Sears 2009 Annual Report Download - page 70

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
other income (loss) for the fiscal year ending January 30, 2010. At January 31, 2009, we had a mark-to-market
asset related to the option contracts of $74 million and a mark-to-market liability related to the embedded
derivatives of $6 million. We recorded total mark-to-market gains of $81 million in other income (loss) for the
fiscal year ending January 31, 2009. See Note 5 for further information regarding fair value of these option and
merchandise purchase contracts and the respective balance sheet classifications as of January 30, 2010 and
January 31, 2009.
Hedges of Net Investment in Sears Canada
As of January 30, 2010, we had a series of foreign currency forward contracts outstanding with a total
Canadian notional value of $400 million and with a weighted-average remaining life of 0.5 years. These
contracts were designated and qualified as hedges of the foreign currency exposure of our net investment in Sears
Canada. Accordingly, the aggregate fair value of the forward contracts as of January 30, 2010, $15 million, was
recorded as an asset on our consolidated balance sheet, with an offsetting amount, net of tax, recorded as a
component of other comprehensive income. Certain of our currency forward contracts require collateral be
posted in the event our liability under such contracts reaches a predetermined threshold. Cash collateral posted
under these contracts is recorded as part of our accounts receivable balance. We did not have any cash collateral
posted under these contracts as of January 30, 2010. We had no such foreign currency forward contracts
outstanding as of January 31, 2009.
During fiscal 2008, we paid a net amount of $64 million to settle certain foreign currency forward contracts
entered into in prior years. As hedge accounting was applied to such contract settlements, an offsetting amount
was recorded as a component of other comprehensive income.
Total Return Swaps
We have, from time to time, invested our surplus cash in various securities and financial instruments,
including total return swaps, which are derivative instruments designed to synthetically replicate the economic
return characteristics of one or more underlying marketable equity securities. Such investments may be highly
concentrated and involve substantial risks and may require us to post cash collateral as a percentage of the
notional amount of the underlying position. We had no total return swaps outstanding at any point during fiscal
2009 or fiscal 2008. We recognized investment losses of $14 million on total return swaps during fiscal 2007.
Financial Guarantees
We issue various types of guarantees in the normal course of business. We had the following guarantees
outstanding as of January 30, 2010:
millions
Bank
Issued
SRAC
Issued Other Total
Standby letters of credit .............................................. $662 $ 67 $— $729
Commercial letters of credit ........................................... 18 106 — 124
Secondary lease obligations ........................................... — — 19 19
The secondary lease obligations relate to certain store leases of previously divested Sears businesses. We
remain secondarily liable if the primary obligor defaults.
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