Sears 2015 Annual Report Download - page 103

Seritage
ESL owns approximately 9.8% of the total voting power of Seritage, and approximately 43.5% of the limited
partnership units of Seritage Growth Properties, L.P. (the “Operating Partnership”), the entity that now owns the
properties sold by the Company in the Seritage transaction and through which Seritage conducts its operations
(based on publicly available information as of August 14, 2015). Mr. Lampert is also currently the Chairman of the
Board of Trustees of Seritage. Fairholme owns approximately 14% of the outstanding Class A common shares of
Seritage and 100% of the outstanding Class C non-voting common shares of Seritage (based on publicly available
information as of February 16, 2016).
In connection with the Seritage transaction as described in Note 11, Holdings entered into a Master Lease
agreement with Seritage. The initial amount of aggregate annual base rent under the Master Lease is $134 million
for the REIT properties, with increases of 2% per year beginning in the second lease year. Holdings recorded rent
expense of $49 million in Cost of sales, buying and occupancy for 2015. Rent expense consists of straight-line rent
expense of $84 million, offset by amortization of a deferred gain recognized pursuant to the sale and leaseback of
properties from Seritage of $35 million for 2015.
In addition to base rent under the Master Lease, Holdings pays monthly installment expenses for property
taxes and insurance at all REIT properties where Holdings is a tenant and installment expenses for common area
maintenance, utilities and other operating expenses at REIT properties that are multi-tenant locations where
Holdings and other third parties are tenants. The initial amount of aggregate installment expenses under the Master
Lease is $70 million, based on estimated installment expenses, and will be reconciled annually based on actual
installment expenses. Holdings paid $40 million for 2015, recorded in Cost of sales, buying and occupancy.
Holdings and Seritage entered into a transition services agreement pursuant to which Holdings will provide
certain limited services to Seritage for up to 18 months. The services include specified facilities management,
accounting, treasury, tax, information technology, risk management, human resources, and related support services.
Under the terms of the transition services agreement, the scope and level of the facilities management services will
be substantially consistent with the scope and level of the services provided in connection with the operation of the
transferred properties held by Holdings prior to the closing of the Seritage transaction. Amounts due from Seritage
are generally settled on a net basis. Holdings invoices Seritage on at least a monthly basis. Revenues recognized
related to the transition services agreement were not material for 2015. At January 30, 2016, Holdings reported a net
amount receivable from Seritage of $7 million in the accounts receivable line of the Condensed Consolidated
Balance Sheets.
NOTE€16—SUPPLEMENTAL FINANCIAL INFORMATION
Other long-term liabilities at January€30, 2016 and€January€31, 2015 consisted of the following:€
millions
January 30,
2016
January 31,
2015
Unearned revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $694 $739
Self-insurance reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567 611
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470 499
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,731 $1,849
SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
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