Sears 2011 Annual Report Download - page 30

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We sold a Sears Auto Center in October 2006, at which time we leased back the property for a period of
time. Given the terms of the contract, for accounting purposes, the excess of proceeds received over the carrying
value of the associated property was deferred. We closed our operations at this location during the first quarter of
2010 and, as a result, recognized a gain of $35 million on this sale at that time.
Sears Canada sold its headquarters office building and adjacent land in Toronto, Ontario in August 2007.
Sears Canada leased back the property under a leaseback agreement through March 2009, at which time it
finished its relocation of all head office operations to previously underutilized space in the Toronto Eaton Centre,
Ontario. Given the terms of the leaseback, for accounting purposes, the excess of proceeds received over the
carrying value of the associated property was deferred, and the resulting $44 million gain was recognized when
Sears Canada no longer occupied the associated property in 2009.
Operating Income
Operating income was $437 million for 2010 and $667 million for 2009. Operating income decreased $230
million and was the result of reductions in gross margin, partially offset by lower selling and administrative
expenses. Operating income for 2010 included expenses of $156 million related to domestic pension plans, store
closings and severance and a $35 million gain recognized on the sale of a Sears Auto Center. Operating income
for 2009 included expenses of $301 million related to domestic pension plans, store closings and severance, a
$44 million gain recognized by Sears Canada on the sale of its former headquarters, and a $32 million gain
recorded in connection with the settlement of Visa/MasterCard antitrust litigation.
Interest Expense
We incurred $293 million in interest expense during 2010 and $248 million in 2009. Our interest expense
increased primarily due to an increase in average total debt balances throughout 2010.
Other Loss
Other loss is primarily comprised of mark-to-market and settlement gains and losses on Sears Canada hedge
transactions. Total net mark-to-market and settlement losses of $15 million were recorded on these transactions
in 2010. Total net mark-to-market and settlement losses of $67 million were recorded on these transactions in
2009. See Notes 4 and 5 of Notes to Consolidated Financial Statements for further information regarding these
transactions.
Income Taxes
Our effective tax rate was 16.3% in 2010 and 28.4% in 2009. The decrease in our tax rate is primarily due to
lower taxable income and the resolution of certain federal and state income tax matters during 2010, which
resulted in a $13 million tax benefit.
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