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 July 30, 2005
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. 306,985,801 shares of common
stock, $.50 par value, as of July 30, 2005.
<Page>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(millions)
July 30, July 31, Jan. 29,
2005 2004 2005
ASSETS
Current assets:
Cash and cash equivalents $ 323 $ 267 $ 62
Accounts receivable, net 1,894 2,044 2,294
Merchandise inventories 3,155 3,170 3,092
Other current assets 200 103 129
Total current assets 5,572 5,584 5,577
Property and equipment, at cost 10,383 10,341 10,178
Accumulated depreciation (4,268) (4,174) (3,988)
Property and equipment, net 6,115 6,167 6,190
Goodwill 2,635 2,668 2,634
Intangible assets, net 598 609 602
Other assets 149 139 160
Total assets $ 15,069 $ 15,167 $ 15,163
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ 547 $ 368
Current maturities of
long-term debt 248 347 145
Accounts payable 1,484 1,407 1,529
Accrued expenses 1,275 1,134 1,269
Income taxes payable 80 233 158
Total current liabilities 3,087 3,668 3,469
Long-term debt 5,550 5,794 5,662
Deferred income taxes 820 731 818
Other liabilities 532 511 528
ESOP preference shares 179 222 211
Shareowners' equity 4,901 4,241 4,475
Total liabilities and
shareowners' equity $ 15,069 $ 15,167 $ 15,163
The accompanying notes to condensed consolidated financial
statements are an integral part of these balance sheets.
2
<Page>
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(millions, except per share) 13 Weeks Ended 26 Weeks Ended
July 30, July 31, July 30, July 31,
2005 2004 2005 2004
Net sales $ 3,446 $ 2,956 $ 6,815 $ 5,919
Cost of sales:
Recurring 2,464 2,065 4,899 4,185
Restructuring markdowns 3 6 9 11
Selling, general, and
administrative expenses 833 634 1,610 1,273
Restructuring costs (gains), net (11) 9 (8) 11
Interest expense, net 103 82 209 158
Earnings before income taxes 54 160 96 281
Provision for income taxes 2 59 3 104
Net earnings $ 52 $ 101 $ 93 $ 177
Basic earnings per share $ .16 $ .33 $ .29 $ .58
Diluted earnings per share $ .16 $ .33 $ .29 $ .57
Dividends paid per common share $.24-1/2 $.24-1/4 $ .49 $.48-1/2
Weighted average shares outstanding:
Basic 303.1 292.1 299.8 291.7
Diluted 306.4 307.9 302.4 308.1
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
3
<Page>
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions) 26 Weeks Ended
July 30, July 31,
2005 2004
Operating Activities:
Net earnings $ 93 $ 177
Adjustment for noncash items included in earnings:
Depreciation 328 280
Intangible and other amortization 8 5
Stock compensation 65 6
Working capital changes:
Accounts receivable, net 397 310
Merchandise inventories (61) (67)
Other current assets (26) (3)
Accounts payable (35) 4
Accrued expenses (47) (59)
Income taxes payable (78) (92)
Other, net 31 5
Cash flows from operations 675 566
Investing Activities:
Net additions to property and equipment (241) (226)
Business combinations - (3,200)
Cash flows used for investing activities (241) (3,426)
Financing Activities:
Net short-term debt issuances (repayments) (368) 547
Net long-term debt issuances (repayments) (9) 2,145
Net issuances of common stock 357 20
Dividend payments (153) (149)
Cash flows from (used for) financing activities (173) 2,563
Increase (decrease) in cash and cash equivalents 261 (297)
Cash and cash equivalents,
beginning of period 62 564
Cash and cash equivalents,
end of period $ 323 $ 267
Cash paid during the period:
Interest $ 210 $ 161
Income taxes 135 174
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
4
<Page>
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 18-26) in the 2004 Annual Report on Form 10-K/A.
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.
Merger
On February 28, 2005, May and Federated Department Stores, Inc. (Federated)
announced that they entered into a merger agreement. The shareowners of both
companies approved the merger in July 2005. Completion of the merger is
contingent on anti-trust review and is expected to close in the third quarter
of 2005. The company recorded merger-related expense of $63 million and $67
million in the second quarter and first six months of 2005, respectively,
including $57 million of accelerated stock compensation charges triggered by
shareowner approval of the merger.
The company's stock incentive plan contains a provision under which all
unvested stock options and restricted stock issued prior to 2005 become fully
vested upon shareowner approval of a company merger. As a result, in the 2005
second quarter, approximately 7.8 million shares vested, and the company
recorded a corresponding stock compensation charge of $57 million. Options
granted in 2005 will vest upon the completion of the transaction.
Business Combinations
Effective July 31, 2004, the company acquired the Marshall Field's department
store group. The acquisition was financed through $2.2 billion of long-term
debt and $1.0 billion of short-term borrowings and cash on hand. As of July
30, 2005, all short-term borrowings have been repaid. The company also
acquired nine Mervyn's store locations in the Twin Cities area, eight of which
have been disposed.
Marshall Field's results of operations have been included in the company's
consolidated financial statements since acquisition. The company's July 30,
2005, consolidated balance sheet includes the assets acquired and the
liabilities assumed based on a final purchase price allocation. The following
summarizes the final purchase price allocation at acquisition (millions):
Cash $ 3
Accounts receivable 572
Merchandise inventories 384
Property and equipment 1,114
Goodwill and other intangibles 1,568
Assumed liabilities/other (401)
Net purchase price $ 3,240
5
<Page>
The following pro forma information presents the company's net sales, net
earnings and net earnings per share as if the Marshall Field's acquisition had
occurred on February 1, 2004 (millions, except per share):
13 Weeks Ended 26 Weeks Ended
July 30, July 31, July 30, July 31,
2005 2004 2005 2004
Actual Pro Forma Actual Pro Forma
Net sales $ 3,446 $ 3,513 $ 6,815 $ 7,060
Net earnings $ 52 $ 94 $ 93 $ 165
Diluted earnings per share $ .16 $ .31 $ .29 $ .53
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 for total estimated charges of $380 million. Through the end
of the 2005 second quarter, 31 stores have been closed, and $377 million in
costs have been recognized. The company recognized a net gain of $8 million in
the second quarter of 2005 and net expense of $1 million for the first six
months of 2005. The company recognized expenses of $15 million and $22
million in the second quarter and first six months of 2004, respectively.
The significant components of the store divestiture costs and status of the
related liability are summarized below:
(millions) Total | Balance at
Charges | 2005 Payments Non-cash July 30,
to Date | Charges (Proceeds) Uses 2005
Asset impairments $ 331 | $ 2 $ - $ 2 $ -
Disposal (gains) losses (44)| (19) (44) 25 -
Inventory liquidation markdowns 44 | 8 8 - -
Severance benefits 21 | 5 5 - -
Other 25 | 5 5 - -
Total $ 377 | $ 1 $ (26) $ 27 $ -
Severance benefits are recognized as each store is closed. As of July 30,
2005, severance benefits have been paid to approximately 2,300 associates. The
remaining costs will be recognized as each remaining store is closed.
Income Taxes
The effective tax rate for the first six months of 2005 was 3.2%, compared with
37.0% for the first six months of 2004. 2005 income taxes include $18 million
and $32 million of provision reductions recorded upon the resolution of various
federal and state income tax issues in the second quarter and first six months
of 2005, respectively. The company's 2005 estimated effective tax rate is 36.0%
excluding those reductions. Stock option exercises in 2005 generated future
tax deductions of $45 million recorded as a direct increase to additional
paid-in capital, not as a tax provision component.
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 second quarter or first six months of 2005 or 2004.
6
<Page>
Pension Benefits
The components of net periodic benefit costs for the company's pension plans
for the second quarter and first six months of 2005 and 2004 were:
(millions) 13 Weeks Ended
Qualified Plan Nonqualified Plans
July 30, July 31, July 30, July 31,
2005 2004 2005 2004
Service cost $ 18 $ 14 $ 2 $ 2
Interest cost 12 11 4 4
Expected return on assets (11) (9) - -
Net amortization (1) 6 2 1 1
Net periodic benefit cost $ 25 $ 18 $ 7 $ 7
26 Weeks Ended
Qualified Plan Nonqualified Plans
July 30, July 31, July 30, July 31,
2005 2004 2005 2004
Service cost $ 36 $ 28 $ 4 $ 3
Interest cost 24 23 7 7
Expected return on assets (22) (19) - -
Net amortization (1) 12 5 3 3
Net periodic benefit cost $ 50 $ 37 $ 14 $ 13
(1) Prior service cost and actuarial gains and losses are amortized over the
remaining estimated service period.
The company did not make any contributions to its pension plans in the second
quarter or first six months of 2005. Contributions of approximately $35
million and $65 million to the qualified plan are expected in the third and
fourth quarters of 2005, respectively.
Effective August 1, 2005, the company's retirement committee approved an
update to the retirement pension benefit calculation formula. The effect of
this update will be to increase the accumulated benefit obligation of the plans
by approximately $100 million.
Earnings per Share
The following tables reconcile net earnings and weighted average shares
outstanding to amounts used to calculate basic and diluted earnings per share
("EPS") for the periods shown.
(millions, except per share)
13 Weeks Ended
July 30, 2005 July 31, 2004
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 52 $ 101
ESOP preference shares'
dividends (3) (4)
Basic EPS 49 303.1 $ .16 97 292.1 $ .33
ESOP preference shares - 0.0 3 15.0
Assumed exercise of
options (treasury
stock method) - 3.3 - 0.8
Diluted EPS $ 49 306.4 $ .16 $ 100 307.9 $ .33
7
<Page>
26 Weeks Ended
July 30, 2005 July 31, 2004
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 93 $ 177
ESOP preference shares'
dividends (7) (8)
Basic EPS 86 299.8 $ .29 169 291.7 $ .58
ESOP preference shares - 0.0 7 15.2
Assumed exercise of
options (treasury
stock method) - 2.6 - 1.2
Diluted EPS $ 86 302.4 $ .29 $ 176 308.1 $ .57
Diluted EPS excludes 12 million ESOP preference shares and $3 million of
earnings adjustments for the 2005 second quarter and 13 million ESOP shares
and $6 million of earnings adjustments for the first six months of 2005
because of their antidilutive effect.
Stock Compensation
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 per share for
the second quarter and first six months of 2005 and 2004 as if the fair value-
based method had been applied retroactively rather than prospectively to all
outstanding unvested grants.
(millions, except per share) 13 Weeks Ended 26 Weeks Ended
July 30, July 31, July 30, July 31,
2005 2004 2005 2004
Net earnings, as reported $ 52 $ 101 $ 93 $ 177
Add: Compensation expense for
employee stock options
included in net earnings,
net of tax 20 1 22 2
Deduct: Total compensation expense
for employee stock options
determined under retroactive
fair value-based method,
net of tax (27) (5) (32) (10)
Pro forma net earnings $ 45 $ 97 $ 83 $ 169
Earnings per share:
Basic - as reported (prospective) $ .16 $ .33 $ .29 $ .58
Basic - pro forma (retroactive) $ .14 $ .32 $ .25 $ .55
Diluted - as reported (prospective) $ .16 $ .33 $ .29 $ .57
Diluted - pro forma (retroactive) $ .14 $ .32 $ .25 $ .55
8
<Page>
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (revised 2004), "Share-Based Payment." SFAS No. 123 (revised 2004)
establishes standards that require companies to record the cost resulting
from all share-based payment transactions using the fair value method.
Transition under SFAS No. 123 (revised 2004) requires using a modified
version of prospective application under which compensation costs are
recorded for all unvested share-based payments outstanding or a modified
retrospective method under which all prior periods impacted by SFAS No. 123
are restated. SFAS No. 123 (revised 2004) is effective as of the 2006 first
quarter, with early adoption permitted. The company has not determined which
transition method it will use. However, neither method will result in
incremental future expense.
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 $774 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 March 2005, the FASB issued FASB Interpretation (FIN) No. 47, "Accounting
for Conditional Asset Retirement Obligations." FIN No. 47 clarifies the timing
of liability recognition for retirement obligations associated with tangible
long-lived assets that are conditional on a future event. FIN No. 47 is
effective as of the end of the fiscal year ending after December 31, 2005,
with early adoption permitted. The company is in the process of evaluating the
potential impact of FIN No. 47.
9
<Page>
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 July 30, 2005, July 31, 2004, and
January 29, 2005, the related condensed consolidating statements of earnings
for the thirteen week and twenty-six week periods ended July 30, 2005 and July
31, 2004, and the related condensed consolidating statements of cash flows for
the twenty-six week periods ended July 30, 2005 and July 31, 2004 are
presented below.
<Table>
Condensed Consolidating Balance Sheet
As of July 30, 2005
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
<s> <c> <c> <c> <c> <c>
Current assets:
Cash and cash equivalents $ - $ 302 $ 21 $ - $ 323
Accounts receivable, net - 1,882 46 (34) 1,894
Merchandise inventories - 3,011 144 - 3,155
Other current assets 3 173 50 (26) 200
Total current assets 3 5,368 261 (60) 5,572
Property and equipment, at cost - 10,044 339 - 10,383
Accumulated depreciation - (4,150) (118) - (4,268)
Property and equipment, net - 5,894 221 - 6,115
Goodwill - 2,257 378 - 2,635
Intangible assets, net - 439 159 - 598
Other assets - 141 8 - 149
Intercompany (payable)
receivable (116) (449) 3,805 (3,240) -
Investment in subsidiaries 5,193 - - (5,193) -
Total assets $ 5,080 $13,650 $ 4,832 $ (8,493) $ 15,069
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ - $ - $ - $ -
Current maturities of
long-term debt - 248 - - 248
Accounts payable 1,385 100 (1) 1,484
Accrued expenses - 1,166 168 (59) 1,275
Income taxes payable - 16 64 - 80
Total current liabilities - 2,815 332 (60) 3,087
Long-term debt - 5,550 - - 5,550
Intercompany note payable - 3,240 - (3,240) -
Deferred income taxes - 747 73 - 820
Other liabilities - 1,031 14 (513) 532
ESOP preference shares 179 - - - 179
Shareowners' equity 4,901 267 4,413 (4,680) 4,901
Total liabilities and
shareowners' equity $ 5,080 $13,650 $ 4,832 $ (8,493) $ 15,069
</Table>
10
<Page>
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
<Table>
Condensed Consolidating Statement of Earnings
For the Thirteen Weeks Ended July 30, 2005
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Net sales $ - $ 3,222 $ 487 $ (263) $ 3,446
Cost of sales:
Recurring - 2,378 345 (259) 2,464
Restructuring markdowns - 3 - - 3
Selling, general, and
administrative expenses - 750 94 (11) 833
Restructuring costs (gains), net - (11) - - (11)
Interest expense (income), net:
External - 104 (1) - 103
Intercompany - 72 (73) 1 -
Equity in earnings of subsidiaries (52) - - 52 -
Earnings before income taxes 52 (74) 122 (46) 54
Provision (credit) for income taxes - (43) 45 - 2
Net earnings (loss) $ 52 $ (31) $ 77 $ (46) $ 52
</Table>
<Table>
Condensed Consolidating Statement of Earnings
For the Twenty-six Weeks Ended July 30, 2005
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Net sales $ - $ 6,371 $ 926 $ (482) $ 6,815
Cost of sales:
Recurring - 4,715 656 (472) 4,899
Restructuring markdowns - 9 - - 9
Selling, general, and
administrative expenses - 1,439 193 (22) 1,610
Restructuring costs (gains), net - (8) - - (8)
Interest expense (income), net:
External - 210 (1) - 209
Intercompany - 143 (145) 2 -
Equity in earnings of subsidiaries (93) - - 93 -
Earnings before income taxes 93 (137) 223 (83) 96
Provision (credit) for income taxes - (78) 81 - 3
Net earnings (loss) $ 93 $ (59) $ 142 $ (83) $ 93
</Table>
11
<Page>
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
<Table>
Condensed Consolidating Statement of Cash Flows
For the Twenty-six Weeks Ended July 30, 2005
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Operating activities:
<s> <c> <c> <c> <c> <c>
Net earnings (loss) $ 93 $ (59) $ 142 $ (83) $ 93
Equity in earnings of subsidiaries (93) - - 93 -
Depreciation - 304 24 - 328
Intangible and other amortization - 4 4 - 8
Stock compensation 65 30 - (30) 65
(Increase) decrease in
working capital (27) 135 22 20 150
Other, net (317) 414 (55) (11) 31
Cash flows from (used for)
operations (279) 828 137 (11) 675
Investing activities:
Net additions to property
and equipment - (206) (35) - (241)
Cash flows used for
investing activities - (206) (35) - (241)
Financing activities:
Net short-term debt repayments - (368) - - (368)
Net long-term debt repayments - (9) - - (9)
Net issuances of common stock 341 4 - 12 357
Dividend payments (153) - - - (153)
Intercompany activity, net 91 - (93) 2 -
Cash flow from (used for)
financing activities 279 (373) (93) 14 (173)
Increase in cash and
cash equivalents - 249 9 3 261
Cash and cash equivalents,
beginning of period - 53 12 (3) 62
Cash and cash equivalents,
end of period $ - $ 302 $ 21 $ - $ 323
</Table>
12
<Page>
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
<Table>
Condensed Consolidating Balance Sheet
As of July 31, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
<s> <c> <c> <c> <c> <c>
Current assets:
Cash and cash equivalents $ - $ 249 $ 18 $ - $ 267
Accounts receivable, net - 2,031 46 (33) 2,044
Merchandise inventories - 3,059 111 - 3,170
Other current assets - 89 34 (20) 103
Total current assets - 5,428 209 (53) 5,584
Property and equipment, at cost - 10,057 284 - 10,341
Accumulated depreciation - (4,085) (89) - (4,174)
Property and equipment, net - 5,972 195 - 6,167
Goodwill - 2,292 376 - 2,668
Intangible assets, net - 447 162 - 609
Other assets - 130 9 - 139
Intercompany (payable)
receivable (681) 171 3,735 (3,225) -
Investment in subsidiaries 5,148 - - (5,148) -
Total assets $ 4,467 $14,440 $ 4,686 $ (8,426) $15,167
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ 547 $ - $ - $ 547
Current maturities of
long-term debt - 347 - - 347
Accounts payable - 1,314 90 3 1,407
Accrued expenses 4 1,069 118 (57) 1,134
Income taxes payable - 171 62 - 233
Total current liabilities 4 3,448 270 (54) 3,668
Long-term debt - 5,794 - - 5,794
Intercompany note payable - 3,225 - (3,225) -
Deferred income taxes - 664 67 - 731
Other liabilities - 999 9 (497) 511
ESOP preference shares 222 - - - 222
Shareowners' equity 4,241 310 4,340 (4,650) 4,241
Total liabilities and
shareowners' equity $ 4,467 $14,440 $ 4,686 $ (8,426) $15,167
</Table>
13
<Page>
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
<Table>
Condensed Consolidating Statement of Earnings
For the Thirteen Weeks Ended July 31, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Net sales $ - $ 2,759 $ 490 $ (293) $ 2,956
Cost of sales:
Recurring - 1,992 351 (278) 2,065
Restructuring markdowns - 6 - - 6
Selling, general, and
administrative expenses - 555 99 (20) 634
Restructuring costs - 9 - - 9
Interest expense (income), net:
External - 82 - - 82
Intercompany - 71 (70) (1) -
Equity in earnings of subsidiaries (101) - - 101 -
Earnings before income taxes 101 44 110 (95) 160
Provision for income taxes - 18 41 - 59
Net earnings $ 101 $ 26 $ 69 $ (95) $ 101
</Table>
<Table>
Condensed Consolidating Statement of Earnings
For the Twenty-six Weeks Ended July 31, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
<s> <c> <c> <c> <c> <c>
Net sales $ - $ 5,515 $ 905 $ (501) $ 5,919
Cost of sales:
Recurring - 4,027 649 (491) 4,185
Restructuring markdowns - 11 - - 11
Selling, general, and
administrative expenses - 1,110 183 (20) 1,273
Restructuring costs - 11 - - 11
Interest expense (income), net:
External - 158 - - 158
Intercompany - 142 (141) (1) -
Equity in earnings of subsidiaries (177) - - 177 -
Earnings before income taxes 177 56 214 (166) 281
Provision for income taxes - 25 79 - 104
Net earnings $ 177 $ 31 $ 135 $ (166) $ 177
</Table>
14
<Page>
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
<Table>
Condensed Consolidating Statement of Cash Flows
For the Twenty-six Weeks Ended July 31, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Operating activities:
<s> <c> <c> <c> <c> <c>
Net earnings $ 177 $ 31 $ 135 $ (166) $ 177
Equity in earnings of subsidiaries (177) - - 177 -
Depreciation - 259 21 - 280
Intangible and other amortization - 2 3 - 5
Stock compensation 6 3 - (3) 6
(Increase) decrease in
working capital (2) 78 16 1 93
Other, net 38 9 (31) (11) 5
Cash flows from operations 42 382 144 (2) 566
Investing activities:
Net additions to property
and equipment - (182) (44) - (226)
Business combinations - (3,197) (3) - (3,200)
Cash flows used for
investing activities - (3,379) (47) - (3,426)
Financing activities:
Net short-term debt issuances - 547 - - 547
Net long-term debt issuances - 2,145 - - 2,145
Net issuances of common stock 15 3 - 2 20
Dividend payments (149) - - - (149)
Intercompany activity, net 92 - (92) - -
Cash flows from (used for)
financing activities (42) 2,695 (92) 2 2,563
Increase (decrease) in cash and
cash equivalents - (302) 5 - (297)
Cash and cash equivalents,
beginning of period - 551 13 - 564
Cash and cash equivalents,
end of period $ - $ 249 $ 18 $ - $ 267
</Table>
15
<Page>
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
<Table>
Condensed Consolidating Balance Sheet
As of January 29, 2005
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
Current assets:
<s> <c> <c> <c> <c> <c>
Cash and cash equivalents $ - $ 53 $ 12 $ (3) $ 62
Accounts receivable, net - 2,283 46 (35) 2,294
Merchandise inventories - 2,993 99 - 3,092
Other current assets - 101 49 (21) 129
Total current assets - 5,430 206 (59) 5,577
Property and equipment, at cost - 9,868 310 - 10,178
Accumulated depreciation - (3,889) (99) - (3,988)
Property and equipment, net - 5,979 211 - 6,190
Goodwill - 2,257 377 - 2,634
Intangible assets, net - 440 162 - 602
Other assets - 152 8 - 160
Intercompany (payable)
receivable (437) (77) 3,754 (3,240) -
Investment in subsidiaries 5,127 - - (5,127) -
Total assets $ 4,690 $14,181 $ 4,718 $ (8,426) $15,163
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ 368 $ - $ - $ 368
Current maturities of
long-term debt - 145 - - 145
Accounts payable - 1,442 90 (3) 1,529
Accrued expenses 4 1,189 133 (57) 1,269
Income taxes payable - 114 44 - 158
Total current liabilities 4 3,258 267 (60) 3,469
Long-term debt - 5,661 1 - 5,662
Intercompany note payable - 3,240 - (3,240) -
Deferred income taxes - 745 73 - 818
Other liabilities - 1,014 14 (500) 528
ESOP preference shares 211 - - - 211
Shareowners' equity 4,475 263 4,363 (4,626) 4,475
Total liabilities and
shareowners' equity $ 4,690 $14,181 $ 4,718 $ (8,426) $15,163
</Table>
16
<Page>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Second quarter 2005 net sales of $3.45 billion increased 16.6% over the 2004
second quarter. Store-for-store sales decreased 1.6% for the quarter. Net
earnings were $52 million, or $.16 per share for the quarter, compared with
$101 million, or $.33 per share, for the second quarter 2004. Second quarter
2005 earnings include net store divestiture gains of $8 million, or $.02 per
share, Federated merger-related expenses of $63 million, or $.13 per share, and
the benefit of an $18 million, or $.06 per share, income tax provision
reduction recorded upon the resolution of certain tax issues. Second quarter
2004 earnings included store divestiture costs of $15 million, or $.03 per
share.
Net sales increased 15.1% to $6.81 billion for the first six months of 2005.
Net earnings were $93 million, or $.29 per share, for the first six months of
2005 compared with $177 million, or $.57 per share, for the first six months of
2004. Net earnings for the first six months of 2005 include store divestiture
costs of $1 million, Marshall Field's start-up integration costs of $27
million, or $.06 per share, Federated merger-related expenses of $67 million
or $.14 per share, and the benefit of $32 million, or $.10 per share, of income
tax provision reductions recorded upon the resolution of various federal and
state income tax issues. Net earnings for the first six months of 2004 include
store divestiture costs of $22 million, or $.05 per share.
During the first six months of 2005, we opened two new department stores: a
Robinsons-May store in El Centro, California; and a Kaufmann's store in
Pittsburgh, PA. Six additional department stores are planned for 2005. Year-
to-date, we have closed six department stores, four of which we previously
announced would be divested. Our Bridal Group has opened four David's Bridal
stores and nine After Hours stores. The Bridal Group plans to open an
additional 14 David's Bridal stores and 11 After Hours stores by year-end. At
the end of the second quarter, we operated 487 department stores, 243 David's
Bridal stores, 452 After Hours Formalwear stores, and 11 Priscilla of Boston
stores in 46 states, the District of Columbia, and Puerto Rico.
Results of Operations
Merger
On February 28, 2005, May and Federated Department Stores, Inc. (Federated)
announced that they entered into a merger agreement. The shareowners of both
companies approved the merger in July 2005. Completion of the merger is
contingent on anti-trust review and is expected to close in the third quarter
of 2005. We recorded merger-related expense of $63 million and $67 million in
the second quarter and first six months of 2005, respectively, including $57
million of accelerated stock compensation charges triggered by shareowner
approval of the merger.
Our stock incentive plan contains a provision under which all unvested stock
options and restricted stock issued prior to 2005 become fully vested upon
shareowner approval of a company merger. As a result, in the 2005 second
quarter, approximately 7.8 million shares vested, and we recorded a
corresponding stock compensation charge of $57 million. Options granted in 2005
will vest upon completion of the transaction.
17
<Page>
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
2005 2004 Increase Decrease
Second quarter $3,446 $2,956 16.6% (1.6)%
First six months 6,815 5,919 15.1 (3.4)
The total net sales increase of $490 million for the 2005 second quarter was
principally due to $577 million of new store sales, including Marshall Field's,
offset by a $48 million decrease in store-for-store sales and a $28 million
decrease related to divested store sales. The total net sales increase of $896
million for the first six months of 2005 was principally due to $1.2 billion of
new store sales, including Marshall Field's, offset by a $196 million decrease
in store-for-store sales and a $56 million decrease related to divested store
sales.
The following table presents the statements of earnings as a percent of net
sales.
Second Quarter First Six Months
2005 2004 2005 2004
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales:
Recurring 71.5 69.9 71.9 70.7
Restructuring markdowns 0.1 0.2 0.1 0.2
Selling, general, and
administrative expenses 24.2 21.4 23.6 21.5
Restructuring costs (0.3) 0.3 (0.1) 0.2
Interest expense, net 3.0 2.8 3.1 2.7
Earnings before income taxes 1.5 5.4 1.4 4.7
Income taxes 3.3* 37.0* 3.2* 37.0*
Net earnings 1.5% 3.4% 1.4% 3.0%
* - 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 13 weeks ended July 30, 2005, recurring cost of sales as a percent of
net sales increased 1.6%. That increase was principally caused by markdowns
recorded to keep inventories current, including $33 million of incremental
markdowns related to proprietary product, and 0.4% increase in occupancy costs
caused by decreased store-for-store sales leverage. For the 26 weeks ended
July 30, 2005, recurring cost of sales as a percent of net sales increased
1.2%, principally because of an 0.8% increase in the cost of merchandise as a
result of markdowns taken to keep inventories current and a 0.5% increase in
occupancy costs caused by decreased store-for-store sales leverage. In
addition, restructuring markdowns of $3 million and $9 million in the second
quarter and first six months of 2005, respectively, were incurred to liquidate
inventory as stores to be divested were closing
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses as a percent of net sales
increased from 21.4% in the second quarter of 2004 to 24.2% in the second
18
<Page>
quarter of 2005. Federated merger-related costs accounted for 1.9% of the
increase, and Marshall Field's start-up integration expenses negatively
impacted selling, general, and administrative expenses by 0.2%. The rest of the
increase in selling, general, and administrative expenses was principally
caused by decreased store-for-store sales leverage.
Selling, general, and administrative expenses as a percent of net sales
increased from 21.5% in the first six months of 2004 to 23.6% in the first six
months of 2005. Federated merger-related costs accounted for 1.0% of the
increase, and Marshall Field's start-up integration expenses negatively
impacted SG&A by 0.5%. The rest of the increase in selling, general, and
administrative expenses was principally caused by decreased store-for-store
sales leverage.
Restructuring Costs
In July 2003, we announced our intention to divest 34 underperforming
department stores for total estimated charges of $380 million. Through the end
of the 2005 second quarter, 31 stores have been closed and $377 million in
costs have been recognized. We recognized a net gain of $8 million in the
second quarter and net expense of $1 million in the first six months of 2005.
We recognized expenses of $15 million and $22 million in the second quarter
and first six months of 2004, respectively. The remaining amounts will be
recognized as each remaining store is closed.
Interest Expense
Components of net interest expense were (millions):
Second Quarter First Six Months
2005 2004 2005 2004
Interest expense $107 $ 87 $216 $169
Interest income (1) (3) (2) (7)
Capitalized interest (3) (2) (5) (4)
Net interest expense $103 $ 82 $209 $158
The $21 million and $51 million increase in net interest expense for the second
quarter and first six months of 2005, respectively, was due primarily to higher
long-term borrowings as a result of Marshall Field's acquisition-related debt.
Short-term borrowings were (dollars in millions):
Second Quarter First Six Months
2005 2004 2005 2004
Average balance outstanding $ 99 $ 23 $190 $ 12
Average interest rate on
average balance 3.3% 1.6% 2.9% 1.6%
Income Taxes
The effective tax rate for the first six months of 2005 was 3.2% compared with
37.0% for the first six months of 2004. 2005 income taxes include $18 million
and $32 million of provision reductions recorded upon the resolution of various
federal and state income tax issues in the second quarter and first six months
of 2005, respectively. Excluding those reductions, our 2005 estimated effective
tax rate is 36.0%.
Business Combinations
Effective July 31, 2004, we acquired the Marshall Field's department store
group. The acquisition was financed through $2.2 billion of long-term debt and
$1.0 billion of short-term borrowings and cash on hand. As of the end of the
second quarter 2005, all short-term borrowings have been repaid. Marshall
Field's assets and liabilities are included in the consolidated balance sheet
as of July 31, 2004, and results of operations are included beginning August 1,
2004.
19
<Page>
Stock Compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),
"Share-Based Payment." SFAS No. 123 (revised 2004) establishes standards that
require companies to record the cost resulting from all share-based payment
transactions using the fair value method. Transition under SFAS No. 123
(revised 2004) requires using a modified version of prospective application
under which compensation costs are recorded for all unvested share-based
payments outstanding or a modified retrospective method under which all prior
periods impacted by SFAS No. 123 are restated. SFAS No. 123 (revised 2004) is
effective as of the 2006 first quarter, with early adoption permitted. We have
not determined which transition method we will use. However, neither method
will result in incremental future expense.
Trailing Years' Results
Operating results for the trailing years were as follows (millions, except per
share):
July 30, July 31,
2005 2004
Net sales $ 15,337 $ 13,389
Net earnings $ 440 $ 649
Diluted earnings per share $ 1.42 $ 2.14
Financial Condition
Cash Flows
Cash flows from operations were $675 million and $566 million in the first six
months of 2005 and 2004, respectively. Cash flows increased approximately $109
million during the period despite an $84 million decrease in net earnings
because of higher noncash items included in earnings, including stock
compensation charges and depreciation, and the effect of accounts receivable
balance changes.
Since the announcement of the merger with Federated, the company has
experienced a significant increase in stock option exercises. Proceeds from
stock option exercises in the first six months of 2005 total approximately $357
million and have been used to pay down short-term borrowings and purchase
commercial paper.
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 August 24, 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.
Financial Ratios
Key financial ratios as of and for the twenty-six weeks ended July 30, 2005 and
July 31, 2004 and as of and for the fifty-two weeks ended January 29, 2005 are
as follows:
July 30, July 31, Jan. 29,
2005 2004 2005
Current Ratio 1.8 1.5 1.6
Debt-Capitalization Ratio 53% 58% 55%
Fixed Charge Coverage 1.4x 2.4x 2.8x
20
<Page>
Impact of New Accounting Pronouncements
In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, "Accounting
for Conditional Asset Retirement Obligations." FIN No. 47 clarifies the timing
of liability recognition for retirement obligations associated with tangible
long-lived assets that are conditional on a future event. FIN No. 47 is
effective as of the end of the fiscal year ending after December 31, 2005, with
early adoption permitted. We are in the process of evaluating the potential
impact of FIN No. 47.
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. Additional factors related
to the proposed business combination of May and Federated include the ability
to obtain governmental approvals of the transaction on the proposed terms and
schedule, the risk that the businesses will not be integrated successfully, and
the disruption from the transaction making it more difficult to maintain
relationships with customers, employees, or suppliers. 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 six months of 2005, we
were not a party to any derivative financial instruments. During the first six
months of 2004, we entered into treasury lock agreements to hedge interest rate
fluctuations in anticipation of the issuance of long-term debt. 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 six months of 2004.
Item 4 - Controls and Procedures.
As 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 the 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 the Chief Financial Officer have concluded that our
disclosure controls and procedures are effective.
Other than described below, there have been no significant changes in our
internal controls over financial reporting that have materially affected, or
are reasonably likely to materially affect those controls during the quarter.
21
<Page>
On July 31, 2004, we acquired the operating assets of the Marshall Field's
department store group from Target Corporation. Target provided accounting
and other systems support for Marshall Field's over a transition period through
the 2005 first quarter. Accordingly, as permitted by Section 404 of the
Sarbanes-Oxley Act, we excluded Marshall Field's from the scope of the
company's 2004 internal control evaluation. During the 2004 third quarter, we
converted proprietary credit operations and fixed asset and intangible
accounting from Target to May systems, and converted payroll to May systems in
the 2004 fourth quarter. The remaining accounting, merchant reporting, and
store operating systems were converted in the 2005 first quarter. Marshall
Field's now operates under a common set of controls and information technology
systems with our other department store divisions. We will evaluate the
effectiveness of the Marshall Field's controls in connection with our 2005
annual control assessment.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On March 1, 2005, Edward Decristofaro, an alleged May shareowner, filed a
purported class action lawsuit on behalf of all May shareowners in the Circuit
Court of St. Louis, Missouri, against May and all of the members of the board
of directors of May. The complaint generally alleges that the directors of May
breached their fiduciary duties of loyalty, due care, good faith and candor to
May shareowners in connection with the proposed merger. On April 1, 2005,
the defendants removed the lawsuit to the United States District Court for the
Eastern District of Missouri and filed a motion to dismiss the lawsuit pursuant
to the Securities Litigation Standards Act of 1998. On April 22, 2005, the
plaintiffs filed a motion to remand the lawsuit to the Circuit Court of St.
Louis, Missouri and opposition to the defendants' motion to dismiss. On June
28, 2005, plaintiffs' motion to remand the lawsuit back to the Circuit Court of
St. Louis, Missouri was granted. May believes the lawsuit is without merit and
intends to contest it vigorously.
The company is involved in other 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 - Changes in Securities and Use of Proceeds
During the first six months of 2005, 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
(a) The annual meeting of shareowners of registrant was held on July 13,
2005.
(b) At the annual meeting of shareowners of registrant held on July 13,
2005, the registrant's voting securities carried 311,993,938 votes, of
which 280,816,695 were voted at the meeting. Action was taken with
respect to:
22
<Page>
(i) the election of four directors of registrant;
Authority
For Withheld
Marsha J. Evans 273,147,470 7,669,225
David B. Rickard 273,793,308 7,023,387
Joyce M. Roche 273,165,192 7,651,503
R. Dean Wolfe 273,276,905 7,539,790
These directors will serve along with the following other
directors whose term of office as a director continued after the
meeting: John L. Dunham, Helene L. Kaplan, James M. Kilts,
Russell E. Palmer, Michael R. Quinlan, and William P. Stiritz.
(ii) a resolution to approve the pending merger with Federated
Department Stores, Inc. (239,128,038 votes in favor, 5,212,275
votes against, 1,955,253 votes abstained and 34,521,129 not
voted);
(iii) a resolution to approve an amendment to the company's Amended
and Restated Certificate of Incorporation to provide for annual
election of directors (273,531,602 votes in favor, 3,268,885
votes against and 4,016,208 votes abstained);
(iv) a resolution to approve the appointment of Deloitte & Touche
LLP as its independent registered public accounting firm
(274,296,145 votes in favor, 3,109,403 votes against and
3,411,147 votes abstained).
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.
2.1 Agreement and Plan of Merger, dated as of February Incorporated by
27, 2005, by and among Federated Department Reference to
Stores, Inc., Milan Acquisition LLC and Exhibit 2.1 to
The May Departments Stores Company Current Report
on Form 8-K,
filed February 28,
2005.
3.1 Restated Certificate of Incorporation Filed herewith.
3.3 By-Laws of May Incorporated by
Reference to
Exhibit 3.1 to
Current Report on
Form 8-K, filed
March 23, 2005.
23
<Page>
Item 6 - Exhibits (continued)
Location
4.1 Amended and Restated Rights Agreement, dated Incorporated by
August 31, 2004 Reference to
Exhibit 4.1 to
Current Report
on Form 8-K filed
September 3, 2004.
4.2 Amendment to Rights Agreement, dated Incorporated by
February 27, 2005 Reference to
Exhibit 4.1 to
Current Report on
Form 8-K, filed
March 2, 2005.
4.3 Certificate of Designation, Preferences and Rights Incorporated by
of the Junior Participating Preference Shares Reference to
and ESOP Preference Shares Exhibit 4.4 of
Form S-4 filed
June 7, 1996.
4.4 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.
4.5 Indenture, dated as of June 17, 1996 Incorporated by
Reference to
Exhibit 4.1 of
Form S-3, filed
July 21, 2004.
4.6 Registration Rights Agreement, dated July 20, 2004 Incorporated by
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 to
Current Report on
Form 8-K, filed
March 23, 2005.
10.2 Deferred Compensation Plan Incorporated by
Reference to
Exhibit 10.2 to
Current Report on
Form 8-K, filed
March 23, 2005.
24
<Page>
Item 6 - Exhibits (continued)
Location
10.3 Executive Incentive Compensation Plan for Incorporated by
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 10.3 to
Current Report on
Form 8-K, filed
March 23, 2005.
10.5 Amended and Restated Five-Year Credit Agreement Incorporated by
dated August 24, 2004 Reference to
Exhibit 10.1 to
Current Report on
Form 8-K, filed
August 27, 2004.
10.6 Form of Restricted Stock Agreement Incorporated by
Reference to
Exhibit 10.4 to
Current Report on
Form 8-K, filed
March 23, 2005.
10.7 Form of Performance Restricted Stock Agreement Incorporated by
Reference to
Exhibit 10.5 to
Current Report on
Form 8-K, filed
March 23, 2005.
10.8 Form of Performance Restricted Stock Agreement Incorporated by
(for Bridal Group) Reference to
Exhibit 10.6 to
Current Report on
Form 8-K, filed
March 23, 2005.
10.9 Form of Non-qualified Stock Option Agreement Incorporated by
Reference to
Exhibit 10.7 to
Current Report on
Form 8-K, filed
March 23, 2005.
10.10 Letter Agreement between Federated Department Filed herewith.
Stores, Inc. and John L. Dunham
10.11 Letter Agreement between Federated Department Filed herewith.
Stores, Inc. and Thomas D. Fingleton
10.12 Letter Agreement between Federated Department Filed herewith.
Stores, Inc. and Jay H. Levitt
25
<Page>
Item 6 - Exhibits (continued)
Location
10.13 Letter Agreement between Federated Department Filed herewith.
Stores, Inc. and William P. McNamara
10.14 Letter Agreement between Federated Department Filed herewith.
Stores, Inc. and R. Dean Wolfe
12 Computation of Ratio of Earnings to Fixed Charges Filed herewith.
15 Letter Regarding Unaudited Interim Filed herewith.
Financial Information
31.1 Certification Pursuant to Exchange Act 13a-15 Filed herewith.
and 15d-15(e)
31.2 Certification Pursuant to Exchange Act 13a-15 Filed herewith.
and 15d-15(e)
32 Certification Pursuant to Section 906 of the Filed herewith.
Sarbanes-Oxley Act of 2002(18 U.S.C. Section 1350,
as adopted)
26
<Page>
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: August 29, 2005
/s/ Thomas D. Fingleton
Thomas D. Fingleton
Executive Vice President and
Chief Financial Officer
27
<Page>
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 July 30,
2005 and July 31, 2004, and the related condensed consolidated statements of
earnings for the thirteen and twenty-six week periods ended July 30, 2005 and
July 31, 2004, and of cash flows for the twenty-six week periods ended July 30,
2005 and July 31, 2004. These interim financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
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 the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of the Company as of January 29, 2005, 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 23, 2005 (May 6,
2005 as to the effects of the restatement discussed in the "Consolidated
Balance Sheet Restatement" footnote), 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
29, 2005 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
St. Louis, Missouri
August 29, 2005
<Page>
Exhibit 12
<Table>
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE FIVE FISCAL YEARS ENDED JANUARY 29, 2005 AND FOR THE
TWENTY-SIX WEEKS ENDED JULY 30, 2005 AND JULY 31, 2004
(dollars in millions)
26 Weeks Ended Fiscal Year Ended
July 30, July 31, Jan.29, Jan. 31, Feb. 1, Feb. 2, Feb. 3,
2005 2004 2005 2004 2003 2002 2001
<s> <c> <c> <c> <c> <c> <c> <c>
Earnings Available for Fixed Charges:
Pretax earnings $ 96 $ 281 $ 803 $ 639 $ 820 $ 1,139 $ 1,402
Fixed charges (excluding interest
capitalized and pretax preferred
stock dividend requirements) 234 185 433 367 405 411 406
Dividends on ESOP preference shares (6) (7) (16) (18) (20) (22) (23)
Capitalized interest amortization 5 4 10 10 9 8 8
$ 329 $ 463 $ 1,230 $ 998 $ 1,214 $ 1,536 $ 1,793
Fixed Charges:
Gross interest expense (a) $ 216 $ 171 $ 403 $ 345 $ 392 $ 401 $ 395
Interest factor attributable to
rent expense 23 19 38 38 36 32 28
$ 239 $ 190 $ 441 $ 383 $ 428 $ 433 $ 423
Ratio of Earnings to Fixed Charges 1.4 2.4 2.8 2.6 2.8 3.5 4.2
</Table>
(a) Represents interest expense on long-term and short-term debt, ESOP
Debt and amortization of debt discount and debt issue expense.
<Page>
Exhibit 15
August 29, 2005
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 twenty-six week periods ended
July 30, 2005 and July 31, 2004, as indicated in our reports dated August 29,
2005 and September 2, 2004; 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 July 30, 2005 and July
31, 2004, are incorporated by reference in the Company's Registration Statement
Nos. 333-59792, 333-76227, 333-00957, 333-103352 and 333-111987 on Form S-8,
and Registration Statement Nos. 333-42940 and 333-42940-01 on Form S-3.
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
St. Louis, Missouri
<Page>
Exhibit 31.1
CERTIFICATION
I, John L. Dunham, 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)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) 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
d) 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 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: August 29, 2005 /s/ John L. Dunham
John L. Dunham
Chairman, President, and
Chief Executive Officer
<Page>
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)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) 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
d) 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 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: August 29, 2005 /s/ Thomas D. Fingleton
Thomas D. Fingleton
Executive Vice President and
Chief Financial Officer
<Page>
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 ended July 30, 2005, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), we,
John L. Dunham, Chairman, President, 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: August 29, 2005
/s/ John L. Dunham /s/ Thomas D. Fingleton
John L. Dunham Thomas D. Fingleton
Chairman, President, and Executive Vice President and
Chief Executive Officer Chief Financial Officer
<Page>