Sears 2011 Annual Report Download - page 26

52 Weeks Ended January 30, 2010
millions, except per
share data GAAP
Domestic
Pension
Expense
Closed Store
Reserve
and
Severance
Mark-to-Market
Losses
Gain on
Sale
of Sears
Canada
Headquarters
Visa /
MasterCard
Settlement
Tax
Matters
Discontinued
Operations
As
Adjusted
Cost of sales, buying and
occupancy impact .... $31,374 $ — $ (37) $ — $ — $ — $ — $ — $31,337
Selling and administrative
impact ............. 10,499 (170) (82) — — 32 — — 10,279
Depreciation and
amortization impact . . . 894 — (12) — — — — — 882
Gain on sales of assets
impact ............. (74) — — — 44 — — — (30)
Operating income
impact ............. 667 170 131 — (44) (32) — — 892
Other loss impact ....... (61) — — 33 — — — — (28)
Income tax expense
impact ............. (111) (50) (38) (8) 10 10 (41) — (228)
Income from discontinued
operations, net of tax,
impact ............. 17 — — — — — — (17) —
Income attributable to
noncontrolling interest
impact ............. (62) — (3) (9) 12 — — — (62)
After tax and
noncontrolling interest
impact ............. 235 120 90 16 (22) (22) (41) (17) 359
Diluted income per share
impact ............. $ 1.99 $1.02 $0.77 $0.14 $(0.19) $(0.19) $(0.35) $(0.14) $ 3.05
During 2011, we recorded a $1.8 billion non-cash charge to establish a valuation allowance against our domestic
deferred tax assets. Accounting rules generally require that a valuation reserve be established when income has not
been generated over a three-year cumulative period to support the deferred tax asset. While an accounting loss was
recorded, we believe no economic loss has occurred as these net operating losses and tax benefits remain available to
reduce future taxes as income is generated in subsequent periods.
Contributions to our pension plans remain a significant use of our cash on an annual basis. While Sears Holdings’
pension plan is frozen, and thus associates do not currently earn pension benefits, we have a legacy pension obligation
for past service performed by Kmart and Sears, Roebuck and Co. associates. The annual pension expense included in
our financial statements related to these legacy domestic pension plans was relatively minimal in years prior to 2009.
However, due to the severe decline in the capital markets that occurred in the latter part of 2008, our domestic pension
expense was $74 million in 2011, $120 million in 2010 and $170 million in 2009.
During 2010, Sears Canada paid $754 million in dividends of which Holdings received $639 million. As Sears
Canada is a consolidated subsidiary of Holdings, no income was recognized on the receipt of the dividend. However,
Holdings did record $9 million of income tax expense related to the dividend.
Revenues and Comparable Store Sales
Revenues decreased $1.1 billion, or 2.6%, to $41.6 billion in 2011, as compared to revenues of $42.7 billion in
2010. The decline in revenues was primarily a result of a 2.2% decrease in domestic comparable stores sales and the
effect of having fewer Kmart and Sears Full-line stores in operation. Additionally, Sears Canada had a 7.7% decline in
comparable store sales, which was partially offset by an increase of $171 million due to changes in the Canadian
foreign exchange rate.
For the year, domestic comparable store sales declined 2.2%, with declines of 3.0% at Sears Domestic and 1.4% at
Kmart. Decreases in sales at Sears Domestic were driven by appliances and consumer electronics, and were partially
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