SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended May 3, 1997
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.
232,563,552 shares of common stock, $.50 par value, as of May 3,
1997.
1
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
May 3, May 4, Feb. 1,
ASSETS 1997 1996 1997
Current Assets:
Cash and cash equivalents $ 109 $ 171 $ 102
Accounts receivable, net 2,060 2,150 2,425
Merchandise inventories 2,636 2,390 2,380
Other current assets 126 177 128
Total Current Assets 4,931 4,888 5,035
Property and Equipment, at cost 6,489 5,744 6,372
Accumulated Depreciation (2,304) (1,952) (2,213)
Net Property and Equipment 4,185 3,792 4,159
Goodwill 771 666 776
Other Assets 91 94 89
Total Assets $ 9,978 $ 9,440 $ 10,059
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities of
long-term debt $ 361 $ 25 $ 256
Accounts payable 1,072 948 872
Accrued expenses 646 622 658
Income taxes 58 57 137
Total Current Liabilities 2,137 1,652 1,923
Long-term Debt 3,722 3,313 3,849
Deferred Income Taxes 413 389 401
Other Liabilities 212 190 223
ESOP Preference Shares 346 356 347
Unearned Compensation (314) (331) (334)
Shareowners' Equity 3,462 3,871 3,650
Total Liabilities and
Shareowners' Equity $ 9,978 $ 9,440 $ 10,059
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
May 3, May 4,
1997 1996
Net Retail Sales $ 2,586 $ 2,402
Revenues $ 2,675 $ 2,511
Cost of sales 1,881 1,755
Selling, general and
administrative expenses 555 528
Interest expense, net 76 64
Earnings from continuing operations
before income taxes 163 164
Provision for income taxes 65 66
Net Earnings from:
Continuing operations 98 98
Discontinued operation - 11
Net earnings before extraordinary loss 98 109
Extraordinary loss related to early
extinguishment of debt (4) -
Net Earnings $ 94 $ 109
Primary earnings per share:
Continuing operations $ .39 $ .37
Discontinued operation - .05
Extraordinary loss (.01) -
Primary Earnings per Share $ .38 $ .42
Fully diluted earnings per share:
Continuing operations $ .38 $ .36
Discontinued operation - .05
Extraordinary loss (.01) -
Fully Diluted Earnings
per Share $ .37 $ .41
Dividends Paid per
Common Share $ .30 $ .28-1/2
Primary Average Shares
Outstanding and Equivalents 236.8 250.8
Fully Diluted Average Shares
Outstanding and Equivalents 252.3 265.8
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) 13 Weeks Ended
May 3, May 4,
1997 1996
Operating Activities:
Net earnings from continuing operations
and depreciation/amortization $ 194 $ 183
Decrease in working capital (excluding
cash, cash equivalents and short-term
debt) 219 136
Other assets and liabilities, net (1) (9)
412 310
Investing Activities:
Net additions to property and equipment (116) (128)
Other - (1)
(116) (129)
Financing Activities:
Net repayments of long-term debt (1) (112)
Net issuances (purchases) of treasury stock (212) 23
Dividend payments, net of tax benefit (76) (80)
(289) (169)
Increase in Cash and Cash Equivalents $ 7 $ 12
Noncash financing activities for the quarter ended May 4, 1996
include the distribution of $764 million of equity in the spin-off
of Payless ShoeSource, Inc.
Cash paid during the period:
Interest $ 83 $ 69
Income Taxes 127 121
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 1996 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. The LIFO provision for the first
quarter was $8 million in 1997 and 1996.
Common Stock Repurchase Program. At a meeting of its board of
directors on February 12, 1997, a resolution was passed authorizing
registrant's management to implement a common stock repurchase
program of up to $300 million. Through the end of the 1997 first
quarter, registrant repurchased approximately $217 million of
common stock. During May, 1997, the registrant completed the stock
repurchase program, totalling 6.4 million shares at an average
price of $47 per share. All purchases were made in the open market
from time to time as market conditions allowed, subject to
Securities and Exchange Commission rules and regulations.
Discontinued Operation. Registrant completed the spin off of
Payless ShoeSource, Inc. ("Payless"), its chain of self-service
family shoe stores, effective May 4, 1996, as a tax-free
distribution to shareowners. Registrant's financial statements
presented herein reflect Payless as a discontinued operation.
Extraordinary Item. During the first quarter of 1997, registrant
recorded an extraordinary loss of $4 million after tax ($5 million
pretax) or $.01 per share, due to the execution of a binding
contract related to the call of $100 million of 9.875% debentures
due to mature June 1, 2017. The debentures will be called
effective June 6, 1997, and, accordingly, have been classified as
current maturities of long-term debt on the balance sheet.
Summarized Financial Information - 1st Quarter; The May Department
Stores Company, New York. Summarized financial information for The
May Department Stores Company, New York, is set forth below for
1997. Corresponding information for fiscal year 1996 is not
included on page 6, as amounts reflected in the respective
consolidated financial statements represent information for The May
Department Stores Company, New York.
5
May 3,
1997
Balance Sheet
Current assets $ 5,488
Noncurrent assets 5,028
Current liabilities 2,086
Noncurrent liabilities 7,547
13 Weeks
Ended May 3,
1997
Statement of Earnings
Revenues $ 2,675
Cost of sales 1,881
Net earnings 45
Impact of New Accounting Pronouncement. In February, 1997
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share", was issued which will change the computation
of earnings per share (EPS) as well as the disclosures required.
This pronouncement is effective for interim and annual reporting
periods ending after December 15, 1997. Early application is not
permitted. Registrant, however, does not expect this pronouncement
to have a material effect on its earnings per share amounts when it
is adopted. Application of SFAS No. 128 to the first quarter of
1997 would have resulted in basic EPS and diluted EPS amounts equal
to the primary and fully diluted earnings per share amounts
computed under APB Opinion No. 15, the current standard.
Reclassifications. Certain prior period amounts have been
reclassified to conform with current year presentation.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
A summary of key financial information for the periods indicated is
as follows:
May 3, May 4, Feb. 1,
1997 1996 1997
Current Ratio 2.3 3.0 2.6
Debt-Capitalization Ratio 49% 41% 48%
Fixed Charge Coverage* 4.0x 4.2x 4.1x
* Fixed charge coverage, which is presented for the trailing 52
weeks ended May 3, 1997 and for the 53 weeks ended May 4,
1996, 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.
6
Registrant's first quarter 1997 current ratio decreased compared
with first quarter 1996 primarily due to an increase in current
maturities of long-term debt. The impact of the increase in
merchandise inventory was offset by a corresponding increase in
accounts payable.
Registrant's first quarter 1997 current ratio decreased compared
with year-end 1996 due to the decrease in accounts receivable (due
to the seasonal nature of registrant's business and decreased use
of its proprietary credit cards), an increase in accounts payable
that was partially offset by an increase in merchandise
inventories, and an increase in current maturities of long-term
debt. These items decreasing the ratio were partially offset by a
decrease in income taxes payable.
The first quarter 1997 debt-capitalization ratio increased from the
first quarter 1996 because of the 1996 $600 million of common stock
repurchases (impacted by both the borrowings to effect the
repurchase and the equity reduction upon repurchase) and debt
assumed in the Strawbridge & Clothier transaction. The debt-
capitalization ratio increase from 1996 yearend is related to the
1997 common stock repurchase program discussed on page 5.
Registrant's fixed charge coverage ratio for the 52 weeks ended May
3, 1997 decreased slightly as compared with the 52 week periods
ended May 4, 1996 and February 1, 1997 due primarily to interest
expense growing at a faster rate than earnings. Interest expense
grew at a faster rate as $600 million of the 1996 borrowings were
used to fund the 1996 common stock repurchases.
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:
Store-for-
Total Store
13 Weeks Ended May 3, 1997 7.6% 1.9%
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, for the first quarter of 1997 and 1996.
Revenues include finance charge revenues and all sales from all
stores operating during the period.
1997 1996
Cost of sales 70.3% 69.9%
Selling, general and
administrative expenses 20.8 21.1
Interest expense, net 2.8 2.5
Earnings before income taxes 6.1% 6.5%
Effective income tax rate 40.0% 40.5%
Net Earnings 3.7% 3.9%
7
Cost of sales was $1,881 million in the 1997 first quarter, up 7.2%
from $1,755 million in the 1996 first quarter. The overall
increase is primarily related to higher sales volume. As a percent
of revenues (which includes finance charge revenue), cost of sales
increased 0.4% from the first quarter of 1996. Approximately 0.2%
of this rate increase relates to the finance charge component of
revenues decreasing 1.3% with no corresponding decrease in cost of
sales. The remaining cost of sales rate increase relates to a
small deterioration in gross margin and an increase in occupancy
costs, principally depreciation. LIFO was a charge of $8 million
in the first quarter of 1997 and 1996.
Selling, general and administrative expenses were $555 million in
the 1997 first quarter, compared with $528 million in the 1996
first quarter, a 5.1% increase. The increase is primarily related
to higher sales volume. Selling, general and administrative
expenses, as a percent of revenues, decreased 0.3% for the first
quarter of 1997 as compared with 1996 primarily due to a decrease
in bad debt expense related to decreased use of registrant's
proprietary credit cards.
Net interest expense for the first quarter 1997 and 1996 was as
follows (millions):
1997 1996
Interest expense $ 83 $ 71
Interest income (4) (4)
Capitalized interest (3) (3)
Net Interest Expense $ 76 $ 64
Interest expense increased in the 1997 first quarter due to
increased debt balances related to 1996 borrowings to finance
registrant's common stock purchases, including the purchase of the
number of shares issued to acquire certain assets of Strawbridge &
Clothier and debt assumed in the Strawbridge & Clothier
transaction. As a percent of revenues, net interest expense for
the first quarter of 1997 increased 0.3% from the first quarter of
1996.
The 1997 first quarter effective income tax rate decreased as the
company realized a benefit from its 1996 second quarter
reincorporation in the state of Delaware.
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
May 3, May 4,
1997 1996
Net retail sales $ 11,773 $ 10,730
Revenues $ 12,164 $ 11,135
Net earnings $ 749 $ 711
Fully diluted earnings per share $ 2.84 $ 2.65
8
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
(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 April 23, 1997, which contained information
concerning debt ratings and incorporated by reference
registrant's Annual Report on Form 10-K for the fiscal year
ended February 1, 1997.
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: June 10, 1997 /s/ John L. Dunham
John L. Dunham
Executive Vice President and
Chief Financial Officer
9