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 29, 1995.
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.
182,777,694 shares of the Registrant's Common Stock, $.01 par
value, were outstanding as of May 27, 1995.
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE FIGURES)
<CAPTION>
13 Weeks Ended 13 Weeks Ended
April 29, April 30,
1995 1994
<S> <C> <C>
Net Sales, including leased
department sales $2,988,006 $1,653,631
Cost of sales 1,823,921 1,008,136
Selling, general and administrative
expenses 1,069,959 542,088
Business integration and
consolidation expenses 83,322 -
Operating Income 10,804 103,407
Interest expense (109,501) (56,363)
Interest income 11,949 11,024
Income (Loss) Before Income Taxes (86,748) 58,068
Federal, state and local income tax
benefit (expense) 29,749 (25,846)
Net Income (Loss) $ (56,999) $ 32,222
Earnings (Loss) per Share $ (.31) $ .25
Average Number of Shares Outstanding 182,682 126,464
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(THOUSANDS)
<CAPTION>
April 29, January 28, April 30,
1995 1995 1994
<S> <C> <C> <C>
ASSETS:
Current Assets:
Cash $ 150,242 $ 206,490 $ 102,907
Accounts receivable 2,237,598 2,265,651 1,781,938
Merchandise inventories 2,553,193 2,380,621 1,267,958
Supplies and prepaid expenses 114,191 99,559 47,374
Deferred income tax assets 232,889 238,127 86,278
Total Current Assets 5,288,113 5,190,448 3,286,455
Property and Equipment - net 5,245,346 5,349,912 2,544,481
Intangible Assets - net 1,037,861 1,006,547 333,029
Notes Receivable 407,293 408,134 407,757
Other Assets 386,818 424,671 799,647
Total Assets $12,365,431 $12,379,712 $7,371,369
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Short-term debt $ 671,741 $ 463,042 $ 125,847
Accounts payable and accrued
liabilities 2,085,154 2,183,711 1,146,702
Income taxes 9,621 65,319 78,280
Total Current Liabilities 2,766,516 2,712,072 1,350,829
Long-Term Debt 4,526,191 4,529,220 2,683,233
Deferred Income Taxes 989,228 993,451 803,159
Other Liabilities 498,627 505,359 220,455
Shareholders' Equity 3,584,869 3,639,610 2,313,693
Total Liabilities and
Shareholders' Equity $12,365,431 $12,379,712 $7,371,369
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS)
<CAPTION>
13 Weeks Ended 13 Weeks Ended
April 29, 1995 April 30, 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (56,999) $ 32,222
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 103,309 54,716
Amortization of intangible assets 10,828 4,691
Amortization of financing costs 4,968 2,542
Amortization of original issue discount 904 4,411
Amortization of unearned restricted stock 1,122 486
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 28,053 (23,003)
Increase in merchandise inventories (172,572) (87,114)
Increase in supplies and prepaid expenses (14,632) (714)
Decrease in other assets not separately
identified 7,392 3,318
Decrease in accounts payable and accrued
liabilities not separately identified (70,260) (53,940)
Decrease in current income taxes (46,292) (31,929)
Increase in deferred income taxes 1,015 1,454
Increase (decrease) in other liabilities
not separately identified (6,208) 229
Net cash used by operating activities (209,372) (92,631)
Cash flows from investing activities:
Purchase of property and equipment (45,995) (27,822)
Disposition of property and equipment 23,804 587
Net cash used by investing activities (22,191) (27,235)
Cash flows from financing activities:
Debt issued 311,918 14,995
Financing costs (290) (1,140)
Debt repaid (107,152) (7,149)
Decrease in outstanding checks (30,297) (9,102)
Acquisition of treasury stock (347) (273)
Issuance of common stock 1,483 3,014
Net cash provided by financing activities 175,315 345
</TABLE>
(Continued)
<PAGE>
<TABLE>
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS)
<CAPTION>
13 Weeks Ended 13 Weeks Ended
April 29, 1995 April 30, 1994
<S> <C> <C>
Net decrease in cash (56,248) (119,521)
Cash at beginning of period 206,490 222,428
Cash at end of period $ 150,242 $ 102,907
Supplemental cash flow information:
Interest paid $ 72,386 $ 45,734
Interest received 12,380 11,673
Income taxes paid (net of refunds received) 15,282 55,691
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
</TABLE>
<PAGE>
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 January 28,
1995 (the "1994 10-K"). The accompanying Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial Statements and
notes thereto in the 1994 10-K.
Because of the seasonal nature of the general merchandising business, the
results of operations for the 13 weeks ended April 29, 1995 and April 30, 1994
(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 29, 1995
and April 30, 1994, 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 COMPANIES
On December 31, 1993, Federated Noteholding Corporation ("FNC"), a wholly
owned subsidiary of the Company, paid $109.3 million in cash and issued a
promissory note (the "Promissory Note") in the principal amount of $340.0
million to The Prudential Insurance Company of America ("Prudential"),
in exchange for 50% of a claim (the "Prudential Claim") held by Prudential
in the Chapter 11 reorganization of R. H. Macy & Co., Inc. ("Macy's")
and an option to acquire the remaining 50% of the Prudential Claim (the
Prudential Option"). This investment was included in other assets in
the Company's Consolidated Balance Sheet at April 30, 1994.
On December 19, 1994, the Company completed its acquisition of Macy's
pursuant to a Plan of Reorganization (the "Macy's POR") of Macy's and
substantially all of its subsidiaries (collectively, the "Macy's Debtors").
Pursuant to the Macy's POR, Macy's merged with the Company, which became
responsible for making distributions of cash and debt and equity securities to
the holders of allowed claims against the Macy's Debtors pursuant to the Macy's
POR. In connection with the acquisition, FNC exercised the Prudential Option,
whereby it acquired the remainder of the Prudential Claim in exchange for
$469.6 million in cash, and repaid the full amount of indebtedness under the
Promissory Note. The total purchase price of the acquisition, net of amounts
issued or paid to wholly owned subsidiaries of the Company (including FNC),
was approximately $3,815.9 million and consisted of the following:
<TABLE>
<CAPTION>
(millions)
<S> <C>
Cash payments, including exercise of the Prudential Option
and transaction costs $ 830.4
Assumption of merger-related liabilities 192.5
Issuance, reinstatement or assumption of debt 1,182.4
Issuance of 55.6 million shares of common stock 1,047.6
Issuance of warrants to purchase 18.0 million shares of
common stock 118.4
Cost of the initial investment in the Prudential Claim, net of a
$4.7 million cash distribution 444.6
$3,815.9
/TABLE
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Macy's acquisition was accounted for under the purchase method and,
accordingly, the results of operations of Macy's have been included in
the Company's results of operations since the date of acquisition and
the purchase price has been allocated to Macy's assets and liabilities
based on their estimated fair values at the date of acquisition.
Including certain adjustments recorded in the 13 weeks ended April 29,
1995 to the assets and liabilities acquired, the excess of cost over net
assets acquired is approximately $350.6 million.
The following unaudited pro forma condensed statement of operations gives
effect to the Macy's acquisition and related financing transactions as if
such transactions had occurred at the beginning of the period presented.
<TABLE>
<CAPTION>
13 Weeks Ended
April 30, 1994
(millions)
<S> <C>
Net sales $ 2,997.0
Net loss (39.6)
Loss per share $ (.22)
</TABLE>
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 to finance the acquisition, the
reversal of Macy's historical interest expense and the reversal of
the Company's historical interest expense on certain indebtedness
redeemed in connection with the acquisition;
(ii) Amortization of deferred debt expense related to debt incurred to
finance the acquisition;
(iii) Amortization, over 20 years, of the excess of cost over net assets
acquired, and amortization, over 40 years, of tradenames acquired;
(iv) Depreciation and amortization adjustments related to fair market
value of assets acquired; and
(v) Adjustments to income tax expense related to the above.
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 Macy's acquisition been consummated on the
first day of the period presented or of future results.
On May 26, 1994, the Company purchased Joseph Horne Co., Inc. ("Horne's"),
a department store retailer operating ten stores in Pittsburgh and Erie,
Pennsylvania for approximately $116.0 million including the assumption of
$40.0 million of mortgage debt and transaction costs. The acquisition was
accounted for under the purchase method of accounting and the purchase price
approximates the estimated fair value of the assets and liabilities acquired.
Results of operations for the stores acquired are included in the
Consolidated Financial Statements from the date of acquisition. Pro forma
financial results have not been presented for this acquisition since it did
not significantly affect results of operations of the Company.
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. BUSINESS INTEGRATION AND CONSOLIDATION EXPENSES
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. The Company's accrued severance liability
related to business integration and consolidation expenses was reduced
from $26.1 million at January 28, 1995 to $12.0 million at April 29, 1995.
As of April 29, 1995, this accrued severance liability covered approximately
200 employees.
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company acquired Macy's on December 19, 1994, and effected other
acquisitions (and dispositions) during its 1994 fiscal year. Under the
purchase method of accounting, the assets, liabilities and results of
operations associated with such acquisitions have been included in the
Company's financial position and results of operations since the
respective dates thereof. Accordingly, the financial position and results
of operations of the Company presented and discussed herein are generally
not directly comparable between years. For purposes of the following
discussion, all references to "first quarter of 1995" and "first quarter of
1994" are to the Company's 13-week fiscal periods ended April 29, 1995 and
April 30, 1994, respectively.
RESULTS OF OPERATIONS
COMPARISON OF THE 13 WEEKS ENDED APRIL 29, 1995 AND APRIL 30, 1994
Net sales for the first quarter of 1995 totaled $2,988.0 million, compared
to net sales of $1,653.6 million for the first quarter of 1994, an increase
of 80.7%. Since April 30, 1994, the company added 142 department stores
(121 through the Macy's acquisition) and more than 135 specialty and
clearance stores and closed eight department stores. All of the specialty
and clearance stores were added through the Macy's acquisition. Comparable
store sales for the first quarter of 1995 increased 1.2% over the first
quarter of 1994, including sales of the Macy's stores that were open
throughout both such quarters.
Cost of sales was 61.0% as a percent of net sales for the first quarter of
1995, compared to 60.9% for the first quarter of 1994. Cost of sales includes
a charge of $1.8 million for the first quarter of 1995 compared to a charge
of $5.2 million in the first quarter of 1994 resulting from the valuation of
merchandise inventory on the last-in, firstout basis. Additionally, because
the Macy's divisions have historically experienced higher inventory shortages
than the Company prior to the Macy's acquisition, cost of sales for the first
quarter of 1995 reflects higher anticipated inventory shortage adjustments.
Selling, general and administrative expenses were 35.8% as a percent of net
sales for the first quarter of 1995 compared to 32.8% for the first quarter
of 1994. Since the credit card programs relating to the acquired Macy's
divisions are owned by a third party, revenue from credit operations
decreased as a percentage of sales. Because selling, general and
administrative expenses are reported net of revenue from credit operations,
such decrease was the major factor contributing to the increase in the
selling, general and administrative expense rate.
Business integration and consolidation expenses for the first quarter of 1995
consist of $73.5 million associated with the 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. During the remainder of fiscal
1995, the Company presently expects to incur approximately $170.0 million of
additional business integration and consolidation expenses as a result of the
Macy's acquisition, the divisional consolidation referred to above and the
discontinuation of the Company's clearance store operations.
<PAGE>
FEDERATED DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net interest expense was $97.6 million for the first quarter of 1995,
compared to $45.3 million for the first quarter of 1994. The higher
interest expense for the first quarter of 1995 is principally due to the
higher levels of borrowings incurred in connection with the acquisition of
Macy's. Income tax benefit was $29.7 million for the first quarter of 1995.
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 state and local income taxes.
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 1995 was $209.4
million, an increase of $116.8 million from the net cash used by operating
activities in the first quarter of 1994 of $92.6 million. Higher payments of
non-merchandise payables and accrued liabilities (including merger - related
liabilities) were the most significant factors contributing to this increased
use of cash. Net cash provided by the Company for all financing activities
was $175.3 million for the first quarter of 1995, and net cash used in
investing activities was $22.2 million. During the first quarter of 1995,
the Company issued $311.9 million of short-term debt under the Company's
bank credit facility and receivables backed commercial paper program and
repaid $107.2 million of debt, consisting primarily of the Company's
subsidiary trade obligations. The Company opened two new department stores
and closed three department stores in the first quarter of 1995.
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.
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 to reduce its cost of
capital, including the refinancing of indebtedness.
<PAGE>
PART II - - OTHER INFORMATION
FEDERATED DEPARTMENT STORES, INC.
ITEM 1. LEGAL PROCEEDINGS
The information regarding legal proceedings in the 1994 10K covers events
known to the Company and occurring prior to March 30, 1995. 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 6, 1995.
CASH PAYMENT CLAIMS AGAINST MACY'S DEBTORS. As reported in the 1994 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
6, 1995, the aggregate face amount of disputed Cash Payment Claims was
approximately $838.3 million, while the estimated allowed amount thereof was
approximately $336.7 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 be materially greater than the
estimated allowed amount thereof.
OTHER PROCEEDINGS. 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 19, 1995.
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 1998 Annual Meeting of the
Company's stockholders. The votes for such elections were as
follows: Joseph Neubauer - 144,004,187 votes in favor and
94,405 votes withheld; Allen I. Questrom - 144,013,692 votes
in favor and 84,900 votes withheld; Paul W. Van Orden -
143,999,036 votes in favor and 99,556 votes withheld; and
Karl M. von der Heyden 144,008,395 votes in favor and 90,197
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 February 3, 1996. The votes for the ratification
were 141,763,652, the votes against the ratification were
2,157,938 the votes abstained were 177,002, and there were no
broker non-votes.
(iii) The stockholders voted against a resolution by a stockholder
to change the date of the Company's Annual Meeting to the
second Friday in June. The votes against the resolution were
90,212,168, the votes for the resolution were 1,335,557, the
votes abstained were 5,856,961, and there were 46,693,906
broker non-votes.
<PAGE>
PART II - - OTHER INFORMATION (Continued)
FEDERATED DEPARTMENT STORES, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 this quarter.
<PAGE>
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 its behalf by the
undersigned thereunder duly authorized.
FEDERATED DEPARTMENT STORES, INC.
Date June 13, 1995 /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)
<PAGE>
<TABLE>
EXHIBIT 11
FEDERATED DEPARTMENT STORES, INC.
EXHIBIT OF PRIMARY AND FULLY DILUTED EARNINGS (LOSS) PER SHARE
(THOUSANDS, EXCEPT PER SHARE FIGURES)
<CAPTION>
13 Weeks Ended
April 29, 1995 April 30, 1994
Shares (Loss) Shares Income
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) and average
numberof shares outstanding 182,682 $(56,999) 126,464 $32,222
Earnings (loss) per share $(.31) $.25
PRIMARY COMPUTATION:
Average number of common
share equivalents:
Shares to be issued to
the U.S. Treasury 81 122
Deferred compensation
plan 143 40
Stock options 377 - 337 -
Adjusted number of
common and common
equivalent shares
outstanding and adjusted
net income (loss) 183,283 (56,999) 126 ,963 32,222
Primary earnings (loss)
per share $(.31) $.25
FULLY DILUTED COMPUTATION:
Additional adjustments to a fully
diluted basis:
Stock options 1 - 1
Adjusted number of shares
outstanding and net
income (loss) on a fully
diluted basis 183,284 $(56,999) 126,964 $32,222
Fully diluted earnings (loss)
per share $(.31) $.25
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> APR-29-1995
<CASH> 150,242
<SECURITIES> 0
<RECEIVABLES> 2,237,598
<ALLOWANCES> 0
<INVENTORY> 2,553,193
<CURRENT-ASSETS> 5,288,113<F1>
<PP&E> 5,245,346
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,365,431<F2>
<CURRENT-LIABILITIES> 2,766,516
<BONDS> 4,526,191
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,365,431<F3>
<SALES> 2,988,006
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,823,921
<OTHER-EXPENSES> 1,153,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,501
<INCOME-PRETAX> (86,748)<F4>
<INCOME-TAX> (29,749)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,999)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
<FN>
<F1>Includes the following:
Supplies and prepaid expenses 114,191
Deferred income tax assets 232,889
<F2>Includes the following:
Intangible assets - net 1,037,861
Notes receivable 407,293
Other assets 386,818
<F3>Includes the following:
Deferred income taxes 989,228
Other liabilities 498,627
Shareholders' equity 3,584,869
<F4>Includes the following:
Interest income 11,949
</FN>
</TABLE>
