SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 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 (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.
36,748,550 shares of Common Stock at $.14 2/3 par value
as of September 16, 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 -
August 2, 1997 and February 1, 1997 3
Consolidated Condensed Statements of
Income - For the thirteen and twenty-six
weeks ended August 2, 1997 and August 3, 1996 4
Consolidated Condensed Statements of
Cash Flows - For the twenty-six weeks
ended August 2, 1997 and August 3, 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)
August 2, February 1,
1997 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 187,863 $ 128,115
Receivables:
Customer, net 509,403 571,336
Other 13,227 16,851
Inventories 544,433 560,666
Other current assets 28,378 26,334
_____________ _____________
Total Current Assets 1,283,304 1,303,302
_____________ _____________
Prepaid Pension &
Other Noncurrent Assets 108,397 100,994
_____________ _____________
Property and Equipment, net 765,245 738,207
_____________ _____________
Total Assets $ 2,156,946 $ 2,142,503
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 152,143 $ 112,485
Notes payable and current
maturities of long-term debt 22,291 25,017
Accrued income taxes 13,741 39,128
Taxes other than income 26,331 18,876
Accrued payroll 24,462 27,825
Other current liabilities 51,008 62,438
_____________ _____________
Total Current Liabilities 289,976 285,769
_____________ _____________
Long-term Debt 228,362 229,910
_____________ _____________
Other Long-term Liabilities 64,763 61,511
_____________ _____________
Stockholders' Equity 1,573,845 1,565,313
_____________ _____________
Total Liabilities &
Stockholders' Equity $ 2,156,946 $ 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 and share data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
__________ __________ __________ __________
Revenues $ 692,905 $ 659,527 $ 1,376,203 $ 1,314,936
Cost of goods sold
(including occupancy
and central buying
expenses) 494,063 467,927 972,991 920,896
____________ ____________ ____________ ____________
Gross Profit 198,842 191,600 403,212 394,040
____________ ____________ ____________ ____________
Expenses and Other Income:
Selling, general
and administrative
expenses 173,593 168,112 346,235 336,363
Interest expense, net 2,372 2,222 5,607 4,636
Other income (2,401) (2,755) (5,653) (5,069)
Impairment charge - - - 12,000
____________ ____________ ____________ ____________
173,564 167,579 346,189 347,930
____________ ____________ ____________ ____________
Income before Provision
for Income Taxes 25,278 24,021 57,023 46,110
Provision for income taxes 9,930 9,587 22,367 18,405
____________ ____________ ____________ ____________
Net Income $ 15,348 $ 14,434 $ 34,656 $ 27,705
============ ============ ============ ============
Net Income Per Share $ .42 $ .39 $ .94 $ .75
============ ============ ============ ============
Dividends Declared
Per Share $ - $ - $ .58.5 $ .55
============ ============ ============ ============
Weighted Average
Shares Outstanding 36,766,900 36,844,050 36,802,220 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)
Twenty-Six Weeks Ended
August 2, August 3,
1997 1996
____________ ____________
Cash Flows From Operating Activities:
Net Income $ 34,656 $ 27,705
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 37,655 39,275
Deferred income taxes 3,480 (4,881)
Impairment charge - 12,000
Equity in unremitted earnings
of affiliated companies 116 391
Net pension benefit (7,866) (5,304)
Change in inventories 16,233 (10,109)
Change in accounts receivable 65,557 59,297
Change in accounts payable 39,658 31,714
Net change in other working
capital items (34,876) (52,334)
_____________ _____________
Net cash provided by operating activities 154,613 97,754
_____________ _____________
Cash Flows From Investing Activities:
Cash payments for property
and equipment (64,737) (57,796)
Net change in other noncurrent
assets and liabilities 270 (101)
_____________ _____________
Net cash used in investing activities (64,467) (57,897)
_____________ _____________
Cash Flows From Financing Activities:
Payments of notes payable
and long-term debt (4,274) (3,564)
Repurchase of common stock (4,599) -
Dividends paid (21,525) (20,264)
_____________ _____________
Net cash used in financing activities (30,398) (23,828)
_____________ _____________
Net increase in cash and cash equivalents 59,748 16,029
Beginning cash and cash equivalents 128,115 161,893
_____________ _____________
Ending cash and cash equivalents $ 187,863 $ 177,922
============= =============
Supplemental Cash Flow Information:
Interest paid $ 9,786 $ 9,954
Income taxes paid $ 40,809 $ 52,946
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 for the 1997
second quarter and six-month period ending August 2, 1997 amounted to $21
million and $43 million, respectively, compared to $20 million and $42
million for the second quarter and six-month period ending August 3, 1996.
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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MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Continued)
5. Customer Receivables
Customer receivables at August 2, 1997 and February 1, 1997 are net of an
allowance for doubtful accounts of $15.9 million and $16.4 million,
respectively. 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.
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 require-
ments 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 six-month period ended August 2, 1997, under this
program, the Company purchased 95,500 shares of its common stock at a cost
of approximately $4.6 million.
The following is a summary of the changes in stockholders' equity for the
six months ended August 2, 1997 (in thousands):
Common Stock
Issued Treasury Addt'l
_______________ ______________ 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 - - 96 4,599 - -
Dividends
declared - - - - - (21,525)
Net Income - - - - - 34,656
Balance at ______ _______ _____ ______ _______ __________
August 2, 1997 36,887 $ 5,410 139 $ 4,606 $ 6,018 $1,567,023
====== ======= ===== ======= ======= ==========
(Continued)
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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 six-month
period ended August 2, 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 quarter
and six-month periods ended August 2, 1997 and August 3, 1996 would have
been identical to the EPS data reported.
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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 1997 Compared to the Second Quarter and Six-Month
Periods of 1996
Revenues increased by 5% to $693 million in the 1997 second quarter and by
4.7% to $1,376 million in the six-month period. Sales from retail operations
amounted to $672 million in the 1997 second quarter, an increase of 5.1% over
the second quarter of 1996 and were $1,333 million in the first half of 1997,
an increase of 4.7% over last year's similar period. Comparable store sales
increased 2.1% in the quarter and 1.7% in the 1997 six-month period. Finance
charge revenue increased 4.4% to $21 million in the 1997 second quarter and
by 2.2% to $43 million in the six-month period.
Cost of Goods Sold (COGS), as a percent to revenues, increased .4% to 71.3%
in the second quarter of 1997. For the six-month period, COGS increased .7%
from the comparable 1996 period to 70.7%. Merchandise margins declined by .9%
in the 1997 second quarter and 1.2% in the six-month period. The decline in
merchandise margins in both the 1997 second quarter and six-month periods was
primarily due to increased markdowns partially offset by an improvement in
shrinkage expense. Further offsetting this overall increase in COGS was a
reduction of .4% in the estimated LIFO provision and a .1% in occupancy costs
in both periods.
Selling, general and administrative expenses, as a percent to revenues,
declined .4% in both the second quarter and six-month period of 1997. The
decline in the second quarter is attributable to a reduction of .3% in payroll
and related payroll benefits coupled with a net decline of .1% in other
operating expenses. The improvement in the six-month period is primarily due
to a decrease in payroll and related payroll benefits of .2% and a reduction
in other operating expenses of .2%.
Net Interest expense increased $.2 million during the second quarter of 1997
and $1 million in the six-month period. The increase in both periods reflects
a decline in capitalized interest attributable to a reduction in new store
construction during the year.
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 recogni-
tion 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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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 August 2, 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 of $60 million in cash and cash equivalents during the period was
attributable to the $155 million of cash generated by operations, which was
partially offset by $65 million of payments for capital expenditures and
$30 million of requirements for financing activities.
Net customer receivables decreased approximately $62 million due to the normal
paydown of peak year-end balances.
The $16 million decrease in inventory is primarily attributable to management's
initiative to bring inventory levels in line with anticipated sales volume,
particularly in home and home related areas.
Accrued income taxes declined $25 million due to payments of federal and state
income taxes, partially offset by the provision for taxes on current year
income.
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 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 FinancialStatements,
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 August 2, 1997, 95,500 shares had been purchased under this program
at an approximate cost of $4.6 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 half 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) The Annual Meeting of Stockholders of the Company was held
on May 28, 1997.
(b) At the Annual Meeting of Stockholders of the Company held on
May 28, 1997, the two matters described below were submitted 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 2000.
Nominee For Withheld
H. Keith H. Brodie, M.D. 33,072,806 482,752
Minot K. Milliken 33,071,033 484,525
Roger K. Smith 33,071,489 484,069
(2) the appointment of Arthur Andersen LLP, as independent auditors.
(33,392,670 votes in favor, 38,072 votes against and 124,815
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 August 2, 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)
September 16, 1997
(Date)
s/ James M. McVicker
_________________________________________
(James M. McVicker, Senior Vice President,
and Chief Financial Officer)
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<PAGE>
<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
AUGUST 2, 1997 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> JAN-31-1998
<PERIOD-END> AUG-02-1997
<CASH> 187,863
<SECURITIES> 0
<RECEIVABLES> 525,307
<ALLOWANCES> 15,904
<INVENTORY> 544,433
<CURRENT-ASSETS> 1,283,304
<PP&E> 1,202,745
<DEPRECIATION> 437,500
<TOTAL-ASSETS> 2,156,946
<CURRENT-LIABILITIES> 289,976
<BONDS> 0
0
0
<COMMON> 5,410
<OTHER-SE> 1,568,435
<TOTAL-LIABILITY-AND-EQUITY> 2,156,946
<SALES> 1,333,010
<TOTAL-REVENUES> 1,376,203
<CGS> 972,991
<TOTAL-COSTS> 972,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,751
<INCOME-PRETAX> 57,023
<INCOME-TAX> 22,367
<INCOME-CONTINUING> 34,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,656
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
