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 28, 1995
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 (I.R.S. Employer
jurisdiction of incorporation) 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
TITLE OF EACH CLASS ON WHICH REGISTERED
Common stock $.14 2/3 The New York Stock
par value 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. [ ]
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 17, 1995 was $972,888,800.
The number of shares outstanding of the registrant's common
stock, $.14 2/3 par value was 36,844,050 at April 17, 1995.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of Registrant's 1994 Annual Report to
Stockholders are incorporated into Parts I and II.
2. Portions of Proxy Statement relating to the Annual
Meeting of Stockholders to be held on May 24, 1995 (to
be filed pursuant to Regulation 14A within 120 days
after the close of the fiscal year covered by this
report on Form 10-K) are incorporated by reference in
to Parts I and III of this Form 10-K.
<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's 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 30,500 persons, of which
approximately 19,000 are considered full-time equivalents.
The following portions from the Registrant's Annual Report
to Stockholders for the fiscal year ended January 28, 1995
are incorporated herein by reference: Inside Front Cover;
Financial Highlights (page 1); Management's Discussion and
Analysis (pages 9-12); Note 1 (page 19) and Note 2 (page 20)
of Notes to Consolidated Financial Statements; Ten-Year
Selected Financial Data (pages 28-29).
Item 2. Properties.
The following table summarizes the property ownership and
accompanying square footage of the one hundred department
stores and three specialty stores operated by Mercantile
Stores Company, Inc., as of January 28, 1995:
Number of Square
Stores Footage
Owned Stores 60 8,954,971
Leased Stores 43 7,529,418
Total 103 16,484,389
Store Divisions and Locations (pages 30-31) from the
Registrant's Annual Report to Stockholders for fiscal year
ended January 28, 1995 is incorporated herein by reference.
Item 3. Legal Proceedings.
Information required by Item 3 is incorporated by reference
to Note 9 (page 26) from the Registrant's Annual Report to
Stockholders for fiscal year ended January 28, 1995 and to
the information set forth under the caption "Litigation" to
be included in the Registrant's definitive Proxy Statement
relating to the Annual Meeting of Stockholders to be held on
May 24, 1995 and to be filed pursuant to Regulation 14A
within 120 days after the close of the fiscal year covered
by this report on Form 10-K.
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 13) and Stockholder
Information (page 33) from the Registrant's Annual Report to
Stockholders for the fiscal year ended January 28, 1995 are
incorporated herein by reference.
Item 6. Selected Financial Data.
The Ten-Year Selected Financial Data (pages 28-29) and Notes
to Consolidated Financial Statements (pages 19-26) from the
Registrant's Annual Report to Stockholders for the fiscal
year ended January 28, 1995 are 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) from the
Registrant's Annual Report to Stockholders for the
fiscal year ended January 28, 1995 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 postemployment benefits discussed
in Note 6, accounting for income taxes discussed in Note
5 and accounting for postretirement benefits other than
pensions discussed in Note 6 of Notes to Consolidated
Financial Statements (page 14), and Quarterly Results (page
27) from the Registrant's Annual Report to Stockholders for
the fiscal year ended January 28, 1995 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 set forth under the captions "Election of
Directors", "Other Executive Officers", and "Compliance with
Section 16(a) of the Exchange Act" to be included in the
Registrant's definitive Proxy Statement relating to the
Annual Meeting of Stockholders to be held on may 24, 1995
and to be filed pursuant to Regulation 14A within 120 days
after the close of the fiscal year covered by this report on
Form 10-K, is incorporated herein by reference.
Item 11. Executive Compensation.
The information set forth under the captions "Management
Remuneration", "Compensation Committee Interlocks and
Insider Participation", "Pension Plans", and "Directors'
Compensation" to be included in the Registrant's definitive
Proxy Statement relating to the Annual Meeting of
Stockholders to be held on may 24, 1995 and to be filed
pursuant to Regulation 14A within 120 days after the close
of the fiscal year covered by this report on Form 10-K, is
incorporated herein by reference. Notwithstanding the
foregoing, (i) the information set forth in said Proxy
Statement under the caption "Report of the Compensation
Committee" and (ii) the information set forth under the
caption "Performance Graph" in said Proxy Statement, is not
incorporated herein by reference or in any other filing of
the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The information set forth under the captions "Stock
Ownership of Management" and "Stock Ownership of Certain
Beneficial Owners" to be included in the Registrant's
definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 24, 1995 and to be filed
pursuant to Regulation 14A within 120 days after the close
of the fiscal year covered by this report on Form 10-K, is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Transactions
with Management and Others" to be included in the
Registrant's definitive Proxy Statement relating to the
Annual Meeting of Stockholders to be held on May 24,1 995
and to be file pursuant to Regulation 14A within 120 days
after the close of the fiscal year covered by this report on
Form 10-K, 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 28, 1995 are
incorporated herein by reference:
(a) Statements of Consolidated Income and
Retained Earnings for the fiscal years
ended January 28, 1995, January 29, 1994
and January 31, 1993 - page 15.
(b) Consolidated Balance Sheets as of January 28,
1995 and January 29, 1994 - pages 16 and 17.
(c) Statements of Consolidated Cash Flows for the
fiscal years ended January 28, 1995, January
29, 1994 and January 31, 1993 - 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 postemployment benefits
discussed in Note 6, accounting for income
taxes discussed in Note 5 and accounting for
postretirement benefits other than pensions
discussed in Note 6 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 postemployment benefits
discussed in Note 6, accounting for income
taxes discussed in Note 5 and accounting for
postretirement benefits other than pensions
discussed in Note 6 of Notes to Consolidated
Financial Statements, on the schedule listed
below.
(b) Schedule II - Valuation and Qualifying
Accounts
All other schedules have been omitted as they are
inapplicable or the information required is shown in the
Consolidated 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 28, 1995.
(21)- A listing of the subsidiaries of the
Registrant.
(23)- Consent of Independent Public Accountants.
(24)- Power of Attorney.
(27)- Financial Data Schedule.
(99)- Litigation Summary
B. No reports on Form 8-K have been filed during the fourth
quarter of the fiscal year ended January 28, 1995.
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 20, 1995.
<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
(Senior Vice President and (Director)
Chief Financial Officer)
______________________ ______________________
* John A. Herdeg * Gerrish H. Milliken
(Director) (Director)
_______________________ ________________________
* Roger K. Smith * Minot K. Milliken
(Director) (Director)
_______________________ _______________________
* George S. Moore * Roger Milliken
(Director) (Director)
_______________________ _______________________
* Francis G. Rodgers * H. Keith H. Brodie, MD
(Director) (Director)
* BY: s/ David L. Nichols
David L. Nichols
Date: April 20, 1995
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, 1995. Our
report on the consolidated financial statements includes an
explanatory paragraph with respect to the change in the
method of accounting for postemployment benefits in 1994,
income taxes in 1993 and postretirement benefits other than
pensions in 1992 as discussed in Notes 5 and 6 to the
consolidated financial statements. Our audit was made for
the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in Item 14(A)(2)(b) is the
responsibility of the Company's management and is presented
for the purpose of complying with the securities and
Exchange Commission's rules and is not a port of the basic
financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set
forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Cincinnati, Ohio
April 1, 1995
<PAGE>
<TABLE>
<CAPTION>
MERCANTILE STORES COMPANY, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Column A Column B Column C - Additions Column D Column E
Balance at Charged to Charged to Deductions Balance at
beginning costs and other write offs end of
Description of period expenses accounts of recoveries period
Allowance for Doubtful Accounts:
<S> <C> <C> <C> <C> <C>
Year Ended
January 28, 1995 $0 $ 1,462 $ 3,130 (A) $ 1,492 $ 3,100
Year Ended
Janaury 29, 1994 Not Required
Year Ended
Janaury 31, 1993 Not Required
<FN>
Note:
(A) - Prior to November 1993, the Company sold all Maison Blanche customer
receivables to MB Funding Trust, an unaffiliated company. This
agreement was terminated during fiscal 1994 (see Note 3 of Notes to
Consolidated Financial Statements). Upon completion of the
termination process, the customer receivables, net of an allowance for
doubtful accounts, were transferred to the Company from MB Funding
Trust.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
1994 1993
Year Ending Year Ending %
January 28, 1995 January 29, 1994 Change
For the year:
<S> <C> <C> <C>
Net Sales $2,819,837,000 $2,729,928,000 3.3
Income:
Net Operating Income -
Excluding Consolidation $107,517,000 $ 86,639,000 24.1
Consolidation Provision $(3,000,000) -
Net Operating Income 104,517,000 86,639,000 20.6
Accounting Changes (1,100,000) 3,100,000
Net Income $103,417,000 $89,739,000 15.2
Per Share Data:
Net Income -
Excluding Consolidation $2.92 $2.35
Consolidation Provision (.08) -
Net Operating Income 2.84 2.35
Accounting Changes (.03) .09
Net Income $2.81 $2.44
Working Capital $957,030,000 $902,268,000 6.1
Ratio 4.7 3.5
Long-Term Debt* $266,397,000 $387,452,000 (31.2)
Debt to Capitalization
Ratio 16.0% 22.5%
Stockholders' Equity $1,400,551,000 $1,334,715,000 4.9
Book Value Per Share $38.01 $36.23 4.9
Stock Price $44-1/8 $39 13.1
<FN>
* Includes current maturities
</TABLE>
<PAGE>
Management's Discussion and Analysis
Results of Operations
Net Sales percentage changes on a total and comparable store
basis for the last three years were as follows:
1994 1993 1992
Total 3.3% (1.1%) 11.9%
Comparable 1.7% (1.9%) (2.6%)
In 1994, each of the Company's five operating retail groups
reported a sales increase. The 1992 percentage increase in
total sales reflects the non-comparable influence of the
Maison Blanche (MB) acquisition which was consummated at the
start of that year.
Net Income for 1994, before a special consolidation
provision and the impact of accounting changes, increased
24.1% to $107.5 million, or $2.92 per share, from the $86.6
million, or $2.35 per share, earned in the prior year.
Net income for the past three years has been affected by
non-recurring items and/or the effect of accounting changes.
In 1994, net income was reduced by a total of $4.1 million
due to a provision for a divisional consolidation and the
adoption of an accounting standard covering postemployment
benefits. In 1993, the adoption of an accounting standard
with respect to income taxes increased net income by $3.1
million and, in 1992, net income was reduced by a total of
$28.2 million due to charges recorded 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.
As discussed in more detail in the following sections, net
income for 1994 was also impacted by a continued reduction
in selling, general and administrative expenses and a
reduction in interest expense. In addition, net income for
1994 was also affected by a charge of $1.1 million related
to the closing of a store in Colorado, while net income for
1993 included a gain of $3.2 million related to a sale of
land not used in the business.
The summary which follows presents a tabular analysis of the
components of net income for the past three years:
<TABLE>
<CAPTION>
1994 1993 1992
(in millions, except Per Per Per
per share data) Amount Share Amount Share Amount Share
<S> <C> <C> <C> <C> <C> <C>
Net income before
non-recurring items and
accounting changes $107.5 $2.92 $86.6 $2.35 $97.3 $2.64
Consolidation/
relocation
provisions (3.0) (.08) - - (10.5) (.28)
Postemployment
benefits (1.1) (.03) - - - -
Income taxes - - 3.1 .09 - -
Postretirement
benefits - - - - (12.2) (.33)
Early retirement
of debt - - - - (5.5) (.15)
Net income $103.4 $2.81 $89.7 $2.44 $69.1 $1.88
</TABLE>
<PAGE>
Cost of Goods Sold (COGS) in the retail industry
traditionally includes certain occupancy and buying costs
which are not directly associated with the cost of
merchandise. Occupancy expenses so classified include
depreciation, rent, utilities, and real estate taxes; buying
costs, in this respect, include the payroll and travel
expenses of the corporate central buying function.
In 1994, COGS, as a percent of net sales on a first-in,
first-out (FIFO) basis, increased 0.2% over the prior year.
This increase was attributable to reasons which do not
evolve from the cost and selling price of merchandise. The
increase primarily resulted from the impact that
significantly increased levels of leased department sales
had on margins. Leased department sales increased 16% over
the prior year and the substantially lower margins earned
from these sales resulted in a 0.3% increase in COGS.
Shrinkage, which was higher by 0.2%, also contributed to the
increase. Offsetting these increases was a 0.2% decrease in
pure merchandise costs (the original cost of merchandise
plus the cost of subsequent markdowns) and a 0.1% decrease
in the depreciation element of occupancy costs.
In 1993, COGS on a FIFO basis increased 1.2% due primarily
to a much more promotional environment, particularly during
the holiday season. In 1992, this ratio increased
approximately 0.5% due entirely to an increase in the
occupancy expense elements of COGS, most of which was
attributable to the lower sales productivity generated by
the newly acquired MB stores.
The Company uses the last-in, first-out (LIFO) method to
value all of its retail inventories. The LIFO impact on 1994
COGS was unusual as several categories of apparel, which
constitute a majority of the Company's inventories, actually
experienced a year-to-year price deflation as that economic
factor is measured by the Bureau of Labor Statistics. This
served to produce a LIFO credit of $.11 per share in 1994
contrasted with a charge of $.06 per share in 1993 and a
credit of $.01 per share in 1992.
<TABLE>
<CAPTION>
The impact of LIFO on COGS, as a percent of sales, was:
1994 1993 1992
<S> <C> <C> <C>
Cost of goods sold 71.7% 71.8% 70.5%
LIFO credit/(charge) .2 (.1) -
Cost of goods sold (FIFO) 71.9% 71.7% 70.5%
</TABLE>
Operating Expenses - Selling, general and administrative
expenses (SG&A) declined in terms of absolute dollars for
the second consecutive year. Relative to sales, the 1994
decrease in this line item amounted to 0.8%. Almost
two-thirds of this decline was directly identifiable with a
reduction in payroll and payroll-related expenses.
In 1993, SG&A declined approximately 0.5% from the prior
year with payroll and payroll-related expenses again
comprising better than 50% of this decline. In 1992, SG&A
increased approximately 1.1% over the prior year. Increases
experienced in payroll and payroll-related expenses as well
as marketing expense accounted for the majority of this
change. In addition, approximately one half of the 1992
increase was attributable to the lower sales productivity
and consequent higher expense ratios experienced by the MB
stores which were acquired at the start of that year.
SG&A expense, as a percent to net sales, was reduced to
22.2% in 1994 from 23.0% in 1993 and 23.5% in 1992. This
two-year decline was a direct result of expense management
initiatives implemented in the third quarter of 1993. The
1994 fiscal year reflected the full benefit of that expense
containment program and, while the Company anticipates a
further reduction in this expense ratio in 1995, it will be
more modest than that experienced over the past two years.
During the first quarter of 1994, the Company recorded a $5
million pretax provision for the consolidation of the
Joslins division, centered in Denver, Colorado with the
Jones Store Company Division, headquartered in Kansas City,
Missouri. The provision covered severance pay, early
retirement costs and relocation costs. As a result of this
consolidation, the Company will save approximately $3
million annually, primarily as a result of reduced payroll
and payroll-related expenses.
In 1992, the Company recorded a $17 million pretax provision
for the relocation of the corporate buying office from New
York City to the Greater Cincinnati area and to consolidate
certain divisional functions. The provision covered
severance pay, early retirement costs, vacated premises
lease costs and other relocation related expenses.
<PAGE>
Interest Expense decreased $8 million in 1994, primarily as
a result of the scheduled payment of $110 million of
mortgages and senior notes which carried an average interest
coupon of 10.4%. These payments were made in the second
quarter of the year.
Other Income decreased approximately $5 million in 1994. The
most significant components of this line item are the
finance charges earned on the Company's two separate private
label credit card programs, its share of equity earnings
from the real estate joint ventures, and gains and losses on
disposition of property.
The latest year's decline resulted primarily from a $3
million decrease in the Company's share of finance charge
income under the service arrangement with Citibank, offset
by a $4 million increase in finance charge income earned on
the MB credit program. In 1994, the Company also recorded a
pretax charge of $2 million to other income to write down
the asset value of a store in Colorado which was closed at
the end of the year. Further impacting the year to year
comparison of other income was the 1993 pretax gain of $5
million which resulted from selling land which was not used
in the business. In 1994, the pretax profit from unused
asset sales amounted to less than $1 million.
The Company's share of finance charge income earned under
the terms of the servicing arrangement with Citibank was $11
million in 1994, $14 million in 1993 and $16 million in
1992. The declines in this sharing of finance charge income
over the past two years were due primarily to reductions in
the customer receivable portfolio because of a combination
of a continuing erosion of private label credit sales (39.3%
of total sales in 1994, against 41.2% in 1993 and 41.8% in
1992) and a faster paydown of credit card balances by our
customers. As discussed in Note 3 of Notes to Consolidated
Financial Statements, the Company will terminate this
service arrangement with Citibank in mid-1995 and will
assume full responsibility for managing the private label
credit program. It is anticipated that the impact of startup
costs, including the establishment of a bad debt reserve,
will render pretax income from the credit program in 1995
somewhat dilutive, but not materially so, to that earned in
1994.
Prior to the fourth quarter of 1993, the Company sold all of
its MB customer receivables to an unaffiliated company. In
November 1993, the Company exercised its option to terminate
this arrangement and began a phase out of the program. This
phase out was completed in the second quarter of 1994. As a
result of the termination of this agreement, the Company
earned a greater share of finance charge income in 1994 and
also incurred additional expenses. The finance charge income
generated by the MB credit program (all of which is
reflected as other income) was $10 million in 1994 and $6
million in both 1993 and 1992. The costs associated with
servicing these receivables are reflected as SG&A expenses.
The Effective Income Tax Rate has been relatively consistent
for the last three years and was 39.5% in 1994 compared with
39.7% in 1993 and 39.3% in 1992.
Liquidity and Capital Resources - The Company generated $169
million in cash from operating activities in 1994, compared
with $138 million in 1993 and $231 million in 1992. The 1994
increase was primarily due to the increase in net income and
non-cash charges which was partially offset by increases in
working capital requirements, particularly those needed for
inventory. In 1993, the decline of $93 million from the
previous year was attributed to an increase in working
capital requirements, particularly for receivables, as well
as a decline in non-cash charges for relocation ($17
million) and an accounting change ($12 million) which more
than offset the $21 million increase in net income.
The level of inventories increased $43 million in 1994 over
the prior year, with $6 million of this increase being
identified with the reduction in the LIFO reserve, which has
been explained previously. Approximately one third of the
$37 million increase in FIFO inventory levels represented
the requirements for the four new stores opened during the
year net of the two smaller units which were closed. The
remaining increase primarily resulted from earlier
deliveries of spring merchandise.
The funding required for accounts receivable declined $15
million in the year. Customer receivables were consistent
between years as the decline in receivable balances from the
Company's credit program (other than MB) was just about
offset by the $29 million increase in MB receivables which
resulted from the completion of the termination process
discussed above. The decrease in other receivables in 1994
was substantially due to the collection of security deposits
related to the termination of the MB credit program.
Cash requirements related to capital expenditures were $94
million in 1994, $106 million in 1993 and $110 million in
1992. The 1994 expenditures were approximately $9 million
lower than originally anticipated because of delays in
construction on two proposed new stores which were
precipitated by factors outside of the Company's control.
<PAGE>
Cash requirements for financing activities increased
substantially in the year to $159 million, from $64 million
in 1993 and $28 million in 1992. The 1994 increase was
entirely due to satisfying the scheduled payback of $110
million of structured debt which the Company assumed in
connection with the MB acquisition. The funding for this
payment was accomplished entirely through the use of cash
available from internal operations. During 1994, the Company
also repurchased, in advance and at a discount, $5 million
of its 6.7% notes due 2002. In 1993, financing activities
included the prepayment of $19 million in Mortgage Notes
bearing interest rates ranging from 8.4% to 9.6% and $6
million of 10.5% Industrial Revenue Bonds. In 1992,
financing activities included the prepayment of $124 million
of notes and debentures bearing interest rates ranging from
8.4% to 12.5% and the issuance of $200 million of notes and
debentures.
The Company traditionally satisfies its short-term financing
requirements primarily through internally generated funds.
In addition, it has in place a $175 million revolving credit
facility and other discretionary lines of credit, totalling
$85 million, with several banks. Maximum short-term
borrowings under these facilities were $69 million in 1994
and $51 million in 1992. The Company did not find it
necessary to engage in any short-term borrowing during 1993.
At fiscal year-ends 1994, 1993 and 1992, no borrowings were
outstanding under any of these credit arrangements.
In 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 annual sinking fund requirement of $20 million
commencing in 1997 and the debentures have a similar $5
million annual requirement commencing in 2003. Both issues
were offered under a registration statement filed in 1992
pursuant to rule 415 of the Securities Act of 1933 in the
aggregate amount of $250 million.
The Company is committed to the importance of maintaining a
strong balance sheet. The debt to capitalization ratio,
considered to be a significant barometer of financial
strength, is one of the lowest in the department store
industry and was 16% and 22% at the end of 1994 and 1993,
respectively. Our long-term debt ratings, A+ by Standard &
Poor's Corporation and A1 by Moody's Investors Service,
Inc., reflect an independent appraisal of this financial
strength.
Expansion and Capital Expenditures - Capital expenditures
for 1995 are estimated at $110 million and it is anticipated
that they will be financed through internally generated
funds. Approximately 60% of 1995 expenditures are earmarked
for remodeling and upgrading existing units; approximately
25% will be spent on new stores; and the remainder on
support functions such as the new credit center.
During 1994, the Company opened four new stores - one of
which is dedicated strictly to home fashion merchandise.
During the same period, two units were closed.New stores
opened during 1994 were:
<TABLE>
<CAPTION>
Operating Division Location Square Feet
<S> <C> <C>
Maison Blanche New Orleans, Louisiana 157,000
Joslins Denver, Colorado 165,000
Gayfers Hattiesburg, Mississippi 122,000
McAlpin's - Signatures Home Store Crestview Hills, Kentucky 37,000
</TABLE>
When the Maison Blanche store was opened in March 1994, an
underperforming 150,000 square foot store located several
miles away was closed. At the end of the year, a 150,000
square foot Joslins store in Denver, Colorado was closed.
In 1995, the Company will open a new 50,000 square foot home
fashions store in Cincinnati, Ohio. While some plans are
still in the developmental stage, it would appear,
presently, that the Company may open as many as five
department stores in 1996.
Benefit Program
The Company maintains a comprehensive benefit program which
includes pension and profit sharing plans as well as health
and term life insurance plans for its eligible associates.
The Pension Plan, established in 1945, is funded entirely by
Company contributions. All associates who meet the
eligibility requirements (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 27,544 Pension Plan
members, including retirees, on January 28, 1995. The market
value of Plan assets on January 31, 1995, amounted to $297
million.
All associates who are enrolled in the Pension Plan are
eligible to participate in the Savings, Profit Sharing and
Supplemental Retirement Plan, which was established in 1954.
During 1994, 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).
Associates can elect to have their contributions deposited
in a balanced fund, an equity fund, insurance company
contracts or any combination of these funds.
As explained in Note 6 of Notes to Consolidated Financial
Statements, the Company makes an annual contribution to the
Plan based upon its pretax income (as defined). For the
latest year, the Company's contribution amounted to $8.1
million, or approximately $.47 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. Members can elect to invest the Company's annual
contribution in a balanced fund, an equity fund, insurance
company contracts or Mercantile Stores common stock. 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 28, 1995, the Trustee
was holding 1,515,242 shares of Mercantile stock for the
benefit of Plan members.
On January 30, 1995, members in the Plan represented
approximately 92% of those eligible. Plan assets at year-end
totalled $408 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.
<TABLE>
<CAPTION>
Market and Dividend Information
For the fiscal year 1994 1993
Market Dividends Market Dividends
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter High Low Declared Paid High Low Declared Paid
First $41-1/8 $36 $.51 $.25-1/2 $37-1/4 $32-5/8 $.51 $.25-1/2
Second $38-1/2 $30-1/2 - $.25-1/2 $35-7/8 $30-1/4 - $.25-1/2
Third $57 $32-1/2 $.51 $.25-1/2 $36-1/8 $29-7/8 $.51 $.25-1/2
Fourth $46 $36-1/2 - $.25-1/2 $39-1/2 $34-1/2 - $.25-1/2
$1.02 $1.02 $1.02 $1.02
</TABLE>
The Company's common stock is traded on the New York Stock Exchange
(NYSE symbol - MST). The number of stockholders at January 28, 1995
was 9,928.
On April 5, 1995, the Board of Directors approved an increase in
the quarterly dividend from $.25-1/2 to $.26-1/2 per share. This increase,
payable on June 15, 1995 to holders of record on May 31, 1995, converts to
an indicated annual dividend of $1.06 per share.
<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 Senior 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 28, 1995 and January 29,
1994, and the related statements of consolidated income and
retained earnings and cash flows for each of the three years
in the period ended January 28, 1995. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits. We conducted
our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.In our opinion, the
financial statements referred to above present fairly, in
all material respects, the financial position of Mercantile
Stores Company, Inc. and subsidiaries as of January 28, 1995
and January 29, 1994, and the results of their operations
and their cash flows for each of the three years in the
period ended January 28, 1995 in conformity with generally
accepted accounting principles.As explained in Notes 5 and
6 to the Consolidated Financial Statements, the Company
changed its method of accounting for postemployment benefits
effective January 30, 1994, its method of accounting for
income taxes effective February 1, 1993 and its method of
accounting for postretirement benefits other than pensions
effective February 1, 1992.
Cincinnati, Ohio Arthur Andersen LLP
April 1, 1995
<PAGE>
<TABLE>
<CAPTION>
Statements of Consolidated Income and Retained Earnings
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
Net Sales (including leased
departments) $2,819,837 $2,729,928 $2,732,041
Costs, Expenses, and Other Income:
Cost of goods sold (including occupancy
and central buying expenses) 2,020,264 1,960,914 1,927,149
Selling, general and administrative
expenses 625,726 627,391 641,573
Provision for consolidation/
relocation 5,000 - 17,000
Interest expense 28,118 36,236 35,464
Interest income (4,592) (5,288) (3,099)
Other income (27,571) (33,003) (29,145)
2,646,945 2,586,250 2,588,942
Income before Provision
for Income Taxes 172,892 143,678 143,099
Provision for Income Taxes:
Current 65,848 54,456 59,830
Deferred 2,527 2,583 (3,568)
68,375 57,039 56,262
Income before extraordinary charge on
early retirementof debt and cumulative
effect of accounting changes 104,517 86,639 86,837
Extraordinary charge on early
retirement of debt
(net of income taxes of $3,550) - - (5,550)
Cumulative effect of accounting changes:
Postemployment benefits
(net of income taxes of $700) (1,100) - -
Income taxes - 3,100 -
Postretirement benefits other than pensions
(net of income taxes of $7,800) - - (12,200)
Net Income $ 103,417 $ 89,739 $ 69,087
Retained Earnings at Beginning
of Year 1,323,294 1,271,136 1,239,630
1,426,711 1,360,875 1,308,717
Dividends Declared and Paid 37,581 37,581 37,581
Retained Earnings at End of Year $1,389,130 $1,323,294 $1,271,136
Net Income Per Share:
Income before extraordinary charge
on early retirement of debt and cumulative
effect of accounting changes $ 2.84 $ 2.35 $ 2.36
Extraordinary charge on early
retirement of debt - - (0.15)
Cumulative effect of accounting changes:
Postemployment benefits (0.03) - -
Income taxes - 0.09 -
Postretirement benefits other
than pensions - - (0.33)
Net Income Per Share $ 2.81 $ 2.44 $ 1.88
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(in thousands) January 28, January 29,
1995 1994
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 114,237 $ 194,544
Receivables:
Customer 592,402 587,859
Other 27,836 47,255
Inventories 468,782 425,492
Deferred income taxes 7,667 5,875
Other current assets 7,821 8,120
Total Current Assets 1,218,745 1,269,145
Investments and Other
Noncurrent Assets 73,878 61,136
Deferred Income Taxes 300 10,199
Property and Equipment:
Land 36,512 36,922
Buildings and improvements 675,187 649,108
Fixtures 310,671 310,102
Leased property 64,311 64,311
1,086,681 1,060,443
Less accumulated depreciation 397,875 368,941
Property and equipment, net 688,806 691,502
Total $1,981,729 $2,031,982
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of
long-term debt $ 5,210 $ 115,487
Accounts payable 121,667 116,116
Taxes other than income 17,101 16,182
Other current liabilities 61,132 57,445
Accrued income taxes 32,381 41,035
Accrued payroll 24,224 20,612
Total Current Liabilities 261,715 366,877
Long-term Debt 261,187 271,965
Due to Affiliated Companies 26,115 26,713
Other Long-term Liabilities 32,161 31,712
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 1,389,130 1,323,294
Total Stockholders' Equity 1,400,551 1,334,715
Total $1,981,729 $2,031,982
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Consolidated Cash Flows
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $103,417 $ 89,739 $ 69,087
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 93,540 93,455 94,036
Deferred taxes 2,527 2,583 (3,568)
Net loss (gain) on disposition of property 1,250 (3,904) -
Provision for consolidation/relocation 5,000 - 17,000
Postretirement benefits costs 166 2,200 2,200
Gain on sale of joint venture - (1,610) -
Cumulative effect of accounting
changes, net of income taxes 1,100 (3,100) 12,200
Equity in unremitted earnings
of affiliated companies (206) (1,141) (1,876)
Net pension benefit (15,653) (13,788) (7,842)
Changes in working capital,
net of effect from the
acquisition of Maison Blanche, Inc. in 1992:
Change in inventories (43,290) (2,673) 17,489
Change in accounts receivable 14,876 (21,406) 49,313
Change in accounts payable 5,551 6,931 (4,216)
Change in other working capital items 1,143 (9,180) (13,100)
Net cash provided by operating
activities 169,421 138,106 230,723
Cash Flows from Investing Activities:
Cash payments for property and equipment (93,639) (106,210) (110,638)
Proceeds from sale of property 1,550 6,095 -
Purchase of Maison Blanche, Inc.,
net of cash acquired - - (23,591)
Proceeds from sale of joint venture - 785 -
Net change in other noncurrent assets and
liabilities 997 2,845 6,302
Distribution from joint ventures - - 19,575
Net cash used in investing activities (91,092) (96,485) (108,352)
Cash Flows from Financing Activities:
Payments of long-term debt (121,055) (26,740) (190,004)
Proceeds from issuance of long-term debt - - 200,000
Dividends paid (37,581) (37,581) (37,581)
Net cash used in financing activities (158,636) (64,321) (27,585)
Net (Decrease) Increase in Cash and
Cash Equivalents (80,307) (22,700) 94,786
Cash and Cash Equivalents at Beginning
of Year 194,544 217,244 122,458
Cash and Cash Equivalents at End of Year $114,237 $194,544 $217,244
Supplemental Cash Flow Information:
Interest paid $ 29,532 $ 37,393 $ 37,922
Income taxes paid $ 68,227 $ 49,670 $ 51,841
<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. All material intercompany accounts
and transactions have been eliminated. The Company uses the
equity method to account for its 33 1/3% to 50% position in
five shopping center joint ventures.
B. Accounts Receivable - Customer accounts receivable
are classified as current assets and include some amounts
which are due after one year, consistent with industry
practice.
C. Inventories - All retail inventories are valued by
the retail method and stated on the last-in, first-out
(LIFO) basis which is lower than market. At January 28, 1995
and January 29, 1994, inventories were $86 million and $92
million, respectively, lower than they would have been had
the retail method been used without the application of the
LIFO basis.
D. 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.
E. 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.
F. 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.
G. 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.
H. Segment Reporting - The Company has one
significant segment of business (general merchandise
department store retailing).
I. 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.
J. Reclassifications - Certain reclassifications have
been made to prior years' financial statements to conform
with the classifications used in the 1994 financial
statements.
<PAGE>
2. Provisions for Consolidation/Relocation
During the first quarter of 1994, the Company recorded a
$5.0 million charge for the consolidation of the Joslins division,
centered in Denver, Colorado, with the Jones Store Company
division, headquartered in Kansas City, Missouri. The
provision was made to cover severance pay for the
displacement of approximately 175 associates, early
retirement costs for certain qualifying associates and
relocation costs. The consolidation of these operations was
completed during the first quarter.
During the first quarter of fiscal 1992, the Company
recorded a provision of $17 million for the relocation of
the corporate buying office from New York 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.
3. 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 $85
million. The Company does not pay any fee for maintaining
these discretionary lines and interest on any borrowings
thereunder is charged at a floating rate.
At January 28, 1995 and January 29, 1994, there were no
borrowings outstanding under the revolving credit agreement
or the discretionary lines. Maximum borrowings under these
credit facilities for fiscal 1994 were $69 million, at an
average interest rate of 5.4%. During fiscal 1993, there
were no borrowings under these credit facilities. A
commitment fee of $.7 million in 1994, 1993, and 1992 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 those
generated by Maison Blanche (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,
other than MB, 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. 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 $11 million in
1994, $14 million in 1993 and $16 million in 1992.
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 1994, 1993 and 1992, revenue sharing income has been
reduced $5.2 million, $5.3 million, and $5.4 million,
respectively, because of this formula adjustment.
In anticipation of taking over full responsibility for
managing the private label credit program on August 1, 1995,
the Company will begin servicing a portion of the receivables
portfolio (including credit authorization, absorption of bad
debts and collections) from its Credit Center in Baton
Rouge, Louisiana at the beginning of the second quarter of
1995.
<PAGE>
Prior to November 1993, the Company sold all 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 at the Credit Center in Baton
Rouge, Louisiana and retained the finance charge income
generated by them, net of costs associated with the program.
In November 1993, the Company gave notice to MB Trust of its
election to terminate the agreement and the termination
process was concluded in the second quarter of 1994.
Finance charge income related to the MB customer
receivables, which is reflected as Other income in the
accompanying Statements of Consolidated Income and Retained
Earnings, was $10.3 million in 1994 (reflecting the impact of
the termination), $6.2 million in 1993 and $5.7 million in
1992. Costs associated with servicing the receivables are
reflected as selling, general and administrative expenses. At
January 28, 1995 and January 29, 1994, MB customer receivables
totaled approximately $80 million and $50 million,
respectively.
4. Long-Term Debt
The Company's long-term debt consisted of the following:
(in thousands) 1994 1993
10.95% Senior Guaranteed Notes due 1994 $ - $ 47,240
10.07% Mortgage Notes due 1994 - 63,280
8.2% Sinking Fund Debentures due 2022 100,000 100,000
6.7% Notes due 2002 (a) 95,000 100,000
Industrial Revenue Bonds at rates
ranging from 5.8% to 8.0% 10,689 12,441
Mortgage Note payable (b) 1,080 1,080
Other Notes Payable 8,669 10,835
Total Debt 215,438 334,876
Capitalized Lease Obligations 50,959 52,576
266,397 387,452
Less - due within one year 5,210 115,487
Total Long-term Debt $261,187 $271,965
(a)-During the year, the Company repurchased, in advance and at
a discount, $5 million of 6.7% Notes due 2002.
(b)-The Note carries a variable interest rate of 1.5% over
prime with a final payment due on February 1, 1997.
Maturities of long-term debt, including capitalized leases, for
the next five years are as follows:
Fiscal year
(in thousands) Amount
1995 $ 5,210
1996 $ 6,251
1997 $ 25,027
1998 $ 25,181
1999 $ 23,644
During fiscal 1992, the Company tendered for and redeemed $94
million of Sinking Fund Debentures due 2014 and 2015. 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.
<PAGE>
5. Income Taxes
The components of taxes on income, excluding the extraordinary
charge and cumulative effect of accounting changes, consisted of the
following:
(in thousands) 1994 Federal State Total
Current $56,041 $ 9,807 $65,848
Deferred 1,781 746 2,527
Total $57,822 $10,553 $68,375
1993 Federal State Total
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
Deferred (2,694) (874) (3,568)
Total $45,702 $10,560 $56,262
Deferred income taxes result from temporary 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 changes, of each were
as follows:
(in thousands) 1994 1993 1992
Depreciation $ (5,231) $ (4,431) $ (1,102)
Associate benefit
plans 5,520 4,410 2,061
Consolidation/
relocation 2,025 1,883 (3,670)
Other 213 721 (857)
Total $ 2,527 $ 2,583 $ (3,568)
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:
(in thousands) 1994 1993 1992
Provision at statutory
rate of 35% for 1994
and 1993, and 34% in 1992 $60,512 $50,287 $48,654
State and local income
tax, less Federal income
tax benefit 6,859 6,196 6,970
Other 1,004 556 638
Total income tax provision $68,375 $57,039 $56,262
Effective income tax rate 39.5% 39.7% 39.3%
<PAGE>
During the first quarter of 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, - "Accounting
for Income Taxes" - (SFAS 109). 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 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 tax effects of significant temporary differences
representing deferred tax assets and liabilities were as follows:
1994 1993
Assets:
Inventory accounting $ 3,060 $ 3,294
Associate benefit costs 14,047 11,341
Interest, taxes, and
real estate costs 10,364 10,490
Relocation costs 960 2,898
Capitalized leases 3,893 3,527
Other 8,538 6,429
Total deferred tax assets 40,862 37,979
Liabilities:
Depreciation (10,981) (3,597)
Pension, savings and
profit sharing costs (21,120) (15,057)
Other (794) (3,251)
Total deferred tax
liabilities (32,895) (21,905)
Total Net Deferred Tax Assets $ 7,967 $16,074
6. 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:
(in thousands) 1994 1993 1992
Service cost $ 6,884 $ 6,524 $ 6,908
Interest cost 11,267 10,351 9,788
Actual return on plan
assets 1,723 (39,586) (21,551)
Amortization of transition
asset (5,043) (5,043) (5,043)
Other amortization
and deferral (30,484) 13,966 2,056
Net pension benefit $(15,653) $(13,788) $ (7,842)
The expected long-term rate of return on assets used in
determining the net pension benefit was 8.5% in 1994, 1993, and
1992.
The actuarial present value of benefits was determined using a
discount rate of 8.5% in 1994 and 7.5% in 1993 and 1992. The rate of
compensation increase used to measure the projected benefit
obligation was 5.5% in all years presented. The change in the
discount rate assumption lowered the October 31, 1994 projected
benefit obligation by approximately $20 million.
<PAGE>
The funded status of the formal qualified pension plan at
January 28, 1995 and January 29, 1994, based on actuarial and plan
asset information as of October 31, 1994 and 1993, was as follows:
(in thousands) 1994 1993
Actuarial present value of benefit obligations:
Vested benefits $116,600 $123,900
Non-vested benefits 1,800 1,800
Accumulated benefits obligation 118,400 125,700
Impact of future salary increases 26,830 28,553
Projected benefit obligation 145,230 154,253
Plan assets at fair value 298,091 306,094
Plan assets in excess of
projected benefit obligation 152,861 151,841
Items not yet recognized in income:
Initial transition credit which
is being amortized
over 15 years (35,302) (40,345)
Subsequent net gain (61,378) (70,968)
Prepaid pension benefit $ 56,181 $ 40,528
No funding activity occurred between the plan and the Company
during the fourth quarter of 1994 or 1993.
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:
(in thousands) 1994 1993 1992
Savings and Profit Sharing $ 8,068 $ 7,026 $ 5,295
Pension 1,754 1,258 569
Total $ 9,822 $ 8,284 $ 5,864
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.
<PAGE>
During the 1993 fiscal 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. The cumulative effect of this accounting
change resulted in a 1992 fiscal year charge of $12.2 million, or
$.33 per share, after tax benefits of $7.8 million.
The components of net periodic postretirement benefit cost for
1994, 1993, and 1992 were as follows:
(in thousands) 1994 1993 1992
Service cost earned
during the year $ 536 $ 1,729 $ 2,100
Interest cost on projected
benefit obligation 770 1,581 1,600
Net amortization and deferral (1,140) (703) -
Net periodic postretirement
benefit cost $ 166 $ 2,607 $ 3,700
The following table sets forth the plan's combined funded status for
1994 and 1993:
(in thousands) 1994 1993
Accumulated postretirement
benefit obligation:
Retirees $ 4,024 $ 4,130
Fully eligible active
plan participants 182 189
Other active plan
participants 5,352 5,990
9,558 10,309
Unrecognized net gain
from changes in plan
and assumptions 5,594 4,935
Unrecognized prior
service cost 7,608 8,527
Accrued postretirement benefit costs $22,760 $23,771
For measurement purposes, the following assumptions were used
to project changes in the accumulated postretirement benefit
obligation for 1994 and 1993:
1994 1993
Discount rate 8.5% 7.5%
Health care cost trend rate 9.5% to 5% 10.25% to 5%
Years to ultimate trend 10 11
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 $.8 million and the aggregate
of the service and interest cost components of net periodic
postretirement benefit cost by $.2 million.
During 1994, the Company changed the measurement date on which
plan assets and obligations are measured from January 31 to October
31. This change in measurement date did not have a material effect
on the determination of the accumulated postretirement benefit
obligation.
Effective January 30, 1994, the Company adopted 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 or
inactive employees after employment but before retirement. The
cumulative effect of this accounting change resulted in a charge of
$1.1 million, or $.03 per share, after tax benefits of $.7 million.
<PAGE>
7. 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, was approximately equal to
book value at both January 28, 1995 and January 29, 1994. 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.
8. 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.
Future minimum lease payments under noncancelable leases as of
January 28, 1995 were as follows:
Fiscal year (in thousands) Capital Operating Total
1995 $ 6,346 $ 21,706 $ 28,052
1996 6,346 21,403 27,749
1997 6,246 20,454 26,700
1998 6,118 18,900 25,018
1999 6,060 17,012 23,072
Thereafter 77,111 114,852 191,963
Total minimum lease
payments $108,227 $214,327 $322,554
Less: Executory costs (276)
Interest (56,992)
Present value of net
minimum lease payments $ 50,959
Rent expense consisted of the following:
(in thousands) 1994 1993 1992
Minimum rentals $ 23,840 $ 23,509 $ 22,457
Contingent rentals
(based on % of sales) 5,328 4,503 7,416
$ 29,168 $ 28,012 $ 29,873
9. 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)
January 28, 1995 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
<S> <C> <C> <C> <C> <C>
Net Sales $592,509 $619,307 $679,453 $928,568 $2,819,837
Costs, Expenses, and Other Income:
Cost of goods sold
(including occupancy
and central buying
expenses) 421,380 455,082 475,190 668,612 2,020,264
Selling, general and
administrative expenses 150,719 148,766 161,863 164,378 625,726
Provision for
consolidation 5,000 - - - 5,000
Interest expense, net 7,173 6,637 5,190 4,526 23,526
Other income (6,687) (7,679) (6,361) (6,844) (27,571)
577,585 602,806 635,882 830,672 2,646,945
Income before provision
for income taxes 14,924 16,501 43,571 97,896 172,892
Provision for
income taxes 5,920 6,702 17,365 38,388 68,375
Income before cumulative
effect of accounting
change 9,004 9,799 26,206 59,508 104,517
Cumulative effect of
accounting change for
postemployment benefits
(net of income taxes
of $700) (1,100) - - - (1,100)
Net income $ 7,904 $ 9,799 $ 26,206 $ 59,508 $ 103,417
Net income per share:
Income before cumulative
effect of accounting
change $ .24 $ .27 $ .71 $ 1.62 $ 2.84
Cumulative effect of
accounting change (.03) - - - (.03)
Net income per share $ .21 $ .27 $ .71 $ 1.62 $ 2.81
</TABLE>
<TABLE>
Quarterly Results
(unaudited in thousands, except per share data)
January 29, 1994 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
<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) 401,681 459,614 461,289 638,330 1,960,914
Selling, general and
dministrative expenses 151,220 157,159 157,200 161,812 627,391
Interest expense, net 7,783 7,719 7,706 7,740 30,948
Other income (7,069) (7,217) (5,932) (12,785) (33,003)
553,615 617,275 620,263 795,097 2,586,250
Income (loss) before
provision for
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ten-Year Selected Financial Data
(dollars in thousands, except per share data)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Operating Results
Net sales $2,819,837 $2,729,928 $2,732,041 $2,442,425 $2,367,210
Cost of goods sold 2,020,264 1,960,914 1,927,149 1,720,361 1,670,555
Selling, general and
administrative
expenses 625,726 627,391 641,573 547,268 527,467
Provision for
consolidation/relocation 5,000 - 17,000 - -
Interest expense 28,118 36,236 35,464 23,390 23,422
Interest income (4,592) (5,288) (3,099) (4,511) (4,160)
Other income (27,571) (33,003) (29,145) (30,485) (29,186)
Income before provision
for income taxes 172,892 143,678 143,099 186,402 179,112
Percent to
sales 6.1 5.3 5.2 7.6 7.6
Provision for income taxes 68,375 57,039 56,262 72,363 55,498
Income before extraordinary
charge and cumulative effect
of accounting change 104,517 86,639 86,837 114,039 123,614
Extraordinary charge, net - - (5,550) - -
Accounting change, net (1,100) 3,100 (12,200) - -
Net income 103,417 89,739 69,087 114,039 123,614
Percent to
sales 3.7 3.3 2.5 4.7 5.2
Per common share $2.81 $2.44 $1.88 $3.10 $3.36
Dividends declared 37,581 37,581 37,581 37,120 26,804
Per common share $1.02 $1.02 $1.02 $1.00-3/4 $72-3/4
Dividends paid 37,581 37,581 37,581 37,120 35,278
Per common share $1.02 $1.02 $1.02 $1.00-3/4 $.95-3/4
Financial Position
Working capital $ 957,030 $ 902,268 $ 992,153 $ 988,786 $ 934,495
Ratio of current assets
to current liabilities 4.66 3.46 4.64 6.44 6.13
Receivables 620,238 635,114 613,708 656,428 667,600
Inventories 468,782 425,492 422,819 381,406 393,304
Property and equipment,
net (includes
capitalized leases) 688,806 691,502 680,933 461,563 444,696
Total assets 1,981,729 2,031,982 2,007,868 1,673,099 1,596,630
Long-term debt 261,187 271,965 390,258 207,150 207,906
Retained earnings 1,389,130 1,323,294 1,271,136 1,239,630 1,162,711
Stockholders'equity 1,400,551 1,334,715 1,282,557 1,251,051 1,174,132
Per common share $38.01 $36.23 $34.81 $33.96 $31.87
Return on stockholders'
equity (1) 7.6% 6.9% 5.5% 9.4% 11.0%
Number of shares
outstanding 36,844 36,844 36,844 36,844 36,844
Other Data
Capital
expenditures for
property and
equipment, net $ 93,639 $ 106,210 $ 110,638 $ 79,931 $ 82,944
Depreciation 93,540 93,455 94,036 70,607 63,158
Stores opened
during year 4 3 1 2 3
Stores acquired - - 16 - -
Stores closed
during year 2 1 1 1 1
Number of
stores 103 101 99 83 82
Total square feet 16,484 16,212 15,820 13,145 12,683
Sales per
square foot (2) $173 $169 $174 $188 $191
<FN>
(1) Based on average stockholders' equity at beginning and end of year.
(2) Based on stores opened for the entire year.
</TABLE>
<TABLE>
<CAPTION>
Ten-Year Selected Financial Data
(dollars in thousands, except per share data)
1989 1988 1987 1986 1985
Operating Results
<S> <C> <C> <C> <C> <C>
Net sales $2,312,802 $2,265,500 $2,155,653 $2,028,202 $1,880,039
Cost of goods sold 1,594,849 1,551,484 1,476,327 1,377,763 1,279,199
Selling, general and
administrative
expenses 502,537 480,225 451,885 431,656 404,328
Provision for
consolidation/relocation 10,000 - - - -
Interest expense 22,818 23,076 22,971 23,695 21,571
Interest income (4,289) (3,934) (3,268) (3,301) (2,833)
Other income (26,156) (22,021) (19,402) (17,811) (18,674)
Income before provision
for income taxes 213,043 236,670 227,140 216,200 196,448
Percent to
sales 9.2 10.4 10.5 10.7 10.4
Provision for income taxes 82,700 92,208 97,584 105,135 94,000
Income before extraordinary
charge and cumulative effect
of accounting change 130,343 144,462 129,556 111,065 102,448
Extraordinary charge, net - - - - -
Accounting change, net - - - - -
Net income 130,343 144,462 129,556 111,065 102,448
Percent to
sales 5.6 6.4 6.0 5.5 5.4
Per common share $3.54 $3.92 $3.52 $3.01 $2.78
Dividends declared 33,896 35,923 24,870 21,370 18,791
Per common share $.92 $.97-1/2 $.67-1/2 $.58 $ .51
Dividends paid 32,791 28,554 24,870 21,370 18,791
Per common share $.89 $.77-1/2 $.67-1/2 $.58 $ .51
Financial Position
Working capital $ 873,613 $ 846,839 $ 817,450 $ 756,699 $ 628,080
Ratio of current assets
to current liabilities 4.65 4.63 4.88 4.52 3.52
Receivables 644,633 625,199 588,510 548,132 514,759
Inventories 393,319 362,037 332,175 306,516 281,446
Property and equipment,
net (includes
capitalized leases) 408,229 355,438 310,486 294,846 270,035
Total assets 1,548,438 1,451,752 1,353,357 1,279,112 1,163,264
Long-term debt 199,284 197,058 205,241 205,786 211,224
Retained earnings 1,065,901 969,454 860,915 756,229 666,534
Stockholders'equity 1,077,322 980,875 872,336 767,729 678,034
Per common share $29.24 $26.62 $23.68 $20.84 $18.40
Return on stockholders'
equity (1) 12.7% 15.6% 15.8% 15.4% 16.1%
Number of shares
outstanding 36,844 36,844 36,844 36,845 36,845
Other Data
Capital
expenditures for
property and
equipment, net $ 97,230 $ 92,572 $ 57,797 $ 64,436 $ 49,639
Depreciation 54,478 47,541 47,141 46,833 43,267
Stores opened
during year 1 2 1 2 2
Stores acquired - - - - -
Stores closed
during year 1 1 4 - -
Number of
stores 80 80 79 82 80
Total square feet 12,077 11,791 11,124 11,105 10,676
Sales per
square foot (2) $192 $195 $195 $185 $178
<FN>
(1) Based on average stockholders' equity at beginning and end of year.
(2) Based on stores opened for the entire year.
</TABLE>
<PAGE>
Store Divisions and Locations
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)
Signatures Home Store (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 Southwyck Shopping Center (Lion)
North Towne Square (Lion)
Franklin Park Mall (Lion)
Westgate Home Store (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)
Dothan, AL Wiregrass Commons (Gayfers)
Tuscaloosa, AL McFarland Mall (Gayfers)
Albany, GA Albany Mall (Gayfers)
Columbus, GA Peachtree Mall (Gayfers)
Jackson, MS Metrocenter (Gayfers)
Northpark Mall (Gayfers)
Hattiesburg, MS Turtle Creek 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)
Gayfers/Maison Blanche
Store Locations Shopping Centers/Malls
Mobile, AL Springdale Mall (Gayfers)
Jubilee Mall (Gayfers)
Biloxi-Gulfport, MS Edgewater 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 (Gayfers)
Roosevelt Mall (Gayfers)
Orange Park Mall (Gayfers)
The Avenues (Gayfers)
Daytona Beach, FL Volusia Mall (Gayfers)
Orlando, FL Orlando Fashion Square (Gayfers)
Altamonte Mall (Gayfers)
The Florida Mall (Gayfers)
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)
Buckingham Square (Joslins)
Villa Italia Center (Joslins)
Westminster Mall (Joslins)
Southwest Plaza (Joslins)
Southglenn Mall (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-four
Stores in Kentucky, Ohio and Indiana
Headquartered in Louisville, Kentucky
Paul E. McLynch
President, Mercantile Merchandising Group
Central Buying Organization
Headquartered in Fairfield, Ohio
Edward A. Overbey, Jr.
President of Castner Knott Co.Thirteen Stores in Tennessee,
Kentucky and Alabama
Headquartered in Nashville, Tennessee
Robin E. Sanderford
President of Gayfers and J.B. White
Seventeen Stores in Alabama, Georgia,
Mississippi and South Carolina
Headquartered in Montgomery, Alabama
Michael G. Shannon
President of Gayfers and Maison Blanche Twenty-five Stores
in Florida, Louisiana, Alabama and Mississippi
Headquartered in Mobile, Alabama
Charles O. Unfried
President, Mercantile Credit Corp.
Central Credit Organization
Headquartered in Baton Rouge, Louisiana
Corporate Officers
David L. Nichols
Chairman of the Board and
Chief Executive Officer
James M. McVicker
Senior Vice President and
Chief Financial Officer
Randolph L. Burnette
Vice President
James D. Cain
Vice President
Paul E. McLynch
Vice President
William A. Carr
Treasurer
Kathryn M. Muldowney
Controller
Dennis F. Murphy
Secretary
<PAGE>
Directors
s n 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, Chief Operating Officer and
Director of Milliken & Company
n Rene C. McPherson
Former Chairman and Chief Executive Officer
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
Director of Milliken & Company
s n Roger Milliken
Chairman of the Board,Chief Executive Officer
and Director 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
<PAGE>
Stockholder Information
Annual Meeting
The Annual Meeting of Stockholders will be held at 11:00
a.m. on Wednesday, May 24, 1995 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 LLP
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 1994 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
EXHIBIT 21
MERCANTILE STORES COMPANY, INC.
SUBSIDIARY SCHEDULE
AS OF JANUARY 29, 1995
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
MERCANTILE INTERNATIONAL, INC. DELAWARE
MAISON BLANCHE, INC. LOUISIANA
TSM HOLDING COMPANY, INC. DELAWARE
GOUDCHAUX'S CAR CARE CENTER, INC. LOUISIANA
MB CREDIT CORPORATION 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 LLP
Cincinnati, Ohio
April 20, 1995
Exhibit 24
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 Agent, 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 28, 1995, 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 5, 1995
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS, CONSOLIDATED BALANCE
SHEETS AND STATEMENT OF CONSOLIDATED CASH FLOWS FOR THE PERIOD ENDED JANUARY 28,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 114,237
<SECURITIES> 0
<RECEIVABLES> 595,502
<ALLOWANCES> 3,100
<INVENTORY> 468,782
<CURRENT-ASSETS> 1,218,745
<PP&E> 1,086,681
<DEPRECIATION> 397,875
<TOTAL-ASSETS> 1,981,729
<CURRENT-LIABILITIES> 261,715
<BONDS> 0
<COMMON> 5,403
0
0
<OTHER-SE> 1,395,148
<TOTAL-LIABILITY-AND-EQUITY> 1,981,729
<SALES> 2,819,837
<TOTAL-REVENUES> 2,819,837
<CGS> 2,020,264
<TOTAL-COSTS> 2,020,264
<OTHER-EXPENSES> 5,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,118
<INCOME-PRETAX> 172,892
<INCOME-TAX> 68,375
<INCOME-CONTINUING> 104,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,100<F2>
<NET-INCOME> 103,417
<EPS-PRIMARY> 2.81
<EPS-DILUTED> 2.81
<FN>
<F1>Provision for divisional consolidation.
<F2>Adpotion of FASB No. 112.
</FN>
</TABLE>
EXHIBIT 99
MERCANTILE STORES COMPANY, INC.
LITIGATION SUMMARY
On September 28, 1994, an action was filed against the
Company in the Chancery Court of Delaware captioned "Francis
Bodkin and Irene Bodkin v. Mercantile Stores Company, Inc.,
et. al." (the "Complaint"). The Complaint purports to be
brought individually, on plaintiffs' own behalf, and as a
class action, on behalf of all the holders of shares of
common stock. The Complaint alleges that the Company and/or
its directors breached their fiduciary duties in allegedly
rejecting an offer by The May Department Stores Company to
acquire the Company during August and September, 1994. As
part of their demand for relief, plaintiffs seek unspecified
compensatory damages. The defendants filed a motion
to dismiss and a motion to stay discovery on December 5,
1994. The motions will be briefed and argued in due course.
The Company believes that the Complaint is without
merit and intends to vigorously defend the action.
