Sears 2011 Annual Report Download - page 93

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Changes in the carrying amount of goodwill by segment during years 2010 and 2011 are as follows:
millions
Sears
Domestic
Sears
Canada Total
Balance, January 30, 2010 and January 29, 2011:
Goodwill ....................................................... $1,097 $295 $1,392
2011 activity:
Impairment charges ............................................... (551) — (551)
Balance, January 28, 2012 .............................................. $ 546 $295 $ 841
In accordance with accounting standards for goodwill and other intangible assets, goodwill is not amortized
but requires testing for potential impairment, at a minimum on an annual basis, or when indications of potential
impairment exist. The impairment test for goodwill utilizes a fair value approach. The impairment test for
identifiable intangible assets not subject to amortization is also performed annually or when impairment
indications exist, and consist of a comparison of the fair value of the intangible asset with its carrying amount.
Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar
to that used to evaluate other long-lived assets. Our annual impairment analysis is performed at the last day of
our November accounting period each year. See Note 13 for further information regarding our impairment
charges recorded in 2011.
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. 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, we determined goodwill recorded at reporting units within the
Sears Domestic segment were potentially impaired. The impairment charge was primarily driven by the
combination of lower sales and continued margin pressure coupled with expense increases which led to a decline
in our operating profit. After performing the second step of the process, we determined that the total amount of
goodwill recorded at these reporting units was impaired and recorded a charge of $551 million.
A significant amount of judgment is involved in determining if an indicator of impairment has occurred at a
date other than the annual impairment test date. Such indicators may include, among others: a significant decline
in our stock price and market capitalization; a significant adverse change in legal factors or in the business
climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting
unit; and slower growth rates. As noted in our Quarterly Report on Form 10-Q for the period ended October 29,
2011, management performed an interim assessment and concluded that there were no events or changes in
circumstances that indicated that it was more likely than not that the fair value for any reporting unit had declined
below its carrying value.
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible
fixed assets, goodwill and other intangible assets, which are remeasured when the derived fair value is below
carrying value on our Consolidated Balance Sheets. For these assets, we do not periodically adjust carrying value
to fair value except in the event of impairment. When we determine that impairment has occurred, the carrying
value of the asset is reduced to fair value and the difference is recorded within operating income in our
Consolidated Statements of Operations.
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