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 August 4, 2001
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.
299,204,091 shares of common stock, $.50 par value, as of August 4,
2001.
1
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
Aug. 4, July 29, Feb. 3,
ASSETS 2001 2000 2001
Current Assets:
Cash and cash equivalents $ 58 $ 44 $ 156
Accounts receivable, net 1,731 1,777 2,081
Merchandise inventories 3,140 2,983 2,938
Other current assets 115 77 95
Total Current Assets 5,044 4,881 5,270
Property and Equipment, at cost 8,675 8,092 8,167
Accumulated Depreciation (3,506) (3,247) (3,268)
Property and equipment, net 5,169 4,845 4,899
Goodwill and Other Assets 1,539 1,050 1,405
Total Assets $ 11,752 $ 10,776 $ 11,574
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable $ 191 $ 77 $ -
Current maturities of
long-term debt 113 61 85
Accounts payable 1,013 1,020 965
Accrued expenses 910 882 871
Income taxes payable 145 62 293
Total Current Liabilities 2,372 2,102 2,214
Long-term Debt 4,419 4,357 4,534
Deferred Income Taxes 603 558 586
Other Liabilities 332 315 335
ESOP Preference Shares 292 307 299
Unearned Compensation (204) (248) (249)
Shareowners' Equity 3,938 3,385 3,855
Total Liabilities and
Shareowners' Equity $ 11,752 $ 10,776 $ 11,574
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 26 Weeks Ended
Aug. 4, July 29, Aug. 4, July 29,
2001 2000 2001 2000
Net retail sales $ 3,166 $ 3,117 $ 6,297 $ 6,137
Revenues $ 3,173 $ 3,131 $ 6,326 $ 6,181
Cost of sales 2,183 2,154 4,385 4,295
Selling, general and
administrative expenses 718 670 1,406 1,308
Interest expense, net 89 82 175 153
Earnings before income taxes 183 225 360 425
Provision for income taxes 72 90 140 170
Net earnings $ 111 $ 135 $ 220 $ 255
Basic earnings per share $ .36 $ .42 $ .71 $ .78
Diluted earnings per share $ .35 $ .41 $ .69 $ .76
Dividends paid per
common share $ .23-1/2 $ .23-1/4 $ .47 $ .46-1/2
Weighted average shares
outstanding:
Basic 299.2 307.6 299.0 315.0
Diluted 320.9 329.2 321.1 336.7
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) 26 Weeks Ended
Aug. 4, July 29,
2001 2000
Operating Activities:
Net earnings $ 220 $ 255
Depreciation and amortization 260 239
Working capital changes:
Accounts receivable, net 382 396
Merchandise inventories (166) (167)
Other current assets (12) (1)
Accounts payable 48 (9)
Accrued expenses (8) (8)
Income taxes payable (148) (172)
Other, net 17 12
593 545
Investing Activities:
Net additions to property and equipment (392) (303)
Business combination (304) -
(696) (303)
Financing Activities:
Net issuances (repayments):
Notes payable 191 77
Long-term debt (42) 639
Net issuances (purchases) of common stock 5 (797)
Dividend payments, net of tax benefit (149) (158)
5 (239)
(Decrease) Increase in Cash and Cash
Equivalents (98) 3
Cash and Cash Equivalents,
beginning of period 156 41
Cash and Cash Equivalents,
end of period $ 58 $ 44
Cash paid during the period:
Interest $ 155 $ 143
Income Taxes 265 315
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 2000 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. The seasonality of David's Bridal varies from
department stores, with sales and operating results peaking in the
first half of the fiscal year. David's Bridal joined May in August
2000.
Inventories. Merchandise inventories are stated on the LIFO (last-
in, first-out) cost basis. The LIFO provision for the second
quarter was $8 million in 2001 and 2000. The year-to-date LIFO
provision was $16 million in 2001 and 2000.
Income Taxes. The effective income tax rate for the second quarter
and first six months of 2001 was 38.8%, compared with 40.0% in the
second quarter and first six months of 2000, as a result of
implementing corporate structure changes which favorably impact the
effective tax rate.
Business Combination. In March 2001, the company completed the
purchase of nine department store locations from Saks Incorporated,
eight of which were reopened during the first quarter. The cash
purchase price includes approximately $237 million for the stores
and approximately $67 million for merchandise inventories and
accounts receivable. This transaction was accounted for as a
purchase and did not have a material impact on the company's
financial statements.
Store Purchases. In April 2001, the company completed the purchase
of 15 former Wards and Bradlees stores. Nine of the 15 stores are
planned as new stores and the remainder will provide expansion in
existing malls, with most locations opening in 2002. Store
purchases are included in net additions to property and equipment
in the accompanying condensed consolidated statement of cash flows.
Common Stock Repurchase Program. During the first half of 2000,
the company purchased $789 million or 28.4 million shares of May
common stock. 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. Repurchases by
quarter were (in millions):
$ Shares
First quarter 2000 $ 217 7.8
Second quarter 2000 572 20.6
Total $ 789 28.4
5
Reclassifications. Certain prior period amounts have been
reclassified to conform with current year presentation.
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
August 4, 2001 July 29, 2000
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 111 $ 135
ESOP preference
shares' dividends (4) (4)
Basic EPS 107 299.2 $ 0.36 131 307.6 $ 0.42
ESOP preference
shares 4 19.7 4 20.6
Assumed exercise of
options (treasury
stock method) - 2.0 - 1.0
Diluted EPS $ 111 320.9 $ 0.35 $ 135 329.2 $ 0.41
26 Weeks Ended
August 4, 2001 July 29, 2000
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 220 $ 255
ESOP preference
shares' dividends (9) (9)
Basic EPS 211 299.0 $ 0.71 246 315.0 $ 0.78
ESOP preference
shares 9 19.7 8 20.8
Assumed exercise of
options (treasury
stock method) - 2.4 - 0.9
Diluted EPS $ 220 321.1 $ 0.69 $ 254 336.7 $ 0.76
Subsequent Events. On August 17, 2001, May's board of directors
authorized a common stock repurchase program of up to $400 million.
The company expects to make the purchases through open-market
transactions based on market conditions. As of September 10, 2001,
the company repurchased $55 million or 1.6 million shares of May
common stock at an average price of $34 per share.
On August 31, 2001, the company called $100 million of 9.875%
debentures due in 2021. The redemption will be completed October 9,
2001. The company will record an extraordinary loss of $3 million
after tax ($5 million pre-tax) or $.01 per share in the third
quarter of fiscal 2001 upon completion of the early redemption.
6
Condensed Consolidating Financial Information. The May Department
Stores Company, Delaware ("Parent") has fully and unconditionally
guaranteed certain long-term debt obligations of its wholly-owned
subsidiary, The May Department Stores Company, New York
("Subsidiary Issuer"). Other subsidiaries of the Parent include
May Department Stores International, Inc. (MDSI), Leadville
Insurance Company, Snowdin Insurance Company, and David's Bridal,
Inc. and subsidiaries.
Subsidiary Issuer financial statements have been restated for all
periods presented to reflect a February 3, 2001, reorganization of
MDSI as a direct wholly-owned subsidiary of Parent rather than of
the Subsidiary Issuer. Prior to fiscal year-end 2000, Parent was
required to provide only summarized financial information for
Subsidiary Issuer, which owned 100% of MDSI's common stock before
the reorganization. Below is a restatement of Subsidiary Issuer's
summarized financial position as of July 29, 2000, and summarized
operating results for the thirteen week and twenty-six week periods
ending July 29, 2000, as if the reorganization had occurred on
February 1, 1998. The "As Reported" information was previously
reported in Parent's Form 10-Q filed September 12, 2000.
Thirteen weeks ended July 29, 2000
As Reported Adjustments As Restated
Financial Position
Current assets $ 4,866 $ (57) $ 4,809
Noncurrent assets 6,781 (187) 6,594
Current liabilities 2,117 (91) 2,026
Noncurrent liabilities 8,869 - 8,869
Thirteen weeks ended July 29, 2000
As Reported Adjustments As Restated
Operating Results
Revenues $ 3,131 $ - $ 3,131
Net earnings 83 (17) 66
Twenty-six weeks ended July 29, 2000
As Reported Adjustments As Restated
Operating Results
Revenues $ 6,181 $ - $ 6,181
Net earnings 151 (26) 125
Condensed consolidating balance sheets as of August 4, 2001, July
29, 2000 and February 3, 2001, the related condensed consolidating
statements of earnings for the thirteen week and twenty-six week
periods ended August 4, 2001 and July 29, 2000, and the related
condensed consolidating statement of cash flows for the twenty-six
week periods ended August 4, 2001 and July 29, 2000, are presented
on pages 8 through 14.
7
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Balance Sheet
As of August 4, 2001
(Millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 38 $ 20 $ - $ 58
Accounts receivable, net - 1,726 42 (37) 1,731
Merchandise inventories - 3,053 87 - 3,140
Other current assets - 103 12 - 115
Total Current Assets - 4,920 161 (37) 5,044
Property and Equipment, at cost - 8,588 87 - 8,675
Accumulated Depreciation - (3,488) (18) - (3,506)
Property and equipment, net - 5,100 69 - 5,169
Goodwill and Other Assets - 1,200 339 - 1,539
Intercompany (Payable)/
Receivable (714) 437 277 - -
Investment in Subsidiaries 4,747 - - (4,747) -
Total Assets $ 4,033 $11,657 $ 846 $(4,784) $11,752
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable $ - $ 191 $ - $ - $ 191
Current maturities of long-
term debt - 113 - - 113
Accounts payable - 919 94 - 1,013
Accrued expenses 7 883 57 (37) 910
Income taxes payable - 143 2 - 145
Total Current Liabilities 7 2,249 153 (37) 2,372
Long-term Debt - 4,418 1 - 4,419
Intercompany Note Payable
(Receivable) - 3,200 (3,200) - -
Deferred Income Taxes - 600 3 - 603
Other Liabilities - 784 - (452) 332
ESOP Preference Shares 292 - - - 292
Unearned Compensation (204) (204) - 204 (204)
Shareowners' Equity 3,938 610 3,889 (4,499) 3,938
Total Liabilities and
Shareowners' Equity $ 4,033 $11,657 $ 846 $(4,784) $11,752
8
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Earnings
For the Thirteen Weeks Ended August 4, 2001
(Millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Revenues $ - $ 3,093 $ 416 $ (336) $ 3,173
Cost of sales - 2,153 343 (313) 2,183
Selling, general, and
administrative expenses - 710 36 (28) 718
Interest expense (income), net:
External - 89 - - 89
Intercompany - 71 (71) - -
Equity in earnings of subsidiaries 111 - - (111) -
Earnings before income taxes 111 70 108 (106) 183
Provision for income taxes - 32 40 - 72
Net earnings $ 111 $ 38 $ 68 $ (106) $ 111
Condensed Consolidating Statement of Earnings
For the Twenty-six Weeks Ended August 4, 2001
(Millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Revenues $ - $ 6,154 $ 750 $ (578) $ 6,326
Cost of sales - 4,317 605 (537) 4,385
Selling, general, and
administrative expenses - 1,384 73 (51) 1,406
Interest expense (income), net:
External - 175 - - 175
Intercompany - 142 (142) - -
Equity in earnings of subsidiaries 220 - - (220) -
Earnings before income taxes 220 136 214 (210) 360
Provision for income taxes - 62 78 - 140
Net earnings $ 220 $ 74 $ 136 $ (210) $ 220
9
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Cash Flows
For the Twenty-six Weeks Ended August 4, 2001
(Millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Operating activities:
Net earnings $ 220 $ 74 $ 136 $ (210) $ 220
Equity in earnings of subsidiaries (220) - - 220 -
Depreciation and amortization - 250 10 - 260
Decrease in working capital - 54 42 - 96
Other, net 66 41 (80) (10) 17
66 419 108 - 593
Investing activities:
Net additions to property and
Equipment - (379) (13) - (392)
Business combination - (304) - - (304)
- (683) (13) - (696)
Financing activities:
Net issuances of notes payable - 191 - - 191
Net repayments of long-term
debt - (41) (1) - (42)
Net (purchases) issuances of
common stock (8) 13 - - 5
Dividend payments, net of
tax benefit (151) 2 - - (149)
Intercompany activity, net 93 - (93) - -
(66) 165 (94) - 5
(Decrease) Increase in Cash and
Cash Equivalents - (99) 1 - (98)
Cash and Cash Equivalents,
beginning of period - 137 19 - 156
Cash and Cash Equivalents,
end of year $ - $ 38 $ 20 $ - $ 58
10
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Balance Sheet
As of July 29, 2000
(Millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 23 $ 21 $ - $ 44
Accounts receivable, net - 1,777 36 (36) 1,777
Merchandise inventories - 2,934 49 - 2,983
Other current assets - 75 2 - 77
Total Current Assets - 4,809 108 (36) 4,881
Property and Equipment, at cost - 8,074 18 - 8,092
Accumulated Depreciation - (3,237) (10) - (3,247)
Property and equipment, net - 4,837 8 - 4,845
Goodwill and Other Assets - 1,049 1 - 1,050
Intercompany (Payable)/
Receivable (888) 708 180 - -
Investment in Subsidiaries 4,337 - - (4,337) -
Total Assets $ 3,449 $ 11,403 $ 297 $ (4,373) $ 10,776
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable $ - $ 77 $ - $ - $ 77
Current maturities of long-
term debt - 61 - - 61
Accounts payable - 940 80 - 1,020
Accrued expenses 5 887 25 (35) 882
Income taxes payable - 61 1 - 62
Total Current Liabilities 5 2,026 106 (35) 2,102
Long-term Debt - 4,357 - - 4,357
Intercompany Note Payable
(Receivable) - 3,200 (3,200) - -
Deferred Income Taxes - 558 - - 558
Other Liabilities - 754 - (439) 315
ESOP Preference Shares 307 - - - 307
Unearned Compensation (248) (248) - 248 (248)
Shareowners' Equity 3,385 756 3,391 (4,147) 3,385
Total Liabilities and
Shareowners' Equity $ 3,449 $ 11,403 $ 297 $ (4,373) $ 10,776
11
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Earnings
For the Thirteen Weeks Ended July 29, 2000
(Millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Revenues $ - $3,131 $ 311 $ (311) $3,131
Cost of sales - 2,164 279 (289) 2,154
Selling, general, and
administrative expenses - 692 5 (27) 670
Interest expense (income), net:
External - 82 - - 82
Intercompany - 72 (72) - -
Equity in earnings of subsidiaries 135 - - (135) -
Earnings before income taxes 135 121 99 (130) 225
Provision for income taxes - 55 35 - 90
Net earnings $ 135 $ 66 $ 64 $ (130) $ 135
Condensed Consolidating Statement of Earnings
For the Twenty-six Weeks Ended July 29, 2000
(Millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Revenues $ - $6,181 $ 519 $ (519) $6,181
Cost of sales - 4,307 469 (481) 4,295
Selling, general, and
administrative expenses - 1,348 8 (48) 1,308
Interest expense (income), net:
External - 153 - - 153
Intercompany - 143 (143) - -
Equity in earnings of subsidiaries 255 - - (255) -
Earnings before income taxes 255 230 185 (245) 425
Provision for income taxes - 105 65 - 170
Net earnings $ 255 $ 125 $ 120 $ (245) $ 255
12
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Cash Flows
For the Twenty-six Weeks Ended July 29, 2000
(Millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Operating activities:
Net earnings $ 255 $ 125 $ 120 $ (245) $ 255
Equity in earnings of subsidiaries (255) - - 255 -
Depreciation and amortization - 238 1 - 239
(Increase) Decrease in working
capital (9) 52 (4) - 39
Other, net 888 (840) (26) (10) 12
879 (425) 91 - 545
Investing activities:
Net additions to property and
equipment - (303) - - (303)
- (303) - - (303)
Financing activities:
Net issuances of notes payable - 77 - - 77
Net issuances of long-term
debt - 639 - - 639
Net (purchases) issuances of
common stock (813) 16 - - (797)
Dividend payments, net of
tax benefit (160) 2 - - (158)
Intercompany activity, net 94 (14) (80) - -
(879) 720 (80) - (239)
(Decrease) Increase in Cash and
Cash Equivalents - (8) 11 - 3
Cash and Cash Equivalents,
beginning of period - 31 10 - 41
Cash and Cash Equivalents,
end of period $ - $ 23 $ 21 $ - $ 44
13
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Balance Sheet
As of February 3, 2001
(Millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ - $ 137 $ 19 $ - $ 156
Accounts receivable, net - 2,076 43 (38) 2,081
Merchandise inventories - 2,877 61 - 2,938
Other current assets - 86 10 (1) 95
Total current assets - 5,176 133 (39) 5,270
Property and Equipment, at cost - 8,093 74 - 8,167
Accumulated Depreciation - (3,254) (14) - (3,268)
Property and equipment, net - 4,839 60 - 4,899
Goodwill and Other Assets - 1,062 343 - 1,405
Intercompany (Payable)
Receivable (648) 449 199 - -
Investment in Subsidiaries 4,559 - - (4,559) -
Total Assets $ 3,911 $11,526 $ 735 $(4,598) $11,574
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-
term debt $ - $ 85 $ - $ - $ 85
Accounts payable - 922 43 - 965
Accrued expenses 6 857 47 (39) 871
Income taxes payable
(receivable) - 299 (6) - 293
Total Current Liabilities 6 2,163 84 (39) 2,214
Long-term Debt - 4,531 3 - 4,534
Intercompany Note Payable
(Receivable) - 3,200 (3,200) - -
Deferred Income Taxes - 583 3 - 586
Other Liabilities - 777 - (442) 335
ESOP Preference Shares 299 - - - 299
Unearned Compensation (249) (249) - 249 (249)
Shareowners' Equity 3,855 521 3,845 (4,366) 3,855
Total Liabilities and
Shareowners' Equity $ 3,911 $11,526 $ 735 $(4,598) $11,574
14
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net retail sales (sales) represent sales of stores operating at the
end of the latest period including lease department sales and
excluding finance charge revenues and the sales of stores that have
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 for fiscal 2001, but are not
included in store-for-store sales. Sales percent increases
(decreases) are as follows:
Second Quarter First Six Months
Store-for- Store-for-
Total Store Total Store
1.6% (3.1)% 2.6% (2.1)%
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.
Second Quarter First Six Months
2001 2000 2001 2000
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 68.8 68.8 69.3 69.5
Selling, general and
administrative expenses 22.6 21.4 22.2 21.1
Interest expense, net 2.8 2.6 2.8 2.5
Earnings before income taxes 5.8 7.2 5.7 6.9
Provision for income taxes 38.8* 40.0* 38.8* 40.0*
Net earnings 3.5% 4.3% 3.5% 4.1%
* - Percent represents effective income tax rate.
Cost of sales was $2,183 million in the 2001 second quarter, up
1.3% from $2,154 million in the 2000 second quarter. For the first
six months of 2001, cost of sales was $4,385 million, a 2.1%
increase from $4,295 million in the 2000 period. The overall
increases are primarily related to higher sales.
As a percent of revenues, cost of sales for the second quarter of
2001 was equal to last year in the second quarter as increases in
department store buying and occupancy costs were offset by the
addition of David's Bridal. For the first six months of 2001, cost
of sales as a percent of revenues decreased 0.2% principally due to
the addition of David's Bridal, partially offset by department
store buying and occupancy costs, which grew at a faster rate than
revenues.
Selling, general and administrative expenses were $718 million in
the 2001 second quarter, compared with $670 million in the 2000
second quarter, a 7.2% increase. For the first six months of 2001,
selling, general and administrative expenses were $1,406 million
compared with $1,308 million in the 2000 period, a 7.5% increase.
Selling, general and administrative expenses as a percent of
revenues increased 1.2% for the second quarter of 2001 as compared
with 2000. Selling, general and administrative expenses as a
15
percent of revenues increased 1.1% in the first six months of 2001
compared with the first six months of 2000. The increases are
primarily due to department store payroll, advertising, employee
benefit expenses, and credit, which grew at a faster rate than
revenues, and the addition of David's Bridal.
Components of net interest expense for the second quarter and first
six months of 2001 and 2000 were as follows (millions):
Second Quarter First Six Months
2001 2000 2001 2000
Interest expense $ 96 $ 89 $190 $ 168
Interest income (1) (3) (5) (7)
Capitalized interest (6) (4) (10) (8)
Net Interest Expense $ 89 $ 82 $175 $ 153
Interest expense principally relates to long-term debt. In 2000, we
issued $1.1 billion in new debt of which $225 million was issued
subsequent to the second quarter of 2000. In the first quarter of
2001, we financed the previously described business combination and
store purchases principally through short-term borrowings and cash
and cash equivalents.
Short-term borrowings for the second quarter and first six months
were (dollars in millions):
Second Quarter First Six Months
2001 2000 2001 2000
Average balance outstanding $371 $124 $242 $71
Average interest rate on
average balance 4.0% 6.5% 4.2% 6.5%
The effective income tax rate for the second quarter and first six
months of 2001 was 38.8%, compared with 40.0% in the second quarter
and first six months of 2000, as a result of implementing corporate
structure changes which favorably impact our effective tax rate.
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
Aug. 4, July 29,
2001 2000
Net retail sales $ 14,548 $ 13,997
Revenues 14,656 13,991
Net earnings 823 906
Diluted earnings per share 2.55 2.59
Financial Condition
Cash Flows. Cash flows from operations (net earnings plus
depreciation and amortization) were $480 million and $494 million
in the first six months of 2001 and 2000, respectively. A portion
of the cash flows from operations was used to fund seasonal working
capital changes during the quarter as detailed on the accompanying
condensed consolidated statement of cash flows.
Available Credit and Debt Ratings. We can borrow up to $1.030
billion under our credit agreements. In addition, we have filed
with the Securities and Exchange Commission shelf registration
statements that enable us to issue up to $775 million of debt
securities.
16
Financial Ratios. Key financial ratios for the periods indicated
are as follows:
Aug. 4, July 29, Feb. 3,
2001 2000 2001
Current Ratio 2.1 2.3 2.4
Debt-Capitalization Ratio 51% 52% 50%
Fixed Charge Coverage* 3.7x 4.6x 4.0x
The fixed charge coverage ratio for the 52 weeks ended August 4,
2001 declined from the 52 weeks ended July 29, 2000 due to higher
interest expense and lower operating earnings.
* Fixed charge coverage, which is presented for the 52 weeks ended
August 4, 2001, July 29, 2000, and February 3, 2001, 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.
Subsequent Events and Recent Sales Results
On August 17, 2001, May's board of directors authorized a common stock
repurchase program of up to $400 million. The company expects to make the
purchases through open-market transactions based on market conditions.
As of September 10, 2001, the company repurchased $55 million or
1.6 million shares of May common stock at an average price of $34 per share.
On August 31, 2001, the company called $100 million of 9.875% debentures
due in 2021. The redemption will be completed October 9, 2001. The company
will record an extraordinary loss of $3 million after tax ($5 million pre-tax)
or $.01 per share in the third quarter of fiscal 2001 upon completion of the
early redemption.
Sales for the four-week period ending September 1, 2001 were $1.05
billion, a 3.3% increase over $1.01 billion in the similar period
last year. Store-for-store sales increased 0.3%. Sales for the
first seven months of fiscal 2001 were $7.34 billion, a 2.7%
increase, compared with $7.15 billion during the first seven months
of fiscal 2000. Store-for-store sales decreased 1.7%.
Impact of New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 141 requires that all business
combinations be accounted for using the purchase method of
accounting and requires separate recognition of intangible assets
that meet certain criteria. This statement applies to all business
combinations after June 30, 2001.
SFAS No. 142 requires that goodwill and other intangible assets
that are acquired shall be initially recognized and measured based
on their fair value. This statement also provides that goodwill
should not be amortized, but shall be tested for impairment
annually, or more frequently if circumstances indicate potential
impairment. SFAS No. 142 is effective for fiscal 2002 which
commences on February 3, 2002.
Our preliminary evaluation of the impact of these new standards
indicates that adoption of these standards in fiscal 2002 will not
have a material impact on the company's annual operating results or
financial position.
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 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
17
adequate locations for building or acquiring new stores, and our
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
(a) The annual meeting of shareowners of registrant was held on
May 25, 2001.
(b) At the annual meeting of shareowners of registrant held on
May 25, 2001, the registrant's voting securities carried
318,556,805 votes, of which 279,225,229 were voted at the
meeting. Action was taken with respect to:
(i) the election of five directors of registrant;
Authority
For Withheld
Eugene S. Kahn 275,286,616 3,938,613
Helene L. Kaplan 275,559,618 3,665,611
James M. Kilts 275,556,163 3,669,066
William D. Perez 275,654,913 3,570,316
R. Dean Wolfe 275,651,550 3,573,679
(ii) a ratification of the appointment of Arthur Andersen
LLP as independent auditors (275,180,903 votes in
favor, 2,832,490 votes against and 1,211,836 votes
abstained);
(iii) a proposal relating to a classified board of
directors (130,427,893 votes in favor, 108,556,103
votes against, 6,949,662 votes abstained and
33,291,571 not voted).
All such proposals were set forth and described in detail
in the Notice of Annual Meeting and Proxy Statement of
registrant dated April 20, 2001, filed with the Commission
pursuant to Rule 12b-23 (b).
Item 5 - Other Information - None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) - 364-Day Credit Agreement dated as of July 31,
2001 among The May Department Stores Company, a
New York corporation, as Borrower, The May
18
Department Stores Company, a Delaware
corporation, as Guarantor, certain Lenders,
Citibank, N.A., as Agent for the Lenders, The
Bank of New York, Bank One, NA, First Union
National Bank and The Chase Manhattan Bank, as
co-syndication agents, and Salomon Smith Barney
Inc., as sole lead arranger and bookrunner.
(10.2) - Five Year Credit Agreement dated as of July 31,
2001 among The May Department Stores Company, a
New York corporation, as Borrower, The May
Department Stores Company, a Delaware
corporation, as Guarantor, certain Lenders,
Citibank, N.A., as Agent for the Lenders, The
Bank of New York, Bank One, NA, First Union
National Bank and The Chase Manhattan Bank, as
co-syndication agents, and Salomon Smith Barney
Inc., as sole lead arranger and bookrunner.
(12) - Computation of Ratio of Earnings to Fixed Charges
(15) - Letter Re:Unaudited Interim Financial Information
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE MAY DEPARTMENT STORES COMPANY
(Registrant)
Date: September 12, 2001
/s/ Thomas D. Fingleton
Thomas D. Fingleton
Executive Vice President and
Chief Financial Officer
19
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 August 4, 2001, and July 29, 2000, and the
related condensed consolidated statements of earnings for the
thirteen week and twenty-six week periods ended August 4, 2001, and
July 29, 2000, and the condensed consolidated statement of cash
flows for the twenty-six week periods ended August 4, 2001, and
July 29, 2000. 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 February 3, 2001,
(not presented separately herein), and in our report dated February
14, 2001, we expressed an unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of February 3, 2001, 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
September 12, 2001
Exhibit 15
To the Board of Directors and Shareowners of
The May Department Stores Company:
We are aware that The May Department Stores Company has
incorporated by reference in its Registration Statements on Form
S-3 (No. 333-42940 and 333-42940-01) and Form S-8 (No. 33-21415,
33-58985, 333-59792 and 333-76227) its Form 10-Q for the quarter
ended August 4, 2001, which includes our report dated September 12,
2001 covering the unaudited interim financial information contained
therein. Pursuant to Regulation C of the Securities Act of 1933,
that report is not considered a part of the registration statement
prepared or certified by our firm or a report prepared or certified
by our firm within the meaning of Sections 7 and 11 of the Act. It
should be noted that we have not performed any procedures
subsequent to September 12, 2001.
/s/Arthur Andersen LLP
St. Louis, Missouri
September 12, 2001
20
Exhibit 12
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE FIVE FISCAL YEARS ENDED JANUARY 29, 2000 AND FOR THE
TWENTY-SIX WEEKS ENDED AUGUST 4, 2001 AND JULY 29, 2000
(Dollars in millions)
26 Weeks Ended Fiscal Year Ended
Aug. 4, July 29, Feb. 3, Jan. 29, Jan. 30, Jan. 31, Feb. 1,
2001 2000 2001 2000 1999 1998 1997
Earnings Available for Fixed Charges:
Pretax earnings from continuing
operations $ 360 $ 425 $ 1,402 $ 1,523 $ 1,395 $ 1,279 $ 1,232
Fixed charges (excluding interest
capitalized and pretax preferred
stock dividend requirements) 205 183 406 346 344 363 346
Dividends on ESOP Preference Shares (10) (12) (23) (24) (25) (26) (26)
Capitalized interest amortization 4 4 8 7 7 6 6
559 600 1,793 1,852 1,721 1,622 1,558
Fixed Charges:
Gross interest expense (a) $ 200 $ 180 395 $ 340 $ 339 $ 353 $ 341
Interest factor attributable to
rent expense 16 12 28 22 21 23 22
216 192 423 362 360 376 363
Ratio of Earnings to Fixed Charges 2.6 3.1 4.2 5.1 4.8 4.3 4.3
(a) Represents interest expense on long-term and short-term debt, ESOP debt and amortization of debt
discount and debt issue expense.