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 1, 1999
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.
334,143,784 shares of common stock, $.50 par value, as of May 1,
1999.
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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 1, May 2, Jan. 30,
ASSETS 1999 1998 1999
Current Assets:
Cash and cash equivalents $ 152 $ 282 $ 112
Accounts receivable, net 1,906 1,877 2,144
Merchandise inventories 2,930 2,752 2,655
Other current assets 69 78 76
Total Current Assets 5,057 4,989 4,987
Property and Equipment, at cost 7,356 6,896 7,260
Accumulated Depreciation (2,850) (2,657) (2,747)
Net Property and Equipment 4,506 4,239 4,513
Goodwill and other assets 1,013 820 1,033
Total Assets $ 10,576 $ 10,048 $ 10,533
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities of
long-term debt $ 104 $ 248 $ 98
Accounts payable 1,238 1,113 1,017
Accrued expenses 676 573 755
Income taxes 78 58 189
Total Current Liabilities 2,096 1,992 2,059
Long-term Debt 3,791 3,470 3,825
Deferred Income Taxes 489 458 482
Other Liabilities 306 273 309
ESOP Preference Shares 325 335 327
Unearned Compensation (277) (297) (305)
Shareowners' Equity 3,846 3,817 3,836
Total Liabilities and
Shareowners' Equity $ 10,576 $ 10,048 $ 10,533
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 1, May 2,
1999 1998
Net Retail Sales $ 2,941 $ 2,722
Revenues $ 3,053 $ 2,817
Cost of sales 2,150 1,983
Selling, general and
administrative expenses 629 584
Interest expense, net 71 67
Earnings before income taxes 203 183
Provision for income taxes 81 73
Net Earnings $ 122 $ 110
Basic earnings per share $ .35 $ .30
Diluted earnings per share $ .34 $ .29
Dividends paid per common share $ .22-1/4 $ .21-1/6
Weighted average shares outstanding:
Basic 334.7 346.6
Diluted 358.6 371.9
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) 13 Weeks Ended
May 1, May 2,
1999 1998
Operating Activities:
Net earnings $ 122 $ 110
Depreciation and amortization 111 101
Decrease in working capital (excluding
cash, cash equivalents and short-term
debt) 3 83
Other, net 18 3
254 297
Investing Activities:
Net additions to property and equipment (97) (110)
(97) (110)
Financing Activities:
Net repayments of long-term debt (2) (1)
Net purchases of common stock (36) (25)
Dividend payments, net of tax benefit (79) (78)
(117) (104)
Increase in Cash and Cash Equivalents $ 40 $ 83
Cash paid during the period:
Interest $ 70 $ 76
Income Taxes 181 146
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 25-31) in the 1998 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 1999 and 1998.
Common Stock Repurchase Program. During the first quarter of 1999,
May's board of directors authorized a common stock repurchase
program of up to $500 million. As of May 1, 1999, May has
repurchased approximately $33 million of common stock, or
approximately .8 million shares at an average price of $40 per
share, under this program. Such purchases are being made in the
open market as market conditions and regulatory rules allow.
Common Stock Split. During the first quarter of 1999, the board of
directors approved a three-for-two common stock split for
distribution on March 22, 1999, equivalent to one share of common
stock for each two shares of common stock held by shareowners of
record on March 1, 1999. All share and per share data included in
this report have been restated to reflect the stock split.
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 1999
and 1998.
May 1, Jan. 30,
1999 1999
Financial Position
Current assets $ 5,052 $ 4,984
Noncurrent assets 5,588 5,557
Current liabilities 2,095 2,083
Noncurrent liabilities 7,786 7,815
13 Weeks Ended
May 1, May 2,
1999 1998
Operating Results
Revenues $ 3,053 $ 2,817
Cost of sales 2,150 1,983
Net earnings 75 63
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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
May 1, 1999 May 2, 1998
Earnings Shares EPS Earnings Shares EPS
Net earnings $ 122 $ 110
ESOP preference
shares' dividends (5) (5)
Basic EPS 117 334.7 $ 0.35 105 346.6 $ 0.30
ESOP preference
shares 4 21.7 4 22.5
Assumed exercise of
options (treasury
stock method) - 2.2 - 2.8
Diluted EPS $ 121 358.6 $ 0.34 $ 109 371.9 $ 0.29
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
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 1, 1999 8.0% 3.5%
Store-for-store sales represent sales of those stores open during
both periods. May discontinued its consumer electronics business
at the beginning of fiscal 1999. If consumer electronics sales had
been excluded from net retail sales in both years, the increase in
total sales and store-for-store sales would have been about 1%
higher.
The following table presents the components of costs and expenses,
as a percent of revenues, for the first quarter of 1999 and 1998.
Revenues include finance charge revenues, all sales from all stores
operating during the period and consumer electronics liquidation
sales in the first quarter of 1999.
1999 1998
Revenues 100.0% 100.0%
Cost of sales 70.4 70.4
Selling, general and
administrative expenses 20.6 20.7
Interest expense, net 2.3 2.4
Earnings before income taxes 6.7 6.5
Provision for income taxes 40.0* 40.0*
Net Earnings 4.0% 3.9%*
*-Percent represents effective income tax rate.
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Cost of sales was $2,150 million in the 1999 first quarter, up 8.4%
from $1,983 million in the 1998 first quarter. The overall
increase is primarily related to higher sales. As a percent of
revenues, cost of sales remained constant compared with the first
quarter of 1998. A small decline in gross margin resulting from
higher markdowns was offset by an improvement in buying and
occupancy expenses.
Selling, general and administrative expenses were $629 million in
the 1999 first quarter, compared with $584 million in the 1998
first quarter, a 7.7% 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 1999 as compared with 1998 mainly due to improved
expense leverage as a result of store-for-store sales increases.
Net interest expense for the first quarter 1999 and 1998 was as
follows (millions):
1999 1998
Interest expense $ 78 $ 76
Interest income (4) (6)
Capitalized interest (3) (3)
Net Interest Expense $ 71 $ 67
Net interest expense increased in the 1999 first quarter due to
both higher average long-term debt outstanding and lower average
cash equivalents.
Operating results for the trailing years were as follows (millions,
except per share):
52 Weeks Ended
May 1, May 2,
1999 1998
Net retail sales $ 13,279 $ 12,439
Revenues $ 13,649 $ 12,827
Net earnings $ 861 $ 791
Diluted earnings per share $ 2.35 $ 2.10
Financial Condition
Key financial ratios for the periods indicated are as follows:
May 1, May 2, Jan. 30,
1999 1998 1999
Current Ratio 2.4 2.5 2.4
Debt-Capitalization Ratio 45% 44% 45%
Fixed Charge Coverage* 4.5x 4.2x 4.5x
* Fixed charge coverage, which is presented for the 52 weeks
ended May 1, 1999, May 2, 1998 and January 30, 1999, 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.
Year 2000 Readiness. In 1996, May began assessing and preparing its
critical information systems, communications networks, equipment,
and facilities for the year 2000. As of the end of fiscal 1998, May
completed this assessment and substantially completed the coding,
testing, and installation of necessary modifications. May is
testing certain interfaces with some merchandise and service
vendors for year 2000 compliance through July of 1999. Since May is
substantially complete with its modifications, the company does not
7
expect any material disruption of business. Through participation
in a National Retail Federation sponsored survey and other means,
May is receiving assurances from its primary merchandise vendors
and service providers regarding their year 2000 readiness.
May developed and maintains most of its application systems
internally. In fiscal 1998, May used approximately 15% of its
information systems resources to address companywide year 2000
issues. May's use of outside consultants and contractors to address
year 2000 compliance has not been significant. The cost of the
company's year 2000 effort will total approximately $6 million.
May incurred and expensed substantially all these costs prior to
fiscal 1999.
Under the most reasonably likely worst case scenario, May does not
anticipate more than isolated, temporary disruptions of its
operations caused by year 2000 failures affecting either the
company or its primary merchandise and service vendors. May expects
that its technically trained personnel, working in cooperation with
key vendors and service providers, should be able to address year
2000 system issues that may arise. To the extent May's vendors are
unable to deliver products and provide services due to their own
year 2000 issues, May believes it will generally have alternative
sources for comparable products and services and does not expect to
experience any material business disruptions. Many risks, however,
such as the failure to perform by public utilities,
telecommunications providers, and financial institutions, and the
impact of the year 2000 issue on the economy as a whole, are
outside May's control and could adversely affect the company and
its ability to conduct business. While May has made a significant
effort to address all anticipated risks within its control, this is
an event without precedent; consequently, there can be no assurance
that the year 2000 issue will not have a material adverse impact on
May's financial condition, operating results, or business.
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,
prepared with the assistance of specialists within and outside the
company, many factors outside of May's control exist that have an
impact on its 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; ability to
hire and retain qualified associates; possible widespread inability
to perform due to year 2000 issues by merchandise vendors, public
utilities, telecommunications providers, and financial
institutions; and the general economic impact of the year 2000
issues. Because of these factors, actual performance could differ
materially from that described in the forward-looking statements.
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.
8
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
(3a) - Amended and Restated Certificate of Incorporation of
May, dated May 22, 1996, is incorporated by reference
to Exhibit 4(a) of Post Effective Amendment No. 1 to
Form S-8, filed May 29, 1996
(3b) - Certificate of Amendment of the Amended and Restated
Certificate of Incorporation, dated May 21, 1999
(3c) - By-Laws of May, as amended
(12) - Computation of Ratio of Earnings to Fixed Charges
(15) - Letter Re: Unaudited Interim Financial Information
(27) - Financial Data Schedule
(b) Reports on Form 8-K
A report dated April 21, 1999 which contained information
concerning debt ratings and incorporated by reference May's
Annual Report on Form 10-K for the fiscal year ended January
30, 1999.
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 8, 1999 /s/ John L. Dunham
John L. Dunham
Executive Vice President and
Chief Financial Officer
9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareowners of
The May Department Stores Company:
We have reviewed the accompanying condensed consolidated balance
sheet of The May Department Stores Company (a Delaware corporation)
and subsidiaries as of May 1, 1999, and the related condensed
consolidated statements of earnings and cash flows for the thirteen
week period then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and making inquires of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, 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 review, we are not aware of any material modifications
that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of The May
Department Stores Company as of January 30, 1999, and the related
consolidated statements of earnings and cash flows for the year
then ended (not presented separately herein), and in our report
dated February 10, 1999, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as
of January 30, 1999, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
Arthur Andersen LLP
St. Louis, Missouri
May 28, 1999