UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 

ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended October 28, 2017May 4, 2019

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from    to

Commission file number: 1-13536
 
g129830g60l13.jpgmacysinclogohighresa03.jpg
 
Incorporated in Delaware I.R.S. Employer Identification No.
  13-3324058

7 West Seventh Street
7 West Seventh Street Cincinnati, Ohio 45202
(513) 579-7000
and
151 West 34th Street

and
151 West 34th Street New York, New York 10001

(513) 579-7000

(212) 494-1602


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value per shareMNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o(Do not check if a smaller reporting company)
 
Smaller reporting 
company  o

 
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class Outstanding at November 25, 2017June 1, 2019
Common Stock, $0.01$.01 par value per share 304,566,377308,871,513 shares
 

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

(millions, except per share figures)
 
          
13 Weeks Ended 39 Weeks Ended13 Weeks Ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016May 4, 2019 May 5, 2018
Net sales$5,281
 $5,626
 $16,171
 $17,263
$5,504
 $5,541
Credit card revenues, net172
 157
   
Cost of sales(3,175) (3,386) (9,794) (10,370)(3,403) (3,382)
Gross margin2,106
 2,240
 6,377
 6,893
Selling, general and administrative expenses(1,995) (2,112) (5,853) (6,139)(2,112) (2,083)
Gains on sale of real estate65
 41
 176
 76
43
 24
Impairments, restructuring and other costs(33) —
 (33) (249)
Settlement charges(22) (62) (73) (81)
Impairment and other costs(1) (19)
Operating income121
 107
 594
 500
203
 238
Benefit plan income, net7
 11
Interest expense(76) (82) (244) (279)(54) (71)
Net premiums on early retirement of debt—
 —
 (1) —
Interest income2
 1
 7
 3
7
 5
Income before income taxes47
 26
 356
 224
163
 183
Federal, state and local income tax expense(13) (11) (140) (85)(27) (52)
Net income34
 15
 216
 139
136
 131
Net loss attributable to noncontrolling interest2
 2
 6
 5
—
 8
Net income attributable to Macy's, Inc. shareholders$36
 $17
 $222
 $144
$136
 $139
Basic earnings per share attributable to Macy's, Inc. shareholders$.12
 $.05
 $.73
 $.46
$0.44
 $0.45
Diluted earnings per share attributable to Macy's, Inc. shareholders$.12
 $.05
 $.73
 $.46
$0.44
 $0.45

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

MACY’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

(millions)

        
 13 Weeks Ended 39 Weeks Ended
 October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
Net income$34
 $15
 $216
 $139
Other comprehensive income (loss):       
Actuarial gain (loss) on post employment and postretirement benefit plans, before tax10
 3
 57
 (74)
Settlement charges included in net income, before tax22
 62
 73
 81
Amortization of net actuarial loss on post employment and postretirement benefit plans included in net income, before tax8
 9
 26
 26
Tax effect related to items of other comprehensive income (loss)(15) (29) (60) (13)
Total other comprehensive income, net of tax effect25
 45
 96
 20
Comprehensive income59
 60
 312
 159
Comprehensive loss attributable to noncontrolling interest2
 2
 6
 5
Comprehensive income attributable to
Macy's, Inc. shareholders		$61
 $62
 $318
 $164
    
 13 Weeks Ended
 May 4, 2019 May 5, 2018
Net income$136
 $131
Reclassifications to net income:   
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax8
 9
Tax effect related to items of other comprehensive income(2) (2)
Total other comprehensive income, net of tax effect6
 7
Comprehensive income142
 138
Comprehensive loss attributable to noncontrolling interest—
 8
Comprehensive income attributable to Macy's, Inc. shareholders$142
 $146

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


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

(millions)
 
          
October 28, 2017 January 28, 2017 October 29, 2016May 4, 2019 February 2, 2019 May 5, 2018
ASSETS          
Current Assets:          
Cash and cash equivalents$534
 $1,297
 $457
$737
 $1,162
 $1,531
Receivables219
 522
 262
237
 400
 250
Merchandise inventories7,065
 5,399
 7,587
5,498
 5,263
 5,291
Income tax receivable—
 —
 60
Prepaid expenses and other current assets432
 408
 454
633
 620
 638
Total Current Assets8,250
 7,626
 8,820
7,105
 7,445
 7,710
Property and Equipment - net of accumulated depreciation and
amortization of $5,330, $4,856 and $5,625		6,742
 7,017
 7,149
Property and Equipment - net of accumulated depreciation and
amortization of $4,621, $4,495 and $4,765		6,499
 6,637
 6,575
Right of Use Assets2,631
 —
 —
Goodwill3,897
 3,897
 3,897
3,908
 3,908
 3,908
Other Intangible Assets – net491
 498
 499
441
 478
 486
Other Assets835
 813
 909
712
 726
 889
Total Assets$20,215
 $19,851
 $21,274
$21,296
 $19,194
 $19,568
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current Liabilities:          
Short-term debt$22
 $309
 $938
$41
 $43
 $25
Merchandise accounts payable3,173
 1,423
 3,375
1,950
 1,655
 2,045
Accounts payable and accrued liabilities3,162
 3,563
 2,930
2,846
 3,366
 2,695
Income taxes34
 352
 —
182
 168
 312
Total Current Liabilities6,391
 5,647
 7,243
5,019
 5,232
 5,077
Long-Term Debt6,297
 6,562
 6,563
4,680
 4,708
 5,857
Long-Term Lease Liabilities2,823
 —
 —
Deferred Income Taxes1,553
 1,443
 1,548
1,193
 1,238
 1,169
Other Liabilities1,750
 1,877
 2,129
1,258
 1,580
 1,664
Shareholders' Equity:          
Macy's, Inc.4,231
 4,323
 3,789
6,323
 6,436
 5,821
Noncontrolling interest(7) (1) 2
—
 —
 (20)
Total Shareholders’ Equity4,224
 4,322
 3,791
6,323
 6,436
 5,801
Total Liabilities and Shareholders’ Equity$20,215
 $19,851
 $21,274
$21,296
 $19,194
 $19,568

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


MACY’S, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)

(millions)

            
 Common
Stock		 Additional
Paid-In
Capital		 Accumulated
Equity		 Treasury
Stock		 Accumulated
Other
Comprehensive
Income (Loss)		 Total Shareholders' Equity
Balance at February 2, 2019$3
 $652
 $8,050
 $(1,318) $(951) $6,436
Cumulative-effect adjustment (a)
    (158)     (158)
Net income    136
     136
Other comprehensive income        6
 6
Common stock dividends
  ($0.3775 per share)
    (117)     (117)
Stock-based compensation expense  14
       14
Stock issued under stock plans  (60)   66
   6
Balance at May 4, 2019$3
 $606
 $7,911
 $(1,252) $(945) $6,323
(a) Represents the cumulative-effect adjustment to retained earnings for the adoption of Accounting Standards Update 2016-02 (ASU-2016-02), Leases (Topic 842), on February 3, 2019.


                
 Common
Stock		 Additional
Paid-In
Capital		 Accumulated
Equity		 Treasury
Stock		 Accumulated
Other
Comprehensive
Income (Loss)		 Total
Macy's, Inc.
Shareholders’
Equity		 Non-controlling
Interest		 Total Shareholders' Equity
Balance at February 3, 2018$3
 $676
 $7,246
 $(1,456) $(724) $5,745
 $(12) $5,733
Net income (loss)    139
     139
 (8) 131
Other comprehensive income        7
 7
   7
Common stock dividends ($0.3775 per share)    (116)     (116)   (116)
Stock-based compensation
  expense		  17
       17
   17
Stock issued under stock plans  (51)   80
   29
   29
Stranded tax costs (b)
    164
   (164) —
   —
Balance at May 5, 2018$3
 $642
 $7,433
 $(1,376) $(881) $5,821
 $(20) $5,801
(b) Represents the reclassification of stranded tax effects to retained earnings as a result of U.S. federal tax reform.

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


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

(millions)
      
39 Weeks Ended13 Weeks Ended
October 28, 2017 October 29, 2016May 4, 2019 May 5, 2018
Cash flows from operating activities:      
Net income$216
 $139
$136
 $131
Adjustments to reconcile net income to net cash provided by operating activities:      
Impairments, restructuring and other costs33
 249
Settlement charges73
 81
Impairment and other costs1
 19
Depreciation and amortization741
 787
236
 235
Stock-based compensation expense46
 56
14
 17
Gains on sale of real estate(176) (76)(43) (24)
Amortization of financing costs and premium on acquired debt(10) (14)
Deferred income taxes7
 19
Benefit plans8
 9
Changes in assets and liabilities:      
Decrease in receivables274
 237
163
 105
Increase in merchandise inventories(1,665) (2,081)(235) (115)
Increase in prepaid expenses and other current assets(20) (37)(6) (20)
Increase in merchandise accounts payable1,630
 1,665
247
 415
Decrease in accounts payable, accrued liabilities
and other items not separately identified		(375) (380)
Decrease in current income taxes(318) (287)
Increase in deferred income taxes49
 45
Decrease in accounts payable and accrued liabilities
(516) (453)
Increase in current income taxes8
 25
Change in other assets and liabilities not separately identified(109) (76)(58) (41)
Net cash provided by operating activities389
 308
Net cash provided (used) by operating activities(38) 322
Cash flows from investing activities:      
Purchase of property and equipment(359) (451)(204) (132)
Capitalized software(191) (230)(60) (58)
Disposition of property and equipment212
 138
34
 23
Other, net(8) 52
(7) 11
Net cash used by investing activities(346) (491)(237) (156)
Cash flows from financing activities:      
Debt issued—
 51
Financing costs(1) (3)
Debt repaid(554) (174)(3) (3)
Dividends paid(346) (344)(116) (116)
Increase in outstanding checks80
 193
Acquisition of treasury stock(1) (230)
Decrease in outstanding checks(45) (10)
Issuance of common stock3
 31
6
 28
Proceeds from noncontrolling interest13
 7
—
 2
Net cash used by financing activities(806) (469)(158) (99)
Net decrease in cash and cash equivalents(763) (652)
Cash and cash equivalents beginning of period1,297
 1,109
Cash and cash equivalents end of period$534
 $457
Net increase (decrease) in cash, cash equivalents and restricted cash(433) 67
Cash, cash equivalents and restricted cash beginning of period1,248
 1,513
Cash, cash equivalents and restricted cash end of period$815
 $1,580
Supplemental cash flow information:      
Interest paid$251
 $279
$46
 $65
Interest received7
 3
7
 5
Income taxes paid (net of refunds received)412
 308
12
 8
Note: Restricted cash of $78 million and $49 million have been included with cash and cash equivalents for the 13 weeks ended May 4, 2019 and May 5, 2018, respectively.

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

MACY’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

1.    Organization and Summary of Significant Accounting Policies
Nature of Operations
Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's)kids'), cosmetics, home furnishings and other consumer goods. The Company's operations are conducted through approximately 860 Macy's, Macy's Backstage, Bloomingdale's, Bloomingdale's The Outlet and bluemercuryCompany has stores in 4543 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com, bloomingdales.comRico. As of May 4, 2019, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage and bluemercury.com. In addition, bluemercury.
Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2017February 2, 2019 (the "2016"2018 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 20162018 10-K.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the 13 and 39 weeks ended October 28, 2017May 4, 2019 and October 29, 2016May 5, 2018, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Seasonality
Because of the seasonal nature of the retail business, the results of operations for the 13 and 39 weeks ended October 28, 2017May 4, 2019 and October 29, 2016May 5, 2018 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Reclassifications
Certain reclassifications were made to prior years’ amounts to conform to the classifications of such amounts in the most recent years.
Comprehensive Income
Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other components of total comprehensive income for the 13 and 39 weeks ended October 28, 2017May 4, 2019 and October 29, 2016May 5, 2018 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of operating expensesincome before income taxes in the Consolidated Statements of Income. Amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in selling, general and administrative expensesbenefit plan income, net on the Consolidated Statements of Income. See Note 4,6, "Benefit Plans," for further information.
Newly Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, which requires lessees to recognize substantially all leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard was adopted by the Company on February 3, 2019 utilizing a modified retrospective approach that allowed for transition in the period of adoption. The Company adopted Accounting Standards Update ("ASU") No. 2016-09, Improvements to Employee Share-Based Payment Accounting, effective January 29, 2017. This standard was issued to simplify several aspectsthe package of the accounting for share-based payment awards, including the income tax consequences, financial statement classification and forfeiture considerations of such awards. Upon adoption, the Company began to recognize, on a prospective basis, all excess tax benefits and tax deficiencies as income tax benefit or expense, respectively, in its Consolidated Statements of Income. For awardspractical expedients available at transition that were exercised, vested or expired during the 39 weeks ended October 28, 2017, approximately $12 million of additional income tax expense associated with net tax deficiencies was recognized. Additionally, these net tax deficiencies have been classified as an operating activity
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 


along with other income tax cash flowsretained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. Contracts entered into prior to adoption were not reassessed for leases or embedded leases. Upon adoption, the Company used hindsight in determining lease term and impairment. For lease and non-lease components, the Consolidated Statements of Cash Flows. The Company has elected to adopt such presentationaccount for both as a single lease component.
Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $2,516 million and $2,728 million, respectively, as of February 3, 2019. The difference of $212 million between the additional net lease assets and lease liabilities, net of the deferred tax impact of $54 million, was recorded as an adjustment to retained earnings. Prepaid rent, intangible lease assets, finance lease assets, and accrued and deferred rent as of February 3, 2019 were recorded as part of the ROU asset. Finance lease obligations as of February 3, 2019 were recorded as part of the lease liabilities. The standard did not materially impact the Company's consolidated net income and had no impact on a prospective basis.cash flows.

2.    Earnings Per Share Attributable to Macy's, Inc. Shareholders
The following tables set forth the computation of basic and diluted earnings per share attributable to Macy's, Inc. shareholders:

 13 Weeks Ended
 October 28, 2017 October 29, 2016
 Net
Income		   Shares Net
Income		   Shares
 (millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding		$36
   304.6
 $17
   307.5
Shares to be issued under deferred
compensation and other plans		    0.9
     0.9
 $36
   305.5
 $17
   308.4
Basic earnings per share attributable to
Macy's, Inc. shareholders		  $.12
     $.05
  
Effect of dilutive securities:           
Stock options, restricted stock and restricted stock units    1.0
     2.2
 $36
   306.5
 $17
   310.6
Diluted earnings per share attributable to
Macy's, Inc. shareholders		  $.12
     $.05
  

39 Weeks Ended13 Weeks Ended
October 28, 2017 October 29, 2016May 4, 2019 May 5, 2018
Net
Income		   Shares Net
Income		   SharesNet
Income		   Shares Net
Income		   Shares
(millions, except per share data)(millions, except per share data)
Net income attributable to Macy's, Inc. shareholders and
average number of shares outstanding		$222
   304.5
 $144
   308.6
$136
   308.2
 $139
   305.7
Shares to be issued under deferred
compensation and other plans		    0.8
     0.9
    0.9
     0.9
$222
   305.3
 $144
   309.5
$136
   309.1
 $139
   306.6
Basic earnings per share attributable to
Macy's, Inc. shareholders		  $.73
     $.46
    $0.44
     $0.45
  
Effect of dilutive securities:                      
Stock options, restricted stock and restricted stock units    1.3
     2.3
    2.3
     2.8
$222
   306.6
 $144
   311.8
$136
   311.4
 $139
   309.4
Diluted earnings per share attributable to
Macy's, Inc. shareholders		  $.73
     $.46
    $0.44
     $0.45
  

For the 13 and 39 weeks ended October 28, 2017, inIn addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 18.916.9 million shares of common stock and restricted stock units relating to 1.22.2 million shares of common stock were outstanding at October 28, 2017May 4, 2019, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.


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


For the 13 and 39 weeks ended October 29, 2016, inIn addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 15.7 million shares of common stock and restricted stock units relating to 0.72.5 million shares of common stock were outstanding at October 29, 2016May 5, 2018, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.

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


3. Revenue
Net sales
Revenue is recognized when customers obtain control of goods and services promised by the Company. The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. The Company's revenue generating activities include the following:
Retail Sales
Retail sales include merchandise sales, inclusive of delivery income, licensed department income, sales of private brand goods directly to third party retailers and sales of excess inventory to third parties. Sales of merchandise are recorded at the time of shipment to the customer and are reported net of estimated merchandise returns and certain customer incentives. Commissions earned on sales generated by licensed departments are included as a component of total net sales and are recognized as revenue at the time merchandise is sold to customers. Service revenues (e.g., alteration and cosmetic services) are recorded at the time the customer receives the benefit of the service. The Company has elected to present sales taxes on a net basis and, as such, sales taxes are included in accounts payable and accrued liabilities until remitted to the taxing authorities.
For the 13 weeks ended May 4, 2019 and May 5, 2018, Macy's accounted for 88% of the Company's net sales. Disaggregation of the Company's net sales by family of business for the 13 weeks ended May 4, 2019 and May 5, 2018 were as follows:
 13 Weeks Ended
Net sales by family of businessMay 4, 2019 May 5, 2018
 (millions)
Women's Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances$2,152
 $2,159
Women's Apparel1,313
 1,351
Men's and Kids'1,202
 1,174
Home/Other (a)
837
 857
Total$5,504
 $5,541
(a) Other primarily includes restaurant sales, allowance for merchandise returns adjustments and breakage income from unredeemed gift cards.
Merchandise Returns
The Company estimates merchandise returns using historical data and recognizes an allowance that reduces net sales and cost of sales. The liability for merchandise returns is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $294 million, $269 million and $298 million as of May 4, 2019, February 2, 2019 and May 5, 2018, respectively. Included in prepaid expenses and other current assets is an asset totaling $200 million, $188 million and $204 million as of May 4, 2019, February 2, 2019 and May 5, 2018, respectively, for the recoverable cost of merchandise estimated to be returned by customers.
Gift Cards and Customer Loyalty Programs
The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold or issued, no revenue is recognized; rather, the Company records an accrued liability to customers. The liability is relieved and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for merchandise. The Company records revenue from unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns.
The Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy’s brand, points are earned based on customers’ spending on Macy’s private label and co-branded credit cards as well as non-proprietary cards during certain tender-neutral promotional events. Under the Bloomingdale’s brand, the Company offers a tender neutral points-based program. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer.
The liability for unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $696 million, $856 million and $736 million as of May 4, 2019, February 2, 2019 and May 5, 2018, respectively.

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


Credit Card Revenues, net
In 2005, the Company entered into an arrangement with Citibank to sell the Company's private label and co-branded credit cards ("Credit Card Program"). Subsequent to this initial arrangement and associated amendments, in 2014, the Company entered into an amended and restated Credit Card Program Agreement (the "Program Agreement") with Citibank. As part of the Program Agreement, the Company receives payments for providing a combination of interrelated services and intellectual property to Citibank in support of the underlying Credit Card Program. Revenue based on the spending activity of the underlying accounts is recognized as the respective card purchases occur and the Company’s profit share is recognized based on the performance of the underlying portfolio. Revenue associated with the establishment of new credit accounts and assisting in the receipt of payments for existing accounts is recognized as such activities occur. Credit card revenues include finance charges, late fees and other revenue generated by the Company’s Credit Card Program, net of fraud losses and expenses associated with establishing new accounts.

3.4. Leases
The Company leases a portion of the real estate and personal property used in its operations. Most leases require the Company to pay real estate taxes, maintenance, insurance and other similar costs; some also require additional payments based on percentages of sales and some contain purchase options. Certain of the Company’s real estate leases have terms that extend for a significant number of years and provide for rental rates that increase or decrease over time. Lease terms include the noncancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods, termination options and purchase options.   
Operating lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. Related operating ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by contributions from landlords, plus any prepaid rent and direct costs from executing the leases. ROU assets are tested for impairment in the same manner as long-lived assets.

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense as they are incurred. 
Certain of the Company's leases contain covenants that restrict the ability of the tenant (typically a subsidiary of the Company) to take specified actions (including the payment of dividends or other amounts on account of its capital stock) unless the tenant satisfies certain financial tests.

ROU assets and lease liabilities consist of:
  May 4, 2019
 Classification(millions)
Assets  
Finance lease assets (a)
Right of Use Assets$11
Operating lease assetsRight of Use Assets2,620
Total leased assets $2,631
   
Liabilities  
Current  
FinanceAccounts payable and accrued liabilities$1
OperatingAccounts payable and accrued liabilities362
   
Noncurrent  
FinanceLong-Term Lease Liabilities25
OperatingLong-Term Lease Liabilities2,798
Total lease liabilities $3,186
(a) Finance lease assets are recorded net of accumulated amortization of $12 million as of May 4, 2019.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


The components of net lease expense are disclosed below. Operating lease expense includes variable lease expense of $28 million.
  13 Weeks Ended
  May 4, 2019
 Classification(millions)
Operating lease expense (b)
Selling, general and administrative expenses$122
Sublease incomeSelling, general and administrative expenses(1)
Net lease expense $121
(b) Certain supply chain operating lease expense amounts are included in cost of sales.
As of May 4, 2019, the maturity of lease liabilities is as follows:
 
Finance
Leases (c)
 
Operating
Leases (d)
 Total
 (millions)
Fiscal year     
2019$2
 $271
 $273
20203
 331
 334
20213
 330
 333
20223
 312
 315
20233
 307
 310
After 202332
 5,231
 5,263
Total undiscounted lease payments46
 6,782
 6,828
Less amount representing interest20
 3,622
 3,642
Total lease liabilities$26
 $3,160
 $3,186
(c) Finance lease payments include $12 million related to options to extend lease terms that are reasonably certain of being exercised.
(d) Operating lease payments include $3,163 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $942 million of legally binding minimum lease payments for leases signed but not yet commenced.

Additional supplemental information regarding assumptions and cash flows for operating and finance leases are as follows:
May 4, 2019
Lease Term and Discount Rate(millions)
Weighted-average remaining lease term (years)
Finance leases18.2
Operating leases23.3
Weighted-average discount rate
Finance leases6.65%
Operating leases6.71%

 13 Weeks Ended
 May 4, 2019
Other Information(millions)
Cash paid for amounts included in the measurement of lease liabilities 
Operating cash flows used from operating leases$94
Leased assets obtained in exchange for new operating lease liabilities19


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


As of February 2, 2019, as disclosed in the 2018 10-K, minimum rental commitments for noncancellable leases, including executed leases not yet commenced, were as follows:
 
Capitalized
Leases (e)
 
Operating
Leases
 Total
 (millions)
Fiscal year     
2019$3
 $325
 $328
20203
 315
 318
20213
 309
 312
20223
 283
 286
20233
 264
 267
After 202331
 2,758
 2,789
Total minimum lease payments46
 $4,254
 $4,300
Less amount representing interest20
    
Present value of net minimum capitalized lease payments$26
    
(e) For purposes of the disclosure, capitalized lease is used interchangeably with finance lease.

5.    Financing Activities
The following table shows the detail of debt repayments:
 
 39 Weeks Ended
 October 28, 2017 October 29, 2016
 (millions)
7.45% Senior debentures due 2017$300
 $—
7.875% Senior debentures due 2036—
 108
6.375% Senior notes due 2037135
 —
7.45% Senior debentures due 2016—
 59
6.9% Senior debentures due 203272
 —
6.7% Senior debentures due 203428
 —
6.65% Senior debentures due 20244
 —
6.9% Senior debentures due 20293
 —
6.7% Senior debentures due 20283
 —
7.0% Senior debentures due 20282
 —
9.5% amortizing debentures due 20214
 4
9.75% amortizing debentures due 20212
 2
Capital leases and other obligations1
 1
 $554
 $174
 13 Weeks Ended
 May 4, 2019 May 5, 2018
 (millions)
9.5% Amortizing debentures due 2021$2
 $2
9.75% Amortizing debentures due 20211
 1
 $3
 $3
During the 39 weeks ended October 28, 2017,
On May 9, 2019, the Company repaid,entered into a new credit agreement with certain financial institutions that replaces the previous credit agreement which was set to expire on May 6, 2021. Similar to the previous agreement, the new credit agreement provides for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at maturity, $300 millionthe option of 7.45% senior debentures due July 2017.
During the 39 weeks ended October 28, 2017, the Company, repurchased $247 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cash cost of $257 million, including expenses relatedsubject to the transactions. Such repurchases resulted in the recognitionwillingness of expense of $1 million during the 39 weeks ended October 28, 2017 presented as net premiumsexisting or new lenders to provide commitments for such additional financing). The new credit agreement is scheduled to expire on early retirement of debt on the Consolidated Statements of Income.
On November 27, 2017,May 9, 2024, subject to up to two one-year extensions that may be requested by the Company commenced a cash tender offer ("tender offer")and agreed to purchase up to $400 million in aggregate principal amount of certain senior unsecured notes and debentures, with stated interest rates ranging from 6.375% to 10.25% and maturities ranging from fiscal years 2021 to 2037. The tender offer expires on December 22, 2017, with an early tender date on December 8, 2017. The Company expects to recordby the redemption premium and other costs related to these repurchases as net premiums on early retirement of debt on the Consolidated Statements of Income during the fourth quarter of 2017.lenders.

4.6.    Benefit Plans
The Company has defined contribution plans which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan ("Pension Plan") and an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.
In addition, certain retired employees currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:
13 Weeks Ended 39 Weeks Ended13 Weeks Ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016May 4, 2019 May 5, 2018
(millions) (millions)(millions)
401(k) Qualified Defined Contribution Plan$20
 $22
 $65
 $71
$25
 $23
          
Non-Qualified Defined Contribution Plan$—
 $—
 $—
 $1
$1
 $—
          
Pension Plan          
Service cost$1
 $1
 $4
 $3
$1
 $2
Interest cost25
 27
 79
 83
26
 26
Expected return on assets(55) (56) (168) (170)(48) (53)
Recognition of net actuarial loss8
 7
 24
 22
7
 8
Amortization of prior service credit—
 —
 —
 —
—
 —
$(21) $(21) $(61) $(62)$(14) $(17)
Supplementary Retirement Plan          
Service cost$—
 $—
 $—
 $—
$—
 $—
Interest cost5
 5
 16
 17
6
 6
Recognition of net actuarial loss2
 3
 6
 7
2
 2
Amortization of prior service cost—
 —
 —
 —
—
 —
$7
 $8
 $22
 $24
$8
 $8
          
Total Retirement Expense$6
 $9
 $26
 $34
$20
 $14
          
Postretirement Obligations          
Service cost$—
 $—
 $—
 $—
$—
 $—
Interest cost1
 1
 4
 4
1
 1
Recognition of net actuarial gain(2) (1) (4) (3)(1) (1)
Amortization of prior service cost—
 —
 —
 —
Amortization of prior service credit—
 —
$(1) $—
 $—
 $1
$—
 $—

During the 13 and 39 weeks ended October 28, 2017, the Company incurred $22 million and $73 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. During the 13 and 39 weeks ended October 29, 2016, the Company also incurred $62 million and $81 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses associated with the Company's defined benefit plans and are a result of an increase in lump sum distributions associated with a voluntary separation program, organizational restructuring, and store closings, in addition to periodic distribution activity.

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


5.7.    Fair Value Measurements
The following table shows the Company's financial assets that are required to be measured at fair value on a recurring basis, by level within the hierarchy as defined by applicable accounting standards:
 
 October 28, 2017 October 29, 2016
   Fair Value Measurements   Fair Value Measurements
 Total 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 (millions)
Marketable equity and debt securities$100
 $23
 $77
 $—
 $127
 $19
 $108
 $—
 May 4, 2019 May 5, 2018
   Fair Value Measurements   Fair Value Measurements
 Total 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 (millions)
Marketable equity and debt securities$110
 $31
 $79
 $—
 $96
 $25
 $71
 $—

Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, certain short-term investments and other assets, short-term debt, merchandise accounts payable, accounts payable and accrued
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


liabilities and long-term debt. With the exception of long-term debt, the carrying amount of these financial instruments approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are generally estimated based on quoted market prices for identical or similar instruments, and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards.
The following table shows the estimated fair value of the Company's long-term debt:debt, excluding capital leases and other obligations:
 
 October 28, 2017 October 29, 2016
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 (millions)
Long-term debt$6,206
 $6,297
 $5,908
 $6,459
 $6,536
 $6,749
 May 4, 2019 May 5, 2018
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 
Notional
Amount
 
Carrying
Amount
 
Fair
Value
 (millions)
Long-term debt$4,667
 $4,680
 $4,614
 $5,803
 $5,832
 $5,621

6.8.    Condensed Consolidating Financial Information
Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent"), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, "Other Subsidiaries" includes all other direct subsidiaries of Parent, including Bluemercury, Inc., FDS Bank, West 34th Street Insurance Company New York, Macy's Merchandising Corporation, Macy's Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (Hong Kong) Limited, Macy's Merchandising Group Procurement, LLC, Macy's Merchandising Group International, LLC, Macy's Merchandising Group International (Hong Kong) Limited, and its majority-owned subsidiary Macy's China Limited. "Subsidiary Issuer" includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in "Other Subsidiaries."
Condensed Consolidating Statements of Comprehensive Income for the 13 and 39 weeks ended October 28, 2017May 4, 2019 and October 29, 2016,May 5, 2018, Condensed Consolidating Balance Sheets as of October 28, 2017, October 29, 2016May 4, 2019, May 5, 2018 and January 28, 2017,February 2, 2019, and the related Condensed Consolidating Statements of Cash Flows for the 3913 weeks ended October 28, 2017May 4, 2019 and October 29, 2016May 5, 2018 are presented on the following pages.
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks Ended October 28, 2017
(millions)
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Net sales$—
 $2,077
 $5,861
 $(2,657) $5,281
Cost of sales—
 (1,391) (4,441) 2,657
 (3,175)
Gross margin—
 686
 1,420
 —
 2,106
Selling, general and administrative expenses—
 (813) (1,182) —
 (1,995)
Gains on sale of real estate—
 24
 41
 —
 65
Restructuring and other costs—
 (1) (32) —
 (33)
Settlement charges—
 (8) (14) —
 (22)
Operating income (loss)—
 (112) 233
 —
 121
Interest (expense) income, net:         
External1
 (76) 1
 —
 (74)
Intercompany—
 (34) 34
 —
 —
Equity in earnings (loss) of subsidiaries35
 (61) —
 26
 —
Income (loss) before income taxes36
 (283) 268
 26
 47
Federal, state and local income
tax benefit (expense)		—
 59
 (72) —
 (13)
Net income (loss)36
 (224) 196
 26
 34
Net loss attributable to noncontrolling interest—
 —
 2
 —
 2
Net income (loss) attributable to
Macy's, Inc. shareholders		$36
 $(224) $198
 $26
 $36
Comprehensive income (loss)$61
 $(201) $212
 $(13) $59
Comprehensive loss attributable to
noncontrolling interest		—
 —
 2
 —
 2
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders		$61
 $(201) $214
 $(13) $61
MACY'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Condensed Consolidating Statement of Comprehensive Income
For the 13 Weeks EndedOctober 29, 2016
(millions)
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Net sales$—
 $2,376
 $6,183
 $(2,933) $5,626
Cost of sales—
 (1,577) (4,742) 2,933
 (3,386)
Gross margin—
 799
 1,441
 —
 2,240
Selling, general and administrative expenses(1) (950) (1,161) —
 (2,112)
Gains on sale of real estate—
 41
 —
 —
 41
Settlement charges—
 (24) (38) —
 (62)
Operating income (loss)(1) (134) 242
 —
 107
Interest (expense) income, net:         
External1
 (82) —
 —
 (81)
Intercompany—
 (51) 51
 —
 —
Equity in earnings (loss) of subsidiaries17
 (101) —
 84
 —
Income (loss) before income taxes17
 (368) 293
 84
 26
Federal, state and local income
tax benefit (expense)		—
 68
 (79) —
 (11)
Net income (loss)17
 (300) 214
 84
 15
Net loss attributable to noncontrolling interest—
 —
 2
 —
 2
Net income (loss) attributable to
Macy's, Inc. shareholders		$17
 $(300) $216
 $84
 $17
Comprehensive income (loss)$62
 $(255) $241
 $12
 $60
Comprehensive loss attributable to
noncontrolling interest		—
 —
 2
 —
 2
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders		$62
 $(255) $243
 $12
 $62


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



Condensed Consolidating Statement of Comprehensive Income
For the 39 weeks ended October 28, 201713 Weeks Ended May 4, 2019
(millions)
 
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Net sales$—
 $6,319
 $15,727
 $(5,875) $16,171
$—
 $2,154
 $4,768
 $(1,418) $5,504
Credit card revenues (expense), net—
 (2) 174
 —
 172
         
Cost of sales—
 (4,126) (11,543) 5,875
 (9,794)—
 (1,341) (3,480) 1,418
 (3,403)
Gross margin—
 2,193
 4,184
 —
 6,377
Selling, general and administrative expenses(1) (2,430) (3,422) —
 (5,853)—
 (803) (1,309) —
 (2,112)
Gains on sale of real estate—
 116
 60
 —
 176
—
 24
 19
 —
 43
Restructuring and other costs—
 (1) (32) —
 (33)
Settlement charges—
 (24) (49) —
 (73)
Operating income (loss)(1) (146) 741
 —
 594
Impairment and other costs—
 —
 (1) —
 (1)
Operating income—
 32
 171
 —
 203
Benefit plan income, net—
 3
 4
 —
 7
Interest (expense) income, net:                  
External4
 (243) 2
 —
 (237)5
 (53) 1
 —
 (47)
Intercompany—
 (102) 102
 —
 —
—
 (19) 19
 —
 —
Net premiums on early retirement of debt—
 (1) —
 —
 (1)
Equity in earnings (loss) of subsidiaries220
 (30) —
 (190) —
132
 (30) —
 (102) —
Income (loss) before income taxes223
 (522) 845
 (190) 356
137
 (67) 195
 (102) 163
Federal, state and local income
tax benefit (expense)		(1) 142
 (281) —
 (140)(1) 24
 (50) —
 (27)
Net income (loss)222
 (380) 564
 (190) 216
136
 (43) 145
 (102) 136
Net loss attributable to noncontrolling interest—
 —
 6
 —
 6
—
 —
 —
 —
 —
Net income (loss) attributable to
Macy's, Inc. shareholders		$222
 $(380) $570
 $(190) $222
$136
 $(43) $145
 $(102) $136
Comprehensive income (loss)$318
 $(290) $627
 $(343) $312
$142
 $(38) $149
 $(111) $142
Comprehensive loss attributable to
noncontrolling interest		—
 —
 6
 —
 6
—
 —
 —
 —
 —
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders		$318
 $(290) $633
 $(343) $318
$142
 $(38) $149
 $(111) $142











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



Condensed Consolidating Statement of Comprehensive Income
For the 39 weeks ended13 Weeks Ended October 29, 2016May 5, 2018
(millions)
 
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Net sales$—
 $7,324
 $16,546
 $(6,607) $17,263
$—
 $2,008
 $5,363
 $(1,830) $5,541
Credit card revenues (expense), net—
 (6) 163
 —
 157
         
Cost of sales—
 (4,704) (12,273) 6,607
 (10,370)—
 (1,320) (3,892) 1,830
 (3,382)
Gross margin—
 2,620
 4,273
 —
 6,893
Selling, general and administrative expenses(2) (2,803) (3,334) —
 (6,139)—
 (828) (1,255) —
 (2,083)
Gains on sale of real estate—
 71
 5
 —
 76
—
 23
 1
 —
 24
Impairments and other costs—
 (184) (65) —
 (249)
Settlement charges—
 (29) (52) —
 (81)
Impairment and other costs—
 —
 (19) —
 (19)
Operating income (loss)(2) (325) 827
 —
 500
—
 (123) 361
 —
 238
Benefit plan income, net—
 4
 7
 —
 11
Interest (expense) income, net:                  
External2
 (278) —
 —
 (276)4
 (71) 1
 —
 (66)
Intercompany—
 (166) 166
 —
 —
—
 (18) 18
 —
 —
Equity in earnings (loss) of subsidiaries144
 (69) —
 (75) —
Equity in earnings of subsidiaries136
 102
 —
 (238) —
Income (loss) before income taxes144
 (838) 993
 (75) 224
140
 (106) 387
 (238) 183
Federal, state and local income
tax benefit (expense)		—
 243
 (328) —
 (85)(1) 37
 (88) —
 (52)
Net income (loss)144
 (595) 665
 (75) 139
139
 (69) 299
 (238) 131
Net loss attributable to noncontrolling interest—
 —
 5
 —
 5
—
 —
 8
 —
 8
Net income (loss) attributable to
Macy's, Inc. shareholders		$144
 $(595) $670
 $(75) $144
$139
 $(69) $307
 $(238) $139
Comprehensive income (loss)$164
 $(575) $677
 $(107) $159
$146
 $(63) $303
 $(248) $138
Comprehensive loss attributable to
noncontrolling interest		—
 —
 5
 —
 5
—
 —
 8
 —
 8
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders		$164
 $(575) $682
 $(107) $164
$146
 $(63) $311
 $(248) $146

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



Condensed Consolidating Balance Sheet
As of May 4, 2019
(millions)
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
ASSETS:         
Current Assets:         
Cash and cash equivalents$293
 $151
 $293
 $—
 $737
Receivables—
 40
 197
 —
 237
Merchandise inventories—
 2,369
 3,129
 —
 5,498
Prepaid expenses and other current assets—
 163
 470
 —
 633
Total Current Assets293
 2,723
 4,089
 —
 7,105
Property and Equipment – net—
 3,202
 3,297
 —
 6,499
Right of Use Assets—
 677
 1,954
 —
 2,631
Goodwill—
 3,326
 582
 —
 3,908
Other Intangible Assets – net—
 5
 436
 —
 441
Other Assets—
 28
 684
 —
 712
Deferred Income Taxes6
 —
 —
 (6) —
Intercompany Receivable2,436
 —
 886
 (3,322) —
Investment in Subsidiaries3,776
 3,061
 —
 (6,837) —
Total Assets$6,511
 $13,022
 $11,928
 $(10,165) $21,296
LIABILITIES AND SHAREHOLDERS’ EQUITY:         
Current Liabilities:         
Short-term debt$—
 $41
 $—
 $—
 $41
Merchandise accounts payable—
 845
 1,105
 —
 1,950
Accounts payable and accrued liabilities73
 786
 1,987
 —
 2,846
Income taxes87
 61
 34
 —
 182
Total Current Liabilities160
 1,733
 3,126
 —
 5,019
Long-Term Debt—
 4,680
 —
 —
 4,680
Long-Term Lease Liabilities—
 607
 2,216
 —
 2,823
Intercompany Payable—
 3,322
 —
 (3,322) —
Deferred Income Taxes—
 626
 573
 (6) 1,193
Other Liabilities28
 341
 889
 —
 1,258
Shareholders' Equity:         
Macy's, Inc.6,323
 1,713
 5,124
 (6,837) 6,323
Noncontrolling Interest—
 —
 —
 —
 —
Total Shareholders' Equity6,323
 1,713
 5,124
 (6,837) 6,323
Total Liabilities and Shareholders' Equity$6,511
 $13,022
 $11,928
 $(10,165) $21,296




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



Condensed Consolidating Balance Sheet

As of May 5, 2018
(millions)
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
ASSETS:         
Current Assets:         
Cash and cash equivalents$1,070
 $79
 $382
 $—
 $1,531
Receivables—
 48
 202
 —
 250
Merchandise inventories—
 2,283
 3,008
 —
 5,291
Prepaid expenses and other current assets—
 150
 488
 —
 638
Total Current Assets1,070
 2,560
 4,080
 —
 7,710
Property and Equipment – net—
 3,298
 3,277
 —
 6,575
Goodwill—
 3,326
 582
 —
 3,908
Other Intangible Assets – net—
 43
 443
 —
 486
Other Assets1
 96
 792
 —
 889
Deferred Income Taxes5
 —
 —
 (5) —
Intercompany Receivable1,156
 —
 2,113
 (3,269) —
Investment in Subsidiaries3,975
 4,232
 —
 (8,207) —
Total Assets$6,207
 $13,555
 $11,287
 $(11,481) $19,568
LIABILITIES AND SHAREHOLDERS’ EQUITY:         
Current Liabilities:         
Short-term debt$—
 $6
 $19
 $—
 $25
Merchandise accounts payable—
 896
 1,149
 —
 2,045
Accounts payable and accrued liabilities109
 784
 1,802
 —
 2,695
Income taxes253
 35
 24
 —
 312
Total Current Liabilities362
 1,721
 2,994
 —
 5,077
Long-Term Debt—
 5,841
 16
 —
 5,857
Intercompany Payable—
 3,269
 —
 (3,269) —
Deferred Income Taxes—
 570
 604
 (5) 1,169
Other Liabilities24
 416
 1,224
 —
 1,664
Shareholders' Equity:         
Macy's, Inc.5,821
 1,738
 6,469
 (8,207) 5,821
Noncontrolling Interest—
 —
 (20) —
 (20)
Total Shareholders' Equity5,821
 1,738
 6,449
 (8,207) 5,801
Total Liabilities and Shareholders' Equity$6,207
 $13,555
 $11,287
 $(11,481) $19,568





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



Condensed Consolidating Balance Sheet
As of October 28, 2017February 2, 2019
(millions)
 
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
ASSETS:         
Current Assets:         
Cash and cash equivalents$116
 $89
 $329
 $—
 $534
Receivables—
 67
 152
 —
 219
Merchandise inventories—
 3,218
 3,847
 —
 7,065
Income tax receivable—
 2
 —
 (2) —
Prepaid expenses and other current assets—
 86
 346
 —
 432
Total Current Assets116
 3,462
 4,674
 (2) 8,250
Property and Equipment – net—
 3,184
 3,558
 —
 6,742
Goodwill—
 3,315
 582
 —
 3,897
Other Intangible Assets – net—
 46
 445
 —
 491
Other Assets1
 62
 772
 —
 835
Deferred Income Taxes26
 —
 —
 (26) —
Intercompany Receivable1,436
 —
 1,971
 (3,407) —
Investment in Subsidiaries2,882
 3,644
 —
 (6,526) —
Total Assets$4,461
 $13,713
 $12,002
 $(9,961) $20,215
LIABILITIES AND SHAREHOLDERS’ EQUITY:         
Current Liabilities:         
Short-term debt$—
 $6
 $16
 $—
 $22
Merchandise accounts payable—
 1,339
 1,834
 —
 3,173
Accounts payable and accrued liabilities139
 975
 2,048
 —
 3,162
Income taxes20
 —
 16
 (2) 34
Total Current Liabilities159
 2,320
 3,914
 (2) 6,391
Long-Term Debt—
 6,280
 17
 —
 6,297
Intercompany Payable—
 3,407
 —
 (3,407) —
Deferred Income Taxes—
 707
 872
 (26) 1,553
Other Liabilities71
 476
 1,203
 —
 1,750
Shareholders' Equity:         
Macy's, Inc.4,231
 523
 6,003
 (6,526) 4,231
Noncontrolling Interest—
 —
 (7) —
 (7)
Total Shareholders' Equity4,231
 523
 5,996
 (6,526) 4,224
Total Liabilities and Shareholders' Equity$4,461
 $13,713
 $12,002
 $(9,961) $20,215






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



Condensed Consolidating Balance Sheet
As of October 29, 2016
(millions)
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
ASSETS:         
Current Assets:         
Cash and cash equivalents$60
 $99
 $298
 $—
 $457
Receivables—
 74
 188
 —
 262
Merchandise inventories—
 3,621
 3,966
 —
 7,587
Income tax receivable99
 —
 —
 (39) 60
Prepaid expenses and other current assets—
 89
 365
 —
 454
Total Current Assets159
 3,883
 4,817
 (39) 8,820
Property and Equipment – net—
 3,534
 3,615
 —
 7,149
Goodwill—
 3,315
 582
 —
 3,897
Other Intangible Assets – net—
 47
 452
 —
 499
Other Assets1
 153
 755
 —
 909
Deferred Income Taxes24
 —
 —
 (24) —
Intercompany Receivable878
 —
 1,876
 (2,754) —
Investment in Subsidiaries2,954
 3,173
 —
 (6,127) —
Total Assets$4,016
 $14,105
 $12,097
 $(8,944) $21,274
LIABILITIES AND SHAREHOLDERS’ EQUITY:         
Current Liabilities:         
Short-term debt$—
 $935
 $3
 $—
 $938
Merchandise accounts payable—
 1,481
 1,894
 —
 3,375
Accounts payable and accrued liabilities164
 910
 1,856
 —
 2,930
Income taxes—
 3
 36
 (39) —
Total Current Liabilities164
 3,329
 3,789
 (39) 7,243
Long-Term Debt—
 6,545
 18
 —
 6,563
Intercompany Payable—
 2,754
 —
 (2,754) —
Deferred Income Taxes—
 694
 878
 (24) 1,548
Other Liabilities63
 565
 1,501
 —
 2,129
Shareholders' Equity:         
Macy's, Inc.3,789
 218
 5,909
 (6,127) 3,789
Noncontrolling Interest—
 —
 2
 —
 2
Total Shareholders' Equity3,789
 218
 5,911
 (6,127) 3,791
Total Liabilities and Shareholders' Equity$4,016
 $14,105
 $12,097
 $(8,944) $21,274





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



Condensed Consolidating Balance Sheet
As of January 28, 2017
(millions)
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
ASSETS:                  
Current Assets:                  
Cash and cash equivalents$938
 $81
 $278
 $—
 $1,297
$889
 $59
 $214
 $—
 $1,162
Receivables—
 169
 353
 —
 522
—
 68
 332
 —
 400
Merchandise inventories—
 2,565
 2,834
 —
 5,399
—
 2,342
 2,921
 —
 5,263
Prepaid expenses and other current assets—
 84
 324
 —
 408
—
 143
 477
 —
 620
Total Current Assets938
 2,899
 3,789
 —
 7,626
889
 2,612
 3,944
 —
 7,445
Property and Equipment – net—
 3,397
 3,620
 —
 7,017
—
 3,287
 3,350
 —
 6,637
Goodwill—
 3,315
 582
 —
 3,897
—
 3,326
 582
 —
 3,908
Other Intangible Assets – net—
 51
 447
 —
 498
—
 38
 440
 —
 478
Other Assets—
 47
 766
 —
 813
—
 41
 685
 —
 726
Deferred Income Taxes26
 —
 —
 (26) —
12
 —
 —
 (12) —
Intercompany Receivable375
 —
 2,428
 (2,803) —
1,713
 —
 1,390
 (3,103) —
Investment in Subsidiaries3,137
 3,540
 —
 (6,677) —
4,030
 3,119
 —
 (7,149) —
Total Assets$4,476
 $13,249
 $11,632
 $(9,506) $19,851
$6,644
 $12,423
 $10,391
 $(10,264) $19,194
LIABILITIES AND SHAREHOLDERS’ EQUITY:                  
Current Liabilities:                  
Short-term debt$—
 $306
 $3
 $—
 $309
$—
 $42
 $1
 $—
 $43
Merchandise accounts payable—
 590
 833
 —
 1,423
—
 713
 942
 —
 1,655
Accounts payable and accrued liabilities16
 1,064
 2,483
 —
 3,563
170
 950
 2,246
 —
 3,366
Income taxes71
 16
 265
 —
 352
14
 52
 102
 —
 168
Total Current Liabilities87
 1,976
 3,584
 —
 5,647
184
 1,757
 3,291
 —
 5,232
Long-Term Debt—
 6,544
 18
 —
 6,562
—
 4,692
 16
 —
 4,708
Intercompany Payable—
 2,803
 —
 (2,803) —
—
 3,103
 —
 (3,103) —
Deferred Income Taxes—
 688
 781
 (26) 1,443
—
 679
 571
 (12) 1,238
Other Liabilities66
 500
 1,311
 —
 1,877
24
 406
 1,150
 —
 1,580
Shareholders' Equity:                  
Macy's, Inc.4,323
 738
 5,939
 (6,677) 4,323
6,436
 1,786
 5,363
 (7,149) 6,436
Noncontrolling Interest—
 —
 (1) —
 (1)—
 —
 —
 —
 —
Total Shareholders' Equity4,323
 738
 5,938
 (6,677) 4,322
6,436
 1,786
 5,363
 (7,149) 6,436
Total Liabilities and Shareholders' Equity$4,476
 $13,249
 $11,632
 $(9,506) $19,851
$6,644
 $12,423
 $10,391
 $(10,264) $19,194

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



Condensed Consolidating Statement of Cash Flows
For the 3913 Weeks Ended October 28, 2017May 4, 2019
(millions)
 
Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 ConsolidatedParent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Cash flows from operating activities:                  
Net income (loss)$222
 $(380) $564
 $(190) $216
$136
 $(43) $145
 $(102) $136
Restructuring and other costs—
 1
 32
 —
 33
Settlement charges—
 24
 49
 —
 73
Equity in loss (earnings) of subsidiaries(220) 30
 —
 190
 —
(132) 30
 —
 102
 —
Impairment and other costs—
 —
 1
 —
 1
Dividends received from subsidiaries571
 —
 —
 (571) —
225
 —
 —
 (225) —
Depreciation and amortization—
 265
 476
 —
 741
—
 85
 151
 —
 236
(Increase) decrease in working capital(52) 35
 (633) —
 (650)
Other, net8
 2
 (34) —
 (24)
Gains on sale of real estate—
 (24) (19) —
 (43)
Changes in assets, liabilities and other items not separately identified78
 (118) (328) —
 (368)
Net cash provided (used) by operating activities529
 (23) 454
 (571) 389
307
 (70) (50) (225) (38)
Cash flows from investing activities:                  
Disposition (purchase) of property and equipment and capitalized software, net—
 30
 (368) —
 (338)
Purchase of property and equipment and capitalized software, net of dispositions—
 (52) (178) —
 (230)
Other, net—
 2
 (10) —
 (8)—
 —
 (7) —
 (7)
Net cash provided (used) by investing activities—
 32
 (378) —
 (346)
Net cash used by investing activities—
 (52) (185) —
 (237)
Cash flows from financing activities:                  
Debt repaid—
 (553) (1) —
 (554)—
 (3) —
 —
 (3)
Dividends paid(346) —
 (571) 571
 (346)(116) —
 (225) 225
 (116)
Issuance of common stock, net of common stock acquired2
 —
 —
 —
 2
Proceeds from noncontrolling interest—
 —
 13
 —
 13
Issuance of common stock6
 —
 —
 —
 6
Intercompany activity, net(1,016) 584
 432
 —
 —
(700) 214
 486
 —
 —
Other, net9
 (32) 102
 —
 79
(93) 28
 20
 —
 (45)
Net cash used by financing activities(1,351) (1) (25) 571
 (806)
Net increase (decrease) in cash and
cash equivalents		(822) 8
 51
 —
 (763)
Cash and cash equivalents at beginning of period938
 81
 278
 —
 1,297
Cash and cash equivalents at end of period$116
 $89
 $329
 $—
 $534
Net cash provided (used) by financing activities(903) 239
 281
 225
 (158)
Net increase (decrease) in cash, cash equivalents and restricted cash(596) 117
 46
 —
 (433)
Cash, cash equivalents and restricted cash at beginning of period889
 64
 295
 —
 1,248
Cash, cash equivalents and restricted cash at end of period$293
 $181
 $341
 $—
 $815






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



Condensed Consolidating Statement of Cash Flows
For the 3913 Weeks EndedOctober 29, 2016 May 5, 2018
(millions)
 
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Cash flows from operating activities:         
Net income (loss)$144
 $(595) $665
 $(75) $139
Impairments and other costs—
 184
 65
 —
 249
Settlement charges—
 29
 52
 —
 81
Equity in loss (earnings) of subsidiaries(144) 69
 —
 75
 —
Dividends received from subsidiaries535
 575
 —
 (1,110) —
Depreciation and amortization—
 298
 489
 —
 787
Increase in working capital(59) (572) (328) —
 (959)
Other, net19
 (36) 28
 —
 11
Net cash provided (used) by operating activities495
 (48) 971
 (1,110) 308
Cash flows from investing activities:         
Purchase of property and equipment and capitalized software, net—
 (23) (520) —
 (543)
Other, net—
 47
 5
 —
 52
Net cash provided (used) by investing activities—
 24
 (515) —
 (491)
Cash flows from financing activities:         
Debt repaid, net of debt issued—
 (122) (1) —
 (123)
Dividends paid(344) —
 (1,110) 1,110
 (344)
Common stock acquired, net of
issuance of common stock		(199) —
 —
 —
 (199)
Proceeds from noncontrolling interest—
 —
 7
 —
 7
Intercompany activity, net(642) 158
 484
 —
 —
Other, net9
 (4) 185
 —
 190
Net cash provided (used) by
financing activities		(1,176) 32
 (435) 1,110
 (469)
Net increase (decrease) in cash and
cash equivalents		(681) 8
 21
 —
 (652)
Cash and cash equivalents at beginning of period741
 91
 277
 —
 1,109
Cash and cash equivalents at end of period$60
 $99
 $298
 $—
 $457
 Parent 
Subsidiary
Issuer
 
Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Cash flows from operating activities:         
Net income (loss)$139
 $(69) $299
 $(238) $131
Equity in earnings of subsidiaries(136) (102) —
 238
 —
Impairment and other costs—
 —
 19
 —
 19
Dividends received from subsidiaries200
 —
 —
 (200) —
Depreciation and amortization—
 82
 153
 —
 235
Gains on sale of real estate—
 (23) (1) —
 (24)
Changes in assets, liabilities and other items not separately identified150
 175
 (364) —
 (39)
Net cash provided by operating activities353
 63
 106
 (200) 322
Cash flows from investing activities:         
Purchase of property and equipment and capitalized software, net of dispositions—
 (50) (117) —
 (167)
Other, net—
 (10) 21
 —
 11
Net cash used by investing activities—
 (60) (96) —
 (156)
Cash flows from financing activities:         
Debt repaid—
 (3) —
 —
 (3)
Dividends paid(116) —
 (200) 200
 (116)
Issuance of common stock28
 —
 —
 —
 28
Proceeds from noncontrolling interest—
 —
 2
 —
 2
Intercompany activity, net(254) (10) 264
 —
 —
Other, net(50) 23
 17
 —
 (10)
Net cash provided (used) by financing activities(392) 10
 83
 200
 (99)
Net increase (decrease) in cash, cash equivalents and restricted cash(39) 13
 93
 —
 67
Cash, cash equivalents and restricted cash at beginning of period1,109
 79
 325
 —
 1,513
Cash, cash equivalents and restricted cash at end of period$1,070
 $92
 $418
 $—
 $1,580



MACY'S, INC.

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

For purposes of the following discussion, all references to "thirdfirst quarter of 20172019" and "thirdfirst quarter of 20162018" are to the Company's 13-week fiscal periods ended October 28, 2017May 4, 2019 and October 29, 2016May 5, 2018, respectively,respectively. References to "2019" and all references to "2017" and "2016""2018" are to the Company's 39-week52-week fiscal periodsyears ending February 1, 2020 and ended October 28, 2017 and October 29, 2016,February 2, 2019, respectively.
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in the 20162018 10-K. The following discussion contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report (particularly in "Risk Factors" and in "Forward-Looking Statements") and in the 20162018 10-K (particularly in "Risk Factors" and in "Forward-Looking Statements"). This discussion includes non-GAAP financial measures. For information about these measures, see the disclosure under the caption "Important Information Regarding Non-GAAP Financial Measures" on pages 2927 to 31.28.
Overview
The Company is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's)kids'), cosmetics, home furnishings and other consumer goods. The Company operates approximately 860has stores in 4543 states, the District of Columbia, Guam and Puerto Rico. As of October 28, 2017,May 4, 2019, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage, bluemercury and Macy's China Limited. In addition, bluemercury.
Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
Quarter Highlights
During the first quarter of 2019, the Company continued its investment in its 2019 strategic initiatives and experienced continued growth in its 2018 strategic initiatives. Highlights of these initiatives include:
Expansion of the Growth50 to the Growth150 with the addition of 100 locations in 2019. These additional 100 locations will receive the store improvement initiatives executed at the Growth50 locations, such as facility upgrades, merchandising strategies, and localized marketing. During the first quarter of 2019, sales results for the Growth50 locations outperformed the other Macy's locations, and implementation of the store improvement initiatives is underway at the additional 100 locations.
Continued expansion of Backstage, Macy's mall-based off-price business, to another 50 locations within existing Macy's locations in 2019. During the first quarter of 2019, the Company opened nine new locations within existing Macy's stores for a total of 181 Backstage locations (174 inside Macy's stores and seven freestanding locations) as of May 4, 2019.
Continued expansion of the vendor direct program (i.e., merchandise purchased from the Company's websites and digital applications and shipped directly to customers from the respective vendor) during 2019 into additional brands and assortments. During the first quarter of 2019, the vendor direct program added new vendors and increased merchandise assortments, and contributed to the Company's digital sales growth.
The Company has begunmobile-first strategy includes improving a customer's digital experience through the implementationenhancement of its North Star strategyapp features such as My Wallet (i.e., online order pick up identification, payment and loyalty rewards features), My Store (i.e., access to transform its omnichannel businessin-store offers and focus on key growth areas, embrace customer centricity,product locator features) and optimize valueMy Stylist (i.e., connects customers with in-store fashion consultants). The first quarter of 2019 included investments in its real estate portfolio. Inspired by the North Star, there are five pointsenhancement of these features.
Investment in destination businesses comprising six merchandise categories (dresses, fine jewelry, big ticket, men's tailored, women's shoes and beauty) to this strategy.
1.
FromFamiliar to Favorite includes everything the Company does to further its brand awareness and identity to its core customers. Actions include understanding and anticipating customers’ needs, strengthening the Company's fashion authority and executing initiatives around its loyalty and pricing strategies.
2.
It Must Be Macy’s encompasses delivering the products and experiences customers love and are exclusive to the Company. This includes styles and home fashion for every day and special occasions, from the Company's leading private brands, as well as exclusive national brands or assortments. It celebrates the Company's iconic events and includes strategies to appeal to more value-oriented customers.
3.
Every Experience Matters, in-store and online. The Company's competitive advantage is the ability to combine the human touch in its physical stores with cutting-edge technology in its mobile applications and websites. Key to this point is the enhancement of a customer's experienceas they explore our stores, mobile applications and websites, find their favorite styles, sizes and colors, and receive their purchases through the shopping channels they prefer.
4.
Funding our Future represents the decisions and actions the Company takes to identify and realize resourcesto fuel growth. This involves a focus on cost reduction and reinvestment as well as creating value from the Company's real estate portfolio.
5.
What’s New, What’s Next explores and develops those innovations to turn consumer and technology trends to the Company's advantage and to drive growth. This includes exploring previously unmet customer needs and making smart investment decisions based on customer insights and analytics.
The Company has taken a numbergain market share and to further contribute to the Company's sales growth. These merchandise categories experienced strong sales performance during the first quarter of key steps over2019.
During the past couplefirst quarter of years to position itself to successfully implement2019, STORY at Macy's was launched with the North Star strategy. Specifically, the Company launchedopening of 36 locations in 15 states. Each STORY at Macy's will be refreshed with a new Star Rewards loyalty programtheme and merchandise every 10 to 15 weeks.
Bloomingdale's and Bloomingdale's The Outlets had strong performances during the quarter. Bloomingdale's continued to see the operating performance for its flagship 59th Street store benefit from the renovations that occurred in October 2017 focused on strengthening relationships with2018. Bluemercury, the Company's best customers, migrating existing customers to higher spending levelsluxury beauty products and attracting new or infrequent customers. The initial launch ofspa retailer, continued its growth during the new program focused initially on proprietary cardholders with additional enhancements and expansion beyond proprietary cardholders planned for the future.
In August 2016, the Company announced its intention to close approximately 100 Macy’s stores, 74 of which were closed or announced to be closed by the end of the third quarter of 2017. Further,both in January 2017, the Company announced a series of actions to streamline its store portfolio, intensify cost efficiency efforts and execute its real estate strategy. In addition, the Company has reorganized the field structure that supports the remainingstand-alone stores and conducted a significant restructuring of the Company's central operations to focus resources on strategic priorities and reduce expense.stores within Macy's stores.

MACY'S, INC.

In August 2017, the Company announced a restructuring which included the consolidation of three functions (merchandising, planning and private brands) into a single merchandising function. During the third quarter of 2017, the Company recognized $33 million of costs primarily associated with this restructuring effort as well as a restructuring within the marketing function. Additional financial and operational impacts of such restructuring actions include future annual savings of approximately $38 million, some of which may be used for reinvestment in the business, and savings of approximately $.01 per diluted share in the fourth quarter of 2017.
The Company’s real estate strategy is designed to create value through both monetization and redevelopment of certain assets:
In January 2016, the Company completed a $270 million real estate transaction to recreate Macy's Brooklyn store. The Company continues to own and operate the first four floors and lower level of its existing nine-story retail store, which is currently being reconfigured and remodeled. The remaining portion of the store and its nearby parking facility were sold to Tishman Speyer in a single sales transaction. As the sales agreement required the Company to conduct certain redevelopment activities within the store, the Company is recognizing the gain on the transaction, approximately $250 million, under the percentage of completion method of accounting over the redevelopment period. Accordingly, $166 million has been recognized to-date, of which $117 million was recognized through fiscal 2016 and $49 million has been recognized during 2017.
In fiscal 2016, the Company had property and equipment sales, primarily related to real estate, totaling $673 million in cash proceeds and recognized real estate gains of $209 million. These proceeds include the cash received from the sale of the Company's 248,000 square-foot Union Square Men’s building in San Francisco for approximately $250 million in January 2017. The Company will use part of the proceeds to consolidate the Men’s store into its main Union Square store. The Company is leasing back the Men's store property as it completes the reconfiguration of the main store. The Company is expected to recognize a gain of approximately $235 million in January 2018.
In January 2017, the Company finalized the formation of a strategic alliance with Brookfield Asset Management, a leading global alternative asset manager, to create increased value in its real estate portfolio. Under the alliance, Brookfield has an exclusive right for up to 24 months to create a "pre-development plan" for each of approximately 50 Macy’s real estate assets, with an option for Macy’s to continue to identify and add assets into the alliance. The breadth of opportunity within the portfolio ranges from the additional development on a portion of an asset (such as a Company-controlled land parcel adjacent to a store) to the complete redevelopment of an existing store.  Once a "pre-development plan" is created, the Company has the option to accept the "pre-development plan" and then either contribute the asset into a joint venture for the development plan to commence or sell the asset to Brookfield. If the Company chooses to contribute the asset into a joint venture, the Company may elect to participate as a funding or non-funding partner. After development, the joint venture may sell the asset and distribute proceeds accordingly. Based on the analysis conducted to date, preliminary indications point to a likelihood that Brookfield will recommend proceeding with redevelopment on roughly two thirds of the assets subject to the alliance.
In February 2017, the Company sold its downtown Minneapolis store and parking facility for $59 million of proceeds and recognized a gain of approximately $47 million in the first quarter of 2017.
In April 2017, the Company launched a marketing effort for the upper floors of its flagship State Street Macy's store in downtown Chicago. Development and increased utilization of the upper floors are expected to drive more foot traffic to the store.
In May 2017, the Company signed a contract to sell an additional two floors of the downtown Seattle Macy's store; four floors were sold in a similar transaction in fiscal 2015. This transaction closed in September 2017 for approximately $50 million of proceeds and the Company recognized a gain of approximately $40 million in the third quarter of 2017.
In 2017, the Company opened new Macy’s stores in Murray, UT and Los Angeles, CA as well as a Bloomingdale’s store in Kuwait under a license agreement with Al Tayer Group, LLC. The Company expects to open new Macy's and Bloomingdale's stores in Al Maryah Central in Abu Dhabi, UAE, in fiscal 2018 under a license agreement with Al Tayer Group, LLC and two additional Bloomingdale's stores in San Jose, CA and Norwalk, CT in fiscal 2019.
Both Macy's off-price business, Macy's Backstage, and its clearance strategy, Last Act, have been successful in providing unique value opportunities to both existing and new Macy's customers. The Company has rolled out Last Act to all families of business and is currently focused on opening new Macy's Backstage stores within existing Macy's store locations. In the third quarter of 2017, the Company opened 7 new Macy’s Backstage stores within existing Macy’s stores, bringing the total locations in operation to 52 (7 freestanding and 45 inside Macy's stores) as of October 28, 2017.

MACY'S, INC.

The Company is focused on accelerating the growth of its luxury beauty products and spa retailer, bluemercury, by opening additional freestanding bluemercury stores in urban and suburban markets, enhancing its online capabilities and adding bluemercury products and boutiques to Macy's stores. 8 new freestanding bluemercury locations were opened in the third quarter of 2017 and 3 additional locations are expected to open later in the fiscal year. As of October 28, 2017, the Company is operating 155 bluemercury locations (135 freestanding and 20 inside Macy's stores).

Results of Operations
Comparison of the ThirdFirst Quarter of 20172019 and the ThirdFirst Quarter of 20162018
 Third Quarter of 2017 Third Quarter of 2016  First Quarter of 2019 First Quarter of 2018 
 Amount % to Sales Amount % to Sales  Amount % to Net Sales Amount % to Net Sales 
 (dollars in millions, except per share figures) (dollars in millions, except per share figures)
Net sales $5,281
   $5,626
    $5,504
   $5,541
   
Decrease in sales (6.1)% (4.2)% 
Decrease in comparable sales (4.0)% (3.3)% 
Credit card revenues, net 172
 3.1
%157
 2.8
%
         
Cost of sales (3,175) (60.1)%(3,386) (60.2)% (3,403) (61.8)%(3,382) (61.0)%
Gross margin 2,106
 39.9
%2,240
 39.8
%
Selling, general and administrative expenses (1,995) (37.8)%(2,112) (37.5)% (2,112) (38.4)%(2,083) (37.6)%
Gains on sale of real estate 65
 1.2
%41
 0.7
% 43
 0.8
%24
 0.4
%
Restructuring and other costs (33) (0.6)%—
 —
%
Settlement charges (22) (0.4)%(62) (1.1)%
Impairment and other costs (1) —
%(19) (0.3)%
Operating income 121
 2.3
%107
 1.9
% 203
 3.7
%238
 4.3
%
Interest expense - net (74)   (81)   
Benefit plan income, net 7
   11
   
Interest expense, net (47)   (66)   
Income before income taxes 47
   26
    163
   183
   
Federal, state and local income tax expense (13)   (11)    (27)   (52)   
Net income 34
  15
   136
  131
  
Net loss attributable to noncontrolling interest 2
   2
    —
   8
   
Net income attributable to Macy's, Inc. shareholders $36
 0.7
%$17
 0.3
% $136
 2.5
%$139
 2.5
%
                  
Diluted earnings per share attributable to
Macy's, Inc. shareholders
 $.12
   $.05
    $0.44
   $0.45
   
                  
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of restructuring and other costs and settlement charges $.23
   $.17
   
Supplemental Financial Measure         
Gross margin (a)
 $2,101
 38.2
%$2,159

39.0
%
         
Supplemental Non-GAAP Financial Measure         
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of certain items $0.44
   $0.48
   
         
(a) Gross margin is defined as net sales less cost of sales.
Net Sales and Comparable Sales
Net sales for the thirdfirst quarter of 20172019 decreased $345$37 million or 6.1%0.7% compared to the thirdfirst quarter of 20162018 due to fiscal year-end 2016 store closures and the decline in comparable sales, which were negatively impacted by hurricane activity during the quarter and warmer than expected fall weather. The decrease in comparable. Comparable sales on an owned basis for the thirdfirst quarter of 20172019 was 4.0%increased 0.6% compared to the thirdfirst quarter of 2016. The decrease in comparable sales on2018. On an owned plus licensed basis, forcomparable sales increased 0.7% during the thirdfirst quarter of 2017 was 3.6%2019.
Digital sales continued to experience strong growth with double-digit gains in the first quarter of 2019 and all three brands, Macy's, Bloomingdale's and bluemercury, performed well. Sales during the first quarter of 2019 were strong in the merchandise categories that make up our destination businesses, particularly dresses, fine jewelry, men's tailored, women's shoes, skincare and fragrances. Active and kids also improved compared to the thirdprior year quarter, while sales were not as strong in handbags during the first quarter of 2016. Sales2019. Geographically, the Midwest and Northeast were the strongest regions during the quarter were strongest in fine jewelry, fragrances, dresses, active apparel, men's tailored clothing, and shoes, excluding boots. Sales were weakest in cold weather businesses including coats, boots and winter accessories. Sales were also soft in home related businesses. The Company’s digital business continued its strong growth with double digit gains in the thirdfirst quarter of 2017. Geographically, regional trends2019.
Credit Card Revenues, Net
Credit card revenues, net were relatively consistent except for hurricane impacted areas. In addition, lower international tourism sales contributed to the decline of sales$172 million in the thirdfirst quarter of 20172019, an increase of $15 million compared to $157 million recognized in the first quarter of 2018. Increased proprietary card usage driven by the enhanced Macy's Star Rewards loyalty program and higher consumer credit balances drove the favorable results. Proprietary card penetration increased 80 basis points to 46.3% in the first quarter of 2019 compared to 45.5% in the thirdfirst quarter of 20162018.
Cost of Sales
The cost of sales rate as a percent to net sales for the third quarter of 2017 decreased to 60.1% compared to 60.2% for the third quarter of 2016. This decrease in the cost of sales rate as a percent to net sales was due in part to lower inventory levels at the end of the quarter, including less clearance merchandise subject to liquidation. The application of the last-in,

MACY'S, INC.

first-out ("LIFO") retail inventory method did not resultCost of Sales
Cost of sales increased by $21 million compared to the first quarter of 2018, an 80 basis points increase as a percent to net sales to 61.8% in the recognitionfirst quarter of any LIFO charges or credits affecting2019. The increase in cost of sales in either period.was primarily driven by higher delivery expense which resulted from free shipping offered as part of the Company's loyalty programs coupled with increased transactions compared to the prior year quarter.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the thirdfirst quarter of 2017 decreased $1172019 increased $29 million or 5.5% from the thirdfirst quarter of 2016.2018. The SG&A rate as a percent to net sales of 37.8%38.4% was 3080 basis points higher in the thirdfirst quarter of 2017,2019, as compared to the thirdfirst quarter of 2016.2018. This increase in SG&A expenses in the third quarter of 2017 included reduced expenses due to the year-end 2016 stores closures and the impact of restructuring activities. These reductions were partially offsetwas driven primarily by continued investments in digital growth, strategic initiatives in shoes and jewelry, and the expansion of Macy's Backstage and bluemercury. Income from credit operations was $161 million inas well as the third quarter of 2017, a decrease of $4 million compared to $165 million recognized in the third quarter of 2016 in part due to lower proprietary credit card penetration. Income from credit operations excludes costs related to new account originations and fraudulent transactions incurred on the Company’s private label credit cards.other strategic initiatives previously discussed.
Gains on Sale of Real Estate
The thirdfirst quarter of 20172019 included asset sale gains of $65$43 million including approximately $40compared to $24 million in the first quarter of 2018. The first quarter of 2019 included a $21 million gain related to the downtown Seattle Macy's location and $22White Plains transaction, while the first quarter of 2018 included approximately $18 million related to the Macy's Brooklyn transaction. This compares to $41 million of asset sale gains recognized in the third quarter of 2016, inclusive of approximately $9 million related to the Macy's Brooklyn transaction and $32 million related to various asset sales to General Growth Properties.
RestructuringImpairment and Other Costs
RestructuringThe first quarters of 2019 and 2018 included $1 million and $19 million, respectively, of impairment and other costs. Impairment and other costs were $33 million forin the thirdfirst quarter of 2017 and include charges2018 were associated with severance activities as well as other human resource related costs associated with organizational restructuring. No such charges were recognized in the third quarterwind-down of 2016.Macy's China Limited.
Settlement ChargesBenefit Plan Income, Net
The thirdfirst quarters of 20172019 and 20162018 included $22$7 million and $62$11 million, respectively, of non-cash settlement chargesnet benefit plan income relating to the Company's defined benefit plans. These charges relate toThis income includes the pro-rata recognitionnet of: interest cost, expected return on plan assets and amortization of netprior service costs or credits and actuarial lossesgains and are the result of an increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring, and periodic distribution activity.losses.
Net Interest Expense
Net interest expense for the thirdfirst quarter of 20172019 decreased $7$19 million from the thirdfirst quarter of 20162018 due to a reduction in the Company's debt resulting from $7.5 billion as of the end of the third quarter of 2016 to $6.3 billion as of the end of the third quarter of 2017. This reduction of approximately $1.2 billion is due to the maturitytender offer and repurchase of certain of the Company's borrowings.open market repurchases in 2018.
Effective Tax Rate
The Company's effective tax rate of 27.7%was 16.6% for the thirdfirst quarter of 20172019 and 42.3%28.4% for the thirdfirst quarter of 2016 differ from2018 compared to the federal income tax statutory rate of 35%, and on a comparative basis, principally because21%. The effective tax rate for the first quarter of the effect of state and local income taxes, including2019 was impacted by the settlement of variouscertain tax issues andmatters. In addition, the first quarter of 2019 included income of $1 million for net excess tax examinations.benefits associated with share-based payments compared to a net tax shortfall expense of $3 million in the first quarter of 2018.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for the thirdfirst quarter of 2017 increased $192019 decreased $3 million compared to the thirdfirst quarter of 2016.2018. The thirdfirst quarter of 2017 included $21 million of after tax restructuring and other costs and $14 million of after tax retirement plan settlement charges, while the third quarter of 2016 included $37 million of after tax retirement plan settlement charges. The third quarter of 2017 also included higher gains associated with the sale of real estate as well as2019 was driven by lower SG&A,operating income partially offset by lower interest expense and a lower effective tax rate. These favorable results were partially offset by lower net sales inrate than the thirdfirst quarter of 2017.2018.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for the thirdfirst quarter of 20172019 increased $.07decreased $0.01 compared to the thirdfirst quarter of 20162018, reflecting higherlower net income. Excluding the impact of restructuring and other costs and settlement charges, diluted earnings per share for the third quarter of 2017 increased $.06 or 35.3% compared to the third quarter of 2016.



MACY'S, INC.

Comparison of the 39 Weeks Ended October 28, 2017 and October 29, 2016
  2017  2016  
  Amount % to Sales  Amount % to Sales  
  (dollars in millions, except per share figures)
Net sales $16,171
    $17,263
    
Decrease in sales (6.3)%  (5.2)%  
Decrease in comparable sales (4.0)%  (4.0)%  
Cost of sales (9,794) (60.6)%(10,370) (60.1)%
Gross margin 6,377
 39.4
%6,893
 39.9
%
Selling, general and administrative expenses (5,853) (36.1)%(6,139) (35.5)%
Gains on sale of real estate 176
 1.1
%76
 0.4
%
Impairments, restructuring and other costs (33) (0.2)%(249) (1.4)%
Settlement charges (73) (0.5)%(81) (0.5)%
Operating income 594
 3.7
%500
 2.9
%
Interest expense - net (237)    (276)    
Net premiums on early retirement of debt (1)    —
    
Income before income taxes 356
    224
    
Federal, state and local income tax expense (140)    (85)    
Net income 216
   139
   
Net loss attributable to noncontrolling interest 6
    5
    
Net income attributable to Macy's, Inc. shareholders $222
 1.4
%$144
 0.8
%
            
Diluted earnings per share attributable to
      Macy's, Inc. shareholders
 $.73
    $.46
    
            
Diluted earnings per share attributable to Macy's, Inc. shareholders, excluding the impact of impairments, restructuring and other costs, settlement charges and net premiums on early retirement of debt $.95
    $1.11
    
Net Sales
Net sales for 2017 decreased $1,092 million or 6.3% compared to 2016 due to fiscal year-end 2016 store closures and the decline in comparable sales. The decrease in comparable sales on an owned basis for 2017 was 4.0% compared to 2016. The decrease in comparable sales on an owned plus licensed basis for 2017 was 3.6% compared to 2016. Sales during 2017 were strongest in active apparel, fine jewelry, fragrances, furniture/mattresses and women's shoes. Sales were weaker in housewares and tabletop. The Company’s digital business continued its strong growth at both macys.com and bloomingdales.com. Geographically, the Company’s strongest business was in the Southwest region.
Cost of Sales
The cost of sales rate as a percent to net sales for 2017 increased to 60.6% compared to 60.1% for 2016. The increase in the cost of sales rate as a percent to net sales was due in part to high year-end inventory levels as well as margin pressures in the beauty business and home related businesses. The application of the LIFO retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales in either period.
Selling, General and Administrative Expenses
SG&A expenses for 2017 decreased $286 million or 4.7% from 2016. The SG&A rate as a percent to net sales of 36.1% was 60 basis points higher in 2017 as compared to 2016. SG&A expenses in 2017 included reduced expenses from the year-end 2016 stores closures and the impact of restructuring activities, partially offset by investments in digital growth, strategic initiatives in shoes and jewelry, and initiatives at bluemercury and Macy's Backstage. Income from credit operations was $524 million in 2017, compared to $528 million in 2016. Income from credit operations excludes costs related to new account originations and fraudulent transactions incurred on the Company’s private label credit cards.


MACY'S, INC.

Gains on Sale of Real Estate
2017 included asset sale gains of $176 million, including $47 million related to the downtown Minneapolis property, $49 million related to the Macy's Brooklyn transaction, and $40 million related to the downtown Seattle Macy's location. This compares to $76 million of asset sale gains recognized in 2016, inclusive of approximately $24 million related to the Macy's Brooklyn transaction and $32 million related to various asset sales to General Growth Properties.
Impairments, Restructuring and Other Costs
Impairments, restructuring and other costs of $33 million for 2017 and $249 million for 2016 include charges associated with store closings and severance activities as well as other human resource related costs associated with organizational restructuring.
Settlement Charges
2017 and 2016 included $73 million and $81 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges relate to the pro-rata recognition of net actuarial losses and are the result of an increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring, and periodic distribution activity.
Net Interest Expense
Net interest expense for 2017 decreased $39 million from 2016 due to a reduction in the Company's debt as discussed previously within the quarterly review.
Net Premiums on Early Retirement of Debt
The Company repurchased approximately $247 million face value of senior notes and debentures in 2017. The debt repurchases were made in the open market for a total cash cost of approximately $257 million, including expenses related to the transactions. As a result of the debt repurchases, the Company recognized $1 million in expenses and fees net of premiums on acquired debt in 2017.
Effective Tax Rate
The Company's effective tax rate of 39.3% for 2017 and 37.9% for 2016 differ from the federal income tax statutory rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the settlement of various tax issues and tax examinations as well as the recognition of approximately $12 million of net tax deficiencies in 2017 associated with share-based payment awards due to the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. Historically, the Company had recognized such amounts as an offset to accumulated excess tax benefits previously recognized in additional paid-in capital.
Net Income Attributable to Macy's, Inc. Shareholders
Net income attributable to Macy's, Inc. shareholders for 2017 increased $78 million or 54.2% compared to 2016. The increase from 2017 to 2016 is primarily attributable to higher asset sale gains in 2017 as well as the fact that 2016 included $152 million of after tax impairments, restructuring and other costs compared to $21 million of after tax restructuring and other costs in 2017. These favorable changes as well as lower SG&A, retirement plan settlement charges and interest expense were partially offset by lower net sales and gross margin in 2017.
Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders
Diluted earnings per share for 2017 increased $.27 or 58.7% compared to 2016, reflecting higher net income. Excluding the impact of impairments, restructuring and other costs, settlement charges, and the net premiums on the early retirement of debt, diluted earnings per share for 2017 decreased $.16 or 14.4% compared to 2016.


MACY'S, INC.

Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the credit facility described below.
Operating Activities
Net cash used by operating activities in the first quarter of 2019 was $38 million, compared to net cash provided by operating activities in 2017 wasof $389322 million, compared to in the $308 millionfirst quarter of 2018 provided. The difference in 2016, primarily due to loweroperating cash outflows for merchandise inventories, netflows period over period reflects the timing of merchandise payables, resulting from lower inventory levels as of October 28, 2017 compared to October 29, 2016. These lower cash outflows offset other negative cash flow items including lower sales and higher income taxes paid in 2017.purchases.



MACY'S, INC.

Investing Activities
Net cash used by investing activities was $346237 million in 2017,the first quarter of 2019, compared to net cash used by investing activities of $491156 million in 2016. Investing activities for 2017 include purchasesthe first quarter of 2018. The increase in the first quarter of 2019 was driven by the Company's investments in its strategic initiatives resulting in $264 million of capital expenditures, inclusive of property and equipment totaling $359 millionand capitalized software, of $191 million, compared to purchases$190 million in the first quarter of property and equipment totaling 2018$451 million. Offsetting this outflow in the and capitalized softwarefirst quarter of 2019$230 million in 2016. Additionally,, the Company received cash of $212$34 million from the disposition of property and equipment in 2017, primarily related to the execution of real estate transactions, as compared to $138$23 million receivedof proceeds in 2016.the first quarter of 2018.
Financing Activities
Net cash used by the Company for financing activities was $806 million for 2017, including debt payments of $554 million and payment of $346 million of cash dividends. These cash outflows were partially offset by an increase in outstanding checks of $80 million. For 2017, the Company repurchased approximately $247 million face value of senior notes and debentures. During the second quarter of 2017, the Company repaid at maturity $300 million of 7.45% senior debentures due July 2017.
Net cash used by the Company for financing activities was $469$158 million for 2016,the first quarter of 2019, including payment of $344$116 million of cash dividends $230and a $45 million for the acquisition of the Company's common stock, primarily under its share repurchase program, and repayment of $174 million of debt.decrease in outstanding checks. These outflows were partially offset by $31$6 million of proceeds received from the issuance of common stock, primarily related to the exercise of stock options.
On November 27, 2017,Net cash used by the Company commenced afor financing activities was $99 million for the first quarter of 2018, including payment of $116 million of cash tender offer ("tender offer") to purchase up to $400dividends. This outflow was partially offset by $28 million in aggregate principal amountfrom the issuance of certain senior unsecured notes and debentures, with stated interest rates ranging from 6.375% to 10.25% and maturities ranging from fiscal years 2021 to 2037. The tender offer expires on December 22, 2017, with an early tender date on December 8, 2017. The Company expects to record the redemption premium and other costscommon stock, primarily related to these repurchases as net premiums on early retirementthe exercise of debt onstock options.
As of May 4, 2019, the Consolidated Statements of Income during the fourth quarter of 2017.
The Company iswas party to a credit agreement with certain financial institutions providing for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing) outstanding at any particular time. The agreement is set to expire May 6, 2021. As of October 28, 2017,May 4, 2019, the Company did not have any borrowings or letters of credit outstanding under its credit facility.
On May 9, 2019, the Company entered into a new credit agreement with certain financial institutions that replaces the previous credit agreement which was set to expire on May 6, 2021. Similar to the previous agreement, the new credit agreement provides for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing). The new credit agreement is scheduled to expire on May 9, 2024, subject to up to two one-year extensions that may be requested by the Company and agreed to by the lenders.
The Company is party to a $1,500 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability under its bank credit agreement. As of October 28, 2017,May 4, 2019, the Company did not have any borrowings outstanding under its commercial paper program.
As of October 28, 2017May 4, 2019, the Company was required under its credit agreement to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than 3.75 under the credit agreement. The Company's interest coverage ratio for the thirdfirst quarter of 20172019 was 7.9212.30 and its leverage ratio at October 28, 2017May 4, 2019 was 2.36,1.78, in each case as calculated in accordance with the credit agreement. As of May 4, 2019, the Company was in compliance with the ratios.
On October 27, 2017,May 17, 2019, the Company announced that the Board of Directors declared a quarterly dividend of 37.75 cents per share on its common stock, payable January 2, 2018,July 1, 2019, to Macy's shareholders of record at the close of business on December 15, 2017.June 14, 2019.





MACY'S, INC.

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

MACY'S, INC.

Outlook and Recent Developments
The Company's operations are impacted by competitive pressures from department stores, off-price stores, specialty stores, mass merchandisers, online retailers and all other retail channels. The Company's operations are also impacted by general consumer spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of weather or natural disasters and other factors over which the Company has little or no control.
In recent years, consumer spending levels have been affected to varying degrees by a number of factors, including modest economic growth, uncertainty regarding governmental spending and tax policies, unemployment levels, tightened consumer credit, an improving housing market and a fluctuating stock market. In addition, consumer spending levels of international customers are impacted by the strength of the U.S. dollar relative to foreign currencies. These factors have affected, to varying degrees, the amount of funds that consumers are willing and able to spend for discretionary purchases, including purchases of some of the merchandise offered by the Company.
All economic conditions ultimately affect the Company's overall operations. However, the effects of economic conditions can be experienced differently and at different times, in the various geographic regions in which the Company operates, in relation to the different types of merchandise that the Company offers for sale, or in relation to each of the Company's branded operations.
On November 9, 2017,May 15, 2019, the Company issued a press release to report its preliminary earnings for the thirdits first quarter of 20172019 and reaffirmed its full year guidance provided previously provided guidance for fiscal 2017. In summary,in the Company expects comparable sales on an owned basis to decline between 2.2 percent and 3.3 percent, with comparable sales on an owned plus licensed basis to decline between 2.0 percent and 3.0 percent. Total sales are expected to be down between 3.2 percent and 4.3 percent in fiscal 2017. Total sales for fiscal 2017 reflect a 53rd week, whereas comparable sales are on a 52-week basis. As previously announced in August 2017, the Company expects a 1 cent increase in adjusted earnings per diluted share due to the restructuring of the merchandising operations. The Company now expects adjusted earnings per diluted share of between $3.38 and $3.63 in fiscal 2017, excluding the impact of the anticipated settlement charges, restructuring and other costs and net premiums and fees associated with debt repurchases. Excluding the impact of the anticipated fourth quarter gain on the sale of the Union Square Men’s building in San Francisco and the anticipated settlement charges, restructuring and other costs and net premiums and fees associated with debt repurchases, adjusted earnings per diluted share of $2.91 to $3.16 are expected in fiscal 2017.


2018 10-K.




MACY'S, INC.

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

MACY'S, INC.

Change in Comparable Sales
The following is a tabular reconciliation of the non-GAAP financial measure of changes in comparable sales on an owned plus licensed basis, to GAAP comparable sales (i.e. on an owned basis), which the Company believes to be the most directly comparable GAAP financial measure.
  Third Quarter of 2017 Third Quarter of 2016
     
Decrease in comparable sales on an owned basis (note 1) (4.0)% (3.3)%
Impact of growth in comparable sales of departments licensed to third parties (note 2) 0.4 % 0.6 %
Decrease in comparable sales on an owned plus licensed basis (3.6)% (2.7)%

  2017 2016
     
Decrease in comparable sales on an owned basis (note 1) (4.0)% (4.0)%
Impact of growth in comparable sales of departments licensed to third parties (note 2) 0.4 % 0.5 %
Decrease in comparable sales on an owned plus licensed basis (3.6)% (3.5)%
First Quarter of 2019
Increase in comparable sales on an owned basis (note 1)0.6%
Impact of growth in comparable sales of departments licensed to third parties (note 2)0.1%
Increase in comparable sales on an owned plus licensed basis0.7%

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






MACY'S, INC.

Adjusted Net Income and Adjusted Diluted Earnings Per Share Attributable to Macy's, Inc. Shareholders Excluding Certain Items
The following is a tabular reconciliation of the non-GAAP financial measure of net income and diluted earnings per share attributable to Macy's, Inc. shareholders, excluding certain items identified below, to GAAP net income and diluted earnings per share attributable to Macy's, Inc., shareholders, which the Company believes to be the most directly comparable GAAP measure.measures.
  Third Quarter of 2017 Third Quarter of 2016
     
Diluted earnings per share attributable to Macy's, Inc. shareholders $.12
 $.05
Add back the pre-tax impact of restructuring and other costs .11
 —
Add back the pre-tax impact of settlement charges .07
 .20
Deduct the income tax impact of certain items identified above (.07) (.08)
Diluted earnings per share attributable to Macy's, Inc. shareholders,
excluding certain items		 $.23
 $.17
  First Quarter of 2019 First Quarter of 2018
         
  Net Income Attributable to Macy's, Inc. Shareholders Diluted Earnings Per Share Net Income Attributable to Macy's, Inc. Shareholders Diluted Earnings Per Share
As reported $136
 $0.44
 $139
 $0.45
Impairment and other costs (note 3 and 4) 1
 —
 13
 0.04
Income tax impact of certain item noted above (note 4) —
 —
 (3) (0.01)
As adjusted $137
 $0.44
 $149
 $0.48

  2017 2016
     
Diluted earnings per share attributable to Macy's, Inc. shareholders $.73
 $.46
Add back the pre-tax impact of impairments, restructuring and other costs .11
 .80
Add back the pre-tax impact of settlement charges .24
 .26
Add back the pre-tax impact of net premiums on the early retirement of debt (note 1) —
 —
Deduct the income tax impact of certain items identified above (.13) (.41)
Diluted earnings per share attributable to Macy's, Inc. shareholders,
excluding certain items		 $.95
 $1.11

Note:Notes:
(1)(3)For the first quarter of 2018, the above pre-tax adjustment excludes impairment and other costs attributable to the noncontrolling interest shareholder of $6 million.
(4)The impact during the 39 weeks ended October 28, 2017first quarter of 2019 represents a value less than $.01zero for net income attributable to Macy's, Inc. shareholders or $0.01 per diluted share attributable to Macy’s,Macy's, Inc. shareholders.


MACY'S, INC.

New Pronouncements

Accounting Pronouncements Recently Adopted
In May 2014, the FinancialSee Part I, Item 1, “Financial Statements — Note 1 — Organization and Summary of Significant Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which establishes principles to report useful information to financial statements users about the nature, timing and uncertainty of revenue from contracts with customers. ASU No. 2014-09 along with various related amendments comprise ASC Topic 606, Revenue from Contracts with Customers, and provide guidance that is applicable to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. The new standard and its related updates are effective for the Company beginning on February 4, 2018. On the effective date, the Company will apply the new guidance retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The Company is currently evaluating the methods of adoption and has not yet decided on the method to be applied when the new revenue guidance is effective.Policies.”
The Company currently estimates the material impacts to its consolidated financial statements to include gross presentation of its estimates for future sales returns and related recoverable assets, presenting income from credit operations as a separate component of revenue and recognizing revenue for online transactions upon shipment rather than delivery. In addition, the gains for certain real estate transactions will generally be recognized earlier than under current guidance due to consideration of the guidance in ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) and the new lease standard discussed below.
The Company does not expect the new guidance to materially impact the revenue recognition associated with gift card breakage as well as the accounting for its warranty arrangements, loyalty programs and other customer incentive arrangements. The Company is continuing to evaluate the impact of the new standards and the final determinations of the impact of the new guidance may differ from these initial estimates.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize substantially all leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The new standard is effective for the Company on February 3, 2019, with early adoption permitted. The new standard is to be adopted utilizing a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. The Company has not yet decided whether it will early adopt the new standard but the Company currently plans to elect the majority of the standard's available practical expedients on adoption.
The Company expects that the new lease standard will have a material impact on the Company's consolidated financial statements. While the Company is continuing to assess the effects of adoption, the Company currently believes the most significant changes relate to the recognition of new ROU assets and lease liabilities on the consolidated balance sheets for real property and personal property operating leases as well as changes to the timing of recognition of certain real estate asset sale gains in the consolidated statements of income due to application of the new sale-leaseback guidance and ASU No. 2017-05 as discussed above. The Company expects that substantially all of its operating lease commitments will be subject to the new guidance and will be recognized as operating lease liabilities and ROU assets upon adoption. A significant change in leasing activity between the date of this report and adoption is not expected.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715), which requires employers to disaggregate the service cost component from other components of net periodic benefit costs and to disclose the amounts of net periodic benefit costs that are included in each income statement line item. The standard requires employers to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) separately and outside a subtotal of operating income. The income statement guidance requires application on a retrospective basis. The new standard is effective for the Company beginning in the first quarter of 2018, with early adoption permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial position, results of operations, and related disclosures. The Company plans to adopt this standard on February 4, 2018.
The Company does not anticipate that the adoption of any other recent accounting pronouncements will have a material impact on the Company's consolidated financial position, results of operations or cash flows.


MACY'S, INC.


Item 3.Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to the Company’s market risk as described in the Company's 20162018 10-K. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 20162018 10-K.

Item 4.Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer have carried out, as of October 28, 2017May 4, 2019, with the participation of the Company's management, an evaluation of the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of October 28, 2017May 4, 2019 the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in reports the Company files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (the "SEC") rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
ThereFrom time to time adoption of new accounting pronouncements, major organizational restructuring and realignment occurs for which the Company reviews its internal control over financial reporting. As a result of this review, there were no changes in the Company's internal control over financial reporting that occurred during the Company's most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


MACY'S, INC.

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

Item 1A.Risk Factors.
ThereExcept as set forth below, there have been no material changes to the Risk Factors described in Part I, "Item 1A. Risk Factors" in the Company's 20162018 10-K.
The risk factor "We depend upon designers, vendors and other sources of merchandise, goods and services. Our business could be affected by disruptions in, or other legal, regulatory, political or economic issues associated with, our supply network" is deleted and replaced as follows:
We depend upon designers, vendors and other sources of merchandise, goods and services. Our business could be affected by disruptions in, or other legal, regulatory, political or economic issues associated with, our supply network.
Our relationships with established and emerging designers have been significant contributors to Macy's past success. Our ability to find qualified vendors and access products in a timely and efficient manner is often challenging, particularly with respect to goods sourced outside the United States. We source the majority of our merchandise from manufacturers located outside the U.S., primarily Asia.  Any major changes in tax policy, such as the disallowance of tax deductions for imported merchandise could have a material adverse effect on our business, results of operations and liquidity.
The procurement of all our goods and services are subject to the effects of price increases which we may or may not be able to pass through to our customers. In addition, our procurement of goods and services from outside the U.S. is subject to risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade. All of these factors may affect our ability to access suitable merchandise on acceptable terms, are beyond our control and could negatively affect our business and results of operations.
On May 10, 2019, the current U.S. Administration imposed a 25% tariff on approximately $200 billion worth of imports from China into the U.S. The current U.S. Administration is in the process of extending the 25% tariff to all remaining imports from China, valued at approximately $300 billion, which imports include merchandise for both private-label and national brands sold in our stores. The Office of the U.S. Trade Representative is expected to hold a public hearing regarding the tariff extension on June 17, 2019. We are evaluating the potential impact of the effective and proposed tariffs, including a potential continued escalation of retaliatory tariffs, as well as other recent changes in foreign trade policy on our supply chain, costs, sales and profitability and are considering strategies to mitigate such impact, including reviewing sourcing options and working with our vendors and merchants. While it is too early to predict how these changes in foreign trade policy and any recently enacted, proposed and future tariffs on products imported by us from China will affect our business, these changes could negatively impact our business and results of operations if they seriously disrupt the movement of products through our supply chain or increase their cost. In addition, while we may be able to shift our sourcing options, executing such a shift would be time consuming and would be difficult or impracticable for many products and may result in an increase in our manufacturing costs. The adoption and expansion of trade restrictions, retaliatory tariffs, or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and/or the U.S. economy, which in turn could adversely impact our results of operations and business.

MACY'S, INC.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information regarding the Company's purchases of Common Stock during the thirdfirst quarter of 2017.2019.
Total
Number
of Shares
Purchased
Average
Price Paid
per Share ($)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)Maximum Dollar Value of Shares that may yet be Purchased Under the Plans or Programs (1)($)
(thousands)(thousands)(millions)
July 30, 2017 – August 26, 2017—
—
—
1,716
August 27, 2017 – September 30, 2017—
—
—
1,716
October 1, 2017 – October 28, 2017—
—
—
1,716
—
—
—
 
Total
Number
of Shares
Purchased
 
Average
Price Paid
per Share ($)
 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Dollar Value of Shares that may yet be Purchased Under the Plans or Programs (1)($)
 (thousands)   (thousands) (millions)
February 3, 2019 – March 2, 20198
 25.14
 —
 1,716
March 3, 2019 – April 6, 2019—
 —
 —
 1,716
April 7, 2019 – May 4, 2019—
 —
 —
 1,716
 8
 25.14
 —
  
 ___________________
(1)
Commencing in January 2000, the Company's Board of Directors has from time to time approved authorizations to purchase, in the aggregate, up to $18 billion of Common Stock as of October 28, 2017May 4, 2019. All authorizations are cumulative and do not have an expiration date. As of October 28, 2017May 4, 2019, $1,716 million of authorization remained unused. The Company may continue, discontinue or resume purchases of Common Stock under these or possible future authorizations in the open market, in privately negotiated transactions or otherwise at any time and from time to time without prior notice.


MACY'S, INC.

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


MACY'S, INC.

Item 6.Exhibits.

10.1
Form of Stock Option Terms and Conditions under the 2018 Equity and Incentive Compensation Plan *

10.2
2019-2021 Performance-Based Restricted Stock Unit Terms and Conditions under the 2018 Equity and Incentive Compensation Plan *

10.3
Form of Time-Based Restricted Stock Unit Terms and Conditions under the 2018 Equity and Incentive Compensation Plan *

31.1 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
   
31.2 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
   
32.1 
Certification by Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act
   
32.2 
Certification by Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act
   
101 The following financial statements from Macy's, Inc.'s Quarterly Report on Form 10-Q for the quarter ended October 28, 2017,May 4, 2019, filed on December 4, 2017,June 5, 2019, formatted in XBRL: (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (v)(vi) the Notes to Consolidated Financial Statements.



*Constitutes a compensatory plan or arrangement.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 MACY’S, INC.
   
 By:
/s/    ELISA D. GARCIA        
  
Elisa D. Garcia
Executive Vice President, Chief Legal Officer and Secretary
   
 By:/s/    FELICIA WILLIAMS
  
Felicia Williams
ExecutiveSenior Vice President, Controller and Enterprise Risk Officer
(Principal Accounting Officer)
Date: December 4, 2017June 5, 2019

 


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