<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
FEBRUARY 3, 1996 1-13536
FEDERATED DEPARTMENT STORES, INC.
151 WEST 34TH STREET
NEW YORK, NEW YORK 10001
(212) 695-4400
AND
7 WEST SEVENTH STREET
CINCINNATI, OHIO 45202
(513) 579-7000
INCORPORATED IN DELAWARE I.R.S. NO. 13-3324058
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------------------------------------- -------------------------
<S> <C>
Common Stock, par value $.01 per share New York Stock Exchange
Rights to Purchase Series A Junior Participating Preferred
Stock New York Stock Exchange
Series C Warrants New York Stock Exchange
Series D Warrants New York Stock Exchange
8.125% Senior Notes due 2002 New York Stock Exchange
5% Convertible Notes due 2003 New York Stock Exchange
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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.
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 a definitive proxy statement incorporated by reference in Part III
of this Form 10-K.
There were 207,459,137 million shares of the Company's Common Stock
outstanding as of April 6, 1996, excluding shares held in the treasury of the
Company or by subsidiaries of the Company. The aggregate market value of the
shares of such Common Stock, excluding shares held in the treasury of the
Company or by subsidiaries of the Company, based upon the last sale price as
reported on the New York Stock Exchange Composite Tape on April 4, 1996, was
approximately $6,483,100,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to Registrant's Annual
Meeting of Stockholders to be held on May 17, 1996 (the "Proxy Statement"), are
incorporated by reference in Part III hereof.
<PAGE> 2
Unless the context otherwise requires, (i) references herein to the
"Company" are, for all periods prior to December 19, 1994 (the "Merger Date"),
references to Federated Department Stores, Inc. ("Federated") and its
subsidiaries and their respective predecessors, and, for all periods following
the merger (the "Merger") of Federated and R.H. Macy & Co., Inc. ("Macy's") on
the Merger Date, references to the surviving corporation in the Merger and its
subsidiaries, and (ii) references to "1995", "1994", "1993", "1992" and "1991"
are references to the Company's fiscal years ended February 3, 1996, January 28,
1995, January 29, 1994, January 30, 1993 and February 1, 1992, respectively.
ITEM 1. BUSINESS.
General. The Company is one of the leading operators of full-line
department stores in the United States, with 412 department stores in 33 states
as of February 3, 1996. The Company's department stores sell a wide range of
merchandise, including men's, women's and children's apparel and accessories,
cosmetics, home furnishings and other consumer goods, and are diversified by
size of store, merchandising character and character of community served. The
Company's department stores are located at urban or suburban sites, principally
in densely populated areas across the United States. The Company also operates
more than 150 specialty stores under the names "Aeropostale" and "Charter Club",
and a mail order catalog business under the name "Bloomingdale's By Mail".
The Company acquired Broadway Stores, Inc. ("Broadway") on October 11, 1995
(the "Broadway Merger Date")and the Company is continuing the integration of
Broadway's businesses with the business of the Company's other subsidiaries. The
results of operations of Broadway have been included in the Company's results of
operations since July 29, 1995. The Company anticipates that a number of the
stores acquired in its acquisition of Broadway will be disposed of and that
Broadway's retained department stores will be converted to other nameplates of
the Company. As of the date of this report, the Company has sold eight of these
stores, has identified certain additional stores to be sold, and has yet to make
a determination with respect to certain other stores.
The following table sets forth certain information with respect to each of
the Company's retail operating divisions:
<TABLE>
<CAPTION>
FEBRUARY 3, 1996 JANUARY 28, 1995
------------------------- -------------------------
GROSS GROSS
NUMBER OF SQUARE NUMBER OF SQUARE
STORES FEET(A) STORES FEET(A)
--------- ----------- --------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C>
Bloomingdale's........................ 17 4,689 16 4,439
The Bon Marche........................ 41 4,960 40 4,892
Broadway.............................. 57 10,068 -- --
Burdines.............................. 47 7,884 46 7,648
Macy's East (b)....................... 89 23,355 98 26,161
Macy's West........................... 59 12,450 57 11,845
Rich's/Lazarus/Goldsmith's............ 75 14,672 76 15,203
Stern's............................... 27 5,425 22 3,946
Macy's Specialty...................... 153 555 122 420
Macy's Close-Out (c).................. -- -- 14 704
--- ------ --- ------
Total.......................... 565 84,058 491 75,258
=== ====== === ======
</TABLE>
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(a) Reflects total square footage of store locations, including office, storage,
service and other support space that is not dedicated to direct merchandise
sales, but excluding warehouses and distribution terminals not located at
store sites.
(b) During 1995, six stores were converted to Stern's and one store was
converted to Bloomingdale's.
(c) The Company closed all of its Macy's Close-Out stores during 1995.
In general, each of the Company's retail operating divisions is a separate
subsidiary of the Company. However, (i) the Macy's West division comprises two
separate subsidiaries of the Company and, following its consolidation with the
Broadway division, will comprise three separate subsidiaries of the Company, and
(ii) the Rich's/Lazarus/Goldsmith's division comprises three separate
subsidiaries of the Company.
The Company provides electronic data processing and other support functions
to its retail operating divisions on an integrated, Company-wide basis. In
addition, the Company's financial and credit services subsidiary, FACS Group,
Inc. ("FACS"), which is based near Cincinnati, Ohio, establishes and monitors
credit policies on a Company-wide basis. FACS provides proprietary credit
services, including statement processing and mailing, credit authorizations, new
account development and processing, and customer service and collections, to
each of the retail operating divisions that were divisions of Federated prior to
the Merger as well as the subsequently acquired Broadway division. GE Capital
Consumer Card Co. ("GE Credit"), which in 1991 purchased all of the consumer
credit card accounts originated by the retail operating divisions of Macy's,
continues to provide credit services to the retail operating divisions that were
divisions of Macy's prior to the Merger. The Company and GE Credit are currently
engaged in negotiations with respect to possible modifications to the
contractual arrangements previously entered into between Macy's and GE Credit
with respect to such services. The Company's data processing subsidiary,
Federated Systems Group, Inc. ("FSG"), which is based near Atlanta, Georgia,
provides operational electronic data processing and management information
services to each of the Company's retail operating divisions. In addition, a
specialized staff maintained in the Company's corporate offices in Cincinnati
provides services for all divisions in such areas as store design and
construction, accounting, real estate, insurance and supply purchasing, as well
as various other corporate office functions. FACS, FSG, a specialized service
subsidiary and certain departments in the Company's corporate offices offer
their services to unrelated third parties as well. Federated Merchandising, a
division of the Company based in New York City, coordinates the team buying
process which enables the Company to centrally develop and execute consistent
Company-wide merchandise strategies while retaining the ability to tailor
merchandise assortments and merchandising strategies to the particular character
and customer base of the Company's various department store franchises.
Federated Product Development, a division of the Company based in New York City,
is responsible for the private label development of the Company's retail
operating divisions except for Bloomingdale's (which has its own private label
program) and Stern's (which sources its private label merchandise through
Associated Merchandising Corporation).
The Company and its predecessors have been operating department stores
since 1830. Federated was organized as a Delaware corporation in 1929. On
February 4, 1992, Allied Stores Corporation ("Allied") was merged into
Federated. On May 26, 1994, Federated acquired Joseph Horne Co., Inc. pursuant
to a subsidiary merger. On December 19, 1994, Federated acquired Macy's pursuant
to the Merger. On October 11, 1995, the Company acquired Broadway pursuant to a
subsidiary merger, with the results of operations of Broadway being included in
the Company's results of operations since July 29, 1995.
Federated, Allied and substantially all of their respective subsidiaries
(collectively, the "Federated/Allied Companies") were reorganized under chapter
11 of the United States Bankruptcy Code pursuant to a plan of reorganization
(the "Federated POR") which became effective on February 4, 1992. Macy's and
substantially
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all of its subsidiaries (the "Macy's Debtors") were reorganized under chapter 11
of the United States Bankruptcy Code pursuant to a plan of reorganization (the
"Macy's POR") which became effective on December 19, 1994. Broadway was
reorganized under chapter 11 of the United States Bankruptcy Code pursuant to a
plan of reorganization (the "Broadway POR") which became effective on October 8,
1992. For additional information regarding the respective reorganization
proceedings of the Federated/Allied Companies, the Macy's Debtors and Broadway,
see Item 3 "Legal Proceedings."
The Company's executive offices are located at 151 West 34th Street, New
York, New York 10001, telephone number: (212) 695-4400 and at 7 West Seventh
Street, Cincinnati, Ohio 45202, telephone number: (513) 579-7000.
Employees. As of February 3, 1996, the Company had approximately 119,100
regular full-time and part-time employees. Because of the seasonal nature of the
retail business, the number of employees peaks in the Christmas season.
Approximately 10% of the Company's employees as of February 3, 1996 were
represented by unions. Management considers its relations with employees to be
satisfactory.
Seasonality. The department store business is seasonal in nature with a
high proportion of sales and operating income generated in the months of
November and December. Working capital requirements fluctuate during the year,
increasing somewhat in mid-Summer in anticipation of the Fall merchandising
season and increasing substantially prior to the Christmas season when the
Company must carry significantly higher inventory levels.
Purchasing. The Company purchases merchandise from many suppliers, no one
of which accounted for more than 5% of the Company's net purchases during 1995.
The Company has no long-term purchase commitments or arrangements with any of
its suppliers, and believes that it is not dependent on any one supplier. The
Company considers its relations with its suppliers to be satisfactory.
Competition. The retailing industry, in general, and the department store
business, in particular, are intensely competitive. Generally, the Company's
stores are in competition not only with other department stores in the
geographic areas in which they operate but also with numerous other types of
retail outlets, including specialty stores, general merchandise stores,
off-price and discount stores, new and established forms of home shopping
(including mail order catalogs, television and computer services) and
manufacturers' outlets.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Allen I. Questrom........ 56 Chairman of the Board and Chief Executive Officer;
Director
James M. Zimmerman....... 52 President and Chief Operating Officer; Director
Ronald W. Tysoe.......... 43 Vice Chairman of the Board and Chief Financial
Officer; Director
Thomas G. Cody........... 54 Executive Vice President - Legal and Human Resources
Dennis J. Broderick...... 47 Senior Vice President, General Counsel and Secretary
John E. Brown............ 56 Senior Vice President and Controller
Karen M. Hoguet.......... 39 Senior Vice President - Planning and Treasurer
</TABLE>
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Allen I. Questrom has been Chairman of the Board and Chief Executive
Officer of the Company since February 1990; prior thereto, he was President and
Chief Executive Officer of the Neiman-Marcus division of the Neiman-Marcus
Group, Inc. from September 1988 to February 1990.
James M. Zimmerman has been President and Chief Operating Officer of the
Company since May 1988.
Ronald W. Tysoe has been Vice Chairman and Chief Financial Officer of the
Company since April 1990; prior thereto, he was President and Treasurer of
Federated Stores, Inc. ("FSI"), the former indirect parent of Federated, from
1987 to 1992, and Chief Financial Officer of FSI from April 1990 to February
1992.
Thomas G. Cody has been Executive Vice President - Legal and Human
Resources of the Company since May 1988.
Dennis J. Broderick has been Secretary of the Company since July 1993 and
Senior Vice President and General Counsel of the Company since January 1990;
prior thereto, he served as Vice President and General Counsel of Allied and
General Counsel of the Company since May 1988 and Vice President of the Company
since February 1987.
John E. Brown has been Senior Vice President of the Company since September
1988 and Controller of the Company since January 1992.
Karen M. Hoguet has been Senior Vice President - Planning of the Company
since April 1991 and Treasurer of the Company since January 1992; prior thereto,
she served as Vice President of the Company and Allied since December 1988.
ITEM 2. PROPERTIES.
The properties of the Company consist primarily of stores and related
retail facilities, including warehouses and distribution centers. The Company
also owns or leases other properties, including corporate office space in New
York and Cincinnati and other facilities at which centralized operational
support functions are conducted. As of February 3, 1996, the Company operated
412 department stores, of which 205 stores were entirely or mostly owned and 207
stores were entirely or mostly leased. The Company's interests in approximately
29% of its owned stores and approximately 5% of its leased stores are subject to
security interests in favor of certain third-party creditors. See Note 10 to the
Consolidated Financial Statements. Pursuant to various shopping center
agreements, the Company is obligated to operate certain stores within the
centers for periods of up to 20 years. Some of these agreements require that the
stores be operated under a particular name.
See "Item 1. Business" for information regarding the number of stores and
total gross square feet (in thousands) of store space, operated by the Company
as of the end of each of the last two fiscal years. Such information is
incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
The Federated POR was confirmed by the United States Bankruptcy Court for
the Southern District of Ohio, Western Division (the "Ohio Bankruptcy Court"),
on January 10, 1992. Notwithstanding the confirmation and effectiveness of the
Federated POR, the Ohio Bankruptcy Court continues to have jurisdiction to
resolve disputed prepetition claims against the Federated/Allied Companies; to
resolve matters related to the assumption, assumption and assignment, or
rejection of executory contracts pursuant to the Federated POR; and to resolve
other matters that may arise in connection with or relate to the Federated
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<PAGE> 6
POR. The Company believes that it has adequately provided for the resolution of
all bankruptcy claims and other matters related to the Federated POR remaining
at February 3, 1996.
The Macy's POR was confirmed by the United States Bankruptcy Court for the
Southern District of New York (the "New York Bankruptcy Court") on December 8,
1994. Notwithstanding the confirmation and effectiveness of the Macy's POR, the
New York Bankruptcy Court continues to have jurisdiction to resolve disputed
prepetition claims against the Macy's Debtors; to resolve matters related to the
assumption, assumption and assignment, or rejection of executory contracts
pursuant to the Macy's POR; and to resolve other matters that may arise in
connection with or relate to the Macy's POR. Except as described below,
provision was made under the Macy's POR in respect of all prepetition
liabilities of the Macy's Debtors.
Certain claims or portions thereof (the "Cash Payment Claims") against the
Macy's Debtors, which, to the extent allowed by the New York Bankruptcy Court
have been or will be paid in cash pursuant to the Macy's POR, currently are
disputed by the Company. The aggregate amount of disputed Cash Payment Claims
ultimately allowed by the New York Bankruptcy Court may be more or less than the
estimated allowed amount thereof developed for purposes of formulating the
Macy's POR. As of March 15, 1996, the aggregate face amount of disputed Cash
Payment Claims was approximately $293.6 million, while the estimated allowed
amount thereof developed for purposes of formulating the Macy's POR was
approximately $217.8 million. Although there can be no assurance with respect
thereto, the Company believes that the aggregate allowed amount of disputed Cash
Payment Claims will not exceed the estimated amount thereof.
The Broadway POR was confirmed by the United States Bankruptcy Court for
the Central District of California (the "California Bankruptcy Court") on
October 8, 1992. Notwithstanding the confirmation and effectiveness of the
Broadway POR, the California Bankruptcy Court continues to have jurisdiction to
resolve disputed prepetition claims against Broadway; to resolve matters related
to the assumption, assumption and assignment, or rejection of executory
contracts pursuant to the Broadway POR; and to resolve other matters that may
arise in connection with or relate to the Broadway POR. The Company believes
that it has adequately provided for the resolution of all bankruptcy claims and
other matters related to the Broadway POR remaining at February 3, 1996.
In connection with the Federated POR and the reorganization proceedings of
FSI, the Internal Revenue Service (the "IRS") audited the tax returns of FSI and
the Federated/Allied Companies for tax years 1984 through 1989 and asserted
certain claims against the Federated/Allied Companies and other members of the
FSI consolidated tax group. All of the issues raised by the IRS audit have been
resolved except for an issue involving the deductibility of approximately $176.3
million of so-called "break-up fees." This issue was resolved in favor of the
Federated/Allied Companies by the Ohio Bankruptcy Court, the decision of which
was affirmed by the United States District Court for the Southern District of
Ohio. Thereafter, the IRS filed an appeal of such decision in the United States
Court of Appeals for the Sixth Circuit, where such appeal is currently pending.
Although there can be no assurance with respect thereto, the Company does not
expect that the ultimate resolution of this issue will have a material adverse
effect on the Company's financial position or results of operations.
On January 5, 1996, the Company reached a settlement with the IRS with
respect to certain disputes relating to certain deductions claimed and certain
loss carryforwards utilized by Federated and its predecessors. See Note 12 to
the Consolidated Financial Statements.
The office of the Attorney General of the State of California has advised
the Company that it is reviewing the competitive effects of the Company's
acquisition of Broadway. The Company is cooperating with the Office of the
Attorney General in the review. There can be no assurance as to the outcome of
the review.
5
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The Company and its subsidiaries are also involved in various proceedings
that are incidental to the normal course of their businesses. The Company does
not expect that any of such proceedings will have a material adverse effect on
the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the trading symbol "FD." The following table sets forth for each fiscal
quarter during 1995 and 1994 the high and low sales prices per share of Common
Stock as reported on the NYSE Composite Tape:
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
LOW HIGH LOW HIGH
------- ------- ------- -------
<S> <C> <C> <C> <C>
1st Quarter............................. 18.500 23.125 20.750 25.250
2nd Quarter............................. 20.875 28.125 19.000 22.750
3rd Quarter............................. 24.500 30.125 18.750 23.625
4th Quarter............................. 25.000 29.750 17.875 20.875
</TABLE>
The Company has not paid any dividends on its Common Stock during its two
most recent fiscal years, and does not anticipate paying any dividends on the
Common Stock in the foreseeable future. In addition, the covenants in certain
debt instruments to which the Company is a party restrict the ability of the
Company to pay dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the Consolidated Financial Statements and the notes thereto and the other
information contained elsewhere in this report.
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT PER SHARE DATA)
Consolidated Statement of Operations
Data (a):
Net sales, including leased
department sales................... $15,048,513 $ 8,315,877 $7,229,406 $7,079,941 $ 6,932,323
----------- ----------- ---------- ---------- -----------
Cost of sales........................ 9,317,784 5,131,363 4,373,941 4,229,396 4,202,223
Selling, general and administrative
expenses........................... 4,748,331 2,549,122 2,323,546 2,420,684 2,463,128
Business integration and
consolidation expenses............. 293,930 85,867 -- -- --
Charitable contribution to Federated
Department Stores Foundation....... 25,581 -- -- -- --
----------- ----------- ---------- ---------- -----------
Operating income..................... 662,887 549,525 531,919 429,861 266,972
Interest expense (b)................. (508,132) (262,115) (213,544) (258,211) (504,257)
Interest income...................... 47,104 43,874 49,405 60,357 67,260
----------- ----------- ---------- ---------- -----------
Income (loss) before reorganization
items, income taxes, extraordinary
items and cumulative effect of
change in accounting principle..... 201,859 331,284 367,780 232,007 (170,025)
Reorganization items (c)............. -- -- -- -- (1,679,936)
Federal, state and local income tax
(expense) benefit.................. (127,306) (143,668) (170,987) (99,299) 613,989
Extraordinary items (d).............. -- -- (3,545) (19,699) 2,165,515
Cumulative effect of change in
accounting principle (e)........... -- -- -- -- (93,151)
----------- ----------- ---------- ---------- -----------
Net income......................... $ 74,553 $ 187,616 $ 193,248 $ 113,009 $ 836,392
=========== =========== ========== ========== ===========
Earnings per Share of Common Stock (f):
Income before extraordinary items.... $ .39 $ 1.41 $ 1.56 $ 1.19 $ --
Net income........................... .39 1.41 1.53 1.01 --
Average number of shares outstanding
(f).................................. 191,503 132,862 126,293 111,350 --
Depreciation and amortization.......... $ 496,911 $ 285,861 $ 229,781 $ 230,124 $ 260,884
Capital expenditures................... $ 699,306 $ 397,664 $ 312,960 $ 207,931 $ 201,631
Balance Sheet Data (at year end):
Cash................................. $ 172,518 $ 206,490 $ 222,428 $ 566,984 $ 1,002,482
Working capital...................... 3,262,296 2,375,654 1,967,569 2,227,336 1,923,812
Total assets......................... 14,295,050 12,276,990 7,419,427 7,019,770 7,501,145
Short-term debt...................... 733,115 463,042 10,099 12,944 771,605
Long-term debt....................... 5,632,232 4,529,220 2,786,724 2,809,757 3,176,687
Shareholders' equity................. 4,273,686 3,639,610 2,278,244 2,074,980 1,454,132
</TABLE>
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(a) As a result of the Company's emergence from bankruptcy and its adoption of
fresh-start reporting as of February 1, 1992, the Company's Consolidated
Statements of Operations for periods after February 1, 1992 are not
comparable to
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the Consolidated Statement of Operations for the period ended February 1,
1992 and therefore are separated by a black line.
b) Excludes interest on unsecured prepetition indebtedness of $301,576,000 for
1991.
c) Reflects the net expense incurred in connection with the Chapter 11
reorganization of the Federated/Allied Companies.
d) The extraordinary item for 1993 is described in Note 4 to the Consolidated
Financial Statements. The extraordinary items for 1992 were after-tax
expenses associated with debt prepayments. The extraordinary item for 1991
was a gain resulting from the discharge of prepetition claims pursuant to the
Federated POR.
e) Reflects the cumulative effect of the adoption of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits other than Pensions," as of February
1, 1992.
f) Per share and share data are not presented for the period during which there
were no publicly held shares of common stock of the Company.
ITEM 7. 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. Additionally, in
its 1995 fiscal year, the Company acquired Broadway and recorded the acquisition
as of July 29, 1995. Under the purchase method of accounting, the assets,
liabilities and results of operations associated with such acquired businesses
have been included in the Company's financial position and results of operations
since the respective dates of acquisition. Accordingly, the financial position
and results of operations of the Company presented and discussed herein are
generally not directly comparable between the periods presented. The following
discussion should be read in conjunction with the Consolidated Financial
Statements and the notes thereto contained elsewhere in this report.
RESULTS OF OPERATIONS
Comparison of the 53 Weeks Ended February 3, 1996 and the 52 Weeks Ended
January 28, 1995. Net sales for 1995 were $15,048.5 million compared to $8,315.9
million for 1994, an increase of 81.0%. Including sales of the Macy's stores
that were open throughout both periods being compared, and adjusting for the
impact of the 53rd week in 1995, comparable store sales increased 2.7% in 1995.
Net sales for 1995 includes $1,050.3 million of Broadway sales.
Cost of sales was 61.9% of net sales for 1995, compared to 61.7% for 1994.
Cost of sales was negatively impacted by markdowns at stores added through the
Broadway acquisition. Excluding these stores, cost of sales would have been
61.3% of net sales in 1995. The valuation of merchandise inventory on the
last-in, first-out basis did not impact cost of sales in 1995 and resulted in a
credit of $11.3 million to cost of sales in 1994.
Selling, general and administrative expenses were 31.6% of net sales for
1995, compared to 30.7% for 1994. Because the credit card programs relating to
Macy's 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 and more than offset the Company's improved expense control. In
addition, operating expenses were reduced by $23.8 million in 1994 as a result
of an adjustment for the favorable settlement of bankruptcy claims.
Business integration and consolidation expenses for 1995 consisted of
$208.9 million associated with the integration of Macy's into the Company, $36.9
million related to the consolidation of the Company's Rich's/Goldsmith's and
Lazarus divisions and $48.1 million related to the integration of Broadway into
the
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Company. The Company expects to incur in fiscal 1996 approximately $300.0
million of additional business integration and consolidation expenses,
principally as a result of the Broadway acquisition.
Business integration and consolidation expenses for 1994 consisted of $27.0
million associated with the integration of 10 former Horne's stores into the
Company, $45.8 million associated with the integration of Macy's into the
Company and $13.1 million of severance charges related to the consolidation of
the Company's Rich's/Goldsmith's and Lazarus divisions.
Net interest expense was $461.0 million for 1995, compared to $218.2
million for 1994. The higher interest expense in 1995 is principally due to the
higher levels of borrowings resulting from the Macy's and Broadway acquisitions.
Cash interest payments, net of interest received, were $398.0 million for 1995
compared to $166.8 million for 1994.
The Company's effective income tax rate of 63.1% for 1995 differs from the
federal income tax statutory rate of 35.0% principally because of permanent
differences arising from the non-deductibility of approximately $65.0 million of
losses of Broadway and the amortization of intangible assets, and the effect of
state and local income taxes.
Management believes that the turnaround of existing deferred tax
liabilities and tax planning strategies will generate sufficient taxable income
in future periods such that it is more likely than not that the gross deferred
tax assets at the end of 1995 will be realized. Management evaluates the
realizability of deferred tax assets quarterly.
Comparison of the 52 Weeks Ended January 28, 1995 and January 29, 1994. Net
sales for 1994 were $8,315.9 million, compared to $7,229.4 million for 1993, an
increase of 15.0%. During 1994, the Company added 142 department stores and more
than 135 specialty and clearance stores and closed six department stores. Of the
142 department stores added, 121 were added as a result of the acquisition of
Macy's, and 10 were added as a result of the acquisition of Horne's. All of the
specialty and clearance stores were added through the Macy's acquisition. On a
comparable store basis, net sales increased 3.1%.
Cost of sales was 61.7% of net sales for 1994, compared to 60.5% for 1993.
The increase reflected the impact of higher levels of markdowns taken to offer
more value to customers consistent with the competitive environment and to keep
in-store inventories fresh and fashion-current. Cost of sales included a credit
of $11.3 million in 1994, compared to a charge of $2.8 million in 1993,
resulting from the valuation of merchandise inventory on the last-in, first-out
basis.
Selling, general and administrative expenses were 30.7% of net sales for
1994, compared to 32.1% for 1993. The decrease reflected the continued emphasis
on controlling expenses, enhanced efficiencies and productivity resulting from
the Company's on-going investments in retail technology, and increased revenue
from credit operations resulting from higher accounts receivable balances in
1994. In addition, operating expenses were reduced by $23.8 million in 1994 and
$24.0 million in 1993 as a result of adjustments for the favorable settlement of
disputed bankruptcy claims.
Business integration and consolidation expenses for 1994 consisted of $27.0
million associated with the integration of 10 former Horne's stores into the
Company, $45.8 million associated with the integration of Macy's into the
Company and $13.1 million of severance charges related to the consolidation of
the Company's Rich's/Goldsmith's and Lazarus divisions.
Net interest expense was $218.2 million for 1994, compared to $164.1
million for 1993. The higher interest expense in 1994 was principally due to the
higher levels of borrowings incurred in connection with the
9
<PAGE> 11
acquisition of Macy's, including the issuance of a $340.0 million promissory
note on December 31, 1993 to fund the Company's initial investment in Macy's.
Cash interest payments, net of interest received, were $166.8 million for 1994
compared to $136.6 million for 1993.
The Company's effective income tax rate of 43.4% for 1994 differed from the
federal income tax statutory rate of 35.0% principally because of state and
local income taxes and permanent differences arising from the amortization of
intangible assets.
The extraordinary item of $3.5 million in 1993 related to the after-tax
expenses associated with debt prepayments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash on hand, cash from
operations and certain available credit facilities.
Net cash provided by operating activities in 1995 was $294.5 million, an
increase of $133.0 million from the net cash provided by operating activities in
1994 of $161.5 million. The primary factors which contributed to this increase
were lower increases in accounts receivable balances and higher operating income
partially offset by increased merchandise inventories (as compared to a decrease
in 1994) and increased payments of non-merchandise accounts payable. The higher
accounts receivable balances in 1994 were generated by increases in proprietary
credit sales and a Company policy change to lower its minimum monthly payment
requirement. The increased operating income reflects the impact of the Macy's
acquisition. The increased payments of non-merchandise accounts payable reflect
the payment of Macy's merger-related liabilities.
The Company is a party to a bank credit facility providing for up to $800.0
million of term borrowings and up to $2,000.0 million of revolving credit
borrowings (including a $500.0 million letter of credit subfacility). The
Company also has in effect a facility to finance its customer accounts
receivable which provides for, among other things, the issuance from time to
time of up to $375.0 million of receivables backed commercial paper. As of
February 3, 1996, the Company had $800.0 million of term borrowings, $840.0
million of revolving credit borrowings, $86.5 million of standby letters of
credit and $116.2 million of trade letters of credit outstanding under its bank
credit facility and $117.0 million of commercial paper borrowings outstanding
under its receivables backed commercial paper facility. In addition, there was
$386.5 million of commercial paper borrowings outstanding under a Broadway
receivables backed commercial paper facility which will expire in 1996.
Net cash provided by the Company for all financing activities was $304.8
million in 1995 compared to $776.1 million in 1994. During 1995, the Company
incurred debt totaling $1,347.1 million and repaid debt totaling $1,020.1
million. Debt incurred consisted of $597.1 million of receivables backed
certificates, $400.0 million of 8.125% Senior Notes due 2002 and $350.0 million
of 5.0% Convertible Subordinated Notes due 2003. The major components of debt
repaid were $307.4 million of Senior Convertible Discount Notes due 2004, $347.7
million of short-term debt ($104.8 million under Broadway's working capital and
receivables financing facilities and $242.9 million under the Company's bank
credit facility and commercial paper facility), $101.5 million of the Company's
subsidiary trade obligations and $142.0 million of Broadway's 6.25% Convertible
Senior Subordinated Notes Due 2000.
Net cash used in investing activities was $633.2 million in 1995 compared
to $953.5 million in 1994. In 1995, capital expenditures for property and
equipment were $696.5 million, and the Company added $16.3 million in cash as a
result of the acquisition of Broadway. The total purchase price for Broadway,
10
<PAGE> 12
consisting solely of non-cash items, was $1,620.0 million. In 1994, $575.4
million of cash was invested in connection with acquisitions of Macy's and
Horne's and $386.8 million was invested in property and equipment. The total
purchase prices, including noncash items, for the acquisitions of Macy's and
Horne's were $3,815.9 million and $116.0 million, respectively.
The Company's budgeted capital expenditures are approximately $2,300.0
million for the 1996 to 1998 period. Management presently anticipates funding
such expenditures from operations. However, depending upon conditions in the
capital and other financial markets and other factors, the Company may from time
to time consider the issuance of debt or other securities, the proceeds of which
could be used to fund capital expenditures or for other corporate purposes.
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 other
possible capital markets transactions, including the refinancing of
indebtedness.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information called for by this item is set forth in the Company's
Consolidated Financial Statements and supplementary data contained in this
report and is incorporated herein by this reference. Specific financial
statements and supplementary data can be found at the pages listed in the
following index.
<TABLE>
<CAPTION>
PAGE
INDEX NUMBER
- ----------------------------------------------------------------------------------- --------
<S> <C>
Management's Report................................................................ F-2
Independent Auditors' Report....................................................... F-3
Consolidated Statements of Income for the 53 weeks ended February 3, 1996 and the
52 weeks ended January 28, 1995 and January 29, 1994............................. F-4
Consolidated Balance Sheets at February 3, 1996 and January 28, 1995............... F-5
Consolidated Statements of Cash Flows for the 53 weeks ended February 3, 1996 and
the 52 weeks ended January 28, 1995 and January 29, 1994......................... F-6
Notes to Consolidated Financial Statements......................................... F-7
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
11
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information called for by this item is set forth under Item 1 "Election of
Directors" and "Compliance with Section 16(a) of the Securities and Exchange Act
of 1934" in the Proxy Statement, and in Item 1A "Executive Officers of the
Registrant," and incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information called for by this item is set forth under "Executive
Compensation" and "Compensation Committee Report on Executive Compensation" in
the Proxy Statement and incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information called for by this item is set forth under "Stock Ownership" in
the Proxy Statement and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by this item is set forth under "Compensation
Committee Interlocks and Insider Participation" and under "Certain Relationships
and Related Transactions" in the Proxy Statement and incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS:
The list of financial statements required by this item is set forth in Item
8 "Consolidated Financial Statements and Supplementary Data" and is incorporated
herein by reference.
2. FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted because they are inapplicable, not required, or
the information is included elsewhere in the Consolidated Financial Statements
or the notes thereto.
3. EXHIBITS:
The following exhibits are filed herewith or incorporated by reference as
indicated below.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated Exhibit 2.1 to the Registration
as of August 16, 1994, between Macy's Statement on Form S-4 (Registration
and the Company No. 33-85480) filed on October 21,
1994 (the "1994 S-4 Registration
Statement")
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
2.2 Second Amended Joint Plan of Exhibit 2.2 to the 1994 S-4
Reorganization of Macy's and Certain Registration Statement
of Its Subsidiaries
2.2.1 Modifications to the Second Amended Exhibit 2.1.1 to the Current Report
Joint Plan of Reorganization of on Form 8-K (File No. 1-13536) filed
Macy's and Certain of Its on January 3, 1995 (the "1995 Form
Subsidiaries 8-K")
2.3 Findings of Fact, Conclusions of Law Exhibit 2.1.2 of the 1995 Form 8-K
and Order Confirming Second Amended
Joint Plan of Reorganization of
Macy's and Certain of Its
Subsidiaries, as Modified
2.4 Agreement and Plan of Merger, dated Exhibit 2.1 to the Registration
as of August 14, 1995, among Statement on Form S-4 (Registration
Broadway, the Company, and Newco No. 33-62077) filed on September 8,
1995 (the "1995 S-4 Registration
Statement")
2.5 Stock Agreement, dated as of August Exhibit to Schedule 13D, dated August
14, 1995, between the Company and 14, 1995, relating to the common
Zell/Chilmark stock of Broadway
2.6 Purchase Agreement, dated as of Au- Exhibit 10.3 to the Quarterly Report
gust 14, 1995, among Prudential on Form 10-Q for the period ended
Insurance Company of America July 29, 1995
("Prudential"), the Company, and
Federated Noteholding Corporation II
("FNC II")
2.6.1 Note Amendment Agreement, dated as of Exhibit 10.1 to the Quarterly Report
November 1, 1995, among Prudential, on Form 10-Q for the period ended
FNC II and the Company October 28, 1995 (the "October 1995
Form 10-Q")
3.1 Certificate of Incorporation Exhibit 3.1 to the Annual Report on
Form 10-K for the fiscal year ended
January 28, 1995 (the "1994 Form
10-K")
3.1.1 Certificate of Designations of Series Exhibit 3.1.1 to the 1994 Form 10-K
A Junior Participating Preferred
Stock
3.2 By-Laws Exhibit 3.2 to the 1994 Form 10-K
4.1 Certificate of Incorporation See Exhibit 3.1
4.2 By-Laws See Exhibit 3.2
4.3 Rights Agreement, dated as of Decem- Exhibit 4.3 to the 1994 Form 10-K
ber 15, 1994, between the Company and
the Bank of New York, as rights agent
4.4 Indenture, dated as of December 15, Exhibit 4.1 to the Registration
1994, between the Company and State Statement on Form S-3 (Registration
Street Bank and Trust Company No. 33-88328) filed on January 9,
(successor to The First National Bank 1995 (the "S-3 Registration
of Boston), as Trustee Statement")
</TABLE>
13
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
4.4.1 Third Supplemental Indenture, dated Exhibit 4.4.1 to the 1994 Form 10-K
as of January 23, 1995, between the
Company and State Street Bank and
Trust Company (successor to The First
National Bank of Boston), as Trustee
4.4.2 Fourth Supplemental Indenture, dated Exhibit 4.2 to the Company's
as of September 27, 1995, between the Registration Statement on Form 8-A,
Company and State Street Bank and dated November 29, 1995
Trust Company (successor to The First
National Bank of Boston), as Trustee
4.4.3 Fifth Supplemental Indenture, dated Exhibit 2 to the Company's
as of October 6, 1995, between the Registration Statement on Form 8-A,
Company and State Street Bank and dated October 4, 1995
Trust Company (successor to The First
National Bank of Boston), as Trustee
4.4.4 Sixth Supplemental Indenture, dated
as of February 1, 1996, between the
Company and State Street Bank and
Trust Company (successor to The First
National Bank of Boston), as Trustee
4.5 Series C Warrant Agreement Exhibit 4.6 to the 1994 Form 10-K
4.6 Series D Warrant Agreement Exhibit 4.7 to the 1994 Form 10-K
4.7 Warrant Agreement Exhibit 4.1 to Broadway's Annual
Report on Form 10-K (File No. 1-8765)
for the fiscal year ended January 30,
1993 (the "Broadway 1992 Form 10-K")
4.7.1 Letter Agreement, dated October 11, Exhibit 4.5.1 to the October 1995
1995, between Broadway and The Bank Form 10-Q
of New York
4.8 Series B Warrant Agreement Exhibit 10.7 to the Registration
Statement on Form 10 (File No.
1-10951), filed November 27, 1991, as
amended (the "Form 10")
4.9 Series E Warrant Agreement
10.1 Credit Agreement, dated as of Decem- Exhibit 10.3 to the 1994 Form 10-K
ber 19, 1994, among the Company, Ci-
tibank, N.A., Chemical Bank, Citicorp
Securities, Inc., Chemical
Securities, Inc. and the initial
lenders named therein (the "Working
Capital Credit Agreement")
10.1.1 Amendment #2 and Waiver, dated as of Exhibit 10.5 to the October 1995 Form
August 30, 1995, to the Working 10-Q
Capital Credit Agreement
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
10.2 Loan Agreement, dated as of December Exhibit 10.12 to Allied's Annual
30, 1987 (the "Prudential Loan Agree- Report on Form 10-K (File No. 1-970)
ment"), among Prudential, Allied for the fiscal year ended January 2,
Stores Corporation ("Allied"), and 1988
certain subsidiaries of Allied named
therein
10.2.1 Amendment No. 1, dated as of Decem- Exhibit 10.9.1 to Form 10
ber 29, 1988, to the Prudential Loan
Agreement
10.2.2 Amendment No. 2, dated as of Novem- Exhibit 10.9.2 to Form 10
ber 17, 1989, to the Prudential Loan
Agreement
10.2.3 Amendment No. 3, dated as of February Exhibit 10.9.3 to Form 10
5, 1992, to the Prudential Loan
Agreement
10.3 Loan Agreement, dated as of May 26, Exhibit 10.47 to the 1994 S-4
1994 (the "Lazarus PA Mortgage Term Registration Statement
Loan"), among Lazarus PA (formerly
Joseph Horne Co., Inc.), the banks
listed thereon, and PNC Bank, Ohio,
National Association, as Agent
("PNC")
10.3.1 First Amendment to the Lazarus PA Exhibit 10.6 to the October 1995 Form
Mortgage Term Loan 10-Q
10.4 Guaranty Agreement, dated as of May Exhibit 10.48 to the 1994 S-4
26, 1994, made by the Company in Registration Statement
favor of the banks listed on the
Lazarus PA Mortgage Term Loan and PNC
10.4.1 Amendment #1 to Guaranty Agreement, Exhibit 10.7.1 to the 1994 Form 10-K
dated as of February 28, 1995, made
by the Company in favor of the banks
listed on the Lazarus PA Mortgage
Term Loan and PNC
10.5 Amended and Restated Term Loan Agree- Exhibit 4.23 to the Broadway's Annual
ment, dated as of October 8, 1992, by Report on Form 10-K (File No. 1-8765)
and among the Banks party thereto, for the fiscal year ended January 30,
Bank of America National Trust and 1993, as amended (the "Broadway 1992
Savings Association as Agent for 10-K")
Banks and Carter Hawley Hale Stores,
Inc.
10.5.1 Master Capitalized Interest Note, Exhibit 4.24 to the Broadway 1992
dated as of October 8, 1992, in favor 10-K
of Bank of America National Trust and
Savings Association as Agent for
certain banks in the amount of
$10,750,830.46
</TABLE>
15
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
10.5.2 Master Principal Note, dated as of Exhibit 4.25 to the Broadway 1992
October 8, 1992, in favor of Bank of 10-K
America National Trust and Savings
Association as Agent for Certain
banks in the amount of $89,662,770.00
10.5.3 First Amendment to Amended and Re- Exhibit 10.2.3 to the October 1995
stated Term Loan Agreement, dated as Form 10-Q
of October 11, 1995, by and among
Broadway, the Banks party thereto and
Bank of America National Trust and
Savings Association, as Agent for
Banks
10.5.4 Second Amendment to Amended and Re-
stated Term Loan Agreement, dated as
of December 1, 1995, by and among
Broadway, the Banks party thereto and
Bank of America National Trust and
Savings Association, as Agent for
Banks
10.6 Amended and Restated Pooling and Ser- Exhibit 4.10 to Prime's Current
vicing Agreement, dated as of Decem- Report on Form 8-K (File No. 0-2118),
ber 15, 1992 (the "Pooling and dated March 29, 1993
Servicing Agreement"), among the
Company, Prime Receivables
Corporation ("Prime") and Chemical
Bank, as Trustee
10.6.1 First Amendment, dated as of December Exhibit 10.10.1 to the Company's
1, 1993, to the Pooling and Servicing Annual Report on Form 10-K (File No.
Agreement 1-10951) for the fiscal year ended
January 29, 1994 (the "1993 Form
10-K")
10.6.2 Second Amendment, dated as of Exhibit 10.10.2 to the 1993 Form 10-K
February 28, 1994, to the Pooling and
Servicing Agreement
10.6.3 Third Amendment, dated as of May 31, Exhibit 10.8.3 to the 1994 Form 10-K
1994, to the Pooling and Serving
Agreement
10.6.4 Fourth Amendment, dated as of January
18, 1995, to the Pooling and Service
Agreement
10.6.5 Fifth Amendment, dated as of April
30, 1995, to the Pooling and Service
Agreement
10.6.6 Sixth Amendment, dated as of July 27,
1995, to the Pooling and Service
Agreement
</TABLE>
16
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
10.7 Assumption Agreement under the Exhibit 10.10.3 to the 1993 Form 10-K
Pooling and Servicing Agreement,
dated as of September 15, 1993
10.8 Series 1992-1 Supplement, dated as of Exhibit 4.6 to Prime's Registration
December 15, 1992, to the Pooling and Statement on Form 8-A, filed January
Servicing Agreement 22, 1993, as amended ("Prime's Form
8-A")
10.9 Series 1992-2 Supplement, dated as of Exhibit 4.7 to Prime's Form 8-A
December 15, 1992, to the Pooling and
Servicing Agreement
10.10 Series 1992-3 Supplement, dated as of Exhibit 4.8 to Prime's Current Report
January 5, 1993, to the Pooling and on Form 8-K (File No. 0-2118), dated
Servicing Agreement January 29, 1993
10.11 Series 1995-1 Supplement, dated as of Exhibit 4.7 to Prime's Registration
July 27, 1995, to the Pooling and Statement on Form S-1, filed July 14,
Servicing Agreement 1995, as amended
10.12 Receivables Purchase Agreement, dated Exhibit 10.2 to Prime's Form 8-A
as of December 15, 1992 (the
"Receivables Purchase Agreement"),
among Abraham & Straus, Inc.,
Bloomingdale's, Inc., Burdines, Inc.,
Jordan Marsh Stores Corporation,
Lazarus, Inc., Rich's Department
Stores, Inc., Stern's Department
Stores, Inc., The Bon, Inc., and
Prime
10.12.1 First Amendment, dated as of June 23, Exhibit 10.14.1 to 1993 Form 10-K
1993, to the Receivables Purchase
Agreement
10.12.2 Second Amendment, dated as of Decem- Exhibit 10.14.2 to 1993 Form 10-K
ber 1, 1993, to the Receivables
Purchase Agreement
10.12.3 Third Amendment, dated as of February Exhibit 10.14.3 to 1993 Form 10-K
28, 1994, to the Receivables Purchase
Agreement
10.12.4 Fourth Amendment, dated as of May 31, Exhibit 10.13.4 to the 1994 Form 10-K
1994, to the Receivables Purchase
Agreement
10.12.5 Fifth Amendment, dated as of April
30, 1995, to the Receivables Purchase
Agreement
10.12.6 First Supplement, dated as of Exhibit 10.14.4 to 1993 Form 10-K
September 15, 1993, to the
Receivables Purchase Agreement
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
10.12.7 Second Supplement, dated as of May
31, 1994, to the Receivables Purchase
Agreement
10.13 Depository Agreement, dated as of Exhibit 10.15 to Company's Annual
December 31, 1992, among Deerfield Report on Form 10-K (File No.
Funding Corporation, now known as 1-10951) for the fiscal year ended
Seven Hills Funding Corporation January 30, 1993 ("1992 Form 10-K")
("Seven Hills"), the Company, and
Chemical Bank, as Depository
10.14 Liquidity Agreement, dated as of Exhibit 10.16 to 1992 Form 10-K
December 31, 1992, among Seven Hills,
the Company, the financial
institutions named therein, and
Credit Suisse, New York Branch, as
Liquidity Agent
10.15 Pledge and Security Agreement, dated Exhibit 10.17 to 1992 Form 10-K
as of December 31, 1992, among Seven
Hills, the Company, Chemical Bank, as
Depository and Collateral Agent, and
the Liquidity Agent
10.16 Commercial Paper Dealer Agreement, Exhibit 10.18 to 1992 Form 10-K
dated as of December 31, 1992, among
Seven Hills, the Company, and Goldman
Sachs Money Markets, L.P.
10.17 Commercial Paper Dealer Agreement, Exhibit 10.19 to 1992 Form 10-K
dated as of December 31, 1992, among
Seven Hills, the Company, and
Shearson Lehman Brothers, Inc.
10.18 Tax Sharing Agreement Exhibit 10.10 to Form 10
10.19 Ralphs Tax Indemnification Agreement Exhibit 10.1 to Form 10
10.20 Account Purchase Agreement dated as Exhibit 19.2 to Macy's Quarterly
of May 10, 1991 by and among Monogram Report on Form 10-Q for the fiscal
Bank, USA, Macy's, Macy Credit Corpo- quarter ended May 4, 1991 (File No.
ration ("Macy Credit"), Macy Funding, 33-6192), as amended under cover of
Macy's California, Inc. ("MCAL"), Form 8, dated October 3, 1991
Macy's Northeast, Inc. ("MNE"), ("Macy's May 1991 Form 10-Q")
Macy's South, Inc., Bullock's Inc.,
I. Magnin, Inc., Master Servicer, and
Macy Specialty Stores, Inc.**
</TABLE>
18
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
10.21 Commercial Accounts Agreement dated Exhibit 19.3 to Macy's May 1991 Form
as of May 10, 1991 ("Commercial 10-Q
Accounts Agreement") by and among
General Electric Capital Corporation
("GECC"), Macy's, Macy Credit, Macy
Funding, MCAL, MNE, Macy's South,
Inc., Bullock's Inc., I. Magnin,
Inc., Master Servicer, and Macy
Specialty Stores, Inc.**
10.22 Credit Card Program Agreement dated Exhibit 19.4 to Macy's May 1991 Form
as of May 10, 1991 ("Credit Card 10-Q
Program Agreement") by and among
Monogram Bank, USA ("Monogram"),
Macy's, MCAL, MNE, Macy's South,
Inc., Bullock's, Inc., I. Magnin,
Inc., and Macy Specialty Stores,
Inc.**
10.22.1 Amendment, dated January 27, 1992, to Exhibit 19.6 to Macy's Quarterly
Credit Card Program Agreement and Report on Form 10-Q (File No.
Commercial Accounts Agreement between 33-6192) for the fiscal quarter ended
Monogram and GECC and Macy's and February 1, 1992
certain subsidiaries
10.22.2 Amendment Agreement, dated as of Au-
gust 6, 1995, among the Company, GE
Capital Consumer Card Co. ("GE
Bank"), FDS National Bank and the
other parties listed on the signature
page thereto***
10.22.3 Program Agreement Amendment, dated as
of February 3, 1996, among the
Company, GE Bank, FDS National Bank
and the other parties listed on the
signature pages thereto***
10.23 Interim Agreement, dated as of August
6, 1995, between the Company and
General Electric Capital Corporation
("GE Capital")***
10.24 Interim Agreement II, dated as of
February 3, 1996, between the Company
and GE Capital***
10.25 Letter, dated January 27, 1992 Exhibit 19.2 to Macy's Quarterly
("Waiver Letter"), from Monogram Report on Form 10-Q (File No.
accepted and agreed to by Macy's and 33-6192) for the fiscal quarter ended
certain of its subsidiaries and, as October 31, 1992 ("Macy's October
to Sections 4 and 12 of the Waiver 1992 Form 10-Q")
Letter, by GECC
</TABLE>
19
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
10.26 Stipulation among Monogram, GECC, Exhibit 19.3 to Macy's October 1992
Macy's and Certain of Its Form 10-Q
Subsidiaries, the Official Unsecured
Bondholders' Committee, and the
Official Unsecured Creditors'
Committee and related Order of the
Bankruptcy Court, dated November 24,
1992
10.27 Transfer Agreement, dated as of May Exhibit 19.4 to Macy Credit's
10, 1991, by and among Macy Credit, Quarterly Report on Form 10-Q for the
MCAL, MNE, Macy's South, Inc., fiscal quarter ended May 4, 1992
Bullock's, Inc., and I. Magnin, Inc.
10.28 Letter Agreement, dated September 25, Exhibit 10.63 to Macy's 1991 Form
1991, among Monogram, Macy's, MCAL, 10-K
MNE, Macy's South Inc., Bullock's
Inc., I. Magnin, Inc., and Macy
Specialty Stores, Inc.
10.29 Receivables-Backed Credit Agreement Exhibit 10.1 to the Broadway 1992
among CHH Receivables, Inc., Blue 10-K
Hawk Funding Corporation and General
Electric Capital Corporation, as
Agent
10.29.1 Amendment No. 1 to Receivables-Backed Exhibit 4.1 to Broadway's Current
Credit Agreement, dated as of Septem- Report on Form 8-K filed September
ber 28, 1993, among CHH Receivables, 13, 1994
Inc., Blue Hawk Funding Corporation
and General Electric Capital
Corporation, as Agent
10.29.2 Amendment No. 2 to Receivables-Backed Exhibit 4.2 to Broadway's Current
Credit Agreement, dated as of Septem- Report on Form 8-K filed September
ber 13, 1994, among Broadway Receiv- 13, 1994
ables, Inc., Blue Hawk Funding
Corporation and General Electric
Capital Corporation
10.29.3 Assignment and Security Agreement Exhibit 10.2 to the Broadway 1992
among CHH Receivables Inc., Blue Hawk 10-K
Funding Corporation, Cash Collateral
Bank and General Electric Capital
Corporation, as Agent, Letter of
Credit Agent, Liquidity Agent and
Collateral Agent
10.29.4 Amended and Restated Assignment and Exhibit 4.3 to Broadway's Current
Security Agreement, dated as of Report of Form 8-K filed September
September 13, 1994, among Broadway 13, 1994
Receivables, Inc. and Blue Hawk
Funding Corporation
</TABLE>
20
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
10.29.5 Receivables Purchase Agreement among Exhibit 10.3 to the Broadway 1992
Carter Hawley Hale Stores, Inc. and 10-K
CHH Receivables, Inc.
10.29.6 Amendment No. 1 to Receivables Exhibit 4.4 to Broadway's Form 8-K
Purchase Agreement, dated as of filed September 13, 1994
September 13, 1994, by and between
Broadway Receivables, Inc. and
Broadway Stores, Inc.
10.29.7 Promissory Note made by CHH Receiv- Exhibit 10.4 to the Broadway 1992
ables, Inc. in favor of Blue Hawk 10-K
Funding Corporation
10.29.8 Letter of Credit Reimbursement Agree- Exhibit 10.5 to the Broadway 1992
ment among CHH Receivables, Inc. in 10-K
favor of Blue Hawk Funding
Corporation
10.29.9 First Amendment, dated as of Septem- Exhibit 4.6 to Broadway's Current
ber 13, 1994, to the Letter of Credit Report on Form 8-K filed September
Reimbursement Agreement, dated as of 13, 1994
October 8, 1992 among Broadway
Receivables, Inc., Blue Hawk Funding
Corporation, the financial
institutions party thereto and
General Electric Capital Corporation
10.29.10 Subordinated Retailer Security Exhibit 10.6 to the Broadway 1992
Agreement made by Carter Hawley Hale 10-K
Stores, Inc. in favor of CHH
Receivables, Inc.
10.30 1992 Executive Equity Incentive Plan* Exhibit 10.12 to Form 10
10.31 1995 Executive Equity Incentive Plan* Exhibit 10.65 to the 1994 S-4
Registration
10.32 Statement 1992 Incentive Bonus Plan* Exhibit 10.12 to Form 10
10.33 Form of Severance Agreement* Exhibit 10.33 to the 1994 Form 10-K
10.34 Form of Indemnification Agreement* Exhibit 10.14 to Form 10
10.35 Master Severance Plan for Key Employ- Exhibit 10.1.5 to the Company's
ees* Annual Report on Form 10-K (File No.
33-6192) for the fiscal year ended
February 3, 1990 ("1989 Form 10-K")
10.36 Performance Bonus Plan for Key Exhibit 10.1.6 to 1989 Form 10-K
Employees*
10.37 Senior Executive Medical Plan* Exhibit 10.1.7 to 1989 Form 10-K
10.38 Employment Agreement, dated as of Exhibit 10.59 to the 1994 S-4
June 24, 1994, between Allen I. Registration Statement
Questrom and the Company*
10.39 Form of Employment Agreement for Exhibit 10.31 to 1993 Form 10-K
Executives and Key Employees*
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- --------------- ------------------------------------- -------------------------------------
<C> <S> <C>
10.40 Supplementary Executive Retirement Exhibit 10.32 to 1993 Form 10-K
Plan, as Amended*
10.41 Executive Deferred Compensation Plan Exhibit 4.1 to the Registration
(adopted October 29, 1993)* Statement on Form S-8 (Registration
No. 33-50831), filed October 29, 1993
10.42 First Amendment to the Executive De- Exhibit 10.2 to the Quarterly Report
ferred Compensation Plan* on Form 10-Q (File No. 33-6192) for
the fiscal quarter ended October 29,
1994 (the "October 1994 Form 10-Q")
10.43 Retirement Income and Thrift Exhibit 4.1 to the Registration
Incentive Plan (as amended and Statement on Form S-8 (Registration
restated effective as of January 1, No. 33-59107), filed January 14, 1994
1987 and containing all amendments
through December 31, 1993)*
10.44 Amendment to Retirement Income and Exhibit 3.1 to the October 1994 Form
Thrift Incentive Plan* 10-Q
11 Statement Regarding Computation of
Earnings
21 Subsidiaries
23 Consent of KPMG Peat Marwick LLP
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
- ---------------
*Constitutes a compensatory plan or arrangement.
**Confidential portions of this Exhibit were omitted and filed separately with
the SEC pursuant to Rule 24b-2 under the Exchange Act.
***Confidential portions of this Exhibit have been omitted and filed separately
with the SEC pursuant to Rule 24b-2 under the Exchange Act.
22
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FEDERATED DEPARTMENT STORES, INC.
By /s/ Dennis J. Broderick
------------------------------
Dennis J. Broderick
Senior Vice President, General
Counsel and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON APRIL 17, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ---------------------------------------------------
<S> <C>
* Chairman of the Board and Chief Executive Officer
- ---------------------------------------- (principal executive officer) and Director
Allen I. Questrom
* Vice Chairman and Chief Financial Officer
- ---------------------------------------- (principal financial officer) and Director
Ronald W. Tysoe
* Senior Vice President and Controller (principal
- ---------------------------------------- accounting officer)
John E. Brown
* Director
- ----------------------------------------
Robert A. Charpie
* Director
- ----------------------------------------
Lyle Everingham
* Director
- ----------------------------------------
Meyer Feldberg
* Director
- ----------------------------------------
Earl G. Graves, Sr.
* Director
- ----------------------------------------
George V. Grune
* Director
- ----------------------------------------
Gertrude G. Michelson
* Director
- ----------------------------------------
Joseph Neubauer
* Director
- ----------------------------------------
Laurence A. Tisch
* Director
- ----------------------------------------
Paul W. Van Orden
* Director
- ----------------------------------------
Karl M. von der Heyden
* Director
- ----------------------------------------
Marna C. Whittington
* Director
- ----------------------------------------
James M. Zimmerman
</TABLE>
*The undersigned, by signing his name hereto, does sign and execute this
Annual Report on Form 10-K pursuant to the Powers of Attorney executed by the
above-named officers and directors and filed herewith.
By /s/ Dennis J. Broderick
-----------------------------
Dennis J. Broderick
Attorney-in-Fact
Date: April 17, 1996
<PAGE> 25
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Report................................................ F-2
Independent Auditors' Report....................................... F-3
Consolidated Statements of Income for the 53 weeks ended February
3, 1996 and the 52 weeks ended January 28, 1995 and January 29,
1994............................................................. F-4
Consolidated Balance Sheets at February 3, 1996 and January 28,
1995............................................................. F-5
Consolidated Statements of Cash Flows for the 53 weeks ended
February 3, 1996 and the 52 weeks ended January 28, 1995 and
January 29, 1994................................................. F-6
Notes to Consolidated Financial Statements......................... F-7
</TABLE>
F-1
<PAGE> 26
MANAGEMENT'S REPORT
To the Shareholders of
Federated Department Stores, Inc.:
The integrity and consistency of the consolidated financial statements of
Federated Department Stores, Inc. and subsidiaries, which were prepared in
accordance with generally accepted accounting principles, are the responsibility
of management and properly include some amounts that are based upon estimates
and judgments.
The Company maintains a system of internal accounting controls, which is
supported by a program of internal audits with appropriate management follow-up
action, to provide reasonable assurance, at appropriate cost, that the Company's
assets are protected and transactions are properly recorded. Additionally, the
integrity of the financial accounting system is based on careful selection and
training of qualified personnel, organizational arrangements which provide for
appropriate division of responsibilities and communication of established
written policies and procedures.
The consolidated financial statements of the Company have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. Their report
expresses their opinion as to the fair presentation, in all material respects,
of the financial statements and is based upon their independent audit conducted
in accordance with generally accepted auditing standards.
The Audit Review Committee, composed solely of outside directors, meets
periodically with the independent certified public accountants, the internal
auditors and representatives of management to discuss auditing and financial
reporting matters. In addition, the independent certified public accountants and
the Company's internal auditors meet periodically with the Audit Review
Committee without management representatives present and have free access to the
Audit Review Committee at any time. The Audit Review Committee is responsible
for recommending to the Board of Directors the engagement of the independent
certified public accountants, which is subject to shareholder approval, and the
general oversight review of management's discharge of its responsibilities with
respect to the matters referred to above.
Allen I. Questrom
Chairman and Chief Executive Officer
James M. Zimmerman
President and Chief Operating Officer
Ronald W. Tysoe
Vice Chairman and Chief Financial Officer
John E. Brown
Senior Vice President and Controller
F-2
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Federated Department Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Federated
Department Stores, Inc. and subsidiaries (the "Company") as of February 3, 1996
and January 28, 1995, and the related consolidated statements of income and cash
flows for the fifty-three week period ended February 3, 1996 and the fifty-two
week periods ended January 28, 1995 and January 29, 1994. These consolidated
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Federated
Department Stores, Inc. and subsidiaries as of February 3, 1996 and January 28,
1995, and the results of their operations and their cash flows for the
fifty-three week period ended February 3, 1996 and the fifty-two week periods
ended January 28, 1995 and January 29, 1994, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
March 5, 1996
F-3
<PAGE> 28
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales, including leased department sales..... $15,048,513 $8,315,877 $7,229,406
------------ ------------ ------------
Cost of sales.................................... 9,317,784 5,131,363 4,373,941
Selling, general and administrative expenses..... 4,748,331 2,549,122 2,323,546
Business integration and consolidation
expenses....................................... 293,930 85,867 --
Charitable contribution to Federated Department
Stores Foundation.............................. 25,581 --
------------ ------------ ------------
Operating Income................................. 662,887 549,525 531,919
Interest expense................................. (508,132) (262,115) (213,544)
Interest income.................................. 47,104 43,874 49,405
------------ ------------ ------------
Income Before Income Taxes and Extraordinary
Item........................................... 201,859 331,284 367,780
Federal, state and local income tax expense...... (127,306) (143,668) (170,987)
------------ ------------ ------------
Income Before Extraordinary Item................. 74,553 187,616 196,793
Extraordinary item............................... -- -- (3,545)
------------ ------------ ------------
Net Income....................................... $ 74,553 $ 187,616 $ 193,248
============ ============ ============
Earnings per Share:
Income before extraordinary item............... $ .39 $ 1.41 $ 1.56
Extraordinary item............................. -- -- (.03)
------------ ------------ ------------
Net Income.................................. $ .39 $ 1.41 $ 1.53
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE> 29
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash.......................................................... $ 172,518 $ 206,490
Accounts receivable........................................... 2,842,077 2,265,651
Merchandise inventories....................................... 3,094,848 2,380,621
Supplies and prepaid expenses................................. 176,411 99,559
Deferred income tax assets.................................... 74,511 135,405
----------- -----------
Total Current Assets.................................. 6,360,365 5,087,726
Property and Equipment -- net................................... 6,305,167 5,349,912
Intangible Assets -- net........................................ 744,689 1,006,547
Notes Receivable................................................ 415,066 408,134
Other Assets.................................................... 469,763 424,671
----------- -----------
Total Assets.......................................... $14,295,050 $12,276,990
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt............................................... $ 733,115 $ 463,042
Accounts payable and accrued liabilities...................... 2,358,543 2,183,711
Income taxes.................................................. 6,411 65,319
----------- -----------
Total Current Liabilities............................. 3,098,069 2,712,072
Long-Term Debt.................................................. 5,632,232 4,529,220
Deferred Income Taxes........................................... 732,936 890,729
Other Liabilities............................................... 558,127 505,359
Shareholders' Equity............................................ 4,273,686 3,639,610
----------- -----------
Total Liabilities and Shareholders' Equity............ $14,295,050 $12,276,990
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE> 30
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 74,553 $ 187,616 $ 193,248
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment.......... 444,830 260,485 207,914
Amortization of intangible assets................................ 47,451 22,662 18,762
Amortization of financing costs.................................. 21,702 11,468 10,163
Amortization of original issue discount.......................... 1,202 29,435 16,846
Amortization of unearned restricted stock........................ 4,630 2,714 3,105
Loss on early extinguishment of debt............................. -- -- 3,545
Changes in assets and liabilities, net of effects of acquisition
of companies:
Increase in accounts receivable................................ (21,098) (310,934) (215,101)
(Increase) decrease in merchandise inventories ................ (361,991) 28,620 (31,910)
(Increase) decrease in supplies and prepaid expenses........... (67,745) 2,450 (6,592)
Decrease in other assets not separately identified............. 61,483 2,697 20,229
Increase (decrease) in accounts payable and accrued liabilities
not separately identified.................................... (83,220) (124,662) 70,679
Increase (decrease) in current income taxes.................... (45,437) 61,149 65,990
Increase (decrease) in deferred income taxes................... 192,079 (12,057) 54,917
Increase (decrease) in other liabilities not separately
identified................................................... 26,068 (184) (1,291)
----------- ----------- ---------
Net cash provided by operating activities.................. 294,507 161,459 410,504
----------- ----------- ---------
Cash flows from investing activities:
Acquisition of companies net of cash acquired........................ 16,262 (575,408) (109,325)
Purchase of property and equipment................................... (696,488) (386,847) (309,536)
Disposition of property and equipment................................ 46,992 8,723 1,097
Decrease in notes receivable......................................... -- -- 12,636
----------- ----------- ---------
Net cash used by investing activities...................... (633,234) (953,532) (405,128)
----------- ----------- ---------
Cash flows from financing activities:
Debt issued.......................................................... 1,347,106 2,526,861 --
Financing costs...................................................... (27,236) (66,602) (633)
Debt repaid.......................................................... (1,020,117) (1,594,136) (391,986)
Increase (decrease) in outstanding checks............................ (9,647) (95,010) 35,776
Acquisition of treasury stock........................................ (1,006) (354) (179)
Issuance of common stock............................................. 15,655 5,376 7,090
----------- ----------- ---------
Net cash provided (used) by financing activities........... 304,755 776,135 (349,932)
----------- ----------- ---------
Net decrease in cash................................................... (33,972) (15,938) (344,556)
Cash beginning of period............................................... 206,490 222,428 566,984
----------- ----------- ---------
Cash end of period..................................................... $ 172,518 $ 206,490 $ 222,428
=========== =========== =========
Supplemental cash flow information:
Interest paid........................................................ $ 444,398 $ 211,457 $ 186,658
Interest received.................................................... 46,445 44,675 50,019
Income taxes paid (net of refunds received).......................... 35,103 93,647 49,588
Schedule of noncash investing and financing activities:
Capital lease obligations for new store fixtures ................ 2,818 10,817 3,424
Common stock issued for the Executive Deferred Compensation
Plan........................................................... 2,501 2,070 686
Debt and merger related liabilities issued, reinstated or assumed
in acquisition................................................. 1,267,074 1,414,969 340,000
Equity issued in acquisition..................................... 352,902 1,166,014 --
Debt and equity issued for purchase of debt...................... 429,665 -- --
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE> 31
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Federated Department Stores, Inc. (the "Company") is a retail organization
operating department stores selling a wide range of merchandise, including
women's, men's and children's apparel, cosmetics, home furnishings and other
consumer goods.
The Consolidated Financial Statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions have been
eliminated. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates and assumptions are subject to inherent
uncertainties, which may result in actual amounts differing from reported
amounts.
Cash includes cash and liquid investments with original maturities of three
months or less.
Installments of deferred payment accounts receivable maturing after one
year are included in current assets in accordance with industry practice. Such
accounts are accepted on customary revolving credit terms and offer the customer
the option of paying the entire balance on a 25-day basis without incurring
finance charges. Alternatively, customers may make scheduled minimum payments
and incur competitive finance charges. Minimum payments vary from 4.2% to 100.0%
of the account balance, depending on the size of the balance. Profits on
installment sales are included in income when the sales are made. Finance charge
income is included as a reduction of selling, general and administrative
expenses.
Substantially all merchandise inventories are valued by the retail method
and stated on the LIFO (last-in, first-out) basis, which is generally lower than
market.
Depreciation and amortization are provided primarily on a straight-line
basis over the shorter of estimated asset lives or related lease terms.
Estimated asset lives range from 15 to 50 years for buildings and building
equipment and 3 to 15 years for store fixtures and equipment. Real estate taxes
and interest on construction in progress and land under development are
capitalized. Amounts capitalized are amortized over the estimated lives of the
related depreciable assets.
Intangible assets are amortized on a straight-line basis over their
estimated lives (see Note 8). The carrying value of intangible assets is
periodically reviewed by the Company and impairments are recognized when the
present value of the expected future operating cash flows derived from such
intangible assets is less than their carrying value.
Advertising and promotional costs, which are generally expensed as
incurred, amounted to $633.2 million for the 53 weeks ended February 3, 1996 and
$347.5 million and $298.8 million for the 52 weeks ended January 28, 1995 and
January 29, 1994, respectively.
Financing costs are amortized over the life of the related debt.
F-7
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Under the asset and liability method prescribed in SFAS No. 109, deferred
income tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and net
operating loss and tax credit carryforwards. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred income tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits other than
Pensions" ("SFAS No. 106"), which requires that the cost of these benefits be
recognized in the financial statements over an employee's term of service with
the Company.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The impact of such adoption was not
material.
Earnings per share are computed on the basis of daily average number of
shares outstanding during the year. Any dilution from the potential issuance of
shares under warrant agreements or stock option plans would be less than 3.0%.
Fully diluted earnings per share include the effect of the potential issuance of
shares under warrant agreements or stock option plans as well as for convertible
debt and, unless disclosed, any such dilution would be less than 3.0%.
Certain reclassifications were made to prior years' amounts to conform with
the classifications of such amounts for the most recent year.
2. ACQUISITION OF COMPANIES
The Company completed its acquisition of 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. As of February 3, 1996, the related excess of cost
over net assets acquired is approximately $191.4 million (see Note 8).
On December 19, 1994, the Company acquired R. H. Macy & Co., Inc.
("Macy's") pursuant to a Plan of Reorganization (the "Macy's POR") of Macy's and
substantially all of its subsidiaries (collectively, the
F-8
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
"Macy's Debtors"). Pursuant to the Macy's POR, among other transactions, Macy's
merged with the Company, which became responsible for making distributions of
cash and debt and equity securities pursuant to the Macy's POR. The total
purchase price of the Macy's acquisition was approximately $3,815.9 million and
consisted of the following:
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
Cash payments 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
Net cost of the initial investment.................. 444.6
--------
$3,815.9
========
</TABLE>
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 53 weeks ended February 3, 1996 to the assets and liabilities
acquired, the related excess of cost over net assets acquired was adjusted to
$102.7 million at February 3, 1996 (see Note 8).
The following unaudited pro forma condensed statements of operations give
effect to the Broadway and Macy's acquisitions and related financing
transactions as if such transactions had occurred at the beginning of each
period presented.
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS
ENDED ENDED
FEBRUARY 3, JANUARY 28,
1996 1995
------------ ------------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales........................................ $ 15,933.1 $ 16,033.9
Net income....................................... 24.3 71.7
Earnings per share............................... .12 .36
</TABLE>
The foregoing unaudited pro forma condensed statements of operations give
effect to, among other pro forma adjustments, the following:
(i) Interest expense on debt incurred to finance the acquisitions, the reversal
of certain of Macy's and Broadway's historical interest expenses and the
reversal of the Company's historical interest expense on certain
indebtedness redeemed in connection with the acquisitions;
(ii) Amortization of deferred debt expense related to debt incurred to finance
the acquisitions;
(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 the fair market value
of assets acquired;
F-9
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(v) Adjustments to income tax expense related to the above; and
(vi) 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 acquisitions been consummated on the first day
of the periods 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 approximated
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 the
results of operations of the Company.
3. BUSINESS INTEGRATION AND CONSOLIDATION EXPENSES
Business integration and consolidation expenses represent the costs
associated with the integration of the Horne's, Macy's and Broadway businesses
with the Company's other businesses and the consolidation of the operations of
certain of the Company's retail operating divisions.
During the 53 weeks ended February 3, 1996, the Company recorded $293.9
million of business integration and consolidation expenses associated with the
integration of Macy's and Broadway into the Company ($208.9 million and $48.1
million, respectively) and the consolidation of the Company's Rich's/Goldsmith's
and Lazarus divisions ($36.9 million). The primary components of the Macy's
integration expenses were $69.1 million of inventory valuation adjustments to
merchandise in lines of business which the Company, subsequent to the
acquisition, eliminated or replaced, $31.1 million of costs to close and sell
certain stores and to convert a number of stores to other nameplates, $30.8
million of severance costs and $77.9 million of other costs and expenses
associated with integrating Macy's into the Company. The major components of the
Broadway integration expenses were $23.3 million of costs to close certain
stores, $8.7 million of costs to refinance certain indebtedness and $16.1
million of other costs and expenses associated with integrating Broadway into
the Company. Of the $36.9 million of expenses associated with the divisional
consolidation referred to above, $22.5 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 recorded a $45.8 million charge in the 52 weeks ended January
28, 1995 for the integration of Macy's into the Company, including the
consolidation of the Macy's East division with the Company's Abraham &
Straus/Jordan Marsh division and the consolidation of central merchandising
divisions. The major components of the charge include $13.0 million in severance
expenses for Abraham & Straus/Jordan Marsh employees, $12.3 million in penalties
associated with terminating certain merchandise purchasing agreements and $14.1
million of losses incurred on stores closed and property writedowns related to
stores sold as a result of the Macy's acquisition.
The Company recorded a $27.0 million charge in the 52 weeks ended January
28, 1995 for the integration of the ten Horne's department stores and related
facilities and merchandising and operating functions into the
F-10
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Company. The $27.0 million charge includes $12.1 million for the costs of
operating the Horne's central office during a transitional period and the
incremental costs associated with converting the Horne's stores to Lazarus
stores (including advertising, credit card issuance and promotion, data
processing conversion and other name change expenses). The remainder of the
charge relates to inventory valuation adjustments of Horne's merchandise in
lines which the Company, subsequent to the acquisition, eliminated or replaced
with Lazarus merchandise lines.
Finally, as a result of the consolidation of the Company's
Rich's/Goldsmith's and Lazarus divisions, which was announced on January 20,
1995, a $13.1 million charge was recorded for severance related to the
elimination of duplicative positions.
4. EXTRAORDINARY ITEM
The extraordinary item for the 52 weeks ended January 29, 1994 represents
costs of $3.5 million, net of income tax benefit of $2.3 million, associated
with the prepayment of the entire $355.0 million outstanding principal amount of
the Company's Series B Secured Notes.
5. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
(MILLIONS)
<S> <C> <C>
Due from customers......................................... $ 2,698.8 $ 2,087.9
Less allowance for doubtful accounts....................... 83.5 44.9
-------- --------
2,615.3 2,043.0
Other receivables.......................................... 226.8 222.7
-------- --------
Net receivables............................................ $ 2,842.1 $ 2,265.7
======== ========
</TABLE>
Sales through the Company's credit plans were $4,323.8 million for the 53
weeks ended February 3, 1996 and $3,916.9 million and $3,743.1 million for the
52 weeks ended January 28, 1995 and January 29, 1994, respectively. The credit
plans relating to operations of the Company that were previously conducted
through divisions of Macy's are owned by a third party.
F-11
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Finance charge income amounted to $405.2 million for the 53 weeks ended
February 3, 1996 and $320.3 million and $243.6 million for the 52 weeks ended
January 28, 1995 and January 29, 1994, respectively. Changes in allowance for
doubtful accounts are as follows:
<TABLE>
<CAPTION>
53 WEEKS ENDED
FEBRUARY 3, 52 WEEKS ENDED 52 WEEKS ENDED
1996 JANUARY 28, 1995 JANUARY 29, 1994
--------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year............ $ 44.9 $ 36.9 $ 45.3
Charged to costs and expenses......... 126.9 66.5 50.3
Acquired.............................. 16.8 -- --
Net uncollectible balances written
off................................. (105.1) (58.5) (58.7)
------- ------ ------
Balance, end of year.................. $ 83.5 $ 44.9 $ 36.9
======= ====== ======
</TABLE>
6. INVENTORIES
Merchandise inventories were $3,094.8 million at February 3, 1996, compared
to $2,380.6 million at January 28, 1995. At these dates, the cost of inventories
using the LIFO method approximates the cost of such inventories using the
first-in, first-out method. The application of the LIFO method did not impact
the 53 weeks ended February 3, 1996, resulted in a pre-tax credit of $11.3
million for the 52 weeks ended January 28, 1995 and a pre-tax charge of $2.8
million for the 52 weeks ended January 29, 1994.
7. PROPERTIES AND LEASES
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
(MILLIONS)
<S> <C> <C>
Land....................................................... $ 1,045.3 $ 888.6
Buildings on owned land.................................... 2,394.4 2,162.2
Buildings on leased land and leasehold improvements........ 1,389.0 1,055.7
Store fixtures and equipment............................... 2,352.1 1,765.9
Property not used in operations............................ 11.3 6.5
Leased properties under capitalized leases................. 80.6 62.6
-------- --------
7,272.7 5,941.5
Less accumulated depreciation and amortization............. 967.5 591.6
-------- --------
$ 6,305.2 $ 5,349.9
======== ========
</TABLE>
In connection with various shopping center agreements, the Company is
obligated to operate certain stores within the centers for periods of up to 20
years. Some of these agreements require that the stores be operated under a
particular name.
The Company leases a portion of the real estate and personal property used
in its operations. Most leases require the Company to pay real estate taxes,
maintenance and other executory costs; some also require additional payments
based on percentages of sales and some contain purchase options.
F-12
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Minimum rental commitments (excluding executory costs) at February 3, 1996,
for noncancellable leases are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
----------- ----------- -----------
(MILLIONS)
<S> <C> <C> <C>
Fiscal year:
1996........................................... $ 14.3 $ 189.1 $ 203.4
1997........................................... 14.3 172.1 186.4
1998........................................... 13.8 148.3 162.1
1999........................................... 13.3 138.5 151.8
2000........................................... 13.1 132.8 145.9
After 2000..................................... 99.2 1,281.8 1,381.0
----------- ----------- -----------
Total minimum lease payments..................... 168.0 $ 2,062.6 $ 2,230.6
========== ==========
Less amount representing interest................ 81.4
-----------
Present value of net minimum capital lease
payments....................................... $ 86.6
==========
</TABLE>
Capitalized leases are included in the Consolidated Balance Sheets as
property and equipment while the related obligation is included in short-term
($5.5 million) and long-term ($81.1 million) debt. Amortization of assets
subject to capitalized leases is included in depreciation and amortization
expense. Total minimum lease payments shown above have not been reduced by
minimum sublease rentals of approximately $10.0 million on capital leases and
$25.0 million on operating leases.
Rental expense consists of:
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Real estate (excluding executory
costs)
Capital leases --
Contingent rentals.............. $ 4.4 $ 3.3 $ 3.4
Operating leases --
Minimum rentals................. 137.4 78.9 68.5
Contingent rentals.............. 19.6 10.4 8.7
------ ------ ------
161.4 92.6 80.6
------ ------ ------
Less income from subleases --
Capital leases.................. 0.7 0.6 0.8
Operating leases................ 1.7 0.9 1.2
------ ------ ------
2.4 1.5 2.0
------ ------ ------
$159.0 $ 91.1 $ 78.6
====== ====== ======
Personal property --
Operating leases................... $ 63.5 $ 37.4 $ 38.1
====== ====== ======
</TABLE>
F-13
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- ------------
(MILLIONS)
<S> <C> <C>
Reorganization value in excess of amount allocable to
identifiable assets...................................... $ 100.2 $ 300.2
Excess of cost over net assets acquired.................... 294.1 308.5
Tradenames................................................. 458.0 458.0
------ --------
852.3 1,066.7
Less accumulated amortization.............................. 107.6 60.2
------ --------
Intangible assets -- net................................... $ 744.7 $1,006.5
====== ========
</TABLE>
Intangible assets are being amortized on a straight-line basis over 20
years, except for tradenames which are being amortized over 40 years. The
Company recorded $200.0 million and $75.0 million of tax benefits as reductions
of reorganization value in excess of amounts allocable to identifiable assets
during the 53 weeks ended February 3, 1996 and the 52 weeks ended January 28,
1995, respectively (see Note 12).
9. NOTES RECEIVABLE
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- ------------
(MILLIONS)
<S> <C> <C>
9.5% note relating to the sale of certain divisions in 1988
and maturing in two equal installments on May 3, 1997 and
May 3, 1998.............................................. $ 400.0 $400.0
Other...................................................... 15.1 8.1
------ ------
$ 415.1 $408.1
====== ======
</TABLE>
The $400.0 million note, which is supported by a letter of credit, was
transferred to a grantor trust which borrowed $352.0 million under a note
monetization facility and transferred such proceeds to the Company (see Note
10).
F-14
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. FINANCING
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- ------------
(MILLIONS)
<S> <C> <C>
Short-term debt:
Broadway receivables based financing..................... $ 450.5 $ --
Receivables backed commercial paper...................... 117.0 274.9
Bank credit facility..................................... 100.0 25.0
Current portion of long-term debt........................ 65.6 163.1
-------- --------
Total short-term debt............................ $ 733.1 $ 463.0
======== ========
Long-term debt:
Bank credit facility..................................... $ 1,540.0 $1,700.0
Receivables backed certificates.......................... 1,654.3 1,056.8
Mortgages................................................ 455.7 418.5
10.0% Senior notes due 2001.............................. 450.0 450.0
8.125% Senior notes due 2002............................. 400.0 --
Senior convertible discount notes........................ -- 306.6
Note monetization facility............................... 352.0 352.0
Convertible subordinated notes........................... 350.0 --
Secured promissory note.................................. 242.3 --
Tax notes................................................ 106.8 177.4
Capitalized leases....................................... 81.1 67.5
Other.................................................... -- 0.4
-------- --------
Total long-term debt............................. $ 5,632.2 $4,529.2
======== ========
</TABLE>
Interest and financing costs were as follows:
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Interest on debt..................... $478.2 $244.9 $197.5
Amortization of financing costs...... 21.7 11.5 10.2
Interest on capitalized leases....... 9.1 6.2 6.0
------ ------ ------
Subtotal................... 509.0 262.6 213.7
Less:
Interest capitalized on
construction....................... (0.9) (0.5) (0.2)
Interest income...................... (47.1) (43.9) (49.4)
------ ------ ------
$461.0 $218.2 $164.1
====== ====== ======
</TABLE>
F-15
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Future maturities of long-term debt, other than capitalized leases and
including unamortized original issue discount of $1.7 million, are shown below:
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
Fiscal year:
1997........................................... $ 890.0
1998........................................... 472.9
1999........................................... 934.1
2000........................................... 1,156.3
2001........................................... 467.7
After 2001..................................... 1,631.8
</TABLE>
The Company assumed $1,267.1 million of debt in the acquisition of
Broadway. On October 11, 1995, in connection with the acquisition of Broadway, a
wholly owned subsidiary of the Company ("FNC II") 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 Secured Promissory Note.
On September 27, 1995, the Company issued $350.0 million of 5.0%
Convertible Subordinated Notes and thereafter utilized a portion of the proceeds
thereof to fund the repurchase of $142.0 million of the 6.25% Convertible Senior
Subordinated Notes assumed in the Broadway acquisition.
On October 3, 1995, the Company issued $400.0 million of 8.125% Senior
Notes and utilized $307.4 million of the proceeds thereof to prepay the entire
outstanding principal amount of the Company's Senior Convertible Discount Notes
due 2004.
The following summarizes certain provisions of the Company's debt:
BANK CREDIT FACILITY
The Bank Credit Facility consists of a $2,000.0 million revolving credit
facility (the "Revolving Loan Facility") and an $800.0 million term loan
facility (the "Term Loan Facility").
The Revolving Loan Facility provides for revolving credit loans ("Revolving
Loans" and, together with the loans under the Term Loan Facility, the "Loans")
of up to $2,000.0 million, of which an aggregate of $1,100.0 million is
available for seasonal working capital purposes (including a letter of credit
subfacility). For 30 consecutive calendar days during the period from December 1
to March 1, commencing December 1, 1995, total borrowings plus the aggregate
stated amounts of stand-by letters of credit under the Revolving Loan Facility
may not exceed $1,000.0 million ($1,350.0 million in the case of the period from
December 1, 1995 to March 1, 1996). The Company's ability to effect borrowings
under the Revolving Loan Facility is not subject to any borrowing base
requirements or limitations. The Revolving Loan Facility matures on March 31,
2000, with the Revolving Loans then outstanding to be repaid in full on such
date.
The Term Loan Facility matures on January 29, 2000 and does not require any
amortization of principal prior to May 4, 1996. Commencing on May 4, 1996, the
Company is required to make quarterly amortization payments totaling, on an
annual basis: $100.0 million in the first year thereafter; $150.0 million in the
second year thereafter; $200.0 million in the third year thereafter; and $350.0
million in the fourth year thereafter.
F-16
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company is permitted by the terms of the Credit Agreement to make voluntary
prepayments of amounts outstanding under the Term Loan Facility at any time
without penalty or premium. Until such time as the Company has obtained an
investment grade rating with respect to its long-term senior unsecured debt,
repayments of certain amounts outstanding under the Term Loan Facility are
required upon the occurrence of certain events.
Loans under the Bank Credit Facility (other than "competitive bid loans,"
if any) bear interest at a rate equal to, at the Company's option, (i) the
administrative agent's Base Rate (as defined in the bank credit agreement) in
effect from time to time or (ii) the administrative agent's Eurodollar rate
(adjusted for reserves) plus 1.0% subject to adjustment based on the Company's
long-term debt rating and interest coverage ratio. The Company is able to borrow
up to $1,000.0 million under the Revolving Loan Facility in competitive bid
loans at either fixed rates or Eurodollar-based rates as bid by the lenders in
the Revolving Loan Facility. The Company pays a commitment fee of 0.25% per
annum, subject to adjustment, on the unused portion of the Revolving Loan
Facility.
The Company has purchased interest rate caps covering an aggregate notional
amount of $1,400.0 million for a period of three years from December 15, 1994.
Pursuant to such caps, the Eurodollar rate with reference to which interest on
$500.0 million of the Company's variable rate indebtedness is determined is
effectively limited to a maximum rate of 8% per annum throughout such three-year
period and the Eurodollar rate with reference to which interest on $900.0
million of the Company's variable rate indebtedness is determined is effectively
limited to a maximum rate of 7% per annum in the first year of such three-year
period, 8% per annum in the second year of such three-year period and 9% per
annum thereafter. The Company has also entered into interest rate swap
agreements covering an aggregate notional amount of $300.0 million. The
Eurodollar rate with reference to which interest on the Company's variable rate
indebtedness is determined is effectively converted to a fixed rate of 5.3275%
on $100.0 million of borrowings from January 9, 1996 to January 9, 1998, 5.2625%
on $100.0 million of borrowings from January 23, 1996 to January 25, 1999 and
5.225% on $100.0 million of borrowings from January 18, 1996 to January 18,
1998.
RECEIVABLES BACKED CERTIFICATES
On December 15, 1992, Prime Receivables Corporation, a wholly owned
subsidiary of the Company ("Prime"), issued $981.0 million ($979.1 million
discounted amount) of asset-backed certificates in four separate classes to
finance its purchases of revolving consumer credit card receivables generated by
the Company's department store operations (other than operations previously
conducted by divisions of Macy's). The four classes of certificates are: (i)
$450.0 million in aggregate principal amount of 7.05% Class A-1 Asset-Backed
Certificates, Series 1992-1 due December 15, 1997; (ii) $450.0 million in
aggregate principal amount of 7.45% Class A-2 Asset-Backed Certificates, Series
1992-2 due December 15, 1999; (iii) $40.5 million in aggregate principal amount
of 7.55% Class B-1 Asset-Backed Certificates, Series 1992-1 due January 15,
1998; and (iv) $40.5 million in aggregate principal amount of 7.95% Class B-2
Asset-Backed Certificates, Series 1992-2 due January 18, 2000. On January 20,
1995 Prime entered into an agreement pursuant to which it effectively sold an
additional $77.0 million of asset-backed certificates to a third party, with
such certificates bearing interest at the purchaser's commercial paper rate plus
0.9% and maturing as to $38.5 million in 1998 and $38.5 million in 2000. The
$77.0 million of certificates are subject to interest rate caps intended to
effectively limit the rate of interest thereon to 11.0% per annum. On July 27,
1995, Prime issued an additional
F-17
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$598.0 million of asset-backed certificates in two separate classes. The two
classes are: (i) $546.0 million in aggregate principal amount of 6.75% Class A
Asset-Backed Certificates, Series 1995-1 due August 15, 2002 and (ii) $52.0
million in aggregate principal amount of 6.90% Class B Asset-Backed
Certificates, Series 1995-1 due September 15, 2002. All of the foregoing
certificates represent undivided interests in the assets of a master trust
originated by Prime.
RECEIVABLES BACKED COMMERCIAL PAPER
On January 5, 1993, an indirect wholly owned special purpose financing
subsidiary of the Company entered into a liquidity facility with a syndicate of
banks providing for the issuance of up to $375.0 million of receivables backed
commercial paper. Borrowings under the liquidity facility are secured by an
interest in the master trust originated by Prime and are subject to interest
rate caps effectively limiting the rate of interest thereon to 10% per annum. As
of February 3, 1996 and January 28, 1995 there was $117.0 million and $274.9
million of such commercial paper outstanding, respectively.
BROADWAY RECEIVABLES BASED FINANCING
Broadway Receivables Inc. , a wholly owned subsidiary of the Company
("BRI"), is a party to a credit facility providing for up to $575.0 million in
receivables based financing. The Broadway receivables facility provides for an
unaffiliated limited purpose corporation to advance funds to BRI and to fund
these advances through the issuance of commercial paper. Outstanding borrowings
under the facility, which are secured by Broadway's customer receivables, accrue
interest at the A-1/P-1 commercial paper rate plus 1.08%. At February 3, 1996,
there was $386.5 million of such borrowings outstanding.
In September 1994, BRI obtained an additional $64.0 million in receivables
based financing through the issuance of subordinated asset backed notes (the
"Asset Backed Notes"). The Asset Backed Notes were issued in two classes: $38.0
million of 7.55% Class A notes due in 1999 and $26.0 million of 11.0% Class B
notes due 1999. The Asset Backed Notes are redeemable at BRI's option, in whole
or in part, on each interest payment date on or after October 15, 1994 and on
October 8, 1996 at a redemption price combining principal, accrued interest,
unpaid interest, and a make-whole premium. In March 1996, BRI gave notice for
redemption of the Asset Backed Notes effective April 15, 1996.
Subject to such earlier termination as may be agreed upon by the parties,
the Broadway receivables facility will expire on October 8, 1996. It is
anticipated that, in connection with such termination or expiration, the
customer receivables that provided security for the Broadway receivables
facility and the Asset Backed Notes will be purchased by Prime.
10.0% SENIOR NOTES DUE 2001
The 10% Senior Notes due 2001 were issued by the Company on January 27,
1995. The Senior Notes are unsecured obligations of the Company which mature on
February 15, 2001 and bear interest at 10% per annum from January 27, 1995,
payable semiannually on February 15 and August 15 of each year. The Senior Notes
are not redeemable at the option of the Company prior to maturity and are not
subject to a sinking fund.
F-18
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8.125% SENIOR NOTES DUE 2002
The 8.125% Senior Notes due 2002 were issued by the Company on October 3,
1995. The Senior Notes are unsecured obligations of the Company which mature on
October 15, 2002 and bear interest at 8.125% per annum from October 6, 1995,
payable semiannually on October 15 and April 15 of each year, commencing on
April 15, 1996. The Senior Notes are not redeemable at the option of the Company
prior to maturity and are not subject to a sinking fund.
MORTGAGES
Certain of the Company's real estate subsidiaries are parties to a mortgage
loan facility providing for secured borrowings. Borrowings under the facility
will mature in 2002 and bear interest at 9.99% per annum. Borrowings under the
facility are secured by liens on certain real property. As of February 3, 1996
and January 28, 1995, there was $345.1 million outstanding under the mortgage
loan facility.
In addition to the mortgage indebtedness described above, the Company and
certain of its subsidiaries are obligated under certain other mortgage notes,
which are secured by liens on certain real property of the Company's
subsidiaries. The aggregate principal amount of such mortgage notes was $118.8
million ($8.2 million included in short-term debt) as of February 3, 1996 and
$76.2 million ($2.8 million included in short-term debt) as of January 28, 1995.
CONVERTIBLE SUBORDINATED NOTES
On September 27, 1995, the Company issued Convertible Subordinated Notes
which are unsecured obligations of the Company and are subordinate to all
existing and future Senior Debt of the Company and all indebtedness and other
liabilities of the Company's subsidiaries. The Convertible Subordinated Notes
mature on October 1, 2003 and bear interest at the rate of 5% per annum from
September 27, 1995, payable in arrears on October 1 and April 1 of each year,
commencing April 1, 1996.
At any time prior to maturity, unless previously redeemed or repurchased,
each holder of Convertible Subordinated Notes will have the right to convert the
principal of such holder's Convertible Subordinated Notes into fully-paid and
non-assessable shares of Common Stock at the rate of 29.2547 shares of Common
Stock for each $1,000 stated principal amount of Convertible Subordinated Notes,
provided that such conversion rate will be appropriately adjusted in order to
prevent dilution of such conversion right in the event of certain changes in or
events affecting the Common Stock and certain consolidations, mergers, sales,
leases, transfers, or other dispositions to which the Company is a party. In
addition, the Convertible Subordinated Notes will be redeemable at the Company's
option, in whole or in part, at anytime on or after October 1, 1998, at the
redemption prices plus accrued interest to the date of redemption. The
Convertible Subordinated Notes are not subject to a sinking fund.
SECURED PROMISSORY NOTE
The Secured Promissory Note matures in October 2000 and is secured by liens
on certain real property and stock of FNC II. The Secured Promissory Note bears
interest at a variable rate equal to LIBOR plus 1.25%. The Secured Promissory
Note provides that, at a time to be specified by the Company during the first
F-19
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
six months of the term thereof, the interest rate thereunder will be fixed at a
rate equal to the applicable Treasury rate plus 1.75%.
TAX NOTES
The Tax Notes represent agreements with taxing authorities with respect to
claims to be paid over varying periods of time up to 6 years, with unpaid
balances bearing interest at rates ranging from 8.0% to 9.35% per annum.
NOTE MONETIZATION FACILITY
On May 3, 1988, the Company sold certain divisions for consideration which
included a $400.0 million promissory note. The Company subsequently transferred
the note to a grantor trust of which it is the beneficiary. The trust borrowed
$352.0 million under a note monetization facility, using the note as collateral,
and distributed the proceeds of such borrowing to the Company. The borrowing
under the note monetization facility matures in two equal installments on May 3,
1997 and 1998, and bears interest at a variable interest rate based on LIBOR,
subject to certain adjustments. An interest rate swap agreement was entered into
for the note monetization facility which, in effect, converted the variable
interest rate to a fixed rate of 10.344%. The Company is not an obligor on the
borrowing under the note monetization facility or the interest rate swap
agreement, and the lender's recourse thereunder is limited to the trust's assets
and the Company's interest in the trust.
11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
(MILLIONS)
<S> <C> <C>
Merchandise and expense accounts payable........ $ 1,592.7 $ 1,299.2
Business integration and consolidation
expenses...................................... 13.0 57.8
Merger related liabilities...................... 64.4 173.1
Taxes other than income taxes................... 94.6 123.3
Accrued wages and vacation...................... 81.4 81.2
Accrued interest................................ 64.3 29.3
Other........................................... 448.1 419.8
-------- --------
$ 2,358.5 $ 2,183.7
======== ========
</TABLE>
Included in Other at February 3, 1996 is $22.5 million of accrued severance
in connection with the Broadway acquisition related to approximately 2,000
employees. Included in the liability for business integration and consolidation
expenses at January 28, 1995 is $26.1 million of accrued severance related to
approximately 750 employees of the Abraham & Straus/Jordan Marsh,
Rich's/Goldsmith's and Lazarus divisions (see Note 3), all of which was paid out
prior to February 3, 1996.
F-20
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12. TAXES
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Income from operations.............. $127.3 $143.7 $171.0
Extraordinary items................. -- -- (2.3)
------ ------ ------
Total income taxes.................. $127.3 $143.7 $168.7
====== ====== ======
</TABLE>
Income tax expense attributable to income from operations is as follows:
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
--------------------------- --------------------------- ---------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------ ------- -------- ------ ------- -------- ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal............... $ 91.1 $ 13.5 $104.6 $ 82.0 $ 31.4 $113.4 $127.9 $ 10.4 $138.3
State and local....... 19.5 3.2 22.7 21.2 9.1 30.3 33.6 (0.9) 32.7
------ ----- ------ ------ ----- ------ ----- ----- ------
$110.6 $ 16.7 $127.3 $103.2 $ 40.5 $143.7 $161.5 $ 9.5 $171.0
====== ===== ====== ====== ===== ====== ===== ===== ======
</TABLE>
The income tax expense attributable to income from operations reported
differs from the expected tax computed by applying the federal income tax
statutory rate of 35% for the 53 weeks ended February 3, 1996 and the 52 weeks
ended January 28, 1995 and January 29, 1994 to income before income taxes and
extraordinary items. The reasons for this difference and their tax effects are
as follows:
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Expected tax.............................. $ 70.7 $115.9 $128.7
State and local income taxes, net of
federal income tax expense.............. 14.7 19.7 21.2
Permanent difference arising from
amortization of intangible assets....... 16.6 7.9 6.6
Permanent difference resulting from
Broadway acquisition.................... 22.7 -- --
Effect of federal tax rate change on
deferred income taxes................... -- -- 14.2
Other..................................... 2.6 0.2 0.3
------ ------ ------
$127.3 $143.7 $171.0
====== ====== ======
</TABLE>
F-21
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
------------ -----------
(MILLIONS)
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards............... $ 417.0 $ 378.3
Accrued liabilities accounted for on a cash
basis for tax purposes................... 160.4 174.6
Postretirement benefits other than
pensions................................. 179.5 180.8
Capital lease debt......................... 34.6 28.6
Allowance for doubtful accounts............ 31.7 18.1
Alternative minimum tax credit
carryforwards............................ 48.9 37.3
Other...................................... 133.8 77.7
--------- ---------
Total gross deferred tax assets....... 1,005.9 895.4
Less valuation allowance.............. -- (114.7)
--------- ---------
Net deferred tax assets............... 1,005.9 780.7
--------- ---------
Deferred tax liabilities:
Excess of book basis over tax basis of
property and equipment................... (1,335.7) (1,119.2)
Prepaid pension expense.................... (71.8) (76.7)
Deferred gain from sale of divisions....... (81.6) (81.6)
Merchandise inventories.................... (131.6) (98.6)
Effects of reorganization transactions..... (18.2) (136.4)
Other...................................... (25.6) (23.5)
--------- ---------
Total gross deferred tax
liabilities......................... (1,664.5) (1,536.0)
--------- ---------
Net deferred tax liability............ $ (658.6) $ (755.3)
========= =========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities and tax planning strategies in
making this assessment. Because tax law limits the use of an acquired
enterprise's net operating loss carryforwards to subsequent taxable income of
the acquired enterprise in a consolidated tax return for the combined
enterprise, management had recorded a valuation allowance of $114.7 million to
reflect the estimated amount of deferred tax assets related to Macy's net
operating loss carryforwards (the "Macy's NOLs") which may not be realized.
During the year ended February 3, 1996, the Company determined that the
valuation allowance related to the Macy's NOLs was not required and the excess
of cost over net assets acquired was adjusted accordingly.
F-22
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of February 3, 1996, the Company estimated that the Macy's NOL's, which
are available to offset future taxable income of Macy's through 2008, were
approximately $777.8 million and that Broadway's net operating loss
carryforwards, which are available to offset future taxable income of Broadway
through 2009, were approximately $302.6 million. The Company also had
alternative minimum tax credit carryforwards of $48.9 million which are
available to reduce future income taxes, if any, over an indefinite period.
In connection with the joint plan of reorganization ("POR") of Federated
Stores, Inc. ("FSI"), the former parent of the Company and certain of its
subsidiaries, the FSI consolidated tax group (which, with respect to periods
prior to February 4, 1992, included the Company and such subsidiaries) triggered
certain gains (the "Gains") estimated at approximately $1,800.0 million. The
Company believed that net operating and capital losses ("NOLs") sufficient to
offset the Gains were available at the time the Gains were triggered and,
accordingly, that the Company would have no regular federal income tax liability
in respect thereof and that it had adequately provided for its estimated
alternative minimum tax liability. During the year ended January 28, 1995, the
Company recorded $75.0 million of tax benefits related to NOLs generated prior
to February 4, 1992 and reduced reorganization value in excess of amounts
allocable to identifiable assets accordingly. The remaining issues related to
the Gains and the POR were resolved on January 5, 1996 and the Company recorded
$200.0 million of tax benefits related to such NOLs as a reduction of
reorganization value in excess of amounts allocable to identifiable assets.
In connection with their respective reorganization proceedings, the
Internal Revenue Service ("IRS") audited the tax returns of the Company and
certain of its subsidiaries and the FSI consolidated tax group for tax years
1984 through 1989 and asserted certain claims against the Company and such
subsidiaries and other members of the FSI consolidated tax group. All of the
issues raised by the IRS audit have been resolved except for an issue involving
the deductibility of approximately $176.3 million of so-called "break-up fees."
This issue was resolved in favor of the Company by the Bankruptcy Court for the
Southern District of Ohio, the decision of which was affirmed by the United
States District Court for the Southern District of Ohio. Thereafter, the IRS
filed an appeal of such decision in the United States Court of Appeals for the
Sixth Circuit, where such appeal is currently pending. Although there can be no
assurance with respect thereto, management does not expect that the ultimate
resolution of this issue will have a material adverse effect on the Company's
financial position or results of operations.
13. RETIREMENT PLANS
The Company has defined benefit plans ("Pension Plans") and defined
contribution plans ("Savings Plans") which cover substantially all employees who
work 1,000 hours or more in a year. In addition, the Company has defined benefit
supplementary retirement plans which include benefits, for certain employees, in
excess of qualified plan limitations. For the 53 weeks ended February 3, 1996,
the 52 weeks ended January 28, 1995 and the 52 weeks ended January 29, 1994, net
retirement expense for these plans totaled $21.8 million, $3.0 million and $2.7
million, respectively.
Measurements of plan assets and obligations for the Pension Plans and the
defined benefit supplementary retirement plans are calculated as of December 31
of each year. In addition, for such plans, the discount rates used to determine
the actuarial present value of projected benefit obligations was 7.25% as of
December 31, 1995 and ranged from 8.0% to 8.5% as of December 31, 1994. The
assumed rate of increase in future
F-23
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
compensation levels was 5.0% as of December 31, 1995 and ranged from 5.0% to
6.0% as of December 31, 1994. The long-term rate of return on assets (Pension
Plans only) was 9.75% as of December 31, 1995 and ranged from 9.0% to 9.75% as
of December 31, 1994.
PENSION PLANS
Net pension expense (income) for the Company's Pension Plans included the
following actuarially determined components:
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost....................... $ 31.3 $ 19.9 $ 17.5
Interest cost...................... 82.6 39.9 39.0
Actual return on assets............ (243.2) 5.1 (94.1)
Net amortization and deferrals..... 134.5 (73.7) 24.9
Cost of special termination
benefits......................... -- -- 7.8
-------- ------ ------
$ 5.2 $ (8.8) $ (4.9)
======== ====== ======
</TABLE>
The following table sets forth the projected actuarial present value of
benefit obligations and funded status at December 31, 1995 and 1994, for the
Pension Plans:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
(MILLIONS)
<S> <C> <C>
Net accumulated benefit obligations, including
vested benefits of $1,213.2 million and $839.7
million, respectively.......................... $1,244.5 $ 857.6
Projected compensation increases................. 97.8 137.6
-------- --------
Projected benefit obligations.................... 1,342.3 995.2
-------- --------
Plan assets (primarily stocks, bonds and U.S.
government securities)......................... 1,363.4 1,075.3
Unrecognized loss................................ 162.9 127.6
Unrecognized prior service cost.................. 1.9 1.9
Unrecognized net asset........................... 0.9 --
-------- --------
1,529.1 1,204.8
-------- --------
Prepaid pension expense.......................... $ 186.8 $ 209.6
======== ========
</TABLE>
The Company's policy is to fund the Pension Plans at or above the minimum
required by law. At December 31, 1995 and 1994, the Company had met the full
funding limitation. Plan assets are held by independent trustees.
F-24
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
One of the Company's Pension Plans was amended effective January 1, 1996 to
reflect then current salary levels. This amendment resulted in an increase of
$3.0 million in the accumulated benefit obligation, which will be recognized
over an amortization period of 8.3 years.
SUPPLEMENTARY RETIREMENT PLANS
Net pension expense for the supplementary retirement plans included the
following actuarially determined components:
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost....................... $ 1.6 $ 0.8 $ 0.3
Prior service cost................. 1.1 -- --
Interest cost on projected benefit
obligations...................... 3.0 1.7 1.2
Net amortization and deferral...... 0.7 1.0 (0.3)
------ ------ ------
$ 6.4 $ 3.5 $ 1.2
====== ====== ======
</TABLE>
The following table sets forth the projected actuarial present value of
unfunded benefit obligations at December 31, 1995 and 1994, for the
supplementary retirement plans:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
(MILLIONS)
<S> <C> <C>
Accumulated benefit obligations, including vested
benefits of $68.4 million and $20.7 million,
respectively................................... $ 69.9 $ 21.1
Projected compensation increases................. 16.1 19.7
------ ------
Projected benefit obligations.................... 86.0 40.8
Unrecognized gain (loss)......................... (6.2) 4.4
Unrecognized prior service cost.................. (6.5) (7.6)
------ ------
Accrued supplementary retirement obligation...... $ 73.3 $ 37.6
====== ======
</TABLE>
SAVINGS PLANS
The Savings Plans include a voluntary savings feature for eligible
employees. For one plan, the Company's contribution is based on the Company's
annual earnings and the minimum Company contribution is 20% of an employee's
eligible savings. For the other plans, the Company's contribution is based on a
percentage of employee savings. Savings expense amounted to $10.2 million for
the 53 weeks ended February 3, 1996, $8.3 million for the 52 weeks ended January
28, 1995 and $6.4 million for the 52 weeks ended January 29, 1994.
F-25
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEFERRED COMPENSATION PLAN
The Company has a deferred compensation plan wherein eligible executives
may elect to defer a portion of their compensation each year as either stock
credits or cash credits. The Company transfers shares to a trust to cover the
number it estimates will be needed for distribution on account of stock credits
currently outstanding. At February 3, 1996, January 28, 1995 and January 29,
1994, the liability under the plan which is reflected in other liabilities is
$7.5 million, $3.9 million and $1.1 million, respectively. Expense for the 53
weeks ended February 3, 1996, the 52 weeks ended January 28, 1995 and the 52
weeks ended January 29, 1994 was immaterial.
14. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
In addition to pension and other supplemental benefits, certain retired
employees are currently provided with specified health care and life insurance
benefits. Eligibility requirements for such benefits vary by division and
subsidiary, but generally state that benefits are available to employees who
retire after a certain age with specified years of service. Certain employees
are either ineligible for such benefits or are subject to having such benefits
modified or terminated.
Net postretirement benefit expense included the following actuarially
determined components:
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost....................... $ 5.5 $ 0.7 $ 1.0
Interest cost...................... 28.9 9.1 9.7
Net amortization and deferral...... (6.8) (5.8) (5.8)
------- ------ ------
$ 27.6 $ 4.0 $ 4.9
====== ====== ======
</TABLE>
The measurement of the postretirement benefit obligations is calculated as
of December 31. The following table sets forth the projected actuarial present
value of unfunded postretirement benefit obligations at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
(MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees......................................... $292.7 $246.6
Fully eligible active plan participants.......... 47.1 48.9
Other active plan participants................... 56.3 89.6
------ ------
Accumulated postretirement benefit obligation.... 396.1 385.1
Unrecognized net gain............................ 35.5 44.4
Unrecognized prior service cost.................. 18.6 20.7
------ ------
Accrued postretirement benefit obligation........ $450.2 $450.2
====== ======
</TABLE>
F-26
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The discount rate used in determining the actuarial present value of
unfunded postretirement benefit obligations was 7.25% as of December 31, 1995
and ranged from 8.0% to 8.5% as of December 31, 1994.
The future benefits provided by the Company for certain employees are based
on a fixed amount per year of service, and the accumulated postretirement
benefit obligation is not affected by increases in health care costs. However,
the future medical benefits provided by the Company for certain other employees
are affected by increases in health care costs. For purposes of determining the
present values of unfunded postretirement benefit obligations, the annual growth
rate in the per capita cost of various components of such medical benefit
obligations was assumed to range from 6.0% to 18.0% in the first year, and to
decrease gradually for each such component to 6.0% in the twelfth year and to
remain at that level thereafter. The foregoing growth rate assumption has a
significant effect on such determination. To illustrate, increasing such assumed
growth rates by one percentage point would increase the present value of
unfunded postretirement benefit obligation as of December 31, 1995 by $26.5
million.
15. EQUITY PLAN
The Company has implemented an equity plan intended to provide an equity
interest in the Company to key management personnel and thereby provide
additional incentives for such persons to devote themselves to the maximum
extent practicable to the businesses of the Company and its subsidiaries. The
equity plan is administered by the Compensation Committee of the Board of
Directors (the "Compensation Committee"). The Compensation Committee is
authorized to grant options, stock appreciation rights and restricted stock to
officers and key employees of the Company and its subsidiaries. The equity plan
also provides for the award of options to non-employee directors.
Stock option transactions are as follows:
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995
------------------------- -------------------------
(SHARES IN THOUSANDS) SHARES GRANT PRICE SHARES GRANT PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year............ 6,151.5 $11.625-25.000 3,038.5 $11.625-25.000
Granted................................... 2,291.1 19.000-28.500 3,597.4 18.625-23.625
Canceled.................................. (435.6) 16.000-23.625 (218.2) 11.625-23.625
Exercised................................. (591.3) 15.625-23.625 (266.2) 11.625-20.875
------- -------------- ------- --------------
Outstanding, end of year.................. 7,415.7 $11.625-28.500 6,151.5 $11.625-25.000
======= ============== ======= ==============
Exercisable, end of year.................. 2,750.2 $11.625-25.000 1,904.1 $11.625-25.000
======= ============== ======= ==============
</TABLE>
As of February 3, 1996, 9,984,600 shares of Common Stock were available for
additional grants pursuant to the Company's equity plan, of which 204,900 shares
were available for grant in the form of restricted stock. In the year ended
February 3, 1996, no shares of Common Stock were granted in the form of
restricted stock.
16. SHAREHOLDERS' EQUITY
The authorized shares of the Company consist of 125.0 million shares of
preferred stock ("Preferred Stock"), par value of $.01 per share, with no shares
issued, and 500.0 million shares of Common Stock, par value of $.01 per share,
with 232.4 million shares of Common Stock issued and 202.7 million shares of
F-27
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stock outstanding at February 3, 1996, 212.2 million shares of Common
Stock issued and 182.6 million shares outstanding at January 28, 1995 and 126.3
million shares of Common Stock issued and outstanding at January 29, 1994 (with
shares held in the Company's treasury or by subsidiaries of the Company being
treated as issued, but not outstanding).
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Subject to
preferential rights that may be applicable to any Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. However, it
is not presently anticipated that dividends will be paid on Common Stock in the
foreseeable future and certain of the debt instruments to which the Company is a
party restrict the payment of dividends.
PREFERRED SHARE PURCHASE RIGHTS
Each share of Common Stock is accompanied by one right (a "Right") issued
pursuant to the Share Purchase Rights Agreement between the Company and The Bank
of New York, as Rights Agent. Each Right entitles the registered holder thereof
to purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Series A Preferred
Shares"), of the Company at a price (the "Purchase Price") of $62.50 per one
one-hundredth of a Series A Preferred Share (subject to adjustment).
In general, the Rights will not become exercisable or transferable apart
from the shares of Common Stock with which they were issued unless a person or
group of affiliated or associated persons becomes the beneficial owner of, or
commences a tender offer that would result in beneficial ownership of, 20% or
more of the outstanding shares of Common Stock (any such person or group of
persons being referred to as an "Acquiring Person"). Thereafter, under certain
circumstances, each Right (other than any Rights that are or were beneficially
owned by an Acquiring Person, which Rights will be void) could become
exercisable to purchase at the Purchase Price a number of shares of Common Stock
having a market value equal to two times the Purchase Price. The Rights will
expire on February 4, 2002, unless earlier redeemed by the Company at a
redemption price of $.03 per Right (subject to adjustment).
FUTURE STOCK ISSUANCES
The Company is authorized to issue 10.2 million shares of Common Stock
(subject to adjustment) upon the conversion of the Convertible Subordinated
Notes, 1.0 million shares of Common Stock (subject to adjustment) upon the
exercise of the Company's Series B Warrants, 9.0 million shares of Common Stock
(subject to adjustment) upon the exercise of the Company's Series C Warrants,
9.0 million shares of Common Stock (subject to adjustment) upon the exercise of
the Company's Series D Warrants and 0.2
F-28
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
million shares of Common Stock (subject to adjustment) upon the exercise of the
Company's Series E Warrants. The warrants have the following terms:
<TABLE>
<CAPTION>
SHARES PER EXERCISE EXPIRATION
WARRANT PRICE DATE
---------- ---------- ----------
<S> <C> <C> <C>
Series B...................... 1.047 $35.00 2/15/00
Series C...................... 1.000 25.93 12/19/99
Series D...................... 1.000 29.92 12/19/01
Series E...................... 0.270 17.00 10/08/99
</TABLE>
In February 1996, the Company issued 4.1 million shares of Common Stock and
received $99.0 million in proceeds from the exercise of the Company's Series A
Warrants, which expired on February 15, 1996.
In addition to the stock options described in Note 15, the Company issued
options to purchase 1.5 million shares of Common Stock at prices ranging from
$14.81 to $51.85 in connection with the acquisition of Broadway (of which
options to purchase 1.3 million shares of Common Stock remained outstanding as
of February 3, 1996).
F-29
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholders' Equity consists of the following:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Preferred stock......................... $ -- $ -- $ --
-------- -------- --------
Common stock:
Balance, beginning of year......... $ 2.1 $ 1.3 $ 1.3
Issuance of common stock........... 0.2 0.8 --
-------- -------- --------
Balance, end of year............... 2.3 2.1 1.3
-------- -------- --------
Additional paid-in capital:
Balance, beginning of year......... 3,711.3 1,975.7 1,968.0
Issuance of common stock........... 557.1 1,617.7 7.7
Issuance of warrants............... -- 118.4 --
Cancellation of treasury stock..... -- (0.5) --
-------- -------- --------
Balance, end of year............... 4,268.4 3,711.3 1,975.7
-------- -------- --------
Unearned restricted stock:
Balance, beginning of year......... (8.5) (4.1) (7.3)
Cancellation (issuance) of common
stock............................ 0.7 (7.1) 0.1
Amortization....................... 4.6 2.7 3.1
-------- -------- --------
Balance, end of year............... (3.2) (8.5) (4.1)
-------- -------- --------
Treasury stock:
Balance, beginning of year......... (559.1) (0.9)
Additions.......................... (3.1) (558.7) (0.9)
Cancellations...................... -- 0.5 --
-------- -------- --------
Balance, end of year............... (562.2) (559.1) (0.9)
-------- -------- --------
Accumulated equity:
Balance, beginning of year......... 493.8 306.2 113.0
Net income......................... 74.6 187.6 193.2
-------- -------- --------
Balance, end of year............... 568.4 493.8 306.2
-------- -------- --------
Total shareholders' equity.............. $4,273.7 $3,639.6 $2,278.2
======== ======== ========
</TABLE>
F-30
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Changes in the number of shares held in the treasury are as follows:
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995
---------------- ----------------
(THOUSANDS)
<S> <C> <C>
Balance, beginning of year.......... 29,604.7 40.6
Additions:
Acquisition of Macy's.......... -- 29,474.2
Restricted stock............... 40.8 15.7
Deferred compensation plan..... 83.4 98.4
Cancellations....................... -- (24.2)
-------- --------
Balance, end of year................ 29,728.9 29,604.7
======== ========
</TABLE>
In connection with the acquisition of Macy's, 29.5 million shares were
issued to wholly owned subsidiaries of the Company and are reflected as treasury
shares in the Consolidated Financial Statements. Additions to treasury stock for
restricted stock represent shares accepted in lieu of cash to cover employee tax
liability upon lapse of restrictions. Under the deferred compensation plan,
shares are maintained in a trust to cover the number estimated to be needed for
distribution on account of stock credits currently outstanding.
17. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and short-term investments
The carrying amount approximates fair value because of the short maturity
of these instruments.
Accounts receivable
The carrying amount approximates fair value because of the short average
maturity of the instruments, and bad debt expense can be reasonably estimated
and has been reserved for against the receivable balance.
Notes receivable
The fair value of notes receivable is estimated using discounted cash flow
analysis, based on estimated market discount rates.
Other assets
Other assets primarily represent investments in joint ventures accounted
for on the equity basis. The fair value of such investments approximates the
carrying value based on recent appraisals.
As of January 28, 1995, other assets also included the Company's ownership
of approximately 6.58% of the common stock of Ralph's Grocery Company
("Ralph's"), the fair value of which was estimated as of such
F-31
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
date based on the terms of the pending sale thereof. The Company sold this
long-term investment during 1995.
Long-term debt
The fair values of the Company's long-term debt are estimated based on the
quoted market prices for publicly traded debt or by using discounted cash flow
analysis, based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Interest rate cap agreements
The fair values of the interest rate cap agreements are estimated based on
current settlement prices of comparable contracts obtained from dealer quotes.
Interest rate swap agreements
The fair values of the interest rate swap agreements are obtained from
dealer quotes. The values represent the estimated amount the Company would pay
to terminate the agreements at the reporting date, taking into account current
interest rates and the current creditworthiness of the swap counterparties. The
interest rate swap agreements pertain to the note monetization and working
capital facilities and, although currently in net payable positions, management
intends to hold these agreements to their maturity dates.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
FEBRUARY 3, 1996 JANUARY 28, 1995
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------- ---------- --------------- ----------
(MILLIONS)
<S> <C> <C> <C> <C>
Cash and short-term investments..... $ 172.5 $ 172.5 $ 206.5 $ 206.5
Notes receivable.................... 415.1 422.3 408.1 406.1
Other assets........................ 30.4 30.4 43.0 52.4
Long-term debt...................... 5,551.1 5,747.3 4,499.7 4,518.5
Interest rate cap agreements........ 15.8 0.8 24.0 19.5
Interest rate swap agreement........ -- (30.9) -- (20.5)
</TABLE>
F-32
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The estimated fair values and related unrecognized loss of the Company's
interest rate cap and swap agreements are as follows:
<TABLE>
<CAPTION>
FEBRUARY 3, 1996 JANUARY 28, 1995
----------------------------------- -----------------------------------
NOTIONAL CARRYING FAIR UNRECOGNIZED CARRYING FAIR UNRECOGNIZED
AMOUNT RATE TERM VALUE VALUE GAIN (LOSS) VALUE VALUE GAIN (LOSS)
- -------- ------- --------------------- -------- ----- ------------ -------- ----- ------------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Caps:
$ 500.0 8% 12/15/94 to 12/15/97 $ 4.7 0.1 (4.6) $ 7.3 $6.1 $ (2.1)
$ 900.0 7% 12/15/94 to 12/15/95
8% 12/15/95 to 12/15/96
9% 12/15/96 to 12/15/97 7.8 0.1 (7.7) $ 11.9 $10.3 $ (1.6)
$ 375.0 10% 02/03/95 to 01/03/01 3.0 0.4 (2.6) 4.5 2.7 (1.8)
$ 38.5 11% 01/20/95 to 03/15/98 0.1 0.1 -- 0.1 0.1 --
$ 38.5 11% 01/20/95 to 03/15/00 0.2 0.1 (0.1) 0.2 0.3 0.1
Interest Rate Swaps:
$ 352.0 9.944% $176.0 to 5/3/97 and
$176.0 to 5/3/98 -- (29.9) (29.9) -- (20.5) (20.5)
$ 100.0 5.3275% 1/9/96 to 1/9/98 -- (0.5) (0.5) -- -- --
$ 100.0 5.2625% 1/23/96 to 1/25/99 -- (0.2) (0.2) -- -- --
$ 100.0 5.225% 1/18/96 to 1/18/98 -- (0.3) (0.3) -- -- --
</TABLE>
The interest rate cap agreements in effect at February 3, 1996 are used to
hedge interest rate risk related to variable rate indebtedness under the
Company's bank credit facility and receivables backed commercial paper program
and certain asset-backed certificates. These interest rate cap agreements are
recorded at cost and are amortized on a straight-line basis over the life of the
cap.
The interest rate swap agreements described in the foregoing table relate
to the note monetization and bank credit facilities. The note monetization
facility bears interest based on LIBOR, subject to certain adjustments. The
interest rate swap agreement for the note monetization facility converts this
variable rate debt (LIBOR plus 0.40%) to a fixed rate of 10.344% (9.944% fixed
rate plus 0.40%). The trust that is the borrower under the note monetization
facility receives fixed-rate interest on the promissory note constituting such
trust's principal asset. The other interest rate swap agreements are used to, in
effect, fix the interest on a portion of the debt outstanding under the bank
credit facilities.
Commitments to extend credit under revolving agreements relate primarily to
the aggregate unused credit limits and unused lines of credit for the Company's
credit plans. These commitments generally can be terminated at the option of the
Company. It is unlikely the total commitment amount will represent future cash
requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments in what
it believes to be high credit quality financial instruments. Credit risk with
respect to trade receivables is concentrated in the geographic regions in which
the Company operates stores. Such concentra-
F-33
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
tions, however, are considered to be limited due to the Company's large number
of customers and their dispersion across many regions.
18. QUARTERLY RESULTS (UNAUDITED)
Unaudited quarterly results for the 53 weeks ended February 3, 1996 and the
52 weeks ended January 28, 1995, were as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
53 Weeks Ended February 3, 1996:
Net sales.................................. $2,988.0 $3,047.2 $3,748.4 $5,264.9
Operating income........................... 10.8 1.8 105.0 545.3
Net income (loss).......................... $ (57.0) $ (66.9) $ (46.4) $ 244.9
Earnings (Loss) per share.................. $ (.31) $ (.37) $ (.24) $ 1.21
Fully diluted earnings (loss) per share.... (.31) (.36) (.23) 1.15
52 Weeks Ended January 28, 1995:
Net sales.................................. $1,653.6 $1,596.1 $1,926.8 $3,139.4
Operating income........................... 103.4 59.0 129.3 257.8
Net income................................. $ 32.2 $ 3.8 $ 44.3 $ 107.3
Earnings per share......................... $ .25 $ .03 $ .35 $ .71
Fully diluted earnings per share........... .25 .03 .35 .68
</TABLE>
19. LEGAL PROCEEDINGS
The Macy's POR was confirmed by the United States Bankruptcy Court for the
Southern District of New York (the "New York Bankruptcy Court") on December 8,
1994. Notwithstanding the confirmation and effectiveness of the Macy's POR, the
New York Bankruptcy Court continues to have jurisdiction to, among other things,
resolve disputed prepetition claims against the Macy's Debtors, resolve matters
related to the assumption, assumption and assignment, or rejection of executory
contracts pursuant to the Macy's POR, and to resolve other matters that may
arise in connection with or relate to the Macy's POR. Except as described below,
provision was made under the Macy's POR in respect of all prepetition
liabilities of the Macy's Debtors.
Certain claims or portions thereof (collectively, the "Cash Payment
Claims") against the Macy's Debtors, which, to the extent allowed by the New
York Bankruptcy Court, will be paid in cash pursuant to the Macy's POR are
currently disputed by the Company. The aggregate amount of disputed Cash Payment
Claims ultimately allowed by the New York Bankruptcy Court may be more or less
than the estimated allowed amount thereof. The aggregate face amount of disputed
Cash Payment Claims was approximately $293.6 million, while the estimated
allowed amount thereof was approximately $217.8 million. Although there can be
no assurance with respect thereto, management believes that the actual allowed
amount of disputed Cash Payment Claims will not exceed the estimated allowed
amount thereof.
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 results of operations and financial position.
F-34
<PAGE> 1
FEDERATED DEPARTMENT STORES, INC.
and
STATE STREET BANK AND TRUST COMPANY
(successor to The First National Bank of Boston),
Trustee
SIXTH SUPPLEMENTAL TRUST INDENTURE
Dated as of February 1, 1996
Supplementing that certain
INDENTURE
Dated as of December 15, 1994
<PAGE> 2
SIXTH SUPPLEMENTAL INDENTURE, dated as of February 1, 1996,
between Federated Department Stores, Inc., a corporation duly organized and
existing under the laws of the State of Delaware (the "Company"), and State
Street Bank and Trust Company (successor to The First National Bank of Boston),
a trust company organized under the laws of the Commonwealth of Massachusetts,
as Trustee (the "Trustee"), amending that certain Fourth Supplemental Indenture,
dated as of September 27, 1995 (the "Fourth Supplemental Indenture")
supplementing that certain Indenture, dated as of December 15, 1994, between the
Company and the Trustee (the "Original Indenture"; the Original Indenture, as
supplemented by the Fourth Supplemental Indenture, is herein referred to as the
"Indenture").
RECITALS
A. The Company has duly authorized the execution and delivery
of the Original Indenture to provide for the issuance from time to time of its
unsecured debentures, notes, or other evidences of indebtedness to be issued in
one or more series as provided for in the Original Indenture.
B. The Company has duly authorized the execution and delivery
of the Fourth Supplemental Indenture providing for the issuance of $350,000,000
aggregate principal amount of the Company's 5% Convertible Subordinated Notes
due 2003.
C. Section 10.01 of the Original Indenture provides that a
supplemental indenture may be entered into by the Company and the Trustee,
without the consent of any Holders of Securities, to make any provisions with
respect to matters or questions arising under the Indenture; provided, that such
action will not adversely affect the interests of the Holders of any Series in
any material respect.
D. The Company has determined that this Sixth Supplemental
Indenture complies with said Section 10.01 and does not require the consent of
any Holders of Securities. On the basis of the foregoing, the Trustee has
determined that this Sixth Supplemental Indenture is in form satisfactory to it.
E. All acts and things necessary to make this Sixth
Supplemental Indenture a valid agreement of the Company according to its terms
have been done and performed, and the execution and delivery of this Sixth
Supplemental Indenture have in all respects been duly authorized.
F. Capitalized terms herein, not otherwise defined, shall have
the same meanings given them in the Indenture.
G. In consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company covenants and agrees with the Trustee as follows:
<PAGE> 3
1. AMENDMENT OF FOURTH SUPPLEMENTAL INDENTURE.
The penultimate sentence of the first paragraph of Section 5.2
of the Fourth Supplemental Indenture is hereby amended in its entirety to read
as follows:
Except as provided in this paragraph, no cash payment or adjustment
shall be made upon any conversion on account of, if the date of
conversion is not an Interest Payment Date, any interest accrued from
the Interest Payment Date next preceding the conversion date, in
respect of any Security (or part thereof, as the case may be)
surrendered for conversion, or on account of any dividends on the
Common Stock issued upon conversion; provided, however, that if October
1, 1998 is the date fixed for the redemption of any Security or portion
thereof and such Security or portion thereof is surrendered for
conversion in accordance with the terms hereof at any time during the
period of five Business Days immediately preceding October 1, 1998, the
interest otherwise payable in respect of such Security on October 1,
1998 shall be paid to the Holder of such Security as of the Regular
Record Date immediately preceding October 1, 1998.
2. SUPPLEMENTAL TRUST INDENTURE MAY BE EXECUTED IN COUNTERPARTS.
This instrument may be executed in any number of counterparts,
each of which shall be an original; but such counterparts shall together
constitute but one and the same instrument.
3. EFFECT OF HEADINGS.
The Section headings herein are for convenience only and shall
not affect the construction hereof.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
[Seal] FEDERATED DEPARTMENT STORES, INC.
By: /s/ Karen Hoguet
-----------------------------------
Name: Karen M. Hoguet
---------------------------------
Title: Senior Vice President & Treasurer
---------------------------------
Attest:
/s/ Gwyneth G. Stewart
- ---------------------------------
Name: Gwyneth G. Stewart
---------------------------
Title: Assistant Secretary
---------------------------
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Roland S. Gustafsen
-----------------------------------
Name: Roland S. Gustafsen
---------------------------------
Title: Assistant Vice President
---------------------------------
Attest:
/s/ Jill Olson
- ---------------------------------------
Name: Jill Olson
--------------------------------
Title: Assistant Vice President
--------------------------------
<PAGE> 5
STATE OF OHIO )
) ss.:
COUNTY OF HAMILTON )
On this 30th day of January, 1996, before me personally came
Karen M. Hoguet, to me known, who, being by me duly sworn, did depose and say
that he/she is a Senior Vice President and Treasurer of FEDERATED DEPARTMENT
STORES, INC., one of the entities described in and which executed the above
instrument; that he/she knows the seal of said entity; that the seal or a
facsimile thereof affixed to said instrument is such seal; that it was so
affixed by authority of the Board of Directors of said entity, and that he/she
signed his/her name thereto by like authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ Carol S. Bruser
-----------------------------
Notary Public
<PAGE> 6
COMMONWEALTH OF MASSACHUSETTS )
) ss.:
COUNTY OF NORFOLK )
On this 31st day of January, 1996, before me personally came
Roland S. Gustafsen, to me known, who, being by me duly sworn, did depose and
say that he/she is a Assistant Vice President of STATE STREET BANK AND TRUST
COMPANY, one of the entities described in and which executed the above
instrument; that he/she knows the seal of said entity; that the seal or a
facsimile thereof affixed to said instrument is such seal; that it was so
affixed by authority of the Board of Directors of said entity, and that he/she
signed his/her name thereto by like authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ Daniel Golden
------------------------
Notary Public
<PAGE> 1
SERIES E WARRANT AGREEMENT
This SERIES E WARRANT AGREEMENT, dated as of October 11, 1995 (this
"Agreement"), is made and entered into by and among Broadway Stores, Inc., a
Delaware corporation ("Broadway"), Federated Department Stores, Inc., a Delaware
corporation (the "Company"), and The Bank of New York, a New York banking
corporation (the "Warrant Agent").
RECITALS
A. Pursuant to an Agreement and Plan of Merger, dated as of August 14,
1995 (the "Merger Agreement"), a wholly owned subsidiary of the Company will
merge with and into Broadway (the "Merger") and Broadway thereby will become a
subsidiary of the Company;
B. The Merger Agreement provides for the issuance of shares of Series A
Preferred Stock, par value $0.01 per share, of Broadway (the "Broadway Preferred
Stock") to persons who, immediately prior to the effective time of the Merger,
held outstanding shares of the former Series A Preferred Stock of Broadway;
C. Shares of Broadway Preferred Stock will be exchangeable for warrants
of the Company on the terms and subject to the conditions set forth in
Broadway's Certificate of Incorporation, as amended and restated at the
effective time of the Merger (the "Broadway Certificate of Incorporation");
D. The parties hereto desire to set forth in this Agreement the terms
of such warrants and certain other matters relating thereto;
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the parties hereto hereby agree as follows:
1. Issuance of Warrants; Basic Terms and Form of Warrants.
1.1 Issuance of Warrants. On the terms and subject to the conditions
set forth in the Broadway Certificate of Incorporation, Broadway will deliver to
holders of record of shares of Broadway Preferred Stock, upon the exchange of
such shares as provided in the Broadway Certificate of Incorporation, 1,000
warrants issued pursuant to this Agreement (the "Warrants") for each such share
so exchanged. The Company will, promptly upon the request of Broadway from time
to time, cause to be issued and delivered to the order of Broadway such number
of Warrants as may be required in order for Broadway to fulfill its obligations
as contemplated in the immediately preceding sentence.
<PAGE> 2
1.2 Basic Terms and Form of Warrants. (a) Each Warrant will initially
represent the right to purchase 0.27 shares of Common Stock, par value $0.01 per
share, of the Company (the "Common Stock") on the terms and subject to the
conditions set forth herein. The shares of Common Stock purchasable upon
exercise of the Warrants are hereinafter referred to as the "Warrant Shares."
The purchase price per whole Warrant Share payable upon the exercise of a
Warrant (the "Warrant Price") will initially be $62.96 (i.e., subject to the
provisions of Section 3.1, each Warrant will initially be exercisable to
purchase 0.27 shares of Common Stock for $17.00). The Warrant Price and the
number and kind of Warrant Shares purchasable upon exercise of the Warrants are
subject to adjustment pursuant to the provisions of Section 4.
(b) Each Warrant, including without limitation any Warrants that may be
issued upon partial exercise, replacement, or transfer of Warrants, will be
evidenced by, and subject to the terms of, a Warrant certificate (including the
Form of Exercise Notice and Form of Assignment to be printed on the reverse
thereof, a "Warrant Certificate") in substantially the form of Exhibit A, with
such changes, marks of identification or designation, and such legends,
summaries, or endorsements printed thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made
pursuant thereto.
1.3 Countersignature of Warrants. The Warrant Certificates will be
executed on behalf of the Company by the manual or facsimile signature of its
Chairman, President, or any Vice President, and attested by its Secretary or any
Assistant Secretary. The Warrant Certificates will be countersigned by the
Warrant Agent, either manually or by facsimile signature, and will not be valid
for any purpose unless so countersigned. In case any officer of the Company who
has signed any of the Warrant Certificates ceases to be such officer of the
Company before countersignature by the Warrant Agent and issuance and delivery
by the Company, such Warrant Certificates, nevertheless, may be countersigned by
the Warrant Agent, and issued and delivered by the Company with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be such officer of the Company; and any Warrant Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, is a proper officer of the Company to
sign such Warrant Certificate, although on any other date such person was not
such an officer.
1.4 Registration of Warrants. The Warrant Agent will keep or cause to
be kept, at the principal office of the Warrant Agent designated for such
purpose, books for registration and transfer of the Warrant Certificates issued
hereunder. Such books will show the names and addresses of the respective
holders of the Warrant Certificates, the number of Warrants evidenced on its
2
<PAGE> 3
face by each of the Warrant Certificates, and the date of each of the Warrant
Certificates. The Company and the Warrant Agent will be entitled to treat the
registered holder of any Warrant Certificate (the "Holder") as the sole owner of
the Warrants represented by such Warrant Certificate for all purposes and will
not be bound to recognize any equitable or other claim or interest in such
Warrants on the part of any other person. Neither the Company nor the Warrant
Agent will be liable for any registration of transfer of any Warrants that are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary.
2. Transfer and Exchange of Warrants.
2.1 Transfer and Exchange. Any Warrant Certificate may be transferred,
split up, combined, or exchanged for another Warrant Certificate or Warrant
Certificates entitling the Holder thereof to purchase a like aggregate number of
Warrant Shares as the Warrant Certificate or Warrant Certificates surrendered
then entitled such Holder (or former Holder in the case of a transfer) to
purchase. Any Holder desiring to transfer, split up, combine, or exchange any
such Warrant Certificate will make such request in writing delivered to the
Warrant Agent, and will surrender the Warrant Certificate or Warrant
Certificates to be transferred, split up, combined, or exchanged, with the Form
of Assignment duly executed by the Holder thereof, at the principal office of
the Warrant Agent designated for such purpose. Thereupon or as promptly as
practicable thereafter, the Company will prepare, execute, and deliver to the
Warrant Agent, and the Warrant Agent will countersign and deliver, a Warrant
Certificate or Warrant Certificates, as the case may be, as so requested.
Neither the Company nor the Warrant Agent will be required to issue or deliver
any Warrant Certificates in connection with any transfer, split up, combination,
or exchange of Warrants or Warrant Certificates unless and until the person or
persons requesting the issuance or delivery thereof has paid to the Warrant
Agent the amount of any tax or governmental charge that may be payable in
connection with such transfer, split up, combination, or exchange or has
established to the satisfaction of the Warrant Agent that any tax or
governmental charge has been paid. Holders will not be required to pay any other
charge in connection with the transfer, split up, combination, or exchange of
Warrants.
2.2 Lost, Stolen, and Mutilated Warrant Certificates. Upon receipt by
the Company and the Warrant Agent of evidence reasonably satisfactory to them of
the loss, theft, destruction, or mutilation of a Warrant Certificate, and, in
case of loss, theft, or destruction, of indemnity or security reasonably
satisfactory to them, and reimbursement to the Company and the Warrant Agent of
all reasonable expenses incidental thereto, and upon surrender to the Warrant
Agent and cancellation of the Warrant Certificate if mutilated, the Company will
prepare, execute, and deliver a new Warrant Certificate of like tenor to the
Warrant Agent and the Warrant Agent will countersign and
3
<PAGE> 4
deliver such new Warrant Certificate to the Holder in lieu of the Warrant
Certificate so lost, stolen, destroyed, or mutilated.
2.3 Payment of Taxes. The Company will pay all documentary or stamp
taxes, if any, attributable to the initial issuance of the Warrants and the
initial issuance of the Warrant Shares upon the exercise of Warrants; provided,
however, that the Company's obligations in this regard will in all events be
conditioned upon the Holder cooperating with the Company and the Warrant Agent
in any reasonable arrangement designed to minimize or eliminate any such taxes.
Neither the Company nor the Warrant Agent will be required to pay any tax or
governmental charge that may be payable in connection with any transfer, split
up, combination, or exchange of Warrants or Warrant Certificates.
2.4 Cancellation and Destruction of Warrant Certificates. All Warrant
Certificates surrendered for the purpose of exercise, transfer, split up,
combination, or exchange will, if surrendered to the Company, be delivered to
the Warrant Agent for cancellation or in canceled form, or, if surrendered to
the Warrant Agent, will be canceled by it, and no Warrant Certificates will be
issued in lieu thereof except as expressly permitted by this Agreement. The
Company will deliver to the Warrant Agent for cancellation and retirement, and
the Warrant Agent will so cancel and retire, any other Warrant Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Warrant Agent will deliver all canceled Warrant Certificates to the Company,
or will, at the written request of the Company, destroy such canceled Warrant
Certificates, and in such case will deliver a certificate of destruction thereof
to the Company.
3. Exercise of Warrants.
3.1. Exercise of Warrants. (a) Warrants may be exercised by the Holder
thereof, in whole or in part (provided, however, that no Holder may exercise a
number of Warrants that is not an integral multiple of 100 unless such Holder is
then exercising all of its Warrants), at any time and from time to time after
the date hereof and prior to 5:00 p.m., Cincinnati, Ohio time on the Expiration
Date. The "Expiration Date" is October 8, 1999; provided, however, that the
Company's Board of Directors may, on 75 calendar days' written notice to the
Holders of Warrants and to holders of record of Broadway Preferred Stock, fix an
earlier Expiration Date for all purposes of this Agreement and the Broadway
Certificate of Incorporation within 10 calendar days after any period of 30
consecutive Trading Days (as defined in Section 3.2(b)) in which the Current
Market Price (as defined in Section 4.1(e)) per share of Common Stock has
equalled or exceeded $94.44. Warrants may be exercised by delivering to the
Warrant Agent, at its principal office designated for such purpose, the
following:
4
<PAGE> 5
(i) the Warrant Certificate or Warrant Certificates
representing the Warrants to be exercised, with the Form of Exercise
Notice duly executed by the Holder thereof; and
(ii) cash, a certified or bank cashier's check payable to the
order of the Company, or a wire transfer to an account designated by
the Company, in each case in an amount equal to the product of (A) the
number of Warrant Shares purchasable upon the exercise of the Warrants
designated for exercise in the Form of Exercise Notice and (B) the
Warrant Price.
(b) As promptly as practicable after an exercise of Warrants in
accordance with Section 3.1(a), and in any event within 10 Business Days after
such exercise, the Warrant Agent will (i) requisition from any transfer agent
for the Common Stock (or make available, if the Warrant Agent is the transfer
agent) certificates representing the number of Warrant Shares to be purchased
(and the Company hereby irrevocably authorizes and directs its transfer agent to
comply with all such requests), (ii) after receipt of such certificates, cause
the same to be delivered to or upon the order of the Holder exercising such
Warrants, registered in such name or names as may be designated by such Holder,
(iii) when appropriate, requisition from the Company the amount of cash to be
paid in lieu of the issuance of fractional Warrant Shares in accordance with the
provisions of Section 5, and (iv) when appropriate, after receipt, deliver such
cash to or upon the order of the Holder exercising such Warrants.
(c) If the number of Warrants represented by a Warrant Certificate are
not exercised in full, the Company will prepare, execute, and deliver to the
Warrant Agent a new Warrant Certificate evidencing Warrants equivalent to such
Warrants remaining unexercised and the Warrant Agent will countersign and
deliver such new Warrant Certificate to or upon the order of the Holder
exercising such Warrants, registered in such name or names as may be designated
by such Holder.
(d) The Company will take all such action as may be necessary to ensure
that all Warrant Shares delivered upon exercise of Warrants, at the time of
delivery of the certificates for such Warrant Shares, will (subject to payment
of the Warrant Price) be duly and validly authorized and issued, fully paid, and
nonassessable and, if shares of Common Stock are then listed on any national
securities exchange (as defined in the Securities Exchange Act of 1934, as
amended) or qualified for quotation on the National Association of Securities
Dealers, Inc. Automated Quotation System, will be duly listed or qualified for
quotation thereon, as the case may be.
(e) In the event that the Company is obligated to pay cash in lieu of
fractional Warrant Shares pursuant to Section 5 in connection with any exercise
of Warrants, it will make all
5
<PAGE> 6
arrangements necessary so that such cash is available for distribution by the
Warrant Agent, if and when appropriate.
(f) The Company will pay all expenses, taxes, and other charges payable
in connection with the preparation, issuance, and delivery of certificates
representing Warrant Shares or Warrant Certificates representing unexercised
Warrants in connection with any exercise of Warrants in accordance with Section
3.1(a), except that, if any such certificates representing Warrant Shares or any
such Warrant Certificates are to be registered in a name or names other than
that of the Holder at the time of any such exercise of Warrants, funds
sufficient to pay all transfer or similar taxes payable as a result of such
transfer shall be paid by the Holder at the time of such exercise or promptly
upon receipt of a written request of the Company for payment thereof. In
connection with any exercise of Warrants in accordance with Section 3.1(a), the
Warrants will be deemed to have been exercised, any certificate representing
Warrant Shares or any Warrant Certificate issued on account thereof will be
deemed to have been issued, and the person in whose name any such certificate or
Warrant Certificate is issued will be deemed for all purposes to have become a
holder of record of the Warrant Shares or Warrants, as the case may be,
represented thereby as of the date of such exercise.
3.2. Certain Definitions. For purposes of this Agreement, (a) the term
"Business Day" means any day other than a Saturday, Sunday, or a day on which
banking institutions in the state of Ohio are authorized or obligated by law or
executive order to close and (b) the term "Trading Day" means any day on which
shares of Common Stock are traded on the principal national securities exchange
on which the shares of Common Stock are listed or admitted to trading or, if
shares of Common Stock are not so listed or admitted to trading, in the
over-the-counter market.
4. Adjustments of Warrant Price and Warrant Shares. The Warrant Price
and the number and kind of Warrant Shares purchasable upon exercise of the
Warrants will be subject to adjustment from time to time upon the occurrence of
certain events as provided in this Section 4.
4.1. Mechanical Adjustments. The Warrant Price and the number and kind
of Warrant Shares purchasable upon exercise of a Warrant will be subject to
adjustment as follows:
(a) Subject to Section 4.1(f), if the Company (i) pays a
dividend or otherwise distributes to holders of its Common Stock, as
such, shares of its capital stock (whether Common Stock or capital
stock of any other class), (ii) subdivides its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iii)
combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock, or (iv) issues any shares of its capital
stock
6
<PAGE> 7
in a reclassification of its outstanding shares of Common Stock
(including any such reclassification in connection with a
consolidation, merger, or other business combination transaction in
which the Company is the continuing or surviving corporation), then the
number and kind of Warrant Shares purchasable upon exercise of each
Warrant immediately prior thereto will be adjusted so that the Holder
of each Warrant will be entitled to receive (A) in the case of a
dividend or distribution, the sum of (1) the number of Warrant Shares
that, if such Warrant had been exercised immediately prior to such
adjustment, such Holder would have received upon such exercise and (2)
the number and kind of additional shares of capital stock that such
Holder would have been entitled to receive as a result of such dividend
or distribution by virtue of its ownership of such Warrant Shares, (B)
in the case of a subdivision or combination, the number of Warrant
Shares that, if such Warrant had been exercised immediately prior to
such adjustment, such Holder would have received upon such exercise,
adjusted to give effect to such subdivision or combination as if such
Warrant Shares had been subject thereto, or (C) in the case of an
issuance in a reclassification, the sum of (1) the number of Warrant
Shares that, if such Warrant had been exercised immediately prior to
such adjustment, such Holder would have received upon such exercise and
retained after giving effect to such reclassification as if such
Warrants Shares had been subject thereto and (2) the number and kind of
additional shares of capital stock that such Holder would have been
entitled to receive as a result of such reclassification as if such
Warrant Shares had been subject thereto. An adjustment made pursuant to
this paragraph (a) will become effective immediately after the record
date for the determination of stockholders entitled to receive such
dividend or distribution in the case of a dividend or distribution and
will become effective immediately after the effective date of such
subdivision, combination, or reclassification in the case of a
subdivision, combination, or reclassification.
(b) Subject to Section 4.1(f), if the Company distributes to
holders of its Common Stock, as such, (i) evidences of indebtedness or
assets (excluding regular cash dividends or cash distributions payable
out of consolidated retained earnings) of the Company or any
corporation or other legal entity a majority of the voting equity
securities or equity interests of which are owned, directly or
indirectly, by the Company (a "Subsidiary"), (ii) shares of capital
stock of any Subsidiary, (iii) securities convertible into or
exchangeable for capital stock of the Company (including Common Stock
or capital stock of any other class) or any Subsidiary, or (iv) any
rights, options, or warrants to purchase any of the foregoing
(excluding those described in Section 4.1(c)), then, the number of
Warrant Shares thereafter purchasable upon exercise of each
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<PAGE> 8
Warrant will be adjusted to the number that results from multiplying
the number of Warrant Shares purchasable upon the exercise of each
Warrant immediately prior to such adjustment by a fraction, the
numerator of which will be the Current Market Price per share of Common
Stock on the record date for such distribution, and the denominator of
which will be such Current Market Price per share of Common Stock less
the fair value (as determined in good faith by the Board of Directors
of the Company, whose determination will be conclusive if based on the
financial advice of a nationally recognized investment banking firm) of
the portion of the evidences of indebtedness, assets, securities, or
rights, options, or warrants so distributed on account of one share of
Common Stock. Such adjustment will be made whenever any such
distribution is made, and will become effective immediately after the
record date for the determination of stockholders entitled to receive
such distribution. Except as provided in Section 4.1(i), no further
adjustments of the number of Warrant Shares will be made upon the
actual issue of shares of Common Stock upon conversion or exchange of
such securities convertible or exchangeable for shares of Common Stock
or upon exercise of such rights, warrants, or options for shares of
Common Stock.
(c) Subject to Section 4.1(f), if the Company issues rights,
options, or warrants to holders of the outstanding shares of Common
Stock, as such, entitling the holders of such rights, options, or
warrants (for a period expiring within 60 calendar days after the
record date mentioned below) to subscribe for or purchase shares of
Common Stock at a price per share that is lower on the record date
mentioned below than the Current Market Price per share of Common Stock
on such record date, then the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant will be adjusted to the
number that results from multiplying the number of Warrant Shares
purchasable upon exercise of each Warrant immediately prior to such
adjustment by a fraction (not to be less than one), the numerator of
which will be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock
offered by such rights, options, or warrants for subscription or
purchase and the denominator of which will be the number of shares of
Common Stock outstanding on such record date plus the number of shares
of Common Stock which the aggregate subscription or purchase price of
the total number of shares of Common Stock so offered would purchase at
the Current Market Price per share of Common Stock on such record date.
Such adjustment will be made whenever such rights, options, or warrants
are issued, and will become effective immediately after the record date
for the determination of stockholders entitled to receive such rights,
options, or warrants. In case such subscription or purchase price may
be paid in a
8
<PAGE> 9
consideration part or all of which is in a form other than cash, the
fair value of such consideration will be as determined by the Board of
Directors of the Company, whose determination will be conclusive if
based on the financial advice of a nationally recognized investment
banking firm. Except as provided in Section 4.1(i), no further
adjustments of the number of Warrant Shares will be made upon the
actual issue of shares of Common Stock upon exercise of such rights,
options, or warrants.
(d) Subject to Section 4.1(f), if the Company issues shares of
Common Stock or securities convertible into or exchangeable for shares
of Common Stock (excluding shares of Common Stock or convertible or
exchangeable securities issued in any of the transactions described in
paragraph (a), (b), or (c) of this Section 4.1) for a purchase price
per share of such Common Stock, or for a conversion or exchange price
per share of Common Stock initially deliverable upon conversion or
exchange of such securities, that is less than the Current Market Price
per share of Common Stock on the date the purchase, conversion, or
exchange price of such additional shares of Common Stock are first
fixed, then the number of Warrant Shares thereafter purchasable upon
the exercise of each Warrant will be adjusted to the number that
results from multiplying the number of Warrant Shares purchasable upon
exercise of each Warrant immediately prior to such adjustment by a
fraction (not to be less than one), the numerator of which will be the
number of shares of Common Stock outstanding on such date plus the
number of additional shares of Common Stock so issued or issuable upon
such conversion or exchange, and the denominator of which will be the
number of shares of Common Stock outstanding on such date plus the
number of shares of Common Stock which the aggregate purchase,
conversion, or exchange price received or receivable by the Company for
such additional shares of Common Stock would purchase at the Current
Market Price per share of Common Stock on such date. Such adjustment
will be made whenever such shares of Common Stock or convertible or
exchangeable securities are issued, and will become effective
immediately after the effective date of such event. In case such
purchase, conversion, or exchange price may be paid in a consideration
part or all of which is in a form other than cash, the fair value of
such consideration will be as determined by the Board of Directors of
the Company, whose determination will be conclusive if based on the
financial advice of a nationally recognized investment banking firm.
Except as provided in 4.1(i), no further adjustment will be made upon
the actual issue of shares of Common Stock upon conversion or exchange
of such securities convertible into or exchangeable for shares of
Common Stock.
(e) For purposes of this Agreement, the "Current Market Price"
per share of Common Stock on any date will be
9
<PAGE> 10
the average of the daily closing prices for 20 consecutive Trading Days
commencing 30 Trading Days before the date of such computation. The
closing price for each day (the "Closing Price") will be the last
reported sales price regular way or, in case no such reported sale
takes place on such day, the average of the closing bid and asked
prices regular way for such day, in each case on the principal national
securities exchange on which the shares of Common Stock are listed or
admitted to trading or, if not so listed or admitted to trading, the
average of the closing bid and asked prices of the shares of Common
Stock in the over-the-counter market as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or
any comparable system. In the absence of one or more such quotations,
the Board of Directors of the Company will determine the Current Market
Price in good faith on the basis of such quotations or other relevant
information as it considers appropriate.
(f) No adjustment in the number of Warrant Shares purchasable
upon the exercise of a Warrant will be required unless such adjustment
would require an increase or decrease in the number of Warrant Shares
purchasable upon the hypothetical exercise of a Warrant of at least 1%;
provided, however, that any adjustments which by reason of this
paragraph (f) are not required to be made currently will be carried
forward and made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward,
would require an increase or decrease in the number of Warrant Shares
purchasable upon the hypothetical exercise of a Warrant of 1% or more.
All calculations with respect to the number of Warrant Shares will be
made to the nearest one-thousandth of a share and all calculations with
respect to the Warrant Price will be to the nearest whole cent. No
adjustment in the number of Warrant Shares purchasable upon the
exercise of a Warrant will be made under paragraph (b), (c), or (d) of
this Section 4.1 if the Company issues or distributes to each Holder
the shares, rights, options, warrants, convertible or exchangeable
securities, evidences of indebtedness, assets, or other securities
referred to in the applicable paragraph that such Holder would have
been entitled to receive had the Warrants been exercised prior to the
happening of such event on the record date with respect thereto
(provided that, in any case in which such Holder would have been so
entitled to receive a fractional interest in any such securities or
assets, the Company may distribute to such Holder in lieu of such
fractional interest cash in an amount equal to the fair value of such
fractional interest as determined in good faith by the Board of
Directors of the Company). No adjustment in the number of Warrant
Shares purchasable upon the exercise of a Warrant will be made on
account of: (1) any issuance of shares of Common Stock or of options,
rights, or warrants to purchase, or securities convertible
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<PAGE> 11
into or exchangeable for, shares of Common Stock, pursuant to or in
satisfaction of any obligation under any plan of reorganization of the
Company or Broadway or any of their respective predecessors which
became effective prior to the date hereof (each, a "Plan of
Reorganization"), (2) any issuance of shares of Common Stock upon the
exercise of options, rights or warrants or upon the conversion or
exchange of convertible or exchangeable securities, in either case
issued pursuant to or in satisfaction of any obligation under any Plan
of Reorganization or outstanding as of the date hereof, (3) any
issuance of shares of Common Stock, or of options, rights, or warrants
to purchase, or securities exchangeable for or convertible into, shares
of Common Stock, in accordance with any plan for the benefit of the
employees or Directors of the Company or any of its Subsidiaries
existing as of the date hereof or any other plan adopted by the
Directors of the Company for the benefit of the employees or Directors
of the Company or any of its Subsidiaries, (4) any issuance of shares
of Common Stock in connection with a Company-sponsored plan for
reinvestment of dividends or interest, (5) any issuance of share
purchase rights pursuant to the Rights Agreement, dated as of December
19, 1994, between the Company and The Bank of New York, as rights
agent, as from time to time amended, or any similar successor or
replacement share purchase rights plan, or (6) any issuance of shares
of Common Stock or securities convertible into or exchangeable for
shares of Common Stock pursuant to an underwritten public offering for
a price per share of Common Stock in the case of an issuance of shares
of Common Stock, or for a price per share of Common Stock initially
deliverable upon conversion or exchange of such securities, that is
equal to or greater than 95% of the Closing Price per share of Common
Stock on the date the offering, conversion, or exchange price of such
additional shares of Common Stock is first fixed. No adjustment in the
number of Warrant Shares will be made for a change in the par value of
the shares of Common Stock.
(g) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted as herein provided, the Warrant
Price will be adjusted by multiplying the Warrant Price in effect
immediately prior to such adjustment by a fraction, the numerator of
which will be the number of Warrant Shares purchasable upon the
exercise of each Warrant immediately prior to such adjustment, and the
denominator of which will be the number of Warrant Shares so
purchasable immediately thereafter.
(h) For the purpose of this Section 4, the term "Common Stock"
means (i) the class of shares designated as the Common Stock of the
Company as of the date of this Agreement, (ii) all shares of any class
or classes (however designated) of the Company, now or hereafter
authorized, the holders of which have the right, without limitation as
to
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<PAGE> 12
amount, either to all or to a part of the balance of current dividends
and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of
which are ordinarily entitled to vote generally in the election of
directors of the Company, or (iii) any other class of shares resulting
from successive changes or reclassifications of such shares consisting
solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to Section 4.1(a), the Warrants
become exercisable to purchase Warrant Shares other than shares of
Common Stock, thereafter the number of such other shares so purchasable
upon exercise of each Warrant and the Warrant Price payable in respect
of such other shares upon the exercise of each Warrant will be subject
to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant
Shares and the Warrant Price contained in this Section 4.1.
(i) Upon the expiration of any rights, options, warrants, or
conversion or exchange privileges, if any thereof have not been
exercised, the Warrant Price and the number of Warrant Shares
purchasable upon the exercise of each Warrant will, upon such
expiration, be readjusted and will thereafter be such as it would have
been had it been originally adjusted (or had the original adjustment
not been required, as the case may be) as if (i) the only shares of
Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options,
warrants, or conversion or exchange rights and (ii) such shares of
Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise, conversion, or
exchange plus the aggregate consideration, if any, actually received by
the Company for the issuance, sale, or grant of all such rights,
options, warrants, or conversion or exchange rights whether or not
exercised; provided, however, that no such readjustment will have the
effect of increasing the Warrant Price or decreasing the number of
Warrant Shares purchasable upon the exercise of each Warrant by an
amount in excess of the amount of the adjustment initially made in
respect of the issuance, sale, or grant of such rights, options,
warrants, or conversion or exchange privileges.
4.2. Notice of Adjustment. Whenever the Warrant Price or the number or
kind of Warrant Shares purchasable upon exercise of the Warrants is adjusted
pursuant to any of the provisions of this Agreement, the Company will promptly
give notice to the Holders of such adjustment or adjustments, together with a
certificate of a firm of independent public accountants selected by the Company
(who may be the regular accountants employed by the Company) setting forth the
adjustments in the Warrant Price and the number or kind of Warrant Shares
purchasable upon
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<PAGE> 13
exercise of each Warrant, and also setting forth a brief statement of the facts
requiring such adjustments and the computations upon which such adjustments are
based. Such certificate will be conclusive evidence of the correctness of such
adjustments.
4.3. No Adjustment for Dividends. Except as provided in Section 4.1, no
adjustment or payment in respect of any dividends will be made at any time.
4.4. Preservation of Purchase Rights Upon Merger, Consolidation, Etc.
In case of any consolidation of the Company with or merger of the Company into
another corporation or in case of any sale, transfer, or lease to another
corporation of all or substantially all the property of the Company, the Company
or such successor or purchasing corporation, as the case may be, will execute an
agreement providing that each Holder will have the right thereafter, upon
payment of an amount equal to the amount payable upon the exercise of a Warrant
immediately prior thereto, to purchase upon exercise of each Warrant the kind
and amount of securities or property that it would have owned or have been
entitled to receive after giving effect to such consolidation, merger, sale,
transfer, or lease on account of the Warrant Shares that would have been
purchasable upon the exercise of such Warrant had such Warrant been exercised
immediately prior thereto (provided that, to the extent that such Holder would
have been so entitled to receive cash on account of such Warrant Shares, such
Holder may elect in connection with the exercise of a Warrant in accordance with
Section 3.1 to reduce the amount of cash that it would be entitled to receive
upon such exercise in exchange for a corresponding reduction in the amount
payable upon such exercise); provided, however, that no adjustment in respect of
dividends, interest, or other income on or from such shares or other securities
or property will be made during the term of a Warrant or upon the exercise of a
Warrant. Such agreement will provide for adjustments that will be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4. The provisions of this Section 4.4 will similarly apply to successive
consolidations, mergers, sales, transfers, or leases.
4.5. Warrant Certificates. Whether or not any adjustments in the
Warrant Price or the number or kind of Warrant Shares purchasable upon the
exercise of the Warrants has been made, Warrant Certificates theretofore or
thereafter issued may continue to express the same Warrant Price and number and
kind of Warrant Shares as are stated in the Warrant Certificate initially
issued.
5. Fractional Interests. Neither the Company nor the Warrant Agent will
be required to issue fractional Warrant Shares or fractional interests in any
other securities on the exercise of the Warrants. If any fraction of a Warrant
Share or other security would, except for the provisions of this Section 5, be
issuable upon the exercise of the Warrants, the Company will pay
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<PAGE> 14
an amount in cash (a) in lieu of a fractional Warrant Share, equal to the
Current Market Price for one share of Common Stock on the Trading Day
immediately preceding the date on which the Warrants are presented for exercise,
multiplied by such fraction of a Warrant Share, or (b) in lieu of a fractional
interest in any other security, equal to the fair value of such fractional
interest, determined in a manner as similar as possible, taking into account the
difference in the fractional interest being valued, to the calculation described
in clause (a) of this Section 5.
6. Warrant Agent Matters.
6.1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company and the Holders in accordance with
the terms and conditions hereof, and the Warrant Agent hereby accepts such
appointment and hereby certifies that it complies with the requirements of the
New York Stock Exchange governing transfer agents and registrars.
6.2. Concerning the Warrant Agent. (a) The Company will pay to the
Warrant Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Warrant Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company will indemnify the Warrant Agent for, and hold it
harmless against, any loss, liability, suit, action, proceeding, or expense,
incurred without negligence, bad faith, or willful misconduct on the part of the
Warrant Agent, for anything done or omitted by the Warrant Agent in connection
with the acceptance and administration of this Agreement, including the costs
and expenses of defending against any claim of liability arising therefrom,
directly or indirectly.
(b) The Warrant Agent will be protected and will incur no liability for
or in respect of any action taken, suffered, or omitted by it in connection with
its administration of this Agreement in reliance upon any Warrant Certificate or
certificate evidencing Common Stock or other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed, and, where
necessary, verified or acknowledged, by the proper person or persons.
6.3. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent or any successor Warrant Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Warrant Agent or any successor Warrant
Agent is a party, or any corporation succeeding to the corporate trust business
of the Warrant Agent or any successor Warrant Agent, will be the successor to
the Warrant Agent under this
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<PAGE> 15
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such corporation would be
eligible for appointment as a successor Warrant Agent under the provisions of
Section 6.5.
6.4. Duties of Warrant Agent. The Warrant Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders, by their acceptance of
Warrant Certificates, will be bound:
(a) The Warrant Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel will be full and
complete authorization and protection to the Warrant Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Warrant Agent deems it necessary or desirable that any fact or matter be proved
or established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by any one of the Chairman of the Board, the President,
or any Vice President of the Company and delivered to the Warrant Agent; and
such certificate will be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Warrant Agent will be liable hereunder only for its own
negligence, bad faith, or willful misconduct.
(d) The Warrant Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates or be required to verify the same, but all such statements and
recitals are and will be deemed to have been made by the Company only.
(e) The Warrant Agent will not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution and delivery hereof by the Warrant Agent) or in respect of the
validity or execution of any Warrant Certificate (except the due
countersignature thereof by the Warrant Agent); nor will it be responsible for
any breach by the Company of any covenant or condition contained in this
Agreement or in any Warrant Certificate; nor will it be responsible for any
adjustment required under the provisions of Section 4 hereof or responsible for
the manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect
to the exercise of Warrants evidenced by Warrant Certificates after actual
notice of any such adjustment); nor will it by any act hereunder be deemed to
make any representation or warranty as
15
<PAGE> 16
to the authorization or reservation of any shares of stock or other securities
to be issued pursuant to this Agreement or any Warrant Certificate or as to
whether any shares of stock or other securities will, when issued, be validly
authorized and issued, fully paid, and nonassessable.
(f) The Company will perform, execute, acknowledge, and deliver or
cause to be performed, executed, acknowledged, and delivered all such further
and other acts, instruments, and assurances as may reasonably be required by the
Warrant Agent for the carrying out or performing by the Warrant Agent of the
provisions of this Agreement.
(g) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the President, or any Vice President of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and it will not be liable for any action taken or suffered to
be taken by it in good faith in accordance with instructions of any such
officer.
(h) The Warrant Agent and any stockholder, director, officer, or
employee of the Warrant Agent may buy, sell, or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement. Nothing herein will preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Warrant Agent will not be answerable or
accountable for any act, default, neglect, or misconduct of any such attorneys
or agents or for any loss to the Company resulting from any such act, default,
neglect, or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof. The Warrant Agent will not be under any duty
or responsibility to insure compliance with any applicable federal or state
securities laws in connection with the issuance, transfer, or exchange of
Warrant Certificates.
6.5. Change of Warrant Agent. The Warrant Agent or any successor
Warrant Agent may resign and be discharged from its duties under this Agreement
upon 30 calendar days' notice in writing mailed to the Company and to each
transfer agent of the Common Stock by registered or certified mail, and to the
Holders by first-class mail. The Company may remove the Warrant Agent or any
successor Warrant Agent upon 30 calendar days' notice in writing, mailed to the
Warrant Agent or successor Warrant Agent, as the case may be, and to each
transfer agent of the Common
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<PAGE> 17
Stock by registered or certified mail, and to the Holders by first-class mail.
If the Warrant Agent resigns or is removed or otherwise becomes incapable of
acting, the Company will appoint a successor to the Warrant Agent. If the
Company fails to make such appointment within a period of 30 calendar days after
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Warrant Agent or by
any Holder (who will, with such notice, submit his Warrant Certificate for
inspection by the Company), then any Holder may apply to any court of competent
jurisdiction for the appointment of a successor Warrant Agent. Any successor
Warrant Agent, whether appointed by the Company or by such a court, will be a
corporation organized and doing business under the laws of the United States or
of the State of Ohio or New York (or of any other state of the United States so
long as such corporation is authorized to do business as a banking institution
in the State of Ohio or New York), in good standing, having a principal office
in the State of Ohio or New York, which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Warrant Agent a combined capital and surplus of at least $50 million. After
appointment, the successor Warrant Agent will be vested with the same powers,
rights, duties, and responsibilities as if it had been originally named as
Warrant Agent without further act or deed; but the predecessor Warrant Agent
will deliver and transfer to the successor Warrant Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act, or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company will file notice thereof in writing
with the predecessor Warrant Agent and each transfer agent of the Common Stock,
and mail by first class mail a notice thereof to each Holder. Failure to give
any notice provided for in this Section 6.5, however, or any defect therein,
will not affect the legality or validity of the resignation or removal of the
Warrant Agent or the appointment of the successor Warrant Agent, as the case may
be. Notwithstanding anything to the contrary contained herein, no resignation or
removal of the Warrant Agent or any successor Warrant Agent will become
effective prior to the effectiveness of the appointment of a successor Warrant
Agent therefor.
7. Holder Matters.
7.1 No Rights as a Stockholder; Notices to Holders. Nothing contained
in this Agreement or in the Warrant Certificate will be construed as conferring
upon the Holders or their transferees the right to vote, or to receive
dividends, or to consent or to receive notice as a stockholder in respect of any
meeting of stockholders for the election of directors of the Company or any
other matter, or any rights whatsoever as a stockholder of the Company;
provided, however, that if, at any
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<PAGE> 18
time prior to the Expiration Date and prior to the exercise of all of the
Warrants, any of the following events occur:
(a) The Company declares any dividend payable in any
securities upon its shares of Common Stock or makes any distribution
(other than a regular cash dividend payable out of consolidated
retained earnings) to the holders of its shares of Common Stock;
(b) The Company offers to the holders of its Common Stock any
shares of capital stock of the Company or any Subsidiary or securities
convertible into or exchangeable for shares of capital stock of the
Company or any Subsidiary or any option, right, or warrant to subscribe
for or purchase any thereof;
(c) The Company distributes to the holders of its Common Stock
evidences of indebtedness or assets (including any cash dividend which
would result in an adjustment under Section 4.1) of the Company or any
Subsidiary;
(d) Any reclassification of the Common Stock, any
consolidation of the Company with or merger of the Company into another
corporation, any sale, transfer, or lease to another corporation of all
or substantially all the property of the Company, or any proposal of
the Company to effect any of the foregoing transactions that has been
publicly announced by the Company; or
(e) Any proposal by the Company to effect a dissolution,
liquidation, or winding up of the Company that has been publicly
announced by the Company;
then in any one or more of such events the Company will give notice of such
event to the Holders, as provided in Section 11 hereof, such giving of notice to
be completed at least ten days prior to the date fixed as a record date or the
date of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, or subscription rights, or for the
determination of stockholders entitled to vote on such proposed
reclassification, consolidation, merger, sale, transfer or lease, dissolution,
liquidation, or winding up; provided, however, that no such notice will be
required in respect of any of the matters referred to in the penultimate
sentence of Section 4.1(f). Such notice will specify such record date or the
date of closing the transfer books, as the case may be, for such event. Failure
to mail or receive such notice or any defect therein or in the mailing thereof
will not affect the validity of any action taken in connection with such event.
7.2. Reports to Holders. To the extent such documents are required to be
sent by the Company to the holders of outstanding Common Stock, the Company will
file with the Warrant Agent and
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<PAGE> 19
provide each Holder, within 15 calendar days after it files them with the
Securities and Exchange Commission (the "SEC"), copies of its annual report and
of the information, documents, and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) which
the Company is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act.
7.3. Agreements Respecting Warrants. The Company will not enter into
any agreement or instrument which would preclude the exercise of the Warrants as
herein provided.
8. Agreement of Warrant Holders. Every Holder by accepting a Warrant
Certificate consents and agrees with the Company and the Warrant Agent and with
every other Holder that:
(a) The Warrant Certificates are transferable only in accordance with
the terms of this Agreement and only on the registry books of the Warrant Agent
if surrendered at the principal office of the Warrant Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of transfer, and
otherwise in compliance with Section 2;
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute owner thereof
and of the Warrants evidenced thereby (notwithstanding any notations of
ownership or writing on the Warrant Certificate made by anyone other than the
Company or the Warrant Agent) for all purposes whatsoever, and neither the
Company nor the Warrant Agent will be affected by any notice to the contrary;
(c) Such Holder expressly waives any right to receive any fractional
Warrants and any fractional securities upon exercise or exchange of a Warrant;
and
(d) Notwithstanding anything in this Agreement to the contrary, neither
the Company nor the Warrant Agent will have any liability to any Holder or other
person as a result of its inability to perform any of its obligations under this
Agreement by reason of any preliminary or permanent injunction or other order,
decree, or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory, or administrative agency or commission, or any
statute, rule, regulation, or executive order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining performance of such
obligation; provided, however, that the Company will use reasonable efforts to
have any such order, decree, or ruling lifted or otherwise overturned as soon as
possible.
9. Reservation of Common Stock. The Company will, for so long as
Warrants remain outstanding, reserve and keep available, solely for issuance and
delivery upon the exercise of Warrants, a number of shares of Common Stock (or,
if applicable, other
19
<PAGE> 20
securities) sufficient to provide for the exercise of all outstanding Warrants.
The transfer agent for the Common Stock (or, if applicable, other securities)
will be irrevocably authorized and directed at all times until the exercise or
expiration of the Warrants to reserve such number of authorized shares of Common
Stock (or, if applicable, other securities) as necessary for such purpose. The
Company will keep copies of this Agreement on file with the transfer agent and
will supply the transfer agent with duly executed stock certificates for such
purpose.
10. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Warrant Agent that:
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to execute,
deliver, and perform its obligations hereunder and to consummate the
transactions contemplated hereby;
(b) The execution, delivery, and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company;
(c) The execution, delivery, and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby in accordance with the terms hereof will not
conflict with, violate, or constitute a breach of any material
contract, agreement, or instrument by which the Company is bound or any
judgment, order, decree, law, statute, rule, regulation, or other
judicial or governmental restriction to which the Company is subject;
(d) This Agreement constitutes the legal, valid, and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium, or other
similar laws affecting creditors' rights generally; and
(e) The Warrants, when issued and delivered to the initial
Holders as provided in this Agreement, and the Warrant Shares issued
upon exercise of the Warrants, when issued, paid for, and delivered as
provided in this Agreement, will be duly and validly issued and
outstanding, fully paid, and nonassessable.
11. Notices. All notices, requests, waivers, releases, consents, and
other communications required or permitted by this Agreement (collectively,
"Notices") must be in writing. Except
20
<PAGE> 21
as expressly otherwise provided herein with respect to manner of
delivery, notices will be deemed sufficiently given for all purposes when
delivered in person, when dispatched by telegram or electronic facsimile
transmission, when sent by first-class mail, postage prepaid, or upon
confirmation of receipt when dispatched by a nationally recognized overnight
courier service to the appropriate party as follows: (a) if to a Holder, at the
address of such Holder as shown in the registry books maintained by the Warrant
Agent; (b) if to the Company, at 7 West Seventh Street, Cincinnati, Ohio 45202,
Telecopy No. (513) 579-7897 (marked for the attention of the Chief Financial
Officer and the General Counsel), or at such other address as the Company may
have furnished to the Holders and the Warrant Agent in writing; and (c) if to
the Warrant Agent, at 101 Barclay Street, New York, New York 10286, Telecopy No.
(212) 815-3201 (marked for the attention of William Skinner) or at such other
address as the Warrant Agent may have furnished to the Company and the Holders
in writing.
12. Amendment and Waiver. No failure or delay of the Holder in
exercising any power or right hereunder (other than a failure to exercise
Warrants in accordance with the provisions hereof) will operate as a waiver
thereof, nor will any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No notice or demand on the Company in any case will entitle the
Company to any other or future notice or demand in similar or other
circumstances. Subject to the last sentence of this Section 12, (a) if the
Company so directs, the Company and the Warrant Agent will supplement or amend
this Agreement without the approval of any Holders in order to cure any
ambiguity or correct or supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein and (b) the Company
and the Warrant Agent may from time to time supplement or amend this Agreement,
with the consent of Holders of at least 50% of the Warrants then outstanding,
for any other for purpose. Notwithstanding anything in this Agreement to the
contrary, no supplement or amendment which increases the Warrant Price,
decreases the period of time remaining during which the Warrants may be
exercised, or changes in a manner adverse to Holders the number of Warrant
Shares purchasable upon the exercise of Warrants will be made without the
consent of all Holders. Any such amendment, modification, or waiver effected
pursuant to and in accordance with the provisions of this Section 12 will be
binding upon all Holders and upon each future Holder, the Company, and the
Warrant Agent. In the event of any such amendment, modification, or waiver, the
Company will given prompt notice thereof to all Holders and, if appropriate,
notation thereof will be made on all Warrant Certificates thereafter surrendered
for registration of transfer or exchange.
13. Successors and Assigns. This Agreement will be binding upon and
inure to the benefit of the parties hereto, their respective successors and
permitted assigns, and, subject to
21
<PAGE> 22
Sections 1.4 and 8(d), all Holders, but will not be assignable or delegable by
any party without the prior written consent of the other party. In the absence
of such prior written consent, any purported assignment or delegation of any
right or obligation hereunder will be null and void.
14. Rights of the Parties. Except as provided in Section 13, nothing
expressed or implied in this Agreement is intended or will be construed to
confer upon or give any person or entity other than the parties hereto and the
Holders any rights or remedies under or by reason of this Agreement or any
transaction contemplated hereby. All rights of action in respect of this
Agreement are vested in the Holders, and any Holder without the consent of the
Warrant Agent or any other Holder may, on such Holder's own behalf and for such
Holder's own benefit, enforce such Holder's rights hereunder, including the
right to exercise, exchange, or surrender for transfer such Holder's Warrant
Certificates in accordance with the provisions hereof.
15. Titles and Headings. Titles and headings to Sections herein are
inserted for convenience of reference only, and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
16. Certain Interpretive Matters and Definitions.
(a) Unless the context otherwise requires, (i) all references
to Sections or Exhibits are to Sections or Exhibits of or to this
Agreement, (ii) each term defined in this Agreement has the meaning
assigned to it, (iii) "or" is disjunctive but not necessarily
exclusive, and (iv) words in the singular include the plural and vice
versa. All references to "$" or dollar amounts are to lawful currency
of the United States of America.
(b) No provision of this Agreement will be interpreted in
favor of, or against, any party hereto by reason of the extent to which
such party or its counsel participated in the drafting thereof or by
reason of the extent to which any such provision is inconsistent with
any prior draft hereof or thereof.
17. Entire Agreement. This Agreement, together with its Exhibits,
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof, and there are no agreements among the parties hereto with
respect thereto except as expressly set forth herein.
18. Severability. In case any provision contained in this Agreement is
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions will not in any way be affected or impaired thereby.
The Company and the Warrant Agent will endeavor in good faith to replace the
invalid, illegal, or unenforceable provisions with valid, legal, and
22
<PAGE> 23
enforceable provisions the economic effect of which comes as close as
possible to that of the invalid, illegal, or unenforceable provisions.
19. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflict of laws thereof.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed will be deemed to be an original; such
counterparts will together constitute but one agreement.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the date first above written.
BROADWAY STORES, INC.
By: /s/ John C. Haeckel
---------------------------------
Name: John C. Haeckel
Title: Executive Vice President
FEDERATED DEPARTMENT STORES, INC.
By: /s/ Dennis J. Broderick
---------------------------------
Name: Dennis J. Broderick
Title: Senior Vice President
THE BANK OF NEW YORK
By: /s/ Patrick Falcigna
---------------------------------
Name: Patrick Falcigna
Title: Vice President
23
<PAGE> 24
EXHIBIT A
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS SET FORTH IN THE WARRANT AGREEMENT (AS HEREINAFTER DEFINED), A COPY
OF WHICH WILL BE MADE AVAILABLE BY THE ISSUER UPON REQUEST. THE TRANSFER OR
EXCHANGE OF THESE WARRANTS MUST BE REGISTERED IN ACCORDANCE WITH THE WARRANT
AGREEMENT.
NO. WARRANTS
--------------- ---------------
VOID AFTER 5:00 P.M. CINCINNATI TIME
ON THE EXPIRATION DATE
Federated Department Stores, Inc. Series E Warrant Certificate
THIS CERTIFIES THAT for value received, __________, or its
registered assigns (the "Holder"), is the owner of the number of Warrants set
forth above that initially entitle it to purchase from Federated Department
Stores, Inc., a Delaware corporation (the "Company"), at any time and from time
to time on or prior to 5:00 p.m. Cincinnati time on the Expiration Date, 0.27
fully paid and nonassessable shares of the Common Stock, par value $.01 per
share, of the Company (the "Common Stock") for each such Warrant at an initial
purchase price of $62.96 per whole share of Common Stock (the "Warrant Price"),
subject to adjustment as provided in the Warrant Agreement (i.e., subject to the
provisions of the Warrant Agreement, including the requirement that Warrants be
exercised only in integral multiples of 100 Warrants except as described below,
each Warrant will initially be exercisable to purchase 0.27 shares of Common
Stock for $17.00). The shares of Common Stock purchasable upon exercise of the
Warrants are hereinafter referred to as the "Warrant Shares." The "Expiration
Date" is October 8, 1999; provided, however, that the Company's Board of
Directors may, on 75 calendar days' written notice, fix an earlier Expiration
Date within 10 calendar days after any period of 30 consecutive Trading Days (as
defined in the Warrant Agreement) in which the Current Market Price (as defined
in the Warrant Agreement) per share of Common Stock has equalled or exceeded
$94.44. Subject to the terms and conditions of the Warrant Agreement, the
Warrants may be exercised by surrendering to the Warrant Agent (as hereinafter
defined) this Warrant Certificate, with the Form of Exercise Notice on the
reverse side hereof duly executed, together with cash, a certified or bank
cashier's check payable to the order of the Company, or a wire transfer to an
account designated by the Company, in each case in an amount of lawful currency
of the United States of America equal to the product of (a) the number of
Warrant Shares
1
<PAGE> 25
purchasable upon the exercise of the Warrants designated for exercise in the
Form of Exercise Notice and (b) the Warrant Price.
The number and kind of Warrant Shares that may be purchased
upon exercise of the Warrants evidenced by this Warrant Certificate are the
number as of the date of the original issue of such Warrants, based on the
shares of Common Stock of the Company as constituted at such date. As provided
in the Warrant Agreement, the Warrant Price and the number and kind of Warrant
Shares purchasable upon exercise of the Warrants are subject to adjustment.
This Warrant Certificate and the Warrants it represents are
subject to, and entitled to the benefits of, all of the terms, provisions, and
conditions of the Warrant Agreement, dated as of , 1995 (the "Warrant
Agreement"), by and among Broadway Stores, Inc., the Company, and The Bank of
New York (the "Warrant Agent"), which Warrant Agreement is hereby incorporated
herein by reference and made a part hereof and to which Warrant Agreement
reference is hereby made for a full description of the rights, limitation of
rights, obligations, and duties hereunder of the Company and the Holder. A copy
of the Warrant Agreement will be made available to the Holders by the Company
upon request of the Holders.
Subject to the provisions set forth in the Warrant Agreement
or in this Certificate, this Warrant Certificate, with or without other Warrant
Certificates, may be transferred, split up, combined, or exchanged for another
Warrant Certificate or Warrant Certificates, entitling the Holder to purchase a
like aggregate number of Warrant Shares as the Warrant Certificate or Warrant
Certificates surrendered entitled such Holder (or former Holder in the case of a
transfer) to purchase, upon presentation and surrender hereof at the principal
office of the Warrant Agent designated for such purpose, with the Form of
Assignment (if appropriate) and the related Certificate duly executed.
The Company will not be required to issue fractional Warrant
Shares or other fractional interests in securities upon the exercise of any
Warrants evidenced by this Warrant Certificate, but in lieu thereof a cash
payment will be made, as provided in the Warrant Agreement. The Holder may not
exercise a number of Warrants that is not an integral multiple of 100 unless the
Holder is then exercising all of its Warrants.
Nothing contained in the Warrant Agreement or in this Warrant
Certificate will be construed as conferring upon the holder of this Warrant
Certificate the right to vote, or to receive dividends, or to consent or (except
as provided in the Warrant Agreement) to receive notice in respect of any
meeting of stockholders for the election of directors of the Company or any
other matter, or any rights whatsoever as a stockholder of the Company.
A-2
<PAGE> 26
This Warrant Certificate will not be valid or obligatory for
any purpose until it has been countersigned by the Warrant Agent.
A-3
<PAGE> 27
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be executed by its corporate officers duly authorized.
Attest: FEDERATED DEPARTMENT STORES, INC.
By:
- --------------------------------- -----------------------------------
[Name, title] [Name, title]
Dated: __________, ____
Countersigned:
THE BANK OF NEW YORK
By:
- -------------------------------
[Authorized Signature]
A-4
<PAGE> 28
Form of Reverse Side of Warrant Certificate
FORM OF ASSIGNMENT
(To be executed if the Holder desires to transfer Warrants)
FOR VALUE RECEIVED, __________________________________________
hereby sells, assigns, and transfers unto ______________________________________
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title, and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: ,
--------------------- -------- -------------------------------
Signature
Signature Guaranteed:
A-5
<PAGE> 29
FORM OF EXERCISE NOTICE
(To be executed if the Holder desires to exercise Warrants)
TO FEDERATED DEPARTMENT STORES, INC.:
The undersigned hereby irrevocably elects to exercise
__________ Warrants evidenced by this Warrant Certificate to purchase the
Warrant Shares issuable upon the exercise of such Warrants and requests that
certificates for such Warrant Shares be issued in the name of:
________________________________________________________________________________
(Please print name and address)
Please insert social security or other identifying number:______________________
If such number of Warrants is not all the Warrants evidenced by this Warrant
Certificate, a new Warrant Certificate for the balance remaining of such
Warrants will be registered in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
Please insert social security or other identifying number: _____________________
Dated: ,
------------------------ ----- --------------------------------
Signature
Signature Guaranteed:
A-6
<PAGE> 30
NOTICE
Signatures on the foregoing Form of Assignment and Form of
Exercise Notice and in the related Warrant Certificates must correspond to the
name as written upon the face of this Warrant Certificate in every particular,
without alternation or enlargement or any change whatsoever.
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
A-7
<PAGE> 1
SECOND AMENDMENT TO AMENDED AND RESTATED
TERM LOAN AGREEMENT AND OTHER
RESTRUCTURED LOAN DOCUMENTS
This Second Amendment to Amended and Restated Term Loan
Agreement and other Restructured Loan Documents ("Second Amendment") is made and
dated as of December 1, 1995, by and among BROADWAY STORES, INC., formerly known
as CARTER HAWLEY HALE STORES, INC., a Delaware corporation (the "Company" or
"CHH"), BARCLAYS BANK PLC, a bank organized under the laws of the United
Kingdom, THE TOKAI BANK LIMITED, a bank organized under the laws of Japan,
acting through its Los Angeles Agency, BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, a national banking association (collectively, "Banks," and
individually, a "Bank"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association, as agent for Banks (in such
capacity, "Agent").
RECITALS
A. Company, Banks and Agent are parties to that certain
Amended and Restated Term Loan Agreement, dated as of October 8, 1992, as
amended by that certain First Amendment to Amended and Restated Term Loan
Agreement and other Restructured Loan Documents, dated as of October 11, 1995
(the "Amended and Restated Term Loan Agreement"). Capitalized terms used herein
without definition have the meanings given to them in the Amended and Restated
Term Loan Agreement.
B. The Company, Agent and Banks desire to enter into this
Second Amendment in order to modify the Amended and Restated Term Loan Agreement
in certain respects.
NOW THEREFORE, in consideration of the foregoing recitals and
for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
AMENDMENTS TO AMENDED AND RESTATED TERM LOAN AGREEMENT
Effective upon the date hereof, Company, Agent and Banks
hereby amend the Amended and Restated Term Loan Agreement as follows:
I.1 Definitions. All references in the Amended and Restated
Term Loan Agreement and in the Restructured Loan Documents to the Amended and
Restated Term Loan
1
<PAGE> 2
Agreement or to any Restructured Loan Documents shall mean the Amended and
Restated Term Loan Agreement and such Restructured Loan Documents, in each case
as modified pursuant to this Second Amendment.
1.2 Amended Provisions Regarding Release of Stores. Section
3.02A of the Amended and Restated Term Loan Agreement is hereby amended and
restated as follows:
"Section 3.02 Release and Nondisturbance Provisions.
A. Release of Stores. In the event CHH
desires the release of a Store from the liens and security
interests created by the applicable Security Documents, CHH
shall deliver to Agent a release notice, which release notice
shall identify with particularity the Store proposed to be
released and shall certify as to the satisfaction of any and
all conditions to such proposed release hereunder. Provided
that the conditions set forth below are satisfied, Agent
shall, on behalf of Agent and Banks, execute and deliver to
CHH, within forty-five (45) days after receipt of the release
notice (or as soon thereafter as practical following
satisfaction of such conditions), an appropriate document
releasing or reconveying, without recourse and without any
warranty, express or implied, Agent's and Banks' interest in
such Store from the liens and security interests created under
the applicable Security Documents, upon payment by CHH to
Agent (for the ratable benefit of Agent and Banks) of the sum
of (1) a release price, which shall constitute a prepayment
hereunder subject to Section 2.07, equal to 110% of the pro
rata portion of the Amended and Restated Term Loan allocable
to such Store, as described on Schedule 7 hereto (the
"Allocable Loan Amount") plus (2) all accrued and unpaid
interest due to the date of such release on the release price
described in clause (1), plus (3) any breakage costs and other
amounts described in Section 2.06 of this Agreement which are
applicable to a prepayment in the amount of the release price
being paid, plus (4) all other amounts, if any, then due and
payable to Agent and Banks under the Restructured Loan
Documents, including, without limitation, late payment
charges, amounts advanced by Agent and/or Banks in accordance
with the terms of the Restructured Loan Documents to cure any
defaults under the Restructured Loan Documents, expenses of
Agent and/or Banks required to be reimbursed thereunder, and
any additional interest accrued to and including the date of
such release by reason of the applicability of a default rate
of interest. Notwithstanding anything to the contrary
contained in the Agreement, (a) no release of any Store shall
be permitted if a Default or an Event of Default exists
hereunder; and (b) at the option of Agent and Majority Banks,
as a condition to any release, Title Insurer (as hereinafter
defined) must, at CHH's cost and expense, issue an endorsement
to the Mortgagee's Title Policies (as hereinafter defined)
satisfactory to Agent and Majority Banks, insuring that the
release will not affect the priority of the Banks' liens on
any unreleased Collateral. In connection with any such
release, and as a condition thereto, CHH shall execute and
deliver to Agent (for the ratable benefit of Agent and Banks)
such modifications and supplements to the Restructured
2
<PAGE> 3
Loan Documents and all other documents deemed necessary or
appropriate by Agent and Majority Banks to ensure the
continued effectiveness, validity, priority and enforceability
of their liens, security interests and other rights under the
Restructured Loan Documents following such release. CHH shall
reimburse Agent and Banks for all reasonable direct
out-of-pocket costs and expenses (including, without
limitation, attorneys' fees and costs, including the allocable
costs of in-house counsel and legal staff) which Agent or any
Bank may incur in connection with any release hereunder. Any
Store which, in accordance with the provisions of this Section
3.02A, is released from the lien and security interests
created by the applicable Security Documents, shall no longer
be considered to be a "Store" for any purpose hereunder. The
term "Core Stores" or "Core Store" as used in the amended and
restated Term Loan Agreement or in the other Restructured Loan
Documents shall mean all or any portion of the Stores which
are described on Schedule 8 attached hereto."
1.3 Amended Provisions Regarding Cure
Rights. Clause C of Section 9.13 of the Amended and Restated Term Loan Agreement
is hereby amended by replacing the following phrase in the second sentence
thereof (i.e., the sentence which begins with the words, "Notwithstanding the
foregoing,"): "in the case of any Store which is not a Core Store", with the
following: "in the case of any Store".
ARTICLE II
AMENDMENTS TO OTHER RESTRUCTURED LOAN DOCUMENTS
Effective upon the date hereof, Company, Agent and Banks
hereby amend the other Restructured Loan Documents as follows:
2.1 Amendments to Security Documents.
(a) Each of the Mortgages is amended as follows: The
second sentence of Section 2.03 of each of the Mortgages is hereby amended by
replacing the following phrase: "in the case of any Store which is not a Core
Store", with the following: "in the case of any Store".
(b) Each of the Assignments of Leases is amended as
follows: The second sentence of Section 7(c) of each of the Assignments of
Leases is hereby amended by deleting the following phrase therefrom: "in the
event that the store located on the Property is not a Core Store".
(c) Each of the Assignments of Warranties is amended
as follows: The second sentence of Section 6(iii) of each of the Assignments of
Warranties is hereby amended by deleting the following phrase therefrom: "in the
event that the Store comprising part of the Property is not a Core Store (as
defined in the Loan Agreement)".
3
<PAGE> 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce Agent and Banks to enter into this Second
Amendment, Company hereby represents and warrants to Agent and Banks as of the
date hereof as follows:
3.1 Authorization. The execution, delivery and performance of
this Second Amendment have been duly authorized by all necessary action of
Company.
3.2 No Conflict. The execution, delivery and performance by
company of this Second Amendment do not and will not (a) violate any Legal
Requirements applicable to Company or its organizational documents, (b) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any contractual obligation or indebtedness of the Company,
or (c) result in or require the creation or imposition of any lien upon any of
the properties of Company other than those created or permitted by the
Restructured Loan Documents, as amended pursuant hereto.
3.3 Consents. The execution, delivery and performance by
Company of this Second Amendment do not and will not require any registration
with, consent or approval of, or notice to, or other action by, any governmental
authority, or any trustee or holder of any indebtedness or obligation of Company
or other Person, or if required, such registration has been made, such consent
or approval given, such notice given or such other appropriate action taken, and
certified copies of the same have been delivered to Agent.
3.4 Binding Obligation. This Second Amendment is the legal,
valid and binding obligation of Company, enforceable against it in accordance
with its terms.
3.5 Representations and Warranties in Loan Documents. The
representations and warranties of Company contained in the Restructured Loan
Documents, as amended pursuant hereto, are true and correct on and as of the
date hereof as though made on and as of the date hereof, and no Default or Event
of Default has occurred and is continuing as of the date hereof or has resulted
or will result herefrom.
3.6 No Offset. Company has no claims, offsets or defenses with
respect to the payment of any sums or performance of any obligations due under
the Restructured Loan Documents.
4
<PAGE> 5
ARTICLE IV
MISCELLANEOUS
4.1 Ratification of Loan Documents. Except as expressly
amended or terminated hereby or pursuant hereto, the Amended and Restated Term
Loan Agreement and the other Restructured Loan Documents shall remain in full
force and effect accordance with their terms, and hereby in all respects
ratified and confirmed. Nothing in this Second Amendment shall impair the first
priority liens of the Mortgages on any unreleased collateral. Agent and Banks
hereby reserve all rights provided under the Restructured Loan Documents, as
amended hereby, with respect to any existing Defaults or Events of Default, if
any. The Company affirms and agrees that the Security Documents, as amended
hereby, secure the full performance of each and every obligation under the
Master Principal Note, the Master Capitalized Interest Note, the Amended and
Restated Term Loan Agreement and the Obligations as defined therein, and that
the Security Documents continue to be effective as, and to constitute, first and
prior liens and charges on the Stores to the full extent of all obligations
secured thereby.
4.2 Waiver of One Form of Action and Anti-Deficiency Rules. In
consideration of the Agent's and Banks' entering into this Second Amendment, the
Company hereby expressly and irrevocably waives all rights, privileges, benefits
and defenses that the Company may have under, arising out of, or based on
California Code of Civil Procedure Sections 580a, 580d and 726. Without limiting
the foregoing, the company agrees not to plead or assert California Code of
Civil Procedure Section 580a, 580d or 726 as an affirmative claim or a defense
to, or in connection with, any action or other proceeding (including, but not
limited to, any judicial or nonjudicial foreclosure under any of the Mortgages).
The company hereby represents, warrants, and acknowledges that (a) the
modifications of the Amended and restated Term Loan herein constitute a revision
or modification and do not constitute a renewal of the Amended and restated Term
Loan; and (b) the Agent and banks are relying upon such waivers and the
foregoing representations, warranties and acknowledgments in entering into this
Second Amendment, and without such waivers, representations, warranties and
acknowledgments, the Agent and Banks would not do so.
4.3 Counterparts. This Second Amendment may be executed in any
number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, and all such counterparts together
shall constitute but one and the same.
4.4 Fees and Expenses. Whether or not the transactions
contemplated hereby are consummated, Company shall pay promptly upon demand all
reasonable fees, expenses and disbursements of counsel (including reasonably
allocated costs of in-house counsel), and other out-of-pocket costs incurred by
the Agent and any Bank in connection with the negotiation, documentation and
closing of the transactions contemplated hereby.
4.5 Integration. The Restructured Loan Documents, including
this Second Amendment: (a) integrate all the terms and conditions mentioned in
or incidental to the Restructured Loan Documents, (b) supersede all oral
negotiations and prior and other writings
5
<PAGE> 6
with respect to their subject matter, and (c) are intended by the parties as the
final expression of their agreement with respect to the terms and conditions set
forth in the Restructured Loan Documents and as the complete and exclusive
statement of the terms agreed to by the parties. If there is any conflict
between the terms, conditions and provisions of this Second Amendment and those
of any other Restructured Loan Documents, the terms, conditions and provisions
of this Second Amendment shall prevail.
4.6 Separability. If any court of competent jurisdiction
determines any provision of this Second Amendment or any of the other
Restructured Loan Documents to be invalid, illegal or unenforceable, that
portion shall be deemed severed from the rest, which shall remain in full force
and effect as though the invalid, illegal or unenforceable portion had never
been a part of the Restructured Loan Documents. This Second Amendment shall be
governed by California law. This Second Amendment is a Restructured Loan
Document.
6
<PAGE> 7
WITNESS the due execution of this Second Amendment by the
respective duly authorized officers of the undersigned as of the date first
written above.
Company/CHH: BROADWAY STORES, INC. (formerly
known as CARTER HAWLEY HALE STORES,
INC.), a Delaware corporation
By: /s/ Karen Hoguet
---------------------------------
Name: Karen M. Hoguet
-------------------------------
Title: Vice President & Treasurer
------------------------------
Agent and Banks: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, a national
banking association, as Agent
By: /s/ Charles D. Graber
---------------------------------
Name: Charles D. Graber
-------------------------------
Title: Vice President
------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, a national
banking association, as a Bank
By: /s/ Clara Y. Strand
---------------------------------
Name: Clara Y. Strand
-------------------------------
Title: Vice President
------------------------------
BARCLAYS BANK PLC, as a Bank
By: /s/ Diane R. Vargas
---------------------------------
Name: Diane R. Vargas
-------------------------------
Title: Vice President
------------------------------
7
<PAGE> 8
THE TOKAI BANK LIMITED, as a Bank
By: /s/ Masahiko Saito
---------------------------------
Name: MASAHIKO SAITO
-------------------------------
Title: Assistant General Manager
------------------------------
8
<PAGE> 1
FOURTH AMENDMENT
TO
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
This Fourth Amendment dated as of January 18, 1995 to the Amended and
Restated Pooling and Servicing Agreement dated as of December 15, 1992 is among
PRIME RECEIVABLES CORPORATION (the "Transferor"), FDS NATIONAL BANK, a national
banking corporation (the "Servicer") and CHEMICAL BANK, as Trustee (in such
capacity, the "Trustee").
W I T N E S S E T H
WHEREAS, the Transferor, the Servicer and the Trustee entered into an
Amended ad Restated Pooling and Servicing Agreement as of December 15, 1992 (the
"Pooling and Servicing Agreement");
WHEREAS, the Transferor, the Servicer and the Trustee wish to amend
Exhibit C of the Pooling and Servicing Agreement;
WHEREAS, Section 13.01 of the Pooling and Servicing Agreement permits
the amendment of Schedules subject to certain conditions;
NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto hereby agree as follows:
1. Exhibit C as attached to the Pooling and Servicing Agreement is
hereby deleted in its entirety and Exhibit C attached hereto is substituted
therefor.
2. Attached hereto is an Opinion of Counsel stating that the amendment
to the Pooling and Servicing Agreement affected by this Fourth Amendment does
not adversely affect in any material respect the interests of the
Certificateholders.
3. The Pooling and Servicing Agreement, as amended by this Fourth
Amendment shall continue in full force and affect among the parties hereto.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
PRIME RECEIVABLES CORPORATION
By /s/ Susan R. Robinson
-----------------------------
Title President
--------------------------
FDS NATIONAL BANK
By /s/ Susan P. Storer
-----------------------------
Title Chief Financial Officer and Treasurer
--------------------------
CHEMICAL BANK, AS TRUSTEE
By /s/ Regina Bishop
-----------------------------
Title Assistant Vice President
--------------------------
<PAGE> 3
January 18, 1995
Chemical Bank, as Trustee
Corporate Trust Group
450 West 33rd Street
New York, NY 10001
Prime Receivables Corporation
4705 Duke Drive
Mason, OH 45220
Re: Prime Receivables, Inc. Amended and Restated Pooling &
Servicing Agreement dated as of December 15, 1992 (the
"Agreement")
Ladies and Gentlemen:
As General Counsel of Federated Department Stores, Inc., a Delaware
corporation, the ultimate parent of Prime Recievables Corporation, a Delaware
corporation ("Prime"), I have acted as counsel to Prime in connection with the
Fourth Amendment to the Agreement and the substitution of Exhibit C of the
Agreement.
I have examined such documents, records and matters of law as I have
deemed necessary for purposes of this opinion. Based thereon, I am of the
opinion that:
The Fourth Amendment to the Agreement and the deletion of the
current Exhibit C to the Agreement and the substitution
therefor with an amended Exhibit C do not, in accordance with
Section 13.01 of the Agreement, adversely affect in any
material respect the interest of any of the Investor
Certficateholders, as such term is defined in the Agreement.
Sincerely,
/s/ Dennis J. Broderick
---------------------------
Dennis J. Broderick
<PAGE> 1
FIFTH AMENDMENT
TO
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
This Fifth Amendment dated as of April 30, 1995 to the Amended and
Restated Pooling and Servicing Agreement dated as of December 15, 1992 is among
PRIME RECEIVABLES CORPORATION (the "Transferor"), FDS NATIONAL BANK, a national
banking corporation (the "Servicer") and CHEMICAL BANK, as Trustee (in such
capacity, the "Trustee").
W I T N E S S E T H
WHEREAS, the Transferor, the Servicer and the Trustee entered into an
Amended ad Restated Pooling and Servicing Agreement as of December 15, 1992 (the
"Pooling and Servicing Agreement");
WHEREAS, the Transferor, the Servicer and the Trustee wish to amend
Exhibit C of the Pooling and Servicing Agreement;
WHEREAS, Section 13.01 of the Pooling and Servicing Agreement permits
the amendment of Schedules subject to certain conditions;
NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto hereby agree as follows:
1. Schedule II as attached to the Pooling and Servicing Agreement is
hereby deleted in its entirety and Schedule II attached hereto is substituted
therefor.
2. Attached hereto is an Opinion of Counsel stating that the amendment
to the Pooling and Servicing Agreement affected by this Fifth Amendment does not
adversely affect in any material respect the interests of the
Certificateholders.
3. The Pooling and Servicing Agreement, as amended by this Fifth
Amendment shall continue in full force and affect among the parties hereto.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment
to be executed by their respective officers thereunto duly authorized, as of the
date first above written.
PRIME RECEIVABLES CORPORATION
By /s/ Susan R. Robinson
-----------------------------------------
Title President
--------------------------------------
FDS NATIONAL BANK
By /s/ Susan P. Storer
-----------------------------------------
Title Chief Financial Officer and Treasurer
--------------------------------------
CHEMICAL BANK
By /s/ Charles Dooley
-----------------------------------------
Title Vice President
--------------------------------------
<PAGE> 3
Schedule II
<TABLE>
<CAPTION>
List of Lock-box Accounts
-------------------------
<S> <C> <C>
Star Bank Corporation Burdines 480-366-723
P.O. Box 1038 Dept. 4500
425 Walnut Street Cincinnati OH 45274-4500
Cincinnati, OH 45201-1036
Jordan Marsh 480-381-1425
P.O. Box 8079
Mason, OH 45040-8079
PNC Bank The Bon Marche 426-002-7019
201 East 5th Street P.O. Box 8080
Cincinnati, OH 45201-1198 Mason, OH 45040-8080
Stern's 419-000-2709
P.O. Box 8081
Mason, OH 45040-8081
Lazarus 411-017-5133
P.O. Box 4504
Mason, OH 45040-4504
PNC Bank, N.A. Lazarus PA, Inc. 100-30967
1 Olive Plaza Attn: Cashier
210 Sixth Ave. 501 Penn Ave.
Pittsburgh, PA 15265 Pittsburgh, PA 15285-0001
AmSouth Bank, N.A. Bloomingdale's 88-419-622
1900 Fifth Ave., North P.O. Box 11407
Birmingham, AL 35203 Drawer 0018
Birmingham, AL 35245-0018
Rich's 01-579-282
P.O. Box 11407
Drawer 0001
Birmingham, AL 35245-0001
Goldsmith's 73-233-579
P.O. Box 11407
Drawer 0012
Birmingham, AL 35245-0012
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Abraham & Straus 69-116-059
P.O. Box 11407
Drawer 0008
Birmingham, AL 35245-0008
The Fifth Third Bank Lazarus 715-27336
38 Fountain Square Plaza P.O. Box 0064
Cincinnati, OH 45263 Cincinnati, OH 45274-0064
SunTrust Bank Macy's 8801-245864
P.O. Box 4418 P.O. Box 9772
25 Park Place Macon, GA 32106
Atlanta, GA 30302
Macy's
P.O. Box 9773
Macon, GA 32106
</TABLE>
<PAGE> 1
SIXTH AMENDMENT
TO
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
This Sixth Amendment, dated as of July 27, 1995, to the Amended and
Restated Pooling and Servicing Agreement, dated as of December 15, 1992, is
entered into among PRIME RECEIVABLES CORPORATION, a Delaware corporation (the
"Transferor"), FDS NATIONAL BANK, a national banking corporation (the
"Servicer") and CHEMICAL BANK, a New York banking corporation, as Trustee (the
"Trustee").
W I T N E S S E T H
WHEREAS, the Transferor, the Servicer, and the Trustee are parties to
an Amended and Restated Pooling and Servicing Agreement, dated as of December
15, 1992 (as amended and supplemented from time to time, the "Pooling and
Servicing Agreement");
WHEREAS, the Transferor, the Servicer, and the Trustee desire to amend
Exhibit C to the Pooling and Servicing Agreement;
WHEREAS, Section 13.01 of the Pooling and Servicing Agreement permits
the amendment of exhibits thereto; and
WHEREAS, an Opinion of Counsel stating that the amendment to the
Pooling and Servicing Agreement effected by this Sixth Amendment does not
adversely affect in any material respect the interests of the Certificateholders
(as such term is defined in the Pooling and Servicing Agreement) is attached
hereto;
NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto hereby agree as follows:
1. Exhibit C to the Pooling and Servicing Agreement is hereby deleted
and replaced in its entirety with Exhibit C attached hereto.
2. The Pooling and Servicing Agreement, as amended by this Sixth
Amendment, shall continue in full force and affect among the parties hereto.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment
to be executed by their respective officers thereunto duly authorized, as of the
date first above written.
PRIME RECEIVABLES CORPORATION
By /s/ Susan R. Robinson
-------------------------------------
Title President
----------------------------------
FDS NATIONAL BANK
By /s/ James R. Gudmens
-------------------------------------
Title President
----------------------------------
CHEMICAL BANK
By /s/ Charles Dooley
-------------------------------------
Title Vice President
----------------------------------
<PAGE> 3
July 27, 1995
Chemical Bank, as Trustee
450 West 33rd Street
New York, NY 10001
Attention: Corporate Trustee Administration
Re: AMENDED AND RESTATED POOLING & SERVICING AGREEMENT, DATED AS
OF DECEMBER 15, 1992, AMONG PRIME RECEIVABLES CORPORATION,
FEDERATED DEPARTMENT STORES, INC., AND CHEMICAL BANK, AS
TRUSTEE (AS AMENDED, THE "AGREEMENT")
Ladies and Gentlemen:
As General Counsel of Federated Department Stores, Inc., I have acted
as counsel to Prime Receivables Corporation in connection with the Sixth
Amendment to the Agreement (the "Amendment").
I have examined such documents, records and matters of law as I have
deemed necessary for purposes of this opinion. Based thereon, I am of the
opinion that:
The Amendment, and the deletion of the current Exhibit C to
the Agreement and the replacement therefor with an amended
Exhibit C pursuant to the Amendment, do not adversely affect
in any material respect the interest of any of the Investor
Certficateholders (as such term is defined in the Agreement).
Very truly yours,
/s/ Dennis J. Broderick
--------------------------
Dennis J. Broderick
<PAGE> 1
FIFTH AMENDMENT
TO
RECEIVABLES PURCHASE AGREEMENT
This Fifth Amendment to Receivables Purchase Agreement dated as of
April 30, 1995 (this "Fifth Amendment"), is among THE ORIGINATORS listed on the
signature page hereof (collectively, the "Originators") and PRIME RECEIVABLES
CORPORATION, a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Originators and the Purchaser entered into a Receivables
Purchase Agreement dated as of December 15, 1992 (the "Purchase Agreement")
pursuant to which the Purchaser purchased Receivables (as defined in the
Purchase Agreement) from the Originators on the terms and conditions set forth
in the Purchase Agreement;
WHEREAS, the Originators and the Purchaser wish to amend the Purchase
Agreement to revise Schedule IV attached to the Purchase Agreement;
WHEREAS, Section 8.01 of the Purchase Agreement permits the Originators
and the Purchaser to amend the Purchase Agreement subject to certain conditions;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Schedule IV attached to the Purchase Agreement is hereby deleted in
its entirety and Schedule IV attached hereto is substituted therefor.
2. Attached hereto as Exhibit A is a certificate by an officer of FDS
National Bank, as Servicer, stating that the amendment to the Purchase Agreement
affected by this Fifth Amendment does not adversely affect in any material
respect the interests of any of the Investor Certificateholders (as defined in
the Purchase Agreement), which certificate is required to be delivered to the
Trustee (as defined in the Purchase Agreement) pursuant to Section 8.01 of the
Purchase Agreement.
3. The Purchase Agreement, as amended by this Fifth Amendment shall
continue in full force and effect among the parties hereto.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment
to be executed by their respective officers thereunto duly authorized, as of the
date first above written.
THE ORIGINATORS:
ABRAHAM & STRAUS, INC.
By: /s/ Dennis J. Broderick
----------------------------------
Title: Vice President
------------------------------
BLOOMINGDALE'S, INC.
By: /s/ Dennis J. Broderick
----------------------------------
Title: Vice President
------------------------------
BURDINES, INC.
By: /s/ Dennis J. Broderick
----------------------------------
Title: Vice President
------------------------------
JORDAN MARSH STORES CORPORATION
By: /s/ Dennis J. Broderick
----------------------------------
Title: Vice President
------------------------------
LAZARUS, INC.
By: /s/ Dennis J. Broderick
----------------------------------
Title: Vice President
------------------------------
LAZARUS PA, INC.
By: /s/ Dennis J. Broderick
----------------------------------
Title: Vice President
------------------------------
<PAGE> 3
STERN'S DEPARTMENT STORES, INC.
By: /s/ Dennis J. Broderick
----------------------------------
Title: Vice President
------------------------------
RICH'S DEPARTMENT STORES, INC.
By: /s/ Dennis J. Broderick
----------------------------------
Title: Vice President
------------------------------
THE BON, INC.
By: /s/ Dennis J. Broderick
----------------------------------
Title: Vice President
------------------------------
FDS NATIONAL BANK
Date: 4/30/95 By: /s/ Susan P. Storer
----------------------------------
Title: Treasurer
------------------------------
THE PURCHASER:
PRIME RECEIVABLES CORPORATION
Date: 4/30/95 By: /s/ Susan B. Robinson
----------------------------------
Title: President
------------------------------
<PAGE> 4
EXHIBIT A
FDS NATIONAL BANK
OFFICER'S CERTIFICATE
Pursuant to Section 8.01(a) of the Receivables Purchase Agreement dated
as of December 15, 1992 among the Originators listed therein and Prime
Receivables Corporation, as amended, FDS National Bank, a national banking
association, as Servicer, certifies that the amendment dated as of April 30,
1995 to Schedule IV of Receivables Purchase Agreement does not adversely affect
in any material respect the interests of any of the Investor Certificateholders.
/s/ Susan P. Storer
--------------------------------------
FDS National Bank
As Servicer
Dated: 4/30/95 Name: Susan P. Storer
------------------------------
Title: Chief Financial Officer
<PAGE> 5
Schedule IV
<TABLE>
<CAPTION>
List of Lock-box Accounts
-------------------------
<S> <C> <C>
Star Bank Corporation Burdines 480-366-723
P.O. Box 1038 Dept. 4500
425 Walnut Street Cincinnati, OH 45274-4500
Cincinnati, OH 45201-1036
Jordan Marsh 480-381-1425
P.O. Box 8079
Mason, OH 45040-8079
PNC Bank The Bon Marche 426-002-7019
201 East 5th Street P.O. Box 8080
Cincinnati, OH 45201-1198 Mason, OH 45040-8080
Stern's 419-000-2709
P.O. Box 8081
Mason, OH 45040-8081
Lazarus 411-017-5133
P.O. Box 4504
Mason, OH 45040-4504
PNC Bank, N.A. Lazarus PA, Inc. 100-30967
1 Olive Plaza Attn: Cashier
210 Sixth Ave. 501 Penn Ave.
Pittsburgh, PA 15265 Pittsburgh, PA 15285-0001
AmSouth Bank, N.A. Bloomingdale's 88-419-622
1900 Fifth Ave., North P.O. Box 11407
Birmingham, AL 35203 Drawer 0018
Birmingham, AL 35245-0018
Rich's 01-579-282
P.O. Box 11407
Drawer 0001
Birmingham, AL 35245-0001
Goldsmith's 73-233-579
P.O. Box 11407
Drawer 0012
Birmingham, AL 35245-0012
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
Abraham & Straus 69-116-059
P.O. Box 11407
Drawer 0008
Birmingham, AL 35245-0008
The Fifth Third Bank Lazarus 715-27336
38 Fountain Square Plaza P.O. Box 0064
Cincinnati, OH 45263 Cincinnati, OH 45274-0064
SunTrust Bank Macy's 8801-245864
P.O. Box 4418 P.O. Box 9772
25 Park Place Macon, GA 32106
Atlanta, GA 30302
Macy's
P.O. Box 9773
Macon, GA 32106
</TABLE>
<PAGE> 1
SECOND SUPPLEMENT
TO
RECEIVABLES PURCHASE AGREEMENT
This SECOND SUPPLEMENT TO RECEIVABLES PURCHASE AGREEMENT dated as of
May 31, 1994 (this "Supplement"), is between PRIME RECEIVABLES CORPORATION, a
Delaware corporation (the "Purchaser") and LAZARUS PA, INC., an Ohio corporation
(the "New Sub").
W I T N E S S E T H
WHEREAS, certain wholly owned operating subsidiaries (collectively, the
"Originators") of Federated Department Stores, Inc. ("Federated") and the
Purchaser, a wholly owned special purpose subsidiary of Federated, entered into
a Receivables Purchase Agreement dated as of December 15, 1992, (as heretofore
amended, waived or otherwise modified, the "Purchase Agreement"), pursuant to
which the Purchaser has agreed to purchase Receivables (as defined in the
Purchase Agreement) from the Originators on the terms and subject to the
conditions set forth in such agreement;
WHEREAS, Section 2.06 of the Purchase Agreement contemplates that a
direct wholly owned subsidiary of Federated may become an Additional Originator
provided certain conditions are met;
WHEREAS, the New Sub is a direct wholly owned subsidiary of Federated
and desires to become an Additional Originator under the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
SECTION 1.01. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined have the meanings assigned such terms in the Purchase
Agreement.
ARTICLE II - ADDITION OF NEW SUB AS AN ORIGINATOR
SECTION 2.01. SALE OF RECEIVABLES. The New Sub agrees to sell
Receivables to the Purchaser and the Purchaser agrees to buy Receivables from
the New Sub, on the terms and subject to the conditions set forth in the
Purchase Agreement.
SECTION 2.02. REPRESENTATIONS AND WARRANTIES OF NEW SUB. The New Sub
hereby certifies to the Purchaser that, with respect to the New Sub, each of the
1
<PAGE> 2
representations and warranties contained in Sections 4.02 and 4.03 of the
Purchase Agreement is true and correct.
SECTION 2.03. COVENANTS OF THE NEW SUB. The New Sub hereby agrees to
comply with each of the covenants set forth in Article V of the Purchase
Agreement.
SECTION 2.04. DESIGNATION AS ORIGINATOR. The Purchaser and the New Sub
hereby agree that, pursuant to Section 2.06 of the Purchase Agreement, upon the
effectiveness of this Supplement, the New Sub shall in all respects be
designated, and have all of the rights and obligations of, an Originator under
the Purchase Agreement.
ARTICLE III - CONDITIONS TO EFFECTIVENESS
SECTION 3.01. CONDITIONS PRECEDENT. This Supplement shall not become
effective until the following conditions precedent are met:
(a) the New Sub shall have delivered to the Purchaser the items
identified in Section 3.01(c) of the Purchase Agreement; and
(b) The Purchaser shall have received notice from each Rating
Agency that the inclusion of the New Sub as an Additional
Originator pursuant to Section 2.06 of the Purchase Agreement
will not result in a reduction or withdrawal of its then
existing rating of any Class of Investor Certificates issued
and outstanding on the date of such notice.
SECTION 3.02. BINDING EFFECT. This Supplement shall become effective
(i) upon the fulfillment of each of the conditions to effectiveness identified
in Section 3.01 hereof and (ii) when it shall have been executed by each party
hereto, and from such date shall be binding upon and inure to the benefit of
each party hereto and their respective successors and assigns.
ARTICLE IV - MISCELLANEOUS
SECTION 4.01. GOVERNING LAW. THIS SUPPLEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 4.02. EXECUTION IN COUNTERPARTS. This Supplement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Supplement.
2
<PAGE> 3
SECTION 4.03. HEADINGS. The headings in this Supplement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Supplement.
SECTION 4.04. ENTIRE AGREEMENT. This Supplement sets forth the entire
understanding of the parties hereto concerning the matters set forth herein and
supersedes all prior arrangements, communications and discussions, whether oral
or written, between the parties concerning such matters.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
PRIME RECEIVABLES CORPORATION
BY: /S/ SUSAN R. ROBINSON
----------------------------
TITLE: PRESIDENT
-------------------------
LAZARUS PA, INC.
BY: /S/ DENNIS J. BRODERICK
----------------------------
TITLE: VICE PRESIDENT
-------------------------
3
<PAGE> 4
EXHIBIT A
FDS NATIONAL BANK
OFFICER'S CERTIFICATE
Pursuant to Section 8.01(a) of the Receivables Purchase Agreement dated
as of December 15, 1992 among the Originators listed therein and Prime
Receivables Corporation, as amended, FDS National Bank, a national banking
association, as Servicer, certifies that the addition of Lazarus PA, Inc. as an
Originator under the Receivables Purchase Agreement dated as of December 15,
1992, will not adversely affect in any material respect the interests of any of
the Investor Certificateholders.
/s/ Susan P. Storer
------------------------
FDS National Bank
As Servicer
May 31, 1994 Name: Susan P. Storer
------------------------
Title: Chief Financial Officer
4
<PAGE> 1
EXECUTION COPY
CERTAIN INFORMATION (AS INDICATED BELOW) HAS BEEN OMITTED FROM THIS AGREEMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE
WITH RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of August 6, 1995, by and among GE
Capital Consumer Card Co. (formerly known as Monogram Bank, USA); Federated
Department Stores, Inc. ("FDS"), successor by merger to R.H. Macy & Co., Inc.
("Macy's"); and the other parties listed on the signature pages hereto.
W I T N E S S E T H :
WHEREAS, the parties hereto (or their predecessors in interest) are
party to a Credit Card Program Agreement dated as of May 10, 1991, as amended
from time to time to the date hereof (the "Program Agreement") (capitalized
terms used herein have the meaning given to them in the Program Agreement unless
otherwise defined herein);
WHEREAS, since the date of the Program Agreement, FDS acquired Macy's
through a merger in which Federated Department Stores, Inc. merged into Macy's
and Macy's survived the merger and changed its name to "Federated Department
Stores, Inc.";
WHEREAS, the Program Fiscal Year is based on Macy's fiscal year and the
FDS fiscal year is not the same as the Macy's fiscal year;
WHEREAS, the parties desire to align the Program Fiscal Year with the
fiscal year of FDS;
WHEREAS, in order to so align such fiscal years, the parties desire to
enter into certain interim arrangements with respect to the period between
August 6, 1995 and February 3, 1996 (the "Interim Period") which period
corresponds to the period between the end of the most recent Macy's fiscal year
and the commencement of the next FDS fiscal year;
<PAGE> 2
WHEREAS, the parties anticipate that at the end of the Interim Period,
either the Program Agreement will be in effect with the modifications
contemplated by Section 2 hereof or the parties will have definitively agreed on
an alternative arrangement to the Program.
NOW THEREFORE, in consideration of the terms and mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Interim Period Provisions.
1.1. Bank Service Discount.
The Bank Service Discount for each Fiscal Month during the
Interim Period shall be as set forth on the line entitled "Discount Rate" on
Exhibit A hereto.*
1.2. Discount Adjusters.
During the Interim Period, the Discount Adjusters, except the
Money Cost Adjuster, set forth in Section 4.2 of the Program Agreement shall not
be in effect. The Money Cost Adjuster shall remain in effect, and shall operate
to adjust the Bank Service Discount, as provided in Section 4.2(a) of Program
Agreement.
2. Amendments to Program Agreement.
2.1. Fiscal Year.
The parties acknowledge and agree that for purposes of
determining the Program Fiscal Year after the end of the Interim Period, Macy's
fiscal year shall commence and end each year on the dates set forth on Schedule
1 hereto.
2.2. Dates for Sales Projections.
The first two sentences of Section 4.3(a) of the Program
Agreement are hereby amended in their entirety to read as follows:
- ---
* Exhibit A has been omitted.
2
<PAGE> 3
Macy shall use commercially reasonable efforts to deliver to
Bank, not later than each December 23 and June 25 during the
term of this Agreement, a preliminary net sales and Net Credit
Sales Projection covering the 12-month period commencing on
the first day of the February or August immediately following
delivery of such preliminary projection (each such 12-month
period, an "Applicable Projection Year"). Macy shall then use
commercially reasonable efforts to deliver to Bank, not later
than each January 10 and July 10 during the term of this
Agreement, a final net sales and Net Credit Sales Projection
for the Applicable Projection Year (each such projection, a
"Final Sales Projection").
All references in the Program Agreement to July Final Sales Projections and
January Final Sales Projections shall hereafter be deemed references to January
Final Sales Projections or July Final Sales Projections, respectively.
3. Miscellaneous.
3.1. Certain Limitations.
Except to the extent expressly amended hereby the Program
Agreement shall remain unchanged and shall remain in full force and effect.
3.2. Governing Law.
This Amendment Agreement shall be governed by the laws of the
State of New York without regard to its conflicts of laws provisions.
3.3. Counterparts.
This Amendment Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have entered into this Amendment Agreement as of the day and year
first above written.
FEDERATED DEPARTMENT GE CAPITAL CONSUMER CARD CO.
STORES, INC.
By: /s/ Ronald Tysoe By: /s/ Kevin Knight
------------------------------ ---------------------------------
Name: Ronald Tysoe Name: Kevin Knight
Title: Vice President & CFO Title: Executive Vice President
MACY'S EAST, INC.
By: /s/ Dennis J. Broderick
------------------------------
Name: Dennis J. Broderick
Title: Vice President
BULLOCK'S, INC.
By: /s/ Dennis J. Broderick
------------------------------
Name: Dennis J. Broderick
Title: Vice President
I. MAGNIN, INC.
By: /s/ Dennis J. Broderick
------------------------------
Name: Dennis J. Broderick
Title: Vice President
4
<PAGE> 5
MACY SPECIALTY STORES, INC.
By: /s/ Dennis J. Broderick
------------------------------
Name: Dennis J. Broderick
Title: Vice President
MCO, INC.
By: /s/ Dennis J. Broderick
------------------------------
Name: Dennis J. Broderick
Title: Vice President
5
<PAGE> 6
SCHEDULE 1
----------
MACY'S FISCAL YEAR
------------------
For purposes of Section 2.1 Macy's fiscal year means a period of fifty
two (52) weeks ending on the Saturday closest to January 31 in any calendar
year, each such fiscal year comprising four (4) fiscal quarters, with each such
quarter comprising thirteen (13) weeks and ending on a Saturday.
<PAGE> 1
EXECUTION COPY
CERTAIN INFORMATION (AS INDICATED BELOW) HAS BEEN OMITTED FROM THIS AGREEMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE
WITH RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
PROGRAM AGREEMENT AMENDMENT
PROGRAM AGREEMENT AMENDMENT, dated as of February 3, 1996, by
and among GE Capital Consumer Card Co. (formerly known as Monogram Bank, USA
("GE Bank"); Federated Department Stores, Inc. ("FDS"), successor by merger to
R.H. Macy & Co., Inc. ("R.H. Macy"); FDS National Bank ("FDS Bank"); and the
other parties listed on the signature pages hereto.
W I T N E S S E T H :
WHEREAS, the parties hereto (or their predecessors in
interest) are party to a Credit Card Program Agreement dated as of May 10, 1991,
as amended from time to time to the date hereof (the "Program Agreement")
(capitalized terms used herein have the meaning given to them in the Program
Agreement unless otherwise defined herein);
WHEREAS, since the date of the Program Agreement, FDS acquired
R.H. Macy through a merger in which Federated Department Stores, Inc. merged
into R.H. Macy and R.H. Macy survived the merger and changed its name to
"Federated Department Stores, Inc.";
WHEREAS, the parties desire to enter into certain interim
arrangements for the Program Agreement with respect to the period between
February 4, 1996 and August 3, 1996 (the "New Interim Period"); and
WHEREAS, the parties anticipate that at the end of the New
Interim Period, either the Program Agreement will be in effect (with only those
modifications set forth herein that expressly survive the end of the New Interim
Period) or the parties will have definitively agreed on an alternative
arrangement to the Program.
NOW THEREFORE, in consideration of the terms and mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the
<PAGE> 2
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Discounts and Adjusters.
1.1. Bank Service Discount.
The Bank Service Discount for each Fiscal Month during the New
Interim Period shall be as set forth on the line entitled "Discount Rate" on
Exhibit A hereto.*
1.2. Discount Adjusters.
During the New Interim Period, the Discount Adjusters, except
the Money Cost Adjuster, set forth in Section 4.2 of the Program Agreement shall
not be in effect. The Money Cost Adjuster shall remain in effect, and shall
operate to adjust the Bank Service Discount, as provided in Section 4.2(a) of
Program Agreement.
2. Certain Cross Servicing Arrangements. The parties agree that the
provisions of this Section 2 shall be effective both during and after the New
Interim Period:
2.1. Each party agrees that to the extent it receives
inquiries from a customer that holds a Specified Account (as defined below), it
will use reasonable efforts to assist such customer with respect to his or her
inquiries. In this regard, FDS shall direct electronic authorization inquiries
to the appropriate account servicer based on account ownership for purposes of
providing on-line servicing to credit card account holders. If account ownership
is undetermined, an account lookup file, to be established and maintained on
FDS's computer system, will be utilized by each party. The account lookup file
will contain account lookup information with respect to each holder of a
Specified Account. The account lookup file shall be accessible to GE Capital and
GE Bank during normal business hours and at other reasonable times upon
reasonable request by GE Capital or GE Bank. The account lookup file shall be
regularly updated by each party. FDS shall ensure system availability during all
store operating hours and shall also provide a "help desk" to assist GE Capital
in the event of systems malfunctions.
- ---
* Exhibit A has been omitted.
2
<PAGE> 3
"Specified Accounts" means (i) with respect to inquiries received by GE Capital:
either (x) a Jordan Marsh, Broadway, Weinstock's or Emporium private label
account or (y) an FDS Bank owned Macy's private label account (an "FDS/Macy's
Account") and (ii) with respect to inquiries received by FDS: a GE Capital or GE
Bank owned Macy's, Bullock's, I. Magnin, Charter Club and/or Aeropostale private
label account (a "GE/Macy's Account").
2.2. (a) If the account lookup file indicates that the account
is a Specified Account, then the party answering the inquiry may provide
information on the account to the credit card holder and routine maintenance of
the type described on Schedule 2.2* (or as may otherwise be agreed to by the
parties) may be performed on the account by the party answering the inquiry. If
adjustments to or decisions on the account beyond those set forth on Schedule
2.2* or otherwise agreed to by the parties are required or requested by the
credit card holder, the answering party shall immediately transfer the credit
card holder to the account owning party.
(b) If the account lookup file indicates that the credit card
holder has duplicate Specified Accounts owned by both FDS Bank and GE Bank, an
account lookup team for each party shall determine which account is the
"ongoing" account for purposes of answering the inquiry and the inquiry will be
directed to the party owning such account. The determination of which account is
"ongoing" for purposes of this Section 2.2(b) shall be made in the same manner
as the treatment of duplicate accounts, as described in Schedule 3.2(b) hereof*
and Exhibit B hereto*. The non-owning party may provide information on the
account to the credit card holder and routine maintenance of the type described
on Schedule 2.2* (or as may otherwise be agreed by the parties) may be performed
on the account by the non-owning party. If adjustments to or decisions beyond
those set forth on Schedule 2.2* or otherwise agreed to by the parties are
required or requested by the credit card holder, the answering party shall
immediately transfer the credit card holder to the account owning party.
- ---
* Schedule 2.2 and 3.2(b) and Exhibit B have been omitted.
3
<PAGE> 4
2.3. All expenses incurred by FDS and FDS Bank in connection
with providing the services described in this Section 2 shall be borne by FDS
and FDS Bank and all such expenses incurred by GE Capital and GE Bank shall be
expenses of the Program.
3. Jordan Marsh, Broadway, Weinstock's and Emporium Stores. The parties
agree that the provisions of this Section 3 shall be effective both during and
after the New Interim Period:
3.1 Account Utility. FDS agrees that from the date that any of
its Jordan Marsh, Broadway, Weinstock's or Emporium stores is converted to the
Macy's tradename, such stores (each, a "Converted Store") will accept Macy's
private label credit cards, whether such cards relate to a GE/Macy's Account or
an FDS/Macy's Account.
3.2 Account Conversion/Duplicate Accounts.
(a) If as of the JM Determination Date (as defined on Schedule
3.2(b) hereto*), a holder of a Jordan Marsh private label credit card account
does not also hold a GE/Macy's Account, such holder's account (or accounts)
shall be converted into an FDS/Macy's Account. If as of the Broadway
Determination date (as defined on Schedule 3.2(b)* hereto), a holder of a
Broadway, Weinstock's or Emporium private label credit card account does not
also hold a GE/Macy's Account, such holder's account (or accounts) shall be
converted into an FDS/Macy's Account.
(b) If as of the applicable Determination Date, a holder of a
Converted Store private label credit card account also holds a GE/Macy's
Account, then such duplicate accounts shall be treated as described in Schedule
3.2(b) hereto.*
4. Ownership of Macy's Accounts Opened After the Date Hereof. The
parties acknowledge and agree that (a) except for the specifically described
exceptions set forth in this Section 4 and in the letter set forth as Exhibit B
hereto*, GE Bank shall continue to have the exclusive right to open new Macy's
accounts pursuant to the terms of the Program Agreement and (b) that, without
limiting the generality of the foregoing, if FDS
- ---
* Schedules 2.2 and 3.2(b) and Exhibit B have been omitted.
4
<PAGE> 5
converts any stores to the "Macy's" tradename after the date hereof, private
label accounts of the converted store held by persons who also hold a GE Bank
owned Macy's account (i) shall not be accepted at any Macy's store nor issued an
FDS owned Macy's account without the prior written agreement of GE Bank, and
(ii) shall be treated in a manner to be mutually agreed upon at the time by FDS
Bank and GE Bank with the intent of supporting achievement of the Target
Percentages then in effect in a manner consistent with equitable distribution
across Macy's markets that ensures portfolio risk and performance distribution
for GE Bank that is no worse than for FDS Bank.
4.1 Ownership of Accounts. The parties intend to develop and
install systems that would be capable of allocating new accounts automatically
on the basis of the account ownership methodology set forth in Sections 4.2,
4.3, 4.4, 4.5 and 4.6. Until such systems capability is implemented, the parties
will work in good faith to achieve account ownership allocation in accordance
with the methodology set forth herein by placing GE Bank or FDS Bank application
forms in designated Macy's stores as described below or by assignment of
pre-screens or other appropriate methods, which may be modified from time to
time by agreement of the parties to obtain the desired results. Subject to the
further provisions of this Section 4, (i) all newly opened Macy's private label
accounts which are either opened at, or with an application from, a Converted
Store (which, for the purpose of this Section 4.1, will include those stores
listed on Schedule 4.1 under the caption "FDS Stores", and will not include
those stores listed on such Schedule under the caption "GE Capital Stores") or a
former A&S store, shall be FDS/Macy's Accounts owned by FDS Bank or another
affiliate of FDS and credit with respect thereto shall be provided by FDS Bank
and (ii) all other newly opened Macy's private label accounts shall be GE/Macy's
Accounts owned by GE Capital or GE Bank and credit with respect thereto shall be
provided by GE Capital and/or GE Bank. Applications for FDS/Macy's Accounts will
be provided only in (i) former A&S Stores and (ii) Converted Stores (which, for
the purpose of this Section 4.1, will include those
5
<PAGE> 6
stores listed on Schedule 4.1 under the caption "FDS Stores", and will not
include those stores listed on such Schedule under the caption "GE Capital
Stores") and applications for GE/Macy's Accounts will be provided in all other
Macy's stores (including those listed on Schedule 4.1 under the caption "GE
Capital Stores"). FDS and GE Bank agree that when opening new Macy's accounts
they will use the account lookup file or credit bureau subscriber codes to avoid
opening any duplicate Macy's accounts. Each party acknowledges and agrees that
all credit offers, pre-screens and other account marketing programs will be
developed by FDS Bank in consultation with GE Bank with the intent of supporting
achievement of the applicable Target Percentages in a manner consistent with
equitable distribution across Macy's markets that ensures portfolio risk and
performance distribution for GE Bank that is no worse than for FDS Bank. The
final form of all such programs shall require the approval of GE Bank.
4.2. Adjustments to Account Ownership. The parties recognize
that FDS is in the process of converting certain stores to the "Macy's"
tradename and that FDS may, in the future, convert other stores to the "Macy's"
tradename and/or open newly built stores using the "Macy's" tradename. The
parties have agreed on a mechanism, set forth below, to allocate new Macy's
accounts between the parties by providing GE Bank with the effect of credit
sales changes in Comp Stores (as defined below) and the benefit of half of all
credit sales generated by New Stores (as defined below). Formulas used in the
mechanism and illustrative examples of the mechanism are set forth in Exhibit C
hereto*. While the parties believe that this mechanism will be effective to meet
the parties' intent (which intent includes the goal of achieving equitable
distribution across Macy's markets that ensures portfolio risk and performance
distribution for GE Bank that is no worse than for FDS Bank), they agree that to
the extent it does not work fairly to meet such intent they will work together
in good faith to develop a different or modified mechanism.
4.3 Definitions. The following terms which are used in
Sections 4.4 through 4.7 below have the meanings given to them in this Section
4.3. References in
- ---
* Exhibit C has been omitted.
6
<PAGE> 7
such Sections to years or quarters are references to the applicable FDS fiscal
year or FDS fiscal quarter, respectively.
"Actual Percentage" means the GE Actual Percentage or the FDS
Actual Percentage, as the case may be.
"Acquired Stores" means stores which are acquired by FDS after
the date hereof or owned by FDS prior to the date hereof and, in either case,
are converted to the "Macy's" tradename and have pre-existing private label
credit card accounts, provided that for purposes hereof, an Acquired Store shall
only be treated as an Acquired Store between the date it becomes an Acquired
Store and the period ending on the last day of the fiscal year in which it
became an Acquired Store, provided, that if such period would consist of less
than four full quarters, such period shall end on the last day of the
immediately succeeding fiscal year.
"Comp Stores" means all Macy's stores other than any store
which in the 12 months immediately prior to the time of determination had either
(i) a newly built Macy's store open within a 50 mile radius of it, (ii) had a
Macy's store close within a 50 mile radius of it or (iii) had a store which was
located within a 50 mile radius of it and which had been operated under a
tradename other than "Macy's", convert its tradename to "Macy's".
Notwithstanding the foregoing, all Macy's stores that were formerly A&S stores
will not be taken into account for any purposes in determining Comp Stores with
respect to any period in 1996.
"Comp Store Factor" means, with respect to any period, the
percentage derived by dividing (i) the amount of Net Credit Sales from Comp
Stores for such period by (ii) the amount of Net Credit Sales from the same
stores for the same period in the immediately prior year.
"FDS Actual Percentage" means, with respect to any period, the
percentage of total Net Credit Sales in respect of such period represented by
the amount of FDS Net Credit Sales in respect of such period.
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<PAGE> 8
"FDS Credit Sales Share" means, with respect to any period,
the credit sales derived by subtracting (i) the GE Credit Sales Share for such
period from (ii) total Net Credit Sales for such period.
"FDS Net Credit Sales" means, with respect to any period, the
aggregate amount of Net Credit Sales generated with respect to such period by
FDS/Macy's Accounts.
"FDS Revised Credit Sales Share" means, with respect to any
period on a year to date basis, the amount of Net Credit Sales derived from the
application of the following formula:
[(Net Credit Sales minus Net Credit Sales generated by New
Stores and Acquired Stores) times FDS Target Percentage] plus
(50% of Net Credit Sales generated by New Stores) plus (100%
of Net Credit Sales generated by Acquired Stores)
"FDS Revised Target Percentage" means, with respect to any
period, an amount equal to the percentage of total Net Credit Sales with respect
to such period represented by the FDS Revised Credit Sales Share for such
period.
"FDS Target Percentage" means, with respect to any period, the
percentage derived by subtracting (i) the GE Target Percentage applicable to
such period from (ii) 100%.
"GE Actual Percentage" means, with respect to any period, the
percentage of total Net Credit Sales in respect of such period represented by
the amount of GE Net Credit Sales in respect of such period.
"GE Credit Sales Share" means, with respect to any period, an
amount equal to the product of (i) the amount of total GE Net Credit Sales for
the same period in the immediately prior year times (ii) the Comp Store Factor
applicable to such period.
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<PAGE> 9
"GE Net Credit Sales" means, with respect to any period, the
aggregate amount of Net Credit Sales generated with respect to such period by
GE/Macy's Accounts.
"GE Revised Credit Sales Share" means, with respect to any
period on a year to date basis, the amount of Net Credit Sales derived from the
application of the following formula:
[(Net Credit Sales minus Net Credit Sales generated by New
Stores and Acquired Stores) times GE Target Percentage] plus
(50% of Net Credit Sales generated by New Stores)
"GE Revised Target Percentage" means, with respect to any
period, an amount equal to the percentage of total Net Credit Sales with respect
to such period represented by the GE Revised Credit Sales Share for such period.
"GE Target Percentage" means, with respect to any period, the
percentage of total Net Credit Sales with respect to such period represented by
the GE Credit Sales Share applicable to such period, provided that after 1996
the calculation of Net Credit Sales used for purposes of this definition shall
include the amount of all Virtual Comp Net Credit Sales but not include the
amount of any Virtual Non-Comp Net Credit Sales.
"Net Credit Sales" means, with respect to any period, the
aggregate face amount of receivables generated in such period by FDS/Macy's
Accounts and GE/Macy's Accounts, less an amount equal to the aggregate dollar
amount of credit adjustments against sales to such accounts during such period.
"New Accounts Allocation Percentage" means (i) with respect to
a party whose Actual Percentage for a period was less than its Target Percentage
(where Sections 4.4 or 4.5.1 are applicable) or Revised Target Percentage (where
Sections 4.5.2 or 4.5.3 are applicable) for such period, a percentage amount
equal to its Target Percentage or Revised Target Percentage, as applicable, for
the period plus five times the
9
<PAGE> 10
applicable Percentage Variance and (ii) with respect to a party whose Actual
Percentage for a period was more than its Target Percentage (where Sections 4.4
or 4.5.1 are applicable) or Revised Target Percentage (where Sections 4.5.2 or
4.5.3 are applicable) for such period, a percentage amount equal to its Target
Percentage or Revised Target Percentage, as applicable, for the period minus
five times the applicable Percentage Variance.
"New Stores" means stores which are (i) newly built Macy's
stores that open after the date hereof, or (ii) acquired by FDS after the date
hereof and converted to the "Macy's" tradename and which do not have
pre-existing private label credit card accounts at the time of acquisition, or
(iii) owned by FDS prior to the date hereof and which are converted to the
"Macy's" tradename and do not have pre-existing private label credit card
accounts as of the date hereof, provided that for purposes hereof, a New Store
shall only be treated as a New Store between the date it becomes a New Store and
the period ending on the last day of the fiscal year in which it became a New
Store, provided, that if such period would consist of less than four full
quarters, such period shall end on the last day of the immediately succeeding
fiscal year.
"Non-Overlapping Acquired Stores" means Acquired Stores (i)
which are within a 50 mile radius of an existing Macy's store and which do not
individually or in the aggregate account for Net Credit Sales in excess of $100
million in the 12-month period immediately prior to becoming Acquired Stores or
(ii) which are not within a 50 mile radius of an existing Macy's store.
"Overlapping Acquired Stores" means Acquired Stores other than
Non-Overlapping Acquired Stores.
"Percentage Variance" has the meaning given to it in Section
4.4.3 hereof.
"Revised Target Percentage" means the GE Revised Target
Percentage or the FDS Revised Target Percentage, as the case may be.
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<PAGE> 11
"Target Percentage" means the GE Target Percentage or the FDS
Target Percentage, as the case may be.
"Virtual Comp Net Credit Sales" means all Net Credit Sales
effected both (i) other than by a transaction in a Macy's store and (ii) by
customers who reside in states in which there was at least one Macy's store as
of the date of the transaction.
"Virtual Non-Comp Net Credit Sales" means all Net Credit Sales
effected other than by a transaction in a Macy's store, other than Virtual Comp
Net Credit Sales.
4.4 Provisions Applicable to 1996. The following provisions shall be
applicable with respect to each quarter of 1996, regardless of whether any New
Stores or Acquired Stores are opened or acquired by FDS during such time:
4.4.1 Within 15 days following the end of each quarter in 1996
(i.e., those quarters ending April 27, 1996, August 3, 1996, November 2, 1996
and February 1, 1997), the parties shall calculate as of the quarter then ended
on a year-to-date basis (i) the GE Target Percentage and the FDS Target
Percentage and (ii) the GE Actual Percentage and the FDS Actual Percentage.
4.4.2 If the Target Percentages and the Actual Percentages for
the year-to-date as of the quarter then ended are the same, then applications
for new Macy's accounts in the next succeeding quarter will be allocated between
FDS Bank and GE Bank based on the Target Percentages so calculated.
4.4.3 If either party's Actual Percentage for the year-to-date
period as of the end of a quarter is less than its Target Percentage for such
year-to-date period as of the end of such quarter (such difference, a
"Percentage Variance") then applications for new Macy's accounts in the next
succeeding quarter will be allocated between FDS Bank and GE Bank based on the
New Account Allocation Percentages.
4.5 1997 and Thereafter. The following provisions shall be applicable
with respect to 1997 and thereafter:
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4.5.1 Subject to the provisions of Section 4.5.2, below,
within 15 days following the end of each quarter commencing with the end of the
first quarter of 1997, the parties will calculate as of the quarter then ended
on a year-to-date basis whether, based on the Target Percentages then in effect,
there was a Percentage Variance for the year-to-date as of the quarter then
ended. In the event there is a Percentage Variance for any such period,
applications for new Macy's accounts in the next succeeding quarter will be
allocated between FDS Bank and GE Bank based on the New Accounts Allocation
Percentage.
4.5.2 Notwithstanding the provisions of Section 4.5.1, (i) if
FDS opens or acquires any New Stores or Non-Overlapping Acquired Stores during
any year commencing with 1997, then the calculation of Percentage Variance for
any periods in which such stores are considered New Stores or Acquired Stores in
accordance with the definitions thereof shall be done based on the difference
between the Actual Percentages and the Revised Target Percentages applicable to
such periods and (ii) if FDS opens or acquires any Overlapping Acquired Stores
during any year commencing with 1997, then the calculation of Percentage
Variance for any periods in which such stores are considered Acquired Stores in
accordance with the definition thereof shall be done based on the difference
between the Actual Percentages and the Revised Target Percentages (which shall
be derived from a calculation of the FDS Revised Credit Sales Share and the GE
Revised Credit Sales Share), applicable to such periods, it being agreed that
for purposes of each such calculation of the FDS Revised Credit Sales Share and
the GE Revised Credit Sales Share, the Target Percentages used in such
calculation shall be calculated as of the date the FDS Revised Credit Sales
Share and the GE Revised Credit Sales Share are being calculated. In the event
there is a Percentage Variance for any such period, applications for new Macy's
accounts in the next succeeding quarter will be allocated between FDS Bank and
GE Bank based on the New Accounts Allocation Percentage.
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4.5.3 If the procedures described in Section 4.5.2 have been
applied due to the opening or acquisition of a New Store or Acquired Store,
then, at such time as the provisions of Section 4.5.2 are no longer applicable
(i.e., because such New Stores and/or Acquired Stores cease to be treated as
such in accordance with the definitions thereof) the provisions of Section 4.5.1
shall be applicable for all later periods in which no New Stores or Acquired
Stores are opened or acquired, provided that the calculation of Percentage
Variance required by Section 4.5.1 shall be based on the Revised Target
Percentages last in effect rather than the Target Percentages last in effect.
4.6 General.
4.6.1 Notwithstanding any other provision of this Agreement,
but subject to Section 4.6.2 below, no party's Target Percentage, New Accounts
Allocation Percentage or Revised Target Percentage shall ever be less than 10%
or more than 90%.
4.6.2 Notwithstanding any other provision of this Agreement,
the parties agree that GE Net Credit Sales for each fiscal year shall constitute
not less than 50% of Net Credit Sales for each such fiscal year, and agree to
take all actions necessary or desirable to achieve this requirement, including,
without limitation, adjusting applications for new Macy's accounts in a manner
contrary to that which would otherwise be required or permitted by Sections 4.3
through 4.6.1.
4.6.3 The parties acknowledge that future sales of merchandise
on Macy's accounts and openings of new Macy's accounts may occur through means
not contemplated by this Agreement, including, without limitation, home
shopping, pre-screen solicitations and/or through on-line account applications.
In this regard, the parties agree (i) that for purposes of calculating any Comp
Store Factor, all Virtual Comp Net Credit Sales shall be aggregated together and
deemed to be a single Comp Store (a "Virtual Comp Store"), provided that, in
determining Comp Stores, (a) such Virtual Comp Store shall not be applied to
eliminate any Macy's store from being a Comp Store and (b) such Virtual Comp
Store shall not be subject to elimination as a Comp Store, and
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(ii) that applications for new Macy's accounts which are made available to
customers other than at a store (e.g., pursuant to telephone solicitations,
pre-screen solicitations or on-line services) shall be allocated between FDS
Bank and GE Bank in the same manner as applications are otherwise required to be
allocated between the parties pursuant to the terms of this Section 4.
5. A&S Accounts. All A&S private label credit card accounts have been
treated as described in the letter from GE Capital to FDS attached as Exhibit B
hereto. The parties have agreed that on or about April 28, 1996 all FDS/Macy's
Accounts that were originated in a former A&S store and which were former A&S
accounts which became FDS/Macy's Accounts pursuant to the provisions of Exhibit
B hereto, shall be transferred to FDS Bank's systems and serviced by FDS Bank
thereafter. The parties agree that the 60 day notice period referred to in
Section 5 of Exhibit B is hereby deemed satisfied.
6. FDS Support.
6.1 Notwithstanding any provisions of the Program Agreement to
the contrary, FDS shall indemnify and hold harmless General Electric Capital
Corporation, GE Bank, and each of their respective officers, directors,
employees and agents harmless from and against any losses, liabilities,
obligations, actions, costs, damages, penalties, expenses or settlements,
including reasonable attorneys fees ("Damages") arising out of or in connection
with GE Bank imposing, contracting for and/or collecting (whether before or
after the date hereof) in reliance on Ohio law finance charges, late fees,
returned check fees or any other fees, charges, terms or conditions (including,
without limitation, balance calculation methods and grace periods (collectively,
"Rate Exported Terms") on Macy's accounts as specified in the Credit Card
Agreement applicable to GE/Macy's Accounts attached hereto as Exhibit E that GE
Bank would not otherwise be permitted to impose, contract for and/or collect
under the respective state laws of Account Debtors in effect from time to time
governing such imposition, contracting and/or collection;
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provided that if FDS directs GE Bank in writing to reduce certain such fees or
charges or alter certain such terms or conditions ("Specified Fees") to not
greater than the amount identified by FDS, and GE Bank fails to so follow FDS's
directions (initiation of consumer notification by GE Bank shall be deemed
compliance with FDS directions), then FDS shall not be obligated to provide an
indemnity pursuant to this Section 6.1 with respect to Damages arising out of or
in connection with the failure of such Specified Fees to comply with such
identified law. The parties agree to use reasonable efforts to advise each other
of any changes in such laws that they have actual knowledge of; provided that
any failure to use such reasonable efforts or failure to so advise the other
party shall not limit, modify, reduce or in any way affect the indemnification
obligations set forth in this Section 6.1.
6.2 FDS hereby waives the provisions of Section 13.3(c) of the
Program Agreement to the extent such Section imposes any obligations on GE Bank
with respect to matters described in Section 6.1 hereof, and hereby releases GE
Bank from any and all liabilities or obligations it may have pursuant to Section
13.3(c) of the Program Agreement to such extent.
7. Sundry Income. For purposes hereof, a "revenue enhancement program"
means a program that yields sundry income from solicitations to sell services
such as offers to sell credit card protection, auto and travel clubs and similar
services and which do not relate to merchandise
(a) Subject to paragraph (b), below, all net revenue from
revenue enhancement programs in effect as of the date hereof shall accrue to the
benefit of FDS. The revenue from all such programs shall be calculated and
established in accordance with Exhibit D hereto, and is referred to herein as
"net revenue."
(b) Notwithstanding the provisions of paragraph (a), above,
all net revenue from creditlife, disability, and involuntary unemployment
insurance programs
15
<PAGE> 16
("Insurance Programs"), including adjustments to revenues against potential
future claims, shall accrue [Information omitted] to the benefit of FDS and
[Information omitted] to the benefit of GE Bank.
(c) [Information omitted]
(d) No net revenue from any revenue enhancement program
(including Insurance Programs) will be taken into account in calculating Bank
Net Return, and all such revenue shall be accounted for by the parties outside
of the Program.
8. Limitations on Agreement. During the New Interim Period all
provisions of the Program Agreement and the Program, other than those
temporarily suspended for the New Interim Period to the extent strictly
necessary to reflect the provisions of this Agreement or the Interim Agreement
II dated as of the date hereof between General Electric Capital Corporation and
FDS, shall remain in full force and effect. Certain financial and other
provisions (as more fully described herein) shall be implemented for the New
Interim Period and for that period only shall modify the related provisions set
forth in the Program Agreement. If, prior to the last day of the New Interim
Period, FDS and FDS Bank, on the one hand, and GE Capital and GE Bank, on the
other hand, have not executed and delivered one or more definitive agreements
regarding the terms and structure of the Program which supersede the Program
Agreement, then the Program Agreement shall, as of such last day, revert to its
original terms and the provisions hereof shall no longer be applicable, provided
that (i) FDS Bank shall nonetheless continue to own and service all FDS/Macy's
Accounts that it owned and serviced as of the end of the
16
<PAGE> 17
New Interim Period and (ii) the provisions of Sections 2, 3, 4, 5, 6 and 7
hereof shall be deemed to modify and amend the Program Agreement from and after
such time.
9. Miscellaneous.
9.1. Certain Limitations.
Except to the extent expressly amended hereby the Program
Agreement shall remain unchanged and shall remain in full force and effect.
9.2. Governing Law.
This Program Agreement Amendment shall be governed by the laws
of the State of New York without regard to its conflicts of laws provisions.
9.3. Counterparts.
This Program Agreement Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have entered into this Program Agreement Amendment as of the day
and year first above written.
FEDERATED DEPARTMENT GE CAPITAL CONSUMER CARD CO.
STORES, INC.
By: /s/ Dennis J. Broderick By: /s/ Kevin Knight
------------------------------------- ------------------------------
Name: Dennis J. Broderick Name: Kevin Knight
Title: Sr. Vice President & Title:Executive Vice president
General Counsel
FDS NATIONAL BANK
By: /s/ Susan P. Storer
-------------------------------------
Name: Susan Storer
Title: Treasurer
MACY'S EAST, INC.
By: /s/ Dennis J. Broderick
-------------------------------------
Name: Dennis J. Broderick
Title: Vice President
MACY'S WEST, INC.
By: /s/ Dennis J. Broderick
-------------------------------------
Name: Dennis J. Broderick
Title: Vice President
18
<PAGE> 19
BULLOCK'S, INC.
By: /s/ Dennis J. Broderick
-------------------------------------
Name: Dennis J. Broderick
Title: Vice President
I. MAGNIN, INC.
By: /s/ Dennis J. Broderick
-------------------------------------
Name: Dennis J. Broderick
Title: Vice President
MACY SPECIALTY STORES, INC.
By: /s/ Dennis J. Broderick
-------------------------------------
Name: Dennis J. Broderick
Title: Vice President
MCO, INC.
By: /s/ Dennis J. Broderick
-------------------------------------
Name: Dennis J. Broderick
Title: Vice President
19
<PAGE> 20
SCHEDULE 4.1
------------
FDS STORES
- ----------
Sun Valley
Valley Fair
GE CAPITAL STORES
- -----------------
Sun Rise
Pleasantown - Stoneridge
BW Plaza - Walnut Creek
Northgate - Marin
Fashion Valley/Mission Valley
Carlsbad
The Oaks/1,000 Oaks
Modesto
Fresno
Coddingtown
<PAGE> 1
EXECUTION COPY
CERTAIN INFORMATION (AS INDICATED BELOW) HAS BEEN OMITTED FROM THIS AGREEMENT
AND FILED SEPERATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE
WITH RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
INTERIM AGREEMENT
INTERIM AGREEMENT, dated as of August 6, 1995, between
Federated Department Stores, Inc. ("FDS") and General Electric Capital
Corporation ("GE Capital").
WHEREAS, R. H. Macy & Co. ("Macy") and certain of its
affiliates are parties to (i) a Credit Card Program Agreement (the "Consumer
Agreement") dated as of May 10, 1991 with GE Capital Consumer Card Co., formerly
known as Monogram Bank, USA ("GE Bank") and (ii) a Commercial Accounts Agreement
(the "Commercial Agreement") dated as of May 10, 1991 with GE Capital (the
Consumer Agreement and Commercial Agreement are referred to together herein as
the "Program Agreements" and the credit card program conducted thereunder is
referred to as the "Program"). Capitalized terms used herein have the meaning
given to them in the Program Agreements unless otherwise defined herein.
WHEREAS, on December 19, 1994, the predecessor to FDS merged
with and into Macy, Macy was the surviving entity and changed its name to
"Federated Department Stores, Inc."
WHEREAS, the Program Fiscal Year and FDS's fiscal year are not
the same and the parties desire to effect certain interim arrangements for the
Interim Period (as defined below) and to bring the Program onto FDS's fiscal
year.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Interim Period. During the period from August 6, 1995 until February
3, 1996 (the "Interim Period"), all provisions of the Program Agreements and the
Program, other than those temporarily suspended for the Interim Period to the
extent strictly necessary to reflect the provisions of this Agreement, shall
remain in full force and effect.
<PAGE> 2
Certain financial and economic provisions (as more fully described herein) shall
be implemented for the Interim Period, and for that period only shall modify the
related provisions set forth in the Program Agreements. If, prior to the last
day of the Interim Period, FDS and GE Capital have not executed and delivered a
definitive agreement regarding the terms and structure of the Program which
supersedes the Program Agreements, then the Program Agreements shall, as of such
last day, revert to their original terms and the provisions hereof shall no
longer be applicable, except as necessary (i) to reflect a change in the
definition of "Program Fiscal Year" to coincide more closely with FDS's fiscal
year rather than Macy's Fiscal Year, (ii) to make any other changes in dates
necessary to reflect the foregoing change in fiscal years and (iii) to complete
any of the settlement procedures described herein with respect to the Interim
Period.
2. Program Economics for the Interim Period.
2.1. GE Capital Return. The parties agree that GE Capital
shall be entitled to a profit, after Taxes, [Information omitted] of per annum
on its Deemed Equity Amount invested in the Program for the Interim Period
(the "Interim Period Target Profit"), subject to certain adjustments as
described in Section 2.4.2(d) and (e) below. For purposes of calculating the
settlements referred to in Section 2.4, Interim Period Target Profit will be
expressed as a pre-tax equivalent amount. GE Capital's Deemed Equity Amount
invested in the Program for the Interim Period shall be calculated as provided
in the Program Agreements (i.e., [Information omitted] of the Average Net
Receivables outstanding during the six-month Interim Period, calculated based
on a seven point average). In order to determine whether GE Capital has
received the Interim Period Target Profit, the amount by which Program revenues
for the Interim Period exceed Program expenses for the Interim Period shall be
calculated (the "Interim Period Actual Profit"). To the extent that Interim
Period Actual Profit and Interim Period Target Profit differ, the parties shall
settle such difference in accordance with the provisions of Section 2.4.
2
<PAGE> 3
2.2. Program Revenues.
Program revenues shall be as set forth below:
2.2.1. Financing Income. All Financing Income generated by the
Program during the Interim Period shall be revenue of the Program.
2.2.2. Late Fees and Returned Check Fees. All revenue from
late fees and returned check fees (after deducting therefrom late fee and
returned check fee write-offs) shall be revenue of the Program.
2.2.3 Sundry Income. All revenue from revenue enhancement
programs shall be calculated and established in accordance with the term sheets
attached hereto as Exhibit A* or, to the extent a program is not described on
Exhibit A*, in accordance with written term sheets to be mutually agreed upon by
GE Capital and FDS with respect to any such program. The revenue of each such
revenue enhancement program as so calculated and established is referred to
hereinafter as the "net revenue".
(a) The net revenue from revenue enhancement programs (other
than from credit insurance programs) that have been utilized by the Program
prior to the start of the Interim Period shall be revenue of the Program.
(b) All net revenue from revenue enhancement programs that
have been proposed by FDS during the Interim Period or that GE Capital proposes
to FDS during the Interim Period (other than programs that are variations on
existing programs or expansions or extended implementations of existing
programs) and from credit insurance programs (including adjustments to reserves
against potential future claims) whenever utilized or proposed (together,
"Shared Sundry Income Revenue") shall be shared [Information omitted] between
FDS and GE Capital (i.e., FDS's [Information omitted] share of Shared Sundry
Income Revenue shall be revenue of the Program). GE Capital's [Information
omitted] share shall not be considered revenue of the Program (i.e., will not
be taken into account in calculating Interim Period Actual Profit or Monthly
Actual Profit) and will be accounted for by GE Capital outside the Program.
- ---
* Exhibit A has been omitted.
3
<PAGE> 4
(c) During the Interim Period, the adoption of any new revenue
enhancement program for the Program shall be by mutual agreement of FDS and GE
Capital. In the event that a proposed new revenue enhancement program or a
reasonably similar program is offered by more than one provider thereof, a
determination of which new revenue enhancement program is to be adopted during
the Interim Period will be made on the basis of competitive bidding and the
one(s) offering terms that are the most favorable to the net revenue of the
Program shall be adopted.
2.2.4. Service Discount. The Bank Service Discount and GE
Capital Service Discount shall be as identified on Exhibit B hereto*. All Bank
Service Discount Income under the Consumer Agreement and GE Capital Service
Discount Income under the Commercial Agreement collected during the Interim
Period shall be revenue of the Program.
2.3. Program Expenses.
Program expenses shall be as set forth below:
2.3.1. Money Costs. All Money Costs during the Interim Period,
as calculated and assessed to the Program in accordance with past practices,
shall be an expense of the Program.
2.3.2. Operating Expenses. All Operating Expenses incurred by
GE Capital during the Interim Period shall be expenses of the Program.
2.3.3. Overhead. Overhead shall be an expense of the Program
and shall equal [Information omitted] during the Interim Period.
2.3.4. [Information omitted]
- ---
* Exhibit B has been omitted.
4
<PAGE> 5
2.3.5. Losses. All Losses on accounts during the Interim
Period (after deducting therefrom late fee write-offs and returned check fee
write-offs) shall be an expense of the Program.
2.3.6. Postage Increases. In the event the United States
first-class postage rate is increased during the Interim Period, the aggregate
amount of actual documented out-of-pocket postage expenses for each and every
mailed item (including, without limitation, periodic billing statements and
other credit card documentation) due to such increased postage rate shall be an
expense of the Program.
2.4. Monthly and Final Settlements.
2.4.1. Monthly Settlements. (a) Within 10 business days after
the end of each Program Fiscal Month during the Interim Period (commencing with
the end of October, 1995), GE Capital shall deliver to FDS a monthly return and
settlement statement in the form of Exhibit C hereto (the "Monthly Return and
Settlement Statement"*). All other reports required to be provided pursuant to
the Program Agreement will be provided as required in the Program Agreement.
The Monthly Return and Settlement Statement shall set forth (i) the amount by
which Program revenue for the immediately prior Program Fiscal Month exceeded
Program expenses for such month on the basis set forth herein (the "Monthly
Actual Profit"), and (ii) the amount of profit, after Taxes, that GE Capital
would have required for the month in order to receive a [Information omitted]
per annum return on its Deemed Equity Amount invested in the Program for the
month (the "Monthly Target Profit") (the Deemed Equity Amount for the month
shall equal [Information omitted] of the Average Net Receivables outstanding
during the month calculated on a two point average).
(b) FDS will have 5 days to review each Monthly Return and
Settlement Statement. If within such 5-day period FDS demonstrates to GE Capital
that the Statement contains a calculation error, then GE Capital shall use good
faith, reasonable efforts to correct such error. If the Monthly Return and
Settlement Statement indicates
- ---
* Exhibit C has been omitted.
5
<PAGE> 6
that Monthly Actual Profit was less than the Monthly Target Profit, then GE
Capital shall be entitled to receive from FDS, by wire transfer within 2
business days, an amount equal to such difference, provided that if GE Capital
does not receive such payment within such time, then GE Capital shall be
entitled to deduct from one or more daily settlement payments to be made to FDS
pursuant to the Program Agreements an amount equal to such difference. If the
Monthly Return and Settlement Statement indicates that Monthly Actual Profit was
more than the Monthly Target Profit, then GE Capital shall pay to FDS, by wire
transfer within 2 business days, an amount equal to such difference. The monthly
settlements with respect to August, September and October 1995 shall be effected
based on the foregoing provisions as promptly as practicable after the date
hereof.
2.4.2. Final Settlement. (a) Within 30 days after the end of
the Interim Period, GE Capital shall deliver to FDS (i) a statement which sets
forth the Interim Period Actual Profit (the "Interim Period Return Statement"),
(ii) a statement setting forth Operating Expenses for the Interim Period (the
"Operating Expenses Statement") and (iii) a statement setting forth Net
Write-offs for the Interim Period (net of late fee and returned check fee
write-offs) (the "Write-off Statement"). The Interim Period Return Statement,
the Operating Expenses Statement and the Write-off Statement are each referred
to herein as a "Statement" and together as the "Statements."
(b) FDS shall have 45 days to review the Statements. At the
end of such 45-day period, the Statements shall become final (the "Final
Statements" and each a "Final Statement") unless FDS has delivered to GE Capital
a written notice prior to the end of such 45-day period setting forth in
reasonable detail its objections to one or more Statements. If FDS delivers an
objection notice with respect to a Statement within such 45-day period, the
other Statements shall become Final
6
<PAGE> 7
Statements and the parties shall negotiate in good faith to try to resolve any
disputes with respect to the Statement as to which FDS objected. If the parties
are able to resolve their dispute within 45 days, the applicable Statement, as
finalized by agreement of the parties, shall become a Final Statement. If the
parties are unable to resolve their dispute within such 45-day period, the
dispute shall be finally settled by arbitration conducted in accordance with the
rules of the American Arbitration Association as in effect on the date
arbitration is commenced, by a single arbitrator selected in accordance with the
rules of the American Arbitration Association. The arbitration shall be held in
New York, New York. Judgment upon any arbitration award may be entered by any
court having jurisdiction thereof, and the parties waive any appeal or other
remedy on the merits of the dispute or the award to which they might otherwise
be entitled under applicable law. The Statement, as finalized by the arbitrator,
shall be a Final Statement. The costs of the arbitration shall be paid by one or
more of the parties as determined by the arbitrator whose determination shall be
final and binding.
(c) If the Final Interim Period Return Statement indicates
that the Interim Period Actual Profit exceeded the Interim Period Target Profit,
then GE Capital shall promptly pay to FDS, by wire transfer within 2 business
days, an amount equal to the difference. If the Final Interim Period Return
Statement indicates that the Interim Period Actual Profit was less than the
Interim Period Target Profit, then FDS shall promptly pay to GE Capital, by wire
transfer within 2 business days, an amount equal to such difference, provided
that if GE Capital does not receive such payment within such time, then GE
Capital shall be entitled to deduct from one or more daily settlement payments
to be made to FDS pursuant to the Program Agreements an amount equal to such
difference. For purposes of calculating Interim Period Actual Profit, all
monthly settlement payments made pursuant to Section 2.4.1. shall be deemed to
have increased or decreased Service Discount Income, as appropriate.
(d) If the Final Operating Expenses Statement indicates that
Operating Expenses for the Interim Period exceeded the Maximum Operating
Expenses (as defined below) for the Interim Period, then GE Capital shall
promptly pay to FDS an amount equal to such excess. "Maximum Operating Expenses"
means an amount equal to
7
<PAGE> 8
105% of the budgeted Operating Expenses for the Interim Period as set forth in
the Interim Period Operating Budget which has been agreed to by the parties and
is attached as Exhibit D (or such greater amount as may be approved by FDS*).
(e) If the Final Write-off Statement indicates that Write-offs
for the Interim Period (net of late fee and returned check fee write-offs)
exceeded the Target Write-offs (as defined below) for the Interim Period, then
GE Capital shall promptly pay to FDS an amount equal to 25% of such excess.
"Target Write-offs" means total projected Net Write-offs for the Interim Period
which has been agreed to by the parties and is set forth in Exhibit E*.
2.5. Discount Adjusters. The Discount Adjusters set forth in
Section 4.2 of the Program Agreements shall not be in effect during the Interim
Period.
3. Confidentiality; Other. The parties acknowledge and agree that the
confidentiality provisions set forth in Section 14.1 of the Consumer Agreement
shall be applicable with respect to all information, documentation, technology
or methodology provided by the parties hereunder, including without limitation
any such items regarding budgeted or actual expenses or revenues, other prices
or costs, staffing or compensation, information systems, business processes,
vendor relationships or other client relationships. The parties agree that, as
necessary, each shall take appropriate actions to ensure compliance with all
applicable antitrust laws, including without limitation, limitations as to which
employees of which party may receive confidential cost information.
4. No Other Amendments. Except to the extent specifically modified
hereby, the Program Agreements shall remain unchanged and in full force and
effect.
5. Amendment. This Agreement may not be amended except by a written
instrument signed by both GE Capital and FDS.
- ---
* Exhibits D and E have been omitted.
8
<PAGE> 9
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of laws provisions thereof.
[Intentionally Blank]
9
<PAGE> 10
7. Entire Agreement. This Agreement is the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other prior
understandings and agreements between the parties with respect to the subject
matter hereof, whether written or oral.
8. Multiple Counterparts. This Agreement may be executed in any number
of multiple counterparts, all of which shall constitute but one and the same
original.
IN WITNESS WHEREOF, GE Capital and FDS have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
FEDERATED DEPARTMENT
STORES, INC.
By: /s/ Ronald Tysoe
--------------------------
Name: Ronald Tysoe
--------------------------
Title: Vice Chairman & CFO
--------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Richard A. Hayes
--------------------------
Name: Richard A. Hayes
--------------------------
Title: Attorney-in-fact
--------------------------
10
<PAGE> 1
EXECUTION COPY
CERTAIN INFORMATION (AS INDICATED BELOW) HAS BEEN OMITTED FROM THIS AGREEMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE
WITH RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
INTERIM AGREEMENT II
INTERIM AGREEMENT II, dated as of February 3, 1996 between
Federated Department Stores, Inc. ("FDS") and General Electric Capital
Corporation ("GE Capital").
WHEREAS, R. H. Macy & Co. ("Macy") and certain of its
affiliates are parties to (i) a Credit Card Program Agreement (the "Consumer
Agreement") dated as of May 10, 1991 with GE Capital Consumer Card Co., formerly
known as Monogram Bank, USA ("GE Bank") and (ii) a Commercial Accounts Agreement
(the "Commercial Agreement") dated as of May 10, 1991 with GE Capital (the
Consumer Agreement and Commercial Agreement are referred to together herein as
the "Program Agreements" and the credit card program conducted thereunder is
referred to as the "Program"). Capitalized terms used herein have the meaning
given to them in the Program Agreements unless otherwise defined herein.
WHEREAS, on December 19, 1994, the predecessor to FDS merged
with and into Macy, Macy was the surviving entity and changed its name to
"Federated Department Stores, Inc."
WHEREAS, the parties hereto are parties to an Interim
Agreement dated as of August 6, 1995 (the "Prior Interim Agreement").
WHEREAS, the Prior Interim Agreement is applicable with
respect to the period from August 6, 1995 until February 3, 1996 (the "Prior
Interim Period") and the parties desire to enter into additional interim
arrangements with respect to the period from February 4, 1996 until August 3,
1996 (the "New Interim Period").
<PAGE> 2
WHEREAS, the parties desire that the Prior Interim Agreement
continues to be applicable with respect to the Prior Interim Period and that
this Agreement be applicable with respect to the New Interim Period.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Interim Period. During the New Interim Period all provisions of the
Program Agreements and the Program, other than those temporarily suspended for
the New Interim Period to the extent strictly necessary to reflect the
provisions of this Agreement, shall remain in full force and effect. Certain
financial and economic provisions (as more fully described herein) shall be
implemented for the New Interim Period, and for that period only shall modify
the related provisions set forth in the Program Agreements. If, prior to the
last day of the New Interim Period, FDS and GE Capital have not executed and
delivered a definitive agreement regarding the terms and structure of the
Program which supersedes the Program Agreements, then the Program Agreements
shall, as of such last day, revert to their original terms (or such other terms
as may be set forth in a certain Program Agreement Amendment dated as of the
date hereof (the "Program Agreement Amendment") and expressly designated therein
as surviving the termination of the New Interim Period) and the provisions
hereof shall no longer be applicable, except as necessary to complete any of the
settlement procedures described herein with respect to the New Interim Period.
2. Program Economics for the New Interim Period.
2.1. GE Capital Return. The parties agree that GE Capital
shall be entitled to a profit, after Taxes, of [Information omitted] per annum
on its Deemed Equity Amount invested in the Program for the New Interim
Period (the "Interim Period Target Profit"), subject to certain adjustments as
described in Section 2.4.2(d) and (e) below. For purposes of calculating the
settlements referred to in Section 2.4, Interim Period Target Profit and
Monthly Target Profit will be expressed as a pre-tax equivalent amount. GE
Capital's Deemed Equity Amount invested in the Program for the New Interim
Period shall be
2
<PAGE> 3
calculated as provided in the Program Agreements (i.e., [Information omitted]
of the Average Net Receivables outstanding during the six-month New
Interim Period, calculated based on a seven point average). In order to
determine whether GE Capital has received the Interim Period Target Profit, the
amount by which Program revenues for the New Interim Period exceed Program
expenses for the New Interim Period shall be calculated (the "Interim Period
Actual Profit"). To the extent that Interim Period Actual Profit and Interim
Period Target Profit differ, the parties shall settle such difference in
accordance with the provisions of Section 2.4.
2.2. Program Revenues.
Program revenues shall be as set forth below:
2.2.1. Financing Income. All Financing Income generated by the
Program during the New Interim Period shall be revenue of the Program.
2.2.2. Late Fees and Returned Check Fees. All revenue from
late fees and returned check fees (after deducting therefrom late fee and
returned check fee write-offs) shall be revenue of the Program.
2.2.3. Service Discount. The Bank Service Discount and GE
Capital Service Discount for the New Interim Period shall be as identified on
Exhibit B hereto*. All Bank Service Discount Income under the Consumer Agreement
and GE Capital Service Discount Income under the Commercial Agreement collected
during the New Interim Period shall be revenue of the Program.
2.3. Program Expenses.
Program expenses shall be as set forth below:
2.3.1. Money Costs. All Money Costs during the New Interim
Period, as calculated and assessed to the Program in accordance with past
practices, shall be an expense of the Program.
2.3.2. Operating Expenses. Subject to Section 2.4.2(d) hereof,
all Operating Expenses incurred by GE Capital during the New Interim Period
shall be
- ---
* Exhibit B has been omitted.
3
<PAGE> 4
expenses of the Program, it being acknowledged that the expenses incurred by GE
Capital in connection with providing the services described in Section 2 of the
Program Agreement Amendment shall be included as Operating Expenses.
2.3.3. Overhead. Overhead shall be an expense of the Program
and shall equal [Information omitted] during the New Interim Period.
2.3.4. [Information omitted]
2.3.5. Losses. All Losses on accounts during the New Interim
Period (after deducting therefrom late fee write-offs and returned check fee
write-offs) shall be an expense of the Program.
2.3.6. Postage Increases. In the event the United States
first-class postage rate is increased during the New Interim Period, the
aggregate amount of actual documented out-of-pocket postage expenses for each
and every mailed item (including, without limitation, periodic billing
statements and other credit card documentation) due to such increased postage
rate shall be an expense of the Program.
2.4. Monthly and Final Settlements.
2.4.1. Monthly Settlements. (a) Within 10 business days after
the end of each Program Fiscal Month during the New Interim Period (commencing
with the end of February, 1996), GE Capital shall deliver to FDS a monthly
return and settlement statement in the form of Exhibit C hereto (the "Monthly
Return and Settlement Statement"*). All other reports required to be provided
pursuant to the Program
- ---
* Exhibit C has been omitted.
4
<PAGE> 5
Agreement will be provided as required in the Program Agreement. The Monthly
Return and Settlement Statement shall set forth (i) the amount by which Program
revenue for the immediately prior Program Fiscal Month exceeded Program
expenses for such month on the basis set forth herein (the "Monthly Actual
Profit"), and (ii) the amount of profit, after Taxes, that GE Capital would
have required for the month in order to receive a [Information omitted] per
annum return on its Deemed Equity Amount invested in the Program for the month
(the "Monthly Target Profit") (the Deemed Equity Amount for the month
shall equal [Information omitted] of the Average Net Receivables outstanding
during the month calculated on a two point average).
(b) FDS will have 5 days to review each Monthly Return and
Settlement Statement. If within such 5-day period FDS demonstrates to GE Capital
that the Statement contains a calculation error, then GE Capital shall use good
faith, reasonable efforts to correct such error. If the Monthly Return and
Settlement Statement indicates that Monthly Actual Profit was less than the
Monthly Target Profit, then GE Capital shall be entitled to receive from FDS, by
wire transfer within 2 business days, an amount equal to such difference,
provided that if GE Capital does not receive such payment within such time, then
GE Capital shall be entitled to deduct from one or more daily settlement
payments to be made to FDS pursuant to the Program Agreements an amount equal to
such difference. If the Monthly Return and Settlement Statement indicates that
Monthly Actual Profit was more than the Monthly Target Profit, then GE Capital
shall pay to FDS, by wire transfer within 2 business days, an amount equal to
such difference.
2.4.2. Final Settlement. (a) Within 30 days after the end of
the New Interim Period, GE Capital shall deliver to FDS (i) a statement which
sets forth the Interim Period Actual Profit (the "Interim Period Return
Statement"), (ii) a statement setting forth Operating Expenses for the New
Interim Period (the "Operating Expenses Statement") and (iii) a statement
setting forth Net Write-offs for the New Interim Period (net of late fee and
returned check fee write-offs) (the "Write-off Statement"). The
5
<PAGE> 6
Interim Period Return Statement, the Operating Expenses Statement and the
Write-off Statement are each referred to herein as a "Statement" and together as
the "Statements."
(b) FDS shall have 45 days to review the Statements. At the
end of such 45-day period, the Statements shall become final (the "Final
Statements" and each a "Final Statement") unless FDS has delivered to GE Capital
a written notice prior to the end of such 45-day period setting forth in
reasonable detail its objections to one or more Statements. If FDS delivers an
objection notice with respect to a Statement within such 45-day period, the
other Statements shall become Final Statements and the parties shall negotiate
in good faith to try to resolve any disputes with respect to the Statement as to
which FDS objected. If the parties are able to resolve their dispute within 45
days, the applicable Statement, as finalized by agreement of the parties, shall
become a Final Statement. If the parties are unable to resolve their dispute
within such 45-day period, the dispute shall be finally settled by arbitration
conducted in accordance with the rules of the American Arbitration Association
as in effect on the date arbitration is commenced, by a single arbitrator
selected in accordance with the rules of the American Arbitration Association.
The arbitration shall be held in New York, New York. Judgment upon any
arbitration award may be entered by any court having jurisdiction thereof, and
the parties waive any appeal or other remedy on the merits of the dispute or the
award to which they might otherwise be entitled under applicable law. The
Statement, as finalized by the arbitrator, shall be a Final Statement. The costs
of the arbitration shall be paid by one or more of the parties as determined by
the arbitrator whose determination shall be final and binding.
(c) If the Final Interim Period Return Statement indicates
that the Interim Period Actual Profit exceeded the Interim Period Target Profit,
then GE Capital shall promptly pay to FDS, by wire transfer within 2 business
days, an amount equal to the difference. If the Final Interim Period Return
Statement indicates that the Interim Period Actual Profit was less than the
Interim Period Target Profit, then FDS shall
6
<PAGE> 7
promptly pay to GE Capital, by wire transfer within 2 business days, an amount
equal to such difference, provided that if GE Capital does not receive such
payment within such time, then GE Capital shall be entitled to deduct from one
or more daily settlement payments to be made to FDS pursuant to the Program
Agreements an amount equal to such difference. For purposes of calculating
Interim Period Actual Profit, all monthly settlement payments made pursuant to
Section 2.4.1. shall be deemed to have increased or decreased Service Discount
Income, as appropriate.
(d) If the Final Operating Expenses Statement indicates that
Operating Expenses for the New Interim Period exceeded the Maximum Operating
Expenses (as defined below) for the New Interim Period, then GE Capital shall
promptly pay to FDS an amount equal to such excess. "Maximum Operating Expenses"
means an amount equal to 105% of the budgeted Operating Expenses for the New
Interim Period as set forth in the Interim Period Operating Budget which has
been agreed to by the parties and is attached as Exhibit D* (or such greater
amount as may be approved by FDS).
(e) If the Final Write-off Statement indicates that Write-offs
for the New Interim Period (net of late fee and returned check fee write-offs)
exceeded the Target Write-offs (as defined below) for the New Interim Period,
then GE Capital shall promptly pay to FDS an amount equal to 25% of such excess.
"Target Write-offs" means total projected Net Write-offs for the New Interim
Period which has been agreed to by the parties and is set forth in Exhibit E*.
2.5. Discount Adjusters.For purposes of this Agreement, the Discount
Adjusters set forth in Section 4.2 of the Program Agreements shall not be in
effect during the New Interim Period.
3. Confidentiality; Other. The parties acknowledge and agree that the
confidentiality provisions set forth in Section 14.1 of the Consumer Agreement
shall be applicable with respect to all information, documentation, technology
or methodology provided by the parties hereunder, including without limitation
any such items regarding
- ---
* Exhibits D and E have been omitted.
7
<PAGE> 8
budgeted or actual expenses or revenues, other prices or costs, staffing or
compensation, information systems, business processes, vendor relationships or
other client relationships. The parties agree that, as necessary, each shall
take appropriate actions to ensure compliance with all applicable antitrust
laws, including without limitation, limitations as to which employees of which
party may receive confidential cost information.
4. No Other Amendments. Except to the extent specifically modified
hereby, the Program Agreements shall remain unchanged and in full force and
effect.
5. Amendment. This Agreement may not be amended except by a written
instrument signed by both GE Capital and FDS.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of laws provisions thereof.
7. Entire Agreement. This Agreement is the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other prior
understandings and agreements between the parties with respect to the subject
matter hereof, whether written or oral (although the Prior Interim Agreement
shall not be superseded by this Agreement with respect to matters covered
thereby).
8. Multiple Counterparts. This Agreement may be executed in any number
of multiple counterparts, all of which shall constitute but one and the same
original.
8
<PAGE> 9
IN WITNESS WHEREOF, GE Capital and FDS have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
FEDERATED DEPARTMENT
STORES, INC.
By: /s/ Dennis J. Broderick
-----------------------------------------
Name: Dennis J. Broderick
-----------------------------------------
Title: Sr. Vice President and General Counsel
-----------------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Kevin Knight
-----------------------------------------
Name: Kevin Knight
-----------------------------------------
Title: Attorney-in-fact
-----------------------------------------
9
<PAGE> 1
EXHIBIT 11
FEDERATED DEPARTMENT STORES, INC.
EXHIBIT OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, 1996 JANUARY 28, 1995
------------------------------ -------------------------------
SHARES INCOME SHARES INCOME
------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income and average number of
shares outstanding............ 191,503 $74,553 132,862 $187,616
Earnings per share.............. $ 0.39 $ 1.41
PRIMARY COMPUTATION:
Average number of common share
equivalents:
Shares to be issued to the
U.S. Treasury............ 81 122
Deferred compensation
plan..................... 164 74
Warrants................... 383 --
Stock options.............. 926 217
------- ------- ------- --------
Adjusted number of common
and common equivalent
shares outstanding and
adjusted net income... 193,057 $74,553 133,275 $187,616
Primary earnings per
share................. $ 0.39 $ 1.41
FULLY DILUTED COMPUTATION:
Additional adjustments to a
fully diluted basis:
Convertible notes.......... 10,239 2,798 8,564 10,531
Warrants................... 166 --
Stock options.............. 113 --
------- ------- ------- --------
Adjusted number of shares
outstanding and net
income on a fully
diluted basis......... 203,575 $77,351 141,839 $198,147
======= ======= ======= ========
Fully diluted earnings
per share............. $ 0.38 $ 1.40
</TABLE>
E-1
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
NAME STATE OF TRADENAME(S)
INCORPORATION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
22 East Advertising Agency, Inc. Florida
22 East Realty Corporation Florida
3240 Properties Corp. Delaware
A&S Real Estate, Inc. Delaware
Allied Mortgage Financing Corp. Delaware
Allied Stores General Real Estate Company Delaware
Allied Stores International, Inc. New York
Allied Stores International Sales Company, Inc. New York
Allied Stores Marketing Corp. New York
Astoria Realty, Inc. Delaware
Auburndale Realty, Inc. Delaware
Bamrest Del, Inc. Delaware
Bamrest NJ. Inc. New Jersey
Bamrest Penn, Inc. Pennsylvania
BFC Real Estate Company Delaware
Bloomingdale's, Inc. Ohio Bloomingdale's
Bloomingdale's By Mail Ltd. New York
Bloomingdale's Real Estate, Inc. Delaware
Broadway Receivables, Inc. Delaware
Broadway Stores, Inc. Delaware Broadway, Emporium, Weinstocks
Bullock's, Inc. Ohio Bullock's
Burdine's Main Store Real Estate, Inc. Delaware
Burdine's Real Estate, Inc. Delaware
Burdine's Real Estate II, Inc. Delaware
Burdines, Inc. Ohio Burdines
Calclove Realty Corp. California
CalVal Realty Corp. California
Camelback Funding Corporation Delaware
Carter Hawley Hale Properties, Inc. California
Cowie & Company, Limited New York
Davrest Ga., Inc. Georgia
Delphis Corporation Delaware
Douglaston Plaza, Inc. Delaware
Executive Placements Consultants, Inc. New York
FACS Group, Inc. Ohio FACS
Financial and Credit Services Group
FDS National Bank Ohio
Federated Claims Services Group, Inc. Delaware Federated Medical Services Group
Federated Corporate Services, Inc. Delaware Federated Logistics
Federated Credit Holdings Corporation Delaware
Federated Department Stores, Inc. Delaware Federated Merchandising (FM)
Federated Product Development (FPD)
Federated Department Stores Foundation Ohio
</TABLE>
1
<PAGE> 2
EXHIBIT 21 (CONT)
<TABLE>
<CAPTION>
NAME STATE OF TRADENAME(S)
INCORPORATION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federated Department Stores Insurance Company, Ltd. Bermuda
Federated Noteholding Corporation Delaware
Federated Noteholding Corporation II Delaware
Federated Real Estate, Inc. Delaware
Federated Retail Holdings, Inc. Delaware
Federated Stores Realty, Inc. Delaware
Federated Systems Group, Inc. Delaware
Finite Limited Hong Kong
Garage Park Corp. New York
Hamilton By Appointment Delaware
Hunt Valley Properties Corp. Maryland
I. Magnin, Inc. Delaware I. Magnin
I. Magnin Properties Corp. Delaware
I. Magnin Properties Corp. II Delaware
J. N. A. Properties Corp. New Jersey
Jor-Mar, Inc. Delaware
Jordan Marsh Insurance Agency, Inc. Massachusetts
Jordan Servicenter, Inc. Delaware
Kings Plaza Shopping Center of Avenue U, Inc. New York
L&K Properties Corp. Ohio
Lazarus, Inc. Ohio Lazarus
Lazarus PA, Inc. Ohio Lazarus
Lazarus Real Estate, Inc. Delaware
M H L Properties Corp. of Massachusetts Massachusetts
MacFla Rest, Inc. Florida
Macy Credit Corp. Delaware
Macy Financial, Inc. Delaware
Macy N. R. Properties Corp. New York
Macy Receivables Funding Corp. Delaware
Macy Receivables Master Servicing Corp. Delaware
Macy's Close-Out, Inc. Ohio Macy's Close-Out
MCO
Shoe Outlet Center
Macy's Data and Credit Services Corp. Delaware
Macy's East, Inc. Ohio Macy's East
Macy('s)
Jordan Marsh
Macy's Kings Plaza Real Estate, Inc. Delaware
Macy's Primary Real Estate, Inc. Delaware
Macy's Real Estate, Inc. Delaware
Macy's Secondary Real Estate, Inc. Delaware
Macy's Specialty Stores, Inc. Ohio Aeropostale
Charter Club
</TABLE>
2
<PAGE> 3
EXHIBIT 21 (CONT)
<TABLE>
<CAPTION>
NAME STATE OF TRADENAME(S)
INCORPORATION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Macy's West, Inc. Ohio Macy's West
Macy('s)
MCC Special Corp. Delaware
MOA Rest, Inc. Minnesota
MSS-Delaware, Inc. Delaware Aeropostale
Charter Club
N. B. Properties Corp. New Jersey
Nasstock, Inc. New York
New Haven Properties Corp. Connecticut
Paramustock, Inc. New Jersey
Pasadena Properties Corp. Delaware
Prime Receivables Corporation Delaware
R. H. Macy (France) S.A.R.L. France
R. H. Macy China, Ltd. Delaware
R. H. Macy Holdings (HK), Ltd. Delaware
R. H. Macy Overseas Finance N.V. Netherlands Antilles
R. H. Macy Warehouse (HK), Ltd. Delaware
Rest Tex, Inc. Texas
Rich's Department Stores, Inc. Ohio Goldsmith's
Rich's
Rich's Main Store Real Estate, Inc. Delaware
Rich's Real Estate, Inc. Delaware
Sabugo, Limited Hong Kong
Sacvent Corp. Delaware
Sacvent Garage California
Sanstoff East Properties Corp. California
Saramaas Realty Corp. Florida
Seven Hills Funding Corporation Delaware
Seven West Seventh, Inc. Delaware
Shop 34 Advertising, Inc. New York
Stern's Department Stores, Inc. Ohio Stern's
Stern's-Echelon, Inc. Delaware
Stern's-Granite Run, Inc. Delaware
Stern's-Moorestown, Inc. Delaware
Sunsac Properties Corp. California
The Bon, Inc. Ohio The Bon Marche
The Bon
Tukwila Warehousing Services Corporation Washington
U & F Realty Corp. * New York
W. P. Properties Corp. New York
Wise Chat Limited Hong Kong
</TABLE>
*50% Owned by Kings Plaza Shopping Center of Avenue U, Inc.
3
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Federated Department Stores, Inc.:
We consent to the incorporation by reference in the registration
statements (Nos. 33-88240 and 33-88242) on Form S-8 of Federated Department
Stores, Inc. of our report dated March 5, 1996, relating to the consolidated
balance sheets of Federated Department Stores, Inc. and subsidiaries as of
February 3, 1996 and January 28, 1995 and the related consolidated statements
of income and cash flows for the fifty-three week period ended February 3, 1996
and the fifty-two week periods ended January 28, 1995 and January 29, 1994,
which report appears in the February 3, 1996 annual report on Form 10-K of
Federated Department Stores, Inc.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
April 16, 1996
<PAGE> 1
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Allen I. Questrom
-----------------------------------
Allen I. Questrom
<PAGE> 2
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Ronald W. Tysoe
---------------------------------
Ronald W. Tysoe
<PAGE> 3
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ John E. Brown
-------------------------------
John E. Brown
<PAGE> 4
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Robert A. Charpie
--------------------------------
Robert A. Charpie
<PAGE> 5
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Lyle Everingham
------------------------------
Lyle Everingham
<PAGE> 6
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Meyer Feldberg
------------------------------
Meyer Feldberg
<PAGE> 7
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Earl G. Graves
--------------------------------
Earl G. Graves
<PAGE> 8
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ George V. Grune
---------------------------------
George V. Grune
<PAGE> 9
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Gertrude G. Michelson
-------------------------------------
Gertrude G. Michelson
<PAGE> 10
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Joseph Neubauer
---------------------------------
Joseph Neubauer
<PAGE> 11
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Laurence A. Tisch
-----------------------------------
Laurence A. Tisch
<PAGE> 12
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Paul W. Van Orden
-----------------------------------
Paul W. Van Orden
<PAGE> 13
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Karl M. von der Heyden
---------------------------------------
Karl M. von der Heyden
<PAGE> 14
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ Marna C. Whittington
--------------------------------------
Marna C. Whittington
<PAGE> 15
POWER OF ATTORNEY
The undersigned, a director and/or officer of Federated Department
Stores, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Dennis J. Broderick, John R. Sims and Padma Tatta Cariappa, or any of
them, my true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in my capacities as director and/or officer of the Company and to
execute any and all instruments for me and in my name in the capacities
indicated above, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1934, as amended (the "Exchange Act"), and any rules, regulations, and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with an Annual Report on Form 10-K to be filed by the Company
pursuant to Section 13 of the Exchange Act, including without limitation, power
and authority to sign for me, in my name in the capacity or capacities referred
to above, such Annual Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Commission, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Dated: April 17, 1996 /s/ James M. Zimmerman
----------------------------------
James M. Zimmerman
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> FEB-03-1996
<CASH> 172,518
<SECURITIES> 0
<RECEIVABLES> 2,842,077
<ALLOWANCES> 0
<INVENTORY> 3,094,848
<CURRENT-ASSETS> 6,360,365<F1>
<PP&E> 6,305,167
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,295,050<F2>
<CURRENT-LIABILITIES> 3,098,069
<BONDS> 5,632,232
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,295,050<F3>
<SALES> 15,048,513
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 9,317,784
<OTHER-EXPENSES> 5,067,842
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 508,132
<INCOME-PRETAX> 201,859<F4>
<INCOME-TAX> 127,306
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,553
<EPS-PRIMARY> .39
<EPS-DILUTED> .38
<FN>
<F1>Supplies and prepaid expenses 176,411
Deferred income tax assets 74,511
<F2>Intangible assets - net 744,689
Notes receivable 415,066
Other assets 469,763
<F3>Deferred income taxes 732,936
Other liabilities 558,127
Shareholders' equity 4,273,686
<F4>Interest income 47,104
</TABLE>
