SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal quarter ended
October 31, 1998.
FEDERATED DEPARTMENT STORES, INC.
151 West 34th Street
New York, New York 10001
(212) 494-1602
and
7 West Seventh St.
Cincinnati, Ohio 45202
(513) 579-7000
Delaware 1-13536 13-3324058
(State of (Commission File No.) (I.R.S. Employer
Incorporation) Identification Number)
The Registrant has filed all reports required to be filed by
Section 12, 13 or 15 (d) of the Act during the preceding 12
months and has been subject to such filing requirements for the
past 90 days.
209,691,872 shares of the Registrant's Common Stock, $.01 par
value, were outstanding as of November 28, 1998.
PART I -- FINANCIAL INFORMATION
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Income
(Unaudited)
(millions, except per share figures)
13 Weeks Ended 39 Weeks Ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
Net Sales $ 3,647 $ 3,746 $10,626 $10,608
Cost of sales 2,229 2,286 6,436 6,472
Selling, general and
administrative
expenses 1,161 1,192 3,485 3,508
Operating Income 257 268 705 628
Interest expense (74) (101) (233) (322)
Interest income 2 9 10 27
Income Before Income
Taxes and
Extraordinary Items 185 176 482 333
Federal, state and local
income tax expense (75) (71) (205) (137)
Income Before
Extraordinary Items 110 105 277 196
Extraordinary Items -
loss on early
extinguishment of
debt, net of tax
effect (23) - (23) (39)
Net Income $ 87 $ 105 $ 254 $ 157
(Continued)
PART I -- FINANCIAL INFORMATION
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Income
(Unaudited)
(millions, except per share figures)
13 Weeks Ended 39 Weeks Ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
Basic Earnings per
Share:
Income before
extraordinary
items $ .53 $ .50 $ 1.32 $ .93
Extraordinary items (.11) - (.11) (.18)
Net income $ .42 $ .50 $ 1.21 $ .75
Diluted Earnings per
Share:
Income before
extraordinary
items $ .50 $ .47 $ 1.24 $ .90
Extraordinary items (.10) - (.10) (.17)
Net income $ .40 $ .47 $ 1.14 $ .73
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
FEDERATED DEPARTMENT STORES, INC.
Consolidated Balance Sheets
(Unaudited)
(millions)
October 31, January 31, November 1,
1998 1998 1997
ASSETS:
Current Assets:
Cash $ 164 $ 142 $ 431
Accounts receivable 2,107 2,640 2,513
Merchandise inventories 4,322 3,239 4,288
Supplies and prepaid expenses 120 115 120
Deferred income tax assets 105 58 116
Total Current Assets 6,818 6,194 7,468
Property and Equipment - net 6,406 6,520 6,423
Intangible Assets - net 670 690 697
Other Assets 323 334 344
Total Assets $14,217 $13,738 $14,932
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Current Liabilities:
Short-term debt $ 699 $ 556 $ 1,899
Accounts payable and accrued
liabilities 2,998 2,416 3,048
Income taxes 22 88 28
Total Current Liabilities 3,719 3,060 4,975
Long-Term Debt 3,549 3,919 3,683
Deferred Income Taxes 1,024 939 842
Other Liabilities 557 564 561
Shareholders' Equity 5,368 5,256 4,871
Total Liabilities and
Shareholders' Equity $14,217 $13,738 $14,932
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(millions)
39 Weeks Ended 39 Weeks Ended
October 31, 1998 November 1, 1997
Cash flows from operating activities:
Net income $ 254 $ 157
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
property and equipment 448 418
Amortization of intangible assets 20 21
Amortization of financing costs 6 17
Amortization of unearned restricted
stock 1 1
Loss on early extinguishment of debt 23 39
Changes in assets and liabilities:
Decrease in accounts receivable 335 322
Increase in merchandise inventories (1,083) (1,041)
Increase in supplies and prepaid
expenses (5) (10)
Increase in other assets not
separately identified (13) (9)
Increase in accounts payable and
accrued liabilities not
separately identified 443 468
Increase (decrease) in current
income taxes (51) 44
Increase (decrease) in deferred
income taxes 38 (16)
Decrease in other liabilities not
separately identified (7) (3)
Net cash provided by operating
activities 409 408
Cash flows from investing activities:
Purchase of property and equipment (377) (411)
Disposition of property and equipment 28 120
Decrease in notes receivable 200 200
Net cash used by investing
activities (149) (91)
Cash flows from financing activities:
Debt issued 650 1,284
Financing costs - (6)
Debt repaid (563) (1,445)
Increase in outstanding checks 162 88
Acquisition of treasury stock (531) (2)
Issuance of common stock 44 46
Net cash used by financing
activities (238) (35)
(Continued)
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(millions)
39 Weeks Ended 39 Weeks Ended
October 31, 1998 November 1, 1997
Net increase in cash $ 22 $ 282
Cash at beginning of period 142 149
Cash at end of period $ 164 $ 431
Supplemental cash flow information:
Interest paid $ 235 $ 310
Interest received 13 29
Income taxes paid (net of refunds
received) 206 97
Schedule of noncash investing and
financing activities:
Conversion of long-term debt to
common stock 344 -
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
FEDERATED DEPARTMENT STORES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
A description of the Company's significant accounting policies is
included in the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1998 (the "1997 10-K"). The accompanying
Consolidated Financial Statements should be read in conjunction with
the Consolidated Financial Statements and notes thereto in the 1997
10-K.
Because of the seasonal nature of the general merchandising
business, the results of operations for the 13 and 39 weeks ended
October 31, 1998 and November 1, 1997 (which do not include the
Christmas season) are not indicative of such results for the fiscal
year.
The Consolidated Financial Statements for the 13 and 39 weeks ended
October 31, 1998 and November 1, 1997, in the opinion of management,
include all adjustments (consisting only of normal recurring
adjustments) considered necessary to present fairly, in all material
respects, the consolidated financial position and results of
operations of the Company and its subsidiaries.
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting
and display of comprehensive income and its components. For all
periods presented, comprehensive income is equivalent to net income.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activity" was issued in June 1998 and is effective for all quarters
of all fiscal years beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative
instruments and hedging activities and requires recognition of all
derivatives as either assets or liabilities on the balance sheet
using fair value measurement. The accounting for changes in the
fair value of derivatives depends on the intended use of the
derivative and the resulting hedging designation, if any. The
Company is currently reviewing the impact of this statement;
however, based on the Company's limited use of derivatives,
management does not anticipate that its adoption will have a
material impact on the Company's consolidated financial position,
results of operations or cash flows.
2. Extraordinary Items
The extraordinary item for the 13 and 39 weeks ended October 31,
1998 represents costs of $23 million, net of income tax benefit of
$15 million, associated with the completion of a tender offer
pursuant to which the Company purchased and retired approximately
$340 million aggregate principal amount of its 10% Senior Notes due
2001.
The extraordinary item for the 39 weeks ended November 1, 1997
represents costs of $39 million, net of income tax benefit of $25
million, associated with the prepayment of all amounts outstanding
under the Company's mortgage loan facility, secured promissory note,
certain other mortgages and previous bank credit facility, all of
which were retired and terminated.
FEDERATED DEPARTMENT STORES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
3. Earnings Per Share
The following tables set forth the computation of basic and diluted
earnings per share based on income before extraordinary items:
<TABLE>
<CAPTION)
13 Weeks Ended
October 31, 1998 November 1, 1997
<S> <C> <C> <C> <C> <C> <C>
(millions, except per share data) Shares Income Shares Income
Income before extraordinary item
and average number of
shares outstanding 206.8 $ 110 209.6 $ 105
Shares to be issued under deferred
compensation plan .4 - .3 -
207.2 $ 110 209.9 $ 105
Basic earnings per share $ .53 $ .50
Effect of dilutive securities:
Warrants 6.7 6.6
Stock options 1.9 2.4
Convertible notes 6.6 1 10.2 3
222.4 $ 111 229.1 $108
Diluted earnings per share $ .50 $ .47
</TABLE>
<TABLE>
<CAPTION>
13 Weeks Ended
October 31, 1998 November 1, 1997
<S> <C> <C> <C> <C> <C> <C>
(millions, except per share data) Shares Income Shares Income
Income before extraordinary items
and average number of
shares outstanding 209.2 $ 277 209.0 $ 196
Shares to be issued under deferred
compensation plan .3 - .3 -
209.5 $ 277 209.3 $ 196
Basic earnings per share $1.32 $ .93
Effect of dilutive securities:
Warrants 7.9 4.9
Stock options 2.4 1.9
Convertible notes 9.0 7 10.2 7
228.8 $ 284 226.3 $ 203
Diluted earnings per share $1.24 $ .90
</TABLE>
FEDERATED DEPARTMENT STORES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
In addition to the warrants and stock options reflected in the
foregoing tables, warrants and stock options to purchase 4.5
million and .2 million shares of common stock at prices ranging
from $44.91 to $79.44 per share were outstanding at October 31,
1998 and November 1, 1997, respectively, but were not included in
the computation of diluted earnings per share because the exercise
price thereof exceeded the average market price and would have been
antidilutive.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
For purposes of the following discussion, all references to "third
quarter of 1998" and "third quarter of 1997" are to the Company's 13-
week fiscal periods ended October 31, 1998 and November 1, 1997,
respectively, and all references to "1998" and "1997" are to the
Company's 39-week fiscal periods ended October 31, 1998 and November
1, 1997, respectively.
Results of Operations
Comparison of the 13 Weeks Ended October 31, 1998 and November 1,
1997
Net sales for the third quarter of 1998 totaled $3,647 million,
compared to net sales of $3,746 million for the third quarter of
1997, a decrease of 2.7%. On a comparable store basis (i.e., current
stores opened on or prior to February 1, 1997), net sales for the
third quarter of 1998 decreased 1.3% from the third quarter of 1997.
Since February 1, 1997, the Company has opened eight new department
stores and two new furniture galleries, changed nameplates on two
stores, closed twenty stores, sold the specialty store division and
eliminated certain consumer electronics lines of business.
Cost of sales was 61.1% of net sales for the third quarter of 1998
compared to 61.0% for the third quarter of 1997. The increase
reflects additional price reductions taken on slow selling
inventory. Cost of sales was not impacted by the valuation of
merchandise inventory on the last-in, first-out basis in the third
quarter of 1998 or the third quarter of 1997.
Selling, general and administrative ("SG&A") expenses were 31.8% of
net sales for the third quarter of 1998 and for the third quarter of
1997.
Net interest expense was $72 million for the third quarter of 1998,
compared to $92 million for the third quarter of 1997. The lower
interest expense for the third quarter of 1998 is principally due to
lower levels of borrowings and lower interest rates resulting from
refinancings completed in 1998.
The Company's effective income tax rate of 40.5% for the third
quarter of 1998 differs from the federal income tax statutory rate
of 35.0% principally because of the effect of state and local income
taxes and permanent differences arising from the amortization of
intangible assets and from other non-deductible items.
The extraordinary item of $23 million in the third quarter of 1998
represents the after-tax expenses associated with the completion of
a tender offer pursuant to which the Company purchased and retired
approximately $340 million aggregate principal amount of its 10%
Senior Notes due 2001.
Comparison of the 39 Weeks Ended October 31, 1998 and November 1,
1997
Net sales for 1998 were $10,626 million compared to $10,608 million
for 1997, an increase of 0.2%. On a comparable store basis, net
sales for 1998 increased 1.3% over 1997.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
Cost of sales was 60.6% of net sales for 1998 compared to 61.0% for
1997. The 0.4% improvement in the cost of sales rate reflects
positive customer response to the merchandise assortments in the
stores during the second quarter of 1998, attributed partially to an
improved merchandise receipt flow. Cost of sales was not impacted
by the valuation of merchandise inventory on the last-in, first-out
basis in 1998 or 1997.
SG&A expenses were 32.8% of net sales for 1998 compared to 33.1% for
1997. The 0.3% reduction in the SG&A expense rate reflects
improvements in operations related to the Company's credit card
accounts.
Net interest expense was $223 million for 1998 compared to $295
million for 1997. The lower interest expense for 1998 is
principally due to lower levels of borrowings and lower interest
rates resulting from refinancings completed in 1998 and in July
1997.
The Company's effective income tax rate of 42.5% for 1998 differs
from the federal income tax statutory rate of 35.0% principally
because of the effect of state and local income taxes and permanent
differences arising from the amortization of intangible assets and
from other non-deductible items.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from
operations, cash on hand and certain available credit facilities.
Net cash provided by operating activities in 1998 was $409 million,
compared to the $408 million provided in 1997.
Net cash used by investing activities was $149 million in 1998, with
the final $200 million installment of a note receivable held by the
Company being received on May 4, 1998, purchases of property and
equipment totaling $377 million and dispositions of property and
equipment totaling $28 million. The Company opened two new stores
during the third quarter of 1998 and also opened two additional
stores in November, 1998. On August 1, 1998, the Company completed
the sale of its specialty store division to a group including the
division's management. The sale did not have a material impact on
the Company's financial position or results of operations.
Net cash used by the Company for financing activities was $238
million in 1998. On February 6, 1998, the Company issued $300
million of 7.0% Senior Debentures due 2028. On August 26, 1998, the
Company issued $350 million of 6 1/8% Term Enhanced ReMarketable
Securities due in 2011, puttable to the Company in 2001. Also
during 1998, the Company renewed a portion of the bank credit
agreement which provides a $500 million unsecured revolving credit
facility with a termination date of July 26, 1999.
During 1998, the Company repaid $340 million of its 10% Senior Notes
due 2001 and the remaining $176 million of borrowings under a note
monetization facility.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
During October 1998, the Board of Directors authorized an expansion
and extension of the Company's $500 million stock repurchase program
established in May 1998. The program now authorizes the Company to
purchase up to $1 billion of its common stock through January 29,
2000. Through October 31, 1998, 11.3 million shares of common stock
at an aggregate cost of $531 million had been acquired under the
repurchase program. The Company intends to continue to repurchase
shares under the repurchase program, depending on prevailing market
conditions, alternate uses of capital and other factors. Any such
purchases may be discontinued or resumed at any time.
In September 1998, the $350 million aggregate principal amount of
the Company's 5.0% Convertible Subordinated Notes due 2003 was
converted into 10.2 million shares of common stock.
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 and other
complementary assets and companies.
Management of the Company believes that, with respect to its current
operations, cash on hand and funds from operations, together with
its credit facilities, will be sufficient to cover its reasonably
foreseeable working capital, capital expenditure and debt service
requirements. Acquisition transactions, if any, are expected to be
financed through a combination of cash on hand and from operations
and the possible issuance from time to time of long-term debt or
other securities. Depending upon conditions in the capital markets
and other factors, the Company will from time to time consider the
issuance of debt or other securities, or other possible capital
markets transactions, the proceeds of which could be used to
refinance current indebtedness or for other corporate purposes.
Year 2000 Matters
The Year 2000 Issue
Many existing computer programs utilized globally use only two
digits to identify a year in the date field. These programs, if not
corrected, could fail or create erroneous results after the century
date changes on January 1, 2000 or when otherwise dealing with dates
later than December 31, 1999. This "Year 2000" issue is believed to
affect virtually all companies and organizations, including the
Company.
The Company relies on computer-based technology and utilizes a
variety of third-party hardware and proprietary and third-party
software. The Company's retail functions, such as merchandise
procurement and distribution, inventory control, point-of-sale
information systems and proprietary credit card account servicing,
generally use proprietary software, with third-party software being
used more extensively for administrative functions, such as
accounting and human resource management. In addition to such
information technology ("IT") systems, the Company's operations rely
on various non-IT equipment and systems that contain embedded
computer technology, such as elevators, escalators and energy
management systems. Third parties with whom the Company has
commercial relationships, including vendors of merchandise for
resale by the Company and of products and services used by the
Company in its operations (such as banking and financial services,
data processing services, telecommunications services and
utilities), are also highly reliant on computer-based technology.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
In February 1996, the Company commenced an assessment of the
potential effects of the Year 2000 issue on the Company's business,
financial condition and results of operations. In conjunction with
such assessment, the Company developed and commenced the
implementation of the compliance program described below.
The Company's Compliance Program
Proprietary IT Systems. Pursuant to the Company's Year 2000
compliance program, the Company has undertaken an examination of the
Company's proprietary IT systems. All such systems that have been
identified as relating to a critical function and as not being Year
2000 compliant have been or are being remediated or replaced. The
Company believes that the remediation of its proprietary IT systems
is substantially complete, and nearly all of the proprietary IT
systems that have been remediated have been installed and placed
into production. The Company commenced testing of such remediated
systems for Year 2000 compliance in August 1998 and presently
anticipates completing a comprehensive, integrated test of all of
its main-frame and mid-range IT systems (including third-party and
proprietary hardware, software, network components and interfaces)
by January 31, 1999.
Third-Party IT Systems. The strategy instituted by the Company to
identify and address Year 2000 issues affecting third-party IT
systems used by the Company includes contacting all third-party
providers of computer hardware and software to secure appropriate
representations to the effect that such hardware or software is or
will timely be Year 2000 compliant. The Company has received Year
2000 compliant versions of almost all third-party software and is
currently engaged in testing those third-party software programs
that have been identified as being critical to the Company's
operations. The Company is also developing contingency plans as to
third-party hardware and software used by the Company in respect of
which the Company has not received adequate compliance assurances to
date.
Non-IT Systems. The Company has undertaken a review of its non-IT
systems and is in the process of implementing a remediation program
in respect of such systems that are within the control of the
Company. The Company expects to complete this remediation effort by
April 30, 1999. In addition, the Company's centralized real estate
department has communicated to the developers, landlords and
property managers of substantially all of the Company's properties
the Company's expectation that the systems utilized in the
management and operation of such properties which are not within the
Company's control are or will timely be Year 2000 compliant. As a
further step, the Company plans to engage in written or oral
communications with its key developers, landlords and property
managers in order to assess the Year 2000 readiness of their
respective operations.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
Non-IT Vendors and Suppliers. The Company procures its merchandise
for resale and supplies for operational purposes from a vast network
of vendors located both within and outside the United States, and is
not dependent on any one vendor for more than 5% of its merchandise
purchases. The Company procures its private label merchandise,
which constitutes approximately 15% of the Company's total sales,
principally from manufacturers located outside the United States.
All of the Company's vendors have been notified in writing of the
Company's expectation that the systems and operations of such
vendors will be Year 2000 compliant before January 31, 1999. As a
part of its contingency planning effort, the Company has commenced
making inquiries as to the Year 2000 readiness of selected key
vendors and private label manufacturers in order to identify any
significant exposures that may exist and establish alternate sources
or strategies where necessary. As of October 31, 1998,
approximately 75% of the selected key vendors contacted have
provided to the Company written or verbal assurances that they are
in the process of implementing compliance programs that are intended
to address the Year 2000 issues affecting their respective
operations.
Contingency Planning. The Company's Year 2000 compliance program is
directed primarily towards ensuring that the Company will be able to
continue to perform three critical functions: (i) effect sales, (ii)
order and receive merchandise, and (iii) pay its employees and
vendors. The Company is currently gathering data in an effort to
assess the potential effects on these mission critical functions of
a failure of the Company's Year 2000 compliance program to be fully
effective and, to the extent deemed appropriate, to develop a
contingency plan to address such effects. The Company expects to
complete its contingency plan by July 31, 1999.
Costs
The Company has incurred to date approximately $21 million of costs
to implement its Year 2000 compliance program and presently expects
to incur approximately $50 million of costs in the aggregate, of
which approximately 25% represents capitalized expenditures for
hardware purchases. All of the Company's Year 2000 compliance costs
have been or are expected to be funded from the Company's operating
cash flow. The Company's Year 2000 compliance budget does not
include material amounts for hardware replacement because the
Company has historically employed a strategy to continually upgrade
its main-frame and mid-range computer systems and to install state
of the art point-of-sale systems with respect to both pre-existing
operations and in conjunction with the acquisitions and mergers
effected by the Company in recent years. Consequently, the
Company's Year 2000 budget has not required the diversion of funds
from or the postponement of the implementation of other planned IT
projects.
Risks Associated With Year 2000 Issues
The novelty and complexity of the issues presented by the Year 2000
and the proposed solutions therefor and the Company's dependence on
the technical skills of employees and independent contractors and on
the representations and preparedness of third parties are among the
factors that could cause the Company's Year 2000 compliance efforts
to be less than fully effective. Moreover, Year 2000 issues present
a number of risks that are beyond the Company's reasonable control,
such as the failure of utility companies to deliver electricity, the
failure of telecommunications companies to provide voice and data
services, the failure of
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
financial institutions to process transactions and transfer funds,
the failure of vendors to deliver merchandise or perform services
required by the Company and the collateral effects on the Company of
the effects of Year 2000 issues on the economy in general or on the
Company's business partners and customers in particular. Although
the Company believes that its Year 2000 compliance program is
designed to appropriately identify and address those Year 2000
issues that are subject to the Company's reasonable control, there
can be no assurance that the Company's efforts in this regard will
be fully effective or that Year 2000 issues will not have a material
adverse effect on the Company's business, financial condition or
results of operations.
PART II -- OTHER INFORMATION
FEDERATED DEPARTMENT STORES, INC.
Item 5. Other Information
This report and other reports, statements and information
previously or subsequently filed by the Company with the
Securities and Exchange Commission (the "SEC") contain or may
contain forward-looking statements. Such statements are
based upon the beliefs and assumptions of, and on information
available to, the management of the Company at the time such
statements are made. The following are or may constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995: (i) statements
preceded by, followed by or that include the words "may,"
"will," "could," "should," "believe," "expect," "future,"
"potential," "anticipate," "intend," "plan," "estimate," or
"continue" or the negative or other variations thereof and
(ii) statements regarding matters that are not historical
facts. Such forward-looking statements are subject to
various risks and uncertainties, including (i) risks and
uncertainties relating to the possible invalidity of the
underlying beliefs and assumptions, (ii) possible changes or
developments in social, economic, business, industry,
market, legal and regulatory circumstances and conditions,
and (iii) actions taken or omitted to be taken by third
parties, including customers, suppliers, business partners,
competitors and legislative, regulatory, judicial and other
governmental authorities and officials. In addition to any
risks and uncertainties specifically identified in the text
surrounding such forward-looking statements, the statements
in the immediately preceding sentence and the statements
under captions such as "Risk Factors" and "Special
Considerations" in reports, statements and information filed
by the Company with the SEC from time to time constitute
cautionary statements identifying important factors that
could cause actual amounts, results, events and circumstances
to differ materially from those reflected in such forward-
looking statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Tenth Amendment to Amended and Restated Pooling and
Servicing Agreement, dated as of August 3,1998, by and
among Prime Receivables Corporation, as Transferor, FDS
National Bank, as Servicer, and The Chase Manhattan
Bank, as Trustee.
10.2 Second Supplemental Trust Indenture, dated as of August
26,1998, between Federated Department Stores, Inc. and
Citibank, N.A., as Trustee (incorporated by reference to
Exhibit 2 to the Company's Current Report on Form 8-K
dated as of August 25, 1998).
27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K, dated August 25, 1998, reporting
matters under Items 5 and 7 thereof.
Current Report on Form 8-K, dated September 2, 1998,
reporting matters under Items 5 and 7 thereof.
FEDERATED DEPARTMENT STORES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunder duly authorized.
FEDERATED DEPARTMENT STORES, INC.
Date December 15, 1998 /s/ Dennis J. Broderick
Dennis J. Broderick
Senior Vice President, General Counsel
and Secretary
/s/ Joel A. Belsky
Joel A. Belsky
Vice President and Controller
(Principal Accounting Officer)
TENTH AMENDMENT TO
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
This Tenth Amendment to Amended and Restated Pooling
and Servicing Agreement, made as of August 3, 1998 (this
"Amendment"), is among Prime Receivables Corporation (the
"Transferor"), FDS National Bank (successor servicer to Federated
Departments Stores, Inc.), as servicer (in such capacity, the
"Servicer"), and The Chase Manhattan Bank (successor to Chemical
Bank), as trustee (in such capacity, the "Trustee"). Capitalized
terms used in this Amendment and not otherwise defined have the
meanings assigned to such terms in the Pooling and Servicing
Agreement (as defined below).
PRELIMINARY STATEMENTS:
1. The Purchaser, the Servicer and the Trustee are
parties to the Amended and Restated Pooling and Servicing
Agreement dated as of December 15, 1992 (as amended, restated,
supplemented or otherwise modified from time to time, the
"Pooling and Servicing Agreement").
2. The Transferor, the Servicer and the Trustee
desire to amend the Pooling and Servicing Agreement more
accurately to reflect the calculation of finance changes
thereunder.
3. Section 13.01 of the Pooling and Servicing
Agreement permits the amendment of the Pooling and Servicing
Agreement subject to certain conditions.
AGREEMENT:
The Transferor, the Servicer and the Trustee agree to
the following terms and conditions:
1. Amendment. On the date of this Amendment,
Section 1.01 of the Pooling and Servicing Agreement is amended as
follows:
(a) The definition of "Default Amount" set forth in such
Section 1.01 is amended and restated in its entirety as follows:
"Default Amount" shall mean, on any
Business Day, (x) the aggregate Outstanding
Balance of Receivables in Accounts that
became Defaulted Accounts on such Business
Day that do not constitute finance charges,
late fees, or any other fee or charge minus
(y) the portion of the Ineligible Default
Amount that does not constitute finance
charges, late fees, or any other fee or
charge.
2. Conditions Precedent. (A) Attached to this
Amendment as Exhibit A is an Officer's Certificate of the
Servicer stating that the amendment to the Pooling and Servicing
Agreement effected by this Amendment does not adversely effect in
any material respect the interests of any of the
Certificateholders. Such Officer's Certificate is required to be
delivered under Section 13.01 of the Pooling and Servicing
Agreement.
(B) Attached to this Amendment as Exhibit B is an
Opinion of Counsel stating that the amendment to the Pooling and
Servicing Agreement effected by this Amendment will not cause the
Trust to be characterized for Federal income tax purposes as an
association taxable as a corporation or otherwise have any
material adverse effect on the Federal income taxation of any
outstanding Series of Investor Certificates or any Certificate
Owner. Such Opinion of Counsel is required to be delivered under
Section 13.01 of the Pooling and Servicing Agreement.
(C) Attached to this Amendment as Exhibit C are
written confirmations from the Rating Agencies to the effect the
current rating of any Series or any class of any Series will not
be reduced or withdrawn as a result of the amendment to the
Pooling and Servicing Agreement effected by Amendment. Such
confirmations are required to be delivered under Section 13.01 of
the Pooling and Servicing Agreement. The Servicer provided
written notice to each Rating Agency of the amount to the Pooling
and Servicing Agreement effected by this Amendment at least ten
Business Days prior to the date of this Amendment.
3. Continuing Agreement. The Pooling and Servicing
Agreement, as amended by this Amendment, continues in full force
and effect among the Transferor, the Servicer and the Trustee.
Delivered as of the day and year above first written.
PRIME RECEIVABLES CORPORATION
By:/s/ Susan P. Storer
Title: President
FDS NATIONAL BANK, as Servicer
By:/s/ Susan R. Robinson
Title: Treasurer
THE CHASE MANHATTAN BANK,
as Trustee
By:/s/ Trust Officer
Title: Trust Officer
EXHIBIT A
FDS NATIONAL BANK
OFFICER'S CERTIFICATE
Reference is made to the Amended and Restated Pooling
and Servicing Agreement dated as of December 15, 1992 (as
amended, restated, supplemented or otherwise modified from time
to time, the "Pooling and Servicing Agreement"), among Prime
Receivables Corporation, as transferor, FDS National Bank
(successor to Federated Department Stores, Inc.), as servicer
(the "Servicer"), and Chase Manhattan Bank (successor to Chemical
Bank), as trustee. Capitalized terms used in this officer's
certificate and not otherwise defined have the meanings set forth
for such terms in the Pooling and Servicing Agreement.
The undersigned the duly elected, qualified and acting
Treasurer of the Servicer, does hereby certify, pursuant to
Section 13.01 of the Pooling and Servicing Agreement, that the
Tenth Amendment to the Pooling and Servicing Agreement does not
adversely effect in any material respect the interests of any of
the Certificates.
IN WITNESS WHEREOF, the undersigned has hereunto set
his or her hand this third day of August, 1998.
FDS NATIONAL BANK
By:/s/ Susan R. Robinson
Title: Treasurer
EXHIBIT B
August 3, 1998
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, NY 10001
Re: Prime Receivables, Inc. Amended and Restated Pooling &
Servicing Agreement dated as of December 15,1992 (as
amended, the "Agreement")
Ladies and Gentlemen:
As General Counsel of Federated Department Stores,
Inc., a Delaware corporation, the ultimate parent of Prime
Receivables Corporation, a Delaware corporation ("Prime"), I have
acted as counsel to Prime in connection with the Tenth Amendment
to the Agreement and the modification of the definition of
"Defaulted Amount" thereunder.
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 Tenth Amendment to
the Agreement and the modification of the definition of
"Defaulted Amount" as described in such Tenth Amendment will not,
in accordance with Section 13.01 of the Agreement, cause the
Trust to be characterized for Federal income tax purposes as an
association taxable as a corporation or otherwise have any
material adverse effect on the Federal income taxation of any
outstanding Series of Investor Certificates or any Certificate
Owner (capitalized terms used herein and not otherwise defined
have the meanings set forth for such terms in this Agreement).
Very truly yours,
Dennis J. Broderick
EXHIBIT C
August 3, 1998
Ms. Susan Storer
President
Prime Receivables Corporation
9111 Duke Boulevard
Mason, Ohio 45040
Re: Tenth Amendment to the Amended and Restated Pooling and
Servicing Agreement:
Dear Ms. Storer:
Standard and Poor's has reviewed the following amendment and has
concluded that such an amendment will not result in a reduction
or withdrawal of the rating on any class or series of Prime
Credit Card Master Trust investor certificates currently rated by
Standard and Poor's.
Tenth Amendment, dated as of August 3, 1998 to the
Amended and Restated Pooling and Servicing Agreement
dated as of December 15, 1992 by and among Prime
Receivables Corporation (the Transferor), FDS National
Bank (the Servicer), and The Chase Manhattan Bank (the
Trustee).
Standard & Poor's affirmation of the ratings contained in this
letter only addresses the effect of the proposed changes on the
last rating assigned by Standard & Poor's to the securities
referenced above. Ratings affirmation does not address the
effect of such changes on the rights or interests of the holders
of the securities under the documents or whether such changes are
permitted by the terms of the documents.
We are pleased to have been of assistance to you in this matter.
If you have any questions, or if we may be of further help,
please do not hesitate to contact us.
Very truly yours,
Joseph F. Sheridan
Managing Director
August 3, 1998
Chase Manhattan Bank, as Trustee
450 West 33 Street
New York, NY 10001
Re: Prime Credit Card Master Trust
Amendment No. 10 to the Restated Pooling and Servicing
Agreement dated August 3, 1998
Ladies and Gentlemen:
We have reviewed Amendment No. 10 dated as of August 3, 1998, to
the Restated Pooling and Servicing Agreement dated as of December
15, 1992, among Prime Receivables Corporation, FDS National Bank
of servicer, and The Chase Manhattan Bank as trustee. Please be
advised that Amendment No. 10, will not result in the reduction
or withdrawal of our rating of any of the outstanding series
issued from Prime Credit Card Master Trust.
Thank you for using our services.
Sincerely,
Latonia D. Dukes
Assistant Vice President
Analyst
<TABLE> <S> <C>
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<F1>Includes the following:
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