Item 1. Financial Statements
MACY’S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(millions, except per share figures)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
|
|
November 2, 2019
|
|
November 3, 2018
|
|
November 2, 2019
|
|
November 3, 2018
|
|
Net sales
|
$
|
5,173
|
|
|
$
|
5,404
|
|
|
$
|
16,223
|
|
|
$
|
16,516
|
|
|
Credit card revenues, net
|
183
|
|
|
185
|
|
|
531
|
|
|
528
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
(3,106
|
)
|
|
(3,226
|
)
|
|
(9,905
|
)
|
|
(9,927
|
)
|
|
Selling, general and administrative expenses
|
(2,202
|
)
|
|
(2,255
|
)
|
|
(6,489
|
)
|
|
(6,501
|
)
|
|
Gains on sale of real estate
|
17
|
|
|
42
|
|
|
67
|
|
|
111
|
|
|
Impairment, restructuring and other costs
|
(13
|
)
|
|
(3
|
)
|
|
(16
|
)
|
|
(39
|
)
|
|
Operating income
|
52
|
|
|
147
|
|
|
411
|
|
|
688
|
|
|
Benefit plan income, net
|
8
|
|
|
9
|
|
|
23
|
|
|
31
|
|
|
Settlement charges
|
(12
|
)
|
|
(23
|
)
|
|
(12
|
)
|
|
(73
|
)
|
|
Interest expense
|
(52
|
)
|
|
(64
|
)
|
|
(159
|
)
|
|
(204
|
)
|
|
Losses on early retirement of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
Interest income
|
4
|
|
|
5
|
|
|
16
|
|
|
17
|
|
|
Income before income taxes
|
—
|
|
|
74
|
|
|
279
|
|
|
454
|
|
|
Federal, state and local income tax benefit (expense)
|
2
|
|
|
(12
|
)
|
|
(55
|
)
|
|
(96
|
)
|
|
Net income
|
2
|
|
|
62
|
|
|
224
|
|
|
358
|
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
Net income attributable to Macy's, Inc. shareholders
|
$
|
2
|
|
|
$
|
62
|
|
|
$
|
224
|
|
|
$
|
368
|
|
|
Basic earnings per share attributable to Macy's, Inc. shareholders
|
$
|
0.01
|
|
|
$
|
0.20
|
|
|
$
|
0.72
|
|
|
$
|
1.20
|
|
|
Diluted earnings per share attributable to Macy's, Inc. shareholders
|
$
|
0.01
|
|
|
$
|
0.20
|
|
|
$
|
0.72
|
|
|
$
|
1.18
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
|
|
November 2, 2019
|
|
November 3, 2018
|
|
November 2, 2019
|
|
November 3, 2018
|
|
Net income
|
$
|
2
|
|
|
$
|
62
|
|
|
$
|
224
|
|
|
$
|
358
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Actuarial loss on post employment and postretirement benefit plans, before tax
|
(70
|
)
|
|
(164
|
)
|
|
(70
|
)
|
|
(194
|
)
|
|
Reclassifications to net income:
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax
|
8
|
|
|
7
|
|
|
23
|
|
|
25
|
|
|
Settlement charges, before tax
|
12
|
|
|
23
|
|
|
12
|
|
|
73
|
|
|
Tax effect related to items of other comprehensive income
|
13
|
|
|
35
|
|
|
9
|
|
|
24
|
|
|
Total other comprehensive loss, net of tax effect
|
(37
|
)
|
|
(99
|
)
|
|
(26
|
)
|
|
(72
|
)
|
|
Comprehensive income (loss)
|
(35
|
)
|
|
(37
|
)
|
|
198
|
|
|
286
|
|
|
Comprehensive loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders
|
$
|
(35
|
)
|
|
$
|
(37
|
)
|
|
$
|
198
|
|
|
$
|
296
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2, 2019
|
|
February 2, 2019
|
|
November 3, 2018
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
301
|
|
|
$
|
1,162
|
|
|
$
|
736
|
|
|
Receivables
|
175
|
|
|
400
|
|
|
180
|
|
|
Merchandise inventories
|
7,256
|
|
|
5,263
|
|
|
7,147
|
|
|
Income tax receivable
|
1
|
|
|
—
|
|
|
10
|
|
|
Prepaid expenses and other current assets
|
568
|
|
|
620
|
|
|
594
|
|
|
Total Current Assets
|
8,301
|
|
|
7,445
|
|
|
8,667
|
|
|
Property and Equipment - net of accumulated depreciation and
amortization of $4,926, $4,495 and $5,084
|
6,558
|
|
|
6,637
|
|
|
6,572
|
|
|
Right of Use Assets
|
2,596
|
|
|
—
|
|
|
—
|
|
|
Goodwill
|
3,908
|
|
|
3,908
|
|
|
3,908
|
|
|
Other Intangible Assets – net
|
440
|
|
|
478
|
|
|
481
|
|
|
Other Assets
|
744
|
|
|
726
|
|
|
733
|
|
|
Total Assets
|
$
|
22,547
|
|
|
$
|
19,194
|
|
|
$
|
20,361
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
Short-term debt
|
$
|
6
|
|
|
$
|
43
|
|
|
$
|
65
|
|
|
Merchandise accounts payable
|
3,427
|
|
|
1,655
|
|
|
3,381
|
|
|
Accounts payable and accrued liabilities
|
3,046
|
|
|
3,366
|
|
|
2,998
|
|
|
Income taxes
|
—
|
|
|
168
|
|
|
—
|
|
|
Total Current Liabilities
|
6,479
|
|
|
5,232
|
|
|
6,444
|
|
|
Long-Term Debt
|
4,677
|
|
|
4,708
|
|
|
5,469
|
|
|
Long-Term Lease Liabilities
|
2,819
|
|
|
—
|
|
|
—
|
|
|
Deferred Income Taxes
|
1,200
|
|
|
1,238
|
|
|
1,185
|
|
|
Other Liabilities
|
1,315
|
|
|
1,580
|
|
|
1,618
|
|
|
Shareholders' Equity:
|
|
|
|
|
|
|
Macy's, Inc.
|
6,057
|
|
|
6,436
|
|
|
5,667
|
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
Total Shareholders’ Equity
|
6,057
|
|
|
6,436
|
|
|
5,645
|
|
|
Total Liabilities and Shareholders’ Equity
|
$
|
22,547
|
|
|
$
|
19,194
|
|
|
$
|
20,361
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Equity
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total Shareholders' Equity
|
|
Balance at February 2, 2019
|
$
|
3
|
|
|
$
|
652
|
|
|
$
|
8,050
|
|
|
$
|
(1,318
|
)
|
|
$
|
(951
|
)
|
|
$
|
6,436
|
|
|
Cumulative-effect adjustment (a)
|
|
|
|
|
(158
|
)
|
|
|
|
|
|
(158
|
)
|
|
Net income
|
|
|
|
|
136
|
|
|
|
|
|
|
136
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
6
|
|
|
6
|
|
|
Common stock dividends
($0.3775 per share)
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
(117
|
)
|
|
Stock-based compensation expense
|
|
|
14
|
|
|
|
|
|
|
|
|
14
|
|
|
Stock issued under stock plans
|
|
|
(60
|
)
|
|
|
|
66
|
|
|
|
|
6
|
|
|
Balance at May 4, 2019
|
3
|
|
|
606
|
|
|
7,911
|
|
|
(1,252
|
)
|
|
(945
|
)
|
|
6,323
|
|
|
Net income
|
|
|
|
|
86
|
|
|
|
|
|
|
86
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
5
|
|
|
5
|
|
|
Common stock dividends
($0.3775 per share)
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
(117
|
)
|
|
Stock-based compensation expense
|
|
|
14
|
|
|
|
|
|
|
|
|
14
|
|
|
Stock issued under stock plans
|
|
|
(3
|
)
|
|
|
|
4
|
|
|
|
|
1
|
|
|
Other
|
|
|
|
|
3
|
|
|
|
|
|
|
3
|
|
|
Balance at August 3, 2019
|
3
|
|
|
617
|
|
|
7,883
|
|
|
(1,248
|
)
|
|
(940
|
)
|
|
6,315
|
|
|
Net income
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
2
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
(37
|
)
|
|
Common stock dividends
($0.7550 per share)
|
|
|
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
(236
|
)
|
|
Stock-based compensation expense
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
Stock issued under stock plans
|
|
|
(3
|
)
|
|
|
|
4
|
|
|
|
|
1
|
|
|
Balance at November 2, 2019
|
$
|
3
|
|
|
$
|
626
|
|
|
$
|
7,649
|
|
|
$
|
(1,244
|
)
|
|
$
|
(977
|
)
|
|
$
|
6,057
|
|
(a) Represents the cumulative-effect adjustment to retained earnings for the adoption of Accounting Standards Update 2016-02 (ASU-2016-02), Leases (Topic 842), on February 3, 2019.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - (Continued)
(Unaudited)
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Equity
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Macy's, Inc.
Shareholders’
Equity
|
|
Non-controlling
Interest
|
|
Total Shareholders' Equity
|
|
Balance at February 3, 2018
|
$
|
3
|
|
|
$
|
676
|
|
|
$
|
7,246
|
|
|
$
|
(1,456
|
)
|
|
$
|
(724
|
)
|
|
$
|
5,745
|
|
|
$
|
(12
|
)
|
|
$
|
5,733
|
|
|
Net income (loss)
|
|
|
|
|
139
|
|
|
|
|
|
|
139
|
|
|
(8
|
)
|
|
131
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
7
|
|
|
7
|
|
|
|
|
7
|
|
|
Common stock dividends ($0.3775 per share)
|
|
|
|
|
(116
|
)
|
|
|
|
|
|
(116
|
)
|
|
|
|
(116
|
)
|
|
Stock-based compensation
expense
|
|
|
17
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
17
|
|
|
Stock issued under stock plans
|
|
|
(51
|
)
|
|
|
|
80
|
|
|
|
|
29
|
|
|
|
|
29
|
|
|
Stranded tax costs (b)
|
|
|
|
|
164
|
|
|
|
|
(164
|
)
|
|
—
|
|
|
|
|
—
|
|
|
Balance at May 5, 2018
|
3
|
|
|
642
|
|
|
7,433
|
|
|
(1,376
|
)
|
|
(881
|
)
|
|
5,821
|
|
|
(20
|
)
|
|
5,801
|
|
|
Net income (loss)
|
|
|
|
|
166
|
|
|
|
|
|
|
166
|
|
|
(2
|
)
|
|
164
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
20
|
|
|
20
|
|
|
|
|
20
|
|
|
Common stock dividends ($0.3775 per share)
|
|
|
|
|
(116
|
)
|
|
|
|
|
|
(116
|
)
|
|
|
|
(116
|
)
|
|
Stock-based compensation
expense
|
|
|
15
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
15
|
|
|
Stock issued under stock plans
|
|
|
(21
|
)
|
|
|
|
31
|
|
|
|
|
10
|
|
|
|
|
10
|
|
|
Balance at August 4, 2018
|
3
|
|
|
636
|
|
|
7,483
|
|
|
(1,345
|
)
|
|
(861
|
)
|
|
5,916
|
|
|
(22
|
)
|
|
5,894
|
|
|
Net income
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
62
|
|
|
—
|
|
|
62
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
(99
|
)
|
|
|
|
|
(99
|
)
|
|
Common stock dividends
($0.7550 per share)
|
|
|
|
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
(235
|
)
|
|
|
|
|
(235
|
)
|
|
Stock-based compensation
expense
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
16
|
|
|
Stock issued under stock plans
|
|
|
|
(6
|
)
|
|
|
|
|
13
|
|
|
|
|
|
7
|
|
|
|
|
|
7
|
|
|
Balance at November 3, 2018
|
$
|
3
|
|
|
$
|
646
|
|
|
$
|
7,310
|
|
|
$
|
(1,332
|
)
|
|
$
|
(960
|
)
|
|
$
|
5,667
|
|
|
$
|
(22
|
)
|
|
$
|
5,645
|
|
(b) Represents the reclassification of stranded tax effects to retained earnings as a result of U.S. federal tax reform.
The accompanying notes are an integral part of these Consolidated Financial Statements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 Weeks Ended
|
|
|
November 2, 2019
|
|
November 3, 2018
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income
|
$
|
224
|
|
|
$
|
358
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
Impairment, restructuring and other costs
|
16
|
|
|
39
|
|
|
Settlement charges
|
12
|
|
|
73
|
|
|
Depreciation and amortization
|
725
|
|
|
718
|
|
|
Stock-based compensation expense
|
40
|
|
|
48
|
|
|
Gains on sale of real estate
|
(67
|
)
|
|
(111
|
)
|
|
Benefit plans
|
23
|
|
|
25
|
|
|
Deferred income taxes
|
25
|
|
|
62
|
|
|
Amortization of financing costs and premium on acquired debt
|
1
|
|
|
(5
|
)
|
|
Changes in assets and liabilities:
|
|
|
|
|
Decrease in receivables
|
224
|
|
|
163
|
|
|
Increase in merchandise inventories
|
(1,993
|
)
|
|
(1,969
|
)
|
|
Decrease in prepaid expenses and other current assets
|
13
|
|
|
16
|
|
|
Increase in merchandise accounts payable
|
1,648
|
|
|
1,664
|
|
|
Decrease in accounts payable and accrued liabilities
|
(470
|
)
|
|
(221
|
)
|
|
Decrease in current income taxes
|
(168
|
)
|
|
(301
|
)
|
|
Change in other assets and liabilities
|
(81
|
)
|
|
(130
|
)
|
|
Net cash provided by operating activities
|
172
|
|
|
429
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Purchase of property and equipment
|
(623
|
)
|
|
(468
|
)
|
|
Capitalized software
|
(189
|
)
|
|
(209
|
)
|
|
Disposition of property and equipment
|
73
|
|
|
121
|
|
|
Other, net
|
10
|
|
|
7
|
|
|
Net cash used by investing activities
|
(729
|
)
|
|
(549
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
Debt issuance costs
|
(3
|
)
|
|
—
|
|
|
Debt repaid
|
(42
|
)
|
|
(361
|
)
|
|
Dividends paid
|
(349
|
)
|
|
(347
|
)
|
|
Increase in outstanding checks
|
49
|
|
|
44
|
|
|
Acquisition of treasury stock
|
(1
|
)
|
|
—
|
|
|
Issuance of common stock
|
6
|
|
|
41
|
|
|
Proceeds from noncontrolling interest
|
—
|
|
|
7
|
|
|
Net cash used by financing activities
|
(340
|
)
|
|
(616
|
)
|
|
Net decrease in cash, cash equivalents and restricted cash
|
(897
|
)
|
|
(736
|
)
|
|
Cash, cash equivalents and restricted cash beginning of period
|
1,248
|
|
|
1,513
|
|
|
Cash, cash equivalents and restricted cash end of period
|
$
|
351
|
|
|
$
|
777
|
|
|
Supplemental cash flow information:
|
|
|
|
|
Interest paid
|
$
|
152
|
|
|
$
|
213
|
|
|
Interest received
|
16
|
|
|
17
|
|
|
Income taxes paid (net of refunds received)
|
199
|
|
|
335
|
|
Note: Restricted cash of $50 million and $41 million have been included with cash and cash equivalents for the 39 weeks ended November 2, 2019 and November 3, 2018, respectively.
The accompanying notes are an integral part of these Consolidated Financial Statements.
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'), cosmetics, home furnishings and other consumer goods. The Company has stores in 43 states, the District of Columbia, Guam and Puerto Rico. As of November 2, 2019, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage and bluemercury.
Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2019 (the "2018 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2018 10-K.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the 13 and 39 weeks ended November 2, 2019 and November 3, 2018, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Seasonality
Because of the seasonal nature of the retail business, the results of operations for the 13 and 39 weeks ended November 2, 2019 and November 3, 2018 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Reclassifications
Certain reclassifications were made to prior years’ amounts to conform to the classifications of such amounts in the most recent years.
Comprehensive Income
Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other components of total comprehensive income for the 13 and 39 weeks ended November 2, 2019 and November 3, 2018 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of income before income taxes in the Consolidated Statements of Income. Amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in benefit plan income, net on the Consolidated Statements of Income. See Note 6, "Benefit Plans," for further information.
Newly Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, which requires lessees to recognize substantially all leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The new standard was adopted by the Company on February 3, 2019 utilizing a modified retrospective approach that allowed for transition in the period of adoption. The Company adopted the package of practical expedients available at transition that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. Contracts entered into prior to adoption were not reassessed for leases or embedded leases. Upon adoption, the Company used hindsight in determining lease term and impairment. For lease and non-lease components, the Company has elected to account for both as a single lease component.
Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $2,519 million and $2,728 million, respectively, as of February 3, 2019. The difference of $209 million between the additional net lease assets and lease liabilities, net of the deferred tax impact of $54 million, was recorded as an adjustment to retained earnings. Prepaid rent, intangible lease assets, finance lease assets, and accrued and deferred rent as of February 3, 2019 were recorded as part of the ROU asset. Finance lease obligations as of February 3, 2019 were recorded as part of the lease liabilities. The standard did not materially impact the Company's consolidated net income and had no impact on cash flows.
2. Earnings Per Share Attributable to Macy's, Inc. Shareholders
The following tables set forth the computation of basic and diluted earnings per share attributable to Macy's, Inc. shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
November 2, 2019
|
|
November 3, 2018
|
|
|
Net
Income
|
|
|
|
Shares
|
|
Net
Income
|
|
|
|
Shares
|
|
|
(millions, except per share data)
|
|
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding
|
$
|
2
|
|
|
|
|
308.9
|
|
|
$
|
62
|
|
|
|
|
307.2
|
|
|
Shares to be issued under deferred
compensation and other plans
|
|
|
|
|
1.0
|
|
|
|
|
|
|
0.9
|
|
|
|
$
|
2
|
|
|
|
|
309.9
|
|
|
$
|
62
|
|
|
|
|
308.1
|
|
|
Basic earnings per share attributable to
Macy's, Inc. shareholders
|
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
0.20
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units
|
|
|
|
|
1.1
|
|
|
|
|
|
|
4.1
|
|
|
|
$
|
2
|
|
|
|
|
311.0
|
|
|
$
|
62
|
|
|
|
|
312.2
|
|
|
Diluted earnings per share attributable to
Macy's, Inc. shareholders
|
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
0.20
|
|
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 Weeks Ended
|
|
|
November 2, 2019
|
|
November 3, 2018
|
|
|
Net
Income
|
|
|
|
Shares
|
|
Net
Income
|
|
|
|
Shares
|
|
|
(millions, except per share data)
|
|
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding
|
$
|
224
|
|
|
|
|
308.7
|
|
|
$
|
368
|
|
|
|
|
306.6
|
|
|
Shares to be issued under deferred
compensation and other plans
|
|
|
|
|
0.9
|
|
|
|
|
|
|
0.9
|
|
|
|
$
|
224
|
|
|
|
|
309.6
|
|
|
$
|
368
|
|
|
|
|
307.5
|
|
|
Basic earnings per share attributable to
Macy's, Inc. shareholders
|
|
|
$
|
0.72
|
|
|
|
|
|
|
$
|
1.20
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units
|
|
|
|
|
1.7
|
|
|
|
|
|
|
3.7
|
|
|
|
$
|
224
|
|
|
|
|
311.3
|
|
|
$
|
368
|
|
|
|
|
311.2
|
|
|
Diluted earnings per share attributable to
Macy's, Inc. shareholders
|
|
|
$
|
0.72
|
|
|
|
|
|
|
$
|
1.18
|
|
|
|
In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 19.4 million shares of common stock and restricted stock units relating to 1.9 million shares of common stock were outstanding at November 2, 2019, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 12.7 million shares of common stock and restricted stock units relating to 1.4 million shares of common stock were outstanding at November 3, 2018, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
3. Revenue
Net sales
Revenue is recognized when customers obtain control of goods and services promised by the Company. The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. The Company's revenue generating activities include the following:
Retail Sales
Retail sales include merchandise sales, inclusive of delivery income, licensed department income, sales of private brand goods directly to third party retailers and sales of excess inventory to third parties. Sales of merchandise are recorded at the time of shipment to the customer and are reported net of estimated merchandise returns and certain customer incentives. Commissions earned on sales generated by licensed departments are included as a component of total net sales and are recognized as revenue at the time merchandise is sold to customers. Service revenues (e.g., alteration and cosmetic services) are recorded at the time the customer receives the benefit of the service. The Company has elected to present sales taxes on a net basis and, as such, sales taxes are included in accounts payable and accrued liabilities until remitted to the taxing authorities.
For the 13 and 39 weeks ended November 2, 2019, Macy's accounted for 87% and 88% of the Company's net sales, respectively. For each of the 13 and 39 weeks ended November 3, 2018, Macy's accounted for 88% of the Company's net sales. Disaggregation of the Company's net sales by family of business for the 13 and 39 weeks ended November 2, 2019 and November 3, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
|
Net sales by family of business
|
November 2, 2019
|
|
November 3, 2018
|
|
November 2, 2019
|
|
November 3, 2018
|
|
|
(millions)
|
|
Women's Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances
|
$
|
1,960
|
|
|
$
|
2,008
|
|
|
$
|
6,152
|
|
|
$
|
6,188
|
|
|
Women's Apparel
|
1,197
|
|
|
1,268
|
|
|
3,779
|
|
|
3,940
|
|
|
Men's and Kids'
|
1,195
|
|
|
1,244
|
|
|
3,663
|
|
|
3,692
|
|
|
Home/Other (a)
|
821
|
|
|
884
|
|
|
2,629
|
|
|
2,696
|
|
|
Total
|
$
|
5,173
|
|
|
$
|
5,404
|
|
|
$
|
16,223
|
|
|
$
|
16,516
|
|
(a) Other primarily includes restaurant sales, allowance for merchandise returns adjustments, certain loyalty program income and breakage income from unredeemed gift cards.
Merchandise Returns
The Company estimates merchandise returns using historical data and recognizes an allowance that reduces net sales and cost of sales. The liability for merchandise returns is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $245 million, $269 million and $265 million as of November 2, 2019, February 2, 2019 and November 3, 2018, respectively. Included in prepaid expenses and other current assets is an asset totaling $164 million, $188 million and $180 million as of November 2, 2019, February 2, 2019 and November 3, 2018, respectively, for the recoverable cost of merchandise estimated to be returned by customers.
Gift Cards and Customer Loyalty Programs
The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold or issued, no revenue is recognized; rather, the Company records an accrued liability to customers. The liability is relieved and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for merchandise. The Company records revenue from unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns.
The Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy’s brand, points are earned based on customers’ spending on Macy’s private label and co-branded credit cards as well as non-proprietary cards during certain tender-neutral promotional events. Under the Bloomingdale’s brand, the Company offers a tender-neutral points-based program. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The liability for unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $705 million, $856 million and $723 million as of November 2, 2019, February 2, 2019 and November 3, 2018, respectively.
Credit Card Revenues, net
In 2005, the Company entered into an arrangement with Citibank, N.A. ("Citibank") to sell the Company's private label and co-branded credit cards ("Credit Card Program"). Subsequent to this initial arrangement and associated amendments, in 2014, the Company entered into an amended and restated Credit Card Program Agreement (the "Program Agreement") with Citibank. As part of the Program Agreement, the Company receives payments for providing a combination of interrelated services and intellectual property to Citibank in support of the underlying Credit Card Program. Revenue based on the spending activity of the underlying accounts is recognized as the respective card purchases occur and the Company’s profit share is recognized based on the performance of the underlying portfolio. Revenue associated with the establishment of new credit accounts and assisting in the receipt of payments for existing accounts is recognized as such activities occur. Credit card revenues include finance charges, late fees and other revenue generated by the Company’s Credit Card Program, net of fraud losses and expenses associated with establishing new accounts.
4. Leases
The Company leases a portion of the real estate and personal property used in its operations. Most leases require the Company to pay real estate taxes, maintenance, insurance and other similar costs; some also require additional payments based on percentages of sales and some contain purchase options. Certain of the Company’s real estate leases have terms that extend for a significant number of years and provide for rental rates that increase or decrease over time. Lease terms include the noncancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods, termination options and purchase options.
Operating lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. Related operating ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by contributions from landlords, plus any prepaid rent and direct costs from executing the leases. ROU assets are tested for impairment in the same manner as long-lived assets.
Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense as they are incurred.
Certain of the Company's leases contain covenants that restrict the ability of the tenant (typically a subsidiary of the Company) to take specified actions (including the payment of dividends or other amounts on account of its capital stock) unless the tenant satisfies certain financial tests.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
ROU assets and lease liabilities consist of:
|
|
|
|
|
|
|
|
|
|
|
November 2, 2019
|
|
|
Classification
|
(millions)
|
|
Assets
|
|
|
|
Finance lease assets (a)
|
Right of Use Assets
|
$
|
11
|
|
|
Operating lease assets (b)
|
Right of Use Assets
|
2,585
|
|
|
Total lease assets
|
|
$
|
2,596
|
|
|
|
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Finance
|
Accounts payable and accrued liabilities
|
$
|
1
|
|
|
Operating (b)
|
Accounts payable and accrued liabilities
|
313
|
|
|
|
|
|
|
Noncurrent
|
|
|
|
Finance
|
Long-Term Lease Liabilities
|
24
|
|
|
Operating (b)
|
Long-Term Lease Liabilities
|
2,795
|
|
|
Total lease liabilities
|
|
$
|
3,133
|
|
(a) Finance lease assets are recorded net of accumulated amortization of $12 million as of November 2, 2019.
(b) As of November 2, 2019, operating lease assets included $394 million of non-lease components and current and noncurrent lease liabilities included $34 million and $367 million, respectively, of non-lease components.
The components of net lease expense are disclosed below. For the 13 and 39 weeks ended November 2, 2019, expense related to non-lease components was $20 million and $61 million, respectively, and variable lease expense was $3 million and $10 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
|
|
|
November 2, 2019
|
|
November 2, 2019
|
|
|
Classification
|
(millions)
|
|
Operating lease expense (c)
|
Selling, general and administrative expenses
|
$
|
106
|
|
|
$
|
319
|
|
|
Sublease income
|
Selling, general and administrative expenses
|
(1
|
)
|
|
(2
|
)
|
|
Net lease expense
|
|
$
|
105
|
|
|
$
|
317
|
|
(c) Certain supply chain operating lease expense amounts are included in cost of sales.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
As of November 2, 2019, the maturity of lease liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
Leases (d)
|
|
Operating
Leases (e and f)
|
|
Total
|
|
|
(millions)
|
|
Fiscal year
|
|
|
|
|
|
|
2019
|
$
|
1
|
|
|
$
|
90
|
|
|
$
|
91
|
|
|
2020
|
3
|
|
|
334
|
|
|
337
|
|
|
2021
|
3
|
|
|
335
|
|
|
338
|
|
|
2022
|
3
|
|
|
313
|
|
|
316
|
|
|
2023
|
3
|
|
|
308
|
|
|
311
|
|
|
After 2023
|
31
|
|
|
5,384
|
|
|
5,415
|
|
|
Total undiscounted lease payments
|
44
|
|
|
6,764
|
|
|
6,808
|
|
|
Less amount representing interest
|
19
|
|
|
3,656
|
|
|
3,675
|
|
|
Total lease liabilities
|
$
|
25
|
|
|
$
|
3,108
|
|
|
$
|
3,133
|
|
(d) Finance lease payments include $12 million related to options to extend lease terms that are reasonably certain of being exercised.
(e) Operating lease payments include $3,272 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $965 million of legally binding minimum lease payments for leases signed but not yet commenced.
(f) Operating lease payments include $1,159 million related to non-lease component payments, with $841 million related to options to extend lease terms that are reasonably certain of being exercised.
Additional supplemental information regarding assumptions and cash flows for operating and finance leases is as follows:
|
|
|
|
|
|
|
|
November 2, 2019
|
|
Lease Term and Discount Rate
|
(millions)
|
|
Weighted-average remaining lease term (years)
|
|
|
Finance leases
|
17.9
|
|
|
Operating leases
|
23.6
|
|
|
Weighted-average discount rate
|
|
|
Finance leases
|
6.64
|
%
|
|
Operating leases
|
6.70
|
%
|
|
|
|
|
|
|
|
|
|
39 Weeks Ended
|
|
|
November 2, 2019
|
|
Other Information
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
Operating cash flows used from operating leases
|
$
|
272
|
|
|
Financing cash flows used from financing leases
|
2
|
|
|
Leased assets obtained in exchange for new operating lease liabilities
|
48
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
39 Weeks Ended
|
|
|
November 2, 2019
|
|
November 3, 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
|
4
|
|
|
4
|
|
|
9.75% Amortizing debentures due 2021
|
2
|
|
|
2
|
|
|
Capital leases and other obligations
|
—
|
|
|
1
|
|
|
|
$
|
42
|
|
|
$
|
351
|
|
During the 39 weeks ended November 3, 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 related to the transactions. Such repurchases resulted in the recognition of expense of $5 million during the 39 weeks ended November 3, 2018 presented as losses on early retirement of debt on the Consolidated Statements of Income.
On May 9, 2019, the Company entered into a new credit agreement with certain financial institutions that 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
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
commitments for such additional financing). The new credit agreement is scheduled to expire on May 9, 2024, subject to up to two one-year extensions that may be requested by the Company and agreed to by the lenders.
On December 3, 2019, the Company commenced a cash tender offer (the "tender offer") to purchase up to $450 million in aggregate principal amount of certain unsecured notes and debentures, with stated interest rates from 2.875% to 7.00% and maturities ranging from fiscal years 2021 to 2043. The tender offer expires on December 31, 2019, with an early tender date on December 16, 2019.
6. Benefit Plans
The Company has defined contribution plans which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan ("Pension Plan") and an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.
In addition, certain retired employees currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.
The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
|
|
November 2, 2019
|
|
November 3, 2018
|
|
November 2, 2019
|
|
November 3, 2018
|
|
|
(millions)
|
|
(millions)
|
|
401(k) Qualified Defined Contribution Plan
|
$
|
25
|
|
|
$
|
24
|
|
|
$
|
74
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified Defined Contribution Plan
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
Interest cost
|
26
|
|
|
28
|
|
|
78
|
|
|
81
|
|
|
Expected return on assets
|
(48
|
)
|
|
(51
|
)
|
|
(144
|
)
|
|
(157
|
)
|
|
Recognition of net actuarial loss
|
7
|
|
|
7
|
|
|
21
|
|
|
23
|
|
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
(13
|
)
|
|
$
|
(15
|
)
|
|
$
|
(41
|
)
|
|
$
|
(49
|
)
|
|
Supplementary Retirement Plan
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
5
|
|
|
6
|
|
|
17
|
|
|
17
|
|
|
Recognition of net actuarial loss
|
2
|
|
|
2
|
|
|
6
|
|
|
6
|
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
7
|
|
|
$
|
8
|
|
|
$
|
23
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
Total Retirement Expense
|
$
|
19
|
|
|
$
|
17
|
|
|
$
|
58
|
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Obligations
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
1
|
|
|
1
|
|
|
3
|
|
|
3
|
|
|
Recognition of net actuarial gain
|
(1
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
(4
|
)
|
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
In connection with the Company's defined benefit plans, for the 13 and 39 weeks ended November 2, 2019, the Company incurred a non-cash settlement charge of $12 million and for the 13 and 39 weeks ended November 3, 2018, the Company incurred non-cash settlement charges of $23 million and $73 million, respectively. 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 retiree distribution elections and restructuring activity.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
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:
Level 1: Quoted prices in active markets for identical assets
Level 2: Significant observable inputs for the assets
Level 3: Significant unobservable inputs for the assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2, 2019
|
|
November 3, 2018
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Fair Value Measurements
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(millions)
|
|
Marketable equity and debt securities
|
$
|
92
|
|
|
$
|
33
|
|
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
96
|
|
|
$
|
26
|
|
|
$
|
70
|
|
|
$
|
—
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2, 2019
|
|
November 3, 2018
|
|
|
Notional
Amount
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Notional
Amount
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
(millions)
|
|
Long-term debt
|
$
|
4,664
|
|
|
$
|
4,677
|
|
|
$
|
4,716
|
|
|
$
|
5,420
|
|
|
$
|
5,444
|
|
|
$
|
5,170
|
|
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 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 39 weeks ended November 2, 2019 and November 3, 2018, Condensed Consolidating Balance Sheets as of November 2, 2019, November 3, 2018 and February 2, 2019, and the related Condensed Consolidating Statements of Cash Flows for the 39 weeks ended November 2, 2019 and November 3, 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 November 2, 2019
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
2,044
|
|
|
$
|
5,245
|
|
|
$
|
(2,116
|
)
|
|
$
|
5,173
|
|
|
Credit card revenues (expense), net
|
—
|
|
|
(2
|
)
|
|
185
|
|
|
—
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
(1,230
|
)
|
|
(3,992
|
)
|
|
2,116
|
|
|
(3,106
|
)
|
|
Selling, general and administrative expenses
|
—
|
|
|
(870
|
)
|
|
(1,332
|
)
|
|
—
|
|
|
(2,202
|
)
|
|
Gains on sale of real estate
|
—
|
|
|
8
|
|
|
9
|
|
|
—
|
|
|
17
|
|
|
Restructuring and other costs
|
—
|
|
|
(1
|
)
|
|
(12
|
)
|
|
—
|
|
|
(13
|
)
|
|
Operating income (loss)
|
—
|
|
|
(51
|
)
|
|
103
|
|
|
—
|
|
|
52
|
|
|
Benefit plan income, net
|
—
|
|
|
3
|
|
|
5
|
|
|
—
|
|
|
8
|
|
|
Settlement charges
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
|
Interest (expense) income, net:
|
|
|
|
|
|
|
|
|
|
|
External
|
3
|
|
|
(52
|
)
|
|
1
|
|
|
—
|
|
|
(48
|
)
|
|
Intercompany
|
—
|
|
|
(18
|
)
|
|
18
|
|
|
—
|
|
|
—
|
|
|
Equity in loss of subsidiaries
|
(3
|
)
|
|
(125
|
)
|
|
—
|
|
|
128
|
|
|
—
|
|
|
Income (loss) before income taxes
|
—
|
|
|
(243
|
)
|
|
115
|
|
|
128
|
|
|
—
|
|
|
Federal, state and local income
tax benefit (expense)
|
2
|
|
|
30
|
|
|
(30
|
)
|
|
—
|
|
|
2
|
|
|
Net income (loss)
|
2
|
|
|
(213
|
)
|
|
85
|
|
|
128
|
|
|
2
|
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
2
|
|
|
$
|
(213
|
)
|
|
$
|
85
|
|
|
$
|
128
|
|
|
$
|
2
|
|
|
Comprehensive income (loss)
|
$
|
(35
|
)
|
|
$
|
(249
|
)
|
|
$
|
65
|
|
|
$
|
184
|
|
|
$
|
(35
|
)
|
|
Comprehensive loss attributable to
noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
(35
|
)
|
|
$
|
(249
|
)
|
|
$
|
65
|
|
|
$
|
184
|
|
|
$
|
(35
|
)
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended November 3, 2018
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
2,030
|
|
|
$
|
6,185
|
|
|
$
|
(2,811
|
)
|
|
$
|
5,404
|
|
|
Credit card revenues, net
|
—
|
|
|
—
|
|
|
185
|
|
|
—
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
(1,266
|
)
|
|
(4,771
|
)
|
|
2,811
|
|
|
(3,226
|
)
|
|
Selling, general and administrative expenses
|
—
|
|
|
(883
|
)
|
|
(1,372
|
)
|
|
—
|
|
|
(2,255
|
)
|
|
Gains on sale of real estate
|
—
|
|
|
41
|
|
|
1
|
|
|
—
|
|
|
42
|
|
|
Restructuring and other costs
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
|
Operating income (loss)
|
—
|
|
|
(78
|
)
|
|
225
|
|
|
—
|
|
|
147
|
|
|
Benefit plan income, net
|
—
|
|
|
3
|
|
|
6
|
|
|
—
|
|
|
9
|
|
|
Settlement charges
|
—
|
|
|
(8
|
)
|
|
(15
|
)
|
|
—
|
|
|
(23
|
)
|
|
Interest (expense) income, net:
|
|
|
|
|
|
|
|
|
|
|
|
External
|
4
|
|
|
(64
|
)
|
|
1
|
|
|
—
|
|
|
(59
|
)
|
|
Intercompany
|
—
|
|
|
(18
|
)
|
|
18
|
|
|
—
|
|
|
—
|
|
|
Equity in earnings (loss) of subsidiaries
|
59
|
|
|
(58
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
Income (loss) before income taxes
|
63
|
|
|
(223
|
)
|
|
235
|
|
|
(1
|
)
|
|
74
|
|
|
Federal, state and local income
tax benefit (expense)
|
(1
|
)
|
|
57
|
|
|
(68
|
)
|
|
—
|
|
|
(12
|
)
|
|
Net income (loss)
|
62
|
|
|
(166
|
)
|
|
167
|
|
|
(1
|
)
|
|
62
|
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
62
|
|
|
$
|
(166
|
)
|
|
$
|
167
|
|
|
$
|
(1
|
)
|
|
$
|
62
|
|
|
Comprehensive income (loss)
|
$
|
(37
|
)
|
|
$
|
(257
|
)
|
|
$
|
106
|
|
|
$
|
151
|
|
|
$
|
(37
|
)
|
|
Comprehensive loss attributable to
noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
(37
|
)
|
|
$
|
(257
|
)
|
|
$
|
106
|
|
|
$
|
151
|
|
|
$
|
(37
|
)
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 39 Weeks Ended November 2, 2019
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
6,418
|
|
|
$
|
14,428
|
|
|
$
|
(4,623
|
)
|
|
$
|
16,223
|
|
|
Credit card revenues (expense), net
|
—
|
|
|
(8
|
)
|
|
539
|
|
|
—
|
|
|
531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
(3,913
|
)
|
|
(10,615
|
)
|
|
4,623
|
|
|
(9,905
|
)
|
|
Selling, general and administrative expenses
|
1
|
|
|
(2,544
|
)
|
|
(3,946
|
)
|
|
—
|
|
|
(6,489
|
)
|
|
Gains on sale of real estate
|
—
|
|
|
32
|
|
|
35
|
|
|
—
|
|
|
67
|
|
|
Impairment, restructuring and other costs
|
—
|
|
|
(1
|
)
|
|
(15
|
)
|
|
—
|
|
|
(16
|
)
|
|
Operating income (loss)
|
1
|
|
|
(16
|
)
|
|
426
|
|
|
—
|
|
|
411
|
|
|
Benefit plan income, net
|
—
|
|
|
9
|
|
|
14
|
|
|
—
|
|
|
23
|
|
|
Settlement charges
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
|
Interest (expense) income, net:
|
|
|
|
|
|
|
|
|
|
|
External
|
11
|
|
|
(157
|
)
|
|
3
|
|
|
—
|
|
|
(143
|
)
|
|
Intercompany
|
—
|
|
|
(55
|
)
|
|
55
|
|
|
—
|
|
|
—
|
|
|
Equity in earnings (loss) of subsidiaries
|
212
|
|
|
(264
|
)
|
|
—
|
|
|
52
|
|
|
—
|
|
|
Income (loss) before income taxes
|
224
|
|
|
(483
|
)
|
|
486
|
|
|
52
|
|
|
279
|
|
|
Federal, state and local income
tax benefit (expense)
|
—
|
|
|
61
|
|
|
(116
|
)
|
|
—
|
|
|
(55
|
)
|
|
Net income (loss)
|
224
|
|
|
(422
|
)
|
|
370
|
|
|
52
|
|
|
224
|
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
224
|
|
|
$
|
(422
|
)
|
|
$
|
370
|
|
|
$
|
52
|
|
|
$
|
224
|
|
|
Comprehensive income (loss)
|
$
|
198
|
|
|
$
|
(448
|
)
|
|
$
|
358
|
|
|
$
|
90
|
|
|
$
|
198
|
|
|
Comprehensive loss attributable to
noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
198
|
|
|
$
|
(448
|
)
|
|
$
|
358
|
|
|
$
|
90
|
|
|
$
|
198
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the 39 Weeks Ended November 3, 2018
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
6,110
|
|
|
$
|
16,462
|
|
|
$
|
(6,056
|
)
|
|
$
|
16,516
|
|
|
Credit card revenues (expense), net
|
—
|
|
|
(3
|
)
|
|
531
|
|
|
—
|
|
|
528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
(3,857
|
)
|
|
(12,126
|
)
|
|
6,056
|
|
|
(9,927
|
)
|
|
Selling, general and administrative expenses
|
—
|
|
|
(2,522
|
)
|
|
(3,979
|
)
|
|
—
|
|
|
(6,501
|
)
|
|
Gains on sale of real estate
|
—
|
|
|
83
|
|
|
28
|
|
|
—
|
|
|
111
|
|
|
Impairment, restructuring and other costs
|
—
|
|
|
—
|
|
|
(39
|
)
|
|
—
|
|
|
(39
|
)
|
|
Operating income (loss)
|
—
|
|
|
(189
|
)
|
|
877
|
|
|
—
|
|
|
688
|
|
|
Benefit plan income, net
|
—
|
|
|
12
|
|
|
19
|
|
|
—
|
|
|
31
|
|
|
Settlement charges
|
(5
|
)
|
|
(24
|
)
|
|
(44
|
)
|
|
—
|
|
|
(73
|
)
|
|
Interest (expense) income, net:
|
|
|
|
|
|
|
|
|
|
|
External
|
13
|
|
|
(203
|
)
|
|
3
|
|
|
—
|
|
|
(187
|
)
|
|
Intercompany
|
—
|
|
|
(54
|
)
|
|
54
|
|
|
—
|
|
|
—
|
|
|
Losses on early retirement of debt
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
Equity in earnings of subsidiaries
|
362
|
|
|
51
|
|
|
—
|
|
|
(413
|
)
|
|
—
|
|
|
Income (loss) before income taxes
|
370
|
|
|
(412
|
)
|
|
909
|
|
|
(413
|
)
|
|
454
|
|
|
Federal, state and local income
tax benefit (expense)
|
(2
|
)
|
|
123
|
|
|
(217
|
)
|
|
—
|
|
|
(96
|
)
|
|
Net income (loss)
|
368
|
|
|
(289
|
)
|
|
692
|
|
|
(413
|
)
|
|
358
|
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
|
Net income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
368
|
|
|
$
|
(289
|
)
|
|
$
|
702
|
|
|
$
|
(413
|
)
|
|
$
|
368
|
|
|
Comprehensive income (loss)
|
$
|
296
|
|
|
$
|
(357
|
)
|
|
$
|
646
|
|
|
$
|
(299
|
)
|
|
$
|
286
|
|
|
Comprehensive loss attributable to
noncontrolling interest
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
296
|
|
|
$
|
(357
|
)
|
|
$
|
656
|
|
|
$
|
(299
|
)
|
|
$
|
296
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of November 2, 2019
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
42
|
|
|
$
|
73
|
|
|
$
|
186
|
|
|
$
|
—
|
|
|
$
|
301
|
|
|
Receivables
|
—
|
|
|
30
|
|
|
145
|
|
|
—
|
|
|
175
|
|
|
Merchandise inventories
|
—
|
|
|
3,145
|
|
|
4,111
|
|
|
—
|
|
|
7,256
|
|
|
Income taxes
|
96
|
|
|
—
|
|
|
—
|
|
|
(95
|
)
|
|
1
|
|
|
Prepaid expenses and other current assets
|
—
|
|
|
126
|
|
|
442
|
|
|
—
|
|
|
568
|
|
|
Total Current Assets
|
138
|
|
|
3,374
|
|
|
4,884
|
|
|
(95
|
)
|
|
8,301
|
|
|
Property and Equipment – net
|
—
|
|
|
3,174
|
|
|
3,384
|
|
|
—
|
|
|
6,558
|
|
|
Right of Use Assets
|
—
|
|
|
653
|
|
|
1,943
|
|
|
—
|
|
|
2,596
|
|
|
Goodwill
|
—
|
|
|
3,326
|
|
|
582
|
|
|
—
|
|
|
3,908
|
|
|
Other Intangible Assets – net
|
—
|
|
|
5
|
|
|
435
|
|
|
—
|
|
|
440
|
|
|
Other Assets
|
—
|
|
|
49
|
|
|
695
|
|
|
—
|
|
|
744
|
|
|
Deferred Income Taxes
|
9
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
Intercompany Receivable
|
2,923
|
|
|
—
|
|
|
454
|
|
|
(3,377
|
)
|
|
—
|
|
|
Investment in Subsidiaries
|
3,231
|
|
|
2,812
|
|
|
—
|
|
|
(6,043
|
)
|
|
—
|
|
|
Total Assets
|
$
|
6,301
|
|
|
$
|
13,393
|
|
|
$
|
12,377
|
|
|
$
|
(9,524
|
)
|
|
$
|
22,547
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
Merchandise accounts payable
|
—
|
|
|
1,521
|
|
|
1,906
|
|
|
—
|
|
|
3,427
|
|
|
Accounts payable and accrued liabilities
|
216
|
|
|
835
|
|
|
1,995
|
|
|
—
|
|
|
3,046
|
|
|
Income taxes
|
—
|
|
|
51
|
|
|
44
|
|
|
(95
|
)
|
|
—
|
|
|
Total Current Liabilities
|
216
|
|
|
2,413
|
|
|
3,945
|
|
|
(95
|
)
|
|
6,479
|
|
|
Long-Term Debt
|
—
|
|
|
4,677
|
|
|
—
|
|
|
|
|
|
4,677
|
|
|
Long-Term Lease Liabilities
|
—
|
|
|
589
|
|
|
2,230
|
|
|
—
|
|
|
2,819
|
|
|
Intercompany Payable
|
—
|
|
|
3,377
|
|
|
—
|
|
|
(3,377
|
)
|
|
—
|
|
|
Deferred Income Taxes
|
—
|
|
|
654
|
|
|
555
|
|
|
(9
|
)
|
|
1,200
|
|
|
Other Liabilities
|
28
|
|
|
377
|
|
|
910
|
|
|
—
|
|
|
1,315
|
|
|
Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
Macy's, Inc.
|
6,057
|
|
|
1,306
|
|
|
4,737
|
|
|
(6,043
|
)
|
|
6,057
|
|
|
Noncontrolling Interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total Shareholders' Equity
|
6,057
|
|
|
1,306
|
|
|
4,737
|
|
|
(6,043
|
)
|
|
6,057
|
|
|
Total Liabilities and Shareholders' Equity
|
$
|
6,301
|
|
|
$
|
13,393
|
|
|
$
|
12,377
|
|
|
$
|
(9,524
|
)
|
|
$
|
22,547
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of November 3, 2018
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
426
|
|
|
$
|
74
|
|
|
$
|
236
|
|
|
$
|
—
|
|
|
$
|
736
|
|
|
Receivables
|
1
|
|
|
25
|
|
|
154
|
|
|
—
|
|
|
180
|
|
|
Merchandise inventories
|
—
|
|
|
3,112
|
|
|
4,035
|
|
|
—
|
|
|
7,147
|
|
|
Income taxes
|
81
|
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
|
10
|
|
|
Prepaid expenses and other current assets
|
—
|
|
|
139
|
|
|
455
|
|
|
—
|
|
|
594
|
|
|
Total Current Assets
|
508
|
|
|
3,350
|
|
|
4,880
|
|
|
(71
|
)
|
|
8,667
|
|
|
Property and Equipment – net
|
—
|
|
|
3,244
|
|
|
3,328
|
|
|
—
|
|
|
6,572
|
|
|
Goodwill
|
—
|
|
|
3,326
|
|
|
582
|
|
|
—
|
|
|
3,908
|
|
|
Other Intangible Assets – net
|
—
|
|
|
40
|
|
|
441
|
|
|
—
|
|
|
481
|
|
|
Other Assets
|
—
|
|
|
39
|
|
|
694
|
|
|
—
|
|
|
733
|
|
|
Deferred Income Taxes
|
11
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
Intercompany Receivable
|
1,725
|
|
|
—
|
|
|
882
|
|
|
(2,607
|
)
|
|
—
|
|
|
Investment in Subsidiaries
|
3,639
|
|
|
3,028
|
|
|
—
|
|
|
(6,667
|
)
|
|
—
|
|
|
Total Assets
|
$
|
5,883
|
|
|
$
|
13,027
|
|
|
$
|
10,807
|
|
|
$
|
(9,356
|
)
|
|
$
|
20,361
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
$
|
—
|
|
|
$
|
42
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
65
|
|
|
Merchandise accounts payable
|
—
|
|
|
1,515
|
|
|
1,866
|
|
|
—
|
|
|
3,381
|
|
|
Accounts payable and accrued liabilities
|
192
|
|
|
874
|
|
|
1,932
|
|
|
—
|
|
|
2,998
|
|
|
Income taxes
|
—
|
|
|
40
|
|
|
31
|
|
|
(71
|
)
|
|
—
|
|
|
Total Current Liabilities
|
192
|
|
|
2,471
|
|
|
3,852
|
|
|
(71
|
)
|
|
6,444
|
|
|
Long-Term Debt
|
—
|
|
|
5,453
|
|
|
16
|
|
|
—
|
|
|
5,469
|
|
|
Intercompany Payable
|
—
|
|
|
2,607
|
|
|
—
|
|
|
(2,607
|
)
|
|
—
|
|
|
Deferred Income Taxes
|
—
|
|
|
619
|
|
|
577
|
|
|
(11
|
)
|
|
1,185
|
|
|
Other Liabilities
|
24
|
|
|
431
|
|
|
1,163
|
|
|
—
|
|
|
1,618
|
|
|
Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
Macy's, Inc.
|
5,667
|
|
|
1,446
|
|
|
5,221
|
|
|
(6,667
|
)
|
|
5,667
|
|
|
Noncontrolling Interest
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
—
|
|
|
(22
|
)
|
|
Total Shareholders' Equity
|
5,667
|
|
|
1,446
|
|
|
5,199
|
|
|
(6,667
|
)
|
|
5,645
|
|
|
Total Liabilities and Shareholders' Equity
|
$
|
5,883
|
|
|
$
|
13,027
|
|
|
$
|
10,807
|
|
|
$
|
(9,356
|
)
|
|
$
|
20,361
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of February 2, 2019
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
889
|
|
|
$
|
59
|
|
|
$
|
214
|
|
|
$
|
—
|
|
|
$
|
1,162
|
|
|
Receivables
|
—
|
|
|
68
|
|
|
332
|
|
|
—
|
|
|
400
|
|
|
Merchandise inventories
|
—
|
|
|
2,342
|
|
|
2,921
|
|
|
—
|
|
|
5,263
|
|
|
Prepaid expenses and other current assets
|
—
|
|
|
143
|
|
|
477
|
|
|
—
|
|
|
620
|
|
|
Total Current Assets
|
889
|
|
|
2,612
|
|
|
3,944
|
|
|
—
|
|
|
7,445
|
|
|
Property and Equipment – net
|
—
|
|
|
3,287
|
|
|
3,350
|
|
|
—
|
|
|
6,637
|
|
|
Goodwill
|
—
|
|
|
3,326
|
|
|
582
|
|
|
—
|
|
|
3,908
|
|
|
Other Intangible Assets – net
|
—
|
|
|
38
|
|
|
440
|
|
|
—
|
|
|
478
|
|
|
Other Assets
|
—
|
|
|
41
|
|
|
685
|
|
|
—
|
|
|
726
|
|
|
Deferred Income Taxes
|
12
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
Intercompany Receivable
|
1,713
|
|
|
—
|
|
|
1,390
|
|
|
(3,103
|
)
|
|
—
|
|
|
Investment in Subsidiaries
|
4,030
|
|
|
3,119
|
|
|
—
|
|
|
(7,149
|
)
|
|
—
|
|
|
Total Assets
|
$
|
6,644
|
|
|
$
|
12,423
|
|
|
$
|
10,391
|
|
|
$
|
(10,264
|
)
|
|
$
|
19,194
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
$
|
—
|
|
|
$
|
42
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
43
|
|
|
Merchandise accounts payable
|
—
|
|
|
713
|
|
|
942
|
|
|
—
|
|
|
1,655
|
|
|
Accounts payable and accrued liabilities
|
170
|
|
|
950
|
|
|
2,246
|
|
|
—
|
|
|
3,366
|
|
|
Income taxes
|
14
|
|
|
52
|
|
|
102
|
|
|
—
|
|
|
168
|
|
|
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
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the 39 Weeks Ended November 2, 2019
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
224
|
|
|
$
|
(422
|
)
|
|
$
|
370
|
|
|
$
|
52
|
|
|
$
|
224
|
|
|
Impairment, restructuring and other costs
|
—
|
|
|
1
|
|
|
15
|
|
|
—
|
|
|
16
|
|
|
Settlement charges
|
—
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
12
|
|
|
Equity in loss (earnings) of subsidiaries
|
(212
|
)
|
|
264
|
|
|
—
|
|
|
(52
|
)
|
|
—
|
|
|
Dividends received from subsidiaries
|
819
|
|
|
—
|
|
|
—
|
|
|
(819
|
)
|
|
—
|
|
|
Depreciation and amortization
|
—
|
|
|
251
|
|
|
474
|
|
|
—
|
|
|
725
|
|
|
Gains on sale of real estate
|
—
|
|
|
(32
|
)
|
|
(35
|
)
|
|
—
|
|
|
(67
|
)
|
|
Changes in assets, liabilities and other items not separately identified
|
(99
|
)
|
|
(139
|
)
|
|
(500
|
)
|
|
—
|
|
|
(738
|
)
|
|
Net cash provided (used) by operating activities
|
732
|
|
|
(77
|
)
|
|
336
|
|
|
(819
|
)
|
|
172
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment and capitalized software, net of dispositions
|
—
|
|
|
(179
|
)
|
|
(560
|
)
|
|
—
|
|
|
(739
|
)
|
|
Other, net
|
—
|
|
|
(2
|
)
|
|
12
|
|
|
—
|
|
|
10
|
|
|
Net cash used by investing activities
|
—
|
|
|
(181
|
)
|
|
(548
|
)
|
|
—
|
|
|
(729
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Debt repaid, including debt issuance costs
|
—
|
|
|
(45
|
)
|
|
—
|
|
|
—
|
|
|
(45
|
)
|
|
Dividends paid
|
(349
|
)
|
|
—
|
|
|
(819
|
)
|
|
819
|
|
|
(349
|
)
|
|
Issuance of common stock, net of common stock acquired
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
Intercompany activity, net
|
(1,161
|
)
|
|
239
|
|
|
922
|
|
|
—
|
|
|
—
|
|
|
Other, net
|
(74
|
)
|
|
73
|
|
|
50
|
|
|
—
|
|
|
49
|
|
|
Net cash provided (used) by financing activities
|
(1,579
|
)
|
|
267
|
|
|
153
|
|
|
819
|
|
|
(340
|
)
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(847
|
)
|
|
9
|
|
|
(59
|
)
|
|
—
|
|
|
(897
|
)
|
|
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
|
$
|
42
|
|
|
$
|
73
|
|
|
$
|
236
|
|
|
$
|
—
|
|
|
$
|
351
|
|
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the 39 Weeks Ended November 3, 2018
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
368
|
|
|
$
|
(289
|
)
|
|
$
|
692
|
|
|
$
|
(413
|
)
|
|
$
|
358
|
|
|
Impairment, restructuring and other costs
|
—
|
|
|
—
|
|
|
39
|
|
|
—
|
|
|
39
|
|
|
Settlement charges
|
5
|
|
|
24
|
|
|
44
|
|
|
—
|
|
|
73
|
|
|
Equity in earnings of subsidiaries
|
(362
|
)
|
|
(51
|
)
|
|
—
|
|
|
413
|
|
|
—
|
|
|
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
|
|
|
|
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
For purposes of the following discussion, all references to "third quarter of 2019" and "third quarter of 2018" are to the Company's 13-week fiscal periods ended November 2, 2019 and November 3, 2018, respectively. References to "2019" and "2018" are to the Company's 39-week periods ended November 2, 2019 and November 3, 2018, 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 2018 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 2018 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 35 and 36.
Overview
During the third quarter of 2019, the Company experienced a deceleration of sales that was steeper than expected. However, with inventory levels well positioned at the end of the second quarter of 2019, the Company was able to take a more balanced approach to sales and profit in the quarter, resulting in improved margin compression compared to the spring season. Third quarter of 2019 sales were impacted by continued soft international tourism, weaker than anticipated performance in lower tier malls, and the late arrival of cold weather. The digital business experienced a slowdown in its growth rate from the second quarter of 2019 to the third quarter of 2019 due in part to system enhancements and upgrades to the Company's website designed to improve the customer holiday shopping experience. The work on the Company's website has been completed and it has been upgraded to provide customers with enhanced features as the Company enters the holiday season.
The third quarter of 2019 included continued progress on the Company's strategic initiatives:
|
|
|
|
•
|
Work on the Growth100 locations was completed during the third quarter of 2019 and sales for the Growth150 stores overall outperformed the combined other Macy's locations.
|
|
|
|
|
•
|
Macy's Backstage has been expanded to 50 additional locations in fiscal 2019. In total, the Company was operating 222 Macy's Backstage locations (215 inside Macy's stores and seven freestanding locations) as of November 2, 2019. Backstage locations open for more than 12 months continued to achieve mid-single digit sales growth and have improved both margin and turn. During the third quarter of 2019, Backstage had strong performance in the ready-to-wear, active, intimate, kids and shoes categories.
|
|
|
|
|
•
|
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 vendor) reached 1 million SKUs and has increased the Company's e-commerce merchandise selections by adding nearly 1,000 vendors year-to-date in fiscal 2019.
|
|
|
|
|
•
|
The mobile-first strategy has continued to create an improved omnichannel experience for customers. Mobile remains the Company's fastest growing channel, with downloads and mobile active users experiencing significant growth during 2019. During the third quarter of 2019, new features were introduced such as updated store maps to navigate a customer's local store as well as functionality enabling quick pick-up and pay.
|
|
|
|
|
•
|
Sales at the Company's destination businesses (six merchandise categories: dresses, fine jewelry, big ticket, men's tailored, women's shoes and beauty) in the aggregate outpaced the rest of the business during the third quarter of 2019.
|
During the third quarter of 2019, Bloomingdale's experienced its strongest sales performance in its stores year-to-date and experienced growth in both digital and Bloomingdale's The Outlet stores. Shoes, fragrances and contemporary ready-to-wear categories performed well during the quarter. In November 2019, the Company opened the 39th Bloomingdale’s in Norwalk, Connecticut.
Bluemercury, the Company's luxury beauty products and spa retailer, continued its growth during the quarter both in stand-alone stores and stores within Macy's stores. The brand also launched its first loyalty program, Bluerewards, during the third quarter of 2019. In total, the Company was operating 191 bluemercury locations (20 inside Macy's stores and 171 freestanding locations) as of November 2, 2019.
Results of Operations
Comparison of the Third Quarter of 2019 and the Third Quarter of 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter of 2019
|
|
|
Third Quarter of 2018
|
|
|
|
|
|
Amount
|
|
% to Net Sales
|
|
|
Amount
|
|
% to Net Sales
|
|
|
|
|
|
(dollars in millions, except per share figures)
|
|
Net sales
|
|
$
|
5,173
|
|
|
|
|
|
$
|
5,404
|
|
|
|
|
|
|
Credit card revenues, net
|
|
183
|
|
|
3.5
|
|
%
|
185
|
|
|
3.4
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
(3,106
|
)
|
|
(60.0
|
)
|
%
|
(3,226
|
)
|
|
(59.7
|
)
|
%
|
|
Selling, general and administrative expenses
|
|
(2,202
|
)
|
|
(42.6
|
)
|
%
|
(2,255
|
)
|
|
(41.7
|
)
|
%
|
|
Gains on sale of real estate
|
|
17
|
|
|
0.3
|
|
%
|
42
|
|
|
0.8
|
|
%
|
|
Restructuring and other costs
|
|
(13
|
)
|
|
(0.2
|
)
|
%
|
(3
|
)
|
|
(0.1
|
)
|
%
|
|
Operating income
|
|
52
|
|
|
1.0
|
|
%
|
147
|
|
|
2.7
|
|
%
|
|
Benefit plan income, net
|
|
8
|
|
|
|
|
|
9
|
|
|
|
|
|
|
Settlement charges
|
|
(12
|
)
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
Interest expense, net
|
|
(48
|
)
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
Income before income taxes
|
|
—
|
|
|
|
|
|
74
|
|
|
|
|
|
|
Federal, state and local income tax benefit (expense)
|
|
2
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
Net income
|
|
2
|
|
|
|
|
62
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Net income attributable to Macy's, Inc. shareholders
|
|
$
|
2
|
|
|
—
|
|
%
|
$
|
62
|
|
|
1.1
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to
Macy's, Inc. shareholders
|
|
$
|
0.01
|
|
|
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Financial Measure
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin (a)
|
|
$
|
2,067
|
|
|
40.0
|
|
%
|
$
|
2,178
|
|
|
40.3
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Non-GAAP Financial Measure
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of certain items
|
|
$
|
0.07
|
|
|
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Gross margin is defined as net sales less cost of sales.
Net Sales and Comparable Sales
Net sales for the third quarter of 2019 decreased $231 million, or 4.3%, compared to the third quarter of 2018. Comparable sales on an owned basis for the third quarter of 2019 decreased 3.9% compared to the third quarter of 2018. On an owned plus licensed basis, comparable sales decreased 3.5% during the third quarter of 2019.
The digital sales growth rate slowed during the third quarter of 2019 compared to the second quarter of 2019. Sales were strong in the mattresses, fine jewelry, fragrances, dresses, men’s active and men’s tailored categories. Sales performance was weaker in women’s and men’s sportswear, handbags, housewares and furniture. Compared to the third quarter of 2018, international tourism sales were down 6.3% during the third quarter of 2019.
Credit Card Revenues, Net
Credit card revenues, net were $183 million in the third quarter of 2019, a decrease of $2 million, or 1.1%, compared to $185 million recognized in the third quarter of 2018. Proprietary card penetration was 48.3% in the third quarter of 2019, slightly below the prior year level.
Cost of Sales
Cost of sales decreased by $120 million compared to the third quarter of 2018, driven by lower sales and was partially offset by higher delivery expense due to 1) free shipping offered as part of the Company's loyalty programs and 2) increased digital sales transaction volume compared to the prior year. While the cost of sales rate for the third quarter of 2019 of
60.0% was 30 basis points higher than the third quarter of 2018, it represents a significant sequential improvement over the second quarter of 2019 where the cost of sales rate was 61.2%.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the third quarter of 2019 decreased $53 million from the third quarter of 2018. The SG&A rate as a percent to net sales of 42.6% was 90 basis points higher in the third quarter of 2019, as compared to the third quarter of 2018. The decrease in SG&A expense dollars reflects both disciplined cost containment and lower variable costs associated with sales.
Gains on Sale of Real Estate
The third quarter of 2019 included asset sale gains of $17 million compared to $42 million in the third quarter of 2018. The third quarter of 2018 asset sale gains included approximately $23 million related to the Macy's Brooklyn transaction.
Restructuring and Other Costs
The third quarters of 2019 and 2018 included $13 million and $3 million, respectively, of restructuring and other costs related to severance activity and other costs associated with organizational restructuring.
Benefit Plan Income, Net
The third quarters of 2019 and 2018 included $8 million and $9 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 quarters of 2019 and 2018 included $12 million and $23 million, respectively, of non-cash settlement charges related 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 third quarter of 2019 decreased $11 million from the third quarter of 2018 due to a reduction in the Company's debt resulting from the tender offer in 2018.
Effective Tax Rate
The Company's effective tax rates for the third quarters of 2019 and 2018 were impacted by the settlement of certain state and local tax matters. The third quarter of 2019's effective tax benefit was also impacted by lower income before income taxes as compared to the prior year quarter.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for the third quarter of 2019 decreased $60 million compared to the third quarter of 2018. The decrease in the third quarter of 2019 was driven by lower operating income partially offset by lower settlement charges, lower interest expense and lower income tax expense than the third quarter of 2018.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for the third quarter of 2019 decreased $0.19 compared to the third quarter of 2018, reflecting lower net income.
Comparison of the 39 Weeks Ended November 2, 2019 and November 3, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
Amount
|
|
% to Net Sales
|
|
|
Amount
|
|
% to Net Sales
|
|
|
|
|
|
(dollars in millions, except per share figures)
|
|
Net sales
|
|
$
|
16,223
|
|
|
|
|
|
$
|
16,516
|
|
|
|
|
|
|
Credit card revenues, net
|
|
531
|
|
|
3.3
|
|
%
|
528
|
|
|
3.2
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
(9,905
|
)
|
|
(61.1
|
)
|
%
|
(9,927
|
)
|
|
(60.1
|
)
|
%
|
|
Selling, general and administrative expenses
|
|
(6,489
|
)
|
|
(40.0
|
)
|
%
|
(6,501
|
)
|
|
(39.4
|
)
|
%
|
|
Gains on sale of real estate
|
|
67
|
|
|
0.4
|
|
%
|
111
|
|
|
0.7
|
|
%
|
|
Impairment, restructuring and other costs
|
|
(16
|
)
|
|
(0.1
|
)
|
%
|
(39
|
)
|
|
(0.2
|
)
|
%
|
|
Operating income
|
|
411
|
|
|
2.5
|
|
%
|
688
|
|
|
4.2
|
|
%
|
|
Benefit plan income, net
|
|
23
|
|
|
|
|
|
31
|
|
|
|
|
|
|
Settlement charges
|
|
(12
|
)
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
Interest expense, net
|
|
(143
|
)
|
|
|
|
|
(187
|
)
|
|
|
|
|
|
Losses on the early retirement of debt
|
|
—
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
Income before income taxes
|
|
279
|
|
|
|
|
|
454
|
|
|
|
|
|
|
Federal, state and local income tax expense
|
|
(55
|
)
|
|
|
|
|
(96
|
)
|
|
|
|
|
|
Net income
|
|
224
|
|
|
|
|
358
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
—
|
|
|
|
|
|
10
|
|
|
|
|
|
|
Net income attributable to Macy's, Inc. shareholders
|
|
$
|
224
|
|
|
1.4
|
|
%
|
$
|
368
|
|
|
2.2
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to
Macy's, Inc. shareholders
|
|
$
|
0.72
|
|
|
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Financial Measure
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin (a)
|
|
$
|
6,318
|
|
|
38.9
|
|
%
|
$
|
6,589
|
|
|
39.9
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Non-GAAP Financial Measure
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of certain items
|
|
$
|
0.79
|
|
|
|
|
|
$
|
1.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Gross margin is defined as net sales less cost of sales.
Net Sales and Comparable Sales
Net sales for 2019 decreased $293 million, or 1.8%, compared to 2018. Comparable sales on an owned basis for 2019 decreased 1.0% compared to 2018. On an owned plus licensed basis, comparable sales decreased 0.8% during 2019.
Digital sales continued to experience positive growth in 2019 and Macy's Growth150 locations overall outperformed the combined other Macy's locations. Destination businesses including dresses, fine jewelry, fragrances, women's shoes and men's tailored clothing have been strong performing categories in 2019 as well as active and kids. Sales were weaker in ready-to-wear categories, handbags,housewares and furniture during 2019.
Credit Card Revenues, Net
Credit card revenues, net were $531 million in 2019, an increase of $3 million compared to $528 million recognized in 2018. Increased proprietary card usage driven by the enhanced Macy's Star Rewards loyalty program drove the favorable results. Proprietary card penetration increased 30 basis points to 47.1% in 2019 compared to 46.8% in 2018.
Cost of Sales
Cost of sales decreased by $22 million compared to 2018 but increased 100 basis points as a percent to net sales to 61.1% in 2019. Lower sales in 2019 versus 2018 contributed to the decline in cost of sales dollars, which was offset by higher delivery expense as discussed in the quarterly results of operations.
Selling, General and Administrative Expenses
SG&A expenses for 2019 decreased $12 million from 2018. However, the SG&A rate as a percent to net sales of 40.0% was 60 basis points higher in 2019, as compared to 2018. This increase in SG&A on a rate basis was driven primarily by investments made in the first half of the year in the strategic initiatives including the expansion of Macy's Backstage.
Gains on Sale of Real Estate
2019 included asset sale gains of $67 million compared to $111 million in 2018. 2019 included a $21 million gain related to the Macy's White Plains transaction, while 2018 included approximately $58 million related to the Macy's Brooklyn transaction.
Impairment, Restructuring and Other Costs
2019 and 2018 included $16 million and $39 million, respectively, of impairment, restructuring and other costs. Impairment, restructuring and other costs in 2019 related to severance activity and other costs associated with organizational restructuring, while in 2018 costs were associated with the wind-down of Macy's China Limited.
Benefit Plan Income, Net
2019 and 2018 included $23 million and $31 million, respectively, of non-cash net benefit plan income related 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
2019 and 2018 included $12 million and $73 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions primarily associated with retiree distribution elections and restructuring activity.
Net Interest Expense
Net interest expense for 2019 decreased $44 million from 2018 due to a reduction in the Company's debt resulting from tender offer and open market repurchases 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 above.
Effective Tax Rate
The Company's effective tax rate was 19.7% for 2019 and 21.1% 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 $144 million compared to 2018. Compared to 2018, 2019 was driven by lower operating income partially offset by lower settlement charges, lower interest expense, and lower income taxes than 2018.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for 2019 decreased $0.46 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 $172 million, compared to $429 million in 2018. The difference in operating cash flows period over period is due to timing of accounts payables and accrued expenses and a decline in earnings before interest, taxes, depreciation and amortization. These declines were partially offset by lower tax payments in 2019 compared to 2018.
Investing Activities
Net cash used by investing activities was $729 million in 2019, compared to $549 million in 2018. The increase in 2019 was driven by the Company's investments in its strategic initiatives resulting in $812 million of capital expenditures, inclusive of
property and equipment and capitalized software, compared to $677 million in 2018. Offsetting this outflow in 2019, the Company received cash of $73 million from the disposition of property and equipment primarily related to the execution of real estate transactions, compared to $121 million of proceeds in 2018.
Financing Activities
Net cash used by the Company for financing activities was $340 million for 2019, including debt repaid of $42 million, which included a repayment at maturity of $36 million for the 8.5% senior debentures and payment of $349 million of cash dividends. 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 $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, including premium expenses and other fees related to the transactions.
On May 9, 2019, the Company entered into a new credit agreement with certain financial institutions that 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). The new credit agreement is scheduled to expire on May 9, 2024, subject to up to two one-year extensions that may be requested by the Company and agreed to by the lenders. As of November 2, 2019, the Company did not have any borrowings or letters of credit outstanding under its credit facility.
On December 3, 2019, the Company commenced a cash tender offer (the "tender offer") to purchase up to $450 million in aggregate principal amount of certain unsecured notes and debentures, with stated interest rates from 2.875% to 7.00% and maturities ranging from fiscal years 2021 to 2043. The tender offer expires on December 31, 2019, with an early tender date on December 16, 2019.
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 November 2, 2019, the Company did not have any borrowings outstanding under its commercial paper program.
As of November 2, 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. The Company's interest coverage ratio for the third quarter of 2019 was 13.07 and its leverage ratio at November 2, 2019 was 1.89, in each case as calculated in accordance with the credit agreement. As of November 2, 2019, the Company was in compliance with the ratio requirements.
On October 25, 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, 2020, to Macy's shareholders of record at the close of business on December 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 November 21, 2019, the Company issued a press release to report preliminary earnings for its third quarter of 2019. Based primarily on the impact of its third quarter sales trend, the Company lowered its annual guidance for sales and diluted earnings per share attributable to Macy's, Inc. shareholders, excluding settlement charges, impairment and other costs (adjusted diluted earnings per share). The following reflects the revised guidance for 2019:
•Net sales are expected to be down 2.5% to 2.0%.
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•
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Comparable sales on an owned plus licensed basis are estimated to be down 1.5% to 1.0%, with comparable sales on an owned basis below these metrics by approximately 20 basis points.
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•Credit card revenue is expected to be approximately $750 million.
•Gross margin rate is expected to be down moderately for 2019.
•SG&A expense dollars for 2019 are expected to be slightly below 2018.
•Estimated asset sale gains of $150 million.
•Benefit plan income, net of approximately $30 million.
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•
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Diluted earnings per share excluding certain items (adjusted diluted earnings per share) is expected to be $2.57 to $2.77 and excluding asset sale gains is expected to be $2.20 to $2.40.
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Estimated depreciation and amortization, net interest expense, the effective tax rate and capital expenditures are unchanged from the prior 2019 guidance.
Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with U.S. 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. The Company does not provide the most directly comparable forward-looking GAAP measure of diluted earnings per share attributable to Macy’s, Inc. shareholders excluding certain items because the timing and amount of excluded items are unreasonably difficult to fully and accurately estimate.
Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the Company's financial position, results of operations or cash flows and should therefore be considered in assessing the Company's actual and future financial condition and performance. Additionally, the amounts received by the Company on account of sales of departments licensed to third parties are limited to commissions received on such sales. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.
Changes in Comparable Sales
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.
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Third Quarter of 2019
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2019
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Decrease in comparable sales on an owned basis (note 1)
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(3.9
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)%
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(1.0
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)%
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Impact of growth in comparable sales of departments licensed to third parties (note 2)
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0.4
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%
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0.2
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%
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Decrease in comparable sales on an owned plus licensed basis
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(3.5
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)%
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(0.8
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)%
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Notes:
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(1)
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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)
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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.
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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 measures 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.
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Third Quarter of 2019
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Third Quarter of 2018
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Net Income Attributable to Macy's, Inc. Shareholders
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Diluted Earnings Per Share
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Net Income Attributable to Macy's, Inc. Shareholders
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Diluted Earnings Per Share
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As reported
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$
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2
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$
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0.01
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$
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62
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$
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0.20
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Restructuring and other costs
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13
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0.04
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3
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0.01
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Settlement charges
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12
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0.04
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23
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0.08
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Income tax impact of certain items noted above
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(6
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)
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(0.02
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)
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(5
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)
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(0.02
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)
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As adjusted
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$
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21
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$
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0.07
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$
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83
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$
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0.27
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2019
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2018
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Net Income Attributable to Macy's, Inc. Shareholders
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Diluted Earnings Per Share
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Net Income Attributable to Macy's, Inc. Shareholders
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Diluted Earnings Per Share
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As reported
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$
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224
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$
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0.72
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$
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368
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$
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1.18
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Impairment, restructuring and other costs (note 3)
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16
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0.05
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31
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0.10
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Settlement charges
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12
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0.04
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73
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0.23
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Losses on early retirement of debt
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—
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—
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5
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0.02
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Income tax impact of certain items noted above
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(6
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)
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(0.02
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)
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(26
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)
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(0.08
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)
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As adjusted
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$
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246
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$
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0.79
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$
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451
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$
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1.45
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Note:
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(3)
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For the 39 weeks ended November 3, 2018, the above pre-tax adjustment excludes impairment, restructuring and other costs attributable to the noncontrolling interest shareholder of $8 million.
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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 November 2, 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 exceeded the carrying values and the intangible assets with indefinite lives were not impaired.
During the third quarter of 2019, the Company observed a decline in the market valuation of the Company’s common shares and performed an interim qualitative impairment test on its reporting units. As a result of this test, the Company concluded that it is more likely than not that the fair values of its reporting units exceeded the carrying values and goodwill is not impaired. However, the Company continues to monitor the key inputs to the fair values of its reporting units. 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.”