Sears 2006 Annual Report Download - page 67

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
financial statements for fiscal years ending after November 15, 2006. The Company adopted SAB No. 108 for its
financial statements for the fiscal year ending February 3, 2007. Implementation of SAB No. 108 did not have a
material impact on either the Company’s results of operations or stockholder’s equity.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally accepted accounting principles and
expands disclosures about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after
December 15, 2007. The Company plans to adopt SFAS No. 157 beginning in the first quarter of fiscal 2008. The
Company is currently evaluating the impact, if any, the adoption of SFAS No. 157 will have on its financial
statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans.” See Note 3 of Notes to Consolidated Financial Statements for further
information regarding the impact of adopting this standard.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities.” SFAS No. 159 expands the scope of specific types of assets and liabilities that an entity
may carry at fair value on its statement of financial position, and offers an irrevocable option to record the vast
majority of financial assets and liabilities at fair value, with changes in fair value recorded in earnings. SFAS
No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the
impact, if any, SFAS No. 159 will have on its financial statements.
NOTE 2—THE MERGER
On March 24, 2005, Kmart and Sears completed the Merger pursuant to the Agreement and Plan of Merger,
dated as of November 16, 2004 (the “Merger Agreement”). Upon consummation of the Merger, Kmart and Sears
became wholly-owned subsidiaries of Holdings.
Under the terms of the Merger Agreement, Kmart shareholders received one share of Holdings common
stock for each Kmart share owned. Approximately 94.9 million shares of Holdings common stock were issued in
exchange for all outstanding common stock of Kmart based on the one-for-one ratio. Sears shareholders had the
right to elect to receive $50 in cash or 0.5 of a share of Holdings common stock for each Sears share owned.
Sears shareholder elections were prorated to ensure that, in the aggregate, 55 percent of Sears shares were
converted into Holdings shares and 45 percent of Sears shares were converted to cash. Shares of Sears restricted
common stock were converted into Holdings common stock on a 0.5 for 1 basis. In aggregate, 62.2 million
shares of Holdings common stock were issued to Sears shareholders at a value of approximately $6.5 billion
(based on the average closing price of $104.33 of Kmart’s common stock during the period from November 15,
2004 through 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 Merger Agreement, and (ii) all outstanding stock
options of Sears. Including transaction costs of approximately $18 million, the total consideration paid was
approximately $11.9 billion.
In accordance with SFAS No. 141, “Business Combinations,” the Merger was treated as a purchase business
combination for accounting purposes, with Kmart designated as the acquirer. In identifying Kmart as the
acquiring entity, the companies took into account the relative share ownership of the Company after the Merger,
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