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 3, 1997
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.
36,748,550 shares of Common Stock at $.14 2/3 par value
as of June 17, 1997
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 -
May 3, 1997 and February 1, 1997 3
Consolidated Condensed Statements of
Income - For the thirteen weeks
ended May 3, 1997 and May 4, 1996 4
Consolidated Condensed Statements of
Cash Flows - For the thirteen weeks
ended May 3, 1997 and May 4, 1996 5
Notes to Consolidated Condensed Financial
Statements 6 - 8
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial
Condition 9 - 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)
May 3, February 1,
1997 1997
Assets
Current Assets:
Cash and cash equivalents $ 139,669 $ 128,115
Receivables:
Customer, net 528,864 571,336
Other 13,541 16,851
Inventories 579,694 560,666
Other current assets 27,581 26,334
__________ __________
Total Current Assets 1,289,349 1,303,302
__________ __________
Prepaid Pension & Other Noncurrent Assets 104,666 100,994
__________ __________
Property and Equipment, net 746,305 738,207
__________ __________
Total Assets $ 2,140,320 $ 2,142,503
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 137,216 $ 112,485
Notes payable and current maturities
of long-term debt 22,271 25,017
Accrued income taxes 27,316 39,128
Taxes other than income 24,335 18,876
Accrued payroll 17,858 27,825
Other current liabilities 59,010 62,438
__________ ___________
Total Current Liabilities 288,006 285,769
__________ ___________
Long-term Debt 229,127 229,910
__________ ___________
Other Long-term Liabilities 63,606 61,511
__________ ___________
Stockholders' Equity 1,559,581 1,565,313
__________ ___________
Total Liabilities & Stockholders' Equity $ 2,140,320 $ 2,142,503
=========== ===========
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 INCOME
(in thousands, except per share data)
Thirteen Weeks Ended
May 3, May 4,
1997 1996
Revenues $ 683,298 $ 655,409
Cost of goods sold (including occupancy
and central buying expenses) 478,928 452,969
__________ __________
Gross Profit 204,370 202,440
Expenses and Other Income:
Selling, general and
administrative expenses 172,642 168,251
Interest expense, net 3,235 2,414
Other income (3,252) (2,314)
Impairment charge - 12,000
__________ __________
172,625 180,351
__________ __________
Income before Provision for Income Taxes 31,745 22,089
Provision for income taxes 12,437 8,818
__________ __________
Net Income $ 19,308 $ 13,271
=========== ===========
Earnings Per Share $ .52 $ .36
=========== ===========
Dividends Declared Per Share $ .58.5 $ .55
=========== ===========
Weighted Average Shares Outstanding 36,835,783 36,844,050
=========== ===========
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 3, May 4,
1997 1996
Cash Flows From Operating Activities:
Net Income $ 19,308 $ 13,271
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,727 19,602
Deferred income taxes 1,813 (3,594)
Impairment charge - 12,000
Net pension benefit (3,933) (3,552)
Change in inventories (19,028) (45,199)
Change in accounts receivable 45,782 31,186
Change in accounts payable 24,731 41,300
Net change in other working capital items (31,200) (45,225)
___________ ___________
Net cash provided by operating activities 56,200 19,789
___________ ___________
Cash Flows From Investing Activities:
Cash payments for property and equipment (26,850) (8,047)
Net change in other noncurrent assets
and liabilities (280) 265
___________ ___________
Net cash used in investing activities (27,130) (7,782)
___________ ___________
Cash Flows From Financing Activities:
Payments of notes payable
and long-term debt (3,529) (2,816)
Repurchase of common stock (3,487) -
Dividends paid (10,500) (9,763)
___________ ___________
Net cash used in financing activities (17,516) (12,579)
___________ ___________
Net increase (decrease) in cash
and cash equivalents 11,554 (572)
Beginning cash and cash equivalents 128,115 161,893
___________ ___________
Ending cash and cash equivalents $ 139,669 $ 161,321
============ ============
Supplemental Cash Flow Information:
Interest paid $ 8,505 $ 8,599
Income taxes paid $ 18,830 $ 24,385
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 depart-
ment store retailer engaged in the general merchandising business. The
Company operates 102 department stores and 15 home fashion stores under 13
different names in a total of 17 states. A subsidiary, Mercantile Credit
Corp., provides servicing for the Company's private label credit program.
The Company also 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 regula-
tions 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 1997 fiscal year.
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
January 31, 1998.
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 is
recognized in the period in which it is earned. Finance charge revenue
amounted to $22 million in both the 1997 and 1996 first quarter.
4. Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term, highly liquid
investments with a maturity of ninety days or less.
(Continued)
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Continued)
5. Customer Receivables
Customer receivables are classified as current assets and, consistent with
industry practice, include some amounts which are due after one year.
Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's credit
card base, and their geographic dispersion across the country. Customer
receivables at May 3, 1997 and February 1, 1997 are net of an allowance for
doubtful accounts of $16.5 million and $16.4 million, respectively.
6. Merchandise Inventories
All retail inventories are valued by the retail method and stated on the
last-in, first-out (LIFO) cost 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. Stockholders' Equity
During the first quarter of 1997, the Board of Directors authorized the
Company to purchase up to 1,500,000 shares of its common stock in the open
market over a time frame which may extend to ten years. These shares are to
be held as Treasury stock and are to be used solely to satisfy requirements
arising from the exercise of options granted under the Stock Option Plan, as
discussed in Note 8 of Notes to Consolidated Condensed Financial Statements.
During the quarter ended May 3, 1997, under this program, the Company
purchased 73,300 shares of its common stock at a cost of approximately
$3.5 million.
The following is a summary of the changes in stockholders' equity for the
quarter ending May 3, 1997 (in thousands):
Common Stock Addt'l
Issued Treasury Paid In Retained
Shares Amount Shares Amount Capital Earnings
Balance at
February 1, 1997 36,887 $ 5,410 43 $ 7 $ 6,018 $1,553,892
Treasury stock
acquired - - 73 3,487 - -
Dividends
declared - - - - - (21,553)
Net Income - - - - - 19,308
Balance at May
3, 1997 36,887 $ 5,410 116 $3,494 $ 6,018 $1,551,647
(Continued)
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<PAGE>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Continued)
8. 1996 Stock Option Plan
On December 3, 1996, the Company adopted the Mercantile Stores Company, Inc.
1996 Stock Option Plan (the Plan), which provides for the issuance of stock
option awards, beginning in 1997, to certain employees designated by the
Company's Board of Directors. Stock options awarded under the Plan will
be granted at an exercise price equal to the fair market value of the
Company's common stock on the date of grant and will generally become
exercisable in equal increments over a four-year period. The maximum
number of shares available for awards under the Plan is 1,500,000.
During the quarter ended May 3, 1997, 95,500 stock options were
granted under the Plan at an exercise price of $48.06 per share.
9. 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.
10. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share," which establishes new standards for computing
and presenting earnings per share (EPS). SFAS No. 128 replaces the
presentation of primary EPS with basic EPS and requires the presentation
of diluted EPS for all entities with complex capital structures. Basic
EPS excludes all dilution, while diluted EPS reflects the potential
dilution that could occur if stock options or other contracts to issue
common stock were exercised. The provisions of SFAS No. 128 are
required to be adopted for all financial statements issued after
December 15, 1997 and prior-period EPS data must be restated to conform
with the requirements of this new standard. Under SFAS No. 128, basic
EPS and diluted EPS for the quarters ended May 3, 1997 and May 4, 1996
would have been identical to the EPS data reported.
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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 1997
Compared to the First Quarter of 1996
Revenues increased by 4.3% to $683 million in the 1997 first quarter. Sales
from retail operations were $661 million, a 4.4% increase from the 1996 first
quarter. Sales in comparable units increased 1.3% in the quarter. Finance
charge revenue totaled $22 million in both the 1997 and 1996 first quarters.
Cost of Goods Sold, as a percent to revenues, was 70.1% in 1997 compared to
69.1% in 1996. Merchandise margins declined by approximately 1.6%, primarily
due to an increase in markdowns. This was partially offset by a .4% reduction
in the estimated LIFO provision and a .2% lower shrinkage provision.
Selling, general and administrative expenses, as a percent to revenues, were
25.3% in the 1997 first quarter compared to 25.7% in the prior year.
The decline in the current year was primarily attributable to a .2% reduction
in payroll and payroll related expenses, a .1% decline in marketing
expense and a .3% reduction in other operating expenses. These expense
reductions were partially offset by a .2% increase in the provision for bad
debts.
Interest expense, net, increased $.8 million during the 1997 first quarter.
The increase was primarily due to a combination of a decline in interest income
earned on lower levels of invested cash and a decrease in capitalized interest
attributable to a reduction in new store construction during the period.
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.
(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 February 1, 1997 to May 3, 1997
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 $12 million during the period was
attributable to the $56 million of cash generated by operations, which
was partially offset by $27 million of payments for capital expenditures and
$17 million of requirements for financing activities.
Net customer receivables decreased approximately $42 million due to the
normal paydown of peak year-end balances.
Inventories increased $19 million during the period due to the normal
replenishment of inventory levels following the Christmas promotional and
January clearance periods. The $25 million 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 1996 Annual Report.
As referenced in Note 8 of Notes to Consolidated Condensed Financial
Statements, the Company has adopted a Stock Option Plan under which options
covering 95,500 shares were granted by the end of the 1997 first quarter. As
indicated in Note 7 of Notes to Consolidated Condensed Financial Statements,
it is the Company's intent to purchase in the open market and hold in the
Treasury shares equal to those eventually exercisable under such Stock
Option Plan. At May 3, 1997, 73,300 shares had been purchased under this
program at an approximate cost of $3.5 million.
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 three months of 1997 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) There were no matters submitted to a vote of security holders
during the quarterly period ended May 3, 1997.
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 3, 1997.
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, 1997
(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
CONSOILDATED CONDENSED BALANCE SHEETS, CONSOLIDATED CONDENSED STATEMENTS OF
INCOME AND CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE PERIOD ENDED
MAY 3, 1997 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> JAN-31-1998
<PERIOD-END> MAY-03-1997
<CASH> 139,669
<SECURITIES> 0
<RECEIVABLES> 545,356
<ALLOWANCES> 16,492
<INVENTORY> 579,694
<CURRENT-ASSETS> 1,289,349
<PP&E> 1,164,858
<DEPRECIATION> 418,553
<TOTAL-ASSETS> 2,140,320
<CURRENT-LIABILITIES> 288,006
<BONDS> 0
0
0
<COMMON> 5,410
<OTHER-SE> 1,554,171
<TOTAL-LIABILITY-AND-EQUITY> 2,140,320
<SALES> 661,094
<TOTAL-REVENUES> 683,298
<CGS> 478,928
<TOTAL-COSTS> 478,928
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,901
<INCOME-PRETAX> 31,745
<INCOME-TAX> 12,437
<INCOME-CONTINUING> 19,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,308
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
