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 2, 1998
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.
230,992,083 shares of common stock, $.50 par value, as of May 2,
1998.
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
May 2, May 3, Jan. 31,
ASSETS 1998 1997 1998
Current Assets:
Cash and cash equivalents $ 282 $ 109 $ 199
Accounts receivable, net 1,877 2,060 2,164
Merchandise inventories 2,752 2,636 2,433
Other current assets 78 126 82
Total Current Assets 4,989 4,931 4,878
Property and Equipment, at cost 6,896 6,489 6,787
Accumulated Depreciation (2,657) (2,304) (2,563)
Net Property and Equipment 4,239 4,185 4,224
Goodwill 746 771 752
Other Assets 74 88 76
Total Assets $ 10,048 $ 9,975 $ 9,930
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities of
long-term debt $ 248 $ 361 $ 233
Accounts payable 1,113 1,072 842
Accrued expenses 573 601 640
Income taxes 58 58 151
Total Current Liabilities 1,992 2,092 1,866
Long-term Debt 3,470 3,722 3,512
Deferred Income Taxes 458 413 449
Other Liabilities 273 257 277
ESOP Preference Shares 335 346 337
Unearned Compensation (297) (314) (320)
Shareowners' Equity 3,817 3,459 3,809
Total Liabilities and
Shareowners' Equity $ 10,048 $ 9,975 $ 9,930
The accompanying notes to condensed consolidated financial
statements are an integral part of this balance sheet.
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Millions, except per share) 13 Weeks Ended
May 2, May 3,
1998 1997
Net Retail Sales $ 2,732 $ 2,573
Revenues $ 2,817 $ 2,675
Cost of sales 1,983 1,881
Selling, general and
administrative expenses 584 555
Interest expense, net 67 76
Earnings before income taxes 183 163
Provision for income taxes 73 65
Net earnings before extraordinary loss 110 98
Extraordinary loss related to early
extinguishment of debt - (4)
Net Earnings $ 110 $ 94
Basic earnings per share:
Net earnings before extraordinary loss $ .45 $ .39
Extraordinary loss - (.01)
Net Earnings $ .45 $ .38
Diluted earnings per share:
Net earnings before extraordinary loss $ .44 $ .38
Extraordinary loss - (.01)
Net Earnings $ .44 $ .37
Dividends paid per common share $ .31-3/4 $ .30
Weighted average shares outstanding:
Basic 231.1 235.5
Diluted 247.9 252.3
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 2, May 3,
1998 1997
Operating Activities:
Net earnings and
depreciation/amortization $ 211 $ 194
Decrease in working capital (excluding
cash, cash equivalents and short-term
debt) 83 219
Other assets and liabilities, net 3 (1)
297 412
Investing Activities:
Net additions to property and equipment (110) (116)
(110) (116)
Financing Activities:
Net repayments of long-term debt (1) (1)
Net purchases of common stock (25) (212)
Dividend payments, net of tax benefit (78) (76)
(104) (289)
Increase in Cash and Cash Equivalents $ 83 $ 7
Cash paid during the period:
Interest $ 76 $ 83
Income Taxes 146 127
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interim Results. These unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions
to Form 10-Q of The Securities and Exchange Commission and should
be read in conjunction with the Notes to Consolidated Financial
Statements (pages 21-27) in the 1997 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 1998 and 1997.
Common Stock Repurchase Program. On February 11, 1998,
registrant's board of directors authorized a common stock
repurchase program of up to $650 million. Through the end of the
1998 first quarter, registrant repurchased approximately $50
million of common stock under this program. Such purchases are
being made in the open market as market conditions and regulatory
rules allow.
Extraordinary Item. During the first quarter of 1997, registrant
recorded an extraordinary aftertax loss of $4 million ($5 million
pretax) or $.01 per share, as it retired $100 million of 9.875%
debentures due to mature June 1, 2017. The debentures were called
effective June 6, 1997, and, accordingly, were classified as
current maturities of long-term debt on the May 3, 1997 balance
sheet.
Summarized Financial Information - The May Department Stores
Company, New York. Summarized financial information for The May
Department Stores Company, New York, is set forth below for 1998
and 1997.
May 2, Jan. 31,
1998 1998
Financial Position
Current assets $ 4,989 $ 4,878
Noncurrent assets 5,113 5,048
Current liabilities 2,003 1,894
Noncurrent liabilities 7,400 7,437
13 Weeks Ended
May 2, May 3,
1998 1997
Operating Results
Revenues $ 2,817 $ 2,675
Cost of sales 1,983 1,881
Net earnings 63 45
Reclassifications. Certain prior period amounts have been
reclassified to conform with current year presentation.
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Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
Key financial ratios for the periods indicated are as follows:
May 2, May 3, Jan. 31,
1998 1997 1998
Current Ratio 2.5 2.4 2.6
Debt-Capitalization Ratio 44% 49% 44%
Fixed Charge Coverage* 4.2x 4.0x 4.1x
* Fixed charge coverage, which is presented for the 52 weeks
ended May 2, 1998, May 3, 1997 and January 31, 1998, 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 and total rent expense.
Registrant's first quarter 1998 current ratio increased compared
with first quarter 1997 primarily due to a decrease in current
maturities of long-term debt. The current ratio impact of the
merchandise inventory increase was offset by a corresponding
accounts payable increase.
Registrant's first quarter 1998 current ratio decreased compared
with year-end 1997 due to the seasonal nature of registrant's
business.
The first quarter 1998 debt-capitalization ratio decreased from the
first quarter 1997 due primarily to a $365 million reduction in
long-term debt outstanding. This reduction was funded by cash flow
from operations which was favorably impacted by lower accounts
receivable levels.
Registrant's fixed charge coverage ratio for the 52 weeks ended May
2, 1998 increased slightly as compared with the 52 week periods
ended May 3, 1997 and January 31, 1998 due primarily to increased
earnings and decreased interest expense. Interest expense
decreased due to lower average debt balances.
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 2, 1998 6.2% 4.5%
Store-for-store sales represent sales of those stores open during
both periods.
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The following table presents the components of operating costs and
expenses, as a percent of revenues, for the first quarter of 1998
and 1997. Revenues include all sales from all stores operating
during the period and finance charge revenues of $82 million and
$89 million in 1998 and 1997, respectively. Finance charge
revenues have decreased 8.3% from 1997 due to increased use of
third-party credit cards.
1998 1997
Revenues 100.0% 100.0%
Cost of sales 70.4 70.3
Selling, general and
administrative expenses 20.7 20.8
Interest expense, net 2.4 2.8
Earnings before income taxes 6.5 6.1
Provision for income taxes 40.0* 40.0*
Net Earnings 3.9% 3.7%
*-Percent represents effective income tax rate.
Cost of sales was $1,983 million in the 1998 first quarter, up 5.4%
from $1,881 million in the 1997 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 0.1% from the first quarter of 1997. This rate increase
was comprised of a 0.3% increase resulting from a decrease in
finance charge revenues with no corresponding decrease in cost of
sales and a small deterioration in gross margin which were
partially offset by a decrease in buying costs.
Selling, general and administrative expenses were $584 million in
the 1998 first quarter, compared with $555 million in the 1997
first quarter, a 5.3% 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 first
quarter of 1998 as compared with 1997 mainly due to a decrease in
bad debt expense related to lower delinquency and charge-off rates
combined with decreased use of registrant's proprietary credit
cards.
Net interest expense for the first quarter 1998 and 1997 was as
follows (millions):
1998 1997
Interest expense $ 76 $ 83
Interest income (6) (4)
Capitalized interest (3) (3)
Net Interest Expense $ 67 $ 76
Net interest expense decreased in the 1998 first quarter due to
lower average long-term debt outstanding and higher average cash
equivalents. The higher average cash equivalents resulted
primarily from lower accounts receivable levels due to decreased
use of registrant's proprietary credit cards. As a percent of
revenues, net interest expense for the first quarter of 1998
decreased 0.4% from the first quarter of 1997.
7
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
May 2, May 3,
1998 1997
Net retail sales $ 12,490 $ 11,708
Revenues $ 12,827 $ 12,164
Net earnings $ 791 $ 749
Diluted earnings per share $ 3.17 $ 2.84
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) - By-Laws of Registrant, as amended
(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 February 12, 1998 which contained a press
release announcing registrant's annual results which included
Condensed Consolidated Results of Operations (for the fiscal
year and fourth quarter) a Condensed Consolidated Balance
Sheet and Notes to Condensed Consolidated Financial
Information as of and for the fiscal quarter and years ending
January 31, 1998 and February 1, 1997.
A report dated March 20, 1998 which contained a press release
announcing registrant's declaration of a new quarterly
dividend and the date of the annual meeting of shareowners.
A report dated April 22, 1998, which contained information
concerning debt ratings and incorporated by reference
registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.
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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 9, 1998 /s/ John L. Dunham
John L. Dunham
Executive Vice President and
Chief Financial Officer
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