Macy's 2014 Annual Report Download - page 28

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Premium on Early Retirement of Debt
On November 14, 2014, the Company provided a notice of redemption related to all of the $407 million of 7.875%
senior notes due 2015, as allowed under the terms of the indenture. The price for the redemption was calculated pursuant to
the indenture and resulted in the recognition of additional interest expense of $17 million during 2014. The additional
interest expense resulting from this transaction is presented as premium on early retirement of debt on the Consolidated
Statements of Income.
Effective Tax Rate
The Company's effective tax rate of 36.2% for 2014 and 35.1% for 2013 differ from the federal income tax statutory
rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the
settlement of various tax issues and tax examinations. Additionally, income tax expense for both 2014 and 2013 benefited
from historic rehabilitation tax credits and 2013 also benefited from a reduction in the valuation allowance related
primarily to state net operating loss carryforwards.
Comparison of 2013 and 2012
Net Income
Net income for 2013 increased compared to 2012, reflecting the benefits of the key strategies at Macy's, the
continued strong performance at Bloomingdale's and good expense management, including higher income from credit
operations, lower depreciation and amortization expense, and gains on the sale of certain office buildings and surplus
properties, partially offset by greater investments in the Company's omnichannel operations.
Net Sales
Net sales for 2013, which had one fewer week compared to 2012, increased $245 million or 0.9% compared to 2012.
The increase in comparable sales on an owned basis for 2013 was 1.9% compared to 2012. The increase in comparable
sales on an owned plus licensed basis for 2013 was 2.8% compared to 2012. (See page 17 for information regarding the
Company's calculation of comparable sales, a reconciliation of the non-GAAP measure which takes into account sales of
departments licensed to third parties to the most comparable GAAP measure and other important information). The
Company continued to benefit from the successful execution of the My Macy's localization, Omnichannel and Magic
Selling strategies. Geographically, sales in 2013 were strongest in the southern regions. By family of business, sales in
2013 were strongest in active apparel, handbags, textiles, luggage, furniture and mattresses. Sales in 2013 were less strong
in juniors. Sales of the Company's private label brands continued to be strong and represented approximately 20% of net
sales in the Macy's-branded stores in 2013.
Cost of Sales
Cost of sales for 2013 increased $187 million from 2012. The cost of sales rate as a percent to net sales of 59.9% was
20 basis points higher in 2013, as compared to 59.7% in 2012, primarily due to continued growth of the omnichannel
businesses and the resulting impact of free shipping. The application of the last-in, first-out (LIFO) retail inventory method
did not result in the recognition of any LIFO charges or credits affecting cost of sales in either period.
SG&A Expenses
SG&A expenses for 2013 decreased $42 million from 2012. The SG&A rate as a percent to net sales of 30.2% was
50 basis points lower in 2013, as compared to 2012, reflecting the decrease in SG&A expenses and increased net sales.
SG&A expenses in 2013 benefited from higher income from credit operations, lower depreciation and amortization
expense, and gains on the sale of certain office buildings and surplus properties, partially offset by greater investments in
the Company's omnichannel operations. Income from credit operations was $731 million in 2013 as compared to $663
million in 2012. Depreciation and amortization expense was $1,020 million for 2013, compared to $1,049 million for 2012.
2013 included gains on the sales of office buildings and surplus properties of $79 million. Advertising expense, net of
cooperative advertising allowances, was $1,166 million for 2013 compared to $1,123 million for 2012. Advertising
expense, net of cooperative advertising allowances, as a percent to net sales was 4.2% for 2013 compared to 4.1% for
2012.