Sears 2007 Annual Report Download - page 42

Download and view the complete annual report

Please find page 42 of the 2007 Sears annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 110

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110

fiscal 2007, we recognized $14 million in investment losses related to these swaps. There were no total return
swaps outstanding as of February 2, 2008. In connection with the settlement of our investments in total return
swaps during 2007, collateral posted in the amount of $80 million in 2006 was returned to us in 2007.
We purchased 5.3 million shares of common stock of Restoration Hardware, Inc. (“Restoration”), a
specialty retailer of hardware, bathware, furniture, lighting, textiles, accessories and gifts during 2007. Our
investment of $30 million represents an ownership interest of 13.67% of Restoration’s total outstanding shares.
In addition, during fiscal 2007 we spent $570 million on capital expenditures compared to $508 million
during the prior year. Capital expenditures during fiscal 2007 included multiple real estate acquisitions of space
used for Holdings’ retail locations or distribution centers and for continued investments in our information
technology.
We anticipate fiscal 2008 capital expenditure levels to be flat to 2007 levels; however, it should be noted
that 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 and cause our capital expenditure
levels to vary from period to period. 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. During fiscal 2007, we purchased 28 previously
leased operating properties for $109 million.
Fiscal 2006 investing activity cash flows reflect cash paid in connection with the acquisition of additional
interest in Sears Canada. We paid a total of $282 million for additional common shares of Sears Canada, raising
Holdings’ ownership in Sears Canada to approximately 70% as of February 3, 2007 from approximately 54% as
of fiscal year end 2005. This transaction is further described in Note 4 of Notes to Consolidated Financial
Statements. Fiscal 2005 reflects the receipt of $2.0 billion in proceeds from the sale of Sears Canada’s Credit and
Financial Services business in November 2005, partially offset by cash paid in connection with the Merger, a
$1.0 billion net cash outflow.
Financing Activities and Cash Flows
Net cash used in financing activities was $3.4 billion in fiscal 2007 as compared to $1.3 billion used in
2006. The difference primarily reflects an increase in common share repurchases during 2007. The Company
repurchased $2.9 billion, $806 million and $585 million of its common stock pursuant to our common share
repurchase program in fiscal 2007, 2006 and 2005, respectively. The common share repurchase program was
initially announced in 2005 with a total authorization by our Board of Directors of up to $1.0 billion. During
fiscal 2006 and fiscal 2007, the Board of Directors authorized the repurchase of up to an additional $1.0 billion
and $2.5 billion of common stock, respectively, for a total authorization since inception of the program of $4.5
billion. At February 2, 2008, we had approximately $183 million of remaining authorization under the program.
The share repurchase program has no stated expiration date and share repurchases may be implemented using a
variety of methods, which may include open market purchases, privately negotiated transactions, block trades,
accelerated share repurchase transactions, the purchase of call options, the sale of put options or otherwise, or by
any combination of such methods.
In addition to share repurchases, we made debt payments of $601 million, net of new borrowings, during
2007 as compared to $434 million in fiscal 2006. The difference in cash used to repay debt between 2006 and
2007 primarily reflects the generation of $198 million of debt proceeds, net of approximately $2 million in
issuance costs, in connection with our entering into a five year, $200 million Senior Secured Term Loan at our
Orchard Supply Hardware Stores Corporation (“OSH”) subsidiary in December 2006. The proceeds of this
borrowing were used by OSH to pay Holdings the remaining loan payable issued in connection with OSH’s
recapitalization in November 2005. The Senior Secured Term Loan is non-recourse to Holdings.
42