10-K 1 m-02012014x10k.htm 10-K M-02.01.2014-10K
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended
February 1, 2014
 
Commission File Number:
1-13536
7 West Seventh Street
Cincinnati, Ohio 45202
(513) 579-7000
and
151 West 34th Street
New York, New York 10001
(212) 494-1602
Incorporated in Delaware
 
I.R.S. No. 13-3324058
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share
 
New York Stock Exchange
7.45% Senior Debentures due 2017
 
New York Stock Exchange
6.79% Senior Debentures due 2027
 
New York Stock Exchange
7% Senior Debentures due 2028
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  ý
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý
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
 
Smaller reporting company  o
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (August 3, 2013) was approximately $18,692,500,000.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at February 28, 2014
Common Stock, $0.01 par value per share
 
367,048,648 shares
DOCUMENTS INCORPORATED BY REFERENCE
Document
Parts Into
Which Incorporated
Proxy Statement for the Annual Meeting of Stockholders to be held May 16, 2014 (Proxy Statement)
Part III
 



Unless the context requires otherwise, references to “Macy’s” or the “Company” are references to Macy’s and its subsidiaries and references to “2013,” “2012,” “2011,” “2010” and “2009” are references to the Company’s fiscal years ended February 1, 2014, February 2, 2013, January 28, 2012, January 29, 2011 and January 30, 2010, respectively. Fiscal years 2013, 2011, 2010 and 2009 included 52 weeks; fiscal year 2012 included 53 weeks.
Forward-Looking Statements
This report and other reports, statements and information previously or subsequently filed by the Company with the Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements. Such statements are based upon the beliefs and assumptions of, and on information available to, the management of the Company at the time such statements are made. The following are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (i) statements preceded by, followed by or that include the words “may,” “will,” “could,” “should,” “believe,” “expect,” “future,” “potential,” “anticipate,” “intend,” “plan,” “think,” “estimate” or “continue” or the negative or other variations thereof, and (ii) statements regarding matters that are not historical facts. Such forward-looking statements are subject to various risks and uncertainties, including risks and uncertainties relating to:
the possible invalidity of the underlying beliefs and assumptions;
competitive pressures from department and specialty stores, general merchandise stores, manufacturers’ outlets, off-price and discount stores, and all other retail channels, including the Internet, mail-order catalogs and television;
general consumer-spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of the weather or natural disasters;
conditions to, or changes in the timing of, proposed transactions and changes in expected synergies, cost savings and non-recurring charges;
possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions;
possible actions taken or omitted to be taken by third parties, including customers, suppliers, business partners, competitors and legislative, regulatory, judicial and other governmental authorities and officials;
changes in relationships with vendors and other product and service providers;
currency, interest and exchange rates and other capital market, economic and geo-political conditions;
severe or unseasonable weather, possible outbreaks of epidemic or pandemic diseases and natural disasters;
unstable political conditions, civil unrest, terrorist activities and armed conflicts;
the possible inability of the Company’s manufacturers or transporters to deliver products in a timely manner or meet the Company’s quality standards;
the Company’s reliance on foreign sources of production, including risks related to the disruption of imports by labor disputes, regional health pandemics, and regional political and economic conditions;
duties, taxes, other charges and quotas on imports; and
possible systems failures and/or security breaches, including, any security breach that results in the theft, transfer or unauthorized disclosure of customer, employee or company information, or the failure to comply with various laws applicable to the Company in the event of such a breach.
In addition to any risks and uncertainties specifically identified in the text surrounding such forward-looking statements, the statements in the immediately preceding sentence and the statements under captions such as “Risk Factors” and “Special Considerations” in reports, statements and information filed by the Company with the SEC from time to time constitute cautionary statements identifying important factors that could cause actual amounts, results, events and circumstances to differ materially from those expressed in or implied by such forward-looking statements.





Item 1.
Business.
General
The Company is a corporation organized under the laws of the State of Delaware in 1985. The Company and its predecessors have been operating department stores since 1830. As of February 1, 2014, the operations of the Company included approximately 840 stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names “Macy’s” and “Bloomingdale’s” as well as macys.com and bloomingdales.com. The Company operates thirteen Bloomingdale’s Outlet stores. Bloomingdale's in Dubai, United Arab Emirates is operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
The Company’s sells a wide range of merchandise, including apparel and accessories (men’s, women’s and children’s), cosmetics, home furnishings and other consumer goods. The specific assortments vary by size of store, merchandising character and character of customers in the trade areas. Most stores are located at urban or suburban sites, principally in densely populated areas across the United States.
For 2013, 2012 and 2011, the following merchandise constituted the following percentages of sales:
 
 
2013
 
2012
 
2011
Feminine Accessories, Intimate Apparel, Shoes and Cosmetics
38
%
 
38
%
 
37
%
Feminine Apparel
23

 
23

 
25

Men’s and Children’s
23

 
23

 
23

Home/Miscellaneous
16

 
16

 
15

 
100
%
 
100
%
 
100
%

In 2013, the Company’s subsidiaries provided various support functions to the Company’s retail operations on an integrated, company-wide basis.
The Company’s bank subsidiary, FDS Bank provides credit processing, certain collections, customer service and credit marketing services in respect of all proprietary and non-proprietary credit card accounts that are owned either by Department Stores National Bank (“DSNB”), a subsidiary of Citibank, N.A., or FDS Bank and that constitute a part of the credit programs of the Company’s retail operations.
Macy’s Systems and Technology, Inc. (“MST”), a wholly-owned indirect subsidiary of the Company, provides operational electronic data processing and management information services to all of the Company’s operations.
Macy’s Merchandising Group, Inc. (“MMG”), a wholly-owned direct subsidiary of the Company, and its subsidiary Macy's Merchandising Group International, LLC., is responsible for the design, development and marketing of Macy’s private label brands and certain licensed brands. Bloomingdale’s uses MMG for only a very small portion of its private label merchandise. The Company believes that its private label merchandise further differentiates its merchandise assortments from those of its competitors and delivers exceptional value to its customers. MMG also offers its services, either directly or indirectly, to unrelated third parties.
The principal private label brands currently offered by the Company include Alfani, American Rag, Aqua, Bar III, Charter Club, Club Room, Epic Threads, first impressions, Giani Bernini, greendog, Greg Norman for Tasso Elba, Home Design, Hotel Collection, Hudson Park, Ideology, I-N-C, jenni by jennifer moore, JM Collection, John Ashford, Karen Scott, Maison Jules, Martha Stewart Collection, Material Girl, Morgan Taylor, so jenni by jennifer moore, Studio Silver, Style & Co., Style & Co. Sport, Sutton Studio, Tasso Elba, the cellar, Tools of the Trade, and Via Europa.
The trademarks associated with all of the foregoing brands, other than American Rag, Greg Norman for Tasso Elba, Martha Stewart Collection, and Material Girl are owned by the Company. The American Rag, Greg Norman, Martha Stewart Collection, and Material Girl brands are owned by third parties, which license the trademarks associated with such brands to Macy’s pursuant to agreements which have renewal rights that extend through 2050, 2020, 2027, and 2030, respectively.
Macy’s Logistics and Operations (“Macy’s Logistics”), a division of a wholly-owned indirect subsidiary of the Company, provides warehousing and merchandise distribution services for the Company’s operations.

2


The Company’s executive offices are located at 7 West 7th Street, Cincinnati, Ohio 45202, telephone number: (513) 579-7000 and 151 West 34th Street, New York, New York 10001, telephone number: (212) 494-1602.
Employees
As of February 1, 2014, the Company had approximately 172,500 regular full-time and part-time employees. Because of the seasonal nature of the retail business, the number of employees peaks in the holiday season. Approximately 10% of the Company’s employees as of February 1, 2014 were represented by unions. Management considers its relations with its employees to be satisfactory.
Seasonality
The retail business is seasonal in nature with a high proportion of sales and operating income generated in the months of November and December. Working capital requirements fluctuate during the year, increasing in mid-summer in anticipation of the fall merchandising season and increasing substantially prior to the holiday season when the Company must carry significantly higher inventory levels.
Purchasing
The Company purchases merchandise from many suppliers, no one of which accounted for more than 5% of the Company’s net purchases during 2013. The Company has no material long-term purchase commitments with any of its suppliers, and believes that it is not dependent on any one supplier. The Company considers its relations with its suppliers to be satisfactory.
Competition
The retailing industry is intensely competitive. The Company’s operations compete with many retailing formats, including department stores, specialty stores, general merchandise stores, off-price and discount stores, manufacturers’ outlets, online retailers, mail order catalogs and television shopping, among others. The retailers with which the Company competes include Amazon, Bed Bath & Beyond, Belk, Bon Ton, Burlington Coat Factory, Dillard’s, Gap, J.C. Penney, Kohl’s, L Brands, Lord & Taylor, Neiman Marcus, Nordstrom, Ross Stores, Saks, Sears, Target, TJ Maxx and Wal-Mart. The Company seeks to attract customers by offering superior selections, obvious value, and distinctive marketing in stores that are located in premier locations, and by providing an exciting shopping environment and superior service through an omnichannel experience. Other retailers may compete for customers on some or all of these bases, or on other bases, and may be perceived by some potential customers as being better aligned with their particular preferences.
Available Information
The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of charge through its internet website at http://www.macysinc.com as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. The public also may read and copy any of these filings at the SEC’s Public Reference Room, 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-732-0330. The SEC also maintains an Internet site that contains the Company’s filings; the address of that site is http://www.sec.gov. In addition, the Company has made the following available free of charge through its website at http://www.macysinc.com:
Audit Committee Charter,
Compensation and Management Development Committee Charter,
Finance Committee Charter,
Nominating and Corporate Governance Committee Charter,
Corporate Governance Principles,
Non-Employee Director Code of Business Conduct and Ethics, and
Code of Conduct.
Any of these items are also available in print to any shareholder who requests them. Requests should be sent to the Corporate Secretary of Macy’s, Inc. at 7 West 7th Street, Cincinnati, OH 45202.

3


Executive Officers of the Registrant
The following table sets forth certain information as of March 21, 2014 regarding the executive officers of the Company:
 
Name
 
Age
 
Position with the Company
Terry J. Lundgren
 
61

 
Chairman of the Board; President and Chief Executive Officer; Director
Timothy M. Adams
 
60

 
Chief Private Brand Officer
William S. Allen
 
56

 
Chief Human Resources Officer
Jeffrey Gennette
 
52

 
Chief Merchandising Officer
Julie Greiner
 
60

 
Chief Merchandise Planning Officer
Robert B. Harrison
 
50

 
Chief Omnichannel Officer
Karen M. Hoguet
 
57

 
Chief Financial Officer
Jeffrey Kantor
 
55

 
Chairman of macys.com
Martine Reardon
 
51

 
Chief Marketing Officer
Peter Sachse
 
56

 
Chief Stores Officer
Joel A. Belsky
 
60

 
Executive Vice President and Controller
Dennis J. Broderick
 
65

 
Executive Vice President, General Counsel and Secretary

Terry J. Lundgren has been Chairman of the Board since January 2004 and President and Chief Executive Officer of the Company since February 2003. On March 31, 2014, the Company announced that Jeffrey Gennette had been elected by the Board of Directors as the Company's President, effective immediately, whereupon Mr. Lundgren ceased to serve as the Company's President. Mr. Lundgren continues to hold the titles of Chairman and Chief Executive Officer. 
Timothy M. Adams has been the Chief Private Brand Officer of the Company since February 2009.
William S. Allen has been Chief Human Resources Officer of the Company since January 2013; prior thereto he was the Senior Vice President - Group Human Resources of AP Moller-Maersk A/S from January 2008 to December 2012.
Jeffrey Gennette has been Chief Merchandising Officer of the Company since February 2009. On March 31, 2014, the Company announced that Jeffrey Gennette had been elected by the Board of Directors as the Company's President, effective immediately.
Julie Greiner has been Chief Merchandise Planning Officer of the Company since February 2009.
Robert B. Harrison has been Chief Omnichannel Officer since January 2013; prior thereto he served as Executive Vice President - Omnichannel Strategy from July 2012 to January 2013; as Executive Vice President - Finance from 2011 to July 2012, as President - Stores from 2009 to 2011.
Karen M. Hoguet has been Chief Financial Officer of the Company since October 1997.
Jeffrey Kantor has been Chairman of macys.com since February 2012; prior thereto he served as President for Merchandising of macys.com from August 2010 to February 2012, as President - Merchandising for Home from May 2009 to August 2010 and as President for furniture for Macy's Home Store from February 2006 to May 2009.
Martine Reardon has been Chief Marketing Officer since February 2012; prior thereto she served as Executive Vice President for Marketing from February 2009 to February 2012.
Peter Sachse has been Chief Stores Officer since February 2012; prior thereto he served as Chief Marketing Officer of the Company from February 2009 to February 2012, and as Chairman of macys.com from April 2006 to February 2012.
Joel A. Belsky has been Executive Vice President and Controller of the Company since May 2009; prior thereto he served as Senior Vice President and Controller of the Company from October 1996 through April 2009.

4


Dennis J. Broderick has been Secretary of the Company since July 1993 and Executive Vice President and General Counsel of the Company since May 2009; prior thereto he served as Senior Vice President and General Counsel of the Company from January 1990 to April 2009.
 
Item 1A.
Risk Factors.
In evaluating the Company, the risks described below and the matters described in “Forward-Looking Statements” should be considered carefully. Such risks and matters are numerous and diverse, may be experienced continuously or intermittently, and may vary in intensity and effect. Any of such risks and matters, individually or in combination, could have a material adverse effect on the Company's business, prospects, financial condition, results of operations and cash flows, as well as on the attractiveness and value of an investment in the Company's securities.
The Company faces significant competition in the retail industry.
The Company conducts its retail merchandising business under highly competitive conditions. Although the Company is one of the nation’s largest retailers, it has numerous and varied competitors at the national and local levels, including conventional and specialty department stores, other specialty stores, category killers, mass merchants, value retailers, discounters, and Internet and mail-order retailers. Competition may intensify as the Company’s competitors enter into business combinations or alliances. Competition is characterized by many factors, including assortment, advertising, price, quality, service, location, reputation and credit availability. Any failure by the Company to compete effectively could negatively affect the Company's business and results of operations.
The Company’s sales and operating results depend on consumer preferences and consumer spending.
The fashion and retail industries are subject to sudden shifts in consumer trends and consumer spending. The Company’s sales and operating results depend in part on its ability to predict or respond to changes in fashion trends and consumer preferences in a timely manner. The Company develops new retail concepts and continuously adjusts its industry position in certain major and private-label brands and product categories in an effort to satisfy customers. Any sustained failure to anticipate, identify and respond to emerging trends in lifestyle and consumer preferences could negatively affect the Company’s business and results of operations. The Company’s sales are significantly affected by discretionary spending by consumers. Consumer spending may be affected by many factors outside of the Company’s control, including general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt and consumer behaviors towards incurring and paying debt, the costs of basic necessities and other goods and the effects of the weather or natural disasters. Any decline in discretionary spending by consumers could negatively affect the Company's business and results of operations.
The Company’s business is subject to unfavorable economic and political conditions and other developments and risks.
Unfavorable global, domestic or regional economic or political conditions and other developments and risks could negatively affect the Company’s business and results of operations. For example, unfavorable changes related to interest rates, rates of economic growth, fiscal and monetary policies of governments, inflation, deflation, consumer credit availability, consumer debt levels, consumer debt payment behaviors, tax rates and policy, unemployment trends, energy prices, and other matters that influence the availability and cost of merchandise, consumer confidence, spending and tourism could negatively affect the Company’s business and results of operations. In addition, unstable political conditions, civil unrest, terrorist activities and armed conflicts may disrupt commerce and could negatively affect the Company’s business and results of operations.
The Company’s revenues and cash requirements are affected by the seasonal nature of its business.
The Company’s business is seasonal, with a high proportion of revenues and operating cash flows generated during the second half of the fiscal year, which includes the fall and holiday selling seasons. A disproportionate amount of the Company's revenues fall in the fourth fiscal quarter, which coincides with the holiday season. In addition, the Company incurs significant additional expenses in the period leading up to the months of November and December in anticipation of higher sales volume in those periods, including for additional inventory, advertising and employees.

5


The Company’s business could be affected by extreme weather conditions, regional or global health pandemics or natural disasters.
Extreme weather conditions in the areas in which the Company’s stores are located could negatively affect the Company’s business and results of operations. For example, frequent or unusually heavy snowfall, ice storms, rainstorms or other extreme weather conditions over a prolonged period could make it difficult for the Company’s customers to travel to its stores and thereby reduce the Company’s sales and profitability. The Company’s business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could reduce demand for a portion of the Company’s inventory and thereby reduce the Company's sales and profitability. In addition, extreme weather conditions could result in disruption or delay of production and delivery of materials and products in the Company's supply chain and cause staffing shortages in the Company's stores.
The Company's business and results of operations could also be negatively affected if a regional or global health pandemic were to occur, depending upon its location, duration and severity. To halt or delay the spread of disease, local, regional or national governments might limit or ban public gatherings or customers might avoid public places, such as the Company's stores. A regional or global health pandemic might also result in disruption or delay of production and delivery of materials and products in the Company's supply chain and cause staffing shortages in the Company's stores.
In addition, natural disasters such as hurricanes, tornadoes and earthquakes, or a combination of these or other factors, could damage or destroy the Company’s facilities or make it difficult for customers to travel to its stores, thereby negatively affecting the Company’s business and results of operations.
The Company’s pension funding could increase at a higher than anticipated rate.
Significant changes in interest rates, decreases in the fair value of plan assets and investment losses on plan assets could affect the funded status of the Company’s plans and could increase future funding requirements of the pension plans. A significant increase in future funding requirements could have a negative impact on the Company’s cash flows, financial condition or results of operations.
Increases in the cost of employee benefits could impact the Company’s financial results and cash flow.
The Company’s expenses relating to employee health benefits are significant. Unfavorable changes in the cost of such benefits could negatively affect the Company’s financial results and cash flow. Healthcare costs have risen significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform could result in significant changes to the U.S. healthcare system. Due to the breadth and complexity of the healthcare reform legislation, the lack of implementing regulations and interpretive guidance and the phased-in nature of the implementation of the legislation, the Company is not able at this time to fully determine the impact that healthcare reform will have on the Company-sponsored medical plans.
Inability to access capital markets could adversely affect the Company’s business or financial condition.
Changes in the credit and capital markets, including market disruptions, limited liquidity and interest rate fluctuations, may increase the cost of financing or restrict the Company’s access to this potential source of future liquidity. A decrease in the ratings that rating agencies assign to the Company’s short and long-term debt may negatively impact the Company’s access to the debt capital markets and increase the Company’s cost of borrowing. In addition, the Company’s bank credit agreements require the Company to maintain specified interest coverage and leverage ratios. The Company’s ability to comply with the ratios may be affected by events beyond its control, including prevailing economic, financial and industry conditions. If the Company’s results of operations or operating ratios deteriorate to a point where the Company is not in compliance with its debt covenants, and the Company is unable to obtain a waiver, much of the Company’s debt would be in default and could become due and payable immediately. The Company’s assets may not be sufficient to repay in full this indebtedness, resulting in a need for an alternate source of funding. The Company cannot make any assurances that it would be able to obtain such an alternate source of funding on satisfactory terms, if at all, and its inability to do so could cause the holders of its securities to experience a partial or total loss of their investments in the Company.

6


The Company periodically reviews the carrying value of its goodwill for possible impairment; if future circumstances indicate that goodwill is impaired, the Company could be required to write down amounts of goodwill and record impairment charges.
In the fourth quarter of fiscal 2008, the Company reduced the carrying value of its goodwill from $9,125 million to $3,743 million and recorded a related non-cash impairment charge of $5,382 million. The Company continues to monitor relevant circumstances, including consumer spending levels, general economic conditions and the market prices for the Company’s common stock, and the potential impact that such circumstances might have on the valuation of the Company’s goodwill. It is possible that changes in such circumstances, or in the numerous variables associated with the judgments, assumptions and estimates made by the Company in assessing the appropriate valuation of its goodwill, could in the future require the Company to further reduce its goodwill and record related non-cash impairment charges. If the Company were required to further reduce its goodwill and record related non-cash impairment charges, the Company’s financial position and results of operations would be adversely affected.
The Company depends on its ability to attract and retain quality employees.
The Company’s business is dependent upon attracting and retaining quality employees. The Company has a large number of employees, many of whom are in entry level or part-time positions with historically high rates of turnover. The Company’s ability to meet its labor needs while controlling the costs associated with hiring and training new employees is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing demographics. In addition, as a large and complex enterprise operating in a highly competitive and challenging business environment, the Company is highly dependent upon management personnel to develop and effectively execute successful business strategies and tactics. Any circumstances that adversely impact the Company’s ability to attract, train, develop and retain quality employees throughout the organization could negatively affect the Company’s business and results of operations.
The Company depends upon designers, vendors and other sources of merchandise, goods and services. The Company's business could be affected by disruptions in, or other legal, regulatory, political or economic issues associated with, our supply network.
The Company’s relationships with established and emerging designers have been a significant contributor to the Company’s past success. The Company’s ability to find qualified vendors and access products in a timely and efficient manner is often challenging, particularly with respect to goods sourced outside the United States. The Company’s procurement of goods and services from outside the United States is subject to risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade, including costs and uncertainties associated with efforts to identify and disclose sources of "conflict minerals" used in products that the Company causes to be manufactured and potential sell-through difficulties and reputational damage that may be associated with the inability of the Company to determine that such products are "DRC conflict-free." In addition, the Company’s procurement of all its goods and services is subject to the effects of price increases which the Company may or may not be able to pass through to its customers. All of these factors may affect the Company’s ability to access suitable merchandise on acceptable terms, are beyond the Company’s control and could negatively affect the Company’s business and results of operations.
The Company's sales and operating results could be adversely affected by product safety concerns.
If the Company's merchandise offerings do not meet applicable safety standards or our consumers' expectations regarding safety, the Company could experience decreased sales, experience increased costs and/or be exposed to legal and reputational risk. Events that give rise to actual, potential or perceived product safety concerns could expose the Company to government enforcement action and/or private litigation. Reputational damage caused by real or perceived product safety concerns could negatively affect the Company's business and results of operations.
The Company depends upon the success of its advertising and marketing programs.
The Company’s advertising and promotional costs, net of cooperative advertising allowances, amounted to $1,166 million for 2013. The Company’s business depends on effective marketing and high customer traffic. The Company has many initiatives in this area, and often changes its advertising and marketing programs. There can be no assurance as to the Company’s continued ability to effectively execute its advertising and marketing programs, and any failure to do so could negatively affect the Company’s business and results of operations.

7


Parties with whom the Company does business may be subject to insolvency risks or may otherwise become unable or unwilling to perform their obligations to the Company.
The Company is a party to contracts, transactions and business relationships with various third parties, including vendors, suppliers, service providers, lenders and participants in joint ventures, strategic alliances and other joint commercial relationships, pursuant to which such third parties have performance, payment and other obligations to the Company. In some cases, the Company depends upon such third parties to provide essential leaseholds, products, services or other benefits, including with respect to store and distribution center locations, merchandise, advertising, software development and support, logistics, other agreements for goods and services in order to operate the Company’s business in the ordinary course, extensions of credit, credit card accounts and related receivables, and other vital matters. Current economic, industry and market conditions could result in increased risks to the Company associated with the potential financial distress or insolvency of such third parties. If any of these third parties were to become subject to bankruptcy, receivership or similar proceedings, the rights and benefits of the Company in relation to its contracts, transactions and business relationships with such third parties could be terminated, modified in a manner adverse to the Company, or otherwise impaired. The Company cannot make any assurances that it would be able to arrange for alternate or replacement contracts, transactions or business relationships on terms as favorable as the Company’s existing contracts, transactions or business relationships, if at all. Any inability on the part of the Company to do so could negatively affect the Company’s cash flows, financial condition and results of operations.
A material disruption in the Company’s computer systems could adversely affect the Company’s business or results of operations.
The Company relies extensively on its computer systems to process transactions, summarize results and manage its business. The Company’s computer systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by the Company’s employees. If the Company’s computer systems are damaged or cease to function properly, the Company may have to make a significant investment to fix or replace them, and the Company may suffer loss of critical data and interruptions or delays in its operations. Any material interruption in the Company’s computer systems could negatively affect its business and results of operations.
A privacy breach could result in negative publicity and adversely affect the Company’s business or results of operations.
The protection of customer, employee, and company data is critical to the Company. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements across business units. In addition, customers have a high expectation that the Company will adequately protect their personal information from cyber-attack or other security breaches. A significant breach of customer, employee, or company data could attract a substantial amount of media attention, damage the Company’s customer relationships and reputation and result in lost sales, fines, or lawsuits.
Litigation, legislation or regulatory developments could adversely affect the Company’s business and results of operations.
The Company is subject to various federal, state and local laws, rules, regulations, inquiries and initiatives in connection with both its core business operations and its credit card and other ancillary operations (including the Credit Card Act of 2009 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”)). Recent and future developments relating to such matters could increase the Company's compliance costs and adversely affect the profitability of its credit card and other operations. The Company is also subject to anti-bribery, customs, child labor, truth-in-advertising and other laws, including consumer protection regulations and zoning and occupancy ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the operation of retail stores and warehouse facilities. Although the Company undertakes to monitor changes in these laws, if these laws change without the Company's knowledge, or are violated by importers, designers, manufacturers, distributors or agents, the Company could experience delays in shipments and receipt of goods or be subject to fines or other penalties under the controlling regulations, any of which could negatively affect the Company's business and results of operations. In addition, the Company is regularly involved in various litigation matters that arise in the ordinary course of its business. Adverse outcomes in current or future litigation could negatively affect the Company’s financial condition, results of operations and cash flows.

8


Factors beyond the Company’s control could affect the Company’s stock price.
The Company’s stock price, like that of other retail companies, is subject to significant volatility because of many factors, including factors beyond the control of the Company. These factors may include:
general economic and stock and credit market conditions;
risks relating to the Company’s business and its industry, including those discussed above;
strategic actions by the Company or its competitors;
variations in the Company’s quarterly results of operations;
future sales or purchases of the Company’s common stock; and
investor perceptions of the investment opportunity associated with the Company’s common stock relative to other investment alternatives.
In addition, the Company may fail to meet the expectations of its stockholders or of analysts at some time in the future. If the analysts that regularly follow the Company’s stock lower their rating or lower their projections for future growth and financial performance, the Company’s stock price could decline. Also, sales of a substantial number of shares of the Company’s common stock in the public market or the appearance that these shares are available for sale could adversely affect the market price of the Company’s common stock.

Item 1B.
Unresolved Staff Comments.
None.
 
Item 2.
Properties.
The properties of the Company consist primarily of stores and related facilities, including a logistics network. The Company also owns or leases other properties, including corporate office space in Cincinnati and New York and other facilities at which centralized operational support functions are conducted. As of February 1, 2014, the operations of the Company included 840 stores in 45 states, the District of Columbia, Puerto Rico and Guam, comprising a total of approximately 150,100,000 square feet. Of such stores, 460 were owned, 269 were leased and 111 stores were operated under arrangements where the Company owned the building and leased the land. Substantially all owned properties are held free and clear of mortgages. Pursuant to various shopping center agreements, the Company is obligated to operate certain stores for periods of up to 20 years. Some of these agreements require that the stores be operated under a particular name. Most leases require the Company to pay real estate taxes, maintenance and other costs; some also require additional payments based on percentages of sales and some contain purchase options. Certain of the Company’s real estate leases have terms that extend for a significant number of years and provide for rental rates that increase or decrease over time.
Additional information about the Company’s stores as of February 1, 2014 is as follows:
 
Geographic Region
 
Total
Stores
 
Owned
Stores
 
Leased
Stores
 
Stores
Subject to
a Ground
Lease
Mid-Atlantic
 
128

 
68

 
40

 
20

Northeast
 
119

 
62

 
48

 
9

North Central
 
119

 
82

 
26

 
11

Northwest
 
126

 
39

 
69

 
18

Southeast
 
119

 
78

 
20

 
21

South Central
 
101

 
77

 
16

 
8

Southwest
 
128

 
54

 
50

 
24

 
 
840

 
460

 
269

 
111


The seven geographic regions detailed in the foregoing table are based on the Company’s Macy’s-branded operational structure. The Company’s retail stores are located at urban or suburban sites, principally in densely populated areas across the United States.

9


Store count activity was as follows:
 
2013
 
2012
 
2011
Store count at beginning of fiscal year
841

 
842

 
850

Stores opened and other expansions
6

 
7

 
4

Stores closed
(7
)
 
(8
)
 
(12
)
Store count at end of fiscal year
840

 
841

 
842


Additional information about the Company’s logistics network as of February 1, 2014 is as follows:
Location
 
Primary Function
 
Owned or Leased
 
Square Footage (thousands)
Cheshire, CT
 
Direct to customer
 
Owned
 
565

Chicago, IL
 
Stores
 
Owned
 
861

Denver, CO
 
Stores
 
Leased
 
20

Goodyear, AZ
 
Direct to customer
 
Owned
 
600

Hayward, CA
 
Stores
 
Owned
 
386

Houston, TX
 
Stores
 
Owned
 
1,124

Joppa, MD
 
Stores
 
Owned
 
850

Kapolei, HI
 
Stores
 
Owned
 
260

Los Angeles, CA
 
Stores
 
Owned
 
1,178

Martinsburg, WV
 
Direct to customer
 
Owned
 
1,300

Miami, FL
 
Stores
 
Leased
 
535

Portland, TN
 
Direct to customer
 
Owned
 
950

Raritan, NJ
 
Stores
 
Owned
 
560

Sacramento, CA
 
Direct to customer
 
Leased
 
96

Secaucus, NJ
 
Stores
 
Leased
 
675

South Windsor, CT
 
Stores
 
Owned
 
668

St. Louis, MO
 
Stores
 
Owned
 
661

Stone Mountain, GA
 
Stores
 
Owned
 
1,000

Tampa, FL
 
Stores
 
Owned
 
670

Tukwila, WA
 
Stores
 
Leased
 
500

Youngstown, OH
 
Stores
 
Owned
 
851



Item 3.
Legal Proceedings.
The Company and its subsidiaries are involved in various proceedings that are incidental to the normal course of their businesses. As of the date of this report, the Company does not expect that any of such proceedings will have a material adverse effect on the Company’s financial position or results of operations.
 
Item 4.
Mine Safety Disclosures.

Not Applicable.

10


PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Common Stock is listed on the NYSE under the trading symbol “M.” As of February 1, 2014, the Company had approximately 19,000 stockholders of record. The following table sets forth for each fiscal quarter during 2013 and 2012 the high and low sales prices per share of Common Stock as reported on the NYSE Composite Tape and the dividend declared with respect to each fiscal quarter on each share of Common Stock.
 
 
2013
 
2012
 
Low
 
High
 
Dividend
 
Low
 
High
 
Dividend
1st Quarter
38.52

 
46.45

 
0.2000

 
33.18

 
41.50

 
0.2000

2nd Quarter
45.72

 
50.77

 
0.2500

 
32.31

 
42.17

 
0.2000

3rd Quarter
42.18

 
49.72

 
0.2500

 
34.89

 
41.24

 
0.2000

4th Quarter
45.59

 
56.65

 
0.2500

 
36.30

 
41.98

 
0.2000


The declaration and payment of future dividends will be at the discretion of the Company’s Board of Directors, are subject to restrictions under the Company’s credit facility and may be affected by various other factors, including the Company’s earnings, financial condition and legal or contractual restrictions.
The following table provides information regarding the Company’s purchases of Common Stock during the fourth quarter of 2013.
 
 
Total
Number
of Shares
Purchased
 
Average
Price per
Share ($)
 
Number of Shares
Purchased under
Program (1)
 
Open
Authorization
Remaining (1)($)
 
(thousands)
 
 
 
(thousands)
 
(millions)
November 3, 2013 – November 30, 2013
1,252

 
51.19

 
1,252

 
1,684

December 1, 2013 – January 4, 2014
3,272

 
52.37

 
3,272

 
1,513

January 5, 2014 – February 1, 2014
1,476

 
54.57

 
1,476

 
1,432

 
6,000

 
52.67

 
6,000

 
 
 ___________________
(1)
Commencing in January 2000, the Company’s Board of Directors has from time to time approved authorizations to purchase, in the aggregate, up to $13,500 million of Common Stock. All authorizations are cumulative and do not have an expiration date. As of February 1, 2014, $1,432 million of authorization remained unused. The Company may continue, discontinue or resume purchases of Common Stock under these or possible future authorizations in the open market, in privately negotiated transactions or otherwise at any time and from time to time without prior notice.

11


The following graph compares the cumulative total stockholder return on the Common Stock with the Standard & Poor’s 500 Composite Index and the Standard & Poor’s Retail Department Store Index for the period from January 31, 2009 through February 1, 2014, assuming an initial investment of $100 and the reinvestment of all dividends, if any.

The companies included in the S&P Retail Department Store Index are Macy’s, J.C. Penney, Kohl’s and Nordstrom.


12


Item 6.
Selected Financial Data.
The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements and the notes thereto and the other information contained elsewhere in this report.
 
 
2013
 
2012*
 
2011
 
2010
 
2009
 
(millions, except per share)
Consolidated Statement of Income Data:
 
 
 
 
 
 
 
 
 
Net sales
$
27,931

 
$
27,686

 
$
26,405

 
$
25,003

 
$
23,489

Cost of sales
(16,725
)
 
(16,538
)
 
(15,738
)
 
(14,824
)
 
(13,973
)
Gross margin
11,206

 
11,148

 
10,667

 
10,179

 
9,516

Selling, general and administrative expenses
(8,440
)
 
(8,482
)
 
(8,281
)
 
(8,260
)
 
(8,062
)
Impairments, store closing and other costs, gain on
sale of leases and division consolidation costs
(88
)
 
(5
)
 
25

 
(25
)
 
(391
)
Operating income
2,678

 
2,661

 
2,411

 
1,894

 
1,063

Interest expense
(390
)
 
(425
)
 
(447
)
 
(513
)
 
(562
)
Premium on early retirement of debt

 
(137
)
 

 
(66
)
 

Interest income
2

 
3

 
4

 
5

 
6

Income before income taxes
2,290

 
2,102

 
1,968

 
1,320

 
507

Federal, state and local income tax expense
(804
)
 
(767
)
 
(712
)
 
(473
)
 
(178
)
Net income
$
1,486

 
$
1,335

 
$
1,256

 
$
847

 
$
329

 
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
3.93

 
$
3.29

 
$
2.96

 
$
2.00

 
$
0.78

Diluted earnings per share
$
3.86

 
$
3.24

 
$
2.92

 
$
1.98

 
$
0.78

Average number of shares outstanding
378.3

 
405.5

 
424.5

 
423.3

 
421.7

Cash dividends paid per share
$
.9500

 
$
.8000

 
$
.3500

 
$
.2000

 
$
.2000

Depreciation and amortization
$
1,020

 
$
1,049

 
$
1,085

 
$
1,150

 
$
1,210

Capital expenditures
$
863

 
$
942

 
$
764

 
$
505

 
$
460

Balance Sheet Data (at year end):
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,273

 
$
1,836

 
$
2,827

 
$
1,464

 
$
1,686

Total assets
21,634

 
20,991

 
22,095

 
20,631

 
21,300

Short-term debt
463

 
124

 
1,103

 
454

 
242

Long-term debt
6,728

 
6,806

 
6,655

 
6,971

 
8,456

Shareholders’ equity
6,249

 
6,051

 
5,933

 
5,530

 
4,653

 ___________________
*
53 weeks






13


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The discussion in this Item 7 should be read in conjunction with our Consolidated Financial Statements and the related notes included elsewhere in this report. The discussion in this Item 7 contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report, particularly in “Risk Factors” and “Forward-Looking Statements.”
Overview
The Company is an omnichannel retail organization operating stores and websites under two brands (Macy's and Bloomingdale's) that sell a wide range of merchandise, including apparel and accessories (men's, women's and children's), cosmetics, home furnishings and other consumer goods in 45 states, the District of Columbia, Guam and Puerto Rico. As of February 1, 2014, the Company's operations were conducted through Macy's, macys.com, Bloomingdale's, bloomingdales.com and Bloomingdale's Outlet which are aggregated into one reporting segment in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting.”
The Company is focused on three key strategies for continued growth in sales, earnings and cash flow in the years ahead: (i) maximizing the My Macy's localization initiative; (ii) driving the omnichannel business; and (iii) embracing customer centricity, including engaging customers on the selling floor through the Magic Selling program.
Through the My Macy's localization initiative, the Company has invested in talent, technology and marketing which ensures that core customers surrounding each Macy's store find merchandise assortments, size ranges, marketing programs and shopping experiences that are custom-tailored to their needs. My Macy's has provided for more local decision-making in every Macy's community, and involves tailoring merchandise assortments, space allocations, service levels, visual merchandising, marketing and special events on a store-by-store basis.
The Company's omnichannel strategy allows customers to shop seamlessly in stores and online, via computers or mobile devices. A pivotal part of the omnichannel strategy is the Company's ability to allow associates in any store to sell a product that may be unavailable locally by selecting merchandise from other stores or online fulfillment centers for shipment to the customer's door. Likewise, the Company's online fulfillment centers can draw on store inventories nationwide to fill orders that originate online, via computers or mobile devices. As of February 1, 2014, 500 Macy's stores were fulfilling orders from other stores and/or online, as compared to 292 Macy's stores as of February 2, 2013. During fiscal 2014, nearly all Macy's stores are expected to be fulfilling orders from other stores and/or online. Also in 2014, nearly all stores are expected to be fulfilling orders for pick-up related to online purchases.
Macy's Magic Selling program is an approach to customer engagement that helps Macy's to better understand the needs of customers, as well as to provide options and advice. This comprehensive ongoing training and coaching program is designed to improve the in-store shopping experience and all other customer interactions.
In fiscal 2010, the Company piloted a new Bloomingdale's Outlet store concept. Bloomingdale's Outlet stores are each approximately 25,000 square feet and offer a range of apparel and accessories, including women's ready-to-wear, men's, children's, women's shoes, fashion accessories, jewelry, handbags and intimate apparel.
Additionally, in February 2010, Bloomingdale's opened in Dubai, United Arab Emirates under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC, under which the Company is entitled to a license fee in accordance with the terms of the underlying agreement, generally based upon the greater of the contractually earned or guaranteed minimum amounts.
During 2012, the Company opened two new Macy's stores in Salt Lake City, UT; and Greendale, WI; and five new Bloomingdale's Outlet stores in Livermore, CA; Merrimack, NH; Garden City, NY; Grand Prairie, TX; and Dallas, TX. Also during 2012 the Company opened its new 1.3 million square foot fulfillment center in Martinsburg, WV. During 2013, the Company opened three new Macy's stores in Victorville, CA; Gurnee, IL; and Las Vegas, NV; a Macy's replacement store in Bay Shore, NY; a new Bloomingdale's store in Glendale, CA; and a new Bloomingdale's Outlet store in Rosemont, IL. The Company has announced that in 2014 it intends to open three new Macy's stores and one Bloomingdale's replacement store. Additionally, the Company has announced that in 2015 it intends to open one new Macy's store and one new Bloomingdale's store, and in 2016 it intends to open one new Macy's store and one new Bloomingdale's store.

14


The Company's operations are impacted by competitive pressures from department stores, specialty stores, mass merchandisers, online retailers and all other retail channels. The Company's operations are also impacted by general consumer spending levels, including the impact of general economic conditions, consumer disposable income levels, consumer confidence levels, the availability, cost and level of consumer debt, the costs of basic necessities and other goods and the effects of weather or natural disasters and other factors over which the Company has little or no control.
In recent years, consumer spending levels have been affected to varying degrees by a number of factors, including modest economic growth, a slowly improving housing market, a rising stock market, uncertainty regarding governmental spending and tax policies, high unemployment levels and tightened consumer credit. These factors have affected to varying degrees the amount of funds that consumers are willing and able to spend for discretionary purchases, including purchases of some of the merchandise offered by the Company.
The effects of economic conditions have been, and may continue to be, experienced differently, or at different times, in the various geographic regions in which the Company operates, in relation to the different types of merchandise that the Company offers for sale, or in relation to the Company's Macy's-branded and Bloomingdale's-branded operations. All economic conditions, however, ultimately affect the Company's overall operations.
2013 Highlights
The Company had its fifth consecutive year of improved financial performance in 2013 despite the continued challenging macroeconomic environment. These improvements have been driven by successful implementation of the Company's key strategies.
Selected highlights of 2013 include:
Comparable sales increased 1.9%, which represents the fourth consecutive year of comparable sales growth. Comparable sales growth including the impact of growth in comparable sales of departments licensed to third parties increased 2.8%. See pages 16 to 19 for a reconciliation of this non-GAAP financial measure to the most comparable GAAP financial measure and other important information.
Operating income for fiscal 2013 was $2.766 billion or 9.9% of sales, excluding impairments, store closing and other costs, an increase of 3.8% and 30 basis points as a percent of sales over 2012 on a comparable basis. See pages 16 to 19 for a reconciliation of this non-GAAP financial measure to the most comparable GAAP financial measure and other important information.
Diluted earnings per share, excluding certain items, grew 15.6% to $4.00 in 2013. See pages 16 to 19 for a reconciliation of this non-GAAP financial measure to the most comparable GAAP financial measure and other important information.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, impairments, store closing and other costs) as a percent to net sales reached 13.6% in 2013, reflecting steady improvement toward the Company's goal of a 14% Adjusted EBITDA rate. See pages 16 to 19 for a reconciliation of this non-GAAP financial measure to the most comparable GAAP financial measure and other important information.
Return on invested capital ("ROIC"), a key measure of operating productivity, reached 21.5%, continuing an improvement trend over the past five years. See pages 16 to 19 for a reconciliation of this non-GAAP financial measure to the most comparable GAAP financial measure and other important information.
The Company repurchased 33.6 million shares of its common stock for $1,570 million in 2013, and increased its annualized dividend rate to $1.00 per share.


15


Important Information Regarding Non-GAAP Financial Measures
The Company reports its financial results in accordance with generally accepted accounting principles ("GAAP"). However, management believes that certain non-GAAP financial measures provide users of the Company's financial information with additional useful information in evaluating operating performance. Management believes that providing comparable sales growth including the impact of growth in comparable sales of departments licensed to third parties supplementally to its results of operations calculated in accordance with GAAP assists in evaluating the Company's ability to generate sales growth, whether through owned businesses or departments licensed to third parties, on a comparable basis, and in evaluating the impact of changes in the manner in which certain departments are operated (e.g., the conversion in 2013 of most of the Company's previously owned athletic footwear business to licensed Finish Line shops). Management believes that excluding certain items that may vary substantially in frequency and magnitude from diluted earnings per share and from operating income and EBITDA as percentages to sales are useful supplemental measures that assist in evaluating the Company's ability to generate earnings and leverage sales, respectively, and to more readily compare these metrics between past and future periods. Management also believes that EBITDA and Adjusted EBITDA are frequently used by investors and securities analysts in their evaluations of companies, and that such supplemental measures facilitate comparisons between companies that have different capital and financing structures and/or tax rates. In addition, management believes that ROIC is a useful supplemental measure in evaluating how efficiently the Company employs its capital. The Company uses some of these non-GAAP financial measures as performance measures for components of executive compensation.
Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the Company's financial position, results of operations and cash flows and should therefore be considered in assessing the Company's actual financial condition and performance. Additionally, the amounts received by the Company on account of sales licensed to third parties are limited to commissions
received on such sales. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.
Comparable Sales Growth Including the Impact of Growth in Comparable Sales of Departments Licensed to Third Parties
The following is a tabular reconciliation of the non-GAAP financial measure comparable sales growth including the impact of growth in comparable sales of departments licensed to third parties, to GAAP comparable sales, which the Company believes to be the most directly comparable GAAP financial measure.
 
 
2013
 
2012
 
2011
 
2010
Increase in comparable sales (note 1)
 
1.9%
 
3.7%
 
5.3%
 
4.6%
Impact of growth in comparable sales of departments licensed
to third parties (note 2)
 
0.9%
 
0.3%
 
0.4%
 
(0.2)%
Comparable sales growth including the impact of growth in comparable sales of departments licensed to third parties
 
2.8%
 
4.0%
 
5.7%
 
4.4%
Notes:

(1)
Represents the period-to-period percentage change in net sales from stores in operation throughout the year presented and the immediately preceding year and all net Internet sales, adjusting for the 53rd week in 2012, excluding commissions from departments licensed to third parties. Stores undergoing remodeling, expansion or relocation remain in the comparable sales calculation unless the store is closed for a significant period of time. Definitions and calculations of comparable sales differ among companies in the retail industry.

(2)
Represents the impact on comparable sales of including the sales of departments licensed to third parties occurring in stores in operation throughout the year presented and the immediately preceding year and via the Internet in the calculation. The Company licenses third parties to operate certain departments in its stores and online and receives commissions from these third parties based on a percentage of their net sales. In its financial statements prepared in conformity with GAAP, the Company includes these commissions (rather than sales of the departments licensed to third parties) in its net sales. The Company does not, however, include any amounts in respect of licensed department sales in its comparable sales in accordance with GAAP.

16


Operating Income, Excluding Certain Items, as a Percent to Net Sales
The following is a tabular reconciliation of the non-GAAP financial measure operating income, excluding certain items, as a percent to net sales to GAAP operating income as a percent to net sales, which the Company believes to be the most directly comparable GAAP financial measure.
 
 
2013
 
2012
 
2011
 
2010
 
2009
 
 
(millions, except percentages)
Net sales
 
$
27,931

 
$
27,686

 
$
26,405

 
$
25,003

 
$
23,489

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
$
2,678

 
$
2,661

 
$
2,411

 
$
1,894

 
$
1,063

 
 
 
 
 
 
 
 
 
 
 
Operating income as a percent to net sales
 
9.6
%
 
9.6
%
 
9.1
%
 
7.6
%
 
4.5
%
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
$
2,678

 
$
2,661

 
$
2,411

 
$
1,894

 
$
1,063

Add back (deduct) impairments, store closing and
other costs, gain on sale of leases and division consolidation costs
 
88

 
5

 
(25
)
 
25

 
391

Operating income, excluding certain items
 
$
2,766

 
$
2,666

 
$
2,386

 
$
1,919

 
$
1,454

Operating income, excluding certain items, as a
percent to net sales
 
9.9
%
 
9.6
%
 
9.0
%
 
7.7
%
 
6.2
%
Diluted Earnings Per Share, Excluding Certain Items
The following is a tabular reconciliation of the non-GAAP financial measure diluted earnings per share, excluding certain items, to GAAP diluted earnings per share, which the Company believes to be the most directly comparable GAAP measure.
 
 
2013
 
2012
 
2011
 
2010
 
2009
Diluted earnings per share
 
$
3.86

 
$
3.24

 
$
2.92

 
$
1.98

 
$
0.78

Add back the impact of impairments, store closing
and other costs
 
0.14

 
0.01

 
0.04

 
0.04

 
0.18

Add back the impact of premium on early
retirement of debt
 

 
0.21

 

 
0.09

 

Deduct the impact of gain on sale of leases
 

 

 
(0.08
)
 

 

Add back the impact of division consolidation costs
 

 

 

 

 
0.40

Diluted earnings per share, excluding the impact of
impairments, store closing and other costs, premium
on early retirement of debt, gain on sale of leases
and division consolidation costs
 
$
4.00

 
$
3.46

 
$
2.88

 
$
2.11

 
$
1.36



17


Adjusted EBITDA as a Percent to Net Sales
The following is a tabular reconciliation of the non-GAAP financial measure earnings before interest, taxes, depreciation and amortization ("EBITDA"), as adjusted to exclude premium on early retirement of debt, impairments, store closing and other costs, gain on sales of leases and division consolidation costs ("Adjusted EBITDA"), as a percent to net sales to GAAP net income as a percent to net sales, which the Company believes to be the most directly comparable GAAP financial measure.
 
 
2013
 
2012
 
2011
 
2010
 
2009
 
 
(millions, except percentages)
Net sales
 
$
27,931

 
$
27,686

 
$
26,405

 
$
25,003

 
$
23,489

 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
1,486

 
$
1,335

 
$
1,256

 
$
847

 
$
329

 
 
 
 
 
 
 
 
 
 
 
Net income as a percent to net sales
 
5.3
%
 
4.8
%
 
4.8
%
 
3.4
%
 
1.4
%
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
1,486

 
$
1,335

 
$
1,256

 
$
847

 
$
329

Add back interest expense - net
 
388

 
422

 
443

 
508

 
556

Add back premium on early retirement of debt
 

 
137

 

 
66

 

Add back federal, state and local income tax expense
 
804

 
767

 
712

 
473

 
178

Add back (deduct) impairments, store closing and
other costs, gain on sale of leases and division
consolidation costs
 
88

 
5

 
(25
)
 
25

 
391

Add back depreciation and amortization
 
1,020

 
1,049

 
1,085

 
1,150

 
1,210

Adjusted EBITDA
 
$
3,786

 
$
3,715

 
$
3,471

 
$
3,069

 
$
2,664

Adjusted EBITDA as a percent to net sales
 
13.6
%
 
13.4
%
 
13.1
%
 
12.3
%
 
11.3
%


18


ROIC
The Company defines ROIC as adjusted operating income as a percent to average invested capital. Average invested capital is comprised of an annual two-point (i.e., end of the previous year and the immediately preceding year) average of gross property and equipment, a capitalized value of non-capitalized leases equal to periodic annual reported net rent expense multiplied by a factor of eight and a four-point (i.e., end of each quarter within the period presented) average of other selected assets and liabilities. The calculation of the capitalized value of non-capitalized leases is consistent with industry and credit rating agency practice and the specified assets are subject to a four-point average to compensate for seasonal fluctuations.
The following is a tabular reconciliation of the non-GAAP financial measure of ROIC to operating income as a percent to property and equipment - net, which the Company believes to be the most directly comparable GAAP financial measure.
 
 
2013
 
2012
 
2011
 
2010
 
2009
 
 
(millions, except percentages)
Operating income
 
$
2,678

 
$
2,661

 
$
2,411

 
$
1,894

 
$
1,063

 
 
 
 
 
 
 
 
 
 
 
Property and equipment - net
 
$
8,063

 
$
8,308

 
$
8,617

 
$
9,160

 
$
9,975

 
 
 
 
 
 
 
 
 
 
 
Operating income as a percent to property and
equipment - net
 
33.2
%
 
32.0
%
 
28.0
%
 
20.7
%
 
10.7
%
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
$
2,678

 
$
2,661

 
$
2,411

 
$
1,894

 
$
1,063

Add back (deduct) impairments, store closing and
other costs, gain on sale of leases and division
consolidation costs
 
88

 
5

 
(25
)
 
25

 
391

Add back depreciation and amortization
 
1,020

 
1,049

 
1,085

 
1,150

 
1,210

Add back rent expense, net
 
 
 
 
 
 
 
 
 
 
Real estate
 
268

 
258

 
243

 
235

 
229

Personal property
 
11

 
11

 
10

 
10

 
12

Deferred rent amortization
 
8

 
7

 
8

 
7

 
7

Adjusted operating income
 
$
4,073

 
$
3,991

 
$
3,732

 
$
3,321

 
$
2,912

 
 
 
 
 
 
 
 
 
 
 
Property and equipment - net
 
$
8,063

 
$
8,308

 
$
8,617

 
$
9,160

 
$
9,975

Add back accumulated depreciation and amortization
 
6,007

 
5,967

 
6,018

 
5,916

 
5,620

Add capitalized value of non-capitalized leases
 
2,296

 
2,208

 
2,088

 
2,016

 
1,984

Add (deduct) other selected assets and liabilities:
 
 
 
 
 
 
 
 
 
 
Receivables
 
339

 
322

 
294

 
317

 
305

Merchandise inventories
 
6,065

 
5,754

 
5,596

 
5,211

 
5,170

Prepaid expenses and other current assets
 
398

 
390

 
409

 
283

 
231

Other assets
 
662

 
579

 
528

 
526

 
497

Merchandise accounts payable
 
(2,520
)
 
(2,362
)
 
(2,314
)
 
(2,085
)
 
(1,978
)
Accounts payable and accrued liabilities
 
(2,328
)
 
(2,333
)
 
(2,309
)
 
(2,274
)
 
(2,320
)
Total average invested capital
 
$
18,982

 
$
18,833

 
$
18,927

 
$
19,070

 
$
19,484

 
 
 
 
 
 
 
 
 
 
 
ROIC
 
21.5
%
 
21.2
%
 
19.7
%
 
17.4
%
 
14.9
%



19


Results of Operations
 
 
2013
 
 
2012 *
 
 
2011
 
 
 
 
Amount
 
% to Sales
 
 
Amount
 
% to Sales
 
 
Amount
 
% to Sales
 
 
 
 
(dollars in millions, except per share figures)
 
 
Net sales
 
$
27,931

 
 
 
 
$
27,686

 
 
 
 
$
26,405

 
 
 
 
Increase in sales
 
0.9

%
 
 
4.9

%
 
 
 
 
 
 
 
Increase in comparable sales
 
1.9

%
 
 
3.7

%
 
 
 
 
 
 
 
Cost of sales
 
(16,725
)
 
(59.9
)
%
(16,538
)
 
(59.7
)
%
(15,738
)
 
(59.6
)
%
 
Gross margin
 
11,206

 
40.1

%
11,148

 
40.3

%
10,667

 
40.4

%
 
Selling, general and administrative expenses
 
(8,440
)
 
(30.2
)
%
(8,482
)
 
(30.7
)
%
(8,281
)
 
(31.4
)
%
 
Impairments, store closing and other costs
and gain on sale of leases
 
(88
)
 
(0.3
)
%
(5
)
 

%
25

 
0.1

%
 
Operating income
 
2,678

 
9.6

%
2,661

 
9.6

%
2,411

 
9.1

%
 
Interest expense - net
 
(388
)
 
 
 
 
(422
)
 
 
 
 
(443
)
 
 
 
 
Premium on early retirement of debt
 

 
 
 
 
(137
)
 
 
 
 

 
 
 
 
Income before income taxes
 
2,290

 
 
 
 
2,102

 
 
 
 
1,968

 
 
 
 
Federal, state and local income tax expense
 
(804
)
 
 
 
 
(767
)
 
 
 
 
(712
)
 
 
 
 
Net income
 
$
1,486

 
5.3

%
$
1,335

 
4.8

%
$
1,256

 
4.8

%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
3.86

 
 
 
 
$
3.24

 
 
 
 
$
2.92

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental Non-GAAP Financial Measures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comparable sales growth including the impact
of growth in comparable sales of departments licensed to third parties
 
2.8

%
 
 
4.0

%
 
 
5.7

%
 
 
Operating income, excluding certain items
 
$
2,766

 
9.9

%
$
2,666

 
9.6

%
$
2,386

 
9.0

%
 
Diluted earnings per share, excluding certain items
 
$
4.00

 
 
 
 
$
3.46

 
 
 
 
$
2.88

 
 
 
Adjusted EBITDA as a percent to net sales
 
13.6

%
 
 
13.4

%
 
 
13.1

%
 
 
ROIC
 
21.5

%
 
 
21.2

%
 
 
19.7

%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See pages 16 to 19 for a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measure and for other important information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Store information (at year-end):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stores operated
 
840

 
 
 
 
841

 
 
 
 
842

 
 
 
 
Square footage (in millions)
 
150.1

 
 
 
 
150.6

 
 
 
 
151.9

 
 
 
 
 ___________________
 *    53 weeks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


20


Comparison of 2013 and 2012
Net Income
Net income for 2013 increased compared to 2012, reflecting the benefits of the key strategies at Macy's, the continued strong performance at Bloomingdale's and good expense management, including higher income from credit operations, lower depreciation and amortization expense, and gains on the sale of certain office buildings and surplus properties, partially offset by greater investments in the Company's omnichannel operations.
Net Sales
Net sales for 2013, which had one fewer week than 2012, increased $245 million or 0.9% compared to 2012. On a comparable basis, net sales for 2013 were up 1.9% compared to 2012. Together with sales of departments licensed to third parties, 2013 sales on a comparable basis were up 2.8%. (See page 16 for information regarding the Company's calculation of comparable sales, a reconciliation of the non-GAAP measure which takes into account sales of departments licensed to third parties to the most comparable GAAP measure and other important information). The Company continues to benefit from the successful execution of the My Macy's localization, Omnichannel and Magic Selling strategies. Geographically, sales in 2013 were strongest in the southern regions. By family of business, sales in 2013 were strongest in active apparel, handbags, textiles, luggage, furniture and mattresses. Sales in 2013 were less strong in juniors. Sales of the Company's private label brands continued to be strong and represented approximately 20% of net sales in the Macy's-branded stores in 2013.
Cost of Sales
Cost of sales for 2013 increased $187 million from 2012. The cost of sales rate as a percent to net sales of 59.9% was 20 basis points higher in 2013, as compared to 59.7% in 2012, primarily due to continued growth of the omnichannel businesses and the resulting impact of free shipping. The application of the last-in, first-out (LIFO) retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales in either period.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for 2013 decreased $42 million from 2012. The SG&A rate as a percent to net sales of 30.2% was 50 basis points lower in 2013, as compared to 2012, reflecting the decrease in SG&A expenses and increased net sales. SG&A expenses in 2013 benefited from higher income from credit operations, lower depreciation and amortization expense, and gains on the sale of certain office buildings and surplus properties, partially offset by greater investments in the Company's omnichannel operations. Income from credit operations was $731 million in 2013 as compared to $663 million in 2012. Depreciation and amortization expense was $1,020 million for 2013, compared to $1,049 million for 2012. 2013 included gains on the sales of office buildings and surplus properties of $79 million. Advertising expense, net of cooperative advertising allowances, was $1,166 million for 2013 compared to $1,123 million for 2012. Advertising expense, net of cooperative advertising allowances, as a percent to net sales was 4.2% for 2013 compared to 4.1% for 2012.
Impairments, Store Closing and Other Costs and Gain on Sale of Leases
Impairments, store closing and other costs and gain on sale of leases for 2013 includes costs and expenses primarily associated with cost-reduction initiatives and store closings announced in January 2014. During 2013, these costs and expenses included $43 million of severance and other human resource-related costs, asset impairment charges of $39 million and $6 million of other related costs and expenses. Impairments, store closing and other costs and gain on sale of leases for 2012 included $4 million of asset impairment charges primarily related to the store closings announced in January 2013.
Net Interest Expense
Net interest expense for 2013 decreased $34 million from 2012. Net interest expense for 2013 benefited from lower rates on outstanding borrowings as compared to 2012.

21


Premium on Early Retirement of Debt
On November 28, 2012, the Company repurchased $700 million aggregate principal amount of its outstanding senior unsecured notes, which had a net book value of $706 million. The repurchased senior unsecured notes had stated interest rates ranging from 5.9% to 7.875% and maturities in 2015 and 2016. The Company recorded the redemption premium and other costs related to these repurchases as additional interest expense of $133 million in 2012. On March 29, 2012, the Company redeemed the $173 million of 8.0% senior debentures due July 15, 2012, as allowed under the terms of the indenture. The price for the redemption was calculated pursuant to the indenture and resulted in the recognition of additional interest expense of $4 million in 2012. The additional interest expense resulting from these transactions is presented as premium on early retirement of debt on the Consolidated Statements of Income.
 
Effective Tax Rate
The Company's effective tax rate of 35.1% for 2013 and 36.5% for 2012 differ from the federal income tax statutory rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the settlement of various tax issues and tax examinations. Additionally, income tax expense for 2013 benefited from historic rehabilitation tax credits and a reduction in the valuation allowance related primarily to state net operating loss carryforwards.
Comparison of 2012 and 2011
Net Income
Net income for 2012 increased compared to 2011, reflecting the benefits of the key strategies at Macy's, the continued strong performance at Bloomingdale's, higher income from credit operations, and the 53rd week in 2012.
Net Sales
Net sales for 2012, which had one additional week compared to 2011, increased $1,281 million or 4.9% compared to 2011. On a comparable basis, net sales for 2012 were up 3.7% compared to 2011. Together with sales of departments licensed to third parties, 2012 sales on a comparable basis were up 4.0%. (See page 16 for information regarding the Company's calculation of comparable sales, a reconciliation of the non-GAAP measure which takes into account sales of departments licensed to third parties to the most comparable GAAP measure and other important information). The Company continued to benefit from the successful execution of the My Macy's localization, Omnichannel and Magic Selling strategies. Geographically, sales in 2012 were strongest in the southern regions as well as some markets in other parts of the country such as Western New York, Oregon and Colorado. By family of business, sales in 2012 were strongest in watches, handbags, cosmetics, textiles, furniture and mattresses. Sales in 2012 were less strong in juniors. Sales of the Company's private label brands continued to be strong with particular growth coming from millennial, classic apparel and home textile brands. Sales of the Company's private label brands represented approximately 20% of net sales in the Macy's-branded stores in 2012.
Cost of Sales
Cost of sales for 2012 increased $800 million from 2011. The cost of sales rate as a percent to net sales of 59.7% was 10 basis points higher in 2012, as compared to 59.6% in 2011, primarily due to the growth of the omnichannel businesses and the resulting impact of free shipping. The application of the last-in, first-out (LIFO) retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales in either period.
SG&A Expenses
SG&A expenses for 2012 increased $201 million from 2011. The SG&A rate as a percent to net sales of 30.7% was 70 basis points lower in 2012, as compared to 2011, reflecting increased net sales. SG&A expenses in 2012 were impacted by higher selling costs as a result of stronger sales, higher retirement expenses (including Pension Plan, SERP and 401(k) expenses), and greater investments in the Company's omnichannel operations, partially offset by higher income from credit operations and lower depreciation and amortization expense. Retirement expenses were $232 million in 2012 as compared to $160 million in 2011, primarily due to the lower discount rate. Advertising expense, net of cooperative advertising allowances, was $1,123 million for 2012 compared to $1,060 million for 2011. Advertising expense, net of cooperative advertising allowances, as a percent to net sales was 4.3% for both 2012 and 2011. Income from credit operations was $663 million in 2012 as compared to $582 million in 2011. Depreciation and amortization expense was $1,049 million for 2012, compared to $1,085 million for 2011.

22


Impairments, Store Closing and Other Costs and Gain on Sale of Leases
Impairments, store closing and other costs and gain on sale of leases for 2012 included $4 million of asset impairment charges primarily related to the store closings announced in January 2013. Impairments and store closing and other costs and gain on sale of leases for 2011 included a $54 million gain from the sale of store leases related to the 2006 divestiture of Lord & Taylor, partially offset by $22 million of asset impairment charges primarily related to the store closings announced in January 2012 and $7 million of other costs and expenses primarily related to the announced store closings.
Net Interest Expense
Net interest expense for 2012 decreased $21 million from 2011. Net interest expense for 2012 benefited from lower levels of borrowings and lower rates on outstanding borrowings as compared to 2011.
Premium on Early Retirement of Debt
On November 28, 2012, the Company repurchased $700 million aggregate principal amount of its outstanding senior unsecured notes, which had a net book value of $706 million. The repurchased senior unsecured notes had stated interest rates ranging from 5.9% to 7.875% and maturities in 2015 and 2016. The Company recorded the redemption premium and other costs related to these repurchases as additional interest expense of $133 million in 2012. On March 29, 2012, the Company redeemed the $173 million of 8.0% senior debentures due July 15, 2012, as allowed under the terms of the indenture. The price for the redemption was calculated pursuant to the indenture and resulted in the recognition of additional interest expense of $4 million in 2012. The additional interest expense resulting from these transactions is presented as premium on early retirement of debt on the Consolidated Statements of Income.
Effective Tax Rate
The Company's effective tax rate of 36.5% for 2012 and 36.2% for 2011 differ from the federal income tax statutory rate of 35%, and on a comparative basis, principally because of the effect of state and local income taxes, including the settlement of various tax issues and tax examinations.
Guidance
Based on its assessment of current and anticipated market conditions and its recent performance, the Company's 2014 assumptions include:
Comparable sales increase in 2014 of approximately 2.5% to 3% from 2013 levels;
Diluted earnings per share of $4.40 to $4.50; and
Capital expenditures of approximately $1,050 million.
The Company's budgeted capital expenditures are primarily related to store remodels, maintenance, the continued renovation of Macy's Herald Square, technology and omnichannel investments, and distribution network improvements, including a new direct to customer fulfillment center in Tulsa County, OK. The Company has announced that in 2014 it intends to open new Macy's stores in the Bronx, NY; Sarasota, FL; Las Vegas, NV; and a Bloomingdale's replacement store in Palo Alto, CA. Additionally, the Company has announced that in 2015 it intends to open a new Macy's store in Ponce, Puerto Rico and a new Bloomingdale's store in Honolulu, HI, and in 2016 it intends to open a new Macy's store and a new Bloomingdale's store in Miami, FL. Management presently anticipates funding such expenditures with cash on hand and cash from operations.

Liquidity and Capital Resources
The Company's principal sources of liquidity are cash from operations, cash on hand and the credit facility described below.

Operating Activities
Net cash provided by operating activities was $2,549 million in 2013 compared to $2,179 million in 2012, reflecting higher net income and no pension funding contribution in 2013. During 2012, the Company made a pension funding contribution totaling $150 million.

23


Investing Activities
Net cash used by investing activities for 2013 was $788 million, compared to net cash used by investing activities of $781 million for 2012. Investing activities for 2013 includes purchases of property and equipment totaling $607 million and capitalized software of $256 million, compared to purchases of property and equipment totaling $698 million and capitalized software of $244 million for 2012. Cash flows from investing activities included $132 million and $66 million from the disposition of property and equipment for 2013 and 2012, respectively. At February 1, 2014, the Company had approximately $50 million of cash in a qualified escrow account, included in prepaid expenses and other current assets, to be utilized for potential tax deferred like-kind exchange transactions.
During 2013, the Company opened three new Macy's stores, one Macy's replacement store, one new Bloomingdale's store and one new Bloomingdale's Outlet store. During 2012, the Company opened two new Macy's stores and five new Bloomingdale's Outlet stores. Also during 2012 the Company opened its new 1.3 million square foot fulfillment center in Martinsburg, WV.
Financing Activities
Net cash used by the Company for financing activities was $1,324 million for 2013, including the acquisition of the Company's common stock under its share repurchase program at an approximate cost of $1,570 million, the repayment of $124 million of debt and the payment of $359 million of cash dividends, partially offset by the issuance of $400 million of debt, the issuance of $315 million of common stock, primarily related to the exercise of stock options, and an increase in outstanding checks of $24 million. $400 million of 4.375% senior notes due 2023 were issued in 2013 and the debt repaid during 2013 included $109 million of 7.625% senior debentures due August 15, 2013 paid at maturity.
Net cash used by the Company for financing activities was $2,389 million for 2012 and included the acquisition of the Company's common stock under its share repurchase program at an approximate cost of $1,350 million, the repayment of $1,803 million of debt, the payment of $324 million of cash dividends and a decrease in outstanding checks of $88 million, partially offset by the issuance of $1,000 million of debt and the issuance of $234 million of common stock, primarily related to the exercise of stock options.
On November 28, 2012, the Company repurchased $700 million aggregate principal amount of its outstanding senior unsecured notes, which had a net book value of $706 million. The repurchased senior unsecured notes had stated interest rates ranging from 5.9% to 7.875% and maturities in 2015 and 2016. The Company recorded the redemption premium and other costs related to these repurchases as additional interest expense of $133 million in 2012. On March 29, 2012, the Company redeemed the $173 million of 8.0% senior debentures due July 15, 2012, as allowed under the terms of the indenture. The price for the redemption was calculated pursuant to the indenture and resulted in the recognition of additional interest expense of $4 million in 2012. On November 20, 2012, the Company issued $750 million aggregate principal amount of 2.875% senior unsecured notes due 2023 and $250 million aggregate principal amount of 4.3% senior unsecured notes due 2043. This debt was used to pay for the notes repurchased on November 28, 2012 described above, and to retire $298 million of 5.875% senior unsecured notes that matured in January 2013. The debt repaid in 2012 also included $616 million of 5.35% senior notes at maturity. Through these transactions, the Company improved its debt maturity profile, decreased its ongoing interest expense by taking advantage of the current low interest rate environment and reduced its refinancing and interest rate risk.
The Company entered into a new credit agreement with certain financial institutions on May 10, 2013 providing for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing) outstanding at any particular time. The agreement is set to expire May 10, 2018 and replaced the prior agreement which was set to expire June 20, 2015. As of February 1, 2014 and throughout all of 2013, the Company had no borrowings outstanding under its then existing credit agreements.

24


The credit agreement requires the Company to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than 3.75. The Company's interest coverage ratio for 2013 was 9.40 and its leverage ratio at February 1, 2014 was 1.85, in each case as calculated in accordance with the credit agreement. The interest coverage ratio is defined as EBITDA over net interest expense and the leverage ratio is defined as debt over EBITDA. For purposes of these calculations EBITDA is calculated as net income plus interest expense, taxes, depreciation, amortization, non-cash impairment of goodwill, intangibles and real estate, non-recurring cash charges not to exceed in the aggregate $400 million and extraordinary losses less interest income and non-recurring or extraordinary gains. Debt is adjusted to exclude the premium on acquired debt and net interest is adjusted to exclude the amortization of premium on acquired debt and premium on early retirement of debt.
A breach of a restrictive covenant in the Company's credit agreement or the inability of the Company to maintain the financial ratios described above could result in an event of default under the credit agreement. In addition, an event of default would occur under the credit agreement if any indebtedness of the Company in excess of an aggregate principal amount of $150 million becomes due prior to its stated maturity or the holders of such indebtedness become able to cause it to become due prior to its stated maturity. Upon the occurrence of an event of default, the lenders could, subject to the terms and conditions of the credit agreement, elect to declare the outstanding principal, together with accrued interest, to be immediately due and payable.
Moreover, most of the Company's senior notes and debentures contain cross-default provisions based on the non-payment at maturity, or other default after an applicable grace period, of any other debt, the unpaid principal amount of which is not less than $100 million, that could be triggered by an event of default under the credit agreement. In such an event, the Company's senior notes and debentures that contain cross-default provisions would also be subject to acceleration.
At February 1, 2014, no notes or debentures contain provisions requiring acceleration of payment upon a debt rating downgrade. However, the terms of approximately $3,700 million in aggregate principal amount of the Company's senior notes outstanding at that date require the Company to offer to purchase such notes at a price equal to 101% of their principal amount plus accrued and unpaid interest in specified circumstances involving both a change of control (as defined in the applicable indenture) of the Company and the rating of the notes by specified rating agencies at a level below investment grade.
The rate of interest payable in respect of $407 million in aggregate principal amount of the Company's 7.875% senior notes outstanding at February 1, 2014 could increase by up to 2.0 percent per annum from its current level in the event of two or more downgrades of the notes by specified rating agencies.
The Company's board of directors approved an additional authorization to purchase Common Stock of $1,500 million on May 15, 2013. During 2013, the Company repurchased approximately 33.6 million shares of its common stock for a total of $1,570 million. As of February 1, 2014, the Company had $1,432 million of authorization remaining under its share repurchase program. The Company may continue or, from time to time, suspend repurchases of shares under its share repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors.
On February 28, 2014, the Company's board of directors declared a quarterly dividend of 25 cents per share on its common stock, payable April 1, 2014 to Macy's shareholders of record at the close of business on March 14, 2014.

25


Contractual Obligations and Commitments
At February 1, 2014, the Company had contractual obligations (within the scope of Item 303(a)(5) of Regulation S-K) as follows:
 
Obligations Due, by Period
Total
 
Less than
1 Year
 
1 – 3
Years
 
3 – 5
Years
 
More than
5 Years
(millions)
Short-term debt
$
461

 
$
461

 
$

 
$

 
$

Long-term debt
6,522

 

 
1,123

 
312

 
5,087

Interest on debt
4,909

 
398

 
712

 
581

 
3,218

Capital lease obligations
62

 
4

 
6

 
6

 
46

Operating leases
2,920

 
282

 
477

 
386

 
1,775

Letters of credit
34

 
34

 

 

 

Other obligations
4,548

 
3,047

 
475

 
292

 
734

 
$
19,456

 
$
4,226

 
$
2,793

 
$
1,577

 
$
10,860

“Other obligations” in the foregoing table includes post employment and postretirement benefits, self-insurance reserves, group medical/dental/life insurance programs, merchandise purchase obligations and obligations under outsourcing arrangements, construction contracts, energy and other supply agreements identified by the Company and liabilities for unrecognized tax benefits that the Company expects to settle in cash in the next year. The Company's merchandise purchase obligations fluctuate on a seasonal basis, typically being higher in the summer and early fall and being lower in the late winter and early spring. The Company purchases a substantial portion of its merchandise inventories and other goods and services otherwise than through binding contracts. Consequently, the amounts shown as “Other obligations” in the foregoing table do not reflect the total amounts that the Company would need to spend on goods and services in order to operate its businesses in the ordinary course.
The Company has not included in the contractual obligations table $147 million of long-term liabilities for unrecognized tax benefits for various tax positions taken or $51 million of related accrued federal, state and local interest and penalties. These liabilities may increase or decrease over time as a result of tax examinations, and given the status of examinations, the Company cannot reliably estimate the period of any cash settlement with the respective taxing authorities. The Company has included in the contractual obligations table $31 million of liabilities for unrecognized tax benefits that the Company expects to settle in cash in the next year.
Liquidity and Capital Resources Outlook
Management believes that, with respect to the Company's current operations, cash on hand and funds from operations, together with its credit facility and other capital resources, will be sufficient to cover the Company's reasonably foreseeable working capital, capital expenditure and debt service requirements and other cash requirements in both the near term and over the longer term. The Company's ability to generate funds from operations may be affected by numerous factors, including general economic conditions and levels of consumer confidence and demand; however, the Company expects to be able to manage its working capital levels and capital expenditure amounts so as to maintain sufficient levels of liquidity. To the extent that the Company's cash balances from time to time exceed amounts that are needed to fund its immediate liquidity requirements, the Company will consider alternative uses of some or all of such excess cash. Such alternative uses may include, among others, the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations. Depending upon its actual and anticipated sources and uses of liquidity, conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital markets transactions, for the purpose of raising capital which could be used to refinance current indebtedness or for other corporate purposes including the redemption or repurchase of debt, equity or other securities through open market purchases, privately negotiated transactions or otherwise, and the funding of pension related obligations.
The Company intends from time to time to consider additional acquisitions of, and investments in, retail businesses and other complementary assets and companies. Acquisition transactions, if any, are expected to be financed from one or more of the following sources: cash on hand, cash from operations, borrowings under existing or new credit facilities and the issuance of long-term debt or other securities, including common stock.


26


Critical Accounting Policies
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market using the last-in, first-out (LIFO) retail inventory method. Under the retail inventory method, inventory is segregated into departments of merchandise having similar characteristics, and is stated at its current retail selling value. Inventory retail values are converted to a cost basis by applying specific average cost factors for each merchandise department. Cost factors represent the average cost-to-retail ratio for each merchandise department based on beginning inventory and the fiscal year purchase activity. At February 1, 2014 and February 2, 2013, merchandise inventories valued at LIFO, including adjustments as necessary to record inventory at the lower of cost or market, approximated the cost of such inventories using the first-in, first-out (FIFO) retail inventory method. The application of the LIFO retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales for 2013, 2012 or 2011. The retail inventory method inherently requires management judgments and estimates, such as the amount and timing of permanent markdowns to clear unproductive or slow-moving inventory, which may impact the ending inventory valuation as well as gross margins.
Permanent markdowns designated for clearance activity are recorded when the utility of the inventory has diminished. Factors considered in the determination of permanent markdowns include current and anticipated demand, customer preferences, age of the merchandise and fashion trends. When a decision is made to permanently mark down merchandise, the resulting gross profit reduction is recognized in the period the markdown is recorded.
Physical inventories are generally taken within each merchandise department annually, and inventory records are adjusted accordingly, resulting in the recording of actual shrinkage. Physical inventories are taken at all store locations for substantially all merchandise categories approximately three weeks before the end of the fiscal year. Shrinkage is estimated as a percentage of sales at interim periods and for this approximate three-week period, based on historical shrinkage rates. While it is not possible to quantify the impact from each cause of shrinkage, the Company has loss prevention programs and policies that are intended to minimize shrinkage, including the use of radio frequency devices and interim inventories to keep the Company's merchandise files accurate.
The Company receives certain allowances as reimbursement for markdowns taken and/or to support the gross margins earned in connection with the sales of merchandise. These allowances are generally credited to cost of sales at the time the merchandise is sold in accordance with ASC Subtopic 605-50, “Customer Payments and Incentives.” The Company also receives advertising allowances from approximately 1,000 of its merchandise vendors pursuant to cooperative advertising programs, with some vendors participating in multiple programs. These allowances represent reimbursements by vendors of costs incurred by the Company to promote the vendors' merchandise and are netted against advertising and promotional costs when the related costs are incurred in accordance with ASC Subtopic 605-50. Advertising allowances in excess of costs incurred are recorded as a reduction of merchandise costs. The arrangements pursuant to which the Company's vendors provide allowances, while binding, are generally informal in nature and one year or less in duration. The terms and conditions of these arrangements vary significantly from vendor to vendor and are influenced by, among other things, the type of merchandise to be supported. Although it is highly unlikely that there will be any significant reduction in historical levels of vendor support, if such a reduction were to occur, the Company could experience higher costs of sales and higher advertising expense, or reduce the amount of advertising that it uses, depending on the specific vendors involved and market conditions existing at the time.
Long-Lived Asset Impairment and Restructuring Charges
The carrying values of long-lived assets are periodically reviewed by the Company whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as historical operating losses or plans to close stores before the end of their previously estimated useful lives. Additionally, on an annual basis, the recoverability of the carrying values of individual stores are evaluated. A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. The estimate of cash flows includes management's assumptions of cash inflows and outflows directly resulting from the use of those assets in operations. When a potential impairment has occurred, an impairment write-down is recorded if the carrying value of the long-lived asset exceeds its fair value. The Company believes its estimated cash flows are sufficient to support the carrying value of its long-lived assets. If estimated cash flows significantly differ in the future, the Company may be required to record asset impairment write-downs.

27


If the Company commits to a plan to dispose of a long-lived asset before the end of its previously estimated useful life, estimated cash flows are revised accordingly, and the Company may be required to record an asset impairment write-down. Additionally, related liabilities arise such as severance, contractual obligations and other accruals associated with store closings from decisions to dispose of assets. The Company estimates these liabilities based on the facts and circumstances in existence for each restructuring decision. The amounts the Company will ultimately realize or disburse could differ from the amounts assumed in arriving at the asset impairment and restructuring charge recorded.
The Company classifies certain long-lived assets as held for disposal by sale and ceases depreciation when the particular criteria for such classification are met, including the probable sale within one year. For long-lived assets to be disposed of by sale, an impairment charge is recorded if the carrying amount of the asset exceeds its fair value less costs to sell. Such valuations include estimations of fair values and incremental direct costs to transact a sale.
Income Taxes
Income taxes are estimated based on the tax statutes, regulations and case law of the various jurisdictions in which the Company operates. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and net operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets are evaluated for recoverability based on all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. Deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized.
Uncertain tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Uncertain tax positions meeting the more-likely-than-not recognition threshold are then measured to determine the amount of benefit eligible for recognition in the financial statements. Each uncertain tax position is measured at the largest amount of benefit that is more likely than not to be realized upon ultimate settlement. Uncertain tax positions are evaluated and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions. The Company does not anticipate that resolution of these matters will have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Significant judgment is required in evaluating the Company's uncertain tax positions, provision for income taxes, and any valuation allowance recorded against deferred tax assets. Although the Company believes that its judgments are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the Company's historical income provisions and accruals.
Self-Insurance Reserves
The Company, through its insurance subsidiary, is self-insured for workers' compensation and general liability claims up to certain maximum liability amounts. Although the amounts accrued are actuarially determined by third parties based on analysis of historical trends of losses, settlements, litigation costs and other factors, the amounts the Company will ultimately disburse could differ from such accrued amounts.
Pension and Supplementary Retirement Plans
The Company has a funded defined benefit pension plan (the “Pension Plan”) and an unfunded defined benefit supplementary retirement plan (the “SERP”). The Company accounts for these plans in accordance with ASC Topic 715, “Compensation - Retirement Benefits.” Under ASC Topic 715, an employer recognizes the funded status of a defined benefit postretirement plan as an asset or liability on the balance sheet and recognizes changes in that funded status in the year in which the changes occur through comprehensive income. Additionally, pension expense is generally recognized on an accrual basis over employees' approximate service periods. The pension expense calculation is generally independent of funding decisions or requirements.
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods will be provided through defined contribution plans. As a result of these changes, the Company recognized reductions in the projected benefit obligations of the Pension Plan of $254 million and the SERP of $42 million as of February 2, 2013.

28


The Pension Protection Act of 2006 provides the funding requirements for the Pension Plan which are different from the employer's accounting for the plan as outlined in ASC Topic 715. No funding contributions were required, and the Company made no funding contributions to the Pension Plan in 2013. As of the date of this report, the Company does not anticipate making funding contributions to the Pension Plan in 2014. Management believes that, with respect to the Company's current operations, cash on hand and funds from operations, together with available borrowing under its credit facility and other capital resources, will be sufficient to cover the Company's Pension Plan cash requirements in both the near term and also over the longer term.
At February 1, 2014, the Company had unrecognized actuarial losses of $931 million for the Pension Plan and $176 million for the SERP. The unrecognized losses for the Pension Plan and the SERP will be recognized as a component of pension expense in future years in accordance with ASC Topic 715, and is expected to impact 2014 Pension and SERP income by approximately $31 million. The Company generally amortizes unrecognized gains and losses on a straight-line basis over the average remaining lifetime of participants using the corridor approach.
The calculation of pension expense and pension liabilities requires the use of a number of assumptions. Changes in these assumptions can result in different expense and liability amounts, and future actual experience may differ significantly from current expectations. The Company believes that the most critical assumptions relate to the long-term rate of return on plan assets (in the case of the Pension Plan), the discount rate used to determine the present value of projected benefit obligations and the weighted average rate of increase of future compensation levels.
As of February 2, 2013, the Company lowered the assumed annual long-term rate of return for the Pension Plan's assets from 8.00% to 7.50% based on expected future returns on the portfolio. The Company develops its expected long-term rate of return assumption by evaluating input from several professional advisors taking into account the asset allocation of the portfolio and long-term asset class return expectations, as well as long-term inflation assumptions. Pension expense increases or decreases as the expected rate of return on the assets of the Pension Plan decreases or increases, respectively. Lowering or raising the expected long-term rate of return on the Pension Plan's assets by 0.25% would increase or decrease the estimated 2014 pension expense by approximately $8 million.
The Company discounted its future pension obligations using a rate of 4.50% at February 1, 2014, compared to 4.15% at February 2, 2013. The discount rate used to determine the present value of the Company's Pension Plan and SERP obligations is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year's expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for Pension Plan and SERP obligations. As the discount rate is reduced or increased, pension liability would increase or decrease, respectively, and future pension expense would decrease or increase, respectively. Lowering the discount rate by 0.25% (from 4.50% to 4.25%) would increase the projected benefit obligation at February 1, 2014 by approximately $99 million and would decrease estimated 2014 pension expense by approximately $2 million. Increasing the discount rate by 0.25% (from 4.50% to 4.75%) would decrease the projected benefit obligation at February 1, 2014 by approximately $92 million and would increase estimated 2014 pension expense by approximately $2 million.
The assumed weighted average rate of increase in future compensation levels was 4.1% at February 1, 2014 and 4.5% at February 2, 2013 for the Pension Plan, and 4.9% at February 2, 2013 for the SERP. The Company develops its rate of compensation increase assumption based on recent experience and reflects an estimate of future compensation levels taking into account general increase levels, seniority, promotions and other factors. Pension liabilities and future pension expense both increase or decrease as the weighted average rate of increase of future compensation levels is increased or decreased, respectively. Increasing or decreasing the assumed weighted average rate of increase of future compensation levels by 0.25% would increase or decrease the projected benefit obligation at February 1, 2014 by approximately $1 million and the change to estimated 2014 pension expense would be less than $1 million.

New Pronouncements
The Company does not anticipate that the adoption of recent accounting pronouncements will have a material impact on the Company's consolidated financial position, results of operations or cash flows.


29


Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk from changes in interest rates that may adversely affect its financial position, results of operations and cash flows. In seeking to minimize the risks from interest rate fluctuations, the Company manages exposures through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not use financial instruments for trading or other speculative purposes and is not a party to any leveraged financial instruments.
The Company is exposed to interest rate risk through its borrowing activities, which are described in Note 6 to the Consolidated Financial Statements. All of the Company’s borrowings are under fixed rate instruments. However, the Company, from time to time, may use interest rate swap and interest rate cap agreements to help manage its exposure to interest rate movements and reduce borrowing costs. At February 1, 2014, the Company was not a party to any derivative financial instruments and based on the Company’s lack of market risk sensitive instruments outstanding at February 1, 2014, the Company has determined that there was no material market risk exposure to the Company’s consolidated financial position, results of operations or cash flows as of such date.
 
Item 8.
Consolidated Financial Statements and Supplementary Data.
Information called for by this item is set forth in the Company’s Consolidated Financial Statements and supplementary data contained in this report and is incorporated herein by this reference. Specific financial statements and supplementary data can be found at the pages listed in the following index:


30


INDEX
 


31


Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
 
Item 9A.
Controls and Procedures.
a. Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have carried out, as of February 1, 2014, with the participation of the Company’s management, an evaluation of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in reports the Company files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
b. Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s management conducted an assessment of the Company’s internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based on this assessment, the Company’s management has concluded that, as of February 1, 2014, the Company’s internal control over financial reporting is effective.
The Company’s independent registered public accounting firm, KPMG LLP, has audited the effectiveness of the Company’s internal control over financial reporting as of February 1, 2014 and has issued an attestation report expressing an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting, as stated in their report located on page F-3.
c. Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
d. Certifications
The certifications of the Company’s Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act are filed as Exhibits 31.1 and 31.2 to this report. Additionally, in 2013 the Company’s Chief Executive Officer certified to the NYSE that he was not aware of any violation by the Company of the NYSE corporate governance listing standards.

PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance.
Information called for by this item is set forth under “Item 1 – Election of Directors” and “Further Information Concerning the Board of Directors – Committees of the Board” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement to be delivered to stockholders in connection with our 2014 Annual Meeting of Shareholders (the “Proxy Statement”), and “Item 1. Business – Executive Officers of the Registrant” in this report and incorporated herein by reference.
 
Item 11.
Executive Compensation.
Information called for by this item is set forth under “Compensation Discussion & Analysis,” “Compensation of the Named Executives for 2013,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement and incorporated herein by reference.

32


Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information called for by this item is set forth under “Stock Ownership – Certain Beneficial Owners” and “Stock Ownership – Stock Ownership of Directors and Executive Officers” in the Proxy Statement and incorporated herein by reference.
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Information called for by this item is set forth under “Further Information Concerning the Board of Directors – Director Independence” and “Policy on Related Person Transactions” in the Proxy Statement and incorporated herein by reference.
 
Item 14.
Principal Accountant Fees and Services.
Information called for by this item is set forth under “Item 2 – Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement and incorporated herein by reference.


33


PART IV
 
Item 15.
Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this report:
1. Financial Statements:
The list of financial statements required by this item is set forth in Item 8 “Consolidated Financial Statements and Supplementary Data” and is incorporated herein by reference.
2. Financial Statement Schedules:
All schedules are omitted because they are inapplicable, not required, or the information is included elsewhere in the Consolidated Financial Statements or the notes thereto.
3. Exhibits:

Exhibit
Number
 
Description
 
Document if Incorporated by Reference
3.1
 
Amended and Restated Certificate of Incorporation
 
Exhibit 3.1 to the Company's Current Report on Form 8-K filed on May 18, 2010
 
 
 
 
 
3.1.1
 
Certificate of Designations of Series A Junior Participating Preferred Stock
 
Exhibit 3.1.1 to the Company's Annual Report on
Form 10-K (File No. 1-13536) for the fiscal year ended January 28, 1995
 
 
 
 
 
3.1.2
 
Article Seventh of the Amended and Restated Certificate of Incorporation
 
Exhibit 3.1 to the Company's Current Report on Form 8-K filed on May 24, 2011 (the “May 24, 2011 Form 8-K”)
 
 
 
 
 
3.2
 
Amended and Restated By-Laws
 
Exhibit 3.2 to the May 24, 2011 Form 8-K
 
 
 
 
 
4.1
 
Amended and Restated Certificate of Incorporation
 
See Exhibits 3.1, 3.1.1 and 3.1.2
 
 
 
 
 
4.2
 
Amended and Restated By-Laws
 
See Exhibit 3.2
 
 
 
 
 
4.3
 
Indenture, dated as of January 15, 1991, among the Company (as successor to The May Department Stores Company (“May Delaware”)), Macy's Retail Holdings, Inc. (“Macy's Retail”) (f/k/a The May Department Stores Company (NY) or “May New York”) and The Bank of New York Mellon Trust Company, N.A. (“BNY Mellon”, successor to J.P. Morgan Trust Company and as successor to The First National Bank of Chicago), as Trustee (the “1991 Indenture”)
 
Exhibit 4(2) to May New York’s Current Report on Form 8-K filed on January 15, 1991
 
 
 
 
 
4.3.1
 
Guarantee of Securities, dated as of August 30, 2005, by the Company relating to the 1991 Indenture
 
Exhibit 10.13 to the Company's Current Report on
Form 8-K filed on August 30, 2005 (the “August 30, 2005 Form 8-K”)
 
 
 
 
 
4.4
 
Indenture, dated as of December 15, 1994, between the Company and U.S. Bank National Association (successor to State Street Bank and Trust Company and The First National Bank of Boston), as Trustee (the “1994 Indenture”)
 
Exhibit 4.1 to the Company's Registration Statement on Form S-3 (Registration No. 33-88328) filed on January 9, 1995
 
 
 
 
 
4.4.1
 
Eighth Supplemental Indenture to the 1994 Indenture, dated as of July 14, 1997, between the Company and U.S. Bank National Association (successor to State Street Bank and Trust Company and The First National Bank of Boston), as Trustee
 
Exhibit 2 to the Company's Current Report on Form 8-K filed on July 15, 1997 (the “July 15, 1997 Form 8-K”)
 
 
 
 
 

34


Exhibit
Number
 
Description
 
Document if Incorporated by Reference
4.4.2
 
Ninth Supplemental Indenture to the 1994 Indenture, dated as of July 14, 1997, between the Company and U.S. Bank National Association (successor to State Street Bank and Trust Company and The First National Bank of Boston), as Trustee
 
Exhibit 3 to the July 15, 1997 Form 8-K
 
 
 
 
 
4.4.3
 
Tenth Supplemental Indenture to the 1994 Indenture, dated as of August 30, 2005, among the Company, Macy's Retail and U.S. Bank National Association (as successor to State Street Bank and Trust Company and as successor to The First National Bank of Boston), as Trustee
 
Exhibit 10.14 to the August 30, 2005 Form 8-K
 
 
 
 
 
4.4.4
 
Guarantee of Securities, dated as of August 30, 2005, by the Company relating to the 1994 Indenture
 
Exhibit 10.16 to the August 30, 2005 Form 8-K
 
 
 
 
 
4.5
 
Indenture, dated as of September 10, 1997, between the Company and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee (the “1997 Indenture”)
 
Exhibit 4.4 to the Company's Amendment No. 1 to Form S-3 (Registration No. 333-34321) filed on September 11, 1997
 
 
 
 
 
4.5.1
 
First Supplemental Indenture to the 1997 Indenture, dated as of February 6, 1998, between the Company and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee
 
Exhibit 2 to the Company's Current Report on Form 8-K filed on February 6, 1998
 
 
 
 
 
4.5.2
 
Third Supplemental Indenture to the 1997 Indenture, dated as of March 24, 1999, between the Company and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee
 
Exhibit 4.2 to the Company's Registration Statement on Form S-4 (Registration No. 333-76795) filed on April 22, 1999
 
 
 
 
 
4.5.3
 
Seventh Supplemental Indenture to the 1997 Indenture, dated as of August 30, 2005 among the Company, Macy's Retail and U.S. Bank National Association (successor to Citibank, N.A.), as Trustee
 
Exhibit 10.15 to the August 30, 2005 Form 8-K
 
 
 
 
 
4.5.4
 
Guarantee of Securities, dated as of August 30, 2005, by the Company relating to the 1997 Indenture
 
Exhibit 10.17 to the August 30, 2005 Form 8-K
 
 
 
 
 
4.6
 
Indenture, dated as of June 17, 1996, among the Company (as successor to May Delaware), Macy's Retail (f/k/a May New York) and The Bank of New York Mellon Trust Company, N.A. (“BNY Mellon”, successor to J.P. Morgan Trust Company), as Trustee (the “1996 Indenture”)
 
Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 333-06171) filed on June 18, 1996 by May Delaware
 
 
 
 
 
4.6.1
 
First Supplemental Indenture to the 1996 Indenture, dated as of August 30, 2005, by and among the Company (as successor to May Delaware), Macy's Retail (f/k/a May New York) and BNY Mellon, as Trustee
 
Exhibit 10.9 to the August 30, 2005 Form 8-K
 
 
 
 
 
4.7
 
Indenture, dated as of July 20, 2004, among the Company (as successor to May Delaware), Macy's Retail (f/k/a May New York) and BNY Mellon, as Trustee (the “2004 Indenture”)
 
Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-00079) filed on July 21, 2004 by May Delaware
 
 
 
 
 
4.7.1
 
First Supplemental Indenture to the 2004 Indenture, dated as of August 30, 2005 among the Company (as successor to May Delaware), Macy's Retail and BNY Mellon, as Trustee
 
Exhibit 10.10 to the August 30, 2005 Form 8-K
 
 
 
 
 
4.8
 
Indenture, dated as of November 2, 2006, by and among Macy's Retail, the Company and U.S. Bank National Association, as Trustee (the “2006 Indenture”)
 
Exhibit 4.6 to the Company's Registration Statement on Form S-3ASR (Registration No. 333-138376) filed on November 2, 2006
 
 
 
 
 

35


Exhibit
Number
 
Description
 
Document if Incorporated by Reference
4.8.1
 
First Supplemental Indenture to the 2006 Indenture, dated November 29, 2006, among Macy's Retail, the Company and U.S. Bank National Association, as Trustee
 
Exhibit 4.1 to the Company's Current Report on Form 8-K filed on November 29, 2006
 
 
 
 
 
4.8.2
 
Third Supplemental Indenture to the 2006 Indenture, dated March 12, 2007, among Macy's Retail, the Company and U.S. Bank National Association, as Trustee
 
Exhibit 4.2 to the Company's Current Report on Form 8-K filed on March 12, 2007
 
 
 
 
 
4.8.3
 
Fifth Supplemental Trust Indenture to the 2006 Indenture, dated as of June 26, 2008, among Macy's Retail, as issuer, the Company, as guarantor, and U.S. Bank National Association, as trustee
 
Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 26, 2008
 
 
 
 
 
4.9
 
Indenture, dated as of January 13, 2012, among Macy's Retail, the Company and BNY Mellon, as Trustee (the "2012 Indenture")
 
Exhibit 4.1 to the Company's Current Report on Form 8-K filed on January 13, 2012 (the “January 13, 2012 Form 8-K”)
 
 
 
 
 
4.9.1
 
First Supplemental Trust Indenture to the 2012 Indenture, dated as of January 13, 2012, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
 
Exhibit 4.2 to the January 13, 2012 Form 8-K
 
 
 
 
 
4.9.2
 
Second Supplemental Trust Indenture to the 2012 Indenture, dated as of January 13, 2012, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
 
Exhibit 4.3 to the January 13, 2012 Form 8-K
 
 
 
 
 
4.9.3
 
Third Supplemental Trust Indenture, dated as of November 20, 2012, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
 
Exhibit 4.2 to the Company's Current Report on Form 8-K filed on November 20, 2012 (the “November 20, 2012 Form 8-K”)
 
 
 
 
 
4.9.4
 
Fourth Supplemental Trust Indenture, dated as of November 20, 2012, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
 
Exhibit 4.3 to the November 20, 2012 Form 8-K
 
 
 
 
 
4.9.5
 
Fifth Supplemental Trust Indenture, dated as of September 6, 2013, among Macy's Retail, as issuer, the Company, as guarantor, and BNY Mellon, as trustee
 
Exhibit 4.2 to the Company's Current Report on Form 8-K filed on September 6, 2013
 
 
 
 
 
10.1+
 
Credit Agreement, dated as of May 10, 2013, among the Company, Macy's Retail, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and paying agent, and Bank of America, N.A., as administrative agent
 
Exhibit 10.01 to the Company's Current Report on Form 8-K filed on May 14, 2013 (the “May 14, 2013 Form 8-K”)
 
 
 
 
 
10.1.1
 
First Amendment, dated as of May 30, 2013, to the Credit Agreement, among Macy's Retail and JPMorgan Chase Bank, N.A. and the Bank of America, N.A., as Administrative Agents
 
Exhibit 10.1.1 to the Company's Quarterly Report on Form 10-Q filed on June 10, 2013
 
 
 
 
 
10.2
 
Guarantee Agreement, dated as of May 10, 2013, among the Company, Macy's Retail, certain subsidiary guarantors and JPMorgan Chase Bank, N.A., as paying agent
 
Exhibit 10.02 to the May 14, 2013 Form 8-K
 
 
 
 
 
10.3
 
Commercial Paper Dealer Agreement, dated as of August 30, 2005, among the Company, Macy's Retail and Banc of America Securities LLC
 
Exhibit 10.6 to the August 30, 2005 Form 8-K
 
 
 
 
 
10.4
 
Commercial Paper Dealer Agreement, dated as of August 30, 2005, among the Company, Macy's Retail and Goldman, Sachs & Co.
 
Exhibit 10.7 to the August 30, 2005 Form 8-K
 
 
 
 
 

36


Exhibit
Number
 
Description
 
Document if Incorporated by Reference
10.5
 
Commercial Paper Dealer Agreement, dated as of August 30, 2005, among the Company, Macy's Retail and J.P. Morgan Securities Inc.
 
Exhibit 10.8 to the August 30, 2005 Form 8-K
 
 
 
 
 
10.6
 
Commercial Paper Dealer Agreement, dated as of October 4, 2006, among the Company and Loop Capital Markets, LLC
 
Exhibit 10.6 to the Company's Annual Report on Form 10-K (File No. 1-13536) for the fiscal year ended February 3, 2007
 
 
 
 
 
10.7
 
Tax Sharing Agreement
 
Exhibit 10.10 to the Company's Registration Statement on Form 10, filed on November 27, 1991, as amended (the “Form 10”)
10.8+
 
Purchase, Sale and Servicing Transfer Agreement, effective as of June 1, 2005, among the Company, FDS Bank, Prime II Receivables Corporation (“Prime II”) and Citibank, N.A. (“Citibank”)
 
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on September 8, 2009 (the "September 8, 2009 Form 10-Q")
 
 
 
 
 
10.8.1
 
Letter Agreement, dated August 22, 2005, among the Company, FDS Bank, Prime II and Citibank
 
Exhibit 10.17.1 to the Company's Annual Report on Form 10-K (File No. 1-13536) for the fiscal year ended January 28, 2006 (the “2005 Form 10-K”)
 
 
 
 
 
10.8.2+
 
Second Amendment to Purchase, Sale and Servicing Transfer Agreement, dated October 24, 2005, between the Company and Citibank
 
Exhibit 10.4 to the September 8, 2009 Form 10-Q
 
 
 
 
 
10.8.3
 
Third Amendment to Purchase, Sale and Servicing Transfer Agreement, dated May 1, 2006, between the Company and Citibank
 
Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 3, 2006
 
 
 
 
 
10.8.4+
 
Fourth Amendment to Purchase, Sale and Servicing Transfer Agreement, dated May 22, 2006, between the Company and Citibank
 
Exhibit 10.5 to the September 8, 2009 Form 10-Q