Sears 2012 Annual Report Download - page 93

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
93
millions February 2, 2013 January 28, 2012
Deferred tax assets and liabilities:
Deferred tax assets:
Federal benefit for state and foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 151 $ 151
Accruals and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 188
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 125
NOL carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722 672
Postretirement benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 134
Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,208 818
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 236
Credit carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605 385
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 216
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,422 2,925
Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,743)(2,268)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679 657
Deferred tax liabilities:
Trade names/Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071 1,097
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 166
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453 378
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 104
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,797 1,745
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,118) $ (1,088)
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 require
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.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable
income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence
evaluated was the cumulative loss incurred over the three-year periods ended February 2, 2013 and January 28,
2012. Such objective evidence limits the ability to consider other subjective evidence such as our projections for
future growth.
On the basis of this analysis and the significant negative objective evidence, for the year ended January 28,
2012, a valuation allowance of $2.1 billion was added to record only the portion of the deferred tax asset that more
likely than not will be realized. Of the total valuation allowance recorded, $317 million was recorded through other
comprehensive income. For the year ended February 2, 2013, $213 million of the valuation allowance increase was
recorded through other comprehensive income.
At February 2, 2013 and January 28, 2012, we had a valuation allowance of $2.7 billion and $2.3 billion,
respectively, to record only the portion of the deferred tax asset that more likely than not will be realized. The
amount of the deferred tax asset considered realizable, however, could be adjusted in the future if estimates of future
taxable income during the carryforward period are reduced or increased, or if the objective negative evidence is in
the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as
our projections for growth. We will continue to evaluate our valuation allowance in future years for any change in
circumstances that causes a change in judgment about the realizability of the deferred tax asset.