Sears 2007 Annual Report Download - page 69

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
We allocated approximately $3.9 billion to identifiable intangible assets, of which approximately
$2.8 billion related to the indefinite-lived tradenames of Sears, Kenmore, Craftsman, Lands’ End and DieHard.
These indefinite-lived tradenames are not subject to amortization as management expects these tradenames to
generate cash flows indefinitely. The remaining intangible assets of $1.1 billion recorded at the time of the
Merger included finite-lived tradenames, favorable leases, contractual arrangements and customer lists, and will
be amortized over their estimated useful lives. Approximately $0.4 billion of contractual-arrangement-related
intangibles were eliminated subsequent to the Merger in connection with the sale of Sears Canada’s Credit and
Financial Services Operations in November 2005.
Selected Unaudited Pro Forma Combined Financial Information
The unaudited pro forma financial information in the table below summarizes the combined results of
operations of Kmart and Sears for fiscal 2005 as though the Merger had occurred as of the beginning of fiscal
2005. The unaudited pro forma financial information is presented for informational purposes only and is not
indicative of the results of operations that would have been achieved if the Merger had taken place at the
beginning of the period presented, or that may result in the future. The following unaudited pro forma financial
information has not been adjusted to reflect any operating efficiencies realized as a result of the Merger, or the
impact of the change in Sears Canada’s year end described in Note 3 of Notes to Consolidated Financial
Statements.
2005
millions, except earnings per share
Revenues ......................................................... $54,261
Operating income ................................................... 2,073
Income before cumulative effect of change in accounting principle ............ 879
Net income ........................................................ 789
Diluted earnings per share before cumulative effect of change in accounting
principle ........................................................ $ 5.40
Diluted earnings per share ............................................ $ 4.85
NOTE 3—CHANGES IN ACCOUNTING PRINCIPLE
Change in Sears Canada Year End
During the fourth quarter of 2007, Sears Canada’s changed its fiscal year end from the Saturday nearest to
December 31st to the Saturday nearest to January 31st. Prior to this change, Sears Canada’s results were
consolidated into the consolidated results of Holdings on a one-month lag. While our historical policy of
consolidating the results of Sears Canada on a one-month lag was considered acceptable, we believe elimination
of the one-month reporting lag is preferable because it allows a full seasonal cycle, including the liquidation of
holiday merchandise, for Sears Canada to be included in the results of Holdings. Furthermore, Sears Canada’s
fiscal year end is now aligned with the fiscal year end of Holdings.
In accordance with SFAS No. 154, “Accounting Changes and Error Corrections—A Replacement of
Accounting Principles Board (“APB”) Opinion No. 20 and SFAS No. 3”, changes in accounting policy are to be
reported through retrospective application of the new policy to all prior financial statement periods presented.
Accordingly, the Company’s financial statements for periods prior to 2007 have been adjusted to reflect the
period-specific effects of applying this change. This change resulted in a one-month shift backwards of periods
previously reported for Sears Canada. The impact of this change in accounting policy was not material to the
Company’s consolidated financial position, results of operations or cash flows for fiscal 2007, 2006 and 2005.
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