-----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, EewwhIdC85/VHClwEiO7RC+JS3SbBMidWpC0KI14yrtgOvYHVJj9DEt127rE4oL5 dsQK5vD1q7OENsxIKPgrfA== 0000064923-97-000013.txt : 19970918 0000064923-97-000013.hdr.sgml : 19970918 ACCESSION NUMBER: 0000064923-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970802 FILED AS OF DATE: 19970916 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: SEC FILE NUMBER: 001-03339 FILM NUMBER: 97681088 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 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 - 1 - 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 - 2 - 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. - 3 - 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. - 4 - 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. - 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 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) - 6 - 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) - 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 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. - 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 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) - 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 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. - 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 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) - 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 CONDENSED STATEMENTS OF CASH FLOWS FOR THE PERIOD ENDED AUGUST 2, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JAN-31-1998 AUG-02-1997 187,863 0 525,307 15,904 544,433 1,283,304 1,202,745 437,500 2,156,946 289,976 0 0 0 5,410 1,568,435 2,156,946 1,333,010 1,376,203 972,991 972,991 0 0 8,751 57,023 22,367 34,656 0 0 0 34,656 .94 .94
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