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 July 29, 2017

OR

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

For the transition period from    to

Commission file number: 1-13536
 
g129830g60l12.jpg
 
Incorporated in Delaware
 
I.R.S. Employer Identification No.
 
 
13-3324058

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting 
company  o
 
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at July 29, 2017
Common Stock, $0.01 par value per share
 
304,558,965 shares
 



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MACY’S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

(millions, except per share figures)
 
 
 
 
 
 
 
 
 
 
13 Weeks Ended
 
26 Weeks Ended
 
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
Net sales
$
5,552

 
$
5,866

 
$
10,890

 
$
11,637

Cost of sales
(3,313
)
 
(3,468
)
 
(6,619
)
 
(6,984
)
Gross margin
2,239

 
2,398

 
4,271

 
4,653

Selling, general and administrative expenses
(1,977
)
 
(2,047
)
 
(3,857
)
 
(4,027
)
Gains on sale of real estate
43

 
21

 
111

 
35

Impairments and other costs

 
(249
)
 

 
(249
)
Settlement charges
(51
)
 
(6
)
 
(51
)
 
(19
)
Operating income
254

 
117

 
474

 
393

Interest expense
(82
)
 
(98
)
 
(168
)
 
(197
)
Net premiums on early retirement of debt
2

 

 
(1
)
 

Interest income
3

 
1

 
5

 
2

Income before income taxes
177

 
20

 
310

 
198

Federal, state and local income tax expense
(64
)
 
(11
)
 
(127
)
 
(74
)
Net income
113

 
9

 
183

 
124

Net loss attributable to noncontrolling interest
3

 
2

 
4

 
3

Net income attributable to Macy's, Inc. shareholders
$
116

 
$
11

 
$
187

 
$
127

Basic earnings per share attributable to Macy's, Inc. shareholders
$
.38

 
$
.03

 
$
.61

 
$
.41

Diluted earnings per share attributable to Macy's, Inc. shareholders
$
.38

 
$
.03

 
$
.61

 
$
.41


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

2


MACY’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

(millions)

 
 
 
 
 
 
 
 
 
13 Weeks Ended
 
26 Weeks Ended
 
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
Net income
$
113

 
$
9

 
$
183

 
$
124

Other comprehensive income (loss):
 
 
 
 
 
 
 
Actuarial gain (loss) on post employment and postretirement benefit plans, before tax
47

 
(41
)
 
47

 
(77
)
Settlement charges, before tax
51

 
6

 
51

 
19

Amortization of net actuarial loss on post employment and postretirement benefit plans included in net income, before tax
9

 
8

 
18

 
17

Tax effect related to items of other comprehensive income (loss)
(42
)
 
10

 
(45
)
 
16

Total other comprehensive income (loss), net of tax effect
65

 
(17
)
 
71

 
(25
)
Comprehensive income (loss)
178

 
(8
)
 
254

 
99

Comprehensive loss attributable to noncontrolling interest
3

 
2

 
4

 
3

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
181

 
$
(6
)
 
$
258

 
$
102


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


3


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

(millions)
 
 
 
 
 
 
 
 
July 29, 2017
 
January 28, 2017
 
July 30, 2016
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
783

 
$
1,297

 
$
1,000

Receivables
382

 
522

 
423

Merchandise inventories
4,980

 
5,399

 
5,322

Prepaid expenses and other current assets
412

 
408

 
471

Total Current Assets
6,557

 
7,626

 
7,216

Property and Equipment - net of accumulated depreciation and
amortization of $5,159, $4,856 and $5,457
6,822

 
7,017

 
7,187

Goodwill
3,897

 
3,897

 
3,897

Other Intangible Assets – net
493

 
498

 
502

Other Assets
810

 
813

 
904

Total Assets
$
18,579

 
$
19,851

 
$
19,706

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Short-term debt
$
16

 
$
309

 
$
1,063

Merchandise accounts payable
1,669

 
1,423

 
1,877

Accounts payable and accrued liabilities
2,873

 
3,563

 
2,514

Income taxes
52

 
352

 
23

Total Current Liabilities
4,610

 
5,647

 
5,477

Long-Term Debt
6,301

 
6,562

 
6,567

Deferred Income Taxes
1,512

 
1,443

 
1,448

Other Liabilities
1,773

 
1,877

 
2,164

Shareholders' Equity:
 
 
 
 
 
Macy's, Inc.
4,388

 
4,323

 
4,046

Noncontrolling interest
(5
)
 
(1
)
 
4

Total Shareholders’ Equity
4,383

 
4,322

 
4,050

Total Liabilities and Shareholders’ Equity
$
18,579

 
$
19,851

 
$
19,706


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


4


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

(millions)
 
 
 
 
 
26 Weeks Ended
 
July 29, 2017
 
July 30, 2016
Cash flows from operating activities:
 
 
 
Net income
$
183

 
$
124

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

 
249

Settlement charges
51

 
19

Depreciation and amortization
487

 
520

Stock-based compensation expense
31

 
37

Gains on sale of real estate
(111
)
 
(35
)
Amortization of financing costs and premium on acquired debt
(10
)
 
(1
)
Changes in assets and liabilities:
 
 
 
Decrease in receivables
119

 
99

Decrease in merchandise inventories
419

 
184

Increase in prepaid expenses and other current assets
(13
)
 
(40
)
Increase in merchandise accounts payable
261

 
307

Decrease in accounts payable, accrued liabilities
and other items not separately identified
(540
)
 
(634
)
Decrease in current income taxes
(301
)
 
(204
)
Increase (decrease) in deferred income taxes
24

 
(26
)
Decrease in other liabilities not separately identified
(64
)
 
(39
)
Net cash provided by operating activities
536

 
560

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(247
)
 
(293
)
Capitalized software
(125
)
 
(151
)
Disposition of property and equipment
150

 
67

Other, net
9

 
39

Net cash used by investing activities
(213
)
 
(338
)
Cash flows from financing activities:
 
 
 
Debt repaid
(550
)
 
(3
)
Financing costs

 
(3
)
Dividends paid
(230
)
 
(228
)
Increase (decrease) in outstanding checks
(64
)
 
2

Acquisition of treasury stock
(1
)
 
(130
)
Issuance of common stock
2

 
27

Proceeds from noncontrolling interest
6

 
4

Net cash used by financing activities
(837
)
 
(331
)
Net decrease in cash and cash equivalents
(514
)
 
(109
)
Cash and cash equivalents beginning of period
1,297

 
1,109

Cash and cash equivalents end of period
$
783

 
$
1,000

Supplemental cash flow information:
 
 
 
Interest paid
$
183

 
$
200

Interest received
5

 
2

Income taxes paid (net of refunds received)
401

 
292

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

5


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

1.    Summary of Significant Accounting Policies
Nature of Operations
Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company's operations are conducted through approximately 850 Macy's, Macy's Backstage, Bloomingdale's, Bloomingdale's The Outlet and bluemercury stores in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com, bloomingdales.com and bluemercury.com. In addition, Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2017 (the "2016 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2016 10-K.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the 13 and 26 weeks ended July 29, 2017 and July 30, 2016, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Seasonality
Because of the seasonal nature of the retail business, the results of operations for the 13 and 26 weeks ended July 29, 2017 and July 30, 2016 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Reclassifications
Certain reclassifications were made to prior years’ amounts to conform to the classifications of such amounts 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 components of total comprehensive income for the 13 and 26 weeks ended July 29, 2017 and July 30, 2016 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of operating expenses in the Consolidated Statements of Income. Amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in selling, general and administrative expenses on the Consolidated Statements of Income. See Note 4, "Benefit Plans," for further information.
Newly Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update ("ASU") No. 2016-09, Improvements to Employee Share-Based Payment Accounting, effective January 29, 2017. This standard was issued to simplify several aspects of the accounting for share-based payment awards, including the income tax consequences, financial statement classification and forfeiture considerations of such awards. Upon adoption, the Company began to recognize, on a prospective basis, all excess tax benefits and tax deficiencies as income tax benefit or expense, respectively, in its Consolidated Statements of Income. For awards that were exercised, vested or expired during the 13 and 26 weeks ended July 29, 2017, approximately $1 million and $12 million, respectively, of additional income tax expense associated with net tax deficiencies was recognized. Additionally, these net tax deficiencies have been classified as an operating activity along with other income tax cash flows in the Consolidated Statements of Cash Flows. The Company has elected to adopt such presentation on a prospective basis.

6

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


2.    Earnings Per Share Attributable to Macy's, Inc. Shareholders
The following tables set forth the computation of basic and diluted earnings per share attributable to Macy's, Inc. shareholders:

 
13 Weeks Ended
 
July 29, 2017
 
July 30, 2016
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding
$
116

 
 
 
304.5

 
$
11

 
 
 
308.5

Shares to be issued under deferred
compensation and other plans
 
 
 
 
1.0

 
 
 
 
 
0.9

 
$
116

 
 
 
305.5

 
$
11

 
 
 
309.4

Basic earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.38

 
 
 
 
 
$
.03

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

 
 
 
 
 
1.9

 
$
116

 
 
 
306.5

 
$
11

 
 
 
311.3

Diluted earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.38

 
 
 
 
 
$
.03

 
 

 
26 Weeks Ended
 
July 29, 2017
 
July 30, 2016
 
Net
Income
 
 
 
Shares
 
Net
Income
 
 
 
Shares
 
(millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding
$
187

 
 
 
304.4

 
$
127

 
 
 
309.1

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.8

 
 
 
 
 
0.9

 
$
187

 
 
 
305.2

 
$
127

 
 
 
310.0

Basic earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.61

 
 
 
 
 
$
.41

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
1.5

 
 
 
 
 
2.4

 
$
187

 
 
 
306.7

 
$
127

 
 
 
312.4

Diluted earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.61

 
 
 
 
 
$
.41

 
 

For the 13 and 26 weeks ended July 29, 2017, in addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 16.7 million shares of common stock and restricted stock units relating to 1.1 million shares of common stock were outstanding at July 29, 2017, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
For the 13 and 26 weeks ended July 30, 2016, in addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 15.7 million shares of common stock and restricted stock units relating to 1.1 million shares of common stock were outstanding at July 30, 2016, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.


7

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


3.    Financing Activities
The following table shows the detail of debt repayments:
 
 
26 Weeks Ended
 
July 29, 2017
 
July 30, 2016
 
(millions)
7.45% Senior debentures due 2017
$
300

 
$

6.375% Senior notes due 2037
135

 

6.9% Senior debentures due 2032
72

 

6.7% Senior debentures due 2034
28

 

6.65% Senior debentures due 2024
4

 

6.9% Senior debentures due 2029
3

 

6.7% Senior debentures due 2028
3

 

7.0% Senior debentures due 2028
2

 

9.5% amortizing debentures due 2021
2

 
2

9.75% amortizing debentures due 2021
1

 
1

 
$
550

 
$
3

During the 26 weeks ended July 29, 2017, the Company repaid, at maturity, $300 million of 7.45% senior debentures due July 2017.
During the 26 weeks ended July 29, 2017, the Company repurchased $247 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cash cost of $257 million, including expenses related to the transactions. Such repurchases resulted in the recognition of income of $2 million and expense of $1 million during the 13 and 26 weeks ended July 29, 2017, respectively, presented as net premiums on early retirement of debt on the Consolidated Statements of Income.

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

8

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


The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:
 
13 Weeks Ended
 
26 Weeks Ended
 
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
 
(millions)
 
(millions)
401(k) Qualified Defined Contribution Plan
$
24

 
$
25

 
$
45

 
$
49

 
 
 
 
 
 
 
 
Non-Qualified Defined Contribution Plan
$

 
$
1

 
$

 
$
1

 
 
 
 
 
 
 
 
Pension Plan
 
 
 
 
 
 
 
Service cost
$
2

 
$
1

 
$
3

 
$
2

Interest cost
27

 
28

 
54

 
56

Expected return on assets
(57
)
 
(58
)
 
(113
)
 
(114
)
Recognition of net actuarial loss
8

 
7

 
16

 
15

Amortization of prior service credit

 

 

 

 
$
(20
)
 
$
(22
)
 
$
(40
)
 
$
(41
)
Supplementary Retirement Plan
 
 
 
 
 
 
 
Service cost
$

 
$

 
$

 
$

Interest cost
5

 
6

 
11

 
12

Recognition of net actuarial loss
2

 
2

 
4

 
4

Amortization of prior service cost

 

 

 

 
$
7

 
$
8

 
$
15

 
$
16

 
 
 
 
 
 
 
 
Total Retirement Expense
$
11

 
$
12

 
$
20

 
$
25

 
 
 
 
 
 
 
 
Postretirement Obligations
 
 
 
 
 
 
 
Service cost
$

 
$

 
$

 
$

Interest cost
2

 
1

 
3

 
3

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

 

 

 

 
$
1

 
$

 
$
1

 
$
1


During the 13 and 26 weeks ended July 29, 2017, the Company incurred $51 million of non-cash settlement charges relating to the Company's defined benefit plans. During the 13 and 26 weeks ended July 30, 2016, the Company also incurred $6 million and $19 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses associated with the Company's defined benefit plans and are a result of an increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring, in addition to periodic distribution activity.


9

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


5.    Fair Value Measurements
The following table shows the Company's financial assets that are required to be measured at fair value on a recurring basis, by level within the hierarchy as defined by applicable accounting standards:
 
 
July 29, 2017
 
July 30, 2016
 
 
 
Fair Value Measurements
 
 
 
Fair Value Measurements
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(millions)
Marketable equity and debt securities
$
99

 
$
22

 
$
77

 
$

 
$
141

 
$
18

 
$
123

 
$


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 of these financial instruments approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are generally estimated based on quoted market prices for identical or similar instruments, and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards.
The following table shows the estimated fair value of the Company's long-term debt:
 
 
July 29, 2017
 
July 30, 2016
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
(millions)
Long-term debt
$
6,209

 
$
6,274

 
$
6,217

 
$
6,461

 
$
6,540

 
$
6,822


6.    Condensed Consolidating Financial Information
Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent"), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, "Other Subsidiaries" includes all other direct subsidiaries of Parent, including bluemercury, Inc., FDS Bank, West 34th Street Insurance Company New York, Macy's Merchandising Corporation, Macy's Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (Hong Kong) Limited, Macy's Merchandising Group Procurement, LLC, Macy's Merchandising Group International, LLC, Macy's Merchandising Group International (Hong Kong) Limited, and its majority-owned subsidiary Macy's China Limited. "Subsidiary Issuer" includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in "Other Subsidiaries."
Condensed Consolidating Statements of Comprehensive Income for the 13 and 26 weeks ended July 29, 2017 and July 30, 2016, Condensed Consolidating Balance Sheets as of July 29, 2017, July 30, 2016 and January 28, 2017, and the related Condensed Consolidating Statements of Cash Flows for the 26 weeks ended July 29, 2017 and July 30, 2016 are presented on the following pages.

10

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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended July 29, 2017
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$
2,186

 
$
4,739

 
$
(1,373
)
 
$
5,552

Cost of sales

 
(1,356
)
 
(3,330
)
 
1,373

 
(3,313
)
Gross margin

 
830

 
1,409

 

 
2,239

Selling, general and administrative expenses

 
(848
)
 
(1,129
)
 

 
(1,977
)
Gains on sale of real estate

 
26

 
17

 

 
43

Settlement charges

 
(17
)
 
(34
)
 

 
(51
)
Operating income (loss)

 
(9
)
 
263

 

 
254

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
2

 
(82
)
 
1

 

 
(79
)
Intercompany

 
(34
)
 
34

 

 

Net premiums on early retirement of debt

 
2

 

 

 
2

Equity in earnings of subsidiaries
114

 
39

 

 
(153
)
 

Income (loss) before income taxes
116

 
(84
)
 
298

 
(153
)
 
177

Federal, state and local income
tax benefit (expense)

 
52

 
(116
)
 

 
(64
)
Net income (loss)
116

 
(32
)
 
182

 
(153
)
 
113

Net loss attributable to noncontrolling interest

 

 
3

 

 
3

Net income (loss) attributable to
Macy's, Inc. shareholders
$
116

 
$
(32
)
 
$
185

 
$
(153
)
 
$
116

Comprehensive income (loss)
$
181

 
$
29

 
$
226

 
$
(258
)
 
$
178

Comprehensive loss attributable to
noncontrolling interest

 

 
3

 

 
3

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
181

 
$
29

 
$
229

 
$
(258
)
 
$
181


11

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



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended July 30, 2016
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$
2,494

 
$
4,989

 
$
(1,617
)
 
$
5,866

Cost of sales

 
(1,523
)
 
(3,562
)
 
1,617

 
(3,468
)
Gross margin

 
971

 
1,427

 

 
2,398

Selling, general and administrative expenses

 
(957
)
 
(1,090
)
 

 
(2,047
)
Gains on sale of real estate

 
16

 
5

 

 
21

Impairments and other costs

 
(184
)
 
(65
)
 

 
(249
)
Settlement charges

 
(2
)
 
(4
)
 

 
(6
)
Operating income (loss)

 
(156
)
 
273

 

 
117

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External

 
(97
)
 

 

 
(97
)
Intercompany

 
(57
)
 
57

 

 

Equity in earnings of subsidiaries
11

 
22

 

 
(33
)
 

Income (loss) before income taxes
11

 
(288
)
 
330

 
(33
)
 
20

Federal, state and local income
tax benefit (expense)

 
114

 
(125
)
 

 
(11
)
Net income (loss)
11

 
(174
)
 
205

 
(33
)
 
9

Net loss attributable to noncontrolling interest

 

 
2

 

 
2

Net income (loss) attributable to
Macy's, Inc. shareholders
$
11

 
$
(174
)
 
$
207

 
$
(33
)
 
$
11

Comprehensive income (loss)
$
(6
)
 
$
(191
)
 
$
195

 
$
(6
)
 
$
(8
)
Comprehensive loss attributable to
noncontrolling interest

 

 
2

 

 
2

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
(6
)
 
$
(191
)
 
$
197

 
$
(6
)
 
$
(6
)



12

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



Condensed Consolidating Statement of Comprehensive Income
For the 26 weeks ended July 29, 2017
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$
4,242

 
$
9,866

 
$
(3,218
)
 
$
10,890

Cost of sales

 
(2,735
)
 
(7,102
)
 
3,218

 
(6,619
)
Gross margin

 
1,507

 
2,764

 

 
4,271

Selling, general and administrative expenses
(1
)
 
(1,617
)
 
(2,239
)
 

 
(3,857
)
Gains on sale of real estate

 
92

 
19

 

 
111

Settlement charges

 
(17
)
 
(34
)
 

 
(51
)
Operating income (loss)
(1
)
 
(35
)
 
510

 

 
474

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
3

 
(167
)
 
1

 

 
(163
)
Intercompany

 
(69
)
 
69

 

 

Net premiums on early retirement of debt

 
(1
)
 

 

 
(1
)
Equity in earnings of subsidiaries
186

 
30

 

 
(216
)
 

Income (loss) before income taxes
188

 
(242
)
 
580

 
(216
)
 
310

Federal, state and local income
tax benefit (expense)
(1
)
 
84

 
(210
)
 

 
(127
)
Net income (loss)
187

 
(158
)
 
370

 
(216
)
 
183

Net loss attributable to noncontrolling interest

 

 
4

 

 
4

Net income (loss) attributable to
Macy's, Inc. shareholders
$
187

 
$
(158
)
 
$
374

 
$
(216
)
 
$
187

Comprehensive income (loss)
$
258

 
$
(91
)
 
$
417

 
$
(330
)
 
$
254

Comprehensive loss attributable to
noncontrolling interest

 

 
4

 

 
4

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
258

 
$
(91
)
 
$
421

 
$
(330
)
 
$
258















13

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



Condensed Consolidating Statement of Comprehensive Income
For the 26 weeks ended July 30, 2016
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$
4,948

 
$
10,363

 
$
(3,674
)
 
$
11,637

Cost of sales

 
(3,127
)
 
(7,531
)
 
3,674

 
(6,984
)
Gross margin

 
1,821

 
2,832

 

 
4,653

Selling, general and administrative expenses
(1
)
 
(1,853
)
 
(2,173
)
 

 
(4,027
)
Gains on sale of real estate

 
30

 
5

 

 
35

Impairments and other costs

 
(184
)
 
(65
)
 

 
(249
)
Settlement charges

 
(5
)
 
(14
)
 

 
(19
)
Operating income (loss)
(1
)
 
(191
)
 
585

 

 
393

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External
1

 
(196
)
 

 

 
(195
)
Intercompany

 
(115
)
 
115

 

 

Equity in earnings of subsidiaries
127

 
32

 

 
(159
)
 

Income (loss) before income taxes
127

 
(470
)
 
700

 
(159
)
 
198

Federal, state and local income
tax benefit (expense)

 
175

 
(249
)
 

 
(74
)
Net income (loss)
127

 
(295
)
 
451

 
(159
)
 
124

Net loss attributable to noncontrolling interest

 

 
3

 

 
3

Net income (loss) attributable to
Macy's, Inc. shareholders
$
127

 
$
(295
)
 
$
454

 
$
(159
)
 
$
127

Comprehensive income (loss)
$
102

 
$
(320
)
 
$
436

 
$
(119
)
 
$
99

Comprehensive loss attributable to
noncontrolling interest

 

 
3

 

 
3

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
102

 
$
(320
)
 
$
439

 
$
(119
)
 
$
102















14

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



Condensed Consolidating Balance Sheet
As of July 29, 2017
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
421

 
$
78

 
$
284

 
$

 
$
783

Receivables

 
132

 
250

 

 
382

Merchandise inventories

 
2,236

 
2,744

 

 
4,980

Prepaid expenses and other current assets

 
82

 
330

 

 
412

Total Current Assets
421

 
2,528

 
3,608

 

 
6,557

Property and Equipment – net

 
3,202

 
3,620

 

 
6,822

Goodwill

 
3,315

 
582

 

 
3,897

Other Intangible Assets – net

 
47

 
446

 

 
493

Other Assets
1

 
53

 
756

 

 
810

Deferred Income Taxes
25

 

 

 
(25
)
 

Intercompany Receivable
1,011

 

 
2,065

 
(3,076
)
 

Investment in Subsidiaries
3,054

 
3,690

 

 
(6,744
)
 

Total Assets
$
4,512

 
$
12,835

 
$
11,077

 
$
(9,845
)
 
$
18,579

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

 
$
6

 
$
10

 
$

 
$
16

Merchandise accounts payable

 
698

 
971

 

 
1,669

Accounts payable and accrued liabilities
24

 
900

 
1,949

 

 
2,873

Income taxes
28

 
2

 
22

 

 
52

Total Current Liabilities
52

 
1,606

 
2,952

 

 
4,610

Long-Term Debt

 
6,284

 
17

 

 
6,301

Intercompany Payable

 
3,076

 

 
(3,076
)
 

Deferred Income Taxes

 
720

 
817

 
(25
)
 
1,512

Other Liabilities
72

 
425

 
1,276

 

 
1,773

Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Macy's, Inc.
4,388

 
724

 
6,020

 
(6,744
)
 
4,388

Noncontrolling Interest

 

 
(5
)
 

 
(5
)
Total Shareholders' Equity
4,388

 
724

 
6,015

 
(6,744
)
 
4,383

Total Liabilities and Shareholders' Equity
$
4,512

 
$
12,835

 
$
11,077

 
$
(9,845
)
 
$
18,579








15

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



Condensed Consolidating Balance Sheet
As of July 30, 2016
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
621

 
$
89

 
$
290

 
$

 
$
1,000

Receivables

 
146

 
277

 

 
423

Merchandise inventories

 
2,500

 
2,822

 

 
5,322

Income tax receivable
8

 
11

 

 
(19
)
 

Prepaid expenses and other current assets

 
84

 
387

 

 
471

Total Current Assets
629

 
2,830

 
3,776

 
(19
)
 
7,216

Property and Equipment – net

 
3,586

 
3,601

 

 
7,187

Goodwill

 
3,315

 
582

 

 
3,897

Other Intangible Assets – net

 
49

 
453

 

 
502

Other Assets

 
155

 
749

 

 
904

Deferred Income Taxes
23

 

 

 
(23
)
 

Intercompany Receivable

 

 
2,710

 
(2,710
)
 

Investment in Subsidiaries
4,524

 
3,247

 

 
(7,771
)
 

Total Assets
$
5,176

 
$
13,182

 
$
11,871

 
$
(10,523
)
 
$
19,706

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

 
$
1,062

 
$
1

 
$

 
$
1,063

Merchandise accounts payable

 
825

 
1,052

 

 
1,877

Accounts payable and accrued liabilities
29

 
1,380

 
1,105

 

 
2,514

Income taxes

 

 
42

 
(19
)
 
23

Total Current Liabilities
29

 
3,267

 
2,200

 
(19
)
 
5,477

Long-Term Debt

 
6,549

 
18

 

 
6,567

Intercompany Payable
1,043

 
1,667

 

 
(2,710
)
 

Deferred Income Taxes

 
653

 
818

 
(23
)
 
1,448

Other Liabilities
58

 
573

 
1,533

 

 
2,164

Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Macy's, Inc.
4,046

 
473

 
7,298

 
(7,771
)
 
4,046

Noncontrolling Interest

 

 
4

 

 
4

Total Shareholders' Equity
4,046

 
473

 
7,302

 
(7,771
)
 
4,050

Total Liabilities and Shareholders' Equity
$
5,176

 
$
13,182

 
$
11,871

 
$
(10,523
)
 
$
19,706







16

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



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

 
$
81

 
$
278

 
$

 
$
1,297

Receivables

 
169

 
353

 

 
522

Merchandise inventories

 
2,565

 
2,834

 

 
5,399

Prepaid expenses and other current assets

 
84

 
324

 

 
408

Total Current Assets
938

 
2,899

 
3,789

 

 
7,626

Property and Equipment – net

 
3,397

 
3,620

 

 
7,017

Goodwill

 
3,315

 
582

 

 
3,897

Other Intangible Assets – net

 
51