Sears 2010 Annual Report Download - page 41

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The associated risks are managed through our wholly owned insurance subsidiary. In accordance with applicable
insurance regulations, the insurance subsidiary holds investment grade securities to support the insurance
coverage it provides.
We have transferred certain domestic real estate and intellectual property (i.e. trademarks) into separate
wholly owned, bankruptcy remote subsidiaries. These bankruptcy remote subsidiaries lease the real estate
property to Sears and license the use of the trademarks to Sears and Kmart. Further, the bankruptcy remote
subsidiaries have issued asset-backed notes that are collateralized by the aforementioned real estate rental
streams and intellectual property licensing fee streams. Cash flows received from rental streams and licensing fee
streams paid by Sears, Kmart and, potentially in the future, other affiliates or third parties, will be used for the
payment of fees, interest and principal on the asset-backed notes issued. Since the inception of these subsidiaries,
the debt securities have been entirely held by our wholly owned consolidated subsidiaries in support of our
insurance activities. At January 29, 2011 and January 30, 2010, the net book value of the securitized intellectual
property assets was approximately $1.0 billion. The net book value of the securitized real estate assets was
approximately $0.8 billion at January 29, 2011 and $0.9 billion at January 30, 2010.
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.
Total
Payments Due by Period
Contractual Obligations Within 1 Year 1-3 Years 4-5 Years After 5 Years Other
millions
Operating leases ....................... $ 5,342 $ 801 $1,307 $ 909 $2,325 $—
Short-term debt ....................... 360 360 — — — —
Capital lease obligations ................ 986 130 247 212 397 —
Royalty license fees(1) .................. 130 63 47 20 — —
Purchase obligations ................... 32 16 16 — — —
Pension funding obligations .............. 2,493 352 1,040 815 286 —
Long-term debt including current portion and
interest ............................ 3,808 592 683 333 2,200 —
Liability and interest related to uncertain tax
positions(2) ......................... 246 — — — — 246
Total contractual obligations ............. $13,397 $2,314 $3,340 $2,289 $5,208 $246
(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 American Greetings and Joe Boxer. Royalty license fees represent the minimum
Holdings is obligated to pay, regardless of sales, as guaranteed royalties under these license agreements.
(2) At January 29, 2011, our uncertain tax position liability and gross interest payable were $192 million and
$54 million, respectively. We are unable to reasonably estimate the timing of liabilities and interest
payments arising from uncertain tax positions in individual years due to the uncertainties in the timing of the
effective settlement of tax positions.
Other Commercial Commitments
We issue various types of guarantees in the normal course of business. We had the following guarantees
outstanding at January 29, 2011:
millions
Bank
Issued
SRAC
Issued Other Total
Standby letters of credit .............................................. $405 $ 66 $— $471
Commercial letters of credit ........................................... 9 118 — 127
Secondary lease obligations and performance guarantee .................... — — 20 20
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