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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 October 29, 1994
___
| | 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 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 December 13, 1994
Total number of sequentially number pages in this filing, including
exhibits thereto: 11
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-1-
<PAGE>
MERCANTILE STORES COMPANY, INC.
AND SUBSIDIARY COMPANIES
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
October 29, 1994 and January 29, 1994 3
Consolidated Condensed Statements of
Income - For the thirteen and thirty-nine weeks
ended October 29, 1994 and October 30, 1993 4
Consolidated Condensed Statements of
Cash Flows - For thirty-nine weeks
ended October 29, 1994 and October 30, 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
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 6 - Exhibits and Reports on Form 8-K 11
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<PAGE>
<TABLE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<CAPTION>
October 29, January 29,
1994 1994
---------- -----------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 39,137 $ 194,544
Receivables:
Customer 550,549 587,859
Other 25,556 47,255
Inventories 649,536 425,492
Deferred income taxes 9,088 5,875
Other current assets 9,116 8,120
---------- ----------
Total Current Assets 1,282,982 1,269,145
---------- ----------
Investments & Other Noncurrent Assets 71,923 61,136
---------- ----------
Deferred Income Taxes 5,197 10,199
---------- ----------
Property and Equipment, at cost,
less accumulated depreciation 684,505 691,502
---------- ----------
Total Assets $2,044,607 $2,031,982
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 206,359 $ 116,116
Notes payable and current maturities
of long-term debt 5,180 115,487
Short-term borrowings 28,900 -
Accrued income taxes 17,724 41,035
Taxes other than income 29,574 16,182
Accrued payroll 22,185 20,612
Other current liabilities 68,287 57,452
---------- ----------
Total Current Liabilities 378,209 366,884
---------- ----------
Long-term Debt 267,588 271,965
---------- ----------
Due to Affiliated Companies 26,413 26,713
---------- ----------
Other Long-term Liabilities 31,362 31,712
---------- ----------
Stockholders' Equity 1,341,035 1,334,708
---------- ----------
Total Liabilities &
Stockholders' Equity $2,044,607 $2,031,982
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
-3-
<PAGE>
<TABLE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sales (including sales
from leased departments) $ 679,453 $ 654,143 $1,891,269 $1,841,868
Cost of goods sold
(including occupancy and
central buying expenses) 475,208 461,352 1,351,670 1,322,647
--------- --------- ----------- -----------
Gross Profit 204,245 192,791 539,599 519,221
--------- --------- ----------- -----------
Expenses and Other Income:
Selling, general and
administrative expenses 161,845 157,137 461,330 465,516
Provision for consolidation - - 5,000 -
Interest expense, net 5,190 7,706 19,000 23,208
Other income (6,361) (5,932) (20,727) (20,218)
--------- --------- ---------- ----------
160,674 158,911 464,603 468,506
--------- --------- ---------- ----------
Income before
Income Taxes 43,571 33,880 74,996 50,715
Provision for Income Taxes 17,365 13,340 29,987 20,032
--------- --------- ---------- ----------
Income before
Cumulative Effect of
Accounting Changes 26,206 20,540 45,009 30,683
Cumulative effect of
accounting changes:
Postemployment benefits
(net of income taxes of
$700) - - (1,100) -
Income taxes - - - 3,100
--------- --------- ---------- ----------
Net Income $ 26,206 $ 20,540 $ 43,909 $ 33,783
========= ========= ========== ==========
Net Income Per
Share (based on 36,844,050
shares outstanding)
Income before
cumulative effect
of accounting changes $ .71 $ .56 $ 1.22 $ .83
Cumulative effect of
accounting changes:
Postemployment benefits - - (.03) -
Income taxes - - - (.09)
--------- --------- ---------- -----------
Net Income Per
Share $ .71 $ .56 $ 1.19 $ .92
========= ========= ========== ===========
Dividends Paid Per Share $.25-1/2 $.25-1/2 $.76-1/2 $.76-1/2
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Thirty-Nine Weeks Ended
October 29, October 30,
1994 1993
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 43,909 $ 33,783
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 68,453 69,375
Deferred income taxes (3,767) (409)
Gain on sale of property - (1,164)
Equity in unremitted earnings
of affiliated companies 230 (209)
Provision for divisional consolidation 5,000 -
Postretirement benefits costs 200 1,800
Cumulative effect of accounting
changes, net of taxes 1,100 (3,100)
Net pension benefit (11,736) (10,341)
Change in inventories (224,044) (177,413)
Change in accounts receivable 59,009 67,569
Change in accounts payable 90,243 82,742
Change in other working capital items (5,646) (26,508)
---------- ---------
Net cash provided by operating
activities 22,951 36,125
Cash Flows From Investing Activities:
Cash payments for property and equipment (61,451) (57,898)
Proceeds from sale of property - 1,254
Net change in other noncurrent
assets and liabilities (2,938) 9,293
--------- --------
Net cash used in investing activities (64,389) (47,351)
Cash Flows From Financing Activities:
Increase in short-term borrowings 28,900 -
Payments of notes payable and long-term debt(114,684) (22,721)
Dividends paid (28,185) (28,185)
--------- ---------
Net cash used in financing activities (113,969) (50,906)
Net decrease in
cash and cash equivalents (155,407) (62,132)
Beginning cash and cash equivalents 194,544 217,244
--------- ----------
Ending cash and cash equivalents $ 39,137 $ 155,112
=========== ==========
Supplemental Cash Flow Information:
Interest paid $ 27,604 $ 30,469
Income taxes paid $ 48,363 $ 37,268
<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.
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.
(Continued)
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MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Continued)
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 completed during the
first quarter.
6. Accounting Changes
During the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, (SFAS 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.
-7-
<PAGE>
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 October
29, 1994
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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 the above indicated
dates.
The decrease in cash and cash equivalents of $155 million during the
period was attributable, primarily, to $61 million of payments for capital
expenditures and $115 million of structured long-term debt payments. This
cash outflow was partially offset by $23 million of cash generated by
operations.
Total customer accounts receivable decreased $37 million in the period.
This was attributable to the netting of two factors. Balances in the
Company's private label credit program (other than Maison Blanche (MB))
declined $58 million due to a combination of the normal pay down of peak
year-end balances and a 1.8% decline in the ratio of private label credit
sales to total sales. Partially offsetting this decrease was an increase
of $21 million in the level of MB customer receivables. This increase
resulted primarily from the completion of the termination of the MB
Funding Trust, an unaffiliated company, to which MB had formally sold its
customer receivables. The termination process was concluded during the
1994 second quarter and all MB customer receivables are now reflected on
the books of the Company.
The decrease of $22 million in other receivables was primarily
attributable to a combination of 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 ($8 million) and the
collection of security deposits related to the termination of the MB
credit program ($12 million).
Inventories increased $224 million during the period, primarily, due to
the normal replenishment of inventory levels, which are traditionally at
their low point at the end of the fiscal year and approximate peak levels
by the end of the third quarter. The merchandise requirements for the
three new stores opened during the year (approximately 7.7% of the total
increase) also impacted this increase. The increase of $90 million in
accounts payable was significantly attributable to the replenishment of
inventory levels.
Accrued income taxes declined $23 million. This was primarily due to
payments of federal and state income taxes, partially offset by provision
for taxes on current year income.
There have been no material changes in the Company's capital expenditure
requirements from those outlined in the 1993 Annual Report. During the
third quarter, the Company opened two new stores, a 125,000 square foot
Gayfers store in Hattiesburg, Mississippi (a new market for the Company)
and a 160,000 square foot Joslins store in suburban, Denver, Colorado.
Total stores at the end of the period consisted of 103 units.
(Continued)
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Material Changes in Financial Condition From January 29, 1994 to October
29, 1994
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The cash requirement for financing activities in the period was $114
million which was $63 million higher than that required in the same period
last year. The most significant factor in this increase was the scheduled
pay-back of $110 million of structured debt, bearing an average coupon of
10.4%, which took place in July 1994. To satisfy these cash requirements,
the Company found it necessary to use several discretionary borrowing
facilities. During the 1994 period, peak borrowings amounted to $69
million with $29 million remaining outstanding at the end of the quarter.
The Company did not use these credit facilities during the 1993 period.
The Company satisfies short-term financing needs primarily through
internally generated funds. In addition, the Company has available a
committed $175 million revolving credit facility and discretionary lines
of credit which total $85 million.
Material Changes in the Results of Operations For the Third Quarter and 39
Week Period of 1994 Compared to the Third Quarter and 39 Week Period of
1993
- -------------------------------------------------------------------------
Net sales increased by 3.9% to $679 million in the quarter and increased
by 2.7% to $1,891 million in the 39 week period. Sales in comparable
units increased 3.1% in the quarter and 1.4% in the 39 week period.
Cost of goods sold (COGS), as a percentage to net sales, declined 59 basis
points and 34 basis points in the third quarter and 39 week period,
respectively. The improvement in the third quarter was fairly equally
distributed between improved mark-on, lower markdowns and reduced
occupancy costs. The 39 week period decline resulted from a 60 basis
point reduction in markdowns and somewhat lower occupancy costs which were
partially offset by a 30 basis point increase in the cost of merchandise
in the first half of the year. Occupancy and buying costs are a component
of COGS and include depreciation, rent, repairs and central buying
expenses.
Selling, general and administrative expenses (SG&A), as a percentage to
net sales, decreased 20 basis points and 88 basis points during the third
quarter and 39 week period, respectively. The decline in both the third
quarter and 39 week period reflects benefits achieved from expense control
initiatives established during the second half of 1993. During the third
quarter, reductions in payroll and payroll related expenses accounted for
a 54 basis point improvement which was partially offset by a 23 basis
point increase in marketing expenses plus a net 11 basis point increase in
other expense categories. The decline in SG&A for the 39 week period is
primarily attributable to a 43 basis point decline in payroll and payroll
related expenses, a 21 basis point reduction in supply expense and a net
24 basis point reduction in other expenses.
(Continued)
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<PAGE>
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 Third Quarter and 39
Week Period of 1994 Compared to the Third Quarter and 39 Week Period of
1993
- -------------------------------------------------------------------------
During the first quarter of 1994, the Company recorded a $5 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 completed during the first quarter of 1994. 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, net, decreased, $3 million in the quarter and $4 million
for the 39 week period. The decline in both the quarter and the 39 week
period was attributable to the scheduled payment of $110 million of
structured debt, bearing an average coupon of 10.4%, in the second quarter
of 1994 and the prepayments of $19 million of mortgages at the end of last
year's first quarter.
Other income was basically even for both the third quarter and 39 week
period. 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 rise recorded in this line item
for the third quarter and 39 week period, was due to increased credit card
income attributable to the MB customer accounts receivable program offset
by lower levels of finance charge income earned on the Citibank program.
The Company's effective tax rate was relatively consistent for all
reported periods.
During the first quarter of 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The cumulative effect
of this accounting 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 4 - Submission of Matters to a Vote of Security Holders
(a) There were no matters submitted to a vote of security holders
during the quarterly period ended October 29, 1994.
Item 6 - Exhibits and reports on form 8-K
(a) Exhibit 27 - Financial Data Schedule (filed electronically).
(b) There were no reports on Form 8-K filed for the quarterly
period ended October 29, 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)
December 13, 1994
(Date)
s/ James M. McVicker
(James M. McVicker, Senior Vice President,
and Chief Financial Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, STATEMENTS OF INCOME AND STATEMENTS OF
CASH FLOWS FOR THE PERIOD ENDED OCTOBER 29, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> OCT-29-1994
<CASH> 39,137
<SECURITIES> 0
<RECEIVABLES> 550,549
<ALLOWANCES> 0
<INVENTORY> 649,536
<CURRENT-ASSETS> 1,282,982
<PP&E> 1,121,853
<DEPRECIATION> 437,348
<TOTAL-ASSETS> 2,044,607
<CURRENT-LIABILITIES> 378,209
<BONDS> 0
<COMMON> 5,403
0
0
<OTHER-SE> 1,335,632
<TOTAL-LIABILITY-AND-EQUITY> 2,044,607
<SALES> 1,891,269
<TOTAL-REVENUES> 1,891,269
<CGS> 1,351,670
<TOTAL-COSTS> 1,351,670
<OTHER-EXPENSES> 5,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,402
<INCOME-PRETAX> 74,996
<INCOME-TAX> 29,987
<INCOME-CONTINUING> 45,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,100<F2>
<NET-INCOME> 43,909
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.19
<FN>
<F1>Provision for divisional consolidation.
<F2>Adoption of SFAS No. 112, resulting in a charge to net income of $.03 per
share
</FN>
</TABLE>
