UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2017August 1, 2020
OR
| | | | | |
o ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-13536
Macy's, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
Delaware | | | | 13-3324058 | |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No. |
) | | 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(Address of Principal Executive Offices, including Zip Code)
(513) 579-7780
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value per share | M | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐ |
| | | | | | | | |
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 August 29, 2020 |
Common Stock, $.01 par value per share | | 310,245,594 shares |
| | |
Class | | Outstanding at November 25, 2017 |
Common Stock, $0.01 par value per share | | 304,566,377 shares |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MACY’S, INC.
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(Unaudited)
(millions, except per share figures)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 13 Weeks Ended | | | | 26 Weeks Ended | | |
| August 1, 2020 | | August 3, 2019 | | August 1, 2020 | | August 3, 2019 |
Net sales | $ | 3,559 | | | $ | 5,546 | | | $ | 6,576 | | | $ | 11,050 | |
Credit card revenues, net | 168 | | | 176 | | | 299 | | | 348 | |
| | | | | | | |
Cost of sales | (2,718) | | | (3,395) | | | (5,219) | | | (6,798) | |
Selling, general and administrative expenses | (1,398) | | | (2,177) | | | (2,995) | | | (4,287) | |
Gains on sale of real estate | 0 | | | 7 | | | 16 | | | 49 | |
Impairment, restructuring and other costs | (242) | | | (2) | | | (3,426) | | | (3) | |
Operating income (loss) | (631) | | | 155 | | | (4,749) | | | 359 | |
Benefit plan income, net | 12 | | | 8 | | | 21 | | | 15 | |
Settlement charges | (38) | | | 0 | | | (38) | | | 0 | |
Interest expense | (70) | | | (52) | | | (120) | | | (106) | |
Financing costs | (3) | | | 0 | | | (3) | | | 0 | |
Interest income | 1 | | | 5 | | | 3 | | | 12 | |
Income (loss) before income taxes | (729) | | | 116 | | | (4,886) | | | 280 | |
Federal, state and local income tax benefit (expense) | 298 | | | (30) | | | 874 | | | (57) | |
Net income (loss) | $ | (431) | | | $ | 86 | | | (4,012) | | | 223 | |
Basic earnings (loss) per share | $ | (1.39) | | | $ | 0.28 | | | $ | (12.91) | | | $ | 0.72 | |
Diluted earnings (loss) per share | $ | (1.39) | | | $ | 0.28 | | | $ | (12.91) | | | $ | 0.71 | |
|
| | | | | | | | | | | | | | | |
| | | | | | | |
| 13 Weeks Ended | | 39 Weeks Ended |
| October 28, 2017 | | October 29, 2016 | | October 28, 2017 | | October 29, 2016 |
Net sales | $ | 5,281 |
| | $ | 5,626 |
| | $ | 16,171 |
| | $ | 17,263 |
|
Cost of sales | (3,175 | ) | | (3,386 | ) | | (9,794 | ) | | (10,370 | ) |
Gross margin | 2,106 |
| | 2,240 |
| | 6,377 |
| | 6,893 |
|
Selling, general and administrative expenses | (1,995 | ) | | (2,112 | ) | | (5,853 | ) | | (6,139 | ) |
Gains on sale of real estate | 65 |
| | 41 |
| | 176 |
| | 76 |
|
Impairments, restructuring and other costs | (33 | ) | | — |
| | (33 | ) | | (249 | ) |
Settlement charges | (22 | ) | | (62 | ) | | (73 | ) | | (81 | ) |
Operating income | 121 |
| | 107 |
| | 594 |
| | 500 |
|
Interest expense | (76 | ) | | (82 | ) | | (244 | ) | | (279 | ) |
Net premiums on early retirement of debt | — |
| | — |
| | (1 | ) | | — |
|
Interest income | 2 |
| | 1 |
| | 7 |
| | 3 |
|
Income before income taxes | 47 |
| | 26 |
| | 356 |
| | 224 |
|
Federal, state and local income tax expense | (13 | ) | | (11 | ) | | (140 | ) | | (85 | ) |
Net income | 34 |
| | 15 |
| | 216 |
| | 139 |
|
Net loss attributable to noncontrolling interest | 2 |
| | 2 |
| | 6 |
| | 5 |
|
Net income attributable to Macy's, Inc. shareholders | $ | 36 |
| | $ | 17 |
| | $ | 222 |
| | $ | 144 |
|
Basic earnings per share attributable to Macy's, Inc. shareholders | $ | .12 |
| | $ | .05 |
| | $ | .73 |
| | $ | .46 |
|
Diluted earnings per share attributable to Macy's, Inc. shareholders | $ | .12 |
| | $ | .05 |
| | $ | .73 |
| | $ | .46 |
|
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 28, 2017 | | October 29, 2016 | | October 28, 2017 | | October 29, 2016 |
Net income | $ | 34 |
| | $ | 15 |
| | $ | 216 |
| | $ | 139 |
|
Other comprehensive income (loss): | | | | | | | |
Actuarial gain (loss) on post employment and postretirement benefit plans, before tax | 10 |
| | 3 |
| | 57 |
| | (74 | ) |
Settlement charges included in net income, before tax | 22 |
| | 62 |
| | 73 |
| | 81 |
|
Amortization of net actuarial loss on post employment and postretirement benefit plans included in net income, before tax | 8 |
| | 9 |
| | 26 |
| | 26 |
|
Tax effect related to items of other comprehensive income (loss) | (15 | ) | | (29 | ) | | (60 | ) | | (13 | ) |
Total other comprehensive income, net of tax effect | 25 |
| | 45 |
| | 96 |
| | 20 |
|
Comprehensive income | 59 |
| | 60 |
| | 312 |
| | 159 |
|
Comprehensive loss attributable to noncontrolling interest | 2 |
| | 2 |
| | 6 |
| | 5 |
|
Comprehensive income attributable to Macy's, Inc. shareholders | $ | 61 |
| | $ | 62 |
| | $ | 318 |
| | $ | 164 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 13 Weeks Ended | | | | 26 Weeks Ended | | |
| August 1, 2020 | | August 3, 2019 | | August 1, 2020 | | August 3, 2019 |
Net income (loss) | $ | (431) | | | $ | 86 | | | $ | (4,012) | | | $ | 223 | |
Other comprehensive income (loss): | | | | | | | |
Actuarial gain on post employment and postretirement benefit plans, before tax | 19 | | | 0 | | | 19 | | | 0 | |
Reclassifications to net income (loss): | | | | | | | |
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax | 11 | | | 7 | | | 23 | | | 15 | |
Settlement charges, before tax | 38 | | | 0 | | | 38 | | | 0 | |
Tax effect related to items of other comprehensive income | (17) | | | (2) | | | (20) | | | (4) | |
Total other comprehensive income, net of tax effect | 51 | | | 5 | | | 60 | | | 11 | |
Comprehensive income (loss) | $ | (380) | | | $ | 91 | | | $ | (3,952) | | | $ | 234 | |
|
| | | | | | | | | | | |
| | | | | |
| October 28, 2017 | | January 28, 2017 | | October 29, 2016 |
ASSETS | | | | | |
Current Assets: | | | | | |
Cash and cash equivalents | $ | 534 |
| | $ | 1,297 |
| | $ | 457 |
|
Receivables | 219 |
| | 522 |
| | 262 |
|
Merchandise inventories | 7,065 |
| | 5,399 |
| | 7,587 |
|
Income tax receivable | — |
| | — |
| | 60 |
|
Prepaid expenses and other current assets | 432 |
| | 408 |
| | 454 |
|
Total Current Assets | 8,250 |
| | 7,626 |
| | 8,820 |
|
Property and Equipment - net of accumulated depreciation and amortization of $5,330, $4,856 and $5,625 | 6,742 |
| | 7,017 |
| | 7,149 |
|
Goodwill | 3,897 |
| | 3,897 |
| | 3,897 |
|
Other Intangible Assets – net | 491 |
| | 498 |
| | 499 |
|
Other Assets | 835 |
| | 813 |
| | 909 |
|
Total Assets | $ | 20,215 |
| | $ | 19,851 |
| | $ | 21,274 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current Liabilities: | | | | | |
Short-term debt | $ | 22 |
| | $ | 309 |
| | $ | 938 |
|
Merchandise accounts payable | 3,173 |
| | 1,423 |
| | 3,375 |
|
Accounts payable and accrued liabilities | 3,162 |
| | 3,563 |
| | 2,930 |
|
Income taxes | 34 |
| | 352 |
| | — |
|
Total Current Liabilities | 6,391 |
| | 5,647 |
| | 7,243 |
|
Long-Term Debt | 6,297 |
| | 6,562 |
| | 6,563 |
|
Deferred Income Taxes | 1,553 |
| | 1,443 |
| | 1,548 |
|
Other Liabilities | 1,750 |
| | 1,877 |
| | 2,129 |
|
Shareholders' Equity: | | | | | |
Macy's, Inc. | 4,231 |
| | 4,323 |
| | 3,789 |
|
Noncontrolling interest | (7 | ) | | (1 | ) | | 2 |
|
Total Shareholders’ Equity | 4,224 |
| | 4,322 |
| | 3,791 |
|
Total Liabilities and Shareholders’ Equity | $ | 20,215 |
| | $ | 19,851 |
| | $ | 21,274 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSBALANCE SHEETS
(Unaudited)
(millions)
|
| | | | | | | |
| | | |
| 39 Weeks Ended |
| October 28, 2017 | | October 29, 2016 |
Cash flows from operating activities: | | | |
Net income | $ | 216 |
| | $ | 139 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Impairments, restructuring and other costs | 33 |
| | 249 |
|
Settlement charges | 73 |
| | 81 |
|
Depreciation and amortization | 741 |
| | 787 |
|
Stock-based compensation expense | 46 |
| | 56 |
|
Gains on sale of real estate | (176 | ) | | (76 | ) |
Amortization of financing costs and premium on acquired debt | (10 | ) | | (14 | ) |
Changes in assets and liabilities: | | | |
Decrease in receivables | 274 |
| | 237 |
|
Increase in merchandise inventories | (1,665 | ) | | (2,081 | ) |
Increase in prepaid expenses and other current assets | (20 | ) | | (37 | ) |
Increase in merchandise accounts payable | 1,630 |
| | 1,665 |
|
Decrease in accounts payable, accrued liabilities and other items not separately identified | (375 | ) | | (380 | ) |
Decrease in current income taxes | (318 | ) | | (287 | ) |
Increase in deferred income taxes | 49 |
| | 45 |
|
Change in other assets and liabilities not separately identified | (109 | ) | | (76 | ) |
Net cash provided by operating activities | 389 |
| | 308 |
|
Cash flows from investing activities: | | | |
Purchase of property and equipment | (359 | ) | | (451 | ) |
Capitalized software | (191 | ) | | (230 | ) |
Disposition of property and equipment | 212 |
| | 138 |
|
Other, net | (8 | ) | | 52 |
|
Net cash used by investing activities | (346 | ) | | (491 | ) |
Cash flows from financing activities: | | | |
Debt issued | — |
| | 51 |
|
Financing costs | (1 | ) | | (3 | ) |
Debt repaid | (554 | ) | | (174 | ) |
Dividends paid | (346 | ) | | (344 | ) |
Increase in outstanding checks | 80 |
| | 193 |
|
Acquisition of treasury stock | (1 | ) | | (230 | ) |
Issuance of common stock | 3 |
| | 31 |
|
Proceeds from noncontrolling interest | 13 |
| | 7 |
|
Net cash used by financing activities | (806 | ) | | (469 | ) |
Net decrease in cash and cash equivalents | (763 | ) | | (652 | ) |
Cash and cash equivalents beginning of period | 1,297 |
| | 1,109 |
|
Cash and cash equivalents end of period | $ | 534 |
| | $ | 457 |
|
Supplemental cash flow information: | | | |
Interest paid | $ | 251 |
| | $ | 279 |
|
Interest received | 7 |
| | 3 |
|
Income taxes paid (net of refunds received) | 412 |
| | 308 |
|
| | | | | | | | | | | | | | | | | |
| | | | | |
| August 1, 2020 | | February 1, 2020 | | August 3, 2019 |
ASSETS | | | | | |
Current Assets: | | | | | |
Cash and cash equivalents | $ | 1,395 | | | $ | 685 | | | $ | 674 | |
Receivables | 184 | | | 409 | | | 240 | |
Merchandise inventories | 3,582 | | | 5,188 | | | 5,029 | |
Prepaid expenses and other current assets | 470 | | | 528 | | | 603 | |
Total Current Assets | 5,631 | | | 6,810 | | | 6,546 | |
Property and Equipment - net of accumulated depreciation and amortization of $4,642, $4,392 and $4,748 | 6,279 | | | 6,633 | | | 6,483 | |
Right of Use Assets | 3,035 | | | 2,668 | | | 2,636 | |
Goodwill | 828 | | | 3,908 | | | 3,908 | |
Other Intangible Assets – net | 438 | | | 439 | | | 440 | |
Other Assets | 1,403 | | | 714 | | | 728 | |
Total Assets | $ | 17,614 | | | $ | 21,172 | | | $ | 20,741 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current Liabilities: | | | | | |
Short-term debt | $ | 539 | | | $ | 539 | | | $ | 6 | |
Merchandise accounts payable | 1,409 | | | 1,682 | | | 1,674 | |
Accounts payable and accrued liabilities | 2,906 | | | 3,448 | | | 2,739 | |
Income taxes | 0 | | | 81 | | | 20 | |
Total Current Liabilities | 4,854 | | | 5,750 | | | 4,439 | |
Long-Term Debt | 4,851 | | | 3,621 | | | 4,680 | |
Long-Term Lease Liabilities | 3,269 | | | 2,918 | | | 2,836 | |
Deferred Income Taxes | 921 | | | 1,169 | | | 1,206 | |
Other Liabilities | 1,395 | | | 1,337 | | | 1,265 | |
Shareholders' Equity | 2,324 | | | 6,377 | | | 6,315 | |
Total Liabilities and Shareholders’ Equity | $ | 17,614 | | | $ | 21,172 | | | $ | 20,741 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Equity | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders' Equity |
Balance at February 1, 2020 | $ | 3 | | | $ | 621 | | | $ | 7,989 | | | $ | (1,241) | | | $ | (995) | | | $ | 6,377 | |
Net loss | | | | | (3,581) | | | | | | | (3,581) | |
Other comprehensive income | | | | | | | | | 9 | | | 9 | |
Common stock dividends ($0.3775 per share) | | | | | (117) | | | | | | | (117) | |
Stock-based compensation expense | | | 6 | | | | | | | | | 6 | |
Stock issued under stock plans | | | (62) | | | | | 61 | | | | | (1) | |
Other | | | | | | | | | 4 | | | 4 | |
Balance at May 2, 2020 | 3 | | | 565 | | | 4,291 | | | (1,180) | | | (982) | | | 2,697 | |
Net loss | | | | | (431) | | | | | | | (431) | |
Other comprehensive income | | | | | | | | | 51 | | | 51 | |
Stock-based compensation expense | | | 7 | | | | | | | | | 7 | |
Stock issued under stock plans | | | (4) | | | | | 4 | | | | | 0 | |
Balance at August 1, 2020 | $ | 3 | | | $ | 568 | | | $ | 3,860 | | | $ | (1,176) | | | $ | (931) | | | $ | 2,324 | |
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| Common Stock | | Additional Paid-In Capital | | Accumulated Equity | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | | | | | Total Shareholders' Equity |
Balance at February 2, 2019 | $ | 3 | | | $ | 652 | | | $ | 8,050 | | | $ | (1,318) | | | $ | (951) | | | | | | | $ | 6,436 | |
Cumulative-effect adjustment (a) | | | | | (158) | | | | | | | | | | | (158) | |
Net income | | | | | 136 | | | | | | | | | | | 136 | |
Other comprehensive income | | | | | | | | | 6 | | | | | | | 6 | |
Common stock dividends ($0.3775 per share) | | | | | (117) | | | | | | | | | | | (117) | |
Stock-based compensation expense | | | 14 | | | | | | | | | | | | | 14 | |
Stock issued under stock plans | | | (60) | | | | | 66 | | | | | | | | | 6 | |
Balance at May 4, 2019 | 3 | | | 606 | | | 7,911 | | | (1,252) | | | (945) | | | | | | | 6,323 | |
Net income | | | | | 86 | | | | | | | | | | | 86 | |
Other comprehensive income | | | | | | | | | 5 | | | | | | | 5 | |
Common stock dividends ($0.3775 per share) | | | | | (117) | | | | | | | | | | | (117) | |
Stock-based compensation expense | | | 14 | | | | | | | | | | | | | 14 | |
Stock issued under stock plans | | | (3) | | | | | 4 | | | | | | | | | 1 | |
Other | | | | | 3 | | | | | | | | | | | 3 | |
Balance at August 3, 2019 | $ | 3 | | | $ | 617 | | | $ | 7,883 | | | $ | (1,248) | | | $ | (940) | | | | | | | $ | 6,315 | |
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(a) Represents the cumulative-effect adjustment to retained earnings for the adoption of Accounting Standards Update 2016-02 (ASU-2016-02), Leases (Topic 842), on February 3, 2019.
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions)
| | | | | | | | | | | |
| | | |
| 26 Weeks Ended | | |
| August 1, 2020 | | August 3, 2019 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | (4,012) | | | $ | 223 | |
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | | | |
Impairment, restructuring and other costs | 3,426 | | | 3 | |
Settlement charges | 38 | | | 0 | |
Depreciation and amortization | 472 | | | 472 | |
Stock-based compensation expense | 13 | | | 28 | |
Gains on sale of real estate | (16) | | | (49) | |
Benefit plans | 23 | | | 15 | |
Amortization of financing costs and premium on acquired debt | 4 | | | 1 | |
Deferred income taxes | (265) | | | 17 | |
Changes in assets and liabilities: | | | |
Decrease in receivables | 222 | | | 160 | |
Decrease in merchandise inventories | 1,598 | | | 234 | |
Decrease in prepaid expenses and other current assets | 31 | | | 19 | |
Increase (decrease) in merchandise accounts payable | (188) | | | 55 | |
Decrease in accounts payable and accrued liabilities
| (605) | | | (619) | |
Decrease in current income taxes | (695) | | | (149) | |
Change in other assets and liabilities | (53) | | | (60) | |
Net cash provided (used) by operating activities | (7) | | | 350 | |
Cash flows from investing activities: | | | |
Purchase of property and equipment | (228) | | | (378) | |
Capitalized software | (61) | | | (123) | |
Disposition of property and equipment | 31 | | | 59 | |
Other, net | (14) | | | (12) | |
Net cash used by investing activities | (272) | | | (454) | |
Cash flows from financing activities: | | | |
Debt issued | 2,780 | | | 0 | |
Debt issuance costs | (98) | | | (3) | |
Debt repaid | (1,504) | | | (39) | |
Dividends paid | (117) | | | (233) | |
Decrease in outstanding checks | (111) | | | (128) | |
Issuance of common stock | 0 | | | 6 | |
Net cash provided (used) by financing activities | 950 | | | (397) | |
| | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 671 | | | (501) | |
Cash, cash equivalents and restricted cash beginning of period | 731 | | | 1,248 | |
Cash, cash equivalents and restricted cash end of period | $ | 1,402 | | | $ | 747 | |
Supplemental cash flow information: | | | |
Interest paid | $ | 104 | | | $ | 107 | |
Interest received | 4 | | | 12 | |
Income taxes paid (net of refunds received) | 86 | | | 189 | |
Note: Restricted cash of $7 million and $73 million have been included with cash and cash equivalents for the 26 weeks ended August 1, 2020 and August 3, 2019, respectively.
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Nature of Operations
Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's)kids'), cosmetics, home furnishings and other consumer goods. The Company's operations are conducted through approximately 860 Macy's, Macy's Backstage, Bloomingdale's, Bloomingdale's The Outlet and bluemercuryCompany has stores in 4543 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com, bloomingdales.comRico. As of August 1, 2020, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage and bluemercury.com. In addition, bluemercury.
Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2017February 1, 2020 (the "2016"2019 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 20162019 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. The Company considered the novel coronavirus ("COVID-19") related impacts to its estimates, as appropriate, within its Consolidated Financial Statements and there may be changes to those estimates in future periods. The Company believes that the accounting estimates are appropriate after giving consideration to the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic. 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 ended October 28, 2017August 1, 2020 and October 29, 2016,August 3, 2019, 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 ended October 28, 2017August 1, 2020 and October 29, 2016August 3, 2019 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Reclassifications
Certain reclassifications were made to prior years’ amounts to conform to the classifications of such amounts in the most recent years.
Comprehensive Income (Loss)
Total comprehensive income (loss) represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income.income (loss). For the Company, the only other components of total comprehensive income (loss) for the 13 and 3926 weeks ended October 28, 2017August 1, 2020 and October 29, 2016August 3, 2019 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of operating expensesincome (loss) before income taxes in the Consolidated Statements of Income.Operations. Amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in selling, general and administrative expensesbenefit plan income, net on the Consolidated Statements of Income.Operations. See Note 4,8, "Benefit Plans," for further information.
Newly Adopted Accounting Pronouncements
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
2. Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States. The COVID-19 pandemic has had a negative impact on the Company's fiscal 2020 operations and financial results to date, and the full financial impact of the pandemic cannot be reasonably estimated at this time due to uncertainty as to the severity and duration of the pandemic. The following summarizes the actions taken and impacts from the COVID-19 pandemic during the 13 and 26 weeks ended August 1, 2020.
•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 aspectstemporarily closed all stores on March 18, 2020, which included all Macy’s, Bloomingdale’s, Bluemercury, Macy’s Backstage, Bloomingdales the Outlet and Market by Macy’s stores. Stores began reopening on May 4, 2020 and substantially all of the accountingCompany's stores have been reopened as of August 1, 2020.
•In an effort to increase liquidity, the Company fully drew on its $1,500 million credit facility, announced the suspension of quarterly cash dividends beginning in the second quarter of 2020 and took additional steps to reduce discretionary spending. The Company's Board of Directors also rescinded its authorization of any unused amounts under the Company's share repurchase program. In June 2020, the Company completed financing activities totaling nearly $4.5 billion and used a portion of the proceeds from these activities, as well as cash on hand, to repay its credit facility. To create greater flexibility for share-based payment awards,future liquidity needs, the Company executed an exchange offer and consent solicitation in July 2020 for $465 million of previously issued unsecured notes. See Note 7, "Financing Activities," for further discussion on these activities.
•To improve the Company's cash position and reduce its cash expenditures, the Company's Board of Directors and Chief Executive Officer did not receive compensation from April 1, 2020 through June 30, 2020. In addition, the Company deferred cash expenditures where possible and temporarily implemented a furlough for the majority of its colleague population which ended for most colleagues at the beginning of July 2020, with the remainder expected to return in the third quarter of 2020. Certain executives not impacted by the furlough took a temporary reduction of their pay through June 30, 2020.
In June 2020, the Company announced a restructuring that aligns its cost base with anticipated near-term sales as the business recovers from the impact of the COVID-19 pandemic. The Company reduced corporate and management headcount by approximately 3,900. Additionally, the Company reduced staffing across its stores portfolio, supply chain and customer support network, which it will adjust as sales recover. During the second quarter of 2020, the Company recognized $154 million of expense for severance related to this reduction in force, of which nearly half was paid during the quarter.
During the 13 and 26 weeks ended August 1, 2020, the Company deferred rent payments for a significant number of its stores. COVID-19 pandemic-related rent deferrals are included in accounts payable and accrued liabilities. The Company continues to recognize expense during the deferral periods based on the contractual terms of the lease agreements.
•During the 13 and 26 weeks ended August 1, 2020, the Company incurred non-cash impairment charges including those related to long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value. The Company also incurred a non-cash impairment charge on goodwill as a result of the sustained decline in the Company's market capitalization and decline in projected cash flows primarily as a result of the COVID-19 pandemic. See Note 3, "Impairment, Restructuring and Other Costs" and Note 4, "Goodwill and Indefinite Lived Intangible Assets," respectively, for further discussion of these charges.
•On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act") was signed into law, which included payroll tax credits for employee retention, deferral of payroll taxes, and several income tax provisions, including modifications to the net interest deduction limitation, changes to certain property depreciation and carryback of certain operating losses.
The impacts of the CARES Act have been included in the estimation of the Company's annual effective tax rate and the income tax consequences, financial statement classificationbenefit recognized during the 13 and forfeiture considerations of such awards. Upon adoption,26 weeks ended August 1, 2020. Specifically, the Company began to recognize, onhas estimated an annual net operating loss that will be available for carryback at a prospective basis, all excess tax benefits and tax deficiencies as35% federal income tax benefit or expense, respectively, in its Consolidated Statements of Income. For awards that were exercised, vested or expired during the 39 weeks ended October 28, 2017, approximately $12 million of additional income tax expense associated with net tax deficiencies was recognized. Additionally, these net tax deficiencies have been classified as an operating activity
rate rather than
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
the current 21% federal income tax rate. During the 26 weeks ended August 1, 2020, the resultant benefit of this rate differential was offset by the impact of the non-tax deductible component of the goodwill impairment charge and additional income tax expense associated with deferred tax remeasurement during the first quarter of 2020. The net impact of these items is the primary driver of the effective tax rate decrease when compared to the same period in 2019. As of August 1, 2020, the Company recognized a $599 million income tax receivable, which is included within Other Assets on the Consolidated Balance Sheets.
In addition, during the 13 and 26 weeks ended August 1, 2020, the Company recognized $18 million and $60 million, respectively, in employee retention payroll tax credits and elected to defer payment of the employer portion of social security taxes.
3. Impairment, Restructuring and Other Costs
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended | | | | 26 Weeks Ended | | |
| August 1, 2020 | | August 3, 2019 | | August 1, 2020 | | August 3, 2019 |
| (millions) | | | | | | |
Impairments | $ | 15 | | | $ | 1 | | | $ | 3,164 | | | $ | 1 | |
Restructuring | 169 | | | 0 | | | 194 | | | 0 | |
Other | 58 | | | 1 | | | 68 | | | 2 | |
Total | $ | 242 | | | $ | 2 | | | $ | 3,426 | | | $ | 3 | |
During the 13 and 26 weeks ended August 1, 2020, primarily as a result of the COVID-19 pandemic, the Company incurred non-cash impairment charges totaling $3,164 million the majority of which consisted of:
•$3,080 million of goodwill impairments, with $2,982 million attributable to the Macy's reporting unit and $98 million attributable to the Bluemercury reporting unit. See discussion at Note 4, "Goodwill and Indefinite Lived Intangible Assets."
•$80 million of impairments on long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value.
The Company also recognized $154 million of expense for severance during the 13 and 26 weeks ended August 1, 2020 associated with the reduction in force in response to the COVID-19 pandemic. Nearly half of this severance was paid during the second quarter of 2020.
A summary of the restructuring and other cash activity for the 13 and 26 weeks ended August 1, 2020 related to the Polaris strategy, which was announced in February 2020 and are included within accounts payable and accrued liabilities, is as follows:
| | | | | | | | | | | | | | | | | |
| Severance and other benefits | | Professional fees and other related charges | | Total |
| (millions) | | | | |
Balance at February 1, 2020 | $ | 115 | | | $ | 9 | | | $ | 124 | |
Additions charged to expense | 25 | | | 7 | | | 32 | |
Cash payments | (82) | | | (6) | | | (88) | |
Balance at May 2, 2020 | 58 | | | 10 | | | 68 | |
Additions charged to expense | 15 | | | 6 | | | 21 | |
Cash payments | (67) | | | (6) | | | (73) | |
Balance at August 1, 2020 | $ | 6 | | | $ | 10 | | | $ | 16 | |
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
along4. Goodwill and Indefinite Lived Intangible Assets
| | | | | | | | | | | | | | | | | |
| August 1, 2020 | | February 1, 2020 | | August 3, 2019 |
| (millions) | | | | |
Non-amortizing intangible assets | | | | | |
Goodwill | $ | 9,290 | | | $ | 9,290 | | | $ | 9,290 | |
Accumulated impairment losses | (8,462) | | | (5,382) | | | (5,382) | |
| 828 | | | 3,908 | | | 3,908 | |
Tradenames | 403 | | | 403 | | | 403 | |
| $ | 1,231 | | | $ | 4,311 | | | $ | 4,311 | |
As a result of the sustained decline in the Company's market capitalization and changes in the Company's long-term projections driven largely by the impacts of the COVID-19 pandemic, the Company determined a triggering event had occurred that required an interim impairment assessment for all of its reporting units and indefinite lived intangible assets during the first quarter of 2020. The Company determined the fair value of each of its reporting units using a market approach or a combination of a market approach and income approach, as appropriate. Relative to the prior assessment, as part of this current assessment, it was determined that an increase in the discount rate applied in the valuation was required to align with othermarket-based assumptions and company-specific risk. This higher discount rate, in conjunction with revised long-term projections, resulted in lower fair values of the reporting units. As a result the Company recognized $2,982 million and $98 million of goodwill impairment for the Macy's and bluemercury reporting units, respectively, during the 26 weeks ended August 1, 2020, which included an additional $10 million impairment adjustment to properly reflect certain income tax cash flows inconsiderations during the Consolidated Statements13 weeks ended August 1, 2020.
As of Cash Flows. TheMay 2, 2020, the Company has elected to adopt such presentationperform a qualitative impairment test on its intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceeded the carrying values and the intangible assets with indefinite lives were not impaired.
For the Company's annual impairment assessment as of the end of fiscal May, the Company elected to perform a prospective basis.qualitative impairment test on its goodwill and intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceeded the carrying values and goodwill and intangible assets with indefinite lives were not impaired.
2.5. Earnings (Loss) Per Share Attributable to Macy's, Inc. Shareholders
The following tables set forth the computation of basic and diluted earnings (loss) per share attributable to Macy's, Inc. shareholders:share:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended | | | | | | | | | | |
| August 1, 2020 | | | | | | August 3, 2019 | | | | |
| Net Loss | | | | Shares | | Net Income | | | | Shares |
| (millions, except per share data) | | | | | | | | | | |
Net income (loss) | $ | (431) | | | | | 310.3 | | | $ | 86 | | | | | 308.9 | |
Shares to be issued under deferred compensation and other plans | | | | | 0.9 | | | | | | | 0.9 | |
| $ | (431) | | | | | 311.2 | | | $ | 86 | | | | | 309.8 | |
Basic earnings (loss) per share | | | $ | (1.39) | | | | | | | $ | 0.28 | | | |
Effect of dilutive securities: | | | | | | | | | | | |
Stock options and restricted stock units | | | | | 0 | | | | | | | 1.8 | |
| $ | (431) | | | | | 311.2 | | | $ | 86 | | | | | 311.6 | |
Diluted earnings (loss) per share | | | $ | (1.39) | | | | | | | $ | 0.28 | | | |
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended |
| October 28, 2017 | | October 29, 2016 |
| Net Income | | | | Shares | | Net Income | | | | Shares |
| (millions, except per share data) |
Net income attributable to Macy's, Inc. shareholders and average number of shares outstanding | $ | 36 |
| | | | 304.6 |
| | $ | 17 |
| | | | 307.5 |
|
Shares to be issued under deferred compensation and other plans | | | | | 0.9 |
| | | | | | 0.9 |
|
| $ | 36 |
| | | | 305.5 |
| | $ | 17 |
| | | | 308.4 |
|
Basic earnings per share attributable to Macy's, Inc. shareholders | | | $ | .12 |
| | | | | | $ | .05 |
| | |
Effect of dilutive securities: | | | | | | | | | | | |
Stock options, restricted stock and restricted stock units | | | | | 1.0 |
| | | | | | 2.2 |
|
| $ | 36 |
| | | | 306.5 |
| | $ | 17 |
| | | | 310.6 |
|
Diluted earnings per share attributable to Macy's, Inc. shareholders | | | $ | .12 |
| | | | | | $ | .05 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 26 Weeks Ended | | | | | | | | | | |
| August 1, 2020 | | | | | | August 3, 2019 | | | | |
| Net Loss | | | | Shares | | Net Income | | | | Shares |
| (millions, except per share data) | | | | | | | | | | |
Net income (loss) | $ | (4,012) | | | | | 310.0 | | | $ | 223 | | | | | 308.6 | |
Shares to be issued under deferred compensation and other plans | | | | | 0.9 | | | | | | | 0.9 | |
| $ | (4,012) | | | | | 310.9 | | | $ | 223 | | | | | 309.5 | |
Basic earnings (loss) per share | | | $ | (12.91) | | | | | | | $ | 0.72 | | | |
Effect of dilutive securities: | | | | | | | | | | | |
Stock options and restricted stock units | | | | | 0 | | | | | | | 2.0 | |
| $ | (4,012) | | | | | 310.9 | | | $ | 223 | | | | | 311.5 | |
Diluted earnings (loss) per share | | | $ | (12.91) | | | | | | | $ | 0.71 | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| 39 Weeks Ended |
| October 28, 2017 | | October 29, 2016 |
| Net Income | | | | Shares | | Net Income | | | | Shares |
| (millions, except per share data) |
Net income attributable to Macy's, Inc. shareholders and average number of shares outstanding | $ | 222 |
| | | | 304.5 |
| | $ | 144 |
| | | | 308.6 |
|
Shares to be issued under deferred compensation and other plans | | | | | 0.8 |
| | | | | | 0.9 |
|
| $ | 222 |
| | | | 305.3 |
| | $ | 144 |
| | | | 309.5 |
|
Basic earnings per share attributable to Macy's, Inc. shareholders | | | $ | .73 |
| | | | | | $ | .46 |
| | |
Effect of dilutive securities: | | | | | | | | | | | |
Stock options, restricted stock and restricted stock units | | | | | 1.3 |
| | | | | | 2.3 |
|
| $ | 222 |
| | | | 306.6 |
| | $ | 144 |
| | | | 311.8 |
|
Diluted earnings per share attributable to Macy's, Inc. shareholders | | | $ | .73 |
| | | | | | $ | .46 |
| | |
For the 13 and 3926 weeks ended October 28, 2017,August 1, 2020, as a result of the net loss for the quarter and year to date period, all options and restricted stock units have been excluded from the calculation of diluted earnings per share and, therefore, there was no difference in the weighted average number of common shares for basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive. Stock options to purchase 16.7 million shares of common stock and restricted stock units relating to 10.1 million shares of common stock outstanding at August 1, 2020 were excluded from the computation of diluted earnings per share.
In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 18.9 million shares of common stock and restricted stock units relating to 1.21.3 million shares of common stock were outstanding at October 28, 2017,August 3, 2019, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
6. Revenue
Net sales
Revenue is recognized when customers obtain control of goods and services promised by the Company. The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. The Company's revenue generating activities include the following:
Retail Sales
Retail sales include merchandise sales, inclusive of delivery income, licensed department income, sales of private brand goods directly to third party retailers and sales of excess inventory to third parties. Sales of merchandise are recorded at the time of shipment to the customer and are reported net of estimated merchandise returns and certain customer incentives. Commissions earned on sales generated by licensed departments are included as a component of total net sales and are recognized as revenue at the time merchandise is sold to customers. Service revenues (e.g., alteration and cosmetic services) are recorded at the time the customer receives the benefit of the service. The Company has elected to present sales taxes on a net basis and, as such, sales taxes are included in accounts payable and accrued liabilities until remitted to the taxing authorities.
For the 13 and 26 weeks ended August 1, 2020, Macy's accounted for 89% and 88%, respectively, of the Company's net sales. For each of the 13 and 26 weeks ended August 3, 2019, Macy's accounted for 88% of the Company's net sales. Disaggregation of the Company's net sales by family of business for the 13 and 26 weeks ended August 1, 2020 and August 3, 2019 were as follows:
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended | | | | 26 Weeks Ended | | |
Net sales by family of business | August 1, 2020 | | August 3, 2019 | | August 1, 2020 | | August 3, 2019 |
| (millions) | | | | | | |
Women's Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances | $ | 1,381 | | | $ | 2,039 | | | $ | 2,596 | | | $ | 4,191 | |
Women's Apparel | 626 | | | 1,269 | | | 1,205 | | | 2,582 | |
Men's and Kids' | 727 | | | 1,266 | | | 1,299 | | | 2,468 | |
Home/Other (a) | 825 | | | 972 | | | 1,476 | | | 1,809 | |
Total | $ | 3,559 | | | $ | 5,546 | | | $ | 6,576 | | | $ | 11,050 | |
(a) Other primarily includes restaurant sales, allowance for merchandise returns adjustments and breakage income from unredeemed gift cards.
Merchandise Returns
The Company estimates merchandise returns using historical data and recognizes an allowance that reduces net sales and cost of sales. The liability for merchandise returns is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $140 million, $269 million and $227 million as of August 1, 2020, February 1, 2020 and August 3, 2019, respectively. Included in prepaid expenses and other current assets is an asset totaling $114 million, $147 million and $154 million as of August 1, 2020, February 1, 2020 and August 3, 2019, respectively, for the recoverable cost of merchandise estimated to be returned by customers.
Gift Cards and Customer Loyalty Programs
The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold or issued, no revenue is recognized; rather, the Company records an accrued liability to customers. The liability is relieved and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for merchandise. The Company records revenue from unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns.
The Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy’s brand, points are earned based on customers’ spending on Macy’s private label and co-branded credit cards as well as third-party credit cards. Under the Bloomingdale’s brand, the Company offers a tender-neutral points-based program. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer.
The liability for unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $675 million, $839 million and $654 million as of August 1, 2020, February 1, 2020 and August 3, 2019, respectively.
Credit Card Revenues, net
In 2005, the Company entered into an arrangement with Citibank, N.A. ("Citibank") to sell the Company's private label and co-branded credit cards ("Credit Card Program"). Subsequent to this initial arrangement and associated amendments, in 2014, the Company entered into an amended and restated Credit Card Program Agreement (the "Program Agreement") with Citibank. As part of the Program Agreement, the Company receives payments for providing a combination of interrelated services and intellectual property to Citibank in support of the underlying Credit Card Program. Revenue based on the spending activity of the underlying accounts is recognized as the respective card purchases occur and the Company’s profit share is recognized based on the performance of the underlying portfolio. Revenue associated with the establishment of new credit accounts and assisting in the receipt of payments for existing accounts is recognized as such activities occur. Credit card revenues include finance charges, late fees and other revenue generated by the Company’s Credit Card Program, net of fraud losses and expenses associated with establishing new accounts.
7. Financing Activities
Prior to June 2020, the Company was party to a credit agreement with certain financial institutions. The credit agreement provided for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million. The credit agreement was scheduled to expire on May 9, 2024, subject to up to two one-year extensions that could be requested by the
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
ForCompany and agreed to by the 13 and 39 weeks ended October 29, 2016, in additionlenders. On March 19, 2020, due to the stock optionsimpacts of the COVID-19 pandemic, the Company elected to draw on the full $1,500 million available under the agreement. As discussed further below, during the second quarter of 2020, this amount was repaid and restricted stock units reflectedthe credit agreement amended.
2020 Financing Activities
Secured Debt Issuance
On June 8, 2020, the Company issued $1,300 million aggregate principal amount of 8.375% senior secured notes due 2025 (the "Notes"). The Notes bear interest at a rate of 8.375% per annum, which accrues from June 8, 2020 and is payable in arrears on June 15 and December 15 of each year, commencing on December 15, 2020. The Notes mature on June 15, 2025, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the foregoing tables, stock optionsrelated indenture. The Notes were issued by Macy’s, Inc. and are secured on a first-priority basis by (i) a first mortgage/deed of trust in certain real property of subsidiaries of Macy’s, Inc. that was transferred to purchase 15.7subsidiaries of Macy’s Propco Holdings, LLC, a newly created direct, wholly owned subsidiary of Macy’s, Inc. (“Propco”), and (ii) a pledge by Propco of the equity interests in its subsidiaries that own such transferred real property. The Notes are, jointly and severally, unconditionally guaranteed on a secured basis by Propco and its subsidiaries and unconditionally guaranteed on an unsecured basis by Macy’s Retail Holdings, LLC (f/k/a Macy’s Retail Holdings, Inc.) (“MRH”), a direct, wholly owned subsidiary of Macy’s, Inc. The Company used the proceeds of the Notes offering, along with cash on hand, to repay the outstanding borrowings under the existing $1,500 million shares unsecured credit agreement.
Entry into Asset-Based Credit Facility
On June 8, 2020, Macy’s Inventory Funding LLC (the “ABL Borrower”), an indirect wholly owned subsidiary of common stockthe Company, and restricted stock units relatingits parent, Macy’s Inventory Holdings LLC (the “ABL Parent”), entered into an asset-based credit agreement (the “ABL Credit Facility”) with Bank of America, N.A., as administrative agent and collateral agent, and the lenders party thereto. The ABL Credit Facility provides the ABL Borrower with (i) a $2,926 million revolving credit facility (the “Revolving ABL Facility”), including a swingline sub-facility and a letter of credit sub-facility, and (ii) a bridge revolving credit facility of up to 0.7$300 million shares of common stock were outstanding at October 29, 2016, but were not included (the “Bridge Facility”). The ABL Borrower may request increases in the computationsize of diluted earnings per share because their inclusion would have been antidilutive or they werethe Revolving ABL Facility up to an additional aggregate principal amount of $750 million.
Additionally on June 8, 2020 and concurrently with closing the ABL Credit Facility, the ABL Borrower purchased all presently existing inventory, and assumed the liabilities in respect of all presently existing and outstanding trade payables owed to vendors in respect of such inventory, from MRH and certain wholly owned subsidiaries of MRH. The ABL Credit Facility is secured on a first priority basis (subject to customary exceptions) by (i) all assets of the ABL Borrower including all such inventory and the proceeds thereof and (ii) the equity of the ABL Borrower. The ABL Parent guaranteed the ABL Borrower’s obligations under the ABL Credit Facility. The Revolving ABL Facility matures on May 9, 2024, and the Bridge Facility matures on December 30, 2020.
The ABL Credit Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) 80% (which shall automatically increase to 90% upon the satisfaction of certain conditions, including the delivery of an initial appraisal of the inventory) of the net orderly liquidation percentage of eligible inventory, minus (b) customary reserves. Amounts borrowed under the ABL Credit Facility are subject to performance conditionsinterest at a rate per annum equal to (i) prior to the Step Down Date (as defined in the ABL Credit Facility), at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.75% to 3.00% or (b) a base rate plus a margin of 1.75% to 2.00%, in each case depending on revolving line utilization and (ii) after the Step Down Date, at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.25% to 2.50% or (b) a base rate plus a margin of 1.25% to 1.50%, in each case depending on revolving line utilization. The ABL Credit Facility also contains customary covenants that hadprovide for, among other things, limitations on indebtedness, liens, fundamental changes, restricted payments, cash hoarding, and prepayment of certain indebtedness as well as customary representations and warranties and events of default typical for credit facilities of this type.
The ABL Credit Facility also requires (1) the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any fiscal quarter on or after April 30, 2021 if (a) certain events of default have occurred and are continuing or (b) Availability plus Suppressed Availability (each as defined in the ABL Credit Facility) is less than the greater of (x) 10% of the Loan Cap (as defined in the ABL Credit Facility) and (y) $250 million, in each case, as of the end of
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
such fiscal quarter and (2) prior to April 30, 2021, that the ABL Borrower not been met.permit Availability plus Suppressed Availability to be lower than the greater of (x) 10% of the Loan Cap and (y) $250 million.
Amendment to Existing Credit Agreement 3. Financing Activities
On June 8, 2020, the Company substantially reduced the credit commitments of its existing $1,500 million unsecured credit agreement, which now provides the Company with unsecured revolving credit of up to $25 million. The unsecured revolving credit facility contains covenants that provide for, among other things, limitations on fundamental changes, use of proceeds, and maintenance of property, as well as customary representations and warranties and events of default.
Exchange Offers and Consent Solicitations for Certain Outstanding Debt Securities of Macy’s Retail Holdings, LLC
During the second quarter of 2020, MRH completed exchange offers (each, an “Exchange Offer” and, collectively, the “Exchange Offers”) with eligible holders and received related consents in consent solicitations for each series of notes as follows:
(i) $81 million aggregate principal amount of 6.65% Senior Secured Debentures due 2024 (“New 2024 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.65% Senior Debentures due 2024 issued by MRH (“Old 2024 Notes”);
(ii) $74 million aggregate principal amount of 6.7% Senior Secured Debentures due 2028 (“New 2028 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2028 issued by MRH (“Old 2028 Notes”);
(iii) $13 million aggregate principal amount of 8.75% Senior Secured Debentures due 2029 (“New 2029 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 8.75% Senior Debentures due 2029 issued by MRH (“Old 2029 Notes”);
(iv) $5 million aggregate principal amount of 7.875% Senior Secured Debentures due 2030 (“New 2030 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 7.875% Senior Debentures due 2030 issued by MRH (“Old 2030 Notes”);
(v) $5 million aggregate principal amount of 6.9% Senior Secured Debentures due 2032 (“New 2032 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.9% Senior Debentures due 2032 issued by MRH (“Old 2032 Notes”); and
(vi) $183 million aggregate principal amount of 6.7% Senior Secured Debentures due 2034 (“New 2034 Notes” and, together with the New 2024 Notes, New 2028 Notes, New 2029 Notes, New 2030 Notes and New 2032 Notes, the “New Notes” and each series, a “series of New Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2034 issued by MRH (“Old 2034 Notes” and, together with the Old 2024 Notes, Old 2028 Notes, Old 2029 Notes, Old 2030 Notes and Old 2032 Notes, the “Old Notes” and each series, a “series of Old Notes”).
Each New Note issued in the Exchange Offers for a validly tendered Old Note has an interest rate and maturity date that is identical to the interest rate and maturity date of the tendered Old Note, as well as identical interest payment dates and optional redemption prices. The New Notes are MRH’s and Macy’s general, senior obligations and are secured by a second-priority lien on the same collateral securing the Notes. Following the settlement, the aggregate principal amounts of each series of Old Notes outstanding are: (i) $41 million Old 2024 Notes, (ii) $29 million Old 2028 Notes, (iii) $5 million Old 2030 Notes, (iv) $12 million Old 2032 Notes and (v) $18 million Old 2034 Notes.
In addition, MRH solicited and received consents from holders of each series of Old Notes (each, a “Consent Solicitation” and, collectively, the “Consent Solicitations”) pursuant to a separate Consent Solicitation Statement to adopt certain proposed amendments to the indenture governing the Old Notes (the “Existing Indenture”) to conform certain provisions in the negative pledge covenant in the Existing Indenture to the provisions of the negative pledge covenant in MRH’s most recent indenture (the “Proposed Amendments”). MRH received consents from holders of (i) $85 million aggregate principal amount of outstanding Old 2024 Notes, (ii) $77 million aggregate principal amount of outstanding Old 2028 Notes, (iii) $13 million aggregate principal amount of outstanding Old 2029 Notes, (iv) $5 million aggregate principal amount of outstanding Old 2030 Notes, (v) $6 million aggregate principal amount of outstanding Old 2032 Notes, and (vi) $185 million aggregate principal amount of outstanding Old 2034 Notes.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Debt Repayments
The following table shows the detail of debt repayments:
| | | | | | | | | | | |
| 26 Weeks Ended | | |
| August 1, 2020 | | August 3, 2019 |
| (millions) | | |
Revolving credit agreement | $ | 1,500 | | | $ | 0 | |
8.5% Senior debentures due 2019 | 0 | | | 36 | |
9.5% amortizing debentures due 2021 | 2 | | | 2 | |
9.75% amortizing debentures due 2021 | 1 | | | 1 | |
| $ | 1,503 | | | $ | 39 | |
|
| | | | | | | |
| 39 Weeks Ended |
| October 28, 2017 | | October 29, 2016 |
| (millions) |
7.45% Senior debentures due 2017 | $ | 300 |
| | $ | — |
|
7.875% Senior debentures due 2036 | — |
| | 108 |
|
6.375% Senior notes due 2037 | 135 |
| | — |
|
7.45% Senior debentures due 2016 | — |
| | 59 |
|
6.9% Senior debentures due 2032 | 72 |
| | — |
|
6.7% Senior debentures due 2034 | 28 |
| | — |
|
6.65% Senior debentures due 2024 | 4 |
| | — |
|
6.9% Senior debentures due 2029 | 3 |
| | — |
|
6.7% Senior debentures due 2028 | 3 |
| | — |
|
7.0% Senior debentures due 2028 | 2 |
| | — |
|
9.5% amortizing debentures due 2021 | 4 |
| | 4 |
|
9.75% amortizing debentures due 2021 | 2 |
| | 2 |
|
Capital leases and other obligations | 1 |
| | 1 |
|
| $ | 554 |
| | $ | 174 |
|
During the 39 weeks ended October 28, 2017, the Company repaid, at maturity, $300 million of 7.45% senior debentures due July 2017.
During the 39 weeks ended October 28, 2017, the Company repurchased $247 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cash cost of $257 million, including expenses related to the transactions. Such repurchases resulted in the recognition of expense of $1 million during the 39 weeks ended October 28, 2017 presented as net premiums on early retirement of debt on the Consolidated Statements of Income.
On November 27, 2017, the Company commenced a cash tender offer ("tender offer") to purchase up to $400 million in aggregate principal amount of certain senior unsecured notes and debentures, with stated interest rates ranging from 6.375% to 10.25% and maturities ranging from fiscal years 2021 to 2037. The tender offer expires on December 22, 2017, with an early tender date on December 8, 2017. The Company expects to record the redemption premium and other costs related to these repurchases as net premiums on early retirement of debt on the Consolidated Statements of Income during the fourth quarter of 2017.
4.8. Benefit Plans
The Company has defined contribution plans which cover substantially all employeescolleagues 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,colleagues, 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.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employeescolleagues 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 employeescolleagues 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 employeescolleagues who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employeescolleagues are subject to having such benefits modified or terminated.
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:
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
| | | 13 Weeks Ended | | 39 Weeks Ended | | 13 Weeks Ended | | | 26 Weeks Ended | |
| October 28, 2017 | | October 29, 2016 | | October 28, 2017 | | October 29, 2016 | | August 1, 2020 | | August 3, 2019 | | August 1, 2020 | | August 3, 2019 |
| (millions) | | (millions) | | (millions) | | | (millions) | |
401(k) Qualified Defined Contribution Plan | $ | 20 |
| | $ | 22 |
| | $ | 65 |
| | $ | 71 |
| 401(k) Qualified Defined Contribution Plan | $ | 19 | | | $ | 24 | | | $ | 32 | | | $ | 49 | |
| | | | | | | | | | | | | | | |
Non-Qualified Defined Contribution Plan | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| Non-Qualified Defined Contribution Plan | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 2 | |
| | | | | | | | | | | | | | | |
Pension Plan | | | | | | | | Pension Plan | |
Service cost | $ | 1 |
| | $ | 1 |
| | $ | 4 |
| | $ | 3 |
| Service cost | $ | 2 | | | $ | 1 | | | $ | 3 | | | $ | 2 | |
Interest cost | 25 |
| | 27 |
| | 79 |
| | 83 |
| Interest cost | 18 | | | 26 | | | 38 | | | 52 | |
Expected return on assets | (55 | ) | | (56 | ) | | (168 | ) | | (170 | ) | Expected return on assets | (46) | | | (48) | | | (92) | | | (96) | |
Recognition of net actuarial loss | 8 |
| | 7 |
| | 24 |
| | 22 |
| Recognition of net actuarial loss | 10 | | | 7 | | | 20 | | | 14 | |
Amortization of prior service credit | — |
| | — |
| | — |
| | — |
| Amortization of prior service credit | 0 | | | 0 | | | 0 | | | 0 | |
| $ | (21 | ) | | $ | (21 | ) | | $ | (61 | ) | | $ | (62 | ) | | $ | (16) | | | $ | (14) | | | $ | (31) | | | $ | (28) | |
Supplementary Retirement Plan | | | | | | | | Supplementary Retirement Plan | | | | | | | |
Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Service cost | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Interest cost | 5 |
| | 5 |
| | 16 |
| | 17 |
| Interest cost | 4 | | | 6 | | | 8 | | | 12 | |
Recognition of net actuarial loss | 2 |
| | 3 |
| | 6 |
| | 7 |
| Recognition of net actuarial loss | 3 | | | 2 | | | 6 | | | 4 | |
Amortization of prior service cost | — |
| | — |
| | — |
| | — |
| Amortization of prior service cost | 0 | | | 0 | | | 0 | | | 0 | |
| $ | 7 |
| | $ | 8 |
| | $ | 22 |
| | $ | 24 |
| | $ | 7 | | | $ | 8 | | | $ | 14 | | | $ | 16 | |
| | | | | | | | | | | | | | | |
Total Retirement Expense | $ | 6 |
| | $ | 9 |
| | $ | 26 |
| | $ | 34 |
| Total Retirement Expense | $ | 10 | | | $ | 19 | | | $ | 15 | | | $ | 39 | |
| | | | | | | | | | | | | | | |
Postretirement Obligations | | | | | | | | Postretirement Obligations | |
Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Service cost | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Interest cost | 1 |
| | 1 |
| | 4 |
| | 4 |
| Interest cost | 1 | | | 1 | | | 2 | | | 2 | |
Recognition of net actuarial gain | (2 | ) | | (1 | ) | | (4 | ) | | (3 | ) | Recognition of net actuarial gain | (2) | | | (2) | | | (3) | | | (3) | |
Amortization of prior service cost | — |
| | — |
| | — |
| | — |
| |
Amortization of prior service credit | | Amortization of prior service credit | 0 | | | 0 | | | 0 | | | 0 | |
| $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | (1) | | | $ | (1) | | | $ | (1) | | | $ | (1) | |
During the 13 and 39 weeks ended October 28, 2017, the Company incurred $22 million and $73 million, respectively, of non-cash settlement charges relating toIn connection with the Company's defined benefit plans. Duringplans, for the 13 and 3926 weeks ended October 29, 2016,August 1, 2020, the Company also incurred $62 million and $81 million, respectively, ofa non-cash settlement charges relating to the Company's defined benefit plans. These charges relatecharge of $38 million. This charge relates to the pro-rata recognition of net actuarial losses associated with the Company's defined benefit plans and are athe result of an increase in lump sum distributions associated with a voluntary separation program, organizationalretiree distribution elections and restructuring and store closings, in addition to periodic distribution activity.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
5.9. 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:
Level 1: Quoted prices in active markets for identical assets |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| October 28, 2017 | | October 29, 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 | $ | 100 |
| | $ | 23 |
| | $ | 77 |
| | $ | — |
| | $ | 127 |
| | $ | 19 |
| | $ | 108 |
| | $ | — |
|
Level 2: Significant observable inputs for the assets
Level 3: Significant unobservable inputs for the assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| August 1, 2020 | | | | | | | | August 3, 2019 | | | | | | |
| | | Fair Value Measurements | | | | | | | | Fair Value Measurements | | | | |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| (millions) | | | | | | | | | | | | | | |
Marketable equity and debt securities | $ | 143 | | | $ | 32 | | | $ | 111 | | | $ | 0 | | | $ | 112 | | | $ | 31 | | | $ | 81 | | | $ | 0 | |
Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, certain short-term investments and other assets, short-term debt, merchandise accounts payable, accounts payable and accrued 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.
Goodwill and other indefinite-lived intangible assets are evaluated for impairment annually or more frequently if events or conditions indicate the carrying value of a reporting unit or an indefinite-lived intangible asset may not be recoverable. Impairment testing compares the carrying amount of the reporting unit or other intangible assets with its fair value. During the first quarter of 2020, the Company performed an interim quantitative impairment test for goodwill. The fair value was calculated using a market approach or a combination of a market approach and income approach, as appropriate, for the reporting units. The fair value of goodwill is a Level 3 valuation based on certain unobservable inputs including projected cash flows and estimated risk-adjusted rates of return that would be utilized by market participants in valuing these assets or prices of similar assets.
During the first quarter of 2020, long-lived and right of use assets were tested for impairment. The fair values of these assets is a Level 3 valuation based on certain unobservable inputs including projected cash flows and an estimated risk-adjusted rate of return that would be utilized by market participants in valuing these assets or prices of similar assets.
The following table shows the estimated fair value of the Company's long-term debt:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| August 1, 2020 | | | | | | August 3, 2019 | | | | |
| Notional Amount | | Carrying Amount | | Fair Value | | Notional Amount | | Carrying Amount | | Fair Value |
| (millions) | | | | | | | | | | |
Long-term debt | $ | 4,903 | | | $ | 4,851 | | | $ | 4,050 | | | $ | 4,667 | | | $ | 4,680 | | | $ | 4,742 | |
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| October 28, 2017 | | October 29, 2016 |
| Notional Amount | | Carrying Amount | | Fair Value | | Notional Amount | | Carrying Amount | | Fair Value |
| (millions) |
Long-term debt | $ | 6,206 |
| | $ | 6,297 |
| | $ | 5,908 |
| | $ | 6,459 |
| | $ | 6,536 |
| | $ | 6,749 |
|
6.10. Condensed Consolidating Financial Information
Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent"), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, "Other Subsidiaries" includes all other direct subsidiaries of Parent, including Bluemercury, Inc., FDS Bank, West 34th Street Insurance Company New York, Macy's Merchandising Corporation, Macy's Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (Hong Kong) Limited, Macy's Merchandising Group Procurement, LLC, Macy's Merchandising Group International, LLC, Macy's Merchandising Group International (Hong Kong) Limited, and its majority-owned subsidiary Macy's China Limited. "Subsidiary Issuer" includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in "Other Subsidiaries." "Consolidating Adjustments" represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between the parent guarantor, subsidiary issuer, and the non-guarantor subsidiaries.
In June 2020, in conjunction with the financing discussed in Note 7, "Financing Activities," Macy's Retail Holdings, Inc. was converted into a limited liability company and in May 2020 direct, wholly-owned subsidiaries of the Parent, Macy’s Inventory Holdings LLC and Macy’s Propco Holdings, LLC, were created. In conjunction with the June 2020 financings transactions, Macy's Inventory Holdings LLC was transferred certain inventory and related trade payables of MRH and its subsidiaries, while Macy's Propco Holdings, LLC was transferred certain real property of MRH and its subsidiaries, both of which serve as collateral for the new debt agreements.
In March 2020, the SEC amended Rule 3-10 of Regulation S-X regarding financial disclosure requirements for certain debt securities. The new rules affect those disclosures related to registered securities that are guaranteed and those that are collateralized by the securities of an affiliate. The changes include expanding the population of subsidiary issuers and guarantors that can use the SEC's guarantee-related disclosure framework, simplifying the disclosure models and allowing for disclosures to be made outside of the financial statements. This rule is effective January 4, 2021 with early adoption permitted. The Company is currently evaluating the impact this new rule will have on the financial statements and related disclosures as well as the timing of adoption.
Condensed Consolidating Statements of Comprehensive Income for the 13 and 3926 weeks ended October 28, 2017August 1, 2020 and October 29, 2016,August 3, 2019, Condensed Consolidating Balance Sheets as of October 28, 2017, October 29, 2016August 1, 2020, August 3, 2019 and January 28, 2017,February 1, 2020, and the related Condensed Consolidating Statements of Cash Flows for the 3926 weeks ended October 28, 2017August 1, 2020 and October 29, 2016August 3, 2019 are presented on the following pages.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income (Loss)
For the 13 Weeks Ended October 28, 2017August 1, 2020
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | — |
| | $ | 2,077 |
| | $ | 5,861 |
| | $ | (2,657 | ) | | $ | 5,281 |
|
Cost of sales | — |
| | (1,391 | ) | | (4,441 | ) | | 2,657 |
| | (3,175 | ) |
Gross margin | — |
| | 686 |
| | 1,420 |
| | — |
| | 2,106 |
|
Selling, general and administrative expenses | — |
| | (813 | ) | | (1,182 | ) | | — |
| | (1,995 | ) |
Gains on sale of real estate | — |
| | 24 |
| | 41 |
| | — |
| | 65 |
|
Restructuring and other costs | — |
| | (1 | ) | | (32 | ) | | — |
| | (33 | ) |
Settlement charges | — |
| | (8 | ) | | (14 | ) | | — |
| | (22 | ) |
Operating income (loss) | — |
| | (112 | ) | | 233 |
| | — |
| | 121 |
|
Interest (expense) income, net: | | | | | | | | | |
External | 1 |
| | (76 | ) | | 1 |
| | — |
| | (74 | ) |
Intercompany | — |
| | (34 | ) | | 34 |
| | — |
| | — |
|
Equity in earnings (loss) of subsidiaries | 35 |
| | (61 | ) | | — |
| | 26 |
| | — |
|
Income (loss) before income taxes | 36 |
| | (283 | ) | | 268 |
| | 26 |
| | 47 |
|
Federal, state and local income tax benefit (expense) | — |
| | 59 |
| | (72 | ) | | — |
| | (13 | ) |
Net income (loss) | 36 |
| | (224 | ) | | 196 |
| | 26 |
| | 34 |
|
Net loss attributable to noncontrolling interest | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net income (loss) attributable to Macy's, Inc. shareholders | $ | 36 |
| | $ | (224 | ) | | $ | 198 |
| | $ | 26 |
| | $ | 36 |
|
Comprehensive income (loss) | $ | 61 |
| | $ | (201 | ) | | $ | 212 |
| | $ | (13 | ) | | $ | 59 |
|
Comprehensive loss attributable to noncontrolling interest | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders | $ | 61 |
| | $ | (201 | ) | | $ | 214 |
| | $ | (13 | ) | | $ | 61 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | 0 | | | $ | 166 | | | $ | 3,427 | | | $ | (34) | | | $ | 3,559 | |
Consignment commission income | 0 | | | 219 | | | 0 | | | (219) | | | 0 | |
Credit card revenues (expense), net | 0 | | | (1) | | | 169 | | | 0 | | | 168 | |
| | | | | | | | | |
Cost of sales | 0 | | | 14 | | | (2,766) | | | 34 | | | (2,718) | |
Selling, general and administrative expenses | 0 | | | (463) | | | (1,154) | | | 219 | | | (1,398) | |
Restructuring, impairment and other costs | 0 | | | (85) | | | (157) | | | 0 | | | (242) | |
Operating loss | 0 | | | (150) | | | (481) | | | 0 | | | (631) | |
Benefit plan income, net | 0 | | | 5 | | | 7 | | | 0 | | | 12 | |
Settlement charges | 0 | | | (13) | | | (25) | | | 0 | | | (38) | |
Interest (expense) income, net: | | | | | | | | | |
External | (17) | | | (48) | | | (4) | | | 0 | | | (69) | |
Intercompany | (21) | | | 10 | | | 11 | | | 0 | | | 0 | |
Financing costs | 0 | | | (3) | | | 0 | | | 0 | | | (3) | |
Equity in loss of subsidiaries | (406) | | | (473) | | | 0 | | | 879 | | | 0 | |
Loss before income taxes | (444) | | | (672) | | | (492) | | | 879 | | | (729) | |
Federal, state and local income tax benefit | 13 | | | 75 | | | 210 | | | 0 | | | 298 | |
Net loss | $ | (431) | | | $ | (597) | | | $ | (282) | | | $ | 879 | | | $ | (431) | |
| | | | | | | | | |
Comprehensive loss | $ | (380) | | | $ | (551) | | | $ | (249) | | | $ | 800 | | | $ | (380) | |
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks EndedOctober 29, 2016 August 3, 2019
(millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | 0 | | | $ | 2,219 | | | $ | 4,416 | | | $ | (1,089) | | | $ | 5,546 | |
Credit card revenues, net | 0 | | | (2) | | | 178 | | | 0 | | | 176 | |
| | | | | | | | | |
Cost of sales | 0 | | | (1,341) | | | (3,143) | | | 1,089 | | | (3,395) | |
Selling, general and administrative expenses | 0 | | | (872) | | | (1,305) | | | 0 | | | (2,177) | |
Gains on sale of real estate | 0 | | | 0 | | | 7 | | | 0 | | | 7 | |
Impairment and other costs | 0 | | | 0 | | | (2) | | | 0 | | | (2) | |
Operating income | 0 | | | 4 | | | 151 | | | 0 | | | 155 | |
Benefit plan income, net | 0 | | | 3 | | | 5 | | | 0 | | | 8 | |
Interest (expense) income, net: | | | | | | | | | |
External | 4 | | | (52) | | | 1 | | | 0 | | | (47) | |
Intercompany | 0 | | | (18) | | | 18 | | | 0 | | | 0 | |
Equity in earnings (loss) of subsidiaries | 82 | | | (108) | | | 0 | | | 26 | | | 0 | |
Income (loss) before income taxes | 86 | | | (171) | | | 175 | | | 26 | | | 116 | |
Federal, state and local income tax benefit (expense) | 0 | | | 7 | | | (37) | | | 0 | | | (30) | |
Net income (loss) | $ | 86 | | | $ | (164) | | | $ | 138 | | | $ | 26 | | | $ | 86 | |
| | | | | | | | | |
Comprehensive income (loss) | $ | 91 | | | $ | (159) | | | $ | 142 | | | $ | 17 | | | $ | 91 | |
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | — |
| | $ | 2,376 |
| | $ | 6,183 |
| | $ | (2,933 | ) | | $ | 5,626 |
|
Cost of sales | — |
| | (1,577 | ) | | (4,742 | ) | | 2,933 |
| | (3,386 | ) |
Gross margin | — |
| | 799 |
| | 1,441 |
| | — |
| | 2,240 |
|
Selling, general and administrative expenses | (1 | ) | | (950 | ) | | (1,161 | ) | | — |
| | (2,112 | ) |
Gains on sale of real estate | — |
| | 41 |
| | — |
| | — |
| | 41 |
|
Settlement charges | — |
| | (24 | ) | | (38 | ) | | — |
| | (62 | ) |
Operating income (loss) | (1 | ) | | (134 | ) | | 242 |
| | — |
| | 107 |
|
Interest (expense) income, net: | | | | | | | | | |
External | 1 |
| | (82 | ) | | — |
| | — |
| | (81 | ) |
Intercompany | — |
| | (51 | ) | | 51 |
| | — |
| | — |
|
Equity in earnings (loss) of subsidiaries | 17 |
| | (101 | ) | | — |
| | 84 |
| | — |
|
Income (loss) before income taxes | 17 |
| | (368 | ) | | 293 |
| | 84 |
| | 26 |
|
Federal, state and local income tax benefit (expense) | — |
| | 68 |
| | (79 | ) | | — |
| | (11 | ) |
Net income (loss) | 17 |
| | (300 | ) | | 214 |
| | 84 |
| | 15 |
|
Net loss attributable to noncontrolling interest | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net income (loss) attributable to Macy's, Inc. shareholders | $ | 17 |
| | $ | (300 | ) | | $ | 216 |
| | $ | 84 |
| | $ | 17 |
|
Comprehensive income (loss) | $ | 62 |
| | $ | (255 | ) | | $ | 241 |
| | $ | 12 |
| | $ | 60 |
|
Comprehensive loss attributable to noncontrolling interest | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders | $ | 62 |
| | $ | (255 | ) | | $ | 243 |
| | $ | 12 |
| | $ | 62 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income (Loss)
For the 39 weeks ended October 28, 201726 Weeks Ended August 1, 2020
(millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | 0 | | | $ | 1,033 | | | $ | 6,382 | | | $ | (839) | | | $ | 6,576 | |
Consignment commission income | 0 | | | 219 | | | 0 | | | (219) | | | 0 | |
Credit card revenues (expense), net | 0 | | | (6) | | | 305 | | | 0 | | | 299 | |
| | | | | | | | | |
Cost of sales | 0 | | | (782) | | | (5,276) | | | 839 | | | (5,219) | |
Selling, general and administrative expenses | 0 | | | (1,025) | | | (2,189) | | | 219 | | | (2,995) | |
Gains on sale of real estate | 0 | | | 0 | | | 16 | | | 0 | | | 16 | |
Impairment, restructuring and other costs | 0 | | | (2,807) | | | (619) | | | 0 | | | (3,426) | |
Operating loss | 0 | | | (3,368) | | | (1,381) | | | 0 | | | (4,749) | |
Benefit plan income, net | 0 | | | 8 | | | 13 | | | 0 | | | 21 | |
Settlement charges | 0 | | | (13) | | | (25) | | | 0 | | | (38) | |
Interest (expense) income, net: | | | | | | | | | |
External | (16) | | | (97) | | | (4) | | | 0 | | | (117) | |
Intercompany | (21) | | | (8) | | | 29 | | | 0 | | | 0 | |
Financing costs | 0 | | | (3) | | | 0 | | | 0 | | | (3) | |
Equity in loss of subsidiaries | (3,988) | | | (1,268) | | | 0 | | | 5,256 | | | 0 | |
Loss before income taxes | (4,025) | | | (4,749) | | | (1,368) | | | 5,256 | | | (4,886) | |
Federal, state and local income tax benefit | 13 | | | 502 | | | 359 | | | 0 | | | 874 | |
Net loss | $ | (4,012) | | | $ | (4,247) | | | $ | (1,009) | | | $ | 5,256 | | | $ | (4,012) | |
| | | | | | | | | |
Comprehensive loss | $ | (3,952) | | | $ | (4,192) | | | $ | (970) | | | $ | 5,162 | | | $ | (3,952) | |
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | — |
| | $ | 6,319 |
| | $ | 15,727 |
| | $ | (5,875 | ) | | $ | 16,171 |
|
Cost of sales | — |
| | (4,126 | ) | | (11,543 | ) | | 5,875 |
| | (9,794 | ) |
Gross margin | — |
| | 2,193 |
| | 4,184 |
| | — |
| | 6,377 |
|
Selling, general and administrative expenses | (1 | ) | | (2,430 | ) | | (3,422 | ) | | — |
| | (5,853 | ) |
Gains on sale of real estate | — |
| | 116 |
| | 60 |
| | — |
| | 176 |
|
Restructuring and other costs | — |
| | (1 | ) | | (32 | ) | | — |
| | (33 | ) |
Settlement charges | — |
| | (24 | ) | | (49 | ) | | — |
| | (73 | ) |
Operating income (loss) | (1 | ) | | (146 | ) | | 741 |
| | — |
| | 594 |
|
Interest (expense) income, net: | | | | | | | | | |
External | 4 |
| | (243 | ) | | 2 |
| | — |
| | (237 | ) |
Intercompany | — |
| | (102 | ) | | 102 |
| | — |
| | — |
|
Net premiums on early retirement of debt | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Equity in earnings (loss) of subsidiaries | 220 |
| | (30 | ) | | — |
| | (190 | ) | | — |
|
Income (loss) before income taxes | 223 |
| | (522 | ) | | 845 |
| | (190 | ) | | 356 |
|
Federal, state and local income tax benefit (expense) | (1 | ) | | 142 |
| | (281 | ) | | — |
| | (140 | ) |
Net income (loss) | 222 |
| | (380 | ) | | 564 |
| | (190 | ) | | 216 |
|
Net loss attributable to noncontrolling interest | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Net income (loss) attributable to Macy's, Inc. shareholders | $ | 222 |
| | $ | (380 | ) | | $ | 570 |
| | $ | (190 | ) | | $ | 222 |
|
Comprehensive income (loss) | $ | 318 |
| | $ | (290 | ) | | $ | 627 |
| | $ | (343 | ) | | $ | 312 |
|
Comprehensive loss attributable to noncontrolling interest | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders | $ | 318 |
| | $ | (290 | ) | | $ | 633 |
| | $ | (343 | ) | | $ | 318 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 39 weeks endedOctober 29, 201626 Weeks Ended August 3, 2019
(millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | 0 | | | $ | 4,373 | | | $ | 9,184 | | | $ | (2,507) | | | $ | 11,050 | |
Credit card revenues (expense), net | 0 | | | (5) | | | 353 | | | 0 | | | 348 | |
| | | | | | | | | |
Cost of sales | 0 | | | (2,682) | | | (6,623) | | | 2,507 | | | (6,798) | |
Selling, general and administrative expenses | 1 | | | (1,674) | | | (2,614) | | | 0 | | | (4,287) | |
Gains on sale of real estate | 0 | | | 24 | | | 25 | | | 0 | | | 49 | |
Impairment, restructuring and other costs | 0 | | | 0 | | | (3) | | | 0 | | | (3) | |
Operating income | 1 | | | 36 | | | 322 | | | 0 | | | 359 | |
Benefit plan income, net | 0 | | | 6 | | | 9 | | | 0 | | | 15 | |
Interest (expense) income, net: | | | | | | | | | |
External | 9 | | | (105) | | | 2 | | | 0 | | | (94) | |
Intercompany | 0 | | | (37) | | | 37 | | | 0 | | | 0 | |
Equity in earnings (loss) of subsidiaries | 214 | | | (138) | | | 0 | | | (76) | | | 0 | |
Income (loss) before income taxes | 224 | | | (238) | | | 370 | | | (76) | | | 280 | |
Federal, state and local income tax benefit (expense) | (1) | | | 31 | | | (87) | | | 0 | | | (57) | |
Net income (loss) | $ | 223 | | | $ | (207) | | | $ | 283 | | | $ | (76) | | | $ | 223 | |
| | | | | | | | | |
Comprehensive income (loss) | $ | 234 | | | $ | (197) | | | $ | 291 | | | $ | (94) | | | $ | 234 | |
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | — |
| | $ | 7,324 |
| | $ | 16,546 |
| | $ | (6,607 | ) | | $ | 17,263 |
|
Cost of sales | — |
| | (4,704 | ) | | (12,273 | ) | | 6,607 |
| | (10,370 | ) |
Gross margin | — |
| | 2,620 |
| | 4,273 |
| | — |
| | 6,893 |
|
Selling, general and administrative expenses | (2 | ) | | (2,803 | ) | | (3,334 | ) | | — |
| | (6,139 | ) |
Gains on sale of real estate | — |
| | 71 |
| | 5 |
| | — |
| | 76 |
|
Impairments and other costs | — |
| | (184 | ) | | (65 | ) | | — |
| | (249 | ) |
Settlement charges | — |
| | (29 | ) | | (52 | ) | | — |
| | (81 | ) |
Operating income (loss) | (2 | ) | | (325 | ) | | 827 |
| | — |
| | 500 |
|
Interest (expense) income, net: | | | | | | | | | |
External | 2 |
| | (278 | ) | | — |
| | — |
| | (276 | ) |
Intercompany | — |
| | (166 | ) | | 166 |
| | — |
| | — |
|
Equity in earnings (loss) of subsidiaries | 144 |
| | (69 | ) | | — |
| | (75 | ) | | — |
|
Income (loss) before income taxes | 144 |
| | (838 | ) | | 993 |
| | (75 | ) | | 224 |
|
Federal, state and local income tax benefit (expense) | — |
| | 243 |
| | (328 | ) | | — |
| | (85 | ) |
Net income (loss) | 144 |
| | (595 | ) | | 665 |
| | (75 | ) | | 139 |
|
Net loss attributable to noncontrolling interest | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Net income (loss) attributable to Macy's, Inc. shareholders | $ | 144 |
| | $ | (595 | ) | | $ | 670 |
| | $ | (75 | ) | | $ | 144 |
|
Comprehensive income (loss) | $ | 164 |
| | $ | (575 | ) | | $ | 677 |
| | $ | (107 | ) | | $ | 159 |
|
Comprehensive loss attributable to noncontrolling interest | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders | $ | 164 |
| | $ | (575 | ) | | $ | 682 |
| | $ | (107 | ) | | $ | 164 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of October 28, 2017August 1, 2020
(millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
ASSETS: | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 737 | | | $ | 35 | | | $ | 623 | | | $ | 0 | | | $ | 1,395 | |
Receivables | 0 | | | 40 | | | 144 | | | 0 | | | 184 | |
Merchandise inventories | 0 | | | 187 | | | 3,395 | | | 0 | | | 3,582 | |
Prepaid expenses and other current assets | 15 | | | 90 | | | 376 | | | (11) | | | 470 | |
Total Current Assets | 752 | | | 352 | | | 4,538 | | | (11) | | | 5,631 | |
Property and Equipment – net | 0 | | | 2,463 | | | 3,816 | | | 0 | | | 6,279 | |
Right of Use Assets | 0 | | | 990 | | | 2,401 | | | (356) | | | 3,035 | |
Goodwill | 0 | | | 661 | | | 167 | | | 0 | | | 828 | |
Other Intangible Assets – net | 0 | | | 4 | | | 434 | | | 0 | | | 438 | |
Other Assets | 641 | | | 77 | | | 685 | | | 0 | | | 1,403 | |
Deferred Income Taxes | 12 | | | 0 | | | 0 | | | (12) | | | 0 | |
Intercompany Receivable | 314 | | | 0 | | | 2,314 | | | (2,628) | | | 0 | |
Investment in Subsidiaries | 1,982 | | | 3,907 | | | 0 | | | (5,889) | | | 0 | |
Total Assets | $ | 3,701 | | | $ | 8,454 | | | $ | 14,355 | | | $ | (8,896) | | | $ | 17,614 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Short-term debt | $ | 0 | | | $ | 539 | | | $ | 0 | | | $ | 0 | | | $ | 539 | |
Merchandise accounts payable | 0 | | | 223 | | | 1,186 | | | 0 | | | 1,409 | |
Accounts payable and accrued liabilities | 111 | | | 815 | | | 2,048 | | | (68) | | | 2,906 | |
| | | | | | | | | |
Total Current Liabilities | 111 | | | 1,577 | | | 3,234 | | | (68) | | | 4,854 | |
Long-Term Debt | 1,240 | | | 3,611 | | | 0 | | | 0 | | | 4,851 | |
Long-Term Lease Liabilities | 0 | | | 882 | | | 2,686 | | | (299) | | | 3,269 | |
Intercompany Payable | 0 | | | 2,628 | | | 0 | | | (2,628) | | | 0 | |
Deferred Income Taxes | 0 | | | 370 | | | 563 | | | (12) | | | 921 | |
Other Liabilities | 26 | | | 426 | | | 943 | | | 0 | | | 1,395 | |
Shareholders' Equity (Deficit) | 2,324 | | | (1,040) | | | 6,929 | | | (5,889) | | | 2,324 | |
Total Liabilities and Shareholders' Equity | $ | 3,701 | | | $ | 8,454 | | | $ | 14,355 | | | $ | (8,896) | | | $ | 17,614 | |
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
ASSETS: | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 116 |
| | $ | 89 |
| | $ | 329 |
| | $ | — |
| | $ | 534 |
|
Receivables | — |
| | 67 |
| | 152 |
| | — |
| | 219 |
|
Merchandise inventories | — |
| | 3,218 |
| | 3,847 |
| | — |
| | 7,065 |
|
Income tax receivable | — |
| | 2 |
| | — |
| | (2 | ) | | — |
|
Prepaid expenses and other current assets | — |
| | 86 |
| | 346 |
| | — |
| | 432 |
|
Total Current Assets | 116 |
| | 3,462 |
| | 4,674 |
| | (2 | ) | | 8,250 |
|
Property and Equipment – net | — |
| | 3,184 |
| | 3,558 |
| | — |
| | 6,742 |
|
Goodwill | — |
| | 3,315 |
| | 582 |
| | — |
| | 3,897 |
|
Other Intangible Assets – net | — |
| | 46 |
| | 445 |
| | — |
| | 491 |
|
Other Assets | 1 |
| | 62 |
| | 772 |
| | — |
| | 835 |
|
Deferred Income Taxes | 26 |
| | — |
| | — |
| | (26 | ) | | — |
|
Intercompany Receivable | 1,436 |
| | — |
| | 1,971 |
| | (3,407 | ) | | — |
|
Investment in Subsidiaries | 2,882 |
| | 3,644 |
| | — |
| | (6,526 | ) | | — |
|
Total Assets | $ | 4,461 |
| | $ | 13,713 |
| | $ | 12,002 |
| | $ | (9,961 | ) | | $ | 20,215 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Short-term debt | $ | — |
| | $ | 6 |
| | $ | 16 |
| | $ | — |
| | $ | 22 |
|
Merchandise accounts payable | — |
| | 1,339 |
| | 1,834 |
| | — |
| | 3,173 |
|
Accounts payable and accrued liabilities | 139 |
| | 975 |
| | 2,048 |
| | — |
| | 3,162 |
|
Income taxes | 20 |
| | — |
| | 16 |
| | (2 | ) | | 34 |
|
Total Current Liabilities | 159 |
| | 2,320 |
| | 3,914 |
| | (2 | ) | | 6,391 |
|
Long-Term Debt | — |
| | 6,280 |
| | 17 |
| | — |
| | 6,297 |
|
Intercompany Payable | — |
| | 3,407 |
| | — |
| | (3,407 | ) | | — |
|
Deferred Income Taxes | — |
| | 707 |
| | 872 |
| | (26 | ) | | 1,553 |
|
Other Liabilities | 71 |
| | 476 |
| | 1,203 |
| | — |
| | 1,750 |
|
Shareholders' Equity: | | | | | | | | | |
Macy's, Inc. | 4,231 |
| | 523 |
| | 6,003 |
| | (6,526 | ) | | 4,231 |
|
Noncontrolling Interest | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
Total Shareholders' Equity | 4,231 |
| | 523 |
| | 5,996 |
| | (6,526 | ) | | 4,224 |
|
Total Liabilities and Shareholders' Equity | $ | 4,461 |
| | $ | 13,713 |
| | $ | 12,002 |
| | $ | (9,961 | ) | | $ | 20,215 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of October 29, 2016August 3, 2019
(millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
ASSETS: | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 320 | | | $ | 100 | | | $ | 254 | | | $ | 0 | | | $ | 674 | |
Receivables | 1 | | | 44 | | | 195 | | | 0 | | | 240 | |
Merchandise inventories | 0 | | | 2,138 | | | 2,891 | | | 0 | | | 5,029 | |
Prepaid expenses and other current assets | 0 | | | 139 | | | 464 | | | 0 | | | 603 | |
Income taxes | 39 | | | 0 | | | 0 | | | (39) | | | 0 | |
Total Current Assets | 360 | | | 2,421 | | | 3,804 | | | (39) | | | 6,546 | |
Property and Equipment – net | 0 | | | 3,162 | | | 3,321 | | | 0 | | | 6,483 | |
Right of Use Assets | 0 | | | 660 | | | 1,976 | | | 0 | | | 2,636 | |
Goodwill | 0 | | | 3,326 | | | 582 | | | 0 | | | 3,908 | |
Other Intangible Assets – net | 0 | | | 4 | | | 436 | | | 0 | | | 440 | |
Other Assets | 0 | | | 39 | | | 689 | | | 0 | | | 728 | |
Deferred Income Taxes | 9 | | | 0 | | | 0 | | | (9) | | | 0 | |
Intercompany Receivable | 2,564 | | | 0 | | | 643 | | | (3,207) | | | 0 | |
Investment in Subsidiaries | 3,484 | | | 2,957 | | | 0 | | | (6,441) | | | 0 | |
Total Assets | $ | 6,417 | | | $ | 12,569 | | | $ | 11,451 | | | $ | (9,696) | | | $ | 20,741 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Short-term debt | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | 0 | | | $ | 6 | |
Merchandise accounts payable | 0 | | | 717 | | | 957 | | | 0 | | | 1,674 | |
Accounts payable and accrued liabilities | 74 | | | 754 | | | 1,911 | | | 0 | | | 2,739 | |
Income taxes | 0 | | | 47 | | | 12 | | | (39) | | | 20 | |
Total Current Liabilities | 74 | | | 1,524 | | | 2,880 | | | (39) | | | 4,439 | |
Long-Term Debt | 0 | | | 4,680 | | | 0 | | | 0 | | | 4,680 | |
Long-Term Lease Liabilities | 0 | | | 594 | | | 2,242 | | | 0 | | | 2,836 | |
Intercompany Payable | 0 | | | 3,207 | | | 0 | | | (3,207) | | | 0 | |
Deferred Income Taxes | 0 | | | 643 | | | 572 | | | (9) | | | 1,206 | |
Other Liabilities | 28 | | | 364 | | | 873 | | | 0 | | | 1,265 | |
Shareholders' Equity | 6,315 | | | 1,557 | | | 4,884 | | | (6,441) | | | 6,315 | |
Total Liabilities and Shareholders' Equity | $ | 6,417 | | | $ | 12,569 | | | $ | 11,451 | | | $ | (9,696) | | | $ | 20,741 | |
|
| | | | | | | | | | | | | | | | | | | |
| 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 receivable | 99 |
| | — |
| | — |
| | (39 | ) | | 60 |
|
Prepaid expenses and other current assets | — |
| | 89 |
| | 365 |
| | — |
| | 454 |
|
Total Current Assets | 159 |
| | 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 Assets | 1 |
| | 153 |
| | 755 |
| | — |
| | 909 |
|
Deferred Income Taxes | 24 |
| | — |
| | — |
| | (24 | ) | | — |
|
Intercompany Receivable | 878 |
| | — |
| | 1,876 |
| | (2,754 | ) | | — |
|
Investment in Subsidiaries | 2,954 |
| | 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 liabilities | 164 |
| | 910 |
| | 1,856 |
| | — |
| | 2,930 |
|
Income taxes | — |
| | 3 |
| | 36 |
| | (39 | ) | | — |
|
Total Current Liabilities | 164 |
| | 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 Liabilities | 63 |
| | 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' Equity | 3,789 |
| | 218 |
| | 5,911 |
| | (6,127 | ) | | 3,791 |
|
Total Liabilities and Shareholders' Equity | $ | 4,016 |
| | $ | 14,105 |
| | $ | 12,097 |
| | $ | (8,944 | ) | | $ | 21,274 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of January 28, 2017February 1, 2020
(millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
ASSETS: | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 413 | | | 59 | | | $ | 213 | | | $ | 0 | | | $ | 685 | |
Receivables | 0 | | | 83 | | | 326 | | | 0 | | | 409 | |
Merchandise inventories | 0 | | | 2,239 | | | 2,949 | | | 0 | | | 5,188 | |
Prepaid expenses and other current assets | 0 | | | 118 | | | 410 | | | 0 | | | 528 | |
Total Current Assets | 413 | | | 2,499 | | | 3,898 | | | 0 | | | 6,810 | |
Property and Equipment – net | 0 | | | 3,103 | | | 3,530 | | | 0 | | | 6,633 | |
Right of Use Assets | 0 | | | 611 | | | 2,057 | | | 0 | | | 2,668 | |
Goodwill | 0 | | | 3,326 | | | 582 | | | 0 | | | 3,908 | |
Other Intangible Assets – net | 0 | | | 4 | | | 435 | | | 0 | | | 439 | |
Other Assets | 0 | | | 37 | | | 677 | | | 0 | | | 714 | |
Deferred Income Taxes | 12 | | | 0 | | | 0 | | | (12) | | | 0 | |
Intercompany Receivable | 2,675 | | | 0 | | | 1,128 | | | (3,803) | | | 0 | |
Investment in Subsidiaries | 3,433 | | | 2,796 | | | 0 | | | (6,229) | | | 0 | |
Total Assets | $ | 6,533 | | | $ | 12,376 | | | $ | 12,307 | | | $ | (10,044) | | | $ | 21,172 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Short-term debt | $ | 0 | | | $ | 539 | | | $ | 0 | | | $ | 0 | | | $ | 539 | |
Merchandise accounts payable | 0 | | | 702 | | | 980 | | | 0 | | | 1,682 | |
Accounts payable and accrued liabilities | 126 | | | 909 | | | 2,413 | | | 0 | | | 3,448 | |
Income taxes | 5 | | | 11 | | | 65 | | | 0 | | | 81 | |
Total Current Liabilities | 131 | | | 2,161 | | | 3,458 | | | 0 | | | 5,750 | |
Long-Term Debt | 0 | | | 3,621 | | | 0 | | | 0 | | | 3,621 | |
Long-Term Lease Liabilities | 0 | | | 543 | | | 2,375 | | | 0 | | | 2,918 | |
Intercompany Payable | 0 | | | 3,803 | | | 0 | | | (3,803) | | | 0 | |
Deferred Income Taxes | 0 | | | 595 | | | 586 | | | (12) | | | 1,169 | |
Other Liabilities | 25 | | | 414 | | | 898 | | | 0 | | | 1,337 | |
Shareholders' Equity | 6,377 | | | 1,239 | | | 4,990 | | | (6,229) | | | 6,377 | |
Total Liabilities and Shareholders' Equity | $ | 6,533 | | | $ | 12,376 | | | $ | 12,307 | | | $ | (10,044) | | | $ | 21,172 | |
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
ASSETS: | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 938 |
| | $ | 81 |
| | $ | 278 |
| | $ | — |
| | $ | 1,297 |
|
Receivables | — |
| | 169 |
| | 353 |
| | — |
| | 522 |
|
Merchandise inventories | — |
| | 2,565 |
| | 2,834 |
| | — |
| | 5,399 |
|
Prepaid expenses and other current assets | — |
| | 84 |
| | 324 |
| | — |
| | 408 |
|
Total Current Assets | 938 |
| | 2,899 |
| | 3,789 |
| | — |
| | 7,626 |
|
Property and Equipment – net | — |
| | 3,397 |
| | 3,620 |
| | — |
| | 7,017 |
|
Goodwill | — |
| | 3,315 |
| | 582 |
| | — |
| | 3,897 |
|
Other Intangible Assets – net | — |
| | 51 |
| | 447 |
| | — |
| | 498 |
|
Other Assets | — |
| | 47 |
| | 766 |
| | — |
| | 813 |
|
Deferred Income Taxes | 26 |
| | — |
| | — |
| | (26 | ) | | — |
|
Intercompany Receivable | 375 |
| | — |
| | 2,428 |
| | (2,803 | ) | | — |
|
Investment in Subsidiaries | 3,137 |
| | 3,540 |
| | — |
| | (6,677 | ) | | — |
|
Total Assets | $ | 4,476 |
| | $ | 13,249 |
| | $ | 11,632 |
| | $ | (9,506 | ) | | $ | 19,851 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Short-term debt | $ | — |
| | $ | 306 |
| | $ | 3 |
| | $ | — |
| | $ | 309 |
|
Merchandise accounts payable | — |
| | 590 |
| | 833 |
| | — |
| | 1,423 |
|
Accounts payable and accrued liabilities | 16 |
| | 1,064 |
| | 2,483 |
| | — |
| | 3,563 |
|
Income taxes | 71 |
| | 16 |
| | 265 |
| | — |
| | 352 |
|
Total Current Liabilities | 87 |
| | 1,976 |
| | 3,584 |
| | — |
| | 5,647 |
|
Long-Term Debt | — |
| | 6,544 |
| | 18 |
| | — |
| | 6,562 |
|
Intercompany Payable | — |
| | 2,803 |
| | — |
| | (2,803 | ) | | — |
|
Deferred Income Taxes | — |
| | 688 |
| | 781 |
| | (26 | ) | | 1,443 |
|
Other Liabilities | 66 |
| | 500 |
| | 1,311 |
| | — |
| | 1,877 |
|
Shareholders' Equity: | | | | | | | | | |
Macy's, Inc. | 4,323 |
| | 738 |
| | 5,939 |
| | (6,677 | ) | | 4,323 |
|
Noncontrolling Interest | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Total Shareholders' Equity | 4,323 |
| | 738 |
| | 5,938 |
| | (6,677 | ) | | 4,322 |
|
Total Liabilities and Shareholders' Equity | $ | 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 EndedOctober 28, 2017 August 1, 2020
(millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | | | |
Net loss | $ | (4,012) | | | $ | (4,247) | | | $ | (1,009) | | | $ | 5,256 | | | $ | (4,012) | |
Impairment, restructuring and other costs | 0 | | | 2,807 | | | 619 | | | 0 | | | 3,426 | |
Settlement charges | 0 | | | 13 | | | 25 | | | 0 | | | 38 | |
Equity in loss of subsidiaries | 3,988 | | | 1,268 | | | 0 | | | (5,256) | | | 0 | |
Dividends received from subsidiaries | 427 | | | 300 | | | 0 | | | (727) | | | 0 | |
Depreciation and amortization | 0 | | | 148 | | | 324 | | | 0 | | | 472 | |
Gains on sale of real estate | 0 | | | 0 | | | (16) | | | 0 | | | (16) | |
Changes in assets, liabilities and other items not separately identified | (647) | | | 1,046 | | | (314) | | | 0 | | | 85 | |
Net cash provided (used) by operating activities | (244) | | | 1,335 | | | (371) | | | (727) | | | (7) | |
Cash flows from investing activities: | | | | | | | | | |
Purchase of property and equipment and capitalized software, net of dispositions | 0 | | | (48) | | | (210) | | | 0 | | | (258) | |
Other, net | 0 | | | 0 | | | (14) | | | 0 | | | (14) | |
Net cash used by investing activities | 0 | | | (48) | | | (224) | | | 0 | | | (272) | |
Cash flows from financing activities: | | | | | | | | | |
Debt issued, net of debt issuance costs | 1,240 | | | 1,493 | | | (51) | | | 0 | | | 2,682 | |
Debt repaid | 0 | | | (1,503) | | | (1) | | | 0 | | | (1,504) | |
Dividends paid | (117) | | | 0 | | | (727) | | | 727 | | | (117) | |
| | | | | | | | | |
Intercompany activity, net | (526) | | | (1,256) | | | 1,782 | | | 0 | | | 0 | |
Other, net | (26) | | | (50) | | | (35) | | | 0 | | | (111) | |
Net cash provided (used) by financing activities | 571 | | | (1,316) | | | 968 | | | 727 | | | 950 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 327 | | | (29) | | | 373 | | | 0 | | | 671 | |
Cash, cash equivalents and restricted cash at beginning of period | 413 | | | 64 | | | 254 | | | 0 | | | 731 | |
Cash, cash equivalents and restricted cash at end of period | $ | 740 | | | $ | 35 | | | $ | 627 | | | $ | 0 | | | $ | 1,402 | |
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | | | |
Net income (loss) | $ | 222 |
| | $ | (380 | ) | | $ | 564 |
| | $ | (190 | ) | | $ | 216 |
|
Restructuring and other costs | — |
| | 1 |
| | 32 |
| | — |
| | 33 |
|
Settlement charges | — |
| | 24 |
| | 49 |
| | — |
| | 73 |
|
Equity in loss (earnings) of subsidiaries | (220 | ) | | 30 |
| | — |
| | 190 |
| | — |
|
Dividends received from subsidiaries | 571 |
| | — |
| | — |
| | (571 | ) | | — |
|
Depreciation and amortization | — |
| | 265 |
| | 476 |
| | — |
| | 741 |
|
(Increase) decrease in working capital | (52 | ) | | 35 |
| | (633 | ) | | — |
| | (650 | ) |
Other, net | 8 |
| | 2 |
| | (34 | ) | | — |
| | (24 | ) |
Net cash provided (used) by operating activities | 529 |
| | (23 | ) | | 454 |
| | (571 | ) | | 389 |
|
Cash flows from investing activities: | | | | | | | | | |
Disposition (purchase) of property and equipment and capitalized software, net | — |
| | 30 |
| | (368 | ) | | — |
| | (338 | ) |
Other, net | — |
| | 2 |
| | (10 | ) | | — |
| | (8 | ) |
Net cash provided (used) by investing activities | — |
| | 32 |
| | (378 | ) | | — |
| | (346 | ) |
Cash flows from financing activities: | | | | | | | | | |
Debt repaid | — |
| | (553 | ) | | (1 | ) | | — |
| | (554 | ) |
Dividends paid | (346 | ) | | — |
| | (571 | ) | | 571 |
| | (346 | ) |
Issuance of common stock, net of common stock acquired | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Proceeds from noncontrolling interest | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
Intercompany activity, net | (1,016 | ) | | 584 |
| | 432 |
| | — |
| | — |
|
Other, net | 9 |
| | (32 | ) | | 102 |
| | — |
| | 79 |
|
Net cash used by financing activities | (1,351 | ) | | (1 | ) | | (25 | ) | | 571 |
| | (806 | ) |
Net increase (decrease) in cash and cash equivalents | (822 | ) | | 8 |
| | 51 |
| | — |
| | (763 | ) |
Cash and cash equivalents at beginning of period | 938 |
| | 81 |
| | 278 |
| | — |
| | 1,297 |
|
Cash and cash equivalents at end of period | $ | 116 |
| | $ | 89 |
| | $ | 329 |
| | $ | — |
| | $ | 534 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the 3926 Weeks EndedOctober 29, 2016 August 3, 2019
(millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | | | |
Net income (loss) | $ | 223 | | | $ | (207) | | | $ | 283 | | | $ | (76) | | | $ | 223 | |
Impairment and other costs | 0 | | | 0 | | | 3 | | | 0 | | | 3 | |
Equity in loss (earnings) of subsidiaries | (214) | | | 138 | | | 0 | | | 76 | | | 0 | |
Dividends received from subsidiaries | 606 | | | 0 | | | 0 | | | (606) | | | 0 | |
Depreciation and amortization | 0 | | | 169 | | | 303 | | | 0 | | | 472 | |
Gains on sale of real estate | 0 | | | (24) | | | (25) | | | 0 | | | (49) | |
Changes in assets, liabilities and other items not separately identified | (52) | | | 47 | | | (294) | | | 0 | | | (299) | |
Net cash provided (used) by operating activities | 563 | | | 123 | | | 270 | | | (606) | | | 350 | |
Cash flows from investing activities: | | | | | | | | | |
Purchase of property and equipment and capitalized software, net of dispositions | 0 | | | (97) | | | (345) | | | 0 | | | (442) | |
Other, net | 0 | | | (11) | | | (1) | | | 0 | | | (12) | |
Net cash used by investing activities | 0 | | | (108) | | | (346) | | | 0 | | | (454) | |
Cash flows from financing activities: | | | | | | | | | |
Debt repaid | 0 | | | (42) | | | 0 | | | 0 | | | (42) | |
Dividends paid | (233) | | | 0 | | | (606) | | | 606 | | | (233) | |
Issuance of common stock | 6 | | | 0 | | | 0 | | | 0 | | | 6 | |
| | | | | | | | | |
Intercompany activity, net | (813) | | | 93 | | | 720 | | | 0 | | | 0 | |
Other, net | (92) | | | (21) | | | (15) | | | 0 | | | (128) | |
Net cash provided (used) by financing activities | (1,132) | | | 30 | | | 99 | | | 606 | | | (397) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | (569) | | | 45 | | | 23 | | | 0 | | | (501) | |
Cash, cash equivalents and restricted cash at beginning of period | 889 | | | 64 | | | 295 | | | 0 | | | 1,248 | |
Cash, cash equivalents and restricted cash at end of period | $ | 320 | | | $ | 109 | | | $ | 318 | | | $ | 0 | | | $ | 747 | |
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | | | |
Net income (loss) | $ | 144 |
| | $ | (595 | ) | | $ | 665 |
| | $ | (75 | ) | | $ | 139 |
|
Impairments and other costs | — |
| | 184 |
| | 65 |
| | — |
| | 249 |
|
Settlement charges | — |
| | 29 |
| | 52 |
| | — |
| | 81 |
|
Equity in loss (earnings) of subsidiaries | (144 | ) | | 69 |
| | — |
| | 75 |
| | — |
|
Dividends received from subsidiaries | 535 |
| | 575 |
| | — |
| | (1,110 | ) | | — |
|
Depreciation and amortization | — |
| | 298 |
| | 489 |
| | — |
| | 787 |
|
Increase in working capital | (59 | ) | | (572 | ) | | (328 | ) | | — |
| | (959 | ) |
Other, net | 19 |
| | (36 | ) | | 28 |
| | — |
| | 11 |
|
Net cash provided (used) by operating activities | 495 |
| | (48 | ) | | 971 |
| | (1,110 | ) | | 308 |
|
Cash flows from investing activities: | | | | | | | | | |
Purchase of property and equipment and capitalized software, net | — |
| | (23 | ) | | (520 | ) | | — |
| | (543 | ) |
Other, net | — |
| | 47 |
| | 5 |
| | — |
| | 52 |
|
Net cash provided (used) by investing activities | — |
| | 24 |
| | (515 | ) | | — |
| | (491 | ) |
Cash flows from financing activities: | | | | | | | | | |
Debt repaid, net of debt issued | — |
| | (122 | ) | | (1 | ) | | — |
| | (123 | ) |
Dividends paid | (344 | ) | | — |
| | (1,110 | ) | | 1,110 |
| | (344 | ) |
Common stock acquired, net of issuance of common stock | (199 | ) | | — |
| | — |
| | — |
| | (199 | ) |
Proceeds from noncontrolling interest | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Intercompany activity, net | (642 | ) | | 158 |
| | 484 |
| | — |
| | — |
|
Other, net | 9 |
| | (4 | ) | | 185 |
| | — |
| | 190 |
|
Net cash provided (used) by financing activities | (1,176 | ) | | 32 |
| | (435 | ) | | 1,110 |
| | (469 | ) |
Net increase (decrease) in cash and cash equivalents | (681 | ) | | 8 |
| | 21 |
| | — |
| | (652 | ) |
Cash and cash equivalents at beginning of period | 741 |
| | 91 |
| | 277 |
| | — |
| | 1,109 |
|
Cash and cash equivalents at end of period | $ | 60 |
| | $ | 99 |
| | $ | 298 |
| | $ | — |
| | $ | 457 |
|
| |
Item 2. | Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
For purposes of the following discussion, all references to "third"second quarter of 2017"2020" and "third"second quarter of 2016"2019" are to the Company's 13-week fiscal periods ended October 28, 2017August 1, 2020 and October 29, 2016, respectively,August 3, 2019, respectively. References to "2020" and all references to "2017" and "2016""2019" are to the Company's 39-week fiscal26-week periods ended October 28, 2017August 1, 2020 and October 29, 2016,August 3, 2019, 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 20162019 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 "Risk Factors" and in "Forward-Looking Statements") and in the 20162019 10-K (particularly in "Risk Factors" and in "Forward-Looking Statements"). This discussion includes non-GAAPNon-GAAP financial measures. For information about these measures, see the disclosure under the caption "Important Information Regarding Non-GAAP Financial Measures" on pages 2938 and 39.
Impact of COVID-19
The COVID-19 pandemic has caused significant disruption to 31.
Overview
Theorganizations and communities across the globe and the Company is an omnichannel retail organization operating stores, websiteshas continued to move its business forward with a focus on prudent cash management, strengthening liquidity, executing Holiday 2020 and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company operates approximately 860 stores in 45 states, the District of Columbia, Guam and Puerto Rico. As of October 28, 2017, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage, bluemercury and Macy's China Limited.re-prioritizing strategic initiatives. In addition, Bloomingdale'sas its stores began to reopen in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a companythe second quarter of Al Tayer Group, LLC.
The2020, the Company has begunprioritized the implementation of enhanced health and safety measures to allow its North Star strategycustomers and colleagues to transform its omnichannel businessfeel safe in the Company's stores and focus on key growth areas, embrace customer centricity,facilities. In response to the operational and optimize value in its real estate portfolio. Inspiredfinancial challenges caused by the North Star, thereCOVID-19 pandemic, the specific steps taken by the Company to manage its business through this uncertain period, include, but are five pointsnot limited to, this strategy.the following:
| |
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.
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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.
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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.
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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.
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•The Company has takentemporarily closed all stores on March 18, 2020, which included all Macy’s, Bloomingdale’s, Bluemercury, Macy’s Backstage, Bloomingdales the Outlet and Market by Macy’s stores. Stores began reopening on May 4, 2020 and substantially all of the Company's stores have been reopened as of August 1, 2020. In conjunction with the reopening of its stores and facilities, the Company implemented a number of key steps overhealth and safety measures, including:
◦implementation of enhanced sanitization and cleaning processes,
◦reducing store hours,
◦requiring all colleagues and customers to wear masks and providing such personal protective equipment when needed,
◦establishing maximum store density requirements and installing markers to promote and facilitate social distancing,
◦installing sneeze guards at all registers, and
◦adding curb side pick-up to enable contactless transactions at all of the past couple of yearsCompany's stores.
•In an effort to position itself to successfully implement the North Star strategy. Specifically,increase liquidity, the Company launchedfully drew on its $1,500 million credit facility, announced the suspension of quarterly cash dividends beginning in the second quarter of 2020 and took additional steps to reduce discretionary spending. The Company's Board of Directors also rescinded its authorization of any unused amounts under the Company's share repurchase program. In June 2020, the Company completed financing activities totaling nearly $4.5 billion and used a new Star Rewards loyalty programportion of the proceeds from these activities, as well as cash on hand, to repay its credit facility. To create greater flexibility for future liquidity needs, the Company executed an exchange offer and consent solicitation in October 2017 focused on strengthening relationshipsJuly 2020 for $465 million of previously issued unsecured notes.
•To improve the Company's cash position and reduce its cash expenditures, the Company's Board of Directors and Chief Executive Officer did not receive compensation from April 1, 2020 through June 30, 2020. In addition, the Company deferred cash expenditures where possible and temporarily implemented a furlough for the majority of its colleague population which ended for most colleagues at the beginning of July 2020, with the Company's best customers, migrating existing customersremainder expected to higher spending levels and attracting new or infrequent customers. The initial launch of the new program focused initially on proprietary cardholders with additional enhancements and expansion beyond proprietary cardholders planned for the future.
In August 2016, the Company announced its intention to close approximately 100 Macy’s stores, 74 of which were closed or announced to be closed by the end ofreturn in the third quarter of 2017. Further, in January 2017,2020. Certain executives not impacted by the Company announcedfurlough took a seriestemporary reduction of actions to streamline its store portfolio, intensify cost efficiency efforts and execute its real estate strategy. In addition, the Company has reorganized the field structure that supports the remaining stores and conducted a significant restructuring of the Company's central operations to focus resources on strategic priorities and reduce expense.their pay through June 30, 2020.
In August 2017,June 2020, the Company announced a restructuring that aligns its cost base with anticipated near-term sales as the business recovers from the impact of the COVID-19 pandemic. The Company reduced corporate and management headcount by approximately 3,900. Additionally, the Company reduced staffing across its stores portfolio, supply chain and customer support network, which includedit will adjust as sales recover. The Company expects the consolidationactions
announced to generate expense savings of three functions (merchandising, planningapproximately $365 million in fiscal 2020 and private brands) into a single merchandising function.approximately $630 million on an annualized basis. These savings will be on top of the anticipated $1.5 billion in annual expense savings announced in February, which the Company expects to fully realize by year-end 2022. During the thirdsecond quarter of 2017,2020, the Company recognized $33$154 million of costs primarily associated withexpense for severance related to this restructuring effort as well as a restructuring within the marketing function. Additional financial and operational impacts of such restructuring actions include future annual savings of approximately $38 million, somereduction in force, of which may be used for reinvestment innearly half was paid during the business,quarter.
During the 13 and savings of approximately $.01 per diluted share in the fourth quarter of 2017.
The Company’s real estate strategy is designed to create value through both monetization and redevelopment of certain assets:
In January 2016,26 weeks ended August 1, 2020, the Company completeddeferred rent payments for a $270 million real estate transaction to recreate Macy's Brooklyn store.significant number of its stores. Such COVID-19 pandemic-related rent deferrals are included in accounts payable and accrued liabilities. The Company continues to own and operaterecognize expense during the first four floors and lower level of its existing nine-story retail store, which is currently being reconfigured and remodeled. The remaining portiondeferral periods based on the contractual terms of the storelease agreements.
•Where possible, the Company utilized the benefits provided in the CARES Act signed into law on March 27, 2020, which included payroll tax credits for employee retention, deferral of payroll taxes, and its nearby parking facility were soldseveral income tax provisions, including modifications to Tishman Speyer inthe net interest deduction limitation, changes to certain property depreciation and carryback of certain operating losses.
The COVID-19 pandemic continues to have a single sales transaction.material adverse impact on the Company's operational performance, financial results and cash flows, although the full impact will depend on future developments, including the continued spread and duration of the outbreak and any related restrictions, all of which are highly uncertain and cannot be predicted. The Company continues to monitor the situation closely.
Management Overview
The Company's performance during the second quarter of 2020 was stronger than anticipated but continued to be impacted by the COVID-19 pandemic. As the Company's stores began to re-open, sales agreement requiredvolumes recovered faster than expected and digital sales remained strong throughout the Companyquarter. The Company's gross margin increased as compared 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, $166 million has been recognized to-date, of which $117 million was recognized through fiscal 2016 and $49 million has been recognized during 2017.
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 use part of the proceeds to consolidate the Men’s store into its main Union Square store. The Company is leasing back the Men's store property as it completes the reconfiguration of the main store. The Company is expected to recognize a gain of approximately $235 million in January 2018.
In January 2017, the Company finalized 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 has 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 February 2017, the Company sold its downtown Minneapolis store and parking facility for $59 million of proceeds and recognized a gain of approximately $47 million in the first quarter of 2017.
In April 2017,2020, driven by improved sell-through of merchandise during the quarter which also enabled the Company launched a marketing effort forto exit the upper floorsquarter with improved inventory levels heading into the second half 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 fiscal 2015. This transaction closed in September 2017 for approximately $50 million of proceeds and the Company recognized a gain of approximately $40 million in the third quarter 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, LLC. The Company expects to open 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, LLC 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 clearance strategy, Last Act, have been successful in providing unique value opportunities to both existing and new Macy's customers. The Company has rolled out Last Act to all families of business and is currently focused on opening new Macy's Backstage stores within existing Macy's store locations. In the third quarter of 2017, the Company opened 7 new Macy’s Backstage stores within existing Macy’s stores, bringing the total locations in operation to 52 (7 freestanding and 45 inside Macy's stores) as of October 28, 2017.
2020. The Company is focused on acceleratingapproaching the growthback half of the fiscal year conservatively given an anticipation of continued turbulence associated with the COVID-19 pandemic and a moderation of its luxury beauty products and spa retailer, bluemercury, by opening additional freestanding bluemercury stores in urban and suburban markets, enhancing its online capabilities and adding bluemercury products and boutiques to Macy's stores. 8 new freestanding bluemercury locations were opened in the third quarter of 2017 and 3 additional locations are expected to open later in the fiscal year. As of October 28, 2017, the Company is operating 155 bluemercury locations (135 freestanding and 20 inside Macy's stores).stores' recovery.
Results of Operations
Comparison of the ThirdSecond Quarter of 2017 and the Third Quarter of 20162020 Financial Highlights
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| | | | | | | | | | | | | | | | | |
| | Third Quarter of 2017 | | | Third Quarter of 2016 | | |
| | Amount | | % to Sales | | | Amount | | % to Sales | | |
| | (dollars in millions, except per share figures) |
Net sales | | $ | 5,281 |
| | | | | $ | 5,626 |
| | | | |
Decrease in sales | | (6.1 | ) | % | | | (4.2 | ) | % | | |
Decrease in comparable sales | | (4.0 | ) | % | | | (3.3 | ) | % | | |
Cost of sales | | (3,175 | ) | | (60.1 | ) | % | (3,386 | ) | | (60.2 | ) | % |
Gross margin | | 2,106 |
| | 39.9 |
| % | 2,240 |
| | 39.8 |
| % |
Selling, general and administrative expenses | | (1,995 | ) | | (37.8 | ) | % | (2,112 | ) | | (37.5 | ) | % |
Gains on sale of real estate | | 65 |
| | 1.2 |
| % | 41 |
| | 0.7 |
| % |
Restructuring and other costs | | (33 | ) | | (0.6 | ) | % | — |
| | — |
| % |
Settlement charges | | (22 | ) | | (0.4 | ) | % | (62 | ) | | (1.1 | ) | % |
Operating income | | 121 |
| | 2.3 |
| % | 107 |
| | 1.9 |
| % |
Interest expense - net | | (74 | ) | | | | | (81 | ) | | | | |
Income before income taxes | | 47 |
| | | | | 26 |
| | | | |
Federal, state and local income tax expense | | (13 | ) | | | | | (11 | ) | | | | |
Net income | | 34 |
| | | | 15 |
| | | |
Net loss attributable to noncontrolling interest | | 2 |
| | | | | 2 |
| | | | |
Net income attributable to Macy's, Inc. shareholders | | $ | 36 |
| | 0.7 |
| % | $ | 17 |
| | 0.3 |
| % |
| | | | | | | | | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders | | $ | .12 |
| | | | | $ | .05 |
| | | | |
| | | | | | | | | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of restructuring and other costs and settlement charges | | $ | .23 |
| | | | | $ | .17 |
| | | | |
Net Sales
Net•Comparable sales for the third quarter of 2017 decreased $345 million or 6.1% compared to the third quarter of 2016 due to fiscal year-end 2016 store closures and the decline in comparable sales, which were negatively impacted by hurricane activity during the quarter and warmer than expected fall weather. The decrease in comparable salesdown 34.7% on an owned basis for the third quarter of 2017 was 4.0% compared to the third quarter of 2016. The decrease in comparable salesbasis; and down 35.1% on an owned plus licensed basis, better than expected due to faster paced stores recovery and continued growth of digital.
•Digital sales remained strong, growing 53% over second quarter 2019. Digital sales penetrated at 54% of total owned comparable sales.
•Delivered gross margin of 23.6%, an improvement of approximately 650 basis points from first quarter 2020.
•Inventory down 29% from a year ago.
•Selling, general and administrative ("SG&A") expense of $1.4 billion, down $779 million from second quarter of 2019 and driven by efficient expense management undertaken in response to the COVID-10 pandemic as well as our Polaris strategy. SG&A expense rate of 39.2%, approximately the same as the SG&A expense rate for the thirdsecond quarter of 2017 was 3.6%2019.
•Diluted loss per share of $1.39 and adjusted diluted loss per share of $0.81.
•Finished the quarter in a strong liquidity position with approximately $1.4 billion in cash and approximately $3 billion of untapped capacity in the company’s new asset-based credit facility.
Polaris Strategy
On February 4, 2020, Macy’s, Inc. announced its Polaris strategy, a three-year plan designed to stabilize profitability and position the Company for sustainable, profitable growth. Over the course of the COVID-19 pandemic, the Company has refined the components of the Polaris strategy to focus where the Company can drive competitive advantage and differentiation to first recover the business and then drive both top- and bottom-line growth. The five major components of the Polaris strategy are
unchanged to those presented in February 2020 however the components have been re-focused, as needed, to align with customer demand in the COVID-19 pandemic environment.
•Strengthen Customer Relationships: The Company is focusing on building customer lifetime value, which included expanding the Macy's Star Rewards loyalty program with the launch of Loyalty 3.0 in early February 2020 that allows every Star Rewards member to earn loyalty rewards on their purchases regardless of tender. Going forward the Company will continue to increase customer lifetime value through improving personalization. The Company will also pursue the growth of on-site and off-site monetization income as an enterprise priority.
•Curate Quality Fashion: The Company is repositioning its merchandise category focus to drive sales and improve gross margin. In conjunction, the Company is focused on four merchandise categories that resonate best with customers in this environment: big ticket, beauty, fine jewelry and off-price at Macy's and luxury, advanced contemporary, textiles and off-price at Bloomingdale's.
•Accelerate Digital Growth: The Company will continue to invest in its websites and mobile apps to deliver a superior fashion experience and improve its customers' end-to-end digital experience, including enhancements to product discovery and the checkout process.
•Optimize the Omni Experience: The Company will modernize customer choices and enhance its omni-channel capabilities to deliver efficient, cost effective transactions while providing expanded order and fulfillment options to allow customers the flexibility to receive products how, where and when they want. Additionally, the Company plans to test a revised retail ecosystem model with a mix of store formats within a geographic market, including smaller format, off-mall locations.
•SG&A Cost Savings: After resetting the Company's cost base in the first half of 2020, the Company will continue to execute its operations with a disciplined cost focus to identify additional savings and drive the highest returns on its investments and expenditures.
At the center of the above strategies is an enhanced focus on the cultivation of a Company workplace and culture rooted in social equity where all colleagues have the opportunity to connect, grow and thrive. All of the above components of the Polaris strategy will continue to evolve as the Company navigates the COVID-19 pandemic in order to focus on achievable short-term results and also position itself for long-term sustainability and growth.
Results of Operations
Comparison of the Second Quarter of 2020 and the Second Quarter of 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter of 2020 | | | | | Second Quarter of 2019 | | | | |
| | Amount | | % to Net Sales | | | Amount | | % to Net Sales | | |
| | (dollars in millions, except per share figures) | | | | | | | | | |
Net sales | | $ | 3,559 | | | | | | $ | 5,546 | | | | | |
Credit card revenues, net | | 168 | | | 4.7 | | % | | 176 | | | 3.2 | | % | |
| | | | | | | | | | | |
Cost of sales | | (2,718) | | | (76.4) | | % | | (3,395) | | | (61.2) | | % | |
Selling, general and administrative expenses | | (1,398) | | | (39.2) | | % | | (2,177) | | | (39.3) | | % | |
Gains on sale of real estate | | — | | | — | | % | | 7 | | | 0.1 | | % | |
Restructuring, impairment and other costs | | (242) | | | (6.8) | | % | | (2) | | | — | | % | |
Operating income (loss) | | (631) | | | (17.7) | | % | | 155 | | | 2.8 | | % | |
Benefit plan income, net | | 12 | | | | | | 8 | | | | | |
Settlement charges | | (38) | | | | | | — | | | | | |
Interest expense, net | | (69) | | | | | | (47) | | | | | |
Financing costs | | (3) | | | | | | — | | | | | |
Income (loss) before income taxes | | (729) | | | | | | 116 | | | | | |
Federal, state and local income tax benefit (expense) | | 298 | | | | | | (30) | | | | | |
Net income (loss) | | $ | (431) | | | | | | $ | 86 | | | | | |
| | | | | | | | | | | |
Diluted earnings (loss) per share | | $ | (1.39) | | | | | | $ | 0.28 | | | | | |
| | | | | | | | | | | |
Supplemental Financial Measure | | | | | | | | | | | |
Gross margin (a) | | $ | 841 | | | 23.6 | | % | | $ | 2,151 | | | 38.8 | | % | |
| | | | | | | | | | | |
Supplemental Non-GAAP Financial Measure | | | | | | | | | | | |
Diluted earnings (loss) per share, excluding the impact of certain items | | $ | (0.81) | | | | | | $ | 0.28 | | | | | |
| | | | | | | | | | | |
(a) Gross margin is defined as net sales less cost of sales.
Net Sales
Net sales for the second quarter of 2020 decreased $1,987 million, or 35.8%, compared to the thirdsecond quarter of 2016. Sales2019. The Company's second quarter of 2020 sales were negatively impacted by the closure of all stores on March 18, 2020. During the current quarter, stores began reopening, with substantially all stores fully reopened by the end of the quarter. Digital sales during the second quarter of 2020 improved 53% compared to the second quarter of 2019 and accounted for 54% of comparable sales on an owned basis. The improvement in digital sales was driven by changes in consumer behavior, specifically an unprecedented consumer spending shift to e-commerce. The strongest performing categories during the second quarter of 2020 were strongest inhome, particularly housewares and textiles, fine jewelry, fragrances, dresses, active apparel,activewear and sleepwear. Sales performance continued to be weaker in men's tailored clothing and shoes, excluding boots. Salesdresses driven by the work-from-home environment.
Credit Card Revenues, Net
Net credit card revenues were weakest in cold weather businesses including coats, boots and winter accessories. Sales were also soft in home related businesses. The Company’s digital business continued its strong growth with double digit gains$168 million in the thirdsecond quarter of 2017. Geographically, regional trends were relatively consistent except for hurricane impacted areas. In addition, lower international tourism sales contributed2020, a decrease of $8 million, or 4.5%, compared to the decline of sales$176 million recognized in the thirdsecond quarter of 20172019. Proprietary credit penetration was down 590 basis points, at 40.8%, in the second quarter of 2020 compared to 46.7% in the thirdsecond quarter of 2016.
Cost of Sales
The cost of sales rate as a percent to net sales for2019. New accounts were down significantly in the thirdsecond quarter of 2017 decreased to 60.1% compared to 60.2% for2020 versus the thirdsecond quarter of 2016. This decrease in2019, which is primarily a reflection of the costmajority of sales rate asthe Company's stores being only open for a percent to net sales was due in part to lower inventory levels at the endportion of the quarter including less clearance merchandise subject to liquidation. The application ofas well as lower in-store traffic driven by the last-in,COVID-19 pandemic once the stores reopened.
Gross Margin
first-out ("LIFO") retail inventory method did not resultGross margin was 23.6% in the recognitionsecond quarter of any LIFO charges or credits affecting cost2020 compared to 38.8% in the second quarter of 2019. The decline was due to increased net markdowns as compared to the second quarter of 2019 as well as higher delivery expense driven by the increase in digital sales in either period.as compared to the second quarter of 2019.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A")&A expenses for the thirdsecond quarter of 20172020 decreased $117$779 million or 5.5% from the thirdsecond quarter of 2016.2019. The decrease in SG&A rate as a percent toexpense dollars corresponds with lower net sales of 37.8% was 30 basis points higherbut also reflects the expense management strategies implemented by the Company in the third quarter of 2017, as comparedresponse to the third quarter of 2016. SG&A expenses inCOVID-19 pandemic as well as execution against the third quarter of 2017 included reduced expenses due to the year-end 2016 stores closures and the impact of restructuring activities. These reductions were partially offset by continued investments in digital growth, strategic initiatives in shoes and jewelry, and the expansion of Macy's Backstage and bluemercury. Income from credit operations was $161 million in the third quarter of 2017, a decrease of $4 million compared to $165 million recognized in the third quarter of 2016 in part due to lower proprietary credit card penetration. 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
The third quarter of 2017 included asset sale gains of $65 million, including approximately $40 million related to the downtown Seattle Macy's location and $22 million related to the Macy's Brooklyn transaction. This compares to $41 million of asset sale gains recognized in the third quarter of 2016, inclusive of approximately $9 million related to the Macy's Brooklyn transaction and $32 million related to various asset sales to General Growth Properties.Polaris strategy.
Restructuring, Impairment and Other Costs
RestructuringDuring the 13 weeks ended August 1, 2020, the Company recognized expense of $242 million primarily related to restructuring and other costs, were $33including severance of $154 million for the third quarter of 2017 and include charges associated with severance activities as well as other human resource related costs associated with organizational restructuring. No such charges were recognizedthe reduction in force in response to the third quarter of 2016.COVID-19 pandemic. See the discussion at Note 3, "Impairment, Restructuring and Other Costs" to the accompanying Consolidated Financial Statements for further information.
Settlement Charges
The third quartersDuring the 13 weeks ended August 1, 2020, the Company recognized expense of 2017 and 2016 included $22$38 million and $62 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relaterelated to the pro-rata recognition of net actuarial losses associated with the Company's defined benefit plans and are the result of an increase in lump sum distributions associated with store closings, a voluntary separation programretiree distribution elections and organizational restructuring and periodic distribution activity.
Net Interest Expense, Net
Net interest expense forDuring the thirdsecond quarter of 2017 decreased $72020, the Company recognized expense of $69 million fromcompared to $47 million in the thirdsecond quarter of 2016 due to a reduction in2019. The increase is primarily driven by the Company's debt from $7.5 billion asissuance of the end of the third quarter of 2016 to $6.3 billion as of the end of the third quarter of 2017. This reduction of approximately $1.2 billion is due to the maturity and repurchase of certain of the Company's borrowings.new $1,300 million secured notes in June 2020.
Effective Tax Rate
The Company's effective tax rate of 27.7%40.9% on the pretax loss for the thirdsecond quarter of 2017 and 42.3% for2020 reflects the third quarter of 2016 differ from the federal income tax statutory rate of 35%, and on a comparative basis, principally becauseimpact of the effectcarryback of state and local income taxes, includingnet operating losses as permitted under the settlement of various tax issues and tax examinations.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for the third quarter of 2017 increased $19 million compared to the third quarter of 2016. The third quarter of 2017 included $21 million of after tax restructuring and other costs and $14 million of after tax retirement plan settlement charges, while the third quarter of 2016 included $37 million of after tax retirement plan settlement charges. The third quarter of 2017 also included higher gains associated with the sale of real estate as well as lower SG&A, interest expense and a lower effective tax rate. These favorable results were partially offset by lower net sales in the third quarter of 2017.CARES Act.
Diluted Earnings (Loss) Per Share Attributable to Macy's, Inc. Shareholders
Diluted earningsloss per share for the thirdsecond quarter of 2017 increased $.072020 decreased $1.67 compared to the thirdsecond quarter of 2016,2019, reflecting higherlower net income. Excludingincome resulting from the impact of restructuring and other costs and settlement charges, diluted earnings per share for the third quarter of 2017 increased $.06 or 35.3% compared to the third quarter of 2016.COVID-19 pandemic.
Comparison of the 3926 Weeks Ended October 28, 2017August 1, 2020 and October 29, 2016August 3, 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | | | | 2019 | | | | |
| | Amount | | % to Net Sales | | | Amount | | % to Net Sales | | |
| | (dollars in millions, except per share figures) | | | | | | | | | |
Net sales | | $ | 6,576 | | | | | | $ | 11,050 | | | | | |
Credit card revenues, net | | 299 | | | 4.5 | | % | | 348 | | | 3.1 | | % | |
| | | | | | | | | | | |
Cost of sales | | (5,219) | | | (79.4) | | % | | (6,798) | | | (61.5) | | % | |
Selling, general and administrative expenses | | (2,995) | | | (45.4) | | % | | (4,287) | | | (38.8) | | % | |
Gains on sale of real estate | | 16 | | | 0.2 | | % | | 49 | | | 0.4 | | % | |
Restructuring, impairment and other costs | | (3,426) | | | (52.1) | | % | | (3) | | | — | | % | |
Operating income (loss) | | (4,749) | | | (72.2) | | % | | 359 | | | 3.2 | | % | |
Benefit plan income, net | | 21 | | | | | | 15 | | | | | |
Settlement charges | | (38) | | | | | | — | | | | | |
Interest expense, net | | (117) | | | | | | (94) | | | | | |
Financing costs | | (3) | | | | | | — | | | | | |
Income (loss) before income taxes | | (4,886) | | | | | | 280 | | | | | |
Federal, state and local income tax benefit (expense) | | 874 | | | | | | (57) | | | | | |
Net income (loss) | | $ | (4,012) | | | | | | $ | 223 | | | | | |
| | | | | | | | | | | |
Diluted earnings (loss) per share | | $ | (12.91) | | | | | | $ | 0.71 | | | | | |
| | | | | | | | | | | |
Supplemental Financial Measure | | | | | | | | | | | |
Gross margin (a) | | $ | 1,357 | | | 20.6 | | % | | $ | 4,252 | | | 38.5 | | % | |
| | | | | | | | | | | |
Supplemental Non-GAAP Financial Measure | | | | | | | | | | | |
Diluted earnings (loss) per share, excluding the impact of certain items | | $ | (2.83) | | | | | | $ | 0.72 | | | | | |
| | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
| | 2017 | | | 2016 | | |
| | Amount | | % to Sales | | | Amount | | % to Sales | | |
| | (dollars in millions, except per share figures) |
Net sales | | $ | 16,171 |
| | | | | $ | 17,263 |
| | | | |
Decrease in sales | | (6.3 | ) | % | | | (5.2 | ) | % | | |
Decrease in comparable sales | | (4.0 | ) | % | | | (4.0 | ) | % | | |
Cost of sales | | (9,794 | ) | | (60.6 | ) | % | (10,370 | ) | | (60.1 | ) | % |
Gross margin | | 6,377 |
| | 39.4 |
| % | 6,893 |
| | 39.9 |
| % |
Selling, general and administrative expenses | | (5,853 | ) | | (36.1 | ) | % | (6,139 | ) | | (35.5 | ) | % |
Gains on sale of real estate | | 176 |
| | 1.1 |
| % | 76 |
| | 0.4 |
| % |
Impairments, restructuring and other costs | | (33 | ) | | (0.2 | ) | % | (249 | ) | | (1.4 | ) | % |
Settlement charges | | (73 | ) | | (0.5 | ) | % | (81 | ) | | (0.5 | ) | % |
Operating income | | 594 |
| | 3.7 |
| % | 500 |
| | 2.9 |
| % |
Interest expense - net | | (237 | ) | | | | | (276 | ) | | | | |
Net premiums on early retirement of debt | | (1 | ) | | | | | — |
| | | | |
Income before income taxes | | 356 |
| | | | | 224 |
| | | | |
Federal, state and local income tax expense | | (140 | ) | | | | | (85 | ) | | | | |
Net income | | 216 |
| | | | 139 |
| | | |
Net loss attributable to noncontrolling interest | | 6 |
| | | | | 5 |
| | | | |
Net income attributable to Macy's, Inc. shareholders | | $ | 222 |
| | 1.4 |
| % | $ | 144 |
| | 0.8 |
| % |
| | | | | | | | | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders | | $ | .73 |
| | | | | $ | .46 |
| | | | |
| | | | | | | | | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of impairments, restructuring and other costs, settlement charges and net premiums on early retirement of debt | | $ | .95 |
| | | | | $ | 1.11 |
| | | | |
(a) Gross margin is defined as net sales less cost of sales.Net Sales
Net sales for 20172020 decreased $1,092$4,474 million, or 6.3%40.5%, compared to 20162019. The Company's 2020 sales were negatively impacted by the closure of all stores on March 18, 2020, resulting in stores sales being significantly down compared to 2019. Stores began to reopen in early May 2020 and substantially all stores were fully reopened by August 1, 2020. As discussed within the quarterly analysis, digital sales experienced significant growth due to fiscal year-end 2016 store closureschanges in consumer shopping behaviors and the decline in comparable sales. The decrease inincreased during 2020 by nearly 24% compared to 2019 and accounted for nearly 50% of comparable sales on an owned basis for 2017 was 4.0% compared to 2016.basis. The decrease in comparable sales on an owned plus licensed basis for 2017 was 3.6% compared to 2016. Salesstrongest performing categories during 20172020 were strongest in active apparel,home, particularly housewares, fine jewelry, fragrances, furniture/mattressesactivewear, and women's shoes.sleepwear. Sales wereperformance continued to be weaker in housewareswomen’s and tabletop. The Company’s digital business continued its strong growth at both macys.commen's apparel, including dresses and bloomingdales.com. Geographically, the Company’s strongest business wassuits.
Credit Card Revenues, Net
Net credit card revenues were $299 million in the Southwest region.
Cost2020, a decrease of Sales
The cost of sales rate as a percent to net sales for 2017 increased to 60.6%$49 million, or 14.1%, compared to 60.1%$348 million recognized in 2019. Proprietary credit penetration was down 320 basis points at 43.3% in 2020 compared to 46.5% in 2019. Consistent with the quarterly analysis, new accounts were down significantly compared to the prior year driven by the aforementioned store closures resulting from the COVID-19 pandemic.
Gross Margin
Gross margin was 20.6% in 2020 compared to 38.5% in 2019. The reason for 2016. The increase in the cost of sales rate as a percent to net salesdecline was due in part to high year-end inventory levelsincreased net markdowns as compared to 2019 as well as margin pressures in the beauty business and home related 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.higher delivery expense.
Selling, General and Administrative Expenses
SG&A expenses for 20172020 decreased $286$1,292 million or 4.7% from 2016.2019. The decrease in SG&A rateexpense dollars is a reflection of lower sales as a percent to net saleswell as the implementation of 36.1% was 60 basis points highervarious expense management strategies undertaken in 2017 as compared to 2016. SG&A expenses in 2017 included reduced expenses from the year-end 2016 stores closures and the impact of restructuring activities, partially offset by investments in digital growth, strategic initiatives in shoes and jewelry, and initiatives at bluemercury and Macy's Backstage. Income from credit operations was $524 million in 2017, compared to $528 million in 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 $176 million, including $47 million relatedresponse to the downtown Minneapolis property, $49 million related toCOVID-19 pandemic, including a discretionary spending freeze, as well as the Macy's Brooklyn transaction, and $40 million related to the downtown Seattle Macy's location. This compares to $76 million of asset sale gains recognized in 2016, inclusive of approximately $24 million related to the Macy's Brooklyn transaction and $32 million related to various asset sales to General Growth Properties.Company's Polaris strategy.
Impairments,Impairment, Restructuring and Other Costs
Impairments,During the 26 weeks ended August 1, 2020, the Company recognized expense of $3,426 million primarily as a result of the COVID-19 pandemic, including non-cash impairment charges totaling $3,164 million the majority of which consisted of:
•$3,080 million of goodwill impairments, with $2,982 million attributable to the Macy's reporting unit and $98 million attributable to the Bluemercury reporting unit. See discussion at Note 4, "Goodwill and Indefinite Lived Intangible Assets" to the accompanying Consolidated Financial Statements for more information.
•$80 million of impairments on long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value.
Additionally, the Company recognized $194 million related to restructuring and other costs, including severance of $33$154 million for 2017 and $249 million for 2016 include charges associated with store closingsthe reduction in force in response to the COVID-19 pandemic. See discussion at Note 3, "Impairment, Restructuring and severance activities as well as other human resource related costs associated with organizational restructuring.Other Costs" to the accompanying Consolidated Financial Statements for more information.
Settlement Charges
2017 and 2016 included $73During the 26 weeks ended August 1, 2020, the Company recognized expense of $38 million and $81 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relaterelated to the pro-rata recognition of net actuarial losses associated with the Company's defined benefit plans and are the result of an increase in lump sum distributions associated with store closings, a voluntary separation programretiree distribution elections and organizational restructuring and periodic distribution activity.
Net Interest Expense, Net
Net interest expense for 2017 decreased $39 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,During 2020, the Company recognized $1expense of $117 million compared to $94 million in expenses and fees net2019. As noted previously, the increase is primarily driven by the issuance of premiums on acquired debtthe new $1,300 million secured notes in 2017.June 2020.
Effective Tax Rate
The Company's effective tax rate of 39.3%17.9% on the pretax loss for 20172020 reflects the impact of the carryback of net operating losses as permitted under the CARES Act offset by the impact of the non-tax deductible component of the goodwill impairment charge and 37.9% for 2016 differ from the federaladditional income tax statutoryexpense associated with the deferred tax remeasurement recognized during the first quarter of 2020. Additionally, the effective tax rate for 2020 and the effective tax rate for 2019 of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including20.4% were favorably impacted by the settlement or expiration of variouscertain 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 2017 increased $78 million or 54.2% compared to 2016. The increase from 2017 to 2016 is primarily attributable to higher asset sale gains in 2017 as well as the fact that 2016 included $152 million of after tax impairments, restructuring and other costs compared to $21 million of after tax restructuring and other costs in 2017. These favorable changes as well as lower SG&A, retirement plan settlement charges and interest expense were partially offset by lower net sales and gross margin in 2017.matters.
Diluted Earnings (Loss) Per Share Attributable to Macy's, Inc. Shareholders
Diluted earningsloss per share for 2017 increased $.27 or 58.7%2020 decreased $13.62 compared to 2016,2019, reflecting higherlower net income. Excludingincome resulting from the impact of impairments, restructuringthe COVID-19 pandemic and other costs, settlement charges, and the net premiums on the early retirement of debt, diluted earnings per share for 2017 decreased $.16 or 14.4% compared to 2016.goodwill impairment.
Cash Flow, Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the credit facility described below.
Because of the COVID-19 outbreak, there is significant uncertainty surrounding the potential impact on the Company's results of operations and cash flows. The Company’s liquidity has been negatively impacted by store closures. The Company has proactively taken steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures, suspension of the Company's quarterly dividend, drawing the full $1,500 million available under the Company's credit agreement during the first quarter of 2020, and executing additional financing transactions during the second quarter of 2020 as discussed in more detail below. While the Company has obtained additional financing, further actions may be required to improve the Company’s cash position, including but not limited to, monetizing Company assets, reinstituting colleague furloughs, and foregoing capital expenditures and other discretionary expenses.
Operating Activities
Net cash providedused by operating activities in 20172020 was $389$7 million,, compared to $308net cash provided of $350 million provided in 2016, primarily2019. The decline in operating cash flows period over period is due to lower cash outflows for merchandise inventories, netthe operating losses in 2020 driven by the impact of merchandise payables,the COVID-19 pandemic, primarily resulting from lowerthe temporary closure of the Company's physical store locations. These losses were offset by net working capital inflows driven by a sell through of inventory levelsduring the period coupled with a reduction in inventory receipts as of October 28, 2017 comparedthe Company executed its inventory management strategies in response to October 29, 2016. These lower cash outflows offset other negative cash flow items including lower sales and higher income taxes paid in 2017.the COVID-19 pandemic.
Investing Activities
Net cash used by investing activities was $346$272 million in 2017,2020, compared to net cash used by investing activities of $491$454 million in 2016. Investing activities for 2017 include purchases of property and equipment totaling $3592019. The decrease in 2020 is primarily due to a $212 million and capitalized software of $191 million, reduction in capital spending compared to purchases2019 as a result of property and equipment totaling $451 million and capitalized software of $230 million in 2016. Additionally, the Company received cash of $212 million from the disposition of property and equipment in 2017, primarily related to real estate transactions, as compared to $138 million received in 2016.COVID-19 pandemic.
Financing Activities
Net cash provided by the Company for financing activities was $950 million for 2020, including debt issued of $2,780 million related to a $1,500 million draw on its revolving credit agreement and issuance of $1,300 million 8.375% senior secured notes, partially offset by repayment of the $1,500 million of credit agreement draw. 2020 also included $117 million of cash dividends paid. See below for further discussion on 2020 financing activities. Net cash used by the Company for financing activities was $806$397 million for 2017, including debt payments of $554 million and2019, driven by payment of $346$233 million of cash dividends. These cash outflows were partially offset by an increase in outstanding checks of $80 million. For 2017,
Secured Debt Issuance
On June 8, 2020, the Company issued $1,300 million aggregate principal amount of 8.375% senior secured notes due 2025 (the "Notes"). The Notes bear interest at a rate of 8.375% per annum, which accrues from June 8, 2020 and is payable in arrears on June 15 and December 15 of each year, commencing on December 15, 2020. The Notes mature on June 15, 2025, unless earlier redeemed or repurchased, approximately $247and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by Macy’s, Inc. and are secured on a first-priority basis by (i) a first mortgage/deed of trust in certain real property of subsidiaries of Macy’s, Inc. that was transferred to subsidiaries of Macy’s Propco Holdings, LLC, a newly created direct, wholly owned subsidiary of Macy’s, Inc. (“Propco”), and (ii) a pledge by Propco of the equity interests in its subsidiaries that own such transferred real property. The Notes are, jointly and severally, unconditionally guaranteed on a secured basis by Propco and its subsidiaries and unconditionally guaranteed on an unsecured basis by Macy’s Retail Holdings, LLC. (f/k/a Macy’s Retail Holdings, Inc.) (“MRH”), a direct, wholly owned subsidiary of Macy’s, Inc. The Company used the proceeds of the Notes offering, along with cash on hand, to repay the outstanding borrowings under the existing $1,500 million face valueunsecured credit agreement.
Entry into Asset-Based Credit Facility
On June 8, 2020, Macy’s Inventory Funding LLC (the “ABL Borrower”), an indirect wholly owned subsidiary of senior notesthe Company, and debentures. its parent, Macy’s Inventory Holdings LLC (the “ABL Parent”), entered into an asset-based credit agreement (the “ABL Credit Facility”) with Bank of America, N.A., as administrative agent and collateral agent, and the lenders party thereto. The ABL Credit Facility provides the ABL Borrower with (i) a $2,926 million revolving credit facility (the “Revolving ABL Facility”), including a swingline sub-facility and a letter of credit sub-facility, and (ii) a bridge revolving credit facility of up to $300 million (the “Bridge Facility”). The ABL Borrower may request increases in the size of the Revolving ABL Facility up to an additional aggregate principal amount of $750 million. As of August 1, 2020, the Company had $98 million of standby letters of credit outstanding under the ABL credit facility, which reduces the available borrowing capacity. The Company had no borrowings outstanding under the ABL credit facility as of August 1, 2020.
Additionally on June 8, 2020 and concurrently with closing the ABL Credit Facility, the ABL Borrower purchased all presently existing inventory, and assumed the liabilities in respect of all presently existing and outstanding trade payables owed to vendors in respect of such inventory, from MRH and certain wholly owned subsidiaries of MRH. The ABL Credit Facility is secured on a first priority basis (subject to customary exceptions) by (i) all assets of the ABL Borrower including all such inventory and the proceeds thereof and (ii) the equity of the ABL Borrower. The ABL Parent guaranteed the ABL Borrower’s obligations under the ABL Credit Facility. The Revolving ABL Facility matures on May 9, 2024, and the Bridge Facility matures on December 30, 2020.
The ABL Credit Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) 80% (which shall automatically increase to 90% upon the satisfaction of certain conditions, including the delivery of an initial appraisal of the inventory) of the net orderly liquidation percentage of eligible inventory, minus (b) customary reserves. Amounts borrowed under the ABL Credit Facility are subject to interest at a rate per annum equal to (i) prior to the Step Down Date (as defined in the ABL Credit Facility), at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.75% to 3.00% or (b) a base rate plus a margin of 1.75% to 2.00%, in each case depending on revolving line utilization and (ii) after the Step Down Date, at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.25% to 2.50% or (b) a base rate plus a margin of 1.25% to 1.50%, in each case depending on revolving line utilization. The ABL Credit Facility also contains customary covenants that provide for, among other things, limitations on indebtedness, liens, fundamental changes, restricted payments, cash hoarding, and prepayment of certain indebtedness as well as customary representations and warranties and events of default typical for credit facilities of this type.
The ABL Credit Facility also requires (1) the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any fiscal quarter on or after April 30, 2021 if (a) certain events of default have occurred and are continuing or (b) Availability plus Suppressed Availability (each as defined in the ABL Credit Facility) is less than the greater of (x) 10% of the Loan Cap (as defined in the ABL Credit Facility) and (y) $250 million, in each case, as of the end of such fiscal quarter and (2) prior to April 30, 2021, that the ABL Borrower not permit Availability plus Suppressed Availability to be lower than the greater of (x) 10% of the Loan Cap and (y) $250 million.
Amendment to Existing Credit Agreement
On June 8, 2020, the Company substantially reduced the credit commitments of its existing $1,500 million unsecured credit agreement, which now provides the Company with unsecured revolving credit of up to $25 million. The unsecured revolving credit facility contains covenants that provide for, among other things, limitations on fundamental changes, use of proceeds, and maintenance of property, as well as customary representations and warranties and events of default. In conjunction with this amendment, the interest coverage ratio and leverage ratio were eliminated as covenant requirements. As of August 1, 2020, the Company had no borrowings outstanding under the credit agreement.
Exchange Offers and Consent Solicitations for Certain Outstanding Debt Securities of Macy’s Retail Holdings, LLC
During the second quarter of 2017,2020, MRH completed exchange offers (each, an “Exchange Offer” and, collectively, the Company repaid at maturity $300“Exchange Offers”) with eligible holders and received related consents in consent solicitations for each series of notes as follows:
(i) $81 million of 7.45% senior debentures due July 2017.
Net cash used by the Company for financing activities was $469 million for 2016, including payment of $344 million of cash dividends, $230 million for the acquisition of the Company's common stock, primarily under its share repurchase program, and repayment of $174 million of debt. These outflows were partially offset by $31 million from the issuance of common stock, primarily related to the exercise of stock options.
On November 27, 2017, the Company commenced a cash tender offer ("tender offer") to purchase up to $400 million in aggregate principal amount of certain6.65% Senior Secured Debentures due 2024 (“New 2024 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.65% Senior Debentures due 2024 issued by MRH (“Old 2024 Notes”);
(ii) $74 million aggregate principal amount of 6.7% Senior Secured Debentures due 2028 (“New 2028 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2028 issued by MRH (“Old 2028 Notes”);
(iii) $13 million aggregate principal amount of 8.75% Senior Secured Debentures due 2029 (“New 2029 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 8.75% Senior Debentures due 2029 issued by MRH (“Old 2029 Notes”);
(iv) $5 million aggregate principal amount of 7.875% Senior Secured Debentures due 2030 (“New 2030 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 7.875% Senior Debentures due 2030 issued by MRH (“Old 2030 Notes”);
(v) $5 million aggregate principal amount of 6.9% Senior Secured Debentures due 2032 (“New 2032 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.9% Senior Debentures due 2032 issued by MRH (“Old 2032 Notes”); and
(vi) $183 million aggregate principal amount of 6.7% Senior Secured Debentures due 2034 (“New 2034 Notes” and, together with the New 2024 Notes, New 2028 Notes, New 2029 Notes, New 2030 Notes and New 2032 Notes, the “New Notes” and each series, a “series of New Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2034 issued by MRH (“Old 2034 Notes” and, together with the Old 2024 Notes, Old 2028 Notes, Old 2029 Notes, Old 2030 Notes and Old 2032 Notes, the “Old Notes” and each series, a “series of Old Notes”).
Each New Note issued in the Exchange Offers for a validly tendered Old Note has an interest rate and maturity date that is identical to the interest rate and maturity date of the tendered Old Note, as well as identical interest payment dates and optional redemption prices. The New Notes are MRH’s and Macy’s general, senior unsecured notesobligations and debentures, with stated interest rates ranging from 6.375% to 10.25% and maturities ranging from fiscal years 2021 to 2037. The tender offer expires on December 22, 2017, with an early tender date on December 8, 2017. The Company expects to record the redemption premium and other costs related to these repurchases as net premiums on early retirement of debtare secured by a second-priority lien on the Consolidated Statementssame collateral securing the Notes. Following the settlement, the aggregate principal amounts of Income duringeach series of Old Notes outstanding are: (i) $41 million Old 2024 Notes, (ii) $29 million Old 2028 Notes, (iii) $5 million Old 2030 Notes, (iv) $12 million Old 2032 Notes and (v) $18 million Old 2034 Notes.
In addition, MRH solicited and received consents from holders of each series of Old Notes (each, a “Consent Solicitation” and, collectively, the fourth quarter of 2017.
The Company is party“Consent Solicitations”) pursuant to a credit agreement withseparate Consent Solicitation Statement to adopt certain financial institutions providing for revolving credit borrowings and letters of creditproposed amendments to the indenture governing the Old Notes (the “Existing Indenture”) to conform certain provisions in an aggregate amount notthe negative pledge covenant in the Existing Indenture to exceed $1,500 million (which may be increased to $1,750 million at the optionprovisions of the Company, subject to the willingnessnegative pledge covenant in MRH’s most recent indenture (the “Proposed Amendments”). MRH received consents from holders of existing or new lenders to provide commitments for such additional financing)(i) $85 million aggregate principal amount of outstanding at any particular time. The agreement is set to expire May 6, 2021. AsOld 2024 Notes, (ii) $77 million aggregate principal amount of October 28, 2017, the Company did not have any borrowings or lettersoutstanding Old 2028 Notes, (iii) $13 million aggregate principal amount of credit outstanding under its credit facility.
The Company is party to a $1,500Old 2029 Notes, (iv) $5 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate principal amount of outstanding at any particular time not to exceed its then-current combined borrowing availability under its bank credit agreement. As of October 28, 2017, the Company did not have any borrowings outstanding under its commercial paper program.
As of October 28, 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 third quarter of 2017 was 7.92 and its leverage ratio at October 28, 2017 was 2.36, in each case as calculated in accordance with the credit agreement.
On October 27, 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 2, 2018, to Macy's shareholders of record at the close of business on December 15, 2017.
Old 2030
Notes, (v) $6 million aggregate principal amount of outstanding Old 2032 Notes, and (vi) $185 million aggregate principal amount of outstanding Old 2034 Notes.
Capital ResourcesContractual Obligations
Management believes that, with respect
As of August 1, 2020, other than the financing transactions discussed previously and in Note 7 to the Company's currentaccompanying Consolidated Financial Statements, there were no material changes to our contractual obligations and commitments outside the ordinary course of business since February 1, 2020, as reported in the 2019 Form 10-K.
Expectations
The Company expects the COVID-19 pandemic to have a material impact on its financial condition, results of operations and cash on hand and fundsflows from operations together with its credit facility and other capital resources, will be sufficient to coverin future periods. The extent of the impact of the COVID-19 pandemic on the Company's reasonably foreseeable working capital, capital expenditureoperational 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 levelsfinancial performance depends on future developments outside 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 timecontrol, including the duration and spread of the pandemic and related actions taken by federal, state and local government officials, and international governments to time exceed amounts that are needed to fund its immediate liquidity requirements,prevent disease spread. The following reflects the Company will consider alternative usesCompany's best estimate of some or all of such excess cash. Such alternative uses may include, among others,performance expectations for Fall Season andfiscal 2020 but acknowledges the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise,significant uncertainty surrounding consumer behavior and the funding of pension related obligations. Depending upon its actual and anticipated sources and uses of liquidity,economic 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 orenvironment. For a more complete discussion 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.
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 affectCOVID-19 pandemic related risks facing 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 relationbusiness, refer to the different types of merchandise that the Company offers for sale, or��Risk Factors” section included in relation to each of the Company's branded operations.Part II, Item 1A.
On November 9, 2017, the Company issued a press release to report its preliminary earnings for the third quarter of 2017 and reaffirmed its previously provided guidance for fiscal 2017. In summary, the Company expects comparable
•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 percentin the low to mid-20% range for Fall Season. Annual digital sales penetration is estimated in the mid-40% range.
•Credit card revenues as a percentage of net sales is expected to be relatively consistent with prior year Fall Season.
•Gross margin as a percentage of net sales is expected to improve during the third and 4.3 percent in fiscal 2017. Totalfourth quarters of 2020 as compared to the second quarter of 2020. Fall gross margin is expected to be mid-single-digit percentage points lower than prior year Fall Season.
•SG&A as a percentage of net sales for the Fall Season is expected to be low to mid-single digit percentage points higher than the prior year Fall Season.
•Gains on sale of real estate is estimated to be approximately $50 million for fiscal 2017 reflect a 53rd week, whereas comparable sales are on a 52-week basis. As previously announced in August 2017, the Company expects a 1 cent increase in adjusted earnings per diluted share due to the restructuring of the merchandising operations. The Company now expects adjusted earnings per diluted share of between $3.382020.
•Earnings before interest, taxes, depreciation and $3.63 in fiscal 2017,amortization, excluding the impact of certain items, is expected to improve from the anticipated settlement charges, restructuringsecond quarter of 2020 sequentially in the third quarter and other costs andfourth quarter.
•Interest expense, net premiums and fees associated with debt repurchases. Excludingis expected to be approximately $300 million for fiscal 2020.
•The effective tax rate, excluding the impact of the anticipated fourth quarter gain on the sale of the Union Square Men’s buildingcertain items, is expected to be 35% to 38% in San Francisco and the anticipated settlement charges, restructuring and other costs and net premiums and fees associated with debt repurchases, adjusted earnings per diluted share of $2.91 to $3.16fiscal 2020.
•Capital expenditures are expected into be approximately $450 million for fiscal 2017.2020.
Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP).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 and changes in comparable sales on an owned plus licensed basis, which includes the impact ofadjusting for 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 net income (loss) and diluted earnings (loss) per share attributable to Macy's, Inc. shareholders that are no longernot associated with the Company’s core operations and that may vary substantially in frequency and magnitude from 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., impairments, restructuring 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.
Changes in Comparable Sales
| | | | | | | | | | | | | | |
| | 13 Weeks Ended | | 26 Weeks Ended |
| | August 1, 2020 | | August 1, 2020 |
| | | | |
Decrease in comparable sales on an owned basis (Note 1) | | (34.7) | % | | (40.0) | % |
Comparable sales growth impact of departments licensed to third parties (Note 2) | | (0.4) | % | | (0.2) | % |
Decrease in comparable sales on an owned plus licensed basis | | (35.1) | % | | (40.2) | % |
| | | | |
| | 13 Weeks Ended | | 26 Weeks Ended |
| | August 3, 2019 | | August 3, 2019 |
| | | | |
Increase in comparable sales on an owned basis (Note 1) | | 0.2 | % | | 0.4 | % |
Comparable sales growth impact of departments licensed to third parties (Note 2) | | 0.1 | % | | 0.1 | % |
Increase in comparable sales on an owned plus licensed basis | | 0.3 | % | | 0.5 | % |
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 impacted by a natural disaster or undergoing significant expansion or shrinkage remain in the comparable sales calculation unless the store, or material portion of the store, is closed for a significant period of time. No stores have been excluded as a result of the COVID-19 pandemic. Definitions and calculations of comparable sales may 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 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 amounts of commissions earned on sales of departments licensed to third parties are not material to its net sales for the periods presented.
Change in Comparable Sales
Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) Per Share
The following is a tabular reconciliation of the non-GAAP financial measuremeasures of changes in comparable sales on an owned plus licensed basis,net income (loss) and diluted earnings (loss) per share, excluding certain items identified below, to GAAP comparable sales (i.e. on an owned basis),net income (loss) and diluted earnings (loss) per share, which the Company believes to be the most directly comparable GAAP financial measure.measures.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter of 2020 | | | | Second Quarter of 2019 | | |
| | | | | | | | |
| | Net Income (Loss) | | Diluted Earnings (Loss) Per Share | | Net Income | | Diluted Earnings Per Share |
As reported | | $ | (431) | | | $ | (1.39) | | | $ | 86 | | | $ | 0.28 | |
Restructuring, impairment and other costs (Note 3) | | 242 | | | 0.78 | | | 2 | | | — | |
Settlement charges | | 38 | | | 0.12 | | | — | | | — | |
Losses on early retirement of debt | | 3 | | | 0.01 | | | — | | | — | |
Income tax impact of certain items noted above | | (103) | | | (0.33) | | | — | | | — | |
As adjusted | | $ | (251) | | | $ | (0.81) | | | $ | 88 | | | $ | 0.28 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | | | 2019 | | |
| | Net Income (Loss) | | Diluted Earnings (Loss) Per Share | | Net Income | | Diluted Earnings Per Share |
As reported | | $ | (4,012) | | | $ | (12.91) | | | $ | 223 | | | $ | 0.71 | |
Impairment, restructuring and other costs | | 3,426 | | | 11.02 | | | 3 | | | 0.01 | |
Settlement charges | | 38 | | | 0.12 | | | — | | | — | |
Financing costs | | 3 | | | 0.01 | | | — | | | — | |
Income tax impact of certain items identified above (Note 3) | | (336) | | | (1.07) | | | (1) | | | — | |
As adjusted | | $ | (881) | | | $ | (2.83) | | | $ | 225 | | | $ | 0.72 | |
(3) The impact during the 13 and 26 weeks ended August 3, 2019 represents a value less than zero for net income or $0.01 per diluted share.
|
| | | | | | |
| | Third Quarter of 2017 | | Third Quarter of 2016 |
| | | | |
Decrease in comparable sales on an owned basis (note 1) | | (4.0 | )% | | (3.3 | )% |
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 | )% | | (2.7 | )% |
|
| | | | | | |
| | 2017 | | 2016 |
| | | | |
Decrease in comparable sales on an owned basis (note 1) | | (4.0 | )% | | (4.0 | )% |
Impact of growth in comparable sales of departments licensed to third parties (note 2) | | 0.4 | % | | 0.5 | % |
Decrease in comparable sales on an owned plus licensed basis | | (3.6 | )% | | (3.5 | )% |
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. |
Diluted Earnings Per Share AttributableCritical Accounting Policies
Goodwill and Intangible Assets
The Company reviews the carrying value of its goodwill and other intangible assets with indefinite lives at least annually, as of the end of fiscal May, or more frequently if an event occurs or circumstances change, for possible impairment in accordance with ASC Topic 350, Intangibles - Goodwill and Other. For impairment testing, goodwill has been assigned to reporting units which consist of the Company's retail operating divisions. Macy's Inc. Shareholders, Excluding Certain Itemsand bluemercury are the only reporting units with goodwill as of August 1, 2020, and 98% of the Company's goodwill is allocated to the Macy's reporting unit.
U.S. GAAP Accounting Methodologies
The followingCompany may elect to evaluate qualitative factors to determine if it is more likely than not that the fair value of a tabular reconciliationreporting unit or fair value of indefinite lived intangible assets is less than its carrying value. If the qualitative evaluation indicates that it is more likely than not that the fair value of a reporting unit or indefinite lived intangible asset is less than its carrying amount, a quantitative impairment test is required. Alternatively, the Company may bypass the qualitative assessment for a reporting unit or indefinite lived intangible asset and directly perform the quantitative assessment. This determination can be made on an individual reporting unit or asset basis, and performance of the non-GAAP financial measurequalitative assessment may resume in a subsequent period.
The quantitative impairment test involves estimating the fair value of dilutedeach reporting unit and indefinite lived intangible asset and comparing these estimated fair values with the respective reporting unit or indefinite lived intangible asset carrying value. If the carrying value of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to such excess, limited to the total amount of goodwill allocated to the reporting unit. If the carrying value of an individual indefinite lived intangible asset exceeds its fair value, such individual indefinite lived intangible asset is written down by an amount equal to such excess.
Estimating the fair values of reporting units and indefinite lived intangible assets involves the use of significant assumptions, estimates and judgments with respect to a variety of factors, including sales, gross margin and SG&A rates, capital expenditures, cash flows and the selection and use of an appropriate discount rate and market values and multiples of earnings per share attributableand revenues of similar public companies. Projected sales, gross margin and SG&A expense rate assumptions and capital expenditures are based on the Company's annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting unit or indefinite lived intangible asset.
The use of different assumptions, estimates or judgments in the goodwill impairment testing process, including with respect to Macy's, Inc. shareholders, excluding certain items,the estimated future cash flows of the Company's reporting units, the discount rate used to GAAP diluted earnings per share attributablediscount such estimated cash flows to Macy's, Inc., shareholders, whichtheir net present value, and the reasonableness of the resultant implied control premium relative to the Company's market capitalization, could materially increase or decrease the fair value of the reporting unit and/or its net assets and, accordingly, could materially increase or decrease any related impairment charge.
2020 Impairment Analysis
During the first quarter of 2020, as a result of the sustained decline in the Company's market capitalization and changes in the Company's long-term projections driven largely by the impacts of the COVID-19 pandemic, the Company believesdetermined a triggering event had occurred that required an interim impairment assessment for all of its reporting units and indefinite lived intangible assets. The Company determined the fair value of each of its reporting units using a market approach or a combination of a market approach and income approach, as appropriate. Relative to be the most directly comparable GAAP measure.prior assessment, as part of this current assessment, it was determined that an increase in the discount rate applied in the valuation was required to align with market-based assumptions and company-specific risk. This higher discount rate, in conjunction with revised long-term projections resulted in lower fair values of the reporting units. As a result, the Company recognized $2,982 million and $98 million of goodwill impairment for the Macy's and bluemercury reporting units, respectively, during the 26 weeks ended August 1, 2020.
As of May 2, 2020, the Company elected to perform a qualitative impairment test on its intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceeded the carrying values and the intangible assets with indefinite lives were not impaired.
For the Company's annual impairment assessment as of the end of fiscal May, the Company elected to perform a qualitative impairment test on its goodwill and intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceeded the carrying values and goodwill and intangible assets with indefinite lives were not impaired.
|
| | | | | | | | |
| | Third Quarter of 2017 | | Third Quarter of 2016 |
| | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders | | $ | .12 |
| | $ | .05 |
|
Add back the pre-tax impact of restructuring and other costs | | .11 |
| | — |
|
Add back the pre-tax impact of settlement charges | | .07 |
| | .20 |
|
Deduct the income tax impact of certain items identified above | | (.07 | ) | | (.08 | ) |
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding certain items | | $ | .23 |
| | $ | .17 |
|
|
| | | | | | | | |
| | 2017 | | 2016 |
| | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders | | $ | .73 |
| | $ | .46 |
|
Add back the pre-tax impact of impairments, restructuring and other costs | | .11 |
| | .80 |
|
Add back the pre-tax impact of settlement charges | | .24 |
| | .26 |
|
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 | | (.13 | ) | | (.41 | ) |
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding certain items | | $ | .95 |
| | $ | 1.11 |
|
Note:
| |
(1) | The impact during the 39 weeks ended October 28, 2017 represents a value less than $.01 per diluted share attributable to Macy’s, Inc. shareholders. |
The Company continues to monitor the key inputs to the fair values of its reporting units. A decline in market capitalization or future declines in macroeconomic factors or business conditions may result in additional impairment charges in future periods.
New Pronouncements
Accounting Pronouncements Recently Adopted
In May 2014, the FinancialSee Note 1, "Organization and Summary of Significant Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which establishes principles to report useful information to financial statements users about the nature, timing and uncertainty of revenue from contracts with customers. ASU No. 2014-09 along with various related amendments 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. The new standard and its related updates are effective for the Company beginning on February 4, 2018. On the effective date, the Company will apply the new 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 methods of adoption and has not yet decided on the method to be applied when the new revenue guidance is effective.
The Company currently estimates the material impacts to its consolidated financial statements to include gross presentation of its estimates for future sales returns and related recoverable assets, presenting income from credit operations as a separate component of revenue and recognizing revenue for online transactions upon shipment rather than delivery. In addition, the gains for certain real estate transactions will generally be recognized earlier than under current guidance due to consideration of the guidance in ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) and the new lease standard discussed below.
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 the majority 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 relatePolicies" 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.accompanying Consolidated Financial Statements.
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 related disclosures. The Company plans to adopt this standard on 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.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
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 20162019 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 20162019 10-K.
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Item 4. | Controls and Procedures. |
Item 4. Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer have carried out, as of October 28, 2017,August 1, 2020, 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 Securities and Exchange Act.Act of 1934 (the "Exchange Act"). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of October 28, 2017August 1, 2020, the Company's disclosure controls and procedures arewere 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.
ThereFrom time to time adoption of new accounting pronouncements, major organizational restructuring and realignment occurs for which the Company reviews its internal control over financial reporting. As a result of this review, 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.
PART II - OTHER INFORMATION
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Item 1. | Legal Proceedings. |
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.
ThereItem 1A. Risk Factors.
Except as set forth below, there have been no material changes to the Risk Factors described in Part I, "ItemItem 1A."Risk Factors" in the Company's 20162019 10-K.
The risk factor “The recent outbreak of COVID-19 may have a significant negative impact on the Company's business and financial results” is deleted and replaced as follows:
The recent outbreak of COVID-19 has had and will continue to have a significant negative impact on the Company’s business and financial results.
In December 2019, there was an outbreak of COVID-19 in China that has since spread to the other regions of the world. The outbreak was subsequently labeled as a global pandemic by the World Health Organization in March 2020. As the pandemic continues to spread throughout the United States, businesses as well as federal, state and local governments have implemented significant actions to attempt to mitigate this public health crisis. Although the ultimate severity of the COVID-19 outbreak is uncertain at this time, the pandemic has had and will continue to have adverse impacts on the Company’s financial condition and results of operations, including, but not limited to:
•On March 18, 2020, the Company temporarily closed all of its stores and subsequently furloughed the majority of its workforce. As different states and localities began to ease the regulations imposed to slow the spread of COVID-19, the Company began to reopen its stores and, as of August 1, 2020, substantially all of the Company’s stores have reopened. As a result of the COVID-19 pandemic, and particularly with the reopening of stores, the Company implemented safety measures and health and wellness precautions across its stores and facilities to mitigate risk to its customers and colleagues. These efforts to protect the health and well-being of customers and Company colleagues have resulted in, and will continue to result in, additional SG&A expenses. Recently, there has been a resurgence of COVID-19 in several states, which may negatively impact store performance in these areas as consumer shopping behaviors are impacted or government officials reinstate restrictions. Future outbreaks may continue to occur which could require the Company to close recently reopened stores. As a result, there can be no assurance as to whether recently reopened stores can remain open or whether further store closures may be required.
During the first and second quarters of 2020, the Company experienced significant reductions and volatility in demand for its retail products as customers were not able to purchase merchandise in stores due to quarantine or government or self-imposed restrictions placed on the Company’s stores’ operations. The shift in shopping patterns has also affected our inventory position and disrupted our supply chain. Additionally, social distancing measures or changes in consumer spending behaviors due to COVID-19 have impacted and may continue to impact traffic in stores after normal operations resume and could result in a loss of sales and profit.
In addition, the Company expects to be impacted by the deterioration in the economic conditions in North America, which could have an impact on discretionary consumer spending. In response to the disruption caused by the COVID-19 pandemic, the Company reconfigured its cost base through colleague reductions and reduced discretionary spending. While it is premature to accurately predict the ultimate impact of these developments, the Company expects its results of operations will be adversely impacted in a significant manner and such impacts could continue for an undetermined amount of time.
•The Company has experienced and may continue to experience temporary or long-term disruptions in its supply chain, as the outbreak has resulted in travel disruptions and has impacted manufacturing and distribution throughout the world. The receipt of products or raw material sourced from impacted areas has been and may continue to be slowed or disrupted in the coming months, which could impact the fulfillment of merchandise orders from the Company’s brand partners. Furthermore, transportation delays and cost increases, more extensive travel restrictions, closures or disruptions of businesses and facilities and social, economic, political or labor instability in the affected areas have impacted and may continue to impact the Company, its suppliers’ operations and its customers.
•The Company has been and may continue to be required to change its plan for inventory receipts, which could place financial pressure on its brand partners. Such actions may negatively impact relationships with brand partners or adversely impact their financial performance and position. If this occurs, current brand partners’ ability to meet their obligations to the Company may be impacted or the Company may also be required to identify new brand partner relationships.
•The Company’s liquidity has been negatively impacted by the store closures. While the Company has obtained additional financing, further actions may be required to improve the Company’s cash position, including but not limited to, monetizing Company assets, reinstituting colleague furloughs, and foregoing capital expenditures and other discretionary expenses. Failure to obtain any necessary additional financing or enhance the Company’s liquidity could lead to default on its current financing arrangements and impact the Company’s ability to meet its obligations as they come due.
The Company cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can it predict the severity and duration of its impact. As such, impacts of COVID-19 to the Company are highly uncertain and the Company will continue to assess the financial impacts. The disruption to the global economy and to the Company’s business may lead to triggering events that may indicate that the carrying value of certain assets, including inventories, long-lived assets, intangibles, and goodwill, may not be recoverable.
The impact of COVID-19 may also exacerbate other risks included in Part I, Item 1A. "Risk Factors" in the Company's 2019 10-K, any of which could be material. The situation is changing rapidly and future impacts may materialize that are not yet known. Even after the COVID-19 pandemic has subsided, the Company may continue to experience materially adverse impacts to the Company's business as a result of the virus' long-term economic impact, including adverse impacts on the business operations, liquidity and impacts of any recession that may occur in the future.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
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 2017.2020.
|
| | | | | | | | | | | |
| 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)($) |
| (thousands) | | | | (thousands) | | (millions) |
July 30, 2017 – August 26, 2017 | — |
| | — |
| | — |
| | 1,716 |
|
August 27, 2017 – September 30, 2017 | — |
| | — |
| | — |
| | 1,716 |
|
October 1, 2017 – October 28, 2017 | — |
| | — |
| | — |
| | 1,716 |
|
| — |
| | — |
| | — |
| | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share ($) | | 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) |
May 3, 2020 – May 30, 2020 | — | | | — | | | — | | | — | |
May 31, 2020 – July 4, 2020 | 3 | | | 7.29 | | | — | | | — | |
July 5, 2020 – August 1, 2020 | — | | | — | | | — | | | — | |
| 3 | | | 7.29 | | | — | | | |
___________________
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(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 October 28, 2017. All authorizations are cumulative and do not have an expiration date. As of October 28, 2017, $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.
|
(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 February 2, 2020, $1,716 million of authorization remained unused. On March 26, 2020, the Company's Board of Directors rescinded its authorization of the remaining unused amount.
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Item 5. | Other Information. |
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 effects of the weather, natural disasters, and health pandemics, including the COVID-19 pandemic, on the Company’s business, including the ability to open stores, customer demand and its supply chain, as well as its consolidated results of operations, financial position and cash flows;
•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,•the Company’s ability to successfully implement its Polaris strategy, including the Internet, catalogs and television;
the Company's ability to remain competitiverealize the anticipated benefits within the expected time frame or at all;
•the success of the Company’s operational decisions, such as product sourcing, merchandise mix and relevantpricing, and marketing, and strategic initiatives, such as consumers' shopping behaviors migrate to other shopping channels;Growth stores, Backstage on-mall off-price business, and vendor direct expansion;
•general consumer-spending levels, including the impact of changes in general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, and the costs of basic necessities and other goodsgoods;
•competitive pressures from department stores, specialty stores, general merchandise stores, manufacturers’ outlets, off-price and discount stores, and all other retail channels, including the effectsInternet, catalogs and television;
•the Company’s ability to remain competitive and relevant as consumers’ shopping behaviors migrate to other shopping channels and to maintain its brand and reputation;
•possible systems failures and/or security breaches, including any security breach that results in the theft, transfer or unauthorized disclosure of customer, colleague or company information, or the failure to comply with various laws applicable to the Company in the event of such a breach;
•the cost of colleague benefits as well as attracting and retaining quality colleagues;
•transactions and strategy involving the Company's real estate portfolio;
•the seasonal nature of the weather or natural disasters;Company's business;
•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 successpotential for the incurrence of charges in connection with the Company's operational decisions (e.g., product curation, marketing programs) and strategic initiatives; impairment of intangible assets, including goodwill;
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;
•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'sCompany’s reliance on foreign sources of production, including risks related to the disruption of imports by labor disputes, regional and global health pandemics, and regional political and economic conditions; and
•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.imports.
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 this report and 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.
Item 6. Exhibits.
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31.14.1 | | |
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4.2 | | |
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4.3 | | First Supplemental Indenture to 1991 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020) |
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4.4 | | Second Supplemental Indenture to 1991 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020) |
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4.5 | | |
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4.6 | | | |
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4.7 | | | Second Supplemental Indenture to 1996 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020) |
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4.8 | | | Third Supplemental Indenture to 1996 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.8 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020) |
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4.9 | | | |
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4.10 | | | |
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4.11 | | | Seventh Supplement Indenture to 2006 Indenture dated as of May 28, 2020 among Macy's Retail Holdings, Inc., a Delaware corporation (as successor to Macy's Retail Holdings, Inc., a New York corporation), Macy's, Inc. and U.S. Bank National Association, as Trustee(incorporated by reference to Exhibit 4.11 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020)(incorporated by reference to Exhibit 4.11 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020) |
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4.12 | | | |
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4.13 | | | Eighth Supplemental Indenture to 2012 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.13 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020) |
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4.14 | | | Ninth Supplemental Indenture to 2012 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.14 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020) |
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4.15 | | | Third Supplemental Indenture to 1991 Indenture dated as of June 26, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.15 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020) |
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4.16 | | | |
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4.17 | | | Fourth Supplemental Indenture to 1996 Indenture dated as of June 26, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.17 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020) |
4.18 | | | |
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4.19 | | | |
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4.20 | | | Tenth Supplemental Indenture to 2012 Indenture dated as of June 26, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.20 to the Company’s Quarterly Report on Form 10-Q (File No. 1-13536) for the quarter ended May 2, 2020) |
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4.21 | | | Indenture, dated as of July 28, 2020, among Macy’s Retail Holdings, LLC, as issuer, Macy’s, Inc., as guarantor, and U.S. Bank National Association, as trustee and collateral trustee, relating to Macy’s Retail Holdings, LLC’s 6.65% Senior Secured Debentures due 2024, 6.7% Senior Secured Debentures due 2028, 8.75% Senior Secured Debentures due 2029, 7.875% Senior Secured Debentures due 2030, 6.9% Senior Secured Debentures due 2032 and 6.7% Senior Secured Debentures due 2034 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed July 28, 2020) |
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4.22 | | | |
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4.23 | | | Fifth Supplemental Trust Indenture to 1996 Indenture, dated as of July 10, 2020, among Macy’s Retail Holdings, LLC, as issuer, Macy’s, Inc. as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Macy’s Retail Holdings, LLC’s 6.65% Senior Debentures due 2024, 6.7% Senior Debentures due 2028, 8.75% Senior Debentures due 2029, 7.875% Senior Debentures due 2030, 6.9% Senior Debentures due 2032 and 6.7% Senior Debentures due 2034 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed July 28, 2020) |
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10.1 | | Credit Agreement, dated as of June 8, 2020, among Macy’s Inventory Funding LLC, as the Borrower, Macy’s Inventory Holdings LLC, as Parent, Bank of America, N.A., as Agent, L/C Issuer and Swing Line Lender, the other lenders party thereto, BofA Securities, Inc., Credit Suisse Loan Funding LLC, JPMorgan Chase Bank, N.A., Fifth Third Bank, National Association, MUFG Union Bank, N.A., PNC Capital Markets LLC and Wells Fargo Bank, National Association, as Joint Lead Arrangers and Joint Bookrunners, Credit Suisse Loan Funding LLC and JPMorgan Chase Bank, N.A., as Co-Syndication Agents and Fifth Third Bank, National Association, MUFG Union Bank, N.A., as Co-Syndication Agents and Fifth Third Bank, National Association, MUFG Union Bank, N.A., PNC Bank, National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 9, 2020) |
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10.2 | | Amendment No. 1 to Credit Agreement dated as of June 8, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (f/k/a Macy’s Retail Holdings, Inc.), as Borrower, Macy’s, Inc., a Delaware corporation, as Parent, the Lenders party thereto, and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 9, 2020) |
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10.3 | | | |
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31.1 | | | |
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31.2 | | | |
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32.1 | | | |
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32.2 | | | |
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101 | | | The following financial statements from Macy's, Inc.'s Quarterly Report on Form 10-Q for the quarter ended October 28, 2017,August 1, 2020, filed on December 4, 2017,September 3, 2020, are formatted in XBRL:iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Income,Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (v)(vi) the Notes to Consolidated Financial Statements. |
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104 | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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*Constitutes a compensatory plan or arrangement.
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.
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| MACY’S, INC. | |
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| MACY’S, INC. |
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| By: | /s/ ELISA D. GARCIA |
| | Elisa D. Garcia Executive Vice President, Chief Legal Officer and Secretary
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| By: | /s/ FELICIA WILLIAMSPAUL GRISCOM |
| | Felicia Williams
ExecutivePaul Griscom Senior Vice President Controller and Enterprise Risk
(Principal Accounting Officer) Controller |
Date: December 4, 2017September 3, 2020