Company Quick10K Filing
Macy's
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 312 $4,898
10-Q 2019-12-10 Quarter: 2019-11-02
10-Q 2019-08-30 Quarter: 2019-08-03
10-Q 2019-06-05 Quarter: 2019-05-04
10-K 2019-04-03 Annual: 2019-02-02
10-Q 2018-12-07 Quarter: 2018-11-03
10-Q 2018-08-31 Quarter: 2018-08-04
10-Q 2018-06-01 Quarter: 2018-05-05
10-K 2018-04-04 Annual: 2018-02-03
10-Q 2017-12-04 Quarter: 2017-10-28
10-Q 2017-08-25 Quarter: 2017-07-29
10-Q 2017-06-02 Quarter: 2017-04-29
10-K 2017-03-29 Annual: 2017-01-28
10-Q 2016-12-01 Quarter: 2016-10-29
10-Q 2016-08-26 Quarter: 2016-07-30
10-Q 2016-06-03 Quarter: 2016-04-30
10-K 2016-03-30 Annual: 2016-01-30
10-Q 2015-12-01 Quarter: 2015-10-31
10-Q 2015-08-28 Quarter: 2015-08-01
10-Q 2015-06-04 Quarter: 2015-05-02
10-K 2015-04-01 Annual: 2015-01-31
10-Q 2014-12-08 Quarter: 2014-11-01
10-Q 2014-09-08 Quarter: 2014-08-02
10-Q 2014-06-09 Quarter: 2014-05-03
10-K 2014-04-02 Annual: 2014-02-01
10-Q 2013-09-05 Quarter: 2013-08-03
10-Q 2013-06-10 Quarter: 2013-05-04
10-K 2013-04-03 Annual: 2013-02-02
10-Q 2012-12-03 Quarter: 2012-10-27
10-Q 2012-09-04 Quarter: 2012-07-28
10-Q 2012-06-04 Quarter: 2012-04-28
10-K 2012-03-28 Annual: 2012-01-28
10-Q 2011-12-05 Quarter: 2011-10-29
10-Q 2011-09-06 Quarter: 2011-07-30
10-Q 2011-06-06 Quarter: 2011-04-30
10-K 2011-03-30 Annual: 2011-01-29
10-Q 2010-12-06 Quarter: 2010-10-30
10-Q 2010-09-07 Quarter: 2010-07-31
10-Q 2010-06-07 Quarter: 2010-05-01
10-K 2010-03-31 Annual: 2010-01-30
8-K 2019-12-17 Other Events, Exhibits
8-K 2019-12-11 Officers, Exhibits
8-K 2019-12-03 Other Events, Exhibits
8-K 2019-11-29 Officers, Exhibits
8-K 2019-11-21
8-K 2019-08-14
8-K 2019-05-17 Shareholder Vote
8-K 2019-05-15
8-K 2019-05-09
8-K 2019-02-26
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
M 2019-11-02
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 exhibit311110219.htm
EX-31.2 exhibit312110219.htm
EX-32.1 exhibit321110219.htm
EX-32.2 exhibit322110219.htm

Macy's Earnings 2019-11-02

M 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
KSS 8,485 14,542 9,087 19,968 7,906 736 1,909 9,760 40% 5.1 5%
FIVE 7,224 1,659 1,007 1,698 612 157 246 7,045 36% 28.7 9%
OLLI 5,830 1,544 527 1,336 529 139 170 5,752 40% 33.9 9%
M 4,898 20,741 14,426 24,909 9,597 1,099 2,388 8,893 39% 3.7 5%
BJ 3,764 5,152 5,317 13,128 2,408 209 395 5,488 18% 13.9 4%
DDS 1,746 3,512 1,866 6,468 2,024 131 423 1,977 31% 4.7 4%
PSMT 1,576 1,262 483 3,200 0 72 165 1,555 0% 9.4 6%
HUD 1,558 1,451 814 0 0 0 0 1,558 0%
BIG 877 3,192 2,548 5,296 2,136 123 275 823 40% 3.0 4%
JCP 310 8,260 7,297 11,693 4,151 -278 612 3,921 35% 6.4 -3%

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended November 2, 2019

OR
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
 
macysincrgbdigitalfilea02.jpg
Macy's, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
13-3324058
 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
7 West Seventh Street, Cincinnati, Ohio 45202 and 151 West 34th Street, New York, New York 10001
(Address of Principal Executive Offices, including Zip Code)
(513) 579-7000 and (212) 494-1602
(Registrant's telephone number, including area code)

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     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      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 Accelerated Filer Non-Accelerated Filer Smaller Reporting Company Emerging Growth Company

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 November 30, 2019
Common Stock, $.01 par value per share
 
308,965,297 shares
 



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

(millions, except per share figures)
 
 
 
 
 
 
 
 
 
 
13 Weeks Ended
 
39 Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
Net sales
$
5,173

 
$
5,404

 
$
16,223

 
$
16,516

Credit card revenues, net
183

 
185

 
531

 
528

 
 
 
 
 
 
 
 
Cost of sales
(3,106
)
 
(3,226
)
 
(9,905
)
 
(9,927
)
Selling, general and administrative expenses
(2,202
)
 
(2,255
)
 
(6,489
)
 
(6,501
)
Gains on sale of real estate
17

 
42

 
67

 
111

Impairment, restructuring and other costs
(13
)
 
(3
)
 
(16
)
 
(39
)
Operating income
52

 
147

 
411

 
688

Benefit plan income, net
8

 
9

 
23

 
31

Settlement charges
(12
)
 
(23
)
 
(12
)
 
(73
)
Interest expense
(52
)
 
(64
)
 
(159
)
 
(204
)
Losses on early retirement of debt

 

 

 
(5
)
Interest income
4

 
5

 
16

 
17

Income before income taxes

 
74

 
279

 
454

Federal, state and local income tax benefit (expense)
2

 
(12
)
 
(55
)
 
(96
)
Net income
2

 
62

 
224

 
358

Net loss attributable to noncontrolling interest

 

 

 
10

Net income attributable to Macy's, Inc. shareholders
$
2

 
$
62

 
$
224

 
$
368

Basic earnings per share attributable to Macy's, Inc. shareholders
$
0.01

 
$
0.20

 
$
0.72

 
$
1.20

Diluted earnings per share attributable to Macy's, Inc. shareholders
$
0.01

 
$
0.20

 
$
0.72

 
$
1.18


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

2


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

(millions)

 
 
 
 
 
 
 
 
 
13 Weeks Ended
 
39 Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
Net income
$
2

 
$
62

 
$
224

 
$
358

Other comprehensive income (loss):
 
 
 
 
 
 
 
Actuarial loss on post employment and postretirement benefit plans, before tax
(70
)
 
(164
)
 
(70
)
 
(194
)
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

 
7

 
23

 
25

Settlement charges, before tax
12

 
23

 
12

 
73

Tax effect related to items of other comprehensive income
13

 
35

 
9

 
24

Total other comprehensive loss, net of tax effect
(37
)
 
(99
)
 
(26
)
 
(72
)
Comprehensive income (loss)
(35
)
 
(37
)
 
198

 
286

Comprehensive loss attributable to noncontrolling interest

 

 

 
10

Comprehensive income (loss) attributable to Macy's, Inc. shareholders
$
(35
)
 
$
(37
)
 
$
198

 
$
296


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


3


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

(millions)
 
 
 
 
 
 
 
 
November 2, 2019
 
February 2, 2019
 
November 3, 2018
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
301

 
$
1,162

 
$
736

Receivables
175

 
400

 
180

Merchandise inventories
7,256

 
5,263

 
7,147

Income tax receivable
1

 

 
10

Prepaid expenses and other current assets
568

 
620

 
594

Total Current Assets
8,301

 
7,445

 
8,667

Property and Equipment - net of accumulated depreciation and
amortization of $4,926, $4,495 and $5,084
6,558

 
6,637

 
6,572

Right of Use Assets
2,596

 

 

Goodwill
3,908

 
3,908

 
3,908

Other Intangible Assets – net
440

 
478

 
481

Other Assets
744

 
726

 
733

Total Assets
$
22,547

 
$
19,194

 
$
20,361

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Short-term debt
$
6

 
$
43

 
$
65

Merchandise accounts payable
3,427

 
1,655

 
3,381

Accounts payable and accrued liabilities
3,046

 
3,366

 
2,998

Income taxes

 
168

 

Total Current Liabilities
6,479

 
5,232

 
6,444

Long-Term Debt
4,677

 
4,708

 
5,469

Long-Term Lease Liabilities
2,819

 

 

Deferred Income Taxes
1,200

 
1,238

 
1,185

Other Liabilities
1,315

 
1,580

 
1,618

Shareholders' Equity:
 
 
 
 
 
Macy's, Inc.
6,057

 
6,436

 
5,667

Noncontrolling interest

 

 
(22
)
Total Shareholders’ Equity
6,057

 
6,436

 
5,645

Total Liabilities and Shareholders’ Equity
$
22,547

 
$
19,194

 
$
20,361


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


4


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

Net income
 
 
 
 
86

 
 
 
 
 
86

Other comprehensive income
 
 
 
 
 
 
 
 
5

 
5

Common stock dividends
($0.3775 per share)
 
 
 
 
(117
)
 
 
 
 
 
(117
)
Stock-based compensation expense
 
 
14

 
 
 
 
 
 
 
14

Stock issued under stock plans
 
 
(3
)
 
 
 
4

 
 
 
1

Other
 
 
 
 
3

 
 
 
 
 
3

Balance at August 3, 2019
3

 
617

 
7,883

 
(1,248
)
 
(940
)
 
6,315

Net income

 


 
2

 


 


 
2

Other comprehensive loss

 


 


 


 
(37
)
 
(37
)
Common stock dividends
($0.7550 per share)

 


 
(236
)
 


 


 
(236
)
Stock-based compensation expense

 
12

 


 


 


 
12

Stock issued under stock plans

 
(3
)
 

 
4

 

 
1

Balance at November 2, 2019
$
3

 
$
626

 
$
7,649

 
$
(1,244
)
 
$
(977
)
 
$
6,057

(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.





















5


MACY’S, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - (Continued)
(Unaudited)

(millions)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

Net income (loss)
 
 
 
 
166

 
 
 
 
 
166

 
(2
)
 
164

Other comprehensive income
 
 
 
 
 
 
 
 
20

 
20

 
 
 
20

Common stock dividends ($0.3775 per share)
 
 
 
 
(116
)
 
 
 
 
 
(116
)
 
 
 
(116
)
Stock-based compensation
  expense
 
 
15

 
 
 
 
 
 
 
15

 
 
 
15

Stock issued under stock plans
 
 
(21
)
 
 
 
31

 
 
 
10

 
 
 
10

Balance at August 4, 2018
3

 
636

 
7,483

 
(1,345
)
 
(861
)
 
5,916

 
(22
)
 
5,894

Net income


 


 
62

 


 


 
62

 

 
62

Other comprehensive loss


 


 


 


 
(99
)
 
(99
)
 


 
(99
)
Common stock dividends
($0.7550 per share)


 


 
(235
)
 


 


 
(235
)
 


 
(235
)
Stock-based compensation
  expense


 
16

 


 


 


 
16

 


 
16

Stock issued under stock plans


 
(6
)
 


 
13

 


 
7

 


 
7

Balance at November 3, 2018
$
3

 
$
646

 
$
7,310

 
$
(1,332
)
 
$
(960
)
 
$
5,667

 
$
(22
)
 
$
5,645

(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.

















6


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

(millions)
 
 
 
 
 
39 Weeks Ended
 
November 2, 2019
 
November 3, 2018
Cash flows from operating activities:
 
 
 
Net income
$
224

 
$
358

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Impairment, restructuring and other costs
16

 
39

Settlement charges
12

 
73

Depreciation and amortization
725

 
718

Stock-based compensation expense
40

 
48

Gains on sale of real estate
(67
)
 
(111
)
Benefit plans
23

 
25

Deferred income taxes
25

 
62

Amortization of financing costs and premium on acquired debt
1

 
(5
)
Changes in assets and liabilities:
 
 
 
Decrease in receivables
224

 
163

Increase in merchandise inventories
(1,993
)
 
(1,969
)
Decrease in prepaid expenses and other current assets
13

 
16

Increase in merchandise accounts payable
1,648

 
1,664

Decrease in accounts payable and accrued liabilities
(470
)
 
(221
)
Decrease in current income taxes
(168
)
 
(301
)
Change in other assets and liabilities
(81
)
 
(130
)
Net cash provided by operating activities
172

 
429

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(623
)
 
(468
)
Capitalized software
(189
)
 
(209
)
Disposition of property and equipment
73

 
121

Other, net
10

 
7

Net cash used by investing activities
(729
)
 
(549
)
Cash flows from financing activities:
 
 
 
Debt issuance costs
(3
)
 

Debt repaid
(42
)
 
(361
)
Dividends paid
(349
)
 
(347
)
Increase in outstanding checks
49

 
44

Acquisition of treasury stock
(1
)
 

Issuance of common stock
6

 
41

Proceeds from noncontrolling interest

 
7

Net cash used by financing activities
(340
)
 
(616
)
Net decrease in cash, cash equivalents and restricted cash
(897
)
 
(736
)
Cash, cash equivalents and restricted cash beginning of period
1,248

 
1,513

Cash, cash equivalents and restricted cash end of period
$
351

 
$
777

Supplemental cash flow information:
 
 
 
Interest paid
$
152

 
$
213

Interest received
16

 
17

Income taxes paid (net of refunds received)
199

 
335

Note: Restricted cash of $50 million and $41 million have been included with cash and cash equivalents for the 39 weeks ended November 2, 2019 and November 3, 2018, respectively.

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

7


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 November 2, 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 and 39 weeks ended November 2, 2019 and November 3, 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 and 39 weeks ended November 2, 2019 and November 3, 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 and 39 weeks ended November 2, 2019 and November 3, 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 are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.


8

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


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 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 $2,519 million and $2,728 million, respectively, as of February 3, 2019. The difference of $209 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
 
November 2, 2019
 
November 3, 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
$
2

 
 
 
308.9

 
$
62

 
 
 
307.2

Shares to be issued under deferred
compensation and other plans
 
 
 
 
1.0

 
 
 
 
 
0.9

 
$
2

 
 
 
309.9

 
$
62

 
 
 
308.1

Basic earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
0.01

 
 
 
 
 
$
0.20

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options and restricted stock units
 
 
 
 
1.1

 
 
 
 
 
4.1

 
$
2

 
 
 
311.0

 
$
62

 
 
 
312.2

Diluted earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
0.01

 
 
 
 
 
$
0.20

 
 


9

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


 
39 Weeks Ended
 
November 2, 2019
 
November 3, 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
$
224

 
 
 
308.7

 
$
368

 
 
 
306.6

Shares to be issued under deferred
compensation and other plans
 
 
 
 
0.9

 
 
 
 
 
0.9

 
$
224

 
 
 
309.6

 
$
368

 
 
 
307.5

Basic earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
0.72

 
 
 
 
 
$
1.20

 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options and restricted stock units
 
 
 
 
1.7

 
 
 
 
 
3.7

 
$
224

 
 
 
311.3

 
$
368

 
 
 
311.2

Diluted earnings per share attributable to
Macy's, Inc. shareholders
 
 
$
0.72

 
 
 
 
 
$
1.18

 
 


In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 19.4 million shares of common stock and restricted stock units relating to 1.9 million shares of common stock were outstanding at November 2, 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 12.7 million shares of common stock and restricted stock units relating to 1.4 million shares of common stock were outstanding at November 3, 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.


10

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 and 39 weeks ended November 2, 2019, Macy's accounted for 87% and 88% of the Company's net sales, respectively. For each of the 13 and 39 weeks ended November 3, 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 and 39 weeks ended November 2, 2019 and November 3, 2018 were as follows:
 
13 Weeks Ended
 
39 Weeks Ended
Net sales by family of business
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
 
(millions)
Women's Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances
$
1,960

 
$
2,008

 
$
6,152

 
$
6,188

Women's Apparel
1,197

 
1,268

 
3,779

 
3,940

Men's and Kids'
1,195

 
1,244

 
3,663

 
3,692

Home/Other (a)
821

 
884

 
2,629

 
2,696

Total
$
5,173

 
$
5,404

 
$
16,223

 
$
16,516

(a) Other primarily includes restaurant sales, allowance for merchandise returns adjustments, certain loyalty program income 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 $245 million, $269 million and $265 million as of November 2, 2019, February 2, 2019 and November 3, 2018, respectively. Included in prepaid expenses and other current assets is an asset totaling $164 million, $188 million and $180 million as of November 2, 2019, February 2, 2019 and November 3, 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.

11

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


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 $705 million, $856 million and $723 million as of November 2, 2019, February 2, 2019 and November 3, 2018, respectively.
Credit Card Revenues, net
In 2005, the Company entered into an arrangement with Citibank, N.A. ("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.


12

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


ROU assets and lease liabilities consist of:
 
 
November 2, 2019
 
Classification
(millions)
Assets
 
 
Finance lease assets (a)
Right of Use Assets
$
11

Operating lease assets (b)
Right of Use Assets
2,585

Total lease assets
 
$
2,596

 
 
 
Liabilities
 
 
Current
 
 
Finance
Accounts payable and accrued liabilities
$
1

Operating (b)
Accounts payable and accrued liabilities
313

 
 
 
Noncurrent
 
 
Finance
Long-Term Lease Liabilities
24

Operating (b)
Long-Term Lease Liabilities
2,795

Total lease liabilities
 
$
3,133

(a) Finance lease assets are recorded net of accumulated amortization of $12 million as of November 2, 2019.
(b) As of November 2, 2019, operating lease assets included $394 million of non-lease components and current and noncurrent lease liabilities included $34 million and $367 million, respectively, of non-lease components.
The components of net lease expense are disclosed below. For the 13 and 39 weeks ended November 2, 2019, expense related to non-lease components was $20 million and $61 million, respectively, and variable lease expense was $3 million and $10 million, respectively.
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
November 2, 2019
 
November 2, 2019
 
Classification
(millions)
Operating lease expense (c)
Selling, general and administrative expenses
$
106

 
$
319

Sublease income
Selling, general and administrative expenses
(1
)
 
(2
)
Net lease expense
 
$
105

 
$
317

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












13

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



As of November 2, 2019, the maturity of lease liabilities is as follows:
 
 
Finance
Leases (d)
 
Operating
Leases (e and f)
 
Total
 
(millions)
Fiscal year
 
 
 
 
 
2019
$
1

 
$
90

 
$
91

2020
3

 
334

 
337

2021
3

 
335

 
338

2022
3

 
313

 
316

2023
3

 
308

 
311

After 2023
31

 
5,384

 
5,415

Total undiscounted lease payments
44

 
6,764

 
6,808

Less amount representing interest
19

 
3,656

 
3,675

Total lease liabilities
$
25

 
$
3,108

 
$
3,133

(d) Finance lease payments include $12 million related to options to extend lease terms that are reasonably certain of being exercised.
(e) Operating lease payments include $3,272 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $965 million of legally binding minimum lease payments for leases signed but not yet commenced.
(f) Operating lease payments include $1,159 million related to non-lease component payments, with $841 million related to options to extend lease terms that are reasonably certain of being exercised.

Additional supplemental information regarding assumptions and cash flows for operating and finance leases is as follows:
 
November 2, 2019
Lease Term and Discount Rate
(millions)
Weighted-average remaining lease term (years)
 
Finance leases
17.9

Operating leases
23.6

Weighted-average discount rate
 
Finance leases
6.64
%
Operating leases
6.70
%

 
39 Weeks Ended
 
November 2, 2019
Other Information
 
Cash paid for amounts included in the measurement of lease liabilities
 
Operating cash flows used from operating leases
$
272

Financing cash flows used from financing leases
2

Leased assets obtained in exchange for new operating lease liabilities
48










14

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 (g)
 
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