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 August 3, 1996
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 Identification No.)
of incorporation)
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 17, 1996
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: Page
Consolidated Condensed Balance Sheets -
August 3, 1996 and February 3, 1996 3
Consolidated Condensed Statements of
Income - For the thirteen week and
twenty-six week periods ended
August 3, 1996 and July 29, 1996 4
Consolidated Condensed Statements of
Cash Flows - For the twenty-six weeeks
ended August 3, 1996 and
July 29, 1995 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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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
August 3, February 3,
1996 1996
Assets
Current Assets:
Cash and cash equivalents $ 177,922 $ 161,893
Receivables:
Customer, net 503,958 559,544
Other 11,367 15,078
Inventories 533,682 523,573
Other Assets 24,020 26,296
Total Current Assets 1,250,949 1,286,384
Prepaid Pension & Other
Noncurrent Assets 91,580 87,107
Property and Equipment, net 708,407 701,233
Total Assets $ 2,050,936 $ 2,074,724
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 138,359 $ 106,645
Notes payable and current
maturities of long-term debt 6,905 6,147
Accrued income taxes 13,338 40,533
Taxes other than income 26,509 21,352
Accrued payroll 27,177 28,585
Other current liabilities 39,149 69,546
Total Current Liabilities 251,437 272,808
Long-term Debt 250,604 254,926
Other Long-term Liabilities 56,341 61,877
Stockholders' Equity 1,492,554 1,485,113
Total Liabilities &
Stockholders' Equi ty $ 2,050,936 $ 2,074,724
The accompanying notes are an integral part of these balance sheets.
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share data)
Thirteen Weeks Twenty-Six Weeks
Ended Ended
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
Revenues $ 659,527 $ 642,448 $ 1,314,936 $ 1,245,306
Cost of goods sold
(including occupancy
and central buying
expenses) 467,927 468,917 920,896 895,923
Gross Profit 191,600 173,531 394,040 349,383
Expenses and Other Income:
Selling, general and
administrative expenses 168,112 165,423 336,363 325,417
Interest expense, net 2,222 3,938 4,636 7,914
Other income (2,755) (6,654) (5,069) (11,336)
Impairment charge - - 12,000 -
167,579 162,707 347,930 321,995
Income before Provision
for Income Taxes 24,021 10,824 46,110 27,388
Provision for income taxes 9,587 4,321 18,405 10,934
Net Income $ 14,434 $ 6,503 $ 27,705 $ 16,454
Net Income Per Share
(based on 36,844,050
shares outstanding) $ .39 $ .18 $ .75 $ .45
Dividends Declared
Per Share $ - $ - $ .55 $ .52
The accompanying notes are an integral part of these statements.
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Twenty-Six Weeks Ended
August 3, July 29,
1996 1995
Cash Flows From Operating Activities:
Net Income $ 27,705 $ 16,454
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 39,275 42,763
Deferred income taxes (4,881) (4,288)
Impairment charge 12,000 -
Equity in unremitted earnings of
affiliated companies 391 289
Net pension benefit (5,304) (7,323)
Change in inventories (10,109) (60,799)
Change in accounts receivable 59,297 91,132
Change in accounts payable 31,714 25,649
Net change in other working capital items (52,334) (40,049)
Net cash provided by operating activities 97,754 63,828
Cash Flows From Investing Activities:
Cash payments for property and equipment (57,796) (33,648)
Net change in other noncurrent assets and
liabilities (101) 14
Net cash used in investing activities (57,897) (33,634)
Cash Flows From Financing Activities:
Payments of notes payable and long-term debt (3,564) (3,547)
Dividends paid (20,264) (19,159)
Net cash used in financing activities (23,828) (22,706)
Net increase in cash and cash equivalents 16,029 7,488
Beginning cash and cash equivalents 161,893 114,237
Ending cash and cash equivalents $ 177,922 $ 121,725
Supplemental Cash Flow Information:
Interest paid $ 9,945 $ 10,808
Income taxes paid $ 52,946 $ 43,736
The accompanying notes are an integral part of these statements.
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Nature of Operations
Mercantile Stores Company, Inc. (the Company) is a conventional
department store retailer engaged in the general merchandising business.
The Company operates 97 department stores and four specialty stores
under 13 different names in a total of 17 states. The stores are
located in 50 different markets within these states. A subsidiary,
Mercantile Credit Corp., headquartered in Baton Rouge, Louisiana,
provides servicing for the Company's private label credit program.
In addition to its department store and credit operations, the Company
maintains a partnership interest in five operating shopping center
ventures and one land ownership venture.
2. 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
1996. 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 period
presented are not necessarily indicative of the results expected for the
year ending February 1, 1997.
3. Revenues
Revenues include sales from retail operations, leased departments and
finance charge revenue earned on customer accounts serviced by the Company
under its private label credit program. Finance charge revenue from the
Company's private label credit program is recognized in the period in
which it is earned. Finance charge revenue for the 1996 second quarter
and six month periods ending August 3, 1996 amounted to $20 million and
$42 million, respectively, compared to $2 million and $5 million for the
1996 second quarter and six month periods ending July 29, 1995. Prior
to August 1, 1995, the Company had in place an agreement whereunder a
bank serviced substantially all of its private label credit program.
The Company's share of finance charge income earned under the service
agreement was classified as a component of other income.
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
4. Short-term Investments
Short-term investments which have a maturity of ninety days or less are
considered cash equivalents.
5. 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 August 3, 1996 and February 3, 1996 are net of
an allowance for doubtful accounts of $17.3 million and $16.5 million,
respectively.
6. 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
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.
7. Impairment Charge
During the first quarter of 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of," which addresses the identification and measurement of asset
impairments and requires the recognition of impairment losses on
long-lived assets when carrying values exceed expected future cash flows.
The Company evaluated its investment in long-lived assets on an
individual store basis. Based upon an assessment of historical and
projected operating results, it was determined that the carrying value
of certain operating stores was impaired under the criteria defined in
SFAS No. 121. As a result, the Company recorded a pre-tax impairment
charge of $12 million (a net of tax impact of $7.2 million, or $.20 per
share) to write down the carrying value of these assets to their
estimated fair value. The fair value of these assets was based on
operating projections and discounted future cash flows.
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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 Second Quarter and Six
Month Periods of 1996 Compared to the Second Quarter and Six Month Periods
of 1995.
Revenues increased by 2.7% to $660 million in the 1996 second quarter and by
5.6% to $1,315 million in the six month period. Sales from retail operations
were $639 million in the 1996 second quarter, a decrease of .2% from the
second quarter of 1995 and were $1,273 million in the first half of 1996, an
increase of 2.6% over last year's similar period. Sales in comparable units
increased .3% in the second quarter and 3.1% in the first half of 1996.
Finance charge revenue increased to $20 million from $2 million in the 1996
second quarter and to $42 million from $5 million in the half-year period.
The increase in finance charge revenue in the 1996 periods was attributable
to changes in the servicing of the Company's private label credit program, as
discussed in Note 3 of Notes to Consolidated Condensed Financial Statements.
Cost of Goods Sold (COGS), as a percent to revenues, decreased 2.0% in the
1996 second quarter to 71.0%. For the six month period, COGS was 1.9% lower
than that experienced in the similar period of 1995. The improvement in both
1996 periods was attributable to the increase in finance charge revenue.
Excluding the influence of finance charge revenue, COGS for the 1996 second
quarter and six month period was approximately even with the prior year.
Merchandising margins improved by .5% in the 1996 second quarter and .3% in
the six month period and were partially offset by higher costs associated with
lower margin leased department sales (leased department sales increased 7% in
the 1996 second quarter and 14% in the six month period). An increase in the
estimated LIFO provision also served to increase COGS by .3% in each period.
Selling, general and administrative expenses, as a percent to revenues,
declined .3% to 25.5% in the 1996 second quarter and .5% to 25.6% for the six
month period. Marketing and other operating expenses decreased by .4% in the
1996 second quarter and were partially offset by a .1% increase in payroll and
payroll related expenses, reflecting the impact of the decline in retail
sales. The decrease in the six month period is attributable to a .2% decline
in payroll and payroll related expenses and a .3% reduction in marketing and
other operating expenses.
Interest expense, net, decreased $1.7 million and $3.3 million during the
1996 second quarter and six month periods, respectively. The decline in
both periods was primarily due to increased interest income earned on higher
levels of invested cash.
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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 Second Quarter and Six
Month Periods of 1996 Compared to the Second Quarter and Six Month Periods
of 1995.
Other income declined $ 3.9 million and $6.3 million in the 1996 second
quarter and six month periods, respectively. The decline in both periods was
attributable to the changes in the servicing of the Company's private label
credit program. Prior to August 1, 1995, the Company's share of finance
charge revenue earned under the servicing agreement with a bank was
classified as a component of other income.
During the first quarter of 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of," which addresses the
identification and measurement of asset impairments and requires the
recognition of impairment losses on long-lived assets when carrying values
exceed expected future cash flows. The application of this new accounting
standard resulted in a pre-tax impairment charge of $12 million to write down
the carrying value of certain operating stores to their estimated fair value.
The Company's effective tax rate was consistent for all reported periods
at 39.9%.
Material Changes in Financial Condition From February 3, 1996 to August 3, 1996
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 conditions at the above dates.
The increase in cash and cash equivalents of $16 million during the period was
attributable to the $98 million of cash generated by operations offset by $58
million of payments for capital expenditures and $24 million used for
financing activities.
Net customer receivables decreased $56 million in the period due to the normal
pay down of peak year-end balances.
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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 February 3, 1996 to August 3, 1996
Inventories increased $10 million in the period due to the normal
replenishment of inventory levels following the Christmas promotional and
January clearance periods. The increase of $32 million in accounts payable
is attributable to the inventory increase as well as timing differences in
the due dates of merchandise invoices.
Accrued income taxes declined $27 million due to payments on 1995 and 1996
income taxes, partially offset by the provision for taxes on 1996 income.
There have been no material changes in the Company's anticipated capital
expenditure requirements from those indicated in the 1995 Annual Report.
The Company satisfies short-term financing needs primarily through internally
generated funds. In addition, the Company has in place a committed,
unsecured $200 million revolving credit facility. This arrangement is with
a consortium of seven banks and expires in August, 2000. When used, interest
rates will be based, at the Company's option, on either the banks' best rates
under a competitive bid environment or a predefined spread over the LIBOR
rate. In addition to this committed facility, the Company has available
uncommitted lines of credit totaling $20 million. The Company maintained
significant cash balances throughout the first half of 1996 and it was not
necessary to use any of these credit arrangements 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 22, 1996.
(b) At the Annual Meeting of Stockholders of the Company heldon May 22, 1996,
the three matters described below were submitt to a vote of security
holders with the voting results indicated.
(1) the election of three directors of the Company to serve
a term of three years expiring in 1999.
Nominee For Withheld
Gerrish H. Milliken 33,351,432 234,692
David L. Nichols 33,340,533 245,591
Lawrence R. Pugh 33,352,328 233,796
(2) the appointment of Arthur Andersen LLP, as independent auditors.
(33,520,087 votes in favor, 22,561 votes against and
43,476 votes abstained)
(3) a Stockholder Proposal relating to the declassification of the
Board of Directors.
(9,715,177 votes in favor, 22,281,224 votes against and
1,589,723 votes abstained)
Item 6 - Exhibits and reports on form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed for the quarterly period ended
August 3, 1996.
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 17, 1996
(Date)
s/ 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, CONSOLIDATED CONDENSED STATEMENTS OF
INCOME AND CONSOLIDATED CONSENSED STATEMENTS OF CASH FLOWS FOR THE PERIOD ENDED
AUGUST 3, 1996 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> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 177,922
<SECURITIES> 0
<RECEIVABLES> 521,277
<ALLOWANCES> 17,319
<INVENTORY> 533,682
<CURRENT-ASSETS> 1,250,949
<PP&E> 1,180,953
<DEPRECIATION> 472,546
<TOTAL-ASSETS> 2,050,936
<CURRENT-LIABILITIES> 251,437
<BONDS> 0
<COMMON> 5,403
0
0
<OTHER-SE> 1,487,151
<TOTAL-LIABILITY-AND-EQUITY> 2,050,936
<SALES> 1,272,689
<TOTAL-REVENUES> 42,247
<CGS> 920,896
<TOTAL-COSTS> 920,896
<OTHER-EXPENSES> 12,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,223
<INCOME-PRETAX> 46,110
<INCOME-TAX> 18,405
<INCOME-CONTINUING> 27,705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,705
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
<FN>
<F1>ATTRIBUTABLE TO THE ADOPTION OF A NEW ACCOUNTING STANDARD RELATED TO THE
IMPAIRMENT OF LONG-LIVED ASSETS.
</FN>
</TABLE>
