10-Q

 
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 1, 2015

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 1, 2015
Common Stock, $0.01 par value per share
 
330,982,967 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 1, 2015
 
August 2, 2014
 
August 1, 2015
 
August 2, 2014
Net sales
$
6,104

 
$
6,267

 
$
12,336

 
$
12,546

Cost of sales
(3,610
)
 
(3,672
)
 
(7,410
)
 
(7,508
)
Gross margin
2,494

 
2,595

 
4,926

 
5,038

Selling, general and administrative expenses
(2,058
)
 
(2,024
)
 
(4,081
)
 
(4,024
)
Operating income
436

 
571

 
845

 
1,014

Interest expense
(94
)
 
(101
)
 
(189
)
 
(201
)
Interest income
1

 
1

 
1

 
1

Income before income taxes
343

 
471

 
657

 
814

Federal, state and local income tax expense
(126
)
 
(179
)
 
(247
)
 
(298
)
Net income
$
217

 
$
292

 
$
410

 
$
516

Basic earnings per share
$
.65

 
$
.81

 
$
1.21

 
$
1.42

Diluted earnings per share
$
.64

 
$
.80

 
$
1.19

 
$
1.40


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 1, 2015
 
August 2, 2014
 
August 1, 2015
 
August 2, 2014
Net income
$
217

 
$
292

 
$
410

 
$
516

Other comprehensive income:
 
 
 
 
 
 
 
Amortization of net actuarial loss on post employment and
postretirement benefit plans included in net income,
before tax
11

 
7

 
24

 
13

Tax effect related to items of other comprehensive income
(4
)
 
(3
)
 
(9
)
 
(5
)
Total other comprehensive income, net of tax effect
7

 
4

 
15

 
8

Comprehensive income
$
224

 
$
296

 
$
425

 
$
524


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


3

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

(millions)
 
 
 
 
 
 
 
 
August 1, 2015
 
January 31, 2015
 
August 2, 2014
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
843

 
$
2,246

 
$
1,630

Receivables
334

 
424

 
352

Merchandise inventories
5,622

 
5,516

 
5,416

Prepaid expenses and other current assets
437

 
493

 
399

Total Current Assets
7,236

 
8,679

 
7,797

Property and Equipment - net of accumulated depreciation and
amortization of $5,974, $5,594 and $6,453
7,704

 
7,800

 
7,771

Goodwill
3,897

 
3,743

 
3,743

Other Intangible Assets – net
523

 
496

 
512

Other Assets
756

 
743

 
783

Total Assets
$
20,116

 
$
21,461

 
$
20,606

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Short-term debt
$
83

 
$
76

 
$
483

Merchandise accounts payable
2,067

 
1,693

 
1,990

Accounts payable and accrued liabilities
2,278

 
3,109

 
2,150

Income taxes
64

 
296

 
120

Deferred income taxes
367

 
362

 
393

Total Current Liabilities
4,859

 
5,536

 
5,136

Long-Term Debt
7,181

 
7,265

 
6,729

Deferred Income Taxes
1,082

 
1,081

 
1,287

Other Liabilities
2,150

 
2,201

 
1,647

Shareholders’ Equity
4,844

 
5,378

 
5,807

Total Liabilities and Shareholders’ Equity
$
20,116

 
$
21,461

 
$
20,606


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 1, 2015
 
August 2, 2014
Cash flows from operating activities:
 
 
 
Net income
$
410

 
$
516

Adjustments to reconcile net income to net cash
provided by operating activities:
 
 
 
Depreciation and amortization
520

 
507

Stock-based compensation expense
47

 
38

Amortization of financing costs and premium on acquired debt
(2
)
 
(3
)
Changes in assets and liabilities:
 
 
 
 Decrease in receivables
92

 
86

(Increase) decrease in merchandise inventories
(77
)
 
141

 Increase in prepaid expenses and other current assets
(29
)
 
(14
)
 Increase in other assets not separately identified
—

 
(31
)
 Increase in merchandise accounts payable
340

 
276

 Decrease in accounts payable, accrued liabilities
and other items not separately identified
(625
)
 
(531
)
 Decrease in current income taxes
(232
)
 
(242
)
 Increase (decrease) in deferred income taxes
(20
)
 
2

 Decrease in other liabilities not separately identified
(26
)
 
(9
)
Net cash provided by operating activities
398

 
736

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(367
)
 
(335
)
Capitalized software
(144
)
 
(116
)
Acquisition of Bluemercury, Inc., net of cash acquired
(212
)
 
—

Disposition of property and equipment
4

 
24

Other, net
104

 
49

Net cash used by investing activities
(615
)
 
(378
)
Cash flows from financing activities:
 
 
 
Debt issued
—

 
500

Financing costs
—

 
(4
)
Debt repaid
(72
)
 
(459
)
Dividends paid
(227
)
 
(204
)
Decrease in outstanding checks
(136
)
 
(61
)
Acquisition of treasury stock
(909
)
 
(922
)
Issuance of common stock
158

 
149

Net cash used by financing activities
(1,186
)
 
(1,001
)
Net decrease in cash and cash equivalents
(1,403
)
 
(643
)
Cash and cash equivalents beginning of period
2,246

 
2,273

Cash and cash equivalents end of period
$
843

 
$
1,630

Supplemental cash flow information:
 
 
 
Interest paid
$
194

 
$
202

Interest received
1

 
1

Income taxes paid (net of refunds received)
450

 
495

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 three brands (Macy's, Bloomingdale's and Bluemercury) 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 885 stores in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com, bloomingdales.com and bluemercury.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 January 31, 2015 (the "2014 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2014 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 1, 2015 and August 2, 2014, 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 1, 2015 and August 2, 2014 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Reclassifications
Certain reclassifications were made to prior years’ amounts to conform with the classifications of such amounts for the most recent fiscal period.
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 1, 2015 and August 2, 2014 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 1, 2015
 
August 2, 2014
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income and average number of shares outstanding
$
217

 
 
 
334.9

 
$
292

 
 
 
358.3

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.8

 
 
 
 
 
0.9

 
$
217

 
 
 
335.7

 
$
292

 
 
 
359.2

Basic earnings per share
 
 
$
.65

 
 
 
 
 
$
.81

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
5.3

 
 
 
 
 
6.2

 
$
217

 
 
 
341.0

 
$
292

 
 
 
365.4

Diluted earnings per share
 
 
$
.64

 
 
 
 
 
$
.80

 
 

 
26 Weeks Ended
 
August 1, 2015
 
August 2, 2014
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income and average number of shares outstanding
$
410

 
 
 
337.3

 
$
516

 
 
 
361.5

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.9

 
 
 
 
 
1.0

 
$
410

 
 
 
338.2

 
$
516

 
 
 
362.5

Basic earnings per share
 
 
$
1.21

 
 
 
 
 
$
1.42

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
5.5

 
 
 
 
 
6.5

 
$
410

 
 
 
343.7

 
$
516

 
 
 
369.0

Diluted earnings per share
 
 
$
1.19

 
 
 
 
 
$
1.40

 
 

In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 3.4 million shares of common stock and restricted stock units relating to 1.1 million shares of common stock were outstanding at August 1, 2015, but were not included in the computation of diluted earnings per share for the 13 or 26 weeks ended August 1, 2015 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 3.2 million shares of common stock and restricted stock units relating to 1.0 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.


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 1, 2015
 
August 2, 2014
 
(millions)
7.5% Senior debentures due 2015
$
69

 
$
—

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

 
$
72

 
$
459

On June 1, 2015, the Company repaid $69 million of 7.5% senior debentures at maturity.
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.
On August 17, 2015, the Company redeemed at par the principal amount of $76 million of 8.125% senior debentures due 2035, pursuant to the terms of the debentures. Interest expense in the third quarter of 2015 will be lower due to the recognition of unamortized debt premium associated with this debt.
During the 26 weeks ended August 1, 2015, the Company repurchased approximately 13.9 million shares of its common stock pursuant to existing stock purchase authorizations for a total of approximately $937 million. As of August 1, 2015, the Company had $1,595 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.

4.    Benefit Plans
The Company has defined contribution plans which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan ("Pension Plan") and an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided 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)
 


The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:
 
13 Weeks Ended
 
26 Weeks Ended
 
August 1, 2015
 
August 2, 2014
 
August 1, 2015
 
August 2, 2014
 
(millions)
401(k) Defined Contribution Plan
$
24

 
$
25

 
$
47

 
$
50

 
 
 
 
 
 
 
 
Pension Plan
 
 
 
 
 
 
 
Service cost
$
1

 
$
1

 
$
3

 
$
3

Interest cost
34

 
37

 
68

 
75

Expected return on assets
(58
)
 
(62
)
 
(117
)
 
(123
)
Recognition of net actuarial loss
9

 
7

 
19

 
13

Amortization of prior service credit
—

 
—

 
—

 
—

 
$
(14
)
 
$
(17
)
 
$
(27
)
 
$
(32
)
Supplementary Retirement Plan
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
8

 
9

 
16

 
17

Recognition of net actuarial loss
2

 
1

 
5

 
2

Amortization of prior service cost
—

 
—

 
—

 
—

 
$
10

 
$
10

 
$
21

 
$
19

 
 
 
 
 
 
 
 
Total Retirement Expense
$
20

 
$
18

 
$
41

 
$
37

 
 
 
 
 
 
 
 
Postretirement Obligations
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
2

 
2

 
4

 
4

Recognition of net actuarial gain
—

 
(1
)
 
—

 
(2
)
Amortization of prior service cost
—

 
—

 
—

 
—

 
$
2

 
$
1

 
$
4

 
$
2


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 1, 2015
 
August 2, 2014
 
 
 
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
$
101

 
$
—

 
$
101

 
$
—

 
$
91

 
$
—

 
$
91

 
$
—



9
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 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.
The following table shows the estimated fair value of the Company's long-term debt:
 
 
August 1, 2015
 
August 2, 2014
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
(millions)
Long-term debt
$
6,994

 
$
7,153

 
$
7,585

 
$
6,544

 
$
6,713

 
$
7,375

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.
During the second quarter of fiscal 2015, 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 30, 2015.
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 Bluemercury, Inc., 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 1, 2015, August 2, 2014 and January 31, 2015, the related Condensed Consolidating Statements of Comprehensive Income for the 13 and 26 weeks ended August 1, 2015 and August 2, 2014, and the related Condensed Consolidating Statements of Cash Flows for the 26 weeks ended August 1, 2015 and August 2, 2014 are presented on the following pages.

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



Condensed Consolidating Balance Sheet
As of August 1, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
511

 
$
76

 
$
256

 
$
—

 
$
843

Receivables
—

 
85

 
249

 
—

 
334

Merchandise inventories
—

 
2,780

 
2,842

 
—

 
5,622

Prepaid expenses and other current assets
—

 
104

 
333

 
—

 
437

Income taxes
98

 
—

 
—

 
(98
)
 
—

Total Current Assets
609

 
3,045

 
3,680

 
(98
)
 
7,236

Property and Equipment – net
—

 
4,230

 
3,474

 
—

 
7,704

Goodwill
—

 
3,315

 
582

 
—

 
3,897

Other Intangible Assets – net
—

 
62

 
461

 
—

 
523

Other Assets
2

 
74

 
680

 
—

 
756

Deferred Income Taxes
24

 
—

 
—

 
(24
)
 
—

Intercompany Receivable
—

 
—

 
3,634

 
(3,634
)
 
—

Investment in Subsidiaries
4,779

 
3,640

 
—

 
(8,419
)
 
—

Total Assets
$
5,414

 
$
14,366

 
$
12,511

 
$
(12,175
)
 
$
20,116

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

 
$
82

 
$
1

 
$
—

 
$
83

Merchandise accounts payable
—

 
997

 
1,070

 
—

 
2,067

Accounts payable and accrued liabilities
23

 
981

 
1,274

 
—

 
2,278

Income taxes
—

 
10

 
152

 
(98
)
 
64

Deferred income taxes
—

 
301

 
66

 
—

 
367

Total Current Liabilities
23

 
2,371

 
2,563

 
(98
)
 
4,859

Long-Term Debt
—

 
7,162

 
19

 
—

 
7,181

Intercompany Payable
483

 
3,151

 
—

 
(3,634
)
 
—

Deferred Income Taxes
—

 
435

 
671

 
(24
)
 
1,082

Other Liabilities
64

 
551

 
1,535

 
—

 
2,150

Shareholders' Equity
4,844

 
696

 
7,723

 
(8,419
)
 
4,844

Total Liabilities and Shareholders' Equity
$
5,414

 
$
14,366

 
$
12,511

 
$
(12,175
)
 
$
20,116


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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended August 1, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
2,761

 
$
5,049

 
$
(1,706
)
 
$
6,104

Cost of sales
—

 
(1,688
)
 
(3,628
)
 
1,706

 
(3,610
)
Gross margin
—

 
1,073

 
1,421

 
—

 
2,494

Selling, general and administrative expenses
—

 
(1,025
)
 
(1,033
)
 
—

 
(2,058
)
Operating income
—

 
48

 
388

 
—

 
436

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(93
)
 
—

 
—

 
(93
)
Intercompany
—

 
(57
)
 
57

 
—

 
—

Equity in earnings of subsidiaries
217

 
86

 
—

 
(303
)
 
—

Income (loss) before income taxes
217

 
(16
)
 
445

 
(303
)
 
343

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

 
42

 
(168
)
 
—

 
(126
)
Net income
$
217

 
$
26

 
$
277

 
$
(303
)
 
$
217

Comprehensive income
$
224

 
$
33

 
$
282

 
$
(315
)
 
$
224





 

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



Condensed Consolidating Statement of Comprehensive Income
For the 26 Weeks Ended August 1, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
5,537

 
$
10,740

 
$
(3,941
)
 
$
12,336

Cost of sales
—

 
(3,497
)
 
(7,854
)
 
3,941

 
(7,410
)
Gross margin
—

 
2,040

 
2,886

 
—

 
4,926

Selling, general and administrative expenses
(1
)
 
(2,005
)
 
(2,075
)
 
—

 
(4,081
)
Operating income (loss)
(1
)
 
35

 
811

 
—

 
845

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(188
)
 
—

 
—

 
(188
)
Intercompany
—

 
(115
)
 
115

 
—

 
—

Equity in earnings of subsidiaries
411

 
146

 
—

 
(557
)
 
—

Income (loss) before income taxes
410

 
(122
)
 
926

 
(557
)
 
657

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

 
79

 
(326
)
 
—

 
(247
)
Net income (loss)
$
410

 
$
(43
)
 
$
600

 
$
(557
)
 
$
410

Comprehensive income (loss)
$
425

 
$
(28
)
 
$
609

 
$
(581
)
 
$
425



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



Condensed Consolidating Statement of Cash Flows
For the 26 Weeks Ended August 1, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
410

 
$
(43
)
 
$
600

 
$
(557
)
 
$
410

Equity in earnings of subsidiaries
(411
)
 
(146
)
 
—

 
557

 
—

Dividends received from subsidiaries
337

 
—

 
—

 
(337
)
 
—

Depreciation and amortization
—

 
214

 
306

 
—

 
520

Increase in working capital
(11
)
 
(17
)
 
(503
)
 
—

 
(531
)
Other, net
24

 
2

 
(27
)
 
—

 
(1
)
Net cash provided by operating activities
349

 
10

 
376

 
(337
)
 
398

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

 
(158
)
 
(349
)
 
—

 
(507
)
Other, net
—

 
9

 
(117
)
 
—

 
(108
)
Net cash used by investing activities
—

 
(149
)
 
(466
)
 
—

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

 
(72
)
 
—

 
—

 
(72
)
Dividends paid
(227
)
 
—

 
(337
)
 
337

 
(227
)
Common stock acquired, net of
issuance of common stock
(751
)
 
—

 
—

 
—

 
(751
)
Intercompany activity, net
(722
)
 
262

 
460

 
—

 
—

Other, net
(46
)
 
(69
)
 
(21
)
 
—

 
(136
)
Net cash provided (used) by
financing activities
(1,746
)
 
121

 
102

 
337

 
(1,186
)
Net increase (decrease) in cash
and cash equivalents
(1,397
)
 
(18
)
 
12

 
—

 
(1,403
)
Cash and cash equivalents at beginning of period
1,908

 
94

 
244

 
—

 
2,246

Cash and cash equivalents at end of period
$
511

 
$
76

 
$
256

 
$
—

 
$
843


14
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

 
110

 
669

 
—

 
783

Deferred Income Taxes
20

 
—

 
—

 
(20
)
 
—

Intercompany Receivable
—

 
—

 
3,412

 
(3,412
)
 
—

Investment in Subsidiaries
4,832

 
3,340

 
—

 
(8,172
)
 
—

Total Assets
$
6,183

 
$
14,357

 
$
11,704

 
$
(11,638
)
 
$
20,606

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
—

 
6,709

 
20

 
—

 
6,729

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

 
$
14,357

 
$
11,704

 
$
(11,638
)
 
$
20,606


15
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

 
$
4,994

 
$
(1,688
)
 
$
6,267

Cost of sales
—

 
(1,778
)
 
(3,582
)
 
1,688

 
(3,672
)
Gross margin
—

 
1,183

 
1,412

 
—

 
2,595

Selling, general and administrative expenses
(2
)
 
(1,044
)
 
(978
)
 
—

 
(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






16
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

 
$
10,451

 
$
(3,784
)
 
$
12,546

Cost of sales
—

 
(3,664
)
 
(7,628
)
 
3,784

 
(7,508
)
Gross margin
—


2,215

 
2,823

 
—

 
5,038

Selling, general and administrative expenses
(4
)
 
(2,052
)
 
(1,968
)
 
—

 
(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



17
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

 
8

 
(347
)
 
—

 
(284
)
Other, net
6

 
(27
)
 
18

 
—

 
(3
)
Net cash provided by operating activities
378

 
94

 
583

 
(319
)
 
736

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

 
(117
)
 
(310
)
 
—

 
(427
)
Other, net
—

 
6

 
43

 
—

 
49

Net cash used by investing activities
—

 
(111
)
 
(267
)
 
—

 
(378
)
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


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



Condensed Consolidating Balance Sheet
As of January 31, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,908

 
$
94

 
$
244

 
$
—

 
$
2,246

Receivables
—

 
97

 
327

 
—

 
424

Merchandise inventories
—

 
2,817

 
2,699

 
—

 
5,516

Prepaid expenses and other current assets
—

 
113

 
380

 
—

 
493

Income taxes
88

 
—

 
—

 
(88
)
 
—

Total Current Assets
1,996

 
3,121

 
3,650

 
(88
)
 
8,679

Property and Equipment – net
—

 
4,315

 
3,485

 
—