SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended October 28, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-79
THE MAY DEPARTMENT STORES COMPANY
(Exact name of registrant as specified in its charter)
Delaware 43-1104396
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
611 Olive Street, St. Louis, Missouri 63101
(Address of principal executive offices) (Zip Code)
(314) 342-6300
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90
days. YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
297,776,135 shares of common stock, $0.50 par value, as of October
28, 2000.
1
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
Oct. 28, Oct. 30, Jan. 29,
ASSETS 2000 1999 2000
Current Assets:
Cash and cash equivalents $ 56 $ 34 $ 41
Accounts receivable, net 1,868 1,817 2,173
Merchandise inventories 3,582 3,382 2,817
Other current assets 100 70 84
Total Current Assets 5,606 5,303 5,115
Property and Equipment, at cost 8,036 7,623 7,797
Accumulated Depreciation (3,157) (2,925) (3,028)
Property and Equipment, net 4,879 4,698 4,769
Goodwill and Other Assets 1,394 1,024 1,051
Total Assets $ 11,879 $ 11,025 $ 10,935
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable $ 478 $ 176 $ -
Current maturities of
long-term debt 86 264 259
Accounts payable 1,437 1,415 1,030
Accrued expenses 968 886 892
Income taxes payable 24 34 234
Total Current Liabilities 2,993 2,775 2,415
Long-term Debt 4,540 3,567 3,560
Deferred Income Taxes 568 506 540
Other Liabilities 322 309 314
ESOP Preference Shares 303 318 315
Unearned Compensation (248) (283) (286)
Shareowners' Equity 3,401 3,833 4,077
Total Liabilities and
Shareowners' Equity $ 11,879 $ 11,025 $ 10,935
The accompanying notes to condensed consolidated financial
statements are an integral part of this balance sheet.
2
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Millions, except per share) 13 Weeks Ended 39 Weeks Ended
Oct. 28, Oct. 30, Oct. 28, Oct. 30,
2000 1999 2000 1999
Net retail sales $ 3,328 $ 3,170 $ 9,510 $ 9,171
Revenues $ 3,326 $ 3,176 $ 9,507 $ 9,232
Cost of sales 2,397 2,218 6,692 6,402
Selling, general and
administrative expenses 697 660 2,005 1,929
Interest expense, net 91 70 244 213
Earnings before income taxes 141 228 566 688
Provision for income taxes 56 90 226 274
Net earnings $ 85 $ 138 $ 340 $ 414
Basic earnings per share $ .28 $ .40 $ 1.06 $ 1.20
Diluted earnings per share $ .27 $ .38 $ 1.03 $ 1.15
Dividends paid per
common share $.23-1/4 $.22-1/4 $.69-3/4 $.66-3/4
Weighted average shares
outstanding:
Basic 297.6 331.0 309.2 332.9
Diluted 318.3 354.3 330.6 356.6
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
3
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions) 39 Weeks Ended
Oct. 28, Oct. 30,
2000 1999
Operating Activities:
Net earnings $ 340 $ 414
Depreciation and amortization 373 346
Increase in working capital (175) (25)
Other, net 28 52
566 787
Investing Activities:
Net additions to property and equipment (424) (552)
Acquisition (421) -
(845) (552)
Financing Activities:
Net issuances of notes payable 478 176
Net issuances (repayments) of long-term debt 844 (62)
Net purchases of common stock (797) (191)
Dividend payments, net of tax benefit (231) (236)
294 (313)
Increase (Decrease) in Cash and Cash
Equivalents 15 (78)
Cash and cash equivalents, beginning of period 41 112
Cash and cash equivalents, end of period $ 56 $ 34
Cash paid during the period:
Interest $ 241 $ 227
Income Taxes 377 387
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
4
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interim Results. These unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions
to Form 10-Q of The Securities and Exchange Commission and should
be read in conjunction with the Notes to Consolidated Financial
Statements (pages 26-31) in the 1999 Annual Report. In the opinion
of management, this information is fairly presented and all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the results for the interim
periods have been included; however, certain items are included in
these statements based on estimates for the entire year. Also,
operating results of periods which exclude the Christmas season may
not be indicative of the operating results that may be expected for
the full fiscal year.
Cost of Sales. During the third quarter of 2000, the company
completed its clearance of excess spring and summer merchandise,
which increased cost of sales by approximately $63 million. The
LIFO (last-in, first-out) provision for the third quarter was $4
million in 2000 and 1999. The year-to-date LIFO provision was $20
million in 2000 and 1999.
Long-term Debt. Through the end of the third quarter of 2000, the
company has issued a total of $1.075 billion in new debt: $200
million of 7.875% debentures due March 1, 2030; $250 million of
8.75% debentures due May 15, 2029; $200 million of 8.5% debentures
due June 1, 2019; $200 million of 8% debentures due July 15, 2012;
and $225 million of 7.9% debentures due October 15, 2007. The
company uses the net proceeds from the sale of debentures for stock
repurchases, capital expenditures, working capital needs, and other
general corporate purposes including acquisitions.
Acquisition. In August 2000, the company completed the acquisition
of David's Bridal, Inc., which sells bridal gowns and other bridal
merchandise and currently operates 122 stores in 36 states and
Puerto Rico. This acquisition has been accounted for as a purchase
and was not material to the company's financial statements.
Common Stock Repurchase Program. During the first half of 2000,
the company repurchased $789 million or 28.4 million shares of May
common stock at an average price of $28 per share. These
repurchases completed the remaining $139 million of stock
repurchases related to the 1999 stock repurchase program and the
$650 million common stock repurchase program authorized by May's
board of directors in 2000.
Summarized Financial Information - The May Department Stores
Company, New York. Summarized financial information for The May
Department Stores Company, New York, is set forth below for 2000
and 1999.
October 28, January 29,
2000 2000
Financial Position
Current assets $5,589 $ 5,104
Noncurrent assets 7,181 5,818
Current liabilities 3,002 2,425
Noncurrent liabilities 9,074 8,043
5
13 Weeks Ended 39 Weeks Ended
Oct. 28, Oct. 30, Oct. 28, Oct. 30,
2000 1999 2000 1999
Operating Results
Revenues $ 3,326 $3,176 $ 9,507 $ 9,232
Cost of sales 2,397 2,218 6,692 6,402
Net earnings 33 91 184 273
Earnings per Share. The following tables reconcile net earnings
and weighted average shares outstanding to amounts used to
calculate basic and diluted earnings per share ("EPS") for the
periods shown (millions, except per share).
13 Weeks Ended
October 28, 2000 October 30, 1999
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 85 $ 138
ESOP preference
shares' dividends (4) (5)
Basic EPS 81 297.6 $0.28 133 331.0 $ 0.40
ESOP preference
shares 4 20.4 4 21.3
Assumed exercise of
options (treasury
stock method) - 0.3 - 2.0
Diluted EPS $ 85 318.3 $0.27 $ 137 354.3 $ 0.38
39 Weeks Ended
October 28, 2000 October 30, 1999
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 340 $ 414
ESOP preference
shares' dividends (14) (14)
Basic EPS 326 309.2 $1.06 400 332.9 $ 1.20
ESOP preference
shares 13 20.7 12 21.5
Assumed exercise of
options (treasury
stock method) - 0.7 - 2.2
Diluted EPS $ 339 330.6 $1.03 $ 412 356.6 $ 1.15
Reclassifications. Certain prior period amounts have been
reclassified to conform with current year presentation.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net retail sales (sales) represent the sales of stores operating at
the end of the latest period including lease department sales and
excluding finance charge revenue and the sales of stores that have
6
been closed and not replaced. Store-for-store sales represent
sales of those stores open during both periods. David's Bridal
sales are included in the total sales since the acquisition date,
but are not included in store-for-store sales. Sales percent
increases are as follows:
Third Quarter First Nine Months
Store-for- Store-for-
Total Store Total Store
5.0% (0.1)% 3.7% (0.3)%
The following table presents the components of costs and expenses,
as a percent of revenues. Revenues include sales from all stores
operating during the period, finance charge revenues and lease
department income.
Third Quarter First Nine Months
2000 1999 2000 1999
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 72.1 69.8 70.4 69.4
Selling, general and
administrative expenses 21.0 20.8 21.1 20.9
Interest expense, net 2.7 2.2 2.6 2.3
Earnings before income taxes 4.2 7.2 5.9 7.4
Provision for income taxes 39.6* 39.6* 39.9* 39.9*
Net Earnings 2.6% 4.3% 3.6% 4.5%
*-Percent represents effective income tax rate.
Cost of sales was $2,397 million in the 2000 third quarter, up 8.1%
from $2,218 million in the 1999 third quarter. For the first nine
months of 2000, cost of sales was $6,692 million, a 4.5% increase
from $6,402 million in the 1999 period. As a percent of revenues,
cost of sales increased 2.3% in the third quarter and 1.0% in the
first nine months compared with the same periods of 1999. During
the third quarter of 2000, the company completed the clearance of
excess spring and summer merchandise, which increased cost of sales
for the third quarter and first nine months of 2000 by $63 million
and increased cost of sales as a percent of revenues by 1.9% in the
third quarter of 2000 and 0.7% for the first nine months of 2000.
The remaining increase in cost of sales as a percent of revenues
was in buying and occupancy costs.
Selling, general and administrative expenses were $697 million in
the 2000 third quarter, compared with $660 million in the 1999
third quarter, a 5.6% increase. For the first nine months of 2000,
selling, general and administrative expenses were $2,005 million
compared with $1,929 million in the 1999 period, a 3.9% increase.
Selling, general and administrative expenses as a percent of
revenues increased 0.2% in the third quarter and in the first nine
months compared with the same periods of 1999 due primarily to an
increase in payroll and advertising expenses partially offset by
lower employee benefit expenses.
7
Net interest expense for the third quarter and first nine months of
2000 and 1999 was as follows (millions):
Third Quarter First Nine Months
2000 1999 2000 1999
Interest expense $ 97 $ 78 $266 $234
Interest income (2) (2) (9) (9)
Capitalized interest (4) (6) (13) (12)
Net Interest Expense $ 91 $ 70 $244 $213
The increase in interest expense is due to long-term borrowings as
described under long-term debt.
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
Oct. 28, Oct. 30,
2000 1999
Net retail sales $ 14,208 $ 13,688
Revenues 14,141 13,709
Net earnings 853 892
Diluted earnings per share 2.48 2.46
Financial Condition
Key financial ratios for the periods indicated are as follows:
Oct. 28, Oct. 30, Jan. 29,
2000 1999 2000
Current Ratio 1.9 1.9 2.1
Debt-Capitalization Ratio 55% 46% 44%
Fixed Charge Coverage* 4.2x 4.6x 4.8x
The debt-capitalization ratio increased as of October 28, 2000 due
to the long-term borrowings described under long-term debt and the
previously discussed common stock repurchase program. The fixed
charge coverage ratio for the 52 weeks ended October 28, 2000
declined due to higher interest expense and lower operating
earnings compared to the 52 weeks ended October 30, 1999 and
January 29, 2000.
* Fixed charge coverage, which is presented for the 52 weeks ended
October 28, 2000, October 30, 1999, and January 29, 2000, is
defined as earnings before gross interest expense, the expense
portion of interest on the ESOP debt, rent expense and income
taxes divided by gross interest expense, interest expense on the
ESOP debt, and total rent expense.
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
and are prepared with the assistance of specialists within and
8
outside the company, there are many factors outside of our control
that have an impact on our 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, and ability to hire and retain qualified associates.
Because of these factors, actual performance could differ
materially from that described in the forward-looking statements.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
registrant or any of its subsidiaries is a party or of which any
of their property is the subject.
Item 2 - Changes in Securities - None.
Item 3 - Defaults Upon Senior Securities - None.
Item 4 - Submission of Matters to a Vote of Security Holders -
None.
Item 5 - Other Information - None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(12) - Computation of Ratio of Earnings to Fixed Charges
(15) - Letter Re: Unaudited Interim Financial Information
(27) - Financial Data Schedule
(b) Reports on Form 8-K
A report dated October 16, 2000, which contained information
concerning the registrant's sale of $225 million principal
amount of its 7.9% debentures due October 15, 2007.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE MAY DEPARTMENT STORES COMPANY
(Registrant)
Date: December 5, 2000
/s/ John L. Dunham
John L. Dunham
Vice Chairman and
Chief Financial Officer
9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareowners of
The May Department Stores Company:
We have reviewed the accompanying condensed consolidated balance
sheet of The May Department Stores Company (a Delaware corporation)
and subsidiaries as of October 28, 2000, and October 30, 1999, and
the related condensed consolidated statements of earnings for the
thirteen week and thirty-nine week periods ended October 28, 2000,
and October 30, 1999, and the condensed consolidated statement of
cash flows for the thirty-nine week periods ended October 28, 2000,
and October 30, 1999. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above
for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance
sheet of The May Department Stores Company as of January 29, 2000,
and the related consolidated statements of earnings and cash flows
for the year then ended (not presented separately herein), and in
our report dated February 9, 2000, we expressed an unqualified
opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of January 29, 2000, is fairly stated, in all
material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ Arthur Andersen LLP
St. Louis, Missouri
December 5, 2000