Sears 2014 Annual Report Download - page 70

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
70
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 to the Consolidated
Financial Statements for further information related to the agreements with SHO.
Fiscal Year
Our fiscal year ends on the Saturday closest to January 31 each year. 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
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 31, 2015 52
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 1, 2014 52
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 2, 2013 53
Uses and Sources of Liquidity
Our primary need for liquidity is to fund working capital requirements of our businesses, capital expenditures
and for general corporate purposes, including debt repayment and pension plan contributions. We have incurred
losses and experienced negative operating cash flows for the past several years, accordingly the Company has taken
a number of actions to enhance its financial flexibility and fund its continued transformation, support its operations
and meet its obligations.
We continue to take action to evolve and transition our capital structure toward a structure that is more flexible,
long-term oriented and less dependent on inventory and receivables. We announced in November 2014 that we have
been exploring the formation of a Real Estate Investment Trust ("REIT") to purchase some of our properties and to
manage them like a pure real estate company. While we can offer no assurances that such a transaction will be
consummated, we have made progress and are proceeding towards its formation and separation, which is projected
to occur in May or June of this year. We are currently targeting between 200 and 300 Sears and Kmart stores to be
sold to the REIT with expected proceeds to Sears Holdings in excess of $2.0 billion. The REIT itself would be
funded by equity and debt with the equity raised through a rights offering. The subscription rights would be
distributed pro rata to all stockholders of record of the Company, and every stockholder would have the right to
participate, except that holders of the Company's restricted stock that is unvested as of the record date would be
expected to receive cash awards in lieu of subscription rights. If we are not able to complete the REIT transaction on
a timely basis, we will explore generating liquidity through other means. We believe that our liquidity needs will be
satisfied by these actions through the foreseeable future.
We cannot predict the outcome of the actions to generate liquidity discussed above, or whether such actions
would generate the expected liquidity as currently planned. If we continue to experience operating losses, and we are
not able to generate enough funds from the above actions (or some combination of other actions), the availability
under our domestic credit facility might be fully utilized and we would need to secure additional sources of
funds. Moreover, if the borrowing base (as calculated pursuant to the indenture) falls below the principal amount of
the notes plus the principal amount of any other indebtedness for borrowed money that is secured by liens on the
collateral for the notes on the last day of any two consecutive quarters, it could trigger an obligation to repurchase
notes in an amount equal to such deficiency.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions about future events. The
estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets