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Macy's: Financial Analysis Paper

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Background: “In 2001, FASB Statement No. 142 Goodwill and Other Intangible Assets replaced APB Opinion No. 17 Intangible Assets (issued in 1970)” (Hillenmeyer & McMillen, 2013). The new statement eliminated goodwill amortization which was previously amortized over its useful life at a maximum of 40 years. Statement No. 142 required that goodwill be tested for impairment annually using a two-step process. Step one compares all of an entity’s reporting units fair value to their carrying value including goodwill. If an individual reporting unit’s carrying amount exceeds its fair value, a potential for goodwill impairment exists and the entity must calculate the implied fair value of goodwill similar to the determination of goodwill in a business combination. The goodwill impairment is equal to the …show more content…

Macy’s performs impairment tests of goodwill by reporting units which are the company’s retail operating divisions. They perform these annual impairment reviews at the end of the fiscal month of May. Like Coca-Cola, Macy’s performs tests to assess the likelihood that the carrying value exceeds the fair value in each of its reporting units. If a quantitative test is required and the carrying value exceeds its estimated fair value, the reporting unit’s goodwill is written down to its implied fair value. In the fourth quarter of the fiscal year 2008, Macy’s reduced the carrying value of its goodwill from $9,125 million to $3,743 million and recorded the difference as a non-cash impairment charge. Macy’s continues to monitor relevant circumstances, judgments, assumptions, and estimates made in assessing the appropriate value of goodwill. It is possible that changes in any of these areas could require the company to further reduce its goodwill in the future. If Macy’s were required to reduce its goodwill further, their financial position and results of operations would be adversely affected (Macy’s Inc.,

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