Sears 2007 Annual Report Download - page 6

total of $282 million for the additional 17.8 million common shares acquired and accounted for the acquisition of
an additional interest 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, 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. 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.
Further information concerning our real estate transactions is contained in Note 15 of Notes to Consolidated
Financial Statements.
Trademarks, Trade Names and Licenses
The KMART®and SEARS®trade names, service marks and trademarks, used by us both in the United
States and internationally, are material to our retail and other related businesses.
We sell proprietary branded merchandise under a number of brand names that are important to our
operations. Our KENMORE®, CRAFTSMAN®, DIEHARD®and LANDS’ END®brands are among the most
recognized proprietary brands in retailing. These marks are the subject of numerous United States and foreign
trademark registrations. Other well recognized Company trademarks and service marks include THE GREAT
INDOORS®, OSH®, CANYON RIVER BLUES®, APOSTROPHE®, COVINGTON®, and ATHLETECH®.We
also have the right to sell an exclusive line of Martha Stewart Everyday®products in our Kmart locations through
January 2010, as well as within Sears Canada stores through August 2008. Our right to use our trade names and
marks continues so long as we use them.
Seasonality
The retail business is seasonal in nature, and we generate a high proportion of our revenues and operating
cash flows during the fourth quarter of our fiscal year, which includes the holiday season. As a result, our overall
profitability is heavily impacted by our fourth quarter operating results. Additionally, in preparation for the
fourth quarter holiday season, we significantly increase our merchandise inventory levels, which are financed
from operating cash flows, credit terms received from vendors and, to the extent necessary, borrowings under our
$4.0 billion, five-year credit agreement (described in the “Uses and Sources of Liquidity” section below). Fourth
quarter reported revenues accounted for 30%, 31% and 33% of total reported revenues in fiscal years 2007, 2006
and 2005, respectively.
Competition
Our business is subject to highly competitive conditions. We compete with a wide variety of retailers,
including other department stores, discounters, home improvement stores, consumer electronics dealers and auto
service providers, specialty retailers, wholesale clubs and many other competitors operating on a national,
regional or local level along with Internet and catalog businesses, which handle similar lines of merchandise.
Wal-Mart, Target, Kohl’s, JC Penney, Home Depot, Lowe’s and Best Buy are some of the national retailers with
which we compete. Home Depot, Lowe’s and Best Buy are major competitors in relation to our home appliance
business, which accounted for approximately 15% of our fiscal 2007 reported revenues. Sears Canada competes
in Canada with Hudson’s Bay Company and U.S.-based competitors, including those mentioned above, that are
expanding into Canada. Success in this competitive marketplace is based on factors such as price, product
assortment and quality, service and convenience, including availability of retail-related services such as access to
credit, product delivery, repair and installation. Additionally, we are influenced by a number of factors including,
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