<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 May 4, 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)
(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.
249,812,872 shares of common stock, $.50 par value, as of May 4,
1996.
1
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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>
May 4, April 29, Feb. 3,
ASSETS 1996 1995 1996
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 171 $ 110 $ 159
Accounts receivable, net 2,150 2,134 2,403
Merchandise inventories 2,390 2,054 2,134
Other current assets 177 172 169
Net current assets of
discontinued operation - 280 232
Total Current Assets 4,888 4,750 5,097
Property and Equipment, at cost 5,744 5,041 5,617
Accumulated Depreciation (1,952) (1,734) (1,873)
Net Property and Equipment 3,792 3,307 3,744
Goodwill 666 595 671
Other Assets 94 93 89
Net Noncurrent Assets of
Discontinued Operation - 545 521
Total Assets $ 9,440 $ 9,290 $ 10,122
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities of
long-term debt $ 25 $ 171 $ 132
Accounts payable 948 882 692
Accrued expenses 622 602 650
Income taxes 57 50 128
Total Current Liabilities 1,652 1,705 1,602
Long-term Debt 3,313 2,847 3,333
Deferred Income Taxes 389 343 378
Other Liabilities 190 182 204
ESOP Preference Shares 356 372 366
Unearned Compensation (331) (346) (346)
Shareowners' Equity 3,871 4,187 4,585
Total Liabilities and
Shareowners' Equity $ 9,440 $ 9,290 $ 10,122
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
May 4, April 29,
1996 1995
<S> <C> <C>
Net Retail Sales $ 2,421 $ 2,125
Revenues $ 2,511 $ 2,218
Cost of sales 1,755 1,543
Selling, general and
administrative expenses 528 470
Interest expense, net 64 58
Earnings from continuing operations
before income taxes 164 147
Provision for income taxes 66 60
Net Earnings from:
Continuing operations 98 87
Discontinued operation 11 27
Net Earnings $ 109 $ 114
Primary earnings per share:
Continuing operations .37 .33
Discontinued operation .05 .11
Primary Earnings per Share $ .42 $ .44
Fully diluted earnings per share:
Continuing operations .36 .32
Discontinued operation .05 .10
Fully Diluted Earnings
per Share $ .41 $ .42
Dividends Paid per
Common Share $ .28-1/2 $ .26
Primary Average Shares
Outstanding and Equivalents 250.8 249.4
Fully Diluted Average Shares
Outstanding and Equivalents 265.8 264.5
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) 13 Weeks Ended
May 4, April 29,
1996 1995
<S> <C> <C>
Operating Activities:
Net earnings from continuing operations
and depreciation/amortization $ 183 $ 162
Decrease in working capital (excluding
cash, cash equivalents and short-term
debt) 136 79
Other assets and liabilities, net (9) (12)
Net cash used in discontinued operation - (4)
310 225
Investing Activities:
Net additions to property and equipment (128) (102)
Other (1) (1)
(129) (103)
Financing Activities:
Net issuances (repayments) of long-term
debt (112) 2
Net issuances of treasury stock 23 11
Dividend payments, net of tax benefit (80) (74)
(169) (61)
Increase in Cash and Cash Equivalents $ 12 $ 61
Noncash financing activities include the distribution of $764
million of equity in the spin-off of Payless ShoeSource, Inc.
Cash paid during the period:
Interest $ 69 $ 55
Income Taxes 121 133
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 Notes to Consolidated Financial
Statements (pages 21-27) in the 1995 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. Merchandise inventories are stated on the LIFO (last-
in, first-out) cost basis. The LIFO provision for the first
quarter was $8 million in 1996 and 1995.
Discontinued Operation. In January 1996, the registrant announced
its intention to spin off Payless ShoeSource, Inc. ("Payless"), its
chain of self-service family shoe stores. The spin-off was
completed effective May 4, 1996, as a tax-free distribution to
shareowners. The registrant's financial statements presented
herein reflect Payless as a discontinued operation.
As discussed in the 1995 Annual Report to Shareowners, and in
accordance with generally accepted accounting principles, Payless
1996 pre-tax earnings were recorded in 1995 to the extent of spin-
off costs and the Payless operating loss from January 17, 1996
through fiscal 1995 year-end. As a result, $21 million of 1996
Payless pre-tax earnings is not reported in the first quarter net
earnings from discontinued operation.
Acquisition. On April 4, 1996, the registrant announced it signed
a definitive agreement to acquire 13 Strawbridge & Clothier
department stores in the greater Philadelphia area in a transaction
expected to close in July 1996, subject to customary conditions,
including approval by Strawbridge & Clothier ("Strawbridge")
shareowners. As required by the purchase agreement with
Strawbridge, the registrant will deliver, at the July closing,
subject to later adjustment, 4.2 million shares of May common stock
and will assume approximately $264 million of debt and certain
other liabilities in exchange for the Strawbridge department store
assets. The registrant has also agreed to issue additional May
common stock in exchange for any cash proceeds from Strawbridge's
divestiture of its other assets including its Clover discount
division, remaining after satisfaction of all Strawbridge
liabilities and obligations. The acquisition will be accounted for
as a purchase.
Reclassifications. Certain prior period amounts have been
reclassified to conform with current year presentation.
5
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Subsequent Event. At the shareowners' annual meeting on May 24,
1996, the shareowners approved the change of the registrant's state
of incorporation from New York to Delaware. This transaction did
not result in any change in the business or the consolidated
assets, liabilities or net worth of the reincorporated entity. In
addition, the directors and officers of the reincorporated entity
are the same as those of the registrant. Reincorporation in
Delaware allows the registrant to take advantage of certain
provisions of the corporate laws of Delaware and also allows the
registrant to manage its state franchise tax and other affairs in
ways that will result in significant savings each year beginning in
1996.
The registrant's reincorporation in Delaware was accomplished by
means of a statutory share exchange (Share Exchange) where each
share of the registrant's common stock (and associated preferred
stock purchase right) outstanding prior to the filing of a
"Certificate of Exchange" by the Department of State of the State
of New York was exchanged for one share of common stock of the
reincorporated entity. As a result of the Share Exchange, the
registrant became a wholly owned subsidiary of The May Department
Stores Company, a holding company incorporated in Delaware.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
A summary of key financial information reflecting the completion of
the spin-off of Payless in all periods indicated is as follows:
May 4, April 29, Feb. 3,
1996 1995 1996
Current Ratio* 3.0 2.6 3.0
Debt-Capitalization Ratio** 41% 41% 42%
Fixed Charge Coverage*** 4.2x 4.2x 4.2x
* The current ratios including net current assets of the
discontinued operation were 2.8 at April 29, 1995 and 3.2 at
Feb. 3, 1996.
** The debt-to-capitalization ratios including the discontinued
operation were 44% at April 29, 1995 and February 3, 1996.
*** Fixed charge coverage including the discontinued operation
was 3.1x at May 4, 1996, 3.4x at April 29, 1995 and 3.1x at
February 3, 1996. Fixed charge coverage, which is presented
for the trailing 53 weeks ended May 4, 1996 and February 3,
1996, and for the 52 weeks ended April 29, 1995, 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 stock.
Registrant's first quarter 1996 current ratio increased compared
with first quarter 1995 primarily due to an increase in merchandise
inventory that was partially offset by an increase in accounts
payable, and due to a decrease in current maturities of long-term
debt.
6
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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 are as follows:
Store-for-
Total Store
13 Weeks Ended May 4, 1996 13.9% 6.7%
Store-for-store sales represent sales of those stores open during
both periods.
The following table presents the components of costs and expenses,
as a percent of revenues, for the first quarter of 1996 and 1995.
Revenues include finance charge revenues and all sales from all
stores operating during the period.
1996 1995
Cost of sales 69.9% 69.6%
Selling, general and
administrative expenses 21.1 21.2
Interest expense, net 2.5 2.6
Earnings before income taxes 6.5% 6.6%
Effective income tax rate 40.5% 40.7%
Net Earnings 3.9% 3.9%
Cost of sales was $1,755 million in the 1996 first quarter, up
13.8% from $1,543 million in the 1995 first quarter. The overall
increase is primarily related to higher sales volume. As a percent
of revenues, cost of sales increased 0.3% from the first quarter of
1995 due to finance charge revenue remaining flat while the sales
component of revenues grew 13.9%. In addition, a small
deterioration in gross margin was offset by a decrease in buying
expenses. LIFO was a charge of $8 million in the first quarter of
1996 and 1995. There were no significant changes in the other
components of cost of sales.
Selling, general and administrative expenses were $528 million in
the 1996 first quarter, compared with $470 million in the 1995
first quarter, a 12.3% increase. The increase is primarily related
to higher sales volume. Selling, general and administrative
expenses, as a percent of revenues, decreased 0.1% for the first
quarter of 1996 as compared with 1995 as an increase in bad debt
expense was more than offset by decreases achieved across all
remaining selling, general and administrative expense components.
Net interest expense for the first quarter 1996 and 1995 was as
follows (millions):
1996 1995
Interest expense $ 71 $ 65
Interest income (4) (3)
Capitalized interest (3) (4)
Net Interest Expense $ 64 $ 58
7
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Interest expense increased in the 1996 first quarter due to
increased debt balances related to 1995 borrowings to fund store
growth, including the acquisition of certain assets of John
Wanamaker and Woodward & Lothrop. The increase in first quarter
1996 interest income primarily resulted from an increase in average
short term investments, partially offset by a decrease in short
term interest rates. As a percent of revenues, net interest
expense for the first quarter of 1996 decreased 0.1% from the first
quarter of 1995.
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
May 4, April 29,
1996 1995
Net retail sales $ 10,790 $ 9,866
Revenues $ 11,135 $ 10,220
Net earnings $ 711 $ 660
Fully diluted earnings per share $ 2.65 $ 2.47
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 - None.
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 April 24, 1996, which contained information
concerning debt ratings and incorporated by reference
registrant's Annual Report on Form 10-K for the fiscal year
ended February 3, 1996.
8
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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: June 11, 1996 /s/ John L. Dunham
John L. Dunham
Executive Vice President and
Chief Financial Officer
9
<PAGE> Exhibit 11
<TABLE>
<CAPTION>
THE MAY DEPARTMENT STORES COMPANY
COMPUTATION OF NET EARNINGS PER SHARE
13 Weeks Ended
(millions, except per share) May 4, April 29,
1996 1995
<S> <C> <C>
Net earnings from continuing operations $ 97,613 $ 87,010
ESOP Preferred Dividends, net of tax
benefit on unallocated shares (4,534) (4,771)
Preferred Dividend requirements (38) (23)
Net earnings available for
common shareowners:
Continuing operations 93,041 82,216
Discontinued operation 11,443 26,530
Total net earnings available for
common shareowners $ 104,484 $ 108,746
Average common shares outstanding 249.4 248.5
Net earnings per share:
Continuing operations $ 0.37 $ 0.33
Discontinued operation 0.05 0.11
Total net earnings per share $ 0.42 $ 0.44
Primary Computation:
Net earnings available from
continuing operations $ 93,041 $ 82,216
Deferred comp. dividend adjustment 322 301
Adjusted net earnings available:
Continuing operations 93,363 82,517
Discontinued operation 11,443 26,530
Total adjusted net earnings available $ 104,806 $ 109,047
Average common shares outstanding 249.4 248.5
Common share equivalents (CSE's) 1.4 0.9
Average common stock and CSE's 250.8 249.4
Primary earnings per share:
Continuing operations $ 0.37 $ 0.33
Discontinued operation 0.05 0.11
Total Primary Earnings per share $ 0.42 $ 0.44
</TABLE>
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<TABLE>
<CAPTION>
Exhibit 11
THE MAY DEPARTMENT STORES COMPANY
COMPUTATION OF NET EARNINGS PER SHARE
13 Weeks Ended
(millions, except per share) May 4, April 29,
1996 1995
<S> <C> <C>
Fully Diluted Computation:
Adjusted net earnings available
from continuing operations-PRIMARY $ 93,363 $ 82,517
Earnings impact of assumed conversion of
ESOP Preference Shares, net of tax
benefit on unallocated common shares 2,896 2,662
Adjusted net earnings available-FULLY DILUTED:
Continuing operations 96,259 85,179
Discontinued operation 11,443 26,530
Total adjusted net earnings
available-FULLY DILUTED: $ 107,702 $ 111,709
Average common shares and CSE's 250.8 249.4
Additional CSE's attributable to treasury
stock method 0.4 -
ESOP Preference Shares 14.6 15.1
Average Common Shares Outstanding on
fully diluted basis 265.8 264.5
Fully Diluted earnings per share:
Continuing operations $ 0.36 $ 0.32
Discontinued operation 0.05 0.10
Total Fully Diluted Earnings per share $ 0.41 $ 0.42
</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 FEBRUARY 3, 1996, AND FOR THE
THIRTEEN WEEKS ENDED MAY 4, 1996, AND APRIL 29, 1995
13 Weeks Ended Fiscal Year Ended
May 4, April 29, Feb. 3, Jan. 28, Jan. 29, Jan. 30, Feb. 1,
1996 1995 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Pretax earnings from continuing
operations $ 164 $ 147 $ 1,160 $ 1,079 $ 957 $ 579 $ 617
Fixed charges (excluding interest
capitalized and pretax preferred
stock dividend requirements) 81 74 317 293 305 361 409
Dividends on ESOP Preference Shares (7) (7) (28) (28) (28) (29) (29)
Capitalized interest amortization 2 1 5 4 4 3 3
240 215 1,454 1,348 1,238 914 1,000
Fixed Charges:
Gross interest expense (a) $ 79 $ 73 $ 316 $ 289 $ 295 $ 338 $ 384
Interest factor attributable to
rent expense 5 5 20 19 20 24 29
Other (b) - - - - - 5 8
84 78 336 308 315 367 421
Ratio of Earnings to Fixed Charges 2.9 2.8 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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MAY
DEPARTMENT STORES COMPANY FORM 10-Q FOR THE QUARTER ENDED MAY 4, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 12
<SECURITIES> 159
<RECEIVABLES> 2,231
<ALLOWANCES> 81
<INVENTORY> 2,390
<CURRENT-ASSETS> 4,888
<PP&E> 5,744
<DEPRECIATION> 1,952
<TOTAL-ASSETS> 9,440
<CURRENT-LIABILITIES> 1,652
<BONDS> 3,313
0
0
<COMMON> 0
<OTHER-SE> 3,871
<TOTAL-LIABILITY-AND-EQUITY> 9,440
<SALES> 2,421
<TOTAL-REVENUES> 2,511
<CGS> 1,755
<TOTAL-COSTS> 1,755
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 164
<INCOME-TAX> 66
<INCOME-CONTINUING> 98
<DISCONTINUED> 11
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
</TABLE>
