Sears 2012 Annual Report Download - page 52

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recorded charges of $295 million and $551 million in 2012 and 2011, respectively. We did not record any goodwill
impairment charges in 2010.
The use of different assumptions, estimates or judgments in either step of the goodwill impairment testing
process, such as the estimated future cash flows of our reporting units, the discount rate used to discount such cash
flows, or the estimated fair value of the reporting units' tangible and intangible assets and liabilities, could
significantly increase or decrease the estimated fair value of a reporting unit or its net assets, and therefore, impact
the related impairment charge. At the 2012 annual impairment test date, the conclusion that no indication of
goodwill impairment existed for the remaining reporting units would not have changed had the test been conducted
assuming: (1) a 100 basis point increase in the discount rate used to discount the aggregate estimated cash flows of
our reporting units to their net present value in determining their estimated fair values and/or (2) a 100 basis point
decrease in the estimated sales growth rate and/or terminal period growth rate.
Based on our sensitivity analysis, we do not believe that the remaining recorded goodwill balance is at risk of
impairment at any reporting unit at the end of the year because the fair value is substantially in excess of the
carrying value and not at risk of failing step one. However, goodwill impairment charges may be recognized in
future periods in one or more of the reporting units to the extent changes in factors or circumstances occur, including
deterioration in the macroeconomic environment, retail industry or in the equity markets, which includes the market
value of our common shares, deterioration in our performance or our future projections, or changes in our plans for
one or more reporting units.
Intangible Asset Impairment Assessments
We review indefinite-lived intangible assets, primarily trade names, for impairment by comparing the carrying
amount of each asset to the sum of undiscounted cash flows expected to be generated by the asset. We consider the
income approach when testing intangible assets with indefinite lives for impairment on an annual basis. We
determined that the income approach, specifically the Relief from Royalty Method, was most appropriate for
analyzing our indefinite-lived assets. This method is based on the assumption that, in lieu of ownership, a firm
would be willing to pay a royalty in order to exploit the related benefits of this asset class. The Relief from Royalty
Method involves two steps: (1) estimation of reasonable royalty rates for the assets and (2) the application of these
royalty rates to a net sales stream and discounting the resulting cash flows to determine a value. We multiplied the
selected royalty rate by the forecasted net sales stream to calculate the cost savings (relief from royalty payment)
associated with the assets. The cash flows are then discounted to present value by the selected discount rate and
compared to the carrying value of the assets. We did not record any intangible asset impairment charges in 2012,
2011 or 2010.
The use of different assumptions, estimates or judgments in our intangible asset impairment testing process,
such as the estimated future cash flows of assets and the discount rate used to discount such cash flows, could
significantly increase or decrease the estimated fair value of an asset, and therefore, impact the related impairment
charge. At the 2012 annual impairment test date, the above-noted conclusion that no indication of significant
intangible asset impairment existed at the test date would not have changed had the test been conducted assuming:
(1) a 100 basis point increase in the discount rate used to discount the aggregate estimated cash flows of our assets to
their net present value in determining their estimated fair values (without any change in the aggregate estimated cash
flows of our intangibles), (2) a 100 basis point decrease in the terminal period growth rate without a change in the
discount rate of each intangible, or (3) a 10 basis point decrease in the royalty rate applied to the forecasted net sales
stream of our assets.
Based on our sensitivity analysis, we do not believe that the indefinite-lived intangible balance is at risk of
impairment at the end of the year because the fair values are substantially in excess of the carrying values. However,
indefinite-lived intangible impairment charges may be recognized in future periods to the extent changes in factors
or circumstances occur, including deterioration in the macroeconomic environment, retail industry, deterioration in
our performance or our future projections, or changes in our plans for one or more indefinite-lived intangible asset.
New Accounting Pronouncements
See Note 1 of Notes to Consolidated Financial Statements for information regarding new accounting
pronouncements.