Sears 2014 Annual Report Download - page 75

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
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the amount of credit exposure in any one financial instrument. We use high credit quality counterparties to transact
our derivative transactions.
Cash and cash equivalents, accounts receivable, merchandise payables, credit facility borrowings and accrued
liabilities are reflected in the Consolidated Balance Sheet at cost, which approximates fair value due to the short-
term nature of these instruments. The fair value of our debt is disclosed in Note 3.
Self-insurance Reserves
We are self-insured for certain costs related to workers' compensation, asbestos, 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 31, 2015 were as follows:
millions
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 211
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Total undiscounted obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915
Less—discount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (88)
Net obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 827
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, the minimum amount in the estimated range 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