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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 February 3, 1996
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: None
(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. [ ]
Aggregate market value of registrant's common stock held by non-
affiliates as of April 6, 1996: $11,766,877,745
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
249,837,522 shares of common stock, $.50 par value, as of April 6,
1996.
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Documents incorporated by reference:
1. Portions of Registrant's 1995 Annual Report to Shareowners are
incorporated into Parts I and II.
2. Portions of Registrant's 1996 Proxy Statement, dated April 22,
1996, 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 1995,
registrant operated 346 department stores in 30 states and the
District of Columbia. The department store companies and their
headquarters are: Lord & Taylor, New York City; Hecht's,
Washington, D.C.; Foley's, Houston; Robinsons-May, Los Angeles;
Kaufmann's, Pittsburgh; Filene's, Boston; Famous-Barr, St. Louis;
and Meier & Frank, Portland, Ore.
In addition, registrant operates Payless ShoeSource, Inc.,
headquartered in Topeka, Kan. On January 17, 1996, registrant
announced the spin-off of Payless ShoeSource, Inc. as a tax-free
distribution to shareowners. The distribution will be effective
May 4, 1996. At fiscal 1995 year-end, 4,549 stores were operated
in 49 states, the District of Columbia, Puerto Rico and the Virgin
Islands.
Registrant employs approximately 61,000 full-time and 69,000 part-
time associates in 49 states, the District of Columbia, Puerto
Rico, the Virgin Islands and eight offices overseas. Approximately
24,000 are employees of Payless ShoeSource, Inc.
The following portions of registrant's 1995 Annual Report to
Shareowners are incorporated herein by reference: Management's
Discussion and Analysis (pages 12-16).
April 4, 1996 the registrant announced that it will acquire 13
Strawbridge & Clothier stores in the greater Philadelphia area in
a transaction expected to close in July, 1996, subject to customary
conditions, including approval by Strawbridge and Co.
("Strawbridge") shareowners and other regulatory approvals. The
Strawbridge department store assets will be acquired in exchange
for approximately 4.2 million shares of the registrant's common
stock and the assumption of debt and certain other liabilities.
The registrant has also agreed to issue additional shares of its
common stock in exchange for any cash proceeds from Strawbridge's
divestiture of its Clover discount division, net of certain transaction
expenses. The asset acquisition will be accounted for as a purchase
and funded principally with stock that the registrant intends to repurchase
in the open market from time to time as market conditions allow.
2
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A. Property Ownership
(i) Department Stores
The following summarizes the property ownership of
department stores at February 3, 1996:
% of Gross
Number of Building
Stores Sq. Footage
Entirely or mostly owned* 190 59%
Entirely or mostly leased 94 26
Owned on leased land* 62 15
346 100%
* Includes a total of 19 department stores subject to
financing.
(ii) Payless ShoeSource, Inc.
Payless ShoeSource, Inc. 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 February 3,
1996, 54.5% of the total sales of registrant's department stores
were made through registrant's credit plans. All sales of Payless
ShoeSource, Inc. are made either for cash or through third-party
credit cards.
In 1991, registrant formed May National Bank of Arizona (MBA) and
May National Bank of Ohio (MBO), which are indirectly wholly owned
and consolidated subsidiaries of registrant.
During the last fiscal year, MBA and MBO extended credit to certain
customers of registrant's Robinsons-May, Kaufmann's, Famous-Barr
and Meier & Frank department stores companies. Throughout 1995,
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, Inc. 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.
3
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D. Executive Officers of Registrant
The names and ages (as of April 24, 1996) 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 62 Chairman and Chief Executive Officer
Thomas A. Hays 63 Deputy Chairman
Jerome T. Loeb 55 President and Chief Financial Officer
Richard L. Battram 61 Executive Vice Chairman
Eugene S. Kahn 46 Vice Chairman
Anthony J. Torcasio 50 President and Chief Executive Officer,
May Merchandising Company
Louis J. Garr, Jr. 56 Executive Vice President and General
Counsel
R. Dean Wolfe 52 Executive Vice President
William D. Edkins 43 Senior Vice President
Lonny J. Jay 54 Senior Vice President
Jan R. Kniffen 47 Senior Vice President
Richard A. Brickson 48 Secretary and Senior Counsel
Martin M. Doerr 41 Vice President
Andrew T. Hall 35 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. Mr. Hays
announced his retirement effective April 30, 1996, at which time
Mr. Loeb will assume Mr. Hays' responsibilities. On April 22, 1996
registrant announced the appointment of Mr. John L. Dunham as
executive vice president and chief financial officer, effective May
1, 1996. On February 16, 1996 registrant announced the appointment
of Mr. Kahn as vice chairman. At the same time, registrant named
both Mr. Kahn and Mr. Torcasio as members of the registrant's Board
of Directors. 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. Kahn served as president of the former G. Fox division from
1990 to 1992 and as president and chief executive officer of
Filene's from 1992 to March, 1996 when he became vice chairman.
Mr. Torcasio served as president and chief executive officer of the
former L.S. Ayres division from 1988 to 1991 and as president and
chief executive officer of Famous-Barr from 1991 to 1993 when he
became president and chief executive officer of May Merchandising
Company and became an executive officer of registrant. 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.
4
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Item 3. Legal Proceedings
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.
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 February 3, 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareowner Matters
Common Stock Dividends and Market Prices (page 16) of registrant's
1995 Annual Report to Shareowners are incorporated herein by
reference.
Item 6. Selected Financial Data
The Eleven Year Financial Summary (pages 28 and 29) of registrant's
1995 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 12-16) and Notes to
Consolidated Financial Statements (pages 21-27) of registrant's
1995 Annual Report to Shareowners are incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements (pages 17-20), Notes to
Consolidated Financial Statements (pages 21-27) and Report of
Independent Public Accountants (page 30) of registrant's 1995
Annual Report to Shareowners are incorporated herein by reference.
5
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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:
(millions, except
per share) 1995
Quarter First Second Third Fourth Year
Revenues $ 2,218 $ 2,325 $ 2,569 $ 3,840 $ 10,952
Cost of sales $ 1,543 $ 1,625 $ 1,798 $ 2,495 $ 7,461
Net Earnings:
Continuing operations $ 87 $ 107 $ 110 $ 396 $ 700
Discontinued operatio 27 34 25 (31) 55
Impact of spin-off of
discontinued operation - - - - -
Before extraordinary loss 114 141 135 365 755
Extraordinary loss
related to early
extinguishment
of debt - - - (3) (3)
Net Earnings 114 141 135 362 752
Primary earnings
per share:
Continuing operations $ 0.33 $ 0.41 $ 0.42 $ 1.57 $ 2.73
Discontinued operation 0.11 0.14 0.10 (0.13) 0.22
Impact of spin-off of
discontinued operation - - - - -
Before extraordinary loss 0.44 0.55 0.52 1.44 2.95
Extraordinary loss
related to early
extinguishment
of debt - - - (0.01) (0.01)
Primary earnings
per share 0.44 0.55 0.52 1.43 2.94
Fully diluted earnings
per share:
Continuing operations $ 0.32 $ 0.40 $ 0.41 $ 1.48 $ 2.61
Discontinued operation 0.10 0.13 0.09 (0.11) 0.21
Impact of spin-off of
discontinued operation - - - - -
Before extraordinary loss 0.42 0.53 0.50 1.37 2.82
Extraordinary loss
related to early
extinguishment
of debt - - - (0.01) (0.01)
Fully Diluted Earnings
Per Share $ 0.42 $ 0.53 $ 0.50 $ 1.36 $ 2.81
6
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(millions, except
per share) 1994
Quarter First Second Third Fourth Year
Revenues $ 2,105 $ 2,162 $ 2,404 $ 3,436 $ 10,107
Cost of sales $ 1,463 $ 1,510 $ 1,679 $ 2,227 $ 6,879
Net Earnings:
Continuing operations $ 77 $ 93 $ 105 $ 375 $ 650
Discontinued operation 35 37 34 26 132
Impact of spin-off of
discontinued operation - - - - -
Before extraordinary loss 112 130 139 401 782
Extraordinary loss
related to early
extinguishment
of debt - - - - -
Net Earnings 112 130 139 401 782
Primary earnings
per share:
Continuing operations $ 0.29 $ 0.35 $ 0.40 $ 1.49 $ 2.53
Discontinued operation 0.14 0.15 0.14 0.10 0.53
Impact of spin-off of
discontinued operation - - - - -
Before extraordinary loss 0.43 0.50 0.54 1.59 3.06
Extraordinary loss
related to early
extinguishment
of debt - - - - -
Primary earnings
per share 0.43 0.50 0.54 1.59 3.06
Fully diluted earnings
per share:
Continuing operations $ 0.28 $ 0.35 $ 0.38 $ 1.42 $ 2.43
Discontinued operation 0.13 0.14 0.13 0.09 0.49
Impact of spin-off of
discontinued operation - - - - -
Before extraordinary loss 0.41 0.49 0.51 1.51 2.92
Extraordinary loss
related to early
extinguishment
of debt - - - - -
Fully Diluted Earnings
Per Share $ 0.41 $ 0.49 $ 0.51 $ 1.51 $ 2.92
7
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Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
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 22,
1996, 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 1995 Annual Report to Shareowners (Exhibit
13):
Page in
Annual Report
Financial Statements-
Consolidated Statement of Earnings for
the three fiscal years ended
February 3, 1996 17
Consolidated Balance Sheet -
February 3, 1996, and January 28, 1995 18
Consolidated Statement of Cash Flows
for the three fiscal years ended
February 3, 1996 19
Consolidated Statement of Shareowners'
Equity for the three fiscal years
ended February 3, 1996 20
Notes to Consolidated Financial Statements 21-27
Report of Independent Public Accountants 30
Page in
this Report
(2) Supplemental Financial Statement
Schedule (for the three fiscal years
ended February 3, 1996):
Report of Independent Public Accountants
on Schedule II 12
II Valuation and Qualifying Accounts 13
8
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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 Incorporated
by Reference
to Exhibit
4(b) of Form
S-8, filed
April 1,
1996.
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 1995 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 12 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, 1995
(4) Reports on Form 8-K
A report dated January 17, 1996 which contained a release
announcing the registrant's intent to spin-off Payless
ShoeSource, Inc., its chain of self-service family shoe
stores, to the registrant's shareowners in a tax-free
distribution expected to be completed in late Spring
1996.
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.
9
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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 24, 1996 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 24, 1996 /s/ David C. Farrell Director, Chairman
David C. Farrell and Chief
Executive Officer
Principal Financial and
Accounting Officer:
April 24, 1996 /s/ Jerome T. Loeb Director,
Jerome T. Loeb President and
Chief Financial
Officer
Directors:
April 24, 1996 /s/ Thomas A. Hays Director and
Thomas A. Hays Deputy Chairman
April 24, 1996 /s/ Richard L. Battram Director and
Richard L. Battram Executive Vice
Chairman
10
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Date Signature Title
April 24, 1996 /s/ Eugene S. Kahn Director and Vice
Eugene S. Kahn Chairman
April 24, 1996 /s/ Anthony J. Torcasio Director,
Anthony J. Torcasio President and
Chief Executive
Officer, May
Merchandising
Company
April 24, 1996 /s/ Helene L. Kaplan Director
Helene L. Kaplan
April 24, 1996 /s/ Edward H. Meyer Director
Edward H. Meyer
April 24, 1996 /s/ Russell E. Palmer Director
Russell E. Palmer
April 24, 1996 /s/ Andrall E. Pearson Director
Andrall E. Pearson
April 24, 1996 /s/ Michael R. Quinlan Director
Michael R. Quinlan
April 24, 1996 /s/ William P. Stiritz Director
William P. Stiritz
April 24, 1996 /s/ Robert D. Storey Director
Robert D. Storey
April 24, 1996 /s/ Murray L. Weidenbaum Director
Murray L. Weidenbaum
April 24, 1996 /s/ Edward E. Whitacre, Jr. Director
Edward E. Whitacre, Jr.
11
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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 26, 1996. 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 26, 1996
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 February 3,
1996 into the Company's previously filed Registration Statements on
Form S-3 (No. 33-38585, 33-46021, 33-55255 and 33-62075) and Form
S-8 (No. 33-26016, 33-38104, 33-51849, 33-58985 and 333-00957).
ARTHUR ANDERSEN LLP
1010 Market Street
St. Louis, Missouri 63101-2089
April 24, 1996
12
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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 February 3, 1996
(Millions)
Charges
Balance to costs Balance
beginning and Deductions end of
of period expenses (a) period
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED
FEBRUARY 3, 1996
Allowance for
doubtful accounts $ 78 $ 88 $ (82) $ 84
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
(a) Write-off of accounts determined to be uncollectible, net of
recoveries of $24 million in 1995, $23 million in 1994 and $22
million in 1993.
</TABLE>
13
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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 Funding, Inc. Nevada
Payless Holdings, Inc. Delaware
Payless ShoeSource, Inc. Missouri
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<TABLE>
<CAPTION>
Exhibit 11
THE MAY DEPARTMENT STORES COMPANY
COMPUTATION OF NET EARNINGS PER SHARE
FOR THE THREE FISCAL YEARS ENDED FEBRUARY 3, 1996
(millions, except per share) 1995 1994 1993
<S> <C> <C> <C>
Net earnings from continuing operations $ 700 $ 650 $ 578
ESOP Preferred Dividends, net of tax
benefit on unallocated shares (19) (19) (19)
Preferred Dividend requirements - - -
Net earnings available for
common shareowners:
Continuing operations 681 631 559
Discontinued operation 55 132 133
Extraordinary loss (3) - -
Total net earnings available for
common shareowners $ 733 $ 763 $ 692
Average common shares outstanding 248.9 248.4 248.4
Net earnings per share:
Continuing operations $ 2.73 $ 2.54 $ 2.25
Discontinued operation 0.22 0.53 0.54
Extraordinary loss (0.01) - -
Total net earnings per share $ 2.94 $ 3.07 $ 2.79
Primary Computation:
Net earnings available from
continuing operations $ 681 $ 631 $ 559
Deferred comp. dividend adjustment 1 1 1
Adjusted net earnings available:
Continuing operations 682 632 560
Discontinued operation 55 132 133
Extraordinary loss (3) - -
Total adjusted net earnings available: $ 734 $ 764 $ 693
Average common shares outstanding 248.9 248.4 248.4
Common share equivalents (CSE's) 1.0 1.2 1.5
Average common stock and CSE's 249.9 249.6 249.9
Primary earnings per share:
Continuing operations $ 2.73 $ 2.53 $ 2.24
Discontinued operation 0.22 0.53 0.53
Extraordinary loss (0.01) - -
Total Primary Earnings per share $ 2.94 $ 3.06 $ 2.77
</TABLE>
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<TABLE>
<CAPTION>
Exhibit 11
THE MAY DEPARTMENT STORES COMPANY
COMPUTATION OF NET EARNINGS PER SHARE
FOR THE THREE FISCAL YEARS ENDED FEBRUARY 3, 1996
(millions, except per share) 1995 1994 1993
<S> <C> <C> <C>
Fully Diluted Computation:
Adjusted net earnings available
from continuing operations-PRIMARY $ 682 $ 632 $ 560
Earnings impact of assumed conversion of
ESOP Preference Shares, net of tax
benefit on unallocated common shares 11 10 9
Adjusted net earnings available-FULLY DILUTED:
Continuing operations 693 642 569
Discontinued operation 55 132 133
Extraordinary loss (3) - -
Total adjusted net earnings
available-FULLY DILUTED: $ 745 $ 774 $ 702
Average common shares and CSE's 249.9 249.6 249.9
Additional CSE's attributable to treasury
stock method 0.4 - 0.1
ESOP Preference Shares 15.0 15.3 15.5
Average Common Shares Outstanding on
fully diluted basis 265.3 264.9 265.5
Fully Diluted earnings per share:
Continuing operations $ 2.61 $ 2.43 $ 2.15
Discontinued operation 0.21 0.49 0.50
Extraordinary loss (0.01) - -
Total Fully Diluted Earnings per share $ 2.81 $ 2.92 $ 2.65
</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 FEBRUARY 3, 1996
Fiscal Year Ended
Feb. 3, Jan. 28, Jan. 29, Jan. 30, Feb. 1,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Pretax earnings from continuing operations $ 1,160 $ 1,079 $ 957 $ 579 $ 617
Fixed charges (excluding interest
capitalized and pretax preferred stock
dividend requirements) 317 293 305 361 409
Dividends on ESOP Preference Shares (28) (28) (28) (29) (29)
Capitalized interest amortization 5 4 4 3 3
1,454 1,348 1,238 914 1,000
Fixed Charges:
Gross interest expense (a) $ 316 $ 289 $ 295 $ 338 $ 384
Interest factor attributable to
rent expense 20 19 20 24 29
Other (b) - - - 5 8
336 308 315 367 421
Ratio of Earnings to Fixed Charges 4.3 4.4 3.9 2.5 2.4
(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>
[DESCRIPTION] EXHIBIT 13 ANNUAL REPORT
<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 - 16.]
MANAGEMENT'S DISCUSSION AND ANALYSIS
May achieved its 21st consecutive year of record sales and earnings per share
from continuing operations. Our five-year compound growth rate for earnings per
share from continuing operations was 11.6% - among the best in the retail
industry.
In January 1996, May announced the spin-off of Payless ShoeSource, Inc., our
family shoe store subsidiary, as a tax-free distribution to shareowners. As a
result, Payless is being reported as a discontinued operation. The spin-off
is targeted for May 1996.
Sales in 1995 were $10.5 billion, an increase of 7.7% over 1994 sales of
$9.8 billion. The sales increase over last year was achieved during a period of
deflation for department store prices. It reflects the benefit of new store
openings and an increase in store-for-store sales of 2.5%. Store-for-store
sales increases for the first through fourth quarters in 1995 were 2.4%, 5.0%,
1.5% and 1.9%, respectively.
We achieved $2.61 in earnings per share from continuing operations in 1995, a
7.4% increase over last year's $2.43. Net earnings from continuing operations
totaled $700 million, compared with $650 million last year. Return on revenues
was 6.4% in 1995 and 1994. Return on equity was 20.8% in 1995
(computed as net earnings from continuing operations divided by beginning
shareowners' equity adjusted for the impact of the Payless spin-off). This
was May's sixth consecutive year with a return on equity over 20%. Return on
continuing operations' net assets was 20.1% in 1995 and 1994.
We opened 37 department stores during 1995, adding 6.3 million square feet of
retail space. Four of these stores were Lord & Taylor locations, in King of
Prussia, Pa.; Raleigh, N.C.; Schaumburg, Ill.; and Victor, N.Y. Hecht's
opened 18 locations, 14 of which were acquired Wanamakers stores. These
include 13 Pennsylvania locations, in downtown Philadelphia, northeast
Philadelphia, Wynnewood, Jenkintown, King of Prussia, Reading, Langhorne,
Springfield, North Wales, Whitehall, Camp Hill, York and Harrisburg; two New
Jersey locations, in Moorestown and Bedford; one Maryland location in Chevy
Chase; one Delaware location in Newark; and one North Carolina location in
Raleigh. Kaufmann's opened four Pennsylvania stores, in Altoona, Scranton,
Wilkes-Barre and Muncy; and three New York locations, in Horseheads, New
Hartford and Rochester. Two stores were Foley's locations, in Austin and
Temple, Tex. Robinsons-May reopened one location in Los Angeles, Calif., that
had been damaged by the January 1994 earthquake. Filene's opened four stores,
in Holyoke, Mass.; Stamford, Conn.; and in Kingston and Schenectady, N.Y.;
Famous-Barr opened one store in St.Louis. In addition, we remodeled 12
department stores in 1995, totaling 845,000 retail square feet, and expanded
eight of these stores by 290,000 square feet. At fiscal year-end, May operated
346 department stores in 30 states and the District of Columbia.
Five department stores were closed during the year, resulting in a net
increase of 32 department stores and 5.4 million square feet of retail space.
This is the second consecutive year of significant store openings following
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.
Our expansion program for 1996 includes 15 new department stores, which will
add 2.3 million square feet of retail space. In 1996, the company plans to
remodel 13 department stores totaling 1.4 million square feet of retail
space, and to expand eight of these stores by a total of 150,000 square feet.
The 1996-2000 expansion plan will add 115 new department stores totaling
18.9 million retail square feet. 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 $570 million to remodel existing stores. These are the major
components of a $3.7 billion capital plan.
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net retail sales from
continuing operations (in billions) $4.0 $4.4 $4.8 $6.2 $7.0 $7.5 $7.9 $8.4 $9.0 $9.8 $10.5
</TABLE>
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings per share from
continuing operations $0.75 $0.83 $1.03 $1.23 $1.50 $1.51 $1.52 $1.76 $2.15 $2.43 $2.61
</TABLE>
<PAGE>
REVIEW OF OPERATIONS
Net earnings from continuing operations totaled $700 million in 1995, compared
with $650 million in 1994 and $578 million in 1993. Return on revenues
was 6.4% in 1995, compared with 6.4% in 1994 and 6.0% in 1993. Fully diluted
earnings per share from continuing operations reached $2.61 in 1995, compared
with $2.43 in 1994 and $2.15 in 1993.
<TABLE>
<CAPTION>
Results of continuing operations for the past three years were as follows:
1995 1994 1993
(dollars in millions, except Percent of Percent of Percent of
per share) $ Revenues $ Revenues $
Revenues
<S> <C> <C> <C> <C> <C> <C>
Net Retail Sales $10,507 $ 9,759 $9,020
Revenues $10,952 100.0% $10,107 100.0% $9,562 100.0%
Cost of sales 7,461 68.1 6,879 68.1 6,537 68.4
Selling, general
and administra-
tive expenses 2,081 19.0 1,916 18.9 1,824 19.1
Interest expense, net 250 2.3 233 2.3 244 2.5
Earnings before
income taxes 1,160 10.6 1,079 10.7 957 10.0
Provision for
income taxes* 460 39.7 429 39.7 379 39.6
Net Earnings $ 700 6.4% $ 650 6.4% $ 578 6.0%
Fully Diluted
Earnings per Share $ 2.61 $ 2.43 $ 2.15
<FN>
* Percent of Revenues column represents effective income tax rate.
</TABLE>
Fiscal 1995 included 53 weeks. The additional week did not materially affect
1995 earnings. All net retail sales information in this Review of Operations
is presented on a 52-week basis for comparability.
<TABLE>
<CAPTION>
Earnings before interest and taxes (EBIT) for the past three years were as
follows:
Increase
(dollars in millions) 1995 1994 1993 1995 1994
<S> <C> <C> <C> <C> <C>
Operating earnings 1,410 1,312 1,201 7.5% 9.3%
Percent of revenues 12.9% 13.0% 12.6%
</TABLE>
EBIT presented above include a LIFO credit of $53 and $46 million in
1995 and 1994, respectively, and a charge of $7 million in 1993.
<TABLE>
<CAPTION>
EBIT, excluding LIFO, is presented below on a supplementary basis for
comparative purposes:
Increase
(dollars in millions) 1995 1994 1993 1995 1994
<S> <C> <C> <C> <C> <C>
Operating earnings $1,357 1,266 $1,208 7.2% 4.8%
Percent of revenues 12.4% 12.5% 12.6%
</TABLE>
May's 346 quality department stores are operated by eight regional
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.
The table below summarizes net retail sales, sales per square foot, building
area square footage, and number of stores for each store company:
<TABLE>
<CAPTION>
Net Retail Building Area
Sales in Millions Sales per Square Footage
of Dollars Square Foot in Thousands Number of Stores
1995 1994 1995 1994 1995 1994 1995 New Closed 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lord & Taylor, New York City $ 1,586 $1,451 $233 $226 7,131 6,811 57 4 1 54
Hecht's, Washington, D.C. 1,661 1,423 207 212 10,455 6,959 62 18 1 45
Foley's, Houston 1,693 1,633 180 181 9,896 9,583 51 2 - 49
Robinsons-May, Los Angeles 1,562 1,494 170 171 9,568 9,527 53 1 - 52
Kaufmann's, Pittsburgh 1,394 1,302 201 198 7,747 6,908 46 7 1 40
Filene's, Boston 1,261 1,162 236 239 5,884 5,320 39 4 1 36
Famous-Barr, St. Louis 983 947 201 193 5,189 5,099 30 1 1 30
Meier & Frank, Portland, Ore. 367 347 213 204 1,770 1,770 8 - - 8
Total $10,507 $9,759 $201 $200 57,640 51,977 346 37 5 314
<FN>
Net retail sales represent sales of stores open at the end of 1995.
Sales per square foot are calculated from 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>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends per common
share (year-end rate) $0.47 $0.52 $0.57 $0.64 $0.71 $0.79 $0.81 $0.83 $0.92 $1.04 $1.14
</TABLE>
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales per square foot $123 $138 $143 $158 $168 $172 $171 $179 $191 $200 $201
</TABLE>
<PAGE>
Net Retail Sales.
<TABLE>
<CAPTION>
Net retail sales (see page 21 for definition) increases for 1995 and 1994
were as follows:
1995 vs. 1994 1994 vs. 1993 Five-Year
Store-for- Store-for- Compound
Total Store Total Store Growth Rate
<S> <C> <C> <C> <C> <C>
7.7% 2.5% 8.2% 5.4% 7.0%
</TABLE>
The total sales increase for 1995 reflect the opening of 37 new department
stores and a 2.5% store-for-store increase. The total sales increase for 1994
include the results of 19 new department stores and a 5.4% store-for-store
increase.
<TABLE>
<CAPTION>
Sales per square foot were as follows:
1995 Five-Year
vs. 1994 Compound
1995 1994 1993 1990 Increase Growth Rate
<S> <C> <C> <C> <C> <C> <C>
$201 $200 $191 $172 0.7% 3.1%
Sales include leased and licensed department sales of $311 million,
$290 million and $313 million in 1995, 1994 and 1993, respectively. Revenues
include finance charge revenues of $340 million, $334 million and $330 million
in 1995, 1994 and 1993, respectively. The low finance charge revenue growth
rate over the last two years reflects increased 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 $7.46 billion in 1995, compared with
$6.88 billion in 1994, an 8.5% increase. The overall increase resulted from an
8.4% increase in revenues. As a percent of revenues, cost of sales remained
constant between 1995 and 1994 at 68.1%. A slight decline in merchandise
gross margin was offset by a decrease in the occupancy rate and an increase
in the LIFO credit.
Cost of sales was $6.88 billion in 1994, compared with $6.54 billion in 1993,
a 5.2% increase. The overall increase of 5.2% resulted from a 5.7% increase
in revenues, offset by a lower cost of sales rate. As a percent of revenues,
cost of sales was 68.1% in 1994, compared with 68.4% in 1993. The lower 1994
percent compared with 1993 was due to a LIFO credit of $46 million in 1994
compared with a charge of $7 million in 1993 and a slightly lower buying
expense rate, partially offset by a small decline in merchandise gross margin.
</TABLE>
<TABLE>
<CAPTION>
The impact of LIFO on cost of sales, as a percent of revenues, is shown below:
1995 1994 1993
<S> <C> <C> <C>
Cost of sales 68.1% 68.1% 68.4%
LIFO charge (credit) (0.5) (0.4) 0.1
Cost of sales before LIFO 68.6% 68.5% 68.3%
</TABLE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $2.08 billion in 1995, compared with $1.92 billion
in 1994, an 8.6% increase. The overall increase was due to an 8.4% increase in
revenues. As a percent of revenues, selling, general and administrative
expenses increased 0.1% to 19.0% in 1995, compared with 18.9% in 1994, as
payroll costs increased at a slightly higher rate than revenues.
Selling, general and administrative expenses were $1.92 billion in 1994,
compared with $1.82 billion in 1993, a 5.0% increase. The overall increase
was due to a 5.7% increase in revenues. As a percent of revenues, selling,
general and administrative expenses decreased 0.2% to 18.9% in 1994, compared
with 19.1% in 1993, as payroll costs increased at a lesser rate than revenues.
Selling, general and administrative expenses include advertising and sales
promotion costs of $404 million, $370 million and $358 million in 1995, 1994
and 1993, respectively.
<TABLE>
<CAPTION>
Interest Expense. Interest expense components were:
(dollars in millions) 1995 1994 1993
<S> <C> <C> <C>
Interest expense $283 $256 $262
Interest income (14) (8) (8)
Capitalized interest (19) (15) (10)
Interest expense, net $250 $233 $244
Percent of revenues 2.3% 2.3% 2.5%
</TABLE>
The increase in 1995 net interest expense from 1994 was due to increased
average borrowings related to store growth including the acquisition of
certain assets of John Wanamaker and Woodward & Lothrop.
The decrease in 1994 net interest expense compared with 1993 was the result
of reduced average borrowings.
Income Taxes. The effective income tax rates were 39.7%, 39.7% and 39.6% in
1995, 1994 and 1993, respectively.
The 1995 effective income tax rate of 39.7% remained constant compared to
1994, as a 0.3% increase in the effective federal income tax rate was offset
by a 0.3% decrease in the net effective state income tax rate. The 1994
effective income tax rate of 39.7% increased compared with 1993 because of
slightly higher state income tax rates. See Taxes on page 24. Also see
Summary of Significant Accounting Policies on page 21 for a discussion of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock price range
Low price $10.50 $15.94 $11.13 $14.38 $17.31 $18.69 $22.63 $26.00 $33.44 $32.25 $33.50
High price $16.25 $22.06 $25.44 $20.00 $26.31 $29.56 $30.19 $37.25 $46.50 $45.13 $46.25
</TABLE>
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Book value per common share $7.86 $8.50 $9.13 $10.75 $9.32 $10.04 $11.26 $12.82 $14.65 $16.65 $18.42
</TABLE>
<PAGE>
Impact of Inflation. Overall, inflation has not had a material impact on the
company's 1995 sales growth and earnings. The company values its inventory
on a LIFO basis, and as a result, the current cost of merchandise is reflected
in current operating results.
Discontinued Operation. Payless ShoeSource, Inc., is the nation's largest
chain of self-service family shoe stores. At year-end, Payless operated 4,549
stores and 773 Payless Kids expansion stores in 49 states, the District of
Columbia, Puerto Rico and the Virgin Islands.
<TABLE>
<CAPTION>
Results for Payless for the fiscal years shown were:
Increase
(Decrease)
(dollars in millions) 1995 1994 1993 1995 1994
<S> <C> <C> <C> <C> <C>
Revenues $2,330 $2,116 $1,966 10.1% 7.6%
Operating earnings 162 218 222 (25.9) (1.6)
Percent of revenues 6.9% 10.3% 11.2%
Return on net assets 13.9 20.6 23.1
</TABLE>
Operating earnings, percent of revenues, and return on net assets for 1995
in the above table were computed with earnings before special and
nonrecurring items. Operating earnings represent earnings before
income taxes and net interest expense (EBIT). Payless recorded special and
nonrecurring pretax charges of $72 million in 1995. See Discontinued
Operation on page 27.
REVIEW OF FINANCIAL CONDITION
Our 1995 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
reasonable costs.
Return on Equity. Return on equity is our principal measure in evaluating our
performance for shareowners and our ability to invest shareowners' funds
profitably. Our objective is to sustain performance that places our return on
equity in the top quartile of the retail industry. Return on beginning equity
was 20.8% in 1995, compared with 21.3% in 1994 and 22.1% in 1993.
The 1995 return on beginning equity was computed with net earnings
from continuing operations divided by beginning shareowners' equity
adjusted for the impact of the Payless spin-off. During this period, our
financial strength improved. Our 1995 debt-to-capitalization ratio was
42%, which reflects the Payless spin-off, compared with 47% in 1992.
Net earnings from 1995 continuing and discontinued operations, yielded
a return on beginning equity of 18.0%.
Return on Net Assets. Return on continuing operations' net assets measures
performance independent of capital structure. Return on continuing
operations' net assets represents pretax earnings before net interest expense
and the interest component of operating leases, divided by beginning of year
continuing operations' net assets (including present value of operating
leases). Return on continuing operations' net assets was 20.1% in 1995,
compared with 20.1% in 1994 and 19.0% in 1993. The improvement in the 1994
return on net assets over the 1993 figure was due to the growth in earnings
exceeding the 3.0% growth in beginning-of-year net assets.
Cash Flow. Cash flow from continuing operations (earnings plus
depreciation/amortization) was $1.0 billion. This was 9.4% of revenues
in 1995, compared with 9.4% in 1994 and 9.0% in 1993. The company's
cash flow as a percent of revenues continues to be one of the highest in the
retail industry, and it gives the company ample resources to invest in its
business.
<TABLE>
<CAPTION>
Sources and (uses) of cash flows are summarized below:
(millions) 1995 1994 1993
<S> <C> <C> <C>
Earnings and depreciation/amortization $1,033 $947 $859
Working capital increases (331) (165) (176)
Discontinued operation 97 (1) 43
Other operating activities 49 (17) 65
Investing activities (871) (580) (471)
Net long-term debt issuances (repayments) 444 118 (190)
Other financing activities (310) (293) (262)
Increase (decrease) in cash and cash equivalents $ 111 $ 9 $ (132)
</TABLE>
Financing Activities. During the 1995 second quarter, the company issued
$100 million, 7.50% debentures due in 2015 and $100 million,
7.60% debentures due in 2025. The proceeds from the issuance were added
to the company's general funds and were available for capital expenditures,
working capital needs, the purchase of certain of the company's other
indebtedness, and other general corporate purposes, including investments
and acquisitions.
During the 1995 third quarter, the company issued $125 million, 7.15% notes
due in 2004, $125 million, 7.625% debentures due in 2013, and $150 million,
8.125% debentures due in 2035. The proceeds from the issuance were added to
the company's general funds and were available for the acquisition of certain
assets of John Wanamaker and Woodward & Lothrop.
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Return on equity 15.5% 15.7% 17.0% 18.6% 18.0% 21.8% 20.7% 21.5% 22.1% 21.3% 20.8%
</TABLE>
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Return on net assets
from continuing operations 16.8% 15.4% 15.7% 16.2% 16.9% 15.8% 14.5% 15.4% 19.0% 20.1% 20.1%
</TABLE>
<PAGE>
During the fourth quarter of 1995, the company recorded an extraordinary
aftertax loss of $3 million ($5 million pretax) as it executed a binding
contract to call $112 million of 9.25% debentures due to mature March 1, 2016.
The debentures will be called effective March 1, 1996. During 1995 and
1994, the company retired $150 million and $35 million of debt, respectively.
Financial Condition Ratios. Our strong debt-to-capitalization and fixed charge
coverage ratios will further improve with the spin-off of Payless. These
figures are consistent with our capital structure objectives. Our capital
structure provides us with substantial financial flexibility.
The debt-to-capitalization ratios reflecting the completion of the spin-off of
Payless were 42%, 41% and 42% for 1995, 1994 and 1993, respectively. The
debt-to-capitalization ratios including the discontinued operation were 44%,
44% and 45% at the end of 1995, 1994 and 1993, 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 22 for discussion of the ESOP. The total debt, as defined above, related
to Payless was $897 million at the end of 1995.
The fixed-charge coverage ratios reflecting the completion of the spin-off of
Payless were 4.2x, 4.2x and 3.7x for 1995, 1994 and 1993, respectively.
Fixed-charge coverage ratios including the discontinued operation were 3.1x,
3.4x and 3.2x in 1995, 1994 and 1993, respectively. Fixed charges are defined
as gross interest expense, 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 and a decrease in fixed charges, primarily
interest 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.
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 remodelings and as
we eliminate unproductive space.
Capital expenditures in 1996 will approximate $690 million. Capital
expenditures for the 1996-2000 period are planned at $3.7 billion. 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 multiyear credit agreement. In addition, the company has
filed with the Securities and Exchange Commission a shelf registration
statement that would enable it to issue up to $800 million of
additional debt securities.
Common Stock Dividends and Market Prices. Our policy is to increase
dividends on common stock consistent with our earnings growth over time.
The 1996 annual dividend rate was increased by 1.8%, or $.02 per
share, to $1.16 per share. This is the 21st consecutive annual dividend
increase. The new annual dividend rate of $1.16 per share will be effective
with the June 1996 dividend payment. Dividends paid have increased at a
compound rate of 7.7% during the past five years. The company has paid
consecutive quarterly dividends since December 1, 1911.
<TABLE>
<CAPTION>
The quarterly price ranges of the common stock and dividends per share in 1995
and 1994 were:
1995 1994
Market Price Market Price
Dividends Dividends
Quarter High Low Per Share High Low Per Share
<S> <C> <C> <C> <C> <C> <C>
First $38 $33 1/2 $ .26 $45 1/8 $38 $.23
Second 44 1/4 35 1/4 .28 1/2 41 7/8 37 3/8 .26
Third 45 3/8 37 .28 1/2 42 36 1/2 .26
Fourth 46 1/4 38 3/8 .28 1/2 39 7/8 32 1/4 .26
Year $46 1/4 $33 1/2 $1.11 1/2 $45 1/8 $32 1/4 $1.01
<FN>
The approximate number of common shareowners as of March 1, 1996, was 44,200.
</TABLE>
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flow from continuing operations (in millions)
Depreciation and amortization $166 $189 $187 $236 $234 $253 $273 $283 $281 $297 $333
Net earnings $235 $264 $318 $362 $425 $404 $404 $472 $578 $650 $700
</TABLE>
<PAGE>
[The following "Consolidated Financial Statements" section is a reproduction
of the same named section included in the Annual Report on pages 17 - 20.]
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS
(dollars in millions, except per share) 1995 1994 1993
<S> <C> <C> <C>
Net Retail Sales $10,507 $9,759 $9,020
Revenues $10,952 $10,107 $9,562
Cost of sales 7,461 6,879 6,537
Selling, general and administrative expenses 2,081 1,916 1,824
Interest expense, net 250 233 244
Total cost of sales and expenses 9,792 9,028 8,605
Earnings from continuing operations before income taxes 1,160 1,079 957
Provision for income taxes 460 429 379
Net Earnings from Continuing Operations 700 650 578
Net earnings from discontinued operation 55 132 133
Impact of spin-off of discontinued operation - - -
Net earnings before extraordinary loss 755 782 711
Extraordinary loss related to
early extinguishment of debt, net of income taxes (3) - -
Net earnings $752 $782 $711
Primary Earnings per Share:
Continuing operations $2.73 $2.53 $2.24
Discontinued operation 0.22 0.53 0.53
Impact of spin-off of discontinued operation - - -
Net earnings before extraordinary loss 2.95 3.06 2.77
Extraordinary loss (0.01) - -
Primary Earnings per Share $2.94 $3.06 $2.77
Fully Diluted Earnings per Share:
Continuing operations $2.61 $2.43 $2.15
Discontinued operation 0.21 0.49 0.50
Impact of spin-off of discontinued operation - - -
Net earnings before extraordinary loss 2.82 2.92 2.65
Extraordinary loss (.01) - -
Fully Diluted Earnings per Share $2.81 $2.92 $2.65
<FN>
Fiscal 1995 was a 53-week year. Net retail sales for fiscal 1995 are shown on
a 52-week basis for comparability. Net retail sales for the 53 weeks ended
February 3, 1996, were $10,613.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
February 3, January 28,
(dollars in millions, except per share) 1996 1995
<S> <C> <C>
Assets
Current Assets:
Cash $12 $8
Cash equivalents 147 40
Accounts receivable, net 2,403 2,432
Merchandise inventories 2,134 1,813
Other current assets 169 182
Net current assets of discontinued operation 232 243
Total Current Assets 5,097 4,718
Property and Equipment:
Land 238 200
Buildings and improvements 2,908 2,564
Furniture, fixtures and equipment 2,416 2,123
Property under capital leases 55 57
Total property and equipment 5,617 4,944
Accumulated depreciation (1,873) (1,669)
Property and equipment, net 3,744 3,275
Goodwill 671 600
Other Assets 89 93
Net Noncurrent Assets of Discontinued Operation 521 551
Total Assets $10,122 $9,237
Liabilities and Shareowners' Equity
Current Liabilities:
Current maturities of long-term debt $132 $168
Accounts payable 692 735
Accrued expenses 650 658
Income taxes payable 128 128
Total Current Liabilities 1,602 1,689
Long-term Debt 3,333 2,864
Deferred Income Taxes 378 340
Other Liabilities 204 192
ESOP Preference Shares 366 374
Unearned Compensation (346) (357)
Shareowners' Equity:
Common stock 124 124
Additional paid-in capital - 5
Retained earnings 4,461 4,006
Total Shareowners' Equity 4,585 4,135
Total Liabilities and Shareowners' Equity $10,122 $9,237
<FN>
Common stock has a par value of $.50 per share; 700 million shares are authorized
and 313.6 million shares were issued. At February 3, 1996, 248.9 million shares
were outstanding and 64.7 million shares were held in treasury. At January 28, 1995,
248.4 million shares were outstanding and 65.2 million shares were held in treasury.
ESOP Preference Shares have a par value of $.50 per share, a stated value of
$507 per share, and 800,000 shares are authorized. At February 3, 1996,
722,111 shares (convertible into 14.8 million common shares) were issued and
outstanding. At January 28, 1995, 737,145 shares (convertible into 15.1 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 Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement
of Cash Flows
(dollars in millions) 1995 1994 1993
<S> <C> <C> <C>
Operating Activities:
Net earnings from continuing operations $700 $650 $578
Net earnings from discontinued operation 55 132 133
Extraordinary loss related to early
extinguishment of debt (3) - -
Net earnings 752 782 711
Adjustments for noncash items included in earnings:
Depreciation and amortization 333 297 281
Deferred income taxes (noncurrent) 42 15 11
Deferred and unearned compensation 15 16 17
Working capital increases* (330) (165) (176)
Other assets and liabilities, net (6) (48) 37
Discontinued operation:
Expenses not requiring the outlay of cash 96 77 67
Working capital and other 10 24 (40)
Total Operating Activities 912 998 908
Investing Activities:
Capital expenditures (801) (682) (560)
Disposition of property and equipment 20 106 95
Goodwill (89) - -
Other (1) (4) (6)
Discontinued operation:
Capital expenditures (95) (255) (140)
Disposition of property and equipment 31 21 23
Total Investing Activities (935) (814) (588)
Financing Activities:
Issuance of long-term debt 600 200 12
Repayment of long-term debt (156) (82) (202)
Purchase of common stock (71) (56) (54)
Issuance of common stock 57 33 32
Dividend payments (296) (270) (240)
Total Financing Activities 134 (175) (452)
Increase (Decrease) in Cash and Cash Equivalents 111 9 (132)
Cash and Cash Equivalents, Beginning of Year 48 39 171
Cash and Cash Equivalents, End of Year $159 $48 $39
*Working capital increases comprise:
Accounts receivable, net $29 $(43) $(26)
Merchandise inventories (321) (166) (171)
Other current assets 13 14 106
Accounts payable (43) (44) 121
Accrued expenses (8) (6) (201)
Income taxes payable - 80 (5)
Net increase in working capital $ (330) $(165) $(176)
Cash paid during the year:
Interest $268 $240 $255
Income taxes 448 418 322
<FN>
Noncash investing and financing activities include conversions of ESOP
Preference Shares into common stock of $8 million, $7 million and $9 million
in 1995, 1994 and 1993, respectively.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Outstanding
Common Stock Additional Total
(dollars in millions, Paid-in Retained Shareowners'
shares in thousands) Shares Dollars Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
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
Net earnings - - - 752 752
Dividends paid:
Common stock ($1.11 1/2 per share) - - - (277) (277)
ESOP Preference Shares, net of tax benefit - - - (19) (19)
Preferred stock - - - - -
Common stock issued 2,198 1 64 - 65
Purchase of common stock (1,710) (1) (69) (1) (71)
Balance at February 3, 1996 248,871 $124 $- $4,461 $4,585
</TABLE>
<TABLE>
<CAPTION>
Outstanding common stock excludes shares held in treasury. Treasury share
activity for the last three years is summarized below:
1995 1994 1993
<S> <C> <C> <C>
Balance, Beginning of Year 65,254 65,295 65,530
Common stock issued:
Exercise of stock options (1,419) (677) (967)
Deferred compensation plan (158) (181) (239)
Restricted stock grants, net of forfeitures (236) (157) 31
Contribution to Profit Sharing Plan (89) (145) (76)
Conversion of ESOP Preference Shares (296) (269) (360)
(2,198) (1,429) (1,611)
Purchase of common stock 1,710 1,388 1,376
Balance, End of Year 64,766 65,254 65,295
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<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 21 - 27.]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The company's fiscal year ends on the Saturday closest to January
31. Fiscal 1995 ended on February 3, 1996, and included 53 weeks. Fiscal years
1994 and 1993 ended on January 28, 1995, and January 29, 1994, respectively,
and both 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), reflecting the
operation of 346 quality department stores. The consolidated financial
statements reflect Payless ShoeSource, Inc. ("Payless"), as a discontinued
operation. All the following notes, except Discontinued Operation on page 27,
reflect data on a continuing operations basis.
Net Retail Sales and Revenues. Net retail sales (sales) represent 52-week
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.
Advertising Costs. Advertising and sales promotion costs are expensed at the
time the advertising takes place.
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. 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.
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 265.3 million, 264.9
million and 265.5 million in 1995, 1994 and 1993, respectively. References to
earnings per share in this annual report relate to fully diluted earnings per
share.
Cash Equivalents. Cash equivalents consist primarily of commercial paper
with maturities of 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. Merchandise inventories 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 $118 million and
$171 million in 1995 and 1994, respectively.
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.
<PAGE>
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 $129 million and $111 million in 1995 and 1994,
respectively.
Use of Estimates. Management makes estimates and assumptions that affect the
amounts reported in the consolidated statements of earnings, shareowners'
equity and cash flows, the consolidated balance sheet, and notes to
consolidated financial statements. Actual results could differ from these
estimates.
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.
Long-lived Assets. In March 1995, Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of," was issued. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used or
disposed of by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. During 1995, the company adopted this statement and
determined that no impairment loss need be recognized for applicable assets
of continuing operations.
Reclassifications. Certain prior-period amounts have been reclassified to
conform with the current-year presentation.
<TABLE>
<CAPTION>
QUARTERLY RESULTS (Unaudited)
Quarterly results of continuing operations 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:
(millions,
except per share) 1995
Quarter First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Revenues $2,218 $2,325 $2,569 $3,840 $10,952
Cost of sales $1,543 $1,625 $1,798 $2,495 $7,461
Net earnings from
continuing operations $87 $107 $110 $396 $700
Primary earnings per share from
continuing operations $0.33 $0.41 $0.42 $1.57 $2.73
Fully diluted earnings
per share from
continuing operations $0.32 $0.40 $0.41 $1.48 $2.61
</TABLE>
<TABLE>
<CAPTION>
(millions,
except per share) 1994
Quarter First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Revenues $2,105 $2,162 $2,404 $3,436 $10,107
Cost of sales $1,463 $1,510 $1,679 $2,227 $6,879
Net earnings from
continuing operations $77 $93 $105 $375 $650
Primary earnings
per share from
continuing operations $0.29 $0.35 $0.40 $1.49 $2.53
Fully diluted earnings
per share from
continuing operations $0.28 $0.35 $0.38 $1.42 $2.43
</TABLE>
There are variables and uncertainties in the factors used to estimate
the annual LIFO provision (credit) 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.
<TABLE>
<CAPTION>
1995 1994
Pro As Pro As
Quarter Forma Reported Forma Reported
<S> <C> <C> <C> <C>
First $(.02) $.02 $(.02) $.02
Second (.03) .02 (.02) .02
Third (.03) .00 (.03) .00
Fourth (.04) (.16) (.04) (.15)
Year $(.12) $ (.12) $(.11) $(.11)
</TABLE>
ACQUISITION
Effective August 28, 1995, the company purchased 14 John Wanamaker stores
(one of which will not be operated) in the Philadelphia area and three
Woodward & Lothrop stores in the Washington, D.C., area, for approximately
$412 million, including $167 million for inventory, receivables and other
current assets. The asset acquisition has been accounted for as a purchase,
and accordingly, the operating results of the acquired stores have been
included in the company's consolidated results since the effective acquisition
date. The acquisition was funded principally with long-term debt. The
acquisition did not have a material effect on the results of operations or
financial position of the company in 1995.
<PAGE>
PROFIT SHARING
The company has a qualified profit-sharing plan that covers substantially all
associates who work 1,000 hours or more in a year and have attained age 21.
The plan is a defined contribution program that 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 $33 million, $29 million and $35 million in
1995, 1994 and 1993, 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 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 $378 million outstanding portion of the guaranteed ESOP debt is reflected
on the consolidated balance sheet in long-term debt, because 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 $32 million in 1995, and $33 million in each of 1994 and 1993.
ESOP Preference Shares dividends were $28 million in 1995 and 1994, and
$29 million in 1993. 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 $17 million,
$19 million and $20 million in 1995, 1994 and 1993, respectively.
At February 3, 1996, the Profit Sharing Plan beneficially owned 11.5 million
shares of the company's common stock and 100% of the company's ESOP
Preference Shares, which are convertible into 14.8 million shares of the
company's common stock, representing 10.0% of the company's common
stock on a fully converted basis.
PENSION
The company has a qualified retirement plan that covers substantially all
associates who work 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 based on information provided by an outside actuarial
firm, which uses assumptions to estimate the total benefits ultimately
payable to associates and then allocates this cost to service periods.
The actuarial assumptions used to calculate pension costs are reviewed
annually.
<TABLE>
<CAPTION>
The following tables summarize the funded status of the plans, components
of pension expense, actuarial assumptions, and definitions of terms.
(millions) 1995 1994
<S> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested benefit obligation $260 $ 185
Nonvested benefit obligation 29 23
Accumulated benefit obligation (ABO) 289 208
Estimated effect of future salary increases 49 51
Projected benefit obligation (PBO) 338 259
Plan assets at fair value (primarily
equity and fixed income securities) 290 227
Plan assets less than PBO (48) (32)
Unrecognized obligation 3 4
Unrecognized gain (27) (36)
Unrecognized prior service cost 21 20
Accrued pension cost $(51) $ (44)
Plan assets in excess of ABO $ 1 $ 19
</TABLE>
The accrued pension cost, which primarily represents the unfunded
accumulated benefit obligation (ABO) for the nonqualified supplementary
retirement plan, is included in other liabilities on the accompanying
balance sheet. Qualified plan assets in excess of ABO were $61 million
and $57 million in 1995 and 1994, respectively.
<TABLE>
<CAPTION>
(millions) 1995 1994 1993
<S> <C> <C> <C>
Components of Pension Expense:
Service cost $21 $22 $21
Interest on PBO 22 19 20
Actual return on assets (61) 6 (22)
Net amortization and deferral 46 (19) 3
Total $28 $28 $22
</TABLE>
<PAGE>
At the end of 1995, the discount rate and expected rate of return on plan
assets were decreased as a result of a general decrease in interest rates
during the year.
<TABLE>
<CAPTION>
January 1,
1996 1995 1994
<S> <C> <C> <C>
Actuarial Assumptions:
Discount rate 7.00% 8.00% 7.0%
Expected return on plan assets 7.25 8.25 7.5
Salary increase 4.50 5.00 5.0
<FN>
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; it is 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.
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.
</TABLE>
Another important element in the retirement programs for associates is the
federal Social Security system into which the company paid $123 million in
1995 as its matching contribution to the $123 million paid in 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. At the end of 1995, the company
decreased the discount rate assumption from 8.0% to 7.0%, which resulted
in a $4 million increase in the present value of future obligations.
As of February 3, 1996, the company's estimated present value of future
obligations for postretirement benefits was $43 million, of which $41 million
was accrued. As provided in Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," an
unrecognized net loss of less than 10% of the liability is not required to be
amortized. The estimated future obligations are based upon assumed annual
health care cost increases of 11% for 1996, decreasing by 1% annually to 7%
for 2000 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
$2 million, $3 million and $2 million in 1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
TAXES
The provision for income taxes and related percent of pretax earnings for the
last three years were as follows:
1995 1994 1993
(dollars in millions) $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
Federal $343 $331 $240
State and local 70 72 52
Taxes currently payable 413 35.7% 403 37.3% 292 30.5%
Federal 40 22 74
State and local 7 4 13
Deferred taxes 47 4.O 26 2.4 87 9.1
Total $460 39.7% $429 39.7% $379 39.6%
</TABLE>
<TABLE>
<CAPTION>
The reconciliation between the statutory federal income tax rate and the
effective income tax rate for the last three years follows:
1995 1994 1993
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes 6.7 7.2 7.0
Federal tax benefit of state
and local income taxes (2.3) (2.5) (2.5)
Other, net 0.3 - 0.1
Effective income tax rate 39.7% 39.7% 39.6%
</TABLE>
<TABLE>
<CAPTION>
Major components of deferred tax assets and (liabilities) were as follows:
February 3, January 28,
(millions) 1996 1995
<S> <C> <C>
Accrued expenses and reserves $ 132 $ 134
Deferred and other compensation 104 99
Depreciation/amortization and basis differences (323) (276)
Other deferred income tax liabilities, net (173) (155)
Net deferred income taxes (260) (198)
Less: Net current deferred income tax assets 118 142
Noncurrent deferred income taxes $ (378) $ (340)
</TABLE>
<TABLE>
<CAPTION>
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) 1995 1994 1993
<S> <C> <C> <C>
Payroll $160 $146 $139
Real estate and personal property 83 79 79
Total $243 $225 $218
</TABLE>
ACCOUNTS RECEIVABLE
During 1995, credit sales under department store credit programs were $6.0
billion, or 54.5% of 1995 department store revenues; this compares with 57.3%
in 1994 and 62.4% in 1993. An estimated 30 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 totaled $2.4 billion in 1995, compared with $1.8
billion in 1994 and $1.3 billion in 1993.
<PAGE>
<TABLE>
<CAPTION>
Net accounts receivable consisted of:
February 3, January 28,
(millions) 1996 1995
<S> <C> <C>
Customer accounts receivable $2,377 $2,418
Other accounts receivable 110 92
Total accounts receivable 2,487 2,510
Allowance for uncollectible accounts (84) (78)
Accounts receivable, net $2,403 $2,432
</TABLE>
OTHER CURRENT ASSETS
In addition to net current deferred income tax assets, other current assets
consisted of prepaid expenses and supply inventories.
OTHER ASSETS
<TABLE>
<CAPTION>
Major components of other assets included:
February 3, January 28,
(millions) 1996 1995
<S> <C> <C>
Notes receivable $37 $48
Deferred debt expense 26 20
Restricted construction funds 5 5
</TABLE>
<TABLE>
<CAPTION>
ACCRUED EXPENSES
Major components of accrued expenses included:
February 3, January 28,
(millions) 1996 1995
<S> <C> <C>
Insurance costs $185 $179
Sales and use and other taxes 96 120
Salaries, wages and employee benefits 89 90
Interest and rent expense 79 71
Store closings and real estate-related 71 81
Advertising and other operating expenses 53 53
Construction costs 43 44
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM DEBT AND LINES OF CREDIT
Short-term borrowings for the last three years were:
(dollars in millions) 1995 1994 1993
<S> <C> <C> <C>
Balance outstanding at year-end - - -
Average balance outstanding $ 75 $ 83 $ 94
Average interest rate on average balance 6.2% 5.0% 3.3%
Maximum balance outstanding $246 $317 $344
</TABLE>
The average balance of short-term borrowings outstanding, primarily
commercial paper, and the respective weighted average interest 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 February 3, 1996, there were no amounts
outstanding under these agreements.
<TABLE>
<CAPTION>
LONG-TERM DEBT
Long-term debt and capital lease obligations were:
February 3, January 28,
(dollars in millions) 1996 1995
<S> <C> <C>
5.7% to 10.75% unsecured notes and
sinking fund debentures due 1997-2035 $3,341 $2,902
3.0 % to 10.0 % mortgage notes
and bonds due 1996-2012 65 69
Total debt 3,406 2,971
Capital lease obligations 59 61
3,465 3,032
Less current maturities 132 168
Total $3,333 $2,864
</TABLE>
During the 1995 second quarter, the company issued $100 million, 7.50%
debentures due in 2015 and $100 million, 7.60% debentures due in 2025.
The proceeds from the issuance were added to the company's general
funds and were available for capital expenditures, working capital needs,
the purchase of certain of the company's other indebtedness, and other
general corporate purposes, including investments and acquisitions.
During the 1995 third quarter, the company issued $125 million, 7.15% notes
due in 2004, $125 million, 7.625% debentures due in 2013 and $150 million,
8.125% debentures due in 2035. The proceeds from the issuance were
added to the company's general funds and were available for the acquisition
of certain assets of John Wanamaker and Woodward & Lothrop.
During the 1995 fourth quarter, the company recorded an extraordinary aftertax
loss of $3 million ($5 million pretax) as it executed a binding contract to
call $112 million 9.25% debentures due to mature March 1, 2016.
The debentures will be called effective March 1, 1996.
The annual maturities of long-term debt, including sinking fund requirements,
are $132 million, $234 million, $242 million, $81 million and $254 million for
1996 through 2000, respectively.
The net book value of property and equipment encumbered under long-term debt
agreements was $105 million at February 3, 1996.
<PAGE>
LEASE OBLIGATIONS
<TABLE>
<CAPTION>
The company owns approximately 74% of its stores. Rental expense for the
company's operating leases consisted of:
(millions) 1995 1994 1993
<S> <C> <C> <C>
Minimum rentals $38 $38 $37
Contingent rentals based on sales 15 14 13
Real property rentals 53 52 50
Equipment rentals 4 5 6
Total $57 $57 $56
</TABLE>
<TABLE>
<CAPTION>
Future minimum lease payments at February 3, 1996, were as follows:
Capital Operating
(millions) Leases Leases Total
<S> <C> <C> <C>
1996 $8 $41 $49
1997 8 37 45
1998 7 32 39
1999 7 30 37
2000 7 27 34
After 2000 123 286 409
Minimum lease payments 160 $453 $613
Less imputed interest component 101
Present value of net minimum lease
payments, of which $1 million is
included in current liabilities $59
</TABLE>
<TABLE>
<CAPTION>
The present value of operating leases was $234 million at February 3, 1996.
Property under capital leases is summarized as follows:
February 3, January 28,
(millions) 1996 1995
<S> <C> <C>
Cost $55 $57
Accumulated amortization (19) (19)
Total $36 $38
</TABLE>
OTHER LIABILITIES
In addition to accrued pension cost, other liabilities principally consisted
of deferred compensation liabilities of $151 million and $145 million at
February 3, 1996, and January 28, 1995, 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.
<TABLE>
<CAPTION>
PREFERRED AND PREFERENCE STOCK
The company is authorized to issue 25,134,474 shares of preferred and
preference stock. The following table summarizes the authorized,
issued and outstanding shares by type:
Issued and Outstanding
February 3, January28,
(dollars in millions, Shares 1996 1995
except per share) Authorized $ Shares $ Shares
<S> <C> <C> <C> <C> <C>
Preferred Stock, no par value 51,323 1 11,974 1 12,105
$1.80 Preference Stock,
no par value 73,273 1 26,653 1 26,653
3 3/4% Cumulative Preference
Stock, $100 par value per share 9,878 - - -
Preference Stock, $.50 par value
per share, in the aggregate,
including ESOP shares 25,000,000 366 722,111 374 737,145
</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.
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 conditional 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.
<TABLE>
<CAPTION>
The changes in outstanding stock options were as follows:
1995 1994
Grant Grant
(shares in thousands) Shares Prices Shares Prices
<S> <C> <C> <C> <C>
Outstanding at beginning of year 5,329 $12-44 4,780 $8-44
Granted 1,543 37-44 1,523 38-40
Exercised (1,419) 12-42 (677) 8-37
Cancelled or expired (294) 21-44 (297) 18-44
Outstanding at end of year 5,159 $12-44 5,329 $12-44
Exercisable at end of year 1,746 $12-44 1,971 $12-44
Shares available for
additional grants 10,432 11,803
</TABLE>
<PAGE>
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. The company granted 274,750
and 179,000 shares of restricted stock under the 1994 Stock Incentive Plan in
1995 and 1994, respectively.
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, 5,000 shares of restricted stock were granted 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 become exercisable only 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 terminated, extended, exercised or
redeemed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
company's financial instruments at February 3, 1996, and January 28, 1995.
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>
1995 1994
Carrying Fair Carrying Fair
(millions) Amount Value Amount Value
<S> <C> <C> <C> <C>
Accounts receivable $2,403 $2,403 $2,432 $2,432
Long-term debt 3,406 3,977 2,971 3,104
</TABLE>
The carrying amounts shown in the table are included in the consolidated
balance sheet under the indicated captions. The increase in the spread between
the fair value and carrying amount of long-term debt in 1995 compared with 1994
was due to lower interest rates at the end of 1995. The fair value was
determined with the use of borrowing rates currently available for debt
instruments with similar remaining terms and maturities.
DISCONTINUED OPERATION
On January 17, 1996 the company announced its intention to spin off Payless,
its chain of self-service family shoe stores, in May 1996. The company's
financial statements presented herein have been restated to reflect Payless as
a discontinued operation. The consolidated statement of earnings includes the
results of Payless as a discontinued operation through January 17, 1996.
The estimated costs to effect the spin-off and the loss of discontinued
operations from January 17, 1996, through 1995 year-end of $21 million were
fully offset by a portion of Payless's 1996 estimated earnings through
the anticipated spin-off date.
The costs to effect the spin-off included investment banker's, legal
counsel's and accountant's fees, registration statement fees and expenses,
and a curtailment loss on the company's nonqualified supplementary retirement
plan. The curtailment loss reflects expense associated with previously
unrecognized prior-service costs related to the Payless participants.
During the 1995 fourth quarter, in conjunction with the spin-off,
Payless committed to close approximately 450 unprofitable stores.
In addition, Payless committed to restructure its central office and other
personnel. A pretax special and nonrecurring charge of $72 million was
recorded for these initiatives. Payless's 1995 net earnings before special
and nonrecurring items would have been $99 million, or $.37 per fully diluted
share.
The reported net earnings from the discontinued operation are net
of $36 million, $86 million and $88 million in income tax
expense for 1995, 1994 and 1993, respectively.
<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 28 -
29.]
<TABLE>
<CAPTION>
Eleven-Year Financial Summary
(dollars in millions,
except per share) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Retail Sales $10,507 $9,759 $9,020 $8,415 $7,872 $7,502 $7,037 $6,187 $4,755 $4,353 $3,987
Operations
Revenues $10,952 $10,107 $9,562 $9,362 $9,068 $8,700 $8,356 $7,742 $6,415 $6,503 $6,129
Cost of sales 7,461 6,879 6,537 6,459 6,275 6,047 5,734 5,348 4,492 4,625 4,340
Selling, general and
administrative
expenses 2,081 1,916 1,824 1,859 1,861 1,772 1,735 1,645 1,325 1,353 1,276
Interest expense, net 250 233 244 279 315 278 231 196 77 90 90
Earnings from
continuing
operations before
income taxes 1,160 1,079 957 579* 617 603 656 553 521 435 423
Provision for
income taxes 460 429 379 107* 213 199 231 191 203 171 188
Net Earnings from
Continuing Operations 700 650 578 472 404 404 425 362 318 264 235
LIFO charge (credit) (53) (46) 7 10 26 39 (22) (3) 8 4 2
Net earnings 752 782 711 603 515 500 498 534 444 381 347
Depreciation and
amortization 333 297 281 283 273 253 234 236 187 189 166
Cash flow from
operations 1 1,033 947 859 755 677 657 659 599 505 454 401
Net issuances
(repayments) of
long-term debt 2 444 118 (190) (248) 313 590 169 891 (61) 159 141
Capital expenditures 801 682 560 284 366 466 470 292 353 374 358
Dividends on
common stock 278 251 223 204 198 191 186 184 170 131 124
Per Share
Net Earnings from
Continuing Operations $2.61 $2.43 $2.15 $1.76 $1.52 $1.51 $1.50 $1.23 $1.03 $.83 $.75
Net earnings 3 2.81 2.92 2.65 2.26 1.93 1.87 1.76 1.81 1.44 1.20 1.11
Dividends paid 1.12 1.01 .90 .83 .81 .77 .69 .62 .56 .51 .46
Annual dividend
rate at year-end 1.14 1.04 .92 .83 .81 .79 .71 .64 .57 .52 .47
Book value 18.42 16.65 14.65 12.82 11.26 10.04 9.32 10.75 9.13 8.50 7.86
Market price - high 46.25 45.13 46.50 37.25 30.19 29.56 26.31 20.00 25.44 22.06 16.25
Market price - low 33.50 32.25 33.44 26.00 22.63 18.69 17.31 14.38 11.13 15.94 10.50
Market price - average
of high and low 39.88 38.69 39.97 31.63 26.41 24.13 21.81 17.19 18.28 19.00 13.38
Financial Position
Customer accounts
receivable $2,377 $2,418 $2,367 $2,373 $2,377 $2,456 $2,223 $2,099 $1,590 $1,516 $1,578
Merchandise inventories 2,134 1,813 1,647 1,476 1,436 1,375 1,278 1,141 880 848 908
Working capital 3,495 3,029 2,921 2,691 3,051 2,635 2,059 2,093 1,821 1,921 1,529
Property and
equipment, net 3,744 3,275 2,977 2,774 2,808 2,728 2,446 2,285 1,830 1,745 1,704
Long-term debt,
preferred and
preference stock 3,701 3,240 3,192 3,256 4,299 3,948 3,387 2,384 1,048 1,131 1,048
Shareowners' equity 4,585 4,135 3,639 3,181 2,781 2,467 2,319 3,050 2,723 2,595 2,421
Total assets 10,122 9,237 8,614 8,376 8,566 8,083 7,570 7,374 5,464 5,629 5,311
Statistics
Percent of revenues:
Net earnings from
continuing
operations 6.4% 6.4% 6.0% 5.0% 4.5% 4.6% 5.1% 4.7% 5.0% 4.1% 3.8%
Cash flow from
operations 1 9.4 9.4 9.0 8.1 7.5 7.6 7.9 7.7 7.9 7.0 6.5
Return on equity 20.8 21.3 22.1 21.5 20.7 21.8 18.0 18.6 17.0 15.7 15.5
Return on net assets 20.1 20.1 19.0 15.4** 14.5 15.8 16.9 16.2 15.7 15.4 16.8
Stores Open at
Year-end 346 314 301 303 318 324 288 297 258 286 301
Average Shares
Outstanding and
Equivalents
Primary 249.9 249.6 249.9 248.8 248.0 249.0 267.2 294.8 306.3 313.1 311.1
Fully Diluted 265.3 264.9 265.5 265.3 264.2 264.8 280.0 295.4 306.3 314.9 312.0
<FN>
All years included 52 weeks, except 1995 and 1989, which included 53 weeks.
Net retail sales for 1995 and 1989 are shown on a 52-week basis
for comparability.
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 $.13
higher in 1995, $.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.
* 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.
</TABLE>
<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 preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts. Although the financial statements reflect all available
information and management's judgement and estimates of current conditions and
circumstances, prepared with the assistance of specialists within and outside
the company, actual results could differ from those estimates.
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 in response 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 1995 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.
[The following "Report of Independent Public Accountants" section is a
reproduction of the same named section of the paper format Annual Report
on page 30.]
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
February 3, 1996, and January 28, 1995, and the related consolidated
statements of earnings, shareowners' equity and cash flows for each of the
three fiscal years in the period ended February 3, 1996. 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 February 3, 1996, and January 28, 1995, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended February 3, 1996, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
1010 Market Street
St. Louis, Missouri 63101-2089
February 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS ON PAGES 17
AND 18 OF THE MAY DEPARTMENT STORES COMPANY 1995 ANNUAL REPORT TO SHAREOWNERS
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> FEB-03-1996
<PERIOD-END> FEB-03-1996
<CASH> 12
<SECURITIES> 147
<RECEIVABLES> 2,487
<ALLOWANCES> 84
<INVENTORY> 2,134
<CURRENT-ASSETS> 5,097
<PP&E> 5,617
<DEPRECIATION> 1,873
<TOTAL-ASSETS> 10,122
<CURRENT-LIABILITIES> 1,602
<BONDS> 3,465
3
0
<COMMON> 124
<OTHER-SE> 4,461
<TOTAL-LIABILITY-AND-EQUITY> 10,122
<SALES> 10,613
<TOTAL-REVENUES> 10,952
<CGS> 7,461
<TOTAL-COSTS> 7,461
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250
<INCOME-PRETAX> 1,160
<INCOME-TAX> 460
<INCOME-CONTINUING> 700
<DISCONTINUED> 55
<EXTRAORDINARY> (3)
<CHANGES> 0
<NET-INCOME> 752
<EPS-PRIMARY> 2.94
<EPS-DILUTED> 2.81
</TABLE>
<PAGE>
EXHIBIT 99
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, 1995
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 EXHIBIT
Listed below are all financial statements and exhibit 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, 1995 4
Statement of Net Assets Available for
Benefits - December 31, 1994 7
Statement of Changes in Net Assets
Available for Benefits for the Year
Ended December 31, 1995 10
Notes to Financial Statements -
December 31, 1995 and 1994 12
Schedule I - Item 27(a): Schedule of Assets
Held for Investment Purposes -
December 31, 1995 18
Schedule II - Item 27(d): Schedule of
Reportable Transactions for the Year
Ended December 31, 1995 22
Exhibit
Consent of Independent Public Accountants 23
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 24, 1996 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, including the schedules referred to below, of The May Department
Stores Company Profit Sharing Plan as of December 31, 1995 and 1994, and the
related statement of changes in net assets available for benefits for the year
ended December 31, 1995. These financial statements and 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, 1995 and 1994, and the changes in net assets available for
benefits for the year ended December 31, 1995, 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 24, 1996
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1995
(Thousands, except per unit information)
Nonparticipant Directed
Investment Funds
--------------------------------
ESOP Preference
---------------------- May
Member Common
ASSETS Unallocated Allocated Stock
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $485,970 $138,402 $ -
Common stock - - 145,141
Short-term investments - - 1,053
Commingled equity index fund - - -
U.S. government securities - - -
Fixed income investments - - -
-------- -------- --------
Total investments 485,970 138,402 146,194
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts (29,770) 29,770 -
Dividends and interest receivable - - 5
Receivables - withholdings of member
contributions - - -
Interfund receivable (payable) - (144) (1,062)
-------- -------- --------
Total assets 456,200 168,028 145,137
-------- -------- --------
LIABILITIES
LIABILITIES:
Notes payable 378,031 - -
Accrued interest payable 5,300 - -
Net amount payable (receivable) for
investment securities transactions
and other - - -
Amounts payable for administrative
expenses - - 135
-------- -------- --------
Total liabilities 383,331 - 135
-------- -------- --------
NET ASSETS AVAILABLE FOR BENEFITS $ 72,869 $168,028 $145,002
======== ======== ========
NUMBER OF UNITS AT DECEMBER 31, 1995 3,847
========
VALUE PER UNIT AT DECEMBER 31, 1995 $ 37.69
========
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1995
(Thousands, except per unit information)
Participant Directed
Investment Funds
-----------------------------------
May Common Fixed
Common Money Stock Income
ASSETS Stock Market Index Index
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ - $ - $ -
Common stock 339,470 - - -
Short-term investments 2,462 56,132 515 771
Commingled equity index fund - - 71,097 -
U.S. government securities - - - 32,711
Fixed income investments - - - 5,746
-------- ------- ------- -------
Total investments 341,932 56,132 71,612 39,228
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - - - -
Dividends and interest receivable 11 280 130 568
Receivables - withholdings of
member contributions 83 59 11 20
Interfund receivable (payable) (2,486) 1,068 1,939 685
-------- ------- ------- -------
Total assets 339,540 57,539 73,692 40,501
-------- ------- ------- -------
LIABILITIES
LIABILITIES:
Notes payable - - - -
Accrued interest payable - - - -
Net amount payable (receivable) for
investment securities transactions
and other - - - (194)
Amounts payable for
administrative expenses 316 168 179 137
-------- ------- ------- -------
Total liabilities 316 168 179 (57)
-------- ------- ------- -------
NET ASSETS AVAILABLE FOR BENEFITS $339,224 $57,371 $73,513 $40,558
======== ======= ======= =======
NUMBER OF UNITS AT DECEMBER 31, 1995 9,001 38,813 28,985 23,362
======== ======= ======= =======
VALUE PER UNIT AT DECEMBER 31, 1995 $37.69 $1.48 $2.54 $1.74
====== ===== ===== =====
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1995
(Thousands, except per unit information)
Distribution
ASSETS Account Total
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ 624,372
Common stock - 484,611
Short-term investments 1,660 62,593
Commingled equity index fund - 71,097
U.S. government securities - 32,711
Fixed income investments - 5,746
------ ----------
Total investments 1,660 1,281,130
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - -
Dividends and interest receivable - 994
Receivables - withholdings of
member contributions - 173
Interfund receivable (payable) - -
------ ----------
Total assets 1,660 1,282,297
------ ----------
LIABILITIES
LIABILITIES:
Notes payable - 378,031
Accrued interest payable - 5,300
Net amount payable (receivable)
for investment securities
transactions and other 1,660 1,466
Amounts payable for
administrative expenses - 935
------ ----------
Total liabilities 1,660 385,732
------ ----------
NET ASSETS AVAILABLE FOR BENEFITS $ - $ 896,565
====== ==========
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, 1994
(Thousands, except per unit information)
Nonparticipant Directed
Investment Funds
--------------------------------
ESOP Preference
---------------------- May
Member Common
ASSETS Unallocated Allocated Stock
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $419,895 $ 90,432 $ -
Common stock - - 123,651
Short-term investments - - 2,370
Commingled equity index fund - - -
U.S. government securities - - -
Fixed income investments - - -
-------- -------- --------
Total investments 419,895 90,432 126,021
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts (23,091) 23,091 -
Receivable - employer supplemental
contribution - - 3,247
Dividends and interest receivable - - 8
Receivables - withholdings of
member contributions - - -
Interfund receivable (payable) - (18) 197
-------- -------- --------
Total assets 396,804 113,505 129,473
-------- -------- --------
LIABILITIES
LIABILITIES:
Notes payable 389,136 - -
Accrued interest payable 5,454 - -
Net amount payable (receivable)
for investment security
transactions and other - - 1,177
Amounts payable for
administrative expenses - - 160
-------- -------- --------
Total liabilities 394,590 - 1,337
-------- -------- --------
NET ASSETS AVAILABLE FOR BENEFITS $ 2,214 $113,505 $128,136
======== ======== ========
NUMBER OF UNITS AT DECEMBER 31, 1994 4,348
========
VALUE PER UNIT AT DECEMBER 31, 1994 $ 29.47
========
(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)
Participant Directed
Investment Funds
-----------------------------------
May Common Fixed
Common Money Stock Income
ASSETS Stock Market Index Index
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ - $ - $ -
Common stock 266,416 - - -
Short-term investments 5,105 48,716 670 991
Commingled equity index fund - - 45,699 -
U.S. government securities - - - 25,903
Fixed income investments - - - 5,213
-------- ------- ------- -------
Total investments 271,521 48,716 46,369 32,107
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - - - -
Receivable - employer supplemental
contribution - - - -
Dividends and interest receivable 17 235 116 589
Receivables - withholdings of
member contributions 187 62 55 39
Interfund receivable (payable) 425 (357) 108 (355)
-------- ------- ------- -------
Total assets 272,150 48,656 46,648 32,380
-------- ------- ------- -------
LIABILITIES
LIABILITIES:
Notes payable - - - -
Accrued interest payable - - - -
Net amount payable (receivable)
for investment security
transactions and other 2,536 - - (72)
Amounts payable for
administrative expenses 342 113 103 82
-------- ------- ------- -------
Total liabilities 2,878 113 103 10
-------- ------- ------- -------
NET ASSETS AVAILABLE FOR BENEFITS $269,272 $48,543 $46,545 $32,370
======== ======= ======= =======
NUMBER OF UNITS AT DECEMBER 31, 1994 9,137 34,676 25,154 21,361
======== ======= ======= =======
VALUE PER UNIT AT DECEMBER 31, 1994 $29.47 $1.40 $1.85 $1.52
====== ===== ===== =====
(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)
Distribution
ASSETS Account Total
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ 510,327
Common stock - 390,067
Short-term investments 1,222 59,074
Commingled equity index fund - 45,699
U.S. government securities - 25,903
Fixed income investments - 5,213
------ ----------
Total investments 1,222 1,036,283
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - -
Receivable - employer supplemental
contribution - 3,247
Dividends and interest receivable - 965
Receivables - withholdings of
member contributions - 343
Interfund receivable (payable) - -
------ ----------
Total assets 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 1,222 4,863
Amounts payable for
administrative expenses - 800
------ ----------
Total liabilities 1,222 400,253
------ ----------
NET ASSETS AVAILABLE FOR BENEFITS $ - $ 640,585
====== ==========
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, 1995
(Thousands)
Nonparticipant Directed
Investment Funds
--------------------------------
ESOP Preference
---------------------- May
Member Common
Unallocated Allocated Stock
NET APPRECIATION IN FAIR
VALUE OF INVESTMENTS $94,630 $ 31,325 $ 28,972
------- -------- --------
INVESTMENT INCOME:
Dividends 22,437 5,319 3,864
Interest - - 66
------- -------- --------
22,437 5,319 3,930
------- -------- --------
CONTRIBUTIONS:
Member - - -
Employer allocation (29,914) 29,914 -
Employer ESOP contribution 15,609 - -
Member interfund transfers - (906) (1,094)
Forfeiture reallocation - - 4
------- -------- --------
(14,305) 29,008 (1,090)
------- -------- --------
DEDUCTIONS:
Member terminations and
withdrawals - 11,129 14,543
Interest expense 32,107 - -
Administrative expenses - - 403
------- -------- --------
32,107 11,129 14,946
------- -------- --------
INCREASE IN NET ASSETS
AVAILABLE FOR BENEFITS 70,655 54,523 16,866
NET ASSETS AVAILABLE FOR BENEFITS AT
DECEMBER 31, 1994 2,214 113,505 128,136
------- -------- --------
NET ASSETS AVAILABLE FOR BENEFITS AT
DECEMBER 31, 1995 $72,869 $168,028 $145,002
======= ======== ========
(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, 1995
(Thousands)
Participant Directed
Investment Funds
-----------------------------------
May Common Fixed
Common Money Stock Income
Stock Market Index Index Total
NET APPRECIATION IN FAIR
VALUE OF INVESTMENTS $ 67,763 $ - $16,803 $ 2,739 $242,232
-------- ------- ------- ------- --------
INVESTMENT INCOME:
Dividends 9,036 - 1,520 - 42,176
Interest 153 3,108 56 2,352 5,735
-------- ------- ------- ------- --------
9,189 3,108 1,576 2,352 47,911
-------- ------- ------- ------- --------
CONTRIBUTIONS:
Member 42,549 7,778 10,937 5,998 67,262
Employer allocation - - - - -
Employer ESOP contribution - - - - 15,609
Member interfund transfers (14,600) 9,985 4,752 1,863 -
Forfeiture reallocation 11 (12) (1) (2) -
-------- ------- ------- ------- --------
27,960 17,751 15,688 7,859 82,871
-------- ------- ------- ------- --------
DEDUCTIONS:
Member terminations and
withdrawals 34,016 11,587 6,667 4,424 82,366
Interest expense - - - - 32,107
Administrative expenses 944 444 432 338 2,561
-------- ------- ------- ------- --------
34,960 12,031 7,099 4,762 117,034
-------- ------- ------- ------- --------
INCREASE IN NET ASSETS
AVAILABLE FOR BENEFITS 69,952 8,828 26,968 8,188 255,980
NET ASSETS AVAILABLE FOR
BENEFITS AT DECEMBER 31, 1994 269,272 48,543 46,545 32,370 640,585
-------- ------- ------- ------- --------
NET ASSETS AVAILABLE FOR
BENEFITS AT DECEMBER 31, 1995 $339,224 $57,371 $73,513 $40,558 $896,565
======== ======= ======= ======= ========
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, 1995 AND 1994
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 and the Summary Plan Description dated
June 1, 1995, 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.
Reclassifications
Certain reclassifications have been recorded to the December 31, 1994,
balances to conform with the December 31, 1995, presentation.
Contributions
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 than original cost 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.
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.
<PAGE>
Investments
Members' contributions may be invested in any of four investment funds:
May Common Stock Fund - For investment of contributions in May common
stock.
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 Composite
Stock Price 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, federal agency and certain foreign government
securities that make up the Lehman 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 Intermediate Government/Corporate Bond Index represents the
composite performance of intermediate-term, fixed income securities.)
At December 31, 1995, the nonparticipant directed May Common Stock and ESOP
Member Allocated Funds include approximately $51,577,000 and $32,328,000,
respectively, attributable to participants over the age of 55. These amounts
can be transferred to other funds at the discretion of the participants.
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, 1995, will be made in
May 1996 and will be in the form of 34,490 ESOP Preference Shares.
ESOP Feature
In 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 4).
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, 1995 and 1994.
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 is less than the employer allocation, then May makes
"supplemental" contributions to the Plan to make up the difference.
Supplemental contributions can be 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
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 combined
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, 1995 and 1994, the ESOP Preference Shares were valued at their
conversion values of $863.15 and $691.55, 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.
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.
<PAGE>
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. 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, 1995 and 1994,
are as follows (dollars in thousands):
December 31, 1995 December 31, 1994
---------------------- ----------------------
Number of Number of
Shares or Shares or
Principal Fair Principal Fair
Amount Value Amount Value
The May Department
Stores Company 7.5%
ESOP Preference
Stock:
Unallocated 563,016 $ 485,970 607,181 $ 419,895
Member allocated 160,344 138,402 130,767 90,432
---------- ---------- ---------- ----------
723,360 624,372 737,948 510,327
========== ==========
The May Department
Stores Company
Common Stock 11,504,123 484,611 11,557,547 390,067
The Bank of New
York Short-Term
Investment Fund -
Master Notes 62,593,281 62,593 59,074,668 59,074
Chase Investors
Commingled Equity
Index fund 117,694 71,097 101,310 45,699
---------- ----------
Total $1,242,673 $1,005,167
========== ==========
<PAGE>
4. NOTES PAYABLE:
Notes payable as of December 31 consisted of the following (in thousands):
1995 1994
ESOP Notes Payable:
Series A, 8.32%, due April 30, 2001 $174,067 $185,172
Series B, 8.49%, due April 30, 2004 203,964 203,964
-------- --------
$378,031 $389,136
======== ========
The scheduled principal payments for the Series A ESOP Note for the next five
years and thereafter are as follows: 1996 - $15,474,000; 1997 - $20,228,000;
1998 - $25,385,000; 1999 - $31,118,000; 2000 - $37,354,000; and thereafter -
$44,508,000. Principal payments on the Series B ESOP Note begin in 2002. As
of December 31, 1995 and 1994, the total fair value of the ESOP Notes was
approximately $468,290,000 and $454,292,000, respectively.
5. RECONCILIATION TO FORM 5500:
As of December 31, 1995 and 1994, the Plan had approximately $16,340,000 and
$12,148,000, 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,
1995 (thousands):
Net Assets
Benefits Available
Payable to Benefits for
Participants Paid Benefits
Per financial statements $ - $82,366 $896,565
Pending benefit distributions -
December 31, 1995 16,340 16,340 (16,340)
Pending benefit distributions -
December 31, 1994 - (12,148) -
------- ------- --------
Per Form 5500 $16,340 $86,558 $880,225
======= ======= ========
6. DISTRIBUTION OF ASSETS UPON TERMINATION OF THE 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.
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>
7. SUBSEQUENT EVENT:
In January 1996, May announced the "spin-off" of Payless ShoeSource, Inc.
(Payless) to common shareowners of May. A separate defined contribution
profit sharing plan for Payless was established April 1, 1996, and an asset
transfer of associate accounts was made from the Plan to the Payless Plan in
April 1996. The amount of the asset transfer was approximately $68,971,000.
<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, 1995
(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 563,016 $285,449 $ 485,970
Member allocated 160,344 81,295 138,402
-------- ----------
ESOP Preference Fund Total $366,744 $ 624,372
======== ==========
MAY COMMON STOCK FUND
* The May Department Stores Company
Common Stock 11,504,123 $230,835 $ 484,611
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 3,515,046 3,515 3,515
-------- ----------
May Common Stock Fund Total $234,350 $ 488,126
======== ==========
MONEY MARKET FUND
* The Bank of New York Short-Term
Investment Fund- Master Notes $56,131,649 $ 56,132 $ 56,132
======== ==========
COMMON STOCK INDEX FUND
Chase Investors Commingled Equity
Index Fund 117,694 $ 44,316 $ 71,097
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 515,399 515 515
-------- ----------
Common Stock Index Fund Total $ 44,831 $ 71,612
======== ==========
FIXED INCOME INDEX FUND
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 770,656 $ 771 $ 771
-------- ----------
* 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 $ 5,000,000 $ 5,007 $ 5,032
5.125%, due 6/30/98 $ 4,300,000 4,201 4,291
5.125%, due 12/31/98 $ 3,300,000 3,168 3,289
7.875%, due 11/15/04 $ 2,500,000 2,793 2,894
7.125%, due 9/30/99 $ 2,000,000 2,004 2,121
5.5%, due 4/15/00 $ 2,000,000 1,835 2,017
6.125%, due 9/30/00 $ 1,550,000 1,571 1,597
6.875%, due 2/28/97 $ 1,400,000 1,397 1,426
7.75%, due 1/31/00 $ 1,200,000 1,223 1,303
5.875%, due 2/15/04 $ 1,000,000 902 1,021
6.5%, due 8/15/05 $ 1,000,000 1,058 1,065
Strip, due 11/15/96 $ 1,000,000 872 956
6.25%, due 2/15/03 $ 1,000,000 1,042 1,043
6.375%, due 8/15/02 $ 800,000 817 839
8.75%, due 8/15/00 $ 700,000 829 795
-------- ----------
Total U.S. treasury notes 28,719 29,689
-------- ----------
U.S. Government Agency Securities:
Federal Home Loan Bank Consumer Bonds-
7.7%, due 8/26/96 $ 650,000 695 660
8%, due 7/25/96 $ 150,000 139 152
Federal Home Loan Mortgage Corporation-
6.22%, due 3/24/03 $ 200,000 182 205
Federal National Mortgage Association
Securities-
8.35%, due 11/10/99 $ 400,000 410 439
8%, due 7/10/96 $ 200,000 191 203
Debentures-
9.55%, due 12/10/97 $ 400,000 407 431
7.65%, due 3/10/05 $ 200,000 204 224
International Bank for Recon & Dev BD-
5.875%, due 7/16/97 $ 400,000 402 403
Tennessee Valley Authority, Power
Bond 1992 Series F, 6.875%,
due 8/1/02 $ 300,000 310 305
-------- ----------
Total U.S. government agency
securities 2,940 3,022
-------- ----------
Total U.S. government
securities 31,659 32,711
-------- ----------
<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 $ 433
Republic NY Corporation, 7.25%, due
7/15/02 $ 100,000 98 106
-------- ----------
Total bank corporate bonds 506 539
-------- ----------
Finance and Insurance Corporate Bonds:
American Express Company, 8.5%, due
8/15/01 $ 200,000 201 225
Commercial Credit Corporation, 8.125%,
due 3/1/97 $ 200,000 179 205
Ford Motor Credit Co., 6.25%, due
2/26/98 $ 500,000 506 507
-------- ----------
Total finance and insurance
corporate bonds 886 937
-------- ----------
Industrial Corporate Bonds:
Coca Cola Company, 7.875%, due 9/15/98 $ 300,000 305 317
Eli Lilly & Co., 8.125%, due 12/1/01 $ 200,000 199 222
Hertz Corporation Jr Sub NT, 7.0%, due
7/15/03 $ 350,000 354 361
Hertz Corporation, 6.0%, due 2/1/01 $ 200,000 191 200
Philip Morris Companies, Inc., 8,625%
due 3/1/99 $ 300,000 297 323
The Limited, Inc., 7.8%, due 5/15/02 $ 400,000 396 430
-------- ----------
Total industrial corporate
bonds 1,742 1,853
-------- ----------
Oil Corporate Bond:
Tenneco Inc., 7.875%, due 10/1/02 $ 300,000 298 328
-------- ----------
Telephone Corporate Bond:
Northern Telcom Ltd., 8.25%, due
6/13/96 $ 300,000 303 303
-------- ----------
Utilities Corporate Bonds:
Consolidated Edison Company of
New York, 1st and Refunding
Mortgage Note, 5.9%, due 12/15/96 $ 300,000 282 300
Duke Power Company, 1st and Refunding
Mortgage Note, 7%, due 6/1/00 $ 195,000 203 202
General Electric Cap Corp., 8.85%,
due 4/1/05 $ 400,000 485 478
-------- ----------
Total utilities corporate
bonds 970 980
-------- ----------
<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 $ 204
Finland Rep NT, 7.875%, due 7/28/04 $ 150,000 150 169
Hydro-Quebec Debenture, Series IF,
7.375%, due 2/1/03 $ 200,000 215 213
Province of Ontario, Canada
Debenture, 8%, due 10/17/01 $ 200,000 200 220
-------- ----------
Total foreign obligations 758 806
-------- ----------
Total fixed income investments 5,463 5,746
-------- ----------
Fixed Income Index Fund Total $ 37,893 $ 39,228
======== ==========
DISTRIBUTION ACCOUNT
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 1,660,531 $ 1,660 $ 1,660
======== ==========
TOTAL ASSETS HELD FOR INVESTMENT
PURPOSES AT DECEMBER 31, 1995 $741,610 $1,281,130
======== ==========
* 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, 1995
(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) 285 $104,556 216 $101,037 $101,037 $ -
The May Department
Stores Company
Common Stock (1) (2) 40 35,590 40 26,200 49,689 23,489
-------- -------- -------- -------
$140,416 $127,237 $150,726 $23,489
======== ======== ======== =======
(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, 33-51849 and
333-00957.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
April 24, 1996
