Macy's 2015 Annual Report Download - page 63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-14
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 benefit expense is generally recognized in the Consolidated
Financial Statements on an accrual basis over the average remaining lifetime of participants, 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 January 30, 2016, 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.
Newly Adopted Pronouncements
In November 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740),
which is intended to simplify the presentation of deferred income taxes. This guidance removes the requirement to separate
deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position,
Upon adoption, deferred tax liabilities and assets must be classified as noncurrent in a statement of financial position. This
guidance is effective for public business entities for years beginning after December 15, 2016. Earlier adoption is
permitted, and the Company has adopted this guidance as of January 30, 2016. The adoption of ASU 2015-17 did not have
a material impact on the Company's consolidated financial position, results of operations, and cash flows.
In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820), which removes the
requirement to categorize in the fair value hierarchy all investments measured at net asset value per share using the
practical expedient. This guidance is effective for public business entities for years beginning after December 15, 2015.
Earlier application is permitted, and the Company has adopted this guidance as of January 30, 2016. The adoption of ASU
2015-07 was limited to the form and content of disclosures and did not have a material impact on the Company's
consolidated financial position, results of operations, and cash flows.