<PAGE>
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 January 31, 1998
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)
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. [X]
Aggregate market value of registrant's common stock held by non-
affiliates as of April 4, 1998: $14,597,271,446
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
230,856,689 shares of common stock, $.50 par value, as of April 4,
1998.
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Documents incorporated by reference:
1. Portions of Registrant's 1997 Annual Report to Shareowners are
incorporated into Parts I and II.
2. Portions of Registrant's 1998 Proxy Statement, dated April 22,
1998, are incorporated into Part III.
PART I
Items 1 and 2. Business and Description of Property
Registrant, a corporation organized under the laws of the State of
Delaware in 1976, became the successor to The May Department Stores
Company, a New York corporation (May NY) in a reincorporation from
New York to Delaware pursuant to a statutory share exchange
accomplished in 1996. As a result of the share exchange, May NY
became a wholly owned subsidiary of registrant. May NY was
organized under the laws of the State of New York in 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 under ten trade names. At fiscal year-end
1997, registrant operated 369 department stores in 30 states and
the District of Columbia. The department store companies and the
markets served are shown in the table below.
Store Company Markets Served
Lord & Taylor 26 markets including New York City, Chicago,
Boston, Washington, D.C., Detroit, Dallas/Fort
Worth, Atlanta and Miami
Hecht's and 18 markets including Washington, D.C.,
Strawbridge's Philadelphia (Strawbridge's), Baltimore,
Norfolk, and Richmond
Foley's 17 markets, including Houston, Dallas/Fort
Worth, Denver, San Antonio, and Oklahoma City
Robinsons-May 10 markets, including Los Angeles, San Diego,
Anaheim, Phoenix, and San Bernardino
Kaufmann's 20 markets, including Pittsburgh, Cleveland,
Buffalo, Rochester, Akron and Syracuse
Filene's 13 markets, including Boston, Stamford,
Hartford, Providence, R.I., and Albany
Famous-Barr and 15 markets, including St. Louis, Indianapolis
L.S. Ayres (L.S. Ayres), Fort Wayne and South Bend
Meier & Frank Four markets: Portland/Vancouver, Salem,
Eugene and Medford
Registrant employs approximately 56,000 full-time and 60,000 part-
time associates in 30 states, the District of Columbia and eight
offices overseas.
2
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Management's Discussion and Analysis (pages 12-16) of registrant's
1997 Annual Report to Shareowners is incorporated herein by
reference.
A. Property Ownership
The following summarizes the property ownership of department
stores at January 31, 1998:
% of Gross
Number of Building
Stores Sq. Footage
Entirely or mostly owned* 208 60%
Entirely or mostly leased 95 25
Owned on leased land* 66 15
369 100%
* Includes a total of 19 department stores subject to
financing.
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 January 31,
1998, 45.6% of the total revenues of registrant's department stores
were made through registrant's credit plans.
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 fiscal 1997, MBA and MBO extended credit to customers of
registrant's Lord & Taylor, Hecht's, Strawbridge's, Robinsons-May,
Kaufmann's, Famous-Barr, L.S. Ayres and Meier & Frank department
stores companies. Throughout 1997, MBA and MBO sold the resulting
accounts receivables at face value, to May NY. In addition, MBA
and MBO process remittances for their parent, Grande Levee, Inc.
(formerly 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. Although registrant is one of the
nation's largest department store retailers, it has numerous
competitors at the local level which compete with registrant's
individual department stores. Competition at the local level is
characterized by many 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.
3
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D. Executive Officers of Registrant
The names and ages (as of April 22, 1998) 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 64 Chairman and Chief Executive Officer
Jerome T. Loeb 57 President
Eugene S. Kahn 48 Executive Vice Chairman
Anthony J. Torcasio 52 Vice Chairman; and Chief Executive
Officer, May Merchandising Company
John L. Dunham 51 Executive Vice President and Chief
Financial Officer
Louis J. Garr, Jr. 58 Executive Vice President and General
Counsel
R. Dean Wolfe 54 Executive Vice President
William D. Edkins 45 Senior Vice President
Lonny J. Jay 56 Senior Vice President
Jan R. Kniffen 49 Senior Vice President
Richard A. Brickson 50 Secretary and Senior Counsel
Martin M. Doerr 43 Vice President
Michael G. Culhane 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. Richard
L. Battram, executive vice chairman, retired on July 31, 1997. At
that time Mr. Kahn was appointed executive vice chairman and Mr.
Torcasio was appointed vice chairman. Mr. Farrell will retire as
an officer and director on April 30, 1998. At that time Mr. Kahn
will become president and chief executive officer and Mr. Loeb will
become chairman of the board. On December 3, 1997, Mr. Dunham and
Mr. Wolfe became members of registrant's Board of Directors.
Messrs. Farrell, Loeb, Kahn and Torcasio are also 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 department store
company 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 Famous-Barr from 1991 to 1993 when he became chief
executive officer of May Merchandising Company and became an
executive officer of registrant. Mr. Dunham served as chairman of
the former G. Fox department store company from 1989 to 1993 and as
chairman of May Merchandising Company from 1993 to May, 1996 when
he 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. Culhane was associated with the public accounting firm
of Arthur Andersen LLP from 1984 to 1997 and became an executive
officer of registrant in 1998.
4
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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 January 31, 1998.
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
1997 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
1997 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
1997 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 1997
Annual Report to Shareowners are incorporated herein by reference.
5
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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) Quarter 1997
First Second Third Fourth Year
Revenues $ 2,675 $ 2,749 $ 2,969 $ 4,292 $ 12,685
Cost of sales $ 1,881 $ 1,921 $ 2,097 $ 2,833 $ 8,732
Net Earnings:
Continuing operations $ 98 $ 116 $ 120 $ 445 $ 779
Discontinued operation - - - - -
Before extraordinary loss 98 116 120 445 779
Extraordinary loss
related to early
extinguishment
of debt (4) - - - (4)
Net Earnings $ 94 $ 116 $ 120 $ 445 $ 775
Basic earnings
per share:
Continuing operations $ 0.39 $ 0.48 $ 0.50 $ 1.90 $ 3.27
Discontinued operation - - - - -
Before extraordinary loss 0.39 0.48 0.50 1.90 3.27
Extraordinary loss
related to early
extinguishment
of debt (0.01) - - - (0.01)
Basic earnings
per share $ 0.38 $ 0.48 $ 0.50 $ 1.90 $ 3.26
Diluted earnings
per share:
Continuing operations $ 0.38 $ 0.46 $ 0.48 $ 1.79 $ 3.11
Discontinued operation - - - - -
Before extraordinary loss 0.38 0.46 0.48 1.79 3.11
Extraordinary loss
related to early
extinguishment
of debt (0.01) - - - (0.01)
Diluted Earnings
Per Share $ 0.37 $ 0.46 $ 0.48 $ 1.79 $ 3.10
6
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(millions, except
per share) Quarter 1996
First Second Third Fourth Year
Revenues $ 2,511 $ 2,533 $ 2,855 $ 4,101 $ 12,000
Cost of sales $ 1,755 $ 1,773 $ 2,004 $ 2,694 $ 8,226
Net Earnings:
Continuing operations $ 98 $ 110 $ 118 $ 423 $ 749
Discontinued operation 11 - - - 11
Before extraordinary loss 109 110 118 423 760
Extraordinary loss
related to early
extinguishment
of debt - - - (5) (5)
Net Earnings $ 109 $ 110 $ 118 $ 418 $ 755
Basic earnings
per share:
Continuing operations $ 0.37 $ 0.42 $ 0.46 $ 1.70 $ 2.95
Discontinued operation 0.05 - - - 0.05
Before extraordinary loss 0.42 0.42 0.46 1.70 3.00
Extraordinary loss
related to early
extinguishment
of debt - - - (0.02) (0.02)
Basic earnings
per share $ 0.42 $ 0.42 $ 0.46 $ 1.68 $ 2.98
Diluted earnings
per share:
Continuing operations $ 0.36 $ 0.41 $ 0.44 $ 1.61 $ 2.82
Discontinued operation 0.05 - - (0.01) 0.04
Before extraordinary loss 0.41 0.41 0.44 1.60 2.86
Extraordinary loss
related to early
extinguishment
of debt - - - (0.02) (0.02)
Diluted Earnings
Per Share $ 0.41 $ 0.41 $ 0.44 $ 1.58 $ 2.84
7
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SUMMARIZED FINANCIAL INFORMATION - THE MAY DEPARTMENT STORES
COMPANY, NEW YORK. Summarized financial information of The May
Department Stores Company, New York, is set forth below for 1997
and 1996. Corresponding statement of earnings information for
fiscal year 1995 is not included below as amounts reflected in the
respective consolidated financial statements reflect information
for The May Department Stores Company, New York.
January 31, February 1,
1998 1997
Financial Position
Current assets $ 4,878 $ 5,035
Noncurrent assets 5,048 5,970
Current liabilities 1,894 1,914
Noncurrent liabilities 7,437 7,718
52 Weeks Ended
Jan. 31, Feb. 1,
1998 1997
Operating Results
Revenues $ 12,685 $ 12,000
Cost of sales 8,732 8,226
Net earnings from
continuing operations
before extraordinary
loss 591 662
Net earnings 587 657
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
8
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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,
1998, 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 1997 Annual Report to Shareowners (Exhibit
13):
Page in
Annual Report
Financial Statements-
Consolidated Statement of Earnings for
the three fiscal years ended
January 31, 1998 17
Consolidated Balance Sheet -
January 31, 1998, and February 1, 1997 18
Consolidated Statement of Cash Flows
for the three fiscal years ended
January 31, 1998 19
Consolidated Statement of Shareowners'
Equity for the three fiscal years
ended January 31, 1998 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 January 31, 1998):
Report of Independent Public Accountants
on Schedule II 13
II Valuation and Qualifying Accounts 14
9
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Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K (continued)
(3) Exhibits: Location
3(a) Amended and Restated Certificate Incorporated
of Incorporation of Registrant, by Reference
dated May 22, 1996 to Exhibit
4(a) of Post
Effective
Amendment No.
1 to Form
S-8, filed
May 29, 1996.
3(b) By-Laws of Registrant, as amended Incorporated
by Reference
to Exhibit 3
(ii) of Form
10-Q, filed
December 10,
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 1997 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 13 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, 1997
(4) Reports on Form 8-K
None.
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.
10
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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 22, 1998 By: /s/ John L. Dunham
John L. Dunham
Director, Executive Vice
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 22, 1998 /s/ David C. Farrell Director,
David C. Farrell Chairman and Chief
Executive Officer
Principal Financial and
Accounting Officer:
April 22, 1998 /s/ John L. Dunham Director,
John L. Dunham Executive Vice
President and
Chief Financial
Officer
Directors:
April 22, 1998 /s/ Jerome T. Loeb Director and
Jerome T. Loeb President
11
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Date Signature Title
April 22, 1998 /s/ Eugene S. Kahn Director and
Eugene S. Kahn Executive Vice
Chairman
April 22, 1998 /s/ Anthony J. Torcasio Director and Vice
Anthony J. Torcasio Chairman; and
Chief Executive
Officer, May
Merchandising
Company
April 22, 1998 /s/ R. Dean Wolfe Director and
R. Dean Wolfe Executive Vice
President
April 22, 1998 /s/ Helene L. Kaplan Director
Helene L. Kaplan
April 22, 1998 /s/ Edward H. Meyer Director
Edward H. Meyer
April 22, 1998 /s/ Russell E. Palmer Director
Russell E. Palmer
April 22, 1998 /s/ Michael R. Quinlan Director
Michael R. Quinlan
April 22, 1998 /s/ William P. Stiritz Director
William P. Stiritz
April 22, 1998 /s/ Robert D. Storey Director
Robert D. Storey
April 22, 1998 /s/ Murray L. Weidenbaum Director
Murray L. Weidenbaum
12
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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 11, 1998. 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 11, 1998
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 January 31,
1998 into the Company's previously filed Registration Statements on
Form S-3 (No. 333-11539 and 333-11539-01) and Form S-8
(No. 33-21415, 33-98045, 33-58985 and 333-00957).
ARTHUR ANDERSEN LLP
1010 Market Street
St. Louis, Missouri 63101-2089
April 22, 1998
13
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SCHEDULE II
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE FISCAL YEARS ENDED January 31, 1998
(Millions)
Charges
to costs
and
Balance expenses Balance
beginning and other Deductions end of
of period adjustments (a) period
FISCAL YEAR ENDED
JANUARY 31, 1998
Allowance for
uncollectible
accounts $ 104 $ 104 $ (112) $ 96
FISCAL YEAR ENDED
FEBRUARY 1, 1997
Allowance for
uncollectible
accounts $ 75 $ 134 $ (105) $ 104
FISCAL YEAR ENDED
FEBRUARY 3, 1996
Allowance for
uncollectible
accounts $ 69 $ 91 $ (85) $ 75
(a) Write-off of accounts determined to be uncollectible, net of
recoveries of $26 million in 1997 and 1996, and $24 million in
1995.
14
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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
The May Department Stores Company New York
May Capital, Inc. Delaware
Grande Levee, Inc. (formerly May Funding, Inc.) Nevada
Leadville Insurance Company Vermont
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
THE MAY DEPARTMENT STORES COMPANY
COMPUTATION OF NET EARNINGS PER SHARE
FOR THE THREE FISCAL YEARS ENDED JANUARY 31, 1998
(millions, except per share) 1997 1996 1995
<S> <C> <C> <C>
Net earnings from continuing operations $ 779 $ 749 $ 700
ESOP Preferred Dividends, net of tax
benefit on unallocated shares (18) (18) (19)
Net earnings available for
common shareowners:
Continuing operations 761 731 681
Discontinued operation - 11 55
Extraordinary loss (4) (5) (3)
Total net earnings available for
common shareowners $ 757 $ 737 $ 733
Average common shares outstanding 232.3 247.2 248.9
Basic earnings per share:
Continuing operations $ 3.27 $ 2.95 $ 2.73
Discontinued operation - 0.05 0.22
Extraordinary loss (0.01) (0.02) (0.01)
Total basic earnings per share $ 3.26 $ 2.98 $ 2.94
Diluted Computation:
Net earnings available from
continuing operations $ 761 $ 731 $ 681
Earnings impact of assumed conversion of
ESOP Preference Shares, net of tax 14 13 12
Adjusted net earnings available-DILUTED:
Continuing operations 775 744 693
Discontinued operation - 11 55
Extraordinary loss (4) (5) (3)
Total adjusted net earnings available-DILUTED: $ 771 $ 750 $ 745
Average common shares outstanding 232.3 247.2 248.9
ESOP Preference Shares 15.2 15.4 14.9
Common share equivalents (CSE's) attributable to
the treasury stock method 1.5 1.5 1.0
Average common stock and CSE's 249.0 264.1 264.8
Diluted earnings per share:
Continuing operations $ 3.11 $ 2.82 $ 2.61
Discontinued operation - 0.04 0.21
Extraordinary loss (0.01) (0.02) (0.01)
Total Diluted Earnings per share $ 3.10 $ 2.84 $ 2.81
</TABLE>
<PAGE>
<PAGE>
<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 31, 1998
Fiscal Year Ended
Jan. 31, Feb. 1, Feb. 3, Jan. 28, Jan. 29,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Pretax earnings from continuing operations $ 1,279 $ 1,232 $ 1,160 $ 1,079 $ 957
Fixed charges (excluding interest
capitalized and pretax preferred stock
dividend requirements) 363 346 317 293 305
Dividends on ESOP Preference Shares (26) (26) (28) (28) (28)
Capitalized interest amortization 6 6 5 4 4
1,622 1,558 1,454 1,348 1,238
Fixed Charges:
Gross interest expense (a) $ 353 $ 341 $ 316 $ 289 $ 295
Interest factor attributable to
rent expense 23 22 20 19 20
376 363 336 308 315
Ratio of Earnings to Fixed Charges 4.3 4.3 4.3 4.4 3.9
<FN>
(a) Represents interest expense on long-term and short-term debt, ESOP debt and amortization of
debt discount and debt issue expense.
</TABLE>
<PAGE>
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 23rd consecutive year of record sales and
earnings per share from continuing operations. Our five-year
earnings per share compound growth rate of 12.1% is among the best
in the retail industry.
Sales were $12.4 billion, an increase of 7.0% over 1996 sales of
$11.5 billion. The increase reflects the benefit of new-store
openings, the full-year impact of 1996 store openings, and an
increase in store-for-store sales of 3.6%. Store-for-store sales
increases for the first through fourth quarters in 1997 were 1.9%,
4.7%, 3.1%, and 4.2%, respectively.
Our 1997 diluted earnings per share from continuing operations
increased 10.3% to $3.11 from last year's $2.82. Net earnings from
continuing operations totaled $779 million, compared with $749
million last year. Return on revenues was 6.1% versus 6.2% in
1996. Return on beginning equity increased to 21.2% from 19.4% in
1996, and return on net assets was 18.5%, compared with 18.8% in
1996.
We opened 11 department stores during 1997, adding 1.9 million
square feet of retail space. Five were Lord & Taylor stores, in
Wayne, N.J., Newark, Del., Harrisburg, Pa., Philadelphia, Pa., and
Denver, Colo. Hecht's opened two Strawbridge's stores, in
Springfield, Pa., and Dover, Del. Foley's opened two stores, in
Denver, Colo., and McAllen, Texas. Filene's opened two stores, in
Waterbury, Conn., and Auburn, Mass.
In addition, we remodeled 26 department stores in 1997, totaling
2.2 million retail square feet, which included the expansion of 11
stores by 351,000 square feet. At fiscal year-end, May operated
369 department stores in 30 states and the District of Columbia.
During 1997, the company completed a $300 million stock repurchase
program totaling 6.4 million shares. This program was funded with
cash flow from operations. The 1997 buyback was in addition to a
$600 million 1996 stock repurchase program totaling 12.7 million
shares. In February 1998, the company announced additional plans
to repurchase up to $650 million of May shares.
Our expansion program for 1998 includes 20 new department stores,
totaling 2.8 million square feet of retail space. In addition, the
company plans to remodel 22 department stores totaling 1.7 million
square feet of retail space, which includes the expansion of seven
stores by a total of 224,000 square feet.
The new-store plan for 1998 through 2002 would add 100 new
department stores totaling 16 million retail square feet, a 4%
annualized increase, net of closings. During this five-year
period, May plans to invest $1.8 billion for new stores, $600
million to expand and remodel existing stores, and $350 million
related to systems and operations. These are the major components
of our $3.6 billion capital plan.
The remainder of Management's Discussion and Analysis reflects
data on a continuing operations basis.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net retail sales(in millions) $12,352 $11,546 $10,402 $9,688 $8,945 $8,334 $7,785 $7,420 $6,951 $6,103 $4,681
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings per share $3.11 $2.82 $2.61 $2.43 $2.15 $1.76 $1.52 $1.51 $1.50 $1.23 $1.03
Year-end dividend rate
per common share $1.20 $1.16 $1.14 $1.04 $0.92 $0.83 $0.81 $0.79 $0.71 $0.64 $0.57
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Return on net assets 18.5% 18.8% 20.1% 20.1% 19.0% 15.4% 14.5% 15.8% 16.9% 16.2% 15.7%
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales per square foot $204 $201 $201 $200 $191 $179 $171 $172 $168 $158 $143
</TABLE>
<PAGE>
Review of Operations
Diluted earnings per share reached $3.11 in 1997, compared with
$2.82 in 1996 and $2.61 in 1995. Net earnings totaled $779 million
in 1997, compared with $749 million in 1996 and $700 million in
1995. The 1997 and 1996 diluted earnings per share growth rates
were 10.3% and 8.0%, respectively. Net earnings growth rates were
lower due to $900 million of stock repurchases completed in 1996
and 1997. Return on revenues was 6.1% in 1997, compared with 6.2%
in 1996 and 6.4% in 1995.
<TABLE>
<CAPTION>
Results for the past three years were as follows:
1997 1996 1995
(dollars in millions, Percent of Percent of Percent of
except per share) $ Revenues $ Revenues $ Revenues
<S> <C> <C> <C> <C> <C> <C>
Net Retail Sales $12,352 $11,546 $10,402
Revenues $12,685 100.0% $12,000 100.0% $10,952 100.0%
Cost of sales 8,732 68.8 8,226 68.5 7,461 68.1
Selling, general, and
administrative expenses 2,375 18.7 2,265 18.9 2,081 19.0
Interest expense, net 299 2.4 277 2.3 250 2.3
Earnings before
income taxes 1,279 10.1 1,232 10.3 1,160 10.6
Provision for income taxes* 500 39.1 483 39.3 460 39.7
Net Earnings $ 779 6.1% $ 749 6.2% $ 700 6.4%
Diluted Earnings per Share $ 3.11 $ 2.82 $ 2.61
<FN>
*Percent of revenues columns represent effective income tax rates.
</TABLE>
Fiscal 1995 included 53 weeks; however, the additional week did
not materially affect 1995 earnings. The 1995 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) 1997 1996 1995 1997 1996
Operating earnings $1,578 $1,509 $1,410 4.6% 7.0%
Percent of revenues 12.5% 12.6% 12.9%
EBIT presented above includes a LIFO (last-in, first out) credit
of $5 million, $20 million, and $53 million in 1997, 1996, and
1995, respectively.
EBIT, excluding LIFO, is presented below on a supplementary basis
for comparative purposes:
Increase
(dollars in millions) 1997 1996 1995 1997 1996
Operating earnings $1,573 $1,489 $1,357 5.7% 9.6%
Percent of revenues 12.4% 12.4% 12.4%
May's 369 quality department stores are operated by eight regional
department store companies across the United States under 10
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, gross retail square footage, and number of stores for each
store company:
<TABLE>
<CAPTION>
Net Retail Gross Retail
Sales in Millions Sales per Square Footage
Store Company of Dollars Square Foot in Thousands Number of Stores
and Headquarters 1997 1996 1997 1996 1997 1996 1997 New Closed 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lord & Taylor, New York City $ 1,875 $ 1,718 $243 $241 8,208 7,473 63 5 1 59
Hecht's, Washington, D.C.
(Strawbridge's in Philadelphia) 2,333 2,113 195 193 12,318 12,787 71 2 2 71
Foley's, Houston 1,888 1,749 186 180 10,647 10,200 55 2 - 53
Robinsons-May, Los Angeles 1,862 1,779 189 185 10,140 10,211 55 - 1 56
Kaufmann's, Pittsburgh 1,489 1,444 193 191 7,961 7,968 47 - - 47
Filene's, Boston 1,450 1,347 236 232 6,394 6,255 40 2 2 40
Famous-Barr, St. Louis
(L.S. Ayres in Indianapolis) 1,060 1,011 202 201 5,408 5,454 30 - 1 31
Meier & Frank, Portland, Ore. 395 385 229 225 1,768 1,768 8 - - 8
The May Department
Stores Company $12,352 $11,546 $204 $201 62,844 62,116 369 11 7 365
<FN>
Net retail sales represent sales of stores open at the end of 1997.
Sales per square foot are calculated from revenues and average gross retail square footage.
Gross retail square footage represents square footage of stores open at the end of the period presented.
</TABLE>
<PAGE>
Net Retail Sales
Net retail sales (see page 21 for definition) increases for 1997
and 1996 were as follows:
1997 vs. 1996 1996 vs. 1995 Five-year
Store-for- Store-for- Compound
Total Store Total Store Growth Rate
7.0% 3.6% 11.0% 4.3% 8.2%
The total sales increase for 1997 reflects the opening of four net
new department stores, the full-year impact of 1996 store
openings, and a 3.6% store-for-store increase. The total sales
increase for 1996 includes the results of 19 net new department
stores, the full-year impact of 1995 store openings, and a 4.3%
store-for-store increase.
Sales include leased and licensed department sales of $353
million, $326 million, and $293 million in 1997, 1996, and 1995,
respectively. Revenues include finance charge revenues of $319
million, $338 million, and $340 million in 1997, 1996, and 1995,
respectively. Finance charge revenues have decreased due to
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 $8.73 billion in 1997, compared
with $8.23 billion in 1996, a 6.2% increase. The overall increase
resulted from a 7.0% increase in sales. As a percent of revenues,
cost of sales increased 0.3% from 68.5% in 1996 to 68.8% in 1997.
Approximately 0.2% of this increase relates to the finance charge
component of revenues decreasing 5.7% with no corresponding
decrease in cost of sales. The remaining increase was caused by
the decrease in the LIFO credit.
Cost of sales was $8.23 billion in 1996, compared with $7.46
billion in 1995, a 10.2% increase. The overall increase resulted
from a 9.9% increase in sales (52 weeks in 1996 versus 53 weeks in
1995). As a percent of revenues, cost of sales increased 0.4% from
68.1% in 1995 to 68.5% in 1996. This increase was caused primarily
by the decrease in the LIFO credit.
The impact of LIFO on cost of sales, as a percent of revenues, is
shown below:
1997 1996 1995
Cost of sales 68.8% 68.5% 68.1%
LIFO credit (0.1) (0.2) (0.5)
Cost of sales before LIFO 68.9% 68.7% 68.6%
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $2.38 billion
in 1997, compared with $2.27 billion in 1996, a 4.8% increase. The
overall increase was due to a 7.0% increase in sales. As a percent
of revenues, selling, general, and administrative expenses
decreased 0.2% to 18.7% in 1997, compared with 18.9% in 1996, due
to a decrease in credit expense that was partially offset by
higher payroll costs.
Selling, general, and administrative expenses were $2.27 billion
in 1996, compared with $2.08 billion in 1995, an 8.9% increase.
The overall increase was due to a 9.9% increase in sales. As a
percent of revenues, selling, general, and administrative expenses
decreased 0.1% to 18.9% in 1996, compared with 19.0% in 1995, due
to an increase in credit expense that was offset by efficiencies
across the other selling, general, and administrative expense
components.
Selling, general, and administrative expenses include advertising
and sales promotion costs of $463 million, $439 million, and $404
million in 1997, 1996, and 1995, respectively.
Interest Expense
Interest expense components were:
(dollars in millions) 1997 1996 1995
Interest expense $324 $310 $283
Interest income (11) (16) (14)
Capitalized interest (14) (17) (19)
Interest expense, net $299 $277 $250
Percent of revenues 2.4% 2.3% 2.3%
The increase in 1997 net interest expense was due to increased
average debt balances related to 1996 borrowings to finance the
company's 1996 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 increase in 1996 net interest expense from 1995 was due to
increased average borrowings both to finance store growth,
including the acquisition of certain assets of Strawbridge &
Clothier, and to finance the company's common stock repurchases.
Income Taxes
The effective income tax rates were 39.1%, 39.3%, and 39.7% in
1997, 1996, and 1995, respectively. The 1997 effective income tax
rate was lower than the 1996 rate as the company realized a
full-year benefit from our 1996 second-quarter reincorporation in
the state of Delaware.
Impact of Inflation
Inflation has not had a material impact on the company's 1997
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.
Year 2000
In 1996, the company began preparing its computer systems and
applications for the year 2000, and anticipates that all
significant programming efforts and related testing will be
complete by December 1998. These programming and testing costs are
not expected to be material.
<PAGE>
Primary merchandise vendors and other third parties have assured
the company that they are implementing programs to ensure their
systems are year 2000 compliant.
Discontinued Operation
Effective May 4, 1996, the company spun off Payless ShoeSource,
Inc. (Payless) as a tax-free distribution to shareowners.
Review of 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 for evaluating our
performance for shareowners and our ability to invest shareowners'
funds profitably. Our objective is performance that places our
return on equity in the top quartile of the retail industry.
Return on beginning equity was 21.2% in 1997, compared with 19.4%
in 1996, and 20.8% in 1995. The 1997 increase results from the
1996 share repurchase.
Return on Net Assets
Return on net assets measures performance independent of capital
structure. Return on net assets represents pretax earnings before
net interest expense and the interest component of operating
leases, divided by beginning of year net assets (including present
value of operating leases). Return on net assets was 18.5% in
1997, compared with 18.8% in 1996 and 20.1% in 1995.
Cash Flow
Cash flow from operations (net earnings plus
depreciation/amortization) was $1.2 billion. This was 9.4% of
revenues in 1997, compared with 9.3% in 1996 and 9.4% in 1995. The
company's cash flow as a percent of revenues continues to be one
of the highest in the retail industry, and provides the company
with significant resources to enhance shareowners' value.
Sources and (uses) of cash flows are summarized below:
(dollars in millions) 1997 1996 1995
Net earnings and
depreciation/amortization $1,191 $1,123 $1,033
Working capital (increases) decreases 265 142 (330)
Discontinued operation - (13) 97
Other operating activities 70 7 48
Capital expenditures and other
investing activities (463) (603) (871)
Net long-term debt issuances (repayments) (340) 412 444
Net purchases of common stock (329) (820) (14)
Dividend payments (297) (305) (296)
Increase (decrease) in cash
and cash equivalents $ 97 $ (57) $ 111
See "Consolidated Statement of Cash Flows" on page 19.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flow (in millions) $1,191 $1,123 $1,033 $947 $859 $755 $677 $657 $659 $599 $505
Depreciation and amortization $ 412 $ 374 $ 333 $297 $281 $283 $273 $253 $234 $236 $187
Net earnings $ 779 $ 749 $ 700 $650 $578 $472 $404 $404 $425 $362 $318
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Book value per common share $16.49 $15.41 $18.42 $16.65 $14.65 $12.82 $11.26 $10.04 $ 9.32 $10.75 $ 9.13
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Return on beginning equity 21.2% 19.4% 20.8% 21.3% 22.1% 21.5% 20.7% 21.8% 18.0% 18.6% 17.0%
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock closing price
and price range:
Low price $43.63 $40.50 $33.50 $32.25 $33.44 $26.00 $22.63 $18.69 $17.31 $14.38 $11.13
High price $57.13 $52.25 $46.25 $45.13 $46.50 $37.25 $30.19 $29.56 $26.31 $20.00 $25.44
Closing price $52.56 $44.50 $43.88 $35.13 $39.75 $35.19 $27.44 $22.75 $22.88 $18.75 $16.81
</TABLE>
<PAGE>
Financing Activities
In 1997, the company did not issue long-term debt. Commercial
paper borrowings were made to fund seasonal working capital
requirements.
During the first quarter of 1997, the company recorded an
extraordinary aftertax loss of $4 million ($5 million pretax) as
it retired $100 million of 9.875% debentures due to mature June 1,
2017.
During the fourth quarter of 1996, the company recorded an
extraordinary aftertax loss of $5 million ($8 million pretax) as
it retired $150 million of 9.125% debentures due to mature
December 1, 2016.
Financial Condition Ratios
Our debt-to-capitalization and fixed charge coverage ratios are
consistent with our capital structure objective. They provide us
with substantial financial flexibility.
The debt-to-capitalization ratios were 44%, 48%, and 42% for 1997,
1996, and 1995, 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), 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. The 1997 debt-to-capitalization ratio
decreased because debt repayments of $340 million were funded with
cash flow from operations. See "Profit Sharing" on page 22 for
discussion of the ESOP.
The fixed-charge coverage ratios were 4.1x in 1997 and in 1996,
and 4.2x in 1995. 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.
Our bonds continue to be rated A2 by Moody's Investors Service,
Inc., and A by Standard & Poor's Corporation. Our commercial paper
is rated P1 by Moody's and A1 by Standard & Poor's.
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, remodel existing stores, and eliminate unproductive space.
The 1998 capital expenditure plan approximates $735 million.
Capital expenditures for the period 1998 through 2002 are planned
at $3.6 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 $500 million of
additional debt securities.
Common Stock Dividends and Market Prices Our dividend policy is
based on historical and expected earnings growth rates and capital
investment requirements. Our objective is to increase dividends on
common stock consistent with our long-term earnings growth. The
1998 annual dividend rate was increased by 5.8%, or $.07 per
share, to $1.27 per share. This is the 23rd consecutive annual
dividend increase. The new annual dividend rate of $1.27 per share
was effective with the March 1998 dividend payment. Dividends paid
have increased at a compound rate of 7.8% during the past five
years. This rate is lower than the five-year compound diluted
earnings per share growth rate of 12.1% as, over time, we are
returning to the dividend payout levels that existed prior to the
spinoff of Payless. The company has paid consecutive quarterly
dividends since December 1, 1911.
The quarterly price ranges of the common stock and dividends per
share in 1997 and 1996 were:
1997 1996
Market Price Dividends Market Price Dividends
Quarter High Low per Share High Low per Share
First $49-3/4 $43-5/8 $ .30 $51-7/8 $43-3/8 $ .28-1/2
Second 56-7/8 45-1/4 .30 52-1/4 40-1/2 .29
Third 57-1/8 50-3/4 .30 49-1/2 44-1/8 .29
Fourth 56-7/8 49-7/8 .30 49-5/8 43-5/8 .29
Year $57-1/8 $43-5/8 $1.20 $52-1/4 $40-1/2 $1.15-1/2
The approximate number of common shareowners as of March 1, 1998,
was 43,200.
Effective May 4, 1996, the company distributed the common stock of
Payless pro rata to May common shareowners of record on April 25,
1996. The May common stock price on May 8, 1996, was adjusted by
the New York Stock Exchange from $50.00 per share to $45.25 per
share, reflecting the impact of the distribution of the Payless
common stock to May common shareowners.
<PAGE>
[The following "Consolidated Financial Statements" section is a
reproduction of the same named section in the paper format Annual
Report on pages 17 - 20.]
<TABLE>
<CAPTION>
Consolidated Statement of Earnings
(dollars in millions, except per share) 1997 1996 1995
<S> <C> <C> <C>
Net Retail Sales $12,352 $11,546 $10,402
Revenues $12,685 $12,000 $10,952
Cost of sales 8,732 8,226 7,461
Selling, general, and
administrative expenses 2,375 2,265 2,081
Interest expense, net 299 277 250
Total cost of sales and expenses 11,406 10,768 9,792
Earnings from continuing operations
before income taxes 1,279 1,232 1,160
Provision for income taxes 500 483 460
Net Earnings from Continuing Operations 779 749 700
Net earnings from discontinued operation - 11 55
Net earnings before extraordinary loss 779 760 755
Extraordinary loss related to
early extinguishment of debt,
net of income taxes (4) (5) (3)
Net earnings $ 775 $ 755 $ 752
Basic Earnings per Share:
Continuing operations $ 3.27 $ 2.95 $ 2.73
Discontinued operation - 0.05 0.22
Net earnings before extraordinary loss 3.27 3.00 2.95
Extraordinary loss (0.01) (0.02) (0.01)
Basic Earnings per Share $ 3.26 $ 2.98 $ 2.94
Diluted Earnings per Share:
Continuing operations $ 3.11 $ 2.82 $ 2.61
Discontinued operation - 0.04 0.21
Net earnings before extraordinary loss 3.11 2.86 2.82
Extraordinary loss (0.01) (0.02) (0.01)
Diluted Earnings per Share $ 3.10 $ 2.84 $ 2.81
<FN>
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 $10,506.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Consolidated Balance Sheet
(dollars in millions, January 31, February 1,
except per share) 1998 1997
Assets
Current Assets:
Cash $ 14 $ 12
Cash equivalents 185 90
Accounts receivable, net 2,164 2,425
Merchandise inventories 2,433 2,380
Other current assets 82 128
Total Current Assets 4,878 5,035
Property and Equipment:
Land 304 287
Buildings and improvements 3,393 3,252
Furniture, fixtures, and equipment 3,028 2,765
Property under capital leases 62 68
Total property and equipment 6,787 6,372
Accumulated depreciation (2,563) (2,213)
Property and equipment, net 4,224 4,159
Goodwill 752 776
Other Assets 76 89
Total Assets $9,930 $10,059
Liabilities and Shareowners' Equity
Current Liabilities:
Current maturities of long-term debt $ 233 $ 256
Accounts payable 842 872
Accrued expenses 640 614
Income taxes payable 151 137
Total Current Liabilities 1,866 1,879
Long-term Debt 3,512 3,849
Deferred Income Taxes 449 401
Other Liabilities 277 267
ESOP Preference Shares 337 347
Unearned Compensation (320) (334)
Shareowners' Equity:
Common stock 115 118
Additional paid-in capital - -
Retained earnings 3,694 3,532
Total Shareowners' Equity 3,809 3,650
Total Liabilities and Shareowners' Equity $9,930 $10,059
Common stock has a par value of $.50 per share; 700 million shares
are authorized and 313.6 million shares were issued. At January
31, 1998, 231.0 million shares were outstanding, and 82.6 million
shares were held in treasury. At February 1, 1997, 236.9 million
shares were outstanding, and 76.7 million shares were held in
treasury.
ESOP Preference Shares have a par value of $.50 per share and a
stated value of $507 per share; 800,000 shares are authorized. At
January 31, 1998, 665,866 shares (convertible into 15.0 million
shares of common stock) were issued and outstanding. At February
1, 1997, 685,050 shares (convertible into 15.4 million shares of
common stock) were issued and outstanding.
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
(dollars in millions) 1997 1996 1995
<S> <C> <C> <C>
Operating Activities:
Net earnings from continuing operations $ 779 $ 749 $ 700
Net earnings from discontinued operation - 11 55
Extraordinary loss related to early
extinguishment of debt, net of income taxes (4) (5) (3)
Net earnings 775 755 752
Adjustments for noncash
items included in earnings:
Depreciation and amortization 412 374 333
Noncurrent deferred income taxes 58 45 42
Deferred and unearned compensation 8 10 15
Working capital changes* 265 142 (330)
Other assets and liabilities, net 8 (43) (6)
Total Operating Activities 1,526 1,283 806
Investing Activities:
Capital expenditures (496) (632) (801)
Dispositions of property and equipment 33 29 20
Goodwill - - (89)
Other - - (1)
Cash provided by (used in)
discontinued operation - (24) 42
Total Investing Activities (463) (627) (829)
Financing Activities:
Issuances of long-term debt - 800 600
Repayments of long-term debt (340) (388) (156)
Purchases of common stock (394) (869) (71)
Issuances of common stock 65 49 57
Dividend payments (297) (305) (296)
Total Financing Activities (966) (713) 134
Increase (Decrease) in
Cash and Cash Equivalents 97 (57) 111
Cash and Cash Equivalents, Beginning of Year 102 159 48
Cash and Cash Equivalents, End of Year $ 199 $ 102 $ 159
*Working capital changes comprise:
Accounts receivable, net $ 262 $ 139 $ 29
Merchandise inventories (53) (211) (321)
Other current assets 46 45 13
Accounts payable (30) 180 (43)
Accrued expenses 26 (20) (8)
Income taxes payable 14 9 -
Net decrease (increase) in
working capital $ 265 $ 142 $(330)
Cash paid during the year:
Interest $ 319 $ 288 $ 268
Income taxes 355 380 448
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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)
Common stock issued 2,198 1 64 - 65
Common stock purchased (1,710) (1) (69) (1) (71)
Balance at
February 3, 1996 248,871 124 - 4,461 4,585
Net earnings - - - 755 755
Dividends paid:
Common stock
($1.15 1/2 per share) - - - (287) (287)
ESOP preference shares,
net of tax benefit - - - (18) (18)
Common stock issued 6,646 3 258 - 261
Common stock purchased (18,591) (9) (258) (602) (869)
Distribution of equity in
Payless ShoeSource, Inc. - - - (777) (777)
Balance at
February 1, 1997 236,926 118 - 3,532 3,650
Net earnings - - - 775 775
Dividends paid:
Common stock
($1.20 per share) - - - (279) (279)
ESOP preference shares,
net of tax benefit - - - (18) (18)
Common stock issued 2,279 1 74 - 75
Common stock purchased (8,197) (4) (74) (316) (394)
Balance at
January 31, 1998 231,008 $115 $ - $3,694 $3,809
Outstanding common stock excludes shares held in treasury. Treasury share activity for the last three years is summarized
below:
1997 1996 1995
Balance, Beginning of Year 76,711 64,766 65,254
Common stock issued:
Exercise of stock options (1,581) (997) (1,419)
Deferred compensation plan (162) (150) (158)
Restricted stock grants,
net of forfeitures (104) (246) (236)
Contribution to
Profit Sharing Plan - - (89)
Conversion of ESOP
preference shares (432) (796) (296)
Strawbridge & Clothier acquisition - (4,457) -
(2,279) (6,646) (2,198)
Common stock purchased 8,197 18,591 1,710
Balance, End of Year 82,629 76,711 64,766
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
[The following "Notes to Consolidated Financial Statements"
section is a reporduction 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 years 1997, 1996, and 1995 ended on January 31, 1998,
February 1, 1997, and February 3, 1996, respectively. Fiscal 1995
included 53 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 369 quality department stores. The
consolidated financial statements reflect Payless ShoeSource, Inc.
(Payless), as a discontinued operation through May 4, 1996. All
the following notes, except "Discontinued Operation" on page 27,
reflect data on a continuing operations basis.
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.
Net Retail Sales and Revenues
Net retail sales (sales) represent sales of stores operating at
the end of the latest period, and exclude finance charge revenues
and the sales of stores that have been closed and not replaced.
Sales include sales of merchandise and services, and sales from
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 the
company's 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 they are incurred.
Income Taxes
Income taxes are accounted for by 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
basis and the tax basis of assets and liabilities.
Earnings per Share
In 1997, the company adopted Statement of Financial Accounting
Standards (SFAS) No.128, "Earnings per Share," for all periods
presented. The company's diluted earnings per share calculated
under SFAS No. 128 for all prior periods is the same as the
previously reported fully diluted earnings per share. References
to earnings per share in this annual report relate to diluted
earnings per share.
Stock-based Compensation
The company accounts for stock-based compensation by applying APB
Opinion No. 25, as allowed under SFAS No. 123, "Accounting for
Stock-based Compensation."
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 $93 million and
$98 million in 1997 and 1996, respectively.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on
a straight-line basis over their estimated useful lives.
Investments in properties under capital leases and leasehold
improvements are amortized over their useful lives or related
lease terms, whichever is shorter.
Goodwill
Goodwill represents the excess of cost over the fair value, at the
dates of acquisition, of net tangible assets acquired.
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 $174
million and $151 million in 1997 and 1996, respectively.
Long-lived Assets
Long-lived assets and certain identifiable intangibles, to be held
and used or disposed of, are reviewed to determine whether the
carrying amount of the asset is recoverable. No impairment losses
have resulted from these reviews.
Financial Derivatives
Financial derivatives are used only to reduce risk in conjunction
with specific business transactions. The company periodically
purchased forward contracts on firm commitments to minimize the
risk of foreign currency fluctuations. None of these contracts
were significant.
Reclassifications
Certain prior-period amounts have been reclassified to conform
with the current-year presentation.
<PAGE>
Quarterly Results (Unaudited)
Quarterly results are determined in accordance with annual
accounting policies. They include certain items based upon
estimates for the entire year. Summarized quarterly results for
the last two years were as follows:
(dollars in millions, 1997 Quarter 1997
except per share) First Second Third Fourth Year
Revenues $2,675 $2,749 $2,969 $4,292 $12,685
Cost of sales $1,881 $1,921 $2,097 $2,833 $ 8,732
Net earnings $ 98 $ 116 $ 120 $ 445 $ 779
Basic earnings
per share $ 0.39 $ 0.48 $ 0.50 $ 1.90 $ 3.27
Diluted earnings
per share $ 0.38 $ 0.46 $ 0.48 $ 1.79 $ 3.11
(dollars in millions, 1996 Quarter 1996
except per share) First Second Third Fourth Year
Revenues $2,511 $2,533 $2,855 $4,101 $12,000
Cost of sales $1,755 $1,773 $2,004 $2,694 $ 8,226
Net earnings $ 98 $ 110 $ 118 $ 423 $ 749
Basic earnings
per share $ 0.37 $ 0.42 $ 0.46 $ 1.70 $ 2.95
Diluted earnings
per share $ 0.36 $ 0.41 $ 0.44 $ 1.61 $ 2.82
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 what the
pro forma diluted per share impact of LIFO would have been had the
final variables and factors been known at the beginning of each
year:
1997 1996
Pro As Pro As
Quarter Forma Reported Forma Reported
First $ 0.00 $ 0.02 $(0.01) $ 0.02
Second 0.00 0.02 (0.01) 0.02
Third 0.00 0.01 (0.01) 0.00
Fourth (0.01) (0.06) (0.02) (0.09)
Year $(0.01) $(0.01) $(0.05) $(0.05)
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 $48 million for 1997,
which represents a record effective match rate of 104%. The
matching allocation value was $43 million and $33 million in 1996
and 1995, 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 (788,955 shares) of convertible
preference stock of the company (ESOP preference shares). Each
share is convertible into 22.525 shares of common stock and has a
stated value of $22.51 per common share equivalent. The annual
dividend rate on the ESOP preference shares is 7.5%.
The $342 million outstanding portion of the guaranteed ESOP debt
is reflected on the consolidated balance sheet as 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 $29 million in 1997, $31 million in 1996, and $32
million in 1995. ESOP preference shares' dividends were $26
million in 1997 and 1996, and $28 million in 1995. ESOP debt
principal payments began in 1993. The release of ESOP preference
shares is based upon debt-service payments. Upon release, the
shares 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. It is reduced as principal is repaid.
The company's expense related to the Profit Sharing Plan was $24
million, $22 million, and $17 million in 1997, 1996, and 1995,
respectively.
At January 31, 1998, the Profit Sharing Plan beneficially owned
11.0 million shares of the company's common stock and 100% of the
company's ESOP preference shares. These holdings represent 10.6%
of the company's common stock.
Pension
The company has two qualified defined-benefit retirement plans
that cover substantially all associates who work 1,000 hours or
more in a year and have attained age 21. The plans are
noncontributory. They provide benefits based upon years of service
and pay during employment.
The company also maintains two nonqualified supplementary
defined-benefit retirement plans for certain 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.
<PAGE>
The following tables summarize the funded status of the plans,
components of pension expense, actuarial assumptions, and
definitions of terms for both the qualified and nonqualified
plans.
Qualified Plans (funded)
(dollars in millions) 1997 1996
Actuarial Present Value of Benefit Obligations:
Vested benefit obligation $406 $323
Nonvested benefit obligation 27 27
Accumulated benefit obligation (ABO) 433 350
Estimated effect of future salary increases 43 33
Projected benefit obligation (PBO) 476 383
Plan assets at fair value
(primarily equity and fixed income securities) 490 409
Plan assets in excess of PBO 14 26
Unrecognized obligation 1 1
Unrecognized gain (20) (32)
Unrecognized prior service cost 2 2
Accrued pension cost $ (3) $ (3)
Plan assets in excess of ABO $ 57 $ 59
Nonqualified Plans (unfunded)
(dollars in millions) 1997 1996
Actuarial Present Value of Benefit Obligations:
Vested benefit obligation $ 69 $ 62
Nonvested benefit obligation 17 13
Accumulated benefit obligation (ABO) 86 75
Estimated effect of future salary increases 16 15
Projected benefit obligation (PBO) 102 90
Plan assets at fair value 0 0
Plan assets less than PBO (102) (90)
Unrecognized obligation 1 2
Unrecognized loss 10 3
Unrecognized prior service cost 13 13
Accrued pension cost $ (78) $(72)
Plan assets less than ABO $ (86) $(75)
The accrued pension cost is included in other liabilities on the
accompanying balance sheet. Accrued pension cost principally
represents amounts expensed but not yet contributed to the
nonqualified supplementary retirement plans.
Components of Pension Expense (all plans)
(dollars in millions) 1997 1996 1995
Service cost $28 $27 $21
Interest on PBO 34 24 22
Expected return on assets (30) (20) (18)
Net amortization 2 - 3
Total $34 $31 $28
January 1,
Actuarial Assumptions 1998 1997 1996
Discount rate 7.0 % 7.5 % 7.0 %
Expected return on plan assets 7.25 7.75 7.25
Salary increase 4.5 4.5 4.5
At the end of 1997, the discount rate was decreased as a result of
a general decrease in interest rates during the year.
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; it takes into
consideration future salary increases.
Net amortization is 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 $144 million in 1997 as its matching contribution to
the $144 million paid in by associates.
The company provides postretirement life and/or health benefits
for certain associates. At the end of 1997, the company decreased
the discount rate assumption from 7.5% to 7.0%, which resulted in
a $2 million increase in the present value of future obligations.
As of January 31, 1998, the company's estimated present value of
future obligations for postretirement benefits was $44 million, of
which $42 million was accrued in other liabilities on the
accompanying balance sheet. As provided in SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," an unrecognized net loss of less than 10% of the
liability need not be amortized. The estimated future obligations
are based upon assumed annual health care cost increases of 11%
for 1998, decreasing by 1% annually to 7% for 2002 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 post-retirement plan is unfunded. The
postretirement expense was $3 million in 1997 and 1996, and $2
million in 1995.
Taxes
The provision for income taxes and the related percent of pretax
earnings for the last three years were as follows:
(dollars 1997 1996 1995
in millions) $ % $ % $ %
Federal $359 $344 $343
State and local 65 69 70
Taxes currently payable 424 33.2% 413 33.6% 413 35.7%
Federal 64 58 40
State and local 12 12 7
Deferred taxes 76 5.9 70 5.7 47 4.0
Total $500 39.1% $483 39.3% $460 39.7%
<PAGE>
The reconciliation between the statutory federal income tax rate
and the effective income tax rate for the last three years
follows:
1997 1996 1995
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes 6.0 6.6 6.7
Federal tax benefit of state
and local income taxes (2.1) (2.3) (2.3)
Other, net 0.2 - 0.3
Effective income tax rate 39.1% 39.3% 39.7%
Major components of deferred tax assets and (liabilities) were as
follows:
Jan. 31, Feb. 1,
(dollars in millions) 1998 1997
Accrued expenses and reserves $144 $130
Deferred and other compensation 116 103
Depreciation/amortization and
basis differences (460) (407)
Other deferred income tax liabilities, net (224) (155)
Net deferred income taxes (424) (329)
Less: Net current deferred income tax assets 25 72
Noncurrent deferred income taxes $(449) $(401)
Net current deferred income tax assets are included in other
current assets in the accompanying balance sheet.
Earnings per Share
During 1997, the company adopted SFAS No. 128, "Earnings per
Share," for all periods. The following tables reconcile net
earnings and weighted average shares outstanding to amounts used
to calculate basic and diluted earnings per share for 1997, 1996,
and 1995.
1997
(dollars in millions, Net Earnings
except per share) Earnings Shares per Share
Net earnings $779
ESOP preference shares' dividends (18)
Basic earnings per share 761 232.3 $3.27
ESOP preference shares 14 15.2
Assumed exercise of options
(treasury stock method) - 1.5
Diluted earnings per share $775 249.0 $3.11
1996
(dollars in millions, Net Earnings
except per share) Earnings Shares per Share
Net earnings $749
ESOP preference shares' dividends (18)
Basic earnings per share 731 247.2 $2.95
ESOP preference shares 13 15.4
Assumed exercise of options
(treasury stock method) - 1.5
Diluted earnings per share $744 264.1 $2.82
1995
(dollars in millions, Net Earnings
except per share) Earnings Shares per Share
Net earnings $700
ESOP preference shares' dividends (19)
Basic earnings per share 681 248.9 $2.73
ESOP preference shares 12 14.9
Assumed exercise of options
(treasury stock method) - 1.0
Diluted earnings per share $693 264.8 $2.61
Accounts Receivable
During 1997, credit sales under department store credit programs
were $5.8 billion, or 45.6% of 1997 revenues; this compares with
50.0% in 1996 and 54.5% in 1995. An estimated 28 million customers
hold credit cards under the company's various credit programs.
Sales made through third-party credit cards totaled $3.6 billion
in 1997, compared with $3.0 billion in 1996 and $2.4 billion in
1995.
Net accounts receivable consisted of:
Jan. 31, Feb. 1,
(dollars in millions) 1998 1997
Customer accounts receivable $2,167 $2,410
Other accounts receivable 93 119
Total accounts receivable 2,260 2,529
Allowance for uncollectible accounts (96) (104)
Accounts receivable, net $2,164 $2,425
The fair value of trade accounts receivable approximates their
carrying values at January 31, 1998, and February 1, 1997, due to
the short-term nature of these accounts.
Other Current Assets
In addition to net current deferred income tax assets, other
current assets consisted of prepaid expenses and supply
inventories of $57 million and $56 million in 1997 and 1996,
respectively.
Other Assets
Major components of other assets included:
Jan. 31, Feb. 1,
(dollars in millions) 1998 1997
Notes receivable $29 $32
Deferred debt expense 30 31
<PAGE>
Accrued Expenses
Major components of accrued expenses included:
Jan. 31, Feb. 1,
(dollars in millions) 1998 1997
Insurance costs $164 $153
Salaries, wages, and employee benefits 112 105
Sales, use, and other taxes 97 91
Interest and rent expense 92 94
Advertising and other operating expenses 65 51
Store closings and real estate-related expenses 38 51
Construction costs 34 44
Short-term Debt and Lines of Credit
Short-term borrowings for the last three years were:
(dollars in millions) 1997 1996 1995
Balance outstanding at year end - - -
Average balance outstanding $182 $ 35 $ 75
Average interest rate on average balance 5.7% 5.7% 6.2%
Maximum balance outstanding $487 $178 $246
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 $750
million available under a credit agreement.
Long-term Debt
Long-term debt and capital lease obligations were:
Jan. 31, Feb. 1,
(dollars in millions) 1998 1997
5.7% to 10.75% unsecured notes and
sinking-fund debentures due 1998-2036 $3,630 $3,981
3.0 % to 10.0 % mortgage notes and
bonds due 2000-2012 62 66
Debt 3,692 4,047
Capital lease obligations 53 58
Total debt and capital lease obligations 3,745 4,105
Less current maturities 233 256
Total long-term $3,512 $3,849
In the first quarter of 1997, the company called $100 million of
9.875% debentures due to mature June 1, 2017, and recorded an
extraordinary aftertax loss of $4 million ($5 million pretax).
During the 1996 fourth quarter, the company called $150 million of
9.125% debentures due to mature December 1, 2016, and recorded an
extraordinary aftertax loss of $5 million ($8 million pretax).
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 of 9.25%
debentures due to mature March 1, 2016. The debentures were called
on March 1, 1996.
The annual maturities of long-term debt, including sinking fund
requirements, are $233 million, $93 million, $246 million, $79
million, and $268 million for 1998 through 2002.
The net book value of property and equipment encumbered under
long-term debt agreements was $127 million at January 31, 1998.
The fair value of long-term debt (excluding capital lease
obligations) was approximately $4.2 billion and $4.4 billion at
January 31, 1998, and February 1, 1997, respectively. The fair
value was determined using borrowing rates for debt instruments
with similar terms and maturities. The increase in the spread
between fair value and the carrying amount of long-term debt in
1997 compared with 1996 was due to lower interest rates at the end
of 1997.
Lease Obligations
The company owns approximately 75% of its stores. Rental expense
for the company's operating leases consisted of:
(dollars in millions) 1997 1996 1995
Minimum rentals $47 $45 $38
Contingent rentals based on sales 17 17 15
Real property rentals 64 62 53
Equipment rentals 4 4 4
Total $68 $66 $57
Future minimum lease payments at January 31, 1998, were as
follows:
Capital Operating
(dollars in millions) Leases Leases Total
1998 $ 7 $ 46 $ 53
1999 7 42 49
2000 7 39 46
2001 7 35 42
2002 6 33 39
After 2002 100 299 399
Minimum lease payments $134 $494 $628
Less imputed interest component 81
Present value of net minimum
lease payments of which
$1 million is included in
current liabilities $ 53
The present value of operating leases was $260 million at January
31, 1998.
<PAGE>
Property under capital leases is summarized as follows:
Jan. 31, Feb. 1,
(dollars in millions) 1998 1997
Cost $ 62 $ 68
Accumulated amortization (33) (34)
Total $ 29 $ 34
Other Liabilities
In addition to accrued pension and postretirement costs, other
liabilities consisted principally of deferred compensation
liabilities of $154 million at January 31, 1998, and $151 million
at February 1, 1997. 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
participants who defer in stock units, and it maintains shares in
treasury sufficient to settle all outstanding stock unit
obligations.
Preference Stock
The company is authorized to issue up to 25,000,000 shares of $.50
par value preference stock. As of January 31, 1998, 800,000 ESOP
preference shares were authorized and 665,866 were outstanding.
The ESOP preference shares are shown separately outside of
shareowners' equity in the consolidated balance sheet because the
shares are redeemable by the holder or by the company in certain
situations.
Common Stock Repurchase Programs
During 1997 and 1996, the company repurchased $300 million and
$600 million of May common stock (6.4 million and 12.7 million
shares, respectively) in the open market.
In addition, on February 12, 1998, the company announced plans to
repurchase up to $650 million of May common stock. Such purchases
will be made in the open market as market conditions and
regulatory rules allow.
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 up to 10 years, may be exercised in installments only
after stated intervals of time, and are conditional upon continued
active employment with the company. The options may be exercised
during certain periods following retirement, disability, or death.
During 1996, the number of stock options and option prices were
adjusted proportionally to reflect the distribution of Payless
common shares to May common shareowners.
A summary of the status of the various stock option plans at the
end of 1997 and 1996 and of the changes within years is presented
below:
1997 1996
Exercise Average Exercise Average
(shares in Price Exercise Price Exercise
thousands) Shares Range Price Shares Range Price
Outstanding
at beginning
of year 6,721 $11-49 $37 5,687 $11-40 $32
Granted 2,105 47-55 48 2,583 43-49 45
Exercised (1,590) 11-47 31 (1,042) 11-40 28
Forfeited or
expired (416) 19-55 42 (507) 25-45 36
Outstanding
at end
of year 6,820 $11-55 $42 6,721 $11-49 $37
Exercisable
at end
of year 2,143 $11-49 $36 2,186 $11-40 $31
Shares available
for additional
grants 7,647 9,349
Fair value
of options
granted $17 $17
The following table summarizes information about stock options
outstanding at January 31, 1998:
Options Outstanding Options Exercisable
Number Average Number
Exercise Outstanding Remaining Average Exercisable Average
Price at Jan. 31 Contractual Exercise at Jan. 31 Exercise
Range (in thousands) Life Price (in thousands) Life
$ 11 3 3 $11 3 3
24-36 2,333 6 32 1,450 6
36-54 4,418 8 44 690 8
55 66 10 - - -
6,820 8 36 2,143 6
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 who receive 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. In 1997 and 1996,
the company granted 123,032 and 257,790 shares of restricted
stock, respectively, under the 1994 Stock Incentive Plan.
<PAGE>
The company's plans are accounted for as provided by APB Opinion
No. 25. For stock options, no compensation cost has been
recognized because the option exercise price is fixed at the
market price on the date of grant. For restricted stock grants,
compensation expense is based upon the grant date market price; it
is recorded over the lapsing period. For performance-based
restricted stock, compensation expense is recorded over the
performance period based on estimates of performance levels.
As an alternative to accounting for stock-based compensation under
APB No. 25, SFAS No. 123, "Accounting for Stock-based
Compensation," establishes a fair-value method of accounting for
employee stock options or similar equity instruments. The company
used the Black-Scholes option pricing model to estimate the grant
date fair value of its 1995 and later option grants. The fair
value is recognized over the option vesting period. As the fair
value represents only 1995 and later option grants, the pro forma
impact shown below may not be representative of future years. Had
compensation cost for these plans been determined in accordance
with SFAS No. 123, the company's net earnings and net earnings per
share would have been as follows:
(dollars in millions,
except per share) 1997 1996 1995
Net earnings from continuing
operations:
As reported $ 779 $ 749 $ 700
Pro forma 766 740 697
Basic EPS from continuing
operations:
As reported $3.27 $2.95 $2.73
Pro forma 3.22 2.92 2.72
Diluted EPS from continuing
operations:
As reported $ 3.11 $2.82 $2.61
Pro forma 3.07 2.79 2.60
The following Black-Scholes assumptions were used in the
calculations above:
1997 1996 1995
Risk-free interest rate 6.6% 6.8% 6.4%
Expected dividend yield $1.20 $1.16 $1.14
Option life 10 yrs. 10 yrs. 10 yrs.
Expected volatility 24% 25% 23%
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 by 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.
Acquisition
In July 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.
This asset acquisition has been accounted for as a purchase.
Accordingly, the operating results of the acquired stores have
been included in the company's consolidated results since the
acquisition date. The acquisition did not have a material effect
on the results of operations or financial position of the company
in 1996.
Discontinued Operation
The company spun off Payless effective May 4, 1996, as a tax-free
distribution to shareowners. The company's financial statements
presented herein reflect Payless as a discontinued operation.
Payless revenues were $601 million and $2,330 million, in 1996 and
1995, respectively. The reported net earnings from the
discontinued operation were net of $16 million and $36 million in
income tax expense for 1996 and 1995, respectively.
<PAGE>
[The following "Eleven-year Financial Summary" is a reproduction
of the same named section in the paper format Annual Report on
pages 28 - 29.]
<TABLE>
<CAPTION>
Eleven-year Financial Summary
(dollars in millions,
except per share) 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Retail Sales $12,352 $11,546 $10,402 $ 9,688 $8,945 $8,334 $7,785 $7,420 $6,951 $6,103 $4,681
Operations
Revenues $12,685 $12,000 $10,952 $10,107 $9,562 $9,362 $9,068 $8,700 $8,356 $7,742 $6,415
Cost of sales 8,732 8,226 7,461 6,879 6,537 6,459 6,275 6,047 5,734 5,348 4,492
Selling, general,
and administrative
expenses 2,375 2,265 2,081 1,916 1,824 1,859 1,861 1,772 1,735 1,645 1,325
Interest expense,
net 299 277 250 233 244 279 315 278 231 196 77
Earnings from
continuing
operations before
income taxes 1,279 1,232 1,160 1,079 957 579* 617 603 656 553 521
Provision for
income taxes 500 483 460 429 379 107* 213 199 231 191 203
Net Earnings from
Continuing
Operations 779 749 700 650 578 472 404 404 425 362 318
LIFO charge (credit) (5) (20) (53) (46) 7 10 26 39 (22) (3) 8
Net earnings 775 755 752 782 711 603 515 500 498 534 444
Depreciation and
amortization 412 374 333 297 281 283 273 253 234 236 187
Cash flow from
operations 1 1,191 1,123 1,033 947 859 755 677 657 659 599 505
Net issuances
(repayments) of
long-term debt 2 (340) 412 444 118 (190) (248) 313 590 169 891 (61)
Capital expenditures 496 632 801 682 560 284 366 466 470 292 353
Dividends on
common stock 279 287 277 251 223 204 198 191 186 184 170
Per Share
Net Earnings from
Continuing
Operations 3 $ 3.11 $ 2.82 $ 2.61 $ 2.43 $ 2.15 $ 1.76 $ 1.52 $ 1.51 $ 1.50 $ 1.23 $ 1.03
Net earnings 3,4 3.10 2.84 2.81 2.92 2.65 2.26 1.93 1.87 1.76 1.81 1.44
Dividends paid 5 1.20 1.16 1.12 1.01 .90 .83 .81 .77 .69 .62 .56
Book value 16.49 15.41 18.42 16.65 14.65 12.82 11.26 10.04 9.32 10.75 9.13
Market price:
- high 57.13 52.25 46.25 45.13 46.50 37.25 30.19 29.56 26.31 20.00 25.44
- low 43.63 40.50 33.50 32.25 33.44 26.00 22.63 18.69 17.31 14.38 11.13
- average of
high and low 50.38 46.38 39.88 38.69 39.97 31.63 26.41 24.13 21.81 17.19 18.28
Financial Position
Customer accounts
receivable $ 2,167 $ 2,410 $ 2,377 $ 2,418 $2,367 $2,373 $2,377 $2,456 $2,223 $2,099 $1,590
Merchandise
inventories 2,433 2,380 2,134 1,813 1,647 1,476 1,436 1,375 1,278 1,141 880
Working capital 3,012 3,156 3,536 3,069 2,960 2,730 3,089 2,672 2,094 2,123 1,827
Property and
equipment, net 4,224 4,159 3,744 3,275 2,977 2,774 2,808 2,728 2,446 2,285 1,830
Long-term debt and
preference stock 3,849 4,196 3,701 3,240 3,192 3,256 4,299 3,948 3,387 2,384 1,048
Shareowners' equity 3,809 3,650 4,585 4,135 3,639 3,181 2,781 2,467 2,319 3,050 2,723
Total assets 9,930 10,059 10,122 9,237 8,614 8,376 8,566 8,083 7,570 7,374 5,464
Statistics
Percent of revenues:
Net earnings from
continuing
operations 6.1% 6.2% 6.4% 6.4% 6.0% 5.0% 4.5% 4.6% 5.1% 4.7% 5.0%
Cash flow from
operations1 9.4 9.3 9.4 9.4 9.0 8.1 7.5 7.6 7.9 7.7 7.9
Return on equity 21.2 19.4 20.8 21.3 22.1 21.5 20.7 21.8 18.0 18.6 17.0
Return on net assets 18.5 18.8 20.1 20.1 19.0 15.4** 14.5 15.8 16.9 16.2 15.7
Stores Open at
Year-end 369 365 346 314 301 303 318 324 288 297 258
Average Shares
Outstanding and
Equivalents
Basic 232.3 247.2 248.9 248.4 248.4 247.5 246.8 248.1 265.7 294.0 303.7
Diluted 249.0 264.1 264.8 264.9 265.4 264.7 264.0 264.8 279.5 294.8 306.3
<FN>
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. It is
different from cash flow from operating activities as shown on the statement of cash flows.
2 Net issuances (repayments) of long-term debt exclude $247 million of debt assumed in the Strawbridge & Clothier
acquisition in 1996, the elimination of $618 million of MCAC loans in 1992, and $400 million of guaranteed ESOP debt
in 1989.
3 Represents earnings per share on a diluted basis.
4 Basic earnings per share were $.16 higher in 1997, $.14 higher in 1996, $.13 higher in 1995, $.15 higher in 1994, $.14
higher in 1993, $.10 higher in 1992, $.08 higher in 1991, $.07 higher in 1990, $.06 higher in 1989, and $.01 higher in
each of 1988 and 1987.
5 The annual dividend was increased to $1.27 per share effective with the March 15, 1998, dividend payment.
* 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.
</TABLE>
<PAGE>
[The following "Management's Responsibility and Report of
Independent Public Accountants" section is a reproduction of
the same named section included in the paper format Annual
Report on page 30.]
Management's Responsibility and Report of Independent Public
Accountants
Management's Responsibility
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 judgment 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 an internal control
structure 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.
Internal controls include 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 structure 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 five times during 1997. It 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. The audit results included 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. They attend each meeting of the committee. The
members of the Audit Committee are Russell E. Palmer (chairman),
Helene L. Kaplan, 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.
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 Delaware corporation) and
subsidiaries as of January 31, 1998, and February 1, 1997, and the
related consolidated statements of earnings, shareowners' equity
and cash flows for each of the three fiscal years in the period
ended January 31, 1998. 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 January 31, 1998,
and February 1, 1997, and the results of their operations and
their cash flows for each of the three fiscal years in the period
ended January 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
1010 Market Street
St. Louis, Missouri 63101-2089
February 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, STATEMENT OF EARNINGS AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS ON PAGES 17, 18 AND 21 - 27, RESPECTIVELY, OF THE MAY
DEPARTMENT STORES COMPANY 1997 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 14
<SECURITIES> 185
<RECEIVABLES> 2,260
<ALLOWANCES> 96
<INVENTORY> 2,433
<CURRENT-ASSETS> 4,878
<PP&E> 6,787
<DEPRECIATION> 2,563
<TOTAL-ASSETS> 9,930
<CURRENT-LIABILITIES> 1,866
<BONDS> 3,745
0
0
<COMMON> 115
<OTHER-SE> 3,694
<TOTAL-LIABILITY-AND-EQUITY> 9,930
<SALES> 12,352
<TOTAL-REVENUES> 12,685
<CGS> 8,732
<TOTAL-COSTS> 8,732
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299
<INCOME-PRETAX> 1,279
<INCOME-TAX> 500
<INCOME-CONTINUING> 779
<DISCONTINUED> 0
<EXTRAORDINARY> (4)
<CHANGES> 0
<NET-INCOME> 775
<EPS-PRIMARY> 3.26
<EPS-DILUTED> 3.10
</TABLE>
<PAGE>
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, 1997
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
<PAGE>
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, 1997 4
Statement of Net Assets Available for
Benefits - December 31, 1996 7
Statement of Changes in Net Assets
Available for Benefits for the Year
Ended December 31, 1997 10
Notes to Financial Statements -
December 31, 1997 and 1996 12
Schedule I - Item 27(a): Schedule of Assets
Held for Investment Purposes -
December 31, 1997 18
Schedule II - Item 27(d): Schedule of
Reportable Transactions for the Year
Ended December 31, 1997 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 22, 1998 By: /s/ John L. Dunham
John L. Dunham
Executive Vice President and Chief
Financial Officer
<PAGE>
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 of The May Department Stores Company Profit Sharing Plan as of
December 31, 1997 and 1996, and the related statement of changes in net assets
available for benefits for the year ended December 31, 1997. These financial
statements and the 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, 1997 and 1996, and the changes in net assets available for
benefits for the year ended December 31, 1997, 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 22, 1998
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997
(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 $551,965 $241,377 $ -
Common stock - - 160,657
Commingled equity index fund - - -
Short-term investments - - 605
U.S. government securities - - -
Fixed income investments - - -
-------- -------- --------
Total investments 551,965 241,377 161,262
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts (45,558) 45,558 -
Dividends and interest receivable - - 3
Receivable - withholdings of member
contributions - - -
Member interfund transfers - (190) (65)
-------- -------- --------
Total assets 506,407 286,745 161,200
-------- -------- --------
LIABILITIES
LIABILITIES:
Notes payable 342,329 - -
Accrued interest payable 4,805 - -
Net amount payable for investment
securities transactions
and other - - 47
Amounts payable for administrative
expenses - - 151
-------- -------- --------
Total liabilities 347,134 - 198
-------- -------- --------
NET ASSETS AVAILABLE FOR BENEFITS $159,273 $286,745 $161,002
======== ======== ========
NUMBER OF UNITS AT DECEMBER 31, 1997 3,009
========
VALUE PER UNIT AT DECEMBER 31, 1997 $ 53.51
========
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997
(Thousands, except per unit information)
Participant Directed
Investment Funds
------------------------------------
May Common Fixed
Common Stock Money Income
ASSETS Stock Index Market Index
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ - $ - $ -
Common stock 415,381 - - -
Commingled equity index fund - 124,796 - -
Short-term investments 1,564 330 63,908 1,191
U.S. government securities - - - 28,367
Fixed income investments - - - 9,196
-------- -------- ------- -------
Total investments 416,945 125,126 63,908 38,754
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - - - -
Dividends and interest receivable 8 187 322 569
Receivable - withholdings of
member contributions 381 250 60 56
Member interfund transfers (167) 2,119 (1,520) (177)
-------- -------- ------- -------
Total assets 417,167 127,682 62,770 39,202
-------- -------- ------- -------
LIABILITIES
LIABILITIES:
Notes payable - - - -
Accrued interest payable - - - -
Net amount payable for investment
securities transactions
and other 123 130 - 304
Amounts payable for
administrative expenses 392 216 165 133
-------- -------- ------- -------
Total liabilities 515 346 165 437
-------- -------- ------- -------
NET ASSETS AVAILABLE FOR BENEFITS $416,652 $127,336 $62,605 $38,765
======== ======== ======= =======
NUMBER OF UNITS AT DECEMBER 31, 1997 7,786 30,982 38,645 20,403
======== ======== ======= =======
VALUE PER UNIT AT DECEMBER 31, 1997 $53.51 $4.11 $1.62 $1.90
====== ===== ===== =====
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997
(Thousands, except per unit information)
Distribution
ASSETS Account Total
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ 793,342
Common stock - 576,038
Commingled equity index fund - 124,796
Short-term investments 4,425 72,023
U.S. government securities - 28,367
Fixed income investments - 9,196
------ ----------
Total investments 4,425 1,603,762
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - -
Dividends and interest receivable - 1,089
Receivable - withholdings of
member contributions - 747
Member interfund transfers - -
------ ----------
Total assets 4,425 1,605,598
------ ----------
LIABILITIES
LIABILITIES:
Notes payable - 342,329
Accrued interest payable - 4,805
Net amount payable for
investment securities
transactions and other 4,425 5,029
Amounts payable for
administrative expenses - 1,057
------ ----------
Total liabilities 4,425 353,220
------ ----------
NET ASSETS AVAILABLE FOR BENEFITS $ - $1,252,378
====== ==========
The accompanying notes are an integral part of this statement.
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1996
(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 $544,377 $178,483 $ -
Common stock - - 158,322
Commingled equity index fund - - -
Short-term investments - - 737
U.S. government securities - - -
Fixed income investments - - -
-------- -------- --------
Total investments 544,377 178,483 159,059
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts (40,127) 40,127 -
Dividends and interest receivable - - 4
Receivable - withholdings of
member contributions - - -
Member interfund transfers - (137) 405
-------- -------- --------
Total assets 504,250 218,473 159,468
-------- -------- --------
LIABILITIES
LIABILITIES:
Notes payable 362,557 - -
Accrued interest payable 5,085 - -
Net amount payable for
investment security
transactions and other - - 213
Amounts payable for
administrative expenses - - 128
-------- -------- --------
Total liabilities 367,642 - 341
-------- -------- --------
NET ASSETS AVAILABLE FOR BENEFITS $136,608 $218,473 $159,127
======== ======== ========
NUMBER OF UNITS AT DECEMBER 31, 1996 3,420
========
VALUE PER UNIT AT DECEMBER 31, 1996 $ 46.53
========
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1996
(Thousands, except per unit information)
Participant Directed
Investment Funds
-----------------------------------
May Common Fixed
Common Stock Money Income
ASSETS Stock Index Market Index
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ - $ - $ -
Common stock 380,739 - - -
Commingled equity index fund - 81,872 - -
Short-term investments 1,771 461 50,701 1,570
U.S. government securities - - - 26,715
Fixed income investments - - - 5,802
-------- ------- ------- -------
Total investments 382,510 82,333 50,701 34,087
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - - - -
Dividends and interest receivable 9 271 234 418
Receivable - withholdings of
member contributions 350 139 70 47
Member interfund transfers 975 (170) (1,034) (39)
-------- ------- ------- -------
Total assets 383,844 82,573 49,971 34,513
-------- ------- ------- -------
LIABILITIES
LIABILITIES:
Notes payable - - - -
Accrued interest payable - - - -
Net amount payable for
investment security
transactions and other 511 - - 896
Amounts payable for
administrative expenses 307 158 130 107
-------- ------- ------- -------
Total liabilities 818 158 130 1,003
-------- ------- ------- -------
NET ASSETS AVAILABLE FOR BENEFITS $383,026 $82,415 $49,841 $33,510
======== ======= ======= =======
NUMBER OF UNITS AT DECEMBER 31, 1996 8,232 26,571 32,234 18,858
======== ======= ======= =======
VALUE PER UNIT AT DECEMBER 31, 1996 $46.53 $3.10 $1.55 $1.78
====== ===== ===== =====
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1996
(Thousands, except per unit information)
Distribution
ASSETS Account Total
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ 722,860
Common stock - 539,061
Commingled equity index fund - 81,872
Short-term investments 2,602 57,842
U.S. government securities - 26,715
Fixed income investments - 5,802
------ ----------
Total investments 2,602 1,434,152
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - -
Dividends and interest receivable - 936
Receivable - withholdings of
member contributions - 606
Member interfund transfers - -
------ ----------
Total assets 2,602 1,435,694
------ ----------
LIABILITIES
LIABILITIES:
Notes payable - 362,557
Accrued interest payable - 5,085
Net amount payable for
investment security
transactions and other 2,602 4,222
Amounts payable for
administrative expenses - 830
------ ----------
Total liabilities 2,602 372,694
------ ----------
NET ASSETS AVAILABLE FOR BENEFITS $ - $1,063,000
====== ==========
The accompanying notes are an integral part of this statement.
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Thousands)
Nonparticipant Directed
Investment Funds
--------------------------------
ESOP Preference
---------------------- May
Member Common
Unallocated Allocated Stock
NET APPRECIATION IN FAIR VALUE OF
INVESTMENTS $ 54,699 $ 36,374 $ 19,360
-------- -------- --------
INVESTMENT INCOME:
Dividends 18,862 6,863 3,860
Interest - - 41
-------- -------- --------
18,862 6,863 3,901
-------- -------- --------
CONTRIBUTIONS:
Member - - -
Employer allocation (45,679) 45,679 -
Employer ESOP contribution 24,173 - -
Member interfund transfers - (2,343) (8,500)
-------- -------- --------
(21,506) 43,336 (8,500)
-------- -------- --------
DEDUCTIONS:
Member terminations and
withdrawals - 18,301 12,239
Interest expense 29,390 - -
Administrative expenses - - 647
-------- -------- --------
29,390 18,301 12,886
-------- -------- --------
INCREASE IN NET ASSETS AVAILABLE
FOR BENEFITS 22,665 68,272 1,875
NET ASSETS AVAILABLE FOR BENEFITS AT
DECEMBER 31, 1996 136,608 218,473 159,127
-------- -------- --------
NET ASSETS AVAILABLE FOR BENEFITS AT
DECEMBER 31, 1997 $159,273 $286,745 $161,002
======== ======== ========
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Thousands)
Participant Directed
Investment Funds
------------------------------------
May Common Fixed
Common Stock Money Income
Stock Index Market Index Total
NET APPRECIATION IN FAIR
VALUE OF INVESTMENTS $ 48,485 $ 26,852 $ - $ 494 $ 186,264
-------- -------- ------- ------- ----------
INVESTMENT INCOME:
Dividends 9,621 1,879 - - 41,085
Interest 101 53 3,263 2,322 5,780
-------- -------- ------- ------- ----------
9,722 1,932 3,263 2,322 46,865
-------- -------- ------- ------- ----------
CONTRIBUTIONS:
Member 44,921 16,784 7,678 5,900 75,283
Employer allocation - - - - -
Employer ESOP contribution - - - - 24,173
Member interfund transfers (23,333) 12,298 19,922 1,956 -
-------- -------- ------- ------- ----------
21,588 29,082 27,600 7,856 99,456
-------- -------- ------- ------- ----------
DEDUCTIONS:
Member terminations and
withdrawals 44,558 12,102 17,445 4,905 109,550
Interest expense - - - - 29,390
Administrative expenses 1,611 843 654 512 4,267
-------- -------- ------- ------- ----------
46,169 12,945 18,099 5,417 143,207
-------- -------- ------- ------- ----------
INCREASE IN NET ASSETS
AVAILABLE FOR BENEFITS 33,626 44,921 12,764 5,255 189,378
NET ASSETS AVAILABLE FOR
BENEFITS AT DECEMBER 31,
1996 383,026 82,415 49,841 33,510 1,063,000
-------- -------- ------- ------- ----------
NET ASSETS AVAILABLE FOR
BENEFITS AT DECEMBER 31,
1997 $416,652 $127,336 $62,605 $38,765 $1,252,378
======== ======== ======= ======= ==========
The accompanying notes are an integral part of this statement.
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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
May 1996, 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, a Delaware
corporation ("May"), and its subsidiaries and affiliates who are members of
The May Department Stores Company Retirement Plan. Participation is
voluntary.
Contributions
Plan members may contribute 1% to 15% of their annual pay as defined.
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 $22.51 per common share equivalent ($24.74 per common share equivalent
before the Payless ShoeSource, Inc. "spin-off" in May 1996). 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 the original cost. 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 for a Plan year exceeds 100%, only ESOP
Preference Shares are used for the employer allocation and no May common
shares are contributed as a supplemental contribution. The effective matching
rate is also 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.
<PAGE>
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 a fund
comprised proportionately of all 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.
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, 1997, the nonparticipant directed May Common Stock and ESOP
Member Allocated Funds include approximately $59,893,000 and $64,231,000,
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, 1997, will be made in
May 1998 and will be in the form of 38,387 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 22.52498 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 The May Department Stores Company. 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, 1997 and 1996.
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; and (c) contributions by May. 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 may make
"supplemental" contributions to the Plan to make up the difference, subject to
the 100% effective matching rate limitations described in Note 1.
Supplemental contributions can be made in either shares of May common stock or
cash.
<PAGE>
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 for each ESOP Preference Share. As of December 31, 1997 and 1996, the
ESOP Preference Shares were valued at their conversion values of $1,186.78 and
$1,053.04, respectively.
Federal Income Taxes
The Trust established under the Plan to hold the Plan's assets is qualified
pursuant to Sections 401(a), 401(k) and 4975(e)(7) of the Internal Revenue
Code and accordingly, the Trust's net investment income is exempt from income
taxes. The Plan has received a favorable tax determination letter dated
December 13, 1994. The Plan has been amended since receiving the
determination letter. The Plan administration believes that the amendments do
not affect the tax-exempt status of the Plan.
<PAGE>
In a request filed under the Voluntary Compliance Resolution ("VCR") program,
May identified a nonexempt prohibited transaction. In April 1997, May, in
conformance with a VCR Compliance Statement issued by the Internal Revenue
Service ("IRS"), corrected the transaction. In September 1997, May filed
Forms 5330 and paid the applicable excise tax. In December 1997, May received
notice that the IRS accepted the Forms 5330.
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
All administrative expenses (including the allocable portion of expenses for
data processing services, and salaries and benefits of employees providing
services to the Plan) 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 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 the
greater of the guaranteed minimum value (plus accrued dividends) or
conversion value, as of the distribution date.
(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.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of net assets available for benefits and the
reported amounts of additions to and deductions from net assets available for
benefits during the year. Actual results could differ from those estimates.
<PAGE>
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, 1997 and 1996,
are as follows (dollars in thousands):
December 31, 1997 December 31, 1996
---------------------- ----------------------
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 465,093 $ 551,965 516,956 $ 544,377
Member allocated 203,387 241,377 169,492 178,483
---------- ---------- ---------- ----------
668,480 793,342 686,448 722,860
========== ==========
The May Department
Stores Company
Common Stock 10,933,100 576,038 11,530,716 539,061
The Bank of New
York Short-Term
Investment Fund -
Master Notes $72,023 72,023 $57,842 57,842
Chase Investors
Commingled Equity
Index Fund 131,291 124,796 112,782 81,872
---------- ----------
Total $1,566,199 $1,401,635
========== ==========
4. NOTES PAYABLE:
Notes payable as of December 31 consisted of the following (in thousands):
1997 1996
ESOP Notes Payable:
Series A, 8.32%, due April 30, 2001 $138,365 $158,593
Series B, 8.49%, due April 30, 2004 203,964 203,964
-------- --------
$342,329 $362,557
======== ========
The scheduled principal payments for the Series A ESOP Note for the remaining
four years are as follows: 1998 - $25,385,000; 1999 - $31,118,000; 2000 -
$37,354,000; and 2001 - $44,508,000. Principal payments on the Series B ESOP
Note begin in 2002 with a payment of $52,317,000. As of December 31, 1997 and
1996, the total fair value of the ESOP Notes was approximately $402,988,000
and $430,341,000, respectively.
<PAGE>
5. RECONCILIATION TO FORM 5500:
As of December 31, 1997 and 1996, the Plan had approximately $19,127,000 and
$13,523,000, respectively, of pending distributions to participants. These
amounts are included in Net Assets Available for Benefits. For reporting on
the Plan's Form 5500, 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, 1997
(thousands):
Net Assets
Benefits Available
Payable to Benefits for
Participants Paid Benefits
Per financial statements $ - $109,550 $1,252,378
Pending benefit distributions -
December 31, 1997 19,127 19,127 (19,127)
Pending benefit distributions -
December 31, 1996 - (13,523) -
------- -------- ----------
Per Form 5500 $19,127 $115,154 $1,233,251
======= ======== ==========
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.
<PAGE>
SCHEDULE I
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
EMPLOYER #: 43-1104396
PLAN #: 003
ITEM 27(a): SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1997
(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 465,093 $235,802 $ 551,965
Allocated 203,387 103,117 241,377
-------- ----------
ESOP Preference Fund Total $338,919 $ 793,342
======== ==========
MAY COMMON STOCK FUND
* The May Department Stores Company
Common stock 10,933,100 $256,492 $ 576,038
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 2,169,256 2,169 2,169
-------- ----------
May Common Stock Fund Total $258,661 $ 578,207
======== ==========
COMMON STOCK INDEX FUND
Chase Investors Commingled Equity
Index Fund 131,291 $ 69,507 $ 124,796
* The Bank of New York Short-Term
Investment Fund- Master notes $ 329,823 330 330
-------- ----------
Common Stock Index Fund Total $ 69,837 $ 125,126
======== ==========
MONEY MARKET FUND
* The Bank of New York Short-Term
Investment Fund- Master Notes $63,907,947 $ 63,908 $ 63,908
======== ==========
FIXED INCOME INDEX FUND
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 1,191,272 $ 1,191 $ 1,191
-------- ----------
* Also a party-in-interest.
<PAGE>
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:
6.625%, due 05/15/07 $1,200,000 $ 1,226 $ 1,270
5.125%, due 12/31/98 1,200,000 1,178 1,195
7.875%, due 11/15/04 1,000,000 1,110 1,118
13.75%, due 08/15/04 525,000 810 752
5.5%, due 04/15/00 3,000,000 2,877 2,988
6.75%, due 06/30/99 5,800,000 5,860 5,890
6.125%, due 12/31/01 1,500,000 1,499 1,520
7.75%, due 01/31/00 1,000,000 1,036 1,040
5.875%, due 02/15/04 1,300,000 1,253 1,311
5.25%, due 01/31/01 2,300,000 2,265 2,272
6.875%, due 05/15/06 1,750,000 1,796 1,872
6.375%, due 08/15/02 3,150,000 3,193 3,231
8.75%, due 08/15/00 700,000 829 751
-------- ----------
Total U.S. treasury notes 24,932 25,210
-------- ----------
U.S. Government Agency Securities:
Federal Home Loan Bank Consumer Bonds-
6.12%, due 1/24/01 350,000 350 348
6.79%, due 2/5/02 300,000 301 300
Federal Home Loan Mortgage Corp.-
6.22%, due 3/24/03 200,000 181 203
Federal National Mortgage Assoc.
Securities-
8.35%, due 11/10/99 525,000 544 540
Debentures-
7.65%, due 3/10/05 260,000 268 285
Medium Term Notes-
6.41%, due 3/8/06 400,000 402 408
6.69%, due 8/7/01 400,000 402 411
Tennessee Valley Authority, Power
Bond 1992 Series F, 6.875%, due
8/1/02 250,000 258 253
SLMA Med. Term Notes, 6.58%, due
1/2/02 400,000 399 409
-------- ----------
Total U.S. government agency
securities 3,105 3,157
-------- ----------
Total U.S. government
securities 28,037 28,367
-------- ----------
<PAGE>
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 Corp., 7.75%, due
7/15/02 $ 300,000 $ 306 $ 317
Republic NY Corp., 7.25%, due 7/15/02 100,000 98 104
NCNB Corp., 9.125%, due 10/15/01 268,000 306 293
-------- ----------
Total bank corporate bonds 710 714
-------- ----------
Finance and Insurance Corporate Bonds:
American Express Co., 8.5%, due
8/15/01 200,000 201 214
Corestates Cap. Corp., 5.75%, due
1/15/01 400,000 388 396
Ford Motor Credit Co., 6.25%, due
2/26/98 400,000 405 400
ABN-AMRO Bank, 6.625%, due 10/31/01 300,000 300 304
General Electric Capital Corp.,
8.85%, due 4/1/05 300,000 364 345
Grace WRT Co., 8.00%, due 8/15/04 500,000 519 541
Simon Debartolo Group, 6.875%, due
11/15/06 500,000 498 504
Travelers/Aetna Property Casualty
Corp., 6.75%, due 4/15/01 300,000 301 304
Lasmo USA Inc., 6.75%, due 12/15/07 400,000 399 404
US West Cap FDG Inc., 6.85%, due
1/15/02 400,000 400 404
-------- ----------
Total finance and insurance
corporate bonds 3,775 3,816
-------- ----------
Industrial Corporate Bonds:
Coca Cola Co., 7.875%, due 9/15/98 200,000 204 202
Eli Lilly & Co., 8.125%, due 12/1/01 200,000 199 213
General Motors Corp., 7.10%, due
3/15/06 300,000 303 313
Philip Morris Co., Inc., 8.625%, due
3/1/99 250,000 248 257
Lockhead Martin Corp., 6.85%, due
5/15/01 400,000 400 407
Hercules, Inc., 6.15%, due 8/1/00 400,000 400 400
Raytheon Co., 6.75%, due 8/15/07 300,000 299 306
-------- ----------
Total industrial corporate
bonds 2,053 2,098
-------- ----------
Oil Corporate Bonds:
Tenneco, Inc., 7.875%, due 10/1/02 250,000 248 265
El Paso Nat. Gas Co., 6.75%, due
11/15/03 300,000 305 306
-------- ----------
Total oil corporate bonds 553 571
-------- ----------
Utilities Corporate Bonds:
Duke Power Co., 1st & Refunding
Mortgage Note, 7%, due 6/1/00 195,000 203 199
Enron Corp., 9.5%, due 6/15/01 100,000 110 110
Enron Corp., 6.50%, due 8/1/02 300,000 298 301
-------- ----------
Total utilities corporate
bonds 611 610
-------- ----------
<PAGE>
SCHEDULE I
(Continued)
(c) (e)
(b) Principal (d) Fair
(a) Identity of Issue Amount Cost Value
(Thousands)
FIXED INCOME INDEX FUND (Continued)
Asset Backed Securities:
California Infrastructure, 6.32%, due
9/25/05 $ 400,000 $ 403 $ 402
-------- ----------
403 402
-------- ----------
Foreign Obligations:
Finland Rep NT, 7.875%, due 7/28/04 225,000 229 247
Hydro-Quebec Debenture, Series IF,
7.375%, due 2/1/03 150,000 161 157
Province of Ontario, Canada
Debenture, 8%, due 10/17/01 150,000 150 159
Province of Ontario, Canada
Debenture, 7.375%, due 1/27/03 400,000 415 422
-------- ----------
Total foreign obligations 955 985
-------- ----------
Total fixed income investments 9,060 9,196
-------- ----------
Fixed Income Index Fund Total $ 38,288 $ 38,754
======== ==========
DISTRIBUTION ACCOUNT
* The Bank of New York Short-Term
Investment Fund- Master Notes $4,424,481 $ 4,425 $ 4,425
======== ==========
TOTAL ASSETS HELD FOR INVESTMENT
PURPOSES AT DECEMBER 31, 1997 $774,038 $1,603,762
======== ==========
* Also a party-in-interest.
<PAGE>
SCHEDULE II
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
ITEM 27(d): SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(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) 418 $134,049 309 $121,690 $121,690 $ -
The May Department
Stores Company
Common Stock (1) (2) 58 27,027 44 53,491 57,895 4,404
(1) Also a party-in-interest.
(2) Includes conversion of ESOP Preference Shares.
<PAGE>
<PAGE>
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 Statement on Form S-8 File No. 333-00957.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
April 22, 1998
