Document
 
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 28, 2017

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
 
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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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting 
company  o
 
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at November 25, 2017
Common Stock, $0.01 par value per share
 
304,566,377 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 28, 2017
 
October 29, 2016
 
October 28, 2017
 
October 29, 2016
Net sales
$
5,281

 
$
5,626

 
$
16,171

 
$
17,263

Cost of sales
(3,175
)
 
(3,386
)
 
(9,794
)
 
(10,370
)
Gross margin
2,106

 
2,240

 
6,377

 
6,893

Selling, general and administrative expenses
(1,995
)
 
(2,112
)
 
(5,853
)
 
(6,139
)
Gains on sale of real estate
65

 
41

 
176

 
76

Impairments, restructuring and other costs
(33
)
 
—

 
(33
)
 
(249
)
Settlement charges
(22
)
 
(62
)
 
(73
)
 
(81
)
Operating income
121

 
107

 
594

 
500

Interest expense
(76
)
 
(82
)
 
(244
)
 
(279
)
Net premiums on early retirement of debt
—

 
—

 
(1
)
 
—

Interest income
2

 
1

 
7

 
3

Income before income taxes
47

 
26

 
356

 
224

Federal, state and local income tax expense
(13
)
 
(11
)
 
(140
)
 
(85
)
Net income
34

 
15

 
216

 
139

Net loss attributable to noncontrolling interest
2

 
2

 
6

 
5

Net income attributable to Macy's, Inc. shareholders
$
36

 
$
17

 
$
222

 
$
144

Basic earnings per share attributable to Macy's, Inc. shareholders
$
.12

 
$
.05

 
$
.73

 
$
.46

Diluted earnings per share attributable to Macy's, Inc. shareholders
$
.12

 
$
.05

 
$
.73

 
$
.46


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 28, 2017
 
October 29, 2016
 
October 28, 2017
 
October 29, 2016
Net income
$
34

 
$
15

 
$
216

 
$
139

Other comprehensive income (loss):
 
 
 
 
 
 
 
Actuarial gain (loss) on post employment and postretirement benefit plans, before tax
10

 
3

 
57

 
(74
)
Settlement charges included in net income, before tax
22

 
62

 
73

 
81

Amortization of net actuarial loss on post employment and postretirement benefit plans included in net income, before tax
8

 
9

 
26

 
26

Tax effect related to items of other comprehensive income (loss)
(15
)
 
(29
)
 
(60
)
 
(13
)
Total other comprehensive income, net of tax effect
25

 
45

 
96

 
20

Comprehensive income
59

 
60

 
312

 
159

Comprehensive loss attributable to noncontrolling interest
2

 
2

 
6

 
5

Comprehensive income attributable to
Macy's, Inc. shareholders
$
61

 
$
62

 
$
318

 
$
164


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


3

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

(millions)
 
 
 
 
 
 
 
 
October 28, 2017
 
January 28, 2017
 
October 29, 2016
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
534

 
$
1,297

 
$
457

Receivables
219

 
522

 
262

Merchandise inventories
7,065

 
5,399

 
7,587

Income tax receivable
—

 
—

 
60

Prepaid expenses and other current assets
432

 
408

 
454

Total Current Assets
8,250

 
7,626

 
8,820

Property and Equipment - net of accumulated depreciation and
amortization of $5,330, $4,856 and $5,625
6,742

 
7,017

 
7,149

Goodwill
3,897

 
3,897

 
3,897

Other Intangible Assets – net
491

 
498

 
499

Other Assets
835

 
813

 
909

Total Assets
$
20,215

 
$
19,851

 
$
21,274

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Short-term debt
$
22

 
$
309

 
$
938

Merchandise accounts payable
3,173

 
1,423

 
3,375

Accounts payable and accrued liabilities
3,162

 
3,563

 
2,930

Income taxes
34

 
352

 
—

Total Current Liabilities
6,391

 
5,647

 
7,243

Long-Term Debt
6,297

 
6,562

 
6,563

Deferred Income Taxes
1,553

 
1,443

 
1,548

Other Liabilities
1,750

 
1,877

 
2,129

Shareholders' Equity:
 
 
 
 
 
Macy's, Inc.
4,231

 
4,323

 
3,789

Noncontrolling interest
(7
)
 
(1
)
 
2

Total Shareholders’ Equity
4,224

 
4,322

 
3,791

Total Liabilities and Shareholders’ Equity
$
20,215

 
$
19,851

 
$
21,274


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 28, 2017
 
October 29, 2016
Cash flows from operating activities:
 
 
 
Net income
$
216

 
$
139

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Impairments, restructuring and other costs
33

 
249

Settlement charges
73

 
81

Depreciation and amortization
741

 
787

Stock-based compensation expense
46

 
56

Gains on sale of real estate
(176
)
 
(76
)
Amortization of financing costs and premium on acquired debt
(10
)
 
(14
)
Changes in assets and liabilities:
 
 
 
Decrease in receivables
274

 
237

Increase in merchandise inventories
(1,665
)
 
(2,081
)
Increase in prepaid expenses and other current assets
(20
)
 
(37
)
Increase in merchandise accounts payable
1,630

 
1,665

Decrease in accounts payable, accrued liabilities
and other items not separately identified
(375
)
 
(380
)
Decrease in current income taxes
(318
)
 
(287
)
Increase in deferred income taxes
49

 
45

Change in other assets and liabilities not separately identified
(109
)
 
(76
)
Net cash provided by operating activities
389

 
308

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(359
)
 
(451
)
Capitalized software
(191
)
 
(230
)
Disposition of property and equipment
212

 
138

Other, net
(8
)
 
52

Net cash used by investing activities
(346
)
 
(491
)
Cash flows from financing activities:
 
 
 
Debt issued
—

 
51

Financing costs
(1
)
 
(3
)
Debt repaid
(554
)
 
(174
)
Dividends paid
(346
)
 
(344
)
Increase in outstanding checks
80

 
193

Acquisition of treasury stock
(1
)
 
(230
)
Issuance of common stock
3

 
31

Proceeds from noncontrolling interest
13

 
7

Net cash used by financing activities
(806
)
 
(469
)
Net decrease in cash and cash equivalents
(763
)
 
(652
)
Cash and cash equivalents beginning of period
1,297

 
1,109

Cash and cash equivalents end of period
$
534

 
$
457

Supplemental cash flow information:
 
 
 
Interest paid
$
251

 
$
279

Interest received
7

 
3

Income taxes paid (net of refunds received)
412

 
308

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 are conducted through approximately 860 Macy's, Macy's Backstage, Bloomingdale's, Bloomingdale's The 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 and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2017 (the "2016 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2016 10-K.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP") 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 28, 2017 and October 29, 2016, 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 28, 2017 and October 29, 2016 (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 to the classifications of such amounts in the most recent years.
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 components of total comprehensive income for the 13 and 39 weeks ended October 28, 2017 and October 29, 2016 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of operating expenses in the Consolidated Statements of Income. Amortization 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.
Newly Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update ("ASU") No. 2016-09, Improvements to Employee Share-Based Payment Accounting, effective January 29, 2017. This standard was issued to simplify several aspects of the accounting for share-based payment awards, including the income tax consequences, financial statement classification and forfeiture considerations of such awards. Upon adoption, the Company began to recognize, on a prospective basis, all excess tax benefits and tax deficiencies as income tax benefit or expense, respectively, in its Consolidated Statements of Income. For awards that were exercised, vested or expired during the 39 weeks ended October 28, 2017, approximately $12 million of additional income tax expense associated with net tax deficiencies was recognized. Additionally, these net tax deficiencies have been classified as an operating activity

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


along with other income tax cash flows in the Consolidated Statements of Cash Flows. The Company has elected to adopt such presentation on a prospective basis.

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 28, 2017
 
October 29, 2016
 
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
$
36

 
 
 
304.6

 
$
17

 
 
 
307.5

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.9

 
 
 
 
 
0.9

 
$
36

 
 
 
305.5

 
$
17

 
 
 
308.4

Basic earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.12

 
 
 
 
 
$
.05

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
1.0

 
 
 
 
 
2.2

 
$
36

 
 
 
306.5

 
$
17

 
 
 
310.6

Diluted earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.12

 
 
 
 
 
$
.05

 
 

 
39 Weeks Ended
 
October 28, 2017
 
October 29, 2016
 
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
$
222

 
 
 
304.5

 
$
144

 
 
 
308.6

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.8

 
 
 
 
 
0.9

 
$
222

 
 
 
305.3

 
$
144

 
 
 
309.5

Basic earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.73

 
 
 
 
 
$
.46

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
1.3

 
 
 
 
 
2.3

 
$
222

 
 
 
306.6

 
$
144

 
 
 
311.8

Diluted earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.73

 
 
 
 
 
$
.46

 
 

For the 13 and 39 weeks ended October 28, 2017, in addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 18.9 million shares of common stock and restricted stock units relating to 1.2 million shares of common stock were outstanding at October 28, 2017, but were not included in the computation of diluted earnings per share 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)
 


For the 13 and 39 weeks ended October 29, 2016, in addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 15.7 million shares of common stock and restricted stock units relating to 0.7 million shares of common stock were outstanding at October 29, 2016, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.

3.    Financing Activities
The following table shows the detail of debt repayments:
 
 
39 Weeks Ended
 
October 28, 2017
 
October 29, 2016
 
(millions)
7.45% Senior debentures due 2017
$
300

 
$
—

7.875% Senior debentures due 2036
—

 
108

6.375% Senior notes due 2037
135

 
—

7.45% Senior debentures due 2016
—

 
59

6.9% Senior debentures due 2032
72

 
—

6.7% Senior debentures due 2034
28

 
—

6.65% Senior debentures due 2024
4

 
—

6.9% Senior debentures due 2029
3

 
—

6.7% Senior debentures due 2028
3

 
—

7.0% Senior debentures due 2028
2

 
—

9.5% amortizing debentures due 2021
4

 
4

9.75% amortizing debentures due 2021
2

 
2

Capital leases and other obligations
1

 
1

 
$
554

 
$
174

During the 39 weeks ended October 28, 2017, the Company repaid, at maturity, $300 million of 7.45% senior debentures due July 2017.
During the 39 weeks ended October 28, 2017, the Company repurchased $247 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cash cost of $257 million, including expenses related to the transactions. Such repurchases resulted in the recognition of expense of $1 million during the 39 weeks ended October 28, 2017 presented as net premiums on early retirement of debt on the Consolidated Statements of Income.
On November 27, 2017, the Company commenced a cash tender offer ("tender offer") to purchase up to $400 million in aggregate principal amount of certain senior unsecured notes and debentures, with stated interest rates ranging from 6.375% to 10.25% and maturities ranging from fiscal years 2021 to 2037. The tender offer expires on December 22, 2017, with an early tender date on December 8, 2017. The Company expects to record the redemption premium and other costs related to these repurchases as net premiums on early retirement of debt on the Consolidated Statements of Income during the fourth quarter of 2017.

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.

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


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.
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 28, 2017
 
October 29, 2016
 
October 28, 2017
 
October 29, 2016
 
(millions)
 
(millions)
401(k) Qualified Defined Contribution Plan
$
20

 
$
22

 
$
65

 
$
71

 
 
 
 
 
 
 
 
Non-Qualified Defined Contribution Plan
$
—

 
$
—

 
$
—

 
$
1

 
 
 
 
 
 
 
 
Pension Plan
 
 
 
 
 
 
 
Service cost
$
1

 
$
1

 
$
4

 
$
3

Interest cost
25

 
27

 
79

 
83

Expected return on assets
(55
)
 
(56
)
 
(168
)
 
(170
)
Recognition of net actuarial loss
8

 
7

 
24

 
22

Amortization of prior service credit
—

 
—

 
—

 
—

 
$
(21
)
 
$
(21
)
 
$
(61
)
 
$
(62
)
Supplementary Retirement Plan
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
5

 
5

 
16

 
17

Recognition of net actuarial loss
2

 
3

 
6

 
7

Amortization of prior service cost
—

 
—

 
—

 
—

 
$
7

 
$
8

 
$
22

 
$
24

 
 
 
 
 
 
 
 
Total Retirement Expense
$
6

 
$
9

 
$
26

 
$
34

 
 
 
 
 
 
 
 
Postretirement Obligations
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
1

 
1

 
4

 
4

Recognition of net actuarial gain
(2
)
 
(1
)
 
(4
)
 
(3
)
Amortization of prior service cost
—

 
—

 
—

 
—

 
$
(1
)
 
$
—

 
$
—

 
$
1


During the 13 and 39 weeks ended October 28, 2017, the Company incurred $22 million and $73 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. During the 13 and 39 weeks ended October 29, 2016, the Company also incurred $62 million and $81 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses associated with the Company's defined benefit plans and are a result of an increase in lump sum distributions associated with a voluntary separation program, organizational restructuring, and store closings, in addition to periodic distribution activity.


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


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 28, 2017
 
October 29, 2016
 
 
 
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
$
100

 
$
23

 
$
77

 
$
—

 
$
127

 
$
19

 
$
108

 
$
—


Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, certain short-term investments and other assets, 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 of these financial instruments 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 28, 2017
 
October 29, 2016
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
(millions)
Long-term debt
$
6,206

 
$
6,297

 
$
5,908

 
$
6,459

 
$
6,536

 
$
6,749


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 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, Macy's Merchandising Group International (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 Statements of Comprehensive Income for the 13 and 39 weeks ended October 28, 2017 and October 29, 2016, Condensed Consolidating Balance Sheets as of October 28, 2017, October 29, 2016 and January 28, 2017, and the related Condensed Consolidating Statements of Cash Flows for the 39 weeks ended October 28, 2017 and October 29, 2016 are presented on the following pages.

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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended October 28, 2017
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
2,077

 
$
5,861

 
$
(2,657
)
 
$
5,281

Cost of sales
—

 
(1,391
)
 
(4,441
)
 
2,657

 
(3,175
)
Gross margin
—

 
686

 
1,420

 
—

 
2,106

Selling, general and administrative expenses
—

 
(813
)
 
(1,182
)
 
—

 
(1,995
)
Gains on sale of real estate
—

 
24

 
41

 
—

 
65

Restructuring and other costs
—

 
(1
)
 
(32
)
 
—

 
(33
)
Settlement charges
—

 
(8
)
 
(14
)
 
—

 
(22
)
Operating income (loss)
—

 
(112
)
 
233

 
—

 
121

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
1

 
(76
)
 
1

 
—

 
(74
)
Intercompany
—

 
(34
)
 
34

 
—

 
—

Equity in earnings (loss) of subsidiaries
35

 
(61
)
 
—

 
26

 
—

Income (loss) before income taxes
36

 
(283
)
 
268

 
26

 
47

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

 
59

 
(72
)
 
—

 
(13
)
Net income (loss)
36

 
(224
)
 
196

 
26

 
34

Net loss attributable to noncontrolling interest
—

 
—

 
2

 
—

 
2

Net income (loss) attributable to
Macy's, Inc. shareholders
$
36

 
$
(224
)
 
$
198

 
$
26

 
$
36

Comprehensive income (loss)
$
61

 
$
(201
)
 
$
212

 
$
(13
)
 
$
59

Comprehensive loss attributable to
noncontrolling interest
—

 
—

 
2

 
—

 
2

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
61

 
$
(201
)
 
$
214

 
$
(13
)
 
$
61


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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended October 29, 2016
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
2,376

 
$
6,183

 
$
(2,933
)
 
$
5,626

Cost of sales
—

 
(1,577
)
 
(4,742
)
 
2,933

 
(3,386
)
Gross margin
—

 
799

 
1,441

 
—

 
2,240

Selling, general and administrative expenses
(1
)
 
(950
)
 
(1,161
)
 
—

 
(2,112
)
Gains on sale of real estate
—

 
41

 
—

 
—

 
41

Settlement charges
—

 
(24
)
 
(38
)
 
—

 
(62
)
Operating income (loss)
(1
)
 
(134
)
 
242

 
—

 
107

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
1

 
(82
)
 
—

 
—

 
(81
)
Intercompany
—

 
(51
)
 
51

 
—

 
—

Equity in earnings (loss) of subsidiaries
17

 
(101
)
 
—

 
84

 
—

Income (loss) before income taxes
17

 
(368
)
 
293

 
84

 
26

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

 
68

 
(79
)
 
—

 
(11
)
Net income (loss)
17

 
(300
)
 
214

 
84

 
15

Net loss attributable to noncontrolling interest
—

 
—

 
2

 
—

 
2

Net income (loss) attributable to
Macy's, Inc. shareholders
$
17

 
$
(300
)
 
$
216

 
$
84

 
$
17

Comprehensive income (loss)
$
62

 
$
(255
)
 
$
241

 
$
12

 
$
60

Comprehensive loss attributable to
noncontrolling interest
—

 
—

 
2

 
—

 
2

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
62

 
$
(255
)
 
$
243

 
$
12

 
$
62




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



Condensed Consolidating Statement of Comprehensive Income
For the 39 weeks ended October 28, 2017
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
6,319

 
$
15,727

 
$
(5,875
)
 
$
16,171

Cost of sales
—

 
(4,126
)
 
(11,543
)
 
5,875

 
(9,794
)
Gross margin
—

 
2,193

 
4,184

 
—

 
6,377

Selling, general and administrative expenses
(1
)
 
(2,430
)
 
(3,422
)
 
—

 
(5,853
)
Gains on sale of real estate
—

 
116

 
60

 
—

 
176

Restructuring and other costs
—

 
(1
)
 
(32
)
 
—

 
(33
)
Settlement charges
—

 
(24
)
 
(49
)
 
—

 
(73
)
Operating income (loss)
(1
)
 
(146
)
 
741

 
—

 
594

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
4

 
(243
)
 
2

 
—

 
(237
)
Intercompany
—

 
(102
)
 
102

 
—

 
—

Net premiums on early retirement of debt
—

 
(1
)
 
—

 
—

 
(1
)
Equity in earnings (loss) of subsidiaries
220

 
(30
)
 
—

 
(190
)
 
—

Income (loss) before income taxes
223

 
(522
)
 
845

 
(190
)
 
356

Federal, state and local income
tax benefit (expense)
(1
)
 
142

 
(281
)
 
—

 
(140
)
Net income (loss)
222

 
(380
)
 
564

 
(190
)
 
216

Net loss attributable to noncontrolling interest
—

 
—

 
6

 
—

 
6

Net income (loss) attributable to
Macy's, Inc. shareholders
$
222

 
$
(380
)
 
$
570

 
$
(190
)
 
$
222

Comprehensive income (loss)
$
318

 
$
(290
)
 
$
627

 
$
(343
)
 
$
312

Comprehensive loss attributable to
noncontrolling interest
—

 
—

 
6

 
—

 
6

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
318

 
$
(290
)
 
$
633

 
$
(343
)
 
$
318














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



Condensed Consolidating Statement of Comprehensive Income
For the 39 weeks ended October 29, 2016
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$
—

 
$
7,324

 
$
16,546

 
$
(6,607
)
 
$
17,263

Cost of sales
—

 
(4,704
)
 
(12,273
)
 
6,607

 
(10,370
)
Gross margin
—

 
2,620

 
4,273

 
—

 
6,893

Selling, general and administrative expenses
(2
)
 
(2,803
)
 
(3,334
)
 
—

 
(6,139
)
Gains on sale of real estate
—

 
71

 
5

 
—

 
76

Impairments and other costs
—

 
(184
)
 
(65
)
 
—

 
(249
)
Settlement charges
—

 
(29
)
 
(52
)
 
—

 
(81
)
Operating income (loss)
(2
)
 
(325
)
 
827

 
—

 
500

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
2

 
(278
)
 
—

 
—

 
(276
)
Intercompany
—

 
(166
)
 
166

 
—

 
—

Equity in earnings (loss) of subsidiaries
144

 
(69
)
 
—

 
(75
)
 
—

Income (loss) before income taxes
144

 
(838
)
 
993

 
(75
)
 
224

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

 
243

 
(328
)
 
—

 
(85
)
Net income (loss)
144

 
(595
)
 
665

 
(75
)
 
139

Net loss attributable to noncontrolling interest
—

 
—

 
5

 
—

 
5

Net income (loss) attributable to
Macy's, Inc. shareholders
$
144

 
$
(595
)
 
$
670

 
$
(75
)
 
$
144

Comprehensive income (loss)
$
164

 
$
(575
)
 
$
677

 
$
(107
)
 
$
159

Comprehensive loss attributable to
noncontrolling interest
—

 
—

 
5

 
—

 
5

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
164

 
$
(575
)
 
$
682

 
$
(107
)
 
$
164















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



Condensed Consolidating Balance Sheet
As of October 28, 2017
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
116

 
$
89

 
$
329

 
$
—

 
$
534

Receivables
—

 
67

 
152

 
—

 
219

Merchandise inventories
—

 
3,218

 
3,847

 
—

 
7,065

Income tax receivable
—

 
2

 
—

 
(2
)
 
—

Prepaid expenses and other current assets
—

 
86

 
346

 
—

 
432

Total Current Assets
116

 
3,462

 
4,674

 
(2
)
 
8,250

Property and Equipment – net
—

 
3,184

 
3,558

 
—

 
6,742

Goodwill
—

 
3,315

 
582

 
—

 
3,897

Other Intangible Assets – net
—

 
46

 
445

 
—

 
491

Other Assets
1

 
62

 
772

 
—

 
835

Deferred Income Taxes
26

 
—

 
—

 
(26
)
 
—

Intercompany Receivable
1,436

 
—

 
1,971

 
(3,407
)
 
—

Investment in Subsidiaries
2,882

 
3,644

 
—

 
(6,526
)
 
—

Total Assets
$
4,461

 
$
13,713

 
$
12,002

 
$
(9,961
)
 
$
20,215

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

 
$
6

 
$
16

 
$
—

 
$
22

Merchandise accounts payable
—

 
1,339

 
1,834

 
—

 
3,173

Accounts payable and accrued liabilities
139

 
975

 
2,048

 
—

 
3,162

Income taxes
20

 
—

 
16

 
(2
)
 
34

Total Current Liabilities
159

 
2,320

 
3,914

 
(2
)
 
6,391

Long-Term Debt
—

 
6,280

 
17

 
—

 
6,297

Intercompany Payable
—

 
3,407

 
—

 
(3,407
)
 
—

Deferred Income Taxes
—

 
707

 
872

 
(26
)
 
1,553

Other Liabilities
71

 
476

 
1,203

 
—

 
1,750

Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Macy's, Inc.
4,231

 
523

 
6,003

 
(6,526
)
 
4,231

Noncontrolling Interest
—

 
—

 
(7
)
 
—

 
(7
)
Total Shareholders' Equity
4,231

 
523

 
5,996

 
(6,526
)
 
4,224

Total Liabilities and Shareholders' Equity
$
4,461

 
$
13,713

 
$
12,002

 
$
(9,961
)
 
$
20,215








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



Condensed Consolidating Balance Sheet
As of October 29, 2016
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
60

 
$
99

 
$
298

 
$
—

 
$
457

Receivables
—

 
74

 
188

 
—

 
262

Merchandise inventories
—

 
3,621

 
3,966

 
—

 
7,587

Income tax receivable
99

 
—

 
—

 
(39
)
 
60

Prepaid expenses and other current assets
—

 
89

 
365

 
—

 
454

Total Current Assets
159

 
3,883

 
4,817

 
(39
)
 
8,820

Property and Equipment – net
—

 
3,534

 
3,615

 
—

 
7,149

Goodwill
—

 
3,315

 
582

 
—

 
3,897

Other Intangible Assets – net
—

 
47

 
452

 
—

 
499

Other Assets
1

 
153

 
755

 
—

 
909

Deferred Income Taxes
24

 
—

 
—

 
(24
)
 
—

Intercompany Receivable
878

 
—

 
1,876

 
(2,754
)
 
—

Investment in Subsidiaries
2,954

 
3,173

 
—

 
(6,127
)
 
—

Total Assets
$
4,016

 
$
14,105

 
$
12,097

 
$
(8,944
)
 
$
21,274

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

 
$
935

 
$
3

 
$
—

 
$
938

Merchandise accounts payable
—

 
1,481

 
1,894

 
—

 
3,375

Accounts payable and accrued liabilities
164

 
910

 
1,856

 
—

 
2,930

Income taxes
—

 
3

 
36

 
(39
)
 
—

Total Current Liabilities
164

 
3,329

 
3,789

 
(39
)
 
7,243

Long-Term Debt
—

 
6,545

 
18

 
—

 
6,563

Intercompany Payable
—

 
2,754

 
—

 
(2,754
)
 
—

Deferred Income Taxes
—

 
694

 
878

 
(24
)
 
1,548

Other Liabilities
63

 
565

 
1,501

 
—

 
2,129

Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Macy's, Inc.
3,789

 
218

 
5,909

 
(6,127
)
 
3,789

Noncontrolling Interest
—

 
—

 
2

 
—

 
2

Total Shareholders' Equity
3,789

 
218

 
5,911

 
(6,127
)
 
3,791

Total Liabilities and Shareholders' Equity
$
4,016

 
$
14,105

 
$
12,097

 
$
(8,944
)
 
$
21,274







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



Condensed Consolidating Balance Sheet
As of January 28, 2017
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
938

 
$
81

 
$
278

 
$
—

 
$
1,297

Receivables
—

 
169

 
353

 
—

 
522

Merchandise inventories
—

 
2,565

 
2,834

 
—

 
5,399

Prepaid expenses and other current assets
—