-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OyUpl8P8x/jaDCMK6RI4klp243SjEDDt0vmxV4ir7yZvcxM8CJsFqfkNLusN0SvG jBNQFhTyS0wEPVPJl1ICqQ== 0000063416-96-000013.txt : 19960425 0000063416-96-000013.hdr.sgml : 19960425 ACCESSION NUMBER: 0000063416-96-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960203 FILED AS OF DATE: 19960424 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAY DEPARTMENT STORES CO CENTRAL INDEX KEY: 0000063416 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 430398035 STATE OF INCORPORATION: NY FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20621 FILM NUMBER: 96550248 BUSINESS ADDRESS: STREET 1: 611 OLIVE ST CITY: ST LOUIS STATE: MO ZIP: 63101 BUSINESS PHONE: 3143426300 10-K 1 1995 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 3, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-79 THE MAY DEPARTMENT STORES COMPANY (Exact name of registrant as specified in its charter) New York 43-0398035 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 611 Olive Street, St. Louis, Missouri 63101 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (314) 342-6300 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, par value $.50 per share New York Stock Exchange Preferred stock purchase rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of registrant's common stock held by non- affiliates as of April 6, 1996: $11,766,877,745 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 249,837,522 shares of common stock, $.50 par value, as of April 6, 1996. Documents incorporated by reference: 1. Portions of Registrant's 1995 Annual Report to Shareowners are incorporated into Parts I and II. 2. Portions of Registrant's 1996 Proxy Statement, dated April 22, 1996, are incorporated into Part III. PART I Items 1 and 2. Business and Description of Property Registrant, a corporation, was organized under the laws of the State of New York on June 4, 1910, as the successor to a business founded by David May, who opened his first store in Leadville, Colorado, in 1877. Registrant operates eight quality regional department store companies nationwide. At fiscal year-end 1995, registrant operated 346 department stores in 30 states and the District of Columbia. The department store companies and their headquarters are: Lord & Taylor, New York City; Hecht's, Washington, D.C.; Foley's, Houston; Robinsons-May, Los Angeles; Kaufmann's, Pittsburgh; Filene's, Boston; Famous-Barr, St. Louis; and Meier & Frank, Portland, Ore. In addition, registrant operates Payless ShoeSource, Inc., headquartered in Topeka, Kan. On January 17, 1996, registrant announced the spin-off of Payless ShoeSource, Inc. as a tax-free distribution to shareowners. The distribution will be effective May 4, 1996. At fiscal 1995 year-end, 4,549 stores were operated in 49 states, the District of Columbia, Puerto Rico and the Virgin Islands. Registrant employs approximately 61,000 full-time and 69,000 part- time associates in 49 states, the District of Columbia, Puerto Rico, the Virgin Islands and eight offices overseas. Approximately 24,000 are employees of Payless ShoeSource, Inc. The following portions of registrant's 1995 Annual Report to Shareowners are incorporated herein by reference: Management's Discussion and Analysis (pages 12-16). April 4, 1996 the registrant announced that it will acquire 13 Strawbridge & Clothier stores in the greater Philadelphia area in a transaction expected to close in July, 1996, subject to customary conditions, including approval by Strawbridge and Co. ("Strawbridge") shareowners and other regulatory approvals. The Strawbridge department store assets will be acquired in exchange for approximately 4.2 million shares of the registrant's common stock and the assumption of debt and certain other liabilities. The registrant has also agreed to issue additional shares of its common stock in exchange for any cash proceeds from Strawbridge's divestiture of its Clover discount division, net of certain transaction expenses. The asset acquisition will be accounted for as a purchase and funded principally with stock that the registrant intends to repurchase in the open market from time to time as market conditions allow. 2 A. Property Ownership (i) Department Stores The following summarizes the property ownership of department stores at February 3, 1996: % of Gross Number of Building Stores Sq. Footage Entirely or mostly owned* 190 59% Entirely or mostly leased 94 26 Owned on leased land* 62 15 346 100% * Includes a total of 19 department stores subject to financing. (ii) Payless ShoeSource, Inc. Payless ShoeSource, Inc. store locations are substantially all leased, usually on a 10- to 15-year basis with renewal options. B. Credit Sales Sales at registrant's department stores are made for cash or credit, including registrant's 30-day charge accounts and open-end credit plans, which include revolving charge accounts and revolving installment accounts. During the fiscal year ended February 3, 1996, 54.5% of the total sales of registrant's department stores were made through registrant's credit plans. All sales of Payless ShoeSource, Inc. are made either for cash or through third-party credit cards. In 1991, registrant formed May National Bank of Arizona (MBA) and May National Bank of Ohio (MBO), which are indirectly wholly owned and consolidated subsidiaries of registrant. During the last fiscal year, MBA and MBO extended credit to certain customers of registrant's Robinsons-May, Kaufmann's, Famous-Barr and Meier & Frank department stores companies. Throughout 1995, MBA and MBO sold the resulting accounts receivables at face value, to the registrant. In addition, MBA and MBO process remittances for their parent, May Funding, Inc. and its other subsidiaries. MBA and MBO receive processing fee revenue for this service. C. Competition in Retail Merchandising Registrant's retail merchandising business is conducted under highly competitive conditions. During the past several years, the retail industry has seen major changes which have increased competition. Although registrant is one of the nation's largest department store retailers, it has thousands of competitors at the local level which compete with registrant's individual department and Payless ShoeSource, Inc. stores. Competition at the local level is characterized by numerous factors including convenience of facilities, reputation, procurement of merchandise, product mix, advertising, price, quality, service and credit availability. Registrant believes that it is in a strong competitive position with regard to each of these factors. Registrant has been able to perform in a competitive environment through effective merchandising. 3 D. Executive Officers of Registrant The names and ages (as of April 24, 1996) of all executive officers of registrant, and the positions and offices held with registrant by each such person are as follows: Name Age Positions and Offices David C. Farrell 62 Chairman and Chief Executive Officer Thomas A. Hays 63 Deputy Chairman Jerome T. Loeb 55 President and Chief Financial Officer Richard L. Battram 61 Executive Vice Chairman Eugene S. Kahn 46 Vice Chairman Anthony J. Torcasio 50 President and Chief Executive Officer, May Merchandising Company Louis J. Garr, Jr. 56 Executive Vice President and General Counsel R. Dean Wolfe 52 Executive Vice President William D. Edkins 43 Senior Vice President Lonny J. Jay 54 Senior Vice President Jan R. Kniffen 47 Senior Vice President Richard A. Brickson 48 Secretary and Senior Counsel Martin M. Doerr 41 Vice President Andrew T. Hall 35 Vice President Each of the above named executive officers shall remain in office until the annual meeting of directors following the next annual meeting of shareowners of registrant, or until their respective successors shall have been elected and shall qualify. Mr. Hays announced his retirement effective April 30, 1996, at which time Mr. Loeb will assume Mr. Hays' responsibilities. On April 22, 1996 registrant announced the appointment of Mr. John L. Dunham as executive vice president and chief financial officer, effective May 1, 1996. On February 16, 1996 registrant announced the appointment of Mr. Kahn as vice chairman. At the same time, registrant named both Mr. Kahn and Mr. Torcasio as members of the registrant's Board of Directors. Messrs. Farrell, Hays, Loeb and Battram also serve as directors of registrant. Each of the executive officers has been an officer of registrant for at least the last five years, with the following exceptions: Mr. Kahn served as president of the former G. Fox division from 1990 to 1992 and as president and chief executive officer of Filene's from 1992 to March, 1996 when he became vice chairman. Mr. Torcasio served as president and chief executive officer of the former L.S. Ayres division from 1988 to 1991 and as president and chief executive officer of Famous-Barr from 1991 to 1993 when he became president and chief executive officer of May Merchandising Company and became an executive officer of registrant. Mr. Doerr was associated with the public accounting firm of Arthur Andersen LLP from 1976 to 1992 and became an executive officer of registrant in 1994. Mr. Hall was associated with the public accounting firm of Arthur Andersen LLP from 1983 to 1993 and became an executive officer of registrant in 1994. 4 Item 3. Legal Proceedings There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which registrant or any of its subsidiaries is a party or of which any of their property is the subject. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the 13 weeks ended February 3, 1996. PART II Item 5. Market for Registrant's Common Equity and Related Shareowner Matters Common Stock Dividends and Market Prices (page 16) of registrant's 1995 Annual Report to Shareowners are incorporated herein by reference. Item 6. Selected Financial Data The Eleven Year Financial Summary (pages 28 and 29) of registrant's 1995 Annual Report to Shareowners is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis (pages 12-16) and Notes to Consolidated Financial Statements (pages 21-27) of registrant's 1995 Annual Report to Shareowners are incorporated herein by reference. Item 8. Financial Statements and Supplementary Data Consolidated Financial Statements (pages 17-20), Notes to Consolidated Financial Statements (pages 21-27) and Report of Independent Public Accountants (page 30) of registrant's 1995 Annual Report to Shareowners are incorporated herein by reference. 5 QUARTERLY RESULTS (Unaudited) Quarterly results are determined in accordance with the annual accounting policies and include certain items based upon estimates for the entire year. Summarized quarterly results for the last two years were as follows: (millions, except per share) 1995 Quarter First Second Third Fourth Year Revenues $ 2,218 $ 2,325 $ 2,569 $ 3,840 $ 10,952 Cost of sales $ 1,543 $ 1,625 $ 1,798 $ 2,495 $ 7,461 Net Earnings: Continuing operations $ 87 $ 107 $ 110 $ 396 $ 700 Discontinued operatio 27 34 25 (31) 55 Impact of spin-off of discontinued operation - - - - - Before extraordinary loss 114 141 135 365 755 Extraordinary loss related to early extinguishment of debt - - - (3) (3) Net Earnings 114 141 135 362 752 Primary earnings per share: Continuing operations $ 0.33 $ 0.41 $ 0.42 $ 1.57 $ 2.73 Discontinued operation 0.11 0.14 0.10 (0.13) 0.22 Impact of spin-off of discontinued operation - - - - - Before extraordinary loss 0.44 0.55 0.52 1.44 2.95 Extraordinary loss related to early extinguishment of debt - - - (0.01) (0.01) Primary earnings per share 0.44 0.55 0.52 1.43 2.94 Fully diluted earnings per share: Continuing operations $ 0.32 $ 0.40 $ 0.41 $ 1.48 $ 2.61 Discontinued operation 0.10 0.13 0.09 (0.11) 0.21 Impact of spin-off of discontinued operation - - - - - Before extraordinary loss 0.42 0.53 0.50 1.37 2.82 Extraordinary loss related to early extinguishment of debt - - - (0.01) (0.01) Fully Diluted Earnings Per Share $ 0.42 $ 0.53 $ 0.50 $ 1.36 $ 2.81 6 (millions, except per share) 1994 Quarter First Second Third Fourth Year Revenues $ 2,105 $ 2,162 $ 2,404 $ 3,436 $ 10,107 Cost of sales $ 1,463 $ 1,510 $ 1,679 $ 2,227 $ 6,879 Net Earnings: Continuing operations $ 77 $ 93 $ 105 $ 375 $ 650 Discontinued operation 35 37 34 26 132 Impact of spin-off of discontinued operation - - - - - Before extraordinary loss 112 130 139 401 782 Extraordinary loss related to early extinguishment of debt - - - - - Net Earnings 112 130 139 401 782 Primary earnings per share: Continuing operations $ 0.29 $ 0.35 $ 0.40 $ 1.49 $ 2.53 Discontinued operation 0.14 0.15 0.14 0.10 0.53 Impact of spin-off of discontinued operation - - - - - Before extraordinary loss 0.43 0.50 0.54 1.59 3.06 Extraordinary loss related to early extinguishment of debt - - - - - Primary earnings per share 0.43 0.50 0.54 1.59 3.06 Fully diluted earnings per share: Continuing operations $ 0.28 $ 0.35 $ 0.38 $ 1.42 $ 2.43 Discontinued operation 0.13 0.14 0.13 0.09 0.49 Impact of spin-off of discontinued operation - - - - - Before extraordinary loss 0.41 0.49 0.51 1.51 2.92 Extraordinary loss related to early extinguishment of debt - - - - - Fully Diluted Earnings Per Share $ 0.41 $ 0.49 $ 0.51 $ 1.51 $ 2.92 7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Items 10, 11, 12, 13. Directors and Executive Officers of Registrant, Executive Compensation, Security Ownership of Certain Beneficial Owners and Management, Certain Relationships and Related Transactions Pursuant to paragraph G (Information to be Incorporated by Reference) of the General Instructions to Form 10-K, the information required by Items 10, 11, 12 and 13 (other than information about executive officers of registrant) is incorporated by reference from the definitive proxy statement dated April 22, 1996, and filed pursuant to Regulation 14A. Information about executive officers of registrant is set forth in Part I of this Form 10-K, under the heading "Items 1. and 2. Business and Description of Property." PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this report: (1) Financial Statements. Incorporated by reference to registrant's 1995 Annual Report to Shareowners (Exhibit 13): Page in Annual Report Financial Statements- Consolidated Statement of Earnings for the three fiscal years ended February 3, 1996 17 Consolidated Balance Sheet - February 3, 1996, and January 28, 1995 18 Consolidated Statement of Cash Flows for the three fiscal years ended February 3, 1996 19 Consolidated Statement of Shareowners' Equity for the three fiscal years ended February 3, 1996 20 Notes to Consolidated Financial Statements 21-27 Report of Independent Public Accountants 30 Page in this Report (2) Supplemental Financial Statement Schedule (for the three fiscal years ended February 3, 1996): Report of Independent Public Accountants on Schedule II 12 II Valuation and Qualifying Accounts 13 8 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) (3) Exhibits: Location 3(a) Restated Certificate of Incorporated Incorporation of by Reference Registrant, dated March 22, 1994 to Exhibit 3(a) of Annual Report on Form 10-K, filed April 20, 1994. 3(b) By-Laws of Registrant, as amended Incorporated by Reference to Exhibit 4(b) of Form S-8, filed April 1, 1996. 11 Computation of Net Earnings Filed Per Share herewith. 12 Computation of Ratio of Filed Earnings to Fixed Charges herewith. 13 The May Department Stores Filed Company 1995 Annual Report to herewith. Shareowners (only those portions specifically incorporated by reference shall be deemed filed with the Commission) 21 Subsidiaries of Registrant Filed herewith. 23 Consent of Independent Public Page 12 of Accountants this Report. 27 Financial Data Schedule Filed herewith. 99 Form 11-K Annual Report of the Filed Profit Sharing and Savings Plan herewith. of The May Department Stores Company for the fiscal year ended December 31, 1995 (4) Reports on Form 8-K A report dated January 17, 1996 which contained a release announcing the registrant's intent to spin-off Payless ShoeSource, Inc., its chain of self-service family shoe stores, to the registrant's shareowners in a tax-free distribution expected to be completed in late Spring 1996. All other schedules and exhibits of registrant for which provision is made in the applicable regulations of the Securities and Exchange Commission have been omitted, as they are not required or are inapplicable or the information required thereby has been given otherwise. 9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE MAY DEPARTMENT STORES COMPANY Date: April 24, 1996 By: /s/ Jerome T. Loeb Jerome T. Loeb Director, President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of registrant and in the capacities and on the dates indicated. Date Signature Title Principal Executive Officer: April 24, 1996 /s/ David C. Farrell Director, Chairman David C. Farrell and Chief Executive Officer Principal Financial and Accounting Officer: April 24, 1996 /s/ Jerome T. Loeb Director, Jerome T. Loeb President and Chief Financial Officer Directors: April 24, 1996 /s/ Thomas A. Hays Director and Thomas A. Hays Deputy Chairman April 24, 1996 /s/ Richard L. Battram Director and Richard L. Battram Executive Vice Chairman 10 Date Signature Title April 24, 1996 /s/ Eugene S. Kahn Director and Vice Eugene S. Kahn Chairman April 24, 1996 /s/ Anthony J. Torcasio Director, Anthony J. Torcasio President and Chief Executive Officer, May Merchandising Company April 24, 1996 /s/ Helene L. Kaplan Director Helene L. Kaplan April 24, 1996 /s/ Edward H. Meyer Director Edward H. Meyer April 24, 1996 /s/ Russell E. Palmer Director Russell E. Palmer April 24, 1996 /s/ Andrall E. Pearson Director Andrall E. Pearson April 24, 1996 /s/ Michael R. Quinlan Director Michael R. Quinlan April 24, 1996 /s/ William P. Stiritz Director William P. Stiritz April 24, 1996 /s/ Robert D. Storey Director Robert D. Storey April 24, 1996 /s/ Murray L. Weidenbaum Director Murray L. Weidenbaum April 24, 1996 /s/ Edward E. Whitacre, Jr. Director Edward E. Whitacre, Jr. 11 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The May Department Stores Company: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in The May Department Stores Company's Annual Report to Shareowners incorporated by reference in this Form 10-K, and have issued our report thereon dated February 26, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Schedule II included in this Form 10-K is the responsibility of the company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the consolidated financial statements. The Schedule has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP 1010 Market Street St. Louis, Missouri 63101-2089 February 26, 1996 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Annual Report on Form 10-K for the year ended February 3, 1996 into the Company's previously filed Registration Statements on Form S-3 (No. 33-38585, 33-46021, 33-55255 and 33-62075) and Form S-8 (No. 33-26016, 33-38104, 33-51849, 33-58985 and 333-00957). ARTHUR ANDERSEN LLP 1010 Market Street St. Louis, Missouri 63101-2089 April 24, 1996 12
SCHEDULE II THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE FISCAL YEARS ENDED February 3, 1996 (Millions) Charges Balance to costs Balance beginning and Deductions end of of period expenses (a) period FISCAL YEAR ENDED FEBRUARY 3, 1996 Allowance for doubtful accounts $ 78 $ 88 $ (82) $ 84 FISCAL YEAR ENDED JANUARY 28, 1995 Allowance for doubtful accounts $ 76 $ 77 $ (75) $ 78 FISCAL YEAR ENDED JANUARY 29, 1994: Allowance for doubtful accounts $ 82 $ 70 $ (76) $ 76 (a) Write-off of accounts determined to be uncollectible, net of recoveries of $24 million in 1995, $23 million in 1994 and $22 million in 1993.
13 Exhibit 21 THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES SUBSIDIARIES OF REGISTRANT The corporations listed below are subsidiaries of registrant, and all are included in the consolidated financial statements of registrant as subsidiaries (unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary): Jurisdiction in which Name organized May Capital, Inc. Delaware May Funding, Inc. Nevada Payless Holdings, Inc. Delaware Payless ShoeSource, Inc. Missouri EX-11 2 EXHIBIT 11 CALCULATION OF NET EARNINGS PER SHARE
Exhibit 11 THE MAY DEPARTMENT STORES COMPANY COMPUTATION OF NET EARNINGS PER SHARE FOR THE THREE FISCAL YEARS ENDED FEBRUARY 3, 1996 (millions, except per share) 1995 1994 1993 Net earnings from continuing operations $ 700 $ 650 $ 578 ESOP Preferred Dividends, net of tax benefit on unallocated shares (19) (19) (19) Preferred Dividend requirements - - - Net earnings available for common shareowners: Continuing operations 681 631 559 Discontinued operation 55 132 133 Extraordinary loss (3) - - Total net earnings available for common shareowners $ 733 $ 763 $ 692 Average common shares outstanding 248.9 248.4 248.4 Net earnings per share: Continuing operations $ 2.73 $ 2.54 $ 2.25 Discontinued operation 0.22 0.53 0.54 Extraordinary loss (0.01) - - Total net earnings per share $ 2.94 $ 3.07 $ 2.79 Primary Computation: Net earnings available from continuing operations $ 681 $ 631 $ 559 Deferred comp. dividend adjustment 1 1 1 Adjusted net earnings available: Continuing operations 682 632 560 Discontinued operation 55 132 133 Extraordinary loss (3) - - Total adjusted net earnings available: $ 734 $ 764 $ 693 Average common shares outstanding 248.9 248.4 248.4 Common share equivalents (CSE's) 1.0 1.2 1.5 Average common stock and CSE's 249.9 249.6 249.9 Primary earnings per share: Continuing operations $ 2.73 $ 2.53 $ 2.24 Discontinued operation 0.22 0.53 0.53 Extraordinary loss (0.01) - - Total Primary Earnings per share $ 2.94 $ 3.06 $ 2.77
Exhibit 11 THE MAY DEPARTMENT STORES COMPANY COMPUTATION OF NET EARNINGS PER SHARE FOR THE THREE FISCAL YEARS ENDED FEBRUARY 3, 1996 (millions, except per share) 1995 1994 1993 Fully Diluted Computation: Adjusted net earnings available from continuing operations-PRIMARY $ 682 $ 632 $ 560 Earnings impact of assumed conversion of ESOP Preference Shares, net of tax benefit on unallocated common shares 11 10 9 Adjusted net earnings available-FULLY DILUTED: Continuing operations 693 642 569 Discontinued operation 55 132 133 Extraordinary loss (3) - - Total adjusted net earnings available-FULLY DILUTED: $ 745 $ 774 $ 702 Average common shares and CSE's 249.9 249.6 249.9 Additional CSE's attributable to treasury stock method 0.4 - 0.1 ESOP Preference Shares 15.0 15.3 15.5 Average Common Shares Outstanding on fully diluted basis 265.3 264.9 265.5 Fully Diluted earnings per share: Continuing operations $ 2.61 $ 2.43 $ 2.15 Discontinued operation 0.21 0.49 0.50 Extraordinary loss (0.01) - - Total Fully Diluted Earnings per share $ 2.81 $ 2.92 $ 2.65
EX-12 3 EXHIBIT 12 COMPUTATION OF FIXED CHARGES
Exhibit 12 THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE FIVE FISCAL YEARS ENDED FEBRUARY 3, 1996 Fiscal Year Ended Feb. 3, Jan. 28, Jan. 29, Jan. 30, Feb. 1, 1996 1995 1994 1993 1992 Earnings Available for Fixed Charges: Pretax earnings from continuing operations $ 1,160 $ 1,079 $ 957 $ 579 $ 617 Fixed charges (excluding interest capitalized and pretax preferred stock dividend requirements) 317 293 305 361 409 Dividends on ESOP Preference Shares (28) (28) (28) (29) (29) Capitalized interest amortization 5 4 4 3 3 1,454 1,348 1,238 914 1,000 Fixed Charges: Gross interest expense (a) $ 316 $ 289 $ 295 $ 338 $ 384 Interest factor attributable to rent expense 20 19 20 24 29 Other (b) - - - 5 8 336 308 315 367 421 Ratio of Earnings to Fixed Charges 4.3 4.4 3.9 2.5 2.4 (a) Represents interest expense on long-term and short-term debt, ESOP debt and amortization of debt discount and debt issue expense. (b) Represents the company's proportionate share of interest of unconsolidated 50% owned persons and pretax preferred stock dividend requirements.
EX-13 4 EXHIBIT 13 ANNUAL REPORT [DESCRIPTION] EXHIBIT 13 ANNUAL REPORT EXHIBIT 13 [The following "Management's Discussion and Analysis" section is a reproduction of the same named section included in the paper format Annual Report on pages 12 - 16.] MANAGEMENT'S DISCUSSION AND ANALYSIS May achieved its 21st consecutive year of record sales and earnings per share from continuing operations. Our five-year compound growth rate for earnings per share from continuing operations was 11.6% - among the best in the retail industry. In January 1996, May announced the spin-off of Payless ShoeSource, Inc., our family shoe store subsidiary, as a tax-free distribution to shareowners. As a result, Payless is being reported as a discontinued operation. The spin-off is targeted for May 1996. Sales in 1995 were $10.5 billion, an increase of 7.7% over 1994 sales of $9.8 billion. The sales increase over last year was achieved during a period of deflation for department store prices. It reflects the benefit of new store openings and an increase in store-for-store sales of 2.5%. Store-for-store sales increases for the first through fourth quarters in 1995 were 2.4%, 5.0%, 1.5% and 1.9%, respectively. We achieved $2.61 in earnings per share from continuing operations in 1995, a 7.4% increase over last year's $2.43. Net earnings from continuing operations totaled $700 million, compared with $650 million last year. Return on revenues was 6.4% in 1995 and 1994. Return on equity was 20.8% in 1995 (computed as net earnings from continuing operations divided by beginning shareowners' equity adjusted for the impact of the Payless spin-off). This was May's sixth consecutive year with a return on equity over 20%. Return on continuing operations' net assets was 20.1% in 1995 and 1994. We opened 37 department stores during 1995, adding 6.3 million square feet of retail space. Four of these stores were Lord & Taylor locations, in King of Prussia, Pa.; Raleigh, N.C.; Schaumburg, Ill.; and Victor, N.Y. Hecht's opened 18 locations, 14 of which were acquired Wanamakers stores. These include 13 Pennsylvania locations, in downtown Philadelphia, northeast Philadelphia, Wynnewood, Jenkintown, King of Prussia, Reading, Langhorne, Springfield, North Wales, Whitehall, Camp Hill, York and Harrisburg; two New Jersey locations, in Moorestown and Bedford; one Maryland location in Chevy Chase; one Delaware location in Newark; and one North Carolina location in Raleigh. Kaufmann's opened four Pennsylvania stores, in Altoona, Scranton, Wilkes-Barre and Muncy; and three New York locations, in Horseheads, New Hartford and Rochester. Two stores were Foley's locations, in Austin and Temple, Tex. Robinsons-May reopened one location in Los Angeles, Calif., that had been damaged by the January 1994 earthquake. Filene's opened four stores, in Holyoke, Mass.; Stamford, Conn.; and in Kingston and Schenectady, N.Y.; Famous-Barr opened one store in St.Louis. In addition, we remodeled 12 department stores in 1995, totaling 845,000 retail square feet, and expanded eight of these stores by 290,000 square feet. At fiscal year-end, May operated 346 department stores in 30 states and the District of Columbia. Five department stores were closed during the year, resulting in a net increase of 32 department stores and 5.4 million square feet of retail space. This is the second consecutive year of significant store openings following several years in which the department store count decreased as new department store openings were more than offset by the closings of low-productivity stores. Our expansion program for 1996 includes 15 new department stores, which will add 2.3 million square feet of retail space. In 1996, the company plans to remodel 13 department stores totaling 1.4 million square feet of retail space, and to expand eight of these stores by a total of 150,000 square feet. The 1996-2000 expansion plan will add 115 new department stores totaling 18.9 million retail square feet. The expansion plan will result in a 6% net annualized increase in department store square footage. During this five-year period, May will invest $2.1 billion for new stores and will spend an additional $570 million to remodel existing stores. These are the major components of a $3.7 billion capital plan.
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Net retail sales from continuing operations (in billions) $4.0 $4.4 $4.8 $6.2 $7.0 $7.5 $7.9 $8.4 $9.0 $9.8 $10.5
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Earnings per share from continuing operations $0.75 $0.83 $1.03 $1.23 $1.50 $1.51 $1.52 $1.76 $2.15 $2.43 $2.61
REVIEW OF OPERATIONS Net earnings from continuing operations totaled $700 million in 1995, compared with $650 million in 1994 and $578 million in 1993. Return on revenues was 6.4% in 1995, compared with 6.4% in 1994 and 6.0% in 1993. Fully diluted earnings per share from continuing operations reached $2.61 in 1995, compared with $2.43 in 1994 and $2.15 in 1993.
Results of continuing operations for the past three years were as follows: 1995 1994 1993 (dollars in millions, except Percent of Percent of Percent of per share) $ Revenues $ Revenues $ Revenues Net Retail Sales $10,507 $ 9,759 $9,020 Revenues $10,952 100.0% $10,107 100.0% $9,562 100.0% Cost of sales 7,461 68.1 6,879 68.1 6,537 68.4 Selling, general and administra- tive expenses 2,081 19.0 1,916 18.9 1,824 19.1 Interest expense, net 250 2.3 233 2.3 244 2.5 Earnings before income taxes 1,160 10.6 1,079 10.7 957 10.0 Provision for income taxes* 460 39.7 429 39.7 379 39.6 Net Earnings $ 700 6.4% $ 650 6.4% $ 578 6.0% Fully Diluted Earnings per Share $ 2.61 $ 2.43 $ 2.15 * Percent of Revenues column represents effective income tax rate.
Fiscal 1995 included 53 weeks. The additional week did not materially affect 1995 earnings. All net retail sales information in this Review of Operations is presented on a 52-week basis for comparability.
Earnings before interest and taxes (EBIT) for the past three years were as follows: Increase (dollars in millions) 1995 1994 1993 1995 1994 Operating earnings 1,410 1,312 1,201 7.5% 9.3% Percent of revenues 12.9% 13.0% 12.6%
EBIT presented above include a LIFO credit of $53 and $46 million in 1995 and 1994, respectively, and a charge of $7 million in 1993.
EBIT, excluding LIFO, is presented below on a supplementary basis for comparative purposes: Increase (dollars in millions) 1995 1994 1993 1995 1994 Operating earnings $1,357 1,266 $1,208 7.2% 4.8% Percent of revenues 12.4% 12.5% 12.6%
May's 346 quality department stores are operated by eight regional department store companies across the United States, each operating under long-standing and widely recognized names. Each store company holds a leading market position in its region. The table below summarizes net retail sales, sales per square foot, building area square footage, and number of stores for each store company:
Net Retail Building Area Sales in Millions Sales per Square Footage of Dollars Square Foot in Thousands Number of Stores 1995 1994 1995 1994 1995 1994 1995 New Closed 1994 Lord & Taylor, New York City $ 1,586 $1,451 $233 $226 7,131 6,811 57 4 1 54 Hecht's, Washington, D.C. 1,661 1,423 207 212 10,455 6,959 62 18 1 45 Foley's, Houston 1,693 1,633 180 181 9,896 9,583 51 2 - 49 Robinsons-May, Los Angeles 1,562 1,494 170 171 9,568 9,527 53 1 - 52 Kaufmann's, Pittsburgh 1,394 1,302 201 198 7,747 6,908 46 7 1 40 Filene's, Boston 1,261 1,162 236 239 5,884 5,320 39 4 1 36 Famous-Barr, St. Louis 983 947 201 193 5,189 5,099 30 1 1 30 Meier & Frank, Portland, Ore. 367 347 213 204 1,770 1,770 8 - - 8 Total $10,507 $9,759 $201 $200 57,640 51,977 346 37 5 314 Net retail sales represent sales of stores open at the end of 1995. Sales per square foot are calculated from revenues and average gross retail square footage. Building area represents gross retail square footage of stores open at the end of the period presented.
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Dividends per common share (year-end rate) $0.47 $0.52 $0.57 $0.64 $0.71 $0.79 $0.81 $0.83 $0.92 $1.04 $1.14
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Sales per square foot $123 $138 $143 $158 $168 $172 $171 $179 $191 $200 $201
Net Retail Sales.
Net retail sales (see page 21 for definition) increases for 1995 and 1994 were as follows: 1995 vs. 1994 1994 vs. 1993 Five-Year Store-for- Store-for- Compound Total Store Total Store Growth Rate 7.7% 2.5% 8.2% 5.4% 7.0%
The total sales increase for 1995 reflect the opening of 37 new department stores and a 2.5% store-for-store increase. The total sales increase for 1994 include the results of 19 new department stores and a 5.4% store-for-store increase.
Sales per square foot were as follows: 1995 Five-Year vs. 1994 Compound 1995 1994 1993 1990 Increase Growth Rate $201 $200 $191 $172 0.7% 3.1% Sales include leased and licensed department sales of $311 million, $290 million and $313 million in 1995, 1994 and 1993, respectively. Revenues include finance charge revenues of $340 million, $334 million and $330 million in 1995, 1994 and 1993, respectively. The low finance charge revenue growth rate over the last two years reflects increased use of third-party credit cards. Cost of Sales. Cost of sales includes cost of merchandise sold and buying and occupancy costs. Cost of sales was $7.46 billion in 1995, compared with $6.88 billion in 1994, an 8.5% increase. The overall increase resulted from an 8.4% increase in revenues. As a percent of revenues, cost of sales remained constant between 1995 and 1994 at 68.1%. A slight decline in merchandise gross margin was offset by a decrease in the occupancy rate and an increase in the LIFO credit. Cost of sales was $6.88 billion in 1994, compared with $6.54 billion in 1993, a 5.2% increase. The overall increase of 5.2% resulted from a 5.7% increase in revenues, offset by a lower cost of sales rate. As a percent of revenues, cost of sales was 68.1% in 1994, compared with 68.4% in 1993. The lower 1994 percent compared with 1993 was due to a LIFO credit of $46 million in 1994 compared with a charge of $7 million in 1993 and a slightly lower buying expense rate, partially offset by a small decline in merchandise gross margin.
The impact of LIFO on cost of sales, as a percent of revenues, is shown below: 1995 1994 1993 Cost of sales 68.1% 68.1% 68.4% LIFO charge (credit) (0.5) (0.4) 0.1 Cost of sales before LIFO 68.6% 68.5% 68.3%
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $2.08 billion in 1995, compared with $1.92 billion in 1994, an 8.6% increase. The overall increase was due to an 8.4% increase in revenues. As a percent of revenues, selling, general and administrative expenses increased 0.1% to 19.0% in 1995, compared with 18.9% in 1994, as payroll costs increased at a slightly higher rate than revenues. Selling, general and administrative expenses were $1.92 billion in 1994, compared with $1.82 billion in 1993, a 5.0% increase. The overall increase was due to a 5.7% increase in revenues. As a percent of revenues, selling, general and administrative expenses decreased 0.2% to 18.9% in 1994, compared with 19.1% in 1993, as payroll costs increased at a lesser rate than revenues. Selling, general and administrative expenses include advertising and sales promotion costs of $404 million, $370 million and $358 million in 1995, 1994 and 1993, respectively.
Interest Expense. Interest expense components were: (dollars in millions) 1995 1994 1993 Interest expense $283 $256 $262 Interest income (14) (8) (8) Capitalized interest (19) (15) (10) Interest expense, net $250 $233 $244 Percent of revenues 2.3% 2.3% 2.5%
The increase in 1995 net interest expense from 1994 was due to increased average borrowings related to store growth including the acquisition of certain assets of John Wanamaker and Woodward & Lothrop. The decrease in 1994 net interest expense compared with 1993 was the result of reduced average borrowings. Income Taxes. The effective income tax rates were 39.7%, 39.7% and 39.6% in 1995, 1994 and 1993, respectively. The 1995 effective income tax rate of 39.7% remained constant compared to 1994, as a 0.3% increase in the effective federal income tax rate was offset by a 0.3% decrease in the net effective state income tax rate. The 1994 effective income tax rate of 39.7% increased compared with 1993 because of slightly higher state income tax rates. See Taxes on page 24. Also see Summary of Significant Accounting Policies on page 21 for a discussion of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Common stock price range Low price $10.50 $15.94 $11.13 $14.38 $17.31 $18.69 $22.63 $26.00 $33.44 $32.25 $33.50 High price $16.25 $22.06 $25.44 $20.00 $26.31 $29.56 $30.19 $37.25 $46.50 $45.13 $46.25
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Book value per common share $7.86 $8.50 $9.13 $10.75 $9.32 $10.04 $11.26 $12.82 $14.65 $16.65 $18.42
Impact of Inflation. Overall, inflation has not had a material impact on the company's 1995 sales growth and earnings. The company values its inventory on a LIFO basis, and as a result, the current cost of merchandise is reflected in current operating results. Discontinued Operation. Payless ShoeSource, Inc., is the nation's largest chain of self-service family shoe stores. At year-end, Payless operated 4,549 stores and 773 Payless Kids expansion stores in 49 states, the District of Columbia, Puerto Rico and the Virgin Islands.
Results for Payless for the fiscal years shown were: Increase (Decrease) (dollars in millions) 1995 1994 1993 1995 1994 Revenues $2,330 $2,116 $1,966 10.1% 7.6% Operating earnings 162 218 222 (25.9) (1.6) Percent of revenues 6.9% 10.3% 11.2% Return on net assets 13.9 20.6 23.1
Operating earnings, percent of revenues, and return on net assets for 1995 in the above table were computed with earnings before special and nonrecurring items. Operating earnings represent earnings before income taxes and net interest expense (EBIT). Payless recorded special and nonrecurring pretax charges of $72 million in 1995. See Discontinued Operation on page 27. REVIEW OF FINANCIAL CONDITION Our 1995 financial performance further strengthened our balance sheet and financial condition. We continue to meet our objective of generating superior shareowner returns while maintaining access to capital at reasonable costs. Return on Equity. Return on equity is our principal measure in evaluating our performance for shareowners and our ability to invest shareowners' funds profitably. Our objective is to sustain performance that places our return on equity in the top quartile of the retail industry. Return on beginning equity was 20.8% in 1995, compared with 21.3% in 1994 and 22.1% in 1993. The 1995 return on beginning equity was computed with net earnings from continuing operations divided by beginning shareowners' equity adjusted for the impact of the Payless spin-off. During this period, our financial strength improved. Our 1995 debt-to-capitalization ratio was 42%, which reflects the Payless spin-off, compared with 47% in 1992. Net earnings from 1995 continuing and discontinued operations, yielded a return on beginning equity of 18.0%. Return on Net Assets. Return on continuing operations' net assets measures performance independent of capital structure. Return on continuing operations' net assets represents pretax earnings before net interest expense and the interest component of operating leases, divided by beginning of year continuing operations' net assets (including present value of operating leases). Return on continuing operations' net assets was 20.1% in 1995, compared with 20.1% in 1994 and 19.0% in 1993. The improvement in the 1994 return on net assets over the 1993 figure was due to the growth in earnings exceeding the 3.0% growth in beginning-of-year net assets. Cash Flow. Cash flow from continuing operations (earnings plus depreciation/amortization) was $1.0 billion. This was 9.4% of revenues in 1995, compared with 9.4% in 1994 and 9.0% in 1993. The company's cash flow as a percent of revenues continues to be one of the highest in the retail industry, and it gives the company ample resources to invest in its business.
Sources and (uses) of cash flows are summarized below: (millions) 1995 1994 1993 Earnings and depreciation/amortization $1,033 $947 $859 Working capital increases (331) (165) (176) Discontinued operation 97 (1) 43 Other operating activities 49 (17) 65 Investing activities (871) (580) (471) Net long-term debt issuances (repayments) 444 118 (190) Other financing activities (310) (293) (262) Increase (decrease) in cash and cash equivalents $ 111 $ 9 $ (132)
Financing Activities. During the 1995 second quarter, the company issued $100 million, 7.50% debentures due in 2015 and $100 million, 7.60% debentures due in 2025. The proceeds from the issuance were added to the company's general funds and were available for capital expenditures, working capital needs, the purchase of certain of the company's other indebtedness, and other general corporate purposes, including investments and acquisitions. During the 1995 third quarter, the company issued $125 million, 7.15% notes due in 2004, $125 million, 7.625% debentures due in 2013, and $150 million, 8.125% debentures due in 2035. The proceeds from the issuance were added to the company's general funds and were available for the acquisition of certain assets of John Wanamaker and Woodward & Lothrop.
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Return on equity 15.5% 15.7% 17.0% 18.6% 18.0% 21.8% 20.7% 21.5% 22.1% 21.3% 20.8%
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Return on net assets from continuing operations 16.8% 15.4% 15.7% 16.2% 16.9% 15.8% 14.5% 15.4% 19.0% 20.1% 20.1%
During the fourth quarter of 1995, the company recorded an extraordinary aftertax loss of $3 million ($5 million pretax) as it executed a binding contract to call $112 million of 9.25% debentures due to mature March 1, 2016. The debentures will be called effective March 1, 1996. During 1995 and 1994, the company retired $150 million and $35 million of debt, respectively. Financial Condition Ratios. Our strong debt-to-capitalization and fixed charge coverage ratios will further improve with the spin-off of Payless. These figures are consistent with our capital structure objectives. Our capital structure provides us with substantial financial flexibility. The debt-to-capitalization ratios reflecting the completion of the spin-off of Payless were 42%, 41% and 42% for 1995, 1994 and 1993, respectively. The debt-to-capitalization ratios including the discontinued operation were 44%, 44% and 45% at the end of 1995, 1994 and 1993, respectively. For purposes of the debt-to-capitalization ratio, total debt is defined as short-term and long-term debt (including the ESOP debt reduced by unearned compensation), redeemable preferred stock, and the capitalized value of all leases, including operating leases. Capitalization is defined as total debt, noncurrent deferred taxes, ESOP Preference Shares and shareowners' equity. See Profit Sharing on page 22 for discussion of the ESOP. The total debt, as defined above, related to Payless was $897 million at the end of 1995. The fixed-charge coverage ratios reflecting the completion of the spin-off of Payless were 4.2x, 4.2x and 3.7x for 1995, 1994 and 1993, respectively. Fixed-charge coverage ratios including the discontinued operation were 3.1x, 3.4x and 3.2x in 1995, 1994 and 1993, respectively. Fixed charges are defined as gross interest expense, interest expense on the ESOP debt, total rent expense, and the pretax equivalent of dividends on redeemable preferred stock. In 1994, the improvement in coverage resulted from the increased level of earnings and a decrease in fixed charges, primarily interest expense. Our bonds are rated A2 by Moody's Investors Service, Inc. and A by Standard & Poor's Corporation. Our commercial paper is rated P1 and A1 by Moody's and Standard & Poor's, respectively. Capital Expenditures. Our strong financial condition enables us to make capital expenditures to enhance shareowners' returns. Return on net assets, internal rate of return, and sales per square foot are emphasized as the principal operating measures as we invest in new stores and remodelings and as we eliminate unproductive space. Capital expenditures in 1996 will approximate $690 million. Capital expenditures for the 1996-2000 period are planned at $3.7 billion. We intend to use internal cash flow to finance substantially all of these expenditures. Available Credit. The company has $750 million of available borrowing under its multiyear credit agreement. In addition, the company has filed with the Securities and Exchange Commission a shelf registration statement that would enable it to issue up to $800 million of additional debt securities. Common Stock Dividends and Market Prices. Our policy is to increase dividends on common stock consistent with our earnings growth over time. The 1996 annual dividend rate was increased by 1.8%, or $.02 per share, to $1.16 per share. This is the 21st consecutive annual dividend increase. The new annual dividend rate of $1.16 per share will be effective with the June 1996 dividend payment. Dividends paid have increased at a compound rate of 7.7% during the past five years. The company has paid consecutive quarterly dividends since December 1, 1911.
The quarterly price ranges of the common stock and dividends per share in 1995 and 1994 were: 1995 1994 Market Price Market Price Dividends Dividends Quarter High Low Per Share High Low Per Share First $38 $33 1/2 $ .26 $45 1/8 $38 $.23 Second 44 1/4 35 1/4 .28 1/2 41 7/8 37 3/8 .26 Third 45 3/8 37 .28 1/2 42 36 1/2 .26 Fourth 46 1/4 38 3/8 .28 1/2 39 7/8 32 1/4 .26 Year $46 1/4 $33 1/2 $1.11 1/2 $45 1/8 $32 1/4 $1.01 The approximate number of common shareowners as of March 1, 1996, was 44,200.
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Cash flow from continuing operations (in millions) Depreciation and amortization $166 $189 $187 $236 $234 $253 $273 $283 $281 $297 $333 Net earnings $235 $264 $318 $362 $425 $404 $404 $472 $578 $650 $700
[The following "Consolidated Financial Statements" section is a reproduction of the same named section included in the Annual Report on pages 17 - 20.]
CONSOLIDATED STATEMENT OF EARNINGS (dollars in millions, except per share) 1995 1994 1993 Net Retail Sales $10,507 $9,759 $9,020 Revenues $10,952 $10,107 $9,562 Cost of sales 7,461 6,879 6,537 Selling, general and administrative expenses 2,081 1,916 1,824 Interest expense, net 250 233 244 Total cost of sales and expenses 9,792 9,028 8,605 Earnings from continuing operations before income taxes 1,160 1,079 957 Provision for income taxes 460 429 379 Net Earnings from Continuing Operations 700 650 578 Net earnings from discontinued operation 55 132 133 Impact of spin-off of discontinued operation - - - Net earnings before extraordinary loss 755 782 711 Extraordinary loss related to early extinguishment of debt, net of income taxes (3) - - Net earnings $752 $782 $711 Primary Earnings per Share: Continuing operations $2.73 $2.53 $2.24 Discontinued operation 0.22 0.53 0.53 Impact of spin-off of discontinued operation - - - Net earnings before extraordinary loss 2.95 3.06 2.77 Extraordinary loss (0.01) - - Primary Earnings per Share $2.94 $3.06 $2.77 Fully Diluted Earnings per Share: Continuing operations $2.61 $2.43 $2.15 Discontinued operation 0.21 0.49 0.50 Impact of spin-off of discontinued operation - - - Net earnings before extraordinary loss 2.82 2.92 2.65 Extraordinary loss (.01) - - Fully Diluted Earnings per Share $2.81 $2.92 $2.65 Fiscal 1995 was a 53-week year. Net retail sales for fiscal 1995 are shown on a 52-week basis for comparability. Net retail sales for the 53 weeks ended February 3, 1996, were $10,613. See Notes to Consolidated Financial Statements.
Consolidated Balance Sheet February 3, January 28, (dollars in millions, except per share) 1996 1995 Assets Current Assets: Cash $12 $8 Cash equivalents 147 40 Accounts receivable, net 2,403 2,432 Merchandise inventories 2,134 1,813 Other current assets 169 182 Net current assets of discontinued operation 232 243 Total Current Assets 5,097 4,718 Property and Equipment: Land 238 200 Buildings and improvements 2,908 2,564 Furniture, fixtures and equipment 2,416 2,123 Property under capital leases 55 57 Total property and equipment 5,617 4,944 Accumulated depreciation (1,873) (1,669) Property and equipment, net 3,744 3,275 Goodwill 671 600 Other Assets 89 93 Net Noncurrent Assets of Discontinued Operation 521 551 Total Assets $10,122 $9,237 Liabilities and Shareowners' Equity Current Liabilities: Current maturities of long-term debt $132 $168 Accounts payable 692 735 Accrued expenses 650 658 Income taxes payable 128 128 Total Current Liabilities 1,602 1,689 Long-term Debt 3,333 2,864 Deferred Income Taxes 378 340 Other Liabilities 204 192 ESOP Preference Shares 366 374 Unearned Compensation (346) (357) Shareowners' Equity: Common stock 124 124 Additional paid-in capital - 5 Retained earnings 4,461 4,006 Total Shareowners' Equity 4,585 4,135 Total Liabilities and Shareowners' Equity $10,122 $9,237 Common stock has a par value of $.50 per share; 700 million shares are authorized and 313.6 million shares were issued. At February 3, 1996, 248.9 million shares were outstanding and 64.7 million shares were held in treasury. At January 28, 1995, 248.4 million shares were outstanding and 65.2 million shares were held in treasury. ESOP Preference Shares have a par value of $.50 per share, a stated value of $507 per share, and 800,000 shares are authorized. At February 3, 1996, 722,111 shares (convertible into 14.8 million common shares) were issued and outstanding. At January 28, 1995, 737,145 shares (convertible into 15.1 million common shares) were issued and outstanding. See Preferred and Preference Stock in Notes to Consolidated Financial Statements for discussion of other preferred stock. See Notes to Consolidated Financial Statements.
Consolidated Statement of Cash Flows (dollars in millions) 1995 1994 1993 Operating Activities: Net earnings from continuing operations $700 $650 $578 Net earnings from discontinued operation 55 132 133 Extraordinary loss related to early extinguishment of debt (3) - - Net earnings 752 782 711 Adjustments for noncash items included in earnings: Depreciation and amortization 333 297 281 Deferred income taxes (noncurrent) 42 15 11 Deferred and unearned compensation 15 16 17 Working capital increases* (330) (165) (176) Other assets and liabilities, net (6) (48) 37 Discontinued operation: Expenses not requiring the outlay of cash 96 77 67 Working capital and other 10 24 (40) Total Operating Activities 912 998 908 Investing Activities: Capital expenditures (801) (682) (560) Disposition of property and equipment 20 106 95 Goodwill (89) - - Other (1) (4) (6) Discontinued operation: Capital expenditures (95) (255) (140) Disposition of property and equipment 31 21 23 Total Investing Activities (935) (814) (588) Financing Activities: Issuance of long-term debt 600 200 12 Repayment of long-term debt (156) (82) (202) Purchase of common stock (71) (56) (54) Issuance of common stock 57 33 32 Dividend payments (296) (270) (240) Total Financing Activities 134 (175) (452) Increase (Decrease) in Cash and Cash Equivalents 111 9 (132) Cash and Cash Equivalents, Beginning of Year 48 39 171 Cash and Cash Equivalents, End of Year $159 $48 $39 *Working capital increases comprise: Accounts receivable, net $29 $(43) $(26) Merchandise inventories (321) (166) (171) Other current assets 13 14 106 Accounts payable (43) (44) 121 Accrued expenses (8) (6) (201) Income taxes payable - 80 (5) Net increase in working capital $ (330) $(165) $(176) Cash paid during the year: Interest $268 $240 $255 Income taxes 448 418 322 Noncash investing and financing activities include conversions of ESOP Preference Shares into common stock of $8 million, $7 million and $9 million in 1995, 1994 and 1993, respectively. See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY Outstanding Common Stock Additional Total (dollars in millions, Paid-in Retained Shareowners' shares in thousands) Shares Dollars Capital Earnings Equity Balance at January 30, 1993 248,107 $124 $34 $3,023 $3,181 Net earnings - - - 711 711 Dividends paid: Common stock ($.89 3/4 per share) - - - (223) (223) ESOP Preference Shares, net of tax benefit - - - (17) (17) Preferred stock - - - - - Common stock issued 1,611 1 40 - 41 Purchase of common stock (1,376) (1) (53) - (54) Balance at January 29, 1994 248,342 124 21 3,494 3,639 Net earnings - - - 782 782 Dividends paid: Common stock ($1.01 per share) - - - (251) (251) ESOP Preference Shares, net of tax benefit - - - (19) (19) Preferred stock - - - - - Common stock issued 1,429 1 39 - 40 Purchase of common stock (1,388) (1) (55) - (56) Balance at January 28, 1995 248,383 124 5 4,006 4,135 Net earnings - - - 752 752 Dividends paid: Common stock ($1.11 1/2 per share) - - - (277) (277) ESOP Preference Shares, net of tax benefit - - - (19) (19) Preferred stock - - - - - Common stock issued 2,198 1 64 - 65 Purchase of common stock (1,710) (1) (69) (1) (71) Balance at February 3, 1996 248,871 $124 $- $4,461 $4,585
Outstanding common stock excludes shares held in treasury. Treasury share activity for the last three years is summarized below: 1995 1994 1993 Balance, Beginning of Year 65,254 65,295 65,530 Common stock issued: Exercise of stock options (1,419) (677) (967) Deferred compensation plan (158) (181) (239) Restricted stock grants, net of forfeitures (236) (157) 31 Contribution to Profit Sharing Plan (89) (145) (76) Conversion of ESOP Preference Shares (296) (269) (360) (2,198) (1,429) (1,611) Purchase of common stock 1,710 1,388 1,376 Balance, End of Year 64,766 65,254 65,295 See Notes to Consolidated Financial Statements.
[The following "Notes to Consolidated Financial Statements" section is a reproduction of the same named section included in the paper format Annual Report on pages 21 - 27.] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year. The company's fiscal year ends on the Saturday closest to January 31. Fiscal 1995 ended on February 3, 1996, and included 53 weeks. Fiscal years 1994 and 1993 ended on January 28, 1995, and January 29, 1994, respectively, and both included 52 weeks. References to years in this annual report relate to fiscal years rather than calendar years. Basis of Reporting. The consolidated financial statements include the accounts of the company and all wholly owned subsidiaries (the company), reflecting the operation of 346 quality department stores. The consolidated financial statements reflect Payless ShoeSource, Inc. ("Payless"), as a discontinued operation. All the following notes, except Discontinued Operation on page 27, reflect data on a continuing operations basis. Net Retail Sales and Revenues. Net retail sales (sales) represent 52-week sales of stores operating at the end of the latest period, and exclude finance charge revenues and the sales of stores which have been closed and not replaced. Sales include sales of merchandise and services and sales of leased and licensed departments. Sales are net of returns and exclude sales tax. Store-for-store sales represent sales of those stores open during both years. Revenues include finance charge revenues and all sales from all stores operating during the period. Cost of Sales. Cost of sales includes the cost of merchandise sold and buying and occupancy costs. Advertising Costs. Advertising and sales promotion costs are expensed at the time the advertising takes place. Preopening Expenses. Costs associated with the opening of new stores are expensed during the year incurred. Income Taxes. Effective with the beginning of 1993, the company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The cumulative effect of adopting SFAS No. 109 was insignificant and, therefore, no adjustments were reflected in the financial statements. SFAS No. 109 requires income taxes to be accounted for using a balance sheet approach known as the liability method. The liability method accounts for deferred income taxes by applying statutory tax rates in effect at the date of the balance sheet to differences between the book and tax basis of assets and liabilities. Adjustments to deferred taxes resulting from statutory rate changes flow through the tax provision in the year of the change. Earnings Per Share. Primary earnings per share are computed by dividing net earnings less dividend requirements on redeemable preferred stock and ESOP Preference Shares (net of related income tax benefits on unallocated shares) by the average common shares outstanding and common share equivalents during the period. Fully diluted earnings per share assume conversion of the ESOP Preference Shares into common stock and adjust net earnings for the additional expense required to fund the ESOP debt service resulting from the assumed replacement of the ESOP Preference Shares dividends with common stock dividends. The average common shares outstanding and common share equivalents used to calculate fully diluted earnings per share were 265.3 million, 264.9 million and 265.5 million in 1995, 1994 and 1993, respectively. References to earnings per share in this annual report relate to fully diluted earnings per share. Cash Equivalents. Cash equivalents consist primarily of commercial paper with maturities of less than three months. Cash equivalents are stated at cost, which approximates fair value. Accounts Receivable. In accordance with industry practice, installments on deferred payment accounts receivable maturing in more than one year have been included in current assets. Merchandise Inventories. Merchandise inventories are valued by the retail method and are stated on the LIFO (last-in, first-out) cost basis, which is lower than market. The accumulated LIFO provision was $118 million and $171 million in 1995 and 1994, respectively. Property and Equipment. Property and equipment are recorded at cost. Property and equipment are depreciated on a straight-line basis over their estimated useful lives. Investments in properties under capital leases and leasehold improvements are amortized over the shorter of their useful lives or their related lease terms. Goodwill. Goodwill represents the excess of cost over the fair value of net tangible assets acquired at the dates of acquisition. Substantially all amounts are amortized using the straight-line method over a 40-year period. Goodwill is presented in the consolidated balance sheet net of accumulated amortization of $129 million and $111 million in 1995 and 1994, respectively. Use of Estimates. Management makes estimates and assumptions that affect the amounts reported in the consolidated statements of earnings, shareowners' equity and cash flows, the consolidated balance sheet, and notes to consolidated financial statements. Actual results could differ from these estimates. Derivatives Policy. The company's policy is to use financial derivatives only to reduce risk in conjunction with specific business transactions. Gains and losses on hedges of existing assets or liabilities are included in the respective balance sheet amounts. Gains and losses related to hedges of firm commitments or anticipated transactions are deferred and recognized in operating results or included in balance sheet amounts when the transaction occurs. Long-lived Assets. In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of," was issued. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During 1995, the company adopted this statement and determined that no impairment loss need be recognized for applicable assets of continuing operations. Reclassifications. Certain prior-period amounts have been reclassified to conform with the current-year presentation.
QUARTERLY RESULTS (Unaudited) Quarterly results of continuing operations are determined in accordance with the annual accounting policies and include certain items based upon estimates for the entire year. Summarized quarterly results for the last two years were as follows: (millions, except per share) 1995 Quarter First Second Third Fourth Year Revenues $2,218 $2,325 $2,569 $3,840 $10,952 Cost of sales $1,543 $1,625 $1,798 $2,495 $7,461 Net earnings from continuing operations $87 $107 $110 $396 $700 Primary earnings per share from continuing operations $0.33 $0.41 $0.42 $1.57 $2.73 Fully diluted earnings per share from continuing operations $0.32 $0.40 $0.41 $1.48 $2.61
(millions, except per share) 1994 Quarter First Second Third Fourth Year Revenues $2,105 $2,162 $2,404 $3,436 $10,107 Cost of sales $1,463 $1,510 $1,679 $2,227 $6,879 Net earnings from continuing operations $77 $93 $105 $375 $650 Primary earnings per share from continuing operations $0.29 $0.35 $0.40 $1.49 $2.53 Fully diluted earnings per share from continuing operations $0.28 $0.35 $0.38 $1.42 $2.43
There are variables and uncertainties in the factors used to estimate the annual LIFO provision (credit) on an interim basis. The following unaudited supplementary information shows the pro forma per share impact of LIFO had the final variables and factors been known at the beginning of each year.
1995 1994 Pro As Pro As Quarter Forma Reported Forma Reported First $(.02) $.02 $(.02) $.02 Second (.03) .02 (.02) .02 Third (.03) .00 (.03) .00 Fourth (.04) (.16) (.04) (.15) Year $(.12) $ (.12) $(.11) $(.11)
ACQUISITION Effective August 28, 1995, the company purchased 14 John Wanamaker stores (one of which will not be operated) in the Philadelphia area and three Woodward & Lothrop stores in the Washington, D.C., area, for approximately $412 million, including $167 million for inventory, receivables and other current assets. The asset acquisition has been accounted for as a purchase, and accordingly, the operating results of the acquired stores have been included in the company's consolidated results since the effective acquisition date. The acquisition was funded principally with long-term debt. The acquisition did not have a material effect on the results of operations or financial position of the company in 1995. PROFIT SHARING The company has a qualified profit-sharing plan that covers substantially all associates who work 1,000 hours or more in a year and have attained age 21. The plan is a defined contribution program that provides for discretionary matching allocations at a variable matching rate generally based upon changes in the company's annual earnings per share, as defined in the plan. The plan's matching allocation value totaled $33 million, $29 million and $35 million in 1995, 1994 and 1993, respectively. The company's Profit Sharing Plan includes an Employee Stock Ownership Plan (ESOP) under which the Profit Sharing Plan borrowed $400 million in 1989, guaranteed by the company, at an average rate of 8.5% with an average maturity of 12 years. The proceeds were used to purchase $400 million of a new class of convertible preference stock of the company (ESOP Preference Shares). The company issued 788,955 ESOP Preference Shares. Each share is convertible into 20.4903 shares of common stock and has a stated value of $24.74 per common share equivalent. The annual dividend rate on the ESOP Preference Shares is 7.5%, and the shares are redeemable by the holder or the company in certain situations. The $378 million outstanding portion of the guaranteed ESOP debt is reflected on the consolidated balance sheet in long-term debt, because the company will ultimately fund the required debt service. The company's contributions to the ESOP, along with the dividends on the ESOP Preference Shares, are used to repay the loan principal and interest. Interest expense associated with the ESOP debt was $32 million in 1995, and $33 million in each of 1994 and 1993. ESOP Preference Shares dividends were $28 million in 1995 and 1994, and $29 million in 1993. ESOP debt principal payments began in 1993. ESOP Preference Shares are released based upon debt-service payments and are allocated to participating associates' accounts. Unearned compensation, initially an equal, offsetting amount to the $400 million guaranteed ESOP debt, has been adjusted for the difference between the expense related to the ESOP and cash payments to the ESOP, and is amortized as principal is repaid. The company's expense related to the Profit Sharing Plan was $17 million, $19 million and $20 million in 1995, 1994 and 1993, respectively. At February 3, 1996, the Profit Sharing Plan beneficially owned 11.5 million shares of the company's common stock and 100% of the company's ESOP Preference Shares, which are convertible into 14.8 million shares of the company's common stock, representing 10.0% of the company's common stock on a fully converted basis. PENSION The company has a qualified retirement plan that covers substantially all associates who work 1,000 hours or more in a year and have attained age 21. The plan is noncontributory and provides benefits based upon years of service and pay during employment. The company also maintains a nonqualified supplementary retirement plan for certain associates and foreign retirement plans for certain overseas-based associates. Pension expense is based on information provided by an outside actuarial firm, which uses assumptions to estimate the total benefits ultimately payable to associates and then allocates this cost to service periods. The actuarial assumptions used to calculate pension costs are reviewed annually.
The following tables summarize the funded status of the plans, components of pension expense, actuarial assumptions, and definitions of terms. (millions) 1995 1994 Actuarial Present Value of Benefit Obligations: Vested benefit obligation $260 $ 185 Nonvested benefit obligation 29 23 Accumulated benefit obligation (ABO) 289 208 Estimated effect of future salary increases 49 51 Projected benefit obligation (PBO) 338 259 Plan assets at fair value (primarily equity and fixed income securities) 290 227 Plan assets less than PBO (48) (32) Unrecognized obligation 3 4 Unrecognized gain (27) (36) Unrecognized prior service cost 21 20 Accrued pension cost $(51) $ (44) Plan assets in excess of ABO $ 1 $ 19
The accrued pension cost, which primarily represents the unfunded accumulated benefit obligation (ABO) for the nonqualified supplementary retirement plan, is included in other liabilities on the accompanying balance sheet. Qualified plan assets in excess of ABO were $61 million and $57 million in 1995 and 1994, respectively.
(millions) 1995 1994 1993 Components of Pension Expense: Service cost $21 $22 $21 Interest on PBO 22 19 20 Actual return on assets (61) 6 (22) Net amortization and deferral 46 (19) 3 Total $28 $28 $22
At the end of 1995, the discount rate and expected rate of return on plan assets were decreased as a result of a general decrease in interest rates during the year.
January 1, 1996 1995 1994 Actuarial Assumptions: Discount rate 7.00% 8.00% 7.0% Expected return on plan assets 7.25 8.25 7.5 Salary increase 4.50 5.00 5.0 Definitions of Terms: ABO is the actuarial present value of benefits (both vested and nonvested) attributed by the pension benefit formula to prior associate service; it is based on current and past compensation levels. PBO is the actuarial present value of benefits attributed by the pension benefit formula to prior associate service taking into consideration future salary increases. Accrued pension cost is the balance sheet accrued expense not yet paid to a plan. Net amortization and deferral represents the net effect during the period of the delayed recognition provisions of SFAS No. 87.
Another important element in the retirement programs for associates is the federal Social Security system into which the company paid $123 million in 1995 as its matching contribution to the $123 million paid in by associates. The company maintains a postretirement benefit plan for certain associates. Benefits vary by the group of associates covered and include fixed or variable benefits for life and/or health insurance. At the end of 1995, the company decreased the discount rate assumption from 8.0% to 7.0%, which resulted in a $4 million increase in the present value of future obligations. As of February 3, 1996, the company's estimated present value of future obligations for postretirement benefits was $43 million, of which $41 million was accrued. As provided in Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," an unrecognized net loss of less than 10% of the liability is not required to be amortized. The estimated future obligations are based upon assumed annual health care cost increases of 11% for 1996, decreasing by 1% annually to 7% for 2000 and future years. A one-percentage-point increase/decrease in the assumed annual health care cost increases would increase/decrease the present value of estimated future obligations for postretirement benefits by $1 million. The postretirement plan is unfunded. The postretirement expense was $2 million, $3 million and $2 million in 1995, 1994 and 1993, respectively.
TAXES The provision for income taxes and related percent of pretax earnings for the last three years were as follows: 1995 1994 1993 (dollars in millions) $ % $ % $ % Federal $343 $331 $240 State and local 70 72 52 Taxes currently payable 413 35.7% 403 37.3% 292 30.5% Federal 40 22 74 State and local 7 4 13 Deferred taxes 47 4.O 26 2.4 87 9.1 Total $460 39.7% $429 39.7% $379 39.6%
The reconciliation between the statutory federal income tax rate and the effective income tax rate for the last three years follows: 1995 1994 1993 Statutory federal income tax rate 35.0% 35.0% 35.0% State and local income taxes 6.7 7.2 7.0 Federal tax benefit of state and local income taxes (2.3) (2.5) (2.5) Other, net 0.3 - 0.1 Effective income tax rate 39.7% 39.7% 39.6%
Major components of deferred tax assets and (liabilities) were as follows: February 3, January 28, (millions) 1996 1995 Accrued expenses and reserves $ 132 $ 134 Deferred and other compensation 104 99 Depreciation/amortization and basis differences (323) (276) Other deferred income tax liabilities, net (173) (155) Net deferred income taxes (260) (198) Less: Net current deferred income tax assets 118 142 Noncurrent deferred income taxes $ (378) $ (340)
Net current deferred income tax assets are included in other current assets in the accompanying balance sheet. Taxes other than income taxes consisted of: (millions) 1995 1994 1993 Payroll $160 $146 $139 Real estate and personal property 83 79 79 Total $243 $225 $218
ACCOUNTS RECEIVABLE During 1995, credit sales under department store credit programs were $6.0 billion, or 54.5% of 1995 department store revenues; this compares with 57.3% in 1994 and 62.4% in 1993. An estimated 30 million customers hold credit cards under the company's various credit programs. During the past years, we have expanded our acceptance of third-party credit cards. Sales made through third-party credit cards totaled $2.4 billion in 1995, compared with $1.8 billion in 1994 and $1.3 billion in 1993.
Net accounts receivable consisted of: February 3, January 28, (millions) 1996 1995 Customer accounts receivable $2,377 $2,418 Other accounts receivable 110 92 Total accounts receivable 2,487 2,510 Allowance for uncollectible accounts (84) (78) Accounts receivable, net $2,403 $2,432
OTHER CURRENT ASSETS In addition to net current deferred income tax assets, other current assets consisted of prepaid expenses and supply inventories. OTHER ASSETS
Major components of other assets included: February 3, January 28, (millions) 1996 1995 Notes receivable $37 $48 Deferred debt expense 26 20 Restricted construction funds 5 5
ACCRUED EXPENSES Major components of accrued expenses included: February 3, January 28, (millions) 1996 1995 Insurance costs $185 $179 Sales and use and other taxes 96 120 Salaries, wages and employee benefits 89 90 Interest and rent expense 79 71 Store closings and real estate-related 71 81 Advertising and other operating expenses 53 53 Construction costs 43 44
SHORT-TERM DEBT AND LINES OF CREDIT Short-term borrowings for the last three years were: (dollars in millions) 1995 1994 1993 Balance outstanding at year-end - - - Average balance outstanding $ 75 $ 83 $ 94 Average interest rate on average balance 6.2% 5.0% 3.3% Maximum balance outstanding $246 $317 $344
The average balance of short-term borrowings outstanding, primarily commercial paper, and the respective weighted average interest rates are based on the number of days such short-term borrowings were outstanding during the year. The company has available credit agreements amounting to $750 million. At February 3, 1996, there were no amounts outstanding under these agreements.
LONG-TERM DEBT Long-term debt and capital lease obligations were: February 3, January 28, (dollars in millions) 1996 1995 5.7% to 10.75% unsecured notes and sinking fund debentures due 1997-2035 $3,341 $2,902 3.0 % to 10.0 % mortgage notes and bonds due 1996-2012 65 69 Total debt 3,406 2,971 Capital lease obligations 59 61 3,465 3,032 Less current maturities 132 168 Total $3,333 $2,864
During the 1995 second quarter, the company issued $100 million, 7.50% debentures due in 2015 and $100 million, 7.60% debentures due in 2025. The proceeds from the issuance were added to the company's general funds and were available for capital expenditures, working capital needs, the purchase of certain of the company's other indebtedness, and other general corporate purposes, including investments and acquisitions. During the 1995 third quarter, the company issued $125 million, 7.15% notes due in 2004, $125 million, 7.625% debentures due in 2013 and $150 million, 8.125% debentures due in 2035. The proceeds from the issuance were added to the company's general funds and were available for the acquisition of certain assets of John Wanamaker and Woodward & Lothrop. During the 1995 fourth quarter, the company recorded an extraordinary aftertax loss of $3 million ($5 million pretax) as it executed a binding contract to call $112 million 9.25% debentures due to mature March 1, 2016. The debentures will be called effective March 1, 1996. The annual maturities of long-term debt, including sinking fund requirements, are $132 million, $234 million, $242 million, $81 million and $254 million for 1996 through 2000, respectively. The net book value of property and equipment encumbered under long-term debt agreements was $105 million at February 3, 1996. LEASE OBLIGATIONS
The company owns approximately 74% of its stores. Rental expense for the company's operating leases consisted of: (millions) 1995 1994 1993 Minimum rentals $38 $38 $37 Contingent rentals based on sales 15 14 13 Real property rentals 53 52 50 Equipment rentals 4 5 6 Total $57 $57 $56
Future minimum lease payments at February 3, 1996, were as follows: Capital Operating (millions) Leases Leases Total 1996 $8 $41 $49 1997 8 37 45 1998 7 32 39 1999 7 30 37 2000 7 27 34 After 2000 123 286 409 Minimum lease payments 160 $453 $613 Less imputed interest component 101 Present value of net minimum lease payments, of which $1 million is included in current liabilities $59
The present value of operating leases was $234 million at February 3, 1996. Property under capital leases is summarized as follows: February 3, January 28, (millions) 1996 1995 Cost $55 $57 Accumulated amortization (19) (19) Total $36 $38
OTHER LIABILITIES In addition to accrued pension cost, other liabilities principally consisted of deferred compensation liabilities of $151 million and $145 million at February 3, 1996, and January 28, 1995, respectively. Under the company's deferred compensation plan, eligible associates may elect to defer a portion of their compensation each year into cash and/or stock unit alternatives. The company makes payments in shares to settle obligations with most participants who defer in stock units and maintains shares in treasury sufficient to settle all outstanding stock unit obligations.
PREFERRED AND PREFERENCE STOCK The company is authorized to issue 25,134,474 shares of preferred and preference stock. The following table summarizes the authorized, issued and outstanding shares by type: Issued and Outstanding February 3, January28, (dollars in millions, Shares 1996 1995 except per share) Authorized $ Shares $ Shares Preferred Stock, no par value 51,323 1 11,974 1 12,105 $1.80 Preference Stock, no par value 73,273 1 26,653 1 26,653 3 3/4% Cumulative Preference Stock, $100 par value per share 9,878 - - - Preference Stock, $.50 par value per share, in the aggregate, including ESOP shares 25,000,000 366 722,111 374 737,145
The Preferred Stock and the $1.80 Preference Stock are included in other liabilities. The ESOP Preference Shares are shown separately in the consolidated balance sheet outside of shareowners' equity as the shares are redeemable by the holder or the company in certain situations. STOCK OPTION AND STOCK RELATED PLANS Under the company's common stock option plans, options are granted at the market price on the date of grant. Options to purchase may extend for a period of five or 10 years, may be exercised in installments only after stated intervals of time, and are conditional upon continued active employment with the company, except periods following retirement, disability or death. As the option price is fixed at the market price on the date of grant, no expense is charged against earnings by the company.
The changes in outstanding stock options were as follows: 1995 1994 Grant Grant (shares in thousands) Shares Prices Shares Prices Outstanding at beginning of year 5,329 $12-44 4,780 $8-44 Granted 1,543 37-44 1,523 38-40 Exercised (1,419) 12-42 (677) 8-37 Cancelled or expired (294) 21-44 (297) 18-44 Outstanding at end of year 5,159 $12-44 5,329 $12-44 Exercisable at end of year 1,746 $12-44 1,971 $12-44 Shares available for additional grants 10,432 11,803
Under the 1994 Stock Incentive Plan, the company is authorized to grant a maximum of 1.75 million shares of restricted stock to management associates. No monetary consideration is paid by associates receiving restricted stock. Restricted stock can be granted with or without performance restrictions. Restrictions, including performance restrictions, lapse over periods of up to 10 years as determined at the date of the grant. The company granted 274,750 and 179,000 shares of restricted stock under the 1994 Stock Incentive Plan in 1995 and 1994, respectively. Under the 1979 Restricted Stock Plan, the company was authorized to grant shares to management associates. No monetary consideration was paid by associates receiving restricted stock. Restrictions lapse over periods of up to 10 years as determined at the date of grant. During 1994, 5,000 shares of restricted stock were granted under the 1979 Restricted Stock Plan. SHAREOWNER RIGHTS PLAN The company has a Shareowner Rights Plan (Preferred Stock Purchase Rights) under which a right is attached to each share of the company's common stock. The rights become exercisable only under certain circumstances involving actual or potential acquisitions of the company's common stock by a person or affiliated persons. Depending upon the circumstances, if the rights become exercisable, the holder may be entitled to purchase units of the company's preference stock, shares of the company's common stock or shares of common stock of the acquiring person. The rights will remain in existence until August 31, 2004, unless they are terminated, extended, exercised or redeemed. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and fair values of the company's financial instruments at February 3, 1996, and January 28, 1995. Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
1995 1994 Carrying Fair Carrying Fair (millions) Amount Value Amount Value Accounts receivable $2,403 $2,403 $2,432 $2,432 Long-term debt 3,406 3,977 2,971 3,104
The carrying amounts shown in the table are included in the consolidated balance sheet under the indicated captions. The increase in the spread between the fair value and carrying amount of long-term debt in 1995 compared with 1994 was due to lower interest rates at the end of 1995. The fair value was determined with the use of borrowing rates currently available for debt instruments with similar remaining terms and maturities. DISCONTINUED OPERATION On January 17, 1996 the company announced its intention to spin off Payless, its chain of self-service family shoe stores, in May 1996. The company's financial statements presented herein have been restated to reflect Payless as a discontinued operation. The consolidated statement of earnings includes the results of Payless as a discontinued operation through January 17, 1996. The estimated costs to effect the spin-off and the loss of discontinued operations from January 17, 1996, through 1995 year-end of $21 million were fully offset by a portion of Payless's 1996 estimated earnings through the anticipated spin-off date. The costs to effect the spin-off included investment banker's, legal counsel's and accountant's fees, registration statement fees and expenses, and a curtailment loss on the company's nonqualified supplementary retirement plan. The curtailment loss reflects expense associated with previously unrecognized prior-service costs related to the Payless participants. During the 1995 fourth quarter, in conjunction with the spin-off, Payless committed to close approximately 450 unprofitable stores. In addition, Payless committed to restructure its central office and other personnel. A pretax special and nonrecurring charge of $72 million was recorded for these initiatives. Payless's 1995 net earnings before special and nonrecurring items would have been $99 million, or $.37 per fully diluted share. The reported net earnings from the discontinued operation are net of $36 million, $86 million and $88 million in income tax expense for 1995, 1994 and 1993, respectively. [The following "Eleven Year Financial Summary" section is a reproduction of the same named section included in the paper format Annual Report on pages 28 - 29.]
Eleven-Year Financial Summary (dollars in millions, except per share) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 Net Retail Sales $10,507 $9,759 $9,020 $8,415 $7,872 $7,502 $7,037 $6,187 $4,755 $4,353 $3,987 Operations Revenues $10,952 $10,107 $9,562 $9,362 $9,068 $8,700 $8,356 $7,742 $6,415 $6,503 $6,129 Cost of sales 7,461 6,879 6,537 6,459 6,275 6,047 5,734 5,348 4,492 4,625 4,340 Selling, general and administrative expenses 2,081 1,916 1,824 1,859 1,861 1,772 1,735 1,645 1,325 1,353 1,276 Interest expense, net 250 233 244 279 315 278 231 196 77 90 90 Earnings from continuing operations before income taxes 1,160 1,079 957 579* 617 603 656 553 521 435 423 Provision for income taxes 460 429 379 107* 213 199 231 191 203 171 188 Net Earnings from Continuing Operations 700 650 578 472 404 404 425 362 318 264 235 LIFO charge (credit) (53) (46) 7 10 26 39 (22) (3) 8 4 2 Net earnings 752 782 711 603 515 500 498 534 444 381 347 Depreciation and amortization 333 297 281 283 273 253 234 236 187 189 166 Cash flow from operations 1 1,033 947 859 755 677 657 659 599 505 454 401 Net issuances (repayments) of long-term debt 2 444 118 (190) (248) 313 590 169 891 (61) 159 141 Capital expenditures 801 682 560 284 366 466 470 292 353 374 358 Dividends on common stock 278 251 223 204 198 191 186 184 170 131 124 Per Share Net Earnings from Continuing Operations $2.61 $2.43 $2.15 $1.76 $1.52 $1.51 $1.50 $1.23 $1.03 $.83 $.75 Net earnings 3 2.81 2.92 2.65 2.26 1.93 1.87 1.76 1.81 1.44 1.20 1.11 Dividends paid 1.12 1.01 .90 .83 .81 .77 .69 .62 .56 .51 .46 Annual dividend rate at year-end 1.14 1.04 .92 .83 .81 .79 .71 .64 .57 .52 .47 Book value 18.42 16.65 14.65 12.82 11.26 10.04 9.32 10.75 9.13 8.50 7.86 Market price - high 46.25 45.13 46.50 37.25 30.19 29.56 26.31 20.00 25.44 22.06 16.25 Market price - low 33.50 32.25 33.44 26.00 22.63 18.69 17.31 14.38 11.13 15.94 10.50 Market price - average of high and low 39.88 38.69 39.97 31.63 26.41 24.13 21.81 17.19 18.28 19.00 13.38 Financial Position Customer accounts receivable $2,377 $2,418 $2,367 $2,373 $2,377 $2,456 $2,223 $2,099 $1,590 $1,516 $1,578 Merchandise inventories 2,134 1,813 1,647 1,476 1,436 1,375 1,278 1,141 880 848 908 Working capital 3,495 3,029 2,921 2,691 3,051 2,635 2,059 2,093 1,821 1,921 1,529 Property and equipment, net 3,744 3,275 2,977 2,774 2,808 2,728 2,446 2,285 1,830 1,745 1,704 Long-term debt, preferred and preference stock 3,701 3,240 3,192 3,256 4,299 3,948 3,387 2,384 1,048 1,131 1,048 Shareowners' equity 4,585 4,135 3,639 3,181 2,781 2,467 2,319 3,050 2,723 2,595 2,421 Total assets 10,122 9,237 8,614 8,376 8,566 8,083 7,570 7,374 5,464 5,629 5,311 Statistics Percent of revenues: Net earnings from continuing operations 6.4% 6.4% 6.0% 5.0% 4.5% 4.6% 5.1% 4.7% 5.0% 4.1% 3.8% Cash flow from operations 1 9.4 9.4 9.0 8.1 7.5 7.6 7.9 7.7 7.9 7.0 6.5 Return on equity 20.8 21.3 22.1 21.5 20.7 21.8 18.0 18.6 17.0 15.7 15.5 Return on net assets 20.1 20.1 19.0 15.4** 14.5 15.8 16.9 16.2 15.7 15.4 16.8 Stores Open at Year-end 346 314 301 303 318 324 288 297 258 286 301 Average Shares Outstanding and Equivalents Primary 249.9 249.6 249.9 248.8 248.0 249.0 267.2 294.8 306.3 313.1 311.1 Fully Diluted 265.3 264.9 265.5 265.3 264.2 264.8 280.0 295.4 306.3 314.9 312.0 All years included 52 weeks, except 1995 and 1989, which included 53 weeks. Net retail sales for 1995 and 1989 are shown on a 52-week basis for comparability. 1 Cash flow from operations represents net earnings and depreciation/amortization from continuing operations and is different than cash flow from operating activities as shown on the statement of cash flows. 2 Net issuances (repayments) of long-term debt exclude the elimination of $618 million of MCAC loans in 1992 and $400 million of guaranteed ESOP debt in 1989. 3 Represents fully diluted basis. Primary earnings per share were $.13 higher in 1995, $.14 higher in 1994, $.12 higher in 1993, $.09 higher in 1992, $.08 higher in 1991, $.07 higher in 1990, $.05 higher in 1989, and $.01 higher in each of 1988 and 1986. * Pretax earnings include a net charge of $187 million from special and nonrecurring items, and income taxes include a tax benefit of $187 million from special and nonrecurring items. ** Based on pretax earnings before special and nonrecurring items.
MANAGEMENT'S RESPONSIBILITY AND REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Report of Management. Management is responsible for the preparation, integrity and objectivity of the financial information included in this annual report. The financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts. Although the financial statements reflect all available information and management's judgement and estimates of current conditions and circumstances, prepared with the assistance of specialists within and outside the company, actual results could differ from those estimates. Management has established and maintains a system of accounting and controls to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, that the accounting records provide a reliable basis for the preparation of financial statements, and that such financial statements are not misstated due to material fraud or error. The system of controls includes the careful selection of associates, the proper segregation of duties and the communication and application of formal policies and procedures that are consistent with high standards of accounting and administrative practices. An important element of this system is a comprehensive internal audit program. Management continually reviews, modifies and improves its systems of accounting and controls in response to changes in business conditions and operations and in response to recommendations in the reports prepared by the independent public accountants and internal auditors. Management believes that it is essential for the company to conduct its business affairs in accordance with the highest ethical standards and in conformity with the law. This standard is described in the company's policies on business conduct, which are publicized throughout the company. Audit Committee of the Board of Directors. The Board of Directors, through the activities of its Audit Committee, participates in the reporting of financial information by the company. The committee meets regularly with management, the internal auditors and the independent public accountants. The committee met four times during 1995 and reviewed the scope, timing and fees for the annual audit and the results of audit examinations completed by the internal auditors and independent public accountants, including the recommendations to improve certain internal controls and the follow-up reports prepared by management. The independent public accountants and internal auditors have free access to the committee and the Board of Directors and attend each meeting of the committee. The members of the Audit Committee are Russell E. Palmer (chairman), Edward H. Meyer, Michael R. Quinlan, William P. Stiritz, Robert D. Storey and Murray L. Weidenbaum. The Audit Committee reports the results of its activities to the full Board of Directors. [The following "Report of Independent Public Accountants" section is a reproduction of the same named section of the paper format Annual Report on page 30.] Report of Independent Public Accountants. To the Board of Directors and Shareowners of The May Department Stores Company: We have audited the accompanying consolidated balance sheet of The May Department Stores Company (a New York corporation) and subsidiaries as of February 3, 1996, and January 28, 1995, and the related consolidated statements of earnings, shareowners' equity and cash flows for each of the three fiscal years in the period ended February 3, 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The May Department Stores Company and subsidiaries as of February 3, 1996, and January 28, 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 3, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP 1010 Market Street St. Louis, Missouri 63101-2089 February 26, 1996 EX-27 5 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS ON PAGES 17 AND 18 OF THE MAY DEPARTMENT STORES COMPANY 1995 ANNUAL REPORT TO SHAREOWNERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR FEB-03-1996 FEB-03-1996 12 147 2,487 84 2,134 5,097 5,617 1,873 10,122 1,602 3,465 3 0 124 4,461 10,122 10,613 10,952 7,461 7,461 0 0 250 1,160 460 700 55 (3) 0 752 2.94 2.81
EX-99 6 EXHIBIT 99 1995 FORM 11-K EXHIBIT 99 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Year Ended December 31, 1995 A. Full title of the plan if different from that of the issuer named below: THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN B. Name of issuer of securities held pursuant to the plan and the address of its principal executive office: THE MAY DEPARTMENT STORES COMPANY 611 Olive Street St. Louis, MO 63101 Commission File Number 1-79 THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN FINANCIAL STATEMENTS AND EXHIBIT Listed below are all financial statements and exhibit filed as part of this annual report on Form 11-K: Page of this Financial Statements Form 11-K Report of Independent Public Accountants 3 Financial Statements of the Plan: Statement of Net Assets Available for Benefits - December 31, 1995 4 Statement of Net Assets Available for Benefits - December 31, 1994 7 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 1995 10 Notes to Financial Statements - December 31, 1995 and 1994 12 Schedule I - Item 27(a): Schedule of Assets Held for Investment Purposes - December 31, 1995 18 Schedule II - Item 27(d): Schedule of Reportable Transactions for the Year Ended December 31, 1995 22 Exhibit Consent of Independent Public Accountants 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator has duly caused this annual report to be signed by the undersigned, thereunto duly authorized. THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN By: The May Department Stores Company Date: April 24, 1996 By: /s/ Jerome T. Loeb Jerome T. Loeb President and Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The May Department Stores Company Profit Sharing Plan: We have audited the accompanying statements of net assets available for benefits, including the schedules referred to below, of The May Department Stores Company Profit Sharing Plan as of December 31, 1995 and 1994, and the related statement of changes in net assets available for benefits for the year ended December 31, 1995. These financial statements and schedules referred to below are the responsibility of the Plan Administrator. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1995 and 1994, and the changes in net assets available for benefits for the year ended December 31, 1995, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and reportable transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The Fund Information in the statements of net assets available for benefits and the statement of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for benefits and changes in net assets available for benefits of each fund. The supplemental schedules and Fund Information have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP St. Louis, Missouri, April 24, 1996 THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1995 (Thousands, except per unit information) Nonparticipant Directed Investment Funds -------------------------------- ESOP Preference ---------------------- May Member Common ASSETS Unallocated Allocated Stock INVESTMENTS, at fair value: The May Department Stores Company- Convertible preferred stock $485,970 $138,402 $ - Common stock - - 145,141 Short-term investments - - 1,053 Commingled equity index fund - - - U.S. government securities - - - Fixed income investments - - - -------- -------- -------- Total investments 485,970 138,402 146,194 OTHER ASSETS: Receivable (payable) for allocation to member accounts (29,770) 29,770 - Dividends and interest receivable - - 5 Receivables - withholdings of member contributions - - - Interfund receivable (payable) - (144) (1,062) -------- -------- -------- Total assets 456,200 168,028 145,137 -------- -------- -------- LIABILITIES LIABILITIES: Notes payable 378,031 - - Accrued interest payable 5,300 - - Net amount payable (receivable) for investment securities transactions and other - - - Amounts payable for administrative expenses - - 135 -------- -------- -------- Total liabilities 383,331 - 135 -------- -------- -------- NET ASSETS AVAILABLE FOR BENEFITS $ 72,869 $168,028 $145,002 ======== ======== ======== NUMBER OF UNITS AT DECEMBER 31, 1995 3,847 ======== VALUE PER UNIT AT DECEMBER 31, 1995 $ 37.69 ======== (Continued on following page) THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1995 (Thousands, except per unit information) Participant Directed Investment Funds ----------------------------------- May Common Fixed Common Money Stock Income ASSETS Stock Market Index Index INVESTMENTS, at fair value: The May Department Stores Company- Convertible preferred stock $ - $ - $ - $ - Common stock 339,470 - - - Short-term investments 2,462 56,132 515 771 Commingled equity index fund - - 71,097 - U.S. government securities - - - 32,711 Fixed income investments - - - 5,746 -------- ------- ------- ------- Total investments 341,932 56,132 71,612 39,228 OTHER ASSETS: Receivable (payable) for allocation to member accounts - - - - Dividends and interest receivable 11 280 130 568 Receivables - withholdings of member contributions 83 59 11 20 Interfund receivable (payable) (2,486) 1,068 1,939 685 -------- ------- ------- ------- Total assets 339,540 57,539 73,692 40,501 -------- ------- ------- ------- LIABILITIES LIABILITIES: Notes payable - - - - Accrued interest payable - - - - Net amount payable (receivable) for investment securities transactions and other - - - (194) Amounts payable for administrative expenses 316 168 179 137 -------- ------- ------- ------- Total liabilities 316 168 179 (57) -------- ------- ------- ------- NET ASSETS AVAILABLE FOR BENEFITS $339,224 $57,371 $73,513 $40,558 ======== ======= ======= ======= NUMBER OF UNITS AT DECEMBER 31, 1995 9,001 38,813 28,985 23,362 ======== ======= ======= ======= VALUE PER UNIT AT DECEMBER 31, 1995 $37.69 $1.48 $2.54 $1.74 ====== ===== ===== ===== (Continued on following page) THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1995 (Thousands, except per unit information) Distribution ASSETS Account Total INVESTMENTS, at fair value: The May Department Stores Company- Convertible preferred stock $ - $ 624,372 Common stock - 484,611 Short-term investments 1,660 62,593 Commingled equity index fund - 71,097 U.S. government securities - 32,711 Fixed income investments - 5,746 ------ ---------- Total investments 1,660 1,281,130 OTHER ASSETS: Receivable (payable) for allocation to member accounts - - Dividends and interest receivable - 994 Receivables - withholdings of member contributions - 173 Interfund receivable (payable) - - ------ ---------- Total assets 1,660 1,282,297 ------ ---------- LIABILITIES LIABILITIES: Notes payable - 378,031 Accrued interest payable - 5,300 Net amount payable (receivable) for investment securities transactions and other 1,660 1,466 Amounts payable for administrative expenses - 935 ------ ---------- Total liabilities 1,660 385,732 ------ ---------- NET ASSETS AVAILABLE FOR BENEFITS $ - $ 896,565 ====== ========== The accompanying notes are an integral part of this statement. THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1994 (Thousands, except per unit information) Nonparticipant Directed Investment Funds -------------------------------- ESOP Preference ---------------------- May Member Common ASSETS Unallocated Allocated Stock INVESTMENTS, at fair value: The May Department Stores Company- Convertible preferred stock $419,895 $ 90,432 $ - Common stock - - 123,651 Short-term investments - - 2,370 Commingled equity index fund - - - U.S. government securities - - - Fixed income investments - - - -------- -------- -------- Total investments 419,895 90,432 126,021 OTHER ASSETS: Receivable (payable) for allocation to member accounts (23,091) 23,091 - Receivable - employer supplemental contribution - - 3,247 Dividends and interest receivable - - 8 Receivables - withholdings of member contributions - - - Interfund receivable (payable) - (18) 197 -------- -------- -------- Total assets 396,804 113,505 129,473 -------- -------- -------- LIABILITIES LIABILITIES: Notes payable 389,136 - - Accrued interest payable 5,454 - - Net amount payable (receivable) for investment security transactions and other - - 1,177 Amounts payable for administrative expenses - - 160 -------- -------- -------- Total liabilities 394,590 - 1,337 -------- -------- -------- NET ASSETS AVAILABLE FOR BENEFITS $ 2,214 $113,505 $128,136 ======== ======== ======== NUMBER OF UNITS AT DECEMBER 31, 1994 4,348 ======== VALUE PER UNIT AT DECEMBER 31, 1994 $ 29.47 ======== (Continued on following page) THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1994 (Thousands, except per unit information) Participant Directed Investment Funds ----------------------------------- May Common Fixed Common Money Stock Income ASSETS Stock Market Index Index INVESTMENTS, at fair value: The May Department Stores Company- Convertible preferred stock $ - $ - $ - $ - Common stock 266,416 - - - Short-term investments 5,105 48,716 670 991 Commingled equity index fund - - 45,699 - U.S. government securities - - - 25,903 Fixed income investments - - - 5,213 -------- ------- ------- ------- Total investments 271,521 48,716 46,369 32,107 OTHER ASSETS: Receivable (payable) for allocation to member accounts - - - - Receivable - employer supplemental contribution - - - - Dividends and interest receivable 17 235 116 589 Receivables - withholdings of member contributions 187 62 55 39 Interfund receivable (payable) 425 (357) 108 (355) -------- ------- ------- ------- Total assets 272,150 48,656 46,648 32,380 -------- ------- ------- ------- LIABILITIES LIABILITIES: Notes payable - - - - Accrued interest payable - - - - Net amount payable (receivable) for investment security transactions and other 2,536 - - (72) Amounts payable for administrative expenses 342 113 103 82 -------- ------- ------- ------- Total liabilities 2,878 113 103 10 -------- ------- ------- ------- NET ASSETS AVAILABLE FOR BENEFITS $269,272 $48,543 $46,545 $32,370 ======== ======= ======= ======= NUMBER OF UNITS AT DECEMBER 31, 1994 9,137 34,676 25,154 21,361 ======== ======= ======= ======= VALUE PER UNIT AT DECEMBER 31, 1994 $29.47 $1.40 $1.85 $1.52 ====== ===== ===== ===== (Continued on following page) THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1994 (Thousands, except per unit information) Distribution ASSETS Account Total INVESTMENTS, at fair value: The May Department Stores Company- Convertible preferred stock $ - $ 510,327 Common stock - 390,067 Short-term investments 1,222 59,074 Commingled equity index fund - 45,699 U.S. government securities - 25,903 Fixed income investments - 5,213 ------ ---------- Total investments 1,222 1,036,283 OTHER ASSETS: Receivable (payable) for allocation to member accounts - - Receivable - employer supplemental contribution - 3,247 Dividends and interest receivable - 965 Receivables - withholdings of member contributions - 343 Interfund receivable (payable) - - ------ ---------- Total assets 1,222 1,040,838 ------ ---------- LIABILITIES LIABILITIES: Notes payable - 389,136 Accrued interest payable - 5,454 Net amount payable (receivable) for investment security transactions and other 1,222 4,863 Amounts payable for administrative expenses - 800 ------ ---------- Total liabilities 1,222 400,253 ------ ---------- NET ASSETS AVAILABLE FOR BENEFITS $ - $ 640,585 ====== ========== The accompanying notes are an integral part of this statement. THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1995 (Thousands) Nonparticipant Directed Investment Funds -------------------------------- ESOP Preference ---------------------- May Member Common Unallocated Allocated Stock NET APPRECIATION IN FAIR VALUE OF INVESTMENTS $94,630 $ 31,325 $ 28,972 ------- -------- -------- INVESTMENT INCOME: Dividends 22,437 5,319 3,864 Interest - - 66 ------- -------- -------- 22,437 5,319 3,930 ------- -------- -------- CONTRIBUTIONS: Member - - - Employer allocation (29,914) 29,914 - Employer ESOP contribution 15,609 - - Member interfund transfers - (906) (1,094) Forfeiture reallocation - - 4 ------- -------- -------- (14,305) 29,008 (1,090) ------- -------- -------- DEDUCTIONS: Member terminations and withdrawals - 11,129 14,543 Interest expense 32,107 - - Administrative expenses - - 403 ------- -------- -------- 32,107 11,129 14,946 ------- -------- -------- INCREASE IN NET ASSETS AVAILABLE FOR BENEFITS 70,655 54,523 16,866 NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1994 2,214 113,505 128,136 ------- -------- -------- NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1995 $72,869 $168,028 $145,002 ======= ======== ======== (Continued on following page) THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1995 (Thousands) Participant Directed Investment Funds ----------------------------------- May Common Fixed Common Money Stock Income Stock Market Index Index Total NET APPRECIATION IN FAIR VALUE OF INVESTMENTS $ 67,763 $ - $16,803 $ 2,739 $242,232 -------- ------- ------- ------- -------- INVESTMENT INCOME: Dividends 9,036 - 1,520 - 42,176 Interest 153 3,108 56 2,352 5,735 -------- ------- ------- ------- -------- 9,189 3,108 1,576 2,352 47,911 -------- ------- ------- ------- -------- CONTRIBUTIONS: Member 42,549 7,778 10,937 5,998 67,262 Employer allocation - - - - - Employer ESOP contribution - - - - 15,609 Member interfund transfers (14,600) 9,985 4,752 1,863 - Forfeiture reallocation 11 (12) (1) (2) - -------- ------- ------- ------- -------- 27,960 17,751 15,688 7,859 82,871 -------- ------- ------- ------- -------- DEDUCTIONS: Member terminations and withdrawals 34,016 11,587 6,667 4,424 82,366 Interest expense - - - - 32,107 Administrative expenses 944 444 432 338 2,561 -------- ------- ------- ------- -------- 34,960 12,031 7,099 4,762 117,034 -------- ------- ------- ------- -------- INCREASE IN NET ASSETS AVAILABLE FOR BENEFITS 69,952 8,828 26,968 8,188 255,980 NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1994 269,272 48,543 46,545 32,370 640,585 -------- ------- ------- ------- -------- NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1995 $339,224 $57,371 $73,513 $40,558 $896,565 ======== ======= ======= ======= ======== The accompanying notes are an integral part of this statement. THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 1. DESCRIPTION OF THE PLAN: The following description of The May Department Stores Company Profit Sharing Plan (the "Plan") is provided for financial statement purposes only. Members should refer to the Plan document and the Summary Plan Description dated June 1, 1995, with updates, for more complete information. General The Plan is a defined contribution profit sharing plan. The Plan covers eligible associates of The May Department Stores Company ("May") and its subsidiaries and affiliates who are members of The May Department Stores Company Retirement Plan. Participation is voluntary. Reclassifications Certain reclassifications have been recorded to the December 31, 1994, balances to conform with the December 31, 1995, presentation. Contributions Plan members may contribute 1% to 15% of their annual pay. Contributions may be made prior to federal and certain other income taxes pursuant to Section 401(k) of the Internal Revenue Code. The employer allocation is variable and discretionary. Generally, the employer allocation for each Plan year is determined by multiplying a base matching rate times members' basic contributions (generally, contributions up to 5% of pay each paycheck), reduced by forfeitures, one-third of annual dividends with respect to the Employee Stock Ownership Plan ("ESOP") Preference Shares, as defined, administrative expenses and excess ESOP allocations from prior Plan years (to the extent such amounts have not been previously used to reduce employer allocations for earlier Plan years). The base matching rate is determined as follows: In the event May has earnings per share ("EPS") of its common stock for its most recent fiscal year ("current year") resulting in a 6.0% increase over the EPS for the fiscal year immediately preceding the current year, the base matching rate will be 50%. For each percentage point increase over 6.0% or decrease below 6.0%, there is a 1.25 percentage point increase in or decrease from the 50% base matching rate. ESOP Preference Shares allocated to associates' accounts through application of the base matching rate formula are allocated at their original cost to the Plan of $24.74 per common share equivalent. Because the ESOP Preference Shares are convertible into May common stock, the ESOP Preference Shares are worth more than original cost when the market value of May common stock is higher than $24.74 per share. This market value of the employer allocation (including supplemental contributions, if any), divided by associates' matchable contributions, is the effective matching rate. If the effective matching rate exceeds 100%, only ESOP Preference Shares will be used for the employer allocation and no May common shares will be contributed. The effective matching rate will also be limited to 2.5 times the base matching rate. The base matching rate formula may be adjusted at any time for unusual events including discontinued operations, accounting changes, or items of extraordinary gain or loss. Investments Members' contributions may be invested in any of four investment funds: May Common Stock Fund - For investment of contributions in May common stock. Money Market Fund - For investment of contributions in short-term (less than one year) obligations of high-quality issuers including banks, corporations, municipalities, the U.S. Treasury and other federal agencies. Common Stock Index Fund - For investment of contributions in the common stock of corporations that make up the Standard & Poor's 500 Composite Stock Price Index. Investment mix is determined based on the relative market size of the 500 corporations, with larger corporations making up a higher proportion of the fund than smaller corporations. This index represents the composite performance of the 500 major stocks in the United States. Fixed Income Index Fund - For investment of contributions in corporate, U.S. Government, federal agency and certain foreign government securities that make up the Lehman Intermediate Government/Corporate Bond Index. The securities that comprise this index have maturities ranging from one to 10 years, with an average of four years. (The Lehman Intermediate Government/Corporate Bond Index represents the composite performance of intermediate-term, fixed income securities.) At December 31, 1995, the nonparticipant directed May Common Stock and ESOP Member Allocated Funds include approximately $51,577,000 and $32,328,000, respectively, attributable to participants over the age of 55. These amounts can be transferred to other funds at the discretion of the participants. Employer allocations and supplemental contributions are invested in the ESOP Preference Fund and the May Common Stock Fund, respectively. The employer allocation to the Plan for the year ended December 31, 1995, will be made in May 1996 and will be in the form of 34,490 ESOP Preference Shares. ESOP Feature In 1989, the Plan was amended and restated to add an ESOP feature and acquired 788,955 shares of convertible preferred stock of May (the "ESOP Preference Shares"). Each ESOP Preference Share costs $507, has a guaranteed minimum value of $507 and is convertible into 20.49031 shares of May common stock. The acquisition of the ESOP Preference Shares was financed with the proceeds of a private placement to a group of institutional investors of an aggregate $400 million principal amount (the "ESOP Loans") (see Note 4). The ESOP Loans are guaranteed by May. The excess of the value of the unallocated ESOP Preference Shares over the principal amount of guaranteed ESOP Loans and accrued interest payable is reflected as Net Assets Available for Benefits in the Statement of Net Assets Available for Benefits as of December 31, 1995 and 1994. The ESOP Loans are repaid by the Plan from the following sources in the following order: (a) dividends from May on ESOP Preference Shares previously allocated to members; (b) dividends from May on unallocated ESOP Preference Shares; (c) contributions by May; and (d) if so determined by May, supplemental contributions. During the term of the ESOP Loans, the ESOP Preference Shares which have not been allocated to members' company accounts serve as collateral for the ESOP Loans. ESOP Preference Shares are initially held by the Plan in an Unallocated account. As ESOP Loans are repaid, ESOP Preference Shares are released to a suspense account pending release to the members' company accounts in satisfaction of the employer allocation. If the guaranteed minimum value of the ESOP Preference Shares allocated to members' company accounts as a result of the ESOP Loan payments (principal and interest) for a year is less than the employer allocation, then May makes "supplemental" contributions to the Plan to make up the difference. Supplemental contributions can be made in either shares of May common stock or cash. If the guaranteed minimum value of the ESOP Preference Shares released for allocation to members' company accounts as a result of the ESOP Loan payments is greater than the required employer allocation, any "excess" would be applied to satisfy required employer allocations in future Plan years. Vesting The method of calculating vesting service is the elapsed time approach. Elapsed time is measured by calculating the time which has elapsed between the member's hire date and retirement date/termination date (excluding certain break-in-service periods). Generally, Plan members are vested in company accounts in accordance with the following schedule: Years of Vesting Vesting Service Percentage Less than 3 years 0% 3 years 20% 4 years 40% 5 years 60% 6 years 80% 7 years or more 100% Plan members are always fully vested in the value of their member accounts. Payment of Benefits Amounts in a member's account and the vested portion of a member's company account may be distributed upon retirement, death, disability or termination of employment. Distributions from the May Common Stock Fund and ESOP Preference Fund are made in shares of May common stock if the combined distribution exceeds 100 shares. All other distributions are generally made in cash. Transfers are made from the investment funds to the Distribution account to fund the Plan's cash distributions. Administration of Plan The Plan is administered by a Committee consisting of at least five persons appointed by May. An Administrative Subcommittee has the general responsibility for administration of the Plan and an Investment Subcommittee establishes and monitors investment policies and activities. The assets of the Plan are held in a trust for which The Bank of New York is the Trustee. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Investments Except for the ESOP Preference Fund, the Plan's investments are stated at fair value, as determined by the Trustee, based on publicly stated price information. Each ESOP Preference Share is valued at the greater of (a) the guaranteed minimum value (original cost) of $507 per share or (b) a conversion value equal to the market price of May common stock multiplied by the conversion rate of 20.49031 common shares for each ESOP Preference Share. As of December 31, 1995 and 1994, the ESOP Preference Shares were valued at their conversion values of $863.15 and $691.55, respectively. Federal Income Taxes The Plan has received a favorable determination letter from the Internal Revenue Service that the Plan meets the requirements of Section 401(a), 401(k) and 4975(e)(7) of the Internal Revenue Code and that the Trust implementing the Plan is exempt from federal income tax under Section 501(a) of the Internal Revenue Code. Employer allocations and contributions, member before-tax contributions and the income of the Plan are not taxable to the members until distributions or withdrawals are made. Administrative Expenses Salaries and related benefits of associates who administer the Plan are provided by May. All other administrative expenses (including the allocable portion of expenses for data processing services provided by May) are paid by the Plan. Monthly Valuation of the Trust The unit value of each investment fund is determined by dividing the month-end market value of the particular investment fund by the total number of units outstanding at month-end in all member accounts in such investment fund. As of each succeeding monthly valuation date, the unit value of each fund is redetermined and account balances in each fund are adjusted as follows: (a) All payments made from an account (except for the ESOP Preference Fund) are valued based on the unit value at the month-end valuation date. Payments from the ESOP Preference Fund are valued at the greater of the guaranteed minimum value (plus accrued dividends) or conversion value, as of the distribution date. (b) With respect to any dollar amount contributed or allocated during the month (except for the ESOP Preference Fund), an equivalent number of additional units are credited to the appropriate accounts in such investment fund based on the unit value at the month-end valuation date. Allocations of ESOP Preference Shares are valued at $507 per share. (c) In the event that a member's employment is terminated and a portion of such member's company account has been forfeited, the forfeited units or ESOP Preference Shares shall be canceled as of the last day of the Plan year. The dollar amount of such forfeited units or ESOP Preference Shares is reallocated among the remaining members of the Plan as of the last day of the Plan year in the same manner as the employer allocation for such year. 3. INVESTMENTS: The fair market value of the Plan's investments that represent 5% or more of the Plan's Net Assets Available for Benefits as of December 31, 1995 and 1994, are as follows (dollars in thousands): December 31, 1995 December 31, 1994 ---------------------- ---------------------- Number of Number of Shares or Shares or Principal Fair Principal Fair Amount Value Amount Value The May Department Stores Company 7.5% ESOP Preference Stock: Unallocated 563,016 $ 485,970 607,181 $ 419,895 Member allocated 160,344 138,402 130,767 90,432 ---------- ---------- ---------- ---------- 723,360 624,372 737,948 510,327 ========== ========== The May Department Stores Company Common Stock 11,504,123 484,611 11,557,547 390,067 The Bank of New York Short-Term Investment Fund - Master Notes 62,593,281 62,593 59,074,668 59,074 Chase Investors Commingled Equity Index fund 117,694 71,097 101,310 45,699 ---------- ---------- Total $1,242,673 $1,005,167 ========== ========== 4. NOTES PAYABLE: Notes payable as of December 31 consisted of the following (in thousands): 1995 1994 ESOP Notes Payable: Series A, 8.32%, due April 30, 2001 $174,067 $185,172 Series B, 8.49%, due April 30, 2004 203,964 203,964 -------- -------- $378,031 $389,136 ======== ======== The scheduled principal payments for the Series A ESOP Note for the next five years and thereafter are as follows: 1996 - $15,474,000; 1997 - $20,228,000; 1998 - $25,385,000; 1999 - $31,118,000; 2000 - $37,354,000; and thereafter - $44,508,000. Principal payments on the Series B ESOP Note begin in 2002. As of December 31, 1995 and 1994, the total fair value of the ESOP Notes was approximately $468,290,000 and $454,292,000, respectively. 5. RECONCILIATION TO FORM 5500: As of December 31, 1995 and 1994, the Plan had approximately $16,340,000 and $12,148,000, respectively, of pending distributions to participants. These amounts are included in Net Assets Available for Benefits. For reporting on the Plan's Form 5500 Annual Report, these amounts will be classified as Benefit Claims Payable with a corresponding reduction in Net Assets Available for Benefits. The following table reconciles the financial statements to the Form 5500 which will be filed by the Plan for the Plan year ended December 31, 1995 (thousands): Net Assets Benefits Available Payable to Benefits for Participants Paid Benefits Per financial statements $ - $82,366 $896,565 Pending benefit distributions - December 31, 1995 16,340 16,340 (16,340) Pending benefit distributions - December 31, 1994 - (12,148) - ------- ------- -------- Per Form 5500 $16,340 $86,558 $880,225 ======= ======= ======== 6. DISTRIBUTION OF ASSETS UPON TERMINATION OF THE PLAN: May reserves the right to terminate the Plan, in whole or in part, at any time. If an employer shall cease to be a participating employer in the Plan, the accounts of the members of the withdrawing employer shall be revalued as if such withdrawal date were a valuation date. The Plan Committee is then to direct the Trustee either to distribute the accounts of the members of the withdrawing employer as of the date of such withdrawal on the same basis as if the Plan had been terminated, or to deposit in a trust established by the withdrawing employer, pursuant to a plan substantially similar to the Plan, assets equal in value to the assets allocable to the accounts of the members of the withdrawing employer. If the Plan is terminated at any time or contributions are completely discontinued and May determines that the Trust shall be terminated, the members' company accounts shall become fully vested and nonforfeitable, all accounts shall be revalued as if the termination date were a valuation date and such accounts shall be distributed to members. If the Plan is terminated or contributions completely discontinued but May determines that the Trust shall be continued pursuant to the terms of the Trust agreement, no further contributions shall be made by members or the employer and the members' company accounts shall become fully vested, but the Trust shall be administered as though the Plan were otherwise in effect. 7. SUBSEQUENT EVENT: In January 1996, May announced the "spin-off" of Payless ShoeSource, Inc. (Payless) to common shareowners of May. A separate defined contribution profit sharing plan for Payless was established April 1, 1996, and an asset transfer of associate accounts was made from the Plan to the Payless Plan in April 1996. The amount of the asset transfer was approximately $68,971,000. SCHEDULE I THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN EMPLOYER #: 43-0398035 PLAN #: 003 ITEM 27(a): SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 1995 (c) Number of Shares or (e) (b) Principal (d) Fair (a) Identity of Issue Amount Cost Value (Thousands) ESOP PREFERENCE FUND * The May Department Stores Company 7.5% ESOP Preference Stock: Unallocated 563,016 $285,449 $ 485,970 Member allocated 160,344 81,295 138,402 -------- ---------- ESOP Preference Fund Total $366,744 $ 624,372 ======== ========== MAY COMMON STOCK FUND * The May Department Stores Company Common Stock 11,504,123 $230,835 $ 484,611 * The Bank of New York Short-Term Investment Fund- Master Notes $ 3,515,046 3,515 3,515 -------- ---------- May Common Stock Fund Total $234,350 $ 488,126 ======== ========== MONEY MARKET FUND * The Bank of New York Short-Term Investment Fund- Master Notes $56,131,649 $ 56,132 $ 56,132 ======== ========== COMMON STOCK INDEX FUND Chase Investors Commingled Equity Index Fund 117,694 $ 44,316 $ 71,097 * The Bank of New York Short-Term Investment Fund- Master Notes $ 515,399 515 515 -------- ---------- Common Stock Index Fund Total $ 44,831 $ 71,612 ======== ========== FIXED INCOME INDEX FUND * The Bank of New York Short-Term Investment Fund- Master Notes $ 770,656 $ 771 $ 771 -------- ---------- * Also a party-in-interest. SCHEDULE I (Continued) (c) (e) (b) Principal (d) Fair (a) Identity of Issue Amount Cost Value (Thousands) FIXED INCOME INDEX FUND (Continued) U.S. Government Securities U.S. Treasury Notes: 5.625%, due 8/31/97 $ 5,000,000 $ 5,007 $ 5,032 5.125%, due 6/30/98 $ 4,300,000 4,201 4,291 5.125%, due 12/31/98 $ 3,300,000 3,168 3,289 7.875%, due 11/15/04 $ 2,500,000 2,793 2,894 7.125%, due 9/30/99 $ 2,000,000 2,004 2,121 5.5%, due 4/15/00 $ 2,000,000 1,835 2,017 6.125%, due 9/30/00 $ 1,550,000 1,571 1,597 6.875%, due 2/28/97 $ 1,400,000 1,397 1,426 7.75%, due 1/31/00 $ 1,200,000 1,223 1,303 5.875%, due 2/15/04 $ 1,000,000 902 1,021 6.5%, due 8/15/05 $ 1,000,000 1,058 1,065 Strip, due 11/15/96 $ 1,000,000 872 956 6.25%, due 2/15/03 $ 1,000,000 1,042 1,043 6.375%, due 8/15/02 $ 800,000 817 839 8.75%, due 8/15/00 $ 700,000 829 795 -------- ---------- Total U.S. treasury notes 28,719 29,689 -------- ---------- U.S. Government Agency Securities: Federal Home Loan Bank Consumer Bonds- 7.7%, due 8/26/96 $ 650,000 695 660 8%, due 7/25/96 $ 150,000 139 152 Federal Home Loan Mortgage Corporation- 6.22%, due 3/24/03 $ 200,000 182 205 Federal National Mortgage Association Securities- 8.35%, due 11/10/99 $ 400,000 410 439 8%, due 7/10/96 $ 200,000 191 203 Debentures- 9.55%, due 12/10/97 $ 400,000 407 431 7.65%, due 3/10/05 $ 200,000 204 224 International Bank for Recon & Dev BD- 5.875%, due 7/16/97 $ 400,000 402 403 Tennessee Valley Authority, Power Bond 1992 Series F, 6.875%, due 8/1/02 $ 300,000 310 305 -------- ---------- Total U.S. government agency securities 2,940 3,022 -------- ---------- Total U.S. government securities 31,659 32,711 -------- ---------- SCHEDULE I (Continued) (c) (e) (b) Principal (d) Fair (a) Identity of Issue Amount Cost Value (Thousands) FIXED INCOME INDEX FUND (Continued) Fixed Income Investments Bank Corporate Bonds: Bank America Corporation, 7.75%, due 7/15/02 $ 400,000 $ 408 $ 433 Republic NY Corporation, 7.25%, due 7/15/02 $ 100,000 98 106 -------- ---------- Total bank corporate bonds 506 539 -------- ---------- Finance and Insurance Corporate Bonds: American Express Company, 8.5%, due 8/15/01 $ 200,000 201 225 Commercial Credit Corporation, 8.125%, due 3/1/97 $ 200,000 179 205 Ford Motor Credit Co., 6.25%, due 2/26/98 $ 500,000 506 507 -------- ---------- Total finance and insurance corporate bonds 886 937 -------- ---------- Industrial Corporate Bonds: Coca Cola Company, 7.875%, due 9/15/98 $ 300,000 305 317 Eli Lilly & Co., 8.125%, due 12/1/01 $ 200,000 199 222 Hertz Corporation Jr Sub NT, 7.0%, due 7/15/03 $ 350,000 354 361 Hertz Corporation, 6.0%, due 2/1/01 $ 200,000 191 200 Philip Morris Companies, Inc., 8,625% due 3/1/99 $ 300,000 297 323 The Limited, Inc., 7.8%, due 5/15/02 $ 400,000 396 430 -------- ---------- Total industrial corporate bonds 1,742 1,853 -------- ---------- Oil Corporate Bond: Tenneco Inc., 7.875%, due 10/1/02 $ 300,000 298 328 -------- ---------- Telephone Corporate Bond: Northern Telcom Ltd., 8.25%, due 6/13/96 $ 300,000 303 303 -------- ---------- Utilities Corporate Bonds: Consolidated Edison Company of New York, 1st and Refunding Mortgage Note, 5.9%, due 12/15/96 $ 300,000 282 300 Duke Power Company, 1st and Refunding Mortgage Note, 7%, due 6/1/00 $ 195,000 203 202 General Electric Cap Corp., 8.85%, due 4/1/05 $ 400,000 485 478 -------- ---------- Total utilities corporate bonds 970 980 -------- ---------- SCHEDULE I (Continued) (c) (e) (b) Principal (d) Fair (a) Identity of Issue Amount Cost Value (Thousands) FIXED INCOME INDEX FUND (Continued) Foreign Obligations: Denmark Kingdom Note, 7.75%, due 12/15/96 $ 200,000 $ 193 $ 204 Finland Rep NT, 7.875%, due 7/28/04 $ 150,000 150 169 Hydro-Quebec Debenture, Series IF, 7.375%, due 2/1/03 $ 200,000 215 213 Province of Ontario, Canada Debenture, 8%, due 10/17/01 $ 200,000 200 220 -------- ---------- Total foreign obligations 758 806 -------- ---------- Total fixed income investments 5,463 5,746 -------- ---------- Fixed Income Index Fund Total $ 37,893 $ 39,228 ======== ========== DISTRIBUTION ACCOUNT * The Bank of New York Short-Term Investment Fund- Master Notes $ 1,660,531 $ 1,660 $ 1,660 ======== ========== TOTAL ASSETS HELD FOR INVESTMENT PURPOSES AT DECEMBER 31, 1995 $741,610 $1,281,130 ======== ========== * Also a party-in-interest. SCHEDULE II THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN ITEM 27(d): SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (Thousands, except number of transactions) Purchases Sales ---------------- ----------------------------------- No. of No. of Sales Gain or Trans. Cost Trans. Cost Price (Loss) The Bank of New York Short-Term Investment Fund-Master Notes (1) 285 $104,556 216 $101,037 $101,037 $ - The May Department Stores Company Common Stock (1) (2) 40 35,590 40 26,200 49,689 23,489 -------- -------- -------- ------- $140,416 $127,237 $150,726 $23,489 ======== ======== ======== ======= (1) Also a party-in-interest. (2) Includes conversion of ESOP Preference Shares. EXHIBIT CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report on The May Department Stores Company Profit Sharing Plan financial statements included in this Form 11-K, into the Company's previously filed Registration Statements on Form S-8 Files No. 33-26016, 33-38104, 33-51849 and 333-00957. ARTHUR ANDERSEN LLP St. Louis, Missouri, April 24, 1996 -----END PRIVACY-ENHANCED MESSAGE-----