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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
___
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1994
___
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3339
MERCANTILE STORES COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0032941
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
9450 Seward Road Fairfield, Ohio 45014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 881-8000
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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
36,844,050 shares of Common Stock at $.14 2/3 par value
as of June 13, 1994
Total number of sequentially number pages in this filing, including
exhibits thereto: 11
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<PAGE>
MERCANTILE STORES COMPANY, INC.
AND SUBSIDIARY COMPANIES
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
April 30, 1994 and January 29, 1994 3
Consolidated Condensed Statements of
Income - For the thirteen weeks
ended April 30, 1994 and May 1, 1993 4
Consolidated Condensed Statements of
Cash Flows - For the thirteen weeks
ended April 30, 1994 and May 1, 1993 5
Notes to Consolidated Condensed Financial
Statements 6 - 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 10
PART II - OTHER INFORMATION 11
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<PAGE>
<TABLE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
April 30, January 29,
1994 1994
---------- -----------
Assets
- - ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 162,413 $ 194,544
Receivables:
Customer 571,408 587,859
Other 31,035 47,255
Inventories 494,617 425,492
Deferred income taxes 4,634 5,875
Other current assets 8,455 8,120
---------- ----------
Total Current Assets 1,272,562 1,269,145
---------- ----------
Investments & Other Noncurrent Assets 64,770 61,136
---------- ----------
Deferred Income Taxes 12,987 10,199
---------- ----------
Property and Equipment, net 685,310 691,502
---------- ----------
Total Assets $2,035,629 $2,031,982
========== ==========
Liabilities and Stockholders' Equity
- - ------------------------------------
Current Liabilities:
Accounts payable $ 138,322 $ 116,116
Notes payable and current maturities
of long-term debt 114,385 115,487
Accrued income taxes 18,718 41,035
Taxes other than income 21,355 16,182
Accrued payroll 16,785 20,612
Other current liabilities 74,239 57,452
---------- ----------
Total Current Liabilities 383,804 366,884
---------- ----------
Long-term Debt 268,995 271,965
---------- ----------
Due to Affiliated Companies 26,512 26,713
---------- ----------
Other Long-term Liabilities 32,489 31,712
---------- ----------
Stockholders' Equity 1,323,829 1,334,708
---------- ----------
Total Liabilities &
Stockholders' Equity $2,035,629 $2,031,982
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
Thirteen Weeks Ended
April 30, May 1,
1994 1993
--------- ------
<S> <C> <C>
Net Sales (including sales
from leased departments) $ 592,509 $ 572,345
Cost of Goods Sold
(including occupancy and
central buying expenses) 421,380 401,681
--------- ---------
Gross Profit 171,129 170,664
Expenses and Other Income:
Selling, general and
administrative expenses 150,719 151,220
Provision for divisional
consolidation 5,000 -
Interest expense, net 7,173 7,783
Other income (6,687) (7,069)
---------- ----------
156,205 151,934
---------- ----------
Income before Income Taxes 14,924 18,730
Provision for Income taxes 5,920 7,254
--------- ----------
Income before Cumulative
Effect of Accounting Changes 9,004 11,476
Cumulative Effect of
Accounting Changes
Postemployment benefits
(net of income taxes
of $700) (1,100) -
Income taxes - 3,100
--------- ----------
Net Income $ 7,904 $ 14,576
========= ==========
Net Income Per Share
(based on 36,844,050 shares
outstanding)
Income before cumulative Effect
Of Accounting Changes $ .24 $ .31
Cumulative effect of accounting
changes:
Postemployment benefits (.03) -
Income taxes - .09
--------- ---------
Net Income Per Share $ .21 $ .40
======== =========
Dividends Paid Per Share $ .25-1/2 $ .25-1/2
=========== ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Thirteen Weeks Ended
April 30, May 1,
1994 1993
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 7,904 $ 14,576
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 22,227 22,899
Deferred income taxes (847) (195)
Equity in unremitted earnings
of affiliated companies (106) 178
Provision for divisional consolidation 5,000 -
Postretirement benefits costs 200 600
Cumulative effect of accounting
changes, net of taxes 1,100 (3,100)
Net pension benefit (3,912) (3,447)
Change in inventories (69,125) (93,761)
Change in accounts receivable 32,671 55,839
Change in accounts payable 22,206 18,124
Net change in other working capital items (17,911) (22,340)
---------- ---------
Net cash used in operating
activities (593) (10,627)
Cash Flows From Investing Activities:
Cash payments for property and
equipment (16,035) (15,347)
Net decrease in other noncurrent
assets and liabilities (2,036) (854)
--------- --------
Net cash used in investing
activities (18,071) (16,201)
Cash Flows From Financing Activities:
Payments of notes payable and long-term debt (4,072) (21,520)
Dividends paid (9,395) (9,395)
--------- ---------
Net cash used in financing
activities (13,467) (30,915)
Net decrease in
cash and cash equivalents (32,131) (57,743)
Beginning cash and cash equivalents 194,544 217,244
--------- ----------
Ending cash and cash equivalents $ 162,413 $ 159,501
=========== ==========
Supplemental Cash Flow Information:
Interest paid $ 12,558 $ 13,123
Income taxes paid $ 25,555 $ 20,217
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
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MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
1. Accounting Policies
The consolidated condensed financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission with respect to
Form 10-Q. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures made herein are adequate to make the information not
misleading. It is suggested that these consolidated condensed
financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest
annual report on Form 10-K.
Interim statements are subject to possible adjustments in connection
with the annual audit of the Company's accounts for the full fiscal
year 1994; in the Company's opinion, all adjustments (consisting only
of normal recurring adjustments) necessary for fair statement
presentation have been included.
Because of seasonality, the results of operations for the periods
presented are not necessarily indicative of the results expected for
the year ending January 28, 1995.
2. Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform with current year presentation.
3. Merchandise Inventories
Substantially all retail inventories are valued by the retail method
and stated on the last-in, first-out (LIFO) basis which is lower than
market. Since amounts for inventories under the LIFO method are based
on an annual determination of quantities and costs, the inventories at
interim periods are based on certain estimates relating to quantities
as of the fiscal year-end.
(Continued)
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MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Continued)
4. Short-term Investments
For purposes of these statements, short-term investments which have a
maturity of ninety days or less are considered cash equivalents.
5. Provision for Consolidation
During the first quarter of 1994, the Company recorded a $5.0 million
charge for the consolidation of the Joslins division, centered in
Denver, Colorado, with the Jones Store Company division, headquartered
in Kansas City, Missouri. The provision was made to cover severance
pay for the displacement of approximately 175 associates, early
retirement costs for certain qualifying associates and relocation
costs. The consolidation of these operations was substantially
completed during the first quarter.
6. Accounting Changes
During the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." This statement requires employers to
recognize, on an accrual basis, the obligation for postemployment
benefits provided to former or inactive employees after employment but
before retirement. The cumulative effect of this accounting change
resulted in a charge to net income of $1.1 million, or $.03 per share.
During the first quarter of 1993, the Company adopted Statement of
Financial Accounting standards No. 109 (SFAS No. 109), "Accounting for
Income Taxes." This Statement requires deferred tax recognition for
all temporary differences in accordance with the liability method and
requires adjustment of deferred tax assets and liabilities for enacted
changes in tax laws and rates. The cumulative effect of this
accounting change resulted in a credit to net income of $3.1 million,
or $.09 per share.
(Continued)
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MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Material Changes in Financial Condition From January 29, 1994 to April 30,
1994
The retail business is highly seasonal with approximately one-third of
annual sales being generated in the fourth quarter which encompasses the
important Christmas selling season. As a result, significant variations
can occur when comparing financial condition at year-end to the first
quarter results.
The decrease in cash and cash equivalents of $32.1 million during the
quarter is represented, primarily, by seasonal net fluctuations in
receivables, inventories and accounts payable, which are normal in the
retail business.
The accounts receivables decrease of $32.7 million during the quarter,
reflects a reduction in both customer accounts receivables and other
receivables.
Total customer accounts receivable decreased $16.5 million as a result of
a $40.9 million pay down of peak, post Christmas year-end balances in the
Company's private label program (other than Maison Blanche (MB)). This
decrease was partially offset by an increase of $24.4 million related to
the termination of the MB Credit Program. Under this program, the
Company sold MB customer accounts to an unaffiliated company. By the end
of the first quarter of 1994, the termination process was substantially
completed and all MB customer receivables are now reflected on the books
of the Company.
The decrease of $16.2 million in other receivables is directly attributable
to the contractual arrangement with Citibank under which the Company's
share of finance charge income is remitted by the bank in the first quarter
of the ensuing year.
The $69.1 million increase in inventories is primarily attributable to the
normal replenishment of inventory levels following the Christmas
promotional and January clearance periods. The $22.1 million increase in
accounts payable is also attributable to the normal replenishment of
inventory levels.
Accrued income taxes declined $22.3 million. This decline is attributable
to payments of federal and state taxes on prior year income, partially
offset by provision for taxes on current year income.
There have been no material changes in the Company capital expenditure
requirements as outlined in the 1993 Annual Report.
The Company satisfies its short-term financing needs primarily through
internally generated funds. In addition, the Company has available a $175
million revolving credit facility and other discretionary lines of credit
which total $60 million. At January 29, 1994 and April 30, 1994, no
balances were outstanding under these lines of credit. The Company
maintained significant cash balances throughout the first quarter and it
was not necessary to use these lines of credit in the period.
(Continued)
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MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Material Changes in the Results of Operations For the First Quarter of 1994
Compared to the First Quarter of 1993
Net sales increased by 3.5% to $592.5 million over the previous year's
first quarter. Sales in comparable units increased 1.1% during the period.
While this represented an improvement over recent sales trends, it still
reflects a somewhat difficult retail environment.
Cost of goods sold, as a percent to net sales, increased from 70.2% to
71.1%, as competitive pressures negatively impacted merchandise margins and
resulted in a .4% increase in markdowns.
Selling, general and administrative expenses decreased, as a percent to net
sales, to 25.4% from 26.4% reflecting benefits achieved from expense
control initiatives undertaken during the second half of 1993. Payroll and
payroll related expenses accounted for approximately 40% of this improvement
with marketing and supply expense reductions representing most of the
remainder.
During the quarter, the Company recorded a $5.0 million provision for the
consolidation of the Joslins division, centered in Denver, Colorado, with
the Jones Store Company division, headquartered in Kansas City, Missouri.
The provision was made to cover severance pay for the displacement of
approximately 175 associates, early retirement costs for certain qualifying
associates and relocation costs. The consolidation of these operations was
substantially completed during the first quarter. As a result of this
consolidation, the Company expects to save approximately $3 million
annually, primarily through a reduction in payroll and payroll related
expenses.
Interest expense decreased, as a percent to net sales, to 1.2% from 1.4%.
The decline in interest expenses was due primarily to the prepayments of
$19 million of mortgage notes at the end of last year's first quarter.
Other income was $6.7 million for the quarter. The primary elements of
this caption are the Company's share of finance charge income from the
private label credit program (other than MB) which it shares under the
terms of a service agreement with Citibank, finance charge income earned on
the MB credit program, and the Company's share of joint venture income.
The slight decline recorded in this line item during the quarter was due to
reduced levels of finance charge income attributable to
lower levels of customer accounts receivable.
The Company's effective tax rate increased from 38.7% to 39.7% during the
current quarter. This reflects the mandatory increase in the U.S.
statutory Federal income tax rate from 34% to 35% enacted in August
of 1993.
(Continued)
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MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
During the quarter, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The cumulative effect of this
change resulted in an after tax charge to net income of $1.1 million, or
$.03 per share.
During the first quarter of 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." The cumulative effect of this accounting
change resulted in a one-time credit to net income of $3.1 million, or $.09
per share.
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PART II - OTHER INFORMATION
Item 6 - Exhibits and reports on form 8-K
(b) There were no reports on Form 8-K filed for
the quarterly period ended April 30, 1994.
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 thereunto duly authorized.
MERCANTILE STORES COMPANY, INC.
(Registrant)
June 13, 1994
(Date)
s/James M. McVicker
(James M. McVicker, Vice President,
and Chief Financial Officer)
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