UNITED STATES
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 February 3, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3339
MERCANTILE STORES COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0032941
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
9450 Seward Road, Fairfield, Ohio 45014
(Address of principal executive (Zip Code)
offices)
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 the 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 26, 1996 was $1,366,569,200.
The number of shares outstanding of the registrant's common stock,
$.14 2/3 par value was 36,844,050 at April 26, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Registrant's 1995 Annual Report to Stockholders are
incorporated into Parts I, II and IV.
2. Portions of Registrant's Proxy Statement, dated April 19, 1996,
relating to the Annual Meeting of Stockholders to be held on May
22,1996 filed pursuant to Regulation 14A, are incorporated by
reference into 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. The Company's strategy is to
cater to middle and upper income customers by carrying wide of national
brand items and goods sold under the Company's private label with emphasis
on apparel, accessories and fashion home products. 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
value, customer service, fashion, selection, marketing and store location.
The retail business is highly seasonal. The fourth quarter, which includes
the Christmas season, is the most significant selling period. For the year
ended February 3, 1996, the fourth quarter accounted for approximately 34%
of consolidated retail sales and 63% of consolidated net income.
The Company regularly employs on a full or part-time basis an average of
approximately 31,700 associates, of which approximately 19,600 are
considered full-time equivalents.
The following portions from the Registrant's Annual Report to Stockholders
for the fiscal year ended February 3, 1996 are incorporated herein by
reference: Financial Highlights (inside front cover); Management's
Discussion and Analysis (pages 11-14); Note 1 (pages 21-22) and Note 2
(page 22) of Notes to Consolidated Financial Statements; Ten-Year Selected
Financial Data (pages 30-31).
Item 2. Properties.
The Company's typical store averages 170,000 in size square feet and are
located in seventeen different states under thirteen different names. The
following table summarizes the property ownership and applicable square
footage of the ninety seven department stores and four specialty stores
operated by the Company as of February 3, 1996:
Number of Square
Stores Footage
_________ _________
Owned Stores 58 8,840,877
Leased Stores 43 7,458,658
_________ _________
Total 101 16,299,535
Management's Discussion andf Analysis (pages 11-14); Note 1 (pages 21-22)
of Notes to Consolidated Financial Statements and Store Divisions and
Locations (pages 32-33) from the Registrant's Annual Report to Stockholders
for fiscal year ended February 3, 1996 are incorporated herein by reference.
-2-
<PAGE>
Item 3. Legal Proceedings.
Information required by Item 3 is incorporated by reference to Note 9
(page 28) from the Registrant's Annual Report to Stockholders for the
fiscal year ended February 3, 1996 and to the information set forth under
the caption "Litigation" included in the Registrant's definitive Proxy
Statement, dated April 19, 1996, relating to the Annual Meeting of
Stockholders to be held on May 22, 1996 and filed pursuant to Regulation
14A.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Market and Dividend Information (page 15) and Stockholder Information
(inside back cover) from the Registrant's Annual Report to Stockholders
for the fiscal year ended February 3, 1996 are incorporated herein
by reference.
Item 6. Selected Financial Data.
The Ten-Year Selected Financial Data (pages 30-31) and Notes to Consolidated
Financial Statements (pages 21-28) from the Registrant's Annual Report
to Stockholders for the fiscal year ended February 3, 1996 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 11-14) and Notes to Consolidated
Financial Statements (pages 21-28) from the Registrant's Annual Report to
Stockholders for the fiscal year ended February 3, 1996 are incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements (pages 17-20), Notes to Consolidated
Financial Statements (pages 21-28), Report of Independent Public Accountants
(page 16), which includes an explanatory paragraph that describes the change
in the methods of accounting for postemployment benefits discussed in Note 7
and accounting for income taxes discussed in Note 6 of Notes to Consolidated
Financial Statements, and Quarterly Results (page 29) from the Registrant's
Annual Report to Stockholders for the fiscal year ended February 3, 1996 are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures.
None.
-3-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information set forth under the captions "Election of Directors",
"Stock Ownership of Management", "Other Executive Officers" and "Compliance
with Section 16(a) of the Exchange Act" included in the Registrant's
definitive Proxy Statement, dated April 19, 1996, relating to the Annual
Meeting of Stockholders to be held on May 22, 1996 and filed pursuant to
Regulation 14A, 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", "Severance Protection Agreements", and "Directors' Compensation"
included in the Registrant's definitive Proxy Statement, dated April 19,
1996, relating to the Annual Meeting of Stockholders to be held on
May 22, 1996 and filed pursuant to Regulation 14A, 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" included in the
Registrant's definitive Proxy Statement, dated April 19, 1996, relating to
the Annual Meeting of Stockholders to be held on May 22, 1996 and filed
pursuant to Regulation 14A, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Transactions with Management
and Others" included in the Registrant's definitive Proxy Statement, dated
April 19, 1996, relating to the Annual Meeting of Stockholders to be held
on May 22, 1996 and filed pursuant to Regulation 14A, is incorporated
herein by reference.
-4-
<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 February 3, 1996
are incorporated herein by reference:
(a) Statements of Consolidated Income and Retained Earnings for
the fiscal years ended February 3, 1996, January 28, 1995 and
January 29, 1994 - page 17.
(b) Consolidated Balance Sheets as of February 3,1996 and
January 28, 1995 - pages 18 and 19.
(c) Statements of Consolidated Cash Flows for the fiscal years
ended February 3, 1996, January 28, 1995 and
January 29, 1994 - page 20.
(d) Notes to Consolidated Financial Statements - pages 21-28.
(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 7 and accounting for income taxes discussed in Note 6
of Notes to Consolidated Financial Statements - page 16.
2. Financial Statement Schedules of the Registrant and Consolidated
Subsidiaries included herein:
(a) Report of Independent Public Accountants, 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.
-5-
<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.a)- The Severance Protection Agreement, dated as
of May 1, 1995, between David L. Nichols and
the Company.
*(10.b)- The Form Severance Protection Agreements, dated as
of May 1, 1995, between the Company and each of
James M. McVicker, Randolph L. Burnette, James
D. Cain and Paul E. McLynch.
(13)- The Registrant's Annual Report to Stockholders for
the fiscal year ended February 3, 1996.
(21)- A listing of the subsidiaries of the Registrant.
(23)- Consent of Independent Public Accountants.
(24)- Power of Attorney.
(27)- Financial Data Schedule.
- ---------------------
* - Management contract or compensatory plan.
B. No reports on Form 8-K have been filed during the fourth
quarter of the fiscal year ended February 3, 1996.
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 29, 1996.
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<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 * Lawrence R. Pugh
(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 29, 1996
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.
-7-
<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 March 25, 1996.
Our audit was made for the purpose of forming an opinion on those statements
taken as a whole. The schedule listed under Part IV 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 part 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
March 25, 1996
<PAGE>
<TABLE>
<CAPTION>
MERCANTILE STORES COMPANY, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<S> <C> <C> <C> <C> <C>
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 net end of
Description of period expenses accounts of recoveries period
Allowance for Doubtful Accounts:
Year Ended February 3, 1996 $3,100 $20,282 $ 0 $6,883 $16,499
Year Ended January 28, 1995 $0 $1,462 $ 3,130(A) $1,492 $3,100
Year Ended January 29, 1994 Not Applicable
<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 Statement). 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>
-9-
EXHIBIT 10.A
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT, made as of the 1st day of May, 1995, by
and between the Company (as hereinafter defined) and David L. Nichols
(the "Executive").
WHEREAS, the Board of Directors of the Company (the
"Board") recognizes that the possibility of a Change in Control
(as hereinafter defined) exists and that the threat or the
occurrence of a Change in Control can result in significant
distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential
and in the best interest of the Company and its stockholders to
retain the services of the Chairman and the Chief Executive
Officer of the Company in the event of a threat or the occurrence
of a Change in Control and to ensure his continued dedication and
efforts in such event without undue concern for his personal
financial and employment security; and
WHEREAS, the Executive is the Chairman and Chief
Executive Officer of the Company and in order to induce the
Executive to remain in the employ of the Company, particularly in
the event of a threat or the occurrence of a Change in Control,
the Company desires to enter into this Agreement with the
Executive to provide the Executive with certain benefits in the
event his employment is terminated as a result of, or in
connection with, a Change in Control.
NOW, THEREFORE, in consideration of the respective
agreements of the parties contained herein, it is hereby agreed
as follows:
1. Term of Agreement. This Agreement shall commence
as of May 1, 1995 and shall continue in effect until April 30,
1997, provided, however, that commencing on May 1, 1996 and on
each May 1 thereafter, the term of this Agreement shall
automatically be extended for one (1) year unless either the
Company or the Executive shall have given written notice to the
other at least ninety (90) days prior thereto that the term of
this Agreement shall not be so extended; and provided, further,
however, that notwithstanding any such notice by the Company not
to extend, the term of this Agreement shall not expire prior to
the later of (i) the expiration of twenty-four (24) months after
the occurrence of a Change in Control during the term of this
Agreement, or (ii) until such time as all benefits to be provided
for hereunder have been provided in full. Notwithstanding the
foregoing, however, this Agreement shall terminate in the event
that the Executive enters into an agreement covering the subject
matter hereof with the Company subsequent to the date hereof and
such agreement specifically states that this Agreement is
terminated.
2. Definitions.
2.1. Accrued Compensation. For purposes of this
Agreement, "Accrued Compensation" shall mean an amount which
shall include all amounts earned or accrued through the
Termination Date (as hereinafter defined) but not paid as of the
Termination Date including (i) base salary, (ii) reimbursement
for reasonable and necessary expenses incurred by the Executive
on behalf of the Company during the period ending on the
Termination Date, (iii) vacation pay, and (iv) bonuses and
incentive compensation.
<PAGE>
2.2. Base Amount. For purposes of this Agreement,
"Base Amount" shall mean the Executive's annual base salary at
the highest rate in effect during the one year period prior to
the Change in Control, and shall include all amounts of his base
salary that are deferred under the qualified and non-qualified
employee benefit plans of the Company or any other agreement or
arrangement.
2.3. Bonus Amount. For purposes of this
Agreement, "Bonus Amount" shall mean an amount equal to the
annual bonus paid or payable to the Executive for the most
recently completed fiscal year prior to the Change in Control.
2.4. Cause. For purposes of this Agreement, a
termination of employment is for "Cause" if the Executive has
been convicted of a felony or the termination is evidenced by a
resolution adopted in good faith by two-thirds of the Board that
the Executive (a) intentionally and continually failed
substantially to perform his reasonably assigned duties with the
Company (other than a failure resulting from the Executive's
incapacity due to physical or mental illness or as a result of
the assignment to the Executive of duties inappropriate for a
Chief Executive Officer) which failure continued for a period of
at least thirty (30) days after a written notice of demand for
substantial performance has been delivered to the Executive
specifying the manner in which the Executive has failed
substantially to perform, or (b) intentionally engaged in conduct
which is demonstrably and materially injurious to the Company;
provided, however, that no termination of the Executive's
employment shall be for Cause as set forth in clause (b) above
until (x) there shall have been delivered to the Executive a copy
of a written notice setting forth that the Executive was guilty
of the conduct set forth in clause (b) and specifying the
particulars thereof in detail, and (y) the Executive shall have
been provided an opportunity to be heard in person by the Board
(with the assistance of the Executive's counsel if the Executive
so desires). No act, nor failure to act, on the Executive's
part, shall be considered "intentional" unless the Executive has
acted, or failed to act, with a lack of good faith and with a
lack of reasonable belief that the Executive's action or failure
to act was in the best interest of the Company.
2.5. Change in Control. A "Change in Control"
shall mean any of the following events:
(a) An acquisition (other than directly from
the Company) of any voting securities of the Company (the "Voting
Securities") by any "Person" (as the term person is used for
purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended (the "1934 Act")) immediately after which
such Person has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of twenty percent
(20%) or more of the combined voting power of the Company's then
outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting
Securities which are acquired in a Non-Control Acquisition (as
hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (1) an employee benefit plan (or a
trust forming a part thereof) maintained by (x) the Company or
(y) any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is owned
directly or indirectly by the Company (a "Subsidiary"), (2) the
Company or any Subsidiary, or (3) any Person in connection with a
Non-Control Transaction (as hereinafter defined);
(b) The individuals who, as of January 1,
1995, are members of the Board (the "Incumbent Board"), cease for
any reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or nomination for
election by the Company's stockholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Agreement, be considered a
member of the Incumbent Board; provided, further, however, that
no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either
an actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest; or
<PAGE>
(c) Approval by stockholders of the Company
of:
(1) A merger, consolidation or re-
organization involving the Company, unless
(i) the stockholders of the
Company, immediately before such merger, consolidation
or reorganization, own, directly or indirectly
immediately following such merger, consolidation or
reorganization, at least seventy percent (70%) of the
combined voting power of the outstanding voting
securities of the corporation resulting from such
merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or
reorganization,
(ii) the individuals who were
members of the Incumbent Board immediately prior to the
execution of the agreement providing for such merger,
consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of
the Surviving Corporation, and
(iii) no Person (other than the
Company, any Subsidiary, any employee benefit plan (or
any trust forming a part thereof) maintained by the
Company, the Surviving Corporation or any Subsidiary,
or any Person who, immediately prior to such merger,
consolidation or reorganization, had Beneficial
Ownership of fifteen percent (15%) or more of the then
outstanding Voting Securities) has Beneficial Ownership
of fifteen percent (15%) or more of the combined voting
power of the Surviving Corporation's then outstanding
voting securities (a transaction described in clauses
(i) through (iii) above shall herein be referred to as
a "Non-Control Transaction");
(2) A complete liquidation or dissolu-
tion of the Company; or
(3) An agreement for the sale or other
disposition of all or substantially all of the assets of the
Company to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount
of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases
the proportional number of shares Beneficially Owned by the
Subject Person, provided that if a Change in Control would occur
(but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which increases
the percentage of the then outstanding Voting Securities beneficially
owned by the Subject Person, then a Change in Control shall occur.
<PAGE>
(d) Notwithstanding anything contained in
this Agreement to the contrary, if the Executive's employment is
terminated prior to a Change in Control and the Executive
reasonably demonstrates that such termination (i) was at the
request of a third party who had indicated an intention or taken
steps reasonably calculated to effect a Change in Control and who
effectuates a Change in Control or (ii) otherwise occurred in
connection with, or in anticipation of, a Change in Control which
actually occurs, then for all purposes of this Agreement, the
date of a Change in Control with respect to the Executive shall
mean the date immediately prior to the date of such termination
of the Executive's employment.
2.6. Company. For purposes of this Agreement, the
"Company" shall mean Mercantile Stores Company, Inc., a Delaware
corporation, and shall include its Successors and Assigns (as
hereinafter defined). As used in this Agreement, the term
"affiliates" shall include any company controlled by,
controlling, or under common control with, the Company.
2.7. Disability. For purposes of this Agreement,
"Disability" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his
duties with the Company for a period of one hundred eighty (180)
consecutive days and the Executive has not returned to his full
time employment prior to the Termination Date as stated in the
Notice of Termination (as hereinafter defined).
2.8. Notice of Termination. For purposes of this
Agreement, following a Change in Control, "Notice of Termination"
shall mean a written notice of termination from the Company of
the Executive's employment which indicates the specific
termination provision in this Agreement relied upon and which
sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. The Notice of
Termination shall also specify the relevant Termination Date.
2.9. Successors and Assigns. For purposes of this
Agreement, "Successors and Assigns"' shall mean a corporation or
other entity acquiring all or substantially all the assets and
business of the Company (including this Agreement) whether by
operation of law or otherwise.
2.10. Termination Date. For purposes of this
Agreement, "Termination Date" shall mean in the case of the
Executive's death, his date of death, in the case of the
Executive's resignation for any reason, the last day of his
employment, and in all other cases, the date specified in the
Notice of Termination; provided, however, that if the Executive's
employment is terminated by the Company for Cause or due to
Disability, the date specified in the Notice of Termination shall
be at least 30 days from the date the Notice of Termination is
given to the Executive, provided, that in the case of Disability
the Executive shall not have returned to the full-time
performance of his duties during such period of at least 30 days.
3. Termination of Employment.
3.1. If, during the term of this Agreement, the
Executive's employment with the Company shall be terminated
within twenty-four (24) months following a Change in Control, the
Executive shall be entitled to the following compensation and
benefits:
<PAGE>
(a) If the Executive's employment with the
Company shall be terminated (1) by the Company for Cause or
Disability, or (2) by reason of the Executive's death, the
Company shall pay to the Executive the Accrued Compensation.
(b) If the Executive's employment with the
Company shall be terminated for any reason other than as
specified in Section 3.1(a) (including, without limitation, by
reason of the Executive's voluntary resignation), the Executive
shall be entitled to the following:
(i) the Company shall pay the
Executive all Accrued Compensation;
(ii) the Company shall pay the
Executive as severance pay and in lieu of any
further compensation for periods subsequent to the
Termination Date, an amount in cash equal to
either (A) $2,997,075, or (B) 2.99 times the sum
of the Base Amount and the Bonus Amount, at the
Executive's sole election;
(iii) for a period of thirty-six
(36) months after the Termination Date (the
"Continuation Period"), the Company shall, at its
expense, continue on behalf of the Executive and
his dependents and beneficiaries all employee
benefits provided (x) to the Executive at any time
during the one year period prior to the Change in
Control or at any time thereafter or (y) to other
similarly situated executives who continue in the
employ of the Company during the Continuation
Period, including, but not limited to, long-term
disability, medical, dental, life insurance,
flexible spending account, pre-tax insurance
premiums and employee discount, but excluding
pension and profit-sharing benefits. The coverage
and benefits (including deductibles and costs)
provided in this Section 3.1(b)(iii) during the
Continuation Period shall be no less favorable to
the Executive and his dependents and beneficiaries
than the most favorable of such coverages and
benefits during any of the periods referred to in
clauses (x) and (y) above. The Company's
obligation hereunder with respect to the foregoing
benefits shall be limited to the extent that the
Executive obtains any such benefits pursuant to a
subsequent employer's benefit plans, in which case
the Company may reduce the coverage of any
benefits it is required to provide the Executive
hereunder as long as the aggregate coverages and
benefits of the combined benefit plans is no less
favorable to the Executive than the coverages and
benefits required to be provided hereunder. This
subsection (iii) shall not be interpreted so as to
limit any benefits to which the Executive, his
dependents or beneficiaries may be entitled under
any of the Company's employee benefit plans,
programs or practices following the Executive's
termination of employment, including, without
limitation, retiree medical and life insurance
benefits. In the event the Executive elects to be
paid the amount set forth in clause (A) of Section
3.1(b)(ii), and in the event that any payment or
benefit to be received by the Executive or for his
benefit paid or payable or distributed or
distributable pursuant to the terms of this
Section 3.1(b)(iii) (collectively, the "Benefit
Payments") is subject to income tax imposed by any
federal, state or local taxing authority or any
interest or penalties are incurred by the
Executive with respect to any such income taxes
(such income tax, together with any such interest
and penalties, other than interest and penalties
imposed by reason of the Executive's failure to file
timely a tax return or pay taxes shown due on his
return, imposed with respect to such income taxes,
are hereinafter collectively referred to as the
"Income Tax"), then the Executive will be entitled
to receive an additional payment (the "Additional
Payment") such that the net amount retained by the
Executive, after deduction and/or payment of any
Income Tax on the Benefit Payments and any income
tax imposed by any federal, state and local taxing
authority on the Additional Payment (including any
interest and penalties, other than interest and
penalties imposed by reason of the Executive's
failure to timely file a tax return or pay taxes
shown due on his return, imposed with respect to
such taxes), shall be equal to the Benefit
Payments. The intent of the parties hereto is
that in the event the Executive elects to be paid
the amount set forth in clause (A) of Section
3.1(b)(ii), the Executive shall receive no more or
no less than what the Executive would have
received had the benefit payments not been subject
to Income Tax;
<PAGE>
(iv) the Company shall pay to the
Executive in a single payment an amount in cash
equal to the excess of (A) the Supplemental
Retirement Benefit (as defined below) had (w) the
Executive remained employed by the Company for an
additional three (3) complete years of credited
service, (x) his annual compensation during such
period been equal to the Base Amount and the Bonus
Amount, (y) the benefit accrual formulas of each
retirement plan remained no less advantageous to
the Executive than those in effect immediately
preceding the date on which a Change in Control
occurred and the Company made employer
contributions to each defined contribution plan in
which the Executive was a participant at the
Termination Date (in an amount equal to the amount
of such contribution for the plan year immediately
preceding the Termination Date), and (z) he been
fully (100%) vested in his benefit under each
retirement plan in which the Executive was a
participant, over (B) the lump sum actuarial
equivalent of the aggregate retirement benefit the
Executive is actually entitled to receive under
such retirement plans. For purposes of this
subsection (iv), the "Supplemental Retirement
Benefit" shall mean the lump sum actuarial
equivalent of the aggregate retirement benefit the
Executive would have been entitled to receive
under the Company's supplemental and other
retirement plans, including, but not limited to,
the Mercantile Stores Pension Plan, the Mercantile
Stores Non-Qualified Top Hat Pension Plan, the
Mercantile Stores Non-Qualified Excess Pension
Plan and the Mercantile Stores Savings, Profit
Sharing and Supplemental Retirement Plan (the
"Pension Plans"). For purposes of this subsection
(iv), the "actuarial equivalent" shall be
determined in accordance with the actuarial
assumptions used for the calculation of benefits
under the Pension Plans as applied prior to the
Termination Date in accordance with such plan's
past practices.
(c) The amounts provided for in Sections
3.1(a), 3.1(b)(i), 3.1(b)(ii) and 3.1(b)(iv) shall be paid in a
single lump sum cash payment within five (5) days after the
Executive's Termination Date (or earlier, if required by
applicable law); and the amount payable to the Executive to
compensate the Executive for any taxes that may be imposed upon
the Benefit Payments and other payments payable to the Executive
pursuant to Section 3.1(b)(iii) shall be paid in a single lump
sum cash payment within five (5) days after the Executive demands
such payment from the Company.
<PAGE>
(d) The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise and no such payment
shall be offset or reduced by the amount of any compensation or
benefits provided to the Executive in any subsequent employment
except as provided in Section 3.1(b)(iii). Notwithstanding the
foregoing, the Executive agrees that during the Continuation
Period, he shall not (i) solicit any employees of the Company to
leave the Company's employ to work for any company with which the
Executive is employed, or (ii) employ any associate who is
employed by the Company at any time during the Continuation
Period. A breach of either of the foregoing covenants will
result in the Executive forfeiting any further benefits to which
he is entitled pursuant to Section 3.1(b)(iii), although the
Executive shall not be required to return any payments to the
Company which have been made to the Executive prior to the date
of such breach.
3.2. (a) The severance pay and benefits
provided for in this Section 3 shall be in lieu of any other
severance or termination pay to which the Executive may be
entitled under any Company severance or termination plan,
program, practice or arrangement.
(b) The Executive's entitlement to any or
other compensation benefits shall be determined in accordance
with the Company's employee benefit plans and other applicable
programs, policies and practices then in effect.
(c) Notwithstanding anything to the contrary
in this Agreement, in the event the Executive is terminated by
the Company after the occurrence of a Change in Control and is
subsequently rehired by the Company at any time thereafter, the
Executive shall not be entitled to any further benefits under
Section 3.1(b)(iii) of this Agreement although the Executive
shall not be required to return any payments to the Company which
have been made to the Executive prior to the date the Executive
is rehired.
4. Notice of Termination. Following a Change in
Control, any purported termination of the Executive's employment
by the Company shall be communicated by Notice of Termination to
the Executive. For purposes of this Agreement, no such purported
termination shall be effective without such Notice of
Termination.
5. Excise Tax Payments.
5.1 In the event the Executive elects to be
paid the amount set forth in clause (A) of Section 3.1(b)(ii),
the following provisions shall be applicable (capitalized terms
used in this Section 5.1 shall have the meanings assigned to them
in this Section 5.1 only):
(a) In the event that any payment or benefit
(within the meaning of Section 280G(b)(2) of the Internal Revenue
Code of 1986, as amended (the "Code")), to the Executive or for
his benefit paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in
connection with, or arising out of, his employment with the
Company or a change in ownership or effective control of the
Company or of a substantial portion of its assets (each a
"Payment" and collectively, the "Payments"), would be subject to
the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Executive will be entitled to
receive an additional payment (a "Gross-Up Payment"), such that
the net amount retained by the Executive, after deduction and/or
payment of any Excise Tax on the Payments and the Gross-Up
Payment and any federal, state and local income tax on the Gross-
Up Payment (including any interest or penalties, other than
interest and penalties imposed by reason of the Executive's failure
to file timely a tax return or pay taxes shown due on his return,
imposed with respect to such taxes), shall be equal to the Payments.
The intent of the parties hereto is that the Executive shall receive
no more or no less than what the Executive would have received had the
Payment or Payments not been subject to the Excise Tax.
<PAGE>
(b) An initial determination as to whether a
Gross-Up Payment is required pursuant to this Agreement and the
amount of such Gross-Up Payment shall be made at the Company's
expense by an accounting firm selected by the Company and
reasonably acceptable to the Executive which is designated as one
of the five largest accounting firms in the United States (the
"Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed
supporting calculations and documentation to the Company and the
Executive within five days of the Termination Date if applicable,
or such other time as requested by the Executive (provided the
Executive reasonably believes that any of the Payments may be
subject to the Excise Tax) and if the Accounting Firm determines
that no Excise Tax is payable by the Executive with respect to a
Payment or Payments, it shall furnish the Executive with an
opinion reasonably acceptable to the Executive that no Excise Tax
will be imposed with respect to any such Payment or Payments.
Within ten days of the delivery of the Determination to the
Executive, the Executive shall have the right to dispute the
Determination (the "Dispute"). The Gross-Up Payment, if any, as
determined pursuant to this Paragraph 5.1(b) shall be paid by the
Company to the Executive within five days of the receipt of the
Accounting Firm's determination. The existence of the Dispute
shall not in any way affect the Executive's right to receive the
Gross-Up Payment in accordance with the Determination. If there
is no Dispute, the Determination shall be binding, final and
conclusive upon the Company and the Executive subject to the
application of Section 5.1(c) below.
(c) As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible
that a Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an "Excess Payment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will
not have been paid (an "Underpayment"). An Underpayment shall be
deemed to have occurred (i) upon notice (formal or informal) to
the Executive from any governmental taxing authority that the
Executive's tax liability (whether in respect of the Executive's
current taxable year or in respect of any prior taxable year) may
be increased by reason of the imposition of the Excise Tax on a
Payment or Payments with respect to which the Company has failed
to make a sufficient Gross-Up Payment, (ii) upon a determination
by a court, (iii) by reason of a determination by the Company
(which shall include the position taken by the Company, together
with its consolidated group, on its federal income tax return) or
(iv) upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall
promptly notify the Company and the Company shall promptly, but
in any event, at least five days prior to the date on which the
applicable government taxing authority has requested payment, pay
to the Executive an additional Gross-Up Payment equal to the
amount of the Underpayment plus any interest and penalties (other
than interest and penalties imposed by reason of the Executive's
failure to file timely a tax return or pay taxes shown due on the
Executive's return) imposed on the Underpayment. An Excess
Payment shall be deemed to have occurred upon a Final
Determination (as hereinafter defined) that the Excess Tax shall
not be imposed upon a Payment or Payments (or portion thereof)
with respect to which the Executive had previously received a
Gross-Up Payment. A "Final Determination" shall be deemed to
have occurred when the Executive has received from the applicable
government taxing authority a refund of taxes or other reduction
in the Executive's tax liability by reason of the Excess Payment
and upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental
taxing authority which finally and conclusively binds the
Executive and such taxing authority, or in the event that a claim
is brought before a court of competent jurisdiction, the date
upon which a final determination has been made by
such court and either all appeals have been taken and finally
resolved or the time for all appeals has expired or (y) the
statute of limitations with respect to the Executive's applicable
tax return has expired. If an Excess Payment is determined to
have been made, the amount of the Excess Payment shall be treated
as a loan by the Company to the Executive and the Executive shall
pay to the Company on demand (but not less than 10 days after the
determination of such Excess Payment and written notice has been
delivered to the Executive) the amount of the Excess Payment plus
interest at an annual rate equal to the Applicable Federal Rate
provided for in Section 1274(d) of the Code from the date the
Gross-Up Payment (to which the Excess Payment relates) was paid
to the Executive until the date of repayment to the Company.
<PAGE>
(d) Notwithstanding anything contained in
this Agreement to the contrary, in the event that, according to
the Determination, an Excise Tax will be imposed on any Payment
or Payments, the Company shall pay to the applicable government
taxing authorities as Excise Tax withholding, the amount of the
Excise Tax that the Company has actually withheld from the
Payment or Payments.
5.2 In the event the Executive elects to be paid
the amount set forth in clause (B) of Section 3.1(b)(ii), the
following provisions shall be applicable (capitalized terms used
in this Section 5.2 shall have the meanings assigned to them in
this Section 5.2 only):
(a) Notwithstanding anything contained in
this Agreement to the contrary, to the extent that any payment or
benefit (within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code")), to the Executive
or for his benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his employment
with the Company or a Change in ownership or effective control of
the Company or of a substantial portion of its assets (each a
"Payment" and collectively, the "Payments") would be subject to
the excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), the
Payments shall be reduced (but not below zero) if and to the
extent necessary so that no payment to be made or benefit to be
provided to the Executive shall be subject to the Excise Tax
(such reduced amount is hereinafter referred to as the "Limited
Payment Amount"). Unless the Executive shall have given prior
written notice specifying a different order to the Company to
effectuate the Limited Payment Amount, the Company, in
consultation with the Executive, shall reduce or eliminate the
Payments, by first reducing or eliminating those payments or
benefits which are not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order
beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as hereinafter defined).
Any notice given by the Executive pursuant to the preceding
sentence shall take precedence over the provisions of any other
plan, arrangement or agreement governing the Executive's rights
and entitlements to any benefits or compensation.
(b) An initial determination as to whether
the Payments shall be reduced to the Limited Payment Amount
pursuant to Section 5.2(a) and the amount of such Limited Payment
Amount shall be made at the Company's expense by an accounting
firm selected by the Company which is designated as one of the
five largest accounting firms in the United States (the
"Accounting Firm"). The Accounting Firm shall provide its
initial determination (the "Determination"), together with
detailed supporting calculations and documentation to the Company
and the Executive within five (5) days of the Termination Date,
or such other time as requested by the Executive, and shall
furnish the Executive with an opinion reasonably acceptable to
the Executive setting forth its conclusions (together with
supporting calculations). Within ten (10) days of the delivery
of the Determination to the Executive, the Executive shall have
the right to dispute the Determination (the "Dispute").
If there is no Dispute, the Determination shall be
binding, final and conclusive upon the Company and the Executive
subject to the application of Section 5.2(c) below. In addition,
the Executive shall have the right to request the Accounting
Firm, at the Company's expense, to render additional
determinations from time to time, subsequent to the
Determination, as to whether an Excess Payment (as defined in
Section 5.2(c)) or an Underpayment (as defined in Section 5.2(c))
has occurred. The Accounting Firm shall provide each subsequent
determination within five (5) days after each such request by the
Executive, and shall furnish the Executive with an opinion
reasonably satisfactory to the Executive setting forth its
conclusions (together with supporting calculations).
<PAGE>
(c) As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible
that the Payments to be made to, or provided for the benefit of,
the Executive, either have been made or will not be made by the
Company which, in either case, will be inconsistent with the
limitations provided in Section 5.2(a) (hereinafter referred to
as an "Excess Payment" or "Underpayment", respectively). If it
is established pursuant to a final determination of a court or an
Internal Revenue Service (the "IRS") proceeding which has been
finally and conclusively resolved, that an Excess Payment has
been made, such Excess Payment shall be deemed for all purposes
to be a loan to the Executive made on the date the Executive
received the Excess Payment and the Executive shall repay the
Excess Payment to the Company on demand (but not less than ten
(10) days after written notice is received by the Executive)
together with interest on the Excess Payment at the "Applicable
Federal Rate" (as defined in Section 1274(d) of the Code) from
the date of the Executive's receipt of such Excess Payment until
the date of such repayment. In the event that it is determined
by (i) the Accounting Firm or the Company (which shall include
the position taken by the Company, or together with its
consolidated group, on its federal income tax return), (ii)
pursuant to a determination by a court, or (iii) upon the
resolution to the Executive's satisfaction of the Dispute, that
an Underpayment has occurred, the Company shall pay an amount
equal to the Underpayment to the Executive within ten (10) days
of such determination or resolution together with interest on
such amount at the Applicable Federal Rate from the date such
amount would have been paid to the Executive until the date of
payment.
6. Successors' Binding Agreement.
(a) This Agreement shall be binding upon and
shall inure to the benefit of the Company, its Successors and
Assigns and the Company shall require any Successors and Assigns
to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had
taken place.
(b) Neither this Agreement nor any right or
interest hereunder shall be assignable or transferable by the
Executive, his beneficiaries or legal representatives, except by
will or by the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the
Executive's legal personal representative.
7. Fees and Expenses. The Company shall pay all
legal fees and related expenses (including the costs of experts,
evidence and counsel) incurred by the Executive as they become
due as a result of (a) the Executive's termination of employment
(including all such fees and expenses, if any, incurred in
contesting or disputing any such termination of employment), (b)
the Executive seeking to obtain or enforce any right or benefit
provided by this Agreement (including, but not limited to, any
such fees and expenses incurred in connection with the Dispute
(under either Section 5.1 or 5.2, as the case may be) and any
other matter arising under Section 5.1 or Section 5.2, including
the existence and amount of any Excess Payment or
Underpayment (under either Section 5.1 or Section 5.2, as the
case may be) and issues with respect to the Gross-Up Payment,
whether as a result of any applicable government taxing authority
proceeding, audit or otherwise, or by any other plan or
arrangement maintained by the Company under which the Executive
is or may be entitled to receive benefits), provided, however,
that any such action by the Executive is commenced in good faith
and for good reason, and (c) the Executive's hearing before the
Board as contemplated in Section 2.4 of this Agreement; provided,
however, that the circumstances set forth in clauses (a) and (b)
(other than as a result of the Executive's termination of
employment under circumstances described in Section 2.5(d))
occurred on or after a Change in Control.
<PAGE>
8. Notices. For the purposes of this Agreement,
notices and all other communications provided for in the
Agreement (including the Notice of Termination) shall be in
writing and shall be deemed to have been duly given when
personally delivered or sent by certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses
for the parties set forth on Exhibit A hereto or to any other
addresses as the respective parties may designate by notice
delivered pursuant to this Section 8, provided that all notices
to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company. All notices and
communications shall be deemed to have been received on the date
of delivery thereof or on the third business day after the
mailing thereof, except that notice of change of address shall be
effective only upon receipt.
9. Non-Exclusivity of Rights. Nothing in this
Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive or other
plan or program provided by the Company and for which the
Executive may qualify, nor shall anything herein limit or reduce
such rights as the Executive may have under any other agreements
with the Company. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or
program of the Company shall be payable in accordance with such
plan or program, except as explicitly modified by this Agreement.
10. Settlement of Claims. The Company's obligation to
make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the
Company may have against the Executive or others.
11. Modification, Waiver and Miscellaneous. No
provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver
by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
12. Governing Law and Jurisdiction. This Agreement
shall be governed by and construed and enforced in accordance
with the laws of the State of New York without giving effect to
the conflict of laws principles thereof. Any claims arising
under or related to this Agreement shall be settled by binding
arbitration pursuant to the rules of the American Arbitration
Association or such other rules as to which the parties may
agree. The arbitration shall take place in New York, New York
within thirty (30) days following service of notice of such
dispute by one party on the other. The arbitration shall be
conducted before a panel of three (3) arbitrators, one to be
selected by each of the parties and the third to be selected by
the other two. The panel of arbitrators shall have no authority
to order a modification or amendment of this Agreement. Any
proceeding under this Agreement to enforce an arbitration award
shall be brought in any court having jurisdiction.
<PAGE>
13. Severability. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability
of any provision shall not affect the validity or enforceability
of the other provisions hereof.
14. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto and supersedes all
prior agreements, if any, understandings and arrangements, oral
or written, between the parties hereto with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed by its duly authorized officer and the
Executive has executed this Agreement as of the day and year
first above written.
MERCANTILE STORES COMPANY, INC.
By:_____________________________
James M. McVicker
Senior Vice President and Chief
Financial Officer
________________________________
DAVID L. NICHOLS
EXHIBIT 10.B
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT, made as of the 1st day of May, 1995, by
and between the Company (as hereinafter defined) and each of
James M. McVicker, Randolph L. Burnette, James D. Cain and Paul
E. McLynch (the "Executive").
WHEREAS, the Board of Directors of the Company (the
"Board") recognizes that the possibility of a Change in Control
(as hereinafter defined) exists and that the threat or the
occurrence of a Change in Control can result in significant
distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential
and in the best interest of the Company and its stockholders to
retain the services of certain key corporate officers of the
Company and the Company's Store Group Presidents in the event of
a threat or the occurrence of a Change in Control and to ensure
their continued dedication and efforts in such event without
undue concern for their personal financial and employment
security; and
WHEREAS, the Executive is a Vice President of the
Company and in order to induce the Executive to remain in the
employ of the Company, particularly in the event of a threat or
the occurrence of a Change in Control, the Company desires to
enter into this Agreement with the Executive to provide the
Executive with certain benefits in the event his employment is
terminated as a result of, or in connection with, a Change in
Control.
NOW, THEREFORE, in consideration of the respective
agreements of the parties contained herein, it is hereby agreed
as follows:
1. Term of Agreement. This Agreement shall commence
as of May 1, 1995 and shall continue in effect until April 30,
1997, provided, however, that commencing on May 1, 1996 and on
each May 1 thereafter, the term of this Agreement shall
automatically be extended for one (1) year unless either the
Company or the Executive shall have given written notice to the
other at least ninety (90) days prior thereto that the term of
this Agreement shall not be so extended; and provided, further,
however, that notwithstanding any such notice by the Company not
to extend, the term of this Agreement shall not expire prior to
the expiration of twenty-four (24) months after the occurrence of
a Change in Control during the term of this Agreement.
Notwithstanding the foregoing, however, this Agreement shall
terminate in the event that the Executive enters into an
agreement covering the subject matter hereof with the Company
subsequent to the date hereof and such agreement specifically
states that this Agreement is terminated.
2. Definitions.
2.1. Accrued Compensation. For purposes of
this Agreement, "Accrued Compensation" shall mean an amount which
shall include all amounts earned or accrued through the
Termination Date (as hereinafter defined) but not paid as of the
Termination Date including (i) base salary, (ii) reimbursement
for reasonable and necessary expenses incurred by the Executive
on behalf of the Company during the period ending on the
Termination Date, (iii) vacation pay, and (iv) bonuses and
incentive compensation.
2.2. Base Amount. For purposes of this
Agreement, "Base Amount" shall mean the Executive's annual base salary at
the highest rate in effect during the one year period prior to
the Change in Control, and shall include all amounts of his base
salary that are deferred under the<PAGE>
qualified and non-qualified employee
benefit plans of the Company or any other agreement or arrangement.
<PAGE>
2.3. Bonus Amount. For purposes of this
Agreement, "Bonus Amount" shall mean an amount equal to the
annual bonus paid or payable to the Executive for the most
recently completed fiscal year prior to the Change in Control.
2.4. Cause. For purposes of this Agreement, a
termination of employment is for "Cause" if the Executive has
been convicted of a felony or the termination is evidenced by a
resolution adopted in good faith by two-thirds of the Board that
the Executive (a) intentionally and continually failed
substantially to perform his reasonably assigned duties with the
Company (other than a failure resulting from the Executive's
incapacity due to physical or mental illness or for any reason
that would constitute Good Reason as hereinafter defined) which
failure continued for a period of at least thirty (30) days after
a written notice of demand for substantial performance has been
delivered to the Executive specifying the manner in which the
Executive has failed substantially to perform, or (b)
intentionally engaged in conduct which is demonstrably and
materially injurious to the Company; provided, however, that no
termination of the Executive's employment shall be for Cause as
set forth in clause (b) above until (x) there shall have been
delivered to the Executive a copy of a written notice setting
forth that the Executive was guilty of the conduct set forth in
clause (b) and specifying the particulars thereof in detail, and
(y) the Executive shall have been provided an opportunity to be
heard in person by the Board (with the assistance of the
Executive's counsel if the Executive so desires). No act, nor
failure to act, on the Executive's part, shall be considered
"intentional" unless the Executive has acted, or failed to act,
with a lack of good faith and with a lack of reasonable belief
that the Executive's action or failure to act was in the best
interest of the Company.
2.5. Change in Control. A "Change in Control"
shall mean any of the following events:
(a) An acquisition (other than directly
from the Company) of any voting securities of the Company (the "Voting
Securities") by any "Person" (as the term person is used for
purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended (the "1934 Act")) immediately after which
such Person has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of twenty percent
(20%) or more of the combined voting power of the Company's then
outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting
Securities which are acquired in a Non-Control Acquisition (as
hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (1) an employee benefit plan (or a
trust forming a part thereof) maintained by (x) the Company or
(y) any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is owned
directly or indirectly by the Company (a "Subsidiary"), (2) the
Company or any Subsidiary, or (3) any Person in connection with a
Non-Control Transaction (as hereinafter defined);
(b) The individuals who, as of
January 1, 1995, are members of the Board (the "Incumbent Board"), cease
for any reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or nomination for
election by the Company's stockholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Agreement, be
considered a member of the Incumbent Board; provided, further,
however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the 1934 Act) or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a "Proxy Contest")
including by reason of any agreement intended to avoid or settle
any Election Contest or Proxy Contest; or
<PAGE>
(c) Approval by stockholders of the
Company of:
(1) A merger, consolidation or
re-organization involving the Company, unless
(i) the stockholders of the
Company, immediately before such merger, consolidation
or reorganization, own, directly or indirectly
immediately following such merger, consolidation or
reorganization, at least seventy percent (70%) of the
combined voting power of the outstanding voting
securities of the corporation resulting from such
merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or
reorganization,
(ii) the individuals who
were members of the Incumbent Board immediately prior to
the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of
the Surviving Corporation, and
(iii) no Person (other than
the Company, any Subsidiary, any employee benefit plan (or
any trust forming a part thereof) maintained by the
Company, the Surviving Corporation or any Subsidiary,
or any Person who, immediately prior to such merger,
consolidation or reorganization, had Beneficial
Ownership of fifteen percent (15%) or more of the then
outstanding Voting Securities) has Beneficial Ownership
of fifteen percent (15%) or more of the combined voting
power of the Surviving Corporation's then outstanding
voting securities (a transaction described in clauses
(i) through (iii) above shall herein be referred to as
a "Non-Control Transaction");
(2) A complete liquidation or
dissolution of the Company; or
(3) An agreement for the sale or
other disposition of all or substantially all of the assets of the
Company to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount
of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases
the proportional number of shares Beneficially Owned by the
Subject Person, provided that if a Change in Control would occur
(but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting
Securities beneficially owned by the Subject Person, then a
Change in Control shall occur.
<PAGE>
(d) Notwithstanding anything contained in
this Agreement to the contrary, if the Executive's employment is
terminated prior to a Change in Control and the Executive
reasonably demonstrates that such termination (i) was at the
request of a third party who had indicated an intention or taken
steps reasonably calculated to effect a Change in Control and who
effectuates a Change in Control (a "Third Party") or (ii)
otherwise occurred in connection with, or in anticipation of, a
Change in Control which actually occurs, then for all purposes of
this Agreement, the date of a Change in Control with respect to
the Executive shall mean the date immediately prior to the date
of such termination of the Executive's employment.
2.6. Company. For purposes of this Agreement,
the "Company" shall mean Mercantile Stores Company, Inc, a Delaware
corporation, and shall include its Successors and Assigns (as
hereinafter defined). As used in this Agreement, the terms
"affiliated company", "affiliated companies" and "affiliate"
shall include any company controlled by, controlling, or under
common control with, the Company.
2.7. Disability. For purposes of this
Agreement, "Disability" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his
duties with the Company for a period of one hundred eighty (180)
consecutive days and the Executive has not returned to his full
time employment prior to the Termination Date as stated in the
Notice of Termination (as hereinafter defined).
2.8. Good Reason.
(a) For purposes of this Agreement,
"Good Reason" shall mean the occurrence after a Change in Control of
any of the events or conditions described in subsections (1)
through (9) hereof:
(1) a change in the Executive's
status, title, position or responsibilities (including
reporting responsibilities) which, in the Executive's
reasonable judgment, represents an adverse change from his
status, title, position or responsibilities as in effect at
any time within one year preceding the date of a Change in
Control or at any time thereafter; the assignment to the
Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his
status, title, position or responsibilities as in effect at
any time within one year preceding the date of a Change in
Control or at any time thereafter; or any removal of the
Executive from or failure to reappoint or reelect him to any
of such offices or positions, except in connection with the
termination of his employment for Disability, Cause, as a
result of his death or by the Executive other than for Good
Reason;
(2) a reduction in the Executive's
base salary or the failure of the Company to (i) pay to the
Executive an annual base salary at least equal to the Base
Amount, (ii) pay to the Executive an annual bonus in cash at
least equal to the Bonus Amount, such bonus to be paid no
later than the end of the third month of the fiscal year
next following the fiscal year for which the annual bonus is
awarded, unless the Executive shall elect to defer the
receipt of such annual bonus, (iii) increase the Executive's
base salary and annual bonus consistent with the Company's
practice prior to the Change in Control or, if greater, as
the same may be increased from time to time for other key
executive officers of the Company and its affiliated
companies, or (iv) pay to the Executive any compensation or
benefits to which he is entitled within five (5) days of the
date due;
<PAGE>
(3) the Company's requiring the
Executive to be based at any place outside a 30-mile radius from
Fairfield, Ohio, except for reasonably required travel on
the Company's business which is not materially greater than
such travel requirements prior to the Change in Control;
(4) the failure by the Company to
(A) continue in effect (without reduction in benefit level
and/or reward opportunities) any material compensation or
employee benefit plan (including, without limitation, long-
term disability, medical, dental, life insurance, flexible
spending account, pre-tax insurance premiums, vacation pay,
pension, profit-sharing and employee discount) in which the
Executive was participating at any time within one year
preceding the date of a Change in Control or at any time
thereafter, unless such plans are replaced with plans that
provide substantially equivalent compensation or benefits to
the Executive, (B) provide the Executive with compensation
and benefits, in the aggregate, at least equal (in terms of
benefit levels and/or reward opportunities) to those
provided for under each other employee benefit plan, program
and practice in which the Executive was participating at any
time within one year preceding the date of a Change in
Control or at any time thereafter, or (C) permit the
Executive to participate in any or all incentive, savings,
retirement plans and benefit plans, fringe benefits,
practices, policies and programs applicable generally to
other key executives of the Company and its affiliated
companies;
(5) the insolvency or the filing
(by any party, including the Company) of a petition for
bankruptcy of the Company, which petition is not dismissed
within sixty (60) days;
(6) any material breach by the
Company of any provision of this Agreement;
(7) any purported termination of
the Executive's employment for Cause by the Company which does
not comply with the terms of Section 2.4;
(8) the disposition of (A) all,
or substantially all, of the assets or (B) the majority of the
voting securities, of: (i) the Company, or (ii) the store
group or affiliated company for which the Executive serves
in an executive capacity; or
(9) the failure of the Company
to obtain an agreement, satisfactory to the Executive, from any
Successors and Assigns to assume and agree to perform this
Agreement, as contemplated in Section 6 hereof.
(b) Any event or condition described in
Section 2.8(a)(1) through (9) above which occurs prior to a
Change in Control but which the Executive reasonably demonstrates
(1) was at the request of a Third Party, or (2) otherwise arose
in connection with, or in anticipation of, a Change in Control
which actually occurs, shall constitute Good Reason for purposes
of this Agreement notwithstanding that it occurred prior to the
Change in Control.
2.9. Notice of Termination. For purposes of
this Agreement, following a Change in Control, "Notice of Termination"
shall mean a written notice of termination from the Company of
the Executive's employment which indicates the specific
termination provision in this Agreement relied upon and which
sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated. The Notice of Termination
shall also specify the relevant Termination Date.
<PAGE>
2.10. Severance Period. For purposes of
this Agreement, "Severance Period" shall mean the period from the
Termination Date through the date that is twenty-four (24) months
following a Change in Control.
2.11. Successors and Assigns. For purposes of
this Agreement, "Successors and Assigns"' shall mean a
corporation or other entity acquiring all or substantially all
the assets and business of the Company (including this Agreement)
whether by operation of law or otherwise.
2.12. Termination Date. For purposes of this
Agreement, "Termination Date" shall mean in the case of the
Executive's death, his date of death, in the case of the
Executive's resignation for any reason, the last day of his
employment, and in all other cases, the date specified in the
Notice of Termination; provided, however, that if the Executive's
employment is terminated by the Company for Cause or due to
Disability, the date specified in the Notice of Termination shall
be at least 30 days from the date the Notice of Termination is
given to the Executive, provided, that in the case of Disability
the Executive shall not have returned to the full-time
performance of his duties during such period of at least 30 days.
3. Termination of Employment.
3.1. If, during the term of this Agreement, the
Executive's employment with the Company shall be terminated
within twenty-four (24) months following a Change in Control, the
Executive shall be entitled to the following compensation and
benefits:
(a) If the Executive's employment with
the Company shall be terminated (1) by the Company for Cause or
Disability, (2) by reason of the Executive's death, or (3) by the
Executive other than for Good Reason, the Company shall pay to
the Executive the Accrued Compensation.
(b) If the Executive's employment with
the Company shall be terminated for any reason other than as
specified in Section 3.1(a), the Executive shall be entitled to
the following:
(i) the Company shall pay
the Executive all Accrued Compensation;
(ii) the Company shall pay
the Executive as severance pay and in lieu of any
further compensation for periods subsequent to the
Termination Date, an amount in cash equal to the
greater of: (A) (x) 2.99 times the sum of the Base
Amount and the Bonus Amount, less (y) the amount
of cash compensation paid or payable to the
Executive for services rendered by the Executive
to the Company from the date of the Change in
Control through the Termination Date, or (B) two
weeks' compensation at a level equal to the Base
Amount plus the Bonus Amount for every year of the
Executive's service with the Company and/or its
affiliates (with a pro ration for partial years of
service), at the Executive's sole election;
(iii) throughout the
Severance Period, the Company shall, at its expense,
continue on behalf of the Executive and his
dependents and beneficiaries all employee benefits
provided (x) to the Executive at any time during
the one year period prior to the Change in Control
or at any time thereafter or (y) to other
similarly situated executives who continue in the
employ of the Company during the Severance Period,
including, but not limited to, long-term
disability, medical, dental, life insurance,
flexible spending account, pre-tax insurance
premiums and employee discount, but excluding
pension and profit-sharing benefits. The coverage
and benefits (including deductibles and costs)
provided in this Section 3.1(b)(iii) during the
Severance Period shall be no less favorable to the
Executive and his dependents and beneficiaries
than the most favorable of such coverages and
benefits during any of the periods referred to in
clauses (x) and (y) above. The Company's
obligation hereunder with respect to the foregoing
benefits shall be limited to the extent that the
Executive obtains any such benefits pursuant to a
subsequent employer's benefit plans, in which case
the Company may reduce the coverage of any
benefits it is required to provide the Executive
hereunder as long as the aggregate coverages and
benefits of the combined benefit plans is no less
favorable to the Executive than the coverages and
benefits required to be provided hereunder. This
subsection (iii) shall not be interpreted so as to
limit any benefits to which the Executive, his
dependents or beneficiaries may be entitled under
any of the Company's employee benefit plans,
programs or practices following the Executive's
termination of employment, including, without
limitation, retiree medical and life insurance
benefits;
<PAGE>
(iv) the Company shall pay to the
Executive in a single payment an amount in cash
equal to the excess of (A) the Supplemental
Retirement Benefit (as defined below) had (w) the
Executive remained employed by the Company for an
additional two (2) complete years of credited
service, (x) his annual compensation during such
period been equal to the Base Amount and the Bonus
Amount, (y) the benefit accrual formulas of each
retirement plan remained no less advantageous to
the Executive than those in effect immediately
preceding the date on which a Change in Control
occurred and the Company made employer
contributions to each defined contribution plan in
which the Executive was a participant at the
Termination Date (in an amount equal to the amount
of such contribution for the plan year immediately
preceding the Termination Date), and (z) he been
fully (100%) vested in his benefit under each
retirement plan in which the Executive was a
participant, over (B) the lump sum actuarial
equivalent of the aggregate retirement benefit the
Executive is actually entitled to receive under
such retirement plans. For purposes of this
subsection (iv), the "Supplemental Retirement
Benefit" shall mean the lump sum actuarial
equivalent of the aggregate retirement benefit the
Executive would have been entitled to receive
under the Company's supplemental and other
retirement plans, including, but not limited to,
the Mercantile Stores Pension Plan, the Mercantile
Stores Non-Qualified Top Hat Pension Plan, the
Mercantile Stores Non-Qualified Excess Pension
Plan and the Mercantile Stores Savings, Profit
Sharing and Supplemental Retirement Plan (the
"Pension Plans"). For purposes of this subsection
(iv), the "actuarial equivalent" shall be
determined in accordance with the actuarial
assumptions used for the calculation of benefits
under the Pension Plans as applied prior to the
Termination Date in accordance with such plan's
past practices.
(c) The amounts provided for in
Sections 3.1(a), 3.1(b)(i), clause (B) of Section 3.1(b)(ii), if
applicable, and 3.1(b)(iv) shall be paid in a single lump sum
cash payment within five (5) days after the Executive's
Termination Date (or earlier, if required by applicable law); and
the amounts provided for in clause (A) of Section 3.1(b)(ii), if
applicable, shall be paid in equal monthly installments from the
Termination Date until the expiration of the Severance Period.
(d) The Executive shall not be required
to mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise and no such payment
shall be offset or reduced by the amount of any compensation or
benefits provided to the Executive in any subsequent employment
except as provided in Section 3.1(b)(iii). Notwithstanding the
foregoing, the Executive agrees that, during the Severance
Period, he shall not (i) solicit any employees of the Company to
leave the Company's employ to work for any company with which the
Executive is employed, or (ii) employ any associate who is
employed by the Company at any time during the Severance Period.
A breach of either of the foregoing covenants will result in the
Executive forfeiting any further payments or benefits to which he
is entitled pursuant to Sections 3.1(b)(ii) and 3.1(b)(iii),
although the Executive shall not be required to return any
payments to the Company which have been made to the Executive
prior to the date of such breach.
<PAGE>
3.2. (a) The severance pay and benefits
provided for in this Section 3 shall be in lieu of any other
severance or termination pay to which the Executive may be
entitled under any Company severance or termination plan,
program, practice or arrangement.
(b) The Executive's entitlement to any
or other compensation benefits shall be determined in accordance
with the Company's employee benefit plans and other applicable
programs, policies and practices then in effect.
(c) Notwithstanding anything to the
contrary in this Agreement, in the event the Executive is terminated by
the Company after the occurrence of a Change in Control and is
subsequently rehired by the Company at any time thereafter, the
Executive shall not be entitled to any further payments or
benefits under Sections 3.1(b)(ii) and 3.1(b)(iii) of this
Agreement although the Executive shall not be required to return
any payments to the Company which have been made to the Executive
prior to the date the Executive is rehired.
4. Notice of Termination. Following a Change in
Control, any purported termination of the Executive's employment
by the Company shall be communicated by Notice of Termination to
the Executive. For purposes of this Agreement, no such purported
termination shall be effective without such Notice of
Termination.
5. Excise Tax Payments.
(a) Notwithstanding anything contained in this
Agreement to the contrary, to the extent that any payment or
benefit (within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code")), to the Executive
or for his benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his employment
with the Company or a Change in ownership or effective control of
the Company or of a substantial portion of its assets (each a
"Payment" and collectively, the "Payments") would be subject to
the excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), the Payments
shall be reduced (but not below zero) if and to the extent necessary so
that no payment to be made or benefit to be provided to the
Executive shall be subject to the Excise Tax (such reduced amount
is hereinafter referred to as the "Limited Payment Amount").
Unless the Executive shall have given prior written notice
specifying a different order to the Company to effectuate the
Limited Payment Amount, the Company, in consultation with the
Executive, shall reduce or eliminate the Payments, by first
reducing or eliminating those payments or benefits which are not
payable in cash and then by reducing or eliminating cash
payments, in each case in reverse order beginning with payments
or benefits which are to be paid the farthest in time from the
Determination (as hereinafter defined). Any notice given by the
Executive pursuant to the preceding sentence shall take
precedence over the provisions of any other plan, arrangement or
agreement governing the Executive's rights and entitlements to
any benefits or compensation.
(b) An initial determination as to whether the
Payments shall be reduced to the Limited Payment Amount pursuant
to Section 5(a) and the amount of such Limited Payment Amount
shall be made at the Company's expense by an accounting firm
selected by the Company which is designated as one of the five
largest accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide its initial
determination (the "Determination"), together with detailed
supporting calculations and documentation to the Company and the
Executive within five (5) days of the Termination Date, or such
other time as requested by the Executive, and shall furnish the
Executive with an opinion reasonably acceptable to the Executive
setting forth its conclusions (together with supporting
calculations). Within ten (10) days of the delivery of the
Determination to the Executive, the Executive shall have the
right to dispute the Determination (the "Dispute"). If there is
no Dispute, the Determination shall be binding, final and
conclusive upon the Company and the Executive subject to the
application of Section 5(c) below. In addition, the Executive
shall have the right to request the Accounting Firm, at the
Company's expense, to render additional determinations from time
to time, subsequent to the Determination, as to whether an Excess
Payment (as defined in Section 5(c)) or an Underpayment (as
defined in Section 5(c)) has occurred. The Accounting Firm shall
provide each subsequent determination within five (5) days after
each such request by the Executive, and shall furnish the
Executive with an opinion reasonably satisfactory to the
Executive setting forth its conclusions (together with supporting
calculations).
<PAGE>
(c) As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible
that the Payments to be made to, or provided for the benefit of,
the Executive either have been made or will not be made by the
Company which, in either case, will be inconsistent with the
limitations provided in Section 5(a) (hereinafter referred to as
an "Excess Payment" or "Underpayment", respectively). If it is
established pursuant to a final determination of a court or an
Internal Revenue Service (the "IRS") proceeding which has been
finally and conclusively resolved, that an Excess Payment has
been made, such Excess Payment shall be deemed for all purposes
to be a loan to the Executive made on the date the Executive
received the Excess Payment and the Executive shall repay the
Excess Payment to the Company on demand (but not less than ten
(10) days after written notice is received by the Executive)
together with interest on the Excess Payment at the "Applicable
Federal Rate" (as defined in Section 1274(d) of the Code) from
the date of the Executive's receipt of such Excess Payment until
the date of such repayment. In the event that it is determined
by (i) the Accounting Firm or the Company (which shall include
the position taken by the Company, or together with its
consolidated group, on its federal income tax return), (ii)
pursuant to a determination by a court, or (iii) upon the
resolution to the Executive's satisfaction of the Dispute, that
an Underpayment has occurred, the Company shall pay an amount
equal to the Underpayment to the Executive within ten (10) days
of such determination or resolution together with interest on
such amount at the Applicable Federal Rate from the date such amount
would have been paid to the Executive until the date of payment.
<PAGE>
6. Successors' Binding Agreement.
(a) This Agreement shall be binding upon and
shall inure to the benefit of the Company, its Successors and
Assigns and the Company shall require any Successors and Assigns
to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had
taken place.
(b) Neither this Agreement nor any right or
interest hereunder shall be assignable or transferable by the
Executive, his beneficiaries or legal representatives, except by
will or by the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the
Executive's legal personal representative.
7. Fees and Expenses. The Company shall pay all
legal fees and related expenses (including the costs of experts,
evidence and counsel) incurred by the Executive as they become
due as a result of (a) the Executive's termination of employment
(including all such fees and expenses, if any, incurred in
contesting or disputing any such termination of employment), (b)
the Executive seeking to obtain or enforce any right or benefit
provided by this Agreement (including, but not limited to, any
such fees and expenses incurred in connection with the Dispute
and any other matter arising under Section 5, including the
existence and amount of any Excess Payment or Underpayment,
whether as a result of any applicable government taxing authority
proceeding, audit or otherwise, or by any other plan or
arrangement maintained by the Company under which the Executive
is or may be entitled to receive benefits), provided, however,
that any such action by the Executive is commenced in good faith
and for good reason, and (c) the Executive's hearing before the
Board as contemplated in Section 2.4 of this Agreement; provided,
however, that the circumstances set forth in clauses (a) and (b)
(other than as a result of the Executive's termination of
employment under circumstances described in Section 2.5(d))
occurred on or after a Change in Control.
8. Notices. For the purposes of this Agreement,
notices and all other communications provided for in the
Agreement (including the Notice of Termination) shall be in
writing and shall be deemed to have been duly given when
personally delivered or sent by certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses
for the parties set forth on Exhibit A hereto or to any other
addresses as the respective parties may designate by notice
delivered pursuant to this Section 8, provided that all notices
to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company. All notices and
communications shall be deemed to have been received on the date
of delivery thereof or on the third business day after the
mailing thereof, except that notice of change of address shall be
effective only upon receipt.
9. Non-Exclusivity of Rights. Nothing in this
Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive or other
plan or program provided by the Company except for any severance
or termination policies, plans, programs or practices and for
which the Executive may qualify, nor shall anything herein limit
or reduce such rights as the Executive may have under any other
agreements with the Company except for any severance or
termination agreement. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any
plan or program of the Company shall be payable in accordance
with such plan or program, except as explicitly modified by this
Agreement.
<PAGE>
10. Settlement of Claims. The Company's obligation
to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the
Company may have against the Executive or others.
11. Modification, Waiver and Miscellaneous. No
provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver
by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
12. Governing Law and Jurisdiction. This Agreement
shall be governed by and construed and enforced in accordance
with the laws of the State of New York without giving effect to
the conflict of laws principles thereof. Any claims arising
under or related to this Agreement shall be settled by binding
arbitration pursuant to the rules of the American Arbitration
Association or such other rules as to which the parties may
agree. The arbitration shall take place in New York, New York
within thirty (30) days following service of notice of such
dispute by one party on the other. The arbitration shall be
conducted before a panel of three (3) arbitrators, one to be
selected by each of the parties and the third to be selected by
the other two. The panel of arbitrators shall have no authority
to order a modification or amendment of this Agreement. Any
proceeding under this Agreement to enforce an arbitration award
shall be brought in any court having jurisdiction.
13. Severability. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability
of any provision shall not affect the validity or enforceability
of the other provisions hereof.
14. Entire Agreement. This Agreement constitutes
the entire agreement between the parties hereto and supersedes all
prior agreements, if any, understandings and arrangements, oral
or written, between the parties hereto with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed by its duly authorized officer and the
Executive has executed this Agreement as of the day and year
first above written.
MERCANTILE STORES COMPANY, INC.
By:_________________________________
David L. Nichols
Chairman and Chief Executive
Officer
____________________________________
NAMED EXECUTIVE
TABLE OF CONTENTS
financial highlights inside cover
chairman's letter page 3
overview page 4-10
financial information page 11-31
store divisions and locations page 32-33
group presidents and corporate officers page 34
directors and stockholder information inside back cover
<PAGE>
<TABLE>
<CAPTION>
financial highlights
1995 1994 % change
Year Ending Year Ending
February 3, 1996 January 28, 1995
For the year:
<S> <C> <C> <C>
Total Revenues $2,944,324,000* $2,819,837,000 4.4*
Income:
Net Operating Income -
Excluding Consolidation $ 123,248,000 $ 107,517,000 14.6
Consolidation Provision -- (3,000,000)
Net Operating Income 123,248,000 104,517,000 17.9
Accounting Change -- (1,100,000)
Net Income $ 123,248,000 $ 103,417,000 19.2
Per Share Data:
Net Income -
Excluding Consolidation $ 3.35 $ 2.92
Consolidation Provision -- (.08)
Net Operating Income 3.35 2.84
Accounting Change -- (.03)
Net Income $ 3.35 $ 2.81
At year end:
Working Capital $1,013,576,000 $ 957,030,000 5.9
Ratio 4.7 4.7
Long-Term Debt
(including current maturities) $ 261,073,000 $ 266,397,000 (2.0)
Debt to Capitalization Ratio 15.0% 16.0%
Stockholders' Equity $1,485,113,000 $1,400,551,000 6.0
Book Value Per Share $ 40.31 $ 38.01 6.0
<FN>
*Revenues in 1995 include finance charge income. In addition, the 1995
year comprises 53 weeks. Excluding finance charge income and the 53rd
week in 1995, total retail sales increased 1.5%.
</TABLE>
<PAGE>
THE CORPORATION
Mercantile Stores Company, Inc. is a conventional department store
retailer which, at year-end, operated 101 stores under 13 different
names in a total of 17 states. The stores are located in 50 different
markets and, in the majority of these markets, the Company's units hold
the dominant general merchandise retailer position. This status
substantially conforms to our corporate goal: "To operate profitable
stores which hold the number one or number two position in every market
in which we do business and thereby produce a desirable return on
investment for our shareholders as we deliver value to our customers."
- - A typical store is approximately 170,000 square feet and offers a
merchandise mix which appeals to middle to upper-middle income consumers
with an emphasis on apparel, cosmetics, accessories, and home fashions.
- - In addition to its department store business, the Company maintains a
partnership interest in five operating shopping centers. Each of these
joint venture shopping centers contains a Company department store.
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momentum mounts...
"your Company benefited from the momentum which has been building over
the past four years"
"a number of the programs on which we have been concentrating have begun
to fall into place"
"the progress seen in 1995 will continue to give us momentum as we strive
for increased success"
(picture of Chairman of the Board, David L. Nichols.)
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<PAGE>
Dear Shareholders,
In 1995, your Company benefited from the momentum which has been building
over the past four years. Thanks to the determined efforts of our
associates, company-wide, we were able to report an encouraging increase
in earnings in spite of the extremely difficult and competitive retail
industry environment.
Net income in 1995 increased 19.2% over the previous year, thanks largely
to a very strong fourth quarter in which net income rose 30.4% over the 1994
comparable quarter.
The 1995 performance is attributable to several factors. A number of
management and planning programs on which we have been concentrating over
the past several years have begun to fall into place. These programs are
focused on the dual targets of improving merchandising margins and better
controlling merchandising costs, such as shrinkage. Continuing efforts in
these areas will be pursued with vigor in 1996 and beyond.
In August, we assumed full responsibility for managing our Mercantile
Consumer Credit Program. The credit operation in this transitional year
progressed so well that it was not dilutive to earnings as we had previously
assumed. Going forward, we anticipate that this element of the business
will continue to be additive to profits and will also present us with
increased opportunities, such as target marketing, to grow the business.
The following pages of this Annual Report will depict some of the activities
and initiatives we will be undertaking in 1996 and beyond.
With profound sadness, we report that Rene C. McPherson, a member of our
Board of Directors since 1984, died on February 26, 1996. His enthusiastic
involvement and his sage guidance made a considerable contribution to the
Company. Some of the progress and momentum we review in this report can be
attributed to the innovative and inspirational influence of Mr. McPherson.
We are grateful to him for his many contributions. Indeed, "Ren" has left
us with a legacy that impels the quest for excellence in all that we do.
We regret that George S. Moore has stated that he will not stand for re-
election at the Annual Meeting in May, 1996. Mr. Moore has been a director
since 1957. His many contributions to the success of your Company for
almost forty years have been significant. His wise counsel and participation
in our business will be missed. Thank you, Mr. Moore, for all you have done
for Mercantile.
In January, 1996, Lawrence R. Pugh was elected to the Board of Directors.
Mr. Pugh is Chairman of the Board of VF Corporation, the manufacturer and
marketer of some of America's most popular apparel brands. VF Corporation
is a leader in developing and implementing advanced technology as well as
strategies ranging from niche marketing to global growth. We welcome him
to the Board.
Clearly, the future will be what we make of it. With the hard work of our
dedicated associates, we believe the progress seen in 1995 will continue
and give us momentum as we strive for increased success in the tough retail
climate ahead. We recognize the important role our vendors and their
quality products play in our accomplishments. We also acknowledge the
essential value of the loyalty of our customers and the support of our
shareholders.
David L. Nichols
Chairman of the Board
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<PAGE>
GROWTH
(picutre of Joslins Southglenn Mall store)
Significant thrust will be provided to Mercantile's momentum in 1996
from the opening of five new stores, totaling 875,000 square feet. With
the exception of the Maison Blanche acquisition in 1992, this represents
the largest annual square footage addition in the history of the
Company.
The opening of these new stores is indicative of our growth strategy of
averaging three to five new units a year for the remainder of the decade.
These new retail facilities will be placed in locations which both
strengthen our presence in existing markets and open new markets which fit
logistically into our present geographical structure. The execution of this
strategy will carry the growth momentum of 1996 into the twenty-first century.
New Store Units for 1996:
Orlando, FL - Gayfers - West Oaks Mall - 212,000 square feet
- Fourth Store in Market
Spartanburg, SC - J.B. White - Westgate Shopping Center - 161,000 square feet
- New Market
Dayton, OH - McAlpin's - Dayton Mall - 208,000 square feet - New Market
Columbia, SC - J.B. White - Columbiana Center - 184,000 square feet
- Third Store in Market
Murfreesboro, TN - Castner Knott Co. - Stones River Mall - 110,000 square
feet - New Market
-4-
<PAGE>
(Picture of Home Store merchandise (Sled Bed)).
-5-
<PAGE>
(Picture of Home store merchandise (cookware)).
-6-
<PAGE>
PRODUCT DEVELOPMENT
(Picture of private label merchandise)
As we continue to build the momentum of our business, product
development and our related private label programs will be an ever more
important part of the force that drives our progress.
In each of the last three years, private label sales grew by a
full percentage point and, in 1995, represented 12% of sales. This momentum
is projected to continue and, by 1997, private label merchandise will
represent 15% of sales.
Continued focus on this important area of our business will enable
Mercantile to offer products designed to meet the specific needs of our
customers' lifestyles while differentiating our stores from the competition.
Private label enhances and sustains customer loyalty by providing products
of consistent fit, color and durability. This high level of quality is
monitored and guaranteed by our in-house Quality Assurance staff. Private
label merchandise is an essential element in our commitment to offer
superior value to our customers.
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<PAGE>
EDUCATION AND DEVELOPMENT
(Picture of associates in classroom setting)
An important element in our significant new store expansion program
will be the customer service education that will be provided to our
associates in these new units. A major part of this education will be
conducted by Mercantile Stores University (MSU) through a program called
"World Class Customer Service." Recently, MSU extended its work arena
beyond its classroom walls at Corporate Headquarters by taking the
training process out to the field. We refer to this expansion to our
educational activities as "MSU on the Road."
During 1995, the "MSU on the Road" team made more than thirty visits
to our operating groups. This on-going emphasis affords the opportunity
to tailor subject matter to the specific needs of each student body and
will be ideal in providing our new store associates with the tenets of
"World Class Customer Service." "MSU on the Road" means more momentum
in Mercantile's future.
-8-
<PAGE>
MARKETING
(Picture of marketing brochures)
As we move toward the 21st century, we face monumental changes in
the way we market our products and services to our customers and
prospective customers. It is essential that we lead the momentum of
these changes through dynamic creativity and innovative marketing.
Several of our marketing programs, among others, reflect our efforts to
achieve this leadership:
- - A databased communications system which takes mainframe information
and enables our associates to target our messages to specific
customers more precisely and efficiently.
- - Multi-media programs, including magalogs and an internet on-line
presence, to deliver our marketing messages to a broader scoped audience
in a sophisticated and attractive presentation.
Together, these programs, targeted and broad based, balance our
marketing efforts as we build momentum in the evolution from this century's
print and broadcast advertising to the myriad of media that will be part of
the retail industry in the 21st Century.
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<PAGE>
CUSTOMER SERVICE
(Picture of merchandise)
No matter how many new stores we build, or how good our education,
marketing and product development are, we cannot succeed unless we take
care of our customers. As we build momentum to build our business, we
must always remember that the customer comes first.
One example of Mercantile's dedication to customer service is our Personal
Shopper Program. Through an appointment process, this concept offers
professional sales associates in each of our stores to work directly
with our customers. . .one-on-one. . .and at no cost. In our busy
lifestyles, where time is the equivalent of currency, these
knowledgeable associates help in identifying the customers' needs and
assist with the selection and purchase of the full spectrum of
merchandise offered by our stores.
The strength of the program can be demonstrated in terms of sales
productivity. Over the past two years, volume generated by our personal
shopper associates has more than doubled.
As we continue to move our business forward, using the momentum
of each accomplishment to build to the next, we are confident that they
will all be based on the most solid foundation of all. . .DAZZLING
CUSTOMER SERVICE.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Revenues which in 1995 included $52 million of finance charge revenue on
the Company's private label credit program, increased by 4.4% to $2,944
million. There were 53 weeks in the 1995 year. The percentage changes in
total and comparable retail sales, on an equalized 52 week basis, for
the last three years were as follows:
1995 1994 1993
Total retail sales 1.5% 3.3% (.1%)
Comparable retail sales 1.2% 1.7% (1.9%)
Net Income for 1995 increased 19.2% to $123 million, or $3.35 per share,
from the $103 million, or $2.81 per share, earned in the prior year.
Last year's results included charges amounting to $4 million, or $.11
per share, for a consolidation provision and the impact of an
accounting change. The following summary presents an analysis of the
components of net income for the past three years:
<TABLE>
<CAPTION>
1995 1994 1993
(in millions, except per share data)
Amount Per Share Amount Per Share Amount Per Share
<S> <C> <C> <C> <C> <C> <C>
Net income before non-recurring
item and accounting changes $123.2 $3.35 $107.5 $2.92 $86.6 $2.35
Consolidation provision - - (3.0) (.08) - -
Postemployment benefits - - (1.1) (.03) - -
Income taxes - - - - 3.1 .09
Net income $123.2 $3.35 $103.4 $2.81 $89.7 $2.44
</TABLE>
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<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 and merchandise planning functions.
In 1995, COGS, as a percent of revenues, decreased 1.7% from the prior year.
This improvement during the year was due, in part, to the inclusion of
finance charge revenue in 1995. Excluding the impact of finance charge
revenue and the application of the last-in, first-out (LIFO) method,
COGS, as a ratio to retail sales, improved approximately 0.6% over the
prior year. The improvement resulted from a 0.4% increase in merchandise
margins, due to higher initial mark-up, partially offset increased
markdowns. Another significant contributor to the improved margin result
was a 0.5% reduction in shrinkage expense. Lower margin leased department
sales increased 12% over the prior year and served to increase COGS by 0.3%.
Occupancy and central buying expenses were relatively flat for fiscal 1995.
In 1994, COGS (excluding the impact of LIFO) increased 0.1% over the prior
year. The increase was attributable to the impact which a 16% increase in
lower margin leased department sales had on total COGS. A 0.2% improvement
in merchandising costs was offset by an increase in shrinkage expense. In
1993, COGS (excluding the impact of LIFO) increased 1.2%. This increase was
attributable, primarily, to a higher promotional environment, particularly
during the important fourth quarter.
The Company employs the LIFO method to value all of its retail inventories
and uses indices produced by the Bureau of Labor Statistics to calculate the
impact of inflation on inventory valuations. In 1995, the application of
the LIFO method resulted in a credit to net income of $.01 per share. This
contrasted to the 1994 year in which the LIFO impact was unusual as
significant categories of merchandise actually experienced a price deflation.
This produced a LIFO credit of $.11 per share in 1994. In 1993, the LIFO
application resulted in a charge of $.06 per share.
The impact of LIFO on COGS, as a percent of retail sales, was:
1995 1994 1993
Cost of goods sold 71.2% 71.6% 71.8%
LIFO credit/(charge) - .2 (.1)
Cost of goods sold
(excluding LIFO) 71.2% 71.8% 71.7%
Operating Expenses - Selling, general and administrative expenses
(SG&A), as a percent to revenues, increased 1.1% to 23.3% in 1995.
The increase was primarily attributable to costs associated with the
Company's assumption of full responsibility for managing its private
label credit program at the end of the 1995 second quarter. Previously,
this program had been managed by an affiliate of Citibank. This arrangement
was terminated on July 31, 1995. The most significant among these credit
related expenses was bad debts, including $10 million for the establishment
of a bad debt reserve, which increased SG&A by 0.6%. The remaining increase
in SG&A expenses was primarily attributable to increases in payroll costs
and marketing expenses.
In 1994, SG&A expenses, as a percent of revenues, decreased 0.8%.
Approximately 60% of this decline was attributable to reductions 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 the decline.
In 1994, the Company recorded a $5 million pre-tax 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 has saved approximately
$3 million, annually, primarily as a result of reduced payroll and payroll
related expenses.
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<PAGE>
Interest Expense decreased $9 million and $8 million in 1995 and 1994,
respectively, 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
1994.
Other Income decreased approximately $6 million in 1995 and $5 million
in 1994. The decline in 1995 was attributable to changes in the
servicing of the Company's private label credit programs, partially
offset by a gain from the sale of an equity investment in an
unaffiliated company and an increase in the Company's share of equity
earnings from the real estate joint ventures. Other income in 1993
included a gain from the sale of a land investment, which resulted in
the comparative decline in 1994.
As discussed in Note 3 of Notes to Consolidated Financial Statements,
effective July 31, 1995, the Company terminated its servicing agreement
with Citibank, which covered all of its private label credit program
other than accounts generated by Maison Blanche (MB), and assumed full
responsibility for managing its customer receivables program. A sale
and servicing agreement with an unaffiliated company covering customer
accounts generated by MB was terminated during 1994. Finance charge
revenue recorded in 1995 on customer accounts serviced by the Company
has been classified as a component of revenues.
The Effective Income Tax Rate has been relatively consistent for the
last three years and was 39.8% in 1995,39.5% in 1994, and 39.7% in 1993.
Accounting Change - As discussed in Note 1 of Notes to Consolidated
Financial Statements, the Company will adopt the provisions of SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of" in the first quarter of fiscal 1996.
Management anticipates that the application of this new accounting
standard will result in a pre-tax impairment provision of approximately
$12 million.
Liquidity and Capital Resources - Cash flow from operating activities
amounted to $187 million in 1995, contrasted with $169 million in 1994,
and $138 million in 1993. The increase in 1995 was due to the
improvement in net income and a decrease in working capital
requirements, partially offset by a reduction in non-cash charges. The
1994 increase was primarily attributable to the increase in net income
and non-cash charges, partially offset by an increase in working capital
requirements, primarily those for inventory.
Net customer receivables declined $33 million due, primarily, to the
continuing erosion of private label credit sales. This decrease also
reflected an increase in the bad debt reserve which was required as a
result of the termination of the servicing agreement with Citibank. The
$13 million decline in other receivables was primarily attributable to
the elimination of the annual settlement with Citibank which, while the
contract was still in effect, was satisfied in the first quarter of the
ensuing year.
In 1995, the year-end inventory level increased $55 million over the
prior year. In part, this increase was attributable to calendar
fluctuations, to wit, the earlier Easter in 1996 and the week later
closing of the 1995 fiscal year. Also contributing to this increase was
a heavier concentration of higher ticket home and home related
merchandise in the composition of 1995's inventory.
Cash allocated to capital expenditures was $101 million in 1995,
contrasted with $94 million in 1994 and $106 million in 1993.
During 1995, the Company sold its minority position in the stock of Ivey
Properties, Inc. when the shareholders of that publicly traded Real
Estate Investment Trust voted to sell it to an outside interest. The
Company realized proceeds of $6 million from this sale. During 1994 and
1993, the Company realized proceeds of $2 million and $6 million,
respectively, from the sales of property.
Cash requirements to satisfy debt obligations declined substantially in
1995 to $5 million from $121 million in 1994 and $27 million in 1993.
The 1995 amount represented regularly scheduled debt payments. In 1994,
the scheduled payments included $110 million of debt assumed in the
1992 MB acquisition. In addition, in 1994, the Company prepaid, at a
discount, $5 million of the 6.7% Notes due 2002. In 1993, in addition to
the scheduled payments, the Company prepaid $25 million of Mortgage
Notes and Industrial Revenue Bonds.
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<PAGE>
The Company primarily satisfies its short-term financing
requirements through internally generated funds. In addition, the
Company has available both committed and uncommitted short-term
borrowing facilities. As discussed in Note 5 of Notes to
Consolidated Financial Statements, during 1995, the Company cancelled a
$175 million revolving credit agreement with Citibank and replaced it
with a committed, unsecured $200 million revolving credit arrangement.
The new facility is a five year agreement with a consortium of seven banks.
When used, interest rates under the new arrangement will be based, at the
Company's option, on either the banks' best rates under a competitive
bid environment or a predefined spread (which is dependent on the
Company's long-term debt credit rating) over the appropriate LIBOR rate.
In addition to the committed $200 million arrangement, the Company has
available uncommitted lines of credit totalling $20 million. Maximum
borrowings under the combined facilities were $3 million in 1995, $69
million in 1994, and $51 million in 1993. No borrowings were
outstanding under any of these credit arrangements at the end of the
last three fiscal years.
The Company is committed to maintaining a strong financial position.
The debt to capitalization ratio considered to be a significant measure
of financial strength, was 15% at the end of the fiscal year - among
the lowest in the retail industry. Our long-term debt ratings of A+ and
A1 by Standard & Poor's Corporation and Moody's Investors Services,
Inc., respectively, are among the highest in the industry.
Expansion and Capital Expenditures - Capital expenditures for 1996 are
estimated at $130 million and it is anticipated that they will be funded
through existing working capital and internally generated funds.
Approximately 60% of these expenditures will be allocated to new stores
scheduled to open in 1996 and 1997; approximately 25% will be spent on
remodeling and upgrading existing stores; and the remainder on the
various support functions needed to sustain the business.
During 1995, the Company opened a 50,000 square foot McAlpin's
Signatures Home Store, dedicated strictly to home fashions
merchandise, in Cincinnati, Ohio. In mid-1995, a 113,000 square foot
Joslins store in downtown Denver was closed. At the end of the year,
downtown stores in Nashville, Tennessee and Cincinnati, Ohio,
encompassing a total of 314,000 square feet, were also closed.
In 1996, the Company plans to add the largest, annual new store square
footage (other than acquisitions) in its history. A total of five new
stores, totalling 875,000 square feet will be opened during the second
half of the year. The new store units for 1996 are:
Operating Identity Location Square Feet
Gayfers Orlando, Florida 212,000
J.B. White Spartanburg, South Carolina 161,000
McAlpin's Dayton, Ohio 208,000
J.B. White Columbia, South Carolina 184,000
Castner Knott Murfreesboro, Tennessee 110,000
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<PAGE>
BENEFIT PROGRAM
The Company offers a comprehensive benefit program including pension and
profit sharing plans as well as health, disability and life insurance
programs to its eligible associates.
The Pension Plan, established in 1945, has been 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. At the end of the 1995
fiscal year, there were 28,497 Pension Plan members, including retirees,
and the market value of Plan assets was $341 million.
All associates who are enrolled in the Pension Plan are eligible to
participate in the Savings, Profit Sharing and Supplemental Retirement
Plan. During 1995, members in this Plan had the option to have the
Company deposit up to 14% of their earnings into the plan, on a before-
tax basis, to the extent permitted by IRS Code Section 401(k).
Associates can elect to have their contributions invested in a balanced
fund, an equity fund, insurance company contracts or any combination of
these funds.
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 as defined. For the latest year, the Company's contribution
amounted to $9.7 million, or approximately $.58 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. All
members employed after February 1, 1993 vest in Company contributions
according to a 3 to 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 February 3,
1996, the Trustee was holding 1,425,869 shares of Mercantile stock, or
3.9% of the total outstanding shares, for the benefit of Plan members.
Plan assets at year-end totalled $479 million, at market value.
The Company pays a substantial portion of the costs of various group
medical and dental plans which are offered to eligible associates. In
addition, the Company 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 1995 1994
Market Dividends Market Dividends
Quarter High Low Declared Paid High Low Declared Paid
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First $46 $39 3/4 $ .52 $ .25 1/2 $41 1/8 $36 $ .51 $ .25 1/2
Second 49 42 5/8 - .26 1/2 38 1/2 30 1/2 - .25 1/2
Third 48 3/8 42 3/4 .53 .26 1/2 57 32 1/2 .51 .25 1/2
Fourth 49 3/8 44 1/4 - .26 1/2 46 36 1/2 - .25 1/2
$1.05 $1.05 $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 February 3, 1996 was 9,648.
On April 3, 1996, the Board of Directors approved an increase in the
quarterly dividend from $.26 1/2 to $.28 1/2 per share. This increase,
payable on June 14, 1996 to holders of record on May 31, 1996, converts
to an indicated annual dividend of $1.14 per share.
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<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 February 3, 1996 and January 28, 1995, and the
related statements of consolidated income and retained earnings and cash
flows for each of the three years in the period ended February 3,1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Mercantile
Stores Company, Inc. and subsidiaries as of February 3, 1996 and January
28, 1995, and the results of their operations and their cash flows for
each of the three years in the period ended February 3, 1996 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 postemployment benefits
effective January 30, 1994 and its method of accounting for income taxes
effective February 1, 1993.
Cincinnati, Ohio Arthur Andersen LLP
March 25,1996
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<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
(in thousands, except per share data) 1995 1994 1993
<S> <C> <C> <C>
Revenues $2,944,324 $2,819,837 $2,729,928
Costs, Expenses, and Other Income:
Cost of goods sold
(including occupancy and central buying expenses) 2,059,753 2,020,264 1,960,914
Selling, general and
administrative expenses 686,924 625,726 627,391
Provision for consolidation - 5,000 -
Interest expense 19,558 28,118 36,236
Interest income (5,087) (4,592) (5,288)
Other income (21,404) (27,571) (33,003)
2,739,744 2,646,945 2,586,250
Income before Provision for Income Taxes 204,580 172,892 143,678
Provision for Income Taxes:
Current 80,239 65,848 54,456
Deferred 1,093 2,527 2,583
81,332 68,375 57,039
Income before cumulative effect
of accounting changes 123,248 104,517 86,639
Cumulative effect of accounting changes:
Postemployment benefits
(net of income taxes of $700) - (1,100) -
Income taxes - - 3,100
Net Income $ 123,248 $ 103,417 $ 89,739
Retained Earnings at Beginning of Year 1,389,130 1,323,294 1,271,136
Dividends Declared 38,686 37,581 37,581
Retained Earnings at End of Year $1,473,692 $1,389,130 $1,323,294
Net Income Per Share:
Income before cumulative effect of accounting changes $ 3.35 $ 2.84 $ 2.35
Cumulative effect of accounting changes:
Postemployment benefits - (0.03) -
Income taxes - - 0.09
Net Income Per Share $ 3.35 $ 2.81 $ 2.44
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
-17-
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands)
February 3, January 28,
1996 1995
Assets
Current Assets:
Cash and cash equivalents $ 161,893 $ 114,237
Receivables:
Customer, net 559,544 592,402
Other 15,078 27,836
Inventories 523,573 468,782
Deferred income taxes 12,248 7,667
Other current assets 14,048 7,821
Total Current Assets 1,286,384 1,218,745
Prepaid Pension and
Other Noncurrent Assets 87,107 73,878
Deferred Income Taxes - 300
Property and Equipment:
Land 37,400 36,512
Buildings and improvements 733,785 675,187
Fixtures 292,349 310,671
Leased property 62,018 64,311
1,125,552 1,086,681
Less accumulated depreciation 424,319 397,875
Property and equipment, net 701,233 688,806
Total $2,074,724 $1,981,729
See Notes to Consolidated Financial Statements
-18-
<PAGE>
(in thousands) February 3, January 28,
1996 1995
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 6,147 $ 5,210
Accounts payable 106,645 121,667
Taxes other than income 21,352 17,101
Other current liabilities 69,546 61,132
Accrued income taxes 40,533 32,381
Accrued payroll 28,585 24,224
Total Current Liabilities 272,808 261,715
Long-term Debt 254,926 261,187
Due to Affiliated Companies 25,106 26,115
Deferred Income Taxes 6,867 -
Other Long-term Liabilities 29,904 32,161
Stockholders' Equity:Common stock - $.14 2/3
par value,authorized and issued 36,887,475
shares,outstanding 36,844,050
(after deducting43,425 treasury shares) 5,403 5,403
Additional paid-in capital 6,018 6,018
Retained earnings 1,473,692 1,389,130
Total Stockholders' Equity 1,485,113 1,400,551
Total $2,074,724 $1,981,729
-19-
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(in thousands)
1995 1994 1993
Cash Flows from Operating Activities:
Net Income $ 123,248 $ 103,417 $ 89,739
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 88,714 93,540 93,455
Deferred taxes 1,093 2,527 2,583
Net (gain) loss on disposition
of property (5,916) 1,250 (3,904)
Provision for consolidation - 5,000 -
Postretirement benefits costs 91 166 2,200
Gain on sale of joint venture - - (1,610)
Cumulative effect of accounting
changes,net of taxes - 1,100 (3,100)
Equity in unremitted earnings of
affiliated companies (1,453) (206) (1,141)
Net pension benefit (14,667) (15,653) (13,788)
Changes in working capital:
Change in inventories (54,791) (43,290) (2,673)
Change in accounts receivable 45,616 14,876 (21,406)
Change in accounts payable (15,022) 5,551 6,931
Change in other working capital
items 20,325 1,143 (9,180)
Net cash provided by operating
activities 187,238 169,421 138,106
Cash Flows from Investing Activities:
Cash payments for property
and equipment (101,202) (93,639) (106,210)
Proceeds from sale of property 5,982 1,550 6,095
Proceeds from sale of joint venture - - 785
Net change in other noncurrent assets
and liabilities (466) 997 2,845
Net cash used in investing activities (95,686) (91,092) (96,485)
Cash Flows from Financing Activities:
Payments of long-term debt (5,210) (121,055) (26,740)
Dividends paid (38,686) (37,581) (37,581)
Net cash used in financing activities (43,896) (158,636) (64,321)
Net Increase (Decrease) in Cash and Cash
Equivalents 47,656 (80,307) (22,700)
Cash and Cash Equivalents at
Beginning of Year 114,237 194,544 217,244
Cash and Cash Equivalents at
End of Year $ 161,893 $ 114,237 $ 194,544
Supplemental Cash Flow Information:
Interest paid $ 20,926 $ 29,532 $ 37,393
Income taxes paid $ 70,593 $ 68,227 $ 49,670
See Notes to Consolidated Financial Statements
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Nature of Operations - Mercantile Stores Company, Inc. (the Company)
is a conventional department store retailer engaged in the general
merchandising business. The Company operates 97 department stores and 4
specialty stores under 13 different names in a total of 17 states. The
stores are located in 50 different markets within these states. A
subsidiary, Mercantile Credit Corp., headquartered in Baton Rouge,
Louisiana, provides servicing for the Company's private label credit
program. In addition to its department store and credit operations, the
Company maintains a partnership interest in five operating shopping
center ventures and one land ownership venture.
B. 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 the six joint ventures.
C. Fiscal Year - The Company's fiscal year ends on the Saturday nearest
to January 31. Fiscal year 1995 consisted of fifty-three weeks and ended
on February 3, 1996. Fiscal years 1994 and 1993 consisted of fifty-two
weeks and ended on January 28, 1995 and January 29, 1994, respectively.
References to years relate to fiscal years rather than calendar years.
D. Revenues - Revenues include sales from retail operations, leased
departments and finance charge revenue on customer accounts serviced by
the Company under its private label credit program. Finance charge
revenue from the Company's private label credit program is recognized in
the period in which it is earned. Prior to 1995, the Company's share of
finance charge income accrued to the Company under revenue sharing
agreements with unaffiliated companies and was classified as a component
of other income.
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 and
merchandise planning functions.
F. Advertising Expense - Advertising expenditures, including production
costs, are expensed as incurred.
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 advertising, occupancy, and payroll costs.
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. Customer Receivables - Customer receivables are classified as current
assets and include some amounts which are due after one year, consistent
with industry practice.
J. Inventories - All retail inventories are valued by the retail method
and stated on the last-in, first-out (LIFO) cost basis, which is lower
than market. At both February 3, 1996 and January 28, 1995, inventories
were $30 million lower than they would have been had the retail method
been applied using the first-in, first-out (FIFO) cost basis. During the
year ended February 3, 1996, the Company changed its method of
accounting for promotional markdowns for purposes of determining current
costs under the FIFO basis. Due to the application of the LIFO cost
method, this change in accounting method for FIFO purposes did not have
a material impact on the Company's financial position and results of
operations.
K. 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 financial reporting 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 financial reporting 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
-21-
<PAGE>
The Company leases certain properties, principally store locations,
under capital leases as defined by Statement of Financial Accounting
Standards (SFAS) 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.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," which addresses the identification and
measurement of asset impairments and requires the recognition of
impairment losses on long-lived assets when book values exceed expected
future cash flows. The Company will adopt SFAS No. 121 in the first
quarter of fiscal 1996 and it is anticipated that the application of
this standard will result in a pre-tax impairment provision of
approximately $12 million.
L. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
M. Segment Reporting - The Company has one significant segment of
business (general merchandise department store retailing).
N. Reclassifications - Certain reclassifications have been made to prior
years' financial statements to conform with the classification used in
the 1995 financial statements.
2. PROVISION FOR CONSOLIDATION
During the first quarter of 1994, the Company recorded a $5 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 this operation was completed in 1994.
3. CUSTOMER RECEIVABLES
Effective August 1, 1995, the Company terminated its servicing agreement
with Citibank and assumed full responsibility for servicing its customer
receivables. The servicing agreement covered substantially all of the
Company's private label credit program. Prior to termination, Citibank
was responsible for credit authorization, absorption of bad debts and
collection of customer receivables. During 1994, the Company terminated
a sales and servicing agreement with an unaffiliated company for
customer receivables generated by its Maison Blanche (MB) division.
Finance charge revenue recorded during 1995 on customer accounts
serviced by the Company totalled $52 million and is classified as a
component of revenues in the accompanying Statements of Consolidated
Income and Retained Earnings. Operating expenses incurred in connection
with the private label credit program are included in selling, general and
administrative expenses. Customer receivables at February 3, 1996 are net
of an allowance for doubtful accounts in the amount of $16 million.
-22
<PAGE>
4. LONG-TERM DEBT
The Company's long-term debt consisted of the following:
(in thousands) 1995 1994
8.2% Sinking Fund Debentures due 2022 (a) $100,000 $100,000
6.7% Notes due 2002 (a) 95,000 95,000
Industrial Revenue Bonds at rates
ranging from 5.61% to 7.75% 9,475 10,689
Mortgage Note Payable (b) 980 1,080
Other Notes Payable 6,528 8,669
Total Debt 211,983 215,438
Capitalized Lease Obligations 49,090 50,959
261,073 266,397
Less - due within one year 6,147 5,210
Total Long-term Debt $254,926 $261,187
(a) The 6.7% notes have a mandatory annual sinking fund requirement of
$19 million commencing in 1997. The 8.2% sinking fund debentures have a
similar requirement of $5 million commencing in 2003.
(b) The mortgage note payable carries a variable interest rate of 1.5%
over prime with 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
1996 $ 6,147
1997 $ 25,017
1998 $ 25,181
1999 $ 23,644
2000 $ 21,505
The fair value of long-term debt, including the current portion and
excluding capital lease obligations, was approximately $225 million at
February 3, 1996 and approximately equal to book value at January 28,
1995. The fair value is based on the present value of future cash flows.
The discount rates used approximated the current borrowing costs for
similar instruments.
5. FINANCING ARRANGEMENTS
During the third quarter of 1995, the Company and a syndicate of banks
entered into a five year, $200 million Revolving Credit Agreement (The
Credit Agreement) which expires on August 3, 2000. The Credit Agreement
replaced a $175 million revolving credit facility with Citibank which
was terminated on July 31, 1995. The applicable interest rate on
borrowings is based, at the Company' option, on either the banks' best
rates under a competitive bid environment or a predefined spread (which
is tied to the Company's long-term debt credit rating) over the
appropriate LIBOR rate. The Credit Agreement requires the Company to
comply with certain financial covenants with respect to minimum net
worth and financial leverage.
The Company also has in place additional uncommitted lines of credit in
the total amount of $20 million. No fee is paid for maintaining these
lines and interest on any borrowings is charged at a floating rate.
At February 3, 1996 and January 28, 1995, there were no borrowings
outstanding under the revolving credit arrangements or the discretionary
lines. Maximum borrowings under these facilities for 1995 were $3
million, at an average interest rate of 5.9%. During 1994, maximum
borrowings were $69 million, at an average interest rate of 5.4%.
-23-
<PAGE>
6. INCOME TAXES
The components of taxes on income, excluding the cumulative effect of
accounting changes, consisted of the following:
(in thousands) 1995 Federal State Total
Current $66,171 $14,068 $80,239
Deferred 494 599 1,093
Total $66,665 $14,667 $81,332
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
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) 1995 1994 1993
Depreciation $ (3,967) $ (5,231) $ (4,431)
Associate benefit plans 7,425 5,520 4,410
Bad debts (4,875) - -
Consolidation 408 2,025 1,883
Other 2,102 213 721
Total $ 1,093 $ 2,527 $ 2,583
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) 1995 1994 1993
Provision at statutory rate of 35% $71,603 $60,512 $50,287
State and local income tax,
less Federal income tax benefit 9,534 6,859 6,196
Other 195 1,004 556
Total income tax provision $81,332 $68,375 $57,039
Effective income tax rate 39.8% 39.5% 39.7%
-24-
<PAGE>
During 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. 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:
(in thousands) 1995 1994
Assets:
Inventory accounting $ 3,783 $ 3,060
Associate benefit costs 12,675 14,047
Interest, taxes and real estate costs 12,786 10,364
Relocation costs 552 960
Bad debts 4,875 -
Capitalized leases 4,184 3,893
Other 2,685 8,538
Total deferred tax assets 41,540 40,862
Liabilities:
Depreciation (7,035) (10,981)
Pension, savings and profit sharing costs (27,153) (21,120)
Other (1,971) (794)
Total deferred tax liabilities (36,159) (32,895)
Total Net Deferred Tax Assets $ 5,381 $ 7,967
7. ASSOCIATE BENEFIT PLANS
The Company maintains a formal, qualified, non-contributory, defined
benefit 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 SFAS 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) 1995 1994 1993
Service cost $ 5,656 $ 6,884 $ 6,524
Interest cost 12,405 11,267 10,351
Actual return on plan assets (54,809) 1,723 (39,586)
Amortization of transition asset (5,043) (5,043) (5,043)
Other amortization and deferral 27,124 (30,484) 13,966
Net pension benefit $ (14,667) $ (15,653) $ (13,788)
The expected long-term rate of return on assets used in determining the
net pension benefit was 8.5% in all years presented.
The actuarial present value of benefit obligations was determined using
a discount rate of 7.5% in 1995, 8.5% in 1994, and 7.5% in 1993. The
changes in the discount rate assumptions increased the 1995 projected
benefit obligation by approximately $22 million and lowered the 1994
projected benefit obligation by approximately $20 million. The rate of
compensation increase used to measure the projected benefit obligation
was 5.0% in 1995 and 5.5% in 1994 and 1993.
-25-
<PAGE>
The funded status of the formal, qualified pension plan at February 3, 1996
and January 28, 1995, based on actuarial and plan asset as of
October 31, 1995 and 1994, was as follows:
(in thousands) 1995 1994
Actuarial present value of benefit obligations:
Vested benefits $154,580 $116,600
Non-vested benefits 3,856 1,800
Accumulated benefit obligation 158,436 118,400
Impact of future salary increases 22,126 26,830
Projected benefit obligation 180,562 145,230
Plan assets at fair value 344,141 298,091
Plan assets in excess of projected
benefit obligation 163,579 152,861
Items not yet recognized in income:
Initial transition credit which is
being amortized over 15 years (30,259) (35,302)
Subsequent net gain (62,472) (61,378)
Prepaid pension benefit $ 70,848 $ 56,181
No funding activity occurred between the plan and the Company during the
fourth quarter of 1995 or 1994.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,
as defined. The costs to the Company under these plans for the past
three years were as follows:
(in thousands) 1995 1994 1993
Savings and Profit Sharing $ 9,750 $ 8,068 $ 7,026
Pension 810 1,754 1,258
Total $10,560 $ 9,822 $ 8,284
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.
-26-
<PAGE>
The plan was changed during the 1993 fiscal year to provide for retiree
contributions based on years of service. Further cost containment was
achieved by increasing deductibles and introducing managed care. The
Company reserves the right to modify or terminate this program at any
time.
The Company accounts for postretirement benefits under the provisions of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions." The components of net periodic postretirement benefit
cost for the last three years were as follows:
(in thousands) 1995 1994 1993
Service cost earned during the year $ 490 $ 536 $ 1,729
Interest cost on projected
benefit obligation 800 770 1,581
Net amortization and deferral (1,199) (1,140) (703)
Net periodic postretirement
benefit cost $ 91 $ 166 $ 2,607
The following table sets forth the plan's combined funded status at
February 3, 1996 and January 28, 1995 based on obligations measured as
of October 31, 1995 and 1994:
(in thousands) 1995 1994
Accumulated postretirement benefit obligation:
Retirees $ 3,816 $ 4,024
Fully eligible active plan participants 204 182
Other active plan participants 6,372 5,352
10,392 9,558
Unrecognized net gain from changes in
plan and assumptions 6,422 5,594
Unrecognized prior service cost 4,968 7,608
Accrued postretirement benefit cost $21,782 $22,760
For measurement purposes, the following assumptions were used to project
changes in the accumulated postretirement benefit obligation for 1995
and 1994:
1995 1994
Discount rate 7.5% 8.5%
Health care cost trend rate 8.75% to 5% 9.5% to 5%
Years to ultimate trend 9 10
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 $.1 million.
Effective January 30, 1994, the Company adopted SFAS 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.
-27-
<PAGE>
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 February
3, 1996 were as follows:
Fiscal Year (in thousands) Capital Operating Total
1996 $ 6,232 $ 23,711 $ 29,943
1997 6,232 22,368 28,600
1998 6,118 20,388 26,506
1999 6,060 18,428 24,488
2000 6,060 16,537 22,597
Thereafter 71,050 112,298 183,348
Total minimum lease payments $101,752 $213,730 $315,482
Less: Executory Costs (235)
Interest (52,427)
Present value of net minimum
lease payments $ 49,090
Rent expense consisted of the following:
(in thousands) 1995 1994 1993
Minimum rentals $ 23,305 $ 23,840 $ 23,509
Contingent rentals
(based on % of sales) 7,269 5,328 4,503
$ 30,574 $ 29,168 $ 28,012
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.
-28-
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY RESULTS
(unaudited in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
February 3, 1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Revenues $ 602,858 $ 642,448 $ 694,765 $ 1,004,253 $ 2,944,324
Costs, Expenses, and
Other Income:
Cost of goods sold 427,006 468,917 470,813 693,017 2,059,753
Selling, general and
administrative expenses 159,994 165,423 173,859 187,648 686,924
Interest expense, net 3,976 3,938 3,265 3,292 14,471
Other income (4,682) (6,654) (1,792) (8,276) (21,404)
586,294 631,624 646,145 875,681 2,739,744
Income before provision
for income taxes 16,564 10,824 48,620 128,572 204,580
Provision for income taxes 6,613 4,321 19,410 50,988 81,332
Net Income $ 9,951 $ 6,503 $ 29,210 $ 77,584 $ 123,248
Net income per share $ .27 $ .18 $ .79 $ 2.11 $ 3.35
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
January 28, 1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Revenues $ 592,509 $ 619,307 $ 679,453 $ 928,568 $ 2,819,837
Costs, Expenses, and
Other Income:
Cost of goods sold 421,380 455,082 475,190 668,612 2,020,264
Selling, general and
administrative expense 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 cumulative effect
of accounting change $ .24 $ .27 $ .71 $ 1.62 $ 2.84
Cumulative effect of
accounting change (.03) - - - (.03)
Net income per share $ .27 $ .27 $ .71 $ 1.62 $ 2.81
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
TEN-YEAR SELECTED FINANCIAL DATA
(dollars in thousands,
except per share data) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Operating Results
Revenues $2,944,324 $2,819,837 $2,729,928 $2,732,041 $2,442,425
Retail sales 2,892,083 2,819,837 2,729,928 2,732,041 2,442,425
Cost of goods sold 2,059,753 2,020,264 1,960,914 1,927,149 1,720,361
Selling, general and
administrative expenses 686,924 625,726 627,391 641,573 547,268
Provision for
consolidation/relocation - 5,000 - 17,000 -
Interest expense 19,558 28,118 36,236 35,464 23,390
Interest income (5,087) (4,592) (5,288) (3,099) (4,511)
Other income (21,404) (27,571) (33,003) (29,145) (30,485)
Income before provision for
income taxes 204,580 172,892 143,678 143,099 186,402
Percent to revenues 6.9 6.1 5.3 5.2 7.6
Provision for income taxes 81,332 68,375 57,039 56,262 72,363
Income before extraordinary
charge and cumulative effect
of accounting change 123,248 104,517 86,639 86,837 114,039
Extraordinary charge, net - - - (5,550) -
Accounting change, net - (1,100) 3,100 (12,200) -
Net income 123,248 103,417 89,739 69,087 114,039
Percent to revenues 4.2 3.7 3.3 2.5 4.7
Per common share $ 3.35 $ 2.81 $ 2.44 $ 1.88 $ 3.10
Dividends declared 38,686 37,581 37,581 37,581 37,120
Per common share $ 1.05 $ 1.02 $ 1.02 $ 1.02 $ 1.00 3/4
Dividends paid 38,686 37,581 37,581 37,581 37,120
Per common share $ 1.05 $ 1.02 $ 1.02 $ 1.02 $ 1.00 3/4
Financial Position
Working capital $1,013,576 $ 957,030 $ 902,268 $ 992,153 $ 988,786
Ratio of current assets to
current liabilities 4.72 4.66 3.46 4.64 6.44
Receivables, net 574,622 620,238 635,114 613,708 656,428
Inventories 523,574 468,782 425,492 422,819 381,406
Property and equipment, net
(includes capitalized leases) 701,233 688,806 691,502 680,933 461,563
Total assets 2,074,724 1,981,729 2,031,982 2,007,868 1,673,099
Long-term debt 254,926 261,187 271,965 390,258 207,150
Retained earnings 1,473,692 1,389,130 1,323,294 1,271,136 1,239,630
Stockholders' equity 1,485,113 1,400,551 1,334,715 1,282,557 1,251,051
Per common share $ 40.31 $ 38.01 $ 36.23 $ 34.81 $ 33.96
Return on stockholders'
equity(1) 8.5% 7.6% 6.9% 5.5% 9.4%
Number of shares outstanding 36,844 36,844 36,844 36,844 36,844
Other Data
Capital expenditures for
property and equipment, net $ 101,202 $ 93,639 $ 106,210 $ 110,638 $ 79,931
Depreciation 88,714 93,540 93,455 94,036 70,607
Stores opened during year 1 4 3 1 2
Stores acquired - - - 16 -
Stores closed during year 3 2 1 1 1
Number of stores, at year end 101 103 101 99 83
Total square feet 16,300 16,484 16,212 15,820 13,145
Sales per square foot(2) $ 177 $ 173 $ 169 $ 174 $ 188
<FN>
All years include 52 weeks, except 1995 which includes 53 weeks.
(1) Based on average stockholders' equity at beginning and end of year.
(2) Based on stores opened for the entire year. The 1995 year is presented
on a 52 week basis.
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
TEN-YEAR SELECTED FINANCIAL DATA
(dollars in thousands,
except per share data) 1990 1989 1988 1987 1986
Operating Results
<S> <C> <C> <C> <C> <C>
Revenues $2,367,210 $2,312,802 $2,265,500 $2,155,653 $2,028,202
Retail sales 2,367,210 2,312,802 2,265,500 2,155,653 2,028,202
Cost of goods sold 1,670,555 1,594,849 1,551,484 1,476,327 1,377,763
Selling, general and
administrative expenses 527,467 502,537 480,225 451,885 431,656
Provision for consolidation/
relocation - 10,000 - - -
Interest expense 23,422 22,818 23,076 22,971 23,695
Interest income (4,160) (4,289) (3,934) (3,268) (3,301)
Other income (29,186) (26,156) (22,021) (19,402) (17,811)
Income before provision
for income taxes 179,112 213,043 236,670 227,140 216,200
Percent to revenues 7.6 9.2 10.4 10.5 10.7
Provision for income taxes 55,498 82,700 92,208 97,584 105,135
Income before extraordinary charge
and cumulative effect of
accounting change 123,614 130,343 144,462 129,556 111,065
Extraordinary charge, net - - - - -
Accounting change, net - - - - -
Net income 123,614 130,343 144,462 129,556 111,065
Percent to revenues 5.2 5.6 6.4 6.0 5.5
Per common share $ 3.36 $ 3.54 $ 3.92 $ 3.52 $ 3.01
Dividends declared 26,804 33,896 35,923 24,870 21,370
Per common share $ .72 3/4 $ .92 $ .97 1/2$ .67 1/2$ .58
Dividends paid 35,278 32,791 28,554 24,870 21,370
Per common share $ .95 3/4$ .89 $ .77 1/2$ .67 1/2 $ .58
Financial Position
Working capital $ 934,495 $ 873,613 $ 846,839 $ 817,450 $ 756,699
Ratio of current assets to
current liabilities 6.13 4.65 4.63 4.88 4.52
Receivables, net 667,600 644,633 625,199 588,510 548,132
Inventories 393,304 393,319 362,037 332,175 306,516
Property and equipment, net
(includes capitalized leases) 444,696 408,229 355,438 310,486 294,846
Total assets 1,596,630 1,548,438 1,451,752 1,353,357 1,279,112
Long-term debt 207,906 199,284 197,058 205,241 205,786
Retained earnings 1,162,711 1,065,901 969,454 860,915 756,229
Stockholders' equity 1,174,132 1,077,322 980,875 872,336 767,729
Per common share $ 31.87 $ 29.24 $ 26.62 $ 23.68 $ 20.84
Return on stockholders' equity 11.0% 12.7% 15.6% 15.8% 15.4%
Number of shares outstanding 36,844 36,844 36,844 36,844 36,845
Other Data
Capital expenditures for property
and equipment, net $ 82,944 $ 97,230 $ 92,572 $ 57,797 $ 64,436
Depreciation 63,158 54,478 47,541 47,141 46,833
Stores opened during year 3 1 2 1 2
Stores acquired - - - - -
Stores closed during year 1 1 1 4 -
Number of stores, at year end 82 80 80 79 82
Total square feet 12,683 12,077 11,791 11,124 11,105
Sales per square foot(2) $ 191 $ 192 $ 195 $ 195 $ 185
<FN>
All years include 52 weeks, except 1995 which includes 53 weeks.
(1) Based on average stockholders' equity at beginning and end of year.
(2) Based on stores opened for the entire year. The 1995 year is
presented on a 52 week basis.
</TABLE>
-31-
<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 Eastgate Mall (McAlpin's)
Kenwood Towne Centre (McAlpin's)
Northgate Mall (McAlpin's)
Signatures Home Store -
Harper's Station (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)
<PAGE>
CASTNER KNOTT
Store Locations Shopping Centers/Malls
Nashville, TN Galleria at Cool Springs
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
<PAGE>
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)
-32-
<PAGE>
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, KS Melcalf 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 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)
-33-
<PAGE>
GROUP PRESIDENTS
Thomas N. Groh
President of Bacons, McAlpin's, Root's, and Lion
Twenty-four Stores in Kentucky, Ohio,and Indiana
Headquartered in Louisville, Kentucky
Edward A. Overbey, Jr.
President of Castner Knott
Twelve 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
James L. Schmidt
President of The Jones Store Co., Joslins,Glass Block, Hennessy's, and de
Lendrecie's
Twenty-three Stores in Missouri, Kansas, Colorado, Montana,
Wyoming, Minnesota, and North Dakota
Headquartered in Kansas City, Missouri
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
Louis L. Ripley
Vice President
William A. Carr
Treasurer
Kathryn M. Muldowney
Controller
Dennis F. Murphy
Secretary
-34-
<PAGE>
DIRECTORS
snu 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
Gerrish H. Milliken
Director of Milliken & Company
n Minot K. Milliken
Vice President and
Director of Milliken & Company
snu Roger Milliken
Chairman of the Board,
Chief Executive Officer and
Director of Milliken & Company
sn George S. Moore
International Financial Consultant
David L. Nichols
Chairman of the Board and
Chief Executive Officer of
Mercantile Stores Company, Inc.
n Lawrence R. Pugh
Chairman of the Board of VF Corporation
n Francis G. Rodgers
Former Vice President of IBM Corporation
u Roger K. Smith
Strategic Marketing Manager of
Analog Devices, Inc.
s Audit Committee
n Compensation Committee
u Nominating Committee
STOCKHOLDERINFORMATION
Annual Meeting
The Annual Meeting of Stockholders will be held at 11:00 a.m. on
Wednesday, May 22, 1996at 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
311 West Monroe Street, 11th Floor
Chicago, Illinois 60690
Telephone: 312-461-3309
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, New York 10178
Telephone: 212-696-6000
Form 10-K Annual Report
A copy of Mercantile's 1995 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
<PAGE>
EXHIBIT 21
MERCANTILE STORES COMPANY, INC.
SUBSIDIARY SCHEDULE
AS OF FEBRUARY 3, 1996
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
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 29, 1996
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 February 3, 1996, 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 3, 1996
H. Keith H. Brodie, MD Roger Milliken
John A. Herdeg George S. Moore
Thomas J. Malone Lawrence R. Pugh
Gerrish H. Milliken Francis G. Rodgers
Minot K. Milliken Roger K. Smith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF CONSOLIDATED CONSOLIDATED INCOME AND RETAINED EARNINGS,
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE
PERIOD ENDED FEBRUARY 3, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> FEB-03-1996
<CASH> 161,893
<SECURITIES> 0
<RECEIVABLES> 576,043
<ALLOWANCES> 16,499
<INVENTORY> 523,573
<CURRENT-ASSETS> 1,286,384
<PP&E> 1,125,552
<DEPRECIATION> 424,319
<TOTAL-ASSETS> 2,074,724
<CURRENT-LIABILITIES> 272,808
<BONDS> 0
<COMMON> 5,403
0
0
<OTHER-SE> 1,479,710
<TOTAL-LIABILITY-AND-EQUITY> 2,074,724
<SALES> 2,892,083
<TOTAL-REVENUES> 2,944,324
<CGS> 2,059,753
<TOTAL-COSTS> 2,059,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,558
<INCOME-PRETAX> 204,580
<INCOME-TAX> 81,332
<INCOME-CONTINUING> 123,248
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123,248
<EPS-PRIMARY> 3.35
<EPS-DILUTED> 3.35
</TABLE>
