Macy's 2012 Annual Report Download - page 60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-13
Post Employment and Postretirement Obligations
The Company, through its actuaries, utilizes assumptions when estimating the liabilities for pension and other employee
benefit plans. These assumptions, where applicable, include the discount rates used to determine the actuarial present value of
projected benefit obligations, the rate of increase in future compensation levels, the long-term rate of return on assets and the
growth in health care costs. The cost of these benefits is recognized in the Consolidated Financial Statements over an
employee’s term of service with the Company, and the accrued benefits are reported in accounts payable and accrued liabilities
and other liabilities on the Consolidated Balance Sheets, as appropriate.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and net operating loss and tax credit carryforwards. Deferred
income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a
change in tax rates is recognized in the Consolidated Statements of Income in the period that includes the enactment date.
Deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the
deferred income tax assets will not be realized.
Derivatives
The Company records derivative transactions according to the provisions of ASC Topic 815 “Derivatives and Hedging,”
which establishes accounting and reporting standards for derivative instruments and hedging activities and requires recognition
of all derivatives as either assets or liabilities and measurement of those instruments at fair value. The Company makes limited
use of derivative financial instruments. The Company does not use financial instruments for trading or other speculative
purposes and is not a party to any leveraged financial instruments. On the date that the Company enters into a derivative
contract, the Company designates the derivative instrument as either a fair value hedge, a cash flow hedge or as a free-standing
derivative instrument, each of which would receive different accounting treatment. Prior to entering into a hedge transaction,
the Company formally documents the relationship between hedging instruments and hedged items, as well as the risk
management objective and strategy for undertaking various hedge transactions. Derivative instruments that the Company may
use as part of its interest rate risk management strategy include interest rate swap and interest rate cap agreements and Treasury
lock agreements. At February 2, 2013, the Company was not a party to any derivative financial instruments.
Stock Based Compensation
The Company records stock-based compensation expense according to the provisions of ASC Topic 718, “Compensation
– Stock Compensation.” ASC Topic 718 requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values. Under the provisions of ASC Topic 718, the
Company must determine the appropriate fair value model to be used for valuing share-based payments and the amortization
method for compensation cost. See Note 11, “Stock Based Compensation,” for further information.
2. Impairments, Store Closing Costs and Gain on Sale of Leases
Impairments, store closing costs and gain on sale of leases consist of the following:
2012 2011 2010
(millions)
Impairments of properties held and used........................................................ $ 4 $ 22 $ 18
Gain on sale of leases...................................................................................... — (54) —
Severance ........................................................................................................ 3 4 1
Other................................................................................................................ (2) 3 6
$ 5 $ (25) $ 25
The Company expects to pay out the 2012 accrued severance costs, which are included in accounts payable and accrued
liabilities on the Consolidated Balance Sheets, prior to May 4, 2013. The 2011 and 2010 accrued severance costs, which are
included in accounts payable and accrued liabilities on the Consolidated Balance Sheets, were paid out in the fiscal year
subsequent to incurring such severance costs.