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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 January 31, 2015
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 000-51217, 001-36693
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 (or for such shorter period that the registrant was required to file such response) 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 February 28, 2015, the registrant had 106,554,467 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 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 6, 2015 (the "2015 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
    ... 28, 2015, the registrant had 106,554,467 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 as of the last business day of...

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

  • Page 3
    ... electronics, floor care products, and heating and cooling systems categories. We also provide repair parts with supporting instructions for "do-it-yourself" members and customers through our searspartsdirect.com website. This business also offers protection agreements, product installation services...

  • Page 4
    ... duct cleaning, and garage door installation and repair) provided through Sears Home Improvement Services and Sears Home & Business Franchises. Sears Canada Rights Offering On October 2, 2014, the Company announced that its board of directors had approved a rights offering of up to 40 million shares...

  • Page 5
    ... in Note 11 of Notes to Consolidated Financial Statements. Trademarks and Trade Names The KMART® and SEARS® trade names, service marks and trademarks, used by us both in the United States and internationally, are material to our retail and other related businesses. We sell proprietary branded...

  • Page 6
    ...the impact of transactions related to Sears Canada and Lands' End, and 30% of total reported revenues in both 2013 and 2012. See Note 19 of Notes to Consolidated Financial Statements for further information on revenues earned by quarter in 2014 and 2013. Competition Our business is subject to highly...

  • Page 7
    ... successfully respond to our members' and customers' changing tastes. The performance of our competitors, as well as changes in their pricing policies, marketing activities, new store openings and other business strategies, could have a material adverse effect on our business, financial condition...

  • Page 8
    ... performance, our credit ratings, and lenders' assessments of our prospects and the prospects of the retail industry in general. Changes in these factors may affect our cost of financing, liquidity and our ability to access financing sources, including our commercial paper program and possible...

  • Page 9
    ... taken a number of actions to enhance our financial flexibility and fund our continued transformation, including the senior secured term loan facility due 2018, the separation of our Lands' End subsidiary, the secured short-term loan, the Sears Canada rights offering, the rights offering for senior...

  • Page 10
    ... earn or redeem points in our Shop Your Way® program may be impacted or halted, and our reputation with our members and customers may be significantly harmed. As publicly announced on October 10, 2014, Kmart's information technology team detected on October 9, 2014 that the Kmart store payment data...

  • Page 11
    ... comply with applicable privacy and information security laws and regulations could result in a loss of customer or member confidence and negatively impact our business, including our Shop Your Way® program, and our results of operations. Due to the seasonality of our business, our annual operating...

  • Page 12
    ...Lampert, our Chairman and Chief Executive Officer, and other key employees, for our future success. Although certain executives have employment agreements with us, changes in our senior management and any future departures of key employees may disrupt our business and materially adversely affect our...

  • Page 13
    ... of Notes to Consolidated Financial Statements in this report on Form 10-K. Our pension and postretirement benefit plan obligations are currently underfunded, and we may have to make significant cash payments to some or all of these plans, which would reduce the cash available for our businesses. We...

  • Page 14
    ... the locations of our Kmart and Sears Domestic stores at January 31, 2015: Kmart Discount Stores 17 - 5 14 85 12 6 4 49 23 7 7 36 24 17 8 24 10 6 19 18 52 11 5 18 8 6 10 4 29 11 46 31 5 41 8 8 84 1 18 9 28 19 12 3 30 11 15 17 9 23 4 1 968 Super Centers 2 2 6 - - 1 11 Full-line Mall Stores 8 3 13...

  • Page 15
    ... buying offices throughout the world that procure product internationally, as well as an information technology center in Pune, India. A description of our leasing arrangements and commitments appears in Note 14 of Notes to Consolidated Financial Statements. Item 3. Legal Proceedings See Part II...

  • Page 16
    ... an office supply store chain, including Senior Vice President and General Manager of Global E-commerce, from June 2013 until April 2014 and Vice President and Chief Financial Officer, Americas and Treasurer of Groupon, Inc., an online marketing service providing local discounts, from February 2012...

  • Page 17
    ... served as Chief of Staff, Office of the CEO, from November 2007 to November 2009. Ms. Munjal joined Sears as Director, Information Technology, in March 2003. Mr. James joined the Company in August 2014 and serves as President and Chief Member Officer, Kmart. Prior to joining the Company, he served...

  • Page 18
    ... recent fiscal years and does not expect to pay cash dividends in the foreseeable future. Equity Compensation Plan Information The following table reflects information about securities authorized for issuance under our equity compensation plans at January 31, 2015. Number of securities to be issued...

  • Page 19
    ... (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. Jan 29, 2010 Jan 28, 2011 Jan 27, 2012 Feb 1, 2013 Jan 31, 2014 Jan 30, 2015 Sears...

  • Page 20
    ...program has no stated expiration date. (2) The domestic credit agreement (described in Management's Discussion and Analysis of Financial Condition and Results of Operation - "Uses and Sources of Liquidity" section below) limits our ability to make restricted payments, including dividends and share...

  • Page 21
    ... be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 and our Consolidated Financial Statements and notes thereto in Item 8. Fiscal dollars in millions, except per share and store data 2014 2013 $ 36,188 (3.8)% 2012 $ 39,854...

  • Page 22
    ..., we operate a number of websites under the Sears.com and Kmart.com banners which offer millions of products and provide the capability for our members and customers to engage in cross-channel transactions such as free store pickup; buy in store/ship to home; and buy online, return in store. We are...

  • Page 23
    ... in performance in 2015 and beyond and we are seeing early signs of this progress as part of our most recent quarterly results. Focusing on the Future: Our Best Members, Our Best Stores and Our Best Categories We have a very substantial member base with more than 70% of sales being derived from...

  • Page 24
    ... well as downside protection if Sears Holdings were unable to continue to operate certain stores profitably. RESULTS OF OPERATIONS Fiscal Year Our fiscal year end is the Saturday closest to January 31 each year. Fiscal years 2014 and 2013 consisted of 52 weeks while fiscal year 2012 consisted of 53...

  • Page 25
    Holdings' Consolidated Results Holdings' consolidated results of operations for 2014, 2013 and 2012 are summarized as follows: millions, except per share data 2014 2013 2012 REVENUES Merchandise sales and services ...COSTS AND EXPENSES Cost of sales, buying and occupancy ...Gross margin dollars......

  • Page 26
    ... changes. Domestic comparable store sales amounts include sales from sears.com and kmart.com shipped directly to customers. These online sales resulted in a benefit of approximately 120 basis points and 60 basis points, respectively, for 2014 and 2013. In addition, domestic comparable store sales...

  • Page 27
    ... ...Before excluded items...Closed store reserve and severance...Domestic pension expense ...Other expenses (1) ...Impairment charges...Pension settlements ...Adjusted EBITDA...Lands' End separation ...SHO separation ...Adjusted EBITDA as defined (2) ...$ Sears Canada segment...Domestic Adjusted...

  • Page 28
    ...on the cash flow statement. While the Company's pension plan is frozen, and thus associates do not currently earn pension benefits, we have a legacy pension obligation for past service performed by Kmart and Sears associates. The annual pension expense included in our statement of operations related...

  • Page 29
    ...Operations - Application of Critical Accounting Policies and Estimates Defined Benefit Pension Plans, and Note 7 of Notes to Consolidated Financial Statements. • Pension settlements - In 2012, the Company amended its domestic pension plan and offered a one-time voluntary lump sum payment option in...

  • Page 30
    ...and expense amounts reported in our Consolidated Statements of Operations during the years 2014, 2013 and 2012. Year Ended January 31, 2015 Adjustments Domestic Closed Store Reserve, Store Domestic Gain on Impairments Gain on Sears Domestic Sears and Sales of Other Canada Tax Canada Severance Assets...

  • Page 31
    ... February 2, 2013 Adjustments millions, except per share data GAAP Domestic Pension Expense Domestic Closed Store Reserve, Store Impairments and Severance Domestic Gain on Sales of Assets Domestic Domestic Transaction Pension Costs Settlements Domestic Tax Matters Sears Canada Segment Lands...

  • Page 32
    ... and $56 million in 2014 and 2013, respectively, related to store closings. The gross margin rate for both Kmart and Sears Domestic for the year were impacted by transactions that offer both traditional promotional marketing discounts and Shop Your Way® points, predominantly in the first half...

  • Page 33
    ... costs and other expenses, as well as operating loss from Sears Canada, operating income from the Lands' End business and gains on the sales of assets, which aggregated to expense of $461 million. The operating loss for 2013 included expenses related to domestic pension plans, store closings, store...

  • Page 34
    ... million as a result of a new licensing arrangement related to the Sears Home Improvements Product Services ("SHIPS"), and approximately $70 million due to the closure of four Full-line stores in Sears Canada that occurred in 2012. Finally, Sears Canada revenues in 2013 included a decrease of $157...

  • Page 35
    ... Indoors format, two Sears Full-line stores and two Kmart stores for which the Company received $98 million in cash proceeds. The gain on sales of assets in 2012 included a gain of $223 million recognized on the sale of eleven (six owned and five leased) Sears Full-line store locations to General...

  • Page 36
    ... comprehensive income. Business Segment Results Kmart Kmart results and key statistics were as follows: millions, except number of stores 2014 2013 2012 Merchandise sales and services ...$ 12,074 $ 13,194 $ 14,567 Comparable store sales % ...(1.4)% (3.6)% (3.7)% Cost of sales, buying and occupancy...

  • Page 37
    ...with store closings during 2014 and 2013, respectively. Excluding these items, gross margin decreased $295 million. Kmart's gross margin rate declined 50 basis points to 21.2% in 2014 from 21.7% in 2013, and was impacted by transactions that offer both traditional promotional marketing discounts and...

  • Page 38
    ... with store closings during 2013 and 2012, respectively. Excluding these items, gross margin decreased $520 million. Kmart's gross margin rate declined 170 basis points to 21.7% in 2013 from 23.4% in 2012, and was impacted by transactions that offer both traditional promotional marketing discounts...

  • Page 39
    ... and administrative expenses. Sears Domestic Sears Domestic results and key statistics were as follows: millions, except number of stores 2014 2013 2012 Merchandise sales and services ...$ 17,036 $ 19,198 $ 20,977 Comparable store sales % ...(2.1)% (4.1)% (1.4)% Cost of sales, buying and occupancy...

  • Page 40
    ...' End business in 2014 and 2013, respectively. Excluding these items, gross margin decreased $256 million. Sears Domestic's gross margin rate was 24.0% in 2014 and 25.4% in 2013 and was impacted by transactions that offer both traditional promotional marketing discounts and Shop Your Way® points...

  • Page 41
    ... sold to SHO for resale. Fiscal 2012 also benefited from $275 million of revenue attributable to the 53rd week. Sears Domestic comparable store sales declined 4.1%, which reflects decreases in most categories including the home appliance, consumer electronics, tools and lawn & garden categories, as...

  • Page 42
    ... store locations to General Growth Properties for $270 million in cash proceeds. 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. Operating Loss Sears Domestic reported...

  • Page 43
    ...the Company no longer maintained control of Sears Canada resulting in the de-consolidation of Sears Canada on October 16, 2014. Sears Canada results and key statistics were as follows: millions, except number of stores 2014 2013 2012 Merchandise sales and services ...$ Comparable sales % ...Cost of...

  • Page 44
    ... in connection with store closings announced during 2013. Sears Canada's gross margin rate decreased 190 basis points to 26.8%, in 2013 from 28.7% in 2012, due to an increase in inventory reserve requirements. Selling and Administrative Expenses For 2013, Sears Canada's selling and administrative...

  • Page 45
    ..., 2015 and domestic cash of $577 million at February 1, 2014. During 2014, the Company received a $500 million dividend from Lands' End immediately prior to the completion of the spin-off, $400 million from the secured short-term loan, $380 million in connection with the Sears Canada rights offering...

  • Page 46
    ... 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 47
    ... paid on December 6, 2013. Accordingly, the minority shareholders in Sears Canada received dividends of $233 million. For further information, see Note 2 of Notes to Consolidated Financial Statements. During 2012, the Company reported net cash used in financing activities from continuing operations...

  • Page 48
    ...We are currently targeting between 200 and 300 Sears and Kmart stores to be sold to the REIT with expected proceeds to Holdings in excess of $2.0 billion. The REIT itself would be funded by equity and debt with the equity raised through a rights offering. The subscription rights would be distributed...

  • Page 49
    ... range of the applicable base rate plus 1.0% to 1.5%. Commitment fees are in a range of 0.375% to 0.625% based on usage. The Revolving Facility is in place as a funding source for general corporate purposes and is secured by a first lien on most of our domestic inventory and credit card and pharmacy...

  • Page 50
    ... immediately. Generally, the Company is required to offer to repurchase all outstanding Senior Secured Notes at a purchase price equal to 101% of the principal amount if the borrowing base (as calculated pursuant to the indenture) falls below the principal value of the Senior Secured Notes plus any...

  • Page 51
    ...for general corporate purposes. The Loan was originally scheduled to mature on December 31, 2014. As permitted by the Loan agreement, the Company paid an extension fee equal to 0.5% of the principal amount to extend the maturity date to February 28, 2015. The Loan has an annual base interest rate of...

  • Page 52
    ... sum benefit eligibility, and began notifying certain former employees of the Company of its offer to pay those employees' pension benefit in a lump sum. These amendments did not have a significant impact on our plan. Former employees eligible for the voluntary lump sum payment option are generally...

  • Page 53
    ... 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 54
    ... timing of the effective settlement of tax positions. (2) Other Commercial Commitments We issue various types of guarantees in the normal course of business. We had the following guarantees outstanding at January 31, 2015: Bank Issued SRAC Issued millions Other Total Standby letters of credit...

  • Page 55
    ... 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 inventory method ("RIM"). RIM is an averaging method that is commonly used...

  • Page 56
    ... the obligation. Such retirement benefits were earned by associates ratably over their service careers. Therefore, the amounts reported in the income statement for these retirement plans have historically followed the same pattern. Accordingly, changes in the obligations or the value of assets to...

  • Page 57
    ... value of plan assets as the market related value. A one-percentage-point change in the assumed discount rate would have the following effects on the pension liability: 1 percentage-point Increase 1 percentage-point Decrease millions Effect on interest cost component ...$ Effect on pension benefit...

  • Page 58
    ... a material impact on our consolidated financial statements. Goodwill Impairment Assessments As a result of recent transformation activities, our goodwill balance has declined and the remaining balance relates to our Home Services business. The goodwill impairment test involves a two-step process...

  • Page 59
    ... the cost savings (relief from royalty payment) associated with the assets. The cash flows are then discounted to present value by the selected discount rate and compared to the carrying value of the assets. We did not record any intangible asset impairment charges in 2014, 2013 or 2012. The...

  • Page 60
    ... See Note 1 of Notes to Consolidated Financial Statements for information regarding new accounting pronouncements. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION Certain statements made in this Annual Report on Form 10-K and in other public announcements by us contain forward-looking...

  • Page 61
    ... reliance on computer systems, including legacy systems, to implement our integrated retail strategy, process transactions, summarize results, maintain customer, member, associate and Company data, and otherwise manage our business, which may be subject to disruptions or security breaches; the...

  • Page 62
    ... non-trading. At January 31, 2015, 32% of our debt portfolio was variable rate. Based on the size of this variable rate debt portfolio at January 31, 2015, which totaled approximately $1.2 billion, an immediate 100 basis point change in interest rates would have affected annual pretax funding costs...

  • Page 63
    ...ended January 31, 2015, February 1, 2014 and February 2, 2013 ...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... 64 65...

  • Page 64
    SEARS HOLDINGS CORPORATION Consolidated Statements of Operations millions, except per share data 2014 2013 2012 REVENUES Merchandise sales and services(1)(2) ...$ COSTS AND EXPENSES Cost of sales, buying and occupancy(1) ...Selling and administrative ...Depreciation and amortization ...Impairment ...

  • Page 65
    ... CORPORATION Consolidated Statements of Comprehensive Loss millions 2014 2013 2012 Net loss...$ Other comprehensive income (loss) Pension and postretirement adjustments, net of tax ...Deferred gain (loss) on derivatives, net of tax ...Currency translation adjustments, net of tax ...Sears Canada...

  • Page 66
    SEARS HOLDINGS CORPORATION Consolidated Balance Sheets millions January 31, 2015 February 1, 2014 ASSETS Current assets Cash and cash equivalents ...$ Restricted cash ...Accounts receivable(1) ...Merchandise inventories...Prepaid expenses and other current assets ...Total current assets...Property ...

  • Page 67
    ... ...Proceeds from the sale of Sears Hometown and Outlet Stores, Inc.(3) ...Debt issuance costs ...Purchase of Sears Canada shares...Sears Canada dividends paid to noncontrolling interests ...Net cash provided by (used in) financing activities ...Effect of exchange rate changes on cash and cash...

  • Page 68
    ...Stores, Inc...Sears Canada dividend paid to noncontrolling interests ...Non-cash dividend issued in connection with spin-off of 45 million common shares of Sears Canada ...Balance at February 2, 2013...Comprehensive loss Net income (loss)...Pension... Notes to Consolidated Financial Statements. 68

  • Page 69
    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, Roebuck...

  • Page 70
    ... Sources of Liquidity Ended January 31, 2015 February 1, 2014 February 2, 2013 Weeks 52 52 53 Our primary need for liquidity is to fund working capital requirements of our businesses, capital expenditures and for general corporate purposes, including debt repayment and pension plan contributions...

  • Page 71
    ... 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 72
    ... 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 2014. We account for costs associated with location closings in accordance with...

  • Page 73
    ... a material impact on our consolidated financial statements. Goodwill Impairment Assessments As a result of recent transformation activities, our goodwill balance has declined and the remaining balance relates to our Home Services business. The goodwill impairment test involves a two-step process...

  • Page 74
    ...ceases to be a highly effective hedge, we discontinue hedge accounting. For derivatives that are designated as hedges of our net investment in Sears Canada, we assess effectiveness based on changes in spot currency exchange rates. Changes in spot rates on the derivatives are recorded in the currency...

  • Page 75
    ... service costs are expensed as incurred. We earn revenues through arrangements with 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...

  • Page 76
    ... 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 to pay...

  • Page 77
    ... with accounting standards pertaining to share-based payment transactions, which requires us to both recognize as expense the fair value of all stock-based compensation awards (which includes stock options, although there were no options outstanding in 2014) and to classify excess tax benefits...

  • Page 78
    ...the fourth quarter of 2016. The adoption of the new standard is not expected to have a material impact on the Company's consolidated financial position, results of operations, cash flows or disclosures. Revenue from Contracts with Customers In May 2014, the FASB issued an accounting standards update...

  • Page 79
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) NOTE 2-SEARS CANADA Sears Canada Rights Offering On October 2, 2014, the Company announced that its board of directors had approved a rights offering of up to 40 million shares of Sears Canada Inc. ("Sears Canada"). The subscription...

  • Page 80
    ...fourth quarter of 2013. On December 12, 2012, Sears Canada announced that its Board of Directors declared a cash dividend of $1 Canadian per common share, or approximately $102 million Canadian ($102 million U.S.) which was paid on December 31, 2012 to shareholders of record at the close of business...

  • Page 81
    ... of $1.3 billion secured borrowings and $9 million of unsecured commercial paper. The weighted-average annual interest rate paid on short-term debt was 3.0% in 2014 and 2.8% in 2013. Long-term debt was as follows: ISSUE January 31, 2015 February 1, 2014 millions SEARS ROEBUCK ACCEPTANCE CORP...

  • Page 82
    ...for general corporate purposes. The Loan was originally scheduled to mature on December 31, 2014. As permitted by the Loan agreement, the Company paid an extension fee equal to 0.5% of the principal amount to extend the maturity date to February 28, 2015. The Loan has an annual base interest rate of...

  • Page 83
    ... range of the applicable base rate plus 1.0% to 1.5%. Commitment fees are in a range of 0.375% to 0.625% based on usage. The Revolving Facility is in place as a funding source for general corporate purposes and is secured by a first lien on most of our domestic inventory and credit card and pharmacy...

  • Page 84
    ... our offer to exchange the Senior Secured Notes held by nonaffiliates for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended. Senior Unsecured Notes On October 20, 2014, the Company announced its board of directors had approved a rights offering...

  • Page 85
    ... risks are managed through Holdings' wholly owned insurance subsidiary, Sears Reinsurance Company Ltd. ("Sears Re"), a Bermuda Class 3 insurer. In accordance with applicable insurance regulations, Sears Re holds marketable securities to support the insurance coverage it provides. Sears has utilized...

  • Page 86
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Trade Creditor Matters We have ongoing discussions concerning our liquidity and financial position with the vendor community and third parties that offer various credit protection services to our vendors. The topics ...

  • Page 87
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) Financial Guarantees We issue various types of guarantees in the normal course of business. We had the following guarantees outstanding at January 31, 2015: millions Bank Issued SRAC Issued Other Total Standby letters of credit...

  • Page 88
    ...in the Consolidated Balance Sheets at cost, which approximates fair value due to the short-term nature of these instruments. The fair value of our long-term debt is disclosed in Note 3 to the Consolidated Financial Statements. The fair value of pension and other postretirement benefit plan assets is...

  • Page 89
    ... dividend received on our cost method investment in Sears Mexico for 2014, 2013 and 2012, respectively. NOTE 7-BENEFIT PLANS We sponsor a number of pension and postretirement benefit plans. We account for our retirement programs in accordance with employers' accounting for defined benefit pension...

  • Page 90
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Expenses for retirement and savings-related benefit plans were as follows: millions 2014 2013 2012 Retirement/401(k) Savings Plans ...Pension plans...Postretirement benefits ...Total...Retirement Savings Plans $ $ ...

  • Page 91
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Pension Plans 2014 millions SHC Domestic SHC Domestic 2013 Sears Canada Total Change in projected benefit obligation: Beginning balance ...$ 4,981 Interest cost ...221 Actuarial (gain) loss ...1,016 (344) Benefits ...

  • Page 92
    ... to pay during fiscal 2015. Weighted-average assumptions used to determine plan obligations were as follows: 2014 SHC Domestic 2013 SHC Domestic Sears Canada 2012 SHC Domestic Sears Canada Pension benefits: Discount Rate ...Rate of compensation increases ...Postretirement benefits: Discount Rate...

  • Page 93
    ...net cost were as follows: 2014 SHC Domestic Sears Canada 2013 SHC Domestic Sears Canada 2012 SHC Domestic 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 94
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) For purposes of determining the periodic expense of our defined benefit plans, we use the fair value of plan assets as the market related value. A one-percentage-point change in the assumed discount rate would have the...

  • Page 95
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) The Sears Canada plans' target allocation is determined by taking into consideration the amounts and timing of projected liabilities, our funding policies and expected returns on various asset classes. At February 1, 2014, the plan...

  • Page 96
    ... 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 97
    ... plan benefits...$ 3,490 $ 274 - - $ - - - - - - 6 6 1,888 99 3 - $ 2,264 $ Sears Canada millions Investment Assets at Fair Value at February 1, 2014 Total Level 1 Level 2 Level 3 Cash equivalents and short-term investments ...$ 107 $ Equity securities: U.S. companies ...152 International...

  • Page 98
    ...backed debt securities are assigned to Level 3 based on the relatively low position in the preferred hierarchy of the pricing source. Valuation of the Plan's non-public limited partnerships requires significant judgment by the general partners due to the absence of quoted market value, inherent lack...

  • Page 99
    ... 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 or restricted stock units on an annual basis. Changes in restricted stock awards and restricted stock units for 2014, 2013 and 2012 were...

  • Page 100
    ... Board of Directors. The common share repurchase program was initially announced in 2005 with a total authorization since inception of the program of $6.5 billion. During 2014, 2013 and 2012, we repurchased no shares of our common stock under our common share repurchase program. At January 31, 2015...

  • Page 101
    ...of prior service cost included in net period pension cost . 126 Pension and postretirement adjustments, net of tax ...(1,037) (2) Deferred loss on derivatives ...Currency translation adjustments ...4 (186) Sears Canada de-consolidation ...Total other comprehensive loss ...$ (1,221) $ 2013 Before Tax...

  • Page 102
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) holder thereof to purchase one share of the Company's common stock at an exercise price of $28.41 per share under the terms of the warrant agreement, which exercise price is payable in cash or by surrendering 8% senior...

  • Page 103
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) NOTE 10-INCOME TAXES millions 2014 2013 2012 Income (loss) before income taxes: U.S...Foreign ...Total ...Income tax expense (benefit): Current: Federal ...State and local...Foreign ...Total current...Deferred: ...

  • Page 104
    ...31, 2015 February 1, 2014 Deferred tax assets and liabilities: Deferred tax assets: Federal benefit for state and foreign taxes ...Accruals and other liabilities ...Capital leases ...NOL carryforwards ...Postretirement benefit plans ...Pension ...Property and equipment ...Deferred revenue ...Credit...

  • Page 105
    ...its business, including all foreign taxes. In connection with the Sears Canada Rights Offering in fiscal 2014, the Company incurred a taxable gain of approximately $107 million on the subscription rights exercised and common shares sold during the fiscal year. There was no income tax payable balance...

  • Page 106
    ... of approximately 45 percent of the Company's common shares in Sears Canada Inc. in 2012, the Company incurred a taxable gain of $367 million. The gain primarily relates to the determination that the fair market value of the common shares distributed to the public shareholders exceeded the tax basis...

  • Page 107
    ... under The Great Indoors format, one Sears Full-line store, and one Kmart store. One of the gains recognized in 2013 was for the surrender and early termination of one lease operated by Sears Canada. We surrendered all of our rights and obligations under our preexisting lease agreement related to...

  • Page 108
    ... 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 109
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Changes in the carrying amount of goodwill by segment during 2013 and 2014 were as follows: millions Sears Domestic Balance, February 2, 2013 and February 1, 2014: Goodwill ...$ 2014 activity: Separation of Lands' End...

  • Page 110
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Store closing costs and severance recorded for 2014, 2013 and 2012 were as follows: Lease Termination Costs(2) Impairment and Accelerated Depreciation(3) Total Store Closing Costs millions Markdowns(1) Severance ...

  • Page 111
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Long-Lived Assets In accordance with accounting standards governing the impairment or disposal of long-lived assets, we performed an impairment test of certain of our long-lived assets (principally the value of ...

  • Page 112
    ... 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 113
    ... interest totaling $80 million in the financial institution's agreements relating to the Company. Sears Canada ESL owns approximately 50% of the outstanding common shares of Sears Canada (based on publicly available information as of November 13, 2014). Lands' End ESL owns approximately 49...

  • Page 114
    ... the Company for 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, human resources, information technology and...

  • Page 115
    ...iv) Service-includes repair, installation and automotive service and extended contract revenue; and (v) Other-includes revenues earned in connection with our agreements with SHO and Lands' End, as well as credit revenues and licensed business revenues. 2014 millions Kmart Sears Domestic Sears Canada...

  • Page 116
    ...to Consolidated Financial Statements-(Continued) 2013 millions Kmart Sears Domestic Sears Canada Sears Holdings Merchandise sales and services: Hardlines...$ 4,037 Apparel and Soft Home ...4,298 Food and Drug ...4,772 Service ...- Other ...87 Total merchandise sales and services ...13,194 Costs and...

  • Page 117
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) NOTE 18-LEGAL PROCEEDINGS We are a defendant in several lawsuits containing class or collective action allegations in which the plaintiffs are current and former hourly and salaried associates who allege violations of ...

  • Page 118
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) 2013 First Quarter Second Quarter Third Quarter Fourth Quarter millions, except per share data Revenues...Cost of sales, buying and occupancy ...Selling and administrative ...Net loss attributable to Holdings' ...

  • Page 119
    ...Notes to Consolidated Financial Statements-(Continued) secured by a security interest in certain assets consisting primarily of domestic inventory and credit card receivables of the guarantor subsidiaries, and consequently may not be available to satisfy the claims of the Company's general creditors...

  • Page 120
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Balance Sheet January 31, 2015 millions Parent Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Consolidated Current assets Cash and cash equivalents ...Intercompany ...

  • Page 121
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Balance Sheet February 1, 2014 millions Parent Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Consolidated Current assets Cash and cash equivalents ...Intercompany ...

  • Page 122
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Statement of Operations For the Year Ended January 31, 2015 NonGuarantor Subsidiaries millions Parent Guarantor Subsidiaries Eliminations Consolidated Merchandise sales and services ...Cost of sales...

  • Page 123
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Statement of Operations For the Year Ended February 1, 2014 millions Parent Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Consolidated Merchandise sales and services ...Cost of sales...

  • Page 124
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Statement of Operations For the Year Ended February 2, 2013 millions Parent Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Consolidated Merchandise sales and services...Cost of sales...

  • Page 125
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Consolidating Statement of Comprehensive Income (Loss) For the Year Ended January 31, 2015 millions Parent Guarantor Subsidiaries NonGuarantor Subsidiaries Eliminations Consolidated Net income (loss) ...Other ...

  • Page 126
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Consolidating Statement of Comprehensive Income (Loss) For the Year Ended February 1, 2014 NonGuarantor Subsidiaries millions Parent Guarantor Subsidiaries Eliminations Consolidated Net income (loss) ...Other ...

  • Page 127
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Consolidating Statement of Comprehensive Income (Loss) For the Year Ended February 2, 2013 NonGuarantor Subsidiaries millions Parent Guarantor Subsidiaries Eliminations Consolidated Net income (loss) ...Other ...

  • Page 128
    ...-term borrowings, primarily 90 days or less ...Lands' End pre-separation funding ...Separation of Lands' End, Inc...Debt issuance costs ...Intercompany dividend...Net borrowing with Affiliates ...Net cash provided by (used in) financing activities ...Effect of exchange rate changes on cash and cash...

  • Page 129
    ... in short-term borrowings, primarily 90 days or less ...Debt issuance costs ...Sears Canada dividend paid to noncontrolling shareholders...Intercompany dividend ...Net borrowing with Affiliates ...Net cash provided by (used in) financing activities...Effect of exchange rate changes on cash and cash...

  • Page 130
    ... 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 cash...

  • Page 131
    Sears Holdings Corporation Schedule II-Valuation and Qualifying Accounts Years 2014, 2013 and 2012 Additions charged to costs and expenses millions Balance at beginning of period (Deductions) Balance at end of period Allowance for Doubtful Accounts(1): 2014 ...2013 ...2012 ...Allowance for ...

  • Page 132
    ... executive and principal financial officers and effected by the Company's 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...

  • Page 133
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was...

  • Page 134
    therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the ...

  • Page 135
    ... over financial reporting. Management's annual report on internal control over financial reporting and the report our independent registered public accounting firm appears in Part II, Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Item 9B. Other Information...

  • Page 136
    ... under the headings "Executive Compensation," "Compensation of Directors," and "Compensation Committee Report" of the 2015 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain...

  • Page 137
    ... contained in Regulation S-X because the information called for is contained in the financial statements and notes thereto. (b) Exhibits An "Exhibit Index" has been filed as part of this Report beginning on Page E-1 and is incorporated herein by this reference. Certain of the agreements incorporated...

  • Page 138
    ... duly authorized. SEARS HOLDINGS CORPORATION By: Name: Title: /S/ ROBERT A. RIECKER Robert A. Riecker Vice President, Controller and Chief Accounting Officer Date: March 17, 2015 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 139
    ...'s Current Report on Form 8K, dated November 21, 2014, filed on November 21, 2014 (File No. 001-36693)). Guarantee executed by Sears, Roebuck and Co. under the Indenture, dated as of May 15, 1995, between Sears Roebuck Acceptance Corp. and JP Morgan Chase Bank (successor to The Chase Manhattan Bank...

  • Page 140
    ...)). Purchase, Sale and Servicing Transfer Agreement, dated as of July 15, 2003, by and among Sears, Roebuck and Co., Sears Financial Holding Corporation, Sears National Bank, Sears Roebuck de Puerto Rico, Inc., Sears Life Holding Corp., SRFG, Inc., Sears Intellectual Property Management Company and...

  • Page 141
    ... to Registrant's Current Report on Form 8-K, dated February 12, 2013, filed on February 19, 2013 (File No. 000-51217)).** Sears Holdings Corporation Annual Incentive Plan (Amended and Restated Effective February 12, 2014) (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on...

  • Page 142
    ... Sears Holdings Corporation Long-Term Incentive Program (incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended May 3, 2014 (File No. 000-51217)).** Form of LTIP Award Agreement. Form of Cash Award - Addendum to Restricted Stock Award...

  • Page 143
    ... 31, 2015, February 1, 2014 and February 2, 2013; and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. _____ * ** (1) Filed herewith A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report...