Sears 2009 Annual Report Download - page 29

Download and view the complete annual report

Please find page 29 of the 2009 Sears annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

Operating Income
We reported operating income of $302 million in fiscal 2008 and $1.6 billion for fiscal 2007. The decline in
our operating income in fiscal 2008 was mainly due to lower gross margin dollars, partially offset by a decrease
in selling and administrative expense, as well as lower depreciation and amortization expense. Our operating
income for fiscal 2008 includes expenses of $437 million related to impairment, store closings, and severance
charges discussed above, as well as the positive impact of the reversal of a $62 million reserve because of a
favorable verdict in connection with a pre-merger legal matter. Our operating income for fiscal 2007 includes
gains of $46 million recorded in connection with changes made to Sears Canada’s benefit plans, as well as
insurance recoveries.
Interest and Investment Income
We earned $46 million in interest and investment income in fiscal 2008 and $135 million in fiscal 2007.
Interest and investment income was mainly comprised of interest income of $25 million and $107 million for
fiscal 2008 and 2007, respectively, and a dividend of $10 million and $20 million, respectively, from our
investment in Sears Mexico. Interest and investment income for fiscal 2007 was partially offset by investment
losses of $14 million on total return swaps outstanding during the fiscal year ended February 2, 2008. The
decrease in interest income in fiscal 2008 is primarily due to lower overall cash and cash equivalent balances
maintained during the first three quarters of fiscal 2008.
Interest Expense
We incurred interest expense of $272 million during fiscal 2008 and $286 million during fiscal 2007. The
reduction in interest expense is mainly the result of a reduction in long-term borrowings and lower short-term
interest rates, partially offset by an increase in the amount of short-term borrowings under our revolving credit
facility.
Other Income
Other income in fiscal 2008 was primarily comprised of mark-to-market gains on Sears Canada hedge
transactions. Total net gains of $81 million were recorded on these transactions in fiscal 2008. Other income also
includes gains on negotiated repurchases of debt securities prior to their maturity and bankruptcy-related
recoveries. We recorded $13 million in gains related to the repurchases of debt securities in fiscal 2008. We had
no comparable gains in fiscal 2007. We recorded $5 million of bankruptcy-related recoveries during fiscal 2008
and $18 million of such recoveries in fiscal 2007. Bankruptcy-related recoveries represent amounts collected
from vendors who had received cash payment for pre-petition obligations. See Note 10 of Notes to Consolidated
Financial Statements for further information on bankruptcy claims resolution and settlements.
Income Taxes
Our effective tax rate in fiscal 2008 was 46.2% and 37.9% in fiscal 2007. The increase in our tax rate is
primarily due to a portion of our impairment charge for goodwill not being deductible for tax purposes. Income
tax expense in 2008 also includes a benefit of $8 million related to the resolution of certain tax matters.
29