Macy's 2008 Annual Report Download - page 27

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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 Company’s 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 Company’s 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
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. 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 2007 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. 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 David’s Bridal and Priscilla of Boston businesses of $18 million
after income taxes.
Liquidity and Capital Resources
The Company’s principal sources of liquidity are cash from operations, cash on hand and the credit facility
described below.
Net cash provided by continuing operating activities in 2008 was $1,879 million, compared to the $2,231
million provided in 2007. The decrease in net cash provided by continuing operating activities reflects the net
loss in 2008 as compared to net income in 2007, partially offset by the goodwill impairment charges, division
consolidation costs and store closing related costs and asset impairment charges in 2008 as compared to May
integration costs in 2007.
Net cash used by continuing investing activities was $791 million for 2008, compared to net cash used by
continuing investing activities of $789 million for 2007. Continuing investing activities for 2008 include
purchases of property and equipment totaling $761 million and capitalized software of $136 million, compared to
purchases of property and equipment totaling $994 million and capitalized software of $111 million for 2007.
Cash flows from continuing investing activities included $38 million and $227 million from the disposition of
property and equipment for 2008 and 2007, respectively. In 2007, the Company completed the sale of a majority
of the remaining duplicate store and other facility locations associated with the Merger. Continuing investing
activities for 2007 also included $66 million of proceeds from the disposition of the discontinued operations of
After Hours Formalwear.
During 2008, the Company opened seven Macy’s department stores and two Macy’s furniture galleries.
During 2007, the Company opened nine Macy’s department stores, one Macy’s furniture gallery and two
Bloomingdale’s department stores. In 2009, the Company intends to open three new Macy’s stores and a Macy’s
replacement store, and also plans to reopen two Macy’s department stores in Houston, Texas that were
temporarily closed after Hurricane Ike. The Company’s budgeted capital expenditures are approximately $450
million for 2009. Management presently anticipates funding such expenditures with cash from operations.
Net cash used by the Company for all continuing financing activities was $365 million for 2008, including
the issuance of $650 million of long-term debt, the repayment of $666 million of debt, a decrease in outstanding
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