UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
EXCHANGE ACT OF 1934
For the quarterly period ended NovemberAugust 3, 20182019
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)
|
| | | | | |
Incorporated in Delaware | | 13-3324058 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No. |
) | | 13-3324058 |
7 West Seventh Street
, Cincinnati, Ohio45202
(513) 579-7000
and
151 West 34th Street,
New York, New York 10001
(Address of Principal Executive Offices, including Zip Code)
(513) 579-7000 and (212) 494-1602
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value per share | M | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐Emerging growth company ☐ |
| | | | | | | | |
Large accelerated filer ý
| | Accelerated filer o
| | Non-accelerated filer o
| | Smaller reporting company o
| | Emerging growth company o
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
| | |
Class | | Outstanding at December 1, 2018August 3, 2019 |
Common Stock, $0.01$.01 par value per share | | 307,467,240308,914,893 shares |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MACY’S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(millions, except per share figures)
| | | | | | | | | | | | | | | | |
| 13 Weeks Ended | | 39 Weeks Ended | 13 Weeks Ended | | 26 Weeks Ended |
| November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 | August 3, 2019 | | August 4, 2018 | | August 3, 2019 | | August 4, 2018 |
Net sales | $ | 5,404 |
| | $ | 5,281 |
| | $ | 16,516 |
| | $ | 16,267 |
| $ | 5,546 |
| | $ | 5,572 |
| | $ | 11,050 |
| | $ | 11,112 |
|
Credit card revenues, net | 185 |
| | 145 |
| | 528 |
| | 473 |
| 176 |
| | 186 |
| | 348 |
| | 343 |
|
| | | | | | | | | | | | | | |
Cost of sales | (3,226 | ) | | (3,152 | ) | | (9,927 | ) | | (9,858 | ) | (3,395 | ) | | (3,320 | ) | | (6,798 | ) | | (6,701 | ) |
Selling, general and administrative expenses | (2,255 | ) | | (2,188 | ) | | (6,501 | ) | | (6,406 | ) | (2,177 | ) | | (2,164 | ) | | (4,287 | ) | | (4,247 | ) |
Gains on sale of real estate | 42 |
| | 65 |
| | 111 |
| | 176 |
| 7 |
| | 46 |
| | 49 |
| | 70 |
|
Impairment, restructuring and other costs | (3 | ) | | (33 | ) | | (39 | ) | | (33 | ) | |
Impairment and other costs | | (2 | ) | | (17 | ) | | (3 | ) | | (36 | ) |
Operating income | 147 |
| | 118 |
| | 688 |
| | 619 |
| 155 |
| | 303 |
| | 359 |
| | 541 |
|
Benefit plan income, net | 9 |
| | 15 |
| | 31 |
| | 42 |
| 8 |
| | 11 |
| | 15 |
| | 22 |
|
Settlement charges | (23 | ) | | (22 | ) | | (73 | ) | | (73 | ) | — |
| | (50 | ) | | — |
| | (50 | ) |
Interest expense | (64 | ) | | (76 | ) | | (204 | ) | | (244 | ) | (52 | ) | | (69 | ) | | (106 | ) | | (140 | ) |
Losses on early retirement of debt | — |
| | — |
| | (5 | ) | | (1 | ) | — |
| | (5 | ) | | — |
| | (5 | ) |
Interest income | 5 |
| | 2 |
| | 17 |
| | 7 |
| 5 |
| | 7 |
| | 12 |
| | 12 |
|
Income before income taxes | 74 |
| | 37 |
| | 454 |
| | 350 |
| 116 |
| | 197 |
| | 280 |
| | 380 |
|
Federal, state and local income tax expense | (12 | ) | | (10 | ) | | (96 | ) | | (138 | ) | (30 | ) | | (33 | ) | | (57 | ) | | (84 | ) |
Net income | 62 |
| | 27 |
| | 358 |
| | 212 |
| 86 |
| | 164 |
| | 223 |
| | 296 |
|
Net loss attributable to noncontrolling interest | — |
| | 3 |
| | 10 |
| | 7 |
| — |
| | 2 |
| | — |
| | 10 |
|
Net income attributable to Macy's, Inc. shareholders | $ | 62 |
| | $ | 30 |
| | $ | 368 |
| | $ | 219 |
| $ | 86 |
| | $ | 166 |
| | $ | 223 |
| | $ | 306 |
|
Basic earnings per share attributable to Macy's, Inc. shareholders | $ | 0.20 |
| | $ | 0.10 |
| | $ | 1.20 |
| | $ | 0.72 |
| $ | 0.28 |
| | $ | 0.54 |
| | $ | 0.72 |
| | $ | 0.99 |
|
Diluted earnings per share attributable to Macy's, Inc. shareholders | $ | 0.20 |
| | $ | 0.10 |
| | $ | 1.18 |
| | $ | 0.71 |
| $ | 0.28 |
| | $ | 0.53 |
| | $ | 0.71 |
| | $ | 0.98 |
|
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 |
| November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Net income | $ | 62 |
| | $ | 27 |
| | $ | 358 |
| | $ | 212 |
|
Other comprehensive income (loss): | | | | | | | |
Actuarial gain (loss) on post employment and postretirement benefit plans, before tax | (164 | ) | | 10 |
| | (194 | ) | | 57 |
|
Reclassifications to net income: | | | | | | | |
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax | 7 |
| | 8 |
| | 25 |
| | 26 |
|
Settlement charges, before tax | 23 |
| | 22 |
| | 73 |
| | 73 |
|
Tax effect related to items of other comprehensive income (loss) | 35 |
| | (15 | ) | | 24 |
| | (60 | ) |
Total other comprehensive income (loss), net of tax effect | (99 | ) | | 25 |
| | (72 | ) | | 96 |
|
Comprehensive income (loss) | (37 | ) | | 52 |
| | 286 |
| | 308 |
|
Comprehensive loss attributable to noncontrolling interest | — |
| | 3 |
| | 10 |
| | 7 |
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders | $ | (37 | ) | | $ | 55 |
| | $ | 296 |
| | $ | 315 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(millions)
|
| | | | | | | | | | | |
| | | | | |
| November 3, 2018 | | February 3, 2018 | | October 28, 2017 |
ASSETS | | | | | |
Current Assets: | | | | | |
Cash and cash equivalents | $ | 736 |
| | $ | 1,455 |
| | $ | 534 |
|
Receivables | 180 |
| | 363 |
| | 219 |
|
Merchandise inventories | 7,147 |
| | 5,178 |
| | 7,065 |
|
Income tax receivable | 10 |
| | — |
| | — |
|
Prepaid expenses and other current assets | 594 |
| | 650 |
| | 610 |
|
Total Current Assets | 8,667 |
| | 7,646 |
| | 8,428 |
|
Property and Equipment - net of accumulated depreciation and amortization of $5,084, $4,610 and $5,330 | 6,572 |
| | 6,672 |
| | 6,742 |
|
Goodwill | 3,908 |
| | 3,897 |
| | 3,897 |
|
Other Intangible Assets – net | 481 |
| | 488 |
| | 491 |
|
Other Assets | 733 |
| | 880 |
| | 835 |
|
Total Assets | $ | 20,361 |
| | $ | 19,583 |
| | $ | 20,393 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current Liabilities: | | | | | |
Short-term debt | $ | 65 |
| | $ | 22 |
| | $ | 22 |
|
Merchandise accounts payable | 3,381 |
| | 1,590 |
| | 3,173 |
|
Accounts payable and accrued liabilities | 2,998 |
| | 3,271 |
| | 3,257 |
|
Income taxes | — |
| | 296 |
| | 34 |
|
Total Current Liabilities | 6,444 |
| | 5,179 |
| | 6,486 |
|
Long-Term Debt | 5,469 |
| | 5,861 |
| | 6,297 |
|
Deferred Income Taxes | 1,185 |
| | 1,148 |
| | 1,586 |
|
Other Liabilities | 1,618 |
| | 1,662 |
| | 1,750 |
|
Shareholders' Equity: | | | | | |
Macy's, Inc. | 5,667 |
| | 5,745 |
| | 4,282 |
|
Noncontrolling interest | (22 | ) | | (12 | ) | | (8 | ) |
Total Shareholders’ Equity | 5,645 |
| | 5,733 |
| | 4,274 |
|
Total Liabilities and Shareholders’ Equity | $ | 20,361 |
| | $ | 19,583 |
| | $ | 20,393 |
|
|
| | | | | | | | | | | | | | | |
| | | | | | | |
| 13 Weeks Ended | | 26 Weeks Ended |
| August 3, 2019 | | August 4, 2018 | | August 3, 2019 | | August 4, 2018 |
Net income | $ | 86 |
| | $ | 164 |
| | $ | 223 |
| | $ | 296 |
|
Other comprehensive income (loss): | | | | | | | |
Actuarial gain (loss) on post employment and postretirement benefit plans, before tax | — |
| | (29 | ) | | — |
| | (29 | ) |
Reclassifications to net income: | | | | | | | |
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax | 7 |
| | 9 |
| | 15 |
| | 18 |
|
Settlement charges, before tax | — |
| | 50 |
| | — |
| | 50 |
|
Tax effect related to items of other comprehensive income (loss) | (2 | ) | | (10 | ) | | (4 | ) | | (12 | ) |
Total other comprehensive income, net of tax effect | 5 |
| | 20 |
| | 11 |
| | 27 |
|
Comprehensive income | 91 |
| | 184 |
| | 234 |
| | 323 |
|
Comprehensive loss attributable to noncontrolling interest | — |
| | 2 |
| | — |
| | 10 |
|
Comprehensive income attributable to Macy's, Inc. shareholders | $ | 91 |
| | $ | 186 |
| | $ | 234 |
| | $ | 333 |
|
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 |
| November 3, 2018 | | October 28, 2017 |
Cash flows from operating activities: | | | |
Net income | $ | 358 |
| | $ | 212 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Impairment, restructuring and other costs | 39 |
| | 33 |
|
Settlement charges | 73 |
| | 73 |
|
Depreciation and amortization | 718 |
| | 741 |
|
Stock-based compensation expense | 48 |
| | 46 |
|
Gains on sale of real estate | (111 | ) | | (176 | ) |
Amortization of financing costs and premium on acquired debt | (5 | ) | | (10 | ) |
Changes in assets and liabilities: | | | |
Decrease in receivables | 163 |
| | 274 |
|
Increase in merchandise inventories | (1,969 | ) | | (1,665 | ) |
Decrease in prepaid expenses and other current assets | 16 |
| | 34 |
|
Increase in merchandise accounts payable | 1,664 |
| | 1,630 |
|
Decrease in accounts payable, accrued liabilities and other items not separately identified | (196 | ) | | (412 | ) |
Decrease in current income taxes | (301 | ) | | (321 | ) |
Increase in deferred income taxes | 62 |
| | 47 |
|
Change in other assets and liabilities not separately identified | (130 | ) | | (107 | ) |
Net cash provided by operating activities | 429 |
| | 399 |
|
Cash flows from investing activities: | | | |
Purchase of property and equipment | (468 | ) | | (359 | ) |
Additions to capitalized software | (209 | ) | | (191 | ) |
Disposition of property and equipment | 121 |
| | 212 |
|
Other, net | 7 |
| | 9 |
|
Net cash used by investing activities | (549 | ) | | (329 | ) |
Cash flows from financing activities: | | | |
Debt repaid | (361 | ) | | (564 | ) |
Dividends paid | (347 | ) | | (346 | ) |
Increase in outstanding checks | 44 |
| | 80 |
|
Acquisition of treasury stock | — |
| | (1 | ) |
Issuance of common stock | 41 |
| | 3 |
|
Proceeds from noncontrolling interest | 7 |
| | 12 |
|
Net cash used by financing activities | (616 | ) | | (816 | ) |
Net decrease in cash, cash equivalents and restricted cash | (736 | ) | | (746 | ) |
Cash, cash equivalents and restricted cash beginning of period | 1,513 |
| | 1,334 |
|
Cash, cash equivalents and restricted cash end of period | $ | 777 |
| | $ | 588 |
|
Supplemental cash flow information: | | | |
Interest paid | $ | 213 |
| | $ | 251 |
|
Interest received | 17 |
| | 7 |
|
Income taxes paid (net of refunds received) | 335 |
| | 412 |
|
|
| | | | | | | | | | | |
| | | | | |
| August 3, 2019 | | February 2, 2019 | | August 4, 2018 |
ASSETS | | | | | |
Current Assets: | | | | | |
Cash and cash equivalents | $ | 674 |
| | $ | 1,162 |
| | $ | 1,068 |
|
Receivables | 240 |
| | 400 |
| | 261 |
|
Merchandise inventories | 5,029 |
| | 5,263 |
| | 4,956 |
|
Prepaid expenses and other current assets | 603 |
| | 620 |
| | 580 |
|
Total Current Assets | 6,546 |
| | 7,445 |
| | 6,865 |
|
Property and Equipment - net of accumulated depreciation and amortization of $4,748, $4,495 and $4,914 | 6,483 |
| | 6,637 |
| | 6,547 |
|
Right of Use Assets | 2,636 |
| | — |
| | — |
|
Goodwill | 3,908 |
| | 3,908 |
| | 3,908 |
|
Other Intangible Assets – net | 440 |
| | 478 |
| | 483 |
|
Other Assets | 728 |
| | 726 |
| | 865 |
|
Total Assets | $ | 20,741 |
| | $ | 19,194 |
| | $ | 18,668 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current Liabilities: | | | | | |
Short-term debt | $ | 6 |
| | $ | 43 |
| | $ | 63 |
|
Merchandise accounts payable | 1,674 |
| | 1,655 |
| | 1,795 |
|
Accounts payable and accrued liabilities | 2,739 |
| | 3,366 |
| | 2,608 |
|
Income taxes | 20 |
| | 168 |
| | 15 |
|
Total Current Liabilities | 4,439 |
| | 5,232 |
| | 4,481 |
|
Long-Term Debt | 4,680 |
| | 4,708 |
| | 5,473 |
|
Long-Term Lease Liabilities | 2,836 |
| | — |
| | — |
|
Deferred Income Taxes | 1,206 |
| | 1,238 |
| | 1,194 |
|
Other Liabilities | 1,265 |
| | 1,580 |
| | 1,626 |
|
Shareholders' Equity: | | | | | |
Macy's, Inc. | 6,315 |
| | 6,436 |
| | 5,916 |
|
Noncontrolling interest | — |
| | — |
| | (22 | ) |
Total Shareholders’ Equity | 6,315 |
| | 6,436 |
| | 5,894 |
|
Total Liabilities and Shareholders’ Equity | $ | 20,741 |
| | $ | 19,194 |
| | $ | 18,668 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Equity | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders' Equity |
Balance at February 2, 2019 | $ | 3 |
| | $ | 652 |
| | $ | 8,050 |
| | $ | (1,318 | ) | | $ | (951 | ) | | $ | 6,436 |
|
Cumulative-effect adjustment (a) | | | | | (158 | ) | | | | | | (158 | ) |
Net income | | | | | 136 |
| | | | | | 136 |
|
Other comprehensive income | | | | | | | | | 6 |
| | 6 |
|
Common stock dividends ($0.3775 per share) | | | | | (117 | ) | | | | | | (117 | ) |
Stock-based compensation expense | | | 14 |
| | | | | | | | 14 |
|
Stock issued under stock plans | | | (60 | ) | | | | 66 |
| | | | 6 |
|
Balance at May 4, 2019 | 3 |
| | 606 |
| | 7,911 |
| | (1,252 | ) | | (945 | ) | | 6,323 |
|
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 |
|
(a) Represents the cumulative-effect adjustment to retained earnings for the adoption of Accounting Standards Update 2016-02 (ASU-2016-02), Leases (Topic 842), on February 3, 2019.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Equity | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Macy's, Inc. Shareholders’ Equity | | Non-controlling Interest | | Total Shareholders' Equity |
Balance at February 3, 2018 | $ | 3 |
| | $ | 676 |
| | $ | 7,246 |
| | $ | (1,456 | ) | | $ | (724 | ) | | $ | 5,745 |
| | $ | (12 | ) | | $ | 5,733 |
|
Net income (loss) | | | | | 139 |
| | | | | | 139 |
| | (8 | ) | | 131 |
|
Other comprehensive income | | | | | | | | | 7 |
| | 7 |
| | | | 7 |
|
Common stock dividends ($0.3775 per share) | | | | | (116 | ) | | | | | | (116 | ) | | | | (116 | ) |
Stock-based compensation expense | | | 17 |
| | | | | | | | 17 |
| | | | 17 |
|
Stock issued under stock plans | | | (51 | ) | | | | 80 |
| | | | 29 |
| | | | 29 |
|
Stranded tax costs (b) | | | | | 164 |
| | | | (164 | ) | | — |
| | | | — |
|
Balance at May 5, 2018 | 3 |
| | 642 |
| | 7,433 |
| | (1,376 | ) | | (881 | ) | | 5,821 |
| | (20 | ) | | 5,801 |
|
Net income (loss) | | | | | 166 |
| | | | | | 166 |
| | (2 | ) | | 164 |
|
Other comprehensive income | | | | | | | | | 20 |
| | 20 |
| | | | 20 |
|
Common stock dividends ($0.3775 per share) | | | | | (116 | ) | | | | | | (116 | ) | | | | (116 | ) |
Stock-based compensation expense | | | 15 |
| | | | | | | | 15 |
| | | | 15 |
|
Stock issued under stock plans | | | (21 | ) | | | | 31 |
| | | | 10 |
| | | | 10 |
|
Balance at August 4, 2018 | $ | 3 |
| | $ | 636 |
| | $ | 7,483 |
| | $ | (1,345 | ) | | $ | (861 | ) | | $ | 5,916 |
| | $ | (22 | ) | | $ | 5,894 |
|
(b) Represents the reclassification of stranded tax effects to retained earnings as a result of U.S. federal tax reform.
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions)
|
| | | | | | | |
| | | |
| 26 Weeks Ended |
| August 3, 2019 | | August 4, 2018 |
Cash flows from operating activities: | | | |
Net income | $ | 223 |
| | $ | 296 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Impairment and other costs | 3 |
| | 36 |
|
Settlement charges | — |
| | 50 |
|
Depreciation and amortization | 472 |
| | 470 |
|
Stock-based compensation expense | 28 |
| | 31 |
|
Gains on sale of real estate | (49 | ) | | (70 | ) |
Deferred income taxes | 17 |
| | 36 |
|
Benefit plans | 15 |
| | 18 |
|
Amortization of financing costs and premium on acquired debt | 1 |
| | (5 | ) |
Changes in assets and liabilities: | | | |
Decrease in receivables | 160 |
| | 88 |
|
Decrease in merchandise inventories | 234 |
| | 221 |
|
Decrease in prepaid expenses and other current assets | 19 |
| | 29 |
|
Increase in merchandise accounts payable | 55 |
| | 219 |
|
Decrease in accounts payable and accrued liabilities
| (619 | ) | | (510 | ) |
Decrease in current income taxes | (149 | ) | | (271 | ) |
Change in other assets and liabilities | (60 | ) | | (94 | ) |
Net cash provided by operating activities | 350 |
| | 544 |
|
Cash flows from investing activities: | | | |
Purchase of property and equipment | (378 | ) | | (275 | ) |
Capitalized software | (123 | ) | | (133 | ) |
Disposition of property and equipment | 59 |
| | 88 |
|
Other, net | (12 | ) | | 8 |
|
Net cash used by investing activities | (454 | ) | | (312 | ) |
Cash flows from financing activities: | | | |
Debt issuance costs | (3 | ) | | — |
|
Debt repaid | (39 | ) | | (357 | ) |
Dividends paid | (233 | ) | | (232 | ) |
Decrease in outstanding checks | (128 | ) | | (90 | ) |
Issuance of common stock | 6 |
| | 38 |
|
Proceeds from noncontrolling interest | — |
| | 5 |
|
Net cash used by financing activities | (397 | ) | | (636 | ) |
Net decrease in cash, cash equivalents and restricted cash | (501 | ) | | (404 | ) |
Cash, cash equivalents and restricted cash beginning of period | 1,248 |
| | 1,513 |
|
Cash, cash equivalents and restricted cash end of period | $ | 747 |
| | $ | 1,109 |
|
Supplemental cash flow information: | | | |
Interest paid | $ | 107 |
| | $ | 156 |
|
Interest received | 12 |
| | 11 |
|
Income taxes paid (net of refunds received) | 189 |
| | 319 |
|
Note: Restricted cash of $73 million and $41 million have been included with cash and cash equivalents for the 26 weeks ended August 3, 2019 and August 4, 2018, 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 kids)kids'), cosmetics, home furnishings and other consumer goods. The Company operates approximately 870has stores in 4443 states, the District of Columbia, Guam and Puerto Rico. As of NovemberAugust 3, 2018,2019, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage bluemercury and STORY.bluemercury.
Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 20182, 2019 (the "2017"2018 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 20172018 10-K.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the 13 and 3926 weeks ended NovemberAugust 3, 20182019 and October 28, 2017August 4, 2018, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Seasonality
Because of the seasonal nature of the retail business, the results of operations for the 13 and 3926 weeks ended NovemberAugust 3, 20182019 and October 28, 2017August 4, 2018 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Reclassifications
Certain reclassifications were made to prior years’ amounts to conform to the classifications of such amounts in the most recent years and adoption of new accounting standards as discussed in more detail below.years.
Comprehensive Income
Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other components of total comprehensive income for the 13 and 3926 weeks ended NovemberAugust 3, 20182019 and October 28, 2017August 4, 2018 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of income before income taxes in the Consolidated Statements of Income. Amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in benefit plan income, net on the Consolidated Statements of Income. See Note 4,6, "Benefit Plans," for further information.
Newly Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, which requires lessees to recognize substantially all leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The new standard was adopted by the Company on February 3, 2019 utilizing a modified retrospective approach that allowed for transition in the period of adoption. The Company adopted the package of practical expedients available at transition that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. Contracts entered into prior to adoption were not reassessed for leases or embedded leases. Upon adoption, the Company used hindsight in determining lease term and impairment. For lease and non-lease components, the Company has elected to account for both as a single lease component.
Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $2,519 million and $2,728 million, respectively, as of February 3, 2019. The difference of $209 million between the additional net lease assets and lease liabilities, net of the deferred tax impact of $54 million, was recorded as an adjustment to retained earnings. Prepaid rent, intangible lease assets, finance lease assets, and accrued and deferred rent as of February 3, 2019 were recorded as part of the ROU asset. Finance lease obligations as of February 3, 2019 were recorded as part of the lease liabilities. The standard did not materially impact the Company's consolidated net income and had no impact on cash flows.
2. Earnings Per Share Attributable to Macy's, Inc. Shareholders
The following tables set forth the computation of basic and diluted earnings per share attributable to Macy's, Inc. shareholders:
|
| | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended |
| August 3, 2019 | | August 4, 2018 |
| Net Income | | | | Shares | | Net Income | | | | Shares |
| (millions, except per share data) |
Net income attributable to Macy's, Inc. shareholders and average number of shares outstanding | $ | 86 |
| | | | 308.9 |
| | $ | 166 |
| | | | 306.8 |
|
Shares to be issued under deferred compensation and other plans | | | | | 0.9 |
| | | | | | 0.9 |
|
| $ | 86 |
| | | | 309.8 |
| | $ | 166 |
| | | | 307.7 |
|
Basic earnings per share attributable to Macy's, Inc. shareholders | | | $ | 0.28 |
| | | | | | $ | 0.54 |
| | |
Effect of dilutive securities: | | | | | | | | | | | |
Stock options, restricted stock and restricted stock units | | | | | 1.8 |
| | | | | | 4.3 |
|
| $ | 86 |
| | | | 311.6 |
| | $ | 166 |
| | | | 312.0 |
|
Diluted earnings per share attributable to Macy's, Inc. shareholders | | | $ | 0.28 |
| | | | | | $ | 0.53 |
| | |
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | |
| 26 Weeks Ended |
| August 3, 2019 | | August 4, 2018 |
| Net Income | | | | Shares | | Net Income | | | | Shares |
| (millions, except per share data) |
Net income attributable to Macy's, Inc. shareholders and average number of shares outstanding | $ | 223 |
| | | | 308.6 |
| | $ | 306 |
| | | | 306.2 |
|
Shares to be issued under deferred compensation and other plans | | | | | 0.9 |
| | | | | | 0.9 |
|
| $ | 223 |
| | | | 309.5 |
| | $ | 306 |
| | | | 307.1 |
|
Basic earnings per share attributable to Macy's, Inc. shareholders | | | $ | 0.72 |
| | | | | | $ | 0.99 |
| | |
Effect of dilutive securities: | | | | | | | | | | | |
Stock options, restricted stock and restricted stock units | | | | | 2.0 |
| | | | | | 3.6 |
|
| $ | 223 |
| | | | 311.5 |
| | $ | 306 |
| | | | 310.7 |
|
Diluted earnings per share attributable to Macy's, Inc. shareholders | | | $ | 0.71 |
| | | | | | $ | 0.98 |
| | |
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 1.3 million shares of common stock were outstanding at 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.
In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 12.8 million shares of common stock and restricted stock units relating to 1.4 million shares of common stock were outstanding at August 4, 2018, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
3. Revenue
Net sales
Revenue is recognized when customers obtain control of goods and services promised by the Company. The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. The Company's revenue generating activities include the following:
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
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 3926 weeks ended NovemberAugust 3, 2018 and October 28, 2017,2019, Macy's accounted for 88% of the Company's net sales. For the 13 and 26 weeks ended August 4, 2018, Macy's accounted for 89% and 88%, respectively, of the Company's net sales. Disaggregation of the Company's net sales by family of business for the 13 and 3926 weeks ended NovemberAugust 3, 20182019 and October 28, 2017August 4, 2018 were as follows:
| | | 13 Weeks Ended | | 39 Weeks Ended | 13 Weeks Ended | | 26 Weeks Ended |
Net sales by family of business | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 | August 3, 2019 | | August 4, 2018 | | August 3, 2019 | | August 4, 2018 |
| (millions) | (millions) |
Women's Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances | $ | 2,010 |
| | $ | 1,989 |
| | $ | 6,221 |
| | $ | 6,122 |
| $ | 2,039 |
| | $ | 2,022 |
| | $ | 4,191 |
| | $ | 4,181 |
|
Women's Apparel | 1,264 |
| | 1,247 |
| | 3,969 |
| | 3,989 |
| 1,269 |
| | 1,322 |
| | 2,582 |
| | 2,672 |
|
Men's and Kids | 1,243 |
| | 1,184 |
| | 3,702 |
| | 3,558 |
| |
Men's and Kids' | | 1,266 |
| | 1,273 |
| | 2,468 |
| | 2,447 |
|
Home/Other (a) | 887 |
| | 861 |
| | 2,624 |
| | 2,598 |
| 972 |
| | 955 |
| | 1,809 |
| | 1,812 |
|
Total | $ | 5,404 |
| | $ | 5,281 |
| | $ | 16,516 |
| | $ | 16,267 |
| $ | 5,546 |
| | $ | 5,572 |
| | $ | 11,050 |
| | $ | 11,112 |
|
(a) Other primarily includes restaurant sales, certain loyalty program incomeallowance 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 $265$227 million, $291$269 million and $260$243 million as of NovemberAugust 3, 2018,2019, February 3,2, 2019 and August 4, 2018, and October 28, 2017, respectively. Included in prepaid expenses and other current assets is an asset totaling $180$154 million, $201$188 million and $178$165 million as of NovemberAugust 3, 2018,2019, February 3,2, 2019 and August 4, 2018, and October 28, 2017, respectively, for the recoverable cost of merchandise estimated to be returned by customers.
Gift Cards and Customer Loyalty Programs
The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold or issued, no revenue is recognized; rather, the Company records an accrued liability to customers. The liability is relieved and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for merchandise. The Company records revenue from unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns.
The Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy’s brand, points are earned based on customers’ spending on Macy’s private label and co-branded credit cards as well as non-proprietary cards during certain tender-neutral promotional events. Under the Bloomingdale’s brand, the Company offers a tender neutral points-based program. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The liability for unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $711$654 million, $894$856 million and $707$673 million as of NovemberAugust 3, 2018,2019, February 3,2, 2019 and August 4, 2018, and October 28, 2017, respectively.
Credit Card Revenues, net
In 2005, the Company entered into an arrangement with Citibank to sell the Company's private label and co-branded credit cards ("Credit Card Program"). Subsequent to this initial arrangement and associated amendments, in 2014, the Company entered into an amended and restated Credit Card Program Agreement (the "Program Agreement") with Citibank. As part of the Program Agreement, the Company receives payments for providing a combination of interrelated services and intellectual property to Citibank in support of the underlying Credit Card Program. Revenue based on the spending activity of the
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
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.
Newly Adopted Accounting Pronouncements
In May 2014,4. Leases
The Company leases a portion of the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which established principlesreal estate and personal property used in its operations. Most leases require the Company to report useful information to financial statements users aboutpay real estate taxes, maintenance, insurance and other similar costs; some also require additional payments based on percentages of sales and some contain purchase options. Certain of the nature, timingCompany’s real estate leases have terms that extend for a significant number of years and uncertaintyprovide for rental rates that increase or decrease over time. Lease terms include the noncancellable portion of revenue from contracts with customers. ASU No. 2014-09the underlying leases along with various related amendments comprise ASC Topic 606, Revenueany reasonably certain lease periods associated with available renewal periods, termination options and purchase options.
Operating lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. Related operating ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by contributions from Contractslandlords, plus any prepaid rent and direct costs from executing the leases. ROU assets are tested for impairment in the same manner as long-lived assets.
Leases with Customers, and provide guidance that is applicable to all contracts with customers regardlessan initial term of industry-specific12 months or transaction-specific fact patterns. The new standard and its related updates were adopted byless are not recorded on the balance sheet; the Company recognizes lease expense for these leases on February 4, 2018. Ona straight-line basis over the effective date, the Company elected to apply the new guidance retrospectively to each prior period presented which resulted in an increase to retained earnings of $72 million and $54 million at the beginning of fiscal 2018 and fiscal 2017, respectively.lease term. Variable lease payments are recognized as lease expense as they are incurred.
Overall, the new standard did not have a material impact on the resultsCertain of the Company's operations or consolidated statements of financial position, but impactedleases contain covenants that restrict the presentation and timing of certain revenue transactions. Specifically, the changes included gross presentationability of the Company's estimates for future sales returns and related recoverable assets, presenting income from credit operations, gift card breakage income, and certain loyalty program income as separate components of revenue and recognizing gift card breakage revenue over the period of redemption for gift cards associated with certain returns. The Company's evaluationtenant (typically a subsidiary of the new standards included a reviewCompany) to take specified actions (including the payment of dividends or other amounts on account of its capital stock) unless the tenant satisfies certain vendor arrangements to determine whether the Company acts as principal or agent in such arrangements and such evaluation did not result in any material changes in gross versus net presentation as a result of the adoption of the new standards.financial tests.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (ASC 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 Company adopted this standard effective February 4, 2018 on a retrospective basis to each prior period presented and has recognized its net periodic benefit costs, excluding service costs, in benefit plan income, net on its Consolidated Statements of Income.
In 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (ASC Topic 230): Restricted Cash, and ASU No. 2016-15, Statement of Cash Flows (ASC Topic 230): Classification of Certain Cash Receipts and Cash Payments. These standards were issued to resolve numerous diversities in practice with regard to the presentation and classification of certain cash receipts and payments in the statement of cash flows. The standards were effective for the Company on February 4, 2018, and were adopted using a retrospective transition method to each prior period presented. As a result of these standards, the Company included its beginning-of-period restricted cash balances of $58 million and end-of-period restricted cash balances of $41 million when reconciling the Consolidated Statement of Cash Flow movement for the 39 weeks ended November 3, 2018. Similarly, for the 39 weeks ended October 28, 2017, the Company included its beginning-of-period restricted cash balances of $37 million and end-of-period restricted cash balances of $54 million. In addition to these changes, the Company changed the classification of $10 million of cash payments for the prepayment of debt from an operating outflow to a financing outflow for the 39 weeks ended October 28, 2017.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for stranded tax effects in accumulated other comprehensive income resulting from H.R. 1, originally known as the “Tax Cuts and Jobs Act,” to be reclassified to retained earnings. The Company early adopted this standard during the first quarter of 2018 and, as a result, reclassified $164 million of stranded tax effects to retained earnings.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
2. Earnings Per Share Attributable to Macy's, Inc. ShareholdersROU assets and lease liabilities consist of: |
| | | | |
| | August 3, 2019 |
| Classification | (millions) |
Assets | | |
Finance lease assets (a) | Right of Use Assets | $ | 11 |
|
Operating lease assets (b) | Right of Use Assets | 2,625 |
|
Total leased assets | | $ | 2,636 |
|
| | |
Liabilities | | |
Current | | |
Finance | Accounts payable and accrued liabilities | $ | 1 |
|
Operating (b) | Accounts payable and accrued liabilities | 350 |
|
| | |
Noncurrent | | |
Finance | Long-Term Lease Liabilities | 24 |
|
Operating (b) | Long-Term Lease Liabilities | 2,812 |
|
Total lease liabilities | | $ | 3,187 |
|
(a) Finance lease assets are recorded net of accumulated amortization of $12 million as of August 3, 2019.
(b) As of August 3, 2019, operating lease assets included $398 million of non-lease components and current and noncurrent lease liabilities included $34 million and $369 million, respectively, of non-lease components.
The following tables set forthcomponents of net lease expense are disclosed below. For the computation of basic13 and diluted earnings per share attributable26 weeks ended August 3, 2019, expense related to Macy's, Inc. shareholders:
non-lease components was $21 million and $42 million, respectively, and variable lease expense was $3 million and $7 million, respectively.
|
| | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended |
| November 3, 2018 | | October 28, 2017 |
| 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 | $ | 62 |
| | | | 307.2 |
| | $ | 30 |
| | | | 304.6 |
|
Shares to be issued under deferred compensation and other plans | | | | | 0.9 |
| | | | | | 0.9 |
|
| $ | 62 |
| | | | 308.1 |
| | $ | 30 |
| | | | 305.5 |
|
Basic earnings per share attributable to Macy's, Inc. shareholders | | | $ | 0.20 |
| | | | | | $ | 0.10 |
| | |
Effect of dilutive securities: | | | | | | | | | | | |
Stock options, restricted stock and restricted stock units | | | | | 4.1 |
| | | | | | 1.0 |
|
| $ | 62 |
| | | | 312.2 |
| | $ | 30 |
| | | | 306.5 |
|
Diluted earnings per share attributable to Macy's, Inc. shareholders | | | $ | 0.20 |
| | | | | | $ | 0.10 |
| | |
|
| | | | | | | | |
| | 13 Weeks Ended | | 26 Weeks Ended |
| | August 3, 2019 | | August 3, 2019 |
| Classification | (millions) |
Operating lease expense (c) | Selling, general and administrative expenses | $ | 106 |
| | $ | 214 |
|
Sublease income | Selling, general and administrative expenses | (1 | ) | | (1 | ) |
Net lease expense | | $ | 105 |
| | $ | 213 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| 39 Weeks Ended |
| November 3, 2018 | | October 28, 2017 |
| 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 | $ | 368 |
| | | | 306.6 |
| | $ | 219 |
| | | | 304.5 |
|
Shares to be issued under deferred compensation and other plans | | | | | 0.9 |
| | | | | | 0.8 |
|
| $ | 368 |
| | | | 307.5 |
| | $ | 219 |
| | | | 305.3 |
|
Basic earnings per share attributable to Macy's, Inc. shareholders | | | $ | 1.20 |
| | | | | | $ | 0.72 |
| | |
Effect of dilutive securities: | | | | | | | | | | | |
Stock options, restricted stock and restricted stock units | | | | | 3.7 |
| | | | | | 1.3 |
|
| $ | 368 |
| | | | 311.2 |
| | $ | 219 |
| | | | 306.6 |
|
Diluted earnings per share attributable to Macy's, Inc. shareholders | | | $ | 1.18 |
| | | | | | $ | 0.71 |
| | |
In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 12.7 million shares of common stock and restricted stock units relating to 1.4 million shares of common stock were outstanding at November 3, 2018, but were not(c) Certain supply chain operating lease expense amounts are included in the computationcost of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.sales.
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 1.2 million shares of common stock were outstanding at October 28, 2017, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
3.As of August 3, 2019, the maturity of lease liabilities is as follows:
|
| | | | | | | | | | | |
| Finance Leases (d) | | Operating Leases (e and f) | | Total |
| (millions) |
Fiscal year | | | | | |
2019 | $ | 1 |
| | $ | 180 |
| | $ | 181 |
|
2020 | 3 |
| | 332 |
| | 335 |
|
2021 | 3 |
| | 333 |
| | 336 |
|
2022 | 3 |
| | 311 |
| | 314 |
|
2023 | 3 |
| | 307 |
| | 310 |
|
After 2023 | 31 |
| | 5,385 |
| | 5,416 |
|
Total undiscounted lease payments | 44 |
| | 6,848 |
| | 6,892 |
|
Less amount representing interest | 19 |
| | 3,686 |
| | 3,705 |
|
Total lease liabilities | $ | 25 |
| | $ | 3,162 |
| | $ | 3,187 |
|
(d) Finance lease payments include $12 million related to options to extend lease terms that are reasonably certain of being exercised.
(e) Operating lease payments include $3,292 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $936 million of legally binding minimum lease payments for leases signed but not yet commenced.
(f) Operating lease payments include $1,172 million related to non-lease component payments, with $844 million related to options to extend lease terms that are reasonably certain of being exercised.
Additional supplemental information regarding assumptions and cash flows for operating and finance leases is as follows:
|
| | |
| August 3, 2019 |
Lease Term and Discount Rate | (millions) |
Weighted-average remaining lease term (years) | |
Finance leases | 18.0 |
|
Operating leases | 23.7 |
|
Weighted-average discount rate | |
Finance leases | 6.64 | % |
Operating leases | 6.70 | % |
|
| | | |
| 26 Weeks Ended |
| August 3, 2019 |
Other Information | |
Cash paid for amounts included in the measurement of lease liabilities | |
Operating cash flows used from operating leases | $ | 182 |
|
Financing cash flows used from financing leases | 1 |
|
Leased assets obtained in exchange for new operating lease liabilities | 39 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
As of February 2, 2019, as disclosed in the 2018 10-K, minimum rental commitments for noncancellable leases, including executed leases not yet commenced, were as follows:
|
| | | | | | | | | | | |
| Capitalized Leases (g) | | Operating Leases | | Total |
| (millions) |
Fiscal year | | | | | |
2019 | $ | 3 |
| | $ | 325 |
| | $ | 328 |
|
2020 | 3 |
| | 315 |
| | 318 |
|
2021 | 3 |
| | 309 |
| | 312 |
|
2022 | 3 |
| | 283 |
| | 286 |
|
2023 | 3 |
| | 264 |
| | 267 |
|
After 2023 | 31 |
| | 2,758 |
| | 2,789 |
|
Total minimum lease payments | 46 |
| | $ | 4,254 |
| | $ | 4,300 |
|
Less amount representing interest | 20 |
| | | | |
Present value of net minimum capitalized lease payments | $ | 26 |
| | | | |
(g) For purposes of the disclosure, capitalized lease is used interchangeably with finance lease.
5. Financing Activities
The following table shows the detail of debt repayments:
|
| | | | | | | |
| 26 Weeks Ended |
| August 3, 2019 | | August 4, 2018 |
| (millions) |
6.9% Senior debentures due 2029 | $ | — |
| | $ | 90 |
|
4.5% Senior notes due 2034 | — |
| | 80 |
|
6.7% Senior notes due 2028 | — |
| | 60 |
|
6.375% Senior notes due 2037 | — |
| | 43 |
|
6.7% Senior debentures due 2034 | — |
| | 28 |
|
7.0% Senior debentures due 2028 | — |
| | 27 |
|
6.65% Senior debentures due 2024 | — |
| | 11 |
|
6.9% Senior debentures due 2032 | — |
| | 5 |
|
8.5% Senior debentures due 2019 | 36 |
| | — |
|
9.5% Amortizing debentures due 2021 | 2 |
| | 2 |
|
9.75% Amortizing debentures due 2021 | 1 |
| | 1 |
|
| $ | 39 |
| | $ | 347 |
|
|
| | | | | | | |
| 39 Weeks Ended |
| November 3, 2018 | | October 28, 2017 |
| (millions) |
7.45% Senior debentures due 2017 | $ | — |
| | $ | 300 |
|
6.9% Senior debentures due 2029 | 90 |
| | 3 |
|
4.5% Senior notes due 2034 | 80 |
| | — |
|
6.7% Senior notes due 2028 | 60 |
| | 3 |
|
6.375% Senior notes due 2037 | 43 |
| | 135 |
|
6.7% Senior debentures due 2034 | 28 |
| | 28 |
|
7.0% Senior debentures due 2028 | 27 |
| | 2 |
|
6.65% Senior debentures due 2024 | 11 |
| | 4 |
|
6.9% Senior debentures due 2032 | 5 |
| | 72 |
|
9.5% Amortizing debentures due 2021 | 4 |
| | 4 |
|
9.75% Amortizing debentures due 2021 | 2 |
| | 2 |
|
Capital leases and other obligations | 1 |
| | 1 |
|
| $ | 351 |
| | $ | 554 |
|
During the 3926 weeks ended November 3,August 4, 2018, the Company repurchased $344 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of $354 million, including expenses and other fees related to the transactions. Such repurchases resulted in the recognition of expense of $5 million during the 3913 and 26 weeks ended November 3,August 4, 2018 presented as losses on early retirement of debt on the Consolidated Statements of Income.
During the 39 weeks ended October 28, 2017,On May 9, 2019, the Company repurchased $247 million face value of senior notes and debentures. The debt repurchases were made inentered into a new credit agreement with certain financial institutions that replaced the open market for a total cost of $257 million, including expenses and other fees relatedprevious credit agreement which was set to expire on May 6, 2021. Similar to the transactions. Such repurchases resultedprevious agreement, the new credit agreement provides for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the recognitionoption of expense of $1 million during the 39 weeks ended October 28, 2017 presented as losses on early retirement of debt on the Consolidated Statements of Income.
During the 39 weeks ended October 28, 2017, the Company, also repaid, at maturity, $300 millionsubject to the willingness of 7.45% Senior debentures due July 2017.
On November 28, 2018,existing or new lenders to provide commitments for such additional financing). The new credit agreement is scheduled to expire on May 9, 2024, subject to up to two one-year extensions that may be requested by the Company commenced a cash tender offer ("tender offer")and agreed to purchase up to $600 million in aggregate principal amount of certain senior unsecured notes and debentures, with stated interest rates ranging from 2.875% to 8.75% and maturities ranging from fiscal years 2023 to 2042. The tender offer expires on December 26, 2018, with an early tender date on December 11, 2018.by the lenders.
4.MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
6. Benefit Plans
The Company has defined contribution plans which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan ("Pension Plan") and an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
In addition, certain retired employees currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.
The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:
|
| | | | | | | | | | | | | | | |
| 13 Weeks Ended | | 26 Weeks Ended |
| August 3, 2019 | | August 4, 2018 | | August 3, 2019 | | August 4, 2018 |
| (millions) | | (millions) |
401(k) Qualified Defined Contribution Plan | $ | 24 |
| | $ | 24 |
| | $ | 49 |
| | $ | 47 |
|
| | | | | | | |
Non-Qualified Defined Contribution Plan | $ | 1 |
| | $ | 1 |
| | $ | 2 |
| | $ | 1 |
|
| | | | | | | |
Pension Plan | | | | | | | |
Service cost | $ | 1 |
| | $ | 1 |
| | $ | 2 |
| | $ | 3 |
|
Interest cost | 26 |
| | 27 |
| | 52 |
| | 53 |
|
Expected return on assets | (48 | ) | | (53 | ) | | (96 | ) | | (106 | ) |
Recognition of net actuarial loss | 7 |
| | 8 |
| | 14 |
| | 16 |
|
Amortization of prior service credit | — |
| | — |
| | — |
| | — |
|
| $ | (14 | ) | | $ | (17 | ) | | $ | (28 | ) | | $ | (34 | ) |
Supplementary Retirement Plan | | | | | | | |
Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost | 6 |
| | 5 |
| | 12 |
| | 11 |
|
Recognition of net actuarial loss | 2 |
| | 2 |
| | 4 |
| | 4 |
|
Amortization of prior service cost | — |
| | — |
| | — |
| | — |
|
| $ | 8 |
| | $ | 7 |
| | $ | 16 |
| | $ | 15 |
|
| | | | | | | |
Total Retirement Expense | $ | 19 |
| | $ | 15 |
| | $ | 39 |
| | $ | 29 |
|
| | | | | | | |
Postretirement Obligations | | | | | | | |
Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost | 1 |
| | 1 |
| | 2 |
| | 2 |
|
Recognition of net actuarial gain | (2 | ) | | (1 | ) | | (3 | ) | | (2 | ) |
Amortization of prior service credit | — |
| | — |
| | — |
| | — |
|
| $ | (1 | ) | | $ | — |
| | $ | (1 | ) | | $ | — |
|
|
| | | | | | | | | | | | | | | |
| 13 Weeks Ended | | 39 Weeks Ended |
| November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
| (millions) | | (millions) |
401(k) Qualified Defined Contribution Plan | $ | 24 |
| | $ | 20 |
| | $ | 71 |
| | $ | 65 |
|
| | | | | | | |
Non-Qualified Defined Contribution Plan | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
|
| | | | | | | |
Pension Plan | | | | | | | |
Service cost | $ | 1 |
| | $ | 1 |
| | $ | 4 |
| | $ | 4 |
|
Interest cost | 28 |
| | 25 |
| | 81 |
| | 79 |
|
Expected return on assets | (51 | ) | | (55 | ) | | (157 | ) | | (168 | ) |
Recognition of net actuarial loss | 7 |
| | 8 |
| | 23 |
| | 24 |
|
Amortization of prior service credit | — |
| | — |
| | — |
| | — |
|
| $ | (15 | ) | | $ | (21 | ) | | $ | (49 | ) | | $ | (61 | ) |
Supplementary Retirement Plan | | | | | | | |
Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost | 6 |
| | 6 |
| | 17 |
| | 17 |
|
Recognition of net actuarial loss | 2 |
| | 2 |
| | 6 |
| | 6 |
|
Amortization of prior service cost | — |
| | — |
| | — |
| | — |
|
| $ | 8 |
| | $ | 8 |
| | $ | 23 |
| | $ | 23 |
|
| | | | | | | |
Total Retirement Expense | $ | 17 |
| | $ | 7 |
| | $ | 46 |
| | $ | 27 |
|
| | | | | | | |
Postretirement Obligations | | | | | | | |
Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost | 1 |
| | 1 |
| | 3 |
| | 4 |
|
Recognition of net actuarial gain | (2 | ) | | (2 | ) | | (4 | ) | | (4 | ) |
Amortization of prior service credit | — |
| | — |
| | — |
| | — |
|
| $ | (1 | ) | | $ | (1 | ) | | $ | (1 | ) | | $ | — |
|
For the 13 and 39 weeks ended November 3, 2018, the Company incurred non-cash settlement charges of $23 million and $73 million, respectively, related to the Company's defined benefit plans. For the 13 and 39 weeks ended October 28, 2017, the Company incurred non-cash settlement charges of $22 million and $73 million, respectively. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions primarily associated with retiree distribution elections and restructuring activity.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
5.For the 13 and 26 weeks ended August 4, 2018, the Company incurred non-cash settlement charges of $50 million related to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses associated with the Company's defined benefit plans and are the result of an increase in lump sum distributions associated with store closings, organizational restructuring and periodic distribution activity.
7. Fair Value Measurements
The following table shows the Company's financial assets that are required to be measured at fair value on a recurring basis, by level within the hierarchy as defined by applicable accounting standards:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| November 3, 2018 | | October 28, 2017 |
| | | 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 | $ | 96 |
| | $ | 26 |
| | $ | 70 |
| | $ | — |
| | $ | 100 |
| | $ | 23 |
| | $ | 77 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| August 3, 2019 | | August 4, 2018 |
| | | Fair Value Measurements | | | | Fair Value Measurements |
| Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (millions) |
Marketable equity and debt securities | $ | 112 |
| | $ | 31 |
| | $ | 81 |
| | $ | — |
| | $ | 96 |
| | $ | 27 |
| | $ | 69 |
| | $ | — |
|
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.
The following table shows the estimated fair value of the Company's long-term debt, excluding capital leases and other obligations:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| August 3, 2019 | | August 4, 2018 |
| Notional Amount | | Carrying Amount | | Fair Value | | Notional Amount | | Carrying Amount | | Fair Value |
| (millions) |
Long-term debt | $ | 4,667 |
| | $ | 4,680 |
| | $ | 4,742 |
| | $ | 5,423 |
| | $ | 5,447 |
| | $ | 5,314 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| November 3, 2018 | | October 28, 2017 |
| Notional Amount | | Carrying Amount | | Fair Value | | Notional Amount | | Carrying Amount | | Fair Value |
| (millions) |
Long-term debt | $ | 5,420 |
| | $ | 5,444 |
| | $ | 5,170 |
| | $ | 6,206 |
| | $ | 6,271 |
| | $ | 5,908 |
|
6.8. Condensed Consolidating Financial Information
Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent"), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, "Other Subsidiaries" includes all other direct subsidiaries of Parent, including Bluemercury, Inc., FDS Bank, West 34th Street Insurance Company New York, Macy's Merchandising Corporation, Macy's Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (Hong Kong) Limited, Macy's Merchandising Group Procurement, LLC, Macy's Merchandising Group International, LLC, Macy's Merchandising Group International (Hong Kong) Limited, and its majority-owned subsidiary Macy's China Limited. "Subsidiary Issuer" includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in "Other Subsidiaries."
Condensed Consolidating Statements of Comprehensive Income for the 13 and 3926 weeks ended NovemberAugust 3, 20182019 and October 28, 2017,August 4, 2018, Condensed Consolidating Balance Sheets as of NovemberAugust 3, 2019, August 4, 2018 October 28, 2017 and February 3, 2018,2, 2019, and the related Condensed Consolidating Statements of Cash Flows for the 3926 weeks ended NovemberAugust 3, 20182019 and October 28, 2017August 4, 2018 are presented on the following pages.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended NovemberAugust 3, 20182019
(millions)
| | | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | — |
| | $ | 2,030 |
| | $ | 6,185 |
| | $ | (2,811 | ) | | $ | 5,404 |
| $ | — |
| | $ | 2,219 |
| | $ | 4,416 |
| | $ | (1,089 | ) | | $ | 5,546 |
|
Credit card revenues, net | — |
| | — |
| | 185 |
| | — |
| | 185 |
| |
Credit card revenues (expense), net | | — |
| | (2 | ) | | 178 |
| | — |
| | 176 |
|
| | | | | | | | | | | | | | | | | | |
Cost of sales | — |
| | (1,266 | ) | | (4,771 | ) | | 2,811 |
| | (3,226 | ) | — |
| | (1,341 | ) | | (3,143 | ) | | 1,089 |
| | (3,395 | ) |
Selling, general and administrative expenses | — |
| | (883 | ) | | (1,372 | ) | | — |
| | (2,255 | ) | — |
| | (872 | ) | | (1,305 | ) | | — |
| | (2,177 | ) |
Gains on sale of real estate | — |
| | 41 |
| | 1 |
| | — |
| | 42 |
| — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Restructuring and other costs | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) | |
Operating income (loss) | — |
| | (78 | ) | | 225 |
| | — |
| | 147 |
| |
Impairment and other costs | | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Operating income | | — |
| | 4 |
| | 151 |
| | — |
| | 155 |
|
Benefit plan income, net | — |
| | 3 |
| | 6 |
| | — |
| | 9 |
| — |
| | 3 |
| | 5 |
| | — |
| | 8 |
|
Settlement charges | — |
| | (8 | ) | | (15 | ) | | — |
| | (23 | ) | |
Interest (expense) income, net: | | | | | | | | | | | | | | | | | | |
External | 4 |
| | (64 | ) | | 1 |
| | — |
| | (59 | ) | 4 |
| | (52 | ) | | 1 |
| | — |
| | (47 | ) |
Intercompany | — |
| | (18 | ) | | 18 |
| | — |
| | — |
| — |
| | (18 | ) | | 18 |
| | — |
| | — |
|
Equity in earnings (loss) of subsidiaries | 59 |
| | (58 | ) | | — |
| | (1 | ) | | — |
| 82 |
| | (108 | ) | | — |
| | 26 |
| | — |
|
Income (loss) before income taxes | 63 |
| | (223 | ) | | 235 |
| | (1 | ) | | 74 |
| 86 |
| | (171 | ) | | 175 |
| | 26 |
| | 116 |
|
Federal, state and local income tax benefit (expense) | (1 | ) | | 57 |
| | (68 | ) | | — |
| | (12 | ) | — |
| | 7 |
| | (37 | ) | | — |
| | (30 | ) |
Net income (loss) | 62 |
| | (166 | ) | | 167 |
| | (1 | ) | | 62 |
| 86 |
| | (164 | ) | | 138 |
| | 26 |
| | 86 |
|
Net loss attributable to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Net income (loss) attributable to Macy's, Inc. shareholders | $ | 62 |
| | $ | (166 | ) | | $ | 167 |
| | $ | (1 | ) | | $ | 62 |
| $ | 86 |
| | $ | (164 | ) | | $ | 138 |
| | $ | 26 |
| | $ | 86 |
|
Comprehensive income (loss) | $ | (37 | ) | | $ | (257 | ) | | $ | 106 |
| | $ | 151 |
| | $ | (37 | ) | $ | 91 |
| | $ | (159 | ) | | $ | 142 |
| | $ | 17 |
| | $ | 91 |
|
Comprehensive loss attributable to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders | $ | (37 | ) | | $ | (257 | ) | | $ | 106 |
| | $ | 151 |
| | $ | (37 | ) | $ | 91 |
| | $ | (159 | ) | | $ | 142 |
| | $ | 17 |
| | $ | 91 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks EndedOctober 28, 2017 August 4, 2018
(millions)
| | | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | — |
| | $ | 2,073 |
| | $ | 5,865 |
| | $ | (2,657 | ) | | $ | 5,281 |
| $ | — |
| | $ | 2,072 |
| | $ | 4,914 |
| | $ | (1,414 | ) | | $ | 5,572 |
|
Credit card revenues, net | — |
| | — |
| | 145 |
| | — |
| | 145 |
| — |
| | 3 |
| | 183 |
| | — |
| | 186 |
|
| | | | | | | | | | | | | | | | | | |
Cost of sales | — |
| | (1,382 | ) | | (4,427 | ) | | 2,657 |
| | (3,152 | ) | — |
| | (1,271 | ) | | (3,463 | ) | | 1,414 |
| | (3,320 | ) |
Selling, general and administrative expenses | — |
| | (834 | ) | | (1,354 | ) | | — |
| | (2,188 | ) | — |
| | (812 | ) | | (1,352 | ) | | — |
| | (2,164 | ) |
Gains on sale of real estate | — |
| | 24 |
| | 41 |
| | — |
| | 65 |
| — |
| | 19 |
| | 27 |
| | — |
| | 46 |
|
Restructuring and other costs | — |
| | (1 | ) | | (32 | ) | | — |
| | (33 | ) | |
Operating income (loss) | — |
| | (120 | ) | | 238 |
| | — |
| | 118 |
| |
Impairment and other costs | | — |
| | 2 |
| | (19 | ) | | — |
| | (17 | ) |
Operating income | | — |
| | 13 |
| | 290 |
| | — |
| | 303 |
|
Benefit plan income, net | — |
| | 6 |
| | 9 |
| | — |
| | 15 |
| — |
| | 4 |
| | 7 |
| | — |
| | 11 |
|
Settlement charges | — |
| | (8 | ) | | (14 | ) | | — |
| | (22 | ) | (6 | ) | | (16 | ) | | (28 | ) | | — |
| | (50 | ) |
Interest (expense) income, net: | | | | | | | | | | | | | | | | | |
|
|
External | 1 |
| | (76 | ) | | 1 |
| | — |
| | (74 | ) | 5 |
| | (69 | ) | | 2 |
| | — |
| | (62 | ) |
Intercompany | — |
| | (34 | ) | | 34 |
| | — |
| | — |
| — |
| | (17 | ) | | 17 |
| | — |
| | — |
|
Equity in earnings (loss) of subsidiaries | 29 |
| | (57 | ) | | — |
| | 28 |
| | — |
| |
Losses on early retirement of debt | | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
Equity in earnings of subsidiaries | | 167 |
| | 8 |
| | — |
| | (175 | ) | | — |
|
Income (loss) before income taxes | 30 |
| | (289 | ) | | 268 |
| | 28 |
| | 37 |
| 166 |
| | (82 | ) | | 288 |
| | (175 | ) | | 197 |
|
Federal, state and local income tax benefit (expense) | — |
| | 59 |
| | (69 | ) | | — |
| | (10 | ) | — |
| | 30 |
| | (63 | ) | | — |
| | (33 | ) |
Net income (loss) | 30 |
| | (230 | ) | | 199 |
| | 28 |
| | 27 |
| 166 |
| | (52 | ) | | 225 |
| | (175 | ) | | 164 |
|
Net loss attributable to noncontrolling interest | — |
| | — |
| | 3 |
| | — |
| | 3 |
| — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net income (loss) attributable to Macy's, Inc. shareholders | $ | 30 |
| | $ | (230 | ) | | $ | 202 |
| | $ | 28 |
| | $ | 30 |
| $ | 166 |
| | $ | (52 | ) | | $ | 227 |
| | $ | (175 | ) | | $ | 166 |
|
Comprehensive income (loss) | $ | 55 |
| | $ | (207 | ) | | $ | 215 |
| | $ | (11 | ) | | $ | 52 |
| $ | 186 |
| | $ | (35 | ) | | $ | 236 |
| | $ | (203 | ) | | $ | 184 |
|
Comprehensive loss attributable to noncontrolling interest | — |
| | — |
| | 3 |
| | — |
| | 3 |
| — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders | $ | 55 |
| | $ | (207 | ) | | $ | 218 |
| | $ | (11 | ) | | $ | 55 |
| $ | 186 |
| | $ | (35 | ) | | $ | 238 |
| | $ | (203 | ) | | $ | 186 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 3926 Weeks Ended NovemberAugust 3, 20182019
(millions)
| | | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | — |
| | $ | 6,110 |
| | $ | 16,462 |
| | $ | (6,056 | ) | | $ | 16,516 |
| $ | — |
| | $ | 4,373 |
| | $ | 9,184 |
| | $ | (2,507 | ) | | $ | 11,050 |
|
Credit card revenues (expense), net | — |
| | (3 | ) | | 531 |
| | — |
| | 528 |
| — |
| | (5 | ) | | 353 |
| | — |
| | 348 |
|
| | | | | | | | | | | | | | | | | | |
Cost of sales | — |
| | (3,857 | ) | | (12,126 | ) | | 6,056 |
| | (9,927 | ) | — |
| | (2,682 | ) | | (6,623 | ) | | 2,507 |
| | (6,798 | ) |
Selling, general and administrative expenses | — |
| | (2,522 | ) | | (3,979 | ) | | — |
| | (6,501 | ) | 1 |
| | (1,674 | ) | | (2,614 | ) | | — |
| | (4,287 | ) |
Gains on sale of real estate | — |
| | 83 |
| | 28 |
| | — |
| | 111 |
| — |
| | 24 |
| | 25 |
| | — |
| | 49 |
|
Impairment, restructuring and other costs | — |
| | — |
| | (39 | ) | | — |
| | (39 | ) | |
Operating income (loss) | — |
| | (189 | ) | | 877 |
| | — |
| | 688 |
| |
Impairment and other costs | | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
Operating income | | 1 |
| | 36 |
| | 322 |
| | — |
| | 359 |
|
Benefit plan income, net | — |
| | 12 |
| | 19 |
| | — |
| | 31 |
| — |
| | 6 |
| | 9 |
| | — |
| | 15 |
|
Settlement charges | (5 | ) | | (24 | ) | | (44 | ) | | — |
| | (73 | ) | |
Interest (expense) income, net: | | | | | | | | | | | | | | | | | | |
External | 13 |
| | (203 | ) | | 3 |
| | — |
| | (187 | ) | 9 |
| | (105 | ) | | 2 |
| | — |
| | (94 | ) |
Intercompany | — |
| | (54 | ) | | 54 |
| | — |
| | — |
| — |
| | (37 | ) | | 37 |
| | — |
| | — |
|
Losses on early retirement of debt | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) | |
Equity in earnings of subsidiaries | 362 |
| | 51 |
| | — |
| | (413 | ) | | — |
| |
Equity in earnings (loss) of subsidiaries | | 214 |
| | (138 | ) | | — |
| | (76 | ) | | — |
|
Income (loss) before income taxes | 370 |
| | (412 | ) | | 909 |
| | (413 | ) | | 454 |
| 224 |
| | (238 | ) | | 370 |
| | (76 | ) | | 280 |
|
Federal, state and local income tax benefit (expense) | (2 | ) | | 123 |
| | (217 | ) | | — |
| | (96 | ) | (1 | ) | | 31 |
| | (87 | ) | | — |
| | (57 | ) |
Net income (loss) | 368 |
| | (289 | ) | | 692 |
| | (413 | ) | | 358 |
| 223 |
| | (207 | ) | | 283 |
| | (76 | ) | | 223 |
|
Net loss attributable to noncontrolling interest | — |
| | — |
| | 10 |
| | — |
| | 10 |
| — |
| | — |
| | — |
| | — |
| | — |
|
Net income (loss) attributable to Macy's, Inc. shareholders | $ | 368 |
| | $ | (289 | ) | | $ | 702 |
| | $ | (413 | ) | | $ | 368 |
| $ | 223 |
| | $ | (207 | ) | | $ | 283 |
| | $ | (76 | ) | | $ | 223 |
|
Comprehensive income (loss) | $ | 296 |
| | $ | (357 | ) | | $ | 646 |
| | $ | (299 | ) | | $ | 286 |
| $ | 234 |
| | $ | (197 | ) | | $ | 291 |
| | $ | (94 | ) | | $ | 234 |
|
Comprehensive loss attributable to noncontrolling interest | — |
| | — |
| | 10 |
| | — |
| | 10 |
| — |
| | — |
| | — |
| | — |
| | — |
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders | $ | 296 |
| | $ | (357 | ) | | $ | 656 |
| | $ | (299 | ) | | $ | 296 |
| $ | 234 |
| | $ | (197 | ) | | $ | 291 |
| | $ | (94 | ) | | $ | 234 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 3926 Weeks EndedOctober 28, 2017August 4, 2018
(millions)
| | | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Net sales | $ | — |
| | $ | 6,358 |
| | $ | 15,784 |
| | $ | (5,875 | ) | | $ | 16,267 |
| $ | — |
| | $ | 4,081 |
| | $ | 10,277 |
| | $ | (3,246 | ) | | $ | 11,112 |
|
Credit card revenues (expense), net | — |
| | (2 | ) | | 475 |
| | — |
| | 473 |
| — |
| | (3 | ) | | 346 |
| | — |
| | 343 |
|
| | | | | | | | | | | | | | | | | | |
Cost of sales | — |
| | (4,160 | ) | | (11,573 | ) | | 5,875 |
| | (9,858 | ) | — |
| | (2,591 | ) | | (7,356 | ) | | 3,246 |
| | (6,701 | ) |
Selling, general and administrative expenses | (1 | ) | | (2,458 | ) | | (3,947 | ) | | — |
| | (6,406 | ) | — |
| | (1,641 | ) | | (2,606 | ) | | — |
| | (4,247 | ) |
Gains on sale of real estate | — |
| | 116 |
| | 60 |
| | — |
| | 176 |
| — |
| | 42 |
| | 28 |
| | — |
| | 70 |
|
Restructuring and other costs | — |
| | (1 | ) | | (32 | ) | | — |
| | (33 | ) | |
Impairment and other costs | | — |
| | 2 |
| | (38 | ) | | — |
| | (36 | ) |
Operating income (loss) | (1 | ) | | (147 | ) | | 767 |
| | — |
| | 619 |
| — |
| | (110 | ) | | 651 |
| | — |
| | 541 |
|
Benefit plan income, net | — |
| | 16 |
| | 26 |
| | — |
| | 42 |
| — |
| | 8 |
| | 14 |
| | — |
| | 22 |
|
Settlement charges | — |
| | (24 | ) | | (49 | ) | | — |
| | (73 | ) | (6 | ) | | (16 | ) | | (28 | ) | | — |
| | (50 | ) |
Interest (expense) income, net: | | | | | | | | | | | | | | | | | | |
External | 4 |
| | (243 | ) | | 2 |
| | — |
| | (237 | ) | 9 |
| | (139 | ) | | 2 |
| | — |
| | (128 | ) |
Intercompany | — |
| | (102 | ) | | 102 |
| | — |
| | — |
| — |
| | (36 | ) | | 36 |
| | — |
| | — |
|
Losses on early retirement of debt | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
Equity in earnings (loss) of subsidiaries | 217 |
| | (26 | ) | | — |
| | (191 | ) | | — |
| |
Equity in earnings of subsidiaries | | 304 |
| | 109 |
| | — |
| | (413 | ) | | — |
|
Income (loss) before income taxes | 220 |
| | (527 | ) | | 848 |
| | (191 | ) | | 350 |
| 307 |
| | (189 | ) | | 675 |
| | (413 | ) | | 380 |
|
Federal, state and local income tax benefit (expense) | (1 | ) | | 142 |
| | (279 | ) | | — |
| | (138 | ) | (1 | ) | | 67 |
| | (150 | ) | | — |
| | (84 | ) |
Net income (loss) | 219 |
| | (385 | ) | | 569 |
| | (191 | ) | | 212 |
| 306 |
| | (122 | ) | | 525 |
| | (413 | ) | | 296 |
|
Net loss attributable to noncontrolling interest | — |
| | — |
| | 7 |
| | — |
| | 7 |
| — |
| | — |
| | 10 |
| | — |
| | 10 |
|
Net income (loss) attributable to Macy's, Inc. shareholders | $ | 219 |
| | $ | (385 | ) | | $ | 576 |
| | $ | (191 | ) | | $ | 219 |
| $ | 306 |
| | $ | (122 | ) | | $ | 535 |
| | $ | (413 | ) | | $ | 306 |
|
Comprehensive income (loss) | $ | 315 |
| | $ | (295 | ) | | $ | 632 |
| | $ | (344 | ) | | $ | 308 |
| $ | 333 |
| | $ | (99 | ) | | $ | 540 |
| | $ | (451 | ) | | $ | 323 |
|
Comprehensive loss attributable to noncontrolling interest | — |
| | — |
| | 7 |
| | — |
| | 7 |
| — |
| | — |
| | 10 |
| | — |
| | 10 |
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders | $ | 315 |
| | $ | (295 | ) | | $ | 639 |
| | $ | (344 | ) | | $ | 315 |
| $ | 333 |
| | $ | (99 | ) | | $ | 550 |
| | $ | (451 | ) | | $ | 333 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of NovemberAugust 3, 20182019
(millions)
| | | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
ASSETS: | | | | | | | | | | | | | | | | | | |
Current Assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 426 |
| | $ | 74 |
| | $ | 236 |
| | $ | — |
| | $ | 736 |
| $ | 320 |
| | $ | 100 |
| | $ | 254 |
| | $ | — |
| | $ | 674 |
|
Receivables | 1 |
| | 25 |
| | 154 |
| | — |
| | 180 |
| 1 |
| | 44 |
| | 195 |
| | — |
| | 240 |
|
Merchandise inventories | — |
| | 3,112 |
| | 4,035 |
| | — |
| | 7,147 |
| — |
| | 2,138 |
| | 2,891 |
| | — |
| | 5,029 |
|
Income tax receivable | 81 |
| | — |
| | — |
| | (71 | ) | | 10 |
| |
Prepaid expenses and other current assets | — |
| | 139 |
| | 455 |
| | — |
| | 594 |
| — |
| | 139 |
| | 464 |
| | — |
| | 603 |
|
Income taxes | | 39 |
| | — |
| | — |
| | (39 | ) | | — |
|
Total Current Assets | 508 |
| | 3,350 |
| | 4,880 |
| | (71 | ) | | 8,667 |
| 360 |
| | 2,421 |
| | 3,804 |
| | (39 | ) | | 6,546 |
|
Property and Equipment – net | — |
| | 3,244 |
| | 3,328 |
| | — |
| | 6,572 |
| — |
| | 3,162 |
| | 3,321 |
| | — |
| | 6,483 |
|
Right of Use Assets | | — |
| | 660 |
| | 1,976 |
| | — |
| | 2,636 |
|
Goodwill | — |
| | 3,326 |
| | 582 |
| | — |
| | 3,908 |
| — |
| | 3,326 |
| | 582 |
| | — |
| | 3,908 |
|
Other Intangible Assets – net | — |
| | 40 |
| | 441 |
| | — |
| | 481 |
| — |
| | 4 |
| | 436 |
| | — |
| | 440 |
|
Other Assets | — |
| | 39 |
| | 694 |
| | — |
| | 733 |
| — |
| | 39 |
| | 689 |
| | — |
| | 728 |
|
Deferred Income Taxes | 11 |
| | — |
| | — |
| | (11 | ) | | — |
| 9 |
| | — |
| | — |
| | (9 | ) | | — |
|
Intercompany Receivable | 1,725 |
| | — |
| | 882 |
| | (2,607 | ) | | — |
| 2,564 |
| | — |
| | 643 |
| | (3,207 | ) | | — |
|
Investment in Subsidiaries | 3,639 |
| | 3,028 |
| | — |
| | (6,667 | ) | | — |
| 3,484 |
| | 2,957 |
| | — |
| | (6,441 | ) | | — |
|
Total Assets | $ | 5,883 |
| | $ | 13,027 |
| | $ | 10,807 |
| | $ | (9,356 | ) | | $ | 20,361 |
| $ | 6,417 |
| | $ | 12,569 |
| | $ | 11,451 |
| | $ | (9,696 | ) | | $ | 20,741 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | | | | | | | | | |
Short-term debt | $ | — |
| | $ | 42 |
| | $ | 23 |
| | $ | — |
| | $ | 65 |
| $ | — |
| | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | 6 |
|
Merchandise accounts payable | — |
| | 1,515 |
| | 1,866 |
| | — |
| | 3,381 |
| — |
| | 717 |
| | 957 |
| | — |
| | 1,674 |
|
Accounts payable and accrued liabilities | 192 |
| | 874 |
| | 1,932 |
| | — |
| | 2,998 |
| 74 |
| | 754 |
| | 1,911 |
| | — |
| | 2,739 |
|
Income taxes | — |
| | 40 |
| | 31 |
| | (71 | ) | | — |
| — |
| | 47 |
| | 12 |
| | (39 | ) | | 20 |
|
Total Current Liabilities | 192 |
| | 2,471 |
| | 3,852 |
| | (71 | ) | | 6,444 |
| 74 |
| | 1,524 |
| | 2,880 |
| | (39 | ) | | 4,439 |
|
Long-Term Debt | — |
| | 5,453 |
| | 16 |
| | — |
| | 5,469 |
| — |
| | 4,680 |
| | — |
| | — |
| | 4,680 |
|
Long-Term Lease Liabilities | | — |
| | 594 |
| | 2,242 |
| | — |
| | 2,836 |
|
Intercompany Payable | — |
| | 2,607 |
| | — |
| | (2,607 | ) | | — |
| — |
| | 3,207 |
| | — |
| | (3,207 | ) | | — |
|
Deferred Income Taxes | — |
| | 619 |
| | 577 |
| | (11 | ) | | 1,185 |
| — |
| | 643 |
| | 572 |
| | (9 | ) | | 1,206 |
|
Other Liabilities | 24 |
| | 431 |
| | 1,163 |
| | — |
| | 1,618 |
| 28 |
| | 364 |
| | 873 |
| | — |
| | 1,265 |
|
Shareholders' Equity: | | | | | | | | | | | | | | | | | | |
Macy's, Inc. | 5,667 |
| | 1,446 |
| | 5,221 |
| | (6,667 | ) | | 5,667 |
| 6,315 |
| | 1,557 |
| | 4,884 |
| | (6,441 | ) | | 6,315 |
|
Noncontrolling Interest | — |
| | — |
| | (22 | ) | | — |
| | (22 | ) | — |
| | — |
| | — |
| | — |
| | — |
|
Total Shareholders' Equity | 5,667 |
| | 1,446 |
| | 5,199 |
| | (6,667 | ) | | 5,645 |
| 6,315 |
| | 1,557 |
| | 4,884 |
| | (6,441 | ) | | 6,315 |
|
Total Liabilities and Shareholders' Equity | $ | 5,883 |
| | $ | 13,027 |
| | $ | 10,807 |
| | $ | (9,356 | ) | | $ | 20,361 |
| $ | 6,417 |
| | $ | 12,569 |
| | $ | 11,451 |
| | $ | (9,696 | ) | | $ | 20,741 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of October 28, 2017August 4, 2018
(millions)
| | | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated | Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
ASSETS: | | | | | | | | | | | | | | | | | | |
Current Assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 116 |
| | $ | 89 |
| | $ | 329 |
| | $ | — |
| | $ | 534 |
| $ | 744 |
| | $ | 66 |
| | $ | 258 |
| | $ | — |
| | $ | 1,068 |
|
Receivables | — |
| | 67 |
| | 152 |
| | — |
| | 219 |
| 1 |
| | 43 |
| | 217 |
| | — |
| | 261 |
|
Merchandise inventories | — |
| | 3,218 |
| | 3,847 |
| | — |
| | 7,065 |
| — |
| | 2,121 |
| | 2,835 |
| | — |
| | 4,956 |
|
Income tax receivable | — |
| | 2 |
| | — |
| | (2 | ) | | — |
| |
Prepaid expenses and other current assets | — |
| | 141 |
| | 469 |
| | — |
| | 610 |
| — |
| | 135 |
| | 445 |
| | — |
| | 580 |
|
Income taxes | | 46 |
| | — |
| | — |
| | (46 | ) | | — |
|
Total Current Assets | 116 |
| | 3,517 |
| | 4,797 |
| | (2 | ) | | 8,428 |
| 791 |
| | 2,365 |
| | 3,755 |
| | (46 | ) | | 6,865 |
|
Property and Equipment – net | — |
| | 3,370 |
| | 3,372 |
| | — |
| | 6,742 |
| — |
| | 3,253 |
| | 3,294 |
| | — |
| | 6,547 |
|
Goodwill | — |
| | 3,315 |
| | 582 |
| | — |
| | 3,897 |
| — |
| | 3,326 |
| | 582 |
| | — |
| | 3,908 |
|
Other Intangible Assets – net | — |
| | 46 |
| | 445 |
| | — |
| | 491 |
| — |
| | 41 |
| | 442 |
| | — |
| | 483 |
|
Other Assets | 1 |
| | 62 |
| | 772 |
| | — |
| | 835 |
| — |
| | 89 |
| | 776 |
| | — |
| | 865 |
|
Deferred Income Taxes | 27 |
| | — |
| | — |
| | (27 | ) | | — |
| 10 |
| | — |
| | — |
| | (10 | ) | | — |
|
Intercompany Receivable | 1,436 |
| | — |
| | 2,161 |
| | (3,597 | ) | | — |
| 1,347 |
| | — |
| | 1,038 |
| | (2,385 | ) | | — |
|
Investment in Subsidiaries | 2,932 |
| | 3,700 |
| | — |
| | (6,632 | ) | | — |
| 3,876 |
| | 3,140 |
| | — |
| | (7,016 | ) | | — |
|
Total Assets | $ | 4,512 |
| | $ | 14,010 |
| | $ | 12,129 |
| | $ | (10,258 | ) | | $ | 20,393 |
| $ | 6,024 |
| | $ | 12,214 |
| | $ | 9,887 |
| | $ | (9,457 | ) | | $ | 18,668 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | | | | | | | | | |
Short-term debt | $ | — |
| | $ | 6 |
| | $ | 16 |
| | $ | — |
| | $ | 22 |
| $ | — |
| | $ | 42 |
| | $ | 21 |
| | $ | — |
| | $ | 63 |
|
Merchandise accounts payable | — |
| | 1,339 |
| | 1,834 |
| | — |
| | 3,173 |
| — |
| | 788 |
| | 1,007 |
| | — |
| | 1,795 |
|
Accounts payable and accrued liabilities | 139 |
| | 1,008 |
| | 2,110 |
| | — |
| | 3,257 |
| 84 |
| | 777 |
| | 1,747 |
| | — |
| | 2,608 |
|
Income taxes | 20 |
| | — |
| | 16 |
| | (2 | ) | | 34 |
| — |
| | 33 |
| | 28 |
| | (46 | ) | | 15 |
|
Total Current Liabilities | 159 |
| | 2,353 |
| | 3,976 |
| | (2 | ) | | 6,486 |
| 84 |
| | 1,640 |
| | 2,803 |
| | (46 | ) | | 4,481 |
|
Long-Term Debt | — |
| | 6,280 |
| | 17 |
| | — |
| | 6,297 |
| — |
| | 5,457 |
| | 16 |
| | — |
| | 5,473 |
|
Intercompany Payable | — |
| | 3,597 |
| | — |
| | (3,597 | ) | | — |
| — |
| | 2,385 |
| | — |
| | (2,385 | ) | | — |
|
Deferred Income Taxes | — |
| | 731 |
| | 882 |
| | (27 | ) | | 1,586 |
| — |
| | 588 |
| | 616 |
| | (10 | ) | | 1,194 |
|
Other Liabilities | 71 |
| | 476 |
| | 1,203 |
| | — |
| | 1,750 |
| 24 |
| | 441 |
| | 1,161 |
| | — |
| | 1,626 |
|
Shareholders' Equity: | | | | | | | | | | | | | | | | | | |
Macy's, Inc. | 4,282 |
| | 573 |
| | 6,059 |
| | (6,632 | ) | | 4,282 |
| 5,916 |
| | 1,703 |
| | 5,313 |
| | (7,016 | ) | | 5,916 |
|
Noncontrolling Interest | — |
| | — |
| | (8 | ) | | — |
| | (8 | ) | — |
| | — |
| | (22 | ) | | — |
| | (22 | ) |
Total Shareholders' Equity | 4,282 |
| | 573 |
| | 6,051 |
| | (6,632 | ) | | 4,274 |
| 5,916 |
| | 1,703 |
| | 5,291 |
| | (7,016 | ) | | 5,894 |
|
Total Liabilities and Shareholders' Equity | $ | 4,512 |
| | $ | 14,010 |
| | $ | 12,129 |
| | $ | (10,258 | ) | | $ | 20,393 |
| $ | 6,024 |
| | $ | 12,214 |
| | $ | 9,887 |
| | $ | (9,457 | ) | | $ | 18,668 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of February 3, 20182, 2019
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
ASSETS: | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 889 |
| | $ | 59 |
| | $ | 214 |
| | $ | — |
| | $ | 1,162 |
|
Receivables | — |
| | 68 |
| | 332 |
| | — |
| | 400 |
|
Merchandise inventories | — |
| | 2,342 |
| | 2,921 |
| | — |
| | 5,263 |
|
Prepaid expenses and other current assets | — |
| | 143 |
| | 477 |
| | — |
| | 620 |
|
Total Current Assets | 889 |
| | 2,612 |
| | 3,944 |
| | — |
| | 7,445 |
|
Property and Equipment – net | — |
| | 3,287 |
| | 3,350 |
| | — |
| | 6,637 |
|
Goodwill | — |
| | 3,326 |
| | 582 |
| | — |
| | 3,908 |
|
Other Intangible Assets – net | — |
| | 38 |
| | 440 |
| | — |
| | 478 |
|
Other Assets | — |
| | 41 |
| | 685 |
| | — |
| | 726 |
|
Deferred Income Taxes | 12 |
| | — |
| | — |
| | (12 | ) | | — |
|
Intercompany Receivable | 1,713 |
| | — |
| | 1,390 |
| | (3,103 | ) | | — |
|
Investment in Subsidiaries | 4,030 |
| | 3,119 |
| | — |
| | (7,149 | ) | | — |
|
Total Assets | $ | 6,644 |
| | $ | 12,423 |
| | $ | 10,391 |
| | $ | (10,264 | ) | | $ | 19,194 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Short-term debt | $ | — |
| | $ | 42 |
| | $ | 1 |
| | $ | — |
| | $ | 43 |
|
Merchandise accounts payable | — |
| | 713 |
| | 942 |
| | — |
| | 1,655 |
|
Accounts payable and accrued liabilities | 170 |
| | 950 |
| | 2,246 |
| | — |
| | 3,366 |
|
Income taxes | 14 |
| | 52 |
| | 102 |
| | — |
| | 168 |
|
Total Current Liabilities | 184 |
| | 1,757 |
| | 3,291 |
| | — |
| | 5,232 |
|
Long-Term Debt | — |
| | 4,692 |
| | 16 |
| | — |
| | 4,708 |
|
Intercompany Payable | — |
| | 3,103 |
| | — |
| | (3,103 | ) | | — |
|
Deferred Income Taxes | — |
| | 679 |
| | 571 |
| | (12 | ) | | 1,238 |
|
Other Liabilities | 24 |
| | 406 |
| | 1,150 |
| | — |
| | 1,580 |
|
Shareholders' Equity: | | | | | | | | | |
Macy's, Inc. | 6,436 |
| | 1,786 |
| | 5,363 |
| | (7,149 | ) | | 6,436 |
|
Noncontrolling Interest | — |
| | — |
| | — |
| | — |
| | — |
|
Total Shareholders' Equity | 6,436 |
| | 1,786 |
| | 5,363 |
| | (7,149 | ) | | 6,436 |
|
Total Liabilities and Shareholders' Equity | $ | 6,644 |
| | $ | 12,423 |
| | $ | 10,391 |
| | $ | (10,264 | ) | | $ | 19,194 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
ASSETS: | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 1,109 |
| | $ | 58 |
| | $ | 288 |
| | $ | — |
| | $ | 1,455 |
|
Receivables | — |
| | 85 |
| | 278 |
| | — |
| | 363 |
|
Merchandise inventories | — |
| | 2,344 |
| | 2,834 |
| | — |
| | 5,178 |
|
Prepaid expenses and other current assets | — |
| | 165 |
| | 485 |
| | — |
| | 650 |
|
Total Current Assets | 1,109 |
| | 2,652 |
| | 3,885 |
| | — |
| | 7,646 |
|
Property and Equipment – net | — |
| | 3,349 |
| | 3,323 |
| | — |
| | 6,672 |
|
Goodwill | — |
| | 3,315 |
| | 582 |
| | — |
| | 3,897 |
|
Other Intangible Assets – net | — |
| | 44 |
| | 444 |
| | — |
| | 488 |
|
Other Assets | 1 |
| | 89 |
| | 790 |
| | — |
| | 880 |
|
Deferred Income Taxes | 11 |
| | — |
| | — |
| | (11 | ) | | — |
|
Intercompany Receivable | 884 |
| | — |
| | 2,388 |
| | (3,272 | ) | | — |
|
Investment in Subsidiaries | 4,032 |
| | 4,126 |
| | — |
| | (8,158 | ) | | — |
|
Total Assets | $ | 6,037 |
| | $ | 13,575 |
| | $ | 11,412 |
| | $ | (11,441 | ) | | $ | 19,583 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY: | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Short-term debt | $ | — |
| | $ | 6 |
| | $ | 16 |
| | $ | — |
| | $ | 22 |
|
Merchandise accounts payable | — |
| | 653 |
| | 937 |
| | — |
| | 1,590 |
|
Accounts payable and accrued liabilities | 159 |
| | 980 |
| | 2,132 |
| | — |
| | 3,271 |
|
Income taxes | 113 |
| | 30 |
| | 153 |
| | — |
| | 296 |
|
Total Current Liabilities | 272 |
| | 1,669 |
| | 3,238 |
| | — |
| | 5,179 |
|
Long-Term Debt | — |
| | 5,844 |
| | 17 |
| | — |
| | 5,861 |
|
Intercompany Payable | — |
| | 3,272 |
| | — |
| | (3,272 | ) | | — |
|
Deferred Income Taxes | — |
| | 559 |
| | 600 |
| | (11 | ) | | 1,148 |
|
Other Liabilities | 20 |
| | 430 |
| | 1,212 |
| | — |
| | 1,662 |
|
Shareholders' Equity: | | | | | | | | | |
Macy's, Inc. | 5,745 |
| | 1,801 |
| | 6,357 |
| | (8,158 | ) | | 5,745 |
|
Noncontrolling Interest | — |
| | — |
| | (12 | ) | | — |
| | (12 | ) |
Total Shareholders' Equity | 5,745 |
| | 1,801 |
| | 6,345 |
| | (8,158 | ) | | 5,733 |
|
Total Liabilities and Shareholders' Equity | $ | 6,037 |
| | $ | 13,575 |
| | $ | 11,412 |
| | $ | (11,441 | ) | | $ | 19,583 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the 3926 Weeks EndedNovemberAugust 3, 20182019
(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 | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
Equity in loss (earnings) of subsidiaries | (214 | ) | | 138 |
| | — |
| | 76 |
| | — |
|
Dividends received from subsidiaries | 606 |
| | — |
| | — |
| | (606 | ) | | — |
|
Depreciation and amortization | — |
| | 169 |
| | 303 |
| | — |
| | 472 |
|
Gains on sale of real estate | — |
| | (24 | ) | | (25 | ) | | — |
| | (49 | ) |
Changes in assets, liabilities and other items not separately identified | (52 | ) | | 47 |
| | (294 | ) | | — |
| | (299 | ) |
Net cash provided by operating activities | 563 |
| | 123 |
| | 270 |
| | (606 | ) | | 350 |
|
Cash flows from investing activities: | | | | | | | | | |
Purchase of property and equipment and capitalized software, net of dispositions | — |
| | (97 | ) | | (345 | ) | | — |
| | (442 | ) |
Other, net | — |
| | (11 | ) | | (1 | ) | | — |
| | (12 | ) |
Net cash used by investing activities | — |
| | (108 | ) | | (346 | ) | | — |
| | (454 | ) |
Cash flows from financing activities: | | | | | | | | | |
Debt repaid, including debt issuance costs | — |
| | (42 | ) | | — |
| | — |
| | (42 | ) |
Dividends paid | (233 | ) | | — |
| | (606 | ) | | 606 |
| | (233 | ) |
Issuance of common stock | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
Intercompany activity, net | (813 | ) | | 93 |
| | 720 |
| | — |
| | — |
|
Other, net | (92 | ) | | (21 | ) | | (15 | ) | | — |
| | (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 |
| | — |
| | (501 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 889 |
| | 64 |
| | 295 |
| | — |
| | 1,248 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 320 |
| | $ | 109 |
| | $ | 318 |
| | $ | — |
| | $ | 747 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | | | |
Net income (loss) | $ | 368 |
| | $ | (289 | ) | | $ | 692 |
| | $ | (413 | ) | | $ | 358 |
|
Equity in earnings of subsidiaries | (362 | ) | | (51 | ) | | — |
| | 413 |
| | — |
|
Impairment, restructuring and other costs | — |
| | — |
| | 39 |
| | — |
| | 39 |
|
Settlement charges | 5 |
| | 24 |
| | 44 |
| | — |
| | 73 |
|
Dividends received from subsidiaries | 689 |
| | — |
| | — |
| | (689 | ) | | — |
|
Depreciation and amortization | — |
| | 250 |
| | 468 |
| | — |
| | 718 |
|
Gains on sale of real estate | — |
| | (83 | ) | | (28 | ) | | — |
| | (111 | ) |
Changes in assets, liabilities and other items not separately identified | (191 | ) | | 115 |
| | (571 | ) | | (1 | ) | | (648 | ) |
Net cash provided (used) by operating activities | 509 |
| | (34 | ) | | 644 |
| | (690 | ) | | 429 |
|
Cash flows from investing activities: | | | | | | | | | |
Purchase of property and equipment and capitalized software, net of dispositions | — |
| | (98 | ) | | (458 | ) | | — |
| | (556 | ) |
Other, net | — |
| | (15 | ) | | (29 | ) | | 51 |
| | 7 |
|
Net cash used by investing activities | — |
| | (113 | ) | | (487 | ) | | 51 |
| | (549 | ) |
Cash flows from financing activities: | | | | | | | | | |
Debt repaid | — |
| | (310 | ) | | (1 | ) | | (50 | ) | | (361 | ) |
Dividends paid | (347 | ) | | — |
| | (689 | ) | | 689 |
| | (347 | ) |
Issuance of common stock | 41 |
| | — |
| | — |
| | — |
| | 41 |
|
Proceeds from noncontrolling interest | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Intercompany activity, net | (803 | ) | | 378 |
| | 425 |
| | — |
| | — |
|
Other, net | (83 | ) | | 74 |
| | 53 |
| | — |
| | 44 |
|
Net cash provided (used) by financing activities | (1,192 | ) | | 142 |
| | (205 | ) | | 639 |
| | (616 | ) |
Net decrease in cash, cash equivalents and restricted cash | (683 | ) | | (5 | ) | | (48 | ) | | — |
| | (736 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 1,109 |
| | 79 |
| | 325 |
| | — |
| | 1,513 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 426 |
| | $ | 74 |
| | $ | 277 |
| | $ | — |
| | $ | 777 |
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the 3926 Weeks Ended October 28, 2017August 4, 2018
(millions)
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | | | |
Net income (loss) | $ | 306 |
| | $ | (122 | ) | | $ | 525 |
| | $ | (413 | ) | | $ | 296 |
|
Impairment and other costs | — |
| | (2 | ) | | 38 |
| | — |
| | 36 |
|
Settlement charges | 6 |
| | 16 |
| | 28 |
| | — |
| | 50 |
|
Equity in earnings of subsidiaries | (304 | ) | | (109 | ) | | — |
| | 413 |
| | — |
|
Dividends received from subsidiaries | 492 |
| | — |
| | — |
| | (492 | ) | | — |
|
Depreciation and amortization | — |
| | 165 |
| | 305 |
| | — |
| | 470 |
|
Gains on sale of real estate | — |
| | (42 | ) | | (28 | ) | | — |
| | (70 | ) |
Changes in assets, liabilities and other items not separately identified | (154 | ) | | 298 |
| | (381 | ) | | (1 | ) | | (238 | ) |
Net cash provided by operating activities | 346 |
| | 204 |
| | 487 |
| | (493 | ) | | 544 |
|
Cash flows from investing activities: | | | | | | | | | |
Purchase of property and equipment and capitalized software, net of dispositions | — |
| | (49 | ) | | (271 | ) | | — |
| | (320 | ) |
Other, net | — |
| | (15 | ) | | (28 | ) | | 51 |
| | 8 |
|
Net cash used by investing activities | — |
| | (64 | ) | | (299 | ) | | 51 |
| | (312 | ) |
Cash flows from financing activities: | | | | | | | | | |
Debt repaid | — |
| | (306 | ) | | (1 | ) | | (50 | ) | | (357 | ) |
Dividends paid | (232 | ) | | — |
| | (492 | ) | | 492 |
| | (232 | ) |
Issuance of common stock | 38 |
| | — |
| | — |
| | — |
| | 38 |
|
Proceeds from noncontrolling interest | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Intercompany activity, net | (441 | ) | | 162 |
| | 279 |
| | — |
| | — |
|
Other, net | (76 | ) | | (9 | ) | | (5 | ) | | — |
| | (90 | ) |
Net cash used by financing activities | (711 | ) | | (153 | ) | | (214 | ) | | 442 |
| | (636 | ) |
Net decrease in cash, cash equivalents and restricted cash | (365 | ) | | (13 | ) | | (26 | ) | | — |
| | (404 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 1,109 |
| | 79 |
| | 325 |
| | — |
| | 1,513 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 744 |
| | $ | 66 |
| | $ | 299 |
| | $ | — |
| | $ | 1,109 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Subsidiary Issuer | | Other Subsidiaries | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities: | | | | | | | | | |
Net income (loss) | $ | 219 |
| | $ | (385 | ) | | $ | 569 |
| | $ | (191 | ) | | $ | 212 |
|
Equity in loss (earnings) of subsidiaries | (217 | ) | | 26 |
| | — |
| | 191 |
| | — |
|
Restructuring and other costs | — |
| | 1 |
| | 32 |
| | — |
| | 33 |
|
Settlement charges | — |
| | 24 |
| | 49 |
| | — |
| | 73 |
|
Dividends received from subsidiaries | 571 |
| | — |
| | — |
| | (571 | ) | | — |
|
Depreciation and amortization | — |
| | 265 |
| | 476 |
| | — |
| | 741 |
|
Gains on sale of real estate | — |
| | (116 | ) | | (60 | ) | | — |
| | (176 | ) |
Changes in assets, liabilities and other items not separately identified | (44 | ) | | 167 |
| | (607 | ) | | — |
| | (484 | ) |
Net cash provided (used) by operating activities | 529 |
| | (18 | ) | | 459 |
| | (571 | ) | | 399 |
|
Cash flows from investing activities: | | | | | | | | | |
Disposition (purchase) of property and equipment and capitalized software, net | — |
| | 30 |
| | (368 | ) | | — |
| | (338 | ) |
Other, net | — |
| | 2 |
| | 7 |
| | — |
| | 9 |
|
Net cash provided (used) by investing activities | — |
| | 32 |
| | (361 | ) | | — |
| | (329 | ) |
Cash flows from financing activities: | | | | | | | | | |
Debt repaid | — |
| | (563 | ) | | (1 | ) | | — |
| | (564 | ) |
Dividends paid | (346 | ) | | — |
| | (571 | ) | | 571 |
| | (346 | ) |
Issuance of common stock, net of common stock acquired | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Proceeds from noncontrolling interest | — |
| | — |
| | 12 |
| | — |
| | 12 |
|
Intercompany activity, net | (1,016 | ) | | 589 |
| | 427 |
| | — |
| | — |
|
Other, net | 9 |
| | (32 | ) | | 103 |
| | — |
| | 80 |
|
Net cash used by financing activities | (1,351 | ) | | (6 | ) | | (30 | ) | | 571 |
| | (816 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash | (822 | ) | | 8 |
| | 68 |
| | — |
| | (746 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 938 |
| | 81 |
| | 315 |
| | — |
| | 1,334 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 116 |
| | $ | 89 |
| | $ | 383 |
| | $ | — |
| | $ | 588 |
|
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
For purposes of the following discussion, all references to "thirdsecond quarter of 20182019" and "thirdsecond quarter of 20172018" are to the Company's 13-week fiscal periods ended NovemberAugust 3, 20182019 and October 28, 2017August 4, 2018, respectively,respectively. References to "2019" and all references to "2018" and "2017" are to the Company's 39-week fiscal26-week periods ended NovemberAugust 3, 2019 and August 4, 2018, and October 28, 2017, 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 20172018 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 20172018 10-K (particularly in "Risk Factors" and in "Forward-Looking Statements"). This discussion includes non-GAAP financial measures. For information about these measures, see the disclosure under the caption "Important Information Regarding Non-GAAP Financial Measures" on pages 2933 and 34.
Overview
During the second quarter of 2019, the Company delivered comparable sales growth, but earnings results for the period were below expectations. The Company entered the quarter with elevated spring inventory levels, but slower sales at the beginning of the quarter along with accelerated declines in international tourism created a need to 31.take additional markdowns to clear excess spring inventory. Actions have been and are being taken to support a higher gross margin rate in the back half of fiscal 2019:
OverviewInventory was well positioned at the end of the second quarter and fall receipt planning is leaner.
The Company is an omnichannel retail organization operating stores, websitesenhancing its inventory allocation strategy, enabling it to reallocate inventory in-season throughout its various sales channels based on customer demand, which is expected to result in fewer markdowns and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and kids), cosmetics, home furnishings and other consumer goods. out-of-stocks.
The Company operates approximately 870 storesis evolving its marketing strategy to leverage strategic partnerships, simplify offers, and improve segmentation and targeting of customers.
Data analytic capabilities are being enhanced to provide more granular information and to assist in 44 states,executing pricing and markdown decisions at a localized level.
In addition to the District of Columbia, Guam and Puerto Rico. As of November 3, 2018, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage, bluemercury and STORY.
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.
Quarter Highlights
During the third quarter of 2018,above actions, the Company completed foundational work for the 2018 five keyhas continued to invest in its fiscal 2019 strategic initiatives of the North Star strategy. These initiatives continuedand such investment is expected to contribute to comparable sales growth in the resultsback half of 2018. Specifically:the year:
The Macy's Star Rewards loyalty program marked its one-year anniversaryWork on the Growth100 locations is ahead of fiscal 2018's schedule and continuedis expected to offer improved benefits to its members, including exclusive experiencesbe completed well in advance of the fiscal 2019 holiday season. Sales for the program's platinum loyalty members.original Growth50 locations continue to outperform the other Macy's locations and it is expected that the Growth150 locations will make up approximately 50% of Macy's store location sales.
Completing theMacy's Backstage has been expanded to 47 additional locations in fiscal 2018 expansion of Backstage, Macy's mall-based off-price business,2019 and three additional locations are expected to open later this year. In total, the Company opened 56 new locations within existing Macy’s stores during the third quarter of 2018. This expansion brings the totalwas operating 219 Macy's Backstage locations to 173 (seven freestanding and 166(212 inside Macy's stores)stores and seven freestanding locations) as of NovemberAugust 3, 2018.2019. In addition, the Company has opened its Macy's Backstage specific distribution center in Columbus, Ohio to provide improved logistic efficiency, speed and scale to support the continued growth of this off-price business.
The Company's vendor direct program (i.e., merchandise purchased from the Company's websites and digital applications and shipped directly to customers from the respective vendor) has continued its expansionto expand and is on track to reach 1 million SKUs by the end of fiscal 2019.
The mobile-first strategy has continued to create a better omnichannel experience for customers, and mobile continues to remain the Company's fastest growing channel.
Sales at the Company's destination businesses (six merchandise categories: dresses, fine jewelry, big ticket, men's tailored, women's shoes and beauty) were up approximately 5% in the second quarter of 2019 and accounted for almost 40% of the Company's sales. Additional resources are being allocated to these categories to continue to drive growth and increase market share.
Bloomingdale's experienced a challenging quarter, driven largely by declines in international tourism. Women's and men's shoes and Bloomingdale's The Outlets performed well during the quarter. Two additional Bloomingdale's The Outlets are planned to open in the third quarter of 2018, with increased assortment and2019.
Bluemercury, the addition of new categories and brands.
The Company completed the enhancement of customer options for pick-up, delivery and checkout at Macy's, including the expansion of Buy Online Ship to Store and construction of At Your Service stations in all stores.
The Growth50 locations contributed to the strong operating results for the third quarter of 2018. As a result of the performance of the Growth50 locations, the Company will expand the initiative to another 100 stores in fiscal 2019.
The Company recently announced a retail store strategy for Macy's that focuses on identifying a scalable investment strategy for all of the brand's stores, improving the customer's experience and growing total sales profitably. This strategy includes categorization of the Company's Macy's stores into three groups:
Flagship stores include Herald Square and 10 other regional flagship stores which serve as premier retail destinations within their respective regions.
Magnet stores include the Growth50 stores, which as noted previously will be expanded to another 100 stores in fiscal 2019. These stores are retail destinations within major markets that offer an expanded selection of merchandise.
Neighborhood stores are smaller, profitable locations that are visited primarily for convenience and on-line order fulfillment. The Company is testing, and will continue to test in fiscal 2019, different investment models aimed at increasing shopping ease and convenience. Once the right model is determined, it will be rolled-out to the remaining neighborhood stores.
Further building upon its acquisition of STORY and investment in b8ta in the first half of 2018, the Company continued its enhancement of in-store experiences and personalization through advanced technology and partnerships. During the third quarter of 2018, the Company completed the roll-out of virtual reality furniture at 69 stores and began offering augmented reality beauty experiences in certain stores. Additionally, the Company announced the expansion of the number of e-commerce brands that will be available at The Market @ Macy's during the fourth quarter of 2018.
In addition to the above, the Company has continued to grow its luxury beauty products and spa retailer, bluemercury, by opening additional freestanding bluemercurycontinued its growth during the quarter both in stand-alone stores in urban and suburban markets, and adding bluemercury products and boutiques tostores within Macy's stores. Eight new freestandingIn total, the Company was operating 187 bluemercury locations were opened in the third quarter of 2018, and four additional freestanding locations are expected to open later in the fiscal year. As of November 3, 2018, the Company is operating 180 bluemercury locations (160 freestanding and 20(20 inside Macy's stores).stores and 167 freestanding locations) as of August 3, 2019.
Results of Operations
Comparison of the ThirdSecond Quarter of 20182019 and the ThirdSecond Quarter of 20172018
| | | | Third Quarter of 2018 | | Third Quarter of 2017 | | | Second Quarter of 2019 | | Second Quarter of 2018 | |
| | Amount | | % to Net Sales | | Amount | | % to Net Sales | | | Amount | | % to Net Sales | | Amount | | % to Net Sales | |
| | (dollars in millions, except per share figures) | | (dollars in millions, except per share figures) |
Net sales | | $ | 5,404 |
| | | | $ | 5,281 |
| | | | | $ | 5,546 |
| | | | $ | 5,572 |
| | | |
Credit card revenues, net | | 185 |
| | 3.4 |
| % | 145 |
| | 2.7 |
| % | | 176 |
| | 3.2 |
| % | 186 |
| | 3.3 |
| % |
| | | | | | | | | | | | | | | | | | |
Cost of sales | | (3,226 | ) | | (59.7 | ) | % | (3,152 | ) | | (59.7 | ) | % | | (3,395 | ) | | (61.2 | ) | % | (3,320 | ) | | (59.6 | ) | % |
Selling, general and administrative expenses | | (2,255 | ) | | (41.7 | ) | % | (2,188 | ) | | (41.4 | ) | % | | (2,177 | ) | | (39.3 | ) | % | (2,164 | ) | | (38.8 | ) | % |
Gains on sale of real estate | | 42 |
| | 0.8 |
| % | 65 |
| | 1.2 |
| % | | 7 |
| | 0.1 |
| % | 46 |
| | 0.8 |
| % |
Restructuring and other costs | | (3 | ) | | (0.1 | ) | % | (33 | ) | | (0.6 | ) | % | |
Impairment and other costs | | | (2 | ) | | — |
| % | (17 | ) | | (0.3 | ) | % |
Operating income | | 147 |
| | 2.7 |
| % | 118 |
| | 2.2 |
| % | | 155 |
| | 2.8 |
| % | 303 |
| | 5.4 |
| % |
Benefit plan income, net | | 9 |
| | | | 15 |
| | | | | 8 |
| | | | 11 |
| | | |
Settlement charges | | (23 | ) | | | | (22 | ) | | | | | — |
| | | | (50 | ) | | | |
Interest expense, net | | (59 | ) | | | | (74 | ) | | | | | (47 | ) | | | | (62 | ) | | | |
Losses on the early retirement of debt | | | — |
| | | | (5 | ) | | | |
Income before income taxes | | 74 |
| | | | 37 |
| | | | | 116 |
| | | | 197 |
| | | |
Federal, state and local income tax expense | | (12 | ) | | | | (10 | ) | | | | | (30 | ) | | | | (33 | ) | | | |
Net income | | 62 |
| | | 27 |
| | | | 86 |
| | | 164 |
| | |
Net loss attributable to noncontrolling interest | | — |
| | | | 3 |
| | | | | — |
| | | | 2 |
| | | |
Net income attributable to Macy's, Inc. shareholders | | $ | 62 |
| | 1.1 |
| % | $ | 30 |
| | 0.6 |
| % | | $ | 86 |
| | 1.6 |
| % | $ | 166 |
| | 3.0 |
| % |
| | | | | | | | | | | | | | | | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders | | $ | 0.20 |
| | | | $ | 0.10 |
| | | | | $ | 0.28 |
| | | | $ | 0.53 |
| | | |
| | | | | | | | | | | | | | | | | | |
Supplemental Financial Measure | | | | | | | | | | | | | | | | | | |
Gross margin (a) | | $ | 2,178 |
| | 40.3 |
| % | $ | 2,129 |
|
| 40.3 |
| % | | $ | 2,151 |
| | 38.8 |
| % | $ | 2,252 |
|
| 40.4 |
| % |
| | | | | | | | | | | | | | | | | | |
Supplemental Non-GAAP Financial Measure | | | | | | | | | | | | | | | | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of certain items | | $ | 0.27 |
| | | | $ | 0.21 |
| | | | | $ | 0.28 |
| | | | $ | 0.70 |
| | | |
| | | | | | | | | | | | | | | | | | |
(a) Gross margin is defined as net sales less cost of sales.
Net Sales and Comparable Sales
Net sales for the thirdsecond quarter of 2018 increased $1232019 decreased $26 million, or 2.3%0.5%, compared to the thirdsecond quarter of 20172018. Comparable sales on an owned basis for the thirdsecond quarter of 20182019 increased 3.1%0.2% compared to the thirdsecond quarter of 20172018. On an owned plus licensed basis, comparable sales increased 3.3%0.3% during the thirdsecond quarter of 20182019.
The Company’s digital businessDigital sales continued itsto experience strong growth with double-digit gains in the thirdsecond quarter of 20182019 and all three brands, Macy's, Bloomingdale'ssales performance was strong in the Company's Growth50 locations and bluemercury, performed well.its destination businesses, particularly fine jewelry, men's tailored and women's shoes. Sales performance was weaker in the home and ready-to-wear categories. International tourism sales were down approximately 9.0% in the quarter. Geographically, the North Central was the strongest region during the thirdsecond quarter of 2018 were the strongest in men's and kids, fine jewelry, fragrances, active, women's shoes and coats, while sales in women's sportswear and fashion watches were not as strong.2019.
Credit Card Revenues, Net
Credit card revenues, net were $185$176 million in the thirdsecond quarter of 20182019, an increasea decrease of $40$10 million, or 5.4%, compared to $145$186 million recognized in the thirdsecond quarter of 20172018. Increased proprietary card usageThis decrease was driven by increased fraud and bad debt realized by the enhanced Macy's Star Rewards loyaltycredit card program, and higher consumer credit balances drovewhich impacted the favorable results.profit share recognized in the quarter. Proprietary card penetration increased 10 basis points to 48.4%46.7% in the thirdsecond quarter of 2018 from 47.4%2019 compared to 46.6% in the thirdsecond quarter of 20172018.
Cost of Sales
Cost of sales increased by $74$75 million compared to the thirdsecond quarter of 2017, remaining flat2018, a 160 basis point increase as a percent to net sales withto 61.2% in the thirdsecond quarter of 2017 at 59.7%.2019. The increase in cost of sales dollars was primarily driven by increased markdowns needed to clear excess inventories as well as higher sales.delivery expense, which resulted from free shipping offered as part of the Company's loyalty programs coupled with increased digital sales transaction volume compared to the prior year quarter.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the thirdsecond quarter of 20182019 increased $67$13 million from the thirdsecond quarter of 2017.2018. The SG&A rate as a percent to net sales of 41.7%39.3% was 3050 basis points higher in the thirdsecond quarter of 2018,2019, as compared to the thirdsecond quarter of 2017.2018. This increase in SG&A expenses was driven primarily by investments in the expansion of Macy's Backstage as well as the Company's new employee incentive plan.other strategic initiatives previously discussed.
Gains on Sale of Real Estate
The thirdsecond quarter of 20182019 included asset sale gains of $42$7 million including $23compared to $46 million related toin the continued recognitionsecond quarter of the deferred gain from the Macy's Brooklyn transaction closed in fiscal 2015. This compares to $65 million2018. The second quarter of 2018 asset sale gains recognized in the third quarter of 2017, includingwere driven by approximately $40 million related to the Macy's downtown Seattle location and $22$17 million related to the Macy's Brooklyn transaction.
RestructuringImpairment and Other Costs
The thirdsecond quarters of 2019 and 2018 and 2017 included $3$2 million and $33$17 million, respectively, of restructuringimpairment and other costs. Impairment and other costs related to severance activity and other human resource costsin the second quarter of 2018 were associated with organizational restructuring.the wind-down of Macy's China Limited.
Benefit Plan Income, Net
The thirdsecond quarters of 2019 and 2018 and 2017 included $9$8 million and $15$11 million, respectively, of non-cash net benefit plan income relating to the Company's defined benefit plans. This income includes the net of: interest cost, expected return on plan assets and amortization of prior service costs or credits and actuarial gains and losses.
Settlement Charges
The third quarterssecond quarter of 2018 and 2017 included $23$50 million and $22 million, respectively, of non-cash settlement charges relatingrelated to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions primarily associated with retiree distribution elections and restructuring activity.
Net Interest Expense
Net interest expense for the thirdsecond quarter of 20182019 decreased $15 million from the thirdsecond quarter of 20172018 due to a reduction in the Company's debt resulting from tender offer repurchases in fiscal 2017 and open market repurchases in fiscal2018.
Losses on Early Retirement of Debt
In the second quarter of 2018, the Company repurchased approximately $344 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of approximately $354 million, including expenses related to the transactions. As a result of the debt repurchases, the Company recognized $5 million in expenses and fees net of the write-off of unamortized debt premiums in the second quarter of 2018.
Effective Tax Rate
The Company's effective tax rate of 16.2%was 25.9% for the thirdsecond quarter of 2019 and 16.8% for the second quarter of 2018 and 27.0% for the third quarter of 2017 differ fromcompared to the federal income tax statutory rate of 21% and 35%, respectively, because of. The quarterly effective tax rates were impacted by the resolutionsettlement of certain state and local tax settlements and tax examinations. In addition to these items, the effective tax rate for the third quarter of 2018 was lower than the effective tax rate for the third quarter of 2017 due to the enactment of U.S. federal tax reform in December 2017, which lowered the Company's federal income tax statutory rate as outlined above.matters.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for the thirdsecond quarter of 2018 increased $322019 decreased $80 million compared to the thirdsecond quarter of 2017.2018. The thirdsecond quarter of 2018 included higher sales, net credit card revenue and gross margin, as well as2019 was driven by lower operating income partially offset by lower interest expense and a lower effective tax ratesettlement charges than the thirdsecond quarter of 2017.2018.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for the thirdsecond quarter of 2018 increased $0.102019 decreased $0.25 compared to the thirdsecond quarter of 20172018, reflecting higherlower net income.
Comparison of the 3926 Weeks Ended NovemberAugust 3, 20182019 and October 28, 2017August 4, 2018
| | | | 2018 | | 2017 | | | 2019 | | 2018 | |
| | Amount | | % to Net Sales | | Amount | | % to Net Sales | | | Amount | | % to Net Sales | | Amount | | % to Net Sales | |
| | (dollars in millions, except per share figures) | | (dollars in millions, except per share figures) |
Net sales | | $ | 16,516 |
| | | | $ | 16,267 |
| | | | | $ | 11,050 |
| | | | $ | 11,112 |
| | | |
Credit card revenues, net | | 528 |
| | 3.2 |
| % | 473 |
| | 2.9 |
| % | | 348 |
| | 3.1 |
| % | 343 |
| | 3.1 |
| % |
| | | | | | | | | | | | | | | | | | |
Cost of sales | | (9,927 | ) | | (60.1 | ) | % | (9,858 | ) | | (60.6 | ) | % | | (6,798 | ) | | (61.5 | ) | % | (6,701 | ) | | (60.3 | ) | % |
Selling, general and administrative expenses | | (6,501 | ) | | (39.4 | ) | % | (6,406 | ) | | (39.4 | ) | % | | (4,287 | ) | | (38.8 | ) | % | (4,247 | ) | | (38.2 | ) | % |
Gains on sale of real estate | | 111 |
| | 0.7 |
| % | 176 |
| | 1.1 |
| % | | 49 |
| | 0.4 |
| % | 70 |
| | 0.6 |
| % |
Impairment, restructuring and other costs | | (39 | ) | | (0.2 | ) | % | (33 | ) | | (0.2 | ) | % | |
Impairment and other costs | | | (3 | ) | | — |
| % | (36 | ) | | (0.3 | ) | % |
Operating income | | 688 |
| | 4.2 |
| % | 619 |
| | 3.8 |
| % | | 359 |
| | 3.2 |
| % | 541 |
| | 4.9 |
| % |
Benefit plan income, net | | 31 |
| | | | 42 |
| | | | | 15 |
| | | | 22 |
| | | |
Settlement charges | | (73 | ) | | | | (73 | ) | | | | | — |
| | | | (50 | ) | | | |
Interest expense, net | | (187 | ) | | | | (237 | ) | | | | | (94 | ) | | | | (128 | ) | | | |
Losses on the early retirement of debt | | (5 | ) | | | | (1 | ) | | | | | — |
| | | | (5 | ) | | | |
Income before income taxes | | 454 |
| | | | 350 |
| | | | | 280 |
| | | | 380 |
| | | |
Federal, state and local income tax expense | | (96 | ) | | | | (138 | ) | | | | | (57 | ) | | | | (84 | ) | | | |
Net income | | 358 |
| | | 212 |
| | | | 223 |
| | | 296 |
| | |
Net loss attributable to noncontrolling interest | | 10 |
| | | | 7 |
| | | | | — |
| | | | 10 |
| | | |
Net income attributable to Macy's, Inc. shareholders | | $ | 368 |
| | 2.2 |
| % | $ | 219 |
| | 1.3 |
| % | | $ | 223 |
| | 2.0 |
| % | $ | 306 |
| | 2.8 |
| % |
| | | | | | | | | | | | | | | | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders | | $ | 1.18 |
| | | | $ | 0.71 |
| | | | | $ | 0.71 |
| | | | $ | 0.98 |
| | | |
| | | | | | | | | | | | | | | | | | |
Supplemental Financial Measures | | | | | | | | | | |
Supplemental Financial Measure | | | | | | | | | | |
Gross margin (a) | | $ | 6,589 |
| | 39.9 |
| % | $ | 6,409 |
| | 39.4 |
| % | | $ | 4,252 |
| | 38.5 |
| % | $ | 4,411 |
|
| 39.7 |
| % |
| | | | | | | | | | | | | | | | | | |
Supplemental Non-GAAP Financial Measures | | | | | | | | | | |
Supplemental Non-GAAP Financial Measure | | | | | | | | | | |
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of certain items | | $ | 1.45 |
| | | | $ | 0.93 |
| | | | | $ | 0.72 |
| | | | $ | 1.19 |
| | | |
| | | | | | | | | | | | | | | | | | |
(a) Gross margin is defined as net sales less cost of sales.
Net Sales and Comparable Sales
Net sales for 2018 increased $2492019 decreased $62 million, or 1.5%0.6%, compared to 2017.2018. Comparable sales on an owned basis during 2018for 2019 increased 2.4%0.4% compared to 2017.2018. On an owned plus licensed basis, comparable sales increased 2.7%0.5% during 2018. Sales during 2018 benefited from the Company's implementation of the five key strategic initiatives of the North Star strategy, strong consumer spending and improved inventory management. The Company’s digital business2019.
Digital sales continued itsto experience strong growth with double-digit gains in 2018.2019 and Macy's Growth50 locations and destination businesses achieved strong growth. Sales during 20182019 were strong in the merchandise categories that make up our destination businesses, particularly dresses, fine jewelry, men's tailored and women's shoes. Active and kids were also strong performers during 2019, while sales were weaker in handbags and ready-to-wear categories during 2019. Geographically, the North Central was the strongest in fine jewelry, fragrances, men's, women's shoes, dresses, kids, and active. Sales were not as strong in women's sportswear and fashion watchesregion during 2018.2019.
Credit Card Revenues, Net
Credit card revenues, net were $528$348 million in 2018,2019, an increase of $55$5 million compared to $473$343 million recognized in 2017.2018. Increased proprietary card usage driven by the enhanced Macy's Star Rewards loyalty program and higher consumer credit balances drove the favorable results. Proprietary card penetration increased 40 basis points to 46.8%46.5% in 2018 from 46.3%2019 compared to 46.1% in 2017.2018.
Cost of Sales
The costCost of sales rateincreased by $97 million compared to 2018, a 120 basis point increase as a percent to net sales for 2018 decreased to 60.1% compared to 60.6% for 2017, while61.5% in 2019. The increase in cost of sales was primarily driven by markdowns taken during the spring as well as higher delivery expense which resulted from free shipping offered as part of the Company's loyalty programs coupled with increased $69 milliondigital sales transaction volume compared to 2017 due to improved sales. The decrease in the cost of sales rate as a percent to net sales was primarily due to the Company's improved inventory management, which resulted in lower markdowns.
prior year.
Selling, General and Administrative Expenses
SG&A expenses for 20182019 increased $95$40 million from 2017.2018. The SG&A rate as a percent to net sales of 39.4%38.8% was flat60 basis points higher in 20182019, as compared to 2017. The2018. This increase in SG&A rateexpenses was impacteddriven primarily by the savings of the Company's prior restructuring activity, offset byinvestments in the expansion of Macy's Backstage as well as the Company's new employee incentive plan.other strategic initiatives previously discussed.
Gains on Sale of Real Estate
20182019 included asset sale gains of $111$49 million including $58compared to $70 million related to the continued recognition of the deferredin 2018. 2019 included a $21 million gain from the Macy's Brooklyn transaction closed in fiscal 2015. This compares to $176 million of asset sale gains recognized in 2017, including $47 million related to the Macy's downtown Minneapolis location, $49White Plains transaction, while 2018 included approximately $35 million related to the Macy's Brooklyn transaction, and $40 million related to the Macy's downtown Seattle location.transaction.
Impairment Restructuring and Other Costs
2019 and 2018 and 2017 included $39$3 million and $33$36 million, respectively, of impairment and other costs. Impairment and other costs primarilyin 2018 were associated with the wind-down of Macy's China Limited, as well as severance activity and other human resource costs related to organizational restructuring.Limited.
Benefit Plan Income, Net
2019 and 2018 and 2017 included $31$15 million and $42$22 million, respectively, of non-cash net benefit plan income relatingrelated to the Company's defined benefit plans. This income includes the net of: interest cost, expected return on plan assets and amortization of prior service costcosts or credits and actuarial gains and losses.
Settlement Charges
2018 and 2017 each included $73$50 million of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions primarily associated with retiree distribution elections and restructuring activity.
Net Interest Expense
Net interest expense for 20182019 decreased $50$34 million from 20172018 due to a reduction in the Company's debt as a result of the activity previously discussed within the quarterly results of operations as well asresulting from tender offer and open market repurchases during fiscal 2017.in 2018.
Losses on Early Retirement of Debt
In 2018, the Company recognized $5 million in expenses and fees net of the write-off of unamortized debt premiums as a result of the open market repurchases discussed within the quarterly results of operations.
Effective Tax Rate
The Company's effective tax rate was 20.4% for 2019 and 22.1% for 2018 compared to the federal income tax statutory rate of 21%. The effective tax rates were impacted by the settlement of certain state and local tax matters.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for 2019 decreased $83 million compared to 2018. 2019 was driven by lower operating income partially offset by lower interest expense and lower settlement charges than 2018.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for 2019 decreased $0.27 compared to 2018, reflecting lower net income.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the credit facility described below.
Operating Activities
Net cash provided by operating activities in 2019 was $350 million, compared to $544 million in 2018. The difference in operating cash flows period over period is due to lower merchandise payables and earnings before interest, taxes, depreciation and amortization excluding impairment and other costs, settlement charges and losses on the early retirement of debt. These declines were partially offset by lower tax payments in 2019 compared to 2018.
Investing Activities
Net cash used by investing activities was $454 million in 2019, compared to $312 million in 2018. The increase in 2019 was driven by the Company's investments in its strategic initiatives resulting in $501 million of capital expenditures, inclusive of property and equipment and capitalized software, compared to $408 million in 2018. Offsetting this outflow in 2019, the Company received cash of $59 million from the disposition of property and equipment primarily related to the execution of real estate transactions, compared to $88 million of proceeds in 2018.
Financing Activities
Net cash used by the Company for financing activities was $397 million for 2019, including debt repaid of $39 million, which included a repayment at maturity of $36 million for the 8.5% senior debentures, payment of $233 million of cash dividends and a $128 million decrease in outstanding checks. These outflows were partially offset by $6 million of proceeds received from the issuance of common stock.
Net cash used by the Company for financing activities was $636 million for 2018, including payment of $232 million of cash dividends. This outflow was partially offset by $38 million from the issuance of common stock, primarily related to the exercise of stock options. During the second quarter of 2018, the Company repurchased approximately $344 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of approximately $354 million, including expenses and other fees related to the transactions. As a result of the debt repurchases, the Company recognized $5 million in expenses and fees net of the write-off of unamortized debt premiums.
In 2017, the Company repurchased approximately $247 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of approximately $257 million, including expenses and other fees related to the transactions. As a result of the debt repurchases, the Company recognized $1 million in expenses and fees net of the write-off of unamortized debt premiums in 2017.
Effective Tax Rate
The Company's effective tax rate of 21.1% for 2018 and 39.4% for 2017 include the effects of certain tax settlements and tax examinations as well as the impact of the U.S. federal tax reform in December 2017, which lowered the Company's federal income tax statutory rate from 35% to 21%. Further, 2017 included the recognition of approximately $12 million, respectively, of net tax deficiencies associated with share-based payment awards.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for 2018 increased $149 million compared to 2017. The increase in 2018 was due to higher sales, net credit card revenue and gross margin, as well as lower interest expense and a lower effective tax rate. These increases were offset by lower gains associated with the sale of real estate as well as higher SG&A expenses in 2018 as compared to 2017.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for 2018 increased $0.47 compared to 2017, reflecting higher net income.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the credit facility described below.
Operating Activities
Net cash provided by operating activities in 2018 was $429 million, compared to $399 million provided in 2017. Operating cash flows in 2018 were driven by the Company's higher net income as discussed within the results of operations and due to the Company's debt repurchase activity as well as lower income tax payments.
Investing Activities
Net cash used by investing activities was $549 million in 2018, compared to net cash used by investing activities of $329 million in 2017. The increase in 2018 was driven by the Company's investments in its five key strategic initiatives of the North Star strategy. Offsetting this outflow, the Company received cash of $121 million from execution of real estate transactions in 2018, including the sale of the upper seven floors of the Macy's State Street store in Chicago. In 2017, the Company received $212 million of real estate sale proceeds that included $59 million from the sale of the Macy's downtown Minneapolis location.
Financing Activities
Net cash used by the Company for financing activities was $616 million for 2018, including payment of $347 million of cash dividends. This outflow was partially offset by $41 million of proceeds received from the issuance of common stock, primarily due to an increase in stock option exercise activity. During 2018, the Company repurchased approximately $344 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of approximately $354 million, includingpremium expenses and other fees related to the transactions.
Net cash used byOn May 9, 2019, the Company for financing activities was $816 million for 2017, including debt payments of $564 million and payment of $346 million of cash dividends. In 2017, the Company repurchased approximately $247 million face value of senior notes and debentures. The debt repurchases were made in the open market forentered into a total cash cost of $257 million, including expenses and other fees related to the transactions. Additionally, during the second quarter of 2017, the Company repaid at maturity $300 million of 7.45% senior debentures due July 2017.
On November 28, 2018, the Company commenced a tender offer to purchase up to $600 million in aggregate principal amount of certain senior unsecured notes and debentures, with stated interest rates ranging from 2.875% to 8.75% and maturities ranging from fiscal years 2023 to 2042. The tender offer expires on December 26, 2018, with an early tender date on December 11, 2018.
The Company is party to anew credit agreement with certain financial institutions providingthat replaced the previous credit agreement which was set to expire on May 6, 2021. Similar to the previous agreement, the new credit agreement provides for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing) outstanding at any particular time.. The new credit agreement is setscheduled to expire on May 6, 2021.9, 2024, subject to up to two one-year extensions that may be requested by the Company and agreed to by the lenders. As of NovemberAugust 3, 2018,2019, the Company did not have any borrowings or letters of credit outstanding under its credit facility.
The Company is party to a $1,500 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability under its bank credit agreement. As of NovemberAugust 3, 2018,2019, the Company did not have any borrowings outstanding under its commercial paper program.
As of NovemberAugust 3, 2018,2019, the Company was required under its credit agreement 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.3.75. The Company's interest coverage ratio for the thirdsecond quarter of 20182019 was 10.8812.72 and its leverage ratio at NovemberAugust 3, 20182019 was 1.88,1.84, in each case as calculated in accordance with the credit agreement. As of NovemberAugust 3, 2018,2019, the Company was in compliance with the ratios.
On October 26, 2018,August 23, 2019, 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,October 1, 2019, to Macy's shareholders of record at the close of business on December 14, 2018.September 13, 2019.
Capital Resources
Management believes that, with respect to the Company's current operations, its cash on hand and funds from operations, together with its credit facility and other capital resources, will be sufficient to cover the Company's reasonably foreseeable working capital, capital expenditure and debt service requirements and other cash requirements in both the near term and over the longer term. The Company's ability to generate funds from operations may be affected by numerous factors, including general economic conditions and levels of consumer confidence and demand; however, the Company expects to be able to manage its working capital levels and capital expenditure amounts so as to maintain sufficient levels of liquidity. To the extent that the Company's cash balances from time to time exceed amounts that are needed to fund its immediate liquidity requirements, the Company will consider alternative uses of some or all of such excess cash. Such alternative uses may include, among others, the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations. Depending upon its actual and anticipated sources and uses of liquidity, conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital markets transactions, for the purpose of raising capital which could be used to refinance current indebtedness or for other corporate purposes, including the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations.
The Company intends from time to time to consider additional acquisitions of, and investments in, retail businesses and other complementary assets and companies. Acquisition transactions, if any, are expected to be financed from one or more of the following sources: cash on hand, cash from operations, borrowings under existing or new credit facilities and the issuance of long-term debt or other securities, including common stock.
Outlook and Recent Developments
On NovemberAugust 14, 2018,2019, the Company issued a press release to report preliminary earnings for its thirdsecond quarter of 2019 and updatedreaffirmed its annual sales and earningsguidance provided previously in the 2018 10-K. Based primarily on the second quarter of 2019 performance, the Company lowered its annual guidance for fiscal 2018 as follows:
Total net sales are expecteddiluted earnings per share attributable to Macy's, Inc. shareholders, excluding settlement charges, impairment and other costs (adjusted diluted earnings per share), by $0.20 from a range from up 0.3%of $3.05 to up 0.7% compared$3.25 to fiscal 2017.
Annual comparable sales on an owned plus licensed basis are expected$2.85 to increase between 2.3% and 2.5%. Annual comparable sales on an owned basis are$3.05. Adjusted diluted earnings per share excluding asset sale gains is now expected to be 20-30 basis points below comparable sales on an owned plus licensed basis.
•Net credit card revenue is expectedin the range of $2.60 to be approximately $740 million to $755 million.
•Effective tax rate is expected to be 22.75%.
Adjusted$2.80. The revised annual earnings per diluted share are expected to be $4.10 to $4.30. This reflects an increaseguidance excludes any potential impact from a fourth tranche of 15 cents compared totariffs, which the prior revised guidance provided at the end of the Company's second quarter of 2018.
All other annual guidance including gross margin, SG&A, asset sale gains, interest expense, depreciation and amortization, and capital expenditures are unchanged from the guidance previously provided by the Company.
Total net sales guidance is provided on a 52-week basis in 2018 comparedCompany estimates could have up to a 53-week basis in 2017. Comparable sales guidance is provided$0.05 impact on a 52-week basis in both 2018 and 2017. The above fiscal 2018 guidance and fiscal 2017 comparable amounts reflect the new accounting standards related to revenue recognition and retirement benefits.2019's annual earnings.
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, which includes adjusting 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 and diluted earnings per share attributable to Macy's, Inc. shareholders that are no longer associated with the Company’s core operations and that may vary substantially in frequency and magnitude period-to-period provides useful supplemental measures that assist in evaluating the Company's ability to generate earnings and leverage sales and to more readily compare these metrics between past and future periods.
The reconciliation of the forward-looking non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis to GAAP comparable sales (i.e., on an owned basis) is in the same manner as illustrated below, except that 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 net income and diluted earnings per share attributable to Macy’s, Inc. shareholders excluding certain items because the timing and amount of excluded items 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.
ChangeChanges in Comparable Sales
The following is a tabular reconciliation of the non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis, to GAAP comparable sales (i.e. on an owned basis), which the Company believes to be the most directly comparable GAAP financial measure.
| | | | Third Quarter of 2018 | | 2018 | | Second Quarter of 2019 | | 2019 |
| | | | | | | | |
Increase in comparable sales on an owned basis (note 1) | | 3.1 | % | | 2.4 | % | | 0.2 | % | | 0.4 | % |
Impact of growth in comparable sales of departments licensed to third parties (note 2) | | 0.2 | % | | 0.3 | % | | 0.1 | % | | 0.1 | % |
Increase in comparable sales on an owned plus licensed basis | | 3.3 | % | | 2.7 | % | | 0.3 | % | | 0.5 | % |
Notes:
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(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. Definitions and calculations of comparable sales may differ among companies in the retail industry. |
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(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. |
Adjusted Net Income and Adjusted Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
The following is a tabular reconciliation of the non-GAAP financial measuremeasures of net income and diluted earnings per share attributable to Macy's, Inc. shareholders, excluding certain items identified below, to GAAP net income and diluted earnings per share attributable to Macy's, Inc., shareholders, which the Company believes to be the most directly comparable GAAP measures.
| | | | Third Quarter of 2018 | | Third Quarter of 2017 | | Second Quarter of 2019 | | Second Quarter of 2018 |
| | | | | | | | | | | | | | | | |
| | Net Income Attributable to Macy's, Inc. Shareholders | | Diluted Earnings Per Share | | Net Income Attributable to Macy's, Inc. Shareholders | | Diluted Earnings Per Share | | Net Income Attributable to Macy's, Inc. Shareholders | | Diluted Earnings Per Share | | Net Income Attributable to Macy's, Inc. Shareholders | | Diluted Earnings Per Share |
As reported | | $ | 62 |
| | $ | 0.20 |
| | $ | 30 |
| | $ | 0.10 |
| | $ | 86 |
| | $ | 0.28 |
| | $ | 166 |
| | $ | 0.53 |
|
Restructuring and other costs | | 3 |
| | 0.01 |
| | 33 |
| | 0.11 |
| |
Impairment and other costs (note 3 and 4) | | | 2 |
| | — |
| | 15 |
| | 0.05 |
|
Settlement charges | | 23 |
| | 0.08 |
| | 22 |
| | 0.07 |
| | — |
| | — |
| | 50 |
| | 0.16 |
|
Income tax impact of certain items identified above | | (5 | ) | | (0.02 | ) | | (20 | ) | | (0.07 | ) | |
Losses on early retirement of debt | | | — |
| | — |
| | 5 |
| | 0.02 |
|
Income tax impact of certain items noted above (note 4) | | | — |
| | — |
| | (17 | ) | | (0.06 | ) |
As adjusted | | $ | 83 |
| | $ | 0.27 |
| | $ | 65 |
| | $ | 0.21 |
| | $ | 88 |
| | $ | 0.28 |
| | $ | 219 |
| | $ | 0.70 |
|
| | | | 2018 | | 2017 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
| | Net Income Attributable to Macy's, Inc. Shareholders | | Diluted Earnings Per Share | | Net Income Attributable to Macy's, Inc. Shareholders | | Diluted Earnings Per Share | | Net Income Attributable to Macy's, Inc. Shareholders | | Diluted Earnings Per Share | | Net Income Attributable to Macy's, Inc. Shareholders | | Diluted Earnings Per Share |
As reported | | $ | 368 |
| | $ | 1.18 |
| | $ | 219 |
| | $ | 0.71 |
| | $ | 223 |
| | $ | 0.71 |
| | $ | 306 |
| | $ | 0.98 |
|
Impairment, restructuring and other costs (Note 1) | | 31 |
| | 0.10 |
| | 33 |
| | 0.11 |
| |
Impairment and other costs (note 3 and 4) | | | 3 |
| | 0.01 |
| | 28 |
| | 0.09 |
|
Settlement charges | | 73 |
| | 0.23 |
| | 73 |
| | 0.24 |
| | — |
| | — |
| | 50 |
| | 0.16 |
|
Losses on early retirement of debt (Note 2) | | 5 |
| | 0.02 |
| | 1 |
| | — |
| |
Income tax impact of certain items identified above | | (26 | ) | | (0.08 | ) | | (40 | ) | | (0.13 | ) | |
Losses on early retirement of debt | | | — |
| | — |
| | 5 |
| | 0.02 |
|
Income tax impact of certain items noted above (note 4) | | | (1 | ) | | — |
| | (20 | ) | | (0.06 | ) |
As adjusted | | $ | 451 |
| | $ | 1.45 |
| | $ | 286 |
| | $ | 0.93 |
| | $ | 225 |
| | $ | 0.72 |
| | $ | 369 |
| | $ | 1.19 |
|
Notes:
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(1)(3) | For the 13 and 26 weeks ended August 4, 2018, the above pre-tax adjustment excludes impairment restructuring and other costs attributable to the noncontrolling interest shareholder of $2 million and $8 million.million, respectively. |
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(2)(4) | The impact during 2017the 13 and 26 weeks ended August 3, 2019 represents a value less than zero for net income attributable to Macy's, Inc. shareholders or $0.01 per diluted share attributable to Macy's, Inc. shareholders. |
Critical 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 and bluemercury are the only reporting units with goodwill as of August 3, 2019, and 97% of the Company's goodwill is allocated to the Macy's reporting unit.
The Company may elect to evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting 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 qualitative assessment may resume in a subsequent period.
The quantitative impairment test involves estimating the fair value of each 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 and 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 the estimated future cash flows of the Company's reporting units, the discount rate used to discount such estimated cash flows to their 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.
For its annual goodwill impairment test as of the end of fiscal May 2019, the Company performed a quantitative impairment assessment for all of its reporting units. The Company determined the fair value of each of its reporting units using a market approach, an income approach, or a combination of both, where appropriate. In the most recent annual impairment test performed as of the end of fiscal May 2019, the fair value of the Macy's reporting unit exceeded its related carrying value by approximately 29%.
As of the end of fiscal May 2019, 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 exceed the carrying values and the intangible assets with indefinite lives are not impaired.
During and subsequent to the second quarter of fiscal 2019, the Company observed a general decline in the market valuation of the Company’s common shares which could impact the assumptions used to perform an impairment evaluation of its goodwill and indefinite lived intangible assets. Although as of August 3, 2019, the estimated fair values of the reporting units and indefinite lived trade names exceeded their carrying values, the Company continues to monitor the key inputs to fair value discussed above. A sustained decline in market capitalization or future declines in macroeconomic factors or business conditions would likely result in an impairment charge in future periods.
New Pronouncements
Accounting Pronouncements Recently Adopted
See Part I, Item 1, “Financial Statements — Note 1 — Organization and Summary of Significant Accounting Policies.”
Accounting Pronouncements Not Yet Adopted
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 and will be adopted utilizing a modified retrospective approach that allows for transition in the period of adoption, with certain practical expedients available.
While the Company is continuing to assess all impacts of the standard, total assets and liabilities are expected to increase by $2.0 billion to $2.5 billion as of the date of adoption. The standard is not expected to materially affect consolidated net income, which is expected to be impacted by changes to the timing of recognition of certain real estate asset sale gains due to application of the new sale-leaseback guidance and ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of NonFinancial Assets (Subtopic 610-20). These estimates are based on the Company's current lease portfolio and may change if the lease portfolio changes and as the Company continues to evaluate the new standard. A significant change in leasing activity between the date of this report and adoption is not expected. The Company's estimates will be updated each quarter as changes occur.
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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 20172018 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 20172018 10-K.
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Item 4. | Controls and Procedures. |
The Company's Chief Executive Officer and Chief Financial Officer have carried out, as of NovemberAugust 3, 20182019, with the participation of the Company's management, an evaluation of the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of NovemberAugust 3, 20182019 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.
From 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. |
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.
ThereExcept 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 20172018 10-K.
The risk factor "We depend upon designers, vendors and other sources of merchandise, goods and services. Our business could be affected by disruptions in, or other legal, regulatory, political or economic issues associated with, our supply network" is deleted and replaced as follows:
We depend upon designers, vendors and other sources of merchandise, goods and services. Our business could be affected by disruptions in, or other legal, regulatory, political or economic issues associated with, our supply network.
Our relationships with established and emerging designers have been significant contributors to the Company's past success. Our ability to find qualified vendors and access products in a timely and efficient manner is often challenging, particularly with respect to goods sourced outside the U.S.. We source the majority of our merchandise from manufacturers located outside the U.S., primarily Asia. Any major changes in tax policy, such as the disallowance of tax deductions for imported merchandise could have a material adverse effect on our business, results of operations and liquidity.
The procurement of all our goods and services are subject to the effects of price increases which we may or may not be able to pass through to our customers. In addition, our procurement of goods and services from outside the U.S. is subject to risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade. All of these factors may affect our ability to access suitable merchandise on acceptable terms, are beyond our control and could negatively affect our business and results of operations.
On May 10, 2019, the current U.S. Administration imposed a 25% tariff on approximately $200 billion worth of imports from China into the U.S. On August 1, 2019, the current U.S. Administration announced its plans to impose a 10% tariff on all remaining imports from China, valued at approximately $300 billion, which imports include merchandise for both private-label and national brands sold in our stores. Depending on the type of import, the new 10% tariff is scheduled to be effective September 1, 2019 or December 15, 2019, with both dates applying to merchandise sold in our stores. We are evaluating the expected impact of the effective tariffs, including a potential continued escalation of retaliatory tariffs, as well as other recent changes in foreign trade policy on our supply chain, costs, sales and profitability and are actively working through strategies to mitigate such impact, including reviewing sourcing options and working with our vendors and merchants. At this time, it is unknown how long U.S. tariffs on Chinese goods will remain in effect or whether additional tariffs will be imposed. While it is too early to predict how these changes in foreign trade policy and any recently enacted, proposed and future tariffs on products imported by us from China will affect our business, these changes would negatively impact our business and results of operations if they seriously disrupt the movement of products through our supply chain or increase their cost. In addition, while we may be able to shift our sourcing options, executing such a shift would be time consuming and would be difficult or impracticable for many products and may result in an increase in our manufacturing costs. The adoption and expansion of trade restrictions, retaliatory tariffs, or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and/or the U.S. economy, which in turn could adversely impact our results of operations and business.
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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 2018.2019.
|
| | | | | | | | | | | |
| 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) |
AugustMay 5, 20182019 – SeptemberJune 1, 20182019 | — |
| | — |
| | — |
| | 1,716 |
|
SeptemberJune 2, 20182019 – OctoberJuly 6, 20182019 | — |
| | — |
| | — |
| | 1,716 |
|
OctoberJuly 7, 20182019 – NovemberAugust 3, 20182019 | — |
| | — |
| | — |
| | 1,716 |
|
| — |
| | — |
| | — |
| | |
___________________
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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 NovemberAugust 3, 20182019. All authorizations are cumulative and do not have an expiration date. As of NovemberAugust 3, 20182019, $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. |
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Item 5. | Other Information. |
Forward-Looking Statements
This report and other reports, statements and information previously or subsequently filed by the Company with the SEC contain or may contain forward-looking statements. Such statements are based upon the beliefs and assumptions of, and on information available to, the management of the Company at the time such statements are made. The following are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (i) statements preceded by, followed by or that include the words "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "think," "estimate" or "continue" or the negative or other variations thereof, and (ii) statements regarding matters that are not historical facts. Such forward-looking statements are subject to various risks and uncertainties, including risks and uncertainties relating to:
the possible invalidity of the underlying beliefs and assumptions;
competitive pressures from departmentthe success of the Company’s operational decisions, such as product sourcing, merchandise mix and specialtypricing, and marketing, and strategic initiatives, such as Growth stores, general merchandise stores, manufacturers' outlets,Backstage on-mall off-price business, and discount stores, and all other retail channels, including the Internet, catalogs and television;
the Company's ability to remain competitive and relevant as consumers' shopping behaviors migrate to other shopping channels and to maintain its brand and reputation;vendor direct expansion;
general consumer-spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of the weather or natural disasters;
conditions to, or changes incompetitive pressures from department stores, specialty stores, general merchandise stores, manufacturers’ outlets, off-price and discount stores, and all other retail channels, including the timing of, proposed transactions, including planned store closings,Internet, catalogs and changes in expected synergies, cost savings and non-recurring charges;television;
the success of the Company's operational decisions (e.g., product curation, marketing programs)Company’s ability to remain competitive and strategic initiatives; 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, employee 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 employee benefits as well as attracting and retaining quality employees;
transactions and strategy involving ourthe Company's real estate portfolio;
the seasonal nature of the Company's business;
conditions to, or changes in the timing of, proposed transactions, and changes in expected synergies, cost savings and non-recurring charges;
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 health pandemics, and regional political and economic conditions; and
duties, taxes, other charges and quotas on 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.
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10.1 | | |
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10.2 | | |
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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 NovemberAugust 3, 2018,2019, filed on December 7, 2018,August 30, 2019, are formatted in XBRL:iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (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. |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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. |
| | |
| By: | /s/ ELISA D. GARCIA |
| | Elisa D. Garcia Executive Vice President, Chief Legal Officer and Secretary |
| | |
| By: | /s/ FELICIA WILLIAMS |
| | Felicia Williams ExecutiveSenior Vice President, Controller and Enterprise Risk Officer
(Principal Accounting Officer) |
Date: December 7, 2018August 30, 2019