SHLD » Topics » Investment of Available Capital

This excerpt taken from the SHLD 10-K filed Mar 12, 2010.

Investment of Available Capital

Since the Merger, we have generated significant operating cash flows, and management expects that our cash flows will continue to exceed our annual operating cash needs for the foreseeable future. We have and will continue to invest in our businesses to improve the customer experience and provide the opportunity for attractive returns. Further, as of January 30, 2010, we have repurchased approximately $5.4 billion of our common shares since the Merger and may continue to repurchase shares subject to market conditions and board authorization. In addition, we may pursue investments in the form of acquisitions, joint ventures and partnerships where we believe appropriate returns can be obtained. Further, we may determine under certain market conditions that available capital is best utilized to fund investments that we believe offer us attractive return opportunities, whether or not related to our ongoing business activities.

Our Board of Directors has delegated authority to direct investment of our surplus cash to our Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. During fiscal 2007, we invested a portion of our surplus cash in various securities and financial instruments, including total return swaps, which are derivative instruments that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities. We had no investments in total return swaps during fiscal years 2009 or 2008.

This excerpt taken from the SHLD 10-K filed Mar 17, 2009.

Investment of Available Capital

Since the Merger we have generated significant operating cash flows, and management expects that our cash flows will continue to exceed our annual operating cash needs for the foreseeable future. We have and will continue to invest in our businesses to improve the customer experience and provide the opportunity for attractive returns. Further, as of January 31, 2009, we have repurchased approximately $5.0 billion of our common shares since the Merger and may continue to repurchase shares subject to market conditions and board authorization. In addition, we may pursue investments in the form of acquisitions, joint ventures and partnerships where we believe appropriate returns can be obtained. Further, we may determine under certain market conditions that available capital is best utilized to fund investments that we believe offer us attractive return opportunities, whether or not related to our ongoing business activities.

As previously disclosed, our Board of Directors has delegated authority to direct investment of our surplus cash to our Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. During fiscal 2007 and 2006 we invested a portion of our surplus cash in various securities and financial instruments, including total return swaps, which are derivative instruments that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities. We had no investments in total return swaps as of January 31, 2009 or February 2, 2008.

These excerpts taken from the SHLD 10-K filed Mar 26, 2008.

Investment of Available Capital

Since the Merger, our cash flows have exceeded our working capital, financing and capital investment needs, and management expects that our cash flows will continue to exceed our annual operating cash needs for the foreseeable future. We have and will continue to invest in our businesses to improve the customer experience and provide the opportunity for attractive returns. Further, through February 2, 2008, we have repurchased $4.3 billion of our common shares since the Merger and may continue to repurchase shares subject to market conditions and board authorization. In addition, we may pursue investments in the form of acquisitions, joint ventures and partnerships where we believe attractive returns can be obtained. Further, we may determine under certain market conditions that available capital is best utilized to fund investments that we believe offer us attractive return opportunities, whether or not related to our ongoing business activities.

As previously disclosed, our Board of Directors has delegated authority to direct investment of our surplus cash to our Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. We, from time to time, invest our surplus cash in various securities and financial instruments, including total return swaps, which are derivative instruments that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities. At February 3, 2007, the collateral balance held by our counterparties based on our total return swaps’ aggregate notional amount of $375 million was $80 million and was recorded as a current receivable on our consolidated balance sheet. As of February 2, 2008, no collateral was posted in connection with total return swaps as there were no such investments outstanding.

Investment of Available Capital

FACE="Times New Roman" SIZE="2">Since the Merger, our cash flows have exceeded our working capital, financing and capital investment needs, and management expects that our cash flows will continue to exceed our annual operating cash needs for the
foreseeable future. We have and will continue to invest in our businesses to improve the customer experience and provide the opportunity for attractive returns. Further, through February 2, 2008, we have repurchased $4.3 billion of our common
shares since the Merger and may continue to repurchase shares subject to market conditions and board authorization. In addition, we may pursue investments in the form of acquisitions, joint ventures and partnerships where we believe attractive
returns can be obtained. Further, we may determine under certain market conditions that available capital is best utilized to fund investments that we believe offer us attractive return opportunities, whether or not related to our ongoing business
activities.

As previously disclosed, our Board of Directors has delegated authority to direct investment of our surplus cash to our
Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. We, from time to time, invest our surplus cash in various
securities and financial instruments, including total return swaps, which are derivative instruments that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities. At February 3, 2007,
the collateral balance held by our counterparties based on our total return swaps’ aggregate notional amount of $375 million was $80 million and was recorded as a current receivable on our consolidated balance sheet. As of February 2,
2008, no collateral was posted in connection with total return swaps as there were no such investments outstanding.

This excerpt taken from the SHLD 10-Q filed Nov 30, 2007.

Investment of Available Capital

As previously disclosed in our Annual Report on Form 10-K for our fiscal year ended February 3, 2007, our Board of Directors has delegated authority to direct investment of any surplus cash to our Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. We, from time to time, invest our surplus cash in various securities and financial instruments, including total return swaps, which, as used by the Company in the past, were derivative instruments designed to synthetically replicate the economic return characteristics of one or more underlying marketable equity securities.

Though no total return swap investments were outstanding as of November 3, 2007, as such investments may be highly concentrated and involve substantial risks, should we enter into total return swaps in the future, our financial position and quarterly and annual results of operations may be positively or negatively materially affected based on the nature, timing, magnitude and performance of such investments if, and when they are made.

This excerpt taken from the SHLD 10-Q filed Aug 30, 2007.

Investment of Available Capital

As previously disclosed in our Annual Report on Form 10-K for our fiscal year ended February 3, 2007, our Board of Directors has delegated authority to direct investment of our surplus cash to our Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. We, from time to time, invest our surplus cash in various securities and financial instruments, including total return swaps, which are derivative instruments that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities. In exchange for receiving the return tied to the position underlying a total return swap, we pay a floating rate of interest tied to LIBOR on the notional amount of the contract. Under the terms of the transactions with the respective counterparties, we are required to post cash collateral. As of August 4, 2007, the collateral balance held by our counterparties was $20 million and was recorded as a current receivable on our condensed consolidated balance sheet.

These investments are highly concentrated and involve substantial risks. Accordingly, our financial position and quarterly and annual results of operations may be positively or negatively materially affected based on the timing, magnitude and performance of these investments. Based on the aggregate notional amount of $57 million and a fair value of negative $2 million for such total return swaps as of August 4, 2007, an immediate hypothetical increase (or decrease) of 20 percent in the market value underlying the total return swaps outstanding would cause our quarterly pre-tax earnings to increase (or decrease) concurrently by $11 million. These estimates assume that the total return swap portfolio remains constant. The counterparties to these derivative instruments are large financial institutions.

This excerpt taken from the SHLD 10-Q filed Jun 1, 2007.

Investment of Available Capital

As previously disclosed in our Annual Report on Form 10-K for our fiscal year ended February 3, 2007, our Board of Directors has delegated authority to direct investment of our surplus cash to our Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of

 

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Table of Contents

SEARS HOLDINGS CORPORATION

13 Weeks Ended May 5, 2007 and April 29, 2006

 

Directors and/or Finance Committee of the Board of Directors. We, from time to time, invest our surplus cash in various securities and financial instruments, including total return swaps, which are derivative instruments that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities. In exchange for receiving the return tied to the position underlying a total return swap, we pay a floating rate of interest tied to LIBOR on the notional amount of the contract. Under the terms of the transactions with the respective counterparties, we are required to post cash collateral of up to 25 percent of the notional amount of the underlying total return swap position, plus the amount of any unrealized losses on the positions. As of May 5, 2007, the collateral balance held by our counterparties, based on our total return swaps’ aggregate notional amount of $345 million, was $65 million and was recorded as a current receivable on our condensed consolidated balance sheet.

These investments are highly concentrated and involve substantial risks. Accordingly, our financial position and quarterly and annual results of operations may be positively or negatively materially affected based on the timing, magnitude and performance of these investments. Based on the aggregate notional amount of $345 million and a fair value of $15 million for such total return swaps as of May 5, 2007, an immediate hypothetical increase (or decrease) of 20 percent in the market value underlying the total return swaps outstanding would cause our quarterly pre-tax earnings to increase (or decrease) concurrently by $72 million. These estimates assume that the total return swap portfolio remains constant. The counterparties to these derivative instruments are large financial institutions.

This excerpt taken from the SHLD 10-K filed Mar 28, 2007.

Investment of Available Capital

Since the Merger, the Company’s cash flows have exceeded its working capital, financing and capital investment needs, and management expects that the Company’s cash flows will continue to exceed its annual operating cash needs for the foreseeable future. The Company regularly evaluates how best to deploy capital to increase shareholder value. The Company has and will continue to invest in its businesses to improve the

 

41


customer experience and provide the opportunity for attractive returns. Through February 3, 2007, the Company has repurchased $1.4 billion worth of its common shares since the Merger and may continue to repurchase shares subject to market conditions and board authorization. In addition, the Company may pursue investments in the form of acquisitions, joint ventures and partnerships where the Company believes attractive returns can be obtained. Further, the Company may determine under certain market conditions that available capital is best utilized to fund investments that it believes offer the Company attractive return opportunities, whether or not related to its ongoing business activities.

As previously disclosed, the Company’s Board of Directors has delegated authority to direct investment of the Company’s surplus cash to its Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. The Company, from time to time, invests its surplus cash in various securities and financial instruments, including total return swaps, which are derivative instruments that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities. In exchange for receiving the return tied to the position underlying a total return swap, the Company pays a floating rate of interest tied to LIBOR on the notional amount of the contract. Under the terms of the transactions with the respective counterparties, the Company is required to post cash collateral of up to 25 percent of the notional amount of the underlying total return swap position, plus the amount of any unrealized losses on the positions. As of February 3, 2007, the collateral balance held by the Company’s counterparties based on the Company’s total return swaps’ aggregate notional amount of $375 million was $80 million and was recorded as a current receivable on the Company’s consolidated balance sheet.

These investments are highly concentrated and involve substantial risks. Accordingly, the Company’s financial position and quarterly and annual results of operations may be positively or negatively materially affected based on the timing, magnitude and performance of these investments. Based on the aggregate notional amount of such total return swaps as of February 3, 2007, $375 million, an immediate hypothetical increase (or decrease) of 20% in the market value underlying the total return swaps outstanding would cause the Company’s pre-tax earnings to increase (or decrease) concurrently by $76 million. The counterparties to these derivative instruments are large financial institutions. These estimates assume that the total return swap portfolio remains constant.

This excerpt taken from the SHLD 10-Q filed Dec 5, 2006.

Investment of Available Capital

Since the Merger, the Company’s cash flows have exceeded its working capital, financing and capital investment needs, and management expects that the Company’s cash flows will continue to exceed its annual operating cash needs for the foreseeable future. The Company regularly evaluates how best to use available capital to increase shareholder value. The Company has and will continue to invest in its businesses to improve the customer experience and provide the opportunity for attractive returns. Through October 28, 2006, the Company has also repurchased $1.4 billion worth of its common shares since the Merger and expects to continue to repurchase shares subject to market conditions and board authorization. In addition, the Company may pursue investments in the form of acquisitions, joint ventures and partnerships where the Company believes attractive returns can be obtained. Further, the Company may determine under certain market conditions that available capital is best utilized to fund investments that it believes offer the Company attractive return opportunities, whether or not related to its ongoing business activities.

 

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SEARS HOLDINGS CORPORATION

13 and 39 Weeks Ended October 28, 2006 and October 29, 2005

 

As previously disclosed in the Company’s Annual Report on Form 10-K/A for its fiscal year ended January 28, 2006, the Company’s Board of Directors has delegated authority to direct investment of the Company’s surplus cash to its Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. The Company, from time to time, invests its surplus cash in various securities and financial instruments, including total return swaps, which are derivative instruments that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities. In exchange for receiving the return tied to the position underlying a total return swap, the Company pays a floating rate of interest tied to LIBOR on the notional amount of the contract. Under the terms of the transactions with the respective counterparties, the Company is required to post cash collateral of up to 25 percent of the notional amount of the underlying total return swap position, plus the amount of any unrealized losses on the positions. As of October 28, 2006, the collateral balance held by the Company’s counterparties based on the Company’s total return swaps’ aggregate notional amount of $387 million is $83 million and was recorded as a current receivable on the Company’s condensed consolidate balance sheet.

These investments are highly concentrated and involve substantial risks. Accordingly, the Company’s financial position and quarterly and annual results of operations may be positively or negatively materially affected based on the timing, magnitude and performance of these investments. Based on the aggregate notional amount of such total return swaps as of October 28, 2006, $387 million, an immediate hypothetical increase (or decrease) of 20 percent in the market value underlying the total return swaps outstanding would cause our quarterly pre-tax earnings to increase (or decrease) concurrently by $85 million. The counterparties to these derivative instruments are large financial institutions. These estimates assume that the total return swap portfolio remains constant. See supplement to risk factors contained in Part II, Item 1A.

This excerpt taken from the SHLD 10-Q filed Sep 1, 2006.

Investment of Available Capital

Since the Merger, the Company’s cash flows have exceeded its working capital, financing and capital investment needs, and management expects that the Company’s cash flows will continue to exceed its operating cash needs for the foreseeable future. The Company regularly evaluates how best to use available capital to increase shareholder value. The Company has and will continue to invest in its businesses to improve the customer experience and provide the opportunity for attractive returns. Through July 29, 2006, the Company has also repurchased $1.1 billion of its common shares since the Merger and expects to continue to repurchase shares subject to market conditions and board authorization. In addition, the Company may pursue investments in the form of acquisitions, joint ventures and partnerships where the Company believes attractive returns can be obtained. Further, the Company may determine under certain market conditions that available capital is best utilized to fund investments that it believes offer the Company attractive return opportunities, whether or not related to its ongoing business activities.

 

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SEARS HOLDINGS CORPORATION

13 and 26 Weeks Ended July 29, 2006 and July 30, 2005

 

As previously disclosed in the Company’s Annual Report on Form 10-K/A for its fiscal year ended January 28, 2006, the Company’s Board of Directors has delegated authority to direct investment of the Company’s surplus cash to its Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. As of July 29, 2006, the Company’s surplus cash was primarily invested in short-term, highly liquid investments, including commercial paper, U.S. federal, state and municipal government securities, floating-rate notes, repurchase agreements and money market funds. Subsequent to July 29, 2006, the Company is using, and may in the future use, a portion of its available capital to invest in other securities and financial instruments, including derivatives. These investments may include significant and highly concentrated direct investments and/or related derivative positions with respect to the equity securities of public companies. Derivative contracts would be recorded on the Company’s balance sheet at fair value and, for non-hedge contracts, changes in fair value would be recognized currently in earnings as unrealized gains or losses. Any such investments will involve risks, and shareholders should recognize that Holdings’ balance sheet may change depending on the extent of excess funds and the timing, magnitude and performance of investments which the Company may make. Furthermore, such investments would be subject to volatility that may affect both the recorded value of the investments as well as the Company’s periodic earnings.

See supplement to risk factors contained in Part II, Item 1A.

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