| Notes to Financial Statements | |
| 6 Months Ended
Aug. 01, 2009
USD / shares
|
| Notes to Financial Statements [Abstract] | |
| 1.Summary of Significant Accounting Policies |
1. Summary of Significant Accounting Policies
Macys, Inc. and subsidiaries (the Company) is a retail organization operating retail stores and Internet websites under two brands (Macys and Bloomingdales) that sell a wide range of merchandise, including mens, womens and childrens apparel and accessories, cosmetics, home furnishings and other consumer goods. The Companys operations include more than 840 stores in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com and bloomingdales.com.
A description of the Companys significant accounting policies is included in the Companys Annual Report on Form 10-K for the fiscal year ended January31, 2009 (the 2008 10-K). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2008 10-K.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 26 weeks ended August1, 2009 and August2, 2008, 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. The Company has evaluated subsequent events through September 8, 2009, which was the date the financial statements were issued and filed with the Securities and Exchange Commission (SEC).
Because of the seasonal nature of the retail business, the results of operations for the 13 and 26 weeks ended August1, 2009 and August2, 2008 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Certain Balance Sheet reclassifications were made to the prior fiscal years amounts to conform with the classifications of such amounts for the current fiscal year.
In February 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No.157-2 (FSP 157-2) which permitted a one-year deferral for the implementation of Statement of Financial Accounting Standards (SFAS) No.157, Fair Value Measurements (SFAS 157) with regard to nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).Effective February1, 2009, the Company adopted SFAS 157 for such nonfinancial assets and liabilities, which, for the Company, primarily consist of certain nonfinancial assets and liabilities accounted for under SFAS No.142, Goodwill and Other Intangible Assets, SFAS No.144, Accounting for the Impairment or Disposal of Long-Lived Assets, SFAS No.143, Accountin |
| 2.Division Consolidation Costs |
2. Division Consolidation Costs
In 2008, the Company began a localization initiative called My Macys. This initiative is intended to strengthen local market focus and enhance selling service to enable the Company to both accelerate same-store sales growth and reduce expenses. To maximize the results from My Macys, the Company has taken action in certain markets that: concentrates more management talent in local markets, effectively reducing the span of control over local stores; creates new positions in the field to work with central planning and buying executives in helping to understand and act on the merchandise needs of local customers; and empowers locally based executives to make more and better decisions. My Macys is expected to drive sales growth by improving knowledge at the local level and then acting quickly on that knowledge.
In February 2009, the Company announced the expansion of the My Macys localization initiative across the country. As My Macys was rolled out nationally to new local markets in 2009, the Companys Macys branded stores have been reorganized into a unified operating structure, through additional division consolidations, to support the Macys business. Division central office organizations have been eliminated in New York-based Macys East, San Francisco-based Macys West, Atlanta-based Macys Central and Miami-based Macys Florida. The New York-based Macys Home Store and Macys Corporate Marketing divisions no longer exist as separate entities. Home Store functions have been integrated into the Macys national merchandising, merchandise planning, stores and marketing organizations. Macys Corporate Marketing has been integrated into the new unified marketing organization. The New York-based Macys Merchandising Group has been refocused solely on the design, development and marketing of the Macys family of private brands.
During the 13 and 26 weeks ended August1, 2009, the Company recorded $34 million and $172 million, respectively, of costs and expenses associated with the division consolidation and localization initiative announced in February 2009, consisting primarily of severance costs and other human resource-related costs.
The following table shows for the 26 weeks ended August1, 2009, the beginning and ending balance of, and the activity associated with, the severance accrual established in connection with the division consolidation and localization initiative announced in February 2009:
January31, 2009 Charged ToDivision Consolidation Costs Payments August1, 2009
(millions)
Severance costs $ 30 $ 124 $ (108 ) $ 46
The Company expects to pay out the majority of these accrued severance costs, which are included in accounts payable and accrued liabilities on the Consolidated Balance Sheets, prior to January 30, 2010. Additionally, the Company paid out the $4 million of accrued severance costs established in connection with the store closings announced in January 2009, which were included in accounts payable and accrued liabilities on the Consolidated Balance Sheets as of January31, 2009, during the 13 weeks ended May2, 2009.
In Feb |
| 3.Asset Impairment Charges |
3. Asset Impairment Charges
In connection with the annual impairment test of goodwill and indefinite lived intangible assets completed during the second quarter of 2008, management concluded that approximately $50 million of asset impairment charges for the 13 and 26 weeks ended August2, 2008 were required in relation to indefinite lived acquired tradenames. As a result of the then-current operating performance and expectations regarding future operating performance of the Karen Scott and John Ashford private brand tradenames, it was determined that the carrying values exceeded the estimated fair values, which were based on discounted cash flows, by approximately $50 million. |
| 4.Earnings (Loss) Per Share |
4. Earnings (Loss) Per Share
The following tables set forth the computation of basic and diluted earnings (loss) per share:
13 Weeks Ended
August 1, 2009 August 2, 2008
Income Shares Income Shares
(millions, except per share figures)
Net income and average number of shares outstanding $ 7 420.2 $ 73 420.0
Shares to be issued under deferred compensation plans 1.3 1.1
$ 7 421.5 $ 73 421.1
Basic earnings per share $ .02 $ .17
Effect of dilutive securities-stock options and restricted stock 0.6 1.0
$ 7 422.1 $ 73 422.1
Diluted earnings per share $ .02 $ .17
26 Weeks Ended
August 1, 2009 August 2, 2008
Loss Shares Income Shares
(millions, except per share figures)
Net income (loss) and average number of shares outstanding $ (81 ) 420.2 $ 14 419.9
Shares to be issued under deferred compensation plans 1.3 1.1
$ (81 ) 421.5 $ 14 421.0
Basic earnings (loss) per share $ (.19 ) $ .03
Effect of dilutive securities-stock options and restricted stock 1.4
$ (81 ) 421.5 $ 14 422.4
Diluted earnings (loss) per share $ (.19 ) $ .03
In addition to the stock options and restricted stock reflected in the foregoing tables, stock options to purchase 34.3million shares of common stock at prices ranging from $11.32 to $46.15 per share, 179,000 shares of restricted stock and 2,887,000 shares of performance based restricted stock units were outstanding at August1, 2009, and stock options to purchase 33.9million shares of common stock at prices ranging from $21.25 to $46.15 and 419,000 shares of restricted stock were outstanding at August2, 2008, but were not included in the computation of diluted earnings per share for the 13 weeks ended August1, 2009 or the 13 or 26 weeks ended August2, 2008 because their inclusion would have been antidilutive.
Stock options to purchase 40.3million shares of common stock at prices ranging from $8.76 to $46.15 per share, 179,000 shares of restricted stock and 2,887,000 shares of performance based restricted stock units were outstanding at August1, 2009, but were not included in the computation of diluted loss per share for the 26 weeks ended August1, 2009 because, as a result of the Companys net loss during this period, their inclusion would have been antidilutive. |
| 5.Benefit Plans |
5. Benefit Plans
The Company has a funded defined benefit plan (Pension Plan) and a defined contribution plan, which cover substantially all employees who work 1,000 hours or more in a year. The Company also has an unfunded defined benefit supplementary retirement plan, which provides benefits, for certain employees, in excess of qualified plan limitations.
In addition, certain retired employees currently are provided with specified health care and life insurance benefits (Postretirement Obligations). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.
The actuarially determined components of the net periodic benefit cost are as follows:
13 Weeks Ended 26 Weeks Ended
August1, 2009 August2, 2008 August1, 2009 August2, 2008
(millions)
Pension Plan
Service cost $ 22 $ 26 $ 44 $ 53
Interest cost 44 40 87 80
Expected return on assets (47 ) (48 ) (93 ) (95 )
Recognition of net actuarial loss 2 3
Amortization of prior service cost
$ 19 $ 20 $ 38 $ 41
Supplementary Retirement Plan
Service cost $ 2 $ 2 $ 3 $ 3
Interest cost 11 10 22 20
Recognition of net actuarial loss
Amortization of prior service cost (1 ) (1 ) (1 ) (1 )
$ 12 $ 11 $ 24 $ 22
Postretirement Obligations
Service cost $ $ $ $
Interest cost 5 6 10 11
Recognition of net actuarial (gain) loss (1 ) (3 ) 1
Amortization of prior service cost
$ 4 $ 6 $ 7 $ 12
The Company made a voluntary funding contribution to the Pension Plan for the 2008 plan year of $60 million on August 28, 2009 and is considering making a voluntary funding contribution to the Pension Plan for the 2009 plan year of approximately $115 million to $190 million prior to January30, 2010. |
| 6.Accumulated Other Comprehensive Loss |
6. Accumulated Other Comprehensive Loss
The following table shows the beginning and ending balance of, and the activity associated with, accumulated other comprehensive loss, net of income tax effects, for the 26 weeks ended August1, 2009 and August2, 2008:
August1, 2009 August2, 2008
(millions)
Accumulated other comprehensive loss, at beginning of period $ (486 ) $ (182 )
Unrealized gain (loss) on marketable securities, net of income tax effect of $3 million and $8 million 4 (12 )
Post employment and postretirement benefit plans:
Recognition of net actuarial (gain) loss, net of income tax effect of $1 million and $1 million (2 ) 3
Prior service cost, net of income tax effect of less than $1 million and less than $1 million (1 ) (1 )
Accumulated other comprehensive loss, at end of period $ (485 ) $ (192 )
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| 7.Fair Value Measurements |
7. Fair Value Measurements
The following table shows the Companys financial assets that are required to be measured at fair value on a recurring basis at August1, 2009, in accordance with the fair value hierarchy set forth in SFAS 157:
Fair Value Measurements
Total Level1 Level2 Level3
(millions)
Marketable equity and debt securities $ 81 $ 32 $ 49 $
Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, short-term debt, merchandise accounts payable, accounts payable and accrued liabilities and long-term debt. With the exception of long-term debt, the carrying amount approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are estimated based on the quoted market prices for publicly traded debt or by using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. The following table shows the estimated fair values of certain financial instruments of the Company at August1, 2009:
Notional Amount Carrying Amount Fair Value
(millions)
Long-term debt $ 8,312 $ 8,603 $ 7,046
The Company reviews the carrying value of its goodwill and other intangible assets with indefinite lives at least annually for possible impairment in accordance with SFAS No.142 Goodwill and Other Intangible Assets. Goodwill and other intangible assets with indefinite lives have been assigned to reporting units for purposes of impairment testing. The reporting units are the Companys retail operating divisions. Goodwill and other intangible assets with indefinite lives are tested for impairment annually at the end of the fiscal month of May.
During the second quarter of fiscal 2009, the Company completed its annual impairment test of goodwill and indefinite lived intangible assets. The goodwill impairment testing process includes estimating the fair value of each reporting unit based on its estimated discounted cash flows and comparing the estimated fair value of each reporting unit to its carrying value. The goodwill impairment testing process involves the use of unobservable inputs (level 3) and significant assumptions, estimates and judgments by management, and is subject to inherent uncertainties and subjectivity. Estimating a reporting units discounted cash flows involves the use of significant assumptions, estimates and judgments with respect to a variety of factors, including sales, gross margin and selling, general and administrative rates, capital expenditures, cash flows and the selection of an appropriate discount rate. Projected sales, gross margin and selling, general and administrative expense rate assumptions and estimated capital expenditures are based on the Companys annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting unit directly resulting from the use of its assets in its operations.
Based |
| 8.Legal Settlement |
8. Legal Settlement
During 2008, the Company was subject to a wage and hour class action in California. The Company concluded that it was probable that a loss of approximately $25 million would be incurred to settle this legal matter and recorded an estimated amount of $23 million as part of selling, general and administrative expenses during the 26 weeks ended August2, 2008 and an additional amount of $2 million during the 13 weeks ended November1, 2008. The settlement of this legal matter has been finalized with court approval, and the Company paid the settlement amount of $25 million during the 13 weeks ended May 2, 2009. |
| 9.Condensed Consolidating Financial Information |
9. Condensed Consolidating Financial Information
The senior notes and senior debentures of the Company, which constitute debt obligations of Macys Retail Holdings, Inc. (Subsidiary Issuer), a wholly-owned subsidiary of Macys, 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 FDS Bank, Leadville Insurance Company and Snowdin Insurance Company and, after its transfer to Parent on November2, 2008, Macys Merchandising Group, Inc. and its subsidiary Macys Merchandising Group International, LLC. 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 (including, prior to its transfer to Parent on November2, 2008, Macys Merchandising Group, Inc. and its subsidiary Macys Merchandising Group International, LLC) are also reflected in Other Subsidiaries.
Condensed Consolidating Balance Sheets as of August1, 2009,August2, 2008 and January31, 2009, the related Condensed Consolidating Statements of Operations for the 13 and 26 weeks ended August1, 2009 and August2, 2008, and the related Condensed Consolidating Statements of Cash Flows for the 26 weeks ended August1, 2009 and August2, 2008 are presented on the following pages.
Condensed Consolidating Balance Sheet
As of August1, 2009
(millions)
Parent Subsidiary Issuer Other Subsidiaries Consolidating Adjustments Consolidated
ASSETS:
Current Assets:
Cash and cash equivalents $ 269 $ 58 $ 188 $ $ 515
Receivables 47 354 401
Merchandise inventories 2,491 2,143 4,634
Supplies and prepaid expenses 98 133 231
Deferred income tax assets 17 (17 )
Income tax receivable 146 (123 ) 23
Total Current Assets 415 2,694 2,835 (140 ) 5,804
Property and Equipmentnet 5,651 4,395 10,046
Goodwill 3,315 428 3,743
Other Intangible Assetsnet 232 465 697
Other Assets 4 135 355 494
Deferred Income Tax Assets 111 (111 )
Intercompany Receivable 1,474 2,120 (3,594 )
Investment in Subsidiaries 2,700 2,760 (5,460 )
Total Assets $ 4,704 $ 14,787 $ 10,598 $ (9,305 ) $ 20,784
LIABILITIES AND SHAREHOLDERS EQUITY:
Current Liabilities:
Short-term debt $ $ 89 $ 3 $ $ 92
Merchandise accounts payable 857 826 1,683
Accounts payable and accrued liabilities 82 925 |
