Macy's 2010 Annual Report Download - page 30

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.
Physical inventories are generally taken within each merchandise department annually, and inventory
records are adjusted accordingly, resulting in the recording of actual shrinkage. 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. 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.
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 a potential impairment has occurred. For long-lived assets held for use, a
potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of
the assets. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly
resulting from the use of those assets in operations. When a potential impairment has occurred, an impairment
write-down is recorded if the carrying value of the long-lived asset exceeds its fair value. 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.
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.
Goodwill and Intangible Assets
The Company reviews the carrying value of its goodwill and other intangible assets with indefinite lives at
least annually for possible impairment in accordance with ASC Topic 350, “Intangibles – Goodwill and Other.”
Goodwill and other intangible assets with indefinite lives have been assigned to reporting units for purposes of
impairment testing. The reporting units are the Company’s retail operating divisions. Goodwill and other
intangible assets with indefinite lives are tested for impairment annually at the end of the fiscal month of May.
The goodwill impairment test involves a two-step process. The first step involves estimating the fair value of
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