|
Consolidated Statements of Income - 4Q 2008 (Unaudited) (Note 1)
(All amounts in millions except percentages and per share figures)
| |
13 Weeks Ended
|
13 Weeks Ended
|
| |
January 31,
2009
|
February 2,
2008
|
| |
$
|
% to
Net sales
|
$
|
% to
Net sales
|
| |
| Net sales |
$ 7,934 |
|
$ 8,594 |
|
| |
| Cost of sales (Note 2) |
4,812 |
60.7% |
5,021 |
58.4% |
| |
| Gross margin |
3,122 |
39.3% |
3,573 |
41.6% |
| |
| Selling, general and administrative expenses |
(2,256) |
(28.4%) |
(2,282) |
(26.6%) |
| |
Division consolidation costs and store
closing related costs (Note 3) |
(58) |
(0.7%) |
– |
–% |
| |
| Asset impairment charges (Note 4) |
(161) |
(2.0%) |
– |
–% |
| |
| May integration costs (Note 5) |
– |
–% |
(69) |
(0.8%) |
| |
| Operating income |
647 |
8.2% |
1,222 |
14.2% |
| |
|
Interest expense – net
|
(143) |
|
(136) |
|
| |
|
Income before income taxes
|
504 |
|
1,086 |
|
| |
| Federal, state and local income tax expense (Note 6) |
(194) |
|
(336) |
|
| |
| Net income |
$ 310 |
|
$ 750 |
|
| |
| Basic earnings per share |
$ .73 |
|
$ 1.74 |
|
| |
| Diluted earnings per share |
$ .73 |
|
$ 1.73 |
|
| |
| Average common shares: |
| Basic |
421.4 |
|
432.1 |
|
| Diluted |
421.4 |
|
434.7 |
|
| |
| End of period common shares outstanding |
420.1 |
|
419.7 |
|
| Depreciation and amortization expense |
$ 328 |
|
$ 327 |
|
Notes:
(1) As of January 31, 2009, the Company had $9,125 million of goodwill, which predominately relates to the acquisition of The May Department Stores Company (“May”) on August 30, 2005. As a result of the deterioration in the general economic environment and the resultant decline in the Company’s market capitalization, the Company is in the process of reviewing its goodwill for impairment.
For purposes of impairment testing, goodwill has been assigned to reporting units, which are the Company’s retail operating divisions. The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its carrying value. The Company estimates the fair value of its reporting units based on their discounted cash flows. If the carrying value of a reporting unit exceeds its estimated fair value in the first step, a second step is performed, in which the reporting unit’s goodwill is written down to its implied fair value. The second step requires the Company to allocate the fair value of the reporting unit derived in the first step to the fair value of the reporting unit’s net assets, with any fair value in excess of amounts allocated to such net assets representing the implied fair value of goodwill for that reporting unit. If the carrying value of the goodwill allocated to a reporting unit exceeds its fair value, such goodwill is written down by an amount equal to such excess.
In the first step, the Company initially calculated the fair value of its reporting units by discounting their projected future cash flows to present value using the Company’s estimated weighted average cost of capital as the discount rate and the fair value of each of the Company’s Macy’s reporting units exceeded its carrying value. However, the reconciliation of the fair value of the Company’s reporting units to the Company’s market capitalization resulted in an implied fair value substantially in excess of its market capitalization. In order to reconcile the discounted cash flows of the Company’s reporting units to the trading value of the Company’s common stock, the Company applied discount rates higher than the Company’s estimated weighted average cost of capital to the projected cash flows of its reporting units and determined that the carrying value of each of the Company’s reporting units exceeded its fair value at January 31, 2009, which resulted in all of the Company’s reporting units failing the first step of the goodwill impairment test.
The Company is in the beginning stages of the second step of the impairment testing process, which will require, among other things, obtaining third-party appraisals of substantially all of the Company’s tangible and intangible assets. Due to the complexity of this process, and the need for appraisals and analyses that have not yet been obtained and performed, the Company presently cannot make an accurate estimate of the amount by which the Company’s goodwill was impaired as of January 31, 2009. However, based solely on the results of the first step of the impairment testing process, the Company preliminarily estimates that the amount of such impairment will ultimately be determined to be between $4.5 billion and $5.5 billion. The financial statements of the Company included in its Form 10-K for the fiscal year ended January 31, 2009, to be filed with the Securities and Exchange Commission on or before April 1, 2009, will reflect the required reduction in the carrying value of the Company’s goodwill and the related non-cash impairment charge. This reduction may vary significantly from the preliminarily estimated range set forth above due to a variety of factors that may affect the results of the second step impairment testing process, including inherent uncertainties and subjectivity associated with appraisals and valuations in general.
(2) Merchandise inventories are primarily valued at the lower of cost or market using the last-in, first-out (LIFO) retail inventory method. Application of this method did not impact cost of sales for the 13 weeks ended January 31, 2009 or February 2, 2008.
(3) Includes $17 million of costs and expenses associated with the division consolidation and localization initiatives announced in February 2008, primarily severance and other human resource related costs, $30 million of severance costs in connection with the division consolidation and localization initiatives announced in February 2009, and $11 million of costs and expenses related to the store closings announced in January 2009. For the 13 weeks ended January 31, 2009, these costs amounted to $.09 per diluted share.
(4) Includes $96 million of asset impairment charges related to properties held and used, $40 million of asset impairment charges related to the store closings announced in January 2009, $13 million of asset impairment charges associated with acquired indefinite lived private brand tradenames and $12 million of asset impairment charges associated with the Company’s investment in The Knot. For the 13 weeks ended January 31, 2009, these non-cash costs amounted to $.24 per diluted share.
(5) Represents costs and expenses associated with the integration and consolidation of May’s operations into Macy’s operations, including additional costs related to closed locations, final system conversion costs and costs related to other operational consolidations. For the 13 weeks ended February 2, 2008, May integration costs also included approximately $74 million of non-cash impairment charges with respect to the announced closure of 9 underperforming May stores and approximately $41 million of gains from the sale of 3 previously closed distribution center facilities. For the 13 weeks ended February 2, 2008, these costs amounted to $.10 per diluted share.
(6) Income tax expense for the 13 weeks ended January 31, 2009 reflects the adjustment or settlement of various tax issues. Income tax expense for the 13 weeks ended February 2, 2008 reflected approximately $78 million, or $.18 per diluted share, of tax benefits related to the settlement of a federal income tax examination, primarily attributable to losses related to the disposition of a former subsidiary.
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Consolidated Statements of Income - 4Q 2008 (Unaudited) (Note 1)
(All amounts in millions except percentages and per share figures)
| |
52 Weeks Ended
|
52 Weeks Ended
|
| |
January 31,
2009
|
February 2,
2008
|
| |
$
|
% to
Net sales
|
$
|
% to
Net sales
|
| |
| Net sales |
$24,892 |
|
$26,313 |
|
| |
| Cost of sales (Note 2) |
15,009 |
60.3% |
15,677 |
59.6% |
| |
| Gross margin |
9,883 |
39.7% |
10,636 |
40.4% |
| |
| Selling, general and administrative expenses |
(8,481) |
(34.1%) |
(8,554) |
(32.5%) |
| |
Division consolidation costs and store
closing related costs (Note 3) |
(187) |
(0.8%) |
– |
–% |
| |
| Asset impairment charges (Note 4) |
(211) |
(0.8%) |
– |
–% |
| |
| May integration costs (Note 5) |
– |
–% |
(219) |
(0.8%) |
| |
| Operating income |
1,004 |
4.0% |
1,863 |
7.1% |
| |
| Interest expense – net |
(560) |
|
(543) |
|
| |
Income from continuing operations
before income taxes
|
444 |
|
1,320 |
|
| |
|
Federal, state and local income tax expense (Note 6)
|
(164) |
|
(411) |
|
| |
|
Income from continuing operations
|
280 |
|
909 |
|
| |
| Discontinued operations, net of income taxes (Note 7) |
– |
|
(16) |
|
| |
| Net income |
$ 280 |
|
$ 893 |
|
| |
| Basic earnings (loss) per share: |
| Income from continuing operations |
$ .67 |
|
$ 2.04 |
|
| Loss from discontinued operations |
– |
|
(.04) |
|
| Net income |
$ .67 |
|
$ 2.00 |
|
| |
| Diluted earnings (loss) per share: |
| Income from continuing operations |
$ .66 |
|
$ 2.01 |
|
| Loss from discontinued operations |
– |
|
(.04) |
|
| Net income |
$ .66 |
|
$ 1.97 |
|
| |
| Average common shares: |
| Basic |
421.2 |
|
446.6 |
|
| Diluted |
422.0 |
|
451.8 |
|
| |
| End of period common shares outstanding |
420.1 |
|
419.7 |
|
| |
| Depreciation and amortization expense |
$ 1,278 |
|
$ 1,304 |
|
Notes:
(1) The May Department Stores Company (“May”) was acquired August 30, 2005. Among other components, the acquisition included the Lord & Taylor division and the Bridal Group, consisting of David’s Bridal, After Hours Formalwear and Priscilla of Boston. The sale of the Lord & Taylor division was completed in October 2006, the sale of David’s Bridal and Priscilla of Boston was completed in January 2007 and the sale of After Hours Formalwear was completed in April 2007. As of January 31, 2009, the Company had $9,125 million of goodwill, which predominately relates to the acquisition of May. As a result of the deterioration in the general economic environment and the resultant decline in the Company’s market capitalization, the Company is in the process of reviewing its goodwill for impairment.
For purposes of impairment testing, goodwill has been assigned to reporting units, which are the Company’s retail operating divisions. The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its carrying value. The Company estimates the fair value of its reporting units based on their discounted cash flows. If the carrying value of a reporting unit exceeds its estimated fair value in the first step, a second step is performed, in which the reporting unit’s goodwill is written down to its implied fair value. The second step requires the Company to allocate the fair value of the reporting unit derived in the first step to the fair value of the reporting unit’s net assets, with any fair value in excess of amounts allocated to such net assets representing the implied fair value of goodwill for that reporting unit. If the carrying value of the goodwill allocated to a reporting unit exceeds its fair value, such goodwill is written down by an amount equal to such excess.
In the first step, the Company initially calculated the fair value of its reporting units by discounting their projected future cash flows to present value using the Company’s estimated weighted average cost of capital as the discount rate and the fair value of each of the Company’s Macy’s reporting units exceeded its carrying value. However, the reconciliation of the fair value of the Company’s reporting units to the Company’s market capitalization resulted in an implied fair value substantially in excess of its market capitalization. In order to reconcile the discounted cash flows of the Company’s reporting units to the trading value of the Company’s common stock, the Company applied discount rates higher than the Company’s estimated weighted average cost of capital to the projected cash flows of its reporting units and determined that the carrying value of each of the Company’s reporting units exceeded its fair value at January 31, 2009, which resulted in all of the Company’s reporting units failing the first step of the goodwill impairment test.
The Company is in the beginning stages of the second step of the impairment testing process, which will require, among other things, obtaining third-party appraisals of substantially all of the Company’s tangible and intangible assets. Due to the complexity of this process, and the need for appraisals and analyses that have not yet been obtained and performed, the Company presently cannot make an accurate estimate of the amount by which the Company’s goodwill was impaired as of January 31, 2009. However, based solely on the results of the first step of the impairment testing process, the Company preliminarily estimates that the amount of such impairment will ultimately be determined to be between $4.5 billion and $5.5 billion. The financial statements of the Company included in its Form 10-K for the fiscal year ended January 31, 2009, to be filed with the Securities and Exchange Commission on or before April 1, 2009, will reflect the required reduction in the carrying value of the Company’s goodwill and the related non-cash impairment charge. This reduction may vary significantly from the preliminarily estimated range set forth above due to a variety of factors that may affect the results of the second step impairment testing process, including inherent uncertainties and subjectivity associated with appraisals and valuations in general.
(2) Merchandise inventories are primarily valued at the lower of cost or market using the last-in, first-out (LIFO) retail inventory method. Application of this method did not impact cost of sales for the 52 weeks ended January 31, 2009 or February 2, 2008.
(3) Includes $146 million of costs and expenses associated with the division consolidation and localization initiatives announced in February 2008, primarily severance and other human resource related costs, $30 million of severance costs in connection with the division consolidation and localization initiatives announced in February 2009, and $11 million of costs and expenses related to the store closings announced in January 2009. For the 52 weeks ended January 31, 2009, these costs amounted to $.28 per diluted share.
(4) Includes $96 million of asset impairment charges related to properties held and used, $40 million of asset impairment charges related to the store closings announced in January 2009, $63 million of asset impairment charges associated with acquired indefinite lived private brand tradenames and $12 million of asset impairment charges associated with the Company’s investment in The Knot. For the 52 weeks ended January 31, 2009, these non-cash costs amounted to $.32 per diluted share.
(5) Represents costs and expenses associated with the integration and consolidation of May’s operations into Macy’s operations, including additional costs related to closed locations, final system conversion costs and costs related to other operational consolidations. For the 52 weeks ended February 2, 2008, May integration costs also included approximately $121 million of non-cash impairment charges with respect to the announced closure of certain distribution center facilities and 9 underperforming May stores and approximately $41 million in gains from the sale of 3 previously closed distribution center facilities. For the 52 weeks ended February 2, 2008, these costs amounted to $.31 per diluted share.
(6) Income tax expense for the 52 weeks ended January 31, 2009 reflects the adjustment or settlement of various tax issues. Income tax expense for the 52 weeks ended February 2, 2008 reflected approximately $78 million, or $.17 per diluted share, of tax benefits related to the settlement of a federal income tax examination, primarily attributable to losses related to the disposition of a former subsidiary.
(7) Represents the results of operations of After Hours Formalwear. For the 52 weeks ended February 2, 2008, discontinued operations included the loss on disposal of After Hours Formalwear of $7 million on a pre-tax and after-tax basis, or $.01 per diluted share.
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Consolidated Financial Statements:
|