Macy's 2011 Annual Report Download - page 25

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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.
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 and the Macy's retail operating division is the only reporting unit with goodwill and
intangible assets. 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 currently involves a two-step process. The first step involves estimating the
fair value of each reporting unit based on its estimated discounted cash flows and comparing the estimated fair value of each
reporting unit to its carrying value. If this comparison indicates that a reporting unit's estimated fair value is less than its
carrying value, a second step is required. If applicable, the second step requires the Company to allocate the fair value of the
reporting unit to the estimated fair value of the reporting unit's net assets, with any fair value in excess of amounts allocated to
such net assets representing the implied fair value of goodwill for that reporting unit. If the carrying value of an individual
indefinite-lived intangible asset exceeds its fair value, such individual indefinite-lived intangible asset is written down by an
amount equal to such excess.
Beginning with the annual review of the carrying value of goodwill and other intangible assets with indefinite lives in
2012, the goodwill impairment test will begin with an assessment of qualitative factors to determine if it is more likely than not
that the fair value of a reporting unit is less than the carrying amount. The results of this assessment, which will require the
exercise of substantial judgment by the Company, will determine whether it is necessary to perform the two-step goodwill
impairment test process.