Sears 2013 Annual Report Download - page 74

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
74
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 February 1, 2014 were as
follows:
millions
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 251
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
Total undiscounted obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,033
Less—discount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (97)
Net obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 936
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 obligations have been
met. We sell gift cards to customers at our retail stores and through our direct to customer operations. The gift cards
generally do not have expiration dates. Revenues from gift cards are recognized when (i) the gift card is redeemed
by the customer, or (ii) the likelihood of the gift card being redeemed by the customer is remote (gift card breakage)
based on historical redemption patterns and we determine that we do not have a legal obligation to remit the value of
the unredeemed gift cards to the relevant jurisdictions.
Revenues from merchandise sales and services are reported net of estimated returns and allowances and
exclude sales taxes. The reserve for returns and allowances is calculated as a percentage of sales based on historical