Macy's 2008 Annual Report Download - page 25

based compensation expenses and lower pension and supplementary retirement plan expenses, partially offset by
lower income from credit, higher logistics related costs in support of the Company’s multi-channel operations
and higher advertising expenses. Depreciation and amortization expense was $1,278 million for 2008, compared
to $1,304 million for 2007. Stock-based compensation expense was $43 million for 2008, compared to $60
million for 2007. Pension and supplementary retirement plan expense amounted to $114 million for 2008,
compared to $132 million for 2007. Income from credit operations was $372 million in 2008 as compared to
$450 million in 2007. Advertising expense, net of cooperative advertising allowances, was $1,239 million for
2008 compared to $1,194 million for 2007.
Division consolidation costs and store closing related costs for 2008 amounted to $187 million and included
$146 million of costs and expenses associated with the division consolidation and localization initiatives
announced in February 2008, primarily severance and other human resource-related costs, $30 million of
severance costs in connection with the division consolidation and localization initiatives announced in February
2009, and $11 million of costs and expenses related to the store closings announced in January 2009.
Asset impairment charges for 2008 amounted to $211 million and included $96 million of asset impairment
charges related to properties held and used, $40 million of asset impairment charges related to the store closings
announced in January 2009, $63 million of asset impairment charges associated with acquired indefinite lived
private brand tradenames and $12 million of asset impairment charges associated with marketable securities.
Estimated goodwill impairment charges for 2008 amounted to $5,382 million, which represents a write
down of goodwill in the amount of the excess of the previous carrying value of goodwill over the implied fair
value of goodwill, as calculated under the two-step goodwill impairment process in accordance with SFAS
No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”).
May integration costs for 2007 amounted to $219 million. Approximately $121 million of these costs related
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 private brand tradenames and costs related to other operational consolidations, partially offset by
approximately $41 million of gains from the sale of previously closed distribution center facilities.
Net interest expense was $560 million for 2008, compared to $543 million for 2007, an increase of $17
million. The increase in net interest expense for 2008, as compared to 2007, resulted primarily from higher debt
associated with pre-funding the refinancing of maturing debt and lower interest income on invested cash due to
lower investment rates.
The Company’s effective income tax rate for 2008 differs from the federal income tax statutory rate of
35.0%, principally because of the impact of non-deductible goodwill impairment charges, the effect of state and
local income taxes and the settlement of various tax issues and tax examinations. The Company’s effective
income tax rate of 31.1% for 2007 differed from the federal income tax statutory rate of 35.0% principally
because of the effect of state and local income taxes and the settlement of various tax issues and tax
examinations. Federal, state and local income tax expense for 2007 included 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.
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
included the loss on disposal of the After Hours Formalwear business of $7 million on a pre-tax and post-tax basis.
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
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