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
3, 1997.
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.
209,132,435 shares of the Registrant's Common Stock, $.01 par
value, were outstanding as of May 31, 1997.
PART I -- FINANCIAL INFORMATION
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Income
(Unaudited)
(thousands, except per share figures)
13 Weeks Ended 13 Weeks Ended
May 3, May 4,
1997 1996
Net Sales $ 3,409,091 $ 3,300,665
Cost of sales:
Recurring 2,086,865 2,014,648
Inventory valuation adjustments
related to consolidation - 36,588
Total cost of sales 2,086,865 2,051,236
Selling, general and administrative
expenses:
Recurring 1,174,166 1,153,065
Business integration and
consolidation expenses - 41,100
Total selling, general and
administrative expenses 1,174,166 1,194,165
Operating Income 148,060 55,264
Interest expense (114,725) (123,345)
Interest income 10,348 11,064
Income (Loss) Before Income Taxes 43,683 (57,017)
Federal, state and local income tax
(expense) benefit (19,624) 19,071
Net Income (Loss) $ 24,059 $ (37,946)
Earnings (Loss) per Share $ .12 $ (.18)
Average Number of Shares Outstanding 208,235 206,710
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
FEDERATED DEPARTMENT STORES, INC.
Consolidated Balance Sheets
(Unaudited)
(thousands)
May 3, February 1, May 4,
1997 1997 1996
ASSETS:
Current Assets:
Cash $ 152,582 $ 148,794 $ 195,473
Accounts receivable 2,661,052 2,834,321 2,944,595
Merchandise inventories 3,384,883 3,245,996 3,204,023
Supplies and prepaid expenses 98,193 109,678 150,566
Deferred income tax assets 88,667 88,513 97,791
Total Current Assets 6,385,377 6,427,302 6,592,448
Property and Equipment - net 6,419,547 6,524,757 6,231,782
Intangible Assets - net 710,583 717,404 737,868
Notes Receivable 204,248 204,400 210,758
Other Assets 380,295 390,280 377,879
Total Assets $14,100,050 $14,264,143 $14,150,735
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Current Liabilities:
Short-term debt $ 1,059,543 $ 1,094,557 $ 537,594
Accounts payable and
accrued liabilities 2,414,056 2,492,195 2,201,922
Income taxes 15,765 8,947 2,899
Total Current Liabilities 3,489,364 3,595,699 2,742,415
Long-Term Debt 4,514,247 4,605,916 5,768,933
Deferred Income Taxes 831,207 830,943 731,200
Other Liabilities 561,907 562,431 556,671
Shareholders' Equity 4,703,325 4,669,154 4,351,516
Total Liabilities and
Shareholders' Equity $14,100,050 $14,264,143 $14,150,735
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 3, 1997 May 4, 1996
Cash flows from operating activities:
Net income (loss) $ 24,059 $ (37,946)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization of
property and equipment 138,554 125,859
Amortization of intangible assets 6,821 6,821
Amortization of financing costs 6,555 5,909
Amortization of unearned restricted
stock 309 644
Changes in assets and liabilities:
Decrease in accounts receivable 173,420 97,479
Increase in merchandise inventories (138,888) (109,175)
Decrease in supplies and prepaid
expenses 11,485 25,845
(Increase) decrease in other assets
not separately identified (7,580) 8,350
Decrease in accounts payable and
accrued liabilities not separately
identified (119,938) (144,403)
Increase (decrease) in current
income taxes 6,817 (3,512)
Increase (decrease) in deferred
income taxes 111 (25,016)
Decrease in other liabilities not
separately identified (523) (1,455)
Net cash provided (used) by
operating activities 101,202 (50,600)
Cash flows from investing activities:
Purchase of property and equipment (49,859) (62,029)
Disposition of property and equipment 27,704 92,007
Net cash (used) provided by
investing activities (22,155) 29,978
Cash flows from financing activities:
Debt issued - 46,865
Financing costs (62) (406)
Debt repaid (126,801) (105,796)
Increase (decrease) in outstanding
checks 41,802 (12,218)
Acquisition of treasury stock (1,662) (574)
Issuance of common stock 11,464 115,706
Net cash (used) provided by
financing activities (75,259) 43,577
(Continued)
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(thousands)
13 Weeks Ended 13 Weeks Ended
May 3, 1997 May 4, 1996
Net increase in cash 3,788 22,955
Cash at beginning of period 148,794 172,518
Cash at end of period $ 152,582 $ 195,473
Supplemental cash flow information:
Interest paid $ 113,484 $ 128,477
Interest received 10,861 11,682
Income taxes paid (net of
refunds received) 9,319 5,198
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 1, 1997 (the "1996 10-K"). The
accompanying Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements and
notes thereto in the 1996 10-K.
Because of the seasonal nature of the general merchandising
business, the results of operations for the 13 weeks ended
May 3, 1997 and May 4, 1996 (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 3, 1997 and May 4, 1996, 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.
Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("SFAS No. 128"), was issued in February 1997. The
statement establishes standards for computing and presenting
earnings per share and is effective for financial statements
for periods ending after December 15, 1997. Adoption of this
statement will not have a material impact on earnings per
share computations. Earnings (loss) per share and fully
diluted earnings (loss) per share for the 13 weeks ended May
3, 1997 and May 4, 1996 would be substantially identical to
the basic and diluted earnings (loss) per share amounts
determined in accordance with SFAS No. 128.
Certain reclassifications have been made to amounts for the 13
weeks ended May 4, 1996 to conform with the classifications of
such amounts for the 52 weeks ended February 1, 1997.
2. Inventory Valuation Adjustments Related to Consolidation and
Business Integration and
Consolidation Expenses
In connection with the consolidation of merchandise
inventories for acquired and pre-existing businesses, the
Company recorded one-time inventory valuation adjustments
related to merchandise in lines of business that were
eliminated or replaced as a separate component of cost of
sales. For the 13 weeks ended May 4, 1996, the amount
recorded related to the consolidation of Broadway into the
Company's Macy's West division.
Additionally, the Company incurred certain one-time costs
related to the integration and consolidation of acquired and
pre-existing businesses and classified such costs as business
integration and consolidation expenses as a separate component
of selling, general and administrative expenses. During the
13 weeks ended May 4, 1996, the Company recorded $41.1 million
of business integration and consolidation expenses consisting
of $29.3 million of costs associated with the integration of
Broadway into the Company (related primarily to the
incremental costs associated with converting the Broadway
stores to other nameplates including advertising, credit card
issuance and promotion and other name change expenses and the
costs of operating Broadway central office functions for a
transitional period), $10.2 million of costs related to the
consolidation of Macy's and $1.6 million of costs related to
other support operation restructurings.
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 1997" and "first quarter of 1996" are to the
Company's 13-week fiscal periods ended May 3, 1997 and May 4,
1996, respectively.
Results of Operations
Comparison of the 13 Weeks Ended May 3, 1997 and May 4, 1996
Net sales for the first quarter of 1997 totaled $3,409.1
million, compared to net sales of $3,300.7 million for the
first quarter of 1996, an increase of 3.3%. On a comparable
store basis, sales for the first quarter of 1997 increased
2.5% over the first quarter of 1996. Sales for the first
quarter of 1997, which were negatively impacted by
unseasonably cold weather in some parts of the country,
reflected growth in private label merchandise and increased
strength in California markets.
Cost of sales was 61.2% of net sales for the first quarter of
1997, compared to 62.1% for the first quarter of 1996. Cost
of sales for the first quarter of 1996 included $36.6 million
of one-time inventory valuation adjustments related to
merchandise in lines of business that were eliminated or
replaced in connection with the consolidation of Broadway's
merchandise inventories into the Company. Excluding these
inventory valuation adjustments from the first quarter of
1996, cost of sales would have increased by 0.2% of net sales
in the first quarter of 1997, due to higher merchandise
markdowns associated with the elimination of certain consumer
electronics lines of business.
Selling, general and administrative expenses were 34.5% of net
sales for the first quarter of 1997 compared to 36.2% for the
first quarter of 1996. Selling, general and administrative
expenses for the first quarter of 1996 included $41.1 million
of one-time costs related to the integration and consolidation
of acquired and pre-existing businesses as business
integration and consolidation expenses ("BICE"). Excluding
BICE, selling, general and administrative expenses would have
been 34.9% of net sales for the first quarter of 1996. The
major factor contributing to the improvement for the first
quarter of 1997 in the selling, general and administrative
expense rate (excluding BICE for the first quarter of 1996)
was lower distribution-related expenses resulting from
restructuring and technological improvements within the
merchandise distribution process.
Net interest expense was $104.4 million for the first quarter
of 1997, compared to $112.3 million for the first quarter of
1996. The lower interest expense for the first quarter of
1997 is principally due to the lower levels of borrowings.
The Company's effective income tax rate of 44.9% for the first
quarter of 1997 differs from the federal income tax statutory
rate of 35.0% principally because of the effect of state and
local income taxes and permanent differences arising from the
amortization of intangible assets.
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 certain available credit
facilities.
Net cash provided by operating activities in the first quarter
of 1997 was $101.2 million, an increase of $151.8 million from
the net cash used by operating activities in the first quarter
of 1996 of $50.6 million. The major factors contributing to
this improvement were improved operating results and greater
reductions in accounts receivables.
Net cash used by investing activities was $22.2 million for
the first quarter of 1997, with purchases of property and
equipment totaling $49.9 million and dispositions of property
and equipment totaling $27.7 million. The Company opened one
new Bloomingdale's store in California and closed four stores
in the first quarter of 1997.
Net cash used by the Company for all financing activities was
$75.3 million for the first quarter of 1997. During the first
quarter of 1997, the Company repaid $126.8 million of debt.
The major components of debt repaid were $59.4 million of
mortgages and $46.0 million of net borrowings under the
Company's revolving credit and commercial paper facilities.
On May 5, 1997, a $200.0 million installment of a note
receivable was received and $176.0 million of borrowings under
a note monetization facility were repaid. Such amounts were
included in accounts receivable and short-term debt,
respectively, as of May 3, 1997.
Management believes the department store business will
continue to consolidate. Accordingly, the Company intends
from time to time to consider additional acquisitions of
department store assets and companies.
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
the issuance of debt or other securities, or other possible
capital markets transactions, the proceeds of which could be
used to refinance current indebtedness or for other corporate
purposes.
PART II -- OTHER INFORMATION
FEDERATED DEPARTMENT STORES, INC.
Item 1. Legal Proceedings
The information regarding legal proceedings in the 1996
10-K covers events known to the Company and occurring
prior to April 9, 1997. Subsequent to that date and
prior to June 17, 1997, the Company and its
subsidiaries have been 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 16, 1997 (the "1997 Annual Meeting"). 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 2000 Annual Meeting of the
Company's stockholders. The votes for such elections were as
follows: Earl G. Graves, Sr. - 168,397,168 votes in favor and
1,800,499 votes withheld; George V. Grune - 168,409,424 votes in
favor and 1,788,243 votes withheld; Craig E. Weatherup -
167,127,261 votes in favor and 3,070,406 votes withheld; and
James M. Zimmerman - 168,417,154 votes in favor and 1,780,513
votes withheld. There were no broker non-votes on this item.
ii. The stockholders ratified the employment of KPMG Peat
Marwick LLP as the Company's independent accountants for the
fiscal year ending January 31, 1998. The votes for the
ratification were 169,942,203, the votes against the ratification
were 115,042, the votes abstained were 153,523, and there were no
broker non-votes.
iii. The stockholders approved a proposal to amend the 1995
Executive Equity Incentive Plan to increase the number of shares
of common stock of the Company available for issuance thereunder
and modify certain other terms thereof. The votes for the
proposal were 157,144,061, the votes against the proposal were
12,802,214, the votes abstained were 264,493, and there were no
broker non-votes.
iv. The stockholders approved the 1992 Incentive Bonus Plan.
The votes for the proposal were 167,574,874, the votes against
the proposal were 2,357,529, the votes abstained were 278,365,
and there were no broker non-votes.
v. 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 144,219,569,
the votes for the resolution were 4,428,891, the votes abstained
were 8,937,657, and there were 12,624,651 broker non-votes.
Item 5. Other Information
Immediately following the 1997 Annual Meeting, the
Board of Directors of the Company elected Ms. Sara
Levinson as a Class I Director and Mr. Terry Lundgren
as a Class II Director to fill vacancies that then
existed.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 1995 Executive Equity Incentive Plan (As Amended
and Restated as of May 16, 1997)
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 3, 1997.
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 17, 1997 /s/ Dennis J. Broderick
Dennis J. Broderick
Senior Vice President, General Counsel
and Secretary
/s/ Joel A. Belsky
Joel A. Belsky
Vice President and Controller
(Principal Accounting Officer)