SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: September 21, 1995
FEDERATED DEPARTMENT STORES, INC.
1440 Broadway, New York, New York 10018
(212) 840-1440
-and-
7 West Seventh Street, Cincinnati,Ohio 45202
(513) 579-7000
Delaware 1-13536 13-3324058
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(State of Incorporation) (Commission File No.) (IRS Id. No.)
Exhibit Index on Page 25
Item 5. Other Events.
-------------
This Current Report on Form 8-K is being filed with the Securities and
Exchange Commission (the "Commission") by Federated Department Stores, Inc.
("Federated") for the purpose of setting forth the following information to be
incorporated by reference into Federated's Registration Statement on Form S-3
(File No. 33-59691):
RECENT DEVELOPMENTS
On August 14, 1995, Federated, a wholly owned subsidiary of Federated
("Newco"), and Broadway Stores, Inc. ("Broadway") entered into an agreement (the
"Merger Agreement") pursuant to which, on the terms and subject to the
conditions set forth therein, Newco will be merged with and into Broadway (the
"Merger"), and Broadway will thereby become a subsidiary of Federated. The
Merger is intended to permit Federated to broaden its base of department store
operations in the areas in which Broadway's department stores are operated
(primarily California and the Southwestern United States).
At the effective time of the Merger (the "Effective Time"), among
other things, each outstanding share of Broadway common stock will be converted
into 0.27 shares of common stock of Federated ("Common Stock"), resulting in the
issuance of approximately 12.7 million shares of Common Stock. In addition, the
Merger will result in (i) adjustments to outstanding options to purchase
Broadway common stock so that such options will become exercisable in the
aggregate to purchase approximately 1.5 million shares of Common Stock at prices
ranging from $14.81 to $51.85 per share and (ii) adjustments to outstanding
warrants to purchase Broadway common stock, and the issuance of Broadway
preferred stock exchangeable for warrants to purchase Common Stock, so that such
adjusted warrants and such warrants issuable upon the exchange of such preferred
stock will be exercisable in the aggregate to purchase approximately 0.6 million
shares of Common Stock at a price of $62.96 per share (subject to adjustment in
certain circumstances).
In connection with the Merger Agreement, Federated and Broadway's
majority stockholder entered into an agreement, pursuant to which, among other
things, such stockholder agreed to vote all of the shares of Broadway common
stock owned by it in favor of the adoption of the Merger Agreement and granted
to Federated an option to purchase such shares for consideration consisting of
0.27 shares of Common Stock for each such share of Broadway common stock. In
addition, Federated, a wholly owned subsidiary of Federated ("FNC II"), and The
Prudential Insurance Company of America ("Prudential") entered into an agreement
(the "Prudential Agreement") providing for the purchase by FNC II from
Prudential of certain mortgage indebtedness of Broadway (the
"Broadway/Prudential Mortgage Debt") for consideration consisting
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of a $221.1 million promissory note of FNC II and, at FNC II's option, either
$200.0 million in cash or a number of shares of the Common Stock determined in
accordance with the provisions of the Prudential Agreement. Each of Prudential
and Broadway's majority stockholder was granted certain registration rights with
respect to the shares of Common Stock issuable to it in connection with the
transactions described above.
The obligations of Federated and Broadway to consummate the Merger are
conditioned upon, among other things, (i) adoption of the Merger Agreement by
Broadway's stockholders; (ii) the absence of any order or injunction that
prohibits the consummation of the transactions contemplated by the Merger
Agreement; and (iii) all consents, authorizations, orders, and approvals of any
governmental authority required in connection with the Merger Agreement having
been obtained, other than any such consents, authorizations, orders, or
approvals which, if not obtained, would not have a material adverse effect on
the business, financial condition, or results of operations of Broadway. The
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") frequently scrutinize the
legality under the antitrust laws of transactions such as the Merger. At any
time before or after the Effective Time, the FTC or the Antitrust Division
could, among other things, seek under the antitrust laws to enjoin the Merger or
to cause Federated to divest itself, in whole or in part, of Broadway or of
other assets owned or businesses conducted by Federated. Under certain
circumstances, private parties and state governmental authorities could also
bring legal action under the antitrust laws challenging the Merger.
Federated anticipates that a number of Broadway's stores will be
disposed of following the Merger. As of the date hereof, however, Federated had
not entered into any agreements providing for such dispositions and there can be
no assurance that Federated will do so or as to the timing or terms thereof. If
the Merger is completed, Federated anticipates that Broadway's retained
department stores will be converted into Macy's, Bullock's, or Bloomingdale's
stores commencing early in 1996.
On or about the date hereof, Federated intends to enter into an
agreement providing for the issuance and sale in an underwritten public offering
of $250.0 million aggregate principal amount of Convertible Subordinated
Notes Due 2003 of Federated (the "Notes"), and for the grant to the underwriters
of such offering of an option to purchase up to an additional $37.5 million
aggregate principal amount of Notes to cover over-allotments, if any. The net
proceeds of the offering of the Notes (the "Offering") are estimated to be
approximately $243.8 million (assuming that the Underwriters' over-allotment
option is not exercised). Of such amount, up to approximately $145.0 million
is expected to be used to fund the aggregate purchase price for such
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of the 6-1/4% Convertible Senior Subordinated Notes Due 2000 of Broadway (the
"Broadway Convertible Notes") that Broadway may be required to purchase pursuant
to a mandatory offer to repurchase all of the Broadway Convertible Notes
following the Merger. The remainder of such amount, together with other funds
available to Federated, is expected to be used to pay certain costs and expenses
associated with the Merger and the conversion of certain of Broadway's stores
into Macy's, Bullock's, and Bloomingdale's stores (including costs and expenses
associated with the remodelling of such stores in connection with such
conversions). Prior to the application thereof as described above, the net
proceeds of the Offering are expected to be used by Federated to temporarily
reduce revolving credit borrowings. If the Merger were to fail to occur (which
failure is not anticipated), it is anticipated that the net proceeds of the
Offering would be used for general corporate purposes, which may include the
repayment of indebtedness outstanding from time to time, acquisitions, new store
construction, store expansions, and further investments in technology.
See "Capitalization" and "Unaudited Pro Forma Financial Information"
for certain information giving effect to the consummation of the Merger, the
purchase by FNC II of the Broadway/Prudential Mortgage Debt, and the issuance
and sale of the Notes, as though such transactions had been consummated as of
specified historical dates.
CAPITALIZATION
The following table sets forth (i) the capitalization of each of
Federated and Broadway as of July 29, 1995, (ii) the pro forma capitalization of
Federated as of that date, giving effect to the consummation of the Merger and
the purchase by FNC II of the Broadway/Prudential Mortgage Debt for
consideration assumed to consist of a $221,149,531 promissory note of FNC II,
6,751,055 shares of the Common Stock, and $6,751,051 in cash, and (iii) the pro
forma capitalization of Federated as of such date, as adjusted to give effect to
the Offering (assuming no exercise of the underwriters' over-allotment option)
and the application of the net proceeds thereof to repurchase the entire
outstanding principal amount of the Broadway Convertible Notes and to
temporarily reduce revolving credit borrowings (see "Recent Developments"), as
if such transactions had been consummated as of such date.
The pro forma information set forth below is presented for
illustrative purposes only and is not necessarily indicative of what Federated's
actual consolidated capitalization would have been had the foregoing
transactions been consummated on July 29, 1995, nor does it give effect to (a)
any transactions other than the foregoing transactions and those discussed in
the Notes to Unaudited Pro Forma Financial Information contained herein or (b)
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Federated's or Broadway's respective results of operations since July 29, 1995.
Accordingly, the pro forma information set forth below does not purport to be
indicative of Federated's consolidated capitalization as of the date hereof, the
Effective Time, or any other future date.
The following table should be read in conjunction with the historical
financial statements of Federated and Broadway, the unaudited pro forma
financial information and the related notes, and the other information contained
herein.
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PRO FORMA CAPITALIZATION
July 29, 1995
(unaudited)
(in thousands)
Historical As Adjusted
-------------------------
for the
Federated Broadway Pro Forma Offering
--------- ---------- --------- -------------
Short-term debt:
Bank credit facility . . . . . . . . . . $ 200,000 $ ---- $ 200,000 $ 100,000
Working capital facility . . . . . . . . ---- 51,676 51,676 51,676
Current portion of long-term debt . . . . 59,988 6,750 66,738 66,738
---------- ---------- ---------- -----------
Total short-term debt . . . . . . . . 259,988 58,426 318,414 218,414
---------- ---------- ---------- -----------
Long-term debt:
Bank credit facility . . . . . . . . . . 1,700,000 ---- 1,700,000 1,700,000
Receivables backed certificates . . . . . 1,654,052 ---- 1,654,052 1,654,052
Receivable based financing . . . . . . . ---- 503,584 503,584 503,584
The Notes . . . . . . . . . . . . . . . . ---- ---- ---- 250,000
Senior notes . . . . . . . . . . . . . . 450,000 ---- 450,000 450,000
Mortgages . . . . . . . . . . . . . . . 416,844 521,384 517,078 517,078
Senior convertible discount notes . . . 307,383 ---- 307,383 307,383
FNC note . . . . . . . . . . . . . . . . ---- ---- 221,150 221,150
Broadway Convertible Notes (a) . . . . . ---- 143,750 143,750 ----
Tax notes . . . . . . . . . . . . . . . . 174,749 ---- 174,749 174,749
Note monetization facility (b) . . . . . 352,000 ---- 352,000 352,000
Capitalized leases . . . . . . . . . . . 65,633 39,930 105,563 105,563
Other . . . . . . . . . . . . . . . . . 784 ---- 784 784
---------- ---------- ----------- -----------
Total long-term debt . . . . . . . . 5,121,445 1,208,648 6,130,093 6,236,343
---------- ---------- ----------- -----------
Total debt . . . . . . . . . . . . 5,381,433 1,267,074 6,448,507 6,454,757
---------- ---------- ----------- -----------
Shareholders' equity:
Common stock outstanding . . . . . . . . 2,126 470 2,321 2,321
Preferred stock outstanding . . . . . . ---- 8 ---- ----
Additional paid-in capital . . . . . . . 3,712,681 502,545 4,269,068 4,269,068
Retained earnings (deficit) . . . . . . 369,948 (197,610) 369,948 369,948
Treasury stock . . . . . . . . . . . . . (560,436) ---- (560,436) (560,436)
---------- ---------- ----------- -----------
Total shareholders' equity . . . . . 3,524,319 305,413 4,080,901 4,080,901
---------- ---------- ----------- -----------
Total capitalization . . . . . . . $8,905,752 $1,572,487 $10,529,408 $10,535,658
========== ========== =========== ===========
Ratio of total debt to total capitalization
(excluding note monetization facility) . 58.80% 80.58% 59.90% 59.93%
========= ========== ========= ===========
-------------------
(a) Following the consummation of the Merger, Broadway will be required to
offer to purchase all of the outstanding Broadway Convertible Notes at a
price equal to the principal amount thereof plus accrued interest.
(b) The note monetization facility represents debt of a trust of which
Federated is the beneficiary. The repayment of such debt is nonrecourse
to Federated and its assets (other than its interests in such trust).
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements of Federated give
effect to (i) the consummation of the Merger and the purchase by FNC II of the
Broadway/Prudential Mortgage Debt for consideration assumed to consist of a
$221,149,531 promissory note of FNC II, 6,751,055 shares of Common Stock, and
$6,751,051 in cash (the "Debt Purchase") and (ii) the Offering (assuming no
exercise of the underwriters' over-allotment option) and the application of the
net proceeds thereof to repurchase the entire outstanding principal amount of
the Broadway Convertible Notes and to temporarily reduce revolving credit
borrowings (see "Recent Developments"), in each case as if the foregoing
transactions had been consummated on July 29, 1995, in the case of the Unaudited
Pro Forma Balance Sheet at July 29, 1995, and on January 30, 1994, in the case
of the Unaudited Pro Forma Statements of Operations for the 26 weeks ended July
29, 1995 and the 52 weeks ended January 28, 1995. Because Federated's
acquisition of Macy's on December 19, 1994 was accounted for under the purchase
method of accounting, Federated's historical statements of operations give
effect to the results of operations of the R.H. Macy & Co. ("Macy's") business
only from and after such date. The Unaudited Pro Forma Statement of Operations
for the 52 weeks ended January 28, 1995 gives effect to Federated's acquisition
of Macy's as if such acquisition had been consummated on January 30, 1994 rather
than on December 19, 1994.
The following unaudited pro forma financial information is presented for
illustrative purposes only and is not necessarily indicative of what Federated's
actual financial position or results of operations would have been had the
foregoing transactions, including the acquisition of Macy's, been consummated on
such dates, nor does it give effect to (a) any transactions other than those
discussed above or in the accompanying Notes to Unaudited Pro Forma Financial
Information, (b) Federated's or Broadway's results of operations since July 29,
1995, (c) the synergies, cost savings, and one-time charges expected to result
from the Merger and from the acquisition of Macy's, or (d) the effects of sales
of stores which may occur subsequent to the Merger. Accordingly, the pro forma
financial information does not purport to be indicative of Federated's financial
position or results of operations as of the date hereof or for any period ended
on the date hereof, as of the Effective Time, for any period ending at the
Effective Time, or as of or for any other future date or period.
The following unaudited pro forma financial information is based in part on
the historical financial statements of Federated and Broadway (and, with respect
to the 52-weeks ended January 28, 1995, certain financial data of Macy's) and
should
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be read in conjunction with such historical financial statements, the related
notes, and the other information contained herein or in the exhibits hereto.
Certain historical financial statements of Broadway and Macy's are filed as
Exhibits 99.1 and 99.2, respectively, hereto and are incorporated herein by
reference. Certain items derived from Broadway's historical financial
statements have been reclassified to conform to the pro forma presentation.
In the preparation of the following unaudited pro forma financial
information, it has been generally assumed that the historical book value of
Broadway's assets approximates the fair value thereof, as an independent
valuation has not been completed. Federated will be required to determine the
fair value of the assets of Broadway (including intangible assets) as of the
Effective Time. Although such determination of fair value is not presently
expected to result in values that are materially greater or less than the values
assumed in the preparation of the following unaudited pro forma financial
information, there can be no assurance with respect thereto.
The retail business is seasonal in nature, with a higher proportion of sales
and earnings usually being generated in the months of November and December than
in other periods. Because of this seasonality and other factors, results of
operations for an interim period are not necessarily indicative of results of
operations for an entire fiscal year.
-8-
UNAUDITED PRO FORMA BALANCE SHEET
July 29, 1995
(in thousands)
Historical Pro Forma Adjustments
---------- ---------------------
Federated Broadway Debit Credit Pro Forma
--------- -------- ----- ------ ---------
ASSETS:
Current Assets:
Cash . . . . . . . . . . $ 238,173 $ 15,901 $ $ 8,000(b) $239,323
6,751(c)
Accounts Receivable . . 2,157,512 559,939 2,717,451
Merchandise Inventories
2,694,564 390,825 12,313(b) 3,054,164
18,912(b)
Supplies and prepaid
expenses . . . . . . . 107,509 25,418 15,800(b) 117,127
Deferred income taxes . 198,123 198,123
----------- ------------- -----------
Total Current Assets . . 5,395,881 992,083 6,326,188
Property and Equipment -
net . . . . . . . . . 5,261,698 885,002 6,146,700
Intangible Assets - net 1,027,033 ------ 134,937(b) 1,161,970
Notes Receivable . . . . 407,276 ------ 407,276
Other Assets . . . . . . 365,436 34,521 6,250(a) 20,757(b) 385,450
----------- ----------- -------- -------- -----------
Total Assets . . . . . $12,457,324 $ 1,911,606 $141,187 $82,533 $14,427,584
=========== =========== ======== ======= ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Current Liabilities:
Short-term debt . . . . . $ 259,988 $ 58,426 $100,000(a) $ $218,414
Accounts payable and
accrued liabilities . . 2,139,335 220,324 2,359,659
Income taxes . . . . . . 35,729 824 36,553
----------- ------------ -----------
Total Current
Liabilities . . . . . 2,435,052 279,574 2,614,626
Long-Term Debt . . . . . 5,121,445 1,208,648 421,150(c) 221,150(c) 6,236,343
143,750(a) 250,000(a)
Deferred Income Taxes . . 873,285 14,850 888,135
Other Liabilities . . . . 503,223 103,121 4,300(b) 7,718(b) 607,579
2,183(b)
Shareholders' Equity . . 3,524,319 305,413 305,413(b) 363,333(b) 4,080,901
193,249(c)
----------- ----------- -------- -------- -----------
Total Liabilities and
Shareholders' Equity $12,457,324 $ 1,911,606 $976,796 $1,035,450 $14,427,584
=========== ====================== ========== ===========
See accompanying Notes to Unaudited Pro Forma Financial Information.
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UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the 26 Weeks Ended July 29, 1995
(in thousands, except for per share data)
Historical Pro Forma Adjustments
---------- ---------------------
Federated Broadway Debit Credit Pro Forma
--------- -------- ----- ------ ---------
Net sales, including leased
department sales . . . . . . $ 6,035,255 $ 884,550 $ $ $ 6,919,805
----------- ----------- -----------
Cost of sales . . . . . . . . 3,686,836 676,550 ---- (a) 103,075 (d) 4,276,111
15,800 (b)
Selling, general and
administrative expenses . . 2,137,846 226,247 3,374 (c) 2,470,542
103,075 (d)
Business integration and
consolidation expenses . . . 172,345 ---- 172,345
Charitable contribution to
Federated Department Stores
Foundation . . . . . . . . . 25,581 ---- 25,581
----------- ---------- ----------
Operating income (loss) . . . 12,647 (18,247) (24,774)
Interest expense . . . . . . (223,558) (62,499) 8,198 (e) 28,486 (f) (264,524)
1,245 (g)
Interest income . . . . . . . 22,790 ---- 22,790
----------- ---------- ----------
Loss before income taxes . . (188,121) (80,746) (266,508)
Federal, state and local income
tax benefit . . . . . . . . . . 64,196 ---- 30,755 (h) 94,951
----------- ----- ----------
Net loss . . . . . . . . . . . $ (123,925) $ (80,746) $ (171,557)
=========== ========== ==========
OTHER INCOME STATEMENT DATA
EBITDA (i) . . . . . . . . . . $ 441,354 $ 425 $ 425,979
Loss per share of common stock (0.68) (1.72) (0.85)
Deficiency of earnings to fixed
charges . . . . . . . . . . . 188,807 81,260 267,708
See accompanying Notes to Unaudited Pro Forma Financial Information.
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UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the 52 Weeks Ended January 28, 1995
(in thousands, except for per share data)
Pro Forma Adjustments
for Macy's Acquisition
-------------------------
Historical Historical
Federated Debit Credit Pro Forma Broadway
---------- ----- ------ --------- ----------
Net sales, including leased department sales . . . . . . $8,315,877 $ $5,631,177 (A) $13,947,054 $2,086,804
---------- ---------- ----------
Cost of sales . . . . . . . . . . . . . . . . . . . . . 5,131,363 3,405,824 (A) 8,537,187 1,560,035
Selling, general and administrative expenses . . . . . . 2,549,122 2,110,615 (A) 22,682 (D) 4,575,351 463,075
22,975 (B) 84,679 (E)
Unusual items . . . . . . . . . . . . . . . . . . . . . 85,867 195,719 (A) 281,586 ---
---------- ----------- ----------
Operating income . . . . . . . . . . . . . . . . . . . . 549,525 552,930 63,694
Interest expense . . . . . . . . . . . . . . . . . . . . (262,115) 146,104 (A) (465,217) (100,904)
56,998 (C)
Interest income . . . . . . . . . . . . . . . . . . . . 43,874 255 (A) 44,129 ---
---------- ----------- ----------
Income (loss) before earthquake loss,
reorganization items and income taxes . . . . . . . . 331,284 131,842 (37,210)
Earthquake loss . . . . . . . . . . . . . . . . . . . . -- 15,000 (A) (15,000) ---
Reorganization items . . . . . . . . . . . . . . . . . . -- 50,914 (A) 50,914 ---
---------- ----------- ----------
Income (loss) before income taxes . . . . . . . . . . . 331,284 167,756 (37,210)
Federal, state and local income tax expense . . . . . . (143,668) 31,003 (F) (86,011) (150)
26,654 (A)
---------- ----------- ----------
Income (loss) from continuing operations . . . . . . . . $ 187,616 $ 81,745 $ (37,360)
========== =========== ==========
OTHER INCOME STATEMENT DATA
EBITDA (i) . . . . . . . . . . . . . . . . . . . . . . . $ 921,253 $ 1,303,359 $ 95,770
Income (loss) from continuing operations
per share of common stock . . . . . . . . . . . . . . $ 1.41 $ 0.45 $ (0.80)
Ratio of earnings to fixed charges . . . . . . . . . . . 1.99x 1.28x ---
Deficiency of earnings to fixed charges . . . . . . . . . -- --- 40,022
Pro Forma Adjustments for
the Merger, the Debt
--------------------
Purchase and the Offering
-------------------------
Debit Credit Pro Forma
----- ------ ---------
Net sales, including leased department sales . . . . . . $ $ $16,033,858
-----------
Cost of Sales . . . . . . . . . . . . . . . . . . . . . 295 (a) 201,242 (d) 9,896,275
-- (b)
Selling, general and administrative expenses . . . . . . 6,747 (c) 5,246,415
201,242 (d)
Unusual Items . . . . . . . . . . . . . . . . . . . . . 281,586
-----------
Operating income . . . . . . . . . . . . . . . . . . . . 609,582
Interest expense . . . . . . . . . . . . . . . . . . . . 15,626 (e) 54,253 (f) (526,296)
-- 1,198 (g)
Interest income . . . . . . . . . . . . . . . . . . . . 44,129
-----------
Income (loss) before earthquake loss,
reorganization items and income taxes . . . . . . . . 127,415
Earthquake loss . . . . . . . . . . . . . . . . . . . . (15,000)
Reorganization items . . . . . . . . . . . . . . . . . . 50,914
-----------
Income (loss) before income taxes . . . . . . . . . . . 163,329
Federal, state and local income tax expense . . . . . . 1,101 (h) (87,262)
-----------
Income (loss) from continuing operations . . . . . . . . $ 76,067
===========
OTHER INCOME STATEMENT DATA
EBITDA (i) . . . . . . . . . . . . . . . . . . . . . . . $ 1,398,834
Income (loss) from continuing operations
per share of common stock . . . . . . . . . . . . . . $ 0.38
Ratio of earnings to fixed charges . . . . . . . . . . . 1.24x
Deficiency of earnings to fixed charges . . . . . . . . . --
See accompanying Notes to Unaudited Pro Forma Financial Information.
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NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
Note 1. Unaudited Pro Forma Balance Sheet Adjustments
(a) To record the receipt of net proceeds of the Offering in the amount of
$243.8 million and the application of $143.8 million of such proceeds to
repurchase the entire outstanding principal amount of the Broadway
Convertible Notes.
(b) To record: (i) the Merger, which will be accounted for under the purchase
method of accounting, and the assumed issuance of 12,692,852 shares of
Common Stock at an assumed per share price of $28.625 (which was the
closing price of such shares on the NYSE on September 20, 1995; (ii)
adjustments to reflect the net assets acquired at fair value; and (iii) the
excess of cost over net assets acquired, all as set forth below:
Debit Credit Description
----- ------ -----------
(in thousands)
Cash . . . . . . . $ $ 8,000 Payment of transaction costs
Merchandise inventories . 12,313 Elimination of Broadway's last-in,
first-out ("LIFO") adjustment
18,912 Elimination of indirect costs
capitalized in Broadway's inventory
Supplies and prepaid
expenses . . . . . . . 15,800 Elimination of deferred expenses of
Broadway
Intangible assets - net . 134,937 To record excess of cost over net assets
Other assets . . . . . . 20,757 Elimination of deferred financing
costs of Broadway
Other liabilities . . . . 7,718 Adjustment to fair value of
Broadway's pension liability
4,300 Adjustment to fair value of
Broadway's other postretirement
benefits liabilities
2,183 Elimination of Broadway's rent
abatement reserve
Shareholders' equity . . 305,413 Elimination of Broadway's
shareholders' equity
363,333 Issuance of equity pursuant to the
--------- --------
Merger
$446,833 $446,833
======== ========
(c) To record the purchase by FNC II of the Broadway/Prudential Mortgage Debt
for consideration assumed to consist of a $221,149,531 promissory note of
FNC II, 6,751,055 shares of Common Stock, and $6,751,051 in cash. If FNC II
elects to pay a portion of the purchase price under the Prudential Agreement
in the form of Common Stock, such purchase price will be determined with
reference to actual market prices for shares of Common Stock (which market
prices may be higher or lower than the $28.625 per share price assumed for
purposes of the pro forma information).
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Note 2. Unaudited Pro Forma Statements of Operations for the 26 Weeks Ended
July 29, 1995 and the 52 Weeks Ended January 28, 1995--Adjustments for
the Merger, the Debt Purchase, and the Offering.
(a) To adjust Broadway's cost of sales to eliminate the effects of the
capitalization of inventory costs which will be expensed subsequent to the
Merger.
(b) To adjust Broadway's cost of sales to eliminate the effects of deferred
expenses written off in connection with the Merger.
(c) To record amortization of estimated excess of cost over net assets acquired
over an assumed 20-year period.
(d) To reclassify buying and occupancy costs as selling, general, and
administrative expenses consistent with Federated's accounting policies.
(e) To record interest expense on the promissory note issued by FNC II in
connection with the purchase of the Broadway/Prudential Mortgage Debt at
assumed rates per annum of 7.41% for the 26 weeks ended July 29, 1995 and
7.07% for the 52 weeks ended January 28, 1995.
(f) To reverse historical interest expense on the Broadway/Prudential Mortgage
Debt purchased by FNC II and to reverse amortization of deferred financing
costs.
(g) To record interest expense on the Notes at the assumed interest rate per
annum of 5.25% (which assumed rate may vary from the actual rate of interest
thereon) and to reverse historical expense interest of 6.25% per annum on
the Broadway Convertible Notes and reduce interest expense on revolving
credit borrowings.
(h) To adjust income tax expense (benefit) based upon an assumed composite
(federal, state, and local) income tax rate of 41%.
(i) EBITDA is defined for purposes of the pro forma information as earnings
before interest, taxes, depreciation, amortization, and unusual items.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow as determined by generally accepted accounting
principles.
Note 3. Unaudited Pro Forma Statement of Operations for the 52 Weeks Ended
January 28, 1995-- Adjustments for the Macy's Acquisition
(A) To record historical results of Macy's prior to December 19, 1994.
(B) To record amortization of excess of cost over net assets acquired over a 20-
year period and the fair value of Macy's trade names over a 40-year period.
(C) To record interest expense on the indebtedness incurred in connection with
the acquisition of Macy's and to reverse historical interest expense on
certain indebtedness of Macy's and Federated.
(D) To reverse amortization of deferred expense items eliminated in connection
with the acquisition of Macy's.
(E) To adjust depreciation of Macy's property and equipment to amounts based on
fair market value.
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(F) To adjust income tax expense (benefit) based upon an assumed composite
(federal, state, and local) income tax rate of 40%.
(G) Although no adjustments have been recorded in the Unaudited Pro Forma
Statements of Operations, it is estimated that Federated will have incurred
expenses in connection with the consolidation of Federated's and Macy's
operations of approximately $270.0 million in the 52 weeks subsequent to the
acquisition of Macy's (of which approximately $190.0 million had been
expensed through July 29, 1995).
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
Federated's certificate of incorporation provides that the authorized capital
stock of Federated consists of 500 million shares of Common Stock and 125
million shares of Preferred Stock, par value $0.01 per share (the "Preferred
Stock").
Common Stock
The holders of the Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Subject to
preferential rights that may be applicable to any Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors of Federated out of funds legally available therefor.
In the event of a liquidation, dissolution, or winding up of Federated, holders
of Common Stock will be entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any Preferred Stock.
Holders of Common Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities, and there are no redemption
provisions with respect to such shares.
Preferred Stock
The Board of Directors of Federated has the authority to issue 125 million
shares of Preferred Stock in one or more series and to fix the designations,
relative powers, preferences, limitations, and restrictions of all shares of
each such series, including without limitation dividend rates, conversion
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, and the number of shares constituting each such series, without any
further vote or action by the stockholders. The issuance of the Preferred Stock
could decrease the amount of earnings and assets available for distribution to
holders of Common Stock or adversely affect the rights and powers, including
voting rights, of the holders of Stock. The issuance of the Preferred Stock
could have the effect of delaying, deferring, or preventing a change in control
of Federated without further action by the stockholders.
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Preferred Share Purchase Rights
Each outstanding share of Common Stock is accompanied by one right (a
"Right") issued pursuant to a share purchase rights agreement between Federated
and The Bank of New York, as Rights Agent (the "Share Purchase Rights
Agreement"). Each Right entitles the registered holder thereof to purchase from
Federated one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $0.01 per share (the "Series A Preferred Shares"), of
Federated at a price (the "Purchase Price") of $62.50 per one one-hundredth of a
Series A Preferred Share, subject to adjustment.
Until the earliest to occur of the following dates (the earliest of such
dates being hereinafter called the "Rights Distribution Date"), the Rights will
be evidenced by the certificates evidencing shares of Common Stock: (i) the
close of business on the tenth business day (or such later date as may be
specified by the Board of Directors of Federated) following the first date of
public announcement by Federated that a person (other than Federated or a
subsidiary or employee benefit or stock ownership plan of Federated), together
with its affiliates and associates, has acquired, or obtained the right to
acquire, beneficial ownership of 20% or more of the outstanding Common Stock
(any such person being hereinafter called an "Acquiring Person"); (ii) the close
of business on the tenth business day (or such later date as may be specified by
the Board of Directors of Federated) following the commencement of a tender
offer or exchange offer by a person (other than Federated or a subsidiary or
employee benefit or stock ownership plan of Federated), the consummation of
which would result in beneficial ownership by such person of 20% or more of the
outstanding Common Stock; and (iii) the close of business on the tenth business
day following the first date of public announcement by Federated that a Flip-in
Event or a Flip-over Event (as such terms are hereinafter defined) has occurred.
The Share Purchase Rights Agreement provides that, until the Rights
Distribution Date, the Rights may be transferred with and only with the Common
Stock. Until the Rights Distribution Date (or earlier redemption or expiration
of the Rights), any certificate evidencing shares of Common Stock issued upon
transfer or new issuance of Common Stock will contain a notation incorporating
the Share Purchase Rights Agreement by reference. Until the Rights Distribution
Date (or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates evidencing Common Stock will also constitute the
transfer of the Rights associated with such certificates. As soon as
practicable following the Rights Distribution Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to holders of
record of Common Stock as of the close of business on the Rights
-15-
Distribution Date and such separate Rights Certificates alone will evidence the
Rights. No Right is exercisable at any time prior to the Rights Distribution
Date. The Rights will expire on December 19, 2004 (the "Final Expiration Date")
unless earlier redeemed or exchanged by Federated as described below. Until a
Right is exercised, the holder thereof, as such, will have no rights as a
stockholder of Federated, including without limitation the right to vote or to
receive dividends.
The Purchase Price payable, and the number of Series A Preferred Shares or
other securities issuable, upon exercise of the Rights are subject to adjustment
from time to time to prevent dilution (i) in the event of a stock dividend on,
or a subdivision, combination, or reclassification of, the Series A Preferred
Shares, (ii) upon the grant to holders of the Series A Preferred Shares of
certain rights or warrants to subscribe for or purchase Series A Preferred
Shares at a price, or securities convertible into Series A Preferred Shares with
a conversion price, less than the then-current market price of the Series A
Preferred Shares, or (iii) upon the distribution to holders of the Series A
Preferred Shares of evidences of indebtedness or cash (excluding regular
periodic cash dividends), assets, or stock (excluding dividends payable in
Series A Preferred Shares) or of subscription rights or warrants (other than
those referred to above). The number of outstanding Rights and the number of
one one-hundredths of a Series A Preferred Share issuable upon exercise of each
Right also is subject to adjustment in the event of a stock dividend on the
Common Stock payable in shares of Common Stock or a subdivision, combination, or
reclassification of the Common Stock occurring, in any such case, prior to the
Rights Distribution Date.
The Series A Preferred Shares issuable upon exercise of the Rights will not
be redeemable. Each Series A Preferred Share will be entitled to a minimum
preferential quarterly dividend payment equal to the greater of (i) $1.00 per
share and (ii) an amount equal to 100 times the aggregate dividends declared per
share of Common Stock during the related quarter. In the event of liquidation,
the holders of the Series A Preferred Shares will be entitled to a preferential
liquidation payment equal to the greater of (a) $100 per share and (b) an amount
equal to 100 times the liquidation payment made per share of Common Stock. Each
Series A Preferred Share will have 100 votes, voting together with the Common
Stock. In the event of any merger, consolidation, or other transaction in which
shares of Common Stock are exchanged, each Series A Preferred Share will be
entitled to receive 100 times the amount received per share of Common Stock.
These rights will be protected by customary antidilution provisions. Because of
the nature of the Series A Preferred Shares' dividend, voting and liquidation
rights, the value of the one one-hundredth interest in a Series A Preferred
-16-
Share purchasable upon exercise of each Right should approximate the value of
one share of Common Stock.
Rights may be exercised to purchase Series A Preferred Shares only after the
Rights Distribution Date occurs and prior to the occurrence of a Flip-in Event
or Flip-over Event. A Rights Distribution Date resulting from the commencement
of a tender offer or exchange offer described in clause (ii) of the definition
of "Rights Distribution Date" could precede the occurrence of a Flip-in Event or
Flip-over Event and thus result in the Rights being exercisable to purchase
Series A Preferred Shares. A Rights Distribution Date resulting from any
occurrence described in clause (i) or clause (iii) of the definition of "Rights
Distribution Date" would necessarily follow the occurrence of a Flip-in Event or
Flip-over Event and thus result in the Rights being exercisable to purchase
shares of Common Stock or other securities as described below.
In the event (a "Flip-in Event") that (i) any person, together with its
affiliates and associates, becomes the beneficial owner of 20% or more of the
outstanding Common Stock, (ii) any Acquiring Person merges into or combines with
Federated and Federated is the surviving corporation or any Acquiring Person
effects certain other transactions with Federated, as described in the Share
Purchase Rights Agreement, or (iii) during such time as there is an Acquiring
Person, there is any reclassification of securities or recapitalization or
reorganization of Federated which has the effect of increasing by more than 1%
the proportionate share of the outstanding shares of any class of equity
securities of Federated or any of its subsidiaries beneficially owned by the
Acquiring Person, proper provision will be made so that each holder of a Right,
other than Rights that are or were owned beneficially by the Acquiring Person
(which, from and after the later of the Rights Distribution Date and the date of
the earliest of any such events, will be void), will thereafter have the right
to receive upon exercise thereof at the then-current exercise price of the
Right, that number of shares of Common Stock (or, under certain circumstances,
an economically equivalent security or securities of Federated) that have a
market value of two times the exercise price of the Right.
In the event (a "Flip-over Event") that, following the first date of public
announcement by Federated that a person has become an Acquiring Person, (i)
Federated merges with or into any person and Federated is not the surviving
corporation, (ii) any person merges with or into Federated and Federated is the
surviving corporation, but all or part of the Common Stock is changed or
exchanged, or (iii) 50% or more of Federated's assets or earning power,
including without limitation securities creating obligations of Federated, are
sold, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof
-17-
at the then-current exercise price of the Right, that number of shares of common
stock (or, under certain circumstances, an economically equivalent security or
securities) of such other person which at the time of such transaction would
have a market value of two times the exercise price of the Right.
Following the occurrence of any Flip-in Event or Flip-over Event, Rights
(other than any Rights which have become void) may be exercised as described
above, upon payment of the exercise price or, at the option of the holder
thereof, without the payment of the exercise price that would otherwise be
payable. If a holder of Rights elects to exercise Rights without the payment of
the exercise price that would otherwise be payable, such holder will be entitled
to receive upon the exercise of such Rights securities having a market value
equal to the exercise price of the Rights. In addition, at any time after the
later of the Rights Distribution Date and the first occurrence of a Flip-in
Event or a Flip-over Event and prior to the acquisition by any person or group
of affiliated or associated persons of 50% or more of the outstanding Common
Stock, Federated may exchange the Rights (other than any Rights which have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock per Right (subject to adjustment).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments require an adjustment in the Purchase
Price of at least 1%. Federated is not required to issue fractional Series A
Preferred Shares (other than fractions that are integral multiples of one one-
hundredth of a Series A Preferred Share, which may, at the option of Federated,
be evidenced by depositary receipts) or fractional shares of Common Stock or
other securities issuable upon the exercise of Rights. In lieu of issuing such
securities, Federated may make a cash payment, as provided in the Share Purchase
Rights Agreement.
Federated may redeem the Rights in whole, but not in part, at a price of
$0.03 per Right, subject to adjustment and, in the event that the payment of
such amount would be prohibited by loan agreements or indentures to which
Federated is a party, deferral (the "Redemption Price"), at any time prior to
the close of business on the later of (i) the Rights Distribution Date and (ii)
the first date of public announcement that a person has become an Acquiring
Person. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the holders will have only the right to receive
the Redemption Price.
The Share Purchase Rights Agreement may be amended by Federated without the
approval of any holders of Rights, including amendments which add other events
requiring adjustment to the Purchase Price payable and the number of
-18-
Series A Preferred Shares or other securities issuable upon the exercise of the
Rights which modify procedures relating to the redemption of the Rights,
provided that no amendment may be made which decreases the stated Redemption
Price to an amount less than $0.01 per Right, decreases the period of time
remaining until the Final Expiration Date, or modifies a time period relating to
when the Rights may be redeemed at such time as the Rights are not then
redeemable.
Certain Corporate Governance Matters
Federated's certificate of incorporation and by-laws provide that the
directors of Federated are to be classified into three classes, with the
directors in each class serving for three-year terms and until their successors
are elected. Any additional person elected to the Board of Directors of
Federated will be added to a particular class of directors to be determined at
the time of such election, although in accordance with Federated's certificate
of incorporation and by-laws, the number of directors in each class will be
identical or as nearly as practicable thereto based on the total number of
directors then serving as such.
Federated's by-laws provide that nominations for election of directors by the
stockholders will be made by the Board of Directors of Federated or by any
stockholder entitled to vote in the election of directors generally.
Federated's by-laws require that stockholders intending to nominate candidates
for election as directors deliver written notice thereof to the Secretary of
Federated not later than 60 calendar days in advance of the meeting of
stockholders; provided, however, that in the event that the date of the meeting
is not publicly announced by Federated by inclusion in a report filed with the
Commission or furnished to stockholders, or by mail, press release, or otherwise
more than 75 calendar days prior to the meeting, notice by the stockholder to be
timely must be delivered to the Secretary of Federated not later than the close
of business on the tenth day following the date on which such announcement of
the date of the meeting was so communicated. Federated's by-laws further
require that the notice by the stockholder set forth certain information
concerning such stockholder and the stockholder's nominees, including their
names and addresses, a representation that the stockholder is entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, a description of all
arrangements or understandings between the stockholders and each nominee, such
other information as would be required to be included in a proxy statement
soliciting proxies for the election of the nominees of such stockholder, and the
consent of each nominee to serve as a director of Federated if so elected. The
chairman of the meeting may refuse to acknowledge
-19-
the nomination of any person not made in compliance with these requirements.
In addition to the provisions relating to the classification of the Board of
Directors and the director nomination procedures described above, Federated's
certificate of incorporation and by-laws provide, in general, that (i) the
number of directors of Federated will be fixed, within a specified range, by a
majority of the total number of Federated's directors (assuming no vacancies) or
by the holders of at least 80% of Federated's voting stock, (ii) the directors
of Federated in office from time to time will fill any vacancy or newly created
directorship on the Board of Directors of Federated with any new director to
serve in the class of directors to which he or she is so elected, (iii)
directors of Federated may be removed only for cause by the holders of at least
80% of Federated's voting stock, (iv) stockholder action can be taken only at an
annual or special meeting of stockholders and not by written consent in lieu of
a meeting, (v) except as described below, special meetings of stockholders may
be called only by Federated's Chief Executive Officer or by a majority of the
total number of directors of Federated (assuming no vacancies) and the business
permitted to be conducted at any such meeting is limited to that brought before
the meeting by Federated's Chief Executive Officer or by a majority of the total
number of directors of Federated (assuming no vacancies), and (vi) subject to
certain exceptions, the Board of Directors of Federated may postpone and
reschedule any previously scheduled annual or special meeting of stockholders.
Federated's by-laws also require that stockholders desiring to bring any
business before an annual meeting of stockholders deliver written notice thereof
to the Secretary of Federated not later than 60 calendar days in advance of the
meeting of stockholders; provided, however, that in the event that the date of
the meeting is not publicly announced by Federated by press release or inclusion
in a report filed with the SEC or furnished to stockholders more than 75
calendar days prior to the meeting, notice by the stockholders to be timely must
be delivered to the Secretary of Federated not later than the close of business
on the tenth calendar day following the day on which such announcement of the
date of the meeting was so communicated. Federated's by-laws further require
that the notice by the stockholder set forth a description of the business to be
brought before the meeting and the reasons for conducting such business at the
meeting and certain information concerning the stockholder proposing such
business and the beneficial owner, if any, on whose behalf the proposal is made
including their names and addresses, the class and number of shares of
Federated, that are owned beneficially and of record by each of them, and any
material interest of either of them in the business proposed to be brought
before the meeting. Upon the written request of the holders of not less than
15% of Federated's voting stock, the
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Board of Directors of Federated will be required to call a meeting of
stockholders for the purpose specified in such written request and fix a record
date for the determination of stockholders entitled to notice of and to vote at
such meeting (which record date may not be later than 60 calendar days after the
date of receipt of notice of such meeting), provided that in the event that the
Board or Directors of Federated calls an annual or special meeting of
stockholders to be held not later than 90 calendar days after receipt of any
such written request, no separate special meeting of stockholders as so
requested will be required to be convened provided that the purposes of such
annual or special meeting called by the Board of Directors of Federated include
(among others) the purposes specified in such written request of the
stockholders.
Under applicable provisions of Delaware law, the approval of a Delaware
company's board of directors, in addition to stockholder approval, is required
to adopt any amendment to the company's certificate of incorporation, but a
company's by-laws may be amended either by action of its stockholders or, if the
company's certificate of incorporation so provides, its board of directors.
Federated's certificate of incorporation and by-laws provide that (i) except as
described below, the provisions summarized above and the provisions relating to
the classification of the Board and nominating procedures may not be amended by
the stockholders, nor may any provision inconsistent therewith be adopted by the
stockholders, without the affirmative vote of the holders of at least 80% of
Federated's voting stock, voting together as single class, except that if any
such action (other than any direct or indirect amendments to the provision
requiring that stockholder action be taken at a meeting of stockholders rather
than by written consent in lieu of a meeting) is approved by the holders of a
majority, but less than 80%, of the then-outstanding voting stock (in addition
to any other approvals require by law, including approval by the Board of
Directors of Federated with respect to any amendment to Federated's certificate
of incorporation), such action will be effective as of one year from the date of
adoption, or (ii) Federated's by-law provisions relating to the right of
stockholders to cause special meetings of stockholders to be called and to the
composition of certain directorate committees may not be amended by the Board
without stockholder approval.
Federated is subject to Section 203 of the DGCL, which restricts the
consummation of certain business combination transactions in certain
circumstances. In addition, Federated's certificate of incorporation contains
provisions that are substantially similar to those contained in Section 203 of
the DGCL that restrict business combination transactions with (i) any person or
group that became or is deemed to have become the beneficial owner of 15% or
more of the voting stock of Federated as a result of its receipt of Common Stock
or
-21-
warrants pursuant to the plan of reorganization that thereafter becomes the
beneficial owner of an additional 1% or more of the voting stock of Federated
and (ii) any other person or group that becomes the beneficial owner of 15% more
of the voting stock of Federated.
The foregoing provisions of Federated's certificate of incorporation, the
provisions of its by-laws relating to advance notice of stockholder nominations,
and the provisions of the Share Purchase Rights Agreement (see "--Preferred
Share Purchase Rights") may discourage or make more difficult the acquisition of
control of Federated by means of a tender offer, open market purchase, proxy
contest, or otherwise. These provisions are intended to discourage or may have
the effect of discouraging certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
Federated first to negotiate with Federated. Federated's management believes
that the foregoing measures, many of which are substantially similar to the
takeover-related measures in effect for many other publicly held companies,
provide benefits by enhancing Federated's potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to take over or
restructure Federated that outweigh the disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.
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Item 7. Financial Statements, Pro Forma Financial
-----------------------------------------
Information and Exhibits.
-------------------------
The following exhibits are filed herewith:
12 Statement of Computation of Ratios
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
99.1 (i) Consolidated financial statements of Broadway as of January 28, 1995
and January 29, 1994 and for each of the two fiscal years ended January
28, 1995, the 17 weeks ended January 30, 1993 and the 35 weeks ended
October 3, 1992 and (ii) unaudited consolidated financial statements
of Broadway as of July 29, 1995 and for the 26 weeks ended July 29, 1995
99.2 (i) Consolidated financial statements of Macy's as of July 30, 1994 and
July 31, 1993 and for each of the fiscal years ended July 30, 1994, July
31, 1993, and August 1, 1992 and (ii) unaudited consolidated financial
statements of Macy's as of October 29, 1994 and for the 13 weeks ended
October 29, 1994
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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 thereunto duly authorized.
FEDERATED DEPARTMENT STORES, INC.
Date: September 21, 1995 By: /s/ Dennis J. Broderick
---------------------------
Dennis J. Broderick
Senior Vice President,
General Counsel and
Secretary
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EXHIBIT INDEX
-------------
Exhibit
Number Description Page
------ ----------- ----
12 Statement of Computation of Ratio
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
99.1 (i) Consolidated financial statements of
Broadway as of January 28, 1995 and
January 29, 1994 and for each of the two fiscal
years ended January 28, 1995, the 17 weeks
ended January 30, 1993, and the 35 weeks
ended October 3, 1992 and (ii) unaudited
consolidated financial statements of Broadway
as of July 29, 1995 and for the 26 weeks ended
July 29, 1995
99.2 (i) Consolidated financial statements of Macy's
as of July 30, 1994 and July 31, 1993
and for each of the fiscal years ended July
30, 1994, July 31, 1993, and August 1, 1992
and (ii) unaudited consolidated financial
statements of Macy's as of October 29, 1994 and
for the 13 weeks ended October 29, 1994
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