Sears 2014 Annual Report Download - page 5

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5
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 was 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 maintained control of Sears Canada and, prior to de-consolidation in October 2014,
continued 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.
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® and DIEHARD® 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.