M-08.02.2014-10Q

 
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 August 2, 2014

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 August 29, 2014
Common Stock, $0.01 par value per share
 
353,126,894 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
 
26 Weeks Ended
 
August 2, 2014
 
August 3, 2013
 
August 2, 2014
 
August 3, 2013
Net sales
$
6,267

 
$
6,066

 
$
12,546

 
$
12,453

Cost of sales
(3,672
)
 
(3,533
)
 
(7,508
)
 
(7,444
)
Gross margin
2,595

 
2,533

 
5,038

 
5,009

Selling, general and administrative expenses
(2,024
)
 
(1,999
)
 
(4,024
)
 
(4,040
)
Operating income
571

 
534

 
1,014

 
969

Interest expense
(101
)
 
(97
)
 
(201
)
 
(194
)
Interest income
1

 
1

 
1

 
1

Income before income taxes
471

 
438

 
814

 
776

Federal, state and local income tax expense
(179
)
 
(157
)
 
(298
)
 
(278
)
Net income
$
292

 
$
281

 
$
516

 
$
498

Basic earnings per share
$
.81

 
$
.73

 
$
1.42

 
$
1.29

Diluted earnings per share
$
.80

 
$
.72

 
$
1.40

 
$
1.27


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
 
26 Weeks Ended
 
August 2, 2014
 
August 3, 2013
 
August 2, 2014
 
August 3, 2013
Net income
$
292

 
$
281

 
$
516

 
$
498

Other comprehensive income:
 
 
 
 
 
 
 
Amortization of net actuarial loss on post employment and postretirement benefit plans included in net income,
before tax
7

 
41

 
13

 
79

Tax effect related to items of other comprehensive income
(3
)
 
(17
)
 
(5
)
 
(31
)
Total other comprehensive income, net of tax effect
4

 
24

 
8

 
48

Comprehensive income
$
296

 
$
305

 
$
524

 
$
546


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


3

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

(millions)
 
 
 
 
 
 
 
 
August 2, 2014
 
February 1, 2014
 
August 3, 2013
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
1,630

 
$
2,273

 
$
1,424

Receivables
352

 
438

 
347

Merchandise inventories
5,416

 
5,557

 
5,357

Prepaid expenses and other current assets
399

 
420

 
387

Total Current Assets
7,797

 
8,688

 
7,515

Property and Equipment - net of accumulated depreciation and
amortization of $6,453, $6,066 and $6,345
7,771

 
7,930

 
8,001

Goodwill
3,743

 
3,743

 
3,743

Other Intangible Assets – net
512

 
527

 
543

Other Assets
796

 
746

 
629

Total Assets
$
20,619

 
$
21,634

 
$
20,431

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Short-term debt
$
483

 
$
463

 
$
575

Merchandise accounts payable
1,990

 
1,691

 
2,064

Accounts payable and accrued liabilities
2,150

 
2,810

 
2,043

Income taxes
120

 
362

 
67

Deferred income taxes
393

 
400

 
422

Total Current Liabilities
5,136

 
5,726

 
5,171

Long-Term Debt
6,742

 
6,728

 
6,339

Deferred Income Taxes
1,287

 
1,273

 
1,217

Other Liabilities
1,647

 
1,658

 
1,849

Shareholders’ Equity
5,807

 
6,249

 
5,855

Total Liabilities and Shareholders’ Equity
$
20,619

 
$
21,634

 
$
20,431


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


4

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

(millions)
 
 
 
 
 
26 Weeks Ended
 
August 2, 2014
 
August 3, 2013
Cash flows from operating activities:
 
 
 
Net income
$
516

 
$
498

Adjustments to reconcile net income to net cash
provided by operating activities:
 
 
 
Depreciation and amortization
507

 
504

Stock-based compensation expense
38

 
32

Amortization of financing costs and premium on acquired debt
(3
)
 
(5
)
Changes in assets and liabilities:
 
 
 
 Decrease in receivables
86

 
41

(Increase) decrease in merchandise inventories
141

 
(49
)
 Increase in prepaid expenses and other current assets
(14
)
 
(21
)
(Increase) decrease in other assets not separately identified
(31
)
 
1

 Increase in merchandise accounts payable
276

 
442

 Decrease in accounts payable and accrued
liabilities not separately identified
(621
)
 
(560
)
 Decrease in current income taxes
(242
)
 
(288
)
 Increase (decrease) in deferred income taxes
2

 
(37
)
 Increase (decrease) in other liabilities not separately identified
(9
)
 
106

Net cash provided by operating activities
646

 
664

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(245
)
 
(206
)
Capitalized software
(116
)
 
(110
)
Disposition of property and equipment
24

 
5

Other, net
49

 
(5
)
Net cash used by investing activities
(288
)
 
(316
)
Cash flows from financing activities:
 
 
 
Debt issued
500

 
—

Financing costs
(4
)
 
(3
)
Debt repaid
(459
)
 
(7
)
Dividends paid
(204
)
 
(173
)
Increase (decrease) in outstanding checks
(61
)
 
2

Acquisition of treasury stock
(922
)
 
(785
)
Issuance of common stock
149

 
206

Net cash used by financing activities
(1,001
)
 
(760
)
Net decrease in cash and cash equivalents
(643
)
 
(412
)
Cash and cash equivalents beginning of period
2,273

 
1,836

Cash and cash equivalents end of period
$
1,630

 
$
1,424

Supplemental cash flow information:
 
 
 
Interest paid
$
202

 
$
190

Interest received
1

 
1

Income taxes paid (net of refunds received)
495

 
512


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
Nature of Operations
Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores, websites and mobile applications 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 840 stores, including thirteen Bloomingdale's Outlets, in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com and bloomingdales.com. In addition, Bloomingdale's in Dubai, United Arab Emirates 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 February 1, 2014 (the "2013 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2013 10-K.
Use of Estimates
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 26 weeks ended August 2, 2014 and August 3, 2013, 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.
Seasonality
Because of the seasonal nature of the retail business, the results of operations for the 13 and 26 weeks ended August 2, 2014 and August 3, 2013 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Comprehensive Income
Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other component of total comprehensive income for the 13 and 26 weeks ended August 2, 2014 and August 3, 2013 is the amortization of post employment and postretirement plan items. These reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in selling, general and administrative expenses on the Consolidated Statements of Income. See Note 4, "Benefit Plans," for further information.


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


2.    Earnings Per Share
The following tables set forth the computation of basic and diluted earnings per share:
 
13 Weeks Ended
 
August 2, 2014
 
August 3, 2013
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income and average number of shares outstanding
$
292

 
 
 
358.3

 
$
281

 
 
 
381.6

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.9

 
 
 
 
 
0.9

 
$
292

 
 
 
359.2

 
$
281

 
 
 
382.5

Basic earnings per share
 
 
$
.81

 
 
 
 
 
$
.73

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
6.2

 
 
 
 
 
6.8

 
$
292

 
 
 
365.4

 
$
281

 
 
 
389.3

Diluted earnings per share
 
 
$
.80

 
 
 
 
 
$
.72

 
 
 
 
26 Weeks Ended
 
August 2, 2014
 
August 3, 2013
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income and average number of shares outstanding
$
516

 
 
 
361.5

 
$
498

 
 
 
384.3

Shares to be issued under deferred
compensation and other plans
 
 
 
 
1.0

 
 
 
 
 
1.0

 
$
516

 
 
 
362.5

 
$
498

 
 
 
385.3

Basic earnings per share
 
 
$
1.42

 
 
 
 
 
$
1.29

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
6.5

 
 
 
 
 
6.6

 
$
516

 
 
 
369.0

 
$
498

 
 
 
391.9

Diluted earnings per share
 
 
$
1.40

 
 
 
 
 
$
1.27

 
 

In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 3.2 million shares of common stock, 23,000 shares of restricted stock and restricted stock units relating to 0.9 million shares of common stock were outstanding at August 2, 2014, but were not included in the computation of diluted earnings per share for the 13 or 26 weeks ended August 2, 2014 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 3.6 million shares of common stock and restricted stock units relating to 1.8 million shares of common stock were outstanding at August 3, 2013, but were not included in the computation of diluted earnings per share for the 13 or 26 weeks ended August 3, 2013 because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.


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


3.    Financing Activities
The following table shows the detail of debt repayments:
 
 
26 Weeks Ended
 
August 2, 2014
 
August 3, 2013
 
(millions)
5.75% Senior notes due 2014
$
453

 
$
—

9.5% amortizing debentures due 2021
2

 
2

9.75% amortizing debentures due 2021
1

 
1

Capital leases and other obligations
3

 
4

 
$
459

 
$
7

During the 26 weeks ended August 2, 2014, the Company repurchased approximately 16.3 million shares of its common stock pursuant to existing stock purchase authorizations for a total of approximately $949 million. As of August 2, 2014, the Company had $1,983 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 May 23, 2014, the Company issued $500 million aggregate principal amount of 3.625% senior unsecured notes due 2024. On July 15, 2014, the Company repaid $453 million of 5.75% senior unsecured notes at maturity.

4.    Benefit Plans
The Company has a funded defined benefit plan ("Pension Plan") and defined contribution plans, 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 ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 2, 2012, the SERP was closed to new participants. After December 31, 2013, with limited exceptions, employees no longer earn future pension service credits under the Pension Plan and SERP, and retirement benefits attributable to service after that date are provided solely through defined contribution plans.
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.

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


Expense related to matching contributions for the 401(k) defined contribution plan amounted to $25 million and $50 million for the 13 and 26 weeks ended August 2, 2014, respectively, and $5 million and $10 million for the 13 and 26 weeks ended August 3, 2013, respectively. The actuarially determined components of the net periodic benefit cost (income) are as follows:
 
 
13 Weeks Ended
 
26 Weeks Ended
 
August 2, 2014
 
August 3, 2013
 
August 2, 2014
 
August 3, 2013
 
(millions)
Pension Plan
 
 
 
 
 
 
 
Service cost
$
1

 
$
28

 
$
3

 
$
56

Interest cost
37

 
35

 
75

 
71

Expected return on assets
(62
)
 
(61
)
 
(123
)
 
(121
)
Recognition of net actuarial loss
7

 
36

 
13

 
71

Amortization of prior service credit
—

 
—

 
—

 
—

 
$
(17
)
 
$
38

 
$
(32
)
 
$
77

Supplementary Retirement Plan
 
 
 
 
 
 
 
Service cost
$
—

 
$
1

 
$
—

 
$
3

Interest cost
9

 
8

 
17

 
16

Recognition of net actuarial loss
1

 
6

 
2

 
10

Amortization of prior service cost
—

 
—

 
—

 
—

 
$
10

 
$
15

 
$
19

 
$
29

Postretirement Obligations
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
2

 
2

 
4

 
5

Recognition of net actuarial gain
(1
)
 
(1
)
 
(2
)
 
(2
)
Amortization of prior service cost
—

 
—

 
—

 
—

 
$
1

 
$
1

 
$
2

 
$
3


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:
 
 
August 2, 2014
 
August 3, 2013
 
 
 
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
$
91

 
$
—

 
$
91

 
$
—

 
$
74

 
$
—

 
$
74

 
$
—


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 generally estimated based on quoted market prices for identical or similar instruments, and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards.

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


The following table shows the estimated fair value of the Company's long-term debt:
 
 
August 2, 2014
 
August 3, 2013
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
(millions)
Long-term debt
$
6,544

 
$
6,713

 
$
7,375

 
$
6,125

 
$
6,308

 
$
6,650

The Company reviews the carrying value of its goodwill and other intangible assets with indefinite lives at least annually for possible impairment in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” Goodwill and other intangible assets with indefinite lives have been assigned to reporting units for purposes of impairment testing. The reporting units are the Company's retail operations. Goodwill and other intangible assets with indefinite lives are tested for impairment annually at the end of the fiscal month of May. The Macy's retail operation is the only reporting unit with goodwill and indefinite lived intangible assets.
During the second quarter of fiscal 2014, the Company completed its annual impairment test of goodwill and indefinite lived intangible assets and determined that goodwill and indefinite lived intangible assets were not impaired as of May 31, 2014.
The use of different assumptions, estimates or judgments in the testing process, including with respect to the analysis of macroeconomic conditions, industry, market and other economic considerations and actual and expected financial performance, the estimated future cash flows and the discount rates used to discount such estimated cash flows to their net present values, could materially increase or decrease the estimated fair values and, accordingly, could impact the results of the annual impairment tests.

6.    Condensed Consolidating Financial Information
Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a 100%-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 and its subsidiary West 34th Street Insurance Company New York, Macy's Merchandising Corporation, 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 August 2, 2014, August 3, 2013 and February 1, 2014, the related Condensed Consolidating Statements of Comprehensive Income for the 13 and 26 weeks ended August 2, 2014 and August 3, 2013, and the related Condensed Consolidating Statements of Cash Flows for the 26 weeks ended August 2, 2014 and August 3, 2013 are presented on the following pages.

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



Condensed Consolidating Balance Sheet
As of August 2, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,287

 
$
85

 
$
258

 
$
—

 
$
1,630

Receivables
—

 
91

 
261

 
—

 
352

Merchandise inventories
—

 
2,799

 
2,617

 
—

 
5,416

Prepaid expenses and other current assets
6

 
94

 
299

 
—

 
399

Income taxes
34

 
—

 
—

 
(34
)
 
—

Total Current Assets
1,327

 
3,069

 
3,435

 
(34
)
 
7,797

Property and Equipment – net
—

 
4,438

 
3,333

 
—

 
7,771

Goodwill
—

 
3,315

 
428

 
—

 
3,743

Other Intangible Assets – net
—

 
85

 
427

 
—

 
512

Other Assets
4

 
123

 
669

 
—

 
796

Deferred Income Taxes
20

 
—

 
—

 
(20
)
 
—

Intercompany Receivable
—

 
—

 
3,412

 
(3,412
)
 
—

Investment in Subsidiaries
4,832

 
3,340

 
—

 
(8,172
)
 
—

Total Assets
$
6,183

 
$
14,370

 
$
11,704

 
$
(11,638
)
 
$
20,619

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

 
$
481

 
$
2

 
$
—

 
$
483

Merchandise accounts payable
—

 
926

 
1,064

 
—

 
1,990

Accounts payable and accrued liabilities
122

 
951

 
1,077

 
—

 
2,150

Income taxes
—

 
45

 
109

 
(34
)
 
120

Deferred income taxes
—

 
305

 
88

 
—

 
393

Total Current Liabilities
122

 
2,708

 
2,340

 
(34
)
 
5,136

Long-Term Debt
—

 
6,722

 
20

 
—

 
6,742

Intercompany Payable
188

 
3,224

 
—

 
(3,412
)
 
—

Deferred Income Taxes
—

 
568

 
739

 
(20
)
 
1,287

Other Liabilities
66

 
482

 
1,099

 
—

 
1,647

Shareholders' Equity
5,807

 
666

 
7,506

 
(8,172
)
 
5,807

Total Liabilities and Shareholders' Equity
$
6,183

 
$
14,370

 
$
11,704

 
$
(11,638
)
 
$
20,619


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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended August 2, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
2,961

 
$
5,008

 
$
(1,702
)
 
$
6,267

Cost of sales
—

 
(1,778
)
 
(3,582
)
 
1,688

 
(3,672
)
Gross margin
—

 
1,183

 
1,426

 
(14
)
 
2,595

Selling, general and administrative expenses
(2
)
 
(1,044
)
 
(992
)
 
14

 
(2,024
)
Operating income (loss)
(2
)
 
139

 
434

 
—

 
571

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(100
)
 
—

 
—

 
(100
)
Intercompany
—

 
(58
)
 
58

 
—

 
—

Equity in earnings of subsidiaries
293

 
113

 
—

 
(406
)
 
—

Income before income taxes
291

 
94

 
492

 
(406
)
 
471

Federal, state and local income
tax benefit (expense)
1

 
3

 
(183
)
 
—

 
(179
)
Net income
$
292

 
$
97

 
$
309

 
$
(406
)
 
$
292

Comprehensive income
$
296

 
$
101

 
$
311

 
$
(412
)
 
$
296




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



Condensed Consolidating Statement of Comprehensive Income
For the 26 Weeks Ended August 2, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
5,879

 
$
10,478

 
$
(3,811
)
 
$
12,546

Cost of sales
—

 
(3,664
)
 
(7,628
)
 
3,784

 
(7,508
)
Gross margin
—

 
2,215

 
2,850

 
(27
)
 
5,038

Selling, general and administrative expenses
(4
)
 
(2,052
)
 
(1,995
)
 
27

 
(4,024
)
Operating income (loss)
(4
)
 
163

 
855

 
—

 
1,014

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(200
)
 
—

 
—

 
(200
)
Intercompany
—

 
(116
)
 
116

 
—

 
—

Equity in earnings of subsidiaries
518

 
179

 
—

 
(697
)
 
—

Income before income taxes
514

 
26

 
971

 
(697
)
 
814

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

 
41

 
(341
)
 
—

 
(298
)
Net income
$
516

 
$
67

 
$
630

 
$
(697
)
 
$
516

Comprehensive income
$
524

 
$
75

 
$
634

 
$
(709
)
 
$
524



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



Condensed Consolidating Statement of Cash Flows
For the 26 Weeks Ended August 2, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
516

 
$
67

 
$
630

 
$
(697
)
 
$
516

Equity in earnings of subsidiaries
(518
)
 
(179
)
 
—

 
697

 
—

Dividends received from subsidiaries
319

 
—

 
—

 
(319
)
 
—

Depreciation and amortization
—

 
225

 
282

 
—

 
507

(Increase) decrease in working capital
55

 
(48
)
 
(381
)
 
—

 
(374
)
Other, net
6

 
(27
)
 
18

 
—

 
(3
)
Net cash provided by operating activities
378

 
38

 
549

 
(319
)
 
646

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

 
(61
)
 
(276
)
 
—

 
(337
)
Other, net
—

 
6

 
43

 
—

 
49

Net cash used by investing activities
—

 
(55
)
 
(233
)
 
—

 
(288
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Debt issued, net of debt repaid
—

 
42

 
(1
)
 
—

 
41

Dividends paid
(204
)
 
—

 
(319
)
 
319

 
(204
)
Common stock acquired, net of
issuance of common stock
(773
)
 
—

 
—

 
—

 
(773
)
Intercompany activity, net
(137
)
 
8

 
129

 
—

 
—

Other, net
68

 
(32
)
 
(101
)
 
—

 
(65
)
Net cash provided (used) by
financing activities
(1,046
)
 
18

 
(292
)
 
319

 
(1,001
)
Net increase (decrease) in cash
and cash equivalents
(668
)
 
1

 
24

 
—

 
(643
)
Cash and cash equivalents at beginning of period
1,955

 
84

 
234

 
—

 
2,273

Cash and cash equivalents at end of period
$
1,287

 
$
85

 
$
258

 
$
—

 
$
1,630


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



Condensed Consolidating Balance Sheet
As of August 3, 2013
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,104

 
$
35

 
$
285

 
$
—

 
$
1,424

Receivables
—

 
86

 
261

 
—

 
347

Merchandise inventories
—

 
2,759

 
2,598

 
—

 
5,357

Prepaid expenses and other current assets
—

 
94

 
293

 
—

 
387

Income taxes
69

 
—

 
—

 
(69
)
 
—

Total Current Assets
1,173

 
2,974

 
3,437

 
(69
)
 
7,515

Property and Equipment – net
—

 
4,562

 
3,439

 
—

 
8,001

Goodwill
—

 
3,315

 
428

 
—

 
3,743

Other Intangible Assets – net
—

 
109

 
434

 
—

 
543

Other Assets
4

 
69

 
556

 
—

 
629

Intercompany Receivable
527

 
—

 
3,135

 
(3,662
)
 
—

Investment in Subsidiaries
4,273

 
2,757

 
—

 
(7,030
)
 
—

Total Assets
$
5,977

 
$
13,786

 
$
11,429

 
$
(10,761
)
 
$
20,431

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

 
$
573

 
$
2

 
$
—

 
$
575

Merchandise accounts payable
—

 
966

 
1,098

 
—

 
2,064

Accounts payable and accrued liabilities
36

 
887

 
1,120

 
—

 
2,043

Income taxes
—

 
16

 
120

 
(69
)
 
67

Deferred income taxes
—

 
315

 
107

 
—

 
422

Total Current Liabilities
36

 
2,757

 
2,447

 
(69
)
 
5,171

Long-Term Debt
—

 
6,317

 
22

 
—

 
6,339

Intercompany Payable
—

 
3,662

 
—

 
(3,662
)
 
—

Deferred Income Taxes
8

 
441

 
768

 
—

 
1,217

Other Liabilities
78

 
620

 
1,151

 
—

 
1,849

Shareholders' Equity (Deficit)
5,855

 
(11
)
 
7,041

 
(7,030
)
 
5,855

Total Liabilities and Shareholders' Equity
$
5,977

 
$
13,786

 
$
11,429

 
$
(10,761
)
 
$
20,431


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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended August 3, 2013
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
2,898

 
$
4,831

 
$
(1,663
)
 
$
6,066

Cost of sales
—

 
(1,763
)
 
(3,420
)
 
1,650

 
(3,533
)
Gross margin
—

 
1,135

 
1,411

 
(13
)
 
2,533

Selling, general and administrative expenses
(2
)
 
(1,054
)
 
(956
)
 
13

 
(1,999
)
Operating income (loss)
(2
)
 
81

 
455

 
—

 
534

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(96
)
 
—

 
—

 
(96
)
Intercompany
—

 
(39
)
 
39

 
—

 
—

Equity in earnings of subsidiaries
282

 
89

 
—

 
(371
)
 
—

Income before income taxes
280

 
35

 
494

 
(371
)
 
438

Federal, state and local income
tax benefit (expense)
1

 
10

 
(168
)
 
—

 
(157
)
Net income
$
281

 
$
45

 
$
326

 
$
(371
)
 
$
281

Comprehensive income
$
305

 
$
69

 
$
336

 
$
(405
)
 
$
305





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



Condensed Consolidating Statement of Comprehensive Income
For the 26 Weeks Ended August 3, 2013
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
5,932

 
$
10,379

 
$
(3,858
)
 
$
12,453

Cost of sales
—

 
(3,660
)
 
(7,616
)
 
3,832

 
(7,444
)
Gross margin
—

 
2,272

 
2,763

 
(26
)
 
5,009

Selling, general and administrative expenses
(5
)
 
(2,104
)
 
(1,957
)
 
26

 
(4,040
)
Operating income (loss)
(5
)
 
168

 
806

 
—

 
969

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(193
)
 
—

 
—

 
(193
)
Intercompany
—

 
(79
)
 
79

 
—

 
—

Equity in earnings of subsidiaries
501

 
144

 
—

 
(645
)
 
—

Income before income taxes
496

 
40

 
885

 
(645
)
 
776

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

 
37

 
(317
)
 
—

 
(278
)
Net income
$
498

 
$
77

 
$
568

 
$
(645
)
 
$
498

Comprehensive income
$
546

 
$
125

 
$
588

 
$
(713
)
 
$
546



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



Condensed Consolidating Statement of Cash Flows
For the 26 Weeks Ended August 3, 2013
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
498

 
$
77

 
$
568

 
$
(645
)
 
$
498

Equity in earnings of subsidiaries
(501
)
 
(144
)
 
—

 
645

 
—

Dividends received from subsidiaries
303

 
—

 
—

 
(303
)
 
—

Depreciation and amortization
—

 
235

 
269

 
—

 
504

(Increase) decrease in working capital
(62
)
 
43

 
(416
)
 
—

 
(435
)
Other, net
18

 
76

 
3

 
—

 
97

Net cash provided by operating activities
256

 
287

 
424

 
(303
)
 
664

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

 
(135
)
 
(176
)
 
—

 
(311
)
Other, net
—

 
—

 
(5
)
 
—

 
(5
)
Net cash used by investing activities
—

 
(135
)
 
(181
)
 
—

 
(316
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Debt repaid
—

 
(6
)
 
(1
)
 
—

 
(7
)
Dividends paid
(173
)
 
—

 
(303
)
 
303

 
(173
)
Common stock acquired, net of
issuance of common stock
(579
)
 
—

 
—

 
—

 
(579
)
Intercompany activity, net
145

 
(175
)
 
30

 
—

 
—

Other, net
(83
)
 
23

 
59

 
—

 
(1
)
Net cash used by
financing activities
(690
)
 
(158
)
 
(215
)
 
303

 
(760
)
Net increase (decrease) in cash and
cash equivalents
(434
)
 
(6
)
 
28

 
—

 
(412
)
Cash and cash equivalents at beginning of period
1,538

 
41

 
257

 
—

 
1,836

Cash and cash equivalents at end of period
$
1,104

 
$
35

 
$
285

 
$
—

 
$
1,424


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



Condensed Consolidating Balance Sheet
As of February 1, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,955

 
$
84

 
$
234

 
$
—

 
$
2,273

Receivables
—

 
102

 
336

 
—

 
438

Merchandise inventories
—

 
2,896

 
2,661

 
—

 
5,557

Prepaid expenses and other current assets
—

 
103

 
317

 
—

 
420

Income taxes
80

 
—

 
—

 
(80
)
 
—

Total Current Assets
2,035

 
3,185

 
3,548

 
(80
)
 
8,688

Property and Equipment – net
—

 
4,590

 
3,340

 
—

 
7,930

Goodwill
—

 
3,315

 
428

 
—

 
3,743

Other Intangible Assets – net
—

 
97

 
430

 
—

 
527

Other Assets
4

 
101

 
641

 
—

 
746

Deferred Income Taxes
19

 
—

 
—

 
(19
)
 
—

Intercompany Receivable
—

 
—

 
3,561

 
(3,561
)
 
—

Investment in Subsidiaries
4,625

 
3,157