Macy's, Inc. 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K
Annual Report Pursuant to
Section 13 or 15(d)
of the Securities Exchange Act
of 1934
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For the Fiscal Year Ended
February 2, 2008
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Commission File Number:
1-13536
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Macys, Inc.
7 West Seventh
Street
Cincinnati, Ohio 45202
(513) 579-7000
and
151 West 34th
Street
New York, New York
10001
(212) 494-1602
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Incorporated in Delaware
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I.R.S. No. 13-3324058
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Securities Registered Pursuant
to Section 12(b) of the Act:
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Name of Each Exchange on
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Title of Each Class
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Which Registered
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Common Stock, par value $.01 per share
7.45% Senior Debentures due 2017
6.79% Senior Debentures due 2027
7% Senior Debentures due 2028
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New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
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Securities registered pursuant
to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant as of the last business
day of the registrants most recently completed second
fiscal quarter (August 4, 2007) was approximately
$14,680,082,000.
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Class
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Outstanding at February 29, 2008
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Common Stock, $0.01 par value per share
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420,118,162 shares
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DOCUMENTS
INCORPORATED BY REFERENCE
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Parts Into
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Document
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Which Incorporated
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Proxy Statement for the Annual Meeting of Stockholders to be
held May 16, 2008 (Proxy Statement)
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Part III
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Explanatory
Note
In May 2007, the stockholders of Federated Department Stores,
Inc. approved changing the name of the company from Federated
Department Stores, Inc. to Macys, Inc. The name change
became effective on June 1, 2007.
On August 30, 2005, Macys, Inc.
(Macys) completed the acquisition of The May
Department Stores Company (May) by means of a merger
of May with and into a wholly-owned subsidiary of Macys
(the Merger). As a result of the Merger, Mays
separate corporate existence terminated. Upon the completion of
the Merger, the subsidiary was merged with and into Macys
and its separate corporate existence terminated.
Unless the context requires otherwise (i) references
herein to the Company are, for all periods prior to
August 30, 2005 (the Merger Date), references
to Macys and its subsidiaries and their respective
predecessors, and for all periods following the Merger Date,
references to Macys and its subsidiaries, including the
acquired May entities, and (ii) references to
2007, 2006, 2005,
2004 and 2003are references to the
Companys fiscal years ended February 2, 2008,
February 3, 2007, January 28, 2006, January 29,
2005 and January 31, 2004, respectively.
Forward-Looking
Statements
This report and other reports, statements and information
previously or subsequently filed by the Company with the
Securities and Exchange Commission (the SEC) contain
or may contain forward-looking statements. Such statements are
based upon the beliefs and assumptions of, and on information
available to, the management of the Company at the time such
statements are made. The following are or may constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995: (i) statements
preceded by, followed by or that include the words
may, will, could,
should, believe, expect,
future, potential,
anticipate, intend, plan,
think, estimate or continue
or the negative or other variations thereof, and
(ii) statements regarding matters that are not historical
facts. Such forward-looking statements are subject to various
risks and uncertainties, including:
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risks and uncertainties relating to the possible invalidity
of the underlying beliefs and assumptions;
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competitive pressures from department and specialty stores,
general merchandise stores, manufacturers outlets,
off-price and discount stores, and all other retail channels,
including the Internet, mail-order catalogs and television;
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general consumer-spending levels, including the impact of the
availability and level of consumer debt, levels of consumer
confidence and the effects of the weather or natural
disasters;
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possible changes or developments in social, economic,
business, industry, market, legal and regulatory circumstances
and conditions;
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actions taken or omitted to be taken by third parties,
including customers, suppliers, business partners, competitors
and legislative, regulatory, judicial and other governmental
authorities and officials;
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adverse changes in relationships with vendors and other
product and service providers;
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risks related to currency and exchange rates and other
capital market, economic and geo-political conditions;
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risks associated with severe weather and changes in weather
patterns;
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risks associated with an outbreak of an epidemic or pandemic
disease;
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the potential impact of national and international security
concerns on the retail environment, including any possible
military action, terrorist attacks or other hostilities;
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risks associated with the possible inability of the
Companys manufacturers to deliver products in a timely
manner or meet quality standards;
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risks associated with the Companys reliance on foreign
sources of production, including risks related to the disruption
of imports by labor disputes;
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risks related to duties, taxes, other charges and quotas on
imports; and
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systems failures
and/or
security breaches, including, any security breach that results
in the theft, transfer or unauthorized disclosure of customer,
employee or company information, or the failure to comply with
various laws applicable to the company in the event of such a
breach.
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In addition to any risks and uncertainties specifically
identified in the text surrounding such forward-looking
statements, the statements in the immediately preceding sentence
and the statements under captions such as Risk
Factors and Special Considerations in reports,
statements and information filed by the Company with the SEC
from time to time constitute cautionary statements identifying
important factors that could cause actual amounts, results,
events and circumstances to differ materially from those
reflected in such forward-looking statements.
General. The Company is a Delaware
corporation. The Company and its predecessors have been
operating department stores since 1820. On May 18, 2007,
the shareholders of the Company approved a change in its
corporate name from Federated Department Stores, Inc. to
Macys, Inc., effective June 1, 2007. On June 1,
2007, the Companys shares began trading under the ticker
symbol M on the New York Stock Exchange
(NYSE).
Upon the completion of the Merger, the Company acquired
Mays approximately 500 department stores and approximately
800 bridal and formalwear stores. Most of the acquired May
department stores were converted to the Macys nameplate in
September 2006, resulting in a national retailer with stores in
almost all major markets. The operations of the acquired
Lord & Taylor division and the bridal group
(consisting of Davids Bridal, After Hours Formalwear and
Priscilla of Boston) have been divested and are presented as
discontinued operations. As a result of the acquisition and the
integration of the acquired May operations, as of
February 2, 2008, the continuing operations of the Company
included 853 stores in 45 states, the District of Columbia,
Guam and Puerto Rico under the names Macys and
Bloomingdales.
During 2007, the Company conducted its operations through seven
Macys divisions, together with its Bloomingdales
division, macys.com division and bloomingdales.com division
(which also operates Bloomingdales By Mail). On
February 6, 2008, the Company announced its intent to
consolidate three of its Macys divisions. The Company will
consolidate its Minneapolis-based Macys North organization
into New York-based Macys East, its St. Louis-based
Macys Midwest organization into Atlanta-based Macys
South and its Seattle-based Macys Northwest organization
into San Francisco-based Macys West. The
Atlanta-based division will be renamed Macys Central. The
consolidation of divisional central office organizations is
expected to be completed in the second quarter of 2008. In
conjunction with these division consolidations, the
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Company will restructure the field organizations in these
geographical areas to better localize product offerings and
service levels.
The Companys retail stores sell a wide range of
merchandise, including mens, womens and
childrens apparel and accessories, cosmetics, home
furnishings and other consumer goods, and are diversified by
size of store, merchandising character and character of
community served. Most stores are located at urban or suburban
sites, principally in densely populated areas across the United
States.
The Company, through its divisions, conducts electronic commerce
and direct-to-customer mail catalog businesses under the names
macys.com, bloomingdales.com and
Bloomingdales By Mail. Additionally, the
Company offers an on-line bridal registry to customers.
For 2007, 2006 and 2005, the following merchandise constituted
the following percentages of sales:
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2007
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2006
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2005
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Feminine Accessories, Intimate Apparel, Shoes and Cosmetics
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36
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%
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35
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%
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34
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Feminine Apparel
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27
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28
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27
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Mens and Childrens
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22
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22
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22
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Home/Miscellaneous
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15
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15
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17
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100
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%
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100
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%
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100
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%
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The Company provides various support functions to its retail
operating divisions on an integrated, company-wide basis.
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The Companys subsidiary, FDS Bank, and its financial,
administrative and credit services subsidiary, Macys
Credit and Customer Service, Inc. (formerly known as FACS Group,
Inc.) (MCCS), provide credit processing, certain
collections, customer service and credit marketing services for
the proprietary credit programs of the Companys retail
operating divisions in respect of all proprietary and
non-proprietary credit card accounts owned either by Department
Stores National Bank (DSNB), a subsidiary of
Citibank, N.A., or FDS Bank. In addition, MCCS provides payroll
and benefits services to the Companys retail operating and
service subsidiaries and divisions.
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As previously reported, on June 1, 2005, the Company and
certain of its subsidiaries entered into a Purchase, Sale and
Servicing Transfer Agreement (the Purchase
Agreement) with Citibank, N.A. (together with its
subsidiaries, as applicable, Citibank). The Purchase
Agreement provided for, among other things, the purchase by
Citibank of substantially all of (i) the credit card
accounts and related receivables owned by FDS Bank,
(ii) the Macys credit card accounts and
related receivables owned by GE Money Bank, immediately upon the
purchase by the Company of such accounts from GE Money Bank, and
(iii) the proprietary credit card accounts and related
receivables owned by May (collectively, the Credit
Assets). Various arrangements between the Company and
Citibank in respect of the Credit Assets are set forth in a
credit card program agreement, including arrangements relating
to the servicing of the Credit Assets by FDS Bank and MCCS.
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Macys Systems and Technology, Inc. (formerly known as
Federated Systems Group, Inc.) (MST), a wholly-owned
indirect subsidiary of the Company, provides (directly and
pursuant to outsourcing arrangements with third parties)
operational electronic data processing and management
information services to each of the Companys retail
operating and service subsidiaries and divisions.
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Macys Merchandising Group, Inc. (MMG), a
wholly-owned indirect subsidiary of the Company, is responsible
for all of the private label development of the Companys
Macys divisions. MMG also helps the Company to centrally
develop and execute consistent merchandise strategies while
retaining the ability to tailor merchandise assortments and
strategies to the particular character and customer base of the
Companys various department store markets.
Bloomingdales uses MMG for some of its private label
merchandise but sources most of its private label merchandise
through Associated Merchandising Corporation.
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Macys Logistics and Operations (formerly known as
Federated Logistics and Operations) (Macys
Logistics), a division of a wholly-owned indirect
subsidiary of the Company, provides warehousing and merchandise
distribution services, store design and construction services
and certain supply purchasing services for the Companys
retail operating subsidiaries and divisions.
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Macys Home Store, LLC, a wholly-owned indirect subsidiary
of the Company, is responsible for the overall strategy,
merchandising and marketing of home-related merchandise
categories in all of the Companys Macys stores.
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Macys Corporate Marketing, a division of a wholly-owned
subsidiary of the Company, is responsible for the development of
distinctive sales promotion programs that are national in scope
for the all of the Companys Macys stores and for
managing national public relations and annual events, credit
marketing and cause-related marketing initiatives for the
Macys stores.
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A specialized staff maintained in the Companys corporate
offices provides services for all retail operating subsidiaries
and divisions of the Company in such areas as accounting, legal,
human resources, real estate and insurance, as well as various
other corporate office functions.
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MCCS, MST and MMG also offer their services, either directly or
indirectly, to unrelated third parties.
The Companys executive offices are located at 7 West
Seventh Street, Cincinnati, Ohio 45202, telephone number:
(513) 579-7000
and 151 West 34th Street, New York, New York 10001,
telephone number:
(212) 494-1602.
Employees. As of February 2, 2008, the
Companys continuing operations had approximately 182,000
regular full-time and part-time employees. Because of the
seasonal nature of the retail business, the number of employees
peaks in the holiday season. Approximately 10% of the
Companys employees as of February 2, 2008 were
represented by unions. Management considers its relations with
its employees to be satisfactory.
Seasonality. The retail business is seasonal
in nature with a high proportion of sales and operating income
generated in the months of November and December. Working
capital requirements fluctuate during the year, increasing in
mid-summer in anticipation of the fall merchandising season and
increasing substantially prior to the holiday season when the
Company must carry significantly higher inventory levels.
Purchasing. The Company purchases merchandise
from many suppliers, no one of which accounted for more than 5%
of the Companys net purchases during 2007. The Company has
no long-term purchase commitments or arrangements with any of
its suppliers, and believes that it is not dependent on any one
supplier. The Company considers its relations with its suppliers
to be satisfactory.
Competition. The retailing industry is
intensely competitive. The Companys stores and
direct-to-customer business operations compete with many
retailing formats in the geographic areas in which they operate,
including department stores, specialty stores, general
merchandise stores, off-price and discount stores, new and
established forms of home shopping (including the Internet, mail
order catalogs and television) and
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manufacturers outlets, among others. The retailers with
which the Company competes include Bed Bath & Beyond,
Belk, Bon-Ton, Burlington Coat Factory, Dillards, Gap,
Gottschalk, J.C. Penney, Kohls, Limited, Linens n
Things, Lord & Taylor, Neiman Marcus, Nordstrom, Saks,
Sears, Stage Stores, Target, TJ Maxx and Wal-Mart. The Company
seeks to attract customers by offering superior selections,
value pricing, and strong private label merchandise in stores
that are located in premier locations, and by providing an
exciting shopping environment and superior service. Other
retailers may compete for customers on some or all of these
bases, or on other bases, and may be perceived by some potential
customers as being better aligned with their particular
preferences.
Available Information. The Company makes its
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act available free
of charge through its internet website at
http://www.macysinc.com
as soon as reasonably practicable after it electronically
files such material with, or furnishes it to, the SEC. The
public also may read and copy any of these filings at the
SECs Public Reference Room, 100 F Street, NE,
Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at
1-800-732-0330.
The SEC also maintains an Internet site that contains the
Companys filings; the address of that site is
http://www.sec.gov.
In addition, the Company has made the following available free
of charge through its website at
http://www.macysinc.com:
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Audit Committee Charter,
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Compensation and Management Development Committee Charter,
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Finance Committee Charter,
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Nominating and Corporate Governance Committee Charter,
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Corporate Governance Principles, and
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Code of Business Conduct and Ethics.
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Any of these items are also available in print to any
shareholder who requests them. Requests should be sent to the
Corporate Secretary of Macys, Inc. at 7 West
7th
Street, Cincinnati, OH 45202.
Executive Officers of the Registrant.
The following table sets forth certain information as of
March 21, 2008 regarding the executive officers of the
Company:
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Name
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Age
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Position with the Company
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Terry J. Lundgren
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55
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Chairman of the Board; President and Chief Executive Officer;
Director
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Thomas G. Cody
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66
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Vice Chair
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Thomas L. Cole
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59
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Vice Chair
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Janet E. Grove
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57
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Vice Chair
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Susan D. Kronick
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56
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Vice Chair
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Karen M. Hoguet
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Executive Vice President and Chief Financial Officer
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Dennis J. Broderick
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Senior Vice President, General Counsel and Secretary
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Joel A. Belsky
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54
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Vice President and Controller
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Terry J. Lundgren has been Chairman of the Board since January
2004 and President and Chief Executive Officer of the Company
since February 2003; prior thereto he served as the
President / Chief Operating Officer and Chief
Merchandising Officer of the Company from April 2002 to February
2003. Mr. Lundgren served as the President and Chief
Merchandising Officer of the Company from May 1997 to April 2002.
Thomas G. Cody has been Vice Chair, Legal, Human Resources,
Internal Audit and External Affairs of the Company since
February 2003; prior thereto he served as the Executive Vice
President, Legal and Human Resources, of the Company from May
1988 to February 2003.
Thomas L. Cole has been Vice Chair, Support Operations of the
Company since February 2003 and Chairman of Macys
Logistics since 1995, MST since 2001 and MCCS since 2002.
Janet E. Grove has been Vice Chair, Merchandising, Private Brand
and Product Development of the Company since February 2003 and
Chairman of MMG since 1998 and Chief Executive Officer of MMG
since 1999.
Susan D. Kronick has been Vice Chair, Department Store Divisions
of the Company since February 2003; prior thereto she served as
Group President, Regional Department Stores of the Company from
April 2001 to February 2003; and prior thereto as Chairman and
Chief Executive Officer of Macys Florida from June 1997 to
February 2003.
Karen M. Hoguet has been Executive Vice President of the Company
since June 2005 and Chief Financial Officer of the Company since
October 1997.
Dennis J. Broderick has been Secretary of the Company since July
1993 and Senior Vice President and General Counsel of the
Company since January 1990.
Joel A. Belsky has been Vice President and Controller of the
Company since October 1996.
In evaluating the Company, the risks described below and the
matters described in Forward-Looking Statements
should be considered carefully. Such risks and matters could
significantly and adversely affect the Companys business,
prospects, financial condition, results of operations and cash
flows.
The
Company faces significant competition in the retail
industry.
The Company conducts its retail merchandising business under
highly competitive conditions. Although the Company is one of
the nations largest retailers, it has numerous and varied
competitors at the national and local levels, including
conventional and specialty department stores, other specialty
stores, category killers, mass merchants, value retailers,
discounters, and Internet and mail-order retailers. Competition
may intensify as the Companys competitors enter into
business combinations or alliances. Competition is characterized
by many factors, including assortment, advertising, price,
quality, service, location, reputation and credit availability.
If the Company does not compete effectively with regard to these
factors, its results of operations could be materially and
adversely affected.
The
Companys sales and operating results depend on consumer
preferences and consumer spending.
The fashion and retail industries are subject to sudden shifts
in consumer trends and consumer spending. The Companys
sales and operating results depend in part on its ability to
predict or respond to changes in fashion trends and consumer
preferences in a timely manner. The Company develops new retail
concepts and
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continuously adjusts its industry position in certain major and
private-label brands and product categories in an effort to
satisfy customers. Any sustained failure to anticipate, identify
and respond to emerging trends in lifestyle and consumer
preferences could have a material adverse affect on the
Companys business. Consumer spending may be affected by
many factors outside of the Companys control, including
employment levels, consumer confidence, consumers
disposable income, the availability and cost of credit and other
general economic conditions.
The
Companys business is subject to unfavorable economic and
political conditions and other developments and risks.
Unfavorable global, domestic or regional economic or political
conditions and other developments and risks could negatively
affect the Companys business. For example, unfavorable
changes related to interest rates, rates of economic growth,
fiscal and monetary policies of governments, inflation,
deflation, consumer credit availability, consumer debt levels,
tax rates and policy, unemployment trends, oil prices, and other
matters that influence the availability and cost of merchandise,
consumer confidence, spending and tourism could adversely impact
the Companys business and results of operations. In
addition, unstable political conditions or civil unrest,
including terrorist activities and worldwide military and
domestic disturbances and conflicts, may disrupt commerce and
could have a material adverse effect on the Companys
business and results of operations.
The
Companys revenues and cash requirements are affected by
the seasonal nature of its business.
The Companys business is seasonal, with a high proportion
of revenues and operating cash flows generated during the second
half of the fiscal year, which includes the fall and holiday
selling seasons. A disproportionate amount of revenues fall in
the fourth fiscal quarter, which coincides with the holiday
season. In addition, the Company incurs significant additional
expenses in the period leading up to the months of November and
December in anticipation of higher sales volume in those
periods, including for additional inventory, advertising and
employees.
The
Companys business could be affected by extreme weather
conditions or natural disasters.
Extreme weather conditions in the areas in which the
Companys stores are located could adversely affect the
Companys business. For example, frequent or unusually
heavy snowfall, ice storms, rain storms or other extreme weather
conditions over a prolonged period could make it difficult for
the Companys customers to travel to its stores and thereby
reduce the Companys sales and profitability. The
Companys business is also susceptible to unseasonable
weather conditions. For example, extended periods of
unseasonably warm temperatures during the winter season or cool
weather during the summer season could render a portion of the
Companys inventory incompatible with those unseasonable
conditions. Reduced sales from extreme or prolonged unseasonable
weather conditions could adversely affect the Companys
business.
In addition, natural disasters such as hurricanes, tornadoes and
earthquakes, or a combination of these or other factors, could
severely damage or destroy one or more of the Companys
stores or warehouses located in the affected areas, thereby
disrupting the Companys business operations.
The
Companys pension costs could increase at a higher than
anticipated rate.
Significant changes in interest rates, decreases in the fair
value of plan assets and investment losses on plan assets could
affect the funded status of the Companys plans and could
increase future funding
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requirements of the pension plans. A significant increase in
future funding requirements could have a negative impact on the
Companys cash flows, financial condition or results of
operations.
Inability
to access capital markets may adversely affect the
Companys business or financial condition.
Changes in the credit and capital markets, including market
disruptions, limited liquidity and interest rate fluctuations,
may increase the cost of financing or restrict the
Companys access to this potential source of future
liquidity. A decrease in the ratings that rating agencies assign
to the Companys short and long-term debt may negatively
impact the Companys access to the debt capital markets and
increase the Companys cost of borrowing. In addition, the
Companys bank credit agreements require the Company to
maintain specified interest coverage and leverage ratios. The
Companys ability to comply with the ratios may be affected
by events beyond its control, including prevailing economic,
financial and industry conditions. If the Companys results
of operations or operating ratios deteriorate to a point where
the Company is not in compliance with its debt covenants, and
the Company is unable to obtain a waiver, much of the
Companys debt would be in default and could become due and
payable immediately. The Companys assets may not be
sufficient to repay in full this indebtedness, resulting in a
need for an alternate source of funding. The inability to access
the capital markets as needed could adversely affect the
Companys business and financial condition.
The
Company depends on its ability to attract and retain quality
employees.
The Companys business is dependent upon attracting and
retaining a large and growing number of quality employees. Many
of these employees are in entry level or part-time positions
with historically high rates of turnover. The Companys
ability to meet its labor needs while controlling the costs
associated with hiring and training new employees is subject to
external factors such as unemployment levels, prevailing wage
rates, minimum wage legislation and changing demographics.
Changes that adversely impact the Companys ability to
attract and retain quality employees could adversely affect the
Companys business.
The
Company depends upon its relationships with designers, vendors
and other sources of merchandise.
The Companys relationships with established and emerging
designers have been a significant contributor to the
Companys past success. The Companys ability to find
qualified vendors and access products in a timely and efficient
manner is often challenging, particularly with respect to goods
sourced outside the United States. Political or financial
instability, trade restrictions, tariffs, currency exchange
rates, transport capacity and costs and other factors relating
to foreign trade, each of which affects the Companys
ability to access suitable merchandise on acceptable terms, are
beyond the Companys control and could adversely impact the
Companys performance.
The
Company depends upon the success of its advertising and
marketing programs.
The Companys advertising and promotional costs, net of
cooperative advertising allowances, amounted to
$1,194 million for 2007. The Companys business
depends on high customer traffic in its stores and effective
marketing. The Company has many initiatives in this area, and
often changes its advertising and marketing programs. There can
be no assurance as to the Companys continued ability to
effectively execute its advertising and marketing programs, and
any failure to do so could have a material adverse effect on the
Companys business and results of operations.
8
The
benefits expected to be realized from the division
consolidations and market localization initiatives are subject
to various risks, and the Companys failure to complete the
division consolidations and market localization initiatives
successfully or on a timely basis could reduce the
Companys profitability.
The Companys success in fully realizing the anticipated
benefits from the division consolidations and market
localization initiatives will depend in large part on achieving
anticipated cost savings, business opportunities and growth
prospects. There can be no assurance that anticipated cost
savings, business opportunities and growth prospects will
materialize. The Companys ability to benefit from the
division consolidations and market localization initiatives is
subject to both the risks affecting the Companys business
generally and the inherent difficulties associated with the
division consolidations and implementing the market localization
initiatives. The failure of the Company to realize the benefits
expected to result from the division consolidations and market
localization initiatives could have a material adverse effect on
the Companys business and results of operations.
A
material disruption in the Companys computer systems could
adversely affect the Companys business or results of
operations.
The Company relies extensively on its computer systems to
process transactions, summarize results and manage its business.
The Companys computer systems are subject to damage or
interruption from power outages, computer and telecommunications
failures, computer viruses, security breaches, catastrophic
events such as fires, floods, earthquakes, tornadoes,
hurricanes, acts of war or terrorism, and usage errors by the
Companys employees. If the Companys computer systems
are damaged or cease to function properly, the Company may have
to make a significant investment to fix or replace them, and the
Company may suffer loss of critical data and interruptions or
delays in its operations in the interim. Any material
interruption in the Companys computer systems could
adversely affect its business or results of operations.
A privacy
breach could adversely affect the Companys
business.
The protection of customer, employee, and company data is
critical to the Company. The regulatory environment surrounding
information security and privacy is increasingly demanding, with
the frequent imposition of new and constantly changing
requirements across business units. In addition, customers have
a high expectation that the Company will adequately protect
their personal information. A significant breach of customer,
employee, or company data could damage the Companys
reputation and result in lost sales, fines, or lawsuits.
A
regional or global health pandemic could severely affect the
Companys business.
A health pandemic is a disease that spreads rapidly and widely
by infection and affects many individuals in an area or
population at the same time. If a regional or global health
pandemic were to occur, depending upon its location, duration
and severity, the Companys business could be severely
affected. Customers might avoid public places in the event of a
health pandemic, and local, regional or national governments
might limit or ban public gatherings to halt or delay the spread
of disease. A regional or global health pandemic might also
adversely impact the Companys business by disrupting or
delaying production and delivery of materials and products in
its supply chain and by causing staffing shortages in its stores.
9
The
Company is subject to numerous regulations that could adversely
affect its business.
The Company is subject to customs, child labor,
truth-in-advertising
and other laws, including consumer protection regulations and
zoning and occupancy ordinances that regulate retailers
generally
and/or
govern the importation, promotion and sale of merchandise and
the operation of retail stores and warehouse facilities.
Although the Company undertakes to monitor changes in these
laws, if these laws change without the Companys knowledge,
or are violated by importers, designers, manufacturers or
distributors, the Company could experience delays in shipments
and receipt of goods or be subject to fines or other penalties
under the controlling regulations, any of which could adversely
affect the Companys business.
Litigation
or regulatory developments could adversely affect the
Companys business or financial condition.
The Company is subject to various federal, state and local laws,
rules and regulations, which may change from time to time. In
addition, the Company is regularly involved in various
litigation matters that arise in the ordinary course of its
business. Litigation or regulatory developments could adversely
affect the Companys business and financial condition.
Factors
beyond the Companys control could affect the
Companys stock price.
The Companys stock price, like that of other retail
companies, is subject to significant volatility because of many
factors, including factors beyond the control of the Company.
These factors may include:
|
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|
general economic and stock market conditions;
|
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|
|
risks relating to the Companys business and its industry,
including those discussed above;
|
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|
|
strategic actions by the Company or its competitors;
|
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|
|
variations in the Companys quarterly results of operations;
|
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|
|
future sales or purchases of the Companys common
stock; and
|
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|
|
investor perceptions of the investment opportunity associated
with the Companys common stock relative to other
investment alternatives.
|
In addition, the Company may fail to meet the expectations of
its stockholders or of analysts at some time in the future. If
the analysts that regularly follow the Companys stock
lower their rating or lower their projections for future growth
and financial performance, the Companys stock price could
decline. Also, sales of a substantial number of shares of the
Companys common stock in the public market or the
appearance that these shares are available for sale could
adversely affect the market price of the Companys common
stock.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
10
The properties of the Company consist primarily of stores and
related facilities, including warehouses and distribution and
fulfillment centers. The Company also owns or leases other
properties, including corporate office space in Cincinnati and
New York and other facilities at which centralized operational
support functions are conducted. As of February 2, 2008,
the continuing operations of the Company included 853 retail
stores in 45 states, the District of Columbia, Puerto Rico
and Guam, comprising a total of approximately
155,200,000 square feet. Of such stores, 471 were owned,
270 were leased and 112 stores were operated under arrangements
where the Company owned the building and leased the land. As of
February 2, 2008, the continuing operations of the Company
operated 21 warehouses and distribution and fulfillment centers
(DCs) in 12 states, of which 15 were owned,
five were leased and one was operated under an arrangement where
the Company owned the building and leased the land.
Substantially all owned properties are held free and clear of
mortgages. Pursuant to various shopping center agreements, the
Company is obligated to operate certain stores for periods of up
to 20 years. Some of these agreements require that the
stores be operated under a particular name. Most leases require
the Company to pay real estate taxes, maintenance and other
costs; some also require additional payments based on
percentages of sales and some contain purchase options. Certain
of the Companys real estate leases have terms that extend
for significant numbers of years and provide for rental rates
that increase or decrease over time.
Additional information about the Companys stores and
DCs is as follows:
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|
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|
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|
|
|
|
|
|
Property Data at February 2, 2008
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|
Stores
|
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|
|
|
|
|
|
|
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|
Subject to
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|
Total
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Owned
|
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|
Leased
|
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|
a Ground
|
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|
Total
|
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|
Owned
|
|
Geographic Region
|
|
Stores
|
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|
Stores
|
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|
Stores
|
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|
Lease
|
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|
DCs
|
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|
DCs
|
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|
Northeast Middle Atlantic
|
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|
135
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|
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|
63
|
|
|
|
54
|
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|
18
|
|
|
|
3
|
|
|
|
2
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|
Northeast New England
|
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|
56
|
|
|
|
36
|
|
|
|
18
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Midwest
|
|
|
144
|
|
|
|
92
|
|
|
|
36
|
|
|
|
16
|
|
|
|
3
|
|
|
|
2
|
|
South Atlantic
|
|
|
168
|
|
|
|
112
|
|
|
|
28
|
|
|
|
28
|
|
|
|
4
|
|
|
|
3
|
|
South Central
|
|
|
84
|
|
|
|
65
|
|
|
|
13
|
|
|
|
6
|
|
|
|
2
|
|
|
|
2
|
|
West Pacific
|
|
|
213
|
|
|
|
77
|
|
|
|
96
|
|
|
|
40
|
|
|
|
7
|
|
|
|
4
|
|
West Mountain
|
|
|
53
|
|
|
|
26
|
|
|
|
25
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
853
|
|
|
|
471
|
|
|
|
270
|
|
|
|
112
|
|
|
|
21
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Item 3.
|
Legal
Proceedings.
|
On January 11, 2006, Edward Decristofaro, an alleged former
May stockholder, filed a purported class action lawsuit in the
Circuit Court of St. Louis, Missouri on behalf of all
former May stockholders against May and the former members of
the board of directors of May. The complaint generally alleges
that the directors of May breached their fiduciary duties of
loyalty, due care, good faith and candor to May stockholders in
connection with the Merger. The plaintiffs seek rescission of
the Merger or an unspecified amount of rescissory damages and
costs including attorneys fees and experts fees. In
July 2007, the court denied the defendants motion to
dismiss the case. The Company believes the lawsuit is without
merit and intends to contest it vigorously.
On June 4, 2007 and June 28, 2007, respectively, each
of Robert L. Garber and Marlene Blanchard separately filed a
purported class action lawsuit in the United States District
Court for the Southern District of
11
New York against the Company and certain members of its senior
management on behalf of persons who purchased shares of the
Companys common stock between February 8, 2007 and
May 15, 2007. Both complaints allege that the defendants
made false and misleading statements regarding the
Companys business, operations and prospects in relation to
the integration of the acquired May operations, resulting in
supposed artificial inflation of the Companys
stock price during the relevant period, in violation of
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and
Rule 10b-5
thereunder. The plaintiffs seek an unspecified amount of
compensatory damages and costs. On September 5, 2007, the
court consolidated the two actions as In re Macys, Inc.
Securities Litigation, and appointed Pinellas Park Retirement
System (General Employees) as the lead plaintiff in the
consolidated action. The Company believes the lawsuit is without
merit and intends to contest it vigorously.
On June 20, 2007, the Pirelli Armstrong Tire Corp. Retiree
Medical Benefits Trust, an alleged stockholder of the Company,
filed a stockholder derivative action in the United States
District Court for the Southern District of New York. The
derivative complaint charges the members of the Companys
board of directors and certain members of senior management with
breach of fiduciary duty and violations of Section 10(b) of
the Securities Exchange Act of 1934 and
Rule 10b-5
thereunder, alleging that the defendants made false and
misleading statements regarding the Companys business,
operations and prospects in relation to the integration of the
acquired May operations, resulting in supposed artificial
inflation of the Companys stock price between
August 30, 2005 and May 15, 2007. Plaintiff seeks
various forms of relief from the defendants for the benefit of
the Company, including unspecified money damages and
disgorgement of profits from allegedly improper trading of
Company stock.
On October 3, 2007, Ebrahim Shanehchian, an alleged
participant in the Macys, Inc. Profit Sharing 401(k)
Investment Plan (the 401(k) Plan), filed a purported
class action lawsuit in the United States District Court for the
Southern District of Ohio on behalf of persons who participated
in the 401(k) Plan and The May Department Stores Company Profit
Sharing Plan (the May Plan) between
February 27, 2005 and the present. The complaint charges
the Company, as well as members of the Companys board of
directors and certain members of senior management, with breach
of fiduciary duties owed under the Employee Retirement Income
Security Act (ERISA) to participants in the 401(k)
Plan and the May Plan, alleging that the defendants made false
and misleading statements regarding the Companys business,
operations and prospects in relation to the integration of the
acquired May operations, resulting in supposed artificial
inflation of the Companys stock price between
August 30, 2005 and May 15, 2007. The plaintiff seeks
an unspecified amount of compensatory damages and costs. The
Company believes the lawsuit is without merit and intends to
contest it vigorously.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security-Holders.
|
None.
12
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
The Common Stock is listed on the NYSE under the trading symbol
M. As of February 2, 2008, the Company had
approximately 26,700 stockholders of record. The following table
sets forth for each fiscal quarter during 2007 and 2006 the high
and low sales prices per share of Common Stock as reported on
the NYSE Composite Tape and the dividend declared each fiscal
quarter on each share of Common Stock. Throughout this report,
share and per share amounts have been adjusted as appropriate to
reflect the two-for-one stock split effected in the form of a
stock dividend distributed on June 9, 2006.
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|
|
2007
|
|
|
2006
|
|
|
|
Low
|
|
|
High
|
|
|
Dividend
|
|
|
Low
|
|
|
High
|
|
|
Dividend
|
|
|
1st Quarter
|
|
|
40.88
|
|
|
|
46.70
|
|
|
|
0.1275
|
|
|
|
32.37
|
|
|
|
39.21
|
|
|
|
0.1250
|
|
2nd Quarter
|
|
|
33.61
|
|
|
|
45.50
|
|
|
|
0.1300
|
|
|
|
32.57
|
|
|
|
39.69
|
|
|
|
0.1275
|
|
3rd Quarter
|
|
|
28.51
|
|
|
|
36.71
|
|
|
|
0.1300
|
|
|
|
33.52
|
|
|
|
45.01
|
|
|
|
0.1275
|
|
4th Quarter
|
|
|
20.94
|
|
|
|
32.57
|
|
|
|
0.1300
|
|
|
|
36.12
|
|
|
|
44.86
|
|
|
|
0.1275
|
|
The following table provides information regarding the
Companys purchases of Common Stock during the fourth
quarter of 2007.
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Total Number
|
|
|
Average
|
|
|
Number of Shares
|
|
|
Open
|
|
|
|
of Shares
|
|
|
Price per
|
|
|
Purchased under
|
|
|
Authorization
|
|
|
|
Purchased
|
|
|
Share ($)
|
|
|
Program (1)
|
|
|
Remaining (1) ($)
|
|
|
|
(thousands)
|
|
|
|
|
|
(thousands)
|
|
|
(millions)
|
|
|
November 4, 2007 - December 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,170
|
|
December 2, 2007 - January 5, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,170
|
|
January 6, 2008 - February 2, 2008
|
|
|
12,992
|
|
|
|
24.50
|
|
|
|
12,992
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,992
|
|
|
|
24.50
|
|
|
|
12,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(1) |
|
The Companys board of directors initially approved a
$500 million authorization to purchase common stock on
January 27, 2000 and approved additional $500 million
authorizations on each of August 25, 2000, May 18,
2001 and April 16, 2003, additional $750 million
authorizations on each of February 27, 2004 and
July 20, 2004, an additional authorization of
$2,000 million on August 25, 2006 and an additional
authorization of $4,000 million on February 26, 2007.
All authorizations are cumulative and do not have an expiration
date. |
13
The following graph compares the cumulative total stockholder
return on the Common Stock with the Standard &
Poors 500 Composite Index and the Standard &
Poors Retail Department Store Index for the period from
January 31, 2003 through February 1, 2008, assuming an
initial investment of $100 and the reinvestment of all
dividends, if any.
The companies included in the S&P Retail Department Store
Index are Dillards, Macys, J.C. Penney, Kohls,
Nordstrom and Sears, as well as May for the periods of 2003 to
August 29, 2005.
14
|
|
Item 6.
|
Selected
Financial Data.
|
The selected financial data set forth below should be read in
conjunction with the Consolidated Financial Statements and the
notes thereto and the other information contained elsewhere in
this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006*
|
|
|
2005**
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(millions, except per share data)
|
|
|
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
26,313
|
|
|
$
|
26,970
|
|
|
$
|
22,390
|
|
|
$
|
15,776
|
|
|
$
|
15,412
|
|
Cost of sales
|
|
|
(15,677
|
)
|
|
|
(16,019
|
)
|
|
|
(13,272
|
)
|
|
|
(9,382
|
)
|
|
|
(9,175
|
)
|
Inventory valuation adjustments May integration
|
|
|
|
|
|
|
(178
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
10,636
|
|
|
|
10,773
|
|
|
|
9,093
|
|
|
|
6,394
|
|
|
|
6,237
|
|
Selling, general and administrative expenses
|
|
|
(8,554
|
)
|
|
|
(8,678
|
)
|
|
|
(6,980
|
)
|
|
|
(4,994
|
)
|
|
|
(4,896
|
)
|
May integration costs
|
|
|
(219
|
)
|
|
|
(450
|
)
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
Gains on sale of accounts receivable
|
|
|
|
|
|
|
191
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,863
|
|
|
|
1,836
|
|
|
|
2,424
|
|
|
|
1,400
|
|
|
|
1,341
|
|
Interest expense (a)
|
|
|
(579
|
)
|
|
|
(451
|
)
|
|
|
(422
|
)
|
|
|
(299
|
)
|
|
|
(266
|
)
|
Interest income
|
|
|
36
|
|
|
|
61
|
|
|
|
42
|
|
|
|
15
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
1,320
|
|
|
|
1,446
|
|
|
|
2,044
|
|
|
|
1,116
|
|
|
|
1,084
|
|
Federal, state and local income tax expense
|
|
|
(411
|
)
|
|
|
(458
|
)
|
|
|
(671
|
)
|
|
|
(427
|
)
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
909
|
|
|
|
988
|
|
|
|
1,373
|
|
|
|
689
|
|
|
|
693
|
|
Discontinued operations, net of income taxes (b)
|
|
|
(16
|
)
|
|
|
7
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
893
|
|
|
$
|
995
|
|
|
$
|
1,406
|
|
|
$
|
689
|
|
|
$
|
693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.04
|
|
|
$
|
1.83
|
|
|
$
|
3.22
|
|
|
$
|
1.97
|
|
|
$
|
1.88
|
|
Net income
|
|
|
2.00
|
|
|
|
1.84
|
|
|
|
3.30
|
|
|
|
1.97
|
|
|
|
1.88
|
|
Diluted earnings per share: (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.01
|
|
|
$
|
1.80
|
|
|
$
|
3.16
|
|
|
$
|
1.93
|
|
|
$
|
1.85
|
|
Net income
|
|
|
1.97
|
|
|
|
1.81
|
|
|
|
3.24
|
|
|
|
1.93
|
|
|
|
1.85
|
|
Average number of shares outstanding (c)
|
|
|
445.6
|
|
|
|
539.0
|
|
|
|
425.2
|
|
|
|
349.0
|
|
|
|
367.6
|
|
Cash dividends paid per share (c)
|
|
$
|
.5175
|
|
|
$
|
.5075
|
|
|
$
|
.385
|
|
|
$
|
.265
|
|
|
$
|
.1875
|
|
Depreciation and amortization
|
|
$
|
1,304
|
|
|
$
|
1,265
|
|
|
$
|
976
|
|
|
$
|
737
|
|
|
$
|
710
|
|
Capital expenditures
|
|
$
|
1,105
|
|
|
$
|
1,392
|
|
|
$
|
656
|
|
|
$
|
548
|
|
|
$
|
568
|
|
Balance Sheet Data (at year end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
583
|
|
|
$
|
1,211
|
|
|
$
|
248
|
|
|
$
|
868
|
|
|
$
|
925
|
|
Total assets
|
|
|
27,789
|
|
|
|
29,550
|
|
|
|
33,168
|
|
|
|
14,885
|
|
|
|
14,550
|
|
Short-term debt
|
|
|
666
|
|
|
|
650
|
|
|
|
1,323
|
|
|
|
1,242
|
|
|
|
908
|
|
Long-term debt
|
|
|
9,087
|
|
|
|
7,847
|
|
|
|
8,860
|
|
|
|
2,637
|
|
|
|
3,151
|
|
Shareholders equity
|
|
|
9,907
|
|
|
|
12,254
|
|
|
|
13,519
|
|
|
|
6,167
|
|
|
|
5,940
|
|
|
|
|
**
|
|
The May Department Stores Company
was acquired August 30, 2005 and the results of the
acquired operations have been included in the Companys
results of operations from the date of the acquisition.
|
|
|
|
(a)
|
|
Interest expense includes a gain of
approximately $54 million in 2006 related to the completion
of a debt tender offer and a cost of approximately
$59 million in 2004 associated with repurchases of the
Companys long-term debt.
|
|
(b)
|
|
Discontinued operations include
(1) for 2007, the after-tax results of the After Hours
Formalwear business, including an after-tax loss of
$7 million on the disposal of After Hours Formalwear,
(2) for 2006, the after-tax results of operations of the
Lord & Taylor division and the Bridal Group division
(including Davids Bridal, After Hours Formalwear, and
Priscilla of Boston), including after-tax losses of
$38 million and $18 million on the disposals of the
Lord & Taylor division and the Davids Bridal and
Priscilla of Boston businesses, respectively, and (3) for
2005, the after-tax results of operations of the
Lord & Taylor division and the Bridal Group division.
|
|
(c)
|
|
Share and per share amounts have
been adjusted as appropriate to reflect the two-for-one
stock-split effected in the form of a stock dividend distributed
on June 9, 2006.
|
15
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The Company is a retail organization operating retail stores
that sell a wide range of merchandise, including mens,
womens and childrens apparel and accessories,
cosmetics, home furnishings and other consumer goods in
45 states, the District of Columbia, Guam and Puerto Rico.
The Company operates coast-to-coast exclusively under two retail
brands Macys and Bloomingdales. The
Companys operations are significantly impacted by
competitive pressures from department stores, specialty stores,
mass merchandisers and all other retail channels. The
Companys operations are also significantly impacted by
general consumer-spending levels, which are driven in part by
consumer confidence and employment levels.
In 2003, the Company commenced the implementation of a strategy
to more fully utilize its Macys brand, converting all of
the Companys regional store nameplates to the Macys
nameplate. This strategy allowed the Company to magnify the
impact of its marketing efforts on a nationwide basis, as well
as to leverage major events such as the Macys Thanksgiving
Day Parade and Macys
4th of
July fireworks.
In early 2004, the Company announced a further step in
reinventing its department stores the creation of a
centralized organization to be responsible for the overall
strategy, merchandising and marketing of the Companys
home-related categories of business in all of its
Macys-branded stores. While its benefits have taken longer
to be realized, the centralized operation is still expected to
accelerate future sales in these categories largely by improving
and further differentiating the Companys home-related
merchandise assortments.
For the past several years, the Company has been focused on four
key priorities for improving the business over the longer term:
(i) differentiating and editing merchandise assortments;
(ii) simplifying pricing; (iii) improving the overall
shopping experience; and (iv) communicating better with
customers through more brand focused and effective marketing. In
2005, the Company launched a new nationwide Macys customer
loyalty program, called Star Rewards, in coordination with the
launch of the Macys nameplate in cities across the
country. The program provides an enhanced level of offers and
benefits to Macys best credit card customers.
On August 30, 2005, the Company completed its merger with
May (the Merger). The results of Mays
operations have been included in the Consolidated Financial
Statements since that date. The aggregate purchase price for May
was approximately $11.7 billion, including approximately
$5.7 billion of cash and approximately 200 million
shares of Company common stock and options to purchase an
additional 18.8 million shares of Company common stock
valued at approximately $6.0 billion in the aggregate. In
connection with the Merger, the Company also assumed
approximately $6.0 billion of May debt. The Merger has had
and is expected to continue to have a material effect on the
Companys consolidated financial position, results of
operations and cash flows.
In September 2005 and January 2006, the Company announced its
intention to dispose of the acquired May bridal group business,
which included the operations of Davids Bridal, After
Hours Formalwear and Priscilla of Boston, and the acquired
Lord & Taylor division of May, respectively. In
October 2006, the Company completed the sale of the
Lord & Taylor division for $1,047 million in
cash, a long-term note receivable of approximately
$17 million and a receivable for a working capital
adjustment to the purchase price of approximately
$23 million. In January 2007, the Company completed the
sale of the Davids Bridal and Priscilla of Boston
businesses for approximately $740 million in cash, net of
$10 million of transaction costs. In April 2007, the
Company completed the sale of its After Hours Formalwear
business for approximately $66 million in cash, net of
$1 million of transaction costs. As a result of the
Companys
16
decision to dispose of these businesses, these businesses are
reported as discontinued operations. Unless otherwise indicated,
the following discussion relates to the Companys
continuing operations.
In June 2005, the Company entered into a Purchase, Sale and
Servicing Transfer Agreement (the Purchase
Agreement) with Citibank, N.A. pursuant to which the
Company agreed to sell to Citibank (i) the proprietary and
non-proprietary credit card accounts owned by the Company,
together with related receivables balances, and the capital
stock of Prime Receivables Corporation, a wholly owned
subsidiary of the Company, which owned all of the Companys
interest in the Prime Credit Card Master Trust (the FDS
Credit Assets), (ii) the Macys
credit card accounts owned by GE Capital Consumer Card Co.
(GE Bank), together with related receivables
balances (the GE/Macys Credit Assets), upon
the termination of the Companys credit card program
agreement with GE Bank, and (iii) the proprietary credit
card accounts owned by May, together with related receivables
balances (the May Credit Assets). The purchase by
Citibank of the FDS Credit Assets was completed on
October 24, 2005, the purchase by Citibank of the
GE/Macys Credit Assets was completed on May 1, 2006
and the purchase by Citibank of the May Credit Assets was
completed on May 22, 2006 and July 17, 2006.
In connection with the Purchase Agreement, 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
pursuant to the Purchase Agreement, (ii) the ownership by
Citibank of new accounts opened by the Companys 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.
The transactions under the Purchase Agreement have provided the
Company with significant liquidity (i) through receipt of
the purchase price (which included a premium) for the divested
credit card accounts and related receivable balances and
(ii) because the Company will no longer have to finance
significant accounts receivable balances associated with the
divested credit card accounts going forward, and will receive
payments from Citibank immediately for sales under such credit
card accounts. Although the Companys future cash flows
will include payments to the Company under the Program
Agreement, these payments will be less than the net cash flow
that the Company would have derived from the finance charge and
other income generated on the receivables balances, net of the
interest expense associated with the Companys financing of
these receivable balances.
In February 2008, the Company announced division consolidations
and new initiatives to strengthen local market focus and enhance
selling service expected to enable the Company to both
accelerate same-store sales growth and reduce expense. The
localization initiative called My Macys was
developed with the goal to accelerate sales growth in existing
locations by ensuring that core customers surrounding each
Macys store find merchandise assortments, size ranges,
marketing programs and shopping experiences that are
custom-tailored to their needs. The localization initiative will
result in the consolidation of the Minneapolis-based Macys
North organization into New York-based Macys East, the
St. Louis-based Macys Midwest organization into
Atlanta-based Macys South and the Seattle-based
Macys Northwest organization into San Francisco-based
Macys West. The Atlanta-based division will be renamed
Macys Central. The Company anticipates incurring
approximately $150 million in
one-time
costs for expenses related to the division consolidations,
consisting primarily of severance and other human resource
related costs. The savings from the division consolidation
process, net of the amount
17
invested in localization initiatives and increased store
staffing levels, are expected to reduce selling, general and
administrative (SG&A) expenses by approximately
$100 million per year, beginning in 2009. The partial-year
reduction in SG&A expenses for 2008 is estimated at
approximately $60 million.
The following discussion should be read in conjunction with our
Consolidated Financial Statements and the related notes included
elsewhere in this report. The following discussion contains
forward-looking statements that reflect the Companys
plans, estimates and beliefs. The Companys actual results
could materially differ from those discussed in these
forward-looking statements. Factors that could cause or
contribute to those differences include, but are not limited to,
those discussed below and elsewhere in this report, particularly
in Forward-Looking Statements.
Results
of Operations
Comparison of the 52 Weeks Ended February 2, 2008 and
the 53 Weeks Ended February 3, 2007. Net
income for 2007 decreased to $893 million compared to
$995 million for 2006. The net income for 2007 includes
income from continuing operations of $909 million and a
loss from discontinued operations of $16 million. The
income from continuing operations in 2007 includes the impact of
$219 million of May integration costs. The loss from
discontinued operations in 2007 includes the loss on disposal of
the After Hours Formalwear business. The net income for 2006
included income from continuing operations of $988 million
and income from discontinued operations of $7 million. The
income from continuing operations in 2006 included the impact of
$628 million of May integration costs and the impact of
$191 million of gains on the sale of accounts receivable.
The income from discontinued operations for 2006 included the
loss on disposal of the Lord & Taylor division and the
loss on disposal of the Davids Bridal and Priscilla of
Boston businesses.
Net sales for 2007 totaled $26,313 million, compared to net
sales of $26,970 million for 2006, a decrease of
$657 million or 2.4%. On a comparable store basis (sales
from Bloomingdales and Macys stores in operation
throughout 2006 and 2007 and all Internet sales and mail order
sales from continuing businesses and adjusting for the impact of
the
53rd week
in 2006), net sales decreased 1.3% in 2007 compared to 2006.
Sales in 2007 were strongest at Bloomingdales and
macys.com. Sales of the Companys private label brands in
total outperformed the national brands for 2007 and increased to
approximately 19% of net sales in Macys-branded stores. By
family of business, sales in 2007 were strongest in handbags,
young mens apparel, coats, watches, luggage and
mattresses. The weaker business during 2007 was ladies
sportswear.
Cost of sales was $15,677 million or 59.6% of net sales for
2007, compared to $16,019 million or 59.4% of net sales for
2006, a decrease of $342 million. The cost of sales rate
for 2007 reflects higher net markdowns as a percent of net sales
intended to keep inventories current. In addition, gross margin
in 2006 included $178 million of inventory valuation
adjustments related to the integration of May and Macys
merchandise assortments. The valuation of department store
merchandise inventories on the
last-in,
first-out basis did not impact cost of sales in either period.
SG&A expenses were $8,554 million or 32.5% of net
sales for 2007, compared to $8,678 million or 32.2% of net
sales for 2006, a decrease of $124 million. SG&A
expenses for 2007 benefited from the achievement of cost savings
and merger synergies, primarily related to merchandising,
logistics and general management expenses. In addition,
SG&A expenses benefited from lower retirement expenses and
lower stock-based compensation expenses, partially offset by
higher depreciation and amortization expenses, lower credit
revenue resulting from the sale of the May Credit Assets in 2006
and higher advertising expenses. SG&A expenses, as a
percent to sales was higher in 2007 primarily because of the
decrease in sales.
18
Depreciation and amortization expense was $1,304 million
for 2007, compared to $1,265 million for 2006. Pension and
supplementary retirement plan expense amounted to
$132 million for 2007, compared to $158 million for
2006. Stock-based compensation expense was $60 million for
2007, compared to $91 million for 2006. Advertising expense
was $1,194 million for 2007, compared to
$1,171 million for 2006.
May integration costs for 2007 amounted to $219 million.
Approximately $121 million of these costs relate to
impairment charges in connection with store locations and
distribution facilities planned to be closed and disposed of,
including $74 million related to nine underperforming
stores identified in the fourth quarter of 2007 for closure. The
remaining $98 million of May integration costs for 2007
included additional costs related to closed locations,
severance, system conversion costs, impairment charges
associated with acquired indefinite lived intangible assets and
costs related to other operational consolidations, partially
offset by approximately $41 million of gains from the sale
of previously closed distribution center facilities. May
integration costs for 2006 amounted to $450 million,
primarily related to store and distribution center closings and
the re-branding-related marketing and advertising costs,
partially offset by gains from the sale of Macys locations.
Pre-tax gains of approximately $191 million were recorded
in 2006 in connection with the sale of certain credit card
accounts and receivables.
Net interest expense was $543 million for 2007, compared to
$390 million for 2006, an increase of $153 million.
The increase in net interest expense for 2007, as compared to
2006, resulted from increased levels of borrowings during 2007,
primarily associated with the Companys share repurchase
program, a gain of approximately $54 million related to the
completion of a debt tender offer in the fourth quarter of 2006,
and the effect of $17 million of interest income in 2006
related to the settlement of a federal income tax examination.
The Companys effective income tax rates of 31.1% for 2007
and 31.7% for 2006 differ from the federal income tax statutory
rate of 35.0%, and on a comparative basis, principally because
of the settlement of tax examinations and the effect of state
and local income taxes. Federal, state and local income tax
expense for 2007 includes a benefit of approximately
$78 million related to the settlement of a federal income
tax examination, primarily attributable to losses related to the
disposition of a former subsidiary. Federal, state and local
income tax expense for 2006 included a benefit of approximately
$80 million related to the settlement of a federal income
tax examination, also primarily attributable to losses related
to the disposition of a former subsidiary.
For 2007, the loss from the discontinued operations of the
acquired After Hours Formalwear business, net of income taxes,
was $16 million on sales of approximately $27 million.
The loss from discontinued operations includes the loss on
disposal of the After Hours Formalwear business of
$7 million on a pre-tax and post-tax basis. For 2006,
income from the discontinued operations of the acquired
Lord & Taylor and bridal group businesses, net of
income taxes, was $7 million on sales of approximately
$1,741 million. For 2006, discontinued operations also
included the loss on disposal of the Lord & Taylor
division of $38 million after income taxes and the loss on
disposal of the Davids Bridal and Priscilla of Boston
businesses of $18 million after income taxes.
Comparison of the 53 Weeks Ended February 3, 2007 and
the 52 Weeks Ended January 28, 2006. Net
income for 2006 decreased to $995 million compared to
$1,406 million for 2005, reflecting strong sales and gross
margin performance offset by higher May integration costs and
related inventory valuation adjustments and smaller gains on the
sale of accounts receivable.
19
Net sales for 2006 totaled $26,970 million, compared to net
sales of $22,390 million for 2005, an increase of
$4,580 million or 20.5%. Net sales for 2006 and for the
period September 2005 through January 2006 included the
continuing operations of May, which represented
$9,832 million and $6,473 million, respectively. On a
comparable store basis (sales from Bloomingdales and
Macys stores in operation throughout 2005 and 2006 and all
Internet sales and mail order sales from continuing businesses
and adjusting for the impact of the
53rd week
in 2006), net sales increased 4.4% in 2006 compared to 2005.
Sales in 2006 were strongest at Macys Florida and
Bloomingdales and comparable store sales were strongest at
Macys East, Macys Florida and Bloomingdales.
Sales for 2006 in the newly re-branded Macys stores were
lower than anticipated. Sales of the Companys private
label brands continued to be strong in 2006 and increased to
18.2% of net sales in legacy Macys-branded stores. By
family of business, sales in 2006 were strongest in dresses,
handbags, cosmetics and fragrances and young mens. The
weaker businesses during 2006 were in the big-ticket
home-related areas.
Cost of sales was $16,019 million or 59.4% of net sales for
2006, compared to $13,272 million or 59.3% of net sales for
2005, an increase of $2,747 million. Cost of sales for the
period September 2005 through January 2006 included the
continuing operations of May, which represented
$3,894 million or 60.2% of May net sales. The cost of sales
rate in 2006 was essentially flat with the cost of sales rate in
2005. In addition, gross margin included $178 million and
$25 million of inventory valuation adjustments related to
the integration of May and Macys merchandise assortments
in 2006 and 2005, respectively. The valuation of department
store merchandise inventories on the
last-in,
first-out basis did not impact cost of sales in either period.
SG&A expenses were $8,678 million or 32.2% of net
sales for 2006, compared to $6,980 million or 31.2% of net
sales for 2005, an increase of $1,698 million. SG&A
expenses for the period September 2005 through January 2006
included the continuing operations of May, which represented
$1,951 million or 30.1% of May net sales. The SG&A
expense rate for 2006 was negatively impacted by higher
depreciation and amortization expense, higher retirement
expenses, and higher stock-based compensation expenses,
including the expensing of stock options. Depreciation and
amortization expense was $1,265 million for 2006, compared
to $976 million for 2005. Pension and supplementary
retirement plan expense amounted to $158 million for 2006,
compared to $129 million for 2005. Stock-based compensation
expense was $91 million for 2006, compared to
$10 million for 2005. The SG&A rate for 2006 benefited
by the achievement of more than $175 million of cost
savings resulting from merger synergies.
May integration costs for 2006 and 2005 amounted to
$450 million and $169 million, respectively, primarily
related to store and distribution center closings, as well as
system conversions and other operational consolidations. May
integration costs for 2006 also included re-branding-related
marketing and advertising costs and were partially offset by
gains from the sale of Macys locations.
Pre-tax gains of approximately $191 million and
$480 million were recorded in 2006 and 2005, respectively,
in connection with the sale of certain credit card accounts and
receivables.
Net interest expense was $390 million for 2006, compared to
$380 million for 2005, an increase of $10 million. The
increase in interest expense during 2006 as compared to 2005 was
due to the increased levels of borrowings associated with the
acquisition of May, offset in part by a gain of approximately
$54 million related to the completion of a debt tender
offer in the fourth quarter of 2006. Net interest expense for
2006 and 2005 each included approximately $17 million of
interest income related to the settlement of various tax
examinations.
20
The Companys effective income tax rates of 31.7% for 2006
and 32.8% for 2005 differed from the federal income tax
statutory rate of 35.0%, and on a comparative basis, principally
because of the settlement of tax examinations, the reduction in
the valuation allowance associated with capital loss
carryforwards and the effect of state and local income taxes.
Federal, state and local income tax expense for 2006 included a
benefit of approximately $80 million recorded in the second
quarter related to the settlement of various tax examinations,
primarily attributable to losses related to the disposition of a
former subsidiary. Federal, state and local income tax expense
for 2005 included a benefit of approximately $85 million
related to the reduction in the valuation allowance associated
with the capital loss carryforwards realized as a result of the
sale of the FDS Credit Assets and $10 million related to
the settlement of various tax examinations.
For 2006, income from the discontinued operations of the
acquired Lord & Taylor and bridal group businesses,
net of income taxes, was $7 million on sales of
approximately $1,741 million. For 2006, discontinued
operations also included the loss on disposal of the
Lord & Taylor division of $38 million after
income taxes and the loss on disposal of the Davids Bridal
and Priscilla of Boston businesses of $18 million after
income taxes. For 2005, income from the discontinued operations
of the acquired Lord & Taylor and bridal group
businesses, net of income taxes, was $33 million on sales
of approximately $957 million.
Liquidity
and Capital Resources
The Companys principal sources of liquidity are cash from
operations, cash on hand and the credit facilities described
below.
Net cash provided by continuing operating activities in 2007 was
$2,231 million, compared to the $3,692 million
provided in 2006. Net cash provided by continuing operating
activities in 2006 included $1,860 million of proceeds from
the sale of proprietary accounts receivable.
Net cash used by continuing investing activities was
$789 million for 2007, compared to net cash provided by
continuing investing activities of $1,273 million for 2006.
Continuing investing activities for 2007 include purchases of
property and equipment totaling $994 million and
capitalized software of $111 million. Continuing investing
activities for 2007 also include the proceeds of
$66 million from the disposition of the discontinued
operations of After Hours Formalwear and $227 million from
the disposition of property and equipment, primarily from the
sale of previously closed distribution center facilities and
certain store locations. Continuing investing activities for
2006 included purchases of property and equipment totaling
$1,317 million and capitalized software of
$75 million. Continuing investing activities for 2006 also
included the $1,141 million repurchase of accounts
receivable from GE Bank and the proceeds of $1,323 million
from the subsequent sale of the repurchased accounts receivables
to Citibank, $1,047 million of proceeds from the
disposition of the Companys Lord & Taylor
division, $740 million of proceeds from the disposition of
the Companys Davids Bridal and Priscilla of Boston
businesses and $679 million from the disposition of
property and equipment, primarily from the sale of approximately
65 duplicate store and other facility locations.
During 2007, the Company opened nine Macys department
stores, one Macys furniture gallery and two
Bloomingdales department stores. During 2006, the Company
opened three new Macys department stores, two new
Bloomingdales department stores and reopened two
Macys department stores that were temporarily closed after
Hurricane Wilma. The Company intends to open five new department
stores and one new furniture gallery in 2008. The Companys
budgeted capital expenditures are approximately
$1.0 billion for 2008 and approximately $1.1 billion
for each of 2009 and 2010. Management presently anticipates
funding such expenditures with cash from operations.
21
Net cash used by the Company for all continuing financing
activities was $2,069 million for 2007, including the
issuance of $1,950 million of long-term debt, the repayment
of $649 million of debt, the acquisition of
85.3 million shares of its common stock at an approximate
cost of $3,322 million, the issuance of $257 million
of its common stock, primarily related to the exercise of stock
options, and the payment of $230 million of cash dividends.
The debt issued during 2007 includes $1,100 million of
5.35% senior notes due 2012, $500 million of
6.375% senior notes due 2037 and $350 million of
5.875% senior notes due 2013. The debt repaid in 2007
includes $400 million of 3.95% senior notes due
July 15, 2007, $6 million of 9.93% medium term notes
due August 1, 2007 and $225 million of
7.9% senior debentures due October 15, 2007.
Net cash used by the Company for all continuing financing
activities was $4,013 million for 2006, including the
issuance of $1,146 million of long-term debt, the repayment
of $2,680 million of debt, the acquisition of
62.4 million shares of its common stock at an approximate
cost of $2,500 million, the issuance of $382 million
of its common stock, primarily related to the exercise of stock
options, and the payment of $274 million of cash dividends.
The debt issued during 2006 included $1,100 million
aggregate principal amount of 5.90% senior unsecured notes
due 2016. The debt repaid in 2006 included $1,199 million
of short-term borrowings associated with the acquisition of May,
approximately $957 million aggregate principal amount of
senior unsecured notes repurchased in a tender offer,
$100 million of 8.85% senior debentures due 2006 and
the prepayment of $200 million of 8.30% debentures due
2026.
The Company is a party to a credit agreement with certain
financial institutions providing for revolving credit borrowings
and letters of credit in an aggregate amount not to exceed
$2,000 million (which amount may be increased to
$2,500 million at the option of the Company) outstanding at
any particular time. This agreement was set to expire
August 30, 2011. It was extended in 2007 and will now
expire August 30, 2012. As of February 2, 2008, the
Company had no borrowings outstanding under the credit agreement.
The Company also maintains an unsecured commercial paper program
pursuant to which it may issue and sell commercial paper in an
aggregate amount outstanding at any particular time not to
exceed its then-current borrowing availability under the
revolving credit facility described above. As of
February 2, 2008, the Company had no outstanding borrowings
under its commercial paper program.
The Companys bank credit agreement requires the Company to
maintain a specified interest coverage ratio of no less than
3.25 and a specified leverage ratio of no more than .62. The
interest coverage ratio for 2007 was 5.81 and at
February 2, 2008 the leverage ratio was .48. Management
believes that the likelihood of the Company defaulting on these
requirements in the future is remote absent any material
negative event affecting the U.S. economy as a whole.
However, if the Companys results of operations or
operating ratios deteriorate to a point where the Company is not
in compliance with any of its debt covenants and the Company is
unable to obtain a waiver, much of the Companys debt would
be in default and could become due and payable immediately. At
February 2, 2008, no notes or debentures contain provisions
requiring acceleration of payment upon a debt rating downgrade.
However, the terms of $3,050 million in aggregate principal
amount of the Companys senior notes outstanding at that
date require the Company to offer to purchase such notes at a
price equal to 101% of their principal amount plus accrued and
unpaid interest in specified circumstances involving both a
change of control (as defined in the applicable indenture) of
the Company and the rating of the notes by specified rating
agencies at a level below investment grade.
On February 26, 2007, the Companys board of directors
approved an additional $4,000 million authorization to the
Companys existing share repurchase program. The Company
used a portion of this authorization to effect the immediate
repurchase of 45 million outstanding shares for an initial
payment of approximately $2,000 million, pursuant to the
terms of two related accelerated share repurchase agreements,
22
which included derivative financial instruments indexed to the
Companys shares. Upon settlement of the accelerated share
repurchase agreements in May and June of 2007, the Company
received approximately 700,000 additional shares of its common
stock, resulting in a total of approximately 45.7 million
shares being repurchased. During 2007, the Company repurchased
approximately 85.3 million shares of its common stock for a
total of approximately $3,322 million. As of
February 2, 2008, the Company had approximately
$850 million of authorization remaining under its share
repurchase program. The Company may continue or, from time to
time, suspend repurchases of shares under its share repurchase
program, depending on prevailing market conditions, alternate
uses of capital and other factors.
On March 7, 2007, the Company issued $1,100 million
aggregate principal amount of 5.35% senior unsecured notes
due 2012 and $500 million aggregate principal amount of
6.375% senior unsecured notes due 2037. A portion of the
net proceeds of the debt issuances was used to repay commercial
paper borrowings incurred in connection with the accelerated
share repurchase agreements, and the balance was used for
general corporate purposes.
On August 28, 2007, the Company issued $350 million
aggregate principal amount of 5.875% senior unsecured notes
due 2013. The net proceeds were used to repay borrowings
outstanding under its commercial paper facility.
On February 22, 2008, the Companys board of directors
declared a regular quarterly dividend of 13 cents per share on
its common stock, payable April 1, 2008 to Macys
shareholders of record at the close of business on
March 14, 2008.
At February 2, 2008, the Company had contractual
obligations (within the scope of Item 303(a)(5) of
Regulation S-K)
as follows:
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Obligations Due, by Period
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Less than
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1 3
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3 5
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More than
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Total
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1 Year
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Years
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Years
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5 Years
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(millions)
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Short-term debt
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$
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661
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$
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661
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$
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$
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$
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Long-term debt
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8,711
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|
|
|
|
|
|
1,200
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|
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2,326
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5,185
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Interest on debt
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6,632
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|
|
607
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1,047
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888
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4,090
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Capital lease obligations
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69
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8
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14
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12
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35
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Other long-term liabilities
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1,363
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6
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349
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280
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728
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Operating leases
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2,798
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|
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231
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427
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359
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1,781
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Letters of credit
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45
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45
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Other obligations
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2,409
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|
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2,155
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223
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25
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6
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$
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22,688
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$
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3,713
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$
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3,260
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$
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3,890
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$
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11,825
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Other obligations in the foregoing table consist
primarily of merchandise purchase obligations and obligations
under outsourcing arrangements, construction contracts,
employment contracts, group medical/dental/life insurance
programs, energy and other supply agreements identified by the
Company and liabilities for unrecognized tax benefits that the
Company expects to settle in cash in the next year. The
Companys merchandise purchase obligations fluctuate on a
seasonal basis, typically being higher in the summer and early
fall and being lower in the late winter and early spring. The
Company purchases a substantial portion of its merchandise
inventories and other goods and services otherwise than through
binding contracts. Consequently,
23
the amounts shown as Other obligations in the
foregoing table do not reflect the total amounts that the
Company would need to spend on goods and services in order to
operate its businesses in the ordinary course.
The Company has not included in the contractual obligations
table approximately $229 million for long-term liabilities
for unrecognized tax benefits for various tax positions taken or
approximately $60 million of related accrued federal, state
and local interest and penalties. These liabilities may increase
or decrease over time as a result of tax examinations, and given
the status of examinations, the Company cannot reliably estimate
the period of any cash settlement with the respective taxing
authorities. The Company has included in the contractual
obligations table $8 million of liabilities for
unrecognized tax benefits that the Company expects to settle in
cash in the next year. The Company has not included in the
contractual obligations table the $337 million Pension Plan
liability. The Companys funding policy is to contribute
amounts necessary to satisfy minimum pension funding
requirements, including requirements of the Pension Protection
Act of 2006, plus such additional amounts from time to time as
are determined to be appropriate to improve the Pension
Plans funded status. The Pension Plans funded status
is affected by many factors including discount rates and the
performance of Pension Plan assets. The Company currently
anticipates that it will not be required to make any additional
contributions to the Pension Plan until January 2010, but may
make voluntary funding contributions prior to that date based on
the estimate of the Pension Plans expected funded status.
As of the date of this report, the Company is considering making
a voluntary funding contribution to the Pension Plan of
approximately $175 million in December 2008.
Management believes that, with respect to the Companys
current operations, cash on hand and funds from operations,
together with its credit facility and other capital resources,
will be sufficient to cover the Companys reasonably
foreseeable working capital, capital expenditure and debt
service requirements in both the near term and over the longer
term. The Companys ability to generate funds from
operations may be affected by numerous factors, including
general economic conditions and levels of consumer confidence
and demand; however, the Company expects to be able to manage
its working capital levels and capital expenditure amounts so as
to maintain sufficient levels of liquidity. For short-term
liquidity, the Company also relies on its unsecured commercial
paper facility (which is discussed above). Access to the
unsecured commercial paper program is primarily dependent on the
Companys credit ratings. If the Company is unable to
access the unsecured commercial paper market, it has the current
ability to access $2,000 million pursuant to its bank
credit agreement, subject to compliance with the interest
coverage and leverage ratio requirements discussed above and
other requirements under the agreement. Depending upon
conditions in the capital markets and other factors, the Company
will from time to time consider the issuance of debt or other
securities, or other possible capital markets transactions, the
proceeds of which could be used to refinance current
indebtedness or for other corporate purposes.
Management believes the department store business and other
retail businesses will continue to consolidate. The Company
intends from time to time to consider additional acquisitions
of, and investments in, department stores and other
complementary assets and companies. Acquisition transactions, if
any, are expected to be financed from one or more of the
following sources: cash on hand, cash from operations,
borrowings under existing or new credit facilities and the
issuance of long-term debt, commercial paper or other
securities, including common stock.
24
Critical
Accounting Policies
Merchandise
Inventories
Merchandise inventories are valued at the lower of cost or
market using the
last-in,
first-out (LIFO) retail inventory method. Under the retail
inventory method, inventory is segregated into departments of
merchandise having similar characteristics, and is stated at its
current retail selling value. Inventory retail values are
converted to a cost basis by applying specific average cost
factors for each merchandise department. Cost factors represent
the average cost-to-retail ratio for each merchandise department
based on beginning inventory and the fiscal year purchase
activity. The retail inventory method inherently requires
management judgments and contains estimates, such as the amount
and timing of permanent markdowns to clear unproductive or
slow-moving inventory, which may impact the ending inventory
valuation as well as gross margins.
Permanent markdowns designated for clearance activity are
recorded when the utility of the inventory has diminished.
Factors considered in the determination of permanent markdowns
include current and anticipated demand, customer preferences,
age of the merchandise and fashion trends. When a decision is
made to permanently mark down merchandise, the resulting gross
profit reduction is recognized in the period the markdown is
recorded.
The Company receives certain allowances from various vendors in
support of the merchandise it purchases for resale. The Company
receives certain allowances as reimbursement for markdowns taken
and/or to
support the gross margins earned in connection with the sales of
merchandise. These allowances are generally credited to cost of
sales at the time the merchandise is sold in accordance with
Emerging Issues Task Force (EITF) Issue
No. 02-16,
Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor. The Company
also receives advertising allowances from more than 900 of its
merchandise vendors pursuant to cooperative advertising
programs, with some vendors participating in multiple programs.
These allowances represent reimbursements by vendors of costs
incurred by the Company to promote the vendors merchandise
and are netted against advertising and promotional costs when
the related costs are incurred in accordance with EITF Issue
No. 02-16.
The arrangements pursuant to which the Companys vendors
provide allowances, while binding, are generally informal in
nature and one year or less in duration. The terms and
conditions of these arrangements vary significantly from vendor
to vendor and are influenced by, among other things, the type of
merchandise to be supported. Although it is highly unlikely that
there will be any significant reduction in historical levels of
vendor support, if such a reduction were to occur, the Company
could experience higher costs of sales and higher advertising
expense, or reduce the amount of advertising that it uses,
depending on the specific vendors involved and market conditions
existing at the time.
Shrinkage is estimated as a percentage of sales for the period
from the last inventory date to the end of the fiscal period.
Such estimates are based on experience and the most recent
physical inventory results. While it is not possible to quantify
the impact from each cause of shrinkage, the Company has loss
prevention programs and policies that are intended to minimize
shrinkage. Physical inventories are taken within each
merchandise department annually, and inventory records are
adjusted accordingly.
Long-Lived
Asset Impairment and Restructuring Charges
The carrying values of long-lived assets are periodically
reviewed by the Company whenever events or changes in
circumstances indicate that a potential impairment has occurred.
For long-lived assets held for use, a potential impairment has
occurred if projected future undiscounted cash flows are less
than the carrying value of the assets. The estimate of cash
flows includes managements assumptions of cash inflows and
25
outflows directly resulting from the use of those assets in
operations. When a potential impairment has occurred, an
impairment write-down is recorded if the carrying value of the
long-lived asset exceeds its fair value. The Company believes
its estimated cash flows are sufficient to support the carrying
value of its long-lived assets. If estimated cash flows
significantly differ in the future, the Company may be required
to record asset impairment write-downs.
For long-lived assets held for disposal by sale, an impairment
charge is recorded if the carrying amount of the assets exceeds
its fair value less costs to sell. Such valuations include
estimations of fair values and incremental direct costs to
transact a sale. If the Company commits to a plan to dispose of
a long-lived asset before the end of its previously estimated
useful life, estimated cash flows are revised accordingly and
the Company may be required to record an asset impairment
write-down. Additionally, related liabilities arise such as
severance, contractual obligations and other accruals associated
with store closings from decisions to dispose of assets. The
Company estimates these liabilities based on the facts and
circumstances in existence for each restructuring decision. The
amounts the Company will ultimately realize or disburse could
differ from the amounts assumed in arriving at the asset
impairment and restructuring charge recorded.
The carrying value of goodwill and other intangible assets with
indefinite lives are reviewed annually for possible impairment.
The impairment review is based on a discounted cash flow
approach that requires significant management judgment with
respect to sales, gross margin and expense growth rates, and the
selection and use of an appropriate discount rate. The use of
different assumptions would increase or decrease estimated
discounted future operating cash flows and could increase or
decrease an impairment charge. The occurrence of an unexpected
event or change in circumstances, such as adverse business
conditions or other economic factors, would determine the need
for impairment testing between annual impairment tests.
The Company, through its insurance subsidiaries, is self-insured
for workers compensation and public liability claims up to
certain maximum liability amounts. Although the amounts accrued
are actuarially determined by third parties based on analysis of
historical trends of losses, settlements, litigation costs and
other factors, the amounts the Company will ultimately disburse
could differ from such accrued amounts.
Pension
and Supplementary Retirement Plans
The Company has a funded defined benefit pension plan (the
Pension Plan) and an unfunded defined benefit
supplementary retirement plan (the SERP). The
Company accounts for these plans using Statement of Financial
Accounting Standards (SFAS) No. 87,
Employers Accounting for Pensions
(SFAS 87), as amended by
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R) (SFAS 158). Under
SFAS 158, an employer recognizes the funded status of a
defined benefit postretirement plan as an asset or liability on
the balance sheet and recognizes changes in that funded status
in the year in which the changes occur through comprehensive
income. Under SFAS 87, pension expense is recognized on an
accrual basis over employees approximate service periods.
Pension expense calculated under SFAS 87 is generally
independent of funding decisions or requirements.
Effective February 4, 2007, the Company adopted the
measurement date provision of SFAS 158, which requires the
measurement of defined benefit plan assets and obligations to be
the date of the Companys fiscal year-end balance sheet.
This required a change in the Companys measurement date,
which was previously December 31.
Funding requirements for the Pension Plan are determined by
government regulations, not SFAS 87 or SFAS 158. No
funding contributions were required, and the Company made no
funding contributions to the Pension Plan in
26
2007. The Company made a $100 million voluntary funding
contribution to the Pension Plan in 2006. The Company currently
anticipates that it will not be required to make any additional
contributions to the Pension Plan until January 2010, but
may make voluntary funding contributions prior to that date
based on the estimate of the Pension Plans expected funded
status. As of the date of this report, the Company is
considering making a voluntary funding contribution to the
Pension Plan of approximately $175 million in December 2008.
During 2006, Congress passed the Pension Protection Act of 2006
(the Act) with the stated purpose of improving the
funding of Americas private pension plans. The Act
introduced new funding requirements for defined benefit pension
plans, introduces benefit limitations for certain under-funded
plans and raises tax deduction limits for contributions. The Act
applies to pension plan years beginning after December 31,
2007. The Company has preliminarily reviewed the provisions of
the Act to determine the impact on the Company. Required funding
under the Act will be dependent upon many factors including the
Pension Plans future funded status including any voluntary
funding contributions the Company may choose to make and annual
Pension Plan asset returns. Based upon this preliminary review
as well as the current funded status of the Pension Plan
relative to the Companys level of annual operating cash
flows, the Company does not believe that required contributions
under the Act would materially impact the Companys
operating cash flows in any given year.
At February 2, 2008, the Company had unrecognized actuarial
losses of $276 million for the Pension Plan and
$38 million for the SERP. These losses will be recognized
as a component of pension expense in future years in accordance
with SFAS No. 87.
The calculation of pension expense and pension liabilities
requires the use of a number of assumptions. Changes in these
assumptions can result in different expense and liability
amounts, and future actual experience may differ significantly
from current expectations. The Company believes that the most
critical assumptions relate to the long-term rate of return on
plan assets (in the case of the Pension Plan), the discount rate
used to determine the present value of projected benefit
obligations and the weighted average rate of increase of future
compensation levels.
The Company has assumed that the Pension Plans assets will
generate an annual long-term rate of return of 8.75% since 2004.
The Company develops its long-term rate of return assumption by
evaluating input from several professional advisors taking into
account the asset allocation of the portfolio and long-term
asset class return expectations, as well as long-term inflation
assumptions. Pension expense increases or decreases as the
expected rate of return on the assets of the Pension Plan
decreases or increases, respectively. Lowering the expected
long-term rate of return on the Pension Plans assets by
0.25% (from 8.75% to 8.50%) would increase the estimated 2008
pension expense by approximately $6 million and raising the
expected long-term rate of return on the Pension Plans
assets by 0.25% (from 8.75% to 9.00%) would decrease the
estimated 2008 pension expense by approximately $6 million.
The Company discounted its future pension obligations using a
rate of 6.25% at February 2, 2008, compared to 5.85% at
December 31, 2006. The Company determines the appropriate
discount rate with reference to the current yield earned on an
index of investment-grade long-term bonds and the impact of a
yield curve analysis to account for the difference in duration
between the long-term bonds and the Pension Plans and
SERPs estimated payments. Pension liability and future
pension expense both increase or decrease as the discount rate
is reduced or increased, respectively. Lowering the discount
rate by 0.25% (from 6.25% to 6.0%) would increase the projected
benefit obligation at February 2, 2008 by approximately
$102 million and would increase estimated 2008 pension
expense by approximately $13 million. Increasing the
discount rate by 0.25% (from 6.25% to 6.50%) would decrease the
projected benefit obligation at February 2, 2008 by
approximately $80 million and would decrease estimated 2008
pension expense by approximately $6 million.
27
The assumed weighted average rate of increase in future
compensation levels was 5.4% at February 2, 2008 and
December 31, 2006 for the Pension Plan, and 7.2% at
February 2, 2008 and December 31, 2006 for the SERP.
The Company develops its increase of future compensation level
assumption based on recent experience. Pension liabilities and
future pension expense both increase or decrease as the weighted
average rate of increase of future compensation levels is
increased or decreased, respectively. Increasing or decreasing
the assumed weighted average rate of increase of future
compensation levels by 0.25% would increase or decrease the
projected benefit obligation at February 2, 2008 by
approximately $12 million and change estimated 2008 pension
expense by approximately $3 million.
New
Pronouncements
Effective February 4, 2007, the Company adopted
SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments (SFAS 155), which
amended certain provisions of SFAS No. 133 and
SFAS No. 140. The adoption of SFAS 155 has not
had and is not expected to have a material impact on the
Companys consolidated financial position, results of
operations or cash flows.
Effective February 4, 2007, the Company adopted the
measurement date provision of SFAS 158, which requires the
measurement of defined benefit plan assets and obligations to be
the date of a companys fiscal year-end. This required a
change in the Companys measurement date, which was
previously December 31. As a result, on February 4,
2007 the Company recorded a $7 million decrease to the
beginning balance of accumulated equity, a $29 million
decrease to accumulated other comprehensive loss, a
$36 million decrease to other liabilities and a
$14 million increase to deferred income taxes.
In June 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income
Taxes An Interpretation of FASB Statement
No. 109 (FIN 48), which prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Company adopted the
provisions of FIN 48 on February 4, 2007, and the
adoption resulted in a net increase to accruals for uncertain
tax positions of $1 million, an increase to the beginning
balance of accumulated equity of $1 million and an increase
to goodwill of $2 million.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 addresses how companies should measure fair value
when they are required to use a fair value measure for
recognition and disclosure purposes under generally accepted
accounting principles. SFAS 157 will require the fair value
of an asset or liability to be calculated on a market based
measure, which will reflect the credit risk of the company.
SFAS 157 will also require expanded disclosure
requirements, which will include the methods and assumptions
used to measure fair value and the effect of fair value
measurements on earnings. SFAS 157 will be applied
prospectively and will be effective for fiscal years beginning
after November 15, 2007 and to interim periods within those
fiscal years, for items that are recognized or disclosed at fair
value in an entitys financial statements on a recurring
basis (at least annually). SFAS 157 will be effective for
fiscal years beginning after November 15, 2008 and to
interim periods within those fiscal years, for nonfinancial
assets and nonfinancial liabilities other than those that are
recognized or disclosed at fair value in an entitys
financial statements on a recurring basis (at least annually).
The Company is currently in the process of evaluating the impact
of adopting SFAS 157 on the Companys consolidated
financial position, results of operations and cash flows.
In February 2007, the FASB issued SFAS No. 159
The Fair Value Option for Financial Assets and Financial
Liabilities, (SFAS 159). SFAS 159
provides companies with an option to report selected financial
28
assets and financial liabilities at fair value. Unrealized gains
and losses on items for which the fair value option has been
elected are reported in earnings at each subsequent reporting
date. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. The Company is currently in the
process of evaluating the impact of adopting SFAS 159 on
the Companys consolidated financial position, results of
operations and cash flows.
In December 2007, the FASB issued SFAS No. 160
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin (ARB) No. 51,
(SFAS 160). SFAS 160 establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008. The Company does not
anticipate the adoption of this statement will have a material
impact on the Companys consolidated financial position,
results of operations or cash flows.
Also in December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations,
(SFAS 141R). SFAS 141R establishes
principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. The statement also
provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what
information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS 141R is effective for fiscal
years beginning after December 15, 2008. The adoption of
this statement will affect any future acquisitions entered into
by the Company, and beginning with fiscal 2009 the Company will
no longer account for adjustments to tax liabilities and
unrecognized tax benefits assumed in previous acquisitions as
increases or decreases to goodwill. After adoption of
SFAS 141R, such adjustments will be accounted for in income
tax expense.
|
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Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
The Company is exposed to market risk from changes in interest
rates that may adversely affect its financial position, results
of operations and cash flows. In seeking to minimize the risks
from interest rate fluctuations, the Company manages exposures
through its regular operating and financing activities and, when
deemed appropriate, through the use of derivative financial
instruments. The Company does not use financial instruments for
trading or other speculative purposes and is not a party to any
leveraged financial instruments.
The Company is exposed to interest rate risk primarily through
its borrowing activities, which are described in Note 9 to
the Consolidated Financial Statements. The majority of the
Companys borrowings are under fixed rate instruments.
However, the Company, from time to time, may use interest rate
swap and interest rate cap agreements to help manage its
exposure to interest rate movements and reduce borrowing costs.
At February 2, 2008, the Company was not a party to any
derivative financial instruments.
On February 26, 2007, the Companys board of directors
approved an additional $4,000 million authorization to the
Companys existing share repurchase program. The Company
used a portion of this authorization to effect the immediate
repurchase of 45 million outstanding shares for an initial
payment of approximately $2,000 million, subject to
settlement provisions pursuant to the terms of two related
accelerated share repurchase agreements, which included
derivative financial instruments indexed to the Companys
shares. Upon settlement of the accelerated share repurchase
agreements in May and June of 2007, the Company received
approximately 700,000 additional shares of its common stock,
resulting in a total of approximately 45.7 million shares
being repurchased. Based on the Companys lack of market
risk sensitive instruments (primarily limited to variable rate
debt) outstanding at February 2, 2008, the Company has
determined that there was no material market risk exposure to
the Companys consolidated financial position, results of
operations or cash flows as of such date.
29
|
|
Item 8.
|
Consolidated
Financial Statements and Supplementary Data.
|
Information called for by this item is set forth in the
Companys Consolidated Financial Statements and
supplementary data contained in this report and is incorporated
herein by this reference. Specific financial statements and
supplementary data can be found at the pages listed in the
following index:
INDEX
|
|
|
|
|
|
|
Page
|
|
|
Report of Management
|
|
|
F-2
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-3
|
|
Consolidated Statements of Income for the fiscal years ended
February 2, 2008, February 3, 2007 and
January 28, 2006
|
|
|
F-5
|
|
Consolidated Balance Sheets at February 2, 2008 and
February 3, 2007
|
|
|
F-6
|
|
Consolidated Statements of Changes in Shareholders Equity
for the fiscal years ended
February 2, 2008, February 3, 2007 and
January 28, 2006
|
|
|
F-7
|
|
Consolidated Statements of Cash Flows for the fiscal years
ended
February 2, 2008, February 3, 2007 and
January 28, 2006
|
|
|
F-8
|
|
Notes to Consolidated Financial Statements
|
|
|
F-9
|
|
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
30
|
|
Item 9A.
|
Controls
and Procedures.
|
a. Disclosure Controls and Procedures
The Companys Chief Executive Officer and Chief Financial
Officer have carried out, as of February 2, 2008, with the
participation of the Companys management, an evaluation of
the effectiveness of the Companys disclosure controls and
procedures, as defined in
Rule 13a-15(e)
under the Exchange Act. Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded
that the Companys disclosure controls and procedures are
effective to provide reasonable assurance that information
required to be disclosed by the Company in reports the Company
files under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC rules
and forms, and that information required to be disclosed by the
Company in the reports the Company files or submits under the
Exchange Act is accumulated and communicated to the
Companys management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
b. Managements Report on Internal Control over
Financial Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as defined in Exchange Act
Rule 13a-15(f).
The Companys management conducted an assessment of the
Companys internal control over financial reporting based
on the framework established by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal
Control Integrated Framework. Based on this
assessment, the Companys management has concluded that, as
of February 2, 2008, the Companys internal control
over financial reporting is effective.
The Companys independent registered public accounting
firm, KPMG LLP, has audited the effectiveness of the
Companys internal control over financial reporting as of
February 2, 2008 and has issued an attestation report
expressing an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting, as
stated in their report located on
page F-3.
c. Changes in Internal Control over Financial
Reporting
There were no changes in the Companys internal controls
over financial reporting that occurred during the Companys
most recently completed fiscal quarter that materially affected,
or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
d. Certifications
The certifications of the Companys Chief Executive Officer
and Chief Financial Officer required under Section 302 of
the Sarbanes-Oxley Act are filed as Exhibits 31.1 and 31.2
to this report. Additionally, in 2007 the Companys Chief
Executive Officer certified to the NYSE that he was not aware of
any violation by the Company of the NYSE corporate governance
listing standards.
PART III
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant.
|
Information called for by this item is set forth under
Item 1 Election of Directors and
Further Information Concerning the Board of Directors -
Committees of the Board Audit Committee and
Section 16(a) Beneficial Ownership Reporting
Compliance in the Proxy Statement to be delivered to
31
stockholders in connection with our 2008 Annual Meeting of
Stockholders (the Proxy Statement), and
Item 1. Business- Executive Officers of the
Registrant in this report and incorporated herein by
reference.
|
|
Item 11.
|
Compensation
of Directors and Executive Officers.
|
Information called for by this item is set forth under
Compensation Discussion & Analysis,
Compensation of the Named Executives for 2007,
Compensation Committee Report and Compensation
Committee Interlocks and Insider Participation in the
Proxy Statement and incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
Information called for by this item is set forth under
Stock Ownership - Certain Beneficial Owners and
Stock Ownership Stock Ownership of Directors
and Executive Officers in the Proxy Statement and
incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions.
|
Information called for by this item is set forth under
Further Information Concerning the Board of
Directors Director Independence and
Policy on Related Person Transactions in the Proxy
Statement and incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
Information called for by this item is set forth under
Item 2 - Appointment of Independent Registered Public
Accounting Firm in the Proxy Statement and incorporated
herein by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) The following documents are filed as part of this
report:
1. Financial Statements:
The list of financial statements required by this item is set
forth in Item 8 Consolidated Financial Statements and
Supplementary Data and is incorporated herein by reference.
2. Financial Statement Schedules:
All schedules are omitted because they are inapplicable, not
required, or the information is included elsewhere in the
Consolidated Financial Statements or the notes thereto.
32
3. Exhibits:
The following exhibits are filed herewith or incorporated by
reference as indicated below.
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Document if Incorporated by Reference
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of February 27, 2005, by
and among the Company, Milan Acquisition Corp. and The May
Department Stores Company (May Delaware)
|
|
Exhibit 2.1 to the Current Report on
Form 8-K
filed on February 28, 2005 by May Delaware
|
|
3
|
.1
|
|
Certificate of Incorporation
|
|
Exhibit 3.1 to the Companys Annual Report on
Form 10-K
(File
No. 001-135361)
for the fiscal year ended January 28, 1995 (the 1994
Form 10-K)
|
|
3
|
.1.1
|
|
Amended and Restated Article Seventh to the Certificate of
Incorporation of the Company
|
|
|
|
3
|
.1.2
|
|
Certificate of Amendment of Certificate of Incorporation of the
Company
|
|
Exhibit 3.1.2 to the Companys Annual Report on
Form 10-K
(File
No. 001-13536)
for the fiscal year ended February 3, 2007 (the 2006
Form 10-K)
|
|
3
|
.1.3
|
|
Amended and Restated Article First to the Certificate of
Incorporation of the Company
|
|
Exhibit 3.1.4 to the Companys Quarterly Report on
Form 10-Q
dated June 11, 2007
|
|
3
|
.1.4
|
|
Certificate of Designations of Series A Junior Participating
Preferred Stock
|
|
Exhibit 3.1.1 to the Companys 1994
Form 10-K
|
|
3
|
.2
|
|
By-Laws
|
|
|
|
4
|
.1
|
|
Certificate of Incorporation
|
|
See Exhibits 3.1, 3.1.1, 3.1.2, 3.1.3 and 3.1.4
|
|
4
|
.2
|
|
By-Laws
|
|
See Exhibit 3.2
|
|
4
|
.3
|
|
Indenture, dated as of December 15, 1994, between the Company
and U.S. Bank National Association (successor to State Street
Bank and Trust Company and The First National Bank of Boston),
as Trustee (the 1994 Indenture)
|
|
Exhibit 4.1 to the Companys Registration Statement on
Form S-3
(Registration
No. 33-88328)
filed on January 9, 1995
|
|
4
|
.3.1
|
|
Eighth Supplemental Indenture to the 1994 Indenture, dated as of
July 14, 1997, between the Company and U.S. Bank National
Association (successor to State Street Bank and Trust Company
and The First National Bank of Boston), as Trustee
|
|
Exhibit 2 to the Companys Current Report on
Form 8-K
dated July 15, 1997 (the July 1997
Form 8-K)
|
|
4
|
.3.2
|
|
Ninth Supplemental Indenture to the 1994 Indenture, dated as of
July 14, 1997, between the Company and U.S. Bank National
Association (successor to State Street Bank and Trust Company
and The First National Bank of Boston), as Trustee
|
|
Exhibit 3 to the July 1997
Form 8-K
|
33
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Document if Incorporated by Reference
|
|
|
4
|
.3.3
|
|
Tenth Supplemental Indenture to the 1994 Indenture, dated as of
August 30, 2005, among the Company, Macys Retail Holdings,
Inc. (f/k/a Federated Retail Holdings, Inc. (Macys
Retail) and U.S. Bank National Association (as successor
to State Street Bank and Trust Company and as successor to The
First National Bank of Boston), as Trustee
|
|
Exhibit 10.14 to the Companys Current Report on
Form 8-K
dated August 30, 2005 (the August 30, 2005
Form 8-K)
|
|
4
|
.3.4
|
|
Guarantee of Securities, dated as of August 30, 2005, by the
Company relating to the 1994 Indenture
|
|
Exhibit 10.16 to the August 30, 2005
Form 8-K
|
|
4
|
.4
|
|
Indenture, dated as of September 10, 1997, between the Company
and U.S. Bank National Association (successor to Citibank,
N.A.), as Trustee (the 1997 Indenture)
|
|
Exhibit 4.4 to the Companys Amendment No. 1 to
Form S-3
(Registration
No. 333-34321)
filed on September 11, 1997
|
|
4
|
.4.1
|
|
First Supplemental Indenture to the 1997 Indenture, dated as of
February 6, 1998, between the Company and U.S. Bank National
Association (successor to Citibank, N.A.), as Trustee
|
|
Exhibit 2 to the Companys Current Report on
Form 8-K
dated February 6, 1998
|
|
4
|
.4.2
|
|
Third Supplemental Indenture to the 1997 Indenture, dated as of
March 24, 1999, between the Company and U.S. Bank National
Association (successor to Citibank, N.A.), as Trustee
|
|
Exhibit 4.2 to the Companys Registration Statement on
Form S-4
(Registration
No. 333-76795)
filed on April 22, 1999
|
|
4
|
.4.3
|
|
Fourth Supplemental Indenture to the 1997 Indenture, dated as of
June 6, 2000, between the Company and U.S. Bank National
Association (successor to Citibank, N.A.), as Trustee
|
|
Exhibit 4.1 to the Companys Current Report on
Form 8-K,
dated June 5, 2000
|
|
4
|
.4.4
|
|
Fifth Supplemental Trust Indenture dated as of March 27, 2001,
between the Company and U.S. Bank National Association
(successor to Citibank, N.A.), as Trustee
|
|
Exhibit 4 to the Companys Current Report on
Form 8-K
dated March 21, 2001
|
|
4
|
.4.5
|
|
Sixth Supplemental Indenture to the 1997 Indenture dated as of
August 23, 2001, between the Company and U.S. Bank National
Association (successor to Citibank, N.A.), as Trustee
|
|
Exhibit 4 to the Companys Current Report on
Form 8-K
dated August 22, 2001
|
|
4
|
.4.6
|
|
Seventh Supplemental Indenture to the 1997 Indenture, dated as
of August 30, 2005 among the Company, Macys Retail and
U.S. Bank National Association (successor to Citibank, N.A.), as
Trustee
|
|
Exhibit 10.15 to the August 30, 2005
Form 8-K
|
|
4
|
.4.7
|
|
Guarantee of Securities, dated as of August 30, 2005, by the
Company relating to the 1997 Indenture
|
|
Exhibit 10.17 to the August 30, 2005
Form 8-K
|
34
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Document if Incorporated by Reference
|
|
|
4
|
.5
|
|
Indenture, dated as of June 17, 1996, among May Delaware,
Macys Retail (f/k/a The May Department Stores Company
(NY)) (May New York) and The Bank of New York Trust
Company, N.A. (successor to J.P. Morgan Trust Company), as
Trustee (the 1996 Indenture)
|
|
Exhibit 4.1 to the Registration Statement on
Form S-3
(Registration
No. 333-06171)
filed on June 18, 1996 by May Delaware
|
|
4
|
.5.1
|
|
First Supplemental Indenture to the 1996 Indenture, dated as of
August 30, 2005, by and among the Company (as successor to May
Delaware), Macys Retail (f/k/a May New York) and The Bank
of New York Trust Company, N.A. (successor to J.P. Morgan
Trust Company), as Trustee
|
|
Exhibit 10.9 to the August 30, 2005
Form 8-K
|
|
4
|
.6
|
|
Indenture, dated as of July 20, 2004, among May Delaware,
Macys Retail (f/k/a May New York) and The Bank of New York
Trust Company, N.A. (successor to J.P. Morgan Trust
Company), as Trustee (the 2004 Indenture)
|
|
Exhibit 4.1 to the Current Report on
Form 8-K
(File
No. 001-00079)
filed July 21, 2004 by May Delaware
|
|
4
|
.6.1
|
|
First Supplemental Indenture to the 2004 Indenture, dated as of
August 30, 2005 among the Company (as successor to May
Delaware), Macys Retail (f/k/a May New York) and The Bank
of New York Trust Company, N.A. (successor to J.P. Morgan
Trust Company), as Trustee
|
|
Exhibit 10.10 to the August 30, 2005
Form 8-K
|
|
4
|
.7
|
|
Indenture, dated as of November 2, 2006, by and among
Macys Retail, the Company and U.S. Bank National
Association, as Trustee (the 2006 Indenture)
|
|
Exhibit 4.6 to the Companys Registration Statement on
Form S-3ASR
(Registration
No. 333-138376)
filed on November 2, 2006.
|
|
4
|
.7.1
|
|
First Supplemental Indenture to the 2006 Indenture, dated
November 29, 2006, among Macys Retail, the Company and
U.S. Bank National Association, as Trustee
|
|
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed on November 29, 2006
|
|
4
|
.7.2
|
|
Second Supplemental Indenture to the 2006 Indenture, dated March
12, 2007, among Macys Retail, the Company and U.S. Bank
National Association, as Trustee
|
|
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed on March 12, 2007 (the March 12, 2007
Form 8-K)
|
|
4
|
.7.3
|
|
Third Supplemental Indenture to the 2006 Indenture, dated March
12, 2007, among Macys Retail, the Company and U.S. Bank
National Association, as Trustee
|
|
Exhibit 4.2 to the March 12, 2007
Form 8-K
|
|
4
|
.7.4
|
|
Fourth Supplemental Indenture, dated as of August 31, 2007,
among Macys Retail, as issuer, the Company, as guarantor,
and U.S. Bank National Association, as trustee
|
|
Exhibit 4.1 to the Companys Current Report on
Form 8-K
dated August 31, 2007
|
35
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Document if Incorporated by Reference
|
|
|
10
|
.1
|
|
Amended and Restated Credit Agreement dated as of August 30,
2007 among the Company, Macys Retail, the lenders from
time to time party thereto, JPMorgan Chase Bank, N.A. and Bank
of America, N.A., as administrative agents, JPMorgan Chase Bank,
N.A., as paying agent, and J.P. Morgan Securities Inc. and
Banc of America Securities LLC, as joint bookrunners and joint
lead arrangers
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K
dated August 30, 2007 (the August 30, 2007
Form 8-K)
|
|
10
|
.2
|
|
Amended and Restated Guarantee Agreement, dated as of August 30,
2007, among the Company, Macys Retail and JPMorgan Chase
Bank, N.A., as paying agent
|
|
Exhibit 10.2 to the August 30, 2007
Form 8-K
|
|
10
|
.3
|
|
Commercial Paper Issuing and Paying Agent Agreement, dated as of
January 30, 1997, between Citibank, N.A. and the Company (the
Issuing and Paying Agent Agreement)
|
|
Exhibit 10.25 to the Companys Annual Report on
Form 10-K
(File
No. 1-13536)
for the fiscal year ended February 1, 1997 (the 1996
Form 10-K)
|
|
10
|
.3.1
|
|
Letter Agreement, dated August 30, 2005, among the Company,
Macys Retail and Citibank, as issuing and paying agent,
amending the Issuing and Paying Agent Agreement
|
|
Exhibit 10.5 to the August 30, 2005
Form 8-K
|
|
10
|
.4
|
|
Commercial Paper Dealer Agreement, dated as of August 30, 2005,
among the Company, Macys Retail and Banc of America
Securities LLC
|
|
Exhibit 10.6 to the August 30, 2005
Form 8-K
|
|
10
|
.5
|
|
Commercial Paper Dealer Agreement, dated as of August 30, 2005,
among the Company, Macys Retail and Goldman, Sachs &
Co.
|
|
Exhibit 10.7 to the August 30, 2005
Form 8-K
|
|
10
|
.6
|
|
Commercial Paper Dealer Agreement, dated as of August 30, 2005,
among the Company, Macys Retail and J.P. Morgan
Securities Inc.
|
|
Exhibit 10.8 to the August 30, 2005
Form 8-K
|
|
10
|
.7
|
|
Commercial Paper Dealer Agreement, dated as of October 4, 2006,
among the Company and Loop Capital Markets, LLC
|
|
Exhibit 10.6 to the 2006
Form 10-K
|
|
10
|
.8
|
|
Tax Sharing Agreement
|
|
Exhibit 10.10 to the Companys Registration Statement
on Form 10, filed November 27, 1991, as amended (the
Form 10)
|
|
10
|
.9
|
|
Purchase, Sale and Servicing Transfer Agreement, effective as of
June 1, 2005, among the Company, FDS Bank, Prime II
Receivables Corporation (Prime II) and Citibank,
N.A. (Citibank)
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K
dated June 2, 2005 (the June 2, 2005
Form 8-K)
|
|
10
|
.9.1
|
|
Letter Agreement, dated August 22, 2005, among the Company, FDS
Bank, Prime II and Citibank
|
|
Exhibit 10.17.1 to the Companys Annual Report on
Form 10-K
(File
No. 1-13536)
for the fiscal year ended January 28, 2006 (the 2005
Form 10-K)
|
|
10
|
.9.2
|
|
Second Amendment to Purchase, Sale and Servicing Transfer
Agreement, dated October 24, 2005, between the Company and
Citibank
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K
dated October 24, 2005 (the October 24, 2005
Form 8-K)
|
36
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Document if Incorporated by Reference
|
|
|
10
|
.9.3
|
|
Third Amendment to Purchase, Sale and Servicing Transfer
Agreement, dated May 1, 2006, between the Company and Citibank
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K,
filed May 3, 2006
|
|
10
|
.9.4
|
|
Fourth Amendment to Purchase, Sale and Servicing Transfer
Agreement, dated May 22, 2006, between the Company and Citibank
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K,
filed May 24, 2006 (the May 24, 2006
Form 8-K)
|
|
10
|
.10
|
|
Credit Card Program Agreement, effective as of June 1, 2005,
among the Company, FDS Bank, Macys Credit and Customer
Services, Inc. (MCCS) (f/k/a FACS Group, Inc.) and
Citibank
|
|
Exhibit 10.2 to the June 2, 2005
Form 8-K
|
|
10
|
.10.1
|
|
First Amendment to Credit Card Program Agreement, dated October
24, 2005, between the Company and Citibank
|
|
Exhibit 10.2 to the October 24, 2005
Form 8-K
|
|
10
|
.10.2
|
|
Second Amendment to the Credit Card Program Agreement, dated May
22, 2006, between the Company, FDS Bank, MCCS (f/k/a FACS Group,
Inc.), Macys Department Stores, Inc., Bloomingdales,
Inc. and Department Stores National Bank and Citibank
|
|
Exhibit 10.2 to the May 24, 2006
Form 8-K
|
|
10
|
.11
|
|
1995 Executive Equity Incentive Plan, as amended and restated as
of May 19, 2006*
|
|
Appendix C to the Companys Proxy Statement filed
April 13, 2006
|
|
10
|
.12
|
|
1992 Incentive Bonus Plan, as amended and restated as of
February 3, 2007*
|
|
Appendix B to the Companys Proxy Statement dated
April 4, 2007 (the 2007 Proxy Statement)
|
|
10
|
.13
|
|
1994 Stock Incentive Plan, as amended and restated as of May 19,
2006*
|
|
Appendix D to the Companys Proxy Statement filed
April 13, 2006
|
|
10
|
.14
|
|
Form of Indemnification Agreement*
|
|
Exhibit 10.14 to Form 10
|
|
10
|
.15
|
|
Senior Executive Medical Plan*
|
|
Exhibit 10.1.7 to the Companys Annual Report on
Form 10-K
(File
No. 1-163)
for the fiscal year ended February 3, 1990
|
|
10
|
.16
|
|
Employment Agreement, dated as of March 8, 2007, between Terry
J. Lundgren and the Company (the Lundgren Employment
Agreement)*
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on March 9, 2007
|
|
10
|
.17
|
|
Employment Agreement, dated July 1, 2005, between Thomas L. Cole
and Macys Corporate Services, Inc. (f/k/a Federated
Corporate Services, Inc.), a wholly-owned subsidiary of the
Company (the Cole Employment Agreement)*
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K
dated May 26, 2005
|
|
10
|
.17.1
|
|
Amended Exhibit A, effective as of April 1, 2006, to the Cole
Employment Agreement*
|
|
Exhibit 10.3 to the March 24, 2006
Form 8-K
|
|
10
|
.18
|
|
Employment Agreement, dated July 1, 2005, between Janet E. Grove
and Macys Merchandising Group, Inc., a wholly-owned
and indirect subsidiary of the Company (the Grove
Employment Agreement)*
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K
dated May 31, 2005
|
37
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Document if Incorporated by Reference
|
|
|
10
|
.18.1
|
|
Amended Exhibit A, effective as of April 1, 2006, to the Grove
Employment Agreement*
|
|
Exhibit 10.4 to the March 24, 2006
Form 8-K
|
|
10
|
.19
|
|
Employment Agreement, dated July 1, 2005, between Thomas G. Cody
and Macys Corporate Services, Inc. (f/k/a Federated
Corporate Services, Inc.), a wholly-owned subsidiary of the
Company (the Cody Employment Agreement)*
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K
dated June 13, 2005
|
|
10
|
.19.1
|
|
Amended Exhibit A, effective as of April 1, 2006, to the Cody
Employment Agreement*
|
|
Exhibit 10.2 to the March 24, 2006
Form 8-K
|
|
10
|
.20
|
|
Employment Agreement, dated July 1, 2005, between Susan Kronick
and Macys Corporate Services, Inc. (f/k/a Federated
Corporate Services, Inc.), a wholly-owned subsidiary of the
Company (the Kronick Employment Agreement)*
|
|
Exhibit 10.6 to the March 24, 2006
Form 8-K
|
|
10
|
.20.1
|
|
Amended Exhibit A, effective as of April 1, 2006, to the Kronick
Employment Agreement*
|
|
Exhibit 10.5 to the March 24, 2006
Form 8-K
|
|
10
|
.21
|
|
Form of Employment Agreement for Executives and Key Employees*
|
|
Exhibit 10.31 the Companys Annual Report on
Form 10-K
(File
No. 001-10951)
for fiscal year ended January 29, 1994
|
|
10
|
.22
|
|
Form of Severance Agreement (for Executives and Key Employees
other than Executive Officers)*
|
|
Exhibit 10.44 to the Companys Annual Report on
Form 10-K
for the fiscal year ended January 30, 1999 (the 1998
Form 10-K)
|
|
10
|
.23
|
|
Form of Second Amended and Restated Severance Agreement (for
Executive Officers)*
|
|
Exhibit 10.45 to the 1998
Form 10-K
|
|
10
|
.23.1
|
|
Form of Amendment No. 1 to Severance Agreement
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K,
filed November 2, 2006
|
|
10
|
.23.2
|
|
Form of Amendment No. 2 to Severance Agreement
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K
dated November 5, 2007
|
|
10
|
.24
|
|
Form of Non-Qualified Stock Option Agreement (for Executives and
Key Employees)*
|
|
Exhibit 10.2 to the March 25, 2005
Form 8-K
|
|
10
|
.24.1
|
|
Form of Non-Qualified Stock Option Agreement (for Executives and
Key Employees), as amended*
|
|
Exhibit 10.33.1 to the 2005
Form 10-K
|
|
10
|
.25
|
|
Nonqualified Stock Option Agreement, dated as of October 26,
2007, by and between the Company and Terry Lundgren*
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K
dated November 1, 2007
|
|
10
|
.26
|
|
Form of Restricted Stock Agreement for the 1994 Stock Incentive
Plan*
|
|
Exhibit 10.4 to the Current Report on From
8-K filed
March 23, 2005 by May Delaware (the March 23,
2005
Form 8-K)
|
|
10
|
.27
|
|
Form of Performance Restricted Stock Agreement for the 1994
Stock Incentive Plan*
|
|
Exhibit 10.5 to the March 23, 2005
Form 8-K
|
|
10
|
.28
|
|
Form of Non-Qualified Stock Option Agreement for the 1994 Stock
Incentive Plan*
|
|
Exhibit 10.7 to the March 23, 2005
Form 8-K
|
|
10
|
.29
|
|
Supplementary Executive Retirement Plan, as amended and restated
as of January 1, 1997*
|
|
Exhibit 10.46 to the 1996
Form 10-K
|
38
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Document if Incorporated by Reference
|
|
|
10
|
.30
|
|
Executive Deferred Compensation Plan, as amended through January
1, 2005*
|
|
Exhibit 10.4 to the Companys Quarterly Report on
Form 10-Q
for the period ended April 29, 2006
|
|
10
|
.31
|
|
Profit Sharing 401(k) Investment Plan, effective as of April 1,
1997, as amended and restated as of February 5, 2002 (the
Amended and Restated 401(k) Plan)*
|
|
Exhibit 10.40 to the 2005
Form 10-K
|
|
10
|
.31.1
|
|
Amendment (No. 1) to the Amended and Restated 401(k) Plan, dated
as of July 19, 2002*
|
|
Exhibit 10.40.2 to the 2005
Form 10-K
|
|
10
|
.31.2
|
|
Amendment (No. 2) to the Amended and Restated 401(k) Plan, dated
as of December 23, 2002*
|
|
Exhibit 10.40.1 to the 2005
Form 10-K
|
|
10
|
.31.3
|
|
Amendment (No. 3) to the Amended and Restated 401(k) Plan, dated
as of February 3, 2003*
|
|
Exhibit 10.40.3 to the 2005
Form 10-K
|
|
10
|
.31.4
|
|
Amendment (No. 4) to the Amended and Restated 401(k) Plan, dated
as of December 30, 2003*
|
|
Exhibit 10.40.4 to the 2005
Form 10-K
|
|
10
|
.31.5
|
|
Amendment (No. 5) to the Amended and Restated 401(k) Plan, dated
as of December 31, 2003*
|
|
Exhibit 10.40.5 to the 2005
Form 10-K
|
|
10
|
.31.6
|
|
Amendment (No. 6) to the Amended and Restated 401(k) Plan, dated
as of March 30, 2005*
|
|
Exhibit 10.40.6 to the 2005
Form 10-K
|
|
10
|
.31.7
|
|
Amendment (No. 7) to the Amended and Restated 401(k) Plan, dated
as of August 23, 2005*
|
|
Exhibit 10.40.7 to the 2005
Form 10-K
|
|
10
|
.31.8
|
|
Amendment (No. 8) to the Amended and Restated 401(k) Plan, dated
as of February 27, 2006*
|
|
Exhibit 10.40.8 to the 2005
Form 10-K
|
|
10
|
.31.9
|
|
Amendment (No. 9) to the Amended and Restated 401(k) Plan, dated
as of August 29, 2006*
|
|
Exhibit 10.32.9 to the 2006
Form 10-K
|
|
10
|
.31.10
|
|
Amendment (No. 10) to the Amended and Restated 401(k) Plan,
dated as of December 19, 2006*
|
|
Exhibit 10.32.10 to the 2006
Form 10-K
|
|
10
|
.31.11
|
|
Amendment (No. 11) to the Amended and Restated 401(k) Plan,
dated as of December 19, 2006*
|
|
Exhibit 10.32.11 to the 2006
Form 10-K
|
|
10
|
.31.12
|
|
Amendment (No. 12) to the Amended and Restated 401(k) Plan,
effective as of February 22, 2007*
|
|
|
|
10
|
.31.13
|
|
Amendment (No. 13) to the Amended and Restated 401(k) Plan,
dated as of June 1, 2007*
|
|
|
|
10
|
.32
|
|
Cash Account Pension Plan (amending and restating the Company
Pension Plan) effective as of January 1, 1997*
|
|
Exhibit 10.49 to the 1996
Form 10-K
|
|
10
|
.33
|
|
Director Deferred Compensation Plan*
|
|
Appendix C of the 2007 Proxy Statement
|
|
10
|
.34
|
|
Stock Credit Plan for 2006 - 2007 of Federated Department
Stores, Inc.*
|
|
Exhibit 10.43 to the 2005
Form 10-K
|
39
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Document if Incorporated by Reference
|
|
|
10
|
.35
|
|
Agreement and Release of Claims between Macys Corporate
Services, Inc. (f/k/a Federated Corporate Services, Inc.) and
Ronald W. Tysoe, dated as of October 2, 2006*
|
|
Exhibit 10.1 to the Companys Current Report on
Form 8-K,
filed on October 2, 2006
|
|
21
|
|
|
Subsidiaries
|
|
|
|
23
|
|
|
Consent of KPMG LLP
|
|
|
|
24
|
|
|
Powers of Attorney
|
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a)
|
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a)
|
|
|
|
32
|
.1
|
|
Certifications by Chief Executive Officer under Section 906 of
the Sarbanes-Oxley Act
|
|
|
|
32
|
.2
|
|
Certifications by Chief Financial Officer under Section 906 of
the Sarbanes-Oxley Act
|
|
|
|
|
|
* |
|
Constitutes a compensatory plan or arrangement. |
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MACYS,
INC.
|
|
|
|
By:
|
/s/ Dennis
J. Broderick
|
Dennis J. Broderick
Senior Vice President, General Counsel and Secretary
Date: April 1, 2008
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
indicated on April 1, 2008.
|
|
|
|
|
Signature
|
|
Title
|
|
*
Terry
J. Lundgren
|
|
Chairman of the Board, President and
Chief Executive Officer
(principal executive officer) and Director
|
*
Karen
M. Hoguet
|
|
Executive Vice President and Chief Financial Officer
(principal financial officer)
|
*
Joel
A. Belsky
|
|
Vice President and Controller (principal accounting officer)
|
*
Stephen
F. Bollenbach
|
|
Director
|
*
Deirdre
Connelly
|
|
Director
|
*
Meyer
Feldberg
|
|
Director
|
*
Sara
Levinson
|
|
Director
|
*
Joseph
Neubauer
|
|
Director
|
*
Joseph
A. Pichler
|
|
Director
|
*
Joyce
M. Roché
|
|
Director
|
*
Karl
M. von der Heyden
|
|
Director
|
*
Craig
E. Weatherup
|
|
Director
|
*
Marna
C. Whittington
|
|
Director
|
|
|
|
* |
|
The undersigned, by signing his name hereto, does sign and
execute this Annual Report on
Form 10-K
pursuant to the Powers of Attorney executed by the above-named
officers and directors and filed herewith. |
|
|
|
|
By:
|
/s/ Dennis
J. Broderick
|
Dennis J. Broderick
Attorney-in-Fact
41
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Report of Management
|
|
|
F-2
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-3
|
|
Consolidated Statements of Income for the fiscal years ended
February 2, 2008, February 3, 2007 and
January 28, 2006
|
|
|
F-5
|
|
Consolidated Balance Sheets at February 2, 2008 and
February 3, 2007
|
|
|
F-6
|
|
Consolidated Statements of Changes in Shareholders Equity
for the fiscal years ended
February 2, 2008, February 3, 2007 and
January 28, 2006
|
|
|
F-7
|
|
Consolidated Statements of Cash Flows for the fiscal years
ended
February 2, 2008, February 3, 2007 and
January 28, 2006
|
|
|
F-8
|
|
Notes to Consolidated Financial Statements
|
|
|
F-9
|
|
F-1
REPORT OF
MANAGEMENT
To the Shareholders of
Macys, Inc.:
The integrity and consistency of the Consolidated Financial
Statements of Macys, Inc. and subsidiaries, which were
prepared in accordance with accounting principles generally
accepted in the United States of America, are the responsibility
of management and properly include some amounts that are based
upon estimates and judgments.
The Company maintains a system of internal accounting controls,
which is supported by a program of internal audits with
appropriate management
follow-up
action, to provide reasonable assurance, at appropriate cost,
that the Companys assets are protected and transactions
are properly recorded. Additionally, the integrity of the
financial accounting system is based on careful selection and
training of qualified personnel, organizational arrangements
which provide for appropriate division of responsibilities and
communication of established written policies and procedures.
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as defined in Exchange Act
Rule 13a-15(f)
and has issued Managements Report on Internal Control over
Financial Reporting.
The Consolidated Financial Statements of the Company have been
audited by KPMG LLP. Their report expresses their opinion as to
the fair presentation, in all material respects, of the
financial statements and is based upon their independent audits.
The Audit Committee, composed solely of outside directors, meets
periodically with KPMG LLP, the internal auditors and
representatives of management to discuss auditing and financial
reporting matters. In addition, KPMG LLP and the Companys
internal auditors meet periodically with the Audit Committee
without management representatives present and have free access
to the Audit Committee at any time. The Audit Committee is
responsible for recommending to the Board of Directors the
engagement of the independent registered public accounting firm,
which is subject to shareholder approval, and the general
oversight review of managements discharge of its
responsibilities with respect to the matters referred to above.
Terry J. Lundgren
Chairman, President and Chief Executive Officer
Karen M. Hoguet
Executive Vice President and Chief Financial Officer
Joel A. Belsky
Vice President and Controller
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Macys, Inc.:
We have audited the accompanying consolidated balance sheets of
Macys, Inc. and subsidiaries as of February 2, 2008
and February 3, 2007, and the related consolidated
statements of income, changes in shareholders equity and
cash flows for each of the fiscal years in the three-year period
ended February 2, 2008. We also have audited Macys,
Inc.s internal control over financial reporting as of
February 2, 2008, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Macys Inc. management is responsible for these
consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Item 9A(b) Managements Report on Internal Control
over Financial Reporting. Our responsibility is to express an
opinion on these consolidated financial statements and an
opinion on Macys, Inc.s internal control over
financial reporting based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
F-3
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Macys, Inc. and subsidiaries as of
February 2, 2008 and February 3, 2007, and the results
of its operations and its cash flows for each of the fiscal
years in the three-year period ended February 2, 2008, in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, Macys, Inc.
maintained, in all material respects, effective internal control
over financial reporting as of February 2, 2008, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
As discussed in Note 1 to the consolidated financial
statements, Macys, Inc. adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, and the measurement date provision of
Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, in fiscal 2007, and the
provisions of Statement of Financial Accounting Standards
No. 123R, Share Based Payment, and the
recognition and related disclosure provisions of Statement of
Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, in fiscal 2006.
Cincinnati, Ohio
March 28, 2008
F-4
MACYS,
INC.
CONSOLIDATED
STATEMENTS OF INCOME
(millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
26,313
|
|
|
$
|
26,970
|
|
|
$
|
22,390
|
|
Cost of sales
|
|
|
(15,677
|
)
|
|
|
(16,019
|
)
|
|
|
(13,272
|
)
|
Inventory valuation adjustments May integration
|
|
|
|
|
|
|
(178
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
10,636
|
|
|
|
10,773
|
|
|
|
9,093
|
|
Selling, general and administrative expenses
|
|
|
(8,554
|
)
|
|
|
(8,678
|
)
|
|
|
(6,980
|
)
|
May integration costs
|
|
|
(219
|
)
|
|
|
(450
|
)
|
|
|
(169
|
)
|
Gains on the sale of accounts receivable
|
|
|
|
|
|
|
191
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,863
|
|
|
|
1,836
|
|
|
|
2,424
|
|
Interest expense
|
|
|
(579
|
)
|
|
|
(451
|
)
|
|
|
(422
|
)
|
Interest income
|
|
|
36
|
|
|
|
61
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
1,320
|
|
|
|
1,446
|
|
|
|
2,044
|
|
Federal, state and local income tax expense
|
|
|
(411
|
)
|
|
|
(458
|
)
|
|
|
(671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
909
|
|
|
|
988
|
|
|
|
1,373
|
|
Discontinued operations, net of income taxes
|
|
|
(16
|
)
|
|
|
7
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
893
|
|
|
$
|
995
|
|
|
$
|
1,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.04
|
|
|
$
|
1.83
|
|
|
$
|
3.22
|
|
Income (loss) from discontinued operations
|
|
|
(.04
|
)
|
|
|
.01
|
|
|
|
.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.00
|
|
|
$
|
1.84
|
|
|
$
|
3.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.01
|
|
|
$
|
1.80
|
|
|
$
|
3.16
|
|
Income (loss) from discontinued operations
|
|
|
(.04
|
)
|
|
|
.01
|
|
|
|
.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.97
|
|
|
$
|
1.81
|
|
|
$
|
3.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-5
MACYS,
INC.
CONSOLIDATED
BALANCE SHEETS
(millions)
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008
|
|
|
February 3, 2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
583
|
|
|
$
|
1,211
|
|
Accounts receivable
|
|
|
463
|
|
|
|
517
|
|
Merchandise inventories
|
|
|
5,060
|
|
|
|
5,317
|
|
Supplies and prepaid expenses
|
|
|
218
|
|
|
|
251
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
6,324
|
|
|
|
7,422
|
|
Property and Equipment net
|
|
|
10,991
|
|
|
|
11,473
|
|
Goodwill
|
|
|
9,133
|
|
|
|
9,204
|
|
Other Intangible Assets net
|
|
|
831
|
|
|
|
883
|
|
Other Assets
|
|
|
510
|
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
27,789
|
|
|
$
|
29,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
666
|
|
|
$
|
650
|
|
Accounts payable and accrued liabilities
|
|
|
4,127
|
|
|
|
4,604
|
|
Income taxes
|
|
|
344
|
|
|
|
665
|
|
Deferred income taxes
|
|
|
223
|
|
|
|
128
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
5,360
|
|
|
|
6,095
|
|
Long-Term Debt
|
|
|
9,087
|
|
|
|
7,847
|
|
Deferred Income Taxes
|
|
|
1,446
|
|
|
|
1,652
|
|
Other Liabilities
|
|
|
1,989
|
|
|
|
1,702
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
Common stock (419.7 and 496.9 shares outstanding)
|
|
|
5
|
|
|
|
6
|
|
Additional paid-in capital
|
|
|
5,609
|
|
|
|
9,486
|
|
Accumulated equity
|
|
|
7,032
|
|
|
|
6,375
|
|
Treasury stock
|
|
|
(2,557
|
)
|
|
|
(3,431
|
)
|
Accumulated other comprehensive loss
|
|
|
(182
|
)
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
9,907
|
|
|
|
12,254
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
27,789
|
|
|
$
|
29,550
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-6
MACYS,
INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
Restricted
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Equity
|
|
|
Stock
|
|
|
Stock
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Balance at January 29, 2005
|
|
$
|
4
|
|
|
$
|
3,122
|
|
|
$
|
4,405
|
|
|
$
|
(1,322
|
)
|
|
$
|
(2
|
)
|
|
$
|
(40
|
)
|
|
$
|
6,167
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,406
|
|
Minimum pension liability adjustment, net of income tax effect
of $160 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(257
|
)
|
|
|
(257
|
)
|
Unrealized gain on marketable securities, net of income tax
effect of $6 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,158
|
|
Stock issued in acquisition
|
|
|
2
|
|
|
|
6,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,021
|
|
Common stock dividends ($.385 per share)
|
|
|
|
|
|
|
|
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(157
|
)
|
Stock issued under stock plans
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
265
|
|
Restricted stock plan amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Deferred compensation plan distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Income tax benefit related to stock plan activity
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 28, 2006
|
|
|
6
|
|
|
|
9,238
|
|
|
|
5,654
|
|
|
|
(1,091
|
)
|
|
|
|
|
|
|
(288
|
)
|
|
|
13,519
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
995
|
|
Minimum pension liability adjustment, net of income tax effect
of $151 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
244
|
|
Unrealized gain on marketable securities, net of income tax
effect of $23 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,275
|
|
Adjustment to initially apply SFAS No. 158, net of
income tax effect of $115 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(174
|
)
|
|
|
(174
|
)
|
Common stock dividends ($.5075 per share)
|
|
|
|
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(274
|
)
|
Stock repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Stock issued under stock plans
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
317
|
|
Deferred compensation plan distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Income tax benefit related to stock plan activity
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 3, 2007, as previously reported
|
|
|
6
|
|
|
|
9,486
|
|
|
|
6,375
|
|
|
|
(3,431
|
)
|
|
|
|
|
|
|
(182
|
)
|
|
|
12,254
|
|
Cumulative effect of adopting new accounting pronouncements
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 3, 2007, as revised
|
|
|
6
|
|
|
|
9,486
|
|
|
|
6,369
|
|
|
|
(3,431
|
)
|
|
|
|
|
|
|
(153
|
)
|
|
|
12,277
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
893
|
|
Adjustments to pension and other post employment and
postretirement benefit plans, net of income tax effect of
$4 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Unrealized loss on marketable securities, net of income tax
effect of $22 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
864
|
|
Common stock dividends ($.5175 per share)
|
|
|
|
|
|
|
|
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(230
|
)
|
Stock repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,322
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,322
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
Stock issued under stock plans
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
Retirement of common stock
|
|
|
(1
|
)
|
|
|
(3,915
|
)
|
|
|
|
|
|
|
3,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Income tax benefit related to stock plan activity
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2008
|
|
$
|
5
|
|
|
$
|
5,609
|
|
|
$
|
7,032
|
|
|
$
|
(2,557
|
)
|
|
$
|
|
|
|
$
|
(182
|
)
|
|
$
|
9,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-7
MACYS,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from continuing operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
893
|
|
|
$
|
995
|
|
|
$
|
1,406
|
|
Adjustments to reconcile net income to net cash provided by
continuing operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss from discontinued operations
|
|
|
16
|
|
|
|
(7
|
)
|
|
|
(33
|
)
|
Gains on the sale of accounts receivable
|
|
|
|
|
|
|
(191
|
)
|
|
|
(480
|
)
|
Stock-based compensation expense
|
|
|
60
|
|
|
|
91
|
|
|
|
10
|
|
May integration costs
|
|
|
219
|
|
|
|
628
|
|
|
|
194
|
|
Depreciation and amortization
|
|
|
1,304
|
|
|
|
1,265
|
|
|
|
976
|
|
Amortization of financing costs and premium on acquired debt
|
|
|
(31
|
)
|
|
|
(49
|
)
|
|
|
(20
|
)
|
Gain on early debt extinguishment
|
|
|
|
|
|
|
(54
|
)
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of proprietary accounts receivable
|
|
|
|
|
|
|
1,860
|
|
|
|
2,195
|
|
(Increase) decrease in proprietary and other accounts receivable
not separately identified
|
|
|
28
|
|
|
|
207
|
|
|
|
(147
|
)
|
(Increase) decrease in merchandise inventories
|
|
|
256
|
|
|
|
(51
|
)
|
|
|
495
|
|
(Increase) decrease in supplies and prepaid expenses
|
|
|
33
|
|
|
|
(41
|
)
|
|
|
122
|
|
(Increase) decrease in other assets not separately identified
|
|
|
3
|
|
|
|
25
|
|
|
|
(2
|
)
|
Decrease in accounts payable and accrued liabilities not
separately identified
|
|
|
(528
|
)
|
|
|
(872
|
)
|
|
|
(446
|
)
|
Increase (decrease) in current income taxes
|
|
|
14
|
|
|
|
(139
|
)
|
|
|
49
|
|
Decrease in deferred income taxes
|
|
|
(2
|
)
|
|
|
(18
|
)
|
|
|
(36
|
)
|
Increase (decrease) in other liabilities not separately
identified
|
|
|
(34
|
)
|
|
|
43
|
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operating activities
|
|
|
2,231
|
|
|
|
3,692
|
|
|
|
4,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(994
|
)
|
|
|
(1,317
|
)
|
|
|
(568
|
)
|
Capitalized software
|
|
|
(111
|
)
|
|
|
(75
|
)
|
|
|
(88
|
)
|
Proceeds from the disposition of After Hours Formalwear
|
|
|
66
|
|
|
|
|
|
|
|
|
|
Proceeds from hurricane insurance claims
|
|
|
23
|
|
|
|
17
|
|
|
|
|
|
Disposition of property and equipment
|
|
|
227
|
|
|
|
679
|
|
|
|
19
|
|
Proceeds from the disposition of Lord & Taylor
|
|
|
|
|
|
|
1,047
|
|
|
|
|
|
Proceeds from the disposition of Davids Bridal and
Priscilla of Boston
|
|
|
|
|
|
|
740
|
|
|
|
|
|
Repurchase of accounts receivable
|
|
|
|
|
|
|
(1,141
|
)
|
|
|
|
|
Proceeds from the sale of repurchased accounts receivable
|
|
|
|
|
|
|
1,323
|
|
|
|
|
|
Acquisition of The May Department Stores Company, net of cash
acquired
|
|
|
|
|
|
|
|
|
|
|
(5,321
|
)
|
Proceeds from sale of non-proprietary accounts receivable
|
|
|
|
|
|
|
|
|
|
|
1,388
|
|
Increase in non-proprietary accounts receivable
|
|
|
|
|
|
|
|
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by continuing investing activities
|
|
|
(789
|
)
|
|
|
1,273
|
|
|
|
(4,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from continuing financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issued
|
|
|
1,950
|
|
|
|
1,146
|
|
|
|
4,580
|
|
Financing costs
|
|
|
(18
|
)
|
|
|
(10
|
)
|
|
|
(2
|
)
|
Debt repaid
|
|
|
(649
|
)
|
|
|
(2,680
|
)
|
|
|
(4,755
|
)
|
Dividends paid
|
|
|
(230
|
)
|
|
|
(274
|
)
|
|
|
(157
|
)
|
Decrease in outstanding checks
|
|
|
(57
|
)
|
|
|
(77
|
)
|
|
|
(53
|
)
|
Acquisition of treasury stock
|
|
|
(3,322
|
)
|
|
|
(2,500
|
)
|
|
|
(7
|
)
|
Issuance of common stock
|
|
|
257
|
|
|
|
382
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by continuing financing activities
|
|
|
(2,069
|
)
|
|
|
(4,013
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by continuing operations
|
|
|
(627
|
)
|
|
|
952
|
|
|
|
(614
|
)
|
Net cash provided by discontinued operating activities
|
|
|
7
|
|
|
|
54
|
|
|
|
63
|
|
Net cash used by discontinued investing activities
|
|
|
(7
|
)
|
|
|
(97
|
)
|
|
|
(61
|
)
|
Net cash provided (used) by discontinued financing activities
|
|
|
(1
|
)
|
|
|
54
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by discontinued operations
|
|
|
(1
|
)
|
|
|
11
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(628
|
)
|
|
|
963
|
|
|
|
(620
|
)
|
Cash and cash equivalents beginning of period
|
|
|
1,211
|
|
|
|
248
|
|
|
|
868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
583
|
|
|
$
|
1,211
|
|
|
$
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
594
|
|
|
$
|
600
|
|
|
$
|
457
|
|
Interest received
|
|
|
38
|
|
|
|
59
|
|
|
|
42
|
|
Income taxes paid (net of refunds received)
|
|
|
432
|
|
|
|
561
|
|
|
|
481
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-8
MACYS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
In May 2007, the stockholders of Federated Department Stores,
Inc. approved changing the name of the company from Federated
Department Stores, Inc. to Macys, Inc. The name change
became effective on June 1, 2007.
Macys, Inc. and subsidiaries (the Company) is
a retail organization operating retail stores that sell a wide
range of merchandise, including mens, womens and
childrens apparel and accessories, cosmetics, home
furnishings and other consumer goods.
The Companys fiscal year ends on the Saturday closest to
January 31. Fiscal years 2007, 2006 and 2005 ended on
February 2, 2008, February 3, 2007 and
January 28, 2006, respectively. Fiscal years 2007 and 2005
included 52 weeks and fiscal year 2006 included
53 weeks. References to years in the Consolidated Financial
Statements relate to fiscal years rather than calendar years.
The Consolidated Financial Statements include the accounts of
the Company and its wholly-owned subsidiaries. The Company from
time to time invests in companies engaged in complementary
businesses. Investments in companies in which the Company has
the ability to exercise significant influence, but not control,
are accounted for by the equity method. All marketable equity
and debt securities held by the Company are accounted for under
Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt
and Equity Securities, with unrealized gains and losses on
available-for-sale securities being included as a separate
component of accumulated other comprehensive income, net of
income tax effect. All other investments are carried at cost.
All significant intercompany transactions have been eliminated.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Such estimates and
assumptions are subject to inherent uncertainties, which may
result in actual amounts differing from reported amounts.
On May 19, 2006, the Companys board of directors
approved a two-for-one stock split to be effected in the form of
a stock dividend. The additional shares resulting from the stock
split were distributed after the close of trading on
June 9, 2006 to shareholders of record on May 26,
2006. Share and per share amounts reflected throughout the
Consolidated Financial Statements and notes thereto have been
retroactively restated for the stock split.
Certain reclassifications were made to prior years amounts
to conform with the classifications of such amounts for the most
recent year.
The Company operates in one segment as an operator of retail
stores.
Net sales include merchandise sales, leased department income
and shipping and handling fees. The Company licenses third
parties to operate certain departments in its stores. The
Company receives commissions from these licensed departments
based on a percentage of net sales. Commissions are recognized
as
F-9
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
income at the time merchandise is sold to customers. Sales taxes
collected from customers are not considered revenue and are
included in accounts payable and accrued liabilities until
remitted to the taxing authorities. Cost of sales consists of
the cost of merchandise, including inbound freight, and shipping
and handling costs. Sales of merchandise are recorded at the
time of delivery and reported net of merchandise returns. An
estimated allowance for future sales returns is recorded and
cost of sales is adjusted accordingly.
Cash and cash equivalents include cash and liquid investments
with original maturities of three months or less.
Prior to the Companys sales of its credit card accounts
and receivables (see Note 5, Accounts
Receivable), the Company offered proprietary credit to its
customers under revolving accounts and also offered
non-proprietary revolving account credit cards. Such revolving
accounts were accepted on customary revolving credit terms and
offered the customer the option of paying the entire balance on
a 25-day
basis without incurring finance charges. Alternatively,
customers were able to make scheduled minimum payments and incur
finance charges, which were competitive with other retailers and
lenders. Minimum payments varied from 2.5% to 100.0% of the
account balance, depending on the size of the balance. The
Company also offered proprietary credit on deferred billing
terms for periods not to exceed one year. Such accounts were
convertible to revolving credit, if unpaid, at the end of the
deferral period. Finance charge income was treated as a
reduction of selling, general and administrative expenses on the
Consolidated Statements of Income.
Prior to the Companys sales of its credit card accounts
and receivables, the Company evaluated the collectibility of its
proprietary and non-proprietary accounts receivable based on a
combination of factors, including analysis of historical trends,
aging of accounts receivable, write-off experience and
expectations of future performance. Proprietary and
non-proprietary accounts receivable were considered delinquent
if more than one scheduled minimum payment was missed.
Delinquent proprietary accounts of Macys were generally
written off automatically after the passage of 210 days
without receiving a full scheduled monthly payment. Delinquent
non-proprietary accounts and delinquent proprietary accounts of
The May Department Store Company (May) were
generally written off automatically after the passage of
180 days without receiving a full scheduled monthly
payment. Accounts were written off sooner in the event of
customer bankruptcy or other circumstances that made further
collection unlikely. The Company previously reserved for
Macys doubtful proprietary accounts based on a
loss-to-collections
rate and Macys doubtful non-proprietary accounts based on
a roll-reserve rate. The Company previously reserved for May
doubtful proprietary accounts with a methodology based upon
historical write-off performance in addition to factoring in a
flow rate performance tied to the customer delinquency trend.
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) (see Note 5, Accounts
Receivable). Income earned under the Program Agreement is
treated as a reduction of selling, general and administrative
expenses on the Consolidated Statements of Income. Under the
Program Agreement, Citibank offers proprietary and
non-proprietary credit to the Companys customers through
previously existing and newly opened accounts.
The Company maintains customer loyalty programs in which
customers are awarded certificates based on their spending. Upon
reaching certain levels of qualified spending, customers
automatically receive certificates
F-10
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
to apply toward future purchases. The Company expenses the
estimated net amount of the certificates that will be earned and
redeemed as the certificates are earned.
Merchandise inventories are valued at lower of cost or market
using the
last-in,
first-out (LIFO) retail inventory method. Under the retail
inventory method, inventory is segregated into departments of
merchandise having similar characteristics, and is stated at its
current retail selling value. Inventory retail values are
converted to a cost basis by applying specific average cost
factors for each merchandise department. Cost factors represent
the average
cost-to-retail
ratio for each merchandise department based on beginning
inventory and the fiscal year purchase activity. The retail
inventory method inherently requires management judgments and
estimates, such as the amount and timing of permanent markdowns
to clear unproductive or slow-moving inventory, which may impact
the ending inventory valuation as well as gross margins.
Permanent markdowns designated for clearance activity are
recorded when the utility of the inventory has diminished.
Factors considered in the determination of permanent markdowns
include current and anticipated demand, customer preferences,
age of the merchandise and fashion trends. When a decision is
made to permanently mark down merchandise, the resulting gross
margin reduction is recognized in the period the markdown is
recorded.
Shrinkage is estimated as a percentage of sales for the period
from the last inventory date to the end of the fiscal period.
Such estimates are based on experience and the most recent
physical inventory results. While it is not possible to quantify
the impact from each cause of shrinkage, the Company has loss
prevention programs and policies that are intended to minimize
shrinkage. Physical inventories are taken within each
merchandise department annually, and inventory records are
adjusted accordingly.
The Company receives certain allowances from various vendors in
support of the merchandise it purchases for resale. The Company
receives certain allowances as reimbursement for markdowns taken
and/or to
support the gross margins earned in connection with the sales of
merchandise. These allowances are generally credited to cost of
sales at the time the merchandise is sold in accordance with
Emerging Issues Task Force (EITF) Issue
No. 02-16,
Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor. The Company
also receives advertising allowances from more than 900 of its
merchandise vendors pursuant to cooperative advertising
programs, with some vendors participating in multiple programs.
These allowances represent reimbursements by vendors of costs
incurred by the Company to promote the vendors merchandise
and are netted against advertising and promotional costs when
the related costs are incurred in accordance with EITF Issue
No. 02-16.
Advertising and promotional costs, net of cooperative
advertising allowances, amounted to $1,194 million for
2007, $1,171 million for 2006, and $1,076 million for
2005. Cooperative advertising allowances that offset advertising
and promotional costs were approximately $431 million for
2007, $517 million for 2006, and $432 million for
2005. Department store non-direct response advertising and
promotional costs are expensed either as incurred or the first
time the advertising occurs. Direct response advertising and
promotional costs are deferred and expensed over the period
during which the sales are expected to occur, generally one to
four months.
The arrangements pursuant to which the Companys vendors
provide allowances, while binding, are generally informal in
nature and one year or less in duration. The terms and
conditions of these arrangements
F-11
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
vary significantly from vendor to vendor and are influenced by,
among other things, the type of merchandise to be supported.
Depreciation of owned properties is provided primarily on a
straight-line basis over the estimated asset lives, which range
from 15 to 50 years for buildings and building equipment
and 3 to 15 years for fixtures and equipment. Real estate
taxes and interest on construction in progress and land under
development are capitalized. Amounts capitalized are amortized
over the estimated lives of the related depreciable assets. The
Company receives contributions from developers and merchandise
vendors to fund building improvement and the construction of
vendor shops. Such contributions are netted against the capital
expenditures.
Buildings on leased land and leasehold improvements are
amortized over the shorter of their economic lives or the lease
term, beginning on the date the asset is put into use. The
Company receives contributions from landlords to fund buildings
and leasehold improvements. Such contributions are recorded as
deferred rent and amortized as reductions to lease expense over
the lease term.
The Company recognizes operating lease minimum rentals on a
straight-line basis over the lease term. Executory costs such as
real estate taxes and maintenance, and contingent rentals such
as those based on a percentage of sales are recognized as
incurred.
The lease term, which includes all renewal periods that are
considered to be reasonably assured, begins on the date the
Company has access to the leased property.
The carrying value of long-lived assets is periodically reviewed
by the Company whenever events or changes in circumstances
indicate that a potential impairment has occurred. For
long-lived assets held for use, a potential impairment has
occurred if projected future undiscounted cash flows are less
than the carrying value of the assets. The estimate of cash
flows includes managements assumptions of cash inflows and
outflows directly resulting from the use of those assets in
operations. When a potential impairment has occurred, an
impairment write-down is recorded if the carrying value of the
long-lived asset exceeds its fair value. The Company believes
its estimated cash flows are sufficient to support the carrying
value of its long-lived assets. If estimated cash flows
significantly differ in the future, the Company may be required
to record asset impairment write-downs.
For long-lived assets held for disposal by sale, an impairment
charge is recorded if the carrying amount of the asset exceeds
its fair value less costs to sell. Such valuations include
estimations of fair values and incremental direct costs to
transact a sale. If the Company commits to a plan to dispose of
a long-lived asset before the end of its previously estimated
useful life, estimated cash flows are revised accordingly, and
the Company may be required to record an asset impairment
write-down. Additionally, related liabilities arise such as
severance, contractual obligations and other accruals associated
with store closings from decisions to dispose of assets. The
Company estimates these liabilities based on the facts and
circumstances in existence for each restructuring decision. The
amounts the Company will ultimately realize or disburse could
differ from the amounts assumed in arriving at the asset
impairment and restructuring charge recorded. The Company
classifies a long-lived asset as held for disposal by sale when
it ceases to be used.
The Company accounts for recorded goodwill and other intangible
assets in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets (SFAS 142).
In accordance with SFAS 142,
F-12
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
goodwill and intangible assets having indefinite lives are not
being amortized to earnings, but instead are subject to periodic
testing for impairment. Goodwill and other intangible assets not
subject to amortization have been assigned to reporting units
for purposes of impairment testing. The reporting units are the
Companys retail operating divisions. Goodwill and
indefinite lived intangible assets of a reporting unit are
tested for impairment annually at the end of the fiscal month of
May and more frequently if certain indicators are encountered.
Goodwill and indefinite lived intangible impairment tests
consist of a comparison of each reporting units fair value
with its carrying value. The fair value of a reporting unit is
an estimate of the amount for which the unit as a whole could be
sold in a current transaction between willing parties. The
Company generally estimates fair value based on discounted cash
flows. If the carrying value of a reporting unit exceeds its
fair value, goodwill is written down to its implied fair value.
The fair value of an indefinite lived intangible asset is an
estimate of the discounted future cash flows expected to be
generated by that asset. If the carrying value of an indefinite
lived intangible asset exceeds its fair value, the indefinite
lived intangible asset is written down to its fair value.
Intangible assets with determinable useful lives are amortized
over their estimated useful lives. These estimated useful lives
are evaluated annually to determine if a revision is warranted.
The Company capitalizes purchased and internally developed
software and amortizes such costs to expense on a straight-line
basis over 2-5 years. Capitalized software is included in
other assets on the Consolidated Balance Sheets.
Historically, the Company offered both expiring and non-expiring
gift cards to its customers. At the time gift cards are sold, no
revenue is recognized; rather, the Company records an accrued
liability to customers. The liability is relieved and revenue is
recognized equal to the amount redeemed at the time gift cards
are redeemed for merchandise. The Company records income from
unredeemed gift cards (breakage) as a reduction of selling,
general and administrative expenses. For expiring gift cards,
income is recorded at the end of two years (expiration date)
when there is no longer a legal obligation. For non-expiring
gift cards, income is recorded in proportion and over the time
period gift cards are actually redeemed. At least three years of
historical data, updated annually, is used to determine actual
redemption patterns. After February 2, 2008, the Company
will sell only non-expiring gift cards.
The Company, through its insurance subsidiaries, is self-insured
for workers compensation and public liability claims up to
certain maximum liability amounts. Although the amounts accrued
are actuarially determined based on analysis of historical
trends of losses, settlements, litigation costs and other
factors, the amounts the Company will ultimately disburse could
differ from such accrued amounts.
The Company, through its actuaries, utilizes assumptions when
estimating the liabilities for pension and other employee
benefit plans. These assumptions, where applicable, include the
discount rates used to determine the actuarial present value of
projected benefit obligations, the rate of increase in future
compensation levels, the long-term rate of return on assets and
the growth in health care costs. The cost of these benefits is
recognized in the Consolidated Financial Statements over an
employees term of service with the Company, and the
accrued benefits are reported in accounts payable and accrued
liabilities and other liabilities on the Consolidated Balance
Sheets, as appropriate.
Financing costs are amortized using the effective interest
method over the life of the related debt.
F-13
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Income taxes are accounted for under the asset and liability
method. Deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases,
and net operating loss and tax credit carryforwards. Deferred
income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in the
Consolidated Statements of Income in the period that includes
the enactment date. Deferred income tax assets are reduced by a
valuation allowance when it is more likely than not that some
portion of the deferred income tax assets will not be realized.
The Company records derivative transactions according to the
provisions of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended,
which establishes accounting and reporting standards for
derivative instruments and hedging activities and requires
recognition of all derivatives as either assets or liabilities
and measurement of those instruments at fair value. The Company
makes limited use of derivative financial instruments. The
Company does not use financial instruments for trading or other
speculative purposes and is not a party to any leveraged
financial instruments. On the date that the Company enters into
a derivative contract, the Company designates the derivative
instrument as either a fair value hedge, a cash flow hedge or as
a free-standing derivative instrument, each of which would
receive different accounting treatment. Prior to entering into a
hedge transaction, the Company formally documents the
relationship between hedging instruments and hedged items, as
well as the risk management objective and strategy for
undertaking various hedge transactions. Derivative instruments
that the Company may use as part of its interest rate risk
management strategy include interest rate swap and interest rate
cap agreements and Treasury lock agreements. At February 2,
2008, the Company was not a party to any derivative financial
instruments.
Effective January 29, 2006, the Company adopted
SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS 123R) using the modified
prospective transition method. This statement is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and supersedes
APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS 123R requires all share-based
payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on
their fair values. Under the provisions of this statement, the
Company must determine the appropriate fair value model to be
used for valuing share-based payments and the amortization
method for compensation cost. The modified prospective
transition method requires that compensation expense be
recognized beginning with the effective date, based on the
requirements of this statement, for all share-based payments
granted after the effective date, and based on the requirements
of SFAS 123, for all awards granted to employees prior to
the effective date of this statement that remain nonvested on
the effective date. See Note 14, Stock Based
Compensation, for further information.
Effective February 4, 2007, the Company adopted
SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments (SFAS 155), which
amended certain provisions of SFAS No. 133 and
SFAS No. 140. The adoption of SFAS 155 has not
had and is not expected to have a material impact on the
Companys consolidated financial position, results of
operations or cash flows.
F-14
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Effective February 4, 2007, the Company adopted the
measurement date provision of SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R)
(SFAS 158), which requires the measurement of
defined benefit plan assets and obligations to be the date of
the Companys fiscal year-end. This required a change in
the Companys measurement date, which was previously
December 31. See Note 12, Retirement
Plans, for further information.
In June 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income
Taxes An Interpretation of FASB Statement
No. 109 (FIN 48), which prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Company adopted the
provisions of FIN 48 on February 4, 2007, and the
adoption resulted in a net increase to accruals for uncertain
tax positions of $1 million, an increase to the beginning
balance of accumulated equity of $1 million and an increase
to goodwill of $2 million.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 addresses how companies should measure fair value
when they are required to use a fair value measure for
recognition and disclosure purposes under generally accepted
accounting principles. SFAS 157 will require the fair value
of an asset or liability to be calculated on a market based
measure, which will reflect the credit risk of the company.
SFAS 157 will also require expanded disclosure
requirements, which will include the methods and assumptions
used to measure fair value and the effect of fair value
measurements on earnings. SFAS 157 will be applied
prospectively and will be effective for fiscal years beginning
after November 15, 2007 and to interim periods within those
fiscal years, for items that are recognized or disclosed at fair
value in an entitys financial statements on a recurring
basis (at least annually). SFAS 157 will be effective for
fiscal years beginning after November 15, 2008 and to
interim periods within those fiscal years, for nonfinancial
assets and nonfinancial liabilities other than those that are
recognized or disclosed at fair value in an entitys
financial statements on a recurring basis (at least annually).
The Company is currently in the process of evaluating the impact
of adopting SFAS 157 on the Companys consolidated
financial position, results of operations and cash flows.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, (SFAS 159). SFAS 159
provides companies with an option to report selected financial
assets and financial liabilities at fair value. Unrealized gains
and losses on items for which the fair value option has been
elected are reported in earnings at each subsequent reporting
date. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. The Company is currently in the
process of evaluating the impact of adopting SFAS 159 on
the Companys consolidated financial position, results of
operations and cash flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin (ARB) No. 51,
(SFAS 160). SFAS 160 establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008.
F-15
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company does not anticipate the adoption of this statement
will have a material impact on the Companys consolidated
financial position, results of operations or cash flows.
Also in December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations,
(SFAS 141R). SFAS 141R establishes
principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. The statement also
provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what
information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS 141R is effective for fiscal
years beginning after December 15, 2008. The adoption of
this statement will affect any future acquisitions entered into
by the Company, and beginning with fiscal 2009 the Company will
no longer account for adjustments to tax liabilities and
unrecognized tax benefits assumed in previous acquisitions as
increases or decreases to goodwill. After adoption of
SFAS 141R, such adjustments will be accounted for in income
tax expense.
On August 30, 2005, the Company completed the acquisition
of The May Department Stores Company (May). The
results of Mays operations have been included in the
Consolidated Financial Statements since that date. The acquired
May operations included approximately 500 department stores and
approximately 800 bridal and formalwear stores nationwide. Most
of the acquired May department stores were converted to the
Macys nameplate in September 2006, resulting in a national
retailer with stores in almost all major markets. As a result of
the acquisition and the integration of the acquired May
operations, the Companys continuing operations operate
over 850 stores in 45 states, the District of Columbia,
Guam and Puerto Rico. The Company has previously announced its
intention to divest certain locations of the combined
Companys stores and certain duplicate facilities,
including distribution centers, call centers and corporate
offices. See Note 3, May Integration Costs, for
further information.
In September 2005 and January 2006, the Company announced its
intention to dispose of the acquired May bridal group business,
which included the operations of Davids Bridal, After
Hours Formalwear and Priscilla of Boston, and the acquired
Lord & Taylor division of May, respectively. In
October 2006, the Company completed the sale of its
Lord & Taylor division for approximately
$1,047 million in cash, a long-term note receivable of
approximately $17 million and a receivable for a working
capital adjustment to the purchase price of approximately
$23 million. In January 2007, the Company completed the
sale of its Davids Bridal and Priscilla of Boston
businesses for approximately $740 million in cash, net of
$10 million of transaction costs. In April 2007, the
Company completed the sale of its After Hours Formalwear
business for approximately $66 million in cash, net of
$1 million of transaction costs. As a result of the
Companys decision to dispose of these businesses, these
businesses are reported as discontinued operations.
The acquired May credit card accounts and related receivables
were sold to Citibank in May and July 2006 (see Note 5,
Accounts Receivable).
The aggregate purchase price for the acquisition of May (the
Merger) was approximately $11.7 billion,
including approximately $5.7 billion of cash and
approximately 200 million shares of Company common stock
F-16
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
and options to purchase an additional 18.8 million shares
of Company common stock valued at approximately
$6.0 billion in the aggregate. The value of the
approximately 200 million shares of Company common stock
was determined based on the average market price of the
Companys stock from February 24, 2005 to
March 2, 2005 (the merger agreement was entered into on
February 27, 2005). In connection with the Merger, the
Company also assumed approximately $6.0 billion of May debt.
The May purchase price has been allocated to the assets acquired
and liabilities assumed based on their fair values. The
following table summarizes the purchase price allocation at the
date of acquisition:
|
|
|
|
|
|
|
(millions)
|
|
|
Current assets, excluding assets of discontinued operations
|
|
$
|
5,288
|
|
Assets of discontinued operations
|
|
|
2,264
|
|
Property and equipment
|
|
|
6,579
|
|
Goodwill
|
|
|
8,946
|
|
Intangible assets
|
|
|
679
|
|
Other assets
|
|
|
31
|
|
|
|
|
|
|
Total assets acquired
|
|
|
23,787
|
|
Current liabilities, excluding short-term debt and liabilities
of discontinued operations
|
|
|
(3,222
|
)
|
Liabilities of discontinued operations
|
|
|
(683
|
)
|
Short-term debt
|
|
|
(248
|
)
|
Long-term debt
|
|
|
(6,256
|
)
|
Other liabilities
|
|
|
(1,629
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(12,038
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
11,749
|
|
|
|
|
|
|
May integration costs represent the costs associated with the
integration of the acquired May businesses with the
Companys pre-existing businesses and the consolidation of
certain operations of the Company. The Company had announced
that it planned to divest certain store locations and
distribution center facilities as a result of the acquisition of
May, and, during 2007, the Company completed its review of store
locations and distribution center facilities, closing certain
underperforming stores, temporarily closing other stores for
remodeling to optimize merchandise offering strategies, and
closing certain distribution center facilities, consolidating
operations in existing or newly constructed facilities.
During 2007, the Company completed the integration and
consolidation of Mays operations into Macys
operations and recorded $219 million of associated
integration costs . Approximately $121 million of these
costs relate to impairment charges in connection with store
locations and distribution facilities planned to be closed and
disposed of, including $74 million related to nine
underperforming stores identified in the fourth quarter of 2007.
The remaining $98 million of May integration costs incurred
during the year included additional costs related to closed
locations, severance, system conversion costs, impairment
charges associated
F-17
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
with acquired indefinite lived intangible assets and costs
related to other operational consolidations, partially offset by
approximately $41 million of gains from the sale of
previously closed distribution center facilities.
During 2007, approximately $105 million of property and
equipment was transferred to assets held for sale upon store or
facility closure. In addition, property and equipment totaling
approximately $110 million was disposed of in connection
with the May integration and the Company collected approximately
$50 million of receivables from prior year dispositions.
Since January 28, 2006, 90 May and Macys stores
and 13 distribution center facilities have been or are being
closed and 75 May and Macys stores have been divested
(including two stores which are temporarily being operated and
leased back from the buyer) and 8 distribution centers have been
divested. The non-divested stores or facilities which have been
closed, with carrying values totaling approximately
$45 million, are classified as assets held for sale and are
included in other assets on the Consolidated Balance Sheets as
of February 2, 2008.
During 2006, the Company recorded $628 million of
integration costs associated with the acquisition of May,
including $178 million of inventory valuation adjustments
associated with the combination and integration of the
Companys and Mays merchandise assortments. The
remaining $450 million of May integration costs incurred
during the year included store and distribution center
closing-related costs, re-branding-related marketing and
advertising costs, severance, retention and other human
resource-related costs, EDP system integration costs and other
costs, partially offset by approximately $55 million of
gains from the sale of certain Macys locations.
During 2006, approximately $780 million of property and
equipment was transferred to assets held for sale upon store or
facility closure. Property and equipment totaling approximately
$730 million were subsequently disposed of, approximately
$190 million of which was exchanged for other long-term
assets.
During 2005, the Company recorded $194 million of
integration costs associated with the acquisition of May,
including $25 million of inventory valuation adjustments
associated with the combination and integration of the
Companys and Mays merchandise assortments.
$125 million of these costs related to impairment charges
of certain Macys locations planned to be disposed of. The
remaining $44 million of May integration costs incurred in
2005 represented expenses associated with the preliminary
planning activities in connection with the consolidation and
integration of Mays businesses with the Companys
pre-existing businesses and included consulting fees, EDP system
integration costs, travel and other costs.
The impairment charges for the locations to be disposed of were
calculated based on the excess of historical cost over fair
value less costs to sell. The fair values were determined based
on prices of similar assets.
In connection with the allocation of the May purchase price in
2005, the Company recorded a liability for termination of May
employees in the amount of $358 million, of which
$69 million had been paid as of January 28, 2006.
During 2007 and 2006, the Company recorded additional severance
and relocation liabilities for May employees and severance
liabilities for certain Macys employees in connection with
the integration of the acquired May businesses. Severance and
relocation liabilities for May employees recorded prior to the
one-
F-18
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
year anniversary of the acquisition of May were allocated to
goodwill and subsequent severance and relocation liabilities
recorded for May employees and all severance liabilities for
Macys employees were charged to May integration costs.
The following tables show, for 2007 and 2006, the beginning and
ending balance of, and activity associated with, the severance
and relocation accrual established in connection with the May
integration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
May
|
|
|
|
|
|
|
February 3,
|
|
Integration
|
|
|
|
February 2,
|
|
|
2007
|
|
Costs
|
|
Payments
|
|
2008
|
|
|
(millions)
|
|
Severance and relocation costs
|
|
$
|
73
|
|
|
$
|
50
|
|
|
$
|
(93
|
)
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to pay out the remaining accrued severance
and relocation costs, which are included in accounts payable and
accrued liabilities on the Consolidated Balance Sheets, prior to
May 3, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
|
May
|
|
|
|
|
|
|
January 28,
|
|
Allocated to
|
|
Integration
|
|
|
|
February 3,
|
|
|
2006
|
|
Goodwill
|
|
Costs
|
|
Payments
|
|
2007
|
|
|
(millions)
|
|
Severance and relocation costs
|
|
$
|
289
|
|
|
$
|
76
|
|
|
$
|
35
|
|
|
$
|
(327
|
)
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Discontinued
Operations
|
On September 20, 2005 and January 12, 2006, the
Company announced its intention to dispose of the acquired May
bridal group business, which included the operations of
Davids Bridal, After Hours Formalwear and Priscilla of
Boston, and the acquired Lord & Taylor division of
May, respectively. Accordingly, for financial statement
purposes, the assets, liabilities, results of operations and
cash flows of these businesses have been segregated from those
of continuing operations for all periods presented. The net
assets of these businesses are presented in the Consolidated
Balance Sheets at fair value less costs to sell.
In October 2006, the Company completed the sale of its
Lord & Taylor division for approximately
$1,047 million in cash, a long-term note receivable of
approximately $17 million and a receivable for a working
capital adjustment to the purchase price of approximately
$23 million. The Lord & Taylor division
represented approximately $1,130 million of net assets,
before income taxes. After adjustment for transaction costs of
approximately $20 million, the Company recorded the loss on
disposal of the Lord & Taylor division of
$63 million on a pre-tax basis, or $38 million after
income taxes, or $.07 per diluted share.
In January 2007, the Company completed the sale of its
Davids Bridal and Priscilla of Boston businesses for
approximately $740 million in cash, net of $10 million
of transaction costs. The Davids Bridal and Priscilla of
Boston businesses represented approximately $751 million of
net assets, before income taxes. After adjustment for a
liability for a working capital adjustment to the purchase price
and other items totaling approximately $11 million, the
Company recorded the loss on disposal of the Davids Bridal
and Priscilla of Boston businesses of $22 million on a
pre-tax basis, or $18 million after income taxes, or $.03
per diluted share.
F-19
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In April 2007, the Company completed the sale of its After Hours
Formalwear business for approximately $66 million in cash,
net of $1 million of transaction costs. The After Hours
Formalwear business represented approximately $73 million
of net assets. The Company recorded the loss on disposal of the
After Hours Formalwear business of $7 million on a pre-tax
and after-tax basis, or $.01 per diluted share.
In connection with the sale of the Davids Bridal and
Priscilla of Boston businesses, the Company agreed to indemnify
the buyer and related parties of the buyer for certain losses or
liabilities incurred by the buyer or such related parties with
respect to (1) certain representations and warranties made
to the buyer by the Company in connection with the sale,
(2) liabilities relating to the After Hours Formalwear
business under certain circumstances, and (3) certain
pre-closing tax obligations. The representations and warranties
in respect of which the Company is subject to indemnification
are generally limited to representations and warranties relating
to the capitalization of the entities that were sold, the
Companys ownership of the equity interests that were sold,
the enforceability of the agreement and certain employee
benefits and tax matters. The indemnity for breaches of most of
these representations expires on March 31, 2008 and is
subject to a deductible of $2.5 million and a cap of
$75 million, with the exception of certain representations
relating to capitalization and the Companys ownership
interest, in respect of which the indemnity does not expire and
is not subject to a deductible or cap.
Indemnity obligations created in connection with the sales of
businesses generally do not represent added liabilities for the
Company, but serve to protect the buyer from potential
liabilities associated with particular conditions. The Company
records accruals for those pre-closing obligations that are
considered probable and estimable. Under FASB Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, the Company is required to record
a liability for the fair value of the guarantees that are
entered into subsequent to December 15, 2002. The Company
has not accrued any additional amounts as a result of the
indemnity arrangements summarized above as the Company believes
the fair value of these arrangements is not material.
Discontinued operations include net sales of approximately
$27 million for 2007, approximately $1,741 million for
2006 and approximately $957 million for 2005. No
consolidated interest expense has been allocated to discontinued
operations. For 2007, the loss from discontinued operations,
including the loss on disposal of the Companys After Hours
Formalwear business, totaled $22 million before income
taxes, with a related income tax benefit of $6 million. For
2006, income from discontinued operations, net of the losses on
disposal of the Lord & Taylor division and the
Davids Bridal and Priscilla of Boston businesses, totaled
$17 million before income taxes, with a related income tax
expense of $10 million. For 2005, income from discontinued
operations totaled $55 million before income taxes, with
related income tax expense of $22 million.
The assets and liabilities of discontinued operations as of
February 3, 2007 consisted primarily of property and
equipment and accounts payable and accrued liabilities.
F-20
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Accounts receivable were $463 million at February 2,
2008, compared to $517 million at February 3, 2007,
and consist primarily of receivables from third-party credit
card companies, including amounts due under the Program
Agreement.
On October 24, 2005, the Company sold to Citibank certain
proprietary and non-proprietary credit card accounts owned by
the Company, together with related receivables balances, and the
capital stock of Prime Receivables Corporation, a wholly owned
subsidiary of the Company, which owned all of the Companys
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
pre-tax 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 Companys
credit card program agreement with GE Capital Consumer Card Co.
(GE Bank) and purchased all of the
Macys credit card accounts owned by GE Bank,
together with related receivables balances (the
GE/Macys Credit Assets), as of April 30,
2006. Also on May 1, 2006, the Company sold the
GE/Macys Credit Assets to Citibank, resulting in a pre-tax
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 receivables to Citibank,
resulting in a pre-tax 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 pre-tax gain of approximately
$7 million. The net proceeds of approximately
$1,100 million were used for general corporate purposes.
In connection with the foregoing and other 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 Companys 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.
Sales through the Companys proprietary credit plans were
$1,385 million for 2006 and $5,421 million for 2005.
Finance charge income related to proprietary credit card holders
amounted to $106 million for 2006 and $359 million for
2005. Finance charge income related to non-proprietary credit
card holders amounted to $98 million for 2005. The amounts
for 2006 included the impact of the May credit card accounts and
related
F-21
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
receivables prior to May 22, 2006 and July 17, 2006,
as applicable, and the amounts for 2005 included the impact of
the FDS Credit Assets prior to October 24, 2005 and the May
credit card accounts and related receivables subsequent to
August 30, 2005.
The credit plans relating to certain operations of the Company
were owned by GE Bank prior to April 30, 2006. However, the
Company participated with GE Bank in the net operating results
of such plans. Various arrangements between the Company and GE
Bank were set forth in a credit card program agreement.
Changes in the allowance for doubtful accounts related to
proprietary credit card holders prior to the date of the sale of
the receivables are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(millions)
|
|
|
Balance, beginning of year
|
|
$
|
43
|
|
|
$
|
67
|
|
Acquisition
|
|
|
|
|
|
|
45
|
|
Charged to costs and expenses
|
|
|
19
|
|
|
|
100
|
|
Net uncollectible balances written-off
|
|
|
(21
|
)
|
|
|
(112
|
)
|
Sale of credit card accounts and receivables
|
|
|
(41
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
Changes in the allowance for doubtful accounts related to
non-proprietary credit card holders prior to the date of the
sale of the receivables are as follows:
|
|
|
|
|
|
|
2005
|
|
|
|
(millions)
|
|
|
Balance, beginning of year
|
|
$
|
46
|
|
Charged to costs and expenses
|
|
|
43
|
|
Net uncollectible balances written-off
|
|
|
(40
|
)
|
Sale of credit card accounts and receivables
|
|
|
(49
|
)
|
|
|
|
|
|
Balance, end of year
|
|
$
|
|
|
|
|
|
|
|
Merchandise inventories were $5,060 million at
February 2, 2008, compared to $5,317 million at
February 3, 2007. At these dates, the cost of inventories
using the LIFO method approximated the cost of such inventories
using the FIFO method. The application of the LIFO method did
not impact cost of sales for 2007, 2006 or 2005.
F-22
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions)
|
|
|
Land
|
|
$
|
1,783
|
|
|
$
|
1,804
|
|
Buildings on owned land
|
|
|
5,137
|
|
|
|
5,094
|
|
Buildings on leased land and leasehold improvements
|
|
|
2,372
|
|
|
|
2,434
|
|
Fixtures and equipment
|
|
|
6,777
|
|
|
|
6,642
|
|
Leased properties under capitalized leases
|
|
|
61
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,130
|
|
|
|
16,044
|
|
Less accumulated depreciation and amortization
|
|
|
5,139
|
|
|
|
4,571
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,991
|
|
|
$
|
11,473
|
|
|
|
|
|
|
|
|
|
|
In connection with various shopping center agreements, the
Company is obligated to operate certain stores within the
centers for periods of up to 20 years. Some of these
agreements require that the stores be operated under a
particular name.
The Company leases a portion of the real estate and personal
property used in its operations. Most leases require the Company
to pay real estate taxes, maintenance and other executory costs;
some also require additional payments based on percentages of
sales and some contain purchase options. Certain of the
Companys real estate leases have terms that extend for
significant numbers of years and provide for rental rates that
increase or decrease over time. In addition, certain of these
leases contain covenants that restrict the ability of the tenant
(typically a subsidiary of the Company) to take specified
actions (including the payment of dividends or other amounts on
account of its capital stock) unless the tenant satisfies
certain financial tests.
Minimum rental commitments (excluding executory costs) at
February 2, 2008, for noncancellable leases are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
|
|
|
Operating
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
|
|
(millions)
|
|
|
Fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
8
|
|
|
$
|
231
|
|
|
$
|
239
|
|
2009
|
|
|
7
|
|
|
|
220
|
|
|
|
227
|
|
2010
|
|
|
7
|
|
|
|
207
|
|
|
|
214
|
|
2011
|
|
|
6
|
|
|
|
188
|
|
|
|
194
|
|
2012
|
|
|
6
|
|
|
|
171
|
|
|
|
177
|
|
After 2012
|
|
|
35
|
|
|
|
1,781
|
|
|
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
69
|
|
|
$
|
2,798
|
|
|
$
|
2,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum capitalized lease payments
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Capitalized leases are included in the Consolidated Balance
Sheets as property and equipment while the related obligation is
included in short-term ($5 million) and long-term
($34 million) debt. Amortization of assets subject to
capitalized leases is included in depreciation and amortization
expense. Total minimum lease payments shown above have not been
reduced by minimum sublease rentals of approximately
$89 million on operating leases.
The Company is a guarantor with respect to certain lease
obligations associated with businesses divested by May prior to
the Merger. The leases, one of which includes potential
extensions to 2087, have future minimum lease payments
aggregating approximately $697 million and are offset by
payments from existing tenants and subtenants. In addition, the
Company is liable for other expenses related to the above
leases, such as property taxes and common area maintenance,
which are also payable by existing tenants and subtenants.
Potential liabilities related to these guarantees are subject to
certain defenses by the Company. The Company believes that the
risk of significant loss from the guarantees of these lease
obligations is remote.
Rental expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(millions)
|
|
|
Real estate (excluding executory costs)
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent rentals
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Operating leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rentals
|
|
|
221
|
|
|
|
221
|
|
|
|
189
|
|
Contingent rentals
|
|
|
18
|
|
|
|
23
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240
|
|
|
|
245
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less income from subleases Operating leases
|
|
|
(14
|
)
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
226
|
|
|
$
|
236
|
|
|
$
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal property Operating leases
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
8.
|
Goodwill
and Other Intangible Assets
|
The following summarizes the Companys goodwill and other
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions)
|
|
|
Non-amortizing
intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
9,133
|
|
|
$
|
9,204
|
|
Tradenames
|
|
|
477
|
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,610
|
|
|
$
|
9,691
|
|
|
|
|
|
|
|
|
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
Favorable leases
|
|
$
|
271
|
|
|
$
|
272
|
|
Customer relationships
|
|
|
188
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Favorable leases
|
|
|
(60
|
)
|
|
|
(37
|
)
|
Customer relationships
|
|
|
(45
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
354
|
|
|
$
|
396
|
|
|
|
|
|
|
|
|
|
|
Goodwill decreased during 2007 as a result of adjustments to tax
liabilities, unrecognized tax benefits and related interest,
totaling $64 million, and $7 million related to
certain income tax benefits realized resulting from the exercise
of stock options assumed in the acquisition of May. During 2007,
the Company recognized approximately $10 million of
impairment charges associated with acquired indefinite lived
tradenames.
Intangible amortization expense amounted to $43 million for
2007, $69 million for 2006 and $33 million for 2005.
Future estimated intangible amortization expense is shown below:
|
|
|
|
|
|
|
(millions)
|
|
|
Fiscal year:
|
|
|
|
|
2008
|
|
$
|
42
|
|
2009
|
|
|
42
|
|
2010
|
|
|
42
|
|
2011
|
|
|
41
|
|
2012
|
|
|
39
|
|
F-25
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As a result of the acquisition of May (see Note 2,
Acquisition), the Company established intangible
assets related to favorable leases, customer lists, customer
relationships and both definite and indefinite lived tradenames.
Favorable lease intangible assets are being amortized over their
respective lease terms (weighted average life of approximately
twelve years) and customer relationship intangible assets are
being amortized over their estimated useful lives of ten years.
The Companys debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions)
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
6.625% Senior notes due 2008
|
|
$
|
500
|
|
|
$
|
|
|
5.95% Senior notes due 2008
|
|
|
150
|
|
|
|
|
|
3.95% Senior notes due 2007
|
|
|
|
|
|
|
400
|
|
7.9% Senior debentures due 2007
|
|
|
|
|
|
|
225
|
|
9.93% medium term notes due 2007
|
|
|
|
|
|
|
6
|
|
Capital lease and current portion of other long-term obligations
|
|
|
16
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
666
|
|
|
$
|
650
|
|
|
|
|
|
|
|
|
|
|
F-26
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions)
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
5.35% Senior notes due 2012
|
|
$
|
1,100
|
|
|
$
|
|
|
5.9% Senior notes due 2016
|
|
|
1,100
|
|
|
|
1,100
|
|
4.8% Senior notes due 2009
|
|
|
600
|
|
|
|
600
|
|
6.625% Senior notes due 2011
|
|
|
500
|
|
|
|
500
|
|
5.75% Senior notes due 2014
|
|
|
500
|
|
|
|
500
|
|
6.375% Senior notes due 2037
|
|
|
500
|
|
|
|
|
|
6.9% Senior debentures due 2029
|
|
|
400
|
|
|
|
400
|
|
6.7% Senior debentures due 2034
|
|
|
400
|
|
|
|
400
|
|
6.3% Senior notes due 2009
|
|
|
350
|
|
|
|
350
|
|
5.875% Senior notes due 2013
|
|
|
350
|
|
|
|
|
|
7.45% Senior debentures due 2017
|
|
|
300
|
|
|
|
300
|
|
6.65% Senior debentures due 2024
|
|
|
300
|
|
|
|
300
|
|
7.0% Senior debentures due 2028
|
|
|
300
|
|
|
|
300
|
|
6.9% Senior debentures due 2032
|
|
|
250
|
|
|
|
250
|
|
8.0% Senior debentures due 2012
|
|
|
200
|
|
|
|
200
|
|
6.7% Senior debentures due 2028
|
|
|
200
|
|
|
|
200
|
|
6.79% Senior debentures due 2027
|
|
|
165
|
|
|
|
165
|
|
10.625% Senior debentures due 2010
|
|
|
150
|
|
|
|
150
|
|
7.45% Senior debentures due 2011
|
|
|
150
|
|
|
|
150
|
|
7.625% Senior debentures due 2013
|
|
|
125
|
|
|
|
125
|
|
7.45% Senior debentures due 2016
|
|
|
125
|
|
|
|
125
|
|
7.875% Senior debentures due 2036
|
|
|
108
|
|
|
|
108
|
|
7.5% Senior debentures due 2015
|
|
|
100
|
|
|
|
100
|
|
8.125% Senior debentures due 2035
|
|
|
76
|
|
|
|
76
|
|
8.5% Senior notes due 2010
|
|
|
76
|
|
|
|
76
|
|
8.75% Senior debentures due 2029
|
|
|
61
|
|
|
|
61
|
|
9.5% amortizing debentures due 2021
|
|
|
48
|
|
|
|
52
|
|
8.5% Senior debentures due 2019
|
|
|
36
|
|
|
|
36
|
|
10.25% Senior debentures due 2021
|
|
|
33
|
|
|
|
33
|
|
9.75% amortizing debentures due 2021
|
|
|
26
|
|
|
|
28
|
|
7.6% Senior debentures due 2025
|
|
|
24
|
|
|
|
24
|
|
7.875% Senior debentures due 2030
|
|
|
18
|
|
|
|
18
|
|
6.625% Senior notes due 2008
|
|
|
|
|
|
|
500
|
|
5.95% Senior notes due 2008
|
|
|
|
|
|
|
150
|
|
Premium on acquired debt, using an effective
interest yield of 4.015% to 6.165%
|
|
|
342
|
|
|
|
379
|
|
Capital lease and other long-term obligations
|
|
|
74
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,087
|
|
|
$
|
7,847
|
|
|
|
|
|
|
|
|
|
|
F-27
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Interest expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(millions)
|
|
|
Interest on debt
|
|
$
|
617
|
|
|
$
|
563
|
|
|
$
|
438
|
|
Amortization of debt premium
|
|
|
(37
|
)
|
|
|
(53
|
)
|
|
|
(24
|
)
|
Amortization of financing costs
|
|
|
6
|
|
|
|
4
|
|
|
|
4
|
|
Interest on capitalized leases
|
|
|
4
|
|
|
|
6
|
|
|
|
5
|
|
Gain on early retirement of long-term debt
|
|
|
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
590
|
|
|
|
466
|
|
|
|
423
|
|
Less interest capitalized on construction
|
|
|
11
|
|
|
|
15
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
579
|
|
|
$
|
451
|
|
|
$
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future maturities of long-term debt, other than capitalized
leases and premium on acquired debt, are shown below:
|
|
|
|
|
|
|
(millions)
|
|
|
Fiscal year:
|
|
|
|
|
2009
|
|
$
|
962
|
|
2010
|
|
|
238
|
|
2011
|
|
|
663
|
|
2012
|
|
|
1,663
|
|
2013
|
|
|
139
|
|
After 2013
|
|
|
5,046
|
|
On March 7, 2007, the Company issued $1,100 million
aggregate principal amount of 5.35% senior unsecured notes
due 2012 and $500 million aggregate principal amount of
6.375% senior unsecured notes due 2037. A portion of the
net proceeds of the debt issuances was used to repay commercial
paper borrowings incurred in connection with the accelerated
share repurchase agreements (see Note 15,
Shareholders Equity) and the balance was used
for general corporate purposes.
On August 28, 2007, the Company issued $350 million
aggregate principal amount of 5.875% senior unsecured notes
due 2013. The net proceeds were used to repay borrowings
outstanding under its commercial paper facility.
The following summarizes certain components of the
Companys debt:
Bank
Credit Agreements
The Company is a party to a credit agreement with certain
financial institutions providing for revolving credit borrowings
and letters of credit in an aggregate amount not to exceed
$2,000 million (which amount may be increased to
$2,500 million at the option of the Company) outstanding at
any particular time. This
F-28
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
credit agreement was set to expire August 30, 2011. It was
extended in 2007 and will now expire August 30, 2012.
In connection with the Merger, the Company entered into a
364-day
bridge credit agreement with certain financial institutions
providing for revolving credit borrowings in an aggregate amount
initially not to exceed $5,000 million outstanding at any
particular time. On June 19, 2006, the Company terminated
the 364-day
bridge credit agreement.
As of February 2, 2008, and February 3, 2007, there
were no revolving credit loans outstanding under the credit
agreement. However, there were $32 million and
$30 million of standby letters of credit outstanding at
February 2, 2008, and February 3, 2007, respectively.
Revolving loans under the credit agreement bear interest based
on various published rates.
This agreement, which is an obligation of a wholly-owned
subsidiary of Macys, Inc., is not secured and Macys,
Inc. (Parent) has fully and unconditionally
guaranteed this obligation (see Note 19, Condensed
Consolidating Financial Information).
The Companys credit agreement requires the Company to
maintain a specified interest coverage ratio of no less than
3.25 and a specified leverage ratio of no more than .62. The
interest coverage ratio for 2007 was 5.81 and at
February 2, 2008 the leverage ratio was .48.
Commercial
Paper
The Company entered into a new $2,000 million unsecured
commercial paper program in 2005 which replaced the previous
$1,200 million program. The Company may issue and sell
commercial paper in an aggregate amount outstanding at any
particular time not to exceed its then-current combined
borrowing availability under the bank credit agreements
described above. The issuance of commercial paper will have the
effect, while such commercial paper is outstanding, of reducing
the Companys borrowing capacity under the bank credit
agreements by an amount equal to the principal amount of such
commercial paper. The Company had no commercial paper
outstanding under its commercial paper program as of
February 2, 2008 and February 3, 2007.
This program, which is an obligation of a wholly-owned
subsidiary of Macys, Inc., is not secured and Parent has
fully and unconditionally guaranteed the obligations (see
Note 19, Condensed Consolidating Financial
Information).
Senior
Notes and Debentures
The senior notes and the senior debentures are unsecured
obligations of a wholly-owned subsidiary of Macys, Inc.
and Parent has fully and unconditionally guaranteed these
obligations (see Note 19, Condensed Consolidating
Financial Information).
Other
Financing Arrangements
There were $13 million and $23 million of other
standby letters of credit outstanding at February 2, 2008,
and February 3, 2007, respectively.
F-29
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
10.
|
Accounts
Payable and Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions)
|
|
|
Merchandise and expense accounts payable
|
|
$
|
2,091
|
|
|
$
|
2,454
|
|
Liabilities to customers
|
|
|
733
|
|
|
|
687
|
|
Lease related liabilities
|
|
|
261
|
|
|
|
250
|
|
Current portion of workers compensation and general
liability reserves
|
|
|
156
|
|
|
|
147
|
|
Severance and relocation May integration
|
|
|
30
|
|
|
|
73
|
|
Accrued wages and vacation
|
|
|
125
|
|
|
|
173
|
|
Taxes other than income taxes
|
|
|
185
|
|
|
|
245
|
|
Accrued interest
|
|
|
149
|
|
|
|
121
|
|
Current portion of post employment and postretirement benefits
|
|
|
84
|
|
|
|
78
|
|
Other
|
|
|
313
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,127
|
|
|
$
|
4,604
|
|
|
|
|
|
|
|
|
|
|
Liabilities to customers includes liabilities related to gift
cards and customer award certificates of $635 million at
February 2, 2008 and $563 million at February 3,
2007 and also includes an estimated allowance for future sales
returns of $73 million at February 2, 2008 and
$78 million at February 3, 2007. Adjustments to the
allowance for future sales returns, which amounted to a credit
of $5 million for 2007, a credit of less than
$1 million for 2006, and a credit of $4 million for
2005, are reflected in cost of sales.
Changes in workers compensation and general liability
reserves, including the current portion, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
487
|
|
|
$
|
474
|
|
|
$
|
201
|
|
Acquisition
|
|
|
|
|
|
|
|
|
|
|
248
|
|
Charged to costs and expenses
|
|
|
131
|
|
|
|
178
|
|
|
|
133
|
|
Payments, net of recoveries
|
|
|
(147
|
)
|
|
|
(165
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
471
|
|
|
$
|
487
|
|
|
$
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The non-current portion of workers compensation and
general liability reserves is included in other liabilities on
the Consolidated Balance Sheets. At February 2, 2008 and
February 3, 2007, workers compensation and general
liability reserves included $81 million and
$94 million, respectively, of liabilities which are covered
by deposits and receivables included in current assets on the
Consolidated Balance Sheets.
F-30
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
|
(millions)
|
|
|
Federal
|
|
$
|
370
|
|
|
$
|
(10
|
)
|
|
$
|
360
|
|
|
$
|
429
|
|
|
$
|
(23
|
)
|
|
$
|
406
|
|
|
$
|
520
|
|
|
$
|
61
|
|
|
$
|
581
|
|
State and local
|
|
|
53
|
|
|
|
(2
|
)
|
|
|
51
|
|
|
|
65
|
|
|
|
(13
|
)
|
|
|
52
|
|
|
|
77
|
|
|
|
13
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
423
|
|
|
$
|
(12
|
)
|
|
$
|
411
|
|
|
$
|
494
|
|
|
$
|
(36
|
)
|
|
$
|
458
|
|
|
$
|
597
|
|
|
$
|
74
|
|
|
$
|
671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax expense reported differs from the expected tax
computed by applying the federal income tax statutory rate of
35% for 2007, 2006 and 2005 to income from continuing operations
before income taxes. The reasons for this difference and their
tax effects are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
Expected tax
|
|
$
|
462
|
|
|
$
|
506
|
|
|
$
|
715
|
|
State and local income taxes, net of federal income tax benefit
|
|
|
36
|
|
|
|
35
|
|
|
|
59
|
|
Settlement of federal tax examinations
|
|
|
(78
|
)
|
|
|
(80
|
)
|
|
|
(10
|
)
|
Reduction of valuation allowance
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
Other
|
|
|
(9
|
)
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
411
|
|
|
$
|
458
|
|
|
$
|
671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2007, the Company settled an
Internal Revenue Service (IRS) examination for
fiscal years 2003, 2004 and 2005. As a result of the settlement,
the Company recognized previously unrecognized tax benefits and
related accrued interest totaling $78 million, primarily
attributable to losses related to the disposition of a former
subsidiary.
On May 24, 2006, the Company received a refund of
$155 million from the IRS as a result of settling an IRS
examination for fiscal years 2000, 2001 and 2002. The refund was
also primarily attributable to losses related to the disposition
of a former subsidiary. As a result of the settlement, the
Company recognized a tax benefit of approximately
$80 million and approximately $17 million of interest
income in 2006, including the reversal of $6 million of
accrued interest.
For 2005, income tax expense benefited from approximately
$89 million related to the reduction in the valuation
allowance associated with the capital loss carryforwards
realized primarily as a result of the sale of the FDS Credit
Assets and $10 million related to the settlement of various
tax examinations.
F-31
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Post employment and postretirement benefits
|
|
$
|
522
|
|
|
$
|
511
|
|
Accrued liabilities accounted for on a cash basis for tax
purposes
|
|
|
258
|
|
|
|
357
|
|
Long-term debt
|
|
|
159
|
|
|
|
180
|
|
Unrecognized state tax benefits and accrued interest
|
|
|
102
|
|
|
|
|
|
Federal operating loss carryforwards
|
|
|
14
|
|
|
|
28
|
|
State operating loss carryforwards
|
|
|
39
|
|
|
|
43
|
|
Other
|
|
|
86
|
|
|
|
51
|
|
Valuation allowance
|
|
|
(19
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
1,161
|
|
|
|
1,146
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Excess of book basis over tax basis of property and equipment
|
|
|
(1,867
|
)
|
|
|
(2,007
|
)
|
Merchandise inventories
|
|
|
(435
|
)
|
|
|
(420
|
)
|
Intangible assets
|
|
|
(384
|
)
|
|
|
(357
|
)
|
Other
|
|
|
(144
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(2,830
|
)
|
|
|
(2,926
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(1,669
|
)
|
|
$
|
(1,780
|
)
|
|
|
|
|
|
|
|
|
|
The valuation allowance of $19 million at February 2,
2008 and $24 million at February 3, 2007 relates to
net deferred tax assets for state net operating loss
carryforwards. The net change in the valuation allowance
amounted to a decrease of $5 million for 2007 and an
increase of $2 million for 2006. Subsequent realization of
the state net operating loss carryforwards associated with the
valuation allowance at February 2, 2008 would result in a
$4 million reduction to goodwill and a $15 million
reduction to income tax expense.
As of February 2, 2008, the Company had federal net
operating loss carryforwards of approximately $40 million,
which will expire between 2008 and 2009 and state net operating
loss carryforwards, net of valuation allowance, of approximately
$586 million, which will expire between 2008 and 2028.
The Company adopted the provisions of FIN 48 on
February 4, 2007, and the adoption resulted in a net
increase to accruals for uncertain tax positions of
$1 million, an increase to the beginning balance of
accumulated equity of $1 million and an increase to
goodwill of $2 million.
F-32
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
(millions)
|
|
|
Balance at February 4, 2007
|
|
$
|
308
|
|
Additions based on tax positions related to the current year
|
|
|
33
|
|
Additions for tax positions of prior years
|
|
|
11
|
|
Reductions for tax positions of prior years (including
$18 million credited to goodwill)
|
|
|
(90
|
)
|
Settlements
|
|
|
(14
|
)
|
Statute expirations (including $6 million credited to
goodwill)
|
|
|
(11
|
)
|
|
|
|
|
|
Balance at February 2, 2008
|
|
$
|
237
|
|
|
|
|
|
|
As of February 2, 2008, the amount of unrecognized tax
benefits, net of deferred tax assets, that, if recognized would
affect the effective income tax rate, is $107 million.
In conjunction with the adoption of FIN 48, the Company has
classified unrecognized tax benefits not expected to be settled
within one year as other liabilities on the Consolidated Balance
Sheets. At February 2, 2008, $229 million of
unrecognized tax benefits is included in other liabilities and
$8 million is included in income taxes on the Consolidated
Balance Sheets.
Also in conjunction with the adoption of FIN 48 the Company
has classified federal, state and local interest and penalties
not expected to be settled within one year as other liabilities
on the Consolidated Balance Sheets and adopted a policy of
recognizing all interest and penalties related to unrecognized
tax benefits in income tax expense. In prior periods, such
interest on federal tax issues was recognized as a component of
interest income or expense while such interest on state and
local tax issues was already recognized as a component of income
tax expense. During 2007, 2006 and 2005, the Company recognized
charges of $3 million, $21 million and
$8 million, respectively, in income tax expense for
federal, state and local interest and penalties. Also during
2007, $7 million of the accrual for federal, state and
local interest and penalties was recognized as a reduction of
goodwill.
The Company had approximately $66 million and
$80 million accrued for the payment of federal, state and
local interest and penalties at February 2, 2008 and
February 3, 2007, respectively. The $66 million of
accrued federal, state and local interest and penalties at
February 2, 2008 primarily relates to state tax issues and
the amount of penalties paid in prior periods, and the amount of
penalties accrued at February 2, 2008 are insignificant. At
February 2, 2008, approximately $60 million of
federal, state and local interest and penalties is included in
other liabilities and $6 million is included in income
taxes on the Consolidated Balance Sheets.
The Company or one of its subsidiaries files income tax returns
in the U.S. federal jurisdiction and various state and
local jurisdictions. The Company is no longer subject to
U.S. federal income tax examinations by tax authorities for
years before 2006. With respect to state and local
jurisdictions, with limited exceptions, the Company and its
subsidiaries are no longer subject to income tax audits for
years before 1997. Although the outcome of tax audits is always
uncertain, the Company believes that adequate amounts of tax,
interest and penalties have been accrued for any adjustments
that are expected to result from the years still subject to
examination.
F-33
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company has a funded defined benefit plan (Pension
Plan) and defined contribution plans (Savings
Plans), which cover substantially all employees who work
1,000 hours or more in a year. In addition, the Company has
an unfunded defined benefit supplementary retirement plan
(SERP), which includes benefits, for certain
employees, in excess of qualified plan limitations. For 2007,
2006 and 2005, retirement expense for these plans totaled
$170 million, $197 million and $185 million,
respectively.
Effective February 4, 2007, the Company adopted the
measurement date provision of SFAS 158. This required a
change in the Companys measurement date, which was
previously December 31, to be the date of the
Companys fiscal year-end. As a result, the Company
recorded a $6 million decrease to accumulated equity, a
$29 million decrease to accumulated other comprehensive
loss, a $37 million decrease to other liabilities and a
$14 million increase to deferred income taxes.
Measurement of plan assets and obligations for the Pension Plan
and the SERP are calculated as of February 2, 2008 for 2007
and December 31, 2006 for 2006.
F-34
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Pension
Plan
The following provides a reconciliation of benefit obligations,
plan assets, and funded status of the Pension Plan as of
February 2, 2008 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(millions)
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
|
$
|
2,818
|
|
|
$
|
2,807
|
|
Service cost
|
|
|
104
|
|
|
|
119
|
|
Interest cost
|
|
|
157
|
|
|
|
163
|
|
Adjustment for measurement date change
|
|
|
(43
|
)
|
|
|
|
|
Plan merger
|
|
|
|
|
|
|
(182
|
)
|
Plan amendments
|
|
|
|
|
|
|
(5
|
)
|
Actuarial loss (gain)
|
|
|
(58
|
)
|
|
|
257
|
|
Benefits paid
|
|
|
(322
|
)
|
|
|
(341
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year
|
|
$
|
2,656
|
|
|
$
|
2,818
|
|
Changes in plan assets (primarily stocks, bonds and U.S.
government securities) Fair value of plan assets, beginning of
year
|
|
$
|
2,555
|
|
|
$
|
2,398
|
|
Actual return on plan assets
|
|
|
98
|
|
|
|
330
|
|
Adjustment for measurement date change
|
|
|
(12
|
)
|
|
|
|
|
Plan merger
|
|
|
|
|
|
|
68
|
|
Company contributions
|
|
|
|
|
|
|
100
|
|
Benefits paid
|
|
|
(322
|
)
|
|
|
(341
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
2,319
|
|
|
$
|
2,555
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(337
|
)
|
|
$
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated Balance Sheets at
February 2, 2008 and February 3, 2007:
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
(337
|
)
|
|
$
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
(income) at February 2, 2008 and February 3, 2007:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
276
|
|
|
$
|
296
|
|
Prior service credit
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
272
|
|
|
$
|
291
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for the Pension Plan was
$2,441 million and $2,605 million as of
February 2, 2008 and December 31, 2006, respectively.
F-35
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Net pension costs and other amounts recognized in other
comprehensive income for the Companys Pension Plan
included the following actuarially determined components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
Net Periodic Pension Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
104
|
|
|
$
|
119
|
|
|
$
|
84
|
|
Interest cost
|
|
|
157
|
|
|
|
163
|
|
|
|
120
|
|
Expected return on assets
|
|
|
(196
|
)
|
|
|
(206
|
)
|
|
|
(165
|
)
|
Amortization of net actuarial loss
|
|
|
23
|
|
|
|
27
|
|
|
|
45
|
|
Amortization of prior service cost
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
103
|
|
|
|
84
|
|
Other Changes in Plan Assets and Projected Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
40
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic pension cost and
other comprehensive income
|
|
$
|
105
|
|
|
$
|
103
|
|
|
$
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated net actuarial loss and prior service credit for
the Pension Plan that will be amortized from accumulated other
comprehensive loss (income) into net periodic benefit cost
during 2008 are $9 million and $(1) million,
respectively.
As permitted under SFAS No. 87, Employers
Accounting for Pensions, the amortization of any prior
service cost is determined using a straight-line amortization of
the cost over the average remaining service period of employees
expected to receive the benefits under the Pension Plan.
The following weighted average assumptions were used to
determine benefit obligations for the Pension Plan at
February 2, 2008 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
5.85
|
%
|
Rate of compensation increases
|
|
|
5.40
|
%
|
|
|
5.40
|
%
|
F-36
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following weighted average assumptions were used to
determine net periodic pension cost for the Companys
Pension Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate prior to plan merger or change in measurement date
|
|
|
5.85
|
%
|
|
|
5.70
|
%
|
|
|
5.75
|
%
|
Discount rate subsequent to plan merger or change in measurement
date
|
|
|
5.95
|
%
|
|
|
6.50
|
%
|
|
|
|
|
Discount rate on acquired plan at acquisition date
|
|
|
|
|
|
|
|
|
|
|
5.25
|
%
|
Expected long-term return on plan assets
|
|
|
8.75
|
%
|
|
|
8.75
|
%
|
|
|
8.75
|
%
|
Rate of compensation increases
|
|
|
5.40
|
%
|
|
|
5.40
|
%
|
|
|
5.40
|
%
|
The Pension Plans assumptions are evaluated annually and
updated as necessary. The Company determines the appropriate
discount rate with reference to the current yield earned on an
index of investment-grade long-term bonds and the impact of a
yield curve analysis to account for the difference in duration
between the long-term bonds and the Pension Plans
estimated payments. The Company develops its long-term rate of
return assumption by evaluating input from several professional
advisors taking into account the asset allocation of the
portfolio and long-term asset class return expectations, as well
as long-term inflation assumptions.
The following provides the weighted average asset allocations,
by asset category, of the assets of the Companys Pension
Plan as of February 2, 2008 and December 31, 2006 and
the policy targets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Targets
|
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
60
|
%
|
|
|
58
|
%
|
|
|
63
|
%
|
Debt securities
|
|
|
25
|
|
|
|
26
|
|
|
|
24
|
|
Real estate
|
|
|
10
|
|
|
|
11
|
|
|
|
9
|
|
Other
|
|
|
5
|
|
|
|
5
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assets of the Pension Plan are managed by investment
specialists with the primary objectives of payment of benefit
obligations to the Plan participants and an ultimate realization
of investment returns over longer periods in excess of
inflation. The Company employs a total return investment
approach whereby a mix of domestic and foreign equity
securities, fixed income securities and other investments is
used to maximize the long-term return of the assets of the
Pension Plan for a prudent level of risk. Risks are mitigated
through the asset diversification and the use of multiple
investment managers.
No funding contributions were required, and the Company made no
funding contributions to the Pension Plan in 2007. The Company
made a $100 million voluntary funding contribution to the
Pension Plan in 2006. The Company currently anticipates that it
will not be required to make any additional contributions to the
Pension Plan until January 2010, but may make voluntary funding
contributions prior to that date based on the estimate of the
Pension Plans expected funded status. As of the date of
this report, the Company is considering making a voluntary
funding contribution to the Pension Plan of approximately
$175 million in December 2008.
F-37
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following benefit payments are estimated to be paid from the
Pension Plan:
|
|
|
|
|
|
|
(millions)
|
|
|
Fiscal year:
|
|
|
|
|
2008
|
|
$
|
269
|
|
2009
|
|
|
243
|
|
2010
|
|
|
241
|
|
2011
|
|
|
242
|
|
2012
|
|
|
247
|
|
2013-2017
|
|
|
1,204
|
|
Supplementary
Retirement Plan
The following provides a reconciliation of benefit obligations,
plan assets and funded status of the supplementary retirement
plan as of February 2, 2008 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(millions)
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
|
$
|
673
|
|
|
$
|
671
|
|
Service cost
|
|
|
7
|
|
|
|
9
|
|
Interest cost
|
|
|
38
|
|
|
|
39
|
|
Adjustment for measurement date change
|
|
|
(6
|
)
|
|
|
|
|
Plan merger
|
|
|
|
|
|
|
(54
|
)
|
Plan amendments
|
|
|
|
|
|
|
(5
|
)
|
Actuarial loss (gain)
|
|
|
(27
|
)
|
|
|
46
|
|
Benefits paid
|
|
|
(42
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year
|
|
$
|
643
|
|
|
$
|
673
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
|
|
|
$
|
|
|
Company contributions
|
|
|
42
|
|
|
|
33
|
|
Benefits paid
|
|
|
(42
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(643
|
)
|
|
$
|
(673
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated Balance Sheets at
February 2, 2008 and February 3, 2007:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
(50
|
)
|
|
$
|
(45
|
)
|
Other liabilities
|
|
|
(593
|
)
|
|
|
(628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(643
|
)
|
|
$
|
(673
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
(income) at February 2, 2008 and February 3, 2007:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
38
|
|
|
$
|
75
|
|
Prior service credit
|
|
|
(7
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
|
F-38
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The accumulated benefit obligation for the supplementary
retirement plan was $603 million as of February 2,
2008 and $615 million as of December 31, 2006.
Net pension costs and other amounts recognized in other
comprehensive income for the supplementary retirement plan
included the following actuarially determined components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
Net Periodic Pension Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
7
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Interest cost
|
|
|
38
|
|
|
|
39
|
|
|
|
24
|
|
Amortization of net actuarial loss
|
|
|
1
|
|
|
|
8
|
|
|
|
13
|
|
Amortization of prior service cost
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
55
|
|
|
|
45
|
|
Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic pension cost and
other comprehensive income
|
|
$
|
18
|
|
|
$
|
55
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated net actuarial loss and prior service credit for
the supplementary retirement plan that will be amortized from
accumulated other comprehensive loss (income) into net periodic
benefit cost during 2008 are $0 and $(1) million,
respectively.
As permitted under SFAS No. 87, Employers
Accounting for Pensions, the amortization of any prior
service cost is determined using a straight-line amortization of
the cost over the average remaining service period of employees
expected to receive benefits under the plans.
The following weighted average assumptions were used to
determine benefit obligations for the supplementary retirement
plan at February 2, 2008 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
5.85
|
%
|
Rate of compensation increases
|
|
|
7.20
|
%
|
|
|
7.20
|
%
|
F-39
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following weighted average assumptions were used to
determine net pension costs for the supplementary retirement
plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate prior to plan merger or change in measurement date
|
|
|
5.85
|
%
|
|
|
5.70
|
%
|
|
|
5.75
|
%
|
Discount rate subsequent to plan merger or change in measurement
date
|
|
|
5.95
|
%
|
|
|
6.30
|
%
|
|
|
|
|
Discount rate on acquired plan at acquisition date
|
|
|
|
|
|
|
|
|
|
|
5.25
|
%
|
Rate of compensation increases
|
|
|
7.20
|
%
|
|
|
7.20
|
%
|
|
|
7.20
|
%
|
The supplementary retirement plans assumptions are
evaluated annually and updated as necessary. The Company
determines the appropriate discount rate with reference to the
current yield earned on an index of investment-grade long-term
bonds and the impact of a yield curve analysis to account for
the difference in duration between the long-term bonds and the
supplementary retirement plans estimated payments.
The following benefit payments are estimated to be funded by the
Company and paid from the supplementary retirement plan:
|
|
|
|
|
|
|
(millions)
|
|
|
Fiscal year:
|
|
|
|
|
2008
|
|
$
|
50
|
|
2009
|
|
|
48
|
|
2010
|
|
|
50
|
|
2011
|
|
|
51
|
|
2012
|
|
|
51
|
|
2013-2017
|
|
|
255
|
|
Savings
Plans
The Savings Plans include a voluntary savings feature for
eligible employees. The Companys contribution is based on
the Companys annual earnings and the minimum contribution
is
331/3%
of an employees eligible savings. Expense for the Savings
Plans amounted to $38 million for 2007, $39 million
for 2006 and $56 million for 2005.
Deferred
Compensation Plan
The Company has a deferred compensation plan wherein eligible
executives may elect to defer a portion of their compensation
each year as either stock credits or cash credits. The Company
transfers shares to a trust to cover the number management
estimates will be needed for distribution on account of stock
credits currently outstanding. At February 2, 2008, and
February 3, 2007, the liability under the plan, which is
reflected in other liabilities on the Consolidated Balance
Sheets, was $51 million and $48 million, respectively.
Expense for 2007, 2006 and 2005 was immaterial.
F-40
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
13.
|
Postretirement
Health Care and Life Insurance Benefits
|
In addition to pension and other supplemental benefits, certain
retired employees currently are provided with specified health
care and life insurance benefits. Eligibility requirements for
such benefits vary by division and subsidiary, but generally
state that benefits are available to eligible employees who were
hired prior to a certain date and retire after a certain age
with specified years of service. Certain employees are subject
to having such benefits modified or terminated.
Effective February 4, 2007, the Company adopted the
measurement date provision of SFAS 158. This required a
change in the Companys measurement date, which was
previously December 31, to be the date of the
Companys fiscal year-end. As a result, the Company
recorded a $1 million decrease to accumulated equity and a
$1 million increase to other liabilities.
Measurement of obligations for the postretirement obligations
are calculated as of February 2, 2008 for 2007 and
December 31, 2006 for 2006.
The following provides a reconciliation of benefit obligations,
plan assets, and funded status of the postretirement obligations
as of February 2, 2008 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(millions)
|
|
|
Change in accumulated postretirement benefit obligation
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation, beginning of year
|
|
$
|
361
|
|
|
$
|
359
|
|
Interest cost
|
|
|
21
|
|
|
|
20
|
|
Adjustment for measurement date change
|
|
|
1
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(3
|
)
|
|
|
15
|
|
Medicare Part D subsidy
|
|
|
2
|
|
|
|
2
|
|
Benefits paid
|
|
|
(31
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|