Sears 2011 Annual Report Download - page 64

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Self-insurance Reserves
We are self-insured for certain costs related to workers’ compensation, asbestos and environmental,
automobile, warranty, product and general liability claims. We obtain third-party insurance coverage to limit our
exposure to certain of these self-insured risks. A portion of these self-insured risks is managed through a wholly-
owned insurance subsidiary. Our liability reflected on the Consolidated Balance Sheet, classified within other
liabilities (current and long-term), represents an estimate of the ultimate cost of claims incurred at the balance
sheet date. In estimating this liability, we utilize loss development factors based on Company-specific data to
project the future development of incurred losses. Loss estimates are adjusted based upon actual claims
settlements and reported claims. The liabilities for self-insured risks are discounted to their net present values
using an interest rate which is based upon the expected duration of the liabilities. Expected payments as of
January 28, 2012 were as follows:
millions
At January 28, 2012
2012 .............................................................. $ 276
2013 .............................................................. 186
2014 .............................................................. 136
2015 .............................................................. 96
2016 .............................................................. 70
Later years ......................................................... 382
Total undiscounted obligation .......................................... 1,146
Less—discount ...................................................... (127)
Net obligation ....................................................... $1,019
Loss Contingencies
We account for contingent losses in accordance with accounting standards pertaining to loss contingencies.
Under accounting standards, loss contingency provisions are recorded for probable losses at management’s best
estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount is recorded.
These estimates are often initially developed substantially earlier than the ultimate loss is known, and the
estimates are refined each accounting period, as additional information is known.
Revenue Recognition
Revenues include sales of merchandise, services and extended service contracts, net commissions earned
from leased departments in retail stores, delivery and handling revenues related to merchandise sold, and fees
earned from co-branded credit card programs. We recognize revenues from retail operations at the later of the
point of sale or the delivery of goods to the customer. Direct to customer revenues are recognized when the
merchandise is delivered to the customer. Revenues from product installation and repair services are recognized
at the time the services are provided. Revenues from the sale of service contracts and the related direct
acquisition costs are deferred and amortized over the lives of the associated contracts, while the associated
service costs are expensed as incurred.
We earn revenues through arrangements with third-party financial institutions that manage and directly
extend credit relative to our co-branded credit card programs. The third-party financial institutions pay us for
generating new accounts and sales activity on co-branded cards, as well as for selling other financial products to
cardholders. We recognize these revenues in the period earned, which is when our related performance
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