Annual report pursuant to Section 13 and 15(d)

Gain on Sale of Properties, Impairments, Store Closing Costs and Division Consolidation Costs

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Gain on Sale of Properties, Impairments, Store Closing Costs and Division Consolidation Costs
12 Months Ended
Jan. 28, 2012
Gain On Sale Of Leases, Restructuring Charges And Asset Impairments [Abstract]  
Gain on Sale of Properties, Impairments, Store Closing Costs and Division Consolidation Costs
Gain on Sale of Properties, Impairments, Store Closing Costs and Division Consolidation Costs
Gain on sale of properties, impairments, store closing costs, and division consolidation costs consist of the following:
 
 
2011
 
2010
 
2009
 
(millions)
Gain on sale of properties
$
(54
)
 
$

 
$

Impairments of properties held and used
22

 
18

 
115

Store closing costs:
 
 
 
 
 
Severance
4

 
1

 
2

Other
3

 
6

 
4

Division consolidation costs

 

 
270

 
$
(25
)
 
$
25

 
$
391



During 2011, the Company recognized a gain on the sale of store leases related to the 2006 divestiture of Lord & Taylor, partially offset by impairment charges and other costs and expenses related to store closings.

At January 28, 2012, the Company had approximately $82 million of cash in a qualified escrow account, included in prepaid expenses and other current assets, for potential like-kind exchange transactions related to the sale of properties mentioned above.

Long-lived assets held for use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of undiscounted future cash flows resulting from the use of those assets in operation. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value. As a result of the Company’s projected undiscounted future cash flows related to certain store locations being less than the carrying value of those assets, the Company recorded the impairment charges reflected in the table above relating to properties held and used, including properties that were the subject of announced store closings. The fair values of these locations were calculated based on the projected cash flows and an estimated risk-adjusted rate of return that would be used by market participants in valuing these assets or based on prices of similar assets.
During January 2012, the Company announced the closure of ten Macy's and Bloomingdale's stores; during January 2011, the Company announced the closure of three Macy’s stores; and during January 2010, the Company announced the closure of five Macy’s stores. In connection with these announcements and the plans to dispose of these locations, the Company incurred severance costs and other costs related to lease obligations and other store liabilities. For 2010, these costs also included a loss on the sale of one property to be disposed.
The following table shows for 2011, 2010 and 2009, the beginning and ending balance of, and the activity associated with, the severance accruals established in connection with announced store closings:
 
 
2011
 
2010
 
2009
 
(millions)
Balance, beginning of year
$
1

 
$
2

 
$
4

Charged to store closing costs
4

 
1

 
2

Payments
(1
)
 
(2
)
 
(4
)
Balance, end of year
$
4

 
$
1

 
$
2



The Company expects to pay out the 2011 accrued severance costs, which are included in accounts payable and accrued liabilities on the Consolidated Balance Sheets, prior to April 28, 2012.
In February 2008, the Company began a localization initiative called “My Macy’s.” This initiative was intended to strengthen local market focus and enhance selling service in an effort to both accelerate same-store sales growth and reduce expenses. To maximize the results from My Macy’s, the Company took action, initially in selected markets, that: concentrated more management talent in local markets, effectively reducing the “span of control” over local stores; created new positions in the field to work with planning and buying executives in helping to understand and act on the merchandise needs of local customers; and empowered locally based executives to make more and better decisions. In combination with the localization initiative, the Company consolidated the Minneapolis-based Macy’s North organization into New York-based Macy’s East, the St. Louis-based Macy’s Midwest organization into Atlanta-based Macy’s South and the Seattle-based Macy’s Northwest organization into San Francisco based Macy’s West. The Atlanta-based division was renamed Macy’s Central.
In February 2009, the Company announced the expansion of the My Macy’s localization initiative across the country. Also as part of the My Macy’s transformation, the Company’s Macy’s branded stores were reorganized in a unified operating structure, through division consolidations, to support the Macy’s business. Division central office organizations were eliminated in New York-based Macy’s East, San Francisco-based Macy’s West, Atlanta-based Macy’s Central and Miami-based Macy’s Florida. The New York-based Macy’s Home Store and Macy’s Corporate Marketing divisions no longer exist as separate entities. Home Store functions were integrated into the Macy’s national merchandising, merchandise planning, stores and marketing organizations. Macy’s Corporate Marketing was integrated into the new unified marketing organization. The New York-based Macy’s Merchandising Group was refocused solely on the design, development and marketing of the Macy’s family of private brands.
The costs and expenses associated with the division consolidations and localization initiatives consisted primarily of severance costs and other human resource-related costs.
The following table shows for 2010 and 2009, the beginning and ending balance of, and the activity associated with, the severance accruals established in connection with the division consolidations and localization initiatives:
 
 
2010
 
2009
 
 
Balance, beginning of year
$
69

 
$
30

Charged to division consolidation costs

 
166

Payments
(69
)
 
(127
)
Balance, end of year
$

 
$
69