FORM 10-Q EXHIBIT INDEX ON
PAGE 14
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Commission file number 0-22682
CARSON PIRIE SCOTT & CO.
(Exact name of registrant as specified in its charter)
ILLINOIS 37-0175980
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
331 West Wisconsin Avenue, Milwaukee, Wisconsin
53203
(Address of principal executive offices)
(Zip Code)
414-347-4141
(Registrant's telephone number, including area code)
____________________________________________
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports),and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
contribution of securities under a plan confirmed by a court.
Yes X No
Number of shares outstanding of each of the issuer's classes
of common stock, as of November 2, 1996:
Common Stock, $.01 par value 15,971,480 shares, exclusive of
21,555,068 shares held by
subsidiaries of the registrant
Page 1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Carson Pirie Scott & Co. and Subsidiaries
Consolidated Balance Sheets
As of November 2, 1996
(Unaudited)
(dollars in thousands)
November 2, February 3,
Assets 1996 1996
- -------------------- -------- -----------
Current Assets:
Cash and cash equivalents $ 20,103 44,384
Accounts receivable, net 237,364 232,257
Merchandise inventories 255,658 178,632
Marketable securities - 25,140
Other current assets 20,344 17,575
---------- ----------
Total current assets 533,469 497,988
Property, fixtures and
equipment, net 167,677 140,851
Net deferred tax assets 41,199 37,789
Other assets 11,847 15,474
--------- ----------
$ 754,192 692,102
========= ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current maturities of
long-term debt $ 2,809 3,081
Accounts payable 112,268 47,492
Accrued expenses 90,301 86,105
------- -------
Total current liabilities 205,378 136,678
Long-term debt,
less current maturities 189,540 192,705
Other liabilities 43,924 42,903
------- -------
Total liabilities 438,842 372,286
------- -------
Shareholders' equity:
Common stock 160 164
Paid-in capital 162,092 172,183
Unamortized stock compensation (237) (453)
Unrealized gain on investments 93 5,957
Retained earnings 153,242 141,965
------- -------
Total shareholders' equity 315,350 319,816
------- -------
$ 754,192 692,102
======= =======
See accompanying notes to consolidated financial statements.
Page 2
Carson Pirie Scott & Co. and Subsidiaries
Consolidated Statements of Operations
Three months ended November 2, 1996 and October 28, 1995
(Unaudited)
(dollars in thousands, except per share amounts)
Three months ended
-----------------------
November 2, October 28,
1996 1995
-------- ---------
Net sales $ 266,238 248,853
Cost of sales (168,565) (159,563)
Selling, general and
administrative expenses (80,661) (75,362)
Depreciation, amortization
and other (4,378) (2,866)
------- --------
Income from operations 12,634 11,062
Interest expense, net (4,072) (4,259)
Loss on investment (10,525) -
-------- --------
Income(loss) before income taxes (1,963) 6,803
Income tax benefit(expense) 774 (2,726)
-------- --------
Net income(loss) $ (1,189) 4,077
======== ========
Primary net income(loss)
per share $ (0.07) 0.24
======== ========
Weighted average number
of common and common
equivalent shares 16,044,165 16,729,534
=========== ===========
See accompanying notes to consolidated financial statements.
Page 3
Carson Pirie Scott & Co. and Subsidiaries
Consolidated Statements of Operations
Nine months ended November 2, 1996 and October 28, 1995
(Unaudited)
(dollars in thousands, except per share amounts)
Nine months ended
----------------------
November 2, October 28,
1996 1995
------ ---------
Net sales $ 727,992 718,960
Cost of sales (463,770) (469,770)
Selling, general and
administrative expenses (223,371) (213,691)
Depreciation, amortization
and other (12,576) (8,994)
Minnesota disposition gain - 55,000
------- --------
Income from operations 28,275 81,505
Interest expense, net (11,207) (12,978)
Gain on sale of
marketable securities 14,892 -
Loss on investment (10,525) -
Other expense (2,827) -
-------- --------
Income before income taxes 18,608 68,527
Income tax expense (7,331) (27,413)
-------- --------
Net income $ 11,277 41,114
======== ========
Primary net income
per share $ 0.67 2.37
======== ========
Weighted average number
of common and common
equivalent shares 16,720,097 17,378,172
=========== ===========
See accompanying notes to consolidated financial statements.
Page 4
Carson Pirie Scott & Co. and Subsidiaries
Consolidated Statements of Cash Flows
Nine months ended November 2, 1996 and October 28, 1995
(Unaudited)
(dollars in thousands)
Nine months ended
-----------------------
November 2, October 28,
1996 1995
------ ---------
Net cash provided by
operating activities $ 5,975 47,896
------ ------
Cash flows from investing activities:
Proceeds from sale of
marketable securities 31,094 5,000
Purchases of property
and equipment (38,614) (31,770)
Purchase of leasehold interests (4,369) -
Proceeds from disposition
of assets 603 70,801
------- -------
Net cash provided by(used in)
investing activities (11,286) 44,031
------- -------
Cash flows from financing activities:
Stock options exercised 718 303
Repurchases of common stock (11,069) (1,831)
Repayments of long-term
debt and other obligations (2,419) (2,002)
Net repayments under
receivables facility (1,212) (64,293)
Repayment of subordinated notes - (17,000)
Deferred financing costs (838) -
Termination of interest rate
floor agreements (4,150) -
------- -------
Net cash used by
financing activities (18,970) (84,823)
Cash flow effect of
reorganization activities:
Change in reorganization payables - (369)
------- -------
Net cash used by
reorganization activities - (369)
-------- -------
Net increase (decrease) in
cash and cash equivalents (24,281) 6,735
Cash and cash equivalents at
beginning of the period 44,384 30,244
------- -------
Cash and cash equivalents
at end of the period $ 20,103 36,979
======= =======
See accompanying notes to consolidated financial statements.
Page 5
Carson Pirie Scott & Co. and Subsidiaries
Notes to Consolidated Financial Statements
November 2, 1996
(Unaudited)
(1) The Company
Carson Pirie Scott & Co.("CPS") and its subsidiaries (together, the
"Company") operate 53 traditional department stores and four
furniture stores which are located in Illinois, Wisconsin,
Indiana and Minnesota.
(2) Opinion of Management
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments,
consisting of normal recurring accruals, considered necessary to
present fairly the Company's consolidated financial statements.
All intercompany balances and transactions have been
eliminated in consolidation. The accompanying consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto filed in
CPS's annual report on Form 10-K for the year ended
February 3, 1996.
The results of operations for the nine months ended November 2, 1996
are not necessarily indicative of the results to be expected for
the full year due to the seasonal nature of the Company's business.
(3) Marketable Securities
During the first quarter of 1996, the Company sold
1,026,550 shares of Proffitt's, Inc. ("Proffitt's") common stock
for $31.1 million and realized a gain of $14.9 million.
(4) Loss on Investment
The Company previously disclosed on a Form 8-K dated September 23, 1996
filed with the Securities and Exchange Commission that the Company has
written down to zero its entire interest in 9% Junior Subordinated
Debentures Due 2004 of County Seat Holdings, Inc. (the "County Seat
Debentures"), an affiliate of County Seat Stores, Inc. ("County Seat
Stores"). County Seat Holdings, Inc. and its affiliates filed for
bankruptcy protection on October 17, 1996.
The Company received the County Seat Debentures in 1993 when County Seat
Holdings, Inc. exercised its option to issue and exchange the County
Seat Debentures for other securities that had been issued to the Company
as part of the sale price for the Company's 1989 divestiture of County
Seat Stores to several members of County Seat Stores' management and
other investors.
Page 6
Carson Pirie Scott & Co. and Subsidiaries
Notes to Consolidated Financial Statements
November 2, 1996
(Unaudited)
(5) Other Expense
During the first quarter of 1996, the Company made a $2.5 million
cash contribution to the Carson Pirie Scott Foundation.
(6) New Store Acquisitions
In February 1996, the Company purchased a department store
located in Aurora, Illinois from The May Department Stores
Company. In March 1996, the Company purchased the leasehold
interests for two department stores located in Rockford, Illinois
from Younkers, Inc.
(7) Share Repurchases
During the nine months ended November 2, 1996, the Company repurchased
466,100 shares of its common stock for $11.1 million under its $20.0
million share repurchase program.
Page 7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial information, discussion, and analysis which follow
are based upon and should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto.
RESULTS OF OPERATIONS
Comparison of the three months ended November 2, 1996 and October 28,
1995
Net sales. Net sales were $266.2 million for the three months
ended November 2, 1996 as compared to $248.9 million for the three
months ended October 28, 1995, an increase of $17.3 million or 7.0%.
The net sales increase was due to a 3.5% increase in comparable store
sales and to the addition of four new stores. The Company opened
department store locations at the Cherryvale Mall located in Rockford,
Illinois in June 1996, and at the Fox Valley Mall located in Aurora,
Illinois in October 1996. Additionally, the Company opened freestanding
furniture stores located in Schaumburg, Illinois in January 1996 and in
Brookfield, Wisconsin in October 1996.
Gross margin. Gross margin was $97.7 million for the 1996 three-
month period versus $89.3 million for the 1995 three-month period,
an increase of $8.4 million or 9.4%. Gross margin as a percentage of
net sales was 36.7% for the 1996 three-month period compared to 35.9% in
the prior period. The increase in gross margin rate was primarily
attributable to an increased initial mark-up rate on goods sold without
an offsetting increase in markdown as a percent of sales.
Selling, general and administrative expenses. Selling, general
and administrative expenses were $80.7 million for the 1996
three-month period versus $75.4 million for the 1995 three-month
period, an increase of $5.3 million or 7.0%. The increase was primarily
due to expenses associated with the Company's four new stores. Selling,
general and administrative expenses as a percentage of sales were 30.3%
for the quarters ended November 2, 1996 and October 28, 1995. The
Company maintained its expense rate despite a $2.2 million preopening
charge for new stores during the third quarter of 1996. A reduction in
bad debt expense coupled with the control of expenses throughout the
Company offset the store preopening charge.
Depreciation, amortization and other. Depreciation, amortization
and other expense increased to $4.4 million for the three months
ended November 2, 1996 from $2.9 million for the three months ended
October 28, 1995. Depreciation expense rose $1.4 million for the
1996 period reflecting the increased carrying value of property,
fixtures and equipment due to the Company's capital expenditure
program.
Page 8
Interest expense, net. Interest expense, net decreased to $4.1 million
for the three-month period ended November 2, 1996 as compared to $4.3
million for the three-month period ended October 28, 1995. Interest
expense decreased versus the prior period because, during the third and
fourth quarters of fiscal 1995, the Company redeemed its 13% ten-year
subordinated notes. The notes were issued in March 1995 in the total
principal amount of $57 million. The savings due to the redemption of
the subordinated notes was largely offset by the absence of interest
income from the County Seat Debentures (which was recorded in the prior
year period) and the additional interest expense related to the funding
of capital requirements for the Company's four new stores.
Loss on investment. The Company recorded a loss of $10.5 million related
to the write-down of it's interest in 9% Junior Subordinated Exchange
Debentures Due 2004 of County Seat Holdings, Inc. (the "County Seat
Debentures"). The Company received the County Seat Debentures in 1993
when County Seat Holdings, Inc. exercised its option to exchange the
County Seat Debentures for other securities that had been issued to the
Company as part of the sale price for the Company's 1989 divestiture of
County Seat Stores, Inc. ("County Seat Stores") to a management led
buyout group.
Income tax benefit (expense). The Company recorded an income tax
benefit for the three months ended November 2, 1996 of $0.8 million.
This compared to income tax expense of $2.7 million for the three months
ended October 28,1995. The Company's resulting effective income tax
rates were 39.4% for the three months ended November 2, 1996 and 40.0%
for the three months ended October 28,1995.
Comparison of the nine months ended November 2, 1996 and October 28,
1995
Net sales. Net sales were $728.0 million for the nine months
ended November 2, 1996 as compared to $719.0 million for the nine
months ended October 28, 1995, an increase of $9.0 million or 1.3%.
The increase was due to the opening of four new stores, offset by the
Company's sale of eight of its nine Minnesota stores (the "Minnesota
Closed Stores") in March 1995. The Minnesota Closed Stores contributed
$25.0 million in clearance sales during 1995 that were absent in 1996.
On a comparable store basis, net sales for the period increased by 2.6%.
Gross margin. Gross margin was $264.2 million for the 1996 nine-
month period versus $249.2 million for the 1995 nine-month
period, an increase of $15.0 million or 6.0%. Gross margin as a
percentage of net sales was 36.3% for the 1996 nine-month period
compared to 34.7% for the prior period. Excluding the Minnesota Closed
Stores clearance sales, which did not contribute to gross margin in the
1995 period, the rate was 35.9%. The increase in gross margin rate was
primarily attributable to an increased initial mark-up rate on goods
sold without an offsetting increase in the markdown rate.
Page 9
Selling, general and administrative expenses. Selling, general
and administrative expenses were $223.4 million for the 1996
nine-month period versus $213.7 million for the 1995 nine-month
period, an increase of $9.7 million or 4.5%. The increase was primarily
due to expenses associated with new stores and lower finance charge
income. Selling, general and administrative expenses as a percentage of
sales were 30.7% and 30.8% (excluding the Minnesota Closed Stores
clearance sales) for the nine months ended November 2, 1996 and October
28, 1995, respectively. The Company improved its expense rate despite
charges for new stores primarily due to the control of expenses
throughout the Company.
Depreciation, amortization and other. Depreciation, amortization
and other expense increased to $12.6 million for the nine months
ended November 2, 1996 from $9.0 million for the nine months ended
October 28, 1995. Depreciation expense rose $3.3 million for the
1996 period reflecting the increased carrying value of property,
fixtures and equipment due to the Company's capital expenditure program.
Interest expense, net. Interest expense, net decreased to $11.2 million
for the nine-month period ended November 2, 1996 as compared to $13.0
million for the nine-month period ended October 28, 1995. The decrease
occurred because, during the third and fourth quarters of fiscal 1995,
the Company redeemed its 13% ten-year subordinated notes. The notes
were issued in March 1995 in the total principal amount of $57 million.
Gain on sale of marketable securities. During the nine months
ended November 2, 1996, the Company sold 1,026,550 shares of
Proffitt's common stock for $31.1 million and realized a gain of
$14.9 million.
Loss on investment. The Company recorded a loss of $10.5 million related
to the write-down of it's interest in the County Seat Debentures. The
Company received the County Seat Debentures in 1993 when County Seat
Holdings, Inc. exercised its option to exchange the County Seat
Debentures for other securities that had been issued to the Company as
part of the sale price for the Company's 1989 divestiture of County Seat
Stores to a management led buyout group.
Other expense. The Company made a $2.5 million cash contribution
to the Carson Pirie Scott Foundation during the nine months ended
November 2, 1996.
Income tax expense. Income tax expense for the nine months
ended November 2, 1996 and October 28, 1995 was $7.3 million and $27.4
million, respectively, resulting in effective income tax rates of
39.4% and 40.0%, respectively.
Page 10
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position on November 2, 1996
totaled $20.1 million and outstanding debt totaled $192.3 million,
resulting in a Net Debt position of $172.2 million. "Net Debt" is
outstanding debt net of cash and cash equivalents. The Company believes
Net Debt is a useful measure of its liquidity position given the
Company's ability to apply cash to its outstanding debt. For the nine
months ended November 2, 1996, Net Debt increased $20.8 million. The
increase was primarily due to expenditures under the Company's capital
expenditure program, its share repurchase program, and new store working
capital requirements. The increase was offset by the receipt of $31.1 million
from the sale of the Company's 1,026,550 shares of Proffitt's common stock.
Net cash provided by operations declined $41.9 million from $47.9 million in
he 1995 nine-month period, to $6.0 million in the 1996 nine-month period.
This decline was primarily due to the liquidation of working capital related
to the Minnesota Closed Stores during the 1995 period.
A subsidiary of the Company has the right to borrow, subject to
certain limitations, including compliance with certain
restrictive covenants, up to $216.0 million under a receivables
facility. As of November 2, 1996, borrowings under the receivables
facility totaled $142.8 million. The receivables facility
expires July 1998. In addition, the Company has the right to
borrow, subject to certain limitations, up to $150.0 million
under a working capital facility. The working capital facility
had outstanding letters of credit for $13.8 million as of November 2,
1996, which reduce availability. No cash borrowings were
outstanding under the working capital facility during the nine
months ended November 2, 1996. The working capital facility expires
in May 1999.
During the nine months ended November 2, 1996, the Company repurchased
466,100 shares of its common stock for $11.1 million under its $20.0
million share repurchase program.
In fiscal 1996, the Company anticipates spending $60 million for
capital expenditures which will be allocated as follows: store
programs of $26 million, new store acquisitions and renovations
of $25 million, technology programs of $4 million and other
programs of $5 million. Store programs include the completion of
five store renovations.
As of February 3, 1996, the Company had federal and state net
operating loss (NOL) carryforwards of approximately $138 million.
Although subject to limitation, the future utilization of the NOL
carryforwards and other tax benefits will enable the Company to
reduce its cash requirements for income tax payments in the next
several fiscal years from that which would otherwise be payable.
Page 11
The Company believes that it will have sufficient funds available
from cash on hand, cash from operations, the receivables facility
and the working capital facility to satisfy the Company's needs
for working capital, planned capital expenditures, debt service
and operations during the next several fiscal years. However,
the Company can give no assurance that the Company's future
operating performance, net sales and cash flows, all of which are
subject to financial, general and regional economic, competitive
and other factors affecting the Company, many of which are beyond
its control, will be adequate to generate sufficient funds to
meet the Company's needs during the next several fiscal years.
SEASONALITY AND INFLATION
The Company's business is seasonal in nature with a high
proportion of sales and net income generated in November and
December. Over the last several years, the Company's customers
have demonstrated an inclination to buy closer to the time of
need. In response, the Company has been adjusting the flow of
merchandise to better anticipate customer buying patterns.
Working capital requirements fluctuate during the year,
increasing somewhat in mid-summer in anticipation of the fall
merchandising season and increasing substantially prior to the
Christmas season when the Company must carry significantly higher
inventory levels. Inflationary pressures on the cost of
merchandise inventory and operating expenses have been low, and
historically, have been offset by a combination of
comparable-store sales increases and improved productivity.
Page 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
See Exhibit Index on page 14 of this Quarterly
Report on Form 10-Q.
(b) Reports on Form 8-K
-------------------
The following reports on Forms 8-K were filed on the dates
indicated below during the quarter ended November 2, 1996:
August 28, 1996 Reported under Item 5 the Company's earnings and
sales for the second quarter.
September 23, 1996 Reported under Item 5 the Company's $10.5
million write-down of it's interest in 9% Junior
Subordinated Exchange Debentures Due 2004 of
County Seat Holdings, Inc.
October 17, 1996 Reported under Item 5 that the United States
District Court for the Eastern District of
Wisconsin affirmed in all respects the
Bankruptcy Court's decision granting the
Company's motion for summary judgment in the
amount of $37,565,000, plus costs against Bank
One, Milwaukee, NA in the case of P.A. BERGNER &
CO. V. BANK ONE MILWAUKEE, NA (Case No.
95-C-1087).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunder duly authorized.
Date: December 16, 1996
Carson Pirie Scott & Co.
/s/ David J. Biese
----------------------------
David J. Biese
Controller (chief accounting officer
and authorized officer)
Page 13
EXHIBIT INDEX
Copies of documents listed below which are identified with an
asterisk (*)have previously been filed with the Securities and
Exchange Commission (the Commission) as exhibits to registration
statements or reports filed with the Commission and are
incorporated into this Quarterly Report on Form 10-Q by
reference and made a part hereof. The exhibit number and the
file number of each document previously filed and incorporated
into this Quarterly Report on Form 10-Q by reference are set
forth below. Exhibits not identified with an asterisk are filed
with this Quarterly Report on Form 10-Q.
Exhibit Sequential Page
Number Description Numbers
- --------- --------------- --------------
11.1 Computation of 15
Per Share Earnings.
27 Financial Data Schedule. 17
Page 14