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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 and Co. ("Sears"). Holdings (together with its subsidiaries, "we," "us," "our," or the "Company")
was formed as a Delaware corporation in 2004 in connection with the merger of Kmart and Sears (the "Merger"), on
March€24, 2005. We are an integrated retailer with 1,672 full-line and specialty retail stores in the United States,
operating through Kmart and Sears. Through the third 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 include all majority-owned subsidiaries in which Holdings exercises
control. Investments in companies in which Holdings exercises significant influence, but which we do not control
(generally 20% to 50% ownership interest), are accounted for under the equity method of accounting. Investments in
companies in which we have less than a 20% ownership interest and do not exercise significant influence are
accounted for at cost. All intercompany transactions and balances have been eliminated.
Separation of Lands' End, Inc.
On April 4, 2014, we completed the separation of our Lands' End business through a spin-off transaction. The
separation was structured to be tax free to our U.S. shareholders for U.S. federal income tax purposes. Prior to the
separation, Lands' End, Inc. ("Lands' End") entered into an asset-based senior secured revolving credit facility,
which provided for maximum borrowings of approximately $175 million with a letter of credit sub-limit, and a
senior secured term loan facility of approximately $515 million. The proceeds of the term loan facility were used to
fund a $500 million dividend to Holdings and pay fees and expenses associated with the foregoing facilities. We
accounted for this spin-off in accordance with accounting standards applicable to spin-off transactions. Accordingly,
we classified the carrying value of net assets of $323 million contributed to Lands' End as a reduction of capital in
excess of par value in the Consolidated Statement of Equity (Deficit) for the year ended January€31, 2015.
Additionally, as a result of Mr. Lampert's role as our Chairman and Chief Executive Officer, and Chairman and
Chief Executive Officer of ESL Investments, Inc. (together with its affiliated fund, "ESL"), and the continuing
arrangements between Holdings and Lands' End (as further described in Note 15), Holdings has determined that it
has significant influence over Lands' End. Accordingly, the operating results for Lands' End through the date of the
spin-off are presented within the consolidated continuing operations of Holdings and the Sears Domestic segment in
the accompanying Consolidated Financial Statements.
In connection with the separation, Holdings and certain of its subsidiaries entered into various agreements with
Lands' End under the terms described in Note 15.
Fiscal Year
Our fiscal year ends on the Saturday closest to January 31 each year. Fiscal years 2015, 2014 and 2013
consisted of 52 weeks. Unless otherwise stated, references to years in this report relate to fiscal years rather than to
calendar years.
Uses and Sources of Liquidity
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. We have incurred
losses and experienced negative operating cash flows for the past several years, accordingly the Company has taken
a number of actions to enhance its financial flexibility and fund its continued transformation, support its operations
and meet its obligations.
During 2015, the Company completed its previously announced rights offering and sale-leaseback transaction
with Seritage Growth Properties and received aggregate gross proceeds from the transaction of $2.7 billion. In
addition, as discussed in Note 3, the Company completed an amendment and extension of its existing domestic
SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements
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