Sears 2006 Annual Report Download - page 98

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
The Company is subject to various other legal and governmental proceedings, many involving litigation
incidental to its businesses. Some matters contain class action allegations, employment claims, environmental
and asbestos exposure allegations and other consumer-based claims, each of which may seek compensatory,
punitive or treble damage claims (potentially in large amounts) or as well as other types of relief. In addition,
certain of these proceedings are in jurisdictions with reputations for aggressive application of laws and
procedures against corporate defendants. In accordance with Statement of Financial Accounting Standards No. 5,
“Accounting for Contingencies,” the Company accrues an undiscounted liability for those contingencies where
the incurrence of a loss is probable and the amount can be reasonably estimated and the Company does not
record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be
reasonably estimated, or when the liability is believed to be only reasonably possible or remote. Because
litigation outcomes are inherently unpredictable, these assessments often involve a series of complex assessments
by management about future events and can rely heavily on estimates and assumptions. While the consequences
of certain unresolved proceedings are not presently determinable, an adverse outcome from certain matters could
have a material adverse effect on the Company’s earnings in any given reporting period. However, in the opinion
of management of the Company after consulting with legal counsel, and taking into account insurance and
reserves, the ultimate liability is not expected to have a material adverse effect on the financial position, liquidity
or capital resources of the Company.
During the second quarter of fiscal 2006, the Company recorded a gain of $36 million for the aggregate
amount received by Holdings in June 2006 as part of the settlement of Visa/MasterCard litigation concerning
alleged unlawful inflation of interchange fees. The Company has recorded the $36 million gain as a reduction to
Selling and administrative expense in the consolidated statements of income for the fiscal year ended February 3,
2007.
NOTE 21—QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2006
millions
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total revenues ............................................. $11,998 $12,785 $11,941 $16,288
Cost of sales, buying and occupancy ........................... 8,665 9,158 8,557 11,440
Selling and administrative .................................... 2,721 2,827 2,834 3,199
Income before cumulative effect of change in accounting principle . . . 180 294 196 820
Net income ............................................... 180 294 196 820
Basic and diluted net income per share .......................... 1.14 1.88 1.27 5.33
2005
millions
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total revenues ............................................. $ 7,644 $13,192 $12,202 $16,086
Cost of sales, buying and occupancy ........................... 5,661 9,541 8,795 11,508
Selling and administrative .................................... 1,729 3,009 2,981 3,089
Income before cumulative effect of change in accounting principle . . . 81 161 58 648
Net income (loss) .......................................... (9) 161 58 648
Basic and diluted net income (loss) per share ..................... (0.07) 0.98 0.35 4.03
Earnings per share amounts for each quarter are required to be computed independently and may not equal
the amount computed for the total year.
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