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 OctoberJuly 29, 20162017

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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting
company  o
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class Outstanding at OctoberJuly 29, 20162017
Common Stock, $0.01 par value per share 305,670,055304,558,965 shares
 


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

(millions, except per share figures)
 
              
13 Weeks Ended 39 Weeks Ended13 Weeks Ended 26 Weeks Ended
October 29, 2016 October 31, 2015 October 29, 2016 October 31, 2015July 29, 2017 July 30, 2016 July 29, 2017 July 30, 2016
Net sales$5,626
 $5,874
 $17,263
 $18,210
$5,552
 $5,866
 $10,890
 $11,637
Cost of sales(3,386) (3,537) (10,370) (10,947)(3,313) (3,468) (6,619) (6,984)
Gross margin2,240
 2,337
 6,893
 7,263
2,239
 2,398
 4,271
 4,653
Selling, general and administrative expenses(2,071) (1,968) (6,063) (6,049)(1,977) (2,047) (3,857) (4,027)
Gains on sale of real estate43
 21
 111
 35
Impairments and other costs—
 (111) (249) (111)—
 (249) —
 (249)
Settlement charges(62) —
 (81) —
(51) (6) (51) (19)
Operating income107
 258
 500
 1,103
254
 117
 474
 393
Interest expense(82) (80) (279) (269)(82) (98) (168) (197)
Net premiums on early retirement of debt2
 —
 (1) —
Interest income1
 —
 3
 1
3
 1
 5
 2
Income before income taxes26
 178
 224
 835
177
 20
 310
 198
Federal, state and local income tax expense(11) (61) (85) (308)(64) (11) (127) (74)
Net income15
 117
 139
 527
113
 9
 183
 124
Net loss attributable to noncontrolling interest2
 1
 5
 1
3
 2
 4
 3
Net income attributable to Macy's, Inc. shareholders$17
 $118
 $144
 $528
$116
 $11
 $187
 $127
Basic earnings per share attributable to Macy's, Inc. shareholders$.05
 $.36
 $.46
 $1.58
$.38
 $.03
 $.61
 $.41
Diluted earnings per share attributable to Macy's, Inc. shareholders$.05
 $.36
 $.46
 $1.56
$.38
 $.03
 $.61
 $.41

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 39 Weeks Ended
 October 29, 2016 October 31, 2015 October 29, 2016 October 31, 2015
Net income$15
 $117
 $139
 $527
Other comprehensive income:       
Actuarial gain (loss) on postretirement benefit plans, before tax3
 —
 (74) —
Settlement charges, before tax62
 —
 81
 —
Amortization of net actuarial loss on post employment
and postretirement benefit plans included in net
income, before tax		9
 12
 26
 36
Tax effect related to items of other comprehensive
income		(29) (5) (13) (14)
Total other comprehensive income, net of tax effect45
 7
 20
 22
Comprehensive income60
 124
 159
 549
Comprehensive loss attributable to noncontrolling interest2
 1
 5
 1
Comprehensive income attributable to
Macy's, Inc. shareholders		$62
 $125
 $164
 $550
        
 13 Weeks Ended 26 Weeks Ended
 July 29, 2017 July 30, 2016 July 29, 2017 July 30, 2016
Net income$113
 $9
 $183
 $124
Other comprehensive income (loss):       
Actuarial gain (loss) on post employment and postretirement benefit plans, before tax47
 (41) 47
 (77)
Settlement charges, before tax51
 6
 51
 19
Amortization of net actuarial loss on post employment and postretirement benefit plans included in net income, before tax9
 8
 18
 17
Tax effect related to items of other comprehensive income (loss)(42) 10
 (45) 16
Total other comprehensive income (loss), net of tax effect65
 (17) 71
 (25)
Comprehensive income (loss)178
 (8) 254
 99
Comprehensive loss attributable to noncontrolling interest3
 2
 4
 3
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders		$181
 $(6) $258
 $102

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


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

(millions)
 
          
October 29, 2016 January 30, 2016 October 31, 2015July 29, 2017 January 28, 2017 July 30, 2016
ASSETS          
Current Assets:          
Cash and cash equivalents$457
 $1,109
 $474
$783
 $1,297
 $1,000
Receivables262
 558
 200
382
 522
 423
Merchandise inventories7,587
 5,506
 7,971
4,980
 5,399
 5,322
Income tax receivable60
 —
 —
Prepaid expenses and other current assets454
 479
 426
412
 408
 471
Total Current Assets8,820
 7,652
 9,071
6,557
 7,626
 7,216
Property and Equipment - net of accumulated depreciation and
amortization of $5,625, $5,319 and $5,974		7,149
 7,616
 7,629
Property and Equipment - net of accumulated depreciation and
amortization of $5,159, $4,856 and $5,457		6,822
 7,017
 7,187
Goodwill3,897
 3,897
 3,897
3,897
 3,897
 3,897
Other Intangible Assets – net499
 514
 518
493
 498
 502
Other Assets909
 897
 768
810
 813
 904
Total Assets$21,274
 $20,576
 $21,883
$18,579
 $19,851
 $19,706
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current Liabilities:          
Short-term debt$938
 $642
 $857
$16
 $309
 $1,063
Merchandise accounts payable3,375
 1,526
 3,608
1,669
 1,423
 1,877
Accounts payable and accrued liabilities2,930
 3,333
 2,687
2,873
 3,563
 2,514
Income taxes—
 227
 102
52
 352
 23
Total Current Liabilities7,243
 5,728
 7,254
4,610
 5,647
 5,477
Long-Term Debt6,563
 6,995
 7,076
6,301
 6,562
 6,567
Deferred Income Taxes1,548
 1,477
 1,453
1,512
 1,443
 1,448
Other Liabilities2,129
 2,123
 2,125
1,773
 1,877
 2,164
Shareholders' Equity:          
Macy's, Inc.3,789
 4,250
 3,971
4,388
 4,323
 4,046
Noncontrolling interest2
 3
 4
(5) (1) 4
Total Shareholders’ Equity3,791
 4,253
 3,975
4,383
 4,322
 4,050
Total Liabilities and Shareholders’ Equity$21,274
 $20,576
 $21,883
$18,579
 $19,851
 $19,706

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


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

(millions)
      
39 Weeks Ended26 Weeks Ended
October 29, 2016 October 31, 2015July 29, 2017 July 30, 2016
Cash flows from operating activities:      
Net income$139
 $527
$183
 $124
Adjustments to reconcile net income to net cash provided by operating activities:      
Impairments and other costs249
 111
—
 249
Settlement charges81
 —
51
 19
Depreciation and amortization787
 791
487
 520
Stock-based compensation expense56
 65
31
 37
Gains on sale of real estate(111) (35)
Amortization of financing costs and premium on acquired debt(14) (14)(10) (1)
Changes in assets and liabilities:      
Decrease in receivables237
 226
119
 99
Increase in merchandise inventories(2,081) (2,525)
Decrease in merchandise inventories419
 184
Increase in prepaid expenses and other current assets(37) (36)(13) (40)
Increase in other assets not separately identified(1) (1)
Increase in merchandise accounts payable1,665
 1,773
261
 307
Decrease in accounts payable, accrued liabilities
and other items not separately identified		(482) (385)(540) (634)
Decrease in current income taxes(287) (194)(301) (204)
Increase (decrease) in deferred income taxes45
 (21)24
 (26)
Decrease in other liabilities not separately identified(49) (39)(64) (39)
Net cash provided by operating activities308
 278
536
 560
Cash flows from investing activities:      
Purchase of property and equipment(451) (591)(247) (293)
Capitalized software(230) (249)(125) (151)
Acquisition of Bluemercury, Inc., net of cash acquired—
 (212)
Disposition of property and equipment138
 94
150
 67
Other, net52
 97
9
 39
Net cash used by investing activities(491) (861)(213) (338)
Cash flows from financing activities:      
Debt issued54
 791
Debt repaid(174) (152)(550) (3)
Financing costs(3) —
—
 (3)
Dividends paid(344) (344)(230) (228)
Increase in outstanding checks193
 136
Increase (decrease) in outstanding checks(64) 2
Acquisition of treasury stock(230) (1,785)(1) (130)
Issuance of common stock31
 160
2
 27
Proceeds from noncontrolling interest4
 5
6
 4
Net cash used by financing activities(469) (1,189)(837) (331)
   
Net decrease in cash and cash equivalents(652) (1,772)(514) (109)
Cash and cash equivalents beginning of period1,109
 2,246
1,297
 1,109
Cash and cash equivalents end of period$457
 $474
$783
 $1,000
Supplemental cash flow information:      
Interest paid$279
 $274
$183
 $200
Interest received3
 2
5
 2
Income taxes paid (net of refunds received)308
 474
401
 292
The accompanying notes are an integral part of these Consolidated Financial Statements.

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)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 includeare conducted through approximately 880850 Macy's, Macy's Backstage, Bloomingdale's, BloomingdalesBloomingdale's The Outlet and Bluemercurybluemercury 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 isand Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 201628, 2017 (the "2015"2016 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 20152016 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 3926 weeks endedOctoberJuly 29, 20162017 and October 31, 2015July 30, 2016, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Seasonality
Because of the seasonal nature of the retail business, the results of operations for the 13 and 3926 weeks endedOctoberJuly 29, 20162017 and October 31, 2015July 30, 2016 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Reclassifications
Certain reclassifications were made to prior years’ amounts to conform withto 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 3926 weeks endedOctober July 29, 20162017 and October 31, 2015July 30, 2016 relate to post employment and postretirement plan items. The settlementSettlement charges incurred are included as a separate component of operating expenses in the Consolidated Statements of Income. The amortizationAmortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in selling, general and administrative expenses on the Consolidated Statements of Income. See Note 4, "Benefit Plans," for further information.

Newly Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update ("ASU") No. 2016-09, Improvements to Employee Share-Based Payment Accounting, effective January 29, 2017. This standard was issued to simplify several aspects of the accounting for share-based payment awards, including the income tax consequences, financial statement classification and forfeiture considerations of such awards. Upon adoption, the Company began to recognize, on a prospective basis, all excess tax benefits and tax deficiencies as income tax benefit or expense, respectively, in its Consolidated Statements of Income. For awards that were exercised, vested or expired during the 13 and 26 weeks ended July 29, 2017, approximately $1 million and $12 million, respectively, of additional income tax expense associated with net tax deficiencies was recognized. Additionally, these net tax deficiencies have been classified as an operating activity along with other income tax cash flows in the Consolidated Statements of Cash Flows. The Company has elected to adopt such presentation on a prospective basis.
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 Ended13 Weeks Ended
October 29, 2016 October 31, 2015July 29, 2017 July 30, 2016
Net
Income		   Shares Net
Income		   SharesNet
Income		   Shares Net
Income		   Shares
(millions, except per share data)(millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding		$17
   307.5
 $118
   324.5
$116
   304.5
 $11
   308.5
Shares to be issued under deferred
compensation and other plans		    0.9
     0.8
    1.0
     0.9
$17
   308.4
 $118
   325.3
$116
   305.5
 $11
   309.4
Basic earnings per share attributable to
Macy's, Inc. shareholders		  $.05
     $.36
    $.38
     $.03
  
Effect of dilutive securities:                      
Stock options, restricted stock and restricted stock units    2.2
     4.4
    1.0
     1.9
$17
   310.6
 $118
   329.7
$116
   306.5
 $11
   311.3
Diluted earnings per share attributable to
Macy's, Inc. shareholders		  $.05
     $.36
    $.38
     $.03
  

39 Weeks Ended26 Weeks Ended
October 29, 2016 October 31, 2015July 29, 2017 July 30, 2016
Net
Income
   Shares 
Net
Income
   SharesNet
Income		   Shares Net
Income		   Shares
(millions, except per share data)(millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding		$144
   308.6
 $528
   333.0
$187
   304.4
 $127
   309.1
Shares to be issued under deferred
compensation and other plans		    0.9
     0.9
    0.8
     0.9
$144
   309.5
 $528
   333.9
$187
   305.2
 $127
   310.0
Basic earnings per share attributable to
Macy's, Inc. shareholders		  $.46
     $1.58
    $.61
     $.41
  
Effect of dilutive securities:                      
Stock options, restricted stock and restricted stock units    2.3
     5.1
    1.5
     2.4
$144
   311.8
 $528
   339.0
$187
   306.7
 $127
   312.4
Diluted earnings per share attributable to
Macy's, Inc. shareholders		  $.46
     $1.56
    $.61
     $.41
  

InFor the 13 and 26 weeks ended July 29, 2017, in addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 16.7 million shares of common stock and restricted stock units relating to 1.1 million shares of common stock were outstanding at July 29, 2017, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
For the 13 and 26 weeks ended July 30, 2016, in addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 15.7 million shares of common stock and restricted stock units relating to 0.71.1 million shares of common stock were outstanding at October 29,July 30, 2016, but were not included in the computation of diluted earnings per share for the 13 and 39 weeks endedOctober 29, 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 6.2 million shares of common stock and restricted stock units relating to 0.7 million shares of common stock were outstanding at October 31, 2015, but were not included in the computation of diluted earnings per share for the 13 and 39 weeks endedOctober 31, 2015 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.    Financing Activities
The following table shows the detail of debt repayments:
 
 39 Weeks Ended
 October 29, 2016 October 31, 2015
 (millions)
7.875% Senior debentures due 2036$108
 $—
7.45% Senior debentures due 201659
 —
8.125% Senior debentures due 2035—
 76
7.5% Senior debentures due 2015—
 69
9.5% amortizing debentures due 20214
 4
9.75% amortizing debentures due 20212
 2
Capital leases and other obligations1
 1
 $174
 $152
 26 Weeks Ended
 July 29, 2017 July 30, 2016
 (millions)
7.45% Senior debentures due 2017$300
 $—
6.375% Senior notes due 2037135
 —
6.9% Senior debentures due 203272
 —
6.7% Senior debentures due 203428
 —
6.65% Senior debentures due 20244
 —
6.9% Senior debentures due 20293
 —
6.7% Senior debentures due 20283
 —
7.0% Senior debentures due 20282
 —
9.5% amortizing debentures due 20212
 2
9.75% amortizing debentures due 20211
 1
 $550
 $3
On October 14, 2016,During the 26 weeks ended July 29, 2017, the Company repaid, $59at maturity, $300 million of 7.45% senior debentures at maturity. On August 15, 2016,due July 2017.
During the 26 weeks ended July 29, 2017, the Company redeemed at parrepurchased $247 million face value of senior notes and debentures. The debt repurchases were made in the principal amountopen market for a total cash cost of $108$257 million, of 7.875% senior debentures due 2036, pursuantincluding expenses related to the terms of the debentures. Interest expensetransactions. Such repurchases resulted in the third quarter of 2016 benefited from the recognition of unamortized debt premium associated with this debt.
The Company is party to a $1,500income of $2 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability underexpense of $1 million during the bank credit agreement with certain financial institutions. As of October 29, 2016, the Company had $52 million of seasonal borrowings outstanding under this commercial paper program at a weighted average interest rate of 0.7%13 and with a weighted average maturity of three days.
During the 3926 weeks ended OctoberJuly 29, 2016,2017, respectively, presented as net premiums on early retirement of debt on the Company repurchased approximately 6.0 million sharesConsolidated Statements of its common stock pursuant to existing stock purchase authorizations for a total of approximately $238 million. As of October 29, 2016, the Company had $1,794 million of authorization remaining under its share repurchase program. The Company may continue or, from time to time, suspend repurchases of shares under its share repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors.Income.

4.    Benefit Plans
The Company has defined contribution plans which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan ("Pension Plan") and an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.
In addition, certain retired employees currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.
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 39 Weeks Ended13 Weeks Ended 26 Weeks Ended
October 29, 2016 October 31, 2015 October 29, 2016 October 31, 2015July 29, 2017 July 30, 2016 July 29, 2017 July 30, 2016
(millions)    (millions) (millions)
401(k) Qualified Defined Contribution Plan$22
 $22
 $71
 $69
$24
 $25
 $45
 $49
              
Non-Qualified Defined Contribution Plan$—
 $1
 $1
 $1
$—
 $1
 $—
 $1
              
Pension Plan              
Service cost$1
 $2
 $3
 $5
$2
 $1
 $3
 $2
Interest cost27
 35
 83
 103
27
 28
 54
 56
Expected return on assets(56) (59) (170) (176)(57) (58) (113) (114)
Recognition of net actuarial loss7
 9
 22
 28
8
 7
 16
 15
Amortization of prior service credit—
 —
 —
 —
—
 —
 —
 —
$(21) $(13) $(62) $(40)$(20) $(22) $(40) $(41)
Supplementary Retirement Plan              
Service cost$—
 $—
 $—
 $—
$—
 $—
 $—
 $—
Interest cost5
 7
 17
 23
5
 6
 11
 12
Recognition of net actuarial loss3
 3
 7
 8
2
 2
 4
 4
Amortization of prior service cost—
 —
 —
 —
—
 —
 —
 —
$8
 $10
 $24
 $31
$7
 $8
 $15
 $16
              
Total Retirement Expense$9
 $20
 $34
 $61
$11
 $12
 $20
 $25
              
Postretirement Obligations              
Service cost$—
 $—
 $—
 $—
$—
 $—
 $—
 $—
Interest cost1
 2
 4
 6
2
 1
 3
 3
Recognition of net actuarial gain(1) —
 (3) —
(1) (1) (2) (2)
Amortization of prior service cost—
 —
 —
 —
—
 —
 —
 —
$—
 $2
 $1
 $6
$1
 $—
 $1
 $1

During the 13 and 3926 weeks ended OctoberJuly 29, 2017, the Company incurred $51 million of non-cash settlement charges relating to the Company's defined benefit plans. During the 13 and 26 weeks ended July 30, 2016, the Company also incurred $62$6 million and $81$19 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses associated with the Company's defined benefit plans and are a result of an increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring, in addition to periodic distribution activity.

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:
 
 October 29, 2016 October 31, 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$127
 $—
 $127
 $—
 $98
 $—
 $98
 $—
 July 29, 2017 July 30, 2016
   Fair Value Measurements   Fair Value Measurements
 Total 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 (millions)
Marketable equity and debt securities$99
 $22
 $77
 $—
 $141
 $18
 $123
 $—

Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, short-term debt, merchandise accounts payable, accounts payable and accrued liabilities and long-term debt. With the exception of long-term debt, the carrying amount of these financial instruments approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are generally estimated based on quoted market prices for identical or similar instruments, and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards.
The following table shows the estimated fair value of the Company's long-term debt:
 
 October 29, 2016 October 31, 2015
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 (millions)
Long-term debt$6,459
 $6,536
 $6,749
 $6,950
 $7,048
 $7,268
 July 29, 2017 July 30, 2016
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 (millions)
Long-term debt$6,209
 $6,274
 $6,217
 $6,461
 $6,540
 $6,822

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.
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.

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


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,bluemercury, Inc., FDS Bank, West 34th Street Insurance Company New York, Macy's Merchandising Corporation, Macy's Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (Hong Kong) Limited, Macy's Merchandising Group Procurement, LLC, Macy's Merchandising Group International, LLC, Macy's Merchandising Group International (Hong Kong) Limited, and its majority-owned subsidiary Macy's China Limited. "Subsidiary Issuer" includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in "Other Subsidiaries."
Condensed Consolidating Statements of Comprehensive Income for the 13 and 3926 weeks ended OctoberJuly 29, 20162017 and October 31, 2015,July 30, 2016, Condensed Consolidating Balance Sheets as of OctoberJuly 29, 2017, July 30, 2016 October 31, 2015 and January 30, 2016,28, 2017, and the related Condensed Consolidating Statements of Cash Flows for the 3926 weeks ended OctoberJuly 29, 20162017 and October 31, 2015July 30, 2016 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 OctoberJuly 29, 20162017
(millions)
 
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Net sales$—
 $2,376
 $6,183
 $(2,933) $5,626
$—
 $2,186
 $4,739
 $(1,373) $5,552
Cost of sales—
 (1,577) (4,742) 2,933
 (3,386)—
 (1,356) (3,330) 1,373
 (3,313)
Gross margin—
 799
 1,441
 —
 2,240
—
 830
 1,409
 —
 2,239
Selling, general and administrative expenses(1) (909) (1,161) —
 (2,071)—
 (848) (1,129) —
 (1,977)
Gains on sale of real estate—
 26
 17
 —
 43
Settlement charges—
 (24) (38) —
 (62)—
 (17) (34) —
 (51)
Operating income (loss)(1) (134) 242
 —
 107
—
 (9) 263
 —
 254
Interest (expense) income, net:                  
External1
 (82) —
 —
 (81)2
 (82) 1
 —
 (79)
Intercompany—
 (51) 51
 —
 —
—
 (34) 34
 —
 —
Equity in earnings (loss) of subsidiaries17
 (101) —
 84
 —
Net premiums on early retirement of debt—
 2
 —
 —
 2
Equity in earnings of subsidiaries114
 39
 —
 (153) —
Income (loss) before income taxes17
 (368) 293
 84
 26
116
 (84) 298
 (153) 177
Federal, state and local income
tax benefit (expense)		—
 68
 (79) —
 (11)—
 52
 (116) —
 (64)
Net income (loss)17
 (300) 214
 84
 15
116
 (32) 182
 (153) 113
Net loss attributable to noncontrolling interest—
 —
 2
 —
 2
—
 —
 3
 —
 3
Net income (loss) attributable to
Macy's, Inc. shareholders		$17
 $(300) $216
 $84
 $17
$116
 $(32) $185
 $(153) $116
Comprehensive income (loss)$62
 $(255) $241
 $12
 $60
$181
 $29
 $226
 $(258) $178
Comprehensive loss attributable to
noncontrolling interest		—
 —
 2
 —
 2
—
 —
 3
 —
 3
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders		$62
 $(255) $243
 $12
 $62
$181
 $29
 $229
 $(258) $181
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended October 31, 2015July 30, 2016
(millions)
 
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Net sales$—
 $2,654
 $6,366
 $(3,146) $5,874
$—
 $2,494
 $4,989
 $(1,617) $5,866
Cost of sales—
 (1,761) (4,922) 3,146
 (3,537)—
 (1,523) (3,562) 1,617
 (3,468)
Gross margin—
 893
 1,444
 —
 2,337
—
 971
 1,427
 —
 2,398
Selling, general and administrative expenses—
 (957) (1,011) —
 (1,968)—
 (957) (1,090) —
 (2,047)
Gains on sale of real estate—
 16
 5
 —
 21
Impairments and other costs—
 (102) (9) —

(111)—
 (184) (65) —
 (249)
Settlement charges—
 (2) (4) —
 (6)
Operating income (loss)—
 (166) 424
 —
 258
—
 (156) 273
 —
 117
Interest (expense) income, net:                  
External—
 (79) (1) —
 (80)—
 (97) —
 —
 (97)
Intercompany—
 (58) 58
 —
 —
—
 (57) 57
 —
 —
Equity in earnings (loss) of subsidiaries117
 (9) —
 (108) —
Equity in earnings of subsidiaries11
 22
 —
 (33) —
Income (loss) before income taxes117
 (312) 481
 (108) 178
11
 (288) 330
 (33) 20
Federal, state and local income
tax benefit (expense)		1
 84
 (146) —
 (61)—
 114
 (125) —
 (11)
Net income (loss)118
 (228) 335
 (108) 117
11
 (174) 205
 (33) 9
Net loss attributable to noncontrolling interest—
 —
 1
 —
 1
—
 —
 2
 —
 2
Net income (loss) attributable to
Macy's, Inc. shareholders		$118
 $(228) $336
 $(108) $118
$11
 $(174) $207
 $(33) $11
Comprehensive income (loss)$125
 $(221) $339
 $(119) $124
$(6) $(191) $195
 $(6) $(8)
Comprehensive loss attributable to
noncontrolling interest		—
 —
 1
 —
 1
—
 —
 2
 —
 2
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders		$125
 $(221) $340
 $(119) $125
$(6) $(191) $197
 $(6) $(6)


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



Condensed Consolidating Statement of Comprehensive Income
For the 39 Weeks EndedOctober26 weeks ended July 29, 20162017
(millions)
 
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Net sales$—
 $7,324
 $16,546
 $(6,607) $17,263
$—
 $4,242
 $9,866
 $(3,218) $10,890
Cost of sales—
 (4,704) (12,273) 6,607
 (10,370)—
 (2,735) (7,102) 3,218
 (6,619)
Gross margin—
 2,620
 4,273
 —
 6,893
—
 1,507
 2,764
 —
 4,271
Selling, general and administrative expenses(2) (2,732) (3,329) —
 (6,063)(1) (1,617) (2,239) —
 (3,857)
Impairments and other costs—
 (184) (65) —
 (249)
Gains on sale of real estate—
 92
 19
 —
 111
Settlement charges—
 (29) (52) —
 (81)—
 (17) (34) —
 (51)
Operating income (loss)(2) (325) 827
 —
 500
(1) (35) 510
 —
 474
Interest (expense) income, net:                  
External2
 (278) —
 —
 (276)3
 (167) 1
 —
 (163)
Intercompany—
 (166) 166
 —
 —
—
 (69) 69
 —
 —
Equity in earnings (loss) of subsidiaries144
 (69) —
 (75) —
Net premiums on early retirement of debt—
 (1) —
 —
 (1)
Equity in earnings of subsidiaries186
 30
 —
 (216) —
Income (loss) before income taxes144
 (838) 993
 (75) 224
188
 (242) 580
 (216) 310
Federal, state and local income
tax benefit (expense)		—
 243
 (328) —
 (85)(1) 84
 (210) —
 (127)
Net income (loss)144
 (595) 665
 (75) 139
187
 (158) 370
 (216) 183
Net loss attributable to noncontrolling interest

 —
 5
 —
 5
—
 —
 4
 —
 4
Net income (loss) attributable to
Macy's, Inc. shareholders		$144
 $(595) $670
 $(75) $144
$187
 $(158) $374
 $(216) $187
Comprehensive income (loss)$164
 $(575) $677
 $(107) $159
$258
 $(91) $417
 $(330) $254
Comprehensive loss attributable to
noncontrolling interest		—
 —
 5
 —
 5
—
 —
 4
 —
 4
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders		$164
 $(575) $682
 $(107) $164
$258
 $(91) $421
 $(330) $258













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



Condensed Consolidating Statement of Comprehensive Income
For the 39 Weeks Ended26 weeks ended October 31, 2015
(millions)
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Net sales$—
 $8,191
 $17,106
 $(7,087) $18,210
Cost of sales—
 (5,258) (12,776) 7,087
 (10,947)
Gross margin—
 2,933
 4,330
 —
 7,263
Selling, general and administrative expenses(1) (2,962) (3,086) —
 (6,049)
Impairments and other costs—
 (102) (9) —
 (111)
Operating income (loss)(1) (131) 1,235
 —
 1,103
Interest (expense) income, net:         
External—
 (267) (1) —
 (268)
Intercompany—
 (173) 173
 —
 —
Equity in earnings of subsidiaries528
 137
 —
 (665) —
Income (loss) before income taxes527
 (434) 1,407
 (665) 835
Federal, state and local income
tax benefit (expense)		1
 163
 (472) —
 (308)
Net income (loss)528
 (271) 935
 (665) 527
Net loss attributable to noncontrolling interest—
 —
 1
 —
 1
Net income (loss) attributable to
Macy's, Inc. shareholders		$528
 $(271) $936
 $(665) $528
Comprehensive income (loss)$550
 $(249) $948
 $(700) $549
Comprehensive loss attributable to
noncontrolling interest		—
 —
 1
 —
 1
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders		$550
 $(249) $949
 $(700) $550
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Condensed Consolidating Balance Sheet
As of October 29,July 30, 2016
(millions)
 
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
ASSETS:         
Current Assets:         
Cash and cash equivalents$60
 $99
 $298
 $—
 $457
Receivables—
 74
 188
 —
 262
Merchandise inventories—
 3,621
 3,966
 —
 7,587
Income tax receivable99
 —
 —
 (39) 60
Prepaid expenses and other current assets—
 89
 365
 —
 454
Total Current Assets159
 3,883
 4,817
 (39) 8,820
Property and Equipment – net—
 3,534
 3,615
 —
 7,149
Goodwill—
 3,315
 582
 —
 3,897
Other Intangible Assets – net—
 47
 452
 —
 499
Other Assets1
 153
 755
 —
 909
Deferred Income Taxes24
 —
 —
 (24) —
Intercompany Receivable878
 —
 1,876
 (2,754) —
Investment in Subsidiaries2,954
 3,173
 —
 (6,127) —
Total Assets$4,016
 $14,105
 $12,097
 $(8,944) $21,274
LIABILITIES AND SHAREHOLDERS’ EQUITY:         
Current Liabilities:         
Short-term debt$—
 $935
 $3
 $—
 $938
Merchandise accounts payable—
 1,481
 1,894
 —
 3,375
Accounts payable and accrued liabilities164
 910
 1,856
 —
 2,930
Income taxes—
 3
 36
 (39) —
Total Current Liabilities164
 3,329
 3,789
 (39) 7,243
Long-Term Debt—
 6,545
 18
 —
 6,563
Intercompany Payable—
 2,754
 —
 (2,754) —
Deferred Income Taxes—
 694
 878
 (24) 1,548
Other Liabilities63
 565
 1,501
 —
 2,129
Shareholders' Equity:         
Macy's, Inc.3,789
 218
 5,909
 (6,127) 3,789
Noncontrolling Interest—
 —
 2
 —
 2
Total Shareholders' Equity3,789
 218
 5,911
 (6,127) 3,791
Total Liabilities and Shareholders' Equity$4,016
 $14,105
 $12,097
 $(8,944) $21,274
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Net sales$—
 $4,948
 $10,363
 $(3,674) $11,637
Cost of sales—
 (3,127) (7,531) 3,674
 (6,984)
Gross margin—
 1,821
 2,832
 —
 4,653
Selling, general and administrative expenses(1) (1,853) (2,173) —
 (4,027)
Gains on sale of real estate—
 30
 5
 —
 35
Impairments and other costs—
 (184) (65) —
 (249)
Settlement charges—
 (5) (14) —
 (19)
Operating income (loss)(1) (191) 585
 —
 393
Interest (expense) income, net:         
External1
 (196) —
 —
 (195)
Intercompany—
 (115) 115
 —
 —
Equity in earnings of subsidiaries127
 32
 —
 (159) —
Income (loss) before income taxes127
 (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













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



Condensed Consolidating Balance Sheet
As of October 31, 2015July 29, 2017
(millions)
 
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
ASSETS:                  
Current Assets:                  
Cash and cash equivalents$11
 $94
 $369
 $—
 $474
$421
 $78
 $284
 $—
 $783
Receivables—
 38
 162
 —
 200
—
 132
 250
 —
 382
Merchandise inventories—
 3,959
 4,012
 —
 7,971
—
 2,236
 2,744
 —
 4,980
Income tax receivable32
 —
 —
 (32) —
Prepaid expenses and other current assets—
 93
 333
 —
 426
—
 82
 330
 —
 412
Total Current Assets43
 4,184
 4,876
 (32) 9,071
421
 2,528
 3,608
 —
 6,557
Property and Equipment – net—
 4,112
 3,517
 —
 7,629
—
 3,202
 3,620
 —
 6,822
Goodwill—
 3,315
 582
 —
 3,897
—
 3,315
 582
 —
 3,897
Other Intangible Assets – net—
 59
 459
 —
 518
—
 47
 446
 —
 493
Other Assets2
 44
 722
 —
 768
1
 53
 756
 —
 810
Deferred Income Taxes17
 —
 —
 (17) —
25
 —
 —
 (25) —
Intercompany Receivable—
 —
 3,413
 (3,413) —
1,011
 —
 2,065
 (3,076) —
Investment in Subsidiaries4,644
 3,621
 —
 (8,265) —
3,054
 3,690
 —
 (6,744) —
Total Assets$4,706
 $15,335
 $13,569
 $(11,727) $21,883
$4,512
 $12,835
 $11,077
 $(9,845) $18,579
LIABILITIES AND SHAREHOLDERS’ EQUITY:                  
Current Liabilities:                  
Short-term debt$—
 $856
 $1
 $—
 $857
$—
 $6
 $10
 $—
 $16
Merchandise accounts payable—
 1,734
 1,874
 —
 3,608
—
 698
 971
 —
 1,669
Accounts payable and accrued liabilities103
 1,116
 1,468
 —
 2,687
24
 900
 1,949
 —
 2,873
Income taxes—
 4
 130
 (32) 102
28
 2
 22
 —
 52
Total Current Liabilities103
 3,710
 3,473
 (32) 7,254
52
 1,606
 2,952
 —
 4,610
Long-Term Debt—
 7,057
 19
 —
 7,076
—
 6,284
 17
 —
 6,301
Intercompany Payable601
 2,812
 —
 (3,413) —
—
 3,076
 —
 (3,076) —
Deferred Income Taxes—
 700
 770
 (17) 1,453
—
 720
 817
 (25) 1,512
Other Liabilities31
 580
 1,514
 —
 2,125
72
 425
 1,276
 —
 1,773
Shareholders' Equity:                  
Macy's, Inc.3,971
 476
 7,789
 (8,265) 3,971
4,388
 724
 6,020
 (6,744) 4,388
Noncontrolling Interest—
 —
 4
 —
 4
—
 —
 (5) —
 (5)
Total Shareholders' Equity3,971
 476
 7,793
 (8,265) 3,975
4,388
 724
 6,015
 (6,744) 4,383
Total Liabilities and Shareholders' Equity$4,706
 $15,335
 $13,569
 $(11,727) $21,883
$4,512
 $12,835
 $11,077
 $(9,845) $18,579






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 receivable8
 11
 —
 (19) —
Prepaid expenses and other current assets—
 84
 387
 —
 471
Total Current Assets629
 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 Taxes23
 —
 —
 (23) —
Intercompany Receivable—
 —
 2,710
 (2,710) —
Investment in Subsidiaries4,524
 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 liabilities29
 1,380
 1,105
 —
 2,514
Income taxes—
 —
 42
 (19) 23
Total Current Liabilities29
 3,267
 2,200
 (19) 5,477
Long-Term Debt—
 6,549
 18
 —
 6,567
Intercompany Payable1,043
 1,667
 —
 (2,710) —
Deferred Income Taxes—
 653
 818
 (23) 1,448
Other Liabilities58
 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' Equity4,046
 473
 7,302
 (7,771) 4,050
Total Liabilities and Shareholders' Equity$5,176
 $13,182
 $11,871
 $(10,523) $19,706





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



Condensed Consolidating Balance Sheet
As of January 30, 201628, 2017
(millions)
 
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
ASSETS:                  
Current Assets:                  
Cash and cash equivalents$741
 $91
 $277
 $—
 $1,109
$938
 $81
 $278
 $—
 $1,297
Receivables—
 217
 341
 —
 558
—
 169
 353
 —
 522
Merchandise inventories—
 2,702
 2,804
 —
 5,506
—
 2,565
 2,834
 —
 5,399
Income tax receivable44
 —
 —
 (44) —
Prepaid expenses and other current assets—
 135
 344
 —
 479
—
 84
 324
 —
 408
Total Current Assets785
 3,145
 3,766
 (44) 7,652
938
 2,899
 3,789
 —
 7,626
Property and Equipment – net—
 3,925
 3,691
 —
 7,616
—
 3,397
 3,620
 —
 7,017
Goodwill—
 3,315
 582
 —
 3,897
—
 3,315
 582
 —
 3,897
Other Intangible Assets – net—
 52
 462
 —
 514
—
 51
 447
 —
 498
Other Assets—
 154
 743
 —
 897
—
 47
 766
 —
 813
Deferred Income Taxes14
 —
 —
 (14) —
26
 —
 —
 (26) —
Intercompany Receivable—
 —
 3,800
 (3,800) —
375
 —
 2,428
 (2,803) —
Investment in Subsidiaries4,725
 3,804
 —
 (8,529) —
3,137
 3,540
 —
 (6,677) —
Total Assets$5,524
 $14,395
 $13,044
 $(12,387) $20,576
$4,476
 $13,249
 $11,632
 $(9,506) $19,851
LIABILITIES AND SHAREHOLDERS’ EQUITY:                  
Current Liabilities:                  
Short-term debt$—
 $641
 $1
 $—
 $642
$—
 $306
 $3
 $—
 $309
Merchandise accounts payable—
 667
 859
 —
 1,526
—
 590
 833
 —
 1,423
Accounts payable and accrued liabilities35
 1,439
 1,859
 —
 3,333
16
 1,064
 2,483
 —
 3,563
Income taxes—
 41
 230
 (44) 227
71
 16
 265
 —
 352
Total Current Liabilities35
 2,788
 2,949
 (44) 5,728
87
 1,976
 3,584
 —
 5,647
Long-Term Debt—
 6,976
 19
 —
 6,995
—
 6,544
 18
 —
 6,562
Intercompany Payable1,218
 2,582
 —
 (3,800) —
—
 2,803
 —
 (2,803) —
Deferred Income Taxes—
 693
 798
 (14) 1,477
—
 688
 781
 (26) 1,443
Other Liabilities21
 558
 1,544
 —
 2,123
66
 500
 1,311
 —
 1,877
Shareholders' Equity:                  
Macy's, Inc.4,250
 798
 7,731
 (8,529) 4,250
4,323
 738
 5,939
 (6,677) 4,323
Noncontrolling Interest—
 —
 3
 —
 3
—
 —
 (1) —
 (1)
Total Shareholders' Equity4,250
 798
 7,734
 (8,529) 4,253
4,323
 738
 5,938
 (6,677) 4,322
Total Liabilities and Shareholders' Equity$5,524
 $14,395
 $13,044
 $(12,387) $20,576
$4,476
 $13,249
 $11,632
 $(9,506) $19,851

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



Condensed Consolidating Statement of Cash Flows
For the 3926 Weeks Ended OctoberJuly 29, 20162017
(millions)
 
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Cash flows from operating activities:                  
Net income (loss)$144
 $(595) $665
 $(75) $139
$187
 $(158) $370
 $(216) $183
Impairments and other costs—
 184
 65
 —
 249
Settlement charges—
 29
 52
 —
 81
—
 17
 34
 —
 51
Equity in (earnings) loss of subsidiaries(144) 69
 —
 75
 —
Equity in earnings of subsidiaries(186) (30) —
 216
 —
Dividends received from subsidiaries535
 575
 —
 (1,110) —
340
 —
 —
 (340) —
Depreciation and amortization—
 298
 489
 —
 787
—
 178
 309
 —
 487
Increase in working capital(59) (582) (344) —
 (985)
(Increase) decrease in working capital(46) 262
 (382) —
 (166)
Other, net19
 (26) 44
 —
 37
12
 (29) (2) —
 (19)
Net cash provided (used) by operating activities495
 (48) 971
 (1,110) 308
Net cash provided by operating activities307
 240
 329
 (340) 536
Cash flows from investing activities:                  
Purchase of property and equipment and capitalized software, net—
 (23) (520) —
 (543)—
 85
 (307) —
 (222)
Other, net—
 47
 5
 —
 52
—
 —
 9
 —
 9
Net cash provided (used) by investing activities—
 24
 (515) —
 (491)—
 85
 (298) —
 (213)
Cash flows from financing activities:                  
Debt repaid, net of debt issued—
 (122) 2
 —
 (120)
Debt repaid—
 (550) —
 —
 (550)
Dividends paid(344) —
 (1,110) 1,110
 (344)(230) —
 (340) 340
 (230)
Common stock acquired, net of
issuance of common stock		(199) —
 —
 —
 (199)1
 —
 —
 —
 1
Proceeds from noncontrolling interest—
 —
 4
 —
 4
—
 —
 6
 —
 6
Intercompany activity, net(642) 158
 484
 —
 —
(605) 259
 346
 —
 —
Other, net9
 (4) 185
 —
 190
10
 (37) (37) —
 (64)
Net cash provided (used) by
financing activities		(1,176) 32
 (435) 1,110
 (469)
Net cash used by financing activities(824) (328) (25) 340
 (837)
Net increase (decrease) in cash
and cash equivalents		(681) 8
 21
 —
 (652)(517) (3) 6
 —
 (514)
Cash and cash equivalents at beginning of period741
 91
 277
 —
 1,109
938
 81
 278
 —
 1,297
Cash and cash equivalents at end of period$60
 $99
 $298
 $—
 $457
$421
 $78
 $284
 $—
 $783






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



Condensed Consolidating Statement of Cash Flows
For the 3926 Weeks Ended October 31, 2015July 30, 2016
(millions)
 
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Cash flows from operating activities:                  
Net income (loss)$528
 $(271) $935
 $(665) $527
$127
 $(295) $451
 $(159) $124
Impairments and other charges—
 102
 9
 —
 111
Impairments and other costs—
 184
 65
 —
 249
Settlement charges—
 5
 14
 —
 19
Equity in earnings of subsidiaries(528) (137) —
 665
 —
(127) (32) —
 159
 —
Dividends received from subsidiaries597
 —
 —
 (597) —
303
 575
 —
 (878) —
Depreciation and amortization—
 330
 461
 —
 791
—
 205
 315
 —
 520
(Increase) decrease in working capital55
 (329) (867) —
 (1,141)32
 367
 (722) —
 (323)
Other, net(3) 2
 (9) —
 (10)17
 (37) (9) —
 (29)
Net cash provided (used) by operating activities649
 (303) 529
 (597) 278
Net cash provided by operating activities352
 972
 114
 (878) 560
Cash flows from investing activities:                  
Purchase of property and equipment and capitalized software, net—
 (216) (530) —
 (746)—
 (50) (327) —
 (377)
Other, net—
 14
 (129) —
 (115)—
 43
 (4) —
 39
Net cash used by investing activities—
 (202) (659) —
 (861)—
 (7) (331) —
 (338)
Cash flows from financing activities:                  
Debt issued, net of debt repaid—
 640
 (1) —
 639
Debt repaid—
 (3) —
 —
 (3)
Dividends paid(344) —
 (597) 597
 (344)(228) —
 (878) 878
 (228)
Common stock acquired, net of
issuance of common stock		(1,625) —
 —
 —
 (1,625)(103) —
 —
 —
 (103)
Proceeds from noncontrolling interest—
 —
 5
 —
 5
—
 —
 4
 —
 4
Intercompany activity, net(587) (73) 660
 —
 —
(139) (937) 1,076
 —
 —
Other, net10
 (62) 188
 —
 136
(2) (27) 28
 —
 (1)
Net cash provided (used) by
financing activities		(2,546) 505
 255
 597
 (1,189)(472) (967) 230
 878
 (331)
Net increase (decrease) in cash and
cash equivalents		(1,897) —
 125
 —
 (1,772)(120) (2) 13
 —
 (109)
Cash and cash equivalents at beginning of period1,908
 94
 244
 —
 2,246
741
 91
 277
 —
 1,109
Cash and cash equivalents at end of period$11
 $94
 $369
 $—
 $474
$621
 $89
 $290
 $—
 $1,000



MACY'S, INC.

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

For purposes of the following discussion, all references to "thirdsecond quarter of 20162017" and "thirdsecond quarter of 20152016" are to the Company's 13-week fiscal periods ended OctoberJuly 29, 20162017 and October 31, 2015July 30, 2016, respectively, and all references to "2016""2017" and "2015""2016" are to the Company's 39-week26-week fiscal periods ended OctoberJuly 29, 20162017 and October 31, 2015,July 30, 2016, respectively.
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in the 20152016 10-K. The following discussion contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report (particularly in "Forward-Looking Statements") and in the 20152016 10-K (particularly in "Risk Factors" and in "Forward-Looking Statements"). This discussion includes non-GAAP financial measures. For information about these measures, see the disclosure under the caption "Important Information Regarding Non-GAAP Financial Measures" on pages 2829 to 30.31.
Overview
The Company is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and Bluemercury)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 includeCompany operates approximately 880850 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.comRico. As of July 29, 2017, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage, bluemercury and bluemercury.com.Macy's China Limited. In addition, Bloomingdale's in Dubai, United Arab Emirates isand Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
The Company continueshas begun the implementation of its North Star strategy to transform its omnichannel business and focus on key growth areas, embrace customer centricity, and optimize value in its real estate portfolio. Inspired by the North Star, there are five points to this strategy.
1.
FromFamiliar to Favorite includes everything the Company does to further its brand awareness and identity to its core customers. Actions include understanding and anticipating customers’ needs, strengthening the Company's fashion authority and executing initiatives around its loyalty and pricing strategies.
2.
It Must Be Macy’s encompasses delivering the products and experiences customers love and are exclusive to the Company. This includes styles and home fashion for every day and special occasions, from the Company's leading private brands, as well as exclusive national brands or assortments. It celebrates the Company's iconic events and includes strategies to appeal to more value-oriented customers.
3.
Every Experience Matters, in-store and online. The Company's competitive advantage is the ability to combine the human touch in its physical stores with cutting-edge technology in its mobile applications and websites. Key to this point is the enhancement of a customer's experienceas they explore our stores, mobile applications and websites, find their favorite styles, sizes and colors, and receive their purchases through the shopping channels they prefer.
4.
Funding our Future represents the decisions and actions the Company takes to identify and realize resourcesto fuel growth. This involves a focus on cost reduction and reinvestment as well as creating value from the Company's real estate portfolio.
5.
What’s New, What’s Next explores and develops those innovations to turn consumer and technology trends to the Company's advantage and to drive growth. This includes exploring previously unmet customer needs and making smart investment decisions based on customer insights and analytics.
The Company has taken a number of key steps over the past couple of years to position itself to successfully implement the North Star strategy. Specifically, in August 2016, the Company announced its intention to close approximately 100 Macy’s stores, 70 of which were closed or announced to be focused on three key strategies for growthclosed by the end of the second quarter of 2017. Further, in sales, earningsJanuary 2017, the Company announced a series of actions to streamline its store portfolio, intensify cost efficiency efforts and cash flow in the years ahead: (i) maximizing the My Macy's localization initiative; (ii) driving the omnichannel business; and (iii) embracing customer centricity, including engaging customers through building Magic connections. These strategies have evolved andexecute its real estate strategy. In addition, the Company has developed specific initiatives to acquire new customers and strengthen loyalty, deliver distinctive merchandise, expandreorganized the digital frontier and new formats and to create signature customer experiences.
Throughfield structure that supports the My Macy's localization initiative, the Company has invested in talent, technology and marketing which ensures that core customers surrounding each Macy's store find merchandise assortments, size ranges, marketing programs and shopping experiences that are custom-tailored to their needs. My Macy's has provided for more local decision-making in every Macy's community, and involves tailoring merchandise assortments, space allocations, service levels, visual merchandising and special events on a store-by-store basis. The focus on localization is now evolving to one of personalization.
The Company's omnichannel strategy allows customers to shop seamlessly inremaining stores and online, via desktops, laptops or mobile devices. A pivotal partconducted a significant restructuring of the omnichannel strategy is the Company's ability to allow associates in any store to sell a product that may be unavailable locally by shipping merchandise from other stores or customer fulfillment centers to the customer's door. Likewise, the Company's customer fulfillment centers can draw on store inventories nationwide to fill orders that originate online. Nearly all Macy's and Bloomingdale's stores are fulfilling orders from other stores and/or online for shipment and fulfilling orders for store pick-up related to online purchases, and the Company operates same-day delivery in 19 markets.
Macy's Magic connections is an approach to customer engagement that helps Macy's better understand the needs of customers, as well as provide merchandise options and advice. Macy's engages its customers through building Magic connections on the selling floor, through mobile apps and all other customer interactions.
In 2015, the Company launched the marketing of potential asset sales as well as partnership or joint venture transactions for certain of its real estate. This includes the owned mall-based properties, as well as Macy's flagship real estate assets in New York City (Herald Square), San Francisco (Union Square), Chicago (State Street) and Minneapolis (Nicollet Mall). This real estate strategy has been further refinedcentral operations to focus resources on three parts: real estate associated with anticipated store closures, real estate used in operationsstrategic priorities and Macy's flagship real estate assets.


reduce expense.

MACY'S, INC.

The Company’s real estate strategy is designed to create value through both monetization and redevelopment of certain assets:
In AugustJanuary 2016, the Company announcedcompleted a series$270 million real estate transaction to recreate Macy's Brooklyn store. The Company continues to own and operate the first four floors and lower level of initiativesits existing nine-story retail store, which is currently being reconfigured and remodeled. The remaining portion of the store and its nearby parking facility were sold to drive profitable growth, enhance shareholder valueTishman Speyer in a single sales transaction. As the sales agreement required the Company to conduct certain redevelopment activities within the store, the Company is recognizing the gain on the transaction, approximately $250 million, under the percentage of completion method of accounting over the redevelopment period. Accordingly, $144 million has been recognized to-date and strengthen Macy's as the preferred omnichannel shopping destination.remaining gain is anticipated to be recognized over the next two years.
In fiscal 2016, the Company had property and equipment sales, primarily related to real estate, totaling $673 million in cash proceeds and recognized real estate gains of $209 million. These proceeds include the cash received from the sale of the Company's 248,000 square-foot Union Square Men’s building in San Francisco for approximately $250 million in January 2017. The Company will heighten the Macy's brand with exclusive products and an improved shopping experience. Plans also include re-creating Macy's physical store presence as customer shopping preferences and patterns evolve by operating fewer stores and concentrating financial resources and talent on the better-performing locations. Asuse part of this strategy, the Company intendsproceeds to close approximately 100 Macy's stores (out of a current portfolio of over 700 Macy's stores). It is expected that most of these stores will close early in 2017, withconsolidate the balance closing as leases and certain operating covenants expire or are amended and waived.
Macy's will reallocate investments to higher-growth-potentialMen’s store and digital businesses. These investments will include adding new vendor shops, additional licensing agreements, increasing the size and quality of store staffing, and investing in capacity-building on the Company's websites and mobile apps.
In October 2016, the Company announced the sale of five locations to General Growth Properties: one store location was closed in early 2016, three locations will close in early 2017 and one location will continue to operate under a lease agreement.into its main Union Square store. The Company recognized a gainwill lease the Men’s store property for two to three years as it completes the reconfiguration of $32 million during the third quarter of 2016 from this transaction. In addition, as a result of lease terminations or expirations, the Company will be closing Macy’s stores in Douglaston Mall, Douglaston, NY and Lancaster Mall, Salem, OR in early 2017.main store. The Company has also signed an agreement to sell its downtown Portland, OR store for $54 million. The transaction is expected to close in the fourth quarter of 2016, at which timerecognize a gain of approximately $36$235 million will be recognized. The downtown Portland store will continue operations through the holiday season and will be closed in spring 2017.January 2018.
In November 2016,January 2017, the Company announcedfinalized the formation of a strategic alliance with Brookfield Asset Management, a leading global alternative asset manager, to create increased value in its real estate portfolio. Under the alliance, Brookfield will havehas an exclusive right for up to 24 months to create a “pre-development plan” for each of approximately 50 Macy’s real estate assets, with an option for Macy’s to continue to identify and add assets into the alliance. The breadth of opportunity within the portfolio ranges from the additional development on a portion of an asset (such as a Company-controlled land parcel adjacent to a store) to the complete redevelopment of an existing store.  Once a "pre-development plan" is created, the Company has the option to accept the pre-development plan and then either contribute the asset into a joint venture for the development plan to commence or sell the asset to Brookfield. If the Company chooses to contribute the asset into a joint venture, the Company may elect to participate as a funding or non-funding partner. After development, the joint venture may sell the asset and distribute proceeds accordingly. Based on the analysis conducted to date, preliminary indications point to a likelihood that Brookfield will recommend proceeding with redevelopment on roughly two thirds of the assets subject to the alliance.
In November 2016,February 2017, the Company announced that it had signed an agreement to sellsold its 248,000 square-foot Union Square Men’s building in San Franciscodowntown Minneapolis store and parking facility for $250$59 million of proceeds and will use part of the proceeds to consolidate the Men’s store into its main Union Square store. The Company will lease the Men’s store property for two to three years as it completes the reconfiguration of the main store. The Company expects this transaction to close in January 2017 and expects to recognizerecognized a gain of approximately $235$47 million in January 2018.the first quarter of 2017.
In April 2017, the Company launched a marketing effort for the upper floors of its flagship State Street Macy's store in downtown Chicago. Development and increased utilization of the upper floors are expected to drive more foot traffic to the store.
In May 2017, the Company signed a contract to sell an additional two floors of the downtown Seattle Macy's store; four floors were sold in a similar transaction in 2015. This transaction is expected to close in the Fall of 2017.
In 2017, the Company opened new Macy’s stores in Murray, UT and Los Angeles, CA as well as a Bloomingdale’s store in Kuwait under a license agreement with Al Tayer Group. The Company continuesexpects to explore options foropen new Macy's and Bloomingdale's stores in Al Maryah Central in Abu Dhabi, UAE, in fiscal 2018 under a license agreement with Al Tayer Group and two additional Bloomingdale's stores in San Jose, CA and Norwalk, CT in fiscal 2019.
Both Macy's off-price business, Macy's Backstage, and its New York City (Herald Square), Chicago (State Street)clearance strategy, Last Act, have been successful in providing unique value opportunities to both existing and Minneapolis (Nicollet Mall) flagship stores.
new Macy's customers. The Company is currently focused on opening new Macy's Backstage stores within existing Macy's store locations. In addition,the second quarter, the Company continuesopened 12 new Macy’s Backstage stores within existing Macy’s stores, bringing the total locations in operation to pursue other selected real estate dispositions to monetize assets in instances where the store is being closed or where the value45 (7 freestanding and 38 inside Macy's stores) as of real estate significantly outweighs the value of the retail business.
In January 2016, the Company completed a $270 million real estate transaction that will enable a re-creation of Macy's Brooklyn store.July 29, 2017. The Company will continueexpects to own and operate the first four floors and lower level of its existing nine-story retail store, which will be reconfigured and remodeled. The remaining portion of the store and its nearby parking facility were sold to Tishman Speyeropen 7 additional Macy’s Backstage locations inside Macy’s stores in a single sales transaction. As the sales agreement requires the Company to conduct certain redevelopment activities at Macy's Brooklyn store, the Company will recognize a gain of approximately $250 million under the percentage of completion method of accounting. Accordingly, $107 million has been recognized to-date and the remaining gain is anticipated to be recognized over the next two years, with approximately $4 million expected to be recognized during the remainder of fiscal 2016.2017.
In 2015, the Company opened the first six pilot stores in Macy's new off-price business, Macy's Backstage, in the New York City metro area. The Macy's Backstage locations average about 30,000 square feet and sell an assortment of women's, men's and children's apparel, shoes, fashion accessories, housewares, home textiles, intimate apparel and jewelry. As of October 29, 2016, the Company is operating 22 Macy's Backstage locations (7 freestanding and 15 inside Macy's stores).
In March 2015, the Company completed its acquisition of Bluemercury, Inc., a luxury beauty products and spa retailer. The Company is focused on accelerating the growth of sales inits luxury beauty products and spa retailer, bluemercury, by opening additional freestanding Bluemercurybluemercury stores in urban and suburban markets, enhancing its online capabilities and adding Bluemercurybluemercury products and boutiques to Macy's stores. 16 new freestanding bluemercury locations were opened in the second quarter of 2017 and 11 additional locations are expected to open later in the fiscal year. As of OctoberJuly 29, 2016,2017, the Company is operating 117 Bluemercury147 bluemercury locations (98(127 freestanding and 1920 inside Macy's stores). During 2016, the Company has opened 21 new freestanding Bluemercury stores.

MACY'S, INC.

The Company is focused on improving the recent business trend through a series of organic and new business initiatives. The initiatives include a focus on fine jewelry and watches, expansion of Macy's Backstage inside existing Macy's stores, "Last Act" - a simplified pricing approach to clearance merchandise in Macy's stores, a focus on the "Top 150" store locations (including product presentation, customer service and special events), a focus on the beauty business including the expansion of Bluemercury freestanding locations and inside existing Macy's stores and a focus on enhancements to mobile technology. The Company is planning to offer customers greater newness and more exclusive merchandise through an array of new and exclusive product launches. The Company is also pursuing additional opportunities to reduce expense, while still investing in key areas including digital and customer service.
In November 2016, the Company opened a new Bloomingdale's Outlet and during the remaining weeks of fiscal 2016, the Company intends to open three additional freestanding Bluemercury locations.
In August 2015, the Company established a joint venture, Macy's China Limited, of which the Company holds a sixty-five percent ownership interest and Hong Kong-based Fung Retailing Limited holds the remaining thirty-five percent ownership interest. Macy's China Limited began selling merchandise in China in the fourth quarter of 2015 through an e-commerce presence on Alibaba Group's Tmall Global. The Company's periodic reporting includes the financial operations of Macy's China Limited, with the thirty-five percent ownership reported as a noncontrolling interest.
The Company's operations are impacted by competitive pressures from department stores, specialty stores, mass merchandisers, online retailers and all other retail channels. The Company's operations are also impacted by general consumer spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of weather or natural disasters and other factors over which the Company has little or no control.
In recent years, consumer spending levels have been affected to varying degrees by a number of factors, including modest economic growth, uncertainty regarding governmental spending and tax policies, unemployment levels, tightened consumer credit, an improving housing market and a fluctuating stock market. In addition, consumer spending levels of international customers are impacted by the strength of the U.S. dollar relative to foreign currencies. These factors have affected, to varying degrees, the amount of funds that consumers are willing and able to spend for discretionary purchases, including purchases of some of the merchandise offered by the Company.
All economic conditions ultimately affect the Company's overall operations. However, the effects of economic conditions can be experienced differently and at different times, in the various geographic regions in which the Company operates, in relation to the different types of merchandise that the Company offers for sale, or in relation to each of the Company's branded operations.
Based on its assessment of current and anticipated market conditions and its recent performance, the Company expects comparable sales on an owned plus licensed basis for fiscal 2016 to decrease in the range of 2.5% to 3.0% from 2015 levels, with comparable sales on an owned basis approximately 50 basis points lower. The Company currently expects that its diluted earnings per share attributable to Macy's, Inc. in fiscal 2016 will be in the range of $3.15 to $3.40, excluding the impact of non-cash settlement charges relating to the Company's defined benefit plans and the impact of asset impairment and other costs primarily associated with plans to close approximately 100 stores.


MACY'S, INC.

Results of Operations
Comparison of the ThirdSecond Quarter of 20162017 and the ThirdSecond Quarter of 20152016

 Third Quarter of 2016 Third Quarter of 2015  Second Quarter of 2017 Second Quarter of 2016 
 Amount % to Sales Amount % to Sales  Amount % to Sales Amount % to Sales 
 (dollars in millions, except per share figures) (dollars in millions, except per share figures)
Net sales $5,626
   $5,874
    $5,552
   $5,866
   
Decrease in sales (4.2)% (5.2)%  (5.4)% (3.9)% 
Decrease in comparable sales (3.3)% (3.9)%  (2.8)% (2.6)% 
Cost of sales (3,386) (60.2)%(3,537) (60.2)% (3,313) (59.7)%(3,468) (59.1)%
Gross margin 2,240
 39.8
%2,337
 39.8
% 2,239
 40.3
%2,398
 40.9
%
Selling, general and administrative expenses (2,071) (36.8)%(1,968) (33.5)% (1,977) (35.6)%(2,047) (34.9)%
Gains on sale of real estate 43
 0.8
%21
 0.4
%
Impairments and other costs —
 —
%(111) (1.9)  —
 —
%(249) (4.3)%
Settlement charges (62) (1.1)%—
 —
% (51) (0.9)%(6) (0.1)%
Operating income 107
 1.9
%258
 4.4
% 254
 4.6
%117
 2.0
%
Interest expense - net (81)   (80)    (79)   (97)   
Net premiums on early retirement of debt 2
   —
   
Income before income taxes 26
   178
    177
   20
   
Federal, state and local income tax expense (11)   (61)    (64)   (11)   
Net income 15
  117
   113
  9
  
Net loss attributable to noncontrolling interest 2
   1
    3
   2
   
Net income attributable to Macy's, Inc. shareholders $17
 0.3
%$118
 2.0
% $116
 2.1
%$11
 0.2
%
                  
Diluted earnings per share attributable to
Macy's, Inc. shareholders
 $.05
   $.36
    $.38
   $.03
   
                  
Diluted earnings per share attributable to
Macy's, Inc. shareholders, excluding the impact
of impairments and other costs and settlement charges		 $.17
   $.56
   
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of impairments and other costs, settlement charges and net premiums on early retirement of debt $.48
   $.54
   
Net Sales
Net sales for the thirdsecond quarter of 20162017 decreased $248$314 million or 4.2%5.4% compared to the thirdsecond quarter of 20152016 due to fiscal year-end 20152016 store closures and the decline in comparable sales. The decrease in comparable sales on an owned basis for the thirdsecond quarter of 20162017 was 3.3%2.8% compared to the thirdsecond quarter of 2015.2016. The decrease in comparable sales on an owned plus licensed basis for the thirdsecond quarter of 20162017 was 2.7%2.5% compared to the thirdsecond quarter of 2015. The Company’s growth strategies have begun to gain traction in its top doors and in key areas such as fine jewelry, shoes and home. Additionally, sales improved in the Company’s apparel businesses - men’s, women’s and kid’s, including improved performance in the Company’s major apparel brands and its exclusive brands such as I-N-C and Tommy Hilfiger.2016. Sales during the quarter were strongstrongest in shoes, fine jewelry, furniture and mattresses, fragrances, active apparel, and soft home which includes textiles, table topmen's tailored clothing. Sales were weaker in cosmetics and housewares. These improved trends helped offset some of the weakness in handbags, cosmetics and fashion watches. The Company’s digital business continued its strong growth with double digit gains at both macys.com and bloomingdales.com.in the quarter. Geographically, regional trends were relatively consistent. However, lower international tourism sales contributed to the Company’s strongest business was throughoutdecline of sales in the West.second quarter of 2017 compared to the second quarter of 2016.
Cost of Sales
CostThe cost of sales rate as a percent to net sales for the thirdsecond quarter of 20162017 decreased $151 million andincreased to 59.7% compared to 59.1% for the second quarter of 2016. This increase in the cost of sales rate as a percent to net sales remained 60.2% forwas due in part to increased promotional activity in the third quarter of 2016.beauty business, price competition in housewares and small electrics and margin pressures in tech watches. The Company expects these trends to continue and is working to offset the gross margin pressure by increasing margin through faster inventory turnover, and growth in the private brand and Last Act businesses. The application of the last-in, first-out (LIFO) retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales in either period.


MACY'S, INC.

Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the thirdsecond quarter of 20162017 increased $103decreased $70 million or 5.2%3.4% from the thirdsecond quarter of 20152016. The SG&A rate as a percent to net sales of 36.8%35.6% was 33070 basis points higher in the thirdsecond quarter of 20162017, as compared to the thirdsecond quarter of 20152016. SG&A expenses in the thirdsecond quarter of 2017 include reduced expenses from the year-end 2016 reflect increasedstores closures and the impact of restructuring activities, partially offset by investments in selling, bothdigital growth. Income from credit operations was $183 million in key locationsthe second quarter of 2017, an increase of $2 million compared to $181 million recognized in the second quarter of 2016. Income from credit operations excludes costs related to new account originations and in strategic familiesfraudulent transactions incurred on the Company’s private label credit cards.
Gains on Sale of business, digital growth, and initiatives at Bluemercury, China and Backstage, lowerReal Estate
The second quarter of 2017 included asset sale gains and lower income from credit operations. The third quarter of 2016 included asset

MACY'S, INC.

sale gains of $41$43 million, $9including approximately $18 million of which related to the Macy's Brooklyn transaction and $32 million related to sales to General Growth Properties.transaction. This compares to $78$21 million of asset sale gains recognized in the third quarter of 2015. Income from credit operations was $165 million in the third quarter of 2016, a decrease of $12 million compared to $177 million recognized in the third quarter of 2015.
Impairments and Other Costs
Impairments and other costs were $111 million for the third quarter of 2015 and related primarily to the Company's closure of 41 stores in early 2016.
Settlement Charges
The third quarter of 2016 included $62 million of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring, and periodic distribution activity.
Net Interest Expense
Net interest expense for the thirdsecond quarter of 2016 increased $1, inclusive of approximately $11 million from the third quarter of 2015.
Effective Tax Rate
The Company's effective tax rate of 42.3% for the third quarter of 2016 and 34.6% for the third quarter of 2015 differ from the federal income tax statutory rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for the third quarter of 2016 decreased $101 million or 85.6% compared to the third quarter of 2015, reflecting lower net sales and gross margin and higher settlement charges, partially offset by lower impairments and other costs and lower tax expense.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for the third quarter of 2016 decreased $.31 or 86.1% compared to the third quarter of 2015, reflecting lower net income. Excluding the impact of impairments and other costs and settlement charges, diluted earnings per share for the third quarter of 2016 decreased $.39 or 69.6% compared to the third quarter of 2015.


MACY'S, INC.

Comparison of the 39 Weeks Ended October 29, 2016 and October 31, 2015
  2016  2015  
  Amount % to Sales  Amount % to Sales  
  (dollars in millions, except per share figures)
Net sales $17,263
    $18,210
    
Decrease in sales (5.2)%  (2.8)%  
Decrease in comparable sales (4.0)%  (2.2)%  
Cost of sales (10,370) (60.1)%(10,947) (60.1)%
Gross margin 6,893
 39.9
%7,263
 39.9
%
Selling, general and administrative expenses (6,063) (35.1)%(6,049) (33.2)%
Impairments and other costs (249) (1.4)%(111) (0.6) 
Settlement charges (81) (0.5)%—
 —
%
Operating income 500
 2.9
%1,103
 6.1
%
Interest expense - net (276)    (268)    
Income before income taxes 224
    835
    
Federal, state and local income tax expense (85)    (308)    
Net income 139
   527
   
Net loss attributable to noncontrolling interest 5
    1
    
Net income attributable to Macy's, Inc. shareholders $144
 0.8
%$528
 2.9
%
            
Diluted earnings per share attributable to
      Macy's, Inc. shareholders
 $.46
    $1.56
    
            
Diluted earnings per share attributable to
      Macy's, Inc. shareholders, excluding the impact
      of impairments and other costs and settlement charges		 $1.11
    $1.76
    
Net Sales
Net sales for 2016 decreased $947 million or 5.2% compared to 2015 due to fiscal year-end 2015 store closures and the decline in comparable sales. The decrease in comparable sales on an owned basis for 2016 was 4.0% compared to 2015. The decrease in comparable sales on an owned plus licensed basis for 2016 was 3.5% compared to 2015. The weakness in consumer spending levels in apparel and related categories negatively impacted sales in 2016, although to a lesser extent in the second and third quarters as compared to the first quarter. Sales at locations that are frequented by international tourists, such as New York City, Las Vegas, San Francisco, Chicago, and Florida, have been negatively impacted by lower levels of spending by these tourists. Geographically, sales in 2016 were relatively stronger in the West region. There were some families of business that performed well in 2016 including: fine jewelry, shoes, fragrances and soft home. Sales in 2016 were weaker in handbags and fashion watches.
Cost of Sales
Cost of sales for 2016 decreased $577 million and the cost of sales rate as a percent to net sales was similar to 2015 at 60.1%. The application of the LIFO retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales in either period.
Selling, General and Administrative Expenses
SG&A expenses for 2016 increased $14 million or 0.2% from 2015. The SG&A expense rate as a percent to net sales of 35.1% was 190 basis points higher in 2016, as compared to 2015, primarily due to lower net sales in 2016. SG&A expenses in 2016 benefited from lower retirement expenses, expense savings from the restructuring initiatives announced in January 2016, and gains on the sale of real estate assets, offset by lower income from credit operations and continued investments in the Company's omnichannel operations, Bluemercury, Macy's Backstage and Macy's China Limited. SG&A expenses for 2016 included gains on the sale of real estate assets of $76 million, $24 million of which related to the Macy's Brooklyn transaction and $32 million related to asset sales to General Growth Properties. SG&A expenses for 2015 included gains on the sale of real estate assets of $100 million. Retirement expenses were $34 million in 2016, compared to $61 million in

MACY'S, INC.

2015, reflecting the change in method used to estimate the service and interest cost components of the Company's defined benefit plans. Income from credit operations was $528 million in 2016, compared to $551 million in 2015, reflecting lower credit sales.transaction.
Impairments and Other Costs
Impairments and other costs were $249 million for the second quarter of 2016 and related primarily to the Company's plansdecision to close approximately 100 Macy's storesfull-line stores. No such charges were recognized in earlythe second quarter of 2017. Impairments and other costs were $111 million for 2015 and related primarily to the Company's closure of 41 stores in early 2016.
Settlement Charges
The second quarter of 2017 and 2016 included $81$51 million and $6 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring, and periodic distribution activity.
Net Interest Expense
Net interest expense for 2016 increased $8the second quarter of 2017 decreased $18 million from 2015, reflecting higher levelsthe second quarter of outstanding borrowings.2016 due to a reduction in the Company's debt from $7.6 billion as of the end of the second quarter of 2016 to $6.3 billion as of the end of the second quarter of 2017. This approximately $1.3 billion reduction is due to the maturity and early payment of certain of the Company's borrowings and excludes the impact of the net premiums and expenses associated with the early retirement of debt as discussed below.
Net Premiums on Early Retirement of Debt
The Company repurchased approximately $101 million face value of senior notes and debentures in the second quarter of 2017. The debt repurchases were made in the open market for a total cash cost of approximately $108 million, including expenses related to the transactions. As a result of the debt repurchases, the Company recognized income of $2 million related to amortization of premiums on acquired debt net of expenses and fees in the second quarter of 2017.
 Effective Tax Rate
The Company's effective tax rate of 37.9%36.2% for 2016the second quarter of 2017 and 36.9%55.0% for 2015the second quarter of 2016 differ from the federal income tax statutory rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the settlement of various tax issues and tax examinations.examinations as well as the recognition of approximately $1 million of net tax deficiencies in the second quarter of 2017 associated with share-based payment awards due to the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. Historically, the Company had recognized such amounts as an offset to accumulated excess tax benefits previously recognized in additional paid-in capital.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for the second quarter of 2017 increased $105 million compared to the second quarter of 2016. The second quarter of 2016 included $154 million of after tax impairments and other costs, while the second quarter of 2017 included higher asset sale gains compared to second quarter of 2016. These favorable changes in the second quarter of 2017 as well as lower SG&A and interest expenses were partially offset by lower net sales and gross margin and higher retirement plan settlement charges in the second quarter of 2017.

MACY'S, INC.

Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for the second quarter of 2017 increased $.35 compared to the second quarter of 2016, reflecting higher net income. Excluding the impact of impairments and other costs, settlement charges, and the net premiums on the early retirement of debt, diluted earnings per share for the second quarter of 2017 decreased $.06 or 11.1% compared to the second quarter of 2016.

Comparison of the 26 Weeks Ended July 29, 2017 and July 30, 2016
  2017  2016  
  Amount % to Sales  Amount % to Sales  
  (dollars in millions, except per share figures)
Net sales $10,890
    $11,637
    
Decrease in sales (6.4)%  (5.7)%  
Decrease in comparable sales (4.0)%  (4.4)%  
Cost of sales (6,619) (60.8)%(6,984) (60.0)%
Gross margin 4,271
 39.2
%4,653
 40.0
%
Selling, general and administrative expenses (3,857) (35.3)%(4,027) (34.6)%
Gains on sale of real estate 111
 1.0
%35
 0.3
 
Impairments and other costs —
 —
%(249) (2.1)%
Settlement charges (51) (0.5)%(19) (0.2)%
Operating income 474
 4.4
%393
 3.4
%
Interest expense - net (163)    (195)    
Net premiums on early retirement of debt (1)    —
    
Income before income taxes 310
    198
    
Federal, state and local income tax expense (127)    (74)    
Net income 183
   124
   
Net loss attributable to noncontrolling interest 4
    3
    
Net income attributable to Macy's, Inc. shareholders $187
 1.7
%$127
 1.1
%
            
Diluted earnings per share attributable to
      Macy's, Inc. shareholders
 $.61
    $.41
    
            
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of impairments and other costs, settlement charges and net premiums on early retirement of debt $.71
    $.94
    
Net Sales
Net sales for 2017 decreased $747 million or 6.4% compared to 2016 due to fiscal year-end 2016 store closures and the decline in comparable sales. The decrease in comparable sales on an owned basis for 2017 was 4.0% compared to 2016. The decrease in comparable sales on an owned plus licensed basis for 2017 was 3.6% compared to 2016. Sales during 2017 were strongest in women's apparel, primarily active and dresses, fine jewelry, fragrances, and women's shoes. Sales were weaker in housewares, tabletop, handbags and cosmetics. The Company’s digital business continued its strong growth at both macys.com and bloomingdales.com. Geographically, the Company’s strongest business was the Southwest region.
Cost of Sales
The cost of sales rate as a percent to net sales for 2017 increased to 60.8% compared to 60.0% for 2016. The increase in the cost of sales rate as a percent to net sales was due in part to increased promotional activity in the beauty business, price competition in housewares and small electrics and margin pressures in tech watches. The Company expects these trends to continue and is working to offset the gross margin pressure by increasing margin through faster inventory turnover, and growth in the private brand and Last Act businesses. The application of the LIFO retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales in either period.

MACY'S, INC.

Selling, General and Administrative Expenses
SG&A expenses for 2017 decreased $170 million or 4.2% from 2016. The SG&A rate as a percent to net sales of 35.3% was 70 basis points higher in 2017 as compared to 2016. SG&A expenses in 2017 include reduced expenses from the year-end 2016 stores closures and the impact of restructuring activities, partially offset by investments in digital growth and initiatives at bluemercury. Income from credit operations was $363 million in 2017 and 2016. Income from credit operations excludes costs related to new account originations and fraudulent transactions incurred on the Company’s private label credit cards.
Gains on Sale of Real Estate
2017 included asset sale gains of $111 million, including $47 million related to the downtown Minneapolis property and $27 million related to the Macy's Brooklyn transaction. This compares to $35 million of asset sale gains recognized in 2016, inclusive of approximately $15 million related to the Macy's Brooklyn transaction.
Impairments and Other Costs
Impairments and other costs were $249 million for 2016 and related primarily to the Company's decision to close approximately 100 Macy's full-line stores. No such charges were recognized in 2017.
Settlement Charges
2017 and 2016 included $51 million and $19 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring, and periodic distribution activity.
Net Interest Expense
Net interest expense for 2017 decreased $32 million from 2016 due to a reduction in the Company's debt as discussed previously within the quarterly review.
Net Premiums on Early Retirement of Debt
The Company repurchased approximately $247 million face value of senior notes and debentures in 2017. The debt repurchases were made in the open market for a total cash cost of approximately $257 million, including expenses related to the transactions. As a result of the debt repurchases, the Company recognized $1 million in expenses and fees net of premiums on acquired debt in 2017.
Effective Tax Rate
The Company's effective tax rate of 41.0% for 2017 and 37.4% for 2016 differ from the federal income tax statutory rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the settlement of various tax issues and tax examinations as well as the recognition of approximately $12 million of net tax deficiencies in 2017 associated with share-based payment awards due to the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. Historically, the Company had recognized such amounts as an offset to accumulated excess tax benefits previously recognized in additional paid-in capital.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for 2016 decreased $3842017 increased $60 million or 72.7%47.2% compared to 2015, reflecting2016. The increase from 2017 to 2016 is primarily attributable to higher asset sale gains in 2017 as well as the fact that 2016 included $154 million of after tax impairments and other costs. These favorable changes as well as lower SG&A and interest expenses were partially offset by lower net sales and gross margin and higher impairments and other costs andretirement plan settlement charges partially offset by lower tax expense.in 2017.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for 2016 decreased $1.102017 increased $.20 or 70.5%48.8% compared to 2015,2016, reflecting lowerhigher net income, partially offset by lower average diluted shares.income. Excluding the impact of impairments and other costs, and settlement charges, and the net premiums on the early retirement of debt, diluted earnings per share for 20162017 decreased $.65$.23 or 36.9%24.5% compared to 2015.



MACY'S, INC.

Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP financial measures provide users of the Company's financial information with additional useful information in evaluating operating performance. Management believes that providing changes in comparable sales on an owned plus licensed basis, which includes the impact of growth in comparable sales of departments licensed to third parties, supplementally to its results of operations calculated in accordance with GAAP assists in evaluating the Company's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, on a comparable basis, and in evaluating the impact of changes in the manner in which certain departments are operated. Management believes that excluding certain items that may vary substantially in frequency and magnitude from diluted earnings per share attributable to Macy's, Inc. shareholders provides a useful supplemental measures that assist in evaluating the Company's ability to generate earnings and leverage sales and to more readily compare these metrics between past and future periods. The reconciliation of the forward-looking non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis to GAAP comparable sales (i.e., on an owned basis) is in the same manner as illustrated below, where the impact of growth in comparable sales of departments licensed to third parties is the only reconciling item. In addition, the Company does not provide the most directly comparable forward-looking GAAP measure of diluted earnings per share attributable to Macy’s, Inc. shareholders because the timing and amount of excluded items (e.g., asset impairment charges, retirement settlement charges and other store closing related costs) are unreasonably difficult to fully and accurately estimate.
Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the Company's financial position, results of operations and cash flows and should therefore be considered in assessing the Company's actual and future financial condition and performance. Additionally, the amounts received by the Company on account of sales of departments licensed to third parties are limited to commissions received on such sales. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.

MACY'S, INC.

Change in Comparable Sales
The following is a tabular reconciliation of the non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis, to GAAP comparable sales (i.e. on an owned basis), which the Company believes to be the most directly comparable GAAP financial measure.
  Third Quarter of 2016 Third Quarter of 2015
     
Decrease in comparable sales on an owned basis (note 1) (3.3)% (3.9)%
Impact of growth in comparable sales of departments licensed to third parties (note 2) 0.6 % 0.3 %
Decrease in comparable sales on an owned plus licensed basis (2.7)% (3.6)%
  2016 2015
     
Decrease in comparable sales on an owned basis (note 1) (4.0)% (2.2)%
Impact of growth in comparable sales of departments licensed to third parties (note 2) 0.5 % 0.5 %
Decrease in comparable sales on an owned plus licensed basis (3.5)% (1.7)%

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

MACY'S, INC.

Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders, Excluding Certain Items
The following is a tabular reconciliation of the non-GAAP financial measure diluted earnings per share attributable to Macy's, Inc. shareholders, excluding certain items, to GAAP diluted earnings per share attributable to Macy's, Inc., shareholders, which the Company believes to be the most directly comparable GAAP measure.
  Third Quarter of 2016 Third Quarter of 2015
     
Diluted earnings per share attributable to Macy's, Inc. shareholders $.05
 $.36
Add back the pre-tax impact of impairments and other costs —
 .33
Add back the pre-tax impact of settlement charges .20
 —
Deduct the income tax impact of impairments and other costs and settlement charges (.08) (.13)
Diluted earnings per share attributable to Macy's, Inc. shareholders,
excluding the impact of impairments and other costs and settlement charges		 $.17
 $.56

  2016 2015
     
Diluted earnings per share attributable to Macy's, Inc. shareholders $.46
 $1.56
Add back the pre-tax impact of impairments and other costs .80
 .33
Add back the pre-tax impact of settlement charges .26
 —
Deduct the income tax impact of impairments and other costs and settlement charges (.41) (.13)
Diluted earnings per share attributable to Macy's, Inc. shareholders,
excluding the impact of impairments and other costs and settlement charges		 $1.11
 $1.76
2016.


MACY'S, INC.

Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the credit facility described below.
Operating Activities
Net cash provided by operating activities in 20162017 was $308536 million, compared to $278560 million provided in 2015,2016, primarily due to increased income tax payments, net of refunds, partially offset by a reductiondecline in merchandise inventories net of payables due both to store closings and the Company’s efforts to improve inventory turnover. This positive operating cash flow was offset by decreased operating cash flows from net sales in 2016.interest payments.
Investing Activities
Net cash used by investing activities was $491213 million in 2016,2017, compared to net cash used by investing activities of $861338 million in 2015.2016. Investing activities for 20162017 include purchases of property and equipment totaling $451247 million and capitalized software of $230125 million, compared to purchases of property and equipment totaling $591293 million and capitalized software of $249151 million for 2015. Investing activities2016. Additionally, the Company received cash of $150 million for 2015 also included the acquisitiondisposition of Bluemercury, net of cash acquired, for $212 million.property and equipment in 2017, primarily related to real estate transactions, as compared to $67 million received in 2016.
Financing Activities
Net cash used by the Company for financing activities was $469$837 million for 2016,2017, including $230debt payments of $550 million, for the acquisitionpayment of the Company's common stock under the share repurchase program. In addition, the Company paid $344$230 million of cash dividends, and a decrease in 2016 and repaid $174 millionoutstanding checks of debt. These outflows were partially offset by $31 million from the issuance of common stock, primarily related to the exercise of stock options.
During 2016,$64 million. For 2017, the Company repurchased approximately 6.0$247 million shares face value of its common stock pursuant to existing stock purchase authorizations for a totalsenior notes and debentures. During the second quarter of approximately $238 million. As of October 29, 2016,2017, the Company had $1,794repaid at maturity $300 million of authorization remaining under its share repurchase program. The Company may continue or, from time to time, suspend repurchases of shares under its share repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors.7.45% senior debentures due July 2017.
Net cash used by the Company for financing activities was $1,189$331 million for 2015,2016, including $1,785$130 million for the acquisition of the Company's common stock, primarily under its share repurchase program and the payment of $344228 million of cash dividends, and the repayment of $152 million of debt, partially offset by $16027 million from the issuance of common stock, primarily related to the exercise of stock options.
The Company is party to a credit agreement with certain financial institutions 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. The agreement is set to expire May 6, 2021. As of July 29, 2017, the Company did not have any borrowings or letters of credit outstanding under its credit facility.
The Company is party to a $1,500 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability under theits bank credit agreement with certain financial institutions.agreement. As of OctoberJuly 29, 2016,2017, the Company had $52 million of seasonaldid not have any borrowings outstanding under thisits commercial paper program at a weighted average interest rate of 0.7% and with a weighted average maturity of three days.program.
As of OctoberJuly 29, 2016,2017 the Company was required to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than 3.75 under the credit agreement. The Company's interest coverage ratio for the thirdsecond quarter of 20162017 was 7.46 and its leverage ratio at OctoberJuly 29, 20162017 was 2.53,2.36, in each case as calculated in accordance with the credit agreement.
On October 14, 2016, the Company repaid $59 million of 7.45% senior debentures at maturity. 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 benefited from the recognition of unamortized debt premium associated with this debt. On December 1, 2016, the Company repaid $577 million of 5.9% senior notes at maturity.
On October 28, 2016,25, 2017, the Company announced that the Board of Directors declared a quarterly dividend of 37.75 cents per share on its common stock, payable January 3,October 2, 2017, to Macy's shareholders of record at the close of business on DecemberSeptember 15, 2016.



2017.

MACY'S, INC.

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

MACY'S, INC.

Outlook and Recent Developments
The Company's operations are impacted by competitive pressures from department stores, off-price stores, specialty stores, mass merchandisers, online retailers and all other retail channels. The Company's operations are also impacted by general consumer spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of weather or natural disasters and other factors over which the Company has little or no control.
In recent years, consumer spending levels have been affected to varying degrees by a number of factors, including modest economic growth, uncertainty regarding governmental spending and tax policies, unemployment levels, tightened consumer credit, an improving housing market and a fluctuating stock market. In addition, consumer spending levels of international customers are impacted by the strength of the U.S. dollar relative to foreign currencies. These factors have affected, to varying degrees, the amount of funds that consumers are willing and able to spend for discretionary purchases, including purchases of some of the merchandise offered by the Company.
All economic conditions ultimately affect the Company's overall operations. However, the effects of economic conditions can be experienced differently and at different times, in the various geographic regions in which the Company operates, in relation to the different types of merchandise that the Company offers for sale, or in relation to each of the Company's branded operations.
On August 10, 2017, the Company issued a press release to report its preliminary earnings for the second quarter of 2017 and reaffirmed its previously provided guidance for full-year fiscal 2017. In summary, the Company expects comparable sales on an owned basis to decline between 2.2 percent and 3.3 percent, with comparable sales on an owned plus licensed basis to decline between 2.0 percent and 3.0 percent. Total sales are expected to be down between 3.2 percent and 4.3 percent in fiscal 2017. Total sales for fiscal 2017 reflect a 53rd week, whereas comparable sales are on a 52-week basis. Adjusted diluted earnings per share between $3.37 and $3.62 are expected in fiscal 2017, excluding the impact of the anticipated settlement charges related to the Company’s defined benefit plans and net premiums and fees associated with debt repurchases. Excluding the impact of the anticipated fourth quarter gain on the sale of the Union Square Men’s building in San Francisco, the anticipated settlement charges related to the Company’s defined benefit plans and net premiums and fees associated with debt repurchases, adjusted diluted earnings per share of $2.90 to $3.15 are expected in fiscal 2017.
On August 21, 2017, the Company announced the appointment of Hal Lawton as President of Macy’s, effective September 8, 2017, as well as the restructuring of its merchandising operations and the strengthening of its consumer insights and data analytics capabilities. As President, Mr. Lawton will be responsible for all aspects of the Macy’s brand, including merchandising, marketing, stores, operations, technology, and consumer insights and analytics and will report directly to Jeff Gennette, the Company’s Chief Executive Officer.
The restructuring includes the consolidation of three functions (merchandising, planning and private brands) into a single merchandising function. The financial and operational impacts of such actions are estimated as follows:
Recognition of restructuring charges of approximately $20 to $25 million, primarily in the third quarter of 2017.
Savings of approximately $5 million, or $.01 per diluted share, in the fourth quarter of 2017 which is additive to the aforementioned guidance.
An estimated headcount reduction of approximately 100.
Future annual savings of approximately $30 million, some of which may be used for reinvestment in the business.





MACY'S, INC.

Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP financial measures provide users of the Company's financial information with additional useful information in evaluating operating performance. Management believes that providing supplemental changes in comparable sales on an owned plus licensed basis, which includes the impact of growth in comparable sales of departments licensed to third parties, assists in evaluating the Company's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, on a comparable basis, and in evaluating the impact of changes in the manner in which certain departments are operated. In addition, management believes that excluding certain items from diluted earnings per share attributable to Macy's, Inc. shareholders that are no longer associated with the Company’s core operations and that may vary substantially in frequency and magnitude period-to-period provides useful supplemental measures that assist in evaluating the Company's ability to generate earnings and leverage sales and to more readily compare these metrics between past and future periods.
The reconciliation of the forward-looking non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis to GAAP comparable sales (i.e., on an owned basis) is in the same manner as illustrated below, where the impact of growth in comparable sales of departments licensed to third parties is the only reconciling item. In addition, the Company does not provide the most directly comparable forward-looking GAAP measure of diluted earnings per share attributable to Macy’s, Inc. shareholders excluding certain items because the timing and amount of excluded items (e.g., asset impairment charges and other costs, retirement plan settlement charges and net premiums on the early retirement of debt) are unreasonably difficult to fully and accurately estimate.
Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the Company's financial position, results of operations or cash flows and should therefore be considered in assessing the Company's actual and future financial condition and performance. Additionally, the amounts received by the Company on account of sales of departments licensed to third parties are limited to commissions received on such sales. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.

MACY'S, INC.

Change in Comparable Sales
The following is a tabular reconciliation of the non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis, to GAAP comparable sales (i.e. on an owned basis), which the Company believes to be the most directly comparable GAAP financial measure.
  Second Quarter of 2017 Second Quarter of 2016
     
Decrease in comparable sales on an owned basis (note 1) (2.8)% (2.6)%
Impact of growth in comparable sales of departments licensed to third parties (note 2) 0.3 % 0.6 %
Decrease in comparable sales on an owned plus licensed basis (2.5)% (2.0)%

  2017 2016
     
Decrease in comparable sales on an owned basis (note 1) (4.0)% (4.4)%
Impact of growth in comparable sales of departments licensed to third parties (note 2) 0.4 % 0.6 %
Decrease in comparable sales on an owned plus licensed basis (3.6)% (3.8)%

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

MACY'S, INC.

Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders, Excluding Certain Items
The following is a tabular reconciliation of the non-GAAP financial measure of diluted earnings per share attributable to Macy's, Inc. shareholders, excluding certain items, to GAAP diluted earnings per share attributable to Macy's, Inc., shareholders, which the Company believes to be the most directly comparable GAAP measure.
  Second Quarter of 2017 Second Quarter of 2016
     
Diluted earnings per share attributable to Macy's, Inc. shareholders $.38
 $.03
Add back the pre-tax impact of impairments and other costs —
 .80
Add back the pre-tax impact of settlement charges .17
 .02
Deduct the pre-tax impact of net premiums on the early retirement of debt (note 1) —
 —
Deduct the income tax impact of certain items identified above (.07) (.31)
Diluted earnings per share attributable to Macy's, Inc. shareholders,
excluding certain items		 $.48
 $.54

  2017 2016
     
Diluted earnings per share attributable to Macy's, Inc. shareholders $.61
 $.41
Add back the pre-tax impact of impairments and other costs —
 .80
Add back the pre-tax impact of settlement charges .17
 .06
Add back the pre-tax impact of net premiums on the early retirement of debt (note 1) —
 —
Deduct the income tax impact of certain items identified above (.07) (.33)
Diluted earnings per share attributable to Macy's, Inc. shareholders,
excluding certain items		 $.71
 $.94

Note:
(1)The impacts during the 13 and 26 weeks ended July 29, 2017 represent values less than $.01 per diluted share attributable to Macy’s, Inc. shareholders.


MACY'S, INC.

New Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which clarifiesestablishes principles to report useful information to financial statements users about the principles for recognizing revenue. Thenature, timing and uncertainty of revenue from contracts with customers. ASU No. 2014-09 along with related amendments ASU Nos. 2016-20, 2016-12, 2016-10, 2016-08, and 2015-14 comprise ASC Topic 606, Revenue from Contracts with Customers, and provide guidance that is applicable to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. Further, the guidance requires improvedThe new standard and additional disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The standard was originally effective for the annual reporting periods beginning after December 15, 2016, including interim periods within that year. However, in August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU No. 2014-09 by one year. The guidance is nowits related updates are effective for the Company beginning inon February 4, 2018. On the first quarter of 2018, and early adoption is only permitted for the Company beginning in 2017. Upon becoming effective date, the Company will apply the amendments in the updated standard eithernew guidance retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The Company is currently evaluating the impact,methods of adoption and has not yet decided on the method to be applied when the new revenue guidance is effective.
Combined with the guidance in ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), the Company currently estimates the material impacts to its consolidated financial statements to include changes in the presentation of estimates for future sales returns and related recoverable assets, presentation of earnings from credit operations, timing of certain real estate gains (particularly those with leaseback components) and the methodpresentation of certain consignment and license arrangements.
The Company does not expect the new guidance to materially impact the revenue recognition associated with gift card breakage as well as the accounting for its warranty arrangements, loyalty programs and other customer incentive arrangements. The Company is continuing to evaluate the impact of the new standards and the final determinations of the impact of the new guidance may differ from these initial estimates.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), 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 is effective for the Company on February 3, 2019, with early adoption permitted. The new standard is to be adopted utilizing a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. The Company has not yet decided whether it will early adopt the new standard but the Company currently plans to elect all of the standard's available practical expedients on adoption.
The Company expects that the new lease standard will have a material impact on the Company's consolidated financial statements. While the Company is continuing to assess the effects of adoption, the Company currently believes the most significant changes relate to the recognition of new ROU assets and lease liabilities on the consolidated balance sheets for real property and personal property operating leases as well as changes to the timing of recognition of certain real estate asset sale gains in the consolidated statements of income due to application of the new sale-leaseback guidance and ASU No. 2017-05 as discussed above. The Company expects that substantially all of its operating lease commitments will be subject to the new guidance and will be recognized as operating lease liabilities and ROU assets upon adoption. A significant change in leasing activity between the date of this report and adoption is not expected.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715), which requires employers to disaggregate the service cost component from other components of net periodic benefit costs and to disclose the amounts of net periodic benefit costs that are included in each income statement line item. The standard requires employers to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) separately and outside a subtotal of operating income. The income statement guidance requires application on a retrospective basis. The new standard is effective for the Company beginning in the first quarter of 2018, with early adoption permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial position, results of operations, and cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for substantially all leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of income. The new standard is effective for years beginning after December 15, 2018, including interim periods within those years.related disclosures. The Company is currently evaluating the impact thatplans to adopt this standard will have on its consolidated financial position, results of operations, and cash flows.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. The new guidance includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including accounting for income taxes, earnings per share and forfeitures. This guidance requires all excess tax benefits and tax deficiencies to be recorded in income tax expense when the awards vest or are settled, with prospective application required. The new standard is effective for public companies in annual periods beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted in any interim period, with all adjustments applied as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact that this standard will have on its consolidated financial position, results of operations and cash flows.February 4, 2018.
The Company does not anticipate that the adoption of any other recent accounting pronouncements will have a material impact on the Company's consolidated financial position, results of operations or cash flows.



MACY'S, INC.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to the Company’s market risk as described in the Company's 20152016 10-K. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 20152016 10-K.

Item 4.Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer have carried out, as of OctoberJuly 29, 20162017, with the participation of the Company's management, an evaluation of the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of OctoberJuly 29, 20162017 the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in reports the Company files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (the "SEC") rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Company's internal control over financial reporting that occurred during the Company's most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


MACY'S, INC.

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

Item 1A.Risk Factors.
There have been no material changes to the Risk Factors described in Part I, "Item 1A. Risk Factors" in the Company's 20152016 10-K.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information regarding the Company's purchases of Common Stock during the thirdsecond quarter of 20162017.
 
Total
Number
of Shares
Purchased
 
Average
Price Paid
per Share ($)
 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Dollar Value of Shares that may yet be Purchased Under the Plans or Programs (1)($)
 (thousands)   (thousands) (millions)
July 31, 2016 – August 27, 2016182
 39.42
 182
 1,896
August 28, 2016 – October 1, 20161,591
 36.21
 1,591
 1,838
October 2, 2016 – October 29, 20161,200
 36.39
 1,200
 1,794
 2,973
 36.48
 2,973
  
Total
Number
of Shares
Purchased
Average
Price Paid
per Share ($)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)Maximum Dollar Value of Shares that may yet be Purchased Under the Plans or Programs (1)($)
(thousands)(thousands)(millions)
April 30, 2017 – May 27, 2017—
—
—
1,716
May 28, 2017 – July 1, 2017—
—
—
1,716
July 2, 2017 – July 29, 2017—
—
—
1,716
—
—
—
 ___________________
(1)
Commencing in January 2000, the Company's Board of Directors has from time to time approved authorizations to purchase, in the aggregate, up to $18 billion of Common Stock as of OctoberJuly 29, 20162017. All authorizations are cumulative and do not have an expiration date. As of OctoberJuly 29, 20162017, $1,794$1,716 million of authorization remained unused. The Company may continue, discontinue or resume purchases of Common Stock under these or possible future authorizations in the open market, in privately negotiated transactions or otherwise at any time and from time to time without prior notice.


MACY'S, INC.

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


MACY'S, INC.

Item 6.Exhibits.

3.110.13.2 Macy's, Inc. Amended2017-2019 Performance-Based Restricted Stock Unit Terms and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on September 30, 2016)Conditions *
   
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
   
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
   
32.1 Certification by Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act
   
32.2 Certification by Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act
   
101 The following financial statements from Macy's, Inc.'s Quarterly Report on Form 10-Q for the quarter ended OctoberJuly 29, 2016,2017, filed on December 1, 2016,August 25, 2017, formatted in XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements.
___________________

* Corrected version of exhibit previously filed as Exhibit 10.13.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2017.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 MACY’S, INC.
   
 By:
/s/    ELISA D. GARCIA      
  
Elisa D. Garcia
Chief Legal Officer and Secretary
   
 By:
/s/    FELICIA WILLIAMS
FELICIA WILLIAMS
  
Felicia Williams
Executive Vice President, Controller and Enterprise Risk
(Principal Accounting Officer)
Date: December 1, 2016August 25, 2017

 


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