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 30, 2016

OR

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

For the transition period from    to

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 (Do not check if a smaller reporting company)
 
Smaller reporting company  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 30, 2016
Common Stock, $0.01 par value per share
 
308,467,833 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 30, 2016
 
August 1, 2015
 
July 30, 2016
 
August 1, 2015
Net sales
$
5,866

 
$
6,104

 
$
11,637

 
$
12,336

Cost of sales
(3,468
)
 
(3,610
)
 
(6,984
)
 
(7,410
)
Gross margin
2,398

 
2,494

 
4,653

 
4,926

Selling, general and administrative expenses
(2,026
)
 
(2,058
)
 
(3,992
)
 
(4,081
)
Impairments and other costs
(249
)
 

 
(249
)
 

Settlement charges
(6
)
 

 
(19
)
 

Operating income
117

 
436

 
393

 
845

Interest expense
(98
)
 
(94
)
 
(197
)
 
(189
)
Interest income
1

 
1

 
2

 
1

Income before income taxes
20

 
343

 
198

 
657

Federal, state and local income tax expense
(11
)
 
(126
)
 
(74
)
 
(247
)
Net income
9

 
217

 
124

 
410

Net loss attributable to noncontrolling interest
2

 

 
3

 

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

 
$
217

 
$
127

 
$
410

Basic earnings per share attributable to Macy's, Inc. shareholders
$
.03

 
$
.65

 
$
.41

 
$
1.21

Diluted earnings per share attributable to Macy's, Inc. shareholders
$
.03

 
$
.64

 
$
.41

 
$
1.19


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 30, 2016
 
August 1, 2015
 
July 30, 2016
 
August 1, 2015
Net income
$
9

 
$
217

 
$
124

 
$
410

Other comprehensive income (loss):
 
 
 
 
 
 
 
Actuarial loss on postretirement benefit plans, before tax
(41
)
 

 
(77
)
 

Settlement charges, before tax
6

 

 
19

 

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

 
11

 
17

 
24

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

 
(4
)
 
16

 
(9
)
Total other comprehensive income (loss), net of tax effect
(17
)
 
7

 
(25
)
 
15

Comprehensive income (loss)
(8
)
 
224

 
99

 
425

Comprehensive loss attributable to noncontrolling interest
2

 

 
3

 

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
(6
)
 
$
224

 
$
102

 
$
425


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


3


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

(millions)
 
 
 
 
 
 
 
 
July 30, 2016
 
January 30, 2016
 
August 1, 2015
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
1,000

 
$
1,109

 
$
843

Receivables
423

 
558

 
334

Merchandise inventories
5,322

 
5,506

 
5,496

Prepaid expenses and other current assets
471

 
479

 
437

Total Current Assets
7,216

 
7,652

 
7,110

Property and Equipment - net of accumulated depreciation and
amortization of $5,457, $5,319 and $5,974
7,187

 
7,616

 
7,704

Goodwill
3,897

 
3,897

 
3,897

Other Intangible Assets – net
502

 
514

 
523

Other Assets
904

 
897

 
726

Total Assets
$
19,706

 
$
20,576

 
$
19,960

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Short-term debt
$
1,063

 
$
642

 
$
83

Merchandise accounts payable
1,877

 
1,526

 
1,942

Accounts payable and accrued liabilities
2,514

 
3,333

 
2,277

Income taxes
23

 
227

 
64

Total Current Liabilities
5,477

 
5,728

 
4,366

Long-Term Debt
6,567

 
6,995

 
7,151

Deferred Income Taxes
1,448

 
1,477

 
1,449

Other Liabilities
2,164

 
2,123

 
2,150

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

 
4,250

 
4,844

Noncontrolling interest
4

 
3

 

Total Shareholders’ Equity
4,050

 
4,253

 
4,844

Total Liabilities and Shareholders’ Equity
$
19,706

 
$
20,576

 
$
19,960


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 30, 2016
 
August 1, 2015
Cash flows from operating activities:
 
 
 
Net income
$
124

 
$
410

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Impairments and other costs
249

 

Settlement charges
19

 

Depreciation and amortization
520

 
520

Stock-based compensation expense
37

 
47

Amortization of financing costs and premium on acquired debt
(1
)
 
(2
)
Changes in assets and liabilities:
 
 
 
 Decrease in receivables
99

 
92

(Increase) decrease in merchandise inventories
184

 
(50
)
 Increase in prepaid expenses and other current assets
(40
)
 
(29
)
 Increase in other assets not separately identified

 

 Increase in merchandise accounts payable
307

 
314

 Decrease in accounts payable, accrued liabilities
and other items not separately identified
(686
)
 
(626
)
 Decrease in current income taxes
(204
)
 
(232
)
 Decrease in deferred income taxes
(26
)
 
(20
)
 Decrease in other liabilities not separately identified
(22
)
 
(26
)
Net cash provided by operating activities
560

 
398

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(293
)
 
(367
)
Capitalized software
(151
)
 
(144
)
Acquisition of Bluemercury, Inc., net of cash acquired

 
(212
)
Disposition of property and equipment
67

 
4

Other, net
39

 
104

Net cash used by investing activities
(338
)
 
(615
)
Cash flows from financing activities:
 
 
 
Debt repaid
(3
)
 
(72
)
Financing costs
(3
)
 

Dividends paid
(228
)
 
(227
)
Increase (decrease) in outstanding checks
2

 
(136
)
Acquisition of treasury stock
(130
)
 
(909
)
Issuance of common stock
27

 
158

Proceeds from noncontrolling interest
4

 

Net cash used by financing activities
(331
)
 
(1,186
)
 
 
 
 
Net decrease in cash and cash equivalents
(109
)
 
(1,403
)
Cash and cash equivalents beginning of period
1,109

 
2,246

Cash and cash equivalents end of period
$
1,000

 
$
843

Supplemental cash flow information:
 
 
 
Interest paid
$
200

 
$
194

Interest received
2

 
1

Income taxes paid (net of refunds received)
292

 
450

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 880 Macy's, Macy's Backstage, Bloomingdale's, Bloomingdales Outlet and Bluemercury stores in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com, bloomingdales.com and bluemercury.com. In addition, Bloomingdale's in Dubai, United Arab Emirates is operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
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 30, 2016 (the "2015 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2015 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 30, 2016 and August 1, 2015, 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 30, 2016 and August 1, 2015 (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 components of total comprehensive income for the 13 and 26 weeks ended July 30, 2016 and August 1, 2015 relate to post employment and postretirement plan items. The settlement charges incurred are included as a separate component of operating expenses in the Consolidated Statements of Income. The 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.


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 30, 2016
 
August 1, 2015
 
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
$
11

 
 
 
308.5

 
$
217

 
 
 
334.9

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.9

 
 
 
 
 
0.8

 
$
11

 
 
 
309.4

 
$
217

 
 
 
335.7

Basic earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.03

 
 
 
 
 
$
.65

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
1.9

 
 
 
 
 
5.3

 
$
11

 
 
 
311.3

 
$
217

 
 
 
341.0

Diluted earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.03

 
 
 
 
 
$
.64

 
 

 
26 Weeks Ended
 
July 30, 2016
 
August 1, 2015
 
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
$
127

 
 
 
309.1

 
$
410

 
 
 
337.3

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.9

 
 
 
 
 
0.9

 
$
127

 
 
 
310.0

 
$
410

 
 
 
338.2

Basic earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.41

 
 
 
 
 
$
1.21

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
 
 
 
 
2.4

 
 
 
 
 
5.5

 
$
127

 
 
 
312.4

 
$
410

 
 
 
343.7

Diluted earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
.41

 
 
 
 
 
$
1.19

 
 

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 for the 13 and 26 weeks ended July 30, 2016 because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 3.4 million shares of common stock and restricted stock units relating to 1.1 million shares of common stock were outstanding at August 1, 2015, but were not included in the computation of diluted earnings per share for the 13 and 26 weeks ended August 1, 2015 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 30, 2016
 
August 1, 2015
 
(millions)
7.5% Senior debentures due 2015
$

 
$
69

9.5% amortizing debentures due 2021
2

 
2

9.75% amortizing debentures due 2021
1

 
1

 
$
3

 
$
72

The Company entered into a credit agreement with certain financial institutions on May 6, 2016 providing for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing) outstanding at any particular time. This agreement is set to expire May 6, 2021 and replaces the prior agreement which was set to expire May 10, 2018.
On August 15, 2016, the Company redeemed at par the principal amount of $108 million of 7.875% senior debentures due 2036, pursuant to the terms of the debentures. Interest expense in the third quarter of 2016 will be lower due to the recognition of unamortized debt premium associated with this debt.
During the 26 weeks ended July 30, 2016, the Company repurchased approximately 3.0 million shares of its common stock pursuant to existing stock purchase authorizations for a total of approximately $129 million, and no shares of its common stock were repurchased during the 13 weeks ended July 30, 2016. As of July 30, 2016, the Company had $1,903 million of authorization remaining under its share repurchase program. The Company may repurchase shares under its share repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors.


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

8

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


The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:
 
13 Weeks Ended
 
26 Weeks Ended
 
July 30, 2016
 
August 1, 2015
 
July 30, 2016
 
August 1, 2015
 
(millions)
 
 
 
 
401(k) Qualified Defined Contribution Plan
$
25

 
$
24

 
$
49

 
$
47

 
 
 
 
 
 
 
 
Non-Qualified Defined Contribution Plan
$
1

 
$
1

 
$
1

 
$
1

 
 
 
 
 
 
 
 
Pension Plan
 
 
 
 
 
 
 
Service cost
$
1

 
$
1

 
$
2

 
$
3

Interest cost
28

 
34

 
56

 
68

Expected return on assets
(58
)
 
(58
)
 
(114
)
 
(117
)
Recognition of net actuarial loss
7

 
9

 
15

 
19

Amortization of prior service credit

 

 

 

 
$
(22
)
 
$
(14
)
 
$
(41
)
 
$
(27
)
Supplementary Retirement Plan
 
 
 
 
 
 
 
Service cost
$

 
$

 
$

 
$

Interest cost
6

 
8

 
12

 
16

Recognition of net actuarial loss
2

 
2

 
4

 
5

Amortization of prior service cost

 

 

 

 
$
8

 
$
10

 
$
16

 
$
21

 
 
 
 
 
 
 
 
Total Retirement Expense
$
12

 
$
21

 
$
25

 
$
42

 
 
 
 
 
 
 
 
Postretirement Obligations
 
 
 
 
 
 
 
Service cost
$

 
$

 
$

 
$

Interest cost
1

 
2

 
3

 
4

Recognition of net actuarial gain
(1
)
 

 
(2
)
 

Amortization of prior service cost

 

 

 

 
$

 
$
2

 
$
1

 
$
4


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 resulted from 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 30, 2016
 
August 1, 2015
 
 
 
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
$
141

 
$

 
$
141

 
$

 
$
101

 
$

 
$
101

 
$


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 30, 2016
 
August 1, 2015
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
(millions)
Long-term debt
$
6,461

 
$
6,540

 
$
6,822

 
$
7,012

 
$
7,123

 
$
7,585


The Company reviews the carrying value of its goodwill and other intangible assets with indefinite lives at least annually for possible impairment in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” Goodwill has been assigned to reporting units for purposes of impairment testing. The reporting units are the Company's retail operations. Goodwill and other intangible assets with indefinite lives are tested for impairment annually at the end of the fiscal month of May.
During the second quarter of fiscal 2016, the Company completed its annual impairment test of goodwill and other intangible assets with indefinite lives. In connection with the preparation of these consolidated financial statements, management concluded that goodwill was not impaired as of May 30, 2016 and approximately $7 million of asset impairment charges for the 13 and 26 weeks ended July 30, 2016 were recognized in relation to indefinite lived tradenames. The fair values of these tradenames were calculated based on the projected cash flows and an estimated risk-adjusted rate of return that would be used by market participants in valuing these assets or prices of similar assets and are classified as Level 3 measurements within the hierarchy as defined by applicable accounting standards.
The use of different assumptions, estimates or judgments in the testing process, including with respect to the analysis of macroeconomic conditions, industry, market and other economic considerations and actual and expected financial performance, the estimated future cash flows and the discount rates used to discount such estimated cash flows to their net present values, could materially increase or decrease the estimated fair values and, accordingly, could impact the results of the annual impairment tests.
The carrying value of long-lived assets is periodically reviewed by the Company whenever events or changes in circumstances indicate that a potential impairment has occurred. For long-lived assets held for use, a potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from the use of those assets in operations. When a potential impairment has occurred, an impairment write-down is recorded if the carrying value of the long-lived asset exceeds its fair value.

10

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


The Company has announced a plan to dispose of approximately 100 Macy’s stores before the end of their previously estimated useful lives as the Company works to optimize its omnichannel approach to customers. As a result, an impairment review of the Company’s long-lived assets was required and estimated cash flows have been revised accordingly. As part of this impairment review during the 13 weeks ended July 30, 2016, long-lived assets held and used with a carrying value of $326 million were written down to their fair value of $106 million, resulting in asset impairment charges of $220 million. The fair values of these locations were calculated based on the projected cash flows and an estimated risk-adjusted rate of return that would be used by market participants in valuing these assets or prices of similar assets and are classified as Level 3 measurements within the hierarchy as defined by applicable accounting standards. Additionally, related liabilities will arise such as severance, contractual obligations and other accruals associated with store closings when the final determination is made regarding which Macy’s stores will be closed. The Company estimates these liabilities based on the facts and circumstances in existence for each restructuring decision. The amounts the Company will ultimately realize or disburse could differ from the amounts assumed in arriving at the asset impairment charges recorded and any restructuring charge recorded in the future.
The Company believes its estimated cash flows are sufficient to support the carrying value of its long-lived assets. If estimated cash flows significantly differ in the future, the Company may be required to record additional asset impairment write-downs.

6.    Condensed Consolidating Financial Information
Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent"), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, "Other Subsidiaries" includes all other direct subsidiaries of Parent, including Bluemercury, Inc., FDS Bank, West 34th Street Insurance Company and its subsidiary West 34th Street Insurance Company New York, Macy's Merchandising Corporation, Macy's Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (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 30, 2016 and August 1, 2015, Condensed Consolidating Balance Sheets as of July 30, 2016, August 1, 2015 and January 30, 2016, and the related Condensed Consolidating Statements of Cash Flows for the 26 weeks ended July 30, 2016 and August 1, 2015 are presented on the following pages.

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

 
(941
)
 
(1,085
)
 

 
(2,026
)
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 13 Weeks Ended August 1, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$
2,761

 
$
5,049

 
$
(1,706
)
 
$
6,104

Cost of sales

 
(1,688
)
 
(3,628
)
 
1,706

 
(3,610
)
Gross margin

 
1,073

 
1,421

 

 
2,494

Selling, general and administrative expenses

 
(1,025
)
 
(1,033
)
 

 
(2,058
)
Operating income

 
48

 
388

 

 
436

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External

 
(93
)
 

 

 
(93
)
Intercompany

 
(57
)
 
57

 

 

Equity in earnings of subsidiaries
217

 
86

 

 
(303
)
 

Income (loss) before income taxes
217

 
(16
)
 
445

 
(303
)
 
343

Federal, state and local income
tax benefit (expense)

 
42

 
(168
)
 

 
(126
)
Net income
217

 
26

 
277

 
(303
)
 
217

Net loss attributable to noncontrolling interest

 

 

 

 

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

 
$
26

 
$
277

 
$
(303
)
 
$
217

Comprehensive income
$
224

 
$
33

 
$
282

 
$
(315
)
 
$
224

Comprehensive loss attributable to
noncontrolling interest

 

 

 

 

Comprehensive income attributable to
Macy's, Inc. shareholders
$
224

 
$
33

 
$
282

 
$
(315
)
 
$
224



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
)
 
(1,823
)
 
(2,168
)
 

 
(3,992
)
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 Statement of Comprehensive Income
For the 26 Weeks Ended August 1, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net sales
$

 
$
5,537

 
$
10,740

 
$
(3,941
)
 
$
12,336

Cost of sales

 
(3,497
)
 
(7,854
)
 
3,941

 
(7,410
)
Gross margin

 
2,040

 
2,886

 

 
4,926

Selling, general and administrative expenses
(1
)
 
(2,005
)
 
(2,075
)
 

 
(4,081
)
Operating income (loss)
(1
)
 
35

 
811

 

 
845

Interest (expense) income, net:
 
 
 
 
 
 
 
 
 
External

 
(188
)
 

 

 
(188
)
Intercompany

 
(115
)
 
115

 

 

Equity in earnings of subsidiaries
411

 
146

 

 
(557
)
 

Income (loss) before income taxes
410

 
(122
)
 
926

 
(557
)
 
657

Federal, state and local income
tax benefit (expense)

 
79

 
(326
)
 

 
(247
)
Net income (loss)
410

 
(43
)
 
600

 
(557
)
 
410

Net loss attributable to noncontrolling interest

 

 

 

 

Net income (loss) attributable to
Macy's, Inc. shareholders
$
410

 
$
(43
)
 
$
600

 
$
(557
)
 
$
410

Comprehensive income (loss)
$
425

 
$
(28
)
 
$
609

 
$
(581
)
 
$
425

Comprehensive loss attributable to
noncontrolling interest

 

 

 

 

Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
$
425

 
$
(28
)
 
$
609

 
$
(581
)
 
$
425


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 August 1, 2015
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
511

 
$
76

 
$
256

 
$

 
$
843

Receivables

 
85

 
249

 

 
334

Merchandise inventories

 
2,712

 
2,784

 

 
5,496

Income tax receivable
98

 

 

 
(98
)
 

Prepaid expenses and other current assets

 
104

 
333

 

 
437

Total Current Assets
609

 
2,977

 
3,622

 
(98
)
 
7,110

Property and Equipment – net

 
4,230

 
3,474

 

 
7,704

Goodwill

 
3,315

 
582

 

 
3,897

Other Intangible Assets – net

 
62

 
461

 

 
523

Other Assets
2

 
44

 
680

 

 
726

Deferred Income Taxes
24

 

 

 
(24
)
 

Intercompany Receivable

 

 
3,634

 
(3,634
)
 

Investment in Subsidiaries
4,779

 
3,640

 

 
(8,419
)
 

Total Assets
$
5,414

 
$
14,268

 
$
12,453

 
$
(12,175
)
 
$
19,960

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

 
$
82

 
$
1

 
$

 
$
83

Merchandise accounts payable

 
930

 
1,012

 

 
1,942

Accounts payable and accrued liabilities
23

 
980

 
1,274

 

 
2,277

Income taxes

 
10

 
152

 
(98
)
 
64

Total Current Liabilities
23

 
2,002

 
2,439

 
(98
)
 
4,366

Long-Term Debt

 
7,132

 
19

 

 
7,151

Intercompany Payable
483

 
3,151

 

 
(3,634
)
 

Deferred Income Taxes

 
736

 
737

 
(24
)
 
1,449

Other Liabilities
64

 
551

 
1,535

 

 
2,150

Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Macy's, Inc.
4,844

 
696

 
7,723

 
(8,419
)
 
4,844

Noncontrolling Interest

 

 

 

 

Total Shareholders' Equity
4,844

 
696

 
7,723

 
(8,419
)
 
4,844

Total Liabilities and Shareholders' Equity
$
5,414

 
$
14,268

 
$
12,453

 
$
(12,175
)
 
$
19,960







17

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


Condensed Consolidating Balance Sheet
As of January 30, 2016
(millions)
 
 
Parent
 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
741

 
$
91

 
$
277

 
$

 
$
1,109

Receivables

 
217

 
341

 

 
558

Merchandise inventories

 
2,702

 
2,804

 

 
5,506

Income tax receivable
44

 

 

 
(44
)
 

Prepaid expenses and other current assets

 
135

 
344

 

 
479

Total Current Assets
785

 
3,145

 
3,766

 
(44
)
 
7,652

Property and Equipment – net

 
3,925

 
3,691

 

 
7,616

Goodwill

 
3,315

 
582

 

 
3,897

Other Intangible Assets – net

 
52

 
462

 

 
514

Other Assets

 
154

 
743

 

 
897

Deferred Income Taxes
14

 

 

 
(14
)
 

Intercompany Receivable

 

 
3,800

 
(3,800
)
 

Investment in Subsidiaries
4,725

 
3,804

 

 
(8,529
)
 

Total Assets
$
5,524

 
$
14,395

 
$
13,044

 
$
(12,387
)
 
$
20,576

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

 
$
641

 
$
1

 
$

 
$
642

Merchandise accounts payable