Sears 2014 Annual Report Download - page 109

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
109
Changes in the carrying amount of goodwill by segment during 2013 and 2014 were as follows:
millions Sears
Domestic
Balance, February 2, 2013 and February 1, 2014:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 379
2014 activity:
Separation of Lands' End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110)
Balance, January 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 269
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.
We perform our annual goodwill and intangible impairment test required under accounting standards at the last
day of our November accounting period 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 the 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 the reporting unit within the
Sears Canada segment in 2012 was 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 this reporting unit was impaired and recorded a charge of $295 million in 2012.
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 the reporting unit; and
slower growth rates.
NOTE 13—STORE CLOSING CHARGES, SEVERANCE COSTS AND IMPAIRMENTS
Store Closings and Severance
We closed 173, 70 and 92 stores in our Kmart segment and 61, 23 and 147 stores in our Sears Domestic
segment we previously announced would close, during 2014, 2013 and 2012, respectively. We made the decision to
close 118, 113 and 48 stores in our Kmart segment and 47, 32 and 12 stores in our Sears Domestic segment during
2014, 2013 and 2012, respectively. We also made the decision to close 6 domestic supply chain distribution centers
in our Kmart segment and 1 domestic supply chain distribution center in our Sears Domestic segment during 2014.
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 and have been reduced for any income that we believe can be realized through sub-
leasing the leased space. We recorded charges for the related lease obligations of $42 million, $16 million and $34
million at Kmart during 2014, 2013 and 2012, respectively, and of $21 million and $34 million at Sears Domestic
during 2014 and 2012, respectively.
We expect to record additional charges of approximately $30 million during 2015 related to stores and
domestic supply chain distribution centers we had previously made the decision to close.