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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended February 2, 2013
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
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 No
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
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 No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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.
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 Accelerated 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
On March 2, 2013, the registrant had 106,386,171 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 the last business day of the Registrant's most recently completed second fiscal quarter, was approximately $1.1 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 1, 2013 (the “2013 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
    ... Road, Hoffman Estates, Illinois (Address of principal executive offices) 60179 (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...

  • Page 2
    ...we operate a number of websites under the sears.com and kmart.com banners which offer more than 60 million products and provide the capability for our customers to engage in cross-channel transactions such as buy online/pick-up in store; buy in store/ship to home; and buy online, return in store. We...

  • Page 3
    ... Auto Centers that operate independently of Full-line stores. Sears also extends the availability of its product selection through the use of its sears.com website, which offers an assortment of home, apparel and accessory merchandise and provides customers the option of buying through a mobile app...

  • Page 4
    ... stores, 261 dealer stores operated under independent local ownership, four appliance and mattress stores, 33 Corbeil stores, and 11 outlet stores), nine home services showrooms, 1,512 catalog pick-up locations and 101 travel offices. Sears Canada also sells its products through its sears.ca website...

  • Page 5
    ... further information on revenues earned by quarter in 2012 and 2011. 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, auto service...

  • Page 6
    ... to our home appliance business, which accounted for approximately 15% of our 2012 and 16% of our 2011 and 2010 reported revenues. Sears Canada competes in Canada with Hudson's Bay Company, other Canadian-based store and online retailers, as well as certain U.S.-based competitors, including some...

  • Page 7
    ... in new store expansion. Online and catalog businesses, which handle similar lines of merchandise, and some of which are not required to collect sales taxes on purchases made by their customers, also compete with us. In this competitive marketplace, success is based on factors such as price, product...

  • Page 8
    ... to otherwise access the credit markets will not be adversely affected by changes in the financial markets and the global economy. We cannot predict whether our plans to generate liquidity, reduce inventory and reduce fixed costs will be successful. We have plans to generate at least $500 million of...

  • Page 9
    ... are located, increases in shipping costs, manufacturing and transportation delays and interruptions, supplier compliance with applicable laws, including labor and environmental laws, and with our global compliance program for suppliers and factories, adverse fluctuations in currency exchange rates...

  • Page 10
    ...incur substantial costs, including costs associated with hiring new employees, in order to return these services in-house. These outsourcing arrangements also carry the risk that the Company will fail to adequately retain the significant internal historical knowledge of our business and systems that...

  • Page 11
    ... for aggressive application of laws and procedures against corporate defendants. Our pharmacy, home services and grocery businesses, in particular, are subject to numerous federal, state and local regulations. We are impacted by trends in litigation, including class-action allegations brought...

  • Page 12
    ... and the discount rate used to determine pension obligations. Unfavorable returns on the plan assets or unfavorable changes in applicable laws or regulations could materially change the timing and amount of required plan funding, which would reduce the cash available for our businesses. In addition...

  • Page 13
    ... and Sears Domestic stores at February 2, 2013: Kmart Discount Stores 24 - 16 5 102 13 8 6 - 69 28 7 8 46 31 21 11 27 11 6 21 19 69 21 7 27 9 8 10 6 35 15 52 43 7 52 9 13 95 1 25 9 32 20 15 3 39 15 15 28 9 23 4 1 1,196 Super Centers 4 3 6 1 - - 7 - - 2 1 - 1 - - - - - 25 Full-line Mall Stores 10...

  • Page 14
    ... sales/service operations for Lands' End. We also own an 86,000 square foot office building in Troy, Michigan. We operate numerous buying offices throughout the world that procure product internationally, as well as an information technology center in Pune, India. At February 2, 2013, Sears Canada...

  • Page 15
    ... of the Board and Chief Executive Officer Executive Vice President, Chief Merchandising Officer and President, Sears Full Line Stores and Kmart Formats Executive Vice President and President, Online, Marketing, Pricing & Financial Services Executive Vice President and Chief Financial Officer Senior...

  • Page 16
    ... Counsel and Corporate Secretary in May 2010. Prior to joining the Company, he practiced law with the law firm of Winston & Strawn LLP, most recently as Capital Partner, from September 1993 until May 2010. Mr. Phelan was elected Senior Vice President, Finance of the Company in January 2012. From...

  • Page 17
    ... Quarter Common stock price High...$ Low ...$ 94.79 73.59 $ $ 86.72 66.15 $ $ 83.25 51.14 $ $ 80.37 28.89 Holdings has not paid and does not expect to pay cash dividends in the foreseeable future. Equity Compensation Plan Information The following table reflects information about securities...

  • Page 18
    ...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. Feb. 1, 2008 Jan. 30, 2009 Jan. 29, 2010 Jan. 28, 2011 Jan. 27, 2012 Feb. 1, 2013 Sears Holdings ...S&P 500 Stock...

  • Page 19
    ...Total Number of Shares Purchased(1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program(2) Average Price Paid per Share for Publicly Announced Program Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program October 28, 2012...

  • Page 20
    ... within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 2009 results include the impact of domestic pension expense of $170 million, a $131 million charge related to store closings and severance, a gain on the sale of Sears Canada Headquarters of $44...

  • Page 21
    ...we operate a number of websites under the Sears.com and Kmart.com banners which offer more than 60 million products and provide the capability for our customers to engage in cross-channel transactions such as buy online/pick-up in store; buy in store/ship to home; and buy online, return in store. We...

  • Page 22
    ...items from their layaway shipped directly to their homes when their contract has been completed. We also provide our customers with easy access to a broad and diverse range of products and categories through marketplace on sears.com. Financial and Operational Discipline In 2012, we also demonstrated...

  • Page 23
    RESULTS OF OPERATIONS Fiscal Year Our fiscal year end is the Saturday closest to January 31 each year. Fiscal year 2012 consisted of 53 weeks while fiscal years 2011 and 2010 consisted of 52 weeks. Unless otherwise stated, references to years in this report relate to fiscal years rather than to ...

  • Page 24
    ... store sales amounts include sales from sears.com and kmart.com shipped directly to customers and have been adjusted for the change in the unshipped sales reserves recorded at the end of each reporting period. Comparable store sales results for 2012 were calculated based on the 52-week period...

  • Page 25
    ... and amortization and gain on sales of assets. In addition, it is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our businesses, as well as executive compensation metrics, for comparable periods. Adjusted...

  • Page 26
    ...: 2012 millions Operating income (loss) per statement of operations . . Depreciation and amortization ...Gain on sales of assets ...Before excluded items ...Closed store reserve and severance ...Impairment charges ...Pension settlements ...Domestic pension expense ...Transaction costs ...Hurricane...

  • Page 27
    ... amounts reported in our Consolidated Statements of Operations during the years 2012, 2011 and 2010. Year Ended February 2, 2013 Closed Store Reserve, Store Impairments and Severance Gain on Sales of Assets Domestic Pension Expense Gain on Sale of Canadian Joint Venture millions, except per share...

  • Page 28
    ... fewer Kmart and Sears Full-line stores in operation, a decrease in domestic comparable store sales of 2.5% and the separation of the Sears Hometown and Outlet businesses, partially offset by the inclusion of an additional week of revenues in 2012. The Company recorded approximately $500 million...

  • Page 29
    ... each of the premises in periods ranging from six to 23 months from the date of closing. Gain on sales of assets recorded in 2012 also included a gain of $33 million related to the sale of a store operated under The Great Indoors format, one Sears Full-line store and one Kmart store. During 2011, 29

  • Page 30
    .... Operating loss for 2012 included non-cash charges related to pension settlements and the impairment of Sears Canada goodwill balances, expenses related to domestic pension plans, store closings and store impairments and severance and transaction costs, as well as the gains on sales of assets which...

  • Page 31
    ...End categories and declines in home services. Sears Canada's gross margin rate declined 170 basis points in 2011 as a result of clearing inventory, due to an enhanced focus on improving inventory productivity. Selling and Administrative Expenses Our selling and administrative expenses increased $239...

  • Page 32
    ... income tax assets and the nondeductible nature of our goodwill impairment. Business Segment Results Kmart Kmart results and key statistics were as follows: millions, except number of stores 2012 2011 2010 Merchandise sales and services ...$ Comparable store sales % ...Cost of sales, buying and...

  • Page 33
    ... to online gaming and applications while the decrease in pharmacy sales was driven by the conversion of brand name drugs to equivalent generic drugs. The decrease in the grocery and household category was primarily attributable to competitive pressures in this category. Gross Margin Kmart generated...

  • Page 34
    ... of having fewer Kmart stores in operation. The Kmart declines in comparable store sales included decreases in the consumer electronics, pharmacy, home, apparel and jewelry categories, partially offset by an increase in the grocery and household category. Gross Margin Kmart generated $3.5 billion in...

  • Page 35
    Sears Domestic Sears Domestic results and key statistics were as follows: millions, except number of stores 2012 2011 2010 Merchandise sales and services ...$ Comparable store sales % ...Cost of sales, buying and occupancy...Gross margin dollars ...Gross margin rate ...Selling and administrative ...

  • Page 36
    ...in periods ranging from six to 23 months from the date of closing. Gain on sales of assets recorded in 2012 also included a gain of $22 million related to the sale of a store operated under The Great Indoors format and one Sears Full-line store. The gain on sales of assets in 2011 included a gain of...

  • Page 37
    ... of $21 million recognized on the sale of two stores operated under The Great Indoors format. The gain on sales of assets in 2010 was due to the recognition of a previously deferred gain from the October 2006 sale of one of our Sears Auto Centers. At the time of the sale, we leased back the property...

  • Page 38
    ... operations as Sears Domestic. Sears Canada results and key statistics were as follows: millions, except number of stores 2012 2011 2010 Merchandise sales and services ...$ Comparable store sales % ...Cost of sales, buying and occupancy...Gross margin dollars ...Gross margin rate ...Selling...

  • Page 39
    ...million related to store closings and severance, $3 million related to pension settlements and $3 million of transaction costs associated with strategic initiatives, as well as an impairment charge of $295 million and a gain on sales of assets of $163 million in 2012. Operating loss in 2011 included...

  • Page 40
    ... commercial paper, federal, state and municipal government securities, floating-rate notes, repurchase agreements and money market funds. Cash amounts held in these short-term investments are readily available to us. Credit card deposits in transit include deposits in transit from banks for payments...

  • Page 41
    ... by increases in contributions to our pension and postretirement benefit plans. Our primary source of operating cash flows is the sale of goods and services to customers, while the primary use of cash in operations is the purchase of merchandise inventories. The Company used $307 million in cash...

  • Page 42
    ... balances of $618 million and $4.8 billion of inventory, net of payables. The domestic revolving credit facility and senior secured notes are firmly in place for the next several years and are supported by an asset base which includes $6.8 billion of inventory, owned and leased real estate assets...

  • Page 43
    ..., less asset-intensive business model, we are reducing the level of risk in our operational structure and balance sheet while concurrently improving the returns on our invested capital. The focus of this model is to win in the new retail marketplace by leveraging our stores, brands, online channels...

  • Page 44
    ... the "Treasury Rate" as defined in the indenture, plus 50 basis points. On September 6, 2011, we completed our offer to exchange the Notes held by nonaffiliates for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended. Sears Canada Credit Agreement In...

  • Page 45
    ... use of our cash on an annual basis. While the Company's pension plan is frozen, and thus associates do not currently earn pension benefits, the company has a legacy pension obligation for past service performed by Kmart and Sears associates. During 2012, we contributed $516 million to our...

  • Page 46
    ... of the Plan who terminated employment prior to January 1, 2012 and who have not yet started receiving monthly payments of their pension benefits. The Company offered the one-time voluntary lump sum window in an effort to reduce its long-term pension obligations and ongoing annual pension expense...

  • Page 47
    ... based on sales of products covered under these agreements. We currently have license agreements for which we pay royalties, including those to use American Greetings and Joe Boxer. Royalty license fees represent the minimum the Company is obligated to pay, regardless of sales, as guaranteed...

  • Page 48
    ...following is a summary of our most critical policies and estimates. See Note 1 of Notes to Consolidated Financial Statements for a listing of our other significant accounting policies. Valuation of Inventory Our inventory is valued at the lower of cost or market determined primarily using the retail...

  • Page 49
    ... actual return on pension assets. We recognize the changes by amortizing experience gains/losses in excess of the 10% corridor into expense over the associated service period. The Company's actuarial valuations utilize key assumptions including discount rates and expected returns on plan assets. We...

  • Page 50
    ..., the appropriate amount of unrecognized tax benefits to be recorded in the Consolidated Financial Statements. Management reevaluates tax positions each period in which new information about recognition or measurement becomes available. Significant management judgment is required in determining our...

  • Page 51
    ... the application of a discount rate based on market participant assumptions with respect to capital structure and access to capital markets. The income approach uses a reporting unit's projection of estimated operating results and cash flows that is discounted using a weighted-average cost of...

  • Page 52
    ...a firm would be willing to pay a royalty in order to exploit the related benefits of this asset class. The Relief from Royalty Method involves two steps: (1) estimation of reasonable royalty rates for the assets and (2) the application of these royalty rates to a net sales stream and discounting the...

  • Page 53
    ... in the forwardlooking statements: our ability to offer merchandise and services that our customers want, including our proprietary brand products; our ability to successfully implement initiatives to improve our liquidity through inventory management and other actions; competitive conditions in the...

  • Page 54
    ... $1.1 billion, an immediate 100 basis point change in interest rates would have affected annual pretax funding costs by $11 million. These estimates do not take into account the effect on income resulting from invested cash or the returns on assets being funded. These estimates also assume...

  • Page 55
    ... 2, 2013, January 28, 2012 and January 29, 2011 ...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 ... 56 57 58 59...

  • Page 56
    SEARS HOLDINGS CORPORATION Consolidated Statements of Operations millions, except per share data 2012 2011 2010 REVENUES Merchandise sales and services ...$ COSTS AND EXPENSES Cost of sales, buying and occupancy ...Selling and administrative ...Depreciation and amortization...Impairment charges ......

  • Page 57
    SEARS HOLDINGS CORPORATION Consolidated Statements of Comprehensive Income (Loss) millions 2012 2011 2010 Net income (loss) ...$ Other comprehensive income (loss) Pension and postretirement adjustments, net of tax ...Deferred gain (loss) on derivatives, net of tax ...Currency translation ...

  • Page 58
    SEARS HOLDINGS CORPORATION Consolidated Balance Sheets millions February 2, 2013 January 28, 2012 ASSETS Current assets Cash and cash equivalents ...$ Restricted cash ...Accounts receivable ...Merchandise inventories ...Prepaid expenses and other current assets ...Total current assets...Property ...

  • Page 59
    ...Proceeds from the sale of Sears Hometown and Outlet Stores, Inc...Debt issuance costs ...Purchase of Sears Canada shares ...Sears Canada dividends paid to minority shareholders ...Purchase of treasury stock ...Net cash provided by (used in) financing activities-continuing operations ...Net cash used...

  • Page 60
    ... ...Stock awards ...Purchase of Sears Canada shares...Associate stock purchase...Separation of Sears Hometown and Outlet Stores, Inc...Sears Canada dividend paid to minority shareholders ...Non-cash dividend issued in connection with spin-off of 45 million common shares of Sears Canada...Balance at...

  • Page 61
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements NOTE 1-SUMMARY OF SIGNFICANT 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, ...

  • Page 62
    ... the accompanying consolidated financial statements. Significant estimates and assumptions are required as part of determining inventory and accounts receivable valuation, estimating depreciation, amortization and recoverability of long-lived assets, establishing self-insurance, warranty, legal and...

  • Page 63
    ... Statements of Operations was $778 million, $798 million, and $809 million for the years ended February 2, 2013, January 28, 2012 and January 29, 2011, respectively. Primarily as a result of store closing actions, certain property and equipment are considered held for sale. The value of assets...

  • Page 64
    ... to its estimated fair value as determined based on quoted market prices or through the use of other valuation techniques. See Note 13 for further information regarding long-lived asset impairment charges recorded during 2012. We account for costs associated with location closings in accordance with...

  • Page 65
    ...a firm would be willing to pay a royalty in order to exploit the related benefits of this asset class. The relief from royalty method involves two steps: (1) estimation of reasonable royalty rates for the assets and (2) the application of these royalty rates to a net sales stream and discounting the...

  • Page 66
    ...considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. We report the fair value of financial assets and liabilities based on the fair value hierarchy prescribed by accounting standards for fair value...

  • Page 67
    ... third-party financial institutions that manage and directly extend credit relative to our co-branded credit card programs. The third-party financial institutions pay us for generating new accounts and sales activity on co-branded cards, as well as for selling other financial products to cardholders...

  • Page 68
    ... costs), retail store occupancy costs, product repair, and home service and installation costs, customer shipping and handling costs, vendor allowances, markdowns and physical inventory losses. The Company has a SHOP YOUR WAY program in which customers earn points on purchases which may be redeemed...

  • Page 69
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) rather than cash from operating activities. We recognize compensation expense as awards vest on a straight-line basis over the requisite service period of the award. Earnings Per Common Share Basic earnings per common ...

  • Page 70
    ... material impact on the Company's condensed consolidated financial position, results of operations or cash flows. NOTE 2-SEARS CANADA Sears Canada Share Repurchases During the second quarter of 2011, Sears Canada renewed its Normal Course Issuer Bid with the Toronto Stock Exchange that permits it to...

  • Page 71
    ... at the close of business on May 31, 2010. Accordingly, the Company received dividends of $318 million and minority shareholders in Sears Canada received dividends of $34 million during the second quarter of 2010. On September 10, 2010, Sears Canada announced that its Board of Directors declared an...

  • Page 72
    ... cost efficient funding mechanism and therefore use it as a primary source of funding. Advances under the Domestic Credit Agreement bear interest at a rate equal to, at the election of the Borrowers, either the London Interbank Offered Rate ("LIBOR") or a base rate, in either case plus an applicable...

  • Page 73
    ... the "Treasury Rate" as defined in the indenture, plus 50 basis points. On September 6, 2011, we completed our offer to exchange the Notes held by nonaffiliates for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended. Sears Canada Credit Agreement In...

  • Page 74
    ... programs. Wholly owned Insurance Subsidiary and Intercompany Securities We have numerous types of insurable risks, including workers' compensation, product and general liability, automobile, warranty, asbestos and environmental claims and the extended service contracts we sell to our customers...

  • Page 75
    ... in foreign currency exchange rates due to inventory purchase contracts denominated in U.S. dollars. Earnings Effects of Derivatives on the Statements of Operations For derivatives that were designated as hedges of our net investment in Sears Canada, we assess effectiveness based on changes in...

  • Page 76
    ... with credit ratings of single-A or better at January 28, 2012. We had no derivative instruments at February 2, 2013. Financial Guarantees We issue various types of guarantees in the normal course of business. We had the following guarantees outstanding at February 2, 2013: millions Bank Issued...

  • Page 77
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk...

  • Page 78
    ... $ $ 11 119 27 157 We sponsor Sears and Kmart 401(k) retirement savings plans for employees meeting service eligibility requirements. The Company does not match employee contributions. Other Benefit Plans Certain domestic full-time and part-time employees of Sears are eligible to participate in...

  • Page 79
    ... terminate these plans. Pension Plans 2012 SHC Domestic Sears Canada SHC Domestic 2011 Sears Canada millions Total Total Change in projected benefit obligation: Beginning balance ...Interest cost ...Actuarial loss ...Benefits paid ...Settlements ...Foreign currency exchange impact ...Balance at...

  • Page 80
    ... value: Beginning of year balance ...Actual return on plan assets...Company contributions ...Plan participants' contributions ...Benefits paid ...Benefits paid - settlements...Foreign currency exchange rate impact and other ...Balance at the measurement date ...Funded status $ 253 $ 10 42 9 - (67...

  • Page 81
    ...cost were as follows: 2012 SHC Domestic Sears Canada SHC Domestic 2011 Sears Canada SHC Domestic 2010 Sears Canada Pension benefits: ...Discount Rate ...Return of plan assets ...Rate of compensation increases ...Postretirement benefits: Discount Rate ...Return of plan assets ...Rate of compensation...

  • Page 82
    ... for returns for each asset class, as well as the target asset allocation of the pension portfolio. Sears Canada plan assets were invested in the following classes of securities (none of which were securities of the Company): Plan Assets at February 2, 2013 January 28, 2012 Equity securities...

  • Page 83
    ... for returns for each asset class, as well as the target asset allocation of the pension portfolio. Future Cash Flows of Benefit Plans Information regarding expected future cash flows for our benefit plans is as follows: millions SHC Domestic Sears Canada Total Pension benefits: Employer...

  • Page 84
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) participants of the Plan who terminated employment prior to January 1, 2012 and who have not yet started receiving monthly payments of their pension benefits. The Company offered the one-time voluntary lump sum window ...

  • Page 85
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) SHC Domestic millions Investment Assets at Fair Value at January 28, 2012 Total Level 1 Level 2 Level 3 Cash equivalents and short-term investments ...Equity securities: U.S. companies ...International companies ......

  • Page 86
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Sears Canada millions Investment Assets at Fair Value at January 28, 2012 Total Level 1 Level 2 Level 3 Cash equivalents and short-term investments ...Equity securities: U.S. companies ...International companies ......

  • Page 87
    ... 17 $ $ $ $ $ $ Sears Canada millions January 28, 2012 Balance Net Realized and Unrealized Gains Purchases Sales and Settlements Net Transfers Into/(Out of) Level 3 February 2, 2013 Balance Fixed income securities: Corporate bonds and notes ...Mortgage-backed and asset-backed ...Hedge...

  • Page 88
    ... Financial Statements-(Continued) January 29, 2011 Balance Net Realized and Unrealized Gains/(Losses) Sales and Settlements Net Transfers Into/(Out of) Level 3 January 28, 2012 Balance Sears Canada millions Purchases Fixed income securities: Corporate bonds and notes ...Mortgage backed-and asset...

  • Page 89
    ... remains employed by us at 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 broad-based program that provides for restricted stock awards on an annual basis. Changes in restricted stock awards for 2012...

  • Page 90
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Accumulated Other Comprehensive Loss The following table displays the components of accumulated other comprehensive loss: February 2, 2013 January 28, 2012 January 29, 2011 millions Pension and postretirement ...

  • Page 91
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) 2011 Before Tax Amount Tax Benefit Net of Tax Amount millions Other comprehensive income (loss) Pension and postretirement adjustments Experience gain (loss) ...$ Less: amortization of prior service cost included in ...

  • Page 92
    ...of Sears Hometown and Outlet Stores, Inc...Nondeductible goodwill impairment ...Tax on partial spin-off of Sears Canada ...Adjust foreign statutory rates ...Tax credits...Long life land and intangibles...Resolution of income tax matters ...Canadian repatriation cost on Sears Canada dividend received...

  • Page 93
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) millions February 2, 2013 January 28, 2012 Deferred tax assets and liabilities: Deferred tax assets: Federal benefit for state and foreign taxes ...Accruals and other liabilities ...Capital leases ...NOL carryforwards...

  • Page 94
    ... HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) At the end of 2012 and 2011, we had a federal and state net operating loss ("NOL") deferred tax asset of $722 million and $672 million, respectively, which will expire predominately between 2019 and 2033. We have credit...

  • Page 95
    ...to 23 months from the date of closing. The gain on sales of assets recorded during 2012 also included a gain of $33 million related to the sale of a store operated under The Great Indoors format, one Sears Full-line store, and one Kmart store. During 2011, the gain on sales of assets included a gain...

  • Page 96
    ... purchase price over the fair value of the net assets acquired in business combinations accounted for under the purchase method. We recorded $1.7 billion in goodwill in connection with the Merger. We recorded $12 million in connection with our acquisition of an additional 3% interest in Sears Canada...

  • Page 97
    ..., among others: a significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. 97

  • Page 98
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) NOTE 13-STORE CLOSING CHARGES, SEVERANCE COSTS AND IMPAIRMENTS Store Closings and Severance We made the decision to close 48, 74 and 11 stores in our Kmart segment, and 12, 173 and 15 stores in our Sears Domestic segment during 2012...

  • Page 99
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Store closing cost accruals of $193 million and $159 million at February 2, 2013 and January 28, 2012, respectively, were as follows: Severance Costs Lease Termination Costs Other Charges millions Total Balance at ...

  • Page 100
    ... as a director, officer or employee of the Company, (b) control investments in companies in the mass merchandising, retailing, commercial appliance distribution, product protection agreements, residential and commercial product installation and repair services and automotive repair and maintenance...

  • Page 101
    ... common stock of SHO (based on publicly available information as of October 11, 2012). These agreements were made in the context of a parent-subsidiary relationship and were negotiated in the overall context of the separation. The Company believes that the methods by which costs are allocated...

  • Page 102
    ... the sale of merchandise made through www.sears.com, extended service agreements, delivery and handling services and credit revenues. The Company provides SHO with shared corporate services. These services include accounting and finance, legal, human resources, information technology and real estate...

  • Page 103
    ...to Consolidated Financial Statements-(Continued) 2012 millions Kmart Sears Domestic Sears Canada Sears Holdings Merchandise sales and services: Hardlines ...Apparel and Soft Home ...Food and Drug...Service and Other ...Total merchandise sales and services...Costs and expenses: Cost of sales, buying...

  • Page 104
    ...reputations for aggressive application of laws and procedures against corporate defendants. We also are a defendant in several putative or certified class action lawsuits in California relating to alleged failure to comply with California laws pertaining to certain operational, marketing and payroll...

  • Page 105
    .... NOTE 19-QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 2012 First Quarter Second Quarter Third Quarter Fourth Quarter millions, except per share data Revenues...Cost of sales, buying and occupancy ...Selling and administrative ...Net income (loss) from continuing operations attributable to...

  • Page 106
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) sales and services included revenues of $1.7 billion, $2.3 billion and $2.3 billion from SHO for 2012, 2011 and 2010, respectively. Net income (loss) attributable to Holdings' shareholders included net income of ...

  • Page 107
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Balance Sheet February 2, 2013 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Current assets Cash and cash equivalents ...Intercompany receivables ...Accounts...

  • Page 108
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Balance Sheet January 28, 2012 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Current assets Cash and cash equivalents ...Intercompany receivables ...Accounts...

  • Page 109
    ... Financial Statements-(Continued) Condensed Consolidating Statement of Operations For the Year Ended February 2, 2013 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Merchandise sales and services ...Cost of sales, buying and occupancy ...Selling...

  • Page 110
    ... Financial Statements-(Continued) Condensed Consolidating Statement of Operations For the Year Ended January 28, 2012 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Merchandise sales and services ...Cost of sales, buying and occupancy ...Selling...

  • Page 111
    ... Financial Statements-(Continued) Condensed Consolidating Statement of Operations For the Year Ended January 29, 2011 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Merchandise sales and services ...Cost of sales, buying and occupancy ...Selling...

  • Page 112
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Consolidating Statement of Comprehensive Income (Loss) For the Year Ended February 2, 2013 millions Parent Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Consolidated Net income (loss) ...Other ...

  • Page 113
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Consolidating Statement of Comprehensive Income (Loss) For the Year Ended January 28, 2012 NonGuarantor Subsidiaries millions Parent Guarantor Subsidiaries Eliminations Consolidated Net income (loss) ...Other ...

  • Page 114
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Consolidating Statement of Comprehensive Income (Loss) For the Year Ended January 29, 2011 NonGuarantor Subsidiaries millions Parent Guarantor Subsidiaries Eliminations Consolidated Net income (loss) ...Other ...

  • Page 115
    ... from the sale of Sears Hometown and Outlet Stores, Inc. . Debt issuance costs ...Purchase of Sears Canada shares ...Sears Canada dividend paid to minority shareholders ...Net borrowing with Affiliates...Net cash provided by (used in) financing activities ...Effect of exchange rate changes on...

  • Page 116
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Statement of Cash Flows For the Year Ended January 28, 2012 NonGuarantor Subsidiaries millions Parent Guarantor Subsidiaries Eliminations Consolidated Net cash provided by (used in) operating activities...

  • Page 117
    ...90 days or less...Debt issuance costs ...Purchase of Sears Canada shares . . Sears Canada dividends paid to minority shareholders ...Purchase of treasury stock ...Net borrowing with Affiliates...Net cash provided by (used in) financing activities - continuing operations ...Net cash provided by (used...

  • Page 118
    Sears Holdings Corporation Schedule II-Valuation and Qualifying Accounts Years 2012, 2011 and 2010 millions Balance at beginning of period Additions charged to costs and expenses (Deductions) Balance at end of period Allowance for Doubtful Accounts(1): 2012 ...2011 ...2010 ...Allowance for ...

  • Page 119
    ... maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management and other...

  • Page 120
    ...REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Sears Holdings Corporation Hoffman Estates, Illinois We have audited the accompanying consolidated balance sheets of Sears Holdings Corporation and subsidiaries (the "Company") as of February 2, 2013 and January 28, 2012...

  • Page 121
    ...based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As disclosed in Note 1 to the Consolidated Financial Statements, the Company completed the spin-off of Orchard Supply Hardware Stores Corporation...

  • Page 122
    ...any) may be paid, at Mr. Lampert's election, in cash or in common stock of Holdings, and (2) receive Holdings common stock with value of $4,500,000 per annum, payable in equal monthly installments subject to his continued service as Chief Executive Officer. The number of shares issued to Mr. Lampert...

  • Page 123
    PART III Item 10. Directors, Executive Officers and Corporate Governance Information required by Item 10 with respect to directors, the audit committee, audit committee financial experts and Section 16(a) beneficial ownership reporting compliance is included under the headings "Item 1. Election of ...

  • Page 124
    ...Form 10-K are listed under Item 8. 2. Financial Statement Schedule The financial statement schedule filed as part of this Form 10-K is listed under Item 8. The separate financial statements and summarized financial information of majority-owned subsidiaries not consolidated and of 50% or less owned...

  • Page 125
    ... duly authorized. SEARS HOLDINGS CORPORATION By: Name: Title: /S/ ROBERT A. RIECKER Robert A. Riecker Vice President, Controller and Chief Accounting Officer Date: March 19, 2013 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 126
    ... (File No. 000-51217)). Security Agreement, dated as of October 12, 2010, among Sears Holdings Corporation, the guarantors party thereto and Wells Fargo Bank, National Association, as Collateral Agent (incorporated by reference to Exhibit 4.2 to Registrant's Current Report on Form 8-K, dated October...

  • Page 127
    ... (incorporated by reference to Appendix A to Registrant's Proxy Statement dated March 16, 2012 (File No. 000-51217)).** Form of Sears Holdings Corporation Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.44 to Registrant's Annual Report on Form 10-K for the fiscal year ended...

  • Page 128
    ...'s Current Report on Form 8-K, dated November 30, 2012, filed on November 30, 2012 (File No. 000-51217)).** Form of LTIP Award Agreement (incorporated by reference to Exhibit 10.45 to the 2006 10-K) (File No. 000-51217).** Sears Holdings Corporation 2010 Long-Term Incentive Program (incorporated...

  • Page 129
    ... 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. The following financial information from the Annual Report on Form 10-K for the year ended February 2, 2013, formatted in XBRL (eXtensible Business...