Consolidated Statements of Operations (Unaudited) (Note 1)
(All amounts in millions except percentages and per share figures)
| |
13 Weeks Ended |
13 Weeks Ended |
| |
May 2,
2009
|
May 3,
2008 |
| |
$ |
% to
Net Sales |
$ |
% to
Net Sales |
| |
| Net sales |
$ 5,199 |
|
$ 5,747 |
|
| |
| Cost of sales (Note 2) |
3,219 |
61.9% |
3,527 |
61.4% |
| |
| Gross margin |
1,980 |
38.1% |
2,220 |
38.6% |
| |
| Selling, general and administrative expenses (Note 3) |
(1,956) |
(37.6%) |
(2,103) |
(36.6%) |
| |
| Division consolidation costs (Note 4) |
(138) |
(2.7%) |
(87) |
(1.5%) |
| |
| Operating income (loss) |
(114) |
(2.2%) |
30 |
0.5% |
| |
| Interest expense - net |
(141) |
|
(136) |
|
| |
| Loss before income taxes |
(255) |
|
(106) |
|
| |
Federal, state and local income tax
benefit (Note 5) |
167 |
|
47 |
|
| |
| Net loss |
$(88) |
|
$(59) |
|
| |
| Basic loss per share |
$(.21) |
|
$(.14) |
|
| |
| Diluted loss per share |
$(.21) |
|
$(.14) |
|
| |
| Average common shares: |
| Basic |
421.4 |
|
420.9 |
|
| Diluted |
421.4 |
|
420.9 |
|
| |
| End of period common shares outstanding |
420.6 |
|
420.5 |
|
| |
| Depreciation and amortization expense |
$ 303 |
|
$ 315 |
|
Notes:
(1) Because of the seasonal nature of the retail business, the results of operations for the 13 weeks ended May 2, 2009 and May 3, 2008 (which do not include the Christmas season) are not necessarily indicative of such results for the fiscal year. During the fourth quarter of 2008, the Company recorded an estimated pre-tax goodwill impairment charge of $5,382 million, $5,083 million after income taxes, based on the preliminary results of goodwill impairment testing as of January 31, 2009. The first step of the goodwill impairment test has been completed and involved estimating the fair value of each of the Company's reporting units based on its estimated discounted cash flows and comparing the estimated fair value of each reporting unit to its carrying value. The second step of the goodwill impairment test, which is substantially complete, requires the Company to allocate the estimated fair value of each of its reporting units to the estimated fair value of the reporting unit's net assets, with any fair value in excess of amounts allocated to such net assets representing the implied fair value of goodwill for that reporting unit. The completion of the second step of the goodwill impairment testing process is not expected to have a material impact on the estimated goodwill impairment charge recorded in the fourth quarter of 2008.
(2) Merchandise inventories are primarily valued at the lower of cost or market using the last-in, first-out (LIFO) retail inventory method. Application of this method did not impact cost of sales for the 13 weeks ended May 2, 2009 or May 3, 2008.
(3) For the 13 weeks ended May 3, 2008, selling, general and administrative expenses included an accrual related to a legal dispute of approximately $23 million or $.03 per diluted share.
(4) Represents costs and expenses associated with the division consolidation and localization initiatives, primarily severance and other human resource related costs. Based on projected annual income before income taxes for fiscal 2009, the effective tax rate including these costs and expenses is currently estimated to be approximately 65%. Excluding costs related to the division consolidation and localization initiatives announced in February 2009 from projected annual income before income taxes would reduce the effective tax rate to approximately 40% due to higher income before income taxes.
Accordingly, the effect of excluding $138 million of costs related to the division consolidation and localization initiatives announced in February 2009 from income before income taxes for the 13 weeks ended May 2, 2009, would reduce the federal, state and local income tax benefit recorded during the period by $118 million, and would reduce the net loss by $20 million or $.05 per diluted share. For the 13 weeks ended May 3, 2008, costs related to the division consolidation and localization initiatives announced in February 2008 amounted to $.13 per diluted share.
(5) The federal, state and local income tax benefit differs from the federal income tax statutory rate of 35%, principally because of the effect of state and local taxes, including the settlement of various tax issues and tax examinations.
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