10-K 1 shld201210k.htm FORM 10-K SHLD201210K

 
United States
Securities and Exchange Commission
Washington, D.C. 20549
 
 
 
 
 
FORM 10-K
 
 
 
 
 
x
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended February 2, 2013
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 000-51217
 
 
 
 
 
SEARS HOLDINGS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
 
 
 
Delaware
 
20-1920798
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
3333 Beverly Road, Hoffman Estates, Illinois
 
60179
(Address of principal executive offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (847) 286-2500
 
 
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of Each Exchange on Which Registered
Common Shares, par value $0.01 per share
 
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act:
None
 
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  x  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  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 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 2, 2013, the registrant had 106,386,171 common shares outstanding. The aggregate market value (based on the closing price of the Registrant's common shares for stocks quoted on the NASDAQ Global Select Market) of the Registrant's common shares owned by non-affiliates (which are assumed, solely for the purpose of this calculation, to be stockholders other than (i) directors and executive officers of the Registrant and (ii) any person known by the Registrant to beneficially own five percent or more of the Registrant's common shares), as of the last business day of the Registrant's most recently completed second fiscal quarter, was approximately $1.1 billion.
Documents Incorporated By Reference
Part III of this Form 10-K incorporates by reference certain information from the Registrant’s definitive proxy statement relating to our Annual Meeting of Stockholders to be held on May 1, 2013 (the “2013 Proxy Statement”), which will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Form 10-K relates.
 



PART I
Item  1.
Business
General
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 significant physical and intangible assets, as well as virtual capabilities enabled through technology. We currently operate a national network of stores with 2,019 full-line and 54 specialty retail stores in the United States operating through Kmart and Sears and 475 full-line and specialty retail stores in Canada operating through Sears Canada Inc. (“Sears Canada”), a 51%-owned subsidiary. Further, we operate a number of websites under the sears.com and kmart.com banners which offer more than 60 million products and provide the capability for our customers to engage in cross-channel transactions such as buy online/pick-up in store; buy in store/ship to home; and buy online, return in store. We are also the home of SHOP YOUR WAY™, a social shopping experience where Members have the ability to earn points, receive additional benefits and interact/shop with each other through shopyourway.com. The Company is the leading home appliance retailer as well as a leader in tools, lawn and garden, fitness equipment and automotive repair and maintenance. Key proprietary brands include Kenmore®, Craftsman® and DieHard®. We also maintain a broad apparel offering including such well-known labels as Lands' End®, the Kardashian Kollection, Jaclyn Smith, Joe Boxer, Sandra Lee and Levi's, as well as Sofia by Sofia Vergara and the Country Living Home Collection. We are the nation's largest provider of home services, with more than 14 million service calls made annually.
The retail industry is changing rapidly. The progression of the Internet, mobile technology, social networking and social media is fundamentally reshaping the way we interact with our core customers and members. As a result, we are transitioning to a Membership company. Our focus continues to be on our core customers, our Members, and finding ways to provide them value and convenience through Integrated Retail and our SHOP YOUR WAY Membership platform. We have invested significantly in our online ecommerce platforms, our Membership rewards program and the technology needed to support these initiatives.
Business Segments
During 2012, we operated three reportable segments: Kmart, Sears Domestic and Sears Canada. Financial information, including revenues, operating income (loss), total assets and capital expenditures for each of these business segments is contained in Note 17 of Notes to Consolidated Financial Statements. Information regarding the components of revenue for Holdings is included in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” as well as Note 17.
Kmart     
At February 2, 2013, the Company operated a total of 1,221 Kmart stores across 49 states, Guam, Puerto Rico, and the U.S. Virgin Islands. This store count consists of 1,196 discount stores, averaging 94,000 square feet, and 25 Super Centers, averaging 168,000 square feet. Most Kmart stores are one-floor, free-standing units that carry a wide array of products across many merchandise categories, including consumer electronics, seasonal merchandise, outdoor living, toys, lawn and garden equipment, food and consumables and apparel, including products sold under such well-known labels as Jaclyn Smith and Joe Boxer, and certain proprietary Sears brand products (such as Kenmore, Craftsman, and DieHard) and services. We also offer an assortment of major appliances, including Kenmore-branded products, in virtually all of our locations. There are 896 Kmart stores that also operate in-store pharmacies. The Super Centers generally operate 24 hours a day and combine a full-service grocery along with the merchandise selection of a discount store. There are also 21 Sears Auto Centers operating in Kmart stores. Sears Auto Centers offer a variety of professional automotive repair and maintenance services, as well as a full assortment of automotive accessories. Kmart continues to offer its layaway program, which allows customers to cost-effectively finance their purchases both in-store and online. In addition, we have expanded the ways our customers can receive their purchases, allowing our customers to buy online and pick up in store. This service, powered by MyGofer, is now available in over 956 Kmart stores via either mygofer.com or kmart.com. Kmart also sells its products through

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its kmart.com website and provides customers the option of buying through a mobile app or online and picking up their merchandise in one of our Kmart stores.
Sears Domestic
At February 2, 2013, Sears Domestic operations consisted of the following:
Full-line Stores—798 stores, of which 788 are Full-line stores located across all 50 states and Puerto Rico. These stores are primarily mall-based locations averaging 136,000 square feet. Full-line stores offer a wide array of products and service offerings across many merchandise categories, including appliances, consumer electronics, tools, sporting goods, outdoor living, lawn and garden equipment, certain automotive services and products, such as tires and batteries, home fashion products, as well as apparel, footwear, jewelry and accessories for the whole family. Our product offerings include our proprietary Kenmore, Craftsman, DieHard, Lands' End, Covington, Apostrophe, and Canyon River Blues brand merchandise. In addition, at February 2, 2013, we operated 10 Sears Essentials/Grand stores located in 10 states. In 2012, we converted eight Sears Essentials/Grand stores to Kmart stores. These stores are primarily free-standing units averaging 157,000 square feet, offering health and beauty products, pantry goods, household products and toys in addition to the offerings of the typical mall-based store. We also have 714 Sears Auto Centers operating in association with Full-line stores and eight Sears Auto Centers operating out of Sears Essentials/Grand stores. In addition, there are 36 free standing Sears Auto Centers that operate independently of Full-line stores. Sears also extends the availability of its product selection through the use of its sears.com website, which offers an assortment of home, apparel and accessory merchandise and provides customers the option of buying through a mobile app or online and picking up their merchandise in one of our Full-line stores.
Specialty Stores—54 specialty stores (primarily consisting of the 36 free standing Sears Auto Centers noted above and 14 Lands' End retail stores noted below) located in free-standing, off-mall locations or high-traffic neighborhood shopping centers.
Lands' End—Lands' End, Inc. (“Lands' End”) is a leading direct merchant of traditionally styled casual clothing, accessories and footwear for men, women and children, as well as home products and soft luggage. These products are offered through multiple selling channels including landsend.com, one of the leading apparel websites, as well as catalog mailings, and international businesses. Lands' End has 14 retail stores, averaging 8,600 square feet, which offer Lands' End merchandise primarily from catalog and Internet channel overstocks. In addition, Lands' End has 280 “store within a store” departments primarily inside Sears Domestic Full-line locations.
Commercial Sales—We sell Sears merchandise, parts, and services to commercial customers through our business-to-business Sears Commercial Sales and Appliance Builder/Distributor businesses.
Sears Commercial Sales provides appliances and services to commercial customers in the single-family residential construction/remodel, property management, multi-family new construction, and government/military sectors.
Our Appliance Builder/Distributor business offers premium appliance and plumbing fixtures to architects, designers, and new construction or remodeling customers, and is currently operating in nine markets with 17 facilities.
Home Services—Product Repair Services, the nation's largest product repair service provider, is a key element in our active relationship with more than 43 million households. With almost 8,000 service technicians making over 14 million service and installation calls annually, this business delivers a broad range of retail-related residential and commercial services across all 50 states, Puerto Rico, Guam and the Virgin Islands under either the Sears Parts & Repair Services or A&E Factory Service brand names. Commercial and residential customers can obtain parts and repair services for all major brands of products within the appliances, lawn and garden equipment, consumer electronics, floor care products, and heating and cooling systems categories. We also provide repair parts with supporting instructions for “do-it-yourself” customers through our searspartsdirect.com website. This business also offers protection agreements, product installation services and Kenmore and Carrier brand residential heating

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and cooling systems. Home Services also includes home improvement services (primarily siding, windows, cabinet refacing, 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
Sears Canada, a consolidated, 51%-owned subsidiary of Sears, conducts retail operations in Canada similar to those conducted by Sears Domestic, with a greater emphasis on apparel and other softlines than in the U.S. stores.
At February 2, 2013, Sears Canada operated a total of 118 full-line stores, 357 specialty stores (including 48 furniture and appliance stores, 261 dealer stores operated under independent local ownership, four appliance and mattress stores, 33 Corbeil stores, and 11 outlet stores), nine home services showrooms, 1,512 catalog pick-up locations and 101 travel offices. Sears Canada also sells its products through its sears.ca website.
Separation of Sears Hometown and Outlet Businesses
On October 11, 2012, we completed the separation of our Sears Hometown and Outlet businesses through a rights offering transaction. Holdings received gross proceeds of $446.5 million with respect to the transaction, consisting of $346.5 million for the sale of Sears Hometown and Outlet Stores, Inc. ("SHO") common shares and $100 million through a dividend from SHO prior to the separation. Prior to the separation, SHO entered into an asset-based senior secured revolving credit facility with a group of financial institutions to provide (subject to availability under a borrowing base) for aggregate maximum borrowings of $250 million. Borrowings of $100 million from this revolving credit facility were used to fund the dividend paid to Holdings. We accounted for this separation in accordance with accounting standards applicable to common control transactions as ESL Investments, Inc. (together with its affiliated funds, "ESL") is a majority shareholder of Holdings and became a majority shareholder of SHO as a result of exercising subscription rights pursuant to the rights offering. Accordingly, we classified the difference between the proceeds received and the carrying value of net assets contributed to SHO as a reduction of capital in excess of par value in the Consolidated Statement of Equity for the period ended February 2, 2013.
In connection with the separation, Holdings and certain of its subsidiaries entered into various agreements with SHO under the terms described in Note 15. Because of the various agreements with SHO, the Company has determined that it has significant continuing cash flows with SHO. Accordingly, the operating results for SHO through the date of the separation are presented within the consolidated continuing operations of Holdings and the Sears Domestic segment in the accompanying Consolidated Financial Statements. See Note 15 of Notes to Consolidated Financial Statements for further information related to the agreements with SHO.
Partial Spin-Off of Interest in Sears Canada
On November 13, 2012, we completed a partial spin-off (the “spin-off”) of our interest in Sears Canada. Prior to the spin-off, Holdings beneficially owned approximately 96% of the issued and outstanding common shares of Sears Canada. In connection with the spin-off, we distributed approximately 45 million common shares of Sears Canada held by Holdings on a pro rata basis to holders of Holdings' common stock. Following the spin-off, Holdings was the beneficial holder of approximately 51% of the issued and outstanding common shares of Sears Canada, and as such, Holdings has maintained control of Sears Canada and will continue to consolidate the results of Sears Canada. We accounted for the spin-off as an equity transaction in accordance with accounting standards applicable to noncontrolling interests. Accordingly, we reclassified a portion of our ownership interest in Sears Canada and accumulated other comprehensive loss to noncontrolling interest in the Consolidated Statement of Equity at February 2, 2013.
At February 2, 2013, January 28, 2012 and January 29, 2011, Holdings was the beneficial holder of approximately 52 million, or 51%, 97 million, or 95%, and 97 million, or 92%, respectively, of the common shares of Sears Canada.

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Acquisition of Noncontrolling Interest
During the first quarter of 2010, we acquired approximately 19 million additional common shares of Sears Canada. We paid a total of $560 million for the additional shares and accounted for the acquisition of additional interest in Sears Canada as an equity transaction in accordance with accounting standards applicable to noncontrolling interests. Accordingly, we reclassified an accumulated other comprehensive loss from noncontrolling interest to controlling interest in the Consolidated Statement of Equity for the period ended January 29, 2011.
Spin-Off of Orchard Supply Hardware Stores Corporation
On December 30, 2011, we completed the spin-off to our shareholders of all the capital stock of Orchard Supply Hardware Stores Corporation (“Orchard”) that was owned by Holdings immediately prior to the spin-off, consisting of common stock that represented approximately 80% of the voting power of Orchard's outstanding capital stock and preferred stock that represented 100% of Orchard's outstanding nonvoting capital stock. In connection with the spin-off, Holdings and certain of its subsidiaries entered into various agreements with Orchard, including a distribution agreement, a transition services agreement, an appliance sale and consignment agreement and brand license agreements. In addition, certain tax matters between Holdings and Orchard are governed by a tax sharing agreement entered into in 2005.
Real Estate Transactions
In the normal course of business, we consider opportunities to purchase leased operating properties, as well as offers to sell owned, or assign leased, operating and non-operating properties. These transactions may, individually or in the aggregate, result in material proceeds or outlays of cash. In addition, we review leases that will expire in the short term in order to determine the appropriate action to take with respect to them.
Further information concerning our real estate transactions is contained 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 merchandise under a number of brand names that are important to our operations. Our KENMORE®, CRAFTSMAN®, DIEHARD® and LANDS' END® brands are among the most recognized proprietary brands in retailing. These marks are the subject of numerous United States and foreign trademark registrations. Other well recognized Company trademarks and service marks include CANYON RIVER BLUES®, COVINGTON®, SHOP YOUR WAY™, SMART SENSE®, STRUCTURE®, THOM MCAN® and TOUGHSKINS®, which also are registered or are the subject of pending registration applications in the United States. Generally, our rights in our trade names and marks continue so long as we use them.
Seasonality
The retail business is seasonal in nature, and we generate a high proportion of our revenues, operating income and operating cash flows during the fourth quarter of our year, which includes the holiday season. As a result, our overall profitability is heavily impacted by our fourth quarter operating results. Additionally, in preparation for the fourth quarter holiday season, we significantly increase our merchandise inventory levels, which are financed from operating cash flows, credit terms received from vendors and borrowings under our domestic credit agreement (described in the “Uses and Sources of Liquidity” section below). Fourth quarter reported revenues accounted for 30% of total reported revenues in each of the years 2012, 2011 and 2010. See Note 19 to our Consolidated Financial Statements for further information on revenues earned by quarter in 2012 and 2011.
Competition
Our business is subject to highly competitive conditions. We compete with a wide variety of retailers, including other department stores, discounters, home improvement stores, consumer electronics dealers, auto service providers, specialty retailers, wholesale clubs, as well as many other retailers operating on a national, regional or

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local level in the U.S. and Canada. Online and catalog businesses, which handle similar lines of merchandise, also compete with us. Walmart, Target, Kohl's, J.C. Penney, Macy's, The Home Depot, Lowe's, Best Buy and Amazon are some of the national retailers and businesses with which we compete. The Home Depot and Lowe's are major competitors in relation to our home appliance business, which accounted for approximately 15% of our 2012 and 16% of our 2011 and 2010 reported revenues. Sears Canada competes in Canada with Hudson's Bay Company, other Canadian-based store and online retailers, as well as certain U.S.-based competitors, including some of those mentioned above, that are expanding into Canada. Success in these competitive marketplaces is based on factors such as price, product assortment and quality, service and convenience, including availability of retail-related services such as access to credit, product delivery, repair and installation. Additionally, we are influenced by a number of factors including, but not limited to, the cost of goods, consumer debt availability and buying patterns, economic conditions, customer preferences, inflation, currency exchange fluctuations, weather patterns, and catastrophic events. Item 1A in this report on Form 10-K contains further information regarding risks to our business.
Employees
At February 2, 2013, subsidiaries of Holdings had approximately 246,000 employees in the United States and U.S. territories, and approximately 28,000 employees in Canada through Sears Canada. These employee counts include part-time employees.
 Our Website; Availability of SEC Reports and Other Information
Our corporate website is located at searsholdings.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports are available, free of charge, through the “SEC Filings” portion of the Investor Information section of our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).
The Corporate Governance Guidelines of our Board of Directors, the charters of the Audit, Compensation, Finance and Nominating and Corporate Governance Committees of the Board of Directors, our Code of Conduct and the Board of Directors Code of Conduct are available in the Corporate Governance section of searsholdings.com. References to our website address do not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document.
Item  1A.
Risk Factors
Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect our business, results of operations and financial condition.
If we fail to offer merchandise and services that our customers want, our sales may be limited, which would reduce our revenues and profits.
In order for our business to be successful, we must identify, obtain supplies of, and offer to our customers, attractive, innovative and high-quality merchandise on a continuous basis. Our products and services must satisfy the desires of our customers, whose preferences may change in the future. If we misjudge either the demand for products and services we sell or our customers' purchasing habits and tastes, we may be faced with excess inventories of some products and missed opportunities for products and services we chose not to offer. In addition, our sales may decline or we may be required to sell the merchandise we have obtained at lower prices. This would have a negative effect on our business and results of operations.
Our integrated retail strategy is based on a number of initiatives, including our SHOP YOUR WAY program, that depend on our ability to respond quickly to ongoing technology developments and implement new ways to understand and rely on the data to interact with our members and customers in order to achieve expected benefits.

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If we do not successfully manage our inventory levels, our operating results will be adversely affected.
We must maintain sufficient inventory levels to operate our business successfully. However, we also must guard against accumulating excess inventory as we seek to minimize out-of-stock levels across all product categories and to maintain in-stock levels. In addition, we have plans to reduce peak domestic inventory in fiscal year 2013 by $500 million from $8.6 billion at the end of the third quarter of fiscal year 2012. We obtain a significant portion of our inventory from vendors located outside the United States. Some of these vendors often require lengthy advance notice of our requirements in order to be able to supply products in the quantities we request. This usually requires us to order merchandise, and enter into purchase order contracts for the purchase and manufacture of such merchandise, well in advance of the time these products will be offered for sale. As a result, we may experience difficulty in responding to a changing retail environment, which makes us vulnerable to changes in price. If we do not accurately anticipate the future demand for a particular product or the time it will take to obtain new inventory, our inventory levels will not be appropriate and our results of operations may be negatively impacted.
If we are unable to compete effectively in the highly competitive retail industry, our business and results of operations could be materially adversely affected.
The retail industry is highly competitive with few barriers to entry. We compete with a wide variety of retailers, including other department stores, discounters, home improvement stores, appliances and consumer electronics retailers, auto service providers, specialty retailers, wholesale clubs and many other competitors operating on a national, regional or local level in the U.S. and Canada. Some of our competitors are actively engaged in new store expansion. Online and catalog businesses, which handle similar lines of merchandise, and some of which are not required to collect sales taxes on purchases made by their customers, also compete with us. In this competitive marketplace, success is based on factors such as price, product assortment and quality, service and convenience.
Our success depends on our ability to differentiate ourselves from our competitors with respect to shopping convenience, a quality assortment of available merchandise and superior customer service. We must also successfully respond to our 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 and results of operations.
Our business has been and will continue to be affected by worldwide economic conditions; a failure of the economy to sustain its recovery, a renewed decline in consumer-spending levels and other conditions, including inflation and changing prices of energy, could lead to reduced revenues and gross margins, and negatively impact our liquidity.
Many economic and other factors are outside of our control, including consumer and commercial credit availability, consumer confidence and spending levels, including the impact of payroll tax increases on U.S. consumers, inflation, employment levels, housing sales and remodels, consumer debt levels, fuel costs and other challenges currently affecting the global economy, the full impact of which on our business, results of operations and financial condition cannot be predicted with certainty. These economic conditions adversely affect the disposable income levels of, and the credit available to, our customers, which could lead to reduced demand for our merchandise. Changing fuel and energy costs may have a significant impact on our operations. We require significant quantities of fuel for the vehicles used by technicians in our home services business and we are exposed to the risk associated with variations in the market price for petroleum products. We could experience a disruption in energy supplies, including our supply of gasoline, as a result of factors that are beyond our control, which could have an adverse effect on our business. Certain of our vendors also could experience increases in the cost of various raw materials, such as cotton, oil-related materials, steel and rubber, which could result in increases in the prices that we pay for merchandise, particularly apparel, appliances and tires. The domestic and international political situation also affects consumer confidence. The threat, outbreak or escalation of terrorism, military conflicts or other hostilities could lead to a decrease in consumer spending. Any of these events and factors could cause us to increase inventory markdowns and promotional expenses, thereby reducing our gross margins and operating results.

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The lack of willingness of our vendors to provide acceptable payment terms could negatively impact our liquidity and/or reduce the availability of products or services we seek to procure.
We depend on our vendors to provide us with financing on our purchases of inventory and services. Our vendors could seek to limit the availability of vendor credit to us or other terms under which they sell to us, or both, which could negatively impact our liquidity. In addition, the inability of vendors to access liquidity, or the insolvency of vendors, could lead to their failure to deliver inventory or other services. Certain of our vendors finance their operations and/or reduce the risk associated with collecting accounts receivable from us by selling or “factoring” the receivables or by purchasing credit insurance or other forms of protection from loss associated with our credit risks. The ability of our vendors to do so is subject to the perceived credit quality of the Company. Such vendors could be limited in their ability to factor receivables or obtain credit protection in the future because of our perceived financial position and creditworthiness, which could reduce the availability of products or services we seek to procure.
Certain factors, including changes in market conditions and our credit ratings, may limit our access to capital markets and other financing sources and materially increase our borrowing costs.
In addition to credit terms from vendors, our liquidity needs are funded by our operating cash flows and, to the extent necessary, borrowings under our credit agreements and commercial paper program 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 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 the accordion feature of our domestic revolving credit facility and possible second lien indebtedness that is permitted under the domestic revolving credit facility. Rating agencies revise their ratings for the companies that they follow from time to time and our ratings may be revised or withdrawn in their entirety at any time.
While the Company's domestic revolving credit facility currently provides for up to $3.275 billion of lender commitments, our ability to borrow funds under this facility is limited by a borrowing base determined relative to the value, from time to time, of eligible inventory, accounts receivable and certain other assets. If, through asset sales or other means, the value of these eligible assets is not sufficient to support borrowings of up to the full amount of the commitments under this facility, we will not have full access to the facility, but rather could have access to a lesser amount determined by the borrowing base.
The lenders under our credit facilities may not be able to meet their commitments if they experience shortages of capital and liquidity and there can be no assurance that our ability to otherwise access the credit markets will not be adversely affected by changes in the financial markets and the global economy.
We cannot predict whether our plans to generate liquidity, reduce inventory and reduce fixed costs will be successful.
We have plans to generate at least $500 million of additional liquidity over the next 12 months, reduce peak domestic inventory in fiscal year 2013 by $500 million from $8.6 billion at the end of the third quarter of fiscal year 2012 and reduce our fixed cost base by $200 million during fiscal year 2013. The achievement of these objectives is subject to risks and uncertainties with respect to market conditions and other factors that may cause our actual results, performance or achievements to be materially different from our plans, and there can be no assurance that transactions to monetize assets or other actions to generate liquidity will become available on acceptable terms. Our ability to reduce fixed costs, which include occupancy costs and certain payroll costs, may be limited by our contractual obligations and other factors.
Due to the seasonality of our business, our annual operating results would be adversely affected if our business performs poorly in the fourth quarter.
Our business is seasonal, with a high proportion of revenues, operating income and operating cash flows being generated during the fourth quarter of our year, which includes the holiday season. As a result, our fourth quarter operating results significantly impact our annual operating results. Our fourth quarter operating results may fluctuate significantly, based on many factors, including holiday spending patterns and weather conditions.

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Our sales may fluctuate for a variety of reasons, which could adversely affect our results of operations.
Our business is sensitive to customers' spending patterns, which in turn are subject to prevailing economic conditions. Our sales and results of operations have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of other factors affect our sales and financial performance, including:
actions by our competitors, including opening of new stores in our existing markets or changes to the way these competitors go to market online,
seasonal fluctuations due to weather conditions,
changes in our merchandise strategy and mix,
changes in population and other demographics, and
timing of our promotional events.
Accordingly, our results for any one quarter are not necessarily indicative of the results to be expected 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 report on Form 10-K.
We rely on foreign sources for significant amounts of our merchandise, and our business may therefore be negatively affected by the risks associated with international trade.
We depend on a large number of products produced in foreign markets. We face risks, including reputational risks, associated with the delivery of merchandise originating outside the United States, including:
potential economic and political instability in countries where our suppliers are located,
increases in shipping costs,
manufacturing and transportation delays and interruptions,
supplier compliance with applicable laws, including labor and environmental laws, and with our global compliance program for suppliers and factories,
adverse fluctuations in currency exchange rates, and
changes in U.S. and foreign laws affecting the importation and taxation of goods, including duties, tariffs and quotas, or changes in the enforcement of those laws.
We rely extensively on computer systems to implement our integrated retail strategy, process transactions, summarize results and otherwise manage our business. Disruptions in these systems could harm our ability to run our business.
Given the significance of our online and mobile capabilities and the number of individual transactions we have each year, it is critical that we maintain uninterrupted operation of our computer and communications hardware and software systems, some of which are based on end-of-life or legacy technology, operate with minimal or no vendor support and are otherwise difficult to maintain. Our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, catastrophic events such as fires, tornadoes and hurricanes, and usage errors by our employees. Operating legacy systems subject us to inherent costs and risks associated with maintaining, upgrading and replacing these systems and retaining sufficiently skilled personnel to maintain and operate the systems, demands on management time, and other risks and costs. Cyber-security risks such as malicious software and attempts to gain unauthorized access to data are rapidly evolving and could lead to disruptions in our systems, unauthorized release of confidential or otherwise protected information or corruption of data. If individuals are successful in infiltrating, breaking into, disrupting, damaging or otherwise stealing from the computer systems of the Company or its third-party providers, or if our systems are otherwise damaged or cease to function properly, we may have to make a significant investment to fix or replace them, we may suffer interruptions in our operations in the interim, we may face costly litigation, and our reputation with our members and customers may be harmed. Any material interruption in our computer operations may have a material adverse effect on our business or results of operations. In addition, we are pursuing initiatives to transform our

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information technology processes and systems. These initiatives are highly complex and include replacing legacy systems, upgrading existing systems, and acquiring new systems and hardware with updated functionality. The risk of disruption is increased in periods when such complex and significant systems changes are undertaken.
If we do not maintain the security of our member and customer, associate or company information, we could damage our reputation, incur substantial additional costs and become subject to litigation.
Any significant security compromise or breach of member and customer, associate or company data, either held or maintained by the Company or our third-party providers, could significantly damage our reputation and brands and result in additional costs, lost sales, fines and/or lawsuits. The regulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs. There is no guarantee that the procedures that we have implemented to protect against unauthorized access to secured data are adequate to safeguard against all data security breaches. A data security breach could negatively impact our business and our results of operations.
We rely on third parties to provide us with services in connection with the administration of certain aspects of our business.
We have entered into agreements with third-party service providers (both domestic and overseas) to provide processing and administrative functions over a broad range of areas, and we may continue to do so in the future. These areas include finance and accounting, information technology, including IT development, call center, human resources and procurement functions. Services provided by third parties as a part of outsourcing initiatives could be interrupted as a result of many factors, such as acts of God or contract disputes, and any failure by third parties to provide us with these services on a timely basis or within our service level expectations and performance standards could result in a disruption of our business. In addition, to the extent we are unable to maintain our outsourcing arrangements; we would incur substantial costs, including costs associated with hiring new employees, in order to return these services in-house. These outsourcing arrangements also carry the risk that the Company will fail to adequately retain the significant internal historical knowledge of our business and systems that is transferred to the service providers as the employment of the Company's personnel who possess such knowledge ends.
We could incur charges due to impairment of goodwill, intangible and long-lived assets.
At February 2, 2013, we had goodwill and intangible asset balances of $3.3 billion, which are subject to periodic testing for impairment. Our long-lived assets, primarily stores, also are subject to periodic testing for impairment. A significant amount of judgment is involved in the periodic testing. Failure to achieve sufficient levels of cash flow within each of our reporting units, or sales of our branded products or cash flow generated from operations at individual store locations could result in impairment charges for goodwill and intangible assets or fixed asset impairment for long-lived assets, which could have a material adverse effect on our reported results of operations. Impairment charges, if any, resulting from the periodic testing are non-cash. A significant and sustained decline in our stock price could result in goodwill impairment charges. During times of financial market volatility, significant judgment is used to determine the underlying cause of the decline and whether stock price declines are short-term in nature or indicative of an event or change in circumstances. See Notes 12 and 13 of Notes to Consolidated Financial Statements for further information.
The loss of key personnel may disrupt our business and adversely affect our financial results.
We depend on the contributions of key personnel, including Edward S. 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 results of operations.

10


Affiliates of our Chairman and Chief Executive Officer, whose interests may be different than your interests, exert substantial influence over our Company.
Affiliates of Edward S. Lampert, our Chairman and Chief Executive Officer, beneficially own approximately 55% of the outstanding shares of our common stock. These affiliates are controlled, directly or indirectly, by Mr. Lampert. Accordingly, these affiliates, and thus Mr. Lampert, have substantial influence over many, if not all, actions to be taken or approved by our stockholders, including the election of directors and any transactions involving a change of control.
The interests of these affiliates, which have investments in other companies, including our former subsidiary, Sears Hometown and Outlet Stores, Inc., may from time to time diverge from the interests of our other stockholders, particularly with regard to new investment opportunities. This substantial influence may have the effect of discouraging offers to acquire our Company because the consummation of any such acquisition would likely 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 intellectual property as critical to our success, particularly those that relate to our private branded merchandise. As such, we rely on trademark and copyright law, patent law, trade secret protection and confidentiality agreements with our associates, consultants, vendors, and others to protect our proprietary rights. Nevertheless, the steps we take to protect our proprietary rights may be inadequate. If we are unable to protect or preserve the value of our trademarks, copyrights, trade secrets, patents or other proprietary rights for any reason, or if we fail to maintain the image of our brands due to merchandise and service quality issues, actual or perceived, adverse publicity, governmental investigations or litigation, or other reasons, our brands and reputation could be damaged and we could lose customers.
We may be subject to product liability claims if people or properties are harmed by the products we sell or the services we offer.
Some of the products we sell may expose us to product liability claims relating to personal injury, death, or property damage caused by such products, and may require us to take actions such as product recalls. We also provide various services, which could also give rise to such claims. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.
We may be subject to periodic litigation and other regulatory proceedings. These proceedings may be affected by changes in laws and government regulations or changes in the enforcement thereof.
From time to time, we may be involved in lawsuits and regulatory actions relating to our business, certain of which may be in jurisdictions with reputations for aggressive application of laws and procedures against corporate defendants. Our pharmacy, home services and grocery businesses, in particular, are subject to numerous federal, state and local regulations. We are impacted by trends in litigation, including class-action allegations brought under various consumer protection and employment laws, including wage and hour laws, and investigations and actions that are based on allegations of untimely compliance or noncompliance with applicable regulations or statutes. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse impact on our business, financial condition and results of operations. In addition, regardless of the outcome of any litigation or regulatory proceedings, these proceedings could result in substantial costs and may require that we devote substantial resources to defend our Company. Further, changes in governmental regulations both in the United States and in the other countries where we operate could have adverse effects on our business and subject us to additional regulatory actions. For a description of current legal proceedings, see Item 3, “Legal Proceedings,” as well as Note 18 of Notes to Consolidated Financial Statements in this report on Form 10-K.

11


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 have unfunded obligations under our domestic and foreign pension and postretirement benefit plans. The funded status of our pension plans is dependent upon many factors, including returns on invested assets, the level of certain market interest rates and the discount rate used to determine pension obligations. Unfavorable returns on the plan assets or unfavorable changes in applicable laws or regulations could materially change the timing and amount of required plan funding, which would reduce the cash available for our businesses. In addition, a decrease in the discount rate used to determine pension obligations could result in an increase in the valuation of pension obligations, which could affect the reported funding status of our pension plans and future contributions, as well as the periodic pension cost in subsequent years. Moreover, unfavorable regulatory action could materially change the timing and amount of required plan funding and negatively impact our business operations and impair our business strategy.
Item 1B.
Unresolved Staff Comments
Not applicable.

12


Item  2.
Properties
The following table summarizes the locations of our Kmart and Sears Domestic stores at February 2, 2013:
 
 
 
Kmart
 
Sears Domestic
State/Territory
 
Discount
Stores
 
Super
Centers
 
Full-line
Mall Stores
 
Sears
Essentials/
Grand Stores
 
Specialty
Stores
Alabama
 
24

 

 
10

 

 

Alaska
 

 

 
3

 

 

Arizona
 
16

 

 
14

 

 

Arkansas
 
5

 

 
7

 

 
1

California
 
102

 

 
79

 
1

 
5

Colorado
 
13

 

 
11

 
1

 
1

Connecticut
 
8

 

 
8

 

 

Delaware
 
6

 

 
4

 

 

District of Columbia
 

 

 

 

 

Florida
 
69

 

 
51

 

 
1

Georgia
 
28

 

 
19

 

 

Hawaii
 
7

 

 
6

 

 

Idaho
 
8

 

 
5

 

 

Illinois
 
46

 
4

 
35

 
1

 
9

Indiana
 
31

 
3

 
18

 

 
1

Iowa
 
21

 

 
9

 

 
2

Kansas
 
11

 

 
8

 

 
1

Kentucky
 
27

 

 
9

 

 

Louisiana
 
11

 

 
13

 

 
1

Maine
 
6

 

 
5

 

 

Maryland
 
21

 

 
19

 

 

Massachusetts
 
19

 

 
21

 

 

Michigan
 
69

 
6

 
24

 

 

Minnesota
 
21

 

 
12

 

 
4

Mississippi
 
7

 

 
5

 

 

Missouri
 
27

 

 
10

 
1

 

Montana
 
9

 

 
3

 

 

Nebraska
 
8

 

 
4

 

 

Nevada
 
10

 

 
4

 
1

 
1

New Hampshire
 
6

 

 
6

 

 

New Jersey
 
35

 

 
20

 

 
5

New Mexico
 
15

 

 
7

 

 

New York
 
52

 
1

 
45

 

 
6

North Carolina
 
43

 

 
21

 

 

North Dakota
 
7

 

 
4

 

 

Ohio
 
52

 
7

 
38

 
1

 
1

Oklahoma
 
9

 

 
10

 

 

Oregon
 
13

 

 
8

 

 
1

Pennsylvania
 
95

 
2

 
42

 
1

 
2

Rhode Island
 
1

 

 
2

 

 

South Carolina
 
25

 

 
12

 

 

South Dakota
 
9

 

 
2

 

 

Tennessee
 
32

 

 
18

 

 

Texas
 
20

 

 
58

 
1

 
1

Utah
 
15

 

 
4

 
1

 
1

Vermont
 
3

 

 
2

 

 

Virginia
 
39

 
1

 
20

 
1

 
1

Washington
 
15

 

 
20

 

 
2

West Virginia
 
15

 
1

 
7

 

 

Wisconsin
 
28

 

 
15

 

 
6

Wyoming
 
9

 

 
2

 

 

Puerto Rico
 
23

 

 
9

 

 
1

U.S. Virgin Islands
 
4

 

 

 

 

Guam
 
1

 

 

 

 

Totals
 
1,196

 
25

 
788

 
10

 
54

 
 
 
 
 
 
 
 
 
 
 

13


  
 
Kmart 
 
Sears Domestic
 
Sears Canada
 
Total
 
Discount
Stores
 
Super
Centers
 
Full-line
Mall Stores
 
Sears
Essentials/
Grand Stores
 
Specialty
Stores
 
Full-line
Stores
 
Specialty
Stores
 
Owned
184

 
19

 
497

 
8

 
26

 
14

 
2

 
750

Leased
1,012

 
6

 
291

 
2

 
28

 
104

 
77

 
1,520

Independently-owned and operated stores

 

 

 

 

 

 
278

 
278

Stores at February 2, 2013
1,196

 
25

 
788

 
10

 
54

 
118

 
357

 
2,548

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In addition, at February 2, 2013, we had 38 domestic supply chain distribution centers, of which 12 were owned and 26 were leased for terms ranging from three to five years. Of the total, 10 primarily support Kmart stores, 24 primarily support Sears stores and four support both Sears and Kmart stores. We also had 465 domestic store warehouses, customer call centers and service facilities (including 17 facilities related to our appliance builder/distributor business), most of which are leased for terms ranging generally from three to five years or are part of other facilities included in the above table. Many of our facilities are also used to support our online channels.
Our principal executive offices are located on a 200-acre site owned by us at the Prairie Stone office park in Hoffman Estates, Illinois. The complex consists of six interconnected office buildings totaling approximately two million gross square feet of office space. In addition, we have a campus in Dodgeville, Wisconsin supporting the corporate headquarters, distribution center and customer sales/service operations for Lands' End. We also own an 86,000 square foot office building in Troy, Michigan. We operate numerous buying offices throughout the world that procure product internationally, as well as an information technology center in Pune, India.
At February 2, 2013, Sears Canada operated a total of 118 full-line stores, 357 specialty stores (including 48 furniture and appliance stores, 261 hometown dealer stores operated under independent local ownership, four appliance and mattress stores, 33 Corbeil stores, and 11 outlet stores), nine home services showrooms, 1,512 catalog pick-up locations and 101 travel offices.
A description of our leasing arrangements and commitments appears in Note 14 of Notes to Consolidated Financial Statements.
Item 3.
Legal Proceedings
Item 103 of SEC Regulation S-K requires that we disclose legal proceedings to which the Company and a governmental authority is a party and that arise under laws dealing with the discharge of materials into the environment or the protection of the environment, if the proceeding reasonably involves potential monetary sanctions of $100,000 or more. Disclosure also is required as to any such proceedings known by us to be contemplated by governmental authorities. In that connection, we note that Sears was a party to administrative actions brought by the California Air Resources Board (“CARB”) that alleged that Sears offered for sale certain mini bikes and stand-up scooters that were not certified by CARB. The parties have entered into a settlement agreement that provides for the payment by Sears of a $285,200 penalty. The vendor of this merchandise has agreed to reimburse Sears for the full amount of the penalty pursuant to its indemnification obligations to Sears.
See Part II, Item 8, “Financial Statements—Notes to Consolidated Financial Statements,” Note 18—“Legal Proceedings,” for additional information regarding legal proceedings, which information is incorporated herein by this reference.
Item 4.
Mine Safety Disclosures
Not applicable.

14


EXECUTIVE OFFICERS OF THE REGISTRANT
The following table and information sets forth the names of our executive officers, their current positions and offices with the Company, the date they first became executive officers of the Company, their current ages, and their principal employment during the past five years.
Name
 
Position
 
Date First Became an Executive Officer
 
Age
Edward S. Lampert
 
Chairman of the Board and Chief Executive Officer
 
2013
 
50
Ronald D. Boire
 
Executive Vice President, Chief Merchandising Officer and President, Sears Full Line Stores and Kmart Formats
 
2012
 
51
Imran Jooma
 
Executive Vice President and President, Online, Marketing, Pricing & Financial Services
 
2012
 
40
Robert A. Schriesheim
 
Executive Vice President and Chief Financial Officer
 
2011
 
52
Dane A. Drobny
 
Senior Vice President, General Counsel and Corporate Secretary
 
2010
 
45
William K. Phelan
 
Senior Vice President, Finance
 
2005
 
50
Robert A. Riecker
 
Vice President, Controller and Chief Accounting Officer
 
2012
 
48
__________________
 
Mr. Lampert has served as Chairman of the Company's Board of Directors since 2004 and as our Chief Executive Officer since February 2013. He also is the Chairman and Chief Executive Officer of ESL Investments, Inc., which he founded in April 1988.
Mr. Boire joined the Company as Executive Vice President, Chief Merchandising Officer and President, Sears Full Line Stores and Kmart Formats in January 2012. He served from October 2009 until January 2012 as President and Chief Executive Officer of Brookstone, a consumer products company. He served as President, U.S. Toys, North America, for Toys “R” Us, a specialty retailer of toys and juvenile products, from July 2006 until September 2009. He previously served as Executive Vice President, Global Merchandise Manager of Best Buy Co., Inc., a retailer of consumer electronics and related products from May 2003 to June 2006. Prior to joining Best Buy Co., Inc., Mr. Boire served for 17 years in a variety of increasingly senior roles at Sony Electronics Inc., a marketer of electronic products and services.
Mr. Jooma joined the Company in June 2007 as Vice President, e-Commerce, and has served in his current position since November 2011. He was elected Executive Vice President in November 2012. From May 2010 until November 2011, he served as the Company's Senior Vice President and President, e-Commerce. From August 2009 until May 2010, he served as Senior Vice President, e-Commerce, of the Company. Prior to joining the Company, he served as Vice President of eCommerce at Circuit City Stores, Inc. and prior thereto as the Divisional Vice President of eCommerce at OfficeMax Incorporated.
Mr. Schriesheim joined the Company as Executive Vice President in August 2011 and became Executive Vice President and Chief Financial Officer that same month. Prior to joining the Company, he served as the Chief Financial Officer of Hewitt Associates, Inc., a global human resources consulting and outsourcing company, from January 2010 to October 2010. From October 2006 to January 2010, he served as Executive Vice President and Chief Financial Officer of Lawson Software, Inc., an ERP software provider. From August 2002 to October 2006, he was affiliated with ARCH Development Partners, LLC, a seed stage venture capital fund. Before joining ARCH, Mr. Schriesheim held executive positions at Global TeleSystems, SBC Equity Partners, Ameritech, AC Nielsen and Brooke Group Ltd. Mr. Schriesheim has served as a director of Skyworks Solutions, Inc. since May 2006 and is chairman of its audit committee. He also served as a director of Dobson Communications Corp. from 2004 to 2007, a director of Lawson Software from 2006 to 2011, a director and Co-Chairman of MSC.Software Corporation from 2007 to 2009 and a director of Georgia Gulf Corporation from 2009 to 2010.

15


Mr. Drobny joined us as Senior Vice President, General Counsel and Corporate Secretary in May 2010. Prior to joining the Company, he practiced law with the law firm of Winston & Strawn LLP, most recently as Capital Partner, from September 1993 until May 2010.
Mr. Phelan was elected Senior Vice President, Finance of the Company in January 2012. From September 2007 until January 2012, he served as Senior Vice President and Controller of the Company. From May 2011 until August 2011, Mr. Phelan served as our acting Chief Financial Officer, while from May 2009 until May 2011 and from August 2011 until January 2012, he also served as our Chief Accounting Officer. From December 2007 until December 2008, Mr. Phelan also served as the Company's Treasurer. From the consummation of the Merger until September 2007, Mr. Phelan served as Vice President and Controller. Prior to the consummation of the Merger, he served as Assistant Controller of Sears.
Mr. Riecker was elected Vice President, Controller and Chief Accounting Officer in January 2012. He joined the Company as Assistant Controller in October 2005 and served as Vice President and Assistant Controller from May 2007 to October 2011. From October 2011 until his election as Vice President, Controller and Chief Accounting Officer, he served as the Company's Vice President, Internal Audit.

16


PART II
Item  5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Holdings' common stock is quoted on The NASDAQ Stock Market under the ticker symbol SHLD. There were 14,217 shareholders of record at March 2, 2013. The quarterly high and low sales prices for Holdings' common stock are set forth below.
 
 
Fiscal Year 2012 
 
Sears Holdings
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Common stock price
 
 
 
 
 
 
 
    High
$
85.90

 
$
65.70

 
$
67.20

 
$
68.77

    Low
$
41.14

 
$
46.28

 
$
47.01

 
$
38.40

 
 
 
Fiscal Year 2011
 
Sears Holdings 
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Common stock price
 
 
 
 
 
 
 
    High
$
94.79

 
$
86.72

 
$
83.25

 
$
80.37

    Low
$
73.59

 
$
66.15

 
$
51.14

 
$
28.89

Holdings has not paid and does not expect to pay cash dividends in the foreseeable future.
Equity Compensation Plan Information
The following table reflects information about securities authorized for issuance under our equity compensation plans at February 2, 2013.
 
Plan Category
(a)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and
rights 
 
(b)
Weighted-average
exercise price of
outstanding
options,
warrants and
rights
 
(c)
Number of securities
remaining available for
future issuance
under equity
compensation plans*
Equity compensation plans approved by security holders
 
 
261,774
Equity compensation plans not approved by security holders
 
 
Total
 
 
261,774
 
__________________
*
Represents shares of common stock that may be issued pursuant to our 2006 Stock Plan. Excludes shares covered by an outstanding plan award that, subsequent to February 2, 2013, ultimately are not delivered on an unrestricted basis (for example, because the award is forfeited, canceled, settled in cash or used to satisfy tax withholding obligations). Awards under the 2006 Stock Plan may be restricted stock awards, a grant of shares of our common stock in connection with an award made under a long-term incentive plan, or certain other awards.

17


Stock Performance Graph
Comparison of Five-Year Cumulative Stockholder Return
The following graph compares the cumulative total return to stockholders on Holdings' common stock from February 1, 2008 through February 1, 2013, the last trading day before the end of our 2012 year, with the return on the S&P 500 Stock Index, the S&P 500 Retailing Index and the S&P 500 Department Stores Index for the same period. The graph assumes an initial investment of $100 on February 1, 2008 in each of our common stock, the S&P 500 Stock Index, the S&P Retailing Index and the S&P 500 Department Stores Index.
The S&P 500 Retailing Index consists of companies included in the S&P 500 Stock Index in the broadly defined retail sector, which includes competing retailers of softlines (apparel and domestics) and hardlines (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.
 
Feb. 1,
2008
 
Jan. 30,
2009
 
Jan. 29,
2010
 
Jan. 28,
2011
 
Jan. 27,
2012
 
Feb. 1,
2013
Sears Holdings
$
100.00

 
$
37.78

 
$
86.12

 
$
70.24

 
$
41.55

 
$
49.89

S&P 500 Stock Index
$
100.00

 
$
60.64

 
$
80.72

 
$
97.89

 
$
103.10

 
$
121.25

S&P 500 Retailing Index
$
100.00

 
$
62.28

 
$
96.85

 
$
123.37

 
$
140.16

 
$
178.46

S&P 500 Department Stores Index
$
100.00

 
$
47.25

 
$
78.97

 
$
90.57

 
$
102.24

 
$
105.40


18


Purchase of Equity Securities
The following table provides information about shares of common stock we acquired during the fourth quarter of 2012. During the quarter ended February 2, 2013, we did not repurchase any shares of our common stock under our common share repurchase program. At February 2, 2013, we had approximately $504 million of remaining authorization under the program.
 
 
Total
Number of
Shares
Purchased
(1)
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of  Publicly
Announced
Program
(2)
 
Average
Price Paid
per  Share
for
Publicly
Announced
Program
 
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under
the Program
October 28, 2012 to November 24, 2012
706

 
$
64.54

 

 
$

 
 
November 25, 2012 to December 29, 2012
1,824

 
42.01

 

 

 
 
December 30, 2012 to February 2, 2013
18,919

 
43.99

 

 

 
 
Total
21,449

 
$
44.50

 

 
$

 
$
504,000,000

__________________

(1) 
Consists entirely of 21,449 shares acquired from associates to meet withholding tax requirements from the vesting of restricted stock.
(2) 
Our common share repurchase program was initially announced on September 14, 2005 and has a total authorization since inception of the program of $6.5 billion, including the authorizations to purchase up to an additional $500 million of common stock on each of December 17, 2009 and May 2, 2011. The program has no stated expiration date.
The domestic credit agreement (described in the “Uses and Sources of Liquidity” section below) limits our ability to make restricted payments, including dividends and share repurchases, under certain circumstances, including if availability under the credit facility, as defined, is less than 15%. It also imposes various other requirements which take effect if availability falls below designated thresholds, including a cash dominion requirement and a requirement that the fixed charge ratio at the last day of any quarter be not less than 1.0 to 1.0.

19


Item 6.
Selected Financial Data
The table below summarizes our recent financial information. The data set forth below should 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
2012
 
2011
 
2010
 
2009
 
2008
Summary of Operations
 
 
 
 
 
 
 
 
 
Revenues(1)
$
39,854

 
$
41,567

 
$
42,664

 
$
43,360

 
$
46,007

Domestic comparable store sales %
(2.5
)%
 
(2.2
)%
 
(1.3
)%
 
(4.7
)%
 
(7.7
)%
Net income (loss) from continuing operations attributable to Holdings' shareholders(2)
(930
)
 
(3,113
)
 
122

 
218

 
295

Per Common Share
 

 
 

 
 

 
 

 
 

Basic:
 

 
 

 
 

 
 

 
 

Net income (loss) from continuing operations attributable to Holdings' shareholders
$
(8.78
)
 
$
(29.15
)
 
$
1.09

 
$
1.85

 
$
2.32

Diluted:
 

 
 

 
 

 
 

 
 

Net income (loss) from continuing operations attributable to Holdings' shareholders
$
(8.78
)
 
$
(29.15
)
 
$
1.09

 
$
1.85

 
$
2.32

Holdings' book value per common share
$
25.89

 
$
40.26

 
$
78.19

 
$
79.21

 
$
76.91

Financial Data
 
 
 

 
 

 
 

 
 

Total assets
$
19,340

 
$
21,381

 
$
24,360

 
$
24,901

 
$
25,444

Long-term debt
1,579

 
1,693

 
1,872

 
949

 
1,220

Long-term capital lease obligations
364

 
395

 
472

 
510

 
552

Capital expenditures
378

 
432

 
426

 
350

 
486

Adjusted EBITDA
626

 
277

 
1,385

 
1,744

 
1,524

Number of stores
2,548

 
4,010

 
3,949

 
3,862

 
3,862

__________________
 
(1) 
We follow a retail-based financial reporting calendar. Accordingly, the fiscal year ended February 2, 2013 contained 53 weeks, while all other years presented contained 52 weeks.
(2) 
The periods presented were impacted by certain significant items, which affected the comparability of amounts reflected in the above selected financial data. For 2012, 2011 and 2010, these significant items are discussed within Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.” 2009 results include the impact of domestic pension expense of $170 million, a $131 million charge related to store closings and severance, a gain on the sale of Sears Canada Headquarters of $44 million, a gain of $32 million recorded in connection with the settlement of Visa/MasterCard antitrust litigation, mark-to-market losses of $33 million on Sears Canada hedge transactions and a tax benefit of $41 million related to the resolution of certain income tax matters. 2008 results include the impact of a $98 million charge related to asset impairments, a $77 million charge related to store closings and severance, mark-to-market gains of $81 million on Sears Canada hedge transactions, the reversal of a $62 million reserve because of the overturning of an adverse jury verdict relating to the redemption of certain Sears, Roebuck and Co. bonds in 2004, a tax benefit of $8 million related to the resolution of certain income tax matters and gains of $13 million on negotiated repurchases of debt securities prior to maturity.

20


Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
We have divided our “Management's Discussion and Analysis of Financial Condition and Results of Operations” into the following six sections:
Overview of Holdings
Results of Operations:
Fiscal Year
Holdings' Consolidated Results
Business Segment Results
Analysis of Consolidated Financial Condition
Contractual Obligations and Off-Balance Sheet Arrangements
Application of Critical Accounting Policies and Estimates
Cautionary Statement Regarding Forward-Looking Information
The discussion that follows should be read in conjunction with the consolidated financial statements and notes thereto included in Item 8.
OVERVIEW OF HOLDINGS
Holdings, the parent company of Kmart and Sears, was formed in connection with the March 24, 2005 Merger of these two companies. We are an integrated retailer with significant physical and intangible assets, as well as virtual capabilities enabled through technology. We currently operate a national network of stores with 2,019 full-line and 54 specialty retail stores in the United States, operating through Kmart and Sears, and 475 full-line and specialty retail stores in Canada operating through Sears Canada Inc. (“Sears Canada”), a 51%-owned subsidiary. Further, we operate a number of websites under the Sears.com and Kmart.com banners which offer more than 60 million products and provide the capability for our customers to engage in cross-channel transactions such as buy online/pick-up in store; buy in store/ship to home; and buy online, return in store. We are also the home of SHOP YOUR WAY™, a social shopping experience where members have the ability to earn points, receive additional benefits and interact/shop with each other through shopyourway.com. The Company is the leading home appliance retailer as well as a leader in tools, lawn and garden, fitness equipment and automotive repair and maintenance. Key proprietary brands include Kenmore®, Craftsman®and DieHard®. We also maintain a broad apparel offering including such well-known labels as Lands' End®, the Kardashian Kollection, Jaclyn Smith, Joe Boxer, Sandra Lee and Levi's, as well as Sofia by Sofia Vergara and the Country Living Home Collection. We are the nation's largest provider of home services, with more than 14 million service calls made annually.
We currently conduct our operations in three business segments: Kmart, Sears Domestic and Sears Canada. The nature of operations conducted within each of these segments is discussed within the “Business Segments” section of Item 1 in this report on Form 10-K. Our business segments have been determined in accordance with accounting standards regarding the determination, and reporting, of business segments.
Our focus continues to be on our core customers, our Members, and finding ways to provide them value and convenience through Integrated Retail and our SHOP YOUR WAY Membership platform. We have invested significantly in our online ecommerce platforms, our Membership rewards program and the technology needed to support these initiatives. Our actions in 2012 were guided by the following strategic priorities:
Innovation Around Our Customers and Members
We continue to focus on building and growing a deeply engaging membership program, called SHOP YOUR WAY. SHOP YOUR WAY is more than just a typical loyalty program. It is a comprehensive platform that transforms customer transactions into relationships and allows us to know our Members better and to serve them better as well. It includes the rewards program, our shopyourway.com social shopping platform, our SHOP YOUR WAY Max free

21


shipping platform and a variety of other applications and components. Collectively, these elements change the way we do business both inside and outside the Company.
We are also focused on providing integrated retail solutions for our Members and customers. We rolled out tablets and mobile devices to Sears Domestic stores across the country. The tablets are equipped to help our store associates provide a better overall shopping experience. Our associates can use tablets to look at product specifications, compare products side-by-side and search for inventory if it is not readily available at the store. More information about products, inventory, pricing and reviews is now available at their fingertips, which means Members can have more confidence in their product selection.
We have designed other experiences that provide seamless and convenient integrated experiences for our Members. Building on our Buy Online Pick Up In Store and Ready in 5 promise, we developed a Return/Exchange in 5 capability that allows Members to fill out the product return information online. Members simply drop off or exchange the item they want to return at our Merchandise Pick Up area within five minutes or less.
Core Retail Excellence
We are also focused on providing great merchandise value to our customers and Members. In 2012, we launched several innovative brand offerings such as Outdoor Life, Alphaline electronics accessories, and RoadHandler tires. In January 2013, we announced that we would be developing two new apparel lines in a collaborative effort between SHOP YOUR WAY and our Kmart format. We have a long heritage of building celebrity brands, both at Sears and Kmart. We chose to partner with Nicki Minaj and Adam Levine for this collaboration because of their creativity, their global appeal and their strong interest in developing their clothing brands in a unique and innovative manner.
We are focused on providing flexibility and convenience for our Members through such things as buy online/pick-up in store, buy in store/ship to home, digital receipts and returns and exchanges in five minutes or less. We enhanced our layaway program and added the capability for our Members to make layaway payments online and have the items from their layaway shipped directly to their homes when their contract has been completed. We also provide our customers with easy access to a broad and diverse range of products and categories through marketplace on sears.com.
Financial and Operational Discipline
In 2012, we also demonstrated our financial flexibility by positively impacting our liquidity by $1.8 billion, while unlocking the value in our asset portfolio, as part of our on-going asset re-configuration where we are re-deploying our capital in support of our member-centric, integrated retail strategy. Actions taken included:
the separation of our Sears Hometown and Outlet businesses through a rights offering transaction, which generated gross proceeds of approximately $447 million;
the partial spin-off of 45% of Sears Canada;
the execution of various real estate transactions which generated cash proceeds of approximately $440 million;
Reducing inventory by nearly $1.0 billion below last year's level and adjusting our promotional cadence to be more targeted;
Reducing our fixed cost structure by over $500 million; and
Capitalizing on an opportunity to reduce risk related to our legacy pension obligation by making a voluntary offer to former employees to pay a lump sum.
We are an asset-rich enterprise with substantial liquidity, unencumbered real estate and well-established stand-alone businesses, including Lands' End and Sears Canada. We expect to generate at least $500 million of additional liquidity through monetization of assets over the next 12 months. In addition to our asset monetizations, we currently expect to reduce 2013 peak domestic inventory by $500 million from the 2012 level of $8.6 billion at the end of the third quarter as a result of stores already or expected to be closed, initiatives underway to reduce slow-moving inventory and modest productivity improvement. This action is expected to generate $300 million of cash after consideration of related payables. We also expect to further reduce our fixed cost base by another $200 million in 2013.

22



RESULTS OF OPERATIONS
Fiscal Year
Our fiscal year end is the Saturday closest to January 31 each year. Fiscal year 2012 consisted of 53 weeks while fiscal years 2011 and 2010 consisted of 52 weeks. Unless otherwise stated, references to years in this report relate to fiscal years rather than to calendar years. The following fiscal periods are presented in this report.
Fiscal year
Ended
 
Weeks
2012
February 2, 2013
 
53
2011
January 28, 2012
 
52
2010
January 29, 2011
 
52

23


Holdings' Consolidated Results
Holdings' consolidated results of operations for 2012, 2011 and 2010 are summarized as follows:
millions, except per share data
 
2012
 
2011
 
2010
REVENUES
 
 
 
 
 
 
Merchandise sales and services
 
$
39,854

 
$
41,567

 
$
42,664

COSTS AND EXPENSES
 
 
 
 
 
 
Cost of sales, buying and occupancy
 
29,340

 
30,966

 
31,000

Gross margin dollars
 
10,514

 
10,601

 
11,664

Gross margin rate
 
26.4
%
 
25.5
%
 
27.3
%
Selling and administrative
 
10,660

 
10,664

 
10,425

Selling and administrative expense as a percentage of revenues
 
26.7
%
 
25.7
%
 
24.4
%
Depreciation and amortization
 
830

 
853

 
869

Impairment charges
 
330

 
649

 

Gain on sales of assets
 
(468
)
 
(64
)
 
(67
)
Total costs and expenses
 
40,692

 
43,068

 
42,227

Operating income (loss)
 
(838
)
 
(1,501
)
 
437

Interest expense
 
(267
)
 
(289
)
 
(293
)
Interest and investment income
 
94

 
41

 
36

Other income (loss)
 
1

 
(2
)
 
(14
)
Income (loss) from continuing operations before income taxes
 
(1,010
)
 
(1,751
)
 
166

Income tax expense
 
(44
)
 
(1,369
)
 
(27
)
Income (loss) from continuing operations
 
(1,054
)
 
(3,120
)
 
139

Income (loss) from discontinued operations, net of tax
 

 
(27
)
 
11

Net income (loss)
 
(1,054
)
 
(3,147
)
 
150

(Income) loss attributable to noncontrolling interests
 
124

 
7

 
(17
)
NET INCOME (LOSS) ATTRIBUTABLE TO HOLDINGS’ SHAREHOLDERS
 
$
(930
)
 
$
(3,140
)
 
$
133

Amounts attributable to Holdings’ shareholders:
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
 
$
(930
)
 
$
(3,113
)
 
$
122

Income (loss) from discontinued operations, net of tax
 

 
(27
)
 
11

Net income (loss)
 
$
(930
)
 
$
(3,140
)
 
$
133

NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO HOLDINGS’ SHAREHOLDERS
 
 
 
 
 
 
Diluted income (loss) per share from continuing operations
 
$
(8.78
)
 
$
(29.15
)
 
$
1.09

Diluted income (loss) per share from discontinued operations
 

 
(0.25
)
 
0.10

 
 
$
(8.78
)
 
$
(29.40
)
 
$
1.19

Diluted weighted average common shares outstanding
 
105.9

 
106.8

 
111.7

References to comparable store sales amounts within the following discussion include sales for all stores 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. In addition, comparable store sales amounts include sales from sears.com and kmart.com shipped directly to customers and have been adjusted for the change in the unshipped sales reserves recorded at the end of each reporting period. Comparable store sales results for 2012 were calculated based on the 52-week period ended January 26, 2013 as compared to the comparable 52-week period in the prior year.

24


2012 Compared to 2011
Net Loss from Continuing Operations Attributable to Holdings' Shareholders
We recorded a net loss from continuing operations attributable to Holdings' shareholders of $930 million ($8.78 loss per diluted share from continuing operations) and $3.1 billion ($29.15 loss per diluted share from continuing operations) for 2012 and 2011, respectively. Our results for 2012 and 2011 were affected by a number of significant items, including non-cash charges related to pension settlements and the impairment of goodwill balances and a $1.8 billion non-cash charge to establish a valuation allowance against our domestic deferred tax assets in 2011. Our net loss from continuing operations as adjusted for these significant items was $215 million ($2.03 loss per diluted share from continuing operations) for 2012 and $482 million ($4.52 loss per diluted share from continuing operations) for 2011. The improvement in net loss for the year reflected an improvement in gross margin rate of 90 basis points and a decrease in selling and administrative expenses, which were partially offset by a decline in gross margin dollars, given lower sales.
In addition to our net income (loss) from continuing operations determined in accordance with GAAP, for purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") measurement as well as Adjusted Earnings per Share (“Adjusted EPS”).
Adjusted EBITDA is computed as net income (loss) attributable to Sears Holdings Corporation appearing on the Statements of Operations excluding income (loss) attributable to noncontrolling interest, income tax expense, interest expense, interest and investment income, other income (loss), depreciation and amortization and gain on sales of assets. In addition, it is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our businesses, as well as executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items.
While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:
EBITDA excludes the effects of financings and investing activities by eliminating the effects of interest and depreciation costs;
Management considers gains/(losses) on the sale of assets to result from investing decisions rather than ongoing operations; and
Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results.

25


Adjusted EBITDA was determined as follows:
millions
2012
 
2011
 
2010
Net income (loss) attributable to SHC per statement of operations
$
(930
)
 
$
(3,140
)
 
$
133

Income (loss) attributable to noncontrolling interest
(124
)
 
(7
)
 
17

(Income) loss from discontinued operations, net of tax

 
27

 
(11
)
Income tax expense
44

 
1,369

 
27

Interest expense
267

 
289

 
293

Interest and investment income
(94
)
 
(41
)
 
(36
)
Other income (loss)
(1
)
 
2

 
14

Operating income (loss)
(838
)
 
(1,501
)
 
437

Depreciation and amortization
830

 
853

 
869

Gain on sales of assets
(468
)
 
(64
)
 
(67
)
Before excluded items
(476
)
 
(712
)
 
1,239

Impairment charges
330

 
649

 

Pension settlements
455

 

 

Closed store reserve and severance
140

 
254

 
26

Domestic pension expense
165

 
74

 
120

Transaction costs
12

 

 

Hurricane losses

 
12

 

Adjusted EBITDA as defined
$
626

 
$
277

 
$
1,385

% to revenues
1.6
%
 
0.7
%
 
3.2
%
Adjusted EBITDA for our segments was as follows:
 
 
2012
 
2011
 
2010
millions
 
Kmart
 
Sears Domestic
 
Sears Canada
 
Sears Holdings
 
Kmart
 
Sears Domestic
 
Sears Canada
 
Sears Holdings
 
Kmart
 
Sears Domestic
 
Sears Canada
 
Sears Holdings
Operating income (loss) per statement of operations
 
$
5

 
$
(656
)
 
$
(187
)
 
$
(838
)
 
$
(34
)
 
$
(1,447
)
 
$
(20
)
 
$
(1,501
)
 
$
353

 
$
(149
)
 
$
233

 
$
437

Depreciation and amortization
 
147

 
578

 
105

 
830

 
149

 
601

 
103

 
853

 
149

 
620

 
100

 
869

Gain on sales of assets
 
(37
)
 
(261
)
 
(170
)
 
(468
)
 
(34
)
 
(30
)
 

 
(64
)
 
(7
)
 
(46
)
 
(14
)
 
(67
)
Before excluded items
 
115

 
(339
)
 
(252
)
 
(476
)
 
81

 
(876
)
 
83

 
(712
)
 
495

 
425

 
319

 
1,239

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Closed store reserve and severance
 
76

 
44

 
20

 
140

 
76

 
160

 
18

 
254

 
13

 
13

 

 
26

Impairment charges
 
10

 
25

 
295

 
330

 
15

 
634

 

 
649

 

 

 

 

Pension settlements
 

 
452

 
3

 
455

 

 

 

 

 

 

 

 

Domestic pension expense
 

 
165

 

 
165

 

 
74

 

 
74

 

 
120

 

 
120

Transaction costs
 

 
9

 
3

 
12

 

 

 

 

 

 

 

 

Hurricane losses
 

 

 

 

 

 
12

 

 
12

 
$

 
$

 
$

 
$

Adjusted EBITDA as defined
 
$
201

 
$
356

 
$
69

 
$
626

 
$
172

 
$
4

 
$
101

 
$
277

 
$
508

 
$
558

 
$
319

 
$
1,385

% to revenues
 
1.4
%
 
1.7
%
 
1.6
%
 
1.6
%
 
1.1
%
 
—%

 
2.2
%
 
0.7
%
 
3.3
%
 
2.5
%
 
6.7
%
 
3.2
%

26


We also believe that use of Adjusted EPS improves the comparability of year-to-year results and is representative of our underlying performance. We have chosen to provide this supplemental information to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the reconciliations below, and to provide an additional measure of performance.
The following tables set forth results of operations on a GAAP and “As Adjusted” basis, as well as the impact each significant item used in calculating Adjusted EBITDA had on specific income and expense amounts reported in our Consolidated Statements of Operations during the years 2012, 2011 and 2010.
 
 
Year Ended February 2, 2013
millions, except per share data
 
GAAP
 
Closed Store
Reserve, Store Impairments and
Severance
 
Gain on Sales of Assets
 
Transaction Costs
 
Goodwill Impairment
 
Pension Settlements
 
Domestic
Pension
Expense
 
Gain on Sale of Canadian Joint Venture
 
Tax Matters
 
As
Adjusted
Cost of sales, buying and occupancy impact
 
$
29,340

 
$
(35
)
 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$
29,305

Selling and administrative impact
 
10,660

 
(105
)
 

 
(12
)
 

 
(455
)
 
(165
)
 

 

 
9,923

Depreciation and amortization impact
 
830

 
(22
)
 

 

 

 

 

 

 

 
808

Impairment charges impact
 
330

 
(35
)
 

 

 
(295
)
 

 

 

 

 

Gain on sales of assets impact
 
(468
)
 

 
419

 

 

 

 

 

 

 
(49
)
Operating loss impact
 
(838
)
 
197

 
(419
)
 
12

 
295

 
455

 
165

 

 

 
(133
)
Interest and investment income impact
 
94

 

 

 

 

 

 

 
(25
)
 

 
69

Income tax expense impact
 
(44
)
 
(74
)
 
157

 
(5
)
 

 

 
(62
)
 
9

 
143

 
124

Loss attributable to noncontrolling interest impact
 
124

 
(7
)
 
8

 

 
(145
)
 
(1
)
 

 
12

 

 
(9
)
After tax and noncontrolling interest impact
 
(930
)
 
116

 
(254
)
 
7

 
150

 
454

 
103

 
(4
)
 
143

 
(215
)
Diluted loss per share impact
 
$
(8.78
)
 
$
1.09

 
$
(2.40
)
 
$
0.07

 
$
1.42

 
$
4.29

 
$
0.97

 
$
(0.04
)
 
$
1.35

 
$
(2.03
)
 
 
Year Ended January 28, 2012
millions, except per share data
 
GAAP
 
Domestic
Pension
Expense
 
Closed Store
Reserve, Store Impairments and
Severance
 
Mark-to-Market Losses
 
Gain on Sales of Assets
 
Hurricane Losses
 
Goodwill Impairment
 
Tax Matters
 
Discontinued Operations
 
As Adjusted
Cost of sales, buying and occupancy impact
 
$
30,966

 
$

 
$
(130
)
 
$

 
$

 
$

 
$

 
$

 
$

 
$
30,836

Selling and administrative impact
 
10,664

 
(74
)
 
(124
)
 

 

 
(12
)
 

 

 

 
10,454

Depreciation and amortization impact
 
853

 

 
(8
)
 

 

 

 

 

 

 
845

Impairment charges impact
 
649

 

 
(98
)
 

 

 

 
(551
)
 

 

 

Gain on sales of assets impact
 
(64
)
 

 

 

 
33

 

 

 

 

 
(31
)
Operating loss impact
 
(1,501
)
 
74

 
360

 

 
(33
)
 
12

 
551

 

 

 
(537
)
Other loss impact
 
(2
)
 

 

 
6

 

 

 

 

 

 
4

Income tax expense impact
 
(1,369
)
 
(28
)
 
(134
)
 
(2
)
 
13

 
(5
)
 

 
1,819

 

 
294

Loss from discontinued operations, net of tax impact
 
(27
)
 

 

 

 

 

 

 

 
27

 

Loss attributable to noncontrolling interest impact
 
7

 

 
(1
)
 
(1
)
 

 

 

 

 

 
5

After tax and noncontrolling interest impact
 
(3,140
)
 
46

 
225

 
3

 
(20
)
 
7

 
551

 
1,819

 
27

 
(482
)
Diluted loss per share impact
 
$
(29.40
)
 
$
0.43

 
$
2.10

 
$
0.03

 
$
(0.19
)
 
$
0.07

 
$
5.16

 
$
17.03

 
$
0.25

 
$
(4.52
)

27


 
 
Year Ended January 29, 2011
millions, except per share data
 
GAAP 
 
Domestic
Pension
Expense
 
Closed Store
Reserve and
Severance
 
Mark-to-Market Losses
 
Gain on Sales
of Real
Estate 
 
Canadian
Dividend Tax
Impact
 
Tax
Matters
 
Discontinued Operations
 
As
Adjusted 
Cost of sales, buying and occupancy impact
 
$
31,000

 
$

 
$
(12
)
 
$

 
$

 
$

 
$

 
$

 
$
30,988

Selling and administrative impact
 
10,425

 
(120
)
 
(14
)
 

 

 

 

 

 
10,291

Depreciation and amortization impact
 
869

 

 
(10
)
 

 

 

 

 

 
859

Gain on sales of assets impact
 
(67
)
 

 

 

 
35

 

 

 

 
(32
)
Operating income impact
 
437

 
120

 
36

 

 
(35
)
 

 

 

 
558

Other loss impact
 
(14
)
 

 

 
6

 

 

 

 

 
(8
)
Income tax expense impact
 
(27
)
 
(24
)
 
(6
)
 
(1
)
 
7

 
9

 
(13
)
 

 
(55
)
Income from discontinued operations, net of tax, impact
 
11

 

 

 

 

 

 

 
(11
)
 

Income attributable to noncontrolling interest impact
 
(17
)
 

 

 
(1
)
 

 

 

 

 
(18
)
After tax and noncontrolling interest impact
 
133

 
96

 
<