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 November 2, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-79
THE MAY DEPARTMENT STORES COMPANY
(Exact name of registrant as specified in its charter)
Delaware 43-1104396
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
611 Olive Street, St. Louis, Missouri 63101
(Address of principal executive offices) (Zip Code)
(314) 342-6300
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90
days. YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
244,904,400 shares of common stock, $0.50 par value, as of November
2, 1996.
1
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
Nov. 2, Oct. 28, Feb. 3,
ASSETS 1996 1995 1996
Current Assets:
Cash and cash equivalents $ 143 $ 23 $ 159
Accounts receivable, net 2,199 2,146 2,403
Merchandise inventories 2,951 2,555 2,134
Other current assets 173 237 169
Net current assets of
discontinued operation - 280 232
Total Current Assets 5,466 5,241 5,097
Property and Equipment, at cost 6,275 5,575 5,617
Accumulated Depreciation (2,127) (1,891) (1,873)
Net Property and Equipment 4,148 3,684 3,744
Goodwill 780 669 671
Other Assets 95 93 89
Net Noncurrent Assets of
Discontinued Operation - 536 521
Total Assets $ 10,489 $ 10,223 $ 10,122
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable and current
maturities of long-term debt $ 269 $ 52 $ 132
Accounts payable 1,260 1,144 692
Accrued expenses 783 715 650
Income taxes 4 7 128
Total Current Liabilities 2,316 1,918 1,602
Long-term Debt 3,878 3,446 3,333
Deferred Income Taxes 375 335 378
Other Liabilities 216 196 204
ESOP Preference Shares 349 368 366
Unearned Compensation (331) (346) (346)
Shareowners' Equity 3,686 4,306 4,585
Total Liabilities and
Shareowners' Equity $ 10,489 $ 10,223 $ 10,122
The accompanying notes to condensed consolidated financial
statements are an integral part of this balance sheet.
2
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Millions, except per share) 13 Weeks Ended 39 Weeks Ended
Nov.2, Oct. 28, Nov. 2, Oct. 28,
1996 1995 1996 1995
Net Retail Sales $ 2,772 $ 2,483 $ 7,635 $ 6,850
Revenues $ 2,855 $ 2,569 $ 7,899 $ 7,112
Cost of sales 2,004 1,798 5,532 4,966
Selling, general and
administrative expenses 581 526 1,620 1,459
Interest expense, net 73 61 201 176
Earnings from continuing
operations before income
taxes 197 184 546 511
Provision for income taxes 79 74 220 207
Net Earnings from:
Continuing operations 118 110 326 304
Discontinued operation - 25 11 86
Net Earnings $ 118 $ 135 $ 337 $ 390
Primary earnings per share:
Continuing operations .45 .42 1.25 1.16
Discontinued operation - .10 .05 .35
Primary Earnings per Share $ .45 $ .52 $ 1.30 $ 1.51
Fully diluted earnings
per share:
Continuing operations .44 .41 1.21 1.13
Discontinued operation - .09 .04 .32
Fully diluted Earnings
per Share $ .44 $ .50 $ 1.25 $ 1.45
Dividends Paid per
Common Share $ .29 $ .28-1/2 $ .86-1/2 $ .83
Primary Average Shares
Outstanding and
Equivalents 250.1 250.4 250.8 249.9
Fully Diluted Average Shares
Outstanding and
Equivalents 264.5 265.3 265.3 264.9
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
3
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions) 39 Weeks Ended
Nov. 2, Oct. 28,
1996 1995
Operating Activities:
Net earnings from continuing operations
and depreciation/amortization $ 585 $ 545
Decrease (increase) in working capital
(excluding cash, cash equivalents and
short-term debt) 88 (167)
Other assets and liabilities, net (9) (2)
Net cash provided by discontinued
operation - 64
664 440
Investing Activities:
Net additions to property and equipment (461) (718)
Financing Activities:
Net issuances of long-term debt 260 477
Net issuances (acquisitions) of treasury
stock (237) 10
Dividend payments, net of tax benefit (242) (234)
(219) 253
Decrease in Cash and Cash Equivalents $ (16) $ (25)
Noncash financing activities for the 39 weeks ended November 2,
1996 include the distribution of $764 million of equity in the
spin-off of Payless ShoeSource, Inc. and the acquisition of the
former Strawbridge & Clothier stores for shares of May valued at
$192 million and the assumption of $255 million of debt and certain
other liabilities.
Cash paid during the period:
Interest $ 206 $ 182
Income Taxes 316 372
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
4
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interim Results. These unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions
to Form 10-Q of The Securities and Exchange Commission and should
be read in conjunction with the Notes to Consolidated Financial
Statements (pages 21-27) in the 1995 Annual Report. In the opinion
of management, this information is fairly presented and all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the results for the interim
periods have been included; however, certain items are included in
these statements based on estimates for the entire year. Also,
operating results of periods which exclude the Christmas season may
not be indicative of the operating results that may be expected for
the full fiscal year.
Inventories. Merchandise inventories are stated on the LIFO (last-
in, first-out) cost basis. There was no LIFO provision for the
third quarter in 1996 and 1995. The year-to-date LIFO provision
was $16 million in 1996 and 1995.
Discontinued Operation. In January 1996, registrant announced its
intention to spin off Payless ShoeSource, Inc. ("Payless"), its
chain of self-service family shoe stores. The spin-off was
completed effective May 4, 1996, as a tax-free distribution to
shareowners. The registrant's financial statements presented
herein reflect Payless as a discontinued operation through the end
of the first quarter.
As discussed in the 1995 Annual Report to Shareowners, and in
accordance with generally accepted accounting principles, Payless
1996 pre-tax earnings were recorded in 1995 to the extent of spin-
off costs and the Payless operating loss from January 17, 1996
through fiscal 1995 year-end. As a result, $21 million of 1996
Payless pre-tax earnings is not reported in the year-to-date net
earnings from discontinued operation.
Acquisition. On July 18, 1996, registrant purchased 13 former
Strawbridge & Clothier department stores in the greater
Philadelphia area. The registrant delivered 4.5 million shares of
May common stock and assumed $255 million of debt and certain other
liabilities in exchange for the Strawbridge & Clothier department
store assets. Registrant has also agreed to issue additional May
common stock, at the then current market price, in exchange for any
cash proceeds from Strawbridge & Clothier's divestiture of its
other assets, including its Clover discount division, remaining
after satisfaction of all Strawbridge & Clothier liabilities and
obligations. The acquisition was accounted for as a purchase.
Reclassifications. Certain prior period amounts have been
reclassified to conform with current year presentation.
5
Summarized Financial Information - 3rd Quarter; The May Department
Stores Company, New York. At the shareowners' annual meeting on
May 24, 1996, the shareowners approved the change of the state of
incorporation of The May Department Stores Company from New York to
Delaware. This transaction did not result in any change in the
business or the consolidated assets, liabilities or net worth of
the reincorporated entity. Reincorporation in Delaware allows the
registrant to take advantage of certain provisions of the corporate
laws of Delaware and also allows registrant to manage its state
franchise tax and other affairs in ways that will result in
significant savings each year beginning in 1996.
The reincorporation in Delaware was accomplished by means of a
statutory share exchange (Share Exchange), where each share of
common stock of The May Department Stores Company (and associated
preferred stock purchase right), outstanding prior to the filing of
a "Certificate of Exchange" by the Department of State of the State
of New York, was exchanged for one share of common stock of the
reincorporated entity. As a result of the Share Exchange, The May
Department Stores Company, New York, became a wholly owned
subsidiary of registrant.
Summarized financial information for The May Department Stores
Company, New York, is set forth below for 1996. Corresponding
information for fiscal year 1995 is not included below as amounts
reflected in the respective consolidated financial statements
reflect information for The May Department Stores Company, New
York.
November 2,
1996
Balance Sheet
Current assets $ 5,467
Noncurrent assets 5,023
Current liabilities 2,354
Noncurrent liabilities 7,338
ESOP preference shares 349
November 2, 1996
13 Weeks 39 Weeks
Ended Ended
Statement of Earnings
Revenues 2,855 7,899
Cost of sales 2,004 5,532
Net earnings 78 285
6
Common Stock Repurchase Program. At a meeting of its board of
directors on August 16, 1996, a resolution was passed authorizing
registrant's management to implement a common stock repurchase
program of up to $600 million. Such purchases have been and will
continue to be made in the open market from time to time as market
conditions allow, subject to Securities and Exchange Commission
rules and regulations. Through the end of the 1996 third quarter,
registrant repurchased approximately $265 million of common stock.
Subsequent Event. During the 1996 fourth quarter, registrant gave
notice that it had called $150 million, 9.125% debentures due to
mature December 1, 2016. The debentures will be retired early,
effective December 20, 1996, resulting in a 1996 fourth quarter
extraordinary aftertax loss of $5 million.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
A summary of key financial information reflecting the completion of
the spin-off of Payless in all periods indicated is as follows:
Nov. 2, Oct 28, Feb. 3,
1996 1995 1996
Current Ratio* 2.4 2.6 3.0
Debt-Capitalization Ratio** 48% 45% 42%
Fixed Charge Coverage*** 4.0x 4.2x 4.2x
* The current ratios including net current assets of the
discontinued operation were 2.7 at Oct. 28, 1995 and 3.2 at
Feb. 3, 1996, respectively.
** The debt-to-capitalization ratios including the discontinued
operation were 47% at Oct. 28, 1995 and 44% at February 3,
1996.
*** Fixed charge coverage including the discontinued operation
was 3.3x at Oct. 28, 1995 and 3.1x at February 3, 1996.
Fixed charge coverage, which is presented for the trailing 52
weeks ended November 2, 1996, February 3, 1996, and October
28, 1995, is defined as earnings before gross interest
expense, the expense portion of interest on the ESOP debt,
rent expense and income taxes divided by gross interest
expense, interest expense on the ESOP debt, total rent
expense and the pretax equivalent of dividends on redeemable
stock.
Registrant's third quarter 1996 current ratio decreased compared
with third quarter 1995 primarily due to an increase in the current
maturities of long-term debt. The impact of the increase in
merchandise inventory, principally related to new store growth
including the acquisition of the Strawbridge & Clothier department
7
stores, was substantially offset by the related increase in
accounts payable. The third quarter 1996 current ratio decreased
as compared with year-end 1995 primarily due to an increase in
accounts payable partially offset by an increase in inventory, an
increase in current maturities of long-term debt, an increase in
accrued expenses and the seasonal decrease in accounts receivable.
The increase in registrant's third quarter 1996 debt-capitalization
ratio compared with third quarter 1995 and year-end 1995 is due to
the $600 million common stock repurchase program discussed
previously, including the additional borrowing for this program.
The registrants' fixed charge coverage ratio for the 52 weeks ended
November 2, 1996 decreased slightly as compared with the 52 week
periods ended October 28, 1995 and February 3, 1996 due primarily
to an increase in interest expense resulting from increased
borrowing levels as discussed on page 9 and an increase in rent
expense resulting from new store growth, partially offset by an
increased level of earnings.
Results of Operations
Net retail sales represent the sales of stores operating at the end
of the latest period. They exclude finance charge revenue and the
sales of stores which have been closed and not replaced. Sales
percent increases are as follows:
Third Quarter First Nine Months
Store-for- Store-for-
Total Store Total Store
11.6% 3.9% 11.5% 4.2%
Store-for-store sales represent sales of those stores open during
both periods.
The following table presents the components of costs and expenses,
as a percent of revenues. Revenues include finance charge revenues
and all sales from all stores operating during the period.
Third Quarter First Nine Months
1996 1995 1996 1995
Cost of sales 70.2% 70.0% 70.0% 69.8%
Selling, general and
administrative expenses 20.4 20.5 20.5 20.5
Interest expense, net 2.5 2.4 2.6 2.5
Earnings before income taxes 6.9% 7.1% 6.9% 7.2%
Effective income tax rate 40.0% 40.1% 40.4% 40.5%
Net Earnings 4.1% 4.3% 4.1% 4.3%
Cost of sales was $2,004 million in the 1996 third quarter, up
11.4% from $1,798 million in the 1995 third quarter. For the first
nine months of 1996, cost of sales was $5,532 million, an 11.4%
increase from $4,966 million in the 1995 period. The overall
increase is primarily related to higher sales volume. As a percent
of revenues, cost of sales increased 0.2% from the third quarter of
1995 and for the first nine months due principally to a small
8
deterioration in gross margin and an increase in occupancy expenses
both of which were partially offset by a decrease in buying
expense. For the third quarter and first nine months of each year,
the LIFO charge was $0 and $16 million, respectively. There were
no significant changes in the other components of cost of sales.
Selling, general and administrative expenses were $581 million in
the 1996 third quarter, compared with $526 million in the 1995
third quarter, a 10.5% increase. For the first nine months of
1996, selling, general and administrative expenses were $1,620
million compared with $1,459 million in the 1995 period, an 11.0%
increase. The increase is primarily related to higher sales
volume. Selling, general and administrative expenses, as a percent
of revenues, decreased 0.1% for the third quarter of 1996 as
compared with 1995 as most selling, general and administrative
expense components decreased except for bad debt expense.
Net interest expense for the third quarter and first nine months of
1996 and 1995 was as follows (millions):
Third Quarter First Nine Months
1996 1995 1996 1995
Interest expense $ 82 $ 72 $ 223 $ 203
Interest income (5) (4) (12) (11)
Capitalized interest (4) (7) (10) (16)
Net Interest Expense $ 73 $ 61 $ 201 $ 176
Interest expense increased in the 1996 third quarter and first nine
months due to the 1995 borrowings for the acquisition of certain
assets of John Wanamaker and Woodward & Lothrop and due to 1996
borrowings related to the Strawbridge & Clothier acquisition and
the common stock repurchase program. As a percent of revenues, net
interest expense increased 0.1% for the third quarter and first
nine months.
During the 1996 third quarter, registrant issued a total of $475
million in debt securities which was comprised of $200 million,
7.875% debentures due in 2036; $150 million, 7.45% debentures due
in 2011; and $125 million, 7.45% debentures due in 2016. In
addition, during the second quarter of 1996 registrant issued $200
million, 8.30% debentures due in 2026. The proceeds from the
issuances were added to registrant's general funds to be used for
capital expenditures, working capital needs, stock repurchases and
other general corporate purposes, including investments and
acquisitions.
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
Nov. 2, Oct. 28,
1996 1995
Net retail sales $ 11,269 $ 10,196
Revenues $ 11,629 $ 10,548
Net earnings from continuing operations $ 722 $ 679
Fully diluted earnings per share from
continuing operations $ 2.69 $ 2.55
9
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
registrant or any of its subsidiaries is a party or of which any
of their property is the subject.
Item 2 - Changes in Securities - None.
Item 3 - Defaults Upon Senior Securities - None.
Item 4 - Submission of Matters to a Vote of Security Holders -
None.
Item 5 - Other Information - None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
( 3)(ii) - By-laws
(11) - Computation of Net Earnings Per Share
(12) - Computation of Ratio of Earnings to Fixed Charges
(27) - Financial Data Schedule
(b) Reports on Form 8-K
A report dated August 20, 1996, which contained three
August, 1996 press releases concerning the registrant's
July, 1996 and year-to-date sales release; second quarter
and first six months of fiscal 1996 earnings release; and
the announcement of the common stock repurchase program and
new trading symbol.
A report dated August 22, 1996 which contained a copy of the
Underwriting Agreement, dated August 19, 1996, among
registrant, The May Department Stores Company, New York,
Morgan Stanley & Co. Incorporated and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated; and a
specimen of 7.875% debentures due August 15, 2036.
A report dated September 18, 1996 which contained a copy of
the Underwriting Agreement, dated September 13, 1996, among
registrant, The May Department Stores Company, New York,
Morgan Stanley & Co. Incorporated, Citicorp Securities, Inc.
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated; and a specimen of 7.45% debentures due
September 15, 2011.
A report dated October 24, 1996 which contained a copy of
the Underwriting Agreement dated October 21, 1996, among
registrant, The May Department Stores Company, New York,
Morgan Stanley & Co. Incorporated, Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Citicorp Securities, Inc; and a specimen of 7.45% debentures
due October 15, 2016.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE MAY DEPARTMENT STORES COMPANY
(Registrant)
Date: December 10, 1996
\s\ John L. Dunham
John L. Dunham
Executive Vice President and
Chief Financial Officer
11