Macy's 2008 Annual Report Download - page 28

checks of $116 million, and the payment of $221 million of cash dividends. The debt issued during 2008 was
$650 million of 7.875% senior notes due 2015. The debt repaid during 2008 included $500 million of 6.625%
senior notes due September 1, 2008 and $150 million of 5.95% notes due November 1, 2008.
On February 10, 2009, the Company, through its wholly owned subsidiary, Macy’s Retail Holdings, Inc.,
completed a cash tender offer pursuant to which it purchased approximately $199 million of its outstanding
6.30% Senior Notes due April 1, 2009 (resulting in approximately $151 million of such notes remaining
outstanding) and approximately $481 million of its outstanding 4.80% Senior Notes due July 15, 2009 (resulting
in approximately $119 million of such notes remaining outstanding) for aggregate consideration, including
accrued and unpaid interest, of approximately $686 million. By using cash on hand to repurchase and retire this
debt early, the Company expects to reduce its interest expense in 2009 by approximately $7 million, net of
expenses associated with the debt tender offer.
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 included $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
included $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.
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, subject to the willingness of existing or new lenders to
provide commitments for such additional financing) outstanding at any particular time. This agreement is set to
expire August 30, 2012. As of January 31, 2009, the Company had no borrowings outstanding under this agreement.
The Company’s credit agreement was amended in the fourth quarter of 2008 to update both financial
covenants of the agreement. The amended agreement requires the Company to maintain a specified interest
coverage ratio for the latest four quarters of no less than 3.00 (3.25 after October 2010) and a specified leverage
ratio as of and for the latest four quarters of no more than 4.90 (4.75 after October 2009 through October 2010
and then 4.50 thereafter). The interest coverage ratio is defined as EBITDA (earnings before interest, taxes,
depreciation and amortization) over net interest expense and the leverage ratio is defined as debt over EBITDA.
For purposes of these calculations EBITDA is calculated as net income plus interest expense, taxes, depreciation,
amortization, non-cash impairment of goodwill, intangibles and real estate, non-recurring cash charges not to
exceed in the aggregate $500 million from the date of the amended agreement and extraordinary losses less
interest income and non-recurring or extraordinary gains. Debt and net interest are adjusted to exclude the
premium on acquired debt and the resulting amortization, respectively. The Company’s leverage ratio at
January 31, 2009 was 3.66 and its interest coverage ratio for 2008 was 4.32. A breach of a restrictive covenant in
the Company’s credit agreement or the inability of the Company to maintain the financial ratios described above
could result in an event of default under the credit agreement. In addition, an event of default would occur under
the credit agreement if any indebtedness of the Company in excess of an aggregate principal amount of $150
million becomes due prior to its stated maturity or the holders of such indebtedness become able to cause it to
become due prior to its stated maturity. Upon the occurrence of an event of default, the lenders could, subject to
the terms and conditions of the credit agreement, elect to declare the outstanding principal, together with accrued
interest, to be immediately due and payable. Moreover, most of the Company’s senior notes and debentures
contain cross-default provisions based on the non-payment at maturity, or other default after an applicable grace
period, of any other debt, the unpaid principal amount of which is not less than $100 million, that could be
triggered by an event of default under the credit agreement. In such an event, the Company’s senior notes and
debentures that contain cross-default provisions would also be subject to acceleration. At January 31, 2009, no
notes or debentures contain provisions requiring acceleration of payment upon a debt rating downgrade.
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