Sears 2010 Annual Report Download - page 87

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
and $21 million recorded in cost of sales for inventory clearance markdowns, $7 million and $39 million and $29
million recorded in selling and administrative expenses for store closing and severance costs. For 2010 and 2009,
we recorded charges of $10 million and $9 million, respectively, in depreciation expense for accelerated
depreciation on assets in stores we decided to close. For 2009, we recorded a charge of $8 million related to
severance at Sears Canada.
In accordance with accounting standards governing costs associated with exit or disposal activities,
expenses related to future rent payments for which we no longer intend to receive any economic benefit are
accrued for when we cease to use the leased space. We expect to record an additional charge of approximately $2
million during the first half of 2011 related to stores we announced would close in 2010.
Goodwill
We perform our annual goodwill and intangible impairment test required under accounting standards during
the fourth quarter of each year, or when an indication of potential impairment exists. 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 in 2008, 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.
Long-Lived Assets
In accordance with accounting standards governing 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.
NOTE 15—LEASES
We lease certain stores, office facilities, warehouses, computers and transportation equipment.
Operating and capital lease obligations are based upon contractual minimum rents and, for certain stores,
amounts in excess of these minimum rents are payable based upon specified percentages of sales. Contingent rent
is accrued over the lease term, provided that the achievement of the specified sales level that triggers the
contingent rental is probable. Certain leases include renewal or purchase options.
Rental expense for operating leases was as follows:
millions 2010 2009 2008
Minimum rentals ................................................ $872 $893 $890
Percentage rentals ............................................... 21 23 28
Less—Sublease rentals ........................................... (53) (52) (54)
Total ......................................................... $840 $864 $864
87