Macy's 2009 Annual Report Download - page 27

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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 differed 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.
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 operating activities in 2009 was $1,750 million, compared to $1,866 million provided
in 2008. The change in net cash provided by operating activities reflects $370 million of pension contributions in
2009 versus none in 2008, partially offset by higher income before and after adjusting for non-cash items.
Net cash used by investing activities was $377 million for 2009, compared to net cash used by investing
activities of $792 million for 2008. Investing activities for 2009 include purchases of property and equipment
totaling $355 million and capitalized software of $105 million, compared to purchases of property and equipment
totaling $761 million and capitalized software of $136 million for 2008. Cash flows from investing activities
included $60 million and $38 million from the disposition of property and equipment for 2009 and 2008,
respectively.
During 2009, the Company opened five new Macy’s department stores, re-opened two Macy’s department
stores that had been damaged in 2008 by Hurricane Ike, opened one replacement Macy’s department store, and
also expanded into an additional Macy’s location in an existing mall. During 2008, the Company opened seven
Macy’s department stores and two Macy’s furniture galleries. In 2010, the Company intends to open one new
Bloomingdale’s store and four Bloomingdale’s outlet stores. The Company’s budgeted capital expenditures are
approximately $550 million for 2010, primarily related to technology and distribution network improvements,
store remodels, maintenance and expansions. Management presently anticipates funding such expenditures with
cash on hand and cash from operations.
Net cash used by the Company for all financing activities was $1,072 million for 2009, including the
repayment of $966 million of debt, a decrease in outstanding checks of $29 million, and the payment of $84
million of cash dividends. 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 until they were paid at maturity on April 1, 2009) 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 until they were paid at maturity on July 15, 2009) for aggregate consideration, including
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