<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
JANUARY 31, 1998
COMMISSION FILE NUMBER
1-13536
FEDERATED DEPARTMENT STORES, INC.
151 WEST 34TH STREET
NEW YORK, NEW YORK 10001
(212) 494-1602
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
10% Senior Notes due 2001 New York Stock Exchange
8.125% Senior Notes due 2002 New York Stock Exchange
5% Convertible Notes due 2003 New York Stock Exchange
8.5% Senior Notes due 2003 New York Stock Exchange
7.45% Senior Debentures due 2017 New York Stock Exchange
6.79% Senior Debentures due 2027 New York Stock Exchange
7% Senior Debentures due 2028 New York Stock Exchange
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
The Company 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.
There were 210,605,161 shares of the Company's Common Stock outstanding as
of April 3, 1998, 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 3, 1998, was approximately
$10,938,300,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the "Proxy Statement") relating
to the Company's Annual Meeting of Stockholders to be held on May 15, 1998 (the
"Annual Meeting"), 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 "1997," "1996," "1995," "1994" and "1993"
are references to the Company's fiscal years ended January 31, 1998, February 1,
1997, February 3, 1996, January 28, 1995 and January 29, 1994, respectively.
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 1. BUSINESS.
General. The Company is one of the leading operators of full-line
department stores in the United States, with 400 department stores in 33 states
as of January 31, 1998. 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
162 specialty stores under the names "Aeropostale" and "Charter Club," and a
mail order catalog business under the name "Bloomingdale's By Mail." The Company
recently announced plans to commence the operation of a mail order catalog
business under the name "Macy's By Mail." In general, the Company conducts its
business through subsidiaries.
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, provides proprietary credit
services, including credit authorizations, new account development, processing,
customer service and collection services in respect of proprietary credit card
accounts, including "Macy's" credit card accounts, owned by the Company through
its national bank. GE Capital Consumer Card Co. ("GE Bank"), which purchased all
of the "Macy's" credit card accounts owned by Macy's prior to the Merger (and
with which the Company has an agreement regarding the allocation of the
ownership of "Macy's" credit card accounts originated subsequent to the Merger)
provides
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statement and payment processing services in respect of all proprietary credit
card accounts owned by the Company and collection services in respect of the GE
Bank-owned "Macy's" credit card accounts. The Company's data processing
subsidiary, Federated Systems Group, Inc. ("FSG"), which is based near Atlanta,
Georgia, provides (directly and pursuant to outsourcing arrangements with third
parties) operational electronic data processing and management information
services to each of the Company's retail operating and service 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
Group, a division of the Company based in New York City, helps the Company to
centrally develop and execute consistent 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 Merchandising Group is also responsible for the
private label development of the Company's retail operating divisions except for
Bloomingdale's and Stern's, which source some of their private label merchandise
through Associated Merchandising Corporation. Bloomingdale's also has its own
private label program. Federated Logistics, based in Secaucus, New Jersey and a
division of Federated Corporate Services, Inc., a subsidiary of the Company,
provides warehousing and merchandise distribution services for the Company's
retail operating divisions.
The Company and its predecessors have been operating department stores
since 1830. Federated was organized as a Delaware corporation in 1929. 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 Stores, Inc. ("Broadway")
pursuant to a subsidiary merger.
The Company's executive offices are located at 151 West 34th Street, New
York, New York 10001, telephone number: (212) 494-1602 and at 7 West Seventh
Street, Cincinnati, Ohio 45202, telephone number: (513) 579-7000.
Employees. As of January 31, 1998, the Company had approximately 114,700
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 January 31, 1998 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 1997.
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
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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.
Year 2000 Compliance. 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 by or at the Year 2000. This
"Year 2000" issue is believed to affect virtually all companies and
organizations, including the Company.
The Company is reliant on computer-based technology and utilizes a variety
of proprietary and third party applications. The Company's retail functions,
such as merchandise procurement and distribution, inventory control and
point-of-sale transactions, generally use proprietary applications, with
third-party applications being used more extensively for administrative
functions, such as accounting and human resource management.
Beginning in February 1996, the Company undertook an assessment of the
effect of the Year 2000 issue on the Company's operations. Shortly thereafter,
the "Year 2000 Federated Project Office" was established and charged with
identifying and evaluating Year 2000-related compliance issues, proposing
solutions, estimating the cost of the implementation thereof, and communicating
its determinations to the Company's senior management and Board of Directors.
The Project Office, which is composed of the Company's Controller, the
Chief Financial Officer of each retail and service subsidiary, FSG's Executive
Committee, representatives of the Law and Audit Departments and a Project
Manager, has developed a compliance program, and a Project Team has been
established for the Company and each of its retail and service subsidiaries.
Each Project Team is responsible for overseeing, under FSG's guidance, the
implementation of such compliance program within its organization, including
ensuring the compliance of software and other date sensitive products purchased
for use or resale.
Pursuant to the Company's Year 2000 compliance program, FSG has examined
the Company's proprietary software applications. All such applications that
relate to a critical retail function and are not Year 2000 compliant are being
converted or replaced. In addition, a strategy has been instituted to identify
and address Year 2000 issues affecting third-party software applications. That
process includes contacting all third-party providers to secure appropriate
representations to the effect that Year 2000 issues associated with the software
provided by them to the Company have been or will be timely addressed.
Contingency plans have been developed as to material third-party software
applications used by the Company in respect of which the Company does not
receive adequate compliance assurances by August 1998.
Barring unforeseen events, the Company anticipates substantially completing
corrective measures as to its proprietary software applications and completing a
comprehensive, integrated test of all of its main-frame and mid-range computer
systems (hardware, software, network components, interfaces and third-party
software applications) by January 31, 1999. The Company anticipates that a
subsequent test would be instituted to deal with third-party software
applications, if any, that are expected to first achieve compliance after
January 31, 1999.
To date, the Company's Year 2000 compliance program is on schedule and on
budget. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" for information regarding the accounting treatment of
the estimated costs of the Company's Year 2000 compliance program. Such
information is incorporated herein by reference.
Notwithstanding that the Company has been proceeding diligently with the
implementation of its own compliance program, including aspects thereof directed
to ascertaining Year 2000 compliance by third parties, there can be no assurance
that the Company's operations will not experience disruptions due to the failure
of third
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<PAGE> 5
parties (including software, data processing, and other vendors) with which the
Company has commercial relationships to become fully Year 2000 compliant in a
timely manner.
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>
54 Chairman of the Board and Chief Executive Officer;
James M. Zimmerman..................... Director
Terry J. Lundgren...................... 45 President and Chief Merchandising Officer; Director
Ronald W. Tysoe........................ 45 Vice Chairman of the Board and Director
Thomas G. Cody......................... 56 Executive Vice President - Legal and Human Resources
Dennis J. Broderick.................... 49 Senior Vice President, General Counsel and Secretary
41 Senior Vice President, Chief Financial Officer and
Karen M. Hoguet........................ Treasurer
Joel A. Belsky......................... 44 Vice President and Controller
</TABLE>
James M. Zimmerman has been Chairman of the Board and Chief Executive
Officer of the Company since May 1997; prior thereto he served as the President
and Chief Operating Officer of the Company since May 1988.
Terry J. Lundgren has been President and Chief Merchandising Officer of the
Company since May 1997 and served as the Chairman of the Company's Federated
Merchandising Group division from February 1994 until February 19, 1998. Prior
thereto, he was Chairman and Chief Executive Officer of the Neiman Marcus Group,
Inc., since February 1990.
Ronald W. Tysoe has been Vice Chairman of the Company since April 1990 and
served as Chief Financial Officer of the Company from April 1990 until October
31, 1997.
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.
Karen M. Hoguet has been Senior Vice President - Planning of the Company
since April 1991, Treasurer of the Company since January 1992, and Chief
Financial Officer of the Company since October 31, 1997.
Joel A. Belsky has been Vice President and Controller of the Company since
October 1996. Prior thereto, he served as Divisional Vice President and Deputy
Controller of the Company since March 1993.
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 January 31, 1998, the Company operated
400 department stores in 33 states, comprising a total of 81,016,000 square
feet. Of such department stores, 196 were entirely or mostly owned and 204
stores were entirely or mostly leased. The Company's interests in approximately
3% of its owned stores are subject to security interests in favor of certain
third-party creditors. As of January 31, 1998, the Company operated 162
specialty stores in 22 states and the District of Columbia, comprising a total
of 600,000 square feet. All such specialty stores are leased.
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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.
ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries are 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 1997 and 1996 the high and low sales prices per share of Common
Stock as reported on the NYSE Composite Tape:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
LOW HIGH LOW HIGH
------ ------ ------ ------
<S> <C> <C> <C> <C>
1st Quarter............................. 31.625 38.250 26.125 34.750
2nd Quarter............................. 34.625 44.125 29.375 36.625
3rd Quarter............................. 39.313 45.438 31.125 36.125
4th Quarter............................. 39.688 48.875 30.000 37.000
</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.
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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>
52 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Income Data:
Net sales, including leased department
sales..................................... $15,668 $15,229 $15,049 $ 8,316 $7,229
------- ------- ------- ------- ------
Cost of sales:
Recurring................................. 9,581 9,289 9,318 5,131 4,374
Inventory valuation adjustments related to
consolidation........................... - 65 92 15 -
------- ------- ------- ------- ------
Total cost of sales......................... 9,581 9,354 9,410 5,146 4,374
Selling, general and administrative
expenses:
Recurring................................. 4,746 4,739 4,748 2,549 2,323
Business integration and consolidation
expenses................................ 243 202 71 -
Charitable contribution to Federated
Department Stores Foundation............ - - 26 - -
------- ------- ------- ------- ------
Total selling, general and administrative
expenses.................................. 4,746 4,982 4,976 2,620 2,323
Operating income............................ 1,341 893 663 550 532
Interest expense............................ (418) (499) (508) (262) (213)
Interest income............................. 35 47 47 43 49
------- ------- ------- ------- ------
Income before income taxes and extraordinary
items..................................... 958 441 202 331 368
Federal, state and local income tax
expense................................... (383) (175) (127) (143) (171)
Extraordinary items (a)..................... (39) - - - (4)
------- ------- ------- ------- ------
Net income.................................. $ 536 $ 266 $ 75 $ 188 $ 193
======= ======= ======= ======= ======
Basic earnings per share:
Income before extraordinary items........... $ 2.74 $ 1.28 $ .39 $ 1.41 $ 1.56
Net income.................................. 2.56 1.28 .39 1.41 1.53
Diluted earnings per share:
Income before extraordinary items........... $ 2.58 $ 1.24 $ .39 $ 1.40 $ 1.53
Net income.................................. 2.41 1.24 .39 1.40 1.50
Average number of shares outstanding.......... 209.2 207.5 191.5 132.9 126.3
Depreciation and amortization................. $ 590 $ 533 $ 497 $ 286 $ 230
Capital expenditures.......................... $ 696 $ 846 $ 699 $ 398 $ 313
Balance Sheet Data (at year end):
Cash........................................ $ 142 $ 149 $ 173 $ 206 $ 222
Working capital............................. 3,134 2,831 3,262 2,376 1,968
Total assets................................ 13,738 14,264 14,295 12,277 7,419
Short-term debt............................. 556 1,095 733 463 10
Long-term debt.............................. 3,919 4,606 5,632 4,529 2,787
Shareholders' equity........................ 5,256 4,669 4,274 3,640 2,278
</TABLE>
- ---------------
(a) The extraordinary items for 1997 and 1993 were after-tax expenses associated
with debt prepayments.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the 52 Weeks Ended January 31, 1998 and February 1,
1997. Net sales for 1997 were $15,668 million compared to $15,229 million for
1996, an increase of 2.9%. On a comparable store basis, net sales for 1997
increased 2.7% compared to 1996.
Cost of sales was 61.1% of net sales for 1997, compared to 61.4% for 1996.
Cost of sales for 1996 included $65 million of one-time inventory valuation
adjustments related to merchandise in lines of business that were eliminated or
replaced in connection with the consolidation of Broadway's merchandise
inventories with the Company's merchandise inventories. Excluding these
inventory valuation adjustments from 1996, cost of sales would have been 61.0%
of net sales, with the 0.1% increase in 1997 being primarily due to higher
merchandise markdowns associated with the elimination of certain consumer
electronics lines of business. The valuation of merchandise inventory on the
last-in, first-out basis did not impact cost of sales in either year.
Selling, general and administrative expenses were 30.3% of net sales for
1997, compared to 32.7% for 1996. Selling, general and administrative expenses
for 1996 included $243 million of one-time costs related to the integration and
consolidation of acquired and pre-existing businesses as business integration
and consolidation expenses ("BICE"). Excluding BICE, selling, general and
administrative expenses would have been 31.1% of net sales for 1996. The major
factor contributing to the 0.8% improvement in expense rate (excluding BICE for
1996) was lower distribution-related expenses resulting from restructuring and
technological improvements in the merchandise distribution process.
Selling, general and administrative expenses in 1997 reflect reduced
finance charge income and lower expenses for doubtful customer accounts
receivable. Finance charge income was $391 million for 1997, a decrease of $39
million compared to $430 million in 1996, primarily due to lower average
accounts receivable balances. Amounts charged to expense for doubtful accounts
receivable were $167 million for 1997, compared to $172 million for 1996. The
decrease primarily reflects the lower levels of proprietary credit sales in 1997
compared to 1996.
Net interest expense was $383 million for 1997, compared to $452 million
for 1996. The lower interest expense for 1997 is due to lower levels of
borrowings and lower interest rates resulting from refinancings completed in
July 1997.
The Company's effective income tax rate of 40% for 1997 differs from the
federal income tax statutory rate of 35.0% principally because of the effect of
state and local income taxes and permanent differences arising from the
amortization of intangible assets.
The extraordinary item of $39 million for 1997 represents the after-tax
expenses associated with debt prepayments.
Comparison of the 52 Weeks Ended February 1, 1997 and the 53 Weeks Ended
February 3, 1996. Net sales for 1996 were $15,229 million compared to $15,049
million for 1995, an increase of 1.2%. On a comparable store basis, net sales
for 1996 increased 3.1 percent compared to the first 52 weeks of 1995. Net sales
for 1996 were somewhat negatively impacted by the Company's efforts to gradually
reduce the degree to which it utilizes promotional selling practices with
respect to home-related merchandise.
Cost of sales was 61.4% of net sales for 1996, compared to 62.5% for 1995.
Cost of sales included one-time inventory valuation adjustments related to
merchandise in lines of business that were eliminated or replaced in connection
with the consolidation of merchandise inventories for acquired and pre-existing
businesses. In 1996,
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cost of sales included $65 million of inventory valuation adjustments in
connection with the integration of Broadway into the Company. In 1995, cost of
sales included $69 million of inventory valuation adjustments in connection with
the integration of Macy's into the Company and $23 million of inventory
valuation adjustments in connection with the consolidation of the Company's
Rich's/Goldsmith's and Lazarus divisions. Also, in 1995, cost of sales was
negatively impacted by greater markdowns at stores operated as Broadway
locations. Excluding these stores in 1995 and the inventory valuation
adjustments discussed above, cost of sales would have been 61.0% of net sales
for 1996, compared to 61.3% for 1995. The lower level of promotional activity
for home-related merchandise and increased sales of higher margin private label
merchandise contributed to the improvement for 1996. The valuation of
merchandise inventory on the last-in, first-out basis did not impact cost of
sales in either year.
Selling, general and administrative expenses were 32.7% of net sales for
1996, compared to 33.1% for 1995. Selling, general and administrative expenses
included one-time costs related to the integration and consolidation of acquired
and pre-existing businesses under the caption BICE. In 1996, selling, general
and administrative expenses included, under the caption BICE, $168 million of
costs associated with the integration of Broadway into the Company, $34 million
of costs related to the integration of Macy's into the Company and $41 million
of costs related to other support operation restructurings, primarily the
centralization of the Company's merchandise distribution function. In 1995,
selling, general and administrative expenses included, under the caption BICE,
$140 million of costs associated with the integration of Macy's into the
Company, $48 million of costs associated with the integration of Broadway into
the Company and $14 million of costs related to the consolidation of the
Company's Rich's/Goldsmith's and Lazarus divisions, and also included a $26
million charitable contribution to Federated Department Stores Foundation.
Excluding these items for both 1996 and 1995, selling, general and
administrative expenses would have been 31.1% of net sales for 1996, compared to
31.6% for 1995. The improvement for 1996 primarily reflected the operating
efficiencies resulting from the integration of Macy's into the Company in fiscal
1995 and other support operation restructurings (primarily merchandise
distribution).
Selling, general and administrative expenses in 1996 reflected higher
expenses for doubtful customer accounts receivable, partially offset by higher
finance charge revenues. Amounts charged to expense for doubtful accounts
receivable were $172 million for 1996, compared to $127 million for 1995. The
increase reflected higher average accounts receivable balances, the
consolidation of certain credit card nameplates, the effects of closing stores
in certain markets and general economic conditions in the geographic areas in
which the Company operated. Partially offsetting the increase in amounts charged
to expense for doubtful accounts, finance charge income grew to $430 million in
1996, compared to $405 million in 1995, primarily due to higher average accounts
receivable balances.
Net interest expense was $452 million for 1996, compared to $461 million
for 1995. The lower interest expense for 1996 was principally due to lower
levels of borrowings.
The Company's effective income tax rate of 39.8% for 1996 differed 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.
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 1997 was $1,573 million, an
increase of $353 million from the net cash provided by operating activities in
1996 of $1,220 million. In addition to improved operating results, the
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<PAGE> 10
primary factors which contributed to this improvement were a decrease in
merchandise inventories in 1997 compared to an increase in 1996 and larger
increases in current and deferred income taxes in 1997, partially offset by a
decrease in accounts payable and accrued liabilities compared to an increase in
1996.
On July 28, 1997, the Company entered into new bank credit agreements which
provide for unsecured revolving credit loans of up to $1,500 million under a
five year facility (including a letter of credit sub-facility) and up to $500
million under a 364-day facility. The Company also has a commercial paper
program under which it may issue up to $400 million of senior unsecured
commercial paper. As of January 31, 1998, the Company had $150 million of
revolving credit borrowings, $144 million of commercial paper borrowings, $49
million of standby letters of credit and $63 million of trade letters of credit
outstanding. As a result of the issuance on February 6, 1998 of $300 million of
7.0% Senior Debentures due 2028, the $294 million of revolving credit and
commercial paper borrowings were classified as long-term debt as of January 31,
1998.
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 million of receivables backed commercial paper. As of January
31, 1998, the Company had $375 million of commercial paper borrowings
outstanding under its receivables backed commercial paper facility.
Net cash used in investing activities was $318 million in 1997 compared to
$650 million in 1996. In 1997, capital expenditures for property and equipment
were $696 million and dispositions of property and equipment totaled $178
million. During 1997, the Company opened six new department stores and two new
furniture galleries and closed nineteen stores. On May 5, 1997, a $200 million
installment of a note receivable held by the Company was received.
Net cash used by the Company for all financing activities was $1,262
million in 1997 compared to $594 million in 1996. During 1997, the Company
incurred debt totaling $763 million and repaid debt totaling $2,027 million.
Debt incurred consisted of $300 million of 7.45% Senior Debentures due 2017,
$250 million of 6.79% Senior Debentures due 2027 and $213 million of net
incremental borrowings under the Company's revolving credit and commercial paper
facilities. The major components of debt repaid, with proceeds of the financings
described above, proceeds of the $200 million installment of a note receivable
described above and other funds, included $568 million of the Company's
receivables backed certificates, $516 million of outstanding term borrowings
under its previous bank credit facility, the entire $345 million of outstanding
borrowings under its mortgage loan facility, the entire $221 million of
borrowings outstanding under its secured promissory note and $176 million of
borrowings outstanding under its note monetization facility. On January 22,
1997, the Company entered into an arrangement providing for off balance sheet
financing of up to $200 million (subsequently increased to $300 million) of
non-proprietary credit card receivables arising under accounts owned by the
Company. At January 31, 1998, $243 million of borrowings were outstanding under
this arrangement.
The Company intends to open three new department stores in 1998 and its
budgeted capital expenditures are approximately $2,300 million for the 1998 to
2000 period. Management presently anticipates funding such expenditures from
operations.
As disclosed in "Item 1. Business," the Company has undertaken a program to
address Year 2000 issues. To date, the Company's Year 2000 compliance program,
the costs of which are being expensed as incurred, is on schedule and on budget.
Although there can be no assurance with respect thereto, the Company does not
expect that Year 2000 issues (including the cost of the Company's compliance
program as currently estimated), will have a material adverse effect on the
Company's financial position or results of operation.
9
<PAGE> 11
Management believes the department store business will continue to
consolidate. Accordingly, the Company intends from time to time to consider
additional acquisitions of department store assets and companies.
Management of the Company believes that, with respect to its current
operations, cash on hand and funds from operations, together with its credit
facilities, will be sufficient to cover its reasonably foreseeable working
capital, capital expenditure and debt service requirements. Acquisition
transactions, if any, are expected to be financed through a combination of cash
on hand and from operations and the possible issuance from time to time of
long-term debt or other securities. Depending upon conditions in the capital
markets and other factors, the Company will from time to time consider the
issuance of debt or other securities, or other possible capital markets
transactions, the proceeds of which could be used to refinance current
indebtedness or for other corporate purposes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates which
may adversely affect its financial position, results of operations and cash
flows. In seeking to minimize the risks from interest rate fluctuations, the
Company manages exposures through its regular operating and financing activities
and, when deemed appropriate, through the use of derivative financial
instruments. The Company does not use financial instruments for trading or other
speculative purposes and is not party to any leveraged financial instruments.
The Company is exposed to interest rate risk primarily through its
borrowing activities, which are described in Note 9 to the Consolidated
Financial Statements. The majority of the Company's borrowings are under fixed
rate instruments. However, the Company uses interest rate swaps and interest
rate caps to help manage the Company's exposure to interest rate movements and
reduce borrowing costs. See Notes 9 and 16 to the Consolidated Financial
Statements, which are incorporated herein by reference.
Based on the Company's market risk sensitive instruments (including
variable rate debt and derivative financial instruments) outstanding at January
31, 1998, the Company has determined that there was no material market risk
exposure to the Company's consolidated financial position, results of operations
or cash flows as of such date.
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.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Report......................................... F-2
Independent Auditors' Report................................ F-3
Consolidated Statements of Income for the 52 weeks ended
January 31, 1998 and February 1, 1997 and the 53 weeks
ended February 3, 1996.................................... F-4
Consolidated Balance Sheets at January 31, 1998 and February
1, 1997................................................... F-5
Consolidated Statements of Changes in Shareholders' Equity
for the 52 weeks ended January 31, 1998 and February 1,
1997 and the 53 weeks ended February 3, 1996.............. F-6
Consolidated Statements of Cash Flows for the 52 weeks ended
January 31, 1998 and February 1, 1997 and the 53 weeks
ended February 3, 1996.................................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
10
<PAGE> 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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.
11
<PAGE> 13
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>
3.1 Certificate of Incorporation Exhibit 3.1 to the Company's 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 A Jun- Exhibit 3.1.1 to the 1994 Form 10-K
ior 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 December 15, Exhibit 4.3 to the 1994 Form 10-K
1994, between the Company and the Bank of New
York, as rights agent
4.4 Indenture, dated as of December 15, 1994, Exhibit 4.1 to the Company's Registration
between the Company and State Street Bank and Statement on Form S-3 (Registration No.
Trust Company (successor to The First 33-88328) filed on January 9, 1995 (the "S-3
National Bank of Boston), as Trustee Registration Statement")
4.4.1 Third Supplemental Indenture, dated as of Exhibit 4.4.1 to the 1994 Form 10-K
January 23, 1995, between the Company and
State Street Bank and Trust Company (suc-
cessor to The First National Bank of Bos-
ton), as Trustee
4.4.2 Fourth Supplemental Indenture, dated as of Exhibit 4.2 to the Company's Registration
September 27, 1995, between the Company and Statement on Form 8-A, dated November 29,
State Street Bank and Trust Company 1995
(successor to The First National Bank of
Boston), as Trustee
4.4.3 Fifth Supplemental Indenture, dated as of Exhibit 2 to the Company's Registration
October 6, 1995, between the Company and Statement on Form 8-A, dated October 4, 1995
State Street Bank and Trust Company (suc-
cessor to The First National Bank of Bos-
ton), as Trustee
4.4.4 Sixth Supplemental Indenture, dated as of Exhibit 4.4.4 to the Company's Annual Re-
February 1, 1996, between the Company and port on Form 10-K for the fiscal year ended
State Street Bank and Trust Company (suc- February 3, 1996 (the "1995 Form 10-K")
cessor to The First National Bank of Bos-
ton), as Trustee
4.4.5 Seventh Supplemental Indenture, dated as of Exhibit 4.2 to the Company's Quarterly Re-
May 22, 1996, between the Company and State port on Form 10-Q for the period ended May 4,
Street Bank and Trust Company (successor to 1996 (the "May 1996 Form 10-Q")
The First National Bank of Boston), as
Trustee
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
4.4.6 Eighth Supplemental Indenture, dated as of Exhibit 2 to the Company's Current Report on
July 14, 1997, between the Company and State Form 8-K dated as of July 15, 1997 (the "July
Street Bank and Trust Company (successor to 1997 Form 8-K")
The First National Bank of Boston), as
Trustee
4.4.7 Ninth Supplemental Indenture, dated as of Exhibit 3 to the July 1997 Form 8-K
July 14, 1997, between the Company and State
Street Bank and Trust Company (successor to
The First National Bank of Boston), as
Trustee
4.5 Indenture, dated as of September 10, 1997, Exhibit 4.4 to the Company's Amendment Number
between the Company and Citibank, N.A., as 1 to Form S-3 dated as of September 11, 1997
Trustee
4.5.1 First Supplemental Indenture, dated as of Exhibit 2 to the Company's Current Report on
February 6, 1998, between the Company and Form 8-K dated as of February 6, 1998
Citibank, N.A., as Trustee
4.6 Amended and Restated Series B Warrant
Agreement
4.7 Series C Warrant Agreement Exhibit 4.6 to the 1994 Form 10-K
4.8 Series D Warrant Agreement Exhibit 4.7 to the 1994 Form 10-K
4.9 Series E Warrant Agreement Exhibit 4.9 to the 1995 Form 10-K
4.10 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")
4.10.1 Letter Agreement, dated October 11, 1995, Exhibit 4.5.1 to the October 1995 Form 10-Q
between Broadway and The Bank of New York
10.1 364-Day Credit Agreement, dated as of July Exhibit 10.1 to the Company's Quarterly
28, 1997 by and among the Company, the Report on Form 10-Q for the period ended
Initial Lenders named therein, Citibank, August 2, 1997 (the "August 1997 Form 10-Q")
N.A., as Administrative Agent and Paying
Agent, The Chase Manhattan Bank, as Ad-
ministrative Agent, BankBoston, N.A., as
Syndication Agent, and the Bank of America,
National Trust & Savings Association, as
Documentation Agent
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
10.2 Five-Year Credit Agreement, dated as of July Exhibit 10.2 to the August 1997 Form 10-Q
28, 1997, by and among the Company, the
Initial Lenders named therein, Citibank,
N.A., as Administrative Agent and Paying
Agent, The Chase Manhattan Bank, as Ad-
ministrative Agent, BankBoston, N.A., as
Syndication Agent, and the Bank of America,
National Trust & Savings Association, as
Documentation Agent
10.3 Loan Agreement, dated as of May 26, 1994 (the Exhibit 10.47 to the 1994 S-4 Registration
"Lazarus PA Mortgage Term Loan"), among Statement
Lazarus PA, Inc. (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 Mortgage Exhibit 10.6 to the October 1995 Form 10-Q
Term Loan dated as of December 6, 1995
10.3.2 Second Amendment to the Lazarus PA Mortgage
Term Loan dated as of July 28, 1997
10.4 Guaranty Agreement, dated as of May 26, 1994, Exhibit 10.48 to the 1994 S-4 Registration
made by the Company in favor of the banks Statement
listed on the Lazarus PA Mortgage Term Loan
and PNC
10.4.1 Amendment #1 to Guaranty Agreement, dated as Exhibit 10.7.1 to the 1994 Form 10-K
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 Pooling and Servicing Exhibit 4.10 to Prime's Current Report on
Agreement, dated as of December 15, 1992 (the Form 8-K (File No. 0-2118), dated March 29,
"Pooling and Servicing Agreement"), among the 1993
Company, Prime Receivables Corporation
("Prime") and The Chase Manhattan Bank,
successor to Chemical Bank, as Trustee
10.5.1 First Amendment, dated as of December 1, Exhibit 10.10.1 to the Company's Annual
1993, to the Pooling and Servicing Agree- Report on Form 10-K (File No. 1-10951) for
ment the fiscal year ended January 29, 1994 (the
"1993 Form 10-K")
10.5.2 Second Amendment, dated as of February 28, Exhibit 10.10.2 to the 1993 Form 10-K
1994, to the Pooling and Servicing Agreement
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
10.5.3 Third Amendment, dated as of May 31, 1994, to Exhibit 10.8.3 to the 1994 Form 10-K
the Pooling and Servicing Agreement
10.5.4 Fourth Amendment, dated as of January 18, Exhibit 10.6.4 to the 1995 Form 10-K
1995, to the Pooling and Servicing Agree-
ment
10.5.5 Fifth Amendment, dated as of April 30, 1995, Exhibit 10.6.5 to the 1995 Form 10-K
to the Pooling and Servicing Agreement
10.5.6 Sixth Amendment, dated as of July 27, 1995, Exhibit 10.6.6 to the 1995 Form 10-K
to the Pooling and Servicing Agreement
10.5.7 Seventh Amendment, dated as of May 14, 1996, Exhibit 10.6.7 to the 1997 Form 10-K
to the Pooling and Servicing Agreement
10.5.8 Eighth Amendment, dated as of March 3, 1997, Exhibit 10.6.8 to the 1997 Form 10-K
to the Pooling and Servicing Agreement
10.5.9 Ninth Amendment, dated as of August 28, 1997, Exhibit 10.1 to the Company's Quarterly
to the Pooling and Servicing Agreement Report on Form 10-Q for the period ended
November 1, 1997 (the "November 1997 Form
10-Q")
10.6 Assumption Agreement under the Pooling and Exhibit 10.10.3 to the 1993 Form 10-K
Servicing Agreement, dated as of September
15, 1993
10.7 Series 1992-2 Supplement, dated as of De- Exhibit 4.7 to Prime's Form 8-A
cember 15, 1992, to the Pooling and Servic-
ing Agreement
10.7.1 First Amendment to Series 1992-2 Supple- Exhibit 10.3 to the November 1997 Form 10-Q
ment, dated as of August 28, 1997, to the
Pooling and Servicing Agreement
10.8 Series 1992-3 Supplement, dated as of Janu- Exhibit 4.8 to Prime's Current Report on Form
ary 5, 1993, to the Pooling and Servicing 8-K (File No. 0-2118), dated January 29, 1993
Agreement
10.9 Series 1995-1 Supplement, dated as of July Exhibit 4.7 to Prime's Registration State-
27, 1995, to the Pooling and Servicing ment on Form S-1, filed July 14, 1995, as
Agreement amended.
10.9.1 First Amendment to Series 1995-1 Supple- Exhibit 10.4 to the November 1997 Form 10-Q
ment, dated as of August 28, 1997, to the
Pooling and Servicing Agreement
10.10 Series 1996-1 Supplement, dated as of May 14, Exhibit 4 to the May 1996 Prime 8-K
1996, to the Pooling and Servicing Agreement
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
10.10.1 First Amendment to Series 1996-1 Supple- Exhibit 10.5 to the November 1997 Form 10-Q
ment, dated as of August 28, 1997, to the
Pooling and Servicing Agreement
10.11 Receivables Purchase Agreement, dated as of Exhibit 10.2 to Prime's Form 8-A
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
10.11.1 First Amendment, dated as of June 23, 1993, Exhibit 10.14.1 to 1993 Form 10-K
to the Receivables Purchase Agreement
10.11.2 Second Amendment, dated as of December 1, Exhibit 10.14.2 to 1993 Form 10-K
1993, to the Receivables Purchase Agreement
10.11.3 Third Amendment, dated as of February 28, Exhibit 10.14.3 to 1993 Form 10-K
1994, to the Receivables Purchase Agreement
10.11.4 Fourth Amendment, dated as of May 31, 1994, Exhibit 10.13.4 to the 1994 Form 10-K
to the Receivables Purchase Agreement
10.11.5 Fifth Amendment, dated as of April 30, 1995, Exhibit 10.12.5 to the 1995 Form 10-K
to the Receivables Purchase Agreement
10.11.6 Sixth Amendment, dated as of August 26, 1995, Exhibit 10.13.6 to the 1997 Form 10-K
to the Receivables Purchase Agreement
10.11.7 Seventh Amendment, dated as of August 26, Exhibit 10.13.7 to the 1997 Form 10-K
1995, to the Receivables Purchase Agreement
10.11.8 Eighth Amendment, dated as of May 14, 1996, Exhibit 10.13.8 to the 1997 Form 10-K
to the Receivables Purchase Agreement
10.11.9 Ninth Amendment, dated as of March 3, 1997, Exhibit 10.13.9 to the 1997 Form 10-K
to the Receivables Purchase Agreement.
10.11.10 First Supplement, dated as of September 15, Exhibit 10.14.4 to 1993 Form 10-K
1993, to the Receivables Purchase Agreement
10.11.11 Second Supplement, dated as of May 31, 1994, Exhibit 10.12.7 to the 1995 Form 10-K
to the Receivables Purchase Agreement
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
10.12 Depository Agreement, dated as of December Exhibit 10.15 to Company's Annual Report on
31, 1992, among Deerfield Funding Cor- Form 10-K (File No. 1-10951) for the fiscal
poration, now known as Seven Hills Funding year ended January 30, 1993 ("1992 Form
Corporation ("Seven Hills"), the Company, and 10-K")
Chase Bank, as Depository
10.13 Liquidity Agreement, dated as of December 31, Exhibit 10.16 to 1992 Form 10-K
1992, among Seven Hills, the Company, the
financial institutions named therein, and
Credit Suisse, New York Branch, as Liquidity
Agent
10.14 Pledge and Security Agreement, dated as of Exhibit 10.17 to 1992 Form 10-K
December 31, 1992, among Seven Hills, the
Company, Chase Bank, as Depository and
Collateral Agent, and the Liquidity Agent
10.15 Commercial Paper Dealer Agreement, dated as Exhibit 10.18 to 1992 Form 10-K
of December 31, 1992, among Seven Hills, the
Company, and Goldman Sachs Money Markets,
L.P.
10.16 Commercial Paper Dealer Agreement, dated as Exhibit 10.19 to 1992 Form 10-K
of December 31, 1992, among Seven Hills, the
Company, and Shearson Lehman Brothers, Inc.
10.17 Receivables Purchase Agreement, dated as of Exhibit 10.19 to the 1997 Form 10-K
January 22, 1997, among FDS National Bank and
Prime II Receivables Corporation ("Prime II")
10.18 Class A Certificate Purchase Agreement, dated Exhibit 10.20 to the 1997 Form 10-K
as of January 22, 1997, among Prime II, FDS
National Bank, The Class A Purchasers Parties
thereto and Credit Suisse First Boston, New
York Branch, as Agent
10.19 Class B Certificate Purchase Agreement, dated Exhibit 10.21 to the 1997 Form 10-K
as of January 22, 1997, among Prime II, FDS
National Bank, The Class B Purchasers Parties
thereto and Credit Suisse First Boston, New
York Branch, as Agent
10.20 Pooling and Servicing Agreement, dated as of Exhibit 10.22 to the 1997 Form 10-K
January 22, 1997, (the "Prime II Pooling and
Servicing Agreement") among Prime II, FDS
National Bank and The Chase Manhattan Bank,
as Trustee
10.21 Series 1997-1 Supplement, dated as of Janu- Exhibit 10.23 to the 1997 Form 10-K
ary 22, 1997, to the Prime II Pooling and
Servicing Agreement
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
10.22 Commercial Paper Dealer Agreement, dated as Exhibit 10.24 to the 1997 Form 10-K
of January 30, 1997, between the Company and
Citicorp Securities, Inc.
10.23 Commercial Paper Issuing and Paying Agent Exhibit 10.25 to the 1997 Form 10-K
Agreement, dated as of January 30, 1997,
between Citibank, N.A. and the Company
10.24 Commercial Paper Dealer Agreement, dated as Exhibit 10.26 to the 1997 Form 10-K
of January 30, 1997, between the Company and
Lehman Brothers, Inc
10.25 Tax Sharing Agreement Exhibit 10.10 to Form 10
10.26 Ralphs Tax Indemnification Agreement Exhibit 10.1 to Form 10
10.27 Account Purchase Agreement dated as of May Exhibit 19.2 to Macy's Quarterly Report on
10, 1991, by and among Monogram Bank, USA, Form 10-Q for the fiscal quarter ended May 4,
Macy's, Macy Credit Corporation, Macy 1991 (File No. 33-6192), as amended under
Funding, Macy's California, Inc., Macy's cover of Form 8, dated October 3, 1991
Northeast, Inc., Macy's South, Inc., ("Macy's May 1991 Form 10-Q")
Bullock's Inc., I. Magnin, Inc., Master Ser-
vicer, and Macy Specialty Stores, Inc. **
10.28 Amended and Restated Credit Card Program Exhibit 10.1 to the Company's Quarterly
Agreement, dated as of June 4, 1996, among GE Report on Form 10-Q for the period ended
Capital Consumer Card Co. ("GE Bank"), FDS August 3, 1996 (the "August 1996 Form 10-Q")
National Bank, Macy's East, Inc., Macy's
West, Inc., Bullock's, Inc., Broadway Stores,
Inc., FACS Group, Inc., and MSS-Delaware,
Inc. **
10.29 Amended and Restated Trade Name and Service Exhibit 10.2 to the August 1996 Form 10-Q
Mark License Agreement, dated as of June 4,
1996, among the Company, GE Bank and General
Electric Capital Corporation ("GE Capital")
10.30 FACS Credit Services and License Agreement, Exhibit 10.3 to the August 1996 Form 10-Q
dated as of June 4, 1996, by and among GE
Bank, GE Capital and FACS Group, Inc. **
10.31 FDS Guaranty, dated as of June 4, 1996 Exhibit 10.4 to the August 1996 Form 10-Q
10.32 GE Capital Credit Services and License Exhibit 10.5 to the August 1996 Form 10-Q
Agreement, dated as of June 4, 1996, among GE
Capital, FDS National Bank, the Company and
FACS Group, Inc. **
10.33 GE Capital/GE Bank Credit Services Agree- Exhibit 10.6 to the August 1996 Form 10-Q
ment, dated as of June 4, 1996, among GE
Capital and GE Bank **
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
10.34 Amended and Restated Commercial Accounts Exhibit 10.7 to the August 1996 Form 10-Q
Agreement, dated as of June 4, 1996, among GE
Capital, the Company, FDS National Bank,
Macy's East, Inc., Macy's West, Inc.,
Bullock's, Inc., Broadway Stores, Inc., FACS
Group, Inc. and MSS-Delaware, Inc.**
10.35 1992 Executive Equity Incentive Plan * Exhibit 10.12 to Form 10
10.36 1995 Executive Equity Incentive Plan, as Exhibit 10.1 to the Company's Quarterly
amended and restated as of May 16, 1997* Report on Form 10-Q for the period ended May
3, 1997
10.37 1992 Incentive Bonus Plan, as amended and
restated as of December 12, 1997 *
10.38 Form of Severance Agreement * Exhibit 10.33 to the 1994 Form 10-K
10.39 Form of Indemnification Agreement * Exhibit 10.14 to Form 10
10.40 Senior Executive Medical Plan * Exhibit 10.1.7 to 1989 Form 10-K
10.41 Employment Agreement, dated as of June 24, Exhibit 10.59 to the 1994 S-4 Registration
1994, between Allen I. Questrom and the Statement
Company *
10.42 Employment Agreement, dated as of March 10, Exhibit 10.44 to the 1997 Form 10-K
1997, between James M. Zimmerman and the
Company *
10.43 Employment Agreement, dated as of May 16,
1997, between Terry J. Lundgren and the
Company *
10.44 Form of Employment Agreement for Executives Exhibit 10.31 to 1993 Form 10-K
and Key Employees *
10.45 Supplementary Executive Retirement Plan, as Exhibit 10.46 to the 1997 Form 10-K*
amended and restated as of January 1, 1997
10.46 Executive Deferred Compensation Plan, as Exhibit 10.47 to the 1997 Form 10-K
amended*
10.47 Profit Sharing 401(k) Investment Plan Exhibit 10.48 to the 1997 Form 10-K
(amending and restating the Retirement In-
come and Thrift Incentive Plan) effective as
of April 1, 1997 *
10.48 Cash Account Pension Plan (amending and Exhibit 10.49 to the 1997 Form 10-K
restating The Federated Pension Plan) effec-
tive as of January 1, 1997*
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
21 Subsidiaries
22 Consent of KPMG Peat Marwick LLP
23 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.
20
<PAGE> 22
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
Date: April 16, 1998
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 16, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chairman of the Board and Chief Executive Officer
- ----------------------------------------------------- (principal executive officer) and Director
James M. Zimmerman
* President and Chief Merchandising Officer and
- ----------------------------------------------------- Director
Terry J. Lundgren
* Vice Chairman and Director
- -----------------------------------------------------
Ronald W. Tysoe
* Senior Vice President, Chief Financial Officer and
- ----------------------------------------------------- Treasurer
Karen M. Hoguet
* Vice President and Controller (principal accounting
- ----------------------------------------------------- officer)
Joel A. Belsky
* Director
- -----------------------------------------------------
Meyer Feldberg
* Director
- -----------------------------------------------------
Earl G. Graves, Sr.
* Director
- -----------------------------------------------------
George V. Grune
* Director
- -----------------------------------------------------
Sara Levinson
* Director
- -----------------------------------------------------
Joseph Neubauer
* Director
- -----------------------------------------------------
Joseph A. Pichler
* Director
- -----------------------------------------------------
Karl M. von der Heyden
* Director
- -----------------------------------------------------
Craig E. Weatherup
* Director
- -----------------------------------------------------
Marna C. Whittington
</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
21
<PAGE> 23
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 52 weeks ended
January 31, 1998 and February 1, 1997 and the 53 weeks
ended February 3, 1996.................................... F-4
Consolidated Balance Sheets at January 31, 1998 and February
1, 1997................................................... F-5
Consolidated Statements of Changes in Shareholders' Equity
for the 52 weeks ended January 31, 1998 and February 1,
1997 and the 53 weeks ended February 3, 1996.............. F-6
Consolidated Statements of Cash Flows for the 52 weeks ended
January 31, 1998 and February 1, 1997 and the 53 weeks
ended February 3, 1996.................................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 24
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 audits 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.
James M. Zimmerman
Chairman and Chief Executive Officer
Karen M. Hoguet
Senior Vice President, Chief Financial Officer and Treasurer
Joel A. Belsky
Vice President and Controller
F-2
<PAGE> 25
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 as of January 31, 1998 and February 1,
1997, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the fifty-two week periods ended January
31, 1998 and February 1, 1997 and the fifty-three week period ended February 3,
1996. 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 January 31, 1998 and February 1,
1997, and the results of their operations and their cash flows for the fifty-two
week periods ended January 31, 1998 and February 1, 1997 and the fifty-three
week period ended February 3, 1996, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Cincinnati, Ohio
March 3, 1998
F-3
<PAGE> 26
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales, including leased department sales............... $15,668 $15,229 $15,049
------- ------- -------
Cost of sales:
Recurring................................................ 9,581 9,289 9,318
Inventory valuation adjustments related to
consolidation......................................... - 65 92
------- ------- -------
Total cost of sales........................................ 9,581 9,354 9,410
Selling, general and administrative expenses:
Recurring................................................ 4,746 4,739 4,748
Business integration and consolidation expenses.......... - 243 202
Charitable contribution to Federated Department Stores
Foundation............................................ - - 26
------- ------- -------
Total selling, general and administrative expenses......... 4,746 4,982 4,976
------- ------- -------
Operating income........................................... 1,341 893 663
Interest expense........................................... (418) (499) (508)
Interest income............................................ 35 47 47
------- ------- -------
Income before income taxes and extraordinary item.......... 958 441 202
Federal, state and local income tax expense................ (383) (175) (127)
------- ------- -------
Income before extraordinary item........................... 575 266 75
Extraordinary item......................................... (39) - -
------- ------- -------
Net income................................................. $ 536 $ 266 $ 75
======= ======= =======
Basic earnings per share:
Income before extraordinary item......................... $ 2.74 $ 1.28 $ .39
Extraordinary item....................................... (.18) - -
------- ------- -------
Net income............................................... $ 2.56 $ 1.28 $ .39
======= ======= =======
Diluted earnings per share:
Income before extraordinary item......................... $ 2.58 $ 1.24 $ .39
Extraordinary item....................................... (.17) - -
------- ------- -------
Net income............................................... $ 2.41 $ 1.24 $ .39
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE> 27
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED BALANCE SHEETS
(MILLIONS)
================================================================================
<TABLE>
<CAPTION>
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 142 $ 149
Accounts receivable....................................... 2,640 2,834
Merchandise inventories................................... 3,239 3,246
Supplies and prepaid expenses............................. 115 110
Deferred income tax assets................................ 58 88
------- -------
Total Current Assets.............................. 6,194 6,427
Property and Equipment - net................................ 6,520 6,525
Intangible Assets - net..................................... 690 717
Other Assets................................................ 334 595
------- -------
Total Assets...................................... $13,738 $14,264
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt........................................... $ 556 $ 1,095
Accounts payable and accrued liabilities.................. 2,416 2,492
Income taxes.............................................. 88 9
------- -------
Total Current Liabilities......................... 3,060 3,596
Long-Term Debt.............................................. 3,919 4,606
Deferred Income Taxes....................................... 939 831
Other Liabilities........................................... 564 562
Shareholders' Equity........................................ 5,256 4,669
------- -------
Total Liabilities and Shareholders' Equity........ $13,738 $14,264
======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE> 28
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(MILLIONS)
================================================================================
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED TREASURY SHAREHOLDERS'
STOCK CAPITAL EQUITY STOCK OTHER EQUITY
------ ---------- ----------- -------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 28, 1995....... $2 $3,712 $ 493 $(559) $(8) $3,640
Net income........................ 75 75
Stock issued under stock plans.... 15 (3) 12
Restricted stock plan
amortization.................... 5 5
Income tax benefit related to
stock
plan activity................... 2 2
Stock issued in acquisition and
other........................... 540 540
-- ------ ------ ----- --- ------
BALANCE AT FEBRUARY 3, 1996....... 2 4,269 568 (562) (3) 4,274
Net income........................ 266 266
Stock issued under stock plans.... 125 (4) 121
Restricted stock plan
amortization.................... 2 2
Income tax benefit related to
stock
plan activity................... 6 6
-- ------ ------ ----- --- ------
BALANCE AT FEBRUARY 1, 1997....... 2 4,400 834 (566) (1) 4,669
Net income........................ 536 536
Stock issued under stock plans.... 46 (7) (1) 38
Deferred compensation plan
distributions................... 1 1
Income tax benefit related to
stock
plan activity................... 15 15
Minimum pension liability
adjustment...................... (3) (3)
-- ------ ------ ----- --- ------
BALANCE AT JANUARY 31, 1998....... $2 $4,461 $1,370 $(572) $(5) $5,256
== ====== ====== ===== === ======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE> 29
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS)
================================================================================
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 536 $ 266 $ 75
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and
equipment........................................... 563 504 445
Amortization of intangible assets..................... 27 27 47
Amortization of financing costs....................... 20 27 22
Amortization of unearned restricted stock............. - 2 5
Loss on early extinguishment of debt.................. 39 - -
Changes in assets and liabilities, net of effects of
acquisition:
(Increase) decrease in accounts receivable.......... 194 223 (21)
(Increase) decrease in merchandise inventories...... 7 (151) (362)
(Increase) decrease in supplies and prepaid
expenses.......................................... (5) 67 (68)
(Increase) decrease in other assets not separately
identified........................................ (7) (12) 61
Increase (decrease) in accounts payable and accrued
liabilities not separately identified............. (36) 177 (83)
Increase (decrease) in current income taxes......... 103 2 (45)
Increase in deferred income taxes................... 138 84 192
Increase (decrease) in other liabilities not
separately identified............................. (6) 4 27
------- ------- -------
Net cash provided by operating activities......... 1,573 1,220 295
------- ------- -------
Cash flows from investing activities:
Acquisition, net of cash acquired......................... - - 16
Purchase of property and equipment........................ (696) (846) (696)
Disposition of property and equipment..................... 178 196 47
Collection of note receivable............................. 200 - -
------- ------- -------
Net cash used by investing activities............. (318) (650) (633)
------- ------- -------
Cash flows from financing activities:
Debt issued............................................... 763 689 1,347
Financing costs........................................... (7) (11) (27)
Debt repaid............................................... (2,027) (1,335) (1,020)
Decrease in outstanding checks............................ (45) (65) (10)
Acquisition of treasury stock............................. (2) (1) (1)
Issuance of common stock.................................. 56 129 16
------- ------- -------
Net cash provided (used) by financing
activities...................................... (1,262) (594) 305
------- ------- -------
Net decrease in cash........................................ (7) (24) (33)
Cash beginning of period.................................... 149 173 206
------- ------- -------
Cash end of period.......................................... $ 142 $ 149 $ 173
======= ======= =======
Supplemental cash flow information:
Interest paid............................................. $ 412 $ 465 $ 444
Interest received......................................... 38 46 46
Income taxes paid (net of refunds received)............... 121 21 35
Schedule of noncash investing and financing activities:
Debt and merger related liabilities issued, reinstated
or
assumed in acquisition................................ - - 1,267
Equity issued in acquisition............................ - - 353
Debt and equity issued for purchase of debt............. - - 430
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-7
<PAGE> 30
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 that sell 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 2.5% 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 treated 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. The carrying value of property and equipment is
periodically reviewed and adjusted appropriately by the Company whenever events
or changes in circumstances indicate that the estimated fair value is less than
the carrying amount.
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 $680 million and $618 million for the 52 weeks ended
January 31, 1998 and February 1, 1997, respectively, and $633 million for the 53
weeks ended February 3, 1996.
Financing costs are amortized over the life of the related debt.
F-8
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
Income taxes are accounted for under the asset and liability method.
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. 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 cost of postretirement benefits other than pensions is recognized in
the financial statements over an employee's term of service with the Company.
The Company accounts for its stock-based employee compensation plan in
accordance with Accounting Principles Board Opinion No. 25 and related
interpretations (see Note 14).
Earnings per share are computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share" (see Note 17).
Certain reclassifications were made to prior years' amounts to conform with
the classifications of such amounts for the most recent year.
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income and its components, and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes annual and interim reporting and disclosure standards for an
enterprise's operating segments. In February 1998, the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," which
revises the disclosure requirements for pensions and other postretirement
benefit plans. All three statements are effective for fiscal years beginning
after December 15, 1997. Adoption of these statements will not impact the
Company's consolidated financial position, results of operations or cash flows,
and, where applicable, will be limited to the form and content of its
disclosures.
2. ACQUISITION
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 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 $353 million and (ii)
$1,267 million of Broadway debt. In addition, a wholly owned subsidiary of the
Company purchased $422 million of mortgage indebtedness of Broadway for 6.8
million shares of common stock of the Company and a $242 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 the estimated fair
value of these assets and liabilities as of that date.
F-9
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
3. INVENTORY VALUATION ADJUSTMENTS RELATED TO CONSOLIDATION AND BUSINESS
INTEGRATION AND CONSOLIDATION EXPENSES
In connection with the consolidation of merchandise inventories for
acquired and pre-existing businesses, the Company recorded one-time inventory
valuation adjustments related to merchandise in lines of business that were
eliminated or replaced as a separate component of cost of sales. For the 52
weeks ended February 1, 1997, the amount recorded related to the consolidation
of Broadway into the Company's Macy's West division. For the 53 weeks ended
February 3, 1996, $69 million related to 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 divisions and $23 million related to the
consolidation of the Company's Rich's/Goldsmith's and Lazarus divisions.
Additionally, the Company incurred certain one-time costs related to the
integration and consolidation of acquired and pre-existing businesses and
classified such costs as business integration and consolidation expenses as a
separate component of selling, general and administrative expenses.
During the 52 weeks ended February 1, 1997, the Company recorded $243
million of business integration and consolidation expenses, consisting of $168
million of costs associated with the integration of Broadway into the Company,
$34 million of costs related to the integration of Macy's into the Company and
$41 million of costs related to other support operation restructurings. The
major components of the Broadway integration expenses were $90 million of costs
associated with converting the Broadway stores to other nameplates of the
Company (including advertising, credit card issuance and promotion and other
name change expenses), $29 million of costs associated with operating Broadway
central office functions for a transitional period and $49 million of other
costs and expenses associated with the integration of Broadway into the Company,
including the disposition of properties. The costs associated with the
integration of Macy's into the Company primarily related to the administration
and integration of Company-wide policies and procedures and the elimination of
duplicative or non-continuing facilities. The costs associated with other
support operation restructurings primarily related to the closure and
disposition of warehouses and distribution centers in connection with the
centralization of the Company's merchandise distribution function.
During the 53 weeks ended February 3, 1996, the Company recorded $202
million of business integration and consolidation expenses associated with the
integration of Macy's and Broadway into the Company ($140 million and $48
million, respectively) and the consolidation of the Company's Rich's/Goldsmith's
and Lazarus divisions ($14 million). The primary components of the Macy's
integration expenses were $31 million of costs to close and sell certain stores,
$38 million of costs to convert a number of stores to other nameplates, $31
million of severance costs and $40 million of other costs and expenses
associated with integrating Macy's into the Company. The major components of the
Broadway integration expenses were $23 million of costs to close certain stores,
$9 million of costs to refinance certain indebtedness and $16 million of other
costs and expenses associated with integrating Broadway into the Company.
4. EXTRAORDINARY ITEM
The extraordinary item for the 52 weeks ended January 31, 1998 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.
F-10
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
5. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(MILLIONS)
<S> <C> <C>
Due from customers.......................................... $2,322 $2,523
Less allowance for doubtful accounts........................ 100 96
------ ------
2,222 2,427
Other receivables........................................... 418 407
------ ------
Net receivables............................................. $2,640 $2,834
====== ======
</TABLE>
Sales through the Company's credit plans were $4,002 million and $4,191
million for the 52 weeks ended January 31, 1998 and February 1, 1997,
respectively, and $4,324 million for the 53 weeks ended February 3, 1996. The
credit plans relating to certain operations of the Company, including operations
that were previously conducted through divisions of Macy's, are owned by a third
party. Other receivables includes the current portion of a $400 million 9.5%
note relating to the sale of certain divisions in 1988. The $400 million note,
which is supported by a letter of credit, was transferred to a grantor trust
which borrowed $352 million under a note monetization facility and transferred
such proceeds to the Company (see Note 9). The initial $200 million installment
of the note was received on May 5, 1997 and the remaining $200 million
installment matures on May 3, 1998.
Finance charge income amounted to $391 million and $430 million for the 52
weeks ended January 31, 1998 and February 1, 1997, respectively, and $405
million for the 53 weeks ended February 3, 1996.
Changes in allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year............ $ 96 $ 83 $ 45
Charged to costs and expenses......... 167 172 127
Acquired.............................. - - 16
Net uncollectible balances written
off................................. (163) (159) (105)
----- ----- -----
Balance, end of year.................. $ 100 $ 96 $ 83
===== ===== =====
</TABLE>
6. INVENTORIES
Merchandise inventories were $3,239 million at January 31, 1998, compared
to $3,246 million at February 1, 1997. At these dates, the cost of inventories
using the LIFO method approximated the cost of such inventories using the
first-in, first-out method. The application of the LIFO method did not impact
cost of sales for the 52 weeks ended January 31, 1998 and February 1, 1997 or
the 53 weeks ended February 3, 1996.
F-11
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
7. PROPERTIES AND LEASES
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(MILLIONS)
<S> <C> <C>
Land................................................. $1,019 $1,048
Buildings on owned land.............................. 2,314 2,307
Buildings on leased land and leasehold
improvements....................................... 1,552 1,547
Store fixtures and equipment......................... 3,305 2,917
Leased properties under capitalized leases........... 76 78
------ ------
8,266 7,897
Less accumulated depreciation and amortization....... 1,746 1,372
------ ------
$6,520 $6,525
====== ======
</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.
Minimum rental commitments (excluding executory costs) at January 31, 1998,
for noncancellable leases are:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES TOTAL
----------- --------- ------
(MILLIONS)
<S> <C> <C> <C>
Fiscal year:
1998................................................ $ 13 $ 164 $ 177
1999................................................ 12 151 163
2000................................................ 12 145 157
2001................................................ 12 139 151
2002................................................ 10 130 140
After 2002.......................................... 73 1,010 1,083
---- ------ ------
Total minimum lease payments.......................... 132 $1,739 $1,871
====== ======
Less amount representing interest..................... 61
----
Present value of net minimum capitalized lease
payments............................................ $ 71
====
</TABLE>
Capitalized leases are included in the Consolidated Balance Sheets as
property and equipment while the related obligation is included in short-term
($5 million) and long-term ($66 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 $7 million on capitalized leases and $19 million on
operating leases.
F-12
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
Rental expense consists of:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Real estate (excluding executory
costs)
Capitalized leases -
Contingent rentals............... $ 4 $ 4 $ 4
Operating leases -
Minimum rentals.................. 149 151 137
Contingent rentals............... 23 21 20
---- ---- ----
176 176 161
---- ---- ----
Less income from subleases -
Capitalized leases............... 1 1 -
Operating leases................. 3 3 2
---- ---- ----
4 4 2
---- ---- ----
$172 $172 $159
==== ==== ====
Personal property - Operating
leases.............................. $ 37 $ 60 $ 64
==== ==== ====
</TABLE>
8. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(MILLIONS)
<S> <C> <C>
Reorganization value in excess of amount allocable to
identifiable assets................................ $100 $100
Excess of cost over net assets acquired.............. 294 294
Tradenames........................................... 458 458
---- ----
852 852
Less accumulated amortization........................ 162 135
---- ----
Intangible assets - net.............................. $690 $717
==== ====
</TABLE>
Intangible assets are being amortized on a straight-line basis over 20
years, except for tradenames which are being amortized over 40 years.
F-13
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
9. FINANCING
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(MILLIONS)
<S> <C> <C>
Short-term debt:
Receivables backed financings...................... $ 375 $ 675
Note monetization facility......................... 176 176
Bank credit facility............................... - 132
Current portion of long-term debt.................. 5 112
------ ------
Total short-term debt...................... $ 556 $1,095
====== ======
Long-term debt:
Receivables backed financings...................... $1,326 $1,365
10.0% Senior notes due 2001........................ 450 450
8.5% Senior notes due 2003......................... 450 450
8.125% Senior notes due 2002....................... 400 400
5.0% Convertible subordinated notes due 2003....... 350 350
7.45% Senior debentures due 2017................... 300 -
Short-term debt refinanced......................... 294 -
6.79% Senior debentures due 2027................... 250 -
Note monetization facility......................... - 176
Bank credit facility, mortgages and other.......... 99 1,415
------ ------
Total long-term debt....................... $3,919 $4,606
====== ======
</TABLE>
Interest expense was as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Interest on debt...................... $392 $464 $478
Amortization of financing costs....... 20 27 22
Interest on capitalized leases........ 8 9 9
---- ---- ----
Subtotal............................ 420 500 509
Less:
Interest capitalized on
construction..................... (2) (1) (1)
---- ---- ----
$418 $499 $508
==== ==== ====
</TABLE>
F-14
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
Future maturities of long-term debt, other than capitalized leases and
including unamortized original issue discount of $1 million, are shown below:
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
Fiscal year:
1999...................................................... $523
2000...................................................... -
2001...................................................... 689
2002...................................................... 998
2003...................................................... 800
After 2003................................................ 844
</TABLE>
On July 14, 1997, the Company issued $300 million of 7.45% Senior
Debentures due 2017 and $250 million of 6.79% Senior Debentures due 2027 and, on
July 28, 1997, the Company entered into new bank credit agreements which
replaced its existing bank credit agreement.
During the 52 weeks ended January 31, 1998, with proceeds of the financings
described above, proceeds of the $200 million installment of a note receivable
and other funds, the Company repaid significant borrowings including $568
million of the Company's receivables backed certificates, $516 million of
outstanding term borrowings under its previous bank credit facility, the entire
$345 million of outstanding borrowings under its mortgage loan facility, the
entire $221 million of borrowings outstanding under its secured promissory note
and $176 million of borrowings outstanding under its note monetization facility.
On February 6, 1998, the Company issued $300 million of 7.0% Senior
Debentures due 2028. The proceeds were used to refinance short-term borrowings
which are classified as long-term debt as of January 31, 1998.
The following summarizes certain components of the Company's debt:
RECEIVABLES BACKED FINANCINGS
Receivables backed financings classified as short-term debt consist of
receivables backed commercial paper issued by a subsidiary of the Company (of
which $375 million and $146 million was outstanding as of January 31, 1998 and
February 1, 1997, respectively), together with the current portion of amounts
due under certain receivables backed certificates issued by a subsidiary of the
Company. Receivables backed financings classified as long-term debt consist of
receivables backed certificates issued by a subsidiary of the Company, which
certificates represent undivided interests in a master trust originated by such
subsidiary, bear interest at rates ranging from 6.70% to 7.95% per annum and
mature between December 15, 1999 and September 15, 2002.
BANK CREDIT AGREEMENTS
The Company and certain financial institutions are parties to (i) the
Five-Year Credit Agreement, pursuant to which such financial institutions have
provided the Company with a $1,500 million revolving loan facility (the "Five
Year Facility") and (ii) the 364-Day Credit Agreement, pursuant to which such
financial institutions have provided the Company with a $500 million revolving
loan facility (the "364-Day Facility" and, together with the Five-Year Facility,
the "Revolving Loan Facilities"). The Company's obligations under the Revolving
Loan Facilities are not secured or guaranteed.
F-15
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
As of January 31, 1998, there were $150 million of revolving credit loans
outstanding under the Five-Year Facility which, as a result of a refinancing,
has been classified as long term debt. Additionally, there were $112 million of
letters of credit outstanding under the Revolving Loan Facilities. Revolving
loans under the Revolving Loan Facilities bear interest based on published
rates. As of January 31, 1998, the average rate was 5.78% per annum.
COMMERCIAL PAPER
On January 30, 1997, the Company established a $400 million facility for
the issuance from time to time of unsecured commercial paper. The issuance of
commercial paper under the facility will have the effect, while such commercial
paper is outstanding, of reducing the Company's borrowing capacity under the
Five-Year Facility by an amount equal to the principal amount of such commercial
paper. As of January 31, 1998, there was $144 million of such commercial paper
outstanding which, as a result of a refinancing, has been classified as
long-term debt. As of February 1, 1997, no such commercial paper was
outstanding.
SENIOR NOTES AND DEBENTURES
The Senior Notes and the Senior Debentures are unsecured obligations of the
Company. The holders of the Senior Debentures due 2027 may elect to have such
debentures repaid on July 15, 2004 at 100% of the principal amount thereof,
together with accrued and unpaid interest to the date of repayment.
CONVERTIBLE SUBORDINATED NOTES
The Convertible Subordinated Notes are unsecured obligations of the Company
and are subordinated to all existing and future senior debt of the Company. The
Convertible Subordinated Notes are convertible into shares of Common Stock at
the rate of 29.2547 shares of Common Stock per $1,000 stated principal amount,
subject to adjustment in certain circumstances to prevent dilution. 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 specified
redemption prices plus accrued interest to the date of redemption.
NOTE MONETIZATION FACILITY
The note monetization facility represents debt of a grantor trust formed by
the Company, the final installment of which matures on May 3, 1998. Recourse
under such debt is limited to the trust's assets (consisting primarily of a $200
million receivable due on May 3, 1998) and the Company's interest in the trust.
OTHER FINANCING ARRANGEMENT
In addition to the financing arrangements discussed above, on January 22,
1997, the Company entered into an arrangement providing for off balance sheet
financing of up to $200 million (subsequently increased to $300 million) of
non-proprietary credit card receivables arising under accounts owned by the
Company. At January 31, 1998 and February 1, 1997, $243 million and $104 million
of borrowings were outstanding under this arrangement, respectively.
F-16
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(MILLIONS)
<S> <C> <C>
Merchandise and expense accounts payable.................... $1,587 $1,699
Liabilities to customers.................................... 173 111
Taxes other than income taxes............................... 116 119
Accrued wages and vacation.................................. 86 78
Accrued interest............................................ 51 62
Other....................................................... 403 423
------ ------
$2,416 $2,492
====== ======
</TABLE>
11. TAXES
Income tax expense is as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
-------------------------- -------------------------- --------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ----- ------- -------- ----- ------- -------- -----
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal................ $319 $(1) $318 $176 $(31) $145 $ 91 $13 $104
State and local........ 66 (1) 65 36 (6) 30 20 3 23
---- --- ---- ---- ---- ---- ---- --- ----
$385 $(2) $383 $212 $(37) $175 $111 $16 $127
==== === ==== ==== ==== ==== ==== === ====
</TABLE>
The income tax expense reported differs from the expected tax computed by
applying the federal income tax statutory rate of 35% for the 52 weeks ended
January 31, 1998 and February 1, 1997, and the 53 weeks ended February 3, 1996
to income before income taxes and extraordinary item. The reasons for this
difference and their tax effects are as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Expected tax.......................... $335 $154 $ 71
State and local income taxes, net of
federal income tax expense.......... 43 20 15
Permanent difference arising from
amortization of intangible assets... 9 9 16
Permanent difference resulting from
Broadway acquisition................ - - 23
Other................................. (4) (8) 2
---- ---- ----
$383 $175 $127
==== ==== ====
</TABLE>
F-17
<PAGE> 40
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>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(MILLIONS)
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards.............................. $ 174 $ 328
Accrued liabilities accounted for on a cash basis for tax
purposes............................................... 175 189
Postretirement benefits other than pensions............... 171 179
Capitalized lease debt.................................... 31 31
Allowance for doubtful accounts........................... 40 38
Alternative minimum tax credit carryforwards.............. 63 53
Other..................................................... 122 148
------- -------
Total gross deferred tax assets........................ 776 966
------- -------
Deferred tax liabilities:
Excess of book basis over tax basis of property and
equipment.............................................. (1,345) (1,376)
Prepaid pension expense................................... (68) (68)
Deferred gain from sale of divisions...................... (41) (82)
Merchandise inventories................................... (122) (115)
Other..................................................... (81) (68)
------- -------
Total gross deferred tax liabilities................... (1,657) (1,709)
------- -------
Net deferred tax liability............................. $ (881) $ (743)
======= =======
</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. 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. As of
January 31, 1998, the Company estimated that the Macy's net operating loss
carryforwards, which are available to offset future taxable income of the
acquired Macy's enterprise through 2008, were approximately $170 million and
that Broadway's net operating loss carryforwards, which are available to offset
future taxable income of the acquired Broadway enterprise through 2009, were
approximately $303 million. The Company also had alternative minimum tax credit
carryforwards of $63 million, which are available to reduce future income taxes,
if any, over an indefinite period.
12. RETIREMENT PLANS
The Company has a defined benefit plan ("Pension Plan") and a defined
contribution plan ("Savings Plan") which cover substantially all employees who
work 1,000 hours or more in a year. In addition, the Company has a defined
benefit supplementary retirement plan which includes benefits, for certain
employees, in excess of qualified plan limitations. For the 52 weeks ended
January 31, 1998 and February 1, 1997, and the 53 weeks
F-18
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
ended February 3, 1996, net retirement expense for these plans totaled $35
million, $29 million and $22 million, respectively.
Measurements of plan assets and obligations for the Pension Plan and the
defined benefit supplementary retirement plan are calculated as of December 31
of each year. The discount rates used to determine the actuarial present value
of projected benefit obligations under such plans were 7.25% as of December 31,
1997 and 7.75% as of December 31, 1996. The assumed average rate of increase in
future compensation levels under such plans was 5.0% as of December 31, 1997 and
December 31, 1996. The long-term rate of return on assets (Pension Plan only)
was 9.75% as of December 31, 1997 and December 31, 1996.
PENSION PLAN
Net pension expense for the Company's Pension Plan included the following
actuarially determined components:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost.......................... $ 30 $ 36 $ 31
Interest cost......................... 99 94 83
Actual return on assets............... (247) (193) (243)
Net amortization and deferrals........ 115 74 134
Cost of special termination
benefits............................ 9 - -
----- ----- -----
$ 6 $ 11 $ 5
===== ===== =====
</TABLE>
In connection with a program to modify certain health care benefits for
future retirees at one division, the Company incurred $9 million of special
termination benefits to eligible employees who elected to retire within a
specified time period.
The following table sets forth the projected actuarial present value of
benefit obligations and funded status at December 31, 1997 and 1996, for the
Pension Plan:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Net accumulated benefit obligations, including vested
benefits of $1,286 million and $1,164 million,
respectively.............................................. $1,304 $1,189
Projected compensation increases............................ 99 92
------ ------
Projected benefit obligations............................... 1,403 1,281
------ ------
Plan assets (primarily stocks, bonds and U.S. government
securities)............................................... 1,590 1,469
Unrecognized gain........................................... (21) (16)
Unrecognized prior service cost............................. 3 4
------ ------
1,572 1,457
------ ------
Prepaid pension expense..................................... $ 169 $ 176
====== ======
</TABLE>
F-19
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
The Company's policy is to fund the Pension Plan at or above the minimum
required by law. For the 1997 and 1996 plan years, the Company was impacted by
the full funding limitation resulting in a zero contribution requirement for
both years. Plan assets are held by independent trustees.
SUPPLEMENTARY RETIREMENT PLAN
Net pension expense for the supplementary retirement plan included the
following actuarially determined components:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost.......................... $ 2 $ 2 $ 2
Prior service cost.................... - - 1
Interest cost on projected benefit
obligations......................... 5 5 3
Net amortization and deferral......... 2 1 1
--- --- ---
$ 9 $ 8 $ 7
=== === ===
</TABLE>
The following table sets forth the projected actuarial present value of
unfunded benefit obligations at December 31, 1997 and 1996, for the
supplementary retirement plan:
<TABLE>
<CAPTION>
1997 1996
---- ----
(MILLIONS)
<S> <C> <C>
Accumulated benefit obligations, including vested benefits
of $87 million and $65 million, respectively.............. $89 $66
Projected compensation increases............................ 5 9
--- ---
Projected benefit obligations............................... 94 75
Unrecognized gain (loss).................................... (9) 6
Unrecognized prior service cost............................. (7) (5)
Minimum funding liability................................... 11 -
--- ---
Accrued supplementary retirement obligation................. $89 $76
=== ===
</TABLE>
In order to recognize the required minimum liability at December 31, 1997
for the defined benefit supplementary retirement plan, the Company recorded an
additional pension accrual, an intangible asset to the extent of unrecognized
prior service cost and a reduction in shareholders' equity, net of applicable
income taxes.
SAVINGS PLAN
The Savings Plan includes a voluntary savings feature for eligible
employees. The Company's contribution is based on the Company's annual earnings
and the minimum Company contribution is 33 1/3% of an employee's eligible
savings. Expense for the Savings Plan amounted to $20 million for the 52 weeks
ended January 31, 1998, $10 million for the 52 weeks ended February 1, 1997, and
$10 million for the 53 weeks ended February 3, 1996.
F-20
<PAGE> 43
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 January 31, 1998, February 1, 1997, and February 3,
1996, the liability under the plan, which is reflected in other liabilities, was
$17 million, $12 million, and $8 million, respectively. Expense for the 52 weeks
ended January 31, 1998, 52 weeks ended February 1, 1997, and the 53 weeks ended
February 3, 1996 was immaterial.
13. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
In addition to pension and other supplemental benefits, certain retired
employees currently are 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 eligible
employees who retire after a certain age with specified years of service.
Certain employees are subject to having such benefits modified or terminated.
Net postretirement benefit expense included the following actuarially
determined components:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost.......................... $ 2 $ 5 $ 6
Interest cost......................... 23 27 29
Net amortization and deferral......... (15) (6) (7)
Reduction for special termination
benefits............................ (3) - -
---- --- ---
$ 7 $26 $28
==== === ===
</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, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
(MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................... $278 $280
Fully eligible active plan participants..................... 26 39
Other active plan participants.............................. 21 45
---- ----
Accumulated postretirement benefit obligation............... 325 364
Unrecognized net gain....................................... 73 69
Unrecognized prior service cost............................. 31 16
---- ----
Accrued postretirement benefit obligation................... $429 $449
==== ====
</TABLE>
The discount rate used in determining the actuarial present value of
unfunded postretirement benefit obligations was 7.25% as of December 31, 1997
and 7.75% as of December 31, 1996.
F-21
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
The future medical 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 5.5% to 10.0% in the first
year, and to decrease gradually for each such component to 5.5% by 2003 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, 1997 by $12
million and the net periodic postretirement benefit expense for 1997 by $1
million.
14. EQUITY PLAN
The Company has adopted 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>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
(SHARES IN THOUSANDS) -------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........... 9,140.2 $24.65 7,415.7 $20.48 6,151.5 $19.83
Granted.................................. 4,133.7 34.49 3,057.8 33.14 2,291.1 21.82
Canceled................................. (630.0) 29.51 (403.9) 23.95 (435.6) 20.74
Exercised................................ (1,818.6) 20.80 (929.4) 19.60 (591.3) 18.63
-------- ------ ------- ------ ------- ------
Outstanding, end of year................. 10,825.3 $28.78 9,140.2 $24.65 7,415.7 $20.48
======== ====== ======= ====== ======= ======
Exercisable, end of year................. 3,315.0 $22.56 3,136.8 $20.33 2,750.2 $19.41
======== ====== ======= ====== ======= ======
Weighted average fair value of options
granted during the year................ $14.26 $13.04 $ 9.89
====== ====== ======
</TABLE>
As of January 31, 1998, 10.8 million shares of Common Stock were available
for additional grants pursuant to the Company's equity plan, of which 1.2
million shares were available for grant in the form of restricted stock. During
the 52 weeks ended January 31,1998, 30,000 shares of Common Stock were granted
in the form of restricted stock at a market value of $34.38 and fully vest after
3 years. No shares of Common Stock were granted in the form of restricted stock
during the 52 weeks ended February 1, 1997 or the 53 weeks ended February 3,
F-22
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
1996. Compensation expense is recorded for all restricted stock grants based on
the amortization of the fair market value at the time of grant of the restricted
stock over the period the restrictions lapse. There have been no grants of stock
appreciation rights under the equity plan.
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for compensation cost under its equity plan. Had
compensation cost for the Company's equity plan been determined consistent with
Statement of Financial Accounting Standards No. 123 for options granted
subsequent to January 28, 1995, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income As Reported................... $ 536 $ 266 $ 75
Pro forma..................... 521 258 72
Basic earnings As Reported................... 2.56 1.28 .39
per share Pro forma..................... 2.49 1.24 .37
Diluted earnings As Reported................... 2.41 1.24 .39
per share Pro forma..................... 2.34 1.21 .37
</TABLE>
The fair value of each option grant subsequent to January 28, 1995 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used.
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Dividend yield..................................... - - -
Expected volatility................................ 29.7% 25.2% 31.5%
Risk-free interest rate............................ 5.7% 6.1% 7.0%
Expected life...................................... 6 years 6 years 6 years
</TABLE>
The following summarizes information about stock options granted subsequent
to January 28, 1995, which remain outstanding as of January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
(THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C> <C>
$19.00 - 28.50 1,250.6 7 years.... $22.40 485.2 $22.40
33.13 - 34.63 2,604.5 8 years.... 33.14 519.8 33.14
34.38 - 45.13 3,944.1 9 years.... 34.49 - -
</TABLE>
15. 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
F-23
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
of $.01 per share, with 239.9 million shares of Common Stock issued and 209.9
million shares of Common Stock outstanding at January 31, 1998 and 237.8 million
shares of Common Stock issued and 208.0 million shares of Common Stock
outstanding at February 1, 1997 (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.
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 million shares of Common Stock
F-24
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
(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 addition to the stock options described in Note 14, 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 300 thousand shares of Common Stock remained outstanding as
of January 31, 1998).
TREASURY STOCK
Treasury stock contains shares issued to wholly owned subsidiaries of the
Company in connection with the acquisition of Macy's, shares maintained in a
trust related to the deferred compensation plans and shares repurchased to cover
employee tax liabilities related to other stock plan activity.
Changes in the number of shares held in the treasury are as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
(THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year................ 84.8 40.8 -
Additions:
Restricted stock........................ 70.0 41.9 40.8
Deferred compensation plan.............. 4.5 2.1 -
----- ---- ----
Balance, end of year...................... 159.3 84.8 40.8
===== ==== ====
</TABLE>
Additions to treasury stock for restricted stock and the deferred
compensation plan represent shares accepted in lieu of cash to cover employee
tax liability upon lapse of restrictions for restricted stock and upon
distribution of common stock under the deferred compensation plan.
F-25
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
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. Changes in the number of shares held in the trust
are as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
(THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year............ 283.5 213.9 130.5
Additions............................. 123.7 90.6 88.0
Distributions......................... (28.5) (21.0) (4.6)
----- ----- -----
Balance, end of year.................. 378.7 283.5 213.9
===== ===== =====
</TABLE>
16. 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 because the carrying amount reflects a
reasonable estimate of losses from doubtful accounts.
Long-term debt
The fair values of the Company's long-term debt, excluding capitalized
leases, 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.
F-26
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
The estimated fair values of certain financial instruments of the Company
are as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------------------- ----------------------------
NOTIONAL CARRYING FAIR NOTIONAL CARRYING FAIR
AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
-------- -------- ------ -------- -------- ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Long-term debt..................... $3,854 $3,853 $4,179 $4,534 $4,533 $4,703
Interest rate cap agreements....... 827 - - 1,852 8 -
Interest rate swap agreements...... 376 - (2) 752 - (8)
</TABLE>
The interest rate cap agreements in effect at January 31, 1998 are used to
hedge interest rate risk related to variable rate indebtedness under the
Company's Revolving Loan Facilities and commercial paper programs. 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 relate to the note monetization and
Revolving Loan Facilities. The note monetization facility bears interest based
on LIBOR, subject to certain adjustments. The interest rate swap agreement for
the note monetization facility effectively 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, in effect, to fix the
interest on a portion of the debt outstanding under the Revolving Loan
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 that the total commitment amount will represent future
cash requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis.
Financial instruments that 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 concentrations, however, are considered to be
limited because of the Company's large number of customers and their dispersion
across many regions.
F-27
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
17. EARNINGS PER SHARE
The reconciliation of basic earnings per share to diluted earnings per
share based on income before extraordinary item is as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
----------------------- ----------------------- ----------------------
SHARES INCOME SHARES INCOME SHARES INCOME
------ ------ ------ ------ ------ ------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before extraordinary
item and average number of
shares outstanding.......... 209.2 $575 207.5 $266 191.5 $75
Shares to be issued to IRS.... .1 .1
Shares to be issued under
deferred compensation
plan........................ .3 .2 .2
------ ---- ------ ---- ------ ---
209.5 $575 207.8 $266 191.8 $75
Basic earnings per
share.................. $2.74 $1.28 $.39
===== ===== ====
Effect of dilutive securities:
Warrants.................... 5.4 2.8 .6
Stock options............... 2.0 1.6 .9
Convertible notes........... 10.2 10 10.2 11
------ ---- ------ ---- ------ ---
227.1 $585 222.4 $277 193.3 $75
Diluted earnings per
share.................. $2.58 $1.24 $.39
===== ===== ====
</TABLE>
F-28
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
18. QUARTERLY RESULTS (UNAUDITED)
Unaudited quarterly results for the 52 weeks ended January 31, 1998 and
February 1, 1997, were as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
52 Weeks Ended January 31, 1998:
Net sales............................................... $3,409 $3,453 $3,746 $5,060
Operating income........................................ 148 212 268 713
Income before extraordinary item........................ 24 67 105 379
Net income.............................................. 24 28 105 379
Basic earnings per share:
Income before extraordinary item..................... .12 .32 .50 1.80
Net income........................................... .12 .13 .50 1.80
Diluted earnings per share:
Income before extraordinary item..................... .11 .31 .47 1.66
Net income........................................... .11 .13 .47 1.66
52 Weeks Ended February 1, 1997:
Net sales............................................... $3,301 $3,284 $3,609 $5,035
Operating income........................................ 55 76 187 575
Net income (loss)....................................... (38) (27) 42 289
Basic earnings (loss) per share......................... (.18) (.13) .20 1.39
Diluted earnings (loss) per share....................... (.18) (.13) .20 1.31
</TABLE>
F-29
<PAGE> 1
Exhibit 4.6
SERIES B WARRANT AGREEMENT
--------------------------
This Amended and Restated Series B Warrant Agreement, dated as of June
1, 1995 (this "Agreement"), is made and entered into by and between 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. The Company and CS First Boston Corporation, a Massachusetts
corporation formerly known as The First Boston Corporation ("FBC"), are parties
to a Series B Warrant Agreement, dated as of February 5, 1992 (the "Original
Agreement"), pursuant to which the Company issued and delivered 1,000,000
warrants (the "Warrants") to FBC in connection with a plan of reorganization of
Federated Department Stores, Inc., Allied Stores Corporation, and certain of
their subsidiaries (the "Plan") which was confirmed by the United States
Bankruptcy Court for the Southern District of Ohio, Western Division, on January
10, 1992.
B. Certain restrictions on the transferability of the Warrants set
forth in the Original Agreement lapsed as of February 5, 1995.
C. The Company desires to facilitate transfers of Warrants and other
dealings between the Company and holders of Warrants by, among other things,
appointing the Warrant Agent to act as agent for the Company and the holders of
Warrants in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto hereby agree as follows:
1. BASIC TERMS AND FORM OF WARRANTS.
1.1. BASIC TERMS OF WARRANTS. From and after the date hereof, the
Warrants will be subject to and governed by the terms of this Agreement. As of
the date hereof, (a) each Warrant represents the right to purchase 1.047 shares
of Common Stock, par value $.01 per share, of the Company (the "Common Stock")
and (b) the purchase price per Warrant Share payable upon the exercise of a
Warrant (the "Warrant Price") is $33.43. The shares of Common Stock purchasable
upon exercise of the Warrants are hereinafter referred to as the "Warrant
Shares." 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.
1.2. FORM OF WARRANTS. 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
<PAGE> 2
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 the
Chairman of the Board, President, or any Vice President of the Company, and
attested by the Secretary or any Assistant Secretary of the Company. 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 at the date of the execution of this Agreement any 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
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 a Warrant (the "Holder") as the sole owner thereof for all
purposes and will not be bound to recognize any equitable or other claim or
interest in such Warrant 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 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
-2-
<PAGE> 3
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
service charges 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 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
-3-
<PAGE> 4
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) Subject to the earlier expiration of
Warrants pursuant to Section 3.2, Warrants may be exercised by the Holder
thereof, in whole or in part, at any time and from time to time prior to 5:00
p.m., Cincinnati, Ohio time on February 15, 2000 (the "Expiration Date") by
delivering to the Warrant Agent, at its principal office designated for such
purpose, the following:
(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, or a certified bank check payable to the order of
the Company, 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.
Following the Expiration Date, the Warrants will be null, void, and of no force
or effect, and no holder of a Warrant Certificate will have any right thereunder
or under this Agreement.
(b) As promptly as practicable after an exercise of Warrants in
accordance with Section 3.1(a), 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
-4-
<PAGE> 5
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 be (subject to
payment of the Warrant Price) duly and validly authorized and issued, fully
paid, and nonassessable.
(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 arrangements necessary so that such cash is
available for distribution by the Warrant Agent, if and when appropriate.
3.2. ACCELERATION OF THE EXPIRATION DATE. Notwithstanding anything to
the contrary contained in this Agreement, in the event that the Closing Price
(as defined in Section 4.1(e)) is equal to or greater than 160% of the Warrant
Price (as it may be adjusted pursuant to Section 4) for 45 consecutive Trading
Days (as hereinafter defined) ending after February 15, 1996, then, if the
Expiration Day has not previously occurred, the Expiration Date will be 5:00
p.m., Cincinnati, Ohio time, on the fifth Business Day (as hereinafter defined)
after the Company gives notice (the "Acceleration Notice") to the Holders, which
notice makes reference to this Agreement, specifies that the Expiration Date is
being accelerated by reason of the Closing Price so exceeding the Warrant Price
for such period, and sets forth the accelerated Expiration Date of the Warrants.
3.3. 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 NUMBER OF 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 happening 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:
-5-
<PAGE> 6
(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 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 the number and kind of
Warrant Shares or other securities of the Company that it would have
owned or it would have been entitled to receive after the happening of
any of the events described above, had such Warrant been exercised
immediately prior to the record date, in the case of a dividend or
distribution, or the effective date, in the case of a subdivision,
combination, or reclassification. An adjustment made pursuant to this
paragraph (a) will become effective immediately after the record date
in the case of a dividend or distribution and will become effective
immediately after the effective date 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 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 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 (other than the
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 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
distribution by a fraction, the numerator of which will be the then
Current Market Price per share (as defined in Section 4.1(e)) of Common
Stock on the date of such distribution, and the denominator of which
will be the then Current Market Price per share of Common Stock less
the then 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 reputable
-6-
<PAGE> 7
investment banking firm) of the portion of the evidences of
indebtedness, assets, securities, or rights, options, or warrants so
distributed applicable to 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 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 date by a fraction
(not to be less than one), the numerator of which will be the number of
shares of Common Stock outstanding on the date of issuance of such
rights, options, or warrants plus the number of additional shares of
Common Stock offered thereby for subscription or purchase 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 offering 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 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 reputable 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 such 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 (i)
-7-
<PAGE> 8
shares of Common Stock or convertible or exchangeable securities issued
in any of the transactions described in paragraphs (a), (b), or (c) of
this Section 4.1 and (ii) Warrant Shares issued upon exercise of the
Warrants) 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 less than the Current Market Price per share of
Common Stock on the date the Company fixed the offering, conversion, or
exchange price of such additional shares of Common Stock, 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 date 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 offering 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 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 reputable 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 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
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<PAGE> 9
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 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 taken into account in any subsequent adjustment. 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 each Warrant will be made under Section 4.1(b)-(d) if the
Company issues or distributes to each Holder of Warrants the shares,
rights, options, warrants, convertible or exchangeable securities,
evidences of indebtedness, assets, or other securities referred to in
those paragraphs that each Holder of Warrants 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. No adjustment in
the number of Warrant Shares purchasable upon the exercise of each
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 exchangeable for or convertible into, shares of Common
Stock, pursuant to the Plan, (2) any issuance of shares of Common Stock
upon the conversion of the Convertible Notes, (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 the Equity Plan 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 New Federated Share Purchase Rights
Agreement, as from time to time amended, or any similar successor 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 Company fixed the
offering, conversion, or exchange price of such additional shares of
Common Stock. No adjustment in the number of
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<PAGE> 10
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 payable upon exercise of each Warrant will be adjusted by
multiplying such Warrant Price 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 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 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 Holders of
Warrants become entitled to purchase any securities of the Company
other than Common Stock, thereafter the number of such other shares so
purchasable upon exercise of each Warrant and the Warrant Price for
such shares 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 contained in this Section 4.1, and the
provisions of Sections 4.2 and 4.3, with respect to the Warrant Shares.
(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
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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 kind or
number of securities 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 in the number of Warrant Shares purchasable
upon 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 the Warrant Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of shares and other securities and
property that it would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, transfer, or lease had such
Warrant been exercised immediately prior to such action; PROVIDED, HOWEVER, that
no adjustment in respect of dividends, interest, or other income on or from such
shares or other securities and 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 shares purchasable upon the exercise of
the Warrants has been made, Warrant
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Certificates theretofore or thereafter issued may continue to express the same
price and number and kind of 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 on the exercise of the Warrants.
If any fraction of a Warrant Share would, except for the provisions of this
Section 5, be issuable upon the exercise of the Warrants, the Company will pay
an amount in cash equal to the Current Market Price for one share of Common
Stock, as defined in Section 4.1(e), on the Trading Day immediately preceding
the date on which the Warrants are presented for exercise, multiplied by such
fraction of a Warrant Share.
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
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<PAGE> 13
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 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 6.5 hereof.
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; 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
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<PAGE> 14
act hereunder be deemed to make any representation or warranty as 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> 15
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 new 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 States 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 States of Ohio or New York), in good standing, having a principal office
in the States 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 a notice thereof in writing to the registered holders of the Warrant
Certificates. 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.
7. 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 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 cash dividend payable out of consolidated retained
earnings) to the holders of its shares of Common Stock;
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<PAGE> 16
(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, or any sale, transfer, or lease to another corporation of
all or substantially all the property of the Company; or
(e) A dissolution, liquidation, or winding up of the Company
is proposed;
then in any one or more of such events the Company will give notice in writing
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
shareholders entitled to such dividend, distribution, or subscription rights, or
for the determination of shareholders 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.
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;
(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
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<PAGE> 17
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,
except as otherwise provided in Section 5 hereof; 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 the Warrants, a number of shares of Common Stock
(or, if applicable, other 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;
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<PAGE> 18
(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;
and
(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.
(e) The Warrants have been duly and validly issued and are
fully paid and nonassessable, 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, fully
paid, nonassessable, and free and clear of any and all liens and
encumbrances, other than the restrictions contemplated by this
Agreement.
11. NOTICES. All notices, requests, waivers, releases, consents, and
other communications required or permitted by this Agreement (collectively,
"Notices") must be in writing. 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 J. 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. 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 provision 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
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<PAGE> 19
contrary, no supplement or amendment will be made which increases the Warrant
Price or decreases the period of time remaining during which the Warrants may be
exercised without the consent of all Holders.
13. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but will not be assignable or delegable by any party without
the prior written consent of each 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.
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 will be 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.
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<PAGE> 20
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.
21. REFERENCES TO THE PLAN. Terms used herein with initial capital
letters that are not otherwise defined are used herein as defined in the Plan.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the date first above written.
FEDERATED DEPARTMENT STORES, INC.
By: /s/ John R. Sims
---------------------------------------
Name: John R. Sims
Title: Vice President and
Assistant Secretary
THE BANK OF NEW YORK
By: /s/ Robert Dietz
---------------------------------------
Name: Robert Dietz
Title: Vice President
By executing this Agreement below, FBC consents to the execution and
delivery of this Agreement by the Company and the Warrant Agent and acknowledges
that this Agreement supersedes the Original Agreement and that the Warrants will
be subject to and governed by the terms of this Agreement from and after the
date hereof until such time as this Agreement may be amended in accordance with
its terms.
CS FIRST BOSTON CORPORATION
By: /s/ Agnes F. Reicke
---------------------------------------
Name: Agnes F. Reicke
Title: Director & Secretary
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EXHIBIT A
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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
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VOID AFTER 5:00 P.M. CINCINNATI TIME
ON FEBRUARY 15, 2000 OR EARLIER
AS PROVIDED IN THE WARRANT AGREEMENT
Federated Department Stores, Inc. Series B 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 prior to 5:00 p.m. Cincinnati time on February 15, 2000, or such earlier
date as described in the Warrant Agreement (the "Expiration Date"), 1.047 fully
paid and nonassessable shares of the Common Stock, par value $.01 per share, of
the Company (the "Common Stock") at an initial purchase price of $33.43 per
share (the "Warrant Price"). The shares of Common Stock purchasable upon
exercise of the Warrants are hereinafter referred to as the "Warrant Shares."
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, in lawful money of the United States of
America, or a certified bank check payable to the order of the Company, 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.
The number of Warrant Shares which may be purchased upon
exercise of the Warrants evidenced by this Warrant Certificate are the number as
of June 1, 1995, 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.
A-1
<PAGE> 22
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 Amended and Restated Series B Warrant Agreement, dated as of
June 1, 1995 (the "Warrant Agreement"), by and between the Company and The Bank
of New York, a New York banking corporation (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, duties, and immunities hereunder
of the Company and the Holder. A copy of the Warrant Agreement will be made
available by the Company upon request.
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 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 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.
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.
This Warrant Certificate will not be valid or obligatory for
any purpose until it has been countersigned by the Warrant Agent.
A-2
<PAGE> 23
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-3
<PAGE> 24
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: , 19
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------------------------------
Signature
Signature Guaranteed:
A-4
<PAGE> 25
FORM OF EXERCISE NOTICE
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(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: , 19
------------------------- ----
-------------------------
Signature
Signature Guaranteed:
A-5
<PAGE> 26
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-6
<PAGE> 1
Exhibit 10.3.2
SECOND AMENDMENT TO LOAN AGREEMENT
----------------------------------
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT") is made as
of July 28, 1997, by and between LAZARUS PA, INC., an Ohio corporation, as
successor to JOSEPH HORNE CO., INC. (the "BORROWER"), and PNC BANK, OHIO,
NATIONAL ASSOCIATION, a national banking association, as the sole lender (the
"BANK"), and in its capacity as agent for the Banks (the "AGENT").
WITNESSETH:
WHEREAS, the Borrower (or its predecessor in interest) has executed and
delivered to the Agent and the Banks a Loan Agreement dated as of May 26, 1994,
which was subsequently amended by a First Amendment to Loan Agreement dated as
of December 6, 1995 (collectively, the "LOAN AGREEMENT") which evidences some or
all of the Borrower's obligations for one or more loans or other extension of
credit (the "OBLIGATIONS"); and
WHEREAS, the parties desire to amend the Loan Agreement as provided for
below;
NOW THEREFORE, in consideration of the mutual covenants herein
contained and intending to be legally bound hereby, the parties hereto agree as
follows:
1. The Loan Agreement is amended as follows:
1.1 Section 2.2b of the Loan Agreement is deleted in its
entirety and the following inserted in its place:
2.2b "INTEREST RATE. The Term Loan shall bear interest at a rate per
annum equal to the (A) Eurodollar Rate plus (B) the applicable Drawn
Cost.
As used in this Section, `Drawn Cost' means the applicable Drawn Cost
delineated in the grid in the definition of `Applicable Margin' in the
Five Year Credit Agreement dated as of July 28, 1997 among the
Guarantor, and Citibank, N.A. as Administrative Agent and as Paying
Agent, and the other agents and lenders named therein (the "GUARANTOR'S
CREDIT AGREEMENT"). The applicable Drawn Cost will be determined by
reference to the Performance Level of the Guarantor as defined in and
as in effect under the Guarantor's Credit Agreement, and such Drawn
Cost will change five Business Days after the Guarantor's chief
financial officer provides a certificate to the Agent hereunder setting
forth that a change in the applicable Performance Level under the
Guarantor's Credit Agreement has become effective. As of August 1,
1997, the Drawn Cost is 0.3000%."
2. Any and all references to the Loan Agreement in any other loan
documents relating to the Obligations (the "Loan Documents") shall be deemed to
refer to such Loan Agreement as amended hereby. Any initially capitalized terms
used in this Amendment without definition shall have the meanings assigned to
those terms in the Loan Agreement.
<PAGE> 2
3. This Amendment is deemed incorporated into each of the Loan
Documents. To the extent any term or provision of this Amendment is or may be
deemed expressly inconsistent with any term or provision in any Loan Document,
the terms and provisions hereof shall control.
4. The Borrower hereby represents and warrants that (a) all of its
representations and warranties in the Loan Documents are true and correct, (b)
no default or Event of Default exists under any Loan Document, and (c) this
Amendment has been duly authorized, executed and delivered and constitutes its
legal, valid and binding obligation, enforceable in accordance with its terms,
subject to the operation of applicable bankruptcy and other creditor relief laws
in effect from time to time.
5. The Borrower hereby confirms that any collateral for the
Obligations, including but not limited to liens, security interests, mortgages,
and pledges granted by the Borrower or third parties (if applicable), shall
continue unimpaired and in full force and effect.
6. This Amendment may be signed in any number of counterpart copies and
by the parties hereto on separate counterparts, but all copies shall constitute
one and the same instrument.
7. This Amendment will be binding upon and inure to the benefit of the
Borrower, the Agent and the Banks and their respective successors and assigns.
8. Except as amended hereby, the terms and provisions of the Loan
Documents remain unchanged and in full force and effect. Except as expressly
provided herein, this Amendment shall not constitute an amendment, waiver,
consent or release with respect to any provision of any Loan Document, a waiver
of any default thereunder, or a waiver or release of any of the Agent's or the
Banks rights and remedies (all of which are hereby reserved). THE BORROWER
EXPRESSLY RATIFIES AND CONFIRMS THE WAIVER OF JURY TRIAL PROVISIONS.
Executed as of the date first written above.
LAZARUS PA, INC.,
an Ohio corporation
By: /s/ Karen M. Hoguet
------------------------------------
Print Name: Karen M. Hoguet
-----------------------------
Title: Treasurer
----------------------------------
PNC BANK, OHIO, NATIONAL
ASSOCIATION, a national
banking association, in its
capacity as the sole Bank
and Agent
By: /s/ Bruce A. Kintner
------------------------------------
Print Name: Bruce A. Kintner
-----------------------------
Title: Vice President
----------------------------------
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<PAGE> 3
CONSENT OF GUARANTOR
The undersigned guarantor hereby consents to the provisions of the
foregoing Second Amendment to Loan Agreement (the "Amendment"), and confirms and
agrees that that undersigned's obligations under the Guaranty Agreement dated as
of May 26, 1994 (the "Guaranty"), relating to some or all of the Obligations
mentioned in the foregoing Amendment shall be unimpaired by the Amendment and
that the undersigned has no defenses or setoffs against the Bank, its officers,
directors, employees, agents or attorneys with respect to the Guaranty except as
may be provided in the Guaranty and that all of the terms, conditions and
covenants in the Guaranty remain unaltered and in full force and effect and are
hereby ratified and confirmed. The undersigned hereby certifies that the
representations and warranties made in the Guaranty are true and correct. The
undersigned hereby ratifies and confirms the waiver of jury trial provisions
contained in the Guaranty.
Executed as of July 28, 1997, intending to be legally bound hereby.
FEDERATED DEPARTMENT STORES, INC.,
a Delaware corporation
By: /s/ Karen M. Hoguet
---------------------------------------
Print Name: Karen M. Hoguet
-------------------------------
Title: SVP - Planning and Treasurer
-------------------------------------
<PAGE> 1
Exhibit 10.37
FEDERATED DEPARTMENT STORES, INC.
1992 INCENTIVE BONUS PLAN
(AS AMENDED AND RESTATED AS OF MARCH 28, 1997 AND DECEMBER 12, 1997)
Federated Department Stores, Inc., a Delaware corporation (the
"Company"), hereby amends and restates this 1992 Incentive Bonus Plan (this
"Bonus Plan") effective as of December 12, 1997.
1. PURPOSE. The purpose of this Bonus Plan is to promote the attainment
of the Company's performance goals by providing incentive compensation for
certain designated key executives and employees of the Company and its
Subsidiaries.
2. DEFINITIONS. As used in this Bonus Plan, the following terms have
the following meanings when used herein with initial capital letters:
(a) "Annual Incentive Award" means the incentive bonus earned by a
Participant pursuant to Section 5.
(b) "Board" means the Board of Directors of the Company or, pursuant to
any delegation by the Board to the Compensation Committee pursuant to Section
12, the Compensation Committee.
(c) "Chief Executive Officer" means the Chief Executive Officer of the
Company.
(d) "Chief Operating Officer" means the Chief Operating Officer of the
Company.
(e) "Chief Merchandising Officer" means the Chief Merchandising Officer
of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Compensation Committee" means a committee appointed by the Board
in accordance with the By-Laws of the Company consisting of at least three
Non-Employee Directors.
(h) "Covered Employee" means a Participant who is, or is determined by
the Board to be likely to become, a "covered employee" within the meaning of
Section 162(m) of the Code (or any successor provision).
(i) "Long-Term Incentive Award" means the incentive bonus, if any,
earned by a Participant pursuant to Section 6.
(j) "Non-Employee Director" means a Director of the Company who is not
a full-time employee of the Company or any Subsidiary.
(k) "Operating Unit" means the Company as a whole and each other
individual subsidiary, division, store, or other business unit of the Company in
which individuals employed thereby or therein have been approved to participate
in this Bonus Plan by the Board.
(l) "Participant" means a person who is designated by the Chief
Executive Officer, the Chief Operating Officer, or the Chief Merchandising
Officer, with the approval of the Board, to receive benefits under this Bonus
Plan and who is at the time an officer, executive, or other employee of the
Company or any one or more of its Subsidiaries, or who has agreed to commence
serving in any of such capacities.
(m) "Performance Goal" means the target level of performance for each
Performance Period for the Company as a whole and for each Operating Unit of the
Company and, where applicable, for an individual Participant, in each case as
established by the Board pursuant to Section 4. The Performance Goals applicable
to
<PAGE> 2
any Annual Incentive Award or Long-Term Incentive Award made to a Covered
Employee will be based solely upon one or more of the following measures of
performance:
(1) total sales;
(2) comparable store sales;
(3) gross margin;
(4) operating or other expenses;
(5) earnings before interest and taxes ("EBIT");
(6) earnings before interest, taxes, depreciation and
amortization;
(7) net income;
(8) earnings per share;
(9) cash flow;
(10) return on investment (determined with reference to
one or more categories of income or cash flow and one
or more categories of assets, capital or equity); and
(11) stock price appreciation.
Such Performance Goals may be expressed with respect to the Company or one or
more other Operating Units and may be expressed in terms of absolute levels or
percentages or ratios expressing relationships between two or more of the
foregoing measures of performance (E.G., EBIT as a percentage of total sales),
period-to-period changes, relative to business plans or budgets, or relative to
one or more other companies or one or more indices. The two immediately
preceding sentences are intended to comply with the exception from Section
162(m) of the Code for qualified performance-based compensation, and will be
construed, applied, and administered accordingly.
(n) "Performance Period" means, in the case of determining Annual
Incentive Awards pursuant to Section 5, one fiscal year of the Company, and in
the case of determining Long-Term Incentive Awards pursuant to Section 6, a
period determined by the Board not longer than five consecutive fiscal years of
the Company. The initial Performance Period under this Bonus Plan in either case
will commence on February 2, 1992 and terminate, in the case of Annual Incentive
Awards and Long-Term Incentive Awards, on such date or dates as the Board may
determine. Any new Performance Period in each case would commence on the first
day of each fiscal year of the Company.
(o) "Retirement" means a Participant's voluntary termination of
employment with the Company on or after attainment of age 65, or such other age
as may from time to time be established as the normal retirement date under the
Company's principal retirement benefit plan in which the Participant is a
participant, and before being informed by the Company that his or her employment
will be terminated.
(p) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (or any successor rule substantially to the
same effect), as in effect from time to time.
(q) "Subsidiary" has the meaning specified in Rule 405 promulgated
under the Securities Act of 1933, as amended (or under any successor rule
substantially to the same effect).
3. ELIGIBILITY. (a) Except as otherwise provided in this Section 3, an
employee of the Company or one of its Subsidiaries will become a Participant for
a particular Performance Period (i) in respect of Annual Incentive Awards if
such employee (x) is an executive of the Company (including without limitation a
store principal, general merchandise manager, divisional merchandise manager,
store manager, senior vice president, or other vice president or elected officer
of the Company or another Operating Unit) on or as of the first day of the
Performance Period, (y) is recommended for participation by the Chief Executive
Officer, the Chief Operating
<PAGE> 3
Officer, or the Chief Merchandising Officer or any designee thereof, and (z) is
approved as a Participant by the Board, and (ii) in respect of Long-Term
Incentive Awards if such employee has overall responsibility for day-to-day and
long-term achievement of results of the Company or is in a key broad-based
strategy formulation and decision-making position of the Company or another
Operating Unit selected by the Board to participate in this Bonus Plan, in each
case as specifically determined by the Chief Executive Officer, the Chief
Operating Officer, or the Chief Merchandising Officer and approved by the Board
on or as of the first day of the Performance Period.
(b) An executive employee who first becomes eligible to participate
after the beginning of a particular Performance Period will become a Participant
for such Performance Period only in accordance with this Section 3(b). The Chief
Executive Officer, the Chief Operating Officer, or the Chief Merchandising
Officer may, with the approval of the Board, allow participation for a portion
of such Performance Period for such employee on such terms and conditions as the
Chief Executive Officer, the Chief Operating Officer, or the Chief Merchandising
Officer (with such approval) may determine. In the event that at any time during
any Performance Period with respect to Annual Incentive Awards an executive
employee is first hired by the Company or a Subsidiary, or is promoted by the
Company or any such Subsidiary to a position in a different Operating Unit and
as a result thereof becomes eligible to participate in this Bonus Plan, then,
except as otherwise determined by the Board or as otherwise provided in Section
10, such employee will be entitled to be a Participant for purposes of Annual
Incentive Awards, which will be prorated on the basis of the number of months of
such employee's participation during such Performance Period to the aggregate
number of months in such Performance Period. In the event that within the first
one-half of any Performance Period with respect to Long-Term Incentive Awards an
executive employee is first hired by the Company or a Subsidiary, or is promoted
by the Company or any such Subsidiary to a position in a different Operating
Unit and as a result thereof becomes eligible to participate in this Bonus Plan,
then, except as otherwise determined by the Board or as otherwise provided in
Section 10, such employee will be entitled to be a Participant for purposes of
Long-Term Incentive Awards, which will be prorated on the basis of the ratio of
the number of months of such employee's participation during such Performance
Period to the aggregate number of months in such Performance Period.
(c) The Board may, in its discretion, allow an executive employee who
is not otherwise eligible to participate in this Bonus Plan to be treated as a
Participant for all or a portion of any Performance Period on such basis as the
Board may determine.
4. PERFORMANCE GOALS. (a) The Board will approve for each Performance
Period the applicable Performance Goals for the Company and each other Operating
Unit, as well as for individual Participants in this Bonus Plan, where
appropriate, based upon the consolidated business plan of the Company. Such
Performance Goals will not be adjusted during a Performance Period, except that
such Performance Goals may be so adjusted to prevent dilution or enlargement of
any Annual Incentive Award or Long-Term Incentive Award as a result of
extraordinary events or circumstances as determined by the Board or to exclude
the effects of extraordinary, unusual or nonrecurring events, changes in
accounting principles, discontinued operations, acquisitions, divestitures and
material restructuring charges; provided, however, in the case of a Covered
Employee, that no such adjustment will be made if the effect of such adjustment
would be to cause the related compensation to fail to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code.
(b) Prior to the beginning of each Performance Period, the Chief
Executive Officer, the Chief Operating Officer, or the Chief Merchandising
Officer or any designee thereof will (i) notify each eligible employee who has
been selected to participate in this Bonus Plan that he or she is a Participant
under this Bonus Plan for such Performance Period and (ii) communicate in
writing to each Participant the minimum, maximum, and target Performance Goals
applicable to such Participant for the Company and each other Operating Unit for
such Performance Period, and the corresponding minimum, maximum, and target
levels of Annual Incentive Awards and Long-Term Incentive Awards for performance
by the Participant with respect to such Performance Goals.
5. ANNUAL INCENTIVE AWARDS. (a) Subject to Section 4, unless changed by
the Board, each eligible Participant may earn Annual Incentive Awards as
hereinafter provided. Each Operating Unit's actual performance during a
particular Performance Period will be measured against the Performance Goals
established therefor by the Board in accordance with Section 4. In the event
such Operating Unit's performance for the Performance Period
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<PAGE> 4
(A)(i) in respect of Participant's who are Covered Employees, is below the
minimum Performance Goal established therefor, no Annual Incentive Awards will
be paid to such Participants in respect thereof, or (ii) in respect of
Participants who are not Covered Employees, is below the minimum Performance
Goal established therefor, the level of Annual Incentive Awards to be paid to
such Participants in respect thereof will be a level extrapolated by the Board
below the minimum level of Annual Incentive Award paid in respect of such
minimum Performance Goal, (B) is equal to the minimum Performance Goal
established therefor, the minimum level of Annual Incentive Awards will be paid
to Participants in respect thereof, (C) is equal to the target Performance Goal
established therefor, the target level of Annual Incentive Awards will be paid
to Participants in respect thereof, (D) is equal to or greater than the maximum
Performance Goal established therefor, the maximum level of Annual Incentive
Awards will be paid to Participants in respect thereof, and (E) is between any
two of the Performance Goal levels described in the immediately preceding
clauses (B), (C), and (D), the level of Annual Incentive Awards to be paid to
Participants in respect thereof will be a level interpolated by the Board
between the corresponding levels of Annual Incentive Awards paid in respect of
such Performance Goal levels.
(b) Except in the case of a Covered Employee, the Annual Incentive
Award determined pursuant to Section 5(a) may be modified by the Board to
recognize a Participant's individual performance or in other circumstances
deemed appropriate by the Board.
(c) Notwithstanding any other provision of this Bonus Plan to the
contrary, in no event will an Annual Incentive Award paid to any Participant for
a fiscal year exceed $2.0 million.
6. LONG-TERM INCENTIVE AWARDS. (a) Unless changed by the Board, each
eligible Participant may earn Long-Term Incentive Awards as hereinafter
provided. Each Operating Unit's actual performance during a particular
Performance Period will be measured against the Performance Goals established
therefor by the Board in accordance with Section 4. In the event such Operating
Unit's performance for such Performance Period (A) is below the minimum
Performance Goal established therefor, no Long-Term Incentive Awards will be
paid to Participants in respect thereof, (B) is equal to the minimum Performance
Goal established therefor, the minimum level of Long-Term Incentive Awards will
be paid to Participants in respect thereof, (C) is equal to the target
Performance Goal established therefor, the target level of Long-Term Incentive
Awards will be paid to Participants in respect thereof, (D) is equal to or
greater than the maximum Performance Goal established therefor, the maximum
level of Long-Term Incentive Awards will be paid to Participants in respect
thereof, and (E) is between any two of the Performance Goal levels described in
the immediately preceding clauses (B), (C), and (D), the level of Long-Term
Incentive Awards to be paid to Participants in respect thereof will be a level
interpolated by the Board between the corresponding levels of Long-Term
Incentive Awards paid in respect of such Performance Goal levels.
(b) Except in the case of a Covered Employee, the Long-Term Incentive
Award determined pursuant to Section 6(a) may be modified by the Board to
recognize a Participant's individual performance or in other circumstances
deemed appropriate by the Board.
(c) Notwithstanding any other provision of this Bonus Plan to the
contrary, in no event will a Long-Term Incentive Award paid to any Participant
for a Performance Period exceed $3.0 million.
7. PAYMENT OF AWARDS. Annual Incentive Awards and Long-Term Incentive
Awards will be paid to Participants in respect of any particular Performance
Period (i) in cash and/or Company equity (including stock options, stock credits
or equity equivalents), (ii) in a lump sum and/or in deferred payments or
grants, and (iii) on the date(s) and other terms, including any premium in
respect of deferred payments or grants, as each of (i), (ii) and (iii) shall be
determined by the Board at the time that Performance Goals are established for a
particular Performance Period. All Annual Incentive Awards and Long-Term
Incentive Awards that are paid in cash will be paid in U.S. dollars. The Company
may deduct from any payment such amounts as may be required to be withheld under
any federal, state, or local tax laws.
8. TERMINATION OF EMPLOYMENT. If a Participant terminates employment
with the Company and its Subsidiaries before the last day of a Performance
Period due to death, disability, or Retirement with the consent of
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<PAGE> 5
the Company, the Participant's Annual Incentive Awards and Long-Term Incentive
Awards will be prorated on the basis of the ratio of the number of months of
participation during the Performance Period to which the Annual Incentive Awards
and Long-Term Incentive Awards relate to the aggregate number of months in such
Performance Period. If a Participant's employment with the Company and its
Subsidiaries is terminated by the Company or any such Subsidiary before the last
day of a Performance Period for any reason other than for Cause (as hereinafter
defined), the Participant's Annual Incentive Awards and Long-Term Incentive
Awards will be prorated on the basis of the ratio of the number of months of
participation during the Performance Period to which the Annual Incentive Awards
and the Long-Term Incentive Awards relate to the aggregate number of months in
such Performance Period, unless otherwise determined by the Board. Except as
otherwise provided in this Section 8, if a Participant's employment with the
Company and its Subsidiaries is terminated before the last day of a Performance
Period for any reason, the Participant will not be entitled to any Annual
Incentive Award or Long-Term Incentive Award for such Performance Period unless
otherwise determined by the Board. For purposes of this Agreement, "Cause" means
any act of dishonesty, fraud, or willful misconduct by a Participant in the
performance of the Participant's duties as an employee of the Company, or any
conviction of a Participant for any felony involving moral turpitude.
9. CHANGE IN CONTROL. In connection with any actual or potential change
in control of the Company, whether as a result of any stock acquisition, merger,
or other business combination transaction, or any restructuring or
recapitalization of the Company, then the Board will take all such actions
hereunder as it may determine to be necessary or appropriate to treat
Participants equitably hereunder, including without limitation the modification
or waiver of applicable Performance Goals, Performance Periods, Annual Incentive
Awards, or Long-Term Incentive Awards, notwithstanding the terms of any initial
award, and whether to establish or fund a trust or other arrangement intended to
secure the payment of such awards.
10. TRANSFERS AND CHANGES IN RESPONSIBILITIES. (a) If a Participant's
responsibilities materially change or the Participant is transferred during a
Performance Period to another Operating Unit or to a position that is not
designated or eligible to participate in this Bonus Plan, the Company may, as
determined by the Board, either (i) continue the Participant's participation in
this Bonus Plan and, except in the case of a Covered Employee, as of the date of
such change or transfer, establish new performance awards (as determined
pursuant to Section 10(b)) in respect of Annual Incentive Awards and/or
Long-Term Incentive Awards, as the case may be, for the Participant with respect
to his or her new position, or (ii) terminate the Participant's participation in
this Bonus Plan in respect of Annual Incentive Awards and/or Long-Term Incentive
Awards, as the case may be, and, as of the date of such change or transfer, the
Participant's Annual Incentive Awards and/or Long-Term Incentive Awards, as the
case may be, would be prorated on the basis of the ratio of the number of months
of the Participant's participation during the Performance Period to which such
Annual Incentive Awards and/or Long-Term Incentive Awards, as the case may be,
relate to the aggregate number of months in such Performance Period.
(b) If in the event of such a change or transfer the Participant's
participation in this Bonus Plan in respect of Annual Incentive Awards and/or
Long-Term Incentive Awards, as the case may be, is not terminated pursuant to
Section 10(a)(ii), then the Participant's Annual Incentive Awards and/or
Long-Term Incentive Awards, as the case may be, will be prorated on the basis of
the number of months of service by the Participant at each Operating Unit during
the Performance Period.
11. SECURITY OF PAYMENT OF BENEFITS. Unless otherwise determined by the
Board, all Annual Incentive Awards and Long-Term Incentive Awards will be paid
from the Company's general assets, and nothing contained in this Bonus Plan will
require the Company to set aside or hold in trust any funds for the benefit of
any Participant, who will have the status of a general unsecured creditor of the
Company.
12. ADMINISTRATION OF THE PLAN. (a) This Bonus Plan will be
administered by the Board, which may from time to time delegate all or any part
of its authority under this Bonus Plan to the Compensation Committee.
(b) The Board will take such actions as are required to be taken by it
hereunder, may take the actions permitted to be taken by it hereunder, and will
have the authority from time to time to interpret this Bonus Plan and to adopt,
amend, and rescind rules and regulations for implementing and administering this
Bonus Plan. All such actions will be in the sole discretion of the Board and,
when taken, will be final, conclusive, and binding. Without
-5-
<PAGE> 6
limiting the generality or effect of the foregoing, the interpretation and
construction by the Board of any provision of this Bonus Plan or of any
agreement, notification, or document evidencing the grant of benefits payable to
Participants and any determination by the Board in its sole discretion pursuant
to any provision of this Bonus Plan or any provision of such agreement,
notification, or document will be final and conclusive. Without limiting the
generality or effect of any provision of the Certificate of Incorporation of the
Company, neither the Chief Executive Officer, the Chief Operating Officer, or
the Chief Merchandising Officer nor any member of the Board will be liable for
any action or determination made in good faith.
(c) The provisions of Sections 5 and 6 will be interpreted as
authorizing the Board, in taking any action under or pursuant to this Bonus
Plan, to take any action it determines in its sole discretion to be appropriate,
subject only to the express limitations therein contained, and no authorization
in either such Section or any other provision of this Bonus Plan is intended or
may be deemed to constitute a limitation on the authority of the Board.
(d) The existence of this Bonus Plan or any right granted or other
action taken pursuant hereto will not affect the authority of the Board or the
Company to take any other action, including in respect of the grant or award of
any annual or long-term bonus or other right or benefit, whether or not
authorized by this Bonus Plan, subject only to limitations imposed by applicable
law as from time to time applicable thereto.
13. MISCELLANEOUS. (a) This Bonus Plan will not confer upon any
Participant any right with respect to continuance of employment or other service
with the Company or any Subsidiary, nor will it interfere in any way with any
right the Company or any Subsidiary would otherwise have to terminate or modify
the terms of such Participant's employment or other service at any time.
(b) Except as otherwise provided in this Bonus Plan, no right or
benefit under this Bonus Plan will be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance, or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber, or charge such right or benefit will
be void. No such right or benefit will in any manner be liable for or subject to
the debts, liabilities, or torts of a Participant.
(c) This Bonus Plan may be amended or terminated from time to time by
the Board. In the event this Bonus Plan is terminated before the last day of a
Performance Period, Annual Incentive Awards and Long-Term Incentive Awards
payable for such Performance Period will be prorated on the basis of the ratio
of the number of months in such Performance Period prior to such termination to
the aggregate number of months in such Performance Period and will be paid only
after the end of such Performance Period, which will be deemed to continue until
the expiration thereof as if this Bonus Plan had not been terminated.
(d) If any provision in this Bonus Plan is held to be invalid or
unenforceable, no other provision of this Bonus Plan will be affected thereby.
(e) This Bonus Plan will be governed by and construed in accordance
with applicable United States federal law and, to the extent not preempted by
such federal law, in accordance with the laws of the State of Delaware, without
giving effect to the principles of conflict of laws thereof.
14. EFFECTIVENESS. The amendment and restatement of this Bonus Plan set
forth herein will become effective as of December 12, 1997.
-6-
<PAGE> 1
Exhibit 10.43
EMPLOYMENT AGREEMENT
As of March 10, 1997
between
FEDERATED CORPORATE SERVICES, INC.
and
TERRY J. LUNDGREN
<PAGE> 2
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made in the City of Cincinnati and State of
Ohio, as of the 10th day of March, 1997, between Federated Corporate Services,
Inc., a Delaware corporation (hereinafter called the "Employer"), and TERRY J.
LUNDGREN of Greenwich, Connecticut (hereinafter called the "Employee").
In consideration of the premises, it is agreed by and between
the parties hereto as follows:
ARTICLE I
EMPLOYMENT
----------
1.1 TERMS AND DUTIES. The Employer shall employ the Employee,
and the Employee shall serve the Employer, as an executive for the period (the
"Term") beginning on May 16, 1997 and ending on the later of (a) the date set
forth on Exhibit A hereto and (b) any later date to which the term may have been
extended by agreement of the parties. During the Term the Employee shall
faithfully and in conformity with the directions of the Board of Directors of
the Employer (the "Board") or its delegate perform the duties of his employment
and shall devote to the performance of such duties his full time and attention.
During the Term the Employee shall serve in the office or offices of the
Employer to which the Board may from time to time elect or appoint him. The
Employee shall be excused from performing any services hereunder during periods
of temporary incapacity and during vacations in accordance with the Employer's
disability and vacation policies.
1.2 COMPENSATION. In consideration of his services during the
Term, the Employer shall pay the Employee cash compensation at an annual rate
not less than the greater of his current base salary as set forth on Exhibit A
hereto or the base salary of the Employee most
1
<PAGE> 3
recently approved by the Board or its delegate ("Base Compensation"). Employee's
Base Compensation shall be subject to such increases as may be approved by the
Board or its delegate.
1.3 PAYMENT SCHEDULE. The Base Compensation specified in
Section 1.2(a) hereof shall be payable as current salary, in installments not
less frequently than monthly, and at the same rate for any fraction of a month
unexpired at the end of the Term.
1.4 EXPENSES. During the Term the Employee shall be allowed
reasonable traveling expenses and shall be furnished office space, assistance
and accommodations suitable to the character of his position with the Employer
and adequate for the performance of his duties hereunder.
1.5 TERMINATION IN CASE OF DISABILITY. The Employee shall not
be in breach of this Agreement if he shall fail to perform his duties hereunder
because of physical or mental disability. If for a continuous period of 12
months during the Term the Employee fails to render services to the Employer
because of the Employee's physical or mental disability, the Board or its
delegate may end the Term prior to its stated termination date. If there should
be any dispute between the parties as to the Employee's physical or mental
disability at any time, such question shall be settled by the opinion of an
impartial reputable physician agreed upon for the purpose by the parties or
their representatives, or failing agreement within 10 days of a written request
therefor by either party to the other, then one designated by the then president
of the local Academy of Medicine. The written opinion of such physician as to
the matter in dispute shall be final and binding on the parties.
1.6 TERMINATION OF SERVICES. If the Employer notifies the
Employee that his services will no longer be required during the Term, the
Employee shall be entitled (except as otherwise provided in Section 1.5 or
Section 1.7 hereof) to continue to receive his Base Compensation for the
remainder of the Term.
1.7 MITIGATION. If the Employee received notice from the
Employer pursuant to Section 1.6 hereof, the Employee (subject to Section 2.4
hereof) shall be free to become actively engaged with another business and shall
use his best efforts to find other comparable
2
<PAGE> 4
employment. Upon the payment to the Employee of compensation for employment or
other services by any unaffiliated third party, the Employee shall automatically
cease to be an employee of the Employer. The Employee shall promptly notify the
Employer of any such employment or other services and of the compensation
received, to be received or receivable from his subsequent employer or such
other party attributable to the Term. All Base Compensation otherwise payable to
the Employee by the Employer under this Agreement during the remainder of the
Term shall be reduced to the extent of his similar compensation received, to be
received or receivable from such other employment or other services.
1.8 TERMINATION FOR CAUSE. The Employer may terminate the
employment of the Employee and this Agreement and all of its obligations
hereunder, except for obligations accrued but unpaid to the effective date of
termination, for Cause upon notice given pursuant to this Section. As used in
this Agreement, the Term "Cause" shall mean:
(a) an intentional act of fraud, embezzlement, theft
or any other material violation of law in connection with the Employee's duties
or in the course of his employment with the Employer;
(b) intentional wrongful damage to material assets of
the Employer;
(c) intentional wrongful disclosure of material
confidential information of the Employer;
(d) intentional wrongful engagement in any
competitive activity which would constitute a material breach of the duty of
loyalty; or
(e) intentional breach of any stated material
employment policy of the Employer.
No act, or failure to act, on the part of an Employee
shall be deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done, or omitted to be
done, by the Employee not in good faith and without reasonable belief that his
action or omission was in or not opposed to the best interest of the
3
<PAGE> 5
Employer. Failure to meet performance standards or objectives of the Employer
shall not constitute Cause for purposes hereof.
1.9 ELECTION OF BENEFITS. If the Employee receives notice from
the Employer pursuant to Section 1.6 hereof, the Employee shall have the right
to elect to receive (in lieu of the payments hereunder specified in such Section
1.6) any benefits that may be payable to him pursuant to any severance plan of
the Employer applicable to him. If no such election is made, the amounts
specified in such Section 1.6 shall be payable as specified therein, no benefit
shall be payable to the Employee under such severance plan, and the Employee
hereby expressly waives any benefits that might otherwise by due him under such
severance plan.
ARTICLE II
CERTAIN OBLIGATIONS OF THE EMPLOYEE
-----------------------------------
2.1 NO PARTICIPATION IN OTHER BUSINESSES. During the Term
(except as otherwise expressly provided in Section 1.7 hereof) the Employee
shall not, without the consent of the Board or its delegate, become actively
associated with or engage in any business other than that of the Employer or a
division or affiliate of the Employer, and he shall do nothing inconsistent with
his duties to the Employer. If the Employee shall breach his obligations under
this Section, he shall promptly reimburse the Employer for any monies paid by
the Employer in connection with his relocation during the Term or in
contemplation of the signing of this Agreement, including, without limitation,
any bonus or relocation expenses paid for or incurred by the Employer,
including, without limitation, carrying costs for property purchased from or on
behalf of the Employee. Any such reimbursement shall be in addition to any other
remedy for breach of this Agreement that the Employer may be entitled to at law
or in equity.
2.2 TRADE SECRETS AND CONFIDENTIAL INFORMATION. Employee shall
not (either during the Term or thereafter) without the consent of the Employer
disclose to anyone outside of the Employer, or use in other than the Employer's
business, trade secrets or confidential infor-
4
<PAGE> 6
mation relating to the Employer's business in any way obtained by him while
employed by the Employer.
2.3 NONCOMPETITION. It is recognized by the Employee and the
Employer that Employee's duties hereunder will entail the receipt of trade
secrets and confidential information, which include not only information
concerning the Employer's current operations, procedures, suppliers and other
contacts, but also its short-range and long-range plans, and that such trade
secrets and confidential information have been developed by the Employer and its
affiliates at substantial cost and constitute valuable and unique property of
the Employer. Accordingly, the Employee acknowledges that the foregoing makes it
reasonably necessary for the protection of the Employer's business interests
that the Employee not compete with the Employer or any of its affiliates during
the Term and for a reasonable and limited period thereafter. Therefore, during
the Term and for a period of one year thereafter, the Employee shall not have an
investment of $100,000 or more in a Competing Business (as hereinafter defined)
and shall not render personal services to any such Competing Business in any
manner, including, without limitation, as owner, partner, director, trustee,
officer, employee, consultant or advisor thereof. The noncompete provisions of
this section shall not be applicable to Employee if he has been notified
pursuant to Section 1.6 hereof that his services will no longer be required
during the Term or if Employee has been advised that his services will no longer
be required after the expiration of the Term.
If the Employee shall breach the covenants contained
in this Section 2.3 or in Section 2.2 hereof, the Employer shall have no further
obligation to make any payment to the Employee pursuant to this Agreement and
may recover from the Employee all such damages as it may be entitled to at law
or in equity. In addition, the Employee acknowledges that any such breach is
likely to result in immediate and irreparable harm to the Employer for which
money damages are likely to be inadequate. Accordingly, the Employee consents to
injunctive and other appropriate equitable relief upon the institution of
proceedings therefor by the Employer in order to protect the Employer's rights
hereunder. Such relief may include, without limitation, an injunction to prevent
the Employee from disclosing any trade secrets or confidential information
5
<PAGE> 7
concerning the Employer to any Competing Business, to prevent any Competing
Business from receiving from the Employee or using any such trade secrets or
confidential information and/or to prevent any such Competing Business from
retaining or seeking to retain any other employees of the Employer. Employer
agrees, however, that it will not seek injunctive relief for the purposes of
preventing Employee from competing with Employer after the expiration of the
Term. The provisions of the foregoing sentence shall not apply, however, to
injunctions of the type described in the preceding sentence.
(a) As used in this Agreement, the term "affiliate"
shall mean, with respect to a particular person, a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such person.
(b) As used in this Agreement, the term "Competing
Business" shall mean any business which:
(i) at the time of determination, is
substantially similar to the whole or a substantial part of the business
conducted by the Employer or any of its divisions or affiliates;
(ii) at the time of determination, is
operating a store or stores which, during its or their fiscal year preceding the
determination, had aggregate net sales, including sales in leased and licensed
departments, in excess of $10,000,000, if such store or any of such stores is or
are located in a city or within a radius of 25 miles from the outer limits of a
city where the Employer or any of its division's or affiliates, is operating a
store or stores which, during its or their fiscal year preceding the
determination, had aggregate net sales, including sales in leased and licensed
departments, in excess of $10,000,000; and
(iii) had aggregate net sales at all its
locations, including sales in leased and licensed departments and sales by its
divisions and affiliates, during its fiscal year preceding that in which the
Employee made such an investment therein, or first rendered personal services
thereto, in excess of $25,000,000.
6
<PAGE> 8
2.4 CONFLICTS OF INTEREST. The Employee shall not engage in
any activity that would violate the Conflict of Interest or Business Ethics
Statement signed from time to time by the Employee.
ARTICLE III
MISCELLANEOUS
-------------
3.1 ASSIGNMENT. This Agreement may be assigned by the Employer
to any of its affiliates. This Agreement shall not otherwise be assignable by
the Employer without the consent of the Employee, except that, if the Employer
shall merge or consolidate with, or transfer all or any substantial portion of
its assets, including goodwill, to another corporation or other form of business
organization, this Agreement shall (or, in the case of any such transfer, may)
be assigned to and shall bind and run to the benefit of the successor of the
Employer resulting from such merger, consolidation or transfer. The Employee may
not assign, pledge or encumber his interest in this Agreement or any part
hereof.
3.2 GOVERNING LAW. This Agreement has been executed on behalf
of the Employer by an officer of the Employer located in the City of Cincinnati,
Ohio. This Agreement and all questions arising in connection herewith shall be
governed by the internal substantive laws of the State of Ohio. The Employer and
the Employee each consent to the jurisdiction of, and agree that any controversy
between them arising out of this Agreement shall be brought in, the United
States District Court for the Southern District of Ohio, Western Division; the
Court of Common Pleas for Hamilton County, Ohio; or such other court venued
within Hamilton County, Ohio as may have subject matter jurisdiction over the
controversy.
3.3 SEVERABILITY. If any portion of this Agreement is held to
be invalid or unenforceable, such holding shall not affect any other portion of
this Agreement.
3.4 ENTIRE AGREEMENT. This Agreement comprises the entire
agreement between the parties hereto and as of the date hereof, supersedes,
cancels and annuls any and all prior agreements between the parties hereto. This
Agreement may not be modified, renewed or
7
<PAGE> 9
extended orally, but only by a written instrument referring to this Agreement
and executed by the parties hereto.
3.5 GENDER AND NUMBER. Words in the masculine herein may be
interpreted as feminine or neuter, and words in the singular as plural, and vice
versa, where the sense requires.
3.6 NOTICES. Any notice or consent required or permitted to be
given under this Agreement shall be in writing and shall be effective when given
by personal delivery or five business days after being sent by certified U.S.
mail, return receipt requested, to the Secretary of Federated Department Stores,
Inc. at its principal place of business in the City of Cincinnati or to the
Employee at his last known address as shown on the records of the Employer.
3.7 WITHHOLDING TAXES. The Employer may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
3.8 WAIVER AND RELEASE. In consideration of the Employer's
entering into this Agreement, and the receipt of other good and valuable
consideration, the sufficiency of which is expressly acknowledged, the Employee,
for himself and his successors, assigns, heirs, executors and administrators,
hereby waives and releases and forever discharges the Employer and its
affiliates and their officers, directors, agents, employees, shareholders,
successors and assigns from all claims, demands, damages, actions and causes of
action whatsoever which he now has on account of any matter, whether known or
unknown to him and whether or not previously disclosed to the Employee or the
Employer, that relates to or arises out of (a) any existing or former employment
agreement (written or oral) entered into between the Employee and the Employer
or any of its affiliates (or any amendment or supplement to any such agreement),
(b) any agreement providing for a payment or payments or extension of the
employment relationship triggered by a merger or sale or other disposition of
the stock or assets or restructuring of the Employer or any affiliate of the
Employer, or (c) any applicable severance plan.
8
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have hereunto and to a
duplicate hereof set their signatures as of March 10, 1997.
FEDERATED CORPORATE SERVICES, INC.
By: /s/ Dennis J. Broderick
-------------------------------------------
Dennis J. Broderick
Title: President
TERRY J. LUNDGREN
/s/ Terry J. Lundgren
-------------------------------------------
9
<PAGE> 11
EXHIBIT A
---------
to
EMPLOYMENT AGREEMENT
Effective as of May 16, 1997
Name: Terry J. Lundgren
End of Term: May 16, 2000
Annual Base
Compensation: $1 million
Stock Options: Effective as March 28, 1997 (the Grant Date"), Federated
Department Stores, Inc. ("Federated") will grant to Employee
options for 250,000 shares, with options for 75,000 shares
vesting on each of the first two anniversaries of the Grant Date
and options for 100,000 shares vesting on the third anniversary
of the Grant Date; the purchase price under each of said options
shall be 100% of the closing price of said stock on the New York
Stock Exchange on March 27, 1997; the grant of stock options is
subject to the terms of the Non-Qualified Stock Option Agreement
substantially in the form attached hereto.
Bonus: Employee shall participate in the annual and long-term bonus
programs of the Employer under its 1992 Incentive Bonus Plan, as
such may be amended from time to time, with the award,
commencing in respect of the 1997 annual performance period and
the 1997-1999 long-term performance period, calculated by
applying the applicable payout percent rate to the Employee's
then annual base compensation at the commencement of the annual
or long-term performance period, as the case may be.
Date: As of March 10, 1997
<PAGE> 1
Exhibit 21
Subsidiaries
22 East Advertising Agency, Inc.
22 East Realty Corporation
3240 Properties Corp.
A&S Real Estate, Inc.
Allied Mortgage Financing Corp.
Allied Stores General Real Estate Company
Allied Stores International Sales Company, Inc.
Allied Stores International, Inc.
Allied Stores Marketing Corp.
Astoria Realty, Inc.
Auburndale Realty, Inc.
Bamrest Del, Inc.
BFC Real Estate Company
Bloomingdale's By Mail Ltd.
Bloomingdale's Real Estate, Inc.
Bloomingdale's, Inc.
Broadway Receivables, Inc.
Broadway Stores, Inc.
Bullock's, Inc.
Burdine's Main Store Real Estate, Inc.
Burdine's Real Estate II, Inc.
Burdine's Real Estate, Inc.
Burdines, Inc.
Calclove Realty Corp.
Camelback Funding Corporation
Carter Hawley Hale Properties, Inc.
Cowie & Company, Limited
Delphis Corporation
Douglaston Plaza, Inc.
Executive Placements Consultants, Inc.
FACS Group, Inc.
FDS National Bank
Federated Claims Administration, Inc.
Federated Claims Services Group, Inc.
Federated Corporate Services, Inc.
Federated Credit Holdings Corporation
Federated Department Stores Foundation
Federated Department Stores Insurance Company, Ltd.
Federated Department Stores, Inc.
Federated Noteholding Corporation
Federated Noteholding Corporation II
i
<PAGE> 2
Federated Real Estate, Inc.
Federated Retail Holdings, Inc.
Federated Specialty Stores, Inc.
Federated Stores Realty, Inc.
Federated Systems Group, Inc.
Finite Limited
Garage Park Corp.
Hamilton By Appointment
Hunt Valley Properties Corp.
I. Magnin Properties Corp.
I. Magnin Properties Corp. II
I. Magnin, Inc.
Jor-Mar, Inc.
Jordan Marsh Insurance Agency, Inc.
Jordan Servicenter, Inc.
Kings Plaza Shopping Center of Avenue U, Inc.
L&K Properties Corp.
Lazarus PA, Inc.
Lazarus Real Estate, Inc.
Lazarus, Inc.
M H L Properties Corp. of Massachusetts
Macy Credit Corp.
Macy Financial, Inc.
Macy N. R. Properties Corp.
Macy Special Real Estate Capital Corp.
Macy's By Mail, Inc.
Macy's Close-Out, Inc.
Macy's Data and Credit Services Corp.
Macy's East, Inc.
Macy's Hamilton By Appointment, Inc.
Macy's Kings Plaza Real Estate, Inc.
Macy's Primary Real Estate, Inc.
Macy's Real Estate, Inc.
Macy's Secondary Real Estate, Inc.
Macy's West, Inc.
MOA Rest, Inc.
MSS-Delaware, Inc.
Nasstock, Inc.
New Haven Properties Corp..
Paramustock, Inc.
Pasadena Properties Corp.
Prime II Receivables Corporation
Prime Receivables Corporation
R. H. Macy (France) S.A.R.L.
R. H. Macy Holdings (HK), Ltd.
ii
<PAGE> 3
R. H. Macy Overseas Finance N.V.
R. H. Macy Warehouse (HK), Ltd.
Rich's Department Stores, Inc.
Rich's Main Store Real Estate, Inc.
Rich's Real Estate, Inc.
Sabugo, Limited
Sacvent Garage
Sanstoff East Properties Corp.
Saramaas Realty Corp.
Seven Hills Funding Corporation
Seven West Seventh, Inc.
Shop 34 Advertising, Inc.
Stern's Department Stores, Inc.
Stern's-Echelon, Inc.
Stern's-Granite Run, Inc.
Sunsac Properties Corp.
The Bon, Inc.
U & F Realty Corp.
W. P. Properties Corp.
Wise Chat Limited
iii
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Federated Department Stores, Inc.:
We consent to the incorporation by reference in the registration
statement No. 333-34321 on Form S-3 and the registration statement No. 333-44373
on Form S-8 of Federated Department Stores, Inc. of our report dated March 3,
1998, relating to the consolidated balance sheets of Federated Department
Stores, Inc. and subsidiaries as of January 31, 1998 and February 1, 1997 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the fifty-two week period ended January 31, 1998, the
fifty-two week period ended February 1, 1997 and the fifty-three week period
ended February 3, 1996, which report appears in the January 31, 1998 annual
report on Form 10-K of Federated Department Stores, Inc.
KPMG Peat Marwick LLP
Cincinnati, Ohio
April 16, 1998
<PAGE> 1
Exhibit 23
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 16, 1998 /s/ James M. Zimmerman
-------------------------------
James M. Zimmerman
<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 16, 1998 /s/ Terry J. Lundgren
------------------------------
Terry J. Lundgren
<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 16, 1998 /s/ Ronald W. Tysoe
----------------------------
Ronald W. Tysoe
<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 16, 1998 /s/ Karen M. Hoguet
----------------------------
Karen M. Hoguet
<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 16, 1998 /s/ Joel A. Belsky
---------------------------
Joel A. Belsky
<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 16, 1998 /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 16, 1998 /s/ Earl G. Graves, Sr.
--------------------------------
Earl G. Graves, Sr.
<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 16, 1998 /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 16, 1998 /s/ Sara Levinson
---------------------------------
Sara Levinson
<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 16, 1998 /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 16, 1998 /s/ Joseph A. Pichler
------------------------------
Joseph A. Pichler
<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 16, 1998 /s/ Karl M. von der Heyden
--------------------------------
Karl M. von der Heyden
<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 16, 1998 /s/ Craig E. Weatherup
-------------------------------
Craig E. Weatherup
<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 16, 1998 /s/ Marna C. Whittington
---------------------------------
Marna C. Whittington
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 142
<SECURITIES> 0
<RECEIVABLES> 2,640
<ALLOWANCES> 0
<INVENTORY> 3,239
<CURRENT-ASSETS> 6,194<F1>
<PP&E> 6,520
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,738<F2>
<CURRENT-LIABILITIES> 3,060
<BONDS> 3,919
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,738<F3>
<SALES> 15,668
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 9,581
<OTHER-EXPENSES> 4,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 418
<INCOME-PRETAX> 958<F4>
<INCOME-TAX> 383
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (39)
<CHANGES> 0
<NET-INCOME> 536
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.41
<FN>
<F1> Supplies and prepaid expenses 115
Deferred income tax assets 58
<F2> Intangible assets - net 690
Other assets 334
<F3> Deferred income taxes 939
Other liabilities 564
Shareholders' Equity 5,256
<F4> Interest Income 35
</FN>
</TABLE>
