Sears 2011 Annual Report Download - page 45

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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.
Total
Payments Due by Period
Contractual Obligations Within 1 Year 1-3 Years 4-5 Years After 5 Years Other
millions
Operating leases ....................... $ 4,819 $ 773 $1,233 $ 836 $1,977 $—
Short-term debt ....................... 1,175 1,175 — — — —
Capital lease obligations ................ 718 112 200 151 255 —
Royalty license fees(1) .................. 121 60 44 17 — —
Purchase obligations ................... 17 17 — — — —
Pension funding obligations .............. 2,990 348 1,425 882 335 —
Long-term debt including current portion and
interest ............................ 2,429 217 89 179 1,944 —
Liability and interest related to uncertain tax
positions(2) ......................... 247 — — — — 247
Total contractual obligations ............. $12,516 $2,702 $2,991 $2,065 $4,511 $247
(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 28, 2012, our uncertain tax position liability and gross interest payable were $192 million and
$55 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 28, 2012:
millions
Bank
Issued
SRAC
Issued Other Total
Standby letters of credit .............................................. $632 $ 24 $— $656
Commercial letters of credit ........................................... 9 115 — 124
Secondary lease obligations and performance guarantee .................... — — 16 16
The secondary lease obligations relate to certain store leases of previously divested Sears businesses. We
remain secondarily liable if the primary obligor defaults.
Application of Critical Accounting Policies and Estimates
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
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