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 May 4, 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 (I.R.S. Employer
jurisdiction 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 June 17, 1996
Total number of sequentially numbered pages in this filing, including
exhibits thereto: 10
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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 -
May 4, 1996 and February 3, 1996 3
Consolidated Condensed Statements of
Income - For the thirteen weeks ended
May 4, 1996 and April 29, 1995 4
Consolidated Condensed Statements of
Cash Flows - For the thirteen weeks
ended May 4, 1996 and April 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 - 9
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of
Security Holders 10
Item 6 - Exhibits and Reports on Form 8-K 10
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
May 4, February 3,
1996 1996
Assets
Current Assets:
Cash and cash equivalents $ 161,321 $ 161,893
Receivables:
Customer, net 529,573 559,544
Other 13,863 15,078
Inventories 568,772 523,573
Other current assets 23,992 26,296
--------- ---------
Total Current Assets 1,297,521 1,286,384
Prepaid Pension & Other
Noncurrent Assets 90,296 87,107
Property and Equipment, net 678,331 701,233
--------- ---------
Total Assets $ 2,066,148 $ 2,074,724
--------- ---------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 147,945 $ 106,645
Notes payable and current
maturities of long-term debt 6,861 6,147
Accrued income taxes 28,615 40,533
Taxes other than income 24,456 21,352
Accrued payroll 22,791 28,585
Other current liabilities 48,790 69,546
--------- ---------
Total Current Liabilities 279,458 272,808
Long-term Debt 251,396 254,926
Other Long-term Liabilities 57,174 61,877
Stockholders' Equity 1,478,120 1,485,113
Total Liabilities & --------- ---------
Stockholders' Equity $ 2,066,148 $ 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 Ended
May 4, April 29,
1996 1995
Revenues $ 655,409 $ 602,858
Cost of goods sold (including
occupancy and central
buying expenses) 452,969 427,006
------- -------
Gross Profit 202,440 175,852
Expenses and Other Income:
Selling, general and
administrative expenses 168,251 159,994
Interest expense, net 2,414 3,976
Other income (2,314) (4,682)
Impairment charge 12,000 -
------- -------
180,351 159,288
Income before Provision for ------- -------
Income Taxes 22,089 16,564
Provision for income taxes 8,818 6,613
------- -------
Net Income $ 13,271 $ 9,951
------- -------
Net Income Per Share (based on
36,844,050 shares outstanding) $ .36 $ .27
------- -------
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)
Thirteen Weeks Ended
May 4, April 29,
1996 1995
Cash Flows From Operating Activities:
Net Income $ 13,271 $ 9,951
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19,602 21,354
Deferred income taxes (3,594) (1,241)
Impairment charge 12,000 -
Equity in unremitted earnings of
affiliated companies 183 (17)
Net pension benefit (3,552) (3,651)
Change in inventories (45,199) (75,930)
Change in accounts receivable 31,186 56,349
Change in accounts payable 41,300 38,779
Net change in other working capital items (45,225) (37,683)
-------- -------
Net cash provided by operating activities 19,972 7,911
Cash Flows From Investing Activities:
Cash payments for property and equipment (8,047) (12,296)
Net change in other noncurrent assets and
liabilities 82 (1)
------- -------
Net cash used in investing activities (7,965) (12,297)
Cash Flows From Financing Activities:
Payments of notes payable and long-term debt (2,816) (2,732)
Dividends paid (9,763) (9,395)
------- -------
Net cash used in financing activities (12,579) (12,127)
------- -------
Net decrease in cash and cash equivalents (572) (16,513)
------- -------
Beginning cash and cash equivalents 161,893 114,237
------- -------
Ending cash and cash equivalents $ 161,321 $ 97,724
------- -------
Supplemental Cash Flow Information:
Interest paid $ 8,599 $ 9,251
Income taxes paid $ 24,385 $ 26,410
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 4 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 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 amounted to $22
million in 1996 and $3 million in 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 this service agreement was classified as a
component of other income.
(Continued)
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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 May 4, 1996 and February 3, 1996 are net of an
allowance for doubtful accounts of $15.7 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
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.
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 $.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 First Quarter of 1996
Compared to the First Quarter of 1995.
Revenues increased by 8.7% to $655 million in the first quarter of 1996. Sales
from retail operations were $633 million in the quarter, an increase of
5.6% over the first quarter of 1995. Retail sales in comparable operations
increased 6.1% during the period. Finance charge revenue totaled $22 million
in the first quarter of 1996 compared to $3 million in the first quarter of
1995. The increase in finance charge revenue is attributable to changes in
the servicing of the Company's private label credit programs, as discussed
in Note 3 of Notes to Consolidated Condensed Financial Statements.
Cost of goods sold (COGS), as a percent to revenues, was 69.1% in 1996
compared to 70.8% last year. The improvement during the period was
attributable to the increase in finance charge revenue. Excluding the impact
of finance charge revenue, COGS as a percent to retail sales, increased by
.4% in comparison to the prior year. This increase was primarily attributable
to a 23% increase in lower margin leased department sales partially offset by
a decrease in occupancy costs. An increase in the estimated LIFO provision
also served to increase COGS by .2%.
Selling, general and administrative expenses, as a percent to total revenue,
were 25.7% in the 1996 quarter versus 26.5% last year. Payroll and payroll
related expenses declined .6% due to higher productivity levels associated
with the increase in retail sales and finance charge revenue. Bad debt
expense declined .4%, as the 1995 first quarter reflected a $5 million charge
for the partial establishment of a bad debt reserve in preparation for
the Company assuming full responsibility for servicing its private label
credit program. Other operating expenses increased .2% in the 1996 first
quarter.
Interest expense, net, decreased $1.6 million in the quarter. This decline
primarily resulted from increased interest income earned on higher levels
of invested cash.
The decline of $2.3 million in other income in the quarter 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 Citibank 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 both reported periods
at 39.9%.
(Continued)
-8-
<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 May 4, 1996
The retail business is highly seasonal with approximately one-third of
annual sales being generated in the fourth quarter which encompass the
important Christmas selling season. As a result, significant variations
can occur when comparing financial condition at the above dates.
The Company's cash position remained consistent between the reported periods
as the $20 million of cash provided by operations was absorbed by cash used
for investing and financing activities.
Net customer receivables decreased $30 million due to the normal pay down of
peak year-end balances
Inventories increased $45 million in the quarter due to the normal
replenishment of inventory levels following the Christmas promotional and
January clearance periods. The increase in accounts payable is partially
attributable to this inventory increase.
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 its 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 a five year agreement, expiring in August, 2000, and is with a consortium
of seven banks. 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 to it uncommitted lines of credit
totaling $20 million. The Company maintained significant cash balances
throughout the first quarter of 1996 and it was not necessary to use any
of these credit arrangements during the period.
(Continued)
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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 May 4, 1996.
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 May 4, 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)
June 17,1996
(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, CONSOLIDATED CONDENSED STATEMENTS OF
INCOME AND CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE PERIOD ENDED
MAY 4, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 161,321
<SECURITIES> 0
<RECEIVABLES> 545,288
<ALLOWANCES> 15,715
<INVENTORY> 568,772
<CURRENT-ASSETS> 1,297,521
<PP&E> 1,133,087
<DEPRECIATION> 454,756
<TOTAL-ASSETS> 2,066,148
<CURRENT-LIABILITIES> 279,458
<BONDS> 0
<COMMON> 5,403
0
0
<OTHER-SE> 1,472,717
<TOTAL-LIABILITY-AND-EQUITY> 2,066,148
<SALES> 633,273
<TOTAL-REVENUES> 655,409
<CGS> 454,969
<TOTAL-COSTS> 454,969
<OTHER-EXPENSES> 12,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,332
<INCOME-PRETAX> 22,089
<INCOME-TAX> 8,818
<INCOME-CONTINUING> 13,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,271
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
<FN>
<F1>ATTRIBUTABLE TO THE ADOPTION OF A NEW ACCOUNTING STANDARD RELATED TO THE
IMPAIRMENT OF LONG-LIVED ASSETS.
</FN>
</TABLE>
