SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal quarter ended
April 29, 2000.
FEDERATED DEPARTMENT STORES, INC.
151 West 34th Street
New York, New York 10001
(212) 494-1602
and
7 West Seventh St.
Cincinnati, Ohio 45202
(513) 579-7000
Delaware 1-13536 13-3324058
(State of (Commission File No.) (I.R.S. Employer
Incorporation) Identification Number)
The Registrant has filed all reports required to be filed by
Section 12, 13 or 15 (d) of the Act during the preceding 12
months and has been subject to such filing requirements for the
past 90 days.
207,936,386 shares of the Registrant's Common Stock, $.01 par
value, were outstanding as of May 27, 2000.
PART I -- FINANCIAL INFORMATION
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Income
(Unaudited)
(millions, except per share figures)
13 Weeks Ended 13 Weeks Ended
April 29, 2000 May 1, 1999
Net Sales $ 4,032 $ 3,600
Cost of sales 2,395 2,174
Selling, general and
administrative expenses 1,384 1,201
Operating Income 253 225
Interest expense (100) (78)
Interest income 1 3
Income Before Income Taxes 154 150
Federal, state and local income
tax expense (65) (63)
Net Income $ 89 $ 87
Basic earnings per share $ .42 $ .42
Diluted earnings per share $ .41 $ .40
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
FEDERATED DEPARTMENT STORES, INC.
Consolidated Balance Sheets
(Unaudited)
(millions)
April 29, January 29, May 1,
2000 2000 1999
ASSETS:
Current Assets:
Cash $ 249 $ 218 $ 239
Accounts receivable 4,031 4,313 2,165
Merchandise inventories 3,869 3,589 3,599
Supplies and prepaid expenses 217 230 200
Deferred income tax assets 176 172 142
Total Current Assets 8,542 8,522 6,345
Property and Equipment - net 6,741 6,828 6,624
Intangible Assets - net 1,720 1,735 1,889
Other Assets 652 607 572
Total Assets $ 17,655 $ 17,692 $ 15,430
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Short-term debt $ 1,352 $ 1,284 $ 1,225
Accounts payable and accrued
liabilities 3,006 3,043 2,699
Income taxes 83 225 75
Total Current Liabilities 4,441 4,552 3,999
Long-Term Debt 4,757 4,589 3,806
Deferred Income Taxes 1,448 1,444 1,236
Other Liabilities 548 555 576
Shareholders' Equity 6,461 6,552 5,813
Total Liabilities and
Shareholders' Equity $ 17,655 $ 17,692 $ 15,430
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(millions)
13 Weeks Ended 13 Weeks Ended
April 29, 2000 May 1, 1999
Cash flows from operating activities:
Net income $ 89 $ 87
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 161 158
Amortization of intangible assets 21 15
Amortization of financing costs 2 1
Amortization of unearned restricted stock 3 -
Changes in assets and liabilities:
Decrease in accounts receivable 284 158
Increase in merchandise inventories (277) (175)
Decrease in supplies and prepaid expenses 13 2
(Increase) decrease in other assets not
separately identified (13) 43
Decrease in accounts payable and accrued
liabilities not separately identified (78) (114)
Decrease in current income taxes (142) (23)
Increase in deferred income taxes 1 1
Decrease in other liabilities not
separately identified (6) (7)
Net cash provided by operating activities 58 146
Cash flows from investing activities:
Purchase of property and equipment (69) (52)
Capitalized software (15) (6)
Investments in companies (35) (9)
Acquisition of Fingerhut Companies, Inc.,
net of cash acquired - (1,539)
Disposition of property and equipment - 3
Net cash used by investing activities (119) (1,603)
Cash flows from financing activities:
Debt issued 237 1,326
Financing costs - (10)
Debt repaid (1) (1)
Increase in outstanding checks 36 69
Acquisition of treasury stock (218) -
Issuance of common stock 38 5
Net cash provided by financing activities 92 1,389
(Continued)
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(millions)
13 Weeks Ended 13 Weeks Ended
April 29, 2000 May 1, 1999
Net increase (decrease) in cash 31 (68)
Cash at beginning of period 218 307
Cash at end of period $ 249 $ 239
Supplemental cash flow information:
Interest paid $ 108 73
Interest received 1 3
Income taxes paid (net of refunds received) 210 84
Schedule of noncash investing and financing
activities:
Debt assumed in acquisition - 125
Equity issued in acquisition - 12
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
FEDERATED DEPARTMENT STORES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
A description of the Company's significant accounting policies
is included in the Company's Annual Report on Form 10-K for
the fiscal year ended January 29, 2000 (the "1999 10-K"). The
accompanying Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements and
notes thereto in the 1999 10-K.
Substantially all department store merchandise inventories are
valued by the retail method and stated on the LIFO (last-in,
first-out) basis, which is generally lower than market.
Direct-to-customer merchandise inventories are stated at the
lower of FIFO (first-in, first-out) cost or market.
Because of the seasonal nature of the retail business, the
results of operations for the 13 weeks ended April 29, 2000
and May 1, 1999 (which do not include the Christmas season)
are not indicative of such results for the fiscal year.
The Consolidated Financial Statements for the 13 weeks ended
April 29, 2000 and May 1, 1999, in the opinion of management,
include all adjustments (consisting only of normal recurring
adjustments) considered necessary to present fairly, in all
material respects, the consolidated financial position and
results of operations of the Company and its subsidiaries.
Certain reclassifications were made to prior period amounts to
conform with the classifications of such amounts for the most
recent period.
2. Acquisition
On March 18, 1999, the Company purchased Fingerhut for a
purchase price of approximately $1,720 million, including the
assumption of $125 million of debt. The Fingerhut acquisition
is being accounted for under the purchase method of
accounting. Accordingly, the Company's results of operations
do not include Fingerhut's results of operations for any
period prior to March 18, 1999 and the purchase price has been
allocated to Fingerhut's assets and liabilities based on the
estimated fair value of these assets and liabilities as of
March 18, 1999.
FEDERATED DEPARTMENT STORES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
3. Segment Data
The Company conducts its business through two segments,
department stores and direct-to-customer. The department
store segment sells a wide range of merchandise, including
men's, women's and children's apparel and accessories,
cosmetics, home furnishings and other consumer goods. The
direct-to-customer segment (Fingerhut, Bloomingdale's By Mail,
bloomingdales.com, Macy's By Mail, macys.com and certain
other direct marketing activities) sells a broad range of
products and services directly to consumers via catalogs,
direct marketing and the Internet. "Corporate and other"
consists of the income or expense associated with the
corporate office and certain items managed on a company-wide
basis (e.g., intangibles, financial instruments, investments,
retirement benefits and properties held for sale or
disposition).
The financial information for each segment is reported on the
basis used internally by the Company to evaluate performance
and allocate resources.
13 Weeks Ended
April 29, May 1,
2000 1999
(millions)
Net Sales
Department Stores $ 3,541 $ 3,437
Direct-to-Customer 491 163
Total $ 4,032 $ 3,600
Operating income
Department Stores $ 308 $ 273
Direct-to-Customer (23) (2)
Corporate and other (32) (46)
Total $ 253 $ 225
Depreciation and amortization expense
Department Stores $ 149 $ 153
Direct-to-Customer 12 3
Corporate and other 24 17
Total $ 185 $ 173
FEDERATED DEPARTMENT STORES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
4. Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
13 Weeks Ended
April 29, 2000 May 1, 1999
(millions, except per share data) Income Shares Income Shares
Net income and average number
of shares outstanding $ 89 212.3 $ 87 208.6
Shares to be issued under
deferred compensation plans - .5 - .4
$ 89 212.8 $ 87 209.0
Basic earnings per share $ .42 $ .42
Effect of dilutive securities:
Warrants - 1.9 - 5.7
Stock options - 1.6 - 1.7
$ 89 216.3 $ 87 216.4
Diluted earnings per share $ .41 $ .40
In addition to the warrants and stock options reflected in the
foregoing table, warrants and stock options to purchase 9.6
million and 6.6 million shares of common stock at prices
ranging from $38.06 to $79.44 per share were outstanding at
April 29, 2000 and May 1, 1999, respectively, but were not
included in the computation of diluted earnings per share
because the exercise price thereof exceeded the average market
price and would have been antidilutive.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
For purposes of the following discussion, all references to
"first quarter of 2000" and "first quarter of 1999" are to the
Company's 13-week fiscal periods ended April 29, 2000 and May
1, 1999, respectively.
Results of Operations
Comparison of the 13 Weeks Ended April 29, 2000 and May 1, 1999
Net sales for the first quarter of 2000 totaled $4,032
million, compared to net sales of $3,600 million for the first
quarter of 1999, an increase of 12.0%. Net sales for
department stores for the first quarter of 2000 were $3,541
million, compared to net sales of $3,437 million for the first
quarter of 1999, an increase of 3.0%. On a comparable store
basis (sales from stores in operation throughout the first
quarter of 1999 and the first quarter of 2000), net sales for
department stores for the first quarter of 2000 increased 2.9%
compared to the first quarter of 1999. Net sales for the
direct-to-customer segment totaled $491 million for the first
quarter of 2000 (which includes Fingerhut for the entire
period) compared to $163 million for the first quarter of 1999
(which includes Fingerhut from and after the March 18, 1999
acquisition date).
Cost of sales was 59.4% of net sales for the first quarter of
2000, compared to 60.4% for the first quarter of 1999. Cost
of sales as a percent of net sales for department stores
improved 0.4% in the first quarter of 2000 compared to the
same period a year ago, benefiting from lower markdowns. This
improvement in the cost of sales rate for department stores,
together with a relatively lower cost of sales rate for the
direct-to-customer segment, contributed to the overall 1.0%
improvement in the cost of sales rate for the first quarter of
2000. The valuation of department store merchandise
inventories on the last-in, first-out basis did not impact
cost of sales in either period.
Selling, general and administrative ("SG&A") expenses were
34.3% of net sales for the first quarter of 2000 compared to
33.4% for the first quarter of 1999. Department store SG&A
expenses improved 0.4% as a percent of department store net
sales, reflecting the impact of lower depreciation expense and
higher finance charge income. SG&A expenses for the direct-to-
customer segment include increased costs related to recently
launched businesses. A relatively higher SG&A expense rate
for the direct-to-customer segment, including recently
launched businesses, and increased amortization expense
resulting from the Fingerhut acquisition combined to offset
the improvement in the department store SG&A expense rate and
produce a 0.9% increase in the overall SG&A expense rate for
the first quarter of 2000.
Net interest expense was $99 million for the first quarter of
2000, compared to $75 million for the first quarter of 1999.
The higher interest expense for the first quarter of 2000 is
due primarily to the increased outstanding debt resulting from
the Fingerhut acquisition and the consolidation of the
Fingerhut Master Trust for financial reporting purposes.
The Company's effective income tax rate of 42.4% for the first
quarter of 2000 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.
FEDERATED DEPARTMENT STORES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
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 the first quarter
of 2000 was $58 million, compared to the $146 million provided
in the first quarter of 1999. The decrease in net cash
provided by operating activities reflects a greater decrease
in current income taxes and a greater increase in merchandise
inventories partially offset by a greater decrease in accounts
receivable and a lesser decrease in accounts payable and
accrued liabilities.
Net cash used by investing activities was $119 million for the
first quarter of 2000. Investing activities for the first
quarter of 2000 included purchases of property and equipment
totaling $69 million, capitalized software of $15 million and
investments in companies engaged in complementary businesses
totaling $35 million. The Company plans to open eight new
department stores and four new furniture galleries during the
remainder of 2000.
Net cash provided to the Company by all financing activities
was $92 million for the first quarter of 2000. During the
first quarter of 2000, the Company issued $237 million of
short-term debt to partially fund investing activities and the
acquisition of the Company's Common Stock under its stock
repurchase program. The Company purchased 5.7 million shares
of its Common Stock under the stock repurchase program during
the first quarter of 2000 at an approximate cost of $217
million. The Company may from time to time commence, continue
or suspend repurchases of shares under the stock repurchase
program, depending on prevailing market conditions, alternate
uses of capital and other factors. Also during the first
quarter of 2000, the Company issued 1.0 million shares of its
Common Stock and received $35 million in proceeds from the
exercise of the Company's Series B Warrants, which expired on
February 15, 2000.
On June 6, 2000, the Company issued $350 million of 8.5%
Senior Notes due 2010. The proceeds were used to repay
certain short-term borrowings and, accordingly, $347 million
of short-term borrowings are classified as long-term debt as
of April 29, 2000.
Management believes the department store business and other
retail businesses will continue to consolidate. Accordingly,
the Company intends from time to time to consider additional
acquisitions of, and investments in, department stores,
Internet-related companies, catalog companies and other
complementary assets and companies.
Management 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
existing indebtedness or for other corporate purposes.
PART II -- OTHER INFORMATION
FEDERATED DEPARTMENT STORES, INC.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Company's stockholders was
held on May 19, 2000. The Company's stockholders voted
on the following items at such meeting:
i. The stockholders approved the election of three
Directors for a three-year term expiring at the
2003 Annual Meeting of the Company's stockholders.
The votes for such elections were as follows:
Earl G. Graves Sr. - 173,927,840 votes in favor
and 37,620,969 votes withheld; Craig E. Weatherup -
173,966,269 votes in favor and 37,582,540 votes
withheld; and James M. Zimmerman -173,979,300 votes
in favor and 37,569,509 votes withheld. There were
no broker non-votes on this item.
ii. The stockholders ratified the employment of KPMG
LLP as the Company's independent accountants for
the fiscal year ending February 3, 2001. The votes
for the ratification were 178,294,179, the votes against
the ratification were 76,043, the votes abstained were
395,135, and there were no broker non-votes.
iii. The stockholders approved a proposal to amend the
1995 Executive Equity Incentive Plan to increase the
number of shares of common stock of the Company available
for issuance thereunder. The votes for the
proposal were 113,964,761, the votes against the
proposal were 64,279,491, the votes abstained were
521,105, and there were no broker non-votes.
iv. The stockholders approved a proposal to amend the
1992 Incentive Bonus Plan to increase the maximum
annual incentive award that may be paid to any
participant of the Plan. The votes for the
proposal were 164,516,692, the votes against the
proposal were 11,850,801, the votes abstained were
2,397,864, and there were no broker non-votes.
v. The stockholders approved a stockholder's proposal
seeking the adoption of a system for the annual election
of directors. The votes for the proposal were 121,569,001,
the votes against the proposal were 40,449,963, the
votes abstained were 997,697, and there were
15,779,126 broker non-votes.
Item 5. Other Information
This report and other reports, statements and
information previously or subsequently filed by the
Company with the Securities and Exchange Commission
(the "SEC") contain or may contain forward-looking
statements. Such statements are based upon the beliefs
and assumptions of, and on information available to,
the management of the Company at the time such
statements are made. The following are or may
constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act
of 1995: (i) statements preceded by, followed by or
that include the words "may," "will," "could,"
"should," "believe," "expect," "future," "potential,"
"anticipate," "intend," "plan," "estimate," or
"continue" or the negative or other variations thereof
and (ii) statements regarding matters that are not historical
facts. Such forward-looking statements are subject to
various risks and uncertainties, including (i) risks and
uncertainties relating to the possible invalidity of
the underlying beliefs and assumptions, (ii) possible
changes or developments in social, economic, business,
industry, market, legal and regulatory circumstances
and conditions, and (iii) actions taken or omitted
to be taken by third parties, including customers,
suppliers, business partners, competitors and legislative,
regulatory, judicial and other governmental authorities
and officials. In addition to any risks and
uncertainties specifically identified in the text
surrounding such forward-looking statements, the
statements in the immediately preceding sentence and
the statements under captions such as "Risk Factors"
and "Special Considerations" in reports, statements and
information filed by the Company with the SEC from time
to time constitute cautionary statements identifying
important factors that could cause actual amounts,
results, events and circumstances to differ materially
from those reflected in such forward-looking
statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement, dated as of April 1, 2000,
between Terry J. Lundgren and the Company.*
10.2 1992 Incentive Bonus Plan as amended and restated as
of May 19, 2000 (incorporated by reference to
Appendix B of the Company's Proxy Statement filed
April 19, 2000).*
10.3 1995 Executive Equity Incentive Plan as amended and
restated as of May 19, 2000 (incorporated by reference
to Appendix A of the Company's Proxy Statement
filed April 19, 2000).*
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
27.3 Restated Financial Data Schedule
_________________
* Constitutes a compensatory plan or arrangement.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter
ended April 29, 2000.
FEDERATED DEPARTMENT STORES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunder duly authorized.
FEDERATED DEPARTMENT STORES, INC.
Date June 13, 2000 /s/ Dennis J. Broderick
Dennis J. Broderick
Senior Vice President, General Counsel
and Secretary
/s/ Joel A. Belsky
Joel A. Belsky
Vice President and Controller
(Principal Accounting Officer)
