-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K9ahgrKsBaKloJzjESvTYOoIlci+Rp1xhfQGUktMXQaduyIqkG7f6gG5ZwiE+q6m tXNZUyaOT9ITXArc6+3Dlg== 0000906555-96-000067.txt : 19970102 0000906555-96-000067.hdr.sgml : 19970102 ACCESSION NUMBER: 0000906555-96-000067 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960203 FILED AS OF DATE: 19961231 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFFITTS INC CENTRAL INDEX KEY: 0000812900 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 620331040 STATE OF INCORPORATION: TN FISCAL YEAR END: 0203 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-15907 FILM NUMBER: 96688725 BUSINESS ADDRESS: STREET 1: 115 NORTH CALDERWOOD CITY: ALCOA STATE: TN ZIP: 37701 BUSINESS PHONE: 6159837000 MAIL ADDRESS: STREET 1: P.O. BOX 9388 CITY: ALCOA STATE: TN ZIP: 37701 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 2 FORM 10-K/A (Mark One) (X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Fiscal Year Ended: February 3, 1996 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ 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: (423) 983-7000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.10 and PREFERRED STOCK PURCHASE RIGHTS Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and 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 ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part II of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting stock held by non- affiliates of the Registrant as of March 22, 1996 was approximately $532,150,352. As of March 22, 1996, the number of shares of the Registrant's Common Stock outstanding was 19,210,024. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Proffitt's, Inc. Annual Report to Shareholders for the Fiscal Year Ended February 3, 1996 are incorporated by reference into Part II. (2) Portions of the Proffitt's, Inc. Proxy Statement dated May 1, 1996 for the Annual Shareholders' Meeting to be held on June 19, 1996 are incorporated by reference into Part III. The Exhibit Index is on page of this document. Item 8. Financial Statements and Supplemental Data 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 22,237 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. The implementation of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" had no impact on the recorded amount of goodwill. 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 $14,263 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 ============ Note R - Hostile Takeover Defense In 1995, prior to Proffitt's and Younkers' merger, Younkers was subjected to a hostile takeover by Carson Pirie Scott. In defending itself against the takeover, Younkers incurred legal fees and investment banker advisory fees aggregating $3,182. 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. Proffitt's, Inc. _______________________________ Registrant Date: December 31, 1996 /s/ Douglas Coltharp ________________________________ Douglas Coltharp Executive Vice President and Chief Financial Officer Exhibit Index Exhibit No. Description 23 Consent of Independent Auditors EX-23.1 2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement of Proffitt's, Inc. on Form S-8 of our report dated March 15, 1996, on our audits of the consolidated financial statements of Proffitt's, Inc. as of February 3, 1996 and January 28, 1995, and for each of the three years in the period ended February 3, 1996, and our report dated March 15, 1996 on our audit of the financial statement schedule listed in Item 14(a)2 of Form 10-K, which reports are incorporated by reference in this Form 10-K. /s/COOPERS & LYBRAND L.L.P. Atlanta, Georgia December 30, 1996 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statement No. 33-88390 of Proffitt's, Inc. on Form S-8 of our report dated March 3, 1995, with respect to the consolidated financial statements of Younkers, Inc. and subsidiary for the year ended January 28, 1995 not separately presented, appearing in this Annual Report of Form 10-K of Proffitt's, Inc. for year ended February 3, 1996. /s/Deloitte & Touche LLP Des Moines, Iowa December 30, 1996 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement of Proffitt's, Inc. (Form S-8 No. 33-88390) pertaining to the Proffitt's, Inc. 1994 Employee Stock Purchase Plan of our report dated March 3, 1994 (with respect to the consolidated statements of earnings, shareholders' equity, and cash flows of Younkers, Inc. for the year ended January 29, 1994, not separately presented), appearing in the Annual Report (Form 10-K) of Proffitt's, Inc. for the year ended February 3, 1996. /s/ERNST & YOUNG LLP Des Moines, Iowa December 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----