Sears 2007 Annual Report Download - page 46

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Contractual Obligations and Off-Balance Sheet Arrangements
Information concerning our obligations and commitments to make future payments under contracts such as
debt and lease agreements, and under contingent commitments, is aggregated in the following tables.
Payments Due by Period
Contractual Obligations Total
Within
1 Year
1-3
Years
4-5
Years
After 5
Years Other
millions
Operating leases ................................. $ 6,932 $ 834 $1,400 $1,044 $3,654 $—
Short-term debt ................................. 162 162 — — — —
Capital lease obligations .......................... 1,325 143 266 248 668 —
Royalty license fees(1) ............................ 191 143 46 2 — —
Purchase obligations ............................. 77 25 26 26 — —
Pension funding obligations ........................ 959 245 375 339 — —
Long-term debt .................................. 3,544 599 970 604 1,371 —
FIN 48 liability and interest(2) ...................... 337 ————337
Total contractual obligations ....................... $13,527 $2,151 $3,083 $2,263 $5,693 $337
(1) We pay royalties under various merchandise license agreements, which are generally based on sales of
products covered under these agreements. We currently have license agreements for which we pay royalties,
including those to use the Jaclyn Smith, Joe Boxer, and Martha Stewart Everyday trademarks. Royalty
license fees represent the minimum Holdings is obligated to pay, regardless of sales, as guaranteed royalties
under these license agreements.
(2) As of February 2, 2008, our FIN 48 liability and FIN 48 gross interest payable were $237 million and $100
million, respectively. We are unable to reasonably estimate the timing of FIN 48 liability and interest
payments in individual years beyond 12 months due to the uncertainties in the timing of the effective
settlement of tax positions.
Other Commercial Commitments
millions
Bank
Issued
SRAC
Issued Other Total
Standby letters of credit ............................................ $1,722 $119 $— $1,841
Commercial letters of credit ........................................ 66 104 — 170
Secondary lease obligations and performance guarantee .................. — — 55 55
Application of Critical Accounting Policies
In preparing the financial statements, certain accounting policies require considerable judgment to select the
appropriate assumptions to calculate financial estimates. These estimates are complex and subject to an inherent
degree of uncertainty. We base our estimates on historical experience, terms of existing contracts, evaluation of
trends and other assumptions that we believe to be reasonable under the circumstances. We continually evaluate
the information used to make these estimates as our business and the economic environment change. Although
the use of estimates is pervasive throughout the financial statements, we consider an accounting estimate to be
critical if:
• it requires assumptions to be made about matters that were highly uncertain at the time the estimate
was made, and
• changes in the estimate that are reasonably likely to occur from period to period or different estimates
that could have been selected would have a material effect on our financial condition, cash flows or
results of operations.
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