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 28, 1995
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 (I.R.S. Employer
of incorporation) 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 12, 1995
Total number of sequentially numbered 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 -
October 28, 1995 and January 28, 1995 3
Consolidated Condensed Statements of
Income - For the thirteen and thirty-nine weeks
ended October 28, 1995 and October 29, 1994 4
Consolidated Condensed Statements of
Cash Flows - For the thirty-nine weeks
ended October 28, 1995 and October 29, 1994 5
Notes to Consolidated Condensed Financial
Statements 6 - 7
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial
Condition 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
<PAGE>
<TABLE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<CAPTION>
October 28, January 28,
1995 1995
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $78,966 $114,237
Receivables:
Customer, net 515,680 592,402
Other 11,783 27,836
Inventories 684,310 468,782
Other current assets 23,349 15,488
Total Current Assets 1,314,088 1,218,745
Investments & Other Noncurrent Assets 83,793 73,878
Deferred Income Taxes 705 300
Property and Equipment, net 679,731 688,806
Total Assets $2,078,317 $1,981,729
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $213,629 $121,667
Notes payable and current maturities
of long-term debt 5,272 5,210
Accrued income taxes 18,841 32,381
Taxes other than income 31,360 17,101
Accrued payroll 28,074 24,224
Other current liabilities 59,177 61,132
Total Current Liabilities 356,353 261,715
Long-term Debt 256,876 261,187
Other Long-term Liabilities 57,559 58,276
Stockholders' Equity 1,407,529 1,400,551
Total Liabilities & Stockholders'
Equity $2,078,317 $1,981,729
<FN>
The accompanying notes are an integral part of these balance sheets.
</TABLE>
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<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 28, October 29, October 28, October 29,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 694,765 $679,453 $1,940,071 $1,891,269
Cost of goods sold
(including occupancy and
central buying expenses) 470,813 475,208 1,366,736 1,351,670
Gross Profit 223,952 204,245 573,335 539,599
Expenses and Other Income:
Selling, general and
administrative expenses 173,859 161,845 499,276 461,330
Provision for divisional
consolidation - - - 5,000
Interest expense, net 3,265 5,190 11,179 19,000
Other income (1,792) (6,361) (13,128) (20,727)
175,332 160,674 497,327 464,603
Income before Provision for
Income Taxes 48,620 43,571 76,008 74,996
Provision for income taxes 19,410 17,365 30,344 29,987
Income before Cumulative
Effect of Accounting
Change 29,210 26,206 45,664 45,009
Cumulative effect of accounting
change for postemployment
benefits (net of income
taxes of $ 700) - - - (1,100)
Net Income $29,210 $26,206 $45,664 $43,909
Net Income Per Share (based on
36,844,050 shares outstanding):
Income before cumulative effect
of accounting change $ .79 $ .71 $ 1.24 $ 1.22
Cumulative effect of
accounting change for
postemployment benefits - - - (.03)
Net Income Per Share $ .79 $ .71 $ 1.24 $ 1.19
Dividends Declared Per Share $ .53 $ .51 $ 1.05 $ 1.02
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Thirty-Nine Weeks Ended
October 28, October 29,
1995 1994
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 45,664 $ 43,909
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 65,082 68,453
Deferred income taxes (3,429) (3,767)
Equity in unremitted earnings of
affiliated companies 296 230
Provision for divisional consolidation - 5,000
Postretirement benefits costs - 200
Cumulative effect of accounting change,
net of taxes - 1,100
Net pension benefit (10,995) (11,736)
Change in inventories (215,528) (224,044)
Change in accounts receivable 92,775 59,009
Change in accounts payable 91,962 90,243
Net change in other working capital items (11,987) (5,646)
Net cash provided by operating activities 53,840 22,951
Cash Flows From Investing Activities:
Cash payments for property and equipment (56,007) (61,451)
Net change in other noncurrent assets and
liabilities 67 (2,938)
Net cash used in investing activities (55,940) (64,389)
Cash Flows From Financing Activities:
Increase in short-term borrowings - 28,900
Payments of notes payable and long-term debt (4,249) (114,684)
Dividends paid (28,922) (28,185)
Net cash used in financing activities (33,171) (113,969)
Net decrease in cash and cash equivalents (35,271) (155,407)
Beginning cash and cash equivalents 114,237 194,544
Ending cash and cash equivalents $ 78,966 $ 39,137
Supplemental Cash Flow Information:
Interest paid $ 19,441 $ 27,604
Income taxes paid $ 47,310 $ 48,363
<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 1995. 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 February 3, 1996.
2. Short-term Investments
Short-term investments which have a maturity of ninety days or
less are considered cash equivalents.
3. Customer Receivables
Customer receivables are classified as current assets and
include some amounts which are due after one year, consistent
with industry practice. Customer receivables at October 28,
1995 and January 28, 1995 are net of an allowance for doubtful
accounts of $15.3 million and $4.2 million, respectively.
4. Merchandise Inventories
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 and costs as of the fiscal
year-end.
(Continued)
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Continued)
5. Revenues
Revenues include sales from retail operations, leased
departments and finance charge income earned on customer
accounts serviced by the Company under its private label
credit program. The service agreement with Citibank was
terminated on July 31, 1995 and the Company assumed full
responsibility for servicing its private label credit program
at the end of the 1995 second quarter. Prior to July 31,
1995, finance charge income earned under this service
agreement was classified as a component of other income. In
1994 finance charges earned on the Maison Blanche (MB) credit
program were also classified as a component of other income.
In the 1995 thirteen and thirty-nine week periods, finance
charge income earned was approximately $20.6 million and $25.3
million, respectively.
6. Provision for Divisional Consolidation
During the first quarter of 1994, the Company recorded a $5
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 of 1994.
7. Accounting Change
During the first quarter of 1994, the Company adopted
Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," which
requires employers to recognize an 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 of $1.1 million, or $.03 per share, after tax benefits
of $.7 million.
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Material Changes in the Results of Operations For the Third Quarter
and Thirty-Nine Week Period of 1995 Compared to the Third Quarter
and Thirty-Nine Week Period of 1994
Revenues increased by 2.3% to $695 million and 2.6% to $1,940
million during the third quarter and thirty-nine week periods of
1995, respectively, versus the 1994 comparable periods. Net retail
sales decreased by .8% to $674 million in the 1995 third quarter and
increased by 1.2% to $1,915 million in the thirty-nine week period.
Sales in comparable units decreased 1.2% during the current quarter
and increased .7% during the thirty-nine week period of 1995.
During the 1995 third quarter and thirty-nine week periods, finance
charge income was approximately $21 million and $25 million,
respectively.
Cost of goods sold (COGS), as a percent to total revenue, was 67.8%
in the 1995 third quarter compared to 69.9% in last year's
comparable period. For the thirty-nine week period of 1995, COGS
declined 1.0% to 70.5%. The improvement in both the third quarter
and thirty-nine week periods was due, substantially, to the inclusion
of finance charge income in total revenues in 1995. COGS, as a
ratio to net retail sales, improved approximately .1% in both
periods as improvements in merchandise margins were essentially
offset by increased costs associated with lower margin leased
department sales (leased department sales increased 11.7% and 15.0%
during the third quarter and thirty-nine week periods,respectively).
Occupancy and buying costs, which are a component of COGS, increased
.1%, as a ratio to net retail sales, during the third quarter and
were relatively flat for the thirty-nine week period of 1995.
Selling, general and administrative expenses (SG&A), as a percent
to total revenue, increased 1.2% to 25.0% for the third quarter and
increased to 25.7% from 24.4% during the thirty-nine week period of
1995. The increase was primarily attributable to costs associated
with the Company's assumption of full responsibility for managing
its private label credit program at the end of the 1995 second
quarter. Previously, the private label credit program had been
managed by an affiliate of Citibank and this arrangement was
terminated on July 31, 1995. Significant among these expenses were
a bad debt provision, communications costs, and payroll and payroll
related expenses, which combined to increase SG&A by 1.1% and 1.0%
in the quarter and thirty-nine week periods, respectively. The
remaining increase in SG&A during both periods is primarily
attributable to an increase in marketing expense.
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 covered
severance pay, early retirement costs and relocation
costs.
(Continued)
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Continued)
Material Changes in the Results of Operations For the Third Quarter
and Thirty-Nine Week Period of 1995 Compared to the Third Quarter
and Thirty-Nine Week Period of 1994
Interest expense, net, decreased $2 million and $8 million during
the third quarter and thirty-nine week periods, respectively. The
decline in the quarter was due primarily to interest income earned
on higher levels of invested cash. In the thirty-nine week period,
two-thirds of the reduction was attributable to the payment of $110
million of structured debt, bearing an average coupon of 10.4%,
which took place during the second quarter of 1994.
The primary components of other income in 1995 are the Company's
portion of joint venture income and the Company's share of finance
charge income earned through July 31, 1995 under the terms of a
service agreement with Citibank. In 1994, this line item also
included the Company's share of finance charge income earned on the
MB credit program. The decrease in other income of $5 million and
$8 million in the third quarter and thirty-nine week periods,
respectively, was primarily the result of a change in management
of the Company's private label credit program. The service
agreement with Citibank was terminated on July 31, 1995 and finance
charge income earned on customer accounts subsequently to that date
has been classified as a component of revenues. The trust and
servicing agreement associated with the Company's MB credit program
was terminated in the second quarter of 1994 and finance charge
earned on MB customer accounts has been classified as component of
revenues in 1995.
The Company's effective tax rate was relatively consistent for both
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 million, or $.03 per share.
Material Changes in Financial Condition From January 28, 1995 to
October 28, 1995
The retail business is highly seasonal with approximately one-third
of annual sales being generated in the fourth quarter which includes
the important Christmas selling season. As a result, significant
variations can occur when comparing financial condition at the above
dates.
The decrease in cash and cash equivalents of $35 million during the
period was attributable, primarily, to $56 million of payments for
capital expenditures and $29 million of dividend payments. This
cash outflow was partially offset by $54 million of cash generated
from operations.
Net customer receivables decreased $77 million in the period due to
a combination of the normal decline in peak year-end balances and
a 3.4% decline in private label credit sales. The decrease also
reflects an increase in the bad debt reserve made during the year
primarily as a result of the termination of the service agreement
with Citibank.
(Continued)
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Continued)
Material Changes in Financial Condition From January 28, 1995 to
October 28, 1995
The decrease in other receivables of $16 million was primarily due
to the contractual arrangement with Citibank under which the
Company's share of finance charge income for fiscal 1994 was
remitted by the bank in the first quarter of fiscal 1995. The
Company's share of finance charge income for fiscal 1995 was
remitted by the bank in the 1995 third quarter and upon termination
of the contractual arrangement.
Inventories increased $216 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
increase of $92 million in accounts payable was related to the
increase in inventory levels.
There have been no material changes in the Company's capital
expenditure requirements from those outlined in the 1994 Annual
Report.
The Company satisfies short-term financing needs primarily through
internally generated funds. On July 31, 1995 the Company cancelled
a committed $175 million revolving credit facility and during third
quarter replaced it with a committed unsecured $200 million
revolving credit arrangement. The new facility is a five year
agreement with a consortium of seven banks. When used, interest
rates will be based, at the Company's option, at either the banks'
best rates under a competitive bid environment or a predefined
spread over the LIBOR rate. In addition, the Company has available
uncommitted lines of credit which total $20 million. At October 28,
1995 and January 28, 1995, no balances were outstanding under the
credit arrangements. The Company maintained significant cash
balances throughout the thirty-nine week period of 1995, and it was
not necessary to use the lines of credit in effect during the
period.
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<PAGE>
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 28,
1995.
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 28, 1995.
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 12, 1995
(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>
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 OCTOBER 28, 1995 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-START> JUL-30-1995
<PERIOD-END> OCT-28-1995
<CASH> 78,966
<SECURITIES> 0
<RECEIVABLES> 530,987
<ALLOWANCES> 15,307
<INVENTORY> 684,310
<CURRENT-ASSETS> 1,314,088
<PP&E> 1,142,687
<DEPRECIATION> 462,956
<TOTAL-ASSETS> 2,078,317
<CURRENT-LIABILITIES> 356,353
<BONDS> 0
<COMMON> 5,403
0
0
<OTHER-SE> 1,402,126
<TOTAL-LIABILITY-AND-EQUITY> 2,078,317
<SALES> 1,914,757
<TOTAL-REVENUES> 1,940,071
<CGS> 1,366,736
<TOTAL-COSTS> 1,366,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,742
<INCOME-PRETAX> 76,008
<INCOME-TAX> 30,344
<INCOME-CONTINUING> 45,664
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,664
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
</TABLE>
