-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TYv86iYQ97+KALJwD+o+dQNcxMsNd98CvUP3OJyXwPy1dGDRPHJhOrJm5Ub3Ql/W J/PovVJfQOLqs0gnoM0KtQ== 0000064923-95-000011.txt : 19951213 0000064923-95-000011.hdr.sgml : 19951213 ACCESSION NUMBER: 0000064923-95-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950928 FILED AS OF DATE: 19951212 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE STORES CO INC CENTRAL INDEX KEY: 0000064923 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 510032941 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03339 FILM NUMBER: 95600901 BUSINESS ADDRESS: STREET 1: 9450 SEWARD ROAD CITY: FAIRFIELD STATE: OH ZIP: 45014-2230 BUSINESS PHONE: 5138818000 MAIL ADDRESS: STREET 1: 9450 SEWARD ROAD CITY: FAIRFIELD STATE: OH ZIP: 45014 10-Q 1 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 October 28, 1995 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 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 December 12, 1995 Total number of sequentially numbered pages in this filing, including exhibits thereto: 11 -1- MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Item 1 - Financial Statements: Consolidated Condensed Balance Sheets - October 28, 1995 and January 28, 1995 3 Consolidated Condensed Statements of Income - For the thirteen and thirty-nine weeks ended October 28, 1995 and October 29, 1994 4 Consolidated Condensed Statements of Cash Flows - For the thirty-nine weeks ended October 28, 1995 and October 29, 1994 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 MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
October 28, January 28, 1995 1995 Assets Current Assets: Cash and cash equivalents $78,966 $114,237 Receivables: Customer, net 515,680 592,402 Other 11,783 27,836 Inventories 684,310 468,782 Other current assets 23,349 15,488 Total Current Assets 1,314,088 1,218,745 Investments & Other Noncurrent Assets 83,793 73,878 Deferred Income Taxes 705 300 Property and Equipment, net 679,731 688,806 Total Assets $2,078,317 $1,981,729 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $213,629 $121,667 Notes payable and current maturities of long-term debt 5,272 5,210 Accrued income taxes 18,841 32,381 Taxes other than income 31,360 17,101 Accrued payroll 28,074 24,224 Other current liabilities 59,177 61,132 Total Current Liabilities 356,353 261,715 Long-term Debt 256,876 261,187 Other Long-term Liabilities 57,559 58,276 Stockholders' Equity 1,407,529 1,400,551 Total Liabilities & Stockholders' Equity $2,078,317 $1,981,729 The accompanying notes are an integral part of these balance sheets.
-3- MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (in thousands, except per share data)
Thirteen Weeks Ended Thirty-Nine Weeks Ended October 28, October 29, October 28, October 29, 1995 1994 1995 1994 Revenues $ 694,765 $679,453 $1,940,071 $1,891,269 Cost of goods sold (including occupancy and central buying expenses) 470,813 475,208 1,366,736 1,351,670 Gross Profit 223,952 204,245 573,335 539,599 Expenses and Other Income: Selling, general and administrative expenses 173,859 161,845 499,276 461,330 Provision for divisional consolidation - - - 5,000 Interest expense, net 3,265 5,190 11,179 19,000 Other income (1,792) (6,361) (13,128) (20,727) 175,332 160,674 497,327 464,603 Income before Provision for Income Taxes 48,620 43,571 76,008 74,996 Provision for income taxes 19,410 17,365 30,344 29,987 Income before Cumulative Effect of Accounting Change 29,210 26,206 45,664 45,009 Cumulative effect of accounting change for postemployment benefits (net of income taxes of $ 700) - - - (1,100) Net Income $29,210 $26,206 $45,664 $43,909 Net Income Per Share (based on 36,844,050 shares outstanding): Income before cumulative effect of accounting change $ .79 $ .71 $ 1.24 $ 1.22 Cumulative effect of accounting change for postemployment benefits - - - (.03) Net Income Per Share $ .79 $ .71 $ 1.24 $ 1.19 Dividends Declared Per Share $ .53 $ .51 $ 1.05 $ 1.02 The accompanying notes are an integral part of these statements.
-4- MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands)
Thirty-Nine Weeks Ended October 28, October 29, 1995 1994 Cash Flows From Operating Activities: Net Income $ 45,664 $ 43,909 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 65,082 68,453 Deferred income taxes (3,429) (3,767) Equity in unremitted earnings of affiliated companies 296 230 Provision for divisional consolidation - 5,000 Postretirement benefits costs - 200 Cumulative effect of accounting change, net of taxes - 1,100 Net pension benefit (10,995) (11,736) Change in inventories (215,528) (224,044) Change in accounts receivable 92,775 59,009 Change in accounts payable 91,962 90,243 Net change in other working capital items (11,987) (5,646) Net cash provided by operating activities 53,840 22,951 Cash Flows From Investing Activities: Cash payments for property and equipment (56,007) (61,451) Net change in other noncurrent assets and liabilities 67 (2,938) Net cash used in investing activities (55,940) (64,389) Cash Flows From Financing Activities: Increase in short-term borrowings - 28,900 Payments of notes payable and long-term debt (4,249) (114,684) Dividends paid (28,922) (28,185) Net cash used in financing activities (33,171) (113,969) Net decrease in cash and cash equivalents (35,271) (155,407) Beginning cash and cash equivalents 114,237 194,544 Ending cash and cash equivalents $ 78,966 $ 39,137 Supplemental Cash Flow Information: Interest paid $ 19,441 $ 27,604 Income taxes paid $ 47,310 $ 48,363 The accompanying notes are an integral part of these statements.
-5- MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. 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 1995. 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 3, 1996. 2. Short-term Investments Short-term investments which have a maturity of ninety days or less are considered cash equivalents. 3. 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 October 28, 1995 and January 28, 1995 are net of an allowance for doubtful accounts of $15.3 million and $4.2 million, respectively. 4. 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. (Continued) -6- MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) 5. Revenues Revenues include sales from retail operations, leased departments and finance charge income earned on customer accounts serviced by the Company under its private label credit program. The service agreement with Citibank was terminated on July 31, 1995 and the Company assumed full responsibility for servicing its private label credit program at the end of the 1995 second quarter. Prior to July 31, 1995, finance charge income earned under this service agreement was classified as a component of other income. In 1994 finance charges earned on the Maison Blanche (MB) credit program were also classified as a component of other income. In the 1995 thirteen and thirty-nine week periods, finance charge income earned was approximately $20.6 million and $25.3 million, respectively. 6. Provision for Divisional Consolidation During the first quarter of 1994, the Company recorded a $5 million charge for the consolidation of the Joslins division, centered in Denver, Colorado, with the Jones Store Company division, headquartered in Kansas City, Missouri. The provision was made to cover severance pay for the displacement of approximately 175 associates, early retirement costs for certain qualifying associates and relocation costs. The consolidation of these operations was completed during the first quarter of 1994. 7. Accounting Change During the first quarter of 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which requires employers to recognize an obligation for postemployment benefits provided to former or inactive employees after employment but before retirement. The cumulative effect of this accounting change resulted in a charge of $1.1 million, or $.03 per share, after tax benefits of $.7 million. -7- 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 Thirty-Nine Week Period of 1995 Compared to the Third Quarter and Thirty-Nine Week Period of 1994 Revenues increased by 2.3% to $695 million and 2.6% to $1,940 million during the third quarter and thirty-nine week periods of 1995, respectively, versus the 1994 comparable periods. Net retail sales decreased by .8% to $674 million in the 1995 third quarter and increased by 1.2% to $1,915 million in the thirty-nine week period. Sales in comparable units decreased 1.2% during the current quarter and increased .7% during the thirty-nine week period of 1995. During the 1995 third quarter and thirty-nine week periods, finance charge income was approximately $21 million and $25 million, respectively. Cost of goods sold (COGS), as a percent to total revenue, was 67.8% in the 1995 third quarter compared to 69.9% in last year's comparable period. For the thirty-nine week period of 1995, COGS declined 1.0% to 70.5%. The improvement in both the third quarter and thirty-nine week periods was due, substantially, to the inclusion of finance charge income in total revenues in 1995. COGS, as a ratio to net retail sales, improved approximately .1% in both periods as improvements in merchandise margins were essentially offset by increased costs associated with lower margin leased department sales (leased department sales increased 11.7% and 15.0% during the third quarter and thirty-nine week periods,respectively). Occupancy and buying costs, which are a component of COGS, increased .1%, as a ratio to net retail sales, during the third quarter and were relatively flat for the thirty-nine week period of 1995. Selling, general and administrative expenses (SG&A), as a percent to total revenue, increased 1.2% to 25.0% for the third quarter and increased to 25.7% from 24.4% during the thirty-nine week period of 1995. The increase was primarily attributable to costs associated with the Company's assumption of full responsibility for managing its private label credit program at the end of the 1995 second quarter. Previously, the private label credit program had been managed by an affiliate of Citibank and this arrangement was terminated on July 31, 1995. Significant among these expenses were a bad debt provision, communications costs, and payroll and payroll related expenses, which combined to increase SG&A by 1.1% and 1.0% in the quarter and thirty-nine week periods, respectively. The remaining increase in SG&A during both periods is primarily attributable to an increase in marketing expense. During the first quarter of 1994, the Company recorded a $5 million provision for the consolidation of the Joslins division, centered in Denver, Colorado, with the Jones Store Company division, headquartered in Kansas City, Missouri. The provision covered severance pay, early retirement costs and relocation costs. (Continued) -8- 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 Thirty-Nine Week Period of 1995 Compared to the Third Quarter and Thirty-Nine Week Period of 1994 Interest expense, net, decreased $2 million and $8 million during the third quarter and thirty-nine week periods, respectively. The decline in the quarter was due primarily to interest income earned on higher levels of invested cash. In the thirty-nine week period, two-thirds of the reduction was attributable to the payment of $110 million of structured debt, bearing an average coupon of 10.4%, which took place during the second quarter of 1994. The primary components of other income in 1995 are the Company's portion of joint venture income and the Company's share of finance charge income earned through July 31, 1995 under the terms of a service agreement with Citibank. In 1994, this line item also included the Company's share of finance charge income earned on the MB credit program. The decrease in other income of $5 million and $8 million in the third quarter and thirty-nine week periods, respectively, was primarily the result of a change in management of the Company's private label credit program. The service agreement with Citibank was terminated on July 31, 1995 and finance charge income earned on customer accounts subsequently to that date has been classified as a component of revenues. The trust and servicing agreement associated with the Company's MB credit program was terminated in the second quarter of 1994 and finance charge earned on MB customer accounts has been classified as component of revenues in 1995. The Company's effective tax rate was relatively consistent for both reported periods. During the first quarter of 1994, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of this accounting change resulted in an after tax charge to net income of $1 million, or $.03 per share. Material Changes in Financial Condition From January 28, 1995 to October 28, 1995 The retail business is highly seasonal with approximately one-third of annual sales being generated in the fourth quarter which includes the important Christmas selling season. As a result, significant variations can occur when comparing financial condition at the above dates. The decrease in cash and cash equivalents of $35 million during the period was attributable, primarily, to $56 million of payments for capital expenditures and $29 million of dividend payments. This cash outflow was partially offset by $54 million of cash generated from operations. Net customer receivables decreased $77 million in the period due to a combination of the normal decline in peak year-end balances and a 3.4% decline in private label credit sales. The decrease also reflects an increase in the bad debt reserve made during the year primarily as a result of the termination of the service agreement with Citibank. (Continued) -9- 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 January 28, 1995 to October 28, 1995 The decrease in other receivables of $16 million was primarily due to the contractual arrangement with Citibank under which the Company's share of finance charge income for fiscal 1994 was remitted by the bank in the first quarter of fiscal 1995. The Company's share of finance charge income for fiscal 1995 was remitted by the bank in the 1995 third quarter and upon termination of the contractual arrangement. Inventories increased $216 million during the period primarily due to the normal replenishment of inventory levels which are traditionally at their low point at the end of the fiscal year and approximate peak levels by the end of the third quarter. The increase of $92 million in accounts payable was related to the increase in inventory levels. There have been no material changes in the Company's capital expenditure requirements from those outlined in the 1994 Annual Report. The Company satisfies short-term financing needs primarily through internally generated funds. On July 31, 1995 the Company cancelled a committed $175 million revolving credit facility and during third quarter replaced it with a committed unsecured $200 million revolving credit arrangement. The new facility is a five year agreement with a consortium of seven banks. When used, interest rates will be based, at the Company's option, at either the banks' best rates under a competitive bid environment or a predefined spread over the LIBOR rate. In addition, the Company has available uncommitted lines of credit which total $20 million. At October 28, 1995 and January 28, 1995, no balances were outstanding under the credit arrangements. The Company maintained significant cash balances throughout the thirty-nine week period of 1995, and it was not necessary to use the lines of credit in effect during the period. -10- 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 October 28, 1995. 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 October 28, 1995. 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 12, 1995 (Date) s/James M. McVicker (James M. McVicker, Senior Vice President, and Chief Financial Officer) -11- EX-27 2
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED BALANCE SHEETS, STATEMENTS OF INCOME AND STATEMENTS OF CASH FLOWS FOR THE PERIOD ENDED OCTOBER 28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-28-1995 JUL-30-1995 OCT-28-1995 78,966 0 530,987 15,307 684,310 1,314,088 1,142,687 462,956 2,078,317 356,353 0 5,403 0 0 1,402,126 2,078,317 1,914,757 1,940,071 1,366,736 1,366,736 0 0 14,742 76,008 30,344 45,664 0 0 0 45,664 1.24 1.24
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