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SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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FORM 8-K |
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CURRENT REPORT |
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Pursuant to Section 13 or 15(d) of the |
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Securities Exchange Act of 1934 |
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Date of Report: August 14, 2002 |
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FEDERATED DEPARTMENT STORES, INC. |
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7 West Seventh Street, Cincinnati, Ohio 45202 |
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-and- |
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151 West 34th Street, New York, New York 10001 |
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Delaware |
1-13536 |
13-3324058 |
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(State of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
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Item 9. |
Regulation FD Disclosure |
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Federated Department Stores, Inc. today reported diluted earnings per share from continuing operations of 66 cents for the second quarter of 2002, exceeding the company's original guidance of 50-60 cents a share. This compared to diluted earnings of 50 cents a share from continuing operations in the same 13-week period last year, excluding restructuring charges related to the closing of Stern's and the conversion of Liberty House stores into Macy's. |
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Federated's income from continuing operations totaled $133 million for the quarter ended August 3, 2002, an increase of 8.5 percent over income of $124 million for the same period last year. |
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For the first half of 2002, Federated reported diluted earnings per share from continuing operations of $1.09, compared to 92 cents a share in the same period of 2001, excluding the restructuring charges. The company's income from continuing operations for the first half of 2002 was $222 million, an increase of 22 percent over income of $182 million in the same period of 2001. |
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James M. Zimmerman, Federated's chairman and chief executive officer, said the company's second quarter earnings performance reflects strong gross margins that more than offset weaker-than-anticipated sales. |
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Federated's CEO and CFO intend to certify the company's financial statements, as required by the Securities and Exchange Commission and the Sarbanes-Oxley Act of 2002, in connection with the filing of the company's 10-Q when due on or before September 17, 2002. |
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Sales |
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Sales of $3.486 billion for the second quarter of 2002 were flat with sales of $3.488 billion in the same period last year. On a same-store basis, Federated's second quarter sales were down 2.8 percent. |
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Sales in the first 26 weeks of 2002 totaled $6.939 billion, a decrease of 1.5 percent from sales of $7.044 billion in the same period last year. On a same-store basis, Federated's first-half sales were down 2.9 percent. |
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New stores opened in the second quarter included a new Bon Marche department store in Yakima, WA, and a Burdines furniture store in Fort Lauderdale, FL. |
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Operating Income |
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Operating income in the second quarter was $300 million or 8.6 percent of sales. This compares to operating income of $213 million or 6.1 percent of sales for the second quarter of 2001, including restructuring charges, or $247 million or 7.1 percent of sales excluding those charges. |
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For the first 26 weeks of 2002, Federated's operating income totaled $521 million or 7.5 percent of sales. This compares to operating income of $391 million or 5.5 percent of sales for the same period last year, including restructuring charges, or $470 million or 6.7 percent of sales excluding those charges. |
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Discontinued Operations |
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Discontinued operations in the quarter showed an after-tax gain of $149 million resulting from the disposition of most of the Fingerhut core catalog assets, including the receivables. For the year to date, discontinued operations produced cash of $622 million. |
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Cash Flow |
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During the first half of 2002, cash increased by $762 million compared to $35 million in the same period last year. At the end of the second quarter, cash on the balance sheet totaled approximately $1.4 billion. |
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Earnings/Sales Expectations |
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Federated's current earnings expectations from continuing operations for the remainder of fiscal 2002 are unchanged at $2.45 - $2.65 a share. By quarter, the company's guidance is for earnings per share of 35-45 cents in the third quarter and $2.05 - $2.20 for the fourth quarter. |
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Federated now expects a 1-3 percent same-store sales increase for the fall season, given the current weakness in the economy and the company's recent lower-than-anticipated sales trend. This compares to prior guidance of 3-3.5 percent for the same period. |
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Federated, with corporate offices in Cincinnati and New York, is one of the nation's leading department store retailers, with annual sales of more than $15.6 billion. Federated currently operates more than 460 stores in 34 states, Guam and Puerto Rico, under the names of Macy's, Bloomingdale's, The Bon Marche, Burdines, Goldsmith's, Lazarus and Rich's. The company also operates macys.com and Bloomingdale's By Mail. |
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This release contains certain forward-looking statements that reflect current views of the financial performance and future events of Federated. The words "expect," "plan," "think," "believe" and other similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties. Future results of the operations of Federated could differ materially from historical results or current expectations because of a variety of factors that affect the company, including transaction costs associated with the renovation, conversion and transitioning of company retail stores in regional markets; the outcome and timing of sales and leasing in conjunction with the disposition of company retail store properties; the retention, reintegration and transitioning of displaced company employees; competitive pressures from department and specialty stores, general merchandise stores, manufacturers' outlets, off-price and discount stores, and all other retail channels; and general consumer-spending levels, including the impact of the availability and level of consumer debt, and the effects of weather. |
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# # # |
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(NOTE: Weekly sales updates are available at 513/579-7987 and on the Internet at www.fds.com. A live webcast of the first quarter earnings call with analysts can be accessed through the Federated website, beginning at 10:30 a.m. ET. Pre-registration is requested. The webcast will be archived for replay beginning approximately two hours after the conclusion of the live call.) |
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FEDERATED DEPARTMENT STORES, INC |
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Consolidated Statements of Income (Unaudited) (Note 1) |
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(All amounts in millions except percentages and per share figures) |
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13 Weeks Ended |
26 Weeks Ended |
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August 3, |
August 4, |
August 3, |
August 4, |
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2002 |
2001 |
2002 |
2001 |
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Net Sales |
$3,486 |
$3,488 |
$6,939 |
$7,044 |
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Cost of Sales: |
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Recurring (Note 2) |
2,051 |
2,128 |
4,129 |
4,286 |
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Inventory valuation adjustments related to |
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Total cost of sales |
2,051 |
2,135 |
4,129 |
4,312 |
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Percent to sales |
58.8% |
61.2% |
59.5% |
61.2% |
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Selling, general and administrative expenses (Note 3) |
1,135 |
1,113 |
2,289 |
2,288 |
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Percent to sales |
32.6% |
31.9% |
33.0% |
32.5% |
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Restructuring charges (Note 4) |
- |
27 |
- |
53 |
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Percent to sales |
-% |
0.8% |
-% |
0.8% |
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Operating Income |
300 |
213 |
521 |
391 |
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Percent to sales |
8.6% |
6.1% |
7.5% |
5.5% |
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Interest expense - net |
(78 ) |
(78 ) |
(152 ) |
(156 ) |
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Income from Continuing Operations |
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Federal, state and local income tax expense (Note 5) |
(89 ) |
(11 ) |
(147 ) |
(53 ) |
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Income from Continuing Operations |
133 |
124 |
222 |
182 |
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FEDERATED DEPARTMENT STORES, INC. |
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Consolidated Statements of Income (Unaudited) (Note 1) |
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(All amounts in millions except percentages and per share figures) |
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13 Weeks Ended |
26 Weeks Ended |
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August 3, |
August 4, |
August 3, |
August 4, |
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2002 |
2001 |
2002 |
2001 |
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Discontinued Operations: |
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Loss from discontinued operations, net of tax effect |
- |
(14) |
- |
(14) |
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Income on disposal of discontinued operations, |
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Net Income |
$ 282 |
$ 110 |
$ 371 |
$ 168 |
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Basic Earnings (Loss) per Share: |
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Income from continuing operations (Notes 3 and 4) |
$ .66 |
$ .63 |
$ 1.10 |
$ .93 |
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Income (loss) from discontinued operations |
.74 |
(.07 ) |
.74 |
(.08 ) |
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Net income |
$ 1.40 |
$ .56 |
$ 1.84 |
$ .85 |
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Diluted Earnings (Loss) per Share: |
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Income from continuing operations (Notes 3 and 4) |
$ .66 |
$ .62 |
$ 1.09 |
$ .90 |
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Income (loss) from discontinued operations |
.73 |
(.07 ) |
.73 |
(.07 ) |
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Net income |
$ 1.39 |
$ .55 |
$ 1.82 |
$ .83 |
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Diluted earnings per share from |
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Average common shares: |
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Basic |
201.5 |
194.6 |
201.6 |
196.3 |
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Diluted |
203.5 |
199.6 |
203.7 |
201.8 |
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Depreciation and amortization expense (Note 3) |
$ 168 |
$ 168 |
$ 333 |
$ 337 |
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FEDERATED DEPARTMENT STORES, INC. |
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Consolidated Statements of Income (Unaudited) (Note 1) |
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Notes: |
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(1) |
Because of the seasonal nature of the retail business, the results of operations for the 13 and 26 weeks ended August 3, 2002 and August 4, 2001 (which do not include the Christmas season) are not indicative of such results for the fiscal year. Certain reclassifications were made to prior period amounts to conform with the classifications of such amounts for the most recent period. |
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(2) |
Merchandise inventories are primarily valued at the lower of cost or market using the last-in, first-out (LIFO) retail inventory method. Application of this method did not impact cost of sales for the 13 and 26 weeks ended August 3, 2002 or August 4, 2001. |
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(3) |
Includes amortization expense of $7 million, or $.03 per diluted share, for the 13 weeks ended August 4, 2001 and $14 million, or $.06 per diluted share, for the 26 weeks ended August 4, 2001 related to goodwill and indefinite lived intangible assets. Effective February 3, 2002, Federated adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," and upon implementation of this standard, Federated ceased amortizing goodwill and indefinite lived intangible assets. |
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(4) |
Restructuring charges for the 13 and 26 weeks ended August 4, 2001 represent costs and expenses associated with the closure of the Stern's department store division, including severance, advertising and duplicate central office costs, and expenses associated with the Macy's West integration of Liberty House, Inc., primarily duplicate central office costs. The impact of the restructuring charges and related inventory valuation adjustments on the 13 and 26 weeks ended August 4, 2001 was $.10 and $.24 per diluted share, respectively. |
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(5) |
Income tax expense for the 13 and 26 weeks ended August 4, 2001 reflects a $44 million benefit, $.22 per diluted share, related to the recognition of the effect of the difference between the financial reporting and tax bases of the Company's investment in Stern's Department Stores, Inc. upon disposition. |
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(6) |
During July, 2002, Federated completed the sale of Fingerhut's core catalog accounts receivable portfolio, with the buyer assuming $450 million of receivables-backed debt, and the sale of various Fingerhut assets, including two distribution centers, the corporate headquarters, a data center, existing inventory, the Fingerhut name, customer lists and other miscellaneous property and equipment. Proceeds from these sales and collections on customer accounts receivable prior to the sale, net of operating expenses, exceeded the amount estimated to be received through wind-down of the portfolio and liquidation of the assets, resulting in an adjustment to the loss on disposal of discontinued operations totaling $236 million of income before income taxes. |
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(7) |
Excludes the after income tax impact of the inventory valuation adjustments and the restructuring charges related to the closure of the Stern's department store division and the integration of Liberty House, Inc., as well as the tax benefit associated with the related disposition of Stern's Department Stores, Inc. (See Notes 4 and 5). |
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FEDERATED DEPARTMENT STORES, INC. |
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Consolidated Balance Sheets (Unaudited) |
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(millions) |
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August 3, |
February 2, |
August 4, |
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2002 |
2002 |
2001 |
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ASSETS: |
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Current Assets: |
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Cash |
$ 1,398 |
$ 636 |
$ 257 |
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Accounts receivable |
2,676 |
2,379 |
2,153 |
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Merchandise inventories |
3,657 |
3,376 |
3,813 |
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Supplies and prepaid expenses |
135 |
124 |
140 |
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Deferred income tax assets |
16 |
21 |
26 |
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Assets of discontinued operations |
593 |
1,812 |
2,452 |
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Total Current Assets |
8,475 |
8,348 |
8,841 |
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Property and Equipment - net |
6,389 |
6,506 |
6,541 |
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Goodwill - net |
305 |
305 |
289 |
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Other Intangible Assets - net |
378 |
378 |
384 |
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Other Assets |
544 |
575 |
563 |
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Total Assets |
$16,091 |
$16,112 |
$16,618 |
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LIABILITIES AND SHAREHOLDERS' EQUITY: |
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Current Liabilities: |
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Short-term debt |
$ 1,919 |
$ 1,012 |
$ 599 |
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Accounts payable and accrued liabilities |
2,731 |
2,645 |
2,698 |
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Income taxes |
42 |
57 |
116 |
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Liabilities of discontinued operations |
322 |
1,068 |
905 |
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Total current liabilities |
5,014 |
4,782 |
4,318 |
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Long-Term Debt |
3,402 |
3,859 |
4,713 |
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Deferred Income Taxes |
1,299 |
1,345 |
1,275 |
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Other Liabilities |
551 |
562 |
542 |
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Shareholders' Equity |
5,825 |
5,564 |
5,770 |
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Total Liabilities and Shareholders' Equity |
$16,091 |
$16,112 |
$16,618 |
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Note: |
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On July 5, 2002, the Company took certain actions which resulted in the consolidation of a master trust, the principal assets and liabilities of which consist of non-proprietary credit card receivables and the related debt issued by the trust. These actions increased the Company's consolidated assets and debt by $479 million at July 5, 2002. |
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FEDERATED DEPARTMENT STORES, INC. |
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Consolidated Statements of Cash Flows (Unaudited) |
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(millions) |
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26 Weeks Ended |
26 Weeks Ended |
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Cash flows from continuing operating activities: |
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Net income |
$ 371 |
$ 168 |
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Adjustments to reconcile net income to net cash |
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(Income) loss from discontinued operations |
(149) |
14 |
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Depreciation and amortization |
331 |
321 |
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Amortization of intangible assets |
- |
14 |
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Amortization of financing costs |
4 |
3 |
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Amortization of unearned restricted stock |
2 |
2 |
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Restructuring charges |
- |
79 |
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Changes in assets and liabilities: |
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Decrease in accounts receivable |
308 |
309 |
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Increase in merchandise inventories |
(281) |
(130) |
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Increase in supplies and prepaid expenses |
(11) |
(17) |
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Increase in other assets not separately identified |
(27) |
(36) |
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Increase (decrease) in accounts payable and |
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Decrease in current income taxes |
(15) |
(128) |
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Decrease in deferred income taxes |
(41) |
(72) |
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Increase (decrease) in other liabilities |
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Net cash provided by continuing operating activities |
556 |
423 |
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Cash flows from continuing investing activities: |
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Purchase of property and equipment |
(219) |
(221) |
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Capitalized software |
(23) |
(32) |
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Increase in note receivable |
(39) |
- |
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Acquisition of Liberty House, Inc., net of cash acquired |
- |
(173) |
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Disposition of property and equipment |
- |
27 |
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Net cash used by continuing investing activities |
(281 ) |
(399 ) |
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Cash flows from continuing financing activities: |
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Debt issued |
- |
672 |
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Financing costs |
- |
(10) |
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Debt repaid |
(35) |
(353) |
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Increase in outstanding checks |
13 |
49 |
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Acquisition of treasury stock |
(139) |
(270) |
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Issuance of common stock |
26 |
48 |
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Net cash provided (used) by |
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Net cash provided by continuing operations |
140 |
160 |
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Net cash provided (used) by discontinued operations |
622 |
(125 ) |
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Net increase in cash |
762 |
35 |
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Cash at beginning of period |
636 |
222 |
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Cash at end of period |
$ 1,398 |
$ 257 |
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SIGNATURE |
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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 hereunto duly authorized. |
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FEDERATED DEPARTMENT STORES, INC. |
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Dated: August 14, 2002 |
By: /s/ Dennis J. Broderick |
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Name: Dennis J. Broderick |
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Title: Senior Vice President, General Counsel and Secretary |
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