Annual report pursuant to Section 13 and 15(d)

Financing

v2.4.0.6
Financing
12 Months Ended
Jan. 28, 2012
Debt Disclosure [Abstract]  
Financing
Financing
The Company’s debt is as follows:
 
 
January 28,
2012
 
January 29,
2011
 
(millions)
Short-term debt:
 
 
 
5.35% Senior notes due 2012
$
616

 
$

5.875% Senior notes due 2013
298

 

8.0% Senior debentures due 2012
173

 

6.625% Senior notes due 2011

 
330

7.45% Senior debentures due 2011

 
109

Capital lease and current portion of other long-term obligations
16

 
15

 
$
1,103

 
$
454

Long-term debt:
 
 
 
5.9% Senior notes due 2016
$
977

 
$
977

7.875% Senior notes due 2015 *
612

 
612

3.875% Senior notes due 2022
550

 

6.375% Senior notes due 2037
500

 
500

5.75% Senior notes due 2014
453

 
453

6.9% Senior debentures due 2029
400

 
400

6.7% Senior debentures due 2034
400

 
400

7.45% Senior debentures due 2017
300

 
300

6.65% Senior debentures due 2024
300

 
300

7.0% Senior debentures due 2028
300

 
300

6.9% Senior debentures due 2032
250

 
250

5.125% Senior debentures due 2042
250

 

6.7% Senior debentures due 2028
200

 
200

6.79% Senior debentures due 2027
165

 
165

7.45% Senior debentures due 2016
123

 
123

7.625% Senior debentures due 2013
109

 
109

7.875% Senior debentures due 2036
108

 
108

7.5% Senior debentures due 2015
100

 
100

8.125% Senior debentures due 2035
76

 
76

8.75% Senior debentures due 2029
61

 
61

8.5% Senior debentures due 2019
36

 
36

9.5% amortizing debentures due 2021
33

 
37

10.25% Senior debentures due 2021
33

 
33

7.6% Senior debentures due 2025
24

 
24

9.75% amortizing debentures due 2021
18

 
20

7.875% Senior debentures due 2030
18

 
18

5.35% Senior notes due 2012

 
616

5.875% Senior notes due 2013

 
298

8.0% Senior debentures due 2012

 
173

Premium on acquired debt, using an effective
   interest yield of 5.017% to 6.165%
216

 
239

Capital lease and other long-term obligations
43

 
43

 
$
6,655

 
$
6,971

 ________________
*
The rate of interest payable in respect of these senior notes was increased by one percent per annum to 8.875% in April 2009 as a result of a downgrade of the notes by specified rating agencies, was decreased by 0.50 percent per annum to 8.375% effective in May 2010 as a result of an upgrade of the notes by specified rating agencies, was decreased by 0.25 percent per annum to 8.125% effective in May 2011 as a result of an upgrade of the notes by specified rating agencies, and was decreased by 0.25 percent per annum to 7.875%, its stated interest rate, effective in January 2012 as a result of an upgrade of the notes by specified rating agencies. The rate of interest payable in respect of these senior notes could increase by up to 2.0% per annum from its current level in the event of one or more downgrades of the notes by specified rating agencies.


Interest expense is as follows:
 
 
2011
 
2010
 
2009
 
(millions)
Interest on debt
$
467

 
$
535

 
$
587

Premium on early retirement of long-term debt

 
66

 

Amortization of debt premium
(23
)
 
(31
)
 
(33
)
Amortization of financing costs
8

 
11

 
10

Interest on capitalized leases
3

 
3

 
3

 
455

 
584

 
567

Less interest capitalized on construction
8

 
5

 
5

 
$
447

 
$
579

 
$
562



Future maturities of long-term debt, other than capitalized leases and premium on acquired debt, are shown below:
 
 
(millions)
Fiscal year:
 
2013
$
121

2014
461

2015
718

2016
1,105

2017
306

After 2017
3,693



During 2011, 2010 and 2009, the Company repaid $439 million, $226 million and $270 million, respectively, of indebtedness at maturity.

On January 10, 2012, the Company issued $550 million aggregate principal amount of 3.875% senior notes due 2022 and $250 million aggregate principal amount of 5.125% senior notes due 2042, the proceeds of which will be used to retire indebtedness maturing during the first half of 2012.

On February 27, 2012, the Company notified holders of the $173 million of 8.0% senior debentures due July 15, 2012 of the Company's intent to redeem the debentures on March 29, 2012, as allowed under the terms of the indenture. The price for the redemption is calculated pursuant to the indenture and will result in the recognition of additional interest expense of approximately $4 million. By redeeming this debt early, the Company will save approximately $4 million of interest expense during 2012. In addition, the Company repaid $616 million of 5.35% senior notes due March 15, 2012 at maturity.

During 2010, the Company used approximately $1,067 million of cash to repurchase approximately $1,000 million of indebtedness prior to maturity. In connection with these repurchases, the Company recognized additional interest expense of approximately $66 million in 2010 due to the expenses associated with the early retirement of this debt.
In 2009, the Company completed a cash tender offer pursuant to which it purchased approximately $680 million of its outstanding debt scheduled to mature in 2009 for aggregate consideration, including accrued and unpaid interest, of approximately $686 million.
The following table shows the detail of debt repayments:
 
 
2011
 
2010
 
2009
 
(millions)
6.625% Senior notes due 2011
$
330

 
$
170

 
$

7.45% Senior debentures due 2011
109

 
41

 

5.35% Senior notes due 2012

 
484

 

8.0% Senior debentures due 2012

 
27

 

5.875% Senior notes due 2013

 
52

 

7.625% Senior debentures due 2013

 
16

 

5.75% Senior notes due 2014

 
47

 

7.875% Senior notes due 2015

 
38

 

5.90% Senior notes due 2016

 
123

 

7.45% Senior debentures due 2016

 
2

 

10.625% Senior debentures due 2010

 
150

 

8.5% Senior notes due 2010

 
76

 

4.8% Senior notes due 2009

 

 
600

6.3% Senior notes due 2009

 

 
350

9.5% amortizing debentures due 2021
4

 
4

 
4

9.75% amortizing debentures due 2021
2

 
2

 
2

Capital leases and other obligations
9

 
13

 
10

 
$
454

 
$
1,245

 
$
966



The following summarizes certain components of the Company’s debt:
Bank Credit Agreement
The Company entered into a credit agreement with certain financial institutions on June 20, 2011 providing for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which amount may be increased to $1,750 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 credit agreement is set to expire June 20, 2015 and replaces a $2,000 million facility which was set to expire August 30, 2012.
As of January 28, 2012, and January 29, 2011, there were no revolving credit loans outstanding under these credit agreements. However, there were less than $1 million of standby letters of credit outstanding at January 28, 2012 and January 29, 2011. There were no borrowings under these agreements throughout all of 2011 and 2010. Revolving loans under the credit agreement bear interest based on various published rates.
This agreement, which is an obligation of a wholly-owned subsidiary of Macy’s, Inc. (“Parent”), is not secured. However, Parent has fully and unconditionally guaranteed this obligation, subject to specified limitations.The Company’s interest coverage ratio for 2011 was 7.44 and its leverage ratio at January 28, 2012 was 2.17, in each case as calculated in accordance with the credit 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 3.75. 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 $400 million 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.
Commercial Paper
The Company is a party to a $1,500 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability under the bank credit agreement described above. The issuance of commercial paper will have the effect, while such commercial paper is outstanding, of reducing the Company’s borrowing capacity under the bank credit agreement by an amount equal to the principal amount of such commercial paper. The Company had no commercial paper outstanding under its commercial paper program throughout all of 2011 and 2010.
This program, which is an obligation of a wholly-owned subsidiary of Macy’s, Inc., is not secured. However, Parent has fully and unconditionally guaranteed the obligations.
Senior Notes and Debentures
The senior notes and the senior debentures are unsecured obligations of a wholly-owned subsidiary of Macy’s, Inc. and Parent has fully and unconditionally guaranteed these obligations (see Note 17, “Condensed Consolidating Financial Information”).
Other Financing Arrangements
At January 28, 2012 and January 29, 2011, the Company had dedicated approximately $52 million of cash, included in prepaid expenses and other current assets, which is used to collateralize the Company’s issuances of standby letters of credit. There were approximately $34 million and $38 million of other standby letters of credit outstanding at January 28, 2012 and January 29, 2011, respectively.