Sears 2007 Annual Report Download - page 43

In August 2007, Sears Canada sold its headquarters office building and adjacent land in Toronto, Ontario for
proceeds of $81 million Canadian, net of closing costs. Sears Canada is currently leasing back the property under
a leaseback agreement for a period up to 36 months, and incurring its current level of occupancy costs, until it
relocates all head office operations to currently underutilized space in the Toronto Eaton Centre, Ontario. The
carrying value of the property was approximately $35 million as of February 2, 2008. Given the terms of the
leaseback, for accounting purposes, the excess of proceeds received over the carrying value of the associated
property has been deferred, and the resulting gain will be recognized at the end of the leaseback period when
Sears Canada is no longer utilizing the associated property.
Net cash used in financing activities was $2.0 billion in fiscal 2005, primarily reflecting $816 million of
debt repayments, net of new borrowings, a dividend of $794 million paid by Sears Canada to minority
shareholders of Sears Canada, subsequent to the sale of Sears Canada’s Credit and Financial Services business in
November 2005, and share repurchases as noted above.
In November 2005, the Company received $59 million in cash from the investment by Ares Management
LLC (“Ares”) for 19.9% of the voting stock of OSH and receipt of a three-year option to purchase, for
$137 million, additional shares of OSH that represented 30.2% of OSH’s outstanding voting stock at the time of
the option’s issuance. Prior to the Ares investment, OSH was a wholly-owned subsidiary of the Company.
In addition, Holdings generated $169 million of debt proceeds, net of $7 million in issuance costs, in fiscal
2005 as a result of financing obtained by OSH subsidiaries concurrent with the Ares investment in 19.9% of the
voting stock of OSH. At the time of the Ares investment, OSH subsidiaries entered into a series of arrangements
for $250 million in financing, consisting of a $130 million senior secured revolving credit facility and a
$120 million commercial mortgage-backed loan. Approximately $56 million of the revolving credit facility was
drawn down at closing. A portion of the proceeds was used by OSH to fund a dividend to Holdings that included
$225 million in cash, which was available to be used for Holdings’ general corporate purposes.
Uses and Sources of Liquidity
Our primary need for liquidity is to fund working capital requirements of our retail businesses, capital
expenditures and for general corporate purposes, including common share repurchases, debt repayment and
pension plan contributions. We believe that these needs will be adequately funded by our operating cash flows,
credit terms from vendors, current balances in cash and cash equivalents and, to the extent necessary, borrowings
under our $4.0 billion, five-year credit agreement (the “Credit Agreement”) (described below). At February 2,
2008, $3.0 billion was available under this facility. While we expect to use the Credit Agreement as our primary
funding source, we may also access the public debt markets on an opportunistic basis. Additionally, we may from
time to time consider selective strategic transactions to create value and improve performance, which may
include acquisitions, dispositions, restructurings, joint ventures and partnerships. Transactions of these types may
result in material proceeds or cash outlays.
Our year end fiscal 2007 and 2006 outstanding borrowings were as follows:
millions
February 2,
2008
February 3,
2007
Short-term borrowings:
Unsecured commercial paper ......................... $ 145 $ 94
Secured borrowings ................................ 17 —
Long-term debt, including current portion:
Notes and debentures outstanding ..................... 2,099 2,657
Capitalized lease obligations ......................... 749 797
Total borrowings ....................................... $3,010 $3,548
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