Financial Analysis Final Report

Macy’s

Thomas McDonald

MBA-520

Southern New Hampshire University

The purpose of this course and this paper is to successfully analyze, from a financial perspective,

prospective market domains and either real or self-created businesses to ascertain their ability to

grow and receive the financial assistance through investment to grow and maintain that business

either by means of enhancement or by expansion of the business into new areas by location or by

logistics and marketing. The company I chose to analyze is one that I have been a part of for

most of career. Macy’s is considered an industry leader in the Department Store Market Domain

and is the leading second tier department store chain in the United States. Macy’s became a

global company with brick and mortar expansion into the Persian Gulf and Ecommerce into

China. In order to keep growing, Macy’s will need to be more innovative in their retail approach

to fit changes in their economic market and customer demographics. This paper will examine

just how Macy’s can possibly achieve their long-term goals of becoming an industry leader on a

global scale. In turn, improving how they achieve their current objectives by examining their

financial status and how the upgrade of their latest innovations such as Omni-channel to expand

the amount of inventory that is ordered be directly shipped to the consumer from the supplier,

reexamining demand of merchandise that is seasonal and price simplification policies can

potentially expand the amount of revenue made by the company.

Organization

Macy’s, founded in 1858, is organized as a publicly traded Multinational Corporation based in

Cincinnati, Ohio, USA. Macy’s is mainly a second tier, though a first tier in some markets,

Department Store chain selling apparel, accessories, beauty, including furniture in both a

traditional setting as well as in E-commerce. Both traditional and electronic sales can and are

integrated as part of an Omni-channel sales distribution and marketing progress (Poloian, 2014).

Its primary customers are women 30-50 year’s old, career minded and single or raising families.

Macy’s will soon change its primary customer from Baby Boomers, they’re primary customers

since the mid 1990’s to Millennial’s who the company is expanding their marketing towards.

Recent marketing efforts geared their business closer to younger millennial customers to being in

a broader clientele.

By 2016, Macy’s will operate 770 stores in 45 states, Washington D.C., Guam as well operates

stores under the higher end Bloomingdales and Bloomingdales outlets stores and is currently

opening an off-price chain called Macy’s Backstage with 6 stores in greater New York City and

Northern New Jersey (Jennifer, D. P., 2015). Macy’s also operates a Bloomingdales in Dubai and

soon will open a Macy’s there as well (Macy’s 2015). At home Macy’s has shown the ability to

partner in store sales with various companies including Best Buy and Finish Line (Entertainment

Newsweekly, 2015). Macy’s also bought like the Makeup Company Blue Mercury allowing

Macy’s to diversify their product lines by adding companies rather than adding product.

Recently, Macy’s reached an agreement with the Chinese Retailer Alibaba to expand

Macy’s.com into China giving them access to world’s largest retail marketplace.

Macy’s is organized as a traditional Corporation licensed in Delaware with an Executive Team

lead by President Jeffrey Gennette and CEO Terry Lundgren. Macy’s also has a Board of

Directors, Chaired by Lundgren, finalizes all major sales, business and financial decisions. Sales

and Earnings are recorded in a monthly, quarterly and annual basis. Quarterly Reports include

updates on assets and liabilities as well as monitor cash flow for the period. The standard

business cycle is semi-annual (fall and spring seasons) the years 4th quarter (Nov-Jan) is the

stores busiest generating 35 percent of annual income and often can be the largest contributing

factor to the company’s fiscal prosperity.

Financial Performance

In the fiscal years 2012 to 2014, Macy’s has a record of modest sustained growth that rivals any

traditional Department Store retailer. In 2014, Macy’s success brought in sales of $28,107,000

as compared to $27,933,000 in 2013 and $27,689,000 in 2013 and 2012 respectively (Appendix

A). Meantime though cost of goods sold also increased, though it grew at a slower rate. This

along with respective increases in net income have resulted in higher revenues to allow Macy’s

to buy back and retire some stock to increase dividend potential. The end result was increases in

Stock Prices to $59.41 on January 30, 2015 from $39.52 in January, 2013. Dividends would be

paid at $1.1875 per share in January, 2015 compared to $.80 per share in January 2013 (Macy’s,

2015).

With the success these financial statements there is a need to be cautious there are two major

indicators that foreshadow problems for Macy’s. The first is the increased share of retail business

going to Ecommerce organizations such as Amazon.com (Covert, J., 2015, July 24). How much

these companies are selling and what they are selling especially if they are selling less clothing

and more electronics indicates that shoppers show signs of decreased sales due to reduced

amounts of discretionary income. The reports proved this as when sales failed to meet

expectations at most non electrics retailers Macy’s was no exception (FT.com, 2015). Macy’s

and many other retailers missed their both their first and second quarter sales projections (Macys,

2015) causing Macy’s to drop its stock value from a high of 79.05 in March to the present price

of 50.47 as of October 16, 2015 then dropped to 38.49 but recently rebounded to 40.89 at the

time of this report. (Marketwatch).

If there is one financial report that Macy’s is very good at maintaining relative stability even with

the changes is Cash Flow. For a retailer that is aggressively attempting and succeeding in

becoming a part of a global market having cash on hand to pay their employees and pay bills

while seeking financing for projects such as licensing agreements overseas and enhancing

distribution and information technology often require cash on hand. Macy’s annual cash flow

report indicate this use of cash in order to make necessary changes to the company in in both

2014 and 2015 Macy’s successfully maintain a free cash flow of 1.94 billion dollars

(Marketwatch) (Appendix C). As a means to increase the company’s Cash Flow and reduce the

number of fixed assets the company had. Macy’s made a decision to sell real estate holdings.

This allows Macy’s to increase their liquidity to either invest in the purchase of stock with the

help of the issuance of Bonds (Gurufocus, 2015) or to further invest in the corporate

infrastructure to enhance their supply chain capacity and maintain a decent amount of retained

earnings for their shareholders which allows investors to remain upbeat on the company despite

sales issues.

Financial Health

Macy’s has over the past couple years managed to stabilize much of their finances after years of

paying for the acquisition of May Company in 2006. Current and Quick Ratio have increased

modestly over the three year period. Profit Margin has increased as well from 1.53% in 2012 to

1.80% in 2014 Return on Equity was one of the biggest indicators that improved to 9.43% in

2014 from 6.99% in 2012 (Macys, 2015). Nearly every indicator grew in from 2013 to 2014 with

the exception of Days Sales Outstanding which actually drop slightly from 29.70 in 2013 to

29.17 in 2014(Appendix A). This was a sign that current sales are starting to lessen versus costs

and liability pressures and should be the case for long term concern to their price differentiation

strategy which utilized a near constant promotional cycle where sales especially in Fourth

Quarter even overlapped each other.

However, this ability of Macy’s and other retailer to accurately analyze business growth in 2015

had not quite picked up on this shift in the retail industry. With Macy’s missing both first and

second quarter projections (Appendix B). Instead of projected 2 percent gains in sales, Macy’s

sales including leased businesses fell flat (Newstex, 2015). Chairman and CEO Terry Lundgren

noted this in an interview on Bloomberg TV. “They're just not buying apparel and accessories

the way that we had planned and hoped that they would.” (Analyst Wire, 2015).

Investors in 2015 expressed concerns about Macy’s having too many fixed assets, particularly in

retail real estate. The Board of Directors implemented a strategy to sell all of Macy’s owned real

estate. The result of the sales of real estate would add to Macy’s cash flow. That being said, the

sales of certain real estate along with closures of underperforming stores will require greater

sales from all retail channels with less outlets from which the store will sell. Confidence still

abound at Macy’s does due to determining factors in investment for the company.

As of November 24, 2015, Macy's Inc.’s weighted average cost of capital is 8.93%. Macy's Inc.’s

return on invested capital is 14.01%. Macy's Inc. generates higher returns on investment than it

costs the company to raise the capital needed for that investment. It is earning excess returns. A

firm that expects to continue generating positive excess returns on new investments in the future

will see its value increase as growth increases (Gurufocus, 2015).

Potential Impacts of Augmenting the Omni-Channel Merchandising Concept

In order to implement any enhancements into a current organizations. The Business Plan has a

requirement to ensure that whatever risks are taken in the process of development and further

implementation including financial, time and contingency expenses as well as how much

potential gains that could be made by the changes made to this particular concepts. In 2005, as

traditional retailers were realizing the impacts, of running two retail channels one Ecommerce

and the other Brick and Mortar stores they realized that utilizing separated multi-channel retail

operations were eventually going to handicap those retail organizations committed to

maintaining those separate operations. The integration of the various retail business channels

within an organization was developed and given the name Omni-channel.

From the inauguration of this concept retailer began to work on technological and conceptual

improvements from the Omni-channel concept (Verhoef, P. C., et al., 2015). These

improvements like Buy Online, Pickup in Store concepts used by companies such as Best Buy

and Macy’s and Applications help customers find products available in distribution and in stores

and create packages from any wireless technology have made the traditional retail much more

accessible to the buyer (Prior, M., & Karr, A. J., 2013). The need to innovate the Omni-channel

retail concept and creating this flexibility was innovation that could, despite the amount of risk

due to competition, was deemed necessary throughout Department Store Retail (Laksmana, I.,

Yang, Y., 2015). There is still one issue that needs to be resolve and that is the ability of the

buyers to access particular products considered by retailers to be strictly seasonal. Often it is an

issue of the weather extending from one season to another and the product needed is no longer

available. Due to these issues, it is needed to see the amount of risk and the potential of

maintaining more basic items in some capacity available to customers on a year round basis. We

will also look at the opportunities that can be created by being able to order merchandise for our

customers directly from our suppliers.

The first thing we need to examine if you are traditional retailer is what products typically are

those items you sell that are typically sold as seasonal merchandise but most buyers consider

really to be needed on a year round basis. One item that is considered to be strictly seasonal as a

holiday gift item are travel kits for men, which are just available during the holidays. When

summer comes and vacation is close by, the customer finds there is no availability. The answer

to this make travel kits year round merchandise in limited styles and quantities in all locations or

be made available for order in locations that have availability year round as in the case of

swimwear that is available in Miami all year can then be ordered and shipped to New York for

sale when sales in store are not a peak.

Another means of getting merchandise to the customer is by skipping the stores logistical

channels altogether and having search and send orders be sent directly from the manufacturers.

Several department store clothing and footwear suppliers already provide the service to

department stores such as Dillard’s and Macy’s (Wireless News, 2014). However, less than 3%

of all store inventories can be ordered directly from the supplier and shipped to the end customer.

Being able to expand this enhancement to even double the amount of items to six percent of

merchandise ordered through the internet and brick and mortar that could be ordered this way.

Reducing supply chain costs, provides retailers with a broader picture of what the customer is a

buying in their store local trading areas. This will give Macy’s a retailing alternative to

Amazon.com’s selling merchandise online from a third-party and allow Macy’s to allocate

fulfillment to focus on expanding their basic merchandise assortments in the more localized

manner at distribution on items. This allows the retailer to free up the merchandising budget for

their brick-and-mortar stores to sell greater assortments of products including expanding certain

seasonal assortments to year round basic products.

The reasons for doing these augmentations are very simple and is based on the intensity of

competition not just between second tier department store retailers, but retailers on other tiers,

competing specialty stores and last but not least, e-commerce retailers. When you look at the

Herfindahl-Hirschmann Index for Department Store retailers it may not look like there’s much

competition, Macy’s is the dominant store with in that level. But as you expand to competitors

on all levels of department store retail, the amount of competition in the level of index for

Macy’s gets much smaller (Appendix C). Department Store Market Domain is classified as a

"moderately concentrated" market domain. If you add e-commerce retailers and specialty stores,

then you see to the degree of just how competitive retail is in the United States. The amount of

risk taking normally done in a very competitive industry such as retail is primarily geared to

perform two basic functions (Laksmana, I., Yang, Y., 2015). The first, is to satisfy the customer

by making products available to the customer at the best price possible. The second, is to have

merchandise available to the customer when the consumer needs to have that product available.

The next step in this process will be to see if these augmentations of the Omni-channel concept

can enhance the amount of business a retailer can make; all the while, maintaining or even

reducing the cost of goods sold and to measure the impact on customer and supplier service.

The potential costs may at first seem major, and yes there will be some impacts made on several

aspects financially. The first is in cost of goods sold, keeping inventory either extended further

into the next season or the case of some primarily summer seasonal items year round in some

areas requires increased overhead. Second, if seasonal inventory is stored at those warmer

weather stores, there will be needed allocations far as inventory goes to take away from the

general inventory budgets to accommodate greater physical quantities of these non-seasonal

items (Appendix B). This may have a short term consequence of reducing sales as inventory

allocates due to these changes. How these changes as a whole will not have a grave impact as

these changes in the end effect approximate, 2 percent increase of Macy’s total inventory.

Roughly the inventory budget would need to increase about an additional 35 million dollars for

the FY 2016 for the initial investment of new basic year-round merchandise. Also IT investments

to enhance these innovations only modest software upgrades which can cost up to

$1,000,000(USD) in implementation and training. However, this can lead to further and potential

repeat business throughout all of Macy’s channels as a result of increased use of all of Macy’s

retail sales portals. Many of which are worth looking at in depth.

The potential 2016 growth of direct sales through these augmentations is roughly 1 to 2 percent

overall sales roughly $300-600,000,000 (annual) cause of the use of ordering direct from the

manufacturer on several items added to the current list, this will allow the retailer to be able to

streamline some inventories to make augmenting the seasonal merchandise plan much easier to

follow (Appendix E).

As Macy’s face challenges to bring improvement in their sales against the increasingly tense

competition from retailers of all shapes from other big box retailers to specialty store to

Ecommerce retailers. Macy’s, as they streamline the number of their stores, needs to be able to

show that they can make their business both more efficient as well provide the assortments the

customer is looking for. The augmentation of both expanding the availability of certain seasonal

merchandise and getting customer orders shipped directly from the supplier stems the lost

revenue due greater competition for our consumers disposable income as well as greater ability

for our products that we sell from a variety of competition. Setting pricing policies that simplify

the Omni-channel shopping experience.

Summary:

Macy’s has enjoyed a long history of providing the buying public with the best products at prices

that can attract a large number of consumers. A traditional brick and mortar store chain, it is now

enjoying success as an online retailer and has integrated their retail channels following the Omni-

channel merchandising process. However, it is, like most retailers, facing a slowdown in sales

due to several factors in the marketplace in the US. In order to retain business domestically and

fulfill its wants to expand into the global market place. Macy’s requires and will prefer to

reallocate assets and to create the finances to achieve them including the sales of their real estate

properties. In order to maintain present goals to meet their obligations to their shareholders, they

will need to reallocate their investments into upgrading their distribution and their supplier

networks while bring innovation into their brick and mortar operations while continuing a

modest strategic downsizing of their current stores while continuing to show a reduced customer

demographic. There will be some short term costs. If Macy’s can be successful in transforming

itself into a global force in retail, the long term benefits will most provide stakeholders of the

company mutual benefit.

Sources:

Internet Sources:

Macys Website retrieved October 8, 2015 from www.macys.com

Marketwatch Website retrieved October 18, 2015 from www.marketwatch.com

Gurufocus weighted cost of capitol report retrieved November 24, 2015 from

http://www.gurufocus.com/term/wacc/M/Weighted%2BAverage%2BCost%2BOf%2BCapital

%2B%2528WACC%2529/Macy%2527s%2BInc

Written Sources:

Poloian, L. R., (2014). Retailing principles: A global outlook (4th ed.). New York: Fairchild

Publications.

Macy's, Inc.; Macy’s and best buy partner to test consumer electronics departments in Macy’s

stores. (2015). Entertainment Newsweekly,, 97. Retrieved from http://ezproxy.snhu.edu/login?

url=http://search.proquest.com/docview/1712937410?accountid=3783

Covert, J. (2015, Jul 24). Amazon $265B warrior tops Walmart’s cap. New York Post Retrieved

from http://ezproxy.snhu.edu/login?url=http://search.proquest.com/docview/1698407634?

accountid=3783

L2 think tank: Will Macy’s acquisition of blue mercury change beauty search? (2015). . .

Chatham: Newstex. Retrieved from

http://ezproxy.snhu.edu/login?url=http://search.proquest.com/docview/1666365177?

accountid=3783

Proactive investors: Macy's to close 35-40 stores in early 2016 to trim costs. (2015). (). Chatham:

Newstex. Retrieved from

http://ezproxy.snhu.edu/login?url=http://search.proquest.com/docview/1710269754?

accountid=3783

Jennifer, D. P. (2015). Can Macy’s win in the off-price market? National Real Estate Investor,

Retrieved from http://ezproxy.snhu.edu/login?url=http://search.proquest.com/docview/

1682241267?accountid=3783

US department store chain Macy’s disappoints. (2015). FT.Com, Retrieved from

http://ezproxy.snhu.edu/login?url=http://search.proquest.com/docview/1687764014?

accountid=3783

Macy's Chmn & CEO terry lundgren intvd on bloomberg TV. (2015). Analyst Wire,

Verhoef, P. C., Kannan, P. K., & Inman, J. J. (2015). From multi-channel retailing to omni-

channel retailing. Journal of Retailing, 91(2), 174-181.

doi:http://dx.doi.org/10.1016/j.jretai.2015.02.005

Prior, M., & Karr, A. J. (2013). Macy's working on in-store pickup. Wwd, 206(64), 2.

Laksmana, I., Yang, Y., (2015), “Product market competition and corporate investment

decisions”, Review of Accounting and Finance, Vol. 14 iss 2 pp. 128-148 retrieved from

http://dx.doi.org/10.1108/RAF-11-2013-0123

CommerceHub reports 2013 retail gross merchandise value. (2014). Wireless News, Retrieved

from http://ezproxy.snhu.edu/login?url=http://search.proquest.com/docview/1498180457?

accountid=3783

Macy's backstage unveils new pilot store locations in metro New York City. (2015). Wireless

News, Retrieved from http://ezproxy.snhu.edu/login?url=http://search.proquest.com/docview/

1687868355?accountid=3783

Appendix A: Annual Statements (Million $)

Balance Sheet 2014 2013 2012AssetsCash 2,246.00$ 2,273.00$ 1,836.00$ (Million $)Accounts Receivable 424.00$ 339.00$ 390.00$ Inventory Prepaid and other current 6,009.00$ 6,065.00$ 5,754.00$ Total Current Assets 8,679.00$ 8,688.00$ 7,876.00$ Gross Fixed Assets 12,782.00$ 12,932.00$ 969.00$ Less: accumulated depreciation -$ -$ -$ Net Fixed Assets 12,782.00$ 12,932.00$ 13,115.00$ Total Assets 21,461.00$ 21,620.00$ 20,991.00$

Liabilities and EquityAccounts Payable 4,802.00$ 4,501.00$ 4,189.00$ Notes Payable 76.00$ 463.00$ 124.00$ Other Current Liabilities 658.00$ 762.00$ 762.00$ Total current liabilities 5,536.00$ 5,726.00$ 5,075.00$ and other liabilites 10,547.00$ 9,645.00$ 9,865.00$ Total Debt 16,083.00$ 15,371.00$ 14,940.00$ Common Stock (100,000 shares) 340.60$ 364.90$ 405.50$ Total Common Equity 5,378.00$ 6,249.00$ 6,051.00$ Total Liabilities and Equity 21,461.00$ 21,620.00$ 20,991.00$

Income Statement

Sales and Interest Income 28,107.00$ 27,933.00$ 27,689.00$ Cost of Goods Sold 16,863.00$ 16,725.00$ 16,538.00$ Other Expenses 8,442.00$ 8,528.00$ 8,487.00$ Total Oper Exp. Ex Dep and Amor 25,305.00$ 25,253.00$ 25,025.00$ EBITDA 2,802.00$ 2,680.00$ 2,664.00$ Depreciation and Amortization 1,036.00$ 1,020.00$ 1,049.00$ Earning before interest and taxes 1,766.00$ 1,660.00$ 1,615.00$ Interest Expense 395.00$ 390.00$ 425.00$ Earning Before Taxes 1,371.00$ 1,270.00$ 1,190.00$ Taxes 864.00$ 804.00$ 767.00$ Net Income 507.00$ 466.00$ 423.00$

Earning Per Share 4.30$ 3.93$ 3.29$ Dividends PerShare 1.19$ 0.95$ 0.80$ Book Value Per Share 19.07$ 12.15$ 12.22$ Stock Price 59.41$ 42.54$ 39.52$ Shares Outstanding 355.20$ 364.90$ 405.50$

Tax Rate

RatiosCurrent Ratio 1.57 1.52 1.55Quick Ratio 0.48 0.46 0.44Inventory Turnover 2.81 4.61 4.81Days Sales Outstanding 29.17 29.70 24.20Fixed Assets Turnover 2.20 2.16 2.11Total Assets Turnover 1.31 1.29 1.32Debt to Asset Ratio 0.75 0.71 0.71Times Interest Earned 4.47 4.26 3.80Operating Margin 6.28% 5.94% 5.83%Profit Margin 1.80% 1.67% 1.53%Basic Working Power 8.23% 7.68% 7.69%Return On Assets 2.36% 2.16% 2.02%Return On Equity 9.43% 7.46% 6.99%Price/Earnings 13.82 10.82 12.01 Market/Book 3.12 3.50 3.23 Book Value Per Share 19.07 12.15 12.22

Appendix B Quarterly Statements Retained Earnings Statement for 1st Qtr. 2015

$% to Net

sales $% to Net

sales

Net sales 6,232$ 6,279$

Cost of sales (Note 2) 3,800 61.0% 3,836 61.1%

Gross margin 2,432 39.0% 2,443 38.9%

Selling, general and administrative expenses (2,023) (32.4%) (2,000) (31.8%)

Operating income 409 6.6% 443 7.1%

Interest expense - net (95) (100)

Income before income taxes 314 343

Federal, state and local income tax expense (Note 3) (121) (119)

Net income 193$ 224$

Basic earnings per share 0.57$ 0.61$

Diluted earnings per share 0.56$ 0.60$

Average common shares:Basic 340.7 365.9Diluted 346.5 372.6

End of period common shares outstanding 337.6 361.8

Depreciation and amortization expense 259$ 253$

13 Weeks EndedMay 2, 2015

13 Weeks EndedMay 3, 2014

Appendix C - 2014 Herfindahl Hirschmann Index –Department Stores

HHI - Department Store Retail - FY 2014

Retailer Sales (Million$) %Share (% share)2

Macy's $27.93 30.67% 940.41

Dillard's $6.12 6.72% 45.16

Belk $4.00 4.39% 19.29

Boston Group $2.83 3.11% 9.68

Hudson’s Bay $3.10 3.40% 11.58

Nordstrom $13.51 14.83% 219.89

Boscov's $1.05 1.15% 1.33

JC Penney $12.26 13.46% 181.10

Kohl's $19.03 20.89% 436.58

Von Maur $1.25 1.37% 1.88

Total Sales: $91.08 Total HHI: 1866.91

Appendix D: Cash Flow Statements

Operating Activities

Fiscal year is February-January. All values USD millions. 2013 2014 2015

Net Income before Extra ordinaries 1.34B 1.49B 1.53B

Depreciation, Depletion & Amortization 1.05B 1.02B 1.04B

Depreciation and Depletion 1.01B 986M 1.01B

Amortization of Intangible Assets 37M 34M 31M

Deferred Taxes & Investment Tax Credit 14M (142M) 29M

Deferred Taxes 14M (142M) 29M

Investment Tax Credit - - -

Other Funds 50M 338M 155M

Funds from Operations 2.45B 2.7B 2.75B

Extra ordinaries - - -

Changes in Working Capital (187M)(153M) (37M)

Receivables 7M (58M) 22M

Accounts Payable (10M) 149M 20M

Other Assets/Liabilities 23M (2M) (54M)

Net Operating Cash Flow 2.26B 2.55B 2.71B

Investing Activities

2013 2014 2015

Capital Expenditures (942M) (863M) (1.07B)

Capital Expenditures (Fixed Assets) (698M) (607M) (770M)

Capital Expenditures (Other Assets) (244M) (256M) (298M)

Net Assets from Acquisitions 0 0 0

Sale of Fixed Assets & Businesses 66M 132M 172M

Purchase/Sale of Investments 0 0 0

Purchase of Investments 0 0 0

Sale/Maturity of Investments 0 0 0

Other Uses 0 (57M) (74M)

Other Sources 13M 0 -

Net Investing Cash Flow (863M) (788M) (970M)

Financing Activities

2013 2014 2015

Cash Dividends Paid - Total (324M) (359M) (421M)

Common Dividends (324M) (359M) (421M)

Preferred Dividends 0 0 0

Change in Capital Stock (1.16B) (1.26B) (1.64B)

Repurchase of Common & Preferred Stk. (1.4B) (1.57B) (1.9B)

Sale of Common & Preferred Stock 234M 315M 258M

Proceeds from Stock Options 234M 315M 258M

Other Proceeds from Sale of Stock 0 0 0

Issuance/Reduction of Debt, Net (814M) 267M 165M

Change in Current Debt 0 0 0

Change in Long-Term Debt (814M) 267M 165M

Issuance of Long-Term Debt 989M 391M 1.04B

Reduction in Long-Term Debt (1.8B) (124M) (870M)

Other Funds (88M) 24M 133M

Other Uses (88M) 0 0

Other Sources 0 24M 133M

Net Financing Cash Flow (2.39B) 1.32B) (1.77B)

Exchange Rate Effect 0 0 0

Miscellaneous Funds 0 0 0

Net Change in Cash (991M) 437M (27M)

Free Cash Flow 1.56B 1.94B 1.94B

Appendix E: Forecast for FY 2016-2018

Financial Analysis and Fiscal Projections - Income Statement (2015-2018)

Income Statement FY 2018 FY 2017 FY 2016

Sales and Interest Income 29,302.12$ 28,587.43$ 28,095.76$ Cost of Goods Sold 17,750.00$ 17,650.00$ 17,115.95$ Other Expenses 8,300.00$ 8,250.00$ 8,100.00$ Total Oper Exp. Ex Dep and Amor 26,050.00$ 25,900.00$ 25,215.95$ EBITDA 3,252.12$ 2,687.43$ 2,879.81$ Depreciation and Amortization 1,075.00$ 1,055.00$ 1,040.00$ Earning before interest and taxes 2,177.12$ 1,632.43$ 1,839.81$ Interest Expense 390.00$ 365.00$ 325.00$ Earning Before Taxes 1,787.12$ 1,267.43$ 1,514.81$ Taxes 825.00$ 775.00$ 740.00$ Net Income 962.12$ 492.43$ 774.81$

Earning Per Share 5.30$ 4.65$ 5.25$ Dividends PerShare 1.31$ 1.22$ 1.14$ Book Value Per Share 20.59$ 19.53$ 18.35$ Stock Price 64.20$ 61.35$ 57.50$ Shares Outstanding 322.50$ 330.00$ 335.00$