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EXCEL - IDEA: XBRL DOCUMENT - SEARS HOLDINGS CORPFinancial_Report.xls
EX-32.2 - SECTION 906 CERTIFICATION OF CFO - SEARS HOLDINGS CORPshldex322q32014.htm
EX-32.1 - SECTION 906 CERTIFICATION OF CEO - SEARS HOLDINGS CORPshldex321q32014.htm
EX-31.2 - SECTION 302 CERTIFICATIONS OF CFO - SEARS HOLDINGS CORPshldex312q32014.htm
EX-10.1 - LOAN AGREEMENT - SEARS HOLDINGS CORPshldex101q32014.htm
EX-10.2 - GUARANTY - SEARS HOLDINGS CORPshldex102q32014.htm
EX-31.1 - SECTION 302 CERTIFICATIONS OF CEO - SEARS HOLDINGS CORPshldex311q32014.htm
                                            


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 1, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-51217, 001-36693
SEARS HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
DELAWARE
20-1920798
(State of Incorporation)
(I.R.S. Employer Identification No.)
 
 
3333 BEVERLY ROAD, HOFFMAN ESTATES, ILLINOIS
60179
(Address of principal executive offices)
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (847) 286-2500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x               No    ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes    x          No    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   x  Accelerated filer    ¨   Non-accelerated filer    ¨   Smaller reporting company    ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes    ¨            No    x
As of November 28, 2014, the registrant had 106,507,702 common shares, $0.01 par value, outstanding.
 




SEARS HOLDINGS CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
13 and 39 Weeks Ended November 1, 2014 and November 2, 2013
 
 
 
 
Page
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 4.
 
 
 
Item 6.




SEARS HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
 
13 Weeks Ended
 
39 Weeks Ended
millions, except per share data
November 1,
2014
 
November 2,
2013
 
November 1,
2014
 
November 2,
2013
REVENUES
 
 
 
 
 
 
 
Merchandise sales and services(1)
$
7,207

 
$
8,272

 
$
23,099

 
$
25,595

COSTS AND EXPENSES
 
 
 
 
 
 
 
Cost of sales, buying and occupancy(1)
5,606

 
6,341

 
17,928

 
19,322

Selling and administrative
2,011

 
2,262

 
6,218

 
6,771

Depreciation and amortization
148

 
181

 
455

 
559

Impairment charges

 
6

 
25

 
14

Gain on sales of assets
(68
)
 
(21
)
 
(148
)
 
(276
)
Total costs and expenses
7,697

 
8,769

 
24,478

 
26,390

Operating loss
(490
)
 
(497
)
 
(1,379
)
 
(795
)
Interest expense
(78
)
 
(61
)
 
(221
)
 
(181
)
Interest and investment income
97

 
8

 
133

 
29

Other income
2

 
1

 
4

 

Loss before income taxes
(469
)
 
(549
)
 
(1,463
)
 
(947
)
Income tax (expense) benefit
(159
)
 
2

 
(188
)
 
(19
)
Net loss
(628
)
 
(547
)
 
(1,651
)
 
(966
)
(Income) loss attributable to noncontrolling interests
80

 
13

 
128

 
(41
)
NET LOSS ATTRIBUTABLE TO HOLDINGS' SHAREHOLDERS
$
(548
)
 
$
(534
)
 
$
(1,523
)
 
$
(1,007
)
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO HOLDINGS' SHAREHOLDERS
 
 
 
 
 
 
 
Basic loss per share
$
(5.15
)
 
$
(5.03
)
 
$
(14.33
)
 
$
(9.49
)
Diluted loss per share
$
(5.15
)
 
$
(5.03
)
 
$
(14.33
)
 
$
(9.49
)
Basic weighted average common shares outstanding
106.4

 
106.1

 
106.3

 
106.1

Diluted weighted average common shares outstanding
106.4

 
106.1

 
106.3

 
106.1

(1) Includes merchandise sales to Sears Hometown and Outlet Stores, Inc. ("SHO") of $329 million and $364 million for the 13 weeks ended November 1, 2014 and November 2, 2013, respectively, and $1.1 billion for both the 39-week periods ended November 1, 2014 and November 2, 2013. Pursuant to the terms of the separation, merchandise is sold to SHO at cost.


See accompanying notes.

1


SEARS HOLDINGS CORPORATION
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
 
13 Weeks Ended
 
39 Weeks Ended
millions
November 1,
2014
 
November 2,
2013
 
November 1,
2014
 
November 2,
2013
Net loss
$
(628
)
 
$
(547
)
 
$
(1,651
)
 
$
(966
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
Pension and postretirement adjustments, net of tax
30

 
46

 
95

 
140

Deferred gain (loss) on derivatives, net of tax

 
2

 
(2
)
 
2

Currency translation adjustments, net of tax
(11
)
 

 
3

 
(27
)
Sears Canada de-consolidation
(186
)
 

 
(186
)
 

Total other comprehensive income (loss)
(167
)
 
48

 
(90
)
 
115

Comprehensive loss
(795
)
 
(499
)
 
(1,741
)
 
(851
)
Comprehensive (income) loss attributable to noncontrolling interests
401

 
11

 
438

 
(36
)
Comprehensive loss attributable to Holdings' shareholders
$
(394
)
 
$
(488
)
 
$
(1,303
)
 
$
(887
)
See accompanying notes.

2


SEARS HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
millions
November 1,
2014
 
November 2,
2013
 
February 1,
2014
ASSETS
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
$
326

 
$
599

 
$
1,028

Restricted cash

 
8

 
10

Accounts receivable(1)
546

 
541

 
553

Merchandise inventories
6,464

 
8,912

 
7,034

Prepaid expenses and other current assets
255

 
468

 
334

Total current assets
7,591

 
10,528

 
8,959

Property and equipment, net
4,561

 
5,682

 
5,394

Goodwill
269

 
379

 
379

Trade names and other intangible assets
2,104

 
2,858

 
2,850

Other assets
644

 
762

 
679

TOTAL ASSETS
$
15,169

 
$
20,209

 
$
18,261

LIABILITIES
 
 
 
 
 
Current liabilities
 
 
 
 
 
Short-term borrowings(2)
$
2,096

 
$
1,751

 
$
1,332

Current portion of long-term debt and capitalized lease obligations
75

 
82

 
83

Merchandise payables
2,431

 
3,517

 
2,496

Other current liabilities
2,100

 
2,510

 
2,527

Unearned revenues
825

 
912

 
900

Other taxes
406

 
473

 
460

Short-term deferred tax liabilities
481

 
430

 
387

Total current liabilities
8,414

 
9,675

 
8,185

Long-term debt and capitalized lease obligations(3)
2,769

 
2,862

 
2,834

Pension and postretirement benefits
1,320

 
2,387

 
1,942

Other long-term liabilities
1,830

 
2,039

 
2,008

Long-term deferred tax liabilities
710

 
919

 
1,109

Total Liabilities
15,043

 
17,882

 
16,078

Commitments and contingencies
 
 
 
 
 
EQUITY
 
 
 
 
 
Total Equity
126

 
2,327

 
2,183

TOTAL LIABILITIES AND EQUITY
$
15,169

 
$
20,209

 
$
18,261

(1) Includes $80 million, $57 million and $68 million at November 1, 2014, November 2, 2013 and February 1, 2014, respectively, of net amounts receivable from SHO.
(2)Includes $85 million and $140 million, respectively, of unsecured commercial paper held by ESL and its affiliates at November 1, 2014 and November 2, 2013. ESL and its affiliates held none of our commercial paper at February 1, 2014. Also includes a $400 million secured short-term loan with JPP II, LLC and JPP, LLC, entities affiliated with ESL, at November 1, 2014.
(3) Includes $205 million of senior secured notes held by ESL and its affiliates at November 1, 2014, and $95 million at both November 2, 2013 and February 1, 2014, and $3 million of subsidiary notes held by ESL and its affiliates at November 1, 2014, November 2, 2013 and February 1, 2014.
See accompanying notes.

3


SEARS HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
39 Weeks Ended
millions
November 1,
2014
 
November 2,
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(1,651
)
 
$
(966
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Deferred tax valuation allowance
152

 

Depreciation and amortization
455

 
559

Impairment charges
25

 
14

Gain on sales of assets
(148
)
 
(276
)
Gain on sales of investments
(105
)
 

Pension and postretirement plan contributions
(366
)
 
(326
)
Mark-to-market adjustments of financial instruments
(9
)
 

Settlement of Canadian dollar hedges
8

 

Change in operating assets and liabilities (net of acquisitions and dispositions):
 
 
 
Deferred income taxes
(40
)
 
7

Merchandise inventories
(430
)
 
(1,392
)
Merchandise payables
282

 
774

Income and other taxes
(48
)
 
22

Other operating assets
(58
)
 
28

Other operating liabilities
(9
)
 
(116
)
Net cash used in operating activities
(1,942
)
 
(1,672
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Proceeds from sales of property and investments
316

 
300

Net decrease in investments and restricted cash

 
1

Purchases of property and equipment
(202
)
 
(201
)
De-consolidation of Sears Canada cash
(207
)
 

Proceeds from Sears Canada rights offering
169

 

Net cash provided by investing activities
76

 
100

CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from debt issuances
400

 
994

Repayments of long-term debt
(61
)
 
(65
)
Increase in short-term borrowings, primarily 90 days or less
364

 
657

Lands' End, Inc. pre-separation funding
515

 

Separation of Lands' End, Inc.
(31
)
 

Debt issuance costs
(20
)
 
(14
)
Net cash provided by financing activities
1,167

 
1,572

Effect of exchange rate changes on cash and cash equivalents
(3
)
 
(10
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(702
)
 
(10
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
1,028

 
609

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
326

 
$
599

Supplemental Cash Flow Data:
 
 
 
Income taxes paid, net of refunds
$
94

 
$
(4
)
Cash interest paid
193

 
173

Unpaid liability to acquire equipment and software
20

 
44

Receivable related to Sears Canada rights offering
103

 

See accompanying notes.

4


SEARS HOLDINGS CORPORATION
Condensed Consolidated Statements of Equity
(Unaudited)
 
Equity Attributable to Holdings’ Shareholders
 
 
millions
Number
of
Shares
Common
Stock
Treasury
Stock
Capital in
Excess of
Par Value
Retained Earnings (Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
Total
Balance at February 2, 2013
106

$
1

$
(5,970
)
$
9,298

$
885

$
(1,459
)
$
417

$
3,172

Comprehensive loss
 
 
 
 
 
 
 
 
Net income (loss)




(1,007
)

41

(966
)
Pension and postretirement adjustments, net of tax





132

8

140

Deferred gain on derivatives, net of tax





2


2

Currency translation adjustments, net of tax





(14
)
(13
)
(27
)
Total Comprehensive Loss
 
 
 
 
 
 
 
(851
)
Stock awards


4

(1
)



3

Associate stock purchase


3





3

Balance at November 2, 2013
106

$
1

$
(5,963
)
$
9,297

$
(122
)
$
(1,339
)
$
453

$
2,327

Balance at February 1, 2014
106

$
1

$
(5,963
)
$
9,298

$
(480
)
$
(1,117
)
$
444

$
2,183

Comprehensive loss
 
 
 
 
 
 
 
 
Net loss




(1,523
)

(128
)
(1,651
)
Pension and postretirement adjustments, net of tax





90

5

95

Deferred loss on derivatives, net of tax





(2
)

(2
)
Currency translation adjustments, net of tax





4

(1
)
3

Sears Canada de-consolidation





128

(314
)
(186
)
Total Comprehensive Loss
 
 
 
 
 
 
 
(1,741
)
Stock awards


5

(4
)



1

Separation of Lands' End, Inc.



(323
)

2


(321
)
Associate stock purchase


4





4

Balance at November 1, 2014
106

$
1

$
(5,954
)
$
8,971

$
(2,003
)
$
(895
)
$
6

$
126








See accompanying notes.

5


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)


NOTE 1 – BASIS OF PRESENTATION
Sears Holdings Corporation ("Holdings") is the parent company of Kmart Holding Corporation ("Kmart") and Sears, Roebuck and Co. ("Sears"). Holdings (together with its subsidiaries, "we," "us," "our," or the "Company") was formed as a Delaware corporation in 2004 in connection with the merger of Kmart and Sears (the "Merger"), on March 24, 2005. We are an integrated retailer with 1,831 full-line and specialty retail stores in the United States, operating through Kmart and Sears. Through the third quarter of 2014, we conducted our operations under three reportable segments: Kmart, Sears Domestic and Sears Canada.
These interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full fiscal year. The retail business is seasonal in nature, and we generate a high proportion of our revenues and operating cash flows during the fourth quarter of our fiscal year, which includes the holiday season. These interim financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2014.
Depreciation Expense
Depreciation expense included within depreciation and amortization expense reported on the Condensed Consolidated Statements of Operations was $144 million, $441 million, $174 million, and $536 million for the 13- and 39- week periods ended November 1, 2014 and November 2, 2013, respectively.
Sears Canada Rights Offering
On October 2, 2014, the Company announced that its board of directors had approved a rights offering of up to 40 million shares of Sears Canada Inc. ("Sears Canada"). The subscription rights were distributed to all stockholders of Holdings, and every stockholder had the right to participate on the same terms in accordance with its pro rata ownership of the Company's common stock. In connection with the rights offering, each holder of Holdings' common stock received one subscription right for each share of common stock held at the close of business on October 16, 2014, the record date for the rights offering. Each subscription right entitled the holder thereof to purchase their pro rata portion of the Sears Canada common shares being sold by Holdings in the rights offering at a cash subscription price of Canadian $10.60 per whole Sears Canada share, which was the closing price of Sears Canada's common shares on September 26, 2014, the last trading day before the Company requested Sears Canada's cooperation with the filing of a prospectus regarding the rights offering.
On October 16, 2014, ESL Partners, L.P. and Edward S. Lampert, our Chairman and Chief Executive Officer and Chairman and Chief Executive Officer of ESL Investments, Inc., and related entities (collectively "ESL") exercised a portion of its pro rata portion of the basic subscription rights to the offering. Accordingly, we sold a total of approximately 18 million common shares of Sears Canada to ESL, for which we received approximately $169 million in proceeds. After the sale of Sears Canada shares to ESL on October 16, 2014, the Company was the beneficial holder of approximately 34 million shares, or 34%, of the common shares of Sears Canada. As such, the Company no longer maintained control of Sears Canada resulting in the de-consolidation of Sears Canada.
We accounted for the de-consolidation of Sears Canada in accordance with accounting standards applicable to consolidation and de-recognized the assets, liabilities, accumulated other comprehensive income and non-controlling interest related to Sears Canada and recognized a gain of approximately $70 million recorded within Interest and investment income on the Condensed Consolidated Statement of Operations and within Gain on sales of investments on the Condensed Consolidated Statements of Cash Flows for the 13- and 39- week periods ended November 1, 2014, of which $42 million relates to the remeasurement of our retained equity interest to its fair value.
Also, we determined that we have the ability to exercise significant influence over Sears Canada as a result of our ownership interest in Sears Canada and as a result of Mr. Lampert's role as our Chairman and Chief Executive

6


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Officer, and Chairman and Chief Executive Officer of ESL. Accordingly, we accounted for our retained investment in the common shares of Sears Canada as an equity method investment in accordance with accounting standards applicable to investments. We elected the fair value option for the equity method investment in Sears Canada in accordance with accounting standards applicable to financial instruments. The fair value of our equity method investment is disclosed in Note 4 to the Condensed Consolidated Financial Statements, and the change in fair value is recorded in Interest and investment income on the Condensed Consolidated Statement of Operations.
In addition, since the Company has retained an equity interest in Sears Canada, the operating results for Sears Canada through October 16, 2014 are presented within the condensed consolidated operations of Holdings and the Sears Canada segment in the accompanying Condensed Consolidated Financial Statements in accordance with accounting standards applicable to presentation of financial statements.
At November 1, 2014, basic subscription rights for approximately 29 million common shares of Sears Canada had been exercised with the subscription price paid in full, and the Company had received approximately $169 million of proceeds and had a receivable of approximately $103 million, included in Accounts receivable on the Condensed Consolidated Balance Sheet. This includes a total of approximately 19 million common shares of Sears Canada sold to ESL pursuant to ESL exercising its pro rata portion of basic subscription rights.
At November 1, 2014, the Company was the beneficial holder of approximately 23 million, or 23%, of the common shares of Sears Canada. At both November 2, 2013 and February 1, 2014, Sears Holdings was the beneficial holder of approximately 52 million, or 51%, of the common shares of Sears Canada.
Rights Offering of Units Consisting of Senior Unsecured Notes and Warrants
On October 20, 2014, the Company announced its board of directors had approved a rights offering allowing its stockholders to purchase up to $625 million in aggregate principal amount of 8% senior unsecured notes due 2019 and warrants to purchase shares of its common stock.
The subscription rights were distributed to all stockholders of the Company as of October 30, 2014, the record date for this rights offering, and every stockholder will have the right to participate on the same terms in accordance with its pro rata ownership of the Company's common stock. Holders of the Company's restricted stock that is unvested as of the record date are expected to receive cash awards in lieu of subscription rights.
Separation of Lands' End, Inc.
On April 4, 2014, we completed the separation of our Lands' End business through a spin-off transaction. The separation was structured to be tax free to our U.S. shareholders for U.S. federal income tax purposes. Prior to the separation, Lands' End, Inc. ("Lands' End") entered into an asset-based senior secured revolving credit facility, which provides for maximum borrowings of approximately $175 million with a letter of credit sub-limit, and a senior secured term loan facility of approximately $515 million. The proceeds of the term loan facility were used to fund a $500 million dividend to Holdings and pay fees and expenses associated with the foregoing facilities. We accounted for this spin-off in accordance with accounting standards applicable to spin-off transactions. Accordingly, we classified the carrying value of net assets of $323 million contributed to Lands' End as a reduction of capital in excess of par value in the Condensed Consolidated Statement of Equity for the 39-week period ended November 1, 2014.
Additionally, as a result of Mr. Lampert's role as our Chairman and Chief Executive Officer, and Chairman and Chief Executive Officer of ESL, and the continuing arrangements between Holdings and Lands' End (as further described in Note 13), Holdings has determined that it has significant influence over Lands' End. Accordingly, the operating results for Lands' End through the date of the spin-off are presented within the consolidated continuing operations of Holdings and the Sears Domestic segment in the accompanying Condensed Consolidated Financial Statements.
In connection with the separation, Holdings and certain of its subsidiaries entered into various agreements with Lands' End under the terms described in Note 13.

7


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Changes in the carrying amount of goodwill by segment, which reflects the impact related to the Lands' End spin-off, were as follows:
millions
Sears Domestic
Balance, February 1, 2014:
 
Goodwill
$
379

2014 activity:
 
Separation of Lands' End
(110
)
Balance, November 1, 2014
$
269

Changes in the carrying amount of trade names and other intangible assets by segment, which reflects the impact related to the Lands' End spin-off and de-consolidation of Sears Canada, were as follows:
millions
Kmart
 
Sears Domestic
 
Sears Canada
 
Total
Balance, February 1, 2014:
 
 
 
 
 
 
 
Trade names and intangible assets
$
3

 
$
2,651

 
$
196

 
$
2,850

2014 activity:
 
 
 
 
 
 
 
Separation of Lands' End

 
(531
)
 

 
(531
)
De-consolidation of Sears Canada

 

 
(194
)
 
(194
)
Amortization expense and other
(2
)
 
(17
)
 
(2
)
 
(21
)
Balance, November 1, 2014
$
1

 
$
2,103

 
$

 
$
2,104

NOTE 2 – BORROWINGS
Total borrowings were as follows:
millions
November 1,
2014
 
November 2,
2013
 
February 1,
2014
Short-term borrowings:
 
 
 
 
 
Unsecured commercial paper
$
91

 
$
160

 
$
9

Secured short-term loan
400

 

 

Secured borrowings
1,605

 
1,591

 
1,323

Long-term debt, including current portion:
 
 
 
 
 
Notes and debentures outstanding
2,564

 
2,571

 
2,571

Capitalized lease obligations
280

 
373

 
346

Total borrowings
$
4,940

 
$
4,695

 
$
4,249

The fair value of long-term debt, excluding capitalized lease obligations, was $2.3 billion at both November 1, 2014 and February 1, 2014 and $2.4 billion at November 2, 2013. The fair value of our debt was estimated based on quoted market prices for the same or similar issues or on current rates offered to us for debt of the same remaining maturities. Our long-term debt instruments are valued using Level 2 measurements as defined in Note 4 to the Condensed Consolidated Financial Statements.
Debt Repurchase Authorization
In 2005, our Finance Committee of the Board of Directors authorized the repurchase, subject to market conditions and other factors, of up to $500 million of our outstanding indebtedness in open market or privately negotiated transactions. Our wholly owned finance subsidiary, Sears Roebuck Acceptance Corp. ("SRAC"), has repurchased

8


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

$215 million of its outstanding notes. Holdings has repurchased $10 million of senior secured notes. The unused balance of this authorization is $275 million at November 1, 2014.
Unsecured Commercial Paper
We borrow through the commercial paper markets. At November 1, 2014November 2, 2013 and February 1, 2014, we had outstanding commercial paper borrowings of $91 million, $160 million and $9 million, respectively. ESL held $85 million and $140 million, respectively, of our commercial paper at November 1, 2014 and November 2, 2013, including $48 million and $88 million, respectively, held by Mr. Lampert. Neither ESL nor Mr. Lampert held any of our commercial paper at February 1, 2014. See Note 13 for further discussion of these borrowings.
Secured Short-Term Loan
On September 15, 2014, the Company, through Sears, Sears Development Co. and Kmart Corporation ("Borrowers"), entities wholly-owned and controlled, directly or indirectly by the Company, entered into a $400 million secured short-term loan (the "Loan'") with JPP II, LLC and JPP, LLC (together, the "Lender"), entities affiliated with ESL. The first $200 million of the Loan was funded at the closing on September 15, 2014 and the remaining $200 million was funded on September 30, 2014. Proceeds of the Loan were used for general corporate purposes.
The Loan is scheduled to mature on December 31, 2014, but as long as there is no event of default, the maturity date can be extended to February 28, 2015 at the discretion of the Company upon the payment of an extension fee equal to 0.5% of the principal amount. The Loan will have an annual base interest rate of 5%. The Borrowers paid an upfront fee of 1.75% of the full principal amount.
The Loan is guaranteed by the Company and is secured by a first priority lien on certain real properties owned by the Borrowers. In certain circumstances, the Lender may exercise its reasonable determination to substitute one or more of the properties with substitute properties. The Loan includes customary representations and covenants, including with respect to the condition and maintenance of the real property collateral.
The Loan has customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, failure to comply with covenants, material inaccuracy of representation or warranty, and bankruptcy or insolvency proceedings. If there is an event of default, the Lender may declare all or any portion of the outstanding indebtedness to be immediately due and payable, exercise any rights it might have under any of the Loan documents (including against the collateral), and instead of the base interest rate, the Borrowers will be required to pay a default rate equal to the greater of (i) 2.5% in excess of the base interest rate and (ii) the prime rate plus 1%. The Loan may be prepaid in whole or in part any time prior to maturity, without penalty or premium.
The Lender sold certain participating interests in the Loan during the third quarter, which may restrict the taking of certain actions with respect to the Loan, including the waiver of certain defaults under the Loan.
At November 1, 2014, the outstanding balance of the Loan was $400 million.
Domestic Credit Agreement
During the first quarter of 2011, SRAC, Kmart Corporation (together with SRAC, the "Borrowers") and Holdings entered into an amended credit agreement (the "Domestic Credit Agreement"). The Domestic Credit Agreement provides for a $3.275 billion asset-based revolving credit facility (the "Revolving Facility") with a $1.5 billion letter of credit sub-limit. On October 2, 2013, Holdings and the Borrowers entered into a First Amendment (the "Amendment") to the Domestic Credit Agreement with a syndicate of lenders. Pursuant to the Amendment, the Borrowers borrowed $1.0 billion under a senior secured term loan facility (the "Term Loan").
Advances under the Domestic Credit Agreement bear interest at a rate equal to, at the election of the Borrowers, either the London Interbank Offered Rate ("LIBOR") or a base rate, in either case plus an applicable margin. The Domestic Credit Agreement’s interest rates for LIBOR-based borrowings vary based on leverage in the range of LIBOR plus 2.0% to 2.5%. Interest rates for base rate-based borrowings vary based on leverage in the range of the applicable base rate plus 1.0% to 1.5%. Commitment fees are in a range of 0.375% to 0.625% based on usage. The Revolving Facility is in place as a funding source for general corporate purposes and is secured by a first lien on our domestic inventory and credit card and pharmacy receivables, and is subject to a borrowing base formula to

9


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

determine availability. The Domestic Credit Agreement permits aggregate second lien indebtedness of up to $2.0 billion, of which $1.2 billion in second lien notes were outstanding at November 1, 2014, resulting in $760 million of permitted second lien indebtedness, subject to limitations imposed by a borrowing base requirement under the indenture that governs our 6 5/8% senior secured notes due 2018. The Revolving Facility is expected to expire in April 2016.
The Term Loan bears interest at a rate equal to, at the election of the Borrowers, either (1) LIBOR (subject to a 1.00% LIBOR floor) or (2) the highest of (x) the prime rate of the bank acting as agent of the syndicate of lenders, (y) the federal funds rate plus 0.50% and (z) the one-month LIBOR rate plus 1.00% (the highest of (x), (y) and (z), the "Base Rate"), plus an applicable margin for LIBOR loans of 4.50% and for Base Rate loans of 3.50%. Beginning February 2, 2014, the Borrowers are required to repay the Term Loan in quarterly installments of $2.5 million, with the remainder of the Term Loan maturing June 30, 2018. Beginning with the fiscal year ending January 2015, the Borrowers are also required to make certain mandatory repayments of the Term Loan from excess cash flow (as defined in the Domestic Credit Agreement). The Term Loan may be prepaid in whole or part without penalty, other than a 1.00% prepayment premium if the Borrowers enter into certain repricing transactions with respect to the Term Loan prior to October 2, 2014, which did not occur. The Term Loan is secured by the same collateral as the Revolving Facility on a pari passu basis with the Revolving Facility, and is guaranteed by the same subsidiaries of the Company that guarantee the Revolving Facility.
The Domestic Credit Agreement limits our ability to make restricted payments, including dividends and share repurchases, subject to specified exceptions that are available if, in each case, no event of default under the credit facility exists immediately before or after giving effect to the restricted payment. These include exceptions that require that projected availability under the credit facility, as defined, is at least 15% and an exception that requires that the restricted payment is funded from cash on hand and not from borrowings under the credit facility or from the proceeds of certain dividends or asset sales. The Domestic Credit Agreement also imposes various other requirements, which take effect if availability falls below designated thresholds, including a cash dominion requirement and a requirement that the fixed charge ratio at the last day of any quarter be not less than 1.0 to 1.0. If availability were to fall below 10%, the Company would not comply with the springing fixed charge coverage ratio covenant, and the lenders under our domestic credit facility could demand immediate payment in full of all amounts outstanding and terminate their obligations under the facility.
We had Revolving Facility borrowings of $1.6 billion at both November 1, 2014 and November 2, 2013 and $1.3 billion at February 1, 2014, and $671 million, $684 million and $661 million of letters of credit outstanding under the Revolving Facility at November 1, 2014, November 2, 2013 and February 1, 2014, respectively. At November 1, 2014 and February 1, 2014, the amount available to borrow under the Revolving Facility was $234 million and $549 million, respectively, which reflects the effect of the springing fixed charge coverage ratio covenant and the borrowing base limitation. At November 2, 2013, the amount available to borrow was $572 million, which reflects the effect of the springing fixed charge coverage ratio covenant, while the borrowing base requirement had no effect on availability. The majority of the letters of credit outstanding are used to provide collateral for our insurance programs. We had borrowings of $993 million at November 1, 2014, and $1.0 billion at both November 2, 2013 and February 1, 2014, under the Term Loan.

10


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Senior Secured Notes
In October 2010, we sold $1.0 billion aggregate principal amount of senior secured notes (the "Notes"), which bear interest at 6 5/8% per annum and mature on October 15, 2018. Concurrent with the closing of the sale of the Notes, the Company sold $250 million aggregate principal amount of Notes to the Company's domestic pension plan in a private placement, of which approximately $110 million remains in the domestic pension plan. The Notes are guaranteed by certain subsidiaries of the Company and are secured by a security interest in certain assets consisting primarily of domestic inventory and credit card receivables (the "Collateral"). The lien that secures the Notes is junior in priority to the lien on such assets that secures obligations under the Domestic Credit Agreement, as well as certain other first priority lien obligations. The Company used the net proceeds of this offering to repay borrowings outstanding under a previous domestic credit agreement on the settlement date and to fund the working capital requirements of our retail businesses, capital expenditures and for general corporate purposes. The indenture under which the Notes were issued contains restrictive covenants that, among other things, (1) limit the ability of the Company and certain of its domestic subsidiaries to create liens and enter into sale and leaseback transactions and (2) limit the ability of the Company to consolidate with or merge into, or sell other than for cash or lease all or substantially all of its assets to, another person. The indenture also provides for certain events of default, which, if any were to occur, would permit or require the principal and accrued and unpaid interest on all the then outstanding notes to be due and payable immediately. Generally, the Company is required to offer to repurchase all outstanding Notes at a purchase price equal to 101% of the principal amount upon the occurrence of certain change of control triggering events. 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. The Company may call the Notes at a premium based on the "Treasury Rate" as defined in the indenture, plus 50 basis points. On September 6, 2011, we completed our offer to exchange the Notes held by nonaffiliates for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended.
Sears Canada Credit Agreement
In September 2010, Sears Canada entered into a five-year, $800 million Canadian senior secured revolving credit facility (the "Sears Canada Facility"). On May 28, 2014, Sears Canada announced that it had extended the term of the Sears Canada Facility (the "Amended Sears Canada Facility") to May 28, 2019 and reduced the total credit limit to $300 million Canadian.
The Amended Sears Canada Facility is available for Sears Canada's general corporate purposes and is secured by a first lien on inventory and credit card receivables. Availability under the Amended Sears Canada Facility is determined pursuant to a borrowing base formula based on inventory and credit card receivables, subject to certain limitations, up to a maximum availability of $300 million Canadian. We had no borrowings outstanding under the Sears Canada Facility at November 2, 2013 and February 1, 2014. Availability under the Amended Sears Canada Facility was approximately $729 million ($760 million Canadian) and $336 million ($374 million Canadian), respectively, at November 2, 2013 and February 1, 2014.
Wholly owned Insurance Subsidiary and Intercompany Securities
We have numerous types of insurable risks, including workers' compensation, product and general liability, automobile, warranty, asbestos and environmental claims and the extended service contracts we sell to our customers. In addition, we provide credit insurance to third party creditors of the Company to mitigate their credit risk with the Company. The associated risks are managed through Holdings' wholly owned insurance subsidiary, Sears Reinsurance Company Ltd. ("Sears Re"), a Bermuda Class 3 insurer.
In accordance with applicable insurance regulations, Sears Re holds marketable securities to support the insurance coverage it provides. Sears has utilized two securitization structures to issue specific securities in which Sears Re has invested its capital to fund its insurance obligations. In November 2003, Sears formed a Real Estate Mortgage Investment Conduit ("REMIC"). The real estate associated with 125 Full-line stores was contributed to indirect wholly owned subsidiaries of Sears, and then leased back to Sears. The contributed stores were mortgaged and the REMIC issued to wholly owned subsidiaries of Sears (including Sears Re) $1.3 billion (par value) of securities (the

11


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

"REMIC Securities") that are secured by the mortgages and collateral assignments of the store leases. Payments to the holders on the REMIC Securities are funded by the lease payments. In May 2006, a subsidiary of Holdings contributed the rights to use the Kenmore, Craftsman and DieHard trademarks in the U.S. and its possessions and territories to KCD IP, LLC, an indirect wholly owned subsidiary of Holdings. KCD IP, LLC has licensed the use of the trademarks to subsidiaries of Holdings, including Sears and Kmart. Asset-backed securities with a par value of $1.8 billion (the "KCD Securities") were issued by KCD IP, LLC and subsequently purchased by Sears Re, the collateral for which includes the trademark rights and royalty income. Payments to the holders on the KCD Securities are funded by the royalty payments. The issuers of the REMIC Securities and KCD Securities and the owners of these real estate and trademark assets are bankruptcy remote, special purpose entities that are indirect wholly owned subsidiaries of Holdings. Cash flows received from rental streams and licensing fee streams paid by Sears, Kmart, other affiliates and third parties, are used for the payment of fees and interest on these securities. In the fourth quarter of fiscal 2013, Holdings contributed all of the outstanding capital stock of Sears Re to SRe Holding Corporation, a direct wholly owned subsidiary of Holdings. Sears Re thereafter reduced its excess statutory capital through the distribution of all REMIC Securities held by it to SRe Holding Corporation. Since the inception of the REMIC and KCD IP, LLC, the REMIC Securities and the KCD Securities have been entirely held by our wholly owned consolidated subsidiaries. At November 1, 2014, November 2, 2013 and February 1, 2014, the net book value of the securitized trademark rights was approximately $1.0 billion. The net book value of the securitized real estate assets was approximately $0.7 billion at November 1, 2014, November 2, 2013 and February 1, 2014.
Trade Creditor Matters
We have ongoing discussions concerning our liquidity and financial position with the vendor community and third parties that offer various credit protection services to our vendors. The topics discussed have included such areas as pricing, payment terms and ongoing business arrangements. As of the date of this report, we have not experienced any significant disruption in our access to merchandise or our operations.
NOTE 3 – DERIVATIVE FINANCIAL INSTRUMENTS
We primarily use derivatives as a risk management tool to decrease our exposure to fluctuations in the foreign currency market, and do not use derivative financial instruments for trading or speculative purposes. We were exposed to fluctuations in foreign currency exchange rates as a result of our net investment in Sears Canada. We had no outstanding derivatives at November 1, 2014. The recorded amounts and corresponding gains on the hedging activity were not material at November 2, 2013 or February 1, 2014, or for the 13- and 39- week periods ended November 2, 2013.
Hedges of Net Investment in Sears Canada
During the third quarter of 2014, we entered into foreign currency forward contracts with a total Canadian notional value of $300 million. These contracts were originally designated and qualified as hedges of the foreign currency exposure of our net investment in Sears Canada. On October 16, 2014, we settled foreign currency forward contracts with a total Canadian notional value of $187 million and de-designated the remaining contracts with a total Canadian notional value of $113 million as hedges, which were settled on October 27, 2014.
For derivatives that were designated as hedges of our net investment in Sears Canada, we assessed effectiveness based on changes in forward currency exchange rates. Changes in forward rates on the derivatives were recorded in the currency translation adjustments line in accumulated other comprehensive loss prior to the de-consolidation of Sears Canada on October 16, 2014. Subsequent to that date, the change in forward rates on the remaining derivative contracts that were no longer designated as hedges was recorded in interest and investment income in the Condensed Consolidated Statements of Operations.
We settled foreign currency forward contracts during the 13- and 39- week periods ended November 1, 2014 and received a net amount of $8 million relative to these contract settlements.

12


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

NOTE 4 – FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
We determine fair value of financial assets and liabilities based on the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels:
Level 1 inputs – unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.
Level 2 inputs – inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates.
Level 3 inputs – unobservable inputs for the asset or liability.
Accounts receivable, merchandise payables, short-term borrowings, accrued liabilities, cash and domestic cash equivalents are reflected in the Condensed Consolidated Balance Sheets at cost, which approximates fair value due to the short-term nature of these instruments. The fair value of our long-term debt is disclosed in Note 2 to the Condensed Consolidated Financial Statements. The following tables provide the fair value measurement amounts for other financial assets and liabilities recorded in our Condensed Consolidated Balance Sheets at fair value at November 1, 2014November 2, 2013 and February 1, 2014:
millions
Total Fair Value Amounts at November 1, 2014
 
Level 1
 
Level 2
 
Level 3
Equity method investments(4)
$
225

 
$
225

 
$

 
$

Total
$
225

 
$
225

 
$

 
$

millions
Total Fair Value Amounts at November 2, 2013
 
Level 1
 
Level 2
 
Level 3
Cash equivalents(1)
$
154

 
$
154

 
$

 
$

Restricted cash(2)
8

 
8

 

 

Foreign currency derivative assets(3)
4

 

 
4

 

Total
$
166

 
$
162

 
$
4

 
$

millions
Total Fair Value Amounts at February 1, 2014
 
Level 1
 
Level 2
 
Level 3
Cash equivalents(1)
$
346

 
$
346

 
$

 
$

Restricted cash(2)
10

 
10

 

 

Foreign currency derivative assets(3)
8

 

 
8

 

Total
$
364

 
$
356

 
$
8

 
$

(1) 
Included within Cash and cash equivalents in our Condensed Consolidated Balance Sheets.
(2) 
Included within Restricted cash in our Condensed Consolidated Balance Sheets.
(3) 
Included within Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.
(4) 
Included within Other assets in our Condensed Consolidated Balance Sheets.

13


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

The fair values of derivative assets and liabilities traded in the over-the-counter market are determined using quantitative models that require the use of multiple inputs including interest rates, prices and indices to generate pricing and volatility factors. The predominance of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. Our derivative instruments are valued using Level 2 measurements.
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible fixed assets, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on our Condensed Consolidated Balance Sheets. For these assets, we do not periodically adjust carrying value to fair value except in the event of impairment. When we determine that impairment has occurred, we measure the impairment and adjust the carrying value. With the exception of the fixed asset impairments described in Note 5, we had no significant remeasurements of such assets or liabilities to fair value during the 13- and 39- week periods ended November 1, 2014 and November 2, 2013.
All of the fair value remeasurements were based on significant unobservable inputs (Level 3). Fixed asset fair values were derived based on discussions with real estate brokers, review of comparable properties, if available, and internal expertise related to the current marketplace conditions.
NOTE 5 – STORE CLOSING CHARGES, IMPAIRMENTS AND REAL ESTATE TRANSACTIONS
In accordance with accounting standards governing costs associated with exit or disposal activities, expenses related to future rent payments for which we no longer intend to receive any economic benefit are accrued for when we cease to use the leased space and have been reduced for any income that we believe can be realized through sub-leasing the leased space. During the third quarter of 2014, we closed 27 stores in our Kmart segment and six stores in our Sears Domestic segment we previously announced would close, and recorded charges for the related lease obligations of $3 million for 17 of these stores in our Kmart segment and $2 million for two of these stores in our Sears Domestic segment. During the first nine months of 2014, we closed 102 stores in our Kmart segment and 27 stores in our Sears Domestic segment we previously announced would close, and recorded charges for the related lease obligations of $14 million for 68 of these stores in our Kmart segment and $5 million for 14 of these stores in our Sears Domestic segment.
We expect to record additional charges of approximately $50 million during the remainder of 2014 related to stores we had previously made the decision to close.
During the third quarter of 2013, we closed 12 stores in our Kmart segment and 6 stores in our Sears Domestic segment we previously announced would close. During the first nine months of 2013, we closed 39 stores in our Kmart segment and 16 stores in our Sears Domestic segment we previously announced would close, and recorded charges for the related lease obligations of $1 million for four of these stores in our Kmart segment.
We made the decision to close 73 stores in our Kmart segment and 37 stores in our Sears Domestic segment during the third quarter of 2014, and 113 stores in our Kmart segment and 43 stores in our Sears Domestic segment during the first nine months of 2014.
We made the decision to close 27 stores in our Kmart segment and four stores in our Sears Domestic segment during the third quarter of 2013, and 52 stores in our Kmart segment and 16 stores in our Sears Domestic segment during the first nine months of 2013.

14


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Store closing costs and severance recorded for the 13- and 39- week periods ended November 1, 2014 and November 2, 2013 were as follows:
millions
Markdowns(1)
 
Severance Costs(2)
 
Lease Termination Costs(2)
 
Other Charges(2)
 
Impairment and Accelerated Depreciation(3)
 
Total Store Closing Costs
Kmart
$
31

 
$
6

 
$

 
$
11

 
$
2

 
$
50

Sears Domestic
10

 
3

 
1

 
6

 
4

 
24

Sears Canada

 
1

 

 

 

 
1

Total for the 13-week period ended November 1, 2014
$
41

 
$
10

 
$
1

 
$
17

 
$
6

 
$
75

 
 
 
 
 
 
 
 
 
 
 
 
Kmart
$
12

 
$
3

 
$
(2
)
 
$
4

 
$
6

 
$
23

Sears Domestic
1

 

 
(34
)
 
1

 
2

 
(30
)
Sears Canada

 
15

 

 

 

 
15

Total for the 13-week period ended November 2, 2013
$
13

 
$
18

 
$
(36
)
 
$
5

 
$
8

 
$
8

 
 
 
 
 
 
 
 
 
 
 
 
Kmart
$
46

 
$
10

 
$
11

 
$
17

 
$
5

 
$
89

Sears Domestic
12

 
5

 
3

 
7

 
12

 
39

Sears Canada
1

 
10

 
5

 

 

 
16

Total for the 39-week period ended November 1, 2014
$
59

 
$
25

 
$
19

 
$
24

 
$
17

 
$
144

 
 
 
 
 
 
 
 
 
 
 
 
Kmart
$
21

 
$
5

 
$
(3
)
 
$
10

 
$
7

 
$
40

Sears Domestic
7

 
2

 
(40
)
 
4

 
11

 
(16
)
Sears Canada

 
17

 

 

 

 
17

Total for the 39-week period ended November 2, 2013
$
28

 
$
24

 
$
(43
)
 
$
14

 
$
18

 
$
41

_____________
(1) 
Recorded within Cost of sales, buying and occupancy on the Condensed Consolidated Statements of Operations.
(2) 
Recorded within Selling and administrative on the Condensed Consolidated Statements of Operations. Lease termination costs are net of estimated sublease income, and include the reversal of closed store reserves for which the lease agreement has been terminated and the reversal of deferred rent balances related to closed stores.
(3) 
Costs for the 13-week period ended November 1, 2014 are recorded within Depreciation and amortization on the Condensed Consolidated Statement of Operations. Costs for the 13-week period ended November 2, 2013 include $5 million recorded within Impairment charges and $3 million recorded within Depreciation and amortization on the Condensed Consolidated Statement of Operations. Costs for the 39-week periods ended November 1, 2014 and November 2, 2013 include $10 million and $13 million recorded within Impairment charges, respectively, and $7 million and $5 million recorded within Depreciation and amortization, respectively, on the Condensed Consolidated Statements of Operations.

15


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Store closing cost accruals of $153 million, $149 million and $199 million at November 1, 2014, November 2, 2013 and February 1, 2014, respectively, were as follows:
millions
Severance
Costs
 
Lease
Termination
Costs
 
Other
Charges
 
Total
Balance at November 2, 2013
$
37

 
$
96

 
$
16

 
$
149

Store closing costs
35

 
27

 
6

 
68

Store closing capital lease obligations

 
2

 

 
2

Payments/utilizations
(9
)
 
(6
)
 
(5
)
 
(20
)
Balance at February 1, 2014
63

 
119

 
17

 
199

Store closing costs
25

 
21

 
24

 
70

Payments/utilizations
(66
)
 
(28
)
 
(22
)
 
(116
)
Balance at November 1, 2014
$
22

 
$
112

 
$
19

 
$
153

Long-Lived Assets
In accordance with accounting standards governing the impairment or disposal of long-lived assets, we performed an impairment test of certain of our long-lived assets (principally the value of buildings and other fixed assets associated with our stores) due to events and changes in circumstances during the 13-week period ended August 2, 2014 that indicated an impairment might have occurred. The impairment review was triggered by a decline in operating performance at certain locations within the Sears Canada segment. As a result of this impairment testing, the Company recorded impairment charges of $15 million during the 39- week period ended November 1, 2014 at Sears Canada.
Real Estate Transactions
During the first nine months of 2014, we recorded gains on the sales of assets of $148 million in connection with real estate transactions, which included a gain of $42 million recognized on the sale of two Sears Full-line stores for which we received $64 million of cash proceeds, $13 million recognized on the sale of a distribution facility in our Sears Domestic segment for which we received $16 million of cash proceeds and a gain of $10 million recognized on the sale of a Kmart store for which we received $10 million of cash proceeds.
Also, during the third quarter of 2014, we entered into an agreement for the sale of a Sears Full-line store for which we received $90 million of cash proceeds, and will receive an additional $12 million of cash proceeds. The gain will be deferred until we have surrendered substantially all of our rights and obligations.
Additionally, during the first nine months of 2014, we recorded investment income of $35 million related to the sale of joint venture interests for which Sears Canada received $65 million ($71 million Canadian) in cash proceeds.
During the first nine months of 2013, we recorded gains on the sales of assets of $276 million in connection with real estate transactions which included a gain of $180 million recognized in the second quarter on the amendment and early termination of the leases on two properties operated by Sears Canada for which Sears Canada received $184 million ($191 million Canadian) in cash proceeds. Gains on sales of assets recorded in the first nine months of 2013 also included gains of $55 million related to the sale of a store previously operated under The Great Indoors format, two Sears Full-line stores and one Kmart store for which the Company received $86 million of cash proceeds.

16


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

NOTE 6 – EQUITY
Accumulated Other Comprehensive Loss
The following table displays the components of accumulated other comprehensive loss:
millions
November 1,
2014
 
November 2,
2013
 
February 1,
2014
Pension and postretirement adjustments (net of tax of $(296), $(441) and $(328), respectively)
$
(893
)
 
$
(1,276
)
 
$
(1,036
)
Cumulative unrealized derivative gain (net of tax of $0 for all periods presented)

 
2

 
2

Currency translation adjustments (net of tax of $(0), $(39) and $(38), respectively)
(2
)
 
(65
)
 
(83
)
Accumulated other comprehensive loss
$
(895
)
 
$
(1,339
)
 
$
(1,117
)
Pension and postretirement adjustments relate to the net actuarial loss on our pension and postretirement plans recognized as a component of accumulated other comprehensive loss.
Accumulated other comprehensive loss attributable to noncontrolling interests at November 2, 2013 and February 1, 2014 was $69 million and $53 million, respectively.
Income Tax Expense Allocated to Each Component of Other Comprehensive Income
Income tax expense allocated to each component of other comprehensive income was as follows:
 
13 Weeks Ended November 1, 2014
 
13 Weeks Ended November 2, 2013
millions
Before
Tax
Amount
 
Tax
Expense
 
Net of
Tax
Amount
 
Before
Tax
Amount
 
Tax Expense
 
Net of
Tax
Amount
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
Pension and postretirement adjustments(1)
$
30

 
$

 
$
30

 
$
48

 
$
(2
)
 
$
46

Deferred loss on derivatives

 

 

 
2

 

 
2

Currency translation adjustments
(11
)
 

 
(11
)
 
1

 
(1
)
 

Sears Canada de-consolidation
(186
)
 

 
(186
)
 

 

 

Total other comprehensive income
$
(167
)
 
$

 
$
(167
)
 
$
51

 
$
(3
)
 
$
48

 
39 Weeks Ended November 1, 2014
 
39 Weeks Ended November 2, 2013
millions
Before
Tax
Amount
 
Tax
Expense
 
Net of
Tax
Amount
 
Before
Tax
Amount
 
Tax (Expense) Benefit
 
Net of
Tax
Amount
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
Pension and postretirement adjustments(1)
$
98

 
$
(3
)
 
$
95

 
$
145

 
$
(5
)
 
$
140

Deferred loss on derivatives
(2
)
 

 
(2
)
 
2

 

 
2

Currency translation adjustments
4

 
(1
)
 
3

 
(27
)
 

 
(27
)
Sears Canada de-consolidation
(186
)
 

 
(186
)
 

 

 

Total other comprehensive income
$
(86
)
 
$
(4
)
 
$
(90
)
 
$
120

 
$
(5
)
 
$
115

(1) 
Included in the computation of net periodic benefit expense. See Note 7 to the Condensed Consolidated Financial Statements.
Common Share Repurchase Program
During the 13- and 39- week periods ended November 1, 2014 and November 2, 2013, we did not repurchase any shares of our common stock under our common share repurchase program. At November 1, 2014, we had approximately $504 million of remaining authorization under our common share repurchase program.

17


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

The share repurchase program has no stated expiration date and share repurchases may be implemented using a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, the purchase of call options, the sale of put options or otherwise, or by any combination of such methods.
NOTE 7 – BENEFIT PLANS
Pension and Postretirement Benefit Plans
We provide benefits to certain associates who are eligible under various defined benefit pension plans, contributory defined benefit pension plans and other postretirement plans, primarily retiree medical benefits. For purposes of determining the periodic expense of our defined benefit plans, we use the fair value of plan assets as the market related value. The following table summarizes the components of total net periodic benefit expense, recorded within Selling and administrative on the Condensed Consolidated Statements of Operations, for our retirement plans:
 
13 Weeks Ended
 
39 Weeks Ended
millions
November 1,
2014
 
November 2,
2013
 
November 1,
2014
 
November 2,
2013
Components of net periodic expense:
 
 
 
 
 
 
 
Interest cost
$
68

 
$
75

 
$
219

 
$
225

Expected return on plan assets
(75
)
 
(75
)
 
(244
)
 
(229
)
Amortization of experience losses
30

 
48

 
92

 
145

Net periodic expense
$
23

 
$
48

 
$
67

 
$
141

Contributions
During the 13- and 39- week periods ended November 1, 2014, we made total contributions of $161 million and $366 million, respectively, to our pension and postretirement plans. During the 13- and 39- week periods ended November 2, 2013, we made total contributions of $150 million and $326 million, respectively, to our pension and postretirement plans. We anticipate making aggregate contributions to our domestic defined benefit and postretirement plans of approximately $92 million over the remainder of 2014, which is lower than previously anticipated due to new legislation which was recently enacted that amends existing funding requirements for our domestic pension plans.
NOTE 8 – INCOME TAXES
We had gross unrecognized tax benefits of $120 million at November 1, 2014, $142 million at November 2, 2013 and $150 million at February 1, 2014. Of the amount at November 1, 2014, $78 million, would, if recognized, impact our effective tax rate, with the remaining amount being comprised of unrecognized tax benefits related to gross temporary differences or any other indirect benefits. During the 13-week period ended November 1, 2014, gross unrecognized tax benefits decreased by $21 million. During the 39-week period ended November 1, 2014, gross unrecognized tax benefits decreased by $29 million due to the Lands' End spin-off and Sears Canada's de-consolidation. During the 13-week period ended November 2, 2013, we made no changes to gross unrecognized tax benefits. During the 39-week period ended November 2, 2013, gross unrecognized tax benefits decreased by $19 million due to federal, foreign and state audit activity. We expect that our unrecognized tax benefits could decrease by as much as $6 million over the next 12 months for tax audit settlements and the expiration of the statute of limitations for certain jurisdictions.
We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of income tax expense. At November 1, 2014, November 2, 2013 and February 1, 2014, the total amount of interest and penalties included in our tax accounts in our Condensed Consolidated Balance Sheet was $48 million ($31 million net of federal benefit), $53 million ($36 million net of federal benefit), and $53 million ($36 million net of federal benefit), respectively. We recognized a negligible net interest benefit (net of federal benefit) for the 13-week period and $3 million net interest expense (net of federal benefit) for the 39-week period ended November 1, 2014, in our Condensed Consolidated Statements of Operations.

18


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

On April 4, 2014, Holdings and Lands' End entered into a tax sharing agreement in connection with the spin-off. Pursuant to this agreement, Holdings is responsible for all pre-separation U.S. federal, state and local income taxes attributable to the Lands’ End business, and Lands’ End is responsible for all other income taxes attributable to its business, including all foreign taxes.
We file income tax returns in the United States, as well as various foreign jurisdictions. The IRS has completed its examination of all federal income tax returns of Holdings through the 2009 return, and all matters arising from such examinations have been resolved. In addition, Holdings and Sears are under examination by various state, local and foreign income tax jurisdictions for the years 2002 through 2012, and Kmart is under examination by such jurisdictions for the years 2003 through 2012.
At the end of 2013, we had a federal and state net operating loss ("NOL") deferred tax asset of $1.2 billion, which will expire predominately between 2019 and 2034. We have credit carryforwards of $721 million, which will expire between 2015 and 2034.
In connection with the Sears Canada Rights Offering in the third quarter of 2014, the Company incurred a taxable gain of approximately $72 million on the subscription rights exercised and common shares sold during the quarter. There was no income tax payable balance resulting from the taxable gain due to the utilization of NOL attributes of approximately $21 million and a valuation allowance release of the same amount.
At February 1, 2014, we had a valuation allowance of $3.4 billion to record only the portion of the deferred tax asset that more likely than not will be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted in the future if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth. We will continue to evaluate our valuation allowance as the year progresses for any change in circumstances that causes a change in judgment about the realizability of the deferred tax asset.
During the third quarter of 2014, management evaluated the continued realizability of Sears Canada’s deferred tax assets. Management assessed the available positive evidence and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of negative evidence evaluated was the recent and anticipated profitability were lower than previously anticipated. The Company also considered the impact on the timing of the implementation of strategic initiatives at Sears Canada to improve profitability due to their recent senior management changes and realization that certain strategies would not achieve previously expected targets.
In assessing the realizability of Sears Canada's deferred tax assets, management considered the four sources of taxable income included in the accounting standards applicable for income taxes. Of these four sources of taxable income, Sears Canada was only able to avail itself of future reversals of existing taxable differences and taxable income in prior carryback years to realize a tax benefit of an existing deductible temporary difference.
On the basis of this analysis and the significant negative evidence that it was no longer probable that sufficient future taxable income would be available to allow the deferred tax assets to be realizable at the end of September 2014, a valuation allowance of $152 million was added to record only the portion of the deferred tax asset that more likely than not will be realized. We recognized the full $152 million valuation allowance charge during the third quarter of 2014 in continuing operations.
The application of the requirements for accounting for income taxes in interim periods, after consideration of our valuation allowance, causes a significant variation in the typical relationship between income tax expense and pretax accounting income. For the third quarter of 2014, our effective income tax rate was an expense of 33.9%. Our tax rate continues to reflect the effect of not recognizing the benefit of current period losses in certain domestic jurisdictions where it is not more likely than not that such benefits would be realized. In addition, the first nine months of 2014 was negatively impacted by a valuation allowance established on Sears Canada's deferred tax assets in the third quarter, prior to de-consolidation, and increased foreign taxes in Puerto Rico resulting from a new tax law change which became effective during the second quarter of 2014. These were partially offset by state audit settlements.

19


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

NOTE 9 – SUMMARY OF SEGMENT DATA
These reportable segment classifications are based on our business formats, as described in Note 1. The Kmart and Sears Canada formats each represent both an operating and reportable segment. As a result of the de-consolidation of Sears Canada as described in Note 1, Sears Canada is no longer an operating or reportable segment, and the segment results presented below reflect the operating results for Sears Canada through October 16, 2014. The Sears Domestic reportable segment consists of the aggregation of several business formats. These formats are evaluated by our Chief Operating Decision Maker ("CODM") to make decisions about resource allocation and to assess performance.
Each of these segments derives its revenues from the sale of merchandise and related services to customers, primarily in the United States and Canada. The merchandise and service categories are as follows:
(i)
Hardlines—consists of home appliances, consumer electronics, lawn & garden, tools & hardware, automotive parts, household goods, toys, housewares and sporting goods;
(ii)
Apparel and Soft Home—includes women's, men's, kids', footwear, jewelry, accessories and soft home;
(iii)
Food and Drug—consists of grocery & household, pharmacy and drugstore;
(iv)
Service—includes repair, installation and automotive service and extended contract revenue; and
(v)
Other—includes revenues earned in connection with our agreements with SHO and Lands' End, as well as credit revenues and licensed business revenues.
 
13 Weeks Ended November 1, 2014
millions
Kmart
 
Sears
Domestic
 
Sears
Canada
 
Sears
Holdings
Merchandise sales and services
 
 
 
 
 
 
 
Hardlines
$
793

 
$
2,029

 
$
327

 
$
3,149

Apparel and Soft Home
842

 
770

 
255

 
1,867

Food and Drug
1,050

 
2

 

 
1,052

Service
5

 
574

 
20

 
599

Other
17

 
514

 
9

 
540

Total merchandise sales and services
2,707

 
3,889

 
611

 
7,207

Costs and expenses
 
 
 
 
 
 
 
Cost of sales, buying and occupancy
2,147

 
3,002

 
457

 
5,606

Selling and administrative
708

 
1,131

 
172

 
2,011

Depreciation and amortization
25

 
110

 
13

 
148

Gain on sales of assets
(24
)
 
(44
)
 

 
(68
)
Total costs and expenses
2,856

 
4,199

 
642

 
7,697

Operating loss
$
(149
)
 
$
(310
)
 
$
(31
)
 
$
(490
)
Total assets
$
4,259

 
$
10,910

 
$

 
$
15,169

Capital expenditures
$
11

 
$
52

 
$
13

 
$
76


20


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

 
13 Weeks Ended November 2, 2013
millions
Kmart
 
Sears
Domestic
 
Sears
Canada
 
Sears
Holdings
Merchandise sales and services
 
 
 
 
 
 
 
Hardlines
$
822

 
$
2,084

 
$
472

 
$
3,378

Apparel and Soft Home
913

 
1,174

 
421

 
2,508

Food and Drug
1,162

 
2

 

 
1,164

Service
4

 
631

 
32

 
667

Other
15

 
528

 
12

 
555

Total merchandise sales and services
2,916

 
4,419

 
937

 
8,272

Costs and expenses
 
 
 
 
 
 
 
Cost of sales, buying and occupancy
2,327

 
3,326

 
688

 
6,341

Selling and administrative
745

 
1,244

 
273

 
2,262

Depreciation and amortization
31

 
128

 
22

 
181

Impairment charges
3

 
2

 
1

 
6

Gain on sales of assets
(19
)
 
(2
)
 

 
(21
)
Total costs and expenses
3,087

 
4,698

 
984

 
8,769

Operating loss
$
(171
)
 
$
(279
)
 
$
(47
)
 
$
(497
)
Total assets
$
4,780

 
$
13,013

 
$
2,416

 
$
20,209

Capital expenditures
$
17

 
$
55

 
$
13

 
$
85



 
39 Weeks Ended November 1, 2014
millions
Kmart
 
Sears
Domestic
 
Sears
Canada
 
Sears
Holdings
Merchandise sales and services
 
 
 
 
 
 
 
Hardlines
$
2,502

 
$
6,542

 
$
1,100

 
$
10,144

Apparel and Soft Home
2,728

 
2,562

 
880

 
6,170

Food and Drug
3,234

 
6

 

 
3,240

Service
13

 
1,770

 
77

 
1,860

Other
50

 
1,604

 
31

 
1,685

Total merchandise sales and services
8,527

 
12,484

 
2,088

 
23,099

Costs and expenses
 
 
 
 
 
 
 
Cost of sales, buying and occupancy
6,790

 
9,552

 
1,586

 
17,928

Selling and administrative
2,128

 
3,487

 
603

 
6,218

Depreciation and amortization
72

 
334

 
49

 
455

Impairment charges
2

 
8

 
15

 
25

(Gain) loss on sales of assets
(76
)
 
(73
)
 
1

 
(148
)
Total costs and expenses
8,916

 
13,308

 
2,254

 
24,478

Operating loss
$
(389
)
 
$
(824
)
 
$
(166
)
 
$
(1,379
)
Total assets
$
4,259

 
$
10,910

 
$

 
$
15,169

Capital expenditures
$
31

 
$
139

 
$
32

 
$
202


21


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

 
39 Weeks Ended November 2, 2013
millions
Kmart
 
Sears
Domestic
 
Sears
Canada
 
Sears
Holdings
Merchandise sales and services
 
 
 
 
 
 
 
Hardlines
$
2,697

 
$
6,725

 
$
1,397

 
$
10,819

Apparel and Soft Home
2,909

 
3,459

 
1,162

 
7,530

Food and Drug
3,521

 
8

 

 
3,529

Service
13

 
1,902

 
100

 
2,015

Other
47

 
1,615

 
40

 
1,702

Total merchandise sales and services
9,187

 
13,709

 
2,699

 
25,595

Costs and expenses
 
 
 
 
 
 
 
Cost of sales, buying and occupancy
7,184

 
10,163

 
1,975

 
19,322

Selling and administrative
2,205

 
3,800

 
766

 
6,771

Depreciation and amortization
97

 
390

 
72

 
559

Impairment charges
3

 
10

 
1

 
14

Gain on sales of assets
(47
)
 
(48
)
 
(181
)
 
(276
)
Total costs and expenses
9,442

 
14,315

 
2,633

 
26,390

Operating income (loss)
$
(255
)
 
$
(606
)
 
$
66

 
$
(795
)
Total assets
$
4,780

 
$
13,013

 
$
2,416

 
$
20,209

Capital expenditures
$
42

 
$
131

 
$
28

 
$
201

 
 
 
 
 
 
 
 

22


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

NOTE 10 – SUPPLEMENTAL FINANCIAL INFORMATION
Other long-term liabilities at November 1, 2014November 2, 2013 and February 1, 2014 consisted of the following:
millions
November 1,
2014
 
November 2,
2013
 
February 1,
2014
Unearned revenues
$
754

 
$
849

 
$
836

Self-insurance reserves
688

 
697

 
686

Other
388

 
493

 
486

Total
$
1,830

 
$
2,039

 
$
2,008

NOTE 11 – LEGAL PROCEEDINGS
We are a defendant in several lawsuits containing class or collective action allegations in which the plaintiffs are current and former hourly and salaried associates who allege violations of various wage and hour laws, rules and regulations pertaining to alleged misclassification of certain of our employees and the failure to pay overtime and/or the failure to pay for missed meal and rest periods. The complaints generally seek unspecified monetary damages, injunctive relief, or both. Further, certain of these proceedings are in jurisdictions with reputations for aggressive application of laws and procedures against corporate defendants. We also are a defendant in several putative or certified class action lawsuits in California relating to alleged failure to comply with California laws pertaining to certain operational, marketing and payroll practices. The California laws alleged to have been violated in each of these lawsuits provide the potential for significant statutory penalties. At this time, the Company is not able to either predict the outcome of these lawsuits or reasonably estimate a potential range of loss with respect to the lawsuits.
We are subject to various other legal and governmental proceedings and investigations, including some involving the practices and procedures in our more highly regulated businesses. Some matters contain class action allegations, environmental and asbestos exposure allegations and other consumer-based, regulatory or qui tam claims, each of which may seek compensatory, punitive or treble damage claims (potentially in large amounts), as well as other types of relief. Additionally, some of these claims or actions, such as the qui tam claims, have the potential for significant statutory penalties.
In accordance with accounting standards regarding loss contingencies, we accrue an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements to not be misleading. We do not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.
Because litigation outcomes are inherently unpredictable, our evaluation of legal proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. If the assessments indicate that loss contingencies that could be material to any one of our financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then we disclose the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. While the consequences of certain unresolved proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material effect on our earnings in any given reporting period. However, in the opinion of our management, after consulting with legal counsel, and taking into account insurance and reserves, the ultimate liability related to current outstanding matters is not expected to have a material effect on our financial position, liquidity or capital resources.
NOTE 12 – RECENT ACCOUNTING PRONOUNCEMENTS
Presentation of Financial Statements - Going Concern
In August 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standards update which requires management to assess whether there are conditions or events, considered in the aggregate, that raise

23


SEARS HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. If substantial doubt exists, additional disclosures are required. This update will be effective for the Company in the fourth quarter of 2016. The adoption of the new standard is not expected to have a material impact on the Company’s consolidated financial position, results of operations, cash flows or disclosures.
Revenue from Contracts with Customers
In May 2014, the FASB issued an accounting standards update which replaces the current revenue recognition standards. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update will be effective for the Company in the first quarter of 2017 and may be applied retrospectively for each period presented or as a cumulative-effect adjustment at the date of adoption. The Company is evaluating the effect of adopting this new standard.
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
In April 2014, the FASB issued an accounting standards update which modifies the requirements for disposals to qualify as discontinued operations and expands related disclosure requirements. The update will be effective for the Company in the first quarter of 2015, and early adoption of the update is permitted. The adoption of the update may impact whether future disposals qualify as discontinued operations and therefore could impact the Company's financial statement presentation and disclosures.
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
In July 2013, the FASB issued an accounting standards update which requires an unrecognized tax benefit to be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward that the entity intends to use and is available for settlement at the reporting date. The update was effective and adopted by the Company in the first quarter of 2014 and impacted the Company's disclosures, but otherwise did not have a material impact on the Company's condensed consolidated financial position, results of operations or cash flows.
NOTE 13 – RELATED PARTY DISCLOS