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 April 30, 1994.
FEDERATED DEPARTMENT STORES, INC.
7 West Seventh Street
Cincinnati, Ohio 45202
Telephone: (513) 579-7000
Delaware 1-10951 31-0513863
(State of incorporation) (Commission File No.) (I.R.S. Employer
Identification Number)
Registrant has filed all reports required to be filed by Section 12, 13 or
15(d) of the Act, including subsequent to the distribution of securities
under its plan of reorganization, during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.
126,596,569 shares of registrant's Common Stock, $.01 par value, were
outstanding as of May 28, 1994.
PART I -- FINANCIAL INFORMATION
<TABLE>
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Operations
(Unaudited)
(thousands, except per share figures)
<CAPTION>
13 Weeks Ended 13 Weeks Ended
April 30, 1994 May 1, 1993
<S> <C> <C>
Net Sales, including leased department
sales............................... $1,653,631 $1,590,259
Cost of sales......................... 1,008,136 951,718
Selling, general and administrative
expenses............................ 542,088 555,610
Operating Income...................... 103,407 82,931
Interest expense...................... (56,363) (56,088)
Interest income....................... 11,024 12,816
Income Before Income Taxes and
Extraordinary Item.................. 58,068 39,659
Federal, state and local income tax
expense............................. (25,846) (17,959)
Income Before Extraordinary Item...... 32,222 21,700
Extraordinary item - loss on early
extinguishment of debt, net of tax
effect of $2,293.................... - (3,545)
Net Income............................ $ 32,222 $ 18,155
Earnings per Share:
Income before extraordinary item.... $ .25 $ .17
Extraordinary item.................. - (.03)
Net Income........................ $ .25 $ .14
Average Number of Shares Outstanding.. 126,464 126,209
</TABLE>
The accompanying notes are an integral part of these unaudited Consolidated
Financial Statements.
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FEDERATED DEPARTMENT STORES, INC.
Consolidated Balance Sheets
(Unaudited)
(thousands)
<CAPTION>
April 30, January 29, May 1,
1994 1994 1993
<S> <C> <C> <C>
ASSETS:
Current Assets:
Cash................................. $ 102,907 $ 222,428 $ 212,297
Accounts receivable.................. 1,781,938 1,758,935 1,481,572
Merchandise inventories.............. 1,267,958 1,180,844 1,215,283
Supplies and prepaid expenses........ 47,374 46,660 37,245
Deferred income tax assets........... 86,278 88,754 86,428
Total Current Assets.............. 3,286,455 3,297,621 3,032,825
Property and Equipment - net........... 2,544,481 2,576,884 2,447,056
Reorganization Value in Excess of
Amounts Allocable to Identifiable
Assets - net.......................... 333,029 337,720 351,791
Notes Receivable....................... 407,757 408,818 420,604
Other Assets........................... 799,647 798,384 371,246
Total Assets...................... $7,371,369 $7,419,427 $6,623,522
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Short-term debt...................... $ 125,847 $ 10,099 $ 11,018
Accounts payable and accrued
liabilities........................ 1,146,702 1,209,744 1,057,435
Income taxes......................... 78,280 110,209 28,385
Total Current Liabilities......... 1,350,829 1,330,052 1,096,838
Long-Term Debt......................... 2,683,233 2,786,724 2,451,463
Deferred Income Taxes.................. 803,159 804,181 754,240
Other Liabilities...................... 220,455 220,226 221,656
Shareholders' Equity................... 2,313,693 2,278,244 2,099,325
Total Liabilities and Shareholders'
Equity........................... $7,371,369 $7,419,427 $6,623,522
</TABLE>
The accompanying notes are an integral part of these unaudited Consolidated
Financial Statements.
<TABLE>
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(thousands)
<CAPTION>
13 Weeks Ended 13 Weeks Ended
April 30, 1994 May 1, 1993
<S> <C> <C>
Cash flows from operating activities:
Net income................................ $ 32,222 $ 18,155
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 54,716 50,903
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets.................... 4,691 4,691
Amortization of financing costs......... 2,542 2,537
Amortization of original issue discount. 4,411 4,164
Amortization of unearned restricted
stock.................................. 486 832
Loss on early extinguishment of debt.... - 3,545
Changes in assets and liabilities:
(Increase) Decrease in accounts
receivable.......................... (23,003) 62,262
Increase in merchandise inventories... (87,114) (66,349)
(Increase) Decrease in supplies and
prepaid expenses..................... (714) 2,823
Decrease in other assets not separately
identified........................... 3,318 793
Decrease in accounts payable and
accrued liabilities not separately
identified........................... (53,940) (48,846)
Decrease in current income taxes...... (31,929) (15,834)
Increase in deferred income taxes..... 1,454 7,302
Increase in other liabilities......... 229 139
Net cash provided (used) by operating
activities......................... (92,631) 27,117
Cash flows from investing activities:
Purchase of property and equipment........ (27,822) (19,708)
Disposition of property and equipment..... 587 -
Net cash used by investing
activities........................ (27,235) (19,708)
Cash flows from financing activities:
Debt issued............................... 14,995 -
Financing costs........................... (1,140) (224)
Debt repaid............................... (7,149) (370,202)
Increase (decrease) in outstanding checks. (9,102) 2,972
Acquisition of treasury stock............. (273) (170)
Issuance of common stock.... 3,014 5,528
Net cash provided (used) by financing
activities........................ 345 (362,096)
(Continued)
</TABLE>
<TABLE>
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(thousands)
<CAPTION>
13 Weeks Ended 13 Weeks Ended
April 30, 1994 May 1, 1993
<S> <C> <C>
Net decrease in cash........................ (119,521) (354,687)
Cash at beginning of period................. 222,428 566,984
Cash at end of period....................... $ 102,907 $ 212,297
Supplemental cash flow information:
Interest paid.............................. $ 45,734 $ 49,098
Interest received.......................... $ 11,673 $ 11,863
Income taxes paid (net of refunds received) $ 55,691 $ 26,460
Schedule of noncash investing and financing
activities:
Property and equipment transferred to
other assets............................ $ 4,922 $ -
</TABLE>
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 January 29, 1994 Annual Report on Form 10-K
(the "1993 10-K"). The accompanying Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial Statements
in the 1993 10-K.
Because of the seasonal nature of the general merchandising business,
the results of operations for the 13 weeks ended April 30, 1994 and May
1, 1993 (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 April 30,
1994 and May 1, 1993, 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. Extraordinary Item
The extraordinary item during the 13 weeks ended May 1, 1993 represents
the costs associated with the prepayment of the entire $355.0 million
outstanding principal amount of the Company's Series B Secured Notes.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
For purposes of the following discussion, all references to "first
quarter of 1994" and "first quarter of 1993" are to the Company's
13-week fiscal periods ended April 30, 1994 and May 1, 1993,
respectively.
Comparison of the 13 Weeks Ended April 30, 1994 and May 1, 1993
Net sales for the first quarter of 1994 were $1,653.6 million, compared
to $1,590.3 million for the first quarter of 1993, an increase of 4.0%.
On a comparable store basis, net sales increased 2.1%.
Cost of sales was 60.9% as a percent of net sales for the first quarter
of 1994, compared to 59.9% for the first quarter of 1993. The increase
reflects additional markdowns taken to offer increased value to the
customer and to keep inventory assortments fresh and fashion current.
Cost of sales includes charges of $5.2 million for the first quarter of
1994 compared to $3.9 million in the first quarter of 1993 resulting
from the valuation of merchandise inventory on the last-in, first-out
basis.
Selling, general and administrative expenses were 32.8% as a percent of
net sales for the first quarter of 1994, compared to 34.9% for the first
quarter of 1993. This improvement reflects continued emphasis on
controlling variable expenses through centralization of operations, as
well as increased revenue from credit operations resulting from higher
accounts receivable balances this year. Selling, general and
administrative expenses includes finance charge revenues of $74.4
million for the first quarter of 1994, compared to $60.3 million for the
first quarter of 1993.
Net interest expense was $45.3 million for the first quarter of 1994,
compared to $43.3 million for the first quarter of 1993. Interest
expense for the first quarter of 1994 reflects a full period accrual on
the $340.0 million promissory note issued on December 31, 1993.
Interest expense for the first quarter of 1993 reflects a partial period
accrual for the $355.0 million of Series B Secured Notes which were
prepaid on March 8, 1993.
Income tax expense was $25.8 million for the first quarter of 1994.
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 state and local income taxes and permanent
differences arising from amortization of reorganization value in excess
of amounts allocable to identifiable assets.
The extraordinary item for the first quarter of 1993, $3.5 million after
taxes, represents the costs associated with the prepayment of debt.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations,
cash on hand and certain credit facilities that are available to it.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
Net cash used by operating activities was $92.6 million for the first
quarter of 1994, a reduction of $119.7 million from the net cash
provided of $27.1 million for the first quarter of 1993. This decrease
is due primarily to higher accounts receivable balances this year
generated by increases in proprietary credit sales and a Company policy
change to lower the minimum monthly payment requirements.
Net cash provided by the Company for all financing activities was $0.3
million for the first quarter of 1994, and net cash used in investing
activities was $27.2 million. During the first quarter of 1994, the
Company opened one new store, reopened a hurricane-damaged store and
closed one store.
Management believes the department store segment will continue to
consolidate. Accordingly, the Company intends from time to time to
consider the possible acquisition of department store assets and
companies.
On May 26, 1994, the Company purchased Joseph Horne Co., Inc., a
department store retailer operating ten stores in Pittsburgh and Erie,
Pennsylvania, for $123.0 million, including the assumption of $40.0
million of mortgage debt and subject to certain post closing
adjustments. The acquisition will be accounted for under the purchase
method of accounting.
The ten store locations, which had 1993 sales of approximately $215.0
million, will be merged into the Lazarus department store operation
resulting in certain one-time costs that will negatively impact fiscal
1994 earnings.
Additionally, through its interest in a claim against R. H. Macy & Co.,
Inc. ("Macy"), the Company has continued to pursue within the bankruptcy
process its ultimate objective of working toward a business combination
involving Macy. There can be no assurance that the Company will be
successful in achieving that objective or, if so, as to the timing and
terms thereof.
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. Any business combination transaction involving the
Company and Macy would require the establishment of a revised capital
structure for the combined company. Other 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. Management's objective is to
maintain the Company's debt to equity ratio following any transaction,
including any transaction involving Macy, at levels determined to be
prudent and not to effect any transaction which would adversely affect
the long term value of an investment in the Company.
FEDERATED DEPARTMENT STORES, INC.
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of Registrant's shareholders was held on May 20,
1994.
(b) The shareholders voted on the following items at the meeting:
(i) The shareholders approved the election of four Class II
Directors for a three-year term expiring at the 1997 Annual
Meeting of Registrant's shareholders, with the votes for such
election as follows: Robert A. Charpie - 108,444,050 votes in
favor and 520,425 votes withheld; Earl G. Graves - 108,439,369
votes in favor and 525,106 votes withheld; George V. Grune -
108,452,295 votes in favor and 512,180 votes withheld; and
James M. Zimmerman - 108,453,477 votes in favor and 510,998
votes withheld. There were no broker non-votes on this item.
(ii) The shareholders ratified the employment of KPMG Peat Marwick
as the Registrant's independent accountants for the fiscal
year ending January 28, 1995. The votes for the ratification
were 108,500,130, the votes against the ratification were
265,984, the votes abstained were 198,361 and there were no
broker non-votes.
(iii) The shareholders voted against a resolution by a shareholder
to change the date of the Registrant's annual meeting to the
second Friday in June. The votes against the resolution were
80,892,329, the votes for the resolution were 13,226,794, the
votes abstained were 4,178,263 and the broker non-votes were
10,667,089.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re computation of per share earnings.
(Filed herewith)
(b) Reports on Form 8K
No reports were filed on Form 8-K during this quarter.
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 14, 1994 /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)
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 14, 1994
Dennis J. Broderick
Senior Vice President, General Counsel
and Secretary
John E. Brown
Senior Vice President and Controller
(Principal Accounting Officer)
EXHIBIT 11
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FEDERATED DEPARTMENT STORES, INC.
Exhibit of Primary and Fully Diluted Earnings Per Share
(thousands, except per share figures)
<CAPTION>
13 Weeks Ended 13 Weeks Ended
April 30, 1994 May 1, 1993
Shares Income Shares Income
<S> <C> <C> <C> <C> <C> <C>
Net income and average
number of shares
outstanding................ 126,464 $ 32,222 126,209 $ 18,155
Earnings per share.......... $.25 $.14
PRIMARY COMPUTATION:
Average number of common
share equivalents:
Shares to be issued
to the U.S. Treasury... 122 163
Deferred compensation
plan................... 40 -
Stock options........... 337 184
Adjusted number of
common and common
equivalent shares
outstanding and
adjusted net income.. 126,963 32,222 126,556 18,155
Primary earnings per
share................ $.25 $.14
FULLY DILUTED COMPUTATION:
Additional adjustments to
a fully diluted basis:
Stock options......... 1 1
Adjusted number of
shares outstanding
and net income on a
fully diluted basis.. 126,964 $ 32,222 126,557 $ 18,155
Fully diluted
earnings per share... $.25 $.14
</TABLE>
