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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
xAnnual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended January€30, 2016
or
oTransition 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€€x
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€€x
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€€x€€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 x 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. x
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€€€x€€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 x
On March€10, 2016, the registrant had 106,767,902 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 $1.2 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€11, 2016 (the "2016 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
    ... 10, 2016, the registrant had 106,767,902 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
    ... of a discount store. There are also seven Sears Auto Centers operating in Kmart stores, offering a variety of professional automotive repair and maintenance services, as well as a full assortment of automotive accessories. Kmart offers a layaway program, which allows members and customers to cost...

  • Page 3
    ..., kitchen remodeling, roofing, carpet and upholstery cleaning, air 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...

  • Page 4
    ... to Consolidated Financial Statements for further information on revenues earned by quarter in 2015 and 2014. 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...

  • Page 5
    ... in relation to our home appliance business, which accounted for approximately 15% of our 2015, 15% of our 2014 and 13% of our 2013 reported revenues. Success in these competitive marketplaces is based on factors such as price, product assortment and quality, service and convenience, including...

  • Page 6
    ... in their pricing policies, marketing activities, new store openings and other business strategies, could have a material adverse effect on our business, financial condition and results of operations. If we fail to offer merchandise and services that our members and customers want, our sales may be...

  • Page 7
    ... under our credit agreements and commercial paper program, asset sales and access to capital markets. The availability of financing depends on numerous factors, including economic and market conditions, our operating performance, our credit ratings, and lenders' assessments of our prospects...

  • Page 8
    ...have taken a number of actions to enhance our financial flexibility and fund our continued transformation, including the amendment and extension or our revolving credit facility, the rights offering and sale-leaseback transaction with Seritage Growth Properties, the senior secured term loan facility...

  • Page 9
    ... manage and execute these initiatives and realize expected savings and benefits in the amounts and at the times anticipated is important to our business success, and any failure to do so, which could result from our inability to successfully execute plans, changes in global or regional economic...

  • Page 10
    ... criminally breached beginning in early September 2014, that the payment data systems at Kmart stores were purposely infected with a new form of malware, and that debit and credit card numbers were potentially compromised. The Company is defending a class-action lawsuit in the Northern District of...

  • Page 11
    ...for any other quarter, and comparable store sales for any particular future period may increase or decrease. For more information on our results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Annual Report on Form 10-K. We...

  • Page 12
    ... require the consent of these affiliates. We may be unable to protect or preserve the image of our brands and our intellectual property rights, which could have a negative impact on our business. We regard our copyrights, service marks, trademarks, trade dress, trade secrets, patents and similar...

  • Page 13
    ...negatively impact our business operations and impair our business strategy. On September 4, 2015, we announced the entry into a term sheet with the Pension Benefit Guaranty Corporation ("PBGC"), concerning a five-year pension plan protection and forbearance agreement with the PBGC. The Company is in...

  • Page 14
    ... and/or intellectual property assets. Also under the proposed agreement, the Relevant Subsidiaries would grant PBGC a springing lien on the ring-fenced assets, which lien would be triggered only by (a) failure to make required contributions to the Company's pension plan (the "Plan"), (b) prohibited...

  • Page 15
    Item 2. Properties The following table summarizes the locations of our Kmart and Sears Domestic stores at January 30, 2016: Kmart Discount Stores & Super Centers Sears Domestic Full-line Mall Stores & Essentials/Grand Stores State / Territory Specialty Stores Alabama...Alaska ...Arizona ......

  • Page 16
    .... We operate numerous 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...

  • Page 17
    ... President, General Counsel and Corporate Secretary President and Chief Member Officer, Sears Senior Vice President, Customer Experience and Integrated Retail President and Chief Member Officer, Kmart Vice President, Controller and Chief Accounting Officer 2013 2013 2011 2015 2014 2015 2013 2014...

  • Page 18
    ... served as Vice President, General Counsel and Secretary of Brunswick Corporation from 2009 to 2014. Ms. Maher joined the Company as President and Chief Member Officer, Sears, in July 2015. Prior to joining the Company, she served as chief operating officer at Gymboree Corporation since 2013. Prior...

  • Page 19
    ... of Equity Securities Holdings' common stock is quoted on The NASDAQ Stock Market under the ticker symbol SHLD. There were 11,185 shareholders of record at March 10, 2016. The quarterly high and low sales prices for Holdings' common stock are set forth below. Fiscal Year 2015 Sears Holdings First...

  • Page 20
    ... date of the distribution of such shares to Holdings' shareholders; (v) subscription rights to purchase shares of common stock of Sears Canada on October 17, 2014, the ex-distribution date of the distribution of such rights to Holdings' shareholders; (vi) subscription rights to purchase up to $625...

  • Page 21
    ... The Amended 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 repurchases, subject to specified...

  • Page 22
    ... tax assets, domestic pension expense of $46 million, store closings and severance of $225 million, mark-to-market losses of $3 million on Sears Canada hedge transactions, gain on the sale of real estate of $20 million, and hurricane losses of $7 million. See "Management's Discussion and Analysis...

  • Page 23
    ... store, at home, online and by phone. Through the third quarter of 2014, we conducted our operations in three business segments: Kmart, Sears Domestic and Sears Canada. As a result of the de-consolidation of Sears Canada as described in Note 2 of Notes to the Consolidated Financial Statements, Sears...

  • Page 24
    ... Holdings' consolidated results of operations for 2015, 2014 and 2013 are summarized as follows: millions, except per share data 2015 2014 2013 REVENUES Merchandise sales and services ...COSTS AND EXPENSES Cost of sales, buying and occupancy ...Gross margin dollars...Gross margin rate ...Selling...

  • Page 25
    ... operating for a period of at least 12 full months, including remodeled and expanded stores, but excluding store relocations and stores that have undergone format changes. Domestic comparable store sales amounts include sales from sears.com and kmart.com shipped directly to customers. These online...

  • Page 26
    ... interests ...Income tax expense (benefit)...Interest expense ...Interest and investment (income) loss ...Other income ...Operating loss ...Depreciation and amortization ...Gain on sales of assets...Before excluded items ...Closed store reserve and severance ...Domestic pension expense ...Other...

  • Page 27
    ... Sears Holdings Kmart 2014 Sears Domestic Sears Canada Sears Holdings Kmart 2013 Sears Domestic Sears Canada Sears Holdings Operating income (loss) per statement of operations ...$ (292) Depreciation and 72 amortization ...(Gain) loss on sales of assets...Before excluded items...Closed store...

  • Page 28
    ... expense amounts reported in our Consolidated Statements of Operations during the years 2015, 2014 and 2013. Year Ended January 30, 2016 Adjustments Domestic Closed Store Reserve, Store Impairments and Severance millions, except per share data GAAP Domestic Pension Expense Trade name Impairment...

  • Page 29
    ...and Sears Canada businesses that were included in our results prior to the separation/disposition. Year Ended February 1, 2014 Adjustments Domestic Closed Store Reserve, Store Impairments and Severance millions, except per share data GAAP Domestic Pension Expense Domestic Gain on Sales of Assets...

  • Page 30
    ...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 to...

  • Page 31
    ...and Results of Operations - Application of Critical Accounting Policies and Estimates Defined Benefit Pension Plans, and Note 7 of Notes to Consolidated Financial Statements. • Closed store reserve and severance - We are transforming our Company to a less asset-intensive business model. Throughout...

  • Page 32
    ... billion in 2014 as the above noted decline in sales was partially offset by an improvement in gross margin rate. Gross margin for 2015 included one-time vendor credits of $146 million, as well as a credit of $52 million related to the amortization of the deferred gain on sale of assets associated...

  • Page 33
    ... to the impairment of long-lived assets. Impairment charges recorded in both years are described further in Notes 1 and 13 of Notes to Consolidated Financial Statements. Gain on Sales of Assets We recorded total gains on sales of assets of $743 million in 2015 and $207 million in 2014, which were...

  • Page 34
    ...& household goods businesses, comparable store sales would have increased 0.8% for the year. Excluding the impact of consumer electronics, Sears Domestic comparable store sales would have decreased 0.5%, reflecting improved performance in the home appliance and mattress categories offset by declines...

  • Page 35
    ... assets as a result of store closings and impairment tests of our long-lived assets. Impairment charges recorded in both years are described further in Note 13 of Notes to Consolidated Financial Statements. Gain on Sales of Assets We recorded total gains on sales of assets of $207 million in 2014...

  • Page 36
    ... than not that such benefits would be realized. The 2014 rate was negatively impacted by a valuation allowance established on Sears Canada's deferred tax assets in the third quarter, prior to de-consolidation, and increased foreign taxes in Puerto Rico resulting from a new tax law change, which...

  • Page 37
    ..., respectively, related to the impairment of long-lived assets. Impairment charges recorded during 2015 and 2014 are further described in Note 13 of Notes to Consolidated Financial Statements. Gain on Sales of Assets Kmart recorded total gains on sales of assets of $185 million and $103 million in...

  • Page 38
    ... declines in the consumer electronics and grocery & household goods categories. Excluding the impact of the consumer electronics and grocery & household goods businesses, comparable store sales would have increased 0.8% for the year. Gross Margin Kmart generated $2.6 billion in gross margin in 2014...

  • Page 39
    ... occurred in the first quarter of 2014, as well as lower revenues from our Home Services business of approximately $110 million. The decline in comparable store sales was driven by reduced, but more highly targeted promotional and marketing spend to better align with member needs and a shift away...

  • Page 40
    ... on sales of assets recorded in both years are described further in Note 11 of Notes to Consolidated Financial Statements. Operating Loss Sears Domestic reported an operating loss of $708 million in 2015 compared to $920 million in 2014. Sears Domestic's operating loss in 2015 included significant...

  • Page 41
    ... operation in 2014, which accounted for $311 million of the decline. Sears Domestic also experienced a revenue decline in its Home Services business in 2014 of $139 million, as well as a decline in revenues from SHO of $119 million. Revenues were also impacted by a decrease in comparable store sales...

  • Page 42
    ... 16, 2014. Sears Canada results and key statistics through the date of de-consolidation were as follows: millions, except number of stores 2014 2013 Merchandise sales and services ...$ Comparable sales % ...Cost of sales, buying and occupancy ...Gross margin dollars...Gross margin rate ...Selling...

  • Page 43
    ... 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 44
    ... shareholders in Sears Canada received dividends of $233 million. For further information, see Note 2 of Notes to Consolidated Financial Statements. During 2015, 2014 and 2013, we did not repurchase any of our common shares under our share repurchase program. The common share repurchase program...

  • Page 45
    ..., in our transition from an asset intensive, historically "store-only" based retailer to a more asset light, integrated membership-focused company. We intend to continue taking significant actions to alter our capital structure, as circumstances allow, to position Sears Holdings for success and...

  • Page 46
    ...market conditions, interest in specific assets, valuations of those assets and our underlying operating performance. Finally, we will continue to consider our overall capital structure and our liquidity position with a goal of creating long-term value and funding our transformation. On March 3, 2016...

  • Page 47
    ... 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 2015, we contributed $299 million to our...

  • Page 48
    ... 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 30, 2016: Bank Issued SRAC Issued millions Other Total Standby letters of credit ...$ 652 Commercial letters...

  • Page 49
    ... 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 50
    ...valuations include the discount rate, expected long-term rate of return on plan assets and mortality rate assumptions. To determine the discount rate used in the development of the benefit obligation and net periodic benefit cost, a cash flow matching analysis of the expected future benefit payments...

  • Page 51
    ...goodwill and intangible asset impairment assessments are further described in Note 1 of Notes to Consolidated Financial Statements. Goodwill Impairment Assessments Our goodwill balance relates to our Home Services business. We did not record any goodwill impairment charges in 2015, 2014 or 2013. The...

  • Page 52
    ...Our accounting policies related to long-lived asset impairment assessments are further described in Note 1 of Notes to Consolidated Financial Statements. As a result of this impairment testing, the Company recorded impairment charges of $94 million, $34 million and $220 million during 2015, 2014 and...

  • Page 53
    ... Company by affiliates of our Chairman and Chief Executive Officer, whose interests may diverge from other stockholders' interests; our ability to protect or preserve the image of our brands; the outcome of pending and/or future legal proceedings, including shareholder litigation, product liability...

  • Page 54
    ... form of interest rate risk. This market risk arises from our debt obligations. Interest Rate Risk We manage interest rate risk through the use of fixed and variable-rate funding. All debt securities are considered non-trading. At January 30, 2016, 60% of our debt portfolio was variable rate. Based...

  • Page 55
    ... ended January 30, 2016, January 31, 2015 and February 1, 2014 ...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...

  • Page 56
    SEARS HOLDINGS CORPORATION Consolidated Statements of Operations millions, except per share data 2015 2014 2013 REVENUES Merchandise sales and services(1)(2) ...$ COSTS AND EXPENSES Cost of sales, buying and occupancy(1)(3) ...Selling and administrative ...Depreciation and amortization ......

  • Page 57
    ... CORPORATION Consolidated Statements of Comprehensive Loss millions 2015 2014 2013 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 58
    SEARS HOLDINGS CORPORATION Consolidated Balance Sheets millions January 30, 2016 January 31, 2015 ASSETS Current assets Cash and cash equivalents ...$ Accounts receivable(1) ...Merchandise inventories ...Prepaid expenses and other current assets ...Total current assets...Property and equipment Land...

  • Page 59
    ... assets ...Other operating liabilities ...Net cash used in operating activities ...CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of property and investments(1) ...Net increase in investments and restricted cash ...Purchases of property and equipment ...De-consolidation of Sears Canada...

  • Page 60
    ... stock purchase ...Sears Canada dividend paid to noncontrolling interests ...Balance at February 1, 2014...Comprehensive loss Net loss ...Pension and postretirement adjustments, net of tax ...Deferred loss on derivatives, net of tax ...Currency translation adjustments, net of tax ...Sears Canada...

  • Page 61
    ... quarter of 2014, we conducted our operations under three reportable segments: Kmart, Sears Domestic and Sears Canada. Following the de-consolidation of Sears Canada discussed in Note 2, we have operated under two reportable segments: Kmart and Sears Domestic. The consolidated financial statements...

  • 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
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) debit card transactions within cash equivalents. The deposits in-transit balances included within cash equivalents were $95 million and $105 million at January 30, 2016 and January 31, 2015, respectively. We ...

  • Page 64
    ...reported on the Consolidated Statements of Operations was $415 million, $563 million and $703 million for the years ended January 30, 2016, January 31, 2015 and February 1, 2014, respectively. Primarily as a result of store closing actions, certain property and equipment are considered held for sale...

  • Page 65
    ... the selected discount rate and compared to the carrying value of the assets. In our quarterly reports on Form 10-Q filed during 2015, the Company disclosed that if its results continued to decline it could result in revisions in management's estimates of the fair value of the Company's trade names...

  • Page 66
    ... 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 67
    ... 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 68
    ... outstanding balance on the line-of-credit arrangement. As permitted, the Company early adopted the update beginning in the fourth quarter of fiscal 2015. The impact of this update was a reclassification of unamortized debt issuance costs from other assets to short-term borrowings and long-term debt...

  • Page 69
    ... quarter of 2017. 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 which...

  • Page 70
    ... 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 rights were...

  • Page 71
    ... commercial paper. The weighted-average annual interest rate paid on short-term debt was 3.5% in 2015 and 3.0% in 2014. Long-term debt was as follows: ISSUE January 30, 2016 January 31, 2015 millions SEARS ROEBUCK ACCEPTANCE CORP. 6.50% to 7.50% Notes, due 2017 to 2043 ...$ Term Loan (Credit...

  • Page 72
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) At January 30, 2016, long-term debt maturities for the next five years and thereafter were as follows: millions 2016 ...$ 2017 ... 71 97 2018 ...1,290 2019 ...640 2020 ...11 Thereafter...327 Total maturities ...2,436...

  • Page 73
    ... January 30, 2016, we had no commercial paper borrowings outstanding, while at January 31, 2015, we had outstanding commercial paper borrowings of $2 million. Secured Short-Term Loan On September 15, 2014, the Company, through Sears, Sears Development Co. and Kmart Corporation ("ShortTerm Borrowers...

  • Page 74
    ..., of which none remains in the domestic pension plan. The Senior Secured Notes are guaranteed by certain subsidiaries of the Company and are secured by a security interest in certain assets consisting primarily of domestic inventory and credit card receivables (the "Collateral"). The lien that...

  • Page 75
    ... of Senior Secured Notes, net of the remaining discount and debt issuance costs, was $0.3 billion and $1.2 billion at January 30, 2016 and January 31, 2015, respectively. Senior Unsecured Notes On October 20, 2014, the Company announced its board of directors had approved a rights offering allowing...

  • Page 76
    ... 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 two securitization structures to issue specific securities in which Sears Re...

  • Page 77
    ... based on the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 inputs - unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. An active market...

  • Page 78
    ... from time to time, investments in, but not limited to, commercial paper, federal, state and municipal government securities, floating-rate notes, repurchase agreements and money market funds. All invested cash amounts are readily available to us. Gain on de-consolidation of Sears Canada During 2014...

  • Page 79
    ...medical plans. Certain Sears retirees are also provided life insurance benefits. To the extent we share the cost of the retiree medical benefits with retirees, such cost sharing is based on years of service and year of retirement. Sears' postretirement benefit plans are not funded. We have the right...

  • Page 80
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Pension Plan 2015 millions SHC Domestic 2014 SHC Domestic Change in projected benefit obligation: Beginning balance ...Interest cost ...Actuarial (gain) loss ...Benefits paid...Other...Balance at the measurement date ...

  • Page 81
    ... benefit cost were as follows: 2015 millions SHC Domestic SHC Domestic 2014 Sears Canada Total SHC Domestic 2013 Sears Canada Total Pension benefits: Interest cost...Expected return on plan assets ...Recognized net loss and other ...Net periodic benefit cost...Postretirement benefits: Interest cost...

  • Page 82
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Weighted-average assumptions used to determine net cost were as follows: 2015 SHC Domestic 2014 SHC Domestic Sears Canada 2013 SHC Domestic Sears Canada Pension benefits: Discount Rate ...Return of plan assets ...Rate...

  • Page 83
    ... 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 2015, we contributed $299 million to our...

  • Page 84
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Fair Value of Pension and Postretirement Benefit Plan Assets The following table presents our plan assets using the fair value hierarchy at January 30, 2016 and January 31, 2015: Investment Assets at Fair Value at ...

  • Page 85
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Equity securities, which include common and preferred stocks, are actively traded and valued at the closing price reported in the active market in which the security is traded and are assigned to Level 1. Common ...

  • Page 86
    ...CORPORATION Notes to Consolidated Financial Statements-(Continued) NOTE 9-EQUITY Stock-based Compensation We account for stock-based compensation using the fair value method in accordance with accounting standards regarding share-based payment transactions. We do not currently have an employee stock...

  • Page 87
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Accumulated Other Comprehensive Loss The following table displays the components of accumulated other comprehensive loss: January 30, 2016 January 31, 2015 February 1, 2014 millions Pension and postretirement ...

  • Page 88
    ... of net periodic benefit expense. See Note 7 to the Consolidated Financial Statements. Issuance of Warrants to Purchase Common Stock On November 21, 2014, the Company issued an aggregate of approximately 22 million warrants pursuant to the exercise of rights in the rights offering for $625...

  • Page 89
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) NOTE 10-INCOME TAXES millions 2015 2014 2013 Income (loss) before income taxes: U.S...Foreign ...Total ...Income tax expense (benefit): Current: Federal ...State and local...Foreign ...Total current...Deferred: ...

  • Page 90
    ......NOL carryforwards ...Postretirement benefit plans ...Pension ...Property and equipment ...Deferred income ...Credit carryforwards ...Other...Total deferred tax assets ...Valuation allowance...Net deferred tax assets ...Deferred tax liabilities: Trade names/Intangibles...Inventory ...Other...Total...

  • Page 91
    ... was de-recognized in the third quarter of 2014 as part of the Sears Canada de-consolidation. At January 30, 2016 and January 31, 2015, we had a valuation allowance of $4.8 billion and $4.5 billion, respectively, to record only the portion of the deferred tax asset that more likely than not will...

  • Page 92
    ... 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 resulting from...

  • Page 93
    ... operates stores (the "JV properties"), in exchange for a 50% interest in the JVs and $429 million in cash ($426 million, net of closing costs) (the "JV transactions"). The JV transactions valued the JV properties at $858 million in the aggregate. On July 7, 2015, Holdings completed its rights...

  • Page 94
    ...quarter of 2015, Holdings recognized an immediate net gain of $508 million within gain on sales of assets on the Consolidated Statement of Operations for 2015, comprised of a gain for the amount of gain on sale in excess of the present value of minimum lease payments, offset by a loss for properties...

  • Page 95
    ...in the sale-leaseback financing obligation from $426 million at May 2, 2015 to $164 million at January 30, 2016 represents a noncash change. We continued to report the real property assets of $56 million at January 30, 2016 on our Consolidated Balance Sheets, which are included in our Sears Domestic...

  • Page 96
    ...: Favorable lease rights...Contractual arrangements and customer lists...Non-amortizing intangible assets: Trade names ...Total ...Annual Amortization Expense $ 155 96 251 $ 57 96 153 - 153 $ 158 96 254 $ 54 94 148 - 148 1,811 $ 2,062 $ 1,991 $ 2,245 $ 2015 ...$ 7 2014 ...18 2013 ...28...

  • Page 97
    ... Sears Domestic and included within impairment charges on our Consolidated Statements of Operations. We did not record any goodwill or indefinite-lived intangible asset impairment in 2014 or 2013. NOTE 13-STORE CLOSING CHARGES, SEVERANCE COSTS AND IMPAIRMENTS Store Closings and Severance During 2015...

  • Page 98
    ... on the Consolidated Statements of Operations. Store closing cost accruals of $180 million, $207 million and $199 million at January 30, 2016, January 31, 2015 and February 1, 2014, respectively, were as follows: Severance Costs Lease Termination Costs Other Charges millions Total Balance at...

  • Page 99
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Impairment of Long-Lived Assets As described in the "Summary of Significant Accounting Policies" in Note 1, we performed impairment tests of certain of our long-lived assets during 2015, 2014 and 2013 (principally the ...

  • Page 100
    ... Board of Directors. Mr. Berkowitz serves as the Chief Investment Officer of Fairholme Capital Management, LLC, an investment adviser registered with the U.S. Securities and Exchange Commission ("SEC"), and is the President and a Director of Fairholme Funds, Inc., a SEC-registered investment company...

  • Page 101
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) During 2015, Fairholme and its affiliates held unsecured commercial paper issued by SRAC. For the commercial paper outstanding to Fairholme, the weighted average of each maturity, annual interest rate, and principal ...

  • Page 102
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) tax services, logistics services, auditing and compliance services, inventory management services, information technology services and continued participation in certain contracts shared with Holdings and its ...

  • Page 103
    ... pursuant to the sale and leaseback of properties from Seritage of $35 million for 2015. In addition to base rent under the Master Lease, Holdings pays monthly installment expenses for property taxes and insurance at all REIT properties where Holdings is a tenant and installment expenses for common...

  • Page 104
    ... the sale of merchandise and related services to customers, primarily in the United States and Canada. The merchandise and service categories are as follows: (i) (ii) Hardlines-consists of home appliances, consumer electronics, lawn & garden, tools & hardware, automotive parts, household goods, toys...

  • Page 105
    ...to Consolidated Financial Statements-(Continued) 2014 millions Kmart Sears Domestic Sears Canada Sears Holdings Merchandise sales and services: Hardlines...Apparel and Soft Home ...Food and Drug ...Service ...Other ...Total merchandise sales and services ...Costs and expenses: Cost of sales, buying...

  • Page 106
    ... penalties. In May and June of 2015, four shareholder lawsuits were filed in the Delaware Chancery Court, which have since been consolidated into a single action. A consolidated complaint has been filed, naming Holdings, the members of our Board of Directors, ESL Investments, Inc., Seritage, our CEO...

  • Page 107
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) NOTE 19-QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 2015 First Quarter Second Quarter Third Quarter Fourth Quarter millions, except per share data Revenues...Cost of sales, buying and occupancy ...Selling and ...

  • Page 108
    ... Sears Canada pursuant to a rights offering transaction. The following condensed consolidated financial statements had total assets and liabilities of approximately $2.2 billion and $1.3 billion, respectively, at February 1, 2014, attributable to Sears Canada. Merchandise sales and services...

  • Page 109
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Balance Sheet January 30, 2016 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Current assets Cash and cash equivalents ...Intercompany ...

  • Page 110
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Balance Sheet January 31, 2015 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Current assets Cash and cash equivalents ...Intercompany ...

  • Page 111
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Statement of Operations For the Year Ended January 30, 2016 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Merchandise sales and services ...$ Cost of sales...

  • Page 112
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Statement of Operations For the Year Ended January 31, 2015 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Merchandise sales and services ...$ Cost of sales...

  • Page 113
    ... CORPORATION Notes to Consolidated Financial Statements-(Continued) Condensed Consolidating Statement of Operations For the Year Ended February 1, 2014 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Merchandise sales and services...$ Cost of sales...

  • Page 114
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Consolidating Statement of Comprehensive Income (Loss) For the Year Ended January 30, 2016 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Net income (loss) ...$ (1,128...

  • Page 115
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Consolidating Statement of Comprehensive Income (Loss) For the Year Ended January 31, 2015 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Net income (loss)...$ (1,810)...

  • Page 116
    SEARS HOLDINGS CORPORATION Notes to Consolidated Financial Statements-(Continued) Consolidating Statement of Comprehensive Income (Loss) For the Year Ended February 1, 2014 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Net income (loss) ...$ (1,116...

  • Page 117
    ... January 30, 2016 Guarantor Subsidiaries NonGuarantor Subsidiaries millions Parent Eliminations Consolidated Net cash provided by (used in) operating activities ...Proceeds from sales of property and investments Purchases of property and equipment ...Net investing with Affiliates ...Net cash...

  • Page 118
    ... Net cash provided by (used in) operating activities...Proceeds from sales of property and investments . Purchases of property and equipment ...Sears Canada de-consolidation ...Proceeds from Sears Canada rights offering ...Net investing with Affiliates ...Net cash provided by (used in) investing...

  • Page 119
    ..., 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 equivalents...NET INCREASE...

  • Page 120
    ... II-Valuation and Qualifying Accounts Years 2015, 2014 and 2013 Balance at beginning of period Additions charged to costs and expenses millions (Deductions) Balance at end of period Allowance for Doubtful Accounts(1): 2015 ...2014 ...2013 ...Allowance for Deferred Tax Assets(2): 2015 ...2014...

  • Page 121
    ... 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 122
    ...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 January 30, 2016 and January 31, 2015, and the related consolidated statements...

  • Page 123
    therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the ...

  • Page 124
    ... 9A. Controls and Procedures Our management, with the participation of our principal executive and financial officers, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of...

  • Page 125
    ... "Executive Compensation," "Compensation of Directors," and "Compensation Committee Report" of the 2016 Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security...

  • Page 126
    ...-K are listed under Item 8. 2. Financial Statement Schedule The financial statement schedule filed as part of this Annual Report on 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...

  • Page 127
    ... duly authorized. SEARS HOLDINGS CORPORATION By: Name: Title: /S/ ROBERT A. RIECKER Robert A. Riecker Vice President, Controller and Chief Accounting Officer Date: March 16, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 128
    ... request, the instruments defining the rights of holders of each issue of long-term debt of Registrant and its consolidated subsidiaries. Indenture, dated as of October 12, 2010, among Sears Holdings Corporation, the guarantors party thereto and Wells Fargo Bank, National Association, as Trustee and...

  • Page 129
    ...., 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 Citicorp (incorporated by reference to Exhibit 10.1 to Sears, Roebuck and Co.'s Current Report on Form 8-K, dated...

  • Page 130
    ... under Sears Holdings Corporation Annual Incentive Plan (incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form10-Q for the fiscal quarter ended May 2, 2015 (File No. 001-36693)).** 2013 Additional Definitions under Sears Holdings Corporation Long-Term Incentive Program...

  • Page 131
    ...filed on November 7, 2014 (File No. 001-36693)).** Form of Cash Right - Addendum to Restricted Stock Award(s) and Restricted Stock Unit Awards (Seritage Make-Whole).** Form of Executive Severance Agreement (incorporated by reference to Exhibit 10.29 to Registrant's Annual Report on Form 10-K for the...

  • Page 132
    ... Act of 2002. The following financial information from the Annual Report on Form 10-K for the fiscal year ended January 30, 2016, formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Statements of Operations for the fiscal years ended...