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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 July 30, 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 September 14, 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 -
July 30, 1994 and January 29, 1994 3
Consolidated Condensed Statements of
Income - For the thirteen and twenty-six weeks
ended July 30, 1994 and July 31, 1993 4
Consolidated Condensed Statements of
Cash Flows - For twenty-six weeks
ended July 30, 1994 and July 31, 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>
<CAPTION>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
July 30, January 29,
1994 1994
---------- -----------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 89,798 $ 194,544
Receivables:
Customer 540,688 587,859
Other 20,671 47,255
Inventories 498,960 425,492
Deferred income taxes 9,796 5,875
Other current assets 8,478 8,120
---------- ----------
Total Current Assets 1,168,391 1,269,145
---------- ----------
Investments & Other Noncurrent Assets 68,334 61,136
---------- ----------
Deferred Income Taxes 4,501 10,199
---------- ----------
Property and Equipment, at cost,
less accumulated depreciation 687,370 691,502
---------- ----------
Total Assets $1,928,596 $2,031,982
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 152,571 $ 116,116
Notes payable and current maturities
of long-term debt 5,145 115,487
Accrued income taxes 5,055 41,035
Taxes other than income 23,922 16,182
Accrued employee benefits 15,110 6,412
Accrued payroll 21,421 20,612
Other current liabilities 45,422 51,040
---------- ----------
Total Current Liabilities 268,646 366,884
---------- ----------
Long-term Debt 268,290 271,965
---------- ----------
Due to Affiliated Companies 26,487 26,713
---------- ----------
Other Long-term Liabilities 31,553 31,712
---------- ----------
Stockholders' Equity 1,333,620 1,334,708
---------- ----------
Total Liabilities &
Stockholders' Equity $1,928,596 $2,031,982
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
-3-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sales (including sales
from leased departments) $ 619,307 $ 615,380 $1,211,816 $1,187,725
Cost of goods sold
(including occupancy and
central buying expenses) 455,082 459,614 876,462 861,295
--------- --------- ----------- -----------
Gross Profit 164,225 155,766 335,354 326,430
--------- --------- ----------- -----------
Expenses and Other Income:
Selling, general and
administrative expenses 148,766 157,159 299,485 308,379
Provision for consolidation - - 5,000 -
Interest expense, net 6,637 7,719 13,810 15,502
Other income (7,679) (7,217) (14,366) (14,286)
--------- --------- ---------- ----------
147,724 157,661 303,929 309,595
--------- --------- ---------- ----------
Income (Loss) before
Income Taxes 16,501 (1,895) 31,425 16,835
Provision for Income Taxes 6,702 (562) 12,622 6,692
--------- --------- ---------- ----------
Income (Loss) before
Cumulative Effect of
Accounting Changes 9,799 (1,333) 18,803 10,143
Cumulative Effect of
Accounting Changes:
Postemployment Benefits
(net of income taxes of
$700) - - (1,100) -
Income taxes - - - 3,100
--------- --------- ---------- ----------
Net Income (Loss) $ 9,799 $ (1,333) $ 17,703 $ 13,243
========= ========= ========== ==========
<CAPTION>
<S> <C> <C> <C> <C>
Net Income (Loss) Per
Share (based on 36,844,050
shares outstanding)
Income (Loss) before
cumulative effect
of accounting changes $ .27 $ (.04) $ .51 $ .27
Cumulative effect of
accounting changes:
Postemployment benefits - - (.03) -
Income taxes - - - .09
--------- --------- ---------- -----------
Net Income (Loss) Per
Share $ .27 $ (.04) $ .48 $ .36
========= ========= ========== ===========
Dividends Paid Per Share $ .25-1/2 $ .25-1/2 $ .51 $ .51
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Twenty-Six Weeks Ended
July 30, July 31,
1994 1993
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 17,703 $ 13,243
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 44,719 45,527
Deferred income taxes (3,779) (386)
Gain on sale of property - (1,164)
Equity in unremitted earnings
of affiliated companies 164 231
Provision for divisional consolidation 5,000 -
Postretirement benefits costs 200 1,200
Cumulative effect of accounting
changes, net of taxes 1,100 (3,100)
Net pension benefit (7,824) (6,894)
Change in inventories (73,468) (59,601)
Change in accounts receivable 73,755 76,915
Change in accounts payable 36,455 38,773
Change in other working capital items (22,654) (38,721)
---------- ---------
Net cash provided by operating
activities 71,371 66,023
<CAPTION>
<S> <C> <C>
Cash Flows From Investing Activities:
Cash payments for property and equipment (40,582) (37,097)
Proceeds from sale of property - 1,254
Net change in other noncurrent
assets and liabilities (2,727) (2,042)
--------- --------
Net cash used in investing activities (43,309) (37,885)
<CAPTION>
<S> <C> <C>
Cash Flows From Financing Activities:
Payments of notes payable and long-term debt(114,017) (22,122)
Dividends paid (18,791) (18,791)
--------- ---------
Net cash used in financing activities (132,808) (40,913)
Net decrease in
cash and cash equivalents (104,746) (12,775)
Beginning cash and cash equivalents 194,544 217,244
--------- ----------
Ending cash and cash equivalents $ 89,798 $204,469
=========== ==========
<CAPTION>
<S> <C> <C>
Supplemental Cash Flow Information:
Interest paid $ 17,671 $ 19,214
Income taxes paid $ 43,825 $ 38,142
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
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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<PAGE>
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, "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. Subsequent Events
On September 9, 1994, the Company announced that it is engaged in
discussions with a third party regarding a possible merger or other
business combination. The Company's Board of Directors has not authorized
a merger or other business combination and no assurance can be given that
any agreement regarding such a transaction will be reached.
-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 July 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 the above
indicated dates.
The decrease in cash and cash equivalents of $104.8 million during the
period is represented, primarily, by $40.6 million of cash payments for
capital expenditures and $114.0 million of structured long-term
debt payments, offset by cash provided by operations of $71.4 million.
Total customer accounts receivable decreased $47.2 million as a result of
a $68.6 million reduction in the Company's private label program (other
than Maison Blanche (MB)) due to the pay down of peak, post
Christmas year-end balances and a drop in the ratio of private label
charge sales to total sales. This decrease was partially offset by an
increase of $21.4 million related to the termination of the MB Credit
Program. Formerly, the Company sold MB customer accounts to an
unaffiliated company. 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 $26.6 million in other receivables is primarily
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.
Inventories increased $73.5 million during the period, primarily due to
the normal replenishment of inventory levels following the Christmas
promotional and January clearance periods, as well as under
achievement of projected sales levels. The increase of $36.5 million in
accounts payable is also attributable to the normal replenishment of
inventory levels.
Accrued income taxes declined $35.9 million. This decline is primarily
attributable 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 capital expenditure
requirements as outlined in the 1993 Annual Report.
Financing activities increased $91.9 million from prior year, as result of
the payment of approximately $110.0 million of structured debt. The
structured debt consisted of mortgage notes and senior notes
which carried an average annual interest rate of approximately 10.4%. The
payment of the structured debt reduced the Company's debt to equity ratio
to 20.5% from 29.0%.
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 $65 million. At January 29, 1994 and July 30, 1994, no
balances were outstanding under these lines of credit. The Company
maintained significant cash balances throughout the period and it was not
necessary to use these lines of credit during the current period.
(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 Second Quarter and
26 Week Period of 1994 Compared to the Second Quarter and 26 Week Period
of 1993
Net sales increased by .6% to $619.3 million in the quarter and increased
by 2.0% to $1,211.8 million in the 26 week period. Sales in comparable
units declined .2% in the quarter and increased .5% for the first half of
1994, as sales continue to be difficult in this highly competitive retail
environment.
Cost of goods sold (COGS), as a percent to net sales, was 73.5% in the
second quarter compared to 74.7% in last year's second quarter. For the
26 weeks ended July 30, 1994 and July 31, 1993, the ratios were 72.3% and
72.5%, respectively. The improvement in the quarter and the 26 week
period is attributable to increased merchandise margins resulting from
decreased markdown activity, partially offset by an increase in the cost
of merchandise due to changes in merchandise mix and vendor price increases.
Occupancy and buying costs, which are a component of COGS and include
depreciation, rent, and repairs, were comparable for both the quarter and
26 week period.
Selling, general and administrative expenses (SG&A), as a percent to net
sales, decreased 1.5% during the quarter and 1.3% in the 26 week period,
reflecting benefits achieved from expense control initiatives established
during the second half of 1993. Marketing expenses accounted for
approximately .4% of this improvement while payroll and payroll
related expenses and supply expense reductions represented most of the
remaining decrease during the quarter. The reduction in SG&A for the 26
week period is primarily attributable to a .4% decline in payroll and
payroll related expenses and a .3% reduction in both marketing and supply
expenses.
During the first quarter of 1994, 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 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, $1.1 million in the quarter and $1.7
million for the 26 week period. The decline in both the quarter and the 26
week period is attributable to the prepayments of $19 million of mortgages
at the end of last year's first quarter and the payment of $110 million of
structured debt in second quarter of 1994.
(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 Second Quarter and
26 Week Period of 1994 Compared to the Second Quarter and 26 Week Period
of 1993
Other income was approximately $7 million for both comparable quarters and
approximately $14 million for both comparable 26 week periods. 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 during
the quarter was due to increased levels of finance charge income
attributable to the MB customer accounts receivable offset by lower levels
of finance charge income earned on the Citibank program.
The Company's effective tax rate increased from 39.7% to 40.2% during the
26 week period. This reflects the mandatory increase in the U.S.
statutory Federal income tax rate from 34% to 35% enacted in August of
1993.
During the first quarter of 1994, 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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<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company was held on May
25, 1994.
(b) At the Annual Meeting of Stockholders of the Company held on May 25,
1994, the three matters described below were submitted to a vote of
security holders with the voting results indicated.
(1) the election of four directors of the Company; for term expiring
in 1997.
Nominee For Withheld
H. Keith H. Brodie, M.D. 33,743,876 320,750
Rene C. McPherson 33,773,330 291,296
Minot K. Milliken 33,772,473 292,153
Roger K. Smith 33,775,180 289,146
(2) the appointment of Arthur Andersen & Co., as independent auditors.
(32,601,320 votes in favor, 1,286,930 votes against and 176,376
votes abstained);
(3) a Stockholder Proposal relating to the declassification of the
Board of Directors. (7,818,004 votes in favor, 23,186,397 votes
against and 3,060,225 votes abstained);
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 July 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)
September 14, 1994
(Date)
s/ James M. McVicker
(James M. McVicker, Vice President, and
Chief Financial Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, STATEMENTS OF INCOME AND STATEMENTS OF
CASH FLOWS FOR THE PERIOD ENDED JULY 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> JAN-30-1994
<PERIOD-END> JUL-30-1994
<CASH> 89,798
<SECURITIES> 0
<RECEIVABLES> 540,688
<ALLOWANCES> 0
<INVENTORY> 498,960
<CURRENT-ASSETS> 1,168,391
<PP&E> 1,100,996
<DEPRECIATION> 413,626
<TOTAL-ASSETS> 1,928,596
<CURRENT-LIABILITIES> 268,646
<BONDS> 0
<COMMON> 5,403
0
0
<OTHER-SE> 1,328,217
<TOTAL-LIABILITY-AND-EQUITY> 1,928,596
<SALES> 1,211,816
<TOTAL-REVENUES> 1,211,816
<CGS> 876,462
<TOTAL-COSTS> 876,462
<OTHER-EXPENSES> 5,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,788
<INCOME-PRETAX> 31,425
<INCOME-TAX> 12,622
<INCOME-CONTINUING> 18,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,100<F2>
<NET-INCOME> 17,703
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
<FN>
<F1>PROVISION FOR CONSOLIDATION.
<F2>ADOPTION OF SFAS NO. 112, RESULTING IN A CHARGE TO NET INCOME OF $.03 PER
SHARE.
</FN>
</TABLE>
