<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 November 1, 1997
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)
Delaware 43-1104396
(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.
231,241,014 shares of common stock, $0.50 par value, as of November
1, 1997.
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
Nov. 1, Nov. 2, Feb. 1,
ASSETS 1997 1996 1997
Current Assets:
Cash and cash equivalents $ 23 $ 143 $ 102
Accounts receivable, net 1,957 2,199 2,425
Merchandise inventories 3,102 2,951 2,380
Other current assets 135 173 128
Total Current Assets 5,217 5,466 5,035
Property and Equipment, at cost 6,720 6,275 6,372
Accumulated Depreciation (2,495) (2,127) (2,213)
Net Property and Equipment 4,225 4,148 4,159
Goodwill 757 780 776
Other Assets 82 95 89
Total Assets $ 10,281 $ 10,489 $ 10,059
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable and current
maturities of long-term debt $ 560 $ 269 $ 256
Accounts payable 1,323 1,260 872
Accrued expenses 734 783 658
Income taxes 14 4 137
Total Current Liabilities 2,631 2,316 1,923
Long-term Debt 3,517 3,878 3,849
Deferred Income Taxes 425 375 401
Other Liabilities 228 216 223
ESOP Preference Shares 341 349 347
Unearned Compensation (319) (331) (334)
Shareowners' Equity 3,458 3,686 3,650
Total Liabilities and
Shareowners' Equity $ 10,281 $ 10,489 $ 10,059
The accompanying notes to condensed consolidated financial
statements are an integral part of this balance sheet.
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Millions, except per share) 13 Weeks Ended 39 Weeks Ended
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
Net Retail Sales $ 2,894 $ 2,749 $ 8,138 $ 7,569
Revenues $ 2,969 $ 2,855 $ 8,393 $ 7,899
Cost of sales 2,097 2,004 5,899 5,532
Selling, general and
administrative expenses 599 581 1,713 1,620
Interest expense, net 74 73 226 201
Earnings from continuing
operations before income
taxes 199 197 555 546
Provision for income taxes 79 79 221 220
Net earnings from:
Continuing operations 120 118 334 326
Discontinued operation - - - 11
Net earnings before
extraordinary loss 120 118 334 337
Extraordinary loss related to
early extinguishment
of debt - - (4) -
Net Earnings $ 120 $ 118 $ 330 $ 337
Primary earnings per share:
Continuing operations $ .50 $ .45 $ 1.37 $ 1.25
Discontinued operation - - - .05
Extraordinary loss - - (.01) -
Primary Earnings per Share $ .50 $ .45 $ 1.36 $ 1.30
Fully diluted earnings
per share:
Continuing operations $ .48 $ .44 $ 1.32 $ 1.21
Discontinued operation - - - .04
Extraordinary loss - - (.01) -
Fully Diluted Earnings
per Share $ .48 $ .44 $ 1.31 $ 1.25
Dividends Paid per
Common Share $ .30 $ .29 $ .90 $ .86-1/2
Primary Average Shares
Outstanding and
Equivalents 233.1 250.1 234.2 250.8
Fully Diluted Average Shares
Outstanding and
Equivalents 248.3 264.5 249.9 265.3
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions) 39 Weeks Ended
Nov. 1, Nov. 2,
1997 1996
Operating Activities:
Net earnings and depreciation/amortization $ 634 $ 585
Decrease in working capital (excluding
cash, cash equivalents and short-term
debt) 142 88
Other assets and liabilities, net 30 (9)
806 664
Investing Activities:
Net additions to property and equipment (349) (461)
Financing Activities:
Net issuances of notes payable 327 -
Net issuances (repayments) of long-term debt (334) 260
Net acquisitions of treasury stock (305) (237)
Dividend payments, net of tax benefit (224) (242)
(536) (219)
Decrease in Cash and Cash Equivalents $ (79) $ (16)
Noncash financing activities for the 39 weeks ended November 2,
1996 include the distribution of $764 million of equity in the
spin-off of Payless ShoeSource, Inc. and the acquisition of the
former Strawbridge & Clothier stores for shares of May valued at
$192 million and the assumption of $255 million of debt and certain
other liabilities.
Cash paid during the period:
Interest $ 240 $ 206
Income Taxes 356 316
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
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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 1996 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 third
quarter was $4 million in 1997 compared with no provision in 1996.
The year-to-date LIFO provision was $20 million in 1997 and $16
million in 1996.
Common Stock Repurchase Programs. During May, 1997, registrant
completed a $300 million stock repurchase program, totaling 6.4
million shares of May common stock at an average price of $47 per
share. This was in addition to a $600 million repurchase program,
totaling 12.7 million shares at an average price of $47 per share,
completed in the second half of 1996.
Discontinued Operation. Registrant completed the spin off of
Payless ShoeSource, Inc. ("Payless"), its chain of self-service
family shoe stores, effective May 4, 1996, as a tax-free
distribution to shareowners. Registrant's financial statements
presented herein reflect Payless as a discontinued operation.
Acquisition. On July 18, 1996, the company purchased 13 former
Strawbridge & Clothier department stores in the greater
Philadelphia area. The company delivered 4.5 million shares of May
common stock and assumed $255 million of debt and certain other
liabilities in exchange for the Strawbridge & Clothier department
store assets.
Extraordinary Item. During the first quarter of 1997, registrant
recorded an after tax extraordinary loss of $4 million ($5 million
pretax), or $.01 per share, due to the execution of a binding
contract related to the call of $100 million of 9.875% debentures
due to mature June 1, 2017. The debentures were called effective
June 6, 1997.
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Summarized Financial Information - 3rd Quarter; The May Department
Stores Company, New York. Summarized financial information of The
May Department Stores Company, New York, is set forth below.
November 1, November 2, February 1,
1997 1996 1997
Balance Sheet
Current assets $ 5,216 $ 5,466 $ 5,035
Noncurrent assets 6,380 5,575 5,970
Current liabilities 2,665 2,375 1,959
Noncurrent liabilities 7,369 7,669 7,673
13 Weeks Ended 39 Weeks Ended
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
Statement of Earnings
Revenues 2,969 2,855 8,393 7,899
Cost of sales 2,097 2,004 5,899 5,532
Earnings from
continuing operations
before extraordinary
item 74 78 193 285
Net earnings 74 78 189 285
Impact of New Accounting Pronouncement. In February, 1997
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share", was issued which will change the computation
of earnings per share (EPS) as well as the disclosures required.
This pronouncement is effective for interim and annual reporting
periods ending after December 15, 1997. Early application is not
permitted. Registrant, however, does not expect this pronouncement
to have a material effect on its earnings per share amounts when it
is adopted. Application of SFAS No. 128 to the third quarter of
1997 and year-to-date 1997 would have resulted in basic EPS and
diluted EPS amounts equal to the primary and fully diluted earnings
per share amounts computed under APB Opinion No. 15, the current
standard.
Reclassifications. Certain prior period amounts have been
reclassified to conform with current year presentation.
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:
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Financial Condition (cont.)
Nov. 1, Nov. 2, Feb. 1,
1997 1996 1997
Current Ratio 2.0 2.4 2.6
Debt-Capitalization Ratio 49% 48% 48%
Fixed Charge Coverage* 3.9x 4.0x 4.1x
* Fixed charge coverage, which is presented for the trailing 52
weeks ended November 1, 1997, February 1, 1997, and November 2,
1996, 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 third quarter 1997 current ratio decreased as compared
with year-end 1996 and third quarter 1996 primarily due to an
increase in notes payable to fund seasonal working capital
requirements and a decrease in accounts receivable resulting from
both the seasonal nature of registrant's business and a decreased
rate of use of its proprietary credit cards. The impact of the
increase in merchandise inventories was offset by a corresponding
increase in accounts payable.
The third quarter 1997 debt-capitalization ratio increased slightly
over both the year-end 1996 and third quarter 1996 principally due
to the decrease in shareowners' equity resulting from registrant's
common stock repurchase programs.
Registrant's fixed charge coverage ratio for the 52 weeks ended
November 1, 1997 decreased slightly as compared with the 52 week
periods ended November 2, 1996 and February 1, 1997 due primarily
to an increase in interest expense, partially offset by an
increased level of earnings. The increase in interest expense for
the 52 week periods ended November 1, 1997 and February 1, 1997 was
due to higher average debt balances related to 1996 borrowings to
finance registrant's $600 million common stock repurchase program
and common stock repurchases for shares issued to acquire certain
assets of Strawbridge & Clothier, and debt assumed in the
Strawbridge & Clothier transaction.
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:
Third Quarter First Nine Months
Store-for- Store-for-
Total Store Total Store
5.3% 3.1% 7.5% 3.2%
Store-for-store sales represent sales of those stores open during
both periods.
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The following table presents the components of costs and expenses,
as a percent of revenues. Revenues include finance charge revenues
and all sales from all stores operating during the period.
Third Quarter First Nine Months
1997 1996 1997 1996
Cost of sales 70.6% 70.2% 70.3% 70.0%
Selling, general and
administrative expenses 20.2 20.4 20.4 20.5
Interest expense, net 2.5 2.5 2.7 2.6
Earnings before income taxes 6.7% 6.9% 6.6% 6.9%
Effective income tax rate 39.6% 40.0% 39.9% 40.4%
Net Earnings 4.0% 4.1% 4.0% 4.1%
Cost of sales was $2,097 million in the 1997 third quarter, up 4.7%
from $2,004 million in the 1996 third quarter. For the first nine
months of 1997, cost of sales was $5,899 million, a 6.6% increase
from $5,532 million in the 1996 period. The overall increases are
primarily related to higher sales. As a percent of revenues, cost
of sales increased 0.4% and 0.3% for the third quarter and first
nine months of 1997, respectively. The impact of a decrease in the
finance charge component of revenues, a higher 1997 LIFO provision
and a deterioration in gross margin was partially offset by
efficiencies in buying and occupancy costs. The finance charge
component of revenues decreased 9.5% and 4.5% in the third quarter
and first nine months of 1997, respectively, with no corresponding
decrease in cost of sales. The LIFO charge for the 1997 third
quarter was $4 million compared with no charge in 1996. The LIFO
charge for the first nine months of 1997 was $20 million compared
with $16 million for 1996.
Selling, general and administrative expenses were $599 million in
the 1997 third quarter, compared with $581 million in the 1996
third quarter, a 3.0% increase. For the first nine months of 1997,
selling, general and administrative expenses were $1,713 million
compared with $1,620 million in the 1996 period, a 5.7% increase.
The increases are primarily related to higher sales. Selling,
general and administrative expenses, as a percent of revenues,
decreased 0.2% and 0.1% for the 1997 third quarter and first nine
months, respectively, due primarily to a decrease in credit expense
partially offset by higher payroll costs.
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Net interest expense for the third quarter and first nine months of
1997 and 1996 was as follows (millions):
Third Quarter First Nine Months
1997 1996 1997 1996
Interest expense $ 79 $ 82 $ 244 $ 223
Interest income (2) (5) (8) (12)
Capitalized interest (3) (4) (10) (10)
Net Interest Expense $ 74 $ 73 $ 226 $ 201
Interest expense decreased in the 1997 third quarter due to lower
average debt balances resulting principally from debt repayments of
$300 million during the first six months of 1997 partially offset
by an increase in notes payable. Interest expense increased in the
first nine months of 1997 due to increased average debt balances
related to 1996 borrowings to finance registrant's common stock
purchases, including the purchase of the number of shares issued to
acquire certain assets of Strawbridge & Clothier and debt assumed
in the Strawbridge & Clothier transaction.
The 1997 third quarter and first nine months effective income tax
rates decreased as registrant realized a benefit from its 1996
second quarter reincorporation in the state of Delaware.
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
Nov. 1, Nov 2,
1997 1996
Net retail sales $ 12,115 $ 11,168
Revenues $ 12,494 $ 11,629
Net earnings $ 757 $ 722
Fully diluted earnings per share $ 2.93 $ 2.69
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.
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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
None.
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: December 11, 1997
John L. Dunham
Executive Vice President and
Chief Financial Officer
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<TABLE>
<CAPTION> Exhibit 11
THE MAY DEPARTMENT STORES COMPANY
COMPUTATION OF NET EARNINGS PER SHARE
13 Weeks Ended 39 Weeks Ended
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
(millions, except per share)
<S> <C> <C> <C> <C>
Net earnings from continuing operations $ 120 $ 118 $ 334 $ 326
ESOP Preferred Dividends, net of tax
benefit on unallocated shares (5) (5) (14) (14)
Preferred Dividend requirements - - - -
Net earnings available for
common shareowners:
Continuing operations 115 113 320 312
Discontinued operation - - - 11
Extraordinary loss - - (4) -
Total net earnings available for
common shareowners $ 115 $ 113 $ 316 $ 323
Average common shares outstanding 231.3 248.6 232.7 249.2
Net earnings per share:
Continuing operations $ 0.50 $ 0.46 $ 1.37 $ 1.25
Discontinued operation - - - 0.05
Extraordinary loss - - (0.01) -
Total net earnings per share $ 0.50 $ 0.46 $ 1.36 $ 1.30
Primary Computation
Net earnings available from
continuing operations $ 115 $ 113 $ 320 $ 312
Deferred comp. dividend adjustment 1 - 1 1
Adjusted net earnings available:
Continuing operations $ 116 $ 113 $ 321 $ 313
Discontinued operation - - - 11
Extraordinary loss - - (4) -
Total adjusted net earnings available $ 116 $ 113 $ 317 $ 324
Average common shares outstanding 231.3 248.6 232.7 249.2
Common share equivalents (CSE's) 1.8 1.5 1.4 1.6
Average common stock and CSE's 233.1 250.1 234.1 250.8
Primary earnings per share:
Continuing operations $ 0.50 $ 0.45 $ 1.37 $ 1.25
Discontinued operation - - - 0.05
Extraordinary loss - - (0.01) -
Total Primary Earnings per share $ 0.50 $ 0.45 $ 1.36 $ 1.30
</TABLE>
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<TABLE>
<CAPTION> Exhibit 11
THE MAY DEPARTMENT STORES COMPANY
COMPUTATION OF NET EARNINGS PER SHARE
13 Weeks Ended 39 Weeks Ended
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
(millions, except per share)
<S> <C> <C> <C> <C>
Fully Diluted Computation:
Adjusted net earnings available from
continuing operations-PRIMARY $ 116 $ 113 $ 321 $ 313
Earnings impact of assumed conversion
of ESOP Preference Shares, net of tax
benefit on unallocated common shares 3 3 10 9
Adjusted net earnings available-
FULLY DILUTED:
Continuing operations 119 116 331 322
Discontinued operation - - - 11
Extraordinary loss - - (4) -
Total adjusted net earnings available-
FULLY DILUTED: $ 119 $ 116 $ 327 $ 333
Average common shares and CSE's 233.1 250.1 234.1 250.8
Additional CSE's attributable to
treasury stock method - .2 .5 .1
ESOP Preference Shares 15.2 14.2 15.3 14.4
Average Common Shares Outstanding on
fully diluted basis 248.3 264.5 249.9 265.3
Fully Diluted earnings per share:
Continuing operations $ 0.48 $ 0.44 $ 1.32 $ 1.21
Discontinued operation - - - 0.04
Extraordinary loss - - (0.01) -
Total Fully Diluted Earnings per share $ 0.48 $ 0.44 $ 1.31 $ 1.25
</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 1, 1997, AND FOR THE
THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
39 Weeks Ended Fiscal Year Ended
Nov. 1, Nov. 2, Feb. 1, Feb. 3, Jan. 28, Jan. 29, Jan. 30,
1997 1996 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Pretax earnings from continuing
operations $ 554 $ 546 $ 1,232 $ 1,160 $ 1,079 $ 957 $ 579
Fixed charges (excluding interest
capitalized and pretax preferred
stock dividend requirements) 274 252 346 317 293 305 361
Dividends on ESOP Preference Shares (19) (20) (26) (28) (28) (28) (29)
Capitalized interest amortization 5 5 6 5 4 4 3
814 783 1,558 1,454 1,348 1,238 914
Fixed Charges:
Gross interest expense (a) $ 267 $ 246 $ 341 $ 316 $ 289 $ 295 $ 338
Interest factor attributable to
rent expense 17 17 22 20 19 20 24
Other (b) - - - - - - 5
284 263 363 336 308 315 367
Ratio of Earnings to Fixed Charges 2.9 3.0 4.3 4.3 4.4 3.9 2.5
(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 NOVEMBER 1, 1997
AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> NOV-01-1997
<CASH> 12
<SECURITIES> 11
<RECEIVABLES> 2,042
<ALLOWANCES> 85
<INVENTORY> 3,102
<CURRENT-ASSETS> 5,217
<PP&E> 6,720
<DEPRECIATION> 2,495
<TOTAL-ASSETS> 10,281
<CURRENT-LIABILITIES> 2,631
<BONDS> 3,517
0
0
<COMMON> 0
<OTHER-SE> 3,458
<TOTAL-LIABILITY-AND-EQUITY> 10,281
<SALES> 8,138
<TOTAL-REVENUES> 8,393
<CGS> 5,899
<TOTAL-COSTS> 5,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 226
<INCOME-PRETAX> 555
<INCOME-TAX> 221
<INCOME-CONTINUING> 334
<DISCONTINUED> 0
<EXTRAORDINARY> (4)
<CHANGES> 0
<NET-INCOME> 330
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.31
</TABLE>
