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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
JANUARY 30, 1999 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
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>
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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 208,576,562 shares of the Company's Common Stock outstanding as
of April 2, 1999, 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 1, 1999, was approximately
$8,225,700,000.
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 21, 1999 (the
"Annual Meeting"), are incorporated by reference in Part III hereof.
<PAGE> 2
Unless the context requires otherwise, (i) references 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 "1998," "1997," "1996," "1995" and "1994" are references to the
Company's fiscal years ended January 30, 1999, January 31, 1998, February 1,
1997, February 3, 1996 and January 28, 1995, 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 over 400 department stores in 33
states as of January 30, 1999. The Company operates its department stores under
the names "Bloomingdale's," "The Bon Marche," "Burdines," "Goldsmith's,"
"Lazarus," "Macy's," "Rich's" and "Stern's." 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 direct mail catalog businesses under the names
"Bloomingdale's By Mail" and "Macy's By Mail" and an electronic commerce
business which provides goods and services online under the name "macys.com." In
general, the Company conducts its business through subsidiaries.
The Company provides various support functions to its retail operating
divisions on an integrated, company-wide basis.
- The Company's financial and credit services subsidiary, FACS Group, Inc.
("FACS"), supports the proprietary credit programs of the Company's
retail operating divisions in respect of all proprietary credit card
accounts owned by the Company except support relating to statement
mailing and payment
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processing, which is provided by GE Capital Consumer Card Co. ("GE
Bank"). GE Bank owns all of the "Macy's" credit card accounts originated
prior to the Merger and an allocated portion of the "Macy's" credit card
accounts originated subsequent to the Merger. In addition, FACS provides
payroll and benefits services to the Company's retail operating and
service divisions.
- The Company's data processing subsidiary, Federated Systems Group, Inc.
("FSG"), 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.
- Federated Merchandising Group, a division of the Company, helps the
Company to centrally develop and execute consistent merchandise
strategies while retaining the ability to tailor merchandise assortments
and 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, a division of a subsidiary of the Company, provides
warehousing and merchandise distribution services for the Company's
retail operating divisions.
- A specialized staff maintained in the Company's corporate offices
provides services for all divisions of the Company in such areas as store
design and construction, accounting, legal, real estate, insurance and
supply purchasing, as well as various other corporate office functions.
FACS, FSG and certain departments in the Company's corporate offices also offer
their services to unrelated third parties.
The Company and its predecessors have been operating department stores
since 1820. Federated was organized as a Delaware corporation in 1920. 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.
On March 18, 1999, the Company acquired Fingerhut Companies, Inc.
("Fingerhut"). Fingerhut is a leading database marketing company that sells a
broad range of products and services through catalogs, direct marketing and the
Internet. In addition to the core Fingerhut catalog business, Fingerhut also
owns: (i) Figi's, a food and gift catalog business; (ii) Arizona Mail Order and
Bedford Fair, both apparel catalog businesses; and (iii) Popular Club, a
membership-based general merchandise catalog business. Fingerhut also offers a
broad range of business services to third parties, including telemarketing,
direct marketing, information management, warehousing, product fulfillment and
distribution, order and returns processing and customer service, and has
investments in several providers of Internet-based merchandise and services.
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 30, 1999, the Company had approximately 118,800
regular full-time and part-time employees. Because of the seasonal nature of the
retail business, the number of employees peaks in
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the Christmas season. Approximately 10% of the Company's employees as of January
30, 1999 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 1998.
The Company has no long-term purchase commitments or arrangements with any of
its suppliers, and believes that it is not dependent on any one supplier. The
Company considers its relations with its suppliers to be satisfactory.
Competition. The retailing industry, in general, and the department store
business, in particular, are intensely competitive. Generally, the Company's
stores are in competition not only with other department stores in the
geographic areas in which they operate but also with numerous other types of
retail outlets, including specialty stores, general merchandise stores,
off-price and discount stores, new and established forms of home shopping
(including mail order catalogs, television and Internet services) and
manufacturers' outlets.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
James M. Zimmerman..................... 55 Chairman of the Board and Chief Executive Officer;
Director
Terry J. Lundgren...................... 46 President and Chief Merchandising Officer; Director
Ronald W. Tysoe........................ 46 Vice Chairman, Finance and Real Estate; Director
Thomas G. Cody......................... 57 Executive Vice President, Legal and Human Resources
Dennis J. Broderick.................... 50 Senior Vice President, General Counsel and Secretary
Karen M. Hoguet........................ 42 Senior Vice President, Chief Financial Officer and
Treasurer
Joel A. Belsky......................... 45 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.
Ronald W. Tysoe has been Vice Chairman, Finance and Real Estate 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.
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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 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 30, 1999, the Company operated
401 department stores in 33 states, comprising a total of 82,319,000 square
feet. Of such department stores, 193 were entirely or mostly owned and 208
stores were entirely or mostly leased. The Company's interests in approximately
2% of its owned stores are subject to security interests in favor of certain
third-party creditors 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 1998 and 1997 the high and low sales prices per share of Common
Stock as reported on the NYSE Composite Tape:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
LOW HIGH LOW HIGH
------ ------ ------ ------
<S> <C> <C> <C> <C>
1st Quarter......................... 42.750 53.000 31.625 38.250
2nd Quarter......................... 49.813 56.188 34.625 44.125
3rd Quarter......................... 32.813 53.313 39.313 45.438
4th Quarter......................... 35.938 46.375 39.688 48.875
</TABLE>
The Company has not paid any dividends on its Common Stock during its two
most recent fiscal years, and does not anticipate paying any dividends on the
Common Stock in the foreseeable future.
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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 52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Income Data:
Net sales, including leased department
sales..................................... $15,833 $15,668 $15,229 $15,049 $ 8,316
------- ------- ------- ------- -------
Cost of sales............................... 9,616 9,581 9,354 9,410 5,146
Selling, general and administrative
expenses.................................. 4,762 4,746 4,982 4,976 2,620
------- ------- ------- ------- -------
Operating income............................ 1,455 1,341 893 663 550
Interest expense............................ (304) (418) (499) (508) (262)
Interest income............................. 12 35 47 47 43
------- ------- ------- ------- -------
Income before income taxes and extraordinary
items..................................... 1,163 958 441 202 331
Federal, state and local income tax
expense................................... (478) (383) (175) (127) (143)
------- ------- ------- ------- -------
Income before extraordinary items........... 685 575 266 75 188
Extraordinary items (a)..................... (23) (39) - - -
------- ------- ------- ------- -------
Net income.................................. $ 662 $ 536 $ 266 $ 75 $ 188
======= ======= ======= ======= =======
Basic earnings per share:
Income before extraordinary items........... $ 3.27 $ 2.74 $ 1.28 $ .39 $ 1.41
Net income.................................. 3.16 2.56 1.28 .39 1.41
Diluted earnings per share:
Income before extraordinary items........... $ 3.06 $ 2.58 $ 1.24 $ .39 $ 1.40
Net income.................................. 2.96 2.41 1.24 .39 1.40
Average number of shares outstanding.......... 209.1 209.2 207.5 191.5 132.9
Depreciation and amortization................. $ 624 $ 590 $ 533 $ 497 $ 286
Capital expenditures.......................... $ 695 $ 696 $ 846 $ 699 $ 398
Balance Sheet Data (at year end):
Cash........................................ $ 307 $ 142 $ 149 $ 173 $ 206
Working capital............................. 2,904 3,134 2,831 3,262 2,376
Total assets................................ 13,464 13,738 14,264 14,295 12,277
Short-term debt............................. 524 556 1,095 733 463
Long-term debt.............................. 3,057 3,919 4,606 5,632 4,529
Shareholders' equity........................ 5,709 5,256 4,669 4,274 3,640
</TABLE>
- ---------------
(a) The extraordinary items for 1998 and 1997 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 30, 1999 and January 31, 1998. Net
sales for 1998 were $15,833 million compared to $15,668 million for 1997, an
increase of 1.1%. Excluding sales of the specialty stores division that was sold
in July 1998, sales increased 1.8% over last year. On a comparable store basis,
net sales for 1998 increased 2.2% compared to 1997.
Cost of sales was 60.7% of net sales for 1998, compared to 61.1% for 1997.
The 0.4% improvement in the cost of sales rate reflects positive customer
response to the merchandise assortments in the stores during the second and
fourth quarters, attributed partially to an improved merchandise receipt flow.
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 30.1% of net sales for
1998, compared to 30.3% for 1997. Selling, general and administrative expenses
include finance charge income and expenses for doubtful customer accounts
receivable. Finance charge income was $345 million for 1998, down from $391
million in 1997, primarily due to lower average accounts receivable balances as
a result of accelerated payments. Amounts charged to expense for doubtful
accounts receivable were $112 million for 1998, compared to $167 million in
1997. The decrease primarily reflects a reduction in the amount of uncollectible
balances written off in 1998, also a result of lower average accounts receivable
balances and accelerated payments.
Net interest expense was $292 million for 1998, compared to $383 million
for 1997. The lower interest expense for 1998 is principally due to lower levels
of borrowings and lower interest rates resulting from refinancings completed in
1998 and 1997.
The Company's effective tax rate of 41.1% for 1998 differs from the federal
income tax statutory rate of 35.0% principally because of the effect of state
and local income taxes and permanent differences arising from the amortization
of intangible assets and from other non-deductible items.
The extraordinary items of $23 million and $39 million for 1998 and 1997,
respectively, represent after-tax expenses associated with debt prepayments.
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 infrequent 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 infrequent costs related to the integration
and consolidation of acquired and pre-existing businesses. Excluding these
infrequent costs, 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 these infrequent costs for 1996) was
lower
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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
1997.
The Company's effective income tax rate of 40.0% 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash from operations, cash
on hand and certain available credit facilities.
Net cash provided by operating activities in 1998 was $1,690 million, an
increase of $117 million from the net cash provided by operating activities in
1997 of $1,573 million. The major factor contributing to this improvement was
stronger operating results.
Net cash used in investing activities was $445 million in 1998, with the
final $200 million installment of a note receivable held by the Company being
received on May 4, 1998, purchases of property and equipment totaling $695
million and dispositions of property and equipment totaling $50 million. During
1998, the Company opened five new department stores and closed four. On August
1, 1998, the Company completed the sale of its specialty stores division to a
group including the division's management. The sale did not have a material
impact on the Company's financial position or results of operations.
Net cash used by the Company for all financing activities was $1,080
million in 1998 compared to $1,262 million in 1997. In 1998, the Company issued
$300 million of 7.0% Senior Debentures due 2028 and $350 million of 6 1/8% Term
Enhanced ReMarketable Securities due 2011, puttable to the Company in 2001. Also
during the year, the Company renewed a portion of the bank credit agreement
which provides a $500 million unsecured revolving credit facility with a
termination date of July 26, 1999. As of January 30, 1999, the Company had $27
million of standby letters of credit and $42 million of trade letters of credit
outstanding under this agreement. During 1998, the Company repaid borrowings
totaling $1,229 million. The major components of debt repaid included $340
million of its 10% Senior Notes due 2001, the remaining $176 million of
borrowings under a note monetization facility, $294 million of short-term debt
refinanced at the end of 1997 and $375 million of receivables backed financings.
During 1998, the Board of Directors approved a stock repurchase program
that authorizes the Company to purchase up to $1 billion of its common stock
through January 29, 2000. Through January 30, 1999,
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12.8 million shares of common stock at an approximate cost of $591 million had
been acquired under the repurchase program.
In 1998, the $350 million aggregate principal amount of the Company's 5.0%
Convertible Subordinated Notes due 2003 was converted into 10.2 million shares
of common stock.
On March 18, 1999, the Company acquired Fingerhut Companies, Inc.
("Fingerhut") for a purchase price of $1,700 million, including $297 million of
Fingerhut indebtedness. The Company funded the Fingerhut acquisition through a
combination of cash on hand and short-term borrowings. On March 24, 1999, the
Company issued $350 million of 6.3% Senior Notes due 2009 and $400 million of
6.9% Senior Debentures due 2029 and used the proceeds thereof to repay a portion
of such short-term borrowings. The Fingerhut acquisition will be accounted for
as a purchase.
The Company intends to open three new department stores in 1999 and its
budgeted capital expenditures are approximately $2,800 million for the 1999 to
2001 period. Management presently anticipates funding such expenditures from
operations.
Management believes the department store business will continue to
consolidate. Accordingly, the Company intends from time to time to consider
additional acquisitions of department store and other complementary assets and
companies.
Management of the Company believes that, with respect to its current
operations, cash on hand and funds from operations, together with its credit
facilities, will be sufficient to cover its reasonably foreseeable working
capital, capital expenditure and debt service requirements. Acquisition
transactions, if any, are expected to be financed through a combination of cash
on hand and from operations and the possible issuance from time to time of
long-term debt or other securities. Depending upon conditions in the capital
markets and other factors, the Company will from time to time consider the
issuance of debt or other securities, or other possible capital markets
transactions, the proceeds of which could be used to refinance current
indebtedness or for other corporate purposes.
YEAR 2000
The Company relies on computer-based technology and utilizes a variety of
third-party hardware and proprietary and third-party software. The Company's
retail functions, such as merchandise procurement and distribution, inventory
control, point-of-sale information systems and proprietary credit card account
servicing, generally use proprietary software, with third-party software being
used more extensively for administrative functions, such as accounting and human
resource management. In addition to such information technology ("IT") systems,
the Company's operations rely on various non-IT equipment and systems that
contain embedded computer technology, such as elevators, escalators and energy
management systems. Third parties with whom the Company has commercial
relationships, including vendors of merchandise for resale by the Company and of
products and services used by the Company in its operations (such as banking and
financial services, data processing services, telecommunications services and
utilities), are also highly reliant on computer-based technology.
In February 1996, the Company commenced an assessment of the potential
effects of the Year 2000 issue on the Company's business, financial condition
and results of operations. In conjunction with such assessment, the Company
developed and commenced the implementation of the compliance program described
below.
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THE COMPANY'S YEAR 2000 COMPLIANCE PROGRAM
Proprietary IT Systems. Pursuant to the Company's Year 2000 compliance
program, the Company has undertaken an examination of the Company's proprietary
IT systems. All such systems that have been identified as relating to a critical
function and as not being Year 2000 compliant have been or are being remediated
or replaced. The Company believes that the remediation of its proprietary IT
systems is substantially complete, and nearly all of the proprietary IT systems
that have been remediated have been installed and placed into production. The
Company commenced testing of such remediated systems for Year 2000 compliance in
August 1998 and has completed a comprehensive, integrated test of all of its
main-frame and mid-range IT systems (including third-party and proprietary
hardware, software, network components and interfaces). The Company is presently
conducting varying levels of follow-up testing of selected systems.
Third-Party IT Systems. The strategy instituted by the Company to identify
and address Year 2000 issues affecting third-party IT systems used by the
Company includes contacting all third-party providers of computer hardware and
software to secure appropriate representations to the effect that such hardware
or software is or will timely be Year 2000 compliant. The Company has received
Year 2000 compliant versions of almost all third-party software and is currently
engaged in testing those third-party software programs that have been identified
as being critical to the Company's operations. The Company is also developing
contingency plans as to third-party hardware and software used by the Company in
respect of which the Company has not received adequate compliance assurances to
date.
Non-IT Systems. The Company has undertaken a review of its non-IT systems
and is in the process of implementing a remediation program in respect of those
systems that are within the control of the Company. The Company expects to
complete this remediation effort by April 30, 1999. In addition, the Company's
centralized real estate department has communicated to the developers, landlords
and property managers of substantially all of the Company's properties the
Company's expectation that the systems utilized in the management and operation
of such properties that are not within the Company's control are or will timely
be Year 2000 compliant. As a further step, the Company plans to engage in
written or oral communications with its key developers, landlords and property
managers in order to assess the Year 2000 readiness of their respective
operations.
Non-IT Vendors and Suppliers. The Company procures its merchandise for
resale and supplies for operational purposes from a vast network of vendors
located both within and outside the United States, and is not dependent on any
one vendor for more than 5% of its merchandise purchases. The Company procures
its private label merchandise, which constitutes approximately 15% of the
Company's total sales, principally from manufacturers located outside the United
States. All of the Company's vendors have been notified in writing of the
Company's expectation that the systems and operations of such vendors will be
Year 2000 compliant before January 31, 1999. As a part of its contingency
planning effort, the Company has commenced making inquiries as to the Year 2000
readiness of selected key vendors and private label manufacturers in order to
identify any significant exposures that may exist and establish alternate
sources or strategies where necessary. As of January 30, 1999, approximately 90%
of the selected key vendors contacted had provided to the Company written or
oral assurances that they are in the process of implementing compliance programs
that are intended to address the Year 2000 issues affecting their respective
operations.
Contingency Planning. The Company's Year 2000 compliance program is
directed primarily towards ensuring that the Company will be able to continue to
perform three critical functions: (i) effect sales, (ii) order and receive
merchandise, and (iii) pay its employees. The Company is currently gathering
data in an effort to assess the potential effects on these mission critical
functions of a failure of the Company's Year
9
<PAGE> 11
2000 compliance program to be fully effective and, to the extent deemed
appropriate, to develop a contingency plan to address such effects. The Company
expects to complete its contingency plan by July 31, 1999.
Costs. The Company has incurred to date approximately $26 million of costs
to implement its Year 2000 compliance program and presently expects to incur
approximately $46 million of costs in the aggregate, of which approximately 25%
represents capitalized expenditures for hardware purchases. All of the Company's
Year 2000 compliance costs have been or are expected to be funded from operating
cash flows. The Company's Year 2000 compliance budget does not include material
amounts for hardware replacement because the Company has historically employed a
strategy to continually upgrade its main-frame and mid-range computer systems
and to install state of the art point-of-sale systems with respect to both
pre-existing operations and in conjunction with the acquisitions and mergers
effected by the Company in recent years. Consequently, the Company's Year 2000
budget has not required the diversion of funds from or the postponement of the
implementation of other planned IT projects.
Risks. The novelty and complexity of the issues presented and the proposed
solutions therefor and the Company's dependence on the technical skills of
employees and independent contractors and on the representations and
preparedness of third parties are among the factors that could cause the
Company's Year 2000 compliance efforts to be less than fully effective.
Moreover, Year 2000 issues present a number of risks that are beyond the
Company's reasonable control, such as the failure of utility companies to
deliver electricity, the failure of telecommunications companies to provide
voice and data services, the failure of financial institutions to process
transactions and transfer funds, the failure of vendors to deliver merchandise
or perform services required by the Company and the collateral effects on the
Company of the effects of Year 2000 issues on the economy in general or on the
Company's business partners and customers in particular. Although the Company
believes that its Year 2000 compliance program is designed to appropriately
identify and address those Year 2000 issues that are subject to the Company's
reasonable control, there can be no assurance that the Company's efforts in this
regard will be fully effective or that Year 2000 issues will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
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 7 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 its exposure to interest rate movements and reduce
borrowing costs. See Notes 7 and 14 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
30, 1999, 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.
10
<PAGE> 12
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 30, 1999, January 31, 1998 and February 1, 1997... F-4
Consolidated Balance Sheets at January 30, 1999 and January
31, 1998.................................................. F-5
Consolidated Statements of Changes in Shareholders' Equity
for the 52 weeks ended January 30, 1999, January 31, 1998
and February 1, 1997...................................... F-6
Consolidated Statements of Cash Flows for the 52 weeks ended
January 30, 1999, January 31, 1998 and February 1, 1997... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
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.
11
<PAGE> 13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS:
The list of financial statements required by this item is set forth in
"Item 8 Consolidated Financial Statements and Supplementary Data" and is
incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted because they are inapplicable, not required, or
the information is included elsewhere in the Consolidated Financial Statements
or the notes thereto.
3. EXHIBITS:
The following exhibits are filed herewith or incorporated by reference as
indicated below.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
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 Exhibit 3.1.1 to the 1994 Form 10-K
Junior Participating Preferred Stock
3.2 By-Laws Exhibit 3.2 to the 1994 Form 10-K
4.1 Certificate of Incorporation See Exhibit 3.1
4.2 By-Laws See Exhibit 3.2
4.3 Rights Agreement, dated as of 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
(successor to 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>
4.4.2 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
(successor to The First National Bank of
Boston), as Trustee
4.4.3 Seventh Supplemental Indenture, dated as of Exhibit 4.2 to the Company's Quarterly Report
May 22, 1996, between the Company and State on Form 10-Q for the period ended May 4, 1996
Street Bank and Trust Company (successor to (the "May 1996 Form 10-Q")
The First National Bank of Boston), as
Trustee
4.4.4 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
4.4.5 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
4.5.2 Second Supplemental Indenture, dated as of Exhibit 2 to the Company's Current Report on
August 26, 1998, between the Company and Form 8-K dated as of August 25, 1998
Citibank, N.A., as Trustee
4.6 Amended and Restated Series B Warrant Exhibit 4.6 to the Company's Annual Report on
Agreement Form 10-K for the fiscal year ended January
31, 1998 (the "1997 Form 10-K")
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
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
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
Administrative Agent, BankBoston, N.A., as
Syndication Agent, and the Bank of America,
National Trust & Savings Association, as
Documentation Agent
10.1.1 Amended and Restated Credit Agreement, dated Exhibit 10.1 to the Company's Quarterly
as of June 29, 1998, by and among the Report on Form 10-Q for the period ended
Company, the Initial Lenders named therein, August 1, 1998 (the "August 1998 Form 10-Q")
Citibank, N.A., as Administrative Agent and
Paying Agent, The Chase Manhattan Bank, as
Administrative Agent, BankBoston, N.A., as
Syndication Agent, and the Bank of America,
National Trust & Savings Association, as
Documentation Agent
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
Administrative Agent, BankBoston, N.A., as
Syndication Agent, and the Bank of America,
National Trust & Savings Association, as
Documentation Agent
10.2.1 Letter Amendment to the Five-Year Credit Exhibit 10.2 to the August 1998 Form 10-Q
Agreement, dated as of June 29, 1998, by and
among the Company, the Initial Lenders named
therein, Citibank, N.A., as Administrative
Agent and Paying Agent, The Chase Manhattan
Bank, as Administrative 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")
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
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 Exhibit 10.3.2 to the 1997 Form 10-K
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 Report on Form 10-K (File No. 1-10951) for
Agreement 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
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 Agreement
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 1996 Form 10-K
to the Pooling and Servicing Agreement
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
10.5.8 Eighth Amendment, dated as of March 3, 1997, Exhibit 10.6.8 to the 1996 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")
10.5.10 Tenth Amendment, dated as of August 3, 1998, Exhibit 10.1 to the Company's Quarterly
to the Pooling and Servicing Agreement Report on Form 10-Q for the period ended
October 31, 1998 (the "October 1998 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 Exhibit 4.7 to Prime's Form 8-A
December 15, 1992, to the Pooling and
Servicing Agreement
10.7.1 First Amendment to Series 1992-2 Exhibit 10.3 to the November 1997 Form 10-Q
Supplement, dated as of August 28, 1997,
to the Pooling and Servicing Agreement
10.8 Series 1992-3 Supplement, dated as of January Exhibit 4.8 to Prime's Current Report on Form
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 Statement
27, 1995, to the Pooling and Servicing on Form S-1, filed July 14, 1995, as amended
Agreement
10.9.1 First Amendment to Series 1995-1 Exhibit 10.4 to the November 1997 Form 10-Q
Supplement, 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
10.10.1 First Amendment to Series 1996-1 Exhibit 10.5 to the November 1997 Form 10-Q
Supplement, 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
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
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 1996 Form 10-K
to the Receivables Purchase Agreement
10.11.7 Seventh Amendment, dated as of August 26, Exhibit 10.13.7 to the 1996 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 1996 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 1996 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
10.12 Depository Agreement, dated as of December Exhibit 10.15 to Company's Annual Report on
31, 1992, among Deerfield Funding Form 10-K (File No. 1-10951) for the fiscal
Corporation, now known as Seven Hills Funding year ended January 30, 1993 ("1992 Form
Corporation ("Seven Hills"), the Company, and 10-K")
The Chase Manhattan 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
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
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, The Chase Manhattan 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 1996 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 1996 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 1996 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 1996 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 January Exhibit 10.23 to the 1996 Form 10-K
22, 1997, to the Prime II Pooling and
Servicing Agreement
10.22 Commercial Paper Dealer Agreement, dated as Exhibit 10.24 to the 1996 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 1996 Form 10-K
Agreement, dated as of January 30, 1997,
between Citibank, N.A. and the Company
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
10.24 Commercial Paper Dealer Agreement, dated as Exhibit 10.26 to the 1996 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
Servicer, 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 Agreement, Exhibit 10.6 to the August 1996 Form 10-Q
dated as of June 4, 1996, among GE Capital
and GE Bank **
</TABLE>
19
<PAGE> 21
<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 Exhibit 10.37 to the 1997 Form 10-K
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 March 10, Exhibit 10.44 to the 1996 Form 10-K
1997, between James M. Zimmerman and the
Company *
10.42 Employment Agreement, dated as of May 16, Exhibit 10.43 to the 1997 Form 10-K
1997, between Terry J. Lundgren and the
Company *
10.43 Form of Employment Agreement for Executives Exhibit 10.31 to 1993 Form 10-K
and Key Employees *
10.44 Form of Severance Agreement (for Executives
and Key Employees other than the Executive
Officers)
10.45 Form of Second Amended and Restated Severance
Agreement (for the Executive Officers)
10.46 Supplementary Executive Retirement Plan, as Exhibit 10.46 to the 1996 Form 10-K
amended and restated as of January 1, 1997 *
10.47 Executive Deferred Compensation Plan, as Exhibit 10.47 to the 1996 Form 10-K
amended *
10.48 Profit Sharing 401(k) Investment Plan Exhibit 10.48 to the 1996 Form 10-K
(amending and restating the Retirement Income
and Thrift Incentive Plan) effective as of
April 1, 1997 *
10.49 Cash Account Pension Plan (amending and Exhibit 10.49 to the 1996 Form 10-K
restating the Company Pension Plan)
effective as of January 1, 1997 *
21 Subsidiaries
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
- -------------- ----------- -------------------------------------
<C> <S> <C>
22 Consent of KPMG 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.
(b) Reports on Form 8-K. Current report on Form 8-K, dated December 3,
1998, reporting matters under items 5 and 7 thereof.
21
<PAGE> 23
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 21, 1999
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 21, 1999.
<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, Finance and Real Estate 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
22
<PAGE> 24
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 30, 1999, January 31, 1998 and February 1, 1997... F-4
Consolidated Balance Sheets at January 30, 1999 and January
31, 1998.................................................. F-5
Consolidated Statements of Changes in Shareholders' Equity
for the 52 weeks ended January 30, 1999, January 31, 1998
and February 1, 1997...................................... F-6
Consolidated Statements of Cash Flows for the 52 weeks ended
January 30, 1999, January 31, 1998 and February 1, 1997... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 25
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 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> 26
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 30, 1999 and January 31,
1998, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the fifty-two week periods ended January
30, 1999, January 31, 1998 and February 1, 1997. 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 30, 1999 and January 31,
1998, and the results of their operations and their cash flows for the fifty-two
week periods ended January 30, 1999, January 31, 1998 and February 1, 1997, in
conformity with generally accepted accounting principles.
KPMG LLP
Cincinnati, Ohio
March 2, 1999
F-3
<PAGE> 27
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(MILLIONS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales, including leased department sales............... $15,833 $15,668 $15,229
------- ------- -------
Cost of sales.............................................. 9,616 9,581 9,354
Selling, general and administrative expenses............... 4,762 4,746 4,982
------- ------- -------
Operating income........................................... 1,455 1,341 893
Interest expense........................................... (304) (418) (499)
Interest income............................................ 12 35 47
------- ------- -------
Income before income taxes and extraordinary items......... 1,163 958 441
Federal, state and local income tax expense................ (478) (383) (175)
------- ------- -------
Income before extraordinary items.......................... 685 575 266
Extraordinary items........................................ (23) (39) -
------- ------- -------
Net income................................................. $ 662 $ 536 $ 266
======= ======= =======
Basic earnings per share:
Income before extraordinary items........................ $ 3.27 $ 2.74 $ 1.28
Extraordinary items...................................... (.11) (.18) -
------- ------- -------
Net income............................................... $ 3.16 $ 2.56 $ 1.28
======= ======= =======
Diluted earnings per share:
Income before extraordinary items........................ $ 3.06 $ 2.58 $ 1.24
Extraordinary items...................................... (.10) (.17) -
------- ------- -------
Net income............................................... $ 2.96 $ 2.41 $ 1.24
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE> 28
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED BALANCE SHEETS
(MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 30, 1999 JANUARY 31, 1998
---------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 307 $ 142
Accounts receivable....................................... 2,209 2,640
Merchandise inventories................................... 3,259 3,239
Supplies and prepaid expenses............................. 117 115
Deferred income tax assets................................ 80 58
------- -------
Total Current Assets.............................. 5,972 6,194
Property and Equipment - net................................ 6,572 6,520
Intangible Assets - net..................................... 631 690
Other Assets................................................ 289 334
------- -------
Total Assets...................................... $13,464 $13,738
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt........................................... $ 524 $ 556
Accounts payable and accrued liabilities.................. 2,446 2,416
Income taxes.............................................. 98 88
------- -------
Total Current Liabilities......................... 3,068 3,060
Long-Term Debt.............................................. 3,057 3,919
Deferred Income Taxes....................................... 1,060 939
Other Liabilities........................................... 570 564
Shareholders' Equity........................................ 5,709 5,256
------- -------
Total Liabilities and Shareholders' Equity........ $13,464 $13,738
======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE> 29
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL UNEARNED OTHER TOTAL
COMMON PAID-IN ACCUMULATED TREASURY RESTRICTED COMPREHENSIVE SHAREHOLDERS'
STOCK CAPITAL EQUITY STOCK STOCK INCOME EQUITY
------ ---------- ----------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 3, 1996....... $2 $4,269 $ 568 $(562) $(3) $ - $4,274
Net Income........................ 266 266
------
Total comprehensive income........ 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
Minimum pension liability
adjustment, net of income tax
effect.......................... (3) (3)
------
Total comprehensive income........ 533
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
-- ------ ------ ----- --- ---- ------
BALANCE AT JANUARY 31, 1998....... 2 4,461 1,370 (572) (2) (3) 5,256
Net Income........................ 662 662
Minimum pension liability
adjustment, net of income tax
effect.......................... (7) (7)
------
Total comprehensive income........ 655
Stock repurchases................. (591) (591)
Stock issued under stock plans.... 36 (6) 30
Deferred compensation plan
distributions................... 1 1
Restricted stock plan
amortization.................... 1 1
Income tax benefit related to
stock plan activity............. 13 13
Stock issued in conversion of
subordinated notes.............. (104) 448 344
-- ------ ------ ----- --- ---- ------
BALANCE AT JANUARY 30, 1999....... $2 $4,406 $2,032 $(720) $(1) $(10) $5,709
== ====== ====== ===== === ==== ======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE> 30
FEDERATED DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 662 $ 536 $ 266
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment....................................... 596 563 504
Amortization of intangible assets.................. 27 27 27
Amortization of financing costs.................... 7 20 27
Amortization of unearned restricted stock.......... 1 - 2
Loss on early extinguishment of debt............... 23 39 -
Changes in assets and liabilities:
Decrease in accounts receivable................. 235 194 223
(Increase) decrease in merchandise
inventories................................... (20) 7 (151)
(Increase) decrease in supplies and prepaid
expenses...................................... (2) (5) 67
(Increase) decrease in other assets not
separately identified......................... 31 (7) (12)
Increase (decrease) in accounts payable and
accrued liabilities not separately
identified.................................... 6 (36) 177
Increase in current income taxes................ 25 103 2
Increase in deferred income taxes............... 103 138 84
Increase (decrease) in other liabilities not
separately identified......................... (4) (6) 4
------- ------- -------
Net cash provided by operating activities..... 1,690 1,573 1,220
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment..................... (695) (696) (846)
Disposition of property and equipment.................. 50 178 196
Collection of note receivable.......................... 200 200 -
------- ------- -------
Net cash used by investing activities......... (445) (318) (650)
------- ------- -------
Cash flows from financing activities:
Debt issued............................................ 650 763 689
Financing costs........................................ - (7) (11)
Debt repaid............................................ (1,229) (2,027) (1,335)
Increase (decrease) in outstanding checks.............. 47 (45) (65)
Acquisition of treasury stock.......................... (594) (2) (1)
Issuance of common stock............................... 46 56 129
------- ------- -------
Net cash used by financing activities......... (1,080) (1,262) (594)
------- ------- -------
Net increase (decrease) in cash.......................... 165 (7) (24)
Cash beginning of period................................. 142 149 173
------- ------- -------
Cash end of period....................................... $ 307 $ 142 $ 149
======= ======= =======
Supplemental cash flow information:
Interest paid.......................................... $ 306 $ 412 $ 465
Interest received...................................... 15 38 46
Income taxes paid (net of refunds received)............ 304 121 21
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-7
<PAGE> 31
FEDERATED DEPARTMENT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Federated Department Stores, Inc. (the "Company") is a retail organization
operating department stores 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 6). 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 $739 million, $680 million and $618 million for the 52
weeks ended January 30, 1999, January 31, 1998 and February 1, 1997,
respectively.
Financing costs are amortized over the life of the related debt.
F-8
<PAGE> 32
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 12).
Earnings per share are computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share" (see Note 15).
Effective February 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" and SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." The adoption of these
statements did not impact the Company's consolidated financial position, results
of operation or cash flows and, where applicable, are limited to the form and
content of their disclosures.
Certain reclassifications were made to prior years' amounts to conform with
the classifications of such amounts for the most recent year.
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activity" which is
effective for fiscal years beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires recognition of all derivatives as either assets
or liabilities on the balance sheet using fair value measurement. The accounting
for changes in the fair value of derivatives depends on the intended use of the
derivatives and the resulting hedging designation, if any. The Company is
currently reviewing the impact of this statement; however, based on the
Company's minimal use of derivatives, management does not anticipate that its
adoption will have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
2. EXTRAORDINARY ITEMS
The extraordinary item for the 52 weeks ended January 30, 1999 represents
costs of $23 million, net of income tax benefit of $15 million, associated with
the completion of a tender offer pursuant to which the Company purchased and
retired approximately $340 million aggregate principal amount of its 10% Senior
Notes due 2001.
The extraordinary item for the 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
F-9
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Company's mortgage loan facility, secured promissory note, certain other
mortgages and previous bank credit facility, all of which were retired and
terminated.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
(MILLIONS)
<S> <C> <C>
Due from customers.......................................... $2,099 $2,322
Less allowance for doubtful accounts........................ 77 100
------ ------
2,022 2,222
Other receivables........................................... 187 418
------ ------
Net receivables............................................. $2,209 $2,640
====== ======
</TABLE>
Sales through the Company's credit plans were $4,028 million, $4,002
million and $4,191 million for the 52 weeks ended January 30, 1999, January 31,
1998 and February 1, 1997, respectively. The credit plans relating to certain
operations of the Company are owned by a third party. Other receivables at
January 31, 1998 includes $200 million of a note relating to the sale of certain
divisions in 1988.
Finance charge income amounted to $345 million, $391 million and $430
million for the 52 weeks ended January 30, 1999, January 31, 1998 and February
1, 1997, respectively.
Changes in allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------- -----------------
(MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year.......... $ 100 $ 96 $ 83
Charged to costs and expenses....... 112 167 172
Net uncollectible balances written
off............................... (135) (163) (159)
----- ----- -----
Balance, end of year................ $ 77 $ 100 $ 96
===== ===== =====
</TABLE>
4. INVENTORIES
Merchandise inventories were $3,259 million at January 30, 1999, compared
to $3,239 million at January 31, 1998. 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 30, 1999, January 31, 1998 or
February 1, 1997.
F-10
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. PROPERTIES AND LEASES
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
(MILLIONS)
<S> <C> <C>
Land........................................................ $1,018 $1,019
Buildings on owned land..................................... 2,399 2,314
Buildings on leased land and leasehold improvements......... 1,552 1,552
Store fixtures and equipment................................ 3,713 3,305
Leased properties under capitalized leases.................. 73 76
------ ------
8,755 8,266
Less accumulated depreciation and amortization.............. 2,183 1,746
------ ------
$6,572 $6,520
====== ======
</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 30, 1999,
for noncancellable leases are:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES TOTAL
----------- ---------- ------
(MILLIONS)
<S> <C> <C> <C>
Fiscal year:
1999.............................................. $13 $ 145 $ 158
2000.............................................. 12 143 155
2001.............................................. 12 136 148
2002.............................................. 10 125 135
2003.............................................. 9 114 123
After 2003........................................ 64 921 985
--- ------ ------
Total minimum lease payments........................ 120 $1,584 $1,704
====== ======
Less amount representing interest................... 54
---
Present value of net minimum capitalized lease
payments.......................................... $66
===
</TABLE>
Capitalized leases are included in the Consolidated Balance Sheets as
property and equipment while the related obligation is included in short-term
($6 million) and long-term ($60 million) debt. Amortization of assets subject to
capitalized leases is included in depreciation and amortization expense. Total
minimum lease
F-11
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
payments shown above have not been reduced by minimum sublease rentals of
approximately $6 million on capitalized leases and $12 million on operating
leases.
Rental expense consists of:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Real estate (excluding executory costs)
Capitalized leases -
Contingent rentals....................... $ 3 $ 4 $ 4
Operating leases -
Minimum rentals.......................... 144 149 151
Contingent rentals....................... 21 23 21
---- ---- ----
168 176 176
---- ---- ----
Less income from subleases -
Capitalized leases....................... 1 1 1
Operating leases......................... 3 3 3
---- ---- ----
4 4 4
---- ---- ----
$164 $172 $172
==== ==== ====
Personal property - Operating leases.......... $ 22 $ 37 $ 60
==== ==== ====
</TABLE>
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
(MILLIONS)
<S> <C> <C>
Reorganization value in excess of amount allocable to
identifiable assets................................ $100 $100
Excess of cost over net assets acquired.............. 262 294
Tradenames........................................... 458 458
---- ----
820 852
Less accumulated amortization........................ 189 162
---- ----
Intangible assets - net.............................. $631 $690
==== ====
</TABLE>
Intangible assets are being amortized on a straight-line basis over 20
years, except for tradenames which are being amortized over 40 years. The
Company recorded $32 million of tax benefits as a reduction to excess of cost
over net assets acquired during the 52 weeks ended January 30, 1999 (see Note
9).
F-12
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. FINANCING
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
(MILLIONS)
<S> <C> <C>
Short-term debt:
Receivables backed financings......................... $ 490 $ 375
Current portion of long-term debt..................... 34 5
Note monetization facility............................ - 176
------ ------
Total short-term debt......................... $ 524 $ 556
====== ======
Long-term debt:
Receivables backed financings......................... $ 836 $1,326
8.5% Senior notes due 2003............................ 450 450
8.125% Senior notes due 2002.......................... 400 400
6.125% Term Enhanced ReMarketable Securities due
2011............................................... 350 -
7.45% Senior debentures due 2017...................... 300 300
7.0% Senior debentures due 2028....................... 300 294
6.79% Senior debentures due 2027...................... 250 250
10.0% Senior notes due 2001........................... 110 450
Capital lease obligations and mortgages............... 61 99
5.0% Convertible subordinated notes due 2003.......... - 350
------ ------
Total long-term debt.......................... $3,057 $3,919
====== ======
</TABLE>
Interest expense was as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Interest on debt........................ $293 $392 $464
Amortization of financing costs......... 7 20 27
Interest on capitalized leases.......... 7 8 9
---- ---- ----
Subtotal.............................. 307 420 500
Less interest capitalized on
construction.......................... (3) (2) (1)
---- ---- ----
$304 $418 $499
==== ==== ====
</TABLE>
F-13
<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:
2000...................................................... $ -
2001...................................................... 699
2002...................................................... 998
2003...................................................... 450
2004...................................................... 250
After 2004................................................ 600
</TABLE>
On February 6, 1998, the Company issued $300 million of 7.0% Senior
Debentures due 2028. On August 26, 1998, the Company issued $350 million of
6 1/8% Term Enhanced ReMarketable Securities (TERMS) due in 2011, puttable to
the Company in 2001. Also during the 52 weeks ended January 30, 1999, the
Company renewed a portion of the bank credit agreement which provides a $500
million unsecured revolving credit facility with a termination date of July 26,
1999. As of January 30, 1999, the Company had $27 million of standby letters of
credit and $42 million of trade letters of credit outstanding under this
agreement.
During the 52 weeks ended January 30, 1999, the Company repaid borrowings
totaling $1,229 million. The major components of debt repaid included $340
million of its 10% Senior Notes due 2001, the remaining $176 million of
borrowings under a note monetization facility, $294 million of short-term debt
refinanced at the end of 1997 and $375 million of receivables backed financings.
Also, during the 52 weeks ended January 30, 1999, the $350 million aggregate
principal amount of the Company's 5.0% Convertible Subordinated Notes due 2003
was converted into 10.2 million shares of common stock.
The following summarizes certain components of the Company's debt:
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.
As of January 30, 1999, there were no revolving credit loans outstanding
under the Revolving Loan Facilities. However, there were $69 million of letters
of credit outstanding under the Revolving Loan Facilities at January 30, 1999.
As of January 31, 1998, there were $150 million of revolving credit loans
outstanding under the Revolving Loan Facilities which, as a result of a
refinancing, was classified as long term debt. Additionally, there were $112
million of letters of credit outstanding under the Revolving Loan Facilities at
January 31, 1998. Revolving loans under the Revolving Loan Facilities bear
interest based on published rates. As of January 31, 1998, the average rate per
annum was 5.78%.
F-14
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMERCIAL PAPER
On January 30, 1997, the Company established a $400 million program
(subsequently increased to $2,000 million) for the issuance from time to time of
unsecured commercial paper. The issuance of commercial paper under the program
will have the effect, while such commercial paper is outstanding, of reducing
the Company's borrowing capacity under the Revolving Loan Facilities by an
amount equal to the principal amount of such commercial paper. As of January 30,
1999, there was no such commercial paper outstanding. As of January 31, 1998,
there was $144 million of such commercial paper outstanding which, as a result
of a refinancing, was classified as long-term debt.
RECEIVABLES BACKED FINANCINGS
Receivables backed financings classified as short-term debt consist of the
current portion of amounts due under certain receivables backed certificates
issued by a subsidiary of the Company together with receivables backed
commercial paper issued by a subsidiary of the Company (of which none and $375
million were outstanding as of January 30, 1999 and January 31, 1998,
respectively). 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
6.90% per annum and mature between May 1, 2001 and September 15, 2002.
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.
TERMS
The TERMS are unsecured obligations of the Company. The final maturity is
scheduled to occur on September 1, 2011 ("Final Maturity"), but may be adjusted
during the remarketing process. The TERMS will bear interest at the rate of
6 1/8% per annum to September 1, 2001 ("Investor Maturity Date"). The interest
rate to Final Maturity will be determined during the remarketing process and
will be equal to the sum of 5.64% per annum plus the Company's then current
credit spread for similar debt instruments. At the Investor Maturity Date, the
remarketing dealer may purchase the TERMS from the investors, at face value, and
remarket the securities to new investors or the remarketing dealer may give
notice to the Company that such securities shall be tendered to the Company and
retired.
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 $375 million) of
non-proprietary credit card receivables arising under accounts owned by the
Company. At January 30, 1999 and January 31, 1998, $340 million and $243
million, respectively, of borrowings were outstanding under this arrangement.
F-15
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
(MILLIONS)
<S> <C> <C>
Merchandise and expense accounts payable.................... $1,630 $1,587
Liabilities to customers.................................... 220 173
Taxes other than income taxes............................... 116 116
Accrued wages and vacation.................................. 91 86
Accrued interest............................................ 45 51
Other....................................................... 344 403
------ ------
$2,446 $2,416
====== ======
</TABLE>
9. TAXES
Income tax expense is as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
-------------------------- -------------------------- --------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ----- ------- -------- ----- ------- -------- -----
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal................ $405 $(19) $386 $319 $ (1) $318 $176 $(31) $145
State and local........ 96 (4) 92 66 (1) 65 36 (6) 30
---- ---- ---- ---- ---- ---- ---- ---- ----
$501 $(23) $478 $385 $ (2) $383 $212 $(37) $175
==== ==== ==== ==== ==== ==== ==== ==== ====
</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 30, 1999, January 31, 1998 and February 1, 1997, to income before income
taxes and extraordinary items. The reasons for this difference and their tax
effects are as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Expected tax.......................... $407 $335 $154
State and local income taxes, net of
federal income tax expense.......... 60 43 20
Permanent difference arising from
amortization of intangible assets... 9 9 9
Other................................. 2 (4) (8)
---- ---- ----
$478 $383 $175
==== ==== ====
</TABLE>
F-16
<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 30, JANUARY 31,
1999 1998
----------- ------------
(MILLIONS)
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards.............................. $ 115 $ 174
Accrued liabilities accounted for on a cash basis for tax
purposes............................................... 172 175
Postretirement benefits other than pensions............... 165 171
Allowance for doubtful accounts........................... 30 40
Capitalized lease debt.................................... 29 31
Alternative minimum tax credit carryforwards.............. 16 53
Other..................................................... 133 132
------- -------
Total gross deferred tax assets........................ 660 776
------- -------
Deferred tax liabilities:
Excess of book basis over tax basis of property and
equipment.............................................. (1,355) (1,345)
Merchandise inventories................................... (125) (122)
Prepaid pension expense................................... (64) (68)
Other..................................................... (96) (122)
------- -------
Total gross deferred tax liabilities................... (1,640) (1,657)
------- -------
Net deferred tax liability............................. $ (980) $ (881)
======= =======
</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 ("NOLs") to subsequent taxable income of the
acquired enterprise in a consolidated tax return for the combined enterprise. As
of January 30, 1999, the Company estimated that NOLs, which are available to
offset future taxable income of acquired enterprises through 2009, were
approximately $324 million. During the year ended January 30, 1999, the Company
recorded an additional $32 million of tax benefits related to an acquired
enterprise's NOLs and reduced the excess of cost over net assets acquired
accordingly. As of January 30, 1999, the Company also had alternative minimum
tax credit carryforwards of $16 million, which are available to reduce future
income taxes, if any, over an indefinite period.
10. 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 30, 1999, January 31, 1998 and
F-17
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
February 1, 1997, net retirement expense for these plans totaled $30 million,
$35 million and $29 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 6.75% as of December 31,
1998 and 7.25% as of December 31, 1997. The assumed weighted average rate of
increase in future compensation levels under such plans was 5.0% as of December
31, 1998 and December 31, 1997. The long-term rate of return on assets (Pension
Plan only) was 9.75% as of December 31, 1998 and December 31, 1997.
PENSION PLAN
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the Pension Plan as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------ ------
(MILLIONS)
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation, beginning of year........ $1,403 $1,281
Service cost........................................... 29 30
Interest cost.......................................... 97 99
Actuarial loss......................................... 58 119
Benefits paid.......................................... (127) (126)
------ ------
Projected benefit obligation, end of year.............. $1,460 $1,403
Changes in plan assets (primarily stocks, bonds and U.S.
government securities)
Fair value of plan assets, beginning of year........... $1,590 $1,469
Actual return on plan assets........................... 201 247
Benefits paid.......................................... (127) (126)
------ ------
Fair value of plan assets, end of year................. $1,664 $1,590
------ ------
Funded status.......................................... $ 204 $ 187
Unrecognized net gain.................................. (28) (21)
Unrecognized prior service cost........................ 3 3
------ ------
Prepaid pension expense................................ $ 179 $ 169
====== ======
</TABLE>
F-18
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net pension costs for the Company's Pension Plan included the following
actuarially determined components:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost.......................... $ 29 $ 30 $ 36
Interest cost......................... 97 99 94
Expected return on assets............. (137) (132) (126)
Amortization of prior service cost.... 1 - -
Recognition of net actuarial loss..... - - 7
Cost of special termination
benefits............................ - 9 -
----- ----- -----
Net pension expense (credit)........ $ (10) $ 6 $ 11
===== ===== =====
</TABLE>
In connection with a program to modify certain health care benefits for
future retirees at one division, during the 52 weeks ended January 31, 1998, the
Company incurred $9 million of special termination benefits to eligible
employees who elected to retire within a specified time period.
As permitted under SFAS No. 87, "Employers' Accounting for Pensions," the
amortization of any prior service cost is determined using a straight-line
amortization of the cost over the average remaining service period of employees
expected to receive benefits under the Pension Plan.
The Company's policy is to fund the Pension Plan at or above the minimum
required by law. For the 1998 and 1997 plan years, the Pension Plan was
considered to be fully funded and no funding contributions were required or
made. Plan assets are held by independent trustees.
F-19
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUPPLEMENTARY RETIREMENT PLAN
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the supplementary retirement plan as of December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
----- -----
(MILLIONS)
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation, beginning of year........... $ 94 $ 75
Service cost.............................................. 4 2
Interest cost............................................. 8 5
Plan amendments........................................... - 3
Actuarial loss............................................ 36 16
Benefits paid............................................. (10) (7)
----- -----
Projected benefit obligation, end of year................. $ 132 $ 94
Change in plan assets
Fair value of plan assets, beginning of year.............. $ - $ -
Company contributions..................................... 10 7
Benefits paid............................................. (10) (7)
----- -----
Fair value of plan assets, end of year.................... $ - $ -
----- -----
Funded status............................................. $(132) $ (94)
Unrecognized net loss..................................... 49 9
Unrecognized prior service cost........................... 6 7
----- -----
Accrued benefit cost...................................... $ (77) $ (78)
===== =====
Amounts recognized in the statement of financial position
Accrued benefit cost...................................... (99) (89)
Intangible asset.......................................... 5 7
Accumulated other comprehensive income.................... 17 4
----- -----
Net amount recognized....................................... $ (77) $ (78)
===== =====
</TABLE>
The accumulated benefit obligation for the supplementary retirement plan
was $99 million and $89 million as of December 31, 1998 and December 31, 1997,
respectively.
F-20
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net pension costs for the supplementary retirement plan included the
following actuarially determined components:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost.......................... $ 4 $ 2 $ 2
Interest cost......................... 8 5 5
Amortization of prior service cost.... 1 2 1
Recognition of net actuarial loss..... 3 - -
--- --- ---
Net pension expense................. $16 $ 9 $ 8
=== === ===
</TABLE>
As permitted under SFAS No. 87, "Employers' Accounting for Pensions," the
amortization of any prior service cost is determined using a straight-line
amortization of the cost over the average remaining service period of employees
expected to receive benefits under the Plan.
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 contribution is 33 1/3% of an employee's eligible savings.
Expense for the Savings Plan amounted to $24 million for the 52 weeks ended
January 30, 1999, $20 million for the 52 weeks ended January 31, 1998 and $10
million for the 52 weeks ended February 1, 1997.
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 30, 1999, January 31, 1998, and February 1,
1997, the liability under the plan, which is reflected in other liabilities, was
$21 million, $17 million, and $12 million, respectively. Expense for the 52
weeks ended January 30, 1999, 52 weeks ended January 31, 1998, and 52 weeks
ended February 1, 1997, was immaterial.
11. 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.
F-21
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the postretirement obligations as of December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
----- -----
(MILLIONS)
<S> <C> <C>
Change in accumulated postretirement benefit obligation
Accumulated postretirement benefit obligation, beginning
of year................................................ $ 325 $ 364
Service cost.............................................. 2 2
Interest cost............................................. 22 23
Plan amendments........................................... (2) (23)
Actuarial (gain) loss..................................... 12 (16)
Curtailment loss.......................................... - 1
Loss due to special termination benefits.................. - 1
Benefits paid............................................. (27) (27)
----- -----
Accumulated postretirement benefit obligation, end of
year................................................... $ 332 $ 325
Change in plan assets
Fair value of plan assets, beginning of year.............. $ - $ -
Company contributions..................................... 27 27
Benefits paid............................................. (27) (27)
----- -----
Fair value of plan assets, end of year.................... $ - $ -
----- -----
Funded status............................................. $(332) $(325)
Unrecognized net gain..................................... (50) (73)
Unrecognized prior service cost........................... (30) (31)
----- -----
Accrued benefit cost...................................... $(412) $(429)
===== =====
</TABLE>
Net postretirement benefit expense included the following actuarially
determined components:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
(MILLIONS)
<S> <C> <C> <C>
Service cost.......................... $ 2 $ 2 $ 5
Interest cost......................... 23 23 27
Amortization of prior service cost.... (5) (4) (2)
Recognition of net actuarial gain..... (9) (11) (4)
Reduction for special termination
benefits............................ - (3) -
---- ---- ----
Net postretirement benefit
expense.......................... $ 11 $ 7 $ 26
==== ==== ====
</TABLE>
The discount rate used in determining the actuarial present value of
unfunded postretirement benefit obligations was 6.75% as of December 31, 1998
and 7.25% as of December 31, 1997.
F-22
<PAGE> 46
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 7.5% to 9.5% in the first
year, and to decrease gradually for each such component to range from 4.5% to
5.5% by 2003 and to remain at those levels 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,
1998 by $14 million and the net periodic postretirement benefit expense for 1998
by $1 million. Alternatively, decreasing such assumed growth rates by one
percentage point would decrease the present value of unfunded postretirement
benefit obligations as of December 31, 1998 by $13 million and the net periodic
postretirement benefit expense for 1998 by $1 million.
As permitted under SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," the amortization of any prior service cost is
determined using a straight-line amortization of the cost over the average
remaining service period of employees expected to receive benefits under the
Plan.
12. 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.
F-23
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Stock option transactions are as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
------------------- ------------------- ------------------
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...... 10,825.3 $28.78 9,140.2 $24.65 7,415.7 $20.48
Granted............................. 4,592.2 52.49 4,133.7 34.49 3,057.8 33.14
Canceled............................ (677.5) 35.54 (630.0) 29.51 (403.9) 23.95
Exercised........................... (1,079.2) 24.96 (1,818.6) 20.80 (929.4) 19.60
-------- ------ -------- ------ ------- ------
Outstanding, end of year............ 13,660.8 $36.72 10,825.3 $28.78 9,140.2 $24.65
======== ====== ======== ====== ======= ======
Exercisable, end of year............ 4,590.8 $25.34 3,315.0 $22.56 3,136.8 $20.33
======== ====== ======== ====== ======= ======
Weighted average fair value of
options granted during the year... $20.67 $14.26 $13.04
====== ====== ======
</TABLE>
The following summarizes information about stock options, which remain
outstanding as of January 30, 1999:
<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>
$11.63 - 25.00 3,418.8 5.4 years $20.87 2,946.2 $20.60
25.01 - 40.00 5,811.6 7.8 years 33.96 1,629.7 33.72
40.01 - 79.44 4,430.4 9.2 years 52.57 14.9 46.02
</TABLE>
As of January 30, 1999, 6.9 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. No
shares of Common Stock were granted in the form of restricted stock during the
52 weeks ended January 30, 1999 or February 1, 1997. 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.
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
F-24
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income As Reported......... $ 662 $ 536 $ 266
Pro forma........... 637 521 258
Basic earnings per share As Reported......... 3.16 2.56 1.28
Pro forma........... 3.04 2.49 1.24
Diluted earnings per share As Reported......... 2.96 2.41 1.24
Pro forma........... 2.85 2.34 1.21
</TABLE>
The fair value of each option grant 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 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Dividend yield....................................... - - -
Expected volatility.................................. 30.6% 29.7% 25.2%
Risk-free interest rate.............................. 5.7% 6.8% 6.1%
Expected life........................................ 6 years 6 years 6 years
</TABLE>
13. SHAREHOLDERS' EQUITY
The authorized shares of the Company consist of 125.0 million shares of
preferred stock ("Preferred Stock"), par value of $.01 per share, with no shares
issued, and 500.0 million shares of Common Stock, par value of $.01 per share,
with 242.2 million shares of Common Stock issued and 208.5 million shares of
Common Stock outstanding at January 30, 1999 and 239.9 million shares of Common
Stock issued and 209.9 million shares of Common Stock outstanding at January 31,
1998 (with shares held in the Company's treasury or by subsidiaries of the
Company being treated as issued, but not outstanding).
During 1998, the Board of Directors approved a stock repurchase program
that authorizes the Company to purchase up to $1 billion of its common stock
through January 29, 2000. Through January 30, 1999, 12.8 million shares of
common stock at an aggregate cost of $591 million had been acquired under the
repurchase program.
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.
F-25
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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 (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>
TREASURY STOCK
Treasury stock contains shares repurchased under the stock repurchase
program, shares issued to wholly owned subsidiaries of the Company in connection
with an acquisition, 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.
F-26
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Changes in the number of shares held in the treasury are as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
(THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year..... 159.3 84.8 40.8
Additions:
Repurchase program........... 12,810.1 - -
Restricted stock............. 51.6 70.0 41.9
Deferred compensation plan... 4.1 4.5 2.1
Distributions:
Issued in conversion of
subordinated notes........ (9,205.7) - -
-------- ----- ----
Balance, end of year........... 3,819.4 159.3 84.8
======== ===== ====
</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 plans.
Under the deferred compensation plans, 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 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ---------------- ----------------
(THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year..... 378.7 283.5 213.9
Additions...................... 80.0 123.7 90.6
Distributions.................. (24.2) (28.5) (21.0)
----- ----- -----
Balance, end of year........... 434.5 378.7 283.5
===== ===== =====
</TABLE>
14. 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.
F-27
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
or receive to terminate the agreements at the reporting date, taking into
account current interest rates and the current creditworthiness of the swap
counterparties.
The estimated fair values of certain financial instruments of the Company
are as follows:
<TABLE>
<CAPTION>
JANUARY 30, 1999 JANUARY 31, 1998
--------------------------------- ------------------------------
NOTIONAL CARRYING FAIR NOTIONAL CARRYING FAIR
AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
----------- -------- ------ -------- -------- ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Long-term debt.................. $2,997 $2,996 $3,207 $3,854 $3,853 $4,179
Interest rate cap agreements.... 789 - - 827 - -
Interest rate swap agreements... - - - 376 - (2)
</TABLE>
The interest rate cap agreements in effect at January 30, 1999 and January
31, 1998 are used to hedge interest rate risk related to variable rate
indebtedness under the Company's Receivables Backed Financings. 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 in effect at January 31, 1998 were used,
in effect, to fix the interest on a portion of the debt outstanding under the
Note Monetization and 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-28
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15. EARNINGS PER SHARE
The reconciliation of basic earnings per share to diluted earnings per
share based on income before extraordinary items is as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 FEBRUARY 1, 1997
----------------------- ----------------------- -----------------------
SHARES INCOME SHARES INCOME SHARES INCOME
------ ------ ------ ------ ------ ------
(MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before extraordinary
items and average number of
shares outstanding........... 209.1 $685 209.2 $575 207.5 $266
Shares to be issued under
deferred compensation
plans........................ .4 .3 .2
Shares to be issued to IRS..... .1
----- ---- ----- ---- ----- ----
209.5 $685 209.5 $575 207.8 $266
Basic earnings per
share................... $3.27 $2.74 $1.28
===== ===== =====
Effect of dilutive securities:
Warrants..................... 7.4 5.4 2.8
Stock options................ 2.2 2.0 1.6
Convertible notes............ 6.8 7 10.2 10 10.2 11
----- ---- ----- ---- ----- ----
225.9 $692 227.1 $585 222.4 $277
Diluted earnings per
share................... $3.06 $2.58 $1.24
===== ===== =====
</TABLE>
In addition to the warrants and stock options reflected in the foregoing
table, warrants and stock options to purchase 4.7 million, 0.2 million and 3.7
million shares of common stock at prices ranging from $33.13 to $79.44 per share
were outstanding at January 30, 1999, January 31, 1998 and February 1, 1997,
respectively, but were not included in the computation of diluted earnings per
share because the exercise price thereof exceeded the average market price and
would have been antidilutive.
F-29
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16. QUARTERLY RESULTS (UNAUDITED)
Unaudited quarterly results for the 52 weeks ended January 30, 1999 and
January 31, 1998, 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 30, 1999:
Net sales............................................ $3,456 $3,523 $3,647 $5,207
Operating income..................................... 181 267 257 750
Income before extraordinary item..................... 60 107 110 408
Net income........................................... 60 107 87 408
Basic earnings per share:
Income before extraordinary item.................. .29 .51 .53 1.95
Net income........................................ .29 .51 .42 1.95
Diluted earnings per share:
Income before extraordinary item.................. .27 .47 .50 1.88
Net income........................................ .27 .47 .40 1.88
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
</TABLE>
17. SUBSEQUENT EVENT (UNAUDITED)
On March 18, 1999, the Company acquired Fingerhut Companies, Inc.
("Fingerhut") for a purchase price of $1,700 million, including $297 million of
Fingerhut indebtedness. Fingerhut is a database marketing company that sells a
broad range of products and services directly to consumers via catalogs, direct
marketing and the Internet, with 1998 annual sales in excess of $1,500 million.
The Company funded the Fingerhut acquisition through a combination of cash on
hand and short-term borrowings. On March 24, 1999, the Company issued $350
million of 6.3% Senior Notes due 2009 and $400 million of 6.9% Senior Debentures
due 2029 and used the proceeds thereof to repay a portion of such short-term
borrowings. The Fingerhut acquisition will be accounted for as a purchase.
F-30
<PAGE> 1
Exhibit 10.44
SEVERANCE AGREEMENT
-------------------
This SEVERANCE AGREEMENT, dated as of November 1, 1998 (this
"Agreement"), is made and entered by and between FEDERATED DEPARTMENT STORES,
INC., a Delaware corporation (the "Company"), and (the "Executive").
RECITALS
--------
A. The Executive is a senior executive or key employee of the Company
or one or more of its Subsidiaries and has made and is expected to continue to
make significant contributions to the profitability, growth, and financial
strength of the Company and its Subsidiaries, taken as a whole;
B. The Company recognizes that, as is the case for most publicly held
companies, the possibility of a Change in Control (as hereinafter defined)
exists;
C. The Company desires to assure itself of both present and future
continuity of management and desires to establish certain minimum severance
benefits for certain of its senior executive officers and other key employees,
including the Executive, applicable in the event of a Change in Control;
D. The Company desires to ensure that its senior executives and other
key employees are not practically disabled from discharging their duties in
respect of a proposed or actual transaction involving a Change in Control; and
E. The Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. CERTAIN DEFINED TERMS: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used herein with
initial capital letters:
(a) "CHANGE IN CONTROL" means the occurrence during the Term
of any of the following events:
(i) The Company is merged, consolidated, or
reorganized into or with another corporation or other legal entity, and as a
result of or immediately following such merger, consolidation, or reorganization
less than a majority of the combined voting power of the then-outstanding
securities of such other corporation or entity immediately after such
transaction are held in the aggregate by the holders of the then-outstanding
securities entitled to vote generally in the election of directors of the
Company ("Voting Stock") immediately prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other legal entity
and, as a result of or immediately following such sale or transfer, less than a
majority of the combined voting power of the then-outstanding securities of such
other corporation or entity immediately after such sale or transfer is held in
the
-1-
<PAGE> 2
aggregate by the holders of Voting Stock of the Company immediately prior to
such sale or transfer;
(iii) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form, or report or item therein),
each as promulgated pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), disclosing that any person (as the term "person" is used
in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing "25%" or more the of the combined voting power of the
Voting Stock of the Company(a "25% holder"), provided, however that no such
person will be deemed to constitute a 25% holder by reason of such person's
increase in percentage ownership of Voting Stock resulting from repurchases of
Voting Stock by the Company or any subsidiary unless thereafter such person
purchases or otherwise acquires more than 100,000 additional shares of Voting
Stock;
(iv) The Company files a report or proxy statement
with the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or any successor schedule,
form, or report or item therein) that a change in control of the Company has
occurred or will occur in the future pursuant to any then-existing contract or
transaction; or
(v) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the directors of
the Company cease for any reason to constitute at least a majority thereof;
PROVIDED, HOWEVER, that for purposes of this clause (v) the following persons
will in all events be deemed to be directors of the Company as of the beginning
of the relevant two-year period: each director who is first elected, or first
nominated for election by the Company's stockholders, by a vote of at least
two-thirds of the directors of the Company (or a committee thereof) then still
in office who were directors of the Company at the beginning of the relevant
two-year period (including any person deemed to be a director pursuant to the
immediately preceding clause (A)).
Notwithstanding the foregoing provisions of Section 1(a)(iii) or 1(a)(iv),
unless otherwise determined in a specific case by majority vote of the Board of
Directors of the Company (the "Board"), a "Change in Control" will not be deemed
to have occurred for purposes of Section 1(a)(iii) or 1(a)(iv) solely because
(1) the Company, (2) an entity in which the Company, directly or indirectly,
beneficially owns 50% or more of the voting securities (a "Subsidiary"), or (3)
any employee stock ownership plan or any other employee benefit plan of the
Company or any Subsidiary either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form
8-K, or Schedule 14A (or any successor schedule, form, or report or item
therein) under the Exchange Act disclosing beneficial ownership by it of shares
of Voting Stock, whether in excess of 25% or otherwise, or because the Company
reports that a change in control of the Company has occurred or will occur in
the future by reason of such beneficial ownership;
(b) "CAUSE" means that, prior to any termination pursuant to
Section 3(b), the Executive shall have committed:
-2-
<PAGE> 3
(i) an intentional act of fraud, embezzlement, or
theft in connection with the Executive's duties or in the course of the
Executive's employment with the Company (if applicable) or any Subsidiary;
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret
processes or confidential information of the Company or any Subsidiary; or
(iv) intentional engagement in any Competing
Business;
and any such act shall have been materially harmful to the Company and its
Subsidiaries, taken as a whole. For purposes of this Agreement, no act or
failure to act on the part of the Executive will be deemed "intentional" if it
was due primarily to an error in judgment or negligence, but will be deemed
"intentional" only if done or omitted to be done by the Executive not in good
faith and without reasonable belief that the Executive's act or omission was in
the best interest of the Company and its Subsidiaries, taken as a whole.
Notwithstanding the foregoing, the Executive will not be deemed to have been
terminated for "Cause" hereunder unless and until there has been delivered to
the Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the Board then in office at a meeting of the Board
called and held for such purpose, after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel (if the
Executive chooses to have counsel present at such meeting), to be heard before
the Board, finding that, in the good faith opinion of the Board, the Executive
had committed an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Executive or the Executive's beneficiaries to contest the validity or propriety
of any such determination;
(c) "COMPETING BUSINESS" means any investment by the Executive
of $100,000 or more in, or the rendering by the Executive of any personal
services to, any business enterprise engaged in the general merchandise
department store business which (i) at the time of determination is
substantially similar to the whole or a substantial part of the business
conducted by the Company or any of its divisions or Subsidiaries or other
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 outer limits of a city where the
Company, or any of its divisions of Subsidiaries or other 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 Subsidiaries and other affiliates, during its effect, whether
or not cause exists. For purposes of this Section 1(g), the Executive fiscal
year preceding that in which the Executive made such an investment therein, or
first rendered personal services thereto, in excess or $100,000,000;
(d) "EMPLOYEE BENEFITS" means the perquisites, benefits, and
service credit for benefits as provided under any and all employee retirement
income and welfare benefit policies,
-3-
<PAGE> 4
plans, programs, or arrangements in which the Executive is entitled to
participate, including without limitation any stock option, stock purchase,
stock appreciation, savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit, deferred compensation, incentive
compensation, group or other life, health, medical/hospital, or other insurance
(whether funded by actual insurance or self-insured by the Company), disability,
salary continuation, expense reimbursement, and other employee benefit policies,
plans, programs, or arrangements that may now exist or any equivalent successor
policies, plans, programs, or arrangements that may be adopted hereinafter by
the Company or any Subsidiary, providing perquisites, benefits, and service
credit for benefits at least as great in the aggregate as are payable thereunder
prior to a Change in Control;
(e) "SEVERANCE BENEFIT" means an amount equal to (i) the
product of (A) two and (B) the sum of (1) the Executive's annualized base salary
rate as of the date of the first event constituting a Change in Control or, if
higher, the Executive's highest base salary received for any year in the three
full calendar years immediately preceding the first event constituting a Change
in Control and (2) the Executive's targeted annual bonus as of the date of the
first event constituting a Change in Control or, if higher, the Executive's
highest annual bonus received for any year in the three full calendar years
immediately preceding the first event constituting a Change of Control, minus
(ii) the amount of all cash payments actually received or to be received by the
Executive following the Termination Date which became due by virtue of the
Executive's termination of employment and are therefore in the nature of
severance payments under any other employment, retention, severance, or similar
agreement with the Company or any Subsidiary to which the Executive is a party
or any severance pay plan of the Company or any Subsidiary in which the
Executive is a participant;
(f) "SEVERANCE PERIOD" means the period of time commencing on
the date of the first occurrence of a Change in Control and continuing until the
earliest of (i) the expiration of three years after the first occurrence of a
Change in Control, (ii) the Executive's death, and (iii) the Executive's
attainment of age 65;
(g) "TERM" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on the fourth
anniversary of the date hereof or (ii) the expiration of the Severance Period;
PROVIDED, HOWEVER, that if, prior to a Change in Control, the Executive ceases
for any reason to be an employee of the Company or any Subsidiary, thereupon,
without further action and except as provided for in Section 8, the Term will be
deemed to have expired and this Agreement will immediately terminate and be of
no further effect, whether or not cause exists. For purposes of this section
1(g), the Executive will not be deemed to have ceased to be an employee of the
Company or any Subsidiary by reason of the transfer of the Executive's
employment between the Company and any Subsidiary, or among any Subsidiaries.
Notwithstanding the foregoing or any other provision of the Agreement, for
purpose of determining the period of continuation coverage to which the
Executive or any of his dependents is entitled pursuant to Section 4980B of the
Code (as defined below) (or any successor provisions thereto) under the
Company's medical, dental, and other group health plans, or successor plans, the
Executive's "qualifying event", subject to the requirements of applicable plans,
will be the termination of the two-year employee benefits continuation period
and the Executive will be considered to have remained actively employed on a
full time basis through that date.
-4-
<PAGE> 5
(h) "TERMINATION DATE" means (i) the date on which the
Executive's employment is terminated by the Company or any Subsidiary or (ii)
the date on which the Executive terminates his or her employment pursuant to
Section 3(b).
2. OPERATION OF AGREEMENT: This Agreement will be effective and binding
immediately upon its execution, but, notwithstanding anything in this Agreement
to the contrary, will not be operative unless and until a Change in Control
occurs, whereupon without further action this Agreement will become immediately
operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL:
(a) In the event of the occurrence of a Change in Control, the
Executive's employment may be terminated by the Company during the Severance
Period without the Executive becoming entitled to the benefits provided by
Section 4 only upon the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) The Executive becoming permanently disabled
within the meaning of, and beginning actually to receive disability benefits
pursuant to, the long-term disability plan of the Company or any Subsidiary in
effect for, or applicable to, the Executive immediately prior to the Change in
Control; or
(iii) Cause.
If the Executive's employment is terminated by the Company or any Subsidiary
during the Severance Period, other than pursuant to Section 3(a)(i), 3(a)(ii),
or 3(a)(iii), the Executive will be entitled to the benefits provided by
Section 4.
(b) On or after the commencement of the Severance Period, if
one or more of the following events (regardless of whether any other reason,
other than Cause as hereinabove provided, for termination exists or has
occurred, including without limitation the Executive's acceptance and/or
commencement of other employment) occurs, the Executive may terminate the
Executive's employment with the Company and/or any Subsidiary and become
entitled to the benefits provided by Section 4:
(i) The failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a substantially
equivalent office or position, of or with the Company and/or any Subsidiary, as
the case may be, which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a director of the Company (or any
successor thereto) if the Executive had been a director of the Company
immediately prior to the Change in Control;
(ii) A significant adverse change in the nature or
scope of the authorities, powers, functions, responsibilities, or duties
attached to the position with the Company and/or any Subsidiary which the
Executive held immediately prior to the Change in Control, a reduction in the
aggregate amount of the Executive's combined base pay and incentive
-5-
<PAGE> 6
pay receivable from the Company and its Subsidiaries, taken as a whole, or the
termination or denial of the Executive's rights to Employee Benefits or a
reduction in the scope or value thereof, except for any such termination or
denial, or reduction in the scope or value, of any Employee Benefits applicable
generally to all recipients of or participants in such Employee Benefits;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties hereto provided it
has been made in good faith and in all events will be presumed to have been made
in good faith unless otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred following a Change in
Control, including without limitation a change in the scope of the business or
other activities for which the Executive was responsible immediately prior to
the Change in Control, which has rendered the Executive substantially unable to
carry out, has substantially hindered the Executive's performance of, or has
caused the Executive to suffer a substantial reduction in, any of the
authorities, powers, functions, responsibilities, or duties attached to the
position held by the Executive immediately prior to the Change in Control, which
situation is not remedied within 10 calendar days after written notice to the
Company from the Executive of such determination;
(iv) The liquidation, dissolution, merger,
consolidation, or reorganization of the Company or transfer of all or
substantially all of its business and/or assets, unless the successor or
successors (by liquidation, merger, consolidation, reorganization, transfer, or
otherwise) to which all or substantially all of the Company's business and/or
assets have been transferred (directly or by operation of law) shall have
assumed all duties and obligations of the Company under this Agreement pursuant
to Section 10(a);
(v) The Company requires the Executive to have the
Executive's principal location of work changed to any location which is in
excess of 25 miles from the location thereof immediately prior to the Change in
Control, or requires the Executive to travel away from the Executive's office in
the course of discharging the Executive's responsibilities or duties hereunder
at least 20% more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to any prior year)
than was required of the Executive in any of the three full calendar years
immediately prior to the Change in Control without, in either case, the
Executive's prior written consent; and/or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any successor
thereto.
(c) A termination by the Company pursuant to Section 3(a) or
by the Executive pursuant to Section 3(b) will not affect any rights which the
Executive may have pursuant to any other agreement, policy, plan, program, or
arrangement of the Company or any Subsidiary providing Employee Benefits (except
as provided in Section 4(a)), which rights will be governed by the terms
thereof.
(4) SEVERANCE COMPENSATION: (a) If, following the occurrence of a
Change in Control, the Company or any Subsidiary terminates the Executive's
employment during the Severance Period other than pursuant to Section 3(a), or
if the Executive terminates the Executive's employment pursuant to Section 3(b),
the Company will pay to the Executive the
-6-
<PAGE> 7
Severance Benefit in immediately available funds, in United States dollars,
within five business days after the Termination Date. In addition, for a period
of two years following the Termination Date, the Company will arrange to provide
the Executive Employee Benefits that are welfare benefits (but not stock option,
stock purchase, stock appreciation, or similar compensatory benefits)
substantially similar to those which the Executive was receiving or entitled to
receive immediately prior to the Termination Date (or, if greater, immediately
prior to the reduction, termination, or denial described in Section 3(b)(ii)),
except that the level of any such Employee Benefits to be provided to the
Executive may be reduced in the event of a corresponding reduction applicable to
generally all recipients of or participants in such Employee Benefits, and an
additional period of two years will be considered service with the Company and
its Subsidiaries for the purpose of determining service credits and benefits due
and payable to the Executive under the Company's retirement income, supplemental
executive retirement, and other benefit plans of the Company applicable to the
Executive, the Executive's dependents, or the Executive's beneficiaries
immediately prior to the Termination Date. If and to the extent that any benefit
described in the immediately preceding sentence is not or cannot be paid or
provided under any policy, plan, program, or arrangement of the Company or any
Subsidiary, as the case may be, then the Company will itself pay or provide for
the payment of such Employee Benefits to the Executive, and, if applicable, the
Executive's dependents and beneficiaries. Without otherwise limiting the
purposes or effect of Section 5, Employee Benefits otherwise receivable by the
Executive pursuant to this Section 4(a) will be reduced to the extent comparable
welfare benefits are actually received by the Executive from another employer
during the Severance Period following the Executive's Termination Date.
(b) There will be no right of set-off or counterclaim in
respect of any claim, debt, or obligation against any payment to or benefit for
the Executive provided for in this Agreement, except as expressly provided in
the last sentence of Section 4(a).
(c) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit required
to be made or provided hereunder on a timely basis, the Company will pay
interest on the amount or value thereof at an annualized rate of interest equal
to 1.25 times the so-called composite "prime rate" as quoted from time to time
during the relevant period in the Midwest Edition of THE WALL STREET JOURNAL.
Such interest will be payable as it accrues on demand. Any change in such prime
rate will be effective on and as of the date of such change.
(d) Notwithstanding anything to the contrary contained in this
Agreement or in the 1995 Incentive Bonus Plan, as amended, of the Company (the
"Bonus Plan"), if, following the occurrence of a Change in Control, the Company
terminates the Executive's employment during the Severance Period other than
pursuant to Section 3(a), or if the Executive terminates the Executive's
employment pursuant to Section 3(b), the Executive will be entitled to an
additional payment in the amount of the Executive's Long-Term Incentive Awards
(as defined in the Bonus Plan), in lieu of any other Long-Term Incentive Award
under the Bonus Plan, (a) calculated as if the Executive's Operating Unit (as
defined in the Bonus Plan) and the Executive (if applicable) had achieved 100%
of its or his Performance Goals (as defined in the Bonus Plan) and (b) prorated
on the basis of the ratio of the number of months of the Executive's
participation during the Performance Period (as defined in the Bonus Plan) to
which the Long-Term Incentive Award related to the aggregate number of months in
such Performance Period.
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(e) Notwithstanding anything to the contrary contained in this
Agreement, the parties' respective rights and obligations under this Section 4
and under Sections 7 and the last sentence of Section 8 will survive any
termination or expiration of this Agreement following a Change in Control or the
termination of the Executive's employment following a Change in Control for any
reason whatsoever.
(f) Notwithstanding anything to the contrary contained in this
Agreement, in the 1992 Executive Equity Incentive Plan of the Company or any
similar or successor plan (an "Equity Plan"), or in any agreement evidencing a
grant made pursuant to any Equity Plan, immediately upon the occurrence of a
Change in Control, (i) any rights theretofore granted to the Executive to
purchase stock in the Company upon the exercise of an option, and any
corresponding appreciation rights, will become exercisable in full and (ii) any
risks of forfeiture and prohibitions or restrictions on transfer pertaining to
any restricted shares theretofore granted to the Executive will lapse.
(5) NO MITIGATION OBLIGATION: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment following the Termination Date and (b) to measure the
amount of damages which the Executive may suffer as a result of termination of
employment hereunder. Accordingly, the payment of the severance compensation to
the Executive in accordance with the terms of this Agreement is hereby
acknowledged by the Company to be reasonable and will be liquidated damages, and
the Executive will not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
will any profits, income, earnings, or other benefits from any source whatsoever
create any mitigation, offset, reduction, or any other obligation on the part of
the Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a).
(6) LIMITATION ON PAYMENTS AND BENEFITS: Notwithstanding anything to
the contrary contained in this Agreement, if, after taking into account all
amounts or benefits otherwise to be paid or payable, any amount or benefit to be
paid or provided under this Agreement would be an "Excess Parachute Payment,"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), or any successor provision thereto, but for the
application of this sentence, then the payments and benefits to be so paid or
provided under this Agreement will be reduced to the minimum extent necessary
(but in no event to less than zero) so that no portion of any such payment or
benefit, as so reduced, constitutes an Excess Parachute Payment; provided,
however, that the foregoing reduction will be made only if and to the extent
that such reduction would result in an increase in the aggregate payments and
benefits to be provided, determined on an after-tax basis (taking into account
the excise tax imposed pursuant to Section 4999 of the Code, or any successor
provision thereto, any tax imposed by any comparable provision of state law, and
any applicable federal, state, and local income taxes). The determination of
whether any reduction in such payments or benefits to be provided under this
Agreement is required pursuant to the preceding sentence will be made at the
expense of the Company, if requested by the Executive or the Company, by the
Company's independent accountants. The fact that the Executive's right to
payments or benefits may be reduced by reason of the limitations contained in
this Section 6 will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
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<PAGE> 9
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 6, the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 6. The Company will provide the Executive all
information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
(7) LEGAL FEES AND EXPENSES; SECURITY: It is the intent of the Company
that the Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement, or defense of the Executive's
rights under this Agreement by litigation or otherwise because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if it should appear to the
Executive that the Company has failed to comply with any of its obligations
under this Agreement or in the event that the Company or any other person takes
or threatens to take any action to declare this Agreement void or unenforceable,
or institutes any litigation or other action or proceeding designed to deny, or
to recover from, the Executive the benefits provided or intended to be provided
to the Executive hereunder, the Company irrevocably authorizes the Executive
from time to time to retain counsel of the Executive's choice, at the expense of
the Company as hereinafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement, or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder,
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
will exist between the Executive and such counsel. Without regard to whether the
Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
(8) EMPLOYMENT RIGHTS; TERMINATION PRIOR TO CHANGE IN CONTROL: Nothing
expressed or implied in this Agreement will create any right or duty on the part
of the Company or the Executive to have the Executive remain in the employ of
the Company or any Subsidiary prior to or following any Change in Control. Any
termination of the employment of the Executive or the removal of the Executive
from any office or position in the Company or any Subsidiary following the
commencement of any discussion with a third person that results in a Change in
Control within 60 calendar days after such termination or removal will be deemed
to be a termination or removal of the Executive after a Change in Control for
purposes of this Agreement.
(9) WITHHOLDING OF TAXES: The Company may withhold from any amounts
payable under this Agreement all federal, state, city, or other taxes that the
Company is required to withhold pursuant to any law or government regulation or
ruling.
(10) SUCCESSORS AND BINDING AGREEMENT:
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(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization, or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any person acquiring
directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization, or otherwise
(and such successor will thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable, or
delegatable by the Company, except to a Subsidiary.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto will, without the consent of the other, assign, transfer, or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 10(a) and 10(b). Without limiting the generality
or effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable, or delegatable, whether by pledge,
creation of a security interest, or otherwise, other than by a transfer by the
Executive's will or by the laws of descent and distribution and, in the event of
any attempted assignment or transfer contrary to this Section 10(c), the Company
will have no liability to pay any amount so attempted to be assigned,
transferred, or delegated.
11. NOTICES: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests, or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five calendar days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or one business day after having been sent
for next-day delivery by a nationally recognized overnight courier service such
as Federal Express, UPS, or Purolator, addressed to the Company (to the
attention of the Secretary of the Company) at its principal executive office and
to the Executive at the Executive's principal residence as shown in the
Company's most current records, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address will be effective only upon receipt.
12. GOVERNING LAW: The validity, interpretation, construction, and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.
13. VALIDITY: If any provision of this Agreement or the application of
any provision hereof to any person or circumstance is held invalid,
unenforceable, or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstance will not be
affected, and the provision so held to be invalid, unenforceable, or
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otherwise illegal will be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid, or legal.
14. MISCELLANEOUS: No provision of this Agreement may be waived,
modified, or discharged unless such waiver, modification, or discharge is agreed
to in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
15. COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.
16. OTHER BENEFITS: Except as provided in Section 4(d), neither the
provisions of this Agreement nor the severance compensation, benefits, and other
payments provided for hereunder will reduce or increase any amounts otherwise
payable, or in any other way affect the Executive's rights as an employee of the
Company, whether existing now or hereafter, under any other agreement or any
benefit, incentive, retirement, stock option, stock bonus, stock purchase, or
other plan, program, or arrangement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
FEDERATED DEPARTMENT STORES, INC.
By: _____________________________
Name: _____________________________
Title: _____________________________
-------------------------------------
[Name of Executive]
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Exhibit 10.45
SECOND AMENDED AND RESTATED SEVERANCE AGREEMENT
-----------------------------------------------
This SECOND AMENDED AND RESTATED SEVERANCE AGREEMENT, dated as of
November 1, 1998 (this "Agreement"), is made and entered by and between
FEDERATED DEPARTMENT STORES, INC., a Delaware corporation (the "Company"), and
Dennis Broderick ( the "Executive").
RECITALS
--------
A. The Executive is a senior executive or key employee of the Company
or one or more of its Subsidiaries and has made and is expected to continue to
make significant contributions to the profitability, growth, and financial
strength of the Company and its Subsidiaries, taken as a whole;
B. The Company recognizes that, as is the case for most publicly held
companies, the possibility of a Change in Control (as hereinafter defined)
exists;
C. The Company desires to assure itself of both present and future
continuity of management and desires to establish certain minimum severance
benefits for certain of its senior executive officers and other key employees,
including the Executive, applicable in the event of a Change in Control;
D. The Company desires to ensure that its senior executives and other
key employees are not practically disabled from discharging their duties in
respect of a proposed or actual transaction involving a Change in Control; and
E. The Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. CERTAIN DEFINED TERMS: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used herein with
initial capital letters:
(a) "CHANGE IN CONTROL" means the occurrence during the Term of
any of the following events:
(i) The Company is merged, consolidated, or reorganized into
or with another corporation or other legal entity, and as a result of or
immediately following such merger, consolidation, or reorganization less than a
majority of the combined voting power of the then-outstanding securities of such
other corporation or entity immediately after such transaction are held in the
aggregate by the holders of the then-outstanding securities entitled to vote
generally in the election of directors of the Company ("Voting Stock")
immediately prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other legal entity
and, as a result of or immediately following
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such sale or transfer, less than a majority of the combined voting power of the
then-outstanding securities of such other corporation or entity immediately
after such sale or transfer is held in the aggregate by the holders of Voting
Stock of the Company immediately prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form, or report or item therein), each as
promulgated pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing "25%" or more the of the combined voting power of the
Voting Stock of the Company(a "25% holder"), provided, however that no such
person will be deemed to constitute a 25% holder by reason of such person's
increase in percentage ownership of Voting Stock resulting from repurchases of
Voting Stock by the Company or any subsidiary unless thereafter such person
purchases or otherwise acquires more than 100,000 additional shares of Voting
Stock;
(iv) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form, or report
or item therein) that a change in control of the Company has occurred or will
occur in the future pursuant to any then-existing contract or transaction; or
(v) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the directors of
the Company cease for any reason to constitute at least a majority thereof;
PROVIDED, HOWEVER, that for purposes of this clause (v) the following persons
will in all events be deemed to be directors of the Company as of the beginning
of the relevant two-year period: each director who is first elected, or first
nominated for election by the Company's stockholders, by a vote of at least
two-thirds of the directors of the Company (or a committee thereof) then still
in office who were directors of the Company at the beginning of the relevant
two-year period (including any person deemed to be a director pursuant to the
immediately preceding clause (A)).
Notwithstanding the foregoing provisions of Section 1(a)(iii) or 1(a)(iv),
unless otherwise determined in a specific case by majority vote of the Board of
Directors of the Company (the "Board"), a "Change in Control" will not be deemed
to have occurred for purposes of Section 1(a)(iii) or 1(a)(iv) solely because
(1) the Company, (2) an entity in which the Company, directly or indirectly,
beneficially owns 50% or more of the voting securities (a "Subsidiary"), or (3)
any employee stock ownership plan or any other employee benefit plan of the
Company or any Subsidiary either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form
8-K, or Schedule 14A (or any successor schedule, form, or report or item
therein) under the Exchange Act disclosing beneficial ownership by it of shares
of Voting Stock, whether in excess of 25% or otherwise, or because the Company
reports that a change in control of the Company has occurred or will occur in
the future by reason of such beneficial ownership;
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(b) "CAUSE" means that, prior to any termination pursuant to
Section 3(b), the Executive shall have committed:
(i) an intentional act of fraud, embezzlement, or theft in
connection with the Executive's duties or in the course of the Executive's
employment with the Company (if applicable) or any Subsidiary;
(ii) intentional wrongful damage to property of the Company or
any Subsidiary;
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) intentional engagement in any Competing Business;
and any such act shall have been materially harmful to the Company and its
Subsidiaries, taken as a whole. For purposes of this Agreement, no act or
failure to act on the part of the Executive will be deemed "intentional" if it
was due primarily to an error in judgment or negligence, but will be deemed
"intentional" only if done or omitted to be done by the Executive not in good
faith and without reasonable belief that the Executive's act or omission was in
the best interest of the Company and its Subsidiaries, taken as a whole.
Notwithstanding the foregoing, the Executive will not be deemed to have been
terminated for "Cause" hereunder unless and until there has been delivered to
the Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the Board then in office at a meeting of the Board
called and held for such purpose, after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel (if the
Executive chooses to have counsel present at such meeting), to be heard before
the Board, finding that, in the good faith opinion of the Board, the Executive
had committed an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Executive or the Executive's beneficiaries to contest the validity or propriety
of any such determination;
(c) "COMPETING BUSINESS" means any investment by the Executive
of $100,000 or more in, or the rendering by the Executive of any personal
services to, any business enterprise engaged in the general merchandise
department store business which (i) at the time of determination is
substantially similar to the whole or a substantial part of the business
conducted by the Company or any of its divisions or Subsidiaries or other
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 outer limits of a city where the
Company, or any of its divisions of Subsidiaries or other 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 Subsidiaries and other affiliates, during its effect, whether
or not cause exists. For purposes of this Section 1(g), the Executive fiscal
year preceding that in which the Executive made such an investment therein, or
first rendered personal services thereto, in excess or $100,000,000;
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(d) "EMPLOYEE BENEFITS" means the perquisites, benefits, and
service credit for benefits as provided under any and all employee retirement
income and welfare benefit policies, plans, programs, or arrangements in which
the Executive is entitled to participate, including without limitation any stock
option, stock purchase, stock appreciation, savings, pension, supplemental
executive retirement, or other retirement income or welfare benefit, deferred
compensation, incentive compensation, group or other life, health,
medical/hospital, or other insurance (whether funded by actual insurance or
self-insured by the Company), disability, salary continuation, expense
reimbursement, and other employee benefit policies, plans, programs, or
arrangements that may now exist or any equivalent successor policies, plans,
programs, or arrangements that may be adopted hereinafter by the Company or any
Subsidiary, providing perquisites, benefits, and service credit for benefits at
least as great in the aggregate as are payable thereunder prior to a Change in
Control;
(e) "SEVERANCE BENEFIT" means an amount equal to (i) the
product of (A) three and (B) the sum of (1) the Executive's annualized base
salary rate as of the date of the first event constituting a Change in Control
or, if higher, the Executive's highest base salary received for any year in the
three full calendar years immediately preceding the first event constituting a
Change in Control and (2) the Executive's targeted annual bonus as of the date
of the first event constituting a Change in Control or, if higher, the
Executive's highest annual bonus received for any year in the three full
calendar years immediately preceding the first event constituting a Change of
Control, minus (ii) the amount of all cash payments actually received or to be
received by the Executive following the Termination Date which became due by
virtue of the Executive's termination of employment and are therefore in the
nature of severance payments under any other employment, retention, severance,
or similar agreement with the Company or any Subsidiary to which the Executive
is a party or any severance pay plan of the Company or any Subsidiary in which
the Executive is a participant;
(f) "SEVERANCE PERIOD" means the period of time commencing on
the date of the first occurrence of a Change in Control and continuing until the
earliest of (i) the expiration of three years after the first occurrence of a
Change in Control, (ii) the Executive's death, and (iii) the Executive's
attainment of age 65;
(g) "TERM" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on the fourth
anniversary of the date hereof or (ii) the expiration of the Severance Period;
PROVIDED, HOWEVER, that if, prior to a Change in Control, the Executive ceases
for any reason to be an employee of the Company or any Subsidiary, thereupon,
without further action and except as provided for in Section 8, the Term will be
deemed to have expired and this Agreement will immediately terminate and be of
no further effect, whether or not cause exists. For purposes of this section
1(g), the Executive will not be deemed to have ceased to be an employee of the
Company or any Subsidiary by reason of the transfer of the Executive's
employment between the Company and any Subsidiary, or among any Subsidiaries.
Notwithstanding the foregoing or any other provision of the Agreement, for
purpose of determining the period of continuation coverage to which the
Executive or any of his dependents is entitled pursuant to Section 4980B of the
Code (as defined below) (or any successor provisions thereto) under the
Company's medical, dental, and other group health plans, or successor plans, the
Executive's "qualifying event", subject to the requirements of applicable plans,
will be the
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<PAGE> 5
termination of the two-year employee benefits continuation period and the
Executive will be considered to have remained actively employed on a full time
basis through that date.
(h) "TERMINATION DATE" means (i) the date on which the Executive's
employment is terminated by the Company or any Subsidiary or (ii) the date on
which the Executive terminates his or her employment pursuant to Section 3(b).
2. OPERATION OF AGREEMENT: This Agreement will be effective and binding
immediately upon its execution, but, notwithstanding anything in this Agreement
to the contrary, will not be operative unless and until a Change in Control
occurs, whereupon without further action this Agreement will become immediately
operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL:
(a) In the event of the occurrence of a Change in Control, the
Executive's employment may be terminated by the Company during the Severance
Period without the Executive becoming entitled to the benefits provided by
Section 4 only upon the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) The Executive becoming permanently disabled within the
meaning of, and beginning actually to receive disability benefits pursuant to,
the long-term disability plan of the Company or any Subsidiary in effect for, or
applicable to, the Executive immediately prior to the Change in Control; or
(iii) Cause.
If the Executive's employment is terminated by the Company or any Subsidiary
during the Severance Period, other than pursuant to Section 3(a)(i), 3(a)(ii),
or 3(a)(iii), the Executive will be entitled to the benefits provided by
Section 4.
(b) On or after the commencement of the Severance Period, if one or
more of the following events (regardless of whether any other reason, other than
Cause as hereinabove provided, for termination exists or has occurred, including
without limitation the Executive's acceptance and/or commencement of other
employment) occurs, the Executive may terminate the Executive's employment with
the Company and/or any Subsidiary and become entitled to the benefits provided
by Section 4:
(i) The failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent office or
position, of or with the Company and/or any Subsidiary, as the case may be,
which the Executive held immediately prior to a Change in Control, or the
removal of the Executive as a director of the Company (or any successor thereto)
if the Executive had been a director of the Company immediately prior to the
Change in Control;
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(ii) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities, or duties attached to the
position with the Company and/or any Subsidiary which the Executive held
immediately prior to the Change in Control, a reduction in the aggregate amount
of the Executive's combined base pay and incentive pay receivable from the
Company and its Subsidiaries, taken as a whole, or the termination or denial of
the Executive's rights to Employee Benefits or a reduction in the scope or value
thereof, except for any such termination or denial, or reduction in the scope or
value, of any Employee Benefits applicable generally to all recipients of or
participants in such Employee Benefits;
(iii) A determination by the Executive (which determination will
be conclusive and binding upon the parties hereto provided it has been made in
good faith and in all events will be presumed to have been made in good faith
unless otherwise shown by the Company by clear and convincing evidence) that a
change in circumstances has occurred following a Change in Control, including
without limitation a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the Change in Control,
which has rendered the Executive substantially unable to carry out, has
substantially hindered the Executive's performance of, or has caused the
Executive to suffer a substantial reduction in, any of the authorities, powers,
functions, responsibilities, or duties attached to the position held by the
Executive immediately prior to the Change in Control, which situation is not
remedied within 10 calendar days after written notice to the Company from the
Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation, or
reorganization of the Company or transfer of all or substantially all of its
business and/or assets, unless the successor or successors (by liquidation,
merger, consolidation, reorganization, transfer, or otherwise) to which all or
substantially all of the Company's business and/or assets have been transferred
(directly or by operation of law) shall have assumed all duties and obligations
of the Company under this Agreement pursuant to Section 10(a);
(v) The Company requires the Executive to have the Executive's
principal location of work changed to any location which is in excess of 25
miles from the location thereof immediately prior to the Change in Control, or
requires the Executive to travel away from the Executive's office in the course
of discharging the Executive's responsibilities or duties hereunder at least 20%
more (in terms of aggregate days in any calendar year or in any calendar quarter
when annualized for purposes of comparison to any prior year) than was required
of the Executive in any of the three full calendar years immediately prior to
the Change in Control without, in either case, the Executive's prior written
consent; and/or
(vi) Without limiting the generality or effect of the foregoing,
any material breach of this Agreement by the Company or any successor thereto.
(c) A termination by the Company pursuant to Section 3(a) or by the
Executive pursuant to Section 3(b) will not affect any rights which the
Executive may have pursuant to any other agreement, policy, plan, program, or
arrangement of the Company or any Subsidiary providing Employee Benefits (except
as provided in Section 4(a)), which rights will be governed by the terms
thereof.
-6-
<PAGE> 7
(4) SEVERANCE COMPENSATION: (a) If, following the occurrence of a Change in
Control, the Company or any Subsidiary terminates the Executive's employment
during the Severance Period other than pursuant to Section 3(a), or if the
Executive terminates the Executive's employment pursuant to Section 3(b), the
Company will pay to the Executive the Severance Benefit in immediately available
funds, in United States dollars, within five business days after the Termination
Date. In addition, for a period of three years following the Termination Date,
the Company will arrange to provide the Executive Employee Benefits that are
welfare benefits (but not stock option, stock purchase, stock appreciation, or
similar compensatory benefits) substantially similar to those which the
Executive was receiving or entitled to receive immediately prior to the
Termination Date (or, if greater, immediately prior to the reduction,
termination, or denial described in Section 3(b)(ii)), except that the level of
any such Employee Benefits to be provided to the Executive may be reduced in the
event of a corresponding reduction applicable to generally all recipients of or
participants in such Employee Benefits, and an additional period of three years
will be considered service with the Company and its Subsidiaries for the purpose
of determining service credits and benefits due and payable to the Executive
under the Company's retirement income, supplemental executive retirement, and
other benefit plans of the Company applicable to the Executive, the Executive's
dependents, or the Executive's beneficiaries immediately prior to the
Termination Date. If and to the extent that any benefit described in the
immediately preceding sentence is not or cannot be paid or provided under any
policy, plan, program, or arrangement of the Company or any Subsidiary, as the
case may be, then the Company will itself pay or provide for the payment of such
Employee Benefits to the Executive, and, if applicable, the Executive's
dependents and beneficiaries. Without otherwise limiting the purposes or effect
of Section 5, Employee Benefits otherwise receivable by the Executive pursuant
to this Section 4(a) will be reduced to the extent comparable welfare benefits
are actually received by the Executive from another employer during the
Severance Period following the Executive's Termination Date.
(b) There will be no right of set-off or counterclaim in respect of any
claim, debt, or obligation against any payment to or benefit for the Executive
provided for in this Agreement, except as expressly provided in the last
sentence of Section 4(a).
(c) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment or provide any benefit required to be
made or provided hereunder on a timely basis, the Company will pay interest on
the amount or value thereof at an annualized rate of interest equal to 1.25
times the so-called composite "prime rate" as quoted from time to time during
the relevant period in the Midwest Edition of THE WALL STREET JOURNAL. Such
interest will be payable as it accrues on demand. Any change in such prime rate
will be effective on and as of the date of such change.
(d) Notwithstanding anything to the contrary contained in this
Agreement or in the 1995 Incentive Bonus Plan, as amended, of the Company (the
"Bonus Plan"), if, following the occurrence of a Change in Control, the Company
terminates the Executive's employment during the Severance Period other than
pursuant to Section 3(a), or if the Executive terminates the Executive's
employment pursuant to Section 3(b), the Executive will be entitled to an
additional payment in the amount of the Executive's Long-Term Incentive Awards
(as defined in the Bonus Plan), in lieu of any other Long-Term Incentive Award
under the Bonus Plan, (a) calculated as if the Executive's Operating Unit (as
defined in the Bonus Plan) and the Executive
-7-
<PAGE> 8
(if applicable) had achieved 100% of its or his Performance Goals (as defined in
the Bonus Plan) and (b) prorated on the basis of the ratio of the number of
months of the Executive's participation during the Performance Period (as
defined in the Bonus Plan) to which the Long-Term Incentive Award related to the
aggregate number of months in such Performance Period.
(e) Notwithstanding anything to the contrary contained in this
Agreement, the parties' respective rights and obligations under this Section 4
and under Sections 7 and the last sentence of Section 8 will survive any
termination or expiration of this Agreement following a Change in Control or the
termination of the Executive's employment following a Change in Control for any
reason whatsoever.
(f) Notwithstanding anything to the contrary contained in this
Agreement, in the 1992 Executive Equity Incentive Plan of the Company or any
similar or successor plan (an "Equity Plan"), or in any agreement evidencing a
grant made pursuant to any Equity Plan, immediately upon the occurrence of a
Change in Control, (i) any rights theretofore granted to the Executive to
purchase stock in the Company upon the exercise of an option, and any
corresponding appreciation rights, will become exercisable in full and (ii) any
risks of forfeiture and prohibitions or restrictions on transfer pertaining to
any restricted shares theretofore granted to the Executive will lapse.
(5) NO MITIGATION OBLIGATION: The Company hereby acknowledges that it will
be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment following the Termination Date and (b) to measure the
amount of damages which the Executive may suffer as a result of termination of
employment hereunder. Accordingly, the payment of the severance compensation to
the Executive in accordance with the terms of this Agreement is hereby
acknowledged by the Company to be reasonable and will be liquidated damages, and
the Executive will not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
will any profits, income, earnings, or other benefits from any source whatsoever
create any mitigation, offset, reduction, or any other obligation on the part of
the Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a).
(6) LIMITATION ON PAYMENTS AND BENEFITS: Notwithstanding anything to the
contrary contained in this Agreement, if, after taking into account all amounts
or benefits otherwise to be paid or payable, any amount or benefit to be paid or
provided under this Agreement would be an "Excess Parachute Payment," within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor provision thereto, but for the application of this
sentence, then the payments and benefits to be so paid or provided under this
Agreement will be reduced to the minimum extent necessary (but in no event to
less than zero) so that no portion of any such payment or benefit, as so
reduced, constitutes an Excess Parachute Payment; provided, however, that the
foregoing reduction will be made only if and to the extent that such reduction
would result in an increase in the aggregate payments and benefits to be
provided, determined on an after-tax basis (taking into account the excise tax
imposed pursuant to Section 4999 of the Code, or any successor provision
thereto, any tax imposed by any comparable provision of state law, and any
applicable federal, state, and local income taxes). The determination of whether
any reduction in such payments or benefits to be provided under this Agreement
is required pursuant to the preceding sentence will be made at the expense of
the
-8-
<PAGE> 9
Company, if requested by the Executive or the Company, by the Company's
independent accountants. The fact that the Executive's right to payments or
benefits may be reduced by reason of the limitations contained in this Section 6
will not of itself limit or otherwise affect any other rights of the Executive
other than pursuant to this Agreement. In the event that any payment or benefit
intended to be provided under this Agreement or otherwise is required to be
reduced pursuant to this Section 6, the Executive will be entitled to designate
the payments and/or benefits to be so reduced in order to give effect to this
Section 6. The Company will provide the Executive all information reasonably
requested by the Executive to permit the Executive to make such designation. In
the event that the Executive fails to make such designation within 10 business
days of the Termination Date, the Company may effect such reduction in any
manner it deems appropriate.
(7) LEGAL FEES AND EXPENSES; SECURITY: It is the intent of the Company
that the Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement, or defense of the Executive's
rights under this Agreement by litigation or otherwise because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if it should appear to the
Executive that the Company has failed to comply with any of its obligations
under this Agreement or in the event that the Company or any other person takes
or threatens to take any action to declare this Agreement void or unenforceable,
or institutes any litigation or other action or proceeding designed to deny, or
to recover from, the Executive the benefits provided or intended to be provided
to the Executive hereunder, the Company irrevocably authorizes the Executive
from time to time to retain counsel of the Executive's choice, at the expense of
the Company as hereinafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement, or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder,
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
will exist between the Executive and such counsel. Without regard to whether the
Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
(8) EMPLOYMENT RIGHTS; TERMINATION PRIOR TO CHANGE IN CONTROL: Nothing
expressed or implied in this Agreement will create any right or duty on the part
of the Company or the Executive to have the Executive remain in the employ of
the Company or any Subsidiary prior to or following any Change in Control. Any
termination of the employment of the Executive or the removal of the Executive
from any office or position in the Company or any Subsidiary following the
commencement of any discussion with a third person that results in a Change in
Control within 60 calendar days after such termination or removal will be deemed
to be a termination or removal of the Executive after a Change in Control for
purposes of this Agreement.
-9-
<PAGE> 10
(9) WITHHOLDING OF TAXES: The Company may withhold from any amounts
payable under this Agreement all federal, state, city, or other taxes that the
Company is required to withhold pursuant to any law or government regulation or
ruling.
(10) SUCCESSORS AND BINDING AGREEMENT:
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization, or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any person acquiring
directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization, or otherwise
(and such successor will thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable, or
delegatable by the Company, except to a Subsidiary.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto will, without the consent of the other, assign, transfer, or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 10(a) and 10(b). Without limiting the generality
or effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable, or delegatable, whether by pledge,
creation of a security interest, or otherwise, other than by a transfer by the
Executive's will or by the laws of descent and distribution and, in the event of
any attempted assignment or transfer contrary to this Section 10(c), the Company
will have no liability to pay any amount so attempted to be assigned,
transferred, or delegated.
11. NOTICES: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests, or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five calendar days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or one business day after having been sent
for next-day delivery by a nationally recognized overnight courier service such
as Federal Express, UPS, or Purolator, addressed to the Company (to the
attention of the Secretary of the Company) at its principal executive office and
to the Executive at the Executive's principal residence as shown in the
Company's most current records, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address will be effective only upon receipt.
-10-
<PAGE> 11
12. GOVERNING LAW: The validity, interpretation, construction, and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.
13. VALIDITY: If any provision of this Agreement or the application of
any provision hereof to any person or circumstance is held invalid,
unenforceable, or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstance will not be
affected, and the provision so held to be invalid, unenforceable, or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid, or legal.
14. MISCELLANEOUS: No provision of this Agreement may be waived,
modified, or discharged unless such waiver, modification, or discharge is agreed
to in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
15. COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.
16. OTHER BENEFITS: Except as provided in Section 4(d), neither the
provisions of this Agreement nor the severance compensation, benefits, and other
payments provided for hereunder will reduce or increase any amounts otherwise
payable, or in any other way affect the Executive's rights as an employee of the
Company, whether existing now or hereafter, under any other agreement or any
benefit, incentive, retirement, stock option, stock bonus, stock purchase, or
other plan, program, or arrangement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
FEDERATED DEPARTMENT STORES, INC.
By: _____________________________
Name: _____________________________
Title: _____________________________
-------------------------------------
[Name of Executive]
-11-
<PAGE> 1
Exhibit 21
FEDERATED DEPARTMENT STORES, INC.
SUBSIDIARY LIST AS OF 1/30/99
22 East Advertising Agency, Inc.
22 East Realty Corporation
3240 Properties Corp.
Advertex Communications, 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 Atlantic City, Inc.
Bloomingdale's By Mail Ltd.
Bloomingdale's, Inc.
Broadway Receivables, Inc.
Broadway Stores, Inc.
Bullock's, 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 Department Stores Foundation
Federated Department Stores Insurance Company, Ltd.
Federated Noteholding Corporation
Federated Noteholding Corporation II
Federated Retail Holdings, Inc.
Federated Specialty Stores, Inc.
Federated Stores Realty, Inc.
Federated Systems Group, Inc.
Finite Limited
Garage Park Corp.
Hunt Valley Properties Corp.
I. Magnin Properties Corp.
1
<PAGE> 2
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.
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 Department Stores, Inc.
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.Com, Inc.
MOA Rest, 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.
R. H. Macy Overseas Finance N.V.
R. H. Macy Warehouse (HK), Ltd.
Rich's Department Stores, Inc.
Sabugo, Limited
Sacvent Garage
Sanstoff East Properties Corp.
Seven Hills Funding Corporation
Seven West Seventh, Inc.
Shop 34 Advertising, Inc.
Stern's Department Stores, Inc.
Stern's-Granite Run, Inc.
Strone Realty, Inc.
Suffhold Realty, Inc.
Sunsac Properties Corp.
The Bon, Inc.
U & F Realty Corp.
W. P. Properties Corp.
West-Man Realty, Inc.
Wise Chat Limited
2
<PAGE> 1
Exhibit 22
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.
333-44373) on Form S-8 and registration statement (No. 333-34321) on Form S-3 of
Federated Department Stores, Inc. of:
o our report dated March 2, 1999, relating to the consolidated balance
sheets of Federated Department Stores, Inc. and subsidiaries as of January 30,
1999 and January 31, 1998 and the related consolidated statements of income and
cash flows for the fifty-two week periods ended January 30, 1999, January 31,
1998 and February 1, 1997, which report appears in the January 30, 1999 annual
report on Form 10-K of Federated Department Stores, Inc.; and
o our report dated January 20, 1999 relating to the consolidated
statements of financial position of Fingerhut Companies, Inc. as of December 25,
1998 and December 26, 1997 and the related consolidated statements of earnings,
changes in stockholders' equity and cash flows for each of the fiscal years in
the three-year period ended December 25, 1998, which report appears in the March
18, 1999 Form 8-K of Federated Department Stores, Inc.
KPMG LLP
Cincinnati, Ohio
April 19, 1999
<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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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 21, 1999 /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-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 307
<SECURITIES> 0
<RECEIVABLES> 2,209
<ALLOWANCES> 0
<INVENTORY> 3,259
<CURRENT-ASSETS> 5,972<F1>
<PP&E> 6,572
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,464<F2>
<CURRENT-LIABILITIES> 3,068
<BONDS> 3,057
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,464<F3>
<SALES> 15,833
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 9,616
<OTHER-EXPENSES> 4,762
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<INCOME-PRETAX> 1,163<F4>
<INCOME-TAX> 478
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<EXTRAORDINARY> (23)
<CHANGES> 0
<NET-INCOME> 662
<EPS-PRIMARY> 3.16
<EPS-DILUTED> 2.96
<FN>
<F1>Supplies and prepaid expenses 117
Deferred income tax assets 80
<F2>Intangible assets - net 631
Other assets 289
<F3>Deferred income taxes 1,060
Other liabilities 570
Shareholders' Equity 5,709
<F4>Interest income 12
</FN>
</TABLE>
