Sears 2014 Annual Report Download - page 114

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
114
SHO
Holdings and certain of its subsidiaries engage in transactions with SHO pursuant to various agreements with
SHO which, among other things, (1) govern the principal transactions relating to the rights offering and certain
aspects of our relationship with SHO following the separation, (2) establish terms under which Holdings and certain
of its subsidiaries will provide SHO with services, and (3) establish terms pursuant to which Holdings and certain of
its subsidiaries will obtain merchandise for SHO. ESL owns approximately 47% of the outstanding common stock
of SHO (based on publicly available information as of July 31, 2014).
These agreements were made in the context of a parent-subsidiary relationship and were negotiated in the
overall context of the separation. The Company believes that the methods by which costs are allocated are
reasonable and are based on prorated estimates of costs expected to be incurred by the Company. A summary of the
nature of related party transactions involving SHO is as follows:
• SHO obtains a significant amount of its merchandise from the Company. We have also entered into certain
agreements with SHO to provide logistics, handling, warehouse and transportation services. SHO also pays
a royalty related to the sale of Kenmore, Craftsman and DieHard products and fees for participation in the
Shop Your Way® program.
• SHO receives commissions from the Company for the sale of merchandise made through www.sears.com,
extended service agreements, delivery and handling services and credit revenues.
• The Company provides SHO with shared corporate services. These services include accounting and
finance, human resources, information technology and real estate.
Amounts due to or from SHO are non-interest bearing, settled on a net basis, and have payment terms of 10
days after the invoice date. The Company invoices SHO on a weekly basis. At January 31, 2015 and February 1,
2014, Holdings reported a net amount receivable from SHO of $61 million and $68 million, respectively, in the
Accounts receivable line of the Consolidated Balance Sheet. Amounts related to the sale of inventory and related
services, royalties, and corporate shared services were $1.6 billion during 2014, $1.7 billion during 2013 and $513
million during the period following the separation of SHO from October 12, 2012 through February 2, 2013. The net
amounts SHO earned related to commissions were $99 million during 2014, $89 million during 2013 and $60
million during the period following the separation of SHO from October 12, 2012 through February 2, 2013.
Additionally, the Company has guaranteed lease obligations for certain SHO store leases that were assigned as a
result of the separation. See Note 4 for further information related to these guarantees.
Also in connection with the separation, the Company entered into an agreement with SHO and the agent under
SHO's secured credit facility, whereby the Company committed to continue to provide services to SHO in
connection with a realization on the lender's collateral after default under the secured credit facility, notwithstanding
SHO's default under the underlying agreement with us, and to provide certain notices and services to the agent, for
so long as any obligations remain outstanding under the secured credit facility.
NOTE 16—SUPPLEMENTAL FINANCIAL INFORMATION
Other long-term liabilities at January 31, 2015 and February 1, 2014 consisted of the following:
millions January 31,
2015 February 1,
2014
Unearned revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 739 $ 836
Self-insurance reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611 686
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499 486
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,849 $ 2,008