UNITED STATES
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 30, 2004
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. 291,985,741 shares of common
stock, $.50 par value, as of November 27, 2004.
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(millions)
Oct. 30, Nov. 1, Jan. 31,
2004 2003 2004
ASSETS
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Current assets:
Cash and cash equivalents $ 94 $ 65 $ 564
Accounts receivable, net 2,012 1,478 1,755
Merchandise inventories 3,815 3,482 2,728
Other current assets 102 110 88
Total current assets 6,023 5,135 5,135
Property and equipment, at cost 10,534 9,304 9,103
Accumulated depreciation (4,340) (4,139) (3,954)
Property and equipment, net 6,194 5,165 5,149
Goodwill 2,654 1,468 1,504
Intangible assets, net 605 170 168
Other assets 143 129 133
Total assets $ 15,619 $ 12,067 $ 12,089
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ 1,050 $ 270 $ -
Current maturities of
long-term debt 20 235 239
Accounts payable 1,828 1,407 1,191
Accrued expenses 1,118 1,006 967
Income taxes payable 119 28 280
Total current liabilities 4,135 2,946 2,677
Long-term debt 5,786 3,802 3,797
Deferred income taxes 781 831 773
Other liabilities 515 511 507
ESOP preference shares 217 241 235
Unearned compensation - (91) (91)
Shareowners' equity 4,185 3,827 4,191
Total liabilities and
shareowners' equity $ 15,619 $ 12,067 $ 12,089
The accompanying notes to condensed consolidated financial
statements are an integral part of these balance sheets.
2
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(millions, except per share) 13 Weeks Ended 39 Weeks Ended
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Net sales $ 3,483 $ 2,976 $ 9,402 $ 8,849
Cost of sales:
Recurring 2,520 2,160 6,705 6,366
Restructuring markdowns - 1 11 1
Selling, general, and
administrative expenses 831 658 2,104 1,955
Restructuring costs 1 5 12 323
Interest expense, net 118 78 276 238
Earnings (loss) before income taxes 13 74 294 (34)
Provision (credit) for income taxes 5 27 109 (43)
Net earnings $ 8 $ 47 $ 185 $ 9
Basic earnings (loss) per share $ .02 $ .15 $ .59 $ (.01)
Diluted earnings (loss) per share $ .02 $ .15 $ .59 $ (.01)
Dividends paid per common share $.24-1/4 $ .24 $.72-3/4 $ .72
Weighted average shares outstanding:
Basic 292.3 290.0 291.9 289.9
Diluted 292.8 290.5 292.9 289.9
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
3
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions) 39 Weeks Ended
Oct. 30, Nov. 1,
2004 2003
<s> <c> <c>
Operating Activities:
Net earnings $ 185 $ 9
Adjustment for noncash items included in earnings:
Depreciation and other amortization 454 420
Intangible asset amortization 6 6
Asset impairment - 317
Working capital changes:
Accounts receivable, net 310 298
Merchandise inventories (712) (632)
Other current assets (5) 11
Accounts payable 426 306
Accrued expenses (3) 217
Income taxes payable (161) (135)
Other, net 22 (126)
Cash flows from operations 522 691
Investing Activities:
Net additions to property and equipment (389) (447)
Business combinations (3,263) (33)
Cash flows used for investing activities (3,652) (480)
Financing Activities:
Net short-term debt issuances 1,050 120
Net long-term debt issuances (repayments) 1,810 (77)
Net issuances (purchases) of common stock 23 (24)
Dividend payments (223) (220)
Cash flows from (used for) financing activities 2,660 (201)
Increase (decrease) in cash and cash equivalents (470) 10
Cash and cash equivalents,
beginning of period 564 55
Cash and cash equivalents,
end of period $ 94 $ 65
Cash paid during the period:
Interest $ 260 $ 252
Income taxes 248 85
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
4
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interim Results
The 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 35-43) in the 2003 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. 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.
Reclassifications
Certain prior period amounts have been reclassified to conform with current
year presentation.
Business Combinations
Effective July 31, 2004, the company completed its acquisition of the Marshall
Field's department store group. Marshall Field's operates 62 department stores
primarily in the Chicago, Detroit, and Minneapolis metropolitan areas. The
company acquired substantially all of Marshall Field's operating assets,
including stores, inventory, customer receivables, and distribution centers,
and assumed certain liabilities, including accounts payable and accrued
expenses. The company also acquired the real estate associated with nine
Mervyn's store locations in the Twin Cities area. The Mervyn's portion of the
transaction closed in the third quarter 2004. The acquisition was financed
through $2.2 billion of long-term debt and $1.0 billion of short-term
borrowings and cash on hand.
Marshall Field's results of operations have been included in the company's
consolidated financial statements since acquisition. The company's October 30,
2004, consolidated balance sheet includes the assets acquired and the
liabilities assumed using a preliminary purchase price allocation. The
purchase price allocation is based on preliminary estimates and is subject to
final third-party valuations. The following summarizes the preliminary
purchase price allocation at acquisition (millions):
Cash $ 3
Accounts receivable 558
Merchandise inventories 375
Property and equipment 1,117
Goodwill and other intangibles 1,586
Assumed liabilities/other (399)
Net purchase price $ 3,240
Goodwill and other intangible assets include $419 million of trade names and
$20 million of customer relationships. The trade names have an indefinite
useful life and are not amortizable. The customer relationships will be
amortized over an estimated useful life of 15 years. Assumed liabilities/other
includes $22 million of transaction fees.
5
The following pro forma information presents the company's net sales, net
earnings (loss) and diluted earnings (loss) per share as if the Marshall
Field's acquisition had occurred on February 2, 2003 (millions, except per
share):
13 Weeks Ended 39 Weeks Ended
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
Net sales $ 3,483 $ 3,580 $10,543 $10,548
Net earnings (loss) $ 8 $ 39 $ 171 $ (14)
Diluted earnings (loss) per share $ .02 $ .12 $ .54 $ (.09)
Pro forma adjustments have been made to reflect depreciation and amortization
using the asset values recognized after applying purchase accounting
adjustments and interest expense on borrowings used to finance the acquisition.
This pro forma information is presented for informational purposes only and is
not necessarily indicative of actual results had the acquisition been effected
at the beginning of the respective periods presented, is not necessarily
indicative of future results, and does not reflect potential synergies,
integration costs, or other such costs or savings.
Restructuring Costs
In July 2003, the company announced its intention to divest 34 underperforming
department stores. These divestitures will result in total estimated charges
of $380 million, consisting of asset impairments of $317 million, liquidation
markdowns of $35 million, severance benefits of $23 million, and other charges
of $5 million. Approximately $50 million of the $380 million represents the
cash cost of the store divestitures, not including the benefit from future tax
credits. Of the $380 million of expected total charges, $351 million has been
recognized to date. The company recognized $1 million and $23 million in the
third quarter and first nine months of 2004, respectively, and $6 million and
$324 million in the third quarter and first nine months of 2003, respectively.
The significant components of the store divestiture costs and status of the
related liability are summarized below:
(millions) Total | Balance at
Charges | 2004 Payments Non-cash Oct. 30,
to Date | Charges (Proceeds) Uses 2004
Asset impairments $ 317 | $ - $ - $ - $ -
Disposal (gains) losses (13)| (4) (37) 33 -
Liquidation markdowns 17 | 11 11 - -
Severance benefits 10 | 4 4 - -
Other 20 | 12 12 - -
Total $ 351 | $ 23 $ (10) $ 33 $ -
Asset impairment charges were recorded to reduce store assets to their
estimated fair value because of the shorter period over which they will be
used. Estimated fair values were based on estimated market values of similar
assets. Disposal gains or losses are recognized as each store is divested.
Liquidation markdowns are incurred to liquidate inventory as stores to be
divested are closed. The company is negotiating agreements with landlords and
developers for each store divestiture. Through the end of the 2004 third
quarter, 19 stores have been closed. Severance benefits are recognized as each
store is closed. As of October 30, 2004, severance benefits have been paid to
approximately 1,600 associates. Remaining amounts will be recognized as each
store is divested.
6
Income Taxes
The effective income tax rate for the first nine months of 2004 was 37.0%,
compared with 126.8% for the first nine months of 2003. 2003 results included
a $31 million tax credit recorded in the first quarter of 2003 upon the
resolution of various federal and state income tax issues. Excluding the $31
million tax credit, the company's estimated effective tax rate for the first
nine months of 2003 was 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. There was no LIFO
provision or credit in the third quarter or first nine months of 2004 or 2003.
Debt
On July 20, 2004, the company issued $2.2 billion of long-term debt maturing
over three to 30 years at a weighted average interest rate, including amortized
hedge and financing costs, of 5.71% to partially fund the Marshall Field's
acquisition. In August 2004, the company also increased its unsecured revolving
credit facility to $1.4 billion and extended the term to August 2009.
The company entered into treasury lock agreements to hedge interest rate
fluctuations in anticipation of the issuance of debt related to the Marshall
Field's acquisition. The contracts were deemed highly effective at offsetting
the changes in interest rates of the debt issued. Accordingly, the $27 million
paid to settle the hedges will be amortized as increases to interest expense
over the 10 to 30 year life of the debt hedged. The hedge settlement payments
were recorded as a reduction to accumulated other comprehensive income.
On August 1, 2004, the company redeemed its $200 million 8-3/8% debentures due
in 2024. Interest expense for the 2004 third quarter includes early debt
redemption costs of $10 million.
Pension Benefits
The components of net periodic benefit costs for the company's pension plans
for the third quarter and first nine months of 2004 and 2003 were:
(millions) 13 Weeks Ended
Qualified Plan Nonqualified Plan
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
Service cost $ 14 $ 11 $ 1 $ 2
Interest cost 12 12 3 5
Expected return on assets (10) (8) - -
Net amortization (1) 1 6 1 1
Net periodic benefit cost $ 17 $ 21 $ 5 $ 8
39 Weeks Ended
Qualified Plan Nonqualified Plan
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
Service cost $ 42 $ 35 $ 4 $ 4
Interest cost 35 36 10 10
Expected return on assets (29) (24) - -
Net amortization (1) 6 18 4 4
Net periodic benefit cost $ 54 $ 65 $ 18 $ 18
(1) Prior service cost and actuarial gains and losses are amortized over the
remaining estimated service period.
7
In September 2004, the company contributed $23 million to the qualified pension
plan, and the company expects to make an additional contribution of
approximately $60 million to the qualified plan in January 2005.
Earnings per Share
The following tables reconcile net earnings and weighted average shares
outstanding to amounts used to calculate basic and diluted earnings (loss) per
share ("EPS") for the periods shown.
(millions, except per share)
13 Weeks Ended
Oct. 30, 2004 Nov. 1, 2003
Earnings Shares EPS Earnings Shares EPS
<s> <c> <c> <c> <c> <c> <c>
Net earnings $ 8 $ 47
ESOP preference share
dividends (4) (4)
Basic EPS 4 292.3 $ .02 43 290.0 $ .15
Assumed exercise of
options (treasury
stock method) - 0.5 - 0.5
Diluted EPS $ 4 292.8 $ .02 $ 43 290.5 $ .15
Diluted EPS excludes 15 million ESOP preference shares and $3 million of
earnings adjustments for the third quarter of 2004 and 16 million ESOP
preference shares and $3 million of earnings adjustments for the third quarter
of 2003 because of their antidilutive effect.
39 Weeks Ended
Oct. 30, 2004 Nov. 1, 2003
Earnings Shares EPS Earnings Shares EPS
<s> <c> <c> <c> <c> <c> <c>
Net earnings $ 185 $ 9
ESOP preference share
dividends (12) (12)
Basic EPS 173 291.9 $ .59 (3) 289.9 $ (.01)
Assumed exercise of
options (treasury
stock method) - 1.0 - -
Diluted EPS $ 173 292.9 $ .59 $ (3) 289.9 $ (.01)
Diluted EPS excludes 15 million ESOP preference shares and $10 million of
earnings adjustments for the first nine months of 2004 and 17 million ESOP
preference shares and $11 million of earnings adjustments for the first nine
months of 2003 because of their antidilutive effect.
Stock Compensation 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.
Stock option expense is recorded over each option grant's vesting period,
usually four years. Accordingly, the cost related to stock-based employee
compensation included in net earnings, using the prospective method of
transition, is less than it would have been had the fair value method been
applied retroactively to all outstanding grants. The following table
illustrates the pro forma effect on net earnings and earnings (loss) per share
for the third quarter and first nine months of 2004 and 2003 if the fair value-
based method had been applied retroactively rather than prospectively to all
outstanding unvested grants.
8
(millions, except per share) 13 Weeks Ended 39 Weeks Ended
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Net earnings, as reported $ 8 $ 47 $ 185 $ 9
Add: Compensation expense for
employee stock options
included in net earnings,
net of tax 2 1 4 2
Deduct: Total compensation expense
for employee stock options
determined under retroactive
fair value-based method,
net of tax (5) (6) (15) (19)
Pro forma net earnings (loss) $ 5 $ 42 $ 174 $ (8)
Earnings (loss) per share:
Basic - as reported (prospective) $ .02 $ .15 $ .59 $ (.01)
Basic - pro forma (retroactive) $ .00 $ .13 $ .56 $ (.07)
Diluted - as reported (prospective) $ .02 $ .15 $ .59 $ (.01)
Diluted - pro forma (retroactive) $ .00 $ .13 $ .55 $ (.07)
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 $802 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.
Common Stock Repurchase Programs
In July 2004, the company suspended the $500 million common stock repurchase
program that was announced in February 2004.
Shareowners Rights' Plan
In August 2004, the company entered into an Amended and Restated Rights
Agreement with The Bank of New York, extending final expiration of the previous
agreement to August 31, 2014.
9
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The company ("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 October 30, 2004, November 1,
2003, and January 31, 2004, the related condensed consolidating statements of
earnings for the thirteen week and thirty-nine week periods ended October 30,
2004, and November 1, 2003, and the related condensed consolidating statements
of cash flows for the thirty-nine week periods ended October 30, 2004, and
November 1, 2003 are presented below.
Condensed Consolidating Balance Sheet
As of October 30, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
<s> <c> <c> <c> <c> <c>
Current assets:
Cash and cash equivalents $ - $ 70 $ 24 $ - $ $94
Accounts receivable, net - 2,000 45 (33) 2,012
Merchandise inventories - 3,708 107 - 3,815
Other current assets - 87 35 (20) 102
Total current assets - 5,865 211 (53) 6,023
Property and equipment, at cost - 10,232 302 - 10,534
Accumulated depreciation - (4,241) (99) - (4,340)
Property and equipment, net - 5,991 203 - 6,194
Goodwill - 2,276 378 - 2,654
Intangible assets, net - 441 164 - 605
Other assets - 134 9 - 143
Intercompany (payable)
receivable (3,912) 3,368 3,769 (3,225) -
Investment in subsidiaries 8,314 - - (8,314) -
Total assets $ 4,402 $18,075 $ 4,734 $(11,592) $15,619
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ 1,050 $ - $ - $ 1,050
Current maturities of
long-term debt - 20 - - 20
Accounts payable - 1,725 101 2 1,828
Accrued expenses - 1,047 126 (55) 1,118
Income taxes payable - 57 62 - 119
Total current liabilities - 3,899 289 (53) 4,135
Long-term debt - 5,785 1 - 5,786
Intercompany note payable - 3,225 - (3,225) -
Deferred income taxes - 714 67 - 781
Other liabilities - 1,009 9 (503) 515
ESOP preference shares 217 - - - 217
Unearned compensation - - - - -
Shareowners' equity 4,185 3,443 4,368 (7,811) 4,185
Total liabilities and
shareowners' equity $ 4,402 $18,075 $ 4,734 $(11,592) $15,619
10
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Earnings
For the Thirteen Weeks Ended October 30, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Net sales $ - $ 3,321 $ 576 $ (414) $ 3,483
Cost of sales:
Recurring - 2,475 455 (410) 2,520
Restructuring markdowns - - - - -
Selling, general, and
administrative expenses - 758 82 (9) 831
Restructuring costs - 1 - - 1
Interest expense (income), net:
External - 118 - - 118
Intercompany - 73 (72) (1) -
Equity in earnings of subsidiaries (8) - - 8 -
Earnings (loss) before income taxes 8 (104) 111 (2) 13
Provision (credit) for income taxes - (35) 40 - 5
Net earnings (loss) $ 8 $ (69) $ 71 $ (2) $ 8
Condensed Consolidating Statement of Earnings
For the Thirty-nine Weeks Ended October 30, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Net sales $ - $ 8,836 $ 1,481 $ (915) $ 9,402
Cost of sales:
Recurring - 6,502 1,104 (901) 6,705
Restructuring markdowns - 11 - - 11
Selling, general, and
administrative expenses - 1,868 265 (29) 2,104
Restructuring costs - 12 - - 12
Interest expense (income), net:
External - 276 - - 276
Intercompany - 215 (213) (2) -
Equity in earnings of subsidiaries (185) - - 185 -
Earnings (loss) before income taxes 185 (48) 325 (168) 294
Provision (credit) for income taxes - (10) 119 - 109
Net earnings (loss) $ 185 $ (38) $ 206 $ (168) $ 185
11
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Cash Flows
For the Thirty-nine Weeks Ended October 30, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Operating activities:
<s> <c> <c> <c> <c> <c>
Net earnings (loss) $ 185 $ (38) $ 206 $ (168) $ 185
Equity in earnings of subsidiaries (185) - - 185 -
Depreciation and other amortization - 422 32 - 454
Intangible asset amortization - 2 4 - 6
Decrease (increase) in
working capital (4) (178) 37 - (145)
Other, net 77 27 (65) (17) 22
Cash flows from operations 73 235 214 - 522
Investing activities:
Net additions to property
and equipment - (326) (63) - (389)
Business combinations - (3,258) (5) - (3,263)
Cash flows used for
investing activities - (3,584) (68) - (3,652)
Financing activities:
Net short-term debt issuances - 1,050 - - 1,050
Net long-term debt issuances - 1,810 - - 1,810
Net issuances of common stock 16 7 - - 23
Dividend payments (224) 1 - - (223)
Intercompany activity, net 135 - (135) - -
Cash flow from (used for)
financing activities (73) 2,868 (135) - 2,660
Increase (decrease) in cash and
cash equivalents - (481) 11 - (470)
Cash and cash equivalents,
beginning of period - 551 13 - 564
Cash and cash equivalents,
end of period $ - $ 70 $ 24 $ - $ 94
12
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Balance Sheet
As of November 1, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
<s> <c> <c> <c> <c> <c>
Current assets:
Cash and cash equivalents $ - $ 52 $ 13 $ - $ 65
Accounts receivable, net - 1,469 45 (36) 1,478
Merchandise inventories - 3,391 91 - 3,482
Other current assets - 104 24 (18) 110
Total current assets - 5,016 173 (54) 5,135
Property and equipment, at cost - 9,078 226 - 9,304
Accumulated depreciation - (4,070) (69) - (4,139)
Property and equipment, net - 5,008 157 - 5,165
Goodwill - 1,129 339 - 1,468
Intangible assets, net - 5 165 - 170
Other assets - 119 10 - 129
Intercompany (payable)
receivable (820) 317 3,728 (3,225) -
Investment in subsidiaries 4,797 - - (4,797) -
Total assets $ 3,977 $11,594 $ 4,572 $ (8,076) $12,067
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ 270 $ - $ - $ 270
Current maturities of
long-term debt - 235 - - 235
Accounts payable - 1,306 101 - 1,407
Accrued expenses - 944 97 (35) 1,006
Income taxes payable - - 46 (18) 28
Total current liabilities - 2,755 244 (53) 2,946
Long-term debt - 3,801 1 - 3,802
Intercompany note payable - 3,225 - (3,225) -
Deferred income taxes - 766 65 - 831
Other liabilities - 991 9 (489) 511
ESOP preference shares 241 - - - 241
Unearned compensation (91) (91) - 91 (91)
Shareowners' equity 3,827 147 4,253 (4,400) 3,827
Total liabilities and
shareowners' equity $ 3,977 $11,594 $ 4,572 $ (8,076) $12,067
13
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Earnings
For the Thirteen Weeks Ended November 1, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Net sales $ - $ 2,838 $ 589 $ (451) $ 2,976
Cost of sales - 2,135 467 (441) 2,161
Selling, general, and
administrative expenses - 602 71 (15) 658
Restructuring costs - 5 - - 5
Interest expense (income), net:
External - 78 - - 78
Intercompany - 71 (71) - -
Equity in earnings of subsidiaries (47) - - 47 -
Earnings (loss) before income taxes 47 (53) 122 (42) 74
Provision (credit) for income taxes - (16) 43 - 27
Net earnings (loss) $ 47 $ (37) $ 79 $ (42) $ 47
Condensed Consolidating Statement of Earnings
For the Thirty-nine Weeks Ended November 1, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Net sales $ - $ 8,376 $ 1,488 $ (1,015) $ 8,849
Cost of sales - 6,229 1,130 (992) 6,367
Selling, general, and
administrative expenses - 1,782 212 (39) 1,955
Restructuring costs - 323 - - 323
Interest expense (income), net:
External - 238 - - 238
Intercompany - 213 (213) - -
Equity in earnings of subsidiaries (9) - - 9 -
Earnings (loss) before income taxes 9 (409) 359 7 (34)
Provision (credit) for income taxes - (173) 130 - (43)
Net earnings (loss) $ 9 $ (236) $ 229 $ 7 $ 9
14
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Cash Flows
For the Thirty-nine Weeks Ended November 1, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Operating activities:
Net earnings (loss) $ 9 $ (236) $ 229 $ 7 $ 9
Equity in earnings of subsidiaries (9) - - 9 -
Depreciation and other
amortization - 398 22 - 420
Intangible asset amortization - 1 5 - 6
Asset impairment - 317 - - 317
(Increase) decrease in
working capital (4) 36 33 - 65
Other, net 150 (173) (87) (16) (126)
Cash flows from operations 146 343 202 - 691
Investing activities:
Net additions to property
and equipment - (406) (41) - (447)
Business combinations - - (33) - (33)
Cash flows used for
investing activities - (406) (74) - (480)
Financing activities:
Net short-term debt issuances - 120 - - 120
Net long-term debt repayments - (52) (25) - (77)
Net issuances (purchases)
of common stock (33) 9 - - (24)
Dividend payments (221) 1 - - (220)
Intercompany activity, net 108 - (108) - -
Cash flows from (used for)
financing activities (146) 78 (133) - (201)
Increase (decrease) in cash and
cash equivalents - 15 (5) - 10
Cash and cash equivalents,
beginning of period - 37 18 - 55
Cash and cash equivalents,
end of period $ - $ 52 $ 13 $ - $ 65
15
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Balance Sheet
As of January 31, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
<s> <c> <c> <c> <c> <c>
Current assets:
Cash and cash equivalents $ - $ 551 $ 13 $ - $ 564
Accounts receivable, net - 1,740 46 (31) 1,755
Merchandise inventories - 2,633 95 - 2,728
Other current assets - 76 32 (20) 88
Total current assets - 5,000 186 (51) 5,135
Property and equipment, at cost - 8,860 243 - 9,103
Accumulated depreciation - (3,882) (72) - (3,954)
Property and equipment, net - 4,978 171 - 5,149
Goodwill - 1,129 375 - 1,504
Intangible assets, net - 4 164 - 168
Other assets - 125 8 - 133
Intercompany (payable)
receivable (642) 161 3,706 (3,225) -
Investment in subsidiaries 4,981 - - (4,981) -
Total assets $ 4,339 $11,397 $ 4,610 $ (8,257) $12,089
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ - $ - $ - $ -
Current maturities of
long-term debt - 239 - - 239
Accounts payable - 1,095 91 5 1,191
Accrued expenses 4 914 105 (56) 967
Income taxes payable - 240 40 - 280
Total current liabilities 4 2,488 236 (51) 2,677
Long-term debt - 3,796 1 - 3,797
Intercompany note payable - 3,225 - (3,225) -
Deferred income taxes - 706 67 - 773
Other liabilities - 985 9 (487) 507
ESOP preference shares 235 - - - 235
Unearned compensation (91) (91) - 91 (91)
Shareowners' equity 4,191 288 4,297 (4,585) 4,191
Total liabilities and
shareowners' equity $ 4,339 $11,397 $ 4,610 $ (8,257) $12,089
16
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The weakening sales trend that began in the 2004 second quarter continued
throughout the 2004 third quarter, resulting in sales below our expectations.
Continued improvements in inventory management led to higher merchandise
margins. However, expenses as a percent of net sales increased due to the
decreased sales leverage resulting from negative store-for-store sales. The
expense structure at Marshall Field's and start-up integration expenses
negatively impacted our overall third quarter results.
Third quarter 2004 net sales were $3.48 billion, a 17.0% increase from the 2003
third quarter net sales principally due to the Marshall Field's acquisition.
Store-for-store sales decreased 3.4% for the quarter. The decrease in
store-for-store sales is characterized by a decrease in the number of department
store transactions partially offset by an increase in the average selling price
per item. Although a number of merchandise categories continued to experience
growth, this positive momentum was offset by mixed back-to-school results and
continued difficulty in the home store.
Net earnings were $8 million, or $.02 per share, for the 2004 third quarter
compared with net earnings of $47 million, or $.15 per share, for the 2003
third quarter. Third quarter 2004 net earnings include restructuring charges
of $1 million and early debt redemption costs of $10 million, or $.02 per
share. Third quarter 2003 net earnings included restructuring charges of $6
million, or $.01 per share.
The integration of Marshall Field's is proceeding on schedule. The Marshall
Field's acquisition had a negative effect on third quarter earnings of $.06
per share, of which $.03 per share was start-up integration expenses.
Net sales increased 6.2% to $9.40 billion for the first nine months of 2004.
Net earnings were $185 million, or $.59 per share, for the first nine months
of 2004 compared to net earnings of $9 million, or a net loss of $.01 per
share, for the first nine months of 2003. Net earnings for the first nine
months of 2004 include restructuring charges of $23 million, or $.05 per
share. Net earnings for the first nine months of 2003 included restructuring
charges of $324 million, or $.70 per share, and a $31 million, or $.10 per
share, tax credit.
During the third quarter 2004, we opened four department stores: a Foley's
store in El Paso, Texas; a Hecht's store in Nashville, Tenn.; a Meier & Frank
store in Portland, Ore.; and a Robinsons-May store in Rancho Cucamonga, Calif.
To date, we have opened five department stores and acquired 62 Marshall
Field's stores in 2004. Three additional department store openings are planned
for the fourth quarter 2004. Year-to-date, we have closed ten department stores
we previously announced we would divest. Also, during the third quarter, our
Bridal Group opened nine David's Bridal stores and six After Hours stores. The
Bridal Group plans to open an additional 11 David's Bridal stores and seven
After Hours stores by year-end. At the end of the third quarter, we operated
500 department stores, 229 David's Bridal stores, 458 After Hours Formalwear
stores, and 11 Priscilla of Boston stores in 46 states, the District of
Columbia, and Puerto Rico.
17
Results of Operations
Net Sales
Net sales include merchandise sales and lease department income. Store-for-store
sales compare sales of stores open during both periods beginning the first day
a new store has prior-year sales and exclude sales of stores closed during both
periods. Net sales and related increases (decreases) were as follows (dollars
in millions):
Percent Store-for-Store
2004 2003 Increase Decrease
Third quarter $3,483 $2,976 17.0% (3.4)%
First nine months 9,402 8,849 6.2 (1.3)
The total net sales increase of $507 million for the 2004 third quarter was
principally due to a $650 million increase in new store sales, including
Marshall Field's, offset by an $88 million decrease in store-for-store sales
and a $51 million decrease related to divested store sales. The total net
sales increase of $553 million for the first nine months of 2004 was
principally due to a $782 million increase in new store sales, including
Marshall Field's, offset by a $67 million decrease in store-for-store sales
and a $147 million decrease related to divested store sales.
The following table presents the statements of earnings as a percent of net
sales.
Third Quarter First Nine Months
2004 2003 2004 2003
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales:
Recurring 72.4 72.6 71.3 71.9
Restructuring markdowns 0.0 0.0 0.1 0.0
Selling, general, and
administrative expenses 23.8 22.1 22.4 22.1
Restructuring costs 0.0 0.2 0.1 3.7
Interest expense, net 3.4 2.6 3.0 2.7
Earnings (loss) before income taxes 0.4 2.5 3.1 (0.4)
Income taxes 37.0* 37.0* 37.0* 126.8*
Net earnings 0.2% 1.6% 2.0% 0.1%
* - Percent represents effective income tax rate.
Cost of Sales
Recurring cost of sales includes the cost of merchandise, inbound freight,
distribution expenses, buying, and occupancy costs. Restructuring markdowns
are incurred to liquidate inventory as stores to be divested are closed.
For the thirteen weeks ended October 30, 2004, recurring cost of sales as a
percent of net sales decreased by 0.2% principally because of an 0.8% decrease
in the cost of merchandise, offset by a 0.5% increase in buying and occupancy
costs related to the decline in store-for-store sales. For the thirty-nine weeks
ended October 30, 2004, recurring cost of sales as a percent of net sales
decreased by 0.6% principally because of a 0.9% decrease in the cost of
merchandise. The lower merchandise costs were driven by a combination of
improved mark-ups and improved markdowns.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses (SG&A) as a percent of net sales
increased from 22.1% in the third quarter 2003 to 23.8% in the third quarter
2004. The increase was largely driven by decreased sales leverage resulting in
a 1.1% increase in costs such as payroll, insurance, and advertising. The
18
expense structure at Marshall Field's and start-up integration expenses
negatively impacted SG&A by an additional 0.6% in the quarter. The increase
in SG&A expenses as a percent of net sales from 22.1% in the first nine months
of 2003 to 22.4% in the first nine months of 2004 was primarily due to the
expense structure at Marshall Field's and start-up integration costs.
Business Combinations
Effective July 31, 2004, we completed our acquisition of the Marshall Field's
department store group. Marshall Field's operates 62 department stores
primarily in the Chicago, Detroit, and Minneapolis metropolitan areas. We
acquired substantially all of Marshall Field's operating assets, including
stores, inventory, customer receivables, and distribution centers and assumed
certain liabilities, including accounts payable and accrued expenses. We also
acquired the real estate associated with nine Mervyn's store locations in the
Twin Cities area. The Mervyn's portion of the transaction closed in the third
quarter 2004. The acquisition was financed through $2.2 billion of long-term
debt and $1.0 billion of short-term borrowings and cash on hand.
Marshall Field's results of operations have been included in our consolidated
financial statements since acquisition. Our October 30, 2004 consolidated
balance sheet includes the assets acquired and liabilities assumed using a
preliminary purchase price allocation. The purchase price allocation is
based on preliminary estimates and is subject to final third-party valuations.
Restructuring Costs
In July 2003, we announced our intention to divest 34 underperforming
department stores. These divestitures will result in total estimated charges
of $380 million, consisting of asset impairments of $317 million, liquidation
markdowns of $35 million, severance benefits of $23 million, and other
charges of $5 million. Approximately $50 million of the $380 million
represents the cash cost of the store divestitures, not including the benefit
from future tax credits. Of the $380 million of expected total charges, $351
million has been recognized to date. We recognized $1 million and $23
million in the third quarter and first nine months of 2004, respectively,
and $6 million and $324 million was recognized in the third quarter and
first nine months of 2003, respectively.
Asset impairment charges were recorded to reduce store assets to their
estimated fair value because of the shorter period over which they will be
used. Estimated fair values were based on estimated market values for similar
assets. Disposal gains or losses are recognized as each store is divested.
Liquidation markdowns are incurred to liquidate inventory as stores to be
divested are closed. The company is negotiating agreements with landlords
and developers for each store divestiture. Through the end of the 2004 third
quarter, 19 stores have been closed. Severance benefits are recognized as
each store is closed. Severance benefits of $10 million for approximately
1,600 associates and liquidation markdowns and other costs of $24 million
have been incurred to date. Remaining amounts will be recognized as each
store is divested.
Interest Expense
Components of net interest expense were (millions):
Third Quarter First Nine Months
2004 2003 2004 2003
Interest expense $121 $ 82 $290 $252
Interest income (1) - (8) (1)
Capitalized interest (2) (4) (6) (13)
Net interest expense $118 $ 78 $276 $238
On July 20, 2004, we issued $2.2 billion of long-term debt maturing over
three to 30 years at a weighted average interest rate, including
19
amortized hedge and financing costs, of 5.71% to partially fund the
Marshall Field's acquisition. The increase in interest expense in the
2004 third quarter and the first nine months of 2004 is due to the
borrowings used to fund the Marshall Field's acquisition and debt
redemption costs of $10 million.
Short-term borrowings were (dollars in millions):
Third Quarter First Nine Months
2004 2003 2004 2003
Average balance outstanding $817 $137 $280 $236
Average interest rate on
average balance 1.8% 1.3% 1.8% 1.3%
Income Taxes
The effective income tax rate for the first nine months of 2004 was
37.0%, compared with 126.8% for the first nine months of 2003. 2003
results included a $31 million tax credit recorded in the first quarter
2003 upon the resolution of various federal and state income tax issues.
Excluding the $31 million tax credit, our estimated effective tax rate for
the first nine months of 2003 was 37.0%. We do not expect the recently
enacted tax legislation to have a significant effect on our effective
income tax rate.
Trailing Years' Results
Operating results for the trailing years were as follows (millions,
except per share):
Oct. 30, Nov. 1,
2004 2003
Net sales $ 13,896 $ 13,222
Net earnings $ 610 $ 396
Diluted earnings per share $ 1.97 $ 1.25
Financial Condition
Cash Flows
Cash flows from operations were $522 million and $691 million in the
first nine months of 2004 and 2003, respectively. The decrease in cash
flows from operations is due to the reduced effect of non-cash items,
partially offset by an increase in earnings.
Investing activities consisted primarily of the Marshall Field's
acquisition, which was financed with a combination of short-term and
long-term debt and cash on hand.
Liquidity and Available Credit
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 $1.4 billion under our multi-year credit agreement
expiring in August 2009. 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.
On August 1, 2004, we redeemed $200 million 8-3/8% debentures due in
2024. Early redemption costs of $10 million, or $.02 per share, were
recorded in the 2004 third quarter.
Financial Ratios
Key financial ratios as of and for the thirty-nine weeks ended October
30, 2004 and November 1, 2003 and as of and for the fifty-two weeks
ended January 31, 2004 are as follows:
Oct. 30, Nov. 1, Jan. 31,
2004 2003 2004
Current Ratio 1.5 1.7 1.9
Debt-Capitalization Ratio 59% 50% 46%
Fixed Charge Coverage 1.9x 0.8x 2.6x
20
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, our
ability to manage the business to minimize the disruption of sales
and customer service as a result of the restructuring activities,
and those risks generally associated with the integration of
Marshall Field's with May. 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. Under certain
circumstances, short-term debt may also be used to temporarily
finance a portion of an acquisition, which may result in
increased market risk from 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 are generally paid in local currency and
are not material. During the first nine months of 2004, we
entered into treasury lock agreements to hedge interest rate
fluctuations in anticipation of the issuance of long-term debt
related to the Marshall Field's acquisition. The results of the
hedges did not have a material impact on our results of
operations or financial position. We were not a party to any
other derivative financial instruments during the first nine
months of 2004 or 2003.
Item 4 - Controls and Procedures
As of the end of the period covered by this Quarterly Report on
Form 10-Q, 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. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective. Other than described below,
there have been no changes in our internal controls or in other factors
that could materially affect these controls subsequent to the date the
controls were evaluated.
On July 31, 2004, we acquired the operating assets of the Marshall
Field's department store group from Target Corporation. Target will
continue to provide accounting and other systems support for Marshall
Field's over a transition period not to exceed eight months while we
migrate Marshall Field's to our information technology systems. During
the 2004 third quarter, we converted proprietary credit operations and
fixed asset accounting from Target to May systems and will convert to
the May payroll system in the 2004 fourth quarter. The remaining
accounting, merchant reporting, and store operating systems will
convert in February and March 2005.
Target and its operating divisions generally operate under a common
set of controls and information technology systems. During the
transition period, Marshall Field's will be subject to the same
21
financial reporting controls historically provided by Target. Target
has not disclosed any material control weaknesses or material
changes in its internal controls in previous public filings.
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
consolidated financial statements taken as a whole.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
In the third quarter 2004, the company did not repurchase any of its
common stock.
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
Location
1.1 - Purchase Agreement, dated July 13, 2004 Incorporated by
Reference to
Exhibit 1.1 to
Current Report on
Form 8-K, filed
July 21, 2004.
3.1 - Amended and Restated Certificate of Incorporated by
Incorporation of May, dated May 22, 1996 Reference to
Exhibit 4(a) of
Post Effective
Amendment No. 1
to Form S-8, filed
May 29, 1996.
3.2 - Certificate of Amendment of the Amended and Incorporated by
Restated Certificate of Incorporation, dated Reference to
May 21, 1999 Exhibit 3(b) of
Form 10-Q filed
June 8, 1999.
3.3 - By-Laws of May Incorporated by
Reference to
Exhibit 3.3 of
Form 10-Q filed
September 3, 2004.
4.1 - Amended and Restated Rights Agreement, dated Incorporated by
as of August 31, 2004 Reference to
Exhibit 4.1 to
Current Report on
Form 8-K, filed
September 3, 2004.
22
Item 6 - Exhibits (continued)
Location
4.2 - Certificate of Designation, Preferences and Incorporated by
Rights of the Junior Participating Preference Reference to
Shares and ESOP Preference Shares Exhibit 4.4 of
Form S-4 filed
June 7, 1996.
4.3 - Indenture, dated as of July 20, 2004 Incorporated by
Reference to
Exhibit 4.1 to
Current Report on
Form 8-K, filed
July 21, 2004.
4.4 - Indenture, dated as of June 17, 1996 Incorporated by
Reference to
Exhibit 4.1 of
Form S-3 filed
June 18, 1996.
4.5 - Registration Rights Agreement, Incorporated by
dated July 20, 2004 Reference to
Exhibit 4.2 to
Current Report on
Form 8-K, filed
July 21, 2004.
10.1 - 1994 Stock Incentive Plan Incorporated by
Reference to
Exhibit 10.1 of
Form 10-Q filed
June 2, 2004.
10.2 - Deferred Compensation Plan Incorporated by
Reference to
Exhibit 10.2 of
Form 10-Q filed
June 2, 2004.
10.3 - Executive Incentive Compensation Incorporated by
Plan for Corporate Executives Reference to
the Definitive
Proxy Statement
for the 2004
Annual Meeting
of Shareowners.
10.4 - Form of Employment Agreement Incorporated by
Reference to
Exhibit 10.4 of
Form 10-K filed
April 19, 2000.
10.5 - Amended and Restated Five-Year Credit Incorporated by
Agreement, dated August 24, 2004 Reference to
Exhibit 10.1 to
Current Report on
Form 8-K filed
August 27, 2004.
23
Item 6 - Exhibits (continued)
Location
12 - Computation of Ratio of Earnings Filed herewith.
to Fixed Charges
15 - Letter Regarding Unaudited Interim Filed herewith.
Financial Information
31.1 - Certification Pursuant to Exchange Filed herewith.
Act 13a-15(e) and 15d-15(e)
31.2 - Certification Pursuant to Exchange Filed herewith.
Act 13a-15(e) and 15d-15(e)
32 - Certification Pursuant to Section 906 of Filed herewith.
the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350, as adopted)
24
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: November 30, 2004
/s/ Thomas D. Fingleton
Thomas D. Fingleton
Executive Vice President and
Chief Financial Officer
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 October 30,
2004 and November 1, 2003, and the related condensed consolidated statements of
earnings for the thirteen and thirty-nine week periods ended October 30, 2004
and November 1, 2003, and of cash flows for the thirty-nine week periods ended
October 30, 2004 and November 1, 2003. These interim financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures 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
standards of the Public Company Accounting Oversight Board (United States),
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 interim 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 standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
the Company as of January 31, 2004, 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 March 19, 2004, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of January 31, 2004 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
November 29, 2004
Exhibit 12
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE FIVE FISCAL YEARS ENDED JANUARY 31, 2004 AND FOR THE
THIRTY-NINE WEEKS ENDED OCTOBER 30, 2004 AND NOVEMBER 1, 2003
(dollars in millions)
39 Weeks Ended Fiscal Year Ended
Oct. 30, Nov. 1, Jan. 31, Feb. 1, Feb. 2, Feb. 3, Jan. 29,
2004 2003 2004 2003 2002 2001 2000
<s> <c> <c> <c> <c> <c> <c> <c>
Earnings Available for Fixed Charges:
Pretax earnings (loss) $ 294 $ (34) $ 639 $ 820 $1,139 $1,402 $1,523
Fixed charges (excluding interest
capitalized and pretax preferred
stock dividend requirements) 315 276 367 405 411 406 346
Dividends on ESOP preference shares (12) (14) (18) (20) (22) (23) (24)
Capitalized interest amortization 7 7 10 9 8 8 7
$ 604 $ 235 $ 998 $1,214 $1,536 $1,793 $1,852
Fixed Charges:
Gross interest expense (a) $ 292 $ 260 $ 345 $ 392 $ 401 $ 395 $ 340
Interest factor attributable to
rent expense 29 30 38 36 32 28 22
$ 321 $ 290 $ 383 $ 428 $ 433 $ 423 $ 362
Ratio of Earnings to Fixed Charges 1.9 0.8 2.6 2.8 3.5 4.2 5.1
(a) Represents interest expense on long-term and short-term debt, ESOP debt, and amortization of debt
discount and debt issue expense.
Exhibit 15
November 29, 2004
The May Department Stores Company
St. Louis, Missouri
We have made a review, in accordance with standards of the Public Company
Accounting Oversight Board (United States), of the unaudited interim
condensed consolidated financial information of The May Department Stores
Company and subsidiaries (the "Company") for the thirteen and thirty-nine
week periods ended October 30, 2004 and November 1, 2003, as indicated in
our reports dated November 29, 2004 and December 4, 2003; because we did
not perform an audit, we expressed no opinion on that information.
We are aware that our reports referred to above, which are included in your
Quarterly Reports on Form 10-Q for the quarters ended October 30, 2004 and
November 1, 2003, are incorporated by reference in Registration Statements
Nos. 333-59792, 333-76227, 333-00957, 333-103352 and 333-111987 on Form S-8,
Registration Statements Nos. 333-42940 and 333-42940-01 on Form S-3, and
Registration Statement No. 333-12007 on Form S-4.
We also are aware that the aforementioned reports, pursuant to Rule 436(c)
under the Securities Act of 1933, are not considered a part of the
Registration Statements 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
Exhibit 31.1
CERTIFICATION
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 30, 2004 /s/ Eugene S. Kahn
Eugene S. Kahn
Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
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
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 30, 2004 /s/ Thomas D. Fingleton
Thomas D. Fingleton
Executive Vice President and
Chief Financial Officer
Exhibit 32
CERTIFICATION PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. Section 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 October 30, 2004, 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. Section 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: November 30, 2004
/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