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NEW YORK — The combination of Federated Department Stores and R.H. Macy & Co. will produce a department store giant with sales of $17.5 billion and cash flow of $2.1 billion by 1998, according to projections filed in bankruptcy court Wednesday.
The numbers were in a disclosure statement outlining plans for the Federated-Macy combination, filed in Macy’s Chapter 11 proceeding.
Net sales are estimated to start at $14.7 billion in 1995 and grow to the $17.5 billion in 1998, based on annual comparable store sales gains of 3.6 percent.
Earnings before interest, taxes, depreciation and amortization (EBITDA, or the equivalent of cash flow) is expected to grow from $1.5 billion in 1995 to $2.1 billion in 1998. Thus, the company is expecting EBITDA to go from 9.9 percent of sales in 1995 to 11.7 percent by 1998.
Net income, according to the projection, will come in at $423.6 million next year and rise to $632.2 million by 1998.
Per share income is projected to increase from $1.65 a share, excluding special items, to $3.52 a share three years later.
The court filing estimates that the combined company’s EBITDA would have been 1.1 percent higher if Macy’s had not sold its credit card operation in 1991.
The projected balance sheet in 1994 will be relatively leveraged with long-term debt of $4.6 billion against shareholders’ equity of $3.7 billion, or a ratio of debt to total capital of 56.5 percent. By 1998, the projections envision a company with shareholders equity of $5.5 billion and long-term debt of $2.8 billion. This would produce a debt to total capital ratio of only 39 percent.
Separately, Federated said it has received a commitment for $1.1 billion in financing as part of a total $2.8 billion financing deal to be used to refinance both acquisition-related debt and existing Federated debt.
Citibank N.A. is providing $600 million and Chemical Bank $500 million of the already committed funds.
According to the disclosure statement, Federated expects to realize approximately $71 million in savings in fiscal 1995 from combining operational, back-office and technological functions.
The Savings are seen increasing to $122 million in fiscal 1996.
Federated Merchandising will provide centralized buying services for the combined companies and the merged stores will utilize Federated’s team buying program, modified to include certain elements of Macy’s Buyer Planner System, according to the disclosure statement.
The combined company’s strategic plan also anticipates that Macy’s product development division, which is responsible for private label, will be integrated with Federated Merchandising, which will develop private label for all divisions of the combined company.
The court filing said the combined company’s private label program will increase where appropriate.
Other highlights reported in the disclosure statement include:
In years 1995 through 1998, the combined company is expecting to spend approximately $1.9 billion, or 68 percent of its capital budget, to upgrade and maintain existing stores.
Roger Farah, who joined Macy on July 1 as president and chief operating officer, will receive a lump sum payment of $14 million if he leaves the combined company. In addition, the noncompete clause of his contract will be waived.
In the combined operation, Federated will continue its pay for performance program.
Federated and Macy’s have asked for a hearing on Sept. 29 for approval of the disclosure statement. Once it has been approved by the court, the $4.1 billion plan of reorganization will be sent to Macy’s creditors for their approval.
— Fairchild News Service