Sears 2010 Annual Report Download - page 55

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Additions and substantial
improvements are capitalized and include expenditures that materially extend the useful lives of existing
facilities and equipment. Maintenance and repairs that do not materially improve or extend the lives of the
respective assets are expensed as incurred.
Depreciation expense, which includes depreciation on assets under capital leases, is recorded over the
estimated useful lives of the respective assets using the straight-line method for financial statement purposes, and
accelerated methods for tax purposes. The range of lives are generally 20 to 50 years for buildings, 3 to 10 years
for furniture, fixtures and equipment, and 3 to 5 years for computer systems and computer equipment. Leasehold
improvements are depreciated over the shorter of the associated lease term or the estimated useful life of the
asset.
Impairment of Long-Lived Assets and Costs Associated with Exit Activities
In accordance with accounting standards governing the impairment or disposal of long-lived assets, the
carrying value of long-lived assets, including property and equipment and definite-lived intangible assets, is
evaluated whenever events or changes in circumstances indicate that a potential impairment has occurred relative
to a given asset or assets. Factors that could result in an impairment review include, but are not limited to, a
current period cash flow loss combined with a history of cash flow losses or a projection that demonstrates
continuing losses associated with the use of a long-lived asset, significant changes in the manner of use of the
assets or significant changes in business strategies. An impairment loss is recognized when the estimated
undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition
of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the
carrying amount of the asset is reduced to its estimated fair value as determined based on quoted market prices or
through the use of other valuation techniques. See Note 14 for further information regarding long-lived asset
impairment charges recorded during 2008.
We account for costs associated with location closings in accordance with standards pertaining to
accounting for costs associated with exit or disposal activities. As such, we record a liability for costs associated
with location closings, which includes employee severance, inventory markdowns and other liquidation fees
when management makes the decision to exit a location. We record a liability for future lease costs (net of
estimated sublease income) when we cease to use the location.
Goodwill, Trade Names, Other Intangible Assets and Related Impairments
Trade names acquired as part of the Merger account for the majority of our intangible assets recognized in
the consolidated balance sheet. The majority of these trade name assets, such as Kenmore, Craftsman and Lands’
End, are expected to generate cash flows indefinitely, do not have estimable or finite useful lives and, therefore,
are accounted for as indefinite-lived assets not subject to amortization. Certain intangible assets, including
favorable lease rights, contractual arrangements and customer lists, have estimable, finite useful lives, which are
used as the basis for their amortization. The estimated useful lives of such assets are determined using a number
of factors, including the demand for the asset, competition and the level of expenditure required to maintain the
cash flows associated with the asset.
As required by accounting standards, we perform annual goodwill and indefinite-lived intangible asset
impairment tests in the fourth quarter and update the tests between annual tests if events or circumstances occur
that would more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below
55