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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 2020

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number: 1-13536
m-20200801_g1.jpg
Macy's, Inc.
(Exact name of registrant as specified in its charter)
Delaware13-3324058
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

151 West 34th Street, New York, New York 10001
(Address of Principal Executive Offices, including Zip Code)
(513) 579-7780
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value per shareMNew York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer Smaller Reporting Company Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding at August 29, 2020
Common Stock, $.01 par value per share310,245,594 shares



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

(millions, except per share figures)
 
13 Weeks Ended26 Weeks Ended
August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Net sales$3,559 $5,546 $6,576 $11,050 
Credit card revenues, net168 176 299 348 
Cost of sales(2,718)(3,395)(5,219)(6,798)
Selling, general and administrative expenses(1,398)(2,177)(2,995)(4,287)
Gains on sale of real estate 7 16 49 
Impairment, restructuring and other costs(242)(2)(3,426)(3)
Operating income (loss)(631)155 (4,749)359 
Benefit plan income, net12 8 21 15 
Settlement charges(38) (38) 
Interest expense(70)(52)(120)(106)
Financing costs(3) (3) 
Interest income1 5 3 12 
Income (loss) before income taxes(729)116 (4,886)280 
Federal, state and local income tax benefit (expense)298 (30)874 (57)
Net income (loss)$(431)$86 (4,012)223 
Basic earnings (loss) per share
$(1.39)$0.28 $(12.91)$0.72 
Diluted earnings (loss) per share
$(1.39)$0.28 $(12.91)$0.71 

The accompanying notes are an integral part of these Consolidated Financial Statements.
2


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

(millions)

13 Weeks Ended26 Weeks Ended
August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Net income (loss)$(431)$86 $(4,012)$223 
Other comprehensive income (loss):
Actuarial gain on post employment and postretirement benefit plans, before tax
19  19  
Reclassifications to net income (loss):
Amortization of net actuarial loss and prior service credit on post employment and postretirement benefit plans included in net income, before tax
11 7 23 15 
Settlement charges, before tax
38  38  
Tax effect related to items of other comprehensive income
(17)(2)(20)(4)
Total other comprehensive income, net of tax effect51 5 60 11 
Comprehensive income (loss)$(380)$91 $(3,952)$234 

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

3


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

(millions)
 
August 1, 2020February 1, 2020August 3, 2019
ASSETS
Current Assets:
Cash and cash equivalents$1,395 $685 $674 
Receivables184 409 240 
Merchandise inventories3,582 5,188 5,029 
Prepaid expenses and other current assets470 528 603 
Total Current Assets5,631 6,810 6,546 
Property and Equipment - net of accumulated depreciation and
amortization of $4,642, $4,392 and $4,748
6,279 6,633 6,483 
Right of Use Assets3,035 2,668 2,636 
Goodwill828 3,908 3,908 
Other Intangible Assets – net438 439 440 
Other Assets1,403 714 728 
Total Assets$17,614 $21,172 $20,741 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt$539 $539 $6 
Merchandise accounts payable1,409 1,682 1,674 
Accounts payable and accrued liabilities2,906 3,448 2,739 
Income taxes 81 20 
Total Current Liabilities4,854 5,750 4,439 
Long-Term Debt4,851 3,621 4,680 
Long-Term Lease Liabilities3,269 2,918 2,836 
Deferred Income Taxes921 1,169 1,206 
Other Liabilities1,395 1,337 1,265 
Shareholders' Equity2,324 6,377 6,315 
Total Liabilities and Shareholders’ Equity$17,614 $21,172 $20,741 

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

4


MACY’S, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)

(millions)

Common
Stock
Additional
Paid-In
Capital
Accumulated
Equity
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total Shareholders' Equity
Balance at February 1, 2020
$3 $621 $7,989 $(1,241)$(995)$6,377 
Net loss(3,581)(3,581)
Other comprehensive income
9 9 
Common stock dividends
  ($0.3775 per share)
(117)(117)
Stock-based compensation expense
6 6 
Stock issued under stock plans(62)61 (1)
Other4 4 
Balance at May 2, 20203 565 4,291 (1,180)(982)2,697 
Net loss(431)(431)
Other comprehensive income51 51 
Stock-based compensation expense7 7 
Stock issued under stock plans(4)4  
Balance at August 1, 2020$3 $568 $3,860 $(1,176)$(931)$2,324 


Common
Stock
Additional
Paid-In
Capital
Accumulated
Equity
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total Shareholders' Equity
Balance at February 2, 2019
$3 $652 $8,050 $(1,318)$(951)$6,436 
Cumulative-effect adjustment (a)(158)(158)
Net income136 136 
Other comprehensive income
6 6 
Common stock dividends
   ($0.3775 per share)
(117)(117)
Stock-based compensation expense
14 14 
Stock issued under stock plans(60)66 6 
Balance at May 4, 20193 606 7,911 (1,252)(945)6,323 
Net income86 86 
Other comprehensive income5 5 
Common stock dividends
   ($0.3775 per share)
(117)(117)
Stock-based compensation expense
14 14 
Stock issued under stock plans(3)4 1 
Other3 3 
Balance at August 3, 2019$3 $617 $7,883 $(1,248)$(940)$6,315 
(a) Represents the cumulative-effect adjustment to retained earnings for the adoption of Accounting Standards Update 2016-02 (ASU-2016-02), Leases (Topic 842), on February 3, 2019.

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


5


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

(millions)
26 Weeks Ended
August 1, 2020August 3, 2019
Cash flows from operating activities:
Net income (loss)$(4,012)$223 
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Impairment, restructuring and other costs3,426 3 
Settlement charges38  
Depreciation and amortization472 472 
Stock-based compensation expense13 28 
Gains on sale of real estate(16)(49)
Benefit plans23 15 
Amortization of financing costs and premium on acquired debt4 1 
Deferred income taxes(265)17 
Changes in assets and liabilities:
Decrease in receivables222 160 
Decrease in merchandise inventories1,598 234 
Decrease in prepaid expenses and other current assets31 19 
Increase (decrease) in merchandise accounts payable(188)55 
Decrease in accounts payable and accrued liabilities
(605)(619)
Decrease in current income taxes(695)(149)
Change in other assets and liabilities(53)(60)
Net cash provided (used) by operating activities(7)350 
Cash flows from investing activities:
Purchase of property and equipment(228)(378)
Capitalized software(61)(123)
Disposition of property and equipment31 59 
Other, net(14)(12)
Net cash used by investing activities(272)(454)
Cash flows from financing activities:
Debt issued2,780  
Debt issuance costs(98)(3)
Debt repaid(1,504)(39)
Dividends paid(117)(233)
Decrease in outstanding checks(111)(128)
Issuance of common stock 6 
Net cash provided (used) by financing activities950 (397)
Net increase (decrease) in cash, cash equivalents and restricted cash671 (501)
Cash, cash equivalents and restricted cash beginning of period731 1,248 
Cash, cash equivalents and restricted cash end of period$1,402 $747 
Supplemental cash flow information:
Interest paid$104 $107 
Interest received4 12 
Income taxes paid (net of refunds received)86 189 
Note: Restricted cash of $7 million and $73 million have been included with cash and cash equivalents for the 26 weeks ended August 1, 2020 and August 3, 2019, respectively.

The accompanying notes are an integral part of these Consolidated Financial Statements.
6


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

1. Organization and Summary of Significant Accounting Policies
Nature of Operations
Macy's, Inc. and subsidiaries (the "Company") is an omnichannel retail organization operating stores, websites and mobile applications under three brands (Macy's, Bloomingdale's and bluemercury) that sell a wide range of merchandise, including apparel and accessories (men's, women's and kids'), cosmetics, home furnishings and other consumer goods. The Company has stores in 43 states, the District of Columbia, Guam and Puerto Rico. As of August 1, 2020, the Company's operations were conducted through Macy's, Bloomingdale's, Bloomingdale's The Outlet, Macy's Backstage and bluemercury.
Bloomingdale's in Dubai, United Arab Emirates and Al Zahra, Kuwait are operated under a license agreement with Al Tayer Insignia, a company of Al Tayer Group, LLC.
A description of the Company's significant accounting policies is included in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2020 (the "2019 10-K"). The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto in the 2019 10-K.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company considered the novel coronavirus ("COVID-19") related impacts to its estimates, as appropriate, within its Consolidated Financial Statements and there may be changes to those estimates in future periods. The Company believes that the accounting estimates are appropriate after giving consideration to the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
The Consolidated Financial Statements for the 13 and 26 weeks ended August 1, 2020 and August 3, 2019, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company.
Seasonality
Because of the seasonal nature of the retail business, the results of operations for the 13 and 26 weeks ended August 1, 2020 and August 3, 2019 (which do not include the Christmas season) are not necessarily indicative of such results for the full fiscal year.
Comprehensive Income (Loss)
Total comprehensive income (loss) represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net income (loss). For the Company, the only other components of total comprehensive income (loss) for the 13 and 26 weeks ended August 1, 2020 and August 3, 2019 relate to post employment and postretirement plan items. Settlement charges incurred are included as a separate component of income (loss) before income taxes in the Consolidated Statements of Operations. Amortization reclassifications out of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income) and are included in benefit plan income, net on the Consolidated Statements of Operations. See Note 8, "Benefit Plans," for further information.


7

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

2. Impact of COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States. The COVID-19 pandemic has had a negative impact on the Company's fiscal 2020 operations and financial results to date, and the full financial impact of the pandemic cannot be reasonably estimated at this time due to uncertainty as to the severity and duration of the pandemic. The following summarizes the actions taken and impacts from the COVID-19 pandemic during the 13 and 26 weeks ended August 1, 2020.

The Company temporarily closed all stores on March 18, 2020, which included all Macy’s, Bloomingdale’s, Bluemercury, Macy’s Backstage, Bloomingdales the Outlet and Market by Macy’s stores. Stores began reopening on May 4, 2020 and substantially all of the Company's stores have been reopened as of August 1, 2020.

In an effort to increase liquidity, the Company fully drew on its $1,500 million credit facility, announced the suspension of quarterly cash dividends beginning in the second quarter of 2020 and took additional steps to reduce discretionary spending. The Company's Board of Directors also rescinded its authorization of any unused amounts under the Company's share repurchase program. In June 2020, the Company completed financing activities totaling nearly $4.5 billion and used a portion of the proceeds from these activities, as well as cash on hand, to repay its credit facility. To create greater flexibility for future liquidity needs, the Company executed an exchange offer and consent solicitation in July 2020 for $465 million of previously issued unsecured notes. See Note 7, "Financing Activities," for further discussion on these activities.

To improve the Company's cash position and reduce its cash expenditures, the Company's Board of Directors and Chief Executive Officer did not receive compensation from April 1, 2020 through June 30, 2020. In addition, the Company deferred cash expenditures where possible and temporarily implemented a furlough for the majority of its colleague population which ended for most colleagues at the beginning of July 2020, with the remainder expected to return in the third quarter of 2020. Certain executives not impacted by the furlough took a temporary reduction of their pay through June 30, 2020.

In June 2020, the Company announced a restructuring that aligns its cost base with anticipated near-term sales as the business recovers from the impact of the COVID-19 pandemic. The Company reduced corporate and management headcount by approximately 3,900. Additionally, the Company reduced staffing across its stores portfolio, supply chain and customer support network, which it will adjust as sales recover. During the second quarter of 2020, the Company recognized $154 million of expense for severance related to this reduction in force, of which nearly half was paid during the quarter.

During the 13 and 26 weeks ended August 1, 2020, the Company deferred rent payments for a significant number of its stores. COVID-19 pandemic-related rent deferrals are included in accounts payable and accrued liabilities. The Company continues to recognize expense during the deferral periods based on the contractual terms of the lease agreements.

During the 13 and 26 weeks ended August 1, 2020, the Company incurred non-cash impairment charges including those related to long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value. The Company also incurred a non-cash impairment charge on goodwill as a result of the sustained decline in the Company's market capitalization and decline in projected cash flows primarily as a result of the COVID-19 pandemic. See Note 3, "Impairment, Restructuring and Other Costs" and Note 4, "Goodwill and Indefinite Lived Intangible Assets," respectively, for further discussion of these charges.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act") was signed into law, which included payroll tax credits for employee retention, deferral of payroll taxes, and several income tax provisions, including modifications to the net interest deduction limitation, changes to certain property depreciation and carryback of certain operating losses.

The impacts of the CARES Act have been included in the estimation of the Company's annual effective tax rate and the income tax benefit recognized during the 13 and 26 weeks ended August 1, 2020. Specifically, the Company has estimated an annual net operating loss that will be available for carryback at a 35% federal income tax rate rather than
8

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

the current 21% federal income tax rate. During the 26 weeks ended August 1, 2020, the resultant benefit of this rate differential was offset by the impact of the non-tax deductible component of the goodwill impairment charge and additional income tax expense associated with deferred tax remeasurement during the first quarter of 2020. The net impact of these items is the primary driver of the effective tax rate decrease when compared to the same period in 2019. As of August 1, 2020, the Company recognized a $599 million income tax receivable, which is included within Other Assets on the Consolidated Balance Sheets.

In addition, during the 13 and 26 weeks ended August 1, 2020, the Company recognized $18 million and $60 million, respectively, in employee retention payroll tax credits and elected to defer payment of the employer portion of social security taxes.

3. Impairment, Restructuring and Other Costs
13 Weeks Ended26 Weeks Ended
August 1, 2020August 3, 2019August 1, 2020August 3, 2019
 (millions)
Impairments
$15 $1 $3,164 $1 
Restructuring
169  194  
Other
58 1 68 2 
Total
$242 $2 $3,426 $3 

During the 13 and 26 weeks ended August 1, 2020, primarily as a result of the COVID-19 pandemic, the Company incurred non-cash impairment charges totaling $3,164 million the majority of which consisted of:

$3,080 million of goodwill impairments, with $2,982 million attributable to the Macy's reporting unit and $98 million attributable to the Bluemercury reporting unit. See discussion at Note 4, "Goodwill and Indefinite Lived Intangible Assets."

$80 million of impairments on long-lived tangible and right of use assets to adjust the carrying value of certain store locations to their estimated fair value.

The Company also recognized $154 million of expense for severance during the 13 and 26 weeks ended August 1, 2020 associated with the reduction in force in response to the COVID-19 pandemic. Nearly half of this severance was paid during the second quarter of 2020.

A summary of the restructuring and other cash activity for the 13 and 26 weeks ended August 1, 2020 related to the Polaris strategy, which was announced in February 2020 and are included within accounts payable and accrued liabilities, is as follows:

Severance and other benefitsProfessional fees and other related chargesTotal
 (millions)
Balance at February 1, 2020$115 $9 $124 
Additions charged to expense25 7 32 
Cash payments(82)(6)(88)
Balance at May 2, 202058 10 68 
Additions charged to expense15 6 21 
Cash payments(67)(6)(73)
Balance at August 1, 2020$6 $10 $16 


9

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


4. Goodwill and Indefinite Lived Intangible Assets

August 1,
2020
February 1,
2020
August 3,
2019
(millions)
Non-amortizing intangible assets
Goodwill$9,290 $9,290 $9,290 
Accumulated impairment losses(8,462)(5,382)(5,382)
828 3,908 3,908 
Tradenames403 403 403 
$1,231 $4,311 $4,311 

As a result of the sustained decline in the Company's market capitalization and changes in the Company's long-term projections driven largely by the impacts of the COVID-19 pandemic, the Company determined a triggering event had occurred that required an interim impairment assessment for all of its reporting units and indefinite lived intangible assets during the first quarter of 2020. The Company determined the fair value of each of its reporting units using a market approach or a combination of a market approach and income approach, as appropriate. Relative to the prior assessment, as part of this current assessment, it was determined that an increase in the discount rate applied in the valuation was required to align with market-based assumptions and company-specific risk. This higher discount rate, in conjunction with revised long-term projections, resulted in lower fair values of the reporting units. As a result the Company recognized $2,982 million and $98 million of goodwill impairment for the Macy's and bluemercury reporting units, respectively, during the 26 weeks ended August 1, 2020, which included an additional $10 million impairment adjustment to properly reflect certain income tax considerations during the 13 weeks ended August 1, 2020.

As of May 2, 2020, the Company elected to perform a qualitative impairment test on its intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceeded the carrying values and the intangible assets with indefinite lives were not impaired.

For the Company's annual impairment assessment as of the end of fiscal May, the Company elected to perform a qualitative impairment test on its goodwill and intangible assets with indefinite lives and concluded that it is more likely than not that the fair values exceeded the carrying values and goodwill and intangible assets with indefinite lives were not impaired.

5. Earnings (Loss) Per Share
The following tables set forth the computation of basic and diluted earnings (loss) per share:

13 Weeks Ended
 August 1, 2020August 3, 2019
 Net
Loss
 SharesNet
Income
 Shares
 (millions, except per share data)
Net income (loss)
$(431)310.3 $86 308.9 
Shares to be issued under deferred compensation and other plans0.9 0.9 
$(431)311.2 $86 309.8 
Basic earnings (loss) per share
$(1.39)$0.28 
Effect of dilutive securities:
Stock options and restricted stock units
 1.8 
$(431)311.2 $86 311.6 
Diluted earnings (loss) per share
$(1.39)$0.28 

10

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


26 Weeks Ended
August 1, 2020August 3, 2019
Net
Loss
SharesNet
Income
Shares
(millions, except per share data)
Net income (loss)
$(4,012)310.0 $223 308.6 
Shares to be issued under deferred compensation and other plans0.9 0.9 
$(4,012)310.9 $223 309.5 
Basic earnings (loss) per share
$(12.91)$0.72 
Effect of dilutive securities:
Stock options and restricted stock units
 2.0 
$(4,012)310.9 $223 311.5 
Diluted earnings (loss) per share
$(12.91)$0.71 

For the 13 and 26 weeks ended August 1, 2020, as a result of the net loss for the quarter and year to date period, all options and restricted stock units have been excluded from the calculation of diluted earnings per share and, therefore, there was no difference in the weighted average number of common shares for basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive. Stock options to purchase 16.7 million shares of common stock and restricted stock units relating to 10.1 million shares of common stock outstanding at August 1, 2020 were excluded from the computation of diluted earnings per share.

In addition to the stock options and restricted stock units reflected in the foregoing tables, stock options to purchase 18.9 million shares of common stock and restricted stock units relating to 1.3 million shares of common stock were outstanding at August 3, 2019, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.

6.  Revenue
Net sales
Revenue is recognized when customers obtain control of goods and services promised by the Company. The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. The Company's revenue generating activities include the following:
Retail Sales
Retail sales include merchandise sales, inclusive of delivery income, licensed department income, sales of private brand goods directly to third party retailers and sales of excess inventory to third parties. Sales of merchandise are recorded at the time of shipment to the customer and are reported net of estimated merchandise returns and certain customer incentives. Commissions earned on sales generated by licensed departments are included as a component of total net sales and are recognized as revenue at the time merchandise is sold to customers. Service revenues (e.g., alteration and cosmetic services) are recorded at the time the customer receives the benefit of the service. The Company has elected to present sales taxes on a net basis and, as such, sales taxes are included in accounts payable and accrued liabilities until remitted to the taxing authorities.
For the 13 and 26 weeks ended August 1, 2020, Macy's accounted for 89% and 88%, respectively, of the Company's net sales. For each of the 13 and 26 weeks ended August 3, 2019, Macy's accounted for 88% of the Company's net sales. Disaggregation of the Company's net sales by family of business for the 13 and 26 weeks ended August 1, 2020 and August 3, 2019 were as follows:
11

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

13 Weeks Ended26 Weeks Ended
Net sales by family of businessAugust 1, 2020August 3, 2019August 1, 2020August 3, 2019
 (millions)
Women's Accessories, Intimate Apparel, Shoes, Cosmetics and Fragrances
$1,381 $2,039 $2,596 $4,191 
Women's Apparel
626 1,269 1,205 2,582 
Men's and Kids'
727 1,266 1,299 2,468 
Home/Other (a)
825 972 1,476 1,809 
Total
$3,559 $5,546 $6,576 $11,050 
(a) Other primarily includes restaurant sales, allowance for merchandise returns adjustments and breakage income from unredeemed gift cards.
Merchandise Returns
The Company estimates merchandise returns using historical data and recognizes an allowance that reduces net sales and cost of sales. The liability for merchandise returns is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $140 million, $269 million and $227 million as of August 1, 2020, February 1, 2020 and August 3, 2019, respectively. Included in prepaid expenses and other current assets is an asset totaling $114 million, $147 million and $154 million as of August 1, 2020, February 1, 2020 and August 3, 2019, respectively, for the recoverable cost of merchandise estimated to be returned by customers.
Gift Cards and Customer Loyalty Programs
The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold or issued, no revenue is recognized; rather, the Company records an accrued liability to customers. The liability is relieved and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for merchandise. The Company records revenue from unredeemed gift cards (breakage) in net sales on a pro-rata basis over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption patterns.
The Company maintains customer loyalty programs in which customers earn points based on their purchases. Under the Macy’s brand, points are earned based on customers’ spending on Macy’s private label and co-branded credit cards as well as third-party credit cards. Under the Bloomingdale’s brand, the Company offers a tender-neutral points-based program. The Company recognizes the estimated net amount of the rewards that will be earned and redeemed as a reduction to net sales at the time of the initial transaction and as tender when the points are subsequently redeemed by a customer.
The liability for unredeemed gift cards and customer loyalty programs is included in accounts payable and accrued liabilities on the Company's Consolidated Balance Sheets and was $675 million, $839 million and $654 million as of August 1, 2020, February 1, 2020 and August 3, 2019, respectively.
Credit Card Revenues, net
In 2005, the Company entered into an arrangement with Citibank, N.A. ("Citibank") to sell the Company's private label and co-branded credit cards ("Credit Card Program"). Subsequent to this initial arrangement and associated amendments, in 2014, the Company entered into an amended and restated Credit Card Program Agreement (the "Program Agreement") with Citibank. As part of the Program Agreement, the Company receives payments for providing a combination of interrelated services and intellectual property to Citibank in support of the underlying Credit Card Program. Revenue based on the spending activity of the underlying accounts is recognized as the respective card purchases occur and the Company’s profit share is recognized based on the performance of the underlying portfolio. Revenue associated with the establishment of new credit accounts and assisting in the receipt of payments for existing accounts is recognized as such activities occur. Credit card revenues include finance charges, late fees and other revenue generated by the Company’s Credit Card Program, net of fraud losses and expenses associated with establishing new accounts.


7. Financing Activities

Prior to June 2020, the Company was party to a credit agreement with certain financial institutions. The credit agreement provided for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million. The credit agreement was scheduled to expire on May 9, 2024, subject to up to two one-year extensions that could be requested by the
12

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

Company and agreed to by the lenders. On March 19, 2020, due to the impacts of the COVID-19 pandemic, the Company elected to draw on the full $1,500 million available under the agreement. As discussed further below, during the second quarter of 2020, this amount was repaid and the credit agreement amended.

2020 Financing Activities

Secured Debt Issuance

On June 8, 2020, the Company issued $1,300 million aggregate principal amount of 8.375% senior secured notes due 2025 (the "Notes"). The Notes bear interest at a rate of 8.375% per annum, which accrues from June 8, 2020 and is payable in arrears on June 15 and December 15 of each year, commencing on December 15, 2020. The Notes mature on June 15, 2025, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by Macy’s, Inc. and are secured on a first-priority basis by (i) a first mortgage/deed of trust in certain real property of subsidiaries of Macy’s, Inc. that was transferred to subsidiaries of Macy’s Propco Holdings, LLC, a newly created direct, wholly owned subsidiary of Macy’s, Inc. (“Propco”), and (ii) a pledge by Propco of the equity interests in its subsidiaries that own such transferred real property. The Notes are, jointly and severally, unconditionally guaranteed on a secured basis by Propco and its subsidiaries and unconditionally guaranteed on an unsecured basis by Macy’s Retail Holdings, LLC (f/k/a Macy’s Retail Holdings, Inc.) (“MRH”), a direct, wholly owned subsidiary of Macy’s, Inc. The Company used the proceeds of the Notes offering, along with cash on hand, to repay the outstanding borrowings under the existing $1,500 million unsecured credit agreement.

Entry into Asset-Based Credit Facility

On June 8, 2020, Macy’s Inventory Funding LLC (the “ABL Borrower”), an indirect wholly owned subsidiary of the Company, and its parent, Macy’s Inventory Holdings LLC (the “ABL Parent”), entered into an asset-based credit agreement (the “ABL Credit Facility”) with Bank of America, N.A., as administrative agent and collateral agent, and the lenders party thereto. The ABL Credit Facility provides the ABL Borrower with (i) a $2,926 million revolving credit facility (the “Revolving ABL Facility”), including a swingline sub-facility and a letter of credit sub-facility, and (ii) a bridge revolving credit facility of up to $300 million (the “Bridge Facility”). The ABL Borrower may request increases in the size of the Revolving ABL Facility up to an additional aggregate principal amount of $750 million.

Additionally on June 8, 2020 and concurrently with closing the ABL Credit Facility, the ABL Borrower purchased all presently existing inventory, and assumed the liabilities in respect of all presently existing and outstanding trade payables owed to vendors in respect of such inventory, from MRH and certain wholly owned subsidiaries of MRH. The ABL Credit Facility is secured on a first priority basis (subject to customary exceptions) by (i) all assets of the ABL Borrower including all such inventory and the proceeds thereof and (ii) the equity of the ABL Borrower. The ABL Parent guaranteed the ABL Borrower’s obligations under the ABL Credit Facility. The Revolving ABL Facility matures on May 9, 2024, and the Bridge Facility matures on December 30, 2020.

The ABL Credit Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) 80% (which shall automatically increase to 90% upon the satisfaction of certain conditions, including the delivery of an initial appraisal of the inventory) of the net orderly liquidation percentage of eligible inventory, minus (b) customary reserves. Amounts borrowed under the ABL Credit Facility are subject to interest at a rate per annum equal to (i) prior to the Step Down Date (as defined in the ABL Credit Facility), at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.75% to 3.00% or (b) a base rate plus a margin of 1.75% to 2.00%, in each case depending on revolving line utilization and (ii) after the Step Down Date, at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.25% to 2.50% or (b) a base rate plus a margin of 1.25% to 1.50%, in each case depending on revolving line utilization. The ABL Credit Facility also contains customary covenants that provide for, among other things, limitations on indebtedness, liens, fundamental changes, restricted payments, cash hoarding, and prepayment of certain indebtedness as well as customary representations and warranties and events of default typical for credit facilities of this type.
 
The ABL Credit Facility also requires (1) the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any fiscal quarter on or after April 30, 2021 if (a) certain events of default have occurred and are continuing or (b) Availability plus Suppressed Availability (each as defined in the ABL Credit Facility) is less than the greater of (x) 10% of the Loan Cap (as defined in the ABL Credit Facility) and (y) $250 million, in each case, as of the end of
13

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

such fiscal quarter and (2) prior to April 30, 2021, that the ABL Borrower not permit Availability plus Suppressed Availability to be lower than the greater of (x) 10% of the Loan Cap and (y) $250 million.

Amendment to Existing Credit Agreement

On June 8, 2020, the Company substantially reduced the credit commitments of its existing $1,500 million unsecured credit agreement, which now provides the Company with unsecured revolving credit of up to $25 million. The unsecured revolving credit facility contains covenants that provide for, among other things, limitations on fundamental changes, use of proceeds, and maintenance of property, as well as customary representations and warranties and events of default.

Exchange Offers and Consent Solicitations for Certain Outstanding Debt Securities of Macy’s Retail Holdings, LLC

During the second quarter of 2020, MRH completed exchange offers (each, an “Exchange Offer” and, collectively, the “Exchange Offers”) with eligible holders and received related consents in consent solicitations for each series of notes as follows:

(i) $81 million aggregate principal amount of 6.65% Senior Secured Debentures due 2024 (“New 2024 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.65% Senior Debentures due 2024 issued by MRH (“Old 2024 Notes”);
(ii) $74 million aggregate principal amount of 6.7% Senior Secured Debentures due 2028 (“New 2028 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2028 issued by MRH (“Old 2028 Notes”);
(iii) $13 million aggregate principal amount of 8.75% Senior Secured Debentures due 2029 (“New 2029 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 8.75% Senior Debentures due 2029 issued by MRH (“Old 2029 Notes”);
(iv) $5 million aggregate principal amount of 7.875% Senior Secured Debentures due 2030 (“New 2030 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 7.875% Senior Debentures due 2030 issued by MRH (“Old 2030 Notes”);
(v) $5 million aggregate principal amount of 6.9% Senior Secured Debentures due 2032 (“New 2032 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.9% Senior Debentures due 2032 issued by MRH (“Old 2032 Notes”); and
(vi) $183 million aggregate principal amount of 6.7% Senior Secured Debentures due 2034 (“New 2034 Notes” and, together with the New 2024 Notes, New 2028 Notes, New 2029 Notes, New 2030 Notes and New 2032 Notes, the “New Notes” and each series, a “series of New Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2034 issued by MRH (“Old 2034 Notes” and, together with the Old 2024 Notes, Old 2028 Notes, Old 2029 Notes, Old 2030 Notes and Old 2032 Notes, the “Old Notes” and each series, a “series of Old Notes”).

Each New Note issued in the Exchange Offers for a validly tendered Old Note has an interest rate and maturity date that is identical to the interest rate and maturity date of the tendered Old Note, as well as identical interest payment dates and optional redemption prices. The New Notes are MRH’s and Macy’s general, senior obligations and are secured by a second-priority lien on the same collateral securing the Notes. Following the settlement, the aggregate principal amounts of each series of Old Notes outstanding are: (i) $41 million Old 2024 Notes, (ii) $29 million Old 2028 Notes, (iii) $5 million Old 2030 Notes, (iv) $12 million Old 2032 Notes and (v) $18 million Old 2034 Notes.

In addition, MRH solicited and received consents from holders of each series of Old Notes (each, a “Consent Solicitation” and, collectively, the “Consent Solicitations”) pursuant to a separate Consent Solicitation Statement to adopt certain proposed amendments to the indenture governing the Old Notes (the “Existing Indenture”) to conform certain provisions in the negative pledge covenant in the Existing Indenture to the provisions of the negative pledge covenant in MRH’s most recent indenture (the “Proposed Amendments”). MRH received consents from holders of (i) $85 million aggregate principal amount of outstanding Old 2024 Notes, (ii) $77 million aggregate principal amount of outstanding Old 2028 Notes, (iii) $13 million aggregate principal amount of outstanding Old 2029 Notes, (iv) $5 million aggregate principal amount of outstanding Old 2030 Notes, (v) $6 million aggregate principal amount of outstanding Old 2032 Notes, and (vi) $185 million aggregate principal amount of outstanding Old 2034 Notes.

14

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

Debt Repayments
The following table shows the detail of debt repayments:

26 Weeks Ended
August 1, 2020August 3, 2019
 (millions)
Revolving credit agreement $1,500 $ 
8.5% Senior debentures due 2019
 36 
9.5% amortizing debentures due 2021
2 2 
9.75% amortizing debentures due 2021
1 1 
$1,503 $39 




8. Benefit Plans
The Company has defined contribution plans which cover substantially all colleagues who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan ("Pension Plan") and an unfunded defined benefit supplementary retirement plan ("SERP"), which provides benefits, for certain colleagues, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible colleagues no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.
In addition, certain retired colleagues currently are provided with specified health care and life insurance benefits ("Postretirement Obligations"). Eligibility requirements for such benefits vary, but generally state that benefits are available to eligible colleagues who were hired prior to a certain date and retire after a certain age with specified years of service. Certain colleagues are subject to having such benefits modified or terminated.
The defined contribution plan expense and actuarially determined components of the net periodic benefit cost (income) associated with the defined benefit plans are as follows:
15

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

13 Weeks Ended26 Weeks Ended
August 1, 2020August 3, 2019August 1, 2020August 3, 2019
(millions)(millions)
401(k) Qualified Defined Contribution Plan$19 $24 $32 $49 
Non-Qualified Defined Contribution Plan$ $1 $ $2 
Pension Plan
Service cost$2 $