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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 29, 1995
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.
249,381,685 shares of common stock, $0.50 par value, as of July 29,
1995.
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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 29, July 30, Jan. 28,
ASSETS 1995 1994 1995
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 262 $ 86 $ 55
Accounts receivable, net 2,028 2,009 2,436
Merchandise inventories 2,374 2,076 2,207
Other current assets 212 234 212
Total Current Assets 4,876 4,405 4,910
Property and Equipment, at cost 6,113 5,445 5,794
Accumulated Depreciation (2,111) (1,783) (1,928)
Net Property and Equipment 4,002 3,662 3,866
Goodwill 594 610 602
Other Assets 90 81 94
Total Assets $ 9,562 $ 8,758 $ 9,472
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities of
long-term debt $ 23 $ 198 $ 169
Accounts payable 913 849 837
Accrued expenses 738 795 761
Income taxes 3 - 128
Total Current Liabilities 1,677 1,842 1,895
Long-term Debt 3,057 2,652 2,875
Deferred Income Taxes 345 326 359
Other Liabilities 190 181 191
ESOP Preference Shares 370 377 374
Unearned Compensation (346) (359) (357)
Shareowners' Equity 4,269 3,739 4,135
Total Liabilities and
Shareowners' Equity $ 9,562 $ 8,758 $ 9,472
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 29, July 30, July 29, July 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Retail Sales:
Department stores $ 2,243 $ 2,075 $ 4,371 $ 4,084
Payless ShoeSource 623 544 1,192 1,061
Total Net Retail Sales $ 2,866 $ 2,619 $ 5,563 $ 5,145
Revenues $ 2,948 $ 2,706 $ 5,735 $ 5,328
Cost of sales 2,071 1,891 4,017 3,711
Selling, general and
administrative expenses 583 540 1,175 1,095
Interest expense, net 57 57 115 116
Earnings before income taxes 237 218 428 406
Provision for income taxes 96 88 173 164
Net Earnings $ 141 $ 130 $ 255 $ 242
Primary Earnings per Share $ .55 $ .50 $ .98 $ .93
Fully Diluted Earnings
per Share $ .53 $ .49 $ .95 $ .90
Dividends Paid per
Common Share $ .28-1/2 $ .26 $ .54-1/2 $ .49
Primary Average Shares
Outstanding and
Equivalents 250.2 249.9 249.7 249.9
Fully Diluted Average Shares
Outstanding and
Equivalents 265.7 265.2 265.4 265.2
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 29, July 30,
1995 1994
<S> <C> <C>
Operating Activities:
Net earnings and depreciation/amortization $ 455 $ 414
Decrease in working capital (excluding
cash, cash equivalents and short-term
debt) 169 300
Other assets and liabilities, net (20) (48)
604 666
Investing Activities:
Net additions to property and equipment (326) (414)
Other 7 10
(319) (404)
Financing Activities:
Net issuances (repayments) of long-term debt 46 (77)
Net issuances (purchases)of treasury stock 28 (14)
Dividend payments, net of tax benefit (152) (131)
(78) (222)
Increase in Cash and Cash Equivalents $ 207 $ 40
Cash paid during the period:
Interest $ 128 $ 121
Income Taxes 292 260
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 1994 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 1995 and 1994. The year-
to-date LIFO provision was $16 million in 1995 and 1994.
Reclassifications. Certain prior period amounts have been
reclassified to conform with current year presentation.
Acquisition. Effective August 28, 1995, registrant purchased 14
John Wanamaker stores in the Philadelphia area and three Woodward
& Lothrop stores in the Washington, D.C. area for approximately
$415 million, including $175 million for inventory and receivables,
subject to certain conditions and adjustments. The asset
acquisition will be accounted for as a purchase and will be funded
principally with long-term debt.
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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 29, July 30, Jan. 28,
1995 1994 1995
Current Ratio 2.9 2.4 2.6
Debt-Capitalization Ratio 44% 44% 44%
Fixed Charge Coverage* 3.4x 3.3x 3.4x
* Fixed charge coverage, which is presented for the trailing 52
weeks in each period ended above, is defined as earnings before
gross interest expense, the expense portion of interest on the
ESOP debt, rent expense and income taxes divided by gross
interest expense, interest expense on the ESOP debt, total rent
expense and the pretax equivalent of dividends on redeemable
preferred stock.
Registrant's second quarter 1995 current ratio increased as
compared with second quarter 1994 primarily due to an increase in
cash equivalents and a decrease in current maturities of long-term
debt. In addition, an increase in inventories, partially offset by
an increase in accounts payable, and a decrease in accrued
expenses, primarily store closings and real estate-related, also
contributed to the current ratio increase. The second quarter 1995
current ratio increased as compared with year-end 1994 due to an
increase in cash equivalents and decreases in current maturities of
long-term debt and income taxes, partially offset by a seasonal
decrease in accounts receivable.
The registrant's fixed charge coverage ratio for the 52 weeks ended
July 29, 1995 increased as compared with the 52 week period ended
July 30, 1994, due to an increased level of earnings, partially
offset by an increase in fixed charges, primarily 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 8.1% 5.0% 7.0% 3.7%
Payless ShoeSource 14.3 (1.4) 12.3 (3.0)
Total Net Retail Sales 9.4% 3.7% 8.1% 2.3%
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
1995 1994 1995 1994
Cost of sales 70.2% 69.9% 70.0% 69.6%
Selling, general and
administrative expenses 19.8 20.0 20.5 20.6
Interest expense, net 2.0 2.0 2.0 2.2
Earnings before income taxes 8.0% 8.1% 7.5% 7.6%
Effective income tax rate 40.5% 40.5% 40.5% 40.5%
Net Earnings 4.8% 4.8% 4.4% 4.5%
Cost of sales was $2,071 million in the 1995 second quarter, up
9.5% from $1,891 million in the 1994 period. For the first six
months of 1995, cost of sales was $4,017 million, an 8.3% increase
from $3,711 million in the 1994 period. The overall increases are
principally related to higher sales volume. For the second
quarter, cost of sales, as a percent of revenues, increased 0.3%
due to higher occupancy expenses partially offset by a small
improvement in gross margin. For the first six months, cost of
sales, as a percent of revenues increased 0.4% primarily due to
higher occupancy expenses. The LIFO charge was $8 million in the
second quarter of 1995 and 1994. For the first six months, the
LIFO charge was $16 million in 1995 and 1994.
Selling, general and administrative expenses were $583 million in
the 1995 second quarter, up 7.8% from $540 million a year ago. For
the first six months of 1995, selling, general and administrative
expenses were $1,175 million compared with $1,095 million in the
1994 period, a 7.3% increase. The overall increases are primarily
related to higher sales volume. Selling, general and
administrative expenses, as a percent of revenues, decreased 0.2%
7
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for the second quarter and 0.1% for the first six months as
compared with 1994. 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
1995 and 1994 is as follows (millions):
<CAPTION>
Second Quarter First Six Months
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest expense $ 66 $ 62 $ 132 $ 124
Interest income (4) (2) (7) (3)
Capitalized interest (5) (3) (10) (5)
Net Interest Expense $ 57 $ 57 $ 115 $ 116
The increase in 1995 interest expense for the second quarter and
first six months is primarily due to increased debt balances
resulting from issuances of $200 million of debt in each of the
1994 third quarter and 1995 second quarter, less debt repayments of
$151 million in the 1995 second quarter. Interest income for the
same periods increased due to an increase in short term investments
and higher short term interest rates. As a percent of revenues,
interest expense remained constant for the second quarter and
decreased 0.2% for the first six months.
</TABLE>
During the 1995 second quarter, registrant 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 registrant's
general funds and will be available for capital expenditures,
working capital needs and other general corporate purposes,
including investments and acquisitions.
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
July 29, July 30,
1995 1994
Net retail sales $ 12,293 $ 11,406
Revenues $ 12,630 $ 11,849
Net earnings $ 795 $ 740
Fully diluted earnings per share $ 2.97 $ 2.76
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - 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 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 19, 1995.
(b) At the annual meeting of shareowners of registrant held on
May 19, 1995, action was taken with respect to:
(i) the election of four directors of registrant;
Authority
For Withheld
David C. Farrell 220,954,140 1,619,111
Helene L. Kaplan 221,006,410 1,566,841
Edward H. Meyer 220,993,291 1,579,960
Murray L. Weidenbaum 220,894,508 1,678,743
(ii) a ratification of the appointment of Arthur Andersen
LLP as independent auditors (220,608,677 votes in
favor, 1,293,416 votes against and 671,158 votes
abstained);
(iii) a proposal to approve the Executive Incentive
Compensation Plan for Corporate Executives
(206,986,726 votes in favor, 13,260,246 votes
against, 2,326,279 votes abstained);
(iv) a proposal relating to a classified Board of
Directors (92,494,029 votes in favor, 110,431,828
votes against, 2,657,384 votes abstained and
16,990,010 not voted);
(v) a proposal relating to retirement plans for Directors
(61,105,655 votes in favor, 140,817,523 votes
against, 3,660,063 votes abstained and 16,990,010 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 12, 1995, filed with the Commission
pursuant to Rule 12b-23(b).
9
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Item 5 - Other Information
On August 15, 1995, Registrant signed an underwriting agreement
with Morgan Stanley & Co. Incorporated and Merrill Lynch & Co.
to sell $125,000,000 principal amount of 7.15% Notes due 2004,
$125,000,000 principal amount of 7.625% Debentures due 2013 and
$150,000,000 principal amount of 8.125% Debentures due 2035
(collectively "the Offered Debt Securities"). The Registrant
completed the sale of the Offered Debt Securities on August 18,
1995. The net proceeds from the sale of the Offered Debt
Securities are intended to be used by the Registrant for the
acquisition of certain assets of John Wanamaker and Woodward &
Lothrop and for capital expenditures, working capital needs and
other general corporate purposes.
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 June 9, 1995, which contained a May, 1995
Sales Release dated June 1, 1995.
A report dated June 14, 1995, which contained a copy of the
Underwriting Agreement, dated June 9, 1995, among
registrant, Morgan Stanley & Co., Incorporated and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated; a specimen of 7.50% debentures due June 1,
2015; a specimen of 7.60% debentures due June 1, 2025.
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, 1995
\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 29, July 30, July 29, July 30,
1995 1994 1995 1994
(millions, except per share)
<S> <C> <C> <C> <C>
Net earnings $ 141 $ 130 $ 255 $ 242
ESOP Preferred Dividends, net of tax
benefit on unallocated shares (5) (5) (10) (10)
Dividend requirements on redeemable
preferred stock - - - -
Net earnings available for
common shareowners $ 136 $ 125 $ 245 $ 232
Average common shares outstanding 249.1 248.6 248.8 248.5
Net earnings per share $ 0.55 $ 0.50 $ 0.99 $ 0.93
Primary Computation
Net earnings available for
common shareowners $ 136 $ 125 $ 245 $ 232
Net earnings adjustment for
dividend equivalents 1 1 1 1
Adjusted net earnings $ 137 $ 126 $ 246 $ 233
Average common shares outstanding 249.1 248.6 248.8 248.5
Common share equivalents under stock
option and deferred compensation plans,
based upon the treasury stock method 1.1 1.3 0.9 1.4
Average common and common equivalent shares 250.2 249.9 249.7 249.9
Primary earnings per share $ 0.55 $ 0.50 $ 0.98 $ 0.93
Fully Diluted Computation
Adjusted net earnings $ 137 $ 126 $ 246 $ 233
Impact of assumed conversion of
ESOP Preference Shares 2 3 5 5
Adjusted net earnings $ 139 $ 129 $ 251 $ 238
Average common and common equivalent shares 250.2 249.9 249.7 249.9
Additional common stock equivalents
attributable to application of the
treasury stock method .5 - 0.7 -
Assumed conversion of ESOP
Preference Shares 15.0 15.3 15.0 15.3
Average common and common equivalent shares,
assuming full dilution 265.7 265.2 265.4 265.2
Fully diluted earnings per share $ 0.53 $ 0.49 $ 0.95 $ 0.90
</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 28, 1995, AND FOR THE
TWENTY-SIX WEEKS ENDED JULY 29, 1995, AND JULY 30, 1994
26 Weeks Ended Fiscal Year Ended
July 29, July 30, Jan. 28, Jan. 29, Jan. 30, Feb. 1, Feb. 2,
1995 1994 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Pretax earnings from continuing operations $ 428 $ 406 $ 1,296 $ 1,178 $ 791 $ 796 $ 762
Fixed charges (excluding interest
capitalized and pretax preferred stock
dividend requirements) 193 184 377 381 432 474 421
Dividends on ESOP Preference Shares (14) (14) (28) (29) (29) (30) (30)
Capitalized interest amortization 3 2 4 4 3 3 3
610 578 1,649 1,534 1,197 1,243 1,156
Fixed Charges:
Gross interest expense (a) $ 148 $ 140 $ 290 $ 297 $ 341 $ 388 $ 347
Interest factor attributable to
rent expense 55 49 102 94 94 92 83
Other (b) - - - - 4 8 5
203 189 392 391 439 488 435
Ratio of Earnings to Fixed Charges 3.0 3.1 4.2 3.9 2.7 2.6 2.7
(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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> JUL-29-1995
<CASH> 16
<SECURITIES> 246
<RECEIVABLES> 2098
<ALLOWANCES> 70
<INVENTORY> 2374
<CURRENT-ASSETS> 4876
<PP&E> 6113
<DEPRECIATION> 2111
<TOTAL-ASSETS> 9562
<CURRENT-LIABILITIES> 1677
<BONDS> 3080
<COMMON> 125
3
0
<OTHER-SE> 4144
<TOTAL-LIABILITY-AND-EQUITY> 9562
<SALES> 2866
<TOTAL-REVENUES> 2948
<CGS> 2071
<TOTAL-COSTS> 2654
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 32
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 237
<INCOME-TAX> 96
<INCOME-CONTINUING> 141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141
<EPS-PRIMARY> .55
<EPS-DILUTED> .53
</TABLE>
