<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 July 31, 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.
331,739,531 shares of common stock, $0.50 par value, as of July 31,
1999.
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
July 31, August 1, Jan. 30,
ASSETS 1999 1998 1999
Current Assets:
Cash and cash equivalents $ 178 $ 338 $ 112
Accounts receivable, net 1,790 1,764 2,144
Merchandise inventories 2,718 2,575 2,655
Other current assets 65 71 76
Total Current Assets 4,751 4,748 4,987
Property and Equipment, at cost 7,545 7,066 7,260
Accumulated Depreciation (2,953) (2,756) (2,747)
Net Property and Equipment 4,592 4,310 4,513
Goodwill and other assets 1,005 811 1,033
Total Assets $ 10,348 $ 9,869 $ 10,533
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities of
long-term debt $ 292 $ 48 $ 98
Accounts payable 946 923 965
Accrued expenses 841 734 807
Income taxes 64 22 189
Total Current Liabilities 2,143 1,727 2,059
Long-term Debt 3,549 3,469 3,825
Deferred Income Taxes 499 461 482
Other Liabilities 304 279 309
ESOP Preference Shares 321 333 327
Unearned Compensation (280) (300) (305)
Shareowners' Equity 3,812 3,900 3,836
Total Liabilities and
Shareowners' Equity $ 10,348 $ 9,869 $ 10,533
The accompanying notes to condensed consolidated financial
statements are an integral part of this balance sheet.
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Millions, except per share) 13 Weeks Ended 26 Weeks Ended
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
Net Retail Sales $ 3,065 $ 2,807 $ 6,006 $ 5,529
Revenues $ 3,137 $ 2,889 $ 6,190 $ 5,706
Cost of sales 2,168 2,019 4,318 4,002
Selling, general and
administrative expenses 640 587 1,269 1,171
Interest expense, net 72 65 143 132
Earnings before income taxes 257 218 460 401
Provision for income taxes 103 87 184 160
Net Earnings $ 154 $ 131 $ 276 $ 241
Basic earnings per share $ .45 $ .37 $ .80 $ .67
Diluted earnings per share $ .43 $ .35 $ .77 $ .64
Dividends paid per
common share .22-1/4 .21-1/6 .44-1/2 .42-1/3
Weighted average shares
outstanding:
Basic 333.0 347.1 333.8 346.8
Diluted 356.8 372.2 357.7 372.0
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions) 26 Weeks Ended
July 31, Aug. 1,
1999 1998
Operating Activities:
Net earnings $ 276 $ 241
Depreciation and amortization 225 208
Decrease in working capital 190 316
Other, net 37 14
728 779
Investing Activities:
Net additions to property and equipment (323) (282)
(323) (282)
Financing Activities:
Net repayments of long-term debt (33) (202)
Net purchases of common stock (148) -
Dividend payments, net of tax benefit (158) (156)
(339) (358)
Increase in Cash and Cash Equivalents $ 66 $ 139
Cash paid during the period
Interest $ 131 $ 121
Income Taxes 281 242
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interim Results. These unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions
to Form 10-Q of The Securities and Exchange Commission and should
be read in conjunction with the Notes to Consolidated Financial
Statements (pages 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 second
quarter was $8 million in 1999 and 1998. The year-to-date LIFO
provision was $16 million in 1999 and 1998.
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 July 31, 1999, May has
repurchased approximately $132 million of common stock, or
approximately 3.2 million shares at an average price of $42 per
share, under this program. Such purchases are being made in the
open market as market conditions and regulatory rules allow.
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.
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.
July 31, January 30,
1999 1999
Financial Position
Current assets $ 4,743 $ 4,984
Noncurrent assets 5,821 5,557
Current liabilities 2,141 2,083
Noncurrent liabilities 7,552 7,815
13 Weeks Ended 26 Weeks Ended
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
Operating Results
Revenues $ 3,137 $ 2,889 $ 6,190 $ 5,706
Cost of sales 2,168 2,019 4,318 4,002
Net earnings 107 84 182 147
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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
July 31, 1999 August 1, 1998
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 154 $ 131
ESOP preference
shares' dividends (4) (4)
Basic EPS 150 333.0 $ 0.45 127 347.1 $ 0.37
ESOP preference
shares 4 21.5 3 22.3
Assumed exercise of
options (treasury
stock method) - 2.3 - 2.8
Diluted EPS $ 154 356.8 $ 0.43 $ 130 372.2 $ 0.35
26 Weeks Ended
July 31, 1999 August 1, 1998
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 276 $ 241
ESOP preference
shares' dividends (9) (9)
Basic EPS 267 333.8 $ 0.80 232 346.8 $ 0.67
ESOP preference
shares 8 21.6 7 22.4
Assumed exercise of
options (treasury
stock method) - 2.3 - 2.8
Diluted EPS $ 275 357.7 $ 0.77 $ 239 372.0 $ 0.64
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:
Second Quarter First Six Months
Store-for- Store-for-
Total Store Total Store
9.2% 4.7% 8.6% 4.1%
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.
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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.
Second Quarter First Six Months
1999 1998 1999 1998
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 69.1 69.9 69.8 70.1
Selling, general and
administrative expenses 20.4 20.3 20.5 20.5
Interest expense, net 2.3 2.3 2.3 2.4
Earnings before income taxes 8.2 7.5 7.4 7.0
Provision for income taxes 40.0* 40.0* 40.0* 40.0*
Net Earnings 4.9% 4.5% 4.5% 4.2%
*-Percent represents effective income tax rate.
Cost of sales was $2,168 million in the 1999 second quarter, up
7.4% from $2,019 million in the 1998 second quarter. For the first
six months of 1999, cost of sales was $4,318 million, a 7.9%
increase from $4,002 million in the 1998 period. The overall
increases are primarily related to higher sales. As a percent of
revenues, cost of sales decreased 0.8% in the second quarter and
0.3% in the first six months compared with the same periods of
1998. Gross margins improved due to a lower level of clearance
markdowns, the elimination of lower margin consumer electronics
business in 1999, and improved buying and occupancy expense
leverage as a result of store-for-store sales increases.
Selling, general and administrative expenses were $640 million in
the 1999 second quarter, compared with $587 million in the 1998
first quarter, a 9.1% increase. For the first six months of 1998,
selling, general and administrative expenses were $1,269 million
compared with $1,171 million in the 1998 period, an 8.4% 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 second quarter of 1999 as compared
with 1998 mainly due to increases in advertising and preopening
expense. Selling, general and administrative expenses as a percent
of revenues remained constant in the first six months of 1999
compared with the first six months of 1998.
Net interest expense for the second quarter and first six months of
1999 and 1998 was as follows (millions):
Second Quarter First Six Months
1999 1998 1999 1998
Interest expense $ 78 $ 73 $ 156 $ 149
Interest income (2) (4) (7) (11)
Capitalized interest (4) (4) (6) (6)
Net Interest Expense $ 72 $ 65 $ 143 $ 132
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Net interest expense increased in the 1999 second quarter and first
six months due to both higher average long-term debt outstanding
and lower average cash equivalents.
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
July 31, Aug. 1,
1999 1998
Net retail sales $ 13,537 $ 12,595
Revenues $ 13,897 $ 12,967
Net earnings $ 884 $ 806
Diluted earnings per share $ 2.43 $ 2.14
Financial Condition
Key financial ratios for the periods indicated are as follows:
July 31, Aug. 1, Jan. 30,
1999 1998 1999
Current Ratio 2.2 2.7 2.4
Debt-Capitalization Ratio 45% 43% 45%
Fixed Charge Coverage* 4.6x 4.3x 4.5x
* Fixed charge coverage, which is presented for the 52 weeks ended
July 31, 1999, August 1, 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 certain interfaces with major
merchandise and service vendors for year 2000 compliance. Since
May is complete with its modifications, the company 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.
May developed and maintains most of its application systems
internally. In fiscal 1998, May used approximately 15% of its
information systems resources to address companywide year 2000
issues. May's use of outside consultants and contractors to address
year 2000 compliance has not been significant. 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
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operations caused by year 2000 failures affecting either the
company 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 believes it 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 the company 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.
Item 3 - Defaults Upon Senior Securities - None.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareowners of registrant was held on
May 21, 1999.
(b) At the annual meeting of shareowners of registrant held on
May 21, 1999, action was taken with respect to:
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(i) the election of six directors of registrant;
Authority
For Withheld
Marsha J. Evans 306,069,344 1,739,736
James M. Kilts 306,103,913 1,705,167
William D. Perez 306,120,975 1,688,105
Robert D. Storey 306,106,091 1,702,989
Anthony J. Torcasio 306,114,749 1,694,331
Edward E. Whitacre, Jr. 306,057,841 1,751,239
(ii) a ratification of the appointment of Arthur Andersen
LLP as independent auditors (305,965,829 votes in
favor, 959,308 votes against and 883,943 votes
abstained);
(iii) A proposal relating to amendment of the certificate
of incorporation to increase the number of authorized
shares of common stock (296,066,693 votes in favor,
10,426,460 votes against and 1,315,927 votes
abstained);
(iv) a proposal relating to a classified Board of
Directors (119,523,383 votes in favor, 161,867,227
votes against, 3,262,885 votes abstained and
23,155,585 not voted).
All such proposals were set forth and described in detail
in the Notice of Annual Meeting and Proxy Statement of
registrant dated April 16, 1999, filed with the Commission
pursuant to Rule 12b-23 (b).
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
A report dated July 15, 1999 which contained information
concerning debt ratings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE MAY DEPARTMENT STORES COMPANY
(Registrant)
Date: September 8, 1999 /s/ John L. Dunham
John L. Dunham
Executive Vice President and
Chief Financial Officer
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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 July 31, 1999, and August 1, 1998, and the
related condensed consolidated statements of earnings for the
thirteen week and twenty-six week periods ended July 31, 1999, and
August 1, 1998, and the condensed consolidated statement of cash
flows for the twenty-six week periods ended July 31, 1999, and
August 1, 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 inquires 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
September 8, 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, Inc. has
incorporated by reference in its Registration Statements on Form
S-3 (No. 333-71413, 333-71413-01, 333-11539 and 333-11539-01) and
Form S-8 (No. 33-21415, 33-98045, 33-58985, 333-00957 and
333-76227) its Form 10-Q for the quarter ended July 31, 1999, which
includes our report dated September 8, 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
September 8, 1999
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<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
TWENTY-SIX WEEKS ENDED JULY 31, 1999, AND AUGUST 1, 1998
26 Weeks Ended Fiscal Year Ended
July 31, Aug. 1, 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 $ 460 $ 401 $ 1,395 $ 1,279 $ 1,232 $ 1,160 $ 1,079
Fixed charges (excluding interest
capitalized and pretax preferred
stock dividend requirements) 174 169 344 363 346 317 293
Dividends on ESOP Preference Shares (12) (13) (25) (26) (26) (28) (28)
Capitalized interest amortization 4 4 7 6 6 5 4
626 561 1,721 1,622 1,558 1,454 1,348
Fixed Charges:
Gross interest expense (a) $ 169 $ 163 $ 339 $ 353 $ 341 $ 316 $ 289
Interest factor attributable to
rent expense 11 12 21 23 22 20 19
180 175 360 376 363 336 308
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 JULY 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JUL-31-1999
<CASH> 20
<SECURITIES> 158
<RECEIVABLES> 1,856
<ALLOWANCES> 66
<INVENTORY> 2,718
<CURRENT-ASSETS> 4,751
<PP&E> 7,545
<DEPRECIATION> 2,953
<TOTAL-ASSETS> 10,348
<CURRENT-LIABILITIES> 2,143
<BONDS> 3,549
0
0
<COMMON> 0
<OTHER-SE> 3,812
<TOTAL-LIABILITY-AND-EQUITY> 10,348
<SALES> 6,006
<TOTAL-REVENUES> 6,190
<CGS> 4,318
<TOTAL-COSTS> 4,318
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> 460
<INCOME-TAX> 184
<INCOME-CONTINUING> 276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276
<EPS-BASIC> 0.80
<EPS-DILUTED> 0.77
</TABLE>
