Sears 2011 Annual Report Download - page 58

SEARS HOLDINGS CORPORATION
Notes To Consolidated Financial Statements
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations, Consolidation and Basis of Presentation
Sears Holdings Corporation (“Holdings”) is the parent company of Kmart Holding Corporation (“Kmart”)
and Sears, Roebuck and Co. (“Sears”). Holdings (together with its subsidiaries, “we,” “us,” “our,” or the
“Company”) was formed as a Delaware corporation in 2004 in connection with the merger of Kmart and Sears
(the “Merger”), on March 24, 2005. We are a broadline retailer with 2,172 full-line and 1,338 specialty retail
stores in the United States operating through Kmart and Sears and 500 full-line and specialty retail stores in
Canada operating through Sears Canada Inc. (“Sears Canada”), a 95%-owned subsidiary. We have three
reportable segments: Kmart, Sears Domestic and Sears Canada.
The consolidated financial statements include all majority-owned subsidiaries in which Holdings exercises
control. Investments in companies in which Holdings exercises significant influence, but which we do not control
(generally 20% to 50% ownership interest), are accounted for under the equity method of accounting.
Investments in companies in which we have less than a 20% ownership interest and do not exercise significant
influence are accounted for at cost. All intercompany transactions and balances have been eliminated.
Spin-Off of Orchard Supply Hardware Stores Corporation
On December 30, 2011, we completed the spin-off to our shareholders of all of the capital stock of Orchard
Supply Hardware Stores Corporation (“Orchard”) that was owned by Holdings immediately prior to the spin-off,
consisting of common stock that represented approximately 80% of the voting power of Orchard’s outstanding
capital stock and preferred stock that represented 100% of Orchard’s outstanding nonvoting capital stock. We
expect that the spin-off will be tax-free to Holdings’ shareholders for U.S. federal income tax purposes, except
for any cash received in lieu of shares. In connection with the spin-off, Holdings and certain of its subsidiaries
entered into various agreements with Orchard, including a distribution agreement, a transition services
agreement, an appliance sale and consignment agreement and brand license agreements. In addition, certain tax
matters between Holdings and Orchard are governed by a tax sharing agreement entered into in 2005.
Holdings has determined that it has no significant continuing involvement in the operations of Orchard.
Accordingly, the operating results for Orchard through the date of the spin-off are presented as discontinued
operations in the accompanying Consolidated Statements of Operations for the years ended January 28,
2012, January 29, 2011 and January 30, 2010, and the current and non-current assets and liabilities of Orchard
are presented separately in the accompanying Consolidated Balance Sheets as of January 28, 2012 and
January 29, 2011. In addition, the cash flows from operating, investing and financing activities for Orchard have
been separately stated as discontinued operations in the accompanying Consolidated Statements of Cash Flows
for the years ended January 28, 2012, January 29, 2011 and January 30, 2010. The Notes to Consolidated
Financial Statements have been restated to exclude the impact of Orchard for all periods presented. Prior to
completion of the spin-off, Orchard’s results of operations, financial position and cash flows were presented
within the Sears Domestic segment.
Fiscal Year
Our fiscal year ends on the Saturday closest to January 31 each year. Unless otherwise stated, references to
years in this report relate to fiscal years rather than to calendar years. The following fiscal periods are presented
in this report.
Fiscal year Ended Weeks
2011 .............................................. January 28, 2012 52
2010 .............................................. January 29, 2011 52
2009 .............................................. January 30, 2010 52
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