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 November 1, 2014

OR

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

For the transition period from    to

Commission file number: 1-13536
 
 

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ý
 
Accelerated filer  o
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at November 28, 2014
Common Stock, $0.01 par value per share
 
345,286,715 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
 
November 1, 2014
 
November 2, 2013
 
November 1, 2014
 
November 2, 2013
Net sales
$
6,195

 
$
6,276

 
$
18,741

 
$
18,729

Cost of sales
(3,766
)
 
(3,817
)
 
(11,274
)
 
(11,261
)
Gross margin
2,429

 
2,459

 
7,467

 
7,468

Selling, general and administrative expenses
(2,007
)
 
(2,099
)
 
(6,031
)
 
(6,139
)
Operating income
422

 
360

 
1,436

 
1,329

Interest expense
(97
)
 
(97
)
 
(298
)
 
(291
)
Interest income
1

 
1

 
2

 
2

Income before income taxes
326

 
264

 
1,140

 
1,040

Federal, state and local income tax expense
(109
)
 
(87
)
 
(407
)
 
(365
)
Net income
$
217

 
$
177

 
$
733

 
$
675

Basic earnings per share
$
.62

 
$
.47

 
$
2.04

 
$
1.77

Diluted earnings per share
$
.61

 
$
.47

 
$
2.01

 
$
1.74


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
 
November 1, 2014
 
November 2, 2013
 
November 1, 2014
 
November 2, 2013
Net income
$
217

 
$
177

 
$
733

 
$
675

Other comprehensive income:
 
 
 
 
 
 
 
Amortization of net actuarial loss on post employment and postretirement benefit plans included in net income,
before tax
5

 
38

 
18

 
117

Tax effect related to items of other comprehensive income
(2
)
 
(14
)
 
(7
)
 
(45
)
Total other comprehensive income, net of tax effect
3

 
24

 
11

 
72

Comprehensive income
$
220

 
$
201

 
$
744

 
$
747


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


3


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

(millions)
 
 
 
 
 
 
 
 
November 1, 2014
 
February 1, 2014
 
November 2, 2013
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
1,048

 
$
2,273

 
$
1,171

Receivables
292

 
438

 
276

Merchandise inventories
7,789

 
5,557

 
7,716

Prepaid expenses and other current assets
424

 
420

 
397

Total Current Assets
9,553

 
8,688

 
9,560

Property and Equipment - net of accumulated depreciation and
amortization of
 $6,633, $6,066 and $6,555
7,787

 
7,930

 
7,950

Goodwill
3,743

 
3,743

 
3,743

Other Intangible Assets – net
504

 
527

 
535

Other Assets
838

 
746

 
658

Total Assets
$
22,425

 
$
21,634

 
$
22,446

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Short-term debt
$
76

 
$
463

 
$
465

Merchandise accounts payable
3,814

 
1,691

 
3,897

Accounts payable and accrued liabilities
2,563

 
2,810

 
2,323

Income taxes
114

 
362

 
78

Deferred income taxes
396

 
400

 
423

Total Current Liabilities
6,963

 
5,726

 
7,186

Long-Term Debt
7,143

 
6,728

 
6,732

Deferred Income Taxes
1,314

 
1,273

 
1,225

Other Liabilities
1,654

 
1,658

 
1,861

Shareholders’ Equity
5,351

 
6,249

 
5,442

Total Liabilities and Shareholders’ Equity
$
22,425

 
$
21,634

 
$
22,446


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
 
November 1, 2014
 
November 2, 2013
Cash flows from operating activities:
 
 
 
Net income
$
733

 
$
675

Adjustments to reconcile net income to net cash
provided by operating activities:
 
 
 
Depreciation and amortization
770

 
761

Stock-based compensation expense
55

 
48

Amortization of financing costs and premium on acquired debt
(4
)
 
(7
)
Changes in assets and liabilities:
 
 
 
 Decrease in receivables
154

 
102

 Increase in merchandise inventories
(2,232
)
 
(2,408
)
 Increase in prepaid expenses and other current assets
(4
)
 
(25
)
(Increase) decrease in other assets not separately identified
(46
)
 
1

 Increase in merchandise accounts payable
1,935

 
2,155

 Decrease in accounts payable and accrued
liabilities not separately identified
(362
)
 
(320
)
 Decrease in current income taxes
(248
)
 
(277
)
 Increase (decrease) in deferred income taxes
29

 
(43
)
 Increase (decrease) in other liabilities not separately identified
(3
)
 
157

Net cash provided by operating activities
777

 
819

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(483
)
 
(381
)
Capitalized software
(190
)
 
(180
)
Disposition of property and equipment
79

 
30

Other, net
(2
)
 
(10
)
Net cash used by investing activities
(596
)
 
(541
)
Cash flows from financing activities:
 
 
 
Debt issued
500

 
400

Financing costs
(5
)
 
(10
)
Debt repaid
(462
)
 
(121
)
Dividends paid
(314
)
 
(267
)
Increase in outstanding checks
123

 
73

Acquisition of treasury stock
(1,456
)
 
(1,228
)
Issuance of common stock
208

 
210

Net cash used by financing activities
(1,406
)
 
(943
)
Net decrease in cash and cash equivalents
(1,225
)
 
(665
)
Cash and cash equivalents beginning of period
2,273

 
1,836

Cash and cash equivalents end of period
$
1,048

 
$
1,171

Supplemental cash flow information:
 
 
 
Interest paid
$
284

 
$
268

Interest received
2

 
1

Income taxes paid (net of refunds received)
565

 
582


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

5


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

1.    Summary of Significant Accounting Policies
Nature of Operations
Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores, websites and mobile applications under two brands (Macy's and Bloomingdale's) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company's operations include approximately 840 stores, including thirteen Bloomingdale's Outlets, in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com and bloomingdales.com. In addition, Bloomingdale's in Dubai, United Arab Emirates is operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2014 (the "2013 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2013 10-K.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the 13 and 39 weeks ended November 1, 2014 and November 2, 2013, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Seasonality
Because of the seasonal nature of the retail business, the results of operations for the 13 and 39 weeks ended November 1, 2014 and November 2, 2013 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Comprehensive Income
Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other component of total comprehensive income for the 13 and 39 weeks ended November 1, 2014 and November 2, 2013 is the amortization of post employment and postretirement plan items. These reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in selling, general and administrative expenses on the Consolidated Statements of Income. See Note 4, "Benefit Plans," for further information.


6

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


2.    Earnings Per Share
The following tables set forth the computation of basic and diluted earnings per share:
 
13 Weeks Ended
 
November 1, 2014
 
November 2, 2013
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income and average number of shares outstanding
$
217

 
 
 
350.8

 
$
177

 
 
 
373.9

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.8

 
 
 
 
 
0.9

 
$
217

 
 
 
351.6

 
$
177

 
 
 
374.8

Basic earnings per share
 
 
$
.62

 
 
 
 
 
$
.47

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
6.1

 
 
 
 
 
5.4

 
$
217

 
 
 
357.7

 
$
177

 
 
 
380.2

Diluted earnings per share
 
 
$
.61

 
 
 
 
 
$
.47

 
 
 
 
39 Weeks Ended
 
November 1, 2014
 
November 2, 2013
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income and average number of shares outstanding
$
733

 
 
 
358.0

 
$
675

 
 
 
380.8

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.9

 
 
 
 
 
1.0

 
$
733

 
 
 
358.9

 
$
675

 
 
 
381.8

Basic earnings per share
 
 
$
2.04

 
 
 
 
 
$
1.77

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
6.3

 
 
 
 
 
6.2

 
$
733

 
 
 
365.2

 
$
675

 
 
 
388.0

Diluted earnings per share
 
 
$
2.01

 
 
 
 
 
$
1.74

 
 

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.
In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 6.6 million shares of common stock and restricted stock units relating to 1.8 million shares of common stock were outstanding at November 2, 2013, but were not included in the computation of diluted earnings per share for the 13 or 39 weeks ended November 2, 2013 because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.


7

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


3.    Financing Activities
The following table shows the detail of debt repayments:
 
 
39 Weeks Ended
 
November 1, 2014
 
November 2, 2013
 
(millions)
5.75% Senior notes due 2014
$
453

 
$

7.625% Senior debentures due 2013

 
109

9.5% amortizing debentures due 2021
4

 
4

9.75% amortizing debentures due 2021
2

 
2

Capital leases and other obligations
3

 
6

 
$
462

 
$
121

During the 39 weeks ended November 1, 2014, the Company repurchased approximately 25.3 million shares of its common stock pursuant to existing stock purchase authorizations for a total of approximately $1,483 million. As of November 1, 2014, the Company had $1,449 million of authorization remaining under its share repurchase program. The Company may continue or, from time to time, suspend repurchases of shares under its share repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors.
On November 18, 2014, the Company issued $550 million aggregate principal amount of 4.5% senior notes due 2034. The Company intends to use the proceeds of this debt for general corporate purposes, which may include working capital, capital expenditures, retirement of indebtedness and the repurchase of outstanding common stock.
On November 14, 2014, the Company provided a notice of redemption related to all of the $407 million of 7.875% senior notes due 2015, as allowed under the terms of the indenture. The price for the redemption will be calculated pursuant to the indenture and will result in the recognition of additional interest expense of approximately $16 to $18 million during the 13 weeks ended January 31, 2015. This additional interest expense will be presented as a premium on early retirement of debt on the Consolidated Statements of Income. The redemption is expected to be completed on December 15, 2014, and will be financed with a portion of the proceeds from the debt issuance described above. As a result, this short-term debt was reclassified to long-term debt as of November 1, 2014.
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.
During the 39 weeks ended November 2, 2013, the Company issued $400 million aggregate principal amount of 4.375% senior notes due 2023 and also repaid $109 million of indebtedness at maturity.

4.    Benefit Plans
The Company has a funded defined benefit plan ("Pension Plan") and defined contribution plans, which cover substantially all employees who work 1,000 hours or more in a year. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions. The Company also has an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 2, 2012, the SERP was closed to new participants. After December 31, 2013, with limited exceptions, employees no longer earn future pension service credits under the Pension Plan and SERP, and retirement benefits attributable to service after that date are provided solely through defined contribution plans.
In addition, certain retired employees currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.

8

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


Expense related to matching contributions for the 401(k) defined contribution plan amounted to $21 million and $71 million for the 13 and 39 weeks ended November 1, 2014, respectively, and $4 million and $14 million for the 13 and 39 weeks ended November 2, 2013, respectively. The actuarially determined components of the net periodic benefit cost (income) are as follows:
 
 
13 Weeks Ended
 
39 Weeks Ended
 
November 1, 2014
 
November 2, 2013
 
November 1, 2014
 
November 2, 2013
 
(millions)
Pension Plan
 
 
 
 
 
 
 
Service cost
$
2

 
$
28

 
$
5

 
$
84

Interest cost
38

 
36

 
113

 
107

Expected return on assets
(62
)
 
(60
)
 
(185
)
 
(181
)
Recognition of net actuarial loss
6

 
34

 
19

 
105

Amortization of prior service credit

 

 

 

 
$
(16
)
 
$
38

 
$
(48
)
 
$
115

Supplementary Retirement Plan
 
 
 
 
 
 
 
Service cost
$

 
$
2

 
$

 
$
5

Interest cost
8

 
8

 
25

 
24

Recognition of net actuarial loss
1

 
4

 
3

 
14

Amortization of prior service cost

 

 

 

 
$
9

 
$
14

 
$
28

 
$
43

Postretirement Obligations
 
 
 
 
 
 
 
Service cost
$

 
$

 
$

 
$

Interest cost
3

 
2

 
7

 
7

Recognition of net actuarial gain
(2
)
 

 
(4
)
 
(2
)
Amortization of prior service cost

 

 

 

 
$
1

 
$
2

 
$
3

 
$
5


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:
 
 
November 1, 2014
 
November 2, 2013
 
 
 
Fair Value Measurements
 
 
 
Fair Value Measurements
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(millions)
Marketable equity and debt securities
$
94

 
$

 
$
94

 
$

 
$
78

 
$

 
$
78

 
$


Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, short-term debt, merchandise accounts payable, accounts payable and accrued liabilities and long-term debt. With the exception of long-term debt, the carrying amount approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are generally estimated based on quoted market prices for identical or similar instruments, and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards.

9

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


The following table shows the estimated fair value of the Company's long-term debt:
 
 
November 1, 2014
 
November 2, 2013
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
(millions)
Long-term debt
$
6,947

 
$
7,114

 
$
7,747

 
$
6,522

 
$
6,701

 
$
7,002


6.    Condensed Consolidating Financial Information
Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent"), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, "Other Subsidiaries" includes all other direct subsidiaries of Parent, including FDS Bank, West 34th Street Insurance Company and its subsidiary West 34th Street Insurance Company New York, Macy's Merchandising Corporation, Macy's Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (Hong Kong) Limited, Macy's Merchandising Group Procurement, LLC, Macy's Merchandising Group International, LLC, and Macy's Merchandising Group International (Hong Kong) Limited. "Subsidiary Issuer" includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in "Other Subsidiaries."
Condensed Consolidating Balance Sheets as of November 1, 2014, November 2, 2013 and February 1, 2014, the related Condensed Consolidating Statements of Comprehensive Income for the 13 and 39 weeks ended November 1, 2014 and November 2, 2013, and the related Condensed Consolidating Statements of Cash Flows for the 39 weeks ended November 1, 2014 and November 2, 2013 are presented on the following pages.

10

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

 
135

 
700

 

 
838

Deferred Income Taxes
15

 

 

 
(15
)
 

Intercompany Receivable
245

 

 
5,106

 
(5,351
)
 

Investment in Subsidiaries
4,596

 
3,362

 

 
(7,958
)
 

Total Assets
$
5,509

 
$
15,594

 
$
14,646

 
$
(13,324
)
 
$
22,425

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

 
7,123

 
20

 

 
7,143

Intercompany Payable

 
3,641

 
1,710

 
(5,351
)
 

Deferred Income Taxes

 
524

 
805

 
(15
)
 
1,314

Other Liabilities
40

 
520

 
1,094

 

 
1,654

Shareholders' Equity
5,351

 
533

 
7,425

 
(7,958
)
 
5,351

Total Liabilities and Shareholders' Equity
$
5,509

 
$
15,594

 
$
14,646

 
$
(13,324
)
 
$
22,425


11

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

 
$
6,338

 
$
(3,063
)
 
$
6,195

Cost of sales

 
(1,916
)
 
(4,940
)
 
3,090

 
(3,766
)
Gross margin

 
1,004

 
1,398

 
27

 
2,429

Selling, general and administrative expenses

 
(1,069
)
 
(911
)
 
(27
)
 
(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

Comprehensive income (loss)
$
220

 
$
(133
)
 
$
377

 
$
(244
)
 
$
220




12

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

Comprehensive income (loss)
$
744

 
$
(58
)
 
$
1,011

 
$
(953
)
 
$
744



13

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



Condensed Consolidating Statement of Cash Flows
For the 39 Weeks Ended November 1, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
733

 
$
(69
)
 
$
1,004

 
$
(935
)
 
$
733

Equity in earnings of subsidiaries
(735
)
 
(200
)
 

 
935

 

Dividends received from subsidiaries
775

 
1

 

 
(776
)
 

Depreciation and amortization

 
331

 
439

 

 
770

(Increase) decrease in working capital
99

 
(284
)
 
(572
)
 

 
(757
)
Other, net
(14
)
 
(29
)
 
74

 

 
31

Net cash provided (used) by operating activities
858

 
(250
)
 
945

 
(776
)
 
777

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

 
(175
)
 
(419
)
 

 
(594
)
Other, net

 
6

 
(8
)
 

 
(2
)
Net cash used by investing activities

 
(169
)
 
(427
)
 

 
(596
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Debt issued, net of debt repaid

 
39

 
(1
)
 

 
38

Dividends paid
(314
)
 

 
(776
)
 
776

 
(314
)
Common stock acquired, net of
issuance of common stock
(1,248
)
 

 

 

 
(1,248
)
Intercompany activity, net
(553
)
 
416

 
137

 

 

Other, net
(48
)
 
(15
)
 
181

 

 
118

Net cash provided (used) by
financing activities
(2,163
)
 
440

 
(459
)
 
776

 
(1,406
)
Net increase (decrease) in cash
and cash equivalents
(1,305
)
 
21

 
59

 

 
(1,225
)
Cash and cash equivalents at beginning of period
1,955

 
84

 
234

 

 
2,273

Cash and cash equivalents at end of period
$
650

 
$
105

 
$
293

 
$

 
$
1,048


14

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



Condensed Consolidating Balance Sheet
As of November 2, 2013
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
807

 
$
21

 
$
343

 
$

 
$
1,171

Receivables

 
44

 
232

 

 
276

Merchandise inventories

 
3,946

 
3,770

 

 
7,716

Prepaid expenses and other current assets

 
99

 
298

 

 
397

Income taxes
38

 

 

 
(38
)
 

Total Current Assets
845

 
4,110

 
4,643

 
(38
)
 
9,560

Property and Equipment – net

 
4,531

 
3,419

 

 
7,950

Goodwill

 
3,315

 
428

 

 
3,743

Other Intangible Assets – net

 
103

 
432

 

 
535

Other Assets
4

 
73

 
581

 

 
658

Deferred Income Taxes
3

 

 

 
(3
)
 

Intercompany Receivable
464

 

 
3,218

 
(3,682
)
 

Investment in Subsidiaries
4,320

 
2,753

 

 
(7,073
)
 

Total Assets
$
5,636

 
$
14,885

 
$
12,721

 
$
(10,796
)
 
$
22,446

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

 
$
463

 
$
2

 
$

 
$
465

Merchandise accounts payable

 
1,812

 
2,085

 

 
3,897

Accounts payable and accrued liabilities
107

 
965

 
1,251

 

 
2,323

Income taxes

 
6

 
110

 
(38
)
 
78

Deferred income taxes

 
322

 
101

 

 
423

Total Current Liabilities
107

 
3,568

 
3,549

 
(38
)
 
7,186

Long-Term Debt

 
6,711

 
21

 

 
6,732

Intercompany Payable

 
3,682

 

 
(3,682
)
 

Deferred Income Taxes

 
450

 
778

 
(3
)
 
1,225

Other Liabilities
87

 
619

 
1,155

 

 
1,861

Shareholders' Equity (Deficit)
5,442

 
(145
)
 
7,218

 
(7,073
)
 
5,442

Total Liabilities and Shareholders' Equity
$
5,636

 
$
14,885

 
$
12,721

 
$
(10,796
)
 
$
22,446


15

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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended November 2, 2013
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$
2,979

 
$
6,337

 
$
(3,040
)
 
$
6,276

Cost of sales

 
(1,930
)
 
(4,913
)
 
3,026

 
(3,817
)
Gross margin

 
1,049

 
1,424

 
(14
)
 
2,459

Selling, general and administrative expenses
(2
)
 
(1,113
)
 
(998
)
 
14

 
(2,099
)
Operating income (loss)
(2
)
 
(64
)
 
426

 

 
360

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
1

 
(96
)
 
(1
)
 

 
(96
)
Intercompany
(1
)
 
(39
)
 
40

 

 

Equity in earnings of subsidiaries
178

 
(15
)
 

 
(163
)
 

Income (loss) before income taxes
176

 
(214
)
 
465

 
(163
)
 
264

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

 
56

 
(144
)
 

 
(87
)
Net income (loss)
$
177

 
$
(158
)
 
$
321

 
$
(163
)
 
$
177

Comprehensive income (loss)
$
201

 
$
(134
)
 
$
331

 
$
(197
)
 
$
201





16

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



Condensed Consolidating Statement of Comprehensive Income
For the 39 Weeks Ended November 2, 2013
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$
8,911

 
$
16,716

 
$
(6,898
)
 
$
18,729

Cost of sales

 
(5,590
)
 
(12,529
)
 
6,858

 
(11,261
)
Gross margin

 
3,321

 
4,187

 
(40
)
 
7,468

Selling, general and administrative expenses
(7
)
 
(3,217
)
 
(2,955
)
 
40

 
(6,139
)
Operating income (loss)
(7
)
 
104

 
1,232

 

 
1,329

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
1

 
(289
)
 
(1
)
 

 
(289
)
Intercompany
(1
)
 
(118
)
 
119

 

 

Equity in earnings of subsidiaries
679

 
129

 

 
(808
)
 

Income (loss) before income taxes
672

 
(174
)
 
1,350

 
(808
)
 
1,040

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

 
93

 
(461
)
 

 
(365
)
Net income (loss)
$
675

 
$
(81
)
 
$
889

 
$
(808
)
 
$
675

Comprehensive income (loss)
$
747

 
$
(9
)
 
$
919

 
$
(910
)
 
$
747



17

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



Condensed Consolidating Statement of Cash Flows
For the 39 Weeks Ended November 2, 2013
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
675

 
$
(81
)
 
$
889

 
$
(808
)
 
$
675

Equity in earnings of subsidiaries
(679
)
 
(129
)
 

 
808

 

Dividends received from subsidiaries
458

 

 

 
(458
)
 

Depreciation and amortization

 
349

 
412

 

 
761

Increase in working capital
(34
)
 
(185
)
 
(554
)
 

 
(773
)
Other, net
16

 
107

 
33

 

 
156

Net cash provided by operating activities
436

 
61

 
780

 
(458
)
 
819

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

 
(206
)
 
(325
)
 

 
(531
)
Other, net

 

 
(10
)
 

 
(10
)
Net cash used by investing activities

 
(206
)
 
(335
)
 

 
(541
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Debt issued, net of debt repaid

 
281

 
(2
)
 

 
279

Dividends paid
(267
)
 

 
(458
)
 
458

 
(267
)
Common stock acquired, net of
issuance of common stock
(1,018
)
 

 

 

 
(1,018
)
Intercompany activity, net
224

 
(159
)
 
(65
)
 

 

Other, net
(106
)
 
3

 
166

 

 
63

Net cash provided (used) by
financing activities
(1,167
)
 
125

 
(359
)
 
458

 
(943
)
Net increase (decrease) in cash and
cash equivalents
(731
)
 
(20
)
 
86

 

 
(665
)
Cash and cash equivalents at beginning of period
1,538

 
41

 
257

 

 
1,836

Cash and cash equivalents at end of period
$
807

 
$
21

 
$
343

 
$

 
$
1,171


18

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



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

 
$
84

 
$
234

 
$

 
$
2,273

Receivables

 
102

 
336

 

 
438

Merchandise inventories

 
2,896

 
2,661

 

 
5,557

Prepaid expenses and other current assets

 
103

 
317

 

 
420

Income taxes
80

 

 

 
(80
)
 

Total Current Assets
2,035

 
3,185

 
3,548

 
(80
)
 
8,688

Property and Equipment – net

 
4,590

 
3,340

 

 
7,930

Goodwill

 
3,315

 
428

 

 
3,743

Other Intangible Assets – net

 
97

 
430

 

 
527

Other Assets
4

 
101

 
641

 

 
746

Deferred Income Taxes
19

 

 

 
(19
)
 

Intercompany Receivable