FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended July 29, 1995
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
For Quarter Ended: July 29, 1995
Commission File Number: 0-15907
Exact name of registrant as specified in its charter:
PROFFITT'S, INC.
State of Incorporation: Tennessee
I.R.S. Employer Identification Number: 62-0331040
Address of Principal Executive Offices (including zip code):
P.O. Box 9388, Alcoa, Tennessee 37701
Registrant's telephone number, including area code:
(615) 983-7000
Indicate by check mark whether Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.10 Par Value -- 10,229,655 shares as of July 29,
1995
PROFFITT'S, INC.
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets --
July 29, 1995, January 28, 1995, and
July 30, 1994 2
Condensed Consolidated Statements of Income --
Three Months Ended July 29, 1995 and July 30, 1994 3
Condensed Consolidated Statements of Cash Flows --
Six Months Ended July 29, 1995 and July 30, 1994 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
JULY 29, JANUARY 28, JULY 30,
1995 1995 1994
(UNAUDITED) (AUDITED) (UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 1,108 $ 1,133 $ 1,086
Net trade accounts receivable, less
receivables sold to third party 14,536 2,701 6,610
Merchandise inventories 172,755 162,080 170,629
Other current assets 17,064 13,646 19,209
--------- --------- ---------
Total current assets 205,463 179,560 197,534
Property and equipment, net 311,820 300,285 292,745
Goodwill 50,443 44,624 45,420
Other assets 16,300 15,586 15,052
--------- --------- ---------
$ 584,026 $ 540,055 $ 550,751
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 43,853 $ 34,587 $ 51,511
Other accrued liabilities 26,252 26,565 25,040
Current portion of long-term debt
and capital lease obligations 15,268 15,269 17,585
--------- --------- ---------
Total current liabilities 85,373 76,421 94,136
Real estate and mortgage notes 63,039 64,726 69,558
Notes payable 75,493 49,376 54,759
Capital lease obligations 11,083 11,319 11,532
Deferred income taxes 57,117 54,830 52,085
Other long-term liabilities 3,154 2,438 1,497
Subordinated debentures 100,384 100,269 100,160
Shareholders' equity 188,383 180,676 167,024
--------- --------- ---------
$ 584,026 $ 540,055 $ 550,751
========= ========= =========
See notes to condensed consolidated financial statements.
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 29, JULY 30, JULY 29, JULY 30,
1995 1994 1995 1994
Net sales $ 148,689 $ 142,365 $ 309,110 $ 228,484
Costs and expenses:
Cost of sales 94,488 93,753 196,750 151,946
Selling, general, and
administrative expenses 39,534 35,978 80,232 56,081
Other operating expenses 11,581 11,020 23,531 18,403
--------- -------- ---------- --------
Operating income 3,086 1,614 8,597 2,054
Other income (expense):
Finance charge income, net of
allocation to purchaser of
accounts receivable 3,678 3,885 7,294 6,487
Interest expense (4,789) (4,264) (9,570) (6,919)
Other income (expense), net (12) 247 342 565
---------- --------- --------- --------
Income before provision for
income taxes 1,983 1,482 6,663 2,187
Provision for income taxes 879 671 2,777 976
---------- --------- --------- --------
NET INCOME 1,804 811 3,886 1,211
Preferred stock dividends 487 537 975 718
---------- --------- --------- --------
Net income available to
common shareholders $ 597 $ 274 $ 2,911 $ 493
========= ========= ========= ========
Earnings per common share $ 0.06 $ 0.03 $ 0.28 $ 0.05
========= ========= ========= ========
Weighted average common shares 10,434 9,924 10,297 9,759
========= ========= ========= ========
Note/Earnings per common share amounts are based on the weighted
average number of shares of common stock and dilutive common stock
equivalents (employee stock options) outstanding during each period,
after recognition of preferred stock dividends.
See notes to condensed consolidated financial statements.
PROFFITT'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
SIX MONTHS ENDED
JULY 29, JULY 30,
1995 1994
OPERATING ACTIVITIES
Net income $ 3,886 $ 1,211
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 9,635 7,987
Changes in operating assets and liabilities, net (7,451) 70,723
--------- --------
Net cash provided by operating
activities 6,070 79,921
INVESTING ACTIVITIES
Purchases of property and equipment, net (13,526) (6,855)
Acquisition of Parks-Belk Company (10,422)
Acquisition of Macco Investments, Inc. (199,140)
--------- --------
Net cash used in investing activities (23,948) (205,995)
FINANCING ACTIVITIES
Payments on long-term debt and capital lease
obligations (5,672) (29,731)
Proceeds from long-term borrowings 24,500 112,640
Proceeds from issuance of stock 29,121
Dividends paid to preferred shareholders (975) (70)
--------- --------
Net cash provided by financing activities 17,853 111,960
Decrease in cash and cash equivalents (25) (14,114)
Cash and cash equivalents at beginning
of period 1,133 15,200
--------- --------
Cash and cash equivalents at end of period $ 1,108 $ 1,086
========= ========
Cash paid during the six months ended July 29, 1995 for interest and
income taxes totaled $9,089 and $3,767, respectively.
Cash paid during the six months ended July 30, 1994 for interest and
income taxes totaled $5,646 and $8,721, respectively.
In July 1994, the Company redeemed and converted 32,962 shares of
Series B Preferred Stock into 156,213 shares of Company Common Stock.
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of the
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and six
month periods ended July 29, 1995 are not necessarily indicative
of the results that may be expected for the year ending February
3, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended January
28, 1995.
The balance sheet at January 28, 1995 has been derived from the
audited financial statements at that date.
NOTE B -- ACQUISITIONS
On March 31, 1994, Proffitt's, Inc. acquired all of the common
stock of Macco Investments, Inc., a privately held corporation
and the parent company of McRae's, Inc. The total acquisition
price of approximately $212 million consisted of a cash payment
of $176 million and the issuance of (i) 436,200 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) 32,962 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, Proffitt's,
Inc. purchased four regional mall stores owned by McRae family
partnerships and leased to McRae's for $18.5 million.
McRae's was a privately-owned regional specialty department store
company, offering moderate to upper-moderate brand name and
private label fashion apparel, shoes, accessories, cosmetics, and
home furnishings. McRae's operates 28 department stores in
Mississippi, Alabama, Louisiana, and Florida. Proffitt's, Inc.
now operates two divisions: the Proffitt's Stores Division and
the McRae's Stores Division.
The excess of the cost of acquiring McRae's over the fair value
of the acquired tangible assets is presented in the financial
statements as Goodwill. Amortization of goodwill is provided on
a straight-line basis over forty years.
The following unaudited pro forma summary presents the
consolidated results of operations as if the acquisition had
occurred at the beginning of the period presented and do not
purport to be indicative of what would have occurred had the
acquisition been made as of this date or of results which may
occur in the future.
Six Months Ended
July 30,
1994
(in thousands, except per share amounts)
Net sales $291,526
Net income $ 2,992
Earnings per common share $ .19
On March 7, 1995, the Company acquired a majority interest
(50.1%) of Parks-Belk Company, the owner and operator of four
department stores in northeast Tennessee. On April 12, 1995, the
Company completed the purchase of the remaining interest of
Parks-Belk. 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). Goodwill has
been recorded on the Parks-Belk acquisition and is being
amortized on a straight-line basis over thirty years. On June 18,
1995, the Parks-Belk locations in Johnson City, Kingsport, and
Greeneville, Tennessee were converted into Proffitt's stores, and
the Parks-Belk store in Morristown, Tennessee was permanently
closed. These locations operated as Parks-Belk stores within the
Proffitt's Division until June 18, 1995.
NOTE C -- INCOME TAXES
The difference between the actual income tax expense and the
amount expected by applying the statutory federal income tax rate
is due to the inclusion of state income taxes and to the
amortization of goodwill, which is not deductible for income tax
purposes.
The deferred income tax liability reflects the impact of
temporary differences between values recorded for assets and
liabilities for financial reporting purposes and values utilized
for measurement in accordance with tax laws. The major component
of the liability results from the allocation of the purchase
price to the assets and liabilities related to the McRae's
acquisition.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Accounts receivable, inventory, accounts payable, and notes
payable balances fluctuate throughout the year due to the
seasonal nature of the retail industry. A portion of the
increases over year-end and prior year balances in these accounts
is attributable to the acquisition of Parks-Belk.
July 29, 1995 property and equipment balances increased over
January 28, 1995 and July 30, 1994 balances primarily due to the
acquisition and renovation of Parks-Belk stores, construction of
a relocated McRae's store, other store renovations, and
information system enhancements.
July 29, 1995 total indebtedness increased compared to year-end
balances primarily due to indebtedness incurred and assumed
related to the Parks-Belk acquisition.
July 29, 1995 shareholders' equity has increased over January 28,
1995 and July 30, 1994 primarily due to the issuance of common
stock in conjunction with the Parks-Belk transaction and net
earnings.
RESULTS OF OPERATIONS
The results of operations for the six months ended July 30, 1994
include operations from the Proffitt's Division for the entire
period and results from the McRae's Division subsequent to March
31, 1994. The results of operations for the six months ended
July 29, 1995 include the combined operations from both divisions
for the entire period. The operations of the Parks-Belk stores
subsequent to its acquisition have been included in the Company's
results for the six months ended July 29, 1995. The Company
currently operates its McRae's Division with 28 department stores
and one home furnishings specialty store and its Proffitt's
Division with 26 department stores.
The following table shows, for the periods indicated, certain
items from the Company's Condensed Consolidated Statements of
Income expressed as percentages of net sales.
THREE MONTHS ENDED SIX MONTHS ENDED
7/29/95 7/30/94 7/29/95 7/30/94
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 63.5 65.9 63.7 66.5
Selling, gen., & admin.
exp. 26.6 25.3 26.0 24.5
Other operating expenses 7.8 7.7 7.7 8.1
Operating income 2.1 1.1 2.6 0.9
Other income (expense):
Finance charge income,
net of allocation
to purchaser of
accounts receivable 2.4 2.7 2.4 2.8
Interest expense (3.2) (3.0) (3.0) (3.0)
Other income (expense),
net 0.0 0.2 0.2 0.2
Income before provision
for income taxes 1.3 1.0 2.2 0.9
Provision for income taxes 0.6 0.4 0.9 0.4
NET INCOME 0.7% 0.6% 1.3% 0.5%
===== ===== ==== ====
Total net sales for the three months ended July 29, 1995
increased 4% to $148.7 million from $142.4 million in the prior
year. Comparable store sales increased 2% for the quarter.
Revenues for the McRae's Division were $90.6 million, a decrease
of 2% over last year. The Proffitt's Division sales, including
revenues of $3.7 million generated from the Parks-Belk stores,
were $58.1 million for the quarter, up 16% from last year. For
the quarter, comparable store sales decreased 1% for the McRae's
Division and increased 7% for the Proffitt's Division. Sales for
the quarter were negatively affected by extraordinarily hot
weather that slowed store traffic in the Company's markets,
particularly in the month of July. In addition, the Company
owned less clearance merchandise than one year ago which affected
sales.
Total net sales for the six months ended July 29, 1995 increased
35% to $309.1 million from $228.5 million recorded last year.
First half comparable store sales increased 3% over the prior
year. Revenues for the McRae's Division totaled $194.4 million,
up 1% over last year on both a total and comparable stores basis.
Sales for the Proffitt's Division were $114.8 million (including
$7.6 million from the Parks-Belk stores), a 15% increase over the
prior year. On a comparable stores basis, sales for the
Proffitt's Division increased 7% for the first half.
Cost of sales as a percent of net sales decreased 2.4% and 2.8%
for the three and six months ended July 29, 1995, respectively,
as compared to the same prior year period primarily due to
improved inventory control and lower merchandise markdowns. Cost
of sales as a percent of net sales for the three and six months
ended July 30, 1994 was higher than normal due to excessive
inventory markdowns needed to clear aged merchandise at the
Proffitt's Division. These markdowns resulted from overstocking
new store locations in 1993 and weakness in women's apparel sales
in fall 1993.
Selling, general, and administrative expenses as a percent of net
sales increased 1.3% and 1.5% for the three and six months ended
July 29, 1995, respectively, from last year. Total selling,
general, and administrative expenses increased 43% for the six
months ended July 29, 1995 over last year, to $80.2 million,
primarily due to additional overhead and other expenses required
to operate the expanded store base. The Company consolidated
certain administrative support areas for the Proffitt's and
McRae's Divisions (accounting, credit, and management information
systems) during the second quarter of 1995. The Company
anticipates future leverage of selling, general, and
administrative expenses due to these consolidations, increased
sales volume, and expense control efforts.
Other operating expenses as a percentage of net sales decreased
0.4% for the six month period over last year primarily due to
leverage generated from a larger sales base.
Net finance charge income, as a percent of net sales, was down
0.3% and 0.4% for the three and six months ended July 29, 1995,
respectively, from last year primarily due to the allocation to
the third party purchaser of accounts receivable of finance
charges. For the quarter, the allocation was $2.1 million, or
1.4% of net sales, compared to $1.5 million, or 1.0% of net
sales, last year. For the first half, the allocation was $4.3
million, or 1.4% of net sales, compared to $1.9 million, or 0.8%
of net sales, last year. Gross finance charge income (before
allocation to third party), as a percent of net sales, remained
fairly level for the three and six month period over last year.
Interest expense as a percent of net sales was relatively flat
for the three and six months ended July 29, 1995 as compared to
the same prior year period. Total interest expense increased 38%
for the six months ended July 29, 1995 over last year, to $9.6
million, primarily due to higher borrowings associated with the
McRae's and Parks-Belk acquisitions and higher interest rates.
Net income for the three months ended July 29, 1995 totaled $1.1
million, or $.06 per share, as compared to net earnings for the
three months ended July 30, 1994 of $.8 million, or $.03 per
share. Net income for the six months ended July 29, 1995 was
$3.9 million, or $.28 per share, as compared to net earnings for
the six months ended July 30, 1994 of $1.2 million, or $.05 per
share. The increase in earnings primarily was due to enhanced
gross margin performance.
PROFFITT'S, INC.
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Shareholders of the Company was
held on June 15, 1995. 82.2%, or 8,403,671 shares of the
10,218,624 shares of common stock entitled to vote, were
represented in person or by proxy. The matters submitted to a
vote of the shareholders and the vote on these matters were as
follows:
1) All nominees for Directors listed in the proxy statement were
elected to hold office until the next Annual Meeting of the
Shareholders. Shareholders holding at least 8,354,104 shares
voted for, shareholders holding no more than 42,960 shares voted
against, and shareholders holding no more than 6,607 shares
abstained from the vote.
2) Adoption of Proffitt's, Inc. 1994 Employee Stock Purchase
Plan.
For - 8,308,034 Against - 7,925 Abstain - 14,800
3) Special Meeting Proposal amending the Company's Charter to
require the demand of at least 25% of all votes entitled to be
cast on an issue in order to call a special meeting of the
shareholders.
For - 4,542,466 Against - 2,722,126 Abstain - 15,840
4) Ratification of Appointment of Independent Accountants
(Coopers & Lybrand L.L.P.) for the fiscal year ending February 3,
1996.
For - 8,397,514 Against - 3,095 Abstain - 3,062
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Articles of Amendment to the Charter of
Proffitt's, Inc., designating the maximum number
of shares of all classes of stock which the
corporation shall have the authority to issue
3.2 Articles of Amendment to the Charter of
Proffitt's, Inc., designating special meeting of
shareholders
3.3 Amended and Restated Bylaws of Proffitt's, Inc.
11.1 Statement re: Computation of Earnings per Common
Share
27 Financial Data Schedule
(b) Form 8-K Reports -- None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PROFFITT'S, INC.
-----------------------------------
Registrant
September 8, 1995
-----------------------------------
Date
/s/ James E. Glasscock
-----------------------------------
James E. Glasscock
Executive Vice President, Chief
Financial Officer, and Treasurer