-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GOgQBnD8lY+mBU/3ovLDfzHIRtK8IEeLE355rqw9kTBM35HcxlZuKNO281Pzlqm1 4a4Qi1d9KZlgDH4NU5YXEw== 0000794367-98-000024.txt : 19981216 0000794367-98-000024.hdr.sgml : 19981216 ACCESSION NUMBER: 0000794367-98-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERATED DEPARTMENT STORES INC /DE/ CENTRAL INDEX KEY: 0000794367 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 133324058 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13536 FILM NUMBER: 98769510 BUSINESS ADDRESS: STREET 1: 7 W SEVENTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 2124941602 MAIL ADDRESS: STREET 1: 7 W SEVENTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 FORMER COMPANY: FORMER CONFORMED NAME: R H MACY & CO INC DATE OF NAME CHANGE: 19950307 10-Q 1 THIRD QUARTER 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal quarter ended October 31, 1998. FEDERATED DEPARTMENT STORES, INC. 151 West 34th Street New York, New York 10001 (212) 494-1602 and 7 West Seventh St. Cincinnati, Ohio 45202 (513) 579-7000 Delaware 1-13536 13-3324058 (State of (Commission File No.) (I.R.S. Employer Incorporation) Identification Number) The Registrant has filed all reports required to be filed by Section 12, 13 or 15 (d) of the Act during the preceding 12 months and has been subject to such filing requirements for the past 90 days. 209,691,872 shares of the Registrant's Common Stock, $.01 par value, were outstanding as of November 28, 1998. PART I -- FINANCIAL INFORMATION FEDERATED DEPARTMENT STORES, INC. Consolidated Statements of Income (Unaudited) (millions, except per share figures) 13 Weeks Ended 39 Weeks Ended October 31, November 1, October 31, November 1, 1998 1997 1998 1997 Net Sales $ 3,647 $ 3,746 $10,626 $10,608 Cost of sales 2,229 2,286 6,436 6,472 Selling, general and administrative expenses 1,161 1,192 3,485 3,508 Operating Income 257 268 705 628 Interest expense (74) (101) (233) (322) Interest income 2 9 10 27 Income Before Income Taxes and Extraordinary Items 185 176 482 333 Federal, state and local income tax expense (75) (71) (205) (137) Income Before Extraordinary Items 110 105 277 196 Extraordinary Items - loss on early extinguishment of debt, net of tax effect (23) - (23) (39) Net Income $ 87 $ 105 $ 254 $ 157 (Continued) PART I -- FINANCIAL INFORMATION FEDERATED DEPARTMENT STORES, INC. Consolidated Statements of Income (Unaudited) (millions, except per share figures) 13 Weeks Ended 39 Weeks Ended October 31, November 1, October 31, November 1, 1998 1997 1998 1997 Basic Earnings per Share: Income before extraordinary items $ .53 $ .50 $ 1.32 $ .93 Extraordinary items (.11) - (.11) (.18) Net income $ .42 $ .50 $ 1.21 $ .75 Diluted Earnings per Share: Income before extraordinary items $ .50 $ .47 $ 1.24 $ .90 Extraordinary items (.10) - (.10) (.17) Net income $ .40 $ .47 $ 1.14 $ .73 The accompanying notes are an integral part of these unaudited Consolidated Financial Statements. FEDERATED DEPARTMENT STORES, INC. Consolidated Balance Sheets (Unaudited) (millions) October 31, January 31, November 1, 1998 1998 1997 ASSETS: Current Assets: Cash $ 164 $ 142 $ 431 Accounts receivable 2,107 2,640 2,513 Merchandise inventories 4,322 3,239 4,288 Supplies and prepaid expenses 120 115 120 Deferred income tax assets 105 58 116 Total Current Assets 6,818 6,194 7,468 Property and Equipment - net 6,406 6,520 6,423 Intangible Assets - net 670 690 697 Other Assets 323 334 344 Total Assets $14,217 $13,738 $14,932 LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities: Short-term debt $ 699 $ 556 $ 1,899 Accounts payable and accrued liabilities 2,998 2,416 3,048 Income taxes 22 88 28 Total Current Liabilities 3,719 3,060 4,975 Long-Term Debt 3,549 3,919 3,683 Deferred Income Taxes 1,024 939 842 Other Liabilities 557 564 561 Shareholders' Equity 5,368 5,256 4,871 Total Liabilities and Shareholders' Equity $14,217 $13,738 $14,932 The accompanying notes are an integral part of these unaudited Consolidated Financial Statements. FEDERATED DEPARTMENT STORES, INC. Consolidated Statements of Cash Flows (Unaudited) (millions) 39 Weeks Ended 39 Weeks Ended October 31, 1998 November 1, 1997 Cash flows from operating activities: Net income $ 254 $ 157 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 448 418 Amortization of intangible assets 20 21 Amortization of financing costs 6 17 Amortization of unearned restricted stock 1 1 Loss on early extinguishment of debt 23 39 Changes in assets and liabilities: Decrease in accounts receivable 335 322 Increase in merchandise inventories (1,083) (1,041) Increase in supplies and prepaid expenses (5) (10) Increase in other assets not separately identified (13) (9) Increase in accounts payable and accrued liabilities not separately identified 443 468 Increase (decrease) in current income taxes (51) 44 Increase (decrease) in deferred income taxes 38 (16) Decrease in other liabilities not separately identified (7) (3) Net cash provided by operating activities 409 408 Cash flows from investing activities: Purchase of property and equipment (377) (411) Disposition of property and equipment 28 120 Decrease in notes receivable 200 200 Net cash used by investing activities (149) (91) Cash flows from financing activities: Debt issued 650 1,284 Financing costs - (6) Debt repaid (563) (1,445) Increase in outstanding checks 162 88 Acquisition of treasury stock (531) (2) Issuance of common stock 44 46 Net cash used by financing activities (238) (35) (Continued) FEDERATED DEPARTMENT STORES, INC. Consolidated Statements of Cash Flows (Unaudited) (millions) 39 Weeks Ended 39 Weeks Ended October 31, 1998 November 1, 1997 Net increase in cash $ 22 $ 282 Cash at beginning of period 142 149 Cash at end of period $ 164 $ 431 Supplemental cash flow information: Interest paid $ 235 $ 310 Interest received 13 29 Income taxes paid (net of refunds received) 206 97 Schedule of noncash investing and financing activities: Conversion of long-term debt to common stock 344 - The accompanying notes are an integral part of these unaudited Consolidated Financial Statements. FEDERATED DEPARTMENT STORES, INC. Notes to Consolidated Financial Statements (Unaudited) 1. Summary of Significant Accounting Policies A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998 (the "1997 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 1997 10-K. Because of the seasonal nature of the general merchandising business, the results of operations for the 13 and 39 weeks ended October 31, 1998 and November 1, 1997 (which do not include the Christmas season) are not indicative of such results for the fiscal year. The Consolidated Financial Statements for the 13 and 39 weeks ended October 31, 1998 and November 1, 1997, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company and its subsidiaries. During the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which establishes standards for the reporting and display of comprehensive income and its components. For all periods presented, comprehensive income is equivalent to net income. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity" was issued in June 1998 and is effective for all quarters of all fiscal years beginning after June 15, 1999. This statement establishes accounting and reporting standards for derivative instruments and hedging activities and requires recognition of all derivatives as either assets or liabilities on the balance sheet using fair value measurement. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting hedging designation, if any. The Company is currently reviewing the impact of this statement; however, based on the Company's limited use of derivatives, management does not anticipate that its adoption will have a material impact on the Company's consolidated financial position, results of operations or cash flows. 2. Extraordinary Items The extraordinary item for the 13 and 39 weeks ended October 31, 1998 represents costs of $23 million, net of income tax benefit of $15 million, associated with the completion of a tender offer pursuant to which the Company purchased and retired approximately $340 million aggregate principal amount of its 10% Senior Notes due 2001. The extraordinary item for the 39 weeks ended November 1, 1997 represents costs of $39 million, net of income tax benefit of $25 million, associated with the prepayment of all amounts outstanding under the Company's mortgage loan facility, secured promissory note, certain other mortgages and previous bank credit facility, all of which were retired and terminated. FEDERATED DEPARTMENT STORES, INC. Notes to Consolidated Financial Statements (Unaudited) 3. Earnings Per Share The following tables set forth the computation of basic and diluted earnings per share based on income before extraordinary items: (millions, except per share data) Shares Income Shares Income Income before extraordinary item and average number of shares outstanding 206.8 $ 110 209.6 $ 105 Shares to be issued under deferred compensation plan .4 - .3 - 207.2 $ 110 209.9 $ 105 Basic earnings per share $ .53 $ .50 Effect of dilutive securities: Warrants 6.7 6.6 Stock options 1.9 2.4 Convertible notes 6.6 1 10.2 3 222.4 $ 111 229.1 $108 Diluted earnings per share $ .50 $ .47
13 Weeks Ended October 31, 1998 November 1, 1997 (millions, except per share data) Shares Income Shares Income Income before extraordinary items and average number of shares outstanding 209.2 $ 277 209.0 $ 196 Shares to be issued under deferred compensation plan .3 - .3 - 209.5 $ 277 209.3 $ 196 Basic earnings per share $1.32 $ .93 Effect of dilutive securities: Warrants 7.9 4.9 Stock options 2.4 1.9 Convertible notes 9.0 7 10.2 7 228.8 $ 284 226.3 $ 203 Diluted earnings per share $1.24 $ .90
FEDERATED DEPARTMENT STORES, INC. Notes to Consolidated Financial Statements (Unaudited) In addition to the warrants and stock options reflected in the foregoing tables, warrants and stock options to purchase 4.5 million and .2 million shares of common stock at prices ranging from $44.91 to $79.44 per share were outstanding at October 31, 1998 and November 1, 1997, respectively, but were not included in the computation of diluted earnings per share because the exercise price thereof exceeded the average market price and would have been antidilutive. FEDERATED DEPARTMENT STORES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations For purposes of the following discussion, all references to "third quarter of 1998" and "third quarter of 1997" are to the Company's 13- week fiscal periods ended October 31, 1998 and November 1, 1997, respectively, and all references to "1998" and "1997" are to the Company's 39-week fiscal periods ended October 31, 1998 and November 1, 1997, respectively. Results of Operations Comparison of the 13 Weeks Ended October 31, 1998 and November 1, 1997 Net sales for the third quarter of 1998 totaled $3,647 million, compared to net sales of $3,746 million for the third quarter of 1997, a decrease of 2.7%. On a comparable store basis (i.e., current stores opened on or prior to February 1, 1997), net sales for the third quarter of 1998 decreased 1.3% from the third quarter of 1997. Since February 1, 1997, the Company has opened eight new department stores and two new furniture galleries, changed nameplates on two stores, closed twenty stores, sold the specialty store division and eliminated certain consumer electronics lines of business. Cost of sales was 61.1% of net sales for the third quarter of 1998 compared to 61.0% for the third quarter of 1997. The increase reflects additional price reductions taken on slow selling inventory. Cost of sales was not impacted by the valuation of merchandise inventory on the last-in, first-out basis in the third quarter of 1998 or the third quarter of 1997. Selling, general and administrative ("SG&A") expenses were 31.8% of net sales for the third quarter of 1998 and for the third quarter of 1997. Net interest expense was $72 million for the third quarter of 1998, compared to $92 million for the third quarter of 1997. The lower interest expense for the third quarter of 1998 is principally due to lower levels of borrowings and lower interest rates resulting from refinancings completed in 1998. The Company's effective income tax rate of 40.5% for the third quarter of 1998 differs from the federal income tax statutory rate of 35.0% principally because of the effect of state and local income taxes and permanent differences arising from the amortization of intangible assets and from other non-deductible items. The extraordinary item of $23 million in the third quarter of 1998 represents the after-tax expenses associated with the completion of a tender offer pursuant to which the Company purchased and retired approximately $340 million aggregate principal amount of its 10% Senior Notes due 2001. Comparison of the 39 Weeks Ended October 31, 1998 and November 1, 1997 Net sales for 1998 were $10,626 million compared to $10,608 million for 1997, an increase of 0.2%. On a comparable store basis, net sales for 1998 increased 1.3% over 1997. FEDERATED DEPARTMENT STORES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Cost of sales was 60.6% of net sales for 1998 compared to 61.0% for 1997. The 0.4% improvement in the cost of sales rate reflects positive customer response to the merchandise assortments in the stores during the second quarter of 1998, attributed partially to an improved merchandise receipt flow. Cost of sales was not impacted by the valuation of merchandise inventory on the last-in, first-out basis in 1998 or 1997. SG&A expenses were 32.8% of net sales for 1998 compared to 33.1% for 1997. The 0.3% reduction in the SG&A expense rate reflects improvements in operations related to the Company's credit card accounts. Net interest expense was $223 million for 1998 compared to $295 million for 1997. The lower interest expense for 1998 is principally due to lower levels of borrowings and lower interest rates resulting from refinancings completed in 1998 and in July 1997. The Company's effective income tax rate of 42.5% for 1998 differs from the federal income tax statutory rate of 35.0% principally because of the effect of state and local income taxes and permanent differences arising from the amortization of intangible assets and from other non-deductible items. Liquidity and Capital Resources The Company's principal sources of liquidity are cash from operations, cash on hand and certain available credit facilities. Net cash provided by operating activities in 1998 was $409 million, compared to the $408 million provided in 1997. Net cash used by investing activities was $149 million in 1998, with the final $200 million installment of a note receivable held by the Company being received on May 4, 1998, purchases of property and equipment totaling $377 million and dispositions of property and equipment totaling $28 million. The Company opened two new stores during the third quarter of 1998 and also opened two additional stores in November, 1998. On August 1, 1998, the Company completed the sale of its specialty store division to a group including the division's management. The sale did not have a material impact on the Company's financial position or results of operations. Net cash used by the Company for financing activities was $238 million in 1998. On February 6, 1998, the Company issued $300 million of 7.0% Senior Debentures due 2028. On August 26, 1998, the Company issued $350 million of 6 1/8% Term Enhanced ReMarketable Securities due in 2011, puttable to the Company in 2001. Also during 1998, the Company renewed a portion of the bank credit agreement which provides a $500 million unsecured revolving credit facility with a termination date of July 26, 1999. During 1998, the Company repaid $340 million of its 10% Senior Notes due 2001 and the remaining $176 million of borrowings under a note monetization facility. FEDERATED DEPARTMENT STORES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) During October 1998, the Board of Directors authorized an expansion and extension of the Company's $500 million stock repurchase program established in May 1998. The program now authorizes the Company to purchase up to $1 billion of its common stock through January 29, 2000. Through October 31, 1998, 11.3 million shares of common stock at an aggregate cost of $531 million had been acquired under the repurchase program. The Company intends to continue to repurchase shares under the repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors. Any such purchases may be discontinued or resumed at any time. In September 1998, the $350 million aggregate principal amount of the Company's 5.0% Convertible Subordinated Notes due 2003 was converted into 10.2 million shares of common stock. Management believes the department store business will continue to consolidate. Accordingly, the Company intends from time to time to consider additional acquisitions of department store and other complementary assets and companies. Management of the Company believes that, with respect to its current operations, cash on hand and funds from operations, together with its credit facilities, will be sufficient to cover its reasonably foreseeable working capital, capital expenditure and debt service requirements. Acquisition transactions, if any, are expected to be financed through a combination of cash on hand and from operations and the possible issuance from time to time of long-term debt or other securities. Depending upon conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital markets transactions, the proceeds of which could be used to refinance current indebtedness or for other corporate purposes. Year 2000 Matters The Year 2000 Issue Many existing computer programs utilized globally use only two digits to identify a year in the date field. These programs, if not corrected, could fail or create erroneous results after the century date changes on January 1, 2000 or when otherwise dealing with dates later than December 31, 1999. This "Year 2000" issue is believed to affect virtually all companies and organizations, including the Company. The Company relies on computer-based technology and utilizes a variety of third-party hardware and proprietary and third-party software. The Company's retail functions, such as merchandise procurement and distribution, inventory control, point-of-sale information systems and proprietary credit card account servicing, generally use proprietary software, with third-party software being used more extensively for administrative functions, such as accounting and human resource management. In addition to such information technology ("IT") systems, the Company's operations rely on various non-IT equipment and systems that contain embedded computer technology, such as elevators, escalators and energy management systems. Third parties with whom the Company has commercial relationships, including vendors of merchandise for resale by the Company and of products and services used by the Company in its operations (such as banking and financial services, data processing services, telecommunications services and utilities), are also highly reliant on computer-based technology. FEDERATED DEPARTMENT STORES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) In February 1996, the Company commenced an assessment of the potential effects of the Year 2000 issue on the Company's business, financial condition and results of operations. In conjunction with such assessment, the Company developed and commenced the implementation of the compliance program described below. The Company's Compliance Program Proprietary IT Systems. Pursuant to the Company's Year 2000 compliance program, the Company has undertaken an examination of the Company's proprietary IT systems. All such systems that have been identified as relating to a critical function and as not being Year 2000 compliant have been or are being remediated or replaced. The Company believes that the remediation of its proprietary IT systems is substantially complete, and nearly all of the proprietary IT systems that have been remediated have been installed and placed into production. The Company commenced testing of such remediated systems for Year 2000 compliance in August 1998 and presently anticipates completing a comprehensive, integrated test of all of its main-frame and mid-range IT systems (including third-party and proprietary hardware, software, network components and interfaces) by January 31, 1999. Third-Party IT Systems. The strategy instituted by the Company to identify and address Year 2000 issues affecting third-party IT systems used by the Company includes contacting all third-party providers of computer hardware and software to secure appropriate representations to the effect that such hardware or software is or will timely be Year 2000 compliant. The Company has received Year 2000 compliant versions of almost all third-party software and is currently engaged in testing those third-party software programs that have been identified as being critical to the Company's operations. The Company is also developing contingency plans as to third-party hardware and software used by the Company in respect of which the Company has not received adequate compliance assurances to date. Non-IT Systems. The Company has undertaken a review of its non-IT systems and is in the process of implementing a remediation program in respect of such systems that are within the control of the Company. The Company expects to complete this remediation effort by April 30, 1999. In addition, the Company's centralized real estate department has communicated to the developers, landlords and property managers of substantially all of the Company's properties the Company's expectation that the systems utilized in the management and operation of such properties which are not within the Company's control are or will timely be Year 2000 compliant. As a further step, the Company plans to engage in written or oral communications with its key developers, landlords and property managers in order to assess the Year 2000 readiness of their respective operations. FEDERATED DEPARTMENT STORES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Non-IT Vendors and Suppliers. The Company procures its merchandise for resale and supplies for operational purposes from a vast network of vendors located both within and outside the United States, and is not dependent on any one vendor for more than 5% of its merchandise purchases. The Company procures its private label merchandise, which constitutes approximately 15% of the Company's total sales, principally from manufacturers located outside the United States. All of the Company's vendors have been notified in writing of the Company's expectation that the systems and operations of such vendors will be Year 2000 compliant before January 31, 1999. As a part of its contingency planning effort, the Company has commenced making inquiries as to the Year 2000 readiness of selected key vendors and private label manufacturers in order to identify any significant exposures that may exist and establish alternate sources or strategies where necessary. As of October 31, 1998, approximately 75% of the selected key vendors contacted have provided to the Company written or verbal assurances that they are in the process of implementing compliance programs that are intended to address the Year 2000 issues affecting their respective operations. Contingency Planning. The Company's Year 2000 compliance program is directed primarily towards ensuring that the Company will be able to continue to perform three critical functions: (i) effect sales, (ii) order and receive merchandise, and (iii) pay its employees and vendors. The Company is currently gathering data in an effort to assess the potential effects on these mission critical functions of a failure of the Company's Year 2000 compliance program to be fully effective and, to the extent deemed appropriate, to develop a contingency plan to address such effects. The Company expects to complete its contingency plan by July 31, 1999. Costs The Company has incurred to date approximately $21 million of costs to implement its Year 2000 compliance program and presently expects to incur approximately $50 million of costs in the aggregate, of which approximately 25% represents capitalized expenditures for hardware purchases. All of the Company's Year 2000 compliance costs have been or are expected to be funded from the Company's operating cash flow. The Company's Year 2000 compliance budget does not include material amounts for hardware replacement because the Company has historically employed a strategy to continually upgrade its main-frame and mid-range computer systems and to install state of the art point-of-sale systems with respect to both pre-existing operations and in conjunction with the acquisitions and mergers effected by the Company in recent years. Consequently, the Company's Year 2000 budget has not required the diversion of funds from or the postponement of the implementation of other planned IT projects. Risks Associated With Year 2000 Issues The novelty and complexity of the issues presented by the Year 2000 and the proposed solutions therefor and the Company's dependence on the technical skills of employees and independent contractors and on the representations and preparedness of third parties are among the factors that could cause the Company's Year 2000 compliance efforts to be less than fully effective. Moreover, Year 2000 issues present a number of risks that are beyond the Company's reasonable control, such as the failure of utility companies to deliver electricity, the failure of telecommunications companies to provide voice and data services, the failure of FEDERATED DEPARTMENT STORES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) financial institutions to process transactions and transfer funds, the failure of vendors to deliver merchandise or perform services required by the Company and the collateral effects on the Company of the effects of Year 2000 issues on the economy in general or on the Company's business partners and customers in particular. Although the Company believes that its Year 2000 compliance program is designed to appropriately identify and address those Year 2000 issues that are subject to the Company's reasonable control, there can be no assurance that the Company's efforts in this regard will be fully effective or that Year 2000 issues will not have a material adverse effect on the Company's business, financial condition or results of operations. PART II -- OTHER INFORMATION FEDERATED DEPARTMENT STORES, INC. Item 5. Other Information This report and other reports, statements and information previously or subsequently filed by the Company with the Securities and Exchange Commission (the "SEC") contain or may contain forward-looking statements. Such statements are based upon the beliefs and assumptions of, and on information available to, the management of the Company at the time such statements are made. The following are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (i) statements preceded by, followed by or that include the words "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "estimate," or "continue" or the negative or other variations thereof and (ii) statements regarding matters that are not historical facts. Such forward-looking statements are subject to various risks and uncertainties, including (i) risks and uncertainties relating to the possible invalidity of the underlying beliefs and assumptions, (ii) possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions, and (iii) actions taken or omitted to be taken by third parties, including customers, suppliers, business partners, competitors and legislative, regulatory, judicial and other governmental authorities and officials. In addition to any risks and uncertainties specifically identified in the text surrounding such forward-looking statements, the statements in the immediately preceding sentence and the statements under captions such as "Risk Factors" and "Special Considerations" in reports, statements and information filed by the Company with the SEC from time to time constitute cautionary statements identifying important factors that could cause actual amounts, results, events and circumstances to differ materially from those reflected in such forward- looking statements. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Tenth Amendment to Amended and Restated Pooling and Servicing Agreement, dated as of August 3,1998, by and among Prime Receivables Corporation, as Transferor, FDS National Bank, as Servicer, and The Chase Manhattan Bank, as Trustee. 10.2 Second Supplemental Trust Indenture, dated as of August 26,1998, between Federated Department Stores, Inc. and Citibank, N.A., as Trustee (incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K dated as of August 25, 1998). 27 Financial Data Schedule (b) Reports on Form 8-K Current Report on Form 8-K, dated August 25, 1998, reporting matters under Items 5 and 7 thereof. Current Report on Form 8-K, dated September 2, 1998, reporting matters under Items 5 and 7 thereof. FEDERATED DEPARTMENT STORES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. FEDERATED DEPARTMENT STORES, INC. Date December 15, 1998 /s/ Dennis J. Broderick Dennis J. Broderick Senior Vice President, General Counsel and Secretary /s/ Joel A. Belsky Joel A. Belsky Vice President and Controller (Principal Accounting Officer) EX-10.1 2 TENTH AMENDMENT TO AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT This Tenth Amendment to Amended and Restated Pooling and Servicing Agreement, made as of August 3, 1998 (this "Amendment"), is among Prime Receivables Corporation (the "Transferor"), FDS National Bank (successor servicer to Federated Departments Stores, Inc.), as servicer (in such capacity, the "Servicer"), and The Chase Manhattan Bank (successor to Chemical Bank), as trustee (in such capacity, the "Trustee"). Capitalized terms used in this Amendment and not otherwise defined have the meanings assigned to such terms in the Pooling and Servicing Agreement (as defined below). PRELIMINARY STATEMENTS: 1. The Purchaser, the Servicer and the Trustee are parties to the Amended and Restated Pooling and Servicing Agreement dated as of December 15, 1992 (as amended, restated, supplemented or otherwise modified from time to time, the "Pooling and Servicing Agreement"). 2. The Transferor, the Servicer and the Trustee desire to amend the Pooling and Servicing Agreement more accurately to reflect the calculation of finance changes thereunder. 3. Section 13.01 of the Pooling and Servicing Agreement permits the amendment of the Pooling and Servicing Agreement subject to certain conditions. AGREEMENT: The Transferor, the Servicer and the Trustee agree to the following terms and conditions: 1. Amendment. On the date of this Amendment, Section 1.01 of the Pooling and Servicing Agreement is amended as follows: (a) The definition of "Default Amount" set forth in such Section 1.01 is amended and restated in its entirety as follows: "Default Amount" shall mean, on any Business Day, (x) the aggregate Outstanding Balance of Receivables in Accounts that became Defaulted Accounts on such Business Day that do not constitute finance charges, late fees, or any other fee or charge minus (y) the portion of the Ineligible Default Amount that does not constitute finance charges, late fees, or any other fee or charge. 2. Conditions Precedent. (A) Attached to this Amendment as Exhibit A is an Officer's Certificate of the Servicer stating that the amendment to the Pooling and Servicing Agreement effected by this Amendment does not adversely effect in any material respect the interests of any of the Certificateholders. Such Officer's Certificate is required to be delivered under Section 13.01 of the Pooling and Servicing Agreement. (B) Attached to this Amendment as Exhibit B is an Opinion of Counsel stating that the amendment to the Pooling and Servicing Agreement effected by this Amendment will not cause the Trust to be characterized for Federal income tax purposes as an association taxable as a corporation or otherwise have any material adverse effect on the Federal income taxation of any outstanding Series of Investor Certificates or any Certificate Owner. Such Opinion of Counsel is required to be delivered under Section 13.01 of the Pooling and Servicing Agreement. (C) Attached to this Amendment as Exhibit C are written confirmations from the Rating Agencies to the effect the current rating of any Series or any class of any Series will not be reduced or withdrawn as a result of the amendment to the Pooling and Servicing Agreement effected by Amendment. Such confirmations are required to be delivered under Section 13.01 of the Pooling and Servicing Agreement. The Servicer provided written notice to each Rating Agency of the amount to the Pooling and Servicing Agreement effected by this Amendment at least ten Business Days prior to the date of this Amendment. 3. Continuing Agreement. The Pooling and Servicing Agreement, as amended by this Amendment, continues in full force and effect among the Transferor, the Servicer and the Trustee. Delivered as of the day and year above first written. PRIME RECEIVABLES CORPORATION By:/s/ Susan P. Storer Title: President FDS NATIONAL BANK, as Servicer By:/s/ Susan R. Robinson Title: Treasurer THE CHASE MANHATTAN BANK, as Trustee By:/s/ Trust Officer Title: Trust Officer EXHIBIT A FDS NATIONAL BANK OFFICER'S CERTIFICATE Reference is made to the Amended and Restated Pooling and Servicing Agreement dated as of December 15, 1992 (as amended, restated, supplemented or otherwise modified from time to time, the "Pooling and Servicing Agreement"), among Prime Receivables Corporation, as transferor, FDS National Bank (successor to Federated Department Stores, Inc.), as servicer (the "Servicer"), and Chase Manhattan Bank (successor to Chemical Bank), as trustee. Capitalized terms used in this officer's certificate and not otherwise defined have the meanings set forth for such terms in the Pooling and Servicing Agreement. The undersigned the duly elected, qualified and acting Treasurer of the Servicer, does hereby certify, pursuant to Section 13.01 of the Pooling and Servicing Agreement, that the Tenth Amendment to the Pooling and Servicing Agreement does not adversely effect in any material respect the interests of any of the Certificates. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this third day of August, 1998. FDS NATIONAL BANK By:/s/ Susan R. Robinson Title: Treasurer EXHIBIT B August 3, 1998 The Chase Manhattan Bank, as Trustee 450 West 33rd Street New York, NY 10001 Re: Prime Receivables, Inc. Amended and Restated Pooling & Servicing Agreement dated as of December 15,1992 (as amended, the "Agreement") Ladies and Gentlemen: As General Counsel of Federated Department Stores, Inc., a Delaware corporation, the ultimate parent of Prime Receivables Corporation, a Delaware corporation ("Prime"), I have acted as counsel to Prime in connection with the Tenth Amendment to the Agreement and the modification of the definition of "Defaulted Amount" thereunder. I have examined such documents, records and matters of law as I have deemed necessary for purposes of this opinion. Based thereon, I am of the opinion that the Tenth Amendment to the Agreement and the modification of the definition of "Defaulted Amount" as described in such Tenth Amendment will not, in accordance with Section 13.01 of the Agreement, cause the Trust to be characterized for Federal income tax purposes as an association taxable as a corporation or otherwise have any material adverse effect on the Federal income taxation of any outstanding Series of Investor Certificates or any Certificate Owner (capitalized terms used herein and not otherwise defined have the meanings set forth for such terms in this Agreement). Very truly yours, Dennis J. Broderick EXHIBIT C August 3, 1998 Ms. Susan Storer President Prime Receivables Corporation 9111 Duke Boulevard Mason, Ohio 45040 Re: Tenth Amendment to the Amended and Restated Pooling and Servicing Agreement: Dear Ms. Storer: Standard and Poor's has reviewed the following amendment and has concluded that such an amendment will not result in a reduction or withdrawal of the rating on any class or series of Prime Credit Card Master Trust investor certificates currently rated by Standard and Poor's. Tenth Amendment, dated as of August 3, 1998 to the Amended and Restated Pooling and Servicing Agreement dated as of December 15, 1992 by and among Prime Receivables Corporation (the Transferor), FDS National Bank (the Servicer), and The Chase Manhattan Bank (the Trustee). Standard & Poor's affirmation of the ratings contained in this letter only addresses the effect of the proposed changes on the last rating assigned by Standard & Poor's to the securities referenced above. Ratings affirmation does not address the effect of such changes on the rights or interests of the holders of the securities under the documents or whether such changes are permitted by the terms of the documents. We are pleased to have been of assistance to you in this matter. If you have any questions, or if we may be of further help, please do not hesitate to contact us. Very truly yours, Joseph F. Sheridan Managing Director August 3, 1998 Chase Manhattan Bank, as Trustee 450 West 33 Street New York, NY 10001 Re: Prime Credit Card Master Trust Amendment No. 10 to the Restated Pooling and Servicing Agreement dated August 3, 1998 Ladies and Gentlemen: We have reviewed Amendment No. 10 dated as of August 3, 1998, to the Restated Pooling and Servicing Agreement dated as of December 15, 1992, among Prime Receivables Corporation, FDS National Bank of servicer, and The Chase Manhattan Bank as trustee. Please be advised that Amendment No. 10, will not result in the reduction or withdrawal of our rating of any of the outstanding series issued from Prime Credit Card Master Trust. Thank you for using our services. Sincerely, Latonia D. Dukes Assistant Vice President Analyst EX-27 3
5 1,000,000 3-MOS JAN-30-1999 AUG-02-1998 OCT-31-1998 164 0 2,107 0 4,322 6,818 6,406 0 14,217 3,719 3,549 0 0 0 0 14,217 3,647 0 0 2,229 1,161 0 74 185 75 0 0 (23) 0 87 0.42 0.40 Includes the following: Supplies and prepaid expenses 120 Deferred income tax assets 105 Includes the following: Intangible assets - net 670 Other assets 323 Includes the following: Deferred income taxes 1,024 Other liabilities 557 Shareholders' Equity 5,368 Includes the following: Interest Income 2
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