Sears 2008 Annual Report Download - page 5

companies. We are striving to become more relevant to and engaged with our customers and communities. We
are making investments in technology that should help transform the impression that some people have about our
company. We are working not only to improve, but also to accelerate the pace of our improvement.
Overall, our goal remains to create long-term wealth for our shareholders. Even though fiscal 2008 was a
difficult year in many respects for our business, our investments in our online capabilities and Lands’ End
continued to provide sound returns. We will continue to search for investments, whether in the form of capital
expenditures or investments in other businesses, where we can make the best use of our resources.
Fundamentally, our capital allocation decisions will continue to be influenced by the alignment of management
and owners toward the goal of creating long-term value for the shareholders of the business.
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. During the third quarter of 2008 we completed the settlement
of substantially all of the claims associated with the discharge of the Predecessor Company’s liabilities subject to
compromise pursuant to the Plan of Reorganization. See Note 10 of Notes to Consolidated Financial Statements
for further explanation of the bankruptcy and claims resolution process.
Acquisition of Minority Interest in Sears Canada
During fiscal 2008, the Company increased its majority interest in Sears Canada from 70% to 73% by
acquiring approximately 2.6 million common shares in open market transactions. The Company paid a total of
$37 million for the additional shares acquired and has accounted for the acquisition of additional interest in Sears
Canada as a purchase business combination. The acquisition of the additional interest in Sears Canada during
fiscal 2008 was not material to our operations or financial position.
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 a takeover bid. We paid a 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.
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.
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