UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 1, 2010
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-13536
Macys, Inc.
Incorporated in Delaware | I.R.S. Employer Identification No. 13-3324058 |
7 West Seventh Street
Cincinnati, Ohio 45202
(513) 579-7000
and
151 West 34th Street
New York, New York 10001
(212) 494-1602
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 x 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 Regulations S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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 definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (do not check if a smaller reporting company) | 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 x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class |
Outstanding at May 28, 2010 | |
Common Stock, $0.01 par value per share |
422,106,453 shares |
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MACYS, INC.
Consolidated Statements of Operations
(Unaudited)
(millions, except per share figures)
13 Weeks Ended | ||||||||
May 1, 2010 |
May 2, 2009 |
|||||||
Net sales |
$ | 5,574 | $ | 5,199 | ||||
Cost of sales |
(3,378 | ) | (3,219 | ) | ||||
Gross margin |
2,196 | 1,980 | ||||||
Selling, general and administrative expenses |
(1,993 | ) | (1,956 | ) | ||||
Division consolidation costs |
0 | (138 | ) | |||||
Operating income (loss) |
203 | (114 | ) | |||||
Interest expense |
(163 | ) | (143 | ) | ||||
Interest income |
1 | 2 | ||||||
Income (loss) before income taxes |
41 | (255 | ) | |||||
Federal, state and local income tax benefit (expense) |
(18 | ) | 167 | |||||
Net income (loss) |
$ | 23 | $ | (88 | ) | |||
Basic earnings (loss) per share |
$ | .05 | $ | (.21 | ) | |||
Diluted earnings (loss) per share |
$ | .05 | $ | (.21 | ) | |||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
2
MACYS, INC.
Consolidated Balance Sheets
(Unaudited)
(millions)
May 1, 2010 |
January 30, 2010 |
May 2, 2009 | |||||||
ASSETS: |
|||||||||
Current Assets: |
|||||||||
Cash and cash equivalents |
$ | 981 | $ | 1,686 | $ | 420 | |||
Receivables |
273 | 358 | 254 | ||||||
Merchandise inventories |
4,921 | 4,615 | 5,026 | ||||||
Income tax receivable |
0 | 0 | 206 | ||||||
Supplies and prepaid expenses |
266 | 223 | 253 | ||||||
Total Current Assets |
6,441 | 6,882 | 6,159 | ||||||
Property and Equipmentnet of accumulated depreciation and amortization of $6,028, $5,782 and $5,690 |
9,294 | 9,507 | 10,226 | ||||||
Goodwill |
3,743 | 3,743 | 3,743 | ||||||
Other Intangible Assetsnet |
668 | 678 | 707 | ||||||
Other Assets |
490 | 490 | 496 | ||||||
Total Assets |
$ | 20,636 | $ | 21,300 | $ | 21,331 | |||
LIABILITIES AND SHAREHOLDERS EQUITY: |
|||||||||
Current Liabilities: |
|||||||||
Short-term debt |
$ | 685 | $ | 242 | $ | 135 | |||
Merchandise accounts payable |
2,010 | 1,312 | 1,809 | ||||||
Accounts payable and accrued liabilities |
2,127 | 2,626 | 2,223 | ||||||
Income taxes |
55 | 68 | 0 | ||||||
Deferred income taxes |
217 | 206 | 230 | ||||||
Total Current Liabilities |
5,094 | 4,454 | 4,397 | ||||||
Long-Term Debt |
7,503 | 8,456 | 8,719 | ||||||
Deferred Income Taxes |
1,045 | 1,068 | 1,156 | ||||||
Other Liabilities |
2,255 | 2,621 | 2,504 | ||||||
Shareholders Equity |
4,739 | 4,701 | 4,555 | ||||||
Total Liabilities and Shareholders Equity |
$ | 20,636 | $ | 21,300 | $ | 21,331 | |||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
3
MACYS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(millions)
13 Weeks Ended May 1, 2010 |
13 Weeks Ended May 2, 2009 |
|||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 23 | $ | (88 | ) | |||
Adjustments to reconcile net income (loss) to net cash used by operating activities: |
||||||||
Division consolidation costs |
0 | 138 | ||||||
Depreciation and amortization |
287 | 303 | ||||||
Stock-based compensation expense |
29 | 27 | ||||||
Amortization of financing costs and premium on acquired debt |
(6 | ) | (6 | ) | ||||
Changes in assets and liabilities: |
||||||||
Decrease in receivables |
71 | 94 | ||||||
Increase in merchandise inventories |
(306 | ) | (257 | ) | ||||
Increase in supplies and prepaid expenses |
(43 | ) | (27 | ) | ||||
(Increase) decrease in other assets not separately identified |
1 | (3 | ) | |||||
Increase in merchandise accounts payable |
639 | 516 | ||||||
Decrease in accounts payable and accrued liabilities not separately identified |
(453 | ) | (479 | ) | ||||
Decrease in current income taxes |
(12 | ) | (234 | ) | ||||
Increase (decrease) in deferred income taxes |
(16 | ) | 43 | |||||
Decrease in other liabilities not separately identified |
(363 | ) | (30 | ) | ||||
Net cash used by operating activities |
(149 | ) | (3 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchase of property and equipment |
(36 | ) | (57 | ) | ||||
Capitalized software |
(24 | ) | (18 | ) | ||||
Disposition of property and equipment |
1 | 7 | ||||||
Other, net |
15 | 14 | ||||||
Net cash used by investing activities |
(44 | ) | (54 | ) | ||||
(continued)
4
MACYS, INC.
Consolidated Statements of Cash Flows (continued)
(Unaudited)
(millions)
13 Weeks Ended May 1, 2010 |
13 Weeks Ended May 2, 2009 |
|||||||
Cash flows from financing activities: |
||||||||
Debt repaid |
(505 | ) | (837 | ) | ||||
Dividends paid |
(21 | ) | (21 | ) | ||||
Increase (decrease) in outstanding checks |
1 | (50 | ) | |||||
Acquisition of treasury stock |
(1 | ) | 0 | |||||
Issuance of common stock |
14 | 0 | ||||||
Net cash used by financing activities |
(512 | ) | (908 | ) | ||||
Net decrease in cash and cash equivalents |
(705 | ) | (965 | ) | ||||
Cash and cash equivalents at beginning of period |
1,686 | 1,385 | ||||||
Cash and cash equivalents at end of period |
$ | 981 | $ | 420 | ||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 150 | $ | 145 | ||||
Interest received |
1 | 5 | ||||||
Income taxes paid (net of refunds received) |
78 | 28 |
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
5
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. | Summary of Significant Accounting Policies |
Macys, Inc. and subsidiaries (the Company) is a retail organization operating retail stores and Internet websites under two brands (Macys and Bloomingdales) that sell a wide range of merchandise, including mens, womens and childrens apparel and accessories, cosmetics, home furnishings and other consumer goods. The Companys operations include approximately 850 stores in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com and bloomingdales.com.
A description of the Companys significant accounting policies is included in the Companys Annual Report on Form 10-K for the fiscal year ended January 30, 2010 (the 2009 10-K). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2009 10-K.
Net sales include merchandise sales, leased department income, shipping and handling fees and sales to third party retailers. Beginning with the first quarter of 2010, the Company began including sales of private brand goods directly to third party retailers and sales of excess inventory to third parties in net sales. These items were previously reported, net of the related cost of sales, in selling, general and administrative expenses. This change in presentation had an immaterial impact on reported net sales, does not impact comparable store sales, net income (loss) or diluted earnings (loss) per share, and was not applied retroactively to periods ended prior to May 1, 2010.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the 13 weeks ended May 1, 2010 and May 2, 2009, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Because of the seasonal nature of the retail business, the results of operations for the 13 weeks ended May 1, 2010 and May 2, 2009 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Certain reclassifications were made to the prior fiscal years amounts to conform with the classifications of such amounts for the current fiscal year.
(continued)
6
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
In December 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2009-16, relating to the accounting and disclosures for transfers of financial assets. This guidance requires entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk with respect to the assets. The Company adopted this guidance on January 31, 2010, and the adoption did not have a material impact on the Companys consolidated financial position, results of operations or cash flows.
In December 2009, the FASB issued Accounting Standards Update No. 2009-17, with the intent to improve financial reporting by companies involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. The Company adopted this guidance on January 31, 2010, and the adoption did not have an impact on the Companys consolidated financial position, results of operations or cash flows.
In January 2010, the FASB issued Accounting Standards Update No. 2010-06, which provides amendments and requires new disclosures relating to Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, and also conforming amendments to guidance relating to ASC Topic 715, Compensation Retirement Benefits. The Company adopted this guidance on January 31, 2010, except for the disclosure requirement regarding purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements, which is effective for interim and annual periods beginning after December 15, 2010. This guidance is limited to the form and content of disclosures, and the portion thereof that has been adopted did not have an impact on the Companys consolidated financial position, results of operations or cash flows. The Company does not anticipate that the full adoption of this guidance will have a material impact on the Companys consolidated financial position, results of operations or cash flows.
2. | Division Consolidation Costs and Store Closing Related Costs |
In 2008, the Company began a localization initiative called My Macys. This initiative was intended to strengthen local market focus and enhance selling service in an effort to both accelerate same-store sales growth and reduce expenses. To maximize the results from My Macys, the Company took action, initially in selected markets, that: concentrated more management talent in local markets, effectively reducing the span of control over local stores; created new positions in the field to work with planning and buying executives in helping to understand and act on the merchandise needs of local customers; and empowered locally based executives to make more and better decisions.
(continued)
7
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
In February 2009, the Company announced the expansion of the My Macys localization initiative across the country. As My Macys was rolled out nationally to new local markets in 2009, the Companys Macys branded stores were reorganized into a unified operating structure, through division consolidations, to support the Macys business. Division central office organizations were eliminated in New York-based Macys East, San Francisco-based Macys West, Atlanta-based Macys Central and Miami-based Macys Florida. The New York-based Macys Home Store and Macys Corporate Marketing divisions no longer exist as separate entities. Home Store functions were integrated into the Macys national merchandising, merchandise planning, stores and marketing organizations. Macys Corporate Marketing was integrated into the new unified marketing organization. The New York-based Macys Merchandising Group was refocused solely on the design, development and marketing of the Macys family of private brands.
The following table shows for the 13 weeks ended May 1, 2010, the beginning and ending balance of, and the activity associated with, the severance accrual established in connection with the division consolidation and localization initiative announced in February 2009:
January 30, 2010 |
Payments | May 1, 2010 | ||||||||
(millions) | ||||||||||
Severance costs |
$ | 69 | $ | (49 | ) | $ | 20 |
The Company expects to pay out the accrued severance costs, which are included in accounts payable and accrued liabilities on the Consolidated Balance Sheets, prior to July 31, 2010. Additionally, the Company paid out the $2 million of accrued severance costs established in connection with the store closings announced in January 2010, which were included in accounts payable and accrued liabilities on the Consolidated Balance Sheets as of January 30, 2010, during the 13 weeks ended May 1, 2010.
During the 13 weeks ended May 2, 2009, the Company recorded $138 million of costs and expenses associated with the division consolidation and localization initiative announced in February 2009, consisting primarily of severance costs and other human resource-related costs.
The following table shows for the 13 weeks ended May 2, 2009, the beginning and ending balance of, and the activity associated with, the severance accrual established in connection with the division consolidation and localization initiative announced in February 2009:
January 31, 2009 |
Charged To Division Consolidation Costs |
Payments | May 2, 2009 | ||||||||||
(millions) | |||||||||||||
Severance costs |
$ | 30 | $ | 119 | $ | (27 | ) | $ | 122 |
(continued)
8
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
3. | Earnings (Loss) Per Share |
The following tables set forth the computation of basic and diluted earnings (loss) per share:
13 Weeks Ended | ||||||||||||||||||
May 1, 2010 | May 2, 2009 | |||||||||||||||||
Income | Shares | Loss | Shares | |||||||||||||||
(millions, except per share figures) | ||||||||||||||||||
Net income (loss) and average number of shares outstanding |
$ | 23 | 421.4 | $ | (88 | ) | 420.1 | |||||||||||
Shares to be issued under deferred compensation plans |
1.2 | 1.3 | ||||||||||||||||
$ | 23 | 422.6 | $ | (88 | ) | 421.4 | ||||||||||||
Basic earnings (loss) per share |
$ | .05 | $ | (.21 | ) | |||||||||||||
Effect of dilutive securitiesstock options, restricted stock and restricted stock units |
3.6 | 0 | ||||||||||||||||
$ | 23 | 426.2 | $ | (88 | ) | 421.4 | ||||||||||||
Diluted earnings (loss) per share |
$ | .05 | $ | (.21 | ) | |||||||||||||
In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing table, stock options to purchase 32.1 million shares of common stock at prices ranging from $20.89 to $46.15 per share and 935,000 shares of restricted stock were outstanding at May 1, 2010, but were not included in the computation of diluted earnings per share for the 13 weeks ended May 1, 2010 because their inclusion would have been antidilutive.
Stock options to purchase 42.2 million shares of common stock at prices ranging from $8.76 to $46.15 per share, 371,000 shares of restricted stock and 2.9 million shares of performance-based restricted stock units were outstanding at May 2, 2009, but were not included in the computation of diluted loss per share for the 13 weeks ended May 2, 2009 because, as a result of the Companys net loss during this period, their inclusion would have been antidilutive.
(continued)
9
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
4. | Financing |
During the 13 weeks ended May 1, 2010, consistent with its strategy to reduce its indebtedness, the Company used approximately $526 million of cash to repurchase approximately $500 million of indebtedness prior to maturity. The repurchases included approximately $425 million of 5.35% senior notes due 2012, approximately $57 million of 6.625% senior notes due 2011, approximately $9 million of 8.0% senior debentures due 2012, and approximately $9 million of 7.45% senior debentures due 2011. In connection with these repurchases, the Company recognized additional interest expense of approximately $27 million due to the expenses associated with the early retirement of this debt.
On February 10, 2009, the Company completed a cash tender offer pursuant to which it purchased approximately $199 million of its outstanding 6.30% senior notes due April 1, 2009 (resulting in approximately $151 million of such notes remaining outstanding until they were paid at maturity on April 1, 2009) and approximately $481 million of its outstanding 4.80% senior notes due July 15, 2009 (resulting in approximately $119 million of such notes remaining outstanding until they were paid at maturity on July 15, 2009) for aggregate consideration, including accrued and unpaid interest, of approximately $686 million.
5. | Benefit Plans |
The Company has a funded defined benefit plan (Pension Plan) and a defined contribution plan, which cover substantially all employees who work 1,000 hours or more in a year. The Company also has an unfunded defined benefit supplementary retirement plan, which provides benefits, for certain employees, in excess of qualified plan limitations.
In addition, certain retired employees currently are provided with specified health care and life insurance benefits (Postretirement Obligations). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.
(continued)
10
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
The actuarially determined components of the net periodic benefit cost are as follows:
13 Weeks Ended | ||||||||
May 1, 2010 |
May 2, 2009 |
|||||||
(millions) | ||||||||
Pension Plan |
||||||||
Service cost |
$ | 24 | $ | 22 | ||||
Interest cost |
39 | 43 | ||||||
Expected return on assets |
(54 | ) | (46 | ) | ||||
Recognition of net actuarial loss |
15 | 0 | ||||||
Amortization of prior service cost |
0 | 0 | ||||||
$ | 24 | $ | 19 | |||||
Supplementary Retirement Plan |
||||||||
Service cost |
$ | 2 | $ | 1 | ||||
Interest cost |
9 | 11 | ||||||
Recognition of net actuarial loss |
1 | 0 | ||||||
Amortization of prior service cost |
0 | 0 | ||||||
$ | 12 | $ | 12 | |||||
Postretirement Obligations |
||||||||
Service cost |
$ | 0 | $ | 0 | ||||
Interest cost |
4 | 5 | ||||||
Recognition of net actuarial gain |
(1 | ) | (2 | ) | ||||
Amortization of prior service cost |
0 | 0 | ||||||
$ | 3 | $ | 3 | |||||
During the 13 weeks ended May 1, 2010, the Company made a funding contribution to the Pension Plan of $325 million. During the 13 weeks ended May 2, 2009, the Company made a funding contribution to the Pension Plan of approximately $30 million.
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 Companys 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 Companys deductions for retiree prescription drug benefits will be reduced by the amount of Medicare Part D subsidies received beginning February 3, 2013. The Company recorded a $4 million deferred tax expense to reduce its deferred tax asset as a result of the elimination of the deductibility of retiree health care payments to the extent of tax-free Medicare Part D subsidies that are received.
(continued)
11
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Based on data currently available, the Company is not able at this time to determine the ongoing impact that the other provisions of the 2010 Acts will have on the Company-sponsored medical plans. As a result of this legislation, the Company is evaluating the impact of the 2010 Acts on the active and retiree benefit plans offered by the Company. The provisions of the 2010 Act did not require a re-measurement of the Companys postretirement obligations and did not impact the postretirement net periodic benefit costs for the 13 weeks ended May 1, 2010.
6. | Accumulated Other Comprehensive Loss |
The following table shows the beginning and ending balance of, and the activity associated with, accumulated other comprehensive loss, net of income tax effects, for the 13 weeks ended May 1, 2010 and May 2, 2009:
May 1, 2010 |
May 2, 2009 |
|||||||
(millions) | ||||||||
Accumulated other comprehensive loss, at beginning of period |
$ | (753 | ) | $ | (486 | ) | ||
Unrealized gain (loss) on marketable securities, net of income tax effect of $1 million and $2 million |
(2 | ) | 4 | |||||
Post employment and postretirement benefit plans: |
||||||||
Recognition of net actuarial (gain) loss, net of income tax effect of $6 million and $1 million |
9 | (1 | ) | |||||
Accumulated other comprehensive loss, at end of period |
$ | (746 | ) | $ | (483 | ) | ||
7. | Fair Value Measurements |
The following table shows the Companys financial assets that are required to be measured at fair value on a recurring basis at May 1, 2010:
Total | Fair Value Measurements | |||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
(millions) | ||||||||||||
Marketable equity and debt securities |
$ | 81 | $ | 30 | $ | 51 | $ | 0 |
The following table shows the Companys financial assets that are required to be measured at fair value on a recurring basis at May 2, 2009:
Total | Fair Value Measurements | |||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
(millions) | ||||||||||||
Marketable equity and debt securities |
$ | 80 | $ | 31 | $ | 49 | $ | 0 |
Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, short-term debt, merchandise accounts payable, accounts payable and accrued liabilities and long-term debt. With the exception of long-term debt, the carrying amount approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are estimated based on the quoted market prices for publicly traded debt or by using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements.
(continued)
12
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
The following table shows the estimated fair values of certain financial instruments of the Company at May 1, 2010:
Notional Amount |
Carrying Amount |
Fair Value | |||||||
(millions) | |||||||||
Long-term debt |
$ | 7,209 | $ | 7,474 | $ | 7,372 |
8. | Condensed Consolidating Financial Information |
The senior notes and senior debentures of the Company, which constitute debt obligations of Macys Retail Holdings, Inc. (Subsidiary Issuer), a wholly-owned subsidiary of Macys, Inc. (Parent), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, Other Subsidiaries includes all other direct subsidiaries of Parent, including FDS Bank, Leadville Insurance Company and Snowdin Insurance Company, Macys Merchandising Group, Inc. and its subsidiary Macys Merchandising Group International, LLC. Subsidiary Issuer includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in Other Subsidiaries.
Condensed Consolidating Balance Sheets as of May 1, 2010, May 2, 2009 and January 30, 2010, the related Condensed Consolidating Statements of Operations for the 13 weeks ended May 1, 2010 and May 2, 2009, and the related Condensed Consolidating Statements of Cash Flows for the 13 weeks ended May 1, 2010 and May 2, 2009 are presented on the following pages.
(continued)
13
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
As of May 1, 2010
(millions)
Parent | Subsidiary Issuer |
Other Subsidiaries |
Consolidating Adjustments |
Consolidated | |||||||||||||
ASSETS: |
|||||||||||||||||
Current Assets: |
|||||||||||||||||
Cash and cash equivalents |
$ | 611 | $ | 42 | $ | 328 | $ | 0 | $ | 981 | |||||||
Receivables |
0 | 40 | 233 | 0 | 273 | ||||||||||||
Merchandise inventories |
0 | 2,638 | 2,283 | 0 | 4,921 | ||||||||||||
Supplies and prepaid expenses |
0 | 96 | 170 | 0 | 266 | ||||||||||||
Deferred income tax assets |
0 | 0 | 33 | (33 | ) | 0 | |||||||||||
Income tax receivable |
39 | 0 | 0 | (39 | ) | 0 | |||||||||||
Total Current Assets |
650 | 2,816 | 3,047 | (72 | ) | 6,441 | |||||||||||
Property and Equipmentnet |
0 | 5,250 | 4,044 | 0 | 9,294 | ||||||||||||
Goodwill |
0 | 3,315 | 428 | 0 | 3,743 | ||||||||||||
Other Intangible Assetsnet |
0 | 208 | 460 | 0 | 668 | ||||||||||||
Other Assets |
4 | 125 | 361 | 0 | 490 | ||||||||||||
Deferred Income Tax Assets |
20 | 0 | 0 | (20 | ) | 0 | |||||||||||
Intercompany Receivable |
1,659 | 0 | 2,469 | (4,128 | ) | 0 | |||||||||||
Investment in Subsidiaries |
2,544 | 2,813 | 0 | (5,357 | ) | 0 | |||||||||||
Total Assets |
$ | 4,877 | $ | 14,527 | $ | 10,809 | $ | (9,577 | ) | $ | 20,636 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY: |
|||||||||||||||||
Current Liabilities: |
|||||||||||||||||
Short-term debt |
$ | 0 | $ | 682 | $ | 3 | $ | 0 | $ | 685 | |||||||
Merchandise accounts payable |
0 | 983 | 1,027 | 0 | 2,010 | ||||||||||||
Accounts payable and accrued liabilities |
84 | 981 | 1,062 | 0 | 2,127 | ||||||||||||
Income taxes |
0 | 17 | 77 | (39 | ) | 55 | |||||||||||
Deferred income taxes |
0 | 250 | 0 | (33 | ) | 217 | |||||||||||
Total Current Liabilities |
84 | 2,913 | 2,169 | (72 | ) | 5,094 | |||||||||||
Long-Term Debt |
0 | 7,480 | 23 | 0 | 7,503 | ||||||||||||
Intercompany Payable |
0 | 4,128 | 0 | (4,128 | ) | 0 | |||||||||||
Deferred Income Taxes |
0 | 370 | 695 | (20 | ) | 1,045 | |||||||||||
Other Liabilities |
54 | 975 | 1,226 | 0 | 2,255 | ||||||||||||
Shareholders Equity (Deficit) |
4,739 | (1,339 | ) | 6,696 | (5,357 | ) | 4,739 | ||||||||||
Total Liabilities and Shareholders Equity |
$ | 4,877 | $ | 14,527 | $ | 10,809 | $ | (9,577 | ) | $ | 20,636 | ||||||
(continued)
14
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Operations
For the 13 Weeks Ended May 1, 2010
(millions)
Parent | Subsidiary Issuer |
Other Subsidiaries |
Consolidating Adjustments |
Consolidated | ||||||||||||||||
Net sales |
$ | 0 | $ | 2,927 | $ | 4,619 | $ | (1,972 | ) | $ | 5,574 | |||||||||
Cost of sales |
0 | (1,861 | ) | (3,474 | ) | 1,957 | (3,378 | ) | ||||||||||||
Gross margin |
0 | 1,066 | 1,145 | (15 | ) | 2,196 | ||||||||||||||
Selling, general and administrative expenses |
(2 | ) | (1,074 | ) | (932 | ) | 15 | (1,993 | ) | |||||||||||
Operating income (loss) |
(2 | ) | (8 | ) | 213 | 0 | 203 | |||||||||||||
Interest (expense) income, net |
||||||||||||||||||||
External |
0 | (163 | ) | 1 | 0 | (162 | ) | |||||||||||||
Intercompany |
0 | (42 | ) | 42 | 0 | 0 | ||||||||||||||
Equity in earnings of subsidiaries |
24 | 17 | 0 | (41 | ) | 0 | ||||||||||||||
Income (loss) before income taxes |
22 | (196 | ) | 256 | (41 | ) | 41 | |||||||||||||
Federal, state and local income tax benefit (expense) |
1 | 62 | (81 | ) | 0 | (18 | ) | |||||||||||||
Net income (loss) |
$ |
23 |
|
$ |
(134 |
) |
$ |
175 |
|
$ |
(41 |
) |
$ |
23 |
| |||||
(continued)
15
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the 13 Weeks Ended May 1, 2010
(millions)
Parent | Subsidiary Issuer |
Other Subsidiaries |
Consolidating Adjustments |
Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | 23 | $ | (134 | ) | $ | 175 | $ | (41 | ) | $ | 23 | ||||||||
Equity in earnings of subsidiaries |
(24 | ) | (17 | ) | 0 | 41 | 0 | |||||||||||||
Dividends received from subsidiaries |
113 | 0 | 0 | (113 | ) | 0 | ||||||||||||||
Depreciation and amortization |
0 | 142 | 145 | 0 | 287 | |||||||||||||||
Increase in working capital |
(32 | ) | (242 | ) | 170 | 0 | (104 | ) | ||||||||||||
Other, net |
6 | (299 | ) | (62 | ) | 0 | (355 | ) | ||||||||||||
Net cash provided (used) by operating activities |
86 | (550 | ) | 428 | (113 | ) | (149 | ) | ||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Purchase of property and equipment and capitalized software, net |
0 | 1 | (60 | ) | 0 | (59 | ) | |||||||||||||
Other, net |
0 | 0 | 15 | 0 | 15 | |||||||||||||||
Net cash provided (used) by investing activities |
0 | 1 | (45 | ) | 0 | (44 | ) | |||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Debt repaid |
0 | (505 | ) | 0 | 0 | (505 | ) | |||||||||||||
Dividends paid |
(21 | ) | 0 | (113 | ) | 113 | (21 | ) | ||||||||||||
Issuance of common stock, net of common stock acquired |
13 | 0 | 0 | 0 | 13 | |||||||||||||||
Intercompany activity, net |
(753 | ) | 1,042 | (289 | ) | 0 | 0 | |||||||||||||
Other, net |
(32 | ) | (6 | ) | 39 | 0 | 1 | |||||||||||||
Net cash provided (used) by financing activities |
(793 | ) | 531 | (363 | ) | 113 | (512 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents |
(707 | ) | (18 | ) | 20 | 0 | (705 | ) | ||||||||||||
Cash and cash equivalents at beginning of period |
1,318 | 60 | 308 | 0 | 1,686 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 611 | $ | 42 | $ | 328 | $ | 0 | $ | 981 | ||||||||||
(continued)
16
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
As of May 2, 2009
(millions)
Parent | Subsidiary Issuer |
Other Subsidiaries |
Consolidating Adjustments |
Consolidated | |||||||||||||
ASSETS: |
|||||||||||||||||
Current Assets: |
|||||||||||||||||
Cash and cash equivalents |
$ | 25 | $ | 70 | $ | 325 | $ | 0 | $ | 420 | |||||||
Receivables |
0 | 19 | 235 | 0 | 254 | ||||||||||||
Merchandise inventories |
0 | 2,712 | 2,314 | 0 | 5,026 | ||||||||||||
Supplies and prepaid expenses |
0 | 108 | 145 | 0 | 253 | ||||||||||||
Deferred income tax assets |
0 | 0 | 24 | (24 | ) | 0 | |||||||||||
Income tax receivable |
176 | 70 | 0 | (40 | ) | 206 | |||||||||||
Total Current Assets |
201 | 2,979 | 3,043 | (64 | ) | 6,159 | |||||||||||
Property and Equipmentnet |
0 | 5,755 | 4,471 | 0 | 10,226 | ||||||||||||
Goodwill |
0 | 3,315 | 428 | 0 | 3,743 | ||||||||||||
Other Intangible Assetsnet |
0 | 240 | 467 | 0 | 707 | ||||||||||||
Other Assets |
4 | 84 | 408 | 0 | 496 | ||||||||||||
Deferred Income Tax Assets |
75 | 0 | 0 | (75 | ) | 0 | |||||||||||
Intercompany Receivable |
1,595 | 0 | 1,282 | (2,877 | ) | 0 | |||||||||||
Investment in Subsidiaries |
2,837 | 2,732 | 0 | (5,569 | ) | 0 | |||||||||||
Total Assets |
$ | 4,712 | $ | 15,105 | $ | 10,099 | $ | (8,585 | ) | $ | 21,331 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY: |
|||||||||||||||||
Current Liabilities: |
|||||||||||||||||
Short-term debt |
$ | 0 | $ | 132 | $ | 3 | $ | 0 | $ | 135 | |||||||
Merchandise accounts payable |
0 | 922 | 887 | 0 | 1,809 | ||||||||||||
Accounts payable and accrued liabilities |
82 | 1,206 | 935 | 0 | 2,223 | ||||||||||||
Income taxes |
0 | 0 | 40 | (40 | ) | 0 | |||||||||||
Deferred income taxes |
12 | 242 | 0 | (24 | ) | 230 | |||||||||||
Total Current Liabilities |
94 | 2,502 | 1,865 | (64 | ) | 4,397 | |||||||||||
Long-Term Debt |
0 | 8,693 | 26 | 0 | 8,719 | ||||||||||||
Intercompany Payable |
0 | 2,877 | 0 | (2,877 | ) | 0 | |||||||||||
Deferred Income Taxes |
0 | 883 | 348 | (75 | ) | 1,156 | |||||||||||
Other Liabilities |
63 | 1,113 | 1,328 | 0 | 2,504 | ||||||||||||
Shareholders Equity (Deficit) |
4,555 | (963 | ) | 6,532 | (5,569 | ) | 4,555 | ||||||||||
Total Liabilities and Shareholders Equity |
$ | 4,712 | $ | 15,105 | $ | 10,099 | $ | (8,585 | ) | $ | 21,331 | ||||||
(continued)
17
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Operations
For the 13 Weeks Ended May 2, 2009
(millions)
Parent | Subsidiary Issuer |
Other Subsidiaries |
Consolidating Adjustments |
Consolidated | ||||||||||||||||
Net sales |
$ | 0 | $ | 2,810 | $ | 2,871 | $ | (482 | ) | $ | 5,199 | |||||||||
Cost of sales |
0 | (1,766 | ) | (1,917 | ) | 464 | (3,219 | ) | ||||||||||||
Gross margin |
0 | 1,044 | 954 | (18 | ) | 1,980 | ||||||||||||||
Selling, general and administrative expenses |
(2 | ) | (1,107 | ) | (865 | ) | 18 | (1,956 | ) | |||||||||||
Division consolidation costs |
0 | (48 | ) | (90 | ) | 0 | (138 | ) | ||||||||||||
Operating loss |
(2 | ) | (111 | ) | (1 | ) | 0 | (114 | ) | |||||||||||
Interest (expense) income, net |
||||||||||||||||||||
External |
1 | (142 | ) | 0 | 0 | (141 | ) | |||||||||||||
Intercompany |
0 | (40 | ) | 40 | 0 | 0 | ||||||||||||||
Equity in losses of subsidiaries |
(87 | ) | (59 | ) | 0 | 146 | 0 | |||||||||||||
Income (loss) before income taxes |
(88 | ) | (352 | ) | 39 | 146 | (255 | ) | ||||||||||||
Federal, state and local income tax benefit (expense) |
0 | 188 | (21 | ) | 0 | 167 | ||||||||||||||
Net income (loss) |
$ | (88 | ) | $ | (164 | ) | $ | 18 | $ | 146 | $ | (88 | ) | |||||||
(continued)
18
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the 13 Weeks Ended May 2, 2009
(millions)
Parent | Subsidiary Issuer |
Other Subsidiaries |
Consolidating Adjustments |
Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | (88 | ) | $ | (164 | ) | $ | 18 | $ | 146 | $ | (88 | ) | |||||||
Division consolidation costs |
0 | 48 | 90 | 0 | 138 | |||||||||||||||
Equity in earnings of subsidiaries |
87 | 59 | 0 | (146 | ) | 0 | ||||||||||||||
Dividends received from subsidiaries |
109 | 0 | 0 | (109 | ) | 0 | ||||||||||||||
Depreciation and amortization |
0 | 155 | 148 | 0 | 303 | |||||||||||||||
Increase in working capital |
(64 | ) | 0 | (323 | ) | 0 | (387 | ) | ||||||||||||
Other, net |
44 | 498 | (511 | ) | 0 | 31 | ||||||||||||||
Net cash provided (used) by operating activities |
88 | 596 | (578 | ) | (109 | ) | (3 | ) | ||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Purchase of property and equipment and capitalized software, net |
0 | 2 | (70 | ) | 0 | (68 | ) | |||||||||||||
Other, net |
0 | 0 | 14 | 0 | 14 | |||||||||||||||
Net cash provided (used) by investing activities |
0 | 2 | (56 | ) | 0 | (54 | ) | |||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Debt repaid |
0 | (836 | ) | (1 | ) | 0 | (837 | ) | ||||||||||||
Dividends paid |
(21 | ) | 0 | (109 | ) | 109 | (21 | ) | ||||||||||||
Intercompany activity, net |
(1,039 | ) | 240 | 799 | 0 | 0 | ||||||||||||||
Other, net |
(50 | ) | 0 | 0 | 0 | (50 | ) | |||||||||||||
Net cash provided (used) by financing activities |
(1,110 | ) | (596 | ) | 689 | 109 | (908 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents |
(1,022 | ) | 2 | 55 | 0 | (965 | ) | |||||||||||||
Cash and cash equivalents at beginning of period |
1,047 | 68 | 270 | 0 | 1,385 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 25 | $ | 70 | $ | 325 | $ | 0 | $ | 420 | ||||||||||
(continued)
19
MACYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Condensed Consolidating Balance Sheet
As of January 30, 2010
(millions)
Parent | Subsidiary Issuer |
Other Subsidiaries |
Consolidating Adjustments |
Consolidated | |||||||||||||
ASSETS: |
|||||||||||||||||
Current Assets: |
|||||||||||||||||
Cash and cash equivalents |
$ | 1,318 | $ | 60 | $ | 308 | $ | 0 | $ | 1,686 | |||||||
Receivables |
0 | 82 | 276 | 0 | 358 | ||||||||||||
Merchandise inventories |
0 | 2,536 | 2,079 | 0 | 4,615 | ||||||||||||
Supplies and prepaid expenses |
0 | 98 | 125 | 0 | 223 | ||||||||||||
Income taxes |
7 | 0 | 0 | (7 | ) | 0 | |||||||||||
Deferred income tax assets |
0 | 0 | 54 | (54 | ) | 0 | |||||||||||
Total Current Assets |
1,325 | 2,776 | 2,842 | (61 | ) | 6,882 | |||||||||||
Property and Equipmentnet |
0 | 5,383 | 4,124 | 0 | 9,507 | ||||||||||||
Goodwill |
0 | 3,315 | 428 | 0 | 3,743 | ||||||||||||
Other Intangible Assetsnet |
0 | 217 | 461 | 0 | 678 | ||||||||||||
Other Assets |
4 | 123 | 363 | 0 | 490 | ||||||||||||
Deferred Income Tax Assets |
113 | 0 | 0 | (113 | ) | 0 | |||||||||||
Intercompany Receivable |
890 | 0 | 2,188 | (3,078 | ) | 0 | |||||||||||
Investment in Subsidiaries |
2,627 | 2,792 | 0 | (5,419 | ) | 0 | |||||||||||
Total Assets |
$ | 4,959 | $ | 14,606 | $ | 10,406 | $ | (8,671 | ) | $ | 21,300 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY: |
|||||||||||||||||
Current Liabilities: |
|||||||||||||||||
Short-term debt |
$ | 0 | $ | 239 | $ | 3 | $ | 0 | $ | 242 | |||||||
Merchandise accounts payable |
0 | 637 | 675 | 0 | 1,312 | ||||||||||||
Accounts payable and accrued liabilities |
117 | 1,529 | 980 | 0 | 2,626 | ||||||||||||
Income taxes |
0 | 4 | 71 | (7 | ) | 68 | |||||||||||
Deferred income taxes |
93 | 167 | 0 | (54 | ) | 206 | |||||||||||
Total Current Liabilities |
210 | 2,576 | 1,729 | (61 | ) | 4,454 | |||||||||||
Long-Term Debt |
0 | 8,432 | 24 | 0 | 8,456 | ||||||||||||
Intercompany Payable |
0 | 3,078 | 0 | (3,078 | ) | 0 | |||||||||||
Deferred Income Taxes |
0 | 570 | 611 | (113 | ) | 1,068 | |||||||||||
Other Liabilities |
48 | 1,161 | 1,412 | 0 | 2,621 | ||||||||||||
Shareholders Equity (Deficit) |
4,701 | (1,211 | ) | 6,630 | (5,419 | ) | 4,701 | ||||||||||
Total Liabilities and Shareholders Equity |
$ | 4,959 | $ | 14,606 | $ | 10,406 | $ | (8,671 | ) | $ | 21,300 | ||||||
(continued)
20
MACYS, INC.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
For purposes of the following discussion, all references to first quarter of 2010 and first quarter of 2009 are to the Companys 13-week fiscal periods ended May 1, 2010 and May 2, 2009, respectively.
The Company is a retail organization operating retail stores and Internet websites under two brands (Macys and Bloomingdales) that sell a wide range of merchandise, including mens, womens and childrens apparel and accessories, cosmetics, home furnishings and other consumer goods. The Companys operations include approximately 850 stores in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com and bloomingdales.com.
The Company continues to be focused on four key priorities for improving the business over the longer term: (i) differentiating merchandise assortments and tailoring them to local tastes; (ii) delivering obvious value; (iii) improving the overall shopping environment; and (iv) enhancing customer engagement, loyalty and traffic through more brand focused and effective marketing.
In February 2008, the Company announced a new initiative intended to strengthen local market focus and enhance selling service in an effort to both accelerate same-store sales growth and reduce expense. The localization initiative, called My Macys, was developed with the goal to accelerate sales growth in existing locations by ensuring that core customers surrounding each Macys store find merchandise assortments, size ranges, marketing programs and shopping experiences that are custom-tailored to their needs. To maximize the results from My Macys, the Company took action in certain markets that: concentrated more management talent in local markets, effectively reducing the span of control over local stores; created new positions in the field to work with division central planning and buying executives in helping to understand and act on the merchandise needs of local customers; and empowered locally based executives to make more and better decisions. In combination with the localization initiative, the Company consolidated the Minneapolis-based Macys North organization into New York-based Macys East, the St. Louis-based Macys Midwest organization into Atlanta-based Macys South and the Seattle-based Macys Northwest organization into San Francisco-based Macys West. The Atlanta-based division was renamed Macys Central.
In February 2009, the Company announced the expansion of the My Macys localization initiative across the country. As My Macys was rolled out nationally to new local markets, the Companys Macys branded stores were reorganized into a unified operating structure to support the Macys business. Division central office organizations were eliminated in New York-based Macys East, San Francisco-based Macys West, Atlanta-based Macys Central and Miami-based Macys Florida. This has reduced central office and administrative expense, eliminated duplication, sharpened execution, and helped the Company to partner more effectively with its suppliers and business partners.
The savings from the division consolidation process, net of the amount invested in the My Macys localization initiatives, have reduced, and are expected to continue to reduce, selling, general and administrative (SG&A) expenses, as compared to expected levels absent the consolidations.
21
MACYS, INC.
During January 2010, the Company announced plans to launch a new Bloomingdales Outlet store concept in 2010, which will initially consist of four Bloomingdales Outlet stores, each with approximately 25,000 square feet, to open prior to the Christmas season of 2010. Additional Bloomingdales Outlet stores are expected to roll out to selected locations across the country in 2011 and beyond. Bloomingdales Outlet stores will offer a range of apparel and accessories, including womens ready-to-wear, mens, childrens, womens shoes, fashion accessories, jewelry, handbags and intimate apparel.
Additionally, in February 2010, Bloomingdales 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.
The Companys operations are impacted by competitive pressures from department stores, specialty stores, mass merchandisers and all other retail channels. The Companys 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 periods, consumer spending levels have been adversely affected by a number of factors, including substantial declines in the level of general economic activity and real estate and investment values, substantial increases in consumer pessimism, unemployment and the costs of basic necessities, and a significant tightening of consumer credit. These conditions adversely affected, and to varying degrees continue to adversely affect, 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 the factors and conditions described above 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 different types of merchandise that the Company offers for sale, or in relation to the Companys Macys-branded and Bloomingdales-branded operations. All of these effects, however, ultimately affect the Companys overall operations.
The Company cannot predict whether, when or the manner in which the economic conditions described above will change. Based on its assessment of current and anticipated market conditions and its recent performance, the Company is assuming that its comparable store sales in 2010 will increase in the range of 3% to 3.5% from 2009 levels.
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in the 2009 10-K. The following discussion contains forward-looking statements that reflect the Companys plans, estimates and beliefs. The Companys 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 Forward-Looking Statements) and in the 2009 10-K (particularly in Risk Factors).
22
MACYS, INC.
Results of Operations
Net sales include merchandise sales, leased department income, shipping and handling fees and sales to third party retailers. Beginning with the first quarter of 2010, the Company began including sales of private brand goods directly to third party retailers and sales of excess inventory to third parties in net sales. These items were previously reported, net of the related cost of sales, in selling, general and administrative expenses. This change in presentation had an immaterial impact on reported net sales, does not impact comparable store sales, net income (loss) or diluted earnings (loss) per share, and was not applied retroactively to periods ended prior to May 1, 2010.
Comparison of the 13 Weeks Ended May 1, 2010 and May 2, 2009
Net income for the first quarter of 2010 was $23 million, compared to the net loss of $88 million in the first quarter of 2009. The net loss for the first quarter of 2009 included the impact of lower net sales and $138 million of division consolidation costs.
Net sales for the first quarter of 2010 totaled $5,574 million, compared to net sales of $5,199 million for the first quarter of 2009, an increase of $375 million or 7.2%. On a comparable store basis, net sales for the first quarter of 2010 were up 5.5% compared to the first quarter of 2009. Sales from the Companys Internet businesses in the first quarter of 2010 increased 34.0% compared to the first quarter of 2009 and positively affected the Companys first quarter of 2010 comparable store sales by 0.9%. Sales of the Companys private label and exclusive brands continued to be strong in the first quarter of 2010. Sales in the first quarter of 2010 were strongest in mens, home, and many businesses in womens, including updated apparel and fashion watches. Sales in the first quarter of 2010 were less strong in the young businesses. The Company calculates comparable store sales as sales from stores in operation throughout 2009 and 2010 and all Internet sales. Stores undergoing remodeling, expansion or relocation remain in the comparable store sales calculation unless the store is closed for a significant period of time. Definitions and calculations of comparable store sales differ among companies in the retail industry.
Cost of sales was $3,378 million or 60.6% of net sales for the first quarter of 2010, compared to $3,219 million or 61.9% of net sales for the first quarter of 2009, an increase of $159 million. The cost of sales rate for the first quarter of 2010 benefited from increased net sales and good inventory management. The valuation of merchandise inventories on the last-in, first-out basis did not impact cost of sales in either period.
SG&A expenses were $1,993 million or 35.8% of net sales for the first quarter of 2010, compared to $1,956 million or 37.6% of net sales for the first quarter of 2009, an increase of $37 million. The SG&A rate as a percent to net sales was lower in the first quarter of 2010, as compared to the first quarter of 2009, reflecting increased net sales.
Division consolidation costs were $138 million for the first quarter of 2009, and consisted primarily of severance and other human resource-related costs.
Net interest expense was $162 million for the first quarter of 2010 compared to $141 million for the first quarter of 2009, an increase of $21 million. The increase in net interest expense is primarily due to expenses associated with the early retirement of outstanding debt, partially offset by lower levels of borrowings.
23
MACYS, INC.
The Companys effective income tax rate of 43.8% for the first quarter of 2010 and 65.7% for the first quarter of 2009 differ from the federal income tax statutory rate of 35.0%, 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 the first quarter of 2010 reflects a $4 million reduction of deferred tax assets due to the enactment of recent healthcare reform legislation. The deferred tax expense was required as a result of the elimination of the deductibility of retiree health care payments to the extent of tax-free Medicare Part D subsidies that are received. The change in deductibility is effective for the Company on February 3, 2013.
Liquidity and Capital Resources
The Companys principal sources of liquidity are cash from operations, cash on hand and the credit facility described below.
Net cash used by operating activities in the first quarter of 2010 was $149 million, compared to net cash used by operating activities of $3 million in the first quarter of 2009. The increase in cash used by operating activities reflects a $325 million pension contribution in the first quarter of 2010, compared to a pension contribution of approximately $30 million in the first quarter of 2009.
Net cash used by investing activities was $44 million for the first quarter of 2010, compared to net cash used by investing activities of $54 million for the first quarter of 2009. Investing activities for the first quarter of 2010 include purchases of property and equipment totaling $36 million and capitalized software of $24 million, compared to purchases of property and equipment totaling $57 million and capitalized software of $18 million for the first quarter of 2009. The Company intends to open one new Bloomingdales store, four Bloomingdales Outlet stores and one new Macys store during the remainder of fiscal 2010. During the first quarter of 2009, the Company opened one new Macys department store.
Net cash used by financing activities was $512 million for the first quarter of 2010, including the repayment of $505 million of debt and the payment of $21 million of cash dividends, partially offset by the issuance of $14 million of common stock, primarily related to the exercise of stock options. The debt repaid during the first quarter of 2010 includes the early retirement of $500 million of outstanding debt. During the first quarter of 2010, the Company repurchased no shares of its common stock under its share repurchase program and anticipates no share repurchases under its share repurchase program for the remainder of fiscal 2010.
Net cash used by financing activities was $908 million for the first quarter of 2009, including the repayment of $837 million of debt, cash dividends paid of $21 million, and a decrease in outstanding checks of $50 million.
The Company is a party to a credit agreement with certain financial institutions providing for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $2,000 million (which may be increased to $2,500 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. This agreement is set to expire August 30, 2012. As of and during the 13 weeks ended May 1, 2010, the Company had no borrowings outstanding under this agreement. As of the date of this report, the Company does not expect to borrow under this agreement during fiscal 2010.
24
MACYS, INC.
The credit agreement requires the Company to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.00 (3.25 after October 2010) and a specified leverage ratio as of and for the latest four quarters of no more than 4.75 (4.50 after October 2010). The Companys interest coverage ratio for the first quarter of 2010 was 4.84 and its leverage ratio at May 1, 2010 was 2.80, in each case as calculated in accordance with the credit agreement.
The rate of interest payable in respect of $650 million in aggregate principal amount of the Companys senior notes outstanding at May 1, 2010 decreased by .50 percent per annum to 8.375% effective in May 2010 as a result of an upgrade of the notes by specified rating agencies. The rate of interest payable in respect of these senior notes outstanding at May 1, 2010 could increase by up to 1.50 percent per annum or decrease by up to .50 percent per annum from its current level in the event of one or more downgrades or upgrades of the notes by specified rating agencies.
On May 14, 2010, the Companys board of directors declared a regular quarterly dividend of 5 cents per share on its common stock, payable July 1, 2010, to shareholders of record at the close of business on June 15, 2010.
Management believes that, with respect to the Companys current operations, cash on hand and funds from operations, together with its credit facility and other capital resources, will be sufficient to cover the Companys 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 Companys 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 Companys 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. 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, and the redemption or repurchase of debt or other securities through open market purchases, privately negotiated transactions or otherwise.
Management believes the department store business and other retail businesses will continue to consolidate. The Company intends from time to time to consider additional acquisitions of, and investments in, department stores 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.
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MACYS, INC.
Item 4. | Controls and Procedures |
The Companys Chief Executive Officer and Chief Financial Officer have carried out, as of May 1, 2010, with the participation of the Companys management, an evaluation of the effectiveness of the Companys 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 Companys 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 Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Companys internal control over financial reporting that occurred during the Companys most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
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PART II OTHER INFORMATION
MACYS, INC.
Item 1. | Legal Proceedings. |
On October 3, 2007, Ebrahim Shanehchian, an alleged participant in the Macys, Inc. Profit Sharing 401(k) Investment Plan (the 401(k) Plan), filed a purported class action lawsuit in the United States District Court for the Southern District of Ohio on behalf of persons who participated in the 401(k) Plan and The May Department Stores Company Profit Sharing Plan (the May Plan) between February 27, 2005 and the present. The complaint charges the Company, as well as members of the Companys board of directors and certain members of senior management, with breach of fiduciary duties owed under the Employee Retirement Income Security Act (ERISA) to participants in the 401(k) Plan and the May Plan, alleging that the defendants made false and misleading statements regarding the Companys business, operations and prospects in relation to the integration of the acquired May operations, resulting in supposed artificial inflation of the Companys stock price between August 30, 2005 and May 15, 2007. The plaintiff seeks an unspecified amount of compensatory damages and costs. The Company believes the lawsuit is without merit and intends to contest it vigorously.
The Company and its subsidiaries are also 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 Companys financial position or results of operations.
Item 1A. | Risk Factors. |
There have been no material changes to the Risk Factors described in Part I, Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the fiscal year ended January 30, 2010 as filed with the SEC.
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MACYS, INC.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
The following table provides information regarding the Companys purchases of common stock during the first quarter of 2010:
Total Number of Shares Purchased |
Average Price per Share ($) |
Total Number of Shares Purchased Under Program (1) |
Open Authorization Remaining (1) ($) | |||||
(thousands) | (thousands) | (millions) | ||||||
January 31, 2010 - February 27, 2010 |
0 | 0 | 0 | 852 | ||||
February 28, 2010 - April 3, 2010 |
55 | 17.90 | 0 | 852 | ||||
April 4, 2010 - May 1, 2010 |
0 | 0 | 0 | 852 | ||||
Total |
55 | 17.90 | 0 | |||||
(1) Commencing in January 2000, the Companys board of directors has from time to time approved authorizations to purchase, in aggregate, up to $9,500 million of Common Stock. All authorizations are cumulative and do not have an expiration date. As of May 1, 2010, $852 million of authorization remained unused. Although the Company has not made any purchases of Common Stock since February 1, 2008 and currently does not intend to make any such purchases in 2010, it may 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. |
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MACYS, INC.
Item 5. | Other Information |
Forward-Looking Statements
This report and other reports, statements and information previously or subsequently filed by the Company with the SEC contain or may contain forward-looking statements. Such statements are based upon the beliefs and assumptions of, and on information available to, the management of the Company at the time such statements are made. The following are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (i) statements preceded by, followed by or that include the words may, will, could, should, believe, expect, future, potential, anticipate, intend, plan, think, estimate or continue or the negative or other variations thereof, and (ii) statements regarding matters that are not historical facts. Such forward-looking statements are subject to various risks and uncertainties, including:
| risks and uncertainties relating to the possible invalidity of the underlying beliefs and assumptions; |
| competitive pressures from 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; |
| 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; |
| adverse changes in relationships with vendors and other product and service providers; |
| risks related to currency and exchange rates and other capital market, economic and geopolitical conditions; |
| risks associated with severe weather and changes in weather patterns; |
| risks associated with an outbreak of an epidemic or pandemic disease; |
| the potential impact of national and international security concerns on the retail environment, including any possible military action, terrorist attacks or other hostilities; |
(continued)
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MACYS, INC.
| risks associated with the possible inability of the Companys manufacturers to deliver products in a timely manner or meet quality standards; |
| risks associated with the Companys reliance on foreign sources of production, including risks related to the disruption of imports by labor disputes; |
| risks related to duties, taxes, and other charges and quotas on imports; and |
| system 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 reflected in such forward-looking statements.
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MACYS, INC.
Item 6. | Exhibits |
3.1 | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K dated May 18, 2010). | |
3.2 | Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the Companys Current Report on Form 8-K dated May 18, 2010). | |
10.1 | Form of Nonqualified Stock Option Agreement under the 2009 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated March 25, 2010) (the March 25, 2010 Form 8-K). * | |
10.2 | Form of Performance-Based Restricted Stock Unit Agreement under the 2009 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the March 25, 2010 Form 8-K). * | |
10.3 | Form of Time-Based Restricted Stock Agreement under the 2009 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 to the March 25, 2010 Form 8-K). * | |
10.4 | Form of Time-Based Restricted Stock Unit Agreement under the 2009 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.4 to the March 25, 2010 Form 8-K). * | |
10.5 | Amendment to Employment Agreement between Terry J. Lundgren and Macys, Inc., dated March 19, 2010 (incorporated by reference to Exhibit 10.5 to the March 25, 2010 Form 8-K). * | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a). | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a). | |
32.1 | Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act. | |
32.2 | Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act. | |
101** | The following financial statements from Macys, Inc.s Quarterly Report on Form 10-Q for the quarter ended May 1, 2010, filed on June 7, 2010, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text. |
* | 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. |
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MACYS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MACYS, INC. | ||||||||
Dated: June 7, 2010 |
By: | /s/ Dennis J. Broderick | ||||||
Name: | Dennis J. Broderick | |||||||
Title: | Executive Vice President, General Counsel and Secretary | |||||||
By: | /s/ Joel A. Belsky | |||||||
Name: | Joel A. Belsky | |||||||
Title: | Executive Vice President and Controller (Principal Accounting Officer) |
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