Sears 2012 Annual Report Download - page 4

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4
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.