Federated Department Stores, Inc. announced that it intends to dispose of the operations of its Fingerhut subsidiary.
"We have determined that there no longer is strategic value to Federated in retaining Fingerhut's operations, and we have no expectation that these businesses would contribute meaningfully to the company's future financial performance," said James M. Zimmerman, Federated's chairman and chief executive officer. "Therefore, the decision has been made to dispose of these businesses as expeditiously as possible in a manner consistent with maximizing their value to Federated."
Zimmerman said that while Federated has not ruled out the sale of the Fingerhut catalog as an ongoing business, it is unlikely that a buyer will be found given the highly specialized nature of that business and the current economic environment. Therefore, Federated is preparing to manage the closing of the Fingerhut catalog operation and the wind down and collection of the Fingerhut receivables portfolio. Fingerhut employs approximately 6,000 people in its core catalog operations, approximately 4,700 of whom are located in Minnesota, with an additional 1,300 at telemarketing and distribution centers in eastern Tennessee.
Federated, however, does expect to sell as ongoing businesses Arizona Mail Order, which issues catalogs under the names of Old Pueblo Traders, Lew Magram, Brownstone Studio and Bedford Fair; Figi's and Popular Club Plan.
The disposition and monetization of Fingerhut's assets are expected to generate approximately $1.1 to $1.3 billion of after- tax cash proceeds (net of one-time costs) over the next four years. The company said that after paying down approximately $500 million in asset-backed debt related to Fingerhut receivables, it expects to use the remainder of the anticipated cash flow for strategic investments to support its department store businesses, as well as for further debt reduction and stock buybacks. In addition, the company's cash flow on an ongoing basis is expected to be higher than it would be including Fingerhut.
Federated will begin to report Fingerhut financials under the heading of discontinued operations, effective with the fourth quarter of fiscal 2001. The attached restated financials for the last seven quarters demonstrate the effect of this move.
Zimmerman said that while the company has not finalized estimates of the financial impact of these potential transactions, it currently estimates that there will be approximately $800-950 million of after-tax, one-time costs from the disposition of Fingerhut operations, of which an estimated $150-200 million will be after-tax cash charges. These one-time costs, which will be taken in fiscal 2001, reflect assumptions for winding down the Fingerhut catalog operation, as well as anticipated proceeds from the sale of other businesses and assets.
There will be a conference call with analysts beginning at 9 a.m. ET Thursday, January 17th to discuss the Fingerhut announcement, as well as fiscal fourth quarter and 2002 earnings guidance that also was issued by Federated today. The public can access the call through the Federated website, but pre-registration is requested. The webcast will be archived for replay beginning approximately two hours after the conclusion of the live call. Weekly sales updates also are available by calling 513/579-7987, or at www.federated-fds.com.
Federated, with corporate offices in Cincinnati and New York, is one of the nation's leading department store retailers, with annual sales from continuing operations of more than $15.5 billion. Federated currently operates more than 450 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, as well as macys.com and Bloomingdale's By Mail.
(Note: 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 and timing of the disposition and monetization of Fingerhut's assets, the ability to dispose of and monetize Fingerhut's assets, and the amounts realized in the disposition and monetization of Fingerhut's assets.)
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