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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1995
OR
[ ] 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 1-79
THE MAY DEPARTMENT STORES COMPANY
(Exact name of registrant as specified in its charter)
New York 43-0398035
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
611 Olive Street, St. Louis, Missouri 63101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 342-6300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.50 per share New York Stock Exchange
Preferred stock purchase rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
$1.80 Preference Stock (assigned value $50.00 per share), without
par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of registrant's common stock held by non-
affiliates as of April 1, 1995: $9,122,054,185
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
248,550,964 shares of common stock, $.50 par value, as of April 1,
1995.
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Documents incorporated by reference:
1. Portions of Registrant's 1994 Annual Report to Shareowners are
incorporated into Parts I and II.
2. Portions of Registrant's 1995 Proxy Statement, dated April 12,
1995, are incorporated into Part III.
PART I
Items 1 and 2. Business and Description of Property
Registrant, a corporation, was organized under the laws of the
State of New York on June 4, 1910, as the successor to a business
founded by David May, who opened his first store in Leadville,
Colorado, in 1877. Registrant operates eight quality regional
department store companies nationwide. At fiscal year-end 1994,
registrant operated 314 department stores in 29 states and the
District of Columbia. The department store companies and their
headquarters are: Lord & Taylor, New York City; Foley's, Houston;
Robinsons-May, Los Angeles; Hecht's, Washington, D.C.; Kaufmann's,
Pittsburgh; Filene's, Boston; Famous-Barr, St. Louis; and Meier &
Frank, Portland, Ore.
In addition, registrant operates Payless ShoeSource, headquartered
in Topeka, Kan. At fiscal 1994 year-end, 4,435 stores were
operated in 49 states, the District of Columbia, Puerto Rico and
the Virgin Islands.
Registrant employs approximately 56,000 full-time and 63,000 part-
time associates in 49 states, the District of Columbia, Puerto
Rico, the Virgin Islands and eight offices overseas.
The following portions of registrant's 1994 Annual Report to
Shareowners are incorporated herein by reference: Management's
Discussion and Analysis (pages 12-17); Six Year Summary by Business
Segment (pages 28-29).
A. Property Ownership
(i) Department Stores
The following summarizes the property ownership of
department stores at January 28, 1995:
% of Gross
Number of Building
Stores Sq. Footage
Entirely or mostly owned* 180 62%
Entirely or mostly leased 74 22
Owned on leased land* 60 16
314 100%
* Includes a total of 20 department stores subject to
financing.
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A. Property Ownership (continued)
(ii) Payless ShoeSource
Payless ShoeSource store locations are substantially all
leased, usually on a 10- to 15-year basis with renewal
options.
B. Credit Sales
Sales at registrant's department stores are made for cash or
credit, including registrant's 30-day charge accounts and open-end
credit plans, which include revolving charge accounts and revolving
installment accounts. During the fiscal year ended January 28,
1995, 57.3% of the total sales of registrant's department stores
were made through registrant's credit plans. All sales of Payless
ShoeSource are made either for cash or through third-party credit
cards.
In 1991, registrant formed three national banks (May National Bank
of Arizona (MBA), May National Bank of Ohio (MBO) and May National
Bank of Maryland (MBM)), which are indirectly wholly owned and
consolidated subsidiaries of registrant. MBM completed its
liquidation in 1994.
During the last fiscal year, MBA and MBO extended credit to certain
customers of registrant's Robinsons-May, Kaufmann's and Meier &
Frank department stores companies. Throughout 1994, MBA and MBO
sold the resulting accounts receivables at face value, to the
registrant. In addition, MBA and MBO process remittances for their
parent, May Funding, Inc. and its other subsidiaries. MBA and MBO
receive processing fee revenue for this service.
C. Competition in Retail Merchandising
Registrant's retail merchandising business is conducted under
highly competitive conditions. During the past several years, the
retail industry has seen major changes which have increased
competition. Although registrant is one of the nation's largest
department store retailers, it has thousands of competitors at the
local level which compete with registrant's individual department
and Payless ShoeSource stores. Competition at the local level is
characterized by numerous factors including convenience of
facilities, reputation, procurement of merchandise, product mix,
advertising, price, quality, service and credit availability.
Registrant believes that it is in a strong competitive position
with regard to each of these factors. Registrant has been able to
perform in a competitive environment through effective
merchandising.
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D. Executive Officers of Registrant
The names and ages (as of April 19, 1995) of all executive officers
of registrant, and the positions and offices held with registrant
by each such person are as follows:
Name Age Positions and Offices
David C. Farrell 61 Chairman and Chief Executive Officer
Thomas A. Hays 62 Deputy Chairman
Jerome T. Loeb 54 President and Chief Financial Officer
Richard L. Battram 60 Vice Chairman
Anthony J. Torcasio 49 President and Chief Executive Officer,
May Merchandising Company
Louis J. Garr, Jr. 55 Executive Vice President and General
Counsel
R. Dean Wolfe 51 Executive Vice President
William D. Edkins 42 Senior Vice President
Lonny J. Jay 53 Senior Vice President
Jan R. Kniffen 46 Senior Vice President
Richard A. Brickson 47 Secretary and Senior Counsel
Martin M. Doerr 40 Vice President
Andrew T. Hall 34 Vice President
Each of the above named executive officers shall remain in office
until the annual meeting of directors following the next annual
meeting of shareowners of registrant, or until their respective
successors shall have been elected and shall qualify. Messrs.
Farrell, Hays, Loeb and Battram also serve as directors of
registrant.
Each of the executive officers has been an officer of registrant
for at least the last five years, with the following exceptions:
Mr. Torcasio was president of the former L.S. Ayres division and
president and chief executive officer of Famous-Barr until 1993.
In 1993, Mr. Torcasio became president and chief executive officer
of May Merchandising Company and became an executive officer of
registrant. Mr. Edkins was associated with the management
consulting firm McKinsey & Company, Inc., from 1984 to 1990 and
became an executive officer of registrant in 1990. Mr. Doerr was
associated with the public accounting firm of Arthur Andersen LLP
from 1976 to 1992 and became an executive officer of registrant in
1994. Mr. Hall was associated with the public accounting firm of
Arthur Andersen LLP from 1983 to 1993 and became an executive
officer of registrant in 1994.
Item 3. Legal Proceedings
The legal proceeding identified in response to Item 3 to
registrant's Annual Report on Form 10-K for the fiscal year ended
January 29, 1994, was settled in 1994 and is discussed in the Notes
to Consolidated Financial Statements (registrant's 1994 Annual
Report to Shareowners at page 27.) The settlement did not have a
material adverse effect on registrant's results of operations or
its financial position.
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
registrant or any of its subsidiaries is a party or of which any of
their property is the subject.
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Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the 13 weeks ended January 28, 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareowner Matters
Common Stock Dividends and Market Prices (page 17) of registrant's
1994 Annual Report to Shareowners are incorporated herein by
reference.
Item 6. Selected Financial Data
The Eleven Year Financial Summary (pages 30 and 31) of registrant's
1994 Annual Report to Shareowners is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis (pages 12-17), Summary of
Significant Accounting Policies (page 18) and Notes to Consolidated
Financial Statements (pages 23-29) of registrant's 1994 Annual
Report to Shareowners are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Summary of Significant Accounting Policies (page 18), Consolidated
Financial Statements (pages 19-22), Notes to Consolidated
Financial Statements (pages 23-29) and Report of Independent Public
Accountants (page 32) of registrant's 1994 Annual Report to
Shareowners are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
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PART III
Items 10, 11, 12, 13. Directors and Executive Officers of
Registrant, Executive Compensation,
Security Ownership of Certain Beneficial
Owners and Management, Certain
Relationships and Related Transactions
Pursuant to paragraph G (Information to be Incorporated by
Reference) of the General Instructions to Form 10-K, the
information required by Items 10, 11, 12 and 13 (other than
information about executive officers of registrant) is incorporated
by reference from the definitive proxy statement dated April 12,
1995, and filed pursuant to Regulation 14A. Information about
executive officers of registrant is set forth in Part I of this
Form 10-K, under the heading "Items 1 and 2. Business and
Description of Property."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Documents filed as part of this report:
(1) Financial Statements. Incorporated by reference to
registrant's 1994 Annual Report to Shareowners (Exhibit
13):
Location in
Annual Report
Summary of Significant Accounting Policies 18
Financial Statements-
Consolidated Statement of Earnings for
the three fiscal years ended
January 28, 1995 19
Consolidated Balance Sheet -
January 28, 1995, and January 29, 1994 20
Consolidated Statement of Cash Flows
for the three fiscal years ended
January 28, 1995 21
Consolidated Statement of Shareowners'
Equity for the three fiscal years
ended January 28, 1995 22
Notes to Consolidated Financial Statements 23-29
Report of Independent Public Accountants 32
Location in
this Report
(2) Supplemental Financial Statement
Schedule (for the three fiscal years
ended January 28, 1995):
Report of Independent Public Accountants
on financial statement schedules 10
II Valuation and qualifying accounts 11
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Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K (continued)
(3) Exhibits: Location
3(a) Restated Certificate of Incorporated
Incorporation of by Reference
Registrant, dated March 22, 1994 to Exhibit
3(a) of
Annual Report
on Form 10-K,
filed April
20, 1994.
3(b) By-Laws of Registrant, as amended Filed
herewith.
11 Computation of Net Earnings Filed
Per Share herewith.
12 Computation of Ratio of Filed
Earnings to Fixed Charges herewith.
13 The May Department Stores Filed
Company 1994 Annual Report to herewith.
Shareowners (only those portions
specifically incorporated by
reference shall be deemed filed
with the Commission)
21 Subsidiaries of Registrant Filed
herewith.
23 Consent of Independent Public Page 10 of
Accountants this Report.
27 Financial Data Schedule Filed
herewith.
99 Form 11-K Annual Report of the Filed
Profit Sharing and Savings Plan herewith.
of The May Department Stores
Company for the fiscal year ended
December 31, 1994
(4) Reports on Form 8-K
The registrant has not filed any reports on Form 8-K
during the last quarter covered by this report.
All other schedules and exhibits of registrant for which provision
is made in the applicable regulations of the Securities and
Exchange Commission have been omitted as they are not required or
are inapplicable or the information required thereby has been given
otherwise.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
THE MAY DEPARTMENT STORES COMPANY
Date: April 19, 1995 By: /s/ Jerome T. Loeb
Jerome T. Loeb
Director, President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of registrant and in the capacities and on the dates
indicated.
Date Signature Title
Principal Executive Officer:
April 19, 1995 /s/ David C. Farrell Director, Chairman
David C. Farrell and Chief
Executive Officer
Principal Financial and
Accounting Officer:
April 19, 1995 /s/ Jerome T. Loeb Director,
Jerome T. Loeb President and
Chief Financial
Officer
Directors:
April 19, 1995 /s/ Thomas A. Hays Director and
Thomas A. Hays Deputy Chairman
April 19, 1995 /s/ Richard L. Battram Director and Vice
Richard L. Battram Chairman
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Date Signature Title
April 19, 1995 /s/ Helene L. Kaplan Director
Helene L. Kaplan
April 19, 1995 /s/ Edward H. Meyer Director
Edward H. Meyer
April 19, 1995 /s/ Russell E. Palmer Director
Russell E. Palmer
April 19, 1995 /s/ Andrall E. Pearson Director
Andrall E. Pearson
April 19, 1995 /s/ Michael R. Quinlan Director
Michael R. Quinlan
April 19, 1995 /s/ William P. Stiritz Director
William P. Stiritz
April 19, 1995 /s/ Robert D. Storey Director
Robert D. Storey
April 19, 1995 /s/ Murray L. Weidenbaum Director
Murray L. Weidenbaum
April 19, 1995 /s/ Edward E. Whitacre, Jr. Director
Edward E. Whitacre, Jr.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The May Department Stores Company:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in The
May Department Stores Company's Annual Report to Shareowners
incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 20, 1995. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole.
Schedule II included in this Form 10-K is the responsibility of the
company's management and is presented for the purpose of complying
with the Securities and Exchange Commission's rules and is not part
of the consolidated financial statements. The schedule has been
subjected to the auditing procedures applied in the audit of the
consolidated financial statements and, in our opinion, fairly
states in all material respects the financial data required to be
set forth therein in relation to the consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
1010 Market Street
St. Louis, Missouri 63101-2089
February 20, 1995
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference
in this Annual Report on Form 10-K for the year ended January 28,
1995, into the Company's previously filed Registration Statements
on Form S-3 (No. 33-38585, 33-46021 and 33-55255) and Form S-8
(No. 33-26016, 33-38104 and 33-51849).
ARTHUR ANDERSEN LLP
1010 Market Street
St. Louis, Missouri 63101-2089
April 19, 1995
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<TABLE>
<CAPTION>
SCHEDULE II
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE FISCAL YEARS ENDED JANUARY 28, 1995
(Millions)
Charges
Balance to costs Balance
beginning and Deductions end of
of period expenses (a) period
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED
JANUARY 28, 1995
Allowance for
doubtful accounts $ 76 $ 77 $ (75) $ 78
FISCAL YEAR ENDED
JANUARY 29, 1994
Allowance for
doubtful accounts $ 82 $ 70 $ (76) $ 76
FISCAL YEAR ENDED
JANUARY 30, 1993:
Allowance for
doubtful accounts $ 88 $ 78 $ (84) $ 82
(a) Write-off of accounts determined to be uncollectible, net of
recoveries of $23 million in 1994, and $22 million in 1993 and
1992.
</TABLE>
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Exhibit 21
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
The corporations listed below are subsidiaries of registrant, and
all are included in the consolidated financial statements of
registrant as subsidiaries (unnamed subsidiaries, considered in the
aggregate as a single subsidiary, would not constitute a
significant subsidiary):
Jurisdiction
in which
Name organized
May Capital, Inc. Delaware
May Centers Associates Corporation Missouri
May Funding, Inc. Nevada
Payless Holdings, Inc. Delaware
Payless ShoeSource, Inc. Missouri
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EXHIBIT 3(B)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
BY-LAWS
OF
THE MAY DEPARTMENT STORES COMPANY
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
[As in effect, March 17, 1995]
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BY-LAWS
OF
THE MAY DEPARTMENT STORES COMPANY
__________________
ARTICLE I.
MEETINGS OF STOCKHOLDERS
Section 1. The annual meeting of stockholders shall be held
on such date (not more than fifteen months after the most recent
annual meeting) and at such place and time as may be fixed by the
board and stated in the notice thereof, for the purpose of the
election of directors and for the transaction of only such other
business as is properly brought before the meeting in accordance
with these by-laws. The annual meeting may be adjourned from day
to day until its business is completed.
Section 2. Written notice of the date, time and place of
each annual meeting of the stockholders shall be mailed at least
ten days previous to the date of such meeting, postage prepaid,
to each stockholder of record in the Company entitled to vote
thereat, at such address as shall appear on the books of the Com-
pany.
Section 3. Special meetings of the stockholders may be
called by resolution of the board of directors. The business
transacted at any special meeting of stockholders shall be
confined to the object or objects specified in the notice
therefor, and matters germane thereto.
Section 4. Written notice of every special meeting of
stockholders stating the date, time, place and object thereof,
shall be mailed, postage prepaid, at least ten days before the
date specified for such meeting to each stockholder of record in
the Company entitled to vote thereat, at such address as shall
appear on the books of the Company.
Section 5. Except as otherwise provided in the Certificate
of Incorporation, and subject to the provisions and limitations
therein contained, at all meetings of stockholders each stock-
holder of record shall be entitled to cast one vote for each
share appearing on the stock book of the Company as standing in
his name, which vote may be cast either in person or by proxy, or
power of attorney, but no proxy shall be voted on after three
years from its date.
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Section 6. Whenever a stockholder shall vote by proxy, the
authority or proxy shall be in writing, subscribed by the stock-
holder in whose name the said stock shall stand on the books of
the Company, and shall, if requested by any stockholder, or
proxy, be exhibited at the time of such meeting to the presiding
officer and filed by him with the secretary of the Company.
Section 7. No stockholder who is in default in the payment
of any part of his subscription for any stock of the Company or
who is disqualified by law, shall be entitled to vote at any
meeting of stockholders.
Section 8. Every pledgor of stock standing in his name on
the books of the Company shall be deemed the owner thereof.
Section 9. Except as otherwise provided by law or in the
Certificate of Incorporation, the holders of not less than a
majority of the common stock issued and outstanding, entitled to
vote thereat, present in person or by proxy or power of attorney,
are requisite for and shall constitute a quorum at all meetings
of stockholders for the transaction of business, including the
election of directors. The holders of a majority of the common
stock present in person or by proxy or power of attorney at any
meeting, whether or not constituting a quorum, shall have power
to adjourn the meeting from time to time (provided that each ad-
journment shall be for a period not exceeding twenty days), with-
out notice other than announcement at the meeting, and at any
adjourned meeting, any business may be transacted which might
have been transacted at the meeting as originally notified.
Section 10. The stockholders shall at each annual meeting
choose two persons (who need not be stockholders and who shall
not be candidates for election to the board of directors) to act
as inspectors of election at all meetings of stockholders until
the close of the next annual meeting. In case of a failure to
elect inspectors, or if any inspector shall refuse to serve or
neglect to attend any meeting, or if his office shall become va-
cant, the chairman of the meeting may appoint an inspector or
inspectors, as the case may be, to act at such meeting.
Section 11. To be properly brought before the annual or any
special stockholders' meeting, business must be either (a) speci-
fied in the notice of meeting (or any supplement thereto) given
by or at the direction of the board, (b) otherwise properly
brought before the meeting by or at the direction of the board or
(c) otherwise properly brought before the meeting by a stock-
holder. In addition to any other applicable requirements, for
business to be properly brought before the annual or any special
stockholders' meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the secretary of the
Company. To be timely, a stockholder's notice must be delivered
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to or mailed and received at the principal executive offices of
the Company not less than 75 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than
90 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stock-
holder to be timely must be so received not later than the close
of business on the 15th day following the day on which such
notice of the date of the meeting was mailed or such public dis-
closure was made, whichever first occurs. Such stockholder's
notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (i) a brief des-
cription of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (ii)
the name and record address of the stockholder proposing such
business, (iii) the class and number of shares of common stock of
the Company which are beneficially owned by the stockholder and
(iv) any material interest of the stockholder in such business.
Notwithstanding anything in the by-laws to the contrary, no
business shall be conducted at the annual or any special meeting
except in accordance with the procedures set forth in this Sec-
tion 11, provided, however, that nothing in this Section 11 shall
be deemed to preclude discussion by any stockholder of any busi-
ness properly brought before the meeting.
The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that business was not pro-
perly brought before the meeting in accordance with the provi-
sions of this Section 11, and if he should so determine and
declare, any such business not properly brought before the
meeting shall not be transacted.
Section 12. Except as provided in Section 1 of Article II,
only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nomina-
tions of persons for election to the board of directors of the
Company at the annual meeting may be made at that meeting by or
at the direction of the board of directors, by any nominating
committee or person appointed by the board of directors or by any
stockholder of the Company entitled to vote for the election of
directors at the meeting who complies with the notice procedures
set forth in this Section 12. Such nominations, other than those
made by or at the direction of the board of directors, shall be
made pursuant to timely notice in writing to the secretary of the
Company. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of
the Company not less than 75 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than
90 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the
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stockholder to be timely must be so received not later than the
close of business on the 15th day following the day on which such
notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such stockholder's
notice to the secretary shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-
election as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of
common stock of the Company which are beneficially owned by the
person, and (iv) any other information relating to the person
that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Rule 14a under the Securities
Exchange Act of 1934, as amended; and (b) as to the stockholder
giving the notice (i) the name and record address of the
stockholder and (ii) the class and number of shares of common
stock of the Company which are beneficially owned by the
stockholder. Such notice shall be accompanied by the executed
consent of each nominee to serve as a director if so elected.
The Company may require any proposed nominee to furnish such
other information as may reasonably be required by the Company to
determine the eligibility of such proposed nominee to serve as a
director of the Company.
The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he should
so determine and declare, the defective nomination shall be dis-
regarded.
ARTICLE II.
THE BOARD OF DIRECTORS
Section 1. The business and affairs of the Company shall be
managed and conducted by a board of thirteen directors.
Newly created directorships resulting from an increase in
the number of directors and vacancies occurring in the board of
directors for any reason may be filled by vote of a majority of
the directors then in office, although less than a quorum. A
director elected to fill a newly created directorship, and a di-
rector elected to fill a vacancy, shall be elected to hold office
until the next ensuing annual meeting of stockholders of the Com-
pany, or until his successor shall be chosen and qualified in his
stead.
Section 2. The directors shall prescribe rules and regula-
tions for voting at all elections and shall cause the result of
each such election to be filed with the minutes of the proceed-
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ings of the board of directors, or of any committee of the board
of directors appointed in accordance with Section 12 of this
Article II.
Section 3. The board of directors at its first meeting
after each annual meeting of stockholders, or at any subsequent
meeting at which such action may be appropriate, shall elect a
chairman of the executive committee, a chairman of the board, a
president, a vice chairman of the board, one or more vice presi-
dents, a secretary, a controller, and a treasurer, and such other
officers as it may determine. The board of directors shall by
resolution provide for the authority and duties of any and all
such officers in the management of the Company to the extent not
so provided in these By-laws.
The dates of the commencement and expiration of the term of
office of any such officer may be fixed by the board of directors
at the time of his election; but unless so fixed, such officer
shall hold office from the date of his election until the first
meeting of the board of directors following the next ensuing an-
nual meeting of stockholders, or until his successor is elected.
The chairman of the executive committee, the chairman of the
board, the president and the vice chairman of the board shall be
members of the board of directors. No other officers need be
members of the board of directors.
Any two offices, except the offices of president and secre-
tary, may be held by the same person.
Section 4. If for any reason the election of officers shall
not be held on or as of the date fixed therefor, the board of
directors shall designate another day for such election.
Section 5. The board of directors may also appoint such
additional officers and agents, including additional vice presi-
dents, one or more assistant treasurers, one or more assistant
secretaries and one or more assistant controllers, as it may from
time to time deem advisable, and may remove any of the persons so
appointed at its pleasure, and may, in its discretion, contract
for a definite period of employment for any officer or agent upon
such terms as it may deem advisable. The board of directors may
by resolution provide for the powers and duties of any and all
such additional officers and agents so appointed.
Section 6. One-third of all the directors shall be required
to be present at any meeting to constitute a quorum for the
transaction of business, but the director or directors present at
any meeting may adjourn said meeting from time to time and from
place to place until such quorum is present.
5
<PAGE>
All matters coming before the board of directors shall, ex-
cept as otherwise provided by law or by these By-laws, be deter-
mined by a majority vote of the members present, provided that a
quorum shall be present.
Any one or more members of the board of directors or of any
committee thereof may participate in any meeting of such board or
of such committee thereof by means of a conference telephone or
similar communications equipment allowing all persons participat-
ing in the meeting to hear each other at the same time. Partici-
pation by such means shall constitute presence in person at any
such meeting.
Section 7. The directors may hold their meetings and cause
the books of the Company (except the Stock and Transfer Books) to
be kept within or without the State of New York, at such place or
places as they may from time to time determine.
Section 8. Subject to Section 15 of this Article II, there
shall be an annual meeting of the board of directors on the day
of the annual meeting of stockholders in each year or as soon
thereafter as convenient, such annual meeting to be at such place
and time (and, if applicable, on such date) as the chairman of
the board shall designate by written notice to the directors, and
regular meetings shall be held on such dates and at such times
and places either as the directors shall by resolution provide or
as the chairman of the board shall designate by written notice to
the directors. Except as above provided, no notice of said an-
nual meeting or such regular meetings of the board of directors
need be given.
Section 9. Special meetings of the board of directors may
be called by the chairman of the executive committee, the chair-
man of the board, the president, the vice chairman of the board,
or the secretary or the treasurer. Notice of each special meet-
ing shall be deposited in the mail, sent by telegram or delivered
by hand to each director not later than the day preceding the
date of such meeting, but need not specify the object or objects
of such special meeting. Special meetings shall be called by one
of the foregoing officers in like manner on the written request
of five directors, specifying the object or objects of such
special meeting. In the event that one of the foregoing officers
shall fail to call a meeting within two days after receipt of
such request, such meeting may be called in like manner by the
directors making such request.
Section 10. If any vacancy shall occur in the board of
directors by reason of death, removal, resignation or otherwise,
such vacancy may be filled by the vote of a majority of the re-
maining directors.
6
<PAGE>
Section 11. Any director may resign his office at any time,
such resignation to be made in writing and delivered to the
chairman of the executive committee, the chairman of the board,
the president, the vice chairman of the board, or the secretary.
Section 12. The board of directors shall by a majority vote
of its entire number appoint an executive committee, including
the chairman thereof, such executive committee to consist of such
chairman, who shall be a director, and such additional number of
directors, not less than two, as the board of directors shall
from time to time determine, and may from time to time designate
the number of such executive committee that shall constitute a
quorum and may provide for the holding of regular meetings there-
of. In the absence of any such designation, a majority of the
members of the executive committee shall constitute a quorum. To
the extent permitted by law and by the Certificate of Incorpora-
tion, the executive committee shall have and may exercise all the
powers vested in the board of directors during the intervals be-
tween the meetings of the board of directors. The affirmative
vote of a majority of those present at a meeting of the executive
committee, at which a quorum is present, shall be necessary for
the adoption of any resolution. The executive committee shall,
whenever called upon, report to the board of directors, and be
subject to its direction, and the board of directors may remove
members and appoint new members thereof to fill vacancies there-
in, and may increase or decrease the membership thereof. The
executive committee shall designate from among its members a sec-
retary and may designate from among its members an acting chair-
man to serve in the absence of the chairman of the executive com-
mittee. Meetings of the executive committee shall be called by
the chairman of the executive committee or, upon the request of
not less than two members, by the secretary thereof by notice
deposited in the mail, sent by telegram or delivered by hand not
less than two days prior to the date of such meeting. Waiver of
notice by any member of the executive committee, whether before
or after the meeting to which such waiver relates, shall be
equivalent to notice.
The board of directors may, by a majority vote of its entire
number, appoint such other committees, each consisting of three
or more directors, as the board of directors may at any time and
from time to time deem appropriate; subject to the limitations
contained in Section 712 of the New York Business Corporation
Law, the board of directors from time to time may by resolution
prescribe for each such committee such duties, powers and author-
ity as the board of directors shall deem appropriate.
Section 13. In addition to the powers by these By-laws ex-
pressly conferred upon them, the board of directors may exercise
such powers and do such lawful acts and things as are not
7
<PAGE>
prohibited by law or required by the Certificate of Incorporation
or by these By-laws to be exercised and done by the stockholders.
Section 14. Directors as such may be paid such compensation
as the board of directors may from time to time determine. Noth-
ing herein contained shall be construed to preclude any director
from serving the Company in any other capacity and receiving com-
pensation therefor.
Section 15. Anything in this Article II to the contrary
notwithstanding, any action required or permitted to be taken by
the board of directors at any regular, annual or special meeting
thereof, or by any committee thereof, may be taken without a
meeting if all members of the board of directors or such commit-
tee consent in writing to the adoption of a resolution authoriz-
ing the action. The resolution and the written consents thereto
by the members of the board of directors or such committee shall
be filed with the minutes of the proceedings of the board of di-
rectors or such committee.
ARTICLE III.
ELECTED OFFICERS
The elected officers of the Company shall be the chairman of
the executive committee, the chairman of the board, the presi-
dent, the vice chairman of the board, the secretary, the trea-
surer, the controller, and such other officers of the Company as
shall be elected by the board of directors.
ARTICLE IV.
AUTHORITY AND DUTIES OF OFFICERS
Each officer of the Company shall be subject to the control
of the board of directors and shall have such duties in the man-
agement of the Company as may be provided by appropriate resolu-
tion of the board of directors and/or provided in these By-laws.
ARTICLE V.
DUTIES OF OFFICERS MAY BE DELEGATED
In the case of the absence of any officer of the Company, or
for any other reason that the board of directors may deem suf-
ficient, the board of directors may delegate the powers or duties
of such officer to any other officer or to any other director, or
to any other person for the time being.
8
<PAGE>
ARTICLE VI.
INDEMNIFICATION
Section 1. The Company shall, to the fullest extent now or
hereafter authorized or permitted by applicable law, indemnify
any person who is or was made, or threatened to be made, a party
to, or is involved in, any threatened, pending or completed
action, suit or proceeding, including, without limitation, those
which are civil, criminal, administrative or investigative, those
involving any actual or alleged breach of duty, neglect or error,
any accountability, or any actual or alleged misstatement, mis-
leading statement or other act or omission and those brought or
threatened in any court or administrative or legislative body or
agency, including an action by or in the right of the Company to
procure a judgment in its favor and an action by or in the right
of any other corporation of any type or kind, domestic or
foreign, or any partnership, joint venture, trust, employee bene-
fit plan or other enterprise, which any director or officer of
the Company is serving, has served or has agreed to serve in any
capacity at the request of the Company, by reason of the fact
that such person, or his or her testator or intestate, is or was
or has agreed to become a director or officer of the Company, or
is serving or has agreed to serve such other corporation, part-
nership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, amounts
paid or to be paid in settlement, and expenses (including
attorneys' fees, costs and charges) incurred as a result of such
action, suit or proceeding, or appeal therein; provided, however,
that, except for proceedings to enforce rights to indemnifica-
tion, the Company shall not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal
or legal representatives) in connection with an action, suit or
proceeding (or part thereof) initiated by such person unless such
action, suit or proceeding (or part thereof) was authorized or
consented to by the board of directors of the Company.
Section 2. The Company may indemnify any person (including
a person entitled to indemnification pursuant to Section 1) to
whom the Company is permitted to provide indemnification or the
advancement of expenses to the fullest extent now or hereafter
authorized or permitted by applicable law, whether pursuant to
rights granted pursuant to, or provided by, the New York Business
Corporation Law, or any other law, or other rights created by (a)
a resolution of shareholders, (b) a resolution of directors, or
(c) an agreement providing for such indemnification, it being
expressly intended that this Article VI authorizes the creation
of other rights in any such manner.
9
<PAGE>
Section 3. The Company shall, from time to time, reimburse
or advance to any person referred to in Section 1 the funds nec-
essary for payment of expenses incurred in connection with any
action, suit or proceeding referred to in Section 1, upon receipt
of a written undertaking by or on behalf of such person to repay
such amount(s) if a judgment or other final adjudication adverse
to the director or officer establishes that (a) his or her acts
were committed in bad faith or were the result of active and
deliberate dishonesty and, in either case, were material to the
cause of action so adjudicated, or (b) he or she personally
gained in fact a financial profit or other advantage to which he
or she was not legally entitled.
Section 4. The right to be indemnified or to the reimburse-
ment or advancement of expenses pursuant to Section 1 or 3 of
this Article VI or a resolution authorized pursuant to Section 2
of this Article VI (a) is a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions here-
of (or of any such resolution) were set forth in a separate writ-
ten contract between the Company and such person, (b) is intended
to be retroactive and shall, to the extent now or hereafter
<PAGE>
authorized or permitted by law, be available with respect to
events occurring prior to the adoption hereof, and (c) shall con-
tinue to exist after the rescission or restrictive modification
hereof with respect to events occurring prior thereto.
ARTICLE VII.
POWER OF OFFICERS TO CONTRACT, ETC.
Section 1. All contracts and agreements, purporting to be
the act of this Company shall be signed by such officer(s) of the
Company or other person(s) as may be designated by resolution of
the board of directors, in order that the same shall be binding
upon the Company.
Section 2. The board of directors may, from time to time,
authorize any officer or officers of the Company, or any other
person or persons, to sign, countersign and endorse bills of ex-
change, checks, notes, leases, deeds and other instruments,
agreements and documents in behalf of the Company.
ARTICLE VIII.
ORDER OF BUSINESS
Section 1. The order of business at all meetings of the
stockholders shall be as follows:
10
<PAGE>
1. The election of directors.
2. Other matters to be acted upon.
3. The reports of officers.
4. Election of inspectors of election.
The order of business at any meeting may be changed by a
vote of the holders of a majority of the shares represented at
such meeting.
Section 2. The order of business at meetings of the board
of directors shall be as the directors may determine.
ARTICLE IX.
SHARES OF STOCK
Section 1. The interest of each stockholder shall be evi-
denced by a certificate or certificates for shares of stock of
the Company in such form as the board of directors may from time
to time prescribe. The certificates of stock shall be signed by
the chairman of the executive committee, the chairman of the
board, the president, the vice chairman of the board, or a vice
<PAGE>
president and the treasurer or an assistant treasurer or the sec-
retary or an assistant secretary and sealed with the seal of the
Company, and shall be countersigned and registered in such man-
ner, if any, as the board of directors may by resolution pre-
scribe; provided that, in case such certificates are required by
such resolution to be signed by a transfer agent or transfer
clerk and by a registrar, the signatures of the above designated
officers and the seal of the Company upon such certificates may
be facsimiles, engraved or printed. In case any such officer who
has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such before such certificate
is issued, it may be issued with the same effect as if such of-
ficer had not ceased to be such at the date of its issue.
Section 2. Shares of stock of the Company shall be trans-
ferred only on the books of the Company, by the holder thereof in
person or by his attorney, upon surrender for cancellation of
certificates for the same number of shares, with an assignment
and power of transfer endorsed thereon or attached thereto, duly
executed, with such proof of the authenticity of the signature as
the Company or its agents may reasonably require.
Section 3. The board of directors may direct a new certifi-
cate or certificates of stock to be issued in the place of any
11
<PAGE>
certificate or certificates theretofore issued and alleged to
have been lost, stolen or destroyed; but the board of directors,
when authorizing the issue of such new certificate or certifi-
cates, may in its discretion require the owner of the stock rep-
resented by the certificate so lost, stolen or destroyed, or his
legal representatives, to execute and deliver to the Company a
bond with one or more sureties, in such sum as it may direct,
indemnifying the Company and its agents against any claim that
may be made against it by reason of the issue of such new certif-
icate. The board of directors, however, may refuse to authorize
any such new certificate except upon the order of a court having
jurisdiction in such matter.
Section 4. The board of directors may from time to time
appoint such transfer agents and registrars of shares as it may
deem advisable and may define their powers and duties.
ARTICLE X.
DIVIDENDS
Subject to the limitations and provisions set forth in the
Certificate of Incorporation of the Company, dividends on the
stock of the Company shall be paid at such times and in such
amounts as the board of directors shall, from time to time,
determine.
ARTICLE XI.
CORPORATE SEAL
The corporate seal shall consist of the words "THE MAY
DEPARTMENT STORES COMPANY" arranged in a circular form around the
words and figures "Corporate Seal -- 1910 -- New York" and shall
be kept by the secretary in the office of the Company. The im-
pression of the seal may be made and attested upon contracts,
certificates of stock and other papers requiring the seal of the
Company, when authorized by resolution of the board of directors,
by the secretary, or by an assistant secretary or by any other
officer of the Company, and the board of directors may authorize
the use of a duplicate corporate seal by any assistant secretary
or other officer of the Company.
ARTICLE XII.
FISCAL YEAR
The fiscal year of the Company shall end on the Saturday
closest to the 31st day of January in each year.
12
<PAGE>
ARTICLE XIII.
AMENDMENTS
The foregoing By-laws may be amended or added to, by vote of
two-thirds of all the directors of the Company, at any meeting of
the board of directors, provided that the substance of the pro-
posed amendment or addition or the subject matter thereof shall
have been submitted in writing at a preceding meeting of the
board of directors or notice thereof shall have been given to the
directors by mail at least ten days before; waiver of notice by
any director being deemed equivalent to such notice to him.
The foregoing By-laws may also be amended at any general or
special meeting of stockholders, provided notice of the proposed
amendment shall have been given in the call for such meeting.
ARTICLE XIV.
WAIVER OF NOTICE
Any notice required to be given by law or by the Certificate
of Incorporation or by these By-laws may be waived in writing,
and such waiver may be made either before or after the act or
event to which the same relates.
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
THE MAY DEPARTMENT STORES COMPANY
COMPUTATION OF NET EARNINGS PER SHARE
FOR THE THREE FISCAL YEARS ENDED JANUARY 28, 1995
(millions, except per share) 1994 1993 1992
<S> <C> <C> <C>
Net earnings $ 782 $ 711 $ 603
ESOP Preferred Dividends, net of tax
benefit on unallocated shares (19) (19) (18)
Dividend requirements on redeemable
preferred stock - - -
Net earnings available for
common shareowners $ 763 $ 692 $ 585
Average common shares outstanding 248.4 248.4 247.5
Net earnings per share $ 3.07 $ 2.79 $ 2.36
Primary Computation
Net earnings available for
common shareowners $ 763 $ 692 $ 585
Net earnings adjustment for
dividend equivalents 1 1 1
Adjusted net earnings $ 764 $ 693 $ 586
Average common shares outstanding 248.4 248.4 247.5
Common share equivalents under stock
option and deferred compensation plans,
based upon the treasury stock method 1.2 1.5 1.3
Average common and common equivalent shares 249.6 249.9 248.8
Primary earnings per share $ 3.06 $ 2.77 $ 2.35
Fully Diluted Computation
Adjusted net earnings $ 764 $ 693 $ 586
Impact of assumed conversion of
ESOP Preference Shares 10 9 13
Adjusted net earnings $ 774 $ 702 $ 599
Average common and common equivalent shares 249.6 249.9 248.8
Additional common stock equivalents
attributable to application of the
treasury stock method - 0.1 0.7
Assumed conversion of ESOP
Preference Shares 15.3 15.5 15.8
Average common and common equivalent shares,
assuming full dilution 264.9 265.5 265.3
Fully diluted earnings per share $ 2.92 $ 2.65 $ 2.26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE FIVE FISCAL YEARS ENDED JANUARY 28, 1995
Fiscal Year Ended
Jan. 28, Jan. 29, Jan. 30, Feb. 1, Feb. 2,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Pretax earnings from continuing operations $ 1,296 $ 1,178 $ 791 $ 796 $ 762
Fixed charges (excluding interest
capitalized and pretax preferred stock
dividend requirements) 377 381 432 474 421
Dividends on ESOP Preference Shares (28) (29)) (29) (30) (30)
Capitalized interest amortization 4 4 3 3 3
1,649 1,534 1,197 1,243 1,156
Fixed Charges:
Gross interest expense (a) $ 290 $ 297 $ 341 $ 388 $ 347
Interest factor attributable to
rent expense 102 94 94 92 83
Other (b) - - 4 8 5
392 391 439 488 435
Ratio of Earnings to Fixed Charges 4.2 3.9 2.7 2.6 2.7
(a) Represents interest expense on long-term and short-term debt, ESOP debt and amortization of
debt discount and debt issue expense.
(b) Represents the company's proportionate share of interest of unconsolidated 50% owned persons
and pretax preferred stock dividend requirements.
</TABLE>
<PAGE>
EXHIBIT 13
[The following "Management's Discussion and Analysis" section is a
reproduction of the same named section included in the paper format
Annual Report on pages 12-17.]
MANAGEMENT'S DISCUSSION AND ANALYSIS
May reached a significant milestone in achieving its 20th
consecutive year of record sales and earnings per share from
continuing operations. The continuing execution of our power
center merchandising and customer service strategies were key
factors in our strong financial performance. Our five-year
compound growth rate for earnings per share from continuing
operations was 10% -- among the best in the retail industry.
Sales in 1994 were $11.9 billion, an increase of 8.1% over 1993
sales of $11.0 billion. The sales increase over last year was
achieved during a period of deflation for department store and shoe
prices and reflects the benefit of new store openings and an
increase in store-for-store sales of 5.4% for department stores and
4.4% overall. Store-for-store sales increases for the first
through fourth quarters in 1994 were 7.8%, 3.1%, 3.1% and 4.2%,
respectively.
We achieved $2.92 in earnings per share in 1994, a 10.2% increase
over last year's $2.65. Net earnings totaled $782 million compared
with $711 million last year. Return on revenues increased to 6.4%
in 1994 from 6.2% in 1993. Return on equity was 21.3% in 1994
compared with 22.1% in 1993, and return on net assets was 20.1% in
1994 compared with 19.6% in 1993.
The company values its department store inventory using the LIFO
method. Usually, this decreases earnings to partially remove the
effect of inflation. This year, May experienced deflation as
measured by the Bureau of Labor Statistics. LIFO was a pretax
credit of $46 million compared with a charge last year of $7
million.
We opened 19 department stores during 1994, adding 3.0 million
square feet of retail space. Five of these openings were Lord &
Taylor in Natick and Holyoke, Mass., Albany and Syracuse, N.Y., and
Manchester, Conn.; and two were Foley's locations in Houston.
Robinsons-May opened one location in East Mesa, Ariz., and four
locations in Los Angeles that had been damaged by the January 1994
earthquake. Hecht's opened in Durham, N.C.; Filene's opened four
stores in Saugus, Pittsfield and Springfield, Mass., and Albany,
N.Y; and Famous-Barr opened two stores in Lafayette, Ind., and St.
Louis. One Robinsons-May location damaged by the January 1994
earthquake remains temporarily closed and will reopen in 1995. In
addition, we remodeled 35 department stores in 1994, totaling 3.5
million retail square feet, and expanded 15 of these stores by
500,000 square feet. At fiscal year-end, May operated 314
department stores in 29 states and the District of Columbia.
Six department stores were closed during the year, resulting in a
net increase of 13 department stores and 2.6 million square feet of
retail space. This net increase follows several years in which the
department store count decreased as new department store openings
were more than offset by the closings of low-productivity stores.
1
<PAGE>
In 1994, Payless ShoeSource opened 656 net new stores, adding 2.6
million square feet of retail space. During the year, Payless
ShoeSource purchased 550 Kobacker Company and The Shoe Works
stores, located in 29 states and the District of Columbia. Payless
ShoeSource remodeled and reopened 416 of these stores during 1994,
and plans to reopen 134 stores in 1995, all under the Payless
ShoeSource name. In addition, the Payless Kids expansion program
continued by adding 354 stores adjacent to existing Payless
ShoeSource stores, expanding those locations by a total of 357,000
square feet. At year-end, Payless ShoeSource operated 4,435 stores
in 49 states, the District of Columbia, Puerto Rico and the Virgin
Islands.
Our expansion program for 1995 includes 23 new department stores,
adding 3.3 million square feet of retail space. The company plans
to remodel 17 department stores in 1995, totaling 1.0 million
square feet of retail space, and to expand eight of these stores by
a total of 300,000 square feet. The 1995-1999 expansion plan will
add 125 new department stores, totaling 20.3 million retail square
feet. After a seven year period in which the company closed 99
low-productivity department stores, we expect to close very few
stores during the 1995-1999 period. The expansion plan will result
in a 6% net annualized increase in department store square footage.
During this five-year period, May will invest $2.1 billion for new
stores and will spend an additional $480 million to remodel
existing stores.
Payless ShoeSource will add 268 net new stores in 1995 with more
than 950,000 square feet of retail space. In addition, Payless
ShoeSource will add 105 Payless Kids expansion stores adjacent to
existing stores, bringing the total Payless Kids expansion stores
to 740. The expansion plan for Payless ShoeSource during the 1995-
1999 period involves a capital investment, including the present
value of operating leases, of $1.1 billion to add approximately
1,200 net new family shoe stores with 4.1 million square feet of
retail space and 900 adjacent Payless Kids expansion stores, adding
700,000 square feet to existing stores. An additional $125 million
will be invested to remodel existing stores.
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net retail sales from
continuing operations (in billions) $4.2 $4.7 $5.3 $5.8 $7.3 $8.3 $8.9 $9.4 $10.2 $11.0 $11.9
</TABLE>
2
<PAGE>
REVIEW OF OPERATIONS
Net earnings totaled $782 million in 1994 compared with $711
million in 1993 and $603 million in 1992. Total company return on
revenues was 6.4% in 1994 compared with 6.2% in 1993 and 5.4% in
1992. Fully diluted earnings per share reached $2.92 in 1994
compared with $2.65 in 1993 and $2.26 in 1992.
Results for the past three years were as follows:
<TABLE>
<CAPTION>
(dollars in millions, 1994 1993 1992
except per share) % of % of % of
$ Revenues $ Revenues $ Revenues
<S> <C> <C> <C> <C> <C> <C>
Net Retail
Sales $11,877 $10,989 $10,204
Revenues $12,223 100.0% $11,529 100.0% $11,150 100.0%
Cost of sales 8,374 68.5 7,910 68.6 7,691 69.0
Selling,
general and
administrative
expenses 2,319 19.0 2,196 19.1 2,202 19.7
Interest expense,
net 234 1.9 245 2.1 279 2.5
Special and non-
recurring
items* - - - - 187 n/a
Earnings before
income taxes 1,296 10.6 1,178 10.2 791 8.8**
Provision for
income taxes *** 514 39.7 467 39.6 188 38.3**
Net Earnings $ 782 6.4% $ 711 6.2% $ 603 5.4%
Fully Diluted
Earnings Per
Share $ 2.92 $ 2.65 $ 2.26
* See Special and Nonrecurring Items on page 6.
** For comparability, shown before special and nonrecurring items.
*** Percent of revenues column represents effective income tax rate.
</TABLE>
3
<PAGE>
Net Retail Sales. Net retail sales (see page 13 for definition)
increases (decreases) by business segment for 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
Five-Year
Store-for- Store-for- Compound
Total Store Total Store Growth Rate
<S> <C> <C> <C> <C> <C>
Department stores 8.2% 5.4% 7.2% 5.4% 6.8%
Payless ShoeSource 7.6 (0.2) 10.0 1.7 11.5
Total 8.1% 4.4% 7.7% 4.7% 7.5%
</TABLE>
Total sales increases for 1994 reflect the opening of 19 new
department stores and 656 net new Payless ShoeSource stores and a
4.4% store-for-store increase. Total sales increases for 1993
include the results of 13 new department stores and 216 net new
Payless ShoeSource stores and a 4.7% store-for-store increase.
Sales per square foot by segment were as follows:
<TABLE>
<CAPTION>
1994 Five-Year
vs. 1993 Compound
Increase Growth
1994 1993 1992 1989 (Decrease) Rate
<S> <C> <C> <C> <C> <C> <C>
Department stores $200 $191 $179 $168 4.5% 3.5%
Payless ShoeSource 161 165 161 141 (2.5) 2.6
Total $191 $186 $176 $164 3.0% 3.2%
</TABLE>
While both store-for-store sales and sales per square foot were
below expectations at Payless ShoeSource, square footage increased
21% as the new store and Payless Kids expansions were greater than
usual due to the Kobacker/Shoe Works acquisition.
Sales include leased and licensed department sales of $290, $313
and $349 million in 1994, 1993 and 1992, respectively. Revenues
include finance charge revenues of $334, $330 and $329 million in
1994, 1993 and 1992, respectively. Finance charge revenues in 1994
were similar to 1993 and 1992, as credit sales on the company's
credit cards did not increase proportionally with sales due to a
higher use of third party credit cards.
Cost of Sales. Cost of sales includes cost of merchandise sold and
buying and occupancy costs. Cost of sales was $8.37 billion in
1994 compared with $7.91 billion in 1993, a 5.9% increase. The
overall increase of 5.9% was due to a 6.0% increase in revenues. As
a percent of revenues, cost of sales was 68.5% in 1994 compared
with 68.6% in 1993. The 1994 percent decrease was due to a LIFO
credit of $46 million in 1994 compared with a charge of $7 million
in 1993, partially offset by a small decline in merchandise gross
margin and an increase in rent and depreciation expense rates.
4
<PAGE>
Cost of sales was $7.91 billion in 1993 compared with $7.69 billion
in 1992, a 2.8% increase. The overall increase of 2.8% resulted
from a 3.4% increase in revenues, offset by a lower cost of sales
rate. As a percent of revenues, cost of sales was 68.6% in 1993
compared with 69.0% in 1992. The lower 1993 percent compared with
1992 was due to lower buying and occupancy expenses resulting from
store company consolidations, partially offset by a small decline
in merchandise gross margin. LIFO was a charge of $7 million in
1993 compared with $10 million in 1992.
The impact of LIFO on cost of sales, as a percent of revenues, is
shown below:
1994 1993 1992
Cost of sales 68.5% 68.6% 69.0%
LIFO charge (credit) (0.4) 0.1 0.1
Cost of sales before LIFO 68.9% 68.5% 68.9%
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $2.32 billion in 1994 compared with
$2.20 billion in 1993, a 5.6% increase. The overall increase was
due to a 6.0% increase in revenues. As a percent of revenues,
selling, general and administrative expenses decreased 0.1% to
19.0% in 1994 compared with 19.1% in 1993 as payroll costs
increased at a lesser rate than revenues.
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings per share from
continuing operations $.90 $.91 $1.05 $1.28 $1.52 $1.82 $1.87 $1.93 $2.26 $2.65 $2.92
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net earnings from continuing
operations (in millions) $277 $286 $333 $393 $448 $515 $500 $515 $603 $711 $782
</TABLE>
Selling, general and administrative expenses were $2.20 billion in
1993 compared with $2.20 billion in 1992, a 0.3% decrease.
Selling, general and administrative expense increases resulting
from increased revenues of 3.4% were more than offset by expense
savings achieved through store company consolidations and continued
focus on expense control. As a percent of revenues, selling,
general and administrative expenses were 19.1% in 1993 compared
with 19.7% in 1992. The California earthquake did not have an
impact on 1993 earnings as the losses were covered by insurance.
Selling, general and administrative expenses include advertising
and sales promotion costs of $424, $404 and $400 million in 1994,
1993 and 1992, respectively.
Interest Expense. Interest expense components were:
(dollars in millions) 1994 1993 1992
Interest expense $257 $263 $306
Interest income (8) (8) (20)
Capitalized interest (15) (10) (7)
Interest expense, net $234 $245 $279
Percent of revenues 1.9% 2.1% 2.5%
The decrease in 1994 net interest expense from 1993 was due to
reduced average borrowings.
The decrease in 1993 net interest expense compared with 1992 was
the result of the elimination of the May Centers Associates
Corporation (MCAC) sale/leaseback debt upon dissolution of the MCA
partnership on May 18, 1992, and other net reductions of debt
resulting primarily from current year cash flows. See May Centers
Associates on page 31.
5
<PAGE>
Income Taxes. The effective income tax rates were:
1994 1993 1992
As reported 39.7% 39.6% 23.7%
Excluding impact of
special and nonrecurring
items and MCA 39.7% 39.6% 38.5%
The 1994 effective income tax rate of 39.7% increased compared with
1993 due to slightly higher state income tax rates. The increase
in the 1993 effective rate of 39.6% compared with 38.5% in 1992 was
due to the 1% increase in the federal tax rate resulting from the
1993 tax law change and slightly higher state income tax rates.
See Taxes on page 24. Also see Summary of Significant Accounting
Policies on page 13 for a discussion of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Impact of Inflation. The department store inflation (deflation)
rate, as measured by the government's Department Store Inventory
Price Index, was (0.5)% in 1994 compared with 1.3% in 1993. The
company values its department store inventory on a LIFO basis.
Typically, the LIFO method removes the current year earnings
benefit of inflation by valuing inventory at its current
replacement cost. In 1994, because prices deflated, the company
recorded a $46 million LIFO credit compared with a $7 million
charge in 1993.
The shoe industry also experienced deflation in 1994. Over the
last three years, the inflation rate has averaged less than half of
1%.
Special and Nonrecurring Items. During the 1992 third quarter, the
company recorded pretax charges of $485 million, $298 million after
tax, for special and nonrecurring items. The pretax charges
consisted of $240 million for four department store company
consolidations (primarily costs for severance, associate
relocations, inventory liquidations and adjustments, and one-time
transition expenses); $125 million for planned closings of low-
productivity stores and other real estate-related charges including
adjustments to reflect expected values of a number of properties
planned for disposition; $60 million for the costs associated with
achieving various operating efficiencies, including the May
Merchandising Company headquarters relocation to St. Louis and the
data center combinations (primarily costs for associate relocations
and excess space carrying costs); $40 million for the cost
associated with retiring high interest rate debt; and $20 million
for a special contribution to The May Department Stores Company
Foundation. The cost to retire the debt was not reflected as an
extraordinary item as it was not material to total company earnings
or the earnings trend of the company.
The reserve balance for the $485 million special and nonrecurring
charges was $35 million at January 28, 1995, $100 million at
January 29, 1994, and $330 million at January 30, 1993. In 1994
and 1993, there were no additional provisions for the special and
nonrecurring charges and there were no material adjustments to the
individual components. The cash component of the $485 million
special and nonrecurring charges is estimated to be $325 million.
6
<PAGE>
During the 1992 second quarter, the company recorded a $298 million
pretax and after tax nonrecurring gain from the distribution of the
MCA partnership assets on May 18, 1992. See May Centers Associates
on page 31.
The 1992 special and nonrecurring charges and nonrecurring gain are
reflected as special and nonrecurring items on a separate line in
the consolidated statement of earnings. The 1992 special and
nonrecurring items had no impact on full-year net earnings or
earnings per share.
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock price range
Low price $ 7.52 $10.50 $15.94 $11.13 $14.38 $17.31 $18.69 $22.63 $26.00 $33.44 $32.25
High price $12.09 $16.25 $22.06 $25.44 $20.00 $26.31 $29.56 $30.19 $37.25 $46.50 $45.13
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Book value per common
share $7.25 $7.86 $8.50 $9.13 $10.75 $9.32 $10.04 $11.26 $12.82 $14.65 $16.65
</TABLE>
Summary Segment Information. May operates in two retail business
segments -- department stores and self-service family shoe stores
operated by Payless ShoeSource. The following summarizes the
results of these segments for the past three years. Additional
information by business segment is presented in the Six Year
Summary by Business Segment on pages 33 and 34.
May's 314 quality department stores are operated by eight
department store companies across the United States, each operating
under long-standing and widely recognized names. Each store
company holds a leading market position in its region. Results for
the department store segment were:
<TABLE>
<CAPTION>
Increase
(dollars in millions) 1994 1993 1992 1994 1993
<S> <C> <C> <C> <C> <C>
Net retail sales $9,761 $9,023 $8,416 8.2% 7.2%
Operating earnings 1,400 1,276 1,109 9.7 15.1
Return on revenues 13.8% 13.3% 11.8%
Return on net assets 24.7 23.9 20.5
</TABLE>
Department store operating earnings represent LIFO earnings before
income taxes, net interest expense and corporate expense, and
exclude goodwill amortization and special and nonrecurring items.
Department store operating earnings presented above include a LIFO
credit of $46 million in 1994, and charges of $7 and $10 million in
1993 and 1992, respectively. Department store operating earnings,
excluding LIFO, are presented below on a supplementary basis for
comparative purposes:
<TABLE>
<CAPTION>
Increase
(dollars in millions) 1994 1993 1992 1994 1993
<S> <C> <C> <C> <C> <C>
Operating earnings $1,354 $1,283 $1,119 5.5% 14.6%
Return on revenues 13.4% 13.4% 11.9%
</TABLE>
Payless ShoeSource is the nation's largest chain of self-service
family shoe stores. At year-end, Payless ShoeSource operated 4,435
stores and 635 Payless Kids expansion stores in 49 states, the
District of Columbia, Puerto Rico and the Virgin Islands. Results
for Payless ShoeSource were:
<TABLE>
<CAPTION>
Increase
(Decrease)
(dollars in millions) 1994 1993 1992 1994 1993
<S> <C> <C> <C> <C> <C>
Net retail sales $2,116 $1,966 $1,788 7.6% 10.0%
Operating earnings 219 225 214 (2.3) 5.0
Return on revenues 10.4% 11.4% 12.0%
Return on net assets 21.3 23.9 26.5
</TABLE>
7
<PAGE>
The 1994 decrease in operating earnings as compared with 1993
primarily resulted from an increase in expense rate due to the
decrease in store-for-store sales performance.
Provided below is a summary of net retail sales, sales per square
foot, building area square footage and number of stores for our
eight department store operating companies and Payless ShoeSource:
8
<PAGE>
<TABLE>
<CAPTION>
Net Retail Building Area
Sales in Millions Sales Per Square Footage
of Dollars Square Foot in Thousands Number of Stores
1994 1993 1994 1993 1994 1993 1994 New Closed 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lord & Taylor, New York City $ 1,452 $ 1,302 $226 $219 6,811 6,286 54 5 - 49
Foley's, Houston 1,633 1,577 181 175 9,583 9,196 49 2 1 48
Robinsons-May, Los Angeles 1,494 1,302 171 160 9,527 8,626 52 5 1 48
Hecht's, Washington, D.C. 1,423 1,326 212 207 6,959 6,912 45 1 1 45
Kaufmann's, Pittsburgh 1,303 1,240 198 192 6,908 6,774 40 - - 40
Filene's, Boston 1,162 1,068 239 238 5,320 4,704 36 4 1 33
Famous-Barr, St. Louis 947 884 193 179 5,099 5,145 30 2 2 30
Meier & Frank, Portland, Ore. 347 324 204 193 1,770 1,737 8 - - 8
Total department stores 9,761 9,023 200 191 51,977 49,380 314 19 6 301
Payless ShoeSource 2,116 1,966 161 165 14,905 12,345 4,435 656(net) - 3,779
Total $11,877 $10,989 $191 $186 66,882 61,725 4,749 675 6 4,080
Net retail sales represent sales of stores open at the end of 1994.
Sales per square foot is calculated on total revenues and average gross retail square footage.
Building area represents gross retail square footage of stores open at the end of the period presented.
</TABLE>
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Department stores sales
per square foot $113 $123 $138 $143 $158 $168 $172 $171 $179 $191 $200
</TABLE>
9
<PAGE>
REVIEW OF FINANCIAL CONDITION
Our 1994 financial performance further strengthened our balance
sheet and financial condition. We continue to meet our objective
of generating superior shareowner returns, while maintaining access
to capital at all times at reasonable costs.
Return on Equity. Return on equity is our principal measure in
evaluating our performance for shareowners and our ability to
profitably invest shareowners' funds. Our objective is to sustain
performance that places our return on equity in the top quartile of
the retail industry. Our return on beginning equity in 1994 was
21.3% compared with 22.1% in 1993 and 21.5% in 1992. During this
period, our financial strength has improved with a 1994 debt-to-
capitalization ratio of 44% compared with 54% in 1991.
Return on Net Assets. Return on net assets measures performance
independent of capital structure. Return on net assets represents
pretax earnings before special and nonrecurring items, net interest
expense and the interest component of operating leases, divided by
beginning of year net assets (including present value of operating
leases). Return on net assets was 20.1% in 1994 compared with
19.6% in 1993 and 16.7% in 1992. The improvement in the 1994
return on net assets compared with 1993 was due to the growth in
earnings exceeding the 4.8% growth in beginning of year net assets.
The improvement in the 1993 return on net assets compared with 1992
was due to the growth in earnings and a decrease in beginning of
year net assets.
Cash Flow. Cash flow from operations (earnings plus
depreciation/amortization) was $1.2 billion. This was 9.5% of
revenues in 1994 compared with 9.2% in 1993 and 8.5% in 1992. The
company's cash flow as a percent of revenues continues to be one of
the highest in the retail industry, and provides the company ample
resources to invest in its business.
Sources and (uses) of cash flows are summarized below:
<TABLE>
<CAPTION>
(millions) 1994 1993 1992
<S> <C> <C> <C>
Earnings and depreciation/amortization $1,156 $1,059 $ 944
Working capital increases (154) (216) (142)
Other operating activities (3) 73 13
Investing activities (815) (588) (394)
Net long-term debt issuances (repayments) 117 (192) (248)
Other financing activities (292) (262) (208)
Increase (decrease) in cash and
cash equivalents $ 9 $ (126) $ (35)
</TABLE>
Financing Activities. During 1994, the company issued $200 million
of 8-3/8% debentures due in 2024. The proceeds from the issuance
were added to the company's general funds and were available for
the purchase of certain of the company's other indebtedness,
capital expenditures, working capital needs and other general
corporate purposes, including investments and acquisitions.
10
<PAGE>
During 1994 and 1993, the company retired $35 and $100 million,
respectively, of high interest rate debt. The cost associated with
retiring the debt was recorded in 1992. See Special and
Nonrecurring Items on page 32.
During 1992, the company issued $200 million of 8-3/8% debentures
due in 2022. The proceeds from the issuance were added to the
company's general funds and were available for the purchase of
certain of the company's other indebtedness, capital expenditures,
working capital needs and other general corporate purposes,
including investments and acquisitions. During 1992, the company
retired $360 million of high interest rate debt. Also, upon
dissolution of the MCA partnership on May 18, 1992, the company
received a majority ownership interest in MCAC and, therefore,
$618 million of MCAC sale/leaseback debt was eliminated on a
consolidated basis. See May Centers Associates and Special and
Nonrecurring Items on pages 31 and 32.
Financial Condition Ratios. Our strong debt-to-capitalization and
fixed charge coverage ratios are consistent with our capital
structure objectives and provide us with substantial financial
flexibility.
The debt-to-capitalization ratio was 44%, 45% and 49% at the end of
1994, 1993 and 1992, respectively. For purposes of the debt-to-
capitalization ratio, total debt is defined as short-term and long-
term debt (including the ESOP debt reduced by unearned
compensation), redeemable preferred stock and the capitalized value
of all leases, including operating leases. Capitalization is
defined as total debt, noncurrent deferred taxes, ESOP Preference
Shares and shareowners' equity. See Profit Sharing on page 21 for
discussion of the ESOP. The decrease in the debt-to-capitalization
ratio to 44% in 1994 from 45% in 1993 was primarily due to the
growth in retained earnings. The decrease in the debt-to-
capitalization ratio in 1993 compared with 1992 was primarily due
to the elimination of the MCAC loans and other net reductions in
debt, along with the continued growth in retained earnings.
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Return on equity 16.1% 15.5% 15.7% 17.0% 18.6% 18.0% 21.8% 20.7% 21.5% 22.1% 21.3%
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Return on net assets 18.9% 18.8% 17.7% 17.4% 17.5% 18.0% 17.2% 16.0% 16.7% 19.6% 20.1%
</TABLE>
Fixed charge coverage was 3.4x, 3.2x and 2.4x in 1994, 1993 and
1992, respectively. Fixed charge coverage, excluding the impact of
the special and nonrecurring items, was 2.8x in 1992. Fixed
charges are defined as gross interest expense (excluding one-half
of the interest expense related to the MCAC loans prior to the MCA
partnership dissolution), interest expense on the ESOP debt, total
rent expense and the pretax equivalent of dividends on redeemable
preferred stock. In 1994, the improvement in coverage resulted
from the increased level of earnings, partially offset by an
increase in fixed charges, primarily rent expense. In 1993, the
improvement in coverage resulted from the increased level of
earnings and a decrease in fixed charges. Fixed charges in 1993
were lower compared with 1992 due to lower interest expense
resulting from reductions in debt and lower average interest rates,
partially offset by an increase in rent expense.
Our bonds are rated A2 by Moody's Investors Service, Inc. and A by
Standard & Poor's Corporation. Our commercial paper is rated P1
and A1 by Moody's and Standard & Poor's, respectively.
11
<PAGE>
Capital Expenditures. Our strong financial condition enables us to
make capital expenditures to enhance shareowners' returns. Return
on net assets, internal rate of return and sales per square foot
are emphasized as the principal operating measures as we invest in
new stores and remodels and eliminate unproductive space.
Capital expenditures in 1995 will approximate $930 million
(including $110 million representing the capital value of new
operating leases). Capital expenditures for the 1995-1999 period
are planned at $5.0 billion (including $660 million representing
the capital value of new operating leases). We intend to use
internal cash flow to finance substantially all of these
expenditures.
Available Credit. The company has $750 million of available
borrowing under its multi-year credit agreement. During 1994, the
company increased the dollar amount of the shelf registration
statement filed with the Securities and Exchange Commission to $800
million. As of January 28, 1995, the shelf registration statement
would enable the company to issue up to $800 million of additional
debt securities.
[The following "Common Stock Dividends and Market Prices" section is a
reproduction of the same named section included in the paper format Annual
Report on page 17.]
Common Stock Dividends and Market Prices. Our policy is to
increase dividends on common stock consistent with our earnings
growth over time. The 1995 annual dividend rate was increased 10%,
$.10 per share, to $1.14 per share, the 20th consecutive annual
dividend increase. The new annual dividend rate of $1.14 per share
will be effective with the June 1995 dividend payment. Dividends
paid have increased at a compound rate of 7.8% during the past five
years. The company has paid consecutive quarterly dividends since
December 1, 1911.
The quarterly price ranges of the common stock and dividends per
share in 1994 and 1993 were:
<TABLE>
<CAPTION>
1994 1993
Market Price Dividends Market Price Dividends
Quarter High Low Per Share High Low Per Share
<S> <C> <C> <C> <C> <C> <C>
First $45-1/8 $38 $ .23 $39-3/4 $33-7/16 $.20-3/4
Second 41-7/8 37-3/8 .26 41-1/8 34-5/8 .23
Third 42 36-1/2 .26 46-1/4 39-1/2 .23
Fourth 39-7/8 32-1/4 .26 46-1/2 37-1/2 .23
Year $45-1/8 $32-1/4 $1.01 $46-1/2 $33-7/16 $.89-3/4
</TABLE>
The approximate number of common shareowners as of March 1, 1995,
was 46,000.
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flow (in millions)
Depreciation and
amortization $437 $467 $542 $605 $714 $784 $794 $834 $944 $1,059 $1,156
Net earnings $277 $286 $333 $393 $448 $515 $500 $515 $603 $ 711 $ 782
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends per
common share
(year-end rate) $.43 $.47 $.52 $.57 $.64 $.71 $.79 $.81 $.83 $.92 $1.04
</TABLE>
12
<PAGE>
[The following "Summary of Significant Accounting Policies" section is a
reproduction of the same named section included in the paper format Annual
Report on page 18.]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The company's fiscal year ends on the Saturday
closest to January 31. Fiscal years 1994, 1993 and 1992 ended on
January 28, 1995, January 29, 1994, and January 30, 1993,
respectively. Each year included 52 weeks. References to years in
this annual report relate to fiscal years rather than calendar
years.
Basis of Reporting. The consolidated financial statements include
the accounts of the company and all wholly owned subsidiaries (the
company). Prior to dissolution of the May Centers Associates (MCA)
partnership in 1992, the company's 50% partnership investment in
MCA was accounted for using the equity method of accounting. See
May Centers Associates on page 31.
Net Retail Sales and Revenues. Net retail sales (sales) represent
the sales of stores operating at the end of the latest period, and
exclude finance charge revenues and the sales of stores which have
been closed and not replaced. Sales include sales of merchandise
and services and sales of leased and licensed departments. Sales
are net of returns and exclude sales tax. Store-for-store sales
represent sales of those stores open during both years. Revenues
include finance charge revenues and all sales from all stores
operating during the period.
Cost of Sales. Cost of sales includes the cost of merchandise sold
and buying and occupancy costs.
Preopening Expenses. Costs associated with the opening of new
stores are expensed during the year incurred.
Income Taxes. Effective with the beginning of 1993, the company
adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." The cumulative effect of adopting
SFAS No. 109 was insignificant and, therefore, no adjustments were
reflected in the financial statements. SFAS No. 109 requires
income taxes to be accounted for using a balance sheet approach
known as the liability method, as compared with the previous
approach known as the deferred method. The liability method
accounts for deferred income taxes by applying statutory tax rates
in effect at the date of the balance sheet to differences between
the book and tax basis of assets and liabilities. Adjustments to
deferred taxes resulting from statutory rate changes flow through
the tax provision in the year of the change.
13
<PAGE>
Earnings Per Share. Primary earnings per share are computed by
dividing net earnings less dividend requirements on redeemable
preferred stock and ESOP Preference Shares (net of related income
tax benefits on unallocated shares) by the average common shares
outstanding and common share equivalents during the period. Fully
diluted earnings per share assume conversion of the ESOP Preference
Shares into common stock and adjust net earnings for the additional
expense required to fund the ESOP debt service resulting from the
assumed replacement of the ESOP Preference Shares dividends with
common stock dividends. The average common shares outstanding and
common share equivalents used to calculate fully diluted earnings
per share were 264.9, 265.5 and 265.3 million in 1994, 1993 and
1992, respectively. References to earnings per share in this
annual report relate to fully diluted earnings per share.
With the adoption of SFAS No. 109 in 1993, the tax benefit to the
company from dividends paid on the unallocated shares of common
stock assumed held by the ESOP is no longer reflected in fully
diluted earnings per share. The impact on 1993 fully diluted
earnings per share was a decrease of $.02.
Cash Equivalents. Cash equivalents consist primarily of commercial
paper with maturities less than three months. Cash equivalents are
stated at cost, which approximates fair value.
Accounts Receivable. In accordance with industry practice,
installments on deferred payment accounts receivable maturing in
more than one year have been included in current assets.
Merchandise Inventories. Department store merchandise inventories
(83% of the company's consolidated inventories in 1994 and 1993)
are valued by the retail method and are stated on the LIFO (last-
in, first-out) cost basis, which is lower than market. The
accumulated LIFO provision was $171 and $217 million in 1994 and
1993, respectively. Payless ShoeSource merchandise inventories are
valued by the retail method and are stated on the lower of average
cost or market basis.
Property and Equipment. Property and equipment are recorded at
cost. Property and equipment are depreciated on a straight-line
basis over their estimated useful lives. Investments in properties
under capital leases and leasehold improvements are amortized over
the shorter of their useful lives or their related lease terms.
Goodwill. Goodwill represents the excess of cost over the fair
value of net tangible assets acquired at the dates of acquisition.
Substantially all amounts are amortized using the straight-line
method over a 40-year period. Goodwill is presented in the
consolidated balance sheet net of accumulated amortization of $112
and $94 million in 1994 and 1993, respectively.
Derivatives Policy. The company's policy is to use financial
derivatives only to reduce risk in conjunction with specific
business transactions. Gains and losses on hedges of existing
assets or liabilities are included in the respective balance sheet
amounts. Gains and losses related to hedges of firm commitments or
anticipated transactions are deferred and recognized in operating
results or included in balance sheet amounts when the transaction
occurs.
14
<PAGE>
[The following "Consolidated Financial Statements" section is a reproduction
of the same named section included in the paper format Annual Report on
pages 19-22.]
<TABLE>
<CAPTION>
The May Department Stores Company and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(millions, except per share)
1994 1993 1992
<S> <C> <C> <C>
Net Retail Sales $11,877 $10,989 $10,204
Revenues $12,223 $11,529 $11,150
Cost of sales 8,374 7,910 7,691
Selling, general and
administrative expenses 2,319 2,196 2,202
Interest expense, net 234 245 279
Special and nonrecurring items - - 187
Total cost of sales and expenses 10,927 10,351 10,359
Earnings before income taxes 1,296 1,178 791
Provision for income taxes 514 467 188
Net Earnings $ 782 $ 711 $ 603
Primary earnings per share $ 3.06 $ 2.77 $ 2.35
Fully Diluted Earnings Per Share $ 2.92 $ 2.65 $ 2.26
See the Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
The May Department Stores Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(dollars in millions, except per share) January 28, January 29,
1995 1994
<S> <C> <C>
Assets
Current Assets:
Cash $ 15 $ 15
Cash equivalents 40 31
Accounts receivable, net 2,436 2,394
Merchandise inventories 2,207 2,020
Other current assets 212 219
Total Current Assets 4,910 4,679
Property and Equipment:
Land 207 248
Buildings and improvements 3,115 2,673
Furniture, fixtures and equipment 2,394 2,043
Property under capital leases 78 83
Total property and equipment 5,794 5,047
Accumulated depreciation (1,928) (1,636)
Property and equipment, net 3,866 3,411
Goodwill 602 619
Other Assets 94 91
Total Assets $9,472 $8,800
Liabilities and Shareowners' Equity
Current Liabilities:
Current maturities of long-term debt $ 169 $ 113
Accounts payable 837 870
Accrued expenses 761 740
Income taxes payable 128 48
Total Current Liabilities 1,895 1,771
Long-term Debt 2,875 2,822
Deferred Income Taxes 359 373
Other Liabilities 191 182
ESOP Preference Shares 374 380
Unearned Compensation (357) (367)
Shareowners' Equity:
Common stock 124 124
Additional paid-in capital 5 21
Retained earnings 4,006 3,494
Total Shareowners' Equity 4,135 3,639
Total Liabilities and Shareowners' Equity $9,472 $8,800
Common stock has a par value of $.50 per share; 700 million shares
are authorized and 313.6 million shares were issued. At January
28, 1995, 248.4 million shares were outstanding and 65.2 million
shares were held in treasury. At January 29, 1994, 248.3 million
shares were outstanding and 65.3 million shares were held in
treasury.
ESOP Preference Shares have a par value of $.50 per share, stated
value of $507 per share and 800,000 shares are authorized. At
January 28, 1995, 737,145 shares (convertible into 15.1 million
common shares) were issued and outstanding. At January 29, 1994,
750,303 shares (convertible into 15.4 million common shares) were
issued and outstanding.
See Preferred and Preference Stock in Notes to Consolidated
Financial Statements for discussion of other preferred stock.
See the Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
The May Department Stores Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions) 1994 1993 1992
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 782 $ 711 $ 603
Adjustments for noncash items
included in earnings:
Depreciation and amortization 374 348 341
Deferred income taxes (noncurrent) 15 10 9
Deferred and unearned compensation 15 17 21
Adjusted equity earnings of MCA
partnership - - (7)
Nonrecurring gain - - (298)
Special and nonrecurring charges,
net of tax benefit - - 298
Working capital increases* (154) (216) (142)
Other assets and liabilities, net (33) 46 (10)
Total Operating Activities 999 916 815
Investing Activities:
Capital expenditures (937) (700) (404)
Disposition of property and equipment 127 118 72
Acquisition of 21% of MCAC - - (156)
Collection of MCI note receivable - - 74
Other (5) (6) 20
Total Investing Activities (815) (588) (394)
Financing Activities:
Issuance of long-term debt 200 12 208
Repayment of long-term debt (83) (204) (456)
Purchase of common stock (56) (54) (31)
Issuance of common stock 34 32 46
Dividend payments (270) (240) (223)
Total Financing Activities (175) (454) (456)
Increase (Decrease) in Cash and
Cash Equivalents 9 (126) (35)
Cash and Cash Equivalents,
Beginning of Year 46 172 207
Cash and Cash Equivalents, End of Year $ 55 $ 46 $ 172
17
<PAGE>
The May Department Stores Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (con't.)
<CAPTION>
(millions) 1994 1993 1992
<S> <C> <C> <C>
*Comprised of:
Accounts receivable, net $ (42) $ (27) $ 37
Merchandise inventories (187) (229) (50)
Other current assets 7 105 24
Accounts payable (33) 147 61
Accrued expenses 21 (199) (199)
Income taxes payable 80 (13) (15)
Net increase in
working capital $(154) $(216) $(142)
Cash paid during the year:
Interest $ 241 $ 257 $ 304
Income taxes 418 322 354
Noncash investing and financing activities include the disposition
of $164 million investment in MCA and the elimination of $618
million of MCAC loans upon dissolution of the MCA partnership in
1992, and conversions of ESOP Preference Shares into common stock
of $7, $9 and $5 million in 1994, 1993 and 1992, respectively.
See the Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
The May Department Stores Company and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Outstanding Additional Total
(dollars in millions, Common Stock Paid-in Retained Shareowners'
shares in thousands) Shares Dollars Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at February 1, 1992 246,916 $123 $15 $2,643 $2,781
Net earnings - - - 603 603
Dividends paid:
Common stock ($.82 1/2
per share) - - - (205) (205)
ESOP Preference Shares,
net of tax benefit - - - (18) (18)
Preferred stock - - - - -
Common stock issued 2,165 1 50 - 51
Purchase of common stock (974) - (31) - (31)
Balance at January 30, 1993 248,107 $124 $34 $3,023 $3,181
Net earnings - - - 711 711
Dividends paid:
Common stock ($.89 3/4
per share) - - - (223) (223)
ESOP Preference Shares,
net of tax benefit - - - (17) (17)
Preferred stock - - - - -
Common stock issued 1,611 1 40 - 41
Purchase of common stock (1,376) (1) (53) - (54)
Balance at January 29, 1994 248,342 $124 $21 $3,494 $3,639
Net earnings - - - 782 782
Dividends paid:
Common stock ($1.01
per share) - - - (251) (251)
ESOP Preference Shares,
net of tax benefit - - - (19) (19)
Preferred stock - - - - -
Common stock issued 1,429 1 39 - 40
Purchase of common stock (1,388) (1) (55) - (56)
Balance at January 28, 1995 248,383 $124 $ 5 $4,006 $4,135
19
<PAGE>
The May Department Stores Company and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY (con't.)
Outstanding common stock excludes shares held in treasury. Treasury share
activity for the last three years is summarized below:
<CAPTION>
(shares in thousands) 1994 1993 1992
<S> <C> <C> <C>
Balance, Beginning of Year 65,295 65,530 66,721
Common stock issued:
Exercise of stock options (677) (967) (1,667)
Deferred compensation plan (181) (239) (217)
Restricted stock grants, net of
forfeitures (157) 31 (102)
Contribution to Profit Sharing Plan (145) (76) -
Conversion of ESOP Preference Shares (269) (360) (179)
(1,429) (1,611) (2,165)
Purchase of common stock 1,388 1,376 974
Balance, End of Year 65,254 65,295 65,530
See the Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements.
</TABLE>
20
<PAGE>
[The following "Notes to Consolidated Financial Statements" section is a
reproduction of the same named section included in the paper format Annual
Report on pages 23-29.]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarterly Results (Unaudited). Quarterly results are determined in
accordance with the annual accounting policies and include certain
items based upon estimates for the entire year. Summarized
quarterly results for the last two years were as follows:
<TABLE>
<CAPTION>
(millions, except per share) 1994
Quarter First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Revenues $2,622 $2,706 $2,945 $3,950 $12,223
Cost of sales $1,817 $1,887 $2,052 $2,618 $ 8,374
Net Earnings $ 112 $ 130 $ 139 $ 401 $ 782
Primary earnings
per share $ .43 $ .50 $ .54 $ 1.59 $ 3.06
Fully Diluted
Earnings Per Share $ .41 $ .49 $ .51 $ 1.51 $ 2.92
<CAPTION>
(millions, except per share) 1993
Quarter First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Revenues $2,422 $2,586 $2,814 $3,707 $11,529
Cost of sales $1,683 $1,791 $1,956 $2,480 $ 7,910
Net Earnings $ 96 $ 117 $ 133 $ 365 $ 711
Primary earnings
per share $ .37 $ .45 $ .51 $ 1.44 $ 2.77
Fully Diluted
Earnings Per Share $ .35 $ .44 $ .49 $ 1.37 $ 2.65
</TABLE>
There are variables and uncertainties in the factors used to
estimate the annual LIFO provision on an interim basis. The
following unaudited supplementary information shows the pro forma
per share impact of LIFO had the final variables and factors been
known at the beginning of each year.
1994 1993
Pro As Pro As
Quarter Forma Reported Forma Reported
First $(.02) $ .02 $ .00 $ .02
Second (.02) .02 .01 .02
Third (.03) .00 .00 .01
Fourth (.04) (.15) .01 (.03)
Year $(.11) $(.11) $ .02 $ .02
Profit Sharing. The company has one qualified profit sharing plan
which covers substantially all associates who are paid for 1,000
hours or more in a year and have attained age 21. The plan is a
defined contribution plan which provides for discretionary matching
allocations at a variable matching rate generally based upon
changes in the company's annual earnings per share, as defined in
the plan. The plan's matching allocation value totaled $29, $35 and
$31 million in 1994, 1993 and 1992, respectively.
The company's Profit Sharing Plan includes an Employee Stock
Ownership Plan (ESOP) under which the Profit Sharing Plan borrowed
$400 million in 1989, guaranteed by the company, at an average rate
21
<PAGE>
of 8.5% with an average maturity of 12 years. The proceeds were
used to purchase $400 million of a new class of convertible
preference stock of the company (ESOP Preference Shares). The
company issued 788,955 ESOP Preference Shares. Each share is
convertible into 20.4903 shares of common stock and has a stated
value of $24.74 per common share equivalent. The annual dividend
rate on the ESOP Preference Shares is 7.5%, and the shares are
redeemable by the holder or the company in certain situations.
The $389 million outstanding portion of the guaranteed ESOP debt is
reflected in the consolidated balance sheet in long-term debt as
the company will ultimately fund the required debt service. The
company's contributions to the ESOP, along with the dividends on
the ESOP Preference Shares, are used to repay the loan principal
and interest. Interest expense associated with the ESOP debt was
$33 million in each of 1994 and 1993, and $34 million in 1992.
ESOP Preference Shares dividends were $28 million in 1994, and $29
million in each of 1993 and 1992. ESOP debt principal payments
began in 1993. ESOP Preference Shares are released based upon debt
service payments and are allocated to participating associates'
accounts. Unearned compensation, initially an equal, offsetting
amount to the $400 million guaranteed ESOP debt, has been adjusted
for the difference between the expense related to the ESOP and cash
payments to the ESOP, and is amortized as principal is repaid.
The company's expense related to the Profit Sharing Plan was $21,
$22 and $14 million in 1994, 1993 and 1992, respectively.
At January 28, 1995, the Profit Sharing Plan beneficially owned
11.6 million shares of the company's common stock and 100% of the
company's ESOP Preference Shares, which are convertible into 15.1
million shares of the company's common stock, representing 10.1% of
the company's common stock on a fully converted basis.
Pension. The company has one retirement plan which covers
substantially all associates who are paid for 1,000 hours or more
in a year and have attained age 21. The plan is noncontributory
and provides benefits based upon years of service and pay during
employment. The company also maintains a nonqualified
supplementary retirement plan for certain associates and foreign
retirement plans for certain overseas-based associates.
Pension expense is determined by the company based on information
provided by an outside actuarial firm, using assumptions to
estimate the total benefits ultimately payable to associates and
then allocating this cost to service periods. The actuarial
assumptions used to calculate pension costs are reviewed annually.
The following tables summarize the funded status of the plans,
components of pension expense, actuarial assumptions and
definitions of terms.
22
<PAGE>
<TABLE>
<CAPTION>
(millions) 1994 1993
<S> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested benefit obligation $186 $206
Nonvested benefit obligation 24 18
Accumulated benefit obligation (ABO) 210 224
Estimated effect of future salary increases 51 56
Projected benefit obligation (PBO) 261 280
Plan assets at fair value (primarily
equity and fixed income securities) 227 234
Plan assets less than PBO (34) (46)
Unrecognized obligation 4 5
Unrecognized gain (35) (19)
Unrecognized prior service cost 20 21
Accrued pension cost $(45) $(39)
Plan assets in excess of ABO $ 17 $ 10
</TABLE>
The accrued pension cost primarily represents the unfunded ABO for
the nonqualified supplementary retirement plan. Qualified plan
assets in excess of ABO were $57 and $46 million in 1994 and 1993,
respectively.
<TABLE>
<CAPTION>
(millions) 1994 1993 1992
<S> <C> <C> <C>
Components of Pension Expense:
Service cost $ 25 $ 23 $ 23
Interest on PBO 19 20 20
Actual return on assets 6 (22) (12)
Net amortization and deferral (19) 3 (7)
Total $ 31 $ 24 $ 24
</TABLE>
The increase in 1994 pension expense is primarily due to the
January 1, 1994, decreases in the discount rate and expected return
on assets assumptions.
At the end of 1994, the discount rate and expected rate of return
on plan assets were increased as a result of a general increase in
interest rates during the year.
<TABLE>
<CAPTION>
January 1,
1995 1994 1993
<S> <C> <C> <C>
Actuarial Assumptions:
Discount rate 8.0 % 7.0% 8.25%
Expected return on plan assets 8.25 7.5 8.25
Salary increase 5.0 5.0 6.0
</TABLE>
Definitions of Terms:
ABO is the actuarial present value of benefits (both vested and
nonvested) attributed by the pension benefit formula to prior
associate service based on current and past compensation
levels.
PBO is the actuarial present value of benefits attributed by
the pension benefit formula to prior associate service taking
into consideration future salary increases.
23
<PAGE>
Accrued pension cost is the balance sheet accrued expense not
yet paid to a plan.
Net amortization and deferral represents the net effect during
the period of the delayed recognition provisions of SFAS
No. 87.
Another important element in the retirement programs for associates
is the federal Social Security system into which the company paid
$137 million in 1994 as its matching portion of the $137 million
contributed by associates.
The company maintains a postretirement benefit plan for certain
associates. Benefits vary by the group of associates covered and
include fixed or variable benefits for life and/or health
insurance. Current eligibility is limited to a small group of
associates. At the end of 1994, the company increased the discount
rate assumption from 7.0% to 8.0%, which resulted in a $4 million
decrease in the present value of future obligations. As of January
28, 1995, the company's estimated present value of future
obligations for postretirement benefits of $39 million is fully
accrued in accordance with Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The estimated future obligations
are based upon assumed annual health care cost increases of 12% for
1995 and decreasing by 1% annually to 8% for 1999 and future years.
A one-percentage-point increase/decrease in the assumed annual
health care cost increases would increase/decrease the present
value of estimated future obligations for postretirement benefits
by $1 million. The postretirement plan is unfunded. The
postretirement expense was $3, $2 and $3 million in 1994, 1993 and
1992, respectively.
Taxes. The provision for income taxes and related percent of
pretax earnings for the last three years were as follows:
<TABLE>
<CAPTION>
(dollars in millions) 1994 1993 1992
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
Federal $393 $304 $259
State and local 87 68 49
Taxes currently payable 480 37.1% 372 31.6% 308 38.9%
Federal 28 81 (106)
State and local 6 14 (14)
Deferred taxes 34 2.6 95 8.0 (120) (15.2)
Total $514 39.7% $467 39.6% $188 23.7%
</TABLE>
The provision for deferred income taxes prior to the adoption of
SFAS No. 109 consisted of:
(millions) 1992
Depreciation and amortization $ 8
Accrued expenses and reserves (124)
Other, net (4)
Total $(120)
24
<PAGE>
The reconciliation between the statutory federal income tax rate
and the effective income tax rate for the last three years follows:
1994 1993 1992
Statutory federal income tax rate 35.0% 35.0% 34.0%
State and local income taxes 7.2 7.0 4.4
Federal tax benefit of state and
local income taxes (2.5) (2.5) (1.5)
Nonrecurring gain - - (12.8)
Equity earnings of MCA partnership - - (0.3)
Other, net - 0.1 (0.1)
Effective income tax rate 39.7% 39.6% 23.7%
Major components of deferred tax assets and (liabilities) were as
follows:
January 28, January 29,
(millions) 1995 1994
Accrued expenses and reserves $ 171 $ 190
Deferred and other compensation 91 92
Depreciation/amortization and
basis differences (398) (401)
Other deferred income tax
liabilities, net (58) (72)
Net deferred income taxes (194) (191)
Deferred investment tax credit - (3)
Less: Net current deferred
income tax assets (165) (179)
Noncurrent deferred income taxes $(359) $(373)
Net current deferred income tax assets are included in other
current assets in the accompanying balance sheet.
Taxes other than income taxes consisted of:
(millions) 1994 1993 1992
Payroll $173 $165 $164
Real estate and personal property 83 79 83
Total $256 $244 $247
25
<PAGE>
Accounts Receivable. During 1994, credit sales under department
store credit programs were $5.8 billion, or 57.3% of 1994
department store sales compared with 62.4% in 1993 and 64.2% in
1992. An estimated 31 million customers hold credit cards under
the company's various credit programs. During the past years, we
have expanded our acceptance of third party credit cards. Sales
made through third party credit cards, including sales of Payless
ShoeSource stores, totaled $2.1 billion in 1994 compared with $1.5
billion in 1993 and $1.1 billion in 1992.
Net accounts receivable consisted of:
January 28, January 29,
(millions) 1995 1994
Customer accounts receivable $2,418 $2,368
Other accounts receivable 96 102
Total accounts receivable 2,514 2,470
Allowance for uncollectible accounts (78) (76)
Accounts receivable, net $2,436 $2,394
Other Current Assets. In addition to net current deferred income
tax assets, other current assets consisted of prepaid expenses and
supply inventories.
Other Assets. Major components of other assets included:
January 28, January 29,
(millions) 1995 1994
Notes receivable $48 $44
Deferred debt expense 21 20
Restricted construction funs 5 9
Accrued Expenses. Major components of accrued expenses included:
January 28, January 29,
(millions) 1995 1994
Insurance costs $203 $199
Sales and use and other taxes 142 130
Interest and rent expense 102 98
Salaries, wages and employee benefits 87 80
Store closings and real estate-related 81 113
Construction costs 62 34
Advertising and other operating expenses 50 45
Short-term Debt and Lines of Credit. Short-term borrowings for the
last three years were:
(dollars in millions) 1994 1993 1992
Balance outstanding at year-end - - -
Average balance outstanding $ 83 $ 94 $ 36
Average interest rate on average balane 5.0% 3.3% 3.6%
Maximum balance outstanding $317 $344 $135
The average balance of short-term borrowings outstanding, primarily
commercial paper, and the respective weighted average interest
26
<PAGE>
rates are based on the number of days such short-term borrowings
were outstanding during the year. The company has available credit
agreements amounting to $750 million. At January 28, 1995, there
were no amounts outstanding under these agreements.
Long-term Debt. Long-term debt and capital lease obligations were:
January 28, January 29,
(dollars in millions) 1995 1994
5.7% to 10.75% unsecured notes and
sinking fund debentures due 1995-2024 $2,902 $2,780
3.0% to 10.0% mortgage notes and bonds
due 1995-2012 69 72
Total debt 2,971 2,852
Capital lease obligations 73 83
3,044 2,935
Less current maturities (169) (113)
Total $2,875 $2,822
During 1994, the company issued $200 million of 8-3/8% debentures
due in 2024. The proceeds from the issuance were added to the
company's general funds and were available for the purchase of
certain of the company's other indebtedness, capital expenditures,
working capital needs and other general corporate purposes,
including investments and acquisitions.
During 1994 and 1993, the company retired $35 and $100 million,
respectively, of high interest rate debt. The cost associated with
retiring the debt was recorded in 1992. See Special and
Nonrecurring Items on page 32.
During 1992, the company issued $200 million of 8-3/8% debentures
due in 2022. The proceeds from the issuance were added to the
company's general funds and were available for the purchase of
certain of the company's other indebtedness, capital expenditures,
working capital needs and other general corporate purposes,
including investments and acquisitions. During 1992, the company
retired $360 million of high interest rate debt. Also, upon
dissolution of the MCA partnership on May 18, 1992, the company
received a majority ownership interest in MCAC and, therefore, $618
million of MCAC loans were eliminated on a consolidated basis. See
May Centers Associates and Special and Nonrecurring Items on pages
31 and 32.
The annual maturities of long-term debt, including sinking fund
requirements, are $169, $21, $236, $244 and $89 million for 1995
through 1999, respectively.
The net book value of property and equipment encumbered under long-
term debt agreements was $103 million at January 28, 1995.
Lease Obligations. The company owns approximately 76% of its
department stores and leases substantially all of its Payless
ShoeSource stores. Approximately 79% of real property rent expense
was attributable to Payless ShoeSource stores in 1994.
27
<PAGE>
Rental expense for the company's operating leases consisted of:
(millions) 1994 1993 1992
Minimum rentals $224 $200 $182
Contingent rentals based on sales 18 18 19
Real property rentals 242 218 201
Equipment rentals 5 7 8
Total $247 $225 $209
Future minimum lease payments at January 28, 1995, were as follows:
Capital Operating
(millions) Leases Leases Total
1995 $ 10 $ 241 $ 251
1996 10 225 235
1997 10 203 213
1998 10 182 192
1999 10 162 172
After 1999 138 620 758
Minimum lease payments 188 $1,633 $1,821
Less imputed interest component (115)
Present value of net minimum
lease payments of which $2
million is included in current
liabilities $ 73
The present value of operating leases was $1.1 billion at January
28, 1995.
The company entered into capital leases with MCI (currently known
as CenterMark Properties, Inc.) in 1988 for certain department
store properties, resulting in initial capital lease obligations of
$74 million payable to MCI through 2017. These leased properties
owned by MCI secured a 12%, $74 million note receivable from MCI,
which was repaid in 1992. See May Centers Associates on page 31.
Property under capital leases is summarized as follows:
January 28, January 29,
(millions) 1995 1994
Cost $ 78 $ 83
Accumulated amortization (32) (30)
Total $ 46 $ 53
Other Liabilities. Other liabilities principally consisted of
deferred compensation liabilities of $189 and $178 million at
January 28, 1995, and January 29, 1994, respectively. Under the
company's deferred compensation plan, eligible associates may elect
to defer a portion of their compensation each year into cash and/or
stock unit alternatives. The company makes payments in shares to
settle obligations with most participants who defer in stock units
and maintains shares in treasury sufficient to settle all
outstanding stock unit obligations.
28
<PAGE>
Preferred and Preference Stock. The company is authorized to issue
25,134,474 shares of preferred and preference stock. The following
summarizes the authorized, issued and outstanding shares by type:
<TABLE>
<CAPTION>
Issued and Outstanding
January 28, January 29,
(dollars in millions, Shares 1995 1994
except per share) Authorized $ Shares $ Shares
<S> <C> <C> <C> <C> <C>
Preferred Stock,
no par value 51,323 1 12,105 1 12,115
$1.80 Preference Stock,
no par value 73,273 1 26,653 1 26,653
3-3/4% Cumulative Preference
Stock, $1.00 par value
per share 9,878 - - - -
Preference Stock, $.50 par
value per share, in the
aggregate, including
ESOP shares 25,000,000 374 737,145 380 750,303
</TABLE>
The Preferred Stock and the $1.80 Preference Stock are included in
other liabilities. The ESOP Preference Shares are shown separately
in the consolidated balance sheet outside of shareowners' equity as
the shares are redeemable by the holder or the company in certain
situations.
29
<PAGE>
Stock Option and Stock Related Plans. Under the company's common
stock option plans, options are granted at the market price on the
date of grant. Options to purchase may extend for a period of five
or 10 years, may be exercised in installments only after stated
intervals of time, and are conditioned upon continued active
employment with the company, except periods following retirement,
disability or death. As the option price is fixed at the market
price on the date of grant, no expense is charged against earnings
by the company.
The changes in outstanding stock options were as follows:
<TABLE>
<CAPTION>
1994 1993
Grant Grant
(shares in thousands) Shares Prices Shares Prices
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 4,780 $ 8-44 4,941 $ 8-37
Granted 1,523 38-40 1,227 37-44
Exercised (677) 8-37 (967) 8-36
Cancelled or expired (297) 18-44 (421) 15-37
Outstanding at end of year 5,329 $12-44 4,780 $ 8-44
Exercisable at end of year 1,971 $12-44 1,503 $ 8-37
Shares available for
additional grants 16,183 4,195
</TABLE>
Under the 1994 Stock Incentive Plan, the company is authorized to
grant a maximum of 1.75 million shares of restricted stock to
management associates. No monetary consideration is paid by
associates receiving restricted stock. Restricted stock can be
granted with or without performance restrictions. Restrictions,
including performance restrictions, lapse over periods of up to 10
years as determined at the date of the grant. During 1994, the
company granted 179,000 shares of restricted stock under the 1994
Stock Incentive Plan.
Under the 1979 Restricted Stock Plan, the company was authorized to
grant shares to management associates. No monetary consideration
was paid by associates receiving restricted stock. Restrictions
lapse over periods of up to 10 years as determined at the date of
grant. During 1994 and 1993, the company granted 5,000 and 44,000
shares of restricted stock, respectively, under the 1979 Restricted
Stock Plan.
Shareowner Rights Plan. The company has a Shareowner Rights Plan
(Preferred Stock Purchase Rights) under which a right is attached
to each share of the company's common stock. The rights may only
become exercisable under certain circumstances involving actual or
potential acquisitions of the company's common stock by a person or
affiliated persons. Depending upon the circumstances, if the
rights become exercisable, the holder may be entitled to purchase
units of the company's preference stock, shares of the company's
common stock or shares of common stock of the acquiring person.
The rights will remain in existence until August 31, 2004, unless
they are earlier terminated, exercised or redeemed.
30
<PAGE>
Bondholder Litigation. In the 1994 third quarter, the company
recorded a pretax charge of $10 million, or $.02 per share, which
represents the company's share of the settlement of a 1992 lawsuit
filed by certain bondholders and is net of previously established
reserves.
Fair Value of Financial Instruments. The following table presents
the carrying amounts and fair values of the company's financial
instruments at January 28, 1995, and January 29, 1994. Statement
of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," defines the fair value of a
financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale.
<TABLE>
<CAPTION>
1994 1993
Carrying Fair Carrying Fair
(millions) Amount Value Amount Value
<S> <C> <C> <C> <C>
Accounts receivable $2,436 $2,436 $2,394 $2,394
Long-term debt 2,971 3,104 2,852 3,436
</TABLE>
The carrying amounts shown in the table are included in the
consolidated balance sheet under the indicated captions.
The decrease in the spread between the fair value and carrying
amount of long-term debt in 1994 compared with 1993 was due to
higher interest rates at the end of 1994. The fair value was
determined based upon borrowing rates currently available for debt
instruments with similar remaining terms and maturities.
In 1986, the company sold a portion of Parklabrea, a 178-acre
commercial and residential development. In connection with this
transaction, the company sold $165 million of notes received from
the sale and became contingently liable for up to $42 million of
the purchaser's debt. The fair value of this guarantee is not
significant.
In 1994, the company sold its remaining interests in Parklabrea for
$84 million, including a $27 million note receivable. The company
recognized a $5 million pretax gain on this transaction.
May Centers Associates. On May 18, 1992, the May Centers
Associates (MCA) partnership was dissolved and its assets were
distributed to its 50% partners, the company and an affiliate of
The Prudential Life Insurance Company (The Prudential). The asset
distribution resulted in the company receiving 79% of the stock of
May Centers Associates Corporation (MCAC) and The Prudential
receiving 21% of the stock of MCAC and 100% of the stock of May
Centers, Inc. (MCI). MCI, a real estate entity, and MCAC, an
entity which had entered into various sale/leaseback transactions
with the company, were both 100% owned by MCA prior to the
distribution. Subsequent to the distribution, MCI changed its name
to CenterMark Properties, Inc. During the 1992 second quarter, the
company recorded a $298 million pretax and after tax nonrecurring
gain from the distribution of MCA partnership assets. In the 1992
fourth quarter, the company acquired the 21% of the stock of MCAC
held by The Prudential for $156 million.
31
<PAGE>
The company's investment in the MCA partnership and its results of
operations were recorded using the equity method of accounting.
Included in selling, general and administrative expenses was $7
million of adjusted equity earnings of MCA in 1992.
Prior to 1992, the company and MCAC entered into sale/leaseback
transactions whereby MCAC purchased from the company various
department store properties. The sale/leasebacks were accounted
for as loans from MCAC (MCAC loans). Upon dissolution of the MCA
partnership on May 18, 1992, the company received a majority
ownership interest in MCAC and, therefore, $618 million of MCAC
loans were eliminated on a consolidated basis.
Special and Nonrecurring Items. During the 1992 third quarter, the
company recorded pretax charges of $485 million, $298 million after
tax, for special and nonrecurring items. The pretax charges
consisted of $240 million for four department store company
consolidations; $125 million for planned closings of
low-productivity stores and other real estate-related charges
including adjustments to reflect expected values of a number of
properties planned for disposition; $60 million for the costs
associated with achieving various operating efficiencies, including
the May Merchandising Company headquarters relocation to St. Louis
and the data center combinations; $40 million for the cost
associated with retiring high interest rate debt; and $20 million
for a special contribution to The May Department Stores Company
Foundation. The cost to retire the debt was not reflected as an
extraordinary item as it was not material to total company earnings
or the earnings trend of the company.
During the 1992 second quarter, the company recorded a $298 million
pretax and after tax nonrecurring gain from the distribution of the
MCA partnership assets on May 18, 1992. See May Centers Associates
on page 31.
The 1992 special and nonrecurring charges and nonrecurring gain are
reflected as special and nonrecurring items on a separate line in
the consolidated statement of earnings. The 1992 special and
nonrecurring items had no impact on full-year net earnings or
earnings per share.
32
<PAGE>
[The following "Six Year Summary by Business Segment" section is a
reproduction of the same named section included in the paper format Annual
Report on pages 28-29.]
Notes To Six Year Summary By Business Segment. Net retail sales
exclude finance charge revenues and sales of nonreplaced closed
stores and sold divisions in all periods. The revenues shown below
include finance charge revenues and all sales of all stores
operating during the period.
<TABLE>
<CAPTION>
(millions) 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Department
stores $10,107 $ 9,563 $ 9,362 $ 9,067 $ 8,700 $8,356
Payless
ShoeSource 2,116 1,966 1,788 1,548 1,366 1,246
Total $12,223 $11,529 $11,150 $10,615 $10,066 $9,602
Revenues for 1989 included 53 weeks.
</TABLE>
Operating earnings represent LIFO earnings before federal and state
income taxes, net interest expense and corporate expense, and
exclude special and nonrecurring items and sold divisions.
Goodwill, the fair value adjustment of property, equipment and
leases, and the related amortization and depreciation of such items
have been included in corporate expense and total assets. In
addition, consolidation costs, store closing costs and gains have
been included in corporate expense. In 1992, consolidation costs
and store closing costs were shown in the special and nonrecurring
items line in the consolidated statement of earnings. Had these
items been included in the operating segments, operating earnings
and total assets for department stores, corporate and real estate
would have been:
<TABLE>
<CAPTION>
(millions) 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Operating Earnings:
Department
stores $1,384 $1,262 $ 722 $ 912 $ 907 $ 941
Real estate - - 7 49 40 35
Corporate expense (73) (63) 127 (33) (66) (88)
Total Assets:
Department
stores $8,194 $7,612 $7,240 $7,297 $7,193 $6,466
Corporate and
real estate 271 356 577 753 524 822
</TABLE>
In 1994, corporate expense included a $10 million charge related to
bondholder litigation. See Bondholder Litigation on page 31.
Total assets for corporate consist principally of cash, cash
equivalents, goodwill and purchase accounting fair value
adjustments, the investment in MCA partnership (prior to
dissolution in 1992) and the net assets of discontinued operations
(Caldor and Venture in 1989).
Net assets represent total assets of continuing operations plus the
present value of operating leases, minus current liabilities
excluding notes payable and the current portion of long-term debt.
Return on net assets by segment represents operating earnings plus
the interest component of operating leases, divided by net assets
at the beginning of the year.
Capital expenditures for department stores exclude amounts related
to the acquisition of Thalhimers in 1990.
33
<PAGE>
<TABLE>
<CAPTION>
The May Department Stores Company and Subsidiaries
SIX YEAR SUMMARY BY BUSINESS SEGMENT
(dollars in millions) 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Net Retail Sales
Department stores $ 9,761 $ 9,023 $ 8,416 $7,873 $7,503 $7,038
Payless ShoeSource 2,116 1,966 1,788 1,548 1,366 1,228
Total $11,877 $10,989 $10,204 $9,421 $8,869 $8,266
Operating Earnings
Department stores $ 1,400 $ 1,276 $ 1,109 $ 963 $ 915 $ 945
Payless ShoeSource 219 225 214 184 161 144
Total 1,619 1,501 1,323 1,147 1,076 1,089
Corporate expense (89) (78) (73) (67) (67) (77)
Interest expense, net (234) (245) (279) (316) (280) (233)
Sold divisions
and real estate - - 7 32 33 20
Special and non-
recurring items - - (187) - - -
Earnings from
continuing operations
before income taxes $ 1,296 $ 1,178 $ 791 $ 796 $ 762 $ 799
LIFO Charge (Credit)
Department stores $ (46) $ 7 $ 10 $ 26 $ 39 $ (22)
Operating Earnings
as % of Revenues
Department stores 13.8% 13.3% 11.8% 10.6% 10.5% 11.4%
Payless ShoeSource 10.4 11.4 12.0 11.9 11.7 11.7
Total Assets
Department stores $ 7,416 $ 6,822 $ 6,431 $6,498 $6,389 $5,752
Payless ShoeSource 1,007 833 728 678 519 442
Corporate and
real estate 1,049 1,145 1,386 1,552 1,328 1,536
Total $ 9,472 $ 8,800 $ 8,545 $8,728 $8,236 $7,730
Net Assets
Department stores $ 6,244 $ 5,738 $ 5,413 $5,527 $5,499 $4,716
Payless ShoeSource 1,721 1,418 1,253 1,069 851 749
Corporate and
real estate 922 954 1,069 1,507 1,298 1,170
Total $ 8,887 $ 8,110 $ 7,735 $8,103 $7,648 $6,635
Return on Net Assets
Department stores 24.7% 23.9% 20.5% 18.0% 20.0% 22.3%
Payless ShoeSource 21.3 23.9 26.5 29.0 28.9 28.9
Total 20.1% 19.6% 16.7% 16.0% 17.2% 18.0%
Capital Expenditures
Department stores $ 680 $ 545 $ 280 $ 361 $ 450 $ 427
Payless ShoeSource 255 140 120 146 82 51
Corporate and
real estate 2 15 4 5 16 44
Total $ 937 $ 700 $ 404 $ 512 $ 548 $ 522
34
<PAGE>
The May Department Stores Company and Subsidiaries
SIX YEAR SUMMARY BY BUSINESS SEGMENT (con't.)
(dollars in millions) 1994 1993 1992 1991 1990 1989
Depreciation and
Amortization
Department stores $ 272 $ 255 $ 258 $ 250 $ 231 $ 208
Payless ShoeSource 77 67 58 46 40 36
Corporate and
real estate 25 26 25 23 23 25
Total $ 374 $ 348 $ 341 $ 319 $ 294 $ 269
Net retail sales for 1989, a 53-week year, are shown above on a 52-week
basis for comparability.
See Notes to Six Year Summary By Business Segment on page 33.
</TABLE>
35
<PAGE>
[The following "Eleven Year Financial Summary" section is a reproduction of
the same named section included in the paper format Annual Report on pages
30-31.]
<TABLE>
<CAPTION>
The May Department Stores Company and Subsidiaries
ELEVEN YEAR FINANCIAL SUMMARY
(dollars in
millions, except
per share) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Retail
Sales $11,877 $10,989 $10,204 $ 9,421 $ 8,869 $8,354 $7,320 $5,821 $5,288 $4,684 $4,309
Operations
Revenues $12,223 $11,529 $11,150 $10,615 $10,066 $9,602 $8,874 $7,480 $7,437 $6,825 $6,361
Cost of sales 8,374 7,910 7,691 7,339 6,978 6,581 6,098 5,186 5,202 4,775 4,399
Selling,
general and
administrative
expenses 2,319 2,196 2,202 2,164 2,046 1,989 1,888 1,563 1,572 1,436 1,363
Interest expense,
net 234 245 279 316 280 233 198 80 92 91 88
Earnings from
continuing
operations before
income taxes 1,296 1,178 791* 796 762 799 690 651 571 523 511
Provision for
income taxes 514 467 188* 281 262 284 242 258 238 237 234
Net Earnings from
Continuing
Operations 782 711 603 515 500 515 448 393 333 286 277
LIFO charge
(credit) (46) 7 10 26 39 (22) (3) 8 4 2 (5)
Net earnings 782 711 603 515 500 498 534 444 381 347 327
Depreciation and
amortization 374 348 341 319 294 269 266 212 209 181 160
Cash flow from
operations (1) 1,156 1,059 944 834 794 784 714 605 542 467 437
Net issuances
(repayments) of
long-term debt(2) 117 (192) (248) 313 590 169 891 (61) 159 141 (141)
Capital
expenditures 937 700 404 512 548 522 337 424 435 400 266
Dividends on common
stock 251 223 205 198 191 186 184 170 131 124 106
36
<PAGE>
The May Department Stores Company and Subsidiaries
ELEVEN YEAR FINANCIAL SUMMARY (con't.)
(dollars in
millions, except
per share) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
Per Share
Net Earnings
from Continuing
Operations (3) $ 2.92 $ 2.65 $ 2.26 $ 1.93 $ 1.87 $ 1.82 $ 1.52 $ 1.28 $ 1.05 $ .91 $ .90
Net earnings (3) 2.92 2.65 2.26 1.93 1.87 1.76 1.81 1.44 1.20 1.11 1.06
Dividends paid 1.01 .90 .83 .81 .77 .69 .62 .56 .51 .46 .39
Annual dividend
rate at
year-end 1.04 .92 .83 .81 .79 .71 .64 .57 .52 .47 .43
Book value 16.65 14.65 12.82 11.26 10.04 9.32 10.75 9.13 8.50 7.86 7.25
Market price
- high 45.13 46.50 37.25 30.19 29.56 26.31 20.00 25.44 22.06 16.25 12.09
- low 32.25 33.44 26.00 22.63 18.69 17.31 14.38 11.13 15.94 10.50 7.52
- average of
high and low 38.69 39.97 31.63 26.41 24.13 21.81 17.19 18.28 19.00 13.38 9.81
Financial Position
Customer accounts
receivable $ 2,418 $ 2,368 $ 2,373 $ 2,377 $ 2,456 $2,223 $2,099 $1,590 $1,516 $1,578 $1,514
Merchandise
inventories 2,207 2,020 1,791 1,741 1,628 1,491 1,318 1,044 999 1,035 933
Working capital 3,015 2,908 2,679 3,052 2,635 2,059 2,094 1,821 1,921 1,529 1,354
Property and
equipment, net 3,866 3,411 3,158 3,151 2,985 2,666 2,506 2,037 1,917 1,846 1,496
Long-term debt,
preferred and
preference stock 3,251 3,204 3,270 4,315 3,965 3,406 2,404 1,111 1,153 1,071 778
Shareowners'
equity 4,135 3,639 3,181 2,781 2,467 2,319 3,050 2,723 2,595 2,421 2,233
Total assets 9,472 8,800 8,545 8,728 8,236 7,730 7,532 5,652 5,756 5,221 4,599
37
<PAGE>
The May Department Stores Company and Subsidiaries
ELEVEN YEAR FINANCIAL SUMMARY (con't.)
(dollars in
millions, except
per share) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
Statistics
Percent of revenues:
Net earnings from
continuing
operations 6.4% 6.2% 5.4% 4.9% 5.0% 5.4% 5.1% 5.3% 4.5% 4.2% 4.4%
Cash flow from
operations (1) 9.5 9.2 8.5 7.9 7.9 8.2 8.1 8.1 7.3 6.8 6.9
Return on equity 21.3 22.1 21.5 20.7 21.8 18.0 18.6 17.0 15.7 15.5 16.1
Return on net
assets 20.1 19.6 16.7** 16.0 17.2 18.0 17.5 17.4 17.7 18.8 18.9
Stores Open at
Year-End
Department
stores 314 301 303 318 324 288 297 258 286 301 303
Payless
ShoeSource 4,435 3,779 3,563 3,295 2,967 2,746 2,602 2,436 2,210 1,867 1,662
Average Shares
Outstanding and
Equivalents
- Primary 249.6 249.9 248.8 248.0 249.0 267.2 294.8 306.3 313.1 311.1 310.8
- Fully Diluted 264.9 265.5 265.3 264.2 264.8 280.0 295.4 306.3 314.9 312.0 311.6
All years included 52 weeks, except 1989 and 1984 which included 53 weeks.
* Pretax earnings include a net charge of $187 million from special and nonrecurring items, and income
taxes include a tax benefit of $187 million from special and nonrecurring items.
** Based on pretax earnings before special and nonrecurring items.
(1) Cash flow from operations represents net earnings and depreciation/amortization from continuing
operations and is different than cash flow from operating activities as shown on the statement of cash
flows.
(2) Net issuances (repayments) of long-term debt exclude the elimination of $618 million of MCAC loans
in 1992 and $400 million of guaranteed ESOP debt in 1989.
(3) Represents fully diluted basis. Primary earnings per share were $.14 higher in 1994, $.12 higher in
1993, $.09 higher in 1992, $.08 higher in 1991, $.07 higher in 1990, $.05 higher in 1989, and $.01
higher in each of 1988 and 1986.
</TABLE>
38
<PAGE>
MANAGEMENT'S RESPONSIBILITY AND REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
Report of Management. Management is responsible for the
preparation, integrity and objectivity of the financial information
included in this annual report. The financial statements have been
prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The financial statements
reflect all available information and management's judgment and
estimates of current conditions and circumstances. Management uses
the services of specialists within and outside the company in
making such estimates and judgments.
Management has established and maintains a system of accounting and
controls to provide reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition, that
the accounting records provide a reliable basis for the preparation
of financial statements and that such financial statements are not
misstated due to material fraud or error. The system of controls
includes the careful selection of associates, the proper
segregation of duties and the communication and application of
formal policies and procedures that are consistent with high
standards of accounting and administrative practices. An important
element of this system is a comprehensive internal audit program.
Management continually reviews, modifies and improves its systems
of accounting and controls in response to changes in business
conditions and operations and to recommendations in the reports
prepared by the independent public accountants and internal
auditors.
Management believes that it is essential for the company to conduct
its business affairs in accordance with the highest ethical
standards and in conformity with the law. This standard is
described in the company's policies on business conduct which are
publicized throughout the company.
Audit Committee of the Board of Directors. The Board of Directors,
through the activities of its Audit Committee, participates in the
reporting of financial information by the company. The committee
meets regularly with management, the internal auditors and the
independent public accountants. The committee met four times
during 1994 and reviewed the scope, timing and fees for the annual
audit and the results of audit examinations completed by the
internal auditors and independent public accountants, including the
recommendations to improve certain internal controls and the
follow-up reports prepared by management. The independent public
accountants and internal auditors have free access to the committee
and the Board of Directors and attend each meeting of the
committee.
The members of the Audit Committee are Russell E. Palmer
(chairman), Edward H. Meyer, Michael R. Quinlan, William P.
Stiritz, Robert D. Storey and Murray L. Weidenbaum.
The Audit Committee reports the results of its activities to the
full Board of Directors.
39
<PAGE>
[The following "Report of Independent Public Accountants" section is a
reproduction of the same named section included in the paper format Annual
Report on page 32.]
Report of Independent Public Accountants.
To the Board of Directors and Shareowners of
The May Department Stores Company:
We have audited the accompanying consolidated balance sheet of The
May Department Stores Company (a New York corporation) and
subsidiaries as of January 28, 1995, and January 29, 1994, and the
related consolidated statements of earnings, shareowners' equity
and cash flows for each of the three fiscal years in the period
ended January 28, 1995. These financial statements are the
responsibility of the company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The May
Department Stores Company and subsidiaries as of January 28, 1995,
and January 29, 1994, and the results of their operations and their
cash flows for each of the three fiscal years in the period ended
January 28, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
1010 Market Street
St. Louis, Missouri 63101-2089
February 20, 1995
40
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
JANUARY 28, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 15
<SECURITIES> 40
<RECEIVABLES> 2,514
<ALLOWANCES> 78
<INVENTORY> 2,207
<CURRENT-ASSETS> 4,910
<PP&E> 5,794
<DEPRECIATION> 1,928
<TOTAL-ASSETS> 9,472
<CURRENT-LIABILITIES> 1,895
<BONDS> 3,044
<COMMON> 124
3
0
<OTHER-SE> 4,011
<TOTAL-LIABILITY-AND-EQUITY> 9,472
<SALES> 11,877
<TOTAL-REVENUES> 12,223
<CGS> 8,374
<TOTAL-COSTS> 10,693
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 234
<INCOME-PRETAX> 1,296
<INCOME-TAX> 514
<INCOME-CONTINUING> 782
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 782
<EPS-PRIMARY> 3.06
<EPS-DILUTED> 2.92
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Year Ended December 31, 1994
A. Full title of the plan if different from that of the issuer
named below:
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
B. Name of issuer of securities held pursuant to the plan and the
address of its principal executive office:
THE MAY DEPARTMENT STORES COMPANY
611 Olive Street
St. Louis, MO 63101
Commission File Number 1-79
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
FINANCIAL STATEMENTS AND EXHIBITS
Listed below are all financial statements and exhibits filed as part of this
annual report on Form 11-K:
Page of this
Financial Statements Form 11-K
Report of Independent Public Accountants 3
Financial Statements of the Plan:
Statement of Net Assets Available for
Benefits - December 31, 1994 4
Statement of Net Assets Available for
Benefits - December 31, 1993 6
Statement of Changes in Net Assets
Available for Benefits for the Year
Ended December 31, 1994 8
Notes to Financial Statements -
December 31, 1994 and 1993 10
Schedule I - Item 27(a): Schedule of Assets
Held for Investment Purposes -
December 31, 1994 16
Schedule II - Item 27(d): Schedule of
Reportable Transactions for the Year
Ended December 31, 1994 20
Exhibit
Consent of Independent Public Accountants 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan
Administrator has duly caused this annual report to be signed by the
undersigned, thereunto duly authorized.
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
By: The May Department Stores Company
Date: April 17, 1995 By: /s/ Jerome T. Loeb
Jerome T. Loeb
President and Chief Financial Officer
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The May Department Stores Company
Profit Sharing Plan:
We have audited the accompanying statements of net assets available for
benefits of The May Department Stores Company Profit Sharing Plan as of
December 31, 1994 and 1993, and the related statement of changes in net assets
available for benefits for the year ended December 31, 1994. These financial
statements and the schedules referred to below are the responsibility of the
Plan Administrator. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1994 and 1993, and the changes in net assets available for
benefits for the year ended December 31, 1994, in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The Fund Information in
the statements of net assets available for benefits and the statement of
changes in net assets available for benefits is presented for purposes of
additional analysis rather than to present the net assets available for
benefits and changes in net assets available for benefits of each fund. The
supplemental schedules and Fund Information have been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
April 17, 1995
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1994
(Thousands, except per unit information)
Investment Funds
-----------------------------------------
ESOP Preference
---------------------- May
Member Common Money
ASSETS Unallocated Allocated Stock Market
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $419,895 $ 90,432 $ - $ -
Common stock - - 390,067 -
Short-term investments - - 7,475 48,716
Commingled equity index fund - - - -
U.S. government securities - - - -
Fixed income investments - - - -
-------- -------- -------- -------
Total investments 419,895 90,432 397,542 48,716
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts (23,091) 23,091 - -
Receivable - employer supplemental
contribution - - 3,247 -
Dividends and interest receivable - - 25 235
Receivables - withholdings of
member contributions - - 187 62
Interfund receivable (payable) - (18) 622 (357)
-------- -------- -------- -------
Total assets 396,804 113,505 401,623 48,656
-------- -------- -------- -------
LIABILITIES
LIABILITIES:
Notes payable 389,136 - - -
Accrued interest payable 5,454 - - -
Net amount payable (receivable)
for investment security
transactions and other - - 3,713 -
Amounts payable for
administrative expenses - - 502 113
-------- -------- -------- -------
Total liabilities 394,590 - 4,215 113
-------- -------- -------- -------
NET ASSETS AVAILABLE FOR BENEFITS $ 2,214 $113,505 $397,408 $48,543
======== ======== ======== =======
NUMBER OF UNITS AT DECEMBER 31,
1994 13,478 34,676
======== =======
VALUE PER UNIT AT DECEMBER 31,
1994 $29.47 $1.40
====== =====
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1994
(Thousands, except per unit information)
Investment Funds
----------------
Common Fixed
Stock Income Distribution
ASSETS Index Index Account Total
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ - $ - $ 510,327
Common stock - - - 390,067
Short-term investments 670 991 1,222 59,074
Commingled equity index fund 45,699 - - 45,699
U.S. government securities - 25,903 - 25,903
Fixed income investments - 5,213 - 5,213
------- ------- ------ ----------
Total investments 46,369 32,107 1,222 1,036,283
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - - - -
Receivable - employer supplemental
contribution - - - 3,247
Dividends and interest receivable 116 589 - 965
Receivables - withholdings of
member contributions 55 39 - 343
Interfund receivable (payable) 108 (355) - -
------- ------- ------ ----------
Total assets 46,648 32,380 1,222 1,040,838
------- ------- ------ ----------
LIABILITIES
LIABILITIES:
Notes payable - - - 389,136
Accrued interest payable - - - 5,454
Net amount payable (receivable)
for investment security
transactions and other - (72) 1,222 4,863
Amounts payable for
administrative expenses 103 82 - 800
------- ------- ------ ----------
Total liabilities 103 10 1,222 400,253
------- ------- ------ ----------
NET ASSETS AVAILABLE FOR BENEFITS $46,545 $32,370 $ - $ 640,585
======= ======= ====== ==========
NUMBER OF UNITS AT DECEMBER 31,
1994 25,154 21,361
======= =======
VALUE PER UNIT AT DECEMBER 31,
1994 $1.85 $1.52
===== =====
The accompanying notes are an integral part of this statement.
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1993
(Thousands, except per unit information)
Investment Funds
-----------------------------------------
ESOP Preference
---------------------- May
Member Common Money
ASSETS Unallocated Allocated Stock Market
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $522,853 $ 82,973 $ - $ -
Common stock - - 456,877 -
Short-term investments - - 3,294 48,501
Commingled equity index fund - - - -
U.S. government securities - - - -
Fixed income investments - - - -
-------- -------- -------- -------
Total investments 522,853 82,973 460,171 48,501
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts (25,997) 25,997 - -
Receivable - employer supplemental
contribution - - 5,888 -
Dividends and interest receivable - - 12 136
Receivables - withholdings of
member contributions - - 379 84
Cash - - - -
Interfund receivable (payable) - (11) 812 (228)
-------- -------- -------- -------
Total assets 496,856 108,959 467,262 48,493
-------- -------- -------- -------
LIABILITIES
LIABILITIES:
Notes payable 396,475 - - -
Accrued interest payable 5,556 - - -
Net amount payable for investment
securities transactions and
other - - 1,264 -
Amounts payable for
administrative expenses - - 336 90
-------- -------- -------- -------
Total liabilities 402,031 - 1,600 90
-------- -------- -------- -------
NET ASSETS AVAILABLE FOR BENEFITS $ 94,825 $108,959 $465,662 $48,403
======== ======== ======== =======
NUMBER OF UNITS AT DECEMBER 31,
1993 13,850 35,889
======== =======
VALUE PER UNIT AT DECEMBER 31,
1993 $33.61 $1.35
====== =====
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1993
(Thousands, except per unit information)
Investment Funds
----------------
Common Fixed
Stock Income Distribution
ASSETS Index Index Account Total
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ - $ - $ 605,826
Common stock - - - 456,877
Short-term investments 480 1,076 1,021 54,372
Commingled equity index fund 42,034 - - 42,034
U.S. government securities - 26,133 - 26,133
Fixed income investments - 5,975 - 5,975
------- ------- ------ ----------
Total investments 42,514 33,184 1,021 1,191,217
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - - - -
Receivable - employer supplemental
contribution - - - 5,888
Dividends and interest receivable 89 639 - 876
Receivables - withholdings of
member contributions 95 64 - 622
Cash 173 - - 173
Interfund receivable (payable) (393) (180) - -
------- ------- ------ ----------
Total assets 42,478 33,707 1,021 1,198,776
------- ------- ------ ----------
LIABILITIES
LIABILITIES:
Notes payable - - - 396,475
Accrued interest payable - - - 5,556
Net amount payable for investment
securities transactions and
other 1 - 1,021 2,286
Amounts payable for
administrative expenses 73 63 - 562
------- ------- ------ ----------
Total liabilities 74 63 1,021 404,879
------- ------- ------ ----------
NET ASSETS AVAILABLE FOR BENEFITS $42,404 $33,644 $ - $ 793,897
======= ======= ====== ==========
NUMBER OF UNITS AT DECEMBER 31,
1993 23,101 21,650
======= =======
VALUE PER UNIT AT DECEMBER 31,
1993 $1.84 $1.55
===== =====
The accompanying notes are an integral part of this statement.
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1994
(Thousands)
Investment Funds
---------------------------------
ESOP Preference
---------------------- May
Member Common
Unallocated Allocated Stock
NET APPRECIATION (DEPRECIATION) IN
FAIR VALUE OF INVESTMENTS $(72,586) $(12,310) $(64,360)
-------- -------- --------
INVESTMENT INCOME:
Dividends 24,028 4,245 11,628
Interest - - 161
-------- -------- --------
24,028 4,245 11,789
-------- -------- --------
CONTRIBUTIONS:
Member - - 41,795
Employer allocation (23,221) 23,221 -
Employer ESOP contribution 12,094 - -
Employer supplemental contribution - - 3,247
Member interfund transfers - (289) (2,533)
Forfeiture reallocation - - 44
-------- -------- --------
(11,127) 22,932 42,553
-------- -------- --------
DEDUCTIONS:
Member terminations and withdrawals - (10,321) (56,925)
Interest expense (32,926) - -
Administrative expenses - - (1,311)
-------- -------- --------
(32,926) (10,321) (58,236)
-------- -------- --------
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR BENEFITS (92,611) 4,546 (68,254)
NET ASSETS AVAILABLE FOR BENEFITS AT
DECEMBER 31, 1993 94,825 108,959 465,662
-------- -------- --------
NET ASSETS AVAILABLE FOR BENEFITS AT
DECEMBER 31, 1994 $ 2,214 $113,505 $397,408
======== ======== ========
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1994
(Thousands)
Investment Funds
----------------------------------
Common Fixed
Money Stock Income
Market Index Index Total
NET APPRECIATION (DEPRECIATION)
IN FAIR VALUE OF INVESTMENTS $ - $ (611) $(2,834) $(152,701)
------- ------- ------- ---------
INVESTMENT INCOME:
Dividends - 1,254 - 41,155
Interest 2,080 26 2,260 4,527
------- ------- ------- ---------
2,080 1,280 2,260 45,682
------- ------- ------- ---------
CONTRIBUTIONS:
Member 6,871 8,732 5,474 62,872
Employer allocation - - - -
Employer ESOP contribution - - - 12,094
Employer supplemental
contribution - - - 3,247
Member interfund transfers 3,276 320 (774) -
Forfeiture reallocation (34) (6) (4) -
------- ------- ------- ---------
10,113 9,046 4,696 78,213
------- ------- ------- ---------
DEDUCTIONS:
Member terminations and
withdrawals (11,718) (5,274) (5,148) (89,386)
Interest expense - - - (32,926)
Administrative expenses (335) (300) (248) (2,194)
------- ------- ------- ---------
(12,053) (5,574) (5,396) (124,506)
------- ------- ------- ---------
INCREASE (DECREASE) IN NET
ASSETS AVAILABLE FOR BENEFITS 140 4,141 (1,274) (153,312)
NET ASSETS AVAILABLE FOR
BENEFITS AT DECEMBER 31, 1993 48,403 42,404 33,644 793,897
------- ------- ------- ---------
NET ASSETS AVAILABLE FOR
BENEFITS AT DECEMBER 31, 1994 $48,543 $46,545 $32,370 $ 640,585
======= ======= ======= =========
The accompanying notes are an integral part of this statement.
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
1. DESCRIPTION OF THE PLAN:
The following description of The May Department Stores Company Profit Sharing
Plan (the "Plan") is provided for financial statement purposes only. Members
should refer to the Plan document, the Plan prospectus dated June 1, 1990, and
the Summary Plan Description dated June 1, 1990, with updates, for more
complete information.
General
The Plan is a defined contribution profit sharing plan. The Plan covers
eligible associates of The May Department Stores Company ("May") and its
subsidiaries and affiliates who are members of The May Department Stores
Company Retirement Plan. Participation is voluntary.
Contributions
Effective January 1, 1994, Plan members may contribute 1% to 15% of their
annual pay. Contributions may be made prior to federal and certain other
income taxes pursuant to Section 401(k) of the Internal Revenue Code.
The employer allocation is variable and discretionary. Generally, the
employer allocation for each Plan year is determined by multiplying a base
matching rate times members' basic contributions (generally, contributions up
to 5% of pay each paycheck), reduced by forfeitures, one-third of annual
dividends with respect to the Employee Stock Ownership Plan ("ESOP")
Preference Shares, as defined, administrative expenses and excess ESOP
allocations from prior Plan years (to the extent such amounts have not been
previously used to reduce employer allocations for earlier Plan years).
The base matching rate is determined as follows: In the event May has
earnings per share ("EPS") of its common stock for its most recent fiscal year
("current year") resulting in a 6.0% increase over the EPS for the fiscal year
immediately preceding the current year, the base matching rate will be 50%.
For each percentage point increase over 6.0% or decrease below 6.0%, there is
a 1.25 percentage point increase in or decrease from the 50% base matching
rate.
ESOP Preference Shares allocated to associates' accounts through application
of the base matching rate formula are allocated at their original cost to the
Plan of $24.74 per common share equivalent. Because the ESOP Preference
Shares are convertible into May common stock, the ESOP Preference Shares are
worth more when the market value of May common stock is higher than $24.74 per
share. This market value of the employer allocation (including supplemental
contributions, if any), divided by associates' matchable contributions, is the
effective matching rate.
Effective January 1, 1994, if the effective matching rate exceeds 100%, only
ESOP Preference Shares will be used for the employer allocation and no May
common shares will be contributed. The effective matching rate will also be
limited to 2.5 times the base matching rate. The base matching rate formula
may be adjusted at any time for unusual events including discontinued
operations, accounting changes, or items of extraordinary gain or loss.
Investments
Members' contributions may be invested in any of four investment funds:
May Common Stock Fund - For investment of contributions in May common
stock.
<PAGE>
Money Market Fund - For investment of contributions in short-term (less
than one year) obligations of high-quality issuers including banks,
corporations, municipalities, the U.S. Treasury and other federal
agencies.
Common Stock Index Fund - For investment of contributions in the common
stock of corporations that make up the Standard & Poor's 500 Stock
Index. Investment mix is determined based on the relative market size
of the 500 corporations, with larger corporations making up a higher
proportion of the fund than smaller corporations. This index represents
the composite performance of the 500 major stocks in the United States.
Fixed Income Index Fund - For investment of contributions in corporate,
U.S. Government and federal agency securities that make up the Lehman
Brothers Intermediate Government/Corporate Bond Index. The securities
that comprise this index have maturities ranging from one to 10 years,
with an average of four years. (The Lehman Brothers Intermediate
Government/Corporate Bond Index represents the composite performance of
intermediate-term, fixed income securities.)
As of December 31, 1994, the following number of members had an account
balance in the investment funds: 45,573 in the May Common Stock Fund, 17,115
in the Money Market Fund, 16,227 in the Common Stock Index Fund, 12,913 in the
Fixed Income Index Fund, and 43,565 in the ESOP Preference Fund (described
below).
Employer allocations and supplemental contributions are invested in the ESOP
Preference Fund and the May Common Stock Fund, respectively. The employer
allocation to the Plan for the year ended December 31, 1994, will be made in
May 1995 and will be in the form of (a) 33,390 ESOP Preference Shares (b) a
supplemental contribution from May of 89,323 shares of May common stock and
(c) a reallocation of forfeited ESOP Preference Shares and May common stock.
ESOP Feature
Effective April 1989, the Plan was amended and restated to add an ESOP feature
and acquired 788,955 shares of convertible preferred stock of May (the "ESOP
Preference Shares"). Each ESOP Preference Share costs $507, has a guaranteed
minimum value of $507 and is convertible into 20.49031 shares of May common
stock. The acquisition of the ESOP Preference Shares was financed with the
proceeds of a private placement to a group of institutional investors of an
aggregate $400 million principal amount (the "ESOP Loans") (see Note 3).
The ESOP Loans are guaranteed by May. The excess of the value of the
unallocated ESOP Preference Shares over the principal amount of guaranteed
ESOP Loans and accrued interest payable is reflected as Net Assets Available
for Benefits in the Statement of Net Assets Available for Benefits as of
December 31, 1994 and 1993.
The ESOP Loans are repaid by the Plan from the following sources in the
following order: (a) dividends from May on ESOP Preference Shares previously
allocated to members; (b) dividends from May on unallocated ESOP Preference
Shares; (c) contributions by May; and (d) if so determined by May,
supplemental contributions. During the term of the ESOP Loans, the ESOP
Preference Shares which have not been allocated to members' company accounts
serve as collateral for the ESOP Loans.
ESOP Preference Shares are initially held by the Plan in an Unallocated
account. As ESOP Loans are repaid, ESOP Preference Shares are released to a
suspense account pending release to the members' company accounts in
satisfaction of the employer allocation.
If the guaranteed minimum value of the ESOP Preference Shares allocated to
members' company accounts as a result of the ESOP Loan payments (principal and
interest) for a year, together with the amount of Plan forfeitures, is less
than the employer allocation, then May makes "supplemental" contributions to
the Plan to make up the difference. Supplemental contributions are made in
either shares of May common stock or cash.
<PAGE)
If the guaranteed minimum value of the ESOP Preference Shares released for
allocation to members' company accounts as a result of the ESOP Loan payments,
together with the amount of Plan forfeitures, is greater than the required
employer allocation, any "excess" would be applied to satisfy required
employer allocations in future Plan years.
Vesting
The method of calculating vesting service is the elapsed time approach.
Elapsed time is measured by calculating the time which has elapsed between the
member's hire date and retirement date/termination date (excluding certain
break-in-service periods). Generally, Plan members are vested in company
accounts in accordance with the following schedule:
Years of Vesting Vesting
Service Percentage
Less than 3 years 0%
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years or more 100%
Plan members are always fully vested in the value of their member accounts.
Payment of Benefits
Amounts in a member's account and the vested portion of a member's company
account may be distributed upon retirement, death, disability or termination
of employment. Distributions from the May Common Stock Fund and ESOP
Preference Fund are made in shares of May common stock if the distribution
exceeds 100 shares. All other distributions are generally made in cash.
Transfers are made from the investment funds to the Distribution account to
fund the Plan's cash distributions.
Administration of Plan
The Plan is administered by a Committee consisting of at least five persons
appointed by May. An Administrative Subcommittee has the general
responsibility for administration of the Plan and an Investment Subcommittee
establishes and monitors investment policies and activities. The assets of
the Plan are held in a trust for which The Bank of New York is the Trustee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Investments
Except for the ESOP Preference Fund, the Plan's investments are stated at fair
value, as determined by the Trustee, based on publicly stated price
information.
Each ESOP Preference Share is valued at the greater of (a) the guaranteed
minimum value (original cost) of $507 per share or (b) a conversion value
equal to the market price of May common stock multiplied by the conversion
rate of 20.49031 common shares for each ESOP Preference Share. As of
December 31, 1994 and 1993, the ESOP Preference Shares were valued at their
conversion values of $691.55 and $806.81, respectively.
Federal Income Taxes
The Plan has received a favorable determination letter from the Internal
Revenue Service that the Plan meets the requirements of Section 401(a), 401(k)
and 4975(e)(7) of the Internal Revenue Code and that the Trust implementing
the Plan is exempt from federal income tax under Section 501(a) of the
Internal Revenue Code.
<PAGE>
Employer allocations and contributions, member before-tax contributions and
the income of the Plan are not taxable to the members until distributions or
withdrawals are made.
Administrative Expenses
Salaries and related benefits of associates who administer the Plan are
provided by May. All other administrative expenses (including the allocable
portion of expenses for data processing services provided by May) are paid by
the Plan.
Monthly Valuation of the Trust
The unit value of each investment fund is determined by dividing the month-end
market value of the particular investment fund by the total number of units
outstanding at month-end in all member accounts in such investment fund. As
of each succeeding monthly valuation date, the unit value of each fund is
redetermined and account balances in each fund are adjusted as follows:
(a) All payments made from an account (except for the ESOP Preference
Fund) are valued based on the unit value at the month-end valuation
date. Payments from the ESOP Preference Fund are valued at the
greater of the guaranteed minimum value (plus accrued dividends) or
conversion value, as of the distribution date.
(b) With respect to any dollar amount contributed or allocated during
the month (except for the ESOP Preference Fund), an equivalent
number of additional units are credited to the appropriate accounts
in such investment fund based on the unit value at the month-end
valuation date. Allocations of ESOP Preference Shares are valued
at $507 per share.
(c) In the event that a member's employment is terminated and a portion
of such member's company account has been forfeited, the forfeited
units or ESOP Preference Shares shall be canceled as of the last
day of the Plan year. The dollar amount of such forfeited units or
ESOP Preference Shares is reallocated among the remaining members
of the Plan as of the last day of the Plan year in the same manner
as the employer allocation for such year.
3. NOTES PAYABLE:
Notes payable as of December 31 consisted of the following (in thousands):
1994 1993
ESOP Notes Payable:
Series A, 8.32%, due April 30, 2001 $185,172 $192,511
Series B, 8.49%, due April 30, 2004 203,964 203,964
-------- --------
$389,136 $396,475
======== ========
The scheduled principle payments for the Series A ESOP Note for the next five
years and thereafter are as follows: 1995 - $11,105,000; 1996 - $15,474,000;
1997 - $20,228,000; 1998 - $25,385,000; 1999 - $31,118,000; and thereafter -
$81,862,000. Principle payments on the Series B ESOP Note begin in 2002. As
of December 31, 1994 and 1993, the total fair value of the ESOP Notes was
approximately $454,292,000 and $511,751,000, respectively.
<PAGE>
4. INVESTMENTS:
The fair market value of the Plan's investments that represent 5% or more of
the Plan's Net Assets Available for Benefits as of December 31, 1994 and 1993,
are as follows (dollars in thousands):
December 31, 1994 December 31, 1993
----------------------- -----------------------
Number of Fair Number of Fair
Shares Value Shares Value
The May Department
Stores Company 7.5%
ESOP Preference
Stock:
Unallocated 607,181 $ 419,895 648,053 $ 522,853
Member allocated 130,767 90,432 102,842 82,973
----------- ---------- ---------- ----------
737,948 510,327 750,895 605,826
=========== ==========
The May Department
Stores Company
Common Stock 11,557,547 390,067 11,603,222 456,877
The Bank of New
York Short-Term
Investment Fund -
Master Notes 59,074,668 59,074 54,371,444 54,372
Chase Investors
Commingled Equity
Index fund 101,310 45,699 91,826 42,034
---------- ----------
Total $1,005,167 $1,159,109
========== ==========
5. RECONCILIATION TO FORM 5500:
As of December 31, 1994 and 1993, the Plan had approximately $12,148,000 and
$14,372,000, respectively, of pending distributions to participants. These
amounts are included in Net Assets Available for Benefits. For reporting on
the Plan's Form 5500 Annual Report, these amounts will be classified as
Benefit Claims Payable with a corresponding reduction in Net Assets Available
for Benefits. The following table reconciles the financial statements to the
Form 5500 which will be filed by the Plan for the Plan year ended December 31,
1994 (thousands):
Net Assets
Benefits Available
Payable to Benefits for
Participants Paid Benefits
Per financial statements $ - $89,386 $640,585
Pending benefit distributions -
December 31, 1994 12,148 12,148 (12,148)
Pending benefit distributions -
December 31, 1993 - (14,372) -
------- ------- --------
Per Form 5500 $12,148 $87,162 $628,437
======= ======= ========
6. DISTRIBUTION OF ASSETS UPON TERMINATION OF PLAN:
May reserves the right to terminate the Plan, in whole or in part, at any
time.
If an employer shall cease to be a participating employer in the Plan, the
accounts of the members of the withdrawing employer shall be revalued as if
such withdrawal date were a valuation date. The Plan Committee is then to
direct the Trustee either to distribute the accounts of the members of the
withdrawing employer as of the date of such withdrawal on the same basis as if
the Plan had been terminated, or to deposit in a trust established by the
withdrawing employer, pursuant to a plan substantially similar to the Plan,
assets equal in value to the assets allocable to the accounts of the members
of the withdrawing employer.
<PAGE>
If the Plan is terminated at any time or contributions are completely
discontinued and May determines that the Trust shall be terminated, the
members' company accounts shall become fully vested and nonforfeitable, all
accounts shall be revalued as if the termination date were a valuation date
and such accounts shall be distributed to members.
If the Plan is terminated or contributions completely discontinued but May
determines that the Trust shall be continued pursuant to the terms of the
Trust agreement, no further contributions shall be made by members or the
employer and the members' company accounts shall become fully vested, but the
Trust shall be administered as though the Plan were otherwise in effect.
<PAGE>
SCHEDULE I
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
EMPLOYER #: 43-0398035
PLAN #: 003
ITEM 27(a): SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1994
(c)
Number of
Shares or (e)
(b) Principal (d) Fair
(a) Identity of Issue Amount Cost Value
(Thousands)
ESOP PREFERENCE FUND
* The May Department Stores Company 7.5%
ESOP Preference Stock:
Unallocated 607,181 $307,840 $ 419,895
Member allocated 130,767 66,299 90,432
-------- ----------
ESOP Preference Fund Total $374,139 $ 510,327
======== ==========
MAY COMMON STOCK FUND
* The May Department Stores Company
Common Stock 11,557,547 $214,050 $ 390,067
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 7,474,730 7,475 7,475
-------- ----------
May Common Stock Fund Total $221,525 $ 397,542
======== ==========
MONEY MARKET FUND
* The Bank of New York Short-Term
Investment Fund- Master Notes $48,715,752 $ 48,716 $ 48,716
======== ==========
COMMON STOCK INDEX FUND
Chase Investors Commingled Equity
Index Fund 101,310 $ 35,401 $ 45,699
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 670,376 670 670
-------- ----------
Common Stock Index Fund Total $ 36,071 $ 46,369
======== ==========
FIXED INCOME INDEX FUND
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 991,337 $ 991 $ 991
-------- ----------
* Also a party-in-interest.
<PAGE>
SCHEDULE I
(Continued)
(c) (e)
(b) Principal (d) Fair
(a) Identity of Issue Amount Cost Value
(Thousands)
FIXED INCOME INDEX FUND (Continued)
U.S. Government Securities
U.S. Treasury Notes:
5.625%, due 8/31/97 $4,100,000 $ 4,114 $ 3,889
6.5%, due 4/30/99 $3,400,000 3,338 3,231
7.875%, due 7/15/96 $2,500,000 2,651 2,510
7.875%, due 2/15/96 $1,900,000 2,017 1,908
5.125%, due 12/31/98 $2,000,000 1,877 1,816
7.5%, due 5/15/02 $1,500,000 1,631 1,472
5.875%, due 2/15/04 $1,500,000 1,325 1,308
7.25%, due 11/15/96 $1,200,000 1,175 1,191
9%, due 5/15/98 $1,000,000 1,120 1,034
6.25%, due 2/15/03 $1,000,000 1,042 904
Strip, due 11/15/96 $1,000,000 872 868
7.125%, due 9/30/99 $ 800,000 783 777
5.125%, due 6/30/98 $ 800,000 792 735
8.75%, due 8/15/00 $ 700,000 829 729
-------- ----------
Total U.S. treasury notes 23,566 22,372
-------- ----------
U.S. Government Agency Securities:
Federal Home Loan Bank Consumer Bonds-
7.7%, due 8/26/96 $ 650,000 695 648
10.3%, due 7/25/95 $ 150,000 157 153
8%, due 7/25/96 $ 150,000 139 150
Federal Home Loan Mortgage Corporation-
6.22%, due 3/24/03 $ 200,000 182 176
Federal National Mortgage Association
Securities-
10.6%, due 11/10/95 $ 400,000 424 410
8.35%, due 11/10/99 $ 400,000 410 405
11.7%, due 5/10/95 $ 310,000 344 315
8%, due 7/10/96 $ 200,000 191 200
Debentures-
9.55%, due 12/10/97 $ 400,000 407 416
International Bank for Recon & Dev BD-
5.875%, due 7/16/97 $ 400,000 402 380
Tennessee Valley Authority, Power
Bond 1992 Series F, 6.875%,
due 8/1/02 $ 300,000 310 278
-------- ----------
Total U.S. government agency
securities 3,661 3,531
-------- ----------
Total U.S. government
securities 27,227 25,903
-------- ----------
<PAGE>
SCHEDULE I
(Continued)
(c) (e)
(b) Principal (d) Fair
(a) Identity of Issue Amount Cost Value
(Thousands)
FIXED INCOME INDEX FUND (Continued)
Fixed Income Investments
Bank Corporate Bonds:
Bank America Corporation, 7.75%, due
7/15/02 $ 400,000 $ 408 $ 380
Republic NY Corporation, 7.25%, due
7/15/02 $ 100,000 98 93
-------- ----------
Total bank corporate bonds 506 473
-------- ----------
Finance and Insurance Corporate Bonds:
American Express Company, 8.5%, due
8/15/01 $ 200,000 201 203
Commercial Credit Corporation, 8.125%,
due 3/1/97 $ 200,000 179 200
Ford Motor Credit Co., 6.25%, due
2/26/98 $ 500,000 506 471
-------- ----------
Total finance and insurance
corporate bonds 886 874
-------- ----------
Industrial Corporate Bonds:
Coca Cola Company, 7.875%, due 9/15/98 $ 300,000 305 297
Eli Lilly & Co., 8.125%, due 12/1/01 $ 200,000 199 198
Hertz Corporation Jr Sub NT, 7.0%, due
7/15/03 $ 350,000 354 309
Hertz Corporation, 6.0%, due 2/1/01 $ 200,000 191 177
Philip Morris Companies, Inc., 8,625%
due 3/1/99 $ 300,000 297 300
The Limited, Inc., 7.8%, due 5/15/02 $ 400,000 396 386
-------- ----------
Total industrial corporate
bonds 1,742 1,667
-------- ----------
Oil Corporate Bond:
Tenneco Inc., 7.875%, due 10/1/02 $ 300,000 298 285
-------- ----------
Telephone Corporate Bond:
Northern Telcom Ltd., 8.25%, due
6/13/96 $ 300,000 303 300
-------- ----------
Utilities Corporate Bonds:
Consolidated Edison Company of
New York, 1st and Refunding
Mortgage Note, 5.9%, due 12/15/96 $ 300,000 282 288
Duke Power Company, 1st and Refunding
Mortgage Note, 7%, due 6/1/00 $ 195,000 203 184
General Electric Cap Corp., 8.85%,
due 4/1/05 $ 400,000 485 414
-------- ----------
Total utilities corporate
bonds 970 886
-------- ----------
<PAGE>
SCHEDULE I
(Continued)
(c) (e)
(b) Principal (d) Fair
(a) Identity of Issue Amount Cost Value
(Thousands)
FIXED INCOME INDEX FUND (Continued)
Foreign Obligations:
Denmark Kingdom Note, 7.75%, due
12/15/96 $ 200,000 $ 193 $ 199
Finland Rep NT, 7.875%, due 7/28/04 $ 150,000 150 145
Hydro-Quebec Debenture, Series IF,
7.375%, due 2/1/03 $ 200,000 215 187
Province of Ontario, Canada
Debenture, 8%, due 10/17/01 $ 200,000 200 197
-------- ----------
Total foreign obligations 758 728
-------- ----------
Total fixed income investments 5,463 5,213
-------- ----------
Fixed Income Index Fund Total $ 33,681 $ 32,107
======== ==========
DISTRIBUTION ACCOUNT
* The Bank of New York Short-Term
Investment Fund- Master Notes $1,222,473 $ 1,222 $ 1,222
======== ==========
TOTAL ASSETS HELD FOR INVESTMENT
PURPOSES AT DECEMBER 31, 1994 $715,354 $1,036,283
======== ==========
* Also a party-in-interest.
<PAGE>
SCHEDULE II
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
ITEM 27(d): SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(Thousands, except number of transactions)
Purchases Sales
---------------- -----------------------------------
No. of No. of Sales Gain or
Trans. Cost Trans. Cost Price (Loss)
The Bank of New York
Short-Term Investment
Fund-Master Notes (1) 281 $91,411 202 $86,709 $86,709 $ -
The May Department
Stores Company
Common Stock (1) (2) 48 43,592 39 26,610 56,646 30,036
-------- -------- -------- -------
$135,003 $113,319 $143,355 $30,036
======== ======== ======== =======
(1) Also a party-in-interest.
(2) Includes conversion of ESOP Preference Shares.
<PAGE>
EXHIBIT
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report on The May Department Stores Company Profit Sharing Plan financial
statements included in this Form 11-K, into the Company's previously filed
Registration Statements on Form S-8 Files No. 33-26016, 33-38104 and 33-51849.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
April 17, 1995
