Sears 2006 Annual Report Download - page 88

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Plan of Reorganization. Differences between claim amounts filed and the Company’s estimates are being
investigated and resolved through the claims resolution process. Since June 30, 2003, the first distribution date
established in the Plan of Reorganization, approximately 28.1 million shares of the 31.9 million shares set aside
for distribution have been distributed to holders of Class 5 claims, and approximately $4 million in cash has been
distributed separately to the holders of Class 6 and to the holders of Class 7 claims. Further, the Company
pro-rated approximately $5 million from the settlement that the Creditor Trust received to holders of class 4, 5, 6,
8, 10 and 11 claims. As the Company was unable to determine the ultimate amount of allowed claims until the
claims resolution process was largely completed, a distribution reserve for Class 5 claim settlements was
established. The Company’s current distribution reserve for Class 5 claim settlements is 5 percent of the total
shares expected to be distributed. Based on the Class 5 claims resolved to date, the Company believes that the
ultimate amount of allowed Class 5 claims will be less than the $4.3 billion provided for in the Plan of
Reorganization. As such, the Company currently expects that Class 5 distribution reserve of 5 percent will be
distributed to the allowed Class 5 creditors on or about April 30, 2007, and any remaining shares left over after
all Class 5 claims are settled will be distributed to the Class 5 creditors in proportion to their allowed claims.
Bankruptcy-Related Settlements
In fiscal 2006, fiscal 2005, and fiscal 2004, the Company recognized recoveries of $14 million, $40 million,
and $59 million, respectively, from vendors who had received cash payments for pre-petition obligations (critical
vendor claims) or preference payments. In conjunction with these recoveries, the Company was assigned 22,105
shares of common stock (weighted average price of $148.37 per share) with an approximate value of $3 million
for fiscal 2006. See Note 20 for a more detailed discussion of the critical vendor claims lawsuit.
NOTE 14—INCOME TAXES
millions 2006 2005 2004
Income before income taxes
U.S....................................................... $2,125 $1,467 $1,744
Foreign ................................................... 339 498 31
Total ................................................. $2,464 $1,965 $1,775
Income tax expense
Current:
Federal ............................................... $ 426 $ 251 $ 49
State and local ......................................... 75 81 16
Foreign ............................................... 77 214 7
Total ..................................................... 578 546 72
Deferred:
Federal ............................................... 258 227 531
State and local ......................................... 44 19 66
Foreign ............................................... 50 (76) —
352 170 597
Total ..................................................... $ 930 $ 716 $ 669
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