Consolidated Financial Statements

Federated Department Stores, Inc.
Reconciliation of GAAP to non-GAAP Financial Measures
($ in millions)

The following information relates to, and should be read in conjunction with, a conference call hosted by the management of Federated Department Stores, Inc. on August 9, 2006 to discuss the Company's financial condition and results of operations as of and for the 13 and 26 weeks ended July 29, 2006. An audio archive of the conference call and the text of the related press release can be accessed at www.macysinc.com/Investors.

The Company reports its financial results in accordance with generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP performance and condition measures and ratios, used in managing the Company's business, provide users of the Company's financial information with additional useful information. See the tables below for supplemental financial data and corresponding reconciliations to GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. Certain of the items that may be excluded or included in these non-GAAP financial measures may constitute significant items that could impact the Company's financial position, results of operations and cash flows and should therefore be considered in assessing the Company's actual financial condition and performance. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.

Management believes that total debt to total capitalization is a useful measure to assist the reader in evaluating the capital structure of the Company. Management believes that this measure is useful in evaluating the amount of leverage employed by the Company.

Management believes that total net debt to total capitalization is a useful measure to assist the reader in evaluating the capital structure of the Company. As computed above, the ratio of total net debt to total capitalization includes as components of total net debt the Company's long-term debt and short-term debt, as offset by cash recorded on the balance sheet. Management believes that this measure is useful in evaluating the amount of leverage employed by the Company.

Management believes that cash flow before continuing financing activities is a useful measure in evaluating the Company's ability to generate cash from continuing operating and continuing investing activities. Management believes that excluding cash flows from continuing financing activities from the calculation of this measure is particularly useful where such financing activities are discretionary, as in the case of voluntary debt prepayments and share repurchases.

Management believes that operating income, excluding merger integration costs and related inventory valuation adjustments associated with the May acquisition and the gains on sale of accounts receivable, is a useful measure in evaluating the Company's ability to leverage sales. Management believes that excluding the merger integration costs and related inventory valuation adjustments associated with the May acquisition and the gains on sale of accounts receivable from the calculation of this measure is particularly useful where the amount of such items are not consistent in the periods presented.

Management believes that providing a measure of earnings from continuing operations excluding the effect of the merger integration costs and related inventory valuation adjustments associated with the May acquisition and the gains on sale of accounts receivable is a useful measure to assist the reader in evaluating the Company's ability to generate earnings from continuing operations and that providing such a measure will allow investors to more readily compare the earnings referred to in the press release to the earnings reported by Federated in past and future periods. Management believes that excluding the merger integration costs and related inventory valuation adjustments associated with the May acquisition and the gains on sale of accounts receivable from the calculation of this measure is particularly useful where the amount of such items are not consistent in the periods presented.

Go to top of page