Sears 2008 Annual Report Download - page 80

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Reorganization. Accordingly, the remaining 2.1 million of the 31.9 million shares set aside for distribution have been (or are
in the process of being) distributed to holders of Class 5 claims. The actual amount of allowed Class 5 claims was
approximately $4 billion, which is less than the $4.3 billion estimate provided for in the Plan of Reorganization.
Bankruptcy-Related Settlements
In fiscal 2008, fiscal 2007, and fiscal 2006, we recognized recoveries of $5 million, $18 million, and $14 million,
respectively, from vendors who had received cash payments for pre-petition obligations (“critical vendor claims”) or
preference payments. During fiscal 2008, the Company received 126,385 shares of common stock (weighted average price of
$94.61 per share) with an approximate value of $12 million from the Class 5 distribution referenced above. Of this amount
$5 million was recognized as a recovery gain in other income as they relate to recoveries from vendors who had received
cash payments for pre-petition obligations (critical vendor claims) or preference payments. The remaining $7 million was
recorded as capital in excess of par value as these shares are the result of a fiscal 2004 transaction in which the Company
entered into settlement agreements with past providers of surety bonds to resolve all issues in connection with their
pre-petition claims. In accordance with the terms of the settlement agreements, Kmart assumed responsibility for the future
obligations under the bonds issued with respect to the Predecessor Company’s workers’ compensation insurance program
and was assigned the Class 5 claims against the Company.
NOTE 11—INCOME TAXES
millions 2008 2007 2006
Income before income taxes
U.S. ........................................................................... $(407) $ 953 $2,125
Foreign ........................................................................ 591 499 346
Total ...................................................................... $ 184 $1,452 $2,471
Income tax expense
Current:
Federal .................................................................... $ (70) $ 76 $ 426
State and local .............................................................. 32 43 75
Foreign .................................................................... 199 98 80
Total .......................................................................... 161 217 581
Deferred:
Federal .................................................................... (60) 253 258
State and local .............................................................. (11) 2 44
Foreign .................................................................... (5) 78 50
(76) 333 352
Total .......................................................................... $ 85 $ 550 $ 933
2008 2007 2006
Effective tax rate reconciliation
Federal income tax rate ........................................................... 35.0% 35.0% 35.0%
State and local taxes net of federal tax benefit .......................................... 7.2 2.0 3.1
Tax credits ..................................................................... (6.3) (0.4) (0.3)
Resolution of income tax matters .................................................... (6.8) 0.5 (0.9)
Basis difference in domestic subsidiary ............................................... (30.2) 0.3 0.4
Canadian rate differential on minority interest ......................................... (2.3) — —
Nondeductible goodwill ........................................................... 50.0 — —
Other .......................................................................... (0.4) 0.5 0.5
46.2% 37.9% 37.8%
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