Macy's 2008 Annual Report Download - page 80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of January 31, 2009 and February 2, 2008, the amount of unrecognized tax benefits, net of deferred tax
assets, that, if recognized would affect the effective income tax rate, was $160 million and $107 million,
respectively.
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 January 31,
2009, $215 million of unrecognized tax benefits is included in other liabilities and $22 million is included in
income taxes on the Consolidated Balance Sheets. At February 2, 2008, $229 million of unrecognized tax
benefits were included in other liabilities and $8 million were 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 2008, 2007 and 2006, the Company recognized charges of $16 million, $3 million and $21
million, respectively, in income tax expense for federal, state and local interest and penalties.
The Company had approximately $79 million and $66 million accrued for the payment of federal, state and
local interest and penalties at January 31, 2009 and February 2, 2008, respectively. The accrued federal, state and
local interest and penalties primarily relates to state tax issues and the amount of penalties paid in prior periods,
and the amount of penalties accrued at January 31, 2009 and February 2, 2008 are insignificant. During 2008 and
2007, the accrual for federal, state and local interest and penalties was reduced by $3 million and $7 million,
respectively, and was recognized as a reduction of goodwill. At January 31, 2009, approximately $65 million of
federal, state and local interest and penalties is included in other liabilities and $14 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 1998. 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.
14. Retirement Plans
The Company has a funded defined benefit plan (“Pension Plan”) and a defined contribution plan (“Savings
Plan”), 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 2008, 2007 and 2006, retirement expense for these
plans totaled $151 million, $170 million and $197 million, respectively.
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”). This required a change in the Company’s measurement
date, which was previously December 31, to be the date of the Company’s 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.
F-32