable.
Prior to February 3, 1996, Younkers utilized an accounts
receivable securitization program under which its receivables were
used as collateral for commercial paper issued by a wholly-owned
special purpose subsidiary. Effective with the February 3, 1996
merger, Younkers replaced amounts borrowed under the securitization
program with the sale of: (i) a fixed ownership interest of $75
million and (ii) a variable ownership interest of up to $50 million
in its trade receivables. The $75 million receivables sold under
this arrangement is from a pool of $91.5 million of trade
receivables and remains fixed until 2000 at which time a portion of
collections of outstanding receivables will be retained by the
purchaser until the $75 million is extinguished. The purchaser
retains an allocation of finance charges earned on the $75 million
of receivables in an amount sufficient to provide a return of
6.45%.
Additional sales of receivables up to $50 million are restricted on
the basis of the level of eligible receivables in excess of the
$91.5 million supporting the fixed pool and a minimum ownership
interest to be retained by Younkers. Younkers may obtain additional
proceeds by increasing the ownership interest transferred to the
purchaser or reduce the purchaser's interest by allowing a portion
of the collections to be retained by the purchaser. The purchaser
retains an allocation of finance charge income equal to a variable
rate based on commercial paper or Eurodollar rates. The agreement
expires in 2000. As of March 27, 1996, the interest rate was 5.42%,
and $8.0 million of Younkers' receivables were sold under this
facility at that date. No receivables were sold under this facility
during 1995.
The Company utilizes a $125 million revolving credit facility with
several banks ("Revolver"), which expires in 1999. The Revolver
provides various borrowing options, including prime rate and LIBOR-
based rates. As of March 27, 1996, the LIBOR-based interest rate on
the $125 million Revolver was 6.17%. Borrowings on the Revolver are
limited to 55% of merchandise inventories. As of March 27, 1996,
the Company had borrowings totaling $10.9 million outstanding under
the Revolver and unused availability of $114.1 million. The maximum
amount outstanding under the Revolver during 1995 was $112.0
million. At that time, the Company had unused availability on the
Revolver of $9.6 million.
During 1995, the maximum amount outstanding under the $150 million
Younkers revolving credit facility (cancelled on February 3, 1996;
see "Extraordinary Item") was $12 million. At that time, the
Company had unused availability on this facility of $59 million.
At February 3, 1996, total debt was 42% of total
capitalization, down from 47% at January 28, 1995. Excluding the
Company's $100 million of subordinated debentures, which the
Company treats as permanent capital, senior debt was 26% of total
capitalization, down from 32% at January 28, 1995. The Company
carries $97 million of real estate and mortgage debt related to its
21 owned store locations and other owned properties. Management
believes the market value of these properties significantly exceeds
the related indebtedness.
Due to the consummation of the Younkers transaction and the
resulting strengthened balance sheet, both Standard & Poor's and
Moody's Investors Service raised their corporate credit ratings on
the Company's $86.3 million 4.75% convertible subordinated
debentures to B+ and B1, respectively.
The Company estimates capital expenditures for the combined
organization in 1996 will be approximately $50 million, primarily
for the construction of two stores to be opened in 1996, initial
construction related to five to seven stores to be opened in 1997,
three store expansions, five store renovations, and enhancements to
management information systems.
The Company anticipates its capital expenditures and working
capital requirements relating to planned new and existing stores
will be funded through cash provided by operations, borrowings, and
cash reserves. The Company expects to generate adequate cash flows
from operating activities to sustain current levels of operations.
The Company maintains favorable banking relations and anticipates
the necessary credit agreements will be extended or new agreements
will be entered into in order to provide future borrowing
requirements as needed. The Company's goal is to continue to
maintain a strong balance sheet, providing the Company flexibility
to capitalize on attractive opportunities for growth, thereby
enhancing shareholder value.
RECENT ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based
Compensation," was issued in 1995 to be effective beginning
February 4, 1996 for the Company. Management intends to comply with
the disclosure requirements of this statement. Accordingly, it is
the opinion of management that the statement will not have a
material impact on the Company's financial position or results of
operations.
CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share
amounts) Proffitt's, Inc. and Subsidiaries
Year Ended
February 3, January 28, January 29,
1996 1995 1994
NET SALES $ 1,333,498 $ 1,216,498 $ 798,779
COSTS AND EXPENSES
Cost of sales 873,218 795,353 520,987
Selling, general and
administrative expenses 324,650 284,748 192,028
Other operating expenses
Property and
equipment rentals 39,668 37,439 27,890
Depreciation and
amortization 35,709 32,802 19,816
Taxes other than
income taxes 29,644 27,580 18,911
Expenses related to
hostile takeover defense 3,182
Impairment of long-
lived assets 19,121
Merger, restructuring and
integration costs 20,822
________ ________ _______
OPERATING INCOME (LOSS) (12,516) 38,576 19,147
OTHER INCOME (EXPENSE)
Finance charge income 31,273 27,934 19,312
Interest expense (26,098) (20,781) (9,245)
Other income
(expense), net 2,848 3,865 2,923
------- ------ ------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES, EXTRAORDINARY
LOSS AND CUMULATIVE
EFFECT OF CHANGES IN
ACCOUNTING METHODS (4,493) 49,594 32,137
Provision for income taxes (1,906) (19,850) (12,892)
------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING
METHODS (6,399) 29,744 19,245
Extraordinary loss on
early extinguishment
of debt (net of tax) (2,060) (1,088)
------- ------- -------
INCOME (LOSS) BEFORE
CUMULATIVE EFFECT
OF CHANGES IN
ACCOUNTING METHODS (8,459) 29,744 18,157
Cumulative effect of
changes in accounting
methods (net of tax) 1,904
------- ------- ------
NET INCOME (LOSS) (8,459) 29,744 20,061
Preferred stock dividends 1,950 1,694
------ ------ ------
NET INCOME (LOSS)
AVAILABLE TO
COMMON SHAREHOLDERS $(10,409) $28,050 $20,061
======= ====== ======
Earnings (loss) per
common share before
extraordinary loss
and cumulative effect
of changes in
accounting methods $ (0.43) $ 1.48 $ 1.09
Extraordinary loss (0.11) (0.06)
Cumulative effect of
changes in
accounting methods 0.11
--------- -------- -------
Earnings (loss)
per common share $ (0.54) $ 1.48 $ 1.14
======== ======== =======
Weighted average
common shares 19,372 18,922 17,667
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED BALANCE SHEETS (in thousands, except per share
amounts)
Proffitt's, Inc. and Subsidiaries
February 3, January 28,
1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26,157 $ 15,181
Trade accounts receivable,
less allowance for doubtful
accounts of $6,601 in
1995 and $4,723 in 1994 44,878 120,185
Accounts receivable - other 9,469 9,917
Merchandise inventory 286,474 275,357
Prepaid supplies and expenses 8,024 9,024
Deferred income taxes 3,750
---------- ----------
TOTAL CURRENT ASSETS 378,752 429,664
PROPERTY AND EQUIPMENT,
NET OF DEPRECIATION 381,839 376,461
GOODWILL, net of amortization 52,838 46,522
OTHER ASSETS 2,237 25,746
--------- ---------
TOTAL ASSETS $ 835,666 $ 878,393
The accompanying notes are an integral part of these consolidated
financial statements.
February 3, January 28,
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 75,377 $ 68,203
Accrued expenses 48,597 28,599
Accrued compensation and
related items 10,920 12,629
Sales taxes payable 11,513 11,696
Income taxes payable 2,954 7,606
Deferred income tax liability 2,500
Current portion of long-term debt
and capital lease obligations 17,269 15,269
TOTAL CURRENT LIABILITIES 166,630 146,502
SENIOR DEBT 134,255 190,216
CAPITAL LEASE OBLIGATIONS 10,846 11,319
DEFERRED INCOME TAXES 52,250 58,400
OTHER LONG-TERM LIABILITIES 14,328 11,076
SUBORDINATED DEBENTURES 100,505 100,269
-------- --------
TOTAL LIABILITIES 478,814 517,782
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value,
10,000 total shares authorized:
Series A - 600 shares authorized,
issued and outstanding, $50 per
share liquidation preference 28,850 28,850
Common Stock, $.10 par value,
100,000 shares authorized,
19,120 and 18,760 shares issued
and outstanding at February 3,
1996 and January 28, 1995,
respectively 1,912 1,876
Additional paid-in capital 243,279 236,665
Retained earnings 82,811 93,220
------- -------
TOTAL SHAREHOLDERS' EQUITY 356,852 360,611
Total liabilities and
shareholders' equity $ 835,666 $ 878,393
========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands of
dollars)
Proffitt's, Inc. and Subsidiaries
Additional Total
Preferred Stock Common Paid-In Retained Shareholders'
Series A Series B Stock Capital Earnings Equity
Balance at January 30, 1993 $ - $ - $ 1,282 $ 96,716 $ 45,109 $143,107
Net income 20,061 20,061
Issuance of Common Stock 525 125,833 126,358
Income tax benefits related to
exercised stock options 783 783
Balance at January 29, 1994 1,807 223,332 65,170 290,309
Net income 29,744 29,744
Issuance of Stock 28,850 3,296 53 9,941 42,140
Income tax benefits related
to exercised stock options 112 112
Conversion of Series B
Preferred Stock (3,296) 16 3,280
Preferred Dividends (1,694) (1,694)
Balance at January 28, 1995 28,850 1,876 236,665 93,220 360,611
Net loss (8,459) (8,459)
Issuance of Common Stock 36 6,241 6,277
Income tax benefits related to
exercised stock options 373 373
Preferred dividends (1,950) (1,950)
Balance at February 3, 1996 $28,850 $ - $1,912 $243,279 $82,811 $356,852
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars)
Proffitt's, Inc. and Subsidiaries
Year Ended
February 3, January 28, January 29,
1996 1995 1994
OPERATING ACTIVITIES
Net income (loss) $ (8,459) $ 29,744 $ 20,061
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Extraordinary loss on
extinguishment of debt 3,433 1,832
Cumulative effect of
changes in
accounting methods (3,201)
Depreciation and
amortization 36,322 33,510 20,361
Deferred income taxes (13,319) 4,474 4,296
Impairment of long-
lived assets 19,121
Other 377 854 (821)
Changes in operating
assets and liabilities:
Trade accounts receivable 4,034 52,961 (19,593)
Merchandise inventory (8,097) 13,183 (47,346)
Prepaid expenses and
other current assets 1,797 (141) (3,267)
Accounts payable, accrued
expenses and income taxes
payable 20,917 (2,575) 6,004
Other (1,028) (347) (258)
------- ------- ------
NET CASH PROVIDED BY
(USED IN)
OPERATING ACTIVITIES 55,098 131,663 (21,932)
------ ------- --------
INVESTING ACTIVITIES
Purchases of property
and equipment, net (49,458) (43,289) (78,475)
Proceeds from sale-
lease back 31,138
Acquisition of Parks-Belk
(1995)/Macco (1994) (10,483) (184,067)
Collections of acquired
receivables 5,038
Other (1,719) (2,653)
-------- --------- --------
NET CASH USED IN
INVESTING ACTIVITIES (59,941) (229,075) (44,952)
FINANCING ACTIVITIES
Proceeds from long-
term borrowings 32,273 90,983 145,615
Payments on long-term
debt and capital
lease obligations (16,714) (33,544) (183,651)
Proceeds from issuance
of Stock 2,210 29,166 119,957
Dividends paid to
preferred shareholders (1,950) (888)
------- ------- -------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 15,819 85,717 81,921
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS 10,976 (11,695) 15,037
Cash and cash equivalents
at beginning of year 15,181 26,876 11,839
------- ------- ------
Cash and cash equivalents
at end of year $ 26,157 $ 15,181 $ 26,876
======== ======== ========
Noncash investing and financing activities are described in Notes
C, D, and F.
The accompanying notes are an integral part of these consolidated
financial statements.
Note A - Basis of Presentation
On February 3, 1996, Proffitt's, Inc. ("Proffitt's")
issued 8,816 shares of its Common Stock for all the outstanding
Common Stock of Younkers, Inc. ("Younkers") (collectively, "the
Company"). The merger has been accounted for as a pooling of
interests, and accordingly, these consolidated financial statements
have been restated for all periods to include the results of
operations and financial position of Younkers.
Separate results of the combined entities were as follows:
Year ended
February 3, January 28, January 29,
1996 1995 1994
Revenue:
Proffitt's $ 720,148 $ 617,363 $ 200,884
Younkers 613,350 599,135 597,895
---------- ---------- ---------
$1,333,498 $1,216,498 $ 798,779
========== ========== =========
Extraordinary item:
Proffitt's $ 0 $ 0 $ 0
Younkers (2,060) $ 0 $ (1,088)
---------- ----------- ---------
$ (2,060) $ 0 $ (1,088)
========== =========== =========
Cumulative effect of
changes in accounting
methods:
Proffitt's $ 0 $ 0 $ 333
Younkers 0 0 1,571
----------- ----------- ---------
$ 0 $ 0 $ 1,904
========== =========== =========
Net income (loss):
Proffitt's $ 5,181 $ 16,128 $ 6,063
Younkers (13,640) 13,616 13,998
----------- ----------- ---------
$ (8,459) $ 29,744 $ 20,061
========== =========== =========
Historically, Younkers' inventory costs consisted only of "direct
costs", principally invoice cost plus freight. Proffitt's followed
the same method until the year ended January 29, 1994 at which time
Proffitt's adopted the "full cost" method which includes the direct
costs plus certain purchasing and distribution costs. Additionally,
Younkers has included the cost of certain operating supplies, such
as shopping bags, in prepaid supplies and expenses. Proffitt's
policy is to expense such when issued to a store. Hence, Younkers'
financial statements have been restated to conform to Proffitt's
accounting methods, including adopting the change in inventory
costs with a "cumulative effect" adjustment in 1993. The restated
financial statements also reflect certain reclassifications without
any impact on previously reported income or shareholders' equity.
Note B - Description of Business and Summary of Significant
Accounting Policies
Description of business
At February 3, 1996, the Company operated the Proffitt's
Division with twenty-five department stores in the Southeast, the
McRae's Division with twenty-nine department stores in the
Southeast, and the Younkers Division with fifty-one department
stores in the Midwest. The Company's fiscal year ends on the
Saturday nearest January 31 and consisted of 53 weeks for the year
ended February 3, 1996 and 52 weeks for the years ended January 28,
1995 and January 29, 1994.
Consolidation
The financial statements include the accounts of
Proffitt's and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Revenues
Retail sales are recorded on the accrual basis, and
profits on installment sales are recognized in full when the sales
are recorded. Sales are net of returns which are reflected as a
period cost at the time of return.
Trade accounts receivable
Trade accounts consist of revolving charge accounts with
terms which, in some cases, provide for payments exceeding one
year. In accordance with usual industry practice, such receivables
are included in current assets. Finance charge income is accrued
monthly based on a percentage of uncollected customer account
balances. A portion of finance charge income is earned by financial
institutions in connection with the sales of interests in accounts
receivable (see Note D).
Inventories
Inventories are valued at the lower of cost or market as
determined by the retail inventory method applied on the last-in,
first-out (LIFO) method for approximately 84% and 86% of the
inventories at February 3, 1996 and January 28, 1995, respectively,
and on the first-in, first-out (FIFO) method for the balance. Prior
to the fiscal year ended January 28, 1995, the Company used the
FIFO method for all inventories. As of February 3, 1996 and January
28, 1995, the LIFO value of inventory exceeded market, and as a
result, inventory was stated at the lower market amount.
Prior to January 31, 1993, inventory costs consisted
only of "direct costs," principally invoice cost plus freight.
Effective January 31, 1993, the Company adopted the "full cost"
method. Under the full cost method, inventory costs include the
direct costs plus certain purchasing and distribution costs. The
impact of this change is further discussed in Note N.
Property and equipment
Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the
straight-line method for financial reporting purposes over the
estimated useful lives of the assets, which are 45 years for
buildings and range from 4 to 20 years for fixtures, leasehold
improvements, and equipment.
Cash equivalents
The Company considers all highly liquid investments
purchased with maturities of three months or less to be cash
equivalents.
Leased department sales
The Company includes leased department sales as part of
net sales. Leased department sales were $73,977, $71,369, and
$49,266 for the years ended February 3, 1996, January 28, 1995, and
January 29, 1994, respectively.
Store pre-opening expenses
Prior to January 31, 1993, new store pre-opening costs
for Proffitt's were deferred and amortized over the 12 months
immediately following the individual store openings. Effective
January 31, 1993, Proffitt's changed its method to expense such
costs when incurred. The impact of this change is further discussed
in Note N. Younkers has historically expensed such costs when
incurred.
Income taxes
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109. Deferred income taxes
reflect the impact of "temporary differences" between the amount of
assets and liabilities for financial reporting purposes and such
amounts as measured by enacted tax rules and regulations.
Earnings per common share
Earnings per common share have been computed based on
the weighted average number of common shares outstanding, including
common stock equivalents, after recognition of preferred stock
dividends of $1,950 and $1,694 for the years ended February 3, 1996
and January 28, 1995, respectively. There were no preferred
dividends in the prior year.
The Company's 4.75% convertible subordinated debentures
issued in October 1993 and 7.5% junior subordinated debentures
issued in March 1994 are not common stock equivalents, and
therefore, shares issuable upon their conversion are included only
in the computation of fully diluted earnings per share. The
difference between primary and fully diluted earnings per share was
not significant in any year.
Goodwill
The Company records goodwill for the cost in excess of
fair value of net assets acquired in purchase transactions.
Goodwill is being amortized on a straight-line method over 15 to 40
years, and the Company recognized amortization charges of $1,523,
$1,100 and $151 for the years ended February 3, 1996, January 28,
1995 and January 29,1994, respectively. At each balance sheet date,
the Company evaluates the realizability of goodwill based upon
expectations of nondiscounted cash flows and operating income.
Based upon its most recent analysis, the Company believes that no
impairment of goodwill exists at February 3, 1996.
New Accounting Pronouncement
Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," was issued in 1995 to be effective beginning
February 4, 1996 for the Company. Management intends to comply with
the disclosure requirements of this statement. Accordingly, it is
the opinion of management that the statement will not have a
material impact on the Company's financial position or results of
operations.
Note C - Acquisitions
On March 31, 1994, Proffitt's acquired all of the Common
Stock of Macco Investments, Inc. ("Macco"), a privately held
corporation and the parent company of McRae's, Inc. ("McRae's")
which operated 28 stores in the Southeast. The total acquisition
price of approximately $212 million consisted of a cash payment of
$176 million and the issuance of (i) 436 shares of Proffitt's, Inc.
Common Stock, (ii) the Company's 7.5% Junior Subordinated
Debentures due March 31, 2004 in an aggregate face amount equal to
$17.5 million, (iii) 33 shares of Series B Cumulative Junior
Perpetual Preferred Stock, (iv) the Company's promissory notes to
certain of the Macco shareholders for $2 million, and (v)
transaction costs of approximately $6 million. In addition and in
connection with the acquisition, the Company purchased, for $18.5
million, four regional mall stores owned by McRae family
partnerships and leased to McRae's. The operations of McRae's and
its subsidiaries are included in these consolidated financial
statements after March 31, 1994. The financing of the
acquisition included a $175 million accounts receivable financing
program through a financial institution; a $125 million bank
revolving credit facility; $20 million of mortgage financing on
certain Proffitt's and McRae's properties; and a private sale of
$30 million Series A Cumulative Convertible Exchangeable Preferred
Stock.
The allocation of the purchase price was as follows:
Working capital $ 68,396
Property and equipment 176,907
Goodwill 45,574
Other assets 10,409
Long-term debt (32,877)
Capital lease obligations (11,695)
Deferred income taxes (42,432)
Other long-term liabilities (2,484)
-------
$ 211,798
In April 1995, Proffitt's acquired the Parks-Belk Company, the
owner and operator of four department stores in northeast
Tennessee. Specific terms of the transaction were not disclosed,
but consideration was paid in Proffitt's, Inc. Common Stock and
cash (aggregated less than $20 million). Three of the Parks-Belk
locations were converted into Proffitt's Division stores, and one
was permanently closed.
Note D - Sale of Accounts Receivable
On April 1, 1994, Proffitt's began selling an undivided
ownership interest in its accounts receivable. Under the agreement
with the purchaser, which expires September 1997, Proffitt's may
obtain additional proceeds by increasing the ownership interest
transferred to the purchaser or reduce the purchaser's interest by
allowing a portion of the collections to be retained by the
purchaser. The ownership interest which may be transferred to the
purchaser is limited to $175,000 and is further restricted on the
basis of the level of eligible receivables and a minimum ownership
interest to be maintained by Proffitt's. Proffitt's sold $370,874
and $333,473 of its accounts receivable for the years ended
February 3, 1996 and January 28, 1995, respectively.
Prior to February 3, 1996, Younkers utilized an accounts
receivable securitization program under which its receivables were
used as collateral for commercial paper issued by a wholly-owned
special purpose subsidiary. Effective with the February 3, 1996
merger, Younkers replaced amounts borrowed under the securitization
program with the sale of (i) a fixed ownership interest of $75
million and (ii) a variable ownership interest of up to $50 million
in its trade receivables. The $75 million receivables sold under
this arrangement is from a pool of $91.5 million of trade
receivables and remains fixed until 2000 at which time a portion of
collections of outstanding receivables will be retained by the
purchaser until the $75 million is extinguished.
Additional sales of receivables up to $50 million are
restricted on the basis of the level of eligible receivables in
excess of the $91.5 million supporting the fixed pool and a minimum
ownership interest to be retained by Younkers. Younkers may obtain
additional proceeds by increasing the ownership interest
transferred to the purchaser or reduce the purchaser's interest by
allowing a portion of the collections to be retained by the
purchaser. The purchasers retain an allocation of
finance charge income equal to 6.45% on the Younkers $75 million
program and equal to a variable rate based on commercial paper or
Eurodollar rates on the Proffitt's $175 million and Younkers $50
million programs. The balance of finance charges is retained by the
Company. Finance charges retained by the purchaser were $8,809 and
$5,567 for the years ended February 3, 1996 and January 28, 1995,
respectively.
The Company is contingently liable for the collection of
the receivables sold. The ownership interest transferred to the
purchaser, which is reflected as a reduction of accounts
receivable, was $220,229 and $138,740 at February 3, 1996 and
January 28, 1995, respectively. Management believes that the
allowance for doubtful accounts of $6,601 at February 3, 1996 is
adequate for losses under this recourse provision. The agreements
contain certain covenants requiring the maintenance of various
financial ratios. If these covenants are not met or if an event of
default was to occur, the purchasers could be entitled to terminate
the agreement.
Note E - Property and Equipment
A summary of property and equipment was as follows:
February 3, January 28,
1996 1995
Land and land improvements $ 39,345 $ 39,192
Buildings 136,827 131,723
Leasehold improvements 80,543 80,122
Fixtures and equipment 242,911 246,813
Construction in progress 17,134 11,951
-------- --------
516,760 509,801
Accumulated depreciation (134,921) (133,340)
--------- ---------
$381,839 $376,461
======== ========
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." The Company adopted the provisions of this new
accounting standard in the fourth quarter of the year ended
February 3, 1996. As a result of adopting this new accounting
standard and as a result of closing certain stores and warehouses,
the Company incurred impairment charges as follows:
Write-down in carrying value of six operating stores
(3 Proffitt's, 1 McRae's and 2 Younkers)
due to recurring poor operating results and
adoption of SFAS No. 121 $ 15,897
Abandonment of duplicate warehouses and leasehold
improvements related to the Parks-Belk acquisition
and the Younkers merger 1,797
Loss on abandonment of leasehold improvements
related to closed stores 1,427
--------
$ 19,121
Note F - Income Taxes
The components of income tax expense were as follows:
Year Ended
February 3, January 28, January 29,
1996 1995 1994
Current:
Federal $ 10,940 $ 12,066 $ 7,280
State 2,912 3,310 1,868
--------- -------- --------
13,852 15,376 9,148
--------- -------- --------
Deferred:
Federal (10,834) 3,853 3,738
State (2,485) 621 558
--------- -------- --------
(13,319) 4,474 4,296
--------- -------- --------
$ 533 $ 19,850 $ 13,444
======== ======== ========
Components of the net deferred tax asset or liability recognized
in the consolidated balance sheets were as follows:
February 3, January 28,
1996 1995
Current:
Deferred tax assets:
Allowance for doubtful accounts $ 2,400 $ 1,700
Accrued expenses 9,900 3,000
Other 250 500
-------- ---------
12,550 5,200
-------- ---------
Deferred tax liabilities:
Inventory (8,300) (7,300)
Other (500) (400)
-------- ---------
(8,800) (7,700)
Net deferred tax asset (liability) $ 3,750 $(2,500)
======= ========
Noncurrent:
Deferred tax assets:
Capital leases $ 900 $ 1,000
Other long-term liabilities 3,800 4,000
Deferred compensation 950 1,000
-------- --------
5,650 6,000
-------- --------
Deferred tax liabilities:
Property and equipment (51,200) (57,000)
Other assets (5,400) (6,000)
Junior subordinated debentures (1,300) (1,400)
-------- --------
(57,900) (64,400)
Net deferred tax liability $ (52,250) $ (58,400)
Income tax expense varies from the amount computed by applying the
statutory federal income tax rate to income before taxes. The
reasons for this difference were as follows:
Year ended
February 3, January 28, January 29,
1996 1995 1994
Expected tax/rate
(benefit) $(2,774) (35.0%) 35.0% 35.0%
State income taxes,
net of federal
benefit (743) (9.4) 4.3 5.0
Nondeductible merger
transaction costs 2,997 37.8
Amortization of
goodwill 518 6.5
Other items, net 535 6.8 0.7 0.1
------ ----- ----- -----
Actual tax/rate
(benefit) $ 533 6.7% 40.0% 40.1%
====== ===== ===== =====
The Company made income tax payments, net of refunds received, of
$6,899, $13,507, and $8,365 during the years ended February 3,
1996, January 28, 1995 and January 29, 1994, respectively.
Note G - Senior Debt
A summary of senior debt was as follows:
February 3, January 28,
1996 1995
Real estate and mortgage notes,
interest ranging from
3.35% to 10.17%, maturing
1996 to 2008, collateralized
by property and equipment with
a carrying amount of approximately
$122,000 at February 3, 1996 $ 97,365 $ 73,791
Revolving credit agreements and
commercial paper notes 41,400 121,114
Notes payable, interest ranging
from 7.88% to 13.00%,
maturing 1996 to 1998 12,287 10,154
-------- --------
151,052 205,059
Current portion (16,797) (14,843)
-------- --------
$134,255 $190,216
======== ========
Prior to February 3, 1996, Younkers utilized an accounts
receivable securitization program under which its
receivables were used as collateral for commercial paper issued by
a wholly-owned special purpose subsidiary. At January 28, 1995,
borrowings of $76,114 were outstanding under this program at a
weighted average interest rate of 6.0%. Effective
February 3, 1996, Younkers replaced the debt financing of its
accounts receivable with sales of ownership interests in the
receivables (see Note D). At the same time, Younkers cancelled its
revolving credit facility. As a result of this early extinguishment
of debt, certain deferred costs associated with the debt financing
of receivables and the revolving credit facility, such as loan
origination costs and a loss from a related interest rate swap,
were written off. This write-off of $3,433 ($2,060 net of income
taxes) is reflected in the income statement as an extraordinary
item.
In conjunction with a real estate mortgage note
having a balance of $6,750 at February 3, 1996, Proffitt's entered
into an interest rate swap agreement for the management of interest
rate exposure. This agreement extends to June 30, 2003 and swaps
the variable rate for a fixed rate of 5.7%. The differential to be
paid or received is included in interest expense. The Company
continually monitors its position and the credit rating of the
interest rate swap counterparty. While the Company may be exposed
to credit losses in the event of nonperformance by the
counterparty, it does not anticipate such losses.
At February 3, 1996, the Company owed $41,400 under a revolving
credit agreement ("Revolver") with banks. Borrowings under the
Revolver are limited to 55% of merchandise inventories up to a
maximum borrowing of $125,000, and interest rate options include
LIBOR-based rates, prime rate and competitive bid rates. The
agreementexpires in 1999. In addition to certain general
requirements, the credit agreement requires the Company to meet
specific covenants related to current ratio, fixed charges, funded
debt, capitalization and tangible net worth. Certain other note
agreements also impose restrictions and financial maintenance
requirements.
Maturities of senior debt for the next five years, and
thereafter, giving consideration to lenders' call privileges, are
as follows:
Fiscal Year End
1997 $ 16,797
1998 13,495
1999 17,077
2000 68,678
2001 6,417
Thereafter 28,588
---------
$ 151,052
=========
The Company made interest payments of $25,601, $18,282 and $9,232
during the years ended February 3, 1996, January 28, 1995 and
January 29, 1994, respectively. Capitalized interest was $285, $467
and $787 for the years ended February 3, 1996, January 28, 1995 and
January 29, 1994, respectively.
Note H - Leases
The Company is committed under long-term leases primarily for the
rentals of certain retail stores. The leases generally provide for
minimum annual rentals (including executory costs such as real
estate taxes and insurance) and contingent rentals based on a
percentage of sales in excess of stated amounts. Generally, the
leases have primary terms ranging from 20 to 30 years and include
renewal options ranging from 10 to 15 years.
At February 3, 1996, minimum rental commitments under capital
leases and operating leases with terms in excess of one year are as
follows:
Capital Operating
Fiscal Year End Leases Leases
1997 $ 2,179 $ 24,621
1998 2,179 23,754
1999 2,179 23,050
2000 2,165 20,900
2001 2,009 19,116
Thereafter 19,209 157,776
-------- --------
Total minimum rental commitments 29,920 $ 269,217
=========
Estimated insurance, taxes,
maintenance and utilities (7,413)
Net minimum rental commitments 22,507
Imputed interest (rates ranging
from 8.00% to 17.80%) (11,189)
--------
Present value of net minimum
rental commitments 11,318
Less current installments of
capital lease obligations (472)
--------
Capital lease obligations,
excluding current installments $ 10,846
========
Contingent rentals on capital leases are insignificant.
Total rental expense for operating leases was
approximately $41,000, $39,000 and $30,000 for the years ended
February 3, 1996, January 28, 1995 and January 29, 1994,
respectively, including contingent rents of $5,000, $4,300 and
$3,100.
Note I - Subordinated Debentures
In October 1993, the Company issued $86,250 of 4.75%
convertible subordinated debentures, due November 1, 2003, with
interest due semi-annually. The debentures are convertible into the
Company's Common Stock at any time prior to maturity, unless
previously redeemed, at a conversion price of $42.70 per share. The
debentures are redeemable for cash at any time on or after November
15, 1996, at the option of the Company at specified redemption
prices.
In March 1994, the Company issued 7.50% junior
subordinated debentures with a face value of $17,500. The
debentures were discounted to reflect their fair value and have an
accreted carrying value of $14,255 at February 3, 1996.
During the year ended January 29, 1994, a $5,000 convertible
subordinated debenture was converted into Common Stock at a
conversion price of $16 per share.
Note J - Retirement and Savings Plan and Other Benefits
Proffitt's and Younkers sponsor profit sharing and savings plans
that cover substantially all full-time employees. Employees may
contribute a portion of their salary, subject to limitation, to the
plans. The Company contributed an additional amount, subject to
limitation, based on the voluntary contribution of the employee. In
addition, Younkers contributes to the plan an amount based on a
percentage of income or an amount authorized by the Board of
Directors. Company contributions charged to expense under these
plans, or similar predecessor plans, for the years ended February
3, 1996, January 28, 1995, and January 29, 1994 were $1,216, $1,106
and $1,905, respectively. As a part of a 1987
acquisition, Younkers assumed certain obligations under a frozen
defined benefit pension plan. Younkers' funding policy with respect
to the plan is consistent with the funding requirements of federal
laws and regulations. The following table sets forth the plan's
funded status and amounts recognized in the Company's consolidated
balance sheets:
February 3, January 28,
1996 1995
Accumulated benefit obligation,
entirely vested $ 5,204 $ 4,903
======== ========
Plan assets at fair value
(primarily funds on deposit
with a financial institution) $ 5,327 $ 4,903
Projected benefit obligation
for service rendered to date (5,204) (4,903)
-------- --------
Plan assets in excess of
projected benefit obligation 123 0
Unrecognized net loss from
past experience different from
that assumed and effects of
changes in assumptions 1,239 1,535
Prepaid pension cost $ 1,362 $ 1,535
======== ========
Net periodic cost (benefit) included in the Company's
operating results for the frozen plan is insignificant. The
weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8.5% for the
years ended February 3, 1996 and January 28, 1995 and 7.0% for the
year ended January 29, 1994. The expected long-term rate of return
on plan assets was 8.0% for each year.
Younkers provides certain health care benefits for eligible retired
employees who have 20 years of service with the Company and who
have been covered under the Company's active medical insurance
plan. In addition, another group of retirees, resulting from a 1987
acquisition, are eligible for certain life insurance benefits. The
plans are not funded. At February 3, 1996 and January 28, 1995, the
Company's accrued liability for such benefits was $3,225 and
$3,372, respectively, with approximately one-half representing the
accumulated postretirement benefit obligation for current retirees
and one-half representing unrecognized prior service cost and
unrecognized net gains. Net periodic postretirement benefit costs
included in the Company's operating results for these health care
benefits were insignificant.
The Company has certain deferred compensation plans
providing benefits to selected current and former employees. The
liability for deferred compensation was approximately $2.5 million
for the years ended February 3, 1996 and January 28, 1995.
Note K - Stock Transactions
During April 1993, Younkers issued 2,371 shares of
Common Stock through a public offering. The total proceeds received
from the sale of these shares were approximately $69.1 million
after offering expenses. Proceeds of the shares sold, along with
proceeds from the sale and lease back transaction, were used to
repay the remaining balance of term debt associated with the
acquisition of the department store division of the H.C. Prange
Company in September 1992 and to pay down the Younkers previous
revolving line of credit.
In February and March 1993, Proffitt's sold 2,395 shares of Common
Stock at $22.25 per share in a public offering. Net proceeds to the
Company were approximately $50.2 million after the underwriting
discount and offering expenses.
On March 31, 1994, Proffitt's issued 600 shares of Series A
Cumulative Convertible Exchangeable Preferred Stock in a private
offering. Net proceeds to the Company were approximately $28.9
million after offering expenses. Dividends are cumulative and are
paid in March and September at $3.25 per annum per share. The
Preferred Stock is convertible into Common Stock at a price of
$21.10 per share and has a liquidation preference of $50
per share. The Company may redeem the stock, in whole or in part,
at $52.50 per share after two years based on certain conditions,
and in any event after four years. The stock is exchangeable at the
Company's option in whole on any dividend payment date on the basis
of $50 of 6.50% exchange debentures for each share. The stock gains
voting rights when three semi-annual dividends are in arrears, and
at that time, the shareholder may appoint one representative to the
Company's Board of Directors.
In March 1995, the Board of Directors of Proffitt's, Inc. adopted
a shareholder rights plan. Each outstanding share of Common Stock
has one preferred stock purchase right attached. The rights
generally become exercisable ten days after an outside party
acquires, or makes an offer for, 20% or more of the Common Stock.
Each right entitles its holder to buy 1/100 share of Proffitt's,
Inc. Series C Junior Preferred Stock at an exercise price of $85.
Once exercisable, if the Company is involved in a merger or other
business combination or an outside party acquires 20% or more of
the Common Stock, each right will be modified to entitle its holder
(other than the acquiror) to purchase common stock of the acquiring
company or, in certain circumstances, Proffitt's, Inc. Common Stock
having a market value of twice the exercise price of the right. The
rights expire on March 28, 2005.
The Company has available 33 shares of authorized, unissued Series
B Preferred Stock.
Note L - Stock Option and Stock Purchase Plans
The Company's 1987 Stock Option Plan, as amended,
provided for the granting of options of Common Stock not to exceed
490 shares to officers, key employees and Directors. No additional
options are to be granted under the 1987 Plan. On March 1, 1994,
the Company's Board of Directors adopted the Proffitt's, Inc. 1994
Long-Term Incentive Plan pursuant to which stock options, stock
appreciation rights, restricted shares of Common Stock and
performance units may be awarded to officers, key employees and
Directors. The 1994 Plan, as amended, provides for granting of
2,911 shares of Common Stock of the Company. At February 3, 1996,
30 restricted shares of Common Stock have been awarded under the
1994 Plan. At February 3, 1996, the 1994 Plan has available for
grant 1,239 shares of Common Stock of the Company.
Stock option activity was as follows:
Shares Stock Option Price Range
Balance at January 30, 1993 951 $ 5.250 $ 23.470
Granted 213 23.625 34.950
Exercised (127) 5.250 12.000
Cancelled (7) 23.470 23.470
-----
Balance at January 29, 1994 1,030 5.250 34.950
Granted 783 14.540 24.500
Exercised (118) 5.250 23.625
Cancelled (43) 7.500 34.180
-----
Balance at January 28, 1995 1,652 5.250 34.950
Granted 455 17.470 32.250
Exercised (178) 5.250 25.375
Cancelled (89) 5.250 32.650
-----
Balance at February 3, 1996 1,840 7.500 34.950
=====
On February 3, 1996 (merger effective date), Younkers'
stock options were assumed by the Company using the conversion
number of .98. On this date, these stock options became fully
vested. The above stock option activity has been restated to
include Younkers' option activity for the fiscal years presented.
At February 3, 1996, incentive and nonqualified stock options for
1,143 shares were exercisable. All options were granted at not less
than fair market value at dates of grant, and the maximum term of
an option may not exceed ten years.
The Proffitt's, Inc. 1994 Employee Stock Purchase Plan
(the "Stock Purchase Plan") was adopted on November 12, 1994 by the
Board of Directors of the Company. The Stock Purchase Plan provides
that an aggregate of 350 shares of the Company's Common Stock is
available for purchase. Under the Stock Purchase Plan, an eligible
employee may elect to participate by authorizing payroll deductions
of not more than $2.4 per Plan year to be applied toward the
purchase of the Company's Common Stock. The purchase price per
share is 85% of the lesser of the closing price per share on the
last business day preceding (i) the Grant Date or (ii) the Exercise
Date. Thirteen shares of the Company's Common Stock were purchased
under the Stock Purchase Plan for the Plan year ending January 31,
1996. At January 31, 1996, the Stock Purchase Plan has available
for future offerings 337 shares of the Company's Common Stock.
Note M - Related Party Transactions
In February 1989, the Company entered into an agreement
with the Chairman of the Board and Chief Executive Officer for an
unsecured $500 interest-free loan due January 31, 1999. The loan
was made as a supplement to this individual's base compensation,
and interest was imputed on this loan at 5.54% for the year ended
February 3, 1996.
The Company is obligated under 6.50% second mortgage
real estate notes to a Director of the Company in the amount of
$1,580.
A Director of the Company owns $1,637 of the 7.50% junior
subordinated debentures.
Prior to the merger, Younkers issued shares through a
public offering which was managed by Goldman, Sachs & Co., an
officer of which served on Younkers Board of Directors. Younkers
also engaged Goldman, Sachs & Co. to serve as financial advisors in
connection with the hostile takeover defense matter and the
Proffitt's merger.
During June 1993, Younkers completed the sale and lease back of the
eight owned store properties acquired from H. C. Prange Company
("Prange") with net proceeds of approximately $31,000. This was
considered in the allocation of the original purchase price and
resulted in no gain or loss to Younkers. Younkers incurred sales
commissions of $800 on this transaction with a company whose
Chairman was on the Younkers Board of Directors.
In connection with the acquisition of the Prange
department stores, Younkers entered into agreements with Prange for
a transitional management information system and distribution
services for which it incurred $1,754 for the year ended January
29, 1994. The then-president of Prange became a Director of
Younkers subsequent to the acquisition. In June 1993, Younkers
purchased from Prange the Green Bay Distribution Center for $2,450
and, during the second quarter of the year ended January 29, 1994,
brought in-house the management information systems.
Note N - Changes in Accounting Methods
Effective January 31, 1993, Proffitt's changed its
method of accounting for inventory to include certain purchasing
and distribution costs. Previously, these costs were charged to
expense in the period incurred rather than in the period in which
the merchandise was sold. The cumulative effect of this change
(which includes the impact on Proffitt's and Younkers -see Note A)
for periods prior to January 31, 1993 was $2,273 (net of income
taxes of $1,532). The effect of this change on the fiscal year
ended January 29, 1994 was to increase net income before the
cumulative effect by $165, or $.01 per common share.
Effective January 31, 1993, Proffitt's also changed its method
of accounting for store pre-opening costs to expensing such costs
when incurred. Previously, these costs were amortized over the 12
months immediately following the individual store openings.
Younkers has historically expensed such costs when incurred. The
cumulative effect of this change for periods prior to January 31,
1993 was $369 (net of income taxes of $236). The effect of this
change on the fiscal year ended January 29, 1994 was to decrease
net income before cumulative effect by $1,665, or $.09 per common
share. Effective January 30, 1994, Proffitt's changed
its method of accounting for inventory to the last-in, first-out
(LIFO) method for approximately 76% of its inventories. Previously,
all inventories were valued using the first-in, first-out (FIFO)
method. Younkers has historically valued its inventories under the
LIFO method. The cumulative effect of this change is not presented
because it is not determinable.
Note O - Fair Values of Financial Instruments
The following methods and assumptions were used to
estimate the fair value of each class of financial instrument:
The fair values of cash and cash equivalents, accounts
receivable, and short-term debt approximates cost due to the
immediate or short-term maturity of these instruments.
For variable rate notes that reprice frequently, fair
value approximates carrying value. The fair value of fixed rate
notes are estimated using discounted cash flow analyses with
interest rates currently offered for loans with similar terms and
credit risk.
The fair values of convertible subordinated debentures are based on
quoted market prices. For junior subordinated debentures, the fair
values are estimated using discounted cash flow analyses with
interest rates currently offered for financial instruments with
similar terms and credit risk.
The fair value of the Preferred Stock is estimated at
the market price of Proffitt's, Inc. Common Stock into which the
Preferred Stock was convertible at February 3, 1996.
The fair values of the Company's aforementioned
financial instruments at February 3, 1996 were as follows:
Carrying Estimated
Amount Fair Value
Cash and cash equivalents $ 26,157 $ 26,157
Accounts receivable 44,878 44,878
Fixed rate notes payable 7,887 8,327
Variable rate notes payable 45,800 45,800
Fixed rate real estate
and mortgage notes 77,410 77,224
Variable rate real estate
and mortgage notes 19,955 19,955
Convertible subordinated debentures 86,250 75,900
Junior subordinated debentures 14,255 14,255
Convertible exchangeable
Preferred Stock 28,850 34,834
Note P - Merger, Restructuring and Integration Costs
In connection with the merger of Proffitt's and
Younkers, the two companies incurred certain costs to effect the
merger and other costs to restructure and integrate the combined
operating companies. Those costs were comprised of the following:
Merger transaction costs, principally
investment banking, legal and
other direct merger costs $ 8,778
Severance and related benefits 3,235
Abandonment of duplicate administrative
office space and property and duplicate
data processing equipment and software
(including leases) 7,422
Other costs 1,387
-----------
$ 20,822
===========
Included in the February 3, 1996 balance sheet caption "accrued
expenses" is $26,247 representing amounts expected to be disbursed
in 1996 for merger transaction, severance and other costs. Included
in the balance sheet caption "other long-term liabilities" is
$2,695 representing the present value of remaining lease payments
allocable to the Younkers administrative office space being
permanently vacated in 1996. These lease payments will be disbursed
through August 2005.
Note Q - Quarterly Financial Information
In the following summary of quarterly financial
information, all adjustments necessary for a fair presentation of
each period were included.
(Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal year ended February 3, 1996
Net sales $ 287,125 $ 278,798 $ 322,972 $444,603
Gross margin 100,117 100,314 114,145 145,704
Income (loss)
before extraordinary items 3,648 2,479 6,922 (19,448)
Net income (loss) 3,648 2,479 6,922 (21,508)
Earnings (loss) per common share:
Before extraordinary item 0.16 0.10 0.33 (1.02)
Extraordinary item (0.11)
Earnings (loss) per common share 0.16 0.10 0.33 (1.13)
Fiscal year ended January 28, 1995
Net sales 211,715 267,622 310,022 427,099
Gross margin 69,425 93,105 110,976 147,639
Net income 625 1,737 5,598 21,784
Earnings per common share 0.02 0.06 0.27 1.12
In addition to the extraordinary loss on the early
extinguishment of debt, the impairment of long-lived assets and the
merger, restructuring and integration charges recorded in the
fourth quarter for the year ended February 3, 1996, the Company
also revised certain estimates and recorded other charges in the
fourth quarter as follows:
Provision for bad debts $ 2,000
Depreciation 700
Litigation 5,000
Vendor chargebacks 800
Conversion of Younkers'
leased shoe operations 2,400
------------
$ 10,900
============
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Proffitt's, Inc.
We have audited the accompanying consolidated balance sheets of
Proffitt's, Inc. and Subsidiaries as of February 3, 1996 and
January 28, 1995, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three
years in the period ended February 3, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial
statements give retroactive effect to the merger with Younkers,
Inc., which has been accounted for as a pooling of interests as
described in Note A to the consolidated financial statements. We
did not audit the financial statements of Younkers for the years
ended January 28, 1995 and January 29, 1994. Such statements
reflect aggregate total assets constituting 38.3% and 54.7% in 1994
and 1993, respectively, and aggregate total revenues constituting
49.3% and 74.9% in 1994 and 1993, respectively, of the related
consolidated totals. Those statements were audited by other
auditors, whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for Younkers, Inc. is
based solely on the respective reports of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and
the respective reports of the other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the respective reports of
the other auditors, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of Proffitt's, Inc. and Subsidiaries as of
February 3, 1996 and January 28, 1995 and the consolidated results
of their operations and their cash flows for each of the three
years in the period ended February 3, 1996, in conformity with
generally accepted accounting principles.
As described in Note N to the financial statements, the Company
changed its method of costing inventory, accounting for store
pre-opening expenses and accounting for income taxes in the year
ended January 29, 1994 and changed its method of valuing inventory
in the year ended January 28, 1995.
Atlanta, Georgia
March 15, 1996 /s/ COOPERS & LYBRAND, L.L.P.
REPORT OF MANAGEMENT
The accompanying consolidated financial statements, including the
notes thereto, and the other financial information presented in the
Annual Report have been prepared by management. The financial
statements have been prepared in accordance with generally accepted
accounting principles and include amounts that are based upon our
best estimates and judgements. Management is responsible for the
consolidated financial statements, as well as the other financial
information in this Annual Report.
The Company maintains an effective system of internal accounting
control. We believe that this system provides reasonable assurance
that transactions are executed in accordance with management
authorization and that they are appropriately recorded in order to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to adequately
safeguard, verify, and maintain accountability of assets.
Reasonable assurance is based on the recognition that the
cost of a system of internal control should not exceed the benefits
derived.
The consolidated financial statements and related notes have been
audited by independent certified public accountants. Management has
made available to them all of the Company's financial records and
related data and believes all representations made to them during
their audits were valid and appropriate. Their reports provide an
independent opinion upon the fairness of the financial statements.
The Audit Committee of the Board of Directors is composed of four
independent Directors. The Committee is responsible for
recommending the independent certified public accounting firm to be
retained for the coming year, subject to shareholder approval. The
Audit Committee meets periodically with the independent auditors,
as well as with management, to review accounting, auditing,
internal accounting control, and financial reporting matters. The
independent auditors have unrestricted access to the Audit
Committee.
/s/ R. Brad Martin /s/ James E. Glasscock
R. Brad Martin James E. Glasscock
Chairman of the Board and Executive Vice President, Chief
Chief Executive Officer Financial Officer,
and Treasurer
MARKET INFORMATION
The Company's Common Stock trades on the NASDAQ Stock Market under
the symbol PRFT. As of March 15, 1996, there were approximately
1,054 shareholders of record. Below is a summary of the high and
low bid quotations for the Company's Common Stock for each
quarterly period for the prior two years. The source of these
quotations is the Monthly Statistical Report of the National
Association of Securities Dealers, Inc. These quotations represent
inter-dealer prices for actual transactions, without adjustment for
retail markup, markdown, or commission.
The Company presently follows the policy of retaining
earnings to provide funds for the operation and expansion of the
business and has no present intention to declare cash dividends in
the foreseeable future. Future dividends, if any, will be
determined by the Board of Directors of the Company in light of
circumstances then existing, including the earnings of the Company,
its financial requirements, and general business conditions. The
Company declared no dividends to common shareholders in either 1995
or 1994.
Fiscal Year Ended
February 3, 1996 January 28, 1995
Price Range Price Range
Quarter High Low High Low
First 26 1/2 20 3/4 25 3/4 16 1/2
Second 33 24 19 3/4 14 3/4
Third 34 1/4 23 1/8 21 3/4 14 3/4
Fourth 29 21 1/2 25 1/4 17 3/4
COMMITMENT TO GROWTH
Since becoming a public company in 1987, Proffitt's, Inc.
has experienced tremendous growth. At that time, the Company
operated only five stores, all located in metropolitan Knoxville,
Tennessee, with annual revenues of $40 million. The successful
completion of the Lovemans, Hess, McRae's, Parks-Belk, and Younkers
transactions, coupled with the construction of several new units,
has allowed us to become one of the fastest growing department
store companies in the United States. The Company now operates 103
stores in sixteen states and generates annual sales in excess of
$1.3 billion.
We are committed to and have the resources for continued
expansion. Through future acquisitions and new store construction,
combined with sales gains in existing stores, particularly in cases
where we have made substantial capital investments, Proffitt's,
Inc. should continue to grow at an attractive rate and produce the
returns expected for our shareholders.
HISTORY OF ACQUISITIONS
Company Date Stores Gross Square Feet Locations
Lovemans 1988 5 340,000 GA, TN
Hess 1992 8 526,000 TN, VA
Hess 1993 10 674,000 GA, KY, VA
McRae's 1994 28 2,806,000 AL, FL, LA,
MS
Parks-Belk 1995 3 225,000 TN
Younkers 1996 51 4,961,400 IA, IL, MI,
MN, NE, SD,
WI
STORE LOCATIONS
PROFFITT'S STORES
<States>GEORGIA
<Cities>Dalton
<Malls>Walnut Square
<Cities>Rome
<Malls>Mt. Berry Square
<States>KENTUCKY
<Cities>Ashland
<Malls>Ashland Town Center
<Cities>Elizabethtown
<Malls>Towne Mall
<States>NORTH CAROLINA
<Cities>Asheville
<Malls>Biltmore Square
<States>TENNESSEE
<Cities>Athens
<Malls>Proffitt's Plaza
<Cities>Chattanooga
<Malls>Hamilton Place Mall
<Malls>Northgate Mall
<Cities>Cleveland
<Malls>Bradley Square
<Cities>Greeneville
<Malls>Greeneville Commons
<Cities>Johnson City
<Malls>The Mall at Johnson City
<Cities>Kingsport
<Malls>Fort Henry Mall
<Cities>Knoxville
<Malls>East Towne Mall
<Malls>West Town Mall
<Cities>Maryville
<Malls>Foothills Mall
<Cities>Morristown
<Malls>College Square
<Cities>Oak Ridge
<Malls>Oak Ridge Mall
<States>VIRGINIA
<Cities>Bristol
<Malls>Bristol Mall
<Cities>Chesapeake
<Malls>Chesapeake Square
<Malls>Greenbrier Mall
<Cities>Hampton
<Malls>Coliseum Mall
<Cities>Newport News
<Malls>Patrick Henry Mall
<Cities>Richmond
<Malls>Chesterfield Town Center
<Malls>Virginia Center Commons
<Cities>Virginia Beach
<Malls>Pembroke Mall
<sub1>McRAE'S STORES
<States>alabama
<Cities>Birmingham
<Malls>Brookwood Village
<Malls>Century Plaza
<Malls>Riverchase Galleria
<Malls>Roebuck Plaza
<Malls>Western Hills Mall
<Cities>Dothan
<Malls>Wiregrass Commons
<Cities>Florence
<Malls>Regency Square
<Cities>Gadsden
<Malls>Gadsden Mall
<Cities>Huntsville
<Malls>Madison Square
<Malls>Parkway City Mall
<Cities>Mobile
<Malls>Springdale Mall
<Cities>Montgomery
<Malls>Eastdale Mall
<Cities>Selma
<Malls>Selma Mall
<Cities>Tuscaloosa
<Malls>University Mall
<States>Florida
<Cities>Mary Esther
<Malls>Santa Rosa Mall
<Cities>Pensacola
<Malls>University Mall
<States>Louisiana
<Cities>Monroe
<Malls>Pecanland Mall
<States>Mississippi
<Cities>Columbus
<Malls>University Mall
<Cities>Gautier
<Malls>Singing River Mall
<Cities>Greenville
<Malls>Greenville Mall
<Cities>Hattiesburg
<Malls>TurtleCreek Mall
<Cities>Jackson
<Malls>Meadowbrook Mart
<Malls>Metrocenter Mall
<Malls>Northpark Mall
<Cities>Laurel
<Malls>Sawmill Square
<Cities>Meridian
<Malls>Village Fair Mall
<Cities>Natchez
<Malls>Natchez Mall
<Cities>Tupelo
<Malls>Barnes Crossing
<Cities>Vicksburg
<Malls>Pemberton Mall
<sub1>YOUNKERS STORES
<States>Iowa
<Cities>Ames
<Malls>North Grand Mall
<Cities>Bettendorf
<Malls>Duck Creek Plaza
<Cities>Cedar Falls
<Malls>College Square Mall
<Cities>Cedar Rapids
<Malls>Lindale Mall
<Malls>Westdale Mall
<Cities>Davenport
<Malls>Northpark Mall
<Cities>Des Moines
<Malls>Downtown
<Malls>Merle Hay Mall
<Malls>Southridge Mall
<Malls>Valley West Mall
<Cities>Dubuque
<Malls>Kennedy Center
<Cities>Fort Dodge
<Malls>Crossroads Center
<Cities>Iowa City
<Malls>Old Capitol Mall
<Cities>Marshalltown
<Malls>Marshalltown Plaza
<Cities>Mason City
<Malls>Southbridge Mall
<Cities>Sioux City
<Malls>Southern Hills Mall
<Malls>Town Square Downtown
<Cities>West Burlington
<Malls>Westland Mall
<States>Illinois
<Cities>Moline
<Malls>Southpark Mall
<States>Michigan
<Cities>Bay City
<Malls>Bay City Mall
<Cities>Holland
<Malls>West Shore Mall
<Cities>Marquette
<Malls>Marquette Plaza
<Cities>Port Huron
<Malls>Birchwood Mall
<Cities>Traverse City
<Malls>Cherryland Mall
<States>Minnesota
<Cities>Austin
<Malls>Oak Park Mall
<States>Nebraska
<Cities>Grand Island
<Malls>Conestoga Mall
<Cities>Lincoln
<Malls>Gateway Shopping Center
<Cities>Omaha
<Malls>Crossroads Mall
<Malls>Oakview Mall
<Malls>Westroads Mall
<States>South Dakota
<Cities>Sioux Falls
<Malls>The Empire Mall
<States>Wisconsin
<Cities>Appleton
<Malls>Fox River Mall
<Cities>Eau Claire
<Malls>London Square
<Cities>Fond du Lac
<Malls>Forest Mall
<Cities>Green Bay
<Malls>Port Plaza Mall
<Cities>Madison
<Malls>East Towne Mall
<Malls>West Towne Mall
<Cities>Manitowoc
<Malls>Edgewater Plaza
<Cities>Marinette
<Malls>Pine Tree Mall
<Cities>Marshfield
<Malls>Northway Mall
<Cities>Milwaukee
<Malls>Northridge Mall
<Malls>Southridge Mall
<Cities>Oshkosh
<Malls>Park Plaza
<Cities>Racine
<Malls>Regency Mall
<Cities>Sheboygan
<Malls>Downtown
<Cities>Sturgeon Bay
<Malls>Downtown
<Cities>Superior
<Malls>Mariner Mall
<Cities>Wausau
<Malls>Wausau Center
<Cities>Wisconsin Rapids
<Malls>Rapids Mall
DIRECTORS AND OFFICERS
PROFFITT'S, INC.
DIRECTORS
Bernard E. Bernstein
Partner in the Knoxville,
Tennessee law firm of
Bernstein, Stair & McAdams
Edmond D. Cicala
President of Edmond Enterprises, Inc.
Retired Chairman and
Chief Executive Officer of the
Goldsmith's Division of Federated
Department Stores
Ronald de Waal
Chairman of We International, B.V.,
the Netherlands
Gerard K. Donnelly
Chairman of Princeton
Middletown Partners, Inc.
Former President and Chief
Executive Officer of
H. C. Prange Company
Donald F. Dunn
Retired Senior Vice President of Allied Stores Corporation
Michael S. Gross
Vice President of Apollo Capital
Management, Inc.
G. David Hurd
Emeritus Chairman and retired
Chief Executive Officer of
The Principal Financial Group
Richard D. McRae
Former Chairman, President,
and Chief Executive Officer of
McRae's, Inc.
C. Warren Neel
Dean of the College of Business Administration at the
University of Tennessee, Knoxville
Harwell W. Proffitt
Former Chairman, President,
and Chief Executive Officer of
Proffitt's, Inc.
Gerald Tsai, Jr.
Chairman, President, and
Chief Executive Officer of
Delta Life Corporation
PROFFITT'S, INC.
OFFICERS
R. Brad Martin
Chairman of the Board of Directors
and Chief Executive Officer
W. Thomas Gould
Vice Chairman of the Board of
Directors and Chairman of the
Younkers Division of Proffitt's, Inc.
James A. Coggin
President and Chief Operating Officer
Tom R. Amerman
Executive Vice President of
Special Projects
David W. Baker
Senior Vice President of Operations
Julia A. Bentley
Senior Vice President of Investor Relations and Planning
and Secretary
James E. Glasscock
Executive Vice President,
Chief Financial Officer,
and Treasurer
Brian J. Martin
Senior Vice President of
Human Resources and Law
General Counsel
Michael R. Molitor
Senior Vice President of
Merchandise Planning and Analysis
James E. VanNoy
Senior Vice President of
Systems Support
John J. White
Senior Vice President of Profit Improvement and Special
Projects
William L. White, III
Senior Vice President of
Systems Development
PROFFITT'S DIVISION OFFICERS
Frederick J. Mershad
President and Chief Executive Officer
A. Coleman Piper
Executive Vice President of Stores
Don M. Alexander
Vice President of Sales Promotion
Linda Kerr Gannaway
Vice President and
General Merchandise Manager
Max W. Jones
Vice President and
General Merchandise Manager
McRAE'S DIVISION OFFICERS
Gary L. Howard
President and Chief Executive Officer
Robert Oliver
Executive Vice President of Stores
Thomas M. Ford
Vice President of Sales Promotion
H. R. Harvey
Vice President and
General Merchandise Manager
Sharron Williams
Senior Vice President and
General Merchandise Manager
YOUNKERS DIVISION OFFICERS
Robert M. Mosco
President and Chief Executive Officer
Toni E. Browning
Senior Vice President of Stores
Robert H. Ferguson
Senior Vice President of Marketing and
Sales Promotion
Frank E. Kulp
Senior Vice President and
General Merchandise Manager
Alan E. Miller
Senior Vice President and General Merchandise Manager
John T. Parros
Senior Vice President and General Merchandise Manager
JoAnn R. Sauvageau
Senior Vice President and General Merchandise Manager
Our Corporate Mission
Our Company will provide opportunities for its associates and will
create value for its shareholders through the exceptional operation
of retail enterprises. Our stores will feature outstanding
assortments of premier merchandise and will delight our guests with
superior and personalized customer service. Our associates will
follow the highest level of ethical standards in conducting our
business affairs.
Corporate Information
Form 10-K Report
A copy of the Form 10-K Annual Report, including financial
statements and schedules, as filed with the Securities and Exchange
Commission, will be furnished without charge on written request to:
Senior Vice President of Investor Relations
Proffitt's, Inc.
P.O. Box 9388
Alcoa, Tennessee 37701
Legal Counsel
Sommer & Barnard, PC
Indianapolis, Indiana
Waring Cox
Memphis, Tennessee
Independent Accountants
Coopers & Lybrand L.L.P.
Atlanta, Georgia
Transfer Agent
and Registrar
Union Planters National Bank
Memphis, Tennessee
(901) 383-6980
PROFFITT'S DIVISION
HOME OFFICES
115 North Calderwood
Alcoa, Tennessee 37701
(423) 983-7000
PROFFITT'S DIVISION
MAILING ADDRESS
P.O. Box 9388
Alcoa, Tennessee 37701-9388
McRAE'S DIVISION
HOME OFFICES
3455 Highway 80 West
Jackson, Mississippi 39209
(601) 968-4400
McRAE'S DIVISION
MAILING ADDRESS
P.O. Box 20080
Jackson, Mississippi 39289-0080
YOUNKERS DIVISION
HOME OFFICES
701 Walnut Street
Des Moines, Iowa 50397
(515) 244-1112
YOUNKERS DIVISION
MAILING ADDRESS
P.O. Box 1495
Des Moines, Iowa 50397