<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 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)
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 May's common stock held by non-affiliates
as of April 3, 1999: $13,024,264,023
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
334,848,699 shares of common stock, $.50 par value, as of April 3,
1999.
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Documents incorporated by reference:
1. Portions of May's 1998 Annual Report to Shareowners are
incorporated into Parts I and II.
2. Portions of May's 1999 Proxy Statement, dated April 16, 1999,
are incorporated into Part III.
PART I
Items 1 and 2. Business and Description of Property
May, 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 May. 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.
May operates eight quality regional department store companies
nationwide under eleven trade names. At fiscal year-end 1998, May
operated 393 department stores in 32 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 29 markets, including New York/New Jersey
Metro, Chicago, Boston, Washington D.C.,
Detroit, Houston, Atlanta, Dallas, and Miami
Hecht's and 18 markets, including Washington D.C. Metro,
Strawbridge's Philadelphia (Strawbridge's), Baltimore,
Norfolk, and Richmond
Foley's 17 markets, including Houston, Dallas/Fort
Worth, Denver, San Antonio, Austin, and
Oklahoma City
Robinsons-May 9 markets, including Los Angeles/Orange
County, Riverside/San Bernardino, Phoenix,
San Diego, and Anaheim
Filene's 15 markets, including Boston Metro, Southern
Connecticut, Hartford, Providence, and Albany
Kaufmann's 20 markets, including Pittsburgh, Cleveland,
Buffalo, Rochester, Syracuse, and Akron
Famous-Barr, L.S. 20 markets, including St. Louis, Kansas City
Ayres and The (The Jones Store), Indianapolis (L.S. Ayres),
Jones Store Fort Wayne, and South Bend
Meier & Frank Four markets: Portland/Vancouver, Salem,
Eugene, and Medford
May employs approximately 60,000 full-time and 67,000 part-time
associates in 32 states, the District of Columbia, and nine offices
overseas.
2
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Management's Discussion and Analysis (pages 16-20) of May's 1998
Annual Report to Shareowners is incorporated herein by reference.
A. Property Ownership
The following summarizes the property ownership of department
stores at January 30, 1999:
% of Gross
Number of Building
Stores* Sq. Footage
Entirely or mostly owned 219 59%
Entirely or mostly leased 103 26
Owned on leased land 71 15
393 100%
* Includes a total of 18 department stores subject to
financing.
B. Credit Sales
Sales at May's department stores are made for cash or credit,
including May'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 30, 1999, 43.6% of
revenues were made through May's credit plans.
In 1991, May formed May National Bank of Arizona (MBA) and May
National Bank of Ohio (MBO), which are indirectly wholly-owned and
consolidated subsidiaries of May.
During fiscal 1998, MBA and MBO extended credit to customers of
May's Lord & Taylor, Foley's (beginning March 1998), Hecht's,
Strawbridge's, Robinsons-May, Filene's (beginning September 1998),
Kaufmann's, Famous-Barr, L.S. Ayres, The Jones Store (beginning
September 1998), and Meier & Frank department stores companies.
Throughout 1998, 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., and its
other subsidiaries. MBA and MBO receive processing fee revenue for
this service.
C. Competition in Retail Merchandising
May's retail merchandising business is conducted under highly
competitive conditions. Although May is one of the nation's
largest department store retailers, it has numerous competitors at
the local level which compete with May'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. May 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 May
The names and ages (as of April 21, 1999) of all executive officers
of May, and the positions and offices held with May by each such
person are as follows:
Name Age Positions and Offices
Eugene S. Kahn 49 President and Chief Executive Officer
Jerome T. Loeb 58 Chairman of the Board
Anthony J. Torcasio 53 Vice Chairman; and Chief Executive
Officer, May Merchandising Company
John L. Dunham 52 Executive Vice President and Chief
Financial Officer
R. Dean Wolfe 55 Executive Vice President
Alan E. Charlson 50 Senior Vice President and Chief Counsel
William D. Edkins 46 Senior Vice President
Lonny J. Jay 57 Senior Vice President
Jan R. Kniffen 50 Senior Vice President
Richard A. Brickson 51 Secretary and Senior Counsel
Martin M. Doerr 44 Vice President
Michael G. Culhane 36 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 May and until the officer's successor
shall have been elected and shall qualify. Mr. David C. Farrell
retired as an officer and director on April 30, 1998. At that time
Mr. Kahn became president and chief executive officer and Mr. Loeb
became chairman of the board. Mr. Louis J. Garr, Jr. retired on
January 31, 1999. Mr. Charlson was appointed senior vice president
and chief counsel on July 29, 1998. Messrs. Kahn, Loeb, Torcasio,
Dunham, and Wolfe are also directors of May.
Each of the executive officers has been an officer of May for at
least the last five years, with the following exceptions: Mr. Kahn
served as president and chief executive officer of Filene's from
1992 to March 1996 when he became vice chairman. He was appointed
executive vice chairman in June 1997 and assumed his current
position in May 1998. Mr. Dunham served as chairman of May
Merchandising Company from 1993 to May 1996 when he assumed his
current position and became an executive officer of May. Mr.
Charlson served as senior counsel for May from 1988 to 1998 when he
became senior vice president and chief counsel and an executive
officer of May. Mr. Doerr joined May in 1992 as vice president and
became an executive officer in 1994. Mr. Culhane was associated
with the public accounting firm of Arthur Andersen LLP from 1984 to
1997. He served in a financial position for May from 1997 to 1998
when he became vice president and an executive officer of May.
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
May 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
No matters were submitted to a vote of security holders during the
13 weeks ended January 30, 1999.
PART II
Item 5. Market for May's Common Equity and Related
Shareowner Matters
Common Stock Dividends and Market Prices (page 20) of May's 1998
Annual Report to Shareowners are incorporated herein by reference.
Item 6. Selected Financial Data
The Eleven Year Financial Summary (pages 32 and 33) of May's 1998
Annual Report to Shareowners is incorporated herein by reference.
In addition, basic earnings per share from continuing operations
and the weighted average shares used to calculate basic earnings
per share for the last five years are as follows:
Earnings Shares
Per Share (millions)
1998 $ 2.43 342.6
1997 2.18 348.5
1996 1.97 370.8
1995 1.82 373.4
1994 1.69 372.6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis (pages 16-20) and Notes to
Consolidated Financial Statements (pages 25-31) of May's 1998
Annual Report to Shareowners are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements (pages 21-24), Notes to
Consolidated Financial Statements (pages 25-31), Report of
Independent Public Accountants (page 34), and Quarterly Results
(page 26) of May's 1998 Annual Report to Shareowners are
incorporated herein by reference.
In the first quarter 1997, the company had an aftertax
extraordinary loss of $4 million ($5 million pretax), or $0.01 per
share related to the early retirement of debt.
5
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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 1998,
1997 and 1996.
January 30, January 31,
(Millions) 1999 1998
Financial Position
Current assets $ 4,984 $ 4,878
Noncurrent assets 5,557 5,048
Current liabilities 2,083 1,894
Noncurrent liabilities 7,815 7,437
52 Weeks Ended
Jan. 30, Jan. 31, Feb. 1,
1999 1998 1997
Operating Results
Revenues $ 13,413 $ 12,685 $ 12,000
Cost of sales 9,224 8,732 8,226
Net earnings from
continuing operations
before extraordinary
loss 662 591 662
Net earnings 662 587 657
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Items 10, 11, 12, 13. Directors and Executive Officers of May,
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 May) is incorporated by
reference from the definitive proxy statement dated April 16, 1999,
and filed pursuant to Regulation 14A. Information about executive
officers of May is set forth in Part I of this Form 10-K, under the
heading "Items 1. and 2. Business and Description of Property."
6
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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 May's
1998 Annual Report to Shareowners (Exhibit 13):
Page in
Annual Report
Financial Statements-
Consolidated Statement of Earnings for
the three fiscal years ended
January 30, 1999 21
Consolidated Balance Sheet -
January 30, 1999, and January 31, 1998 22
Consolidated Statement of Cash Flows
for the three fiscal years ended
January 30, 1999 23
Consolidated Statement of Shareowners'
Equity for the three fiscal years
ended January 30, 1999 24
Notes to Consolidated Financial Statements 25-31
Report of Independent Public Accountants 34
Page in
this Report
(2) Supplemental Financial Statement
Schedule (for the three fiscal years
ended January 30, 1999):
Report of Independent Public Accountants
on Schedule II 11
II Valuation and Qualifying Accounts 12
(3) Exhibits: Location
3(a) Amended and Restated Certificate Incorporated
of Incorporation of May, 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 May, as amended Incorporated
by Reference
to Exhibit 3
of Form 10-Q,
filed
December 8,
1998.
7
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Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K (continued)
Location
12 Computation of Ratio of Filed
Earnings to Fixed Charges herewith.
13 The May Department Stores Filed
Company 1998 Annual Report to herewith.
Shareowners (only those portions
specifically incorporated by
reference shall be deemed filed
with the Commission)
21 Subsidiaries of May Filed
herewith.
23 Consent of Independent Public Page 11 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, 1998
(4) Reports on Form 8-K
A report dated November 13, 1998 (Date of earliest event
reported - November 11, 1998) which contained information
concerning the debt rating on May's long-term debt and
its bank credit facility.
All other schedules and exhibits of May 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.
8
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, May has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
THE MAY DEPARTMENT STORES COMPANY
Date: April 21, 1999 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 May and in the capacities and on the dates indicated.
Date Signature Title
Principal Executive Officer:
April 21, 1999 /s/ Eugene S. Kahn Director,
Eugene S. Kahn President and
Chief Executive
Officer
Principal Financial and
Accounting Officer:
April 21, 1999 /s/ John L. Dunham Director,
John L. Dunham Executive Vice
President and
Chief Financial
Officer
Directors:
April 21, 1999 /s/ Jerome T. Loeb Director and
Jerome T. Loeb Chairman of the
Board
9
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Date Signature Title
April 21, 1999 /s/ Anthony J. Torcasio Director and Vice
Anthony J. Torcasio Chairman; and
Chief Executive
Officer, May
Merchandising
Company
April 21, 1999 /s/ R. Dean Wolfe Director and
R. Dean Wolfe Executive Vice
President
April 21, 1999 /s/ Marsha J. Evans Director
Marsha J. Evans
April 21, 1999 /s/ Helene L. Kaplan Director
Helene L. Kaplan
April 21, 1999 /s/ James M. Kilts Director
James M. Kilts
April 21, 1999 /s/ Edward H. Meyer Director
Edward H. Meyer
April 21, 1999 /s/ Russell E. Palmer Director
Russell E. Palmer
April 21, 1999 /s/ Michael R. Quinlan Director
Michael R. Quinlan
April 21, 1999 /s/ William P. Stiritz Director
William P. Stiritz
April 21, 1999 /s/ Robert D. Storey Director
Robert D. Storey
April 21, 1999 /s/ Murray L. Weidenbaum Director
Murray L. Weidenbaum
10
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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 10, 1999. 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 10, 1999
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 30,
1999 into the Company's previously filed 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).
ARTHUR ANDERSEN LLP
1010 Market Street
St. Louis, Missouri 63101-2089
April 21, 1999
11
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SCHEDULE II
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE FISCAL YEARS ENDED January 30, 1999
(Millions)
Charges
to costs
and
Balance expenses Balance
beginning and other Deductions end of
of period adjustments (a) period
FISCAL YEAR ENDED
JANUARY 30, 1999
Allowance for
uncollectible
accounts $ 96 $ 76 $ (93) $ 82
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
(a) Write-off of accounts determined to be uncollectible, net of
recoveries of $25 million in 1998 and $26 million in 1997 and
1996.
12
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Exhibit 21
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF MAY
The corporations listed below are subsidiaries of May, and all are
included in the consolidated financial statements of May 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
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<TABLE>
<CAPTION>
Exhibit 12
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE FIVE FISCAL YEARS ENDED JANUARY 30, 1999
(Dollars in Millions) Fiscal Year Ended
Jan. 30, Jan. 31, Feb. 1, Feb. 3, Jan. 28,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Pretax earnings from continuing operations $ 1,395 $ 1,279 $ 1,232 $ 1,160 $ 1,079
Fixed charges (excluding interest
capitalized and pretax preferred stock
dividend requirements) 344 363 346 317 293
Dividends on ESOP Preference Shares (25) (26) (26) (28) (28)
Capitalized interest amortization 7 6 6 5 4
1,721 1,622 1,558 1,454 1,348
Fixed Charges:
Gross interest expense (a) $ 339 $ 353 $ 341 $ 316 $ 289
Interest factor attributable to
rent expense 21 23 22 20 19
360 376 363 336 308
Ratio of Earnings to Fixed Charges 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>
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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 16-20.]
Management's Discussion and Analysis
Our 24th consecutive year of record sales and earnings per
share positions May as one of the most consistent companies in
the retail industry. Our five-year earnings per share compound
growth rate of 10.0% and our 22.2% return on equity are
among the industry's best.
Sales were $13.1 billion, an increase of 6.4% over 1997 sales
of $12.3 billion. The increase reflects a 3.5% rise in store-for-
store sales, 1998 store openings, and the full-year impact of
1997 store openings. Store-for store sales increases for the first
through fourth quarters in 1998 were 4.6%, 4.3%, 2.2%, and 3.3%,
respectively.
Our 1998 diluted earnings per share increased 11.1% to $2.30 from
last year's $2.07. Net earnings totaled $849 million, compared with
$779 million last year. Return on beginning equity increased to
22.2% from 21.2% in 1997, and return on net assets was 19.8%,
compared with 18.5% in 1997.
During 1998, the company purchased 11 former Mercantile stores. Ten
of these stores were in operation at fiscal year-end 1998. The
remaining store was closed for remodeling and will reopen in fall
1999. We acquired two additional stores which will open in 1999.
We opened 29 department stores as detailed below during 1998,
including the 10 former Mercantile stores, adding 4.6 million
square feet of retail space:
Lord & Taylor: 10 stores
NY Palisades Ctr. West Nyack
South Shore Bayshore
Walt Whitman Long Island
MD Owings Mill Baltimore
White Marsh Baltimore
Annapolis Mall Annapolis
The Mall Columbia
VA Dulles Town Ctr. Reston
TX Willowbrook Houston
KY St. Matthews Louisville
Hecht's: 3 stores
VA Patrick Henry Newport News
Lynnhaven Virginia Beach
Dulles Town Ctr. Reston
Foley's: 2 stores
CO Chapel Hill Colorado Springs
TX Ridgmar Mall Ft. Worth
Robinsons-May: 1 store
CA Inland Ctr. San Bernardino
Filene's: 2 stores
NY Palisades Ctr. West Nyack
MA Bangor Mall Bangor
Kaufmann's: 2 stores
PA Robinson Town Ctr. Pittsburgh
OH Richmond Town Sq. Cleveland
Famous-Barr: 9 stores
Operating as The Jones Store:
MO Metro North Kansas City
Bannister Kansas City
Blue Ridge Kansas City
Independence Independence
KS Metcalf South Overland Park
West Ridge Topeka
Prairie Village Ctr. Prairie Village
Operating as Famous-Barr:
KY Towne Sq. Owensboro
Operating as L.S. Ayres:
IN Honey Creek Sq. Terre Haute
In addition, we remodeled 19 department stores in 1998, totaling
1.5 million retail square feet, which included the expansion of
five stores by 164,000 square feet. At fiscal year-end, May
operated 393 department stores in 32 states and the District of
Columbia.
Our expansion program for 1999 includes 18 new department stores,
totaling 2.5 million square feet of retail space. In addition, the
company plans to remodel 29 department stores totaling 1.5 million
square feet of retail space, which includes the expansion of 23
stores by a total of 734,000 square feet. We also plan to continue
the aggressive pursuit of home store sales by converting space
previously dedicated to consumer electronics. We plan to complete
conversion of this space in 190 stores in 1999 and 70 stores in
2000.
The new-store plan for 1999 through 2003 would add 78 new
department stores totaling 12 million retail square feet, a 3%
annualized increase, net of closings. During this five-year
period, May plans to invest $1.5 billion for new stores, $800
million to expand and remodel existing stores, and $360 million
related to systems and operations. These are the major components
of our $3.4 billion capital plan.
During 1998, the company completed a $500 million stock repurchase
program totaling 12.5 million shares. The 1998 buyback was in
addition to a $300 million 1997 stock repurchase program totaling
9.6 million shares and a $600 million 1996 stock repurchase program
totaling 19.1 million shares. In February 1999, the company
announced plans to repurchase up to an additional $500 million of
May shares.
Review of Operations
Diluted earnings per share reached $2.30 in 1998, compared with
$2.07 in 1997 and $1.87 in 1996. Net earnings totaled $849 million
in 1998, compared with $779 million in 1997 and $749 million in
1996. The 1998 and 1997 diluted earnings per share growth rates
were 11.1% and 10.7%, respectively. Net earnings growth rates were
lower than diluted earnings per share growth rates due to $1.4
billion of stock repurchases completed in 1998, 1997, and 1996.
Return on revenues was 6.3% in 1998, compared with 6.1% in 1997 and
6.2% in 1996.
<TABLE>
<CAPTION>
Results for the past three years on a continuing operations basis
and the related percent of revenues were as follows:
1998 1997 1996
(dollars in millions, except
per share data) $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
Net retail sales $13,072 $12,291 $11,492
Revenues $13,413 100.0% $12,685 100.0% $12,000 100.0%
Cost of sales 9,224 68.8 8,732 68.8 8,226 68.5
Selling, general, and
administrative expenses 2,516 18.7 2,375 18.7 2,265 18.9
Interest expense, net 278 2.1 299 2.4 277 2.3
Earnings before income taxes 1,395 10.4 1,279 10.1 1,232 10.3
Provision for income taxes* 546 39.1 500 39.1 483 39.3
Net earnings $ 849 6.3% $ 779 6.1% $ 749 6.2%
Diluted earnings per share** $ 2.30 $ 2.07 $ 1.87
* Percent of revenues columns represent effective income tax rates.
** Reflects three-for-two common stock split effective March 22, 1999.
</TABLE>
<PAGE>
LIFO (last-in, first-out) was a credit of $28 million, $5 million,
and $20 million in 1998, 1997, and 1996, respectively. The impact
of LIFO on cost of sales, as a percent of revenues, is shown below:
1998 1997 1996
Cost of sales 68.8% 68.8% 68.5%
LIFO credit (0.2) (0.1) (0.2)
Cost of sales before LIFO credit 69.0% 68.9% 68.7%
Earnings before interest and taxes excluding the LIFO credit for
the past three years were as follows:
Increase
(dollars in millions) 1998 1997 1996 1998 1997
Operating earnings $1,645 $1,573 $1,489 4.6% 5.7%
Percent of revenues 12.3% 12.4% 12.4%
The slight decline in operating earnings as a percentage of
revenues was due to lower gross margins resulting from higher
markdown levels.
May's 393 quality department stores are operated by eight regional
department store companies across the United States under 11
long-standing and widely recognized trade 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
of Dollars Square Foot in Thousands Number of Stores
Store Company: Headquarters 1998 1997 1998 1997 1998 1997 1998 New Closed 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lord & Taylor: New York City $ 1,976 $ 1,875 $232 $243 9,461 8,208 73 10 - 63
Hecht's, Strawbridge's: Washington, D.C. 2,368 2,285 200 195 12,231 12,318 71 3 3 71
Foley's: Houston 2,060 1,888 196 186 10,993 10,647 57 2 - 55
Robinsons-May: Los Angeles 1,936 1,849 196 189 10,156 10,140 55 1 1 55
Filene's: Boston 1,578 1,450 244 236 6,710 6,394 42 2 - 40
Kaufmann's: Pittsburgh 1,549 1,489 199 193 8,177 7,961 48 2 1 47
Famous-Barr, L.S. Ayres, The Jones Store: St. Louis 1,206 1,060 207 202 7,159 5,408 39 9 - 30
Meier & Frank: Portland, Ore. 399 395 231 229 1,768 1,768 8 - - 8
The May Department Stores Company $13,072 $12,291 $209 $204 66,655 62,844 393 29 5 369<PAGE>
Net retail sales represent sales of stores open at the end of 1998.
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>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Return on beginning equity 22.2% 21.2% 19.4% 20.8% 21.3% 22.1% 21.5% 20.7% 21.8% 18.0% 18.6%
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Return on net assets 19.8% 18.5% 18.8% 20.1% 20.1% 19.0% 15.4% 14.5% 15.8% 16.9% 16.2%
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year-end dividend rate
per common share $0.85 $0.80 $0.77 $0.76 $0.69 $0.61 $0.55 $0.54 $0.53 $0.47 $0.38
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock closing price
and price range:
Low price $33.17 $29.08 $27.00 $22.33 $21.50 $22.29 $17.33 $15.08 $12.46 $11.54 $ 9.58
High price $47.25 $38.08 $34.83 $30.83 $30.08 $31.00 $24.83 $20.13 $19.71 $17.54 $13.33
Closing price $40.25 $35.04 $29.67 $29.25 $23.42 $26.50 $23.46 $18.29 $15.17 $15.25 $12.50
</TABLE>
<PAGE>
Net Retail Sales
Net retail sales (see page 25 for definition) increases for 1998
and 1997 were as follows:
1998 vs. 1997 1997 vs. 1996
Five-year
Store-for- Store-for- Compound
Total Store Total Store Growth Rate
6.4% 3.5% 7.0% 3.6% 7.9%
The total sales increase for 1998 reflects a 3.5% rise in
store-for-store sales, the opening of 24 net new stores in 1998,
and the full-yearimpact of 1997 store openings. The total sales
increase for 1997 includes a 3.6% store for-store sales increase,
the opening of four net new stores, and the full year impact of
1996 store openings.
Sales include leased and licensed department sales of $385
million, $353 million, and $326 million in 1998, 1997, and
1996,respectively. Revenues include finance charge revenues of $298
million, $319 million, and $338 million in 1998, 1997, and 1996,
respectively. Finance charge revenues have decreased due to
increased use of third-party credit cards and corresponding
decreased use of the company's proprietary credit cards.
Cost of Sales
Cost of sales includes cost of merchandise sold and buying and
occupancy costs. Cost of sales was $9.22 billion in 1998, compared
with $8.73 billion in 1997, a 5.6% increase. The overall increase
resulted from a 6.4% increase in sales. As a percent of revenues,
cost of sales remained constant between 1997 and 1998 at 68.8%.
Excluding the LIFO credit, cost of sales increased to 69.0% in
1998, compared with 68.9% in 1997. This increase was primarily the
result of higher promotional markdown levels.
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. This
increase was due to higher promotional activity and a lower LIFO
credit in 1997. Excluding the LIFO credit, cost of sales increased
to 68.9% in 1997, compared with 68.7% in 1996.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $2.52 billion in
1998, compared with $2.38 billion in 1997, a 5.9% increase. The
overall increase was due to a 6.4% increase in sales. As a percent
of revenues, selling, general, and administrative expenses remained
constant at 18.7% in 1998, compared with 1997. A decrease in credit
expense, partly related to lower bankruptcy rates, was offset by
increases in advertising, retirement, and profit-sharing expense.
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 include advertising
and sales promotion costs of $500 million, $463 million, and $439
million in 1998, 1997, and 1996, respectively.
Interest Expense
Interest expense components were:
(dollars in millions) 1998 1997 1996
Interest expense $311 $324 $310
Interest income (19) (11) (16)
Capitalized interest (14) (14) (17)
Interest expense, net $278 $299 $277
Percent of revenues 2.1% 2.4% 2.3%
The decrease in 1998 net interest expense compared with 1997 was
due to both lower average long-term debt balances and higher
average cash equivalent balances.
The increase in 1997 net interest expense compared with 1996 was
due to increased averagelong-term debt balances related to
borrowings to finance the company's 1996 common stock repurchases
and debt assumed in the Strawbridge & Clothier transaction.
Income Taxes
The effective income tax rates were 39.1%, 39.1%, and 39.3% in
1998, 1997, and 1996, respectively.
Discontinued Operation
Effective May 4, 1996,the company spun off Payless ShoeSource, Inc.
(Payless) as a tax-free distribution to shareowners.
Extraordinary Items
The company recorded an aftertax loss of $4 million ($5 million
pretax) in 1997 and $5 million ($8 million pretax) in 1996 related
to the early retirement of debt.
Impact of Inflation
Inflation did not have a material impact on the company's 1998
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.
<PAGE>
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 22.2% in 1998, compared with 21.2% in 1997
and 19.4% in 1996. Both years' increases resulted from net earnings
growth and stock repurchases in the prior year.
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 19.8% in 1998,
compared with 18.5% in 1997 and 18.8% in 1996.
Cash Flow
Cash flow from operations (net earnings plus depreciation/
amortization) was $1.3 billion, or 9.6% of revenues in 1998. This
compares with 9.4% in 1997 and 9.3% in 1996. 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 (uses) of cash flows are summarized below:
(dollars in millions) 1998 1997 1996
Net earnings and
depreciation/amortization $1,288 $1,191 $1,123
Working capital decreases 158 265 142
Discontinued operation - - (13)
Other operating activities 59 70 7
Capital expenditures and
other investing activities (888) (463) (603)
Net long-term debt
issuances (repayments) 129 (340) 412
Net purchases of common stock (525) (329) (820)
Dividend payments (308) (297) (305)
Increase (decrease) in
cash and cash equivalents $ (87) $ 97 $ (57)
See "Consolidated Statement of Cash Flows" on page 23.
Financing Activities
During the third quarter of 1998, May issued $350 million in new
debt: $200 million of 6.70% debentures due September 15, 2028, and
$150 million of 5.95% notes due November 1, 2008. The proceeds from
the issuances were added to the company's general funds and were
used primarily for repayment of a portion of May's short-term
indebtedness, capital expenditures, store acquisitions, and stock
repurchases. Commercial paper borrowings were made to fund seasonal
working capital requirements. In 1997, the company did not issue
any long term debt.
Available Credit
The company has $767 million of available borrowing under its
multiyear credit agreements, including a minority-owned bank
facility. In addition, the company has filed with the Securities
and Exchange Commission shelf registration statements that would
enable it to issue up to $1.0 billion of additional debt
securities.
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 45%, 44%, and 48% for 1998,
1997, and 1996, respectively. For purposes of the
debt-to-capitalization ratio, total debt is defined as short-term
and long-term debt (including the Employee Stock Ownership Plan
(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. See "Profit Sharing" on page 26
for discussion of the ESOP.
The fixed-charge coverage ratios were 4.5x in 1998 and 4.1x in 1997
and 1996. 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.
Debt Ratings
In November 1998, May's bond rating by Moody's Investors Service,
Inc. was increased from A2 to A1. Our bonds continue to be rated A
by Standard & Poor's Corporation. Our commercial paper is rated P1
by Moody's and A1 by Standard & Poor's. May's senior unsecured bank
credit agreement was assigned an A1 rating by Moody'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 1999 capital expenditure plan approximates $700 million.
Capital expenditures for the period 1999 through 2003 are planned
at $3.4 billion.
<PAGE>
Common Stock Dividends and Market Prices
Subsequent to year-end, 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 annual report have been
restated to reflect the stock split.
Our dividend policy is based on earnings growth and capital
investment requirements. Our objective is to increase dividends on
common stock as we achieve earnings growth. The company increased
the 1999 annual dividend rate by 5.1%, or 4-1/3 cents per share, to
89 cents per share. This is our 24th consecutive annual dividend
increase. The new annual dividend rate of 89 cents per share was
effective with the March 1999 dividend payment. Dividends paid have
increased at a compound rate of 7.2% during the past five years.
The company has paid consecutive quarterly dividends since 1911.
The quarterly price ranges of the common stock and dividends per
share in 1998 and 1997 were:
1998 1997
Market Price Dividends Market Price Dividends
Quarter High Low per Share High Low per Share
First $44-5/16 $35-5/16 $.21-1/6 $33-3/16 $29-1/16 $.20
Second 47-1/4 41-5/16 .21-1/6 37-15/16 30-3/16 .20
Third 44-11/16 33-3/16 .21-1/6 38-1/16 33-13/16 .20
Fourth 43 37-11/16 .21-1/6 37-15/16 33-1/4 .20
Year $47-1/4 $33-3/16 $.84-2/3 $38-1/16 $29-1/16 $.80
The approximate number of common shareowners as of March 1, 1999,
was 46,000.
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.
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. May will test certain
interfaces with some merchandise and service vendors for year 2000
compliance through the spring of 1999. Since May is substantially
complete with its modifications, the company does not expect any
material disruption of business. Through participation in a
National Retail Federation sponsored survey 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. Over the past 12 months, 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. Through fiscal 1998,
the cumulative cost of the company's year 2000 effort approximates
$6 million, which May expensed as incurred.
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 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.
<PAGE>
[The following "Consolidated Financial Statements" section is a
reproduction of the same named section in the paper format Annual
Report on pages 21-24.]
Consolidated Statement of Earnings
(dollars in millions, except per share)
1998 1997 1996
Net retail sales $13,072 $12,291 $11,492
Revenues $13,413 $12,685 $12,000
Cost of sales 9,224 8,732 8,226
Selling, general, and
administrative expenses 2,516 2,375 2,265
Interest expense, net 278 299 277
Total cost of sales and expenses 12,018 11,406 10,768
Earnings from continuing operations
before income taxes 1,395 1,279 1,232
Provision for income taxes 546 500 483
Net earnings from continuing operations 849 779 749
Net earnings from discontinued operation - - 11
Net earnings before extraordinary loss 849 779 760
Extraordinary loss related to early
extinguishment of debt, net
of income taxes - (4) (5)
Net earnings $ 849 $ 775 $ 755
Basic earnings per share:
Continuing operations $ 2.43 $ 2.18 $ 1.97
Discontinued operation - - 0.03
Net earnings before extraordinary loss 2.43 2.18 2.00
Extraordinary loss - (0.01) (0.01)
Basic earnings per share $ 2.43 $ 2.17 $ 1.99
Diluted earnings per share:
Continuing operations $ 2.30 $ 2.07 $ 1.87
Discontinued operation - - 0.03
Net earnings before extraordinary loss 2.30 2.07 1.90
Extraordinary loss - (0.01) (0.01)
Diluted earnings per share $ 2.30 $ 2.06 $ 1.89
See Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Balance Sheet
(dollars in millions, January 30, January 31,
except per share) 1999 1998
Assets
Current assets:
Cash $ 15 $ 14
Cash equivalents 97 185
Accounts receivable, net 2,144 2,164
Merchandise inventories, net of LIFO
reserves of $65 and $93 2,655 2,433
Other current assets 76 82
Total current assets 4,987 4,878
Property and equipment:
Land 316 304
Buildings and improvements 3,581 3,393
Furniture, fixtures, and equipment 3,232 3,028
Property under capital leases 131 62
Total property and equipment 7,260 6,787
Accumulated depreciation (2,747) (2,563)
Property and equipment, net 4,513 4,224
Goodwill, net of accumulated
amortization of $199 and $174 933 752
Other assets 100 76
Total assets $ 10,533 $ 9,930
Liabilities and shareowners' equity
Current liabilities:
Current maturities of long-term debt $ 98 $ 233
Accounts payable 1,017 842
Accrued expenses 755 640
Income taxes payable 189 151
Total current liabilities 2,059 1,866
Long-term debt 3,825 3,512
Deferred income taxes 482 449
Other liabilities 309 277
ESOP preference shares 327 337
Unearned compensation (305) (320)
Shareowners' equity:
Common stock 167 173
Additional paid-in capital - -
Retained earnings 3,669 3,636
Total shareowners' equity 3,836 3,809
Total liabilities and shareowners' equity $ 10,533 $ 9,930
Common stock has a par value of $.50 per share; 700 million shares
are authorized and 470.5 million shares were issued. At January 30,
1999, 334.7 million shares were outstanding, and 135.8 million
shares were held in treasury. At January 31, 1998, 346.5 million
shares were outstanding, and 124.0 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 30, 1999, 645,320 shares (convertible into 21.8 million
shares of common stock) were issued and outstanding. At January 31,
1998, 665,866 shares (convertible into 22.5 million shares of
common stock) were issued and outstanding.
See Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Statement of Cash Flows
(dollars in millions) 1998 1997 1996
Operating activities:
Net earnings $ 849 $ 775 $ 755
Adjustments for noncash items
included in earnings:
Depreciation and amortization 439 412 374
Deferred income taxes 48 58 45
Deferred and unearned compensation 5 8 10
Working capital changes* 158 265 142
Other assets and liabilities, net 6 8 (43)
Total operating activities 1,505 1,526 1,283
Investing activities:
Capital expenditures (630) (496) (632)
Dispositions of property and equipment 44 33 29
Acquisition (302) - -
Cash used in discontinued operation - - (24)
Total investing activities (888) (463) (627)
Financing activities:
Issuances of long-term debt 350 - 800
Repayments of long-term debt (221) (340) (388)
Purchases of common stock (589) (394) (869)
Issuances of common stock 64 65 49
Dividend payments (308) (297) (305)
Total financing activities (704) (966) (713)
Increase (decrease) in
cash and cash equivalents (87) 97 (57)
Cash and cash equivalents, beginning of year 199 102 159
Cash and cash equivalents, end of year $ 112 $ 199 $102
*Working capital changes comprise:
Accounts receivable, net $ 20 $ 262 $139
Merchandise inventories (176) (53) (211)
Other current assets 12 46 45
Accounts payable 176 (30) 180
Accrued expenses 89 26 (20)
Income taxes payable 37 14 9
Net decrease in working capital $ 158 $ 265 $ 142
Cash paid during the year:
Interest $ 297 $ 319 $ 288
Income taxes 411 355 380
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Shareowners' Equity
Outstanding Additional Total
(dollars in millions, Common Stock Paid-in Retained Shareowners'
shares in thousands) Shares Dollars Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at February 3, 1996 373,307 $187 $ - $4,398 $4,585
Net earnings - - - 755 755
Dividends paid:
Common stock ($0.77 per share) - - - (287) (287)
ESOP preference shares,
net of tax benefit - - - (18) (18)
Common stock issued 9,968 5 256 - 261
Common stock purchased (27,886) (14) (256) (599) (869)
Distribution of equity in
Payless ShoeSource, Inc. - - - (777) (777)
Balance at February 1, 1997 355,389 178 - 3,472 3,650
Net earnings - - - 775 775
Dividends paid:
Common stock ($0.80 per share) - - - (279) (279)
ESOP preference shares,
net of tax benefit - - - (18) (18)
Common stock issued 3,419 2 73 - 75
Common stock purchased (12,296) (7) (73) (314) (394)
Balance at January 31, 1998 346,512 173 - 3,636 3,809
Net earnings - - - 849 849
Dividends paid:
Common stock ($0.84 2/3 per share) - - - (290) (290)
ESOP preference shares,
net of tax benefit - - - (18) (18)
Common stock issued 3,141 1 74 - 75
Common stock purchased (14,989) (7) (74) (508) (589)
Balance at January 30, 1999 334,664 $167 $ - $3,669 $3,836
</TABLE>
<TABLE>
<CAPTION>
Outstanding common stock excludes shares held in treasury. Treasury share activity for the last three years is
summarized below:
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year 123,943 115,066 97,148
Common stock issued:
Exercise of stock options (1,914) (2,372) (1,495)
Deferred compensation plan (227) (243) (225)
Restricted stock grants,
net of forfeitures (306) (156) (368)
Conversion of ESOP preference shares (694) (648) (1,194)
Acquisitions - - (6,686)
(3,141) (3,419) (9,968)
Common stock purchased 14,989 12,296 27,886
Balance, end of year 135,791 123,943 115,066
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
[The following "Notes to Consolidated Financial Statements" section
is a reproduction of the same named section included in the paper
format Annual Report on pages 25-31.]
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Fiscal Year
The company's fiscal year ends the Saturday closest to January 31.
Fiscal years 1998, 1997, and 1996 ended on January 30, 1999,
January 31, 1998, and February 1, 1997, respectively. 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
May Department Stores Company, a Delaware corporation, and all
wholly owned subsidiaries (May or the company). The company's 393
quality department stores are operated by eight regional department
store companies across the United States under 11 long-standing and
widely recognized trade names. The company aggregates its eight
store companies into one reportable segment. The consolidated
financial statements reflect Payless ShoeSource, Inc. (Payless), as
a discontinued operation through May 4, 1996. All the notes, except
"Discontinued Operation" on page 31, reflect data on a continuing
operations basis.
Use of Estimates
Management makes estimates and assumptions that affect the amounts
reported in the 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
Preopening expenses of new stores are expensed as incurred.
Income Taxes
Income taxes are accounted for by the liability method. The
liability method applies 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. References to earnings per share relate to diluted
earnings per share.
Common Stock Split
All share and per share data included in this annual report have
been restated to reflect a three-for-two common stock split
effective March 22, 1999.
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.
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. In 1998, the company adopted Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which did not
have a significant impact on the company.
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.
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. Impairment losses
resulting from these reviews have not been significant.
Financial Derivatives
Financial derivatives are used only to reduce risk in specific
business transactions. The company periodically purchased forward
contracts on firm commitments to minimize the risk of foreign
currency fluctuations. These contracts were not 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, 1998 Quarter 1998
except per share) First Second Third Fourth Year
Revenues $2,817 $2,889 $3,089 $4,618 $13,413
Cost of sales 1,983 2,019 2,180 3,042 9,224
Selling, general, and
administrative expenses 584 587 625 720 2,516
Pretax earnings 183 218 215 779 1,395
Net earnings 110 131 130 478 849
Basic earnings per share $ 0.30 $ 0.37 $ 0.36 $ 1.40 $ 2.43
Diluted earnings per share 0.29 0.35 0.35 1.31 2.30
(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
Selling, general, and
administrative expenses 555 559 599 662 2,375
Pretax earnings 163 193 199 724 1,279
Net earnings 98 116 120 445 779
Basic earnings per share $ 0.26 $ 0.32 $ 0.34 $ 1.26 $ 2.18
Diluted earnings per share 0.26 0.31 0.32 1.18 2.07
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:
1998 1997
Pro As Pro As
Quarter Forma Reported Forma Reported
First $(0.01) $ 0.01 $ 0.00 $ 0.01
Second (0.01) 0.01 0.00 0.01
Third (0.01) 0.01 0.00 0.01
Fourth (0.02) (0.08) (0.01) (0.04)
Year $(0.05) $(0.05) $(0.01) $(0.01)
Profit Sharing
The company has a qualified profit-sharing plan that covers
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 $57 million for 1998, which represents a record effective
match rate of 113%. The matching allocation value was $48 million
and $43 million in 1997 and 1996, respectively.
The plan includes an Employee Stock Ownership Plan (ESOP) under
which the plan borrowed $400 million in 1989, guaranteed by the
company, at an average rate of 8.5%. 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 33.787 shares of common stock and has a stated
value of $15.01 per common share equivalent. The annual dividend
rate on the ESOP preference shares is 7.5%.
The $317 million outstanding portion of the guaranteed ESOP debt is
reflected on the consolidated balance sheet as long-term debt
because the company will fund the required debt service through
2004. 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 $27 million in 1998, $29 million in 1997, and $31 million
in 1996. ESOP preference shares' dividends were $25 million in
1998, and $26 million in 1997 and 1996.
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 profit-sharing expense was $28 million, $24 million,
and $22 million in 1998, 1997, and 1996, respectively.
At January 30, 1999, the plan beneficially owned 15.6 million
shares of the company's common stock and 100% of the company's ESOP
preference shares. These holdings represent 10.5% of the company's
common stock.
Pension and Other Postretirement Benefits
The company has two qualified defined-benefit plans that cover
associates who work 1,000 hours or more in a year and have attained
age 21. The company also maintains two nonqualifled, supplementary
defined-benefit plans for certain associates. All plans are
noncontributory and provide benefits based upon years of service
and pay during employment.
Pension expense is based on information provided by an outside
actuarial firm, which uses assumptions to estimate the total
benefits ultimately payable to associates, then allocates this cost
to service periods. The actuarial assumptions used to calculate
pension costs are reviewed annually.
<PAGE>
The accumulated benefit obligations (ABO), change in projected
benefit obligations (PBO), change in net plan assets, and funded
status of the benefit plans are summarized in the tables below:
Qualified Nonqualified
Plans Plans
(funded) (unfunded)
(dollars in millions) 1998 1997 1998 1997
Change in PBO: (1)
PBO at beginning of year $476 $383 $102 $ 90
Service cost 30 25 3 3
Interest cost 32 28 8 6
Business combinations 8 - - -
Actuarial loss (2) 24 71 14 7
Benefits paid (53) (31) (5) (4)
PBO at end of year $517 $476 $122 $ 102
ABO at end of year (3) $464 $433 $ 99 $ 86
Change in net plan assets:
Fair value of net plan assets
at beginning of year $490 $409 $ - $ -
Actual return on plan assets 89 89 - -
Employer contribution 44 23 - -
Business combinations 9 - - -
Benefits paid (53) (31) - -
Fair value of net plan
assets at end of year $579 $490 $ - $ -
Funded status:
Plan assets in excess of(less than) PBO $ 62 $ 14 $(122) $(102)
Unrecognized net actuarial loss (gain) (50) (20) 21 10
Unrecognized prior service cost 2 3 14 14
Additional minimum liability (4) - - (12) -
Prepaid (accrued) benefit cost $ 14 $(3) $ (99) $ (78)
Plan assets in excess of(less than) ABO $115 $57 $ (99) $ (86)
The components of net periodic benefit costs and actuarial
assumptions for the benefit plans are summarized in the following
tables:
(dollars in millions) 1998 1997 1996
Components of pension expense (all plans):
Service cost $ 33 $ 28 $ 27
Interest on PBO 40 34 24
Expected return on assets (34) (30) (20)
Net amortization (5) 3 2 -
Total $ 42 $ 34 $ 31
January 1,
1999 1998 1997
Actuarial assumptions:
Discount rate 6.75% 7.00% 7.50%
Expected return on plan assets 7.00 7.25 7.75
Salary increase 4.25 4.50 4.50
Definition of terms:
(1) PBO is the actuarial present value of benefits attributed by
the benefit formula to prior associate service; it takes into
consideration future salary increases.
(2) Actuarial loss is the change in value of the benefit
obligations or the plan assets resulting from changes in
actuarial assumptions or from experience different than
assumed.
(3) ABO is the actuarial present value of benefits (both vested
and nonvested) attributed by the pension benefit formula to
prior associate service based on current and past compensation
levels.
(4) The additional minimum liability represents the excess of the
accumulated benefit obligation over the accrued pension costs
recognized. Recognizing the additional minimum liability
results in an intangible asset being recorded for an equal
amount.
(5) Prior service cost is amortized over the remaining service
period.
The accrued pension costs are included in other liabilities.
Prepaid pension costs and intangible assets are included in other
assets.
The company also provides postretirement life and/or health
benefits for certain associates. As of January 30, 1999, the
company's estimated PBO (using a discount rate of 6.75%) for
postretirement benefits was $48 million, of which $45 million was
accrued in other liabilities. As of January 31, 1998, the
company's estimated PBO (using a discount rate of 7.0%) for
postretirement benefits was $44 million, of which $42 million was
accrued in other liabilities. An unrecognized net loss of less than
10% of PBO need not be amortized. The postretirement plan is
unfunded. The postretirement benefit expense was $4 million in
1998, and $3 million in 1997 and 1996.
The estimated future obligations for postretirement medical
benefits are based upon assumed annual healthcare cost increases of
10% for 1999, decreasing by 1% annually to 6% for 2003 and future
years. A 1% increase or decrease in the assumed annual health care
cost increases would increase or decrease the present value of
estimated future obligations for postretirement benefits by
approximately $1 million.
Another important element in the retirement programs is the federal
Social Security system, into which the company paid $155 million in
1998 as its matching contribution to the $155 million paid in by
associates.
Taxes
The provision for income taxes and the related percent of pretax
earnings for the last three years were as follows:
1998 1997 1996
(dollars in millions) $ % $ % $ %
Federal $420 $359 $344
State and local 77 65 69
Current taxes 497 35.6% 424 33.2% 413 33.6%
Federal 41 64 58
State and local 8 12 12
Deferred taxes 49 3.5 76 5.9 70 5.7
Total $546 39.1% $500 39.1% $483 39.3%
The reconciliation between the statutory federal income tax rate
and the effective income tax rate for the last three years follows:
1998 1997 1996
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes 6.1 6.0 6.6
Federal tax benefit of state
and local incometaxes (2.2) (2.1) (2.3)
Other, net 0.2 0.2 -
Effective income tax rate 39.1% 39.1% 39.3%
<PAGE>
Major components of deferred tax assets (liabilities) were as
follows:
Jan. 30, Jan. 31,
(dollars in millions) 1999 1998
Accrued expenses and reserves $102 $ 144
Deferred and other compensation 123 116
Depreciation/amortization and basis differences (474) (460)
Other deferred income tax liabilities, net (206) (224)
Net deferred income taxes (455) (424)
Less: Net current deferred income tax assets 27 25
Noncurrent deferred income taxes $(482) $(449)
Net current deferred income tax assets are included in other
current assets in the accompanying balance sheet.
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 for 1998, 1997, and 1996.
1998
Net Earnings
(in millions, except per share) Earnings Shares per Share
Net earnings $849
ESOP preference
shares' dividends (18)
Basic earnings per share 831 342.6 $2.43
ESOP preference shares 15 22.2
Assumed exercise of options
(treasury stock method) - 2.6
Diluted earnings per share $846 367.4 $2.30
1997
Net Earnings
(in millions, except per share) Earnings Shares per Share
Net earnings $779
ESOP preference
shares' dividends (18)
Basic earnings per share 761 348.5 $2.18
ESOP preference shares 14 22.9
Assumed exercise of options
(treasury stock method) - 2.2
Diluted earnings per share $775 373.6 $2.07
1996
Net Earnings
(in millions, except per share) Earnings Shares per Share
Net earnings $749
ESOP preference
shares' dividends (18)
Basic earnings per share 731 370.8 $1.97
ESOP preference shares 13 23.1
Assumed exercise of options
(treasury stock method) - 2.3
Diluted earnings per share $744 396.2 $1.87
Accounts Receivable
During 1998, credit sales under department store credit programs
were $5.8 billion, or 43.6% of 1998 revenues; this compares with
45.6% in 1997 and 50.0% in 1996. An estimated 27 million customers
hold credit cards under the company's various credit programs.
Sales made through third-party credit cards totaled $4.1 billion in
1998, compared with $3.6 billion in 1997 and $3.0 billion in 1996.
Net accounts receivable consisted of:
Jan. 30, Jan. 31,
(dollars in millions) 1999 1998
Customer accounts receivable $2,127 $2,167
Other accounts receivable 99 93
Total accounts receivable 2,226 2,260
Allowance for uncollectible accounts (82) (96)
Accounts receivable, net $2,144 $2,164
The fair value of customer accounts receivable approximates their
carrying values at January 30, 1999, and January 31, 1998, 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 $49 million and $57 million in 1998 and 1997, respectively.
Other Assets
Other assets consisted of:
Jan. 30, Jan. 31,
(dollars in millions) 1999 1998
Deferred debt expense $ 33 $30
Notes receivable 30 29
Prepaid and intangible pension asset 26 -
Other 11 17
Total $100 $76
Accrued Expenses
Accrued expenses consisted of:
Jan. 30, Jan. 31,
(dollars in millions) 1999 1998
Insurance costs $179 $164
Salaries, wages, and employee benefits 127 112
Sales, use, and other taxes 107 97
Interest and rent expense 96 92
Advertising and other operating expenses 79 65
Construction costs 51 34
Store closings and real estate-related expenses 45 38
Other 71 38
Total $755 $640
<PAGE>
Short-term Debt and Lines of Credit
Short-term borrowings for the last three years were:
(dollars in millions) 1998 1997 1996
Balance outstanding at year end - - -
Average balance outstanding $195 $182 $ 35
Average interest rate on average balance 5.4% 5.7% 5.7%
Maximum balance outstanding $621 $487 $178
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 $767 million
available under credit agreements, including a minority-owned bank
facility.
Long-term Debt
Long-term debt and capital lease obligations were:
Jan. 30, Jan. 31,
(dollars in millions) 1999 1998
5.7% to 10.75% unsecured notes and
sinking-fund debentures due 1999-2036 $3,741 $3,630
3.0% to 10.0% mortgage notes and
bonds due 2000-2012 59 62
Debt 3,800 3,692
Capital lease obligations 123 53
Total debt and capital lease obligations 3,923 3,745
Less current maturities 98 233
Total long-term $3,825 $3,512
The company recorded an extraordinary aftertax loss of $4 million
($5 million pretax) in 1997 and $5 million ($8 million pretax) in
1996 related to the early retirement of debt.
The annual maturities of long-term debt, including sinking fund
requirements, are $98 million, $260 million, $86 million, $270
million, and $134 million for 1999 through 2003.
The net book value of property and equipment encumbered under
long-term debt agreements was $114 million at January 30, 1999.
The fair value of long-term debt (excluding capital lease
obligations) was approximately $4.5 billion and $4.2 billion at
January 30, 1999, and January 31, 1998, respectively. The fair
value was determined using borrowing rates for debt instruments
with similar terms and maturities.
Lease Obligations
The company owns approximately 75% of its stores. Rental expense
for the company's operating leases consisted of:
(dollars in millions) 1998 1997 1996
Minimum rentals $49 $47 $45
Contingent rentals based on sales 18 17 17
Real property rentals 67 64 62
Equipment rentals 3 4 4
Total $70 $68 $66
Future minimum lease payments at January 30, 1999, were as follows:
Capital Operating
(dollars in millions) Leases Leases Total
1999 $ 14 $ 46 $ 60
2000 13 41 54
2001 13 37 50
2002 13 35 48
2003 13 31 44
After 2003 189 241 430
Minimum lease payments $255 $431 $686
Less imputed interest component 132
Present value of net minimum
lease payments of which
$3 million is included in
current liabilities $123
The present value of operating leases was $256 million at January
30, 1999.
Property under capital leases, including property under capital
leases described in the "Acquisitions" footnote (page 31), is
summarized as follows:
Jan. 30, Jan. 31,
(dollars in millions) 1999 1998
Cost $131 $ 62
Accumulated amortization (32) (33)
Total $ 99 $ 29
<PAGE>
Other Liabilities
In addition to accrued pension and postretirement costs, other
liabilities consisted principally of deferred compensation
liabilities of $161 million at January 30, 1999, and $154 million
at January 31, 1998. Under the company's deferred compensation
plan, eligible associates may elect to defer part of their
compensation each year into cash and/or stock unit alternatives.
The company issues 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 30, 1999, 800,000 ESOP
preference shares were authorized and 645,320 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 1998, 1997, and 1996, the company repurchased $500 million,
$300 million, and $600 million of May common stock (12.5 million
shares, 9.6 million shares, and 19.1 million shares, respectively)
in the open market.
On February 10, 1999, the board of directors authorized the company
to repurchase up to an additional $500 million of May shares as
market conditions 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.
A summary of the status of the various stock option plans at the
end of 1998 and 1997 and of the changes within years is presented
below:
1998 1997
Exercise Average Exercise Average
(shares in Price Exercise Price Exercise
thousands) Shares Range Price Shares Range Price
Outstanding
at beginning
of year 10,230 $ 7-36 $28 10,081 $ 7-33 $25
Granted 4,230 36-43 43 3,158 32-36 32
Exercised (1,922) 7-36 25 (2,384) 7-32 21
Forfeited or
expired (774) 16-43 33 (625) 12-36 28
Outstanding at
end of year 11,764 $ 7-43 $33 10,230 $ 7-36 $28
Exercisable at
end of year 3,719 $ 7-36 $26 3,214 $ 7-33 $24
Shares available
for additional
grants 9,832 13,287
Fair value of
options granted $12 $11
The following table summarizes information about stock options
outstanding at January 30, 1999:
Options Outstanding Options Exercisable
Number Average Number
Exercise Outstanding Remaining Average Exercisable Average
Price at Jan. 30 Contractual Exercise at Jan.30 Exercise
Range (in thousands) Life Price (in thousands) Life
$ 7 2 2 $ 7 2 2
16-24 2,143 5 22 1,740 5
25-36 5,853 8 30 1,977 8
40-43 3,766 9 - - -
11,764 8 26 3,719 6
Under the 1994 Stock Incentive Plan, the company is authorized to
grant a maximum of 2.9 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. All restrictions
lapse over periods of up to 10 years, as determined at the date of
the grant. In 1998 and 1997, the company granted 328,356 and
184,548 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) 1998 1997 1996
Net earnings from continuing operations:
As reported $ 849 $ 779 $ 749
Pro forma 833 766 740
Basic EPS from continuing operations:
As reported $2.43 $2.18 $1.97
Pro forma 2.38 2.14 1.95
Diluted EPS from continuing operations:
As reported $2.30 $2.07 $1.87
Pro forma 2.27 2.04 1.85
The following Black-Scholes assumptions were used in the
calculations above:
1998 1997 1996
Risk-free interest rate 5.6% 6.6% 6.8%
Expected dividend yield $0.85 $0.80 $0.77
Expected option life (years) 7 7 7
Expected volatility 23% 24% 25%
Shareowner Rights Plan
The company has a shareowner rights plan 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.
Acquisitions
In September 1998, May purchased 11 former Mercantile stores for
approximately $302 million, including merchandise inventories. Nine
of these stores are leased under a long-term capital lease. The
lease has both put and call options that, if exercised, would
result in the company buying the underlying properties for
approximately $100 million.
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.
These acquisitions have been accounted for as purchases and did not
have a material effect on the results of operations or financial
position.
Discontinued Operation
The company spun off Payless effective May 4, 1996, as a tax-free
distribution to shareowners. The company's financial statements
reflect Payless as a discontinued operation.
Payless revenues were $601 million in 1996. The reported net
earnings from the discontinued operation were net of $16 million in
income tax expense for 1996.
<PAGE>
[The following "Eleven-year Financial Summary" is a reproduction of
the same named section in the paper format Annual Report on pages
32-33.]
<TABLE>
<CAPTION>
Eleven-year Financial Summary
(in millions, except per share and operating statistics)
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net retail sales $13,072 $12,291 $11,492 $10,374 $ 9,666 $8,921 $8,304 $7,755 $7,386 $6,917 $6,072
Total percent increase 6.4% 7.0% 10.8% 7.3% 8.4% 7.4% 7.1% 5.0% 6.8% 13.9% 30.6%
Store-for-store percent increase 3.5% 3.6% 4.3% 2.5% 5.4% 5.4% 4.5% (0.6%) 0.6% 6.4% 5.5%
Operations
Revenues $13,413 $12,685 $12,000 $10,952 $10,107 $9,562 $9,362 $9,068 $8,700 $8,356 $7,742
Cost of sales 9,224 8,732 8,226 7,461 6,879 6,537 6,459 6,275 6,047 5,734 5,348
Selling, general, and
administrative expenses 2,516 2,375 2,265 2,081 1,916 1,824 1,859 1,861 1,772 1,735 1,645
Interest expense, net 278 299 277 250 233 244 279 315 278 231 196
Earnings before income taxes 1,395 1,279 1,232 1,160 1,079 957 579* 617 603 656 553
Provision for income taxes 546 500 483 460 429 379 107* 213 199 231 191
Net earnings (1) 849 779 749 700 650 578 472 404 404 425 362
Percent of revenues 6.3% 6.1% 6.2% 6.4% 6.4% 6.0% 5.0% 4.5% 4.6% 5.1% 4.7%
LIFO charge (credit) $ (28) $ (5) $ (20) $ (53) $ (46) $ 7 $ 10 $ 26 $ 39 $ (22) $ (3)
Per share
Net earnings (1) $ 2.30 $ 2.07 $ 1.87 $ 1.75 $ 1.62 $ 1.43 $ 1.18 $ 1.02 $ 1.01 $ 1.00 $ .82
Dividends paid (2) .85 .80 .77 .74 .67 .60 .55 .54 .51 .46 .42
Book value 11.46 10.99 10.27 12.28 11.10 9.77 8.55 7.51 6.69 6.22 7.17
Market price - high 47.25 38.08 34.83 30.83 30.08 31.00 24.83 20.13 19.71 17.54 13.33
Market price - low 33.17 29.08 27.00 22.33 21.50 22.29 17.33 15.08 12.46 11.54 9.58
Market price - year-end close 40.25 35.04 29.67 29.25 23.42 26.50 23.46 18.29 15.17 15.25 12.50
Financial statistics
Return on equity 22.2% 21.2% 19.4% 20.8% 21.3% 22.1% 21.5% 20.7% 21.8% 18.0% 18.6%
Return on net assets 19.8 18.5 18.8 20.1 20.1 19.0 15.4** 14.5 15.8 16.9 16.2
Operating Statistics
Stores open at year-end 393 369 365 346 314 301 303 318 324 288 297
Gross retail square footage
(in millions) 66.7 62.8 62.1 57.6 52.0 49.4 49.5 51.9 52.4 48.4 50.0
Sales per square foot (3) $ 209 $ 204 $ 201 $ 201 $ 200 $ 191 $ 179 $ 171 $ 172 $ 168 $ 158
Cash flow and financial position
Cash flow from operations (4) $ 1,288 $ 1,191 $ 1,123 $ 1,033 $ 947 $ 859 $ 755 $ 677 $ 657 $ 659 $ 599
Percent of revenues 9.6% 9.4% 9.3% 9.4% 9.4% 9.0% 8.1% 7.5% 7.6% 7.9% 7.7%
Depreciation and amortization $ 439 $ 412 $ 374 $ 333 $ 297 $ 281 $ 283 $ 273 $ 253 $ 234 $ 236
Capital expenditures 630 496 632 801 682 560 284 366 466 470 292
Dividends on common stock 290 279 287 277 251 223 204 198 191 186 184
Working capital 2,928 3,012 3,156 3,536 3,069 2,960 2,730 3,089 2,672 2,094 2,123
Long-term debt and
preference stock 4,152 3,849 4,196 3,701 3,240 3,192 3,256 4,299 3,948 3,387 2,384
Shareowners' equity 3,836 3,809 3,650 4,585 4,135 3,639 3,181 2,781 2,467 2,319 3,050
Total assets 10,533 9,930 10,059 10,122 9,237 8,614 8,376 8,566 8,083 7,570 7,374
Average shares outstanding
and equivalents
Diluted 367.4 373.6 396.2 397.3 397.3 398.2 397.0 394.3 397.1 419.3 442.2
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) Represents net earnings and diluted earnings per share from continuing operations.
(2) The annual dividend was increased to $.89 per share effective with the March 15, 1999, dividend payment.
(3) Sales per square foot are calculated from revenues and average gross retail square footage.
(4) Cash flow from operations represents net earnings plus depreciation/amortization. It is different from cash flow from
operating activities as shown on the statement of cash flows.
* Pretax earnings include a net special and nonrecurring charge of $187 million, and the provision for income taxes
includes a nonrecurring tax benefit of $187 million.
** Based on pretax earnings before special and nonrecurring items.
</TABLE>
<PAGE>
[The following "Reports of Management and Audit Committee" and
"Report of Independent Public Accountants" section is a
reproduction of the same named section included in the paper format
Annual Report on page 34.]
Reports of Management and Audit Committee
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 acceptedaccounting 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 withinand 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
andinternal 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.
Report of Audit Committee
The Board of Directors, through the activities of its audit
committee, participates in the reporting of financialinformation by
the company. The committee meets regularly with management, the
internal auditors, and the independent public accountants. The
committee met three times during 1998. 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 audit
committee reports the results of its activities to the Board of
Directors.
Members of the audit committee are Russell E. Palmer (chairman),
Marsha J. Evans, Helene L. Kaplan, James M. Kilts, Edward H. Meyer,
Michael R. Quinlan, William P. Stiritz, Robert D. Storey, and
Murray L. Weidenbaum.
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 30, 1999, and January 31, 1998, and the
related consolidated statements of earnings, shareowners' equity
and cash flows for each of the three fiscal years in the period
ended January 30, 1999. 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 30, 1999,
and January 31, 1998, and the results of their operations and their
cash flows for each of the three fiscal years in the period ended
January 30, 1999, in conformity with generally accepted accounting
principles.
/s/Arthur Andersen LLP
1010 Market Street
St. Louis, Missouri 63101-2089
February 10, 1999
<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 22, 21 AND 25-31, RESPECTIVELY, OF THE MAY
DEPARTMENT STORES COMPANY 1998 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-30-1999
<PERIOD-END> JAN-30-1999
<CASH> 15
<SECURITIES> 97
<RECEIVABLES> 2,226
<ALLOWANCES> 82
<INVENTORY> 2,655
<CURRENT-ASSETS> 4,987
<PP&E> 7,260
<DEPRECIATION> 2,747
<TOTAL-ASSETS> 10,533
<CURRENT-LIABILITIES> 2,059
<BONDS> 3,923
0
0
<COMMON> 167
<OTHER-SE> 3,669
<TOTAL-LIABILITY-AND-EQUITY> 10,533
<SALES> 13,072
<TOTAL-REVENUES> 13,413
<CGS> 9,224
<TOTAL-COSTS> 9,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278
<INCOME-PRETAX> 1,395
<INCOME-TAX> 546
<INCOME-CONTINUING> 849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 849
<EPS-PRIMARY> 2.43
<EPS-DILUTED> 2.30
</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, 1998
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, 1998 4
Statement of Net Assets Available for
Benefits - December 31, 1997 7
Statement of Changes in Net Assets
Available for Benefits for the Year
Ended December 31, 1998 10
Notes to Financial Statements -
December 31, 1998 and 1997 12
Schedule I - Item 27(a): Schedule of Assets
Held for Investment Purposes -
December 31, 1998 18
Schedule II - Item 27(d): Schedule of
Reportable Transactions for the Year
Ended December 31, 1998 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 21, 1999 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, 1998 and 1997, and the related statement of changes in net assets
available for benefits for the year ended December 31, 1998. 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, 1998 and 1997, and the changes in net assets available for benefits
for the year ended December 31, 1998, 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,
March 19, 1999
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1998
(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 $558,434 $322,703 $ -
Common stock - - 165,401
Commingled equity index fund - - -
Short-term investments - - 443
U.S. government securities - - -
Fixed income investments - - -
-------- -------- --------
Total investments 558,434 322,703 165,844
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts (53,934) 53,934 -
Dividends and interest receivable - - 3
Receivable - withholdings of
member contributions - - -
Member interfund transfers - (314) (379)
-------- -------- --------
Total assets 504,500 376,323 165,468
-------- -------- --------
LIABILITIES
LIABILITIES:
Notes payable 316,944 - -
Accrued interest payable 4,453 - -
Net amount (receivable) payable for
investment securities transactions
and other - - -
Amounts payable for
administrative expenses - - 172
-------- -------- --------
Total liabilities 321,397 - 172
-------- -------- --------
NET ASSETS AVAILABLE FOR BENEFITS $183,103 $376,323 $165,296
======== ======== ========
NUMBER OF UNITS AT DECEMBER 31, 1998 2,652
========
VALUE PER UNIT AT DECEMBER 31, 1998 $ 62.34
========
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1998
(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 465,418 - - -
Commingled equity index fund - 171,212 - -
Short-term investments 1,248 1,039 60,591 878
U.S. government securities - - - 32,801
Fixed income investments - - - 11,731
-------- -------- ------- -------
Total investments 466,666 172,251 60,591 45,410
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - 6 (4) (2)
Dividends and interest receivable 9 4 275 781
Receivable - withholdings of
member contributions 1,307 582 224 182
Member interfund transfers (1,069) 599 821 342
-------- -------- ------- -------
Total assets 466,913 173,442 61,907 46,713
-------- -------- ------- -------
LIABILITIES
LIABILITIES:
Notes payable - - - -
Accrued interest payable - - - -
Net amount (receivable) payable for
investment securities transactions
and other - (454) - 533
Amounts payable for
administrative expenses 484 345 238 200
-------- -------- ------- -------
Total liabilities 484 (109) 238 733
-------- -------- ------- -------
NET ASSETS AVAILABLE FOR BENEFITS $466,429 $173,551 $61,669 $45,980
======== ======== ======= =======
NUMBER OF UNITS AT DECEMBER 31, 1998 7,482 32,932 36,276 22,429
======== ======== ======= =======
VALUE PER UNIT AT DECEMBER 31, 1998 $ 62.34 $ 5.27 $ 1.70 $ 2.05
======== ======== ======= =======
(Continued on following page)
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1998
(Thousands, except per unit information)
Distribution
ASSETS Account Total
INVESTMENTS, at fair value:
The May Department Stores Company-
Convertible preferred stock $ - $ 881,137
Common stock - 630,819
Commingled equity index fund - 171,212
Short-term investments 4,217 68,416
U.S. government securities - 32,801
Fixed income investments - 11,731
------ ----------
Total investments 4,217 1,796,116
OTHER ASSETS:
Receivable (payable) for
allocation to member accounts - -
Dividends and interest receivable - 1,072
Receivable - withholdings of
member contributions - 2,295
Member interfund transfers - -
------ ----------
Total assets 4,217 1,799,483
------ ----------
LIABILITIES
LIABILITIES:
Notes payable - 316,944
Accrued interest payable - 4,453
Net amount (receivable) payable for
investment securities transactions
and other 4,217 4,296
Amounts payable for
administrative expenses - 1,439
------ ----------
Total liabilities 4,217 327,132
------ ----------
NET ASSETS AVAILABLE FOR BENEFITS $ - $1,472,351
====== ==========
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, 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 CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Thousands)
Nonparticipant Directed
Investment Funds
--------------------------------
ESOP Preference
---------------------- May
Member Common
Unallocated Allocated Stock
NET APPRECIATION IN FAIR VALUE OF
INVESTMENTS $ 60,203 $ 55,938 $ 22,814
-------- -------- --------
INVESTMENT INCOME:
Dividends 16,871 8,092 3,654
Interest - - 40
-------- -------- --------
16,871 8,092 3,694
-------- -------- --------
CONTRIBUTIONS:
Member - - -
Employer allocation (54,018) 54,018 -
Employer ESOP contribution 28,195 - -
Member interfund transfers - (3,110) (5,068)
-------- -------- --------
(25,823) 50,908 (5,068)
-------- -------- --------
DEDUCTIONS:
Member terminations and
withdrawals - 25,360 16,565
Interest expense 27,421 - -
Administrative expenses - - 581
-------- -------- --------
27,421 25,360 17,146
-------- -------- --------
INCREASE IN NET ASSETS AVAILABLE
FOR BENEFITS 23,830 89,578 4,294
NET ASSETS AVAILABLE FOR BENEFITS AT
DECEMBER 31, 1997 159,273 286,745 161,002
-------- -------- --------
NET ASSETS AVAILABLE FOR BENEFITS AT
DECEMBER 31, 1998 $183,103 $376,323 $165,296
======== ======== ========
(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, 1998
(Thousands)
Participant Directed
Investment Funds
------------------------------------
May Common Fixed
Common Stock Money Income
Stock Index Market Index Total
NET APPRECIATION IN FAIR
VALUE OF INVESTMENTS $ 60,577 $ 34,932 $ - $ 924 $ 235,388
-------- -------- ------- ------- ----------
INVESTMENT INCOME:
Dividends 9,829 2,100 - - 40,546
Interest 104 68 3,528 2,646 6,386
-------- -------- ------- ------- ----------
9,933 2,168 3,528 2,646 46,932
-------- -------- ------- ------- ----------
CONTRIBUTIONS:
Member 47,281 21,517 7,747 6,243 82,788
Employer allocation - - - - -
Employer ESOP contribution - - - - 28,195
Member interfund transfers (22,029) 5,945 18,532 5,730 -
-------- -------- ------- ------- ----------
25,252 27,462 26,279 11,973 110,983
-------- -------- ------- ------- ----------
DEDUCTIONS:
Member terminations and
withdrawals 44,489 17,463 30,154 7,838 141,869
Interest expense - - - - 27,421
Administrative expenses 1,496 884 589 490 4,040
-------- -------- ------- ------- ----------
45,985 18,347 30,743 8,328 173,330
-------- -------- ------- ------- ----------
INCREASE IN NET ASSETS
AVAILABLE FOR BENEFITS 49,777 46,215 (936) 7,215 219,973
NET ASSETS AVAILABLE FOR
BENEFITS AT DECEMBER 31,
1997 416,652 127,336 62,605 38,765 1,252,378
-------- -------- ------- ------- ----------
NET ASSETS AVAILABLE FOR
BENEFITS AT DECEMBER 31,
1998 $466,429 $173,551 $61,669 $45,980 $1,472,351
======== ======== ======= ======= ==========
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, 1998 AND 1997
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 $15.01 per common share equivalent ($22.51 per common share equivalent before
the three-for-two common stock split in March 1999). 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 $15.01 per share. This market value of the employer
allocation (including any supplemental contributions), 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.
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.
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.
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, 1998, the nonparticipant directed May Common Stock and ESOP
Member Allocated Funds include approximately $102.5 million and $289.0 million,
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 are invested in the ESOP Preference Fund. The employer
allocation to the Plan for the year ended December 31, 1998, will be made in May
1999 and will be in the form of 39,659 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 33.78747 shares of May common stock (22.52498
conversion rate before the three-for-two stock split in March 1999). 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, 1998 and 1997.
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 makes
supplemental contributions to the Plan for the difference, subject to the 100%
effective matching rate limitations described above. 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 (in
accordance with applicable law) 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). 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 reported 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, 1998 and 1997, the ESOP
Preference Shares were valued at their conversion values of $1,359.95 and
$1,186.78, 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 administrators believe 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.
May Commmon Stock Split
All May common share data included in these financial statements has been
restated to reflect a three-for-two common stock split announced on February
11, 1999, for owners of record as of March 1, 1999, for distribution on
March 22, 1999.
<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, 1998 and 1997, are
as follows (dollars in thousands):
December 31, 1998 December 31, 1997
---------------------- ----------------------
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 410,629 $ 558,434 465,093 $ 551,965
Member allocated 237,291 322,703 203,387 241,377
---------- ---------- ---------- ----------
647,920 881,137 668,480 793,342
========== ==========
The May Department
Stores Company
Common Stock 15,672,525* 630,819 16,399,650* 576,038
Chase Investors
Commingled Equity
Index Fund 141,865 171,212 131,291 124,796
The Bank of New
York Short-Term
Investment Fund -
Master Notes $68,416 68,416 $72,023 72,023
---------- ----------
Total $1,751,584 $1,566,199
========== ==========
*Restated to reflect the three-for-two stock split in March 1999.
4. NOTES PAYABLE:
Notes payable as of December 31 consisted of the following (in thousands):
1998 1997
ESOP Notes Payable:
Series A, 8.32%, due April 30, 2001 $112,980 $138,365
Series B, 8.49%, due April 30, 2004 203,964 203,964
-------- --------
$316,944 $342,329
======== ========
The scheduled principal payments for the Series A ESOP Note for the remaining
three years are as follows: 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
the first two payments of $52,317,000 and $60,787,000 due in 2002 and in 2003,
respectively. As of December 31, 1998 and 1997, the total fair value of the
ESOP Notes was approximately $361,445,000 and $402,988,000, respectively.
<PAGE>
5. RECONCILIATION TO FORM 5500:
As of December 31, 1998 and 1997, the Plan had approximately $15,929,000 and
$19,127,000, 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, 1998 (thousands):
Net Assets
Benefits Available
Payable to Benefits for
Participants Paid Benefits
Per financial statements $ - $141,869 $1,472,351
Pending benefit distributions -
December 31, 1998 15,929 15,929 (15,929)
Pending benefit distributions -
December 31, 1997 - (19,127) -
------- -------- ----------
Per Form 5500 $15,929 $138,671 $1,456,422
======= ======== ==========
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, 1998
(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 410,629 $208,189 $ 558,434
Allocated 237,291 120,307 322,703
-------- ----------
ESOP Preference Fund Total $328,496 $ 881,137
======== ==========
MAY COMMON STOCK FUND
* The May Department Stores Company
Common stock 15,672,525**$266,847 $ 630,819
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 1,691,665 1,691 1,691
-------- ----------
May Common Stock Fund Total $268,538 $ 632,510
======== ==========
COMMON STOCK INDEX FUND
Chase Investors Commingled Equity
Index Fund 141,865 $ 87,839 $ 171,212
* The Bank of New York Short-Term
Investment Fund- Master notes $ 1,038,740 1,039 1,039
-------- ----------
Common Stock Index Fund Total $ 88,878 $ 172,251
======== ==========
MONEY MARKET FUND
* The Bank of New York Short-Term
Investment Fund- Master Notes $60,590,688 $ 60,591 $ 60,591
======== ==========
FIXED INCOME INDEX FUND
* The Bank of New York Short-Term
Investment Fund- Master Notes $ 878,041 $ 878 $ 878
-------- ----------
* Also a party-in-interest.
** Restated to reflect the three-for-two stock split in March 1999.
<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 $1,400,000 $ 1,462 $ 1,574
5.75%, due 08/15/03 $2,000,000 2,072 2,089
7.875%, due 11/15/04 $ 600,000 668 695
13.75%, due 08/15/04 $ 525,000 810 755
5.5%, due 04/15/00 $3,700,000 3,583 3,738
5.625%, due 05/15/08 $ 300,000 323 320
6.125%, due 12/31/01 $1,100,000 1,123 1,144
7.75%, due 01/31/00 $1,700,000 1,763 1,754
5.875%, due 02/15/04 $3,200,000 3,266 3,376
5.25%, due 01/31/01 $3,900,000 3,860 3,948
6.875%, due 05/15/06 $1,850,000 1,959 2,092
6.375%, due 08/15/02 $3,800,000 3,918 4,008
8.75%, due 08/15/00 $1,800,000 2,000 1,913
6.875%, due 03/31/00 $ 300,000 310 308
5.500%, due 02/15/08 $ 450,000 460 477
-------- ----------
Total U.S. treasury notes 27,577 28,191
-------- ----------
U.S. Government Agency Securities:
Federal Home Loan Mortgage Corp.:
6.22%, due 3/24/03 $ 200,000 182 208
4.75%, due 12/14/01 $1,000,000 997 996
Federal National Mortgage Assoc.
Securities-
8.35%, due 11/10/99 $ 525,000 544 540
5.75%, due 6/15/05 $ 800,000 824 826
4.625%, due 10/15/01 $ 500,000 498 497
Debentures-
7.65%, due 3/10/05 $ 260,000 268 292
5.75%, due 7/15/03 $ 400,000 406 410
Medium Term Notes-
6.41%, due 3/8/06 $ 400,000 402 425
6.69%, due 8/7/01 $ 400,000 402 416
-------- ----------
Total U.S. government agency
securities 4,523 4,610
-------- ----------
Total U.S. government
securities 32,100 32,801
-------- ----------
<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 $ 320
Republic NY Corp., 7.25%, due 7/15/02 $ 100,000 98 105
NCNB Corp., 9.125%, due 10/15/01 $ 268,000 306 293
Bayerische Landesbank, 5.825%, due
12/01/08 $ 450,000 449 460
Interamerican Development Bank, 5.75%,
due 2/26/08 $ 400,000 398 413
-------- ----------
Total bank corporate bonds 1,557 1,591
-------- ----------
Finance and Insurance Corporate Bonds:
American Express Co., 8.5%, due
8/15/01 $ 200,000 201 215
Corestates Cap. Corp., 5.75%, due
1/15/01 $ 400,000 388 406
Finovia Cap Corp., 5.875%, due
10/15/01 $ 450,000 449 450
ABN-AMRO Bank, 6.625%, due 10/31/01 $ 300,000 300 308
General Electric Capital Corp.,
8.85%, due 4/1/05 $ 300,000 364 355
Simon Debartolo Group, 6.875%, due
11/15/06 $ 500,000 498 488
Travelers/Aetna Property Casualty
Corp., 6.75%, due 4/15/01 $ 300,000 301 309
Toyota Motor Corp., 5.5%, due 12/15/08 $ 450,000 449 448
United Dominion Realty Tr. Inc.,
8.125%, due 11/15/00 $ 400,000 400 401
-------- ----------
Total finance and insurance
corporate bonds 3,350 3,380
-------- ----------
Industrial Corporate Bonds:
Comcast Cable, 6.2%, due 11/15/08 $ 450,000 449 458
Eli Lilly & Co., 8.125%, due 12/1/01 $ 200,000 199 217
General Motors Corp., 7.10%, due
3/15/06 $ 300,000 303 324
Philip Morris Co., Inc., 8.625%, due
3/1/99 $ 250,000 248 251
Lockhead Martin Corp., 6.85%, due
5/15/01 $ 400,000 400 412
Hercules, Inc., 6.15%, due 8/1/00 $ 400,000 401 402
Nabisco, Inc. NT; 6.00%, due 2/15/11 $ 400,000 399 395
-------- ----------
Total industrial corporate
bonds 2,399 2,459
-------- ----------
Oil Corporate Bonds:
Tenneco, Inc., 7.875%, due 10/1/02 $ 250,000 248 266
El Paso Nat. Gas Co., 6.75%, due
11/15/03 $ 300,000 305 310
-------- ----------
Total oil corporate bonds 553 576
-------- ----------
<PAGE>
SCHEDULE I
(Continued)
(c) (e)
(b) Principal (d) Fair
(a) Identity of Issue Amount Cost Value
(Thousands)
FIXED INCOME INDEX FUND (Continued)
Utilities Corporate Bonds:
Duke Power Co., 1st & Refunding
Mortgage Note, 7%, due 6/1/00 $ 195,000 $ 203 $ 200
Enron Corp., 9.5%, due 6/15/01 $ 100,000 110 108
Enron Corp., 6.50% due 8/1/02 $ 300,000 298 305
-------- ----------
Total utilities corporate
bonds 611 613
-------- ----------
Telephone Corporate Bonds:
Cable & Wireless Com. 6.625%, due
3/6/05 $ 400,000 399 403
Worldcom Inc. GA, 8.875%, due
1/15/06 $ 400,000 434 437
-------- ----------
Total telephone corporate
bonds 833 840
-------- ----------
Asset Backed Securities:
California Infrastructure, 6.32%, due
9/25/05 $ 400,000 403 411
-------- ----------
403 411
-------- ----------
Foreign Obligations:
Finland Rep NT, 7.875%, due 7/28/04 $ 225,000 229 254
Hydro-Quebec Debenture, Series IF,
7.375%, due 2/1/03 $ 150,000 161 160
Province of Ontario, Canada
Debenture, 8%, due 10/17/01 $ 150,000 150 161
Province of Ontario, Canada
Debenture, 7.375%, due 1/27/03 $ 400,000 415 429
British Columbia Prov. Canada, 5.375%,
due 10/29/08 $ 450,000 448 449
Tyco International Grp. SA, 6.375%,
due 6/15/05 $ 400,000 398 408
-------- ----------
Total foreign obligations 1,801 1,861
-------- ----------
Total fixed income investments 11,507 11,731
-------- ----------
Fixed Income Index Fund Total $ 44,485 $ 45,410
======== ==========
DISTRIBUTION ACCOUNT
* The Bank of New York Short-Term
Investment Fund- Master Notes $4,216,744 $ 4,217 $ 4,217
======== ==========
TOTAL ASSETS HELD FOR INVESTMENT
PURPOSES AT DECEMBER 31, 1998 $795,205 $1,796,116
======== ==========
* Also a party-in-interest.
<PAGE>
SCHEDULE II
THE MAY DEPARTMENT STORES COMPANY
PROFIT SHARING PLAN
EMPLOYER #: 43-1104396
PLAN #: 003
ITEM 27(d): SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(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) 439 $133,898 270 $137,297 $137,297 $ -
The May Department
Stores Company
Common Stock (1) (2) 54 $ 37,193 46 $ 58,074 $ 65,803 $7,729
(1) Also a party-in-interest.
(2) Includes conversion of ESOP Preference Shares.
<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 Files No. 333-00957 and 333-76227.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
April 21, 1999
