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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
ÈAnnual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended February 2, 2008
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 000-51217
SEARS HOLDINGS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 20-1920798
(State of Incorporation) (I.R.S. Employer Identification No.)
3333 Beverly Road, Hoffman Estates, Illinois 60179
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (847) 286-2500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on Which Registered
Common Shares, par value $0.01 per share The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ÈNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes No È
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes ÈNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ÈAccelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No È
On March 1, 2008, the Registrant had 132,346,315 common shares outstanding. The aggregate market value
(based on the closing price of the Registrant’s common shares for stocks quoted on the NASDAQ Global Select
Market) of the Registrant’s common shares owned by non-affiliates (which are assumed, solely for the purpose of this
calculation, to be stockholders other than (i) directors and executive officers of the Registrant and (ii) any person
known by the Registrant to beneficially own five percent or more of the Registrant’s common shares), as of August 4,
2007, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately
$7.7 billion.
Documents Incorporated By Reference
Part III of this Form 10-K incorporates by reference certain information from the Registrant’s definitive proxy
statement relating to our Annual Meeting of Stockholders to be held on May 5, 2008 (the “2008 Proxy Statement”),
which will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to
which this Form 10-K relates.

Table of contents

  • Page 1
    ... Commission file number 000-51217 SEARS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware (State of Incorporation) 20-1920798 (I.R.S. Employer Identification No.) 3333 Beverly Road, Hoffman Estates, Illinois (Address of principal executive offices) 60179 (Zip...

  • Page 2
    ... and Puerto Rico, primarily mall-based locations averaging 134,000 square feet. Full-line stores offer a wide array of products across many merchandise categories, including home appliances, consumer electronics, tools, fitness and lawn and garden equipment, certain automotive services and products...

  • Page 3
    ... improvement products. 111 locations also offer a limited selection of home appliances. 16 The Great Indoors Stores-Home decorating and remodeling superstores, averaging 143,000 square feet, dedicated to the four main rooms of the house: kitchen, bedroom, bathroom and great room. 62 Outlet Stores...

  • Page 4
    ... into Sears Parts & Repair Centers located throughout the United States or to many Sears full-line, dealer and outlet stores. This business also offers protection agreements, product installation services and Kenmore and Carrier brand residential heating and cooling systems. Home Services also...

  • Page 5
    ... 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...

  • Page 6
    ...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...

  • Page 7
    ...35,000 employees in Canada through Sears Canada including, in each case, part-time employees. Our Website; Availability of SEC Reports and Other Information Our corporate website is located at searsholdings.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form...

  • Page 8
    ..., 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. Some of our competitors are actively engaged in new store expansion. Internet and catalog...

  • Page 9
    ... our lines of business, such as common human resources, supply chain and financial systems. The risk of disruption is increased in periods where such complex and significant systems changes are undertaken. Also, if we fail to successfully combine our systems, we may fail to realize cost savings...

  • Page 10
    ...new employees, in order to return these services in-house. We might not realize the benefits we are seeking from our new organizational structure. Our new organizational structure is being built on five types of businesses: operating businesses; support businesses (e.g., finance, marketing); on-line...

  • Page 11
    ... direct investments, related derivative positions, or both, with respect to the equity securities of public companies. In addition, any such investments will involve risks, and Holdings' balance sheet and results of operations may fluctuate, depending on the extent of excess funds and the timing...

  • Page 12
    ... the locations of our Kmart and Sears Domestic stores as of February 2, 2008: Kmart Discount Stores Super Centers Full-line Mall Stores Sears Domestic Sears Essentials/ Specialty Grands Stores State/Territory Alabama ...Alaska ...Arizona ...Arkansas ...California ...Colorado ...Connecticut...

  • Page 13
    ..., 5 appliances and mattresses stores, 30 Corbeil stores and 13 outlet stores), 37 floor covering stores, 1,826 catalog pick-up locations and 106 travel offices. In August 2007, Sears Canada sold its headquarters office building and adjacent land in Toronto, Ontario. Sears Canada is currently leasing...

  • Page 14
    ... Information Officer Executive Vice President, Chief Administrative Officer Executive Vice President and General Manager, Home Services Senior Vice President, Human Resources, General Counsel and Corporate Secretary Executive Vice President, Store Operations Executive Vice President, Chief Marketing...

  • Page 15
    ... President of Information Technology/Services and Strategic Planning prior to his assignment in Operations. Ms. McGuire joined us as Executive Vice President and Chief Marketing Officer in October 2005. Prior to joining Holdings, she spent over 30 years at International Business Machines Corporation...

  • Page 16
    ... Plan Information The following table reflects information about securities authorized for issuance under our equity compensation plans as of February 2, 2008. (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) (b) Weighted-average exercise price...

  • Page 17
    ... retailers of softlines (apparel and domestics) and hardlines (appliances, electronics and home improvement products), as well as food and drug retailers. The S&P 500 Department Stores Index consists primarily of department stores that compete with our full-line stores. $160.00 $150.00 $140.00 $130...

  • Page 18
    ... cost of $553 million under our common share repurchase program. As of February 2, 2008, we had $183 million of remaining authorization under the program. Total Number of Shares Purchased as Part of Publicly Announced Program(2) Average Price Paid per Share for Publicly Announced Program Approximate...

  • Page 19
    ...2004 Summary of Operations Total revenues(2) ...Domestic comparable sales % ...Income (loss) before cumulative effect of a change in accounting principle(3) ...Cumulative effect of a change in accounting principle, net of tax(3) ...Discontinued operations ...Net income (loss)(3) ...Per Common Share...

  • Page 20
    ...depreciation on unimpaired assets to be disposed of following store closings, and a $10 million credit as a result of a change in the estimated expenses for 2002 cost reduction initiatives. During the fourth quarter of 2007, Sears Canada changed its fiscal year end from the Saturday nearest December...

  • Page 21
    ... installation, delivery, and repair, represent another important resource of our Company. Our extensive network of in-home and in-store service businesses gives us the opportunity to retain long-term relationships with our customers-a chance to deliver value not only at the point of sale but...

  • Page 22
    ...organization to this new model, it will take some time to build the processes and information systems necessary to support the structure. Specific actions taken by us in 2007, which were intended to build long-term customer relationships and improve the profitability and/or daily operations, include...

  • Page 23
    .... Furthermore, Sears Canada's fiscal year end is now aligned with the fiscal year end of Holdings and its results are no longer accounted for on a one-month lag. As required by SFAS No. 154, "Accounting Changes and Error Corrections-A Replacement of Accounting Principles Board ("APB") Opinion...

  • Page 24
    ... 8. millions, except per share data 2007 Reported(2) 2006 2005 Pro Forma 2005(3) REVENUES Merchandise sales and services ...Credit and financial products revenues ...Total revenues ...COSTS AND EXPENSES Cost of sales, buying and occupancy ...Gross margin dollars ...Gross margin rate ...Selling and...

  • Page 25
    ... earnings per share is presented in the following table: Reported 2006 Pro Forma 2005 2007 2005 Earnings per diluted share ...$ 5.70 $ 9.58 $ 5.58 Less: Hurricane related recoveries ...0.08 - - Gain on sales of assets ...0.15 0.32 0.16 Sears Canada post-retirement benefit plans curtailment gain...

  • Page 26
    ...33 per diluted share-pro forma) in fiscal 2005. The charges for both fiscal 2006 and fiscal 2005 were recorded in connection with the Merger and integration of Sears' and Kmart's headquarters support functions, as well as in connection with productivity initiatives at Sears Canada. Further details...

  • Page 27
    ...Sears Canada, primarily reflecting the impact of favorable exchange rates, as the Canadian dollar strengthened in fiscal 2007. As we noted previously, we took specific actions in 2007 to make our products, brands and service offerings more responsive to the needs of our customers and thereby improve...

  • Page 28
    ... gain recognized in connection with the 2005 sale of our former Kmart headquarters in Troy, Michigan. Restructuring charges were $28 million for fiscal 2006. These charges included $19 million for employee-related termination costs associated with Sears Canada's restructuring initiatives implemented...

  • Page 29
    ...lesser degree, sales increases in Sears Domestic's home services business. The gross margin rate was 28.7% in fiscal 2006, as compared to 27.4% (reported and pro forma) in fiscal 2005. Gross margin rates improved across all business segments: Kmart, Sears Domestic and Sears Canada, with the increase...

  • Page 30
    ...recognized in 2006 in connection with the 2005 sale of our former Kmart headquarters in Troy, Michigan. Fiscal 2005 included a $317 million gain on sale of business, which reflected a minority interest gain on the sale of Sears Canada's Credit and Financial Services operations in November 2005. This...

  • Page 31
    ...the Merger. As a result, the following discussion of our business segments is organized into three segments: Kmart, Sears Domestic and Sears Canada. Kmart Kmart results and key statistics were as follows: millions, except for number of stores 2007 2006 2005 Merchandise sales and services ...Cost of...

  • Page 32
    ... our 2005 sale of Kmart's former corporate headquarters in Troy, Michigan. Kmart recorded restructuring charges of $9 million during fiscal 2006. The charges were for relocation assistance and employee termination-related costs incurred in connection with Holdings' home office integration efforts...

  • Page 33
    ...operations on a pro forma basis for fiscal 2005. Sears Domestic results and key statistics were as follows: millions, except for number of stores 2007 Reported 2006 2005 Pro Forma 2005 Merchandise sales and services ...Cost of sales, buying and occupancy ...Gross margin dollars ...Gross margin rate...

  • Page 34
    ... seasonal apparel, as well as appliances and other home improvement products affected by the slowdown in the housing market. The decline was also attributable to a higher proportion of sales of home electronics, which traditionally have a lower margin rate. The selling and administrative expense...

  • Page 35
    ... in the total number of full-line stores in operation, as a number of Kmart locations were converted to the Sears Essentials/Grand format during 2006 and 2005, increased sales within home services, and the fact that fiscal 2006 revenues benefited from $410 million in sales recorded during the...

  • Page 36
    ...further explanation of this change. Sears Canada results and key statistics were as follows: millions, except for number of stores 2007 Reported 2006 2005 Pro Forma 2005 Merchandise sales and services ...Credit and financial products revenues ...Total revenues ...Cost of sales, buying and occupancy...

  • Page 37
    ... exchange rates, total revenues declined 5% versus fiscal 2005, primarily reflecting the impact of the sale of Sears Canada's Credit and Financial Services operations in November 2005. The revenue stream from Sears Canada's Credit and Financial Services operations was replaced in part by performance...

  • Page 38
    Sears Holdings Year Ended January 28, 2006 Pre-merger Purchase As Reported(6) Activity(1) Acctng Pro Forma millions, except per share data REVENUES Merchandise sales and services ...Credit and financial products revenues ...Total revenues ...COSTS AND EXPENSES Cost of sales, buying and occupancy ...

  • Page 39
    ... not been updated to reflect the impact of its change in year end, which occurred during the fourth quarter of fiscal 2007. Sears Domestic Year Ended January 28, 2006 Pre-merger Purchase As Reported Activity(1) Acctng Pro Forma millions Merchandise sales and services ...Cost of sales, buying and...

  • Page 40
    (4) (5) On November 15, 2005, we completed the sale of substantially all assets and liabilities of Sears Canada's Credit and Financial Services operations. Accordingly, the credit and financial product revenues of $299 million for the pro forma fiscal year ended 2005 are not expected to re-occur. ...

  • Page 41
    ... 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...

  • Page 42
    ... in proceeds from the sale of Sears Canada's Credit and Financial Services business in November 2005, partially offset by cash paid in connection with the Merger, a $1.0 billion net cash outflow. Financing Activities and Cash Flows Net cash used in financing activities was $3.4 billion in fiscal...

  • Page 43
    ...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...

  • Page 44
    ...2010, is a revolving credit facility under which SRAC and Kmart Corporation are the borrowers. The Credit Agreement is guaranteed by Holdings and certain of our direct and indirect subsidiaries and is secured by a first lien on our domestic inventory, credit card accounts receivable and the proceeds...

  • Page 45
    ... risks are managed through our wholly-owned insurance subsidiary. In accordance with applicable insurance regulations, the insurance subsidiary holds investment grade securities to support the insurance coverage it provides. We have transferred certain domestic real estate and intellectual property...

  • Page 46
    ... timing of the effective settlement of tax positions. Other Commercial Commitments millions Bank Issued SRAC Issued Other Total Standby letters of credit ...Commercial letters of credit ...Secondary lease obligations and performance guarantee ...Application of Critical Accounting Policies $1,722...

  • Page 47
    ... costs relate primarily to litigation that arises from store operations. Self-insurance reserves include actuarial estimates of both claims filed and carried at their expected ultimate settlement value and claims incurred but not yet reported. Our estimated claim amounts are discounted using a rate...

  • Page 48
    ... participants following retirement. Holdings' actuarial valuations utilize key assumptions including discount rates and expected returns on plan assets. We are required to consider current market conditions, including changes in interest rates and plan asset investment returns, in determining...

  • Page 49
    ... tax rate and income tax expense could vary from estimated amounts due to the future impacts of various items, including changes in income tax laws, tax planning and the Company's forecasted financial condition and results of operations in future periods. Although management believes current...

  • Page 50
    ...additional information. SFAS No. 158 does not change the amounts recognized in the income statement as net periodic benefit cost. As required by SFAS No. 158, we adopted the recognition and disclosure provisions of the Statement as of February 3, 2007, and accordingly recognized the funded status of...

  • Page 51
    ... are not limited to, statements about the expected performance of various business initiatives and future financial and operating results. Such statements are based upon the current beliefs and expectations of Holdings' management and are subject to significant risks and uncertainties that may cause...

  • Page 52
    ... forward contracts outstanding, totaling $1.0 billion Canadian notional value and with a weighted average remaining life of 0.3 years, designed to hedge our net investment in Sears Canada against adverse changes in exchange rates. The aggregate fair value of the forward contracts as of February...

  • Page 53
    ... 3, 2007 and January 28, 2006 ...Notes to Consolidated Financial Statements ...Schedule II-Valuation and Qualifying Accounts ...Management's Annual Report on Internal Control over Financial Reporting ...Report of Independent Registered Public Accounting Firm ... 54 55 56 57 58 100 101 102 53

  • Page 54
    ...Credit and financial products revenues ...Total revenues ...COSTS AND EXPENSES Cost of sales, buying and occupancy ...Selling and administrative ...Depreciation and amortization ...Gain on sales of assets ...Gain on sale of business ...Restructuring charges ...Total costs and expenses ...Operating...

  • Page 55
    ... cash equivalents ...Accounts receivable ...Merchandise inventories ...Prepaid expenses and other current assets ...Deferred income taxes ...Total current assets ...Property and equipment Land ...Buildings and improvements ...Furniture, fixtures and equipment ...Capital leases ...Gross property and...

  • Page 56
    ...by operating activities: Depreciation and amortization ...Cumulative effect of change in accounting principle, net of tax ...Provision for uncollectible credit card accounts ...Curtailment gain on Sears Canada's post-retirement benefit plans ...Loss (gain) on total return swaps, net ...Gain on sales...

  • Page 57
    ... Income ...Proceeds from exercise of stock options ...Income tax benefit on non-qualified stock options ...Pre-petition tax settlements/valuation reserve adjustments ...Bankruptcy related settlement agreements . . Shares repurchased ...Other ...Balance at January 28, 2006 ...Comprehensive income...

  • Page 58
    ... Kmart and Sears and 380 full-line and specialty retail stores in Canada operating through Sears Canada Inc. ("Sears Canada"), a 70%-owned subsidiary. We have three reportable segments, Kmart, Sears Domestic and Sears Canada. For accounting purposes, the Merger was treated as a purchase business...

  • Page 59
    ...and obsolescence reserves, the accounting for price changes and the computations inherent in the LIFO adjustment (where applicable). Management believes that our RIM provides an inventory valuation that reasonably approximates cost and results in carrying inventory at the lower of cost or market. 59

  • Page 60
    ... for computer systems and computer equipment. Leasehold improvements are depreciated over the shorter of the associated lease term or the estimated useful life of the asset. Impairment of Long-Lived Assets and Costs Associated with Exit Activities In accordance with Statement of Financial Accounting...

  • Page 61
    ...is recognized for costs associated with location closings, primarily future lease costs (net of estimated sublease income), and is charged to income when the Company ceases to use the location. Goodwill, Tradenames and Other Intangible Assets Tradenames acquired as part of the Merger account for the...

  • Page 62
    ... price allocation for the Merger during the first quarter of fiscal 2006. As a result, goodwill attributable to the Merger increased by approximately $37 million, primarily based on the receipt of additional information regarding the fair values of certain properties and certain pre-Merger legal...

  • Page 63
    ... certain costs related to healthcare, workers' compensation, asbestos and environmental, automobile, warranty, product and general liability claims. We obtain third-party insurance coverage to limit our exposure to certain of these self-insured risks. A portion of these self-insured risks is managed...

  • Page 64
    ...-branded credit card programs. We recognize revenues from retail operations at the later of the point of sale or the delivery of goods to the customer. Direct to customer revenues are recognized when the merchandise is delivered to the customer. Revenues from product installation and repair services...

  • Page 65
    ... stock options, an accounting method that we adopted voluntarily in fiscal 2003, and classification of excess tax benefits associated with share-based compensation deductions as cash from financing activities rather than cash from operating activities. We recognize compensation expense as awards...

  • Page 66
    ... condition or operating results. In September 2006, the FASB issued SFAS No. 158, "Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans," which changes the recognition and disclosure provisions and measurement date requirements for an employer's accounting for defined...

  • Page 67
    ... with SFAS No. 141, "Business Combinations," the Merger was treated as a purchase business combination for accounting purposes, with Kmart designated as the acquirer. In identifying Kmart as the acquiring entity, the companies took into account the relative share ownership of Holdings after the...

  • Page 68
    ...price allocation for the Merger during the first quarter of fiscal 2006. As a result, goodwill attributable to the Merger increased by approximately $37 million, primarily based on the receipt of additional information regarding the fair values of certain properties and certain pre-acquisition legal...

  • Page 69
    ... the Merger in connection with the sale of Sears Canada's Credit and Financial Services Operations in November 2005. Selected Unaudited Pro Forma Combined Financial Information The unaudited pro forma financial information in the table below summarizes the combined results of operations of Kmart and...

  • Page 70
    ... have been expensed as incurred, which is the method of accounting previously followed by Sears. We believe that this change provides a better measurement of operating results in light of changes to our supply chain to realize cost savings from the Merger, the closure of certain facilities and the...

  • Page 71
    ...of Sears Canada's Credit and Financial Services operations from March 25, 2005 up to November 14, 2005. NOTE 6-RESTRUCTURING ACTIVITIES In fiscal 2005, we initiated a number of restructuring activities including actions to integrate the home office functions of Kmart and Sears Domestic and align our...

  • Page 72
    ...ORCHARD SUPPLY HARDWARE STORES CORPORATION Commercial Mortgage-Backed Loan, variable interest rate above LIBOR, due 2008(1) ...Senior Secured Revolving Line of Credit, variable interest rate above LIBOR ...Senior Secured Term Loan, variable rate of interest above LIBOR, due 2013(2) ...SEARS CANADA...

  • Page 73
    ... for purposes of the below schedule of long-term debt maturities. In December 2006, a subsidiary of OSH generated $198 million of debt proceeds, net of approximately $2 million in issuance costs, in connection with its entering into a five year, $200 million Senior Secured Term Loan. The proceeds of...

  • Page 74
    ...2010, is a revolving credit facility under which SRAC and Kmart Corporation are the borrowers. The Credit Agreement is guaranteed by Holdings and certain of our direct and indirect subsidiaries and is secured by a first lien on our domestic inventory, credit card accounts receivable and the proceeds...

  • Page 75
    ... risks are managed through our wholly-owned insurance subsidiary. In accordance with applicable insurance regulations, the insurance subsidiary holds investment grade securities to support the insurance coverage it provides. We have transferred certain domestic real estate and intellectual property...

  • Page 76
    ... Bank Issued SRAC Issued Other Total Standby letters of credit ...Commercial letters of credit ...Secondary lease obligations and performance guarantee ... $1,722 66 - $119 104 - $- - 55 $1,841 170 55 The secondary lease obligations relate to certain store leases of previously divested Sears...

  • Page 77
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) The performance guarantee relates to certain municipal bonds issued in connection with our headquarters building. This guarantee expired in 2007. Payments during the 2007 under this guarantee, before expiration, were $...

  • Page 78
    ... age 65. The plan is contributory, with retiree contributions adjusted annually. The accounting for the plan anticipates future cost-sharing changes that are consistent with our expressed intent to increase the retiree contribution rate annually. There were no accrued post-retirement benefit costs...

  • Page 79
    ...medical plans, with Company subsidies for certain eligible retirees. Certain domestic Sears' retirees are also provided life insurance benefits. To the extent we share the cost of the retiree medical benefits with retirees, such cost sharing is based on years of service and year of retirement. Sears...

  • Page 80
    ... Plans 2007 Sears Sears Kmart Domestic Canada 2006 Sears Sears Kmart Domestic Canada millions Total Total Change in projected benefit obligation Beginning balance ...$2,689 $2,942 $1,278 $6,909 $2,780 $3,354 $1,272 $ 7,406 Benefits earned during the period ...- - 32 32 - - 34 34 Interest cost...

  • Page 81
    ...Weighted-average assumptions used to determine plan obligations are as follows: 2007 2006 2005 Sears Sears Sears Sears Sears Sears Kmart Domestic Canada Kmart Domestic Canada Kmart Domestic Canada Pension benefits: Discount Rate ...Rate of compensation increases ...Postretirement benefits: Discount...

  • Page 82
    ...) Weighted-average assumptions used to determine net cost for years ended are as follows: 2007 2006 2005 Sears Sears Sears Sears Sears Sears Kmart Domestic Canada Kmart Domestic Canada Kmart Domestic Canada Pension benefits: Discount Rate ...Return of plan assets ...Rate of compensation increases...

  • Page 83
    ...2008 and beyond, the domestic weighted-average health care cost trend rates used in measuring the postretirement benefit expense are an 8.8% trend rate in 2008 to an ultimate trend rate of 8.0% in 2012. A one-percentage-point change in the assumed health care cost trend rate would have the following...

  • Page 84
    ... cost related to nonvested awards, which is expected to be recognized over the next approximately 3 years. We do not currently have an employee stock option plan. As of February 2, 2008, all outstanding options relate to grants made either prior to, or in connection with, the Merger. Changes...

  • Page 85
    ... the grantee remains employed by us as of the vesting date. The fair value of these awards is equal to the market price of our common stock on the date of grant. We do not currently have a program that provides for restricted stock awards on an annual basis. Changes in restricted stock awards...

  • Page 86
    ...2003, Kmart Corporation (the "Predecessor Company"), a predecessor operating company of Kmart, emerged from reorganization proceedings under Chapter 11 of the federal bankruptcy laws pursuant to the terms of a plan of reorganization (the "Plan of Reorganization"). The Predecessor Company is a direct...

  • Page 87
    ... than the $4.3 billion provided for in the Plan of Reorganization. The remaining shares left over after all Class 5 claims are ultimately settled will be distributed to the Class 5 creditors in proportion to their allowed claims. Bankruptcy-Related Settlements In fiscal 2007, fiscal 2006, and fiscal...

  • Page 88
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) 2007 2006 2005 Effective tax rate reconciliation Federal income tax rate ...State and local taxes net of federal tax benefit ...Tax credits ...Equity in net income of affiliated companies ...Basis difference in ...

  • Page 89
    ...remaining portion of the reversal of the valuation allowance is recorded as a direct credit to capital in excess of par. In connection with the Merger, deferred tax assets of $350 million were recorded related to state net operating losses ("NOLs") of Sears. A valuation allowance of $330 million was...

  • Page 90
    ... operations for fiscal 2007 was $5 million. We file income tax returns in both the United States and various foreign jurisdictions. The Internal Revenue Service ("IRS") has commenced an audit of the Holdings' federal income tax return for the fiscal year 2005 and the Sears federal income tax returns...

  • Page 91
    ...the sale of our Sears fashion center in Los Angeles. During fiscal 2006, the gain on sale of assets included a $41 million pre-tax gain on the sale of our former Kmart corporate headquarters. In August 2007, Sears Canada sold its headquarters office building and adjacent land in Toronto, Ontario for...

  • Page 92
    ..., residential and commercial product installation and repair services and automotive repair and maintenance industries and (c) investment opportunities in companies or assets with a significant role in our retailing business, including investment in real estate currently leased by the Company or in...

  • Page 93
    ...and our Executive Vice President, Chief Administrative Officer while continuing his role as President and Chief Operating Officer of ESL. Our Senior Vice President of Real Estate is also employed by ESL. On January 18, 2007, Sears made a payment to plaintiffs in the case of In re: Sears, Roebuck and...

  • Page 94
    ... three reportable segments: Kmart, Sears Domestic and Sears Canada. The accompanying summary of segment data for the year ended January 28, 2006 includes the results of operations of Sears subsequent to March 24, 2005, the date of the Merger. During the fourth quarter of 2007, Sears Canada changed...

  • Page 95
    ...47,332 $ 2,123 $30,467 $ 7,325 Pending against Sears and certain of its officers and directors are a number of lawsuits, described below, that relate to Sears' former credit card business and public statements about it. We believe that all of these claims lack merit and, except as noted below, are...

  • Page 96
    ... County, Illinois. These actions assert claims on behalf of a purported class of Sears' stockholders against Sears and certain of its officers and directors, together with Kmart, Edward S. Lampert, William C. Crowley and other affiliated entities, alleging breach of fiduciary duty in connection with...

  • Page 97
    ...Predecessor Company's liquidity and related matters in the months preceding its bankruptcy in violation of federal securities law. The complaint seeks permanent injunctions, disgorgement with interest, civil penalties and officer and director bars. Kmart is not named as a defendant in the action. In...

  • Page 98
    ... financial position, liquidity or capital resources. NOTE 21-QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following quarterly financial information reflects the impact of the change in Sears Canada's year end. We have retrospectively adjusted quarterly amounts previously reported as required by...

  • Page 99
    ...after tax or $0.11 per diluted share) related to certain amendments made to Sears Canada's post-retirement benefit plans. The second quarter of 2006 includes a $36 million pre-tax gain ($0.14 per diluted share) representing the Company's portion of proceeds received related to the settlement of Visa...

  • Page 100
    ...remaining portion of the reversal of the valuation allowance is recorded as a direct credit to capital in excess of par. In connection with the Merger, deferred tax assets of $350 million were recorded related to state net operating losses ("NOLs") of Sears. A valuation allowance of $330 million was...

  • Page 101
    ...board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures...

  • Page 102
    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Sears Holdings Corporation We have audited the accompanying consolidated balance sheets of Sears Holdings Corporation and subsidiaries (the "Company") as of February 2, 2008 and February 3, 2007, and the related...

  • Page 103
    ...financial reporting. See Management's Annual Report on Internal Control over Financial Reporting and the Attestation Report of the Registered Public Accounting Firm included in Item 8 of this Report, which reports are incorporated herein by this reference. Item 9B. Other Information None. Changes in...

  • Page 104
    ... and Corporate Governance Information regarding directors and executive officers of Holdings is incorporated herein by reference to the information regarding Director nominees and current Directors under "Item 1. Election of Directors" and the information under "Committees of the Board of Directors...

  • Page 105
    ... have been omitted because they are not required pursuant to conditions set forth in Rules 3-09 and 1-02(w) of Regulation S-X. All other schedules have been omitted because they are not required under the instructions contained in Regulation S-X because the information called for is contained in the...

  • Page 106
    ..., thereunto duly authorized. SEARS HOLDINGS CORPORATION By: Name: Title: /s/ WILLIAM K. PHELAN William K. Phelan Senior Vice President, Controller and Treasurer March 26, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 107
    ... Amendment to Registrant's 2005 Senior Executive Long-Term Incentive Program (incorporated by reference to Exhibit 10(a) to Registrant's Current Report on Form 8-K dated September 16, 2005 (File No. 000-51217)).** Sears, Roebuck and Co.'s Supplemental Retirement Income Plan, as amended and restated...

  • Page 108
    ... Sears Holdings Corporation Director Compensation Program (incorporated by reference to Exhibit 10(b) to Registrant's Current Report on Form 8-K dated September 29, 2005 (File No. 00051217)).** Letter of Credit Agreement, dated as of August 13, 2004 among Kmart Corporation, Bank of America, National...

  • Page 109
    ... J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and Banc of America Securities LLC, as joint Lead Arrangers and Joint Bookrunners, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10(a) to Sears Roebuck Acceptance Corp.'s current report on Form...

  • Page 110
    ... of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 10.42 10.43 10.44 10.45 *18 *21 *23 *24 *31.1 *31.2 *32. * ** Filed herewith A management contract or compensatory plan or...