-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VVf//REZKx75ggRBW3rUn5HCAZWB3kQJvzJmmRCij+I4L5Ubs50HIJbHLaZY41TE OZXPA0M3WP4zayokVFMY2g== 0000063416-01-500007.txt : 20010426 0000063416-01-500007.hdr.sgml : 20010426 ACCESSION NUMBER: 0000063416-01-500007 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010203 FILED AS OF DATE: 20010425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAY DEPARTMENT STORES CO CENTRAL INDEX KEY: 0000063416 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 431104396 STATE OF INCORPORATION: DE FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-00079 FILM NUMBER: 1610621 BUSINESS ADDRESS: STREET 1: 611 OLIVE ST CITY: ST LOUIS STATE: MO ZIP: 63101 BUSINESS PHONE: 3143426300 10-K405 1 tenk.txt FORM 10-K FOR THE FISCAL YEAR ENDED FEB. 3, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 3, 2001 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) Registrant's telephone number, including area code: (314) 342-6300 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, par value $.50 per share New York Stock Exchange Preferred stock purchase rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the registrant's common stock held by non-affiliates as of April 7, 2001: $10,494,151,852 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 298,924,692 shares of common stock, $.50 par value, as of April 7, 2001. Documents incorporated by reference: 1. Portions of the registrant's 2000 Annual Report to Shareowners are incorporated into Parts I and II. 2. Portions of the registrant's 2001 Proxy Statement, dated April 20, 2001, are incorporated into Part III. PART I Items 1 and 2. Business and Description of Property The May Department Stores Company ("May"), a corporation organized under the laws of the State of Delaware in 1976, became the successor to The May Department Stores Company, a New York corporation ("May NY") in a reincorporation from New York to Delaware pursuant to a statutory share exchange accomplished in 1996. As a result of the share exchange, May NY became a wholly- owned subsidiary of May. May NY was organized under the laws of the State of New York in 1910, as the successor to a business founded by David May, who opened his first store in Leadville, Colorado, in 1877. May operates eight quality regional department store companies nationwide under 11 trade names. May also operates David's Bridal, Inc., which is the nation's largest retailer of bridal gowns and bridal-related merchandise. At fiscal year-end 2000, May operated 427 department stores and 123 David's Bridal stores in 43 states, the District of Columbia and Puerto Rico. The department store companies and the markets served are shown in the table below. Store Company Markets Served Lord & Taylor 33 markets, including New York/New Jersey Metro, Chicago, Boston, Dallas/Fort Worth, Philadelphia Metro, Washington D.C. Metro, Detroit, Houston, Atlanta, and Miami Hecht's and 19 markets, including Washington D.C. Metro, Strawbridge's Philadelphia Metro (Strawbridge's), Baltimore, Norfolk, and Richmond Foley's 17 markets, including Houston, Dallas/Fort Worth, Denver, San Antonio, Austin, and Oklahoma City Robinsons-May 9 markets, including Los Angeles/Orange County, Riverside/San Bernardino, Phoenix, San Diego, and Las Vegas Filene's 16 markets, including Boston Metro, Southern Connecticut, Hartford, Providence Metro, and Albany Kaufmann's 22 markets, including Pittsburgh, Cleveland, Buffalo, and Rochester Famous-Barr, L.S. 24 markets, including St. Louis Metro, Kansas Ayres and The City Metro(The Jones Store), and Indianapolis Jones Store (L.S. Ayres) Meier & Frank 10 markets, including Portland/Vancouver Metro and Salt Lake City Metro David's Bridal 123 stores in 36 states and Puerto Rico 2 We plan to open 22 department stores in 2001 in the following cities: Lord & Taylor: Foley's: Columbus, OH Baton Rouge, LA (2) Washington, D.C. Houston, TX Palm Beach, FL Lafayette, LA Plano, TX Memorial City, TX Tampa, FL N. Richland Hills, TX Plano, TX Hecht's: Robinsons-May: Landover, MD Chandler, AZ Nashville, TN (5) South Durham, NC Kaufmann's: Columbus, OH Famous-Barr: St. Louis, MO May employs approximately 63,000 full-time and 74,000 part-time associates in 43 states, the District of Columbia, Puerto Rico and 10 offices overseas. Management's Discussion and Analysis (pages 18-21) of May's 2000 Annual Report to Shareowners is incorporated herein by reference. A. Property Ownership The following summarizes the property ownership of department stores and David's Bridal stores at February 3, 2001:
% of Gross Number of Building Stores* Sq. Footage Department David's Department David's Stores Bridal Stores Bridal Entirely or mostly owned 241 2 60% 2% Entirely or mostly leased 112 121 26 98 Owned on leased land 74 - 14 - 427 123 100% 100%
* Includes a total of 18 department stores and 2 David's Bridal stores subject to financing. B. Credit Sales Sales at May's stores are made for cash or credit, including May's 30-day charge accounts and open-end credit plans, which include revolving charge accounts and revolving installment accounts. During the fiscal year ended February 3, 2001, 40.3% of department store net retail sales were made through May's credit plans. In 1991, May formed May National Bank of Arizona (MBA) and May National Bank of Ohio (MBO), which are indirectly wholly-owned and consolidated subsidiaries of May. During fiscal 2000, MBA and MBO extended credit to customers of May's Lord & Taylor, Foley's, Hecht's, Strawbridge's, Robinsons- May, Filene's, Kaufmann's, Famous-Barr, L.S. Ayres, The Jones Store and Meier & Frank department stores companies. Throughout 2000, MBA and MBO sold the resulting accounts receivables at face value 3 to May NY. In addition, MBA and MBO process remittances for their parent, Grande Levee, Inc., and its other subsidiaries. MBA and MBO receive processing fee revenue for this service. C. Competition in Retail Merchandising May conducts its retail merchandising business under highly competitive conditions. Although May is one of the nation's largest department store retailers, it has numerous competitors at the national and local level which compete with May's individual department stores and David's Bridal. Competition is characterized by many factors including location, reputation, assortment, advertising, price, quality, service, and credit availability. May believes that it is in a strong competitive position with regard to each of these factors. D. May Merchandising Company/May Department Stores International, Inc. May Merchandising Company ("MMC"), an indirectly wholly-owned and consolidated subsidiary of May, identifies emerging fashion trends in both domestic brands and our exclusive private-label merchandise. MMC works closely with our eight department store companies and our merchandise vendors to communicate emerging fashion trends, to develop meaningful merchandise assortments and negotiate the best overall terms for delivery of merchandise in a timely manner to our stores. May Department Stores International, Inc. ("MDSI"), a wholly-owned and consolidated subsidiary of May, is primarily a design and sourcing company. MDSI owns all trade names and marks associated with private-label merchandise and develops, designs, sources, imports, and distributes them for May. MDSI has approximately 70 to 80 private labels in use at the department store companies and employs approximately 800 persons worldwide. In addition, to its corporate office in St. Louis, MDSI operates offices in New York City and ten countries. E. Executive Officers of May The names and ages (as of April 25, 2001) of all executive officers of May, and the positions and offices held with May by each such person are as follows: Name Age Positions and Offices Eugene S. Kahn 51 President and Chief Executive Officer Jerome T. Loeb 60 Chairman of the Board John L. Dunham 54 Vice Chairman and Chief Financial Officer Richard W. Bennet III 48 Vice Chairman William P. McNamara 50 Vice Chairman Judith K. Hofer 61 President and Chief Executive Officer, May Merchandising Company Thomas D. Fingleton 53 Executive Vice President R. Dean Wolfe 57 Executive Vice President Alan E. Charlson 52 Senior Vice President and General Counsel Martin M. Doerr 46 Senior Vice President William D. Edkins 48 Senior Vice President Lonny J. Jay 59 Senior Vice President Jan R. Kniffen 52 Senior Vice President Richard A. Brickson 53 Secretary and Senior Counsel Michael G. Culhane 38 Vice President 4 Each of the above named executive officers shall remain in office until the annual meeting of directors following the next annual meeting of shareowners of May and until the officer's successor shall have been elected and shall qualify. Messrs. Kahn, Loeb, Dunham, and Wolfe are also directors of May. Mr. Loeb will retire as an officer and director on April 30, 2001. At that time Mr. Kahn will become chairman of the board and chief executive officer, Mr. Dunham will become president, and Mr. Fingleton will become executive vice president and chief financial officer. Each of the executive officers has been an officer of May for at least the last five years, with the following exceptions: - - Mr. Kahn served as president and chief executive officer of Filene's from 1992 to March 1996 when he became vice chairman. He was appointed executive vice chairman in June 1997 and assumed his current position in May 1998. - - Mr. Dunham served as chairman of May Merchandising Company from 1993 to May 1996 when he became executive vice president and chief financial officer and an executive officer of May. He assumed his current position in November of 1999. - - Mr. Bennet served as president and chief executive officer of Famous-Barr from 1995 to 1997 and as president and chief executive officer of Kaufmann's from 1997 to February 2000 when he became vice chairman and an executive officer of May. - - Mr. McNamara served as senior vice president and general merchandise manager for May Merchandising Company from 1995 to 1997, president and chief executive officer of Famous-Barr from 1997 to 1998, and president of May Merchandising Company from 1998 to February 2000 when he became vice chairman and an executive officer of May. - - Ms. Hofer served as president and chief executive officer of Meier & Frank from 1988 to 1996, president and chief executive officer of Filene's from 1996 to 1999, chief executive officer of Filene's from 1999 to February 2000 when she assumed her current position and became an executive officer of May. - - Mr. Fingleton served as chairman of Hecht's from 1991 to May 2000 when he became executive vice president and an executive officer of May. - - Mr. Charlson served as senior counsel for May from 1988 to 1998 when he became senior vice president and chief counsel and an executive officer of May. He assumed his current position in January of 2001. - - Mr. Culhane was associated with the public accounting firm of Arthur Andersen LLP from 1984 to 1997. He served in a financial position for May from 1997 to 1998 when he became vice president and an executive officer of May. Item 3. Legal Proceedings There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which May or any of its subsidiaries is a party or of which any of their property is the subject. 5 Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the 14 weeks ended February 3, 2001. PART II Item 5. Market for May's Common Equity and Related Shareowner Matters Common Stock Dividends and Market Prices (page 21) of May's 2000 Annual Report to Shareowners are incorporated herein by reference. Item 6. Selected Financial Data The Eleven Year Financial Summary (pages 32 and 33) of May's 2000 Annual Report to Shareowners is incorporated herein by reference. In addition, basic earnings per share from continuing operations and the weighted average shares used to calculate basic earnings per share for the last five years are as follows: Earnings Shares Per Share (millions) 2000 $ 2.74 306.4 1999 2.73 332.2 1998 2.43 342.6 1997 2.18 348.5 1996 1.97 370.8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis (pages 18-21) and Notes to Consolidated Financial Statements (pages 26-31) of May's 2000 Annual Report to Shareowners are incorporated herein by reference. Item 8. Financial Statements and Supplementary Data Consolidated Financial Statements (pages 22-25), Notes to Consolidated Financial Statements (pages 26-31), Report of Independent Public Accountants (page 36), and Quarterly Results (page 26) of May's 2000 Annual Report to Shareowners are incorporated herein by reference. 6 CONDENSED CONSOLIDATING FINANCIAL INFORMATION - The May Department Stores Company, Delaware ("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, and David's Bridal, Inc. and subsidiaries. Subsidiary Issuer financial statements have been restated for all periods presented to reflect a February 3, 2001, reorganization of MDSI as a direct wholly-owned subsidiary of Parent rather than of the Subsidiary Issuer. Condensed consolidating balance sheets as of February 3, 2001, and January 29, 2000, and the related condensed consolidating statements of earnings and cash flows for each of the three fiscal years in the period ended February 3, 2001, are provided as required by recent Securities and Exchange Commission rule changes.
Condensed Consolidating Balance Sheet As of February 3, 2001 (Millions) Subsidiary Other Parent Issuer Subsidiaries Eliminations Consolidated ASSETS Current assets: Cash and cash equivalents $ - $ 137 $ 19 $ - $ 156 Accounts receivable, Net - 2,076 43 (38) 2,081 Merchandise inventories - 2,877 61 - 2,938 Other current assets - 86 10 (1) 95 Total current assets - 5,176 133 (39) 5,270 Property and equipment, at cost - 8,093 74 - 8,167 Accumulated depreciation - (3,254) (14) - (3,268) Property and equipment, net - 4,839 60 - 4,899 Goodwill and other assets - 1,062 343 - 1,405 Intercompany receivable/ (payable) (648) 449 199 - - Investment in subsidiaries 4,808 - - (4,808) - Total assets $4,160 $11,526 $ 735 $ (4,847) $11,574 LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Current maturities of long-term debt $ - $ 85 $ - $ - $ 85 Accounts payable - 922 43 - 965 Accrued expenses 6 857 47 (39) 871 Income taxes payable (receivable) - 299 (6) - 293 Total current liabilities 6 2,163 84 (39) 2,214 Long-term debt - 4,531 3 - 4,534 Intercompany note payable (receivable) - 3,200 (3,200) - - Deferred income taxes - 583 3 - 586 Other liabilities - 777 - (442) 335 ESOP preference shares 299 - - - 299 Unearned compensation - (249) - - (249) Shareowners' equity 3,855 521 3,845 (4,366) 3,855 Total liabilities and shareowner's equity $4,160 $11,526 $ 735 $ (4,847) $11,574
7
Condensed Consolidating Statement of Earnings For the Fiscal Year Ended February 3, 2001 (Millions) Subsidiary Other Parent Issuer Subsidiaries Eliminations Consolidated Revenues $ - $14,406 $ 1,283 $ (1,178) $14,511 Cost of sales - 9,907 1,115 (1,093) 9,929 Selling, general, and administrative expenses - 2,870 63 (98) 2,835 Interest expense (income) net: External - 346 (1) - 345 Intercompany - 287 (287) - - Equity in earnings of subsidiaries (858) - - 858 - Earnings before income taxes 858 996 393 (845) 1,402 Provision for income taxes - 404 140 - 544 Net earnings $ 858 $ 592 $ 253 $ (845) $ 858
Condensed Consolidating Statement of Cash Flows For the Fiscal Year Ended February 3, 2001 (Millions) Subsidiary Other Parent Issuer Subsidiaries Eliminations Consolidated Operating activities: Net earnings $ 858 $ 592 $ 253 $ (845) $ 858 Equity in earnings of subsidiaries (858) - - 858 - Depreciation and amortization - 501 10 - 511 (Increase)in working capital (8) (41) (22) - (71) Other, net 647 (545) (41) (13) 48 Total operating activities 639 507 200 - 1,346 Investing activities: Net additions to property and equipment - (539) (11) - (550) Business combination (427) - 7 - (420) Total investing activities (427) (539) (4) - (970) Financing activities: Issuances of long-term debt - 1,076 - - 1,076 Repayments of long-term debt - (241) - - (241) Net (purchases) issuances of common stock (815) 23 - - (792) Dividend payments (309) 5 - - (304) Intercompany activity, net 912 (725) (187) - - Total financing activities (212) 138 (187) - (261) Increase in cash and cash equivalents - 106 9 - 115 Cash and cash equivalents, beginning of year - 31 10 - 41 Cash and cash equivalents, end of year $ - $ 137 $ 19 $ - $ 156
8
Condensed Consolidating Balance Sheet As of January 29, 2000 (Millions) Subsidiary Other Parent Issuer Subsidiaries Eliminations Consolidated ASSETS Current assets: Cash and cash equivalents $ - $ 31 $ 10 $ - $ 41 Accounts receivable, net - 2,171 38 (36) 2,173 Merchandise inventories - 2,811 6 - 2,817 Other current assets - 83 1 - 84 Total current assets - 5,096 55 (36) 5,115 Property and equipment, at cost - 7,780 17 - 7,797 Accumulated depreciation - (3,019) (9) - (3,028) Property and equipment, net - 4,761 8 - 4,769 Goodwill and other assets - 1,050 1 - 1,051 Intercompany receivable/ (payable) - (157) 157 - - Investment in subsidiaries 4,407 - - (4,407) - Total assets $ 4,407 $ 10,750 $ 221 $(4,443) $10,935 LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Current maturities of long-term debt $ - $ 259 $ - $ - $ 259 Accounts payable - 982 48 - 1,030 Accrued expenses 15 891 22 (36) 892 Income taxes payable - 234 - - 234 Total current liabilities 15 2,366 70 (36) 2,415 Long-term debt - 3,560 - - 3,560 Intercompany note payable (receivable) - 3,200 (3,200) - - Deferred income taxes - 540 - - 540 Other liabilities - 743 - (429) 314 ESOP preference shares 315 - - - 315 Unearned compensation - (286) - - (286) Shareowners' equity 4,077 627 3,351 (3,978) 4,077 Total liabilities and shareowners' equity $ 4,407 $ 10,750 $ 221 $(4,443) $10,935
9 Condensed Consolidating Statement of Earnings For the Fiscal Year Ended January 29, 2000 (Millions) Subsidiary Other Parent Issuer Subsidiaries Eliminations Consolidated Revenues $ - $13,866 $ 1,052 $ (1,052) $ 13,866 Cost of sales - 9,413 937 (980) 9,370 Selling, general, and administrative expenses - 2,744 14 (72) 2,686 Interest expense (income), net: External - 287 - - 287 Intercompany - 285 (285) - - Equity in earnings of subsidiaries (927) - - 927 - Earnings before income taxes 927 1,137 386 (927) 1,523 Provision for income taxes - 461 135 - 596 Net earnings $ 927 $ 676 $ 251 $ (927) $ 927
Condensed Consolidating Statement of Cash Flows For the Fiscal Year Ended January 29, 2000 (Millions) Subsidiary Other Parent Issuer Subsidiaries Eliminations Consolidated Operating activities: Net earnings $ 927 $ 676 $ 251 $ (927) $ 927 Equity in earnings of subsidiaries (927) - - 927 - Depreciation and amortization - 468 1 - 469 (Increase) Decrease in working capital 6 (4) 12 - 14 Other, net (14) 139 (5) - 120 Total operating activities (8) 1,279 259 - 1,530 Investing activities: Net additions to property and equipment - (677) (1) - (678) Business combination - (40) - - (40) Total investing activities - (717) (1) - (718) Financing activities: Repayments of long-term debt - (135) - - (135) Net (purchases) issuances of common stock (452) 18 - - (434) Dividend payments (319) 5 - - (314) Intercompany activity, net 779 (528) (251) - - Total financing activities 8 (640) (251) - (883) Increase (decrease) in cash and cash equivalents - (78) 7 - (71) Cash and cash equivalents, beginning of year - 109 3 - 112 Cash and cash equivalents, end of year $ - $ 31 $ 10 $ - $ 41
10
Condensed Consolidating Statement of Earnings For the Fiscal Year Ended January 30, 1999 (Millions) Subsidiary Other Parent Issuer Subsidiaries Eliminations Consolidated Revenues $ - $ 13,090 $ 1,014 $ (1,014) $ 13,090 Cost of sales - 8,945 905 (949) 8,901 Selling, general, and administrative expenses - 2,577 4 (65) 2,516 Interest expense (income), net: External - 278 - - 278 Intercompany - 285 (285) - - Equity in earnings of subsidiaries (849) - - 849 - Earnings before income taxes 849 1,005 390 (849) 1,395 Provision for income taxes - 409 137 - 546 Net earnings $ 849 $ 596 $ 253 $ (849) $ 849
Condensed Consolidating Statement of Cash Flows For the Fiscal Year Ended January 30, 1999
(Millions) Subsidiary Other Parent Issuer Subsidiaries Eliminations Consolidated Operating activities: Net earnings $ 849 $ 596 $ 253 $ (849) $ 849 Equity in earnings of subsidiaries (849) - - 849 - Depreciation and amortization - 437 2 - 439 Decrease in working capital 1 151 6 - 158 Other, net 16 50 (7) - 59 Total operating activities 17 1,234 254 - 1,505 Investing activities: Net additions to property and equipment - (585) (1) - (586) Business combination - (302) - - (302) Total investing activities - (887) (1) - (888) Financing activities: Issuances of long-term debt - 350 - - 350 Repayments of long-term debt - (221) - - (221) Net (purchases) issuances of common stock (559) 34 - - (525) Dividend payments (315) 7 - - (308) Intercompany activity, net 857 (608) (249) - - Total financing activities (17) (438) (249) - (704) Increase (decrease) in cash and cash equivalents - (91) 4 - (87) Cash and cash equivalents, beginning of year - 200 (1) - 199 Cash and cash equivalents, end of year $ - $ 109 $ 3 $ - $ 112
11 Prior to fiscal year-end 2000, Parent was required to provide only summarized financial information for Subsidiary Issuer, which owned 100% of MDSI's common stock before the reorganization discussed above. Below is a restatement of Subsidiary Issuer's summarized financial position as of January 29, 2000, and summarized operating results for each of the two fiscal years in the period ending January 29, 2000, as if the reorganization had occurred on February 1, 1998. The "As Reported" information was previously reported in Parent's Form 10-K filed April 20, 2000. January 29, 2000 As Reported Adjustments As Restated Financial Position Current assets $5,104 $ (8) $5,096 Noncurrent assets 5,818 (164) 5,654 Current liabilities 2,425 (59) 2,366 Noncurrent liabilities 8,043 - 8,043 Fiscal year ended January 29, 2000 As Reported Adjustments As Restated Operating Results Revenues $13,866 $ - $13,866 Cost of sales 9,370 43 9,413 Net earnings 739 (63) 676 Fiscal year ended January 30, 1999 As Reported Adjustments As Restated Operating Results Revenues $13,090 $ - $13,090 Cost of sales 8,901 44 8,945 Net earnings 662 (66) 596 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Items 10, 11, 12, 13. Directors and Executive Officers of May, Executive Compensation, Security Ownership of Certain Beneficial Owners and Management, Certain Relationships and Related Transactions Pursuant to paragraph G (Information to be Incorporated by Reference) of the General Instructions to Form 10-K, the information required by Items 10, 11, 12 and 13 (other than information about executive officers of May) is incorporated by reference from the definitive proxy statement dated April 20, 2001, and filed pursuant to Regulation 14A. Information about executive officers of May is set forth in Part I of this Form 10-K, under the heading "Items 1. and 2. Business and Description of Property." 12 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this report: (1) Financial Statements. Incorporated by reference to May's 2000 Annual Report to Shareowners (Exhibit 13): Page in Annual Report Financial Statements- Consolidated Statement of Earnings for the three fiscal years ended February 3, 2001 22 Consolidated Balance Sheet - February 3, 2001, and January 29, 2000 23 Consolidated Statement of Cash Flows for the three fiscal years ended February 3, 2001 24 Consolidated Statement of Shareowners' Equity for the three fiscal years ended February 3, 2001 25 Notes to Consolidated Financial Statements 26-31 Report of Independent Public Accountants 36 Page in this Report (2) Supplemental Financial Statement Schedule (for the three fiscal years ended February 3, 2001): Report of Independent Public Accountants on Schedule II 17 Schedule II Valuation and Qualifying Accounts 18 (3) Exhibits: Location 3.1 Amended and Restated Certificate Incorporated of Incorporation of May, by Reference dated May 22, 1996 to Exhibit 4(a) of Post Effective Amendment No. 1 to Form S-8, filed May 29, 1996. 3.2 Certificate of Amendment of the Incorporated Amended and Restated Certificate of by Reference Incorporation, dated May 21, 1999 to Exhibit 3(b) of Form 10-Q filed June 8, 1999. 3.3 By-Laws of May, as amended Filed herewith. 10.1 1994 Stock Incentive Plan Incorporated by Reference to Exhibit 10.1 of Form 10-K, filed April 19, 2000. 13 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) (3) Exhibits (continued): Location 10.2 Deferred Compensation Plan Incorporated by Reference to Exhibit 10.2 of Form 10-K, filed April 19, 2000. 10.3 Executive Incentive Compensation Incorporated by Plan for Corporate Executives Reference to Exhibit 10.3 of Form 10-K, filed April 19, 2000. 10.4 Form of Employment Agreement Incorporated by Reference to Exhibit 10.4 of Form 10-K filed April 19, 2000. 12 Computation of Ratio of Filed Earnings to Fixed Charges herewith. 13 The May Department Stores Filed Company 2000 Annual Report to herewith. Shareowners (only those portions specifically incorporated by reference shall be deemed filed with the Commission) 21 Subsidiaries of May Filed herewith. 23 Consent of Independent Public Page 17 of Accountants this Report. 99 Form 11-K Annual Report of the Filed Profit Sharing and Savings Plan herewith. of The May Department Stores Company for the fiscal year ended December 31, 2000 (4) Reports on Form 8-K None. All other schedules and exhibits of May for which provision is made in the applicable regulations of the Securities and Exchange Commission have been omitted, as they are not required or are inapplicable or the information required thereby has been given otherwise. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, May has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE MAY DEPARTMENT STORES COMPANY Date: April 25, 2001 By: /s/ John L. Dunham John L. Dunham Director, Vice Chairman and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of May and in the capacities and on the dates indicated. Date Signature Title Principal Executive Officer: April 25, 2001 /s/ Eugene S. Kahn Director, Eugene S. Kahn President and Chief Executive Officer Principal Financial and Accounting Officer: April 25, 2001 /s/ John L. Dunham Director, John L. Dunham Vice Chairman and Chief Financial Officer Directors: April 25, 2001 /s/ Jerome T. Loeb Director and Jerome T. Loeb Chairman of the Board April 25, 2001 /s/ R. Dean Wolfe Director and R. Dean Wolfe Executive Vice President 15 Date Signature Title April 25, 2001 /s/ Marsha J. Evans Director Marsha J. Evans April 25, 2001 /s/ James M. Kilts Director James M. Kilts April 25, 2001 /s/ Russell E. Palmer Director Russell E. Palmer April 25, 2001 /s/ Michael R. Quinlan Director Michael R. Quinlan 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The May Department Stores Company: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in The May Department Stores Company's Annual Report to Shareowners incorporated by reference in this Form 10-K, and have issued our report thereon dated February 14, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Schedule II included in this Form 10-K is the responsibility of the company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the consolidated financial statements. The Schedule has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP 1010 Market Street St. Louis, Missouri 63101-2089 February 14, 2001 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Annual Report on Form 10-K for the year ended February 3, 2001 into the Company's previously filed Registration Statements on Form S-3 (No. 333-42940, 333-42940-01, 333-71413 and 333-71413-01) and Form S-8 (No. 33-21415, 33-58985, and 333-76227). /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP 1010 Market Street St. Louis, Missouri 63101-2089 April 25, 2001 17
SCHEDULE II THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE FISCAL YEARS ENDED FEBRUARY 3, 2001 (Millions) Charges to costs and Balance expenses Balance beginning and other Deductions end of of period adjustments (a) period FISCAL YEAR ENDED February 3, 2001 Allowance for uncollectible accounts $ 76 $ 91 $ (91) $ 76 FISCAL YEAR ENDED January 29, 2000 Allowance for uncollectible accounts $ 82 $ 81 $ (87) $ 76 FISCAL YEAR ENDED January 30, 1999 Allowance for uncollectible accounts $ 96 $ 79 $ (93) $ 82 (a) Write-off of accounts determined to be uncollectible, net of recoveries of $23 million in 2000, $23 million in 1999 and $25 million in 1998.
18
Exhibit 12 THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE FIVE FISCAL YEARS ENDED FEBRUARY 3, 2001 (Dollars in Millions) Fiscal Year Ended Feb. 3, Jan. 29, Jan. 30, Jan. 31, Feb. 1, 2001 2000 1999 1998 1997 Earnings Available for Fixed Charges: Pretax earnings $ 1,402 $ 1,523 $ 1,395 $ 1,279 $ 1,232 Fixed charges (excluding interest capitalized and pretax preferred stock dividend requirements) 406 346 344 363 346 Dividends on ESOP Preference Shares (23) (24) (25) (26) (26) Capitalized interest amortization 8 7 7 6 6 1,793 1,852 1,721 1,622 1,558 Fixed Charges: Gross interest expense (a) $ 395 $ 340 $ 339 $ 353 $ 341 Interest factor attributable to rent expense 28 22 21 23 22 423 362 360 376 363 Ratio of Earnings to Fixed Charges 4.2 5.1 4.8 4.3 4.3 (a) Represents interest expense on long-term and short-term debt, ESOP debt and amortization of debt discount and debt issue expense.
Exhibit 21 THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES SUBSIDIARIES OF MAY The corporations listed below are subsidiaries of May, and all are included in the consolidated financial statements of May as subsidiaries (unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary): Jurisdiction in which Name organized The May Department Stores Company New York May Merchandising Company Delaware May Department Stores International, Inc. Delaware May Capital, Inc. Delaware Grande Levee, Inc. Nevada Leadville Insurance Company Vermont Snowdin Insurance Company Vermont David's Bridal, Inc. Florida EX-3.3 2 bylaw.txt BY-LAWS OF MAY, AS AMENDED Exhibit 3.3 BY-LAWS OF THE MAY DEPARTMENT STORES COMPANY (a Delaware Corporation) (as amended through November 17, 2000) ------------------ ARTICLE I. MEETINGS OF SHAREOWNERS Section 1. The annual meeting of shareowners shall be held on such date (not more than thirteen months after the most recent annual meeting) and at such place and time as may be fixed by the board and stated in the notice thereof, for the purpose of the election of directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these By-laws. The annual meeting may be adjourned from day to day until its business is completed. Section 2. Written notice of the date, time and place of each annual meeting of the shareowners shall be mailed not less than ten nor more than sixty days previous to the date of such meeting, postage prepaid, to each shareowner of record in the Company entitled to vote thereat, at such address as shall appear on the books of the Company. Section 3. The business transacted at any special meeting of shareowners shall be confined to the object or objects specified in the notice therefor, and matters germane thereto. Section 4. Written notice of every special meeting of shareowners stating the date, time, place and object thereof, shall be mailed, postage prepaid, not less than ten nor more than sixty days before the date specified for such meeting to each shareowner of record in the Company entitled to vote thereat, at such address as shall appear on the books of the Company. Section 5. Except as otherwise provided in the Certificate of Incorporation, and subject to the provisions and limitations therein contained, at all meetings of shareowners each shareowner of record shall be entitled to cast one vote for each share appearing on the stock book of the Company as standing in his name, which vote may be cast either in person or by proxy, or power of attorney, but no proxy shall be voted on after three years from its date. Section 6. Each shareowner entitled to vote at a meeting of shareowners or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such shareowner by proxy by any means authorized by the board and lawful under the Delaware General Corporation Law. Section 7. No shareowner who is in default in the payment of any part of his subscription for any stock of the Company or who is disqualified by law, shall be entitled to vote at any meeting of shareowners. Section 8. Every pledgor of stock standing in his name on the books of the Company shall be deemed the owner thereof. Section 9. Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, the owners of not less than a majority of the shares issued and outstanding, entitled to vote thereat, present in person or by proxy or power of attorney, are requisite for and shall constitute a quorum at all meetings of shareowners for the transaction of business, including the election of directors. The owners of a majority of the shares present in person or by proxy or power of attorney at any meeting, whether or not constituting a quorum, shall have power to adjourn the meeting from time to time (provided that each adjournment shall be for a period not exceeding twenty days), without notice other than announcement at the meeting, and at any adjourned meeting, any business may be transacted which might have been transacted at the meeting as originally notified. Section 10. The board of directors, in advance of the meeting of shareowners, shall appoint not less than two persons who are not directors to serve as inspectors of election. It shall be their duty to receive and canvass the votes for election of directors and on any proposal voted on by ballot and to certify the results to the chairman. In all cases where the right to vote upon any share of the Company shall be questioned, it shall be the duty of the inspectors to examine the stock ledger of the Company as evidence of the shares held, and all shares that appear standing thereon in the name of any person or persons may be voted upon by such person or persons. Each inspector of election before entering upon the duties of such office shall take and subscribe the following oath before an officer authorized by law to administer oaths: "I do solemnly swear that I will execute the duties of an inspector of the election now to be held with strict impartiality and according to the best of my ability." Section 11. To be properly brought before the annual or any special shareowners' meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board, (b) otherwise properly brought before the meeting by or at the direction of the board or (c) otherwise properly brought before the meeting by a shareowner. In addition to any other applicable requirements, for business to be properly brought before the annual or any special shareowners' meeting by a shareowner, the shareowner must have given timely notice thereof in writing to the secretary of the Company. To be timely, a shareowner's notice must be delivered to or mailed and received at the principal executive offices of the Company not less than 90 days nor more than 105 days prior to the anniversary date of the immediately preceding annual meeting of shareowners; provided, however, that in the event that the annual or special meeting is called for a date that is not within thirty days before or after such anniversary date, notice by the shareowner to be timely must be so received not later than the close of business on the 15th day following the first day on which notice or public disclosure of the date of the meeting is given or made to shareowners. Public disclosure shall include, but not be limited to, disclosure in a filing with the Securities and Exchange Commission or similar governmental agency. Such shareowner's notice to the secretary shall set forth as to each matter the shareowner proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of the shareowner proposing such business, (iii) the class and number of shares of common stock of the Company which are beneficially owned by the shareowner and (iv) any material interest of the shareowner in such business. 2 Notwithstanding anything in the By-laws to the contrary, no business shall be conducted at the annual or any special meeting except in accordance with the procedures set forth in this Section 11, provided, however, that nothing in this Section 11 shall be deemed to preclude discussion by any shareowner of any business properly brought before the meeting. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 11, and if he should so determine and declare, any such business not properly brought before the meeting shall not be transacted. Section 12. Except as provided in Section 1 of Article II, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the board of directors of the Company at the annual meeting may be made at that meeting by or at the direction of the board of directors, by any nominating committee or person appointed by the board of directors or by any shareowner of the Company entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 12. Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the Company. To be timely, a shareowner's notice must be delivered to or mailed and received at the principal executive offices of the Company not less than 90 days nor more than 105 days prior to the anniversary date of the immediately preceding annual meeting of shareowners; provided, however, that in the event that the annual meeting is called for a date that is not within thirty days before or after such anniversary date, notice by the shareowner to be timely must be so received not later than the close of business on the 15th day following the first day on which notice or public disclosure of the date of the meeting is given or made to shareowners. Public disclosure shall include, but not be limited to, disclosure in a filing with the Securities and Exchange Commission or similar governmental agency. Such shareowner's notice to the secretary shall set forth (a) as to each person whom the shareowner proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of common stock of the Company which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended; and (b) as to the shareowner giving the notice (i) the name and record address of the shareowner and (ii) the class and number of shares of common stock of the Company which are beneficially owned by the shareowner. Such notice shall be accompanied by the executed consent of each nominee to serve as a director if so elected. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as a director of the Company. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine and declare, the defective nomination shall be disregarded. 3 ARTICLE II. THE BOARD OF DIRECTORS Section 1. The business and affairs of the Company shall be managed and conducted by or under the direction of a board of thirteen directors. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the board of directors for any reason may be filled by vote of a majority of the directors then in office, although less than a quorum or by the sole remaining director. A director elected to fill a newly created directorship, and a director elected to fill a vacancy, shall hold office for the remainder of the term of the Class to which such director was elected and until his successor shall be chosen and qualified in his stead. Section 2. The directors shall prescribe rules and regulations for voting at all elections and shall cause the result of each such election to be filed with the minutes of the proceedings of the board of directors, or of any committee of the board of directors appointed in accordance with Section 12 of this Article II. Section 3. The board of directors at its first meeting after each annual meeting of shareowners, or at any subsequent meeting at which such action may be appropriate, shall elect a chairman of the executive committee, a chairman of the board, a president, a vice chairman of the board, one or more vice presidents, a secretary, a controller, and a treasurer, and such other officers as it may determine. The board of directors shall by resolution provide for the authority and duties of any and all such officers in the management of the Company to the extent not so provided in these By-laws. The dates of the commencement and expiration of the term of office of any such officer may be fixed by the board of directors at the time of his election; but unless so fixed, such officer shall hold office from the date of his election until the first meeting of the board of directors following the next ensuing annual meeting of shareowners, or until his successor is elected. The chairman of the executive committee, the chairman of the board, the president and the vice chairman of the board shall be members of the board of directors. No other officers need be members of the board of directors. Any two offices, except the offices of president and secretary, may be held by the same person. Section 4. If for any reason the election of officers shall not be held on or as of the date fixed therefor, the board of directors shall designate another day for such election. Section 5. The board of directors may also appoint such additional officers and agents, including additional vice presidents, one or more assistant treasurers, one or more assistant secretaries and one or more assistant controllers, as it may from time to time deem advisable, and may remove any of the persons so appointed at its pleasure, and may, in its discretion, contract for a definite period of employment for any officer or agent upon such terms as it may deem advisable. The board of directors may by resolution provide for the powers and duties of any and all such additional officers and agents so appointed. 4 Section 6. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these By-laws, at all meetings of the board of directors, a majority of the entire board of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. All matters coming before the board of directors shall, except as otherwise provided by the General Corporation Law of the State of Delaware ("GCL") or by these By-laws, be determined by a majority vote of the members present, provided that a quorum shall be present. Any one or more members of the board of directors or of any committee thereof may participate in any meeting of such board or of such committee thereof by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at any such meeting. Section 7. The directors may hold their meetings and cause the books of the Company (except the Stock and Transfer Books) to be kept within or without the State of Delaware, at such place or places as they may from time to time determine. Section 8. Subject to Section 15 of this Article II, there shall be an annual meeting of the board of directors on the day of the annual meeting of shareowners in each year or as soon thereafter as convenient, such annual meeting to be at such place and time (and, if applicable, on such date) as the chairman of the board shall designate by written notice to the directors, and regular meetings shall be held on such dates and at such times and places either as the directors shall by resolution provide or as the chairman of the board shall designate by written notice to the directors. Except as above provided, no notice of said annual meeting or such regular meetings of the board of directors need be given. Section 9. Special meetings of the board of directors may be called by the chairman of the executive committee, the chairman of the board, the president, the vice chairman of the board, or the secretary or the treasurer. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or facsimile transmission not later than the day preceding the date of such meeting, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstance. Special meetings shall be called by one of the foregoing officers in like manner on the written request of five directors, specifying the object or objects of such special meeting. In the event that one of the foregoing officers shall fail to call a meeting within two days after receipt of such request, such meeting may be called in like manner by the directors making such request. Section 10. If any vacancy shall occur in the board of directors by reason of death, removal, resignation or otherwise, such vacancy may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director. 5 Section 11. Any director may resign his office at any time, such resignation to be made in writing and delivered to the chairman of the executive committee, the chairman of the board, the president, the vice chairman of the board, or the secretary. Section 12. The board of directors shall appoint an executive committee, which shall consist of one or more directors and may from time to time designate the number of such executive committee members that shall constitute a quorum and may provide for the holding of regular meetings thereof. In the absence of any such designation, a majority of the members of the executive committee shall constitute a quorum. To the extent permitted by law (including, without limitation, Section 141(c)(2) of the GCL) and by the Certificate of Incorporation, the executive committee shall have and may exercise all the powers vested in the board of directors during the intervals between the meetings of the board of directors. The affirmative vote of a majority of those present at a meeting of the executive committee, at which a quorum is present, shall be necessary for the adoption of any resolution. The executive committee shall, whenever called upon, report to the board of directors and be subject to its direction, and the board of directors may remove members and appoint new members thereof to fill vacancies therein, and may increase or decrease the membership thereof. Meetings of the executive committee shall be called by the chairman of the executive committee or, upon the request of not less than two members, by the secretary by notice deposited in the mail, sent by telegram or delivered by hand not less than two days prior to the date of such meeting. Waiver of notice by any member of the executive committee, whether before or after the meeting to which such waiver relates, shall be equivalent to notice. The board of directors may appoint such other committees, each consisting of one or more directors, as the board of directors may at any time and from time to time deem appropriate; subject to the limitations contained in Section 141(c)(2) of the GCL, the board of directors from time to time may by resolution prescribe for each such committee such duties, powers and authority as the board of directors shall deem appropriate. Section 13. In addition to the powers by these By-laws expressly conferred upon them, the board of directors may exercise such powers and do such lawful acts and things as are not prohibited by law or required by the Certificate of Incorporation or by these By-laws to be exercised and done by the shareowners. Section 14. Directors as such may be paid such compensation as the board of directors may from time to time determine. Nothing herein contained shall be construed to preclude any director from serving the Company in any other capacity and receiving compensation therefor. Section 15. Anything in this Article II to the contrary notwithstanding, any action required or permitted to be taken by the board of directors at any regular, annual or special meeting thereof, or by any committee thereof, may be taken without a meeting if all members of the board of directors or such committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the board of directors or such committee shall be filed with the minutes of the proceedings of the board of directors or such committee. Section 16. No contract or transaction between the Company and one or more of its directors or officers, or between the Company and any other corporation, partnership, association, or other organization in which one or 6 more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board of directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the shareowners entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareowners; or (iii) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof or the shareowners. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. ARTICLE III. ELECTED OFFICERS The elected officers of the Company shall be the chairman of the executive committee, the chairman of the board, the president, the vice chairman of the board, the secretary, the treasurer, the controller, and such other officers of the Company as shall be elected by the board of directors. ARTICLE IV. AUTHORITY AND DUTIES OF OFFICERS Each officer of the Company shall be subject to the control of the board of directors and shall have such duties in the management of the Company as may be provided by appropriate resolution of the board of directors and/or provided in these By-laws. ARTICLE V. DUTIES OF OFFICERS MAY BE DELEGATED In the case of the absence of any officer of the Company, or for any other reason that the board of directors may deem sufficient, the board of directors may delegate the powers or duties of such officer to any other officer or to any other director, or to any other person for the time being. ARTICLE VI. INDEMNIFICATION Section 1. The Company shall indemnify to the fullest extent authorized or permitted by law (as now or hereafter in effect) any person made, or threatened to be made a party to or otherwise involved in any action or proceeding (whether civil or criminal or otherwise) by reason of the fact that he, his testator or intestate, is or was a director or officer of the Company 7 or by reason of the fact that such director or officer, at the request of the Company, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. Nothing contained herein shall affect any rights to indemnification to which employees other than directors and officers may be entitled by law. No amendment or repeal of this Section 1 shall apply to or have any effect on any right to indemnification provided hereunder with respect to any acts or omissions occurring prior to such amendment or repeal. Section 2. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of the law. The Company may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing for indemnification to the fullest extent authorized or permitted by law and including as part thereof any or all of the foregoing, to ensure the payment of such sums as may become necessary to effect full indemnification. Section 3. The rights to indemnification conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Certificate of Incorporation of the Company, these By-laws or any agreement, vote of stockholders or directors or otherwise. ARTICLE VII. POWER OF OFFICERS TO CONTRACT, ETC. Section 1. All contracts and agreements, purporting to be the act of this Company shall be signed by such officer(s) of the Company or other person(s) as may be designated by resolution of the board of directors, in order that the same shall be binding upon the Company. Section 2. The board of directors may, from time to time, authorize any officer or officers of the Company, or any other person or persons, to sign, countersign and endorse bills of exchange, checks, notes, leases, deeds and other instruments, agreements and documents in behalf of the Company. ARTICLE VIII. ORDER OF BUSINESS Section 1. The order of business at all meetings of the shareowners shall be as follows: 1. The election of directors. 2. Other matters to be acted upon. 8 3. The reports of officers. 4. Election of inspectors of election. The order of business at any meeting may be changed by a vote of the owners of a majority of the shares represented at such meeting. Section 2. The order of business at meetings of the board of directors shall be as the directors may determine. ARTICLE IX. SHARES OF STOCK Section 1. The interest of each shareowner shall be evidenced by a certificate or certificates for shares of stock of the Company in such form as the board of directors may from time to time prescribe. The certificates of stock shall be signed by the chairman of the executive committee, the chairman of the board, the president, the vice chairman of the board, or a vice president and the treasurer or an assistant treasurer or the secretary or an assistant secretary and sealed with the seal of the Company, and shall be countersigned and registered in such manner, if any, as the board of directors may by resolution prescribe; provided that, in case such certificates are required by such resolution to be signed by a transfer agent or transfer clerk and by a registrar, the signatures of the above designated officers and the seal of the Company upon such certificates may be facsimiles, engraved or printed. In case any such officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such before such certificate is issued, it may be issued with the same effect as if such officer had not ceased to be such at the date of its issue. Section 2. Shares of stock of the Company shall be transferred only on the books of the Company, by the holder thereof in person or by his attorney, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Company or its agents may reasonably require. Section 3. The board of directors may direct a new certificate or certificates of stock to be issued in the place of any certificate or certificates theretofore issued and alleged to have been lost, stolen or destroyed; but the board of directors, when authorizing the issue of such new certificate or certificates, may in its discretion require the owner of the stock represented by the certificate so lost, stolen or destroyed, or his legal representatives, to execute and deliver to the Company a bond with one or more sureties, in such sum as it may direct, indemnifying the Company and its agents against any claim that may be made against it by reason of the issue of such new certificate. The board of directors, however, may refuse to authorize any such new certificate except upon the order of a court having jurisdiction in such matter. Section 4. The board of directors may from time to time appoint such transfer agents and registrars of shares as it may deem advisable and may define their powers and duties. 9 ARTICLE X. DIVIDENDS Subject to the limitations and provisions set forth in the Certificate of Incorporation of the Company, dividends on the stock of the Company shall be paid at such times and in such amounts as the board of directors shall, from time to time, determine. ARTICLE XI. CORPORATE SEAL The corporate seal shall consist of the words "THE MAY DEPARTMENT STORES COMPANY" arranged in a circular around the words and figures "Corporate Seal - -- Delaware" and shall be kept by the secretary in the office of the Company. The impression of the seal may be made and attested upon contracts, certificates of stock and other papers requiring the seal of the Company, when authorized by resolution of the board of directors, by the secretary, or by an assistant secretary or by any other officer of the Company, and the board of directors may authorize the use of a duplicate corporate seal by any assistant secretary or other officer of the Company. ARTICLE XII. FISCAL YEAR The fiscal year of the Company shall end on the Saturday closest to the 31st day of January in each year. ARTICLE XIII. AMENDMENTS In furtherance and not in limitation of the powers conferred by statute, the board of directors, by vote of two-thirds of the entire board of directors of the Company, is expressly authorized to adopt, repeal, alter, amend or rescind the foregoing By-laws at any meeting of the board of directors, provided that the substance of the proposed amendment or addition or the subject matter thereof shall have been submitted in writing at a preceding meeting of the board of directors or notice thereof shall have been given to the directors; waiver of notice by any director being deemed equivalent to such notice to him. The By-laws may also be amended at any general or special meeting ofshareowners, provided notice of the proposed amendment shall have been given in the call for such meeting. ARTICLE XIV. WAIVER OF NOTICE Any notice required to be given by law or by the Certificate of Incorporation or by these By-laws may be waived in writing, and such waiver may be made either before or after the act or event to which the same relates. 10 EX-13 3 anlrpt1.txt 2000 ANNUAL REPORT TO SHAREOWNERS Exhibit 13 Management's Discussion and Analysis Our 26th consecutive year of increased sales and earnings per share is a record few companies in retailing can match. A solid fourth quarter performance resulted in record earnings per share of $2.62 in 2000, compared with last year's $2.60. Our three-year earnings per share compound growth rate is 8.2%. Net earnings totaled $858 million versus $927 million last year. Our return on equity of 21.0% and our return on net assets of 19.5% continue to be among the best in retailing. Sales were $14.5 billion, an increase of 4.3% over 1999 sales of $13.9 billion. The increase reflects a 0.5% rise in store-for-store sales, 2000 store openings, the full-year impact of 1999 store openings, and the sales from David's Bridal. In 2000 we opened 23 department stores, including 13 former ZCMI stores located in Utah and Idaho, adding 3.3 million square feet of retail space: Lord & Taylor: 4 stores Pittsburgh (Downtown) Pittsburgh, PA Flatiron Crossing Denver, CO Moorestown Mall Moorestown, NJ Providence Place Providence, RI Foley's: 4 stores Flatiron Crossing Denver, CO NorthPark Center Dallas, TX Stonebriar Center Frisco, TX South Park Mall San Antonio, TX Kaufmann's: 1 store Oakdale Mall Johnson City, NY Famous-Barr: 1 store Merle Hay Mall Des Moines, IA Meier & Frank: 13 stores Cottonwood Mall Salt Lake City, UT Fashion Place Salt Lake City, UT Foothill Village Salt Lake City, UT Layton Hills Mall Salt Lake City, UT Ogden City Mall Salt Lake City, UT South Towne Center Salt Lake City, UT Valley Fair Mall Salt Lake City, UT ZCMI Center Salt Lake City, UT Cache Valley Mall Logan, UT Red Cliffs Mall St. George, UT University Mall Orem, UT Grand Teton Mall Idaho Falls, ID Pine Ridge Mall Pocatello, ID We remodeled 20 department stores in 2000 totaling 1.6 million square feet, including the expansion of nine stores by 259,000 square feet. At fiscal year-end we operated 427 department stores in 37 states and the District of Columbia. David's Bridal, the largest retailer of bridal apparel in the United States, joined May in August 2000. At fiscal year-end, David's Bridal operated 123 stores in 36 states and Puerto Rico. We plan to open 22 new department stores in 2001 totaling 4.1 million square feet, including eight stores purchased from Saks Incorporated. We also plan to remodel 32 department stores totaling 2.0 million square feet of retail space, which includes the expansion of 20 stores by a total of 743,000 square feet. David's Bridal plans to add 28 new stores in 2001 totaling 308,000 square feet of retail space. In addition, we have agreed to purchase 13 former Wards stores. Seven are planned as new stores and the remainder will provide expansion in existing malls. We plan to reopen most of the locations in 2002. The new-store plan for 2001 through 2005 would add 89 new department stores and 148 David's Bridal stores totaling 17 million retail square feet, a 5% annualized increase. During this five-year period, the major components of our $4.3 billion capital plan include plans to invest $2.0 billion for new stores, $1.1 billion to expand and remodel existing stores, and $380 million related to systems and operations improvements. Common stock repurchase programs authorized by our board of directors since 1996 totaled more than $2.5 billion: As Repurchased (in millions, except per share) Average Price Authorized $ Shares per Share 2000 $ 650 $789 28.4 $28 1999 500 361 9.9 36 1998 500 500 12.5 40 1997 300 300 9.6 31 1996 600 600 19.1 31 Total $2,550 $2,550 79.5 $32 Review of Operations Earnings per share was $2.62 in 2000, compared with $2.60 in 1999 and $2.30 in 1998. Net earnings totaled $858 million in 2000, compared with $927 million in 1999 and $849 million in 1998. The decline in net earnings is due to lower operating earnings during the first three quarters of 2000, including a $63 million charge to clear excess spring and summer merchandise, and increased interest expense related to the 1999 and 2000 common stock repurchase programs. The 2000, 1999, and 1998 earnings per share growth rates were 0.8%, 13.0%, and 11.1%, respectively. Return on revenues was 5.9% in 2000, compared with 6.7% in 1999 and 6.5% in 1998. Results for the past three years and the related percent of revenues were:
2000 1999 1998 (dollars in millions, except per share) $ % $ % $ % Net retail sales $14,454 $13,854 $13,031 Revenues $14,511 100.0% $13,866 100.0% $13,090 100.0% Cost of sales 9,929 68.4 9,370 67.6 8,901 68.0 Selling, general, and administrative 2,835 19.5 2,686 19.4 2,516 19.2 Interest expense, net 345 2.4 287 2.0 278 2.1 Earnings before income taxes 1,402 9.7 1,523 11.0 1,395 10.7 Provision for income taxes (1) 544 38.8 596 39.1 546 39.1 Net earnings $ 858 5.9% $ 927 6.7% $ 849 6.5% Earnings per share (2) $2.62 0.8% $ 2.60 13.0% $ 2.30 11.1% (1) Percent of revenues columns represent effective income tax rates. (2) Percent of revenues columns represent earnings per share growth rates.
Fiscal 2000 included 53 weeks. The additional week did not materially affect 2000 earnings. All net retail sales information is presented on a 52-week basis for comparability. References to earnings per share are to diluted earnings per share. The following table shows earnings before interest and taxes excluding the LIFO (last-in, first-out) credit of $29 million in 2000, $30 million in 1999, and $28 million in 1998: (dollars in millions) 2000 1999 1998 Operating earnings $1,718 $1,780 $1,645 Percent of revenues 11.8% 12.8% 12.6% Our 427 quality department stores are operated by eight regional department store companies across the United States under 11 long-standing and widely recognized trade names. Each department store company holds a leading market position in its region. David's Bridal operates 123 stores and is the nation's largest retailer of bridal gowns and bridal-related merchandise. The table below summarizes net retail sales, sales per square foot, gross retail square footage, and the number of stores for each department store company and David's Bridal: Net Retail Sales in Millions of Dollars (1) Store Company: Headquarters 2000 1999 Lord & Taylor: New York City $ 2,181 $2,129 Hecht's, Strawbridge's: Washington, D.C. 2,502 2,442 Foley's: Houston 2,206 2,174 Robinsons-May: Los Angeles 2,171 2,057 Filene's: Boston 1,790 1,703 Kaufmann's: Pittsburgh 1,600 1,597 Famous-Barr, L.S. Ayres, The Jones Store: St. Louis 1,319 1,348 Meier & Frank: Portland, Ore. 581 404 Total Department Stores $14,350 $13,854 David's Bridal: Philadelphia (2) 248 192 The May Department Stores Company (3) $14,454 $13,854 Sales per Square Foot (1) Store Company: Headquarters 2000 1999 Lord & Taylor: New York City $214 $222 Hecht's, Strawbridge's: Washington, D.C. 203 203 Foley's: Houston 201 203 Robinsons-May: Los Angeles 217 210 Filene's: Boston 253 253 Kaufmann's: Pittsburgh 191 196 Famous-Barr, L.S. Ayres, The Jones Store: St. Louis 174 189 Meier & Frank: Portland, Ore. 170 233 Total Department Stores $205 $210 David's Bridal: Philadelphia (2) 205 207 The May Department Stores Company (3) $205 $210 Gross Retail Square Footage in Thousands Store Company: Headquarters 2000 1999 Lord & Taylor: New York City 10,601 10,070 Hecht's, Strawbridge's: Washington, D.C. 12,583 12,668 Foley's: Houston 11,572 10,975 Robinsons-May: Los Angeles 10,210 10,198 Filene's: Boston 7,222 7,212 Kaufmann's: Pittsburgh 8,721 8,513 Famous-Barr, L.S. Ayres, The Jones Store: St. Louis 7,630 7,655 Meier & Frank: Portland, Ore. 3,487 1,769 Total Department Stores 72,026 69,060 David's Bridal: Philadelphia (2) 1,322 1,061 The May Department Stores Company (3) 73,348 69,060 Number of Stores Store Company: Headquarters 2000 New Closed 1999 Lord & Taylor: New York City 82 4 - 78 Hecht's, Strawbridge's: Washington, D.C. 73 - 1 74 Foley's: Houston 60 4 1 57 Robinsons-May: Los Angeles 55 - - 55 Filene's: Boston 44 - - 44 Kaufmann's: Pittsburgh 51 1 - 50 Famous-Barr, L.S. Ayres, The Jones Store: St. Louis 42 1 1 42 Meier & Frank: Portland, Ore. 20 13 1 8 Total Department Stores 427 23 4 408 David's Bridal: Philadelphia (2) 123 23 - 100 The May Department Stores Company (3) 550 146 4 408 (1) Fiscal 2000 net retail sales and sales per square foot are shown on a 52-week basis for comparability. (2) David's Bridal shown on a full-year basis. (3) Results of David's Bridal included since August 2000. All David's Bridal stores included as new. Net retail sales exclude the sales of stores that have been closed and not replaced and include lease department sales. Sales per square foot are calculated from net retail sales plus finance charge revenues and average gross retail square footage. Gross retail square footage represents square footage of stores open at the end of the period presented.
(in millions) 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Net retail sales $14,454 $13,854 $13,031 $12,248 $11,446 $10,327 $9,622 $8,884 $8,270 $7,723 $7,349
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Earnings per share $2.62 $2.60 $2.30 $2.07 $1.87 $1.75 $1.62 $1.43 $1.18 $1.02 $1.01
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Sales per square foot $205 $210 $209 $204 $201 $201 $200 $191 $179 $171 $172
(in millions) 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Cash flows $1,369 $1,396 $1,288 $1,191 $1,123 $1,033 $947 $859 $755 $677 $657 Depreciation and amortization $ 511 $ 469 $ 439 $ 412 $ 374 $ 333 $297 $281 $283 $273 $253 Net earnings $ 858 $ 927 $ 849 $ 779 $ 749 $ 700 $650 $578 $472 $404 $404
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Return on equity 21.0% 24.1% 22.2% 21.2% 19.4% 20.8% 21.3% 22.1% 21.5% 20.7% 21.8%
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Return on net assets 19.5% 20.7% 19.8% 18.5% 18.8% 20.1% 20.1% 19.0% 15.4% 14.5% 15.8%
(per common share) 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Dividend rate at year-end $0.93 $0.89 $0.85 $0.80 $0.77 $0.76 $0.69 $0.61 $0.55 $0.54 $0.53
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Common stock closing price and price range Low price $19.19 $29.19 $33.17 $29.08 $27.00 $22.33 $21.50 $22.29 $17.33 $15.08 $12.46 High price $39.50 $45.38 $47.25 $38.08 $34.83 $30.83 $30.08 $31.00 $24.83 $20.13 $19.71 Closing price $37.30 $31.25 $40.25 $35.04 $29.67 $29.25 $23.42 $26.50 $23.46 $18.29 $15.17
Net Retail Sales Net retail sales (sales) exclude the sales of stores that have been closed and not replaced and include lease department sales. Store-for-store sales represent sales of those stores open during both years. David's Bridal sales are included in total sales since August 2000, but are not included in store-for-store sales. Sales increases (decreases) for 2000 and 1999 were: 2000 1999 Store-for- Store-for- Quarter Total Store Total Store First 3.5% 0.0% 8.1% 3.5% Second 2.6 (0.6) 9.2 4.7 Third 5.0 (0.1) 5.4 1.1 Fourth 5.5 1.8 4.0 1.6 Year 4.3% 0.5% 6.3% 2.6% The total sales increase for 2000 reflects a 0.5% rise in store-for-store sales, the opening of 19 net new department stores in 2000, the full-year impact of 1999 store openings, and the sales from David's Bridal. The total sales increase for 1999 includes a 2.6% store-for-store sales increase, the opening of 15 net new stores, and the full-year impact of 1998 store openings. Revenues Revenues (see page 26 for definition) include finance charge revenues of $301 million, $304 million, and $298 million in 2000, 1999, and 1998, respectively. Cost of Sales Cost of sales includes cost of merchandise sold and buying and occupancy costs. The impact of LIFO on cost of sales and the related percent of revenues were: 2000 1999 1998 (dollars in millions) $ % $ % $ % Cost of sales $9,929 68.4% $9,370 67.6% $8,901 68.0% LIFO credit 29 0.2 30 0.2 28 0.2 Cost of sales before LIFO credit $9,958 68.6% 9,400 67.8% $8,929 68.2% Before the LIFO credit, cost of sales as a percent of revenues increased in 2000 compared with 1999 due to a higher level of markdowns, including a $63 million charge to clear excess spring and summer merchandise, which increased cost of sales as a percent of revenues by 0.5% in 2000. The remaining increase in cost of sales as a percent of revenues was in buying and occupancy costs. Before the LIFO credit, cost of sales as a percent of revenues decreased in 1999 compared with 1998 due to the elimination of the consumer electronics business. Selling, General, and Administrative Expenses Selling, general, and administrative expenses and the related percent of revenues were: 2000 1999 1998 (dollars in millions) $ % $ % $ % Selling, general, and administrative $2,835 19.5% $2,686 19.4% $2,516 19.2% As a percent of revenues, selling, general, and administrative expenses increased from 19.4% in 1999 to 19.5% in 2000 as a result of an increase in payroll expense partially offset by lower retirement and other employee benefit expenses. As a percent of revenues, selling, general, and administrative expenses increased from 19.2% in 1998 to 19.4% in 1999 as a result of increases in advertising and sales promotion, payroll, retirement, and profit sharing expenses. Selling, general, and administrative expenses included advertising and sales promotion costs of $572 million, $540 million, and $500 million in 2000, 1999, and 1998, respectively. As a percent of revenues, advertising and sales promotion costs were 3.9% in 2000 and 1999 and 3.8% in 1998. Interest Expense Interest expense components were: (dollars in millions) 2000 1999 1998 Interest expense $373 $315 $311 Interest income (11) (12) (19) Capitalized interest (17) (16) (14) Interest expense, net $345 $287 $278 Percent of revenues 2.4% 2.0% 2.1% Interest expense principally relates to long-term debt. Seasonal working capital requirements were met through commercial paper borrowings. In 2000, we issued $1.1 billion in new debt. We did not issue any long-term debt in 1999. In 1998, we issued $350 million in new debt. Income Taxes The effective income tax rate for 2000 was 38.8%,compared with 39.1% in 1999 and 1998, as a result of implementing corporate structure changes which have a favorable impact on our effective tax rate. Impact of Inflation Inflation did not have a material impact on our 2000 sales and earnings growth. We value inventory principally on a LIFO basis, and as a result the current cost of merchandise is reflected in current operating results. Review of Financial Condition We continue to meet our objective of generating top quartile shareowner returns in the retail industry while maintaining access to capital at reasonable costs. Return on Equity Return on equity is our principal measure for evaluating our performance for shareowners and our ability to invest shareowners' funds profitably. Our objective is performance that places our return on equity in the top quartile of the retail industry. Return on beginning equity was 21.0% in 2000, compared with 24.1% in 1999 and 22.2% in 1998. Return on Net Assets Return on net assets measures performance independent of capital structure. Return on net assets is pretax earnings before net interest expense and the interest component of operating leases, divided by beginning-of-year net assets(including present value of operating leases). Return on net assets was 19.5% in 2000, compared with 20.7% in 1999 and 19.8% in 1998. Cash Flows Cash flows from operations (net earnings plus depreciation and amortization) was $1.4 billion, or 9.4% of revenues in 2000. This compares with 10.1% in 1999 and 9.8% in 1998. Our cash flows as a percent of revenues continues to be one of the highest in the retail industry and provides us with significant resources to enhance shareowners' value. Sources (uses) of cash flows were: (dollars in millions) 2000 1999 1998 Net earnings plus depreciation and amortization $1,369 $1,396 $1,288 Working capital (increases) decreases (71) 14 158 Other operating activities 48 120 59 Net capital expenditures (550) (678) (586) Business combinations (420) (40) (302) Net long-term debt issuances (repayments) 835 (135) 129 Net purchases of common stock (1) (792) (434) (525) Dividend payments (304) (314) (308) Increase (decrease) in cash and cash equivalents $ 115 $ (71) $ (87) (1)Includes common stock repurchase programs authorized by our board of directors as described on page 18. See "Consolidated Statement of Cash Flows" on page 24. Capital Expenditures Capital expenditures are primarily related to new stores, remodels and expansions. Our strong financial condition enables us to make capital expenditures to enhance growth and improve operations. The operating measures we emphasize when we invest in new stores and remodel or expand existing stores include return on net assets, internal rate of return, and sales per square foot. Business Combinations In August 2000, David's Bridal, Inc. joined May. The cost of this transaction was approximately $420 million. In December 1999, we completed the merger of Zions Co-operative Mercantile Institution (ZCMI) stores. We issued 1.6 million shares of May common stock valued at $50 million to ZCMI shareholders and assumed $73 million of debt, of which $40 million was repaid at closing. In September 1998, we purchased 11 former Mercantile stores for approximately $302 million including merchandise inventories. These business combinations have been accounted for as purchases and did not have a material effect on our results of operations or financial position. In January 2001, we announced that we will purchase nine department store locations from Saks Incorporated. The cash purchase price includes approximately $237 million for the stores and approximately $72 million for merchandise inventories and accounts receivable. The transaction is expected to close in the first quarter of 2001. This transaction will be accounted for as a purchase and will not have a material effect on our financial statements. Available Credit and Debt Ratings We can borrow up to $878 million under our credit agreements. In addition we have filed with the Securities and Exchange Commission shelf registration statements that enable us to issue up to $775 million of debt securities. Our bonds are rated A1 by Moody's Investors Service, Inc. and A+ by Standard & Poor's Corporation. Our commercial paper is rated P1 by Moody's and A1 by Standard & Poor's. Our senior unsecured bank credit agreement is rated A1 by Moody's. Financial Ratios Our debt-to-capitalization and fixed-charge coverage ratios are consistent with our capital structure objective. Our capital structure provides us with substantial financial and operational flexibility. The debt-to-capitalization ratios were 50%, 44%, and 45% for 2000, 1999, and 1998, respectively. The ratio increased in 2000 due to current year long-term borrowings of $1.1 billion and the repurchase of $789 million of our common stock. For purposes of the debt-to-capitalization ratio, we define total debt as short-term and long-term debt (including the Employee Stock Ownership Plan [ESOP] debt reduced by unearned compensation) and the capitalized value of all leases, including operating leases. We define capitalization as total debt, noncurrent deferred taxes, ESOP preference shares, and shareowners' equity. See "Profit Sharing" on page 27 for discussion of the ESOP. The fixed-charge coverage ratios were 4.0x in 2000, 4.8x in 1999, and 4.5x in 1998. The ratio declined in 2000 due to higher interest expense related to the new debt issuances and lower operating earnings as previously discussed in "Review of Operations,"compared with 1999. We define fixed charges as gross interest expense, interest expense on the ESOP debt, total rent expense, and the pretax equivalent of dividends on redeemable preferred stock. Common Stock Dividends and Market Prices Our dividend policy is based on earnings growth and capital investment requirements. We increased the annual dividend by 1 cent to 94 cents per share effective with the March 2001 dividend. This is our 26th consecutive annual dividend increase. We have paid consecutive quarterly dividends since 1911. The quarterly price ranges of the common stock and dividends per share in 2000 and 1999 were: 2000 1999 Market Price Dividends Market Price Dividends Quarter High Low per Share High Low per Share First $32.13 $23.75 $0.2325 $42.19 $36.00 $0.2225 Second 31.13 23.25 0.2325 45.38 38.13 0.2225 Third 25.50 19.19 0.2325 41.56 32.50 0.2225 Fourth 39.50 22.94 0.2325 34.63 29.19 0.2225 Year $39.50 $19.19 $0.9300 $45.38 $29.19 $0.8900 The approximate number of common shareowners as of March 1, 2001, was 43,000. 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, and our ability to hire and retain qualified associates. Because of these factors, actual performance could differ materially from that described in the forward-looking statements. CONSOLIDATED STATEMENT OF EARNINGS (dollars in millions, except per share) 2000 1999 1998 Net retail sales $14,454 $13,854 $13,031 Revenues $14,511 $13,866 $13,090 Cost of sales 9,929 9,370 8,901 Selling, general, and administrative expenses 2,835 2,686 2,516 Interest expense, net 345 287 278 Earnings before income taxes 1,402 1,523 1,395 Provision for income taxes 544 596 546 Net earnings $ 858 $ 927 $ 849 Basic earnings per share $ 2.74 $ 2.73 $ 2.43 Diluted earnings per share $ 2.62 $ 2.60 $ 2.30 Fiscal 2000 was a 53-week year. Net retail sales for fiscal 2000 are shown on a 52-week basis for comparability. Net retail sales for the 53 weeks ended February 3, 2001, were $14,593. See Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEET February 3, January 29, (dollars in millions, except per share) 2001 2000 Assets Current assets: Cash $ 17 $ 16 Cash equivalents 139 25 Accounts receivable, net of allowance for uncollectible accounts of $76 and $76 2,081 2,173 Merchandise inventories, net of LIFO reserve of $6 and $35 2,938 2,817 Other current assets 95 84 Total current assets 5,270 5,115 Property and equipment: Land 329 326 Buildings and improvements 4,090 3,863 Furniture, fixtures, and equipment 3,689 3,543 Property under capital leases 59 65 Total property and equipment 8,167 7,797 Accumulated depreciation (3,268) (3,028) Property and equipment, net 4,899 4,769 Goodwill, net of accumulated amortization of $263 and $228 1,312 981 Other assets 93 70 Total assets $11,574 $10,935 Liabilities and shareowners' equity Current liabilities: Current maturities of long-term debt $ 85 $ 259 Accounts payable 965 1,030 Accrued expenses 871 892 Income taxes payable 293 234 Total current liabilities 2,214 2,415 Long-term debt 4,534 3,560 Deferred income taxes 586 540 Other liabilities 335 314 ESOP preference shares 299 315 Unearned compensation (249) (286) Shareowners' equity: Common stock 149 163 Additional paid-in capital - - Retained earnings 3,706 3,914 Total shareowners' equity 3,855 4,077 Total liabilities and shareowners' equity $11,574 $10,935 Common stock has a par value of $0.50 per share; 1 billion shares are authorized and 470.5 million shares were issued. At February 3, 2001, 298.2 million shares were outstanding, and 172.3 million shares were held in treasury. At January 29, 2000, 325.5 million shares were outstanding, and 145.0 million shares were held in treasury. ESOP preference shares have a par value of $0.50 per share and a stated value of $507 per share; 800,000 shares are authorized. At February 3, 2001, 589,962 shares (convertible into 19.9 million shares of common stock) were issued and outstanding. At January 29, 2000, 622,197 shares (convertible into 21.0 million shares of common stock) were issued and outstanding. See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in millions) 2000 1999 1998 Operating activities Net earnings $ 858 $ 927 $ 849 Adjustments for noncash items included in earnings: Depreciation and other amortization 476 440 414 Goodwill amortization 35 29 25 Deferred income taxes 59 75 49 Working capital changes: Accounts receivable, net 97 13 20 Merchandise inventories (77) (137) (176) Other current assets (9) (22) 12 Accounts payable (77) 57 176 Accrued expenses (70) 57 89 Income taxes payable 65 46 37 Other assets and liabilities, net (11) 45 10 Total operating activities 1,346 1,530 1,505 Investing activities Capital expenditures (598) (703) (630) Dispositions of property and equipment 48 25 44 Business combinations (420) (40) (302) Total investing activities (970) (718) (888) Financing activities Issuances of long-term debt 1,076 - 350 Repayments of long-term debt (241) (135) (221) Purchases of common stock (828) (468) (589) Issuances of common stock 36 34 64 Dividend payments (304) (314) (308) Total financing activities (261) (883) (704) Increase (decrease) in cash and cash equivalents 115 (71) (87) Cash and cash equivalents, beginning of year 41 112 199 Cash and cash equivalents, end of year $ 156 $ 41 $ 112 Cash paid during the year: Interest expense $ 376 $ 307 $ 297 Income taxes 414 463 411 See "Business Combinations" in Notes to Consolidated Financial Statements for a description of noncash transactions. See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY Outstanding Additional Total Common Stock Paid-in Retained Shareowners' (dollars in millions, shares in thousands) Shares Dollars Capital Earnings Equity Balance at January 31, 1998 346,512 $ 173 $ - $ 3,636 $3,809 Net earnings - - - 849 849 Dividends paid: Common stock ($0.84 2/3 per share) - - - (290) (290) ESOP preference shares, net of tax benefit - - - (18) (18) Common stock issued 3,141 1 74 - 75 Common stock purchased (14,989) (7) (74) (508) (589) Balance at January 30, 1999 334,664 167 - 3,669 3,836 Net earnings - - - 927 927 Dividends paid: Common stock ($0.89 per share) - - - (295) (295) ESOP preference shares, net of tax benefit - - - (19) (19) Common stock issued 3,678 2 94 - 96 Common stock purchased (12,877) (6) (94) (368) (468) Balance at January 29, 2000 325,465 163 - 3,914 4,077 Net earnings - - - 858 858 Dividends paid: Common stock ($0.93 per share) - - - (286) (286) ESOP preference shares, net of tax benefit - - - (18) (18) Common stock issued 2,350 1 51 - 52 Common stock purchased (29,645) (15) (51) (762) (828) Balance at February 3, 2001 298,170 $149 $ - $3,706 $3,855
Treasury Shares (shares in thousands) 2000 1999 1998 Balance, beginning of year 144,990 135,791 123,943 Common stock issued: Exercise of stock options (569) (673) (1,914) Deferred compensation plan (221) (224) (227) Restricted stock grants, net of forfeitures (158) (372) (306) Conversion of ESOP preference shares (1,089) (781) (694) Contribution to profit sharing plan (313) - - Business combination - (1,628) - (2,350) (3,678) (3,141) Common stock purchased 29,645 12,877 14,989 Balance, end of year 172,285 144,990 135,791 Outstanding common stock excludes shares held in treasury. See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary of Significant Accounting Policies Fiscal Year The company's fiscal year ends on the Saturday closest to January 31. Fiscal year 2000 ended on February 3, 2001, and included 53 weeks. The additional week did not materially affect 2000 earnings. Fiscal years 1999 and 1998 ended on January 29, 2000, and January 30, 1999, respectively, and included 52 weeks. References to years in this annual report relate to fiscal years or year-ends rather than calendar years. Basis of Reporting The consolidated financial statements include the accounts of The May Department Stores Company, a Delaware corporation, and all wholly owned subsidiaries (May or the company). The company's 427 quality department stores are operated by eight regional department store companies across the United States under 11 long-standing and widely recognized trade names. David's Bridal operates 123 stores and is the nation's largest retailer of bridal gowns and bridal-related merchandise. The company aggregates its eight department store companies and David's Bridal into one reportable segment. Use of Estimates Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from these estimates. Net Retail Sales Net retail sales (sales) represent sales of stores operating at the end of the latest period including lease department sales and excluding finance charge revenues and the sales of stores that have been closed and not replaced. Sales are net of returns and exclude sales tax. Store-for-store sales represent sales of those stores open during both years. David's Bridal sales are included in total sales since August 2000, but are not included in store-for-store sales. Revenues Revenues include sales from all stores operating during the period, finance charge revenues, and lease department income. Revenues are net of estimated merchandise returns. Revenues include finance charge revenues of $301 million, $304 million, and $298 million in 2000, 1999, and 1998, respectively. Cost of Sales Cost of sales includes the cost of merchandise sold and the company's buying and occupancy costs. Advertising Costs Advertising and sales promotion costs are expensed at the time the advertising takes place. These costs were $572 million, $540 million, and $500 million in 2000, 1999, and 1998, respectively. Preopening Expenses Preopening expenses of new stores are expensed as incurred. Income Taxes Income taxes are accounted for by the liability method. The liability method applies statutory tax rates in effect at the date of the balance sheet to differences between the book basis and the tax basis of assets and liabilities. Earnings per Share References to earnings per share relate to diluted earnings per share. Stock-based Compensation The company accounts for stock-based compensation by applying APB Opinion No. 25, as allowed under SFAS No. 123, "Accounting for Stock-based Compensation." Cash Equivalents Cash equivalents consist primarily of commercial paper with maturities of less than three months. Cash equivalents are stated at cost, which approximates fair value. Merchandise Inventories Merchandise inventories are principally valued at the lower of LIFO (last-in, first-out) cost basis or market using the retail method. Property and Equipment Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives. Properties under capital leases and leasehold improvements are amortized over the shorter of their useful lives or related lease terms. Software development costs are capitalized and amortized over the expected useful life. Capitalized interest was $17 million, $16 million, and $14 million in 2000, 1999, and 1998, respectively. Goodwill Goodwill represents the excess of cost over the fair value of net tangible assets acquired at the dates of acquisition. Substantially all amounts are amortized using the straight-line method over a 40-year period. Long-lived Assets Long-lived assets and certain identifiable intangibles are reviewed to determine whether the net book value is recoverable. Impairment losses resulting from these reviews have not been significant. Financial Derivatives The company uses financial derivatives only to reduce risk in specific business transactions. The company periodically purchases forward contracts on firm commitments to minimize the risk of foreign currency fluctuations. These contracts are not significant. The company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in 2000. This statement did not have a material impact on the company. Reclassifications Certain prior-period amounts have been reclassified to conform with the current-year presentation. Quarterly Results (Unaudited) Quarterly results are determined in accordance with annual accounting policies. They include certain items based upon estimates for the entire year. Summarized quarterly results for the last two years were: (dollars in millions, 2000 except per share) First Second Third (1) Fourth (2) Year Revenues $3,050 $3,131 3,326 $5,004 $14,511 Cost of sales 2,141 2,154 2,397 3,237 9,929 Selling, general, and administrative expenses 638 670 697 830 2,835 Pretax earnings 200 225 141 836 1,402 Net earnings 120 135 85 518 858 Earnings per share: Basic $ 0.36 $ 0.42 $ 0.28 $ 1.68 $ 2.74 Diluted 0.35 0.41 0.27 1.59 2.62 (1) The 2000 third quarter results included a $63 million charge to clear excess spring and summer merchandise. (2) The 2000 fourth quarter included 14 weeks. The additional week increased both cost of sales and selling, general, and administrative expenses as a percent of revenues by 0.2%. (dollars in millions, 1999 except per share) First Second Third Fourth Year Revenues $2,989 $3,067 $3,176 $4,634 $13,866 Cost of sales 2,086 2,098 2,218 2,968 9,370 Selling, general, and administrative expenses 629 640 660 757 2,686 Pretax earnings 203 257 228 835 1,523 Net earnings 122 154 138 513 927 Earnings per share: Basic $ 0.35 $ 0.45 $ 0.40 $ 1.53 $ 2.73 Diluted 0.34 0.43 0.38 1.45 2.60 There are variables and uncertainties in the factors used to estimate the annual LIFO provision (credit) on an interim basis. If the final variables and factors had been known at the beginning of the year, the pro forma earnings (loss) per share impact of LIFO would have been: 2000 1999 Pro As Pro As Quarter Forma Reported Forma Reported First $0.01 $(0.01) $0.01 $(0.01) Second 0.01 (0.01) 0.01 (0.01) Third 0.01 (0.01) 0.01 (0.01) Fourth 0.02 0.08 0.02 0.08 Year $0.05 $ 0.05 $0.05 $ 0.05 Profit Sharing The company has a qualified profit sharing plan that covers most associates who work 1,000 hours or more in a year and have attained age 21. The plan is a defined-contribution program that provides for discretionary matching allocations at a variable matching rate generally based upon changes in the company's annual earnings per share, as defined in the plan. The plan's matching allocation value totaled $52 million for 2000, an effective match rate of 92%. The matching allocation values were $54 million in 1999 and $57 million in 1998. The plan includes an Employee Stock Ownership Plan (ESOP) under which the plan borrowed $400 million in 1989, guaranteed by the company, at an average rate of 8.5%. The proceeds were used to purchase $400 million (788,955 shares) of convertible preference stock of the company (ESOP preference shares). Each share is convertible into 33.787 shares of common stock and has a stated value of $15.01 per common share equivalent. The annual dividend rate on the ESOP preference shares is 7.5%. The $249 million outstanding portion of the guaranteed ESOP debt is reflected on the consolidated balance sheet as long-term debt because the company will fund the required debt service through 2004. The company's contributions to the ESOP and the dividends on the ESOP preference shares are used to repay the loan principal and interest. Interest expense associated with the ESOP debt was $22 million in 2000, $25 million in 1999, and $27 million in 1998. ESOP preference shares' dividends were $23 million in 2000, $24 million in 1999, and $25 million in 1998. The release of ESOP preference shares is based upon debt-service payments. Upon release, the shares are allocated to participating associates' accounts. Unearned compensation, initially an equal offsetting amount to the $400 million guaranteed ESOP debt, has been adjusted for the difference between the expense related to the ESOP and cash payments to the ESOP. It is reduced as principal is repaid. The company's profit sharing expense was $41 million in 2000, $40 million in 1999, and $28 million in 1998. At February 3, 2001, the plan beneficially owned 15.1 million shares of the company's common stock and 100% of the company's ESOP preference shares, representing 11.0% of the company's common stock. Pension and Other Postretirement Benefits The company has a qualified defined-benefit plan that covers most associates who work 1,000 hours or more in a year and have attained age 21. The company also maintains two nonqualified, supplementary defined-benefit plans for certain associates. All plans are noncontributory and provide benefits based upon years of service and pay during employment. Pension expense is based on information provided by an outside actuarial firm that uses assumptions to estimate the total benefits ultimately payable to associates and allocates this cost to service periods. The actuarial assumptions used to calculate pension costs are reviewed annually. The accumulated benefit obligations (ABO), change in projected benefit obligations (PBO), change in net plan assets, and funded status of the benefit plans were: Qualified Plan Nonqualified Plans (dollars in millions) 2000 1999 2000 1999 Change in PBO (1) PBO at beginning of year $542 $517 $ 129 $ 122 Service cost 31 36 3 3 Interest cost 41 36 10 9 Business combinations - 27 - - Actuarial loss (gain) (2) 52 (74) 12 1 Plan amendments - 68 - - Benefits paid (74) (68) (7) (6) PBO at end of year $592 $542 $ 147 $ 129 ABO at end of year (3) $536 $516 $ 121 $ 104 Change in net plan assets Fair value of net plan assets at beginning of year $622 $579 $ - $ - Actual return on plan assets 4 38 - - Employer contribution 26 48 - - Business combinations - 25 - - Benefits paid (74) (68) - - Fair value of net plan assets at end of year $578 $622 $ - $ - Funded status Plan assets in excess of (less than) PBO $(14) $ 80 $(147) $(129) Unrecognized net actuarial loss (gain) (26) (124) 28 19 Unrecognized prior service cost 59 66 14 14 Additional minimum liability(4) - - (16) (8) Prepaid (accrued) benefit cost $ 19 $ 22 $(121) $(104) Plan assets in excess of (less than) ABO $ 42 $106 $(121) $(104) (1) PBO is the actuarial present value of benefits attributed by the benefit formula to prior associate service; it takes into consideration future salary increases. (2) Actuarial loss (gain) is the change in value of the benefit obligations or the plan assets resulting from changes in actuarial assumptions or from experience different than assumed. (3) ABO is the actuarial present value of benefits attributed by the pension benefit formula to prior associate service based on current and past compensation levels. (4) The additional minimum liability represents the excess of the accumulated benefit obligation over the accrued pension costs recognized. Recognizing the additional minimum liability results in an intangible asset being recorded for an equal amount. The components of net periodic benefit costs and actuarial assumptions for the benefit plans were: (dollars in millions) 2000 1999 1998 Components of pension expense (all plans) Service cost $ 34 $ 39 $ 33 Interest on PBO 51 45 40 Expected return on assets (48) (39) (34) Net amortization (1) 4 8 3 Total $ 41 $ 53 $ 42 (1) Prior service cost and actuarial (gain) loss are amortized over the remaining service period. (as of January 1) 2001 2000 1999 Actuarial assumptions Discount rate 7.50% 8.00% 6.75% Expected return on plan assets 7.75 8.25 7.00 Salary increase 4.25 4.50 4.25 The accrued pension costs are included in other liabilities. Prepaid pension costs and intangible assets are included in other assets. The company also provides postretirement life and/or health benefits for certain associates. As of February 3, 2001, the company's estimated PBO (at a discount rate of 7.50%) for postretirement benefits was $51 million, of which $49 million was accrued in other liabilities. As of January 29, 2000, the company's estimated PBO (at a discount rate of 8.00%) for postretirement benefits was $48 million, which was accrued in other liabilities. An unrecognized net loss of less than 10% of PBO need not be amortized. The postretirement plan is unfunded. The postretirement benefit expense was $4 million in 2000, 1999, and 1998. The estimated future obligations for postretirement medical benefits are based upon assumed annual healthcare cost increases of 12% for 2001, decreasing by 1% annually to 5% for 2008 and future years. A 1% increase or decrease in the assumed annual healthcare cost increases would increase or decrease the present value of estimated future obligations for postretirement benefits by approximately $2 million. Another important element in the retirement programs is the Social Security system, into which the company paid $174 million in 2000 as its matching contribution to the $174 million paid in by associates. David's Bridal provides retirement benefits to associates who have worked three months or more and have attained age 21 through a separate 401(k) plan (a defined-contribution plan) that provides for a discretionary company contribution. Taxes The provision for income taxes and the related percent of pretax earnings for the last three years were: 2000 1999 1998 (dollars in millions) $ % $ % $ % Federal $412 $440 $420 State and local 73 81 77 Current taxes 485 34.6% 521 34.2% 497 35.6% Federal 50 63 41 State and local 9 12 8 Deferred taxes 59 4.2 75 4.9 49 3.5 Total $544 38.8% $596 39.1% $546 39.1% The reconciliation between the statutory federal income tax rate and the effective income tax rate for the last three years follows: (percent of pretax earnings) 2000 1999 1998 Statutory federal income tax rate 35.0% 35.0% 35.0% State and local income taxes 5.8 6.1 6.1 Federal tax benefit of state and local income taxes (2.0) (2.2) (2.2) Other, net - 0.2 0.2 Effective income tax rate 38.8% 39.1% 39.1% Major components of deferred tax assets (liabilities) were: (dollars in millions) 2000 1999 Accrued expenses and reserves $ 132 $ 96 Deferred and other compensation 134 139 Merchandise inventories (167) (167) Depreciation and amortization and basis differences (587) (528) Other deferred income tax liabilities, net (52) (49) Net deferred income taxes (540) (509) Less: Net current deferred income tax assets 46 31 Noncurrent deferred income taxes $(586) $(540) Net current deferred income tax assets are included in other current assets in the accompanying balance sheet. 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 for 2000, 1999, and 1998. 2000 Net Earnings (in millions, except per share) Earnings Shares per Share Net earnings $858 ESOP preference shares' dividends (18) Basic earnings per share $840 306.4 $2.74 ESOP preference shares 17 20.5 Assumed exercise of options (treasury stock method) - 0.8 Diluted earnings per share $857 327.7 $2.62 1999 Net Earnings (in millions, except per share) Earnings Shares per Share Net earnings $927 ESOP preference shares' dividends (19) Basic earnings per share $908 332.2 $2.73 ESOP preference shares 16 21.5 Assumed exercise of options (treasury stock method) - 1.9 Diluted earnings per share $924 355.6 $2.60 1998 Net Earnings (in millions, except per share) Earnings Shares per Share Net earnings $849 ESOP preference shares' dividends (18) Basic earnings per share $831 342.6 $2.43 ESOP preference shares 15 22.2 Assumed exercise of options (treasury stock method) - 2.6 Diluted earnings per share $846 367.4 $2.30 Accounts Receivable Credit sales under department store credit programs as a percent of net retail sales were 40.3% in 2000. This compares with 40.7% in 1999 and 42.3% in 1998. An estimated 27 million customers hold credit cards under the company's various credit programs. Sales made through third-party credit cards totaled $5.0 billion in 2000, compared with $4.6 billion in 1999 and $4.1 billion in 1998. Net accounts receivable consisted of: (dollars in millions) 2000 1999 Customer accounts receivable (1) $2,032 $2,124 Other accounts receivable 125 125 Total accounts receivable 2,157 2,249 Allowance for uncollectible accounts (76) (76) Accounts receivable, net $2,081 $2,173 (1) The decrease in customer accounts receivable was primarily related to the additional week of customer payments as a result of the 53-week year. The fair value of customer accounts receivable approximates their carrying values at February 3, 2001, and January 29, 2000, due to the short-term nature of these accounts. Other Current Assets In addition to net current deferred income tax assets, other current assets consisted of prepaid expenses and supply inventories of $49 million in 2000 and $53 million in 1999. Other Assets Other assets consisted of: (dollars in millions) 2000 1999 Deferred debt expense $40 $31 Prepaid and intangible pension asset 35 32 Other 18 7 Total $93 $70 Accrued Expenses Accrued expenses consisted of: (dollars in millions) 2000 1999 Insurance costs $184 $184 Salaries, wages, and employee benefits 172 196 Advertising and other operating expenses 148 128 Interest and rent expense 127 143 Sales, use, and other taxes 116 110 Construction costs 52 71 Other 72 60 Total $871 $892 Short-term Debt and Lines of Credit Short-term borrowings for the last three years were: (dollars in millions) 2000 1999 1998 Balance outstanding at year $ - $ - $ - Average balance outstanding 242 67 195 Average interest rate on average balance 6.6% 5.7% 5.4% Maximum balance outstanding $667 $407 $621 The average balance of short-term borrowings outstanding, primarily commercial paper, and the respective weighted average interest rates are based on the number of days such short-term borrowings were outstanding during the year. The company has $878 million available under credit agreements. Long-term Debt Long-term debt and capital lease obligations were: (dollars in millions) 2000 1999 Unsecured notes and sinking-fund debentures due 2001-2036 $4,470 $3,638 Mortgage notes and bonds due 2001-2016 97 124 Capital lease obligations 52 57 Total debt 4,619 3,819 Less: Current maturities of long-term debt 85 259 Long-term debt $4,534 $3,560 The weighted average interest rate of long-term debt was 8.2% at February 3, 2001, and 8.3% at January 29, 2000. The annual maturities of long-term debt, including sinking fund requirements, are $85 million, $315 million, $134 million, $258 million, and $172 million for 2001 through 2005. The net book value of property encumbered under long-term debt agreements was $128 million at February 3, 2001. The fair value of long-term debt (excluding capital lease obligations) was approximately $4.8 billion and $3.7 billion at February 3, 2001, and January 29, 2000, respectively. The fair value was determined using borrowing rates for debt instruments with similar terms and maturities. Lease Obligations The company leases approximately 27% of its gross retail square footage. Rental expense for the company's operating leases consisted of: (dollars in millions) 2000 1999 1998 Minimum rentals $63 $48 $49 Contingent rentals based on sales 18 18 18 Real property rentals 81 66 67 Equipment rentals 4 3 3 Total $85 $69 $70 Future minimum lease payments at February 3, 2001, were: Capital Operating (dollars in millions) Lease Leases Total 2001 $ 7 $ 72 $ 79 2002 7 68 75 2003 7 65 72 2004 7 61 68 2005 7 55 62 After 2005 76 286 362 Minimum lease payments $111 $607 $718 The present value of minimum lease payments under capital leases was $52 million at February 3, 2001, of which $2 million was included in current liabilities. The present value of operating leases was $414 million at February 3, 2001. Property under capital leases was: (dollars in millions) 2000 1999 Cost $ 59 $ 65 Accumulated amortization (29) (32) Total $30 $ 33 Other Liabilities In addition to accrued pension and postretirement costs, other liabilities consisted principally of deferred compensation liabilities of $165 million at February 3, 2001, and $162 million at January 29, 2000. Under the company's deferred compensation plan, eligible associates may elect to defer part of their compensation each year into cash and/or stock unit alternatives. The company issues shares to settle obligations with participants who defer in stock units and it maintains shares in treasury sufficient to settle all outstanding stock unit obligations. Litigation There are no legal proceedings, other than ordinary routine litigation incidental to the business, to which the company or any of its subsidiaries is a party or of which any of their property is the subject. Business Combinations In August 2000, David's Bridal, Inc. joined the company. The cost of this transaction was approximately $420 million. In December 1999, the company completed the merger of Zions Co-operative Mercantile Institution (ZCMI) stores. May issued 1.6 million shares of May common stock valued at $50 million to ZCMI shareholders and assumed $73 million of debt, of which $40 million was repaid at closing. The company repurchased a comparable number of shares in the open market as were issued to acquire ZCMI. In September 1998, the company purchased 11 former Mercantile stores for approximately $302 million including merchandise inventories. At the date of purchase, nine of these stores were leased. The leases have both put and call options that obligate the company to buy the underlying properties for approximately $100 million. As of February 3, 2001, the company has purchased five of these stores for $57 million. These business combinations have been accounted for as purchases and did not have a material effect on the results of operations or financial position. In January 2001, the company announced that it will purchase nine department store locations from Saks Incorporated. The cash purchase price includes approximately $237 million for the stores and approximately $72 million for merchandise inventories and accounts receivable. The transaction is expected to close in the first quarter of 2001. This transaction will be accounted for as a purchase and will not have a material effect on the company's financial statements. Stock Option and Stock-related Plans Under the company's common stock option plans, options are granted at the market price on the date of grant. Options to purchase may extend for up to 10 years, may be exercised in installments only after stated intervals of time, and are conditional upon continued active employment with the company. The company's plans are accounted for as provided by APB Opinion No. 25. For stock options, no compensation cost has been recognized because the option exercise price is fixed at the market price on the date of grant. A combined summary of the stock option plans at the end of 2000, 1999, and 1998, and of the changes in outstanding shares within years is presented below: 2000 1999 1998 Average Average Average Exercise Exercise Exercise (shares in thousands) Shares Price Shares Price Shares Price Beginning of year 14,872 $37 11,764 $33 10,230 $28 Granted 7,222 25 4,329 44 4,230 43 Exercised (570) 24 (690) 25 (1,922) 25 Forfeited or expired (1,467) 34 (531) 42 (774) 33 End of year 20,057 $33 14,872 $37 11,764 $33 Exercisable at end of year 8,377 $34 5,904 $30 3,719 $26 Shares available for grants 14,463 4,218 8,015 Fair value of options granted $ 8 $14 $12 The following table summarizes information about stock options outstanding at February 3, 2001: Options Outstanding Options Exercisable Average Exercise Number Remaining Average Number Average Price Outstanding Contractual Exercise Exercisable Exercise Range (in thousands) Life Price (in thousands) Life $16-24 1,408 4 $22 1,257 3 25-34 11,245 8 30 4,142 6 35-45 7,404 8 43 2,978 8 20,057 7 $34 8,377 6 Under the 1994 Stock Incentive Plan, the company is authorized to grant up to 3.4 million shares of restricted stock to management associates with or without performance restrictions. No monetary consideration is paid by associates who receive restricted stock. All restrictions lapse over periods of up to 10 years. In 2000 and 1999, the company granted 235,150 and 407,167 shares of restricted stock, respectively. For restricted stock grants, compensation expense is based upon the grant date market price; it is recorded over the lapsing period. For performance-based restricted stock, compensation expense is recorded over the performance period and is based on estimates of performance levels. As an alternative to accounting for stock-based compensation under APB No. 25, SFAS No. 123, "Accounting for Stock-based Compensation," establishes a fair-value method of accounting for employee stock options or similar equity instruments. The company used the Black-Scholes option pricing model to estimate the grant date fair value of its 1995 and later option grants. The fair value is recognized over the option vesting period, which is typically four years. Had compensation cost for these plans been determined in accordance with SFAS No. 123, the company's net earnings and net earnings per share would have been: (dollars in millions, except per share) 2000 1999 1998 Net earnings: As reported $ 858 $ 927 $ 849 Pro forma 835 903 833 Basic earnings per share: As reported $2.74 $2.73 $2.43 Pro forma 2.67 2.66 2.38 Diluted earnings per share: As reported $2.62 $2.60 $2.30 Pro forma 2.55 2.54 2.27 The Black-Scholes assumptions were: Assumptions 2000 1999 1998 Risk-free interest rate 6.4% 5.5% 5.6% Expected dividend $0.93 $0.89 $0.85 Expected option life (years) 7 7 7 Expected volatility 32% 26% 23% Common Stock Repurchase Programs During 2000, the company purchased $789 million or 28.4 million shares of May common stock. These repurchases completed the remaining $139 million of stock repurchases related to the $500 million 1999 stock repurchase program and the $650 million common stock repurchase program authorized in 2000. The 2000 buyback was in addition to $361 million, or 9.9 million shares, purchased in 1999 and $500 million, or 12.5 million shares, purchased in 1998. Preference Stock The company is authorized to issue up to 25 million shares of $0.50 par value preference stock. As of February 3, 2001, 800,000 ESOP preference shares were authorized and 589,962 were outstanding. The ESOP preference shares are shown outside of shareowners' equity in the consolidated balance sheet because the shares are redeemable by the holder or by the company in certain situations. Shareowner Rights Plan The company has a shareowner rights plan under which a right is attached to each share of the company's common stock. The rights become exercisable only under certain circumstances involving actual or potential acquisitions of May's common stock by a person or by affiliated persons. Depending upon the circumstances the holder may be entitled to purchase units of the company's preference stock, shares of the company's common stock, or shares of common stock of the acquiring person. The rights will remain in existence until August 31, 2004, unless they are terminated, extended, exercised, or redeemed.
Eleven-year financial summary (in millions, except per share and operating statistics) 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Net retail sales $14,454 $13,854 $13,031 $12,248 $11,446 $10,327 $9,622 $8,884 $8,270 $7,723 $7,349 Total percent increase 4.3% 6.3% 6.4% 7.0% 10.8% 7.3% 8.3% 7.4% 7.1% 5.1% 6.8% Store-for-store percent increase 0.5 2.6 3.5 3.6 4.3 2.5 5.4 5.4 4.5 (0.6) 0.6 Operations Revenues $14,511 $13,866 $13,090 $12,390 $11,727 $10,708 $9,886 $9,353 $9,154 $8,864 $8,497 Cost of sales 9,929 9,370 8,901 8,437 7,953 7,217 6,658 6,328 6,251 6,071 5,844 Selling, general, and administrative expenses 2,835 2,686 2,516 2,375 2,265 2,081 1,916 1,824 1,859 1,861 1,772 Interest expense, net 345 287 278 299 277 250 233 244 279 315 278 Earnings before income taxes 1,402 1,523 1,395 1,279 1,232 1,160 1,079 957 579(7) 617 603 Provision for income taxes 544 596 546 500 483 460 429 379 107(7) 213 199 Net earnings (1) 858 927 849 779 749 700 650 578 472 404 404 Percent of revenues 5.9% 6.7% 6.5% 6.3% 6.4% 6.5% 6.6% 6.2% 5.2% 4.6% 4.8% LIFO provision(credit) $ (29) $ (30)$ (28) $ (5) $ (20) $ (53) $ (46) $ 7 $ 10 $ 26 $ 39 Per share Net earnings (1) $ 2.62 $ 2.60 $ 2.30 $ 2.07 $ 1.87 $ 1.75 $ 1.62 $ 1.43 $ 1.18 $ 1.02 $ 1.01 Dividends paid (2) 0.93 0.89 0.85 0.80 0.77 0.74 0.67 0.60 0.55 0.54 0.51 Book value 12.93 12.53 11.46 10.99 10.27 12.28 11.10 9.77 8.55 7.51 6.69 Market price - high 39.50 45.38 47.25 38.08 34.83 30.83 30.08 31.00 24.83 20.13 19.71 Market price -low 19.19 29.19 33.17 29.08 27.00 22.33 21.50 22.29 17.33 15.08 12.46 Market price - year-end close 37.30 31.25 40.25 35.04 29.67 29.25 23.42 26.50 23.46 18.29 15.17 Financial statistics Return on equity 21.0% 24.1% 22.2% 21.2% 19.4% 20.8% 21.3% 22.1% 21.5% 20.7% 21.8% Return on net assets 19.5 20.7 19.8 18.5 18.8 20.1 20.1 19.0 15.4(8)14.5 15.8 Operating statistics Stores open at year-end Department stores 427 408 393 369 365 346 314 301 303 318 324 David's Bridal (3) 123 100 77 59 48 36 23 14 6 5 1 Gross retail square footage (in millions) (4) 73.3 69.1 66.7 62.8 62.1 57.6 52.0 49.4 49.5 51.9 52.4 Sales per square foot (4) (5) $ 205 $ 210 $ 209 $ 204 $ 201 $ 201 $ 200 $ 191 $ 179 $ 171 $ 172 Cash flows and financial position Cash flows from operations (6) $ 1,369 $ 1,396 $ 1,288 $ 1,191 $ 1,123 $ 1,033 $ 947 $ 859 $ 755 $ 677 $ 657 Percent of revenues 9.4% 10.1% 9.8% 9.6% 9.6% 9.6% 9.6% 9.2% 8.3% 7.6% 7.7% Depreciation and amortization $ 511 $ 469 $ 439 $ 412 $ 374 $ 333 $ 297 $ 281 $ 283 $ 273 $ 253 Capital expenditures 598 703 630 496 632 801 682 560 284 366 466 Dividends on common stock 286 295 290 279 287 277 251 223 204 198 191 Working capital 3,056 2,700 2,928 3,012 3,156 3,536 3,069 2,960 2,730 3,089 2,672 Long-term debt and preference stock 4,833 3,875 4,152 3,849 4,196 3,701 3,240 3,192 3,256 4,299 3,948 Shareowners' equity 3,855 4,077 3,836 3,809 3,650 4,585 4,135 3,639 3,181 2,781 2,467 Total assets 11,574 10,935 10,533 9,930 10,059 10,122 9,237 8,614 8,376 8,566 8,083 Average diluted shares outstanding and equivalents 327.7 355.6 367.4 373.6 396.2 397.3 397.3 398.2 397.0 394.3 397.1 All years included 52 weeks, except 2000 and 1995, which included 53 weeks. Net retail sales for 2000 and 1995 are shown on a 52-week basis for comparability. (1) Represents net earnings and diluted earnings per share from continuing operations. (2) The annual dividend was increased to $0.94 per share effective with the March 15, 2001, dividend payment. (3) David's Bridal joined the company in 2000. Stores open at year-end prior to 2000 are shown for comparability. (4) David's Bridal included since August 2000. (5) Sales per square foot are calculated from net retail sales plus finance charge revenues and average gross retail square footage. (6) Cash flows from operations represents net earnings plus depreciation and amortization. It is different from cash flows from operating activities as shown on the statement of cash flows. (7) Pretax earnings include a net special and nonrecurring charge of $187 million, and the provision for income taxes includes a nonrecurring tax benefit of $187 million. (8) Based on pretax earnings before special and nonrecurring items.
REPORTS OF MANAGEMENT AND INDEPENDENT PUBLIC ACCOUNTANTS Report of Management Management is responsible for the preparation, integrity, and objectivity of the financial information included in this annual report. The financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts. Although the financial statements reflect all available information and management's judgment and estimates of current conditions and circumstances, prepared with the assistance of specialists within and outside the company, actual results could differ from those estimates. Management has established and maintains an internal control structure to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, that the accounting records provide a reliable basis for the preparation of financial statements, and that such financial statements are not misstated due to material fraud or error. Internal controls include the careful selection of associates, the proper segregation of duties, and the communication and application of formal policies and procedures that are consistent with high standards of accounting and administrative practices. An important element of this structure is a comprehensive internal audit program. Management continually reviews, modifies, and improves its systems of accounting and controls in response to changes in business conditions and operations, and in response to recommendations in the reports prepared by the independent public accountants and internal auditors. Management believes that it is essential for the company to conduct its business affairs in accordance with the highest ethical standards and in conformity with the law. These standards are described in the company's policies on business conduct, which are publicized throughout the company. To the Board of Directors and Shareowners of The May Department Stores Company: We have audited the accompanying consolidated balance sheet of The May Department Stores Company (a Delaware corporation) and subsidiaries as of February 3, 2001, and January 29, 2000, and the related consolidated statements of earnings, shareowners' equity and cash flows for each of the three fiscal years in the period ended February 3, 2001. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The May Department Stores Company and subsidiaries as of February 3, 2001, and January 29, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 3, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP 1010 Market Street St. Louis, Missouri 63101-2089 February 14, 2001 EX-99 4 elevk1.txt FORM 11-K ANNUAL REPORT Exhibit 99 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Year Ended December 31, 2000 A. Full title of the plan if different from that of the issuer named below: THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN B. Name of issuer of securities held pursuant to the plan and the address of its principal executive office: THE MAY DEPARTMENT STORES COMPANY 611 Olive Street St. Louis, MO 63101 Commission File Number 1-79 THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN FINANCIAL STATEMENTS AND EXHIBIT Listed below are all financial statements and exhibit filed as part of this annual report on Form 11-K: Page of this Financial Statements Form 11-K Report of Independent Public Accountants 3 Financial Statements of the Plan: Statement of Net Assets Available for Benefits - December 31, 2000 and 1999 4 Statement of Changes in Net Assets Available for Benefits for the Years Ended December 31, 2000 and 1999 5 Notes to Financial Statements - December 31, 2000 and 1999 6 Schedule I - Item 27(a): Schedule of Assets Held for Investment Purposes - December 31, 2000 12 Schedule II - Item 27(d): Schedule of Reportable Transactions for the Year Ended December 31, 2000 16 Exhibit Consent of Independent Public Accountants 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator has duly caused this annual report to be signed by the undersigned, thereunto duly authorized. THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN By: The May Department Stores Company Date: April 25, 2001 By: /s/ John L. Dunham John L. Dunham Executive Vice President and Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The May Department Stores Company Profit Sharing Plan: We have audited the accompanying statement of net assets available for benefits of The May Department Stores Company Profit Sharing Plan as of December 31, 2000 and 1999, and the related statement of changes in net assets available for benefits for the years then ended. These financial statements and the schedules referred to below are the responsibility of the Plan Administrator. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2000 and 1999, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and reportable transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The fund information in the statement of net assets available for benefits and the statement of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for benefits and changes in net assets available for benefits of each fund. The supplemental schedules and fund information have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP St. Louis, Missouri, March 23, 2001 THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 2000 AND 1999 (Thousands) ASSETS 2000 1999 INVESTMENTS, at fair value: The May Department Stores Company- ESOP preference stock $ 656,177 $ 678,260 Common stock 501,542 490,820 Commingled equity index fund 220,606 221,180 Short-term investments 75,464 66,601 U.S. government securities 33,751 27,859 Fixed income investments 14,694 14,486 ---------- ---------- 1,502,234 1,499,206 OTHER ASSETS: Receivable for allocation to member accounts 254 8,546 Dividends and interest receivable 1,126 1,021 Receivable - withholdings of member contributions 2,215 2,512 ---------- ---------- Total assets 1,505,829 1,511,285 ---------- ---------- LIABILITIES LIABILITIES: Notes payable 248,472 285,826 Accrued interest payable 4,396 4,021 Net amount payable for investment securities transactions and other 5,779 2,956 Accrued administrative expenses 771 951 ---------- ---------- Total liabilities 259,418 293,754 ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $1,246,411 $1,217,531 ========== ========== The accompanying notes are an integral part of these statements. THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 (Thousands) 2000 1999 CONTRIBUTIONS: Member $ 94,631 $ 89,268 Employer ESOP contribution 38,000 40,992 Transfer from ZCMI 401(k) Plan 3,224 - ---------- ---------- 135,855 130,260 ---------- ---------- APPRECIATION/(DEPRECIATION) IN FAIR VALUE OF INVESTMENTS: The May Department Stores Company- ESOP preference stock 4,531 (169,644) Common stock 7,302 (121,016) Commingled equity index fund (21,627) 36,061 U.S. government securities 1,352 (1,723) Fixed income investments 472 (951) ---------- ---------- (7,970) (257,273) ---------- ---------- INVESTMENT INCOME: Dividends 37,263 38,991 Interest 7,343 6,298 ---------- ---------- 44,606 45,289 ---------- ---------- DEDUCTIONS: Benefits paid to participants (117,100) (143,395) Interest expense (22,055) (24,990) Administrative expenses (4,456) (4,711) ---------- ---------- (143,611) (173,096) ---------- ---------- INCREASE/(DECREASE) IN NET ASSETS AVAILABLE FOR BENEFITS 28,880 (254,820) NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 1,217,531 1,472,351 ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS, end of year $1,246,411 $1,217,531 ========== ========== The accompanying notes are an integral part of these statements. THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 1. DESCRIPTION OF THE PLAN: The following description of The May Department Stores Company Profit Sharing Plan (the "Plan") is provided for financial statement purposes only. Members should refer to the Plan document and the Summary Plan Description dated July 1999 for more complete information. General The Plan is a defined contribution profit sharing plan. The Plan covers eligible associates of The May Department Stores Company, a Delaware corporation ("May"), and its subsidiaries and affiliates who are members of the Plan. Participation is voluntary. ESOP Feature In 1989, the Plan was amended and restated to add an Employee Stock Ownership Plan ("ESOP") feature and acquired 788,955 shares of convertible preferred stock of May (the "ESOP Preference Shares"). Each ESOP Preference Share costs $507, has a guaranteed minimum value of $507, receives a fixed annual dividend of $38.03 and is convertible into 33.78747 shares of May common stock. The acquisition of the ESOP Preference Shares was financed with the proceeds of a private placement to a group of institutional investors of an aggregate $400 million principal amount (the "ESOP Loans") (see Note 5). The ESOP Loans are repaid by the Plan from the following sources in the following order: (a) dividends from May on ESOP Preference Shares previously allocated to members; (b) dividends from May on unallocated ESOP Preference Shares; and (c) contributions by May. During the term of the ESOP Loans, the ESOP Preference Shares which have not been allocated to members' company accounts serve as collateral for the ESOP Loans. The ESOP Loans are guaranteed by May. ESOP Preference Shares are initially held by the Plan in an Unallocated account. As ESOP Loans are repaid, ESOP Preference Shares are released to a suspense account pending allocation to the members' ESOP Preference Fund accounts in satisfaction of the required dividend and employer allocation. Contributions Plan members may contribute 1% to 15% of their annual pay as defined. Contributions may be made prior to federal and certain other income taxes pursuant to Section 401(k) of the Internal Revenue Code. The employer allocation is variable and discretionary. Generally, the employer allocation for each Plan year is determined by multiplying a base matching rate times members' basic contributions (generally, contributions up to 5% of pay each paycheck), reduced by forfeitures, one-third of annual dividends with respect to the ESOP Preference Shares, as defined, administrative expenses and excess ESOP allocations from prior Plan years (to the extent such amounts have not been previously used to reduce employer allocations for earlier Plan years). The base matching rate is determined as follows: In the event May has earnings per share ("EPS") of its common stock for its most recent fiscal year ("current year") resulting in a 6.0% increase over the EPS for the fiscal year immediately preceding the current year, the base matching rate will be 50%. For each percentage point increase over 6.0% or decrease below 6.0%, there is a 1.25 percentage point increase in or decrease from the 50% base matching rate. ESOP Preference Shares allocated to associates' accounts through application of the base matching rate formula are allocated at their original cost to the Plan of $15.01 per common share equivalent. Because the ESOP Preference Shares are convertible into May common stock, the ESOP Preference Shares are worth more than original cost when the market value of May common stock is higher than $15.01 per share. This market value of the employer allocation (including any supplemental contributions), divided by associates' matchable contributions, is the effective matching rate. If the effective matching rate for a Plan year exceeds 100%, only ESOP Preference Shares are used for the employer allocation and no May common shares are contributed as a supplemental contribution. The effective matching rate is also limited to 2.5 times the base matching rate. The base matching rate formula may be adjusted at any time for unusual events including discontinued operations, accounting changes, or items of extraordinary gain or loss. If the guaranteed minimum value of the ESOP Preference Shares allocated to members' company accounts as a result of the ESOP Loan payments (principal and interest) for a year is less than the employer allocation, then May makes supplemental contributions to the Plan for the difference. Supplemental contributions can be made in either shares of May common stock or cash. If the guaranteed minimum value of the ESOP Preference Shares released for allocation to members' company accounts as a result of the ESOP Loan payments is greater than the required employer allocation, any "excess" would be applied (in accordance with applicable law) to satisfy required employer allocations in future Plan years. Investments Members' contributions may be invested in any of four participant-directed investment funds: May Common Stock Fund - Invests in May common stock. Common Stock Index Fund - Invests in the Northern Trust Equity Index Fund, which invests in the common stock of corporations that make up the Standard & Poor's 500 Composite Stock Price Index. Investment mix is determined based on the relative market size of the 500 corporations, with larger corporations making up a higher proportion of the fund than smaller corporations. Money Market Fund - Invests in short-term (less than one year) obligations of high-quality issuers including banks, corporations, municipalities, the U.S. Treasury and other federal agencies. Fixed Income Index Fund - Invests in corporate, U.S. Government, federal agency and certain foreign government securities that make up the Lehman Intermediate Government/Credit Bond Index. The Lehman Intermediate Government/Credit Bond Index represents the composite performance of intermediate-term, fixed income securities. The securities that comprise this index have maturities ranging from one to 10 years, with an average of four years. Employer allocations and supplemental contributions are invested in the ESOP Preference Fund and the May Common Stock Fund, respectively. The employer allocation to the Plan for the year ended December 31, 2000, will be made in May 2001 and will be in the form of 43,278 ESOP Preference Shares and a supplemental contribution from May of 6,694 shares of May common stock. Vesting The method of calculating vesting service is the elapsed time method. Elapsed time is measured by calculating the time which has elapsed between the member's hire date and retirement date/termination date (excluding certain break-in-service periods). Plan members are vested in company accounts in accordance with the following schedule: Years of Vesting Vesting Service Percentage Less than 3 years 0% 3 years 20% 4 years 40% 5 years 60% 6 years 80% 7 years or more 100% Plan members are always fully vested in the value of their member accounts. Payment of Benefits Amounts in a member's account and the vested portion of a member's company account may be distributed upon retirement, death, disability or termination of employment. Distributions from the May Common Stock Fund and ESOP Preference Fund are made in shares of May common stock or cash. All other distributions are generally made in cash. Administration of Plan The Plan is administered by a committee consisting of at least five persons appointed by May. An administrative subcommittee has the general responsibility for administration of the Plan and an investment subcommittee establishes and monitors investment policies and activities. The assets of the Plan are held in a trust for which The Bank of New York is the Trustee. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Investments The Plan's investments are stated at fair value, as determined by the Trustee, based on publicly reported price information. Each ESOP Preference Share is valued at the greater of (a) the guaranteed minimum value (original cost) of $507 per share or (b) a conversion value equal to the market price of May common stock multiplied by the conversion rate for each ESOP Preference Share. As of December 31, 2000 and 1999, the ESOP Preference Shares were valued at their conversion values of $1,107 and $1,090, respectively. Federal Income Taxes The Trust established under the Plan to hold the Plan's assets is qualified pursuant to Sections 401(a), 401(k) and 4975(e)(7) of the Internal Revenue Code and accordingly, the Trust's net investment income is exempt from income taxes. The Plan has received a favorable tax determination letter dated December 13, 1994. The Plan has been amended since receiving the determination letter. The Plan administrators believe that the amendments do not affect the tax-exempt status of the Plan. Employer allocations and contributions, member before-tax contributions and any cumulative investment returns on member accounts are not taxable to the members until distributions are made. Administrative Expenses All administrative expenses (including the allocable portion of expenses for data processing services, and salaries and benefits of associates providing services to the Plan) are paid by the Plan. Monthly Valuation of the Trust The unit value of each investment fund is determined by dividing the month-end market value of the particular investment fund by the total number of units outstanding at month-end in all member accounts in such investment fund. As of each succeeding monthly valuation date, the unit value of each fund is redetermined and account balances in each fund are adjusted as follows: (a) All payments made from an account (except for the ESOP Preference Fund) are valued based on the unit value at the month-end valuation date. Payments from the ESOP Preference Fund are valued based on the greater of the guaranteed minimum value (plus accrued dividends) or conversion value, as of the distribution date. (b) With respect to any dollar amount contributed during the month (except for the ESOP Preference Fund), an equivalent number of additional units are credited to the appropriate accounts in such investment fund based on the unit value at the month-end valuation date. Allocations of ESOP Preference Shares are valued at the greater of the guaranteed minimum value (plus accrued dividends) or conversion value, as of the distribution date. (c) In the event that a member's employment is terminated and a portion of such member's company account has been forfeited, the forfeited units or ESOP Preference Shares shall be canceled as of the last day of the Plan year. The dollar amount of such forfeited units or ESOP Preference Shares is reallocated among the remaining members of the Plan as of the last day of the Plan year in the same manner as the employer allocation for such year. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and the reported amounts of additions to and deductions from net assets available for benefits during the year. Actual results could differ from those estimates. Newly Adopted Accounting Pronouncement The Accounting Standards Executive Committee issued Statement of Position (SOP) 99-3 Accounting for and Reporting of Certain Defined Contribution Plan Investments and Other Disclosure Matters. This SOP eliminated the separate disclosure requirement for participant-directed investment funds, including total number of units and net asset value per unit information, and added the separate disclosure of nonparticipant-directed investments that represent 5% or more of net assets available for benefits. The SOP was adopted for the 2000 financial statements. The 1999 financial statements have been reclassified accordingly. Transfers from ZCMI 401(k) Plan Effective January 1, 2001, the Zions Cooperative Mercantile Institution (ZCMI) 401(k) Plan (ZCMI Plan) was merged with the May Plan. During the 2000 plan year, affected associates with accounts in the ZCMI Plan were permitted to transfer their accounts to the May Plan. 3. INVESTMENTS: The fair market value of the Plan's investments that represent 5% or more of the Plan's Net Assets Available for Benefits as of December 31, 2000 and 1999, are as follows (dollars in thousands): December 31, 2000 December 31, 1999 ---------------------- ---------------------- Number of Number of Shares or Shares or Principal Fair Principal Fair Amount Value Amount Value ESOP Preference Stock (nonparticipant- directed): Unallocated 291,717 $ 322,797 352,448 $ 384,040 Member allocated 301,281 333,380 270,014 294,220 ---------- ---------- ---------- ---------- 592,998 $ 656,177 622,462 $ 678,260 May Common Stock: Nonparticipant- directed 3,434,992 $ 112,496 3,829,147 $ 123,490 Participant- directed 11,879,261 389,046 11,390,092 367,330 ----------- ---------- ----------- ---------- 15,314,253 $ 501,542 15,219,239 $ 490,820 Northern Trust Equity Index Fund 6,612,886 $ 220,606 6,020,138 $ 221,180 The Bank of New York Short-Term Investment Fund - Master Notes $ 75,464 $ 75,464 $ 66,601 $ 66,601 At December 31, 2000, the Plan beneficially owned 15.3 million shares of May's common stock and 100% of May's ESOP preference shares, representing 11.1% of May's common stock. 4. NONPARTICIPANT-DIRECTED INVESTMENTS: Nonparticipant-directed investments are reduced by the ESOP notes payable, accrued interest and accrued administrative expenses. Information about the net assets and the significant components of the changes in net assets relating to the nonparticipant-directed investments is as follows (dollars in thousands): December 31 ------------------ 2000 1999 Net Assets: ESOP Preference Stock $404,358 $388,127 May Common Stock 111,320 131,905 -------- -------- $515,678 $520,032 ======== ======== Year Ended Year Ended December 31, 2000 December 31, 1999 Changes in net assets: Contributions $ 38,000 $ 40,992 Net depreciation in fair value of investments (8,360) (198,864) Dividends 26,341 27,610 Interest income 33 32 Benefits paid to participants (29,733) (41,227) Interest expense (22,055) (24,990) Administrative expenses (367) (620) Transfers to participant- directed investments (8,213) (7,623) -------- --------- $ (4,354) $(204,690) ======== ========= At December 31, 2000, the nonparticipant-directed May Common Stock and ESOP Member Allocated Funds include approximately $43.1 million and $91.1 million, respectively, attributable to participants over the age of 55. These amounts can be transferred to other funds at the discretion of the participants. 5. NOTES PAYABLE: Notes payable as of December 31 consisted of the following (dollars in thousands): 2000 1999 ESOP Notes Payable: Series A, 8.32%, due April 30, 2001 $ 44,508 $ 81,862 Series B, 8.49%, due April 30, 2004 203,964 203,964 -------- -------- $248,472 $285,826 ======== ======== The scheduled principal payments for the Series A and B ESOP Notes for the remaining years are as follows: 2001 - $44,508, 2002 - $52,317; 2003 - $60,787; and 2004 - $90,860. As of December 31, 2000 and 1999, the total fair value of the ESOP Notes was approximately $297,888 and $357,816, respectively. 6. RECONCILIATION TO FORM 5500: As of December 31, 2000 and 1999, the Plan had approximately $10,117,000 and $8,630,000, respectively, of pending distributions to participants. These amounts are included in Net Assets Available for Benefits. For reporting on the Plan's Form 5500, these amounts will be classified as Benefit Claims Payable with a corresponding reduction in Net Assets Available for Benefits. The following table reconciles the financial statements to the Form 5500 which will be filed by the Plan for the Plan year ended December 31, 2000 (dollars in thousands): Net Assets Benefits Available Payable to Benefits for Participants Paid Benefits Per financial statements $ - $117,100 $1,246,411 Pending benefit distributions - December 31, 2000 10,117 10,117 (10,117) Pending benefit distributions - December 31, 1999 - (8,630) - ------- -------- ---------- Per Form 5500 $10,117 $118,587 $1,236,294 ======= ======== ========== 7. DISTRIBUTION OF ASSETS UPON TERMINATION OF THE PLAN: May reserves the right to terminate the Plan, in whole or in part, at any time. If an employer shall cease to be a participating employer in the Plan, the accounts of the members of the withdrawing employer shall be revalued as if such withdrawal date were a valuation date. The Plan Committee is then to direct the Trustee either to distribute the accounts of the members of the withdrawing employer as of the date of such withdrawal on the same basis as if the Plan had been terminated, or to deposit in a trust established by the withdrawing employer, pursuant to a plan substantially similar to the Plan, assets equal in value to the assets allocable to the accounts of the members of the withdrawing employer. If the Plan is terminated at any time or contributions are completely discontinued and May determines that the Trust shall be terminated, the members' company accounts shall become fully vested and nonforfeitable, all accounts shall be revalued as if the termination date were a valuation date and such accounts shall be distributed to members. If the Plan is terminated or contributions completely discontinued but May determines that the Trust shall be continued pursuant to the terms of the Trust agreement, no further contributions shall be made by members or the employer and the members' company accounts shall become fully vested, but the Trust shall be administered as though the Plan were otherwise in effect. SCHEDULE I THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN EMPLOYER #: 43-1104396 PLAN #: 003 SCHEDULE H, ITEM 4i: SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 2000 (c) Number of Shares or (e) (b) Principal (d) Fair (a) Identity of Issue Amount Cost Value (Thousands) ESOP PREFERENCE FUND * The May Department Stores Company ESOP Preference Stock: Unallocated 291,717 $147,901 $ 322,797 Allocated 301,281 152,750 333,380 * The Bank of New York Short-Term Investment Fund - Master Notes $ 479,713 480 480 -------- ---------- ESOP Preference Fund Total $301,131 $ 656,657 ======== ========== MAY COMMON STOCK FUND * The May Department Stores Company Common Stock 15,314,253 $297,157 $ 501,542 * The Bank of New York Short-Term Investment Fund- Master Notes $ 837,088 837 837 -------- ---------- May Common Stock Fund Total $297,994 $ 502,379 ======== ========== COMMON STOCK INDEX FUND Northern Trust Equity Index Fund 6,612,886 $216,969 $ 220,606 * The Bank of New York Short-Term Investment Fund- Master notes $ 199,786 200 200 -------- ---------- Common Stock Index Fund Total $217,169 $ 220,806 ======== ========== MONEY MARKET FUND * The Bank of New York Short-Term Investment Fund- Master Notes $66,371,202 $ 66,371 $ 66,371 ======== ========== FIXED INCOME INDEX FUND * The Bank of New York Short-Term Investment Fund- Master Notes $ 1,796,559 $ 1,797 $ 1,797 -------- ---------- * Also a party-in-interest. SCHEDULE I (Continued) (c) (e) (b) Principal (d) Fair (a) Identity of Issue Amount Cost Value (Thousands) FIXED INCOME INDEX FUND (Continued) U.S. Government Securities U.S. Treasury Notes: 6.5%, due 10/15/06 $1,600,000 $ 1,629 $ 1,707 6.3750%, due 8/15/02 $3,800,000 3,918 3,865 5.75%, due 8/15/03 $3,300,000 3,305 3,350 6.8750%, due 5/15/06 $2,000,000 2,133 2,164 5.6250%, due 5/15/08 $2,100,000 2,018 2,157 5.25%, due 1/31/01 $1,200,000 1,188 1,199 7.0%, due 7/15/06 $ 400,000 414 436 6.0%, due 8/15/09 $1,440,000 1,492 1,520 6.625%, due 5/15/07 $1,300,000 1,339 1,402 13.75%, due 8/15/04 $ 525,000 810 672 6.125%, due 12/31/04 $2,550,000 2,587 2,565 5.25%, due 5/15/04 $2,600,000 2,537 2,608 -------- ---------- Total U.S. treasury notes 23,370 23,645 -------- --------- U.S. Government Agency Securities: Federal Home Loan Mortgage Corp.: 6.22%, due 3/24/03 $ 200,000 181 203 4.75%, due 12/14/01 $1,000,000 997 991 6.25%, due 7/15/04 $ 500,000 501 509 Federal National Mortgage Assoc. Securities- 5.1250%, due 2/13/04 $ 660,000 648 652 5.75%, due 6/15/05 $ 800,000 824 800 4.625%, due 10/15/01 $ 500,000 499 495 7.0%, due 7/15/05 $ 810,000 842 850 6.625%, due 9/15/09 $ 400,000 388 416 Debentures- 5.75%, due 7/15/03 $ 400,000 406 401 6.25%, due 8/13/04 $ 500,000 496 509 6.3750%, due 6/15/09 $3,400,000 3,309 3,482 Medium Term Notes- 6.69%, due 8/7/01 $ 400,000 402 401 Interamerican Development Bank: 5.75%, due 2/26/08 $ 400,000 398 397 -------- ---------- Total U.S. government agency securities 9,891 10,106 -------- ---------- Total U.S. government securities 33,261 33,751 -------- ---------- Fixed Income Investments Bank Corporate Bonds: Bank America Corp., 7.75%, due 7/15/02 $ 300,000 306 306 Republic NY Corp., 7.25%, due 7/15/02 $ 100,000 98 102 National Westminster, 7.375%, due 10/01/09 $ 400,000 398 413 Bayerische Landesbank, 5.875%, due 12/01/08 $ 450,000 450 428 National Australia, 8.60%, due 5/19/10 $ 450,000 448 499 -------- ---------- Total bank corporate bonds 1,700 1,748 -------- ---------- SCHEDULE I (Continued) (c) (e) (b) Principal (d) Fair (a) Identity of Issue Amount Cost Value (Thousands) FIXED INCOME INDEX FUND (Continued) Finance and Insurance Corporate Bonds: ABN-AMRO Bank, 6.625%, due 10/31/01 $ 300,000 $ 300 $ 301 American Express Co., 8.5%, due 8/15/01 $ 200,000 201 203 Cit Group Inc., 7.375%, due 3/15/03 $ 400,000 400 405 Corestates Cap. Corp., 5.75%, due 1/15/01 $ 400,000 388 400 General Electric Cap. Corp., 8.85%, due 4/1/05 $ 300,000 364 331 Marsh & McLennan Cos., Inc., 6.625% due 6/15/04 $ 400,000 398 404 Mellon Finl Co., 6.0%, due 3/1/04 $ 400,000 389 395 Morgan Stanley Dean Witter, 7.75%, due 6/15/05 $ 400,000 405 420 National City Bank Louisville, 6.3%, due 2/15/11 $ 200,000 180 187 Simon Debartolo Group, 6.875%, due 11/15/06 $ 500,000 498 485 Toyota Motor Corp., 5.5%, due 12/15/08 $ 450,000 449 423 Travelers Property Casualty Corp., 6.75%, due 4/15/01 $ 300,000 301 300 -------- ---------- Total finance and insurance corporate bonds 4,273 4,254 -------- ---------- Industrial Corporate Bonds: Atlantic Richfield Co., 5.9%, due 4/15/09 $ 450,000 449 435 Clear Channel Comm., 7.65%, due 9/15/10 $ 200,000 199 204 Delphi Auto Systems, 6.125%, due 5/1/04 $ 400,000 401 385 Electronic Data Systems Corp., 7.125%, due 10/15/09 $ 400,000 400 416 General Motors Corp., 7.1%, due 3/15/06 $ 300,000 303 303 Guidant Corp., 6.15%, due 2/15/06 $ 100,000 100 96 Honeywell Int'l Inc., 6.875%, due 10/3/05 $ 200,000 199 207 International Business Machine, 5.375%, due 2/1/09 $ 400,000 399 371 Eli Lilly & Co., 8.125%, due 12/1/01 $ 200,000 199 203 Lockheed Martin Corp., 6.85%, due 5/15/01 $ 400,000 400 400 Raytheon Co., 6.5%, due 7/15/01 $ 400,000 372 399 Tyco International Group, 6.375%, due 6/15/05 $ 400,000 398 398 Wal-Mart Stores, 6.55%, due 8/10/04 $ 400,000 399 409 -------- ---------- Total industrial corporate bonds 4,218 4,226 -------- ---------- Oil Corporate Bonds: Tenneco, Inc., 7.875%, due 10/1/02 $ 250,000 248 256 El Paso Nat. Gas Co., 6.75%, due 11/15/03 $ 300,000 305 302 -------- ---------- Total oil corporate bonds 553 558 -------- ---------- SCHEDULE I (Continued) (c) (e) (b) Principal (d) Fair (a) Identity of Issue Amount Cost Value (Thousands) FIXED INCOME INDEX FUND (Continued) Utilities Corporate Bonds: Enron Corp., 9.5%, due 6/15/01 $ 100,000 $ 110 $ 101 Enron Corp., 6.50% due 8/1/02 $ 300,000 298 301 -------- ---------- Total utilities corporate bonds 408 402 -------- ---------- Telephone Corporate Bonds: Deutsche Telekom Int., 7.75%, due 6/15/05 $ 135,000 135 138 Sprint Capital Corp., 6.125%, due 11/15/08 $ 400,000 356 357 -------- ---------- Total telephone corporate bonds 491 495 -------- ---------- Asset Backed Securities: California Infrastructure, 6.32%, due 9/25/05 $ 400,000 403 404 -------- ---------- 403 404 -------- ---------- Foreign Obligations: British Columbia Prov. Canada, 5.375%, due 10/29/08 $ 450,000 448 430 Hydro-Quebec Debenture, Series IF, 7.375%, due 2/1/03 $ 150,000 161 154 Province of Ontario, Canada Debenture, 7.375%, due 1/27/03 $ 400,000 415 411 Province of Ontario, Canada Debenture, 8%, due 10/17/01 $ 150,000 150 152 British Telecom, 8.125%, due 12/15/10 $ 250,000 249 253 Finland Rep NT, 7.875%, due 7/28/04 $ 225,000 229 240 Republic of Italy, 7.25%, due 2/7/05 $ 400,000 409 419 -------- ---------- Total foreign obligations 2,061 2,059 -------- ---------- Miscellaneous: Qwest Cap. Fdg. Inc., 7.75%, due 8/15/06 $ 140,000 140 142 Burlington Northern Santa Fe, 7.125%, due 12/15/10 $ 400,000 399 406 -------- ---------- 539 548 -------- ---------- Total fixed income investments 47,907 48,445 -------- ---------- Fixed Income Index Fund Total $ 49,704 $ 50,242 ======== ========== DISTRIBUTION ACCOUNT * The Bank of New York Short-Term Investment Fund- Master Notes $5,778,832 $ 5,779 $ 5,779 ======== ========== TOTAL ASSETS HELD FOR INVESTMENT PURPOSES AT DECEMBER 31, 2000 $938,148 $1,502,234 ======== ========== * Also a party-in-interest. SCHEDULE II THE MAY DEPARTMENT STORES COMPANY PROFIT SHARING PLAN EMPLOYER #: 43-1104396 PLAN #: 003 SCHEDULE H, ITEM 4j: SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2000 (Thousands, except number of transactions) Purchases Sales ---------------- ------------------------------------ No. of No. of Sales Gain or Trans. Cost Trans. Cost Price (Loss) The Bank of New York Short-Term Investment Fund-Master Notes (1) 471 $149,977 249 $143,167 $143,167 $ - The May Department Stores Company Common Stock (1) (2) 47 $ 41,242 40 $ 19,529 $ 7,540 $(11,989) (1) Also a party-in-interest. (2) Includes conversion of ESOP Preference Shares. EXHIBIT CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report on The May Department Stores Company Profit Sharing Plan financial statements included in this Form 11-K, into the Company's previously filed Registration Statement on Form S-8 Files No. 333-00957 and 333-76227. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP St. Louis, Missouri, April 25, 2001 -----END PRIVACY-ENHANCED MESSAGE-----