SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal quarter ended May
4, 1996.
FEDERATED DEPARTMENT STORES, INC.
151 West 34th Street
New York, New York 10001
(212) 695-4400
and
7 West Seventh St.
Cincinnati, Ohio 45202
(513) 579-7000
Delaware 1-13536 13-3324058
(State of (Commission File No.) (I.R.S. Employer
Incorporation Identification Number)
The Registrant has filed all reports required to be filed by
Section 12, 13 or 15 (d) of the Act during the preceding 12
months and has been subject to such filing requirements for the
past 90 days.
207,663,740 shares of the Registrant's Common Stock, $.01 par
value, were outstanding as of June 1, 1996.
PART I -- FINANCIAL INFORMATION
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Operations
(Unaudited)
(thousands, except per share figures)
13 Weeks Ended 13 Weeks Ended
May 4, April 29,
1996 1995
Net Sales, including leased department sales $ 3,300,665 $2,988,006
Cost of sales 2,014,648 1,823,921
Selling, general and administrative expenses 1,153,065 1,069,959
Business integration and consolidation expenses 77,688 83,322
Operating Income 55,264 10,804
Interest expense (123,345) (109,501)
Interest income 11,064 11,949
Loss Before Income Taxes (57,017) (86,748)
Federal, state and local income tax benefit 19,071 29,749
Net Loss $ (37,946) $ (56,999)
Loss per Share $ (.18) $ (.31)
Average Number of Shares Outstanding 206,710 182,682
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
FEDERATED DEPARTMENT STORES, INC.
Consolidated Balance Sheets
(Unaudited)
(thousands)
May 4, February 3, April 29,
1996 1996 1995
ASSETS:
Current Assets:
Cash $ 195,473 $ 172,518 $ 150,242
Accounts receivable 2,944,595 2,842,077 2,237,598
Merchandise inventories 3,204,023 3,094,848 2,553,193
Supplies and prepaid expenses 150,566 176,411 114,191
Deferred income tax assets 97,791 74,511 130,167
Total Current Assets 6,592,448 6,360,365 5,185,391
Property and Equipment - net 6,231,782 6,305,167 5,245,346
Intangible Assets - net 737,868 744,689 1,037,861
Notes Receivable 210,758 415,066 407,293
Other Assets 377,879 469,763 386,818
Total Assets $ 14,150,735 $ 14,295,050 $12,262,709
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Short-term debt $ 537,594 $ 733,115 $ 671,741
Accounts payable and accrued
liabilities 2,201,922 2,358,543 2,085,154
Income taxes 2,899 6,411 9,621
Total Current Liabilities 2,742,415 3,098,069 2,766,516
Long-Term Debt 5,768,933 5,632,232 4,526,191
Deferred Income Taxes 731,200 732,936 886,506
Other Liabilities 556,671 558,127 498,627
Shareholders' Equity 4,351,516 4,273,686 3,584,869
Total Liabilities and
Shareholders' Equity $ 14,150,735 $ 14,295,050 $12,262,709
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(thousands)
13 Weeks Ended 13 Weeks Ended
May 4, 1996 April 29, 1995
Cash flows from operating activities:
Net loss $ (37,946) $ (56,999)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization of property
and equipment 125,859 103,309
Amortization of intangible assets 6,821 10,828
Amortization of financing costs 5,799 4,968
Amortization of original issue discount 110 904
Amortization of unearned restricted stock 644 1,122
Changes in assets and liabilities:
Decrease in accounts receivable 97,479 28,053
Increase in merchandise inventories (109,175) (172,572)
(Increase) decrease in supplies and prepaid
expenses 25,845 (14,632)
Decrease in other assets not separately
identified 8,350 7,392
Decrease in accounts payable and accrued
liabilities not separately identified (144,403) (70,260)
Decrease in current income taxes (3,512) (46,292)
Increase (decrease) in deferred income taxes (25,016) 1,015
Decrease in other liabilities not separately
identified (1,455) (6,208)
Net cash used by operating activities (50,600) (209,372)
Cash flows from investing activities:
Purchase of property and equipment (62,029) (45,995)
Disposition of property and equipment 92,007 23,804
Net cash provided (used) by investing
activities 29,978 (22,191)
Cash flows from financing activities:
Debt issued 46,865 311,918
Financing costs (406) (290)
Debt repaid (105,796) (107,152)
Decrease in outstanding checks (12,218) (30,297)
Acquisition of treasury stock (574) (347)
Issuance of common stock 115,706 1,483
Net cash provided by financing activities 43,577 175,315
(Continued)
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(thousands)
13 Weeks Ended 13 Weeks Ended
May 4, 1996 April 29, 1995
Net increase (decrease) in cash 22,955 (56,248)
Cash at beginning of period 172,518 206,490
Cash at end of period $ 195,473 $ 150,242
Supplemental cash flow information:
Interest paid $ 128,477 $ 72,386
Interest received 11,682 12,380
Income taxes paid (net of refunds received) 5,198 15,282
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
FEDERATED DEPARTMENT STORES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
A description of the Company's significant accounting policies
is included in the Company's Annual Report on Form 10-K for
the fiscal year ended February 3, 1996 (the "1995 10-K"). The
accompanying Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements and
notes thereto in the 1995 10-K.
Because of the seasonal nature of the general merchandising
business, the results of operations for the 13 weeks ended May
4, 1996 and April 29, 1995 (which do not include the Christmas
season) are not indicative of such results for the fiscal
year.
The Consolidated Financial Statements for the 13 weeks ended
May 4, 1996 and April 29, 1995, in the opinion of management,
include all adjustments (consisting only of normal recurring
adjustments) considered necessary to present fairly, in all
material respects, the consolidated financial position and
results of operations of the Company and its subsidiaries.
2. Acquisition of Company
The Company acquired Broadway Stores, Inc. ("Broadway")
pursuant to an Agreement and Plan of Merger dated August 14,
1995. The total purchase price of the Broadway acquisition
was approximately $1,620.0 million, consisting of (i) 12.6
million shares of common stock and options to purchase an
additional 1.5 million shares of common stock valued at $352.9
million and (ii) $1,267.1 million of Broadway debt. In
addition, a wholly owned subsidiary of the Company purchased
$422.3 million of mortgage indebtedness of Broadway for 6.8
million shares of common stock of the Company and a $242.3
million promissory note.
The Broadway acquisition was accounted for under the purchase
method and, accordingly, the results of operations of Broadway
have been included in the Company's results of operations
since July 29, 1995 and the purchase price has been allocated
to Broadway's assets and liabilities based on their estimated
fair values as of that date.
The Company's accrued severance liability related to the
Broadway acquisition of $22.5 million at February 3, 1996 was
paid out during the 13 weeks ended May 4, 1996.
The following unaudited pro forma condensed statement of
operations gives effect to the Broadway acquisition and
related financing transactions as if such transactions had
occurred at the beginning of the period presented.
13 Weeks Ended
April 29, 1995
(millions, except per share figure)
Net sales $ 3,411.9
Net loss (83.9)
Loss per share (.42)
FEDERATED DEPARTMENT STORES, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The foregoing unaudited pro forma condensed statement of
operations gives effect to, among other pro forma adjustments,
the following:
(i) Interest expense on debt incurred in connection with the
acquisition and the reversal of certain of Broadway's historical
interest expense;
(ii) Amortization, over 20 years, of the excess of cost over net
assets acquired;
(iii) Depreciation and amortization adjustments related to
fair market value of assets acquired;
(iv) Adjustments to income tax expense related to the above; and
(v) Adjustments for shares issued.
The foregoing unaudited pro forma information is provided for
illustrative purposes only and does not purport to be
indicative of results that actually would have been achieved
had the Broadway acquisition been consummated on the first day
of the period presented or of future results.
3. Business Integration and Consolidation Expenses
During the 13 weeks ended May 4, 1996, the Company recorded
$77.7 million of business integration and consolidation
expenses associated with the integration of Broadway into the
Company ($65.9 million) and the ongoing consolidation of
Macy's and other support operation restructurings ($11.8
million). Included in the Broadway integration expenses were
$36.6 million of inventory valuation adjustments to
merchandise in lines of business which the Company, subsequent
to acquisition, eliminated or replaced. The remainder of the
Broadway integration expenses relate primarily to the
incremental costs associated with converting the Broadway
stores to other nameplates including advertising, credit card
issuance and promotion, data processing conversion and other
name change expenses and the costs of operating Broadway
central office functions for a transitional period.
During the 13 weeks ended April 29, 1995, the Company recorded
$83.3 million of business integration and consolidation
expenses associated with the integration of Macy's into the
Company ($73.5 million) and the consolidation of the Company's
Rich's/Goldsmith's and Lazarus divisions ($9.8 million). The
primary components of the Macy's integration expenses were
$40.0 million of inventory valuation adjustments to
merchandise in lines of business which the Company, subsequent
to the acquisition, eliminated or replaced, $8.6 million of
severance costs and $24.9 million of other costs and expenses
associated with integrating Macy's into the Company, including
costs to close and sell certain stores and to convert a number
of stores to other nameplates. Of the $9.8 million of expenses
associated with the divisional consolidation referred to
above, $7.9 million relates to inventory valuation adjustments
to merchandise of the affected divisions in lines of business
which were eliminated or replaced as a result of the
consolidation.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
For purposes of the following discussion, all references to
"first quarter of 1996" and "first quarter of 1995" are to the
Company's 13-week fiscal periods ended May 4, 1996 and April
29, 1995, respectively.
Results of Operations
Comparison of the 13 Weeks Ended May 4, 1996 and April 29, 1995
Net sales for the first quarter of 1996 totaled $3,300.7
million, compared to net sales of $2,988.0 million for the
first quarter of 1995, an increase of 10.5%. Sales for the
first quarter of 1996 include the stores added in the Broadway
acquisition. On a comparable store basis, sales for the first
quarter of 1996 increased 4.6% over the first quarter of 1995.
Net sales for the first quarter of 1996 were somewhat
negatively impacted by the Company's efforts to gradually
reduce the degree to which it utilizes promotional selling
practices with respect to home-related merchandise.
Cost of sales was 61.0% as a percent of net sales for both the
first quarter of 1996 and the first quarter of 1995. Cost of
sales includes no charge in the first quarter of 1996,
compared to a charge of $1.8 million in the first quarter of
1995 resulting from the valuation of merchandise inventory on
the last-in, first-out basis.
Selling, general and administrative expenses were 34.9% as a
percent of net sales for the first quarter of 1996 compared to
35.8% for the first quarter of 1995. The improvement
primarily reflects the operating efficiencies resulting from
the integration of Macy's into the Company in fiscal 1995.
Business integration and consolidation expenses for the first
quarter of 1996 consist of $65.9 million associated with the
integration of Broadway and $11.8 million related to the
ongoing consolidation of Macy's and other support operation
restructurings. During the remainder of fiscal 1996, the
Company expects to incur approximately $220.0 million of
additional business integration and consolidation expenses in
connection with the consolidation of Broadway, the ongoing
consolidation of Macy's and the support operation
restructurings.
Business integration and consolidation expenses for the first
quarter of 1995 consist of $73.5 million associated with
integration of Macy's into the Company and $9.8 million
related to the consolidation of the Company's
Rich's/Goldsmith's and Lazarus divisions.
Net interest expense was $112.3 million for the first quarter
of 1996, compared to $97.6 million for the first quarter of
1995. The higher interest expense for the first quarter of
1996 is principally due to the higher levels of borrowings
incurred in connection with the acquisition of Broadway.
Income tax benefit was $19.1 million for the first quarter of
1996. This amount differs from the amount computed by
applying the federal income tax statutory rate of 35.0% to
income before income taxes principally because of permanent
differences arising from the amortization of intangible
assets, and the effect of state and local income taxes.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from
operations, cash on hand and available credit facilities.
Net cash used by operating activities in the first quarter of
1996 was $50.6 million, a decrease of $158.8 million from the
net cash used by operating activities in the first quarter of
1995 of $209.4 million. The major factor contributing to this
improvement was greater reductions in customer accounts
receivables due to Broadway store closings.
Net cash provided by the Company for all financing activities
was $43.6 million for the first quarter of 1996. During the
first quarter of 1996, the Company repaid $105.8 million of
debt, including $64.0 million of asset-backed notes issued by
a subsidiary of Broadway, and borrowed $46.9 million under its
credit facilities. The Company also issued 4.1 million shares
of common stock and received $99.0 million in proceeds upon
the exercise of its Series A Warrants.
Net cash provided by investing activities was $30.0 million
for the first quarter of 1996, with purchases of property and
equipment totaling $62.0 million and dispositions of property
and equipment, principally Broadway stores, totaling $92.0
million. The Company opened one new furniture gallery and
closed two Broadway department stores, one temporarily for
renovation, in the first quarter of 1996.
On May 3, 1997, a $200.0 million installment of a note
receivable matures and $176.0 million of borrowings under a
note monetization facility become due and payable
Accordingly, as of May 4, 1996, such amounts have been
included in accounts receivable and short-term debt,
respectively.
On May 14, 1996, a wholly owned subsidiary of the Company
issued $238.8 million of asset-backed certificates in two
separate classes. The two classes are: (i) $218.0 million in
aggregate principal amount of 6.70% Class A Asset-Backed
Certificates, Series 1996-1 due May 15, 2001 and (ii) $20.8
million in aggregate principal amount of 6.85% Class B Asset-
Backed Certificates, Series 1996-1 due June 15, 2001. On the
same day, the Company terminated the receivables based credit
facility of a subsidiary of Broadway and repaid all commercial
paper borrowings outstanding thereunder, which amounted to
$368.4 million as of May 4, 1996.
On May 22, 1996, the Company issued $450.0 million of
8-1/2% Senior Notes due 2003, and subsequently prepaid $195.4
million of term borrowings under its bank credit facility.
Management believes the department store industry will
continue to consolidate. Accordingly, the Company intends
from time to time to consider additional acquisitions of
department store assets and companies.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
Management of the Company believes that, with respect to its
current operations, cash on hand and funds from operations,
together with its credit facilities, will be sufficient to
cover its reasonably foreseeable working capital, capital
expenditure and debt service requirements. Acquisition
transactions, if any, are expected to be financed through a
combination of cash on hand and from operations and the
possible issuance from time to time of long-term debt or other
securities. Depending upon conditions in the capital markets
and other factors, the Company will from time to time consider
other possible capital markets transactions, including the
refinancing of indebtedness.
PART II - - OTHER INFORMATION
FEDERATED DEPARTMENT STORES, INC.
Item 1. Legal Proceedings
The information regarding legal proceedings contained in
the 1995 10-K covers events known to the Company and
occurring prior to March 15, 1996. The following is a
general description of certain developments in the legal
proceedings known to the Company that arose subsequent to
that date and prior to June 4, 1996.
Cash Payment Claims Against Macy's Debtors
As reported in the 1995 10-K, certain claims or portions
thereof (collectively the "Cash Payment Claims") against
the Macy's Debtors which, to the extent allowed by the
United States Bankruptcy Court for the Southern District
of New York, will be paid in cash pursuant to the Macy's
POR, are currently disputed by the Company. As of June 4,
1996, the aggregate face amount of disputed Cash Payment
Claims was approximately $216.8 million, while the
estimated allowed amount thereof was approximately $210.8
million. Although there can be no assurance with respect
thereto, the Company believes that the actual allowed
amount of disputed Cash Payment Claims will not exceed the
estimated allowed amount thereof.
Other Proceedings
The review by the Attorney General of the State of
California of the anticompetitive effects of the Company's
acquisition of Broadway, which was previously reported in
Item 3 of the 1995 10-K, was resolved pursuant to a
Settlement Agreement dated as of May 23, 1996, the
provisions of which are not expected to have a material
adverse effect on the Company's consolidated financial
position or results of operations.
The Company and its subsidiaries are also involved in
various legal proceedings incidental to the normal course
of their business. Management does not expect that any of
such proceedings will have a material adverse effect on
the Company's consolidated financial position or results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Company's stockholders was held
on May 17, 1996. The Company's stockholders voted on the
following items at such meeting:
i. The stockholders approved the election of four Directors for
a three-year term expiring at the 1999 Annual Meeting of the
Company's stockholders (except that Mr. Everingham is expected to
submit his resignation at the 1997 annual meeting of
stockholders). The votes for such elections were as follows:
Lyle Everingham - 170,504,005 votes in favor and 36,955,132 votes
withheld; Meyer Feldberg - 170,509,343 votes in favor and
36,949,794 votes withheld; Ronald W. Tysoe - 170,491,142 votes in
favor and 36,967,995 votes withheld; and Marna C. Whittington -
170,505,410 votes in favor and 36,953,727 votes withheld. There
were no broker non-votes on this item.
PART II - - OTHER INFORMATION
FEDERATED DEPARTMENT STORES, INC.
ii.The stockholders ratified the employment of KPMG Peat
Marwick LLP as the Company's independent accountants for the
fiscal year ending February 1, 1997. The votes for the
ratification were 171,211,091, the votes against the ratification
were 71,250, the votes abstained were 101,848, and there were no
broker non-votes.
iii.The stockholders voted against a resolution by a stockholder
to publish periodically in various newspapers a detailed
statement disclosing political and related contributions made by
the Company. The votes against the resolution were 137,920,284,
the votes for the resolution were 5,205,645, the votes abstained
were 16,020,263, and there were 12,237,997 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Amendment No. 3, dated as of April 26, 1996, to the
Credit Agreement, dated as of December 19, 1994,
among the Company, the banks, financial institutions and
other institutional lenders parties thereto
(collectively, the "Lender Parties"), Citibank, N.A., as
administrative agent for the Lender Parties, and Chemical
Bank, as agent
4.2 Seventh Supplemental Trust Indenture, dated as of
May 22, 1996, between the Company and State Street Bank
and Trust Company (successor to The First National Bank
of Boston), as Trustee (incorporated by reference to
Exhibit 4 of the Company's Registration Statement on
Form 8-K dated May 21, 1996)
11 Statement re computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
May 4, 1996.
FEDERATED DEPARTMENT STORES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunder duly authorized.
FEDERATED DEPARTMENT STORES, INC.
Date June 18, 1996 /s/ Dennis J. Broderick
Dennis J. Broderick
Senior Vice President,
General Counsel and Secretary
/s/ John E. Brown
John E. Brown
Senior Vice President
and Controller
(Principal Accounting Officer)