Identify the single largest adjustment (in absolute value) to reconcile net income to operating cash flow in the most recent year of your base companys statement of cash flows (contact me if they did not use the indirect method; also contact me if the identified item reflects something we havent discussed in class before). Describe how and why the item arises that is, broadly describe how it creates a disconnect between income and cash flows for your company. Then, assess the risk (low/medium/high) that this item adversely affects your base companys earnings quality in the most recent year. Justify your answer.

Statement of Cash Flows: MACY'S, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (millions) 2021 2020 2019 S 1.430 $ (3,944) S 564 Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment , restructuring and other costs Settlement charges Depreciation and amortization 3.579 Benefit plan Stock - plans 30 96 874 34 55 (91) 19 84 959 47 31 (60) (327) 354 58 981 31 38 (162) (6) 70 18 4 -based compensation expense Gains on sale of real estate Deferred income taxes Amortization of financing costs and premium on Amonlar acquired debt Changes in assets and liabilities: chances (Increase) decrease in receivables (Increase) decrease in merchandise inventories cas (Increase) decrease in prepaid expenses and other current assets Increase in merchandise accounts payable Increase (decrease) in accounts payable and accrued liabilities Increase (decrease) in current income taxes Change in other assets and liabilities (21) (610) 132 1,406 (9) 75 (39) 218 51 237 89 40 245 588 (186) (759) (617) (188) (257) (60) (132) ACCT 3309 Financial Statement Analysis Group Project 2,712 649 1,608 Net cash provided by operating activities Cash flows from investing activities: Purchase of property and equipment Capitalized software Disposition of property and equipment Other, net Net cash used by investing activities Cash flows from financing activities: Debt issued (354) (243) 164 63 (370) (338) (128) 113 28 (325) (902) (255) 185 (30) (1,002) 1,085 2,780 649 1,608 (338) (128) 113 28 (325) (902) (255) 185 (30) (1.002) Net cash provided by operating activities 2,712 Cash flows from investing activities: Purchase of property and equipment (354) Capitalized software (243) Disposition of property and equipment 164 Other, net , 63 Net cash used by investing activities (370) Cash flows from financing activities: Debt issued 1,085 Debt issuance costs (9) Debt repaid (2,699) Debt repurchase premium and expenses (152) Dividends paid (90) Increase (decrease) in outstanding checks (23) Acquisition of treasury stock (500) Issuance of common stock 7 Net cash provided (used) by financing activities (2,381) Net increase (decrease) in cash, cash equivalents and restricted cash (39) Cash, cash equivalents and restricted cash beginning of period 1,754 Cash, cash equivalents and restricted cash end of period $ 1,715 $ Supplemental cash flow information: Interest paid $ 442 $ Interest received 1 Income taxes paid (received), net (171) Restricted cash, end of period 3 3 The accompanying notes are an integral part of these Consolidated Financial Statements. 2,780 (95) (2,042) (7) (117) 181 (1) (3) (569) (28) (466) (62) (1) 6 (1,123) (517) 1,248 731 699 1,023 731 1,754 $ $ 257 5 98 75 242 20 229 46 Statement of Cash Flows: MACY'S, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (millions) 2021 2020 2019 S 1.430 $ (3,944) S 564 Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment , restructuring and other costs Settlement charges Depreciation and amortization 3.579 Benefit plan Stock - plans 30 96 874 34 55 (91) 19 84 959 47 31 (60) (327) 354 58 981 31 38 (162) (6) 70 18 4 -based compensation expense Gains on sale of real estate Deferred income taxes Amortization of financing costs and premium on Amonlar acquired debt Changes in assets and liabilities: chances (Increase) decrease in receivables (Increase) decrease in merchandise inventories cas (Increase) decrease in prepaid expenses and other current assets Increase in merchandise accounts payable Increase (decrease) in accounts payable and accrued liabilities Increase (decrease) in current income taxes Change in other assets and liabilities (21) (610) 132 1,406 (9) 75 (39) 218 51 237 89 40 245 588 (186) (759) (617) (188) (257) (60) (132) ACCT 3309 Financial Statement Analysis Group Project 2,712 649 1,608 Net cash provided by operating activities Cash flows from investing activities: Purchase of property and equipment Capitalized software Disposition of property and equipment Other, net Net cash used by investing activities Cash flows from financing activities: Debt issued (354) (243) 164 63 (370) (338) (128) 113 28 (325) (902) (255) 185 (30) (1,002) 1,085 2,780 649 1,608 (338) (128) 113 28 (325) (902) (255) 185 (30) (1.002) Net cash provided by operating activities 2,712 Cash flows from investing activities: Purchase of property and equipment (354) Capitalized software (243) Disposition of property and equipment 164 Other, net , 63 Net cash used by investing activities (370) Cash flows from financing activities: Debt issued 1,085 Debt issuance costs (9) Debt repaid (2,699) Debt repurchase premium and expenses (152) Dividends paid (90) Increase (decrease) in outstanding checks (23) Acquisition of treasury stock (500) Issuance of common stock 7 Net cash provided (used) by financing activities (2,381) Net increase (decrease) in cash, cash equivalents and restricted cash (39) Cash, cash equivalents and restricted cash beginning of period 1,754 Cash, cash equivalents and restricted cash end of period $ 1,715 $ Supplemental cash flow information: Interest paid $ 442 $ Interest received 1 Income taxes paid (received), net (171) Restricted cash, end of period 3 3 The accompanying notes are an integral part of these Consolidated Financial Statements. 2,780 (95) (2,042) (7) (117) 181 (1) (3) (569) (28) (466) (62) (1) 6 (1,123) (517) 1,248 731 699 1,023 731 1,754 $ $ 257 5 98 75 242 20 229 46