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 November 2, 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 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 December 3, 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:
Consolidated Condensed Balance Sheets -
November 2, 1996 and February 3, 1996 3
Consolidated Condensed Statements of
Income - For the thirteen and thirty-nine weeks
ended November 2, 1996 and October 28, 1995 4
Consolidated Condensed Statements of
Cash Flows - For the thirty-nine weeks
ended November 2, 1996 and October 28, 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
- 2 -
<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
November 2, February 3,
1996 1996
Assets ____________ __________
Current Assets:
Cash and cash equivalents $ 57,340 $ 161,893
Receivables:
Customer, net 526,373 559,544
Other 12,816 15,078
Inventories 707,166 523,573
Other current assets 23,258 26,296
------------ ------------
Total Current Assets 1,326,953 1,286,384
Prepaid Pension & Other Noncurrent
Assets 94,710 87,107
Property and Equipment, net 729,817 701,233
------------ ------------
Total Assets $ 2,151,480 $ 2,074,724
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 201,307 $ 106,645
Notes payable and current maturities
of long-term debt 25 942 6,147
Accrued income taxes 22,211 40,533
Taxes other than income 30,123 21,352
Accrued payroll 27,987 28,585
Other current liabilities 54,797 69,546
----------- -----------
Total Current Liabilities 362,367 272,808
Long-term Debt 230,899 254,926
Other Long-term Liabilities 55,573 61,877
Stockholders' Equity 1,502,641 1,485,113
Total Liabilities & Stockholders' ------------ ------------
Equity $ 2,151,480 $ 2,074,724
============ ============
The accompanying notes are an integral part of these balance sheets.
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<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
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 727,741 $ 694,765 $ 2,042,677 $ 1,940,071
Cost of goods sold (including occupancy
and central buying expenses) 495,379 470,813 1,416,275 1,366,736
------------- ----------- ----------- -----------
Gross Profit 232,362 223,952 626,402 573,335
------------- ----------- ----------- -----------
Expenses and Other Income:
Selling, general and
administrative expenses 180,814 173,859 517,177 499,276
Interest expense, net 2,387 3,265 7,023 11,179
Other income (2,590) (1,792) (7,659) (13,128)
Impairment charge - - 12,000 -
------------- ----------- ----------- -----------
180,611 175,332 528,541 497,327
Income before Provision
for Income Taxes 51,751 48,620 97,861 76,008
Provision for income taxes 20,663 19,410 39,068 30,344
------------- ----------- ----------- -----------
Net Income $ 31,088 $ 29,210 $ 58,793 $ 45,664
============= =========== =========== ===========
Net Income Per Share (based on ------------- ----------- ----------- -----------
36,844,050 shares outstanding) $ .85 $ .79 $ 1.60 $ 1.24
============= =========== =========== ===========
------------- ----------- ----------- -----------
Dividends Declared Per Share $ .57 $ .53 $ 1.12 $ 1.05
============= =========== =========== ===========
The accompanying notes are an integral part of these statements.
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</TABLE>
<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Thirty-Nine Weeks Ended
November 2, October 28
1996 1995
Cash Flows From Operating Activities:
Net Income $ 58,793 $ 45,664
Adjustments to reconcile net income to net
Depreciation and amortization 61,346 65,082
Deferred income taxes (4,671) (3,429)
Impairment charge 12,000 -
Equity in unremitted earnings of affiliated companies 299 296
Net pension benefit (8,856) (10,995)
Change in inventories (183,593) (215,528)
Change in accounts receivable 35,433 92,775
Change in accounts payable 94,662 91,962
Net change in other working capital items (32,744) (11,987)
----------- -----------
Net cash provided by operating activities 32,669 53,840
----------- -----------
Cash Flows From Investing Activities:
Cash payments for property and equipment (101,891) (56,007)
Net change in other noncurrent assets
and liabilities (335) 67
----------- ----------
Net cash used in investing activities (102,226) (55,940)
----------- ----------
Cash Flows From Financing Activities:
Payments of notes payable and long-term debt (4,232) (4,249)
Dividends paid (30,764) (28,922)
----------- ---------
Net cash used in financing activities (34,996) (33,171)
----------- ---------
Net decrease in cash and cash equivalents (104,553) (35,271)
Beginning cash and cash equivalents 161,893 114,237
----------- -----------
Ending cash and cash equivalents $ 57,340 $ 78,966
=========== ============
Supplemental Cash Flow Information:
Interest paid $ 18,516 $ 19,441
Income taxes paid $ 62,912 $ 47,310
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 102 department stores and four specialty stores under 13 different
names in a total of 17 states. The stores are located in 53 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 periods
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 recognize period in which it is
earned. Finance charge revenue for the 1996 third quarter and nine month
periods ending November 2, 1996 amounted to $20 million and $63 million,
respectively, compared to $21 million and $25 million, respectively, for
the 1995 third quarter and nine month periods. Prior to August 1, 1995,
the Company had in place an agreement whereunder a bank serviced
substantially all of its private label credit program and under that
arrangement the Company's share of finance charge income 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, consistent with
industry practice, include some amounts which are due after one year.
Customer receivables at November 2, 1996 and February 3, 1996 are net of
an allowance for doubtful accounts of $16.6 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 evalusted 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 Third Quarter and Nine
Month Periods of 1996 Compared to the Third Quarter and Nine Month Periods of
1995.
Revenues increased by 4.7% to $728 million in the 1996 third quarter and by
5.3% to $2,043 million in the nine month period. Sales from retail operations
were $707 million, a 4.9% increase from the 1995 third quarter and $1,980
million, a 3.4% increase over last year's nine month period. Sales in comparable
units also increased 4.9% in the quarter. Sales from four new units opened this
October essentially offset the sales which were lost from the two units which
were closed at the end of last year. In the nine month period, comparable unit
sales increased 3.7%. Finance charge revenue was relatively flat in the quarter
and increased to $63 million from $25 million in the nine month period. The
fluctuation in finance charge revenue in the nine month period 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, increased .3% in the 1996
third quarter to 68.1%. For the nine month period, COGS decreased by 1.1% from
the comparable 1995 period to 69.3%. Excluding the influence of finance charge
revenue, COGS, as a percent of retail sales, increased by .2% in both the 1996
third quarter and nine month periods. Merchandise margins improved by .2% in
the quarter and .3% in the nine month period and were partially offset by a .1%
and .2% increase, respectively, in costs associated with lower margin leased
department sales (leased department sales increased by 10% in the third quarter
and 13% in the nine month period). An increase in the estimated LIFO provision
also served to increase COGS by .3% in each period.
Selling, general and administrative expenses (SG&A), as a percent to revenues,
decreased .2% to 24.9% for the 1996 third quarter and .4% to 25.3% for the nine
month period. Payroll and payroll related expenses decreased by .4% in the 1996
third quarter and were partially offset by a .2% increase in other operating
expenses. The decrease in the nine month period was attributable to a .3%
reduction in payroll and related expenses coupled with a .1% reduction in
marketing expenses. These ratios include the impact of expenses associated with
the new store openings which served to increase SG&A by .2% in the 1996 third
quarter and .1% in the nine month period.
Interest expense, net, decreased $.9 million and $4.1 million during the 1996
third quarter and nine month periods, respectively. The decline in both periods
was primarily due to a combination of increased interest income earned on
higher levels of invested cash and higher levels of capitalized interest
attributable to new store construction.
Other income was essentially flat in the quarter and decreased $5.5 million in
the nine month period. The decline in the latter period was attributable to the
change 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.
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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 Nine
Month Periods of 1996 Compared to the Third Quarter and Nine Month Periods of
1995.
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.
Material Changes in Financial Condition From February 3, 1996 to
November 2, 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 decrease of $104 million in cash and cash equivalents during the period was
attributable to the $102 million of payments for capital expenditures
(primarily for new store construction, as discussed on page 10) and $35 million
of requirements for financing activities. These cash outflows were partially
offset by $33 million of cash generated by operations.
Net customer receivables decreased $33 million in the period due to the normal
pay down of peak year-end balances.
Inventories increased $184 million during the period primarily due to the normal
replenishment of inventory levels which are traditionally at their low point
at the fiscal year end and approximate peak levels by the end of third quarter.
Merchandise requirements for new stores (approximately $31 million) also
contributed to this increase. The increase of $94 million in accounts payable
was significantly attributable to the increase in inventory levels.
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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
November 2, 1996
There have been no material changes in the Company's anticipated capital
expenditure requirements from those indicated in the 1995 Annual Report.
During the 1996 third quarter, the Company opened four new stores; a 217,000
square foot Gayfers store in Orlando, Florida; a 186,000 square foot J.B.
White store in Columbia, South Carolina; a 158,000 square foot J. B. White
store in Spartanburg, South Carolina (a new market for the Company); and a
212,000 square foot McAlpin's store in Dayton, Ohio (also a new market for
the Company). Additionally, in mid-November a 110,000 square foot Castner
Knott store was opened in Murfreesboro, Tennessee (a new market). These new
store openings, which have added almost 900,000 square feet to the Company's
base, constitute the largest annual square footage addition (other than
acquisitions) in the Company's history.
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 nine months of 1996 and it was not necessary to
use any of these credit arrangements during the period.
- 10 -
<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 November 2, 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 November 2, 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)
December 2, 1996
(Date)
s/ James M. McVicker
(James M. McVicker, Senior Vice
President, and Chief Financial
Officer)
- 11 -
<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
NOVEMBER 2, 1996 AND IS QUALIFIED IN THE ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> NOV-02-1997
<CASH> 57,340
<SECURITIES> 0
<RECEIVABLES> 542,991
<ALLOWANCES> 16,618
<INVENTORY> 707,166
<CURRENT-ASSETS> 1,326,953
<PP&E> 1,224,437
<DEPRECIATION> 494,620
<TOTAL-ASSETS> 2,151,480
<CURRENT-LIABILITIES> 362,367
<BONDS> 0
<COMMON> 5,403
0
0
<OTHER-SE> 1,497,238
<TOTAL-LIABILITY-AND-EQUITY> 2,151,480
<SALES> 1,979,935
<TOTAL-REVENUES> 2,042,677
<CGS> 1,416,275
<TOTAL-COSTS> 1,416,275
<OTHER-EXPENSES> 12,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,999
<INCOME-PRETAX> 97,861
<INCOME-TAX> 39,068
<INCOME-CONTINUING> 58,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,793
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.60
<FN>
<F1>ATTRIBUTABLE TO THE ADOPTION OF A NEW ACCOUNTING STANDARD RELATED TO THE
IMPAIRMENT OF LONG-LIVED ASSETS.
</FN>
</TABLE>
