Sears 2008 Annual Report Download - page 55

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,” “we,” “us,” “our” 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, which was completed on
March 24, 2005. We are a broadline retailer with 2,297 full-line and 1,233 specialty retail stores in the United
States operating through Kmart and Sears and 388 full-line and specialty retail stores in Canada operating
through Sears Canada Inc. (“Sears Canada”), a 73%-owned subsidiary. We have three reportable segments,
Kmart, Sears Domestic and Sears Canada.
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 we do not control
(generally 20% to 50% ownership interest), are accounted for under the equity method of accounting.
Investments in companies in which we have less than a 20% ownership interest and do not exercise significant
influence are accounted for at cost. All intercompany transactions and balances have been eliminated.
Fiscal Year
In fiscal 2006, the Saturday nearest January 31st was February 3, 2007 and as a result, fiscal 2006 consisted
of 53 weeks, with the additional week occurring in the fourth quarter. Both fiscal 2008 and fiscal 2007 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 Ended Weeks
2008 .............................................. January 31, 2009 52
2007 .............................................. February 2, 2008 52
2006 .............................................. February 3, 2007 53
Prior to fiscal 2007, Sears Canada’s fiscal year end was the Saturday closest to December 31st and
accordingly, we consolidated Sears Canada’s results on a one-month lag. During the fourth quarter of 2007, Sears
Canada changed its fiscal year end from the Saturday nearest December 31st to the Saturday nearest January 31st.
See Note 2 of Notes to Consolidated Financial Statements for further explanation of this change.
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, as well as reported amounts of revenues and expenses during
the reporting period. We evaluate our estimates and assumptions on an ongoing basis using historical experience
and other factors that management believes to be reasonable under the circumstances. Adjustments to estimates
and assumptions are made when facts and circumstances dictate. As future events and their effects cannot be
determined with absolute certainty, actual results may differ from the estimates used in preparing the
accompanying consolidated financial statements. Significant estimates and assumptions are required as part of
determining inventory and accounts receivable valuation, estimating depreciation, amortization and
recoverability of long-lived assets, establishing self-insurance, warranty, legal and other reserves, performing
annual goodwill, intangible and long-lived asset impairment analysis, establishing valuation allowances on
deferred income tax assets and reserves for tax examination exposures, and calculating retirement benefits.
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