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 29, 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 September 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 -
July 29, 1995 and January 28, 1995 3
Consolidated Condensed Statements of
Income - For the thirteen and twenty-six weeks
ended July 29, 1995 and July 30, 1994 4
Consolidated Condensed Statements of
Cash Flows - For the twenty-six weeks
ended July 29, 1995 and July 30, 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
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<TABLE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<CAPTION>
July 29, January 28,
1995 1995
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 121,725 $ 114,237
Receivables:
Customer, net 510,174 592,402
Other 18,932 27,836
Inventories 529,581 468,782
Other current assets 25,166 15,488
---------- ----------
Total Current Assets 1,205,578 1,218,745
Investments & Other Noncurrent Assets 80,291 73,878
---------- ----------
Deferred Income Taxes 909 300
---------- ----------
Property and Equipment, net 679,691 688,806
---------- -----------
Total Assets $1,966,469 $1,981,729
---------- ----------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 147,316 $ 121,667
Notes payable and current maturities
of long-term debt 5,234 5,210
Accrued income taxes 3,863 32,381
Taxes other than income 26,974 17,101
Accrued payroll 22,651 24,224
Other current liabilities 47,300 61,132
--------- ----------
Total Current Liabilities 253,338 261,715
--------- ----------
Long-term Debt 257,616 261,187
--------- ----------
Other Long-term Liabilities 57,669 58,276
--------- ----------
Stockholders' Equity 1,397,846 1,400,551
--------- ----------
Total Liabilities & Stockholders'
Equity $1,966,469 $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 Twenty-six Weeks Ended
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 642,448 $ 619,307 $1,245,306 $1,211,816
Cost of goods sold (including
occupancy and central buying
expenses) 468,917 455,082 895,923 876,462
Gross Profit 173,531 164,225 349,383 335,354
Expenses and Other Income:
Selling, general and
administrative expenses 165,423 148,766 325,417 299,485
Provision for divisional
consolidation - - - 5,000
Interest expense, net 3,938 6,637 7,914 13,810
Other income (6,654) (7,679) (11,336) (14,366)
------- -------- -------- --------
162,707 147,724 321,995 303,929
Income before Provision for
Income Taxes 10,824 16,501 27,388 31,425
Provision for income taxes 4,321 6,702 10,934 12,622
Income before Cumulative Effect of ------- ------- ------- -------
Accounting Change 6,503 9,799 16,454 18,803
Cumulative effect of accounting change
for postemployment benefits
(net of income taxes of $ 700) - - - (1,100)
---------- ---------- -------- -----------
Net Income $ 6,503 $ 9,799 $ 16,454 $ 17,703
Net Income Per Share (based on
36,844,050 shares outstanding):
Income before cumulative effect of
accounting change $ .18 $ .27 $ .45 $ .51
Cumulative effect of accounting
change for postemployment benefits - - - (.03)
Net Income Per Share $ .18 $ .27 $ .45 $ .48
Dividends Declared Per Share $ - $ - $ .52 $ .51
<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>
Twenty-Six Weeks Ended
July 29, July 30,
1995 1994
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 16,454 $ 17,703
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 42,763 44,719
Deferred income taxes (4,288) (3,779)
Equity in unremitted earnings of affiliated companies 289 164
Provision for divisional consolidation - 5,000
Postretirement benefits costs - 200
Cumulative effect of accounting change, net of taxes - 1,100
Net pension benefit (7,323) (7,824)
Change in inventories (60,799) (73,468)
Change in accounts receivable 91,132 73,755
Change in accounts payable 25,649 36,455
Net change in other working capital items (40,049) (22,654)
--------- ---------
Net cash provided by operating activities 63,828 71,371
Cash Flows From Investing Activities:
Cash payments for property and equipment (33,648) (40,582)
Net change in other noncurrent assets and liabilities 14 (2,727)
--------- --------
Net cash used in investing activities
Cash Flows From Financing Activities:
Payments of notes payable and long-term debt (3,547) (114,017)
Dividends paid (19,159) (18,791)
--------- ---------
Net cash used in financing activities (22,706) (132,808)
Net increase (decrease) in cash and cash equivalents 7,488 (104,746)
Beginning cash and cash equivalents 114,237 194,544
--------- --------
Ending cash and cash equivalents $ 121,725 $ 89,798
Supplemental Cash Flow Information:
Interest paid $ 10,808 $ 17,671
Income taxes paid $ 43,736 $ 43,825
<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 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 July 29, 1995
and January 28, 1995 are net of an allowance for doubtful accounts
of $15 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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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 the Company's private label
credit program with respect to its Maison Blanche (MB) division.
In the 1995 thirteen and twenty-six week periods, finance charge
income earned was approximately $1.7 million and $4.7 million,
respectively. In the 1994 thirteen and twenty-six week periods,
finance charge income earned on the MB credit program
accrued to the Company under a Trust Agreement and was classified
as a component of other income.
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.
8. Subsequent Event
Effective July 31, 1995, the Company terminated its $175 million
revolving credit facility with Citibank. On August 3, 1995,
the Company entered into an agreement with a consortium of
seven banks for a $200 million unsecured revolving credit
facility. The new credit facility is for a term of five years
and will be used to satisfy general purpose, short-term
funding requiements.
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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 Thirteen
and Twenty-Six Week Periods of 1995 Compared to the Thirteen
and Twenty-Six Week Periods of 1994
Revenues increased by 3.7% to $642 million in the 1995 thirteen week
period and increased by 2.8% to $1,245 million during the 1995 twenty-six
week period. In the 1995 thirteen and twenty-six week periods, finance
charge income earned was approximately $2 million and $5 million,
respectively. Sales from retail operations increased $21 million, or
3.5%, for the 1995 second quarter compared with the same period last
year and were up $29 million, or 2.4%, for the twenty-six week period.
Sales in comparable units increased 2.9% during the current quarter
and 1.8% for the first half of 1995.
Cost of goods sold (COGS), as a percent to total revenue, was 73.0%
in the 1995 thirteen week period compared to 73.5% in last year's
comparable quarter. For the first half of 1995, COGS declined .4% to
71.9%. The improvement in both the thirteen and
twenty-six week periods was, in part, due to the inclusion of finance
charge revenue in total revenues in 1995. Merchandise margins
improved by .2% and .1% during the thirteen and twenty-six week
periods, respectively, due to lower markdown activity offset by
increased costs associated with lower margin leased department sales
(leased department sales increased 18.4% in the thirteen week period and
17.0% for the twenty-six week period). Occupancy and buying costs,
which are a component of COGS, declined .2% for the thirteen week
period and decreased .4% for the first half of 1995.
Selling, general and administrative expenses (SG&A), as a percent to
total revenue, increased 1.7% to 25.7% for the thirteen week period
and increased to 26.1% from 24.7% during the first half of 1995. The
increase was primarily attributable to start-up 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. Down through
that time, the private label program had been managed by an affiliate
of Citibank and this arrangement was terminated on July 31, 1995.
Credit center operating expenses served to increase SG&A by 1.4%
and 1.3%, respectively, in the thirteen and twenty-six periods.
Significant among these expenses were the establishment of a bad debt
reserve ($5 million and $10 million in the thirteen and twenty-six
weeks, respectively) which accounted for approximately one-half of the
increased costs in both periods. Incremental payroll costs incurred as
the Company staffed-up in anticipation of taking over the credit operation
also contributed significantly to this increase in both periods.
Overall, SG&A expenses, exclusive of the credit center operating costs,
increased .3% and .2% in the thirteen week and twenty-six week periods,
respectively, as decreases in payroll and payroll related costs were
more than offset by increases in marketing and supply expenses.
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 Thirteen
and Twenty-Six Week Periods of 1995 Compared to the Thirteen and
Twenty-Six Week Periods of 1994
Interest expense, net, decreased $3 million and $6 million
during the thirteen and twenty-six week periods, respectively.
The decline in both periods was primarily the result of the scheduled
payment of $110 million of structured debt, bearing an average
coupon of 10.4%, during the second quarter of 1994.
Other income declined $1 million and $3 million in the thirteen
and twenty-six week periods, respectively. The primary elements of
this caption in 1995 were the Company's share of finance charge
income from the private label credit program which it shared under
the terms of a service agreement with Citibank (which terminated on
July 31, 1995) and the Company's share of joint venture income.
In 1994, this line item also included the Company's share of finance
charge income earned on the MB credit program. This MB credit
program was terminated in the second quarter of 1994. MB customer
receivables have been serviced by the Company throughout 1995. The
finance charge income associated with these customer accounts has been
classified as a component of revenue in 1995, resulting in the
comparative year-to-year decline in other income in both the thirteen
and twenty-six week periods.
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
July 29, 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 increase in cash and cash equivalents of $7 million during the
period was attributable, primarily, to $64 million of cash
generated by operations. This cash inflow was substantially offset by
$34 million of payments for capital expenditures and $23 million
used for financing activities.
Net customer receivables decreased $82 million in the period due
to a combination of the normal pay down of peak year-end balances
and a 3.0% decline in the ratio of private label credit sales to
total sales. The decrease also reflects the $10 million bad debt
provision made during the first half of the year as a result of the
termination of the service agreement with Citibank effective July 31, 1995.
(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
July 29, 1995
The decrease in other receivables of $9 million was primarily
due to the contractual arrangement with Citibank under which the
Company's share of finance charge income was remitted to the
bank in the first quarter of the ensuing year.
Inventories increased $61 million during the period primarily due
to the normal replenishment of inventory levels following the
Christmas promotional and January clearance periods. The increase of
$26 million in accounts payable was related to the increase in
inventory levels.
Accrued income taxes declined $29 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
1994 Annual Report.
The Company satisfies short-term financing needs primarily through
internally generated funds. On July 31, 1995 the Company terminated
a committed $175 million revolving credit facility and shortly
thereafter replaced it with a 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 rate based on
competitive bids or a predefined spread over the LIBOR rate. In addition,
the Company has available to it uncommitted lines of credit which total
$20 million. At July 29, 1995 and January 28, 1995, no balances were
outstanding under the $175 million line or the uncomitted arrangements.
The Company maintained significant cash balances throughout the
first half 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) The Annual Meeting of Stockholders of the Company was held
on May 24, 1995.
(b) At the Annual Meeting of Stockholders of the Company held
on May 24, 1995, 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 the
term expiring in 1998.
Nominee For Against
John A. Herdeg 33,420,059 215,562
Thomas J. Malone 33,419,301 216,320
Roger Milliken 33,416,539 219,082
Francis G. Rodgers 33,419,272 216,349
(2) the appointment of Arthur Andersen LLP, as independent
auditors. (33,546,158 votes in favor, 51,282 votes
against and 38,181 votes abstained)
(3) a Stockholder Proposal relating to the declassification
of the Board of Directors. (8,203,530 votes in favor,
21,606,893 votes against and 1,276,598 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 29, 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)
September 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 JULY 29, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> JUL-29-1995
<CASH> 121,725
<SECURITIES> 0
<RECEIVABLES> 510,174
<ALLOWANCES> 15,003
<INVENTORY> 529,581
<CURRENT-ASSETS> 1,205,578
<PP&E> 1,120,331
<DEPRECIATION> 440,640
<TOTAL-ASSETS> 1,966,469
<CURRENT-LIABILITIES> 253,338
<BONDS> 0
<COMMON> 5,403
0
0
<OTHER-SE> 1,392,443
<TOTAL-LIABILITY-AND-EQUITY> 1,966,469
<SALES> 1,240,610
<TOTAL-REVENUES> 1,245,306
<CGS> 468,917
<TOTAL-COSTS> 468,917
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,326
<INCOME-PRETAX> 10,824
<INCOME-TAX> 4,321
<INCOME-CONTINUING> 6,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,503
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
