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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 31, 2004
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. 291,435,038 shares of common
stock, $.50 par value, as of August 28, 2004.
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(millions)
July 31, Aug. 2, Jan. 31,
2004 2003 2004
ASSETS
Current assets:
Cash and cash equivalents $ 267 $ 77 $ 564
Accounts receivable, net 2,011 1,510 1,755
Merchandise inventories 3,170 2,926 2,728
Other current assets 103 104 88
Total current assets 5,551 4,617 5,135
Property and equipment, at cost 10,341 9,217 9,103
Accumulated depreciation (4,174) (4,008) (3,954)
Property and equipment, net 6,167 5,209 5,149
Goodwill 2,668 1,455 1,504
Intangible assets, net 609 172 168
Other assets 139 131 133
Total assets $ 15,134 $ 11,584 $ 12,089
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ 547 $ 138 $ -
Current maturities of
long-term debt 347 164 239
Accounts payable 1,407 1,048 1,191
Accrued expenses 1,085 949 967
Income taxes payable 188 17 280
Total current liabilities 3,574 2,316 2,677
Long-term debt 5,794 3,934 3,797
Deferred income taxes 792 816 773
Other liabilities 511 504 507
ESOP preference shares 222 249 235
Unearned compensation - (91) (91)
Shareowners' equity 4,241 3,856 4,191
Total liabilities and
shareowners' equity $ 15,134 $ 11,584 $ 12,089
The accompanying notes to condensed consolidated financial
statements are an integral part of these balance sheets.
2
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(millions, except per share) 13 Weeks Ended 26 Weeks Ended
July 31, Aug. 2, July 31, Aug. 2,
2004 2003 2004 2003
Net sales $ 2,956 $ 3,000 $ 5,919 $ 5,873
Cost of sales:
Recurring 2,065 2,118 4,185 4,206
Restructuring markdowns 6 - 11 -
Selling, general, and
administrative expenses 634 657 1,273 1,297
Restructuring costs 9 318 11 318
Interest expense, net 82 80 158 160
Earnings (loss) before income taxes 160 (173) 281 (108)
Provision (credit) for income taxes 59 (63) 104 (70)
Net earnings (loss) $ 101 $ (110) $ 177 $ (38)
Basic earnings (loss) per share $ .33 $ (.39) $ .58 $ (.16)
Diluted earnings (loss) per share $ .33 $ (.39) $ .57 $ (.16)
Dividends paid per common share $.24-1/4 $ .24 $.48-1/2 $ .48
Weighted average shares outstanding:
Basic 292.1 289.8 291.7 289.8
Diluted 307.9 289.8 308.1 289.8
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
3
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions) 26 Weeks Ended
July 31, Aug. 2,
2004 2003
Operating Activities:
Net earnings (loss) $ 177 $ (38)
Adjustment for noncash items included in earnings:
Depreciation and other amortization 281 276
Intangible asset amortization 4 4
Asset impairment - 315
Working capital changes:
Accounts receivable, net 310 266
Merchandise inventories (67) (79)
Other current assets (8) 1
Accounts payable 4 (53)
Accrued expenses (58) 13
Income taxes payable (92) (147)
Other, net 14 -
Cash flows from operations 565 558
Investing Activities:
Net additions to property and equipment (226) (333)
Business combinations (3,200) (16)
Cash flows used for investing activities (3,426) (349)
Financing Activities:
Net short-term debt issuances (repayments) 547 (12)
Net long-term debt issuances (repayments) 2,145 (16)
Net issuances (purchases) of common stock 21 (13)
Dividend payments (149) (146)
Cash flows from (used for) financing activities 2,564 (187)
Increase (decrease) in cash and cash equivalents (297) 22
Cash and cash equivalents,
beginning of period 564 55
Cash and cash equivalents,
end of period $ 267 $ 77
Cash paid during the period:
Interest $ 161 $ 173
Income taxes 174 82
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
4
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 35-43) in the 2003 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. 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.
Business Combinations
Effective July 31, 2004, the company completed its acquisition of the Marshall
Field's department store group for a purchase price of $3.2 billion. Marshall
Field's operates 62 department stores primarily in the Chicago, Detroit and
Minneapolis metropolitan areas. The company acquired substantially all of the
assets that comprise Marshall Field's, including stores, inventory, customer
receivables, and distribution centers, and assumed certain liabilities,
including accounts payable and accrued expenses. The acquisition is being
financed through $2.2 billion of long-term debt and $1.0 billion of short-term
borrowings and cash on hand. The company also is acquiring the real estate
associated with nine Mervyn's store locations in the Twin Cities area. The
Mervyn's locations were transferred in August 2004.
Marshall Field's results of operations will be included in the company's
consolidated statement of earnings beginning August 1, 2004. The company's
July 31, 2004 consolidated balance sheet includes the assets acquired and the
liabilities assumed using a preliminary purchase price allocation. The
purchase price allocation is based on preliminary estimates and is subject to
final third-party valuations. The following amounts for Marshall Field's are
included in the July 31, 2004 consolidated balance sheet (millions):
Cash $ 3
Accounts receivable 559
Merchandise inventories 375
Property and equipment 1,077
Goodwill and other intangibles 1,606
Assumed liabilities/other (420)
Net purchase price $ 3,200
Goodwill and other intangible assets include $419 million of trade names and
$24 million of customer relationships. The trade names have an indefinite
useful life and are not amortizable. The customer relationships will be
amortized over an estimated useful life of 15 years.
5
The following pro forma information presents the company's net sales, net
earnings (loss) and net earnings (loss) per share as if the Marshall Field's
acquisition had taken place at the beginning of the respective periods
presented (millions, except per share):
13 Weeks Ended 26 Weeks Ended
July 31, Aug. 2, July 31, Aug. 2,
2004 2003 2004 2003
Net sales $ 3,513 $ 3,537 $ 7,060 $ 6,968
Net earnings (loss) $ 91 $ (121) $ 160 $ (56)
Diluted earnings (loss) per share $ .30 $ (.43) $ .51 $ (.22)
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. These divestitures will result in total estimated charges
of $380 million, consisting of asset impairments of $317 million, liquidation
markdowns of $35 million, severance benefits of $23 million, and other charges
of $5 million. Approximately $50 million of the $380 million represents the
cash cost of the store divestitures, not including the benefit from future tax
credits. Of the $380 million of expected total charges, $350 million has been
recognized to date. The company recognized $15 million and $22 million in the
second quarter and first six months of 2004, respectively, and $318 million in
the second quarter and first six months of 2003.
The company is negotiating agreements with landlords and developers for each
store divestiture. Through the end of the 2004 second quarter, 19 stores have
been closed.
The significant components of the store divestiture costs and status of the
related liability are summarized below:
(millions) Total | Balance at
Charges | 2004 Payments Non-cash July 31,
to Date | Charge (Proceeds) Uses 2004
Asset impairments $ 317 | $ - $ - $ - $ -
Disposal (gains) losses (12)| (3) (37) 34 -
Liquidation markdowns 17 | 11 11 - -
Severance benefits 10 | 4 4 - -
Other 18 | 10 10 - -
Total $ 350 | $ 22 $ (12) $ 34 $ -
Asset impairment charges were recorded to reduce store assets to their
estimated fair values because of the shorter period over which they will be
used. Estimated fair values were based on estimated market values of similar
assets. Disposal gains or losses are recognized as each store is divested.
Liquidation markdowns are incurred to liquidate inventory as stores to be
divested are closed. Severance benefits are recognized as each store is
closed. As of July 31, 2004, severance benefits have been paid to
approximately 1,600 associates.
6
Income Taxes
The effective income tax rate for the first six months of 2004 was 37.0%,
compared with 65.4% for the first six months of 2003. The change is due to a
$31 million tax credit recorded in the first quarter of 2003 upon the
resolution of various federal and state income tax issues. Excluding the $31
million tax credit, the company's estimated effective tax rate for the first
six months of 2003 was 37.0%.
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 2004 or 2003.
Debt
On July 20, 2004, the company issued $2.2 billion of long-term debt maturing
over three to 30 years at a weighted average interest rate, including
amortized hedge and financing costs, of 5.71% to partially fund the Marshall
Field's acquisition. In August 2004, the company also increased its unsecured
revolving credit facility to $1.4 billion and extended the term to August 2009.
The company entered into treasury lock agreements to hedge interest rate
fluctuations in anticipation of the issuance of debt related to the Marshall
Field's acquisition. The contracts were deemed highly effective at offsetting
the changes in interest rates of the debt issued. Accordingly, the $27 million
paid to settle the hedges will be amortized as increases to interest expense
over the life of the debt hedged, from 10 to 30 years. The hedge settlement
payments were recorded as a reduction to accumulated other comprehensive
income.
Pension Benefits
The components of net periodic benefit costs for the company's pension plans
for the second quarter and first six months of 2004 and 2003 were:
(millions) 13 Weeks Ended
Qualified Plan Nonqualified Plan
July 31, Aug. 2, July 31, Aug. 2,
2004 2003 2004 2003
Service cost $ 14 $ 12 $ 2 $ 1
Interest cost 11 12 4 2
Expected return on asset (9) (8) - -
Net amortization (1) 2 6 1 2
Net periodic benefit cost $ 18 $ 22 $ 7 $ 5
26 Weeks Ended
Qualified Plan Nonqualified Plan
July 31, Aug. 2, July 31, Aug. 2,
2004 2003 2004 2003
Service cost $ 28 $ 24 $ 3 $ 2
Interest cost 23 24 7 5
Expected return on asset (19) (16) - -
Net amortization (1) 5 12 3 3
Net periodic benefit cost $ 37 $ 44 $ 13 $ 10
(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 2004. A contribution of approximately $75
million to the qualified plan is expected in the 2004 fourth quarter.
7
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 31, 2004 Aug. 2, 2003
Earnings Shares EPS Earnings Shares EPS
Net earnings (loss) $ 101 $ (110)
ESOP preference share
dividends (4) (4)
Basic EPS 97 292.1 $ .33 (114) 289.8 $ (.39)
ESOP preference shares 3 15.0 - -
Assumed exercise of
options (treasury
stock method) - 0.8 - -
Diluted EPS $ 100 307.9 $ .33 $ (114) 289.8 $ (.39)
26 Weeks Ended
July 31, 2004 Aug. 2, 2003
Earnings Shares EPS Earnings Shares EPS
Net earnings (loss) $ 177 $ (38)
ESOP preference share
dividends (8) (8)
Basic EPS 169 291.7 $ .58 (46) 289.8 $ (.16)
ESOP preference shares 7 15.2 - -
Assumed exercise of
options (treasury
stock method) - 1.2 - -
Diluted EPS $ 176 308.1 $ .57 $ (46) 289.8 $ (.16)
Stock Compensation Plans
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 2004 and 2003 if the fair value-
based method had been applied retroactively rather than prospectively to all
outstanding unvested grants.
8
(millions, except per share) 13 Weeks Ended 26 Weeks Ended
July 31, Aug. 2, July 31, Aug. 2,
2004 2003 2004 2003
Net earnings (loss), as reported $ 101 $(110) $ 177 $ (38)
Add: Compensation expense for
employee stock options
included in net earnings,
net of tax 1 1 2 1
Deduct: Total compensation expense
for employee stock options
determined under retroactive
fair value-based method,
net of tax (5) (6) (10) (13)
Pro forma net earnings (loss) $ 97 $(115) $ 169 $ (50)
Earnings (loss) per share:
Basic - as reported (prospective) $ .33 $(.39) $ .58 $ (.16)
Basic - pro forma (retroactive) $ .32 $(.41) $ .55 $ (.21)
Diluted - as reported (prospective) $ .33 $(.39) $ .57 $ (.16)
Diluted - pro forma (retroactive) $ .32 $(.41) $ .55 $ (.21)
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 $809 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.
Common Stock Repurchase Programs
In July 2004, the company suspended the $500 million common stock repurchase
program that was announced in February 2004.
Shareowners Rights Plan
In August 2004, the company entered into an Amended and Restated Rights
Agreement with The Bank of New York, extending final expiration of the previous
agreement to August 31, 2014.
9
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 31, 2004, August 2, 2003, and
January 31, 2004, the related condensed consolidating statements of earnings
for the thirteen week and twenty-six week periods ended July 31, 2004 and
August 2, 2003, and the related condensed consolidating statements of cash
flows for the twenty-six week periods ended July 31, 2004 and August 2, 2003
are presented below.
Condensed Consolidating Balance Sheet
As of July 31, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ - $ 249 $ 18 $ - $ 267
Accounts receivable, net - 1,998 46 (33) 2,011
Merchandise inventories - 3,059 111 - 3,170
Other current assets - 89 34 (20) 103
Total current assets - 5,395 209 (53) 5,551
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 (3,881) 3,371 3,735 (3,225) -
Investment in subsidiaries 8,348 - - (8,348) -
Total assets $ 4,467 $17,607 $ 4,686 $(11,626) $ 15,134
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 1,020 118 (57) 1,085
Income taxes payable - 126 62 - 188
Total current liabilities 4 3,354 270 (54) 3,574
Long-term debt - 5,794 - - 5,794
Intercompany note payable - 3,225 - (3,225) -
Deferred income taxes - 725 67 - 792
Other liabilities - 999 9 (497) 511
ESOP preference shares 222 - - - 222
Unearned compensation - - - - -
Shareowners' equity 4,241 3,510 4,340 (7,850) 4,241
Total liabilities and
shareowners' equity $ 4,467 $17,607 $ 4,686 $(11,626) $ 15,134
10
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Earnings
For the Thirteen Weeks Ended July 31, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
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
Condensed Consolidating Statement of Earnings
For the Twenty-six Weeks Ended July 31, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
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
11
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
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:
Net earnings $ 177 $ 31 $ 135 $ (166) $ 177
Equity in earnings of subsidiaries (177) - - 177 -
Depreciation and other amortization - 260 21 - 281
Intangible asset amortization - 1 3 - 4
Decrease (increase) in
working capital (1) 74 16 - 89
Other, net 42 14 (31) (11) 14
Cash flows from operations 41 380 144 - 565
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 16 5 - - 21
Dividend payments (149) - - - (149)
Intercompany activity, net 92 - (92) - -
Cash flow from (used for)
financing activities (41) 2,697 (92) - 2,564
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
12
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Balance Sheet
As of August 2, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ - $ 45 $ 32 $ - $ 77
Accounts receivable, net - 1,501 45 (36) 1,510
Merchandise inventories - 2,830 96 - 2,926
Other current assets - 80 24 - 104
Total current assets - 4,456 197 (36) 4,617
Property and equipment, at cost - 9,007 210 - 9,217
Accumulated depreciation - (3,945) (63) - (4,008)
Property and equipment, net - 5,062 147 - 5,209
Goodwill - 1,129 326 - 1,455
Intangible assets, net - 5 167 - 172
Other assets - 120 11 - 131
Intercompany (payable)
receivable (759) 297 3,662 (3,200) -
Investment in subsidiaries 4,777 - - (4,777) -
Total assets $ 4,018 $11,069 $ 4,510 $ (8,013) $11,584
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ 138 $ - $ - $ 138
Current maturities of
long-term debt - 164 - - 164
Accounts payable - 953 95 - 1,048
Accrued expenses 4 889 92 (36) 949
Income taxes payable - (26) 43 - 17
Total current liabilities 4 2,118 230 (36) 2,316
Long-term debt - 3,933 1 - 3,934
Intercompany note payable - 3,200 - (3,200) -
Deferred income taxes - 751 65 - 816
Other liabilities - 977 10 (483) 504
ESOP preference shares 249 - - - 249
Unearned compensation (91) (91) - 91 (91)
Shareowners' equity 3,856 181 4,204 (4,385) 3,856
Total liabilities and
shareowners' equity $ 4,018 $11,069 $ 4,510 $ (8,013) $11,584
13
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Earnings
For the Thirteen Weeks Ended August 2, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Net sales $ - $ 2,833 $ 479 $ (312) $ 3,000
Cost of sales - 2,066 351 (299) 2,118
Selling, general, and
administrative expenses - 599 76 (18) 657
Restructuring costs - 318 - - 318
Interest expense (income), net:
External - 80 - - 80
Intercompany - 71 (71) - -
Equity in earnings of subsidiaries 110 - - (110) -
Earnings (loss) before income taxes (110) (301) 123 115 (173)
Provision (credit) for income taxes - (108) 45 - (63)
Net earnings (loss) $ (110) $ (193) $ 78 $ 115 $ (110)
Condensed Consolidating Statement of Earnings
For the Twenty-six Weeks Ended August 2, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Net sales $ - $ 5,538 $ 899 $ (564) $ 5,873
Cost of sales - 4,094 663 (551) 4,206
Selling, general, and
administrative expenses - 1,180 141 (24) 1,297
Restructuring costs - 318 - - 318
Interest expense (income), net:
External - 160 - - 160
Intercompany - 142 (142) - -
Equity in earnings of subsidiaries 38 - - (38) -
Earnings (loss) before income taxes (38) (356) 237 49 (108)
Provision (credit) for income taxes - (157) 87 - (70)
Net earnings (loss) $ (38) $ (199) $ 150 $ 49 $ (38)
14
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Statement of Cash Flows
For the Twenty-six Weeks Ended August 2, 2003
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
Operating activities:
Net earnings (loss) $ (38) $ (199) $ 150 $ 49 $ (38)
Equity in earnings of subsidiaries 38 - - (38) -
Depreciation and other
amortization - 262 14 - 276
Intangible asset amortization - 1 3 - 4
Asset impairment - 315 - - 315
(Increase) decrease in
working capital - (13) 14 - 1
Other, net 89 (33) (45) (11) -
Cash flows from operations 89 333 136 - 558
Investing activities:
Net additions to property
and equipment - (305) (28) - (333)
Business combinations - - (16) - (16)
Cash flows used for
investing activities - (305) (44) - (349)
Financing activities:
Net short-term debt repayments - (12) - - (12)
Net long-term debt repayments - (16) - - (16)
Net issuances (purchases)
of common stock (20) 7 - - (13)
Dividend payments (147) 1 - - (146)
Intercompany activity, net 78 - (78) - -
Cash flows used for
financing activities (89) (20) (78) - (187)
Increase in cash and
cash equivalents - 8 14 - 22
Cash and cash equivalents,
beginning of period - 37 18 - 55
Cash and cash equivalents,
end of period $ - $ 45 $ 32 $ - $ 77
15
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued) -
Condensed Consolidating Balance Sheet
As of January 31, 2004
(Unaudited)
(millions)
Subsidiary Other
Parent Issuer Subsidiaries Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ - $ 551 $ 13 $ - $ 564
Accounts receivable, net - 1,740 46 (31) 1,755
Merchandise inventories - 2,633 95 - 2,728
Other current assets - 76 32 (20) 88
Total current assets - 5,000 186 (51) 5,135
Property and equipment, at cost - 8,860 243 - 9,103
Accumulated depreciation - (3,882) (72) - (3,954)
Property and equipment, net - 4,978 171 - 5,149
Goodwill - 1,129 375 - 1,504
Intangible assets, net - 4 164 - 168
Other assets - 125 8 - 133
Intercompany (payable)
receivable (642) 161 3,706 (3,225) -
Investment in subsidiaries 4,981 - - (4,981) -
Total assets $ 4,339 $11,397 $ 4,610 $ (8,257) $12,089
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ - $ - $ - $ - $ -
Current maturities of
long-term debt - 239 - - 239
Accounts payable - 1,095 91 5 1,191
Accrued expenses 4 914 105 (56) 967
Income taxes payable - 240 40 - 280
Total current liabilities 4 2,488 236 (51) 2,677
Long-term debt - 3,796 1 - 3,797
Intercompany note payable - 3,225 - (3,225) -
Deferred income taxes - 706 67 - 773
Other liabilities - 985 9 (487) 507
ESOP preference shares 235 - - - 235
Unearned compensation (91) (91) - 91 (91)
Shareowners' equity 4,191 288 4,297 (4,585) 4,191
Total liabilities and
shareowners' equity $ 4,339 $11,397 $ 4,610 $ (8,257) $12,089
16
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Towards the end of the second quarter 2004 we experienced a weakening of the
sales momentum that had begun in late 2003. However, improved inventory
management and expense control enabled us to improve operating performance.
Second quarter 2004 net sales were $2.96 billion, a 1.5% decrease from the 2003
second quarter. Store-for-store sales decreased 2.2% for the quarter. Despite
good sales in a number of merchandise categories, our overall sales performance
did not meet our expectations in the second quarter. Sales began to slow in the
latter weeks of the second quarter and were especially affected by the movement
of the Texas state sales tax holiday and the related movement of a sales
promotion event at the Foley's division from the last week of July 2003 to the
first week of August 2004. Fashion accessories, as well as dressier ladies'
sportswear, ladies' suits, men's furnishings and tailored clothing performed
well. However, seasonal apparel and apparel clearance - a key July sales driver
- - were less than anticipated. In addition, the second quarter sales trend in
home furnishings lagged.
Net earnings were $101 million, or $.33 per share, for the second quarter
compared with a net loss of $110 million, or ($.39) per share, for the second
quarter 2003. Second quarter 2004 net earnings include restructuring charges
of $15 million, or $.03 per share. Second quarter 2003 net earnings included
restructuring charges of $318 million, or $.69 per share. Strong margin
performance related to higher initial mark-ups and improved markdown rates and
the continued positive effects of productivity improvements implemented in
2003 continued to drive improvements in operating results.
Net sales increased 0.8% to $5.92 billion for the first six months of 2004.
Net earnings were $177 million, or $.57 per share, for the first six months of
2004 compared with a net loss of $38 million, or ($.16) per share, for the
first six months of 2003. Net earnings for the first six months of 2004
include restructuring charges of $22 million, or $.05 per share. Net earnings
for the first six months of 2003 included restructuring charges of $318
million, or $.69 per share, and a $31 million, or $.10 per share, tax credit.
Effective July 31, 2004, we completed our acquisition of the Marshall Field's
department store group. Marshall Field's operates 62 department stores
primarily in the Chicago, Detroit and Minneapolis metropolitan areas. The
Marshall Field's acquisition gives us a leading position in those three large
upper Midwest markets. In addition, we anticipate that the addition of Marshall
Field's to our department store portfolio will improve our buying power, expand
our distribution network and produce economies of scale. The acquisition was
financed through $2.2 billion of long-term debt and $1.0 billion of short-term
borrowings and cash on hand.
During the first six months of 2004, we opened one new department store: a
Hecht's store in Wilmington, N.C. An additional seven department store openings
are planned for the second half of 2004. During the first half of 2004, we
also closed ten department stores we previously announced would be divested.
Year-to-date the Bridal Group has opened ten David's Bridal stores and seven
After Hours stores. The Bridal Group plans to open an additional 20 David's
Bridal stores and 13 After Hours stores by year-end. At the end of the second
quarter, including the 62 acquired Marshall Field's stores, we operated 497
department stores, 220 David's Bridal stores, 454 After Hours Formalwear
stores, and 10 Priscilla of Boston stores in 46 states, the District of
Columbia, and Puerto Rico.
17
Results of Operations
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
2004 2003 Inc.(Dec.) Decrease
Second quarter $2,956 $3,000 (1.5)% (2.2)%
First six months 5,919 5,873 0.8 (0.2)
The total net sales decrease of $44 million for the 2004 second quarter was
principally due to a $48 million decrease in store-for-store sales and a $52
million decrease related to divested store sales, offset by $60 million of new
store sales. The total net sales increase of $46 million for the first six
months of 2004 was principally due to a $133 million increase in new store
sales and a $21 million increase in store-for-store sales, offset by a $96
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
2004 2003 2004 2003
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales:
Recurring 69.9 70.6 70.7 71.6
Restructuring markdowns 0.2 0.0 0.2 0.0
Selling, general, and
administrative expenses 21.4 21.9 21.5 22.1
Restructuring costs 0.3 10.6 0.2 5.4
Interest expense, net 2.8 2.7 2.7 2.7
Earnings (loss) before income taxes 5.4 (5.8) 4.7 (1.8)
Income taxes 37.0* 37.0* 37.0* 65.4*
Net earnings (loss) 3.4% (3.6)% 3.0% (0.6)%
* - 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 31, 2004, recurring cost of sales as a percent of
net sales decreased 0.7%, principally because of a 1.2% decrease in the cost
of merchandise, offset by a 0.3% increase in buying and occupancy costs. For
the 26 weeks ended July 31, 2004, recurring cost of sales as a percent of net
sales decreased 0.9%, principally because of a 1.1% decrease in the cost of
merchandise. The lower merchandise costs were driven by improved levels of
mark-ups, as well as improved markdown rates.
18
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses as a percent of net sales
decreased from 21.9% in the second quarter 2003 to 21.4% in the second quarter
2004 because of a 0.5% decrease in payroll. Selling, general, and
administrative expenses as a percent of net sales decreased from 22.1% in the
first six months of 2003 to 21.5% in the first six months of 2004 principally
because of a 0.6% decrease in payroll.
Business Combinations
Effective July 31, 2004, we completed our acquisition of the Marshall Field's
department store group for a purchase price of $3.2 billion. Marshall Field's
operates 62 department stores primarily in the Chicago, Detroit and Minneapolis
metropolitan areas. We acquired substantially all of the assets that comprise
Marshall Field's, including stores, inventory, customer receivables, and
distribution centers and assumed certain liabilities, including accounts
payable and accrued expenses. The acquisition is being financed through $2.2
billion of long-term debt and $1.0 billion of short-term borrowings and cash on
hand. We also are acquiring the real estate associated with nine Mervyn's
store locations in the Twin Cities area. The Mervyn's locations were
transferred in August 2004.
Marshall Field's results of operations will be included in our consolidated
statement of earnings beginning August 1, 2004. Our July 31, 2004,
consolidated balance sheet includes the assets acquired and liabilities assumed
using a preliminary purchase price allocation. The purchase price allocation
is based on preliminary estimates and is subject to final third-party
valuations.
Restructuring Costs
In July 2003, we announced our intention to divest 34 underperforming
department stores. These divestitures will result in total estimated charges
of $380 million, consisting of asset impairments of $317 million, liquidation
markdowns of $35 million, severance benefits of $23 million, and other charges
of $5 million. Approximately $50 million of the $380 million represents the
cash cost of the store divestitures, not including the benefit from future tax
credits. Of the $380 million of expected total charges, $350 million has been
recognized to date. We recognized $15 million and $22 million in the second
quarter and first six months of 2004, respectively, and $318 million was
recognized in the second quarter and first six months of 2003.
Asset impairment charges were recorded to reduce store assets to their
estimated fair value because of the shorter period over which they will be
used. Estimated fair values were based on estimated market values for similar
assets. The company is negotiating agreements with landlords and developers
for each store divestiture. Through the end of the 2004 second quarter, 19
stores have been closed. Severance benefits are recognized as each store is
closed. Severance benefits of $10 million for approximately 1,600 associates
and liquidation markdowns and other costs of $23 million have been incurred to
date. Remaining amounts will be recognized as each store is divested.
Interest Expense
Components of net interest expense were (millions):
Second Quarter First Six Months
2004 2003 2004 2003
Interest expense $ 87 $ 85 $169 $170
Interest income (3) - (7) (1)
Capitalized interest (2) (5) (4) (9)
Net interest expense $ 82 $ 80 $158 $160
19
On July 20, 2004, we issued $2.2 billion of long-term debt maturing over three
to 30 years at a weighted average interest rate, including amortized hedge and
financing costs, of 5.71% to partially fund the Marshall Field's acquisition.
The new debt resulted in additional interest expense of $4 million, or $0.01
per share, in the second quarter.
In anticipation of the issuance of debt related to the Marshall Field's
acquisition, we entered into treasury lock agreements to hedge interest rate
fluctuations. Upon issuance of the debt, we recorded a $27 million decrease
to accumulated other comprehensive income. This amount will be amortized into
earnings through increases to interest expense over the life of the debt.
Short-term borrowings were (dollars in millions):
Second Quarter First Six Months
2004 2003 2004 2003
Average balance outstanding $ 23 $321 $ 12 $285
Average interest rate on
average balance 1.6% 1.3% 1.6% 1.3%
Income Taxes
The effective tax rate for the first six months of 2004 was 37.0%, compared
with 65.4% for the first six months of 2003. The change is due to a $31
million tax credit recorded in the first quarter 2003 upon the resolution of
various federal and state income tax issues. Excluding the $31 million tax
credit, our first quarter 2003 estimated effective tax rate was 37.0%.
Trailing Years' Results
Operating results for the trailing years were as follows (millions, except per
share):
July 31, Aug. 2,
2004 2003
Net sales $ 13,389 $ 13,238
Net earnings $ 649 $ 365
Diluted earnings per share $ 2.14 $ 1.15
Financial Condition
Cash Flows
Cash flows from operations were $565 million and $558 million in the first six
months of 2004 and 2003, respectively.
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.
In the second quarter 2004, we announced the suspension of our $500 million
special share repurchase program and the suspension of our common stock
repurchase program used to repurchase shares issued through our employee
benefit plans.
On August 1, 2004, we redeemed $200 million 8-3/8% debentures due in 2024.
Early redemption costs of $10 million, or $.02 per share, will be recorded in
the 2004 third quarter.
20
Financial Ratios
Key financial ratios as of and for the twenty-six weeks ended July 31, 2004
and August 2, 2003 and as of and for the fifty-two weeks ended January 31, 2004
are as follows:
July 31, Aug. 2, Jan. 31,
2004 2003 2004
Current Ratio 1.6 2.0 1.9
Debt-Capitalization Ratio 58% 49% 46%
Fixed Charge Coverage 2.4x 0.4x 2.6x
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. 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. Long-term debt is at fixed interest rates. Our merchandise
purchases are denominated in United States dollars. Operating expenses of our
international offices located outside the United States are generally paid in
local currency and are not material. 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 or 2003.
Item 4 - Controls and Procedures.
As of the end 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 Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of
the Securities Exchange Act of 1934, as amended). Based upon that evaluation,
the Chief Executive Officer and 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 or in other
factors that could significantly affect these controls subsequent to the date
the controls were evaluated.
On July 31, 2004, we acquired the operating assets of the Marshall Field's
department store group from Target Corporation. Target will continue to
provide accounting and other systems support for Marshall Field's over a
transition period not to exceed eight months while we migrate Marshall Field's
to our information technology systems. Target and its operating divisions
generally operate under a common set of controls and information technology
21
systems. During the transition period, Marshall Field's will be subject to the
same financial reporting controls historically provided by Target. Target has
not disclosed any significant control deficiencies or significant changes in
its internal controls in previous public filings.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The company is involved in 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
In February 2004, the company's board of directors authorized a common stock
repurchase program of $500 million. In July 2004, the company announced the
indefinite suspension of its $500 million special common stock repurchase
program, of which $482 million of shares were still available for repurchase.
In addition, the company suspended its common stock repurchase program used to
repurchase shares issued through its employee benefit plans. In the second
quarter 2004, the company did not repurchase any shares of common stock under
any programs.
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 May 21,
2004.
(b) At the annual meeting of shareowners of registrant held on May 21,
2004, the registrant's voting securities carried 305,359,960 votes, of
which 271,189,394 were voted at the meeting. Action was taken with
respect to:
(i) the election of five directors of registrant;
Authority
For Withheld
Eugene S. Kahn 179,500,453 91,688,941
Helene L. Kaplan 181,359,811 89,829,583
James M. Kilts 181,500,026 89,689,368
Russell E. Palmer 185,025,999 86,163,395
William P. Stiritz 180,184,509 91,004,885
These directors will serve along with the following other
directors whose term of office as a director continued after the
meeting: John L. Dunham, Marsha J. Evans, Michael R. Quinlan,
Joyce M. Roche', Edward E. Whitacre, Jr., and R. Dean Wolfe.
(ii) a ratification of the appointment of Deloitte and Touche LLP as
independent auditors (267,737,947 votes in favor, 1,784,715
votes against and 1,666,732 votes abstained);
(iii) a resolution to approve an amendment to the company's Executive
Incentive Compensation Plan for Corporate Executives
(254,074,587 votes in favor, 14,552,851 votes against and
2,561,956 votes abstained);
22
(iv) a resolution to approve an amendment to the company's 1994 Stock
Incentive Plan (224,262,735 votes in favor, 24,284,596 votes
against, 2,404,845 votes abstained and 20,237,218 not voted);
(v) a proposal relating to a classified board of directors
(194,198,603 votes in favor, 53,431,523 votes against, 3,320,842
votes abstained and 20,238,426 not voted).
Item 5 - Other Information - None.
Item 6 - Exhibits and Reports on Form 8-K
(a)Exhibits
3.3 - By-laws
12 - Computation of Ratio of Earnings to Fixed Charges
15 - Letter Regarding Unaudited Interim Financial Information
31.1 - Certification Pursuant to Exchange Act 13a-15 and 15d-15(e)
31.2 - Certification Pursuant to Exchange Act 13a-15 and 15d-15(e)
32 - Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002(18 U.S.C) Section 1350, as adopted)
(b) Reports on Form 8-K
A report dated June 10, 2004, which furnished a company press release
announcing that the Company has entered into an Asset Purchase
Agreement with Target Corporation to purchase the assets and business
of Marshall Field's department store group and nine Mervyn's store
locations.
A report dated July 13, 2004, which filed information concerning debt
ratings.
A report dated July 13, 2004, which furnished a company press release
announcing that the Company commenced a private placement offering of
securities in the long-term public debt markets.
A report dated July 21, 2004, which filed information related to the
private placement offering commenced on July 13, 2004.
A report dated August 2, 2004, which furnished a company press release
announcing the closing of the Marshall Field's department store group
acquisition.
A report dated August 10, 2004, which furnished a company press
release providing information on its earnings for the 13 and 26 weeks
ended July 31, 2004.
A report dated August 27, 2004, which filed the company's Amended and
Restated Credit Agreement effective August 24, 2004, as a material
contract.
A report dated September 3, 2004, which filed the Amended and Restated
Rights Agreement.
23
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: September 3, 2004
/s/ Thomas D. Fingleton
Thomas D. Fingleton
Executive Vice President and
Chief Financial Officer
24
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 31,
2004 and August 2, 2003, and the related condensed consolidated statements of
earnings for the thirteen and twenty-six week periods ended July 31, 2004 and
August 2, 2003, and of cash flows for the twenty-six week periods ended July
31, 2004 and August 2, 2003. These interim financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and of
making inquiries of persons responsible for financial and accounting matters.
It is substantially less in scope than an audit conducted in accordance with
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 standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
the Company as of January 31, 2004, 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 19, 2004, 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 31, 2004 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
St. Louis, Missouri
September 2, 2004
Exhibit 12
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE FIVE FISCAL YEARS ENDED JANUARY 31, 2004 AND FOR THE
TWENTY-SIX WEEKS ENDED JULY 31, 2004 AND AUGUST 2, 2003
(dollars in millions)
26 Weeks Ended Fiscal Year Ended
July 31, Aug. 2, Jan. 31, Feb. 1, Feb. 2, Feb. 3, Jan.29,
2004 2003 2004 2003 2002 2001 2000
Earnings Available for Fixed Charges:
Pretax earnings $ 281 $ (108) $ 639 $ 820 $1,139 $1,402 $1,523
Fixed charges (excluding interest
capitalized and pretax preferred
stock dividend requirements) 185 185 367 405 411 406 346
Dividends on ESOP preference shares (8) (9) (18) (20) (22) (23) (24)
Capitalized interest amortization 5 5 10 9 8 8 7
$ 463 $ 73 $ 998 $1,214 $1,536 $1,793 $1,852
Fixed Charges:
Gross interest expense (a) $ 171 $ 175 $ 345 $ 392 $ 401 $ 395 $ 340
Interest factor attributable to
rent expense 19 20 38 36 32 28 22
$ 190 $ 195 $ 383 $ 428 $ 433 $ 423 $ 362
Ratio of Earnings to Fixed Charges 2.4 0.4 2.6 2.8 3.5 4.2 5.1
(a) Represents interest expense on long-term and short-term debt, ESOP debt and amortization of debt
discount and debt issue expense.
Exhibit 15
September 2, 2004
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 31, 2004 and August 2, 2003, as indicated in our reports dated September
2, 2004 and September 9, 2003; 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 31, 2004 and August
2, 2003, are incorporated by reference in Registration Statements Nos. 333-
59792, 333-76227, 333-00957, 333-103352 and 333-111987 on Form S-8 and
Registration Statements Nos. 333-42940 and 333-42940-01 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is 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
DELOITTE & TOUCHE LLP
St. Louis, Missouri
Exhibit 31.1
CERTIFICATION
I, Eugene S. Kahn, 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)) 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) 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
c) 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 (the registrant's fourth fiscal quarter in the case of
an annual report) 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: September 3, 2004 /s/ Eugene S. Kahn
Eugene S. Kahn
Chairman of the Board and
Chief Executive Officer
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)) 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) 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
c) 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 (the registrant's fourth fiscal quarter in the case of an
annual report) 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: September 3, 2004 /s/ Thomas D. Fingleton
Thomas D. Fingleton
Executive Vice President and
Chief Financial Officer
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 ending July 31, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), we,
Eugene S. Kahn, Chairman of the Board 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: September 3, 2004
/s/ Eugene S. Kahn /s/ Thomas D. Fingleton
Eugene S. Kahn Thomas D. Fingleton
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer