-----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, K0z7uAGA+bEjwJsSsLdYDSlWy7Pmar0+JdlsE6TYjn/eH4j6v31M7EQbKmCBI4iU pPKXhPbi0J8OX/po57R0bA== 0000064923-97-000011.txt : 19970618 0000064923-97-000011.hdr.sgml : 19970618 ACCESSION NUMBER: 0000064923-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970503 FILED AS OF DATE: 19970617 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: 97625227 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 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 - 1 - 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 - 2 - 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. - 3 - 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. - 4 - 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. - 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 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) - 6 - 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) - 7 - 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. - 8 - 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) - 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 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. - 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 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) - 11 - EX-27 2
5 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. 1,000 3-MOS JAN-31-1998 MAY-03-1997 139,669 0 545,356 16,492 579,694 1,289,349 1,164,858 418,553 2,140,320 288,006 0 0 0 5,410 1,554,171 2,140,320 661,094 683,298 478,928 478,928 0 0 4,901 31,745 12,437 19,308 0 0 0 19,308 .52 .52
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