Macy's Earnings 2019-05-04

M 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 m-05041910q.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended May 4, 2019


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	and	151 West 34th Street New York, New York 10001
(513) 579-7000		(212) 494-1602

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	M	New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	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 June 1, 2019
Common Stock, $.01 par value per share		308,871,513 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 4, 2019			May 5, 2018
Net sales	$	5,504		$	5,541
Credit card revenues, net	172			157

Cost of sales	(3,403		)	(3,382		)
Selling, general and administrative expenses	(2,112		)	(2,083		)
Gains on sale of real estate	43			24
Impairment and other costs	(1		)	(19		)
Operating income	203			238
Benefit plan income, net	7			11
Interest expense	(54		)	(71		)
Interest income	7			5
Income before income taxes	163			183
Federal, state and local income tax expense	(27		)	(52		)
Net income	136			131
Net loss attributable to noncontrolling interest	—			8
Net income attributable to Macy's, Inc. shareholders	$	136		$	139
Basic earnings per share attributable to Macy's, Inc. shareholders	$	0.44		$	0.45
Diluted earnings per share attributable to Macy's, Inc. shareholders	$	0.44		$	0.45

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

MACY’S, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(millions)




	13 Weeks Ended
	May 4, 2019			May 5, 2018
Net income	$	136		$	131
Reclassifications to net income:
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax	8			9
Tax effect related to items of other comprehensive income	(2		)	(2		)
Total other comprehensive income, net of tax effect	6			7
Comprehensive income	142			138
Comprehensive loss attributable to noncontrolling interest	—			8
Comprehensive income attributable to Macy's, Inc. shareholders	$	142		$	146

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

MACY’S, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(millions)




	May 4, 2019		February 2, 2019		May 5, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	737	$	1,162	$	1,531
Receivables	237		400		250
Merchandise inventories	5,498		5,263		5,291
Prepaid expenses and other current assets	633		620		638
Total Current Assets	7,105		7,445		7,710
Property and Equipment - net of accumulated depreciation and amortization of $4,621, $4,495 and $4,765	6,499		6,637		6,575
Right of Use Assets	2,631		—		—
Goodwill	3,908		3,908		3,908
Other Intangible Assets – net	441		478		486
Other Assets	712		726		889
Total Assets	$	21,296	$	19,194	$	19,568
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	41	$	43	$	25
Merchandise accounts payable	1,950		1,655		2,045
Accounts payable and accrued liabilities	2,846		3,366		2,695
Income taxes	182		168		312
Total Current Liabilities	5,019		5,232		5,077
Long-Term Debt	4,680		4,708		5,857
Long-Term Lease Liabilities	2,823		—		—
Deferred Income Taxes	1,193		1,238		1,169
Other Liabilities	1,258		1,580		1,664
Shareholders' Equity:
Macy's, Inc.	6,323		6,436		5,821
Noncontrolling interest	—		—		(20		)
Total Shareholders’ Equity	6,323		6,436		5,801
Total Liabilities and Shareholders’ Equity	$	21,296	$	19,194	$	19,568

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

MACY’S, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

(millions)




	Common Stock		Additional Paid-In Capital			Accumulated Equity			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance at February 2, 2019	$	3	$	652		$	8,050		$	(1,318	)	$	(951	)	$	6,436
Cumulative-effect adjustment (a)						(158		)							(158		)
Net income						136									136
Other comprehensive income												6			6
Common stock dividends ($0.3775 per share)						(117		)							(117		)
Stock-based compensation expense			14												14
Stock issued under stock plans			(60		)				66						6
Balance at May 4, 2019	$	3	$	606		$	7,911		$	(1,252	)	$	(945	)	$	6,323

(a) Represents the cumulative-effect adjustment to retained earnings for the adoption of Accounting Standards Update 2016-02 (ASU-2016-02), Leases (Topic 842), on February 3, 2019.




	Common Stock		Additional Paid-In Capital			Accumulated Equity			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Macy's, Inc. Shareholders’ Equity			Non-controlling Interest			Total Shareholders' Equity
Balance at February 3, 2018	$	3	$	676		$	7,246		$	(1,456	)	$	(724	)	$	5,745		$	(12	)	$	5,733
Net income (loss)						139									139			(8		)	131
Other comprehensive income												7			7						7
Common stock dividends ($0.3775 per share)						(116		)							(116		)				(116		)
Stock-based compensation expense			17												17						17
Stock issued under stock plans			(51		)				80						29						29
Stranded tax costs (b)						164						(164		)	—						—
Balance at May 5, 2018	$	3	$	642		$	7,433		$	(1,376	)	$	(881	)	$	5,821		$	(20	)	$	5,801

(b) Represents the reclassification of stranded tax effects to retained earnings as a result of U.S. federal tax reform.

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

MACY’S, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(millions)




	13 Weeks Ended
	May 4, 2019			May 5, 2018
Cash flows from operating activities:
Net income	$	136		$	131
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment and other costs	1			19
Depreciation and amortization	236			235
Stock-based compensation expense	14			17
Gains on sale of real estate	(43		)	(24		)
Deferred income taxes	7			19
Benefit plans	8			9
Changes in assets and liabilities:
Decrease in receivables	163			105
Increase in merchandise inventories	(235		)	(115		)
Increase in prepaid expenses and other current assets	(6		)	(20		)
Increase in merchandise accounts payable	247			415
Decrease in accounts payable and accrued liabilities	(516		)	(453		)
Increase in current income taxes	8			25
Change in other assets and liabilities not separately identified	(58		)	(41		)
Net cash provided (used) by operating activities	(38		)	322
Cash flows from investing activities:
Purchase of property and equipment	(204		)	(132		)
Capitalized software	(60		)	(58		)
Disposition of property and equipment	34			23
Other, net	(7		)	11
Net cash used by investing activities	(237		)	(156		)
Cash flows from financing activities:
Debt repaid	(3		)	(3		)
Dividends paid	(116		)	(116		)
Decrease in outstanding checks	(45		)	(10		)
Issuance of common stock	6			28
Proceeds from noncontrolling interest	—			2
Net cash used by financing activities	(158		)	(99		)
Net increase (decrease) in cash, cash equivalents and restricted cash	(433		)	67
Cash, cash equivalents and restricted cash beginning of period	1,248			1,513
Cash, cash equivalents and restricted cash end of period	$	815		$	1,580
Supplemental cash flow information:
Interest paid	$	46		$	65
Interest received	7			5
Income taxes paid (net of refunds received)	12			8

Note: Restricted cash of $78 million and $49 million have been included with cash and cash equivalents for the 13 weeks ended May 4, 2019 and May 5, 2018, respectively.

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

MACY’S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and 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 kids'), cosmetics, home furnishings and other consumer goods. The Company has stores in 43 states, the District of Columbia, Guam and Puerto Rico. As of May 4, 2019, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage and bluemercury.

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 February 2, 2019 (the "2018 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2018 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 weeks ended May 4, 2019 and May 5, 2018, 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 4, 2019 and May 5, 2018 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.

Reclassifications

Certain reclassifications were made to prior years’ amounts to conform to the classifications of such amounts in the most recent years.

Comprehensive Income

Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other components of total comprehensive income for the 13 weeks ended May 4, 2019 and May 5, 2018 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of income before income taxes 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 benefit plan income, net on the Consolidated Statements of Income. See Note 6, "Benefit Plans," for further information.

Newly Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, which requires lessees to recognize substantially all leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard was adopted by the Company on February 3, 2019 utilizing a modified retrospective approach that allowed for transition in the period of adoption. The Company adopted the package of practical expedients available at transition that

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. Contracts entered into prior to adoption were not reassessed for leases or embedded leases. Upon adoption, the Company used hindsight in determining lease term and impairment. For lease and non-lease components, the Company has elected to account for both as a single lease component.

Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $2,516 million and $2,728 million, respectively, as of February 3, 2019. The difference of $212 million between the additional net lease assets and lease liabilities, net of the deferred tax impact of $54 million, was recorded as an adjustment to retained earnings. Prepaid rent, intangible lease assets, finance lease assets, and accrued and deferred rent as of February 3, 2019 were recorded as part of the ROU asset. Finance lease obligations as of February 3, 2019 were recorded as part of the lease liabilities. The standard did not materially impact the Company's consolidated net income and had no impact on cash flows.

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
	May 4, 2019					May 5, 2018
	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	$	136			308.2	$	139			305.7
Shares to be issued under deferred compensation and other plans					0.9					0.9
	$	136			309.1	$	139			306.6
Basic earnings per share attributable to Macy's, Inc. shareholders			$	0.44				$	0.45
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units					2.3					2.8
	$	136			311.4	$	139			309.4
Diluted earnings per share attributable to Macy's, Inc. shareholders			$	0.44				$	0.45

In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 16.9 million shares of common stock and restricted stock units relating to 2.2 million shares of common stock were outstanding at May 4, 2019, 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.

In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 15.7 million shares of common stock and restricted stock units relating to 2.5 million shares of common stock were outstanding at May 5, 2018, 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.

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

3. Revenue

Net sales

Revenue is recognized when customers obtain control of goods and services promised by the Company. The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. The Company's revenue generating activities include the following:

Retail Sales

Retail sales include merchandise sales, inclusive of delivery income, licensed department income, sales of private brand goods directly to third party retailers and sales of excess inventory to third parties. Sales of merchandise are recorded at the time of shipment to the customer and are reported net of estimated merchandise returns and certain customer incentives. Commissions earned on sales generated by licensed departments are included as a component of total net sales and are recognized as revenue at the time merchandise is sold to customers. Service revenues (e.g., alteration and cosmetic services) are recorded at the time the customer receives the benefit of the service. The Company has elected to present sales taxes on a net basis and, as such, sales taxes are included in accounts payable and accrued liabilities until remitted to the taxing authorities.

For the 13 weeks ended May 4, 2019 and May 5, 2018, Macy's accounted for 88% of the Company's net sales. Disaggregation of the Company's net sales by family of business for the 13 weeks ended May 4, 2019 and May 5, 2018 were as follows:



	13 Weeks Ended
Net sales by family of business	May 4, 2019		May 5, 2018
	(millions)
Women's Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances	$	2,152	$	2,159
Women's Apparel	1,313		1,351
Men's and Kids'	1,202		1,174
Home/Other (a)	837		857
Total	$	5,504	$	5,541

(a) Other primarily includes restaurant sales, allowance for merchandise returns adjustments and breakage income from unredeemed gift cards.

Merchandise Returns

The Company estimates merchandise returns using historical data and recognizes an allowance that reduces net sales and cost of sales. The liability for merchandise returns is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $294 million, $269 million and $298 million as of May 4, 2019, February 2, 2019 and May 5, 2018, respectively. Included in prepaid expenses and other current assets is an asset totaling $200 million, $188 million and $204 million as of May 4, 2019, February 2, 2019 and May 5, 2018, respectively, for the recoverable cost of merchandise estimated to be returned by customers.

Gift Cards and Customer Loyalty Programs

The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold or issued, no revenue is recognized; rather, the Company records an accrued liability to customers. The liability is relieved and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for merchandise. The Company records revenue from unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns.

The Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy’s brand, points are earned based on customers’ spending on Macy’s private label and co-branded credit cards as well as non-proprietary cards during certain tender-neutral promotional events. Under the Bloomingdale’s brand, the Company offers a tender neutral points-based program. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer.

The liability for unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $696 million, $856 million and $736 million as of May 4, 2019, February 2, 2019 and May 5, 2018, respectively.

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Credit Card Revenues, net

In 2005, the Company entered into an arrangement with Citibank to sell the Company's private label and co-branded credit cards ("Credit Card Program"). Subsequent to this initial arrangement and associated amendments, in 2014, the Company entered into an amended and restated Credit Card Program Agreement (the "Program Agreement") with Citibank. As part of the Program Agreement, the Company receives payments for providing a combination of interrelated services and intellectual property to Citibank in support of the underlying Credit Card Program. Revenue based on the spending activity of the underlying accounts is recognized as the respective card purchases occur and the Company’s profit share is recognized based on the performance of the underlying portfolio. Revenue associated with the establishment of new credit accounts and assisting in the receipt of payments for existing accounts is recognized as such activities occur. Credit card revenues include finance charges, late fees and other revenue generated by the Company’s Credit Card Program, net of fraud losses and expenses associated with establishing new accounts.

4. Leases

The Company leases a portion of the real estate and personal property used in its operations. Most leases require the Company to pay real estate taxes, maintenance, insurance and other similar costs; some also require additional payments based on percentages of sales and some contain purchase options. Certain of the Company’s real estate leases have terms that extend for a significant number of years and provide for rental rates that increase or decrease over time. Lease terms include the noncancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods, termination options and purchase options.

Operating lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. Related operating ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by contributions from landlords, plus any prepaid rent and direct costs from executing the leases. ROU assets are tested for impairment in the same manner as long-lived assets.

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense as they are incurred.

Certain of the Company's leases contain covenants that restrict the ability of the tenant (typically a subsidiary of the Company) to take specified actions (including the payment of dividends or other amounts on account of its capital stock) unless the tenant satisfies certain financial tests.

ROU assets and lease liabilities consist of:



		May 4, 2019
	Classification	(millions)
Assets
Finance lease assets (a)	Right of Use Assets	$	11
Operating lease assets	Right of Use Assets	2,620
Total leased assets		$	2,631

Liabilities
Current
Finance	Accounts payable and accrued liabilities	$	1
Operating	Accounts payable and accrued liabilities	362

Noncurrent
Finance	Long-Term Lease Liabilities	25
Operating	Long-Term Lease Liabilities	2,798
Total lease liabilities		$	3,186

(a) Finance lease assets are recorded net of accumulated amortization of $12 million as of May 4, 2019.

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The components of net lease expense are disclosed below. Operating lease expense includes variable lease expense of $28 million.



		13 Weeks Ended
		May 4, 2019
	Classification	(millions)
Operating lease expense (b)	Selling, general and administrative expenses	$	122
Sublease income	Selling, general and administrative expenses	(1		)
Net lease expense		$	121

(b) Certain supply chain operating lease expense amounts are included in cost of sales.

As of May 4, 2019, the maturity of lease liabilities is as follows:



	Finance Leases (c)		Operating Leases (d)		Total
	(millions)
Fiscal year
2019	$	2	$	271	$	273
2020	3		331		334
2021	3		330		333
2022	3		312		315
2023	3		307		310
After 2023	32		5,231		5,263
Total undiscounted lease payments	46		6,782		6,828
Less amount representing interest	20		3,622		3,642
Total lease liabilities	$	26	$	3,160	$	3,186

(c) Finance lease payments include $12 million related to options to extend lease terms that are reasonably certain of being exercised.

(d) Operating lease payments include $3,163 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $942 million of legally binding minimum lease payments for leases signed but not yet commenced.

Additional supplemental information regarding assumptions and cash flows for operating and finance leases are as follows:



	May 4, 2019
Lease Term and Discount Rate	(millions)
Weighted-average remaining lease term (years)
Finance leases	18.2
Operating leases	23.3
Weighted-average discount rate
Finance leases	6.65	%
Operating leases	6.71	%



	13 Weeks Ended
	May 4, 2019
Other Information	(millions)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used from operating leases	$	94
Leased assets obtained in exchange for new operating lease liabilities	19

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

As of February 2, 2019, as disclosed in the 2018 10-K, minimum rental commitments for noncancellable leases, including executed leases not yet commenced, were as follows:



	Capitalized Leases (e)		Operating Leases		Total
	(millions)
Fiscal year
2019	$	3	$	325	$	328
2020	3		315		318
2021	3		309		312
2022	3		283		286
2023	3		264		267
After 2023	31		2,758		2,789
Total minimum lease payments	46		$	4,254	$	4,300
Less amount representing interest	20
Present value of net minimum capitalized lease payments	$	26

(e) For purposes of the disclosure, capitalized lease is used interchangeably with finance lease.

5. Financing Activities

The following table shows the detail of debt repayments:



	13 Weeks Ended
	May 4, 2019		May 5, 2018
	(millions)
9.5% Amortizing debentures due 2021	$	2	$	2
9.75% Amortizing debentures due 2021	1		1
	$	3	$	3

On May 9, 2019, the Company entered into a new credit agreement with certain financial institutions that replaces the previous credit agreement which was set to expire on May 6, 2021. Similar to the previous agreement, the new credit agreement provides 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). The new credit agreement is scheduled to expire on May 9, 2024, subject to up to two one-year extensions that may be requested by the Company and agreed to by the lenders.

6. 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.

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
	May 4, 2019			May 5, 2018
	(millions)
401(k) Qualified Defined Contribution Plan	$	25		$	23

Non-Qualified Defined Contribution Plan	$	1		$	—

Pension Plan
Service cost	$	1		$	2
Interest cost	26			26
Expected return on assets	(48		)	(53		)
Recognition of net actuarial loss	7			8
Amortization of prior service credit	—			—
	$	(14	)	$	(17	)
Supplementary Retirement Plan
Service cost	$	—		$	—
Interest cost	6			6
Recognition of net actuarial loss	2			2
Amortization of prior service cost	—			—
	$	8		$	8

Total Retirement Expense	$	20		$	14

Postretirement Obligations
Service cost	$	—		$	—
Interest cost	1			1
Recognition of net actuarial gain	(1		)	(1		)
Amortization of prior service credit	—			—
	$	—		$	—

7. 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 4, 2019								May 5, 2018
			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	$	110	$	31	$	79	$	—	$	96	$	25	$	71	$	—

Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, certain short-term investments and other assets, short-term debt, merchandise accounts payable, accounts payable and accrued

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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, excluding capital leases and other obligations:



	May 4, 2019						May 5, 2018
	Notional Amount		Carrying Amount		Fair Value		Notional Amount		Carrying Amount		Fair Value
	(millions)
Long-term debt	$	4,667	$	4,680	$	4,614	$	5,803	$	5,832	$	5,621

8. 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 weeks ended May 4, 2019 and May 5, 2018, Condensed Consolidating Balance Sheets as of May 4, 2019, May 5, 2018 and February 2, 2019, and the related Condensed Consolidating Statements of Cash Flows for the 13 weeks ended May 4, 2019 and May 5, 2018 are presented on the following pages.

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Statement of Comprehensive Income

For the 13 Weeks Ended May 4, 2019

(millions)



	Parent			Subsidiary Issuer			Other Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	—		$	2,154		$	4,768		$	(1,418	)	$	5,504
Credit card revenues (expense), net	—			(2		)	174			—			172

Cost of sales	—			(1,341		)	(3,480		)	1,418			(3,403		)
Selling, general and administrative expenses	—			(803		)	(1,309		)	—			(2,112		)
Gains on sale of real estate	—			24			19			—			43
Impairment and other costs	—			—			(1		)	—			(1		)
Operating income	—			32			171			—			203
Benefit plan income, net	—			3			4			—			7
Interest (expense) income, net:
External	5			(53		)	1			—			(47		)
Intercompany	—			(19		)	19			—			—
Equity in earnings (loss) of subsidiaries	132			(30		)	—			(102		)	—
Income (loss) before income taxes	137			(67		)	195			(102		)	163
Federal, state and local income tax benefit (expense)	(1		)	24			(50		)	—			(27		)
Net income (loss)	136			(43		)	145			(102		)	136
Net loss attributable to noncontrolling interest	—			—			—			—			—
Net income (loss) attributable to Macy's, Inc. shareholders	$	136		$	(43	)	$	145		$	(102	)	$	136
Comprehensive income (loss)	$	142		$	(38	)	$	149		$	(111	)	$	142
Comprehensive loss attributable to noncontrolling interest	—			—			—			—			—
Comprehensive income (loss) attributable to Macy's, Inc. shareholders	$	142		$	(38	)	$	149		$	(111	)	$	142

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Statement of Comprehensive Income

For the 13 Weeks Ended May 5, 2018

(millions)



	Parent			Subsidiary Issuer			Other Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	—		$	2,008		$	5,363		$	(1,830	)	$	5,541
Credit card revenues (expense), net	—			(6		)	163			—			157

Cost of sales	—			(1,320		)	(3,892		)	1,830			(3,382		)
Selling, general and administrative expenses	—			(828		)	(1,255		)	—			(2,083		)
Gains on sale of real estate	—			23			1			—			24
Impairment and other costs	—			—			(19		)	—			(19		)
Operating income (loss)	—			(123		)	361			—			238
Benefit plan income, net	—			4			7			—			11
Interest (expense) income, net:
External	4			(71		)	1			—			(66		)
Intercompany	—			(18		)	18			—			—
Equity in earnings of subsidiaries	136			102			—			(238		)	—
Income (loss) before income taxes	140			(106		)	387			(238		)	183
Federal, state and local income tax benefit (expense)	(1		)	37			(88		)	—			(52		)
Net income (loss)	139			(69		)	299			(238		)	131
Net loss attributable to noncontrolling interest	—			—			8			—			8
Net income (loss) attributable to Macy's, Inc. shareholders	$	139		$	(69	)	$	307		$	(238	)	$	139
Comprehensive income (loss)	$	146		$	(63	)	$	303		$	(248	)	$	138
Comprehensive loss attributable to noncontrolling interest	—			—			8			—			8
Comprehensive income (loss) attributable to Macy's, Inc. shareholders	$	146		$	(63	)	$	311		$	(248	)	$	146

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Balance Sheet

As of May 4, 2019

(millions)



	Parent		Subsidiary Issuer		Other Subsidiaries		Consolidating Adjustments			Consolidated
ASSETS:
Current Assets:
Cash and cash equivalents	$	293	$	151	$	293	$	—		$	737
Receivables	—		40		197		—			237
Merchandise inventories	—		2,369		3,129		—			5,498
Prepaid expenses and other current assets	—		163		470		—			633
Total Current Assets	293		2,723		4,089		—			7,105
Property and Equipment – net	—		3,202		3,297		—			6,499
Right of Use Assets	—		677		1,954		—			2,631
Goodwill	—		3,326		582		—			3,908
Other Intangible Assets – net	—		5		436		—			441
Other Assets	—		28		684		—			712
Deferred Income Taxes	6		—		—		(6		)	—
Intercompany Receivable	2,436		—		886		(3,322		)	—
Investment in Subsidiaries	3,776		3,061		—		(6,837		)	—
Total Assets	$	6,511	$	13,022	$	11,928	$	(10,165	)	$	21,296
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities:
Short-term debt	$	—	$	41	$	—	$	—		$	41
Merchandise accounts payable	—		845		1,105		—			1,950
Accounts payable and accrued liabilities	73		786		1,987		—			2,846
Income taxes	87		61		34		—			182
Total Current Liabilities	160		1,733		3,126		—			5,019
Long-Term Debt	—		4,680		—		—			4,680
Long-Term Lease Liabilities	—		607		2,216		—			2,823
Intercompany Payable	—		3,322		—		(3,322		)	—
Deferred Income Taxes	—		626		573		(6		)	1,193
Other Liabilities	28		341		889		—			1,258
Shareholders' Equity:
Macy's, Inc.	6,323		1,713		5,124		(6,837		)	6,323
Noncontrolling Interest	—		—		—		—			—
Total Shareholders' Equity	6,323		1,713		5,124		(6,837		)	6,323
Total Liabilities and Shareholders' Equity	$	6,511	$	13,022	$	11,928	$	(10,165	)	$	21,296

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Balance Sheet

As of May 5, 2018

(millions)



	Parent		Subsidiary Issuer		Other Subsidiaries			Consolidating Adjustments			Consolidated
ASSETS:
Current Assets:
Cash and cash equivalents	$	1,070	$	79	$	382		$	—		$	1,531
Receivables	—		48		202			—			250
Merchandise inventories	—		2,283		3,008			—			5,291
Prepaid expenses and other current assets	—		150		488			—			638
Total Current Assets	1,070		2,560		4,080			—			7,710
Property and Equipment – net	—		3,298		3,277			—			6,575
Goodwill	—		3,326		582			—			3,908
Other Intangible Assets – net	—		43		443			—			486
Other Assets	1		96		792			—			889
Deferred Income Taxes	5		—		—			(5		)	—
Intercompany Receivable	1,156		—		2,113			(3,269		)	—
Investment in Subsidiaries	3,975		4,232		—			(8,207		)	—
Total Assets	$	6,207	$	13,555	$	11,287		$	(11,481	)	$	19,568
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities:
Short-term debt	$	—	$	6	$	19		$	—		$	25
Merchandise accounts payable	—		896		1,149			—			2,045
Accounts payable and accrued liabilities	109		784		1,802			—			2,695
Income taxes	253		35		24			—			312
Total Current Liabilities	362		1,721		2,994			—			5,077
Long-Term Debt	—		5,841		16			—			5,857
Intercompany Payable	—		3,269		—			(3,269		)	—
Deferred Income Taxes	—		570		604			(5		)	1,169
Other Liabilities	24		416		1,224			—			1,664
Shareholders' Equity:
Macy's, Inc.	5,821		1,738		6,469			(8,207		)	5,821
Noncontrolling Interest	—		—		(20		)	—			(20		)
Total Shareholders' Equity	5,821		1,738		6,449			(8,207		)	5,801
Total Liabilities and Shareholders' Equity	$	6,207	$	13,555	$	11,287		$	(11,481	)	$	19,568

MACY'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Condensed Consolidating Balance Sheet

As of February 2, 2019

(millions)



	Parent		Subsidiary Issuer		Other Subsidiaries		Consolidating Adjustments			Consolidated
ASSETS:
Current Assets:
Cash and cash equivalents	$	889	$	59	$	214	$	—		$	1,162
Receivables	—		68		332		—			400
Merchandise inventories	—		2,342		2,921		—			5,263
Prepaid expenses and other current assets	—		143		477		—			620
Total Current Assets	889		2,612		3,944		—			7,445
Property and Equipment – net	—		3,287		3,350		—			6,637
Goodwill	—		3,326		582		—			3,908
Other Intangible Assets – net	—		38		440		—			478
Other Assets	—		41		685		—			726
Deferred Income Taxes	12		—		—		(12		)	—
Intercompany Receivable	1,713		—		1,390		(3,103		)	—
Investment in Subsidiaries	4,030		3,119		—		(7,149		)	—
Total Assets	$	6,644	$	12,423	$	10,391	$	(10,264	)	$	19,194
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities:
Short-term debt	$	—	$	42	$	1	$	—		$	43
Merchandise accounts payable	—		713		942		—			1,655
Accounts payable and accrued liabilities	170		950		2,246		—			3,366
Income taxes	14		52		102		—			168

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$22.70	308	$7,000

10-Q	2019-05-04	Quarter: 2019-05-04
10-K	2019-02-02	Annual: 2019-02-02
10-Q	2018-11-03	Quarter: 2018-11-03
10-Q	2018-08-04	Quarter: 2018-08-04
10-Q	2018-05-05	Quarter: 2018-05-05
10-K	2018-02-03	Annual: 2018-02-03
10-Q	2017-10-28	Quarter: 2017-10-28
10-Q	2017-07-29	Quarter: 2017-07-29
10-Q	2017-04-29	Quarter: 2017-04-29
10-K	2017-01-28	Annual: 2017-01-28
10-Q	2016-10-29	Quarter: 2016-10-29
10-Q	2016-07-30	Quarter: 2016-07-30
10-Q	2016-04-30	Quarter: 2016-04-30
10-K	2016-01-30	Annual: 2016-01-30
10-Q	2015-10-31	Quarter: 2015-10-31
10-Q	2015-08-01	Quarter: 2015-08-01
10-Q	2015-05-02	Quarter: 2015-05-02
10-K	2015-01-31	Annual: 2015-01-31
10-Q	2014-11-01	Quarter: 2014-11-01
10-Q	2014-08-02	Quarter: 2014-08-02
10-Q	2014-05-03	Quarter: 2014-05-03
10-K	2014-02-01	Annual: 2014-02-01

8-K	2019-05-17	Shareholder Vote
8-K	2019-05-15
8-K	2019-05-09
8-K	2019-02-22	Other Events
8-K	2018-12-12	Other Events, Exhibits
8-K	2018-11-28	Other Events, Exhibits
8-K	2018-11-14
8-K	2018-10-31	Officers
8-K	2018-10-15	Officers, Exhibits
8-K	2018-08-15
8-K	2018-05-23	Officers, Exhibits
8-K	2018-05-18	Shareholder Vote
8-K	2018-05-16
8-K	2018-04-03	Officers, Exhibits
8-K	2018-02-27
8-K	2018-02-23	Other Events
8-K	2018-01-31	Officers

ERIE	Erie Indemnity	10,290
AXL	American Axle & Manufacturing Holdings	1,370
SIG	Signet Jewelers	1,190
DENN	Dennys	1,170
CASH	Meta Financial Group	1,030
REDU	Rise Education Cayman	583
RMNI	Rimini Street	328
POLA	Polar Power	42
CTA	Emerging Cta Portfolio	0
HUNT	Hunter Maritime Acquisition	0

EX-10.1	ex101-stockoptioncmdpurvie.htm
EX-10.2	ex102-prsucmdpurviewmarch2.htm
EX-10.3	ex103-rsucmdpurviewmarch20.htm
EX-31.1	exhibit311050419.htm
EX-31.2	exhibit312050419.htm
EX-32.1	exhibit321050419.htm
EX-32.2	exhibit322050419.htm