Macy's 2013 Annual Report Download - page 59

Table of Contents
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Gift Cards
The Company only offers no-fee, non-expiring gift cards to its customers. At the time gift cards are sold, no revenue is recognized; rather, the Company
records an accrued liability to customers. The liability is relieved and revenue is recognized equal to the amount redeemed at the time gift cards are redeemed for
merchandise. The Company records income from unredeemed gift cards (breakage) as a reduction of SG&A expenses, and income is recorded in proportion
and over the time period gift cards are actually redeemed. At least three years of historical data, updated annually, is used to determine actual redemption
patterns.
Self-Insurance Reserves
The Company, through its insurance subsidiary, is self-insured for workers compensation and general liability claims up to certain maximum liability
amounts. Although the amounts accrued are actuarially determined based on analysis of historical trends of losses, settlements, litigation costs and other
factors, the amounts the Company will ultimately disburse could differ from such accrued amounts.
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 generally 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 1, 2014, 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 determines the appropriate fair value model to be used for valuing share-
based payments and the amortization method for compensation cost.
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