Sears 2007 Annual Report Download - page 5

Download and view the complete annual report

Please find page 5 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

the U.S. has also generated significant opportunities for realizing cost synergies across a number of areas,
including merchandise and non-merchandise purchasing, delivery and distribution and within other selling,
general and administrative expense areas. While we will continue to operate both the Sears and Kmart store
formats in the foreseeable future, many of the functions supporting these formats have been integrated.
For accounting purposes, the Merger was treated as a purchase business combination, with Kmart acquiring
Sears. In identifying Kmart as the acquiring entity, the companies took into account the relative share ownership
of the Company after the Merger, the composition of the governing body of the combined entity and the
designation of certain senior management positions. Accordingly, the historical financial statements of Kmart
serve as the historical financial statements of Holdings, the registrant.
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 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. See Note 13 of Notes to Consolidated Financial Statements for
further explanation of the bankruptcy and claims resolution process.
Sale of Sears Canada’s Credit and Financial Services Operations
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, we announced our 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, we increased our majority interest in Sears Canada from
54% to 70% by acquiring 17.8 million common shares of Sears Canada pursuant to the takeover bid. We paid a
5