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 May 3, 2003
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). 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. 288,464,743 common stock,
$.50 par value, as of May 3, 2003
1
<Page>
<Table>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(millions)
May 3, May 4, Feb. 1,
ASSETS 2003 2002 2003
<s> <c> <c> <c>
Current assets:
Cash and cash equivalents $ 78 $ 61 $ 55
Accounts receivable, net 1,536 1,690 1,741
Merchandise inventories 3,172 3,141 2,857
Other current assets 79 61 69
Total current assets 4,865 4,953 4,722
Property and equipment, at cost 9,383 9,101 9,205
Accumulated depreciation (3,872) (3,841) (3,739)
Property and equipment, net 5,511 5,260 5,466
Goodwill 1,441 1,433 1,441
Intangible assets, net 174 179 176
Other assets 131 119 131
Total assets $ 12,122 $ 11,944 $ 11,936
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ 390 $ 77 $ 150
Current maturities of
long-term debt 170 263 139
Accounts payable 1,191 1,269 1,099
Accrued expenses 968 844 1,014
Income taxes payable 101 96 264
Total current liabilities 2,820 2,549 2,666
Long-term debt 3,936 4,336 4,035
Deferred income taxes 794 706 710
Other liabilities 368 368 377
ESOP preference shares 257 283 265
Unearned compensation (91) (152) (152)
Shareowners' equity 4,038 3,854 4,035
Total liabilities and
shareowners' equity $ 12,122 $ 11,944 $ 11,936
The accompanying notes to condensed consolidated financial
statements are an integral part of these balance sheets.
</Table>
2
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<Table>
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(millions, except per share) 13 Weeks Ended
May 3, May 4,
2003 2002
<s> <c> <c>
Net sales $ 2,873 $ 3,096
Cost of sales 2,088 2,203
Selling, general, and
administrative expenses 640 658
Division combination costs - 40
Interest expense, net 80 83
Earnings before income taxes 65 112
Income tax (benefit) provision (7) 42
Net earnings $ 72 $ 70
Basic earnings per share $ .23 $ .23
Diluted earnings per share $ .23 $ .23
Dividends paid per common share $ .24 $.23-3/4
Weighted average shares outstanding:
Basic 289.8 287.7
Diluted 307.3 308.9
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
</Table>
3
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<Table>
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions) 13 Weeks Ended
May 3, May 4,
2003 2002
<s> <c> <c>
Operating Activities:
Net earnings $ 72 $ 70
Depreciation and other amortization 136 130
Goodwill and intangible amortization 2 3
Division combination costs - 40
Working capital changes:
Accounts receivable, net 205 247
Merchandise inventories (315) (266)
Other current assets (5) (1)
Accounts payable 92 246
Accrued expenses (42) (74)
Income taxes payable (63) (176)
Other, net (28) 5
Cash flows from operations 54 224
Investing Activities:
Net additions to property and equipment (186) (144)
Cash flows used for investing activities (186) (144)
Financing Activities:
Net issuances (repayments):
Short-term debt 240 (1)
Long-term debt (8) (9)
Net (purchases) issuances of common stock (4) 12
Dividend payments (73) (73)
Cash flows provided by (used for) financing activities 155 (71)
Increase in cash and cash equivalents 23 9
Cash and cash equivalents,
beginning of period 55 52
Cash and cash equivalents,
end of period $ 78 $ 61
Cash paid during the period:
Interest $ 104 $ 105
Income taxes 76 203
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
</Table>
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interim Results. These unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q of the
Securities and Exchange Commission and should be read in conjunction with the
Notes to Consolidated Financial Statements (pages 29-35) in the 2002 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 fiscal year.
Division Combination Costs. In 2002, we incurred costs of $114 million or
$0.24 per share for division combinations, of which $40 million or $0.08 per
share were recorded in the first quarter of 2002. The significant components
of the division combination costs and status of the related liability are
summarized below:
<Table>
(millions) Total Balance at Non-cash Balance at
Charge Feb. 1, 2003 Payments Uses May 3, 2003
<s> <c> <c> <c> <c> <c>
Severance and
relocation benefits $ 59 $ 17 $ 9 $ - $ 8
Inventory alignment 23 - - - -
Central office closure 15 - - - -
Other 17 7 1 4 2
Total $ 114 $ 24 $ 10 $ 4 $ 10
</Table>
Income Taxes. First-quarter 2003 income taxes are a net benefit because the
company recorded a $31 million tax credit upon the resolution of various
federal and state income tax issues. Excluding the $31 million tax credit,
the company's 2003 estimated effective tax rate is 37.0%.
Inventories. Merchandise inventories are principally valued at the lower of
LIFO (last-in, first-out) cost basis or market using the retail method. No
LIFO provision or credit was recorded in first quarter of 2003 or 2002.
Reclassifications. Certain prior period amounts have been reclassified to
conform with current year presentation.
Earnings per Share. The following table reconciles 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).
<Table>
13 Weeks Ended
May 3, 2003 May 4, 2002
Earnings Shares EPS Earnings Shares EPS
<s> <c> <c> <c> <c> <c>
Net earnings $ 72 $ 70
ESOP preference
shares' dividends (5) (4)
Basic EPS 67 289.8 $ 0.23 66 287.7 $ 0.23
ESOP preference shares 4 17.5 4 19.0
Assumed exercise of
options (treasury
stock method) - - - 2.2
Diluted EPS $ 71 307.3 $ 0.23 $ 70 08.9 $ 0.23
</Table>
5
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Stock Option and Stock-Related Plans. Effective February 2, 2003, the company
adopted the fair value recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
The company adopted SFAS No. 123 using the prospective transition method, under
which all stock-based compensation granted after February 2, 2003 is expensed
using the fair value method. There were no stock option grants or related
expense in the first quarter of 2003.
Stock option expense is recorded over each option grant's vesting period,
usually four years. Therefore, the cost related to stock-based employee
compensation included in the determination of net earnings using the prospective
method of transition is less than if the fair value method had been applied to
all awards since the issuance of SFAS No. 123. The following table illustrates
the pro forma effect on first quarter 2003 and 2002 net earnings and earnings
per share if the fair value based method had been applied to all outstanding
unvested grants.
<Table>
(millions) 13 Weeks Ended
May 3, May 4,
2003 2002
<s> <c> <c>
Net earnings, as reported $ 72 $ 70
Add: Compensation expense related to
employee stock options included
in net earnings, net of tax - -
Deduct: Total compensation expense related
to employee stock options determined
under fair value based method for all
awards, net of tax (7) (4)
Pro forma net earnings $ 65 $ 66
Earnings per share:
Basic - as reported $ 0.23 $ 0.23
Basic - pro forma 0.21 0.21
Diluted - as reported $ 0.23 $ 0.23
Diluted - pro forma 0.21 0.21
</Table>
Lease Obligations. The company is a guarantor with respect to certain lease
obligations of previously divested businesses. The leases, two of which include
potential extensions to 2087, have future minimum lease payments aggregating
approximately $850 million, and are offset by payments from existing tenants
and subtenants. In addition, the company is liable for other expenses related
to the above leases, such as property taxes and common area maintenance, which
are also payable by the current tenants and subtenants. Potential liabilities
related to these guarantees are subject to certain defenses by the company.
The company believes that the risk of significant loss from these lease
obligations is remote.
Impact of New Accounting Pronouncements. In May 2003, the Financial Accounting
Standards Board (FASB) issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards that require companies to classify certain financial
instruments as liabilities that were previously classified as equity. SFAS No.
150 is effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The company does not expect SFAS No. 150
to have a material impact on its consolidated financial position or operating
results.
6
<Page>
Condensed Consolidating Financial Information. The 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, Priscilla of Boston, and David's Bridal, Inc. and subsidiaries
including After Hours Formalwear, Inc.
Condensed consolidating balance sheets as of May 3, 2003, May 4, 2002, and
February 1, 2003 and the related condensed consolidating statements of
earnings and cash flows for the thirteen-week periods ended May 3, 2003 and
May 4, 2002 are presented below.
<Table>
Condensed Consolidating Balance Sheet
May 3, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
<s> <c> <c> <c> <c> <c>
Current assets:
Cash and cash equivalents $ - $ 50 $ 28 $ - $ 78
Accounts receivable, net - 1,527 45 (36) 1,536
Merchandise inventories - 3,078 94 - 3,172
Other current assets - 53 26 - 79
Total current assets - 4,708 193 (36) 4,865
Property and equipment, at cost - 9,188 195 - 9,383
Accumulated depreciation - (3,817) (55) - (3,872)
Property and equipment, net - 5,371 140 - 5,511
Goodwill - 1,129 312 - 1,441
Intangible assets, net - 6 168 - 174
Other assets - 122 9 - 131
Intercompany (payable)
receivable (710) 299 411 - -
Investment in subsidiaries 4,915 - - (4,915) -
Total assets $ 4,205 $11,635 $ 1,233 $ (4,951) $12,122
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ 390 $ - $ - $ 390
Current maturities of long-
term debt - 170 - - 170
Accounts payable - 1,121 70 - 1,191
Accrued expenses 1 906 97 (36) 968
Income taxes payable - 66 35 - 101
Total current liabilities 1 2,653 202 (36) 2,820
Long-term debt - 3,935 1 - 3,936
Intercompany note payable
(receivable) - 3,200 (3,200) - -
Deferred income taxes - 730 64 - 794
Other liabilities - 836 10 (478) 368
ESOP preference shares 257 - - - 257
Unearned compensation (91) (91) - 91 (91)
Shareowners' equity 4,038 372 4,156 (4,528) 4,038
Total liabilities and
shareowners' equity $ 4,205 $11,635 $ 1,233 $ (4,951) $12,122
</Table>
7
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CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
<Table>
Condensed Consolidating Statement of Earnings
For the Thirteen Weeks Ended May 3, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Net sales $ - $ 2,705 $ 420 $ (252) $ 2,873
Cost of sales - 2,028 312 (252) 2,088
Selling, general, and
administrative expenses - 581 65 (6) 640
Interest expense (income), net:
External - 80 - - 80
Intercompany - 71 (71) - -
Equity in earnings of subsidiaries (72) - - 72 -
Earnings before income taxes 72 (55) 114 (66) 65
Income tax (benefit) provision - (49) 42 - (7)
Net earnings (loss) $ 72 $ (6) $ 72 $ (66) $ 72
</Table>
<Table>
Condensed Consolidating Statement of Cash Flows
For the Thirteen Weeks Ended May 3, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Operating activities:
Net earnings $ 72 $ (6) $ 72 $ (66) $ 72
Equity in earnings of subsidiaries (72) - - 72 -
Depreciation and other amortization - 130 6 - 136
Goodwill and intangible amortization - - 2 - 2
Increase in working capital (5) (112) (10) (1) (128)
Other, net 39 (65) 3 (5) (28)
34 (53) 73 - 54
Investing activities:
Net additions to property and
equipment - (171) (15) - (186)
- (171) (15) - (186)
Financing activities:
Net issuances of short-term debt - 240 - - 240
Net repayments of long-term debt - (8) - - (8)
Net (purchases) issuances
of common stock (9) 5 - - (4)
Dividend payments (73) - - - (73)
Intercompany activity, net 48 - (48) - -
(34) 237 (48) - 155
Increase in cash and
cash equivalents - 13 10 - 23
Cash and cash equivalents,
beginning of period - 37 18 - 55
Cash and cash equivalents,
end of period $ - $ 50 $ 28 $ - $ 78
</Table>
8
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CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
<Table>
Condensed Consolidating Balance Sheet
May 4, 2002
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 44 $ 17 $ - $ 61
Accounts receivable, net - 1,681 45 (36) 1,690
Merchandise inventories - 3,053 88 - 3,141
Other current assets - 44 17 - 61
Total current assets - 4,822 167 (36) 4,953
Property and equipment, at cost - 8,939 162 - 9,101
Accumulated depreciation - (3,810) (31) - (3,841)
Property and equipment, net - 5,129 131 - 5,260
Goodwill - 1,128 305 - 1,433
Intangible assets, net - 8 171 - 179
Other assets - 109 10 - 119
Intercompany (payable)
receivable (866) 561 305 - -
Investment in subsidiaries 4,851 - - (4,851) -
Total assets $ 3,985 $11,757 $ 1,089 $ (4,887) $11,944
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ 77 $ - $ - $ 77
Current maturities of long-
term debt - 262 1 - 263
Accounts payable - 1,218 51 - 1,269
Accrued expenses - 804 76 (36) 844
Income taxes payable - 77 19 - 96
Total current liabilities - 2,438 147 (36) 2,549
Long-term debt - 4,335 1 - 4,336
Intercompany note payable
(receivable) - 3,200 (3,200) - -
Deferred income taxes - 639 67 - 706
Other liabilities - 822 10 (464) 368
ESOP preference shares 283 - - - 283
Unearned compensation (152) (152) - 152 (152)
Shareowners' equity 3,854 475 4,064 (4,539) 3,854
Total liabilities and
shareowners' equity $ 3,985 $11,757 $ 1,089 $ (4,887) $11,944
</Table>
9
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CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
<Table>
Condensed Consolidating Statement of Earnings
For the Thirteen Weeks Ended May 4, 2002
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Net sales $ - $ 2,946 $ 355 $ (205) $ 3,096
Cost of sales - 2,147 258 (202) 2,203
Selling, general, and
administrative expenses - 605 62 (9) 658
Division combination costs - 40 - - 40
Interest expense (income), net:
External - 83 - - 83
Intercompany - 70 (70) - -
Equity in earnings of subsidiaries (70) - - 70 -
Earnings before income taxes 70 1 105 (64) 112
Income tax provision - 1 41 - 42
Net earnings $ 70 $ - $ 64 $ (64) $ 70
</Table>
<Table>
Condensed Consolidating Statement of Cash Flows
For the Thirteen Weeks Ended May 4, 2002
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Operating activities:
Net earnings $ 70 $ - $ 64 $ (64) $ 70
Equity in earnings of subsidiaries (70) - - 70 -
Depreciation and other amortization - 123 7 - 130
Goodwill and intangible amortization - 1 2 - 3
Division combination costs - 40 - - 40
(Increase) Decrease in working capital (6) 9 (27) - (24)
Other, net 25 (27) 13 (6) 5
19 146 59 - 224
Investing activities:
Net additions to property and
equipment - (133) (11) - (144)
- (133) (11) - (144)
Financing activities:
Net repayments of short-term debt - (1) - - (1)
Net repayments of long-term debt - (9) - - (9)
Net issuances of common stock 8 4 - - 12
Dividend payments (74) 1 - - (73)
Intercompany activity, net 47 - (47) - -
(19) (5) (47) - (71)
Increase in cash and
cash equivalents - 8 1 - 9
Cash and cash equivalents,
beginning of year - 36 16 - 52
Cash and cash equivalents,
end of year $ - $ 44 $ 17 $ - $ 61
</Table>
10
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CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
<Table>
Condensed Consolidating Balance Sheet
As of February 1, 2003
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 37 $ 18 $ - $ 55
Accounts receivable, net - 1,733 44 (36) 1,741
Merchandise inventories - 2,787 70 - 2,857
Other current assets - 49 23 (3) 69
Total current assets - 4,606 155 (39) 4,722
Property and equipment, at cost - 9,024 181 - 9,205
Accumulated depreciation - (3,690) (49) - (3,739)
Property and equipment, net - 5,334 132 - 5,466
Goodwill - 1,129 312 - 1,441
Intangible assets, net - 6 170 - 176
Other assets - 122 9 - 131
Intercompany (payable)
receivable (671) 254 417 - -
Investment in subsidiaries 4,824 - - (4,824) -
Total assets $ 4,153 $11,451 $ 1,195 $ (4,863) $11,936
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ 150 $ - $ - $ 150
Current maturities of long-
term debt - 139 - - 139
Accounts payable - 1,021 78 - 1,099
Accrued expenses 5 957 88 (36) 1,014
Income taxes payable - 244 23 (3) 264
Total current liabilities 5 2,511 189 (39) 2,666
Long-term debt - 4,034 1 - 4,035
Intercompany note payable
(receivable) - 3,200 (3,200) - -
Deferred income taxes - 646 64 - 710
Other liabilities - 840 10 (473) 377
ESOP preference shares 265 - - - 265
Unearned compensation (152) (152) - 152 (152)
Shareowners' equity 4,035 372 4,131 (4,503) 4,035
Total liabilities and
shareowners' equity $ 4,153 $11,451 $ 1,195 $ (4,863) $11,936
</Table>
11
<Page>
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net sales include merchandise sales and lease department income. Store-for-
store sales compare sales of stores open during both years beginning the first
day a new store has prior-year sales and excludes sales of stores closed during
both periods. Net sales decreases are as follows:
Store-for-
Total Store
13 Weeks Ended May 3, 2003 (7.2)% (8.8)%
The total net sales decrease of $223 million for the first quarter of 2003 was
primarily due to a $270 million decrease in store-for-store sales offset by $63
million of new store sales.
The following table presents the components of costs and expenses, as a percent
of net sales, for the first quarter.
2003 2002
Net sales 100.0% 100.0%
Cost of sales 72.7 71.2
Selling, general and
administrative expenses 22.3 21.2
Division combination costs 0.0 1.3
Interest expense, net 2.7 2.7
Earnings before income taxes 2.3 3.6
Income tax (benefit) provision (10.7)* 37.4*
Net earnings 2.5% 2.3%
* - Percent represents effective income tax rate.
Cost of sales as a percent of net sales increased 1.5% in the first quarter of
2003 principally due to a 1.1% increase in occupancy costs and a 0.3% increase
in the cost of merchandise.
Selling, general, and administrative expenses as a percent of net sales
increased from 21.2% in the first quarter of 2002 to 22.3% in the first quarter
of 2003 due to a 0.6% increase in payroll, a 0.3% increase in pension costs,
and a 0.5% increase in other expenses, including insurance and advertising
costs, offset by a 0.3% decrease in credit expense.
12
<Page>
In 2002, we incurred costs of $114 million or $.24 per share for division
combinations, of which $40 million or $.08 per share were recorded in the first
quarter of 2002.
Components of net interest expense for the first quarter were (millions):
2003 2002
Interest expense $ 85 $ 94
Interest income - (6)
Capitalized interest (5) (5)
Net interest expense $ 80 $ 83
Interest expense principally relates to long-term debt.
Short-term borrowings for the first quarter were (dollars in millions):
2003 2002
Average balance outstanding $249 $48
Average interest rate on
average balance 1.3% 1.8%
First-quarter 2003 income taxes are a net benefit because we recorded a $31
million tax credit upon the resolution of various federal and state income tax
issues. Excluding the $31 million tax credit, our 2003 estimated effective tax
rate is 37.0%.
Operating results including division combination costs for the trailing years
were (millions, except per share):
52 Weeks Ended
May 3, May 4,
2003 2002
Net sales $ 13,268 $ 13,908
Net earnings 544 664
Diluted earnings per share 1.76 2.10
Financial Condition
Cash Flows. Cash flows from operations were $54 million and $224 million in
the first quarter of 2003 and 2002, respectively. The decrease in current
year cash flows is primarily due to the comparative changes of accounts
payable, accounts receivable, and inventory, offset by lower income taxes
payable.
Liquidity, Available Credit, and Debt Ratings. We finance our activities
primarily with cash flows from operations, borrowings under credit facilities,
and issuances of long-term debt. We can borrow up to $1.0 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 $525
million of debt securities.
As of May 23, 2003, our bonds are rated A2 by Moody's Investors Service, Inc.
and A by Standard & Poor's Corporation. Our commercial paper is rated P1 by
Moody's and A1 by Standard & Poor's. Our senior unsecured bank credit agreement
is rated A1 by Moody's.
13
<Page>
Financial Ratios. Key financial ratios for the periods indicated are:
May 3, May 4, Feb. 1,
2003 2002 2003
Current Ratio 1.7 1.9 1.8
Debt-Capitalization Ratio 49% 51% 48%
Fixed Charge Coverage 1.6x 2.0x 2.8x
Impact of New Accounting Pronouncements. In May 2003, the FASB issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." SFAS No. 150 establishes standards that require
companies to classify certain financial instruments as liabilities that were
previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after
June 15, 2003. We do not expect SFAS No. 150 to have a material impact on our
consolidated financial position or operating results.
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 adequate locations for building or acquiring new
stores, our ability to hire and retain qualified associates, and our ability to
manage the business to minimize the disruption of sales and customer service as
a result of the division combinations. Because of these factors, actual
performance could differ materially from that described in the forward-looking
statements.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.
Our exposure to market risk primarily arises from changes in interest rates on
short-term debt. Short-term debt has generally been used to finance seasonal
working capital needs resulting in minimal exposure to interest rate
fluctuations. Long-term debt is at fixed interest rates. Our merchandise
purchases are denominated in United States dollars. Operating expenses of our
international offices located outside the United States are generally paid in
local currency and are not material. During the first quarter of fiscal 2003
and fiscal 2002, we did not enter into any derivative financial instruments.
Item 4 - Disclosure Controls and Procedures.
Within the 90-day period prior to the filing of this report, we carried out an
evaluation, under the supervision and with the participation of the company's
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange
Act of 1934, as amended). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures are effective. There have been no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date the controls were evaluated.
14
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The company is involved in claims, proceedings, and litigation arising from
the operation of its business. The company does not believe any such claim,
proceeding, or litigation, either alone or in the aggregate, will have a
material adverse effect on the company's financial position or results of
operations.
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 Regarding Unaudited Interim Financial Information
99.1 - Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002(18 U.S.C. 1350, as adopted)
(b) Reports on Form 8-K
A report dated February 14, 2003, which furnished a company press
release annoucing its financial results for the 52 weeks ended
February 1, 2003.
A report dated April 24, 2003, which contained information concerning
debt ratings and incorporated by reference registrant's Annual Report
and Form 10-K for the fiscal year ended February 1, 2003.
A report dated May 8, 2003, which furnished a company press release
providing guidance on its earnings for the 13 weeks ended May 3,
2003.
A report dated May 13, 2003, which furnished a company press
release announcing its financial results for the 13 weeks ended
May 3, 2003.
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: May 30, 2003
/s/ Thomas D. Fingleton
Thomas D. Fingleton
Executive Vice President and
Chief Financial Officer
15
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CERTIFICATIONS
I, Eugene S. Kahn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The May Department
Stores Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record,process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 30, 2003 /s/ Eugene S. Kahn
Eugene S. Kahn
Chairman of the Board and
Chief Executive Officer
16
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I, Thomas D. Fingleton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The May Department
Stores Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities,particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record,process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 30, 2003 /s/ Thomas D. Fingleton
Thomas D. Fingleton
Executive Vice President and
Chief Financial Officer
17
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INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareowners of
The May Department Stores Company:
We have reviewed the accompanying condensed consolidated balance sheets of The
May Department Stores Company and subsidiaries (the "Company") as of May 3,
2003 and May 4, 2002 and the related condensed consolidated statements of
earnings and cash flows for the thirteen-week periods then ended. These
financial statements are the responsibility of the Company's management.
We conducted our reviews 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 of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in the
United States of America, 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 reviews, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of February 1, 2003, and the related consolidated statements of
earnings, shareowners' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 12, 2003, we expressed an
unqualified opinion (which includes explanatory paragraphs relating to (1) the
adoption of a new accounting principle and (2) the application of procedures
relating to certain other disclosures and reclassifications of financial
statement amounts related to the 2001 and 2000 consolidated financial
statements that were audited by other auditors who have ceased operations and
for which we have expressed no opinion or other form of assurance other than
with respect to such disclosures and reclassifications) on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of February 1, 2003 is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
St. Louis, Missouri
May 29, 2003
18
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<Table>
Exhibit 12
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE THIRTEEN WEEKS ENDED MAY 3, 2003 AND MAY 4, 2002 AND
FOR THE FIVE FISCAL YEARS ENDED FEBRUARY 1, 2003
(Dollars in millions)
13 Weeks Ended Fiscal Year Ended
May 3, May 4, Feb. 1, Feb. 2, Feb. 3, Jan. 29, Jan. 30,
2003 2002 2003 2002 2001 2000 1999
<s> <c> <c> <c> <c> <c> <c> <c>
Earnings Available for Fixed Charges:
Pretax earnings from continuing
operations $ 65 $ 112 $ 820 $ 1,139 $ 1,402 $ 1,523 $ 1,395
Fixed charges (excluding interest
capitalized and pretax preferred
stock dividend requirements) 93 102 405 411 406 346 344
Dividends on ESOP Preference Shares (5) (5) (20) (22) (23) (24) (25)
Capitalized interest amortization 2 2 9 8 8 7 7
155 211 1,214 1,536 1,793 1,852 1,721
Fixed Charges:
Gross interest expense (a) $ 88 $ 98 $ 392 $ 401 $ 395 $ 340 $ 339
Interest factor attributable to
rent expense 10 9 36 32 28 22 21
98 107 428 433 423 362 360
Ratio of Earnings to Fixed Charges 1.6 2.0 2.8 3.5 4.2 5.1 4.8
(a) Represents interest expense on long-term and short-term debt, ESOP debt and amortization of debt
discount and debt issue expense.
</Table>
<Page>
Exhibit 15
May 29, 2003
The May Department Stores Company
St. Louis, Missouri
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim condensed
consolidated financial information of The May Department Stores Company and
subsidiaries (the "Company") for the thirteen-week periods ended May 3, 2003
and May 4, 2002, as indicated in our report dated May 29, 2003; because we did
not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended May 3, 2003, is
incorporated by reference in Registration Statements Nos. 333-59792, 333-76227,
333-00957, and 333-103352 on Form S-8 and Registration Statements Nos.
333-42940 and 333-42940-01 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
St. Louis, Missouri
<Page>
Exhibit 99.1
CERTIFICATION PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350, as adopted)
In connection with the Quarterly Report of The May Department Stores Company
(the "Company") on Form 10-Q for the period ending May 3, 2003, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), we,
Eugene S. Kahn, Chairman of the Board and Chief Executive Officer, and
Thomas D. Fingleton, Executive Vice President and Chief Financial Officer of
the Company, each certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350, as adopted), that:
1. The Report fully complies with the requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934, and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: May 30, 2003
/s/ Eugene S. Kahn /s/ Thomas D. Fingleton
Eugene S. Kahn Thomas D. Fingleton
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to The May Department Stores Company and will be retained by The May
Department Stores Company and furnished to the Securities and Exchange
Commission or its staff upon request.