Sears 2009 Annual Report Download - page 86

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
millions
January 30,
2010
January 31,
2009
Deferred tax assets and liabilities
Deferred tax assets:
Federal benefit for state and foreign taxes ................................. $ 179 $ 143
Accruals and other liabilities ........................................... 232 309
Capital leases ....................................................... 159 169
NOL carryforwards ................................................... 306 280
OPEB ............................................................. 176 169
Pension ............................................................ 664 582
Deferred revenue ..................................................... 202 191
Credit carryforwards .................................................. 156 108
Other .............................................................. 113 185
Total deferred tax assets ................................................... 2,187 2,136
Valuation allowance ...................................................... (131) (117)
Net deferred tax assets ................................................ 2,056 2,019
Deferred tax liabilities:
Trade names/Intangibles ............................................... 1,186 1,203
Property and equipment ............................................... 304 206
Inventory ........................................................... 264 246
Other .............................................................. 203 178
Total deferred tax liabilities ................................................ 1,957 1,833
Net deferred tax asset ..................................................... $ 99 $ 186
We account for income taxes in accordance with accounting standards for such taxes, which requires that
deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences
between the financial reporting and tax bases of recorded assets and liabilities. Accounting standards also
requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some
portion of or all of the deferred tax asset will not be realized.
During fiscal 2008, we reduced our reserves for Predecessor Company income tax liabilities by $1 million,
primarily due to favorable resolution of income tax claims. Beginning in 2009, any benefit realized or cost
recognized from an adjustment to pre-confirmation income tax liabilities will impact our income tax expense
instead of equity under newly issued accounting standards for business combinations. Additionally, in fiscal year
2008, we received a tax benefit of $23 million relating to certain Class 5 and 6 pre-petition claims paid with
equity. We did not receive any tax benefits related to these pre-petition claims in fiscal 2009.
At January 30, 2010, we had Federal net operating loss (“NOL”) carryforwards from the Predecessor
Company of approximately $269 million subject to an overall annual section 382 limitation of $96 million,
generating deferred tax assets of approximately $94 million. The federal NOL carryforwards will expire in 2021,
2022, 2023, and 2028. We also have credit carryforwards of $156 million, which will expire between 2015 and
2029.
At the end of fiscal 2008, we had a state NOL deferred tax asset of $186 million and a valuation allowance
of $117 million. In fiscal 2009, there was a net addition to the state NOL deferred tax asset of $26 million,
bringing the ending balance to $212 million. The additional NOLs were the result of additional state losses
incurred in fiscal 2009, netted against NOL expirations. The valuation allowance increased by $14 million, to
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