Sears 2008 Annual Report Download - page 83

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
penalties recognized on our consolidated balance sheet was $87 million ($57 million net of federal benefit). The
total amount of interest and penalties recognized in our consolidated statement of income for fiscal 2008 was
$2 million.
We file income tax returns in both the United States and various foreign jurisdictions. The U.S. Internal
Revenue Service (“IRS”) has commenced an audit of the Holdings’ federal income tax returns for the fiscal years
2006 and 2007. The IRS has completed its examination of Sears’ federal income tax returns for the fiscal years
2002, 2003, 2004, and 2005 and Holdings’ federal income tax return for the fiscal year 2005. We are working
with the IRS to resolve certain matters arising from these exams. In addition, Holdings and Sears are subject to
various state, local and foreign income tax examinations for the fiscal years 2001 – 2006 and Kmart is subject to
such examinations for the fiscal years 2003 – 2005.
NOTE 12—REAL ESTATE TRANSACTIONS
Gain on Sale of Assets
We recognized $51 million, $38 million, and $82 million in gains on sales of assets during fiscal 2008,
fiscal 2007, and fiscal 2006, respectively. These gains were primarily a function of several large real estate
transactions. During fiscal 2008, the gain on sale of assets included a $32 million pre-tax gain recognized on the
sale of Sears Canada’s Calgary downtown full-line store. During fiscal 2007, the gain on sale of assets included a
$21 million pre-tax gain on the sale of our Sears fashion center in Los Angeles. During fiscal 2006, the gain on
sale of assets included a $41 million pre-tax gain on the sale of our former Kmart corporate headquarters.
In August 2007, Sears Canada sold its headquarters office building and adjacent land in Toronto, Ontario for
proceeds of $81 million Canadian, net of closing costs. Sears Canada is currently leasing back the property under
a leaseback agreement for a period up to 36 months, and incurring its current level of occupancy costs, until it
relocates all head office operations to currently underutilized space in the Toronto Eaton Centre, Ontario. The
carrying value of the property was approximately $35 million as of February 2, 2008. Given the terms of the
leaseback, the excess of proceeds received over the carrying value of the associated property has been deferred,
and the resulting gain will be recognized at the end of the leaseback period when Sears Canada is no longer
utilizing the associated property. We expect to recognize this gain during the first half of fiscal 2009.
We classify a portion of our property as held for sale when criteria under SFAS No. 144 has been met.
Property held for sale at January 31, 2009 and February 2, 2008 totaled $58 million and $42 million,
respectively.
Property Acquisitions
During fiscal 2008, fiscal 2007, and fiscal 2006, we purchased 9, 28 and 8 previously leased operating
properties for $22 million, $109 million, and $26 million, respectively. In the normal course of business, we
consider opportunities to purchase leased operating properties, as well as offers to sell owned, or assign leased,
operating and non-operating properties. These transactions may, individually or in the aggregate, result in
material proceeds or outlays of cash. In addition, we review leases that will expire in the short-term in order to
determine the appropriate action to take with respect to them.
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