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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-3339
MERCANTILE STORES COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0032941
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
9450 Seward Road, Fairfield, Ohio 45014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 881-8000
Securities registered pursuant to Section 12(b) of the Act:
Name Of Each Exchange On
Title Of Each Class Which Registered
Common stock $.14 2/3 par value The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this form 10-K. [X]
The aggregate market value of the Company's voting stock held by non-
affiliates based on the closing price on the New York Stock Exchange at
April 22, 1994 was $845,943,700.
The number of shares outstanding of the registrant's common stock, $.14
2/3 par value was 36,844,050 at April 22, 1994.
Documents Incorporated by Reference:
1. Portions of Registrant's 1993 Annual Report to Stockholders are
incorporated into Parts I and II.
2. Portions of Registrant's Proxy Statement for the annual meeting
of stockholders to be held on May 25, 1994 are incorporated into
Part III.
<PAGE>
PART I
Item 1. Business.
Mercantile Stores Company, Inc. ("Company" or "Registrant") was
incorporated under the laws of the State of Delaware on January 10, 1919.
The Company is listed on the New York Stock Exchange (NYSE designation of
MST) and is engaged in general merchandise department store retailing.
The Company's business is highly competitive. Its stores compete with
other national, regional and local retail establishments including
department stores, specialty stores and discount stores, which carry
similar lines of merchandise. The
Company competitive methodology focuses on customer service, value fashion,
selection, advertising and store location.
The Company regularly employs on a full or part-time basis an average of
approximately 30,200 persons.
In addition, the following portions of Registrant's 1993 Annual Report to
Stockholders are incorporated herein by reference: Inside Front Cover;
Financial Highlights (page 1); Management's Discussion and Analysis (pages
9-12); Ten-Year Selected Financial Data (pages 28-29).
Item 2. Properties.
The following table summarizes the property ownership and accompanying
square footage of the ninety-nine department stores and two specialty
stores operated by Mercantile Stores Company, Inc., as of January 29,
1994.
Number of Square
Stores Footage
Owned Stores 58 8,829,302
Leased Stores 43 7,382,907
________ __________
Total 101 16,212,209
Store Divisions and Locations (pages 30-31) of the Registrant's Annual
Report to Stockholders for fiscal year ended January 29, 1994, is
incorporated herein by reference.
Item 3. Legal Proceedings.
Note 10 (page 26) of the The Registrant's Annual Report to Stockholders for
fiscal year ended January 29, 1994, is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Market and Dividend Information (page 1) and Stockholder Information
(page 33) of the Registrant's 1993 Annual Report to Stockholders
are incorporated herein by reference.
Item 6. Selected Financial Data.
The Ten-Year Financial Summary (pages 28-29) and Notes to Consolidated
Financial Statements (pages 19-26) of the Registrant's 1993 Annual Report
to Stockholders 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 9-12) and Notes to
Consolidated Financial Statements (pages 19-26) of the Registrant's 1993
Annual Report to Stockholders are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements (pages 15-18), Notes to Consolidated
Financial Statements (pages 19-26), Report of Independent Public
Accountants, which includes an explanatory paragraph that describes the
change in the methods of accounting for income taxes discussed in Note 6
and accounting for postretirement benefits other than pension
discussed in Note 7 of the Consolidated Financial Statements (page 14), and
Quarterly Results (page 27) of the Registrant's 1993 Annual Report to
Stockholders are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required with respect to the Registrant's Directors and
Executive Officers is included on pages 3-6 of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 25,
1994 and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required with respect to Executive Compensation is
included on pages 7-10 of the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held on May 25, 1994 and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required with respect to Security Ownership of Certain
Beneficial Owners and Management is included on pages 4-6 of the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 25, 1994 and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required with respect to Certain Relationships and Related
Transactions is included on page 10 of the Registrant's Proxy Statement
for the Annual Meeting of Stockholders to be held on May 25, 1994 and is
incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
A. 1. The following Consolidated Financial Statements of Mercantile
Stores Company, Inc., Notes to Consolidated Financial
Statements and Report of Independent Public Accountants, from the
Registrant's Annual Report to Stockholders for the fiscal year
ended January 29, 1994 are incorporated herein by reference:
(a) Statements of Consolidated Income and Retained Earnings
for the fiscal years ended January 29, 1994 and January 31,
1993 and 1992 - page 15.
(b) Consolidated Balance Sheets as of Janaury 29, 1994 and
January 31,1993 - pages 16 and 17.
(c) Statements of Consolidated Cash Flows for the fiscal
years ended Janaury 29, 1994 and January 31, 1993 and
1992 - page 18.
(d) Notes to Consolidated Financial Statements - pages 19-26.
(e) Report of Independent Public Accountants, which includes an
explanatory paragraph that describes the change in the
methods of accounting for income taxes discussed in Note 6
and accounting for postretirement benefits other than
pensions discussed in Note 7 of Notes to Consolidated
Financial Statements - page 14.
2. Financial Statement Schedules of the Registrant and Consolidated
Subsidiaries included herein:
(a) Report of Independent Public Accountants, which includes an
explanatory paragraph that describes the change in the
methods of accounting for income taxes discussed in Note 6
and accounting for postretirement benefits other than
pensions discussed in Note 7 of Notes to Consolidated
Financial Statements, listed below.
(b) Schedule V - Property and Equipment
Schedule VI - Accumulated Depreciation and Amortization
of Property and Equipment
Schedule IX - Short-term Borrowings
Schedule X - Supplementary Income Statement Information
All other schedules have been omitted as they are inapplicable
or the information required is shown in the Financial Statements or the
Notes thereto.
<PAGE>
3. Exhibits:
(3a)- The Restated Certificate of Incorporation of Mercantile
Stores Company, Inc., as amended, is incorporated herein
by reference from the Registrant's Form 10-K for the
fiscal year ended January 31, 1989.
(3b)- The Registrant's Bylaws, as amended, are incorporated
herein by reference from the Registrant's Form 10-K for
the fiscal year ended January 31, 1989.
(4)- The Indenture agreement between Mercantile Stores Company,
Inc. and The Fifth Third Bank, as Trustee, dated as of
July 1, 1992, is incorporated herein by reference from
Registration No. 33-50604, Exhibit 4.1.
(10)- The Agreement, dated as of February 10, 1992, among
Mercantile Stores Company, Inc., MST Acquisition Co.,
New MB, Inc., Maison Blanche, Inc. and all of the Owners
and Registered Holders of All of the Issued and
Outstanding Capital Stock of Maison Blanche, Inc. and
the Agreement of Purchase and Sale, dated as of February
10, 1992, by and between G/MB Leasing Company, Limited
Partnership and Maison Blanche, Inc., is incorporated
herein by reference from the Current Report on Form 8-K of
the Company dated February 10, 1992, as amended by
Amendment No. 1 dated April 24, 1992 and Amendment
No. 2 dated May 12, 1992.
(13)- The Registrant's Annual Report to Stockholders for the
fiscal year ended January 29, 1994.
(21)- A listing of the subsidiaries of the Registrant.
(23)- Consent of Independent Public Accountants.
(24)- Power of Attorney.
B. No reports on Form 8-K have been filed during the fourth quarter of the
fiscal year ended January 29, 1994.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MERCANTILE STORES COMPANY, INC.
(Registrant)
BY: s/ David L. Nichols
David L. Nichols
Chairman of the Board
Date: April 22, 1994.
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
s/ David L. Nichols
____________________________ ___________________________
David L. Nichols * Thomas J. Malone
(Chairman of the Board) (Director)
As Principal Executive Officer
s/ James M. McVicker
___________________________ ____________________________
James M. McVicker * Rene C. McPherson
(Vice President) (Director)
As Chief Financial Officer
s/ William A. Carr
____________________________ ____________________________
William A. Carr * Gerrish H. Milliken
(Treasurer) (Director)
As Principal Accounting Officer
___________________________ ____________________________
* John A. Herdeg * Minot K. Milliken
(Director) (Director)
__________________________ _____________________________
* Roger K. Smith * Roger Milliken
(Director) (Director)
__________________________ ______________________________
* George S. Moore * H. Keith H. Brodie, MD
(Director) (Director)
__________________________
* Francis G. Rodgers
(Director)
*BY: s/ David L. Nichols
David L. Nichols
Date: April 22, 1994
An original Power of Attorney authorizing David L. Nichols, James M.
McVicker and William A.Carr and each of them to sign this report hereto as
Attorneys for Directors of the Registrant is being filed concurrently with
the Securities and Exchange Commission.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Mercantile Stores Company, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Mercantile Stores
Company, Inc.'s annual report to stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated April 1, 1994.
Our report on the consolidated financial statements includes an explanatory
paragraph with respect to the change in the method of accounting for income
taxes in 1993 and postretirement benefits other than pensions in 1992 as
discussed in Notes 6 and 7 to the consolidated financial statements. Our
audit was made for the purpose of forming an opinion on those statements
taken as a whole. The schedules listed in Item 14(A)(2)b are the
responsibility of the Company's management and are presented for purposes
of complying with the Securities and Exchange Commission's rules and are
not a part of the basic financial statements. These schedules have been
subjected to to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Cincinnati, Ohio,
April 1, 1994
<PAGE>
<TABLE>
<CAPTION>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARIES
SCHEDULE V
PROPERTY AND EQUIPMENT (3)
(OOO's omitted)
(in thousands)
(A) (B) (C) (D) (E) (F)
Balance at Other Balance at
beginning Additions Sales or changes/ end of
Classification of period at cost retirements add/deduct period
<S> <C> <C> <C> <C> <C>
Year Ended
January 29, 1994:
Land $ 38,953 $ 0 $ 2,031 $ 0 $ 36,922
Buildings 174,753 2,835 1,405 0 176,183
Building
Improvements 386,308 39,270 4,893 0 420,435
Store Fixtures 302,184 47,408 39,716 0 309,876
Delivery
Equipment 264 154 0 192 (1) 226
Projects in
Process 35,697 16,543 0 0 52,490
Leased
Property 64,311 0 0 0 64,311
Total $1,002,470 $106,210 $ 48,045 $(192) $1,060,443
Year Ended
January 31, 1993:
Land $ 17,640 $ 21,313(5)$ 0 $ 0 $ 38,953
Buildings 82,195 92,600(5) 42 0 174,753
Building
Improvements 292,822 100,533(5) 7,047 0 386,308
Store Fixtures 242,913 86,862(5) 27,591 0 302,184
Delivery
Equipment 394 101 8 (223)(1) 264
Projects in
Process 21,456 14,241 (4) 0 0 35,697
Leased
Property 65,525 0 1,214 0 64,311
Total $ 722,945 $315,650 $ 35,902 $(223) $1,002,470
Year Ended
January 31, 1992:
Land $ 17,640 $ 0 $ 0 $ 0 $ 17,640
Buildings 83,050 0 855 0 82,195
Building
Improvements 263,359 32,585 3,122 0 292,822
Store Fixtures 222,754 66,565 46,423 (17) (2) 242,913
Delivery
Equipment 360 295 0 (261)(1)(2) 394
Projects in
Process 31,423 (9,967)(4) 0 0 21,456
Leased
Property 61,001 7,543 3,000 (19) 65,525
Total $ 679,587 $ 97,021 $ 53,400 $(263) $ 722,945
<FN>
Notes:
(1) Depreciation of delivery equipment charged to profit and loss
(Note 1, Schedule VI).
(2) Represents transfer of assets between categories.
(3) The Company follows the practice of providing for depreciation at
rates based on the estimated lives of the various classes of assets
on a straight-line basis. The estimated lives are as follows:
Buildings 15-50 years
Building Improvements 10-35 years
Store Fixtures 5-7 years
Delivery Equipment 3 years
Leased Property term of lease or life of
property, if shorter
(4) Represents net additions to and transfers from projects in process.
(5) Includes the acquisition of Maison Blanche, Inc. in 1992.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
(OOO's omitted)
(in thousands)
(A) (B) (C) (D) (E) (F)
Additions
Balance at charged to Other Balance at
beginning costs and Sales or changes/ end of
Classification of period expense retirements add/deduct period
<S> <C> <C> <C> <C> <C>
Year Ended
January 29, 1994:
Buildings $ 45,992 $ 9,287 $ 1,215 $ 0 $ 54,064
Building
Improvements 125,253 24,176 5,226 0 144,203
Store Fixtures 132,298 57,259 39,418 0 150,139
Leased
Property 17,994 2,541 0 0 20,535
Total $ 321,537 $ 93,263(1) $45,859 $ 0 $ 368,941
Year Ended
January 31, 1993:
Buildings $ 35,827 $ 10,190 $ 25 $ 0 $ 45,992
Building
Improvements 107,875 22,296 4,918 0 125,253
Store Fixtures 101,042 58,757 27,501 0 132,298
Leased
Property 16,638 2,570 1,214 0 17,994
Total $ 261,382 $ 93,813(1) $33,658 $ 0 $ 321,537
Year Ended
January 31, 1992:
Buildings $ 33,608 $ 3,074 $ 855 $ 0 $ 35,827
Building
Improvements 93,194 17,803 3,122 0 107,875
Store Fixtures 90,933 47,004 36,895 0 101,042
Leased
Property 17,156 2,482 3,000 0 16,638
Total $ 234,891 $ 70,363(1)$ 43,872 $ 0 $ 261,382
<FN>
Note:
(1) A reconciliation of the provision for depreciation charged to cost
and expense shown above with the provision included in the
consolidated income statements follows:
For the Years Ended
January 29, January 31, January 31,
1994 1993 1992
Provision shown above $93,263 $93,813 $70,363
Depreciation on delivery equipment
credit to assets (Schedule V) 192 223 244
Provision included in the consolidated
income statements $93,455 $94,036 $70,607
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARIES
SCHEDULE IX
SHORT-TERM BORROWINGS
(OOO's omitted)
(in thousands)
(A) (B) (C) (D) (E) (F)
Weighted
Maximum Average average
Weighted amount amount interest
Category of Balance at average outstanding outstanding rate
aggregate short- end of interest during the during the during the
term borrowings period rate period period (1) period(2)
<S> <C> <C> <C> <C> <C>
January 29, 1994:
Note payable to
bank $ N/A N/A N/A N/A N/A
January 31, 1993:
Notes payable to
bank $ N/A N/A $51,000 $2,619 4.8%
January 31, 1992:
Note payable to
bank $ N/A N/A $15,000 $ 394 5.4%
<FN>
NOTES:
(1) Average amount outstanding during the period is computed by dividing
the total of daily outstanding principal balance by 360.
(2) Weighted average interest rate during the period is computed by
dividing the actual short-term interest expense by the average
short-term debt outstanding.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MERCANTILE STORES COMPANY, INC. AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
($000's omitted)
(in thousands)
(A) (B) (C) (D)
Charged to costs and expenses for the years ended
January 29, January 31, January 31,
Item 1994 1993 1992
<S> <C> <C> <C>
Advertising Costs $88,128 $90,223 $74,966
<FN>
NOTE: Amounts not presented did not exceed 1% of net sales for any
fiscal year shown.
</TABLE>
EXHIBIT 21
MERCANTILE STORES COMPANY, INC. - SUBSIDIARY SCHEDULE
AS OF JANUARY 29, 1994
STATE OF
SUBSIDIARY COMPANY INCORPORATION
J. BACON & SONS KENTUCKY
THE CASTNER-KNOTT DRY GOODS COMPANY TENNESSEE
THE O.J. de LENDRECIE CO. DELAWARE
C.J. GAYFER & COMPANY, INCORPORATED DELAWARE
HENNESSY COMPANY MONTANA
THE JONES STORE COMPANY DELAWARE
THE JOSLIN DRY GOODS COMPANY, INC. COLORADO
THE LAZARUS STORE, INC. DELAWARE
THE LION DRY GOODS COMPANY, INC. OHIO
THE McALPIN COMPANY KENTUCKY
GAYFER'S MONTGOMERY FAIR CO. DELAWARE
ROOT DRY GOODS COMPANY, INC. INDIANA
J.B. WHITE & COMPANY, INC. SOUTH
CAROLINA
DULUTH GLASS BLOCK STORE COMPANY MINNESOTA
THE McALPIN COMPANY OHIO
THE PEOPLES STORE COMPANY WASHINGTON
J.B. WHITE & COMPANY NEW JERSEY
THE MACDOUGAL & SOUTHWICK COMPANY WASHINGTON
MCCREERY & COMPANY MAINE
SERF CORPORATION MISSOURI
MERSCO REALTY CO., INC. OHIO
THE JONES STORE COMPANY HAIRSTYLING SCHOOL MISSOURI
MERCANTILE STORES COMPANY, INC. (N.Y.) NEW YORK
MERSCO FINANCE COMPANY DELAWARE
MERCANTILE PROPERTIES, INC. DELAWARE
MERCANTILE REAL ESTATE CO., INC. DELAWARE
THE O.J. de LENDRECIE CO. MINNESOTA
MERSCO DEVELOPMENT COMPANY, INC. DELAWARE
MST ACQUISITION COMPANY DELAWARE
JOSEF STERNBERG HOLDING COMPANY, INC. LOUISIANA
INSA S. ABRAHAM HOLDING COMPANY, INC. LOUISIANA
HANS J. STERNBERG HOLDING COMPANY, INC. LOUISIANA
MERCANTILE INTERNATIONAL, INC. DELAWARE
MAISON BLANCHE, INC. LOUISIANA
MAIN STREET CAPITAL CORPORATION LOUISIANA
1550, INC. LOUISIANA
MAISON MARKET, INC. LOUISIANA
TSM HOLDING COMPANY, INC. DELAWARE
MB I ACQUISITION CORPORATION NEVADA
GOUDCHAUX'S CAR CARE CENTER, INC. LOUISIANA
MB CREDIT CORPORATION DELAWARE
MB PROPERTIES, INC. DELAWARE
MERCANTILE CREDIT CORP. LOUISIANA
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in or incorporated by
reference in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-50604.
Arthur Andersen & Co.
Cincinnati, Ohio,
April 22, 1994
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints David L. Nichols, James M. McVicker
and William A. Carr, and each of them, his true and lawful Attorney-in-Fact
and Agents, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities (including his
capacity as director of Mercantile Stores Company, Inc.) to sign Form 10K
of Mercantile Stores Company, Inc. for the year ended January 29, 1994, and
to file the same together with all Exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
to the Attorneys-in-Fact and Agents and each of them full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that the Attorneys-in-Fact and Agents or any of them or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated: April 6, 1994
--------------------- -------------------
H. Keith H. Brodie, MD Minot K. Milliken
------------------- -------------------
John A. Herdeg Roger Milliken
------------------- -------------------
Thomas J. Malone George S. Moore
------------------- -------------------
Rene C. McPherson Francis G. Rodgers
-------------------- -------------------
Gerrish H. Milliken Roger K. Smith
The Corporation
Mercantile Stores Company, Inc. is a traditional department store retailer
operating 101 stores at year-end. The stores are operated under 13
different names and vary in size, with the average store approximating
180,000 square feet. They cater to middle to upper-middle income
customers and are widely known for service and value. They offer a
wide selection of quality merchandise with special emphasis placed
on fashion apparel, accessories and fashion home furnishings. In
addition to its department store operations, the Company maintains
a partnership position in five operating shopping center ventures.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the fiscal year
(in millions, except per share data) 1993 1992 1991
(Year Ended (Year Ended (Year Ended
January 29, 1994) January 31, 1993) January 31, 1992)
Per Per Per
Amount Share Amount Share Amount Share
<S> <C> <C> <C> <C> <C> <C>
Net Sales $2,729.9 $2,732.0 $2,442.4
Operating Income, Net of
Income Taxes:
Excluding relocation $2,186.6 $ 2.35 $21,97.3 $ 2.64 $ 114.0 $ 3.10
Relocation provision (10.5) (.28)
Net Income from Operations 86.6 2.35 86.8 2.36 114.0 3.10
Nonrecurring Income (Charges):
Income taxes 3.1 . 09
Postretirement benefits (12.2) (.33)
Early retirement of debt (5.5) (.15)
3.1 .09 (17.7) (.48)
Net Income $ 89.7 $ 2.44 $ 69.1 $ 1.88 $ 114.0 $ 3.10
Cash Dividends Declared
and Paid $ 37.6 $ 1.02 $ 37.6 $ 1.02 $ 37.1 $1.003/4
Stockholders' Equity $1,334.7 $36.23 $1,282.6 $34.81 $1,251.0 $33.96
</TABLE>
<TABLE>
<CAPTION>
MARKET AND DIVIDEND INFORMATION
For the fiscal year
1993 1992
Market Dividends Market Dividends
Quarter High Low Declared Paid High Low Declared Paid
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First $371/4 $325/8 $ .51 $ .251/2 $421/8 $321/8 $ .51 $ .251/2
Second $357/8 $301/4 $ .251/2 $351/2 $317/8 $ .251/2
Third $361/8 $297/8 $ .51 $ .251/2 $341/8 $293/8 $ .51 $ .251/2
Fourth $391/2 $341/2 $ .251/2 $361/2 $301/2 $ .251/2
$1.02 $1.02 $1.02 $1.02
<FN>
The Company's common stock is traded on the New York Stock Exchange (NYSE symbol
- MST).
The number of stockholders at January 29, 1994 was 10,197.
</TABLE>
<PAGE>
Management's Discussion and Analysis
Results of Operations
Sales - Sales for 1993 were $2.7 billion or approximately even with 1992.
Sales in the fourth quarter decreased .8% to $888 million. Sales in
comparable units declined 1.9% in the current year and 2.6% in the quarter.
Sales in 1992, due to the addition of the 16-store Maison Blanche (MB)
unit, increased 11.9% as comparable store sales declined 2.6%. In 1991,
total and comparable sales increased 3.2% and 1.5%, respectively.
The Company's sales performance for the periods under review has been
disappointing and, certainly, below target. To a significant degree, these
results can be attributed to the downside effect of the prolonged learning
curve required by the substantial number of our merchandise associates
whose job responsibilities have been changed because of the recent
relocation and consolidations.
Net Income - Net income in 1993, before LIFO and nonrecurring items, was
$89 million, a decline of 8.1% from the $97 million of net income reported
on the same basis in 1992. The last-in, first-out (LIFO) method of
inventory valuation had differing impacts on income for the past three
fiscal years. Earnings for 1993 and 1992 were also affected by
extraordinary and nonrecurring items.
Net income for fiscal 1993 reflects a first quarter credit of $3.1 million
due to a reduction in income tax expense attributable to the adoption of a
new accounting standard. Net income for 1992 was reduced by a total of
$28.2 million due to charges recorded in that year's first quarter for the
adoption of a new accounting standard covering postretirement benefits, the
relocation of the corporate buying office and other divisional functions,
and costs associated with the early retirement of debt.
The following summary depicts the influences which LIFO and the
nonrecurring items have had on net income for both the full year and the
fourth quarter for the last three years:
<TABLE>
<CAPTION>
1993 1992 1991
Fiscal Year (in thousands, except per share data)
Per Per Per
Amount Share Amount Share Amount Share
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,729,928 $2,732,041 $2,442,425
% (decrease)
increase (.1) 11.9 3.2
Net income before
LIFO and nonrecurring
items $ 88,946 $2.41 $21,96,837 $2.63 $2,119,539 $3.25
LIFO impact (2,307) (.06) 500 .01 (5,500) (.15)
Income taxes 3,100 .09
Postretirement
benefits (12,200) (.33)
Relocation provision (10,500) (.28)
Early retirement
of debt (5,550) (.15)
Net income $21,89,739 $2.44 $21,69,087 $1.88 $2,114,039 $3.10
Fourth Quarter
Net sales $ 888,060 $ 894,928 $ 795,733
% (decrease) increase (.8) 12.5 1.1
Net income
before LIFO $ 54,011 $1.47 $ 50,018 $1.36 $ 42,173 $1.15
LIFO impact 1,945 .05 4,800 .13 (1,100) (.03)
Net income $ 55,956 $1.52 $ 54,818 $1.49 $ 41,073 $1.12
</TABLE>
<PAGE>
The 8% improvement in 1993 fourth quarter pre-LIFO net income was primarily
attributable to a 6.2% reduction in operating expenses which mostly
resulted from expense reduction initiatives that were implemented at
the beginning of the third quarter. Also contributing to this fourth
quarter improvement was a $1.8 million reduction in interest expense due,
primarily, to the pay down of high interest mortgage notes which were
outstanding during last year's fourth quarter and a $3.2 million increase
in other income attributable to the combination of a sale of land not used
in operations and a sale of the Company's position in a relatively
insignificant joint venture.
In the 1992 fourth quarter, pre-LIFO net income improved 18% from the prior
year's comparable period. This improvement was primarily the result
of better merchandise margins due to fewer regular markdowns. The 1991
fourth quarter, pre-LIFO net income declined 7.5% from the 1990 fourth
quarter. This profit reduction was attributable approximately equally to a
reduction in merchandise margins resulting from heightened promotional
activity and an increase in occupancy and general expenses due to a flat
sales trend.
Cost of Goods Sold - The Company classifies certain occupancy and buying
costs as cost of goods sold. Occupancy expenses so classified are rent,
depreciation, real estate taxes and utilities. Buying costs classified as
cost of goods sold include payroll and travel-related expenses associated
with the corporate buying function.
In 1993, cost of goods sold on a FIFO basis increased 1.2%, as a percent to
sales, over the prior year. Approximately two-thirds of this increase was
due to an invasion of merchandise margins which resulted from intensified
promotional activity. In 1992, FIFO costs of goods sold increased .5%, as
a percent to sales, from the prior year. The 1992 year witnessed an
improvement in merchandising results due primarily to better inventory
control; however, this positive result was more than offset by an .8%
increase in occupancy expenses most of which was attributable to the lower
sales productivity generated by the MB unit. In 1991, FIFO costs of goods
sold increased .3% over the prior year. Merchandise margins were relatively
flat during 1991 while occupancy costs, primarily depreciation, increased.
The Company uses the last-in, first-out (LIFO) method of inventory
valuation to value substantially all of its inventories. This method
matches current cost with current revenue and serves to offset inflationary
profits in inventory. It impacted cost of goods sold, as a percent to
sales, as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Cost of goods sold 71.9% 70.5% 70.4%
LIFO charge .2 .4
Cost of goods sold (FIFO) 71.7% 70.5% 70.0%
</TABLE>
Operating Expenses, Interest Expense, and Other Income - Selling, general,
and administrative expenses (SG&A), as a percent to net sales, decreased
to 22.9% in 1993 from 23.5% in 1992. The 1991 SG&A expenses were 22.4%.
The 1993 decrease is due to improvements in various expense categories
resulting from cost reduction initiatives that were implemented at the
start of the third quarter. Reductions in associate benefit related
expenses and advertising expenses constituted approximately two-thirds
of the $15 million decrease in SG&A expenses for 1993. The 1992
increase is due, primarily, to increases in two expense categories:
payroll and payroll-related expenses, and advertising. These expense
categories increased, as a percent to sales, by .7% and .3%,
respectively, over the prior year. Approximately half of this increase was
attributable to the 16-store MB unit in which a lower sales productivity
produced higher expense ratios. The slight 1991 increase in SG&A expense is
due to increases in payroll and payroll-related expenses offset by declines
in other operating expense categories.
During the first quarter of 1992, the Company provided $17 million, before
income taxes, for the relocation of the corporate buying office from
New York City to Greater Cincinnati and to consolidate divisional
functions. The provision was made to cover the costs of severance pay,
associate relocation, lease cost absorption, and other restructuring
related expenses.
Interest expense, net, decreased $1.4 million during 1993. An interest
income increase of $2.2 million has been partially offset by an increase of
$.8 million in interest expense. The net decrease was due to a combination
of having larger sums of cash available for short-term investments than in
the prior year reduced by the servicing of higher average outstanding debt
levels in 1993 as a result of the placement of $200 million of long-term
debt in September 1992. As detailed in Note 5 of Notes to Consolidated
Financial Statements, the Company prepaid structured debt of $25 million in
1993. The Company also prepaid structured debt of $124 million in 1992.
<PAGE>
Other income increased $3.9 million in the current year compared to a $1.3
million decrease in 1992 and a $1.3 million increase in 1991. The current
year increase is primarily due to gains on sales of land not used or needed
in the business and the divestiture of a relatively insignificant shopping
center joint venture. The most significant remaining elements of this line
item are the Company's portion of finance charge income on customer accounts
(other than MB) which it shares under the terms of a service agreement
with Citibank; the net finance charges earned on the MB receivables; and
the Company's share of income from shopping center joint ventures.
The Company's share of finance income under the service arrangement with
Citibank was approximately $14 million in 1993, $16 million in 1992, and
$23.5 million in 1991. The $2 million decrease in 1993 was due primarily to
a reduction in the customer receivable portfolio (other than MB) because of
a combination of lower private label credit sales (41.2% of total sales in
1993 against 41.8% in 1992) and a faster paydown of credit card balances by
our customers than in the prior year. The $7.5 million 1992 decrease was
attributable primarily to a $5.4 million penalty accruing from a downward
adjustment in the revenue sharing formula because of the termination
notice served on Citibank by the Company on February 1, 1992. This matter
is further discussed in Note 4 of Notes to Consolidated Financial
Statements. The remaining approximately $2 million decline in 1992 revenue
sharing was also related to a reduction in the customer receivable
portfolio (other than MB) because of a combination of lower private
label credit sales and our customers payment of credit card balances
more rapidly than in the prior year.
Prior to November 1993, the Company sold all of its MB customer receivables
to an unaffiliated company. Under the terms of the Sale and Servicing
Agreement, customer receivables were sold at a discount, without recourse,
on a daily basis. The income generated by the MB credit program was
approximately $6 million for both the 1993 and 1992 fiscal years. The costs
associated with servicing these receivables, which were $3.2 million for
each of the 1993 and 1992 fiscal years, are reflected as SG&A expenses.
In November 1993, the Company served notice of its intent to terminate this
arrangement and began phasing out the program. The phase-out is projected
to be completed by the end of the first half of 1994. It is not expected
that terminating this arrangement will have a material effect on the
Company's consolidated financial statements. This matter is further
discussed in Note 4 of Notes to Consolidated Financial Statements.
Income Taxes, Accounting Changes and Extraordinary Items - Changes in
Federal tax laws enacted in August 1993 increased the statutory income tax
rate for corporations from 34% to 35%, retroactive to January 1, 1993. The
Company reflected this change in income tax expense and the required
revaluation of net deferred tax assets in the third quarter of the current
year. For the 1993 fiscal year, the 1% tax rate change, net of the tax
benefit for revaluation of deferred tax assets, served to reduce earnings
by approximately $1 million, or $.03 per share.
During the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
The cumulative effect of this accounting change resulted in a credit to net
income of $3.1 million, or $.09 per share.
On February 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." The cumulative effect of this accounting change
resulted in an after tax charge of $12.2 million, or $.33 per share.
During the first quarter of 1992, the Company tendered for its 12.5%
Sinking Fund Debentures ($50 million) and 11.75% Sinking Fund Debentures
($44 million). The premium paid and other costs related to this redemption
resulted in an after tax, extraordinary charge of $5.5 million, or
$.15 per share.
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," which requires the Company to recognize an
obligation for postemployment benefits provided to former and inactive
employees after employment but before retirement. The standard will be
adopted in the first quarter of 1994 and the one-time, after tax cost of
the cumulative effect of this accounting change is approximately $1.1
million, or $.03 per share.
Liquidity and Capital Resources - The 1993 year-end cash position of the
Company decreased $23 million to $195 million. The operating, investing,
and financing factors which collectively accounted for this net cash
decrease are detailed in the Statements of Consolidated Cash Flows.
Net cash provided by operations was $138 million compared with $231 million
in 1992 and $199 million in 1991. The $21 million increase in net income
for 1993 was more than offset by decreases in noncash charges and increases
in working capital requirements. In 1992, the Company had noncash charges
for relocation and an accounting change of $17 million and $12 million,
respectively. Prior to November of 1993, the Company sold substantially all
its MB customer receivables to an unaffiliated company. The Company served
notice of its intent to terminate this arrangement in November 1993 and
began phasing out the program. The increase in customer accounts receivable
as a result of the termination of the MB Sale and Servicing Agreement
approximated $50 million at the end of 1993 fiscal year. This increase was
partially offset by a decrease of approximately $29 million in the Company's
receivable portfolio (other than MB). The change in accounts payable is
directly related to the timing of merchandise purchases and subsequent
payments.
<PAGE>
Net cash used for investing was $96 million in 1993, $108 million in 1992,
and $81 million in 1991. In 1993, cash used for investing was primarily
comprised of capital expenditures for property and equipment net of
proceeds from property sales.
The $27 million increase in investing for 1992 was attributable to
increased cash outlays of $31 million for property and equipment purchases
and $24 million for the purchase of Maison Blanche, Inc. These expenditures
were partially offset by a $20 million cash distribution from the Company's
joint venture interests.
Financing activities required $64 million of cash in 1993, an increase of
$37 million over the prior year. This increase was primarily due to
prepayments of $19 million in Mortgage Notes with an average maturity of 10
years and bearing interest rates ranging from 8.4% to 9.6% and
$6 million of 10.5% Industrial Development Revenue Bonds. In 1992,
financing activities included an increase in long-term debt payments of
$187 million of which $124 million represented prepayments of notes and
debentures bearing interest rates ranging from 8.4% to 12.5% and the
issuance of $200 million of notes and debentures.
Current maturities of long-term debt increased significantly at the end of
fiscal 1993 and reflect the reclassification of approximately $110 million
of structured debt which is payable in July of 1994. This debt was assumed
as part of the MB acquisition and consists of Mortgage Notes and Senior
Notes which carry an annual interest rate of approximately 10.4%. The
Company anticipates satisfying these debt payment requirements with
currently available cash plus funds generated from operations. When paid,
substantially all of the debt assumed in the MB transaction will have been
liquidated.
The Company satisfies its short-term financing needs primarily through
internally generated funds. In addition, the Company has available to it
a $175 million revolving credit facility and other discretionary lines of
credit which total $60 million. The Company maintained significant cash
balances throughout fiscal 1993 and it was not necessary to use any of
these credit facilities. Maximum short-term borrowings under these
facilities were $51 million in 1992 and $15 million in 1991. At fiscal
year-ends 1993 and 1992, there were no outstanding borrowings under any of
these lines of credit.
Prior to November 1993, the Company sold all of its MB receivables to an
unaffiliated company. The Company served notice of its intent to
terminate this arrangement in November 1993 and, at the same time, began
financing MB customer receivables from internally generated funds.
At the end of the 1993 fiscal year, customer receivables on the Company's
balance sheet include a $50 million receivable from the unaffiliated
company. It is projected that the phase-out program will have been
completed by the end of first half of 1994 and that an additional $35
million of cash will be needed to finance the remaining MB customer
receivables held by the unaffiliated company.
In September 1992, the Company issued $100 million of notes due in 2002 and
$100 million of debentures due in 2022 at interest rates of 6.7% and 8.2%,
respectively. The Notes have a mandatory sinking fund requirement of $20
million, commencing in 1997 and the debentures have a similar $5 million
requirement, commencing in 2003. Both issues were offered under a
registration statement filed in August 1992 pursuant to rule 415 of
the Securities Act of 1933 in the aggregate amount of $250 million.
Expansion and Capital Expenditures - Capital expenditures for 1994 are
estimated at $103 million. It is anticipated that 1994 expenditures
will be financed through internally generated cash. For the next several
years, the Company is allocating more than half of its capital expenditures
to remodelings and upgrading merchandise presentations in existing stores.
During 1993, the Company opened a new 175,000 square foot store in
Lexington, Kentucky and another 200,000 square foot store in Toledo, Ohio.
At the time the Toledo store opened, an existing store was closed,
downsized from 200,000 square foot and reopened as a 130,000 square foot
home fashion store.
During March of 1994, the Company opened a new 160,000 square foot Maison
Blanche store in New Orleans, Louisiana and, at the same time,
closed an older 150,000 square foot store located in the same general area.
The Company will open two additional units in 1994; in October a new
115,000 square foot Gayfer's store will be opened in Hattiesburg,
Mississippi and a new 170,000 square foot Joslin's store will be opened
in Denver, Colorado.
<PAGE>
Benefit Program
The Company maintains a comprehensive benefit program for its eligible
associates which includes pension and profit sharing as well as health
and term life insurance plans.
The Pension Plan was established in 1945 and is funded entirely by Company
contributions. All associates who meet the eligibility requirements
specified in the Plan (one year of service and attainment of age 21) are
enrolled in the Plan. Members are 100% vested in their accrued benefits
upon completing five years of service after age 18. There were
approximately 26,350 Pension Plan members, including retirees, on January
31, 1994. The market value of Plan assets on January 31, 1994, amounted to
$311 million.
All associates who are enrolled in the Pension Plan are also eligible to
participate in the Savings, Profit Sharing and Supplemental Retirement
Plan, which was established in 1954. During 1993, members in this Plan had
the option to have the Company deposit up to 14% of their earnings on a
before-tax basis, to the extent permitted by IRS Code Section 401(k).
Prior to the 1994 fiscal year, associates could elect to have their
deposits invested in bonds guaranteed by the U.S. government, equities,
or insurance company contracts, or any combination of these funds.
Effective February 1, 1994, the U.S. government bond fund was replaced
by a Balanced Fund option.
As explained in Note 7 of Notes to Consolidated Financial Statements, the
Company makes an annual contribution to the Plan, based upon
its pre-tax income. For this latest year, the Company's contribution
amounted to $7.0 million, or approximately $.42 for each $1.00 deposited,
before tax, by a member up to 6% of compensation.
All members employed as of February 1, 1993 are 100% vested in the
Company's contribution as soon as it is credited to their accounts for the
year. All members employed after February 1, 1993 will vest in Company
contributions according to a 3-7 year vesting schedule. Prior to the 1994
fiscal year, members could elect to invest the Company's annual
contribution in bonds guaranteed by the U.S. government, equities,
insurance company contracts or Mercantile Stores common stock. Effective
February 1, 1994, the U.S. government bond fund was replaced by a Balanced
Fund option. Members who have an investment in Mercantile Stores common
stock at year-end may, in confidence, direct the Trustee, The Northern
Trust Company, to vote their shares at the Annual Meeting of Stockholders.
At January 31, 1994, the Trustee was holding 1,658,888 shares of Mercantile
Stores stock for the benefit of Plan members.
On February 1, 1994, members in the Plan represented approximately 92% of
those eligible. Plan assets at year-end totalled $400 million, at
market value.
The Company pays a substantial portion of the costs of several group
medical and dental plans which are offered to eligible associates. The
Company also offers disability and term life insurance coverage to eligible
associates.
Paid vacation and holiday time, discounts on merchandise, and a highly
successful policy of training and promoting from within complete the
comprehensive benefit program available to associates.
<PAGE>
Management's and Auditors' Reports
Statement of Management's Responsibility for Financial Statements
The management of Mercantile Stores Company, Inc. has prepared the
consolidated financial statements and related financial information
contained in this Annual Report. Management has the primary responsibility
for the integrity of the financial statements and other financial
information included and for ascertaining that the data accurately reflect
the financial position and results of operations of the Company. Financial
statements are prepared in conformity with generally accepted accounting
principles, applying certain informed estimates and judgments as required.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that transactions are executed in accordance
with proper authorization; that all such transactions are properly recorded
and summarized to produce reliable financial records and reports; that
assets are safeguarded; and that the accountability for assets is
maintained. Management believes its system of internal accounting controls,
augmented by its internal auditing function, assures the adequacy and
quality of financial reporting.
Independent public accountants provide an objective, independent review of
management's discharge of its responsibilities insofar as they relate to
the fairness of reported operating results and financial condition. They
review the system of internal accounting controls in order to provide a
basis for reliance on such controls and perform such tests and other
procedures they deem necessary to reach and express an opinion on the
fairness of the financial statements.
The Board of Directors pursues its responsibility for the Company's
financial statements through its Audit Committee which is comprised solely
of directors who are not officers or employees of the Company. The Audit
Committee meets regularly with the independent public accountants,
management, and the internal auditors. The independent public accountants
have direct access to the Audit Committee, with or without the presence of
management representatives, to discuss the scope and results of their audit
work and their comments on the adequacy of internal accounting controls and
the quality of financial reporting.
Based on the controls described, we believe the financial statements and
related financial information in this report are accurate in all material
respects and that they were prepared in accordance with appropriate and
generally accepted accounting principles.
David L. Nichols James M. McVicker
Chairman of the Board Vice President and
Chief Financial Officer
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Mercantile Stores Company,
Inc.:
We have audited the accompanying consolidated balance sheets of Mercantile
Stores Company, Inc. (a Delaware corporation) and subsidiaries as of
January 29, 1994 and January 31, 1993, and the related statements of
consolidated income and retained earnings and cash flows for each of the
three years in the period ended January 29, 1994. 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 Mercantile Stores
Company, Inc. and subsidiaries as of January 29, 1994 and January 31, 1993,
and the results of their operations and their cash flows for each of the
three years in the period ended January 29, 1994 in conformity with
generally accepted accounting principles.
As explained in Notes 6 and 7 to the Consolidated Financial Statements, the
Company changed its method of accounting for income taxes effective
February 1, 1993 and accounting for postretirement benefits other
than pensions effective February 1, 1992.
Cincinnati, Ohio, Arthur Andersen & Co.
April 1, 1994.
<PAGE>
<TABLE>
<CAPTION>
Statements of Consolidated Income and Retained Earnings
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Net Sales $2,729,928 $2,732,041 $2,442,425
Costs, Expenses, and Other Income:
Cost of goods sold (including occupancy
and central buying expenses) 1,962,015 1,927,149 1,720,361
Selling, general and administrative
expenses 626,305 641,573 547,268
Provision for relocation 17,000
Interest expense 36,236 35,464 23,390
Interest income (5,288) (3,099) (4,511)
Other income (33,018) (29,145) (30,485)
2,586,250 2,588,942 2,256,023
Income before Provision for
Income Taxes 143,678 143,099 186,402
Provision for Income Taxes:
Current 54,456 59,830 71,468
Deferred 2,583 (3,568) 895
57,039 56,262 72,363
Income before extraordinary
charge on early retirement
of debt and cumulative effect
of accounting changes 86,639 86,837 114,039
Extraordinary charge on
early retirement of debt
(net of income taxes of $3,550) (5,550)
Cumulative effect of accounting changes:
Income taxes 3,100
Postretirement benefits
other than pensions
(net of income taxes
of $7,800) (12,200)
Net Income $1,189,739 $1,169,087 $1,114,039
Retained Earnings at Beginning
of Year 1,271,131 1,239,627 1,162,710
1,360,870 1,308,714 1,276,749
Dividends Declared and Paid 37,583 37,583 37,122
Retained Earnings at End of Year $1,323,287 $1,271,131 $1,239,627
Net Income Per Share:
Income before extraordinary
charge on early retirement
of debt and cumulative effect
of accounting changes $ 2.35 $ 2.36 $ 3.10
Extraordinary charge on early
retirement of debt (0.15)
Cumulative effect of accounting changes:
Income taxes 0.09
Postretirement benefits
other than pensions (0.33)
Net Income Per Share $ 2.44 $ 1.88 $ 3.10
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(in thousands) January 29, January 31,
1994 1993
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 194,544 $ 217,244
Receivables:
Customer 587,859 566,223
Other 47,255 47,485
Inventories 425,492 422,819
Deferred income taxes 5,875 6,065
Other current assets 8,120 5,158
Total Current Assets 1,269,145 1,264,994
Investments and Other
Noncurrent Assets 61,136 54,385
Deferred Income Taxes 10,199 7,556
Property and Equipment:
Land 36,922 38,953
Buildings and improvements 649,108 596,758
Fixtures 310,102 302,448
Leased property 64,311 64,311
1,060,443 1,002,470
Less accumulated depreciation 368,941 321,537
Property and equipment, net 691,502 680,933
Total $2,031,982 $2,007,868
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAPTION
<PAGE>
Consolidated Balance Sheets
(in thousands) January 29, January 31,
1994 1993
Liabilities and Stockholders' Equity
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 115,487 $ 123,934
Accounts payable 116,116 109,185
Taxes other than income 16,182 21,600
Accrued interest 11,687 14,369
Other current liabilities 45,765 51,928
Accrued income taxes 41,035 31,466
Accrued payroll 20,612 20,364
Total Current Liabilities 366,884 272,846
Long-term Debt 271,965 390,258
Due to Affiliated Companies 26,713 29,560
Other Long-term Liabilities 31,712 32,652
Stockholders' Equity:
Common stock - $.14 2/3
par value, authorized and
issued 36,887,475 shares,
outstanding 36,844,050
(after deducting 43,425
treasury shares) 5,403 5,403
Additional paid-in capital 6,018 6,018
Retained earnings 1,323,287 1,271,131
Total Stockholders' Equity 1,334,708 1,282,552
Total $2,031,982 $2,007,868
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
A. Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and all of its subsidiaries including
Maison Blanche, Inc. (MB) from date of acquisition (see Note 2). All
material intercompany accounts and transactions have been eliminated.
The Company uses the equity method to account for its 331/3% to 50%
position in five shopping center joint ventures.
B. Inventories - Substantially all retail inventories are valued by the
retail method and stated on the last-in, first-out (LIFO) basis which
is lower than market. At January 29, 1994 and January 31, 1993,
inventories were $92 million and $88 million, respectively, lower than
they would have been had the retail method been used without the
application of the LIFO basis.
C. Property and Equipment - Property and equipment is carried at cost.
Depreciation is provided by using the straight-line method based on
estimated useful lives of the assets for book purposes while accelerated
depreciation, where permitted, is used for income tax purposes.
Betterments, renewals, and repairs that extend the life of the asset are
capitalized; other repairs and maintenance are expensed. Property and
equipment, other than buildings, are written off in the year that they
become fully depreciated.
The Company computes depreciation for book purposes based on the
following ranges of estimated useful lives:
Buildings 15-50 years
Building improvements 10-35 years
Store fixtures 5-7 years
Leased property Term of lease or life of property, if shorter
The Company leases certain property, principally store locations, under
capital leases as defined by the Statement of Financial Accounting
Standards No. 13. Property meeting the criteria within the Statement is
capitalized and accounted for as an asset, with the corresponding
obligation carried as a liability. The provision for amortization of
leased properties is included in depreciation and amortization expense.
All other lease agreements are classified and accounted for as operating
leases with payments expensed as incurred.
D. Cost of Goods Sold - Cost of goods sold in the retail industry
traditionally includes occupancy and buying costs which are not directly
associated with the cost and eventual selling price of merchandise.
Among the occupancy expenses so classified are depreciation, rent,
utilities, and real estate taxes. Buying costs, in this respect, include
the payroll and travel expenses associated with the corporate buying
function.
E. Change in Fiscal Year - In 1993, the Company changed its fiscal year to
a 52-week reporting period which ends on the Saturday nearest to
January 31. Previously, the Company's fiscal year entailed the 12 months
February 1 through January 31. References to years relate to fiscal
years rather than calendar years.
F. Store Pre-opening Expenses - Store pre-opening expenses are not material
and are charged to income in the year the expenses are incurred. These
include interest costs during the construction period, advertising,
occupancy, and payroll costs.
G. Segment Reporting - The Company has one significant segment of business
(general merchandise department store retailing).
H. Cash and Cash Equivalents - For purposes of these statements, short-term
investments which have a maturity of 90 days or less are considered cash
equivalents. The carrying amount of cash equivalents is a reasonable
estimate of fair value.
I. Reclassifications - Certain reclassifications have been made to prior
years' financial statements to conform with the classifications used
in the 1993 financial statements.
2. Purchase of Maison Blanche, Inc.
Effective February 10, 1992, the Company acquired all of the issued and
outstanding shares of MB for $40 million, of which $30 million was
paid at the closing date. MB operates 16 retail department stores in
Louisiana and Florida. The acquisition was accounted for as a purchase
and was financed through internally generated funds. MB's results of
operations are included in the financial statements from the effective
date of the acquisition.
<PAGE>
The following unaudited pro forma information reflects the combined
operations of MB and the Company, assuming the acquisition had occurred
at the beginning of fiscal 1991:
(in thousands, except per share data)
Net sales $2,769,470
Net income $ 108,779
Net income per share $ 2.95
The results of operations for MB for the period February 1 through
February 10, 1992 were insignificant and, thus, pro forma results for
fiscal 1992 are not presented. The above pro forma results do not
necessarily represent results which would have occurred if the
acquisition had taken place on the basis above, nor are they
indicative of future combined operations.
3. Provision for Relocation
During the first quarter of 1992, the Company recorded a provision of $17
million for the relocation of the corporate buying office from New York
City to Fairfield, Ohio, and for the consolidation of certain divisional
functions. The provision covered the costs of severance pay, employee
relocation, lease abandonment, and other related expenses associated
with the relocation.
4. Financing Arrangements
The Company's wholly owned subsidiary, Mersco Finance Corporation
(Mersco), has a revolving credit agreement with Citibank pursuant to
which the bank will lend up to $175 million at a rate of interest no
higher than the bank's prime rate. This revolving credit agreement has a
five-year term but can be canceled by Mersco on 60 days written notice.
The Company also has in place additional uncommitted lines of credit in
the total amount of $60 million. The Company does not pay any fee for
maintaining these discretionary lines and interest on any borrowing is
charged at a floating rate.
At January 29, 1994 and January 31, 1993, there were no borrowings
outstanding under the revolving credit agreement or the discretionary
lines. During fiscal 1993, there were no borrowings under these credit
facilities. The maximum borrowings for fiscal 1992 were $51 million, at
an average interest rate of 4.8%. A commitment fee of $.7 million in
1993, 1992, and 1991 was charged under the revolving credit agreement.
This fee is calculated on the basis of the lesser of (a) the average
daily unused portion of the bank's aggregate commitment or (b) the
average daily net receivables.
The Company sells its customer receivables (other than MB) to Mersco
which assigns these receivables to Citibank, without recourse, as
security for any borrowings under the revolving credit agreement. In
addition, Mersco and the Company's operating divisions have an agreement
pursuant to which an affiliate of Citibank (the Service Company) manages
and services the private label credit card program of the Company. This
service includes credit authorization, absorption of bad debts, and the
collection of all receivables arising from the use of private label
credit cards. Mersco pays the operating divisions for these receivables
when Mersco receives payment from the Service Company or on demand by the
operating divisions. When such a demand is made prior to payment by the
Service Company, Mersco borrows the funds from Citibank under the
revolving credit agreement. In this way, Mersco is capable of providing
sizable levels of seasonal working capital funding to the Company.
As part of this service arrangement with Citibank, Mersco shares revenue
generated from the finance charges collected on customer accounts
receivable. Mersco retains approximately 20% of this revenue as a
management fee and allocates the remainder to the Company. On a
consolidated basis, this shared finance charge income which is included
in other income on the accompanying Statements of Consolidated Income and
Retained Earnings was $14 million in 1993, $16 million in 1992, and
$23.5 million in 1991.
On February 1, 1992, the Company gave notice to Citibank of the Company's
election to terminate the agreement effective July 31, 1995. During the
termination period, from February 1, 1992 through July 31, 1995, the
Service Company will continue to manage and service the private label
credit card program of the Company, and the revenue sharing formula will
be adjusted downward. For fiscal 1993 and 1992, revenue sharing income
has been reduced by $5.3 million and $5.4 million, respectively, because
of this formula adjustment.
<PAGE>
<TABLE>
<CAPTION>
The following are summary balance sheets for Mersco Finance Corporation:
(in thousands) 1993 1992
<S> <C> <C>
Assets
Customer receivables purchased from
Mercantile Stores Company, Inc. $536,829 $565,031
Other receivables 16,794 15,808
Cash 3 3
Total Assets $553,626 $580,842
Liabilities and Stockholder's Equity
Due to Mercantile Stores Company, Inc. $515,951 $544,814
Stockholder's Equity 37,675 36,028
Total Liabilities and Stockholder's Equity $553,626 $580,842
</TABLE>
Prior to November of 1993, the Company sold all of its MB customer
receivables to MB Funding Trust (MB Trust), an unaffiliated company.
Under the terms of the Sale and Servicing Agreement, MB customer
receivables were sold at a discount, without recourse, on a daily basis.
The Company serviced these receivables and retained the income generated
by them, net of costs associated with the program. The income generated
by the MB Credit Program, net of discount, was approximately $6.2 million
and $5.7 million in 1993 and 1992, respectively, and is reflected as
other income on the accompanying Statements of Consolidated Income and
Retained Earnings. Costs associated with servicing the receivables, which
approximated $3.2 million in both 1993 and 1992, are reflected as
selling, general and administrative expenses.
In November 1993, the Company gave notice to the MB Trust of its election
to terminate the Sale and Servicing Agreement and it is anticipated that
the final termination process will be completed in the second quarter of
1994. During the termination preriod, the Company will continied to
transfer MB customer receivables to the MB Trust and will retain a
participation interest in such accounts. However, the MB Trust has no
obligation to pay the Company for such accounts until the termination
process is complete. The Company will finance MB customer receivables
through internally generated funds. At January 29, 1994, the
participation interest due from the MB Trust for customer receivables
transferredduring the termination period totaled approximately
$50 million, and is reflected as customer receivables on the
accompanying Consolidated Balance Sheets. It is not anticipated that
the termination of this arrangement will have a material effect on the
Company's consolidated financial statements.
During 1993 and 1992, MB customer receivable balances averaged $82 and
$87 million, respectively. Total MB customer receivables of the MB Trust
were $85 million (of which $50 million is reflected on the accompanying
Consolidated Balance Sheets) and $89 million at January 29, 1994 and
January 31, 1993, respectively.
5. Long-Term Debt
<TABLE>
<CAPTION>
The Company's long-term debt consisted of the following:
(in thousands) 1993 1992
<S> <C> <C>
10.95% Senior Guaranteed Notes due 1994 $ 47,240 $ 47,240
10.07% Mortgage Notes due 1994 63,280 63,280
8.2% Sinking Fund Debentures due 2022 100,000 100,000
6.7% Notes due 2002 100,000 100,000
Industrial Revenue Bonds at rates
ranging from 4.1% to 8.5%(a) 12,441 19,693
Variable Rate Mortgage Note at 1.5% over prime,
payable in annual installments through
February 1, 1996 (a) 1,080 19,898
Other Notes Payable 10,835 10,018
Total Debt 334,876 360,129
Capitalized Lease Obligations 52,576 54,063
387,452 414,192
Less - due within one year 115,487 23,934
Total Long-term Debt $271,965 $390,258
<FN>
(a) During the year, the Company prepaid the entire $6 million principal
balance due on the 10.5% Industrial Development Revenue Bonds due 2013.
In addition, $19 million principal amount of certain Mortgage Notes, with
interest rates ranging from 8.4% to 9.6%, was prepaid.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Maturities of long-term debt, including capitalized leases, for the next
five years are as follows:
Fiscal year (in thousands) Amount
<S> <C>
1994 $115,487
1995 $ 5,232
1996 $ 6,328
1997 $ 26,108
1998 $ 26,248
</TABLE>
During fiscal 1992, the Company tendered for and redeemed the 12.5% ($50
million) and 11.75% ($44 million) Sinking Fund Debentures due 2014 and
2015,respectively. The premiums paid, along with ancillary costs of
redemption, resulted in an extraordinary charge of $5.5 million, or $.15
per share, after tax benefits of $3.5 million.
6. Income Taxes
During the first quarter of 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." This statement requires deferred tax
recognition for all temporary differences in accordance with the
liability method and requires adjustment of deferred tax assets and
liabilities for enacted changes in tax laws and rates. Prior to the
implementation of SFAS No. 109, the Company accounted for income taxes
using Accounting Principles Board Opinion No. 11. The cumulative effect
of this accounting change resulted in a credit to net income of $3.1
million, or $.09 per share. The components of taxes on income,
excluding the extraordinary charge and cumulative effect of accounting
change, consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1993 Federal State Total
<S> <C> <C> <C>
Current $45,989 $ 8,467 $54,456
Deferred 1,517 1,066 2,583
Total $47,506 $ 9,533 $57,039
1992 Federal State Total
Current $48,396 $11,434 $59,830
Deferre (2,694) (874) (3,568)
Total $45,702 $10,560 $56,262
1991 Federal State Total
Current $58,810 $12,658 $71,468
Deferred 522 373 895
Total $59,332 $13,031 $72,363
</TABLE>
Deferred income taxes result from timing differences in the recognition
of revenue and expense for tax and financial statement purposes. The
sources of these differences and the tax effect, excluding the cumulative
effect of accounting change, of each were as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Depreciation $ (4,431) $ (1,102) $ 2,870
Associate Benefit Plans 4,410 2,061 792
Relocation 1,883 (3,670) 1,418
Other 721 (857) (4,185)
Total $ 2,583 $ (3,568) $ 895
</TABLE>
The provision for income taxes is different from the amount computed by
applying the statutory Federal income tax rate. The differences are
summarized as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Provision at statutory rate
of 35% for 1993 and 34% in
prior years $50,287 $48,654 $63,377
State and local income tax,
less Federal income tax
benefit 6,196 6,970 8,601
Other 556 638 385
Total income tax provision $57,039 $56,262 $72,363
Effective income tax rate 39.7% 39.3% 38.8%
</TABLE>
Changes in Federal tax laws enacted in August of 1993 increased the
statutory
income tax rate for corporations from 34% to 35%, retroactive to January
1,1993. The Company reflected this change in income tax expense and the
required revaluation of net deferred tax assets in the third quarter of
1993. The retroactive effect of this change in the tax law did not have a
material effect on the Company's financial position or results of
operations.
<TABLE>
The tax effects of significant temporary differences representing
deferred tax assets and liabilities are as follows:
<CAPTION>
1993
<S> <C>
Assets:
Inventory accounting $ 5,208
Postretirement benefits costs 10,836
Interest, taxes and real estate costs 10,490
Relocation costs 2,897
Capitalized leases 3,527
Other 6,934
Total deferred tax assets 39,892
Liabilities:
Depreciation (3,597)
Pension, savings and profit sharing costs (15,057)
Other (5,164)
Total deferred tax liabilities (23,818)
Total Net Deferred Tax Assets $16,074
</TABLE>
<PAGE>
7. Associate Benefit Plans
The Company maintains a formal, qualified, non-contributory pension plan
covering all associates who have met certain age and service
requirements. Benefits under this plan generally are based on a career
average formula. The Company funds this plan in accordance with ERISA
requirements.
As computed under the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," components of
the net pension benefit included in income before income taxes for the
past three fiscal years were as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Service cost $ 6,524 $ 6,908 $ 6,475
Interest cost 10,351 9,788 9,020
Actual return on plan assets (39,586) (21,551) (50,529)
Amortization of transition asset (5,043) (5,043) (5,043)
Other amortization and deferral 13,966 2,056 35,821
Net pension benefit $(13,788) $ (7,842) $ (4,256)
</TABLE>
The expected long-term rate of return on assets used in determining net
pension cost was 8.5% in 1993 and 1992.
The actuarial present value of benefits was determined using a discount
rate of 7.5% in 1993 and 1992. The rate of compensation increase used to
measure the projected benefit obligation was 5.5% in 1993 and 1992.
The funded status of the formal qualified pension plan at
January 29, 1994 and January 31, 1993, based on actuarial and plan
asset information as of October 31, 1993 and 1992, was as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested benefits $123,900 $107,100
Non-vested benefits 1,800 1,600
Accumulated benefits obligation 125,700 108,700
Impact of future salary increases 28,553 32,368
Projected benefit obligation 154,253 141,068
Plan assets at fair value 306,094 273,427
Plan assets in excess of projected
benefit obligation 151,841 132,359
Items not yet recognized in income:
Initial transition credit which is being
amortized over 15 years (40,345) (45,388)
Subsequent net gain (70,968) (60,231)
Prepaid pension benefit $ 40,528 $ 26,740
</TABLE>
No funding activity occurred between the plan and the Company during the
fourth quarter of 1993 or 1992.
The plan's assets include investments in common stocks, fixed income
securities, real estate investments, short-term investments, and cash.
The Company contributes to qualified and non-qualified savings, profit
sharing and supplemental retirement plans, and non-qualified pension
plans covering certain associates. The Company's total contribution to
the qualified and non-qualified savings, profit sharing, and supplemental
retirement plans is based on 5% of pre-federal income tax FIFO profits,
before consideration of provision for profit sharing. The costs to the
Company under these plans for the past three years were as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Savings and Profit Sharing $ 7,026 $ 5,295 $ 9,345
Pension 1,258 1,569 11,591
Total $ 8,284 $ 5,864 $ 9,936
</TABLE>
<PAGE>
The Company provides certain health care benefits for retired associates
on a contributory basis. Current retirees and active associates who
retire on or after age 60, with five or more years of service, are
eligible for these benefits if they had continuous medical coverage in
the five years preceding retirement. The plan does not cover retirees
after Medicare eligibility. The Company funds these benefits as claims
are incurred.
During the year, the plan was changed to provide for retiree
contributions based on years of service. Further cost savings were
achieved by increasing deductibles and introducing managed care. The
Company reserves the right to modify or terminate this program at any
time. The effects of these changes are included in the tables shown
below.
Effective February 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This Statement requires that the expected
cost of postretirement benefits other than pensions be charged to expense
during the years that the associates render service. In 1991, the Company
recognized these costs on a cash basis and they amounted to $1.3 million.
The cumulative effect of this accounting change resulted in a charge to
1992 net income of $12.2 million, or $.33 per share, after tax benefits
of $7.8 million.
<TABLE>
<CAPTION>
The components of net periodic postretirement benefit cost for 1993 and
1992 were as follows:
(in thousands) 1993 1992
<S> <C> <C>
Service cost earned during the year $ 1,729 $ 2,100
Interest cost on projected benefit
obligation 1,581 1,600
Net amortization and deferral (703)
Net periodic postretirement benefit cost $ 2,607 $ 3,700
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth the plans' combined funded status:
(in thousands) 1993 1992
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $ 4,130 $ 1,821
Fully eligible active plan participants 189 3,562
Other active plan participants 5,990 12,040
10,309 17,423
Unrecognized net gain from changes
in plan and assumptions 4,935 (2,724)
Unrecognized prior service cost 8,527 7,501
Accrued postretirement benefit costs $23,771 $22,200
</TABLE>
<TABLE>
<CAPTION>
For measurement purposes, the following assumptions were used to project
changes in the accumulated postretirement benefit obligation:
1993 1992
<S> <C> <C>
Discount rate 7.5% 8.5%
Health care cost trend rate 10.25% to 5% 13% to 6.9%
Years to ultimate trend 11 23
</TABLE>
The health care cost trend rate affects the amounts reported. To
illustrate, increasing the assumed health care cost trend rate by one
percentage point in each year would increase the accumulated
postretirement benefit obligation by $.9 million and the aggregate of the
service and interest cost components of net periodic postretirement
benefit cost by $.2 million.
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS No. 112), which requires
the Company to recognize an obligation for postemployment benefits
provided to former or inactive employees after employment but before
retirement. SFAS No. 112 will be adopted in the first quarter of 1994
and the after tax cost of the cumulative effect of this accounting
change is a charge of approximately $1.1 million, or $.03 per share.
8. Fair Value of Financial Instruments
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments" which
requires disclosure of the estimated fair value of certain financial
instruments of the Company. This information does not purport to be a
valuation of the Company as a whole.
The fair value of long-term debt, including the current portion and
excluding capital lease obligations, is approximately $335 million at
January 29, 1994 and $375 million at January 31, 1993. The fair value is
based on the present value of future cash flows. The discount rates used
approximate the incremental borrowing costs for similar instruments.
9. Leases
The Company leases some of its operating properties such as store and
warehouse facilities and some equipment. The majority of these leases
will expire within the next 20 years. The leases usually contain renewal
options and provide for payment by the lessee of real estate taxes and
other expenses, and, in certain instances, increased rentals based on
percentages of sales.
<TABLE>
Future minimum lease payments under noncancelable leases as of January
29, 1994 are as follows:
<CAPTION>
Fiscal year (in thousands) Capital Operating Total
<S> <C> <C> <C>
1994 $ 6,346 $ 23,276 $ 29,622
1995 6,346 20,492 26,838
1996 6,346 20,163 26,509
1997 6,246 19,265 25,511
1998 6,118 17,496 23,614
Thereafter 183,171 128,181 211,352
Total minimum lease
payments $114,573 $228,873 $343,446
Less: Executory costs (306)
Interest (61,691)
Present value of net minimum
lease payments $ 52,576
</TABLE>
<TABLE>
<CAPTION>
Rent expense consisted of the following:
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Minimum rentals $ 23,509 $ 22,457 $ 17,175
Contingent rentals
(based on % of sales) 4,503 7,416 8,970
$ 28,012 $ 29,873 $ 26,145
</TABLE>
10. Contingencies
The Company is involved in various legal actions arising in the normal
course of business. After taking into consideration legal counsels'
evaluation of such actions, management is of the opinion that their
outcome will not have a significant effect on the Company's consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
Quarterly Results
unaudited (in thousands, except per share data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1993
<S> <C> <C> <C> <C> <C>
Net Sales $572,345 $615,380 $654,143 $888,060 $2,729,928
Costs, Expenses,
and Other Income:
Cost of goods sold
(including occupancy
and central buying
expenses) 401,900 459,926 460,976 639,213 1,962,015
Selling, general,
and administrative
expenses 151,005 156,843 157,647 160,810 626,305
Interest expense,
net 7,783 7,718 7,707 7,740 30,948
Other income (7,073) (7,212) (6,067) (12,666) (33,018)
553,615 617,275 620,263 795,097 2,586,250
Income (loss)
before income
taxes 18,730 (1,895) 33,880 92,963 143,678
Provision for
income taxes 7,254 (562) 13,340 37,007 57,039
Income (loss)
before cumulative
effect of
accounting
change 11,476 (1,333) 20,540 55,956 86,639
Cumulative effect
of accounting
change for income
taxes 3,100 3,100
Net income
(loss) $ 14,576 $ (1.333) $ 20,540 $ 55,956 $ 89,739
Net income (loss)
per share:
Income (loss)
before cumulative
effect of
accounting
change $ .31 $ (.04) $ .56 $ 1.52 $ 2.35
Cumulative effect
of accounting
change .09 .09
Net income (loss)
per share $ .40 $ (.04) $ .56 $ 1.52 $ 2.44
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1992
Net Sales $587,818 $601,784 $647,511 $894,928 $2,732,041
Costs, Expenses,
and Other Income:
Cost of goods sold
(including occupancy
and central buying
expenses) 407,109 440,836 445,741 633,463 1,927,149
Selling, general,
and administrative
expenses 149,062 152,602 168,534 171,375 641,573
Provision for
relocation 17,000 17,000
Interest expense,
net 8,292 6,568 7,946 9,559 32,365
Other income (7,227) (7,285) (5,201) (9,432) (29,145)
574,236 592,721 617,020 804,965 2,588,942
Income before
income taxes 13,582 9,063 30,491 89,963 143,099
Provision for
income taxes 5,387 3,665 12,065 35,145 56,262
Income before
extraordinary
charge on early
retirementof debt
and cumulative
effect of
accounting
change 8,195 5,398 18,426 54,818 86,837
Extraordinary
charge on early
retirement of
debt (net of
income taxes
of $3,550) (5,550) (5,550)
Cumulative effect
of accounting
change for
postretirement
benefits other
than pensions
(net of income
taxes of $7,800) (12,200) (12,200)
Net income
(loss) $ (9,555) $ 5,398 $ 18,426 $ 54,818 $ 69,087
Net income (loss) per share:
Income before
extraordinary
charge on early
retirement of
debt and cumulative
effect of accounting
change $ .22 $ .15 $ .50 $ 1.49 $ 2.36
Extraordinary charge
on early
retirement of
debt (.15) (.15)
Cumulative effect
of accounting
change (.33) (.33)
Net income (loss)
per share $ (.26) $ .15 $ .50 $ 1.49 $ 1.88
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ten-Year Selected Financial Data
(Dollars in thousands, except per share data)
1993 1992 1991 1990
Operating Results
<S> <C> <C> <C> <C>
Net sales $2,729,928 $2,732,041 $2,442,425 $2,367,210
Cost of goods sold 1,962,015 1,927,149 1,720,361 1,670,555
Selling, general,
and administrative expenses 626,305 641,573 547,268 527,467
Provision for relocation 17,000
Interest expense 36,236 35,464 23,390 23,422
Interest income (5,288) (3,099) (4,511) (4,160)
Other income (33,018) (29,145) (30,485) (29,186)
Income before provision for
income taxes 143,678 143,099 186,402 179,112
Percent to sales 5.3 5.2 7.6 7.6
Provision for income taxes 57,039 56,262 72,363 55,498
Income before extraordinary charge and
cumulative effect of accounting
changes 86,639 86,837 114,039 123,614
Extraordinary charge, net (5,550)
Accounting changes, net 3,100 (12,200)
Net income 89,739 69,087 114,039 123,614
Percent to sales 3.3 2.5 4.7 5.2
Per common share $ 2.44 $ 1.88 $ 3.10 $ 3.36
Dividends declared 37,583 37,583 37,122 26,804
Per common share $ 1.02 $ 1.02 $ 1.003/4 $ .723/4
Dividends paid 37,583 37,583 37,122 35,278
Per common share $ 1.02 $ 1.02 $ 1.003/4 $ .953/4
Financial Position
Working capital $ 902,301 $ 992,148 $ 988,783 $ 934,494
Ratio of current assets to
current liabilities 3.46 4.64 6.44 6.13
Receivables 635,114 613,708 656,428 667,600
Inventories 425,492 422,819 381,406 393,304
Property and equipment, net (includes
capitalized leases) 691,502 680,933 461,563 444,696
Total assets 2,031,982 2,007,868 1,673,099 1,596,630
Long-term debt 271,965 390,258 207,150 207,906
Retained earnings 1,323,287 1,271,131 1,239,627 1,162,710
Stockholders' equity 1,334,708 1,282,552 1,251,048 1,174,131
Per common share $ 36.23 $ 34.81 $ 33.96 $ 31.87
Return on stockholders' equity (1) 6.9% 5.5% 9.4% 11.0%
Number of shares outstanding 36,844 36,844 36,844 36,844
Other Data
Capital expenditures for property
and equipment $ 106,210 $ 110,638 $ 79,931 $ 82,944
Depreciation 93,455 94,036 70,607 63,158
Stores opened during year 3 1 2 3
Stores acquired 16
Stores closed during year 1 1 1 1
Number of stores 101 99 83 82
Total square feet 16,212 15,820 13,145 12,683
Sales per square foot $ 168 $ 173 $ 186 $ 187
<FN>
(1) Based on average stockholders' equity at beginning and end of year
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ten-Year Selected Financial Data
(Dollars in thousands, except per share data)
1989 1988 1987 1986
Operating Results
<S> <C> <C> <C> <C>
Net sales $2,312,802 $2,265,500 $2,155,653 $2,028,202
Cost of goods
sold 1,594,849 1,551,484 1,476,327 1,377,763
Selling, general, and
administrative
expenses 502,537 480,225 451,885 431,656
Provision for
relocation 10,000
Interest expense 22,818 23,076 22,971 23,695
Interest income (4,289) (3,934) (3,268) (3,301)
Other income (26,156) (22,021) (19,402) (17,811)
Income before provision
for income taxes 213,043 236,670 227,140 216,200
Percent to sales 9.2 10.4 10.5 10.7
Provision for income
taxes 82,700 92,208 97,584 105,135
Income before extraordinary
charge and cumulative
effect of accounting
changes 130,343 144,462 129,556 111,065
Extraordinary
charge, net
Accounting
changes, net
Net income 130,343 144,462 129,556 111,065
Percent to sales 5.6 6.4 6.0 5.5
Per common share $ 3.54 $ 3.92 $ 3.52 $ 3.01
Dividends declared 33,897 35,922 24,870 21,371
Per common share $ .92 $ .971/2 $ .671/2 $ .58
Dividends paid 32,792 28,553 24,870 21,371
Per common share $ .89 $ .771/2 $ .671/2 $ .58
Financial Position
Working capital $ 873,612 $ 846,839 $ 817,449 $ 756,698
Ratio of current assets
to current
liabilities 4.65 4.63 4.88 4.52
Receivables 644,633 625,199 588,510 548,132
Inventories 393,319 362,037 332,175 306,516
Property and equipment, net
(includes capitalized
leases) 408,229 355,438 310,486 294,846
Total assets 1,548,438 1,451,752 1,353,357 1,279,112
Long-term debt 199,284 197,058 205,241 205,786
Retained earnings 1,065,900 969,454 860,914 756,228
Stockholders' equity 1,077,321 980,875 872,335 767,728
Per common share $ 29.24 $ 26.62 $ 23.68 $ 20.84
Return on stockholders'
equity (1) 12.7% 15.6% 15.8% 15.4%
Number of shares
outstanding 36,844 36,844 36,844 36,845
Other Data
Capital expenditures for
property and
equipment $1,197,230 $1,192,572 $1,157,797 $1,1164,436
Depreciation 54,478 47,541 47,141 46,833
Stores opened
during year 1 2 1 2
Stores acquired
Stores closed
during year 1 1 4
Number of stores 80 80 79 82
Total square feet 12,077 11,791 11,124 11,105
Sales per square foot $ 192 $ 192 $ 194 $ 183
<FN>
(1) Based on average stockholders' equity at beginning and end of year
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ten-Year Selected Financial Data
(Dollars in thousands, except per share data)
1985 1984
Operating Results
<S> <C> <C>
Net sales $1,880,039 $1,706,904
Cost of goods
sold 1,279,199 1,166,616
Selling, general, and
administrative
expenses 404,328 377,405
Provision for
relocation
Interest expense 21,571 18,566
Interest income (2,833) (4,234)
Other income (18,674) (13,086)
Income before provision
for income taxes 196,448 161,637
Percent to sales 10.4 9.5
Provision for income
taxes 94,000 76,868
Income before extraordinary
charge and cumulative
effect of accounting
changes 102,448 84,769
Extraordinary
charge, net
Accounting
changes, net
Net income 102,448 84,769
Percent to sales 5.4 5.0
Per common share $ 2.78 $ 2.30
Dividends declared 18,791 16,950
Per common share $ .51 $ .46
Dividends paid 18,791 16,950
Per common share $ .51 $ .46
Financial Position
Working capital $ 628,080 $ 510,227
Ratio of current assets
to current
liabilities 3.52 3.16
Receivables 514,759 420,387
Inventories 281,446 248,810
Property and equipmet, net
(includes capitalized
leases) 270,035 261,583
Total assets 1,163,264 1,025,459
Long-term debt 211,224 166,160
Retained earnings 666,534 582,877
Stockholders' equity 678,034 594,377
Per common share $ 18.40 $ 16.13
Return on stockholders'
equity (1) 16.1% 15.1%
Number of shares
outstanding 36,845 36,845
Other Data
Capital expenditures for
property and
equipment $1,149,639 $1,150,994
Depreciation 43,267 38,651
Stores opened
during year 2 2
Stores acquire
Stores closed
during year 1
Number of stores 80 78
Total square feet 10,676 10,174
Sales per square foot $ 176 $ 168
<FN>
(1) Based on average stockholders' equity at beginning and end of year
</TABLE>
<PAGE>
BACONS/McALPIN'S/LION/ROOT'S
Store Locations Shopping Centers/Malls
Louisville, KY Bashford Manor Mall (Bacons)
Shively Center (Bacons)
Louisville Galleria (Bacons)
The Mall in St. Matthew's (Bacons)
St. Matthew's Home Store (Bacons)
Owensboro, KY Towne Square Mall (Bacons)
Lexington, KY Lexington Mall (McAlpin's)
Turfland Mall (McAlpin's)
Fayette Mall (McAlpin's)
Crestview Hills, KY Crestview Hills Mall (McAlpin's)
Clarksville, IN River Falls Mall (Bacons)
Terre Haute, IN Honey Creek Square (Root's)
Cincinnati, OH Downtown (McAlpin's)
Eastgate Mall (McAlpin's)
Kenwood Towne Centre (McAlpin's)
Northgate Mall (McAlpin's)
Tri-County Mall (McAlpin's)
Western Hills Plaza (McAlpin's)
Middletown, OH Towne Mall (McAlpin's)
Toledo, OH Westgate Village Shopping Center (Lion)
Southwyck Shopping Center (Lion)
North Towne Square (Lion)
Franklin Park Mall (Lion)
CASTNER KNOTT CO.
Store Locations Shopping Centers/Malls
Nashville, TN Galleria at Cool Springs
Downtown
The Mall at Green Hills
Rivergate Mall
Donelson Plaza
Harding Mall
Hickory Hollow Mall
Bellevue Center
Tullahoma, TN Northgate Mall
Florence, AL Regency Square Mall
Decatur, AL Riveroaks Center
Huntsville, AL Madison Square Mall
Bowling Green, KY Greenwood Mall
GAYFERS/J.B. WHITE
Store Locations Shopping Centers/Malls
Montgomery, AL Montgomery Mall (Gayfers)
Eastdale Mall (Gayfers)
Auburn, AL Village Mall (Gayfers)
Tuscaloosa, AL McFarland Mall (Gayfers)
Albany, GA Albany Mall (Gayfers)
Columbus, GA Peachtree Mall (Gayfers)
Savannah, GA Savannah Mall (J.B. White)
Augusta, GA Regency Mall (J.B. White)
National Hills Shopping Center
(J.B. White)
Aiken, SC Heritage Square (J.B. White)
Columbia, SC Dutch Square (J.B. White)
Richland Mall (J.B. White)
Greenville, SC Greenville Mall (J.B. White)
<PAGE>
GAYFERS/MAISON BLANCHE
Store Locations Shopping Centers/Malls
Mobile, AL Springdale Mall (Gayfers)
Jubilee Mall (Gayfers)
Dothan, AL Wiregrass Commons (Gayfers)
Biloxi-Gulfport, MS Edgewater Mall (Gayfers)
Jackson, MS Metrocenter (Gayfers)
Northpark Mall (Gayfers)
Baton Rouge, LA Main Street (Maison Blanche)
Cortana Mall (Maison Blanche)
Lafayette, LA Acadiana Mall (Maison Blanche)
New Orleans, LA Canal Street (Maison Blanche)
Clearview Shopping Center
(Maison Blanche)
Plaza Lake Forest (Maison Blanche)
North Shore Square (Maison Blanche)
Oakwood Shopping Center
(Maison Blanche)
Clearwater, FL Clearwater Mall (Gayfers)
Pensacola, FL Town & Country Plaza (Gayfers)
Cordova Mall (Gayfers)
Ft. Walton Beach, FL Santa Rosa Mall (Gayfers)
Panama City, FL Panama City Mall (Gayfers)
Tallahassee, FL Tallahassee Mall (Gayfers)
Jacksonville, FL Regency Square Mall (Maison Blanche)
Roosevelt Mall (Maison Blanche)
Orange Park Mall (Maison Blanche)
The Avenues (Maison Blanche)
Daytona Beach, FL Volusia Mall (Maison Blanche)
Orlando, FL Orlando Fashion Square (Maison Blanche)
Altamonte Mall (Maison Blanche)
The Florida Mall (Maison Blanche)
JONES/JOSLINS/HENNESSY'S/
de LENDRECIE'S/GLASS BLOCK
Store Locations Shopping Centers/Malls
Kansas City, MO Downtown (The Jones Store Co.)
Blue Ridge Mall (The Jones Store Co.)
Metro North Mall (The Jones Store Co.)
Bannister Mall (The Jones Store Co.)
Overland Park, KS Metcalf South Shopping Center
(The Jones Store Co.)
Prairie Village, KS Prairie Village Shopping Center
(The Jones Store Co.)
Independence, MO Independence Center
(The Jones Store Co.)
Topeka, KS West Ridge Mall
(The Jones Store Co.)
Denver, CO Downtown (Joslins)
Cinderella City (Joslins)
Buckingham Square (Joslins)
Villa Italia Center (Joslins)
Westminster Mall (Joslins)
Southwest Plaza (Joslins)
Greeley, CO Greeley Mall (Joslins)
Longmont, CO Twin Peaks Mall (Joslins)
Colorado Springs, CO Chapel Hills Mall (Joslins)
Pueblo, CO Pueblo Mall (Joslins)
Cheyenne, WY Frontier Mall (Joslins)
Billings, MT Rimrock Mall (Hennessy's)
Missoula, MT Southgate Mall (Hennessy's)
Helena, MT Capital Hill Shopping Center
(Hennessy's)
Fargo, ND West Acres Shopping Center
(de Lendrecie's)
Duluth, MN Miller Hill Mall (Glass Block)
<PAGE>
Group Presidents
Gregory A. Brandjord
President of The Jones Store Co., Joslins,
Glass Block, Hennessy's, and de Lendrecie's
Twenty-four Stores in Missouri, Kansas, Colorado,
Montana, Wyoming, Minnesota, and North Dakota
Headquartered in Kansas City, Missouri
Thomas N. Groh
President of Bacons, McAlpin's, Root's, and Lion
Twenty-three Stores in Kentucky, Ohio,
and Indiana
Headquartered in Louisville, Kentucky
Philip W. Kaiser
President of Gayfers and Maison Blanche
Twenty-eight Stores in Florida, Louisiana,
Alabama, and Mississippi
Headquartered in Mobile, Alabama
Edward A. Overbey, Jr.
President of Castner Knott Co.
Thirteen Stores in Tennessee, Kentucky,
and Alabama
Headquartered in Nashville, Tennessee
Michael G. Shannon
President of Gayfers and J.B. White
Thirteen Stores in Alabama, Georgia,
and South Carolina
Headquartered in Montgomery, Alabama
Corporate Officers
David L. Nichols
Chairman of the Board and
Chief Executive Officer
James M. McVicker
Vice President and
Chief Financial Officer
James D. Cain
Vice President
Randolph L. Burnette
Vice President
Paul E. McLynch
Vice President
William A. Carr
Treasurer
Kathryn M. Muldowney
Controller
Dennis F. Murphy
Secretary
<PAGE>
Directors
s-H. Keith H. Brodie, M.D.
President Emeritus of Duke University
s-John A. Herdeg
Attorney at Law and
Chairman of the Board of
Christiana Bank and Trust Company
s-Thomas J. Malone
President of Milliken & Company
n-Rene C. McPherson
Former Chairman of the Board of
Dana Corporation and former
Dean of Stanford University
Graduate School of Business
Gerrish H. Milliken
Director of Milliken & Company
n-Minot K. Milliken
Vice President and a Director of
Milliken & Company
s,n-Roger Milliken
Chairman of the Board and
Chief Executive Officer of
Milliken & Company
s,n-George S. Moore
International Financial Consultant
David L. Nichols
Chairman of the Board and
Chief Executive Officer of
Mercantile Stores Company, Inc.
n-Francis G. Rodgers
Former Vice President of IBM Corporation
Roger K. Smith
Strategic Marketing Manager of
Analog Devices, Inc.
s-Audit Committee
n-Compensation Committee
Stockholder Information
Annual Meeting
The Annual Meeting of Stockholders will be held at
11:30 a.m. on Wednesday, May 25, 1994 at
1100 North Market Street, Wilmington, Delaware.
All stockholders are cordially invited to attend.
Corporate Offices
Mercantile Stores Company, Inc.
9450 Seward Road
Fairfield, Ohio 45014
Telephone: 513-881-8000
Stock Transfer Agent, Registrar and Dividend Distributing Agent
Harris Trust Company of New York
77 Water Street
New York, NY 10005
Telephone: 212-701-7600
6.7% Notes and
8.2% Debentures Trustee
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Telephone: 513-579-5300
Independent Accountants
Arthur Andersen & Co.
425 Walnut Street
Cincinnati, Ohio 45202
Telephone: 513-381-6900
General Counsel
Curtis, Mallet-Prevost, Colt & Mosle
101 Park Avenue
New York, NY 10178
Telephone: 212-696-6000
Form 10-K Annual Report
A copy of Mercantile's 1993 Form 10-K
Annual Report as filed with the Securities and
Exchange Commission is available upon
request by writing:
Office of the Secretary
Mercantile Stores Company, Inc.
1100 North Market Street
Wilmington, Delaware 19801
Telephone: 302-575-1816
