REDEFINING
OUR CUSTOMERS’
SHOPPING
EXPERIENCE
ANNUAL REPORT 2013
MACY’S, INC. IS ONE OF THE NATION’S
PREMIER OMNICHANNEL RETAILERS, WITH
FISCAL 2013 SALES OF $27.9 BILLION.
THE COMPANY OPERATES
THE MACY’S AND BLOOMINGDALE’S
BRANDS WITH ABOUT 840 STORES IN
45 STATES, THE DISTRICT OF COLUMBIA,
GUAM AND PUERTO RICO UNDER
THE NAMES OF MACY’S AND
BLOOMINGDALE’S, THE MACYS.COM
AND BLOOMINGDALES.COM WEBSITES,
AND 13 BLOOMINGDALE’S OUTLET
STORES. BLOOMINGDALE’S IN DUBAI
IS OPERATED BY AL TAYER GROUP LLC
UNDER A LICENSE AGREEMENT.
Macy’s, established in 1858, is an iconic retailing brand with about 800 stores
operating coast-to-coast, online at macys.com and a Macy’s shopping app
for mobile devices. Macy’s offers powerful assortments and the best brands,
tailored to each and every customer with obvious value, engaging service
and unforgettable moments.
CELEBRATING THE MAGIC OF MACY’S
Clearly, Macy’s is distinctly different from other major retailers. Macy’s embraces
customers and strives to provide an experience that transcends ordinary
shopping. Our DNA includes special events that are magical – the Macy’s
Thanksgiving Day Parade, Fourth of July Fireworks, flower shows, fashion
extravaganzas, celebrity appearances, cooking demonstrations and holiday
traditions ranging from the arrival of Santa Claus to tree lightings and animated
window displays. Beyond fantastic events, Macy’s is delivering magical moments
every day. We surprise and delight customers with unique and interesting
fashion merchandise – including exclusive brands that our customers won’t find
elsewhere. We engage customers in stores, online and via mobile devices by
offering special experiences, as well as advice and options that bring fashion
ideas to life. Our looks set the tone in style magazines, videos, TV shows, movies,
blogs and websites. Our associates take the extra step to help a customer in
need. Every year, we receive tens of thousands of messages complimenting
our people and saluting the shopping experience at Macy’s. It’s all part of the
excitement that we’ve been creating for 155 years.
GROWING THROUGH LOCALIZATION, OMNICHANNEL
Localization and omnichannel integration are key components of Macy’s strategic
formula for continued growth and success as we redefine the customers’
shopping experience. Through My Macy’s, we have invested in talent,
technology and marketing that allow us to ensure that each and every Macy’s
store is “just right” for the customer who shops in that location. We have
provided for more local decision-making in every Macy’s community. The Macy’s
experience is delivered in stores, online and mobile devices, and we have
developed systems and processes to access Macy’s vast inventory in stores and
fulfillment centers across the country to fulfill the needs of each customer no
matter where he or she is located.
Bloomingdale’s, America’s only nationwide, full-line, upscale department store, is
recognized for its originality, innovation and fashion leadership. It truly is “Like no
other store in the world.” In fact, Bloomingdale’s is a leading attraction for visitors
and tourists coming to the United States from around the globe. This brand
includes 37 stores, bloomingdales.com and 13 Bloomingdale’s Outlet locations.
Bloomingdale’s operates in Dubai, United Arab Emirates, under a license
agreement with Al Tayer Insignia, a company of Al Tayer Group LLC.
FOCUSING ON AN UPSCALE NICHE
Bloomingdale’s separates itself from the mainstream and is reinforcing its position
as an authority for upscale, contemporary fashion. Customers are attracted by the
latest styles from the hottest brands, such as Armani, Burberry, Chanel, Christian
Dior, David Yurman, Gucci, Jimmy Choo, John Varvatos, Louis Vuitton, Maje,
Miu Miu, Prada, Sandro, Theory and Tory Burch. Bloomingdale’s shoppers have
come to expect and savor variety – the newest looks from established brands,
as well as unique products from rising young designers.
Supporting these fashion brands are exceptional customer amenities –
international visitors’ centers, personal shoppers, outstanding fitting rooms and
lounges – elegant events and personalized, attentive service that strengthen
customer relationships and build loyalty.
TO OUR SHAREHOLDERS:
Our company’s momentum continued to build in 2013 as we
drove improvement in Macy’s, Inc.’s financial results, as well as
in the execution of our key strategies. We again outperformed
major competitors across the retail spectrum.
We are most proud of the consistency of our strong
performance, which has led to consecutive year-over-year
increases in sales and earnings, as well as healthy cash flow,
since we unified our organizational structure and began
implementing My Macy’s localization on a nationwide basis
in 2009. In fact, 2013 was our fifth consecutive year of double-
digit growth in earnings per share.
Here are highlights from our fiscal 2013 financial results, which are
presented and discussed in greater detail in the company’s 2013
Form 10-K (including important information on pages 16 to 19
regarding our non-GAAP financial measures):
• Growth of 2.8 percent in comparable sales combined with
comparable sales of departments licensed to third parties.
Comparable sales without comparable sales of departments
licensed to third parties grew by 1.9 percent.
• Adjusted EBITDA as a percent to sales rose to 13.6 percent,
compared with 13.4 percent in 2012. This represents
progress toward the company’s goal of adjusted EBITDA
as a percent to sales of 14 percent. Adjusted EBITDA as a
percent to sales has risen steadily from 11.3 percent in 2009.
• Earnings per diluted share were $3.86, an increase of
19 percent over $3.24 in 2012. Excluding certain items
(impairments, store closing and other costs in 2013;
impairments, store closing and other costs and premium
on early retirement of debt in 2012), earnings per diluted
share were $4.00 in 2013, an increase of 16 percent from
$3.46 in 2012.
• Return On Invested Capital (ROIC) – a key measure of
how efficiently the company uses its capital – rose again in
2013 to 21.5 percent, up from 21.2 percent in 2012. It was
the fifth consecutive year of improvement in ROIC.
MAJOR ACCOMPLISHMENTS
Beyond our strong financial performance, the company
benefitted in 2013 from a number of significant actions to
support our highly successful core business strategies –
My Macy’s localization, Omnichannel integration and Magic
Selling customer engagement – which are known by the
acronym of M.O.M. Among them:
• We continued to refine and improve the My Macy’s process
for localizing merchandise assortments by store location,
as well as to maximize the effectiveness and efficiency of
the extraordinary talent in our My Macy’s field and central
organization. We have re-doubled the emphasis on precision
in merchandise size, fit, fabric weight, style and color
preferences by store, market and climate zone. In addition,
we are better understanding and serving the specific needs
of multicultural consumers who represent an increasingly
large proportion of our customers.
• Store fulfillment – the process of shipping direct-to-customer
orders that originate online and from other stores – was
expanded to 500 Macy’s locations in 2013. Store fulfillment
was piloted in 2010, rolled out to 23 stores in 2011, then to
292 stores in 2012. We will complete the rollout in spring
2014, when all of our approximately 650 full-line Macy’s
stores will have shipping capability. With store fulfillment,
we are able to leverage the inventory and customer
relationships inherent in our bricks-and-mortar stores in
support of an omnichannel strategy that is being driven
by emerging customer shopping preferences.
• Based on this store fulfillment capability, we successfully
tested Buy Online Pickup In Store in 10 Macy’s locations in
the Washington, D.C., market in fall 2013. This customer
convenience was well-received and will be quickly rolled
out to all Macy’s full-line stores by mid-year 2014.
EARNINGS PER DILUTED SHARE
(excluding items, as described above)
0
0
4
$
.
6
4
3
$
.
.
8
8
2
$
1
1
.
2
$
6
3
.
1
$
2009
2010
2011
2012
2013
1
• To complement store fulfillment, we continue to aggressively
CONTINUOUS IMPROVEMENT
expand our capacity in dedicated direct-to-customer
fulfillment centers. In 2014, we will complete the expansion
of our fulfillment megacenter in Goodyear, AZ, by 360,000
square feet to a total of 960,000 square feet, and we
announced a new 1.3 million-square-foot fulfillment center
to be built in Tulsa, OK, and opened in spring 2015. It will
be our fifth megacenter and one of the largest and most
technologically advanced fulfillment centers in America.
• Macy’s and Bloomingdale’s continue to bring new
technology-based customer tools into their stores.
Increasingly, our associates are using tablets and other
hand-held devices for selling in departments such as fine
jewelry and shoes, as well as for training and product
knowledge. Macy’s is piloting kiosks that allow us to expand
our assortment on the sales floor in key categories such as
handbags. Radio frequency identification (RFID) is helping us
to count item-level inventories more precisely. Large format
digital displays are giving our stores renewed energy. We
also are improving macys.com and bloomingdales.com with
better messaging … better search capability … enhanced
product recommendations … and increased ability for
customers to create and enable wish lists in social media. In
early 2014, Fast Company magazine named Macy’s as one
of the 10 most innovative retailers in the world!
• On the merchandising front, new brands and products were
introduced across our company in 2013, including various
new Millennial brands such as Macy’s highly successful
Maison Jules. We also infused more depth and newness in
our established, best-selling brands, including Polo Ralph
Lauren, Michael Kors, Calvin Klein, Tommy Hilfiger and I.N.C.
We began opening new athletic footwear shops in Macy’s
stores and on macys.com under a new license agreement
with Finish Line, and we signed a new license agreement
with Locker Room by LIDS, featuring localized pro and
college teamwear in stores and online. Our relationship
with LIDS debuted with a spectacular NFL teamwear shop
at Macy’s Herald Square in New York City for the 2014
Super Bowl.
• Bloomingdale’s continued to perform well in serving its
upscale customer. We expanded its store presence by
opening an outstanding new location in Glendale, CA, and
announcing future new stores in Honolulu, HI, and Miami,
FL. Bloomingdale’s Outlets, a promising format, added a
13th location in 2013.
SHAREHOLDER RETURNS
Macy’s, Inc.’s growth and development has resulted in strong
returns for our shareholders over the past four years. In fact,
total shareholder return (TSR) has far outpaced an index of retail
competitors, as well as the broader stock market. In 2013 alone,
Macy’s, Inc. shareholders saw a TSR of 37.4 percent as part of a
five-year increase of more than 540 percent.
The company’s cash dividend has quintupled over the past three
years from an annualized 20 cents per share to $1 per share. This
includes a 25 percent increase in the dividend in spring 2013.
Share buybacks have totaled $3.4 billion since our repurchase
program was resumed in the third quarter of 2011.
We remain committed to driving growth and continuous
improvement in 2014 and beyond. We will do so by remaining
focused on M.O.M. as our strategic roadmap. The power in
M.O.M. is how our localization, omnichannel and customer
engagement activities are closely integrated to better serve
the customer and improve business performance.
While we have seen great results from M.O.M. to date, the best
news is that we still have significant untapped opportunities
ahead. Given the pace of change and mobility in our society, we
will never be “finished” with My Macy’s. That’s because we will
always need to change and refine in lock-step with a customer
who doesn’t stand still.
Our M.O.M. strategy is enabled by a unique organizational
structure, which is unlikely to be copied by our competitors
because of the financial resources and talent required. We have
been developing M.O.M. for years, and it is an enduring formula
that we believe continues to hold significant promise.
Macy’s, Inc. today is often at the top of the list of companies cited
for excellence in bringing stores, online and mobile together
for shoppers. We have chosen this path because customers are
shopping differently today than they did just a few years ago.
We invested early and aggressively in building an omnichannel
capability – talent, technology, fulfillment capacity and
infrastructure. We had a great head start and built quickly on
our early successes. Clearly, we need to keep moving faster in
order to stay ahead.
The key to omnichannel success is the combination of the
digital world with our national portfolio of stores to make both
better shopping experiences. Indeed, we are redefining our
customers’ shopping experience.
Customer engagement through Magic Selling continues to be
very important to us, and we have expanded the mindset beyond
stores to include all customer-facing environments, such as phone,
live chat, and big-ticket delivery. We pledge to make magic in all
of our customer interactions, not just on the selling floor.
CHANGE IS EMPOWERING
Moving forward and deeper into our M.O.M. strategies isn’t
always easy because it requires change and sometimes disruption
to established ways of doing business. While unsettling to
some organizations, we at Macy’s, Inc. have found change to be
exhilarating and empowering to our organization. Pursuing new
directions requires us to think harder and dig deeper.
Thank you to our employees, vendor partners and investors for
their role in our success.
These are very exciting times and I am humbled knowing the
talent we possess at all levels of our company. The quality of our
leadership and teamwork will continue to propel us to success in
serving the needs and preferences of our customers as we strive
to deliver the right balance of fashion, newness, service and value.
Terry J. Lundgren
Chairman and Chief Executive Officer
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended
February 1, 2014
Commission File Number:
1-13536
7 West Seventh Street
Cincinnati, Ohio 45202
(513) 579-7000
and
151 West 34th Street
New York, New York 10001
(212) 494-1602
Incorporated in Delaware
I.R.S. No. 13-3324058
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.01 per share
7.45% Senior Debentures due 2017
6.79% Senior Debentures due 2027
7% Senior Debentures due 2028
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most
recently completed second fiscal quarter (August 3, 2013) was approximately $18,692,500,000.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Common Stock, $0.01 par value per share
Outstanding at February 28, 2014
367,048,648 shares
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders to be held May 16, 2014 (Proxy Statement)
Document
Parts Into
Which Incorporated
Part III
Unless the context requires otherwise, references to “Macy’s” or the “Company” are references to Macy’s and its
subsidiaries and references to “2013,” “2012,” “2011,” “2010” and “2009” are references to the Company’s fiscal years
ended February 1, 2014, February 2, 2013, January 28, 2012, January 29, 2011 and January 30, 2010, respectively. Fiscal
years 2013, 2011, 2010 and 2009 included 52 weeks; fiscal year 2012 included 53 weeks.
Forward-Looking Statements
This report and other reports, statements and information previously or subsequently filed by the Company with the
Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements. Such statements
are based upon the beliefs and assumptions of, and on information available to, the management of the Company at the
time such statements are made. The following are or may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995: (i) statements preceded by, followed by or that include the words “may,”
“will,” “could,” “should,” “believe,” “expect,” “future,” “potential,” “anticipate,” “intend,” “plan,” “think,”
“estimate” or “continue” or the negative or other variations thereof, and (ii) statements regarding matters that are not
historical facts. Such forward-looking statements are subject to various risks and uncertainties, including risks and
uncertainties relating to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the possible invalidity of the underlying beliefs and assumptions;
competitive pressures from department and specialty stores, general merchandise stores, manufacturers’
outlets, off-price and discount stores, and all other retail channels, including the Internet, mail-order
catalogs and television;
general consumer-spending levels, including the impact of general economic conditions, consumer
disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the
costs of basic necessities and other goods and the effects of the weather or natural disasters;
conditions to, or changes in the timing of, proposed transactions and changes in expected synergies, cost
savings and non-recurring charges;
possible changes or developments in social, economic, business, industry, market, legal and regulatory
circumstances and conditions;
possible actions taken or omitted to be taken by third parties, including customers, suppliers, business
partners, competitors and legislative, regulatory, judicial and other governmental authorities and officials;
changes in relationships with vendors and other product and service providers;
currency, interest and exchange rates and other capital market, economic and geo-political conditions;
severe or unseasonable weather, possible outbreaks of epidemic or pandemic diseases and natural disasters;
unstable political conditions, civil unrest, terrorist activities and armed conflicts;
the possible inability of the Company’s manufacturers or transporters to deliver products in a timely manner
or meet the Company’s quality standards;
the Company’s reliance on foreign sources of production, including risks related to the disruption of imports
by labor disputes, regional health pandemics, and regional political and economic conditions;
duties, taxes, other charges and quotas on imports; and
possible systems failures and/or security breaches, including, any security breach that results in the theft,
transfer or unauthorized disclosure of customer, employee or company information, or the failure to comply
with various laws applicable to the Company in the event of such a breach.
In addition to any risks and uncertainties specifically identified in the text surrounding such forward-looking
statements, the statements in the immediately preceding sentence and the statements under captions such as “Risk
Factors” and “Special Considerations” in reports, statements and information filed by the Company with the SEC from
time to time constitute cautionary statements identifying important factors that could cause actual amounts, results, events
and circumstances to differ materially from those expressed in or implied by such forward-looking statements.
Item 1.
General
Business.
The Company is a corporation organized under the laws of the State of Delaware in 1985. The Company and its
predecessors have been operating department stores since 1830. As of February 1, 2014, the operations of the Company
included approximately 840 stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names “Macy’s”
and “Bloomingdale’s” as well as macys.com and bloomingdales.com. The Company operates thirteen Bloomingdale’s
Outlet stores. Bloomingdale's in Dubai, United Arab Emirates is operated under a license agreement with Al Tayer Insignia,
a company of Al Tayer Group, LLC.
The Company’s sells a wide range of merchandise, including apparel and accessories (men’s, women’s and
children’s), cosmetics, home furnishings and other consumer goods. The specific assortments vary by size of store,
merchandising character and character of customers in the trade areas. Most stores are located at urban or suburban sites,
principally in densely populated areas across the United States.
For 2013, 2012 and 2011, the following merchandise constituted the following percentages of sales:
Feminine Accessories, Intimate Apparel, Shoes and Cosmetics.....................
Feminine Apparel............................................................................................
Men’s and Children’s......................................................................................
Home/Miscellaneous.......................................................................................
2013
2012
2011
38%
23
23
16
100%
38%
23
23
16
100%
37%
25
23
15
100%
In 2013, the Company’s subsidiaries provided various support functions to the Company’s retail operations on an
integrated, company-wide basis.
•
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•
The Company’s bank subsidiary, FDS Bank provides credit processing, certain collections, customer service
and credit marketing services in respect of all proprietary and non-proprietary credit card accounts that are
owned either by Department Stores National Bank (“DSNB”), a subsidiary of Citibank, N.A., or FDS Bank
and that constitute a part of the credit programs of the Company’s retail operations.
Macy’s Systems and Technology, Inc. (“MST”), a wholly-owned indirect subsidiary of the Company,
provides operational electronic data processing and management information services to all of the
Company’s operations.
Macy’s Merchandising Group, Inc. (“MMG”), a wholly-owned direct subsidiary of the Company, and its
subsidiary Macy's Merchandising Group International, LLC., is responsible for the design, development and
marketing of Macy’s private label brands and certain licensed brands. Bloomingdale’s uses MMG for only a
very small portion of its private label merchandise. The Company believes that its private label merchandise
further differentiates its merchandise assortments from those of its competitors and delivers exceptional
value to its customers. MMG also offers its services, either directly or indirectly, to unrelated third parties.
The principal private label brands currently offered by the Company include Alfani, American Rag, Aqua,
Bar III, Charter Club, Club Room, Epic Threads, first impressions, Giani Bernini, greendog, Greg Norman
for Tasso Elba, Home Design, Hotel Collection, Hudson Park, Ideology, I-N-C, jenni by jennifer moore, JM
Collection, John Ashford, Karen Scott, Maison Jules, Martha Stewart Collection, Material Girl, Morgan
Taylor, so jenni by jennifer moore, Studio Silver, Style & Co., Style & Co. Sport, Sutton Studio, Tasso Elba,
the cellar, Tools of the Trade, and Via Europa.
The trademarks associated with all of the foregoing brands, other than American Rag, Greg Norman for
Tasso Elba, Martha Stewart Collection, and Material Girl are owned by the Company. The American Rag,
Greg Norman, Martha Stewart Collection, and Material Girl brands are owned by third parties, which
license the trademarks associated with such brands to Macy’s pursuant to agreements which have renewal
rights that extend through 2050, 2020, 2027, and 2030, respectively.
•
Macy’s Logistics and Operations (“Macy’s Logistics”), a division of a wholly-owned indirect subsidiary of
the Company, provides warehousing and merchandise distribution services for the Company’s operations.
2
The Company’s executive offices are located at 7 West 7th Street, Cincinnati, Ohio 45202, telephone number:
(513) 579-7000 and 151 West 34th Street, New York, New York 10001, telephone number: (212) 494-1602.
Employees
As of February 1, 2014, the Company had approximately 172,500 regular full-time and part-time employees.
Because of the seasonal nature of the retail business, the number of employees peaks in the holiday season. Approximately
10% of the Company’s employees as of February 1, 2014 were represented by unions. Management considers its relations
with its employees to be satisfactory.
Seasonality
The retail business is seasonal in nature with a high proportion of sales and operating income generated in the months
of November and December. Working capital requirements fluctuate during the year, increasing in mid-summer in
anticipation of the fall merchandising season and increasing substantially prior to the holiday season when the Company
must carry significantly higher inventory levels.
Purchasing
The Company purchases merchandise from many suppliers, no one of which accounted for more than 5% of the
Company’s net purchases during 2013. The Company has no material long-term purchase commitments with any of its
suppliers, and believes that it is not dependent on any one supplier. The Company considers its relations with its suppliers
to be satisfactory.
Competition
The retailing industry is intensely competitive. The Company’s operations compete with many retailing formats,
including department stores, specialty stores, general merchandise stores, off-price and discount stores, manufacturers’
outlets, online retailers, mail order catalogs and television shopping, among others. The retailers with which the Company
competes include Amazon, Bed Bath & Beyond, Belk, Bon Ton, Burlington Coat Factory, Dillard’s, Gap, J.C. Penney,
Kohl’s, L Brands, Lord & Taylor, Neiman Marcus, Nordstrom, Ross Stores, Saks, Sears, Target, TJ Maxx and Wal-Mart.
The Company seeks to attract customers by offering superior selections, obvious value, and distinctive marketing in stores
that are located in premier locations, and by providing an exciting shopping environment and superior service through an
omnichannel experience. Other retailers may compete for customers on some or all of these bases, or on other bases, and
may be perceived by some potential customers as being better aligned with their particular preferences.
Available Information
The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of
charge through its internet website at http://www.macysinc.com as soon as reasonably practicable after it electronically files
such material with, or furnishes it to, the SEC. The public also may read and copy any of these filings at the SEC’s Public
Reference Room, 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at 1-800-732-0330. The SEC also maintains an Internet site that contains the
Company’s filings; the address of that site is http://www.sec.gov. In addition, the Company has made the following
available free of charge through its website at http://www.macysinc.com:
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Audit Committee Charter,
Compensation and Management Development Committee Charter,
Finance Committee Charter,
Nominating and Corporate Governance Committee Charter,
Corporate Governance Principles,
Non-Employee Director Code of Business Conduct and Ethics, and
Code of Conduct.
Any of these items are also available in print to any shareholder who requests them. Requests should be sent to the
Corporate Secretary of Macy’s, Inc. at 7 West 7th Street, Cincinnati, OH 45202.
3
Executive Officers of the Registrant
The following table sets forth certain information as of March 21, 2014 regarding the executive officers of the
Company:
Name
Terry J. Lundgren ................
Timothy M. Adams..............
Age
Position with the Company
61 Chairman of the Board; President and Chief Executive Officer; Director
60 Chief Private Brand Officer
William S. Allen..................
56 Chief Human Resources Officer
Jeffrey Gennette...................
52 Chief Merchandising Officer
Julie Greiner ........................
60 Chief Merchandise Planning Officer
Robert B. Harrison...............
50 Chief Omnichannel Officer
Karen M. Hoguet .................
57 Chief Financial Officer
Jeffrey Kantor......................
55 Chairman of macys.com
Martine Reardon..................
51 Chief Marketing Officer
Peter Sachse.........................
Joel A. Belsky......................
Dennis J. Broderick .............
56 Chief Stores Officer
60 Executive Vice President and Controller
65 Executive Vice President, General Counsel and Secretary
Terry J. Lundgren has been Chairman of the Board since January 2004 and President and Chief Executive Officer of
the Company since February 2003. On March 31, 2014, the Company announced that Jeffrey Gennette had been elected
by the Board of Directors as the Company's President, effective immediately, whereupon Mr. Lundgren ceased to serve as
the Company's President. Mr. Lundgren continues to hold the titles of Chairman and Chief Executive Officer.
Timothy M. Adams has been the Chief Private Brand Officer of the Company since February 2009.
William S. Allen has been Chief Human Resources Officer of the Company since January 2013; prior thereto he was
the Senior Vice President - Group Human Resources of AP Moller-Maersk A/S from January 2008 to December 2012.
Jeffrey Gennette has been Chief Merchandising Officer of the Company since February 2009. On March 31, 2014,
the Company announced that Jeffrey Gennette had been elected by the Board of Directors as the Company's President,
effective immediately.
Julie Greiner has been Chief Merchandise Planning Officer of the Company since February 2009.
Robert B. Harrison has been Chief Omnichannel Officer since January 2013; prior thereto he served as Executive
Vice President - Omnichannel Strategy from July 2012 to January 2013; as Executive Vice President - Finance from 2011
to July 2012, as President - Stores from 2009 to 2011.
Karen M. Hoguet has been Chief Financial Officer of the Company since October 1997.
Jeffrey Kantor has been Chairman of macys.com since February 2012; prior thereto he served as President for
Merchandising of macys.com from August 2010 to February 2012, as President - Merchandising for Home from May 2009
to August 2010 and as President for furniture for Macy's Home Store from February 2006 to May 2009.
Martine Reardon has been Chief Marketing Officer since February 2012; prior thereto she served as Executive Vice
President for Marketing from February 2009 to February 2012.
Peter Sachse has been Chief Stores Officer since February 2012; prior thereto he served as Chief Marketing Officer
of the Company from February 2009 to February 2012, and as Chairman of macys.com from April 2006 to February 2012.
Joel A. Belsky has been Executive Vice President and Controller of the Company since May 2009; prior thereto he
served as Senior Vice President and Controller of the Company from October 1996 through April 2009.
4
Dennis J. Broderick has been Secretary of the Company since July 1993 and Executive Vice President and General
Counsel of the Company since May 2009; prior thereto he served as Senior Vice President and General Counsel of the
Company from January 1990 to April 2009.
Item 1A.
Risk Factors.
In evaluating the Company, the risks described below and the matters described in “Forward-Looking Statements”
should be considered carefully. Such risks and matters are numerous and diverse, may be experienced continuously or
intermittently, and may vary in intensity and effect. Any of such risks and matters, individually or in combination, could
have a material adverse effect on the Company's business, prospects, financial condition, results of operations and cash
flows, as well as on the attractiveness and value of an investment in the Company's securities.
The Company faces significant competition in the retail industry.
The Company conducts its retail merchandising business under highly competitive conditions. Although the
Company is one of the nation’s largest retailers, it has numerous and varied competitors at the national and local levels,
including conventional and specialty department stores, other specialty stores, category killers, mass merchants, value
retailers, discounters, and Internet and mail-order retailers. Competition may intensify as the Company’s competitors enter
into business combinations or alliances. Competition is characterized by many factors, including assortment, advertising,
price, quality, service, location, reputation and credit availability. Any failure by the Company to compete effectively could
negatively affect the Company's business and results of operations.
The Company’s sales and operating results depend on consumer preferences and consumer spending.
The fashion and retail industries are subject to sudden shifts in consumer trends and consumer spending. The
Company’s sales and operating results depend in part on its ability to predict or respond to changes in fashion trends and
consumer preferences in a timely manner. The Company develops new retail concepts and continuously adjusts its industry
position in certain major and private-label brands and product categories in an effort to satisfy customers. Any sustained
failure to anticipate, identify and respond to emerging trends in lifestyle and consumer preferences could negatively affect
the Company’s business and results of operations. The Company’s sales are significantly affected by discretionary
spending by consumers. Consumer spending may be affected by many factors outside of the Company’s control, including
general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and
level of consumer debt and consumer behaviors towards incurring and paying debt, the costs of basic necessities and other
goods and the effects of the weather or natural disasters. Any decline in discretionary spending by consumers could
negatively affect the Company's business and results of operations.
The Company’s business is subject to unfavorable economic and political conditions and other developments and risks.
Unfavorable global, domestic or regional economic or political conditions and other developments and risks could
negatively affect the Company’s business and results of operations. For example, unfavorable changes related to interest
rates, rates of economic growth, fiscal and monetary policies of governments, inflation, deflation, consumer credit
availability, consumer debt levels, consumer debt payment behaviors, tax rates and policy, unemployment trends, energy
prices, and other matters that influence the availability and cost of merchandise, consumer confidence, spending and
tourism could negatively affect the Company’s business and results of operations. In addition, unstable political conditions,
civil unrest, terrorist activities and armed conflicts may disrupt commerce and could negatively affect the Company’s
business and results of operations.
The Company’s revenues and cash requirements are affected by the seasonal nature of its business.
The Company’s business is seasonal, with a high proportion of revenues and operating cash flows generated during
the second half of the fiscal year, which includes the fall and holiday selling seasons. A disproportionate amount of the
Company's revenues fall in the fourth fiscal quarter, which coincides with the holiday season. In addition, the Company
incurs significant additional expenses in the period leading up to the months of November and December in anticipation of
higher sales volume in those periods, including for additional inventory, advertising and employees.
5
The Company’s business could be affected by extreme weather conditions, regional or global health pandemics or
natural disasters.
Extreme weather conditions in the areas in which the Company’s stores are located could negatively affect the
Company’s business and results of operations. For example, frequent or unusually heavy snowfall, ice storms, rainstorms
or other extreme weather conditions over a prolonged period could make it difficult for the Company’s customers to travel
to its stores and thereby reduce the Company’s sales and profitability. The Company’s business is also susceptible to
unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter
season or cool weather during the summer season could reduce demand for a portion of the Company’s inventory and
thereby reduce the Company's sales and profitability. In addition, extreme weather conditions could result in disruption or
delay of production and delivery of materials and products in the Company's supply chain and cause staffing shortages in
the Company's stores.
The Company's business and results of operations could also be negatively affected if a regional or global health
pandemic were to occur, depending upon its location, duration and severity. To halt or delay the spread of disease, local,
regional or national governments might limit or ban public gatherings or customers might avoid public places, such as the
Company's stores. A regional or global health pandemic might also result in disruption or delay of production and delivery
of materials and products in the Company's supply chain and cause staffing shortages in the Company's stores.
In addition, natural disasters such as hurricanes, tornadoes and earthquakes, or a combination of these or other
factors, could damage or destroy the Company’s facilities or make it difficult for customers to travel to its stores, thereby
negatively affecting the Company’s business and results of operations.
The Company’s pension funding could increase at a higher than anticipated rate.
Significant changes in interest rates, decreases in the fair value of plan assets and investment losses on plan assets
could affect the funded status of the Company’s plans and could increase future funding requirements of the pension plans.
A significant increase in future funding requirements could have a negative impact on the Company’s cash flows, financial
condition or results of operations.
Increases in the cost of employee benefits could impact the Company’s financial results and cash flow.
The Company’s expenses relating to employee health benefits are significant. Unfavorable changes in the cost of
such benefits could negatively affect the Company’s financial results and cash flow. Healthcare costs have risen
significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform could result in
significant changes to the U.S. healthcare system. Due to the breadth and complexity of the healthcare reform legislation,
the lack of implementing regulations and interpretive guidance and the phased-in nature of the implementation of the
legislation, the Company is not able at this time to fully determine the impact that healthcare reform will have on the
Company-sponsored medical plans.
Inability to access capital markets could adversely affect the Company’s business or financial condition.
Changes in the credit and capital markets, including market disruptions, limited liquidity and interest rate
fluctuations, may increase the cost of financing or restrict the Company’s access to this potential source of future liquidity.
A decrease in the ratings that rating agencies assign to the Company’s short and long-term debt may negatively impact the
Company’s access to the debt capital markets and increase the Company’s cost of borrowing. In addition, the Company’s
bank credit agreements require the Company to maintain specified interest coverage and leverage ratios. The Company’s
ability to comply with the ratios may be affected by events beyond its control, including prevailing economic, financial and
industry conditions. If the Company’s results of operations or operating ratios deteriorate to a point where the Company is
not in compliance with its debt covenants, and the Company is unable to obtain a waiver, much of the Company’s debt
would be in default and could become due and payable immediately. The Company’s assets may not be sufficient to repay
in full this indebtedness, resulting in a need for an alternate source of funding. The Company cannot make any assurances
that it would be able to obtain such an alternate source of funding on satisfactory terms, if at all, and its inability to do so
could cause the holders of its securities to experience a partial or total loss of their investments in the Company.
6
The Company periodically reviews the carrying value of its goodwill for possible impairment; if future circumstances
indicate that goodwill is impaired, the Company could be required to write down amounts of goodwill and record
impairment charges.
In the fourth quarter of fiscal 2008, the Company reduced the carrying value of its goodwill from $9,125 million to
$3,743 million and recorded a related non-cash impairment charge of $5,382 million. The Company continues to monitor
relevant circumstances, including consumer spending levels, general economic conditions and the market prices for the
Company’s common stock, and the potential impact that such circumstances might have on the valuation of the Company’s
goodwill. It is possible that changes in such circumstances, or in the numerous variables associated with the judgments,
assumptions and estimates made by the Company in assessing the appropriate valuation of its goodwill, could in the future
require the Company to further reduce its goodwill and record related non-cash impairment charges. If the Company were
required to further reduce its goodwill and record related non-cash impairment charges, the Company’s financial position
and results of operations would be adversely affected.
The Company depends on its ability to attract and retain quality employees.
The Company’s business is dependent upon attracting and retaining quality employees. The Company has a large
number of employees, many of whom are in entry level or part-time positions with historically high rates of turnover. The
Company’s ability to meet its labor needs while controlling the costs associated with hiring and training new employees is
subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing
demographics. In addition, as a large and complex enterprise operating in a highly competitive and challenging business
environment, the Company is highly dependent upon management personnel to develop and effectively execute successful
business strategies and tactics. Any circumstances that adversely impact the Company’s ability to attract, train, develop
and retain quality employees throughout the organization could negatively affect the Company’s business and results of
operations.
The Company depends upon designers, vendors and other sources of merchandise, goods and services. The Company's
business could be affected by disruptions in, or other legal, regulatory, political or economic issues associated with, our
supply network.
The Company’s relationships with established and emerging designers have been a significant contributor to the
Company’s past success. The Company’s ability to find qualified vendors and access products in a timely and efficient
manner is often challenging, particularly with respect to goods sourced outside the United States. The Company’s
procurement of goods and services from outside the United States is subject to risks associated with political or financial
instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to
foreign trade, including costs and uncertainties associated with efforts to identify and disclose sources of "conflict
minerals" used in products that the Company causes to be manufactured and potential sell-through difficulties and
reputational damage that may be associated with the inability of the Company to determine that such products are "DRC
conflict-free." In addition, the Company’s procurement of all its goods and services is subject to the effects of price
increases which the Company may or may not be able to pass through to its customers. All of these factors may affect the
Company’s ability to access suitable merchandise on acceptable terms, are beyond the Company’s control and could
negatively affect the Company’s business and results of operations.
The Company's sales and operating results could be adversely affected by product safety concerns.
If the Company's merchandise offerings do not meet applicable safety standards or our consumers' expectations
regarding safety, the Company could experience decreased sales, experience increased costs and/or be exposed to legal and
reputational risk. Events that give rise to actual, potential or perceived product safety concerns could expose the Company
to government enforcement action and/or private litigation. Reputational damage caused by real or perceived product
safety concerns could negatively affect the Company's business and results of operations.
The Company depends upon the success of its advertising and marketing programs.
The Company’s advertising and promotional costs, net of cooperative advertising allowances, amounted to $1,166
million for 2013. The Company’s business depends on effective marketing and high customer traffic. The Company has
many initiatives in this area, and often changes its advertising and marketing programs. There can be no assurance as to the
Company’s continued ability to effectively execute its advertising and marketing programs, and any failure to do so could
negatively affect the Company’s business and results of operations.
7
Parties with whom the Company does business may be subject to insolvency risks or may otherwise become unable or
unwilling to perform their obligations to the Company.
The Company is a party to contracts, transactions and business relationships with various third parties, including
vendors, suppliers, service providers, lenders and participants in joint ventures, strategic alliances and other joint
commercial relationships, pursuant to which such third parties have performance, payment and other obligations to the
Company. In some cases, the Company depends upon such third parties to provide essential leaseholds, products, services
or other benefits, including with respect to store and distribution center locations, merchandise, advertising, software
development and support, logistics, other agreements for goods and services in order to operate the Company’s business in
the ordinary course, extensions of credit, credit card accounts and related receivables, and other vital matters. Current
economic, industry and market conditions could result in increased risks to the Company associated with the potential
financial distress or insolvency of such third parties. If any of these third parties were to become subject to bankruptcy,
receivership or similar proceedings, the rights and benefits of the Company in relation to its contracts, transactions and
business relationships with such third parties could be terminated, modified in a manner adverse to the Company, or
otherwise impaired. The Company cannot make any assurances that it would be able to arrange for alternate or replacement
contracts, transactions or business relationships on terms as favorable as the Company’s existing contracts, transactions or
business relationships, if at all. Any inability on the part of the Company to do so could negatively affect the Company’s
cash flows, financial condition and results of operations.
A material disruption in the Company’s computer systems could adversely affect the Company’s business or results of
operations.
The Company relies extensively on its computer systems to process transactions, summarize results and manage its
business. The Company’s computer systems are subject to damage or interruption from power outages, computer and
telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires,
floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by the Company’s employees. If the
Company’s computer systems are damaged or cease to function properly, the Company may have to make a significant
investment to fix or replace them, and the Company may suffer loss of critical data and interruptions or delays in its
operations. Any material interruption in the Company’s computer systems could negatively affect its business and results of
operations.
A privacy breach could result in negative publicity and adversely affect the Company’s business or results of operations.
The protection of customer, employee, and company data is critical to the Company. The regulatory environment
surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and
constantly changing requirements across business units. In addition, customers have a high expectation that the Company
will adequately protect their personal information from cyber-attack or other security breaches. A significant breach of
customer, employee, or company data could attract a substantial amount of media attention, damage the Company’s
customer relationships and reputation and result in lost sales, fines, or lawsuits.
Litigation, legislation or regulatory developments could adversely affect the Company’s business and results of
operations.
The Company is subject to various federal, state and local laws, rules, regulations, inquiries and initiatives in
connection with both its core business operations and its credit card and other ancillary operations (including the Credit
Card Act of 2009 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”)).
Recent and future developments relating to such matters could increase the Company's compliance costs and adversely
affect the profitability of its credit card and other operations. The Company is also subject to anti-bribery, customs, child
labor, truth-in-advertising and other laws, including consumer protection regulations and zoning and occupancy ordinances
that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the operation of
retail stores and warehouse facilities. Although the Company undertakes to monitor changes in these laws, if these laws
change without the Company's knowledge, or are violated by importers, designers, manufacturers, distributors or agents,
the Company could experience delays in shipments and receipt of goods or be subject to fines or other penalties under the
controlling regulations, any of which could negatively affect the Company's business and results of operations. In addition,
the Company is regularly involved in various litigation matters that arise in the ordinary course of its business. Adverse
outcomes in current or future litigation could negatively affect the Company’s financial condition, results of operations and
cash flows.
8
Factors beyond the Company’s control could affect the Company’s stock price.
The Company’s stock price, like that of other retail companies, is subject to significant volatility because of many
factors, including factors beyond the control of the Company. These factors may include:
•
•
•
•
•
•
general economic and stock and credit market conditions;
risks relating to the Company’s business and its industry, including those discussed above;
strategic actions by the Company or its competitors;
variations in the Company’s quarterly results of operations;
future sales or purchases of the Company’s common stock; and
investor perceptions of the investment opportunity associated with the Company’s common stock relative
to other investment alternatives.
In addition, the Company may fail to meet the expectations of its stockholders or of analysts at some time in the
future. If the analysts that regularly follow the Company’s stock lower their rating or lower their projections for future
growth and financial performance, the Company’s stock price could decline. Also, sales of a substantial number of shares
of the Company’s common stock in the public market or the appearance that these shares are available for sale could
adversely affect the market price of the Company’s common stock.
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Properties.
The properties of the Company consist primarily of stores and related facilities, including a logistics network. The
Company also owns or leases other properties, including corporate office space in Cincinnati and New York and other
facilities at which centralized operational support functions are conducted. As of February 1, 2014, the operations of the
Company included 840 stores in 45 states, the District of Columbia, Puerto Rico and Guam, comprising a total of
approximately 150,100,000 square feet. Of such stores, 460 were owned, 269 were leased and 111 stores were operated
under arrangements where the Company owned the building and leased the land. Substantially all owned properties are
held free and clear of mortgages. Pursuant to various shopping center agreements, the Company is obligated to operate
certain stores for periods of up to 20 years. Some of these agreements require that the stores be operated under a particular
name. Most leases require the Company to pay real estate taxes, maintenance and other costs; some also require additional
payments based on percentages of sales and some contain purchase options. Certain of the Company’s real estate leases
have terms that extend for a significant number of years and provide for rental rates that increase or decrease over time.
Additional information about the Company’s stores as of February 1, 2014 is as follows:
Geographic Region
Mid-Atlantic....................................................................................
Northeast .........................................................................................
North Central...................................................................................
Northwest ........................................................................................
Southeast .........................................................................................
South Central...................................................................................
Southwest ........................................................................................
Total
Stores
Owned
Stores
Leased
Stores
Stores
Subject to
a Ground
Lease
128
119
119
126
119
101
128
840
68
62
82
39
78
77
54
40
48
26
69
20
16
50
20
9
11
18
21
8
24
460
269
111
The seven geographic regions detailed in the foregoing table are based on the Company’s Macy’s-branded
operational structure. The Company’s retail stores are located at urban or suburban sites, principally in densely populated
areas across the United States.
9
Store count activity was as follows:
Store count at beginning of fiscal year ..................................................
Stores opened and other expansions......................................................
Stores closed..........................................................................................
Store count at end of fiscal year ............................................................
841
6
(7)
840
842
7
(8)
841
850
4
(12)
842
2013
2012
2011
Additional information about the Company’s logistics network as of February 1, 2014 is as follows:
Location
Cheshire, CT....................................................................................
Primary Function
Direct to customer
Chicago, IL ......................................................................................
Denver, CO......................................................................................
Stores
Stores
Goodyear, AZ ..................................................................................
Direct to customer
Hayward, CA...................................................................................
Houston, TX ....................................................................................
Joppa, MD .......................................................................................
Kapolei, HI ......................................................................................
Los Angeles, CA..............................................................................
Stores
Stores
Stores
Stores
Stores
Martinsburg, WV.............................................................................
Direct to customer
Miami, FL........................................................................................
Stores
Portland, TN ....................................................................................
Direct to customer
Raritan, NJ.......................................................................................
Stores
Sacramento, CA...............................................................................
Direct to customer
Secaucus, NJ....................................................................................
South Windsor, CT..........................................................................
St. Louis, MO ..................................................................................
Stone Mountain, GA........................................................................
Tampa, FL........................................................................................
Tukwila, WA....................................................................................
Youngstown, OH.............................................................................
Stores
Stores
Stores
Stores
Stores
Stores
Stores
Owned or
Leased
Square Footage
(thousands)
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Owned
565
861
20
600
386
1,124
850
260
1,178
1,300
535
950
560
96
675
668
661
1,000
670
500
851
Item 3.
Legal Proceedings.
The Company and its subsidiaries are involved in various proceedings that are incidental to the normal course of their
businesses. As of the date of this report, the Company does not expect that any of such proceedings will have a material
adverse effect on the Company’s financial position or results of operations.
Item 4.
Mine Safety Disclosures.
Not Applicable.
10
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
The Common Stock is listed on the NYSE under the trading symbol “M.” As of February 1, 2014, the Company had
approximately 19,000 stockholders of record. The following table sets forth for each fiscal quarter during 2013 and 2012
the high and low sales prices per share of Common Stock as reported on the NYSE Composite Tape and the dividend
declared with respect to each fiscal quarter on each share of Common Stock.
1st Quarter................................................................
2nd Quarter ..............................................................
3rd Quarter ...............................................................
4th Quarter ...............................................................
Low
38.52
45.72
42.18
45.59
2013
High
46.45
50.77
49.72
56.65
Dividend
Low
0.2000
0.2500
0.2500
0.2500
33.18
32.31
34.89
36.30
2012
High
41.50
42.17
41.24
41.98
Dividend
0.2000
0.2000
0.2000
0.2000
The declaration and payment of future dividends will be at the discretion of the Company’s Board of Directors, are
subject to restrictions under the Company’s credit facility and may be affected by various other factors, including the
Company’s earnings, financial condition and legal or contractual restrictions.
The following table provides information regarding the Company’s purchases of Common Stock during the fourth
quarter of 2013.
November 3, 2013 – November 30, 2013......................
December 1, 2013 – January 4, 2014.............................
January 5, 2014 – February 1, 2014...............................
Total
Number
of Shares
Purchased
(thousands)
Average
Price per
Share ($)
Number of Shares
Purchased under
Program (1)
Open
Authorization
Remaining (1)($)
(thousands)
(millions)
1,252
3,272
1,476
6,000
51.19
52.37
54.57
52.67
1,252
3,272
1,476
6,000
1,684
1,513
1,432
___________________
(1) Commencing in January 2000, the Company’s Board of Directors has from time to time approved authorizations to
purchase, in the aggregate, up to $13,500 million of Common Stock. All authorizations are cumulative and do not
have an expiration date. As of February 1, 2014, $1,432 million of authorization remained unused. The Company may
continue, discontinue or resume purchases of Common Stock under these or possible future authorizations in the open
market, in privately negotiated transactions or otherwise at any time and from time to time without prior notice.
11
The following graph compares the cumulative total stockholder return on the Common Stock with the Standard &
Poor’s 500 Composite Index and the Standard & Poor’s Retail Department Store Index for the period from January 31,
2009 through February 1, 2014, assuming an initial investment of $100 and the reinvestment of all dividends, if any.
The companies included in the S&P Retail Department Store Index are Macy’s, J.C. Penney, Kohl’s and Nordstrom.
12
Item 6.
Selected Financial Data.
The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements
and the notes thereto and the other information contained elsewhere in this report.
Consolidated Statement of Income Data:
Net sales ...................................................................................... $
27,931
$
27,686
$
26,405
$
25,003
$
23,489
2013
2012*
2011
2010
2009
(millions, except per share)
Cost of sales ................................................................................
Gross margin...............................................................................
Selling, general and administrative expenses .............................
Impairments, store closing and other costs, gain on
sale of leases and division consolidation costs.......................
Operating income........................................................................
Interest expense...........................................................................
Premium on early retirement of debt ..........................................
Interest income............................................................................
Income before income taxes .......................................................
Federal, state and local income tax expense ...............................
Net income .................................................................................. $
Basic earnings per share....................................................................... $
Diluted earnings per share ................................................................... $
Average number of shares outstanding................................................
Cash dividends paid per share.............................................................. $
Depreciation and amortization............................................................. $
Capital expenditures............................................................................. $
Balance Sheet Data (at year end):
Cash and cash equivalents .......................................................... $
Total assets..................................................................................
Short-term debt ...........................................................................
Long-term debt............................................................................
Shareholders’ equity....................................................................
___________________
53 weeks
*
(16,725)
11,206
(8,440)
(16,538)
11,148
(8,482)
(15,738)
10,667
(8,281)
(14,824)
10,179
(8,260)
(13,973)
9,516
(8,062)
(88)
2,678
(390)
—
2
2,290
(804)
1,486
3.93
3.86
378.3
.9500
1,020
863
2,273
21,634
463
6,728
6,249
$
$
$
$
$
$
$
(5)
2,661
(425)
(137)
3
2,102
(767)
1,335
3.29
3.24
405.5
.8000
1,049
942
1,836
20,991
124
6,806
6,051
$
$
$
$
$
$
$
25
2,411
(447)
—
4
1,968
(712)
1,256
2.96
2.92
424.5
.3500
1,085
764
2,827
22,095
1,103
6,655
5,933
$
$
$
$
$
$
$
(25)
1,894
(513)
(66)
5
1,320
(473)
847
2.00
1.98
423.3
.2000
1,150
505
1,464
20,631
454
6,971
5,530
$
$
$
$
$
$
$
(391)
1,063
(562)
—
6
507
(178)
329
0.78
0.78
421.7
.2000
1,210
460
1,686
21,300
242
8,456
4,653
13
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The discussion in this Item 7 should be read in conjunction with our Consolidated Financial Statements and the
related notes included elsewhere in this report. The discussion in this Item 7 contains forward-looking statements that
reflect the Company's plans, estimates and beliefs. The Company's actual results could materially differ from those
discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are
not limited to, those discussed below and elsewhere in this report, particularly in “Risk Factors” and “Forward-Looking
Statements.”
Overview
The Company is an omnichannel retail organization operating stores and websites under two brands (Macy's and
Bloomingdale's) 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 in 45 states, the District of Columbia, Guam and Puerto Rico. As of
February 1, 2014, the Company's operations were conducted through Macy's, macys.com, Bloomingdale's,
bloomingdales.com and Bloomingdale's Outlet 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 Company is focused on three key strategies for continued growth in sales, earnings and cash flow in the years
ahead: (i) maximizing the My Macy's localization initiative; (ii) driving the omnichannel business; and (iii) embracing
customer centricity, including engaging customers on the selling floor through the Magic Selling program.
Through the My Macy's localization initiative, the Company has invested in talent, technology and marketing which
ensures that core customers surrounding each Macy's store find merchandise assortments, size ranges, marketing programs
and shopping experiences that are custom-tailored to their needs. My Macy's has provided for more local decision-making
in every Macy's community, and involves tailoring merchandise assortments, space allocations, service levels, visual
merchandising, marketing and special events on a store-by-store basis.
The Company's omnichannel strategy allows customers to shop seamlessly in stores and online, via computers or
mobile devices. A pivotal part of the omnichannel strategy is the Company's ability to allow associates in any store to sell a
product that may be unavailable locally by selecting merchandise from other stores or online fulfillment centers for
shipment to the customer's door. Likewise, the Company's online fulfillment centers can draw on store inventories
nationwide to fill orders that originate online, via computers or mobile devices. As of February 1, 2014, 500 Macy's stores
were fulfilling orders from other stores and/or online, as compared to 292 Macy's stores as of February 2, 2013. During
fiscal 2014, nearly all Macy's stores are expected to be fulfilling orders from other stores and/or online. Also in 2014,
nearly all stores are expected to be fulfilling orders for pick-up related to online purchases.
Macy's Magic Selling program is an approach to customer engagement that helps Macy's to better understand the
needs of customers, as well as to provide options and advice. This comprehensive ongoing training and coaching program
is designed to improve the in-store shopping experience and all other customer interactions.
In fiscal 2010, the Company piloted a new Bloomingdale's Outlet store concept. Bloomingdale's Outlet stores are
each approximately 25,000 square feet and offer a range of apparel and accessories, including women's ready-to-wear,
men's, children's, women's shoes, fashion accessories, jewelry, handbags and intimate apparel.
Additionally, in February 2010, Bloomingdale's opened in Dubai, United Arab Emirates under a license agreement
with Al Tayer Insignia, a company of Al Tayer Group, LLC, under which the Company is entitled to a license fee in
accordance with the terms of the underlying agreement, generally based upon the greater of the contractually earned or
guaranteed minimum amounts.
During 2012, the Company opened two new Macy's stores in Salt Lake City, UT; and Greendale, WI; and five new
Bloomingdale's Outlet stores in Livermore, CA; Merrimack, NH; Garden City, NY; Grand Prairie, TX; and Dallas, TX.
Also during 2012 the Company opened its new 1.3 million square foot fulfillment center in Martinsburg, WV. During 2013,
the Company opened three new Macy's stores in Victorville, CA; Gurnee, IL; and Las Vegas, NV; a Macy's replacement
store in Bay Shore, NY; a new Bloomingdale's store in Glendale, CA; and a new Bloomingdale's Outlet store in Rosemont,
IL. The Company has announced that in 2014 it intends to open three new Macy's stores and one Bloomingdale's
replacement store. Additionally, the Company has announced that in 2015 it intends to open one new Macy's store and one
new Bloomingdale's store, and in 2016 it intends to open one new Macy's store and one new Bloomingdale's store.
14
The Company's operations are impacted by competitive pressures from department stores, specialty stores, mass
merchandisers, online retailers and all other retail channels. The Company's operations are also impacted by general
consumer spending levels, including the impact of general economic conditions, consumer disposable income levels,
consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods
and the effects of weather or natural disasters and other factors over which the Company has little or no control.
In recent years, consumer spending levels have been affected to varying degrees by a number of factors, including
modest economic growth, a slowly improving housing market, a rising stock market, uncertainty regarding governmental
spending and tax policies, high unemployment levels and tightened consumer credit. These factors have affected to varying
degrees the amount of funds that consumers are willing and able to spend for discretionary purchases, including purchases
of some of the merchandise offered by the Company.
The effects of economic conditions have been, and may continue to be, experienced differently, or at different times,
in the various geographic regions in which the Company operates, in relation to the different types of merchandise that the
Company offers for sale, or in relation to the Company's Macy's-branded and Bloomingdale's-branded operations. All
economic conditions, however, ultimately affect the Company's overall operations.
2013 Highlights
The Company had its fifth consecutive year of improved financial performance in 2013 despite the continued
challenging macroeconomic environment. These improvements have been driven by successful implementation of the
Company's key strategies.
Selected highlights of 2013 include:
• Comparable sales increased 1.9%, which represents the fourth consecutive year of comparable sales growth.
Comparable sales growth including the impact of growth in comparable sales of departments licensed to third
parties increased 2.8%. See pages 16 to 19 for a reconciliation of this non-GAAP financial measure to the most
comparable GAAP financial measure and other important information.
• Operating income for fiscal 2013 was $2.766 billion or 9.9% of sales, excluding impairments, store closing and
other costs, an increase of 3.8% and 30 basis points as a percent of sales over 2012 on a comparable basis. See
pages 16 to 19 for a reconciliation of this non-GAAP financial measure to the most comparable GAAP financial
measure and other important information.
• Diluted earnings per share, excluding certain items, grew 15.6% to $4.00 in 2013. See pages 16 to 19 for a
reconciliation of this non-GAAP financial measure to the most comparable GAAP financial measure and other
important information.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, impairments, store closing and
other costs) as a percent to net sales reached 13.6% in 2013, reflecting steady improvement toward the
Company's goal of a 14% Adjusted EBITDA rate. See pages 16 to 19 for a reconciliation of this non-GAAP
financial measure to the most comparable GAAP financial measure and other important information.
• Return on invested capital ("ROIC"), a key measure of operating productivity, reached 21.5%, continuing an
improvement trend over the past five years. See pages 16 to 19 for a reconciliation of this non-GAAP financial
measure to the most comparable GAAP financial measure and other important information.
• The Company repurchased 33.6 million shares of its common stock for $1,570 million in 2013, and increased its
annualized dividend rate to $1.00 per share.
15
Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with generally accepted accounting principles ("GAAP").
However, management believes that certain non-GAAP financial measures provide users of the Company's financial
information with additional useful information in evaluating operating performance. Management believes that providing
comparable sales growth including the impact of growth in comparable sales of departments licensed to third parties
supplementally to its results of operations calculated in accordance with GAAP assists in evaluating the Company's ability
to generate sales growth, whether through owned businesses or departments licensed to third parties, on a comparable
basis, and in evaluating the impact of changes in the manner in which certain departments are operated (e.g., the
conversion in 2013 of most of the Company's previously owned athletic footwear business to licensed Finish Line shops).
Management believes that excluding certain items that may vary substantially in frequency and magnitude from diluted
earnings per share and from operating income and EBITDA as percentages to sales are useful supplemental measures that
assist in evaluating the Company's ability to generate earnings and leverage sales, respectively, and to more readily
compare these metrics between past and future periods. Management also believes that EBITDA and Adjusted EBITDA are
frequently used by investors and securities analysts in their evaluations of companies, and that such supplemental measures
facilitate comparisons between companies that have different capital and financing structures and/or tax rates. In addition,
management believes that ROIC is a useful supplemental measure in evaluating how efficiently the Company employs its
capital. The Company uses some of these non-GAAP financial measures as performance measures for components of
executive compensation.
Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the
Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in
non-GAAP financial measures may be significant items that could impact the Company's financial position, results of
operations and cash flows and should therefore be considered in assessing the Company's actual financial condition and
performance. Additionally, the amounts received by the Company on account of sales licensed to third parties are limited to
commissions received on such sales. The methods used by the Company to calculate its non-GAAP financial measures may
differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP
financial measures presented herein may not be comparable to similar measures provided by other companies.
Comparable Sales Growth Including the Impact of Growth in Comparable Sales of Departments Licensed to Third Parties
The following is a tabular reconciliation of the non-GAAP financial measure comparable sales growth including the
impact of growth in comparable sales of departments licensed to third parties, to GAAP comparable sales, which the
Company believes to be the most directly comparable GAAP financial measure.
Increase in comparable sales (note 1) ..................................................
Impact of growth in comparable sales of departments licensed
to third parties (note 2) .....................................................................
2013
1.9%
0.9%
Comparable sales growth including the impact of growth in
comparable sales of departments licensed to third parties................
2.8%
2012
3.7%
0.3%
4.0%
2011
5.3%
2010
4.6%
0.4%
(0.2)%
5.7%
4.4%
Notes:
(1) Represents the period-to-period percentage change in net sales from stores in operation throughout the year presented
and the immediately preceding year and all net Internet sales, adjusting for the 53rd week in 2012, excluding commissions
from departments licensed to third parties. Stores undergoing remodeling, expansion or relocation remain in the
comparable sales calculation unless the store is closed for a significant period of time. Definitions and calculations of
comparable sales differ among companies in the retail industry.
(2) Represents the impact on comparable sales of including the sales of departments licensed to third parties occurring in
stores in operation throughout the year presented and the immediately preceding year and via the Internet in the calculation.
The Company licenses third parties to operate certain departments in its stores and online and receives commissions from
these third parties based on a percentage of their net sales. In its financial statements prepared in conformity with GAAP,
the Company includes these commissions (rather than sales of the departments licensed to third parties) in its net sales.
The Company does not, however, include any amounts in respect of licensed department sales in its comparable sales in
accordance with GAAP.
16
Operating Income, Excluding Certain Items, as a Percent to Net Sales
The following is a tabular reconciliation of the non-GAAP financial measure operating income, excluding certain
items, as a percent to net sales to GAAP operating income as a percent to net sales, which the Company believes to be the
most directly comparable GAAP financial measure.
2013
2012
2011
2010
2009
(millions, except percentages)
Net sales.............................................................................
$ 27,931
$ 27,686
$ 26,405
$ 25,003
$ 23,489
Operating income ..............................................................
$ 2,678
$ 2,661
$ 2,411
$ 1,894
$ 1,063
Operating income as a percent to net sales........................
9.6%
9.6%
9.1%
7.6%
4.5%
Operating income ..............................................................
$ 2,678
$ 2,661
$ 2,411
$ 1,894
$ 1,063
Add back (deduct) impairments, store closing and
other costs, gain on sale of leases and division
consolidation costs .........................................................
Operating income, excluding certain items .......................
Operating income, excluding certain items, as a
percent to net sales .........................................................
Diluted Earnings Per Share, Excluding Certain Items
88
5
$ 2,766
$ 2,666
(25)
$ 2,386
25
391
$ 1,919
$ 1,454
9.9%
9.6%
9.0%
7.7%
6.2%
The following is a tabular reconciliation of the non-GAAP financial measure diluted earnings per share, excluding
certain items, to GAAP diluted earnings per share, which the Company believes to be the most directly comparable GAAP
measure.
Diluted earnings per share .................................................
Add back the impact of impairments, store closing
and other costs................................................................
Add back the impact of premium on early
retirement of debt...........................................................
Deduct the impact of gain on sale of leases ......................
Add back the impact of division consolidation costs ........
Diluted earnings per share, excluding the impact of
impairments, store closing and other costs, premium
on early retirement of debt, gain on sale of leases
and division consolidation costs ....................................
2013
2012
2011
2010
2009
$
3.86
$
3.24
$
2.92
$
1.98
$
0.78
0.14
—
—
—
0.01
0.21
—
—
0.04
—
(0.08)
—
0.04
0.09
—
—
0.18
—
—
0.40
$
4.00
$
3.46
$
2.88
$
2.11
$
1.36
17
Adjusted EBITDA as a Percent to Net Sales
The following is a tabular reconciliation of the non-GAAP financial measure earnings before interest, taxes,
depreciation and amortization ("EBITDA"), as adjusted to exclude premium on early retirement of debt, impairments, store
closing and other costs, gain on sales of leases and division consolidation costs ("Adjusted EBITDA"), as a percent to net
sales to GAAP net income as a percent to net sales, which the Company believes to be the most directly comparable GAAP
financial measure.
2013
2012
2011
2010
2009
(millions, except percentages)
Net sales.............................................................................
$ 27,931
$ 27,686
$ 26,405
$ 25,003
$ 23,489
Net income.........................................................................
$ 1,486
$ 1,335
$ 1,256
$
847
$
329
Net income as a percent to net sales..................................
5.3%
4.8%
4.8%
3.4%
1.4%
Net income.........................................................................
Add back interest expense - net.........................................
Add back premium on early retirement of debt.................
Add back federal, state and local income tax expense ......
Add back (deduct) impairments, store closing and
other costs, gain on sale of leases and division
consolidation costs .........................................................
Add back depreciation and amortization...........................
Adjusted EBITDA .............................................................
Adjusted EBITDA as a percent to net sales.......................
$ 1,486
$ 1,335
$ 1,256
$
388
—
804
422
137
767
443
—
712
847
508
66
473
$
329
556
—
178
88
1,020
5
1,049
(25)
1,085
25
1,150
391
1,210
$ 3,786
$ 3,715
$ 3,471
$ 3,069
$ 2,664
13.6%
13.4%
13.1%
12.3%
11.3%
18
ROIC
The Company defines ROIC as adjusted operating income as a percent to average invested capital. Average invested
capital is comprised of an annual two-point (i.e., end of the previous year and the immediately preceding year) average of
gross property and equipment, a capitalized value of non-capitalized leases equal to periodic annual reported net rent
expense multiplied by a factor of eight and a four-point (i.e., end of each quarter within the period presented) average of
other selected assets and liabilities. The calculation of the capitalized value of non-capitalized leases is consistent with
industry and credit rating agency practice and the specified assets are subject to a four-point average to compensate for
seasonal fluctuations.
The following is a tabular reconciliation of the non-GAAP financial measure of ROIC to operating income as a
percent to property and equipment - net, which the Company believes to be the most directly comparable GAAP financial
measure.
2013
2012
2011
2010
2009
Operating income ..............................................................
$ 2,678
(millions, except percentages)
$ 2,411
$ 1,894
$ 2,661
$ 1,063
Property and equipment - net ............................................
$ 8,063
$ 8,308
$ 8,617
$ 9,160
$ 9,975
Operating income as a percent to property and
equipment - net ..............................................................
33.2%
32.0%
28.0%
20.7%
10.7%
Operating income ..............................................................
Add back (deduct) impairments, store closing and
other costs, gain on sale of leases and division
consolidation costs .........................................................
Add back depreciation and amortization...........................
Add back rent expense, net
Real estate ......................................................................
Personal property ...........................................................
Deferred rent amortization.............................................
Adjusted operating income................................................
Property and equipment - net ............................................
Add back accumulated depreciation and amortization......
Add capitalized value of non-capitalized leases................
Add (deduct) other selected assets and liabilities:
Receivables ....................................................................
Merchandise inventories ................................................
Prepaid expenses and other current assets .....................
Other assets ....................................................................
Merchandise accounts payable ......................................
Accounts payable and accrued liabilities.......................
Total average invested capital............................................
$ 2,678
$ 2,661
$ 2,411
$ 1,894
$ 1,063
88
1,020
5
1,049
(25)
1,085
25
1,150
391
1,210
268
11
8
258
11
7
243
10
8
235
10
7
229
12
7
$ 4,073
$ 3,991
$ 3,732
$ 3,321
$ 2,912
$ 8,063
6,007
2,296
$ 8,308
5,967
2,208
$ 8,617
6,018
2,088
$ 9,160
5,916
2,016
$ 9,975
5,620
1,984
339
6,065
398
662
(2,520)
(2,328)
$ 18,982
322
5,754
390
579
(2,362)
(2,333)
$ 18,833
294
5,596
409
528
(2,314)
(2,309)
$ 18,927
317
5,211
283
526
(2,085)
(2,274)
$ 19,070
305
5,170
231
497
(1,978)
(2,320)
$ 19,484
ROIC..................................................................................
21.5%
21.2%
19.7%
17.4%
14.9%
19
Results of Operations
Net sales...........................................................................
Increase in sales ...........................................................
Increase in comparable sales........................................
Cost of sales.....................................................................
Gross margin....................................................................
Selling, general and administrative expenses..................
Impairments, store closing and other costs
and gain on sale of leases............................................
Operating income ............................................................
Interest expense - net .......................................................
Premium on early retirement of debt...............................
Income before income taxes............................................
Federal, state and local income tax expense....................
Net income.......................................................................
2013
2012 *
2011
Amount
% to
Sales
Amount
% to
Sales
Amount
% to
Sales
(dollars in millions, except per share figures)
$ 27,931
$ 27,686
$ 26,405
0.9 %
1.9 %
4.9 %
3.7 %
(16,725)
11,206
(8,440)
(59.9) % (16,538)
40.1 % 11,148
(30.2) % (8,482)
(59.7) % (15,738)
40.3 % 10,667
(30.7) % (8,281)
(59.6) %
40.4 %
(31.4) %
(88)
2,678
(388)
—
2,290
(804)
$ 1,486
(5)
(0.3) %
9.6 % 2,661
(422)
(137)
2,102
(767)
5.3 % $ 1,335
— %
25
9.6 % 2,411
(443)
—
1,968
(712)
4.8 % $ 1,256
0.1 %
9.1 %
4.8 %
Diluted earnings per share ...............................................
$
3.86
$
3.24
$
2.92
Supplemental Non-GAAP Financial Measures
Comparable sales growth including the impact
of growth in comparable sales of departments
licensed to third parties ................................................
Operating income, excluding certain items .....................
Diluted earnings per share, excluding certain items........
Adjusted EBITDA as a percent to net sales.....................
ROIC................................................................................
2.8 %
4.0 %
5.7 %
$ 2,766
$
4.00
13.6 %
21.5 %
9.9 % $ 2,666
9.6 % $ 2,386
9.0 %
$
3.46
$
2.88
13.4 %
21.2 %
13.1 %
19.7 %
See pages 16 to 19 for a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial
measure and for other important information.
Store information (at year-end):
Stores operated.............................................................
Square footage (in millions).........................................
840
150.1
841
150.6
842
151.9
___________________
*
53 weeks
20
Comparison of 2013 and 2012
Net Income
Net income for 2013 increased compared to 2012, reflecting the benefits of the key strategies at Macy's, the
continued strong performance at Bloomingdale's and good expense management, including higher income from credit
operations, lower depreciation and amortization expense, and gains on the sale of certain office buildings and surplus
properties, partially offset by greater investments in the Company's omnichannel operations.
Net Sales
Net sales for 2013, which had one fewer week than 2012, increased $245 million or 0.9% compared to 2012. On a
comparable basis, net sales for 2013 were up 1.9% compared to 2012. Together with sales of departments licensed to third
parties, 2013 sales on a comparable basis were up 2.8%. (See page 16 for information regarding the Company's calculation
of comparable sales, a reconciliation of the non-GAAP measure which takes into account sales of departments licensed to
third parties to the most comparable GAAP measure and other important information). The Company continues to benefit
from the successful execution of the My Macy's localization, Omnichannel and Magic Selling strategies. Geographically,
sales in 2013 were strongest in the southern regions. By family of business, sales in 2013 were strongest in active apparel,
handbags, textiles, luggage, furniture and mattresses. Sales in 2013 were less strong in juniors. Sales of the Company's
private label brands continued to be strong and represented approximately 20% of net sales in the Macy's-branded stores in
2013.
Cost of Sales
Cost of sales for 2013 increased $187 million from 2012. The cost of sales rate as a percent to net sales of 59.9% was
20 basis points higher in 2013, as compared to 59.7% in 2012, primarily due to continued growth of the omnichannel
businesses and the resulting impact of free shipping. The application of the last-in, first-out (LIFO) retail inventory method
did not result in the recognition of any LIFO charges or credits affecting cost of sales in either period.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for 2013 decreased $42 million from 2012. The SG&A rate
as a percent to net sales of 30.2% was 50 basis points lower in 2013, as compared to 2012, reflecting the decrease in SG&A
expenses and increased net sales. SG&A expenses in 2013 benefited from higher income from credit operations, lower
depreciation and amortization expense, and gains on the sale of certain office buildings and surplus properties, partially
offset by greater investments in the Company's omnichannel operations. Income from credit operations was $731 million
in 2013 as compared to $663 million in 2012. Depreciation and amortization expense was $1,020 million for 2013,
compared to $1,049 million for 2012. 2013 included gains on the sales of office buildings and surplus properties of $79
million. Advertising expense, net of cooperative advertising allowances, was $1,166 million for 2013 compared to $1,123
million for 2012. Advertising expense, net of cooperative advertising allowances, as a percent to net sales was 4.2% for
2013 compared to 4.1% for 2012.
Impairments, Store Closing and Other Costs and Gain on Sale of Leases
Impairments, store closing and other costs and gain on sale of leases for 2013 includes costs and expenses primarily
associated with cost-reduction initiatives and store closings announced in January 2014. During 2013, these costs and
expenses included $43 million of severance and other human resource-related costs, asset impairment charges of $39
million and $6 million of other related costs and expenses. Impairments, store closing and other costs and gain on sale of
leases for 2012 included $4 million of asset impairment charges primarily related to the store closings announced in
January 2013.
Net Interest Expense
Net interest expense for 2013 decreased $34 million from 2012. Net interest expense for 2013 benefited from lower
rates on outstanding borrowings as compared to 2012.
21
Premium on Early Retirement of Debt
On November 28, 2012, the Company repurchased $700 million aggregate principal amount of its outstanding senior
unsecured notes, which had a net book value of $706 million. The repurchased senior unsecured notes had stated interest
rates ranging from 5.9% to 7.875% and maturities in 2015 and 2016. The Company recorded the redemption premium and
other costs related to these repurchases as additional interest expense of $133 million in 2012. On March 29, 2012, the
Company redeemed the $173 million of 8.0% senior debentures due July 15, 2012, 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 $4 million in 2012. The additional interest expense resulting from these transactions is
presented as premium on early retirement of debt on the Consolidated Statements of Income.
Effective Tax Rate
The Company's effective tax rate of 35.1% for 2013 and 36.5% for 2012 differ from the federal income tax statutory
rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the
settlement of various tax issues and tax examinations. Additionally, income tax expense for 2013 benefited from historic
rehabilitation tax credits and a reduction in the valuation allowance related primarily to state net operating loss
carryforwards.
Comparison of 2012 and 2011
Net Income
Net income for 2012 increased compared to 2011, reflecting the benefits of the key strategies at Macy's, the
continued strong performance at Bloomingdale's, higher income from credit operations, and the 53rd week in 2012.
Net Sales
Net sales for 2012, which had one additional week compared to 2011, increased $1,281 million or 4.9% compared to
2011. On a comparable basis, net sales for 2012 were up 3.7% compared to 2011. Together with sales of departments
licensed to third parties, 2012 sales on a comparable basis were up 4.0%. (See page 16 for information regarding the
Company's calculation of comparable sales, a reconciliation of the non-GAAP measure which takes into account sales of
departments licensed to third parties to the most comparable GAAP measure and other important information). The
Company continued to benefit from the successful execution of the My Macy's localization, Omnichannel and Magic
Selling strategies. Geographically, sales in 2012 were strongest in the southern regions as well as some markets in other
parts of the country such as Western New York, Oregon and Colorado. By family of business, sales in 2012 were strongest
in watches, handbags, cosmetics, textiles, furniture and mattresses. Sales in 2012 were less strong in juniors. Sales of the
Company's private label brands continued to be strong with particular growth coming from millennial, classic apparel and
home textile brands. Sales of the Company's private label brands represented approximately 20% of net sales in the
Macy's-branded stores in 2012.
Cost of Sales
Cost of sales for 2012 increased $800 million from 2011. The cost of sales rate as a percent to net sales of 59.7% was
10 basis points higher in 2012, as compared to 59.6% in 2011, primarily due to the growth of the omnichannel businesses
and the resulting impact of free shipping. The application of the last-in, first-out (LIFO) retail inventory method did not
result in the recognition of any LIFO charges or credits affecting cost of sales in either period.
SG&A Expenses
SG&A expenses for 2012 increased $201 million from 2011. The SG&A rate as a percent to net sales of 30.7% was
70 basis points lower in 2012, as compared to 2011, reflecting increased net sales. SG&A expenses in 2012 were impacted
by higher selling costs as a result of stronger sales, higher retirement expenses (including Pension Plan, SERP and 401(k)
expenses), and greater investments in the Company's omnichannel operations, partially offset by higher income from credit
operations and lower depreciation and amortization expense. Retirement expenses were $232 million in 2012 as compared
to $160 million in 2011, primarily due to the lower discount rate. Advertising expense, net of cooperative advertising
allowances, was $1,123 million for 2012 compared to $1,060 million for 2011. Advertising expense, net of cooperative
advertising allowances, as a percent to net sales was 4.3% for both 2012 and 2011. Income from credit operations was $663
million in 2012 as compared to $582 million in 2011. Depreciation and amortization expense was $1,049 million for 2012,
compared to $1,085 million for 2011.
22
Impairments, Store Closing and Other Costs and Gain on Sale of Leases
Impairments, store closing and other costs and gain on sale of leases for 2012 included $4 million of asset
impairment charges primarily related to the store closings announced in January 2013. Impairments and store closing and
other costs and gain on sale of leases for 2011 included a $54 million gain from the sale of store leases related to the 2006
divestiture of Lord & Taylor, partially offset by $22 million of asset impairment charges primarily related to the store
closings announced in January 2012 and $7 million of other costs and expenses primarily related to the announced store
closings.
Net Interest Expense
Net interest expense for 2012 decreased $21 million from 2011. Net interest expense for 2012 benefited from lower
levels of borrowings and lower rates on outstanding borrowings as compared to 2011.
Premium on Early Retirement of Debt
On November 28, 2012, the Company repurchased $700 million aggregate principal amount of its outstanding senior
unsecured notes, which had a net book value of $706 million. The repurchased senior unsecured notes had stated interest
rates ranging from 5.9% to 7.875% and maturities in 2015 and 2016. The Company recorded the redemption premium and
other costs related to these repurchases as additional interest expense of $133 million in 2012. On March 29, 2012, the
Company redeemed the $173 million of 8.0% senior debentures due July 15, 2012, 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 $4 million in 2012. The additional interest expense resulting from these transactions is
presented as premium on early retirement of debt on the Consolidated Statements of Income.
Effective Tax Rate
The Company's effective tax rate of 36.5% for 2012 and 36.2% for 2011 differ from the federal income tax statutory
rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the
settlement of various tax issues and tax examinations.
Guidance
Based on its assessment of current and anticipated market conditions and its recent performance, the Company's 2014
assumptions include:
• Comparable sales increase in 2014 of approximately 2.5% to 3% from 2013 levels;
• Diluted earnings per share of $4.40 to $4.50; and
• Capital expenditures of approximately $1,050 million.
The Company's budgeted capital expenditures are primarily related to store remodels, maintenance, the continued
renovation of Macy's Herald Square, technology and omnichannel investments, and distribution network improvements,
including a new direct to customer fulfillment center in Tulsa County, OK. The Company has announced that in 2014 it
intends to open new Macy's stores in the Bronx, NY; Sarasota, FL; Las Vegas, NV; and a Bloomingdale's replacement store
in Palo Alto, CA. Additionally, the Company has announced that in 2015 it intends to open a new Macy's store in Ponce,
Puerto Rico and a new Bloomingdale's store in Honolulu, HI, and in 2016 it intends to open a new Macy's store and a new
Bloomingdale's store in Miami, FL. Management presently anticipates funding such expenditures with cash on hand and
cash from operations.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the credit facility described
below.
Operating Activities
Net cash provided by operating activities was $2,549 million in 2013 compared to $2,179 million in 2012, reflecting
higher net income and no pension funding contribution in 2013. During 2012, the Company made a pension funding
contribution totaling $150 million.
23
Investing Activities
Net cash used by investing activities for 2013 was $788 million, compared to net cash used by investing activities of
$781 million for 2012. Investing activities for 2013 includes purchases of property and equipment totaling $607 million
and capitalized software of $256 million, compared to purchases of property and equipment totaling $698 million and
capitalized software of $244 million for 2012. Cash flows from investing activities included $132 million and $66 million
from the disposition of property and equipment for 2013 and 2012, respectively. At February 1, 2014, the Company had
approximately $50 million of cash in a qualified escrow account, included in prepaid expenses and other current assets, to
be utilized for potential tax deferred like-kind exchange transactions.
During 2013, the Company opened three new Macy's stores, one Macy's replacement store, one new Bloomingdale's
store and one new Bloomingdale's Outlet store. During 2012, the Company opened two new Macy's stores and five new
Bloomingdale's Outlet stores. Also during 2012 the Company opened its new 1.3 million square foot fulfillment center in
Martinsburg, WV.
Financing Activities
Net cash used by the Company for financing activities was $1,324 million for 2013, including the acquisition of the
Company's common stock under its share repurchase program at an approximate cost of $1,570 million, the repayment of
$124 million of debt and the payment of $359 million of cash dividends, partially offset by the issuance of $400 million of
debt, the issuance of $315 million of common stock, primarily related to the exercise of stock options, and an increase in
outstanding checks of $24 million. $400 million of 4.375% senior notes due 2023 were issued in 2013 and the debt repaid
during 2013 included $109 million of 7.625% senior debentures due August 15, 2013 paid at maturity.
Net cash used by the Company for financing activities was $2,389 million for 2012 and included the acquisition of
the Company's common stock under its share repurchase program at an approximate cost of $1,350 million, the repayment
of $1,803 million of debt, the payment of $324 million of cash dividends and a decrease in outstanding checks of $88
million, partially offset by the issuance of $1,000 million of debt and the issuance of $234 million of common stock,
primarily related to the exercise of stock options.
On November 28, 2012, the Company repurchased $700 million aggregate principal amount of its outstanding senior
unsecured notes, which had a net book value of $706 million. The repurchased senior unsecured notes had stated interest
rates ranging from 5.9% to 7.875% and maturities in 2015 and 2016. The Company recorded the redemption premium and
other costs related to these repurchases as additional interest expense of $133 million in 2012. On March 29, 2012, the
Company redeemed the $173 million of 8.0% senior debentures due July 15, 2012, 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 $4 million in 2012. On November 20, 2012, the Company issued $750 million aggregate
principal amount of 2.875% senior unsecured notes due 2023 and $250 million aggregate principal amount of 4.3% senior
unsecured notes due 2043. This debt was used to pay for the notes repurchased on November 28, 2012 described above,
and to retire $298 million of 5.875% senior unsecured notes that matured in January 2013. The debt repaid in 2012 also
included $616 million of 5.35% senior notes at maturity. Through these transactions, the Company improved its debt
maturity profile, decreased its ongoing interest expense by taking advantage of the current low interest rate environment
and reduced its refinancing and interest rate risk.
The Company entered into a new credit agreement with certain financial institutions on May 10, 2013 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 10,
2018 and replaced the prior agreement which was set to expire June 20, 2015. As of February 1, 2014 and throughout all of
2013, the Company had no borrowings outstanding under its then existing credit agreements.
24
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
Company's interest coverage ratio for 2013 was 9.40 and its leverage ratio at February 1, 2014 was 1.85, in each case as
calculated in accordance with the credit agreement. The interest coverage ratio is defined as EBITDA over net interest
expense and the leverage ratio is defined as debt over 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 $400 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.
At February 1, 2014, no notes or debentures contain provisions requiring acceleration of payment upon a debt rating
downgrade. However, the terms of approximately $3,700 million in aggregate principal amount of the Company's senior
notes outstanding at that date require the Company to offer to purchase such notes at a price equal to 101% of their
principal amount plus accrued and unpaid interest in specified circumstances involving both a change of control (as defined
in the applicable indenture) of the Company and the rating of the notes by specified rating agencies at a level below
investment grade.
The rate of interest payable in respect of $407 million in aggregate principal amount of the Company's 7.875% senior
notes outstanding at February 1, 2014 could increase by up to 2.0 percent per annum from its current level in the event of
two or more downgrades of the notes by specified rating agencies.
The Company's board of directors approved an additional authorization to purchase Common Stock of $1,500
million on May 15, 2013. During 2013, the Company repurchased approximately 33.6 million shares of its common stock
for a total of $1,570 million. As of February 1, 2014, the Company had $1,432 million of authorization remaining under its
share repurchase program. The Company may continue or, from time to time, suspend repurchases of shares under its share
repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors.
On February 28, 2014, the Company's board of directors declared a quarterly dividend of 25 cents per share on its
common stock, payable April 1, 2014 to Macy's shareholders of record at the close of business on March 14, 2014.
25
Contractual Obligations and Commitments
At February 1, 2014, the Company had contractual obligations (within the scope of Item 303(a)(5) of Regulation S-
K) as follows:
Obligations Due, by Period
Total
Less than
1 Year
1 – 3
Years
(millions)
3 – 5
Years
More than
5 Years
Short-term debt ...................................................................... $
Long-term debt.......................................................................
Interest on debt.......................................................................
Capital lease obligations ........................................................
Operating leases .....................................................................
Letters of credit ......................................................................
Other obligations....................................................................
461
$
461
$
— $
— $
6,522
4,909
62
2,920
34
4,548
—
398
4
282
34
3,047
1,123
712
6
477
—
475
312
581
6
386
—
292
—
5,087
3,218
46
1,775
—
734
$
19,456
$
4,226
$
2,793
$
1,577
$
10,860
“Other obligations” in the foregoing table includes post employment and postretirement benefits, self-insurance
reserves, group medical/dental/life insurance programs, merchandise purchase obligations and obligations under
outsourcing arrangements, construction contracts, energy and other supply agreements identified by the Company and
liabilities for unrecognized tax benefits that the Company expects to settle in cash in the next year. The Company's
merchandise purchase obligations fluctuate on a seasonal basis, typically being higher in the summer and early fall and
being lower in the late winter and early spring. The Company purchases a substantial portion of its merchandise inventories
and other goods and services otherwise than through binding contracts. Consequently, the amounts shown as “Other
obligations” in the foregoing table do not reflect the total amounts that the Company would need to spend on goods and
services in order to operate its businesses in the ordinary course.
The Company has not included in the contractual obligations table $147 million of long-term liabilities for
unrecognized tax benefits for various tax positions taken or $51 million of related accrued federal, state and local interest
and penalties. These liabilities may increase or decrease over time as a result of tax examinations, and given the status of
examinations, the Company cannot reliably estimate the period of any cash settlement with the respective taxing
authorities. The Company has included in the contractual obligations table $31 million of liabilities for unrecognized tax
benefits that the Company expects to settle in cash in the next year.
Liquidity and Capital Resources Outlook
Management believes that, with respect to the Company's current operations, cash on hand and funds from
operations, together with its credit facility and other capital resources, will be sufficient to cover the Company's reasonably
foreseeable working capital, capital expenditure and debt service requirements and other cash requirements in both the near
term and over the longer term. The Company's ability to generate funds from operations may be affected by numerous
factors, including general economic conditions and levels of consumer confidence and demand; however, the Company
expects to be able to manage its working capital levels and capital expenditure amounts so as to maintain sufficient levels
of liquidity. To the extent that the Company's cash balances from time to time exceed amounts that are needed to fund its
immediate liquidity requirements, the Company will consider alternative uses of some or all of such excess cash. Such
alternative uses may include, among others, the redemption or repurchase of debt, equity or other securities through open
market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations. Depending
upon its actual and anticipated sources and uses of liquidity, conditions in the capital markets and other factors, the
Company will from time to time consider the issuance of debt or other securities, or other possible capital markets
transactions, for the purpose of raising capital which could be used to refinance current indebtedness or for other corporate
purposes including the redemption or repurchase of debt, equity or other securities through open market purchases,
privately negotiated transactions or otherwise, and the funding of pension related obligations.
The Company intends from time to time to consider additional acquisitions of, and investments in, retail businesses
and other complementary assets and companies. Acquisition transactions, if any, are expected to be financed from one or
more of the following sources: cash on hand, cash from operations, borrowings under existing or new credit facilities and
the issuance of long-term debt or other securities, including common stock.
26
Critical Accounting Policies
Merchandise Inventories
Merchandise inventories are valued at the 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 fiscal year purchase activity. At February 1,
2014 and February 2, 2013, 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 2013, 2012 or 2011. 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 mark down
merchandise, the resulting gross profit 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 fiscal 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 devices and interim inventories
to keep the Company's merchandise files accurate.
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 generally credited to cost of sales at the
time the merchandise is sold 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. 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. Although it is highly unlikely that there will be
any significant reduction in historical levels of vendor support, if such a reduction were to occur, the Company could
experience higher costs of sales and higher advertising expense, or reduce the amount of advertising that it uses, depending
on the specific vendors involved and market conditions existing at the time.
Long-Lived Asset Impairment and Restructuring Charges
The carrying values of long-lived assets are periodically reviewed by the Company whenever events or changes in
circumstances indicate that the carrying value may not be recoverable, such as historical operating losses or plans to close
stores before the end of their previously estimated useful lives. Additionally, on an annual basis, the recoverability of the
carrying values of individual stores are evaluated. 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.
27
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.
Income Taxes
Income taxes are estimated based on the tax statutes, regulations and case law of the various jurisdictions in which
the Company operates. 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. Deferred income tax assets are evaluated for recoverability based on all available
evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies.
Deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the
deferred income tax assets will not be realized.
Uncertain tax positions are recognized if the weight of available evidence indicates that it is more likely than not that
the tax position will be sustained on examination, including resolution of any related appeals or litigation processes, based
on the technical merits of the position. Uncertain tax positions meeting the more-likely-than-not recognition threshold are
then measured to determine the amount of benefit eligible for recognition in the financial statements. Each uncertain tax
position is measured at the largest amount of benefit that is more likely than not to be realized upon ultimate settlement.
Uncertain tax positions are evaluated and adjusted as appropriate, while taking into account the progress of audits of
various taxing jurisdictions. The Company does not anticipate that resolution of these matters will have a material impact
on the Company's consolidated financial position, results of operations or cash flows.
Significant judgment is required in evaluating the Company's uncertain tax positions, provision for income taxes, and
any valuation allowance recorded against deferred tax assets. Although the Company believes that its judgments are
reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is
reflected in the Company's historical income provisions and accruals.
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 by third parties 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.
Pension and Supplementary Retirement Plans
The Company has a funded defined benefit pension plan (the “Pension Plan”) and an unfunded defined benefit
supplementary retirement plan (the “SERP”). The Company accounts for these plans in accordance with ASC Topic 715,
“Compensation - Retirement Benefits.” Under ASC Topic 715, an employer recognizes the funded status of a defined
benefit postretirement plan as an asset or liability on the balance sheet and recognizes changes in that funded status in the
year in which the changes occur through comprehensive income. Additionally, pension expense is generally recognized on
an accrual basis over employees' approximate service periods. The pension expense calculation is generally independent of
funding decisions or requirements.
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 will be provided through defined contribution plans. As a result of these
changes, the Company recognized reductions in the projected benefit obligations of the Pension Plan of $254 million and
the SERP of $42 million as of February 2, 2013.
28
The Pension Protection Act of 2006 provides the funding requirements for the Pension Plan which are different from
the employer's accounting for the plan as outlined in ASC Topic 715. No funding contributions were required, and the
Company made no funding contributions to the Pension Plan in 2013. As of the date of this report, the Company does not
anticipate making funding contributions to the Pension Plan in 2014. Management believes that, with respect to the
Company's current operations, cash on hand and funds from operations, together with available borrowing under its credit
facility and other capital resources, will be sufficient to cover the Company's Pension Plan cash requirements in both the
near term and also over the longer term.
At February 1, 2014, the Company had unrecognized actuarial losses of $931 million for the Pension Plan and $176
million for the SERP. The unrecognized losses for the Pension Plan and the SERP will be recognized as a component of
pension expense in future years in accordance with ASC Topic 715, and is expected to impact 2014 Pension and SERP
income by approximately $31 million. The Company generally amortizes unrecognized gains and losses on a straight-line
basis over the average remaining lifetime of participants using the corridor approach.
The calculation of pension expense and pension liabilities requires the use of a number of assumptions. Changes in
these assumptions can result in different expense and liability amounts, and future actual experience may differ
significantly from current expectations. The Company believes that the most critical assumptions relate to the long-term
rate of return on plan assets (in the case of the Pension Plan), the discount rate used to determine the present value of
projected benefit obligations and the weighted average rate of increase of future compensation levels.
As of February 2, 2013, the Company lowered the assumed annual long-term rate of return for the Pension Plan's
assets from 8.00% to 7.50% based on expected future returns on the portfolio. The Company develops its expected long-
term rate of return 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. Pension
expense increases or decreases as the expected rate of return on the assets of the Pension Plan decreases or increases,
respectively. Lowering or raising the expected long-term rate of return on the Pension Plan's assets by 0.25% would
increase or decrease the estimated 2014 pension expense by approximately $8 million.
The Company discounted its future pension obligations using a rate of 4.50% at February 1, 2014, compared to
4.15% at February 2, 2013. The discount rate used to determine the present value of the Company's Pension Plan and SERP
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 Pension Plan and SERP obligations. As the discount rate is reduced or
increased, pension liability would increase or decrease, respectively, and future pension expense would decrease or
increase, respectively. Lowering the discount rate by 0.25% (from 4.50% to 4.25%) would increase the projected benefit
obligation at February 1, 2014 by approximately $99 million and would decrease estimated 2014 pension expense by
approximately $2 million. Increasing the discount rate by 0.25% (from 4.50% to 4.75%) would decrease the projected
benefit obligation at February 1, 2014 by approximately $92 million and would increase estimated 2014 pension expense
by approximately $2 million.
The assumed weighted average rate of increase in future compensation levels was 4.1% at February 1, 2014 and
4.5% at February 2, 2013 for the Pension Plan, and 4.9% at February 2, 2013 for the SERP. 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. Pension liabilities and future pension
expense both increase or decrease as the weighted average rate of increase of future compensation levels is increased or
decreased, respectively. Increasing or decreasing the assumed weighted average rate of increase of future compensation
levels by 0.25% would increase or decrease the projected benefit obligation at February 1, 2014 by approximately $1
million and the change to estimated 2014 pension expense would be less than $1 million.
New Pronouncements
The Company does not anticipate that the adoption of recent accounting pronouncements will have a material impact
on the Company's consolidated financial position, results of operations or cash flows.
29
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk from changes in interest rates that may adversely affect its financial position,
results of operations and cash flows. In seeking to minimize the risks from interest rate fluctuations, the Company manages
exposures through its regular operating and financing activities and, when deemed appropriate, through the 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.
The Company is exposed to interest rate risk through its borrowing activities, which are described in Note 6 to the
Consolidated Financial Statements. All of the Company’s borrowings are under fixed rate instruments. However, the
Company, from time to time, may use interest rate swap and interest rate cap agreements to help manage its exposure to
interest rate movements and reduce borrowing costs. At February 1, 2014, the Company was not a party to any derivative
financial instruments and based on the Company’s lack of market risk sensitive instruments outstanding at February 1,
2014, the Company has determined that there was no material market risk exposure to the Company’s consolidated
financial position, results of operations or cash flows as of such date.
Item 8.
Consolidated Financial Statements and Supplementary Data.
Information called for by this item is set forth in the Company’s Consolidated Financial Statements and
supplementary data contained in this report and is incorporated herein by this reference. Specific financial statements and
supplementary data can be found at the pages listed in the following index:
30
INDEX
Report of Management ........................................................................................................................................
Report of Independent Registered Public Accounting Firm................................................................................
Consolidated Statements of Income for the fiscal years ended
February 1, 2014, February 2, 2013 and January 28, 2012 ..............................................................................
Consolidated Statements of Comprehensive Income for the fiscal years ended
February 1, 2014, February 2, 2013 and January 28, 2012 ..............................................................................
Consolidated Balance Sheets at February 1, 2014 and February 2, 2013............................................................
Consolidated Statements of Changes in Shareholders’ Equity for the fiscal years ended
February 1, 2014, February 2, 2013 and January 28, 2012 ..............................................................................
Consolidated Statements of Cash Flows for the fiscal years ended
February 1, 2014, February 2, 2013 and January 28, 2012 ..............................................................................
Notes to Consolidated Financial Statements........................................................................................................
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
31
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Controls and Procedures.
a. Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have carried out, as of February 1, 2014, with
the participation of the Company’s management, an evaluation of the effectiveness of the Company’s disclosure controls
and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed by the Company in reports the Company files under
the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and
forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the
Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
b. Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s management conducted an assessment of the
Company’s internal control over financial reporting based on the framework established by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based on this assessment, the
Company’s management has concluded that, as of February 1, 2014, the Company’s internal control over financial
reporting is effective.
The Company’s independent registered public accounting firm, KPMG LLP, has audited the effectiveness of the
Company’s internal control over financial reporting as of February 1, 2014 and has issued an attestation report expressing
an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting, as stated in their
report located on page F-3.
c. Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting that occurred during the
Company’s most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
d. Certifications
The certifications of the Company’s Chief Executive Officer and Chief Financial Officer required under Section 302
of the Sarbanes-Oxley Act are filed as Exhibits 31.1 and 31.2 to this report. Additionally, in 2013 the Company’s Chief
Executive Officer certified to the NYSE that he was not aware of any violation by the Company of the NYSE corporate
governance listing standards.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
Information called for by this item is set forth under “Item 1 – Election of Directors” and “Further Information
Concerning the Board of Directors – Committees of the Board” and “Section 16(a) Beneficial Ownership Reporting
Compliance” in the Proxy Statement to be delivered to stockholders in connection with our 2014 Annual Meeting of
Shareholders (the “Proxy Statement”), and “Item 1. Business – Executive Officers of the Registrant” in this report and
incorporated herein by reference.
Item 11.
Executive Compensation.
Information called for by this item is set forth under “Compensation Discussion & Analysis,” “Compensation of the
Named Executives for 2013,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider
Participation” in the Proxy Statement and incorporated herein by reference.
32
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Information called for by this item is set forth under “Stock Ownership – Certain Beneficial Owners” and “Stock
Ownership – Stock Ownership of Directors and Executive Officers” in the Proxy Statement and incorporated herein by
reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Information called for by this item is set forth under “Further Information Concerning the Board of Directors –
Director Independence” and “Policy on Related Person Transactions” in the Proxy Statement and incorporated herein by
reference.
Item 14.
Principal Accountant Fees and Services.
Information called for by this item is set forth under “Item 2 – Appointment of Independent Registered Public
Accounting Firm” in the Proxy Statement and incorporated herein by reference.
33
Item 15.
Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this report:
PART IV
1. Financial Statements:
The list of financial statements required by this item is set forth in Item 8 “Consolidated Financial Statements and
Supplementary Data” and is incorporated herein by reference.
2. Financial Statement Schedules:
All schedules are omitted because they are inapplicable, not required, or the information is included elsewhere in
the Consolidated Financial Statements or the notes thereto.
3. Exhibits:
Exhibit
Number
3.1
3.1.1
3.1.2
3.2
4.1
4.2
4.3
4.3.1
4.4
4.4.1
Description
Document if Incorporated by Reference
Amended and Restated Certificate of Incorporation
Certificate of Designations of Series A Junior
Participating Preferred Stock
Article Seventh of the Amended and Restated
Certificate of Incorporation
Exhibit 3.1 to the Company's Current Report on
Form 8-K filed on May 18, 2010
Exhibit 3.1.1 to the Company's Annual Report on
Form 10-K (File No. 1-13536) for the fiscal year
ended January 28, 1995
Exhibit 3.1 to the Company's Current Report on
Form 8-K filed on May 24, 2011 (the “May 24,
2011 Form 8-K”)
Amended and Restated By-Laws
Exhibit 3.2 to the May 24, 2011 Form 8-K
Amended and Restated Certificate of Incorporation
See Exhibits 3.1, 3.1.1 and 3.1.2
Amended and Restated By-Laws
See Exhibit 3.2
Indenture, dated as of January 15, 1991, among the
Company (as successor to The May Department Stores
Company (“May Delaware”)), Macy's Retail Holdings,
Inc. (“Macy's Retail”) (f/k/a The May Department
Stores Company (NY) or “May New York”) and The
Bank of New York Mellon Trust Company, N.A.
(“BNY Mellon”, successor to J.P. Morgan Trust
Company and as successor to The First National Bank
of Chicago), as Trustee (the “1991 Indenture”)
Guarantee of Securities, dated as of August 30, 2005,
by the Company relating to the 1991 Indenture
Indenture, dated as of December 15, 1994, between the
Company and U.S. Bank National Association
(successor to State Street Bank and Trust Company
and The First National Bank of Boston), as Trustee
(the “1994 Indenture”)
Eighth Supplemental Indenture to the 1994 Indenture,
dated as of July 14, 1997, between the Company and
U.S. Bank National Association (successor to State
Street Bank and Trust Company and The First National
Bank of Boston), as Trustee
34
Exhibit 4(2) to May New York’s Current Report on
Form 8-K filed on January 15, 1991
Exhibit 10.13 to the Company's Current Report on
Form 8-K filed on August 30, 2005 (the
“August 30, 2005 Form 8-K”)
Exhibit 4.1 to the Company's Registration
Statement on Form S-3 (Registration No. 33-88328)
filed on January 9, 1995
Exhibit 2 to the Company's Current Report on Form
8-K filed on July 15, 1997 (the “July 15, 1997 Form
8-K”)
Exhibit
Number
4.4.2
4.4.3
4.4.4
4.5
4.5.1
4.5.2
4.5.3
4.5.4
4.6
4.6.1
4.7
4.7.1
4.8
Description
Ninth Supplemental Indenture to the 1994 Indenture,
dated as of July 14, 1997, between the Company and
U.S. Bank National Association (successor to State
Street Bank and Trust Company and The First National
Bank of Boston), as Trustee
Tenth Supplemental Indenture to the 1994 Indenture,
dated as of August 30, 2005, among the Company,
Macy's Retail and U.S. Bank National Association (as
successor to State Street Bank and Trust Company and
as successor to The First National Bank of Boston), as
Trustee
Guarantee of Securities, dated as of August 30, 2005,
by the Company relating to the 1994 Indenture
Indenture, dated as of September 10, 1997, between
the Company and U.S. Bank National Association
(successor to Citibank, N.A.), as Trustee (the “1997
Indenture”)
First Supplemental Indenture to the 1997 Indenture,
dated as of February 6, 1998, between the Company
and U.S. Bank National Association (successor to
Citibank, N.A.), as Trustee
Document if Incorporated by Reference
Exhibit 3 to the July 15, 1997 Form 8-K
Exhibit 10.14 to the August 30, 2005 Form 8-K
Exhibit 10.16 to the August 30, 2005 Form 8-K
Exhibit 4.4 to the Company's Amendment No. 1 to
Form S-3 (Registration No. 333-34321) filed on
September 11, 1997
Exhibit 2 to the Company's Current Report on Form
8-K filed on February 6, 1998
Third Supplemental Indenture to the 1997 Indenture,
dated as of March 24, 1999, between the Company and
U.S. Bank National Association (successor to
Citibank, N.A.), as Trustee
Exhibit 4.2 to the Company's Registration
Statement on Form S-4 (Registration
No. 333-76795) filed on April 22, 1999
Seventh Supplemental Indenture to the 1997
Indenture, dated as of August 30, 2005 among the
Company, Macy's Retail and U.S. Bank National
Association (successor to Citibank, N.A.), as Trustee
Guarantee of Securities, dated as of August 30, 2005,
by the Company relating to the 1997 Indenture
Indenture, dated as of June 17, 1996, among the
Company (as successor to May Delaware), Macy's
Retail (f/k/a May New York) and The Bank of New
York Mellon Trust Company, N.A. (“BNY Mellon”,
successor to J.P. Morgan Trust Company), as Trustee
(the “1996 Indenture”)
First Supplemental Indenture to the 1996 Indenture,
dated as of August 30, 2005, by and among the
Company (as successor to May Delaware), Macy's
Retail (f/k/a May New York) and BNY Mellon, as
Trustee
Indenture, dated as of July 20, 2004, among the
Company (as successor to May Delaware), Macy's
Retail (f/k/a May New York) and BNY Mellon, as
Trustee (the “2004 Indenture”)
First Supplemental Indenture to the 2004 Indenture,
dated as of August 30, 2005 among the Company (as
successor to May Delaware), Macy's Retail and BNY
Mellon, as Trustee
Indenture, dated as of November 2, 2006, by and
among Macy's Retail, the Company and U.S. Bank
National Association, as Trustee (the “2006
Indenture”)
35
Exhibit 10.15 to the August 30, 2005 Form 8-K
Exhibit 10.17 to the August 30, 2005 Form 8-K
Exhibit 4.1 to the Registration Statement on
Form S-3 (Registration No. 333-06171) filed on
June 18, 1996 by May Delaware
Exhibit 10.9 to the August 30, 2005 Form 8-K
Exhibit 4.1 to the Current Report on Form 8-K (File
No. 001-00079) filed on July 21, 2004 by May
Delaware
Exhibit 10.10 to the August 30, 2005 Form 8-K
Exhibit 4.6 to the Company's Registration
Statement on Form S-3ASR (Registration
No. 333-138376) filed on November 2, 2006
Exhibit
Number
4.8.1
4.8.2
4.8.3
4.9
4.9.1
4.9.2
4.9.3
4.9.4
4.9.5
10.1+
10.1.1
10.2
10.3
10.4
Description
Document if Incorporated by Reference
First Supplemental Indenture to the 2006 Indenture,
dated November 29, 2006, among Macy's Retail, the
Company and U.S. Bank National Association, as
Trustee
Third Supplemental Indenture to the 2006 Indenture,
dated March 12, 2007, among Macy's Retail, the
Company and U.S. Bank National Association, as
Trustee
Fifth Supplemental Trust Indenture to the 2006
Indenture, dated as of June 26, 2008, among Macy's
Retail, as issuer, the Company, as guarantor, and U.S.
Bank National Association, as trustee
Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on November 29, 2006
Exhibit 4.2 to the Company's Current Report on
Form 8-K filed on March 12, 2007
Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on June 26, 2008
Indenture, dated as of January 13, 2012, among Macy's
Retail, the Company and BNY Mellon, as Trustee (the
"2012 Indenture")
Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on January 13, 2012 (the “January
13, 2012 Form 8-K”)
First Supplemental Trust Indenture to the 2012
Indenture, dated as of January 13, 2012, among Macy's
Retail, as issuer, the Company, as guarantor, and BNY
Mellon, as trustee
Second Supplemental Trust Indenture to the 2012
Indenture, dated as of January 13, 2012, among Macy's
Retail, as issuer, the Company, as guarantor, and BNY
Mellon, as trustee
Third Supplemental Trust Indenture, dated as of
November 20, 2012, among Macy's Retail, as issuer,
the Company, as guarantor, and BNY Mellon, as
trustee
Fourth Supplemental Trust Indenture, dated as of
November 20, 2012, among Macy's Retail, as issuer,
the Company, as guarantor, and BNY Mellon, as
trustee
Fifth Supplemental Trust Indenture, dated as of
September 6, 2013, among Macy's Retail, as issuer, the
Company, as guarantor, and BNY Mellon, as trustee
Credit Agreement, dated as of May 10, 2013, among
the Company, Macy's Retail, the lenders party thereto
and JPMorgan Chase Bank, N.A., as administrative
agent and paying agent, and Bank of America, N.A., as
administrative agent
First Amendment, dated as of May 30, 2013, to the
Credit Agreement, among Macy's Retail and
JPMorgan Chase Bank, N.A. and the Bank of America,
N.A., as Administrative Agents
Guarantee Agreement, dated as of May 10, 2013,
among the Company, Macy's Retail, certain subsidiary
guarantors and JPMorgan Chase Bank, N.A., as paying
agent
Commercial Paper Dealer Agreement, dated as of
August 30, 2005, among the Company, Macy's Retail
and Banc of America Securities LLC
Commercial Paper Dealer Agreement, dated as of
August 30, 2005, among the Company, Macy's Retail
and Goldman, Sachs & Co.
36
Exhibit 4.2 to the January 13, 2012 Form 8-K
Exhibit 4.3 to the January 13, 2012 Form 8-K
Exhibit 4.2 to the Company's Current Report on
Form 8-K filed on November 20, 2012 (the
“November 20, 2012 Form 8-K”)
Exhibit 4.3 to the November 20, 2012 Form 8-K
Exhibit 4.2 to the Company's Current Report on
Form 8-K filed on September 6, 2013
Exhibit 10.01 to the Company's Current Report on
Form 8-K filed on May 14, 2013 (the “May 14,
2013 Form 8-K”)
Exhibit 10.1.1 to the Company's Quarterly Report
on Form 10-Q filed on June 10, 2013
Exhibit 10.02 to the May 14, 2013 Form 8-K
Exhibit 10.6 to the August 30, 2005 Form 8-K
Exhibit 10.7 to the August 30, 2005 Form 8-K
Exhibit
Number
10.5
10.6
Description
Document if Incorporated by Reference
Commercial Paper Dealer Agreement, dated as of
August 30, 2005, among the Company, Macy's Retail
and J.P. Morgan Securities Inc.
Exhibit 10.8 to the August 30, 2005 Form 8-K
Commercial Paper Dealer Agreement, dated as of
October 4, 2006, among the Company and Loop
Capital Markets, LLC
Exhibit 10.6 to the Company's Annual Report on
Form 10-K (File No. 1-13536) for the fiscal year
ended February 3, 2007
10.7
Tax Sharing Agreement
10.8+
Purchase, Sale and Servicing Transfer Agreement,
effective as of June 1, 2005, among the Company, FDS
Bank, Prime II Receivables Corporation (“Prime II”)
and Citibank, N.A. (“Citibank”)
10.8.1
Letter Agreement, dated August 22, 2005, among the
Company, FDS Bank, Prime II and Citibank
10.8.2+
10.8.3
10.8.4+
10.9+
10.9.1+
10.9.2+
10.9.3
10.9.4
10.9.5
Second Amendment to Purchase, Sale and Servicing
Transfer Agreement, dated October 24, 2005, between
the Company and Citibank
Third Amendment to Purchase, Sale and Servicing
Transfer Agreement, dated May 1, 2006, between the
Company and Citibank
Fourth Amendment to Purchase, Sale and Servicing
Transfer Agreement, dated May 22, 2006, between the
Company and Citibank
Credit Card Program Agreement, effective as of June
1, 2005, among the Company, FDS Bank, Macy's
Credit and Customer Services, Inc. (“MCCS”) (f/k/a
FACS Group, Inc.) and Citibank
First Amendment to Credit Card Program Agreement,
dated October 24, 2005, between the Company and
Citibank
Second Amendment to Credit Card Program
Agreement, dated May 22, 2006, between the
Company, FDS Bank, MCCS, Macy's West Stores,
Inc. (f/k/a Macy's Department Stores, Inc,) (“MWSI”),
Bloomingdale’s, Inc. (“Bloomingdale’s”) and
Department Stores National Bank (“DSNB”) and
Citibank
Restated Letter Agreement, dated May 30, 2008 and
effective as of December 18, 2006, among the
Company, FDS Bank, MCCS, MWSI,
Bloomingdale’s, Inc. (“Bloomingdale’s), and DSNB
(as assignee of Citibank, N.A.)
Restated Letter Agreement, dated May 30, 2008 and
effective as of March 22, 2007, among the Company,
FDS Bank, MCCS, MWSI, Bloomingdale’s and
DSNB
Restated Letter Agreement, dated May 30, 2008 and
effective as of April 6, 2007, among the Company,
FDS Bank, MCCS, MWSI, Bloomingdale’s and
DSNB
37
Exhibit 10.10 to the Company's Registration
Statement on Form 10, filed on November 27, 1991,
as amended (the “Form 10”)
Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q filed on September 8, 2009 (the
"September 8, 2009 Form 10-Q")
Exhibit 10.17.1 to the Company's Annual Report on
Form 10-K (File No. 1-13536) for the fiscal year
ended January 28, 2006 (the “2005 Form 10-K”)
Exhibit 10.4 to the September 8, 2009 Form 10-Q
Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on May 3, 2006
Exhibit 10.5 to the September 8, 2009 Form 10-Q
Exhibit 10.6 to the September 8, 2009 Form 10-Q
Exhibit 10.7 to the September 8, 2009 Form 10-Q
Exhibit 10.8 to the September 8, 2009 Form 10-Q
Exhibit 10.6 to the Company's Quarterly Report on
Form 10-Q filed on June 9, 2008 (the “June 9, 2008
Form 10-Q”)
Exhibit 10.7 to the June 9, 2008 Form 10-Q
Exhibit 10.8 to the June 9, 2008 Form 10-Q
Exhibit
Number
10.9.6
10.9.7
10.9.8+
10.9.9+
10.9.10+
10.9.11+
10.9.12+
Description
Restated Letter Agreement, dated May 30, 2008 and
effective as of June 1, 2007, among the Company, FDS
Bank, MCCS, MWSI, Bloomingdale’s and DSNB
Restated Third Amendment to Credit Card Program
Agreement, dated May 31, 2008 and effective as of
February 3, 2008, among the Company, FDS Bank,
MCCS, MWSI, Bloomingdale’s and DSNB
Fourth Amendment to Credit Card Program
Agreement, effective as of August 1, 2008, among the
Company, FDS Bank, MCCS, MWSI, Bloomingdale’s
and DSNB.
Fifth Amendment to Credit Card Program Agreement,
effective as of January 1, 2009, among the Company,
FDS Bank, MCCS, MWSI, Bloomingdale’s and
DSNB
Sixth Amendment to Credit Card Program Agreement,
effective as of June 1, 2009, among the Company, FDS
Bank, MCCS, MWSI, Bloomingdale’s and DSNB
Seventh Amendment to Credit Card Program
Agreement, effective as of February 26, 2010, among
the Company, FDS Bank, MCCS, MWSI,
Bloomingdale’s and DSNB
Eighth Amendment to Credit Card Program
Agreement, effective as of April 16, 2012, among the
Company, FDS Bank, MCCS, MWSI, Bloomingdale’s
and DSNB
Document if Incorporated by Reference
Exhibit 10.9 to the June 9, 2008 Form 10-Q
Exhibit 10.10 to the June 9, 2008 Form 10-Q
Exhibit 10.9 to the September 8, 2009 Form 10-Q
Exhibit 10.10 to the September 8, 2009 Form 10-Q
Exhibit 10.11 to the September 8, 2009 Form 10-Q
Exhibit 10.9.11 to the Company's Annual Report on
Form 10-K (File No. 1-13536) for the fiscal year
ended January 30, 2010
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q filed on December 3, 2012
10.9.13+
Letter Agreement, dated October 30, 2013, among the
Company, FDS Bank, MCCS, MWSI, Bloomingdale’s
and DSNB
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q filed on December 9, 2013
10.10
1995 Executive Equity Incentive Plan, as amended and
restated as of June 1, 2007 (the “1995 Plan”) *
10.11
Senior Executive Incentive Compensation Plan *
Exhibit 10.11 to the Company's Annual Report on
Form 10-K (File No. 1-13536) for the fiscal year
ended January 31, 2009 (the “2008 Form 10-K”)
Appendix B to the Company's Proxy Statement
dated March 28, 2012
10.12
10.13
10.14
10.15
10.15.1
1994 Stock Incentive Plan, as amended and restated as
of June 1, 2007 *
Exhibit 10.13 to the 2008 Form 10-K
Form of Indemnification Agreement *
Exhibit 10.14 to the Form 10
Executive Severance Plan, effective November 1,
2009, as revised and restated January 1, 2014 *
Form of Non-Qualified Stock Option Agreement for
the 1995 Plan (for Executives and Key Employees) *
Exhibit 10.2 to the Company's Current Report on
Form 8-K filed on March 29, 2005
Form of Non-Qualified Stock Option Agreement for
the 1995 Plan (for Executives and Key Employees), as
amended *
Exhibit 10.33.1 to the 2005 Form 10-K
10.15.2
Form of Non-Qualified Stock Option Agreement for
the 1994 Stock Incentive Plan *
Exhibit 10.7 to the Current Report on From 8-K
(File No. 001-00079) filed on March 23, 2005 by
May Delaware (the “March 23, 2005 Form 8-K”)
10.15.3
Form of Nonqualified Stock Option Agreement under
the 2009 Omnibus Incentive Compensation Plan (for
Executives and Key Employees) *
Exhibit 10.15.3 to the Company's Annual Report on
Form 10-K (File No. 1-13536) for the fiscal year
ended February 2, 2013 (the "2012 Form 10-K")
38
Exhibit
Number
10.16
10.17
10.17.1
10.18
10.18.1
Description
Document if Incorporated by Reference
Nonqualified Stock Option Agreement, dated as of
October 26, 2007, by and between the Company and
Terry Lundgren *
Form of Restricted Stock Agreement for the 1994
Stock Incentive Plan *
Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on November 1, 2007
Exhibit 10.4 to the March 23, 2005 Form 8-K
Form of Time-Based Restricted Stock Agreement
under the 2009 Omnibus Incentive Compensation Plan
*
Exhibit 10.3 to the Company's Current Report on
Form 8-K filed on March 25, 2010
Exhibit 10.18 to the 2012 Form 10-K
Form of Performance-Based Restricted Stock Unit
Agreement under the 2009 Omnibus Incentive
Compensation Plan for the 2013-2015 performance
period *
Form of Performance-Based Restricted Stock Unit
Agreement under the 2009 Omnibus Incentive
Compensation Plan for the 2014-2016 performance
period *
10.19
Form of Time-Based Restricted Stock Unit Agreement
under the 2009 Omnibus Incentive Compensation Plan
*
Exhibit 10.19 to the 2012 Form 10-K
10.20
Supplementary Executive Retirement Plan *
Exhibit 10.29 to the 2008 Form 10-K
10.20.1
First Amendment to the Supplementary Executive
Retirement Plan effective January 1, 2012 *
10.20.2
10.20.3
Second Amendment to Supplementary Executive
Retirement Plan effective January 1, 2012 *
Third Amendment to Supplementary Executive
Retirement Plan effective December 31, 2013 *
Exhibit 10.21.1 to the Company's Annual Report on
Form 10-K (File No. 1-13536) for the fiscal year
ended January 28, 2012
Exhibit 10.20.2 to the 2012 Form 10-K
10.21
Executive Deferred Compensation Plan *
Exhibit 10.30 to the 2008 Form 10-K
10.21.1
10.22
10.23
10.24
First Amendment to Executive Deferred Compensation
Plan effective December 19, 2013 *
Macy's, Inc. 401(k) Retirement Investment Plan (the
"Plan") (amending and restating the Macy's, Inc. 401
(k) Retirement Investment Plan) effective as of
January 1, 2014 *
Director Deferred Compensation Plan *
Exhibit 10.33 to the 2008 Form 10-K
Macy's, Inc. 2009 Omnibus Incentive Compensation
Plan *
Appendix B to the Company's Proxy Statement
dated April 1, 2009
10.25
Macy's, Inc. Deferred Compensation Plan *
Exhibit 4.5 to the Company's Registration
Statement on Form S-8 (Registration No.
333-192917) filed on December 18, 2013
10.26
10.27
Change in Control Plan, effective November 1, 2009,
as revised and restated January 1, 2014 *
Time Sharing Agreement between Macy's, Inc. and
Terry J. Lundgren, dated March 25, 2011 *
21
Subsidiaries
39
Exhibit 10.33 to the Company's Annual Report on
Form 10-K (File No. 1-13536) for the fiscal year
ended January 29, 2011
Exhibit
Number
23
24
31.1
31.2
32.1
32.2
101**
Description
Document if Incorporated by Reference
Consent of KPMG LLP
Powers of Attorney
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
Certification by Chief Executive Officer under Section
906 of the Sarbanes-Oxley Act
Certification by Chief Financial Officer under Section
906 of the Sarbanes-Oxley Act
The following financial statements from Macy's, Inc.’s
Annual Report on Form 10-K for the year ended
February 1, 2014, filed on April 2, 2014, formatted in
XBRL: (i) Consolidated Statements of Income, (ii)
Consolidated Statements of Comprehensive Income,
(iii) Consolidated Balance Sheets, (iv) Consolidated
Statements of Changes in Shareholders’ Equity, (v)
Consolidated Statements of Cash Flows, and (vi) the
Notes to Consolidated Financial Statements, tagged as
blocks of text and in detail.
___________________
+
*
**
Portions of the exhibit have been omitted pursuant to a request for confidential treatment. The confidential portions
have been provided to the SEC.
Constitutes a compensatory plan or arrangement.
As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11
and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
40
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
MACY’S, INC.
By:
/s/ DENNIS J. BRODERICK
Dennis J. Broderick
Executive Vice President, General Counsel and Secretary
Date: April 2, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on April 2, 2014.
Signature
*
Terry J. Lundgren
*
Karen M. Hoguet
*
Joel A. Belsky
*
Stephen F. Bollenbach
*
Deirdre Connelly
*
Meyer Feldberg
*
Sara Levinson
*
Joseph Neubauer
*
Joyce M. Roché
*
Paul C. Varga
*
Craig E. Weatherup
*
Marna C. Whittington
___________________
Chairman of the Board and Chief Executive Officer (principal executive officer)
and Director
Title
Chief Financial Officer (principal financial officer)
Executive Vice President and Controller (principal accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
*
The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to
the Powers of Attorney executed by the above-named officers and directors and filed herewith.
By:
/s/ DENNIS J. BRODERICK
Dennis J. Broderick
Attorney-in-Fact
41
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Management .....................................................................................................................................
Report of Independent Registered Public Accounting Firm.............................................................................
Consolidated Statements of Income for the fiscal years ended
February 1, 2014, February 2, 2013 and January 28, 2012...........................................................................
Consolidated Statements of Comprehensive Income for the fiscal years ended
February 1, 2014, February 2, 2013 and January 28, 2012...........................................................................
Consolidated Balance Sheets at February 1, 2014 and February 2, 2013 ........................................................
Consolidated Statements of Changes in Shareholders’ Equity for the fiscal years ended
February 1, 2014, February 2, 2013 and January 28, 2012...........................................................................
Consolidated Statements of Cash Flows for the fiscal years ended
February 1, 2014, February 2, 2013 and January 28, 2012...........................................................................
Notes to Consolidated Financial Statements ....................................................................................................
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-1
To the Shareholders of
Macy’s, Inc.:
REPORT OF MANAGEMENT
The integrity and consistency of the Consolidated Financial Statements of Macy’s, Inc. and subsidiaries, which were
prepared in accordance with accounting principles generally accepted in the United States of America, are the
responsibility of management and properly include some amounts that are based upon estimates and judgments.
The Company maintains a system of internal accounting controls, which is supported by a program of internal audits
with appropriate management follow-up action, to provide reasonable assurance, at appropriate cost, that the Company’s
assets are protected and transactions are properly recorded. Additionally, the integrity of the financial accounting system is
based on careful selection and training of qualified personnel, organizational arrangements which provide for appropriate
division of responsibilities and communication of established written policies and procedures.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Exchange Act Rule 13a-15(f) and has issued Management’s Report on Internal Control over
Financial Reporting.
The Consolidated Financial Statements of the Company have been audited by KPMG LLP. Their report expresses
their opinion as to the fair presentation, in all material respects, of the financial statements and is based upon their
independent audits.
The Audit Committee, composed solely of outside directors, meets periodically with KPMG LLP, the internal
auditors and representatives of management to discuss auditing and financial reporting matters. In addition, KPMG LLP
and the Company’s internal auditors meet periodically with the Audit Committee without management representatives
present and have free access to the Audit Committee at any time. The Audit Committee is responsible for recommending to
the Board of Directors the engagement of the independent registered public accounting firm and the general oversight
review of management’s discharge of its responsibilities with respect to the matters referred to above.
Terry J. Lundgren
Chairman and Chief Executive Officer
Karen M. Hoguet
Chief Financial Officer
Joel A. Belsky
Executive Vice President and Controller
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Macy’s, Inc.:
We have audited the accompanying consolidated balance sheets of Macy’s, Inc. and subsidiaries as of February 1, 2014 and
February 2, 2013, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash
flows for each of the years in the three-year period ended February 1, 2014. We also have audited Macys, Inc.’s internal
control over financial reporting as of February 1, 2014, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Macy’s, Inc.’s
management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Item 9A(b), “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to
express an opinion on these consolidated financial statements and an opinion on Macy’s Inc.’s internal control over
financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Macy’s, Inc. and subsidiaries as of February 1, 2014 and February 2, 2013, and the results of their operations
and their cash flows for each of the years in the three-year period ended February 1, 2014, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, Macy’s, Inc. maintained, in all material respects, effective
internal control over financial reporting as of February 1, 2014, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP
Cincinnati, Ohio
April 2, 2014
F-3
MACY’S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share data)
Net sales ................................................................................................... $
Cost of sales .............................................................................................
Gross margin ............................................................................................
Selling, general and administrative expenses...........................................
Impairments, store closing and other costs and
gain on sale of leases ............................................................................
Operating income .....................................................................................
Interest expense ........................................................................................
Premium on early retirement of debt........................................................
Interest income .........................................................................................
Income before income taxes.....................................................................
Federal, state and local income tax expense ............................................
Net income ............................................................................................... $
Basic earnings per share ........................................................................... $
Diluted earnings per share........................................................................ $
2013
2012
2011
$
27,931
(16,725)
11,206
(8,440)
$
27,686
(16,538)
11,148
(8,482)
26,405
(15,738)
10,667
(8,281)
(88)
2,678
(390)
—
2
2,290
(804)
1,486
3.93
3.86
$
$
$
(5)
2,661
(425)
(137)
3
2,102
(767)
1,335
3.29
3.24
$
$
$
25
2,411
(447)
—
4
1,968
(712)
1,256
2.96
2.92
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-4
MACY’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions)
Net income ............................................................................................... $
Other comprehensive income (loss), net of taxes:
Actuarial gain (loss) and prior service cost on post employment
and postretirement benefit plans, net of tax effect of $108 million,
$24 million and $241 million............................................................
Unrealized loss on marketable securities, net of tax
effect of $1 million............................................................................
Reclassifications to net income:
Net actuarial loss on post employment and postretirement
benefit plans, net of tax effect of $61 million, $60 million
and $35 million..............................................................................
Prior service credit on post employment and postretirement
benefit plans, net of tax effect of $1 million and $1 million .........
Realized gain on marketable securities, net of
tax effect of $4 million ..................................................................
Total other comprehensive income (loss).................................................
Comprehensive income ............................................................................ $
2013
2012
2011
1,486
$
1,335
$
1,256
170
—
96
—
—
266
37
—
94
(1)
—
130
1,752
$
1,465
$
(376)
(2)
56
(1)
(8)
(331)
925
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-5
MACY’S, INC.
CONSOLIDATED BALANCE SHEETS
(millions)
February 1, 2014
February 2, 2013
Current Assets:
ASSETS
Cash and cash equivalents ............................................................................................ $
Receivables ...................................................................................................................
Merchandise inventories...............................................................................................
Prepaid expenses and other current assets ....................................................................
Total Current Assets ..............................................................................................
Property and Equipment – net..............................................................................................
Goodwill ..............................................................................................................................
Other Intangible Assets – net...............................................................................................
Other Assets .........................................................................................................................
Total Assets............................................................................................................ $
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt ............................................................................................................. $
Merchandise accounts payable .....................................................................................
Accounts payable and accrued liabilities......................................................................
Income taxes .................................................................................................................
Deferred income taxes ..................................................................................................
Total Current Liabilities.........................................................................................
Long-Term Debt...................................................................................................................
Deferred Income Taxes........................................................................................................
Other Liabilities ...................................................................................................................
Shareholders’ Equity:
Common stock (364.9 and 387.7 shares outstanding)..................................................
Additional paid-in capital .............................................................................................
Accumulated equity ......................................................................................................
Treasury stock...............................................................................................................
Accumulated other comprehensive loss .......................................................................
Total Shareholders’ Equity....................................................................................
Total Liabilities and Shareholders’ Equity............................................................ $
2,273
438
5,557
420
8,688
7,930
3,743
527
746
21,634
463
1,691
2,810
362
400
5,726
6,728
1,273
1,658
4
2,522
6,235
(1,847)
(665)
6,249
21,634
$
$
$
$
1,836
371
5,308
361
7,876
8,196
3,743
561
615
20,991
124
1,579
2,610
355
407
5,075
6,806
1,238
1,821
4
3,872
5,108
(2,002)
(931)
6,051
20,991
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-6
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(millions)
MACY’S, INC.
Common
Stock
Additional
Paid-In
Capital
Accumulated
Equity
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
$
(2,431) $
(730) $
Balance at January 29, 2011 ............................. $
Net income........................................................
Other comprehensive loss.................................
Common stock dividends ($.55 per share) .......
Stock repurchases .............................................
Stock-based compensation expense..................
Stock issued under stock plans .........................
Retirement of common stock............................
Deferred compensation plan distributions........
Balance at January 28, 2012 .............................
Net income........................................................
Other comprehensive income ...........................
Common stock dividends ($.60 per share) .......
Stock repurchases .............................................
Stock-based compensation expense..................
Stock issued under stock plans .........................
Retirement of common stock............................
Deferred compensation plan distributions........
Balance at February 2, 2013 .............................
Net income........................................................
Other comprehensive income ...........................
Common stock dividends ($.95 per share) .......
Stock repurchases .............................................
Stock-based compensation expense..................
Stock issued under stock plans .........................
Retirement of common stock............................
Deferred compensation plan distributions........
Balance at February 1, 2014 ............................. $
2,990
1,256
(231)
4,015
1,335
(242)
5,108
1,486
(359)
5
$
5,696
$
48
(81)
(255)
5
5,408
55
(111)
(1,480)
3,872
60
(84)
(1,326)
(1)
4
—
4
$
2,522
$
6,235
$
(331)
(1,061)
130
(931)
266
(665) $
(502)
242
255
2
(2,434)
(1,397)
345
1,481
3
(2,002)
(1,571)
399
1,326
1
(1,847) $
5,530
1,256
(331)
(231)
(502)
48
161
—
2
5,933
1,335
130
(242)
(1,397)
55
234
—
3
6,051
1,486
266
(359)
(1,571)
60
315
—
1
6,249
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-7
MACY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
Cash flows from operating activities:
Net income .................................................................................................... $
Adjustments to reconcile net income to net cash
provided by operating activities:
2013
2012
2011
1,486
$
1,335
$
1,256
Impairments, store closing and other costs and gain
on sale of leases.................................................................................
Depreciation and amortization ..............................................................
Stock-based compensation expense ......................................................
Amortization of financing costs and premium on acquired debt ..........
Changes in assets and liabilities:...........................................................
(Increase) decrease in receivables ....................................................
Increase in merchandise inventories.................................................
Increase in prepaid expenses and other current assets .....................
(Increase) decrease in other assets not separately identified............
Increase in merchandise accounts payable.......................................
Increase (decrease) in accounts payable and accrued
liabilities not separately identified .........................................
Increase (decrease) in current income taxes.....................................
Increase (decrease) in deferred income taxes...................................
Increase (decrease) in other liabilities not separately identified ......
Net cash provided by operating activities ..........................
Cash flows from investing activities:
Purchase of property and equipment.............................................................
Capitalized software......................................................................................
Disposition of property and equipment.........................................................
Proceeds from insurance claims....................................................................
Other, net.......................................................................................................
Net cash used by investing activities..................................
Cash flows from financing activities:
Debt issued....................................................................................................
Financing costs..............................................................................................
Debt repaid....................................................................................................
Dividends paid ..............................................................................................
Increase (decrease) in outstanding checks ....................................................
Acquisition of treasury stock ........................................................................
Issuance of common stock ............................................................................
Net cash used by financing activities .................................
Net increase (decrease) in cash and cash equivalents ...........................................
Cash and cash equivalents beginning of period ....................................................
Cash and cash equivalents end of period .............................................................. $
Supplemental cash flow information:
Interest paid................................................................................................... $
Interest received ............................................................................................
Income taxes paid (net of refunds received) .................................................
88
1,020
62
(8)
(58)
(249)
(2)
(1)
101
48
7
(142)
197
2,549
(607)
(256)
132
—
(57)
(788)
400
(9)
(124)
(359)
24
(1,571)
315
(1,324)
437
1,836
2,273
388
2
835
$
$
5
1,049
61
(16)
7
(191)
(7)
23
23
(33)
(16)
14
(75)
2,179
(698)
(244)
66
—
95
(781)
1,000
(11)
(1,803)
(324)
(88)
(1,397)
234
(2,389)
(991)
2,827
1,836
585
2
738
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-8
(25)
1,085
70
(15)
(37)
(359)
(17)
6
143
109
188
153
(384)
2,173
(555)
(209)
114
6
(53)
(697)
800
(20)
(454)
(148)
49
(502)
162
(113)
1,363
1,464
2,827
474
4
401
MACY’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Nature of Operations
Macy’s, Inc. and subsidiaries (the “Company”) is an omnichannel retail organization operating stores and Internet
websites under two brands (Macy’s and Bloomingdale’s) 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 in 45 states, the
District of Columbia, Guam and Puerto Rico. As of February 1, 2014, the Company’s operations and reportable segments
were conducted through Macy’s, macys.com, Bloomingdale’s, bloomingdales.com and Bloomingdale’s Outlet, 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 2013, 2012 and 2011, the following merchandise constituted the following percentages of sales:
Feminine Accessories, Intimate Apparel, Shoes and Cosmetics..............
Feminine Apparel .....................................................................................
Men’s and Children’s ...............................................................................
Home/Miscellaneous ................................................................................
2013
2012
2011
38%
23
23
16
100%
38%
23
23
16
100%
37%
25
23
15
100%
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years 2013, 2012 and 2011 ended on
February 1, 2014, February 2, 2013 and January 28, 2012, respectively. Fiscal years 2013 and 2011 included 52 weeks and
fiscal year 2012 included 53 weeks. References to years in the Consolidated Financial Statements relate to fiscal years
rather than calendar years.
Basis of Presentation
The Consolidated Financial Statements include the accounts of the Company and its 100%-owned subsidiaries. All
significant intercompany transactions have been eliminated.
Certain reclassifications were made to prior years’ amounts to conform with 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.
F-9
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 $101 million at February 1, 2014 and $99 million at February 2, 2013.
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 statement of operations 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 February
1, 2014, 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 to the Company’s customers through previously existing and newly opened accounts.
Loyalty Programs
The Company maintains customer loyalty programs in which customers earn rewards based on their spending. Upon
reaching certain levels of qualified spending, customers automatically receive rewards to apply toward future purchases.
The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net
sales.
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 fiscal year purchase activity. At February 1,
2014 and February 2, 2013, 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 2013, 2012 or 2011. 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.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 mark down
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. 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.
Physical inventories are taken at all store locations for substantially all merchandise categories approximately three weeks
before the end of the fiscal year. Shrinkage is estimated as a percentage of sales at interim periods and for this approximate
three-week period, based on historical shrinkage rates.
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 generally credited to cost of sales at the
time the merchandise is sold 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.
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:
Gross advertising and promotional costs ................................................. $
Cooperative advertising allowances.........................................................
Advertising and promotional costs, net of
cooperative advertising allowances ...................................................... $
Net sales ................................................................................................... $
Advertising and promotional costs, net of cooperative
advertising allowances, as a percent to net sales ..................................
Property and Equipment
2013
2012
(millions)
1,623
457
1,166
27,931
$
$
$
1,554
431
1,123
27,686
$
$
$
2011
1,432
372
1,060
26,405
4.2%
4.1%
4.0%
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 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.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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 cost of these benefits is generally recognized in the Consolidated
Financial Statements over an employee’s term of service with the Company, 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 February 1, 2014, 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.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2.
Impairments, Store Closing and Other Costs and Gain on Sale of Leases
Impairments, store closing and other costs and gain on sale of leases consist of the following:
Impairments of properties held and used ................................................. $
Severance .................................................................................................
Gain on sale of leases ...............................................................................
Other.........................................................................................................
$
2013
2012
(millions)
2011
39
43
—
6
88
$
$
4
3
—
(2)
5
$
$
22
4
(54)
3
(25)
During January 2014, the Company announced a series of cost-reduction initiatives, including organization changes
that combine certain region and district organizations of the My Macy’s store management structure and the realignment
and elimination of certain store, central office and administrative functions.
During January 2014, the Company announced the closure of five Macy's stores; during January 2013, the Company
announced the closure of six Macy's and Bloomingdale's stores; and during January 2012, the Company announced the
closure of ten Macy’s and Bloomingdale'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 lease 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 2013 accrued severance costs, which are included in accounts payable and
accrued liabilities on the Consolidated Balance Sheets, prior to May 3, 2014. The 2012 and 2011 accrued severance costs,
which were included in accounts payable and accrued liabilities on the Consolidated Balance Sheets, were paid out in the
fiscal year subsequent to incurring such severance costs.
During 2011, the Company recognized a gain on the sale of store leases related to the 2006 divestiture of Lord &
Taylor, partially offset by impairment charges and other costs and expenses related to store closings.
3. Receivables
Receivables were $438 million at February 1, 2014, compared to $371 million at February 2, 2013.
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 (the “Program Agreement”) with an initial term of 10 years expiring on July 17, 2016 and,
unless terminated by either party as of the expiration of the initial term, 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.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Amounts received under the Program Agreement were $928 million for 2013, $865 million for 2012 and $772
million for 2011, 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 $731 million for 2013, $663 million for 2012,
and $582 million for 2011.
4.
Properties and Leases
Land ................................................................................................................................... $
Buildings on owned land ...................................................................................................
Buildings on leased land and leasehold improvements .....................................................
Fixtures and equipment......................................................................................................
Leased properties under capitalized leases ........................................................................
Less accumulated depreciation and amortization .......................................................
$
February 1,
2014
February 2,
2013
(millions)
1,696
5,405
2,041
4,811
43
13,996
6,066
7,930
$
$
1,736
5,398
2,057
4,909
43
14,143
5,947
8,196
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 February 1, 2014, for noncancellable leases are:
Capitalized
Leases
Operating
Leases
(millions)
Total
Fiscal year
2014.......................................................................................................... $
2015..........................................................................................................
2016..........................................................................................................
2017..........................................................................................................
2018..........................................................................................................
After 2018 ................................................................................................
Total minimum lease payments................................................................
Less amount representing interest ............................................................
Present value of net minimum capitalized lease payments ...................... $
$
$
4
3
3
3
3
46
62
30
32
282
253
224
202
184
1,775
2,920
$
$
286
256
227
205
187
1,821
2,982
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Capitalized leases are included in the Consolidated Balance Sheets as property and equipment while the related
obligation is included in short-term ($2 million) and long-term ($30 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 $34 million on operating leases.
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 $334 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:
Real estate (excluding executory costs)
Capitalized leases –
2013
2012
(millions)
2011
Contingent rentals ...................................................................... $
— $
— $
Operating leases –
Minimum rentals........................................................................
Contingent rentals ......................................................................
Less income from subleases –
Operating leases .........................................................................
$
Personal property – Operating leases ....................................................... $
256
22
278
(10)
268
11
$
$
248
21
269
(11)
258
11
$
$
—
242
19
261
(18)
243
10
Included as a reduction to the expense above is deferred rent amortization of $8 million, $7 million and $8 million
for 2013, 2012 and 2011, respectively, related to contributions received from landlords.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. Goodwill and Other Intangible Assets
The following summarizes the Company’s goodwill and other intangible assets:
Non-amortizing intangible assets
Goodwill ................................................................................................................... $
Accumulated impairment losses ...............................................................................
Tradenames...............................................................................................................
$
Amortizing intangible assets
Favorable leases........................................................................................................ $
Customer relationships .............................................................................................
Accumulated amortization
Favorable leases........................................................................................................
Customer relationships .............................................................................................
$
February 1,
2014
February 2,
2013
(millions)
9,125
(5,382)
3,743
414
4,157
188
188
376
(104)
(159)
(263)
113
$
$
$
$
9,125
(5,382)
3,743
414
4,157
230
188
418
(131)
(140)
(271)
147
Intangible amortization expense amounted to $34 million for 2013, $37 million for 2012 and $39 million for 2011.
Future estimated intangible amortization expense is shown below:
Fiscal year
2014.................................................................................................................................... $
2015....................................................................................................................................
2016....................................................................................................................................
2017....................................................................................................................................
2018....................................................................................................................................
31
21
8
7
7
(millions)
Favorable lease intangible assets are being amortized over their respective lease terms (weighted average life of
approximately twelve years) and customer relationship intangible assets are being amortized over their estimated useful
lives of ten years.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6.
Financing
The Company’s debt is as follows:
February 1,
2014
February 2,
2013
(millions)
Short-term debt:
5.75% Senior notes due 2014 .................................................................................................................... $
453
$
7.625% Senior debentures due 2013 .........................................................................................................
Capital lease and current portion of other long-term obligations..............................................................
$
Long-term debt:
2.875% Senior notes due 2023 .................................................................................................................. $
5.9% Senior notes due 2016 ......................................................................................................................
3.875% Senior notes due 2022 ..................................................................................................................
6.375% Senior notes due 2037 ..................................................................................................................
7.875% Senior notes due 2015 * ...............................................................................................................
4.375% Senior notes due 2023 ..................................................................................................................
6.9% Senior debentures due 2029 .............................................................................................................
6.7% Senior debentures due 2034 .............................................................................................................
7.45% Senior debentures due 2017 ...........................................................................................................
6.65% Senior debentures due 2024 ...........................................................................................................
7.0% Senior debentures due 2028 .............................................................................................................
6.9% Senior debentures due 2032 .............................................................................................................
5.125% Senior debentures due 2042 .........................................................................................................
4.3% Senior notes due 2043 ......................................................................................................................
6.7% Senior debentures due 2028 .............................................................................................................
6.79% Senior debentures due 2027 ...........................................................................................................
7.875% Senior debentures due 2036 .........................................................................................................
8.125% Senior debentures due 2035 .........................................................................................................
7.5% Senior debentures due 2015 .............................................................................................................
8.75% Senior debentures due 2029 ...........................................................................................................
7.45% Senior debentures due 2016 ...........................................................................................................
8.5% Senior debentures due 2019 .............................................................................................................
10.25% Senior debentures due 2021 .........................................................................................................
9.5% amortizing debentures due 2021 ......................................................................................................
7.6% Senior debentures due 2025 .............................................................................................................
7.875% Senior debentures due 2030 .........................................................................................................
9.75% amortizing debentures due 2021 ....................................................................................................
5.75% Senior notes due 2014 ....................................................................................................................
Premium on acquired debt, using an effective
interest yield of 5.266% to 6.165% .......................................................................................................
Capital lease and other long-term obligations...........................................................................................
$
$
—
10
463
750
577
550
500
407
400
400
400
300
300
300
250
250
250
200
165
108
76
69
61
59
36
33
25
24
18
14
—
176
30
—
109
15
124
750
577
550
500
407
—
400
400
300
300
300
250
250
250
200
165
108
76
69
61
59
36
33
29
24
18
16
453
191
34
________________
*
The rate of interest payable in respect of these senior notes was increased by one percent per annum to 8.875% in April 2009 as a result of a
downgrade of the notes by specified rating agencies, was decreased by 0.50 percent per annum to 8.375% effective in May 2010 as a result of
an upgrade of the notes by specified rating agencies, was decreased by 0.25 percent per annum to 8.125% effective in May 2011 as a result of
an upgrade of the notes by specified rating agencies, and was decreased by 0.25 percent per annum to 7.875%, its stated interest rate, effective
in January 2012 as a result of an upgrade of the notes by specified rating agencies. The rate of interest payable in respect of these senior notes
could increase by up to 2.0% per annum from its current level in the event of two or more downgrades of the notes by specified rating
agencies.
$
6,728
$
6,806
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest expense and premium on early retirement of debt is as follows:
2013
2012
(millions)
2011
Interest on debt ......................................................................................... $
Amortization of debt premium .................................................................
Amortization of financing costs ...............................................................
Interest on capitalized leases ....................................................................
Less interest capitalized on construction..................................................
Interest expense ........................................................................................ $
407
(15)
7
2
401
11
390
$
$
Premium on early retirement of debt........................................................ $
— $
449
(19)
7
3
440
15
425
137
$
$
$
467
(23)
8
3
455
8
447
—
On November 28, 2012, the Company repurchased $700 million aggregate principal amount of its outstanding senior
unsecured notes, which had a net book value of $706 million. The repurchased senior unsecured notes had stated interest
rates ranging from 5.9% to 7.875% and maturities in 2015 and 2016. The Company recorded the redemption premium and
other costs related to these repurchases as additional interest expense of $133 million in 2012. On March 29, 2012, the
Company redeemed the $173 million of 8.0% senior debentures due July 15, 2012, 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 $4 million in 2012. The additional interest expense resulting from these transactions 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 and premium on acquired debt, are shown below:
Fiscal year
2015.......................................................................................................................................................... $
2016..........................................................................................................................................................
2017..........................................................................................................................................................
2018..........................................................................................................................................................
2019..........................................................................................................................................................
After 2019 ................................................................................................................................................
481
642
306
6
41
5,046
(millions)
During 2013, 2012 and 2011, the Company repaid $109 million, $914 million and $439 million, respectively, of
indebtedness at maturity.
On September 6, 2013, the Company issued $400 million aggregate principal amount of 4.375% senior notes due
2023, the proceeds of which were used for general corporate purposes.
On January 10, 2012, the Company issued $550 million aggregate principal amount of 3.875% senior notes due 2022
and $250 million aggregate principal amount of 5.125% senior notes due 2042, the proceeds of which were used to retire
indebtedness that matured during the first half of 2012.
On November 20, 2012, the Company issued $750 million aggregate principal amount of 2.875% senior unsecured
notes due 2023 and $250 million aggregate principal amount of 4.3% senior unsecured notes due 2043. This debt was used
to pay for the notes repurchased on November 28, 2012 described above, and to retire $298 million of 5.875% senior
unsecured notes that matured in January 2013.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table shows the detail of debt repayments:
7.625% Senior debentures due 2013 ........................................................ $
5.35% Senior notes due 2012 ...................................................................
5.90% Senior notes due 2016 ...................................................................
5.875% Senior notes due 2013 .................................................................
7.875% Senior notes due 2015 .................................................................
8.0% Senior debentures due 2012 ............................................................
7.45% Senior debentures due 2016 ..........................................................
7.5% Senior debentures due 2015 ............................................................
6.625% Senior notes due 2011 .................................................................
7.45% Senior debentures due 2011 ..........................................................
9.5% amortizing debentures due 2021 .....................................................
9.75% amortizing debentures due 2021 ...................................................
Capital leases and other obligations .........................................................
$
The following summarizes certain components of the Company’s debt:
Bank Credit Agreement
2013
2012
(millions)
2011
109
—
—
—
—
—
—
—
—
—
4
2
9
124
$
$
— $
616
400
298
205
173
64
31
—
—
4
2
10
1,803
$
—
—
—
—
—
—
—
—
330
109
4
2
9
454
The Company entered into a new credit agreement with certain financial institutions on May 10, 2013 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 10,
2018 and replaced the prior agreement which was set to expire June 20, 2015.
As of February 1, 2014, and February 2, 2013, there were no revolving credit loans outstanding under these credit
agreements, and there were no borrowings under these agreements throughout all of 2013 and 2012. However, there were
less than $1 million of standby letters of credit outstanding at February 1, 2014 and February 2, 2013. 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 2013 was 9.40 and its leverage ratio at February 1, 2014 was 1.85, 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) over net interest expense and the leverage ratio is defined as debt over 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
$400 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.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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. The Company had no commercial paper
outstanding under its commercial paper program throughout all of 2013 and 2012.
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 February 1, 2014 and February 2, 2013, 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 $34 million of other standby letters of credit outstanding at February 1, 2014 and February 2, 2013.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. Accounts Payable and Accrued Liabilities
February 1,
2014
February 2,
2013
Accounts payable................................................................................................................ $
Gift cards and customer award certificates.........................................................................
Accrued wages and vacation ..............................................................................................
Taxes other than income taxes............................................................................................
Lease related liabilities .......................................................................................................
Current portion of workers’ compensation and general liability reserves..........................
Current portion of post employment and postretirement benefits ......................................
Accrued interest ..................................................................................................................
Allowance for future sales returns......................................................................................
Severance and relocation ....................................................................................................
Other ...................................................................................................................................
$
$
(millions)
746
840
190
157
153
131
110
89
85
43
266
2,810
$
625
801
226
195
145
138
100
78
81
3
218
2,610
Adjustments to the allowance for future sales returns, which amounted to charges of $4 million, $5 million and $9
million for 2013, 2012 and 2011, respectively, are reflected in cost of sales.
Changes in workers’ compensation and general liability reserves, including the current portion, are as follows:
Balance, beginning of year....................................................................... $
Charged to costs and expenses .................................................................
Payments, net of recoveries......................................................................
Balance, end of year ................................................................................. $
497
147
(147)
497
$
$
493
157
(153)
497
$
$
488
144
(139)
493
2013
2012
(millions)
2011
The non-current portion of workers’ compensation and general liability reserves is included in other liabilities on the
Consolidated Balance Sheets. At February 1, 2014 and February 2, 2013, workers’ compensation and general liability
reserves included $107 million and $103 million, respectively, of liabilities which are covered by deposits and receivables
included in current assets on the Consolidated Balance Sheets.
8. Taxes
Income tax expense is as follows:
2013
2012
2011
Current
Deferred
Total
Current
Deferred
Total
Current
Deferred
Total
(millions)
Federal .......................... $
State and local...............
$
859
107
966
$
$
(98) $
(64)
(162) $
761
43
804
$
$
697
$
70
$
2
(2)
767
$ — $
699
68
767
$
$
519
43
562
$
$
144
6
150
$
$
663
49
712
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The income tax expense reported differs from the expected tax computed by applying the federal income tax
statutory rate of 35% for 2013, 2012 and 2011 to income before income taxes. The reasons for this difference and their tax
effects are as follows:
Expected tax ............................................................................................. $
State and local income taxes, net of federal income tax benefit ..............
Historic rehabilitation tax credit...............................................................
Change in valuation allowance ................................................................
Other.........................................................................................................
$
2013
2012
(millions)
2011
801
45
(16)
(16)
(10)
804
$
$
736
47
—
(2)
(14)
767
$
$
689
34
—
(3)
(8)
712
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 2011 and all prior tax years.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred
tax liabilities are as follows:
Deferred tax assets
Post employment and postretirement benefits ......................................................... $
Accrued liabilities accounted for on a cash basis for tax purposes ..........................
Long-term debt .........................................................................................................
Unrecognized state tax benefits and accrued interest...............................................
State operating loss and credit carryforwards ..........................................................
Other.........................................................................................................................
Valuation allowance .................................................................................................
Total deferred tax assets....................................................................................
Deferred tax liabilities
Excess of book basis over tax basis of property and equipment ..............................
Merchandise inventories ..........................................................................................
Intangible assets .......................................................................................................
Post employment benefits ........................................................................................
Other.........................................................................................................................
Total deferred tax liabilities ..............................................................................
Net deferred tax liability ................................................................................... $
February 1,
2014
February 2,
2013
(millions)
$
392
289
90
84
79
160
(23)
1,071
(1,569)
(587)
(263)
(28)
(297)
(2,744)
(1,673) $
476
237
96
71
60
177
(39)
1,078
(1,665)
(577)
(230)
—
(251)
(2,723)
(1,645)
The valuation allowance at February 1, 2014 and February 2, 2013 relates to net deferred tax assets for state net
operating loss and credit carryforwards. The net change in the valuation allowance amounted to a decrease of $16 million
for 2013 and a decrease of $2 million for 2012.
As of February 1, 2014, the Company had no federal net operating loss carryforwards and state net operating loss and
credit carryforwards of $608 million, which will expire between 2014 and 2033.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
February 1,
2014
February 2,
2013
(millions)
January 28,
2012
Balance, beginning of year ...................................................................... $
Additions based on tax positions related to the current year ...................
Additions for tax positions of prior years ................................................
Reductions for tax positions of prior years ..............................................
Settlements...............................................................................................
Statute expirations....................................................................................
Balance, end of year................................................................................. $
Amounts recognized in the Consolidated Balance Sheets at
February 1, 2014, February 2, 2013 and January 28, 2012
Current income taxes ........................................................................ $
Long-term deferred income taxes.....................................................
Other liabilities .................................................................................
$
170
37
—
(1)
(1)
(16)
189
31
11
147
189
$
$
$
$
179
18
18
(19)
(9)
(17)
170
20
23
127
170
$
$
$
$
205
23
—
(21)
(15)
(13)
179
18
27
134
179
As of February 1, 2014 and February 2, 2013, the amount of unrecognized tax benefits, net of deferred tax assets,
that, if recognized would affect the effective income tax rate, was $123 million and $111 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 $9 million for 2013, a credit of $10 million for 2012, and a credit of $2 million for 2011, are reflected in
income tax expense.
The Company had $63 million and $55 million accrued for the payment of federal, state and local interest and
penalties at February 1, 2014 and February 2, 2013, 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
February 1, 2014 and February 2, 2013 are insignificant. At February 1, 2014, $51 million of federal, state and local
interest and penalties is included in other liabilities and $12 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 2010. 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 2004. 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.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Retirement Plans
The Company has a funded defined benefit plan (“Pension Plan”) and defined contribution plans (“Retirement
Plans”) which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has 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 will be provided through defined contribution plans. As a result of these
changes, the Company recognized reductions in the projected benefit obligations of the Pension Plan of $254 million and
the SERP of $42 million as of February 2, 2013.
Pension Plan
The following provides a reconciliation of benefit obligations, plan assets, and funded status of the Pension Plan as
of February 1, 2014 and February 2, 2013:
Change in projected benefit obligation
Projected benefit obligation, beginning of year ....................................................... $
Service cost ..............................................................................................................
Interest cost ..............................................................................................................
Actuarial (gain) loss .................................................................................................
Benefits paid.............................................................................................................
Actuarial gain due to curtailment .............................................................................
Projected benefit obligation, end of year .................................................................
Changes in plan assets
Fair value of plan assets, beginning of year .............................................................
Actual return on plan assets .....................................................................................
Company contributions ............................................................................................
Benefits paid.............................................................................................................
Fair value of plan assets, end of year .......................................................................
Funded status at end of year ............................................................................................ $
Amounts recognized in the Consolidated Balance Sheets at
February 1, 2014 and February 2, 2013
Other assets .............................................................................................................. $
Other liabilities.........................................................................................................
$
Amounts recognized in accumulated other comprehensive loss at
February 1, 2014 and February 2, 2013
2013
2012
(millions)
3,555
112
143
(117)
(220)
—
3,473
3,387
379
—
(220)
3,546
73
73
—
73
$
$
$
$
3,458
117
157
283
(206)
(254)
3,555
3,069
374
150
(206)
3,387
(168)
—
(168)
(168)
Net actuarial loss ...................................................................................................... $
931
$
1,326
The accumulated benefit obligation for the Pension Plan was $3,453 million as of February 1, 2014 and $3,496
million as of February 2, 2013.
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net pension costs and other amounts recognized in other comprehensive loss for the Pension Plan included the
following actuarially determined components:
Net Periodic Pension Cost
Service cost ....................................................................................... $
Interest cost .......................................................................................
Expected return on assets ..................................................................
Amortization of net actuarial loss .....................................................
Amortization of prior service credit..................................................
Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss
Net actuarial (gain) loss ....................................................................
Amortization of net actuarial loss .....................................................
Amortization of prior service credit..................................................
2013
2012
(millions)
2011
$
112
143
(242)
141
—
154
(254)
(141)
—
(395)
$
117
157
(253)
141
(1)
161
(91)
(141)
1
(231)
Total recognized in net periodic pension cost and
other comprehensive loss...................................................................... $
(241) $
(70) $
102
160
(248)
88
(1)
101
530
(88)
1
443
544
The estimated net actuarial loss for the Pension Plan that will be amortized from accumulated other comprehensive
loss into net periodic benefit cost during 2014 is $26 million.
The following weighted average assumptions were used to determine the projected benefit obligations for the
Pension Plan at February 1, 2014 and February 2, 2013:
Discount rate ........................................................................................................................
Rate of compensation increases ...........................................................................................
4.50%
4.10%
4.15%
4.50%
2013
2012
The following weighted average assumptions were used to determine the net periodic pension cost for the Pension
Plan:
Discount rate ............................................................................................
Expected long-term return on plan assets ................................................
Rate of compensation increases ...............................................................
4.15%
7.50%
4.50%
4.65%
8.00%
4.50%
5.40%
8.00%
4.50%
2013
2012
2011
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.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 February 2, 2013, the Company
lowered the assumed annual long-term rate of return for the Pension Plan's assets from 8.00% to 7.50% based on expected
future returns on the portfolio.
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 the 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.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of the Pension Plan assets as of February 1, 2014, excluding interest and dividend receivables and
pending investment purchases and sales, by asset category are as follows:
Fair Value Measurements
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Cash and cash equivalents............................................ $
Equity securities:
211
$
(millions)
— $
211
$
U.S. ........................................................................
International ..........................................................
Fixed income securities:
U. S. Treasury bonds.............................................
Other Government bonds ......................................
Agency backed bonds ...........................................
Corporate bonds ....................................................
Mortgage-backed securities and forwards ............
Asset-backed securities .........................................
Pooled funds..........................................................
Other types of investments:
834
748
221
39
22
388
95
20
454
Real estate .............................................................
Hedge funds ..........................................................
Private equity ........................................................
Total.............................................................................. $
214
167
167
3,580
$
354
—
—
—
—
—
—
—
—
—
—
—
354
480
748
221
39
22
388
95
20
454
—
—
—
2,678
$
$
—
—
—
—
—
—
—
—
—
—
214
167
167
548
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of the Pension Plan assets as of February 2, 2013, excluding interest and dividend receivables and
pending investment purchases and sales, by asset category are as follows:
Fair Value Measurements
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Cash and cash equivalents............................................ $
Equity securities:
204
$
(millions)
— $
204
$
U.S. ........................................................................
International ..........................................................
Fixed income securities:
U. S. Treasury bonds.............................................
Other Government bonds ......................................
Agency backed bonds ...........................................
Corporate bonds ....................................................
Mortgage-backed securities and forwards ............
Asset-backed securities .........................................
Pooled funds..........................................................
Other types of investments:
832
818
136
34
6
338
102
24
303
Real estate .............................................................
Hedge funds ..........................................................
Private equity ........................................................
Total.............................................................................. $
280
154
160
3,391
$
290
—
—
—
—
—
—
—
—
—
—
—
290
542
818
136
34
6
338
102
24
303
—
—
—
2,507
$
$
—
—
—
—
—
—
—
—
—
—
280
154
160
594
Corporate bonds consist primarily of investment grade bonds of U.S. issuers from diverse industries.
The fair value of the real estate, hedge funds and private equity investments represents the reported net asset value of
shares or underlying assets of the investment. 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. The real estate investments are diversified across property types
and geographical areas primarily in the United States of America. Private equity investments generally consist of limited
partnerships in the United States of America, Europe and Asia. The hedge fund investments are through a fund of funds
approach.
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 February 1, 2014 and February 2, 2013, certain of these investments are generally subject to lock-up
periods, ranging from three to fifteen 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 February 1, 2014 and February 2, 2013,
the Pension Plan had unfunded commitments related to certain of these investments totaling $150 million and $144 million,
respectively.
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth a summary of changes in fair value of the Pension Plan’s level 3 assets for 2013 and
2012:
Balance, beginning of year ............................................................................ $
Actual gain on plan assets:
Relating to assets still held at the reporting date ....................................
Relating to assets sold during the period ................................................
Purchases........................................................................................................
Sales ...............................................................................................................
Balance, end of year....................................................................................... $
2013
2012
(millions)
594
$
1
48
77
(172)
548
$
533
7
23
71
(40)
594
During 2012, the Company made a funding contribution to the Pension Plan totaling $150 million. The Company
does not anticipate making funding contributions to the Pension Plan in 2014.
The following benefit payments are estimated to be paid from the Pension Plan:
Fiscal year
2014.................................................................................................................................... $
2015....................................................................................................................................
2016....................................................................................................................................
2017....................................................................................................................................
2018....................................................................................................................................
2019-2023...........................................................................................................................
274
256
248
244
240
1,107
(millions)
F-30
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 February 1, 2014 and February 2, 2013:
Change in projected benefit obligation
Projected benefit obligation, beginning of year ....................................................... $
Service cost ..............................................................................................................
Interest cost ..............................................................................................................
Actuarial (gain) loss .................................................................................................
Plan amendment .......................................................................................................
Benefits paid.............................................................................................................
Actuarial gain due to curtailment .............................................................................
Projected benefit obligation, end of year .................................................................
Change in plan assets
Fair value of plan assets, beginning of year .............................................................
Company contributions ............................................................................................
Benefits paid.............................................................................................................
Fair value of plan assets, end of year .......................................................................
Funded status at end of year ............................................................................................ $
Amounts recognized in the Consolidated Balance Sheets at
February 1, 2014 and February 2, 2013
Accounts payable and accrued liabilities ................................................................. $
Other liabilities.........................................................................................................
Amounts recognized in accumulated other comprehensive loss at
February 1, 2014 and February 2, 2013
Net actuarial loss ...................................................................................................... $
Prior service cost ......................................................................................................
$
$
2013
2012
(millions)
$
795
6
32
(17)
8
(54)
—
770
—
54
(54)
—
(770) $
(59) $
(711)
(770) $
176
8
184
$
$
771
6
35
76
—
(51)
(42)
795
—
51
(51)
—
(795)
(58)
(737)
(795)
212
—
212
The accumulated benefit obligation for the supplementary retirement plan was $770 million as of February 1, 2014
and $788 million as of February 2, 2013.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net pension costs and other amounts recognized in other comprehensive loss for the supplementary retirement plan
included the following actuarially determined components:
Net Periodic Pension Cost
Service cost ....................................................................................... $
Interest cost .......................................................................................
Amortization of net actuarial loss .....................................................
Amortization of prior service credit..................................................
Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss
Net actuarial (gain) loss ....................................................................
Prior service cost ...............................................................................
Amortization of net actuarial loss .....................................................
Amortization of prior service credit..................................................
2013
2012
(millions)
2011
$
6
32
19
—
57
(17)
8
(19)
—
(28)
$
6
35
17
(1)
57
34
—
(17)
1
18
6
36
8
(1)
49
90
—
(8)
1
83
Total recognized in net periodic pension cost and
other comprehensive loss...................................................................... $
29
$
75
$
132
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 2014 is $5 million.
The following weighted average assumptions were used to determine the projected benefit obligations for the
supplementary retirement plan at February 1, 2014 and February 2, 2013:
Discount rate ........................................................................................................................
Rate of compensation increases ...........................................................................................
4.50%
N/A
4.15%
4.90%
2013
2012
The following weighted average assumptions were used to determine net pension costs for the supplementary
retirement plan:
Discount rate ............................................................................................
Rate of compensation increases ...............................................................
4.15%
4.90%
4.65%
4.90%
5.40%
4.90%
2013
2012
2011
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.
The Company developed its rate of compensation increase assumption based on recent experience and reflected an
estimate of future compensation levels taking into account general increase levels, seniority, promotions and other factors.
The salary increase assumption was used to project employees’ pay in future years and its impact on the projected benefit
obligation for the supplementary retirement plan.
F-32
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:
Fiscal year
(millions)
2014.................................................................................................................................... $
2015....................................................................................................................................
2016....................................................................................................................................
2017....................................................................................................................................
2018....................................................................................................................................
2019-2023...........................................................................................................................
59
63
62
63
59
277
Retirement 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 and beginning January 1, 2014, also 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.
At February 1, 2014 and February 2, 2013, the liability under the qualified plan, which is reflected in accounts
payable and accrued liabilities on the Consolidated Balance Sheets, was $25 million and $14 million, respectively.
Expense related to matching contributions for these plans amounted to $24 million for 2013, $14 million for 2012 and $10
million for 2011.
In connection with the non-qualified plan, the Company had mutual fund investments 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, 2014, no additional compensation
will be deferred, with limited exceptions. The Company has transfered shares to a trust to cover the number estimated for
distribution on account of stock credits currently outstanding. At February 1, 2014 and February 2, 2013, the liability under
the plan, which is reflected in other liabilities on the Consolidated Balance Sheets, was $44 million and $44 million,
respectively. Expense for 2013, 2012 and 2011 was immaterial.
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
The following provides a reconciliation of benefit obligations, plan assets, and funded status of the postretirement
obligations as of February 1, 2014 and February 2, 2013:
Change in accumulated postretirement benefit obligation
Accumulated postretirement benefit obligation, beginning of year ......................... $
Service cost ..............................................................................................................
Interest cost ..............................................................................................................
Actuarial gain ...........................................................................................................
Medicare Part D subsidy ..........................................................................................
Benefits paid.............................................................................................................
Accumulated postretirement benefit obligation, end of year ...................................
Change in plan assets
Fair value of plan assets, beginning of year .............................................................
Company contributions ............................................................................................
Benefits paid.............................................................................................................
Fair value of plan assets, end of year .......................................................................
Funded status at end of year ............................................................................................ $
Amounts recognized in the Consolidated Balance Sheets at
February 1, 2014 and February 2, 2013
Accounts payable and accrued liabilities ................................................................. $
Other liabilities.........................................................................................................
$
Amounts recognized in accumulated other comprehensive loss at
February 1, 2014 and February 2, 2013
2013
2012
(millions)
$
250
—
10
(15)
1
(23)
223
—
23
(23)
—
(223) $
(26) $
(197)
(223) $
266
—
12
(4)
1
(25)
250
—
25
(25)
—
(250)
(28)
(222)
(250)
Net actuarial gain ..................................................................................................... $
(35) $
(23)
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net postretirement benefit costs and other amounts recognized in other comprehensive loss included the following
actuarially determined components:
Net Periodic Postretirement Benefit Cost
Service cost ....................................................................................... $
Interest cost .......................................................................................
Amortization of net actuarial gain ....................................................
Amortization of prior service cost ....................................................
Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss
Net actuarial gain ..............................................................................
Amortization of net actuarial gain ....................................................
Amortization of prior service cost ....................................................
2013
2012
(millions)
2011
— $
10
(3)
—
7
(15)
3
—
(12)
— $
12
(4)
—
8
(4)
4
—
—
Total recognized in net periodic postretirement benefit cost and other
comprehensive loss ............................................................................... $
(5) $
8
$
The estimated net actuarial gain of the postretirement obligations that will be amortized from accumulated other
comprehensive loss into net postretirement benefit cost during 2014 is $4 million.
The following weighted average assumptions were used to determine the accumulated postretirement benefit
obligations at February 1, 2014 and February 2, 2013:
—
14
(5)
—
9
(3)
5
—
2
11
Discount rate ........................................................................................................................
4.50%
4.15%
2013
2012
The following weighted average assumptions were used to determine the net postretirement benefit costs for the
postretirement obligations:
Discount rate ............................................................................................
4.15%
4.65%
5.40%
2013
2012
2011
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.
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In March 2010, President Obama signed into law the “Patient Protection and Affordable Care Act” and the “Health
Care and Education Affordability Reconciliation Act of 2010” (the “2010 Acts”). Included among the major provisions of
these laws is a change in the tax treatment related to the Medicare Part D subsidy. The Company’s postretirement
obligations reflect estimated federal subsidies expected to be received under the Medicare Prescription Drug, Improvement
and Modernization Act of 2003. Under the 2010 Acts, the Company’s deductions for retiree prescription drug benefits will
be reduced by the amount of Medicare Part D subsidies received beginning February 3, 2013.
The 2010 Acts contain additional provisions which impact the accounting for postretirement obligations. Based on
the analysis to date, the impact of provisions in the 2010 Acts on the Company’s postretirement obligations has not and is
not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash
flows. The Company continues to evaluate the impact of the 2010 Acts on the active and retiree benefit plans offered by the
Company.
The following provides the assumed health care cost trend rates related to the Company’s accumulated postretirement
benefit obligations at February 1, 2014 and February 2, 2013:
Health care cost trend rates assumed for next year .................................................
Rates to which the cost trend rate is assumed to decline
(the ultimate trend rate)........................................................................................
Year that the rate reaches the ultimate trend rate.....................................................
2013
7.27% - 9.20%
2012
7.52% - 9.50%
5.0%
2025
5.0%
2025
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:
Effect on total of service and interest cost...............................................................
Effect on accumulated postretirement benefit obligations ......................................
$1
$13
$(1)
$(11)
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:
1 – Percentage
Point Increase
1 – Percentage
Point Decrease
(millions)
Expected
Benefit
Payments
Expected
Federal
Subsidy
(millions)
Fiscal Year
2014.......................................................................................................................... $
2015..........................................................................................................................
2016..........................................................................................................................
2017..........................................................................................................................
2018..........................................................................................................................
2019-2023.................................................................................................................
$
25
22
20
19
19
80
1
1
1
1
1
3
F-36
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 February 1, 2014, 27.5 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:
Stock options ............................................................................................ $
Restricted stock units ...............................................................................
Restricted stock ........................................................................................
Stock credits .............................................................................................
$
2013
2012
(millions)
2011
36
25
1
—
62
$
$
28
26
1
6
61
$
$
28
20
2
20
70
All stock-based compensation expense is recorded in SG&A expense in the Consolidated Statements of Income. The
income tax benefit recognized in the Consolidated Statements of Income related to stock-based compensation was $22
million, $22 million, and $25 million, for 2013, 2012 and 2011, respectively.
As of February 1, 2014, the Company had $53 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, less than $1
million of unrecognized compensation costs related to nonvested restricted stock, which is expected to be recognized over
a weighted average period of approximately 1.1 years, and $26 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.
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 2013, 2012 and 2011, 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
January 30, 2016, January 31, 2015 and February 1, 2014, 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 awarded during 2012 and 2013 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 ten-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 2013, 2012 and 2011, the CMD Committee approved awards of time-based restricted stock or time-
based restricted stock units to certain senior executives of the Company and awards of time-based restricted stock units to
the non-employee members of the Company’s board of directors.
Stock Options
The fair value of stock options granted during 2013, 2012 and 2011 and the weighted average assumptions used to
estimate the fair value are as follows:
Weighted average grant date fair value of stock options
granted during the period...................................................................... $
12.15
$
12.22
$
Dividend yield ..........................................................................................
Expected volatility....................................................................................
Risk-free interest rate ...............................................................................
Expected life.............................................................................................
2.8%
41.3%
0.8%
5.7 years
2.2%
39.8%
1.2%
5.7 years
7.12
2.3%
38.8%
2.0%
5.6 years
2013
2012
2011
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.
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Activity related to stock options for 2013 is as follows:
Outstanding, beginning of period .................................
Granted .........................................................................
Canceled or forfeited ....................................................
Exercised.......................................................................
Outstanding, end of period ...........................................
Exercisable, end of period ............................................
Options expected to vest...............................................
Shares
(thousands)
29,792.9
$
3,621.5
$
(485.0) $
(9,615.8) $
$
23,313.6
14,365.6
7,874.3
$
$
Additional information relating to stock options is as follows:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
(years)
Aggregate
Intrinsic
Value
(millions)
29.07
41.67
33.47
26.44
32.02
30.20
34.95
3.9
8.1
$
$
330
144
2013
2012
(millions)
2011
Intrinsic value of options exercised............................................................................ $
Grant date fair value of stock options that vested during the year .............................
Cash received from stock options exercised ..............................................................
Excess tax benefits realized from exercised stock options ........................................
$
207
31
254
51
$
132
30
164
36
64
50
141
20
Restricted Stock and Restricted Stock Units
The weighted average grant date fair value of restricted stock and restricted stock units granted during 2013, 2012
and 2011 are as follows:
Restricted stock ........................................................................................ $
Restricted stock units ............................................................................... $
— $
$
42.54
— $
$
39.52
23.43
23.69
2013
2012
2011
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 granted in 2012 and 2013 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 ten-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 and 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.
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Activity related to restricted stock awards for 2013 is as follows:
Weighted
Average
Grant Date
Fair Value
Shares
(thousands)
Nonvested, beginning of period ..................................................................................
Granted........................................................................................................................
Forfeited ......................................................................................................................
Vested..........................................................................................................................
Nonvested, end of period ............................................................................................
142.3
—
(5.7)
(57.4)
79.2
$
$
22.36
—
21.84
22.11
22.58
Activity related to restricted stock units for 2013 is as follows:
Nonvested, beginning of period ..................................................................................
Granted – performance-based .....................................................................................
Performance adjustment..............................................................................................
Granted – time-based ..................................................................................................
Dividend equivalents...................................................................................................
Forfeited ......................................................................................................................
Vested..........................................................................................................................
Nonvested, end of period ............................................................................................
Weighted
Average
Grant Date
Fair Value
26.61
42.68
39.37
42.33
44.12
34.54
21.75
33.32
Shares
(thousands)
2,848.5
393.1
(119.4)
264.9
31.8
(33.6)
(1,164.4)
2,220.9
$
$
Stock Credits
The Company also has a stock credit plan. In 2008, key management personnel became eligible to earn a stock credit
grant over a two-year performance period ending January 30, 2010. There were a total of 836,268 stock credit awards
outstanding as of February 2, 2013, relating to the 2008 grant. In general, with respect to the stock credits awarded to
participants in 2008, the value of one-half of the stock credits earned plus reinvested dividend equivalents was paid in cash
in early 2012 and amounted to $28 million and the value of the other half of such earned stock credits plus reinvested
dividend equivalents was paid in cash in early 2013 and amounted to $32 million. Compensation expense for stock credit
awards was recorded on a straight-line basis primarily over the vesting period and was calculated based on the ending stock
price for each reporting period. At February 2, 2013, the liability under the stock credit plans, which was reflected in
accounts payable and accrued liabilities on the Consolidated Balance Sheets, was $32 million. There are no stock credit
awards outstanding and no related liability under the stock credit plans as of February 1, 2014.
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. Shareholders’ Equity
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
410.6 million shares of Common Stock issued and 364.9 million shares of Common Stock outstanding at February 1, 2014,
and with 444.6 million shares of Common Stock issued and 387.7 million shares of Common Stock outstanding at
February 2, 2013 (with shares held in the Company’s treasury being treated as issued, but not outstanding).
The Company retired 34.0 million, 42.7 million and 7.7 million shares of Common Stock during 2013, 2012 and
2011, respectively.
The Company's board of directors approved an additional authorization to purchase Common Stock of $1,500
million on May 15, 2013. 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 $13,500 million of Common
Stock. All authorizations are cumulative and do not have an expiration date. During 2013, the Company purchased
approximately 33.6 million shares of Common Stock under its share repurchase program for a total of $1,570 million.
During 2012, the Company purchased approximately 35.6 million shares of Common Stock under its share repurchase
program for a total of $1,350 million. During 2011, the Company purchased approximately 16.4 million shares of Common
Stock under its share repurchase program for a total of $500 million. As of February 1, 2014, $1,432 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.
F-41
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:
Common
Stock
Issued
Deferred
Compensation
Plans
Treasury Stock
Other
(thousands)
Total
Common
Stock
Outstanding
495,038.5
(1,249.0)
(87.2)
(70,448.2)
7,274.1
(71,697.2)
7,186.9
423,341.3
7,186.9
Balance at January 29, 2011.............
Stock issued under stock plans.........
Stock repurchases
Repurchase program .................
Other..........................................
Deferred compensation plan
distributions ..................................
Retirement of common stock ...........
Balance at January 28, 2012.............
Stock issued under stock plans.........
Stock repurchases
Repurchase program .................
Other..........................................
Deferred compensation plan
distributions ..................................
Retirement of common stock ...........
Balance at February 2, 2013.............
Stock issued under stock plans.........
Stock repurchases
Repurchase program .................
Other..........................................
Deferred compensation plan
distributions ..................................
(7,700.0)
487,338.5
(42,732.7)
444,605.8
Retirement of common stock ...........
Balance at February 1, 2014.............
(34,000.0)
410,605.8
Accumulated Other Comprehensive Loss
(16,356.5)
(80.1)
7,700.0
(71,910.7)
10,325.1
(35,572.9)
(1,269.4)
42,732.7
(55,695.2)
10,891.1
(33,625.3)
(12.2)
34,000.0
(44,441.6)
(16,356.5)
(80.1)
89.4
7,700.0
(73,157.5)
10,235.9
(35,572.9)
(1,269.4)
126.5
42,732.7
(56,904.7)
10,805.9
(33,625.3)
(12.2)
65.5
34,000.0
(45,670.8)
(16,356.5)
(80.1)
89.4
—
414,181.0
10,235.9
(35,572.9)
(1,269.4)
126.5
—
387,701.1
10,805.9
(33,625.3)
(12.2)
65.5
—
364,935.0
89.4
(1,246.8)
(89.2)
126.5
(1,209.5)
(85.2)
65.5
(1,229.2)
The following tables shows for 2013, 2012 and 2011 the beginning and ending balance of, and the activity associated
with, accumulated other comprehensive loss, net of income tax effects:
Unrealized
Gains on
Marketable
Securities
Post
Employment
and
Postretirement
Benefit Plans
(millions)
Total
Accumulated
Other
Comprehensive
(Income) Loss
Balance at January 29, 2011 ........................................................... $
Other comprehensive loss...............................................................
Balance at January 28, 2012 ...........................................................
Other comprehensive income .........................................................
Balance at February 2, 2013 ...........................................................
Other comprehensive income .........................................................
Balance at February 1, 2014 ........................................................... $
(10) $
10
—
—
—
—
— $
$
740
321
1,061
(130)
931
(266)
665
$
730
331
1,061
(130)
931
(266)
665
F-42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 costs and included in SG&A expenses in the Consolidated Statements of Income. See Note 9, "Retirement Plans,"
and Note 10, "Postretirement Health Care and Life Insurance Benefits," for further information. On February 25, 2011, the
Company sold its investment in The Knot, Inc. and unrecognized gains in accumulated other comprehensive income were
reclassified and recognized into SG&A expenses in the Consolidated Statements of Income.
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:
February 1, 2014
Fair Value Measurements
February 2, 2013
Fair Value Measurements
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
(millions)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Marketable
equity and
debt securities ....... $ 75
$
— $
75
$
— $ 68
$
— $
68
$
—
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:
February 1, 2014
February 2, 2013
Notional
Amount
Carrying
Amount
Fair
Value
Notional
Amount
Carrying
Amount
Fair
Value
(millions)
Long-term debt ...................................................... $
6,522
$
6,698
$
7,171
$
6,583
$
6,774
$
7,351
The following table shows certain of the Company’s non-financial assets that were measured at fair value on a
nonrecurring basis during 2013 and 2012:
February 1, 2014
Fair Value Measurements
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
(millions)
February 2, 2013
Fair Value Measurements
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Long-lived assets
held and used ........ $ 13
$
— $
— $
13
$
1
$
— $
— $
1
F-43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 2013, long-lived assets held and used with a carrying value of $52 million were written down to their fair
value of $13 million, resulting in asset impairment charges of $39 million. During 2012, long-lived assets held and used
with a carrying value of $5 million were written down to their fair value of $1 million, resulting in asset impairment
charges of $4 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.
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
The following table sets forth the computation of basic and diluted earnings per share:
2013
2012
2011
Net
Income
Shares
Net
Income
Shares
Net
Income
Shares
(millions, except per share data)
Net income and average
number of shares
outstanding ............................ $ 1,486
Shares to be issued under
deferred compensation
and other plans.......................
377.3
$ 1,335
404.4
$ 1,256
1.0
1.1
Basic earnings per share .......
$ 3.93
$ 3.29
$ 2.96
$ 1,486
378.3
$ 1,335
405.5
$ 1,256
Effect of dilutive securities –
Stock options, restricted
stock and restricted
stock units .........................
$ 1,486
384.8
$ 1,335
412.2
$ 1,256
6.5
6.7
423.5
1.0
424.5
5.9
430.4
Diluted earnings per share....
$ 3.86
$ 3.24
$ 2.92
In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing table, restricted
stock units relating to 0.7 million shares of common stock were outstanding at February 1, 2014, stock options to purchase
7.5 million shares of common stock and restricted stock units relating to 1.4 million shares of common stock were
outstanding at February 2, 2013, and stock options to purchase 9.3 million of shares of common stock and restricted stock
units relating to 2.1 million shares of common stock were outstanding at January 28, 2012, but were not included in the
computation of diluted earnings per share for 2013, 2012 and 2011, respectively, because their inclusion would have been
antidilutive or they were subject to performance conditions that had not been met.
F-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Quarterly Results (unaudited)
Unaudited quarterly results for the last two years were as follows:
2013:
Net sales................................................................. $
Cost of sales...........................................................
Gross margin..........................................................
Selling, general and administrative expenses........
Impairments, store closing and other costs
and gain on sale of leases...................................
Net income.............................................................
Basic earnings per share ........................................
Diluted earnings per share .....................................
2012:
Net sales................................................................. $
Cost of sales...........................................................
Gross margin..........................................................
Selling, general and administrative expenses........
Impairments, store closing and other costs
and gain on sale of leases...................................
Net income.............................................................
Basic earnings per share ........................................
Diluted earnings per share .....................................
16. Condensed Consolidating Financial Information
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(millions, except per share data)
$
6,387
(3,911)
2,476
(2,041)
$
6,066
(3,533)
2,533
(1,999)
$
6,276
(3,817)
2,459
(2,099)
—
217
.56
.55
—
281
.73
.72
—
177
.47
.47
$
6,143
(3,757)
2,386
(1,995)
$
6,118
(3,555)
2,563
(2,009)
$
6,075
(3,672)
2,403
(2,078)
—
181
.43
.43
—
279
.68
.67
—
145
.36
.36
9,202
(5,464)
3,738
(2,301)
(88)
811
2.21
2.16
9,350
(5,554)
3,796
(2,400)
(5)
730
1.86
1.83
Certain debt obligations of the Company described in Note 6, 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 FDS Bank, West 34th Street Insurance Company (prior to a merger, known separately as Leadville
Insurance Company and Snowdin Insurance Company) and its subsidiary 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, and Macy's Merchandising Group International (Hong Kong) 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 Balance Sheets as of February 1, 2014 and February 2, 2013, the related Condensed
Consolidating Statements of Comprehensive Income for 2013, 2012 and 2011, and the related Condensed Consolidating
Statements of Cash Flows for 2013, 2012, and 2011 are presented on the following pages.
F-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Balance Sheet
As of February 1, 2014
(millions)
Parent
Subsidiary
Issuer
Other
Subsidiaries
Consolidating
Adjustments
Consolidated
ASSETS:
Current Assets:
Cash and cash equivalents...................... $
Receivables.............................................
Merchandise inventories ........................
Prepaid expenses and other current
assets ...................................................
Income taxes...........................................
Total Current Assets......................
Property and Equipment – net .......................
Goodwill ........................................................
Other Intangible Assets – net.........................
Other Assets...................................................
Deferred Income Taxes..................................
Intercompany Receivable ..............................
1,955
$
84
$
—
—
—
80
2,035
—
—
—
4
19
—
102
2,896
103
—
3,185
4,590
3,315
97
101
—
—
Investment in Subsidiaries.............................
4,625
3,157
234
336
2,661
317
—
3,548
3,340
428
430
641
—
3,561
—
Total Assets................................... $
6,683
$
14,445
$
11,948
$
LIABILITIES AND SHAREHOLDERS’
EQUITY:
Current Liabilities:
$
— $
—
—
—
(80)
(80)
—
—
—
—
(19)
(3,561)
(7,782)
(11,442) $
Short-term debt....................................... $
Merchandise accounts payable...............
Accounts payable and accrued
liabilities .............................................
Income taxes...........................................
Deferred income taxes............................
Total Current Liabilities................
Long-Term Debt............................................
Intercompany Payable ...................................
Deferred Income Taxes..................................
Other Liabilities.............................................
Shareholders’ Equity......................................
Total Liabilities and
— $
—
10
—
—
10
—
362
—
62
6,249
$
461
760
2
$
931
— $
—
1,265
80
315
2,881
6,708
3,199
544
522
591
1,535
362
85
2,915
20
—
748
1,074
7,191
—
(80)
—
(80)
—
(3,561)
(19)
—
(7,782)
2,273
438
5,557
420
—
8,688
7,930
3,743
527
746
—
—
—
21,634
463
1,691
2,810
362
400
5,726
6,728
—
1,273
1,658
6,249
Shareholders’ Equity................. $
6,683
$
14,445
$
11,948
$
(11,442) $
21,634
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Comprehensive Income
For 2013
(millions)
Parent
Subsidiary
Issuer
Other
Subsidiaries
Consolidating
Adjustments
Consolidated
Net sales................................................................ $
Cost of sales..........................................................
Gross margin.........................................................
Selling, general and administrative expenses .......
Impairments, store closing and other costs
and gain on sale of leases ..................................
Operating income (loss)........................................
Interest (expense) income, net:
External..........................................................
Intercompany.................................................
— $
—
—
(8)
—
(8)
1
(2)
Equity in earnings of subsidiaries.........................
Income before income taxes .................................
Federal, state and local income
tax benefit (expense) .........................................
Net income............................................................ $
Comprehensive income ........................................ $
1,492
1,483
3
1,486
1,752
$
$
$
13,233
(8,168)
5,065
(4,443)
$
23,471
(17,276)
6,195
(4,043)
(8,773) $
8,719
(54)
54
27,931
(16,725)
11,206
(8,440)
(37)
585
(388)
(176)
557
578
(51)
2,101
(1)
178
—
2,278
—
—
—
—
(2,049)
(2,049)
33
611
877
$
$
(840)
1,438
1,434
$
$
—
(2,049) $
(2,311) $
(88)
2,678
(388)
—
—
2,290
(804)
1,486
1,752
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Cash Flows
For 2013
(millions)
Parent
Subsidiary
Issuer
Other
Subsidiaries
Consolidating
Adjustments
Consolidated
1,486
$
611
$
1,438
$
(2,049) $
1,486
Cash flows from operating activities:
Net income ....................................................... $
Impairments, store closing and other costs
and gain on sale of leases .............................
Equity in earnings of subsidiaries ....................
Dividends received from subsidiaries..............
Depreciation and amortization.........................
(Increase) decrease in working capital.............
Other, net..........................................................
Net cash provided by
operating activities ................................
Cash flows from investing activities:
Purchase of property and equipment and
capitalized software, net ...............................
Other, net..........................................................
Net cash used by investing activities ........
Cash flows from financing activities:
Debt issued, net of debt repaid.........................
Dividends paid .................................................
Common stock acquired, net of
issuance of common stock............................
Intercompany activity, net................................
Other, net..........................................................
Net cash used by financing activities........
Net increase (decrease) in cash
and cash equivalents..........................................
—
(1,492)
911
—
(54)
(25)
826
—
—
—
—
(359)
(1,256)
1,310
(104)
(409)
417
Cash and cash equivalents at
beginning of period ...........................................
1,538
Cash and cash equivalents at
37
(557)
4
467
12
158
732
(289)
(6)
(295)
278
—
—
(728)
56
(394)
43
41
51
—
—
553
(111)
(25)
—
2,049
(915)
—
—
—
88
—
—
1,020
(153)
108
1,906
(915)
2,549
(442)
(51)
(493)
(2)
(915)
—
(582)
63
(1,436)
(23)
257
—
—
—
—
915
—
—
—
915
—
—
(731)
(57)
(788)
276
(359)
(1,256)
—
15
(1,324)
437
1,836
end of period ..................................................... $
1,955
$
84
$
234
$
— $
2,273
F-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Balance Sheet
As of February 2, 2013
(millions)
Parent
Subsidiary
Issuer
Other
Subsidiaries
Consolidating
Adjustments
Consolidated
ASSETS:
Current Assets:
Cash and cash equivalents...................... $
Receivables.............................................
Merchandise inventories ........................
Prepaid expenses and other current
assets ...................................................
Income taxes...........................................
Total Current Assets......................
Property and Equipment – net .......................
Goodwill ........................................................
Other Intangible Assets – net.........................
Other Assets...................................................
Intercompany Receivable ..............................
Investment in Subsidiaries.............................
1,538
$
—
—
—
30
1,568
—
—
—
3
641
4,027
$
41
58
2,804
97
—
3,000
4,649
3,315
124
71
—
2,595
257
313
2,504
264
—
3,338
3,547
428
437
541
3,190
—
Total Assets................................... $
6,239
$
13,754
$
11,481
$
LIABILITIES AND SHAREHOLDERS’
EQUITY:
Current Liabilities:
$
— $
—
—
—
(30)
(30)
—
—
—
—
(3,831)
(6,622)
(10,483) $
Short-term debt....................................... $
Merchandise accounts payable...............
Accounts payable and accrued
liabilities .............................................
Income taxes...........................................
Deferred income taxes............................
Total Current Liabilities................
Long-Term Debt............................................
Intercompany Payable ...................................
Deferred Income Taxes..................................
Other Liabilities.............................................
— $
—
119
—
—
119
—
—
11
58
Shareholders’ Equity (Deficit).......................
6,051
Total Liabilities and
$
121
733
3
$
846
— $
—
1,023
69
323
2,269
6,783
3,831
410
596
(135)
1,468
316
84
2,717
23
—
817
1,167
6,757
—
(30)
—
(30)
—
(3,831)
—
—
(6,622)
1,836
371
5,308
361
—
7,876
8,196
3,743
561
615
—
—
20,991
124
1,579
2,610
355
407
5,075
6,806
—
1,238
1,821
6,051
Shareholders’ Equity................. $
6,239
$
13,754
$
11,481
$
(10,483) $
20,991
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Comprehensive Income
For 2012
(millions)
Net sales................................................................ $
Cost of sales..........................................................
Gross margin.........................................................
Selling, general and administrative expenses .......
Impairments, store closing and other costs
and gain on sale of leases ..................................
Operating income (loss)........................................
Interest (expense) income, net:
External..........................................................
Intercompany.................................................
Premium on early retirement of debt ....................
Equity in earnings of subsidiaries.........................
Income before income taxes .................................
Federal, state and local income
tax benefit (expense) .........................................
Net income............................................................ $
Comprehensive income ........................................ $
Parent
Subsidiary
Issuer
Other
Subsidiaries
Consolidating
Adjustments
Consolidated
— $
—
—
(9)
—
(9)
1
(2)
—
1,342
1,332
3
1,335
1,465
$
$
$
13,594
(8,385)
5,209
(4,584)
$
22,493
(16,500)
5,993
(3,943)
(8,401) $
8,347
(54)
54
27,686
(16,538)
11,148
(8,482)
(8)
617
(422)
(146)
(137)
638
550
3
2,053
(1)
148
—
—
2,200
—
—
—
—
—
(1,980)
(1,980)
24
574
704
$
$
(794)
1,406
1,477
$
$
—
(1,980) $
(2,181) $
(5)
2,661
(422)
—
(137)
—
2,102
(767)
1,335
1,465
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Cash Flows
For 2012
(millions)
Parent
Subsidiary
Issuer
Other
Subsidiaries
Consolidating
Adjustments
Consolidated
1,335
$
574
$
1,406
$
(1,980) $
1,335
Cash flows from operating activities:
Net income..................................................... $
Impairments, store closing and other costs
and gain on sale of leases...........................
Equity in earnings of subsidiaries..................
Dividends received from subsidiaries ...........
Depreciation and amortization ......................
Increase in working capital............................
Other, net .......................................................
Net cash provided by
operating activities ................................
Cash flows from investing activities:
Purchase of property and equipment and
capitalized software, net.............................
Other, net .......................................................
Net cash used by
investing activities ..............................
Cash flows from financing activities:
Debt repaid, net of debt issued ......................
Dividends paid...............................................
Common stock acquired, net of
issuance of common stock .........................
Intercompany activity, net .............................
Other, net .......................................................
Net cash used by financing activities .....
—
(1,342)
783
—
(76)
31
731
—
—
—
—
(324)
(1,163)
(194)
(45)
(1,726)
Net increase (decrease) in
cash and cash equivalents .................................
(995)
Cash and cash equivalents at
beginning of period ...........................................
2,533
Cash and cash equivalents at
8
(638)
125
484
(75)
(31)
(3)
—
—
565
(66)
7
—
1,980
(908)
—
—
—
5
—
—
1,049
(217)
7
447
1,909
(908)
2,179
(324)
51
(273)
(799)
—
—
642
(14)
(171)
3
38
(552)
44
(508)
(4)
(908)
—
(448)
(40)
(1,400)
1
256
—
—
—
—
908
—
—
—
908
—
—
(876)
95
(781)
(803)
(324)
(1,163)
—
(99)
(2,389)
(991)
2,827
end of period ..................................................... $
1,538
$
41
$
257
$
— $
1,836
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Comprehensive Income
For 2011
(millions)
Parent
Subsidiary
Issuer
Other
Subsidiaries
Consolidating
Adjustments
Consolidated
Net sales................................................................ $
Cost of sales..........................................................
Gross margin.........................................................
Selling, general and administrative expenses .......
Impairments, store closing and other costs
and gain on sale of leases ..................................
Operating income..................................................
Interest (expense) income, net:
External..........................................................
Intercompany.................................................
Equity in earnings of subsidiaries.........................
Income before income taxes .................................
Federal, state and local income
tax benefit (expense) .........................................
Net income............................................................ $
Comprehensive income ........................................ $
— $
—
—
5
—
5
1
(1)
1,253
1,258
$
13,405
(8,274)
5,131
(4,585)
$
21,312
(15,721)
5,591
(3,756)
(8,312) $
8,257
(55)
55
26,405
(15,738)
10,667
(8,281)
28
574
(443)
(191)
548
488
(3)
1,832
(1)
192
—
2,023
—
—
—
—
(1,801)
(1,801)
25
2,411
(443)
—
—
1,968
(712)
1,256
925
(2)
1,256
925
$
$
27
515
184
$
$
(737)
1,286
1,150
$
$
—
(1,801) $
(1,334) $
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC.
Condensed Consolidating Statement of Cash Flows
For 2011
(millions)
Cash flows from operating activities:
Net income..................................................... $
Impairments, store closing and other costs
and gain on sale of leases...........................
Equity in earnings of subsidiaries..................
Dividends received from subsidiaries ...........
Depreciation and amortization ......................
(Increase) decrease in working capital ..........
Other, net .......................................................
Net cash provided by
operating activities..............................
Cash flows from investing activities:
Purchase of property and equipment and
capitalized software, net.............................
Other, net .......................................................
Net cash provided (used) by
investing activities ..............................
Cash flows from financing activities:
Debt issued, net of debt repaid ......................
Dividends paid...............................................
Common stock acquired, net of
issuance of common stock .........................
Intercompany activity, net .............................
Other, net .......................................................
Net cash provided (used) by
financing activities..............................
Net increase (decrease) in cash
and cash equivalents..........................................
Cash and cash equivalents at
beginning of period ...........................................
Cash and cash equivalents at
Parent
Subsidiary
Issuer
Other
Subsidiaries
Consolidating
Adjustments
Consolidated
1,256
$
515
$
1,286
$
(1,801) $
1,256
—
(1,253)
612
—
5
(18)
602
—
38
38
—
(148)
(340)
1,186
21
719
1,359
1,174
(28)
(548)
175
517
(59)
(166)
3
—
—
568
81
14
—
1,801
(787)
—
—
—
(25)
—
—
1,085
27
(170)
406
1,952
(787)
2,173
(171)
(35)
(206)
349
—
—
(529)
(23)
(473)
(56)
(529)
(3)
(787)
—
(657)
31
(203)
(1,416)
(3)
41
7
249
—
—
—
—
787
—
—
—
787
—
—
(644)
(53)
(697)
346
(148)
(340)
—
29
(113)
1,363
1,464
end of period ..................................................... $
2,533
$
38
$
256
$
— $
2,827
F-53
WANT MORE INFORMATION?
OUR CORPORATE WEBSITE –
MACYSINC.COM – CONTAINS
A BREADTH AND DEPTH OF
DETAILED INFORMATION ABOUT
OUR COMPANY’S PHILOSOPHIES,
OPERATIONS AND ACTIVITIES.
IT SERVES AS A HUB FOR
COMPANY INFORMATION
THROUGHOUT THE YEAR.
HERE IS A SAMPLING OF
WHAT YOU CAN FIND ON
MACYSINC.COM:
CORPORATE GIVING AND
EMPLOYEE VOLUNTEERISM
Go to macysinc.com/Community
for a description of our programs
for corporate giving, employee
volunteerism and cause marketing.
Macy’s and Bloomingdale’s are
known for their exceptional support
of worthwhile causes and charities
nationally, as well as in local
communities nationwide.
SOCIAL RESPONSIBILITY
Go to macysinc.com/SocialResponsibility
for information on social responsibility
at Macy’s, including our Vendor &
Supplier Code of Conduct, socially
responsible products sold at Macy’s,
product sourcing procedures, and
environmental sustainability. Here, you
will find a detailed discussion on our
company’s sustainability principles,
measurable goals and action steps.
You can download our Report on
Social Responsibility, which is updated
throughout the year.
JOBS
For complete information on jobs
available at the company – and to
apply online – go to macysJOBS.com
and bloomingdalesJOBS.com.
Included is information on our program
for returning military veterans. If you
are a college student thinking about
starting a career or seeking an internship,
go to macysCOLLEGE.com or
bloomingdalesCOLLEGE.com.
STORES
Go to macysinc.com/StoreInformation
for a complete listing of Macy’s and
Bloomingdale’s store locations,
summaries of store counts and square
footage, charts showing the structure
of our stores, regions and districts, and
downloadable maps showing where our
stores are located in each market.
To search for a specific store by state, city
or zip code, go to macysinc.com/Locate.
FINANCIALS
Go to macysinc.com/FinancialInformation
for quarterly and annual financial
statements, as well as calculations for
Return On Invested Capital (ROIC), credit
ratios and other financial information,
including non-GAAP data.
PRESS RELEASES
Go to macysinc.com/PressReleases for
all Macy’s, Inc. and Macy’s news releases
issued since 1997. To sign up to receive
an alert whenever a new press releases is
issued, go to macysinc.com/NewsDirect.
ONLINE SHOPPING
By going to macys.com and
bloomingdales.com, you can shop
online, review your credit account and
get detailed information on offers,
events and activities associated with
each brand.
ATTRACTING AND
DEVELOPING TALENT
Go to macysinc.com/Talent for
information on our programs for
attracting, retaining and developing the
best people in retailing. This includes our
college relations and recruiting efforts, as
well as our in-house Leadership Institute
for developing executive talent.
3
EXECUTIVE
MANAGEMENT TEAM
OTHER MACY’S, INC.
CORPORATE OFFICERS
Terry J. Lundgren
Chairman and
Chief Executive Officer
Jeffrey Gennette
President
Timothy M. Adams
Chief Private Brand Officer
William S. Allen
Chief Human Resources Officer
Julie Greiner
Chief Merchandise
Planning Officer
Robert B. Harrison
Chief Omnichannel Officer
Karen M. Hoguet
Chief Financial Officer
Jeffrey A. Kantor
Chairman, macys.com
Martine Reardon
Chief Marketing Officer
Peter Sachse
Chief Stores Officer
Tony Spring
Chairman and
Chief Executive Officer
Bloomingdale’s
Joel A. Belsky
Controller
Dennis J. Broderick
General Counsel and Secretary
Amy Hanson
Credit, Customer
and Financial Services
William L. Hawthorne III
Diversity Strategies and
Legal Affairs
Bradley R. Mays
Tax
James A. Sluzewski
Corporate Communications
and External Affairs
Ann Munson Steines
Deputy General Counsel and
Assistant Secretary
William T. Tompkins
Human Resources, Total Rewards
Felicia Williams
Enterprise Risk and Internal Audit
Michael Zorn
Associate and Labor Relations
BOARD OF DIRECTORS
Stephen F. Bollenbach
Non-Executive Chairman
of the Board of Directors
KB Home
Deirdre P. Connelly
President, North American
Pharmaceuticals
GlaxoSmithKline
Meyer Feldberg
Dean Emeritus and Professor
of Leadership and Ethics
Columbia Business School
Sara Levinson
Co-Founder and Director
of KANDU
Former Chairman and
Chief Executive Officer
ClubMom, Inc.
Terry J. Lundgren
Chairman and
Chief Executive Officer
Macy’s, Inc.
Joseph Neubauer
Chairman
ARAMARK Holdings
Corporation
Joyce M. Roché
Former President and
Chief Executive Officer
Girls Incorporated
Paul C. Varga
Chairman and
Chief Executive Officer
Brown-Forman Corporation
Craig E. Weatherup
Former Chief Executive Officer
The Pepsi-Cola Company
Marna C. Whittington
Former Chief Executive Officer
Allianz Global Investors Capital
4
SHAREHOLDER INFORMATION
TO REACH US
macysinc.com/IR
Sign up to have Macy’s, Inc.’s news
releases sent to you via e-mail by
subscribing to News Direct.
Get the latest stock price and chart, or take
advantage of the historical price look-up feature.
CALL:
Macy’s, Inc.
Investor Relations Department
Monday-Friday,
8:30 a.m. – 5 p.m. (ET)
1-513-579-7028
Macy’s, Inc. News & Information
Request Hotline: 1-800-261-5385
WRITE:
Macy’s, Inc.
Investor Relations Department
7 West Seventh Street
Cincinnati, OH 45202
Investors@macys.com
MACY’S, INC. SHARES
Macy’s, Inc.
c/o Computershare
Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
1-866-337-3311
(Inside the United States
and Canada)
1-201-680-6578
(Outside the United States
and Canada)
For the hearing impaired
1-800-231-5469 (TDD)
computershare.com/investor
5
VISIT US ON THE INTERNET
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