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 May 2, 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 May 29, 2015
Common Stock, $0.01 par value per share
 
336,410,162 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
 
May 2, 2015
 
May 3, 2014
Net sales
$
6,232

 
$
6,279

Cost of sales
(3,800
)
 
(3,836
)
Gross margin
2,432

 
2,443

Selling, general and administrative expenses
(2,023
)
 
(2,000
)
Operating income
409

 
443

Interest expense
(95
)
 
(100
)
Interest income

 

Income before income taxes
314

 
343

Federal, state and local income tax expense
(121
)
 
(119
)
Net income
$
193

 
$
224

Basic earnings per share
$
.57

 
$
.61

Diluted earnings per share
$
.56

 
$
.60


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
 
May 2, 2015
 
May 3, 2014
Net income
$
193

 
$
224

Other comprehensive income:
 
 
 
Amortization of net actuarial loss on post employment and postretirement
benefit plans included in net income, before tax
13

 
6

Tax effect related to items of other comprehensive income
(5
)
 
(2
)
Total other comprehensive income, net of tax effect
8

 
4

Comprehensive income
$
201

 
$
228


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


3


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

(millions)
 
 
 
 
 
 
 
 
May 2, 2015
 
January 31, 2015
 
May 3, 2014
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
1,509

 
$
2,246

 
$
1,878

Receivables
259

 
424

 
275

Merchandise inventories
6,055

 
5,516

 
5,897

Prepaid expenses and other current assets
471

 
493

 
454

Total Current Assets
8,294

 
8,679

 
8,504

Property and Equipment - net of accumulated depreciation and
amortization of $5,784, $5,594 and $6,261
7,712

 
7,800

 
7,792

Goodwill
3,897

 
3,743

 
3,743

Other Intangible Assets – net
531

 
496

 
519

Other Assets
741

 
743

 
747

Total Assets
$
21,175

 
$
21,461

 
$
21,305

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

 
$
76

 
$
8

Merchandise accounts payable
2,512

 
1,693

 
2,390

Accounts payable and accrued liabilities
2,411

 
3,109

 
2,220

Income taxes
74

 
296

 
105

Deferred income taxes
370

 
362

 
381

Total Current Liabilities
5,443

 
5,536

 
5,104

Long-Term Debt
7,260

 
7,265

 
7,162

Deferred Income Taxes
1,086

 
1,081

 
1,304

Other Liabilities
2,179

 
2,201

 
1,635

Shareholders’ Equity
5,207

 
5,378

 
6,100

Total Liabilities and Shareholders’ Equity
$
21,175

 
$
21,461

 
$
21,305


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


4


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

(millions)
 
 
 
 
 
13 Weeks Ended
 
May 2, 2015
 
May 3, 2014
Cash flows from operating activities:
 
 
 
Net income
$
193

 
$
224

Adjustments to reconcile net income to net cash
provided by operating activities:
 
 
 
Depreciation and amortization
259

 
253

Stock-based compensation expense
18

 
21

Amortization of financing costs and premium on acquired debt
(1
)
 
(2
)
Changes in assets and liabilities:
 
 
 
 Decrease in receivables
167

 
163

 Increase in merchandise inventories
(511
)
 
(340
)
 Increase in prepaid expenses and other current assets
(42
)
 
(31
)
 Increase in other assets not separately identified

 
(14
)
 Increase in merchandise accounts payable
719

 
628

 Decrease in accounts payable, accrued liabilities
and other items not separately identified
(513
)
 
(460
)
 Decrease in current income taxes
(222
)
 
(256
)
 Increase (decrease) in deferred income taxes
(6
)
 
8

 Decrease in other liabilities not separately identified
(8
)
 
(20
)
Net cash provided by operating activities
53

 
174

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(180
)
 
(151
)
Capitalized software
(63
)
 
(49
)
Acquisition of Bluemercury, Inc., net of cash acquired
(212
)
 

Disposition of property and equipment
4

 
10

Other, net
70

 
6

Net cash used by investing activities
(381
)
 
(184
)
Cash flows from financing activities:
 
 
 
Debt repaid
(3
)
 
(5
)
Dividends paid
(106
)
 
(92
)
Decrease in outstanding checks
(41
)
 
(11
)
Acquisition of treasury stock
(359
)
 
(403
)
Issuance of common stock
100

 
126

Net cash used by financing activities
(409
)
 
(385
)
Net decrease in cash and cash equivalents
(737
)
 
(395
)
Cash and cash equivalents beginning of period
2,246

 
2,273

Cash and cash equivalents end of period
$
1,509

 
$
1,878

Supplemental cash flow information:
 
 
 
Interest paid
$
81

 
$
83

Interest received

 

Income taxes paid (net of refunds received)
314

 
343


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

5


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

1.    Summary of Significant Accounting Policies
Nature of Operations
Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and Bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company's operations include approximately 885 stores in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com, bloomingdales.com and bluemercury.com. In addition, Bloomingdale's in Dubai, United Arab Emirates is operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2015 (the "2014 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2014 10-K.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the 13 weeks ended May 2, 2015 and May 3, 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 weeks ended May 2, 2015 and May 3, 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 weeks ended May 2, 2015 and May 3, 2014 is the amortization of post employment and postretirement plan items. These reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in selling, general and administrative expenses on the Consolidated Statements of Income. See Note 4, "Benefit Plans," for further information.


6

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


2.    Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
 
13 Weeks Ended
 
May 2, 2015
 
May 3, 2014
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income and average number of shares outstanding
$
193

 
 
 
339.8

 
$
224

 
 
 
364.8

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.9

 
 
 
 
 
1.1

 
$
193

 
 
 
340.7

 
$
224

 
 
 
365.9

Basic earnings per share
 
 
$
.57

 
 
 
 
 
$
.61

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
5.8

 
 
 
 
 
6.7

 
$
193

 
 
 
346.5

 
$
224

 
 
 
372.6

Diluted earnings per share
 
 
$
.56

 
 
 
 
 
$
.60

 
 
 
In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing table, stock options to purchase 6.5 million shares of common stock and restricted stock units relating to 1.4 million shares of common stock were outstanding at May 2, 2015, but were not included in the computation of diluted earnings per share for the 13 weeks ended May 2, 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 table, stock options to purchase 3.3 million shares of common stock and restricted stock units relating to 1.1 million shares of common stock were outstanding at May 3, 2014, but were not included in the computation of diluted earnings per share for the 13 weeks ended May 3, 2014 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:
 
 
13 Weeks Ended
 
May 2, 2015
 
May 3, 2014
 
(millions)
9.5% amortizing debentures due 2021
$
2

 
$
2

9.75% amortizing debentures due 2021
1

 
1

Capital leases and other obligations

 
2

 
$
3

 
$
5

During the 13 weeks ended May 2, 2015, the Company repurchased approximately 5.9 million shares of its common stock pursuant to existing stock purchase authorizations for a total of approximately $385 million. As of May 2, 2015, the Company had $647 million of authorization remaining under its share repurchase program. On May 13, 2015, the Company announced that the Board of Directors approved an additional $1,500 million in authorization to purchase common stock, bringing the Company's remaining authorization under its share repurchase program to $2,147 million. 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.


7

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


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.
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
 
May 2, 2015
 
May 3, 2014
 
(millions)
401(k) Defined Contribution Plan
$
23

 
$
25

 
 
 
 
Pension Plan
 
 
 
Service cost
$
2

 
$
2

Interest cost
34

 
38

Expected return on assets
(59
)
 
(61
)
Recognition of net actuarial loss
10

 
6

Amortization of prior service credit

 

 
$
(13
)
 
$
(15
)
Supplementary Retirement Plan
 
 
 
Service cost
$

 
$

Interest cost
8

 
8

Recognition of net actuarial loss
3

 
1

Amortization of prior service cost

 

 
$
11

 
$
9

 
 
 
 
Total Retirement Expense
$
21

 
$
19

 
 
 
 
Postretirement Obligations
 
 
 
Service cost
$

 
$

Interest cost
2

 
2

Recognition of net actuarial gain

 
(1
)
Amortization of prior service cost

 

 
$
2

 
$
1



8

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:
 
 
May 2, 2015
 
May 3, 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
$
104

 
$

 
$
104

 
$

 
$
91

 
$

 
$
91

 
$


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:
 
 
May 2, 2015
 
May 3, 2014
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
(millions)
Long-term debt
$
7,070

 
$
7,231

 
$
8,020

 
$
6,973

 
$
7,145

 
$
7,797


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 May 2, 2015, May 3, 2014 and January 31, 2015, the related Condensed Consolidating Statements of Comprehensive Income for the 13 weeks ended May 2, 2015 and May 3, 2014, and the related Condensed Consolidating Statements of Cash Flows for the 13 weeks ended May 2, 2015 and May 3, 2014 are presented on the following pages.

9

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



Condensed Consolidating Balance Sheet
As of May 2, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,078

 
$
115

 
$
316

 
$

 
$
1,509

Receivables

 
48

 
211

 

 
259

Merchandise inventories

 
3,029

 
3,026

 

 
6,055

Prepaid expenses and other current assets

 
101

 
370

 

 
471

Income taxes
43

 

 

 
(43
)
 

Total Current Assets
1,121

 
3,293

 
3,923

 
(43
)
 
8,294

Property and Equipment – net

 
4,250

 
3,462

 

 
7,712

Goodwill

 
3,315

 
582

 

 
3,897

Other Intangible Assets – net

 
68

 
463

 

 
531

Other Assets
1

 
75

 
665

 

 
741

Deferred Income Taxes
22

 

 

 
(22
)
 

Intercompany Receivable

 

 
3,588

 
(3,588
)
 

Investment in Subsidiaries
4,701

 
3,549

 

 
(8,250
)
 

Total Assets
$
5,845

 
$
14,550

 
$
12,683

 
$
(11,903
)
 
$
21,175

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

 
$
75

 
$
1

 
$

 
$
76

Merchandise accounts payable

 
1,207

 
1,305

 

 
2,512

Accounts payable and accrued liabilities
13

 
1,043

 
1,355

 

 
2,411

Income taxes

 
10

 
107

 
(43
)
 
74

Deferred income taxes

 
304

 
66

 

 
370

Total Current Liabilities
13

 
2,639

 
2,834

 
(43
)
 
5,443

Long-Term Debt

 
7,240

 
20

 

 
7,260

Intercompany Payable
564

 
3,024

 


 
(3,588
)
 

Deferred Income Taxes

 
440

 
668

 
(22
)
 
1,086

Other Liabilities
61

 
543

 
1,575

 

 
2,179

Shareholders' Equity
5,207

 
664

 
7,586

 
(8,250
)
 
5,207

Total Liabilities and Shareholders' Equity
$
5,845

 
$
14,550

 
$
12,683

 
$
(11,903
)
 
$
21,175


10

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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended May 2, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$
2,776

 
$
5,691

 
$
(2,235
)
 
$
6,232

Cost of sales

 
(1,809
)
 
(4,226
)
 
2,235

 
(3,800
)
Gross margin

 
967

 
1,465

 

 
2,432

Selling, general and administrative expenses
(1
)
 
(980
)
 
(1,042
)
 

 
(2,023
)
Operating income (loss)
(1
)
 
(13
)
 
423

 

 
409

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External

 
(95
)
 

 

 
(95
)
Intercompany

 
(58
)
 
58

 

 

Equity in earnings of subsidiaries
194

 
60

 

 
(254
)
 

Income (loss) before income taxes
193

 
(106
)
 
481

 
(254
)
 
314

Federal, state and local income
tax benefit (expense)

 
37

 
(158
)
 

 
(121
)
Net income (loss)
$
193

 
$
(69
)
 
$
323

 
$
(254
)
 
$
193

Comprehensive income (loss)
$
201

 
$
(61
)
 
$
327

 
$
(266
)
 
$
201





 


11

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



Condensed Consolidating Statement of Cash Flows
For the 13 Weeks Ended May 2, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
193

 
$
(69
)
 
$
323

 
$
(254
)
 
$
193

Equity in earnings of subsidiaries
(194
)
 
(60
)
 

 
254

 

Dividends received from subsidiaries
191

 


 

 
(191
)
 

Depreciation and amortization

 
106

 
153

 

 
259

(Increase) decrease in working capital
43

 
16

 
(461
)
 

 
(402
)
Other, net
24

 
(6
)
 
(15
)
 

 
3

Net cash provided (used) by operating activities
257

 
(13
)
 

 
(191
)
 
53

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

 
(69
)
 
(170
)
 

 
(239
)
Other, net

 
7

 
(149
)
 

 
(142
)
Net cash used by investing activities

 
(62
)
 
(319
)
 

 
(381
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Debt repaid

 
(3
)
 

 

 
(3
)
Dividends paid
(106
)
 

 
(191
)
 
191

 
(106
)
Common stock acquired, net of
issuance of common stock
(259
)
 

 

 

 
(259
)
Intercompany activity, net
(669
)
 
146

 
523

 

 

Other, net
(53
)
 
(47
)
 
59

 

 
(41
)
Net cash provided (used) by
financing activities
(1,087
)
 
96

 
391

 
191

 
(409
)
Net increase (decrease) in cash
and cash equivalents
(830
)
 
21

 
72

 

 
(737
)
Cash and cash equivalents at beginning of period
1,908

 
94

 
244

 

 
2,246

Cash and cash equivalents at end of period
$
1,078

 
$
115

 
$
316

 
$

 
$
1,509


12

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



Condensed Consolidating Balance Sheet
As of May 3, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,425

 
$
129

 
$
324

 
$

 
$
1,878

Receivables

 
58

 
217

 

 
275

Merchandise inventories

 
3,023

 
2,874

 

 
5,897

Prepaid expenses and other current assets

 
94

 
360

 

 
454

Income taxes
9

 

 

 
(9
)
 

Total Current Assets
1,434

 
3,304

 
3,775

 
(9
)
 
8,504

Property and Equipment – net

 
4,481

 
3,311

 

 
7,792

Goodwill

 
3,315

 
428

 

 
3,743

Other Intangible Assets – net

 
91

 
428

 

 
519

Other Assets
4

 
95

 
648

 

 
747

Deferred Income Taxes
20

 

 

 
(20
)
 

Intercompany Receivable
28

 

 
3,306

 
(3,334
)
 

Investment in Subsidiaries
4,687

 
3,225

 

 
(7,912
)
 

Total Assets
$
6,173

 
$
14,511

 
$
11,896

 
$
(11,275
)
 
$
21,305

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

 
$
6

 
$
2

 
$

 
$
8

Merchandise accounts payable

 
1,086

 
1,304

 

 
2,390

Accounts payable and accrued liabilities
7

 
980

 
1,233

 

 
2,220

Income taxes

 
36

 
78

 
(9
)
 
105

Deferred income taxes

 
301

 
80

 

 
381

Total Current Liabilities
7

 
2,409

 
2,697

 
(9
)
 
5,104

Long-Term Debt

 
7,141

 
21

 

 
7,162

Intercompany Payable

 
3,330

 
4

 
(3,334
)
 

Deferred Income Taxes

 
576

 
748

 
(20
)
 
1,304

Other Liabilities
66

 
489

 
1,080

 

 
1,635

Shareholders' Equity (Deficit)
6,100

 
566

 
7,346

 
(7,912
)
 
6,100

Total Liabilities and Shareholders' Equity
$
6,173

 
$
14,511

 
$
11,896

 
$
(11,275
)
 
$
21,305


13

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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended May 3, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$
2,918

 
$
5,457

 
$
(2,096
)
 
$
6,279

Cost of sales

 
(1,886
)
 
(4,046
)
 
2,096

 
(3,836
)
Gross margin

 
1,032

 
1,411

 

 
2,443

Selling, general and administrative expenses
(2
)
 
(1,008
)
 
(990
)
 

 
(2,000
)
Operating income (loss)
(2
)
 
24

 
421

 

 
443

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External

 
(100
)
 

 

 
(100
)
Intercompany

 
(58
)
 
58

 

 

Equity in earnings of subsidiaries
225

 
66

 

 
(291
)
 

Income (loss) before income taxes
223

 
(68
)
 
479

 
(291
)
 
343

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

 
38

 
(158
)
 

 
(119
)
Net income (loss)
$
224

 
$
(30
)
 
$
321

 
$
(291
)
 
$
224

Comprehensive income (loss)
$
228

 
$
(26
)
 
$
323

 
$
(297
)
 
$
228







14

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



Condensed Consolidating Statement of Cash Flows
For the 13 Weeks Ended May 3, 2014
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
224

 
$
(30
)
 
$
321

 
$
(291
)
 
$
224

Equity in earnings of subsidiaries
(225
)
 
(66
)
 

 
291

 

Dividends received from subsidiaries
167

 

 

 
(167
)
 

Depreciation and amortization

 
113

 
140

 

 
253

(Increase) decrease in working capital
87

 
(6
)
 
(377
)
 

 
(296
)
Other, net
5

 
(15
)
 
3

 

 
(7
)
Net cash provided (used) by operating activities
258

 
(4
)
 
87

 
(167
)
 
174

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

 
(46
)
 
(144
)
 

 
(190
)
Other, net

 
1

 
5

 

 
6

Net cash used by investing activities

 
(45
)
 
(139
)
 

 
(184
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Debt repaid

 
(4
)
 
(1
)
 

 
(5
)
Dividends paid
(92
)
 

 
(167
)
 
167

 
(92
)
Common stock acquired, net of
issuance of common stock
(277
)
 

 

 

 
(277
)
Intercompany activity, net
(370
)
 
121

 
249

 

 

Other, net
(49
)
 
(23
)
 
61

 

 
(11
)
Net cash provided (used) by
financing activities
(788
)
 
94

 
142

 
167

 
(385
)
Net increase (decrease) in cash and
cash equivalents
(530
)
 
45

 
90

 

 
(395
)
Cash and cash equivalents at beginning of period
1,955

 
84

 
234

 

 
2,273

Cash and cash equivalents at end of period
$
1,425

 
$
129

 
$
324

 
$

 
$
1,878


15

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



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

 
$
94

 
$
244

 
$

 
$
2,246

Receivables

 
97

 
327

 

 
424

Merchandise inventories

 
2,817

 
2,699

 

 
5,516

Prepaid expenses and other current assets

 
113

 
380

 

 
493

Income taxes
88

 

 

 
(88
)
 

Total Current Assets
1,996

 
3,121

 
3,650

 
(88
)
 
8,679

Property and Equipment – net

 
4,315

 
3,485

 

 
7,800

Goodwill

 
3,315

 
428

 

 
3,743

Other Intangible Assets – net

 
73

 
423

 

 
496

Other Assets
1

 
74

 
668

 

 
743

Deferred Income Taxes
10

 

 

 
(10
)
 

Intercompany Receivable

 

 
4,140

 
(4,140
)
 

Investment in Subsidiaries
4,655

 
3,526

 

 
(8,181
)
 

Total Assets
$
6,662

 
$
14,424

 
$
12,794

 
$
(12,419
)
 
$
21,461

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

 
$
75

 
$
1

 
$

 
$
76

Merchandise accounts payable

 
784

 
909

 

 
1,693

Accounts payable and accrued liabilities
42

 
1,360

 
1,707

 

 
3,109

Income taxes

 
22

 
362

 
(88
)
 
296

Deferred income taxes

 
295

 
67

 

 
362

Total Current Liabilities
42

 
2,536

 
3,046

 
(88
)
 
5,536

Long-Term Debt

 
7,245

 
20

 

 
7,265

Intercompany Payable
1,215

 
2,925

 

 
(4,140
)
 

Deferred Income Taxes

 
414

 
677

 
(10
)
 
1,081

Other Liabilities
27

 
593

 
1,581

 

 
2,201

Shareholders' Equity (Deficit)
5,378

 
711

 
7,470

 
(8,181
)
 
5,378

Total Liabilities and Shareholders' Equity
$
6,662

 
$
14,424

 
$
12,794

 
$
(12,419
)
 
$
21,461





16


MACY'S, INC.

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

For purposes of the following discussion, all references to "first quarter of 2015" and "first quarter of 2014" are to the Company's 13-week fiscal periods ended May 2, 2015 and May 3, 2014, respectively.
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in the 2014 10-K. The following discussion contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report (particularly in "Forward-Looking Statements") and in the 2014 10-K (particularly in "Risk Factors").
Overview
The Company is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and Bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company's operations include approximately 885 stores in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com, bloomingdales.com and bluemercury.com. In addition, Bloomingdale's in Dubai, United Arab Emirates is operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
The Company continues to be focused on three key strategies for continued growth in sales, earnings and cash flow in the years ahead: (i) maximizing the My Macy's localization initiative; (ii) driving the omnichannel business; and (iii) embracing customer centricity, including engaging customers on the selling floor through the Magic Selling program.
Through the My Macy's localization initiative, the Company has invested in talent, technology and marketing which ensures that core customers surrounding each Macy's store find merchandise assortments, size ranges, marketing programs and shopping experiences that are custom-tailored to their needs. My Macy's has provided for more local decision-making in every Macy's community, and involves tailoring merchandise assortments, space allocations, service levels, visual merchandising and special events on a store-by-store basis.
The Company's omnichannel strategy allows customers to shop seamlessly in stores and online, via computers or mobile devices. A pivotal part of the omnichannel strategy is the Company's ability to allow associates in any store to sell a product that may be unavailable locally by shipping merchandise from other stores or customer fulfillment centers to the customer's door. Likewise, the Company's customer fulfillment centers can draw on store inventories nationwide to fill orders that originate online, via computers or mobile devices. Nearly all Macy's and Bloomingdale's stores are fulfilling orders from other stores and/or online for shipment and fulfilling orders for store pick-up related to online purchases. Starting November 1, 2014, same-day delivery pilots were tested in eight Macy's markets and four Bloomingdale's markets and in 2015 same-day delivery will be expanded to additional markets.
Macy's Magic Selling program is an approach to customer engagement that helps Macy's to better understand the needs of customers, as well as to provide options and advice. This comprehensive ongoing training and coaching program is designed to improve the in-store shopping experience and all other customer interactions.
In January 2015, the Company announced a series of initiatives, including a restructuring of merchandising and marketing functions consistent with its omnichannel approach to retailing, as well as a series of adjustments to its field and store operations designed to increase productivity and efficiency. These changes are intended to support continued growth and an enhanced shopping experience online and via mobile, as well as in stores.
The Company is also focused on driving additional profitable sales growth through a series of organic and new business initiatives. The initiatives include a focus on key categories (e.g., active, dresses and jewelry), key store locations, loyalty programs, gift registry and wedding offerings, best and private brands, off-price and additional potential international and new store formats.
In March 2015, the Company completed its acquisition of Bluemercury, Inc., a luxury beauty products and spa retailer. The Company is focused on accelerating the growth of sales in self-standing Bluemercury stores in urban and suburban markets, enhancing Bluemercury's online capabilities and adding selected Bluemercury products and boutiques to Macy's stores nationwide.

17


MACY'S, INC.

In May 2015, the Company launched Plenti, the innovative loyalty program that brings powerful brands together to give customers the chance to earn and redeem points where they choose. The loyalty program is free to join and members earn points on virtually all purchases at Macy's and other businesses that have joined as Plenti partners.
Also in May 2015, the Company announced that the first four pilot stores in Macy's new off-price business, Macy's Backstage, will open in the fall season of fiscal 2015 in metro New York City. The four Macy's Backstage locations will average about 30,000 square feet and offer a compelling assortment of women's, men's and children's apparel, shoes, fashion accessories, housewares, home textiles, intimate apparel and jewelry.
In the remainder of fiscal 2015, the Company intends to open one new Macy's store, one new Bloomingdale's store, one new Bloomingdale's Outlet store, four new Macy's Backstage stores, and 14 new Bluemercury stores. One new Bluemercury store was opened since the acquisition in March. The Company did not open any new stores during the first quarter of 2014.
The Company's operations are impacted by competitive pressures from department stores, specialty stores, mass merchandisers, online retailers and all other retail channels. The Company's operations are also impacted by general consumer spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of weather or natural disasters and other factors over which the Company has little or no control.
In recent years, consumer spending levels have been affected to varying degrees by a number of factors, including modest economic growth, uncertainty regarding governmental spending and tax policies, high unemployment levels, tightened consumer credit, a slowly improving housing market and a rising stock market. These factors have affected to varying degrees the amount of funds that consumers are willing and able to spend for discretionary purchases, including purchases of some of the merchandise offered by the Company.
All economic conditions ultimately affect the Company's overall operations. However, the effects of economic conditions can be experienced differently and at different times, in the various geographic regions in which the Company operates, in relation to the different types of merchandise that the Company offers for sale, or in relation to each of the Company's branded operations.
Based on its assessment of current and anticipated market conditions and its recent performance, the Company continues to expect comparable sales growth on an owned plus licensed basis of approximately 2% in fiscal 2015, with comparable sales slightly lower on an owned basis. The Company continues to expect that its total sales in fiscal 2015 will increase approximately 1% from 2014 levels and that its earnings per share in fiscal 2015 will be in the range of $4.70 to $4.80.

Results of Operations
Comparison of the First Quarter of 2015 and the First Quarter of 2014
 
 
First Quarter of 2015
 
 
First Quarter of 2014
 
 
 
 
Amount
 
% to Sales
 
 
Amount
 
% to Sales
 
 
 
 
(dollars in millions, except per share figures)
Net sales
 
$
6,232

 
 
 
 
$
6,279

 
 
 
 
Decrease in sales
 
(0.7
)
%
 
 
(1.7
)
%
 
 
Decrease in comparable sales
 
(0.7
)
%
 
 
(1.6
)
%
 
 
Cost of sales
 
(3,800
)
 
(61.0
)
%
(3,836
)
 
(61.1
)
%
Gross margin
 
2,432

 
39.0

%
2,443

 
38.9

%
Selling, general and administrative expenses
 
(2,023
)
 
(32.4
)
%
(2,000
)
 
(31.8
)
%
Operating income
 
409

 
6.6

%
443

 
7.1

%
Interest expense - net
 
(95
)
 
 
 
 
(100
)
 
 
 
 
Income before income taxes
 
314

 
 
 
 
343

 
 
 
 
Federal, state and local income tax expense
 
(121
)
 
 
 
 
(119
)
 
 
 
 
Net income
 
$
193

 
3.1

%
$
224

 
3.6

%
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
.56

 
 
 
 
$
.60

 
 
 
 

18


MACY'S, INC.

Diluted Earnings Per Share
Diluted earnings per share for the first quarter of 2015 decreased $.04 or 6.7% compared to the first quarter of 2014, reflecting lower net income, partially offset by lower average diluted shares.
Net Income
Net income for the first quarter of 2015 decreased $31 million or 13.8% compared to the first quarter of 2014, reflecting lower net sales and gross margin in dollars and higher selling, general and administrative (“SG&A”) expenses, partially offset by lower interest expense.
Net Sales
Net sales for the first quarter of 2015 decreased $47 million or 0.7% compared to the first quarter of 2014. The decrease in comparable sales on an owned basis for the first quarter of 2015 was 0.7% compared to the first quarter of 2014. The decrease in comparable sales on an owned plus licensed basis for the first quarter of 2015 was 0.1% compared to the first quarter of 2014. (See page 20 for information regarding the Company's calculation of comparable sales, a reconciliation of the non-GAAP measure which takes into account sales of departments licensed to third parties to the most comparable GAAP measure and other important information.) Sales in the southern regions continued to perform better relative to northern regions in the first quarter of 2015, while sales at certain locations that are frequented by international tourists, such as New York City, Las Vegas, San Francisco and Chicago, were negatively impacted by lower levels of spending by such tourists. Sales in the first quarter of 2015 were also negatively impacted by delays in inventory receipts due to West Coast port issues, disruption from the restructuring of the Company's merchandising and marketing functions, and unseasonably cold weather in the beginning of the quarter. By family of business, sales in the first quarter of 2015 were stronger in active apparel, dresses, furniture and mattresses. Sales in the first quarter of 2015 were weaker in fashion jewelry, watches, tabletop and housewares.
Cost of Sales
Cost of sales for the first quarter of 2015 decreased $36 million and the cost of sales rate as a percent to net sales decreased 10 basis points from the first quarter of 2014 to 61.0% for the first quarter of 2015. The application of the last-in, first-out (LIFO) retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales in either period.
Selling, General and Administrative Expenses
SG&A expenses for the first quarter of 2015 increased $23 million or 1.2% from the first quarter of 2014. The SG&A rate as a percent to net sales of 32.4% was 60 basis points higher in the first quarter of 2015, as compared to the first quarter of 2014. SG&A expenses in the first quarter of 2015 were negatively impacted by higher depreciation and amortization expense, higher retirement expenses (including Pension Plan, SERP and 401(k) expenses), and continued investments in the Company's omnichannel operations and investments in other new growth initiatives, partially offset by higher income from credit operations and expense benefits from the restructuring initiatives announced in January 2015. Retirement expenses were $21 million in the first quarter of 2015, compared to $19 million in the first quarter of 2014. Income from credit operations was $179 million in the first quarter of 2015, compared to $171 million in the first quarter of 2014, reflecting continued profitability of the portfolio.
Net Interest Expense
Net interest expense for the first quarter of 2015 decreased $5 million from the first quarter of 2014. Net interest expense for the first quarter of 2015 benefited from lower rates on outstanding borrowings as compared to the first quarter of 2014.
 Effective Tax Rate
The Company's effective tax rate of 38.5% for the first quarter of 2015 and 34.7% for the first quarter of 2014 differ from the federal income tax statutory rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the settlement of various tax issues and tax examinations.


19


MACY'S, INC.

Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP financial measures provide users of the Company's financial information with additional useful information in evaluating operating performance. Management believes that providing changes in comparable sales on an owned plus licensed basis, which includes the impact of growth in comparable sales of departments licensed to third parties, supplementally to its results of operations calculated in accordance with GAAP assists in evaluating the Company's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, on a comparable basis, and in evaluating the impact of changes in the manner in which certain departments are operated. Management also believes that the combined measure is useful in assessing changes in total customer demand at Macy's and Bloomingdale's stores.
See the table below for supplemental financial data and a corresponding reconciliation to the most directly comparable GAAP financial measure. The Company's non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in this non-GAAP financial measure may be significant items that could impact the Company's financial position, results of operations and cash flows and should therefore be considered in assessing the Company's actual financial condition and performance. Additionally, the amounts received by the Company on account of sales of departments licensed to third parties are limited to commissions received on such sales. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.
 
 
First Quarter of 2015
 
First Quarter of 2014
 
 
 
 
 
Decrease in comparable sales on an owned basis (note 1)
 
(0.7
)%
 
(1.6
)%
Impact of growth in comparable sales of departments licensed to third parties (note 2)
 
0.6
 %
 
0.8
 %
Decrease in comparable sales on an owned plus licensed basis
 
(0.1
)%
 
(0.8
)%

Notes:
(1)
Represents the period-to-period percentage change in net sales from stores in operation throughout the year presented and the immediately preceding year and all online sales, excluding commissions from departments licensed to third parties. Stores undergoing remodeling, expansion or relocation remain in the comparable sales calculation unless the store is closed for a significant period of time. Definitions and calculations of comparable sales differ among companies in the retail industry.
(2)
Represents the impact of including the sales of departments licensed to third parties occurring in stores in operation throughout the year presented and the immediately preceding year and via the Internet in the calculation of comparable sales. The Company licenses third parties to operate certain departments in its stores and online and receives commissions from these third parties based on a percentage of their net sales. In its financial statements prepared in conformity with GAAP, the Company includes these commissions (rather than the sales of the departments licensed to third parties) in its net sales. The Company does not, however, include any amounts in respect of licensed department sales (or any commissions earned on such sales) in its comparable sales in accordance with GAAP (i.e., on an owned basis). The Company believes that the amounts of commissions earned on sales of departments licensed to third parties are not material to its results of operations for the periods presented.


20


MACY'S, INC.

Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the credit facility described below.
Operating Activities
Net cash provided by operating activities in the first quarter of 2015 was $53 million, compared to $174 million provided in the first quarter of 2014, and reflects lower net income, a larger increase in merchandise inventories net of merchandise accounts payable and the payment of a higher 401(k) defined contribution plan matching contribution in the first quarter of 2015 as compared to the first quarter of 2014.
Investing Activities
Net cash used by investing activities was $381 million in the first quarter of 2015, compared to net cash used by investing activities of $184 million in the first quarter of 2014. Investing activities for the first quarter of 2015 include the acquisition of Bluemercury, Inc., net of cash acquired, for $212 million. Investing activities for the first quarter of 2015 also include purchases of property and equipment totaling $180 million and capitalized software of $63 million, compared to purchases of property and equipment totaling $151 million and capitalized software of $49 million for the first quarter of 2014.
Financing Activities
Net cash used by the Company for financing activities was $409 million for the first quarter of 2015, including $359 million for the acquisition of the Company's common stock, primarily under its share repurchase program, the payment of $106 million of cash dividends, and a decrease in outstanding checks of $41 million, partially offset by $100 million from the issuance of common stock, primarily related to the exercise of stock options.
During the first quarter of 2015, the Company repurchased approximately 5.9 million shares of its common stock pursuant to existing stock purchase authorizations for a total of approximately $385 million. As of May 2, 2015, the Company had $647 million of authorization remaining under its share repurchase program. On May 13, 2015, the Company announced that the Board of Directors approved an additional $1,500 million in authorization to purchase common stock, bringing the Company's remaining authorization under its share repurchase program to $2,147 million. 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.
Net cash used by the Company for financing activities was $385 million for the first quarter of 2014, including $403 million for the acquisition of the Company's common stock, primarily under its share repurchase program, the payment of $92 million of cash dividends, and a decrease in outstanding checks of $11 million, partially offset by $126 million from the issuance of common stock, primarily related to the exercise of stock options.
The Company is a party to a credit agreement with certain financial institutions that requires the Company to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than 3.75. The Company's interest coverage ratio for the first quarter of 2015 was 9.75 and its leverage ratio at May 2, 2015 was 1.84, in each case as calculated in accordance with the credit agreement.
On May 13, 2015, the Company announced that the Board of Directors declared a quarterly dividend of 36 cents per share on its common stock, payable July 1, 2015 to Macy's shareholders of record at the close of business on June 15, 2015. This dividend is an increase from the previous quarterly dividend rate of 31.25 cents per share and represents the fifth increase in the dividend in the past four years.


21


MACY'S, INC.

Liquidity and Capital Resources Outlook
Management believes that, with respect to the Company's current operations, cash on hand and funds from operations, together with its credit facility and other capital resources, will be sufficient to cover the Company's reasonably foreseeable working capital, capital expenditure and debt service requirements and other cash requirements in both the near term and over the longer term. The Company's ability to generate funds from operations may be affected by numerous factors, including general economic conditions and levels of consumer confidence and demand; however, the Company expects to be able to manage its working capital levels and capital expenditure amounts so as to maintain sufficient levels of liquidity. To the extent that the Company's cash balances from time to time exceed amounts that are needed to fund its immediate liquidity requirements, the Company will consider alternative uses of some or all of such excess cash. Such alternative uses may include, among others, the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations. Depending upon its actual and anticipated sources and uses of liquidity, conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital markets transactions, for the purpose of raising capital which could be used to refinance current indebtedness or for other corporate purposes, including the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations.
The Company intends from time to time to consider additional acquisitions of, and investments in, retail businesses and other complementary assets and companies. Acquisition transactions, if any, are expected to be financed from one or more of the following sources: cash on hand, cash from operations, borrowings under existing or new credit facilities and the issuance of long-term debt or other securities, including common stock.


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MACY'S, INC.

Item 4.
Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer have carried out, as of May 2, 2015, with the participation of the Company's management, an evaluation of the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in reports the Company files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Company's internal controls over financial reporting that occurred during the Company's most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


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MACY'S, INC.

PART II - OTHER INFORMATION
 
Item 1.
Legal Proceedings.
The Company and its subsidiaries are involved in various proceedings that are incidental to the normal course of their businesses. As of the date of this report, the Company does not expect that any of such proceedings will have a material adverse effect on the Company’s financial position or results of operations.

Item 1A.
Risk Factors.
There have been no material changes to the Risk Factors described in Part I, "Item 1A. Risk Factors" in the Company's Annual Report of Form 10-K for the fiscal year ended January 31, 2015 as filed with the SEC.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information regarding the Company's purchases of Common Stock during the first quarter of 2015.
 
Total
Number
of Shares
Purchased
 
Average
Price per
Share ($)
 
Number of Shares
Purchased under
Program (1)
 
Open
Authorization
Remaining (1)($)
 
(thousands)
 
 
 
(thousands)
 
(millions)
February 1, 2015 – February 28, 2015
13

 
63.52

 

 
1,032

March 1, 2015 – April 4, 2015
3,235

 
64.14

 
3,235

 
825

April 5, 2015 – May 2, 2015
2,634

 
67.30

 
2,634

 
647

 
5,882

 
65.56

 
5,869

 
 
 ___________________
(1)
Commencing in January 2000, the Company's Board of Directors has from time to time approved authorizations to purchase, in the aggregate, up to $15 billion of Common Stock as of May 2, 2015. All authorizations are cumulative and do not have an expiration date. As of May 2, 2015, $647 million of authorization remained unused. On May 13, 2015, the Company announced that the Board of Directors approved an additional $1,500 million in authorization to purchase common stock, bringing the Company's remaining authorization under its share repurchase program to $2,147 million. The Company may continue, discontinue or resume purchases of Common Stock under these or possible future authorizations in the open market, in privately negotiated transactions or otherwise at any time and from time to time without prior notice.

Item 4.
Mine Safety Disclosures.
Not Applicable.

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MACY'S, INC.

Item 5.
Other Information.
Forward-Looking Statements
This report and other reports, statements and information previously or subsequently filed by the Company with the Securities and Exchange Commission (the "SEC") contain or may contain forward-looking statements. Such statements are based upon the beliefs and assumptions of, and on information available to, the management of the Company at the time such statements are made. The following are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (i) statements preceded by, followed by or that include the words "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "think," "estimate" or "continue" or the negative or other variations thereof, and (ii) statements regarding matters that are not historical facts. Such forward-looking statements are subject to various risks and uncertainties, including risks and uncertainties relating to:
the possible invalidity of the underlying beliefs and assumptions;
competitive pressures from department and specialty stores, general merchandise stores, manufacturers' outlets, off-price and discount stores, and all other retail channels, including the Internet, mail-order catalogs and television;
general consumer-spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of the weather or natural disasters;
conditions to, or changes in the timing of, proposed transactions and changes in expected synergies, cost savings and non-recurring charges;
possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions;
possible actions taken or omitted to be taken by third parties, including customers, suppliers, business partners, competitors and legislative, regulatory, judicial and other governmental authorities and officials;
changes in relationships with vendors and other product and service providers;
currency, interest and exchange rates and other capital market, economic and geo-political conditions;
severe or unseasonable weather, possible outbreaks of epidemic or pandemic diseases and natural disasters;
unstable political conditions, civil unrest, terrorist activities and armed conflicts;
the possible inability of the Company's manufacturers or transporters to deliver products in a timely manner or meet the Company's quality standards;
the Company's reliance on foreign sources of production, including risks related to the disruption of imports by labor disputes, regional health pandemics, and regional political and economic conditions;
duties, taxes, other charges and quotas on imports; and
possible systems failures and/or security breaches, including, any security breach that results in the theft, transfer or unauthorized disclosure of customer, employee or company information, or the failure to comply with various laws applicable to the Company in the event of such a breach.
In addition to any risks and uncertainties specifically identified in the text surrounding such forward-looking statements, the statements in the immediately preceding sentence and the statements under captions such as "Risk Factors" and "Special Considerations" in reports, statements and information filed by the Company with the SEC from time to time constitute cautionary statements identifying important factors that could cause actual amounts, results, events and circumstances to differ materially from those expressed in or implied by such forward-looking statements.


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MACY'S, INC.

Item 6.
Exhibits.

31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
 
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
 
 
 
32.1
 
Certification by Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act
 
 
 
32.2
 
Certification by Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act