Sears 2006 Annual Report Download - page 59

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations, Consolidation and Basis of Presentation
Sears Holdings Corporation (“Holdings” or the “Company”) is the parent company of Kmart Holding
Corporation (“Kmart”) and Sears, Roebuck and Co. (“Sears”). Holdings was formed as a Delaware corporation
in 2004 in connection with the merger of Kmart and Sears (the “Merger”), which was completed on March 24,
2005. The Company is a broadline retailer with approximately 2,300 full-line and 1,100 specialty retail stores in
the United States operating through Kmart and Sears and approximately 370 full-line and specialty retail stores in
Canada operating through Sears Canada Inc. (“Sears Canada”), a 70%-owned subsidiary. The Company has three
reportable segments, Kmart, Sears Domestic and Sears Canada.
For accounting purposes, the Merger was treated as a purchase business combination, with Kmart acquiring
Sears. Accordingly, the historical financial statements of Kmart serve as the historical financial statements of
Holdings, the registrant. The results of Sears are included in the consolidated financial statements subsequent to
the Merger date. As a result, Holdings’ operating results for fiscal 2005 include approximately 44 weeks of
Sears’ results and 52 weeks of Kmart’s results. See Note 2 for summary unaudited pro forma information and
details on the purchase accounting applied to the Merger.
The consolidated financial statements include all majority-owned subsidiaries in which Holdings exercises
control. Investments in companies in which Holdings exercises significant influence, but which the Company
does not control (generally 20% to 50% ownership interest), are accounted for under the equity method of
accounting. Investments in companies in which the Company has less than a 20% ownership interest and does
not exercise significant influence are accounted for at cost. All intercompany transactions and balances have been
eliminated.
Fiscal Year
Effective March 23, 2005, the Company changed its fiscal year end from the last Wednesday in January to
the Saturday closest to January 31st. In fiscal 2006, the Saturday nearest January 31st was February 3, 2007.
Therefore, fiscal 2006 consisted of 53 weeks, with the additional week occurring in the fourth quarter. Both fiscal
2005 and fiscal 2004 consisted of 52 weeks. Unless otherwise stated, references to years in this report relate to
fiscal years rather than to calendar years. The following fiscal periods are presented in this report.
Fiscal year Reporting Entity Ended Weeks
2006 ............................. Sears Holdings Corporation February 3, 2007 53
2005 ............................. Sears Holdings Corporation January 28, 2006 52
2004 ............................. KmartHolding Corporation January 26, 2005 52
Sears Canada’s fiscal year end is the Saturday closest to December 31st. The results of operations for Sears
Canada are reported to Holdings on a one-month lag. Therefore, the consolidated statements of income and cash
flows for fiscal 2006 and fiscal 2005 include operating results for Sears Canada from January 1, 2006 through
December 30, 2006 and March 25, 2005 through December 31, 2005, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions about future events. The
estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the
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