Sears 2009 Annual Report Download - page 46

investment returns, in determining these assumptions. Actuarial assumptions may differ materially from actual
results due to changing market and economic conditions, changes in investment strategies, higher or lower
withdrawal rates, and longer or shorter life spans of participants.
Income Taxes
We account for income taxes according to accounting standards for such taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the book basis and
tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. If future utilization of deferred tax assets is uncertain, the Company may record a valuation allowance
against certain deferred tax assets.
In accordance with accounting standards for uncertain tax positions, we record unrecognized tax benefits for
positions taken or expected to be taken on tax returns, including the decision to exclude certain income or
transactions from a return, when a more-likely-than-not threshold is met for a tax position and management
believes that the position will be sustained upon examination by the taxing authorities. Further, we record the
largest amount of the unrecognized tax benefit that is greater than 50% likely of being realized upon settlement.
Management evaluates each position based solely on the technical merits and facts and circumstances of the
position, assuming the position will be examined by a taxing authority having full knowledge of all relevant
information. Significant management judgment is required to determine whether the recognition threshold has
been met and, if so, the appropriate amount of unrecognized tax benefits to be recorded in the Consolidated
Financial Statements. Management reevaluates tax positions each period in which new information about
recognition or measurement becomes available.
Significant management judgment is required in determining our provision for income taxes, deferred tax
assets and liabilities and the valuation allowance recorded against our net deferred tax assets, if any. In assessing
the likelihood of realization of deferred tax assets, management considers estimates of the amount and character
of future taxable income. Our actual effective tax rate and income tax expense could vary from estimated
amounts due to the future impacts of various items, including changes in income tax laws, tax planning and the
Company’s forecasted financial condition and results of operations in future periods. Although management
believes current estimates are reasonable, actual results could differ from these estimates.
Domestic and foreign tax authorities periodically audit our income tax returns. These audits include
questions regarding our tax filing positions, including the timing and amount of deductions and the allocation of
income among various tax jurisdictions. In evaluating the exposures associated with our various tax filing
positions, we record reserves in accordance with accounting standards for uncertain tax positions. A number of
years may elapse before a particular matter, for which we have established a reserve, is audited and fully
resolved. Management’s estimates as of the date of the financial statements reflect our best judgment, giving
consideration to all currently available facts and circumstances. As such, these estimates may require adjustment
in the future, as additional facts become known or as circumstances change. For further information, see Note 11
of Notes to Consolidated Financial Statements.
Goodwill and Intangible Asset Impairment Assessments
At January 30, 2010 and January 31, 2009, we had goodwill and intangible asset balances of $4.6 billion and
$4.7 billion, respectively. Holdings evaluates the carrying value of goodwill and intangible assets for possible
impairment under accounting standards governing goodwill and other intangible assets. The majority of our
goodwill and intangible assets relate to Kmart’s acquisition of Sears, Roebuck and Co. in March 2005. We
allocated goodwill, which is defined as the total purchase price less the fair value of all assets and liabilities
acquired, to reporting units as of the acquisition date. As required by accounting standards, we perform annual
goodwill and intangible impairment tests in the fourth quarter and update the tests between annual tests if events
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