-----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, ABmFgcL8paPkNlLPwDhIzYdtdTCqfxdejLYUIcf0prHiAlHbPIr3KvJ2dw3cgLu6 9nNOwKRdvzPgeVM78dr8WA== 0000064923-96-000010.txt : 19960918 0000064923-96-000010.hdr.sgml : 19960918 ACCESSION NUMBER: 0000064923-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960803 FILED AS OF DATE: 19960917 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: 96631088 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 August 3, 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 (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. 36,844,050 shares of Common Stock at $.14 2/3 par value as of September 17, 1996 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: Page Consolidated Condensed Balance Sheets - August 3, 1996 and February 3, 1996 3 Consolidated Condensed Statements of Income - For the thirteen week and twenty-six week periods ended August 3, 1996 and July 29, 1996 4 Consolidated Condensed Statements of Cash Flows - For the twenty-six weeeks ended August 3, 1996 and July 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 - 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- MERCANTILE STORES COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands) August 3, February 3, 1996 1996 Assets Current Assets: Cash and cash equivalents $ 177,922 $ 161,893 Receivables: Customer, net 503,958 559,544 Other 11,367 15,078 Inventories 533,682 523,573 Other Assets 24,020 26,296 Total Current Assets 1,250,949 1,286,384 Prepaid Pension & Other Noncurrent Assets 91,580 87,107 Property and Equipment, net 708,407 701,233 Total Assets $ 2,050,936 $ 2,074,724 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 138,359 $ 106,645 Notes payable and current maturities of long-term debt 6,905 6,147 Accrued income taxes 13,338 40,533 Taxes other than income 26,509 21,352 Accrued payroll 27,177 28,585 Other current liabilities 39,149 69,546 Total Current Liabilities 251,437 272,808 Long-term Debt 250,604 254,926 Other Long-term Liabilities 56,341 61,877 Stockholders' Equity 1,492,554 1,485,113 Total Liabilities & Stockholders' Equi ty $ 2,050,936 $ 2,074,724 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 Twenty-Six Weeks Ended Ended August 3, July 29, August 3, July 29, 1996 1995 1996 1995 Revenues $ 659,527 $ 642,448 $ 1,314,936 $ 1,245,306 Cost of goods sold (including occupancy and central buying expenses) 467,927 468,917 920,896 895,923 Gross Profit 191,600 173,531 394,040 349,383 Expenses and Other Income: Selling, general and administrative expenses 168,112 165,423 336,363 325,417 Interest expense, net 2,222 3,938 4,636 7,914 Other income (2,755) (6,654) (5,069) (11,336) Impairment charge - - 12,000 - 167,579 162,707 347,930 321,995 Income before Provision for Income Taxes 24,021 10,824 46,110 27,388 Provision for income taxes 9,587 4,321 18,405 10,934 Net Income $ 14,434 $ 6,503 $ 27,705 $ 16,454 Net Income Per Share (based on 36,844,050 shares outstanding) $ .39 $ .18 $ .75 $ .45 Dividends Declared Per Share $ - $ - $ .55 $ .52 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) Twenty-Six Weeks Ended August 3, July 29, 1996 1995 Cash Flows From Operating Activities: Net Income $ 27,705 $ 16,454 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 39,275 42,763 Deferred income taxes (4,881) (4,288) Impairment charge 12,000 - Equity in unremitted earnings of affiliated companies 391 289 Net pension benefit (5,304) (7,323) Change in inventories (10,109) (60,799) Change in accounts receivable 59,297 91,132 Change in accounts payable 31,714 25,649 Net change in other working capital items (52,334) (40,049) Net cash provided by operating activities 97,754 63,828 Cash Flows From Investing Activities: Cash payments for property and equipment (57,796) (33,648) Net change in other noncurrent assets and liabilities (101) 14 Net cash used in investing activities (57,897) (33,634) Cash Flows From Financing Activities: Payments of notes payable and long-term debt (3,564) (3,547) Dividends paid (20,264) (19,159) Net cash used in financing activities (23,828) (22,706) Net increase in cash and cash equivalents 16,029 7,488 Beginning cash and cash equivalents 161,893 114,237 Ending cash and cash equivalents $ 177,922 $ 121,725 Supplemental Cash Flow Information: Interest paid $ 9,945 $ 10,808 Income taxes paid $ 52,946 $ 43,736 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. 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 four 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 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 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 for the 1996 second quarter and six month periods ending August 3, 1996 amounted to $20 million and $42 million, respectively, compared to $2 million and $5 million for the 1996 second quarter and six month periods ending July 29, 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 the service agreement was classified as a component of other income. -6- 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 August 3, 1996 and February 3, 1996 are net of an allowance for doubtful accounts of $17.3 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 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. -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 Second Quarter and Six Month Periods of 1996 Compared to the Second Quarter and Six Month Periods of 1995. Revenues increased by 2.7% to $660 million in the 1996 second quarter and by 5.6% to $1,315 million in the six month period. Sales from retail operations were $639 million in the 1996 second quarter, a decrease of .2% from the second quarter of 1995 and were $1,273 million in the first half of 1996, an increase of 2.6% over last year's similar period. Sales in comparable units increased .3% in the second quarter and 3.1% in the first half of 1996. Finance charge revenue increased to $20 million from $2 million in the 1996 second quarter and to $42 million from $5 million in the half-year period. The increase in finance charge revenue in the 1996 periods 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, decreased 2.0% in the 1996 second quarter to 71.0%. For the six month period, COGS was 1.9% lower than that experienced in the similar period of 1995. The improvement in both 1996 periods was attributable to the increase in finance charge revenue. Excluding the influence of finance charge revenue, COGS for the 1996 second quarter and six month period was approximately even with the prior year. Merchandising margins improved by .5% in the 1996 second quarter and .3% in the six month period and were partially offset by higher costs associated with lower margin leased department sales (leased department sales increased 7% in the 1996 second quarter and 14% in the six month period). An increase in the estimated LIFO provision also served to increase COGS by .3% in each period. Selling, general and administrative expenses, as a percent to revenues, declined .3% to 25.5% in the 1996 second quarter and .5% to 25.6% for the six month period. Marketing and other operating expenses decreased by .4% in the 1996 second quarter and were partially offset by a .1% increase in payroll and payroll related expenses, reflecting the impact of the decline in retail sales. The decrease in the six month period is attributable to a .2% decline in payroll and payroll related expenses and a .3% reduction in marketing and other operating expenses. Interest expense, net, decreased $1.7 million and $3.3 million during the 1996 second quarter and six month periods, respectively. The decline in both periods was primarily due to increased interest income earned on higher levels of invested cash. -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 Second Quarter and Six Month Periods of 1996 Compared to the Second Quarter and Six Month Periods of 1995. Other income declined $ 3.9 million and $6.3 million in the 1996 second quarter and six month periods, respectively. The decline in both periods 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 a bank 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 all reported periods at 39.9%. Material Changes in Financial Condition From February 3, 1996 to August 3, 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 increase in cash and cash equivalents of $16 million during the period was attributable to the $98 million of cash generated by operations offset by $58 million of payments for capital expenditures and $24 million used for financing activities. Net customer receivables decreased $56 million in the period due to the normal pay down of peak year-end balances. -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 February 3, 1996 to August 3, 1996 Inventories increased $10 million in the period due to the normal replenishment of inventory levels following the Christmas promotional and January clearance periods. The increase of $32 million in accounts payable is attributable to the inventory increase as well as timing differences in the due dates of merchandise invoices. Accrued income taxes declined $27 million due to payments on 1995 and 1996 income taxes, partially offset by the provision for taxes on 1996 income. 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 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 1996 and it was not necessary to use any of these credit arrangements during the period. -10- 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 22, 1996. (b) At the Annual Meeting of Stockholders of the Company heldon May 22, 1996, the three matters described below were submitt 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 1999. Nominee For Withheld Gerrish H. Milliken 33,351,432 234,692 David L. Nichols 33,340,533 245,591 Lawrence R. Pugh 33,352,328 233,796 (2) the appointment of Arthur Andersen LLP, as independent auditors. (33,520,087 votes in favor, 22,561 votes against and 43,476 votes abstained) (3) a Stockholder Proposal relating to the declassification of the Board of Directors. (9,715,177 votes in favor, 22,281,224 votes against and 1,589,723 votes abstained) Item 6 - Exhibits and reports on form 8-K (a) Exhibit 27 - Financial Data Schedule (b) There were no reports on Form 8-K filed for the quarterly period ended August 3, 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) September 17, 1996 (Date) s/ 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, CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND CONSOLIDATED CONSENSED STATEMENTS OF CASH FLOWS FOR THE PERIOD ENDED AUGUST 3, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS FEB-01-1997 AUG-03-1996 177,922 0 521,277 17,319 533,682 1,250,949 1,180,953 472,546 2,050,936 251,437 0 5,403 0 0 1,487,151 2,050,936 1,272,689 42,247 920,896 920,896 12,000 0 8,223 46,110 18,405 27,705 0 0 0 27,705 .75 .75 ATTRIBUTABLE TO THE ADOPTION OF A NEW ACCOUNTING STANDARD RELATED TO THE IMPAIRMENT OF LONG-LIVED ASSETS.
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