<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended July 30, 1994
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)
(314) 342-6300
(Registrant's telephone number,
including area code)
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 and
(2) has been subject to such filing requirements for the past 90
days. YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
248,360,687 shares of common stock, $0.50 par value, as of July 30,
1994.
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<TABLE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
<CAPTION>
July 30, July 31, Jan. 29,
ASSETS 1994 1993 1994
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 86 $ 184 $ 46
Accounts receivable, net 2,009 1,965 2,394
Merchandise inventories 2,076 1,942 2,020
Other current assets 234 291 219
Total Current Assets 4,405 4,382 4,679
Property and Equipment, at cost 5,445 4,982 5,047
Accumulated Depreciation (1,783) (1,692) (1,636)
Net Property and Equipment 3,662 3,290 3,411
Goodwill 610 628 619
Other Assets 81 99 91
Total Assets $ 8,758 $ 8,399 $ 8,800
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities of
long-term debt $ 198 $ 170 $ 113
Accounts payable 849 791 870
Accrued expenses 795 812 740
Income taxes - - 48
Total Current Liabilities 1,842 1,773 1,771
Long-term Debt 2,652 2,823 2,822
Deferred Income Taxes 326 341 373
Other Liabilities 181 175 182
ESOP Preference Shares 377 385 380
Unearned Compensation (359) (371) (367)
Shareowners' Equity 3,739 3,273 3,639
Total Liabilities and
Shareowners' Equity $ 8,758 $ 8,399 $ 8,800
The accompanying notes to condensed consolidated financial
statements are an integral part of this balance sheet.
</TABLE>
2
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<TABLE>
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
<CAPTION>
(Millions, except per share) 13 Weeks Ended 26 Weeks Ended
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Retail Sales:
Department stores $ 2,076 $ 1,947 $ 4,088 $ 3,761
Payless ShoeSource 544 513 1,061 970
Total Net Retail Sales $ 2,620 $ 2,460 $ 5,149 $ 4,731
Revenues $ 2,706 $ 2,586 $ 5,328 $ 5,008
Cost of sales 1,887 1,791 3,704 3,474
Selling, general and
administrative expenses 544 536 1,102 1,053
Interest expense, net 57 60 116 123
Earnings before income taxes 218 199 406 358
Provision for income taxes 88 82 164 145
Net Earnings $ 130 $ 117 $ 242 $ 213
Primary Earnings per Share $ .50 $ .45 $ .93 $ .82
Fully Diluted Earnings
per Share $ .49 $ .44 $ .90 $ .79
Dividends Paid per
Common Share $ .26 $ .23 $ .49 $ .43-3/4
Primary Average Shares
Outstanding and
Equivalents 249.9 249.9 249.9 249.8
Fully Diluted Average Shares
Outstanding and
Equivalents 265.2 266.0 265.2 265.9
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
</TABLE>
3
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<TABLE>
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
(Millions) 26 Weeks Ended
July 30, July 31,
1994 1993
<S> <C> <C>
Operating Activities:
Net earnings and depreciation/amortization $ 414 $ 373
Decrease in working capital (excluding
cash, cash equivalents and short-term
debt) 300 164
Other assets and liabilities, net (48) 26
666 563
Investing Activities:
Net additions to property and equipment (414) (283)
Other 10 (7)
(404) (290)
Financing Activities:
Net repayments of long-term debt (77) (135)
Net purchases of treasury stock (14) (8)
Dividend payments, net of tax benefit (131) (118)
(222) (261)
Increase in Cash and Cash Equivalents $ 40 $ 12
Cash paid during the period:
Interest $ 121 $ 130
Income Taxes 260 151
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
</TABLE>
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interim Results. These unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions
to Form 10-Q of the Securities and Exchange Commission and should
be read in conjunction with the Summary of Significant Accounting
Policies (page 18) and the Notes to Consolidated Financial
Statements (pages 23-29) in the 1993 Annual Report. In the opinion
of management, this information is fairly presented and all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the results for the interim
periods have been included; however, certain items are included in
these statements based on estimates for the entire year. Also,
operating results of periods which exclude the Christmas season may
not be indicative of the operating results that may be expected for
the full fiscal year.
Inventories. Department store merchandise inventories are stated
on the LIFO (last-in, first-out) cost basis. The LIFO provision
for the second quarter was $8 million in 1994 and 1993. The year-
to-date LIFO provision was $16 million in 1994 and 1993.
5
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
A summary of key financial information for the periods indicated is
as follows:
July 30, July 31, Jan. 29,
1994 1993 1994
Current Ratio 2.4 2.5 2.6
Debt-Capitalization Ratio 44% 47% 45%
Fixed Charge Coverage* 3.2x 2.0x 3.1x
Fixed Charge Coverage before
Special and Nonrecurring items* 3.2x 2.9x 3.1x
* Fixed charge coverage, which is presented for the trailing 52
weeks in each period ended above, is defined as earnings before
gross interest expense (excluding one-half of the interest
expense related to the MCAC sale/leaseback debt (MCAC loans)
prior to MCA partnership dissolution), the expense portion of
interest on the ESOP debt, rent expense and income taxes divided
by gross interest expense (excluding one-half of the interest
expense related to the MCAC loans prior to MCA partnership
dissolution), interest expense on the ESOP debt, total rent
expense and the pretax equivalent of dividends on redeemable
preferred stock.
Registrant's second quarter 1994 current ratio decreased as
compared with second quarter 1993 due to a decrease in cash
equivalents. The impact of the increase in merchandise inventories
was substantially offset by the impact of the increase in accounts
payable. The second quarter 1994 current ratio decreased as
compared with year-end 1993 primarily due to a seasonal decrease in
accounts receivable.
The decrease in registrant's second quarter 1994
debt-capitalization ratio as compared with second quarter 1993 is
primarily due to growth in retained earnings and net reductions in
debt during 1993 and 1994.
The increase in registrant's second quarter 1994 fixed charge
coverage ratio, before 1992 Special and Nonrecurring items, as
compared with second quarter 1993 is primarily due to increased
level of earnings. Fixed charges were slightly lower in the second
quarter 1994 as lower gross interest expense due to net reductions
in debt was substantially offset by higher rent expense.
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Results of Operations
Net retail sales represent the sales of stores operating at the end
of the latest period. They exclude finance charge revenue and the
sales of stores which have been closed and not replaced. Sales
percent increases (decreases) by business segment are as follows:
<TABLE>
<CAPTION>
Second Quarter First Six Months
Store-for- Store-for-
Total Store Total Store
<S> <C> <C> <C> <C>
Department stores 6.6% 4.0% 8.7% 6.0%
Payless ShoeSource 6.1 (0.5) 9.4 2.5
Total Net Retail Sales 6.5% 3.1% 8.8% 5.3%
Store-for-store sales represent sales of those stores open during
both periods.
</TABLE>
The following table presents the components of net earnings as a
percent of revenues.
Second Quarter First Six Months
1994 1993 1994 1993
Cost of sales 69.7% 69.3% 69.5% 69.4%
Selling, general and
administrative expenses 20.1 20.7 20.7 21.0
Interest expense, net 2.1 2.3 2.2 2.5
Earnings before income taxes 8.1% 7.7% 7.6% 7.1%
Effective income tax rate 40.5% 41.2% 40.5% 40.4%
Net Earnings 4.8% 4.5% 4.5% 4.3%
Cost of sales was $1,887 million in the 1994 second quarter, up
5.4% from $1,791 million in the 1993 period. For the first six
months of 1994, cost of sales was $3,704 million, a 6.6% increase
from $3,474 million in the 1993 period. The overall increases are
principally related to higher sales volume. For the second
quarter, cost of sales, as a percent of revenues, increased 0.4%
due to a decline in merchandise gross margin. For the first six
months, cost of sales, as a percent of revenues increased 0.1% due
to a 0.3% increase in merchandise gross margin offset by a 0.2%
decrease in buying and occupancy expenses. The LIFO charge was $8
million in the second quarter of 1994 and 1993. For the first six
months, the LIFO charge was $16 million in 1994 and 1993. There
were no significant changes in the other components of cost of
sales.
Selling, general and administrative expenses were $544 million in
the 1994 second quarter, up 1.6% from $536 million a year ago. For
the first six months of 1994, selling, general and administrative
expenses were $1,102 million compared with $1,053 million in the
1993 period, a 4.7% increase. The overall increases are primarily
related to higher sales volume. Selling, general and
administrative expenses, as a percent of revenues, decreased 0.6%
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for the second quarter and 0.3% year-to-date as compared with 1993.
The improvements were generally achieved across all selling,
general and administrative expense components.
<TABLE>
Net interest expense for the second quarter and first six months of
1994 and 1993 is as follows (millions):
<CAPTION>
Second Quarter First Six Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest expense $ 62 $ 66 $ 124 $ 133
Interest income (2) (2) (3) (5)
Capitalized interest (3) (4) (5) (5)
Net Interest Expense $ 57 $ 60 $ 116 $ 123
The decrease in 1994 net interest expense for the second quarter
and the first six months is the result of net reductions of debt in
1993 and the first quarter of 1994. As a percent of revenues,
interest expense decreased 0.2% for the second quarter and 0.3% for
the first six months.
</TABLE>
The effective income tax rate for the second quarter decreased as
compared with 1993 primarily due to the 1993 second quarter tax
provision including the impact of the 1993 tax law change which
increased the tax rate retroactive to January 1, 1993.
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
July 30, July 31,
1994 1993
Net retail sales $ 11,413 $ 10,517
Revenues $ 11,849 $ 11,284
Net earnings $ 740 $ 342
Net earnings before special and
nonrecurring items $ 740 $ 640
Fully diluted earnings per share $ 2.76 $ 1.27
Fully diluted earnings per share before
special and nonrecurring items $ 2.76 $ 2.39
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The legal proceeding identified in response to Item 3 to
registrant's Annual Report on Form 10-K for the fiscal year ended
January 29, 1994 has been settled subsequent to the end of the
second quarter. The settlement will not have a material adverse
effect on registrant's results of operations or its financial
position.
Item 2 - Changes in Securities - None.
Item 3 - Defaults Upon Senior Securities - None.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareowners of registrant was held on
May 20, 1994.
(b) At the annual meeting of shareowners of registrant held on
May 20, 1994, action was taken with respect to:
<TABLE>
(i) the election of five directors of registrant;
<CAPTION>
Authority
For Withheld
<S> <C> <C>
Thomas A. Hays 222,516,139 1,610,084
Jerome T. Loeb 222,829,514 1,296,709
Russell E. Palmer 222,743,997 1,382,226
Michael P. Quinlan 222,881,422 1,244,801
William P. Stiritz 222,802,251 1,323,972
</TABLE>
(ii) a ratification of the appointment of Arthur Andersen
& Co., as independent auditors (222,761,839 votes in
favor, 773,109 votes against and 591,275 votes
abstained);
(iii) a proposal to approve the 1994 Stock Incentive Plan
(161,963,898 votes in favor, 44,502,873 votes
against, 1,485,118 votes abstained and 16,174,334 not
voted);
(iv) a proposal to approve the Executive Incentive
Compensation Plan for Corporate Executives
(209,840,982 votes in favor, 11,323,046 votes
against, 1,988,534 votes abstained and 973,661 not
voted);
(v) a proposal relating to a classified Board of
Directors (99,198,736 votes in favor, 104,934,334
votes against, 2,350,205 votes abstained and
17,642,948 not voted);
(vi) a proposal relating to cumulative voting (56,407,898
votes in favor, 147,913,827 votes against, 2,161,550
votes abstained and 17,642,948 not voted);
9
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(vii) a proposal relating to retirement plans for Directors
(50,694,079 votes in favor, 152,526,582 votes
against, 3,262,614 votes abstained and 17,642,948 not
voted);
All such proposals were set forth and described in detail
in the Notice of Annual Meeting and Proxy Statement of
registrant dated April 18, 1994, filed with the Commission
pursuant to Rule 12b-23(b).
Item 5 - Other Information - None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(11) - Computation of Net Earnings Per Share
(12) - Computation of Ratio of Earnings to Fixed Charges
(27) - Financial Data Schedule
(b) Reports on Form 8-K
A report dated August 8, 1994, which contained a second
quarter, 1994 Earnings Release dated August 8, 1994.
A report dated August 11, 1994, which contained a copy of
the Underwriting Agreement, dated August 4, 1994, among
registrant, Morgan Stanley & Co., Incorporated and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated; a specimen of 8-3/8% debentures due August 1,
2024.
A report dated September 2, 1994, which contained the Rights
Agreement between the registrant and the Bank of New York,
as rights agent, dated August 19, 1994.
SIGNATURES
Pursuant to the requirements 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
(Registrant)
Date: September 6, 1994
\s\ Jerome T. Loeb
Jerome T. Loeb
President and
Chief Financial Officer
10
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<TABLE>
<CAPTION>
Exhibit 11
The May Department Stores Company
Computation of Net Earnings per Share
13 Weeks Ended 26 Weeks Ended
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
(millions, except per share)
<S> <C> <C> <C> <C>
Net earnings $ 130 $ 117 $ 242 $ 213
ESOP Preferred Dividends, net of tax
benefit on unallocated shares (5) (5) (10) (9)
Dividend requirements on redeemable
preferred stock - - - -
Net earnings available for
common shareowners $ 125 $ 112 $ 232 $ 204
Average common shares outstanding 248.6 248.4 248.5 248.3
Net earnings per share $ 0.50 $ 0.45 $ 0.93 $ 0.82
Primary Computation
Net earnings available for
common shareowners $ 125 $ 112 $ 232 $ 204
Net earnings adjustment for
dividend equivalents 1 - 1 -
Adjusted net earnings $ 126 $ 112 $ 233 $ 204
Average common shares outstanding 248.6 248.4 248.5 248.3
Common share equivalents under stock
option and deferred compensation plans,
based upon the treasury stock method 1.3 1.5 1.4 1.5
Average common and common equivalent shares 249.9 249.9 249.9 249.8
Primary earnings per share $ 0.50 $ 0.45 $ 0.93 $ 0.82
Fully Diluted Computation
Adjusted net earnings $ 126 $ 112 $ 233 $ 204
Impact of assumed conversion of
ESOP Preference Shares 3 3 5 5
Adjusted net earnings $ 129 $ 115 $ 238 $ 209
Average common and common equivalent shares 249.9 249.9 249.9 249.8
Additional common stock equivalents
attributable to application of the
treasury stock method - 0.5 - 0.4
Assumed conversion of ESOP
Preference Shares 15.3 15.6 15.3 15.7
Average common and common equivalent shares,
assuming full dilution 265.2 266.0 265.2 265.9
Fully diluted earnings per share $ 0.49 $ 0.44 $ 0.90 $ 0.79
</TABLE>
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<TABLE>
<CAPTION>
Exhibit 12
The May Department Stores Company and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
For the Five Fiscal Years ended January 29, 1994, and for the
Twenty-six Weeks ended July 30, 1994, and July 31, 1993
26 Weeks Ended Fiscal Year Ended
July 30, July 31, Jan.29, Jan. 30, Feb. 1, Feb. 2, Feb. 3,
1994 1993 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Pretax earnings from continuing operations $ 406 $ 358 $ 1,178 $ 791 $ 796 $ 762 $ 799
Fixed charges (excluding interest
capitalized and pretax preferred stock
dividend requirements) 184 195 381 432 474 421 357
Dividends on ESOP Preference Shares (14) (14) (29) (29) (30) (30) (23)
Capitalized interest amortization 2 2 4 3 3 3 3
578 541 1,534 1,197 1,243 1,156 1,136
Fixed Charges:
Gross interest expense (a) $ 140 $ 150 $ 297 $ 341 $ 388 $ 347 $ 291
Interest factor attributable to
rent expense 49 50 94 94 92 83 73
Other (b) - - - 4 8 5 4
189 200 391 439 488 435 368
Ratio of Earnings to Fixed Charges 3.1 2.7 3.9 2.7 2.6 2.7 3.1
(a) Represents interest expense on long-term and short-term debt, ESOP debt and amortization of
debt discount and debt issue expense.
(b) Represents the company's proportionate share of interest of unconsolidated 50% owned persons and
pretax preferred stock dividend requirements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
JULY 30, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-1994
<PERIOD-END> JUL-30-1994
<CASH> 16
<SECURITIES> 70
<RECEIVABLES> 2,075
<ALLOWANCES> (66)
<INVENTORY> 2,076
<CURRENT-ASSETS> 4,405
<PP&E> 5,445
<DEPRECIATION> (1,783)
<TOTAL-ASSETS> 8,758
<CURRENT-LIABILITIES> 1,842
<BONDS> 2,850
<COMMON> 124
3
0
<OTHER-SE> 3,615
<TOTAL-LIABILITY-AND-EQUITY> 8,758
<SALES> 5,149
<TOTAL-REVENUES> 5,328
<CGS> 3,704
<TOTAL-COSTS> 4,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 116
<INCOME-PRETAX> 406
<INCOME-TAX> 164
<INCOME-CONTINUING> 242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 242
<EPS-PRIMARY> .93
<EPS-DILUTED> .90
</TABLE>
