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 October 31, 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 October 31, 2015
Common Stock, $0.01 par value per share
 
314,367,528 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 31, 2015
 
November 1, 2014
 
October 31, 2015
 
November 1, 2014
Net sales
$
5,874

 
$
6,195

 
$
18,210

 
$
18,741

Cost of sales
(3,537
)
 
(3,766
)
 
(10,947
)
 
(11,274
)
Gross margin
2,337

 
2,429

 
7,263

 
7,467

Selling, general and administrative expenses
(1,968
)
 
(2,007
)
 
(6,049
)
 
(6,031
)
Asset impairments
(111
)
 
—

 
(111
)
 
—

Operating income
258

 
422

 
1,103

 
1,436

Interest expense
(80
)
 
(97
)
 
(269
)
 
(298
)
Interest income
—

 
1

 
1

 
2

Income before income taxes
178

 
326

 
835

 
1,140

Federal, state and local income tax expense
(61
)
 
(109
)
 
(308
)
 
(407
)
Net income
117

 
217

 
527

 
733

Net loss attributable to noncontrolling interest
1

 
—

 
1

 
—

Net income attributable to Macy's, Inc. shareholders
$
118

 
$
217

 
$
528

 
$
733

Basic earnings per share attributable to
Macy's, Inc. shareholders
$
.36

 
$
.62

 
$
1.58

 
$
2.04

Diluted earnings per share attributable to
Macy's, Inc. shareholders
$
.36

 
$
.61

 
$
1.56

 
$
2.01


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 31, 2015
 
November 1, 2014
 
October 31, 2015
 
November 1, 2014
Net income
$
117

 
$
217

 
$
527

 
$
733

Other comprehensive income:
 
 
 
 
 
 
 
Amortization of net actuarial loss on post employment and
postretirement benefit plans included in net income,
before tax
12

 
5

 
36

 
18

Tax effect related to items of other comprehensive income
(5
)
 
(2
)
 
(14
)
 
(7
)
Total other comprehensive income, net of tax effect
7

 
3

 
22

 
11

Comprehensive income
124

 
220

 
549

 
744

Comprehensive loss attributable to
noncontrolling interest
1

 
—

 
1

 
—

Comprehensive income attributable to
Macy's, Inc. shareholders
$
125

 
$
220

 
$
550

 
$
744


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


3

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

(millions)
 
 
 
 
 
 
 
 
October 31,
2015
 
January 31, 2015
 
November 1,
2014
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
474

 
$
2,246

 
$
1,048

Receivables
200

 
424

 
292

Merchandise inventories
8,145

 
5,516

 
7,789

Prepaid expenses and other current assets
425

 
493

 
424

Total Current Assets
9,244

 
8,679

 
9,553

Property and Equipment - net of accumulated depreciation and
amortization of $6,086, $5,594 and $6,633
7,629

 
7,800

 
7,787

Goodwill
3,897

 
3,743

 
3,743

Other Intangible Assets – net
518

 
496

 
504

Other Assets
798

 
743

 
825

Total Assets
$
22,086

 
$
21,461

 
$
22,412

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Short-term debt
$
857

 
$
76

 
$
76

Merchandise accounts payable
3,776

 
1,693

 
3,814

Accounts payable and accrued liabilities
2,692

 
3,109

 
2,563

Income taxes
102

 
296

 
114

Deferred income taxes
375

 
362

 
396

Total Current Liabilities
7,802

 
5,536

 
6,963

Long-Term Debt
7,106

 
7,265

 
7,130

Deferred Income Taxes
1,078

 
1,081

 
1,314

Other Liabilities
2,125

 
2,201

 
1,654

Shareholders' Equity:
 
 
 
 
 
Macy's, Inc.
3,971

 
5,378

 
5,351

Noncontrolling interest
4

 
—

 
—

Total Shareholders’ Equity
3,975

 
5,378

 
5,351

Total Liabilities and Shareholders’ Equity
$
22,086

 
$
21,461

 
$
22,412


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 31, 2015
 
November 1, 2014
Cash flows from operating activities:
 
 
 
Net income
$
527

 
$
733

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Asset impairments
111

 
—

Depreciation and amortization
791

 
770

Stock-based compensation expense
65

 
55

Amortization of financing costs and premium on acquired debt
(14
)
 
(4
)
Changes in assets and liabilities:
 
 
 
 Decrease in receivables
226

 
154

 Increase in merchandise inventories
(2,600
)
 
(2,232
)
 Increase in prepaid expenses and other current assets
(36
)
 
(4
)
 Increase in other assets not separately identified
(1
)
 
(46
)
 Increase in merchandise accounts payable
1,843

 
1,935

 Decrease in accounts payable, accrued liabilities
and other items not separately identified
(380
)
 
(298
)
 Decrease in current income taxes
(194
)
 
(248
)
 Increase (decrease) in deferred income taxes
(21
)
 
29

 Decrease in other liabilities not separately identified
(39
)
 
(3
)
Net cash provided by operating activities
278

 
841

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(591
)
 
(547
)
Capitalized software
(249
)
 
(190
)
Acquisition of Bluemercury, Inc., net of cash acquired
(212
)
 
—

Disposition of property and equipment
94

 
79

Other, net
97

 
(2
)
Net cash used by investing activities
(861
)
 
(660
)
Cash flows from financing activities:
 
 
 
Debt issued
791

 
500

Financing costs
—

 
(5
)
Debt repaid
(152
)
 
(462
)
Dividends paid
(344
)
 
(314
)
Increase in outstanding checks
136

 
123

Acquisition of treasury stock
(1,785
)
 
(1,456
)
Issuance of common stock
160

 
208

Proceeds from noncontrolling interest
5

 
—

Net cash used by financing activities
(1,189
)
 
(1,406
)
 
 
 
 
Net decrease in cash and cash equivalents
(1,772
)
 
(1,225
)
Cash and cash equivalents beginning of period
2,246

 
2,273

Cash and cash equivalents end of period
$
474

 
$
1,048

Supplemental cash flow information:
 
 
 
Interest paid
$
274

 
$
284

Interest received
2

 
2

Income taxes paid (net of refunds received)
474

 
565

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 900 Macy's, Macy's Backstage, Bloomingdale's, Bloomingdales Outlet and Bluemercury 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.
In August 2015, the Company established a joint venture, Macy's China Limited, of which the Company holds a sixty-five percent ownership interest and Hong Kong-based Fung Retailing Limited holds the remaining thirty-five percent ownership interest. Macy's China Limited will begin selling merchandise in China in the fourth quarter of 2015 through an e-commerce presence on Alibaba Group's Tmall Global. The Consolidated Financial Statements include the accounts of Macy's, Inc. and the newly established majority-owned subsidiary, Macy's China Limited. The noncontrolling interest represents the Fung Retailing Limited's thirty-five percent proportionate share of the results of Macy's China Limited. All intercompany transactions and balances have been eliminated in consolidation.
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 39 weeks ended October 31, 2015 and November 1, 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 39 weeks ended October 31, 2015 and November 1, 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 39 weeks ended October 31, 2015 and November 1, 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 Attributable to Macy's, Inc. Shareholders
The following tables set forth the computation of basic and diluted earnings per share attributable to Macy's, Inc. shareholders:
 
13 Weeks Ended
 
October 31, 2015
 
November 1, 2014
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding
$
118

 
 
 
324.5

 
$
217

 
 
 
350.8

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.8

 
 
 
 
 
0.8

 
$
118

 
 
 
325.3

 
$
217

 
 
 
351.6

Basic earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.36

 
 
 
 
 
$
.62

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
4.4

 
 
 
 
 
6.1

 
$
118

 
 
 
329.7

 
$
217

 
 
 
357.7

Diluted earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.36

 
 
 
 
 
$
.61

 
 

 
39 Weeks Ended
 
October 31, 2015
 
November 1, 2014
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding
$
528

 
 
 
333.0

 
$
733

 
 
 
358.0

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.9

 
 
 
 
 
0.9

 
$
528

 
 
 
333.9

 
$
733

 
 
 
358.9

Basic earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
1.58

 
 
 
 
 
$
2.04

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
5.1

 
 
 
 
 
6.3

 
$
528

 
 
 
339.0

 
$
733

 
 
 
365.2

Diluted earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
1.56

 
 
 
 
 
$
2.01

 
 

In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 6.2 million shares of common stock and restricted stock units relating to 0.7 million shares of common stock were outstanding at October 31, 2015, but were not included in the computation of diluted earnings per share for the 13 or 39 weeks ended October 31, 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 0.9 million shares of common stock were outstanding at November 1, 2014, but were not included in the computation of diluted earnings per share for the 13 or 39 weeks ended November 1, 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:
 
 
39 Weeks Ended
 
October 31, 2015
 
November 1, 2014
 
(millions)
7.5% Senior debentures due 2015
$
69

 
$
—

8.125% Senior debentures due 2035
76

 
—

5.75% Senior notes due 2014
—

 
453

9.5% amortizing debentures due 2021
4

 
4

9.75% amortizing debentures due 2021
2

 
2

Capital leases and other obligations
1

 
3

 
$
152

 
$
462

On June 1, 2015, the Company repaid $69 million of 7.5% senior debentures 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 2015 benefited from the recognition of unamortized debt premium associated with this debt.
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.
The Company is party to a $1,500 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability under the bank credit agreement with certain financial institutions. As of October 31, 2015, the Company had $791 million of seasonal borrowings outstanding under this commercial paper program at a weighted average interest rate of 0.42% and with a weighted average maturity of less than ten days.
During the 39 weeks ended October 31, 2015, the Company repurchased approximately 30.6 million shares of its common stock pursuant to existing stock purchase authorizations for a total of approximately $1,837 million. As of October 31, 2015, the Company had $695 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
 
39 Weeks Ended
 
October 31, 2015
 
November 1, 2014
 
October 31, 2015
 
November 1, 2014
 
(millions)
401(k) Defined Contribution Plan
$
22

 
$
21

 
$
69

 
$
71

 
 
 
 
 
 
 
 
Pension Plan
 
 
 
 
 
 
 
Service cost
$
2

 
$
2

 
$
5

 
$
5

Interest cost
35

 
38

 
103

 
113

Expected return on assets
(59
)
 
(62
)
 
(176
)
 
(185
)
Recognition of net actuarial loss
9

 
6

 
28

 
19

Amortization of prior service credit
—

 
—

 
—

 
—

 
$
(13
)
 
$
(16
)
 
$
(40
)
 
$
(48
)
Supplementary Retirement Plan
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
7

 
8

 
23

 
25

Recognition of net actuarial loss
3

 
1

 
8

 
3

Amortization of prior service cost
—

 
—

 
—

 
—

 
$
10

 
$
9

 
$
31

 
$
28

 
 
 
 
 
 
 
 
Total Retirement Expense
$
19

 
$
14

 
$
60

 
$
51

 
 
 
 
 
 
 
 
Postretirement Obligations
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
2

 
3

 
6

 
7

Recognition of net actuarial gain
—

 
(2
)
 
—

 
(4
)
Amortization of prior service cost
—

 
—

 
—

 
—

 
$
2

 
$
1

 
$
6

 
$
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:
 
 
October 31, 2015
 
November 1, 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
$
98

 
$
—

 
$
98

 
$
—

 
$
94

 
$
—

 
$
94

 
$
—



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:
 
 
October 31, 2015
 
November 1, 2014
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
(millions)
Long-term debt
$
6,933

 
$
7,078

 
$
7,268

 
$
6,947

 
$
7,114

 
$
7,747


The following table shows certain of the Company's non-financial assets that were measured at fair value on a nonrecurring basis during 2015:
 
October 31, 2015
 
 
 
Fair Value Measurements
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(millions)
Long-lived assets held and used
$
39

 
$
—

 
$
—

 
$
39

The carrying value of long-lived assets is periodically reviewed by the Company whenever events or changes in circumstances indicate that a potential impairment has occurred. For long-lived assets held for use, a potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from the use of those assets in operations. When a potential impairment has occurred, an impairment write-down is recorded if the carrying value of the
long-lived asset exceeds its fair value.
The Company has announced a plan to dispose of certain underperforming Macy’s stores before the end of their previously estimated useful lives as the Company works to optimize its omnichannel approach to customers across America. As a result, impairment reviews of the Company’s long-lived assets were required and estimated cash flows have been revised accordingly. As part of this impairment review during the third quarter of 2015, long-lived assets held and used with a carrying value of $150 million were written down to their fair value of $39 million, resulting in asset impairment charges of $111 million. Additionally, related liabilities will arise such as severance, contractual obligations and other accruals associated with store closings when the final determination is made regarding which Macy’s stores will be closed. The Company estimates these liabilities based on the facts and circumstances in existence for each restructuring decision. The amounts the Company will ultimately realize or disburse could differ from the amounts assumed in arriving at the asset impairment charges recorded and any restructuring charge recorded in the future.
The Company believes its estimated cash flows are sufficient to support the carrying value of its long-lived assets. If estimated cash flows significantly differ in the future, the Company may be required to record additional asset impairment write-downs.


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


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 Procurement, LLC, Macy's Merchandising Group International, LLC, Macy's Merchandising Group International (Hong Kong) Limited, Macy's Merchandising Group (Hong Kong) Limited, and its majority-owned subsidiary Macy's China 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 31, 2015, November 1, 2014 and January 31, 2015, the related Condensed Consolidating Statements of Comprehensive Income for the 13 and 39 weeks ended October 31, 2015 and November 1, 2014, and the related Condensed Consolidating Statements of Cash Flows for the 39 weeks ended October 31, 2015 and November 1, 2014 are presented on the following pages.

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



Condensed Consolidating Balance Sheet
As of October 31, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
11

 
$
94

 
$
369

 
$
—

 
$
474

Receivables
—

 
38

 
162

 
—

 
200

Merchandise inventories
—

 
4,053

 
4,092

 
—

 
8,145

Prepaid expenses and other current assets
—

 
92

 
333

 
—

 
425

Income taxes
32

 
—

 
—

 
(32
)
 
—

Total Current Assets
43

 
4,277

 
4,956

 
(32
)
 
9,244

Property and Equipment – net
—

 
4,112

 
3,517

 
—

 
7,629

Goodwill
—

 
3,315

 
582

 
—

 
3,897

Other Intangible Assets – net
—

 
59

 
459

 
—

 
518

Other Assets
2

 
74

 
722

 
—

 
798

Deferred Income Taxes
17

 
—

 
—

 
(17
)
 
—

Intercompany Receivable
—

 
—

 
3,413

 
(3,413
)
 
—

Investment in Subsidiaries
4,644

 
3,621

 
—

 
(8,265
)
 
—

Total Assets
$
4,706

 
$
15,458

 
$
13,649

 
$
(11,727
)
 
$
22,086

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

 
$
856

 
$
1

 
$
—

 
$
857

Merchandise accounts payable
—

 
1,825

 
1,951

 
—

 
3,776

Accounts payable and accrued liabilities
103

 
1,118

 
1,471

 
—

 
2,692

Income taxes
—

 
4

 
130

 
(32
)
 
102

Deferred income taxes
—

 
304

 
71

 
—

 
375

Total Current Liabilities
103

 
4,107

 
3,624

 
(32
)
 
7,802

Long-Term Debt
—

 
7,087

 
19

 
—

 
7,106

Intercompany Payable
601

 
2,812

 
—

 
(3,413
)
 
—

Deferred Income Taxes
—

 
396

 
699

 
(17
)
 
1,078

Other Liabilities
31

 
580

 
1,514

 
—

 
2,125

Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Macy's, Inc.
3,971

 
476

 
7,789

 
(8,265
)
 
3,971

Noncontrolling Interest
—

 
—

 
4

 
—

 
4

Total Shareholders' Equity
3,971

 
476

 
7,793

 
(8,265
)
 
3,975

Total Liabilities and Shareholders' Equity
$
4,706

 
$
15,458

 
$
13,649

 
$
(11,727
)
 
$
22,086


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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended October 31, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
2,654

 
$
6,366

 
$
(3,146
)
 
$
5,874

Cost of sales
—

 
(1,761
)
 
(4,922
)
 
3,146

 
(3,537
)
Gross margin
—

 
893

 
1,444

 
—

 
2,337

Selling, general and administrative expenses
—

 
(957
)
 
(1,011
)
 
—

 
(1,968
)
Asset impairments
—

 
(102
)
 
(9
)
 
—

 
(111
)
Operating income (loss)
—

 
(166
)
 
424

 
—

 
258

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(79
)
 
(1
)
 
—

 
(80
)
Intercompany
—

 
(58
)
 
58

 
—

 
—

Equity in earnings of subsidiaries
117

 
(9
)
 
—

 
(108
)
 
—

Income (loss) before income taxes
117

 
(312
)
 
481

 
(108
)
 
178

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

 
84

 
(146
)
 
—

 
(61
)
Net income (loss)
118

 
(228
)
 
335

 
(108
)
 
117

Net loss attributable to noncontrolling interest
—

 
—

 
1

 
—

 
1

Net income (loss) attributable to
Macy's, Inc. shareholders
$
118

 
$
(228
)
 
$
336

 
$
(108
)
 
$
118

Comprehensive income (loss)
$
125

 
$
(221
)
 
$
339

 
$
(119
)
 
$
124

Comprehensive loss attributable to
noncontrolling interest
—

 
—

 
1

 
—

 
1

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
125

 
$
(221
)
 
$
340

 
$
(119
)
 
$
125





 

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



Condensed Consolidating Statement of Comprehensive Income
For the 39 Weeks Ended October 31, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
8,191

 
$
17,106

 
$
(7,087
)
 
$
18,210

Cost of sales
—

 
(5,258
)
 
(12,776
)
 
7,087

 
(10,947
)
Gross margin
—

 
2,933

 
4,330

 
—

 
7,263

Selling, general and administrative expenses
(1
)
 
(2,962
)
 
(3,086
)
 
—

 
(6,049
)
Asset impairments
—

 
(102
)
 
(9
)
 
—

 
(111
)
Operating income (loss)
(1
)
 
(131
)
 
1,235

 
—

 
1,103

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(267
)
 
(1
)
 
—

 
(268
)
Intercompany
—

 
(173
)
 
173

 
—

 
—

Equity in earnings of subsidiaries
528

 
137

 
—

 
(665
)
 
—

Income (loss) before income taxes
527

 
(434
)
 
1,407

 
(665
)
 
835

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

 
163

 
(472
)
 
—

 
(308
)
Net income (loss)
528

 
(271
)
 
935

 
(665
)
 
527

Net loss attributable to noncontrolling interest
—

 
—

 
1

 
—

 
1

Net income (loss) attributable to
Macy's, Inc. shareholders
$
528

 
$
(271
)
 
$
936

 
$
(665
)
 
$
528

Comprehensive income (loss)
$
550

 
$
(249
)
 
$
948

 
$
(700
)
 
$
549

Comprehensive loss attributable to
noncontrolling interest
—

 
—

 
1

 
—

 
1

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
550

 
$
(249
)
 
$
949

 
$
(700
)
 
$
550



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



Condensed Consolidating Statement of Cash Flows
For the 39 Weeks Ended October 31, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
528

 
$
(271
)
 
$
935

 
$
(665
)
 
$
527

Asset impairments
—

 
102

 
9

 
—

 
111

Equity in earnings of subsidiaries
(528
)
 
(137
)
 
—

 
665

 
—

Dividends received from subsidiaries
597

 
—

 
—

 
(597
)
 
—

Depreciation and amortization
—

 
330

 
461

 
—

 
791

(Increase) decrease in working capital
55

 
(329
)
 
(867
)
 
—

 
(1,141
)
Other, net
(3
)
 
2

 
(9
)
 
—

 
(10
)
Net cash provided (used) by operating activities
649

 
(303
)
 
529

 
(597
)
 
278

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

 
(216
)
 
(530
)
 
—

 
(746
)
Other, net
—

 
14

 
(129
)
 
—

 
(115
)
Net cash used by investing activities
—

 
(202
)
 
(659
)
 
—

 
(861
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Debt issued, net of debt repaid
—

 
640

 
(1
)
 
—

 
639

Dividends paid
(344
)
 
—

 
(597
)
 
597

 
(344
)
Common stock acquired, net of
issuance of common stock
(1,625
)
 
—

 
—

 
—

 
(1,625
)
Proceeds from noncontrolling interest
—

 
—

 
5

 
—

 
5

Intercompany activity, net
(587
)
 
(73
)
 
660

 
—

 
—

Other, net
10

 
(62
)
 
188

 
—

 
136

Net cash provided (used) by
financing activities
(2,546
)
 
505

 
255

 
597

 
(1,189
)
Net increase (decrease) in cash
and cash equivalents
(1,897
)
 
—

 
125

 
—

 
(1,772
)
Cash and cash equivalents at beginning of period
1,908

 
94

 
244

 
—

 
2,246

Cash and cash equivalents at end of period
$
11

 
$
94

 
$
369

 
$
—

 
$
474


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



Condensed Consolidating Balance Sheet
As of November 1, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
650

 
$
105

 
$
293

 
$
—

 
$
1,048

Receivables
—

 
58

 
234

 
—

 
292

Merchandise inventories
—

 
3,997

 
3,792

 
—

 
7,789

Prepaid expenses and other current assets
—

 
95

 
329

 
—

 
424

Income taxes
—

 
—

 
—

 
—

 
—

Total Current Assets
650

 
4,255

 
4,648

 
—

 
9,553

Property and Equipment – net
—

 
4,447

 
3,340

 
—

 
7,787

Goodwill
—

 
3,315

 
428

 
—

 
3,743

Other Intangible Assets – net
—

 
80

 
424

 
—

 
504

Other Assets
3

 
122

 
700

 
—

 
825

Deferred Income Taxes
15

 
—

 
—

 
(15
)
 
—

Intercompany Receivable
245

 
—

 
3,396

 
(3,641
)
 
—

Investment in Subsidiaries
4,596

 
3,362

 
—

 
(7,958
)
 
—

Total Assets
$
5,509

 
$
15,581

 
$
12,936

 
$
(11,614
)
 
$
22,412

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

 
$
75

 
$
1

 
$
—

 
$
76

Merchandise accounts payable
—

 
1,763

 
2,051

 
—

 
3,814

Accounts payable and accrued liabilities
115

 
1,067

 
1,381

 
—

 
2,563

Income taxes
3

 
38

 
73

 
—

 
114

Deferred income taxes
—

 
310

 
86

 
—

 
396

Total Current Liabilities
118

 
3,253

 
3,592

 
—

 
6,963

Long-Term Debt
—

 
7,110

 
20

 
—

 
7,130

Intercompany Payable
—

 
3,641

 
—

 
(3,641
)
 
—

Deferred Income Taxes
—

 
524

 
805

 
(15
)
 
1,314

Other Liabilities
40

 
520

 
1,094

 
—

 
1,654

Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Macy's, Inc.
5,351

 
533

 
7,425

 
(7,958
)
 
5,351

Noncontrolling Interest
—

 
—

 
—

 
—

 
—

Total Shareholders' Equity
5,351

 
533

 
7,425

 
(7,958
)
 
5,351

Total Liabilities and Shareholders' Equity
$
5,509

 
$
15,581

 
$
12,936

 
$
(11,614
)
 
$
22,412


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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended November 1, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
2,920

 
$
6,365

 
$
(3,090
)
 
$
6,195

Cost of sales
—

 
(1,916
)
 
(4,940
)
 
3,090

 
(3,766
)
Gross margin
—

 
1,004

 
1,425

 
—

 
2,429

Selling, general and administrative expenses
—

 
(1,069
)
 
(938
)
 
—

 
(2,007
)
Operating income (loss)
—

 
(65
)
 
487

 
—

 
422

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(96
)
 
—

 
—

 
(96
)
Intercompany
—

 
(56
)
 
56

 
—

 
—

Equity in earnings of subsidiaries
217

 
21

 
—

 
(238
)
 
—

Income (loss) before income taxes
217

 
(196
)
 
543

 
(238
)
 
326

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

 
60

 
(169
)
 
—

 
(109
)
Net income (loss)
217

 
(136
)
 
374

 
(238
)
 
217

Net loss attributable to noncontrolling interest
—

 
—

 
—

 
—

 
—

Net income (loss) attributable to
Macy's, Inc. shareholders
$
217

 
$
(136
)
 
$
374

 
$
(238
)
 
$
217

Comprehensive income (loss)
$
220

 
$
(133
)
 
$
377

 
$
(244
)
 
$
220

Comprehensive loss attributable to
noncontrolling interest
—

 
—

 
—

 
—

 
—

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
220

 
$
(133
)
 
$
377

 
$
(244
)
 
$
220






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



Condensed Consolidating Statement of Comprehensive Income
For the 39 Weeks Ended November 1, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
8,799

 
$
16,816

 
$
(6,874
)
 
$
18,741

Cost of sales
—

 
(5,580
)
 
(12,568
)
 
6,874

 
(11,274
)
Gross margin
—


3,219

 
4,248

 
—

 
7,467

Selling, general and administrative expenses
(2
)
 
(3,122
)
 
(2,907
)
 
—

 
(6,031
)
Operating income (loss)
(2
)

97

 
1,341

 
—

 
1,436

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
—

 
(296
)
 
—

 
—

 
(296
)
Intercompany
—

 
(172
)
 
172

 
—

 
—

Equity in earnings of subsidiaries
735

 
200

 
—

 
(935
)
 
—

Income (loss) before income taxes
733

 
(171
)
 
1,513

 
(935
)
 
1,140

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

 
102

 
(509
)
 
—

 
(407
)
Net income (loss)
733

 
(69
)
 
1,004

 
(935
)
 
733

Net loss attributable to noncontrolling interest
—

 
—

 
—

 
—

 
—

Net income (loss) attributable to
Macy's, Inc. shareholders
$
733

 
$
(69