<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended October 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-79
THE MAY DEPARTMENT STORES COMPANY
(Exact name of registrant as specified in its charter)
Delaware 43-1104396
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
611 Olive Street, St. Louis, Missouri 63101
(Address of principal executive offices) (Zip Code)
(314) 342-6300
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90
days. YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
330,858,418 shares of common stock, $0.50 par value, as of October
30, 1999.
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
Oct. 30, Oct. 31, Jan. 30,
ASSETS 1999 1998 1999
Current Assets:
Cash and cash equivalents $ 34 $ 32 $ 112
Accounts receivable, net 1,817 1,856 2,144
Merchandise inventories 3,382 3,300 2,655
Other current assets 70 99 76
Total Current Assets 5,303 5,287 4,987
Property and Equipment, at cost 7,623 7,125 7,260
Accumulated Depreciation (2,925) (2,646) (2,747)
Net Property and Equipment 4,698 4,479 4,513
Goodwill and other assets 1,024 1,054 1,033
Total Assets $11,025 $ 10,820 $ 10,533
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable $ 176 $ 381 $ -
Current maturities of
long-term debt 264 70 98
Accounts payable 1,415 1,395 965
Accrued expenses 886 849 807
Income taxes 34 5 189
Total Current Liabilities 2,775 2,700 2,059
Long-term Debt 3,567 3,868 3,825
Deferred Income Taxes 506 471 482
Other Liabilities 309 290 309
ESOP Preference Shares 318 330 327
Unearned Compensation (283) (302) (305)
Shareowners' Equity 3,833 3,463 3,836
Total Liabilities and
Shareowners' Equity $11,025 $ 10,820 $ 10,533
The accompanying notes to condensed consolidated financial
statements are an integral part of this balance sheet.
2
<PAGE>
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Millions, except per share) 13 Weeks Ended 39 Weeks Ended
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
Net Retail Sales $ 3,173 $ 3,010 $ 9,179 $ 8,539
Revenues $ 3,245 $ 3,089 $ 9,435 $ 8,795
Cost of sales 2,287 2,180 6,605 6,182
Selling, general and
administrative expenses 660 625 1,929 1,796
Interest expense, net 70 69 213 201
Earnings before income taxes 228 215 688 616
Provision for income taxes 90 85 274 245
Net Earnings $ 138 $ 130 $ 414 $ 371
Basic earnings per share $ .40 $ .36 $ 1.20 $ 1.03
Diluted earnings per share $ .38 $ .35 $ 1.15 $ .99
Dividends paid per
common share .22-1/4 .21-1/6 .66-3/4 .63-1/2
Weighted average shares
outstanding:
Basic 331.0 341.7 332.9 345.1
Diluted 354.3 366.2 356.6 370.1
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
3
<PAGE>
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions) 39 Weeks Ended
Oct. 30, Oct. 31,
1999 1998
Operating Activities:
Net earnings $ 414 $ 371
Depreciation and amortization 346 320
(Increase) Decrease in working capital (25) 40
Other, net 52 31
787 762
Investing Activities:
Net additions to property and equipment (552) (557)
Net additions to goodwill and other assets - (248)
(552) (805)
Financing Activities:
Net issuances of notes payable 176 381
Net (repayments) issuances of long-term debt (62) 219
Net purchases of common stock (191) (491)
Dividend payments, net of tax benefit (236) (233)
(313) (124)
Decrease in Cash and Cash Equivalents $ (78) $ (167)
Cash paid during the period:
Interest $ 222 $ 220
Income Taxes 387 351
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
4
<PAGE>
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interim Results. These unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions
to Form 10-Q of The Securities and Exchange Commission and should
be read in conjunction with the Notes to Consolidated Financial
Statements (pages 25-31) in the 1998 Annual Report. In the opinion
of management, this information is fairly presented and all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the results for the interim
periods have been included; however, certain items are included in
these statements based on estimates for the entire year. Also,
operating results of periods which exclude the Christmas season may
not be indicative of the operating results that may be expected for
the full fiscal year.
Inventories. Merchandise inventories are stated on the LIFO (last-
in, first-out) cost basis. The LIFO provision for the third
quarter was $4 million in 1999 and 1998. The year-to-date LIFO
provision was $20 million in 1999 and 1998.
Common Stock Split. During the first quarter of 1999, the board of
directors approved a three-for-two common stock split for
distribution on March 22, 1999, equivalent to one share of common
stock for each two shares of common stock held by shareowners of
record on March 1, 1999. All share and per share data included in
this report have been restated to reflect the stock split.
Common Stock Repurchase Program. During the first quarter of 1999,
May's board of directors authorized a common stock repurchase
program of up to $500 million. As of October 30, 1999, May has
repurchased approximately $173 million of common stock, or
approximately 4.2 million shares at an average price of $41 per
share, under this program. Such purchases are being made in the
open market as market conditions and regulatory rules allow.
Acquisition. On October 15, 1999, May announced it will acquire
Zions Co-operative Mercantile Institution (ZCMI). ZCMI operates 14
stores in Utah and Idaho. Under the merger agreement, shareholders
of ZCMI will receive shares of May Common Stock equivalent to
$22.50 for each share of ZCMI. May expects to issue approximately
1.5 million shares of May Common Stock valued at approximately $52
million to complete the transaction. May plans to repurchase a
comparable number of May common shares in the open market as an
addition to the Stock Repurchase Program authorized in the first
quarter of 1999. The transaction is expected to close in the
fourth quarter of 1999, will be accounted for as a purchase, and
will not have a material impact on the May's financial statements.
Summarized Financial Information - The May Department Stores
Company, New York. Summarized financial information for The May
Department Stores Company, New York, is set forth below for 1999
and 1998.
October 30, January 30,
1999 1999
Financial Position
Current assets $5,292 $ 4,984
Noncurrent assets 6,053 5,557
Current liabilities 2,800 2,083
Noncurrent liabilities 7,582 7,815
5
<PAGE>
13 Weeks Ended 39 Weeks Ended
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
Operating Results
Revenues $3,245 $ 3,089 $9,435 $8,795
Cost of sales 2,287 2,180 6,605 6,182
Net earnings 91 83 273 230
Earnings per Share. The following tables reconcile net earnings
and weighted average shares outstanding to amounts used to
calculate basic and diluted earnings per share ("EPS") for the
periods shown (millions, except per share).
13 Weeks Ended
October 30, 1999 October 31, 1998
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 138 $ 130
ESOP preference
shares' dividends (5) (5)
Basic EPS 133 331.0 $ 0.40 125 341.7 $0.36
ESOP preference
shares 4 21.3 4 22.1
Assumed exercise of
options (treasury
stock method) - 2.0 - 2.4
Diluted EPS $ 137 354.3 $ 0.38 $ 129 366.2 $0.35
39 Weeks Ended
October 30, 1999 October 31, 1998
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 414 $ 371
ESOP preference
shares' dividends (14) (14)
Basic EPS 400 332.9 $ 1.20 357 345.1 $1.03
ESOP preference
shares 12 21.5 11 22.3
Assumed exercise of
options (treasury
stock method) - 2.2 - 2.7
Diluted EPS $ 412 356.6 $ 1.15 $ 368 370.1 $0.99
Reclassifications. Certain prior period amounts have been
reclassified to conform with current year presentation.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net retail sales represent the sales of stores operating at the end
of the latest period. They exclude finance charge revenue and the
sales of stores which have been closed and not replaced. Sales
percent increases are as follows:
Third Quarter First Nine Months
Store-for- Store-for-
Total Store Total Store
5.4% 1.1% 7.5% 3.1%
6
<PAGE>
Store-for-store sales represent sales of those stores open during
both periods. May discontinued its consumer electronics business
at the beginning of fiscal 1999. If consumer electronics sales had
been excluded from net retail sales in both years, the increase in
total sales and store-for-store sales would have been about 1%
higher.
The following table presents the components of costs and expenses,
as a percent of revenues. Revenues include finance charge
revenues, all sales from all stores operating during the period and
consumer electronics liquidation sales in the first quarter of
1999.
Third Quarter First Nine Months
1999 1998 1999 1998
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 70.5 70.6 70.0 70.3
Selling, general and
administrative expenses 20.3 20.2 20.4 20.4
Interest expense, net 2.2 2.3 2.3 2.3
Earnings before income taxes 7.0 6.9 7.3 7.0
Provision for income taxes 39.6* 39.6* 39.9* 39.9*
Net Earnings 4.2% 4.2% 4.4% 4.2%
*-Percent represents effective income tax rate.
Cost of sales was $2,287 million in the 1999 third quarter, up 4.9%
from $2,180 million in the 1998 third quarter. For the first nine
months of 1999, cost of sales was $6,605 million, a 6.9% increase
from $6,182 million in the 1998 period. The overall increases are
primarily related to higher sales. As a percent of revenues, cost
of sales decreased 0.1% in the third quarter and 0.3% in the first
nine months compared with the same periods of 1998. Gross margins
during the quarter and first nine months of 1999 improved due to
the elimination of lower margin consumer electronics business and
improved buying and occupancy expense leverage as a result of sales
increases. The 1999 third quarter gross margin improvement was
partially offset by higher promotional markdown levels.
Selling, general and administrative expenses were $660 million in
the 1999 third quarter, compared with $625 million in the 1998
third quarter, a 5.6% increase. For the first nine months of 1999,
selling, general and administrative expenses were $1,929 million
compared with $1,796 million in the 1998 period, a 7.4% increase.
The increases are primarily related to higher sales volume.
Selling, general and administrative expenses as a percent of
revenues increased 0.1% for the third quarter of 1999 as compared
with 1998 primarily due to higher retirement and profit sharing
expenses. Selling, general and administrative expenses as a
percent of revenues remained constant in the first nine months of
1999 compared with the first nine months of 1998 as increases in
retirement and profit sharing expenses were offset by favorable
expense leverage as a result of sales increases.
7
<PAGE>
Net interest expense for the third quarter and first nine months of
1999 and 1998 was as follows (millions):
Third Quarter First Nine Months
1999 1998 1999 1998
Interest expense $ 78 $ 79 $234 $228
Interest income (2) (5) (9) (16)
Capitalized interest (6) (5) (12) (11)
Net Interest Expense $ 70 $ 69 $213 $201
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
Oct. 30, Oct. 31,
1999 1998
Net retail sales $ 13,700 $ 12,727
Revenues $ 14,053 $ 13,087
Net earnings $ 892 $ 816
Diluted earnings per share $ 2.46 $ 2.17
Financial Condition
Key financial ratios for the periods indicated are as follows:
Oct. 30, Oct. 31, Jan. 30,
1999 1998 1999
Current Ratio 1.9 2.0 2.4
Debt-Capitalization Ratio 46% 50% 45%
Fixed Charge Coverage* 4.6x 4.4x 4.5x
* Fixed charge coverage, which is presented for the 52 weeks ended
October 30, 1999, October 31, 1998, and January 30, 1999, is
defined as earnings before gross interest expense, the expense
portion of interest on the ESOP debt, rent expense and income
taxes divided by gross interest expense, interest expense on the
ESOP debt, and total rent expense.
Year 2000 Readiness. In 1996, May began assessing and preparing its
critical information systems, communications networks, equipment,
and facilities for the year 2000. As of the end of fiscal 1998, May
completed this assessment and substantially completed the coding,
testing, and installation of necessary modifications. In fiscal
1999, May successfully tested its electronic interfaces with major
merchandise and service vendors for year 2000 compliance. Since
May has completed its modifications, May does not expect any
material disruption of business. Through monitoring year 2000
readiness disclosures and other means, May is receiving assurances
from its primary merchandise vendors and service providers
regarding their year 2000 readiness.
8
<PAGE>
May developed and maintains most of its application systems
internally. The cost of the company's year 2000 effort totaled
approximately $6 million. May incurred and expensed substantially
all these costs prior to fiscal 1999.
Under the most reasonably likely worst case scenario, May does not
anticipate more than isolated, temporary disruptions of its
operations caused by year 2000 failures affecting either May or its
primary merchandise and service vendors. May expects that its
technically trained personnel, working in cooperation with key
vendors and service providers, should be able to address year 2000
system issues that may arise. To the extent May's vendors are
unable to deliver products and provide services due to their own
year 2000 issues, May will generally have alternative sources for
comparable products and services and does not expect to experience
any material business disruptions. Many risks, however, such as the
failure to perform by public utilities, telecommunications
providers, and financial institutions, and the impact of the year
2000 issue on the economy as a whole, are outside May's control and
could adversely affect May and its ability to conduct business.
While May has made a significant effort to address all anticipated
risks within its control, this is an event without precedent;
consequently, there can be no assurance that the year 2000 issue
will not have a material adverse impact on May's financial
condition, operating results, or business.
Forward-looking Statements. Management's Discussion and Analysis
contains forward-looking statements as defined by the Private
Securities Litigation Reform Act of 1995. While such statements
reflect all available information and management's judgment and
estimates of current and anticipated conditions and circumstances,
prepared with the assistance of specialists within and outside the
company, many factors outside of May's control exist that have an
impact on its operations. Such factors include, but are not limited
to: competitive changes; general and regional economic conditions;
consumer preferences and spending patterns; availability of
adequate locations for building or acquiring new stores; ability to
hire and retain qualified associates; possible widespread inability
to perform due to year 2000 issues by merchandise vendors, public
utilities, telecommunications providers, and financial
institutions; and the general economic impact of the year 2000
issues. Because of these factors, actual performance could differ
materially from that described in the forward-looking statements.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
registrant or any of its subsidiaries is a party or of which any
of their property is the subject.
Item 2 - Changes in Securities - None.
9
<PAGE>
Item 3 - Defaults Upon Senior Securities - None.
Item 4 - Submission of Matters to a Vote of Security Holders -
None.
Item 5 - Other Information - None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(12) - Computation of Ratio of Earnings to Fixed Charges
(15) - Letter Re: Unaudited Interim Financial Information
(27) - Financial Data Schedule
(b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE MAY DEPARTMENT STORES COMPANY
(Registrant)
Date: December 7, 1999
/s/ John L. Dunham
John L. Dunham
Vice Chairman and
Chief Financial Officer
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareowners of
The May Department Stores Company:
We have reviewed the accompanying condensed consolidated balance
sheet of The May Department Stores Company (a Delaware corporation)
and subsidiaries as of October 30, 1999, and October 31, 1998, and
the related condensed consolidated statements of earnings for the
thirteen week and thirty-nine week periods ended October 30, 1999,
and October 31, 1998, and the condensed consolidated statement of
cash flows for the thirty-nine week periods ended October 30, 1999,
and October 31, 1998. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of The May
Department Stores Company as of January 30, 1999, and the related
consolidated statements of earnings and cash flows for the year
then ended (not presented separately herein), and in our report
dated February 10, 1999, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as
of January 30, 1999, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
Arthur Andersen LLP
St. Louis, Missouri
December 7, 1999
Exhibit 15
To the Board of Directors and Shareowners of
The May Department Stores Company:
We are aware that The May Department Stores Company has
incorporated by reference in its Registration Statements on Form
S-3 (No. 333-71413, 333-71413-01, 333-11539 and 333-11539-01), Form
S-4 (No. 333-91751) and Form S-8 (No. 33-21415, 33-98045, 33-58985,
333-00957 and 333-76227) its Form 10-Q for the quarter ended
October 30, 1999, which includes our report dated December 7, 1999
covering the unaudited interim financial information contained
therein. Pursuant to Regulation C of the Securities Act of 1933,
that report is not considered a part of the registration statement
prepared or certified by our firm or a report prepared or certified
by our firm within the meaning of Sections 7 and 11 of the Act.
Arthur Andersen LLP
St. Louis, Missouri
December 7, 1999
11
<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 30, 1999 AND FOR THE
THIRTY-NINE WEEKS ENDED OCTOBER 30, 1999, AND OCTOBER 31, 1998
39 Weeks Ended Fiscal Year Ended
Oct. 30, Oct. 31, Jan. 30, Jan. 31, Feb. 1, Feb. 3, Jan. 28,
1999 1998 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Pretax earnings from continuing
operations $ 688 $ 616 $1,395 $1,279 $1,232 $1,160 $1,079
Fixed charges (excluding interest
capitalized and pretax preferred
stock dividend requirements) 257 256 344 363 346 317 293
Dividends on ESOP Preference Shares (18) (19) (25) (26) (26) (28) (28)
Capitalized interest amortization 6 5 7 6 6 5 4
933 858 1,721 1,622 1,558 1,454 1,348
Fixed Charges:
Gross interest expense (a) $ 253 $ 249 $ 339 $ 353 $ 341 $ 316 $ 289
Interest factor attributable to
rent expense 16 18 21 23 22 20 19
269 267 360 376 363 336 308
Ratio of Earnings to Fixed Charges 3.5 3.2 4.8 4.3 4.3 4.3 4.4
(a) Represents interest expense on long-term and short-term debt, ESOP debt and amortization of debt
discount and debt issue expense.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MAY
DEPARTMENT STORES COMPANY FORM 10-Q FOR THE QUARTER ENDED OCTOBER 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> OCT-30-1999
<CASH> 18
<SECURITIES> 16
<RECEIVABLES> 1,886
<ALLOWANCES> 69
<INVENTORY> 3,382
<CURRENT-ASSETS> 5,303
<PP&E> 7,623
<DEPRECIATION> 2,925
<TOTAL-ASSETS> 11,025
<CURRENT-LIABILITIES> 2,775
<BONDS> 3,567
0
0
<COMMON> 0
<OTHER-SE> 3,833
<TOTAL-LIABILITY-AND-EQUITY> 11,025
<SALES> 9,179
<TOTAL-REVENUES> 9,435
<CGS> 6,605
<TOTAL-COSTS> 6,605
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 213
<INCOME-PRETAX> 688
<INCOME-TAX> 274
<INCOME-CONTINUING> 414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414
<EPS-BASIC> 1.20
<EPS-DILUTED> 1.15
</TABLE>
