-----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, L6KvprsOKLeUfH6XIhNUcSWZvJUCbnA2CSrrDQlG9eZev77oBWBAXPOgPMK9+dUq jR8Qfm109ef+r8laCRzVOg== 0000064923-96-000014.txt : 19961205 0000064923-96-000014.hdr.sgml : 19961205 ACCESSION NUMBER: 0000064923-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961102 FILED AS OF DATE: 19961204 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: 96675572 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 November 2, 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 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. 36,844,050 shares of Common Stock at $.14 2/3 par value as of December 3, 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: Consolidated Condensed Balance Sheets - November 2, 1996 and February 3, 1996 3 Consolidated Condensed Statements of Income - For the thirteen and thirty-nine weeks ended November 2, 1996 and October 28, 1995 4 Consolidated Condensed Statements of Cash Flows - For the thirty-nine weeks ended November 2, 1996 and October 28, 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) November 2, February 3, 1996 1996 Assets ____________ __________ Current Assets: Cash and cash equivalents $ 57,340 $ 161,893 Receivables: Customer, net 526,373 559,544 Other 12,816 15,078 Inventories 707,166 523,573 Other current assets 23,258 26,296 ------------ ------------ Total Current Assets 1,326,953 1,286,384 Prepaid Pension & Other Noncurrent Assets 94,710 87,107 Property and Equipment, net 729,817 701,233 ------------ ------------ Total Assets $ 2,151,480 $ 2,074,724 ============ ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 201,307 $ 106,645 Notes payable and current maturities of long-term debt 25 942 6,147 Accrued income taxes 22,211 40,533 Taxes other than income 30,123 21,352 Accrued payroll 27,987 28,585 Other current liabilities 54,797 69,546 ----------- ----------- Total Current Liabilities 362,367 272,808 Long-term Debt 230,899 254,926 Other Long-term Liabilities 55,573 61,877 Stockholders' Equity 1,502,641 1,485,113 Total Liabilities & Stockholders' ------------ ------------ Equity $ 2,151,480 $ 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 Ended Thirty-Nine Weeks Ended November 2, October 28, November 2, October 28, 1996 1995 1996 1995 Revenues $ 727,741 $ 694,765 $ 2,042,677 $ 1,940,071 Cost of goods sold (including occupancy and central buying expenses) 495,379 470,813 1,416,275 1,366,736 ------------- ----------- ----------- ----------- Gross Profit 232,362 223,952 626,402 573,335 ------------- ----------- ----------- ----------- Expenses and Other Income: Selling, general and administrative expenses 180,814 173,859 517,177 499,276 Interest expense, net 2,387 3,265 7,023 11,179 Other income (2,590) (1,792) (7,659) (13,128) Impairment charge - - 12,000 - ------------- ----------- ----------- ----------- 180,611 175,332 528,541 497,327 Income before Provision for Income Taxes 51,751 48,620 97,861 76,008 Provision for income taxes 20,663 19,410 39,068 30,344 ------------- ----------- ----------- ----------- Net Income $ 31,088 $ 29,210 $ 58,793 $ 45,664 ============= =========== =========== =========== Net Income Per Share (based on ------------- ----------- ----------- ----------- 36,844,050 shares outstanding) $ .85 $ .79 $ 1.60 $ 1.24 ============= =========== =========== =========== ------------- ----------- ----------- ----------- Dividends Declared Per Share $ .57 $ .53 $ 1.12 $ 1.05 ============= =========== =========== =========== 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 November 2, October 28 1996 1995 Cash Flows From Operating Activities: Net Income $ 58,793 $ 45,664 Adjustments to reconcile net income to net Depreciation and amortization 61,346 65,082 Deferred income taxes (4,671) (3,429) Impairment charge 12,000 - Equity in unremitted earnings of affiliated companies 299 296 Net pension benefit (8,856) (10,995) Change in inventories (183,593) (215,528) Change in accounts receivable 35,433 92,775 Change in accounts payable 94,662 91,962 Net change in other working capital items (32,744) (11,987) ----------- ----------- Net cash provided by operating activities 32,669 53,840 ----------- ----------- Cash Flows From Investing Activities: Cash payments for property and equipment (101,891) (56,007) Net change in other noncurrent assets and liabilities (335) 67 ----------- ---------- Net cash used in investing activities (102,226) (55,940) ----------- ---------- Cash Flows From Financing Activities: Payments of notes payable and long-term debt (4,232) (4,249) Dividends paid (30,764) (28,922) ----------- --------- Net cash used in financing activities (34,996) (33,171) ----------- --------- Net decrease in cash and cash equivalents (104,553) (35,271) Beginning cash and cash equivalents 161,893 114,237 ----------- ----------- Ending cash and cash equivalents $ 57,340 $ 78,966 =========== ============ Supplemental Cash Flow Information: Interest paid $ 18,516 $ 19,441 Income taxes paid $ 62,912 $ 47,310 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 102 department stores and four specialty stores under 13 different names in a total of 17 states. The stores are located in 53 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 periods 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 recognize period in which it is earned. Finance charge revenue for the 1996 third quarter and nine month periods ending November 2, 1996 amounted to $20 million and $63 million, respectively, compared to $21 million and $25 million, respectively, for the 1995 third quarter and nine month periods. Prior to August 1, 1995, the Company had in place an agreement whereunder a bank serviced substantially all of its private label credit program and under that arrangement the Company's share of finance charge income 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, consistent with industry practice, include some amounts which are due after one year. Customer receivables at November 2, 1996 and February 3, 1996 are net of an allowance for doubtful accounts of $16.6 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 evalusted 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 Third Quarter and Nine Month Periods of 1996 Compared to the Third Quarter and Nine Month Periods of 1995. Revenues increased by 4.7% to $728 million in the 1996 third quarter and by 5.3% to $2,043 million in the nine month period. Sales from retail operations were $707 million, a 4.9% increase from the 1995 third quarter and $1,980 million, a 3.4% increase over last year's nine month period. Sales in comparable units also increased 4.9% in the quarter. Sales from four new units opened this October essentially offset the sales which were lost from the two units which were closed at the end of last year. In the nine month period, comparable unit sales increased 3.7%. Finance charge revenue was relatively flat in the quarter and increased to $63 million from $25 million in the nine month period. The fluctuation in finance charge revenue in the nine month period 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, increased .3% in the 1996 third quarter to 68.1%. For the nine month period, COGS decreased by 1.1% from the comparable 1995 period to 69.3%. Excluding the influence of finance charge revenue, COGS, as a percent of retail sales, increased by .2% in both the 1996 third quarter and nine month periods. Merchandise margins improved by .2% in the quarter and .3% in the nine month period and were partially offset by a .1% and .2% increase, respectively, in costs associated with lower margin leased department sales (leased department sales increased by 10% in the third quarter and 13% in the nine month period). An increase in the estimated LIFO provision also served to increase COGS by .3% in each period. Selling, general and administrative expenses (SG&A), as a percent to revenues, decreased .2% to 24.9% for the 1996 third quarter and .4% to 25.3% for the nine month period. Payroll and payroll related expenses decreased by .4% in the 1996 third quarter and were partially offset by a .2% increase in other operating expenses. The decrease in the nine month period was attributable to a .3% reduction in payroll and related expenses coupled with a .1% reduction in marketing expenses. These ratios include the impact of expenses associated with the new store openings which served to increase SG&A by .2% in the 1996 third quarter and .1% in the nine month period. Interest expense, net, decreased $.9 million and $4.1 million during the 1996 third quarter and nine month periods, respectively. The decline in both periods was primarily due to a combination of increased interest income earned on higher levels of invested cash and higher levels of capitalized interest attributable to new store construction. Other income was essentially flat in the quarter and decreased $5.5 million in the nine month period. The decline in the latter period was attributable to the change 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. - 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 Nine Month Periods of 1996 Compared to the Third Quarter and Nine Month Periods of 1995. 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. Material Changes in Financial Condition From February 3, 1996 to November 2, 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 decrease of $104 million in cash and cash equivalents during the period was attributable to the $102 million of payments for capital expenditures (primarily for new store construction, as discussed on page 10) and $35 million of requirements for financing activities. These cash outflows were partially offset by $33 million of cash generated by operations. Net customer receivables decreased $33 million in the period due to the normal pay down of peak year-end balances. Inventories increased $184 million during the period primarily due to the normal replenishment of inventory levels which are traditionally at their low point at the fiscal year end and approximate peak levels by the end of third quarter. Merchandise requirements for new stores (approximately $31 million) also contributed to this increase. The increase of $94 million in accounts payable was significantly attributable to the increase in inventory levels. - 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 November 2, 1996 There have been no material changes in the Company's anticipated capital expenditure requirements from those indicated in the 1995 Annual Report. During the 1996 third quarter, the Company opened four new stores; a 217,000 square foot Gayfers store in Orlando, Florida; a 186,000 square foot J.B. White store in Columbia, South Carolina; a 158,000 square foot J. B. White store in Spartanburg, South Carolina (a new market for the Company); and a 212,000 square foot McAlpin's store in Dayton, Ohio (also a new market for the Company). Additionally, in mid-November a 110,000 square foot Castner Knott store was opened in Murfreesboro, Tennessee (a new market). These new store openings, which have added almost 900,000 square feet to the Company's base, constitute the largest annual square footage addition (other than acquisitions) in the Company's history. 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 nine months 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) There were no matters submitted to a vote of security holders during the quarterly period ended November 2, 1996. 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 November 2, 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) December 2, 1996 (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 NOVEMBER 2, 1996 AND IS QUALIFIED IN THE ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS FEB-01-1997 NOV-02-1997 57,340 0 542,991 16,618 707,166 1,326,953 1,224,437 494,620 2,151,480 362,367 0 5,403 0 0 1,497,238 2,151,480 1,979,935 2,042,677 1,416,275 1,416,275 12,000 0 11,999 97,861 39,068 58,793 0 0 0 58,793 1.60 1.60 ATTRIBUTABLE TO THE ADOPTION OF A NEW ACCOUNTING STANDARD RELATED TO THE IMPAIRMENT OF LONG-LIVED ASSETS.
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