Sears 2009 Annual Report Download - page 71

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
NOTE 5—FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
We determine fair value of financial assets and liabilities based on the following fair value hierarchy, which
prioritizes the inputs to valuation techniques used to measure fair value into three levels:
Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that we have
the ability to access. An active market for the asset or liability is one in which transactions for the asset or
liability occur with sufficient frequency and volume to provide ongoing pricing information.
Level 2 inputs—inputs other than quoted market prices included in Level 1 that are observable, either
directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices
for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in
markets that are not active and inputs other than quoted market prices that are observable for the asset or
liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities,
credit risk and default rates.
Level 3 inputs—unobservable inputs for the asset or liability.
Cash and cash equivalents, accounts receivable, merchandise payables, short-term borrowings and accrued
liabilities are reflected in the consolidated balance sheets at cost, which approximates fair value due to the short-
term nature of these instruments. The fair value of our debt is disclosed in Note 3 to the Consolidated Financial
Statements. The following table provides the fair value measurement amounts for other financial assets and
liabilities recorded on our consolidated balance sheets at fair value as of January 30, 2010 and January 31, 2009:
millions
Total Fair
Value
Amounts at
January 30,
2010 Level 1 Level 2 Level 3
Foreign currency derivative assets(1) ............................... $24 $— $24 $—
Total .................................................... $24 $— $24 $—
millions
Total Fair
Value
Amounts at
January 31,
2009 Level 1 Level 2 Level 3
Short-term investments(2) ........................................ $ 38 $— $ 38 $—
Foreign currency derivative assets(1) ............................... 74 — 74 —
Foreign currency derivative liabilities(3) ............................ (6) — (6) —
Total .................................................... $106 $— $106 $—
(1) Included within Accounts receivable on the consolidated balance sheets.
(2) Included within Prepaid expenses and other current assets on the consolidated balance sheets.
(3) Included within Other current liabilities on the consolidated balance sheets.
Short-term investments are typically valued at the closing price in the principal active market as of the last
business day of the year. Short-term investments at January 31, 2009 included $38 million on deposit with The
Reserve Primary Fund, a money market fund that had temporarily restricted withdrawals while it liquidated its
holdings to generate cash to distribute. The fair value of this investment was determined by using estimates based
on the values of similar assets and information obtained from The Reserve Primary Fund. We recorded a $3
71