Sears 2006 Annual Report Download - page 5

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November 19, 2004, two business days before and after the date the Merger was announced). In addition,
approximately $5.4 billion in cash was paid in consideration for (i) all outstanding shares of common stock of
Sears, based upon the proration provisions of the agreement pursuant to which the Merger was effected, and
(ii) all outstanding stock options of Sears. Including transaction costs of approximately $18 million, the total
consideration paid was approximately $11.9 billion.
Additional information concerning the Merger is contained in Note 2 of Notes to Consolidated Financial
Statements.
Bankruptcy of Kmart Corporation
Kmart Corporation (the “Predecessor Company”) is a predecessor operating company of Kmart (the
“Successor Company”). In January 2002, the Predecessor Company and 37 of its U.S. subsidiaries (collectively,
the “Debtors”) filed voluntary petitions for reorganization under Chapter 11 of the federal bankruptcy laws
(“Chapter 11”). The Debtors decided to seek bankruptcy reorganization based upon a rapid decline in their
liquidity resulting from below-plan sales and earnings performance in the fourth quarter of fiscal 2001, the
evaporation of the surety bond market, an erosion of supplier confidence, intense competition and unsuccessful
sales and marketing initiatives, as well as the continued recession and capital market volatility in existence at that
time. The Predecessor Company utilized Chapter 11 to strengthen its balance sheet and reduce debt, focus its
store portfolio on the most productive locations and terminate leases for closed stores, develop a more efficient
organization and lower overall operating costs.
On May 6, 2003 (the “Effective Date”), the Predecessor Company emerged from reorganization proceedings
under Chapter 11 pursuant to the terms of an Amended Joint Plan of Reorganization (the “Plan of
Reorganization”) and related amended Disclosure Statement. This Plan received formal endorsement of the
statutory creditors’ committee and, as modified, was confirmed by the U.S. Bankruptcy Court in April 2003. The
Predecessor Company is presently an indirect wholly-owned subsidiary of Holdings.
Sale of Sears Canada’s Credit and Financial Services Business
On November 15, 2005, Sears Canada completed the sale of substantially all of the assets and liabilities of
its Credit and Financial Services operations to JPMorgan Chase for approximately $2.0 billion in cash proceeds,
net of securitized receivables and other related costs and taxes. In addition, Sears Canada and JPMorgan Chase
concurrently entered into a long-term marketing and servicing alliance with an initial term of ten years. Sears
Canada used a portion of the proceeds it generated from the sale to fund an extraordinary cash dividend and a
tax-free return of stated capital to shareholders of record on December 16, 2005. Holdings, as beneficial owner of
approximately 54% of the outstanding common stock of Sears Canada at the time of the distribution, received
$877 million in after-tax proceeds from this distribution. Additional information concerning the sale is contained
in Note 5 of Notes to Consolidated Financial Statements.
Acquisition of Minority Interest in Sears Canada
In December 2005, Holdings announced its intention to acquire 100% ownership of Sears Canada in order
to allow Sears Canada to be in a better competitive position relative to other Canadian retailers and the Canadian
operations of major U.S. retailers. During fiscal 2006, the Company increased its majority interest in Sears
Canada from 54% to 70% by acquiring 17.8 million common shares of Sears Canada pursuant to the takeover
bid. The Company paid a total of $282 million for the additional 17.8 million common shares acquired and has
accounted for the acquisition of additional interests in Sears Canada as a purchase business combination for
accounting purposes. The takeover bid expired on November 27, 2006.
Real Estate Transactions
In the normal course of business, the Company considers opportunities to purchase leased operating
properties, as well as offers to sell owned, or assign leased, operating and non-operating properties. These
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