Macy's 2008 Annual Report Download - page 22

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Company is a retail organization operating retail stores and Internet websites under two brands (Macy’s
and Bloomingdale’s) that sell a wide range of merchandise, including men’s, women’s and children’s apparel and
accessories, cosmetics, home furnishings and other consumer goods in 45 states, the District of Columbia, Guam
and Puerto Rico. As of January 31, 2009, the Company’s operations were conducted through seven operating
divisions – four geographic Macy’s divisions, macys.com, Bloomingdale’s, and bloomingdales.com – which are
aggregated into one reporting segment in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information.”
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.
On August 30, 2005, the Company completed its merger with May (the “Merger”). The Company added
about 400 Macy’s locations nationwide in 2006 as it converted the regional department store nameplates
acquired through the Merger. In connection with the conversion process, the Company identified certain store
locations and distribution center facilities to be divested.
Following the Merger, the Company announced its intention to dispose of the acquired Lord & Taylor
division and the acquired bridal group business, which included the operations of David’s Bridal, After Hours
Formalwear and Priscilla of Boston. The sale of the Lord & Taylor division was completed in October 2006, the
sale of David’s Bridal and Priscilla of Boston was completed in January 2007 and the sale of After Hours
Formalwear was completed in April 2007. As a result of the Company’s disposition of the Lord & Taylor
division and bridal group businesses, these businesses were reported as discontinued operations. Unless
otherwise indicated, the following discussion relates to the Company’s 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 Company’s interest in the Prime Credit Card Master Trust (the “FDS Credit Assets”), (ii) the “Macy’s”
credit card accounts owned by GE Capital Consumer Card Co. (“GE Bank”), together with related receivables
balances (the “GE/Macy’s Credit Assets”), upon the termination of the Company’s 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/Macy’s 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 Company’s 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
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