Sears 2008 Annual Report Download - page 85

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill is not amortized but
requires testing for potential impairment, at a minimum on an annual basis, or when indications of potential
impairment exist. The impairment test for goodwill utilizes a fair value approach. The impairment test for
identifiable intangible assets not subject to amortization is also performed annually or when impairment
indications exist, and consist of a comparison of the fair value of the intangible asset with its carrying amount.
Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar
to that used to evaluate other long-lived assets. Our annual impairment analysis is performed as of the last day of
our November accounting period each year. See Note 14 for further information regarding our impairment test
performed in fiscal 2008.
NOTE 14—IMPAIRMENTS AND STORE CLOSINGS
Goodwill
We performed our annual goodwill and intangible impairment test according to SFAS 142 during the fourth
quarter of fiscal 2008. The goodwill impairment test involves a two-step process as described in the “Summary
of Significant Accounting Policies” in Note 1 above. The first step is a comparison of each reporting unit’s fair
value to its carrying value. If the carrying value of the reporting unit is higher than its fair value, there is an
indication that impairment may exist and the second step must be performed to measure the amount of
impairment loss.
After performing the first step of the process, we determined goodwill recorded at Sears Domestic’s
subsidiary, OSH, was potentially impaired. After performing the second step of the process, we determined that
the total amount of goodwill recorded at OSH was impaired and recorded a charge of $262 million.
A significant amount of judgment is involved in determining if an indicator of impairment has occurred at a
date other than the annual impairment test date. Such indicators may include, among others: a significant decline
in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a
significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for
recoverability of a significant asset group within a reporting unit; and slower growth rates. We did not perform
an interim test of goodwill during fiscal 2008 as we did not have any indicators of potential impairment prior to
the fourth quarter.
Long-Lived Assets
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we
performed an impairment test of certain of our long-lived assets (principally the value of buildings and other
fixed assets associated with our stores) due to events and changes in circumstances during 2008 that indicated an
impairment might have occurred. The impairment review was triggered by the increased severity of the economic
turmoil and weakening in the U.S. economy during the year, which had a negative impact on the performance of
our stores. As a result of this impairment testing, the Company recorded a $98 million impairment charge during
2008. This impairment charge was made up of a $21 million charge at Kmart and a $77 million charge at Sears
Domestic.
Store Closings and Severance
We made the decision to close 46 underperforming stores during fiscal 2008. These closings include the
closure of 24 stores in our Kmart segment and the closure of 22 stores in our Sears segment. We recorded
charges related to these store closings of $77 million. The charges include $36 million of inventory markdowns
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