Interpreting disclosures regarding sales of accounts receivable. Federated Department Stores Inc. owns various chains of retail department stores, including Macy’s and Bloomingdales. On August 30, 2005, it acquired May Department Stores, thereby acquiring Filenes, Marshall Field, Kaufmann’s, Lord & Taylor, and other retail chains. It then changed the name of the entire company to Macy’s. It subsequently sold all of the credit card receivables of its department store chains to Citibank. Exhibit 11.16 reports the sale of these receivables.
a. Using information in Exhibit 11.16, discuss why the sales of receivables to Citibank likely qualified as a sale and not as a collateralized loan.

EXHIBIT 11.16 Macy’s
Note on sales of Receivables
5. Sate of Credit Card Accounts and Receivables
On October 24, 2005, the Company sold to Citibank certain proprietary and nonproprietary credit card accounts owned by the Company, together with related receivables balances, and the capital stock Prime Receivables Corporation, a wholly owned subsidiary of the Company, which owned all of the Company’s interest in the Prime Credit Card Master Trust (the foregoing and certain related assets being the FDS Credit Assets). The sale of the FDS Credit Assets for a cash purchase price of approximately $3.6 billion resulted in a pretax gain of $480 million. The net proceeds received, after eliminating related receivables-backed financings, were used to repay debt associated with the acquisition of May.
On May 1, 2006, the Company terminated the Company’s credit card program agreement with GE Capital Consumer Card Co. (“GE Bank”) and purchased all of the “Macy’s” credit card accounts owned by GE Bank, together with related receivables balances (the GE/Macy’s Credit Assets”), as of April 30, 2006. Also on May 1, 2006, the Company sold the GE/Macy’s Credit Assets to Citibank, resulting in a pretax gain of approximately $179 million. The net proceeds of approximately $180 million were used to repay short-term borrowings associated with the acquisition of May.
On May 22, 2006, the Company sold a portion of the acquired May credit card accounts and related to Citibank, resulting in a pretax gain of approximately $5 million. The net proceeds of approximately $800 million were primarily used to repay short-term borrowings associated with the acquisition of May.
On July 17, 2006, the Company sold the remaining portion of the acquired May credit card accounts and related receivables to Citibank, resulting in a pretax gain of approximately $7 million. The net proceeds of approximately $1,100 million were used for general corporate purposes.
In connection with the sales of credit card accounts and related receivable balances, the Company and Citibank entered into a Long-term marketing and servicing alliance pursuant to the terms of a Credit Card Program Agreement (the “Program Agreement”) with an initial term of 10 years expiring on July 17, 2016, and, unless terminated by either party as of the expiration of the initial term, an additional renewal term of three years. The Program Agreement provides for, among other things, (i) the ownership by Citibank of the accounts purchased by Citibank, (ii) the ownership by Citibank of new accounts opened by the Company’s customers, (iii) the provision of credit by Citibank to the holders of the credit cards associated with the foregoing accounts, (iv) the servicing of the foregoing accounts, and (v) the allocation between Citibank and the Company of the economic benefits and burdens associated with the foregoing and other aspects of the alliance.
b. Exhibit 11.16 indicates that Federated and Citibank allocated the “economic benefits and burdens associated with the foregoing and other aspects of the alliance.” Identify the likely economic benefits and burdens of the arrangement to Federated Department Stores (subsequently Macy’s).
c. What were the likely functions of Prime Receivables Corporation and Prime Credit Card Master Trust that Federated Department Stores owned or used prior to the sale of the receivables to Citibank?