Macy's 2013 Annual Report Download - page 58

Table of Contents
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The carrying value of long-lived assets is 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.
Leases
The Company recognizes operating lease minimum rentals on a straight-line basis over the lease term. Executory costs such as real estate taxes and
maintenance, and contingent rentals such as those based on a percentage of sales are recognized as incurred.
The lease term, which includes all renewal periods that are considered to be reasonably assured, begins on the date the Company has access to the leased
property. The Company receives contributions from landlords to fund buildings and leasehold improvements. Such contributions are recorded as deferred rent
and amortized as reductions to lease expense over the lease term.
Goodwill and Other Intangible Assets
The carrying value of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment in accordance with
ASC Subtopic 350-20 “Goodwill.” 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 Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a
reporting unit is less than its carrying value and whether it is necessary to perform the two-step goodwill impairment process. If required, the first step
involves a comparison of each reporting unit’s fair value to its carrying value and the Company estimates fair value based on discounted cash flows. The
reporting unit’s discounted cash flows require significant management judgment with respect to sales, gross margin and SG&A rates, capital expenditures and
the selection and use of an appropriate discount rate. The projected sales, gross margin and SG&A expense rate assumptions and capital expenditures are
based on the Company’s annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the
projected cash flows directly resulting from the use of those assets in operations. The estimates of fair value of reporting units are based on the best
information available as of the date of the assessment. If the carrying value of a reporting unit exceeds its estimated fair value in the first step, a second step is
performed, in which the reporting unit’s goodwill is written down to its implied fair value. The second step requires the Company to allocate the fair value of
the reporting unit derived in the first step to the 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.
Capitalized Software
The Company capitalizes purchased and internally developed software and amortizes such costs to expense on a straight-line basis over two to five
years. Capitalized software is included in other assets on the Consolidated Balance Sheets.
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