Macy's 2010 Annual Report Download - page 27

Download and view the complete annual report

Please find page 27 of the 2010 Macy's annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 112

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112

to the exercise of stock options. The debt repaid during 2010 includes the early retirement of approximately
$1,000 million of outstanding debt with various stated maturities, and payment at maturity of $76 million of
8.5% senior notes due June 1, 2010 and $150 million of 10.625% senior debentures due November 1, 2010.
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. The debt repaid during 2009 included $350 million of 6.30% senior notes due April 1,
2009 and $600 million of 4.80% senior notes due July 15, 2009.
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 29, 2011 and throughout all of 2010, the Company had no borrowings
outstanding under this agreement.
The credit agreement requires the Company to maintain a specified interest coverage ratio for the latest four
quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than
4.50. The Company’s interest coverage ratio for 2010 was 5.64 and its leverage ratio at January 29, 2011 was
2.34, in each case as calculated in accordance with the credit agreement. 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
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.
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 29, 2011, no notes or debentures contain provisions requiring acceleration of payment upon a
debt rating downgrade. However, the terms of approximately $3,000 million in aggregate principal amount of the
Company’s senior notes outstanding at that date require the Company to offer to purchase such notes at a price
equal to 101% of their principal amount plus accrued and unpaid interest in specified circumstances involving
both a change of control (as defined in the applicable indenture) of the Company and the rating of the notes by
specified rating agencies at a level below investment grade.
The rate of interest payable in respect of $612 million in aggregate principal amount of the Company’s
senior notes outstanding at January 29, 2011 decreased by .50 percent per annum to 8.375% effective in May
2010 as a result of an upgrade of the notes by specified rating agencies. The rate of interest payable in respect of
21