M-10.27.2012-10Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 

ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended October 27, 2012

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from    to

Commission file number: 1-13536
 
 

Incorporated in Delaware
 
I.R.S. Employer Identification No.
 
 
13-3324058

7 West Seventh Street
Cincinnati, Ohio 45202
(513) 579-7000
and
151 West 34th Street
New York, New York 10001
(212) 494-1602

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ý
 
Accelerated filer  o
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at November 23, 2012
Common Stock, $0.01 par value per share
 
395,275,822 shares
 


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MACY’S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

(millions, except per share figures)
 
 
 
 
 
 
 
 
 
 
13 Weeks Ended
 
39 Weeks Ended
 
October 27, 2012
 
October 29, 2011
 
October 27, 2012
 
October 29, 2011
Net sales
$
6,075

 
$
5,853

 
$
18,336

 
$
17,681

Cost of sales
(3,672
)
 
(3,544
)
 
(10,984
)
 
(10,587
)
Gross margin
2,403

 
2,309

 
7,352

 
7,094

Selling, general and administrative expenses
(2,078
)
 
(2,018
)
 
(6,082
)
 
(5,967
)
Operating income
325

 
291

 
1,270

 
1,127

Interest expense
(104
)
 
(109
)
 
(322
)
 
(338
)
Interest income
1

 
1

 
2

 
3

Income before income taxes
222

 
183

 
950

 
792

Federal, state and local income tax expense
(77
)
 
(44
)
 
(345
)
 
(281
)
Net income
$
145

 
$
139

 
$
605

 
$
511

Basic earnings per share
$
.36

 
$
.33

 
$
1.48

 
$
1.20

Diluted earnings per share
$
.36

 
$
.32

 
$
1.45

 
$
1.18


The accompanying notes are an integral part of these Consolidated Financial Statements.

2

MACY’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

(millions)

 
 
 
 
 
 
 
 
 
13 Weeks Ended
 
39 Weeks Ended
 
October 27, 2012
 
October 29, 2011
 
October 27, 2012
 
October 29, 2011
Net income
$
145

 
$
139

 
$
605

 
$
511

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Post employment and postretirement benefit plans
37

 
22

 
115

 
66

Marketable securities
—

 
—

 
—

 
(15
)
Total other comprehensive income, before tax
37

 
22

 
115

 
51

Tax effect related to items of other comprehensive income
(13
)
 
(8
)
 
(44
)
 
(20
)
Total other comprehensive income, net of tax effect
24

 
14

 
71

 
31

Comprehensive income
$
169

 
$
153

 
$
676

 
$
542


The accompanying notes are an integral part of these Consolidated Financial Statements.


3

MACY’S, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

(millions)
 
 
 
 
 
 
 
 
October 27, 2012
 
January 28, 2012
 
October 29, 2011
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
1,264

 
$
2,827

 
$
1,097

Receivables
281

 
368

 
288

Merchandise inventories
7,208

 
5,117

 
7,158

Prepaid expenses and other current assets
410

 
465

 
408

Total Current Assets
9,163

 
8,777

 
8,951

Property and Equipment - net of accumulated depreciation and
amortization of $6,584, $5,986 and $6,720
8,212

 
8,420

 
8,423

Goodwill
3,743

 
3,743

 
3,743

Other Intangible Assets – net
570

 
598

 
608

Other Assets
582

 
557

 
538

Total Assets
$
22,270

 
$
22,095

 
$
22,263

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Short-term debt
$
123

 
$
1,103

 
$
805

Merchandise accounts payable
3,627

 
1,593

 
3,576

Accounts payable and accrued liabilities
2,419

 
2,788

 
2,375

Income taxes
89

 
371

 
66

Deferred income taxes
426

 
408

 
388

Total Current Liabilities
6,684

 
6,263

 
7,210

Long-Term Debt
6,817

 
6,655

 
6,151

Deferred Income Taxes
1,182

 
1,141

 
1,402

Other Liabilities
2,024

 
2,103

 
1,648

Shareholders’ Equity
5,563

 
5,933

 
5,852

Total Liabilities and Shareholders’ Equity
$
22,270

 
$
22,095

 
$
22,263


The accompanying notes are an integral part of these Consolidated Financial Statements.


4

MACY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(millions)
 
 
 
 
 
39 Weeks Ended
 
October 27, 2012
 
October 29, 2011
Cash flows from operating activities:
 
 
 
Net income
$
605

 
$
511

Adjustments to reconcile net income to net cash
provided by operating activities:
 
 
 
Depreciation and amortization
782

 
818

Stock-based compensation expense
47

 
54

Amortization of financing costs and premium on acquired debt
(10
)
 
(12
)
Changes in assets and liabilities:
 
 
 
 Decrease in receivables
91

 
28

 Increase in merchandise inventories
(2,091
)
 
(2,400
)
(Increase) decrease in prepaid expenses and other current assets
58

 
(32
)
 Decrease in other assets not separately identified
23

 
40

 Increase in merchandise accounts payable
1,941

 
2,023

 Decrease in accounts payable and accrued
liabilities not separately identified
(323
)
 
(220
)
 Decrease in current income taxes
(282
)
 
(117
)
 Increase in deferred income taxes
14

 
162

 Increase (decrease) in other liabilities not separately identified
34

 
(228
)
Net cash provided by operating activities
889

 
627

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(464
)
 
(359
)
Capitalized software
(169
)
 
(141
)
Disposition of property and equipment
36

 
22

Proceeds from insurance claims
—

 
6

Other, net
(18
)
 
—

Net cash used by investing activities
(615
)
 
(472
)
Cash flows from financing activities:
 
 
 
Debt repaid
(803
)
 
(451
)
Financing costs
—

 
(8
)
Dividends paid
(246
)
 
(106
)
Increase in outstanding checks
38

 
140

Acquisition of treasury stock
(1,018
)
 
(210
)
Issuance of common stock
192

 
113

Net cash used by financing activities
(1,837
)
 
(522
)
Net decrease in cash and cash equivalents
(1,563
)
 
(367
)
Cash and cash equivalents beginning of period
2,827

 
1,464

Cash and cash equivalents end of period
$
1,264

 
$
1,097

Supplemental cash flow information:
 
 
 
Interest paid
$
304

 
$
333

Interest received
2

 
4

Income taxes paid (net of refunds received)
591

 
272


The accompanying notes are an integral part of these Consolidated Financial Statements.

5

MACY’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

1.    Summary of Significant Accounting Policies
Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores and websites under two brands (Macy's and Bloomingdale's) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company's operations include approximately 850 stores, including twelve Bloomingdale's Outlets, in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com and bloomingdales.com. In addition, there is a Bloomingdale's store in Dubai, United Arab Emirates which is operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2012 (the "2011 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2011 10-K.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the 13 and 39 weeks ended October 27, 2012 and October 29, 2011, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Because of the seasonal nature of the retail business, the results of operations for the 13 and 39 weeks ended October 27, 2012 and October 29, 2011 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Certain reclassifications were made to prior year's amounts to conform with the classifications of such amounts for the most recent year.
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update No. 2011-04, which amends Accounting Standards Codification ("ASC") Topic 820, "Fair Value Measurements and Disclosures," to result in common fair value measurements and disclosures between accounting principles generally accepted in the United States of America and International Financial Reporting Standards. The amendments explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments change the wording used to describe fair value measurement requirements and disclosures, but often do not result in a change in the application of current guidance. Certain amendments clarify the intent about the application of existing fair value measurement requirements, while certain other amendments change a principle or requirement for fair value measurement or disclosure. The Company adopted this guidance as of January 29, 2012, and adoption did not have an impact on the Company's consolidated financial position, results of operations or cash flows.
In June 2011, the FASB issued Accounting Standard Update No. 2011-05, which amends ASC Topic 220, "Comprehensive Income," to increase the prominence of items reported in other comprehensive income by eliminating the option of presenting components of comprehensive income as part of the statement of changes in shareholders' equity. The updated guidance requires that all nonowner changes in shareholders' equity be presented either as a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued Accounting Standards Update No. 2011-12, which defers the requirement to present on the face of the financial statements items that are reclassified from other comprehensive income to net income, while the FASB further deliberates this aspect of the proposal. The guidance is limited to the form and content of the financial statements and disclosures. The Company adopted this guidance, as amended, as of January 29, 2012, and adoption did not have an impact on the Company's consolidated financial position, results of operations or cash flows.

6
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 


In September 2011, the FASB issued Accounting Standards Update No. 2011-08, which amends ASC Topic 350, "Intangibles - Goodwill and Other." The guidance amends the impairment test for goodwill by allowing companies to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than the carrying amount and whether it is necessary to perform the current two-step goodwill impairment test. The Company adopted this guidance as of January 29, 2012, and adoption did not have an impact on the Company's consolidated financial position, results of operations or cash flows.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11, which amends ASC Subtopic 210-20, "Offsetting." The guidance requires enhanced disclosures with improved information about financial instruments and derivative instruments that are either (i) offset in accordance with current guidance or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current guidance. This guidance is effective for interim and annual periods beginning after January 1, 2013. The guidance is limited to the form and content of disclosures, and the Company does not anticipate that the adoption of this guidance will have an impact on the Company's consolidated financial position, results of operations or cash flows.
In July 2012, the FASB issued Accounting Standards Update No. 2012-02, which amends ASC Topic 350, "Intangibles - Goodwill and Other." The guidance amends the impairment test for indefinite lived intangible assets other than goodwill by allowing companies to first assess qualitative factors to determine if it is more likely than not that an indefinite lived intangible asset is impaired and whether it is necessary to perform the impairment test of comparing the carrying amount with the recoverable amount of the indefinite lived intangible asset. This guidance is effective for interim and annual periods beginning after September 15, 2012. The Company does not anticipate that the adoption of this guidance will have an impact on the Company's consolidated financial position, results of operations or cash flows.

2.    Earnings Per Share
The following tables set forth the computation of basic and diluted earnings per share:
 
 
13 Weeks Ended
 
October 27, 2012
 
October 29, 2011
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income and average number of shares outstanding
$
145

 
 
 
400.3

 
$
139

 
 
 
424.3

Shares to be issued under deferred compensation plans
 
 
 
 
1.0

 
 
 
 
 
1.0

 
$
145

 
 
 
401.3

 
$
139

 
 
 
425.3

Basic earnings per share
 
 
$
.36

 
 
 
 
 
$
.33

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
6.6

 
 
 
 
 
6.5

 
$
145

 
 
 
407.9

 
$
139

 
 
 
431.8

Diluted earnings per share
 
 
$
.36

 
 
 
 
 
$
.32

 
 


7
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 


 
39 Weeks Ended
 
October 27, 2012
 
October 29, 2011
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income and average number of shares outstanding
$
605

 
 
 
408.7

 
$
511

 
 
 
425.0

Shares to be issued under deferred compensation plans
 
 
 
 
1.2

 
 
 
 
 
1.0

 
$
605

 
 
 
409.9

 
$
511

 
 
 
426.0

Basic earnings per share
 
 
$
1.48

 
 
 
 
 
$
1.20

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
6.6

 
 
 
 
 
6.2

 
$
605

 
 
 
416.5

 
$
511

 
 
 
432.2

Diluted earnings per share
 
 
$
1.45

 
 
 
 
 
$
1.18

 
 

In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 7.6 million shares of common stock and restricted stock units relating to 2.5 million shares of common stock were outstanding at October 27, 2012, but were not included in the computation of diluted earnings per share for the 13 or 39 weeks ended October 27, 2012 because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 17.5 million shares of common stock and restricted stock units relating to 2.1 million shares of common stock were outstanding at October 29, 2011, but were not included in the computation of diluted earnings per share for the 13 or 39 weeks ended October 29, 2011 because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.

3.    Financing Activities
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 were used to retire indebtedness maturing during the 39 weeks ended October 27, 2012.
On March 29, 2012, the Company redeemed the $173 million of 8.0% senior debentures due July 15, 2012, 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 approximately $4 million. By redeeming this debt early, the Company saved approximately $4 million of interest expense during the 39 weeks ended October 27, 2012. In addition, the Company repaid $616 million of 5.35% senior notes due March 15, 2012 at maturity.
During the 39 weeks ended October 29, 2011, the Company repaid $439 million of indebtedness at maturity.

8
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 


The following table shows the detail of debt repayments:
 
 
39 Weeks Ended
 
October 27, 2012
 
October 29, 2011
 
(millions)
5.35% Senior notes due 2012
$
616

 
$
—

8.0% Senior debentures due 2012
173

 
—

6.625% Senior notes due 2011
—

 
330

7.45% Senior debentures due 2011
—

 
109

9.5% amortizing debentures due 2021
4

 
4

9.75% amortizing debentures due 2021
2

 
2

Capital leases and other obligations
8

 
6

 
$
803

 
$
451

During the 39 weeks ended October 27, 2012, the Company repurchased 26,256,576 shares of its common stock pursuant to existing stock purchase authorizations at an approximate cost of $991 million. As of October 27, 2012, the Company had approximately $361 million of authorization remaining under its share repurchase program. The Company may continue or, from time to time, suspend repurchases of shares under its share repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors.
On November 28, 2012, the Company repurchased $700 million aggregate principal amount of its outstanding senior unsecured notes, which had a net book value of approximately $706 million. The repurchased senior unsecured notes had stated interest rates ranging from 5.9% to 7.875% and maturities in 2015 and 2016. The Company expects to record the redemption premium and other costs related to these repurchases as additional interest expense of approximately $133 million ($83 million after income taxes) prior to February 2, 2013. On November 20, 2012, the Company issued $750 million aggregate principal amount of 2.875% senior unsecured notes due 2023 and $250 million aggregate principal amount of 4.3% senior unsecured notes due 2043. This debt was used to pay for the repurchased notes described above. Remaining proceeds of this debt will be used to retire $298 million of 5.875% senior unsecured notes maturing during January 2013, and as a result this short-term debt was reclassified to long-term debt as of October 27, 2012. Through these transactions, the Company has improved its debt maturity profile, decreased its ongoing interest expense by taking advantage of the current low interest rate environment and reduced its refinancing and interest rate risk over the next few years. The Company's annual interest expense is anticipated to be reduced on a full year basis by approximately $30 million.

4.    Benefit Plans
The Company has a funded defined benefit plan ("Pension Plan") and a defined contribution plan, which cover substantially all employees who work 1,000 hours or more in a year. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions. The Company also has an unfunded defined benefit supplementary retirement plan, which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 2, 2012, the supplementary retirement plan was closed to new participants.
During the 39 weeks ended October 29, 2011, the Company made a funding contribution to the Pension Plan of $225 million. The Company is currently planning to make a funding contribution to the Pension Plan of approximately $150 million prior to February 2, 2013.
In addition, certain retired employees currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.

9
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 


In March 2010, President Obama signed into law the "Patient Protection and Affordable Care Act" and the "Health Care and Education Affordability Reconciliation Act of 2010" (the "2010 Acts"). The 2010 Acts contain provisions which impact the accounting for postretirement obligations. Based on the analysis to date, the impact of the provisions in the 2010 Acts on the Company's postretirement obligations has not and is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. The Company continues to evaluate the impact of the 2010 Acts on the active and retiree benefit plans offered by the Company.

The actuarially determined components of the net periodic benefit cost are as follows:
 
 
13 Weeks Ended
 
39 Weeks Ended
 
October 27, 2012
 
October 29, 2011
 
October 27, 2012
 
October 29, 2011
 
(millions)
Pension Plan
 
 
 
 
 
 
 
Service cost
$
30

 
$
25

 
$
88

 
$
76

Interest cost
40

 
40

 
118

 
120

Expected return on assets
(64
)
 
(61
)
 
(190
)
 
(185
)
Recognition of net actuarial loss
35

 
22

 
106

 
66

Amortization of prior service credit
(1
)
 
(1
)
 
(1
)
 
(1
)
 
$
40

 
$
25

 
$
121

 
$
76

Supplementary Retirement Plan
 
 
 
 
 
 
 
Service cost
$
1

 
$
1

 
$
4

 
$
4

Interest cost
9

 
9

 
26

 
27

Recognition of net actuarial loss
4

 
2

 
13

 
6

Amortization of prior service credit
—

 
—

 
—

 
(1
)
 
$
14

 
$
12

 
$
43

 
$
36

Postretirement Obligations
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
3

 
3

 
9

 
10

Recognition of net actuarial gain
(1
)
 
(1
)
 
(3
)
 
(4
)
Amortization of prior service cost
—

 
—

 
—

 
—

 
$
2

 
$
2

 
$
6

 
$
6


5.    Fair Value Measurements
The following table shows the Company's financial assets that are required to be measured at fair value on a recurring basis, by level within the hierarchy as defined by applicable accounting standards:
 
 
October 27, 2012
 
October 29, 2011
 
 
 
Fair Value Measurements
 
 
 
Fair Value Measurements
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(millions)
Marketable equity and debt securities
$
83

 
$
—

 
$
83

 
$
—

 
$
91

 
$
—

 
$
91

 
$
—


On February 25, 2011, the Company sold its investment in The Knot, Inc. and unrecognized gains in accumulated other comprehensive income were reclassified and recognized into Selling, General and Administrative expenses in the Consolidated Statements of Income.

10
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 


Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, short-term debt, merchandise accounts payable, accounts payable and accrued liabilities and long-term debt. With the exception of long-term debt, the carrying amount approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are estimated based on quoted market prices for publicly traded debt or by using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements, and are classified as level 3 measurements within the hierarchy as defined by applicable accounting standards.
The following table shows the estimated fair value of the Company's long-term debt:
 
 
October 27, 2012
 
October 29, 2011
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
(millions)
Long-term debt
$
6,583

 
$
6,784

 
$
7,736

 
$
5,903

 
$
6,124

 
$
6,500


6.    Condensed Consolidating Financial Information
Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a wholly-owned subsidiary of Macy's, Inc. ("Parent"), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, "Other Subsidiaries" includes all other direct subsidiaries of Parent, including FDS Bank, West 34th Street Insurance Company (prior to a merger, known separately as Leadville Insurance Company and Snowdin Insurance Company) and its subsidiary West 34th Street Insurance Company New York, Macy's Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (Hong Kong) Limited, Macy's Merchandising Group Procurement, LLC, Macy's Merchandising Group International, LLC, and Macy's Merchandising Group International (Hong Kong) Limited. "Subsidiary Issuer" includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in "Other Subsidiaries."
Condensed Consolidating Balance Sheets as of October 27, 2012, October 29, 2011 and January 28, 2012, the related Condensed Consolidating Statements of Comprehensive Income for the 13 and 39 weeks ended October 27, 2012 and October 29, 2011, and the related Condensed Consolidating Statements of Cash Flows for the 39 weeks ended October 27, 2012 and October 29, 2011 are presented on the following pages.

11
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 



Condensed Consolidating Balance Sheet
As of October 27, 2012
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
938

 
$
36

 
$
290

 
$
—

 
$
1,264

Receivables
—

 
31

 
250

 
—

 
281

Merchandise inventories
—

 
3,712

 
3,496

 
—

 
7,208

Prepaid expenses and other current assets
—

 
103

 
307

 
—

 
410

Income taxes
127

 
—

 
—

 
(127
)
 
—

Total Current Assets
1,065

 
3,882

 
4,343

 
(127
)
 
9,163

Property and Equipment – net
—

 
4,696

 
3,516

 
—

 
8,212

Goodwill
—

 
3,315

 
428

 
—

 
3,743

Other Intangible Assets – net
—

 
131

 
439

 
—

 
570

Other Assets
4

 
65

 
513

 
—

 
582

Deferred Income Tax Assets
11

 
—

 
—

 
(11
)
 
—

Intercompany Receivable
1,260

 
—

 
3,114

 
(4,374
)
 
—

Investment in Subsidiaries
3,467

 
2,675

 
—

 
(6,142
)
 
—

Total Assets
$
5,807

 
$
14,764

 
$
12,353

 
$
(10,654
)
 
$
22,270

LIABILITIES AND SHAREHOLDERS’ EQUITY:
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Short-term debt
$
—

 
$
121

 
$
2

 
$
—

 
$
123

Merchandise accounts payable
—

 
1,730

 
1,897

 
—

 
3,627

Accounts payable and accrued liabilities
212

 
919

 
1,288

 
—

 
2,419

Income taxes
—

 
54

 
162

 
(127
)
 
89

Deferred income taxes
—

 
322

 
104

 
—

 
426

Total Current Liabilities
212

 
3,146

 
3,453

 
(127
)
 
6,684

Long-Term Debt
—

 
6,793

 
24

 
—

 
6,817

Intercompany Payable
—

 
4,374

 
—

 
(4,374
)
 
—

Deferred Income Taxes
—

 
389

 
804

 
(11
)
 
1,182

Other Liabilities
32

 
746

 
1,246

 
—

 
2,024

Shareholders' Equity (Deficit)
5,563

 
(684
)
 
6,826

 
(6,142
)
 
5,563

Total Liabilities and Shareholders' Equity
$
5,807

 
$
14,764

 
$
12,353

 
$
(10,654
)
 
$
22,270


12
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended October 27, 2012
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
2,979

 
$
5,820

 
$
(2,724
)
 
$
6,075

Cost of sales
—

 
(1,901
)
 
(4,480
)
 
2,709

 
(3,672
)
Gross margin
—

 
1,078

 
1,340

 
(15
)
 
2,403

Selling, general and administrative expenses
(2
)
 
(1,132
)
 
(959
)
 
15

 
(2,078
)
Operating income (loss)
(2
)
 
(54
)
 
381

 
—

 
325

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(103
)
 
—

 
—

 
(103
)
Intercompany
—

 
(35
)
 
35

 
—

 
—

Equity in earnings of subsidiaries
147

 
29

 
—

 
(176
)
 
—

Income (loss) before income taxes
145

 
(163
)
 
416

 
(176
)
 
222

Federal, state and local income
tax benefit (expense)
—

 
50

 
(127
)
 
—

 
(77
)
Net income (loss)
$
145

 
$
(113
)
 
$
289

 
$
(176
)
 
$
145

Comprehensive income (loss)
$
169

 
$
(89
)
 
$
299

 
$
(210
)
 
$
169



13
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 



Condensed Consolidating Statement of Comprehensive Income
For the 39 Weeks Ended October 27, 2012
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
9,024

 
$
15,672

 
$
(6,360
)
 
$
18,336

Cost of sales
—

 
(5,640
)
 
(11,661
)
 
6,317

 
(10,984
)
Gross margin
—

 
3,384

 
4,011

 
(43
)
 
7,352

Selling, general and administrative expenses
(6
)
 
(3,282
)
 
(2,837
)
 
43

 
(6,082
)
Operating income (loss)
(6
)
 
102

 
1,174

 
—

 
1,270

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
1

 
(320
)
 
(1
)
 
—

 
(320
)
Intercompany
(1
)
 
(106
)
 
107

 
—

 
—

Equity in earnings of subsidiaries
609

 
222

 
—

 
(831
)
 
—

Income (loss) before income taxes
603

 
(102
)
 
1,280

 
(831
)
 
950

Federal, state and local income
tax benefit (expense)
2

 
87

 
(434
)
 
—

 
(345
)
Net income (loss)
$
605

 
$
(15
)
 
$
846

 
$
(831
)
 
$
605

Comprehensive income
$
676

 
$
56

 
$
876

 
$
(932
)
 
$
676



14
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 



Condensed Consolidating Statement of Cash Flows
For the 39 Weeks Ended October 27, 2012
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
605

 
$
(15
)
 
$
846

 
$
(831
)
 
$
605

Equity in earnings of subsidiaries
(609
)
 
(222
)
 
—

 
831

 
—

Dividends received from subsidiaries
455

 


 
—

 
(455
)
 
—

Depreciation and amortization
—

 
356

 
426

 
—

 
782

Increase in working capital
(173
)
 
(66
)
 
(367
)
 
—

 
(606
)
Other, net
(17
)
 
64

 
61

 
—

 
108

Net cash provided by operating activities
261

 
117

 
966

 
(455
)
 
889

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property and equipment and capitalized software, net
—

 
(210
)
 
(387
)
 
—

 
(597
)
Other, net
—

 
—

 
(18
)
 
—

 
(18
)
Net cash used by investing activities
—

 
(210
)
 
(405
)
 
—

 
(615
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Debt repaid
—

 
(800
)
 
(3
)
 
—

 
(803
)
Dividends paid
(246
)
 
—

 
(455
)
 
455

 
(246
)
Common stock acquired, net of
issuance of common stock
(826
)
 
—

 
—

 
—

 
(826
)
Intercompany activity, net
(733
)
 
892

 
(159
)
 
—

 
—

Other, net
(51
)
 
(1
)
 
90

 
—

 
38

Net cash provided (used) by
financing activities
(1,856
)
 
91

 
(527
)
 
455

 
(1,837
)
Net increase (decrease) in cash
and cash equivalents
(1,595
)
 
(2
)
 
34

 
—

 
(1,563
)
Cash and cash equivalents at beginning of period
2,533

 
38

 
256

 
—

 
2,827

Cash and cash equivalents at end of period
$
938

 
$
36

 
$
290

 
$
—

 
$
1,264


15
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 



Condensed Consolidating Balance Sheet
As of October 29, 2011
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
779

 
$
34

 
$
284

 
$
—

 
$
1,097

Receivables
—

 
49

 
239

 
—

 
288

Merchandise inventories
—

 
3,781

 
3,377

 
—

 
7,158

Prepaid expenses and other current assets
—

 
102

 
306

 
—

 
408

Income taxes
44

 
—

 
—

 
(44
)
 
—

Total Current Assets
823

 
3,966

 
4,206

 
(44
)
 
8,951

Property and Equipment – net
—

 
4,812

 
3,611

 
—

 
8,423

Goodwill
—

 
3,315

 
428

 
—

 
3,743

Other Intangible Assets – net
—

 
161

 
447

 
—

 
608

Other Assets
4

 
92

 
442

 
—

 
538

Deferred Income Tax Assets
—

 
—

 
—

 
—

 
—

Intercompany Receivable
2,176

 
—

 
2,954

 
(5,130
)
 
—

Investment in Subsidiaries
3,094

 
2,790

 
—

 
(5,884
)
 
—

Total Assets
$
6,097

 
$
15,136

 
$
12,088

 
$
(11,058
)
 
$
22,263

LIABILITIES AND SHAREHOLDERS’ EQUITY:
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Short-term debt
$
—

 
$
802

 
$
3

 
$
—

 
$
805

Merchandise accounts payable
—

 
1,748

 
1,828

 
—

 
3,576

Accounts payable and accrued liabilities
211

 
928

 
1,236

 
—

 
2,375

Income taxes
—

 
30

 
80

 
(44
)
 
66

Deferred income taxes
—

 
293

 
95

 
—

 
388

Total Current Liabilities
211

 
3,801

 
3,242

 
(44
)
 
7,210

Long-Term Debt
—

 
6,125

 
26

 
—

 
6,151

Intercompany Payable
—

 
5,130

 
—

 
(5,130
)
 
—

Deferred Income Taxes
1

 
446

 
955

 
—

 
1,402

Other Liabilities
33

 
648

 
967

 
—

 
1,648

Shareholders' Equity (Deficit)
5,852

 
(1,014
)
 
6,898

 
(5,884
)
 
5,852

Total Liabilities and Shareholders' Equity
$
6,097

 
$
15,136

 
$
12,088

 
$
(11,058
)
 
$
22,263


16
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended October 29, 2011
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
2,941

 
$
5,733

 
$
(2,821
)
 
$
5,853

Cost of sales
—

 
(1,899
)
 
(4,452
)
 
2,807

 
(3,544
)
Gross margin
—

 
1,042

 
1,281

 
(14
)
 
2,309

Selling, general and administrative expenses
11

 
(1,174
)
 
(869
)
 
14

 
(2,018
)
Operating income (loss)
11

 
(132
)
 
412

 
—

 
291

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(108
)
 
—

 
—

 
(108
)
Intercompany
(1
)
 
(47
)
 
48

 
—

 
—

Equity in earnings of subsidiaries
132

 
21

 
—

 
(153
)
 
—

Income (loss) before income taxes
142

 
(266
)
 
460

 
(153
)
 
183

Federal, state and local income
tax benefit (expense)
(3
)
 
101

 
(142
)
 
—

 
(44
)
Net income (loss)
$
139

 
$
(165
)
 
$
318

 
$
(153
)
 
$
139

Comprehensive income (loss)
$
153

 
$
(151
)
 
$
324

 
$
(173
)
 
$
153



17
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 



Condensed Consolidating Statement of Comprehensive Income
For the 39 Weeks Ended October 29, 2011
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
8,967

 
$
15,188

 
$
(6,474
)
 
$
17,681

Cost of sales
—

 
(5,614
)
 
(11,406
)
 
6,433

 
(10,587
)
Gross margin
—

 
3,353

 
3,782

 
(41
)
 
7,094

Selling, general and administrative expenses
7

 
(3,303
)
 
(2,712
)
 
41

 
(5,967
)
Operating income
7

 
50

 
1,070

 
—

 
1,127

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
1

 
(336
)
 
—

 
—

 
(335
)
Intercompany
(1
)
 
(144
)
 
145

 
—

 
—

Equity in earnings of subsidiaries
506

 
175

 
—

 
(681
)
 
—

Income (loss) before income taxes
513

 
(255
)
 
1,215

 
(681
)
 
792

Federal, state and local income
tax benefit (expense)
(2
)
 
132

 
(411
)
 
—

 
(281
)
Net income (loss)
$
511

 
$
(123
)
 
$
804

 
$
(681
)
 
$
511

Comprehensive income (loss)
$
542

 
$
(92
)
 
$
822

 
$
(730
)
 
$
542



18
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 



Condensed Consolidating Statement of Cash Flows
For the 39 Weeks Ended October 29, 2011
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
511

 
$
(123
)
 
$
804

 
$
(681
)
 
$
511

Equity in earnings of subsidiaries
(506
)
 
(175
)
 
—

 
681

 
—

Dividends received from subsidiaries
352

 
—

 
—

 
(352
)
 
—

Depreciation and amortization
—

 
390

 
428

 
—

 
818

Increase in working capital
(73
)
 
(213
)
 
(432
)
 
—

 
(718
)
Other, net
1

 
23

 
(8
)
 
—

 
16

Net cash provided (used) by
operating activities
285

 
(98
)
 
792

 
(352
)
 
627

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property and equipment and capitalized software, net
—

 
(194
)
 
(278
)
 
—

 
(472
)
Other, net
—

 
38

 
(38
)
 
—

 
—

Net cash used by investing activities
—

 
(156
)
 
(316
)
 
—

 
(472
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Debt repaid
—

 
(449
)
 
(2
)
 
—

 
(451
)
Dividends paid
(106
)
 
—

 
(352
)
 
352

 
(106
)
Acquisition of common stock, net of
common stock issued
(97
)
 
—

 
—

 
—

 
(97
)
Intercompany activity, net
(488
)
 
705

 
(217
)
 
—

 
—

Other, net
11

 
(9
)
 
130

 
—

 
132

Net cash provided (used) by
financing activities
(680
)
 
247

 
(441
)
 
352

 
(522
)
Net increase (decrease) in cash and
cash equivalents
(395
)
 
(7
)
 
35

 
—

 
(367
)
Cash and cash equivalents at beginning of period
1,174

 
41

 
249

 
—

 
1,464

Cash and cash equivalents at end of period
$
779

 
$
34

 
$
284

 
$
—

 
$
1,097


19
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 



Condensed Consolidating Balance Sheet
As of January 28, 2012
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,533

 
$
38

 
$
256

 
$
—

 
$
2,827

Receivables
—

 
58

 
310

 
—

 
368

Merchandise inventories
—

 
2,722

 
2,395

 
—

 
5,117

Prepaid expenses and other current assets
—

 
152

 
313

 
—

 
465

Total Current Assets
2,533

 
2,970

 
3,274

 
—

 
8,777

Property and Equipment – net
—

 
4,827

 
3,593

 
—

 
8,420

Goodwill
—