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

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

          For the quarterly period ended July 30, 2016

          OR

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

          For the transition period from    to

          Commission file number: 1-13536
           
          g129830g60l08.jpg
           

          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  ý    No  ¨
          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ý
           
          Accelerated filer o
           
          Non-accelerated filer o (Do not check if a smaller reporting company)
           
          Smaller reporting company  o
          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
          Class
           
          Outstanding at July 30, 2016
          Common Stock, $0.01 par value per share
           
          308,467,833 shares
           



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

          (millions, except per share figures)
           
           
           
           
           
           
           
           
           
           
          13 Weeks Ended
           
          26 Weeks Ended
           
          July 30, 2016
           
          August 1, 2015
           
          July 30, 2016
           
          August 1, 2015
          Net sales
          $
          5,866

           
          $
          6,104

           
          $
          11,637

           
          $
          12,336

          Cost of sales
          (3,468
          )
           
          (3,610
          )
           
          (6,984
          )
           
          (7,410
          )
          Gross margin
          2,398

           
          2,494

           
          4,653

           
          4,926

          Selling, general and administrative expenses
          (2,026
          )
           
          (2,058
          )
           
          (3,992
          )
           
          (4,081
          )
          Impairments and other costs
          (249
          )
           

           
          (249
          )
           

          Settlement charges
          (6
          )
           

           
          (19
          )
           

          Operating income
          117

           
          436

           
          393

           
          845

          Interest expense
          (98
          )
           
          (94
          )
           
          (197
          )
           
          (189
          )
          Interest income
          1

           
          1

           
          2

           
          1

          Income before income taxes
          20

           
          343

           
          198

           
          657

          Federal, state and local income tax expense
          (11
          )
           
          (126
          )
           
          (74
          )
           
          (247
          )
          Net income
          9

           
          217

           
          124

           
          410

          Net loss attributable to noncontrolling interest
          2

           

           
          3

           

          Net income attributable to Macy's, Inc. shareholders
          $
          11

           
          $
          217

           
          $
          127

           
          $
          410

          Basic earnings per share attributable to Macy's, Inc. shareholders
          $
          .03

           
          $
          .65

           
          $
          .41

           
          $
          1.21

          Diluted earnings per share attributable to Macy's, Inc. shareholders
          $
          .03

           
          $
          .64

           
          $
          .41

           
          $
          1.19


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

          2


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

          (millions)

           
           
           
           
           
           
           
           
           
          13 Weeks Ended
           
          26 Weeks Ended
           
          July 30, 2016
           
          August 1, 2015
           
          July 30, 2016
           
          August 1, 2015
          Net income
          $
          9

           
          $
          217

           
          $
          124

           
          $
          410

          Other comprehensive income (loss):
           
           
           
           
           
           
           
          Actuarial loss on postretirement benefit plans, before tax
          (41
          )
           

           
          (77
          )
           

          Settlement charges, before tax
          6

           

           
          19

           

          Amortization of net actuarial loss on post employment
          and postretirement benefit plans included in net
          income, before tax
          8

           
          11

           
          17

           
          24

          Tax effect related to items of other comprehensive
          income (loss)
          10

           
          (4
          )
           
          16

           
          (9
          )
          Total other comprehensive income (loss), net of tax effect
          (17
          )
           
          7

           
          (25
          )
           
          15

          Comprehensive income (loss)
          (8
          )
           
          224

           
          99

           
          425

          Comprehensive loss attributable to noncontrolling interest
          2

           

           
          3

           

          Comprehensive income (loss) attributable to
          Macy's, Inc. shareholders
          $
          (6
          )
           
          $
          224

           
          $
          102

           
          $
          425


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


          3


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

          (millions)
           
           
           
           
           
           
           
           
          July 30, 2016
           
          January 30, 2016
           
          August 1, 2015
          ASSETS
           
           
           
           
           
          Current Assets:
           
           
           
           
           
          Cash and cash equivalents
          $
          1,000

           
          $
          1,109

           
          $
          843

          Receivables
          423

           
          558

           
          334

          Merchandise inventories
          5,322

           
          5,506

           
          5,496

          Prepaid expenses and other current assets
          471

           
          479

           
          437

          Total Current Assets
          7,216

           
          7,652

           
          7,110

          Property and Equipment - net of accumulated depreciation and
          amortization of $5,457, $5,319 and $5,974
          7,187

           
          7,616

           
          7,704

          Goodwill
          3,897

           
          3,897

           
          3,897

          Other Intangible Assets – net
          502

           
          514

           
          523

          Other Assets
          904

           
          897

           
          726

          Total Assets
          $
          19,706

           
          $
          20,576

           
          $
          19,960

          LIABILITIES AND SHAREHOLDERS’ EQUITY
           
           
           
           
           
          Current Liabilities:
           
           
           
           
           
          Short-term debt
          $
          1,063

           
          $
          642

           
          $
          83

          Merchandise accounts payable
          1,877

           
          1,526

           
          1,942

          Accounts payable and accrued liabilities
          2,514

           
          3,333

           
          2,277

          Income taxes
          23

           
          227

           
          64

          Total Current Liabilities
          5,477

           
          5,728

           
          4,366

          Long-Term Debt
          6,567

           
          6,995

           
          7,151

          Deferred Income Taxes
          1,448

           
          1,477

           
          1,449

          Other Liabilities
          2,164

           
          2,123

           
          2,150

          Shareholders' Equity:
           
           
           
           
           
          Macy's, Inc.
          4,046

           
          4,250

           
          4,844

          Noncontrolling interest
          4

           
          3

           

          Total Shareholders’ Equity
          4,050

           
          4,253

           
          4,844

          Total Liabilities and Shareholders’ Equity
          $
          19,706

           
          $
          20,576

           
          $
          19,960


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


          4


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

          (millions)
           
           
           
           
           
          26 Weeks Ended
           
          July 30, 2016
           
          August 1, 2015
          Cash flows from operating activities:
           
           
           
          Net income
          $
          124

           
          $
          410

          Adjustments to reconcile net income to net cash provided by operating activities:
           
           
           
          Impairments and other costs
          249

           

          Settlement charges
          19

           

          Depreciation and amortization
          520

           
          520

          Stock-based compensation expense
          37

           
          47

          Amortization of financing costs and premium on acquired debt
          (1
          )
           
          (2
          )
          Changes in assets and liabilities:
           
           
           
           Decrease in receivables
          99

           
          92

          (Increase) decrease in merchandise inventories
          184

           
          (50
          )
           Increase in prepaid expenses and other current assets
          (40
          )
           
          (29
          )
           Increase in other assets not separately identified

           

           Increase in merchandise accounts payable
          307

           
          314

           Decrease in accounts payable, accrued liabilities
          and other items not separately identified
          (686
          )
           
          (626
          )
           Decrease in current income taxes
          (204
          )
           
          (232
          )
           Decrease in deferred income taxes
          (26
          )
           
          (20
          )
           Decrease in other liabilities not separately identified
          (22
          )
           
          (26
          )
          Net cash provided by operating activities
          560

           
          398

          Cash flows from investing activities:
           
           
           
          Purchase of property and equipment
          (293
          )
           
          (367
          )
          Capitalized software
          (151
          )
           
          (144
          )
          Acquisition of Bluemercury, Inc., net of cash acquired

           
          (212
          )
          Disposition of property and equipment
          67

           
          4

          Other, net
          39

           
          104

          Net cash used by investing activities
          (338
          )
           
          (615
          )
          Cash flows from financing activities:
           
           
           
          Debt repaid
          (3
          )
           
          (72
          )
          Financing costs
          (3
          )
           

          Dividends paid
          (228
          )
           
          (227
          )
          Increase (decrease) in outstanding checks
          2

           
          (136
          )
          Acquisition of treasury stock
          (130
          )
           
          (909
          )
          Issuance of common stock
          27

           
          158

          Proceeds from noncontrolling interest
          4

           

          Net cash used by financing activities
          (331
          )
           
          (1,186
          )
           
           
           
           
          Net decrease in cash and cash equivalents
          (109
          )
           
          (1,403
          )
          Cash and cash equivalents beginning of period
          1,109

           
          2,246

          Cash and cash equivalents end of period
          $
          1,000

           
          $
          843

          Supplemental cash flow information:
           
           
           
          Interest paid
          $
          200

           
          $
          194

          Interest received
          2

           
          1

          Income taxes paid (net of refunds received)
          292

           
          450

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

          5


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

          1.    Summary of Significant Accounting Policies
          Nature of Operations
          Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and Bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods. The Company's operations include approximately 880 Macy's, Macy's Backstage, Bloomingdale's, Bloomingdales Outlet and Bluemercury stores in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com, bloomingdales.com and bluemercury.com. In addition, Bloomingdale's in Dubai, United Arab Emirates is operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
          A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2016 (the "2015 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2015 10-K.
          Use of Estimates
          The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
          The Consolidated Financial Statements for the 13 and 26 weeks ended July 30, 2016 and August 1, 2015, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
          Seasonality
          Because of the seasonal nature of the retail business, the results of operations for the 13 and 26 weeks ended July 30, 2016 and August 1, 2015 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
          Reclassifications
          Certain reclassifications were made to prior years’ amounts to conform with the classifications of such amounts for the most recent fiscal period.
          Comprehensive Income
          Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income. For the Company, the only other components of total comprehensive income for the 13 and 26 weeks ended July 30, 2016 and August 1, 2015 relate to post employment and postretirement plan items. The settlement charges incurred are included as a separate component of operating expenses in the Consolidated Statements of Income. The amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in selling, general and administrative expenses on the Consolidated Statements of Income. See Note 4, "Benefit Plans," for further information.


          6

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


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

           
          13 Weeks Ended
           
          July 30, 2016
           
          August 1, 2015
           
          Net
          Income
           
           
           
          Shares
           
          Net
          Income
           
           
           
          Shares
           
          (millions, except per share data)
          Net income attributable to Macy's, Inc. shareholders and
          average number of shares outstanding
          $
          11

           
           
           
          308.5

           
          $
          217

           
           
           
          334.9

          Shares to be issued under deferred
          compensation and other plans
           
           
           
           
          0.9

           
           
           
           
           
          0.8

           
          $
          11

           
           
           
          309.4

           
          $
          217

           
           
           
          335.7

          Basic earnings per share attributable to
          Macy's, Inc. shareholders
           
           
          $
          .03

           
           
           
           
           
          $
          .65

           
           
          Effect of dilutive securities:
           
           
           
           
           
           
           
           
           
           
           
          Stock options, restricted stock and restricted stock units
           
           
           
           
          1.9

           
           
           
           
           
          5.3

           
          $
          11

           
           
           
          311.3

           
          $
          217

           
           
           
          341.0

          Diluted earnings per share attributable to
          Macy's, Inc. shareholders
           
           
          $
          .03

           
           
           
           
           
          $
          .64

           
           

           
          26 Weeks Ended
           
          July 30, 2016
           
          August 1, 2015
           
          Net
          Income
           
           
           
          Shares
           
          Net
          Income
           
           
           
          Shares
           
          (millions, except per share data)
          Net income attributable to Macy's, Inc. shareholders and
          average number of shares outstanding
          $
          127

           
           
           
          309.1

           
          $
          410

           
           
           
          337.3

          Shares to be issued under deferred
          compensation and other plans
           
           
           
           
          0.9

           
           
           
           
           
          0.9

           
          $
          127

           
           
           
          310.0

           
          $
          410

           
           
           
          338.2

          Basic earnings per share attributable to
          Macy's, Inc. shareholders
           
           
          $
          .41

           
           
           
           
           
          $
          1.21

           
           
          Effect of dilutive securities:
           
           
           
           
           
           
           
           
           
           
           
          Stock options, restricted stock and restricted stock units
           
           
           
           
          2.4

           
           
           
           
           
          5.5

           
          $
          127

           
           
           
          312.4

           
          $
          410

           
           
           
          343.7

          Diluted earnings per share attributable to
          Macy's, Inc. shareholders
           
           
          $
          .41

           
           
           
           
           
          $
          1.19

           
           

          In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 15.7 million shares of common stock and restricted stock units relating to 1.1 million shares of common stock were outstanding at July 30, 2016, but were not included in the computation of diluted earnings per share for the 13 and 26 weeks ended July 30, 2016 because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
          In addition to the stock options, restricted stock and restricted stock units reflected in the foregoing tables, stock options to purchase 3.4 million shares of common stock and restricted stock units relating to 1.1 million shares of common stock were outstanding at August 1, 2015, but were not included in the computation of diluted earnings per share for the 13 and 26 weeks ended August 1, 2015 because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.


          7

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


          3.    Financing Activities
          The following table shows the detail of debt repayments:
           
           
          26 Weeks Ended
           
          July 30, 2016
           
          August 1, 2015
           
          (millions)
          7.5% Senior debentures due 2015
          $

           
          $
          69

          9.5% amortizing debentures due 2021
          2

           
          2

          9.75% amortizing debentures due 2021
          1

           
          1

           
          $
          3

           
          $
          72

          The Company entered into a credit agreement with certain financial institutions on May 6, 2016 providing for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing) outstanding at any particular time. This agreement is set to expire May 6, 2021 and replaces the prior agreement which was set to expire May 10, 2018.
          On August 15, 2016, the Company redeemed at par the principal amount of $108 million of 7.875% senior debentures due 2036, pursuant to the terms of the debentures. Interest expense in the third quarter of 2016 will be lower due to the recognition of unamortized debt premium associated with this debt.
          During the 26 weeks ended July 30, 2016, the Company repurchased approximately 3.0 million shares of its common stock pursuant to existing stock purchase authorizations for a total of approximately $129 million, and no shares of its common stock were repurchased during the 13 weeks ended July 30, 2016. As of July 30, 2016, the Company had $1,903 million of authorization remaining under its share repurchase program. The Company may repurchase shares under its share repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors.


          4.    Benefit Plans
          The Company has defined contribution plans which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan ("Pension Plan") and an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
          In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.
          In addition, certain retired employees currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.

          8

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


          The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:
           
          13 Weeks Ended
           
          26 Weeks Ended
           
          July 30, 2016
           
          August 1, 2015
           
          July 30, 2016
           
          August 1, 2015
           
          (millions)
           
           
           
           
          401(k) Qualified Defined Contribution Plan
          $
          25

           
          $
          24

           
          $
          49

           
          $
          47

           
           
           
           
           
           
           
           
          Non-Qualified Defined Contribution Plan
          $
          1

           
          $
          1

           
          $
          1

           
          $
          1

           
           
           
           
           
           
           
           
          Pension Plan
           
           
           
           
           
           
           
          Service cost
          $
          1

           
          $
          1

           
          $
          2

           
          $
          3

          Interest cost
          28

           
          34

           
          56

           
          68

          Expected return on assets
          (58
          )
           
          (58
          )
           
          (114
          )
           
          (117
          )
          Recognition of net actuarial loss
          7

           
          9

           
          15

           
          19

          Amortization of prior service credit

           

           

           

           
          $
          (22
          )
           
          $
          (14
          )
           
          $
          (41
          )
           
          $
          (27
          )
          Supplementary Retirement Plan
           
           
           
           
           
           
           
          Service cost
          $

           
          $

           
          $

           
          $

          Interest cost
          6

           
          8

           
          12

           
          16

          Recognition of net actuarial loss
          2

           
          2

           
          4

           
          5

          Amortization of prior service cost

           

           

           

           
          $
          8

           
          $
          10

           
          $
          16

           
          $
          21

           
           
           
           
           
           
           
           
          Total Retirement Expense
          $
          12

           
          $
          21

           
          $
          25

           
          $
          42

           
           
           
           
           
           
           
           
          Postretirement Obligations
           
           
           
           
           
           
           
          Service cost
          $

           
          $

           
          $

           
          $

          Interest cost
          1

           
          2

           
          3

           
          4

          Recognition of net actuarial gain
          (1
          )
           

           
          (2
          )
           

          Amortization of prior service cost

           

           

           

           
          $

           
          $
          2

           
          $
          1

           
          $
          4


          During the 13 and 26 weeks ended July 30, 2016, the Company also incurred $6 million and $19 million, respectively, of non-cash settlement charges relating to the Company's defined benefit plans. These charges resulted from an increase in lump sum distributions associated with store closings, a voluntary separation program and organizational restructuring, in addition to periodic distribution activity.


          9

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


          5.    Fair Value Measurements
          The following table shows the Company's financial assets that are required to be measured at fair value on a recurring basis, by level within the hierarchy as defined by applicable accounting standards:
           
           
          July 30, 2016
           
          August 1, 2015
           
           
           
          Fair Value Measurements
           
           
           
          Fair Value Measurements
           
          Total
           
          Quoted Prices
          in Active
          Markets for
          Identical Assets
          (Level 1)
           
          Significant
          Observable
          Inputs
          (Level 2)
           
          Significant
          Unobservable
          Inputs
          (Level 3)
           
          Total
           
          Quoted Prices
          in Active
          Markets for
          Identical Assets
          (Level 1)
           
          Significant
          Observable
          Inputs
          (Level 2)
           
          Significant
          Unobservable
          Inputs
          (Level 3)
           
          (millions)
          Marketable equity and debt securities
          $
          141

           
          $

           
          $
          141

           
          $

           
          $
          101

           
          $

           
          $
          101

           
          $


          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 of these financial instruments approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are generally estimated based on quoted market prices for identical or similar instruments, and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards.
          The following table shows the estimated fair value of the Company's long-term debt:
           
           
          July 30, 2016
           
          August 1, 2015
           
          Notional
          Amount
           
          Carrying
          Amount
           
          Fair
          Value
           
          Notional
          Amount
           
          Carrying
          Amount
           
          Fair
          Value
           
          (millions)
          Long-term debt
          $
          6,461

           
          $
          6,540

           
          $
          6,822

           
          $
          7,012

           
          $
          7,123

           
          $
          7,585


          The Company reviews the carrying value of its goodwill and other intangible assets with indefinite lives at least annually for possible impairment in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” Goodwill has been assigned to reporting units for purposes of impairment testing. The reporting units are the Company's retail operations. Goodwill and other intangible assets with indefinite lives are tested for impairment annually at the end of the fiscal month of May.
          During the second quarter of fiscal 2016, the Company completed its annual impairment test of goodwill and other intangible assets with indefinite lives. In connection with the preparation of these consolidated financial statements, management concluded that goodwill was not impaired as of May 30, 2016 and approximately $7 million of asset impairment charges for the 13 and 26 weeks ended July 30, 2016 were recognized in relation to indefinite lived tradenames. The fair values of these tradenames were calculated based on the projected cash flows and an estimated risk-adjusted rate of return that would be used by market participants in valuing these assets or prices of similar assets and are classified as Level 3 measurements within the hierarchy as defined by applicable accounting standards.
          The use of different assumptions, estimates or judgments in the testing process, including with respect to the analysis of macroeconomic conditions, industry, market and other economic considerations and actual and expected financial performance, the estimated future cash flows and the discount rates used to discount such estimated cash flows to their net present values, could materially increase or decrease the estimated fair values and, accordingly, could impact the results of the annual impairment tests.
          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.

          10

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


          The Company has announced a plan to dispose of approximately 100 Macy’s stores before the end of their previously estimated useful lives as the Company works to optimize its omnichannel approach to customers. As a result, an impairment review of the Company’s long-lived assets was required and estimated cash flows have been revised accordingly. As part of this impairment review during the 13 weeks ended July 30, 2016, long-lived assets held and used with a carrying value of $326 million were written down to their fair value of $106 million, resulting in asset impairment charges of $220 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 and are classified as Level 3 measurements within the hierarchy as defined by applicable accounting standards. Additionally, related liabilities will arise such as severance, contractual obligations and other accruals associated with store closings when the final determination is made regarding which Macy’s stores will be closed. 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 charges recorded and any restructuring charge recorded in the future.
          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 additional asset impairment write-downs.

          6.    Condensed Consolidating Financial Information
          Certain debt obligations of the Company, which constitute debt obligations of Macy's Retail Holdings, Inc. ("Subsidiary Issuer"), a 100%-owned subsidiary of Macy's, Inc. ("Parent"), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, "Other Subsidiaries" includes all other direct subsidiaries of Parent, including Bluemercury, Inc., FDS Bank, West 34th Street Insurance Company 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, Macy's Merchandising Group International (Hong Kong) Limited, and its majority-owned subsidiary Macy's China Limited. "Subsidiary Issuer" includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in "Other Subsidiaries."
          Condensed Consolidating Statements of Comprehensive Income for the 13 and 26 weeks ended July 30, 2016 and August 1, 2015, Condensed Consolidating Balance Sheets as of July 30, 2016, August 1, 2015 and January 30, 2016, and the related Condensed Consolidating Statements of Cash Flows for the 26 weeks ended July 30, 2016 and August 1, 2015 are presented on the following pages.

          11

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



          Condensed Consolidating Statement of Comprehensive Income
          For the 13 Weeks Ended July 30, 2016
          (millions)
           
           
          Parent
           
          Subsidiary
          Issuer
           
          Other
          Subsidiaries
           
          Consolidating
          Adjustments
           
          Consolidated
          Net sales
          $

           
          $
          2,494

           
          $
          4,989

           
          $
          (1,617
          )
           
          $
          5,866

          Cost of sales

           
          (1,523
          )
           
          (3,562
          )
           
          1,617

           
          (3,468
          )
          Gross margin

           
          971

           
          1,427

           

           
          2,398

          Selling, general and administrative expenses

           
          (941
          )
           
          (1,085
          )
           

           
          (2,026
          )
          Impairments and other costs

           
          (184
          )
           
          (65
          )
           

           
          (249
          )
          Settlement charges

           
          (2
          )
           
          (4
          )
           

           
          (6
          )
          Operating income (loss)

           
          (156
          )
           
          273

           

           
          117

          Interest (expense) income, net:
           
           
           
           
           
           
           
           
           
          External

           
          (97
          )
           

           

           
          (97
          )
          Intercompany

           
          (57
          )
           
          57

           

           

          Equity in earnings of subsidiaries
          11

           
          22

           

           
          (33
          )
           

          Income (loss) before income taxes
          11

           
          (288
          )
           
          330

           
          (33
          )
           
          20

          Federal, state and local income
          tax benefit (expense)

           
          114

           
          (125
          )
           

           
          (11
          )
          Net income (loss)
          11

           
          (174
          )
           
          205

           
          (33
          )
           
          9

          Net loss attributable to noncontrolling interest

           

           
          2

           

           
          2

          Net income (loss) attributable to
          Macy's, Inc. shareholders
          $
          11

           
          $
          (174
          )
           
          $
          207

           
          $
          (33
          )
           
          $
          11

          Comprehensive income (loss)
          $
          (6
          )
           
          $
          (191
          )
           
          $
          195

           
          $
          (6
          )
           
          $
          (8
          )
          Comprehensive loss attributable to
          noncontrolling interest

           

           
          2

           

           
          2

          Comprehensive income (loss) attributable to
          Macy's, Inc. shareholders
          $
          (6
          )
           
          $
          (191
          )
           
          $
          197

           
          $
          (6
          )
           
          $
          (6
          )

          12

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



          Condensed Consolidating Statement of Comprehensive Income
          For the 13 Weeks Ended August 1, 2015
          (millions)
           
           
          Parent
           
          Subsidiary
          Issuer
           
          Other
          Subsidiaries
           
          Consolidating
          Adjustments
           
          Consolidated
          Net sales
          $

           
          $
          2,761

           
          $
          5,049

           
          $
          (1,706
          )
           
          $
          6,104

          Cost of sales

           
          (1,688
          )
           
          (3,628
          )
           
          1,706

           
          (3,610
          )
          Gross margin

           
          1,073

           
          1,421

           

           
          2,494

          Selling, general and administrative expenses

           
          (1,025
          )
           
          (1,033
          )
           

           
          (2,058
          )
          Operating income

           
          48

           
          388

           

           
          436

          Interest (expense) income, net:
           
           
           
           
           
           
           
           
           
          External

           
          (93
          )
           

           

           
          (93
          )
          Intercompany

           
          (57
          )
           
          57

           

           

          Equity in earnings of subsidiaries
          217

           
          86

           

           
          (303
          )
           

          Income (loss) before income taxes
          217

           
          (16
          )
           
          445

           
          (303
          )
           
          343

          Federal, state and local income
          tax benefit (expense)

           
          42

           
          (168
          )
           

           
          (126
          )
          Net income
          217

           
          26

           
          277

           
          (303
          )
           
          217

          Net loss attributable to noncontrolling interest

           

           

           

           

          Net income attributable to
          Macy's, Inc. shareholders
          $
          217

           
          $
          26

           
          $
          277

           
          $
          (303
          )
           
          $
          217

          Comprehensive income
          $
          224

           
          $
          33

           
          $
          282

           
          $
          (315
          )
           
          $
          224

          Comprehensive loss attributable to
          noncontrolling interest

           

           

           

           

          Comprehensive income attributable to
          Macy's, Inc. shareholders
          $
          224

           
          $
          33

           
          $
          282

           
          $
          (315
          )
           
          $
          224



          13

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



          Condensed Consolidating Statement of Comprehensive Income
          For the 26 Weeks Ended July 30, 2016
          (millions)
           
           
          Parent
           
          Subsidiary
          Issuer
           
          Other
          Subsidiaries
           
          Consolidating
          Adjustments
           
          Consolidated
          Net sales
          $

           
          $
          4,948

           
          $
          10,363

           
          $
          (3,674
          )
           
          $
          11,637

          Cost of sales

           
          (3,127
          )
           
          (7,531
          )
           
          3,674

           
          (6,984
          )
          Gross margin

           
          1,821

           
          2,832

           

           
          4,653

          Selling, general and administrative expenses
          (1
          )
           
          (1,823
          )
           
          (2,168
          )
           

           
          (3,992
          )
          Impairments and other costs

           
          (184
          )
           
          (65
          )
           

           
          (249
          )
          Settlement charges

           
          (5
          )
           
          (14
          )
           

           
          (19
          )
          Operating income (loss)
          (1
          )
           
          (191
          )
           
          585

           

           
          393

          Interest (expense) income, net:
           
           
           
           
           
           
           
           
           
          External
          1

           
          (196
          )
           

           

           
          (195
          )
          Intercompany

           
          (115
          )
           
          115

           

           

          Equity in earnings of subsidiaries
          127

           
          32

           

           
          (159
          )
           

          Income (loss) before income taxes
          127

           
          (470
          )
           
          700

           
          (159
          )
           
          198

          Federal, state and local income
          tax benefit (expense)

           
          175

           
          (249
          )
           

           
          (74
          )
          Net income (loss)
          127

           
          (295
          )
           
          451

           
          (159
          )
           
          124

          Net loss attributable to noncontrolling interest


           

           
          3

           

           
          3

          Net income (loss) attributable to
          Macy's, Inc. shareholders
          $
          127

           
          $
          (295
          )
           
          $
          454

           
          $
          (159
          )
           
          $
          127

          Comprehensive income (loss)
          $
          102

           
          $
          (320
          )
           
          $
          436

           
          $
          (119
          )
           
          $
          99

          Comprehensive loss attributable to
          noncontrolling interest

           

           
          3

           

           
          3

          Comprehensive income (loss) attributable to
          Macy's, Inc. shareholders
          $
          102

           
          $
          (320
          )
           
          $
          439

           
          $
          (119
          )
           
          $
          102


          14

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



          Condensed Consolidating Statement of Comprehensive Income
          For the 26 Weeks Ended August 1, 2015
          (millions)
           
           
          Parent
           
          Subsidiary
          Issuer
           
          Other
          Subsidiaries
           
          Consolidating
          Adjustments
           
          Consolidated
          Net sales
          $

           
          $
          5,537

           
          $
          10,740

           
          $
          (3,941
          )
           
          $
          12,336

          Cost of sales

           
          (3,497
          )
           
          (7,854
          )
           
          3,941

           
          (7,410
          )
          Gross margin

           
          2,040

           
          2,886

           

           
          4,926

          Selling, general and administrative expenses
          (1
          )
           
          (2,005
          )
           
          (2,075
          )
           

           
          (4,081
          )
          Operating income (loss)
          (1
          )
           
          35

           
          811

           

           
          845

          Interest (expense) income, net:
           
           
           
           
           
           
           
           
           
          External

           
          (188
          )
           

           

           
          (188
          )
          Intercompany

           
          (115
          )
           
          115

           

           

          Equity in earnings of subsidiaries
          411

           
          146

           

           
          (557
          )
           

          Income (loss) before income taxes
          410

           
          (122
          )
           
          926

           
          (557
          )
           
          657

          Federal, state and local income
          tax benefit (expense)

           
          79

           
          (326
          )
           

           
          (247
          )
          Net income (loss)
          410

           
          (43
          )
           
          600

           
          (557
          )
           
          410

          Net loss attributable to noncontrolling interest

           

           

           

           

          Net income (loss) attributable to
          Macy's, Inc. shareholders
          $
          410

           
          $
          (43
          )
           
          $
          600

           
          $
          (557
          )
           
          $
          410

          Comprehensive income (loss)
          $
          425

           
          $
          (28
          )
           
          $
          609

           
          $
          (581
          )
           
          $
          425

          Comprehensive loss attributable to
          noncontrolling interest

           

           

           

           

          Comprehensive income (loss) attributable to
          Macy's, Inc. shareholders
          $
          425

           
          $
          (28
          )
           
          $
          609

           
          $
          (581
          )
           
          $
          425


          15

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



          Condensed Consolidating Balance Sheet
          As of July 30, 2016
          (millions)
           
           
          Parent
           
          Subsidiary
          Issuer
           
          Other
          Subsidiaries
           
          Consolidating
          Adjustments
           
          Consolidated
          ASSETS:
           
           
           
           
           
           
           
           
           
          Current Assets:
           
           
           
           
           
           
           
           
           
          Cash and cash equivalents
          $
          621

           
          $
          89

           
          $
          290

           
          $

           
          $
          1,000

          Receivables

           
          146

           
          277

           

           
          423

          Merchandise inventories

           
          2,500

           
          2,822

           

           
          5,322

          Income tax receivable
          8

           
          11

           

           
          (19
          )
           

          Prepaid expenses and other current assets

           
          84

           
          387

           

           
          471

          Total Current Assets
          629

           
          2,830

           
          3,776

           
          (19
          )
           
          7,216

          Property and Equipment – net

           
          3,586

           
          3,601

           

           
          7,187

          Goodwill

           
          3,315

           
          582

           

           
          3,897

          Other Intangible Assets – net

           
          49

           
          453

           

           
          502

          Other Assets

           
          155

           
          749

           

           
          904

          Deferred Income Taxes
          23

           

           

           
          (23
          )
           

          Intercompany Receivable

           

           
          2,710

           
          (2,710
          )
           

          Investment in Subsidiaries
          4,524

           
          3,247

           

           
          (7,771
          )
           

          Total Assets
          $
          5,176

           
          $
          13,182

           
          $
          11,871

           
          $
          (10,523
          )
           
          $
          19,706

          LIABILITIES AND SHAREHOLDERS’ EQUITY:
           
           
           
           
           
           
           
           
           
          Current Liabilities:
           
           
           
           
           
           
           
           
           
          Short-term debt
          $

           
          $
          1,062

           
          $
          1

           
          $

           
          $
          1,063

          Merchandise accounts payable

           
          825

           
          1,052

           

           
          1,877

          Accounts payable and accrued liabilities
          29

           
          1,380

           
          1,105

           

           
          2,514

          Income taxes

           

           
          42

           
          (19
          )
           
          23

          Total Current Liabilities
          29

           
          3,267

           
          2,200

           
          (19
          )
           
          5,477

          Long-Term Debt

           
          6,549

           
          18

           

           
          6,567

          Intercompany Payable
          1,043

           
          1,667

           

           
          (2,710
          )
           

          Deferred Income Taxes

           
          653

           
          818

           
          (23
          )
           
          1,448

          Other Liabilities
          58

           
          573

           
          1,533

           

           
          2,164

          Shareholders' Equity:
           
           
           
           
           
           
           
           
           
          Macy's, Inc.
          4,046

           
          473

           
          7,298

           
          (7,771
          )
           
          4,046

          Noncontrolling Interest

           

           
          4

           

           
          4

          Total Shareholders' Equity
          4,046

           
          473

           
          7,302

           
          (7,771
          )
           
          4,050

          Total Liabilities and Shareholders' Equity
          $
          5,176

           
          $
          13,182

           
          $
          11,871

           
          $
          (10,523
          )
           
          $
          19,706








          16

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



          Condensed Consolidating Balance Sheet
          As of August 1, 2015
          (millions)
           
           
          Parent
           
          Subsidiary
          Issuer
           
          Other
          Subsidiaries
           
          Consolidating
          Adjustments
           
          Consolidated
          ASSETS:
           
           
           
           
           
           
           
           
           
          Current Assets:
           
           
           
           
           
           
           
           
           
          Cash and cash equivalents
          $
          511

           
          $
          76

           
          $
          256

           
          $

           
          $
          843

          Receivables

           
          85

           
          249

           

           
          334

          Merchandise inventories

           
          2,712

           
          2,784

           

           
          5,496

          Income tax receivable
          98

           

           

           
          (98
          )
           

          Prepaid expenses and other current assets

           
          104

           
          333

           

           
          437

          Total Current Assets
          609

           
          2,977

           
          3,622

           
          (98
          )
           
          7,110

          Property and Equipment – net

           
          4,230

           
          3,474

           

           
          7,704

          Goodwill

           
          3,315

           
          582

           

           
          3,897

          Other Intangible Assets – net

           
          62

           
          461

           

           
          523

          Other Assets
          2

           
          44

           
          680

           

           
          726

          Deferred Income Taxes
          24

           

           

           
          (24
          )
           

          Intercompany Receivable

           

           
          3,634

           
          (3,634
          )
           

          Investment in Subsidiaries
          4,779

           
          3,640

           

           
          (8,419
          )
           

          Total Assets
          $
          5,414

           
          $
          14,268

           
          $
          12,453

           
          $
          (12,175
          )
           
          $
          19,960

          LIABILITIES AND SHAREHOLDERS’ EQUITY:
           
           
           
           
           
           
           
           
           
          Current Liabilities:
           
           
           
           
           
           
           
           
           
          Short-term debt
          $

           
          $
          82

           
          $
          1

           
          $

           
          $
          83

          Merchandise accounts payable

           
          930

           
          1,012

           

           
          1,942

          Accounts payable and accrued liabilities
          23

           
          980

           
          1,274

           

           
          2,277

          Income taxes

           
          10

           
          152

           
          (98
          )
           
          64

          Total Current Liabilities
          23

           
          2,002

           
          2,439

           
          (98
          )
           
          4,366

          Long-Term Debt

           
          7,132

           
          19

           

           
          7,151

          Intercompany Payable
          483

           
          3,151

           

           
          (3,634
          )
           

          Deferred Income Taxes

           
          736

           
          737

           
          (24
          )
           
          1,449

          Other Liabilities
          64

           
          551

           
          1,535

           

           
          2,150

          Shareholders' Equity:
           
           
           
           
           
           
           
           
           
          Macy's, Inc.
          4,844

           
          696

           
          7,723

           
          (8,419
          )
           
          4,844

          Noncontrolling Interest

           

           

           

           

          Total Shareholders' Equity
          4,844

           
          696

           
          7,723

           
          (8,419
          )
           
          4,844

          Total Liabilities and Shareholders' Equity
          $
          5,414

           
          $
          14,268

           
          $
          12,453

           
          $
          (12,175
          )
           
          $
          19,960







          17

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


          Condensed Consolidating Balance Sheet
          As of January 30, 2016
          (millions)
           
           
          Parent
           
          Subsidiary
          Issuer
           
          Other
          Subsidiaries
           
          Consolidating
          Adjustments
           
          Consolidated
          ASSETS:
           
           
           
           
           
           
           
           
           
          Current Assets:
           
           
           
           
           
           
           
           
           
          Cash and cash equivalents
          $
          741

           
          $
          91

           
          $
          277

           
          $

           
          $
          1,109

          Receivables

           
          217

           
          341

           

           
          558

          Merchandise inventories

           
          2,702

           
          2,804

           

           
          5,506

          Income tax receivable
          44

           

           

           
          (44
          )
           

          Prepaid expenses and other current assets

           
          135

           
          344

           

           
          479

          Total Current Assets
          785

           
          3,145

           
          3,766

           
          (44
          )
           
          7,652

          Property and Equipment – net

           
          3,925

           
          3,691

           

           
          7,616

          Goodwill

           
          3,315

           
          582

           

           
          3,897

          Other Intangible Assets – net

           
          52

           
          462

           

           
          514

          Other Assets

           
          154

           
          743

           

           
          897

          Deferred Income Taxes
          14

           

           

           
          (14
          )
           

          Intercompany Receivable

           

           
          3,800

           
          (3,800
          )
           

          Investment in Subsidiaries
          4,725

           
          3,804

           

           
          (8,529
          )
           

          Total Assets
          $
          5,524

           
          $
          14,395

           
          $
          13,044

           
          $
          (12,387
          )
           
          $
          20,576

          LIABILITIES AND SHAREHOLDERS’ EQUITY: