Sears 2006 Annual Report Download - page 100

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Sears Holdings Corporation
Schedule II—Valuation and Qualifying Accounts
Fiscal Years 2006, 2005 and 2004
millions
Balance at
beginning
of period
Additions
charged
to
costs and
expenses
Additions
(deductions)
resulting from
the Merger
charged to
other accounts (Deductions)
Balance at
end of period
Allowance for Doubtful Accounts(1):
Fiscal 2006 ......................... $ 35 $64 $ — $ (70) $ 29
Fiscal 2005 ......................... 40 71 16 (92) 35
Fiscal 2004 ......................... 78 64 — (102) 40
Allowance for Deferred Tax Assets(2):
Fiscal 2006 ......................... 330 2 — — 332
Fiscal 2005 ......................... 1,249 24 330 (200) 330
(1,073)
Fiscal 2004 ......................... 2,351 53 — (1,155) 1,249
(1) Charges to the account are for the purposes for which the reserves were created.
(2) The Predecessor Company recorded a full valuation allowance against its pre-petition deferred tax assets in
accordance with SFAS No. 109, as realization of such assets in future years was uncertain. During fiscal
2005 and fiscal 2004, the Company recognized reversals of, $1,249 million and $1,155 million,
respectively, based on the utilization (or projected utilization) of such deferred tax assets. As of February 3,
2007, management continues to believe that all of the Company’s pre-petition net deferred tax assets will
more likely than not be realized due to the Merger and the actual and forecasted levels of profitability, and
as such the related valuation allowance was reduced to zero at January 28, 2006. In accordance with SFAS
No. 109, the portion of the reversal of the valuation allowance attributable to the Merger ($1,073 million)
was recorded as an adjustment to goodwill attributable to the Merger. In accordance with SOP 90-7, the
remaining portion of the reversal of the valuation allowance is recorded as a direct credit to capital in excess
of par.
In connection with the Merger, deferred tax assets of $350 million were recorded related to state net
operating losses (“NOLs”) of Sears. A valuation allowance of $330 million was originally recorded with
respect to this deferred tax asset. In fiscal 2006, deferred tax assets relating to the NOLs were reduced $3
million to a total of $347 million. A valuation allowance of an additional $2 million was recorded, bringing
the total valuation allowance to $332 million.
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