NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Organization and Summary of Significant Accounting Policies
|
Nature of Operations
Macy’s, Inc. and subsidiaries (the “Company”) is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy’s, Bloomingdale’s and Bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company has stores in
45
states, the District of Columbia, Guam and Puerto Rico. As of
January 28, 2017
, the Company’s operations and reportable segments were conducted through Macy’s, Bloomingdale’s, Bloomingdale’s The Outlet, Macy's Backstage, Bluemercury and Macy's China Limited, which are aggregated into one reporting segment in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting.” The metrics used by management to assess the performance of the Company’s operating divisions include sales trends, gross margin rates, expense rates, and rates of earnings before interest and taxes (“EBIT”) and earnings before interest, taxes, depreciation and amortization (“EBITDA”). The Company’s operating divisions have historically had similar economic characteristics and are expected to have similar economic characteristics and long-term financial performance in future periods.
For
2016
,
2015
and
2014
, the following merchandise constituted the following percentages of sales:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Women’s Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances
|
38
|
%
|
|
38
|
%
|
|
38
|
%
|
Women’s Apparel
|
23
|
|
|
23
|
|
|
23
|
|
Men’s and Children’s
|
23
|
|
|
23
|
|
|
23
|
|
Home/Miscellaneous
|
16
|
|
|
16
|
|
|
16
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years
2016
,
2015
and
2014
ended on
January 28, 2017
,
January 30, 2016
and
January 31, 2015
, respectively, and each included 52 weeks. References to years in the Consolidated Financial Statements relate to fiscal years rather than calendar years.
Basis of Presentation
In August 2015, the Company established a joint venture, Macy's China Limited, of which the Company holds a sixty-five percent ownership interest and Hong Kong-based Fung Retailing Limited holds the remaining thirty-five percent ownership interest. Macy's China Limited sells merchandise in China through an e-commerce presence on Alibaba Group's Tmall Global. The Consolidated Financial Statements include the accounts of Macy's, Inc. and its 100%-owned subsidiaries and the newly established majority-owned subsidiary, Macy's China Limited. The noncontrolling interest represents the Fung Retailing Limited's thirty-five percent proportionate share of the results of Macy's China Limited. All significant intercompany transactions have been eliminated.
Certain reclassifications were made to prior years’ amounts to conform to the classifications of such amounts for the most recent year.
Use of Estimates
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net Sales
Net sales include merchandise sales, licensed department income, shipping and handling fees, 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 delivery to the customer and are reported net of merchandise returns. The Company licenses third parties to operate certain departments in its stores. The Company receives commissions from these licensed departments based on a percentage of net sales. Commissions are recognized as income at the time merchandise is sold to customers. Sales taxes collected from customers are not considered revenue and are included in accounts payable and accrued liabilities until remitted to the taxing authorities.
Cost of Sales
Cost of sales consists of the cost of merchandise, including inbound freight, and shipping and handling costs. An estimated allowance for future sales returns is recorded and cost of sales is adjusted accordingly.
Cash and Cash Equivalents
Cash and cash equivalents include cash and liquid investments with original maturities of three months or less. Cash and cash equivalents includes amounts due in respect of credit card sales transactions that are settled early in the following period in the amount of
$119 million
at
January 28, 2017
and
$128 million
at
January 30, 2016
.
Investments
The Company from time to time invests in debt and equity securities, including companies engaged in complementary businesses. All marketable equity and debt securities held by the Company are accounted for under ASC Topic 320, “Investments – Debt and Equity Securities.” Unrealized holding gains and losses on trading securities are recognized in the Consolidated Statements of Income and unrealized holding gains and losses on available-for-sale securities are included as a separate component of accumulated other comprehensive income, net of income tax effect, until realized. At
January 28, 2017
, the Company did not hold any held-to-maturity or available-for-sale securities.
Receivables
In connection with the sale of most of the Company’s credit assets to Citibank, the Company and Citibank entered into a long-term marketing and servicing alliance pursuant to the terms of a Credit Card Program Agreement (the “Program Agreement”). Income earned under the Program Agreement is treated as a reduction of selling, general and administrative ("SG&A") expenses on the Consolidated Statements of Income. Under the Program Agreement, Citibank offers proprietary and non-proprietary credit cards to the Company’s customers through previously existing and newly opened accounts.
Loyalty Programs
The Company maintains customer loyalty programs in which customers earn points based on their spending. Under the Macy’s brand, the Company participates in a coalition program (Plenti) whereby customers can earn points based on spending levels with bonus opportunities through various targeted offers and promotions at Macy's and other partners. Coalition partners currently include - American Express, AT&T, Direct Energy, Exxon Mobil, Hulu, Nationwide, and Rite Aid. Under the Bloomingdale’s brand, the Company offers a tender neutral points-based program. Benefits also include free delivery and gift wrap services. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Merchandise Inventories
Merchandise inventories are valued at lower of cost or market using the last-in, first-out (LIFO) retail inventory method. Under the retail inventory method, inventory is segregated into departments of merchandise having similar characteristics, and is stated at its current retail selling value. Inventory retail values are converted to a cost basis by applying specific average cost factors for each merchandise department. Cost factors represent the average cost-to-retail ratio for each merchandise department based on beginning inventory and the annual purchase activity. At
January 28, 2017
and
January 30, 2016
, merchandise inventories valued at LIFO, including adjustments as necessary to record inventory at the lower of cost or market, approximated the cost of such inventories using the first-in, first-out (FIFO) retail inventory method. The application of the LIFO retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales for
2016
,
2015
or
2014
. The retail inventory method inherently requires management judgments and estimates, such as the amount and timing of permanent markdowns to clear unproductive or slow-moving inventory, which may impact the ending inventory valuation as well as gross margins.
Permanent markdowns designated for clearance activity are recorded when the utility of the inventory has diminished. Factors considered in the determination of permanent markdowns include current and anticipated demand, customer preferences, age of the merchandise and fashion trends. When a decision is made to permanently markdown merchandise, the resulting gross margin reduction is recognized in the period the markdown is recorded.
Physical inventories are generally taken within each merchandise department annually, and inventory records are adjusted accordingly, resulting in the recording of actual shrinkage. Physical inventories are taken at all store locations for substantially all merchandise categories approximately three weeks before the end of the year. Shrinkage is estimated as a percentage of sales at interim periods and for this approximate three-week period, based on historical shrinkage rates. While it is not possible to quantify the impact from each cause of shrinkage, the Company has loss prevention programs and policies that are intended to minimize shrinkage, including the use of radio frequency identification cycle counts and interim inventories to keep the Company's merchandise files accurate.
Vendor Allowances
The Company receives certain allowances as reimbursement for markdowns taken and/or to support the gross margins earned in connection with the sales of merchandise. These allowances are recognized when earned in accordance with ASC Subtopic 605-50, “Customer Payments and Incentives.” The Company also receives advertising allowances from approximately
1,000
of its merchandise vendors pursuant to cooperative advertising programs, with some vendors participating in multiple programs. These allowances represent reimbursements by vendors of costs incurred by the Company to promote the vendors’ merchandise and are netted against advertising and promotional costs when the related costs are incurred in accordance with ASC Subtopic 605-50. Advertising allowances in excess of costs incurred are recorded as a reduction of merchandise costs and, ultimately, through cost of sales when the merchandise is sold.
The arrangements pursuant to which the Company’s vendors provide allowances, while binding, are generally informal in nature and
one
year or less in duration. The terms and conditions of these arrangements vary significantly from vendor to vendor and are influenced by, among other things, the type of merchandise to be supported.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Advertising
Department store non-direct response advertising and promotional costs are expensed either as incurred or the first time the advertising occurs. Direct response advertising and promotional costs are deferred and expensed over the period during which the sales are expected to occur, generally
one
to
four
months. Advertising and promotional costs and cooperative advertising allowances were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Gross advertising and promotional costs
|
$
|
1,547
|
|
|
$
|
1,587
|
|
|
$
|
1,602
|
|
Cooperative advertising allowances
|
394
|
|
|
414
|
|
|
425
|
|
Advertising and promotional costs, net of
cooperative advertising allowances
|
$
|
1,153
|
|
|
$
|
1,173
|
|
|
$
|
1,177
|
|
Net sales
|
$
|
25,778
|
|
|
$
|
27,079
|
|
|
$
|
28,105
|
|
Advertising and promotional costs, net of cooperative
advertising allowances, as a percent to net sales
|
4.5
|
%
|
|
4.3
|
%
|
|
4.2
|
%
|
Property and Equipment
Depreciation of owned properties is provided primarily on a straight-line basis over the estimated asset lives, which range from
fifteen
to
fifty
years for buildings and building equipment and
three
to
fifteen
years for fixtures and equipment. Real estate taxes and interest on construction in progress and land under development are capitalized. Amounts capitalized are amortized over the estimated lives of the related depreciable assets. The Company receives contributions from developers and merchandise vendors to fund building improvement and the construction of vendor shops. Such contributions are generally netted against the capital expenditures.
Buildings on leased land and leasehold improvements are amortized over the shorter of their economic lives or the lease term, beginning on the date the asset is put into use.
The carrying value of long-lived assets is periodically reviewed by the Company whenever events or changes in circumstances indicate that a potential impairment has occurred. For long-lived assets held for use, a potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from the use of those assets in operations. When a potential impairment has occurred, an impairment write-down is recorded if the carrying value of the long-lived asset exceeds its fair value. The Company believes its estimated cash flows are sufficient to support the carrying value of its long-lived assets. If estimated cash flows significantly differ in the future, the Company may be required to record asset impairment write-downs.
If the Company commits to a plan to dispose of a long-lived asset before the end of its previously estimated useful life, estimated cash flows are revised accordingly, and the Company may be required to record an asset impairment write-down. Additionally, related liabilities arise such as severance, contractual obligations and other accruals associated with store closings from decisions to dispose of assets. The Company estimates these liabilities based on the facts and circumstances in existence for each restructuring decision. The amounts the Company will ultimately realize or disburse could differ from the amounts assumed in arriving at the asset impairment and restructuring charge recorded.
The Company classifies certain long-lived assets as held for disposal by sale and ceases depreciation when the particular criteria for such classification are met, including the probable sale within one year. For long-lived assets to be disposed of by sale, an impairment charge is recorded if the carrying amount of the asset exceeds its fair value less costs to sell. Such valuations include estimations of fair values and incremental direct costs to transact a sale.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Leases
The Company recognizes operating lease minimum rentals on a straight-line basis over the lease term. Executory costs such as real estate taxes and maintenance, and contingent rentals such as those based on a percentage of sales are recognized as incurred.
The lease term, which includes all renewal periods that are considered to be reasonably assured, begins on the date the Company has access to the leased property. The Company receives contributions from landlords to fund buildings and leasehold improvements. Such contributions are recorded as deferred rent and amortized as reductions to lease expense over the lease term.
Goodwill and Other Intangible Assets
The carrying value of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment in accordance with ASC Subtopic 350-20 “Goodwill.” Goodwill and other intangible assets with indefinite lives have been assigned to reporting units for purposes of impairment testing. The reporting units are the Company’s retail operating divisions. Goodwill and other intangible assets with indefinite lives are tested for impairment annually at the end of the fiscal month of May. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform the two-step goodwill impairment process. If required, the first step involves a comparison of each reporting unit’s fair value to its carrying value and the Company estimates fair value based on discounted cash flows. The reporting unit’s discounted cash flows require significant management judgment with respect to sales, gross margin and SG&A rates, capital expenditures and the selection and use of an appropriate discount rate. The projected sales, gross margin and SG&A expense rate assumptions and capital expenditures are based on the Company’s annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows directly resulting from the use of those assets in operations. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment. If the carrying value of a reporting unit exceeds its estimated fair value in the first step, a second step is performed, in which the reporting unit’s goodwill is written down to its implied fair value. The second step requires the Company to allocate the fair value of the reporting unit derived in the first step to the fair value of the reporting unit’s net assets, with any fair value in excess of amounts allocated to such net assets representing the implied fair value of goodwill for that reporting unit. If the carrying value of an individual indefinite-lived intangible asset exceeds its fair value, such individual indefinite-lived intangible asset is written down by an amount equal to such excess.
Capitalized Software
The Company capitalizes purchased and internally developed software and amortizes such costs to expense on a straight-line basis over
two
to
five
years. Capitalized software is included in other assets on the Consolidated Balance Sheets.
Gift Cards
The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold, 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 income from unredeemed gift cards (breakage) as a reduction of SG&A expenses, and income is recorded in proportion and 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.
Self-Insurance Reserves
The Company, through its insurance subsidiary, is self-insured for workers compensation and general liability claims up to certain maximum liability amounts. Although the amounts accrued are actuarially determined based on analysis of historical trends of losses, settlements, litigation costs and other factors, the amounts the Company will ultimately disburse could differ from such accrued amounts.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Post Employment and Postretirement Obligations
The Company, through its actuaries, utilizes assumptions when estimating the liabilities for pension and other employee benefit plans. These assumptions, where applicable, include the discount rates used to determine the actuarial present value of projected benefit obligations, the rate of increase in future compensation levels, the long-term rate of return on assets and the growth in health care costs. The Company measures post employment and postretirement assets and obligations using the month-end that is closest to the Company's fiscal year-end. The benefit expense is generally recognized in the Consolidated Financial Statements on an accrual basis over the average remaining lifetime of participants, and the accrued benefits are reported in accounts payable and accrued liabilities and other liabilities on the Consolidated Balance Sheets, as appropriate.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and net operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Income in the period that includes the enactment date. Deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized.
Derivatives
The Company records derivative transactions according to the provisions of ASC Topic 815 “Derivatives and Hedging,” which establishes accounting and reporting standards for derivative instruments and hedging activities and requires recognition of all derivatives as either assets or liabilities and measurement of those instruments at fair value. The Company makes limited use of derivative financial instruments. The Company does not use financial instruments for trading or other speculative purposes and is not a party to any leveraged financial instruments. On the date that the Company enters into a derivative contract, the Company designates the derivative instrument as either a fair value hedge, a cash flow hedge or as a free-standing derivative instrument, each of which would receive different accounting treatment. Prior to entering into a hedge transaction, the Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. Derivative instruments that the Company may use as part of its interest rate risk management strategy include interest rate swap and interest rate cap agreements and Treasury lock agreements. At
January 28, 2017
, the Company was not a party to any derivative financial instruments.
Stock Based Compensation
The Company records stock-based compensation expense according to the provisions of ASC Topic 718, “Compensation – Stock Compensation.” ASC Topic 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. Under the provisions of ASC Topic 718, the Company determines the appropriate fair value model to be used for valuing share-based payments and the amortization method for compensation cost.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
2.
|
Impairments, Store Closing and Other Costs
|
Impairments, store closing and other costs consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Asset Impairments
|
$
|
265
|
|
|
$
|
148
|
|
|
$
|
33
|
|
Severance
|
168
|
|
|
123
|
|
|
46
|
|
Other
|
46
|
|
|
17
|
|
|
8
|
|
|
$
|
479
|
|
|
$
|
288
|
|
|
$
|
87
|
|
During January 2017, the Company announced a series of actions to streamline its store portfolio, intensify cost efficiency efforts and execute its real estate strategy. These actions are intended to support the Company's strategy to further invest in omnichannel capabilities, improve customer experience and create shareholder value. These actions include the announced closure of
sixty-eight
Macy's stores and the reorganization of the field structure that supports the remaining stores and a significant restructuring of the Company's operations to focus resources on strategic priorities, improve organizational agility and reduce expense.
During January 2016, the Company announced a series of cost-efficiency and process improvement measures, including organization changes that combine certain region and district organizations of the My Macy's store management structure, adjusting staffing levels in each Macy's and Bloomingdale's store, implementing a voluntary separation opportunity for certain senior executives in stores, office and support functions who meet certain age and service requirements, reducing additional positions in back-office organizations, consolidating the four existing Macy's, Inc. credit and customer service center facilities into three, and decreasing non-payroll budgets company-wide.
During January 2015, the Company announced a series of initiatives to evolve its business model and invest in continued growth opportunities, including a restructuring of merchandising and marketing functions at Macy's and Bloomingdale's consistent with the Company's omnichannel approach to retailing, as well as a series of adjustments to its field and store operations to increase productivity and efficiency.
During January 2017, the Company announced the closure of
sixty-eight
Macy's stores, part of the approximately
100
planned closings announced in August 2016; during January 2016, the Company announced the closure of
forty
Macy's stores; and during January 2015, the Company announced the closure of
fourteen
Macy’s stores.
In connection with these announcements and the plans to dispose of these locations, the Company incurred severance and other human resource-related costs and other costs related to obligations and other store liabilities.
As a result of the Company’s projected undiscounted future cash flows related to certain store locations and other assets being less than their carrying value, the Company recorded impairment charges, including properties that were the subject of announced store closings. The fair values of these assets were calculated based on the projected cash flows and an estimated risk-adjusted rate of return that would be used by market participants in valuing these assets or based on prices of similar assets.
The Company expects to pay out the majority of the 2016 accrued severance costs, which are included in accounts payable and accrued liabilities on the Consolidated Balance Sheets, prior to July 29, 2017. The 2015 and 2014 accrued severance costs, which were included in accounts payable and accrued liabilities on the Consolidated Balance Sheets, were paid out in the year subsequent to incurring such severance costs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Receivables were
$522 million
at
January 28, 2017
, compared to
$558 million
at
January 30, 2016
.
In January 2016, the Company completed a
$270 million
real estate transaction that will enable a re-creation of Macy’s Brooklyn store. The Company will continue to own and operate the first four floors and lower level of its existing nine-story retail store, which will be reconfigured and remodeled. The remaining portion of the store and its nearby parking facility were sold to Tishman Speyer in a single sales transaction. The Company has received approximately
$209 million
of cash (
$68 million
in 2015 and
$141 million
in 2016) from Tishman Speyer for these real estate assets and will receive
$61 million
of additional cash over the next two years,. This receivable is backed by a guarantee.
In connection with the sale of most of the Company's credit card accounts and related receivable balances to Citibank, the Company and Citibank entered into a long-term marketing and servicing alliance pursuant to the terms of a Credit Card Program Agreement with an initial term of
10
years which was to expire on July 17, 2016. During 2014, the Company entered into an amended and restated Credit Card Program Agreement (the “Program Agreement”) with substantially similar financial terms as the prior credit card program agreement. The Program Agreement is now set to expire March 31, 2025, subject to an additional renewal term of
three
years. The Program Agreement provides for, among other things, (i) the ownership by Citibank of the accounts purchased by Citibank, (ii) the ownership by Citibank of new accounts opened by the Company’s customers, (iii) the provision of credit by Citibank to the holders of the credit cards associated with the foregoing accounts, (iv) the servicing of the foregoing accounts, and (v) the allocation between Citibank and the Company of the economic benefits and burdens associated with the foregoing and other aspects of the alliance.
Pursuant to the Program Agreement, the Company continues to provide certain servicing functions related to the accounts and related receivables owned by Citibank and receives compensation from Citibank for these services. The amounts earned under the Program Agreement related to the servicing functions are deemed adequate compensation and, accordingly, no servicing asset or liability has been recorded on the Consolidated Balance Sheets.
Amounts received under the Program Agreement were
$912 million
for
2016
,
$1,026 million
for
2015
and
$975 million
for
2014
, and are treated as reductions of SG&A expenses on the Consolidated Statements of Income. The Company’s earnings from credit operations, net of servicing expenses, were
$736 million
for
2016
,
$831 million
for
2015
, and
$776 million
for
2014
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
January 28,
2017
|
|
January 30,
2016
|
|
(millions)
|
Land
|
$
|
1,541
|
|
|
$
|
1,629
|
|
Buildings on owned land
|
4,212
|
|
|
4,690
|
|
Buildings on leased land and leasehold improvements
|
1,545
|
|
|
1,672
|
|
Fixtures and equipment
|
4,541
|
|
|
4,910
|
|
Leased properties under capitalized leases
|
34
|
|
|
34
|
|
|
11,873
|
|
|
12,935
|
|
Less accumulated depreciation and amortization
|
4,856
|
|
|
5,319
|
|
|
$
|
7,017
|
|
|
$
|
7,616
|
|
In connection with various shopping center agreements, the Company is obligated to operate certain stores within the centers for periods of up to
twenty
years. Some of these agreements require that the stores be operated under a particular name.
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 and other executory 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 significant numbers of years and provide for rental rates that increase or decrease over time. In addition, certain of these 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.
Minimum rental commitments (excluding executory costs) at
January 28, 2017
, for noncancellable leases are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
Leases
|
|
Operating
Leases
|
|
Total
|
|
(millions)
|
Fiscal year
|
|
|
|
|
|
2017
|
$
|
3
|
|
|
$
|
321
|
|
|
$
|
324
|
|
2018
|
3
|
|
|
304
|
|
|
307
|
|
2019
|
3
|
|
|
283
|
|
|
286
|
|
2020
|
3
|
|
|
249
|
|
|
252
|
|
2021
|
3
|
|
|
237
|
|
|
240
|
|
After 2021
|
37
|
|
|
2,289
|
|
|
2,326
|
|
Total minimum lease payments
|
52
|
|
|
$
|
3,683
|
|
|
$
|
3,735
|
|
Less amount representing interest
|
24
|
|
|
|
|
|
Present value of net minimum capitalized lease payments
|
$
|
28
|
|
|
|
|
|
Capitalized leases are included in the Consolidated Balance Sheets as property and equipment while the related obligation is included in short-term (
$1 million
) and long-term (
$27 million
) debt. Amortization of assets subject to capitalized leases is included in depreciation and amortization expense. Total minimum lease payments shown above have not been reduced by minimum sublease rentals of
$17 million
on operating leases.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company is a guarantor with respect to certain lease obligations associated with The May Department Stores Company and previously disposed subsidiaries or businesses. The leases, one of which includes potential extensions to
2070
, have future minimum lease payments aggregating
$284 million
and are offset by payments from existing tenants and subtenants. In addition, the Company is liable for other expenses related to the above leases, such as property taxes and common area maintenance, which are also payable by existing tenants and subtenants. Potential liabilities related to these guarantees are subject to certain defenses by the Company. The Company believes that the risk of significant loss from the guarantees of these lease obligations is remote.
Rental expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Real estate (excluding executory costs)
|
|
|
|
|
|
Capitalized leases –
|
|
|
|
|
|
Contingent rentals
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating leases –
|
|
|
|
|
|
Minimum rentals
|
312
|
|
|
288
|
|
|
265
|
|
Contingent rentals
|
12
|
|
|
19
|
|
|
22
|
|
|
324
|
|
|
307
|
|
|
287
|
|
Less income from subleases –
|
|
|
|
|
|
Operating leases
|
(5
|
)
|
|
(6
|
)
|
|
(8
|
)
|
|
$
|
319
|
|
|
$
|
301
|
|
|
$
|
279
|
|
Personal property – Operating leases
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
12
|
|
Included as a reduction to the expense above is deferred rent amortization of
$9 million
,
$8 million
and
$7 million
for
2016
,
2015
and
2014
, respectively, related to contributions received from landlords.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
5.
|
Goodwill and Other Intangible Assets
|
The following summarizes the Company’s goodwill and other intangible assets:
|
|
|
|
|
|
|
|
|
|
January 28,
2017
|
|
January 30,
2016
|
|
(millions)
|
Non-amortizing intangible assets
|
|
|
|
Goodwill
|
$
|
9,279
|
|
|
$
|
9,279
|
|
Accumulated impairment losses
|
(5,382
|
)
|
|
(5,382
|
)
|
|
3,897
|
|
|
3,897
|
|
Tradenames
|
403
|
|
|
414
|
|
|
$
|
4,300
|
|
|
$
|
4,311
|
|
Amortizing intangible assets
|
|
|
|
Favorable leases and other contractual assets
|
$
|
141
|
|
|
$
|
149
|
|
Tradenames
|
43
|
|
|
43
|
|
|
184
|
|
|
192
|
|
Accumulated amortization
|
|
|
|
Favorable leases and other contractual assets
|
(85
|
)
|
|
(90
|
)
|
Tradenames
|
(4
|
)
|
|
(2
|
)
|
|
(89
|
)
|
|
(92
|
)
|
|
$
|
95
|
|
|
$
|
100
|
|
In March 2015, the Company completed its acquisition of Bluemercury, Inc., a luxury beauty products and spa retailer. Goodwill during 2015 increased as a result of this acquisition. Also as a result of the acquisition of Bluemercury, the Company established intangible assets relating to definite lived tradenames and favorable leases.
Definite lived tradenames are being amortized over their respective useful lives of
20
years. Favorable lease intangible assets are being amortized over their respective lease terms (weighted average remaining life of approximately
six
years). Customer relationship intangible assets relating to the acquisition of The May Department Stores Company were being amortized in
2015
and
2014
and were fully amortized as of January 30, 2016.
Intangible amortization expense amounted to
$10 million
for
2016
,
$23 million
for
2015
and
$31 million
for
2014
.
Future estimated intangible amortization expense is shown below:
|
|
|
|
|
|
(millions)
|
Fiscal year
|
|
2017
|
$
|
10
|
|
2018
|
10
|
|
2019
|
9
|
|
2020
|
8
|
|
2021
|
6
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s debt is as follows:
|
|
|
|
|
|
|
|
|
|
January 28,
2017
|
|
January 30,
2016
|
|
(millions)
|
Short-term debt:
|
|
|
|
7.45% Senior debentures due 2017
|
$
|
300
|
|
|
$
|
—
|
|
5.9% Senior notes due 2016
|
—
|
|
|
577
|
|
7.45% Senior debentures due 2016
|
—
|
|
|
59
|
|
Capital lease and current portion of other long-term obligations
|
9
|
|
|
6
|
|
|
$
|
309
|
|
|
$
|
642
|
|
Long-term debt:
|
|
|
|
2.875% Senior notes due 2023
|
$
|
750
|
|
|
$
|
750
|
|
3.875% Senior notes due 2022
|
550
|
|
|
550
|
|
4.5% Senior notes due 2034
|
550
|
|
|
550
|
|
3.45% Senior notes due 2021
|
500
|
|
|
500
|
|
3.625% Senior notes due 2024
|
500
|
|
|
500
|
|
6.375% Senior notes due 2037
|
500
|
|
|
500
|
|
4.375% Senior notes due 2023
|
400
|
|
|
400
|
|
6.9% Senior debentures due 2029
|
400
|
|
|
400
|
|
6.7% Senior debentures due 2034
|
400
|
|
|
400
|
|
7.45% Senior debentures due 2017
|
—
|
|
|
300
|
|
6.65% Senior debentures due 2024
|
300
|
|
|
300
|
|
7.0% Senior debentures due 2028
|
300
|
|
|
300
|
|
6.9% Senior debentures due 2032
|
250
|
|
|
250
|
|
5.125% Senior debentures due 2042
|
250
|
|
|
250
|
|
4.3% Senior notes due 2043
|
250
|
|
|
250
|
|
6.7% Senior debentures due 2028
|
200
|
|
|
200
|
|
6.79% Senior debentures due 2027
|
165
|
|
|
165
|
|
7.875% Senior debentures due 2036
|
—
|
|
|
108
|
|
8.75% Senior debentures due 2029
|
61
|
|
|
61
|
|
8.5% Senior debentures due 2019
|
36
|
|
|
36
|
|
10.25% Senior debentures due 2021
|
33
|
|
|
33
|
|
7.6% Senior debentures due 2025
|
24
|
|
|
24
|
|
7.875% Senior debentures due 2030
|
18
|
|
|
18
|
|
9.5% amortizing debentures due 2021
|
14
|
|
|
17
|
|
9.75% amortizing debentures due 2021
|
8
|
|
|
9
|
|
Unamortized debt issue costs
|
(29
|
)
|
|
(32
|
)
|
Unamortized debt discount
|
(16
|
)
|
|
(16
|
)
|
Premium on acquired debt, using an effective
interest yield of 5.542% to 6.021%
|
121
|
|
|
143
|
|
Capital lease and other long-term obligations
|
27
|
|
|
29
|
|
|
$
|
6,562
|
|
|
$
|
6,995
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest expense and premium on early retirement of debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Interest on debt
|
$
|
392
|
|
|
$
|
393
|
|
|
$
|
411
|
|
Amortization of debt premium
|
(22
|
)
|
|
(21
|
)
|
|
(12
|
)
|
Amortization of financing costs and debt discount
|
5
|
|
|
6
|
|
|
7
|
|
Interest on capitalized leases
|
2
|
|
|
2
|
|
|
2
|
|
|
377
|
|
|
380
|
|
|
408
|
|
Less interest capitalized on construction
|
10
|
|
|
17
|
|
|
13
|
|
Interest expense
|
$
|
367
|
|
|
$
|
363
|
|
|
$
|
395
|
|
Premium on early retirement of debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
On August 15, 2016, the Company redeemed at par the principal amount of
$108 million
of
7.875%
senior debentures due 2036, pursuant to the terms of the debentures. Interest expense in 2016 benefited from the recognition of unamortized debt premium associated with this debt.
On August 17, 2015, the Company redeemed at par the principal amount of
$76 million
of
8.125%
senior debentures due 2035, pursuant to the terms of the debentures. Interest expense in 2015 benefited from the recognition of unamortized debt premium associated with this debt.
On
November 14, 2014
, the Company provided a notice of redemption related to all of the
$407 million
of
7.875%
senior notes due 2015, as allowed under the terms of the indenture. The price for the redemption was calculated pursuant to the indenture and resulted in the recognition of additional interest expense of
$17 million
during 2014. This additional interest expense is presented as premium on early retirement of debt on the Consolidated Statements of Income.
Future maturities of long-term debt, other than capitalized leases, are shown below:
|
|
|
|
|
|
(millions)
|
Fiscal year
|
|
2018
|
$
|
6
|
|
2019
|
42
|
|
2020
|
539
|
|
2021
|
553
|
|
2022
|
—
|
|
After 2022
|
5,319
|
|
During
2016
,
2015
and
2014
, the Company repaid
$636 million
,
$69 million
and
$453 million
, respectively, of indebtedness at maturity.
On
December 7, 2015
, the Company issued
$500 million
aggregate principal amount of
3.45%
senior notes due
2021
, the proceeds of which were used for general corporate purposes.
On
November 18, 2014
, the Company issued
$550 million
aggregate principal amount of
4.5%
senior notes due
2034
. This debt was used to pay for the redemption of the
$407 million
of
7.875%
senior notes due 2015 described above.
On
May 23, 2014
, the Company issued
$500 million
aggregate principal amount of
3.625%
senior unsecured notes due
2024
, the proceeds of which were used for general corporate purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table shows the detail of debt repayments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
5.9% Senior notes due 2016
|
$
|
577
|
|
|
$
|
—
|
|
|
$
|
—
|
|
7.875% Senior notes due 2036
|
108
|
|
|
—
|
|
|
—
|
|
7.45% Senior debentures due 2016
|
59
|
|
|
—
|
|
|
—
|
|
7.5% Senior debentures due 2015
|
—
|
|
|
69
|
|
|
—
|
|
8.125% Senior debentures due 2035
|
—
|
|
|
76
|
|
|
—
|
|
5.75% Senior notes due 2014
|
—
|
|
|
—
|
|
|
453
|
|
7.875% Senior debentures due 2015
|
—
|
|
|
—
|
|
|
407
|
|
9.5% amortizing debentures due 2021
|
4
|
|
|
4
|
|
|
4
|
|
9.75% amortizing debentures due 2021
|
2
|
|
|
3
|
|
|
2
|
|
Capital leases and other obligations
|
1
|
|
|
—
|
|
|
4
|
|
|
$
|
751
|
|
|
$
|
152
|
|
|
$
|
870
|
|
The following summarizes certain components of the Company’s debt:
Bank Credit Agreement
The Company entered into a new credit agreement with certain financial institutions on May 6, 2016 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 and replaced the prior agreement which was set to expire May 10, 2018.
As of
January 28, 2017
, and
January 30, 2016
, there were
no
revolving credit loans outstanding under this credit agreement, and there were no borrowings under the agreement throughout all of
2016
and
2015
. In addition, there were
no
standby letters of credit outstanding at
January 28, 2017
and there were less than
$1 million
of standby letters of credit outstanding at
January 30, 2016
. Revolving loans under the credit agreement bear interest based on various published rates.
The Company's credit agreement, which is an obligation of a 100%-owned subsidiary of Macy’s, Inc. (“Parent”), is not secured. However, Parent has fully and unconditionally guaranteed this obligation, subject to specified limitations. The Company’s interest coverage ratio for
2016
was
7.36
and its leverage ratio at
January 28, 2017
was
2.38
, in each case as calculated in accordance with the credit agreement. The credit agreement requires the Company to maintain a specified interest coverage ratio for the latest four quarters of no less than
3.25
and a specified leverage ratio as of and for the latest four quarters of no more than
3.75
. The interest coverage ratio is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) divided by net interest expense and the leverage ratio is defined as debt divided by EBITDA. For purposes of these calculations EBITDA is calculated as net income plus interest expense, taxes, depreciation, amortization, non-cash impairment of goodwill, intangibles and real estate, non-recurring cash charges not to exceed in the aggregate
$300 million
and extraordinary losses less interest income and non-recurring or extraordinary gains. Debt is adjusted to exclude the premium on acquired debt and net interest is adjusted to exclude the amortization of premium on acquired debt and premium on early retirement of debt.
A breach of a restrictive covenant in the Company’s credit agreement or the inability of the Company to maintain the financial ratios described above could result in an event of default under the credit agreement. In addition, an event of default would occur under the credit agreement if any indebtedness of the Company in excess of an aggregate principal amount of
$150 million
becomes due prior to its stated maturity or the holders of such indebtedness become able to cause it to become due prior to its stated maturity. Upon the occurrence of an event of default, the lenders could, subject to the terms and conditions of the credit agreement, elect to declare the outstanding principal, together with accrued interest, to be immediately due and payable. Moreover, most of the Company’s senior notes and debentures contain cross-default provisions based on the non-payment at maturity, or other default after an applicable grace period, of any other debt, the unpaid principal amount of which is not less than
$100 million
that could be triggered by an event of default under the credit agreement. In such an event, the Company’s senior notes and debentures that contain cross-default provisions would also be subject to acceleration.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Commercial Paper
The Company is a 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 the bank credit agreement described above. The issuance of commercial paper will have the effect, while such commercial paper is outstanding, of reducing the Company’s borrowing capacity under the bank credit agreement by an amount equal to the principal amount of such commercial paper. During 2016 and 2015, the Company utilized seasonal borrowings available under this commercial paper program. The amount of borrowings under the commercial paper program increased to its highest level for 2016 of approximately
$388 million
during the fourth quarter. As of January 28, 2017, there were no remaining borrowings outstanding under the commercial paper program.
This program, which is an obligation of a 100%-owned subsidiary of Macy’s, Inc., is not secured. However, Parent has fully and unconditionally guaranteed the obligations.
Senior Notes and Debentures
The senior notes and the senior debentures are unsecured obligations of a 100%-owned subsidiary of Macy’s, Inc. and Parent has fully and unconditionally guaranteed these obligations (see Note 16, “Condensed Consolidating Financial Information”).
Other Financing Arrangements
At
January 28, 2017
and
January 30, 2016
, the Company had dedicated
$37 million
of cash, included in prepaid expenses and other current assets, which is used to collateralize the Company’s issuances of standby letters of credit. There were
$30 million
and
$21 million
of other standby letters of credit outstanding at
January 28, 2017
and
January 30, 2016
, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
7.
|
Accounts Payable and Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
January 28,
2017
|
|
January 30,
2016
|
|
(millions)
|
Accounts payable
|
$
|
754
|
|
|
$
|
814
|
|
Gift cards and customer rewards
|
970
|
|
|
920
|
|
Deferred real estate gains
|
340
|
|
|
104
|
|
Current portion of post employment and postretirement benefits
|
208
|
|
|
257
|
|
Taxes other than income taxes
|
166
|
|
|
184
|
|
Lease related liabilities
|
174
|
|
|
165
|
|
Accrued wages and vacation
|
215
|
|
|
153
|
|
Current portion of workers’ compensation and general liability reserves
|
119
|
|
|
127
|
|
Severance and relocation
|
166
|
|
|
123
|
|
Allowance for future sales returns
|
96
|
|
|
112
|
|
Accrued interest
|
74
|
|
|
88
|
|
Other
|
281
|
|
|
286
|
|
|
$
|
3,563
|
|
|
$
|
3,333
|
|
Adjustments to the allowance for future sales returns, which amounted to a credit of
$16 million
, and charges of
$19 million
and
$8 million
for
2016
,
2015
and
2014
, respectively, are reflected in cost of sales.
Changes in workers’ compensation and general liability reserves, including the current portion, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Balance, beginning of year
|
$
|
508
|
|
|
$
|
505
|
|
|
$
|
497
|
|
Charged to costs and expenses
|
145
|
|
|
159
|
|
|
160
|
|
Payments, net of recoveries
|
(150
|
)
|
|
(156
|
)
|
|
(152
|
)
|
Balance, end of year
|
$
|
503
|
|
|
$
|
508
|
|
|
$
|
505
|
|
The non-current portion of workers’ compensation and general liability reserves is included in other liabilities on the Consolidated Balance Sheets. At
January 28, 2017
and
January 30, 2016
, workers’ compensation and general liability reserves included
$112 million
of liabilities which are covered by deposits and receivables included in current assets on the Consolidated Balance Sheets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Current
|
|
Deferred
|
|
Total
|
|
Current
|
|
Deferred
|
|
Total
|
|
Current
|
|
Deferred
|
|
Total
|
|
(millions)
|
Federal
|
$
|
433
|
|
|
$
|
(125
|
)
|
|
$
|
308
|
|
|
$
|
536
|
|
|
$
|
—
|
|
|
$
|
536
|
|
|
$
|
743
|
|
|
$
|
28
|
|
|
$
|
771
|
|
State and local
|
37
|
|
|
(4
|
)
|
|
33
|
|
|
72
|
|
|
—
|
|
|
72
|
|
|
92
|
|
|
1
|
|
|
93
|
|
|
$
|
470
|
|
|
$
|
(129
|
)
|
|
$
|
341
|
|
|
$
|
608
|
|
|
$
|
—
|
|
|
$
|
608
|
|
|
$
|
835
|
|
|
$
|
29
|
|
|
$
|
864
|
|
The income tax expense reported differs from the expected tax computed by applying the federal income tax statutory rate of
35%
for
2016
,
2015
and
2014
to income before income taxes. The reasons for this difference and their tax effects are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Expected tax
|
$
|
333
|
|
|
$
|
587
|
|
|
$
|
836
|
|
State and local income taxes, net of federal income tax benefit
|
12
|
|
|
43
|
|
|
59
|
|
Historic rehabilitation tax credit
|
(1
|
)
|
|
(12
|
)
|
|
(20
|
)
|
Change in valuation allowance
|
9
|
|
|
3
|
|
|
1
|
|
Other
|
(12
|
)
|
|
(13
|
)
|
|
(12
|
)
|
|
$
|
341
|
|
|
$
|
608
|
|
|
$
|
864
|
|
The Company participates in the Internal Revenue Service (“IRS”) Compliance Assurance Program ("CAP"). As part of the CAP, tax years are audited on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. The IRS has completed examinations of 2015 and all prior tax years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
January 28,
2017
|
|
January 30,
2016
|
|
(millions)
|
Deferred tax assets
|
|
|
|
Post employment and postretirement benefits
|
$
|
405
|
|
|
$
|
536
|
|
Accrued liabilities accounted for on a cash basis for tax purposes
|
379
|
|
|
340
|
|
Long-term debt
|
63
|
|
|
73
|
|
Unrecognized state tax benefits and accrued interest
|
76
|
|
|
79
|
|
State operating loss and credit carryforwards
|
79
|
|
|
82
|
|
Other
|
347
|
|
|
206
|
|
Valuation allowance
|
(36
|
)
|
|
(27
|
)
|
Total deferred tax assets
|
1,313
|
|
|
1,289
|
|
Deferred tax liabilities
|
|
|
|
Excess of book basis over tax basis of property and equipment
|
(1,381
|
)
|
|
(1,485
|
)
|
Merchandise inventories
|
(604
|
)
|
|
(606
|
)
|
Intangible assets
|
(380
|
)
|
|
(345
|
)
|
Other
|
(391
|
)
|
|
(330
|
)
|
Total deferred tax liabilities
|
(2,756
|
)
|
|
(2,766
|
)
|
Net deferred tax liability
|
$
|
(1,443
|
)
|
|
$
|
(1,477
|
)
|
The valuation allowance at
January 28, 2017
and
January 30, 2016
relates to net deferred tax assets for state net operating loss and credit carryforwards. The net change in the valuation allowance amounted to an increase of
$9 million
for
2016
and an increase of
$3 million
for
2015
.
As of
January 28, 2017
, the Company had
no
federal net operating loss carryforwards, state net operating loss carryforwards of
$374 million
, and state credit carryforwards of
$31 million
, which will expire between
2017
and
2036
.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28,
2017
|
|
January 30,
2016
|
|
January 31,
2015
|
|
(millions)
|
Balance, beginning of year
|
$
|
178
|
|
|
$
|
172
|
|
|
$
|
189
|
|
Additions based on tax positions related to the current year
|
16
|
|
|
30
|
|
|
33
|
|
Additions for tax positions of prior years
|
—
|
|
|
—
|
|
|
—
|
|
Reductions for tax positions of prior years
|
(12
|
)
|
|
(7
|
)
|
|
(15
|
)
|
Settlements
|
(4
|
)
|
|
(3
|
)
|
|
(23
|
)
|
Statute expirations
|
(11
|
)
|
|
(14
|
)
|
|
(12
|
)
|
Balance, end of year
|
$
|
167
|
|
|
$
|
178
|
|
|
$
|
172
|
|
Amounts recognized in the Consolidated Balance Sheets at
January 28, 2017, January 30, 2016 and January 31, 2015
|
|
|
|
|
|
Current income taxes
|
$
|
6
|
|
|
$
|
12
|
|
|
$
|
11
|
|
Long-term deferred income taxes
|
4
|
|
|
5
|
|
|
6
|
|
Other liabilities
|
157
|
|
|
161
|
|
|
155
|
|
|
$
|
167
|
|
|
$
|
178
|
|
|
$
|
172
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of
January 28, 2017
and
January 30, 2016
, the amount of unrecognized tax benefits, net of deferred tax assets, that, if recognized would affect the effective income tax rate, was
$109 million
and
$115 million
, respectively.
The Company classifies unrecognized tax benefits not expected to be settled within
one
year as other liabilities on the Consolidated Balance Sheets.
The Company classifies federal, state and local interest and penalties not expected to be settled within one year as other liabilities on the Consolidated Balance Sheets and follows a policy of recognizing all interest and penalties related to unrecognized tax benefits in income tax expense. Federal, state and local interest and penalties, which amounted to an expense of
$2 million
for
2016
, an expense of
$1 million
for
2015
, and a credit of
$3 million
for
2014
, are reflected in income tax expense.
The Company had
$55 million
and
$53 million
accrued for the payment of federal, state and local interest and penalties at
January 28, 2017
and
January 30, 2016
, respectively. The accrued federal, state and local interest and penalties primarily relates to state tax issues and the amount of penalties paid in prior periods, and the amount of penalties accrued at
January 28, 2017
and
January 30, 2016
are insignificant. At
January 28, 2017
,
$54 million
of federal, state and local interest and penalties is included in other liabilities and
$1 million
is included in current income taxes on the Consolidated Balance Sheets.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2013. With respect to state and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for years before 2007. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been accrued for any adjustments that are expected to result from the years still subject to examination.
The Company has defined contribution plans which cover substantially all employees who work
1,000
hours or more in a year. In addition, the Company has a funded defined benefit plan (“Pension Plan”) and an unfunded defined benefit supplementary retirement plan (“SERP”), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.
Retirement expenses, excluding settlement charges, included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
401(k) Qualified Defined Contribution Plan
|
$
|
94
|
|
|
$
|
88
|
|
|
$
|
89
|
|
Non-Qualified Defined Contribution Plan
|
2
|
|
|
2
|
|
|
2
|
|
Pension Plan
|
(83
|
)
|
|
(54
|
)
|
|
(64
|
)
|
Supplementary Retirement Plan
|
31
|
|
|
41
|
|
|
38
|
|
|
$
|
44
|
|
|
$
|
77
|
|
|
$
|
65
|
|
In 2016, the Company changed the method used to estimate the service and interest cost components of net periodic benefit costs for the Pension Plan and SERP. The new method uses a full yield curve approach in the estimation of these components of net periodic benefit costs. Under this approach, the Company applies discounting using individual spot rates from the yield curve composed of the rates of return from a portfolio of high quality corporate debt securities available at the measurement date. These spot rates align to each of the projected benefit obligations and service cost cash flows. Historically, the Company estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligations.
The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. The Company accounted for this change as a change in estimate prospectively starting in 2016. The discount rates that would have been used to measure the 2016 service and interest cost components of net periodic benefit costs as of the beginning of the year under the single weighted-average discount rate was
4.17%
and
4.23%
, respectively. The 2016 reduction in service cost and interest cost for the Pension Plan and SERP associated with this change was approximately
$36 million
.
Defined Contribution Plans
The Company has a qualified plan that permits participating associates to defer eligible compensation up to the maximum limits allowable under the Internal Revenue Code. Beginning January 1, 2014, the Company has a non-qualified plan which permits participating associates to defer eligible compensation above the limits of the qualified plan. The Company contributes a matching percentage of employee contributions under both the qualified and non-qualified plans. Effective January 1, 2014, the Company's matching contribution to the qualified plan was enhanced for all participating employees, with limited exceptions. Prior to January 1, 2014, the matching contribution rate under the qualified plan was higher for those employees not eligible for the Pension Plan than for employees eligible for the Pension Plan.
The liability related to the qualified plan matching contribution, which is reflected in accounts payable and accrued liabilities on the Consolidated Balance Sheets, was
$102 million
at
January 28, 2017
and
$97 million
January 30, 2016
. Expense related to matching contributions for the qualified plan amounted to
$94 million
for
2016
,
$88 million
for
2015
and
$89 million
for
2014
.
At
January 28, 2017
and
January 30, 2016
, the liability under the non-qualified plan, which is reflected in other liabilities on the Consolidated Balance Sheets, was
$20 million
and
$13 million
, respectively. The liability related to the non-qualified plan matching contribution, which is reflected in accounts payable and accrued liabilities on the Consolidated Balance Sheets, was
$2 million
at
January 28, 2017
and
January 30, 2016
. Expense related to matching contributions for the non-qualified plan amounted to
$2 million
for
2016
and
2015
. In connection with the non-qualified plan, the Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
had mutual fund investments at
January 28, 2017
and
January 30, 2016
of
$20 million
and
$13 million
, respectively, which are included in prepaid expenses and other current assets on the Consolidated Balance Sheets.
The Company has an additional deferred compensation plan wherein eligible executives elected to defer a portion of their compensation each year as either stock credits or cash credits. Effective January 1, 2015, no additional compensation is eligible for deferral. The Company has transferred shares to a trust to cover the number estimated for distribution on account of stock credits currently outstanding. At
January 28, 2017
and
January 30, 2016
, the liability under the plan, which is reflected in other liabilities on the Consolidated Balance Sheets, was
$37 million
and
$39 million
, respectively. Expense for
2016
,
2015
and
2014
was immaterial.
Pension Plan
The following provides a reconciliation of benefit obligations, plan assets, and funded status of the Pension Plan as of
January 28, 2017
and
January 30, 2016
:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(millions)
|
Change in projected benefit obligation
|
|
|
|
Projected benefit obligation, beginning of year
|
$
|
3,585
|
|
|
$
|
3,966
|
|
Service cost
|
5
|
|
|
6
|
|
Interest cost
|
108
|
|
|
137
|
|
Actuarial (gain) loss
|
55
|
|
|
(282
|
)
|
Benefits paid
|
(284
|
)
|
|
(242
|
)
|
Projected benefit obligation, end of year
|
3,469
|
|
|
3,585
|
|
Changes in plan assets
|
|
|
|
Fair value of plan assets, beginning of year
|
3,256
|
|
|
3,636
|
|
Actual return on plan assets
|
402
|
|
|
(138
|
)
|
Company contributions
|
—
|
|
|
—
|
|
Benefits paid
|
(284
|
)
|
|
(242
|
)
|
Fair value of plan assets, end of year
|
3,374
|
|
|
3,256
|
|
Funded status at end of year
|
$
|
(95
|
)
|
|
$
|
(329
|
)
|
Amounts recognized in the Consolidated Balance Sheets at
January 28, 2017 and January 30, 2016
|
|
|
|
Other liabilities
|
$
|
(95
|
)
|
|
$
|
(329
|
)
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss at
January 28, 2017 and January 30, 2016
|
|
|
|
Net actuarial loss
|
$
|
1,232
|
|
|
$
|
1,451
|
|
The accumulated benefit obligation for the Pension Plan was
$3,464 million
as of
January 28, 2017
and
$3,574 million
as of
January 30, 2016
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net pension costs, settlement charges and other amounts recognized in other comprehensive loss for the Pension Plan included the following actuarially determined components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Net Periodic Pension Cost
|
|
|
|
|
|
Service cost
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
6
|
|
Interest cost
|
108
|
|
|
137
|
|
|
151
|
|
Expected return on assets
|
(227
|
)
|
|
(235
|
)
|
|
(246
|
)
|
Amortization of net actuarial loss
|
31
|
|
|
38
|
|
|
25
|
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
—
|
|
|
(83
|
)
|
|
(54
|
)
|
|
(64
|
)
|
|
|
|
|
|
|
Settlement charges
|
68
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss
|
|
|
|
|
|
Net actuarial (gain) loss
|
(120
|
)
|
|
92
|
|
|
491
|
|
Amortization of net actuarial loss
|
(31
|
)
|
|
(38
|
)
|
|
(25
|
)
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
—
|
|
Settlement charges
|
(68
|
)
|
|
—
|
|
|
—
|
|
|
(219
|
)
|
|
54
|
|
|
466
|
|
Total recognized
|
$
|
(234
|
)
|
|
$
|
—
|
|
|
$
|
402
|
|
The estimated net actuarial loss for the Pension Plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during
2017
is
$33 million
.
The following weighted average assumptions were used to determine the projected benefit obligations for the Pension Plan at
January 28, 2017
and
January 30, 2016
:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Discount rate
|
4.00
|
%
|
|
4.17
|
%
|
Rate of compensation increases
|
4.10
|
%
|
|
4.10
|
%
|
The following weighted average assumptions were used to determine the net periodic pension cost for the Pension Plan:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Discount rate used to measure service cost
|
3.79% - 4.26%
|
|
|
3.55
|
%
|
|
4.50
|
%
|
Discount rate used to measure interest cost
|
2.96% - 3.30%
|
|
|
3.55
|
%
|
|
4.50
|
%
|
Expected long-term return on plan assets
|
7.00
|
%
|
|
7.00
|
%
|
|
7.50
|
%
|
Rate of compensation increases
|
4.10
|
%
|
|
4.10
|
%
|
|
4.10
|
%
|
The Pension Plan’s assumptions are evaluated annually and updated as necessary.
The discount rate used to determine the present value of the projected benefit obligation for the Pension Plan is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year’s expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for the projected benefit obligation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Due to settlement accounting and re-measurements during 2016, the discount rate used to measure service cost and the discount rate to measure interest cost varied between periods. The table above shows the range of rates used to determine net periodic expense for the Pension Plan.
The Company develops its expected long-term rate of return on plan asset assumption by evaluating input from several professional advisors taking into account the asset allocation of the portfolio and long-term asset class return expectations, as well as long-term inflation assumptions. Expected returns for each major asset class are considered along with their volatility and the expected correlations among them. These expectations are based upon historical relationships as well as forecasts of how future returns may vary from historical returns. Returns by asset class and correlations among asset classes are combined using the target asset allocation to derive an expected return for the portfolio as a whole. Long-term historical returns of the portfolio are also considered. Portfolio returns are calculated net of all expenses, therefore, the Company also analyzes expected costs and expenses, including investment management fees, administrative expenses, Pension Benefit Guaranty Corporation premiums and other costs and expenses. As of January 31, 2015, the Company lowered the assumed annual long-term rate of return for the Pension Plan's assets from
7.50%
to
7.00%
based on expected future returns on the portfolio of assets.
The Company develops its rate of compensation increase assumption based on recent experience and reflects an estimate of future compensation levels taking into account general increase levels, seniority, promotions and other factors. The salary increase assumption is used to project employees’ pay in future years and its impact on the projected benefit obligation for the Pension Plan.
The assets of the Pension Plan are managed by investment specialists with the primary objectives of payment of benefit obligations to Plan participants and an ultimate realization of investment returns over longer periods in excess of inflation. The Company employs a total return investment approach whereby a mix of domestic and foreign equity securities, fixed income securities and other investments is used to maximize the long-term return on the assets of the Pension Plan for a prudent level of risk. Risks are mitigated through asset diversification and the use of multiple investment managers. The target allocation for plan assets is currently
50%
equity securities,
40%
debt securities,
5%
real estate and
5%
private equities.
The Company generally employs investment managers to specialize in a specific asset class. These managers are chosen and monitored with the assistance of professional advisors, using criteria that include organizational structure, investment philosophy, investment process, performance compared to market benchmarks and peer groups.
The Company periodically conducts an analysis of the behavior of the Pension Plan’s assets and liabilities under various economic and interest rate scenarios to ensure that the long-term target asset allocation is appropriate given the liabilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of the Pension Plan assets as of
January 28, 2017
, excluding interest and dividend receivables and pending investment purchases and sales, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(millions)
|
Short term investments
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
—
|
|
Money market funds
|
74
|
|
|
74
|
|
|
—
|
|
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
U.S. stocks
|
309
|
|
|
309
|
|
|
—
|
|
|
—
|
|
U.S. pooled funds (a)
|
654
|
|
|
446
|
|
|
—
|
|
|
—
|
|
International pooled funds (a)
|
649
|
|
|
131
|
|
|
—
|
|
|
—
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
U. S. Treasury bonds
|
194
|
|
|
—
|
|
|
194
|
|
|
—
|
|
Other Government bonds
|
40
|
|
|
—
|
|
|
40
|
|
|
—
|
|
Agency backed bonds
|
24
|
|
|
—
|
|
|
24
|
|
|
—
|
|
Corporate bonds
|
453
|
|
|
—
|
|
|
453
|
|
|
—
|
|
Mortgage-backed securities
|
85
|
|
|
—
|
|
|
85
|
|
|
—
|
|
Asset-backed securities
|
17
|
|
|
—
|
|
|
17
|
|
|
—
|
|
Pooled funds
|
461
|
|
|
461
|
|
|
—
|
|
|
—
|
|
Other types of investments:
|
|
|
|
|
|
|
|
Real estate (a)
|
223
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Private equity (a)
|
186
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Derivatives in a positive position
|
13
|
|
|
—
|
|
|
13
|
|
|
—
|
|
Derivatives in a negative position
|
(19
|
)
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
Total
|
$
|
3,377
|
|
|
$
|
1,421
|
|
|
$
|
821
|
|
|
$
|
—
|
|
(a) Certain investments that are measured at fair value using the net asset value per share as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of the Pension Plan assets as of
January 30, 2016
, excluding interest and dividend receivables and pending investment purchases and sales, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(millions)
|
Cash and cash equivalents
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short term investments
|
36
|
|
|
—
|
|
|
36
|
|
|
—
|
|
Money market funds
|
46
|
|
|
46
|
|
|
—
|
|
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
U.S. stocks
|
280
|
|
|
280
|
|
|
—
|
|
|
—
|
|
U.S. pooled funds (a)
|
391
|
|
|
207
|
|
|
—
|
|
|
—
|
|
International pooled funds (a)
|
575
|
|
|
336
|
|
|
—
|
|
|
—
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
U. S. Treasury bonds
|
233
|
|
|
—
|
|
|
233
|
|
|
—
|
|
Other Government bonds
|
41
|
|
|
—
|
|
|
41
|
|
|
—
|
|
Agency backed bonds
|
31
|
|
|
—
|
|
|
31
|
|
|
—
|
|
Corporate bonds
|
433
|
|
|
—
|
|
|
433
|
|
|
—
|
|
Mortgage-backed securities
|
112
|
|
|
—
|
|
|
112
|
|
|
—
|
|
Asset-backed securities
|
28
|
|
|
—
|
|
|
28
|
|
|
—
|
|
Pooled funds
|
427
|
|
|
427
|
|
|
—
|
|
|
—
|
|
Other types of investments:
|
|
|
|
|
|
|
|
Real estate (a)
|
238
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Hedge funds (a)
|
179
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Private equity (a)
|
188
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Derivatives in a positive position
|
15
|
|
|
—
|
|
|
15
|
|
|
—
|
|
Derivatives in a negative position
|
(22
|
)
|
|
—
|
|
|
(22
|
)
|
|
—
|
|
Total
|
$
|
3,246
|
|
|
$
|
1,311
|
|
|
$
|
907
|
|
|
$
|
—
|
|
(a) Certain investments that are measured at fair value using the net asset value per share as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.
Corporate bonds consist primarily of investment grade bonds of U.S. issuers from diverse industries.
The fair value of certain pooled funds including equity securities, real estate, hedge funds and private equity investments represents the reported net asset value of shares or underlying assets of the investment as a practical expedient to estimate fair value. International equity pooled funds seek to provide long-term capital growth and income by investing in equity securities of non-U.S. companies located both in developed and emerging markets. There are generally no redemption restrictions or unfunded commitments related to these equity securities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Real estate investments include several funds which seek risk-adjusted return by providing a stable, income-driven rate of return over the long term with high potential for growth of net investment income and appreciation of value. The real estate investments are diversified across property types and geographical areas primarily in the United States of America. Private equity investments have an objective of realizing aggregate long-term returns in excess of those available from investments in the public equity markets. Private equity investments generally consist of limited partnerships in the United States of America, Europe and Asia. Private equity and real estate investments are valued using fair values per the most recent financial reports provided by the investment sponsor, adjusted as appropriate for any lag between the date of the financial reports and the Company’s reporting date. Hedge fund investments seek to provide strong downside protection qualities and to produce long-term risk-adjusted returns with low volatility through active asset management among a select group of U.S. and non-U.S. investment partnerships and companies, managed funds, separately managed accounts, securities and commodities held in segregated accounts and other investment vehicles.
Due to the nature of the underlying assets of the real estate, hedge funds and private equity investments, changes in market conditions and the economic environment may significantly impact the net asset value of these investments and, consequently, the fair value of the Pension Plan’s investments. These investments are redeemable at net asset value to the extent provided in the documentation governing the investments. However, these redemption rights may be restricted in accordance with the governing documents. Redemption of these investments is subject to restrictions including lock-up periods where no redemptions are allowed, restrictions on redemption frequency and advance notice periods for redemptions. As of
January 28, 2017
and
January 30, 2016
, certain of these investments are generally subject to lock-up periods, ranging from
two
to
fourteen
years, certain of these investments are subject to restrictions on redemption frequency, ranging from daily to twice per year, and certain of these investments are subject to advance notice requirements, ranging from
sixty
-day notification to
ninety
-day notification. As of
January 28, 2017
and
January 30, 2016
, the Pension Plan had unfunded commitments related to certain of these investments totaling
$72 million
and
$96 million
, respectively.
The Company does not anticipate making funding contributions to the Pension Plan in 2017.
The following benefit payments are estimated to be paid from the Pension Plan:
|
|
|
|
|
|
(millions)
|
Fiscal year
|
|
2017
|
$
|
383
|
|
2018
|
309
|
|
2019
|
299
|
|
2020
|
286
|
|
2021
|
246
|
|
2022-2026
|
1,113
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Supplementary Retirement Plan
The following provides a reconciliation of benefit obligations, plan assets and funded status of the supplementary retirement plan as of
January 28, 2017
and
January 30, 2016
:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(millions)
|
Change in projected benefit obligation
|
|
|
|
Projected benefit obligation, beginning of year
|
$
|
823
|
|
|
$
|
920
|
|
Service cost
|
—
|
|
|
—
|
|
Interest cost
|
22
|
|
|
31
|
|
Actuarial (gain) loss
|
26
|
|
|
(70
|
)
|
Benefits paid
|
(124
|
)
|
|
(58
|
)
|
Projected benefit obligation, end of year
|
747
|
|
|
823
|
|
Change in plan assets
|
|
|
|
Fair value of plan assets, beginning of year
|
—
|
|
|
—
|
|
Company contributions
|
124
|
|
|
58
|
|
Benefits paid
|
(124
|
)
|
|
(58
|
)
|
Fair value of plan assets, end of year
|
—
|
|
|
—
|
|
Funded status at end of year
|
$
|
(747
|
)
|
|
$
|
(823
|
)
|
Amounts recognized in the Consolidated Balance Sheets at
January 28, 2017 and January 30, 2016
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
(86
|
)
|
|
$
|
(138
|
)
|
Other liabilities
|
(661
|
)
|
|
(685
|
)
|
|
$
|
(747
|
)
|
|
$
|
(823
|
)
|
Amounts recognized in accumulated other comprehensive loss at
January 28, 2017 and January 30, 2016
|
|
|
|
Net actuarial loss
|
$
|
248
|
|
|
$
|
261
|
|
Prior service cost
|
8
|
|
|
8
|
|
|
$
|
256
|
|
|
$
|
269
|
|
The accumulated benefit obligation for the supplementary retirement plan was
$747 million
as of
January 28, 2017
and
$823 million
as of
January 30, 2016
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net pension costs, settlement charges and other amounts recognized in other comprehensive loss for the supplementary retirement plan included the following actuarially determined components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Net Periodic Pension Cost
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
22
|
|
|
31
|
|
|
33
|
|
Amortization of net actuarial loss
|
9
|
|
|
10
|
|
|
5
|
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
41
|
|
|
38
|
|
|
|
|
|
|
|
Settlement charges
|
30
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss
|
|
|
|
|
|
Net actuarial (gain) loss
|
26
|
|
|
(70
|
)
|
|
170
|
|
Prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of net actuarial loss
|
(9
|
)
|
|
(10
|
)
|
|
(5
|
)
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
—
|
|
Settlement charges
|
(30
|
)
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
(80
|
)
|
|
165
|
|
Total recognized
|
$
|
48
|
|
|
$
|
(39
|
)
|
|
$
|
203
|
|
The estimated net actuarial loss for the supplementary retirement plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during
2017
is
$8 million
.
The following weighted average assumption was used to determine the projected benefit obligations for the supplementary retirement plan at
January 28, 2017
and
January 30, 2016
:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Discount rate
|
4.07
|
%
|
|
4.23
|
%
|
The following weighted average assumption was used to determine net pension costs for the supplementary retirement plan:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Discount rate used to measure interest cost
|
2.65% - 3.16%
|
|
3.55
|
%
|
|
4.50
|
%
|
The supplementary retirement plan’s assumptions are evaluated annually and updated as necessary.
The discount rate used to determine the present value of the projected benefit obligation for the supplementary retirement plan is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year’s expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for the projected benefit obligation.
Due to settlement accounting and re-measurements during 2016, the discount rate used to measure interest cost varied between periods. The table above shows the range of rates used to determine net periodic expense for the supplementary retirement plan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following benefit payments are estimated to be funded by the Company and paid from the supplementary retirement plan:
|
|
|
|
|
|
(millions)
|
Fiscal year
|
|
2017
|
$
|
86
|
|
2018
|
78
|
|
2019
|
46
|
|
2020
|
48
|
|
2021
|
48
|
|
2022-2026
|
228
|
|
|
|
10.
|
Postretirement Health Care and Life Insurance Benefits
|
In addition to pension and other supplemental benefits, certain retired employees currently are provided with specified health care and life insurance benefits. Eligibility requirements for such benefits vary by division and subsidiary, 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.
In 2016, the Company changed the method used to estimate the service and interest cost components of net periodic benefit costs for the postretirement obligations. The new method uses a full yield curve approach in the estimation of these components of net periodic benefit costs. Under this approach, the Company applies discounting using individual spot rates from the yield curve composed of the rates of return from a portfolio of high quality corporate debt securities available at the measurement date. These spot rates align to each of the accumulated postretirement obligation and service cost cash flows. Historically, the Company estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligations.
The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. The Company accounted for this change as a change in estimate prospectively starting in 2016. The discount rate that would have been used to measure the 2016 service and interest cost components of net periodic benefit cost as of the beginning of the year under the single weighted-average discount rate was
4.15%
. The 2016 reduction in service cost and interest cost for the postretirement obligations associated with this change was approximately
$2 million
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following provides a reconciliation of benefit obligations, plan assets, and funded status of the postretirement obligations as of
January 28, 2017
and
January 30, 2016
:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(millions)
|
Change in accumulated postretirement benefit obligation
|
|
|
|
Accumulated postretirement benefit obligation, beginning of year
|
$
|
212
|
|
|
$
|
243
|
|
Service cost
|
—
|
|
|
—
|
|
Interest cost
|
6
|
|
|
8
|
|
Actuarial gain
|
(13
|
)
|
|
(22
|
)
|
Medicare Part D subsidy
|
1
|
|
|
1
|
|
Benefits paid
|
(20
|
)
|
|
(18
|
)
|
Accumulated postretirement benefit obligation, end of year
|
186
|
|
|
212
|
|
Change in plan assets
|
|
|
|
Fair value of plan assets, beginning of year
|
—
|
|
|
—
|
|
Company contributions
|
20
|
|
|
18
|
|
Benefits paid
|
(20
|
)
|
|
(18
|
)
|
Fair value of plan assets, end of year
|
—
|
|
|
—
|
|
Funded status at end of year
|
$
|
(186
|
)
|
|
$
|
(212
|
)
|
Amounts recognized in the Consolidated Balance Sheets at
January 28, 2017 and January 30, 2016
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
(18
|
)
|
|
$
|
(20
|
)
|
Other liabilities
|
(168
|
)
|
|
(192
|
)
|
|
$
|
(186
|
)
|
|
$
|
(212
|
)
|
Amounts recognized in accumulated other comprehensive loss at
January 28, 2017 and January 30, 2016
|
|
|
|
Net actuarial gain
|
$
|
(31
|
)
|
|
$
|
(22
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net postretirement benefit costs and other amounts recognized in other comprehensive loss included the following actuarially determined components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Net Periodic Postretirement Benefit Cost
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
6
|
|
|
8
|
|
|
10
|
|
Amortization of net actuarial gain
|
(4
|
)
|
|
—
|
|
|
(5
|
)
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
8
|
|
|
5
|
|
Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss
|
|
|
|
|
|
Net actuarial (gain) loss
|
(13
|
)
|
|
(22
|
)
|
|
30
|
|
Amortization of net actuarial gain
|
4
|
|
|
—
|
|
|
5
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
(22
|
)
|
|
35
|
|
Total recognized
|
$
|
(7
|
)
|
|
$
|
(14
|
)
|
|
$
|
40
|
|
The estimated net actuarial gain that will be amortized from accumulated other comprehensive loss into net periodic postretirement benefit cost during
2017
is
$4 million
.
The following weighted average assumption was used to determine the accumulated postretirement benefit obligations at
January 28, 2017
and
January 30, 2016
:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Discount rate
|
3.99
|
%
|
|
4.15
|
%
|
The following weighted average assumption was used to determine the net postretirement benefit costs for the postretirement obligations:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Discount rate used to measure interest cost
|
3.14
|
%
|
|
3.55
|
%
|
|
4.50
|
%
|
The postretirement benefit obligation assumptions are evaluated annually and updated as necessary.
The discount rate used to determine the present value of the Company’s accumulated postretirement benefit obligations is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year’s expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for the accumulated postretirement benefit obligations.
The future medical benefits provided by the Company for certain employees are based on a fixed amount per year of service, and the accumulated postretirement benefit obligation is not affected by increases in health care costs. However, the future medical benefits provided by the Company for certain other employees are affected by increases in health care costs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following provides the assumed health care cost trend rates related to the Company’s accumulated postretirement benefit obligations at
January 28, 2017
and
January 30, 2016
:
|
|
|
|
|
|
2016
|
|
2015
|
Health care cost trend rates assumed for next year
|
6.15% - 9.75%
|
|
6.25% - 10.0%
|
Rates to which the cost trend rate is assumed to decline (the ultimate trend rate)
|
5.0%
|
|
5.0%
|
Year that the rate reaches the ultimate trend rate
|
2027
|
|
2027
|
The assumed health care cost trend rates have an impact on the amounts reported for the accumulated postretirement benefit obligations. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
1 – Percentage
Point Increase
|
|
1 – Percentage
Point Decrease
|
|
(millions)
|
Effect on total of service and interest cost
|
$
|
—
|
|
|
$
|
—
|
|
Effect on accumulated postretirement benefit obligations
|
$
|
11
|
|
|
$
|
(10
|
)
|
The following table reflects the benefit payments estimated to be funded by the Company and paid from the accumulated postretirement benefit obligations and estimated federal subsidies expected to be received under the Medicare Prescription Drug Improvement and Modernization Act of 2003:
|
|
|
|
|
|
|
|
|
|
Expected
Benefit
Payments
|
|
Expected
Federal
Subsidy
|
|
(millions)
|
Fiscal Year
|
|
|
|
2017
|
$
|
17
|
|
|
$
|
1
|
|
2018
|
17
|
|
|
1
|
|
2019
|
16
|
|
|
1
|
|
2020
|
16
|
|
|
—
|
|
2021
|
15
|
|
|
—
|
|
2022-2026
|
63
|
|
|
1
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
11.
|
Stock Based Compensation
|
During 2009, the Company obtained shareholder approval for the Macy’s 2009 Omnibus Incentive Compensation Plan under which up to
51 million
shares of Common Stock may be issued. This plan is intended to help the Company attract and retain directors, officers, other key executives and employees and is also intended to provide incentives and rewards relating to the Company’s business plans to encourage such persons to devote themselves to the business of the Company. Prior to 2009, the Company had
two
equity plans; the Macy's 1995 Executive Equity Incentive Plan and the Macy's 1994 Stock Incentive Plan. After shareholders approved the 2009 Omnibus Incentive Compensation Plan, Common Stock may no longer be granted under the Macy's 1995 Executive Equity Incentive Plan or the Macy's 1994 Stock Incentive Plan. The following disclosures present the Company’s equity plans on a combined basis. The equity plan is administered by the Compensation and Management Development Committee of the Board of Directors (the “CMD Committee”). The CMD Committee is authorized to grant options, stock appreciation rights, restricted stock and restricted stock units to officers and key employees of the Company and its subsidiaries and to non-employee directors. There have been no grants of stock appreciation rights under the equity plans.
Stock option grants have an exercise price at least equal to the market value of the underlying common stock on the date of grant, have
ten
-year terms and typically vest ratably over
four
years of continued employment. Restricted stock and time-based restricted stock unit awards generally vest
one
to
four
years from the date of grant. Performance-based restricted stock units generally are earned based on the attainment of specified goals achieved over the performance period.
As of
January 28, 2017
,
16 million
shares of common stock were available for additional grants pursuant to the Company’s equity plan. Shares awarded are generally issued from the Company's treasury stock.
Stock-based compensation expense included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Stock options
|
$
|
43
|
|
|
$
|
52
|
|
|
$
|
47
|
|
Restricted stock units
|
18
|
|
|
13
|
|
|
26
|
|
|
$
|
61
|
|
|
$
|
65
|
|
|
$
|
73
|
|
All stock-based compensation expense is recorded in SG&A expense in the Consolidated Statements of Income.
As of
January 28, 2017
, the Company had
$63 million
of unrecognized compensation costs related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately
1.7
years, and
$21 million
of unrecognized compensation costs related to nonvested restricted stock units, which is expected to be recognized over a weighted average period of approximately
1.4
years.
During
2016
,
2015
and
2014
, the CMD Committee approved awards of performance-based restricted stock units to certain senior executives of the Company. Each award reflects a target number of shares (“Target Shares”) that may be issued to the award recipient. These awards may be earned upon the completion of
three
-year performance periods ending February 2, 2019, February 3, 2018 and January 28, 2017, respectively. Whether units are earned at the end of the performance period will be determined based on the achievement of certain performance objectives set by the CMD Committee in connection with the issuance of the units. The performance objectives are based on the Company’s business plan covering the performance period. The performance objectives include achieving a cumulative EBITDA level for the performance period and also include an EBITDA as a percent to sales ratio and a return on invested capital ratio. The performance-based restricted stock units also include a performance objective relating to relative total shareholder return (“TSR”). Relative TSR reflects the change in the value of the Company’s common stock over the performance period in relation to the change in the value of the common stock of a
twelve
-company executive compensation peer group over the performance period, assuming the reinvestment of dividends. Depending on the results achieved during the
three
-year performance periods, the actual number of shares that a grant recipient receives at the end of the period may range from
0%
to
150%
of the Target Shares granted.
Also during
2016
,
2015
and
2014
, the CMD Committee approved awards of time-based restricted stock units to certain senior executives and other employees of the Company and awards of time-based restricted stock units to the non-employee members of the Company’s board of directors.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Options
The fair value of stock options granted during
2016
,
2015
and
2014
and the weighted average assumptions used to estimate the fair value are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Weighted average grant date fair value of stock options
granted during the period
|
$
|
12.14
|
|
|
$
|
20.78
|
|
|
$
|
19.07
|
|
Dividend yield
|
3.8
|
%
|
|
2.7
|
%
|
|
2.5
|
%
|
Expected volatility
|
42.7
|
%
|
|
43.3
|
%
|
|
42.7
|
%
|
Risk-free interest rate
|
1.4
|
%
|
|
1.7
|
%
|
|
1.5
|
%
|
Expected life
|
5.7 years
|
|
|
5.7 years
|
|
|
5.7 years
|
|
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company estimates the expected volatility and expected option life assumption consistent with ASC Topic 718, “Compensation – Stock Compensation.” The expected volatility of the Company’s common stock at the date of grant is estimated based on a historic volatility rate and the expected option life is calculated based on historical stock option experience as the best estimate of future exercise patterns. The dividend yield assumption is based on historical and anticipated dividend payouts. The risk-free interest rate assumption is based on observed interest rates consistent with the expected life of each stock option grant. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. Compensation expense is recorded for all stock options expected to vest based on the amortization of the fair value at the date of grant on a straight-line basis primarily over the vesting period of the options.
Activity related to stock options for
2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
(thousands)
|
|
|
|
(years)
|
|
(millions)
|
Outstanding, beginning of period
|
18,829.8
|
|
|
$
|
41.92
|
|
|
|
|
|
Granted
|
3,886.8
|
|
|
$
|
42.97
|
|
|
|
|
|
Canceled or forfeited
|
(1,116.6
|
)
|
|
$
|
51.33
|
|
|
|
|
|
Exercised
|
(1,122.1
|
)
|
|
$
|
31.30
|
|
|
|
|
|
Outstanding, end of period
|
20,477.9
|
|
|
$
|
42.18
|
|
|
|
|
|
Exercisable, end of period
|
12,541.5
|
|
|
$
|
36.48
|
|
|
4.1
|
|
$
|
46
|
|
Options expected to vest
|
6,657.5
|
|
|
$
|
51.07
|
|
|
8.3
|
|
$
|
—
|
|
Additional information relating to stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(millions)
|
Intrinsic value of options exercised
|
$
|
12
|
|
|
$
|
127
|
|
|
$
|
189
|
|
Cash received from stock options exercised
|
35
|
|
|
125
|
|
|
200
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Stock Units
The weighted average grant date fair values of restricted stock units granted during
2016
,
2015
and
2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Restricted stock units
|
$
|
40.02
|
|
|
$
|
62.61
|
|
|
$
|
59.41
|
|
The fair value of the Target Shares and restricted stock awards are based on the fair value of the underlying shares on the date of grant. The fair value of the portion of the Target Shares that relate to a relative TSR performance objective was determined using a Monte Carlo simulation analysis to estimate the total shareholder return ranking of the Company among a
twelve
-company executive compensation peer group over the remaining performance periods. The expected volatility of the Company’s common stock at the date of grant was estimated based on a historical average volatility rate for the approximate
three
-year performance period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free interest rate assumption was based on observed interest rates consistent with the approximate three-year performance measurement period.
Compensation expense is recorded for all restricted stock unit awards based on the amortization of the fair market value at the date of grant over the period the restrictions lapse or over the performance period of the performance-based restricted stock units.
Activity related to restricted stock units for
2016
is as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
(thousands)
|
|
|
Nonvested, beginning of period
|
1,497.0
|
|
|
$
|
57.06
|
|
Granted – performance-based
|
575.1
|
|
|
43.72
|
|
Performance adjustment
|
(237.6
|
)
|
|
59.82
|
|
Granted – time-based
|
482.8
|
|
|
35.61
|
|
Forfeited
|
(250.0
|
)
|
|
32.99
|
|
Vested
|
(249.0
|
)
|
|
33.70
|
|
Nonvested, end of period
|
1,818.3
|
|
|
$
|
53.29
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The authorized shares of the Company consist of
125 million
shares of preferred stock (“Preferred Stock”), par value of
$.01
per share, with
no
shares issued, and
1,000 million
shares of Common Stock, par value of
$.01
per share, with
333.6 million
shares of Common Stock issued and
304.1 million
shares of Common Stock outstanding at
January 28, 2017
, and with
341.6 million
shares of Common Stock issued and
310.3 million
shares of Common Stock outstanding at
January 30, 2016
(with shares held in the Company’s treasury being treated as issued, but not outstanding).
The Company retired
8.0 million
,
38.0 million
and
31.0 million
shares of Common Stock during
2016
,
2015
and
2014
, respectively.
The Company's board of directors approved an additional authorization to purchase Common Stock of
$1,500 million
on February 26, 2016. Combined with previous authorizations commencing in January 2000, the Company’s board of directors has from time to time approved authorizations to purchase, in the aggregate, up to
$18,000 million
of Common Stock. All authorizations are cumulative and do not have an expiration date. During
2016
, the Company purchased approximately
7.9 million
shares of Common Stock under its share repurchase program for a total of
$316 million
. During
2015
, the Company purchased approximately
34.8 million
shares of Common Stock under its share repurchase program for a total of
$2,000 million
. During
2014
, the Company purchased approximately
31.9 million
shares of Common Stock under its share repurchase program for a total of
$1,900 million
. As of
January 28, 2017
,
$1,716 million
of authorization remained unused. The Company may continue or, from time to time, suspend repurchases of its shares under its share repurchase program, depending on prevailing market conditions, alternative uses of capital and other factors.
Common Stock
The holders of the Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Subject to preferential rights that may be applicable to any Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors in its discretion, out of funds legally available therefor.
Treasury Stock
Treasury stock contains shares repurchased under the share repurchase program, shares repurchased to cover employee tax liabilities related to stock plan activity and shares maintained in a trust related to deferred compensation plans. Under the deferred compensation plans, shares are maintained in a trust to cover the number estimated to be needed for distribution on account of stock credits currently outstanding.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Changes in the Company’s Common Stock issued and outstanding, including shares held by the Company’s treasury, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
Common
Stock
Issued
|
|
Deferred
Compensation
Plans
|
|
Other
|
|
Total
|
|
Common
Stock
Outstanding
|
|
|
|
|
|
(thousands)
|
|
|
|
|
Balance at February 1, 2014
|
410,605.8
|
|
|
(1,229.2
|
)
|
|
(44,441.6
|
)
|
|
(45,670.8
|
)
|
|
364,935.0
|
|
Stock issued under stock plans
|
|
|
(54.8
|
)
|
|
7,490.6
|
|
|
7,435.8
|
|
|
7,435.8
|
|
Stock repurchases
|
|
|
|
|
|
|
|
|
|
Repurchase program
|
|
|
|
|
(31,874.9
|
)
|
|
(31,874.9
|
)
|
|
(31,874.9
|
)
|
Other
|
|
|
|
|
(27.0
|
)
|
|
(27.0
|
)
|
|
(27.0
|
)
|
Deferred compensation plan distributions
|
|
|
104.8
|
|
|
|
|
104.8
|
|
|
104.8
|
|
Retirement of common stock
|
(31,000.0
|
)
|
|
|
|
31,000.0
|
|
|
31,000.0
|
|
|
—
|
|
Balance at January 31, 2015
|
379,605.8
|
|
|
(1,179.2
|
)
|
|
(37,852.9
|
)
|
|
(39,032.1
|
)
|
|
340,573.7
|
|
Stock issued under stock plans
|
|
|
(60.4
|
)
|
|
4,493.5
|
|
|
4,433.1
|
|
|
4,433.1
|
|
Stock repurchases
|
|
|
|
|
|
|
|
|
|
Repurchase program
|
|
|
|
|
(34,806.8
|
)
|
|
(34,806.8
|
)
|
|
(34,806.8
|
)
|
Other
|
|
|
|
|
(12.7
|
)
|
|
(12.7
|
)
|
|
(12.7
|
)
|
Deferred compensation plan distributions
|
|
|
68.8
|
|
|
|
|
68.8
|
|
|
68.8
|
|
Retirement of common stock
|
(38,000.0
|
)
|
|
|
|
38,000.0
|
|
|
38,000.0
|
|
|
—
|
|
Balance at January 30, 2016
|
341,605.8
|
|
|
(1,170.8
|
)
|
|
(30,178.9
|
)
|
|
(31,349.7
|
)
|
|
310,256.1
|
|
Stock issued under stock plans
|
|
|
(87.0
|
)
|
|
1,611.7
|
|
|
1,524.7
|
|
|
1,524.7
|
|
Stock repurchases
|
|
|
|
|
|
|
|
|
|
Repurchase program
|
|
|
|
|
(7,874.3
|
)
|
|
(7,874.3
|
)
|
|
(7,874.3
|
)
|
Other
|
|
|
|
|
(4.6
|
)
|
|
(4.6
|
)
|
|
(4.6
|
)
|
Deferred compensation plan distributions
|
|
|
160.9
|
|
|
|
|
160.9
|
|
|
160.9
|
|
Retirement of common stock
|
(8,000.0
|
)
|
|
|
|
8,000.0
|
|
|
8,000.0
|
|
|
—
|
|
Balance at January 28, 2017
|
333,605.8
|
|
|
(1,096.9
|
)
|
|
(28,446.1
|
)
|
|
(29,543.0
|
)
|
|
304,062.8
|
|
Accumulated Other Comprehensive Loss
For the Company, the only component of accumulated other comprehensive loss for
2016
,
2015
and
2014
relates to post employment and postretirement plan items. The net actuarial gains and losses and prior service costs and credits related to post employment and postretirement benefit plans are reclassified out of accumulated other comprehensive loss and included in the computation of net periodic benefit cost (income) and are included in SG&A expenses in the Consolidated Statements of Income. In addition, the Company incurred the pro-rata recognition of net actuarial losses associated with an increase in lump sum distributions associated with store closings, a voluntary separation program, organizational restructuring, and periodic distribution activity as settlement charges in the Consolidated Statements of Income. See Note 9, "Retirement Plans," and Note 10, "Postretirement Health Care and Life Insurance Benefits," for further information.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
13.
|
Fair Value Measurements and Concentrations of Credit Risk
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
January 30, 2016
|
|
|
|
Fair Value Measurements
|
|
|
|
Fair Value Measurements
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(millions)
|
Marketable
equity and
debt securities
|
$
|
112
|
|
|
$
|
20
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
132
|
|
|
$
|
13
|
|
|
$
|
119
|
|
|
$
|
—
|
|
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
January 30, 2016
|
|
Notional
Amount
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Notional
Amount
|
|
Carrying
Amount
|
|
Fair
Value
|
|
(millions)
|
Long-term debt
|
$
|
6,459
|
|
|
$
|
6,535
|
|
|
$
|
6,438
|
|
|
$
|
6,871
|
|
|
$
|
6,966
|
|
|
$
|
6,756
|
|
The following table shows certain of the Company’s non-financial assets that were measured at fair value on a nonrecurring basis during
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
January 30, 2016
|
|
|
|
Fair Value Measurements
|
|
|
|
Fair Value Measurements
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(millions)
|
Long-lived assets held and used
|
$
|
147
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
147
|
|
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53
|
|
During
2016
, long-lived assets held and used with a carrying value of
$405 million
were written down to their fair value of
$147 million
, resulting in asset impairment charges of
$258 million
. During
2015
, long-lived assets held and used with a carrying value of
$201 million
were written down to their fair value of
$53 million
, resulting in asset impairment charges of
$148 million
. The fair values of these locations were calculated based on the projected cash flows and an estimated risk-adjusted rate of return that would be used by market participants in valuing these assets or prices of similar assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In connection with the May 30, 2016 annual impairment test of goodwill and other intangible assets with indefinite lives, the Company recognized approximately $7 million of asset impairment charges in relation to indefinite lived tradenames. The fair values of these tradenames were calculated based on the projected cash flows and an estimated risk-adjusted rate of return that would be used by market participants in valuing these assets or prices of similar assets and are classified as Level 3 measurements within the hierarchy as defined by applicable accounting standards.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company places its temporary cash investments in what it believes to be high credit quality financial instruments.
|
|
14.
|
Earnings Per Share Attributable to Macy's, Inc. Shareholders
|
The following table sets forth the computation of basic and diluted earnings per share attributable to Macy's, Inc. shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Net
Income
|
|
|
|
Shares
|
|
Net
Income
|
|
|
|
Shares
|
|
Net Income
|
|
|
|
Shares
|
|
(millions, except per share data)
|
Net income attributable to Macy's, Inc. shareholders
and average number of shares outstanding
|
$
|
619
|
|
|
|
|
307.6
|
|
|
$
|
1,072
|
|
|
|
|
327.6
|
|
|
$
|
1,526
|
|
|
|
|
354.3
|
|
Shares to be issued under deferred compensation
and other plans
|
|
|
|
|
0.9
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
0.9
|
|
|
$
|
619
|
|
|
|
|
308.5
|
|
|
$
|
1,072
|
|
|
|
|
328.4
|
|
|
$
|
1,526
|
|
|
|
|
355.2
|
|
Basic earnings per share attributable to Macy's, Inc. shareholders
|
|
|
$
|
2.01
|
|
|
|
|
|
|
$
|
3.26
|
|
|
|
|
|
|
$
|
4.30
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock and restricted
stock units
|
|
|
|
|
2.3
|
|
|
|
|
|
|
4.6
|
|
|
|
|
|
|
6.5
|
|
|
$
|
619
|
|
|
|
|
310.8
|
|
|
$
|
1,072
|
|
|
|
|
333.0
|
|
|
$
|
1,526
|
|
|
|
|
361.7
|
|
Diluted earnings per share attributable to Macy's, Inc. shareholders
|
|
|
$
|
1.99
|
|
|
|
|
|
|
$
|
3.22
|
|
|
|
|
|
|
$
|
4.22
|
|
|
|
In addition to the stock options and restricted stock units reflected in the foregoing table, stock options to purchase
15.5 million
of shares of common stock and restricted stock units relating to
1.1 million
shares of common stock were outstanding at
January 28, 2017
, stock options to purchase
12.6 million
of shares of common stock and restricted stock units relating to
140,000
shares of common stock were outstanding at
January 30, 2016
, and stock options to purchase
3.2 million
of shares of common stock and restricted stock units relating to
0.6 million
shares of common stock were outstanding at
January 31, 2015
, but were not included in the computation of diluted earnings per share attributable to Macy's, Inc. shareholders for
2016
,
2015
and
2014
, respectively, because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
15.
|
Quarterly Results (unaudited)
|
Unaudited quarterly results for the last two years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
(millions, except per share data)
|
2016:
|
|
|
|
|
|
|
|
Net sales
|
$
|
5,771
|
|
|
$
|
5,866
|
|
|
$
|
5,626
|
|
|
$
|
8,515
|
|
Cost of sales
|
(3,516
|
)
|
|
(3,468
|
)
|
|
(3,386
|
)
|
|
(5,251
|
)
|
Gross margin
|
2,255
|
|
|
2,398
|
|
|
2,240
|
|
|
3,264
|
|
Selling, general and administrative expenses
|
(1,966
|
)
|
|
(2,026
|
)
|
|
(2,071
|
)
|
|
(2,202
|
)
|
Impairments, store closing and other costs
|
—
|
|
|
(249
|
)
|
|
—
|
|
|
(230
|
)
|
Settlement charges
|
(13
|
)
|
|
(6
|
)
|
|
(62
|
)
|
|
(17
|
)
|
Net income attributable to Macy's, Inc. shareholders
|
116
|
|
|
11
|
|
|
17
|
|
|
475
|
|
Basic earnings per share attributable to
Macy's, Inc. shareholders
|
.37
|
|
|
.03
|
|
|
.05
|
|
|
1.56
|
|
Diluted earnings per share attributable to
Macy's, Inc. shareholders
|
.37
|
|
|
.03
|
|
|
.05
|
|
|
1.54
|
|
2015:
|
|
|
|
|
|
|
|
Net sales
|
$
|
6,232
|
|
|
$
|
6,104
|
|
|
$
|
5,874
|
|
|
$
|
8,869
|
|
Cost of sales
|
(3,800
|
)
|
|
(3,610
|
)
|
|
(3,537
|
)
|
|
(5,549
|
)
|
Gross margin
|
2,432
|
|
|
2,494
|
|
|
2,337
|
|
|
3,320
|
|
Selling, general and administrative expenses
|
(2,023
|
)
|
|
(2,058
|
)
|
|
(1,968
|
)
|
|
(2,207
|
)
|
Impairments, store closing and other costs
|
—
|
|
|
—
|
|
|
(111
|
)
|
|
(177
|
)
|
Net income attributable to Macy's, Inc. shareholders
|
193
|
|
|
217
|
|
|
118
|
|
|
544
|
|
Basic earnings per share attributable to
Macy's, Inc. shareholders
|
.57
|
|
|
.65
|
|
|
.36
|
|
|
1.74
|
|
Diluted earnings per share attributable to
Macy's, Inc. shareholders
|
.56
|
|
|
.64
|
|
|
.36
|
|
|
1.73
|
|
|
|
16.
|
Condensed Consolidating Financial Information
|
Certain debt obligations of the Company described in Note 6, "Financing," which constitute debt obligations of Parent’s 100%-owned subsidiary, Macy’s Retail Holdings, Inc. (“Subsidiary Issuer”), 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
2016
,
2015
and
2014
, Consolidating Balance Sheets as of
January 28, 2017
and
January 30, 2016
, and the related Condensed Consolidating Statements of Cash Flows for
2016
,
2015
, and
2014
are presented on the following pages.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Comprehensive Income
For
2016
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
10,677
|
|
|
$
|
23,436
|
|
|
$
|
(8,335
|
)
|
|
$
|
25,778
|
|
Cost of sales
|
—
|
|
|
(6,787
|
)
|
|
(17,169
|
)
|
|
8,335
|
|
|
(15,621
|
)
|
Gross margin
|
—
|
|
|
3,890
|
|
|
6,267
|
|
|
—
|
|
|
10,157
|
|
Selling, general and administrative expenses
|
(2
|
)
|
|
(3,739
|
)
|
|
(4,524
|
)
|
|
—
|
|
|
(8,265
|
)
|
Impairments, store closing and other costs
|
—
|
|
|
(295
|
)
|
|
(184
|
)
|
|
—
|
|
|
(479
|
)
|
Settlement charges
|
—
|
|
|
(34
|
)
|
|
(64
|
)
|
|
—
|
|
|
(98
|
)
|
Operating income (loss)
|
(2
|
)
|
|
(178
|
)
|
|
1,495
|
|
|
—
|
|
|
1,315
|
|
Interest (expense) income, net:
|
|
|
|
|
|
|
|
|
|
External
|
2
|
|
|
(366
|
)
|
|
1
|
|
|
—
|
|
|
(363
|
)
|
Intercompany
|
—
|
|
|
(200
|
)
|
|
200
|
|
|
—
|
|
|
—
|
|
Equity in earnings of subsidiaries
|
619
|
|
|
255
|
|
|
—
|
|
|
(874
|
)
|
|
—
|
|
Income (loss) before income taxes
|
619
|
|
|
(489
|
)
|
|
1,696
|
|
|
(874
|
)
|
|
952
|
|
Federal, state and local income
tax benefit (expense)
|
—
|
|
|
281
|
|
|
(622
|
)
|
|
—
|
|
|
(341
|
)
|
Net income (loss)
|
619
|
|
|
(208
|
)
|
|
1,074
|
|
|
(874
|
)
|
|
611
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Net income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
619
|
|
|
$
|
(208
|
)
|
|
$
|
1,082
|
|
|
$
|
(874
|
)
|
|
$
|
619
|
|
Comprehensive income (loss)
|
$
|
766
|
|
|
$
|
(61
|
)
|
|
$
|
1,153
|
|
|
$
|
(1,100
|
)
|
|
$
|
758
|
|
Comprehensive loss attributable to
noncontrolling interest
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Comprehensive income (loss) attributable to
Macy's, Inc. shareholders
|
$
|
766
|
|
|
$
|
(61
|
)
|
|
$
|
1,161
|
|
|
$
|
(1,100
|
)
|
|
$
|
766
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Comprehensive Income
For
2015
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
11,959
|
|
|
$
|
24,037
|
|
|
$
|
(8,917
|
)
|
|
$
|
27,079
|
|
Cost of sales
|
—
|
|
|
(7,670
|
)
|
|
(17,743
|
)
|
|
8,917
|
|
|
(16,496
|
)
|
Gross margin
|
—
|
|
|
4,289
|
|
|
6,294
|
|
|
—
|
|
|
10,583
|
|
Selling, general and administrative expenses
|
(2
|
)
|
|
(3,980
|
)
|
|
(4,274
|
)
|
|
—
|
|
|
(8,256
|
)
|
Impairments, store closing and other costs
|
—
|
|
|
(170
|
)
|
|
(118
|
)
|
|
—
|
|
|
(288
|
)
|
Operating income (loss)
|
(2
|
)
|
|
139
|
|
|
1,902
|
|
|
—
|
|
|
2,039
|
|
Interest (expense) income, net:
|
|
|
|
|
|
|
|
|
|
External
|
1
|
|
|
(361
|
)
|
|
(1
|
)
|
|
—
|
|
|
(361
|
)
|
Intercompany
|
—
|
|
|
(230
|
)
|
|
230
|
|
|
—
|
|
|
—
|
|
Equity in earnings of subsidiaries
|
1,072
|
|
|
421
|
|
|
—
|
|
|
(1,493
|
)
|
|
—
|
|
Income (loss) before income taxes
|
1,071
|
|
|
(31
|
)
|
|
2,131
|
|
|
(1,493
|
)
|
|
1,678
|
|
Federal, state and local income
tax benefit (expense)
|
1
|
|
|
120
|
|
|
(729
|
)
|
|
—
|
|
|
(608
|
)
|
Net income
|
1,072
|
|
|
89
|
|
|
1,402
|
|
|
(1,493
|
)
|
|
1,070
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Net income attributable to
Macy's, Inc. shareholders
|
$
|
1,072
|
|
|
$
|
89
|
|
|
$
|
1,404
|
|
|
$
|
(1,493
|
)
|
|
$
|
1,072
|
|
Comprehensive income
|
$
|
1,101
|
|
|
$
|
118
|
|
|
$
|
1,415
|
|
|
$
|
(1,535
|
)
|
|
$
|
1,099
|
|
Comprehensive loss attributable to
noncontrolling interest
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Comprehensive income attributable to
Macy's, Inc. shareholders
|
$
|
1,101
|
|
|
$
|
118
|
|
|
$
|
1,417
|
|
|
$
|
(1,535
|
)
|
|
$
|
1,101
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Comprehensive Income
For
2014
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
13,078
|
|
|
$
|
23,522
|
|
|
$
|
(8,495
|
)
|
|
$
|
28,105
|
|
Cost of sales
|
—
|
|
|
(8,127
|
)
|
|
(17,231
|
)
|
|
8,495
|
|
|
(16,863
|
)
|
Gross margin
|
—
|
|
|
4,951
|
|
|
6,291
|
|
|
—
|
|
|
11,242
|
|
Selling, general and administrative expenses
|
(3
|
)
|
|
(4,351
|
)
|
|
(4,001
|
)
|
|
—
|
|
|
(8,355
|
)
|
Impairments, store closing and other costs
|
—
|
|
|
(45
|
)
|
|
(42
|
)
|
|
—
|
|
|
(87
|
)
|
Operating income (loss)
|
(3
|
)
|
|
555
|
|
|
2,248
|
|
|
—
|
|
|
2,800
|
|
Interest (expense) income, net:
|
|
|
|
|
|
|
|
|
|
External
|
1
|
|
|
(394
|
)
|
|
—
|
|
|
—
|
|
|
(393
|
)
|
Intercompany
|
—
|
|
|
(230
|
)
|
|
230
|
|
|
—
|
|
|
—
|
|
Premium on early retirement of debt
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
Equity in earnings of subsidiaries
|
1,528
|
|
|
624
|
|
|
—
|
|
|
(2,152
|
)
|
|
—
|
|
Income before income taxes
|
1,526
|
|
|
538
|
|
|
2,478
|
|
|
(2,152
|
)
|
|
2,390
|
|
Federal, state and local income
tax benefit (expense)
|
—
|
|
|
25
|
|
|
(889
|
)
|
|
—
|
|
|
(864
|
)
|
Net income
|
1,526
|
|
|
563
|
|
|
1,589
|
|
|
(2,152
|
)
|
|
1,526
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income attributable to
Macy's, Inc. shareholders
|
$
|
1,526
|
|
|
$
|
563
|
|
|
$
|
1,589
|
|
|
$
|
(2,152
|
)
|
|
$
|
1,526
|
|
Comprehensive income
|
$
|
1,119
|
|
|
$
|
156
|
|
|
$
|
1,338
|
|
|
$
|
(1,494
|
)
|
|
$
|
1,119
|
|
Comprehensive loss attributable to
noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Comprehensive income attributable to
Macy's, Inc. shareholders
|
$
|
1,119
|
|
|
$
|
156
|
|
|
$
|
1,338
|
|
|
$
|
(1,494
|
)
|
|
$
|
1,119
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Balance Sheet
As of
January 28, 2017
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
938
|
|
|
$
|
81
|
|
|
$
|
278
|
|
|
$
|
—
|
|
|
$
|
1,297
|
|
Receivables
|
—
|
|
|
169
|
|
|
353
|
|
|
—
|
|
|
522
|
|
Merchandise inventories
|
—
|
|
|
2,565
|
|
|
2,834
|
|
|
—
|
|
|
5,399
|
|
Prepaid expenses and other current assets
|
—
|
|
|
84
|
|
|
324
|
|
|
—
|
|
|
408
|
|
Total Current Assets
|
938
|
|
|
2,899
|
|
|
3,789
|
|
|
—
|
|
|
7,626
|
|
Property and Equipment – net
|
—
|
|
|
3,397
|
|
|
3,620
|
|
|
—
|
|
|
7,017
|
|
Goodwill
|
—
|
|
|
3,315
|
|
|
582
|
|
|
—
|
|
|
3,897
|
|
Other Intangible Assets – net
|
—
|
|
|
51
|
|
|
447
|
|
|
—
|
|
|
498
|
|
Other Assets
|
—
|
|
|
47
|
|
|
766
|
|
|
—
|
|
|
813
|
|
Deferred Income Taxes
|
26
|
|
|
—
|
|
|
—
|
|
|
(26
|
)
|
|
—
|
|
Intercompany Receivable
|
375
|
|
|
—
|
|
|
2,428
|
|
|
(2,803
|
)
|
|
—
|
|
Investment in Subsidiaries
|
3,137
|
|
|
3,540
|
|
|
—
|
|
|
(6,677
|
)
|
|
—
|
|
Total Assets
|
$
|
4,476
|
|
|
$
|
13,249
|
|
|
$
|
11,632
|
|
|
$
|
(9,506
|
)
|
|
$
|
19,851
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
$
|
—
|
|
|
$
|
306
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
309
|
|
Merchandise accounts payable
|
—
|
|
|
590
|
|
|
833
|
|
|
—
|
|
|
1,423
|
|
Accounts payable and accrued liabilities
|
15
|
|
|
1,064
|
|
|
2,484
|
|
|
—
|
|
|
3,563
|
|
Income taxes
|
71
|
|
|
16
|
|
|
265
|
|
|
—
|
|
|
352
|
|
Total Current Liabilities
|
86
|
|
|
1,976
|
|
|
3,585
|
|
|
—
|
|
|
5,647
|
|
Long-Term Debt
|
—
|
|
|
6,544
|
|
|
18
|
|
|
—
|
|
|
6,562
|
|
Intercompany Payable
|
—
|
|
|
2,803
|
|
|
—
|
|
|
(2,803
|
)
|
|
—
|
|
Deferred Income Taxes
|
—
|
|
|
688
|
|
|
781
|
|
|
(26
|
)
|
|
1,443
|
|
Other Liabilities
|
66
|
|
|
500
|
|
|
1,311
|
|
|
—
|
|
|
1,877
|
|
Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
Macy's, Inc.
|
4,323
|
|
|
738
|
|
|
5,939
|
|
|
(6,677
|
)
|
|
4,323
|
|
Noncontrolling Interest
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Total Shareholders’ Equity
|
4,323
|
|
|
738
|
|
|
5,938
|
|
|
(6,677
|
)
|
|
4,322
|
|
Total Liabilities and Shareholders’ Equity
|
$
|
4,475
|
|
|
$
|
13,249
|
|
|
$
|
11,633
|
|
|
$
|
(9,506
|
)
|
|
$
|
19,851
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Balance Sheet
As of
January 30, 2016
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
741
|
|
|
$
|
91
|
|
|
$
|
277
|
|
|
$
|
—
|
|
|
$
|
1,109
|
|
Receivables
|
—
|
|
|
217
|
|
|
341
|
|
|
—
|
|
|
558
|
|
Merchandise inventories
|
—
|
|
|
2,702
|
|
|
2,804
|
|
|
—
|
|
|
5,506
|
|
Prepaid expenses and other current assets
|
—
|
|
|
135
|
|
|
344
|
|
|
—
|
|
|
479
|
|
Income taxes
|
44
|
|
|
—
|
|
|
—
|
|
|
(44
|
)
|
|
—
|
|
Total Current Assets
|
785
|
|
|
3,145
|
|
|
3,766
|
|
|
(44
|
)
|
|
7,652
|
|
Property and Equipment – net
|
—
|
|
|
3,925
|
|
|
3,691
|
|
|
—
|
|
|
7,616
|
|
Goodwill
|
—
|
|
|
3,315
|
|
|
582
|
|
|
—
|
|
|
3,897
|
|
Other Intangible Assets – net
|
—
|
|
|
52
|
|
|
462
|
|
|
—
|
|
|
514
|
|
Other Assets
|
—
|
|
|
154
|
|
|
743
|
|
|
—
|
|
|
897
|
|
Deferred Income Taxes
|
14
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
Intercompany Receivable
|
—
|
|
|
—
|
|
|
3,800
|
|
|
(3,800
|
)
|
|
—
|
|
Investment in Subsidiaries
|
4,725
|
|
|
3,804
|
|
|
—
|
|
|
(8,529
|
)
|
|
—
|
|
Total Assets
|
$
|
5,524
|
|
|
$
|
14,395
|
|
|
$
|
13,044
|
|
|
$
|
(12,387
|
)
|
|
$
|
20,576
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
$
|
—
|
|
|
$
|
641
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
642
|
|
Merchandise accounts payable
|
—
|
|
|
667
|
|
|
859
|
|
|
—
|
|
|
1,526
|
|
Accounts payable and accrued liabilities
|
35
|
|
|
1,439
|
|
|
1,859
|
|
|
—
|
|
|
3,333
|
|
Income taxes
|
—
|
|
|
41
|
|
|
230
|
|
|
(44
|
)
|
|
227
|
|
Total Current Liabilities
|
35
|
|
|
2,788
|
|
|
2,949
|
|
|
(44
|
)
|
|
5,728
|
|
Long-Term Debt
|
—
|
|
|
6,976
|
|
|
19
|
|
|
—
|
|
|
6,995
|
|
Intercompany Payable
|
1,218
|
|
|
2,582
|
|
|
—
|
|
|
(3,800
|
)
|
|
—
|
|
Deferred Income Taxes
|
—
|
|
|
693
|
|
|
798
|
|
|
(14
|
)
|
|
1,477
|
|
Other Liabilities
|
21
|
|
|
558
|
|
|
1,544
|
|
|
—
|
|
|
2,123
|
|
Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
Macy's, Inc.
|
4,250
|
|
|
798
|
|
|
7,731
|
|
|
(8,529
|
)
|
|
4,250
|
|
Noncontrolling Interest
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Total Shareholders’ Equity
|
4,250
|
|
|
798
|
|
|
7,734
|
|
|
(8,529
|
)
|
|
4,253
|
|
Total Liabilities and Shareholders’ Equity
|
$
|
5,524
|
|
|
$
|
14,395
|
|
|
$
|
13,044
|
|
|
$
|
(12,387
|
)
|
|
$
|
20,576
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Cash Flows
For
2016
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
619
|
|
|
$
|
(208
|
)
|
|
$
|
1,074
|
|
|
$
|
(874
|
)
|
|
$
|
611
|
|
Impairments, store closing and other costs
|
—
|
|
|
295
|
|
|
184
|
|
|
—
|
|
|
479
|
|
Settlement charges
|
—
|
|
|
34
|
|
|
64
|
|
|
—
|
|
|
98
|
|
Equity in earnings of subsidiaries
|
(619
|
)
|
|
(255
|
)
|
|
—
|
|
|
874
|
|
|
—
|
|
Dividends received from subsidiaries
|
957
|
|
|
575
|
|
|
—
|
|
|
(1,532
|
)
|
|
—
|
|
Depreciation and amortization
|
—
|
|
|
407
|
|
|
651
|
|
|
—
|
|
|
1,058
|
|
(Increase) decrease in working capital
|
110
|
|
|
(482
|
)
|
|
92
|
|
|
—
|
|
|
(280
|
)
|
Other, net
|
28
|
|
|
51
|
|
|
(244
|
)
|
|
—
|
|
|
(165
|
)
|
Net cash provided by
operating activities
|
1,095
|
|
|
417
|
|
|
1,821
|
|
|
(1,532
|
)
|
|
1,801
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment and capitalized software, net
|
—
|
|
|
12
|
|
|
(251
|
)
|
|
—
|
|
|
(239
|
)
|
Other, net
|
—
|
|
|
32
|
|
|
20
|
|
|
—
|
|
|
52
|
|
Net cash provided (used) by investing activities
|
—
|
|
|
44
|
|
|
(231
|
)
|
|
—
|
|
|
(187
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Debt repaid, net of debt issued
|
—
|
|
|
(750
|
)
|
|
1
|
|
|
—
|
|
|
(749
|
)
|
Dividends paid
|
(459
|
)
|
|
—
|
|
|
(1,532
|
)
|
|
1,532
|
|
|
(459
|
)
|
Common stock acquired, net of
issuance of common stock
|
(280
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(280
|
)
|
Proceeds from noncontrolling interest
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Intercompany activity, net
|
(144
|
)
|
|
255
|
|
|
(111
|
)
|
|
—
|
|
|
—
|
|
Other, net
|
(15
|
)
|
|
24
|
|
|
49
|
|
|
—
|
|
|
58
|
|
Net cash used by
financing activities
|
(898
|
)
|
|
(471
|
)
|
|
(1,589
|
)
|
|
1,532
|
|
|
(1,426
|
)
|
Net increase (decrease) in cash
and cash equivalents
|
197
|
|
|
(10
|
)
|
|
1
|
|
|
—
|
|
|
188
|
|
Cash and cash equivalents at
beginning of period
|
741
|
|
|
91
|
|
|
277
|
|
|
—
|
|
|
1,109
|
|
Cash and cash equivalents at
end of period
|
$
|
938
|
|
|
$
|
81
|
|
|
$
|
278
|
|
|
$
|
—
|
|
|
$
|
1,297
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Cash Flows
For
2015
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
1,072
|
|
|
$
|
89
|
|
|
$
|
1,402
|
|
|
$
|
(1,493
|
)
|
|
$
|
1,070
|
|
Impairments, store closing and other costs
|
—
|
|
|
170
|
|
|
118
|
|
|
—
|
|
|
288
|
|
Equity in earnings of subsidiaries
|
(1,072
|
)
|
|
(421
|
)
|
|
—
|
|
|
1,493
|
|
|
—
|
|
Dividends received from subsidiaries
|
1,086
|
|
|
—
|
|
|
—
|
|
|
(1,086
|
)
|
|
—
|
|
Depreciation and amortization
|
—
|
|
|
440
|
|
|
621
|
|
|
—
|
|
|
1,061
|
|
(Increase) decrease in working capital
|
25
|
|
|
(340
|
)
|
|
(81
|
)
|
|
—
|
|
|
(396
|
)
|
Other, net
|
(8
|
)
|
|
(78
|
)
|
|
47
|
|
|
—
|
|
|
(39
|
)
|
Net cash provided (used) by
operating activities
|
1,103
|
|
|
(140
|
)
|
|
2,107
|
|
|
(1,086
|
)
|
|
1,984
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment and capitalized software, net
|
—
|
|
|
(88
|
)
|
|
(821
|
)
|
|
—
|
|
|
(909
|
)
|
Other, net
|
—
|
|
|
83
|
|
|
(266
|
)
|
|
—
|
|
|
(183
|
)
|
Net cash used by
investing activities
|
—
|
|
|
(5
|
)
|
|
(1,087
|
)
|
|
—
|
|
|
(1,092
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Debt issued, net of debt repaid
|
—
|
|
|
348
|
|
|
(1
|
)
|
|
—
|
|
|
347
|
|
Dividends paid
|
(456
|
)
|
|
—
|
|
|
(1,086
|
)
|
|
1,086
|
|
|
(456
|
)
|
Common stock acquired, net of
issuance of common stock
|
(1,838
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,838
|
)
|
Proceeds from noncontrolling interest
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Intercompany activity, net
|
12
|
|
|
(243
|
)
|
|
231
|
|
|
—
|
|
|
—
|
|
Other, net
|
12
|
|
|
37
|
|
|
(136
|
)
|
|
—
|
|
|
(87
|
)
|
Net cash provided (used) by financing activities
|
(2,270
|
)
|
|
142
|
|
|
(987
|
)
|
|
1,086
|
|
|
(2,029
|
)
|
Net increase (decrease) in
cash and cash equivalents
|
(1,167
|
)
|
|
(3
|
)
|
|
33
|
|
|
—
|
|
|
(1,137
|
)
|
Cash and cash equivalents at
beginning of period
|
1,908
|
|
|
94
|
|
|
244
|
|
|
—
|
|
|
2,246
|
|
Cash and cash equivalents at
end of period
|
$
|
741
|
|
|
$
|
91
|
|
|
$
|
277
|
|
|
$
|
—
|
|
|
$
|
1,109
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Cash Flows
For
2014
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary
Issuer
|
|
Other
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
1,526
|
|
|
$
|
563
|
|
|
$
|
1,589
|
|
|
$
|
(2,152
|
)
|
|
$
|
1,526
|
|
Impairments, store closing and other costs
|
—
|
|
|
45
|
|
|
42
|
|
|
—
|
|
|
87
|
|
Equity in earnings of subsidiaries
|
(1,528
|
)
|
|
(624
|
)
|
|
—
|
|
|
2,152
|
|
|
—
|
|
Dividends received from subsidiaries
|
1,088
|
|
|
1
|
|
|
—
|
|
|
(1,089
|
)
|
|
—
|
|
Depreciation and amortization
|
—
|
|
|
454
|
|
|
582
|
|
|
—
|
|
|
1,036
|
|
Increase (decrease) in working capital
|
9
|
|
|
74
|
|
|
(69
|
)
|
|
—
|
|
|
14
|
|
Other, net
|
(20
|
)
|
|
(177
|
)
|
|
243
|
|
|
—
|
|
|
46
|
|
Net cash provided by
operating activities
|
1,075
|
|
|
336
|
|
|
2,387
|
|
|
(1,089
|
)
|
|
2,709
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase (disposition) of property and equipment and capitalized software, net
|
—
|
|
|
(260
|
)
|
|
(636
|
)
|
|
—
|
|
|
(896
|
)
|
Other, net
|
—
|
|
|
(12
|
)
|
|
(62
|
)
|
|
—
|
|
|
(74
|
)
|
Net cash used by
investing activities
|
—
|
|
|
(272
|
)
|
|
(698
|
)
|
|
—
|
|
|
(970
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Debt repaid, net of debt issued
|
—
|
|
|
177
|
|
|
(3
|
)
|
|
—
|
|
|
174
|
|
Dividends paid
|
(421
|
)
|
|
—
|
|
|
(1,089
|
)
|
|
1,089
|
|
|
(421
|
)
|
Common stock acquired, net of
issuance of common stock
|
(1,643
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,643
|
)
|
Proceeds from noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Intercompany activity, net
|
927
|
|
|
(283
|
)
|
|
(644
|
)
|
|
—
|
|
|
—
|
|
Other, net
|
15
|
|
|
52
|
|
|
57
|
|
|
—
|
|
|
124
|
|
Net cash used by
financing activities
|
(1,122
|
)
|
|
(54
|
)
|
|
(1,679
|
)
|
|
1,089
|
|
|
(1,766
|
)
|
Net increase (decrease) in cash
and cash equivalents
|
(47
|
)
|
|
10
|
|
|
10
|
|
|
—
|
|
|
(27
|
)
|
Cash and cash equivalents at
beginning of period
|
1,955
|
|
|
84
|
|
|
234
|
|
|
—
|
|
|
2,273
|
|
Cash and cash equivalents at
end of period
|
$
|
1,908
|
|
|
$
|
94
|
|
|
$
|
244
|
|
|
$
|
—
|
|
|
$
|
2,246
|
|