EX-99 2 exhibit022106.htm PRESS RELEASE FEDERATED DEPARTMENT STORES, INC

FEDERATED DEPARTMENT STORES, INC.
 

Contacts:
   
 

Media - Jim Sluzewski
     513/579-7764
 

Investor - Susan Robinson
     513/579-7780

FOR IMMEDIATE RELEASE

 

FEDERATED REPORTS FOURTH QUARTER EARNINGS OF

$2.45 PER DILUTED SHARE FROM CONTINUING OPERATIONS

Diluted EPS is $2.74, excluding merger integration costs and inventory valuation adjustments

CINCINNATI, Ohio, February 21, 2006 - Federated Department Stores, Inc. today reported diluted earnings per share from continuing operations of $2.45 for the fourth quarter of 2005, ended Jan. 28, 2006. This compares with diluted earnings per share from continuing operations of $2.55 for the same 13-week period last year.

Excluding May Company merger integration costs and related inventory valuation adjustments of $131 million ($82 million after tax or 29 cents per diluted share), fourth quarter diluted earnings per share from continuing operations was $2.74. This exceeds the company's prior guidance of $2.60 to $2.65 per share.

Federated's sales and earnings for September 2005 through January 2006 include results of The May Department Stores Company, which was acquired Aug. 30, 2005. Sales and earnings from the company's Lord & Taylor and Bridal Group divisions, which the company intends to divest, are being treated as discontinued operations.

For the full 52 weeks of fiscal 2005, Federated reported earnings per diluted share from continuing operations of $6.32, compared to $3.86 per share in the same period of 2004. Excluding the May Company merger integration costs and related inventory valuation adjustments of 56 cents per diluted share ($194 million pre-tax, $121 million after tax) and a gain on the sale of receivables of $1.77 per diluted share ($480 million pre-tax, $384 million after tax), earnings from continuing operations per diluted share for fiscal 2005 were $5.11.

Terry J. Lundgren, Federated's chairman, president and chief executive officer, said, "We are very pleased with our results for the fourth quarter, which exceeded our guidance. The quarter included stronger-than-expected performance in both the Federated and former May Company divisions, as well as a benefit from a tax settlement and related adjustments. Across the organization, our executives and associates demonstrated exceptional discipline and focus through the holiday selling season, despite potential distractions related to the merger.

"As we have said in the past, 2006 will be a transition year in which sales and earnings performance will be difficult to predict. Keep in mind that each of the next three quarters presents a unique set of challenges that may affect short-term sales and/or earnings, given the process of store divestitures, assortment assimilation and brand conversions between now and this fall," Lundgren said.

Sales

Sales in the fourth quarter totaled $9.571 billion, an increase of 86.9 percent compared to sales of $5.120 billion in the same period last year. On a same-store basis, Federated's fourth quarter sales were up 1.1 percent.

Federated's fiscal 2005 sales totaled $22.390 billion, an increase of 41.9 percent from sales of $15.776 billion in the same period last year. On a same-store basis, Federated's sales for fiscal 2005 were up 1.3 percent.

The company opened no new department stores in the fourth quarter of 2005.

Five Macy's stores in south Florida and New Orleans remain closed from damage related to Hurricanes Wilma and Katrina in 2005. These locations accounted for $59 million in sales in the fourth quarter of 2004. At least three of these stores are expected to reopen in fiscal 2006.

Operating Income

Federated's operating income totaled $1.194 billion or 12.5 percent of sales for the quarter ended Jan. 28, 2006, compared to operating income of $763 million or 14.9 percent of sales for the same period last year.

The company's operating income for fiscal 2005 was $2.424 billion or 10.8 percent of sales, compared to $1.400 billion or 8.9 percent of sales in fiscal 2004.

Federated's fourth quarter 2005 operating income includes $131 million in May Company integration costs and related inventory valuation adjustments. Fiscal 2005 operating income includes a pre-tax gain of $480 million on the sale of receivables to Citigroup and May Company integration costs and related inventory valuation adjustments of $194 million. Federated's fourth quarter 2004 operating income included $13 million in store closing, centralization and consolidation costs, as well as inventory valuation adjustments. Fiscal 2004 operating income included $99 million in store closing, centralization and consolidation costs, as well as inventory valuation adjustments.

Cash Flow

In fiscal 2005, Federated generated $1.95 billion in cash flow from continuing operating activities, compared to $1.51 billion in fiscal 2004. Federated used $2.5 billion of cash for continuing investing activities in fiscal 2005, compared to $727 million in fiscal 2004. Cash used by continuing financing activities was $58 million in fiscal 2005, compared to $837 million the previous year.

Cash flow in fiscal 2005 was impacted by two major transactions: the acquisition of May Company on Aug. 30 and the sale of proprietary and Visa accounts receivable to Citigroup on Oct. 24. The May Company acquisition was funded with $1.1 billion cash on hand and $4.6 billion in short-term borrowings. Pretax proceeds from the sale of the credit receivables, after elimination of $1.2 billion in receivables backed debt, was used to pay down $2.8 billion in short-term borrowings. At Jan. 28, 2006, approximately $1.2 billion of short-term borrowings were outstanding. At the time of the May Company acquisition, the company established a $5 billion bridge line, of which $2.25 billion is still available to the company.

The company repurchased no shares of its common stock in the fourth quarter.

2006 Guidance

The company's guidance for 2006 is unchanged. Federated continues to anticipate same-store sales to increase by 2 to 3 percent in 2006, with first quarter sales of $5.75 billion to $6 billion, incorporating a same-store sales decrease of 0.5 to 1.5 percent compared to last year. Earnings of $3.45 to $3.70 per diluted share are expected in 2006 from continuing operations excluding one-time May Company merger integration costs and gain on sale of receivables. This includes a loss of 5 to 15 cents per diluted share in the first quarter from continuing operations excluding one-time May Company merger integration costs.

All statements in this press release that are not statements of historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of Federated's management and are subject to significant risks and uncertainties. Actual results could differ materially from those expressed in or implied by the forward-looking statements contained in this release because of a variety of factors, including conditions to, or changes in the timing of, proposed transactions, prevailing interest rates, competitive pressures from specialty stores, general merchandise stores, manufacturers' outlets, off-price

and discount stores, new and established forms of home shopping (including the Internet, mail-order

catalogs and television) and general consumer spending levels, including the impact of the availability and level of consumer debt, the effect of weather and other factors identified in documents filed by the company with the Securities and Exchange Commission.

Federated, with corporate offices in Cincinnati and New York, is one of the nation's premier retailers, with fiscal 2006 sales expected to be more than $27 billion. Federated operates more than 850 department stores and more than 720 bridal and formalwear stores in 49 states, the District of Columbia, Guam and Puerto Rico under the names of Macy's, Bloomingdale's, Famous-Barr, Filene's, Foley's, Hecht's, Kaufmann's, Lord & Taylor, L.S. Ayres, Marshall Field's, Meier & Frank, Robinsons-May, Strawbridge's, The Jones Store, David's Bridal, After Hours Formalwear and Priscilla of Boston. The company also operates macys.com and Bloomingdale's By Mail.


(NOTE: Additional information on Federated is available on the Internet at www.fds.com/pressroom.. A webcast of Federated's fourth quarter earnings call with analysts will be held beginning at 10:30 a.m. ET on Tuesday, Feb. 21. Pre-registration is requested. Those unable to access the webcast at www.fds.com may call 1-866-215-1938 to listen to the audio in real time. The webcast will be archived for replay beginning approximately two hours after the conclusion of the live call.)

 

FEDERATED DEPARTMENT STORES, INC.
 

Consolidated Statements of Income (Unaudited) (Note 1)
 

(All amounts in millions except percentages and per share figures)
   
 

                           13 Weeks Ended                           
 

     January 28, 2006     

    January 29, 2005    
 


     $     

% to
Net sales


     $     

% to
Net sales
         

Net sales

$ 9,571 

  

$ 5,120 

  
         

Cost of sales- recurring (Note 2)

5,658 

59.1% 

3,027 

59.1% 
         

Gross margin - recurring

3,913 

40.9% 

2,093 

40.9% 
         

Inventory valuation adjustments -
    May integration (Note 3)


     (25)


   (.3%)


        - 


      -% 
         

Gross margin

3,888 

40.6% 

2,093 

40.9% 
         

Selling, general and administrative expenses (Note 4)

(2,588)

(27.0%)

(1,330)

(26.0%)
         

May integration costs (Note 5)

    (106)

  (1.1%)

      - 

       -% 
         

Operating income

1,194 

12.5% 

763 

14.9% 
         

Interest expense - net (Note 6)

(127)

  

(50)

  
         

Income from continuing operations before income taxes

1,067 

  

713 

  
         

Federal, state and local income tax expense (Note 7)

(389)

  

(273)

  
         

Income from continuing operations

678 

  

440 

  
         

Discontinued operations, net of income taxes (Note 8)

21 

  

- 

  
         

Net income

$ 699 

  

$ 440 

  
         

Basic earnings per share:

        

      Income from continuing operations

$  2.48 

  

$  2.61 

  

      Income from discontinued operations

  .08 

  

       - 

  

      Net income

$  2.56 

  

$  2.61 

  
         

Diluted earnings per share (Note 9):

        

      Income from continuing operations

$  2.45 

  

$  2.55 

  

      Income from discontinued operations

  .07 

  

      - 

  

      Net income

$  2.52 

  

$  2.55 

  
         

Average common shares:

        

      Basic

272.9 

  

168.7 

  

      Diluted

277.1 

  

172.4 

  
         

Depreciation and amortization expense

$   328 

  

$   204 

  

 

 

 

FEDERATED DEPARTMENT STORES, INC.

Consolidated Statements of Income (Unaudited) (Note 1)

 

Notes:

(1)  The May Department Stores Company ("May") was acquired August 30, 2005. The results of operations of May have been included in Federated's results of operations from the date of acquisition. Certain reclassifications were made to prior period amounts to conform with the classifications of such amounts for the most recent period.

(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 52 weeks ended January 28, 2006 or January 29, 2005. For the 13 weeks ended January 29, 2005, cost of sales includes inventory valuation adjustments of $5 million related to the Macy's home store centralization.

(3)  Represents inventory valuation adjustments associated with the combination and integration of Federated and May merchandise assortments.

(4)  For the 13 weeks ended January 29, 2005, SG&A expenses include $8 million of costs incurred in connection with the Macy's home store centralization, the Burdines-Macy's consolidation and other store closings.

(5)  Represents costs and expenses associated with the integration and consolidation of May's operations into Federated's operations, primarily impairment charges for certain Federated stores planned to be closed.

(6)  Interest expense for the 13 weeks ended January 28, 2006, includes $17 million of interest income related to the settlement of various tax examinations.

(7)  Federal, state and local income tax expense for the 13 weeks ended January 28, 2006, includes a $10 million reduction in tax expense related to the settlement of various tax examinations.

(8)  Represents the acquired operations of Lord & Taylor and the Bridal Group, including David's Bridal, After Hours Formalwear and Priscilla of Boston, which are being divested.

(9)  For the 13 weeks ended January 28, 2006, May integration costs and related inventory valuation adjustments (See Notes 3 and 5) amounted to $.29 per diluted share. For the 13 weeks ended January 29, 2005, store closing and consolidation costs and Macy's home store centralization costs (See notes 2 and 4) amounted to $.04 per diluted share.

 

 

FEDERATED DEPARTMENT STORES, INC.
 

Consolidated Statements of Income (Unaudited) (Note 1)
 

(All amounts in millions except percentages and per share figures)
 
 

                            52 Weeks Ended                          
 

     January 28, 2006     

     January 29, 2005    
 


     $     

% to
Net sales


     $     

% to
Net sales
         

Net sales

$ 22,390 

  

$ 15,776 

  
         

Cost of sales - recurring (Note 2)

13,272 

59.3% 

9,382 

59.5% 
         

Gross margin - recurring

9,118 

40.7% 

6,394 

40.5% 
         

Inventory valuation adjustments -
     May integration (Note 3)


       (25)


   ( .1%)


         - 


      -% 
         

Gross margin

9,093 

40.6% 

6,394 

40.5% 
         

Selling, general and administrative expenses (Note 4)

(6,980)

(31.2%)

(4,994)

(31.6%)
         

May integration costs (Note 5)

(169)

(.7%)

- 

-% 
         

Gain on the sale of accounts receivable (Note 6)

    480 

    2.1% 

      - 

       -% 
         

Operating income

2,424 

10.8% 

1,400 

8.9% 
         

Interest expense - net (Note 7)

(380)

  

(284)

  
         

Income from continuing operations before income taxes

2,044 

  

1,116 

  
         

Federal, state and local income tax expense (Note 8)

(671)

  

(427)

  
         

Income from continuing operations

1,373 

  

689 

  
         

Discontinued operations, net of income taxes (Note 9)

33 

  

-  

  
         

Net income

$  1,406 

  

$   689 

  
         

Basic earnings per share:

        

      Income from continuing operations

$    6.44 

  

$   3.93 

  

      Income from discontinued operations

      .16 

  

        - 

  

      Net income

$    6.60 

  

$   3.93 

  
         

Diluted earnings per share (Note 10):

        

      Income from continuing operations

$    6.32 

  

$   3.86 

  

      Income from discontinued operations

      .15 

  

        - 

  

      Net income

$    6.47 

  

$   3.86 

  
         

Average common shares:

        

      Basic

213.0 

  

175.1 

  

      Diluted

217.3 

  

178.2 

  
         

Depreciation and amortization expense

$   978 

  

$    737 

  

 

 

FEDERATED DEPARTMENT STORES, INC.

Consolidated Statements of Income (Unaudited) (Note 1)

 

Notes:

(1)  The May Department Stores Company ("May") was acquired August 30, 2005. The results of operations of May have been included in Federated's results of operations from the date of acquisition. Certain reclassifications were made to prior period amounts to conform with the classifications of such amounts for the most recent period.

(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 52 weeks ended January 28, 2006 or January 29, 2005. For the 52 weeks ended January 29, 2005, cost of sales includes inventory valuation adjustments of $36 million related to the Macy's home store centralization and the Burdines-Macy's consolidation.

(3)  Represents inventory valuation adjustments associated with the combination and integration of Federated and May merchandise assortments.

(4)  For the 52 weeks ended January 29, 2005, SG&A expenses include $63 million of costs incurred in connection with the Macy's home store centralization, the Burdines-Macy's consolidation and other store closings.

(5)  Represents costs and expenses associated with the integration and consolidation of May's operations into Federated's operations, primarily impairment charges for certain Federated stores planned to be closed.

(6)  Represents the gain recognized on the sale of the Company's proprietary and non-proprietary credit card accounts receivable. For the 52 weeks ended January 28 2006, the after-tax net gain amounted to $1.77 per diluted share.

(7)  Interest expense for the 52 weeks ended January 28, 2006, includes $17 million of interest income related to the settlement of various tax examinations. Interest expense for the 52 weeks ended January 29, 2005 includes $59 million of one-time costs, or 20 cents a diluted share, associated with the repurchase of $274 million of Federated's 8.5% senior notes due 2010.

(8)  Federal, state and local income tax expense for the 52 weeks ended January 28, 2006 was reduced by approximately $85 million to recognize capital loss carryforwards realized as a result of the sale of certain credit card accounts receivable and $10 million related to the settlement of various tax examinations.

(9)  Represents the acquired operations of Lord & Taylor and the Bridal Group, including David's Bridal, After Hours Formalwear and Priscilla of Boston, which are being divested.

(10) For the 52 weeks ended January 28, 2006, May integration costs and related inventory valuation adjustments (See Notes 3 and 5) amounted to $.56 per diluted share. For the 52 weeks ended January 29, 2005, store closing and consolidation costs and Macy's home store centralization costs (See notes 2 and 4) amounted to $.34 per diluted share.

 

FEDERATED DEPARTMENT STORES, INC.
 

Consolidated Balance Sheets (Unaudited)
 

(millions)
 
 

January 28,
    2006    

January 29,
    2005    
 

ASSETS:

    

   Current Assets:

    

      Cash and cash equivalents

$ 248

$ 868

      Accounts receivable

2,522

3,418

      Merchandise inventories

5,459

3,120

      Supplies and prepaid expenses

203

104

      Assets of discontinued operations

1,713

-

         Total Current Assets

10,145

7,510
     

   Property and Equipment - net

12,034

6,018

   Goodwill

9,520

260

   Other Intangible Assets - net

1,080

378

   Other Assets

389

719
     

         Total Assets

$33,168

$14,885
     

LIABILITIES AND SHAREHOLDERS' EQUITY:

    

   Current Liabilities:

    

      Short-term debt

$ 1,323

$ 1,242

      Accounts payable and accrued liabilities

5,246

2,707

      Income taxes

454

324

      Deferred income taxes

103

28

      Liabilities of discontinued operations

464

-

         Total current liabilities

7,590

4,301
     

   Long-Term Debt

8,860

2,637

   Deferred Income Taxes

1,704

1,199

   Other Liabilities

1,495

581

   Shareholders' Equity

13,519

6,167
     

         Total Liabilities and Shareholders' Equity

$33,168

$14,885
     

 

 

FEDERATED DEPARTMENT STORES, INC.
 

Consolidated Statements of Cash Flows (Unaudited)
 

(millions)
 
 

52 Weeks Ended
January 28, 2006

52 Weeks Ended
January 29, 2005

Cash flows from continuing operating activities:

    

   Net income

$ 1,406 

$ 689 

   Adjustments to reconcile net income to net cash
      provided by continuing operating activities:

    

        Income from discontinued operations

(33)

- 

        Gain on the sale of accounts receivable

(480)

- 

       May integration costs

194 

- 

        Depreciation and amortization

943 

734 

        Amortization of financing costs

(20)

6 

        Amortization of intangible assets

33 

- 

        Amortization of unearned restricted stock

2 

3 

        Changes in assets and liabilities:

    

           (Increase ) decrease in proprietary and other accounts
              receivable not separately identified


(147)


17 

            Decrease in merchandise inventories

495 

95 

           (Increase) decrease in supplies and prepaid expenses

122 

(5)

            Increase in other assets not separately identified

(2)

(1)

            Decrease in accounts payable and accrued liabilities
              not separately identified


(444)


(24)

            Increase (decrease) in current income taxes

49 

(6)

            Increase (decrease) in deferred income taxes

(36)

59 

            Decrease in other liabilities not separately identified

(132)

(60)

              Net cash provided by continuing operating activities

1,950 

1,507
     

Cash flows from continuing investing activities:

    

   Purchase of property and equipment

(568)

(467)

   Capitalized software

(88)

(81)

   Increase in non-proprietary accounts receivable

(131)

(236)

   Acquisition of The May Department Stores Company,
      net of cash acquired


(5,321)


- 

   Proceeds from sale of accounts receivable

3,583 

- 

   Collection of notes receivable

- 

30 

   Disposition of property and equipment

19 

27 

              Net cash used by continuing investing activities

(2,506)

(727)

 

 

FEDERATED DEPARTMENT STORES, INC.
 

Consolidated Statements of Cash Flows (Unaudited)
 

(millions)
 
 

52 Weeks Ended
January 28, 2006

52 Weeks Ended
January 29, 2005
     

Cash flows from continuing financing activities:

    

   Debt issued

4,580 

186 

   Financing costs

(2)

- 

   Debt repaid

(4,755)

(365)

   Dividends paid

(157)

(93)

   Increase (decrease) in outstanding checks

(53)

38 

   Acquisition of treasury stock

(7)

(901)

   Issuance of common stock

336 

298 

               Net cash used by continuing financing activities

(58)

(837)
     

Net cash used by continuing operations

(614)

(57)

Net cash provided by discontinued operating activities

63 

- 

Net cash used by discontinued investing activities

(61)

- 

Net cash used by discontinued financing activities

(8)

- 

Net cash used by discontinued operations

(6)

- 
     

Net decrease in cash and cash equivalents

(620)

(57)

Cash and cash equivalents at beginning of period

868 

925 
     

Cash and cash equivalents at end of period

$ 248 

$ 868