UNITED STATES
SECURITIESAND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ForthefiscalyearendedJanuary 30, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Forthetransitionperiodfrom to
Commissionfilenumber:1-13536
Macy's,Inc.
(Exactnameofregistrantasspecifiedinitscharter)
Delaware | 13-3324058 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S.EmployerIdentificationNo.) | |
151 West 34th Street, New York, New York 10001 | (513) 579-7780 | |
(Address of Principal Executive Offices, including Zip Code) | (Registrant'stelephonenumber,includingareacode) |
SecuritiesRegisteredPursuanttoSection12(b)oftheAct:
TitleofEachClass | TradingSymbol(s) | NameofEachExchangeonWhichRegistered | ||
CommonStock,$.01parvaluepershare | ||||
M | NewYork StockExchange |
SecuritiesRegisteredPursuanttoSection 12(b) 12(g)oftheAct:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☒ | Accelerated Filer | ☐ | ||||||
Non-Accelerated Filer | ☐ | Emerging Growth Company | ☐ | Smaller | |||||
Reporting Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (July 30, 2016)(August 1, 2020) was approximately
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | OutstandingatFebruary27,2021 | |
CommonStock,$.01parvaluepershare | 310,567,431 shares |
DOCUMENTS INCORPORATED BYREFERENCE
Document | PartsIntoWhichIncorporated | |
ProxyStatementfortheAnnualMeetingofStockholderstobeheldMay21,2021 | ||
PartIII |
Unlessthecontextrequiresotherwise,referencesto“Macy’s”orthe“Company”arereferencestoMacy’sanditssubsidiaries andreferencesto“2020,”“2019,”“2018,”“2017”and“2016”arereferencestotheCompany’sfiscalyearsended January 30, 2021, February 1, 2020, February 2, 2019,February3,2018 andJanuary28,2017,respectively.Fiscalyear2017included53weeks;fiscal years 2020, 2019,2018 and2016included52weeks.
Forward-LookingStatements
Thisreportandotherreports,statementsandinformationpreviouslyorsubsequentlyfiledbytheCompanywiththeSecuritiesandExchangeCommission(the“SEC”)containormaycontainforward-lookingstatements.Suchstatementsare baseduponthebeliefsandassumptionsof,andoninformationavailableto,themanagementoftheCompanyatthetimesuchstatementsare made.Thefollowingare ormayconstituteforward-lookingstatementswithinthemeaningofthePrivateSecuritiesLitigationReformActof1995:(i)statementsprecededby, followedbyorthatincludethewords“may,”“will,”“could,”“should,”“believe,”“expect,”“future,”“potential,”“anticipate,”“intend,”“plan,”“think,”“estimate”or“continue”orthenegativeorothervariationsthereof,and(ii)statementsregardingmattersthatarenothistoricalfacts.Suchforward-lookingstatementsaresubjecttovariousrisksanduncertainties,includingrisksanduncertaintiesrelatingto:
• | |
theeffectsoftheweather,naturaldisasters,andhealthpandemics,includingthecoronavirus(COVID-19) pandemic,on the |
• |
thepossibleinvalidityoftheunderlyingbeliefsandassumptions; |
• | theCompany'sabilitytosuccessfullyexecute againstitsPolarisstrategy,includingtheabilitytorealizetheanticipatedbenefitsassociated with the strategy; |
• | thesuccessoftheCompany’soperationaldecisions,suchasproductsourcing,merchandisemixandpricing, andmarketingandstrategicinitiatives,suchasgrowing its digital channels, expanding off-mall and modernizing its technology and supply chain infrastructures; |
• | general consumer shopping behaviors and spendinglevels,includingthe shift of consumer spending to digital channels, the impactofchangesingeneraleconomicconditions,consumerdisposableincomelevels,consumerconfidencelevels,theavailability,costandlevelofconsumerdebt,andthecostsofbasicnecessitiesandothergoods; |
• | competitivepressuresfromdepartmentstores,specialtystores,generalmerchandisestores,manufacturers’outlets,off-priceanddiscountstores,andallotherretailchannels,includingdigitally-native retailers, social media andcatalogs; |
• | theCompany’sabilitytoremaincompetitiveandrelevantasconsumers’shoppingbehaviors continue to migrateto online and other shoppingchannelsandtomaintainitsbrandandreputation; |
• | possiblesystemsfailuresand/orsecuritybreaches,includinganysecuritybreachthatresultsinthetheft,transferorunauthorizeddisclosureofcustomer,employeeorcompanyinformation,orthefailuretocomplywithvariouslawsapplicabletotheCompanyintheeventofsucha breach; |
• | thecostofemployeebenefitsaswellasattractingandretainingqualityemployees; |
• | transactionsandstrategyinvolvingtheCompany'srealestateportfolio; |
• | theseasonalnatureoftheCompany’sbusiness; |
• | conditionsto,orchangesinthetimingof,proposedtransactions,andchangesinexpectedsynergies,costsavingsandnon-recurringcharges; |
• | thepotentialfortheincurrenceofchargesinconnectionwiththeimpairmentofintangibleassets,includinggoodwill; |
• | possiblechangesordevelopmentsinsocial,economic,business,industry,market,legalandregulatorycircumstancesandconditions; |
• | possibleactionstakenoromittedtobetakenbythirdparties,includingcustomers,suppliers,businesspartners,competitorsandlegislative,regulatory,judicialandothergovernmentalauthoritiesandofficials; |
• | changesinrelationshipswithvendorsandotherproductandserviceproviders; |
• | our substantial level of indebtedness; |
• | currency,interestandexchangeratesandothercapitalmarket,economicandgeo-politicalconditions; |
• | unstablepoliticalconditions,civilunrest,terroristactivitiesandarmedconflicts; |
• | thepossibleinabilityoftheCompany’smanufacturersortransporterstodeliverproductsinatimelymanner ormeettheCompany’squalitystandards; |
• | theCompany’srelianceonforeignsourcesofproduction,includingrisksrelatedtothedisruptionofimports bylabordisputes,regionalandglobalhealthpandemics,andregionalpoliticalandeconomicconditions;and |
• | duties,taxes,otherchargesandquotasonimports. |
Inadditiontoanyrisksanduncertaintiesspecificallyidentifiedinthetextsurroundingsuchforward-lookingstatements,thestatementsintheimmediatelyprecedingsentenceandthestatementsundercaptionssuchas“RiskFactors”inreports,statementsandinformationfiledbytheCompanywiththeSECfromtimetotimeconstitutecautionarystatementsidentifyingimportantfactorsthatcouldcauseactualamounts,results,eventsandcircumstancestodiffermateriallyfromthoseexpressedinorimpliedbysuchforward-lookingstatements.
3
General
TheCompanyisacorporationorganizedunderthelawsoftheStateofDelawarein1985.TheCompanyanditspredecessorshavebeenoperatingdepartmentstoressince1830.TheCompanyoperates727storelocationsin43states,the context requires otherwise, references to “Macy’s” or the “Company” are references to Macy’s DistrictofColumbia,PuertoRicoand its subsidiaries and references to “2016,” “2015,” “2014,” “2013” and “2012” are references to the Company’s fiscal years ended January 28, 2017, Guam.AsofJanuary 30, 2016,2021,theCompany'soperationswereconductedthrough Macy's, Macy’s Backstage, Market by Macy’s, Bloomingdale's,Bloomingdale’sTheOutlet,andbluemercury.Inaddition,Bloomingdale'sinDubai,UnitedArabEmirates,andAlZahra,KuwaitareoperatedunderlicenseagreementswithAlTayerInsignia,acompanyofAlTayer Group,LLC.
TheCompanysellsawiderangeofmerchandise,includingapparelandaccessories(men’s,women’sandkids'),cosmetics,homefurnishingsandotherconsumergoods.Thespecificassortmentsvarybysizeofstore,merchandising assortmentsandcharacterofcustomersinthetradeareas.Moststoresarelocatedaturbanorsuburbansites,principallyin denselypopulatedareasacrosstheUnitedStates.
DisaggregationoftheCompany'snetsalesbyfamilyofbusinessfor2020,2019and2018wereasfollows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Women’s Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances |
| $ | 7,206 |
|
| $ | 9,454 |
|
| $ | 9,457 |
|
Women’s Apparel |
|
| 2,909 |
|
|
| 5,411 |
|
|
| 5,642 |
|
Men’s and Kids’ |
|
| 3,486 |
|
|
| 5,628 |
|
|
| 5,699 |
|
Home/Other (a) |
|
| 3,745 |
|
|
| 4,067 |
|
|
| 4,173 |
|
Total |
| $ | 17,346 |
|
| $ | 24,560 |
|
| $ | 24,971 |
|
(a) | Otherprimarilyincludesrestaurantsales,allowanceformerchandisereturnsadjustments,certainloyaltyprogramincomeandbreakageincomefrom unredeemedgiftcards. |
In2020,theCompany’ssubsidiariesprovidedvarioussupportfunctionstotheCompany’sretailoperationsonanintegrated,company-widebasis.
• | TheCompany’swholly-ownedbanksubsidiary,FDSBank,providescertaincollections,customerserviceandcreditmarketingservicesinrespectofallcreditcardaccountsthatareownedeitherbyDepartment StoresNationalBank(“DSNB”),asubsidiaryofCitibank,N.A.,orFDSBankandthatconstituteapartof thecreditprogramsoftheCompany’sretailoperations. |
• | Macy’sSystemsandTechnology,Inc.(“MST”),awholly-ownedindirectsubsidiaryoftheCompany,providesoperationalelectronicdataprocessingandmanagementinformationservicestoallofthe Company’soperationsotherthanbluemercury. |
• | Macy’sMerchandisingGroup,Inc.(“MMG”),awholly-owneddirectsubsidiaryoftheCompany,anditssubsidiaryMacy'sMerchandisingGroupInternational,LLC,areresponsibleforthedesign,developmentand marketingofMacy’sprivatelabelbrandsandcertainlicensedbrands.Bloomingdale’susesMMGfora smallportionofitsprivatelabelmerchandise.TheCompanybelievesthatitsprivatelabelmerchandise differentiatesitsmerchandiseassortmentsfromthoseofitscompetitors. MMGalsooffersitsservices,eitherdirectlyorindirectly,tounrelatedthirdparties. |
• | Macy’sLogisticsandOperations(“Macy’sLogistics”),adivisionofawholly-ownedindirectsubsidiaryoftheCompany,provideswarehousingandmerchandisedistributionservicesfortheCompany’soperationsanddigitalcustomerfulfillment. |
TheCompany’sprincipalexecutiveofficeislocatedat151West34thStreet,NewYork,NewYork10001,telephonenumber:(513)579-7780.
Seasonality
Theretailbusinessisseasonalinnaturewithahighproportionofsalesandoperatingincomegeneratedinthemonths ofNovemberandDecember.Workingcapitalrequirementsfluctuateduringtheyear,increasinginmid-summerinanticipationofthefallmerchandisingseasonandincreasingsubstantiallypriortothemonths of November and DecemberwhentheCompany carriessignificantlyhigherinventorylevels.
4
Purchasing
TheCompanypurchasesmerchandisefrommanysuppliers,noneofwhichaccountedformorethan5%ofthe Company’spurchasesduring2020.TheCompanyhasnomateriallong-termpurchasecommitmentswithanyofits suppliers,andbelievesthatitisnotdependentonanyonesupplier.TheCompanyconsidersitsrelationswithitssupplierstobegood.
PrivateLabelBrandsandRelatedTrademarks
TheprincipalprivatelabelbrandscurrentlyofferedbytheCompanyincludeAlfani,Aqua,BarIII,Belgique,CharterClub,ClubRoom,EpicThreads,firstimpressions,GianiBernini,HolidayLane,HomeDesign,HotelCollection,HudsonPark,Ideology,I-N-C,jenni,JMCollection,KarenScott,lune+aster,M-61,MaisonJules,MarthaStewartCollection,Oake, Sky,Style&Co.,Sun+Stone,SuttonStudio,TassoElba,ThaliaSodi,TheCellar,ToolsoftheTradeandWildPair.
ThetrademarksassociatedwiththeCompany'sprivatelabelbrands,otherthanMarthaStewartCollection andThaliaSodi,areownedbytheCompany.TheMarthaStewartCollection and ThaliaSodibrandsareownedbythirdparties,whichlicense thetrademarksassociatedwiththebrandstoCompany pursuanttoagreements.TheagreementforThaliaSodiexpiredin January 31, 2015, February 1, 2014 and February 2, 2013, respectively. Fiscal years 2016, 2015, 2014 and 2013 included 52 weeks; fiscal year 2012 included 53 weeks.
Competition
Theretailindustryishighlycompetitive.TheCompany’soperationscompetewithmanyretailformatsonthenationalandlocallevel,includingdepartmentstores,specialtystores,generalmerchandisestores,manufacturers'outlets, off-priceanddiscountstores,onlineretailers andcatalogs,amongothers.TheCompanyseekstoattractcustomersbyofferingcompelling,high-qualityproducts,greatpricesandtrustedserviceacrossallchannels, including its digital platforms.The Company’s storesarelocatedinpremierlocationsandtheCompanyprovidesasuperioromnichannelproductexperience at a variety of price points.Otherretailers maycompeteforcustomersonsomeorallofthesebases,oronotherbases,andmaybeperceivedbysomepotential customersasbeingbetteralignedwiththeirparticularpreferences.
AvailableInformation
TheCompanymakesitsannualreportonForm10-K,quarterlyreportsonForm10-Q,currentreportsonForm8-K andamendmentstothosereportsfiledorfurnishedpursuanttoSection13(a)or15(d)oftheSecuritiesExchangeActof 1934(the"ExchangeAct")availablefreeofchargethroughitsinternetwebsiteathttps://www.macysinc.comassoonasreasonablypracticableafteritelectronicallyfilessuchmaterialwith,orfurnishesitto,theSEC.TheSECalsomaintainsan internetsitethatcontainsreports,proxyandinformationstatements,andotherinformationregardingissuersthatfile electronicallywiththeSEC;theaddressofthatsiteishttps://www.sec.gov.Inaddition,theCompanyhasmadethefollowingavailablefreeofchargethroughitswebsiteathttps://www.macysinc.com:
• | ChartersoftheAuditCommittee,CompensationandManagementDevelopmentCommittee,Finance Committee,andNominatingandCorporateGovernanceCommittee, |
• | CorporateGovernancePrinciples, |
• | LeadIndependentDirectorPolicy, |
• | Non-EmployeeDirectorCodeofBusinessConductandEthics, |
• | CodeofConduct, |
• | StandardsforDirectorIndependence, |
• | RelatedPersonTransactionsPolicy, |
• | MethodtoFacilitateReceipt,RetentionandTreatmentofCommunications,and |
• | ProxyAccess By-Laws. |
Anyoftheseitemsarealsoavailableinprinttoanyshareholderwhorequeststhem.Requestsshouldbesenttothe Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements. Such statements are based upon the beliefs and assumptions CorporateSecretaryof and on information available to, the management of Macy’s,Inc.at151West34thStreet,NewYork,NewYork10001.
5
Human Capital
Culture & Engagement
At Macy’s culture is about relationships—how the Company serves and supports its customers, communities and employees (called colleagues). The Company’s workplace is rooted in equity and guided by its values of acceptance, respect, integrity and giving back.
The Company gathers colleague feedback at key times throughout the timecolleague lifecycle from onboarding to offboarding, providing regular venues for colleagues to ask questions and share their opinions, such statementsas Ask Me Anything sessions, town halls and employee resource groups. The Company formally solicits feedback from all colleagues twice a year through an enterprise-wide Culture Pulse Survey. The results are made.shared across the organization to provide visibility to both managers (called people leaders) and colleagues and help create an opportunity for open and constructive discussions among teams.
Diversity & Inclusion
Macy’s commitment to diversity and inclusion is guided by its values and starts from within by building a workforce that accurately represents the communities it serves at all levels and by cultivating a culture of belonging. The following are or may constitute forward-looking statements withinCompany seeks to empower colleagues to harness and unleash the meaningpower of their individuality to help drive better business decisions for customers and shareholders.
The Company actively promotes an inclusive and welcoming environment for all customers and is focused on diversity and inclusion beyond the Private Securities Litigation Reform Act of 1995: (i) statements preceded by, followed by or that include the words “may,” “will,” “could,” “should,” “believe,” “expect,” “future,” “potential,” “anticipate,” “intend,” “plan,” “think,” “estimate” or “continue” or the negative or other variations thereof,organization—working to support and (ii) statements regarding matters that are not historical facts. Such forward-looking statements are subject to various risks and uncertainties, including risks and uncertainties relating to:
One of the Company’s manufacturersmeasures to advance the diversity of its leadership at the senior director level and above is the MOSAIC program, a one-year professional development program launched in 2019 for its top talent at the manager and director levels who self-identify as ethnically diverse. From 2019 to 2020, approximately 61% of program participants were promoted or transportersmoved into a new role, with approximately 18% promoted to deliver products in a timely manner or meet the Company’s quality standards;
Macy’s believes people leaders play an important role in driving performance and an inclusive culture. In 2020, the lawsCompany incorporated People Leader Commitments (which were launched in 2019) and diversity and inclusion (D&I) into the performance review process. In 2021, the Company has included standardized D&I goals into annual reviews at the director level and above.
Company-sponsored, employee-led resource groups (ERGs) provide an opportunity for colleagues to experience connection, achieve belonging and build community. ERGs expanded from 51 to 94 chapters across Macy’s and Bloomingdale’s in 2020 and continue to be a resource for attracting and retaining talent.
Macy’s D&I focus areas extend beyond its colleagues and include community, customers, marketing and suppliers. For example:
• | In 2020, the Company allocated $1 million to organizations promoting social justice, sourced new partners, and committed two colleagues to the work of CEO Action for Racial Equity Taskforce—the mission of the taskforce is to identify, develop and promote scalable and sustainable public policies and corporate engagement strategies that will address systemic racism, social justice and improve societal well-being. |
• | In 2019, the Company launched a Customer Bill of Rights across all Macy’s and Bloomingdale’s stores as a new standard of how the Company will treat everyone who engages with its brands. |
• | The Company is advancing representation in its advertising to reflect its customers by gender, gender identity, ethnicity, age, size and people with disabilities. |
• | In 2020, the Company increased brand assortment by adding 100 new, diverse-owned businesses online and in stores. Overall, minority and diverse suppliers (retail and non-retail) accounted for 3.5% of the Company’s total spend in 2020, with a goal to increase to 4% in 2021. |
6
Future of Work
The workplace is evolving and so is Macy’s. The Company believes the future of work is about allowing colleagues to do their best work safely, flexibly and in an environment that inspires collaboration and connection and reflects their core values. Through investments in technology, new and updated policies and procedures, and listening to the needs of its colleagues, Macy’s is evolving with them. Because no matter where colleagues work, behind a desk or behind a screen, in stores or in distribution centers, the Company believes they are guided by their strong sense of culture and what it means to be part of the State of Delaware in 1985. Macy’s family.
The Company has taken enhanced safety measures to help mitigate the spread of COVID-19 to colleagues and its predecessors have been operating departmentcustomers including requiring all customers to wear face masks in stores, since 1830.enforcing social distancing guidelines, increasing safety equipment in stores, offering contactless shopping opportunities, providing company-supplied personal protection equipment and wellness checks for colleagues, and performing enhanced cleaning.
Learning & Development
Macy’s believes that learning goes hand in hand with career growth, personal satisfaction and outstanding results. The Company operates 829 stores in 45 states, the District of Columbia, Guamaspires to create a learning culture where colleagues actively learn, apply what they have learned to address business challenges and Puerto Rico. As of January 28, 2017, the Company's operations were conductedshare their knowledge, including their mistakes, to help others grow. Learning is accessible through Macy's, Bloomingdale's, Bloomingdale’s The Outlet, Macy’s Backstage, Bluemercury and Macy’s China Limited. In addition, Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under license agreements with Al Tayer Insignia, a company of Al Tayer Group, LLC.
2016 | 2015 | 2014 | ||||||
Women’s Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances | 38 | % | 38 | % | 38 | % | ||
Women’s Apparel | 23 | 23 | 23 | |||||
Men’s and Children’s | 23 | 23 | 23 | |||||
Home/Miscellaneous | 16 | 16 | 16 | |||||
100 | % | 100 | % | 100 | % |
The Company makes investments in its people leaders and future leaders. Macy’s and Bloomingdale’s Executive Development Programs offer immersive, hands-on learning experiences for recent college graduates from top universities across the U.S. to jump start a career in retail, with specialization in technology, digital, stores, merchandising, planning, human resources and credit and customer service. Macy’s and Bloomingdale’s offer internships for college students and Bloomindale’s offers an early immersion program focused on providing experiential learning and career exposure to those who identify with underrepresented groups. Bluemercury’s Shooting Stars is a six-month mentorship program that empowers mentees to own their journey by creating a development plan, becoming an inclusive leader and leveraging resources to support their career aspirations. In 2019, Macy’s partnered with Parsons School of Design to launch Macy’s Fashion Academy - a custom executive education program designed to offer best-in-class development across all disciplines of its merchant talent.
Approximately 81% of colleagues completed unconscious bias training in 2019 and approximately 96% of professional colleagues have utilized Ignite for personal and professional development. People leaders invest a minimum of 40 hours of leadership development each year. Professional colleagues participate in a 90-day onboarding experience with performance milestones, support resources and role-specific training.
Data Analytics
Macy’s is embedding data and analytics into its human capital management. Below are examples of how the Company leverages data-driven insights to support key business decisions.
• | Career development: Allow colleagues to access their data and share their skills/career aspirations with the enterprise |
• | Culture: Consistently assess the health of its culture, its team’s performance and its talent pipelines |
• | Human resources: Standardized its employment and compensation practices across all business groups |
• | Leadership development: Leading technology solutions support people leaders with workforce management, including immediate access to performance, talent and compensation information for their total teams |
• | Talent recruitment and retention: Plan, recruit and retain talent, allowing it to co-locate teams critical to company growth and staff them with highly engaged top talent |
• | Workplace structure: Create multi-year strategies and prioritize workplace changes that align with customer and colleagues’ need |
7
Talent
Macy’s employs approximately 90,000 full-time, part-time and seasonal colleagues nationwide across a variety of functions and roles. The Company is committed to having the Company’sbest talent in retail operations– encouraging the continuous upskilling of its colleagues and empowering them to chart their own career paths, while staying focused on acquiring the best and brightest to inject fresh thinking.
Total Rewards
Macy’s offers comprehensive benefits and an integrated, company-wide basis.
The Company believes that its private label merchandise differentiates its merchandise assortments from those of its competitors and delivers exceptional valuepay equity is fundamental to its customers. MMG also offers its services, either directly or indirectly,culture and D&I strategy. Compensation is based on job position, responsibilities, experience and performance with incentive opportunities that allow all colleagues to unrelated third parties.
In 2021, the Company provides warehousingexpects to achieve greater than 99% pay equity across gender and merchandise distribution servicesrace. In terms of both base pay and total compensation, the Company expects to pay female colleagues at greater than 99% of what it pays male colleagues, and it expects that minorities will be paid at greater than 99% of what it pays non-minorities in the U.S.
The Company informs its compensation approach through market surveys and pay ranges to ensure pay is competitive and fair and has a robust process to assess internal pay levels for the Company’s operationsconsistency and digital customer fulfillment.
Number of Employees
As of
JanuaryMacy’s, Inc.’s Human Capital Report was released in March 2021 and is available at https://macys.learn.taleo.net/files/upload/hcr/index_ORIG.html#/lessons/MQA5eF65af1i3n8XU_BME3xQTsmGcmHE. The contents of the Company’s employees as of
InformationaboutourExecutiveOfficers
ThefollowingtablesetsforthcertaininformationasofMarch 25,2021regardingthe Exchange Act available free ExecutiveOfficersof charge through its internet website at
Name | Age | ||||
Position with the Company | |||||
Jeff Gennette | 59 | Chief Executive | |||
Adrian V. Mitchell | 47 | Executive Vice President and Chief | |||
Elisa D. Garcia | 63 | Executive Vice President, Chief Legal Officer and Secretary | |||
John T. Harper | 61 | Executive Vice President and Chief | |||
Danielle L. Kirgan | 45 | Executive Vice President and Chief | |||
Paul Griscom | 40 | ||||
Senior Vice President |
ExecutiveOfficerBiographies
JeffGennettehasbeenChiefExecutiveOfficer ("CEO") Transition
8
February2009toMarch2014,ChairmanandChiefExecutiveOfficerofMacy’sWestinSanFranciscofromFebruary2008toFebruary2009andChairman since 2004, transitioned the position andChiefExecutiveOfficerof CEO to Jeff Gennette on March 23, 2017. The transition is part of the Board of Directors’ succession plan that included Mr. Gennette’s election as president of Seattle-basedMacy’s Inc. in 2014. Mr. Lundgren will continue as Executive Chairman and Chairman of the Board and work side-by-side with Mr. Gennette as President and CEO.
Adrian V. Mitchell has been Executive Vice President and Director of Stores at Macy’s Central in Atlanta. From February 2006 to February 2008, Mr. Gennette was Chairman and Chief Executive Officer of Seattle-based Macy’s Northwest. During his career, Mr. Gennette also served as a Store Manager for FAO Schwarz and Director of Stores for Broadway Stores, Inc. Mr. Gennette, a native of San Diego, is a graduate of Stanford University.
ElisaD.GarciahasbeenExecutiveVicePresident,ChiefLegalOfficerandSecretaryoftheCompanysinceSeptember2016;priortheretosheservedasChiefLegalOfficerofOfficeDepot,Inc.fromDecember2013toSeptember2016,ExecutiveVicePresidentandSecretaryfromJuly2007toSeptember2016andGeneralCounselfromJuly2007toDecember2013.
John T.HarperhasbeenExecutiveVicePresident - Merchandising for andChiefOperationsOfficeroftheCompanysinceJanuary2020;priortheretoheservedasChiefStoresOfficerfromSeptember2017toJanuary2020,PresidentofStoreOperationsfromMay2009toSeptember2017,PresidentofMacy’sHomeStorefrom May 2007to2009,Vice ChairmanofMacy’sMidwestfrom2006to August 20102007andChairmanofHecht’sdepartmentstoresfrom2004to2006.
DanielleL.KirganhasbeenExecutiveVicePresidentandChiefTransformation and Human Resources OfficeroftheCompanysinceFebruary2020andChiefHumanResourcesOfficersinceOctober2017;priortheretosheservedasSeniorVicePresident, for furniture for Macy’s Home Store PeopleatAmericanAirlinesGroup,Inc.from February 2006 October2016toOctober2017,ChiefHumanResourcesOfficeratDardenRestaurants,Inc.fromJanuary2015toOctober2016andSeniorVicePresidentfromMay 2009.
Paul Griscom has been Chief Private Brands OfficerSenior Vice President and Controller of the Company since February 2015; prior thereto she served as Executive Vice President - Men’s and Kids at Macy’s Private Brands from April 2014 to February 2015; as Executive Vice President GMM - Millennial from March 2012 to March 2014; as Executive Vice President Fashion and New Business Development from July 2010 to March 2012 and as Group Vice President DMM Neo, Impulse and Bridge Sportswear from March 2009 to July 2010.
Recent Developments
On March 1, 2021, the Company since February 2015; prior thereto she served as Executive Vice President - Omnichannel Strategies from June 2014 - February 2015; as Executive Vice President GMM - Center Core from October 2010 to May 2014 and as Executive Vice President GPM - Cosmetics, Fragrances and Shoes from February 2009 to September 2010.
Item 1A. | Risk Factors. |
In evaluating the Company, the risks described below and the matters described in “Forward-Looking Statements” should be considered carefully. Such risks and matters are numerous and diverse, may be experienced continuously or intermittently, and may vary in intensity and effect. Although the risks are organized by heading, and each risk is described separately, many of the risks are interrelated. Any of such risks and matters, individually or in combination, could have a material adverse effect on the Company'sour business, prospects, financial condition, results of operations and cash flows, as well as on the attractiveness and value of an investment in the Company’s securities.
The recent outbreak of COVID-19 has had and will continue to have a significant negative impact on the Company’s business and financial results.
In December 2019, there was an outbreak of COVID-19 in China that has since spread to the other regions of the world. The outbreak was subsequently labeled as a global pandemic by the World Health Organization in March 2020. As the pandemic continues to spread throughout the United States, businesses as well as federal, state and local governments have implemented significant actions to attempt to mitigate this public health crisis. Although the ultimate
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severity of the COVID-19 outbreak is uncertain at this time, the pandemic has had and will continue to have adverse impacts on the Company’s financial condition and results of operations, including, but not limited to:
• | On March 18, 2020, the Company temporarily closed all of its stores and subsequently furloughed the majority of its workforce. As different states and localities began to ease the regulations imposed to slow the spread of COVID-19, the Company began to reopen its stores and by the end of the second quarter of 2020, substantially all of the Company’s stores had reopened. As a result of the COVID-19 pandemic, and particularly with the reopening of stores, the Company implemented safety measures and health and wellness precautions across its stores and facilities to mitigate risk to its customers and colleagues. These efforts to protect the health and well-being of customers and Company colleagues have resulted in, and will continue to result in, additional selling, general and administrative (“SG&A”) expenses. Recently, pockets of resurgence and variant strains of COVID-19 have emerged in parts of the world and the U.S., which may negatively impact store performance, as consumer shopping behaviors are impacted or government officials reinstate or prolong restrictions that may include occupancy limits, curfews and closures of non-essential businesses. Outbreaks and variant strains of the COVID-19 virus may continue to emerge or grow, which could require the Company to close its stores or further limit their operations. As a result, there can be no assurance as to whether stores can remain open or whether further store closures may be required. |
• | During the first and second quarters of 2020, the Company experienced significant reductions and volatility in demand for its retail products as customers were not able to purchase merchandise in stores due to quarantine or government or self-imposed restrictions placed on the Company’s stores’ operations. Despite continued store recovery in the third and fourth quarters of 2020, store sales declined significantly compared to the same periods last year. Additionally, social distancing measures or changes in consumer spending behaviors due to COVID-19 have impacted and may continue to impact traffic in stores and could result in a loss of sales and profit. |
• | COVID-19 has had a significant impact on the economic conditions in North America as well as a significant impact on discretionary consumer spending and consumer shopping behaviors. In response to the disruption caused by the COVID-19 pandemic, the Company reconfigured its cost base through colleague reductions and reduced discretionary spending and has made investments to adapt to the changes in consumer behavior. While it is premature to accurately predict the ultimate impact of these developments, the Company expects its results of operations will be adversely impacted in a significant manner and such impacts could continue for an undetermined amount of time. |
• | The Company has experienced and may continue to experience temporary or long-term disruptions in its supply chain, as the outbreak has resulted in travel disruptions and has impacted manufacturing and distribution throughout the world. The receipt of products or raw material sourced from impacted areas has been and may continue to be slowed or disrupted, which could impact the Company’s private brands or the fulfillment of merchandise orders from the Company’s brand partners. Furthermore, transportation delays and cost increases, more extensive travel restrictions, closures or disruptions of businesses and facilities and social, economic, political or labor instability in the affected areas have impacted and may continue to impact the Company, its suppliers’ operations and its customers. |
• | The Company has been and may continue to be required to change its plan for inventory receipts, which could place financial pressure on its brand partners. Such actions may negatively impact relationships with brand partners or adversely impact their financial performance and position. If this occurs, current brand partners’ ability to meet their obligations to the Company may be impacted or the Company may also be required to identify new brand partner relationships. |
• | The Company’s liquidity was negatively impacted by the store closures. While the Company has obtained additional financing, further actions may be required to improve the Company’s cash position, including but not limited to, monetizing Company assets, reinstituting colleague furloughs, and foregoing capital expenditures and other discretionary expenses. Failure to obtain any necessary additional financing or enhance the Company’s liquidity could lead to default on its current financing arrangements and impact the Company’s ability to meet its obligations as they come due. |
The Company cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can it predict the severity and duration of its impact, how variant strains of the COVID-19 virus will impact the pandemic, or the availability and distribution of effective medical treatments or vaccines. As such, the Company will continue to assess the highly uncertain financial impacts of COVID-19. The disruption to the global economy and to the Company’s
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business may lead to triggering events that may indicate that the carrying value of certain assets, including inventories, long-lived assets, intangibles, and goodwill, may not be recoverable.
The impact of COVID-19 may also exacerbate other risks included in in this section, any of which could be material. The situation is changing rapidly, and future impacts may materialize that are not yet known. Even if the COVID-19 pandemic subsides, the Company may continue to experience materially adverse impacts to the Company's securities.
Strategic, Operational and Competitive Risks
Our strategic initiatives may not be successful, which could negatively affect our profitability and growth.
In February 2020, we announced the Polaris strategy, a multi-year plan designed to stabilize profitability and position the Company for sustainable, profitable growth. Over the course of the COVID-19 pandemic, we have refined the components of the Polaris strategy to focus where we believe we can drive competitive advantage and differentiation to first recover business and then drive growth, including a focus on winning with fashion and style, delivering clear value, excelling in digital shopping, enhancing store experience, modernizing supply chain and enabling transformation. Our ability to achieve sustainable, profitable growth is subject to the successful implementation of our strategic plans, including the Polaris strategy, and realization of anticipated benefits and savings. If these investments or initiatives do not perform as expected or create implementation or operational challenges, our profitability and growth could suffer.
Our sales and operating results depend on our ability to anticipate and respond to consumer preferences and manage our inventory and merchandise selection.
The fashion and retail industries are subject to sudden shifts in consumer trends and consumer spending. Our sales and operating results depend in part on our ability to predict or respond to changes in fashion trends and consumer preferences in a timely manner. We develop new retail concepts and continuously adjust our inventory position in certain major and private-label brands and product categories in an effort to attract and retain customers. Any sustained failure to anticipate, identify and respond to emerging trends in lifestyle and consumer preferences could negatively affect our business and results of operations.
Our profitability depends on our ability to manage inventory levels and merchandise selection. Overestimating customer demand for merchandise will likely result in the need to record inventory markdowns and sell excess inventory at clearance prices, which would negatively impact our gross margins and operating results. Underestimating customer demand for merchandise can lead to inventory shortages, missed sales opportunities and negative customer experiences.
The Company faces significant competition in the retail industryand challenges as consumers continue to migrate to online shopping and depends on its ability to differentiate itself in retail's ever-changing environment.
We conduct our retail merchandising business under highly competitive conditions. Although the CompanyMacy's, Inc. is one of the nation’s largest retailers, it haswe have numerous and varied competitors at the national and local levels, including department stores, specialty stores, general merchandise stores, manufacturers’ outlets, off-price and discount stores, manufacturers’ outlets, online retailers catalogs and television shopping,catalogs, among others. Competition may intensify as the Company’s competitors enter into business combinations or alliances. Competition is characterized by many factors, including assortment, advertising, price, quality, service, location, reputation and credit availability. Any failure by the Companyus to compete effectively could negatively affect the Company'sour business and results of operations.
As consumers continue to migrate online, a trend that has accelerated with the Company facesCOVID-19 pandemic, we face pressures to not only compete from a price perspective with itsour competitors, some of whom sell the same products, but also mustto differentiate itselfMacy's, Inc. merchandise offerings, service and shopping experience to stay relevant in retail's ever-changing industry. The Company continuesenvironment. We continue to significantly invest in itsour omnichannel capabilities in order to provide our customers with a seamless shopping experience to its customers between the Company's brick and mortarour store locations and itsour online and mobile environments.environments and a favorable fashion experience. Insufficient, untimely or misguided investments in this area could significantly impact the Company'sour profitability and growth and affect the Company'sour ability to attract new customers, as well as maintain itsour existing ones.
In addition, a continued decline of customer store traffic and migration of sales from brick and operatingmortar stores to digital platforms could lead to additional store closures, restructuring and other costs that could adversely impact our results depend on consumer preferencesof operations and consumer spending.
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Our ability to sudden shifts in consumer trends and consumer spending. The Company’s sales and operating results dependgrow depends in part on its abilityour stores remaining relevant to predict or respondcustomers.
We have invested in facilities and fixtures upgrades, merchandise assortment and customer service in selected stores to changesimprove customer retention rates and overall customer satisfaction. While these investments are intended to improve the customer experience in fashion trendsour stores and consumer preferences in a timely manner. The Company develops new retail concepts and continuously adjusts its industry position in certain major and private-label brands and product categories in an effort to satisfy customers. Any sustained failure to anticipate, identify and respond to emerging trends in lifestyle and consumer preferences could negatively affect the Company’s business and resultsdrive traffic, realization of operations. The Company’s sales are significantly affected by discretionary spending by consumers. Consumer spendingthese benefits may be affected by many factors outside of the Company’s control, including general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt and consumer behaviors towards incurring and paying debt, the costs of basic necessities and other goods, the strength of the U.S. Dollar relative to foreign currencies and the effects of the weather or natural disasters. Any decline in discretionary spending by consumers could negatively affect the Company's business and results of operations.
Because we rely on the ability of itsour physical retail locations to remain relevant to customers, providing desirable and sought-out shopping experiences is paramountimportant to the Company'sour financial success. Changes in consumer shopping habits, an over-malled/over-retailed environment, financial difficulties at other anchor tenants, significant mall vacancy issues, mall violence and new mallon- and off-mall developments could each adversely impact the traffic at current retail locations and lead to a decline in the Company'sour financial condition or performance.
We may not be able to successfully execute our real estate strategy.
We continue to explore opportunities to monetize our real estate portfolio, including sales of stores as well as non-store real estate such as warehouses, outparcels and parking garages. We also continue to evaluate our real estate portfolio to identify opportunities where the redevelopment value of our real estate exceeds the value of non-strategic operating locations. This strategy is multi-pronged and may include transactions, strategic alliances or other arrangements with mall developers or other unrelated third-parties. Due to the cyclical nature of real estate markets, the performance of our real estate strategy is inherently volatile and could have a significant impact on our results of operations or financial condition.
Our revenues and cash requirements are affected by the seasonal nature of our business.
Our business is seasonal, with a high proportion of revenues and operating cash flows generated during the second half of the year, which includes the fall and the months of November and December. A disproportionate amount of our revenues is in the fourth quarter due to this seasonality. Should sales during this period fall below our expectations, a disproportionately negative impact on our annual results of operations could occur.
We incur significant additional expenses in the period leading up to the months of November and December in anticipation of higher sales volume in those periods, including costs for additional inventory, advertising and employees. If we are not successful in executing our sales strategy during this period, we may have to sell the inventory at significantly reduced prices or may not be able to sell the inventory at all, which could have a material adverse effect on our results of operations and cash flows.
We depend on our ability to attract, train, develop and retain quality employees.
Our business is dependent upon attracting, training, developing and retaining quality employees. Macy's, Inc. has a large number of employees, many of whom are in entry level or part-time positions with historically high rates of turnover. Our ability to meet labor needs while controlling costs associated with hiring and training new employees is subject to unfavorable economicexternal factors such as unemployment levels, prevailing wage rates, minimum wage legislation and political conditionschanging demographics. Low unemployment and other related risks.
Increases in labor costs and monetary policies of governments, inflation, deflation, consumer credit availability, consumer debt levels, consumer debt payment behaviors, tax rates and policy, unemployment trends, energy prices, and other matters that influence the availability and cost of merchandise, consumer confidence, spendingemployee benefits could impact our financial results and tourismcash flow.
Minimum wage increases by states and wage and benefit increases to attract and retain workers in a tight labor market have increased labor costs in the retail sector. These increased costs pressure our margins and could have a negative impact on our financial results, particularly if future increases are instituted by state legislatures or the federal government.
Our expenses relating to employee health benefits are significant. Unfavorable changes in the cost of such benefits could negatively affect our financial results and cash flow. Healthcare costs have risen significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform have resulted and could continue to result in significant changes to the Company’s business and results of operations. These same conditions and related risks could affectU.S. healthcare system. Due to uncertainty regarding legislative or regulatory changes, we are not able to fully determine the success of the Company'simpact that future healthcare reform will have on our company-sponsored medical plans.
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If cash flows from our private label credit card program. Following the sale ofdecrease, our financial and operational results may be negatively impacted.
We previously sold most of the Company'sour credit accounts and related receivables to Citibank (in its role as the Company sharesissuer of our credit card). Following the sale, we share in the economic performance of the credit card program with CitiBank.Citibank. Deterioration in economic or political conditions could adversely affect the volume of new credit accounts, the amount of credit card program balances and the ability of credit card holders to pay their balances. These conditions could result in the Company receiving lower payments under the credit card program.
Under the terms of the credit card program, Citibank has the right to terminate the agreement prior to the end of the current term if sales decrease by more than 34% over a twelve-month period as compared to the fiscal twelve-month period from July 2006 to June 2007 (the “Benchmark Year”). Based on the results of the Company’s February 2021 fiscal period, sales for the most recent twelve-month period then ended have decreased by more than 34% as compared to the Benchmark Year. We are in on-going discussions with Citibank concerning the credit card program. We cannot assure that Citibank will not terminate the credit card program or require more favorable terms to continue the credit card program. If Citibank does terminate the credit card program, any new credit card program may be on terms less favorable to us than the current credit card program.
Credit card operations are subject to many federal and state laws that may impose certain requirements and limitations on credit card providers. Citibank and our subsidiary bank, FDS Bank, may be required to comply with regulations that may negatively impact the operation of our private label credit card. This negative impact may affect our revenue streams derived from the sale of such credit card accounts and our financial results.
Our defined benefit plan funding requirements or plan settlement expense could impact our financial results and cash flow.
Significant changes in interest rates, decreases in the fair value of plan assets and timing and amount of benefit payments could affect the funded status of our plans and could increase future funding requirements of the plans. A significant increase in future funding requirements could have a negative impact on our cash flows, financial condition or results of operations.
These plans allow eligible retiring employees to receive lump sum distributions of benefits earned. Under applicable accounting rules, if annual lump sum distributions exceed an actuarially determined threshold of the total of the annual service and interest costs, we would be required to recognize in the current period of operations a settlement expense of a portion of the unrecognized actuarial loss and could have a negative impact on our results of operations.
If our company’s reputation and brand are not maintained at a high level, our operations and financial results may suffer.
We believe our reputation and brand are partially based on the perception that we act equitably and honestly in dealing with our customers, employees, business partners and shareholders. Our reputation and brand may be deteriorated by any incident that erodes the trust or confidence of our customers or the general public, particularly if the incident results in significant adverse publicity or governmental inquiry. Information about us, whether or not true, may be instantly and easily posted on social media platforms at any time and may be adverse to our reputation or brand. The harm could be immediate without affording us an opportunity for redress or correction. If our reputation or brand is damaged, our customers may refuse to continue shopping with us, potential employees may be unwilling to work for us, business partners may be discouraged from seeking future business dealings with us and, as a result, our operations and financial results may suffer.
If we are unable to protect our intellectual property, our brands and business could be damaged.
We believe that our copyrights, trademarks, trade dress, trade secrets and similar intellectual property are important assets and key elements of our strategy, including those related to our private brand merchandise. We rely on copyright and trademark law, trade secret protection and confidentiality agreements with our employees, consultants, vendors and others to protect our proprietary rights. If the steps we take to protect our proprietary rights are inadequate, or if we are unable to protect or preserve the value of our copyrights, trademarks, trade secrets and other proprietary rights for any reason, our merchandise brands and business could be negatively affected.
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Infrastructure Risks
Unforeseen disruptions in our distribution and fulfillment centers could have an adverse impact on our business and operations.
Our business depends on the orderly receipt and distribution of merchandise and effective management of our distribution and fulfillment centers. Unforeseen disruptions in operations due to fire, severe weather conditions, natural disasters, health pandemics or other catastrophic events, labor disagreements, or other shipping problems may result in the loss or unavailability of inventory and/or delays in the delivery of merchandise to our stores and customers.
A material disruption in our information technology systems could adversely affect our business or results of operations.
We rely extensively on our information technology systems to process transactions, summarize results and manage our business. Our information technology systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by our employees. If our information technology systems are damaged or cease to function properly, including a material disruption in our ability to authorize and process transactions at our stores or on our online systems, we may have to make a significant investment to fix or replace them, and we may suffer loss of critical data and interruptions or delays in our operations. Any material interruption in our information technology systems could negatively affect our business and results of operations.
In addition, unstableCOVID-19 may have an adverse impact on our information technology systems, including telecommuting issues associated with our employee population working remotely or an increase in online orders due to disruptions or closures of our retail store operations.
If our technology-based e-commerce systems do not function properly, our operating results could be negatively affected.
Customers are increasingly using computers, tablets and smart phones to shop online and to do price and comparison shopping. We strive to anticipate and meet our customers’ changing expectations and are focused on building a seamless shopping experience across our omnichannel business. Any failure to provide user-friendly, secure e-commerce platforms that offer merchandise and delivery options that resonate with customers’ could place us at a competitive disadvantage, result in the loss of online and other sales, harm our reputation with customers and have a material adverse impact on the growth of our business and our operating results.
Information Security, Cybersecurity, Privacy and Data Management Risks
A breach of information technology systems could adversely affect our reputation, business partner and customer relationships and operations, and result in high costs.
Through our sales, marketing activities, and use of third-party information, we collect and store certain non-public personal information that customers provide to purchase products or services, enroll in promotional programs, register on websites, or otherwise communicate to us. This may include phone numbers, driver license numbers, contact preferences, personal information stored on electronic devices, and payment information, including credit and debit card data. We gather and retain information about employees in the normal course of business. We may share information about such persons with vendors that assist with certain aspects of our business. In addition, our online operations depend upon the transmission of confidential information over the Internet, such as information permitting cashless payments.
We employ safeguards for the protection of this information and have made significant investments to secure access to our information technology network. For instance, we have implemented authentication protocols, installed firewalls and anti-virus/anti-malware software, conducted continuous risk assessments, and established data security breach preparedness and response plans. We also employ encryption and other methods to protect our data, promote security awareness with our associates and work with business partners in an effort to create secure and compliant systems.
However, these protections may be compromised as a result of third-party security breaches, burglaries, cyberattacks, errors by employees or employees of third-party vendors, or contractors, misappropriation of data by
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employees, vendors or unaffiliated third-parties, or other irregularities that may result in persons obtaining unauthorized access to company data.
Retail data frequently targeted by cybercriminals includes consumer credit card data, personally identifiable information, including social security numbers, and health care information. For retailers, point of sale and e-commerce websites are often attacked through compromised credentials, including those obtained through phishing, vishing and credential stuffing. Other methods of attack include advanced malware, the exploitation of software and operating vulnerabilities, and physical device tampering/skimming at card reader units. We believe these attack methods will continue to evolve.
Despite instituting controls for the protection of such information, no commercial or government entity can be entirely free of vulnerability to attack or compromise given that the techniques used to obtain unauthorized access, disable or degrade service change frequently. During the normal course of business, we have experienced and expect to continue to experience attempts to compromise our information systems. Unauthorized parties may attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud, trickery, or other forms of deception to employees, contractors, vendors and temporary staff. We may be unable to protect the integrity of our systems or company data. An alleged or actual unauthorized access or unauthorized disclosure of non-public personal information could:
• | materially damage our reputation and brand, negatively affect customer satisfaction and loyalty, expose us to individual claims or consumer class actions, administrative, civil or criminal investigations or actions, and infringe on proprietary information; and |
• | cause us to incur substantial costs, including costs associated with remediation of information technology systems, customer protection costs and incentive payments for the maintenance of business relationships, litigation costs, lost revenues resulting from negative changes in consumer shopping patterns, unauthorized use of proprietary information or the failure to retain or attract customers following an attack. While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be unavailable or insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk. |
Supply Chain and Third-Party Risks
We depend on vendors and other sources of merchandise, goods and services outside the U.S. Our business could be affected by disruptions in, or other legal, regulatory, political, economic or public health issues associated with, our supply network.
We depend on vendors for timely and efficient access to products we sell. We source the majority of our merchandise from manufacturers located outside the U.S., primarily Asia. Current economic conditions may adversely impact our vendors and they may be unable to access financing or become insolvent and unable to supply us with products. Any major changes in tax policy, such as the disallowance of tax deductions for imported merchandise could have a material adverse effect on our business, results of operations and liquidity.
The procurement of all our goods and services is subject to the effects of price increases, which we may or may not be able to pass through to our customers. In addition, our procurement of goods and services from outside the U.S. is subject to risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs, health pandemics and other factors relating to foreign trade. All of these factors may affect our ability to access suitable merchandise on acceptable terms, are beyond our control and could negatively affect our business, results of operations and liquidity.
The U.S. has been engaged in extended trade negotiations with China, which has resulted in the implementation of tariffs on a significant number of products manufactured in China and imported into the U.S. On May 10, 2019, the Trump Administration imposed a 25% tariff on approximately $200 billion worth of imports from China into the U.S. (the “Stage 3 Tariffs”), which imports include merchandise for both private-label and national brands sold in our stores. On August 1, 2019, the Trump Administration announced its intent to impose a 10% tariff on all remaining imports from China, valued at approximately $300 billion (the “Stage 4 Tariffs”), which imports also include merchandise sold in our stores. The proposed Stage 4 Tariffs were increased to 15% in August 2019 following retaliatory tariffs from China, and a portion of such 15% tariffs went into effect on September 1, 2019 (the “Stage 4A Tariffs”). Subsequently, in October 2019, the Trump Administration announced the suspension of the remaining new 15% tariffs (the “Stage 4B Tariffs”) following positive negotiations with China. On January 15, 2020, the U.S. and China signed an agreement known as the
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“Phase One” trade deal, pursuant to which, among other things, the Stage 3 Tariffs remained unchanged, the Stage 4A Tariffs were reduced from 15% to 7.5%, and the Stage 4B Tariffs were indefinitely suspended.
We continue to evaluate the impact of the effective tariffs, including potential future retaliatory tariffs, as well as other recent changes in foreign trade policy and the U.S. Administration on our supply chain, costs, sales and profitability, and are actively working through strategies to mitigate such impact, including reviewing sourcing options and working with our vendors and merchants. At this time, it is unknown how long U.S. tariffs on Chinese goods will remain in effect or whether additional tariffs will be imposed. Depending upon their duration and implementation, as well as our ability to mitigate their impact, these changes in foreign trade policy and any recently enacted, proposed and future tariffs on products imported by us from China could negatively impact our business, results of operations and liquidity if they seriously disrupt the movement of products through our supply chain or increase their cost. In addition, while we may be able to shift our sourcing options, executing such a shift would be time consuming and would be difficult or impracticable for many products and may result in an increase in our manufacturing costs. The adoption and expansion of trade restrictions, retaliatory tariffs, or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and/or the U.S. economy, which in turn could adversely impact our results of operations and business.
If our vendors, or any raw material vendors on which our vendors or our private label business relies, suffer prolonged manufacturing or transportation disruptions due to public health conditions or other unforeseen events, such as the COVID-19 pandemic, our ability to source product could be adversely impacted which would adversely affect our results of operations.
Disruption of global sourcing activities and quality and other concerns over our own brands could negatively impact brand reputation and earnings.
Economic and civil unrest in areas of the world where we source products, as well as shipping and dockage issues, could adversely impact the availability or cost of our products, or both. Most of the Company’s goods imported to the U.S. arrive from Asia through ports located on the U.S. west coast and are subject to potential disruption due to labor unrest, security issues or natural disasters affecting any or all of these ports. In addition, in recent years, we have substantially increased the number and types of merchandise that are sold under the Company’s proprietary brands. While we have focused on the quality of our proprietary branded products, we rely on third-parties to manufacture these products. Such third-party manufacturers may prove to be unreliable, the quality of our globally sourced products may vary from expectations and standards, the products may not meet applicable regulatory requirements which may require us to recall these products, or the products may infringe upon the intellectual property rights of third-parties. We face challenges in seeking indemnities from manufacturers of these products, including the uncertainty of recovering on such indemnity and the lack of understanding by manufacturers of U.S. product liability laws in certain foreign jurisdictions.
We also face concerns relating to human rights, working conditions and other labor rights and conditions and environmental impact in factories or countries where merchandise that we sell is produced and concerns about transparent sourcing and supply chains. We require all vendors for both private and national brands to comply with our vendor and supplier code of conduct, which outlines minimum standards to help ensure our merchandise is produced in workplaces free of abusive, exploitative or unsafe working conditions, and to comply with applicable laws and regulations of the United States and the country of manufacture or exportation. Although we have implemented policies and procedures designed to facilitate compliance with laws and regulations relating to production of merchandise, doing business in foreign countries and importing merchandise, and to screen, train and monitor our private label vendors to ensure safe and ethical treatment of workers in our supply chain, there can be no assurance that our vendors and other third parties with whom we do business will not violate such laws and regulations or our policies, which could subject us to liability and could adversely impact our reputation, results of operations and business.
Material disruptions in relationships with third-parties with whom the Company does business could adversely affect its operations.
The Company is a party to contracts, transactions and business relationships with various third parties, including suppliers, service providers, lenders and participants in joint ventures, strategic alliances and other commercial relationships. In some cases, we depend upon such third parties to provide products, services, advertising, technology infrastructure, development and support, data analytics, logistics, other goods and services to operate our business in the ordinary course, extensions of credit, credit card accounts and related receivables, and other matters. Furthermore, third-party vendors may sell products directly to consumers in addition to, or in some cases in lieu of, traditional wholesale channels. As our business model depends on offering quality and relevant merchandise brands from third-party vendors
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in addition to our own private label products, any material disruption in our relationship with such vendors, or material disruption in the products or services provided by other third parties, could adversely affect our revenues, expense structure, earnings and operations.
Economic, Global, Legal and External Risks
The Company’s business is subject to discretionary consumer spending, unfavorable economic and political conditions, extreme violence and other related risks.
Our sales are significantly affected by discretionary spending by consumers. Consumer spending may be affected by many factors outside of our control, including general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, consumer behaviors towards incurring and paying debt, the cost of basic necessities and other goods, the strength of the U.S. Dollar relative to foreign currencies and the effects of the weather, natural disasters or health pandemics. These factors can have psychological or economic impacts on consumers that affect their discretionary spending habits. Any decline in discretionary spending by consumers could negatively affect our business and results of operations.
Unfavorable global, domestic or regional economic or political conditions and other developments and risks could negatively affect our business and results of operations. For example, unfavorable changes related to interest rates, rates of economic growth, fiscal and monetary policies of governments, inflation, deflation, tax rates and policy, unemployment trends, energy prices, and other matters that influence the availability and cost of merchandise, consumer confidence, spending and tourism could negatively affect our business and results of operations. Unstable political conditions, civil unrest, terrorist activities, and armed conflicts or events of extreme violence may disrupt commerce and could negatively affect the Company’sour business and results of operations.
Our business could be affected by extreme weather conditions, natural disasters or regional or global health pandemics.
Extreme weather conditions in the areas in which our stores are located could negatively affect our business and results of operations. For example, frequent or unusually heavy snowfall, ice storms, rainstorms or other extreme weather conditions over a prolonged period could make it difficult for our customers to travel to our stores and thereby reduce our sales and profitability. Our business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could reduce demand for a portion of our inventory and thereby reduce our sales and profitability. In addition, extreme weather conditions could result in disruption or delay of production and delivery of materials and products in our supply chain and cause staffing shortages in our stores.
Natural disasters such as hurricanes, tornadoes and earthquakes, or a combination of these or other factors, could damage or destroy our facilities or make it difficult for customers to travel to our stores, thereby negatively affecting our business and results of operations.
Litigation, legislation, regulatory developments or non-compliance could adversely affect our business and results of operations.
We are subject to various federal, state and local laws, rules, regulations, inquiries and initiatives in connection with both our core business operations and our credit card and other ancillary operations (including the Credit Card Act of 2009 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010). Recent and future developments relating to such matters could increase our compliance costs and adversely affect the profitability of our credit card and other operations. Our effective tax rate is impacted by a number of factors, including changes in federal or state tax law, interpretation of existing laws and the ability to defend and support the tax positions taken on historical tax returns. Certain changes in any of these factors could materially impact the effective tax rate and the Company's net income.
We are also subject to anti-bribery, customs, child labor, truth-in-advertising and cash requirementsother laws, including consumer protection regulations and zoning and occupancy ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the operation of retail stores and warehouse facilities. Although we undertake to monitor changes in these laws, if these laws change without our knowledge, or are affectedviolated by importers, designers, manufacturers, distributors or agents, we could experience delays in shipments and receipt of goods or be subject to fines or other penalties under the seasonal naturecontrolling regulations, any of its business.
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course of our business. Adverse outcomes in current or unusually heavy snowfall, ice storms, rainstormsfuture litigation could negatively affect our financial condition, results of operations and cash flows.
Changes in applicable environmental regulations, including increased or additional regulations to limit carbon emissions or other extreme weather conditions over a prolonged periodgreenhouse gases may result in increased compliance costs, capital expenditures and other financial obligations which could make it difficultaffect our profitability.
In addition, our business is subject to complex and rapidly evolving laws addressing data privacy and data protection and companies are under increased regulatory scrutiny with respect to these matters. The Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the Company’s customersonline collection, use, dissemination and security of data. The interpretation and application of existing laws regarding data privacy and data protection are in flux and many states are considering new regulations in this area, The California Consumer Privacy Act (CCPA), California Privacy Rights Act (CPRA) and other applicable U.S. privacy laws or new state or federal laws may limit our ability to travelcollect and use data, require us to its stores and thereby reduce the Company’s sales and profitability. The Company’s business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter seasonmodify our data processing practices or cool weather during the summer season could reduce demand for a portion of the Company’s inventory and thereby reduce the Company's sales and profitability. In addition, extreme weather conditions could result in disruptionthe possibility of fines, litigation or delay of production and delivery of materials and products in the Company's supply chain and cause staffing shortages in the Company's stores.
Our sales and operating results could be adversely affected by product safety concerns.
If the Company'sCompany’s merchandise offerings do not meet applicable safety standards or consumers' expectations regarding safety, the Companywe could experience decreased sales, increased costs and/or be exposed to legal and reputational risk. Events that give rise to actual, potential or perceived product safety concerns could expose the Company to government enforcement action and/or private litigation. Reputational damage caused by real or perceived product safety concerns could negatively affect the Company'sour business and results of operations.
Financial Risks
Inability to access capital markets could adversely affect our business or financial condition.
Changes in the successcredit and capital markets, including market disruptions, limited liquidity and interest rate fluctuations, may increase the cost of its advertising and marketing programs.
Our level of indebtedness may adversely affect our ability to operate our business, remain in compliance with debt covenants, react to changes in our business or the Company’sindustry in which we operate, or prevent us from making payments on our indebtedness.
We have a significant amount of indebtedness. As of January 30, 2021, the aggregate principal amount of our total outstanding indebtedness was $4,906 million.
Our high level of indebtedness could have important consequences for the holders of our debt and equity securities. For example, it could:
• | make it more difficult for us to satisfy our debt obligations; |
• | increase our vulnerability to general adverse economic and external conditions, including the COVID-19 pandemic; |
• | impair our ability to obtain additional debt or equity financing in the future for working capital, capital expenditures, acquisitions or general corporate or other purposes; |
18
• | require us to dedicate a material portion of our cash flows from operations to the payment of principal and interest on our indebtedness, thereby reducing the availability of our cash flows to fund working capital needs, capital expenditures, acquisitions and other general corporate purposes; |
• | expose us to the risk of increased interest rates to the extent we make borrowings under our asset-based credit agreement, which bear interest at a variable rate; |
• | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; |
• | place us at a disadvantage compared to our competitors that have less indebtedness; and |
• | limit our ability to adjust to changing market conditions. |
Any of these risks could materially impact our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, financial condition and results of operations.
Factors beyond the Company’sour control could affect the Company’s stock price.
The Company’s stock price, like thatthose of other retail companies, is subject to significant volatility because of many factors, including factors beyond the control of the Company.our control. These factors may include:
• | general economic, stock, credit and real estate market conditions; |
• | risks relating to the Company’s business and industry, including those discussed above; |
• | strategic actions by us or our competitors; |
• | adverse business announcements by our competitors; |
• | variations in our quarterly results of operations; |
• | future sales or purchases of the Company’s common stock; and |
• | investor perceptions of the investment opportunity associated with the Company’s common stock relative to other investment alternatives. |
We may fail to meet the expectations of itsour stockholders or of analysts at some time in the future. If the analysts thatwho regularly follow the Company’s stock lower their rating or lower their projections for future growth and financial performance, the Company’s stock price could decline. Also, sales of a substantial number of shares of the Company’s common stock in the public market or the appearance that these shares are available for sale could adversely affect the market price of the Company’s common stock.
Item1B. | UnresolvedStaffComments. |
None.
Item 2. | Properties. |
ThepropertiesoftheCompanyconsistprimarilyofstoresandrelatedfacilities,includingalogisticsnetwork.The Companyalsoownsorleasesotherproperties,includingcorporateofficespaceinNewYorkandotherfacilitiesatwhichcentralizedoperationalsupportfunctionsareconducted.
AsofJanuary 30, 2021,theoperationsoftheCompanyincluded 727 storelocationsin43states,theDistrictof Columbia,PuertoRicoandGuam,comprisingatotalofapproximately113millionsquarefeet.Attheselocations,store boxesconsistedof 328 ownedboxes, 353 leasedboxes, 105boxesoperatedunderarrangementswheretheCompany ownedthebuildingandleasedthelandandthreeboxesofpartlyownedandpartlyleasedbuildings.Allownedproperties areheldfreeandclearofmortgages. Certain properties secure the senior notes issued by the Company on June 8, 2020, as disclosed further in Item 7.Pursuanttovariousshoppingcenteragreements,theCompanyisobligatedtooperate certainstoresforperiodsofupto15years.Someoftheseagreementsrequirethatthestoresbeoperatedunderaparticular name.MostleasesrequiretheCompanytopayrealestatetaxes,maintenanceandothercosts;somealsorequireadditional paymentsbasedonpercentagesofsalesandsomecontainpurchaseoptions.CertainoftheCompany’srealestateleaseshavetermsthatextendforasignificantnumberofyearsandprovideforrentalratesthatincreaseordecreaseovertime.
19
TheCompany'soperationswereconductedthroughthefollowingbrandedstorelocations:
|
| 2020 |
| |||||
|
| Boxes |
|
| Locations |
| ||
Macy's |
|
| 572 |
|
|
| 512 |
|
Bloomingdale's |
|
| 55 |
|
|
| 53 |
|
bluemercury |
|
| 162 |
|
|
| 162 |
|
|
|
| 789 |
|
|
| 727 |
|
|
|
|
|
|
|
|
|
|
Storecountactivitywasasfollows:
|
| 2020 |
| |||||
|
| Boxes |
|
| Locations |
| ||
Store count at beginning of fiscal year |
|
| 839 |
|
|
| 775 |
|
Stores opened |
|
| 6 |
|
|
| 6 |
|
Stores closed, consolidated into or relocated from existing centers |
|
| (56 | ) |
|
| (54 | ) |
Store count at end of fiscal year |
|
| 789 |
|
|
| 727 |
|
AdditionalinformationabouttheCompany’sstoreboxesasofJanuary 30, 2021isasfollows:
By Brand |
| Total |
|
| Owned |
|
| Leased |
|
| Subject to a Ground Lease |
|
| Partly Owned and Partly Leased |
| |||||
Macy's |
|
| 572 |
|
|
| 314 |
|
|
| 157 |
|
|
| 98 |
|
|
| 3 |
|
Bloomingdale's |
|
| 55 |
|
|
| 14 |
|
|
| 34 |
|
|
| 7 |
|
|
| — |
|
bluemercury |
|
| 162 |
|
|
| — |
|
|
| 162 |
|
|
| — |
|
|
| — |
|
|
|
| 789 |
|
|
| 328 |
|
|
| 353 |
|
|
| 105 |
|
|
| 3 |
|
As of January 30, 2021, the store box and location information presented above for Macy’s and the total Company includes two stores converted to fulfillment centers during 2020.
20
AdditionalinformationabouttheCompany’slogisticsnetworkasofJanuary 30, 2021isasfollows:
Location | Primary Function | Owned or Leased | Square Footage (thousands) | |||||
2016 | 2015 | 2014 | ||||||
Macy's | 673 | 737 | 773 | |||||
Bloomingdale's | 55 | 54 | 50 | |||||
Bluemercury | 101 | 77 | — | |||||
829 | 868 | 823 |
2016 | 2015 | 2014 | ||||||
Store count at beginning of fiscal year | 868 | 823 | 840 | |||||
Stores opened | 27 | 26 | 5 | |||||
Acquisition of Bluemercury stores | — | 62 | — | |||||
Stores closed or consolidated into existing centers | (66 | ) | (43 | ) | (22 | ) | ||
Store count at end of fiscal year | 829 | 868 | 823 |
Geographic Region | Total | Owned | Leased | Subject to a Ground Lease | Partly Owned and Partly Leased | ||||||||||
North Central | 142 | 84 | 38 | 20 | — | ||||||||||
Northeast | 250 | 90 | 132 | 28 | — | ||||||||||
Northwest | 131 | 44 | 62 | 22 | 3 | ||||||||||
South | 179 | 116 | 42 | 21 | — | ||||||||||
Southwest | 127 | 48 | 56 | 22 | 1 | ||||||||||
829 | 382 | 330 | 113 | 4 |
Cheshire, CT | Direct to customer | Owned | 725 | |||||
Chicago, IL | Stores | Owned | 861 | |||||
Columbus, OH | Stores | Leased | 673 | |||||
Dayton, OH | Stores | Leased | 107 | |||||
Denver, CO | Stores | Leased | 20 | |||||
Goodyear, AZ | Direct to customer | Owned | 1,560 | |||||
Hayward, CA | Stores | Owned | 310 | |||||
Houston, TX | Stores | Leased | 992 | |||||
Joppa, MD | Stores | Owned | 850 | |||||
Kapolei, HI | Stores | Leased | 260 | |||||
Los Angeles, CA | Stores | Owned | 1,529 | |||||
Martinsburg, WV | Direct to customer | Owned | 2,200 | |||||
Miami, FL | Stores | Leased | 535 | |||||
Portland, TN | Direct to customer | Owned | 1,455 | |||||
Raritan, NJ | Stores | Owned | 980 | |||||
Sacramento, CA | Direct to customer | Leased | 385 | |||||
Secaucus, NJ | Stores | Leased | 675 | |||||
South Windsor, CT | Stores | Owned | 595 | |||||
Stone Mountain, GA | Stores | Owned | 920 | |||||
Tampa, FL | Stores | Leased | 585 | |||||
Tulsa, OK | Direct to customer | Owned | 2,195 | |||||
Tukwila, WA | Stores | Leased | 500 | |||||
Union City, CA | Stores | Leased | 165 | |||||
Youngstown, OH | Stores | Owned | 645 |
Item 3.LegalProceedings.
TheCompanyanditssubsidiariesareinvolvedinvariousproceedingsthatareincidentaltothenormalcourseoftheir businesses.Asofthedateofthisreport,theCompanydoesnotexpectthatanyofsuchproceedingswillhaveamaterial adverseeffectontheCompany’sfinancialpositionorresultsofoperations.
RetailHazardous Waste Matter. As previously reported, the District Attorneys for ten counties in California and the City of Los Angeles are investigating alleged non-compliance with laws and regulations enacted or adopted regulating the storage, transportation and disposal of hazardous waste in California at Macy’s stores and distribution centers. The Company is cooperating with the offices and its subsidiariesagencies involved, which are involved in variousfocused on disposal and return of cosmetic products, and is committed to adopting policies and procedures as may be appropriate depending on the outcome of the investigation into this matter. No administrative or judicial proceedings that are incidentalhave been initiated. In October 2020, the District Attorneys made an initial settlement demand to the normal courseCompany that included a monetary penalty, reimbursement of their businesses. Asinvestigation costs and injunctive relief. Settlement discussions are on-going. It is possible that we will pay penalties in excess of $1,000,000 in connection with this matter and have adjusted our reserve against potential loss to reflect the datesettlement demand. Although we are currently unable to predict the outcome of this report,matter or the Company doesamount or range of any possible loss, we do not expect that anybelieve the resolution of such proceedingsthis matter will have a material adverse effectimpact on the Company’s financial position orour consolidated results of operations.
Item 4.MineSafetyDisclosures.
Notapplicable.
21
PARTII
Item 5.MarketforRegistrant’sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities.
The Common Company'scommonstockislistedontheNewYorkStock is listed on Exchangeunderthe NYSE under the tradingsymbol “M.“M.”Asof
The following table sets forth for each quarter during
2016 | 2015 | ||||||||||||||||
Low | High | Dividend | Low | High | Dividend | ||||||||||||
1st Quarter | 37.71 | 45.50 | 0.3600 | 61.10 | 69.98 | 0.3125 | |||||||||||
2nd Quarter | 29.94 | 40.15 | 0.3775 | 62.80 | 73.61 | 0.3600 | |||||||||||
3rd Quarter | 31.02 | 40.98 | 0.3775 | 47.10 | 70.12 | 0.3600 | |||||||||||
4th Quarter | 28.55 | 45.41 | 0.3775 | 34.05 | 52.48 | 0.3600 |
Beginning in January 2000, the Company’s Board of Directors are subjectapproved various authorizations to restrictions underpurchase, in the Company’s credit facility and may be affected by various other factors, including the Company’s earnings, financial condition and legal or contractual restrictions.
Total Number of Shares Purchased | Average Price per Share ($) | Number of Shares Purchased under Program (1) | Open Authorization Remaining ($)(1) | ||||||||
(thousands) | (thousands) | (millions) | |||||||||
October 30, 2016 – November 26, 2016 | 727 | 42.90 | 727 | 1,763 | |||||||
November 27, 2016 – December 31, 2016 | 1,152 | 40.61 | 1,152 | 1,716 | |||||||
January 1, 2017 – January 28, 2017 | — | — | — | 1,716 | |||||||
1,879 | 41.49 | 1,879 |
ThefollowinggraphcomparesthecumulativetotalstockholderreturnontheCompany'scommonstockwiththe Standard&Poor's500CompositeIndexandtheCompany'speergroupfortheperiodfromJanuary 28, 2012 30,2016through January 28, 2017, 30, 2021,assuminganinitialinvestmentof $100 $100andthereinvestmentofalldividends,if any.
The companies included in the old peer group are Bed, Bath & Beyond, Dillard's,Best Buy, Dillard’s, Dollar Tree, Gap, J.C. Penney, Kohl's,Kohl’s, L Brands, Lowe’s, Nordstrom, Ross Stores, Sears Holdings, Target, and TJX Companies Companies. The new peer group is comprised of companies within the S&P Retail Select Index.
ThechangeinpeergroupwasmadetobeconsistentwiththepeergroupthattheCompensationand Wal-Mart.Management DevelopmentCommitteeoftheBoardofDirectorsusesinbenchmarkingandassessingcompensationfortheCompany's executiveofficers.
22
Item 6.SelectedFinancialData.
TheselectedfinancialdatasetforthbelowshouldbereadinconjunctionwiththeConsolidatedFinancialStatements andthenotestheretoandtheotherinformationcontainedelsewhereinthisreport.TheCompanyadoptedtheFinancial AccountingStandardsBoard("FASB")AccountingStandardsUpdate("ASU")No.2016-02,Leases(Topic842),onFebruary3,2019,usingamodifiedretrospectiveapproachthatallowedfortransitionintheperiodofadoption.Therefore, resultspriorto2019havenotbeenrecastfortheadoptionofthisstandard.Additionally,theCompanyadoptedtheASUNo.2014-09,RevenuefromContractswithCustomers,onFebruary4,2018usingthefullretrospectivetransitionmethod andrecastresultsfrom2017and2016.
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017* |
|
| 2016 |
| |||||
|
| (millions, except per share) |
| |||||||||||||||||
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 17,346 |
|
| $ | 24,560 |
|
| $ | 24,971 |
|
| $ | 24,939 |
|
| $ | 25,908 |
|
Gross margin (a) |
|
| 5,060 |
|
|
| 9,389 |
|
|
| 9,756 |
|
|
| 9,758 |
|
|
| 10,242 |
|
Operating income (loss) |
|
| (4,475 | ) |
|
| 970 |
|
|
| 1,738 |
|
|
| 1,864 |
|
|
| 1,371 |
|
Net income (loss) |
|
| (3,944 | ) |
|
| 564 |
|
|
| 1,098 |
|
|
| 1,555 |
|
|
| 619 |
|
Net income (loss) attributable to Macy's, Inc. shareholders |
|
| (3,944 | ) |
|
| 564 |
|
|
| 1,108 |
|
|
| 1,566 |
|
|
| 627 |
|
Basic earnings (loss) per share attributable to Macy's, Inc. shareholders |
| $ | (12.68 | ) |
| $ | 1.82 |
|
| $ | 3.60 |
|
| $ | 5.13 |
|
| $ | 2.03 |
|
Diluted earnings (loss) per share attributable to Macy's, Inc. shareholders |
| $ | (12.68 | ) |
| $ | 1.81 |
|
| $ | 3.56 |
|
| $ | 5.10 |
|
| $ | 2.02 |
|
Average number of shares outstanding |
|
| 311.1 |
|
|
| 309.7 |
|
|
| 307.7 |
|
|
| 305.4 |
|
|
| 308.5 |
|
Cash dividends paid per share |
| $ | 0.3775 |
|
| $ | 1.51 |
|
| $ | 1.51 |
|
| $ | 1.51 |
|
| $ | 1.49 |
|
Depreciation and amortization |
| $ | 959 |
|
| $ | 981 |
|
| $ | 962 |
|
| $ | 991 |
|
| $ | 1,058 |
|
Capital expenditures |
| $ | 466 |
|
| $ | 1,157 |
|
| $ | 932 |
|
| $ | 760 |
|
| $ | 912 |
|
Balance Sheet Data (at year end): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,679 |
|
| $ | 685 |
|
| $ | 1,162 |
|
| $ | 1,455 |
|
| $ | 1,297 |
|
Property and equipment - net |
|
| 5,940 |
|
|
| 6,633 |
|
|
| 6,637 |
|
|
| 6,672 |
|
|
| 7,017 |
|
Total assets |
|
| 17,706 |
|
|
| 21,172 |
|
|
| 19,194 |
|
|
| 19,583 |
|
|
| 20,082 |
|
Short-term debt |
|
| 452 |
|
|
| 539 |
|
|
| 43 |
|
|
| 22 |
|
|
| 309 |
|
Long-term debt |
|
| 4,407 |
|
|
| 3,621 |
|
|
| 4,708 |
|
|
| 5,861 |
|
|
| 6,562 |
|
Total Shareholders’ equity |
|
| 2,553 |
|
|
| 6,377 |
|
|
| 6,436 |
|
|
| 5,733 |
|
|
| 4,375 |
|
* | 53 weeks |
(a) | Grossmarginisdefinedasnetsaleslesscostofsales. |
Item 7. | |
Management’sDiscussionandAnalysisofFinancial |
The selected financial data set forth below discussioninthisItem7shouldbereadinconjunctionwiththeConsolidatedFinancialStatementsand the notes thereto and the other information contained elsewhere in this report.
2016 | 2015 | 2014 | 2013 | 2012* | |||||||||||||||
(millions, except per share) | |||||||||||||||||||
Consolidated Statement of Income Data: | |||||||||||||||||||
Net sales | $ | 25,778 | $ | 27,079 | $ | 28,105 | $ | 27,931 | $ | 27,686 | |||||||||
Cost of sales | (15,621 | ) | (16,496 | ) | (16,863 | ) | (16,725 | ) | (16,538 | ) | |||||||||
Gross margin | 10,157 | 10,583 | 11,242 | 11,206 | 11,148 | ||||||||||||||
Selling, general and administrative expenses | (8,265 | ) | (8,256 | ) | (8,355 | ) | (8,440 | ) | (8,482 | ) | |||||||||
Impairments, store closing and other costs | (479 | ) | (288 | ) | (87 | ) | (88 | ) | (5 | ) | |||||||||
Settlement charges | (98 | ) | — | — | — | — | |||||||||||||
Operating income | 1,315 | 2,039 | 2,800 | 2,678 | 2,661 | ||||||||||||||
Interest expense | (367 | ) | (363 | ) | (395 | ) | (390 | ) | (425 | ) | |||||||||
Premium on early retirement of debt | — | — | (17 | ) | — | (137 | ) | ||||||||||||
Interest income | 4 | 2 | 2 | 2 | 3 | ||||||||||||||
Income before income taxes | 952 | 1,678 | 2,390 | 2,290 | 2,102 | ||||||||||||||
Federal, state and local income tax expense | (341 | ) | (608 | ) | (864 | ) | (804 | ) | (767 | ) | |||||||||
Net income | 611 | 1,070 | 1,526 | 1,486 | 1,335 | ||||||||||||||
Net loss attributable to noncontrolling interest | 8 | 2 | — | — | — | ||||||||||||||
Net income attributable to Macy's, Inc. shareholders | $ | 619 | $ | 1,072 | $ | 1,526 | $ | 1,486 | $ | 1,335 | |||||||||
Basic earnings per share attributable to Macy's, Inc. shareholders | $ | 2.01 | $ | 3.26 | $ | 4.30 | $ | 3.93 | $ | 3.29 | |||||||||
Diluted earnings per share attributable to Macy's, Inc. shareholders | $ | 1.99 | $ | 3.22 | $ | 4.22 | $ | 3.86 | $ | 3.24 | |||||||||
Average number of shares outstanding | 308.5 | 328.4 | 355.2 | 378.3 | 405.5 | ||||||||||||||
Cash dividends paid per share | $ | 1.4925 | $ | 1.3925 | $ | 1.1875 | $ | .9500 | $ | .8000 | |||||||||
Depreciation and amortization | $ | 1,058 | $ | 1,061 | $ | 1,036 | $ | 1,020 | $ | 1,049 | |||||||||
Capital expenditures | $ | 912 | $ | 1,113 | $ | 1,068 | $ | 863 | $ | 942 | |||||||||
Balance Sheet Data (at year end): | |||||||||||||||||||
Cash and cash equivalents | $ | 1,297 | $ | 1,109 | $ | 2,246 | $ | 2,273 | $ | 1,836 | |||||||||
Total assets | 19,851 | 20,576 | 21,330 | 21,499 | 20,858 | ||||||||||||||
Short-term debt | 309 | 642 | 76 | 463 | 124 | ||||||||||||||
Long-term debt | 6,562 | 6,995 | 7,233 | 6,688 | 6,768 | ||||||||||||||
Total Shareholders’ equity | 4,322 | 4,253 | 5,378 | 6,249 | 6,051 |
CompanyOverview
TheCompanyisanomnichannelretailorganizationoperatingstores,websitesandmobileapplicationsunderthreebrands (Macy's, Bloomingdale's and Bluemercury)bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's,women'sandkids'),cosmetics,homefurnishingsandotherconsumergoods.AsofJanuary 30, 2021,the Company'soperationswereconductedthroughMacy's, Market by Macy’s, Macy’sBackstage, Bloomingdale’s, Bloomingdale’sTheOutletandbluemercury,whichareaggregatedintoonereportingsegmentinaccordancewiththeFASBAccountingStandardsCodification(“ASC”)Topic280,SegmentReporting.
Bloomingdale'sinDubai,UnitedArabEmiratesandAlZahra,KuwaitareoperatedunderalicenseagreementwithAl TayerInsignia,acompanyoftheAlTayer Group,LLC.
COVID-19Impact
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States. The COVID-19 pandemic had a negative impact on the Company's 2020 operations and children's), cosmetics, home furnishingsfinancial results, and other consumer goods.the full financial impact of the pandemic cannot be reasonably estimated at this time due to uncertainty as to the severity and duration of the pandemic. The COVID-19 pandemic continues to cause significant disruption to organizations and communities across the globe. The Company operates 829is navigating through the pandemic with a focus on prudent cash management, strengthening liquidity and executing its strategic initiatives. In addition, as its stores began to reopen in 45 states, the Districtsecond quarter of Columbia, Guam2020, the Company prioritized the implementation of significant health and Puerto Rico.safety measures to allow its customers and colleagues to feel safe in the Company's stores and facilities. In response to the operational and financial challenges caused by the COVID-19 pandemic, the specific steps taken by the Company to manage its business through this uncertain period, include, but are not limited to, the following.
• | The Company temporarily closed all stores on March 18, 2020, which included all Macy’s, Bloomingdale’s, bluemercury, Macy’s Backstage, Bloomingdales the Outlet and Market by Macy’s stores. Stores began reopening on May 4, 2020 and substantially all of the Company's stores were open by the end of the second quarter of 2020. |
• | In an effort to increase liquidity, the Company fully drew on its $1,500 million credit facility, announced the suspension of quarterly cash dividends beginning in the second quarter of 2020 and took additional steps to reduce discretionary spending. The Company's Board of Directors also rescinded its authorization of any unused amounts under the Company's share repurchase program. In June 2020, the Company completed financing activities totaling nearly $4.5 billion and used a portion of the proceeds from these activities, as well as cash on hand, to repay its credit facility. To create greater flexibility for future liquidity needs, the Company executed an exchange offer and consent solicitation in July 2020 for $465 million of previously issued unsecured notes. |
• | To improve the Company's cash position and reduce its cash expenditures, the Company's Board of Directors and Chief Executive Officer did not receive compensation from April 1, 2020 through June 30, 2020. In addition, the Company deferred cash expenditures where possible and temporarily implemented a furlough for the majority of its colleague population which ended for most colleagues at the beginning of July 2020. Certain executives at the director level and above not impacted by the furlough took a temporary reduction of their pay through June 30, 2020. |
• | In June 2020, the Company announced a restructuring to align its cost base with anticipated near-term sales as the business recovers from the impact of the COVID-19 pandemic. The Company reduced corporate and management headcount by approximately 3,900. Additionally, the Company reduced staffing across its stores portfolio, supply chain and customer support network, which it expects to adjust as sales recover. During the second quarter of 2020, the Company recognized $154 million of expense for severance related to this reduction |
24
in force, of which substantially all has been paid as of January 30, 2021. |
• | During 2020, the Company deferred occupancy payments for a significant number of its stores. Such pandemic related deferrals were included in accounts payable and accrued liabilities and the Company continued to recognize expense during the deferral periods based on the contractual terms of the lease agreements. As of January 30, 2021, substantially all occupancy payment deferrals have been paid. |
• | During 2020, the Company incurred approximately $200 million of non-cash impairment charges primarily related to long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value. The Company also incurred $3,080 million of non-cash impairment charges during 2020 on goodwill as a result of the sustained decline in the Company's market capitalization and decrease in projected cash flows primarily as a result of the COVID-19 pandemic. |
• | As a result of the COVID-19 pandemic, the Company implemented work-from-home policies for its colleagues except those involved in business critical activities and functions. Such policies are expected to remain in place for the duration of the pandemic. Post-pandemic, the Company may modify work environment policies which could impact the use of certain corporate assets. Such changes could lead to additional long-lived tangible and right of use corporate asset impairment. |
• | On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act") was signed into law, which included payroll tax credits for employee retention, deferral of payroll taxes, and several income tax provisions, including modifications to the net interest deduction limitation, changes to certain property depreciation and carryback of certain operating losses. |
The CARES Act impacted the Company's annual effective tax rate and the income tax benefit recognized during 2020. Specifically, the Company recognized an annual net operating loss that is available for carryback at a 35% federal income tax rate rather than the current 21% federal income tax rate. During 2020, the resultant benefit of this rate differential was offset by the impact of the non-tax deductible component of the goodwill impairment charge. The net impact of these items is the primary driver of the effective tax rate decrease when compared to 2019. As of January 28, 2017,30, 2021, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale’s The Outlet, Macy’s Backstage, BluemercuryCompany recognized a $520 million income tax receivable, which is included within Other Assets on the Consolidated Balance Sheets.
Under the terms of the Amended and Macy’s China Limited which are aggregated into one reporting segment in accordance withRestated Credit Card Program Agreement (the “Program Agreement”) between the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting.”
TheCOVID-19pandemichas had and simplify its customers’ shopping experiences, develop meaningful relationships with new customers and deepen relationships with its existing ones.
Management Overview
2020 was a year of the storeunprecedented challenges and its nearby parking facility were sold to Tishman Speyer in a single sales transaction. As the sales agreement required the Company to conduct certain redevelopment activities at Macy's Brooklyn store,adapt its business to address the Company is recognizingdisruption caused by the gain onCOVID-19 pandemic. Faced with the transaction, approximately $250 million, under the percentagetemporary closure of completion method of accounting over the redevelopment period. Accordingly, $117 million has been recognized to-datestores and the remaining gain is anticipated to be recognized over the next two years.
25
2020FinancialHighlights
Specific2020Macy's,Inc.financialperformanceincluded:
• | Net sales were significantly impacted by the COVID-19 pandemic and were $17,346 million in 2020, as compared to $24,560 million in 2019, a decrease of 29.4%. |
• | Comparable sales on an owned basis and on an owned plus licensed basis decreased 27.9%. |
• | Driven by changes in consumer shopping behaviors due to the COVID-19 pandemic, digital sales increased to 44.3% of net sales, compared to 25.3% in 2019. |
• | The gross margin rate for 2020 was 29.2%, a decrease of 900 basis points compared to 2019. |
• | SG&A expenses decreased approximately 24.8% from 2019 and SG&A as a percent of sales was higher in 2020 by approximately 240 basis points, illustrating efficient expense management and improved colleague productivity in stores. |
• | Cash and non-cash restructuring, impairment, store closings and other costs were $3,579 million, driven by the recognition of non-cash impairment charges and implementation of restructuring activities to respond to the COVID-19 pandemic. |
• | Earnings before interest, taxes, depreciation and amortization excluding restructuring, impairment, store closings and other costs and settlement charges ("Adjusted EBITDA") was $117 million in 2020, as compared to $2,336 million in 2019. |
• | Diluted loss per share was $12.68 compared to diluted earnings per share of $1.81 in 2019. Excluding restructuring, impairment, store closings and other costs, settlement charges, financing costs and losses on early retirement of debt, adjusted diluted loss per share attributable to Macy's, Inc. shareholders was $2.21 compared to diluted earnings per share attributable to Macy’s, Inc. shareholders of $2.91 in 2019. |
• | The Company ended 2020 in a strong liquidity position with approximately $1.7 billion in cash and cash equivalents and approximately $3.0 billion of untapped capacity in the Company’s asset-based credit facility. |
• | Merchandise inventories were down 27.3% at the end of 2020 compared to the end of 2019. The Company exited 2020 in a clean inventory position. |
Seepages36to39forreconciliationsofthenon-GAAPfinancialmeasurespresentedabovetothemostcomparable U.S. generally accepted accounting principles ("GAAP") financial measures and other important information.
Polaris Strategy
On February 4, 2020, Macy’s, Inc. announced its Polaris strategy, a multi-year plan designed to contribute the asset into a joint venture for the development plan to commence or sell the asset to Brookfield. Ifstabilize profitability and position the Company chooses to contributefor sustainable, profitable growth. Over the asset into a joint venture,course of the COVID-19 pandemic, the Company may electhas refined the components of the Polaris strategy to participate as a funding or non-funding partner. After development, the joint venture may sell the asset and distribute proceeds accordingly.
• | Increasing relevance by introducing new customers to the Macy’s brand. During 2020, Macy’s saw a 45% increase in active bronze memberships in its Star Rewards loyalty program. This increase partially offset the overall drop in active Star Rewards members, which was caused by declines in Macy’s upper loyalty program tiers. In addition, the Company launched Macy’s Media Network in 2020, a new fashion and beauty advertising platform providing a new income stream. |
• | In response to the pandemic and consumer behavior, the Company expanded merchandise assortments in categories such as home, outdoor furniture, loungewear and active. In addition, new categories were added to meet emerging demand, including baby gear and skin care devices, home fragrances, outdoor recreation and |
26
gourmet food. In total, the Company added more than 1,000 new brands to meet the demands of customers in this ever-changing environment. |
• | Given the significant shift to digital shopping in 2020 that is expected to be permanent in nature, the Company accelerated its focus on and investments in digital shopping. During 2020, the Company quickly launched a curb-side pick-up fulfillment option and improved the integration of its digital and physical assets as well as the design of its digital platforms to improve customers’ shopping experiences. This focus on optimizing customers’ omnichannel experience will continue and the Company has and will continue to utilize its entire network of stores, distribution centers and vendor-direct programs to fill customer orders. |
• | Through the initial Polaris restructuring efforts in February 2020 and those executed in July 2020 in response to the COVID-19 pandemic, the Company exited 2020 with an annualized run-rate cost savings of approximately $900 million that is expected to be permanent in nature. Through focus on rigorous expense reduction, prudent cash management and execution of its 2020 financing activities, the Company ended 2020 with significant liquidity to help fund the recovery of its business and the necessary investments to execute on the Polaris strategy. |
While the underlying components of the Polaris strategy are unchanged from those announcedpresented in 2015February 2020, the components were refined during 2020 to align with customer demands in the COVID-19 pandemic environment as well as expected consumer behavior post-pandemic. The following are the key pillars of the Polaris strategy:
• | Win With Fashion and Style: Delivering fashion and style that meets core and new customer needs for all occasions through existing and new retail platforms. The Company is focusing on the transformation of its assortment architecture, fashion curation, inventory productivity, and vendor relationships to support these changes. |
• | Deliver Clear Value: Build trust and deliver value to customers through simple, easy-to-understand pricing and promotions driven by advanced analytics. The Company intends to deepen core and new customer engagement through a personalized loyalty program as well as personalized communication and customer experiences across all touchpoints. |
• | Excel in Digital Shopping: Deliver profitable omnichannel growth by investing in a modern, frictionless digital shopping journey, supported by a seamless user experience, immersive category-level experiences and a convenient delivery and returns experience that is fully connected to stores. To support these efforts, the Company will focus on enhancements to product discovery, the checkout process and launch of new digital business models. |
• | Enhance Store Experience: Create a tech-enabled, connected omni-ecosystem that supports reimagined store experiences focused on discovery, convenience, service and engagement; delivered through a streamlined stores portfolio and new off-mall formats. The Company will enhance the connection between its store and digital channels by elevating customer experience standards across the organization, enhancing fulfillment options and providing convenience no matter where the customer shops. |
• | Modernize Supply Chain: The Company is moving towards a faster and more efficient customer fulfillment infrastructure by optimizing its network to profitably support the expected continued growth in digital and provide enhanced customer delivery options to create a convenient, fast and efficient customer experience for delivery and returns. |
• | Enable Transformation: Enabling and accelerating the Company’s core priorities through foundational improvements by modernizing technology platforms to support and enable growth, embedding data and analytics into every aspect of the Company’s business and defining and creating a performance-driven operation model that sets the tone, pace and expectations across the business to execute against the Polaris strategy. |
PresentationofInformation
Thediscussionthatfollowsincludesa major organizational restructuring comparisonofourresultsofoperationsandliquidityandcapitalresourcesfor thefiscalyearsendedJanuary 30, 2021andFebruary 1, 2020.Foradiscussionofchangesfromthefiscalyearended February 1, 2020toFebruary 2, 2019,refertoManagement'sDiscussionandAnalysisofFinancialConditionandResults
27
ofOperationsinPartII,Item7oftheCompany'sAnnualReportonForm10-KforthefiscalyearendedFebruary 1, 2020 (filedMarch 30,2020).
ResultsofOperations
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||
|
| Amount |
|
| % to Sales |
|
| Amount |
|
| % to Sales |
|
| Amount |
|
| % to Sales |
| ||||||
|
| (dollars in millions, except per share figures) |
| |||||||||||||||||||||
Net sales |
| $ | 17,346 |
|
|
|
|
|
| $ | 24,560 |
|
|
|
|
|
| $ | 24,971 |
|
|
|
|
|
Increase (decrease) in comparable sales |
|
| (27.9 | )% |
|
|
|
|
|
| (0.8 | )% |
|
|
|
|
|
| 1.7 | % |
|
|
|
|
Credit card revenues, net |
|
| 751 |
|
|
| 4.3 | % |
|
| 771 |
|
|
| 3.1 | % |
|
| 768 |
|
|
| 3.1 | % |
Cost of sales |
|
| (12,286 | ) |
|
| (70.8 | )% |
|
| (15,171 | ) |
|
| (61.8 | )% |
|
| (15,215 | ) |
|
| (60.9 | )% |
Selling, general and administrative expenses |
|
| (6,767 | ) |
|
| (39.0 | )% |
|
| (8,998 | ) |
|
| (36.6 | )% |
|
| (9,039 | ) |
|
| (36.2 | )% |
Gains on sale of real estate |
|
| 60 |
|
|
| 0.3 | % |
|
| 162 |
|
|
| 0.6 | % |
|
| 389 |
|
|
| 1.5 | % |
Restructuring, impairment, store closing and other costs |
|
| (3,579 | ) |
|
| (20.6 | )% |
|
| (354 | ) |
|
| (1.4 | )% |
|
| (136 | ) |
|
| (0.5 | )% |
Operating income (loss) |
|
| (4,475 | ) |
|
| (25.8 | )% |
|
| 970 |
|
|
| 3.9 | % |
|
| 1,738 |
|
|
| 7.0 | % |
Benefit plan income, net |
|
| 54 |
|
|
|
|
|
|
| 31 |
|
|
|
|
|
|
| 39 |
|
|
|
|
|
Settlement charges |
|
| (84 | ) |
|
|
|
|
|
| (58 | ) |
|
|
|
|
|
| (88 | ) |
|
|
|
|
Interest expense - net |
|
| (280 | ) |
|
|
|
|
|
| (185 | ) |
|
|
|
|
|
| (236 | ) |
|
|
|
|
Financing costs |
|
| (5 | ) |
|
|
|
|
|
| — |
|
|
|
|
|
|
| — |
|
|
|
|
|
Losses on early retirement of debt |
|
| — |
|
|
|
|
|
|
| (30 | ) |
|
|
|
|
|
| (33 | ) |
|
|
|
|
Income (loss) before income taxes |
|
| (4,790 | ) |
|
|
|
|
|
| 728 |
|
|
|
|
|
|
| 1,420 | �� |
|
|
|
|
Federal, state and local income tax benefit (expense) |
|
| 846 |
|
|
|
|
|
|
| (164 | ) |
|
|
|
|
|
| (322 | ) |
|
|
|
|
Net income (loss) |
|
| (3,944 | ) |
|
|
|
|
|
| 564 |
|
|
|
|
|
|
| 1,098 |
|
|
|
|
|
Net loss attributable to noncontrolling interest |
|
| — |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 10 |
|
|
|
|
|
Net income (loss) attributable to Macy's, Inc. shareholders |
| $ | (3,944 | ) |
|
| (22.7 | )% |
| $ | 564 |
|
|
| 2.3 | % |
| $ | 1,108 |
|
| 4.4% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Macy's, Inc. shareholders |
| $ | (12.68 | ) |
|
|
|
|
| $ | 1.81 |
|
|
|
|
|
| $ | 3.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Financial Measure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
| $ | 5,060 |
|
|
| 29.2 | % |
| $ | 9,389 |
|
| 38.2% |
|
| $ | 9,756 |
|
|
| 39.1 | % | |
Digital sales as a percent of net sales |
|
| 44.3 | % |
|
|
|
|
|
| 25.3 | % |
|
|
|
|
|
| 23.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Non-GAAP Financial Measures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in comparable sales on an owned plus licensed basis |
|
| (27.9 | )% |
|
|
|
|
|
| (0.7 | )% |
|
|
|
|
|
| 2.0 | % |
|
|
|
|
Adjusted diluted earnings (loss) per share attributable to Macy's, Inc. shareholders |
| $ | (2.21 | ) |
|
|
|
|
| $ | 2.91 |
|
|
|
|
|
| $ | 4.18 |
|
|
|
|
|
Adjusted EBITDA |
| $ | 117 |
|
|
|
|
|
| $ | 2,336 |
|
|
|
|
|
| $ | 2,877 |
|
|
|
|
|
ROIC |
|
| 3.0 | % |
|
|
|
|
|
| 17.1 | % |
|
|
|
|
|
| 19.9 | % |
|
|
|
|
Seepages36to39forareconciliationofthesenon-GAAPfinancialmeasurestotheirmostcomparableGAAPfinancial measureandforotherimportantinformation.
Comparisonof 2020and streamlining2019
NetSalesandComparableSales
Netsalesfor2020 were significantly impacted by the Company's store portfolio, which are expected to improve performance inpandemic and the coming years.
28
and second quarters. For 2020, net sales were $17,346 million,adecreaseof $7,214 million,or 29.4%,from2019.Thedecreaseincomparablesalesonanownedbasis decreased 3.5% and comparable sales on an owned plus licensed basis decreased 2.9%.
CreditCardRevenues,Net
Netcreditcardrevenueswere $751 million for2020,a decreaseof $20 millioncomparedto$771 millionrecognized in2019.Creditcardpenetration declined in 2020 to approximately 43% from approximately 47% in 2019. Combined with a decline in new accounts driven by temporary store closures, this decrease in credit sales drove the decrease in net credit card revenues. This was $1.892 billion or 7.3%offset byan increase inprofitshare revenuesassociatedwiththeunderlyingcreditcardportfolioperformance, which was driven by improved bad debt activity and delinquencies.
CostofSales and Gross Margin
Costofsalesfor2020decreased $2,885 million from2019.Thecostofsalesrateasapercenttonetsalesof 70.8%in 2020increased900basispointscompared to2019. The gross margin rate in 2020 was 29.2% compared to 38.2% in 2019. The increase in the cost of sales excluding impairments, store closing and other costs and settlement charges, a decrease of 18.7% and 130 basis points as a percent of sales from 2015 on a comparable basis.
SG&AExpenses
SG&Aexpensesfor2020decreased $2,231 million andtheSG&Arateasapercenttonetsalesincreased240 basispoints,to 39.0%,fromto2019. The decrease in SG&A expenses is a reflection of lower sales as well as the implementation of various expense management strategies undertaken in response to the COVID-19 pandemic. These strategies include the July 2020 restructuring, a significant reduction in discretionary spending and the colleague furlough implemented in 2020.
GainsonSaleofRealEstate
TheCompanyrecognizedgainsof $60 millionin2020associatedwithrealestatesales,ascomparedto$162 millionin2019.2019includedagainof$52millionassociatedwiththesaleoftheMacy'sDowntownSeattlelocation.
Restructuring,Impairment,StoreClosingandOtherCosts
Restructuring,impairment,storeclosingandothercostsfor2020 of $3,579 millionincluded goodwill and asset impairment charges, severanceandotherhumanresource-relatedcosts,andothercostsassociatedwithorganizationalchangesandstoreclosings, driven by the impacts of the COVID-19 pandemic.2019 costs of $354 millionincludedcostsprimarilyassociatedwiththePolarisstrategy,including$161millionofnon-cashimpairmentchargesassociatedwithstoreclosuresandcampusconsolidations and$157millionrelatedtoseveranceandotherhumanresource-relatedcosts.
BenefitPlanIncome,Net
2020and2019included $54 millionand$31 million,respectively,ofnon-cashnetbenefitplanincomerelatingtotheCompany'sdefinedbenefitplans.Thisincomeincludesthenetof:interestcost,expectedreturnonplanassetsand amortizationofpriorservicecostsorcreditsandactuarialgainsandlosses.
SettlementCharges
$84 millionand$58 millionofnon-cashsettlementchargeswererecognizedin2020and2019,respectively.Thesechargesrelatetothepro-ratarecognitionofnetactuariallossesassociatedwiththeCompany’sdefinedbenefitretirementplansandaretheresultoflumpsumdistributionsassociatedwithretireedistributionelectionsandrestructuringactivity.
29
NetInterestExpense
Netinterestexpense,excluding financing costs and lossesonearlyretirementofdebt,for2020increased $95 million from2019 to $280 million.This increasewasprimarilydrivenby the financing activities executed by the Company in June 2020 in response to the COVID-19 pandemic.
LossesonEarlyRetirementofDebt
In2019,theCompanycompletedatenderofferdebtrepurchaseof$525millionofseniornotesanddebentures.Asaresultofthesetransactions,theCompanyrecognized$30millioninexpensesandfees.
EffectiveTaxRate
TheCompany'seffectivetaxratewas17.7%for2020and22.5%for2019comparedtothefederalincometaxstatutoryrateof21%.Theeffective tax rate in 2020 was 11.4% impacted by the non-tax deductible component of the Company’s goodwill impairment charge, which was largely offset by the benefit associated with the carryback of net operating losses permitted under the CARES Act .Theeffectivetaxratein 2016,2019wasimpactedbythesettlementofcertainstateandlocaltaxmatters.
NetIncome (Loss) AttributabletoMacy's,Inc.Shareholders
NetlossattributabletoMacy's,Inc.shareholdersfor2020decreased $4,508 million to $3,944 million, comparedto2019,drivenby lower operating results resulting from the impact of the COVID-19 pandemic and goodwill impairment charges.
Guidance
The Company expects the COVID-19 pandemic to have a material impact on its financial condition, results of operations and cash flows from operations in future periods. The extent of the impact of the COVID-19 pandemic on the Company's operational and financial performance depends on future developments outside of the Company's control, including the duration and spread of the pandemic and related actions taken by federal, state and local government officials, and international governments to prevent disease spread. On February 23, 2021, the Company disclosed in its release of preliminary earnings its performance expectations for 2021, while acknowledging the significant uncertainty surrounding consumer behavior and economic conditions in the current environment. The Company’s annual guidance contemplates continued pandemic-related challenges in the spring season with momentum building in the back half of
30
2021.For a more complete discussion of the COVID-19 pandemic related risks facing the Company's business, refer to Item 1A, “Risk Factors.”
• | Net sales between $19.75 billion to $20.75 billion, an increase between approximately 14% and 20% compared to 2020. Digital sales are expected to approximate 35% of net sales. |
• | Credit card revenues, net, approximately 3% of net sales |
• | Gross margin rate to increase by high-single digit percentage points, up to 37% |
• | SG&A expenses as a percentage of net sales to increase approximately 75 to 100 basis points compared to 2019 levels |
• | Gains on sale of real estate between $60 million and $90 million |
• | Benefit plan income of approximately $60 million |
• | Depreciation and amortization expense of approximately $900 million |
• | Adjusted EBITDA between 7% and 7.5% of net sales |
• | Net interest expense of approximately $325 million |
• | An adjusted tax rate of approximately 23.25% |
• | Diluted shares outstanding of approximately 318 million |
• | Adjusted diluted earnings per share between $0.40 and $0.90 |
• | Capital expenditures of approximately $650 million |
CashFlow,LiquidityandCapitalResources
TheCompany'sprincipalsourcesofliquidityarecashfromoperations,cashonhandandthe asset based credit facilitydescribed below.
Because of the COVID-19 outbreak, there is significant uncertainty surrounding the potential impact on the Company's results of operations and cash flows. The Company’s liquidity was negatively impacted by store closures. The Company proactively took steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures, suspension of the Company's quarterly dividend and executing additional financing transactions during the second quarter of 2020 as compareddiscussed in more detail below. While the Company has obtained additional financing, due the uncertainty of the COVID-19 pandemic, further actions may be required to 12.5% improve the Company’s cash position, including but not limited to, monetizing Company assets, reinstituting colleague furloughs, and foregoing capital expenditures and other discretionary expenses.
OperatingActivities
Netcashprovidedbyoperatingactivitieswas $649 million in 2015.
InvestingActivities
Netcashusedbyinvestingactivitiesfor2020was $325 million,comparedto$1,002 millionfor2019.Investingactivitiesfor2020includedpurchasesofpropertyandequipmenttotaling $338 million andcapitalizedsoftwareof $128 million,comparedtopurchasesofpropertyandequipmenttotaling$902 millionand capitalizedsoftwareof$255 millionfor2019.In addition, propertyandequipmentsales,primarily relatedtorealestate,generatedcashproceedsof $113 millionin2020comparedto$185 millionin2019.
FinancingActivities
NetcashprovidedbytheCompanyforfinancingactivitieswas $699 millionfor2020,including debt issued of $2,780 million related to a $1,500 million draw on invested capital ("ROIC"), a key measureits revolving credit agreement and issuance of operating productivity, was 18.5%, a decrease from 20.1% in 2015.
Net cash used by investingthe Company for financing activities increased significantlywas $1,123 million for 2019, includingtherepaymentof$597 millionofdebt andthepaymentof$466 millionofcashdividends. 2019 debtrepaymentsincludedtherepaymentatmaturityof$36millionof8.5%seniordebentures.
31
Secured Debt Issuance
On June 8, 2020, the Company issued $1,300 million aggregate principal amount of 8.375% senior secured notes due 2025 (the "Notes"). The Notes bear interest at a rate of 8.375% per annum, which accrues from June 8, 2020 and is payable in 2016 as comparedarrears on June 15 and December 15 of each year. The Notes mature on June 15, 2025, unless earlier redeemed or repurchased, and are subject to 2015.
Entry into Asset-Based Credit Facility
On June 8, 2020, Macy’s Inventory Funding LLC (the “ABL Borrower”), an indirect wholly owned subsidiary of the Company, and its parent, Macy’s Inventory Holdings LLC (the “ABL Parent”), entered into an asset-based credit agreement (“the ABL Credit Facility”) with Bank of America, N.A., as administrative agent and collateral agent, and the lenders party thereto. As of January 30, 2021, the ABL Credit Facility provides the ABL Borrower with a $2,941 million revolving credit facility (the “Revolving ABL Facility”), including a swingline sub-facility and a letter of credit sub-facility. The ABL Borrower may request increases in the size of the Revolving ABL Facility up to an additional aggregate principal amount of $750 million. As of January 30, 2021, the Company had $142 million of standby letters of credit outstanding under the ABL Credit Facility, which reduces the available borrowing capacity. The Company had no borrowings outstanding under the ABL Credit Facility as of January 30, 2021.
Additionally on June 8, 2020 and concurrently with closing the ABL Credit Facility, the ABL Borrower purchased all presently existing inventory, and assumed the liabilities in respect of all presently existing and outstanding trade payables owed to vendors in respect of such inventory, from MRH and certain wholly owned subsidiaries of MRH. The ABL Credit Facility is secured on a first priority basis (subject to customary exceptions) by (i) all assets of the ABL Borrower including all such inventory and the proceeds thereof and (ii) the equity of the ABL Borrower. The ABL Parent guaranteed the ABL Borrower’s obligations under the ABL Credit Facility. The Revolving ABL Facility matures on May 9, 2024.
The ABL Credit Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) 80% (which shall automatically increase to 90% upon the satisfaction of certain conditions, including the delivery of an initial appraisal of the inventory) of the net orderly liquidation percentage of eligible inventory, minus (b) customary reserves. Amounts borrowed under the ABL Credit Facility are subject to interest at a rate per annum equal to (i) prior to the Step Down Date (as defined in the ABL Credit Facility), at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.75% to 3.00% or (b) a base rate plus a margin of 1.75% to 2.00%, in each case depending on revolving line utilization and (ii) after the Step Down Date, at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.25% to 2.50% or (b) a base rate plus a margin of 1.25% to 1.50%, in each case depending on revolving line utilization. The ABL Credit Facility also contains customary covenants that provide for, among other things, limitations on indebtedness, liens, fundamental changes, restricted payments, cash hoarding, and prepayment of certain indebtedness as well as customary representations and warranties and events of default typical for credit facilities of this type.
The ABL Credit Facility also requires (1) the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any fiscal quarter on or after April 30, 2021 if (a) certain events of default have occurred and are continuing or (b) Availability plus Suppressed Availability (each as defined in the ABL Credit Facility) is less than the greater of (x) 10% of the Loan Cap (as defined in the ABL Credit Facility) and (y) $250 million, in each case, as of the end of such fiscal quarter and (2) prior to April 30, 2021, that the ABL Borrower not permit Availability plus Suppressed Availability to be lower than the greater of (x) 10% of the Loan Cap and (y) $250 million.
32
Amendment to Existing Credit Agreement
On June 8, 2020, the Company substantially reduced the credit commitments of its common stockexisting $1,500 million unsecured credit agreement, which as of January 30, 2021, provides the Company with unsecured revolving credit of up to $1 million. The unsecured revolving credit facility contains covenants that provide for, $316among other things, limitations on fundamental changes, use of proceeds, and maintenance of property, as well as customary representations and warranties and events of default. In conjunction with this amendment, the interest coverage ratio and leverage ratio were eliminated as covenant requirements. As of January 30, 2021, the Company had no borrowings outstanding under the credit agreement.
Exchange Offers and Consent Solicitations for Certain Outstanding Debt Securities of MRH
During the second quarter of 2020, MRH completed exchange offers (each, an “Exchange Offer” and, collectively, the “Exchange Offers”) with eligible holders and received related consents in consent solicitations for each series of notes as follows:
(i) $81 million aggregate principal amount of 6.65% Senior Secured Debentures due 2024 (“New 2024 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.65% Senior Debentures due 2024 issued by MRH (“Old 2024 Notes”);
(ii) $74 million aggregate principal amount of 6.7% Senior Secured Debentures due 2028 (“New 2028 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2028 issued by MRH (“Old 2028 Notes”);
(iii) $13 million aggregate principal amount of 8.75% Senior Secured Debentures due 2029 (“New 2029 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 8.75% Senior Debentures due 2029 issued by MRH (“Old 2029 Notes”);
(iv) $5 million aggregate principal amount of 7.875% Senior Secured Debentures due 2030 (“New 2030 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 7.875% Senior Debentures due 2030 issued by MRH (“Old 2030 Notes”);
(v) $5 million aggregate principal amount of 6.9% Senior Secured Debentures due 2032 (“New 2032 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.9% Senior Debentures due 2032 issued by MRH (“Old 2032 Notes”); and
(vi) $183 million aggregate principal amount of 6.7% Senior Secured Debentures due 2034 (“New 2034 Notes” and, together with the New 2024 Notes, New 2028 Notes, New 2029 Notes, New 2030 Notes and New 2032 Notes, the “New Notes” and each series, a “series of New Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2034 issued by MRH (“Old 2034 Notes” and, together with the Old 2024 Notes, Old 2028 Notes, Old 2029 Notes, Old 2030 Notes and Old 2032 Notes, the “Old Notes” and each series, a “series of Old Notes”).
Each New Note issued in the Exchange Offers for a validly tendered Old Note has an interest rate and maturity date that is identical to the interest rate and maturity date of the tendered Old Note, as well as identical interest payment dates and optional redemption prices. The New Notes are MRH’s and Macy’s general, senior obligations and are secured by a second-priority lien on the same collateral securing the Notes. Following the settlement, the aggregate principal amounts of each series of Old Notes outstanding are: (i) $41 million Old 2024 Notes, (ii) $29 million Old 2028 Notes, (iii) $5 million Old 2030 Notes, (iv) $12 million Old 2032 Notes and (v) $18 million Old 2034 Notes.
In addition, MRH solicited and received consents from holders of each series of Old Notes (each, a “Consent Solicitation” and, collectively, the “Consent Solicitations”) pursuant to a separate Consent Solicitation Statement to adopt certain proposed amendments to the indenture governing the Old Notes (the “Existing Indenture”) to conform certain provisions in the negative pledge covenant in the Existing Indenture to the provisions of the negative pledge covenant in MRH’s most recent indenture (the “Proposed Amendments”). MRH received consents from holders of (i) $85 million aggregate principal amount of outstanding Old 2024 Notes, (ii) $77 million aggregate principal amount of outstanding Old 2028 Notes, (iii) $13 million aggregate principal amount of outstanding Old 2029 Notes, (iv) $5 million aggregate principal amount of outstanding Old 2030 Notes, (v) $6 million aggregate principal amount of outstanding Old 2032 Notes and (vi) $185 million aggregate principal amount of outstanding Old 2034 Notes.
At January 30, 2021, no notesordebenturescontainedprovisionsrequiringaccelerationofpaymentuponadebt ratingdowngrade.However,thetermsofapproximately$4,159 millioninaggregateprincipalamountoftheCompany'sseniornotesoutstandingatthatdaterequiretheCompanytooffertopurchasesuchnotesatapriceequalto101%oftheirprincipalamountplusaccruedandunpaidinterestifthereisbothachangeofcontrol(asdefinedintheapplicable
33
indenture)oftheCompanyandthenotesareratedbyspecifiedratingagenciesatalevelbelowinvestmentgrade.
AsofJanuary30,2021,theCompany'screditratingandoutlookwereasdescribedinthetable below.
Standard & | ||||||
Moody's | Poor's | Fitch | ||||
Long-term debt | Ba3 | B+ | BB | |||
Outlook | Negative | Negative | Negative |
March 2021 Financing Activities
On March 17, 2021, MRH completed an offering of $500 million in 2016,aggregate principal amount of 5.875% senior notes due 2029 (the “2029 Notes”) in a private offering (the “Notes Offering”). The 2029 Notes mature on April 1, 2029. The 2029 Notes are senior unsecured obligations of MRH and increased are unconditionally guaranteed on a senior unsecured basis by Macy’s, Inc. MRH used the net proceeds from the Notes Offering, together with cash on hand, to fund a separately announced tender offer in which $500 million of senior notes and debentures were tendered for early settlement and purchased by MRH on March 17, 2021.
Dividends
OnFebruary28,2020,theCompany'sboardofdirectorsdeclaredaquarterlydividendof37.75centspershareonits annualized dividend rate commonstock,payableApril1,2020,to $1.51 per share. This annualized dividend rate represents an increaseshareholdersofrecordatthecloseofbusinessonMarch13,2020. The Company announced the suspension of 5% and is the sixth increasequarterly cash dividends beginning in the dividendsecond quarter of 2020.
ContractualObligationsandCommitments
AtJanuary 30, 2021,theCompanyhadcontractualobligations(withinthescopeofItem303(a)(5)ofRegulationS-K)asfollows:
|
| Obligations Due, by Period |
| |||||||||||||||||
|
|
|
|
|
| Less than |
|
| 1 – 3 |
|
| 3 – 5 |
|
| More than |
| ||||
|
| Total |
|
| 1 Year |
|
| Years |
|
| Years |
|
| 5 Years |
| |||||
|
| (millions) |
| |||||||||||||||||
Short-term debt |
| $ | 452 |
|
| $ | 452 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Long-term debt |
|
| 4,454 |
|
|
| — |
|
|
| 850 |
|
|
| 1,946 |
|
|
| 1,658 |
|
Interest on debt |
|
| 2,025 |
|
|
| 275 |
|
|
| 507 |
|
|
| 366 |
|
|
| 877 |
|
Finance lease obligations |
|
| 31 |
|
|
| 3 |
|
|
| 6 |
|
|
| 6 |
|
|
| 16 |
|
Operating leases (a and b) |
|
| 7,039 |
|
|
| 239 |
|
|
| 694 |
|
|
| 663 |
|
|
| 5,443 |
|
Letters of credit |
|
| 142 |
|
|
| 142 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other obligations |
|
| 3,876 |
|
|
| 2,538 |
|
|
| 459 |
|
|
| 190 |
|
|
| 689 |
|
|
| $ | 18,019 |
|
| $ | 3,649 |
|
| $ | 2,516 |
|
| $ | 3,171 |
|
| $ | 8,683 |
|
(a) | Operatingleasepaymentsinclude$3,060millionrelatedtooptionstoextendleasetermsthatarereasonablycertainofbeingexercisedandexclude $2millionoflegallybindingminimumleasepaymentsforleasessignedbutnotyetcommenced. |
(b) | Operatingleasepaymentsinclude$1,151millionrelatedtonon-leasecomponentpayments,with$840millionrelatedtooptionstoextendleaseterms thatarereasonablycertainofbeingexercised. |
“Otherobligations”intheforegoingtableincludespostemploymentandpostretirementbenefits,self-insurance reserves,groupmedical/dental/lifeinsuranceprograms,merchandisepurchaseobligationsandobligationsunder outsourcingarrangements,constructioncontracts,energyandothersupplyagreementsidentifiedbytheCompanyandliabilitiesforunrecognizedtaxbenefitsthattheCompanyexpectstosettleincashinthenextyearexcludinginterestand penalties.TheCompany'smerchandisepurchaseobligationsfluctuateonaseasonalbasis,typicallybeinghigherinthe summerandearlyfallandbeinglowerinthelatewinterandearlyspring.TheCompanypurchasesasubstantialportionof itsmerchandiseinventoriesandothergoodsandservicesotherwisethanthroughbindingcontracts.Consequently,theamountsshownas“Otherobligations”intheforegoingtabledonotreflectthetotalamountsthattheCompanywouldneed tospendongoodsandservicesinordertooperateitsbusinessesintheordinarycourse.
OftheCompany's$113millionofunrecognizedtaxbenefitsatJanuary 30, 2021,within"otherobligations"inthe foregoingtable,theCompanyhasexcluded$3millionofdeferredtaxassetsand$104millionoflong-termliabilitiesforunrecognizedtaxbenefitsforvarioustaxpositionstaken.Thetablealsoexcludesfederal,stateandlocalinterestand
34
penaltiesrelatedtounrecognizedtaxbenefitsof$60million.Theseliabilitiesmayincreaseordecreaseovertimeasaresult oftaxexaminations,andgiventhestatusofexaminations,theCompanycannotreliablyestimatetheperiodofanycash settlementwiththerespectivetaxingauthorities.
Guarantor Summarized Financial Information
The Company has senior unsecured notes and senior unsecured debentures (collectively the “Unsecured Notes”) outstanding with an aggregate principal amount of $3,246 million outstanding as of January 30, 2021, with maturities ranging from 2022 to 2043. The Unsecured Notes constitute debt obligations of MRH ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent" together with the "Subsidiary Issuer" are the "Obligor Group"), and are fully and unconditionally guaranteed on a senior unsecured basis by Parent. The Unsecured Notes rank equally in right of payment with all of the Company’s existing and future senior unsecured obligations, senior to any of the Company’s future subordinated indebtedness, and are structurally subordinated to all existing and future obligations of each of the Company’s subsidiaries that do not guarantee the Unsecured Notes. Holders of the Company’s secured indebtedness, including the Notes and any borrowings under the ABL Credit Facility, will have a priority claim on the assets that secure such secured indebtedness; therefore, the Unsecured Notes and the related guarantee are effectively subordinated to all of the Subsidiary Issuer’s and Parent and their subsidiaries’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness.
The following tables include combined financial information of the Obligor Group. Investments in and equity in the past five years.
Summarized Balance Sheet
|
| January 30, 2021 |
| |
|
| (in millions) |
| |
ASSETS |
| |||
Current Assets |
| $ | 1,297 |
|
Noncurrent Assets |
|
| 7,491 |
|
|
|
|
|
|
LIABILITIES |
| |||
Current Liabilities |
| $ | 2,216 |
|
Noncurrent Liabilities (a) |
|
| 10,145 |
|
a) | Includes net amounts due to non-Guarantor subsidiaries of $2,702 million |
Summarized Statement of Operations
|
| 2020 |
| |
|
| (in millions) |
| |
Net Sales |
| $ | 1,303 |
|
Consignment commission income (a) |
|
| 1,167 |
|
Cost of sales |
|
| (905 | ) |
Operating loss |
|
| (3,771 | ) |
Loss before income taxes (b) |
|
| (2,838 | ) |
Net loss |
|
| (2,376 | ) |
a) | Income pertains to transactions with ABL Borrower, a non-Guarantor subsidiary |
b) | Includes $1,268 million of dividend income from non-Guarantor subsidiaries |
ImportantInformationRegardingNon-GAAPFinancialMeasures
TheCompanyreportsitsfinancialresultsinaccordancewith U.S. generally accepted accounting principles ("GAAP"). GAAP. However,managementbelievesthatcertainnon-GAAPfinancialmeasuresprovideusersoftheCompany'sfinancialinformationwithadditionalusefulinformationin evaluatingoperatingperformance.Managementbelievesthatprovidingsupplementalchangesincomparablesalesonan ownedpluslicensedbasis,whichincludestheimpactofgrowthincomparablesalesofdepartmentslicensedtothird parties,assistsinevaluatingtheCompany'sabilitytogeneratesalesgrowth,whetherthroughownedbusinessesor departmentslicensedtothirdparties,onacomparablebasis,andinevaluatingtheimpactofchangesinthemannerin whichcertaindepartmentsareoperated. Management Inaddition,managementbelievesthatexcludingcertainitemsthatarenot associatedwiththeCompany'scoreoperationsandthatmayvarysubstantiallyinfrequencyandmagnitude period-to-period period-to- periodfromdilutedearningspershareattributabletoMacy's,Inc.shareholders,EBITand from operating income and EBITDA,includingas percentagesapercent tosales, provides provideusefulsupplementalmeasuresthatassistinevaluatingtheCompany'sabilitytogenerateearningsand leveragesales,respectively,andtomorereadilycomparethesemetricsbetweenpastandfutureperiods.ManagementalsobelievesthatEBIT,EBITDA,AdjustedEBITandAdjustedEBITDAarefrequentlyusedbyinvestorsandsecurities analystsintheirevaluationsofcompanies,andthatsuchsupplementalmeasuresfacilitatecomparisonsbetweencompanies thathavedifferentcapitalandfinancingstructuresand/ortaxrates.Inaddition,managementbelievesthatROICisausefulsupplementalmeasureinevaluatinghowefficientlytheCompanyemploysitscapital.TheCompanyusessomeofthesenon-GAAPfinancialmeasuresasperformancemeasuresforcomponentsofexecutivecompensation. The Company uses some of these non-GAAP financial measures as performance measures for components of executive compensation.
Non-GAAPfinancialmeasuresshouldbeviewedassupplementing,andnotasanalternativeorsubstitutefor,theCompany'sfinancialresultspreparedinaccordancewithGAAP.Certainoftheitemsthatmaybeexcludedorincludedinnon-GAAPfinancialmeasuresmaybesignificantitemsthatcouldimpacttheCompany'sfinancialposition,resultsof operationsorcashflowsand cash flows shouldthereforebeconsideredinassessingtheCompany'sactualand should therefore be considered in assessing the Company's actual and futurefinancial conditionandperformance.Additionally,theamountsreceivedbytheCompanyonaccountofsalesofdepartmentslicensedtothirdpartiesarelimitedtocommissionsreceivedonsuchsales.ThemethodsusedbytheCompanytocalculate itsnon-GAAPfinancialmeasuresmaydiffersignificantlyfrommethodsusedbyothercompaniestocomputesimilarmeasures.Asaresult,anynon-GAAPfinancialmeasurespresentedhereinmaynotbecomparabletosimilarmeasures providedbyothercompanies.
ChangesinComparableSales
Thefollowingisatabularreconciliationofthenon-GAAPfinancialmeasureofchangesincomparablesalesonan ownedpluslicensedbasis,toGAAPcomparablesales (i.e.(i.e.,onanownedbasis),whichtheCompanybelievestobethe mostdirectlycomparableGAAPfinancialmeasure.
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Increase (decrease) in comparable sales on an owned basis (note 1) |
|
| (27.9 | )% |
|
| (0.8 | )% |
|
| 1.7 | % |
Change in comparable sales of departments licensed to third parties (note 2) |
|
| — |
|
|
| 0.1 | % |
|
| 0.3 | % |
Increase (decrease) in comparable sales on an owned plus licensed basis |
|
| (27.9 | )% |
|
| (0.7 | )% |
|
| 2.0 | % |
(1) | Representstheperiod-to-periodpercentagechangeinnetsalesfromstoresinoperationthroughouttheyearpresented andtheimmediatelyprecedingyearandallonlinesales,excludingcommissions fromdepartmentslicensedtothirdparties.Storesimpactedbyanaturaldisasterorundergoingsignificantexpansionorshrinkageremaininthecomparablesalescalculationunlessthestore,oramaterialportionofthestore,isclosedfora significantperiodoftime. No stores have been excluded as a result of the COVID-19 pandemic. Definitionsandcalculationsofcomparablesalesdifferamongcompaniesintheretailindustry. |
(2) | Representstheimpactofincludingthesalesofdepartmentslicensedtothirdpartiesoccurringinstoresinoperation throughouttheyearpresentedandtheimmediatelyprecedingyearandallonlinesales inthecalculationofcomparablesales.TheCompanylicensesthirdpartiestooperatecertaindepartmentsinits storesandonlineandreceivescommissionsfromthesethirdpartiesbasedonapercentageoftheirnetsales.Inits financialstatementspreparedinconformitywithGAAP,theCompanyincludesthesecommissions(ratherthansalesofthedepartmentslicensedtothirdparties)initsnetsales.TheCompanydoesnot,however,includeanyamountsinrespectoflicenseddepartmentsales(oranycommissionsearnedonsuchsales)initscomparable |
36
2016 | 2015 | 2014 | 2013 | 2012 | ||||||
Increase (decrease) in comparable sales on an owned basis (note 1) | (3.5)% | (3.0)% | 0.7% | 1.9% | 3.7% | |||||
Impact of growth in comparable sales of departments licensed to third parties (note 2) | 0.6% | 0.5% | 0.7% | 0.9% | 0.3% | |||||
Increase (decrease) in comparable sales on an owned plus licensed basis | (2.9)% | (2.5)% | 1.4% | 2.8% | 4.0% |
salesin |
AdjustedDilutedEarnings (Loss) PerShareAttributabletoMacy's,Inc.Shareholders
Thefollowingisatabularreconciliationofthenon-GAAPfinancialmeasuredilutedearnings (loss) pershareattributable toMacy's,Inc.shareholders,excludingcertainitems,toGAAPdilutedearnings (loss) pershareattributabletoMacy's,Inc. shareholders,whichtheCompanybelievestobethemostdirectlycomparableGAAPmeasure.
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
As reported |
| $ | (12.68 | ) |
| $ | 1.81 |
|
| $ | 3.56 |
|
Restructuring, impairment, store closing and other costs (a) |
|
| 11.50 |
|
|
| 1.13 |
|
|
| 0.41 |
|
Settlement charges |
|
| 0.27 |
|
|
| 0.19 |
|
|
| 0.28 |
|
Losses on early retirement of debt |
|
| — |
|
|
| 0.10 |
|
|
| 0.11 |
|
Financing costs |
|
| 0.02 |
|
|
| — |
|
|
| — |
|
Income tax impact of certain items identified above |
|
| (1.32 | ) |
|
| (0.32 | ) |
|
| (0.18 | ) |
As adjusted |
| $ | (2.21 | ) |
| $ | 2.91 |
|
| $ | 4.18 |
|
(a) | 2018excludesimpairment,restructuring,andothercostsattributabletothenoncontrolllinginterestshareholderof$8million. |
AdjustedEBITandEBITDAasaPercenttoNetSales
Thefollowingisatabularreconciliationofthenon-GAAPfinancialmeasuresEBITandEBITDA,asadjustedto excludecertainitems("AdjustedEBITandAdjustedEBITDA"),asapercenttonetsalestoGAAPnetincomeattributable toMacy's,Inc.shareholdersasapercenttonetsales,whichtheCompanybelievestobethemostdirectlycomparable GAAPfinancialmeasure.
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (millions, except percentages) |
| |||||||||
Net sales |
| $ | 17,346 |
|
| $ | 24,560 |
|
| $ | 24,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Macy's, Inc. shareholders |
| $ | (3,944 | ) |
| $ | 564 |
|
| $ | 1,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Macy's, Inc. shareholders as a percent to net sales |
|
| (22.7 | )% |
|
| 2.3 | % |
|
| 4.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Macy's, Inc. shareholders |
| $ | (3,944 | ) |
| $ | 564 |
|
| $ | 1,108 |
|
Restructuring, impairment, store closing and other costs (a) |
|
| 3,579 |
|
|
| 354 |
|
|
| 128 |
|
Settlement charges |
|
| 84 |
|
|
| 58 |
|
|
| 88 |
|
Interest expense - net |
|
| 280 |
|
|
| 185 |
|
|
| 236 |
|
Losses on early retirement of debt |
|
| — |
|
|
| 30 |
|
|
| 33 |
|
Financing costs |
|
| 5 |
|
|
| — |
|
|
| — |
|
Federal, state and local income tax expense (benefit) |
|
| (846 | ) |
|
| 164 |
|
|
| 322 |
|
Adjusted EBIT |
| $ | (842 | ) |
| $ | 1,355 |
|
| $ | 1,915 |
|
Adjusted EBIT as a percent to net sales |
|
| (4.9 | )% |
|
| 5.5 | % |
|
| 7.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back depreciation and amortization |
|
| 959 |
|
|
| 981 |
|
|
| 962 |
|
Adjusted EBITDA |
| $ | 117 |
|
| $ | 2,336 |
|
| $ | 2,877 |
|
Adjusted EBITDA as a percent to net sales |
|
| 0.7 | % |
|
| 9.5 | % |
|
| 11.5 | % |
(a) | 2018excludesimpairment,restructuring,andothercostsattributabletothenoncontrolllinginterestshareholderof$8million. |
ROIC
Historically,theCompanydefinedROICasadjustedEBITDA,excludingnetleaseexpense,asapercenttoaverageinvestedcapital.Averageinvestedcapitaliscomprisedofanannualtwo-point(i.e.,endoftheyearpresentedandtheimmediatelyprecedingyear)averageofgrosspropertyandequipment,acapitalizedvalueofnon-capitalizedleasesequalto periodicannualreportednetrentexpensemultipliedbyafactorofeightandafour-point(i.e.,endofeachquarterwithintheperiodpresented)averageofotherselectedassetsandliabilities.Thecalculationofthecapitalizedvalueofnon-capitalizedleasesisconsistentwithindustryandcreditratingagencypracticeandthespecifiedassetsaresubjecttoafour-pointaveragetocompensateforseasonalfluctuations.
InconjunctionwiththeCompany'sadoptionofASUNo.2016-02onFebruary3,2019,theCompanyrecognized leaseliabilitiesandrelatedrightofuse("ROU")assetsonthebalancesheetforitsoperatingleases.Inthecalculationofthe Company'sROICasof January 30, 2021 andFebruary1,2020,theCompanyutilizedthetotalleaseROUassetsinlieuofthecapitalizedvalue ofnon-capitalizedleases,excludingvariablerentwhichisstillmultipliedbyafactorofeight,asaresultoftheadoptionof ASU2016-02.IntheCompany'sROICcalculationasofFebruary2,2019,acapitalizedvalueof non-capitalizedleasesequaltoperiodicannualreportednetrentexpensemultipliedbyafactorofeightwasutilized.Rent expensein 2020 and 2019reflectsleaseexpenserelatedtotheCompany'soperatingleasesinaccordancewithASU2016-02and excludesnon-leasecomponentexpenses.SeeNote5,PropertiesandLeases,totheConsolidatedFinancialStatementsfor informationonleases,includingnon-leasecomponents.
In 2020 and 2019,thecalculationofROICreflectedcertainrefinementstobetterreflectthecompany'sadjustedEBITDA, excludingleaseexpense,andinvestedcapitalwhicharesummarizedbelow(4-pointaverageofbalance,asapplicable):
• | Excludenon-leasecomponentsof |
• | Excludebenefitplanincome,netof $54 million and $31million for 2020 and 2019, respectively, fromAdjustedEBITDA,excludingleaseexpense. |
• | Excluderabbitrustinvestmentsrelatedtocompany'sdeferredcompensationplanfromprepaidexpensesand othercurrentassets($32 million for both 2020 and 2019). |
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(millions, except percentages) | ||||||||||||||||||||
Net sales | $ | 25,778 | $ | 27,079 | $ | 28,105 | $ | 27,931 | $ | 27,686 | ||||||||||
Operating income | $ | 1,315 | $ | 2,039 | $ | 2,800 | $ | 2,678 | $ | 2,661 | ||||||||||
Operating income as a percent to net sales | 5.1 | % | 7.5 | % | 10.0 | % | 9.6 | % | 9.6 | % | ||||||||||
Operating income | $ | 1,315 | $ | 2,039 | $ | 2,800 | $ | 2,678 | $ | 2,661 | ||||||||||
Add back impairments, store closing and other costs | 479 | 288 | 87 | 88 | 5 | |||||||||||||||
Add back settlement charges | 98 | — | — | — | — | |||||||||||||||
Operating income, excluding certain items | $ | 1,892 | $ | 2,327 | $ | 2,887 | $ | 2,766 | $ | 2,666 | ||||||||||
Operating income, excluding certain items, as a percent to net sales | 7.3 | % | 8.6 | % | 10.3 | % | 9.9 | % | 9.6 | % |
• | Excludedeferredfinancingcosts($38 million for 2020 and $4million for 2019)andnetpensionasset($168 million for 2020 and $46million for 2019)fromotherassets. |
• | Excludedividendpayable($29million for 2019),currentliabilitiesforotherpostretirementhealthcareandlifeinsurance benefitsandthesupplementaryretirementplan($64million for 2020 and$76million for 2019),andthecurrentlease liability($287 million for 2020 and $306million for 2019)fromaccountspayableandaccruedliabilities. |
• | Includelong-termworkers'compensationandgeneralliability($348 million for 2020 and $371million for 2019). |
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Diluted earnings per share attributable to Macy's, Inc. shareholders | $ | 1.99 | $ | 3.22 | $ | 4.22 | $ | 3.86 | $ | 3.24 | ||||||||||
Add back the pre-tax impact of impairments, store closing and other costs | 1.54 | 0.86 | 0.24 | 0.23 | 0.01 | |||||||||||||||
Add back the pre-tax impact of settlement charges | 0.31 | — | — | — | — | |||||||||||||||
Add back the pre-tax impact of premium on early retirement of debt | — | — | 0.05 | — | 0.33 | |||||||||||||||
Deduct the income tax impact of impairments, store closing and other costs, settlement charges and premium on early retirement of debt | (0.73 | ) | (0.31 | ) | (0.11 | ) | (0.09 | ) | (0.12 | ) | ||||||||||
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of impairments, store closing and other costs, settlement charges and premium on early retirement of debt | $ | 3.11 | $ | 3.77 | $ | 4.40 | $ | 4.00 | $ | 3.46 |
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(millions, except percentages) | ||||||||||||||||||||
Net sales | $ | 25,778 | $ | 27,079 | $ | 28,105 | $ | 27,931 | $ | 27,686 | ||||||||||
Net income | $ | 611 | $ | 1,070 | $ | 1,526 | $ | 1,486 | $ | 1,335 | ||||||||||
Net income as a percent to net sales | 2.4 | % | 4.0 | % | 5.4 | % | 5.3 | % | 4.8 | % | ||||||||||
Net income | $ | 611 | $ | 1,070 | $ | 1,526 | $ | 1,486 | $ | 1,335 | ||||||||||
Add back impairments, store closing and other costs | 479 | 288 | 87 | 88 | 5 | |||||||||||||||
Add back settlement charges | 98 | — | — | — | — | |||||||||||||||
Add back interest expense - net | 363 | 361 | 393 | 388 | 422 | |||||||||||||||
Add back premium on early retirement of debt | — | — | 17 | — | 137 | |||||||||||||||
Add back federal, state and local income tax expense | 341 | 608 | 864 | 804 | 767 | |||||||||||||||
Add back depreciation and amortization | 1,058 | 1,061 | 1,036 | 1,020 | 1,049 | |||||||||||||||
Adjusted EBITDA | $ | 2,950 | $ | 3,388 | $ | 3,923 | $ | 3,786 | $ | 3,715 | ||||||||||
Adjusted EBITDA as a percent to net sales | 11.4 | % | 12.5 | % | 14.0 | % | 13.6 | % | 13.4 | % |
The following is a tabular reconciliation of the non-GAAP financial measure of ROIC to operatingnet income as a percent to propertyandequipment-net,whichtheCompanybelievestobethemostdirectlycomparableGAAPfinancialmeasure.
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (millions, except percentages) |
| |||||||||
Net income (loss) |
| $ | (3,944 | ) |
| $ | 564 |
|
| $ | 1,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment - net |
| $ | 5,940 |
|
| $ | 6,633 |
|
| $ | 6,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) as a percent to property and equipment - net |
|
| (66.4 | )% |
|
| 8.5 | % |
|
| 16.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (3,944 | ) |
| $ | 564 |
|
| $ | 1,098 |
|
Add back interest expense, net |
|
| 280 |
|
|
| 185 |
|
|
| 236 |
|
Add back financing cost |
|
| 5 |
|
|
| — |
|
|
| — |
|
Add back losses on early retirement of debt |
|
| — |
|
|
| 30 |
|
|
| 33 |
|
Add back (deduct) federal, state and local tax expense (benefit) |
|
| (846 | ) |
|
| 164 |
|
|
| 322 |
|
Add back restructuring, impairment, store closing and other costs |
|
| 3,579 |
|
|
| 354 |
|
|
| 136 |
|
Add back settlement charges |
|
| 84 |
|
|
| 58 |
|
|
| 88 |
|
Add back depreciation and amortization |
|
| 959 |
|
|
| 981 |
|
|
| 962 |
|
Deduct benefit plan income, net |
|
| (54 | ) |
|
| (31 | ) |
|
| — |
|
Add back rent expense |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
| 334 |
|
|
| 335 |
|
|
| 327 |
|
Personal property |
|
| 7 |
|
|
| 8 |
|
|
| 9 |
|
Deferred rent amortization |
|
| — |
|
|
| — |
|
|
| 14 |
|
Adjusted EBITDA, excluding benefit plan income, net and lease expense |
| $ | 404 |
|
| $ | 2,648 |
|
| $ | 3,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment - net |
| $ | 6,092 |
|
| $ | 6,628 |
|
| $ | 6,655 |
|
Add back accumulated depreciation and amortization |
|
| 4,590 |
|
|
| 4,438 |
|
|
| 4,553 |
|
Add capitalized value of non-capitalized leases |
|
| — |
|
|
| — |
|
|
| 2,800 |
|
Add back capitalized value of variable rent |
|
| 16 |
|
|
| 114 |
|
|
| — |
|
Add back lease right of use assets |
|
| 2,378 |
|
|
| 2,241 |
|
|
| — |
|
Add (deduct) other selected assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| 204 |
|
|
| 265 |
|
|
| 273 |
|
Merchandise inventories |
|
| 4,356 |
|
|
| 5,743 |
|
|
| 5,664 |
|
Prepaid expenses and other current assets |
|
| 442 |
|
|
| 551 |
|
|
| 608 |
|
Other assets |
|
| 589 |
|
|
| 675 |
|
|
| 803 |
|
Merchandise accounts payable |
|
| (2,213 | ) |
|
| (2,183 | ) |
|
| (2,219 | ) |
Accounts payable and accrued liabilities |
|
| (2,508 | ) |
|
| (2,609 | ) |
|
| (2,917 | ) |
Other long-term liabilities |
|
| (348 | ) |
|
| (371 | ) |
|
| — |
|
Total average invested capital |
| $ | 13,598 |
|
| $ | 15,492 |
|
| $ | 16,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROIC |
|
| 3.0 | % |
|
| 17.1 | % |
|
| 19.9 | % |
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(millions, except percentages) | ||||||||||||||||||||
Operating income | $ | 1,315 | $ | 2,039 | $ | 2,800 | $ | 2,678 | $ | 2,661 | ||||||||||
Property and equipment - net | $ | 7,317 | $ | 7,708 | $ | 7,865 | $ | 8,063 | $ | 8,308 | ||||||||||
Operating income as a percent to property and equipment - net | 18.0 | % | 26.5 | % | 35.6 | % | 33.2 | % | 32.0 | % | ||||||||||
Operating income | $ | 1,315 | $ | 2,039 | $ | 2,800 | $ | 2,678 | $ | 2,661 | ||||||||||
Add back impairments, store closing and other costs | 479 | 288 | 87 | 88 | 5 | |||||||||||||||
Add back settlement charges | 98 | — | — | — | — | |||||||||||||||
Add back depreciation and amortization | 1,058 | 1,061 | 1,036 | 1,020 | 1,049 | |||||||||||||||
Add back rent expense, net | ||||||||||||||||||||
Real estate | 319 | 301 | 279 | 268 | 258 | |||||||||||||||
Personal property | 11 | 12 | 12 | 11 | 11 | |||||||||||||||
Deferred rent amortization | 9 | 8 | 7 | 8 | 7 | |||||||||||||||
Adjusted operating income | $ | 3,289 | $ | 3,709 | $ | 4,221 | $ | 4,073 | $ | 3,991 | ||||||||||
Property and equipment - net | $ | 7,317 | $ | 7,708 | $ | 7,865 | $ | 8,063 | $ | 8,308 | ||||||||||
Add back accumulated depreciation and amortization | 5,088 | 5,457 | 5,830 | 6,007 | 5,967 | |||||||||||||||
Add capitalized value of non-capitalized leases | 2,712 | 2,568 | 2,384 | 2,296 | 2,208 | |||||||||||||||
Add (deduct) other selected assets and liabilities: | ||||||||||||||||||||
Receivables | 411 | 338 | 336 | 339 | 322 | |||||||||||||||
Merchandise inventories | 6,012 | 6,226 | 6,155 | 6,065 | 5,754 | |||||||||||||||
Prepaid expenses and other current assets | 456 | 453 | 443 | 398 | 390 | |||||||||||||||
Other assets | 881 | 775 | 784 | 659 | 579 | |||||||||||||||
Merchandise accounts payable | (2,182 | ) | (2,366 | ) | (2,472 | ) | (2,520 | ) | (2,362 | ) | ||||||||||
Accounts payable and accrued liabilities | (2,924 | ) | (2,677 | ) | (2,511 | ) | (2,328 | ) | (2,333 | ) | ||||||||||
Total average invested capital | $ | 17,771 | $ | 18,482 | $ | 18,814 | $ | 18,979 | $ | 18,833 | ||||||||||
ROIC | 18.5 | % | 20.1 | % | 22.4 | % | 21.5 | % | 21.2 | % |
CriticalAccountingPolicies
MerchandiseInventories
Merchandiseinventoriesarevaluedatthelowerofcostormarketusingthelast-in,first-out("LIFO")retailinventory method.Undertheretailinventorymethod,inventoryissegregatedintodepartmentsofmerchandisehavingsimilar characteristics andisstatedatitscurrentretailsellingvalue.Theretailinventorymethodinherentlyrequiresmanagement judgmentsandestimates,suchastheamountandtimingofpermanentmarkdownstoclearunproductiveorslow-moving inventory,whichmayimpacttheendinginventoryvaluationaswellasgrossmargins.
Permanentmarkdownsdesignatedforclearanceactivityarerecordedwhentheutilityoftheinventoryhas diminished.Factorsconsideredinthedeterminationofpermanentmarkdownsincludecurrentandanticipateddemand, customerpreferences,ageofthemerchandiseandfashiontrends.Whenadecisionismadetopermanentlymarkdown merchandise,theresultinggrossmarginreductionisrecognizedintheperiodthemarkdownisrecorded.
Long-LivedAssetImpairmentandRestructuringCharges
Thecarryingvaluesoflong-livedassets,inclusiveofROUassets,areperiodicallyreviewedbytheCompany whenevereventsorchangesincircumstancesindicatethatthecarryingvaluemaynotberecoverable,suchashistorical operatinglossesorplanstoclosestoresbeforetheendoftheirpreviouslyestimatedusefullives.Additionally,onanannualbasis,therecoverabilityofthecarryingvaluesofindividualstoresisevaluated.Apotentialimpairmenthasoccurredif projectedfutureundiscountedcashflowsarelessthanthecarryingvalueoftheassets.Theestimateofcashflowsincludes management'sassumptionsofcashinflowsandoutflowsdirectlyresultingfromtheuseofthoseassetsinoperations.When apotentialimpairmenthasoccurred,animpairmentwrite-downisrecordedifthecarryingvalueofthelong-livedasset exceedsitsfairvalue.TheCompanybelievesitsestimatedcashflowsaresufficienttosupportthecarryingvalueofitslong-livedassets.Ifestimatedcashflowssignificantlydifferinthefuture,theCompanymayberequiredtorecordassetimpairmentwrite-downs.
IftheCompanycommitstoaplantodisposeofalong-livedassetbeforetheendofitspreviouslyestimateduseful life or changes its use of Operations
2016 | 2015 | 2014 | ||||||||||||||||||||||
Amount | % to Sales | Amount | % to Sales | Amount | % to Sales | |||||||||||||||||||
(dollars in millions, except per share figures) | ||||||||||||||||||||||||
Net sales | $ | 25,778 | $ | 27,079 | $ | 28,105 | ||||||||||||||||||
Increase (decrease) in sales | (4.8 | ) | % | (3.7 | ) | % | 0.6 | % | ||||||||||||||||
Increase (decrease) in comparable sales | (3.5 | ) | % | (3.0 | ) | % | 0.7 | % | ||||||||||||||||
Cost of sales | (15,621 | ) | (60.6 | ) | % | (16,496 | ) | (60.9 | ) | % | (16,863 | ) | (60.0 | ) | % | |||||||||
Gross margin | 10,157 | 39.4 | % | 10,583 | 39.1 | % | 11,242 | 40.0 | % | |||||||||||||||
Selling, general and administrative expenses | (8,265 | ) | (32.0 | ) | % | (8,256 | ) | (30.5 | ) | % | (8,355 | ) | (29.7 | ) | % | |||||||||
Impairments, store closing and other costs | (479 | ) | (1.9 | ) | % | (288 | ) | (1.1 | ) | % | (87 | ) | (0.3 | ) | % | |||||||||
Settlement charges | (98 | ) | (0.4 | ) | % | — | — | % | — | — | % | |||||||||||||
Operating income | 1,315 | 5.1 | % | 2,039 | 7.5 | % | 2,800 | 10.0 | % | |||||||||||||||
Interest expense - net | (363 | ) | (361 | ) | (393 | ) | ||||||||||||||||||
Premium on early retirement of debt | — | — | (17 | ) | ||||||||||||||||||||
Income before income taxes | 952 | 1,678 | 2,390 | |||||||||||||||||||||
Federal, state and local income tax expense | (341 | ) | (608 | ) | (864 | ) | ||||||||||||||||||
Net income | 611 | 1,070 | 1,526 | |||||||||||||||||||||
Net loss attributable to noncontrolling interest | 8 | 2 | — | |||||||||||||||||||||
Net income attributable to Macy's, Inc. shareholders | $ | 619 | 2.0 | % | % | $ | 1,072 | 4.0 | % | $ | 1,526 | 5.4 | % | |||||||||||
Diluted earnings per share attributable to Macy's, Inc. shareholders | $ | 1.99 | $ | 3.22 | $ | 4.22 | ||||||||||||||||||
Supplemental Non-GAAP Financial Measures | ||||||||||||||||||||||||
Increase (decrease) in comparable sales on an owned plus licensed basis | (2.9 | ) | % | (2.5 | ) | % | 1.4 | % | ||||||||||||||||
Operating income, excluding certain items | $ | 1,892 | 7.3 | % | $ | 2,327 | 8.6 | % | $ | 2,887 | 10.3 | % | ||||||||||||
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding certain items | $ | 3.11 | $ | 3.77 | $ | 4.40 | ||||||||||||||||||
Adjusted EBITDA as a percent to net sales | 11.4 | % | 12.5 | % | 14.0 | % | ||||||||||||||||||
ROIC | 18.5 | % | 20.1 | % | 22.4 | % | ||||||||||||||||||
See pages 20 to 23 for a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measure and for other important information. | ||||||||||||||||||||||||
Store information (at year-end): | ||||||||||||||||||||||||
Stores operated | 829 | 868 | 823 | |||||||||||||||||||||
Square footage (in millions) | 130.2 | 141.9 | 147.4 |
GoodwillandIntangibleAssets
TheCompanyreviewsthecarryingvalueofitsgoodwillandotherintangibleassetswithindefinitelivesatleast annually,asoftheendoffiscal May,ormorefrequentlyifaneventoccursorcircumstanceschange,forpossibleimpairmentinaccordancewithASCTopic350,Intangibles-GoodwillandOther.Forimpairmenttesting,goodwillhasbeenassignedtoreportingunitswhichconsistoftheCompany'sretailoperatingdivisions.Macy's Inc. Shareholders
TheCompanymayelecttoevaluatequalitativefactorstodetermineifitismorelikelythannotthatthefairvalueofa reportingunitorfairvalueofindefinitelivedintangibleassetsislessthanitscarryingvalue.Ifthequalitativeevaluation indicatesthatitismorelikelythannotthatthefairvalueofareportingunitorindefinitelivedintangibleassetislessthanits carryingamount,aquantitativeimpairmenttestisrequired.Alternatively,theCompanymaybypassthequalitativeassessmentforareportingunitorindefinitelivedintangibleassetanddirectlyperformthequantitativeassessment.This determinationcanbemadeonanindividualreportingunitorassetbasis,andperformanceofthequalitativeassessmentmay resumeinasubsequentperiod.
Thequantitativeimpairmenttestinvolvesestimatingthefairvalueofeachreportingunitandindefinitelived intangibleassetandcomparingtheseestimatedfairvalueswiththerespectivereportingunitorindefinitelivedintangible assetcarryingvalue.Ifthecarryingvalueofareportingunitexceedsitsfairvalue,animpairmentlosswillberecognized inanamountequaltosuchexcess,limitedtothetotalamountofgoodwillallocatedtothereportingunit.Ifthecarrying valueofanindividualindefinitelivedintangibleassetexceedsitsfairvalue,suchindividualindefinitelivedintangible assetiswrittendownbyanamountequaltosuchexcess.
40
Estimatingthefairvaluesofreportingunitsandindefinitelivedintangibleassetsinvolvestheuseofsignificant assumptions,estimatesandjudgmentswithrespecttoavarietyoffactors,includingsales,grossmarginandSG&A expense rates,capitalexpenditures,cashflowsandtheselectionanduseofanappropriatediscountrateandmarketvaluesandmultiples ofearningsandrevenuesofsimilarpubliccompanies.Projectedsales,grossmarginandSG&AexpenserateassumptionsandcapitalexpendituresarebasedontheCompany'sannualbusinessplanorotherforecastedresults.Discountratesreflect market-basedestimatesoftherisksassociatedwiththeprojectedcashflowsofthereportingunitorindefinitelived intangibleasset.
Theuseofdifferentassumptions,estimatesorjudgmentsinthegoodwillimpairmenttestingprocess,includingwithrespecttotheestimatedfuturecashflowsoftheCompany'sreportingunits,thediscountrateusedtodiscountsuch estimatedcashflowstotheirnetpresentvalue,andthereasonablenessoftheresultantimpliedcontrolpremiumrelativeto theCompany'smarketcapitalization,couldmateriallyincreaseordecreasethefairvalueofthereportingunitand/oritsnet assetsand,accordingly,couldmateriallyincreaseordecreaseanyrelatedimpairmentcharge.
During the agreement throughout allfirst quarter of 2016 and 2015. In addition, there were no standby letters of credit outstanding at January 28, 2017 and there were less than $1 million of standby letters of credit outstanding at January 30, 2016. Revolving loans under the credit agreement bear interest based on various published rates.
Obligations Due, by Period | |||||||||||||||||||
Total | Less than 1 Year | 1 – 3 Years | 3 – 5 Years | More than 5 Years | |||||||||||||||
(millions) | |||||||||||||||||||
Short-term debt | $ | 308 | $ | 308 | $ | — | $ | — | $ | — | |||||||||
Long-term debt | 6,459 | — | 48 | 1,092 | 5,319 | ||||||||||||||
Interest on debt | 4,162 | 342 | 658 | 631 | 2,531 | ||||||||||||||
Capital lease obligations | 52 | 3 | 6 | 6 | 37 | ||||||||||||||
Operating leases | 3,683 | 321 | 587 | 486 | 2,289 | ||||||||||||||
Letters of credit | 30 | 30 | — | — | — | ||||||||||||||
Other obligations | 4,325 | 2,744 | 470 | 279 | 832 | ||||||||||||||
$ | 19,019 | $ | 3,748 | $ | 1,769 | $ | 2,494 | $ | 11,008 |
As of May 2, 2020, the Company operates. Deferred income taxelected to perform a qualitative impairment test on its intangible assets with indefinite lives and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and net operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets are evaluated for recoverability based on all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. Deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized.
For the Company's annual impairment assessment as of the position. Uncertain tax positions meetingend of fiscal May, the more-likely-than-not recognition threshold are then measuredCompany elected to determine the amount of benefit eligible for recognition in the financial statements. Each uncertain tax position is measured at the largest amount of benefitperform a qualitative impairment test on its goodwill and intangible assets with indefinite lives and concluded that it is more likely than not to be realized upon ultimate settlement. Uncertain tax positions are evaluatedthat the fair values exceeded the carrying values and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions. goodwill and intangible assets with indefinite lives were not impaired.
The Company does not anticipate that resolution of these matters will have a material impact oncontinues to monitor the Company's consolidated financial position, results of operations or cash flows.
IncomeTaxes
Incometaxesareestimatedbasedonthetaxstatutes,regulationsandcaselawofthevariousjurisdictionsinwhichthe Companyoperates.Deferredincometaxassetsandliabilitiesarerecognizedforthefuturetaxconsequencesattributable todifferencesbetweenthefinancialstatementcarryingamountsofexistingassetsandliabilitiesandtheirrespective taxbases,andnetoperatinglossandtaxcreditcarryforwards.Deferredincometaxassetsandliabilitiesaremeasured usingenactedtaxratesexpectedtoapplytotaxableincomeintheyearsinwhichthosetemporarydifferencesareexpectedtoberecoveredorsettled.Deferredincometaxassetsareevaluatedforrecoverabilitybasedonallavailableevidence, includingpastoperatingresults,estimatesoffuturetaxableincome,andthefeasibilityoftaxplanningstrategies.Deferred incometaxassetsarereducedbyavaluationallowancewhenitismorelikelythannotthatsomeportionofthedeferred incometaxassetswillnotberealized.
Uncertaintaxpositionsarerecognizediftheweightofavailableevidenceindicatesthatitismorelikelythannotthat thetaxpositionwillbesustainedonexamination,includingresolutionofanyrelatedappealsorlitigationprocesses,based onthetechnicalmeritsoftheposition.Uncertaintaxpositionsmeetingthemore-likely-than-notrecognitionthresholdare thenmeasuredtodeterminetheamountofbenefiteligibleforrecognitioninthefinancialstatements.Eachuncertaintax positionismeasuredatthelargestamountofbenefitthatismorelikelythannottoberealizeduponultimatesettlement.
41
Uncertaintaxpositionsareevaluatedandadjustedasappropriate,whiletakingintoaccounttheprogressofauditsof varioustaxingjurisdictions.ResolutionofthesematterscouldhaveamaterialimpactontheCompany'sconsolidated financialposition,resultsofoperationsorcashflows.
SignificantjudgmentisrequiredinevaluatingtheCompany'suncertaintaxpositions,provisionforincometaxes,and anyvaluationallowancerecordedagainstdeferredtaxassets.AlthoughtheCompanybelievesthatitsjudgmentsare reasonable,noassurancecanbegiventhatthefinaltaxoutcomeofthesematterswillnotbedifferentfromthatwhichisreflectedintheCompany'shistoricalincomeprovisionsandaccruals.
PensionandSupplementaryRetirementPlans
TheCompanyhasafundeddefinedbenefitpensionplan(the“PensionPlan”)andanunfundeddefinedbenefit supplementaryretirementplan(the“SERP”).TheCompanyaccountsfortheseplansinaccordancewithASCTopic715,Compensation-RetirementBenefits.UnderASCTopic715,anemployerrecognizesthefundedstatusofadefinedbenefitpostretirementplanasanassetorliabilityonthebalancesheetandrecognizeschangesinthatfundedstatusintheyearin accordance with whichthechangesoccurthroughcomprehensiveincome (loss).Additionally,pensionexpenseisgenerallyrecognizedonanaccrualbasisovertheaverageremaininglifetimeofparticipants.Thepensionexpensecalculationisgenerallyindependent offundingdecisionsorrequirements.
ThePensionProtectionActof2006providesthefundingrequirementsforthePensionPlanwhicharedifferentfromtheemployer'saccountingfortheplanasoutlinedinASCTopic 715, 715.Nofundingcontributionswererequired,and is expected theCompanymadenofundingcontributionsto impact 2017 thePensionPlanin2020and SERP net periodic benefit costs by approximately $41 million. The 2019.Asofthedateofthisreport,theCompany generally amortizes unrecognized gains doesnotanticipatemakingfundingcontributionstothePensionPlanin2021.
Thecalculationofpensionexpenseand losses on pensionliabilitiesrequirestheuseofa straight-line basis over the average remaining lifetime numberof participants using the corridor approach. In addition, approximately $80 to 90 million of net actuarial losses are also expected to be recognized in 2017 as part of a non-cash settlement charge, resulting from an anticipated increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring and small balance force outs, in addition to annual distribution activity.
The Company believes that the most critical assumptions relate to theCompany's assumed annual long-term rate of return on plan assets (in the case offor the Pension Plan)Plan's assets was 6.25% for 2020, 6.50% for 2019 and 6.75% for 2018 based on expected future returns on the discount rate used to determine the present valueportfolio of projected benefit obligations.
TheCompanydiscounteditsfuturepensionobligationsusingaweighted-averagerateof 4.00% at January 28, 2017 and 4.17% 2.43% at January 30, 20162021 and 2.83%atFebruary 1, 2020, forthePensionPlanand 4.07% 2.51%at January 28, 2017 and 4.23% at January 30, 2016 2021and2.89%atFebruary 1, 2020forthe SERP. SERP.ThediscountrateusedtodeterminethepresentvalueoftheCompany'sPensionPlanandSERPobligationsisbasedonayieldcurveconstructedfromaportfolioofhighqualitycorporatedebtsecuritieswithvariousmaturities.Eachyear's expectedfuturebenefitpaymentsarediscountedtotheirpresentvalueattheappropriateyieldcurverate,therebygenerating theoveralldiscountrateforPensionPlanandSERPobligations.Asthediscountrateisreducedorincreased,the present value pensionliabilitywouldincreaseordecrease,respectively,andfuturepensionexpensewoulddecreaseorincrease,respectively.Loweringthediscountratesby0.25%wouldincreasetheprojectedbenefitobligationsatJanuary 30, 2021byapproximately$86millionandwoulddecreaseestimated2021pensionexpensebyapproximately$4million.Increasing thediscountratesby0.25%woulddecreasetheprojectedbenefitobligationsatJanuary 30, 2021byapproximately$82 millionandwouldincreaseestimated2021pensionexpensebyapproximately$3million.
TheCompanyestimatestheserviceandinterestcostcomponentsofnetperiodicbenefitcostsforthePensionPlan andSERP.Thismethodusesafullyieldcurveapproachintheestimationofthesecomponentsofnetperiodicbenefitcosts.Underthisapproach,theCompanyappliesdiscountingusingindividualspotratesfromtheyieldcurvecomposedof the Company's Pension Plan and SERP obligations is based on ratesofreturnfroma yield curve constructed from a portfolioofhighqualitycorporatedebtsecurities with various maturities. Each year's expected future benefit payments are discounted to their present value availableatthe appropriate yield curve rate, thereby generating the overall discount rate for Pension Plan and SERP obligations. As the discount rate is reduced or increased, pension liability would increase or decrease, respectively, and future pension expense would decrease or increase, respectively. Lowering the discount rates by 0.25% would increase the projected benefit obligations at January 28, 2017 by approximately $105 million and would decrease estimated 2017 pension expense by approximately $3 million. Increasing the discount rates by 0.25% would decrease the projected benefit obligations at January 28, 2017 by approximately $99 million and would increase estimated 2017 pension expense by approximately $3 million.
42
NewPronouncements
SeeNote1,OrganizationandSummaryofSignificantAccountingPolicies,tothe rates of return from a portfolio of high quality corporate debt securities available at the measurement date. These spot rates align to each of the projected benefit obligation and service cost cash flows. Historically, the Company estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligations.
Item 7A. | QuantitativeandQualitativeDisclosuresAboutMarketRisk. |
TheCompanyisexposedtomarketriskfromchangesininterestratesthatmayadverselyaffectitsfinancialposition,resultsofoperationsandcashflows.Inseekingtominimizetherisksfrominterestratefluctuations,theCompanymanages exposuresthroughitsregularoperatingandfinancingactivitiesand,whendeemedappropriate,throughtheuseof derivativefinancialinstruments.TheCompanydoesnotusefinancialinstrumentsfortradingorotherspeculativepurposes andisnotapartytoanyleveragedfinancialinstruments.
TheCompanyisexposedtointerestrateriskthroughitsborrowingactivities,whicharedescribedinNote7, Financing,totheConsolidatedFinancialStatements.AlloftheCompany’sborrowingsareunderfixedrateinstruments.However,theCompany,fromtimetotime,mayuseinterestrateswapandinterestratecapagreementstohelpmanageitsexposuretointerestratemovementsandreduceborrowingcosts.AtJanuary 30, 2021,theCompanywasnotapartytoany material derivativefinancialinstrumentsandbasedontheCompany’slackofmarketrisksensitiveinstrumentsoutstandingatJanuary 30, 2021,theCompanyhasdeterminedthattherewasnomaterialmarketriskexposuretotheCompany’sconsolidatedfinancialposition,resultsofoperationsorcashflowsasofsuchdate.
44
Item 8. | FinancialStatementsandSupplementaryData. |
InformationcalledforbythisitemissetforthintheCompany’sConsolidatedFinancialStatementsandsupplementarydatacontainedinthisreportandisincorporatedhereinbythisreference.Specificfinancialstatementsand supplementarydatacanbefoundatthepageslistedinthefollowingindex:
INDEX
Page | ||
F-2 | ||
F-3 | ||
F-6 | ||
F-7 | ||
ConsolidatedBalanceSheetsasof January 30, 2021 andFebruary1,2020 | F-8 | |
F-9 | ||
F-10 | ||
F-11 |
Item 9. | |
Changesinand |
None.
Item 9A. | |
Controlsand |
a. | Disclosure Controls and Procedures |
TheCompany’sChiefExecutiveOfficerandChiefFinancialOfficerhavecarriedout,asofJanuary 30, 2021,withtheparticipationoftheCompany’smanagement,anevaluationoftheeffectivenessoftheCompany’sdisclosurecontrolsandprocedures,asdefinedinRule13a-15(e)undertheExchangeAct.Baseduponthisevaluation,theChiefExecutive OfficerandChiefFinancialOfficerhaveconcludedthatasofJanuary 30, 2021,theCompany’sdisclosurecontrolsandprocedureswereeffectivetoprovidereasonableassurancethatinformationrequiredtobedisclosedbytheCompanyinreportstheCompanyfilesundertheExchangeActisrecorded,processed,summarizedandreported,withinthetime periodsspecifiedintheSECrulesandforms,andthatinformationrequiredtobedisclosedbytheCompanyinthereports theCompanyfilesorsubmitsundertheExchangeActisaccumulatedandcommunicatedtotheCompany’smanagement,includingitsChiefExecutiveOfficerandChiefFinancialOfficer,asappropriatetoallowtimelydecisionsregardingrequireddisclosure.
b. | Management’s Annual ReportonInternalControloverFinancialReporting |
TheCompany’smanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting,asdefinedinExchangeActRule13a-15(f).TheCompany’smanagementconductedanassessmentoftheCompany’sinternalcontroloverfinancialreportingbasedontheframeworkestablishedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommissioninInternalControl–IntegratedFramework(2013).Basedonthis item is set forth inassessment,theCompany’smanagementhasconcludedthat,asofJanuary 30, 2021,theCompany’sinternalcontroloverfinancialreportingwaseffective.
TheCompany’sindependentregisteredpublicaccountingfirm,KPMGLLP,hasaudited the Company’s Consolidated Financial Statements and supplementary data containedincluded in this reportAnnual Report on Form 10-K and is incorporated herein by this reference. Specific theeffectivenessoftheCompany’sinternalcontroloverfinancial statements reportingasofJanuary 30, 2021,and supplementary data can be found at hasissuedanattestationreportexpressinganunqualifiedopiniononthe pages listed effectivenessoftheCompany’sinternalcontroloverfinancialreporting,asstatedin the following index:
c. | |
Changesin | |
Reporting |
Fromtimetotimeadoptionofnewaccountingpronouncements,majororganizationalrestructuringandrealignmentoccursforwhichtheCompanyreviewsitsinternalcontroloverfinancialreporting.Asaresultofthisreview,therewere nochangesintheCompany’sinternalcontroloverfinancialreportingthatoccurredduringtheCompany’smostrecentlycompletedquarterthatmateriallyaffected,orarereasonablylikelytomateriallyaffect,theCompany’sinternalcontroloverfinancialreporting.
Item9B. | OtherInformation. |
None.
PARTIII
Item 10.Directors,ExecutiveOfficersand Procedures
The Company’s Chief informationrequiredbythisitemforexecutiveofficersissetforthunder“Item1.Business-InformationaboutourExecutive Officer Officers”inthisreport.Theotherinformationcalledforbythisitemissetforthunder“Item1.ElectionofDirectors”and Chief Financial Officer have carried out, as “FurtherInformationConcerningtheBoardof
TheCompany’sCodeofConductisincompliancewiththeapplicablerulesoftheSECthatapplytotheprincipalexecutiveofficer,principalfinancialofficerandprincipalaccountingofficeror comptroller, controller,orpersonsperformingsimilarfunctions.AcopyoftheCodeofConductisavailable,freeofcharge,throughtheCompany’swebsiteat
Setforthbelowarethenames,agesandprincipaloccupationsoftheCompany'snon-employeedirectorsasofMarch 25, 2021.
Name |
| Age |
| Director Since |
| Principal Occupation |
David P. Abney |
| 65 |
| 2018 |
| Former Chairman and Chief Executive Officer of UPS, Inc., a |
|
|
|
|
|
| multinational package delivery and supply chain management |
|
|
|
|
|
| company. |
Francis S. Blake |
| 71 |
| 2015 |
| Former Chairman and Chief Executive Officer of The Home |
|
|
|
|
|
| Depot, Inc., a multinational home improvement retailer. |
Torrence N. Boone |
| 51 |
| 2019 |
| Vice President, Global Client Partnerships, Alphabet Inc. since |
|
|
|
|
|
| 2010. |
John A. Bryant |
| 55 |
| 2015 |
| Former Chairman, President and Chief Executive Officer of |
|
|
|
|
|
| Kellogg Company, a multinational cereal and snack food |
|
|
|
|
|
| producer. |
Deirdre P. Connelly |
| 60 |
| 2008 |
| Former President, North American Pharmaceuticals of |
|
|
|
|
|
| GlaxoSmithKline, a global pharmaceutical company. |
Leslie D. Hale |
| 48 |
| 2015 |
| President and Chief Executive Officer of RLJ Lodging Trust, a |
|
|
|
|
|
| publicly-traded lodging real estate investment trust, since 2018. |
William H. Lenehan |
| 44 |
| 2016 |
| President and Chief Executive Officer of Four Corners Property |
|
|
|
|
|
| Trust, Inc., a real estate investment trust, since 2015. |
Sara Levinson |
| 70 |
| 1997 |
| Co-Founder and Director of Katapult, a digital entertainment |
|
|
|
|
|
| company making products for today's creative generation, since |
|
|
|
|
|
| 2013. |
Joyce M. Roché |
| 74 |
| 2006 |
| Former President and Chief Executive Officer of Girls |
|
|
|
|
|
| Incorporated, a national non-profit research, education and |
|
|
|
|
|
| advocacy organization. |
Paul C. Varga |
| 57 |
| 2012 |
| Former Chairman and Chief Executive Officer of Brown- |
|
|
|
|
|
| Forman Corporation, a spirits and wine company. |
Marna C. Whittington |
| 73 |
| 1993 |
| Former Chief Executive Officer of Allianz Global Investors |
|
|
|
|
|
| Capital, a diversified global investment firm. |
Item 5 11.ExecutiveCompensation.
Informationcalledforbythisitemissetforthunder“CompensationDiscussion&Analysis,”“Compensationof Form 8-K regarding an amendment to or waiver from, a provision of the Code NamedExecutivesfor2020,”“CompensationCommitteeReport,”“CompensationCommitteeInterlocksandInsider Participation”and"FurtherInformationConcerningtheBoardof Conduct by posting such information to Directors–RiskOversight"inthe Company’s website at the address ProxyStatementand location specified above.
Item 12.SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholder Matters.
Informationcalledforbythisitemissetforthunder“StockOwnership–CertainBeneficialOwners,”“Stock Ownership–SecuritiesAuthorizedforIssuanceUnderEquityCompensationPlans,”and“StockOwnership–Stock OwnershipofDirectorsandExecutiveOfficers”intheProxyStatementandincorporatedhereinbyreference.
47
Item 13.CertainRelationshipsandRelatedTransactions,andDirectorIndependence.
Informationcalledforbythisitemissetforthunder“FurtherInformationConcerningtheBoardofDirectors– DirectorIndependence”and“PolicyonRelatedPersonTransactions”intheProxyStatementandincorporatedhereinbyreference.
Item 14.PrincipalAccountantFeesandServices.
Informationcalledforbythisitemissetforthunder“Item2.RatificationoftheAppointmentofIndependent RegisteredPublicAccountingFirm”intheProxyStatementandincorporatedhereinbyreference.
48
PART IV
Name | Age | Director Since | Principal Occupation | |||
Francis S. Blake | 67 | 2015 | Former Chairman and Chief Executive Officer of The Home Depot, Inc. | |||
John A. Bryant | 51 | 2015 | Chairman of the Board of Kellogg Company since July 2014 and President and Chief Executive Officer since January 2011. | |||
Deirdre P. Connelly | 56 | 2008 | Former President, North American Pharmaceuticals of GlaxoSmithKline, a global pharmaceutical company. | |||
Leslie D. Hale | 44 | 2015 | Chief Operating Officer since 2016, Chief Financial Officer since 2007 and Executive Vice President since 2013 of RLJ Lodging Trust, a publicly-traded lodging real estate investment trust. | |||
William H. Lenehan | 40 | 2016 | President and Chief Executive Officer of Four Corners Property Trust, Inc., a real estate investment trust, since August 2015. | |||
Sara Levinson | 66 | 1997 | Co-Founder and Director of Katapult, a digital entertainment company making products for today's creative generation, since April 2013. | |||
Joyce M. Roché | 70 | 2006 | Former President and Chief Executive Officer of Girls Incorporated, a national non-profit research, education and advocacy organization. | |||
Paul C. Varga | 53 | 2012 | Chairman of Brown-Forman Corporation, a spirits and wine company, since August 2007 and Chief Executive Officer since 2005. | |||
Marna C. Whittington | 69 | 1993 | Former Chief Executive Officer of Allianz Global Investors Capital, a diversified global investment firm. | |||
Annie Young-Scrivner | 48 | 2014 | Executive Vice President of Starbucks Corporation since September 2009, with responsibility for global loyalty and digital development since September 2015. |
Item 15. | |
ExhibitandFinancialStatementSchedules. |
(a) | Thefollowingdocumentsarefiledaspartofthisreport: |
1. | FinancialStatements: |
ThelistoffinancialstatementsrequiredbythisitemissetforthinItem8“FinancialStatementsand SupplementaryData”andisincorporatedhereinbyreference.
2. | FinancialStatementSchedules: |
Allschedulesareomittedbecausetheyareinapplicable,notrequired,ortheinformationisincludedelsewherein theConsolidatedFinancialStatementsorthenotesthereto.
3. | Exhibits: |
Exhibit Number | Description | DocumentifIncorporatedbyReference | ||
3.1 | ||||
Amended and Restated Certificate of Incorporation | Exhibit 3.1 to the Company's Current Report on Form 8-K filed | |||
3.1.1 | Certificate of Designations of Series A Junior Participating Preferred Stock | Form 10-K (File No. 1-13536) for the fiscal year ended January 28, 1995 | ||
3.1.2 | Article Seventh of the Amended and Restated Certificate of Incorporation | Exhibit 3.1 to the Company's Current Report on Form 8-K filed | ||
3.2 | Amended and Restated By-Laws | Exhibit 3.1 to the Company's Current Report on Form 8-K filed | ||
4.1 | ||||
Indenture, dated as of January 15, 1991, among the Company (as successor to The May Department Stores Company (“May Delaware”)), Macy's Retail Holdings, Inc. (“Macy's Retail”) (f/k/a The May Department Stores Company (NY) or “May New York”) and The Bank of New York Mellon Trust Company, N.A. (“BNY Mellon”, successor to J.P. Morgan Trust Company and as successor to The First National Bank of Chicago), as Trustee | Exhibit 4(2) to May New York’s Current Report on Form 8-K filed | |||
4.1.1 | Guarantee of Securities, dated as of August 30, 2005, by the Company relating to | Form 8-K filed | ||
4.1.2 | First Supplemental Indenture to 1991 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
4.1.3 | Second Supplemental Indenture to 1991 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
4.1.4 | Third Supplemental Indenture to 1991 Indenture dated as of June 26, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee |
49
Exhibit Number | Description | DocumentifIncorporatedbyReference | ||
4.2 | Indenture, dated as of December 15, 1994, between the Company and U.S. Bank National Association (successor to State Street Bank and Trust Company and The First National Bank of Boston), as Trustee | Exhibit 4.1 to the Company's Registration Statement on Form S-3 (Registration No. 33-88328) filed | ||
4.2.1 | Ninth Supplemental Indenture to | |||
4.2.2 | ||||||
Tenth Supplemental Indenture to | ||||||
4.2.3 | Guarantee of Securities, dated as of August 30, 2005, by the Company relating to | |||||
4.2.4 | Eleventh Supplemental Indenture to 1994 Indenture dated as of | Exhibit 4.5 to | ||||
4.2.5 | Twelfth Supplemental Indenture to | |||||
4.2.6 | Thirteenth Supplemental Indenture to | |||||
4.3 | ||||||
Indenture, dated as of June 17, 1996, among the Company (as successor to May Delaware), Macy's Retail (f/k/a May New York) and The Bank of New York Mellon Trust Company, N.A. (“BNY Mellon”, successor to J.P. Morgan Trust Company), as Trustee | ||||||
4.3.1 | First Supplemental Indenture to | |||||
4.3.2 | Second Supplemental Indenture to 1996 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee |
50
Exhibit Number | Description | DocumentifIncorporatedbyReference | ||
4.3.3 | Third Supplemental Indenture to 1996 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
4.3.4 | Fourth Supplemental Indenture to 1996 Indenture dated as of June 26, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
4.4 | Indenture, dated as of September 10, 1997, between the Company and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee (“1997 Indenture”) | |||
4.4.1 | First Supplemental Indenture to 1997 Indenture, dated as of February 6, 1998, between the Company and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee | Exhibit 2 to the Company's Current Report on Form 8-K filed February 6, 1998 | ||
4.4.2 | Third Supplemental Indenture to 1997 Indenture, dated as of March 24, 1999, between the Company and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee | |||
4.4.3 | Seventh Supplemental Indenture to 1997 Indenture, dated as of August 30, 2005 among the Company, Macy's Retail and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee | |||
4.4.4 | Guarantee of Securities, dated as of August 30, 2005, by the Company relating to 1997 Indenture | |||
4.4.5 | Eighth Supplemental Indenture to 1997 Indenture dated as of May 28, 2020 among Macy’s Retail Holdings, Inc., a Delaware corporation (as successor to Macy’s Retail Holdings, Inc., a New York corporation), Macy’s, Inc. and U.S. Bank National Association, as Trustee | |||
4.4.6 | Ninth Supplemental Indenture to 1997 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and U.S. Bank National Association, as Trustee | |||
4.4.7 | Tenth Supplemental Indenture to 1997 Indenture dated as of June 24, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and U.S. Bank National Association, as Trustee | |||
51
Exhibit Number | Description | DocumentifIncorporatedbyReference | ||
4.5 | Indenture, dated as of July 20, 2004, among the Company (as successor to May Delaware), Macy's Retail (f/k/a May New York) and BNY Mellon, as Trustee | |||
4.5.1 | First Supplemental Indenture to | |||
4.6 | Indenture, dated as of November 2, 2006, by and among Macy's Retail, the Company and U.S. Bank National Association, as Trustee | |||
4.6.1 | ||||
Third Supplemental Indenture to | Exhibit 4.2 to the Company's Current Report on Form 8-K filed | |||
4.6.2 | Sixth Supplemental Indenture to | Exhibit 4.2 to the Company's Current Report on Form 8-K filed | ||
4.6.3 | Seventh Supplement Indenture to 2006 Indenture dated as of May 28, 2020 among Macy's Retail Holdings, Inc., a Delaware corporation (as successor to Macy's Retail Holdings, Inc., a New York corporation), Macy's, Inc. and U.S. Bank National Association, as Trustee | |||
4.6.4 | Eighth Supplemental Indenture to 2006 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and U.S. Bank National Association, as Trustee | |||
4.6.5 | Ninth Supplemental Indenture to 2006 Indenture dated as of June 24, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and U.S. Bank National Association, as Trustee | |||
4.7 | Indenture, dated as of January 13, 2012, among Macy's Retail, the Company and BNY Mellon, as Trustee | |||
4.7.1 | First Supplemental Trust Indenture to | |||
4.7.2 | Second Supplemental Trust Indenture to | |||
4.7.3 | Third Supplemental Trust Indenture, dated as of November 20, 2012, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee | |||
4.7.4 | Fourth Supplemental Trust Indenture, dated as of November 20, 2012, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee |
52
Exhibit Number | Description | DocumentifIncorporatedbyReference | ||
4.7.5 | Fifth Supplemental Trust Indenture, dated as of September 6, 2013, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee | Exhibit 4.2 to the Company's Current Report on Form 8-K filed | ||
4.7.6 | Sixth Supplemental Trust Indenture, dated as of May 23, 2014, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee | Exhibit 4.2 to the Company's Current Report on Form 8-K filed | ||
4.7.7 | Seventh Supplemental Trust Indenture, dated as of November 18, 2014, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee | Exhibit 4.2 to the Company's Current Report on Form 8-K filed | ||
4.7.8 | Eighth Supplemental Indenture to 2012 Indenture dated as of May | |||
4.7.9 | Ninth Supplemental Indenture to 2012 Indenture dated as of June 3, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (as successor to Macy’s Retail Holdings, Inc., a Delaware corporation), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
4.7.10 | Tenth Supplemental Indenture to 2012 Indenture dated as of June 26, 2020 among Macy’s Retail Holdings, LLC, an Ohio limited liability company (as successor to Macy’s Retail Holdings, LLC, a Delaware limited liability company), Macy’s, Inc. and The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
4.8 | Indenture dated as of June 8, 2020, among Macy's, Inc., as issuer, the | |||
4.8.1 | Form of 8.375% Senior Secured Note due 2025 | |||
4.9 | Indenture, dated as of July 28, 2020, among Macy’s Retail Holdings, LLC, as issuer, Macy’s, Inc., as guarantor, and U.S. Bank National Association, as trustee and collateral trustee, relating to Macy’s Retail Holdings, LLC’s 6.65% Senior Secured Debentures due 2024, 6.7% Senior Secured Debentures due 2028, 8.75% Senior Secured Debentures due 2029, 7.875% Senior Secured Debentures due 2030, 6.9% Senior Secured Debentures due 2032 and 6.7% Senior Secured Debentures due 2034 | |||
4.9.1 | Form of 6.65% Senior Secured Debentures due 2024, 6.7% Senior Secured Debentures due 2028, 8.75% Senior Secured Debentures due 2029, 7.875% Senior Secured Debentures due 2030, 6.9% Senior Secured Debentures due 2032 and 6.7% Senior Secured Debentures due 2034 | |||
53
Exhibit Number | Description | DocumentifIncorporatedbyReference | ||
4.9.2 | Fifth Supplemental Trust Indenture to 1996 Indenture, dated as of July 10, 2020, among Macy’s Retail Holdings, LLC, as issuer, Macy’s, Inc. as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Macy’s Retail Holdings, LLC’s 6.65% Senior Debentures due 2024, 6.7% Senior Debentures due 2028, 8.75% Senior Debentures due 2029, 7.875% Senior Debentures due 2030, 6.9% Senior Debentures due 2032 and 6.7% Senior Debentures due 2034 | |||
4.10 | DescriptionoftheCompany'sSecuritiesRegistered underSection12oftheSecuritiesExchangeActof 1934 | |||
10.1 | Credit Agreement, dated as of | |||
10.2 | Credit Agreement, dated as of May 9, 2019, among the Company, Macy's Retail and Bank of America, N.A., as administrative agent | |||
10.3 | Guarantee Agreement, dated as of May 9, 2019, among the Company, Macy's Retail and Bank of America, N.A., as administrative agent | |||
10.4 | Amendment No. 1 to Credit Agreement dated as of June 8, 2020 among Macy’s Retail Holdings, LLC, a Delaware limited liability company (f/k/a Macy’s Retail Holdings, Inc.), as Borrower, Macy’s, Inc., a Delaware corporation, as Parent, the Lenders party thereto, and Bank of America, N.A., as Administrative Agent | |||
10.5 | Tax Sharing Agreement, dated as of October 31, 2014, among Macy's, Inc. and members of the Affiliated Group | |||
10.6+ | ||||
Amended and Restated Credit Card Program Agreement, dated November 10, 2014, among the Company, FDS Bank, Macy's Credit and Customer Services, Inc. (“MCCS”), Macy's West Stores, Inc., Bloomingdales, Inc., Department Stores National Bank ("DSNB") and Citibank, N.A. | Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed | |||
10.7 | ||||
Senior Executive Incentive Compensation Plan, as amended March 26, 2020 * | Exhibit 10.3 to |
54
Exhibit Number | Description | DocumentifIncorporatedbyReference | ||
10.8 | ||||
Form of Indemnification Agreement * | Exhibit 10.14 to the Registration Statement on Form 10 (File No. 1-10951), filed | |||
10.9 | Executive Severance Plan, effective November 1, 2009, as revised and restated January 1, 2014 * | |||
10.9.1 | Senior Executive Severance Plan effective as of | Exhibit | ||
10.10 | ||||
Form of Nonqualified Stock Option Agreement under the 2009 Omnibus Incentive Compensation Plan (for Executives and Key Employees) * | ||||
10.10.1 | Form of Nonqualified Stock Option Agreement under the Amended and Restated 2009 Omnibus Incentive Compensation Plan (for Executives and Key Employees) * | |||
10.10.2 | Form of Nonqualified Stock Option Agreement | |||
10.10.3 | Form of | |||
10.11 | ||||
Form of Time-Based Restricted Stock Agreement under the 2009 Omnibus Incentive Compensation Plan * | Exhibit 10.3 to the Company's Current Report on Form 8-K filed | |||
10.12 | ||||
2019-2021 Performance-Based Restricted Stock Unit Terms and Conditions under the 2018 Equity and Incentive Compensation Plan * | ||||
10.12.1 | 2020-2022 Performance-Based Restricted Stock Unit Terms and Conditions |
10.13 | ||||
Form of Time-Based Restricted Stock Unit Agreement under the 2009 Omnibus Incentive Compensation | ||||
10.13.1 | Form of Time-Based Restricted Stock Unit Agreement under the Amended and Restated 2009 Omnibus Incentive Compensation Plan * | |||
10.13.2 | Form of Time-Based Restricted Stock Unit Agreement under the Amended and Restated 2009 Omnibus Incentive Compensation Plan (with dividend equivalents) * | |||
10.13.3 | Form of Time-Based Restricted Stock Unit Agreement under the Amended and Restated 2009 Omnibus Incentive Compensation Plan, as amended * | |||
10.13.4 | Form of Time-Based Restricted Stock Unit Terms and Conditions under the 2018 Equity and Incentive Compensation Plan * | |||
10.14 | Supplementary Executive Retirement Plan * |
55
Exhibit Number | Description | DocumentifIncorporatedbyReference | ||||
10.14.1 | First Amendment to the Supplementary Executive Retirement Plan effective January 1, 2012 * | |||||
10.14.2 | Second Amendment to Supplementary Executive Retirement Plan effective January 1, 2012 * | |||||
10.14.3 | Third Amendment to Supplementary Executive Retirement Plan effective December 31, 2013 * | |||||
10.15 | Executive Deferred Compensation Plan * | |||||
10.15.1 | First Amendment to Executive Deferred Compensation Plan effective December | |||||
10.16 | Macy's, Inc. 401(k) Retirement Investment Plan (the "Plan") (amending and restating the Macy's, Inc. 401(k) Retirement Investment Plan) effective as of January 1, 2014 * | |||||
10.16.1 | First Amendment to the Plan regarding matching contributions with respect to the Plan’s plan years beginning on and after January 1, 2014, effective January 1, 2014 * | |||||
10.16.2 | Second Amendment to the Plan regarding marriage status, effective January 1, 2014 * | |||||
10.16.3 | Third Amendment to the Plan regarding matching contributions with respect to the Plan’s plan years beginning on and after January 1, 2014 * | |||||
10.16.4 | Fourth Amendment to the Plan regarding rules applicable to Puerto Rico participants effective January 1, 2011 (and for the Plan's plan years beginning on and after that date)* | |||||
10.16.5 | Fifth Amendment to the Plan regarding eligible associates to participate (pre-tax deferrals only, no match) immediately upon | |||||
10.17 | Director Deferred Compensation Plan * | |||||
10.18 | Macy's, Inc. Amended and Restated 2009 Omnibus Incentive Compensation Plan * | Appendix B to the Company's Proxy Statement dated April 2, 2014 | ||||
10.19 | Macy's, Inc. | |||||
10.20 | Macy's,Inc.DeferredCompensationPlan(Amended andrestatedeffectiveasofAugust1,2018)* | |||||
10.21 | ||||
Change in Control Plan, effective November 1, 2009, as revised and restated | ||||
10.22 | Time Sharing Agreement between Macy's, Inc. and | |||
10.23 | Advisory Agreement dated as of April 6, 2020 by and between Macy’s, Inc. and Paula A. Price* | |||
21 |
56
Exhibit Number | Description | DocumentifIncorporatedbyReference | ||
22 | ||||
23 | ||||
24 | ||||
31.1 | ||||
31.2 | ||||
32.1 | CertificationbyChiefExecutiveOfficerunderSection906oftheSarbanes-OxleyAct | |||
32.2 | CertificationbyChiefFinancialOfficerunderSection906oftheSarbanes-OxleyAct | |||
101 | ThefollowingfinancialstatementsfromMacy's,Inc.’sAnnualReportonForm10-Kfortheyearended January | |||
104 | CoverPageInteractiveDataFile(formattedasiXBRLandcontainedinExhibit101) | |||
+ | Portionsoftheexhibithavebeenomittedpursuanttoarequestforconfidentialtreatment.Theconfidentialportions havebeenprovidedtotheSEC. |
* | |
Constitutesa | |
SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theRegistranthasduly causedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized.
MACY’S, INC. | |||
By: | /s/ ELISAD. GARCIA | ||
ElisaD.Garcia | |||
ExecutiveVicePresident,ChiefLegalOfficerandSecretary |
Date:March29,2021
Pursuanttothe requirementsoftheSecuritiesExchangeActof1934,thisreport hasbeensignedbelowbythefollowingpersonsonbehalfoftheRegistrantandinthecapacitiesindicatedonMarch29,2021.
* | * | * | ||
JeffGennette | Adrian V.Mitchell | Paul Griscom | ||
ChiefExecutiveOfficer(principalexecutiveofficer),ChairmanoftheBoardandDirector | ExecutiveVicePresidentandChiefFinancialOfficer(principalfinancialofficer) | SeniorVicePresident andController(principalaccountingofficer) | ||
* | * | * | ||
DavidP.Abney | FrancisS.Blake | TorrenceN.Boone | ||
Director | Director | Director | ||
* | * | * | ||
JohnA. Bryant | DeirdreP.Connelly | LeslieD. | ||
Director | Director | Director | ||
* | * | * | ||
WilliamH.Lenehan | Sara Levinson | JoyceM.Roché | ||
Director | Director | Director | ||
* | * | |||
PaulC.Varga | MarnaC.Whittington | |||
Director | Director |
* | Theundersigned,bysigninghernamehereto,doessignandexecutethisAnnualReportonForm10-Kpursuantto thePowersofAttorneyexecutedbytheabove-namedofficersanddirectorsandfiledherewith. |
By: | /s/ ELISAD. GARCIA | |||
ElisaD.Garcia | ||||
Attorney-in-Fact |
INDEXTOCONSOLIDATEDFINANCIALSTATEMENTS
Page | ||||
F-2 | ||||
F-3 | ||||
F-6 | ||||
F-7 | ||||
ConsolidatedBalanceSheetsasof | F-8 | |||
F-9 | ||||
F-10 | ||||
F-11 |
REPORTOFMANAGEMENT
TotheShareholdersofMacy’s,Inc.:
TheintegrityandconsistencyoftheConsolidatedFinancialStatementsofMacy’s,Inc.andsubsidiaries,whichwerepreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica,arethe responsibilityofmanagementandproperlyincludesomeamountsthatarebaseduponestimatesandjudgments.
TheCompanymaintainsasystemofinternalaccountingcontrols,whichissupportedbyaprogramofinternalaudits withappropriatemanagementfollow-upaction,toprovidereasonableassurance,atappropriatecost,thattheCompany’sassetsareprotectedandtransactionsareproperlyrecorded.Additionally,theintegrityofthefinancialaccountingsystemisbasedoncarefulselectionandtrainingofqualifiedpersonnel,organizationalarrangementswhichprovideforappropriatedivisionofresponsibilitiesandcommunicationofestablishedwrittenpoliciesandprocedures.
TheCompany’smanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting,asdefinedinExchangeActRule13a-15(f)andhasissuedManagement’sReportonInternalControloverFinancialReporting.
TheConsolidatedFinancialStatementsoftheCompanyhavebeenauditedbyKPMGLLP.Theirreportexpressestheiropinionastothefairpresentation,inallmaterialrespects,ofthefinancialstatementsandisbasedupontheir independentaudits.
TheAuditCommittee,composedsolelyofoutsidedirectors,meetsperiodicallywithKPMGLLP,theinternalauditorsandrepresentativesofmanagementtodiscussauditingandfinancialreportingmatters.Inaddition,KPMGLLP andtheCompany’sinternalauditorsmeetperiodicallywiththeAuditCommitteewithoutmanagementrepresentativespresentandhavefreeaccesstotheAuditCommitteeatanytime.TheAuditCommitteeisresponsibleforrecommendingto theBoardofDirectorstheengagementoftheindependentregisteredpublicaccountingfirmandthegeneraloversight reviewofmanagement’sdischargeofitsresponsibilitieswithrespecttothemattersreferredtoabove.
JeffGennette
ChiefExecutiveOfficer,ChairmanoftheBoardandDirector
Adrian V. Mitchell
ExecutiveVicePresidentandChiefFinancialOfficer
Paul Griscom
SeniorVicePresident,Controller
ReportofIndependentRegisteredPublicAccountingFirm
TotheShareholders and Board of
Macy’s,Inc.:
Opinions on the Consolidated Financial Statements of Macy’s, Inc. and subsidiaries, which were prepared in accordance with accounting principles generally accepted in the United States of America, are the responsibility of management and properly include some amounts that are based upon estimates and judgments.
We have audited the accompanying consolidated balance sheets of Macy’s, Inc. and subsidiaries (the Company) as of January 28, 201730, 2021 and January 30, 2016, andFebruary 1, 2020, the related consolidated statements of income,operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended January 28, 2017.30, 2021 and the related notes (collectively, the consolidated financial statements). We also have audited Macy’s, Inc.’sthe Company’s internal control over financial reporting as of January 28, 2017,30, 2021, based on criteria established in
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 30, 2021 and February 1, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended January 30, 2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases as of February 3, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases. Macy’s, Inc.’s
BasisforOpinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A(b), “Management’s Annual Report Onon Internal Control over Financial Reporting.” Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements and an opinion on Macy’s, Inc.’sthe Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
DefinitionandLimitationsofInternalControlOverFinancialReporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
CriticalAuditMatters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements referredthat were communicated or required to above present fairly,be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in all material respects,any way our opinion on the consolidated financial positionstatements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Assessmentoftheliabilityforunrecognizedtaxbenefits
As discussed in Note 9 to the consolidated financial statements, the Company has recorded gross unrecognized tax benefits, including interest and penalties, of Macy’s, Inc. and subsidiaries$173 million as of January 28, 201730, 2021. The Company recognizes tax positions when it is more likely than not that the tax position will be sustained on examination based on the technical merits of the position. Uncertain tax positions meeting the recognition threshold are then measured at the largest amount of benefit that is more likely than not to be realized upon ultimate settlement.
We identified the assessment of the liability for unrecognized tax benefits as a critical audit matter. Complex auditor judgment was required in evaluating the Company’s interpretation of tax law and January 30, 2016,its estimate of the ultimate resolution of the tax positions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s unrecognized tax benefits process, including a control related to the interpretation of tax law and the results of their operations and their cash flows for eachestimate of the years in the three-year period ended January 28, 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Macy’s, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 28, 2017, based on criteria established in
2016 | 2015 | 2014 | |||||||||
Net sales | $ | 25,778 | $ | 27,079 | $ | 28,105 | |||||
Cost of sales | (15,621 | ) | (16,496 | ) | (16,863 | ) | |||||
Gross margin | 10,157 | 10,583 | 11,242 | ||||||||
Selling, general and administrative expenses | (8,265 | ) | (8,256 | ) | (8,355 | ) | |||||
Impairments, store closing and other costs | (479 | ) | (288 | ) | (87 | ) | |||||
Settlement charges | (98 | ) | — | — | |||||||
Operating income | 1,315 | 2,039 | 2,800 | ||||||||
Interest expense | (367 | ) | (363 | ) | (395 | ) | |||||
Premium on early retirement of debt | — | — | (17 | ) | |||||||
Interest income | 4 | 2 | 2 | ||||||||
Income before income taxes | 952 | 1,678 | 2,390 | ||||||||
Federal, state and local income tax expense | (341 | ) | (608 | ) | (864 | ) | |||||
Net income | 611 | 1,070 | 1,526 | ||||||||
Net loss attributable to noncontrolling interest | 8 | 2 | — | ||||||||
Net income attributable to Macy's, Inc. shareholders | $ | 619 | $ | 1,072 | $ | 1,526 | |||||
Basic earnings per share attributable to Macy's, Inc. shareholders | $ | 2.01 | $ | 3.26 | $ | 4.30 | |||||
Diluted earnings per share attributable to Macy's, Inc. shareholders | $ | 1.99 | $ | 3.22 | $ | 4.22 |
2016 | 2015 | 2014 | |||||||||
Net income | $ | 611 | $ | 1,070 | $ | 1,526 | |||||
Other comprehensive income (loss), net of taxes: | |||||||||||
Actuarial gain (loss) and prior service cost on post employment and postretirement benefit plans, net of tax effect of $42 million and $269 million | 65 | — | (422 | ) | |||||||
Reclassifications to net income: | |||||||||||
Net actuarial loss on post employment and postretirement benefit plans, net of tax effect of $14 million, $19 million and $10 million | 22 | 29 | 15 | ||||||||
Settlement charges, net of tax effect of $38 million | 60 | — | — | ||||||||
Total other comprehensive income (loss) | 147 | 29 | (407 | ) | |||||||
Comprehensive income | 758 | 1,099 | 1,119 | ||||||||
Comprehensive loss attributable to noncontrolling interest | 8 | 2 | — | ||||||||
Comprehensive income attributable to Macy's, Inc. shareholders | $ | 766 | $ | 1,101 | $ | 1,119 |
January 28, 2017 | January 30, 2016 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 1,297 | $ | 1,109 | |||
Receivables | 522 | 558 | |||||
Merchandise inventories | 5,399 | 5,506 | |||||
Prepaid expenses and other current assets | 408 | 479 | |||||
Total Current Assets | 7,626 | 7,652 | |||||
Property and Equipment – net | 7,017 | 7,616 | |||||
Goodwill | 3,897 | 3,897 | |||||
Other Intangible Assets – net | 498 | 514 | |||||
Other Assets | 813 | 897 | |||||
Total Assets | $ | 19,851 | $ | 20,576 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 309 | $ | 642 | |||
Merchandise accounts payable | 1,423 | 1,526 | |||||
Accounts payable and accrued liabilities | 3,563 | 3,333 | |||||
Income taxes | 352 | 227 | |||||
Total Current Liabilities | 5,647 | 5,728 | |||||
Long-Term Debt | 6,562 | 6,995 | |||||
Deferred Income Taxes | 1,443 | 1,477 | |||||
Other Liabilities | 1,877 | 2,123 | |||||
Shareholders’ Equity: | |||||||
Common stock (304.1 and 310.3 shares outstanding) | 3 | 3 | |||||
Additional paid-in capital | 617 | 621 | |||||
Accumulated equity | 6,088 | 6,334 | |||||
Treasury stock | (1,489 | ) | (1,665 | ) | |||
Accumulated other comprehensive loss | (896 | ) | (1,043 | ) | |||
Total Macy's, Inc. Shareholders’ Equity | 4,323 | 4,250 | |||||
Noncontrolling interest | (1 | ) | 3 | ||||
Total Shareholders' Equity | 4,322 | 4,253 | |||||
Total Liabilities and Shareholders’ Equity | $ | 19,851 | $ | 20,576 |
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 1, 2014 | $ | 4 | $ | 2,522 | $ | 6,235 | $ | (1,847 | ) | $ | (665 | ) | $ | 6,249 | $ | — | $ | 6,249 | |||||||||||||
Net income | 1,526 | 1,526 | 1,526 | ||||||||||||||||||||||||||||
Other comprehensive income | (407 | ) | (407 | ) | (407 | ) | |||||||||||||||||||||||||
Common stock dividends ($1.1875 per share) | (421 | ) | (421 | ) | (421 | ) | |||||||||||||||||||||||||
Stock repurchases | (1,901 | ) | (1,901 | ) | (1,901 | ) | |||||||||||||||||||||||||
Stock-based compensation expense | 72 | 72 | 72 | ||||||||||||||||||||||||||||
Stock issued under stock plans | (66 | ) | 324 | 258 | 258 | ||||||||||||||||||||||||||
Retirement of common stock | (1,480 | ) | 1,480 | — | — | ||||||||||||||||||||||||||
Deferred compensation plan distributions | 2 | 2 | 2 | ||||||||||||||||||||||||||||
Balance at January 31, 2015 | 4 | 1,048 | 7,340 | (1,942 | ) | (1,072 | ) | 5,378 | — | 5,378 | |||||||||||||||||||||
Net income (loss) | 1,072 | 1,072 | (2 | ) | 1,070 | ||||||||||||||||||||||||||
Other comprehensive loss | 29 | 29 | 29 | ||||||||||||||||||||||||||||
Common stock dividends ($1.3925 per share) | (456 | ) | (456 | ) | (456 | ) | |||||||||||||||||||||||||
Stock repurchases | (2,001 | ) | (2,001 | ) | (2,001 | ) | |||||||||||||||||||||||||
Stock-based compensation expense | 64 | 64 | 64 | ||||||||||||||||||||||||||||
Stock issued under stock plans | (64 | ) | 226 | 162 | 162 | ||||||||||||||||||||||||||
Retirement of common stock | (1 | ) | (427 | ) | (1,622 | ) | 2,050 | — | — | ||||||||||||||||||||||
Deferred compensation plan distributions | 2 | 2 | 2 | ||||||||||||||||||||||||||||
Macy's China Limited | — | 5 | 5 | ||||||||||||||||||||||||||||
Balance at January 30, 2016 | 3 | 621 | 6,334 | (1,665 | ) | (1,043 | ) | 4,250 | 3 | 4,253 | |||||||||||||||||||||
Net income (loss) | 619 | 619 | (8 | ) | 611 | ||||||||||||||||||||||||||
Other comprehensive income | 147 | 147 | 147 | ||||||||||||||||||||||||||||
Common stock dividends ($1.4925 per share) | (459 | ) | (459 | ) | (459 | ) | |||||||||||||||||||||||||
Stock repurchases | (316 | ) | (316 | ) | (316 | ) | |||||||||||||||||||||||||
Stock-based compensation expense | 60 | 60 | 60 | ||||||||||||||||||||||||||||
Stock issued under stock plans | (64 | ) | 81 | 17 | 17 | ||||||||||||||||||||||||||
Retirement of common stock | (406 | ) | 406 | — | — | ||||||||||||||||||||||||||
Deferred compensation plan distributions | 5 | 5 | 5 | ||||||||||||||||||||||||||||
Macy's China Limited | — | 4 | 4 | ||||||||||||||||||||||||||||
Balance at January 28, 2017 | $ | 3 | $ | 617 | $ | 6,088 | $ | (1,489 | ) | $ | (896 | ) | $ | 4,323 | $ | (1 | ) | $ | 4,322 |
2016 | 2015 | 2014 | |||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 611 | $ | 1,070 | $ | 1,526 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Impairments, store closing and other costs | 479 | 288 | 87 | ||||||||
Settlement charges | 98 | — | — | ||||||||
Depreciation and amortization | 1,058 | 1,061 | 1,036 | ||||||||
Stock-based compensation expense | 61 | 65 | 73 | ||||||||
Gains on sale of real estate | (209 | ) | (212 | ) | (92 | ) | |||||
Amortization of financing costs and premium on acquired debt | (14 | ) | (14 | ) | (5 | ) | |||||
Changes in assets and liabilities: | |||||||||||
(Increase) decrease in receivables | (1 | ) | (45 | ) | 22 | ||||||
(Increase) decrease in merchandise inventories | 107 | (60 | ) | 44 | |||||||
Increase in prepaid expenses and other current assets | (8 | ) | — | (3 | ) | ||||||
Increase in other assets not separately identified | — | (1 | ) | (61 | ) | ||||||
Decrease in merchandise accounts payable | (132 | ) | (78 | ) | (21 | ) | |||||
Increase (decrease) in accounts payable, accrued liabilities and other items not separately identified | (162 | ) | 68 | 129 | |||||||
Increase (decrease) in current income taxes | 125 | (69 | ) | (65 | ) | ||||||
Increase (decrease) in deferred income taxes | (139 | ) | (1 | ) | 29 | ||||||
Increase (decrease) in other liabilities not separately identified | (73 | ) | (88 | ) | 10 | ||||||
Net cash provided by operating activities | 1,801 | 1,984 | 2,709 | ||||||||
Cash flows from investing activities: | |||||||||||
Purchase of property and equipment | (596 | ) | (777 | ) | (770 | ) | |||||
Capitalized software | (316 | ) | (336 | ) | (298 | ) | |||||
Acquisition of Bluemercury, Inc., net of cash acquired | — | (212 | ) | — | |||||||
Disposition of property and equipment | 673 | 204 | 172 | ||||||||
Other, net | 52 | 29 | (74 | ) | |||||||
Net cash used by investing activities | (187 | ) | (1,092 | ) | (970 | ) | |||||
Cash flows from financing activities: | |||||||||||
Debt issued | 2 | 499 | 1,044 | ||||||||
Financing costs | (3 | ) | (4 | ) | (9 | ) | |||||
Debt repaid | (751 | ) | (152 | ) | (870 | ) | |||||
Dividends paid | (459 | ) | (456 | ) | (421 | ) | |||||
Increase (decrease) in outstanding checks | 61 | (83 | ) | 133 | |||||||
Acquisition of treasury stock | (316 | ) | (2,001 | ) | (1,901 | ) | |||||
Issuance of common stock | 36 | 163 | 258 | ||||||||
Proceeds from noncontrolling interest | 4 | 5 | — | ||||||||
Net cash used by financing activities | (1,426 | ) | (2,029 | ) | (1,766 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 188 | (1,137 | ) | (27 | ) | ||||||
Cash and cash equivalents beginning of period | 1,109 | 2,246 | 2,273 | ||||||||
Cash and cash equivalents end of period | $ | 1,297 | $ | 1,109 | $ | 2,246 | |||||
Supplemental cash flow information: | |||||||||||
Interest paid | $ | 396 | $ | 383 | $ | 413 | |||||
Interest received | 4 | 2 | 2 | ||||||||
Income taxes paid (net of refunds received) | 352 | 635 | 834 |
2016 | 2015 | 2014 | ||||||
Women’s Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances | 38 | % | 38 | % | 38 | % | ||
Women’s Apparel | 23 | 23 | 23 | |||||
Men’s and Children’s | 23 | 23 | 23 | |||||
Home/Miscellaneous | 16 | 16 | 16 | |||||
100 | % | 100 | % | 100 | % |
Assessmentofthecarryingvalueofcertainpropertyandequipment
As discussed in Note 1 to the Consolidated Statements of Income and unrealized holding gains and losses on available-for-sale securities are included as a separate component of accumulated other comprehensive income, net of income tax effect, until realized. At January 28, 2017,consolidated financial statements, the Company did not hold any held-to-maturity or available-for-sale securities.
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Gross advertising and promotional costs | $ | 1,547 | $ | 1,587 | $ | 1,602 | |||||
Cooperative advertising allowances | 394 | 414 | 425 | ||||||||
Advertising and promotional costs, net of cooperative advertising allowances | $ | 1,153 | $ | 1,173 | $ | 1,177 | |||||
Net sales | $ | 25,778 | $ | 27,079 | $ | 28,105 | |||||
Advertising and promotional costs, net of cooperative advertising allowances, as a percent to net sales | 4.5 | % | 4.3 | % | 4.2 | % |
We identified the assessment of the carrying value of its long-lived assets. If estimated cash flows significantly differcertain property and equipment as a critical audit matter. Subjective and challenging auditor judgment was required to assess the fair value estimates made related to certain properties, specifically identifying comparable sales transactions and market rent assumptions, as well as assessing adjustments to the comparable market data based on the specific characteristics of the property.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s impairment assessment process for property and equipment, including controls related to fair value estimates made related to the underlying properties. We involved valuation professionals with specialized skills and knowledge who assisted in:
• | Developing independent fair value estimates for certain properties by selecting comparable sales transactions and market rent assumptions based on publicly available market data for comparable assets, and making certain adjustments considering the location, quality of the property and real estate market conditions |
• | Comparingtheindependentfairvalueestimates for certain properties totheCompany’sfairvalueestimatesthatwereultimatelyusedtoidentifyandrecord,ifapplicable,impairment. |
Assessment of the carrying value of goodwill in the future,Macy’s reporting unit
As discussed in Notes 4 and 6 to the consolidated financial statements, during 2020 the Company recognized $2,982 million of goodwill impairment for the Macy’s reporting unit. The goodwill impairment resulted from a sustained decline in the Company's market capitalization and changes in the Company’s long-term projections driven largely by the impacts of the COVID-19 pandemic. The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate that the carrying value of a reporting unit likely exceeds its fair value. This involves estimating the fair value of reporting units using a market approach or a combination of a market approach and income approach, as appropriate.
We identified the assessment of the carrying value of goodwill in the Macy’s reporting unit as a critical audit matter. Specialized skills and knowledge were required to evaluate the company-specific risk premium applied in discounting management’s financial projections. Subjective and challenging auditor judgment was required to evaluate comparable market-based information, including assessing the control premium implied by a comparison of management’s discounted financial projections to the Company’s market capitalization.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the assessment of the carrying value of goodwill in the Macy’s reporting unit, including a control related to management's review of the company-specific risk premium. We involved valuation professionals with specialized skills and knowledge who assisted in evaluating the company-specific risk premium by:
• | Considering how management’s financial projections compared to publicly-available forecasts of comparable companies |
• | Evaluating the implied control premium calculated as part of a market capitalization reconciliation relative to a range of control premiums on observed transactions in the industry. |
/s/KPMGLLP
WehaveservedastheCompany’sauditorsince1988.
Cincinnati,Ohio
March29,2021
MACY’S, INC.
CONSOLIDATEDSTATEMENTSOF OPERATIONS
(millions,exceptpersharedata)
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net sales |
| $ | 17,346 |
|
| $ | 24,560 |
|
| $ | 24,971 |
|
Credit card revenues, net |
|
| 751 |
|
|
| 771 |
|
|
| 768 |
|
Cost of sales |
|
| (12,286 | ) |
|
| (15,171 | ) |
|
| (15,215 | ) |
Selling, general and administrative expenses |
|
| (6,767 | ) |
|
| (8,998 | ) |
|
| (9,039 | ) |
Gains on sale of real estate |
|
| 60 |
|
|
| 162 |
|
|
| 389 |
|
Restructuring, impairment, store closing and other costs |
|
| (3,579 | ) |
|
| (354 | ) |
|
| (136 | ) |
Operating income (loss) |
|
| (4,475 | ) |
|
| 970 |
|
|
| 1,738 |
|
Benefit plan income, net |
|
| 54 |
|
|
| 31 |
|
|
| 39 |
|
Settlement charges |
|
| (84 | ) |
|
| (58 | ) |
|
| (88 | ) |
Interest expense |
|
| (284 | ) |
|
| (205 | ) |
|
| (261 | ) |
Financing costs |
|
| (5 | ) |
|
| 0 |
|
|
| 0 |
|
Losses on early retirement of debt |
|
| 0 |
|
|
| (30 | ) |
|
| (33 | ) |
Interest income |
|
| 4 |
|
|
| 20 |
|
|
| 25 |
|
Income (loss) before income taxes |
|
| (4,790 | ) |
|
| 728 |
|
|
| 1,420 |
|
Federal, state and local income tax benefit (expense) |
|
| 846 |
|
|
| (164 | ) |
|
| (322 | ) |
Net income (loss) |
|
| (3,944 | ) |
|
| 564 |
|
|
| 1,098 |
|
Net loss attributable to noncontrolling interest |
|
| 0 |
|
|
| 0 |
|
|
| 10 |
|
Net income (loss) attributable to Macy's, Inc. shareholders |
| $ | (3,944 | ) |
| $ | 564 |
|
| $ | 1,108 |
|
Basic earnings (loss) per share attributable to Macy's, Inc. shareholders |
| $ | (12.68 | ) |
| $ | 1.82 |
|
| $ | 3.60 |
|
Diluted earnings (loss) per share attributable to Macy's, Inc. shareholders |
| $ | (12.68 | ) |
| $ | 1.81 |
|
| $ | 3.56 |
|
TheaccompanyingnotesareanintegralpartoftheseConsolidatedFinancialStatements.
MACY’S, INC.
CONSOLIDATEDSTATEMENTSOFCOMPREHENSIVE INCOME (LOSS)
(millions)
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net income (loss) |
| $ | (3,944 | ) |
| $ | 564 |
|
| $ | 1,098 |
|
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) and prior service credit on post employment and postretirement benefit plans, net of tax effect of $37 million, $36 million and $52 million |
|
| 107 |
|
|
| (107 | ) |
|
| (151 | ) |
Reclassifications to net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss and prior service cost on post employment and postretirement benefit plans, net of tax effect of $12 million, $8 million and $7 million |
|
| 35 |
|
|
| 23 |
|
|
| 23 |
|
Settlement charges, net of tax effect of $22 million, $14 million and $23 million |
|
| 62 |
|
|
| 44 |
|
|
| 65 |
|
Total other comprehensive income (loss) |
|
| 204 |
|
|
| (40 | ) |
|
| (63 | ) |
Comprehensive income (loss) |
|
| (3,740 | ) |
|
| 524 |
|
|
| 1,035 |
|
Comprehensive loss attributable to noncontrolling interest |
|
| 0 |
|
|
| 0 |
|
|
| 10 |
|
Comprehensive income (loss) attributable to Macy's, Inc. shareholders |
| $ | (3,740 | ) |
| $ | 524 |
|
| $ | 1,045 |
|
TheaccompanyingnotesareanintegralpartoftheseConsolidatedFinancialStatements.
MACY’S, INC.
CONSOLIDATED BALANCE SHEETS
(millions)
|
| January 30, 2021 |
|
| February 1, 2020 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,679 |
|
| $ | 685 |
|
Receivables |
|
| 276 |
|
|
| 409 |
|
Merchandise inventories |
|
| 3,774 |
|
|
| 5,188 |
|
Prepaid expenses and other current assets |
|
| 455 |
|
|
| 528 |
|
Total Current Assets |
|
| 6,184 |
|
|
| 6,810 |
|
Property and Equipment – net |
|
| 5,940 |
|
|
| 6,633 |
|
Right of Use Assets |
|
| 2,878 |
|
|
| 2,668 |
|
Goodwill |
|
| 828 |
|
|
| 3,908 |
|
Other Intangible Assets – net |
|
| 437 |
|
|
| 439 |
|
Other Assets |
|
| 1,439 |
|
|
| 714 |
|
Total Assets |
| $ | 17,706 |
|
| $ | 21,172 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Short-term debt |
| $ | 452 |
|
| $ | 539 |
|
Merchandise accounts payable |
|
| 1,978 |
|
|
| 1,682 |
|
Accounts payable and accrued liabilities |
|
| 2,927 |
|
|
| 3,448 |
|
Income taxes |
|
| 0 |
|
|
| 81 |
|
Total Current Liabilities |
|
| 5,357 |
|
|
| 5,750 |
|
Long-Term Debt |
|
| 4,407 |
|
|
| 3,621 |
|
Long-Term Lease Liabilities |
|
| 3,185 |
|
|
| 2,918 |
|
Deferred Income Taxes |
|
| 908 |
|
|
| 1,169 |
|
Other Liabilities |
|
| 1,296 |
|
|
| 1,337 |
|
Shareholders’ Equity: |
|
|
|
|
|
|
|
|
Common stock (310.5 and 309.0 shares outstanding) |
|
| 3 |
|
|
| 3 |
|
Additional paid-in capital |
|
| 571 |
|
|
| 621 |
|
Accumulated equity |
|
| 3,928 |
|
|
| 7,989 |
|
Treasury stock |
|
| (1,161 | ) |
|
| (1,241 | ) |
Accumulated other comprehensive loss |
|
| (788 | ) |
|
| (995 | ) |
Total Shareholders' Equity |
|
| 2,553 |
|
|
| 6,377 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 17,706 |
|
| $ | 21,172 |
|
TheaccompanyingnotesareanintegralpartoftheseConsolidatedFinancialStatements.
MACY’S, INC.
CONSOLIDATEDSTATEMENTS OFCHANGES INSHAREHOLDERS’EQUITY
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
| Total |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Other |
|
| Macy's, Inc. |
|
| Non- |
|
| Total |
| |||||
|
| Common |
|
| Paid-In |
|
| Accumulated |
|
| Treasury |
|
| Comprehensive |
|
| Shareholders’ |
|
| controlling |
|
| Shareholders' |
| ||||||||
|
| Stock |
|
| Capital |
|
| Equity |
|
| Stock |
|
| Income (Loss) |
|
| Equity |
|
| Interest |
|
| Equity |
| ||||||||
Balance at February 3, 2018 |
| $ | 3 |
|
| $ | 676 |
|
| $ | 7,246 |
|
| $ | (1,456 | ) |
| $ | (724 | ) |
| $ | 5,745 |
|
| $ | (12 | ) |
| $ | 5,733 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
| 1,108 |
|
|
|
|
|
|
|
|
|
|
| 1,108 |
|
|
| (10 | ) |
|
| 1,098 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (63 | ) |
|
| (63 | ) |
|
|
|
|
|
| (63 | ) |
Common stock dividends ($ 1.51 per share) |
|
|
|
|
|
|
|
|
|
| (468 | ) |
|
|
|
|
|
|
|
|
|
| (468 | ) |
|
|
|
|
|
| (468 | ) |
Stock-based compensation expense |
|
|
|
|
|
| 63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 63 |
|
|
|
|
|
|
| 63 |
|
Stock issued under stock plans |
|
|
|
|
|
| (87 | ) |
|
|
|
|
|
| 138 |
|
|
|
|
|
|
| 51 |
|
|
|
|
|
|
| 51 |
|
Stranded tax costs (a) |
|
|
|
|
|
|
|
|
| 164 |
|
|
|
|
|
|
| (164 | ) |
|
| 0 |
|
|
|
|
|
|
| 0 |
| |
Macy's China Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
| 22 |
|
|
| 22 |
| |
Balance at February 2, 2019 |
|
| 3 |
|
|
| 652 |
|
|
| 8,050 |
|
|
| (1,318 | ) |
|
| (951 | ) |
|
| 6,436 |
|
|
| 0 |
|
|
| 6,436 |
|
Cumulative-effect adjustment (b) |
|
|
|
|
|
|
|
|
|
| (158 | ) |
|
|
|
|
|
|
|
|
|
| (158 | ) |
|
|
|
|
|
| (158 | ) |
Net income |
|
|
|
|
|
|
|
|
|
| 564 |
|
|
|
|
|
|
|
|
|
|
| 564 |
|
|
|
|
|
|
| 564 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (40 | ) |
|
| (40 | ) |
|
|
|
|
|
| (40 | ) |
Common stock dividends ($ 1.51 per share) |
|
|
|
|
|
|
|
|
|
| (470 | ) |
|
|
|
|
|
|
|
|
|
| (470 | ) |
|
|
|
|
|
| (470 | ) |
Stock repurchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1 | ) |
|
|
|
|
|
| (1 | ) |
|
|
|
|
|
| (1 | ) |
Stock-based compensation expense |
|
|
|
|
|
| 38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 38 |
|
|
|
|
|
|
| 38 |
|
Stock issued under stock plans |
|
|
|
|
|
| (69 | ) |
|
|
|
|
|
| 78 |
|
|
|
|
|
|
| 9 |
|
|
|
|
|
|
| 9 |
|
Other |
|
|
|
|
|
|
|
|
| 3 |
|
|
|
|
|
|
| (4 | ) |
|
| (1 | ) |
|
|
|
|
|
| (1 | ) | |
Balance at February 1, 2020 |
|
| 3 |
|
|
| 621 |
|
|
| 7,989 |
|
|
| (1,241 | ) |
|
| (995 | ) |
|
| 6,377 |
|
|
| 0 |
|
|
| 6,377 |
|
Net loss |
|
|
|
|
|
|
|
|
|
| (3,944 | ) |
|
|
|
|
|
|
|
|
|
| (3,944 | ) |
|
|
|
|
|
| (3,944 | ) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 204 |
|
|
| 204 |
|
|
|
|
|
|
| 204 |
|
Common stock dividends ($ 0.3775 per share) |
|
|
|
|
|
|
|
|
|
| (117 | ) |
|
|
|
|
|
|
|
|
|
| (117 | ) |
|
|
|
|
|
| (117 | ) |
Stock-based compensation expense |
|
|
|
|
|
| 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 31 |
|
|
|
|
|
|
| 31 |
|
Stock issued under stock plans |
|
|
|
|
|
| (81 | ) |
|
|
|
|
|
| 80 |
|
|
|
|
|
|
| (1 | ) |
|
|
|
|
|
| (1 | ) |
Other |
|
|
|
|
|
|
|
|
|
| 0 |
|
|
|
|
|
|
| 3 |
|
|
| 3 |
|
|
|
|
|
|
| 3 |
|
Balance at January 30, 2021 |
| $ | 3 |
|
| $ | 571 |
|
| $ | 3,928 |
|
| $ | (1,161 | ) |
| $ | (788 | ) |
| $ | 2,553 |
|
| $ | 0 |
|
| $ | 2,553 |
|
(a) | RepresentsthereclassificationofstrandedtaxeffectstoretainedearningsasaresultofU.S.federaltaxreform. |
(b) | Representsthecumulative-effectadjustmenttoretainedearningsfortheadoptionofAccountingStandardsUpdate2016-02(ASU-2016-02),Leases(Topic842),onFebruary3,2019. |
TheaccompanyingnotesareanintegralpartoftheseConsolidatedFinancialStatements.
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (3,944 | ) |
| $ | 564 |
|
| $ | 1,098 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring, impairment, store closing and other costs |
|
| 3,579 |
|
| 354 |
|
| 136 |
| ||
Settlement charges |
|
| 84 |
|
|
| 58 |
|
|
| 88 |
|
Depreciation and amortization |
|
| 959 |
|
|
| 981 |
|
|
| 962 |
|
Benefit plans |
|
| 47 |
|
|
| 31 |
|
|
| 30 |
|
Stock-based compensation expense |
|
| 31 |
|
|
| 38 |
|
|
| 63 |
|
Gains on sale of real estate |
|
| (60 | ) |
|
| (162 | ) |
|
| (389 | ) |
Deferred income taxes |
|
| (327 | ) |
|
| (6 | ) |
|
| 112 |
|
Amortization of financing costs and premium on acquired debt |
|
| 18 |
|
|
| 4 |
|
|
| (15 | ) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivables |
|
| 132 |
|
|
| (9 | ) |
|
| (61 | ) |
(Increase) decrease in merchandise inventories |
|
| 1,406 |
|
|
| 75 |
|
|
| (87 | ) |
Decrease in prepaid expenses and other current assets |
|
| 51 |
|
|
| 89 |
|
|
| 21 |
|
Increase in merchandise accounts payable |
|
| 237 |
|
|
| 40 |
|
|
| 55 |
|
Increase (decrease) in accounts payable and accrued liabilities |
|
| (759 | ) |
|
| (257 | ) |
|
| 14 |
|
Decrease in current income taxes |
|
| (617 | ) |
|
| (60 | ) |
|
| (136 | ) |
Change in other assets and liabilities |
|
| (188 | ) |
|
| (132 | ) |
|
| (156 | ) |
Net cash provided by operating activities |
|
| 649 |
|
|
| 1,608 |
|
|
| 1,735 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (338 | ) |
|
| (902 | ) |
|
| (657 | ) |
Capitalized software |
|
| (128 | ) |
|
| (255 | ) |
|
| (275 | ) |
Disposition of property and equipment |
|
| 113 |
|
|
| 185 |
|
|
| 474 |
|
Other, net |
|
| 28 |
|
|
| (30 | ) |
|
| 2 |
|
Net cash used by investing activities |
|
| (325 | ) |
|
| (1,002 | ) |
|
| (456 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt issued |
|
| 2,780 |
|
|
| 0 |
|
|
| 0 |
|
Debt issuance costs |
|
| (95 | ) |
|
| (3 | ) |
|
| 0 |
|
Debt repaid |
|
| (2,049 | ) |
|
| (597 | ) |
|
| (1,149 | ) |
Dividends paid |
|
| (117 | ) |
|
| (466 | ) |
|
| (463 | ) |
Increase (decrease) in outstanding checks |
|
| 181 |
|
|
| (62 | ) |
|
| 16 |
|
Acquisition of treasury stock |
|
| (1 | ) |
|
| (1 | ) |
|
| 0 |
|
Issuance of common stock |
|
| 0 |
|
|
| 6 |
|
|
| 45 |
|
Proceeds from noncontrolling interest |
|
| 0 |
|
|
| 0 |
|
|
| 7 |
|
Net cash provided (used) by financing activities |
|
| 699 |
|
|
| (1,123 | ) |
|
| (1,544 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| 1,023 |
|
|
| (517 | ) |
|
| (265 | ) |
Cash, cash equivalents and restricted cash beginning of period |
|
| 731 |
|
|
| 1,248 |
|
|
| 1,513 |
|
Cash, cash equivalents and restricted cash end of period |
| $ | 1,754 |
|
| $ | 731 |
|
| $ | 1,248 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 257 |
|
| $ | 242 |
|
| $ | 328 |
|
Interest received |
|
| 5 |
|
|
| 20 |
|
|
| 25 |
|
Income taxes paid (net of refunds received) |
|
| 98 |
|
|
| 229 |
|
|
| 345 |
|
Restricted cash, end of period |
|
| 75 |
|
|
| 46 |
|
|
| 86 |
|
TheaccompanyingnotesareanintegralpartoftheseConsolidatedFinancialStatements.
MACY’S, INC.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
1. | OrganizationandSummaryofSignificantAccountingPolicies |
Nature of Operations
Macy’s,Inc.,togetherwithitssubsidiaries(the“Company”),isanomnichannelretailorganizationoperatingstores,websitesandmobileapplicationsunderthreebrands(Macy’s,Bloomingdale’sandbluemercury)thatsellawiderangeofmerchandise,includingapparelandaccessories(men's,women'sandkids'),cosmetics,homefurnishingsandother consumergoods.TheCompanyhasstoresin43states,theDistrictofColumbia,PuertoRicoandGuam.AsofJanuary 30, 2021,theCompany’soperationsandoperatingsegmentswereconductedthroughMacy’s, Market by Macy’s, Macy'sBackstage,Bloomingdale’s,Bloomingdale’sTheOutlet,andbluemercury,whichareaggregatedinto1reportingsegmentinaccordancewiththeFinancialAccountingStandardsBoard(“FASB”)AccountingStandardsCodification(“ASC”)Topic280,SegmentReporting.ThemetricsusedbymanagementtoassesstheperformanceoftheCompany’soperatingdivisionsincludesalestrends,grossmarginrates,expenserates,andratesofearningsbeforeinterestandtaxes(“EBIT”)andearningsbeforeinterest,taxes,depreciationandamortization(“EBITDA”).TheCompany’soperatingdivisionshavehistoricallyhadsimilareconomiccharacteristicsandareexpectedtohavesimilareconomiccharacteristicsandlong-termfinancialperformance infutureperiods.
FiscalYear
TheCompany’sfiscalyearendsontheSaturdayclosesttoJanuary31.Fiscalyears2020,2019and2018endedonJanuary 30, 2021,February 1, 2020andFebruary 2, 2019,respectively, andincluded52weeks.ReferencestoyearsintheConsolidatedFinancialStatementsrelatetofiscalyears ratherthancalendaryears.
BasisofPresentation
InAugust2015,theCompanyestablishedajointventure,Macy'sChinaLimited,ofwhichtheCompanyheldasixty-fivepercentownershipinterestandHongKong-basedFungRetailingLimitedheldtheremainingthirty-fivepercent ownershipinterest.Macy'sChinaLimitedsoldmerchandiseinChinathroughane-commercepresenceonAlibabaGroup's TmallGlobal.InJanuary2019,theCompanyendedthejointventurewithFungRetailingLimitedafterwindingdownthe operationsofMacy'sChinaLimitedearlierin2018.Inconjunctionwiththeterminationofthejointventure,theCompany acquiredthenoncontrollinginterestinMacy'sChinaLimitedfromFungRetailingLimited,resultinginonehundredpercent ownership.Fortheperiodoftimepriortotheacquisitionofthenoncontrollinginterest,FungRetailingLimited'sthirty-five percentproportionateshareoftheresultsofMacy'sChinaLimitedwasreportedasnoncontrollinginterestinthe ConsolidatedFinancialStatements.Allsignificantintercompanytransactionswereeliminated.
For 2020, 2019and2018,theConsolidatedFinancialStatementsincludetheaccountsofMacy's,Inc.andits100%-owned subsidiariesand,fortheapplicableperiods,themajority-ownedsubsidiary,Macy'sChinaLimited.
Certainreclassificationsweremadetoprioryears'amountstoconformwiththeclassificationsofsuchamountsinthe mostrecentyears.
UseofEstimates
ThepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnited StatesofAmericarequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamounts ofrevenuesandexpensesduringthereportingperiod.Suchestimatesandassumptionsaresubjecttoinherentuncertainties, including the ultimate financial impact of the COVID-19 pandemic, whichmayresultinactualamountsdifferingfromreportedamounts.
NetSales
RevenueisrecognizedwhencustomersobtaincontrolofgoodsandservicespromisedbytheCompany.Theamountofrevenuerecognizedisbasedontheamountthatreflectstheconsiderationthatisexpectedtobereceivedinexchangefor thoserespectivegoodsandservices.SeeNote 3,Revenue,forfurtherdiscussionoftheCompany'saccountingpoliciesfor revenuefromcontractswithcustomers.
F-11
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
CostofSales
Costofsalesconsistsofthecostofmerchandise,includinginboundfreight,shippingandhandlingcosts,and depreciation.Anestimatedallowanceforfuturesalesreturnsisrecordedandcostofsalesisadjustedaccordingly.
CashandCashEquivalents
Cashandcashequivalentsincludecashandliquidinvestmentswithoriginalmaturitiesofthreemonthsorless.Cash andcashequivalentsincludesamountsdueinrespectofcreditcardsalestransactionsthataresettledearlyinthefollowing periodintheamountof $92 millionatJanuary 30, 2021,and $118 million atFebruary 1, 2020.
Investments
TheCompanyfromtimetotimeinvestsindebtandequitysecurities,includingcompaniesengagedincomplementary businesses.AlldebtsecuritiesheldbytheCompanyareaccountedforunderASCTopic320,Investments– DebtSecurities,whileallmarketablesecuritiesheldbytheCompanyareaccountedforunderASCTopic321,Investments – EquitySecurities.Unrealizedholdinggainsandlossesontradingsecuritiesandequitysecuritieswithareadily determinablefairvaluearerecognizedintheConsolidatedStatementsofOperations.Equitysecuritieswithoutareadily determinablefairvaluearegenerallyrecordedatcostandsubsequentlyadjusted,innetincome,forobservableprice changes(i.e.,pricesinorderlytransactionsfortheidenticalinvestmentorsimilarinvestmentofthesameissuer).
Receivables
Receivableswere $276 million atJanuary 30, 2021,comparedto $409 million atFebruary 1, 2020.
TheCompanyandCitibank,theownerofmostoftheCompany'screditassets,arepartytoalong-termmarketing andservicingalliancepursuanttothetermsoftheProgramAgreement.Income earnedundertheProgramAgreementistreatedascreditcardrevenues,netontheConsolidatedStatementsofOperations. UndertheProgramAgreement,Citibankoffersproprietaryandnon-proprietarycreditcardstotheCompany’scustomers.
MerchandiseInventories
Merchandiseinventoriesarevaluedatlowerofcostormarketusingthelast-in,first-out("LIFO")retailinventory method.Undertheretailinventorymethod,inventoryissegregatedintodepartmentsofmerchandisehavingsimilar characteristics,andisstatedatitscurrentretailsellingvalue.Inventoryretailvaluesareconvertedtoacostbasisby applyingspecificaveragecostfactorsforeachmerchandisedepartment.Costfactorsrepresenttheaveragecost-to-retail ratioforeachmerchandisedepartmentbasedonbeginninginventoryandtheannualpurchaseactivity.AtJanuary 30, 2021,andFebruary 1, 2020,merchandiseinventoriesvaluedatLIFO,includingadjustmentsasnecessarytorecordinventoryat thelowerofcostormarket,approximatedthecostofsuchinventoriesusingthefirst-in,first-out("FIFO")retailinventory method.TheapplicationoftheLIFOretailinventorymethoddidnotresultintherecognitionofanyLIFOchargesorcreditsaffectingcostofsalesfor2020,2019or2018.Theretailinventorymethodinherentlyrequiresmanagementjudgmentsandestimates,suchastheamountandtimingofpermanentmarkdownstoclearunproductiveorslow-moving inventory,whichmayimpacttheendinginventoryvaluationaswellasgrossmargins.
Permanentmarkdownsdesignatedforclearanceactivityarerecordedwhentheutilityoftheinventoryhas diminished.Factorsconsideredinthedeterminationofpermanentmarkdownsincludecurrentandanticipateddemand, customerpreferences,ageofthemerchandiseandfashiontrends.Whenadecisionismadetopermanentlymarkdown merchandise,theresultinggrossmarginreductionisrecognizedintheperiodthemarkdownisrecorded.
Physicalinventoriesaregenerallytakenwithineachmerchandisedepartmentannually,andinventoryrecordsareadjustedaccordingly,resultingintherecordingofactualshrinkage.Physicalinventoriesaretakenatallstorelocationsforsubstantiallyallmerchandisecategoriesapproximatelythreeweeksbeforetheendoftheyear.Shrinkageisestimatedasapercentageofsalesatinterimperiodsandforthisapproximatethree-weekperiod,basedonhistoricalshrinkagerates. Whileitisnotpossibletoquantifytheimpactfromeachcauseofshrinkage,theCompanyhaslosspreventionprograms andpoliciesthatareintendedtominimizeshrinkage,includingtheuseofradiofrequencyidentificationcyclecountsand interiminventoriestokeeptheCompany'smerchandisefilesaccurate.
VendorAllowances
TheCompanyreceivescertainallowancesasreimbursementformarkdownstakenand/ortosupportthegross marginsearnedinconnectionwiththesalesofmerchandise.Theseallowancesarerecognizedwhenearned.TheCompany
F-12
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
alsoreceivesadvertisingallowancesfromapproximately 460 ofitsmerchandisevendorspursuanttocooperative advertisingprograms,withsomevendorsparticipatinginmultipleprograms.Theseallowancesrepresentreimbursements byvendorsofcostsincurredbytheCompanytopromotethevendors’merchandiseandarenettedagainstadvertisingand promotionalcostswhentherelatedcostsareincurred.Advertisingallowancesinexcessofcostsincurredarerecordedasa reductionofmerchandisecostsand,ultimately,throughcostofsaleswhenthemerchandiseissold.
ThearrangementspursuanttowhichtheCompany’svendorsprovideallowances,whilebinding,aregenerallyinformalinnatureandoneyearorlessinduration.Thetermsandconditionsofthesearrangementsvarysignificantlyfrom vendortovendorandareinfluencedby, amongotherthings,thetypeofmerchandisetobesupported.
Advertising
Advertisingandpromotionalcostsaregenerallyexpensedatfirstshowing.Advertisingandpromotionalcostsand cooperativeadvertisingallowanceswereasfollows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
|
|
|
|
| (millions) |
|
|
|
|
| |
Gross advertising and promotional costs |
| $ | 907 |
|
| $ | 1,330 |
|
| $ | 1,358 |
|
Cooperative advertising allowances |
|
| 89 |
|
|
| 188 |
|
|
| 196 |
|
Advertising and promotional costs, net of cooperative advertising allowances |
| $ | 818 |
|
| $ | 1,142 |
|
| $ | 1,162 |
|
Net sales |
| $ | 17,346 |
|
| $ | 24,560 |
|
| $ | 24,971 |
|
Advertising and promotional costs, net of cooperative advertising allowances, as a percent to net sales |
|
| 4.7 | % |
|
| 4.6 | % |
|
| 4.7 | % |
PropertyandEquipment
Depreciationofownedpropertiesisprovidedprimarilyonastraight-linebasisovertheestimatedassetlives,which rangefromfifteen to fifty yearsforbuildingsandbuildingequipmentandthree to fifteen yearsforfixturesandequipment. Realestatetaxesandinterestonconstructioninprogressandlandunderdevelopmentarecapitalized.Amountscapitalized areamortizedovertheestimatedlivesoftherelateddepreciableassets.TheCompanyreceivescontributionsfrom developersandmerchandisevendorstofundbuildingimprovementandtheconstructionofvendorshops.Such contributionsaregenerallynettedagainstthecapitalexpenditures.
Buildingsonleasedlandandleaseholdimprovementsareamortizedovertheshorteroftheireconomiclivesorthe leaseterm,beginningonthedatetheassetisputintouse.
Thecarryingvalueoflong-livedassets,inclusiveofROUassets,isperiodicallyreviewedbytheCompanywhenever eventsorchangesincircumstancesindicatethatapotentialimpairmenthasoccurred.Forlong-livedassetsheldforuse,a potentialimpairmenthasoccurredifprojectedfutureundiscountedcashflowsarelessthanthecarryingvalueoftheassets. Theestimateofcashflowsincludesmanagement’sassumptionsofcashinflowsandoutflowsdirectlyresultingfromtheuseofthoseassetsinoperations.Whenapotentialimpairmenthasoccurred,animpairmentwrite-downisrecordedifthe carryingvalueofthelong-livedassetexceedsitsfairvalue.TheCompanybelievesitsestimatedcashflowsaresufficienttosupportthecarryingvalueofitslong-livedassets.Ifestimatedcashflowssignificantlydifferinthefuture,theCompanymayberequiredtorecordassetimpairmentwrite-downs.
IftheCompanycommitstoaplantodisposeofalong-livedassetbeforetheendofitspreviouslyestimateduseful life,estimatedcashflowsarerevisedaccordingly,andtheCompanymayberequiredtorecordanassetimpairmentwrite-down.Additionally,relatedliabilitiesarisesuchasseverance,contractualobligationsandotheraccrualsassociatedwithstoreclosingsfromdecisionstodisposeofassets.TheCompanyestimatestheseliabilitiesbasedonthefactsand circumstancesinexistenceforeachrestructuringdecision.TheamountstheCompanywillultimatelyrealizeordisburse coulddifferfromtheamountsassumedinarrivingattheassetimpairmentandrestructuringchargerecorded.
TheCompanyclassifiescertainlong-livedassetsasheldfordisposalbysaleandceasesdepreciationwhenthe particularcriteriaforsuchclassificationaremet,includingtheprobablesalewithinoneyear.Forlong-livedassetstobedisposedofbysale,animpairmentchargeisrecordedifthecarryingamountoftheassetexceedsitsfairvaluelesscoststosell.Suchvaluationsincludeestimationsoffairvaluesandincrementaldirectcoststotransactasale.
F-13
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
Leases
Operatingleaseliabilitiesarerecognizedattheleasecommencementdatebasedonthepresentvalueofthefixed leasepaymentsusingtheCompany'sincrementalborrowingratesforitspopulationofleases.RelatedoperatingROU assetsarerecognizedbasedontheinitialpresentvalueofthefixedleasepayments,reducedbycontributionsfrom landlords,plusanyprepaidrentanddirectcostsfromexecutingtheleases.ROUassetsaretestedforimpairmentinthe samemanneraslong-livedassets.CertainoftheCompany’srealestateleaseshavetermsthatextendforasignificantnumberofyearsandprovideforrentalratesthatincreaseordecreaseovertime.Leasetermsincludethenoncancellable portionoftheunderlyingleasesalongwithanyreasonablycertainleaseperiodsassociatedwithavailablerenewalperiods, terminationoptionsandpurchaseoptions.Leaseagreementswithleaseandnon-leasecomponentsarecombinedasa singleleasecomponentforallclassesofunderlyingassets.
Leaseswithaninitialtermof12 monthsorlessarenotrecordedonthebalancesheet;theCompanyrecognizeslease expensefortheseleasesonastraight-linebasisovertheleaseterm.Variableleasepaymentsarerecognizedasleaseexpenseastheyareincurred.
ASU2016-02,Leases (Topic 842),asamended,wasadoptedbythe CompanyonFebruary3,2019,utilizingamodifiedretrospectiveapproachthatallowedfortransitionintheperiodof adoption.TheCompanyadoptedthepackageofpracticalexpedientsavailableattransitionthatretainedthelease classificationandinitialdirectcostsforanyleasesthatexistedpriortoadoptionofthestandard.Contractsenteredinto priortoadoptionwerenotreassessedforleasesorembeddedleases.Uponadoption,theCompanyusedhindsightin determiningleasetermandimpairment.Forleaseandnon-leasecomponents,theCompanyhaselectedtoaccountforboth asasingleleasecomponent. PriortoFebruary3,2019,leaseswereaccountedforunderASCSubtopic840,Leases.
GoodwillandOtherIntangibleAssets
Thecarryingvalueofgoodwillandotherintangibleassetswithindefinitelivesarereviewedatleastannuallyfor possibleimpairmentinaccordancewithASCSubtopic350-20,Goodwill.Goodwillandotherintangibleassetswith indefiniteliveshavebeenassignedtoreportingunitsforpurposesofimpairmenttesting.Thereportingunitsarethe Company’sretailoperatingdivisions.GoodwillandotherintangibleassetswithindefinitelivesaretestedforimpairmentannuallyattheendofthefiscalmonthofMay.
TheCompanyevaluatesqualitativefactorstodetermineifitismorelikelythannotthatthefairvalueofareporting unitorotherintangibleassetswithindefinitelivesislessthanitscarryingvalueandwhetheritisnecessarytoperformthe quantitativeimpairmenttest.Ifrequired,theCompanyperformsaquantitativeimpairmenttestwhichinvolvesa comparisonofeachreportingunit'sorotherintangibleassetswithindefinitelives’fairvaluestoitscarryingvalue. Estimatingthefairvaluesofthereportingunitsorotherintangibleassetswithindefinitelivesinvolvestheuseof significantassumptions,estimatesandjudgmentswithrespecttoavarietyoffactors,includingsales,grossmarginandSG&A expense rates,capitalexpenditures,cashflowsandtheselectionanduseofanappropriatediscountrateandmarketvalues andmultiplesofearningsandrevenuesofsimilarpubliccompanies.Theprojectedsales,grossmarginandSG&AexpenserateassumptionsandcapitalexpendituresarebasedontheCompany’sannualbusinessplanorotherforecastedresults. Discountratesreflectmarket-basedestimatesoftherisksassociatedwiththeprojectedcashflowsofthereportingunitor indefinitelivedintangibleasset.
Theestimatesoffairvalueofreportingunitsorotherintangibleassetswithindefinitelivesarebasedonthebest informationavailableasofthedateoftheassessment.Ifthecarryingvalueofareportingunitexceedsitsfairvalue,an impairmentlosswillberecognizedinanamountequaltosuchexcess,limitedtothetotalamountofgoodwillallocatedto thereportingunit.Ifthecarryingvalueofanindividualindefinite-livedintangibleassetexceedsitsfairvalue,such individualindefinite-livedintangibleassetiswrittendownbyanamountequaltosuchexcess.
CapitalizedSoftware
TheCompanycapitalizespurchasedandinternallydevelopedsoftwareandamortizessuchcoststoexpenseona straight-linebasisgenerallyoverfour to five years.CapitalizedsoftwareisincludedinotherassetsontheConsolidated BalanceSheets.
GiftCards
TheCompanyonlyoffersno-fee,non-expiringgiftcardstoitscustomers.Atthetimegiftcardsaresoldorissued,norevenueisrecognized;rather,theCompanyrecordsanaccruedliabilitytocustomers.Theliabilityisrelievedand
F-14
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
revenueisrecognizedequaltotheamountredeemedformerchandise.TheCompanyrecordsrevenuefromunredeemedgiftcards (breakage)innetsalesonapro-ratabasisoverthetimeperiodgiftcardsareactuallyredeemed.Atleastthreeyearsof historicaldata,updatedannually,isusedtodetermineactualredemptionpatterns.TheCompanyrecordsbreakageincomewithinnetsalesontheConsolidatedStatementsofOperations.
LoyaltyPrograms
TheCompanymaintainscustomerloyaltyprogramsinwhichcustomersearnpointsbasedontheirpurchases.Under theMacy’sStarRewardsloyaltyprogram,pointsareearnedbasedoncustomers’spendingonMacy’sprivatelabelandco-brandedcreditcardsaswellasnon-proprietarycards.UndertheMacy’sbrand,theCompanypreviouslyparticipatedinacoalitionprogram("Plenti")wherebycustomerscouldearnpointsbased onspendinglevelswithbonusopportunitiesthroughvarioustargetedoffersandpromotionsatMacy'sandother partners.TheCompany'sparticipationinPlentiendedonMay3,2018.The Company’s Bloomingdale’sLoyallist and bluemercury BlueRewards programs provide tender neutral points-based programs to their customers.TheCompanyrecognizestheestimatednetamountoftherewardsthatwillbeearnedandredeemedasareductiontonetsalesatthetimeoftheinitialtransactionandastenderwhenthe pointsaresubsequentlyredeemedbyacustomer.
Self-InsuranceReserves
TheCompany,throughitsinsurancesubsidiary,isself-insuredforworkerscompensationandgeneralliabilityclaimsuptocertainmaximumliabilityamounts.Althoughtheamountsaccruedareactuariallydeterminedbasedonanalysisof historicaltrendsoflosses,settlements,litigationcostsandotherfactors,theamountstheCompanywillultimatelydisburse coulddifferfromsuchaccruedamounts.
PostEmploymentandPostretirementObligations
TheCompany,throughitsactuaries,utilizesassumptionswhenestimatingtheliabilitiesforpensionandotheremployeebenefitplans.Theseassumptions,whereapplicable,includethediscountratesusedtodeterminetheactuarial presentvalueofprojectedbenefitobligations,therateofincreaseinfuturecompensationlevels,mortalityrates,thelong- termrateofreturnonassetsandthegrowthinhealthcarecosts.TheCompanymeasurespostemploymentand postretirementassetsandobligationsusingthemonth-endthatisclosesttotheCompany'sfiscalyear-endoraninterimperiodquarter-endifaplanisdeterminedtoqualifyforaremeasurement.ThebenefitexpenseisgenerallyrecognizedintheConsolidatedFinancialStatementsonanaccrualbasisovertheaverageremaininglifetimeofparticipants,andthe accruedbenefitsarereportedinotherassets,accountspayableandaccruedliabilitiesandotherliabilitiesonthe ConsolidatedBalanceSheets,asappropriate.
IncomeTaxes
Incometaxesareaccountedforundertheassetandliabilitymethod.Deferredincometaxassetsandliabilitiesare recognizedforthefuturetaxconsequencesattributabletodifferencesbetweenthefinancialstatementcarryingamountsofexistingassetsandliabilitiesandtheirrespectivetaxbases,andnetoperatinglossandtaxcreditcarryforwards.Deferred incometaxassetsandliabilitiesaremeasuredusingenactedtaxratesexpectedtoapplytotaxableincomeintheyearsin whichthosetemporarydifferencesareexpectedtoberecoveredorsettled.TheeffectondeferredincometaxassetsandliabilitiesofachangeintaxratesisrecognizedintheConsolidatedStatementsofOperationsintheperiodthatincludesthe enactmentdate.Deferredincometaxassetsarereducedbyavaluationallowancewhenitismorelikelythannotthatsome portionofthedeferredincometaxassetswillnotberealized.
StockBasedCompensation
TheCompanyrecordsstock-basedcompensationexpenseaccordingtotheprovisionsofASCTopic718,Compensation–StockCompensation.ASCTopic718requiresallshare-basedpaymentstoemployees,includinggrantsofemployeestockoptions,toberecognizedinthefinancialstatementsbasedontheirfairvalues.UndertheprovisionsofASCTopic718,theCompanydeterminestheappropriatefairvaluemodeltobeusedforvaluingshare-basedpaymentsandtheamortizationmethodforcompensationcost.
ComprehensiveIncome (Loss)
Totalcomprehensiveincome (loss)representsthechangeinequityduringaperiodfromsourcesotherthantransactionswithshareholdersand,assuch,includesnetincome (loss).FortheCompany,theonlyothercomponentsoftotalcomprehensiveincome (loss) for2020,2019and2018relatetopostemploymentandpostretirementplanitems.SettlementchargesincurredareincludedasaseparatecomponentofincomebeforeincometaxesintheConsolidated
F-15
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
StatementsofOperations.Amortization reclassificationsoutofaccumulatedothercomprehensivelossareincludedinthecomputationofnetperiodicbenefitcost (income)andareincludedinbenefitplanincome,netontheConsolidatedStatementsofOperations.
RecentAccountingPronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the financial instrument impairment model to utilize an expected loss methodology in place an incurred loss methodology. The new guidance applies to financial assets measured at an amortized cost basis, including receivables that result from revenue transactions and held-to-maturity debt securities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption was permitted for fiscal years beginning after December 15, 2018. The Company adopted this guidance in the first quarter of fiscal 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which amends the fair value disclosure requirements by removing, modifying and adding certain disclosures. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company adopted this guidance in the first quarter of fiscal 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The amendments may be requiredapplied either retrospectively or prospectively to record asset impairment write-downs.
In March 2020, the SEC issued a final rule, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, that simplifies the disclosure requirements related to registered securities under Rule 3-10 of Regulation S-X. The rule replaces the requirement to provide condensed consolidating financial information with a requirement to present summarized financial information of the issuers and guarantors. It also requires qualitative disclosures with respect to information about guarantors, the terms and conditions of guarantees and the factors that may affect payment. These disclosures may be provided outside the footnotes to the Company’s consolidated financial statements. In applying this rule, the Company commitshas elected to provide these disclosures in Item 7. Management’s Discussion & Analysis of Financial Conditions and Results of Operations.
2. | Impact of COVID-19 |
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a planglobal pandemic, which continues to disposespread throughout the United States. The COVID-19 pandemic had a negative impact on the Company's 2020 operations and financial results, and the full financial impact of the pandemic cannot be reasonably estimated at this time due to uncertainty as to the severity and duration of the pandemic. The following summarizes the actions taken and impacts from the COVID-19 pandemic during 2020.
• | The Company temporarily closed all stores on March 18, 2020, which included all Macy’s, Bloomingdale’s, bluemercury, Macy’s Backstage, Bloomingdales the Outlet and Market by Macy’s stores. Stores began reopening on May 4, 2020 and substantially all of the Company's stores were open by the end of the second quarter of 2020. |
• | In an effort to increase liquidity, the Company fully drew on its $1,500 million credit facility, announced the suspension of quarterly cash dividends beginning in the second quarter of 2020 and took additional steps to reduce discretionary spending. The Company's Board of Directors also rescinded its authorization of any |
F-16
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
unused amounts under the Company's share repurchase program. In June 2020, the Company completed financing activities totaling nearly $4.5 billion and used a portion of the proceeds from these activities, as well as cash on hand, to repay its credit facility. To create greater flexibility for future liquidity needs, the Company executed an exchange offer and consent solicitation in July 2020 for $465 million of previously issued unsecured notes. See Note 7, "Financing," for further discussion on these activities. |
• | To improve the Company's cash position and reduce its cash expenditures, the Company's Board of Directors and Chief Executive Officer did not receive compensation from April 1, 2020 through June 30, 2020. In addition, the Company deferred cash expenditures where possible and temporarily implemented a furlough for the majority of its colleague population which ended for most colleagues at the beginning of July 2020. Certain executives not impacted by the furlough took a temporary reduction of their pay through June 30, 2020. |
• | In June 2020, the Company announced a restructuring to align its cost base with anticipated near-term sales as the business recovers from the impact of the COVID-19 pandemic. The Company reduced corporate and management headcount by approximately 3,900. Additionally, the Company reduced staffing across its stores portfolio, supply chain and customer support network, which it expects to adjust as sales recover. During the second quarter of 2020, the Company recognized $154 million of expense for severance related to this reduction in force, of which substantially all has been paid as of January 30, 2021. |
• | During 2020, the Company deferred occupancy payments for a significant number of its stores. Such pandemic related deferrals were included in accounts payable and accrued liabilities and the Company continued to recognize expense during the deferral periods based on the contractual terms of the lease agreements. As of January 30, 2021, substantially all occupancy payment deferrals have been paid. |
• | During 2020, the Company incurred non-cash impairment charges primarily related to long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value. The Company also incurred non-cash impairment charges during 2020 on goodwill as a result of the sustained decline in the Company's market capitalization and decline in projected cash flows primarily as a result of the COVID-19 pandemic. See Note 4, "Restructuring, Impairment, Store Closings and Other Costs" and Note 6, "Goodwill and Other Intangible Assets," respectively, for further discussion of these charges. |
• | On March 27, 2020, the CARES Act was signed into law, which included payroll tax credits for employee retention, deferral of payroll taxes, and several income tax provisions, including modifications to the net interest deduction limitation, changes to certain property depreciation and carryback of certain operating losses. |
The CARES Act impacted the Company's annual effective tax rate and the income tax benefit recognized during 2020. Specifically, the Company recognized an annual net operating loss that is available for carryback at a long-lived 35% federal income tax rate rather than the current 21% federal income tax rate. During 2020, the resultant benefit of this rate differential was offset by the impact of the non-tax deductible component of the goodwill impairment charge. The net impact of these items is the primary driver of the effective tax rate decrease when compared to 2019. As of January 30, 2021, the Company recognized a $520 million income tax receivable, which is included within Other Assets on the Consolidated Balance Sheets. See Note 9, "Taxes" for further discussion on and disclosure of 2020 income taxes.
During 2020, the Company recognized $60 million in employee retention payroll tax credits and elected to defer payment of approximately $134 million of the employer portion of social security taxes. The Company expects to pay the deferred payroll taxes in the third quarter of fiscal 2021.
F-17
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
3. | Revenue |
Netsales
RevenueisrecognizedwhencustomersobtaincontrolofgoodsandservicespromisedbytheCompany.Theamountofrevenuerecognizedisbasedontheamountthatreflectstheconsiderationthatisexpectedtobereceivedinexchangefor thoserespectivegoodsandservices.Macy'saccountedforapproximately 89%, 88%, and 89% oftheCompany'snetsalesfor 2020, 2019 and 2018, respectively. In addition, digital sales accounted for approximately 44%, 25% and 23% of net sales in 2020, 2019 and 2018, respectively.DisaggregationoftheCompany'snetsalesbyfamilyofbusiness for2020,2019and2018wereasfollows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Women’s Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances |
| $ | 7,206 |
|
| $ | 9,454 |
|
| $ | 9,457 |
|
Women’s Apparel |
|
| 2,909 |
|
|
| 5,411 |
|
|
| 5,642 |
|
Men’s and Kids’ |
|
| 3,486 |
|
|
| 5,628 |
|
|
| 5,699 |
|
Home/Other (a) |
|
| 3,745 |
|
|
| 4,067 |
|
|
| 4,173 |
|
Total |
| $ | 17,346 |
|
| $ | 24,560 |
|
| $ | 24,971 |
|
(a) | Otherprimarilyincludesrestaurantsales,allowanceformerchandisereturnsadjustments,certainloyaltyprogramincomeandbreakageincomefrom unredeemedgiftcards. |
TheCompany'srevenuegeneratingactivitiesincludethefollowing:
RetailSales
Retailsalesincludemerchandisesales,inclusiveofdeliveryincome,licenseddepartmentincome,salesofprivate brandgoodsdirectlytothirdpartyretailersandsalesofexcessinventorytothirdparties.Salesofmerchandisearerecorded atthetimeofshipmenttothecustomerandarereportednetofestimatedmerchandisereturnsandcertaincustomer incentives.Commissionsearnedonsalesgeneratedbylicenseddepartmentsareincludedasacomponentoftotalnetsales andarerecognizedasrevenueatthetimemerchandiseissoldtocustomers.Servicerevenues(e.g.,alterationandcosmetic services)arerecordedatthetimethecustomerreceivesthebenefitoftheservice.TheCompanyhaselectedtopresentsales taxesonanetbasisand,assuch,salestaxesareincludedinaccountspayableandaccruedliabilitiesuntilremittedtothe taxingauthorities.
MerchandiseReturns
TheCompanyestimatesmerchandisereturnsusinghistoricaldataandrecognizesanallowancethatreducesnetsales andcostofsales.Theliabilityformerchandisereturnsisincludedinaccountspayableandaccruedliabilitiesonthe Company'sConsolidatedBalanceSheetsandwas $159 million asofJanuary 30, 2021,and $213 million asofFebruary 1, 2020.Includedinprepaidexpensesandothercurrentassetsisanasset beforetotaling $103 million asofJanuary 30, 2021,and $147 millionasofFebruary 1, 2020,fortherecoverablecostofmerchandiseestimatedtobereturnedbycustomers.
Gift Cards andCustomerLoyaltyPrograms
Theliabilityforunredeemedgiftcardsandcustomerloyaltyprogramsisincludedinaccountspayableandaccrued liabilitiesontheCompany'sConsolidatedBalanceSheetsandwas $616 million asofJanuary 30, 2021,and $839 million as ofFebruary 1, 2020.During 2020 and 2018,theCompanyrecognizedapproximately $30 and$40million, respectively,inbreakageincomerelatedto changesinbreakagerateestimates.Changesintheliabilityforunredeemedgiftcardsandcustomerloyaltyprogramsareas follows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
|
|
|
|
| (millions) |
|
|
|
|
| |
Balance, beginning of year |
| $ | 839 |
|
| $ | 856 |
|
| $ | 906 |
|
Liabilities issued but not redeemed (a) |
|
| 262 |
|
|
| 554 |
|
|
| 570 |
|
Revenue recognized from beginning liability |
|
| (485 | ) |
|
| (571 | ) |
|
| (620 | ) |
Balance, end of year |
| $ | 616 |
|
| $ | 839 |
|
| $ | 856 |
|
(a) | Netofestimatedbreakageincome. |
F-18
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
CreditCardRevenues,net
InconnectionwiththesaleofmostoftheCompany'screditcardaccountsandrelatedreceivablebalancesto Citibank,theCompanyandCitibankenteredintoalong-termmarketingandservicingalliancepursuanttothetermsofan amendedandrestatedCreditCardProgramAgreement("CreditCardProgram").TheProgramAgreementexpiresMarch 31,2025,subjecttoanadditionalrenewaltermofthree years.TheProgramAgreementprovidesfor,amongotherthings, (i)theownershipbyCitibankoftheaccountspurchasedbyCitibank,(ii)theownershipbyCitibankofnewaccounts openedbytheCompany’scustomers,(iii)theprovisionofcreditbyCitibanktotheholdersofthecreditcardsassociatedwiththeforegoingaccounts,(iv)theservicingoftheforegoingaccounts,and(v)theallocationbetweenCitibankandthe Companyoftheeconomicbenefitsandburdensassociatedwiththeforegoingandotheraspectsofthealliance.
AspartoftheProgramAgreement,theCompanyreceivespaymentsforprovidingacombinationofinterrelated servicesandintellectualpropertytoCitibankinsupportoftheunderlyingCreditCardProgram.Revenuebasedonthe spendingactivityoftheunderlyingaccountsisrecognizedastherespectivecardpurchasesoccurandtheCompany’sprofitshareisrecognizedbasedontheperformanceoftheunderlyingportfolio.Revenueassociatedwiththeestablishmentof newcreditaccountsandassistinginthereceiptofpaymentsforexistingaccountsisrecognizedassuchactivitiesoccur. Creditcardrevenuesincludefinancecharges,latefeesandotherrevenuegeneratedbytheCompany’sCreditCardProgram,netoffraudlossesandexpensesassociatedwithestablishingnewaccounts.
PursuanttotheProgramAgreement,theCompanycontinuestoprovidecertainservicingfunctionsrelatedtothe accountsandrelatedreceivablesownedbyCitibankandreceivescompensationfromCitibankfortheseservices.The amountsearnedundertheProgramAgreementrelatedtotheservicingfunctionsaredeemedadequatecompensationand, accordingly,noservicingassetorliabilityhasbeenrecordedontheConsolidatedBalanceSheets.
TheCompany’screditcardrevenues,netwere $751 million for2020, $771 million for2019and $768 million for2018.AmountsreceivedundertheProgramAgreementwere $882 millionfor2020, $985 millionfor2019and $966 millionfor2018,andareincludedwithincreditcardrevenues,netontheConsolidatedStatementsofOperations.
Under the terms of the Program Agreement, if sales decrease by more than 34% over a twelve-month period as compared to the Benchmark Year, defined as the twelve-month period from July 2006 to June 2007 in the Program Agreement, Citibank has the ability to provide written notice to terminate the agreement prior to the end of its previously estimated useful life, estimated cash flows are revised accordingly, and the Company may be required to record an asset impairment write-down. Additionally, related liabilities arise such as severance, contractual obligations and other accruals associated with store closings from decisions to dispose of assets. The Company estimates these liabilities basedcurrent term. Based on the factsresults for the Company’s February 2021 fiscal period, sales for the most recent twelve-month period ended February 27, 2021, have decreased by more than 34% as compared to the Benchmark Year. We are in on-going discussions with Citibank concerning the Program Agreement and circumstances in existence for each restructuring decision. The amounts the Company will ultimately realize or disburse could differ from the amounts assumed in arriving at the asset impairment and restructuring charge recorded.
4. | Restructuring,Impairment,Store ClosingandOtherCosts |
Restructuring,impairment,storeclosingandothercosts(income)consistofthefollowing:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
|
|
|
|
| (millions) |
|
|
|
|
| |
Asset Impairments |
| $ | 3,280 |
|
| $ | 197 |
|
| $ | 64 |
|
Restructuring |
|
| 224 |
|
|
| 123 |
|
|
| 80 |
|
Other |
|
| 75 |
|
|
| 34 |
|
|
| (8 | ) |
|
| $ | 3,579 |
|
| $ | 354 |
|
| $ | 136 |
|
During 2020, primarily as a result of the COVID-19 pandemic, the Company incurred non-cash impairment charges totaling $3,280 million, the majority of which was recognized during the first quarter of 2020 and consisted of:
• | $3,080 million of goodwill impairments, with $2,982 million attributable to the Macy’s reporting unit and $98 million attributable to the bluemercury reporting unit. See discussion at Note 6, “Goodwill and Other Intangible Assets.” |
• | $200 million of impairments primarily related to long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value. |
As disclosed in Note 2 “Impact of COVID-19”, the Company announced a restructuring plan in the second quarter
F-19
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
of 2020 that resulted in the recognition $154 million of expense for severance. Substantially all of this severance was paid as of January 30, 2021.
OnFebruary4,2020,theCompany announceditsPolarisstrategy,amulti-yearplandesignedtostabilizeprofitabilityandpositiontheCompanyforsustainable,profitablegrowth.Thestrategy,developedin2019 and refined in 2020,includesinitiativesfocusedongrowing the Company’s digital channels, expanding the Company’s off-mall store presence and modernizing the Company’s technology and supply chain infrastructures.Inconjunctionwiththeseinitiatives,theCompanyannouncedplanstocloseapproximately125ofitsleast productivestoresoverthenextthreeyears,including 37 store closures that were announced in 2020 and 30 store closures that were announcedin2019.Aspartoftheresetofitscostbase,the Companydevelopedaplantostreamlinetheorganizationthroughreductionsincorporateandsupportfunctions,campusconsolidationsandtheconsolidationoftheCompany'ssoleheadquarterstoNewYork, NewYork.
Asummaryoftherestructuringandothercashactivityfor 2020 and 2019relatedtothePolarisstrategy,whichareincludedwithinaccountspayableandaccruedliabilities,isasfollows:
|
|
|
|
|
| Professional |
|
|
|
|
| |
|
|
|
|
|
| fees and |
|
|
|
|
| |
|
| Severance and |
|
| other related |
|
|
|
|
| ||
|
| other benefits |
|
| charges |
|
| Total |
| |||
|
|
|
|
|
| (millions) |
|
|
|
|
| |
Balance at February 2, 2019 |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Additions charged to expense |
|
| 121 |
|
|
| 36 |
|
|
| 157 |
|
Cash payments |
|
| (6 | ) |
|
| (27 | ) |
|
| (33 | ) |
Balance at February 1, 2020 |
|
| 115 |
|
|
| 9 |
|
|
| 124 |
|
Additions charged to expense |
|
| 55 |
|
|
| 17 |
|
|
| 72 |
|
Cash payments |
|
| (156 | ) |
|
| (24 | ) |
|
| (180 | ) |
Balance at January 30, 2021 |
| $ | 14 |
|
| $ | 2 |
|
| $ | 16 |
|
TheCompanymayincursignificantadditional chargesinfutureperiodsasitcontinues the execution of its Polarisstrategyinitiatives.Sincethescopeofsucheffortsarenotfullyknownatthistime,thebenefitsofsuchinitiatives,andanyrelatedchargesorcapitalexpenditures,arenotcurrentlyquantifiable.ActionsassociatedwiththePolarisstrategyarecurrentlyexpectedtocontinuethrough2022.
During2018,theCompanyclosedorannouncedtheclosureof10Macy'sstores.Inaddition,theCompany introducedaplanin2018thatreducedthecomplexityoftheuppermanagementstructuretoincreasethespeedofdecision making,reducecostsandrespondtochangingcustomerexpectations.Restructuring,impairment,storeclosingandother costsfor2018includedcostsandexpenses,includingseveranceandotherhuman-resourcerelatedcosts,primarily associatedwiththeorganizationalchangesandstoreclosingsannouncedinJanuary2019.For2018,theCompanyrecordedexpenseofapproximately$80millionofseveranceandotherhumanresource-relatedcostsassociatedwiththese restructuringactivities.
TheCompanyexpectstopayoutthemajorityofthe2020accruedseverancecosts,whichareincludedinaccounts payableandaccruedliabilitiesontheConsolidatedBalanceSheets,priortotheendofthesecondquarterof2021.The 2019and2018accruedseverancecosts,whichwereincludedinaccountspayableandaccruedliabilitiesontherespective ConsolidatedBalanceSheets,werepaidoutintheyearsubsequenttoincurringsuchseverancecosts.
F-20
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
5. | PropertiesandLeases |
PropertyandEquipment,net
Themajorclassesofpropertyandequipment,netasofJanuary 30, 2021andFebruary 1, 2020areasfollows:
|
| January 30, |
|
| February 1, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (millions) |
| |||||
Land |
| $ | 1,390 |
|
| $ | 1,436 |
|
Buildings on owned land |
|
| 3,650 |
|
|
| 3,822 |
|
Buildings on leased land and leasehold improvements |
|
| 1,268 |
|
|
| 1,365 |
|
Fixtures and equipment |
|
| 4,032 |
|
|
| 4,402 |
|
|
|
| 10,340 |
|
|
| 11,025 |
|
Less accumulated depreciation and amortization |
|
| 4,400 |
|
|
| 4,392 |
|
|
| $ | 5,940 |
|
| $ | 6,633 |
|
Inconnectionwithvariousshoppingcenteragreements,theCompanyisobligatedtooperatecertainstoreswithinthe centersforperiodsofuptofifteen years.Someoftheseagreementsrequirethatthestoresbeoperatedunderaparticular name.
Leases
TheCompanyleasesaportionoftherealestateandpersonalpropertyusedinitsoperations.Mostleasesrequirethe Companytopayrealestatetaxes,maintenance,insuranceandothersimilarcosts;somealsorequireadditionalpayments basedonpercentagesofsalesandsomecontainpurchaseoptions.CertainoftheCompany'sleasescontaincovenantsthat restricttheabilityofthetenant(typicallyasubsidiaryoftheCompany)totakespecifiedactions(includingthepaymentof dividendsorotheramountsonaccountofitscapitalstock)unlessthetenantsatisfiescertainfinancialtests.
ROUassetsandleaseliabilitiesconsistof:
|
|
|
| January 30, |
|
| February 1, |
| ||
|
|
|
| 2021 |
|
| 2020 |
| ||
|
| Classification |
| (millions) |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
Finance lease assets (a) |
| Right of Use Assets |
| $ | 12 |
|
| $ | 13 |
|
Operating lease assets (b) |
| Right of Use Assets |
|
| 2,866 |
|
|
| 2,655 |
|
Total lease assets |
|
|
| $ | 2,878 |
|
| $ | 2,668 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Finance (a) |
| Accounts payable and accrued liabilities |
| $ | 2 |
|
| $ | 2 |
|
Operating (b) |
| Accounts payable and accrued liabilities |
|
| 198 |
|
|
| 331 |
|
Noncurrent |
|
|
|
|
|
|
|
|
|
|
Finance (a) |
| Long-Term Lease Liabilities |
|
| 19 |
|
|
| 21 |
|
Operating (b) |
| Long-Term Lease Liabilities |
|
| 3,166 |
|
|
| 2,897 |
|
Total lease liabilities |
|
|
| $ | 3,385 |
|
| $ | 3,251 |
|
(a) | Financeleaseassetsarerecordednetofaccumulatedamortizationof $13 million and $12millionasof January 30, 2021 and February 1, 2020, respectively.Asof January 30, 2021 and February 1, 2020,financeleaseassets andnoncurrentleaseliabilitieseachincluded $2millionofnon-leasecomponents. |
(b) | AsofJanuary 30, 2021,operatingleaseassetsincluded$383millionofnon-leasecomponentsandcurrentandnoncurrentleaseliabilitiesincluded$35 millionand$384million,respectively,ofnon-leasecomponents. AsofFebruary 1, 2020,operatingleaseassetsincluded$403millionofnon-leasecomponentsandcurrentandnoncurrentleaseliabilitiesincluded$36 millionand$397million,respectively,ofnon-leasecomponents. |
F-21
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
Thecomponentsofnetleaseexpense,recognizedprimarilywithinselling,generalandadministrativeexpensesare disclosedbelow.For 2020 and 2019,leaseexpenseincluded $87 million and $83million, respectively,relatedtonon-leasecomponents.
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
|
|
|
|
| (millions) |
|
|
|
|
| |
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (c) – |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
| $ | 376 |
|
| $ | 364 |
|
| $ | 317 |
|
Variable rents |
|
| 45 |
|
|
| 54 |
|
|
| 11 |
|
|
|
| 421 |
|
|
| 418 |
|
|
| 328 |
|
Less income from subleases – |
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
| (1 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| $ | 420 |
|
| $ | 416 |
|
| $ | 327 |
|
Personal property – Operating leases |
| $ | 7 |
|
| $ | 8 |
|
| $ | 9 |
|
(c) | Certainsupplychainoperatingleaseexpenseamountsareincludedincostofsales. |
AsofJanuary 30, 2021,thematurityofleaseliabilitiesisasfollows:
|
|
|
|
|
| Operating |
|
|
|
|
| |
|
| Finance |
|
| Leases |
|
|
|
|
| ||
|
| Leases |
|
| (d and e) |
|
| Total |
| |||
|
|
|
|
|
| (millions) |
|
|
|
|
| |
Fiscal year |
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
| $ | 3 |
|
| $ | 239 |
|
| $ | 242 |
|
2022 |
|
| 3 |
|
|
| 350 |
|
|
| 353 |
|
2023 |
|
| 3 |
|
|
| 344 |
|
|
| 347 |
|
2024 |
|
| 3 |
|
|
| 334 |
|
|
| 337 |
|
2025 |
|
| 3 |
|
|
| 329 |
|
|
| 332 |
|
After 2025 |
|
| 16 |
|
|
| 5,443 |
|
|
| 5,459 |
|
Total undiscounted lease payments |
|
| 31 |
|
|
| 7,039 |
|
|
| 7,070 |
|
Less amount representing interest |
|
| 10 |
|
|
| 3,675 |
|
|
| 3,685 |
|
Total lease liabilities |
| $ | 21 |
|
| $ | 3,364 |
|
| $ | 3,385 |
|
(d) | Operatingleasepaymentsinclude$3,063millionrelatedtooptionstoextendleasetermsthatarereasonablycertainofbeingexercisedandexclude $2millionoflegallybindingminimumleasepaymentsforleasessignedbutnotyetcommenced. |
(e) | Operatingleasepaymentsinclude$1,151millionrelatedtonon-leasecomponentpayments,with$840millionofsuchpaymentsrelatedtooptionsto extendleasetermsthatarereasonablycertainofbeingexercised. |
Additionalsupplementalinformationregardingassumptionsandcashflowsforoperatingandfinanceleasesisas follows:
|
| January 30, |
|
| February 1, |
| ||
Lease Term and Discount Rate |
| 2021 |
|
| 2020 |
| ||
Weighted-average remaining lease term (years) |
|
|
|
|
|
|
|
|
Finance leases |
|
| 12.1 |
|
|
| 12.7 |
|
Operating leases |
|
| 22.4 |
|
|
| 23.3 |
|
Weighted-average discount rate |
|
|
|
|
|
|
|
|
Finance leases |
|
| 6.70 | % |
|
| 6.69 | % |
Operating leases |
|
| 6.32 | % |
|
| 6.53 | % |
F-22
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
|
| 52 Weeks Ended |
|
| 52 Weeks Ended |
| ||
Other Information |
| January 30, 2021 |
|
| February 1, 2020 |
| ||
|
| (millions) |
| |||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows used from operating leases |
| $ | 521 |
|
| $ | 363 |
|
Financing cash flows used from financing leases |
|
| 4 |
|
|
| 2 |
|
Leased assets obtained in exchange for new operating lease liabilities |
|
| 430 |
|
|
| 216 |
|
TheCompanyisaguarantorwithrespecttocertainleaseobligationsassociatedwithTheMayDepartmentStores Companyandpreviouslydisposedsubsidiariesorbusinesses.Theleases,oneofwhichincludespotentialextensionsto 2070,havefutureminimumleasepaymentsaggregating$211millionandareoffsetbypaymentsfromexistingtenantsandsubtenants.Inaddition,theCompanyiscontingentlyliableforotherexpensesrelatedtotheaboveleases,suchasproperty taxesandcommonareamaintenance,whicharealsopayablebyexistingtenantsandsubtenants.Potentialliabilitiesrelated totheseguaranteesaresubjecttocertaindefensesbytheCompany.TheCompanybelievesthattheriskofsignificantlossfromtheguaranteesoftheseleaseobligationsisremote.
6. | GoodwillandOtherIntangibleAssets |
ThefollowingsummarizestheCompany’sgoodwillandotherintangibleassets:
|
| January 30, |
|
| February 1, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (millions) |
| |||||
Non-amortizing intangible assets |
|
|
|
|
|
|
|
|
Goodwill |
| $ | 9,290 |
|
| $ | 9,290 |
|
Accumulated impairment losses |
|
| (8,462 | ) |
|
| (5,382 | ) |
|
|
| 828 |
|
|
| 3,908 |
|
Tradenames |
|
| 403 |
|
|
| 403 |
|
|
| $ | 1,231 |
|
| $ | 4,311 |
|
Amortizing intangible assets |
|
|
|
|
|
|
|
|
Favorable leases and other contractual assets |
| $ | 5 |
|
| $ | 5 |
|
Tradenames |
|
| 43 |
|
|
| 43 |
|
|
|
| 48 |
|
|
| 48 |
|
Accumulated amortization |
|
|
|
|
|
|
|
|
Favorable leases and other contractual assets |
|
| (1 | ) |
|
| (1 | ) |
Tradenames |
|
| (13 | ) |
|
| (11 | ) |
|
|
| (14 | ) |
|
| (12 | ) |
|
| $ | 34 |
|
| $ | 36 |
|
Capitalized software |
|
|
|
|
|
|
|
|
Gross balance |
| $ | 1,136 |
|
| $ | 1,262 |
|
Accumulated amortization |
|
| (645 | ) |
|
| (620 | ) |
|
| $ | 491 |
|
| $ | 642 |
|
As a result of the sustained decline in the Company's market capitalization and changes in the Company's long-term projections driven largely by the impacts of the COVID-19 pandemic, the Company determined a triggering event had occurred that required an interim impairment assessment for all of its reporting units and indefinite lived intangible assets during the first quarter of 2020. The Company determined the fair value of each of its reporting units using a market approach or a combination of a market approach and income approach, as appropriate. Relative to the leased property. TheCompany’s 2019 assessment, as part of this 2020 assessment, it was determined that an increase in the discount rate applied in the valuation was required to align with market-based assumptions and company-specific risk. This higher discount rate, in conjunction with revised long-term projections, resulted in lower fair values of the reporting units. As a result, the Company receives contributions from landlords to fund buildingsrecognized $2,982 million and leasehold improvements. Such contributions are recorded as deferred rent and amortized as reductions to lease expense over the lease term.
As of May 2, 2020, the Company elected to perform a qualitative impairment test on its intangible assets with
F-23
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
indefinite lives are reviewed at least annually for possible impairment in accordance with ASC Subtopic 350-20 “Goodwill.” Goodwill and other intangible assets with indefinite lives have been assigned to reporting units for purposes of impairment testing. The reporting units are the Company’s retail operating divisions. Goodwill and other intangible assets with indefinite lives are tested for impairment annually at the end of the fiscal month of May. The Company evaluates qualitative factors to determine ifconcluded that it is more likely than not that the fair value of a reporting unit is less than itsvalues exceeded the carrying value and whether it is necessary to perform the two-step goodwill impairment process. If required, the first step involves a comparison of each reporting unit’s fair value to its carrying valuevalues and the Company estimates fair value based on discounted cash flows. The reporting unit’s discounted cash flows require significant management judgmentintangible assets with respect to sales, gross margin and SG&A rates, capital expenditures andindefinite lives were not impaired.
For the selection and use of an appropriate discount rate. The projected sales, gross margin and SG&A expense rate assumptions and capital expenditures are based on the Company’sCompany's annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows directly resulting from the use of those assets in operations. The estimates of fair value of reporting units are based on the best information availableimpairment assessment as of the dateend of the assessment. If the carrying value of a reporting unit exceeds its estimated fair value in the first step, a second step is performed, in which the reporting unit’s goodwill is written down to its implied fair value. The second step requiresfiscal May, the Company elected to allocate the fair value of the reporting unit derived in the first step to the fair value of the reporting unit’s netperform a qualitative impairment test on its goodwill and intangible assets with any fair value in excess of amounts allocated to such net assets representing the implied fair value of goodwill forindefinite lives and concluded that 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.
Finitelivedtradenamesarebeingamortizedovertheirrespectiveusefullivesof20 years.Favorableleaseintangible assetsarebeingamortizedovertheirrespectiveleaseterms.
Othercontractualassetsandtradenamesamortizationexpenseamountedto the provisions of ASC Topic 815 “Derivatives $2 million for 2020 and Hedging,” which establishes accounting $3millionfor2019,whilefavorable leases,othercontractualassets,and reporting standardstradenamesamortizationexpenseamountedto$10millionfor2018. Capitalizedsoftwareamortizationexpenseamountedto $268 million for derivative instruments2020, $285millionfor2019 and hedging activities and requires recognition $296millionfor2018.
Futureestimatedamortizationexpenseforassets,excludingin-processcapitalizedsoftwareof all derivatives $65millionnotyet placedinserviceas either assets or liabilities and measurement of those instruments at fair value. The Company makes limited use of derivative financial instruments. The Company does not use financial instruments for trading or other speculative purposes and is not a party to any leveraged financial instruments. On the date that the Company enters into a derivative contract, the Company designates the derivative instrument as either a fair value hedge, a cash flow hedge or as a free-standing derivative instrument, each of which would receive different accounting treatment. Prior to entering into a hedge transaction, the Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. Derivative instruments that the Company may use as part of its interest rate risk management strategy include interest rate swap and interest rate cap agreements and Treasury lock agreements. At
|
|
|
| Amortizing |
|
| Capitalized |
| ||
|
|
|
| intangible assets |
|
| Software |
| ||
|
|
|
| (millions) |
| |||||
Fiscal year |
|
|
|
|
|
|
|
|
| |
| 2021 |
|
| $ | 2 |
|
| $ | 214 |
|
| 2022 |
|
|
| 2 |
|
|
| 132 |
|
| 2023 |
|
|
| 2 |
|
|
| 63 |
|
| 2024 |
|
|
| 2 |
|
|
| 17 |
|
| 2025 |
|
|
| 2 |
|
|
| 0 |
|
F-24
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
7. |
Financing |
TheCompany’sdebtisasfollows:
|
| January 30, |
|
| February 1, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (millions) |
| |||||
Short-term debt: |
|
|
|
|
|
|
|
|
3.875% Senior notes due 2022 |
| $ | 450 |
|
| $ | 0 |
|
3.45% Senior notes due 2021 |
|
| 0 |
|
|
| 500 |
|
10.25% Senior debentures due 2021 |
|
| 0 |
|
|
| 33 |
|
Current portion of other long-term obligations |
|
| 2 |
|
|
| 6 |
|
|
| $ | 452 |
|
| $ | 539 |
|
Long-term debt: |
|
|
|
|
|
|
|
|
8.375% Senior secured notes due 2025 |
| $ | 1,300 |
|
| $ | 0 |
|
6.65% Senior secured debentures due 2024 |
|
| 81 |
|
|
| 0 |
|
6.7% Senior secured debentures due 2028 |
|
| 74 |
|
|
| 0 |
|
8.75% Senior secured debentures due 2029 |
|
| 13 |
|
|
| 0 |
|
7.875% Senior secured debentures due 2030 |
|
| 5 |
|
|
| 0 |
|
6.9% Senior secured debentures due 2032 |
|
| 5 |
|
|
| 0 |
|
6.7% Senior secured debentures due 2034 |
|
| 183 |
|
|
| 0 |
|
9.5% amortizing debentures due 2021 |
|
| 0 |
|
|
| 2 |
|
9.75% amortizing debentures due 2021 |
|
| 0 |
|
|
| 1 |
|
3.875% Senior notes due 2022 |
|
| 0 |
|
|
| 450 |
|
2.875% Senior notes due 2023 |
|
| 640 |
|
|
| 640 |
|
4.375% Senior notes due 2023 |
|
| 210 |
|
|
| 210 |
|
3.625% Senior notes due 2024 |
|
| 500 |
|
|
| 500 |
|
4.5% Senior notes due 2034 |
|
| 367 |
|
|
| 367 |
|
6.375% Senior notes due 2037 |
|
| 192 |
|
|
| 192 |
|
5.125% Senior notes due 2042 |
|
| 250 |
|
|
| 250 |
|
4.3% Senior notes due 2043 |
|
| 250 |
|
|
| 250 |
|
6.65% Senior debentures due 2024 |
|
| 41 |
|
|
| 122 |
|
7.6% Senior debentures due 2025 |
|
| 24 |
|
|
| 24 |
|
6.79% Senior debentures due 2027 |
|
| 71 |
|
|
| 71 |
|
7.0% Senior debentures due 2028 |
|
| 105 |
|
|
| 105 |
|
6.7% Senior debentures due 2028 |
|
| 29 |
|
|
| 103 |
|
6.9% Senior debentures due 2029 |
|
| 79 |
|
|
| 79 |
|
8.75% Senior debentures due 2029 |
|
| 0 |
|
|
| 13 |
|
7.875% Senior debentures due 2030 |
|
| 5 |
|
|
| 10 |
|
6.9% Senior debentures due 2032 |
|
| 12 |
|
|
| 17 |
|
6.7% Senior debentures due 2034 |
|
| 18 |
|
|
| 201 |
|
Unamortized debt issue costs and discount |
|
| (77 | ) |
|
| (20 | ) |
Premium on acquired debt, using an effective interest yield of 5.760% to 7.144% |
|
| 30 |
|
|
| 34 |
|
|
| $ | 4,407 |
|
| $ | 3,621 |
|
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Asset Impairments | $ | 265 | $ | 148 | $ | 33 | |||||
Severance | 168 | 123 | 46 | ||||||||
Other | 46 | 17 | 8 | ||||||||
$ | 479 | $ | 288 | $ | 87 |
F-25
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
Interestexpenseandlossesonearlyretirementofdebtareasfollows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
|
|
|
|
| (millions) |
|
|
|
|
| |
Interest on debt |
| $ | 273 |
|
| $ | 211 |
|
| $ | 269 |
|
Amortization of debt premium |
|
| (4 | ) |
|
| (5 | ) |
|
| (7 | ) |
Amortization of financing costs and debt discount |
|
| 23 |
|
|
| 6 |
|
|
| 7 |
|
Interest on capitalized leases |
|
| 1 |
|
|
| 2 |
|
|
| 2 |
|
|
|
| 293 |
|
|
| 214 |
|
|
| 271 |
|
Less interest capitalized on construction |
|
| 9 |
|
|
| 9 |
|
|
| 10 |
|
Interest expense |
| $ | 284 |
|
| $ | 205 |
|
| $ | 261 |
|
Losses on early retirement of debt |
| $ | 0 |
|
| $ | 30 |
|
| $ | 33 |
|
January 28, 2017 | January 30, 2016 | ||||||
(millions) | |||||||
Land | $ | 1,541 | $ | 1,629 | |||
Buildings on owned land | 4,212 | 4,690 | |||||
Buildings on leased land and leasehold improvements | 1,545 | 1,672 | |||||
Fixtures and equipment | 4,541 | 4,910 | |||||
Leased properties under capitalized leases | 34 | 34 | |||||
11,873 | 12,935 | ||||||
Less accumulated depreciation and amortization | 4,856 | 5,319 | |||||
$ | 7,017 | $ | 7,616 |
Capitalized Leases | Operating Leases | Total | |||||||||
(millions) | |||||||||||
Fiscal year | |||||||||||
2017 | $ | 3 | $ | 321 | $ | 324 | |||||
2018 | 3 | 304 | 307 | ||||||||
2019 | 3 | 283 | 286 | ||||||||
2020 | 3 | 249 | 252 | ||||||||
2021 | 3 | 237 | 240 | ||||||||
After 2021 | 37 | 2,289 | 2,326 | ||||||||
Total minimum lease payments | 52 | $ | 3,683 | $ | 3,735 | ||||||
Less amount representing interest | 24 | ||||||||||
Present value of net minimum capitalized lease payments | $ | 28 |
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Real estate (excluding executory costs) | |||||||||||
Capitalized leases – | |||||||||||
Contingent rentals | $ | — | $ | — | $ | — | |||||
Operating leases – | |||||||||||
Minimum rentals | 312 | 288 | 265 | ||||||||
Contingent rentals | 12 | 19 | 22 | ||||||||
324 | 307 | 287 | |||||||||
Less income from subleases – | |||||||||||
Operating leases | (5 | ) | (6 | ) | (8 | ) | |||||
$ | 319 | $ | 301 | $ | 279 | ||||||
Personal property – Operating leases | $ | 11 | $ | 12 | $ | 12 |
2020 Financing Activities
Secured Debt Issuance
On June 8, million
January 28, 2017 | January 30, 2016 | ||||||
(millions) | |||||||
Non-amortizing intangible assets | |||||||
Goodwill | $ | 9,279 | $ | 9,279 | |||
Accumulated impairment losses | (5,382 | ) | (5,382 | ) | |||
3,897 | 3,897 | ||||||
Tradenames | 403 | 414 | |||||
$ | 4,300 | $ | 4,311 | ||||
Amortizing intangible assets | |||||||
Favorable leases and other contractual assets | $ | 141 | $ | 149 | |||
Tradenames | 43 | 43 | |||||
184 | 192 | ||||||
Accumulated amortization | |||||||
Favorable leases and other contractual assets | (85 | ) | (90 | ) | |||
Tradenames | (4 | ) | (2 | ) | |||
(89 | ) | (92 | ) | ||||
$ | 95 | $ | 100 |
(millions) | |||
Fiscal year | |||
2017 | $ | 10 | |
2018 | 10 | ||
2019 | 9 | ||
2020 | 8 | ||
2021 | 6 |
January 28, 2017 | January 30, 2016 | ||||||
(millions) | |||||||
Short-term debt: | |||||||
7.45% Senior debentures due 2017 | $ | 300 | $ | — | |||
5.9% Senior notes due 2016 | — | 577 | |||||
7.45% Senior debentures due 2016 | — | 59 | |||||
Capital lease and current portion of other long-term obligations | 9 | 6 | |||||
$ | 309 | $ | 642 | ||||
Long-term debt: | |||||||
2.875% Senior notes due 2023 | $ | 750 | $ | 750 | |||
3.875% Senior notes due 2022 | 550 | 550 | |||||
4.5% Senior notes due 2034 | 550 | 550 | |||||
3.45% Senior notes due 2021 | 500 | 500 | |||||
3.625% Senior notes due 2024 | 500 | 500 | |||||
6.375% Senior notes due 2037 | 500 | 500 | |||||
4.375% Senior notes due 2023 | 400 | 400 | |||||
6.9% Senior debentures due 2029 | 400 | 400 | |||||
6.7% Senior debentures due 2034 | 400 | 400 | |||||
7.45% Senior debentures due 2017 | — | 300 | |||||
6.65% Senior debentures due 2024 | 300 | 300 | |||||
7.0% Senior debentures due 2028 | 300 | 300 | |||||
6.9% Senior debentures due 2032 | 250 | 250 | |||||
5.125% Senior debentures due 2042 | 250 | 250 | |||||
4.3% Senior notes due 2043 | 250 | 250 | |||||
6.7% Senior debentures due 2028 | 200 | 200 | |||||
6.79% Senior debentures due 2027 | 165 | 165 | |||||
7.875% Senior debentures due 2036 | — | 108 | |||||
8.75% Senior debentures due 2029 | 61 | 61 | |||||
8.5% Senior debentures due 2019 | 36 | 36 | |||||
10.25% Senior debentures due 2021 | 33 | 33 | |||||
7.6% Senior debentures due 2025 | 24 | 24 | |||||
7.875% Senior debentures due 2030 | 18 | 18 | |||||
9.5% amortizing debentures due 2021 | 14 | 17 | |||||
9.75% amortizing debentures due 2021 | 8 | 9 | |||||
Unamortized debt issue costs | (29 | ) | (32 | ) | |||
Unamortized debt discount | (16 | ) | (16 | ) | |||
Premium on acquired debt, using an effective interest yield of 5.542% to 6.021% | 121 | 143 | |||||
Capital lease and other long-term obligations | 27 | 29 | |||||
$ | 6,562 | $ | 6,995 |
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Interest on debt | $ | 392 | $ | 393 | $ | 411 | |||||
Amortization of debt premium | (22 | ) | (21 | ) | (12 | ) | |||||
Amortization of financing costs and debt discount | 5 | 6 | 7 | ||||||||
Interest on capitalized leases | 2 | 2 | 2 | ||||||||
377 | 380 | 408 | |||||||||
Less interest capitalized on construction | 10 | 17 | 13 | ||||||||
Interest expense | $ | 367 | $ | 363 | $ | 395 | |||||
Premium on early retirement of debt | $ | — | $ | — | $ | 17 |
(millions) | |||
Fiscal year | |||
2018 | $ | 6 | |
2019 | 42 | ||
2020 | 539 | ||
2021 | 553 | ||
2022 | — | ||
After 2022 | 5,319 |
Entry into Asset-Based Credit Facility
On November 18, 2014,June 8, 2020, the ABL Borrower, an indirect wholly owned subsidiary of the Company, issued $550and its parent, the ABL Parent, entered into the ABL Credit Facility with Bank of America, N.A., as administrative agent and collateral agent, and the lenders party thereto. As of January 30, 2021, the ABL Credit Facility provides the ABL Borrower with a $2,941 million revolving credit facility (the “Revolving ABL Facility”), including a swingline sub-facility and a letter of credit sub-facility. The ABL Borrower may request increases in the size of the Revolving ABL Facility up to an additional aggregate principal amount of $750 million. As of January 30, 2021, the Company had $142 million of standby letters of credit outstanding under the ABL Credit Facility, which reduces the available borrowing capacity. The Company had 0 borrowings outstanding under the ABL Credit Facility as of January 30, 2021.
Additionally on June 8, 2020 and concurrently with closing the ABL Credit Facility, the ABL Borrower purchased all presently existing inventory, and assumed the liabilities in respect of all presently existing and outstanding trade payables owed to vendors in respect of such inventory, from MRH and certain wholly owned subsidiaries of MRH. The ABL Credit Facility is secured on a first priority basis (subject to customary exceptions) by (i) all assets of the ABL Borrower including all such inventory and the proceeds thereof and (ii) the equity of the ABL Borrower. The ABL Parent guaranteed the ABL Borrower’s obligations under the ABL Credit Facility. The Revolving ABL Facility matures on May 9, 2024.
The ABL Credit Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) 80% (which shall automatically increase to 90% upon the satisfaction of certain conditions, including the delivery of an initial appraisal of the inventory) of the net orderly liquidation percentage of eligible inventory, minus (b) customary reserves. Amounts borrowed under the ABL Credit Facility are subject to interest at a rate per annum equal to (i) prior to the Step Down Date (as defined in the ABL Credit Facility), at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.75% to 3.00% or (b) a base rate plus a margin of 1.75% to 2.00%, in each case depending on revolving line utilization and (ii) after the Step Down Date, at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.25% to 2.50% or (b) a base rate plus a margin of 1.25% to 1.50%, in each case depending on revolving line utilization. The ABL Credit Facility also contains customary covenants that provide for, among other
F-26
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
things, limitations on indebtedness, liens, fundamental changes, restricted payments, cash hoarding, and prepayment of certain indebtedness as well as customary representations and warranties and events of default typical for credit facilities of this type.
The ABL Credit Facility also requires (1) the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any fiscal quarter on or after April 30, 2021, if (a) certain events of default have occurred and are continuing or (b) Availability plus Suppressed Availability (each as defined in the ABL Credit Facility) is less than the greater of (x) 10% of the Loan Cap (as defined in the ABL Credit Facility) and (y) $250 million, in each case, as of the end of such fiscal quarter and (2) prior to April 30, 2021, that the ABL Borrower not permit Availability plus Suppressed Availability to be lower than the greater of (x) 10% of the Loan Cap and (y) $250 million.
Amendment to Existing Credit Agreement
On June 8, 2020, the Company substantially reduced the credit commitments of its existing $1,500 million unsecured credit agreement, which as of January 30, 2021 provided the Company with unsecured revolving credit of up to $1 million.
Exchange Offers and Consent Solicitations for Certain Outstanding Debt Securities of MRH
During the second quarter of 2020, MRH completed exchange offers (each, an “Exchange Offer” and, collectively, the “Exchange Offers”) with eligible holders and received related consents in consent solicitations for each series of notes as follows:
(i) $81 million aggregate principal amount of 4.5% senior notes6.65% Senior Secured Debentures due 2034. This debt was used to pay2024 (“New 2024 Notes”) issued by MRH for the redemption of the $407 million of 7.875% senior notesvalidly tendered (and not validly withdrawn) outstanding 6.65% Senior Debentures due 2015 described above.
(ii) $74 million aggregate principal amount of 3.625%6.7% Senior Secured Debentures due 2028 (“New 2028 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2028 issued by MRH (“Old 2028 Notes”);
(iii) $13 million aggregate principal amount of 8.75% Senior Secured Debentures due 2029 (“New 2029 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 8.75% Senior Debentures due 2029 issued by MRH (“Old 2029 Notes”);
(iv) $5 million aggregate principal amount of 7.875% Senior Secured Debentures due 2030 (“New 2030 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 7.875% Senior Debentures due 2030 issued by MRH (“Old 2030 Notes”);
(v) $5 million aggregate principal amount of 6.9% Senior Secured Debentures due 2032 (“New 2032 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.9% Senior Debentures due 2032 issued by MRH (“Old 2032 Notes”); and
(vi) $183 million aggregate principal amount of 6.7% Senior Secured Debentures due 2034 (“New 2034 Notes” and, together with the New 2024 Notes, New 2028 Notes, New 2029 Notes, New 2030 Notes and New 2032 Notes, the “New Notes” and each series, a “series of New Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2034 issued by MRH (“Old 2034 Notes” and, together with the Old 2024 Notes, Old 2028 Notes, Old 2029 Notes, Old 2030 Notes and Old 2032 Notes, the “Old Notes” and each series, a “series of Old Notes”).
Each New Note issued in the Exchange Offers for a validly tendered Old Note has an interest rate and maturity date that is identical to the interest rate and maturity date of the tendered Old Note, as well as identical interest payment dates and optional redemption prices. The New Notes are MRH’s and Macy’s general, senior unsecured notes dueobligations and are secured by a second-priority lien on the same collateral securing the Notes. Following the settlement, the aggregate principal amounts of each series of Old Notes outstanding are: (i) $41 million Old 2024 Notes, (ii) $29 million Old 2028 Notes, (iii) $5 million Old 2030 Notes, (iv) $12 million Old 2032 Notes and (v) $18 million Old 2034 Notes.
In addition, MRH solicited and received consents from holders of each series of Old Notes (each, a “Consent Solicitation” and, collectively, the proceeds“Consent Solicitations”) pursuant to a separate Consent Solicitation Statement to adopt certain proposed amendments to the indenture governing the Old Notes (the “Existing Indenture”) to conform certain provisions in the negative pledge covenant in the Existing Indenture to the provisions of which were used for general corporate purposes.
F-27
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
$85 million aggregate principal amount of outstanding Old 2024 Notes, (ii) $77 million aggregate principal amount of outstanding Old 2028 Notes, (iii) $13 million aggregate principal amount of outstanding Old 2029 Notes, (iv) $5 million aggregate principal amount of outstanding Old 2030 Notes, (v) $6 million aggregate principal amount of outstanding Old 2032 Notes and (vi) $185 million aggregate principal amount of outstanding Old 2034 Notes.
2019 Financing Activities
DuringDecember2019,theCompanycompletedatenderofferandpurchased$525millioninaggregateprincipalamountofcertainseniorunsecurednotesanddebentures.Thepurchasedseniorunsecurednotesanddebenturesincluded $190millionof4.375%seniornotesdue2023,$113 millionof6.9%seniordebenturesdue2029, $110 millionof2.875%seniornotesdue2023,$100millionof3.875%seniornotesdue2022,and$12millionof7.0%seniordebenturesdue 2028.Thetotalcashcostforthetenderofferwas$553million.TheCompanyrecognized$30millionofexpenserelatedtotherecognitionofthetenderpremiumandothercostsincludingdeferreddebtdiscountamortization.Thisexpenseis presentedaslossesonearlyretirementofdebtontheConsolidatedStatementsofOperationsduring2019.
2018 Financing Activities
During2018,theCompanyrepurchased$344millionfacevalueofseniornotesanddebentures.Thedebtrepurchases weremadeintheopenmarketforatotalcostof$354million,includingexpensesandotherfeesrelatedtothetransactions. Suchrepurchasesresultedintherecognitionofexpenseof$5millionduring2018presentedaslossesonearlyretirement ofdebtontheConsolidatedStatementsofOperations.
DuringDecember2018,theCompanycompletedatenderofferandpurchased$750millioninaggregateprincipalamountofcertainseniorunsecurednotesanddebentures.Thepurchasedseniorunsecurednotesanddebenturesincluded $164millionof6.65%seniordebenturesdue2024,$155millionof7.0%seniordebenturesdue2028,$114 millionof6.9%seniordebenturesdue2029,$103millionof4.5%seniornotesdue2034,$94millionof6.79%seniordebenturesdue 2027,$35millionof6.7%seniordebenturesdue2034,$34millionof6.375%seniornotesdue2037,$34millionof6.7% seniordebenturesdue2028,$10millionof6.9%seniordebenturesdue2032,$5millionof8.75%seniordebenturesdue 2029,and$2millionof7.875%seniordebenturesdue2030.Thetotalcashcostforthetenderofferwas$789million.TheCompanyrecognized$28millionofexpenserelatedtotherecognitionofthetenderpremiumandothercostspartially offsetbytheunamortizeddebtpremiumassociatedwiththisdebt.Thisexpenseispresentedaslossesonearlyretirement ofdebtontheConsolidatedStatementsofOperationsduring2018.
Long-Term Debt Maturities
Futurematuritiesoflong-termdebtareshownbelow:
|
| (millions) |
| |
Fiscal year |
|
|
|
|
2022 |
| $ | 0 |
|
2023 |
|
| 850 |
|
2024 |
|
| 622 |
|
2025 |
|
| 1,324 |
|
2026 |
|
| 0 |
|
After 2026 |
|
| 1,658 |
|
F-28
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
Debt Repayments
During 2020 and 2019,theCompanyrepaid $533 million and$36million, respectively,ofindebtednessatmaturity.
The following table shows the detail of debt repayments:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
|
|
|
|
| (millions) |
|
|
|
|
| |
3.45% Senior notes due 2021 |
| $ | 500 |
|
| $ | 0 |
|
| $ | 0 |
|
6.9% Senior debentures due 2029 |
|
| 0 |
|
|
| 113 |
|
|
| 204 |
|
4.5% Senior notes due 2034 |
|
| 0 |
|
|
| 0 |
|
|
| 183 |
|
7.0% Senior debentures due 2028 |
|
| 0 |
|
|
| 12 |
|
|
| 182 |
|
4.375% Senior notes due 2023 |
|
| 0 |
|
|
| 190 |
|
|
| 0 |
|
3.875% Senior notes due 2022 |
|
| 0 |
|
|
| 100 |
|
|
| 0 |
|
2.875% Senior notes due 2023 |
|
| 0 |
|
|
| 110 |
|
|
| 0 |
|
6.65% Senior debentures due 2024 |
|
| 0 |
|
|
| 0 |
|
|
| 175 |
|
6.7% Senior debentures due 2028 |
|
| 0 |
|
|
| 0 |
|
|
| 94 |
|
6.79% Senior debentures due 2027 |
|
| 0 |
|
|
| 0 |
|
|
| 94 |
|
6.375% Senior notes due 2037 |
|
| 0 |
|
|
| 0 |
|
|
| 77 |
|
6.7% Senior debentures due 2034 |
|
| 0 |
|
|
| 0 |
|
|
| 63 |
|
6.9% Senior debentures due 2032 |
|
| 0 |
|
|
| 0 |
|
|
| 15 |
|
8.75% Senior debentures due 2029 |
|
| 0 |
|
|
| 0 |
|
|
| 5 |
|
7.875% Senior debentures due 2030 |
|
| 0 |
|
|
| 0 |
|
|
| 2 |
|
8.5% Senior debentures due 2019 |
|
| 0 |
|
|
| 36 |
|
|
| 0 |
|
9.5% amortizing debentures due 2021 |
|
| 4 |
|
|
| 4 |
|
|
| 4 |
|
9.75% amortizing debentures due 2021 |
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
10.25% Senior debentures due 2021 |
|
| 33 |
|
|
| 0 |
|
|
| 0 |
|
Revolving credit facility |
|
| 1,500 |
|
|
| 0 |
|
|
| 0 |
|
Other obligations |
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| $ | 2,039 |
|
| $ | 567 |
|
| $ | 1,101 |
|
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
5.9% Senior notes due 2016 | $ | 577 | $ | — | $ | — | |||||
7.875% Senior notes due 2036 | 108 | — | — | ||||||||
7.45% Senior debentures due 2016 | 59 | — | — | ||||||||
7.5% Senior debentures due 2015 | — | 69 | — | ||||||||
8.125% Senior debentures due 2035 | — | 76 | — | ||||||||
5.75% Senior notes due 2014 | — | — | 453 | ||||||||
7.875% Senior debentures due 2015 | — | — | 407 | ||||||||
9.5% amortizing debentures due 2021 | 4 | 4 | 4 | ||||||||
9.75% amortizing debentures due 2021 | 2 | 3 | 2 | ||||||||
Capital leases and other obligations | 1 | — | 4 | ||||||||
$ | 751 | $ | 152 | $ | 870 |
ThefollowingsummarizescertaincomponentsoftheCompany’s other debt obligations:
BankCreditAgreement
OnMay9,2019,theCompanyenteredintoanewcreditagreementwithcertainfinancialinstitutionsthatreplacedthe previouscreditagreementwhichwassettoexpireonMay 6, 2021.Similartothepreviousagreement,thenewcredit agreementprovidedforrevolvingcreditborrowingsandlettersofcreditinanaggregateamountnottoexceed$1,500 million(whichcould increaseto$1,750millionattheoptionoftheCompany,subjecttothewillingnessofexistingornewlenderstoprovidecommitmentsforsuchadditionalfinancing).Thenewcreditagreementisscheduledtoexpireon May 9, 2024,subjecttouptotwoone-yearextensionsthatcouldberequestedbytheCompanyandagreedtobythelenders. On March 19, 2020, due to the impacts of the Company’s debt:
Senior Notes and
Theseniornotesandtheseniordebenturesareunsecuredobligationsofa100%-ownedsubsidiaryofMacy’s,Inc.andParenthasfullyandunconditionallyguaranteedtheseobligations.
F-29
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
OtherFinancingArrangements
At February 1, 2020,theCompanyhad$37millionofcash,includedinprepaid expensesandothercurrentassets,whichwasusedtocollateralizetheCompany’sissuancesofstandbylettersofcredit.Therewere no $142millionand$34million,respectively,ofotherstandbylettersofcreditoutstandingat
Financing Subsequent Event
On March 17, 2021, MRH completed an obligationoffering of a 100%-owned subsidiary of Macy’s, Inc. (“Parent”), is not secured. However, Parent has fully and unconditionally guaranteed this obligation, subject to specified limitations. The Company’s interest coverage ratio for
8. |
AccountsPayableandAccruedLiabilities |
|
| January 30, |
|
| February 1, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (millions) |
| |||||
Accounts payable |
| $ | 878 |
|
| $ | 977 |
|
Gift cards and customer rewards |
|
| 616 |
|
|
| 839 |
|
Lease related liabilities |
|
| 285 |
|
|
| 399 |
|
Taxes other than income taxes |
|
| 265 |
|
|
| 145 |
|
Accrued wages and vacation |
|
| 201 |
|
|
| 194 |
|
Allowance for future sales returns |
|
| 159 |
|
|
| 213 |
|
Current portion of post employment and postretirement benefits |
|
| 142 |
|
|
| 180 |
|
Current portion of workers’ compensation and general liability reserves |
|
| 97 |
|
|
| 105 |
|
Accrued interest |
|
| 54 |
|
|
| 41 |
|
Restructuring accruals, including severance |
|
| 27 |
|
|
| 113 |
|
Other |
|
| 203 |
|
|
| 242 |
|
|
| $ | 2,927 |
|
| $ | 3,448 |
|
Changesinworkers’compensationandgeneralliabilityreserves,includingthecurrentportion,areasfollows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (millions) |
| |||||||||
Balance, beginning of year |
| $ | 462 |
|
| $ | 487 |
|
| $ | 497 |
|
Charged to costs and expenses |
|
| 88 |
|
|
| 120 |
|
|
| 130 |
|
Payments, net of recoveries |
|
| (134 | ) |
|
| (145 | ) |
|
| (140 | ) |
Balance, end of year |
| $ | 416 |
|
| $ | 462 |
|
| $ | 487 |
|
The Company non-currentportionofworkers’compensationandgeneralliabilityreservesis a party to a
9. | Taxes |
Incometaxexpense(benefit)isasfollows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||||||||||||
|
| Current |
|
| Deferred |
|
| Total |
|
| Current |
|
| Deferred |
|
| Total |
|
| Current |
|
| Deferred |
|
| Total |
| |||||||||
|
| (millions) |
| |||||||||||||||||||||||||||||||||
Federal |
| $ | (520 | ) |
| $ | (179 | ) |
| $ | (699 | ) |
| $ | 137 |
|
| $ | 4 |
|
| $ | 141 |
|
| $ | 156 |
|
| $ | 79 |
|
| $ | 235 |
|
State and local |
|
| 1 |
|
|
| (148 | ) |
|
| (147 | ) |
|
| 33 |
|
|
| (10 | ) |
|
| 23 |
|
|
| 54 |
|
|
| 33 |
|
|
| 87 |
|
|
| $ | (519 | ) |
| $ | (327 | ) |
| $ | (846 | ) |
| $ | 170 |
|
| $ | (6 | ) |
| $ | 164 |
|
| $ | 210 |
|
| $ | 112 |
|
| $ | 322 |
|
F-30
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
Theincometaxexpense(benefit)reporteddiffersfromtheexpectedtaxcomputedbyapplyingthefederalincometaxstatutoryrateof21%toincomebeforeincometaxesnetofnoncontrolling interest.Thereasonsforthisdifferenceandtheirtaxeffectsareasfollows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (millions) |
| |||||||||
Expected tax |
| $ | (1,006 | ) |
| $ | 153 |
|
| $ | 300 |
|
State and local income taxes, net of federal income taxes |
|
| (140 | ) |
|
| 13 |
|
|
| 59 |
|
CARES Act carryback benefit |
|
| (205 | ) |
|
| 0 |
|
|
| 0 |
|
Goodwill impact |
|
| 492 |
|
|
| 0 |
|
|
| 0 |
|
Federal tax reform deferred tax remeasurement |
|
| 0 |
|
|
| 0 |
|
|
| (17 | ) |
Tax impact of equity awards |
|
| 8 |
|
|
| 1 |
|
|
| 0 |
|
Federal tax credits |
|
| (5 | ) |
|
| (3 | ) |
|
| (16 | ) |
Change in valuation allowance |
|
| 24 |
|
|
| 5 |
|
|
| 10 |
|
Other |
|
| (14 | ) |
|
| (5 | ) |
|
| (14 | ) |
|
| $ | (846 | ) |
| $ | 164 |
|
| $ | 322 |
|
TheCompany had dedicated $37 million participatesintheInternalRevenueService(“IRS”)ComplianceAssuranceProgram("CAP").As partof cash, included in prepaid expenses theCAP,taxyearsareauditedonacontemporaneousbasissothatallormostissuesareresolvedpriortothefilingofthetaxreturn.TheIRShascompletedexaminationsof2018and other current allpriortaxyears.
Thetaxeffectsoftemporarydifferencesthatgiverisetosignificantportionsofthedeferredtaxassets which is used to collateralize the Company’s issuances of standby letters of credit. There were
|
| January 30, |
|
| February 1, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (millions) |
| |||||
Deferred tax assets |
|
|
|
|
|
|
|
|
Post employment and postretirement benefits |
| $ | 126 |
|
| $ | 210 |
|
Accrued liabilities accounted for on a cash basis for tax purposes |
|
| 103 |
|
|
| 165 |
|
Lease liabilities |
|
| 937 |
|
|
| 864 |
|
Unrecognized state tax benefits and accrued interest |
|
| 39 |
|
|
| 40 |
|
State operating loss and credit carryforwards |
|
| 194 |
|
|
| 102 |
|
Other |
|
| 95 |
|
|
| 110 |
|
Valuation allowance |
|
| (104 | ) |
|
| (80 | ) |
Total deferred tax assets |
|
| 1,390 |
|
|
| 1,411 |
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Excess of book basis over tax basis of property and equipment |
|
| (937 | ) |
|
| (988 | ) |
Right of use assets |
|
| (766 | ) |
|
| (707 | ) |
Merchandise inventories |
|
| (300 | ) |
|
| (365 | ) |
Intangible assets |
|
| (115 | ) |
|
| (309 | ) |
Other |
|
| (180 | ) |
|
| (211 | ) |
Total deferred tax liabilities |
|
| (2,298 | ) |
|
| (2,580 | ) |
Net deferred tax liability |
| $ | (908 | ) |
| $ | (1,169 | ) |
Thevaluationallowanceat
AsofJanuary 30, 2021,theCompanyhad0federalnetoperatinglosscarryforwards,statenetoperatingloss carryforwards,netofvaluationallowances,of$1,500million,whichwillexpirebetween2021and2040, and 0statecreditcarryforwards,netofvaluationallowances.
F-31
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
Areconciliationofthebeginningandendingamountofunrecognizedtaxbenefitsisasfollows:
|
| January 30, |
|
| February 1, |
|
| February 2, |
| |||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
|
| (millions) |
| |||||||||
Balance, beginning of year |
| $ | 133 |
|
| $ | 149 |
|
| $ | 140 |
|
Additions based on tax positions related to the current year |
|
| 9 |
|
|
| 18 |
|
|
| 17 |
|
Additions for tax positions of prior years |
|
| 0 |
|
|
| 11 |
|
|
| 13 |
|
Reductions for tax positions of prior years |
|
| (13 | ) |
|
| (20 | ) |
|
| (12 | ) |
Settlements |
|
| (4 | ) |
|
| (16 | ) |
|
| 0 |
|
Statute expirations |
|
| (12 | ) |
|
| (9 | ) |
|
| (9 | ) |
Balance, end of year |
| $ | 113 |
|
| $ | 133 |
|
| $ | 149 |
|
Amounts recognized in the Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
Current income taxes |
| $ | 6 |
|
| $ | 12 |
|
| $ | 28 |
|
Deferred income taxes |
|
| 3 |
|
|
| 4 |
|
|
| 4 |
|
Other liabilities (a) |
|
| 104 |
|
|
| 117 |
|
|
| 117 |
|
|
| $ | 113 |
|
| $ | 133 |
|
| $ | 149 |
|
(a) |
UnrecognizedtaxbenefitsnotexpectedtobesettledwithinoneyearareincludedwithinotherliabilitiesontheConsolidatedBalanceSheets. |
Additionalinformationregardingunrecognizedbenefitsandrelatedinterestandpenaltiesisasfollow:
Amountofunrecognizedtaxbenefits,netofdeferredtaxassets,thatifrecognized
|
| January 30, |
|
| February 1, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (millions) |
| |||||
Amount of unrecognized tax benefits, net of deferred tax assets, that if recognized would affect the effective tax rate |
| $ | 90 |
|
| $ | 106 |
|
Accrued federal, state and local interest and penalties |
|
| 60 |
|
|
| 60 |
|
Amounts recognized in the Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
Current income taxes |
|
| 3 |
|
|
| 4 |
|
Other liabilities |
|
| 57 |
|
|
| 56 |
|
TheCompanyclassifiesfederal,stateandlocalinterestandpenaltiesnotexpectedtobesettledwithinoneyearas otherliabilitiesontheConsolidatedBalanceSheetsandfollowsapolicyofrecognizingallinterestandpenaltiesrelatedto unrecognizedtaxbenefitsinincometaxexpense.Theaccruedfederal,stateandlocalinterestandpenaltiesprimarilyrelate tostatetaxissuesandtheamountofpenaltiespaidinpriorperiods,andtheamountsofpenaltiesaccruedatJanuary 30, 2021andFebruary 1, 2020,areinsignificant.Federal,stateandlocalinterestandpenaltiesamountedto an expense of $1 million for 2020, anexpenseof$6 millionfor2019, andanexpenseof$5millionfor2018.
TheCompanyoroneofitssubsidiariesfilesincometaxreturnsintheU.S.federaljurisdictionandvariousstateand localjurisdictions.TheCompanyisnolongersubjecttoU.S.federalincometaxexaminationsbytaxauthoritiesforyears before2017.Withrespecttostateandlocaljurisdictions,withlimitedexceptions,theCompanyanditssubsidiariesarenolongersubjecttoincometaxauditsforyearsbefore2011.Althoughtheoutcomeoftaxauditsisalwaysuncertain,the Companybelievesthatadequateamountsoftax,interestandpenaltieshavebeenaccruedforanyadjustmentsthatare expectedtoresultfromtheyearsstillsubjecttoexamination.
AsofJanuary 30, 2021,theCompanybelievesitisreasonablypossiblethatcertainunrecognizedtaxbenefitsranging from0to$55millionmayberecognizedbytheendof2021.Itisreasonablypossiblethattherecouldbeothermaterial changestotheamountofuncertaintaxpositionsduetoactivitiesofthetaxingauthorities,settlementofauditissuesorthe reassessmentofexistinguncertaintaxpositions;however,theCompanyisnotabletoestimatetheimpactoftheseitemsatthistime.
10. | RetirementPlans |
TheCompanyhasdefinedcontributionplanswhichcoversubstantiallyallemployeeswhowork1,000hoursormore inayear.Inaddition,theCompanyhasafundeddefinedbenefitplan(“PensionPlan”)andanunfundeddefined
F-32
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
benefitsupplementaryretirementplan(“SERP”),whichprovidesbenefits,forcertainemployees,inexcessofqualifiedplan limitations.EffectiveJanuary1,2012,thePensionPlanwasclosedtonewparticipants,withlimitedexceptions,andeffectiveJanuary2,2012,theSERPwasclosedtonewparticipants.
InFebruary2013,theCompanyannouncedchangestothePensionPlanandSERPwherebyeligibleemployeesno longerearnfuturepensionservicecreditsafterDecember31,2013,withlimitedexceptions.Allretirementbenefits attributabletoserviceinsubsequentperiodsareprovidedthroughdefinedcontributionplans.
Retirementexpenses,excludingsettlementcharges,includedthefollowingcomponents:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
|
|
|
|
| (millions) |
|
|
|
|
| |
401(k) Qualified Defined Contribution Plan |
| $ | 68 |
|
| $ | 96 |
|
| $ | 96 |
|
Non-Qualified Defined Contribution Plan |
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
Pension Plan |
|
| (73 | ) |
|
| (54 | ) |
|
| (64 | ) |
Supplementary Retirement Plan |
|
| 26 |
|
|
| 30 |
|
|
| 31 |
|
|
| $ | 22 |
|
| $ | 74 |
|
| $ | 64 |
|
TheCompanyestimatestheserviceandinterestcostcomponentsofnetperiodicbenefitcostsforthePensionPlan andSERP.Thismethodusesafullyieldcurveapproachintheestimationofthesecomponentsofnetperiodicbenefitcosts.Underthisapproach,theCompanyappliesdiscountingusingindividualspotratesfromtheyieldcurvecomposedof theratesofreturnfromaportfolioofhighqualitycorporatedebtsecuritiesavailableatthemeasurementdate.Thesespot ratesaligntoeachoftheprojectedbenefitobligationandservicecostcashflows.
DefinedContributionPlans
TheCompanyhasaqualifiedplanthatpermitsparticipatingassociatestodefereligiblecompensationuptothe maximumlimitsallowableundertheInternalRevenueCode.BeginningJanuary1,2014,theCompanyhasanon-qualified planwhichpermitsparticipatingassociatestodefereligiblecompensationabovethelimitsofthequalifiedplan.The Companycontributesamatchingpercentageofemployeecontributionsunderboththequalifiedandnon-qualifiedplans. EffectiveJanuary1,2014,theCompany'smatchingcontributiontothequalifiedplanwasenhancedforallparticipatingemployees,withlimitedexceptions.PriortoJanuary1,2014,thematchingcontributionrateunderthequalifiedplanwas higherforthoseemployeesnoteligibleforthePensionPlanthanforemployeeseligibleforthePensionPlan.
Theliabilityrelatedtothequalifiedplanmatchingcontribution,whichisreflectedinaccountspayableandaccrued liabilitiesontheConsolidatedBalanceSheets,was$74millionatJanuary 30, 2021and$104millionatFebruary 1, 2020. Expenserelatedtomatchingcontributionsforthequalifiedplanamountedto $68 million for 2020 and $96millionfor2019and2018.
AtJanuary 30, 2021andFebruary 1, 2020,theliabilityunderthenon-qualifiedplan,whichisreflectedinother liabilitiesontheConsolidatedBalanceSheets,was$36millionand$34million,respectively.Theliabilityrelatedtothenon-qualifiedplanmatchingcontribution,whichisreflectedinaccountspayableandaccruedliabilitiesontheConsolidated BalanceSheets,was $1 million at January 30, 2021, and $2millionatFebruary 1, 2020.Expenserelatedtomatchingcontributionsfor thenon-qualifiedplanamountedto $1 million for 2020, $2millionfor2019and$1millionfor2018.Inconnectionwiththenon- qualifiedplan,theCompanyhadmutualfundinvestmentsatJanuary 30, 2021andFebruary 1, 2020of$36millionand $34million,respectively,whichareincludedinprepaidexpensesandothercurrentassetsontheConsolidatedBalanceSheets.
F-33
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
PensionPlan
Thefollowingprovidesareconciliationofbenefitobligations,planassets,andfundedstatusofthePensionPlanas ofJanuary 30, 2021andFebruary 1, 2020:
|
| 2020 |
|
| 2019 |
| ||
|
| (millions) |
| |||||
Change in projected benefit obligation |
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year |
| $ | 3,321 |
|
| $ | 3,011 |
|
Service cost |
|
| 4 |
|
|
| 5 |
|
Interest cost |
|
| 66 |
|
|
| 103 |
|
Actuarial loss |
|
| 12 |
|
|
| 463 |
|
Benefits paid |
|
| (373 | ) |
|
| (261 | ) |
Projected benefit obligation, end of year |
|
| 3,030 |
|
|
| 3,321 |
|
Changes in plan assets |
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year |
|
| 3,359 |
|
|
| 3,018 |
|
Actual return on plan assets |
|
| 373 |
|
|
| 602 |
|
Company contributions |
|
| 0 |
|
|
| 0 |
|
Benefits paid |
|
| (373 | ) |
|
| (261 | ) |
Fair value of plan assets, end of year |
|
| 3,359 |
|
|
| 3,359 |
|
Funded status at end of year |
| $ | 329 |
|
| $ | 38 |
|
Amounts recognized in the Consolidated Balance Sheets at January 30, 2021 and February 1, 2020 |
|
|
|
|
|
|
|
|
Other assets |
| $ | 329 |
|
| $ | 38 |
|
Amounts recognized in accumulated other comprehensive loss at January 30, 2021 and February 1, 2020 |
|
|
|
|
|
|
|
|
Net actuarial loss |
| $ | 794 |
|
| $ | 1,086 |
|
Netpensioncosts,settlementchargesandotheramountsrecognizedinothercomprehensivelossforthePensionPlanincludedthefollowingactuariallydeterminedcomponents:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (millions) |
| |||||||||
Net Periodic Pension Cost |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 4 |
|
| $ | 5 |
|
| $ | 5 |
|
Interest cost |
|
| 66 |
|
|
| 103 |
|
|
| 109 |
|
Expected return on assets |
|
| (183 | ) |
|
| (191 | ) |
|
| (206 | ) |
Amortization of net actuarial loss |
|
| 40 |
|
|
| 29 |
|
|
| 28 |
|
Amortization of prior service credit |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
| (73 | ) |
|
| (54 | ) |
|
| (64 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement charges |
|
| 74 |
|
|
| 45 |
|
|
| 78 |
|
Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Loss |
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss |
|
| (178 | ) |
|
| 51 |
|
|
| 223 |
|
Amortization of net actuarial loss |
|
| (40 | ) |
|
| (29 | ) |
|
| (28 | ) |
Settlement charges |
|
| (74 | ) |
|
| (45 | ) |
|
| (78 | ) |
|
|
| (292 | ) |
|
| (23 | ) |
|
| 117 |
|
Total recognized |
| $ | (291 | ) |
| $ | (32 | ) |
| $ | 131 |
|
TheestimatednetactuariallossforthePensionPlanthatwillbeamortizedfromaccumulatedothercomprehensive lossintonetperiodicbenefitcostduring2021is$35million.
F-34
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
Thefollowingweightedaverageassumptionswereusedtodeterminetheprojectedbenefitobligationsforthe PensionPlanatJanuary 30, 2021andFebruary 1, 2020:
|
| 2020 |
|
| 2019 |
| ||
Discount rate |
|
| 2.43 | % |
|
| 2.83 | % |
Rate of compensation increases |
|
| 3.45 | % |
|
| 3.25 | % |
Cash balance plan interest crediting rate |
|
| 5.00 | % |
|
| 5.00 | % |
ThefollowingweightedaverageassumptionswereusedtodeterminethenetperiodicpensioncostforthePension Plan:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Discount rate used to measure service cost |
| 2.35% - 2.96% |
|
|
| 4.09 | % |
| 3.77% - 4.46% |
| ||
Discount rate used to measure interest cost |
| 1.65% - 2.46% |
|
|
| 3.67 | % |
| 3.39% - 4.06% |
| ||
Expected long-term return on plan assets |
|
| 6.25 | % |
|
| 6.50 | % |
|
| 6.75 | % |
Rate of compensation increases |
|
| 3.25 | % |
|
| 4.00 | % |
|
| 4.00 | % |
Cash balance plan interest crediting rate |
|
| 5.00 | % |
|
| 5.00 | % |
|
| 5.00 | % |
ThePensionPlan’sassumptionsareevaluatedannually,andatinterimre-measurementsifrequired,andupdatedasnecessary.Duetosettlementaccountingandre-measurementsduring 2020 and 2018,thediscountrateusedtomeasureservicecostandthediscountrateusedtomeasureinterestcostvariedbetweenperiods.Thetableaboveshowstherangeof ratesusedtodeterminenetperiodicexpenseforthePensionPlan.
ThediscountrateusedtodeterminethepresentvalueoftheprojectedbenefitobligationforthePensionPlanisbased onayieldcurveconstructedfromaportfolioofhighqualitycorporatedebtsecuritieswithvariousmaturities.Eachyear’sexpectedfuturebenefitpaymentsarediscountedtotheirpresentvalueattheappropriateyieldcurverate,therebygenerating theoveralldiscountratefortheprojectedbenefitobligation.
TheCompanydevelopsitsexpectedlong-termrateofreturnonplanassetassumptionbyevaluatinginputfrom severalprofessionaladvisorstakingintoaccounttheassetallocationoftheportfolioandlong-termassetclassreturn expectations,aswellaslong-terminflationassumptions.Expectedreturnsforeachmajorassetclassareconsideredalong withtheirvolatilityandtheexpectedcorrelationsamongthem.Theseexpectationsarebaseduponhistoricalrelationships aswellasforecastsofhowfuturereturnsmayvaryfromhistoricalreturns.Returnsbyassetclassandcorrelationsamong assetclassesarecombinedusingthetargetassetallocationtoderiveanexpectedreturnfortheportfolioasawhole.Long-termhistoricalreturnsoftheportfolioarealsoconsidered.Portfolioreturnsarecalculatednetofallexpenses,therefore,the Companyalsoanalyzesexpectedcostsandexpenses,includinginvestmentmanagementfees,administrativeexpenses, PensionBenefitGuarantyCorporationpremiumsandothercostsandexpenses.AsofJanuary 30, 2021,theCompany loweredtheassumedannuallong-termrateofreturnforthePensionPlan'sassetsfrom6.25%to 5.75%basedonexpected futurereturnsontheportfolioofassets.
TheassetsofthePensionPlanaremanagedbyinvestmentspecialistswiththeprimaryobjectivesofpaymentof benefitobligationstoPlanparticipantsandanultimaterealizationofinvestmentreturnsoverlongerperiodsinexcessof inflation.TheCompanyemploysatotalreturninvestmentapproachwherebyamixofdomesticandforeignequity securities,fixedincomesecuritiesandotherinvestmentsisusedtomaximizethelong-termreturnontheassetsofthe PensionPlanforaprudentlevelofrisk.Risksaremitigatedthroughassetdiversificationandtheuseofmultipleinvestment managers.Thetargetallocationforplanassetsiscurrently21%equitysecurities,74%debtsecurities,2%realestateand3%privateequities.
TheCompanygenerallyemploysinvestmentmanagerstospecializeinaspecificassetclass.Thesemanagersare chosenandmonitoredwiththeassistanceofprofessionaladvisors,usingcriteriathatincludeorganizationalstructure,investmentphilosophy,investmentprocess,performancecomparedtomarketbenchmarksandpeergroups.
F-35
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
TheCompanyperiodicallyconductsananalysisofthebehaviorofthePensionPlan’sassetsandliabilitiesundervariouseconomicandinterestratescenariostoensurethatthelong-termtargetassetallocationisappropriategiventheliabilities.
The fairvaluesofthePensionPlanassetsasofJanuary 30, 2021,excludinginterestanddividendreceivablesand pendinginvestmentpurchasesandsales,byassetcategoryareasfollows:
|
| Fair Value Measurements |
| |||||||||||||
|
|
|
|
|
| Quoted Prices in |
|
| Significant |
|
| Significant |
| |||
|
|
|
|
|
| Active Markets for |
|
| Observable |
|
| Unobservable |
| |||
|
|
|
|
|
| Identical Assets |
|
| Inputs |
|
| Inputs |
| |||
|
| Total |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
|
|
|
|
|
| (millions) |
|
|
|
|
|
|
|
|
| |
Short term investments |
| $ | 3 |
|
| $ | 0 |
|
| $ | 3 |
|
| $ | 0 |
|
Money market funds |
|
| 136 |
|
|
| 136 |
|
|
| 0 |
|
|
| 0 |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. pooled funds |
|
| 356 |
|
|
| 356 |
|
|
| 0 |
|
|
| 0 |
|
International pooled funds (a) |
|
| 333 |
|
|
| 37 |
|
|
| 0 |
|
|
| 0 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bonds |
|
| 270 |
|
|
| 0 |
|
|
| 270 |
|
|
| 0 |
|
Other Government bonds |
|
| 63 |
|
|
| 0 |
|
|
| 63 |
|
|
| 0 |
|
Corporate bonds |
|
| 1,609 |
|
|
| 0 |
|
|
| 1,609 |
|
|
| 0 |
|
Mortgage-backed securities |
|
| 11 |
|
|
| 0 |
|
|
| 11 |
|
|
| 0 |
|
Asset-backed securities |
|
| 1 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
Pooled funds |
|
| 271 |
|
|
| 271 |
|
|
| 0 |
|
|
| 0 |
|
Other types of investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate (a) |
|
| 31 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Private equity (a) |
|
| 160 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Derivatives in a positive position |
|
| 8 |
|
|
| 0 |
|
|
| 8 |
|
|
| 0 |
|
Derivatives in a negative position |
|
| (4 | ) |
|
| (4 | ) |
|
| 0 |
|
|
| 0 |
|
Total |
| $ | 3,248 |
|
| $ | 796 |
|
| $ | 1,965 |
|
| $ | 0 |
|
(a) | Certaininvestmentsthataremeasuredatfairvalueusingthenetassetvaluepershareasapracticalexpedienthavenotbeenclassifiedinthefairvalue hierarchy.Thefairvalueamountspresentedinthesetablesareintendedtopermitreconciliationofthefairvaluehierarchytotheamountspresentedinthefairvalueofplanassets. |
F-36
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
ThefairvaluesofthePensionPlanassetsasofFebruary 1, 2020,excludinginterestanddividendreceivablesand pendinginvestmentpurchasesandsales,byassetcategoryareasfollows:
|
| Fair Value Measurements |
| |||||||||||||
|
|
|
|
|
| Quoted Prices in |
|
| Significant |
|
| Significant |
| |||
|
|
|
|
|
| Active Markets for |
|
| Observable |
|
| Unobservable |
| |||
|
|
|
|
|
| Identical Assets |
|
| Inputs |
|
| Inputs |
| |||
|
| Total |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
|
| (millions) |
| |||||||||||||
Money market funds |
| $ | 37 |
|
| $ | 37 |
|
| $ | 0 |
|
| $ | 0 |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. stocks |
|
| 122 |
|
|
| 122 |
|
|
| 0 |
|
|
| 0 |
|
U.S. pooled funds |
|
| 474 |
|
|
| 474 |
|
|
| 0 |
|
|
| 0 |
|
International pooled funds (a) |
|
| 357 |
|
|
| 82 |
|
|
| 0 |
|
|
| 0 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bonds |
|
| 58 |
|
|
| 0 |
|
|
| 58 |
|
|
| 0 |
|
Other Government bonds |
|
| 61 |
|
|
| 0 |
|
|
| 61 |
|
|
| 0 |
|
Agency backed bonds |
|
| 13 |
|
|
| 0 |
|
|
| 13 |
|
|
| 0 |
|
Corporate bonds |
|
| 615 |
|
|
| 0 |
|
|
| 615 |
|
|
| 0 |
|
Mortgage-backed securities |
|
| 23 |
|
|
| 0 |
|
|
| 23 |
|
|
| 0 |
|
Asset-backed securities |
|
| 10 |
|
|
| 0 |
|
|
| 10 |
|
|
| 0 |
|
Pooled funds |
|
| 1,442 |
|
|
| 1,442 |
|
|
| 0 |
|
|
| 0 |
|
Other types of investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate (a) |
|
| 37 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Private equity (a) |
|
| 167 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Derivatives in a positive position |
|
| 4 |
|
|
| 0 |
|
|
| 4 |
|
|
| 0 |
|
Derivatives in a negative position |
|
| (6 | ) |
|
| 0 |
|
|
| (6 | ) |
|
| 0 |
|
Total |
| $ | 3,414 |
|
| $ | 2,157 |
|
| $ | 778 |
|
| $ | 0 |
|
(a) | Certaininvestmentsthataremeasuredatfairvalueusingthenetassetvaluepershareasapracticalexpedienthavenotbeenclassifiedinthefairvalue hierarchy.Thefairvalueamountspresentedinthesetablesareintendedtopermitreconciliationofthefairvaluehierarchytotheamountspresentedinthefairvalueofplanassets. |
January 28, 2017 | January 30, 2016 | ||||||
(millions) | |||||||
Accounts payable | $ | 754 | $ | 814 | |||
Gift cards and customer rewards | 970 | 920 | |||||
Deferred real estate gains | 340 | 104 | |||||
Current portion of post employment and postretirement benefits | 208 | 257 | |||||
Taxes other than income taxes | 166 | 184 | |||||
Lease related liabilities | 174 | 165 | |||||
Accrued wages and vacation | 215 | 153 | |||||
Current portion of workers’ compensation and general liability reserves | 119 | 127 | |||||
Severance and relocation | 166 | 123 | |||||
Allowance for future sales returns | 96 | 112 | |||||
Accrued interest | 74 | 88 | |||||
Other | 281 | 286 | |||||
$ | 3,563 | $ | 3,333 |
CorporatebondsconsistprimarilyofinvestmentgradebondsofU.S.issuersfromdiverseindustries.
Thefairvalueofcertainpooledfundsincludingequitysecurities,realestateandprivateequityinvestments representsthereportednetassetvalueofsharesorunderlyingassetsoftheinvestmentasapracticalexpedienttoestimate fairvalue.Internationalequitypooledfundsseektoprovidelong-termcapitalgrowthandincomebyinvestinginequity securitiesofnon-U.S.companieslocatedbothindevelopedandemergingmarkets.Therearegenerallynoredemptionrestrictionsorunfundedcommitmentsrelatedtotheseequitysecurities.
Realestateinvestmentsincludeseveralfundswhichseekrisk-adjustedreturnbyprovidingastable,income-driven rateofreturnoverthelongtermwithhighpotentialforgrowthofnetinvestmentincomeandappreciationofvalue.The realestateinvestmentsarediversifiedacrosspropertytypesandgeographicalareasprimarilyintheUnitedStatesof America.Privateequityinvestmentshaveanobjectiveofrealizingaggregatelong-termreturnsinexcessofthoseavailable frominvestmentsinthepublicequitymarkets.Privateequityinvestmentsgenerallyconsistoflimitedpartnershipsinthe allowance UnitedStatesofAmerica,EuropeandAsia.Privateequityandrealestateinvestmentsarevaluedusingfairvaluesperthe mostrecentfinancialreportsprovidedbytheinvestmentsponsor,adjustedasappropriateforanylagbetweenthedateofthefinancialreportsandtheCompany’sreportingdate.
Duetothenatureoftheunderlyingassetsoftherealestateandprivateequityinvestments,changesinmarket conditionsandtheeconomicenvironmentmaysignificantlyimpactthenetassetvalueoftheseinvestmentsand, consequently,thefairvalueofthePensionPlan’sinvestments.Theseinvestmentsareredeemableatnetassetvaluetotheextentprovidedinthedocumentationgoverningtheinvestments.However,theseredemptionrightsmayberestrictedinaccordancewiththegoverningdocuments.Redemptionoftheseinvestmentsissubjecttorestrictionsincludinglock-up periodswherenoredemptionsareallowed,restrictionsonredemptionfrequencyandadvancenoticeperiodsfor future sales returns, which amounted to a credit of $16 million, and charges of
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Balance, beginning of year | $ | 508 | $ | 505 | $ | 497 | |||||
Charged to costs and expenses | 145 | 159 | 160 | ||||||||
Payments, net of recoveries | (150 | ) | (156 | ) | (152 | ) | |||||
Balance, end of year | $ | 503 | $ | 508 | $ | 505 |
F-37
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
rangingfromdailytoweekly,andcertainoftheseinvestmentsaresubjecttoadvancenoticerequirements.AsofJanuary 30, 2021andFebruary 1, 2020,thePensionPlanhadunfundedcommitmentsrelatedtocertainofthese investmentstotaling$39millionand$43million,respectively.
TheCompanydoesnotanticipatemakingfundingcontributionstothePensionPlanin2021.
ThefollowingbenefitpaymentsareestimatedtobepaidfromthePensionPlan:
|
| (millions) |
| |
Fiscal year |
|
|
|
|
2021 |
| $ | 298 |
|
2022 |
|
| 250 |
|
2023 |
|
| 236 |
|
2024 |
|
| 223 |
|
2025 |
|
| 210 |
|
2026-2030 |
|
| 896 |
|
SupplementaryRetirementPlan
Thefollowingprovidesareconciliationofbenefitobligations,planassetsandfundedstatusofthesupplementary retirementplanasofJanuary 30, 2021andFebruary 1, 2020:
|
| 2020 |
|
| 2019 |
| ||
|
| (millions) |
| |||||
Change in projected benefit obligation |
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year |
| $ | 681 |
|
| $ | 644 |
|
Service cost |
|
| 0 |
|
|
| 0 |
|
Interest cost |
|
| 14 |
|
|
| 21 |
|
Actuarial loss |
|
| 42 |
|
|
| 87 |
|
Benefits paid |
|
| (64 | ) |
|
| (71 | ) |
Projected benefit obligation, end of year |
|
| 673 |
|
|
| 681 |
|
Change in plan assets |
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year |
|
| 0 |
|
|
| 0 |
|
Company contributions |
|
| 64 |
|
|
| 71 |
|
Benefits paid |
|
| (64 | ) |
|
| (71 | ) |
Fair value of plan assets, end of year |
|
| 0 |
|
|
| 0 |
|
Funded status at end of year |
| $ | (673 | ) |
| $ | (681 | ) |
Amounts recognized in the Consolidated Balance Sheets at January 30, 2021 and February 1, 2020 |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | (49 | ) |
| $ | (55 | ) |
Other liabilities |
|
| (624 | ) |
|
| (626 | ) |
|
| $ | (673 | ) |
| $ | (681 | ) |
Amounts recognized in accumulated other comprehensive loss at January 30, 2021 and February 1, 2020 |
|
|
|
|
|
|
|
|
Net actuarial loss |
| $ | 301 |
|
| $ | 283 |
|
Prior service cost |
|
| 6 |
|
|
| 6 |
|
|
| $ | 307 |
|
| $ | 289 |
|
Theaccumulatedbenefitobligationforthesupplementaryretirementplanwas$673millionasofJanuary 30, 2021 and$681millionasofFebruary 1, 2020.
F-38
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
Netpensioncosts,settlementchargesandotheramountsrecognizedinothercomprehensivelossforthesupplementaryretirementplanincludedthefollowingactuariallydeterminedcomponents:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (millions) |
| |||||||||
Net Periodic Pension Cost |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Interest cost |
|
| 14 |
|
|
| 21 |
|
|
| 23 |
|
Amortization of net actuarial loss |
|
| 12 |
|
|
| 9 |
|
|
| 7 |
|
Amortization of prior service cost |
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
|
| 26 |
|
|
| 30 |
|
|
| 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement charges |
|
| 10 |
|
|
| 13 |
|
|
| 10 |
|
Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Loss |
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain) |
|
| 40 |
|
|
| 87 |
|
|
| (9 | ) |
Amortization of net actuarial loss |
|
| (12 | ) |
|
| (9 | ) |
|
| (7 | ) |
Amortization of prior service cost |
|
| 0 |
|
|
| 0 |
|
|
| (1 | ) |
Settlement charges |
|
| (10 | ) |
|
| (13 | ) |
|
| (10 | ) |
|
|
| 18 |
|
|
| 65 |
|
|
| (27 | ) |
Total recognized |
| $ | 54 |
|
| $ | 108 |
|
| $ | 14 |
|
Thefollowingweightedaverageassumptionwasusedtodeterminetheprojectedbenefitobligationsforthe supplementaryretirementplanatJanuary 30, 2021andFebruary 1, 2020:
|
| 2020 |
|
| 2019 |
| ||
Discount rate |
|
| 2.51 | % |
|
| 2.89 | % |
Thefollowingweightedaverageassumptionwasusedtodeterminenetpensioncostsforthesupplementary retirementplan:
|
| 2020 |
| 2019 |
| 2018 |
Discount rate used to measure interest cost |
| 1.65% - 2.44% |
| 2.65% - 3.69% |
| 3.39% - 4.09% |
Thesupplementaryretirementplan’sassumptionsareevaluatedannually,andatinterimre-measurementsifrequired,andupdatedasnecessary.Duetosettlementaccountingandre-measurementsduring2020,2019and2018,thediscountrateusedtomeasureinterestcostvariedbetweenperiods.Thetableaboveshowstherangeofratesusedtodeterminenet periodicexpenseforthesupplementaryretirementplan.
Thediscountrateusedtodeterminethepresentvalueoftheprojectedbenefitobligationforthesupplementary retirementplanisbasedonayieldcurveconstructedfromaportfolioofhighqualitycorporatedebtsecuritieswithvarious maturities.Eachyear’sexpectedfuturebenefitpaymentsarediscountedtotheirpresentvalueattheappropriateyieldcurverate,therebygeneratingtheoveralldiscountratefortheprojectedbenefitobligation.
ThefollowingbenefitpaymentsareestimatedtobefundedbytheCompanyandpaidfromthesupplementary retirementplan:
|
| (millions) |
| |
Fiscal year |
|
|
|
|
2021 |
| $ | 49 |
|
2022 |
|
| 49 |
|
2023 |
|
| 47 |
|
2024 |
|
| 44 |
|
2025 |
|
| 44 |
|
2026-2030 |
|
| 200 |
|
F-39
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
11. |
PostretirementHealthCareandLifeInsuranceBenefits |
2016 | 2015 | 2014 | |||||||||||||||||||||||||||||||||
Current | Deferred | Total | Current | Deferred | Total | Current | Deferred | Total | |||||||||||||||||||||||||||
(millions) | |||||||||||||||||||||||||||||||||||
Federal | $ | 433 | $ | (125 | ) | $ | 308 | $ | 536 | $ | — | $ | 536 | $ | 743 | $ | 28 | $ | 771 | ||||||||||||||||
State and local | 37 | (4 | ) | 33 | 72 | — | 72 | 92 | 1 | 93 | |||||||||||||||||||||||||
$ | 470 | $ | (129 | ) | $ | 341 | $ | 608 | $ | — | $ | 608 | $ | 835 | $ | 29 | $ | 864 |
Inadditiontopensionandothersupplementalbenefits,certainretiredemployeescurrentlyareprovidedwith specifiedhealthcareandlifeinsurancebenefits.Eligibilityrequirementsforsuchbenefitsvaryby applying the federal income tax statutory rate of
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Expected tax | $ | 333 | $ | 587 | $ | 836 | |||||
State and local income taxes, net of federal income tax benefit | 12 | 43 | 59 | ||||||||
Historic rehabilitation tax credit | (1 | ) | (12 | ) | (20 | ) | |||||
Change in valuation allowance | 9 | 3 | 1 | ||||||||
Other | (12 | ) | (13 | ) | (12 | ) | |||||
$ | 341 | $ | 608 | $ | 864 |
Thefollowingprovidesareconciliationofbenefitobligations,planassets,andfundedstatusofthe filing postretirement obligationsasof the tax return. The IRS has completed examinations of 2015 and all prior tax years.
January 28, 2017 | January 30, 2016 | ||||||
(millions) | |||||||
Deferred tax assets | |||||||
Post employment and postretirement benefits | $ | 405 | $ | 536 | |||
Accrued liabilities accounted for on a cash basis for tax purposes | 379 | 340 | |||||
Long-term debt | 63 | 73 | |||||
Unrecognized state tax benefits and accrued interest | 76 | 79 | |||||
State operating loss and credit carryforwards | 79 | 82 | |||||
Other | 347 | 206 | |||||
Valuation allowance | (36 | ) | (27 | ) | |||
Total deferred tax assets | 1,313 | 1,289 | |||||
Deferred tax liabilities | |||||||
Excess of book basis over tax basis of property and equipment | (1,381 | ) | (1,485 | ) | |||
Merchandise inventories | (604 | ) | (606 | ) | |||
Intangible assets | (380 | ) | (345 | ) | |||
Other | (391 | ) | (330 | ) | |||
Total deferred tax liabilities | (2,756 | ) | (2,766 | ) | |||
Net deferred tax liability | $ | (1,443 | ) | $ | (1,477 | ) |
|
| 2020 |
|
| 2019 |
| ||
|
| (millions) |
| |||||
Change in accumulated postretirement benefit obligation |
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation, beginning of year |
| $ | 133 |
|
| $ | 137 |
|
Service cost |
|
| 0 |
|
|
| 0 |
|
Interest cost |
|
| 2 |
|
|
| 5 |
|
Actuarial loss (gain) |
|
| (6 | ) |
|
| 5 |
|
Medicare Part D subsidy |
|
| 0 |
|
|
| 0 |
|
Benefits paid |
|
| (10 | ) |
|
| (14 | ) |
Accumulated postretirement benefit obligation, end of year |
|
| 119 |
|
|
| 133 |
|
Change in plan assets |
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year |
|
| 0 |
|
|
| 0 |
|
Company contributions |
|
| 10 |
|
|
| 14 |
|
Benefits paid |
|
| (10 | ) |
|
| (14 | ) |
Fair value of plan assets, end of year |
|
| 0 |
|
|
| 0 |
|
Funded status at end of year |
| $ | (119 | ) |
| $ | (133 | ) |
Amounts recognized in the Consolidated Balance Sheets at January 30, 2021 and February 1, 2020 |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | (13 | ) |
| $ | (14 | ) |
Other liabilities |
|
| (106 | ) |
|
| (119 | ) |
|
| $ | (119 | ) |
| $ | (133 | ) |
Amounts recognized in accumulated other comprehensive loss at January 30, 2021 and February 1, 2020 |
|
|
|
|
|
|
|
|
Net actuarial gain |
| $ | (32 | ) |
| $ | (30 | ) |
Prior service credit |
|
| (7 | ) |
|
| (8 | ) |
|
| $ | (39 | ) |
| $ | (38 | ) |
January 28, 2017 | January 30, 2016 | January 31, 2015 | |||||||||
(millions) | |||||||||||
Balance, beginning of year | $ | 178 | $ | 172 | $ | 189 | |||||
Additions based on tax positions related to the current year | 16 | 30 | 33 | ||||||||
Additions for tax positions of prior years | — | — | — | ||||||||
Reductions for tax positions of prior years | (12 | ) | (7 | ) | (15 | ) | |||||
Settlements | (4 | ) | (3 | ) | (23 | ) | |||||
Statute expirations | (11 | ) | (14 | ) | (12 | ) | |||||
Balance, end of year | $ | 167 | $ | 178 | $ | 172 | |||||
Amounts recognized in the Consolidated Balance Sheets at January 28, 2017, January 30, 2016 and January 31, 2015 | |||||||||||
Current income taxes | $ | 6 | $ | 12 | $ | 11 | |||||
Long-term deferred income taxes | 4 | 5 | 6 | ||||||||
Other liabilities | 157 | 161 | 155 | ||||||||
$ | 167 | $ | 178 | $ | 172 |
F-40
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
Netpostretirementbenefitcostsandotheramountsrecognizedinothercomprehensivelossincludedthefollowing actuariallydeterminedcomponents:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (millions) |
| |||||||||
Net Periodic Postretirement Benefit Cost |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Interest cost |
|
| 2 |
|
|
| 5 |
|
|
| 5 |
|
Amortization of net actuarial gain |
|
| (4 | ) |
|
| (6 | ) |
|
| (5 | ) |
Amortization of prior service credit |
|
| (1 | ) |
|
| (1 | ) |
|
| (1 | ) |
|
|
| (3 | ) |
|
| (2 | ) |
|
| (1 | ) |
Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Loss |
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain) |
|
| (6 | ) |
|
| 5 |
|
|
| (11 | ) |
Amortization of net actuarial gain |
|
| 4 |
|
|
| 6 |
|
|
| 5 |
|
Amortization of prior service credit |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Prior service credit |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
| (1 | ) |
|
| 12 |
|
|
| (5 | ) |
Total recognized |
| $ | (4 | ) |
| $ | 10 |
|
| $ | (6 | ) |
Thefollowingweightedaverageassumptionwasusedtodeterminetheaccumulatedpostretirementbenefit obligationsatJanuary 30, 2016
|
| 2020 |
|
| 2019 |
| ||
Discount rate |
|
| 2.32 | % |
|
| 2.81 | % |
Thefollowingweightedaverageassumptionwasusedtodeterminethenetpostretirementbenefitcostsforthe postretirementobligations:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Discount rate used to measure interest cost |
|
| 2.30 | % |
|
| 3.57 | % |
|
| 3.28 | % |
Theaccumulatedpostretirementbenefitobligationassumptionsareevaluatedannually,andatinterimre-measurementsifrequired,andupdatedasnecessary.
ThediscountrateusedtodeterminethepresentvalueoftheCompany’saccumulatedpostretirementbenefitobligationsisbasedonayieldcurveconstructedfromaportfolioofhighqualitycorporatedebtsecuritieswithvarious maturities.Eachyear’sexpectedfuturebenefitpaymentsarediscountedtotheirpresentvalueattheappropriateyieldcurverate,therebygeneratingtheoveralldiscountratefortheaccumulatedpostretirementbenefitobligations.
TheCompanyestimatestheinterestcostcomponentofnetperiodicbenefitcostsusingafullyieldcurveapproachin theestimationofthesecomponentsofnetperiodicbenefitcosts.Underthisapproach,theCompanyappliesdiscounting usingindividualspotratesfromtheyieldcurvecomposedoftheratesofreturnfromaportfolioofhighqualitycorporate debtsecuritiesavailableatthemeasurementdate.Thesespotratesaligntoeachoftheprojectedbenefitobligationand servicecostcashflows.
ThefuturemedicalbenefitsprovidedbytheCompanyforcertainemployeesarebasedonafixedamountperyearof unrecognized tax service,andtheaccumulatedpostretirementbenefitobligationisnotaffectedbyincreasesinhealthcarecosts.However,thefuturemedicalbenefits net of deferred tax assets, that, if recognized would affect providedbythe effective income tax rate, was
F-41
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
The Company classifies unrecognized tax benefits not expected followingprovidestheassumedhealthcarecosttrendratesrelatedto be settled within
|
| 2020 |
|
| 2019 |
|
Health care cost trend rates assumed for next year |
| 4.9% - 8.0% |
|
| 5.25% - 8.63% |
|
Rates to which the cost trend rate is assumed to decline (the ultimate trend rate) |
| 4.5% |
|
| 4.5% |
|
Year that the rate reaches the ultimate trend rate |
| 2029 |
|
| 2027 |
|
Thefollowingtablereflectsthe Consolidated Balance Sheets.
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
401(k) Qualified Defined Contribution Plan | $ | 94 | $ | 88 | $ | 89 | |||||
Non-Qualified Defined Contribution Plan | 2 | 2 | 2 | ||||||||
Pension Plan | (83 | ) | (54 | ) | (64 | ) | |||||
Supplementary Retirement Plan | 31 | 41 | 38 | ||||||||
$ | 44 | $ | 77 | $ | 65 |
2016 | 2015 | ||||||
(millions) | |||||||
Change in projected benefit obligation | |||||||
Projected benefit obligation, beginning of year | $ | 3,585 | $ | 3,966 | |||
Service cost | 5 | 6 | |||||
Interest cost | 108 | 137 | |||||
Actuarial (gain) loss | 55 | (282 | ) | ||||
Benefits paid | (284 | ) | (242 | ) | |||
Projected benefit obligation, end of year | 3,469 | 3,585 | |||||
Changes in plan assets | |||||||
Fair value of plan assets, beginning of year | 3,256 | 3,636 | |||||
Actual return on plan assets | 402 | (138 | ) | ||||
Company contributions | — | — | |||||
Benefits paid | (284 | ) | (242 | ) | |||
Fair value of plan assets, end of year | 3,374 | 3,256 | |||||
Funded status at end of year | $ | (95 | ) | $ | (329 | ) | |
Amounts recognized in the Consolidated Balance Sheets at January 28, 2017 and January 30, 2016 | |||||||
Other liabilities | $ | (95 | ) | $ | (329 | ) | |
Amounts recognized in accumulated other comprehensive loss at January 28, 2017 and January 30, 2016 | |||||||
Net actuarial loss | $ | 1,232 | $ | 1,451 |
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Net Periodic Pension Cost | |||||||||||
Service cost | $ | 5 | $ | 6 | $ | 6 | |||||
Interest cost | 108 | 137 | 151 | ||||||||
Expected return on assets | (227 | ) | (235 | ) | (246 | ) | |||||
Amortization of net actuarial loss | 31 | 38 | 25 | ||||||||
Amortization of prior service credit | — | — | — | ||||||||
(83 | ) | (54 | ) | (64 | ) | ||||||
Settlement charges | 68 | — | — | ||||||||
Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Loss | |||||||||||
Net actuarial (gain) loss | (120 | ) | 92 | 491 | |||||||
Amortization of net actuarial loss | (31 | ) | (38 | ) | (25 | ) | |||||
Amortization of prior service credit | — | — | — | ||||||||
Settlement charges | (68 | ) | — | — | |||||||
(219 | ) | 54 | 466 | ||||||||
Total recognized | $ | (234 | ) | $ | — | $ | 402 |
2016 | 2015 | ||||
Discount rate | 4.00 | % | 4.17 | % | |
Rate of compensation increases | 4.10 | % | 4.10 | % |
2016 | 2015 | 2014 | ||||||
Discount rate used to measure service cost | 3.79% - 4.26% | 3.55 | % | 4.50 | % | |||
Discount rate used to measure interest cost | 2.96% - 3.30% | 3.55 | % | 4.50 | % | |||
Expected long-term return on plan assets | 7.00 | % | 7.00 | % | 7.50 | % | ||
Rate of compensation increases | 4.10 | % | 4.10 | % | 4.10 | % |
Fair Value Measurements | |||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
(millions) | |||||||||||||||
Short term investments | $ | 14 | $ | — | $ | 14 | $ | — | |||||||
Money market funds | 74 | 74 | — | — | |||||||||||
Equity securities: | |||||||||||||||
U.S. stocks | 309 | 309 | — | — | |||||||||||
U.S. pooled funds (a) | 654 | 446 | — | — | |||||||||||
International pooled funds (a) | 649 | 131 | — | — | |||||||||||
Fixed income securities: | |||||||||||||||
U. S. Treasury bonds | 194 | — | 194 | — | |||||||||||
Other Government bonds | 40 | — | 40 | — | |||||||||||
Agency backed bonds | 24 | — | 24 | — | |||||||||||
Corporate bonds | 453 | — | 453 | — | |||||||||||
Mortgage-backed securities | 85 | — | 85 | — | |||||||||||
Asset-backed securities | 17 | — | 17 | — | |||||||||||
Pooled funds | 461 | 461 | — | — | |||||||||||
Other types of investments: | |||||||||||||||
Real estate (a) | 223 | — | — | — | |||||||||||
Private equity (a) | 186 | — | — | — | |||||||||||
Derivatives in a positive position | 13 | — | 13 | — | |||||||||||
Derivatives in a negative position | (19 | ) | — | (19 | ) | — | |||||||||
Total | $ | 3,377 | $ | 1,421 | $ | 821 | $ | — |
Fair Value Measurements | |||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
(millions) | |||||||||||||||
Cash and cash equivalents | $ | 15 | $ | 15 | $ | — | $ | — | |||||||
Short term investments | 36 | — | 36 | — | |||||||||||
Money market funds | 46 | 46 | — | — | |||||||||||
Equity securities: | |||||||||||||||
U.S. stocks | 280 | 280 | — | — | |||||||||||
U.S. pooled funds (a) | 391 | 207 | — | — | |||||||||||
International pooled funds (a) | 575 | 336 | — | — | |||||||||||
Fixed income securities: | |||||||||||||||
U. S. Treasury bonds | 233 | — | 233 | — | |||||||||||
Other Government bonds | 41 | — | 41 | — | |||||||||||
Agency backed bonds | 31 | — | 31 | — | |||||||||||
Corporate bonds | 433 | — | 433 | — | |||||||||||
Mortgage-backed securities | 112 | — | 112 | — | |||||||||||
Asset-backed securities | 28 | — | 28 | — | |||||||||||
Pooled funds | 427 | 427 | — | — | |||||||||||
Other types of investments: | |||||||||||||||
Real estate (a) | 238 | — | — | — | |||||||||||
Hedge funds (a) | 179 | — | — | — | |||||||||||
Private equity (a) | 188 | — | — | — | |||||||||||
Derivatives in a positive position | 15 | — | 15 | — | |||||||||||
Derivatives in a negative position | (22 | ) | — | (22 | ) | — | |||||||||
Total | $ | 3,246 | $ | 1,311 | $ | 907 | $ | — |
(millions) | |||
Fiscal year | |||
2017 | $ | 383 | |
2018 | 309 | ||
2019 | 299 | ||
2020 | 286 | ||
2021 | 246 | ||
2022-2026 | 1,113 |
2016 | 2015 | ||||||
(millions) | |||||||
Change in projected benefit obligation | |||||||
Projected benefit obligation, beginning of year | $ | 823 | $ | 920 | |||
Service cost | — | — | |||||
Interest cost | 22 | 31 | |||||
Actuarial (gain) loss | 26 | (70 | ) | ||||
Benefits paid | (124 | ) | (58 | ) | |||
Projected benefit obligation, end of year | 747 | 823 | |||||
Change in plan assets | |||||||
Fair value of plan assets, beginning of year | — | — | |||||
Company contributions | 124 | 58 | |||||
Benefits paid | (124 | ) | (58 | ) | |||
Fair value of plan assets, end of year | — | — | |||||
Funded status at end of year | $ | (747 | ) | $ | (823 | ) | |
Amounts recognized in the Consolidated Balance Sheets at January 28, 2017 and January 30, 2016 | |||||||
Accounts payable and accrued liabilities | $ | (86 | ) | $ | (138 | ) | |
Other liabilities | (661 | ) | (685 | ) | |||
$ | (747 | ) | $ | (823 | ) | ||
Amounts recognized in accumulated other comprehensive loss at January 28, 2017 and January 30, 2016 | |||||||
Net actuarial loss | $ | 248 | $ | 261 | |||
Prior service cost | 8 | 8 | |||||
$ | 256 | $ | 269 |
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Net Periodic Pension Cost | |||||||||||
Service cost | $ | — | $ | — | $ | — | |||||
Interest cost | 22 | 31 | 33 | ||||||||
Amortization of net actuarial loss | 9 | 10 | 5 | ||||||||
Amortization of prior service credit | — | — | — | ||||||||
31 | 41 | 38 | |||||||||
Settlement charges | 30 | — | — | ||||||||
Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Loss | |||||||||||
Net actuarial (gain) loss | 26 | (70 | ) | 170 | |||||||
Prior service cost | — | — | — | ||||||||
Amortization of net actuarial loss | (9 | ) | (10 | ) | (5 | ) | |||||
Amortization of prior service credit | — | — | — | ||||||||
Settlement charges | (30 | ) | — | — | |||||||
(13 | ) | (80 | ) | 165 | |||||||
Total recognized | $ | 48 | $ | (39 | ) | $ | 203 |
2016 | 2015 | ||||
Discount rate | 4.07 | % | 4.23 | % |
2016 | 2015 | 2014 | |||||
Discount rate used to measure interest cost | 2.65% - 3.16% | 3.55 | % | 4.50 | % |
(millions) | |||
Fiscal year | |||
2017 | $ | 86 | |
2018 | 78 | ||
2019 | 46 | ||
2020 | 48 | ||
2021 | 48 | ||
2022-2026 | 228 |
|
| Expected Benefit Payments |
| |
|
| (millions) |
| |
Fiscal Year |
|
|
|
|
2021 |
| $ | 13 |
|
2022 |
|
| 12 |
|
2023 |
|
| 11 |
|
2024 |
|
| 10 |
|
2025 |
|
| 9 |
|
2026-2030 |
|
| 36 |
|
The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. The Company accounted for this change as a change in estimate prospectively starting in 2016. The discount rate that would have been used to measure the 2016 service and interest cost components of net periodic benefit cost as of the beginning of the year under the single weighted-average discount rate was 4.15%. The 2016 reduction in service cost and interest cost for the postretirement obligations associated with this change was approximately $2 million.
2016 | 2015 | ||||||
(millions) | |||||||
Change in accumulated postretirement benefit obligation | |||||||
Accumulated postretirement benefit obligation, beginning of year | $ | 212 | $ | 243 | |||
Service cost | — | — | |||||
Interest cost | 6 | 8 | |||||
Actuarial gain | (13 | ) | (22 | ) | |||
Medicare Part D subsidy | 1 | 1 | |||||
Benefits paid | (20 | ) | (18 | ) | |||
Accumulated postretirement benefit obligation, end of year | 186 | 212 | |||||
Change in plan assets | |||||||
Fair value of plan assets, beginning of year | — | — | |||||
Company contributions | 20 | 18 | |||||
Benefits paid | (20 | ) | (18 | ) | |||
Fair value of plan assets, end of year | — | — | |||||
Funded status at end of year | $ | (186 | ) | $ | (212 | ) | |
Amounts recognized in the Consolidated Balance Sheets at January 28, 2017 and January 30, 2016 | |||||||
Accounts payable and accrued liabilities | $ | (18 | ) | $ | (20 | ) | |
Other liabilities | (168 | ) | (192 | ) | |||
$ | (186 | ) | $ | (212 | ) | ||
Amounts recognized in accumulated other comprehensive loss at January 28, 2017 and January 30, 2016 | |||||||
Net actuarial gain | $ | (31 | ) | $ | (22 | ) |
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Net Periodic Postretirement Benefit Cost | |||||||||||
Service cost | $ | — | $ | — | $ | — | |||||
Interest cost | 6 | 8 | 10 | ||||||||
Amortization of net actuarial gain | (4 | ) | — | (5 | ) | ||||||
Amortization of prior service cost | — | — | — | ||||||||
2 | 8 | 5 | |||||||||
Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Loss | |||||||||||
Net actuarial (gain) loss | (13 | ) | (22 | ) | 30 | ||||||
Amortization of net actuarial gain | 4 | — | 5 | ||||||||
Amortization of prior service cost | — | — | — | ||||||||
(9 | ) | (22 | ) | 35 | |||||||
Total recognized | $ | (7 | ) | $ | (14 | ) | $ | 40 |
2016 | 2015 | ||||
Discount rate | 3.99 | % | 4.15 | % |
2016 | 2015 | 2014 | ||||||
Discount rate used to measure interest cost | 3.14 | % | 3.55 | % | 4.50 | % |
2016 | 2015 | ||
Health care cost trend rates assumed for next year | 6.15% - 9.75% | 6.25% - 10.0% | |
Rates to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.0% | 5.0% | |
Year that the rate reaches the ultimate trend rate | 2027 | 2027 |
1 – Percentage Point Increase | 1 – Percentage Point Decrease | ||||||
(millions) | |||||||
Effect on total of service and interest cost | $ | — | $ | — | |||
Effect on accumulated postretirement benefit obligations | $ | 11 | $ | (10 | ) |
Expected Benefit Payments | Expected Federal Subsidy | ||||||
(millions) | |||||||
Fiscal Year | |||||||
2017 | $ | 17 | $ | 1 | |||
2018 | 17 | 1 | |||||
2019 | 16 | 1 | |||||
2020 | 16 | — | |||||
2021 | 15 | — | |||||
2022-2026 | 63 | 1 |
12. |
Stock-Based Compensation |
ThefollowingdisclosurespresenttheCompany’sequityplansonacombinedbasis.TheequityplansareadministeredbytheCompensationandManagementDevelopmentCommitteeoftheBoardofDirectors(the“CMD Committee”).TheCMDCommitteeisauthorizedtograntoptions,stockappreciationrights,restrictedstockandrestricted stockunitstoofficersandkeyemployeesoftheCompanyanditssubsidiariesandtonon-employeedirectors.TheequityplansareintendedtohelptheCompanyattractandretaindirectors,officers,otherkeyexecutivesandemployeesandisalsointendedtoprovideincentivesandrewardsrelatingtotheCompany’sbusinessplanstoencouragesuchpersonstodevotethemselvestothebusinessoftheCompany.Therehavebeennograntsofstockappreciationrightsundertheequityplans.
Stockoptiongrantshaveanexercisepriceatleastequaltothemarketvalueoftheunderlyingcommonstockonthe dateofgrant,haveten-yeartermsandtypicallyvestratablyoverfour yearsofcontinuedemployment.Restrictedstockand time-basedrestrictedstockunitawardsgenerallyvestone to four yearsfromthedateofgrant.Performance-basedrestricted stockunitsgenerallyareearnedbasedontheattainmentofspecifiedgoalsachievedovertheperformanceperiod.
AsofJanuary 30, 2021,approximately 7.8 millionsharesofcommonstockwereavailableforadditionalgrants pursuanttotheCompany’sequityplans.SharesawardedaregenerallyissuedfromtheCompany'streasurystock.
Stock-basedcompensationexpenseincludedthefollowingcomponents:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (millions) |
| |||||||||
Stock options |
| $ | 8 |
|
| $ | 15 |
|
| $ | 24 |
|
Restricted stock units |
|
| 23 |
|
|
| 23 |
|
|
| 39 |
|
|
| $ | 31 |
|
| $ | 38 |
|
| $ | 63 |
|
Allstock-basedcompensationexpenseisrecordedinSG&AexpenseintheConsolidatedStatementsofOperations.
F-42
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
StockOptions
There were 0 grants of stock options during 2020. Thefairvalueofstockoptionsgrantedduring2019and2018andtheweightedaverageassumptionsusedto estimatethefairvalueareasfollows:
|
| 2019 |
|
| 2018 |
| ||
Weighted average grant date fair value of stock options granted during the period |
| $ | 5.11 |
|
| $ | 7.43 |
|
Dividend yield |
|
| 6.3 | % |
|
| 5.2 | % |
Expected volatility |
|
| 40.6 | % |
|
| 41.1 | % |
Risk-free interest rate |
|
| 2.4 | % |
|
| 2.7 | % |
Expected life |
| 5.5 years |
|
| 5.6 years |
|
ThefairvalueofeachstockoptiongrantisestimatedonthedateofgrantusingtheBlack-Scholesoption-pricing model.TheCompany obtained estimatestheexpectedvolatilityandexpectedoptionlifeassumptionconsistentwithASCTopic718,Compensation–StockCompensation.TheexpectedvolatilityoftheCompany’scommonstockatthedateofgrantisestimatedbasedonahistoricvolatilityrateandtheexpectedoptionlifeiscalculatedbasedonhistoricalstockoption experienceasthebestestimateoffutureexercisepatterns.Thedividendyieldassumptionisbasedonhistoricaland anticipateddividendpayouts.Therisk-freeinterestrateassumptionisbasedonobservedinterestratesconsistentwiththe expectedlifeofeachstockoptiongrant.TheCompanyuseshistoricaldatatoestimatepre-vestingoptionforfeituresand recordsstock-basedcompensationexpenseonlyforthoseawardsthatareexpectedtovest.Compensationexpenseis recordedforallstockoptionsexpectedtovestbasedontheamortizationofthefairvalueatthedateofgrantonastraight- linebasisprimarilyoverthevestingperiodoftheoptions.
Activityrelatedtostockoptionsfor2020isasfollows:
|
| Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Life |
|
| Aggregate Intrinsic Value |
| ||||
|
| (thousands) |
|
|
|
|
|
| (years) |
|
| (millions) |
| |||
Outstanding, beginning of period |
|
| 18,499 |
|
| $ | 39.77 |
|
|
|
|
|
|
|
|
|
Granted |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
Canceled or forfeited |
|
| (2,154 | ) |
|
| 32.84 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
| 16,345 |
|
| $ | 40.69 |
|
|
|
|
|
|
|
|
|
Exercisable, end of period |
|
| 14,357 |
|
| $ | 42.74 |
|
|
| 3.6 |
|
| $ | 0 |
|
Options expected to vest |
|
| 1,371 |
|
| $ | 25.84 |
|
|
| 7.4 |
|
| $ | 0 |
|
Additionalinformationrelatingtostockoptionsisasfollows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (millions) |
| |||||||||
Intrinsic value of options exercised |
| $ | — |
|
| $ | 10 |
|
| $ | 27 |
|
Cash received from stock options exercised |
|
| — |
|
|
| 6 |
|
|
| 45 |
|
AsofJanuary 30, 2021,theCompanyhad$5millionofunrecognizedcompensationcostsrelatedtononvested stockoptions,whichisexpectedtoberecognizedoveraweightedaverageperiodofapproximately1.7 years.
RestrictedStockUnits
Theweightedaveragegrantdatefairvaluesofperformance-basedandtime-basedrestrictedstockunitsgranted during2020,2019and2018areasfollows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Restricted stock units (performance-based) |
| $ | 6.24 |
|
| $ | 24.28 |
|
| $ | 30.64 |
|
Restricted stock units (time-based) |
|
| 6.96 |
|
|
| 17.81 |
|
|
| 25.57 |
|
F-43
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
During2020,2019and2018,theCMDCommitteeapprovedawardsofperformance-basedrestrictedstockunitsto certainseniorexecutivesoftheCompany.Eachawardreflectsatargetnumberofshares(“TargetShares”)thatmaybeissuedtotheawardrecipient.Theseawardsmaybeearneduponthecompletionofthree-yearperformanceperiodsending January 28, 2023, January29,2022 andJanuary30,2021,respectively.Whetherunitsareearnedattheendoftheperformanceperiodwillbedeterminedbasedontheachievementofcertainperformanceobjectivesovertheperformance period.TheperformanceobjectivesincludeachievinganEBITDAasapercenttosalesratio,ownedpluslicensed comparablesalesgrowthandareturnoninvestedcapitalratio.The 2019 and 2018 performance-basedrestrictedstockunitsalsoincludea performanceobjectiverelatingtorelativetotalshareholder approvalreturn(“TSR”).RelativeTSRreflectsthechangeinthevalue oftheCompany’scommonstockovertheperformanceperiodinrelationtothechangeinthevalueofthecommonstockofapeergroupovertheperformanceperiod,assumingthereinvestmentofdividends.Depending ontheresultsachievedduringthethree-yearperformanceperiods,theactualnumberofsharesthatagrantrecipientreceives attheendoftheperiodmayrangefrom 0% to 150% of the Target Shares granted for the Macy’s 2009 Omnibus Incentive Compensation Plan under which up to
ThefairvalueoftheTargetSharesandrestrictedstockawards generally vest
ThefairvalueofarestrictedstockunitawardatthegrantdateisequaltothemarketpriceoftheCompany'scommon stockonthegrantdate.Compensationexpenseisrecordedforallrestrictedstockunitawardsbasedontheamortizationof grant. Performance-based restricted stock units generally are earned based on thefairmarketvalueatthedateofgrantovertheperiodtherestrictionslapseorovertheperformanceperiodofthe attainment performance-basedrestrictedstockunits.Asof specified goals achieved over the performance period.
Activityrelatedtorestrictedstockunitsfor2020isasfollows:
|
|
|
|
|
| Weighted |
| |
|
|
|
|
|
| Average |
| |
|
|
|
|
|
| Grant Date |
| |
|
| Shares |
|
| Fair Value |
| ||
|
| (thousands) |
| |||||
Nonvested, beginning of period |
|
| 4,747 |
|
| $ | 23.37 |
|
Granted – performance-based |
|
| 1,553 |
|
|
| 6.24 |
|
Performance adjustment |
|
| (508 | ) |
|
| 30.48 |
|
Granted – time-based |
|
| 6,216 |
|
|
| 6.96 |
|
Forfeited |
|
| (830 | ) |
|
| 21.43 |
|
Vested |
|
| (1,426 | ) |
|
| 23.54 |
|
Nonvested, end of period |
|
| 9,752 |
|
| $ | 9.95 |
|
13. | Shareholders’Equity |
TheauthorizedsharesoftheCompanyconsistof125millionsharesofpreferredstock(“PreferredStock”),
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Stock options | $ | 43 | $ | 52 | $ | 47 | |||||
Restricted stock units | 18 | 13 | 26 | ||||||||
$ | 61 | $ | 65 | $ | 73 |
2016 | 2015 | 2014 | |||||||||
Weighted average grant date fair value of stock options granted during the period | $ | 12.14 | $ | 20.78 | $ | 19.07 | |||||
Dividend yield | 3.8 | % | 2.7 | % | 2.5 | % | |||||
Expected volatility | 42.7 | % | 43.3 | % | 42.7 | % | |||||
Risk-free interest rate | 1.4 | % | 1.7 | % | 1.5 | % | |||||
Expected life | 5.7 years | 5.7 years | 5.7 years |
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||
(thousands) | (years) | (millions) | ||||||||||
Outstanding, beginning of period | 18,829.8 | $ | 41.92 | |||||||||
Granted | 3,886.8 | $ | 42.97 | |||||||||
Canceled or forfeited | (1,116.6 | ) | $ | 51.33 | ||||||||
Exercised | (1,122.1 | ) | $ | 31.30 | ||||||||
Outstanding, end of period | 20,477.9 | $ | 42.18 | |||||||||
Exercisable, end of period | 12,541.5 | $ | 36.48 | 4.1 | $ | 46 | ||||||
Options expected to vest | 6,657.5 | $ | 51.07 | 8.3 | $ | — |
2016 | 2015 | 2014 | |||||||||
(millions) | |||||||||||
Intrinsic value of options exercised | $ | 12 | $ | 127 | $ | 189 | |||||
Cash received from stock options exercised | 35 | 125 | 200 |
2016 | 2015 | 2014 | |||||||||
Restricted stock units | $ | 40.02 | $ | 62.61 | $ | 59.41 |
Shares | Weighted Average Grant Date Fair Value | |||||
(thousands) | ||||||
Nonvested, beginning of period | 1,497.0 | $ | 57.06 | |||
Granted – performance-based | 575.1 | 43.72 | ||||
Performance adjustment | (237.6 | ) | 59.82 | |||
Granted – time-based | 482.8 | 35.61 | ||||
Forfeited | (250.0 | ) | 32.99 | |||
Vested | (249.0 | ) | 33.70 | |||
Nonvested, end of period | 1,818.3 | $ | 53.29 |
Nosharesof directors has from time commonstockwereretiredduring2020,2019and2018.
F-44
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
CommonStock
Theholdersofthecommonstockareentitledto time approved authorizations onevoteforeachshareheldofrecordonallmatterssubmittedto purchase, in the aggregate, up to
TreasuryStock
Treasurystockcontainssharesrepurchasedunderthesharerepurchaseprogram,sharesrepurchasedtocoveremployeetaxliabilitiesrelatedtostockplanactivityandsharesmaintainedinatrustrelatedtodeferredcompensation plans.Underthedeferredcompensationplans,sharesaremaintainedinatrusttocoverthenumberestimatedtobeneeded fordistributiononaccountofstockcreditscurrentlyoutstanding.
ChangesintheCompany’scommonstockissuedandoutstanding,includingsharesheldbytheCompany’streasury,areasfollows:
|
|
|
|
|
| Treasury Stock |
|
|
|
|
| |||||||||
|
| Common Stock Issued |
|
| Deferred Compensation Plans |
|
| Other |
|
| Total |
|
| Common Stock Outstanding |
| |||||
|
| (thousands) |
| |||||||||||||||||
Balance at February 3, 2018 |
|
| 333,606 |
|
|
| (946 | ) |
|
| (27,895 | ) |
|
| (28,841 | ) |
|
| 304,765 |
|
Stock issued under stock plans |
|
|
|
|
|
| (106 | ) |
|
| 2,756 |
|
|
| 2,650 |
|
|
| 2,650 |
|
Stock repurchases |
|
|
|
|
|
|
|
|
|
| (6 | ) |
|
| (6 | ) |
|
| (6 | ) |
Deferred compensation plan distributions |
|
|
|
|
|
| 111 |
|
|
|
|
|
|
| 111 |
|
|
| 111 |
|
Balance at February 2, 2019 |
|
| 333,606 |
|
|
| (941 | ) |
|
| (25,145 | ) |
|
| (26,086 | ) |
|
| 307,520 |
|
Stock issued under stock plans |
|
|
|
|
|
| (130 | ) |
|
| 1,510 |
|
|
| 1,380 |
|
|
| 1,380 |
|
Stock repurchases |
|
|
|
|
|
|
|
|
|
| (38 | ) |
|
| (38 | ) |
|
| (38 | ) |
Deferred compensation plan distributions |
|
|
|
|
|
| 169 |
|
|
|
|
|
|
| 169 |
|
|
| 169 |
|
Balance at February 1, 2020 |
|
| 333,606 |
|
|
| (902 | ) |
|
| (23,673 | ) |
|
| (24,575 | ) |
|
| 309,031 |
|
Stock issued under stock plans |
|
|
|
|
|
| (127 | ) |
|
| 1,577 |
|
|
| 1,450 |
|
|
| 1,450 |
|
Stock repurchases |
|
|
|
|
|
|
|
|
|
| (79 | ) |
|
| (79 | ) |
|
| (79 | ) |
Deferred compensation plan distributions |
|
|
|
|
|
| 98 |
|
|
|
|
|
|
| 98 |
|
|
| 98 |
|
Balance at January 30, 2021 |
|
| 333,606 |
|
|
| (931 | ) |
|
| (22,175 | ) |
|
| (23,106 | ) |
|
| 310,500 |
|
AccumulatedOtherComprehensiveLoss
FortheCompany,theonlycomponentofaccumulatedothercomprehensivelossfor2020,2019and2018relatestopostemploymentandpostretirementplanitems.Thenetactuarialgainsandlossesandpriorservicecostsandcredits currently outstanding.
F-45
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
14. |
FairValueMeasurementsandConcentrationsofCredit Risk |
ThefollowingtableshowstheCompany’sfinancialassetsthatarerequiredtobemeasuredatfairvalueonarecurringbasis,bylevelwithinthehierarchyasdefinedbyapplicableaccountingstandards:
|
| January 30, 2021 |
|
| February 1, 2020 |
| ||||||||||||||||||||||||||
|
|
|
|
|
| Fair Value Measurements |
|
|
|
|
|
| Fair Value Measurements |
| ||||||||||||||||||
|
|
|
|
|
| Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quoted Prices |
|
|
|
|
|
|
|
|
| ||
|
| Total |
|
| in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Total |
|
| in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||||||
|
| (millions) |
| |||||||||||||||||||||||||||||
Marketable equity and debt securities |
| $ | 100 |
|
| $ | 37 |
|
| $ | 63 |
|
| $ | 0 |
|
| $ | 132 |
|
| $ | 34 |
|
| $ | 98 |
|
| $ | 0 |
|
Otherfinancialinstrumentsnotmeasuredatfairvalueonarecurringbasisincludecashandcashequivalents, receivables,certain-shortterminvestmentsandotherassets,short-termdebt,merchandiseaccountspayable,accounts payableandaccruedliabilitiesandlong-termdebt.Withtheexceptionoflong-termdebt,thecarryingamountapproximatesfairvaluebecauseoftheshortmaturityoftheseinstruments.Thefairvaluesoflong-termdebt,excludingcapitalizedleases, aregenerallyestimatedbasedonquotedmarketpricesforidenticalorsimilarinstruments,andareclassifiedas Level2measurementswithinthehierarchyasdefinedbyapplicableaccountingstandards.
ThefollowingtableshowstheestimatedfairvalueoftheCompany’slong-termdebt,excludingcapitalleasesandotherobligations:
|
| January 30, 2021 |
|
| February 1, 2020 |
| ||||||||||||||||||
|
| Notional Amount |
|
| Carrying Amount |
|
| Fair Value |
|
| Notional Amount |
|
| Carrying Amount |
|
| Fair Value |
| ||||||
|
| (millions) |
| |||||||||||||||||||||
Long-term debt |
| $ | 4,454 |
|
| $ | 4,407 |
|
| $ | 4,320 |
|
| $ | 3,607 |
|
| $ | 3,621 |
|
|
| 3,702 |
|
ThefollowingtableshowscertainoftheCompany’slong-livedassets,whichincludestangibleandintangibleassets,thatweremeasuredatfairvalueonanonrecurringbasisduring2020and2019:
|
| January 30, 2021 |
|
| February 1, 2020 |
| ||||||||||||||||||||||||||
|
|
|
|
|
| Fair Value Measurements |
|
|
|
|
|
| Fair Value Measurements |
| ||||||||||||||||||
|
| Total |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Total |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||||||
|
| (millions) |
| |||||||||||||||||||||||||||||
Long-lived assets |
| $ | 95 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 95 |
|
| $ | 129 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 129 |
|
Goodwill |
|
| 828 |
|
|
| 0 |
|
|
| 0 |
|
|
| 828 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
During2020,long-livedassetswithacarryingvalueof$295millionwerewrittendowntotheirfairvalueof$95 million,resultingin the Company’s Common Stock issuedassetimpairmentchargesof$200million, and outstanding, including shares held by the Company’s treasury, are as follows:
Treasury Stock | ||||||||||||||
Common Stock Issued | Deferred Compensation Plans | Other | Total | Common Stock Outstanding | ||||||||||
(thousands) | ||||||||||||||
Balance at February 1, 2014 | 410,605.8 | (1,229.2 | ) | (44,441.6 | ) | (45,670.8 | ) | 364,935.0 | ||||||
Stock issued under stock plans | (54.8 | ) | 7,490.6 | 7,435.8 | 7,435.8 | |||||||||
Stock repurchases | ||||||||||||||
Repurchase program | (31,874.9 | ) | (31,874.9 | ) | (31,874.9 | ) | ||||||||
Other | (27.0 | ) | (27.0 | ) | (27.0 | ) | ||||||||
Deferred compensation plan distributions | 104.8 | 104.8 | 104.8 | |||||||||||
Retirement of common stock | (31,000.0 | ) | 31,000.0 | 31,000.0 | — | |||||||||
Balance at January 31, 2015 | 379,605.8 | (1,179.2 | ) | (37,852.9 | ) | (39,032.1 | ) | 340,573.7 | ||||||
Stock issued under stock plans | (60.4 | ) | 4,493.5 | 4,433.1 | 4,433.1 | |||||||||
Stock repurchases | ||||||||||||||
Repurchase program | (34,806.8 | ) | (34,806.8 | ) | (34,806.8 | ) | ||||||||
Other | (12.7 | ) | (12.7 | ) | (12.7 | ) | ||||||||
Deferred compensation plan distributions | 68.8 | 68.8 | 68.8 | |||||||||||
Retirement of common stock | (38,000.0 | ) | 38,000.0 | 38,000.0 | — | |||||||||
Balance at January 30, 2016 | 341,605.8 | (1,170.8 | ) | (30,178.9 | ) | (31,349.7 | ) | 310,256.1 | ||||||
Stock issued under stock plans | (87.0 | ) | 1,611.7 | 1,524.7 | 1,524.7 | |||||||||
Stock repurchases | ||||||||||||||
Repurchase program | (7,874.3 | ) | (7,874.3 | ) | (7,874.3 | ) | ||||||||
Other | (4.6 | ) | (4.6 | ) | (4.6 | ) | ||||||||
Deferred compensation plan distributions | 160.9 | 160.9 | 160.9 | |||||||||||
Retirement of common stock | (8,000.0 | ) | 8,000.0 | 8,000.0 | — | |||||||||
Balance at January 28, 2017 | 333,605.8 | (1,096.9 | ) | (28,446.1 | ) | (29,543.0 | ) | 304,062.8 |
January 28, 2017 | January 30, 2016 | ||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements | ||||||||||||||||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||
(millions) | |||||||||||||||||||||||||||||||
Marketable equity and debt securities | $ | 112 | $ | 20 | $ | 92 | $ | — | $ | 132 | $ | 13 | $ | 119 | $ | — |
January 28, 2017 | January 30, 2016 | ||||||||||||||||||||||
Notional Amount | Carrying Amount | Fair Value | Notional Amount | Carrying Amount | Fair Value | ||||||||||||||||||
(millions) | |||||||||||||||||||||||
Long-term debt | $ | 6,459 | $ | 6,535 | $ | 6,438 | $ | 6,871 | $ | 6,966 | $ | 6,756 |
January 28, 2017 | January 30, 2016 | ||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements | ||||||||||||||||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||
(millions) | |||||||||||||||||||||||||||||||
Long-lived assets held and used | $ | 147 | $ | — | $ | — | $ | 147 | $ | 53 | $ | — | $ | — | $ | 53 |
F-46
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
FinancialinstrumentsthatpotentiallysubjecttheCompanytoconcentrationsofcreditriskconsistprincipallyof temporarycashinvestments.TheCompanyplacesitstemporarycashinvestmentsinwhatitbelievestobehighcredit qualityfinancialinstruments.
15. |
Earnings (Loss)PerShareAttributabletoMacy's,Inc.Shareholders |
Thefollowingtablesetsforththecomputationofbasicanddilutedearnings (loss) pershareattributabletoMacy's,Inc. shareholders:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||||||||||||
|
| Net Loss |
|
|
|
|
|
| Shares |
|
| Net Income |
|
|
|
|
|
| Shares |
|
| Net Income |
|
|
|
|
|
| Shares |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| (millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income (loss) attributable to Macy's, Inc. Shareholders and average number of shares outstanding |
| $ | (3,944 | ) |
|
|
|
|
|
| 310.2 |
|
| $ | 564 |
|
|
|
|
|
|
| 308.8 |
|
| $ | 1,108 |
|
|
|
|
|
|
| 306.8 |
|
Shares to be issued under deferred compensation and other plans |
|
| — |
|
|
|
|
|
|
| 1 |
|
|
| — |
|
|
|
|
|
|
| 0.9 |
|
|
| — |
|
|
|
|
|
|
| 0.9 |
|
|
| $ | (3,944 | ) |
|
|
|
|
|
| 311.1 |
|
| $ | 564 |
|
|
|
|
|
|
| 309.7 |
|
| $ | 1,108 |
|
|
|
|
|
|
| 307.7 |
|
Basic earnings (loss) per share attributable to Macy's,Inc. shareholders |
|
|
|
|
| $ | (12.68 | ) |
|
|
|
|
|
|
|
|
| $ | 1.82 |
|
|
|
|
|
|
|
|
|
| $ | 3.60 |
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| 1.7 |
|
|
| — |
|
|
|
|
|
|
| 3.7 |
|
|
| $ | (3,944 | ) |
|
|
|
|
|
| 311.1 |
|
| $ | 564 |
|
|
|
|
|
|
| 311.4 |
|
| $ | 1,108 |
|
|
|
|
|
|
| 311.4 |
|
Diluted earnings (loss) per share attributable to Macy's, Inc. shareholders |
|
|
|
|
| $ | (12.68 | ) |
|
|
|
|
|
|
|
|
| $ | 1.81 |
|
|
|
|
|
|
|
|
|
| $ | 3.56 |
|
|
|
|
|
For 2020, as a result of the May 30, 2016 annual impairment testnet loss, all options and restricted stock units have been excluded from the calculation of goodwill and other intangible assets with indefinite lives, the Company recognized approximately $7 million of asset impairment charges in relation to indefinite lived tradenames. The fair values of these tradenames were calculated based on the projected cash flows and an estimated risk-adjusted rate of return that would be used by market participants in valuing these assets or prices of similar assets and are classified as Level 3 measurements within the hierarchy as defined by applicable accounting standards.
2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||
Net Income | Shares | 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 | $ | 619 | 307.6 | $ | 1,072 | 327.6 | $ | 1,526 | 354.3 | |||||||||||||||||||||||
Shares to be issued under deferred compensation and other plans | 0.9 | 0.8 | 0.9 | |||||||||||||||||||||||||||||
$ | 619 | 308.5 | $ | 1,072 | 328.4 | $ | 1,526 | 355.2 | ||||||||||||||||||||||||
Basic earnings per share attributable to Macy's, Inc. shareholders | $ | 2.01 | $ | 3.26 | $ | 4.30 | ||||||||||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||||||||||
Stock options, restricted stock and restricted stock units | 2.3 | 4.6 | 6.5 | |||||||||||||||||||||||||||||
$ | 619 | 310.8 | $ | 1,072 | 333.0 | $ | 1,526 | 361.7 | ||||||||||||||||||||||||
Diluted earnings per share attributable to Macy's, Inc. shareholders | $ | 1.99 | $ | 3.22 | $ | 4.22 |
In addition to the stock options and restricted stock units reflected in the foregoing table,stockoptionstopurchase 15.5 18.5millionsharesofcommonstockandrestrictedstockunitsrelatingto1.7millionsharesofcommonstockwere outstandingatFebruary 1, 2020, and stockoptionstopurchase 15.3millionofsharesofcommonstockandrestrictedstock unitsrelatingto 1.1 0.9millionsharesofcommonstockwereoutstandingat
F-47
NOTESTO CONSOLIDATEDFINANCIALSTATEMENTS— (Continued)
16. |
QuarterlyResults(unaudited) |
Unauditedquarterlyresultsforthelasttwoyearswereasfollows:
|
| First Quarter |
|
| Second Quarter |
|
| Third Quarter |
|
| Fourth Quarter |
| ||||
|
| (millions, except per share data) |
| |||||||||||||
2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 3,017 |
|
| $ | 3,559 |
|
| $ | 3,990 |
|
| $ | 6,780 |
|
Credit card revenues, net |
|
| 131 |
|
|
| 168 |
|
|
| 195 |
|
|
| 258 |
|
Cost of sales |
|
| (2,501 | ) |
|
| (2,718 | ) |
|
| (2,569 | ) |
|
| (4,498 | ) |
Selling, general and administrative expenses |
|
| (1,598 | ) |
|
| (1,398 | ) |
|
| (1,726 | ) |
|
| (2,045 | ) |
Gains on sale of real estate |
|
| 16 |
|
|
| 0 |
|
|
| 3 |
|
|
| 40 |
|
Restructuring, impairment, store closing and other costs |
|
| (3,184 | ) |
|
| (242 | ) |
|
| (20 | ) |
|
| (134 | ) |
Benefit plan income, net |
|
| 9 |
|
|
| 12 |
|
|
| 16 |
|
|
| 17 |
|
Settlement charges |
|
| 0 |
|
|
| (38 | ) |
|
| (26 | ) |
|
| (19 | ) |
Net income (loss) |
|
| (3,581 | ) |
|
| (431 | ) |
|
| (91 | ) |
|
| 160 |
|
Basic earnings (loss) per share |
|
| (11.53 | ) |
|
| (1.39 | ) |
|
| (0.29 | ) |
|
| 0.51 |
|
Diluted earnings (loss) per share |
|
| (11.53 | ) |
|
| (1.39 | ) |
|
| (0.29 | ) |
|
| 0.50 |
|
2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 5,504 |
|
| $ | 5,546 |
|
| $ | 5,173 |
|
| $ | 8,337 |
|
Credit card revenues, net |
|
| 172 |
|
|
| 176 |
|
|
| 183 |
|
|
| 239 |
|
Cost of sales |
|
| (3,403 | ) |
|
| (3,395 | ) |
|
| (3,106 | ) |
|
| (5,266 | ) |
Selling, general and administrative expenses |
|
| (2,112 | ) |
|
| (2,177 | ) |
|
| (2,202 | ) |
|
| (2,509 | ) |
Gains on sale of real estate |
| �� | 43 |
|
|
| 7 |
|
|
| 17 |
|
|
| 95 |
|
Restructuring, impairment, store closing and other costs |
|
| (1 | ) |
|
| (2 | ) |
|
| (13 | ) |
|
| (337 | ) |
Benefit plan income, net |
|
| 7 |
|
|
| 8 |
|
|
| 8 |
|
|
| 8 |
|
Settlement charges |
|
| 0 |
|
|
| 0 |
|
|
| (12 | ) |
|
| (46 | ) |
Net income |
|
| 136 |
|
|
| 86 |
|
|
| 2 |
|
|
| 340 |
|
Basic earnings per share |
|
| 0.44 |
|
|
| 0.28 |
|
|
| 0.01 |
|
|
| 1.10 |
|
Diluted earnings per share |
|
| 0.44 |
|
|
| 0.28 |
|
|
| 0.01 |
|
|
| 1.09 |
|
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
(millions, except per share data) | |||||||||||||||
2016: | |||||||||||||||
Net sales | $ | 5,771 | $ | 5,866 | $ | 5,626 | $ | 8,515 | |||||||
Cost of sales | (3,516 | ) | (3,468 | ) | (3,386 | ) | (5,251 | ) | |||||||
Gross margin | 2,255 | 2,398 | 2,240 | 3,264 | |||||||||||
Selling, general and administrative expenses | (1,966 | ) | (2,026 | ) | (2,071 | ) | (2,202 | ) | |||||||
Impairments, store closing and other costs | — | (249 | ) | — | (230 | ) | |||||||||
Settlement charges | (13 | ) | (6 | ) | (62 | ) | (17 | ) | |||||||
Net income attributable to Macy's, Inc. shareholders | 116 | 11 | 17 | 475 | |||||||||||
Basic earnings per share attributable to Macy's, Inc. shareholders | .37 | .03 | .05 | 1.56 | |||||||||||
Diluted earnings per share attributable to Macy's, Inc. shareholders | .37 | .03 | .05 | 1.54 | |||||||||||
2015: | |||||||||||||||
Net sales | $ | 6,232 | $ | 6,104 | $ | 5,874 | $ | 8,869 | |||||||
Cost of sales | (3,800 | ) | (3,610 | ) | (3,537 | ) | (5,549 | ) | |||||||
Gross margin | 2,432 | 2,494 | 2,337 | 3,320 | |||||||||||
Selling, general and administrative expenses | (2,023 | ) | (2,058 | ) | (1,968 | ) | (2,207 | ) | |||||||
Impairments, store closing and other costs | — | — | (111 | ) | (177 | ) | |||||||||
Net income attributable to Macy's, Inc. shareholders | 193 | 217 | 118 | 544 | |||||||||||
Basic earnings per share attributable to Macy's, Inc. shareholders | .57 | .65 | .36 | 1.74 | |||||||||||
Diluted earnings per share attributable to Macy's, Inc. shareholders | .56 | .64 | .36 | 1.73 |
Note: |
Annualresultsmaynotequalthesumofthequarterlyresultsfortherespectiveperiodsduetoroundingconventions. |
Parent | Subsidiary Issuer | Other Subsidiaries | Consolidating Adjustments | Consolidated | |||||||||||||||
Net sales | $ | — | $ | 10,677 | $ | 23,436 | $ | (8,335 | ) | $ | 25,778 | ||||||||
Cost of sales | — | (6,787 | ) | (17,169 | ) | 8,335 | (15,621 | ) | |||||||||||
Gross margin | — | 3,890 | 6,267 | — | 10,157 | ||||||||||||||
Selling, general and administrative expenses | (2 | ) | (3,739 | ) | (4,524 | ) | — | (8,265 | ) | ||||||||||
Impairments, store closing and other costs | — | (295 | ) | (184 | ) | — | (479 | ) | |||||||||||
Settlement charges | — | (34 | ) | (64 | ) | — | (98 | ) | |||||||||||
Operating income (loss) | (2 | ) | (178 | ) | 1,495 | — | 1,315 | ||||||||||||
Interest (expense) income, net: | |||||||||||||||||||
External | 2 | (366 | ) | 1 | — | (363 | ) | ||||||||||||
Intercompany | — | (200 | ) | 200 | — | — | |||||||||||||
Equity in earnings of subsidiaries | 619 | 255 | — | (874 | ) | — | |||||||||||||
Income (loss) before income taxes | 619 | (489 | ) | 1,696 | (874 | ) | 952 | ||||||||||||
Federal, state and local income tax benefit (expense) | — | 281 | (622 | ) | — | (341 | ) | ||||||||||||
Net income (loss) | 619 | (208 | ) | 1,074 | (874 | ) | 611 | ||||||||||||
Net loss attributable to noncontrolling interest | — | — | 8 | — | 8 | ||||||||||||||
Net income (loss) attributable to Macy's, Inc. shareholders | $ | 619 | $ | (208 | ) | $ | 1,082 | $ | (874 | ) | $ | 619 | |||||||
Comprehensive income (loss) | $ | 766 | $ | (61 | ) | $ | 1,153 | $ | (1,100 | ) | $ | 758 | |||||||
Comprehensive loss attributable to noncontrolling interest | — | — | 8 | — | 8 | ||||||||||||||
Comprehensive income (loss) attributable to Macy's, Inc. shareholders | $ | 766 | $ | (61 | ) | $ | 1,161 | $ | (1,100 | ) | $ | 766 |
F-48
Parent | Subsidiary Issuer | Other Subsidiaries | Consolidating Adjustments | Consolidated | |||||||||||||||
Net sales | $ | — | $ | 11,959 | $ | 24,037 | $ | (8,917 | ) | $ | 27,079 | ||||||||
Cost of sales | — | (7,670 | ) | (17,743 | ) | 8,917 | (16,496 | ) | |||||||||||
Gross margin | — | 4,289 | 6,294 | — | 10,583 | ||||||||||||||
Selling, general and administrative expenses | (2 | ) | (3,980 | ) | (4,274 | ) | — | (8,256 | ) | ||||||||||
Impairments, store closing and other costs | — | (170 | ) | (118 | ) | — | (288 | ) | |||||||||||
Operating income (loss) | (2 | ) | 139 | 1,902 | — | 2,039 | |||||||||||||
Interest (expense) income, net: | |||||||||||||||||||
External | 1 | (361 | ) | (1 | ) | — | (361 | ) | |||||||||||
Intercompany | — | (230 | ) | 230 | — | — | |||||||||||||
Equity in earnings of subsidiaries | 1,072 | 421 | — | (1,493 | ) | — | |||||||||||||
Income (loss) before income taxes | 1,071 | (31 | ) | 2,131 | (1,493 | ) | 1,678 | ||||||||||||
Federal, state and local income tax benefit (expense) | 1 | 120 | (729 | ) | — | (608 | ) | ||||||||||||
Net income | 1,072 | 89 | 1,402 | (1,493 | ) | 1,070 | |||||||||||||
Net loss attributable to noncontrolling interest | — | — | 2 | — | 2 | ||||||||||||||
Net income attributable to Macy's, Inc. shareholders | $ | 1,072 | $ | 89 | $ | 1,404 | $ | (1,493 | ) | $ | 1,072 | ||||||||
Comprehensive income | $ | 1,101 | $ | 118 | $ | 1,415 | $ | (1,535 | ) | $ | 1,099 | ||||||||
Comprehensive loss attributable to noncontrolling interest | — | — | 2 | — | 2 | ||||||||||||||
Comprehensive income attributable to Macy's, Inc. shareholders | $ | 1,101 | $ | 118 | $ | 1,417 | $ | (1,535 | ) | $ | 1,101 |
Parent | Subsidiary Issuer | Other Subsidiaries | Consolidating Adjustments | Consolidated | |||||||||||||||
Net sales | $ | — | $ | 13,078 | $ | 23,522 | $ | (8,495 | ) | $ | 28,105 | ||||||||
Cost of sales | — | (8,127 | ) | (17,231 | ) | 8,495 | (16,863 | ) | |||||||||||
Gross margin | — | 4,951 | 6,291 | — | 11,242 | ||||||||||||||
Selling, general and administrative expenses | (3 | ) | (4,351 | ) | (4,001 | ) | — | (8,355 | ) | ||||||||||
Impairments, store closing and other costs | — | (45 | ) | (42 | ) | — | (87 | ) | |||||||||||
Operating income (loss) | (3 | ) | 555 | 2,248 | — | 2,800 | |||||||||||||
Interest (expense) income, net: | |||||||||||||||||||
External | 1 | (394 | ) | — | — | (393 | ) | ||||||||||||
Intercompany | — | (230 | ) | 230 | — | — | |||||||||||||
Premium on early retirement of debt | — | (17 | ) | — | — | (17 | ) | ||||||||||||
Equity in earnings of subsidiaries | 1,528 | 624 | — | (2,152 | ) | — | |||||||||||||
Income before income taxes | 1,526 | 538 | 2,478 | (2,152 | ) | 2,390 | |||||||||||||
Federal, state and local income tax benefit (expense) | — | 25 | (889 | ) | — | (864 | ) | ||||||||||||
Net income | 1,526 | 563 | 1,589 | (2,152 | ) | 1,526 | |||||||||||||
Net loss attributable to noncontrolling interest | — | — | — | — | — | ||||||||||||||
Net income attributable to Macy's, Inc. shareholders | $ | 1,526 | $ | 563 | $ | 1,589 | $ | (2,152 | ) | $ | 1,526 | ||||||||
Comprehensive income | $ | 1,119 | $ | 156 | $ | 1,338 | $ | (1,494 | ) | $ | 1,119 | ||||||||
Comprehensive loss attributable to noncontrolling interest | — | — | — | — | — | ||||||||||||||
Comprehensive income attributable to Macy's, Inc. shareholders | $ | 1,119 | $ | 156 | $ | 1,338 | $ | (1,494 | ) | $ | 1,119 |
Parent | Subsidiary Issuer | Other Subsidiaries | Consolidating Adjustments | Consolidated | |||||||||||||||
ASSETS: | |||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 938 | $ | 81 | $ | 278 | $ | — | $ | 1,297 | |||||||||
Receivables | — | 169 | 353 | — | 522 | ||||||||||||||
Merchandise inventories | — | 2,565 | 2,834 | — | 5,399 | ||||||||||||||
Prepaid expenses and other current assets | — | 84 | 324 | — | 408 | ||||||||||||||
Total Current Assets | 938 | 2,899 | 3,789 | — | 7,626 | ||||||||||||||
Property and Equipment – net | — | 3,397 | 3,620 | — | 7,017 | ||||||||||||||
Goodwill | — | 3,315 | 582 | — | 3,897 | ||||||||||||||
Other Intangible Assets – net | — | 51 | 447 | — | 498 | ||||||||||||||
Other Assets | — | 47 | 766 | — | 813 | ||||||||||||||
Deferred Income Taxes | 26 | — | — | (26 | ) | — | |||||||||||||
Intercompany Receivable | 375 | — | 2,428 | (2,803 | ) | — | |||||||||||||
Investment in Subsidiaries | 3,137 | 3,540 | — | (6,677 | ) | — | |||||||||||||
Total Assets | $ | 4,476 | $ | 13,249 | $ | 11,632 | $ | (9,506 | ) | $ | 19,851 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY: | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Short-term debt | $ | — | $ | 306 | $ | 3 | $ | — | $ | 309 | |||||||||
Merchandise accounts payable | — | 590 | 833 | — | 1,423 | ||||||||||||||
Accounts payable and accrued liabilities | 15 | 1,064 | 2,484 | — | 3,563 | ||||||||||||||
Income taxes | 71 | 16 | 265 | — | 352 | ||||||||||||||
Total Current Liabilities | 86 | 1,976 | 3,585 | — | 5,647 | ||||||||||||||
Long-Term Debt | — | 6,544 | 18 | — | 6,562 | ||||||||||||||
Intercompany Payable | — | 2,803 | — | (2,803 | ) | — | |||||||||||||
Deferred Income Taxes | — | 688 | 781 | (26 | ) | 1,443 | |||||||||||||
Other Liabilities | 66 | 500 | 1,311 | — | 1,877 | ||||||||||||||
Shareholders’ Equity: | |||||||||||||||||||
Macy's, Inc. | 4,323 | 738 | 5,939 | (6,677 | ) | 4,323 | |||||||||||||
Noncontrolling Interest | — | — | (1 | ) | — | (1 | ) | ||||||||||||
Total Shareholders’ Equity | 4,323 | 738 | 5,938 | (6,677 | ) | 4,322 | |||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 4,475 | $ | 13,249 | $ | 11,633 | $ | (9,506 | ) | $ | 19,851 |
Parent | Subsidiary Issuer | Other Subsidiaries | Consolidating Adjustments | Consolidated | |||||||||||||||
ASSETS: | |||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 741 | $ | 91 | $ | 277 | $ | — | $ | 1,109 | |||||||||
Receivables | — | 217 | 341 | — | 558 | ||||||||||||||
Merchandise inventories | — | 2,702 | 2,804 | — | 5,506 | ||||||||||||||
Prepaid expenses and other current assets | — | 135 | 344 | — | 479 | ||||||||||||||
Income taxes | 44 | — | — | (44 | ) | — | |||||||||||||
Total Current Assets | 785 | 3,145 | 3,766 | (44 | ) | 7,652 | |||||||||||||
Property and Equipment – net | — | 3,925 | 3,691 | — | 7,616 | ||||||||||||||
Goodwill | — | 3,315 | 582 | — | 3,897 | ||||||||||||||
Other Intangible Assets – net | — | 52 | 462 | — | 514 | ||||||||||||||
Other Assets | — | 154 | 743 | — | 897 | ||||||||||||||
Deferred Income Taxes | 14 | — | — | (14 | ) | — | |||||||||||||
Intercompany Receivable | — | — | 3,800 | (3,800 | ) | — | |||||||||||||
Investment in Subsidiaries | 4,725 | 3,804 | — | (8,529 | ) | — | |||||||||||||
Total Assets | $ | 5,524 | $ | 14,395 | $ | 13,044 | $ | (12,387 | ) | $ | 20,576 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY: | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Short-term debt | $ | — | $ | 641 | $ | 1 | $ | — | $ | 642 | |||||||||
Merchandise accounts payable | — | 667 | 859 | — | 1,526 | ||||||||||||||
Accounts payable and accrued liabilities | 35 | 1,439 | 1,859 | — | 3,333 | ||||||||||||||
Income taxes | — | 41 | 230 | (44 | ) | 227 | |||||||||||||
Total Current Liabilities | 35 | 2,788 | 2,949 | (44 | ) | 5,728 | |||||||||||||
Long-Term Debt | — | 6,976 | 19 | — | 6,995 | ||||||||||||||
Intercompany Payable | 1,218 | 2,582 | — | (3,800 | ) | — | |||||||||||||
Deferred Income Taxes | — | 693 | 798 | (14 | ) | 1,477 | |||||||||||||
Other Liabilities | 21 | 558 | 1,544 | — | 2,123 | ||||||||||||||
Shareholders’ Equity: | |||||||||||||||||||
Macy's, Inc. | 4,250 | 798 | 7,731 | (8,529 | ) | 4,250 | |||||||||||||
Noncontrolling Interest | — | — | 3 | — | 3 | ||||||||||||||
Total Shareholders’ Equity | 4,250 | 798 | 7,734 | (8,529 | ) | 4,253 | |||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 5,524 | $ | 14,395 | $ | 13,044 | $ | (12,387 | ) | $ | 20,576 |
Parent | Subsidiary Issuer | Other Subsidiaries | Consolidating Adjustments | Consolidated | |||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||
Net income (loss) | $ | 619 | $ | (208 | ) | $ | 1,074 | $ | (874 | ) | $ | 611 | |||||||
Impairments, store closing and other costs | — | 295 | 184 | — | 479 | ||||||||||||||
Settlement charges | — | 34 | 64 | — | 98 | ||||||||||||||
Equity in earnings of subsidiaries | (619 | ) | (255 | ) | — | 874 | — | ||||||||||||
Dividends received from subsidiaries | 957 | 575 | — | (1,532 | ) | — | |||||||||||||
Depreciation and amortization | — | 407 | 651 | — | 1,058 | ||||||||||||||
(Increase) decrease in working capital | 110 | (482 | ) | 92 | — | (280 | ) | ||||||||||||
Other, net | 28 | 51 | (244 | ) | — | (165 | ) | ||||||||||||
Net cash provided by operating activities | 1,095 | 417 | 1,821 | (1,532 | ) | 1,801 | |||||||||||||
Cash flows from investing activities: | |||||||||||||||||||
Purchase of property and equipment and capitalized software, net | — | 12 | (251 | ) | — | (239 | ) | ||||||||||||
Other, net | — | 32 | 20 | — | 52 | ||||||||||||||
Net cash provided (used) by investing activities | — | 44 | (231 | ) | — | (187 | ) | ||||||||||||
Cash flows from financing activities: | |||||||||||||||||||
Debt repaid, net of debt issued | — | (750 | ) | 1 | — | (749 | ) | ||||||||||||
Dividends paid | (459 | ) | — | (1,532 | ) | 1,532 | (459 | ) | |||||||||||
Common stock acquired, net of issuance of common stock | (280 | ) | — | — | — | (280 | ) | ||||||||||||
Proceeds from noncontrolling interest | — | — | 4 | — | 4 | ||||||||||||||
Intercompany activity, net | (144 | ) | 255 | (111 | ) | — | — | ||||||||||||
Other, net | (15 | ) | 24 | 49 | — | 58 | |||||||||||||
Net cash used by financing activities | (898 | ) | (471 | ) | (1,589 | ) | 1,532 | (1,426 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | 197 | (10 | ) | 1 | — | 188 | |||||||||||||
Cash and cash equivalents at beginning of period | 741 | 91 | 277 | — | 1,109 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 938 | $ | 81 | $ | 278 | $ | — | $ | 1,297 |
Parent | Subsidiary Issuer | Other Subsidiaries | Consolidating Adjustments | Consolidated | |||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||
Net income | $ | 1,072 | $ | 89 | $ | 1,402 | $ | (1,493 | ) | $ | 1,070 | ||||||||
Impairments, store closing and other costs | — | 170 | 118 | — | 288 | ||||||||||||||
Equity in earnings of subsidiaries | (1,072 | ) | (421 | ) | — | 1,493 | — | ||||||||||||
Dividends received from subsidiaries | 1,086 | — | — | (1,086 | ) | — | |||||||||||||
Depreciation and amortization | — | 440 | 621 | — | 1,061 | ||||||||||||||
(Increase) decrease in working capital | 25 | (340 | ) | (81 | ) | — | (396 | ) | |||||||||||
Other, net | (8 | ) | (78 | ) | 47 | — | (39 | ) | |||||||||||
Net cash provided (used) by operating activities | 1,103 | (140 | ) | 2,107 | (1,086 | ) | 1,984 | ||||||||||||
Cash flows from investing activities: | |||||||||||||||||||
Purchase of property and equipment and capitalized software, net | — | (88 | ) | (821 | ) | — | (909 | ) | |||||||||||
Other, net | — | 83 | (266 | ) | — | (183 | ) | ||||||||||||
Net cash used by investing activities | — | (5 | ) | (1,087 | ) | — | (1,092 | ) | |||||||||||
Cash flows from financing activities: | |||||||||||||||||||
Debt issued, net of debt repaid | — | 348 | (1 | ) | — | 347 | |||||||||||||
Dividends paid | (456 | ) | — | (1,086 | ) | 1,086 | (456 | ) | |||||||||||
Common stock acquired, net of issuance of common stock | (1,838 | ) | — | — | — | (1,838 | ) | ||||||||||||
Proceeds from noncontrolling interest | — | — | 5 | — | 5 | ||||||||||||||
Intercompany activity, net | 12 | (243 | ) | 231 | — | — | |||||||||||||
Other, net | 12 | 37 | (136 | ) | — | (87 | ) | ||||||||||||
Net cash provided (used) by financing activities | (2,270 | ) | 142 | (987 | ) | 1,086 | (2,029 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents | (1,167 | ) | (3 | ) | 33 | — | (1,137 | ) | |||||||||||
Cash and cash equivalents at beginning of period | 1,908 | 94 | 244 | — | 2,246 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 741 | $ | 91 | $ | 277 | $ | — | $ | 1,109 |
Parent | Subsidiary Issuer | Other Subsidiaries | Consolidating Adjustments | Consolidated | |||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||
Net income | $ | 1,526 | $ | 563 | $ | 1,589 | $ | (2,152 | ) | $ | 1,526 | ||||||||
Impairments, store closing and other costs | — | 45 | 42 | — | 87 | ||||||||||||||
Equity in earnings of subsidiaries | (1,528 | ) | (624 | ) | — | 2,152 | — | ||||||||||||
Dividends received from subsidiaries | 1,088 | 1 | — | (1,089 | ) | — | |||||||||||||
Depreciation and amortization | — | 454 | 582 | — | 1,036 | ||||||||||||||
Increase (decrease) in working capital | 9 | 74 | (69 | ) | — | 14 | |||||||||||||
Other, net | (20 | ) | (177 | ) | 243 | — | 46 | ||||||||||||
Net cash provided by operating activities | 1,075 | 336 | 2,387 | (1,089 | ) | 2,709 | |||||||||||||
Cash flows from investing activities: | |||||||||||||||||||
Purchase (disposition) of property and equipment and capitalized software, net | — | (260 | ) | (636 | ) | — | (896 | ) | |||||||||||
Other, net | — | (12 | ) | (62 | ) | — | (74 | ) | |||||||||||
Net cash used by investing activities | — | (272 | ) | (698 | ) | — | (970 | ) | |||||||||||
Cash flows from financing activities: | |||||||||||||||||||
Debt repaid, net of debt issued | — | 177 | (3 | ) | — | 174 | |||||||||||||
Dividends paid | (421 | ) | — | (1,089 | ) | 1,089 | (421 | ) | |||||||||||
Common stock acquired, net of issuance of common stock | (1,643 | ) | — | — | — | (1,643 | ) | ||||||||||||
Proceeds from noncontrolling interest | — | — | — | — | — | ||||||||||||||
Intercompany activity, net | 927 | (283 | ) | (644 | ) | — | — | ||||||||||||
Other, net | 15 | 52 | 57 | — | 124 | ||||||||||||||
Net cash used by financing activities | (1,122 | ) | (54 | ) | (1,679 | ) | 1,089 | (1,766 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | (47 | ) | 10 | 10 | — | (27 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 1,955 | 84 | 234 | — | 2,273 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 1,908 | $ | 94 | $ | 244 | $ | — | $ | 2,246 |