Sears 2007 Annual Report Download - page 98

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
We are subject to various other legal and governmental proceedings, many involving litigation incidental to
our businesses. Some matters contain class action allegations, 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, we are a defendant in several cases
containing class-action allegations in which the plaintiffs are current and former hourly and salaried associates
who allege various wage and hour violations and unlawful termination practices. The complaints generally seek
unspecified monetary damages, injunctive relief, or both. Further, certain of these proceedings are in jurisdictions
with reputations for aggressive application of laws and procedures against corporate defendants. In accordance
with SFAS No. 5, “Accounting for Contingencies,” we accrue an undiscounted liability for those contingencies
where the incurrence of a loss is probable and the amount can be reasonably estimated and we do 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 our earnings in any given reporting period. However, in the opinion of our
management 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 our financial position, liquidity or capital resources.
NOTE 21—QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following quarterly financial information reflects the impact of the change in Sears Canada’s year end.
We have retrospectively adjusted quarterly amounts previously reported as required by SFAS 154. See Note 3 for
further discussion of this change in accounting principle.
millions, except per share data
2007
First
Quarter(1)
Second
Quarter
Third
Quarter
Fourth
Quarter
Total revenues
Before change in Canadian year end ........................... $11,702 $12,239 $11,548 $15,070
Impact of change in Canadian year end ......................... 45 21 74 4
After change in Canadian year end ............................. $11,747 $12,260 $11,622 $15,074
Cost of sales, buying and occupancy
Before change in Canadian year end ........................... $ 8,417 $ 8,845 $ 8,387 $10,899
Impact of change in Canadian year end ......................... 20 24 45 1
After change in Canadian year end ............................. $ 8,437 $ 8,869 $ 8,432 $10,900
Selling and administrative
Before change in Canadian year end ........................... $ 2,634 $ 2,799 $ 2,860 $ 3,144
Impact of change in Canadian year end ......................... 10 3 24 (6)
After change in Canadian year end ............................. $ 2,644 $ 2,802 $ 2,884 $ 3,138
Net income
Before change in Canadian year end ........................... $ 216 $ 176 $ 2 $ 419
Impact of change in Canadian year end ......................... 7 (3) 2 7
After change in Canadian year end ............................. $ 223 $ 173 $ 4 $ 426
Basic and diluted net income per share
Before change in Canadian year end ........................... $ 1.40 $ 1.17 $ 0.01 $ 3.12
Impact of change in Canadian year end ......................... 0.05 (0.02) 0.02 0.05
After change in Canadian year end ............................. $ 1.45 $ 1.15 $ 0.03 $ 3.17
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