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ý
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE 52 WEEKS ENDED JANUARY 28, 2017
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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D
ELAWARE
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80-0808358
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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5500 TRILLIUM BOULEVARD, SUITE 501 HOFFMAN ESTATES, ILLINOIS
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60192
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(Address of Principal Executive Offices)
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(Zip Code)
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Title of Each Class
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Name of Exchange on Which Registered
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Common Stock, par value $0.01 per share
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The NASDAQ Stock Market
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Large accelerated filer
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¨
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Accelerated filer
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ý
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Non-accelerated filer
(Do not check if a smaller reporting company)
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¨
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Smaller reporting company
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¨
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Page
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PART I
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Item 1.
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Busines
s
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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PART II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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PART III
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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PART IV
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Item 15.
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Item 16.
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•
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Hometown Stores
. Our Hometown Stores and website offer products and services across a wide selection of merchandise categories, including home appliances, lawn and garden equipment, tools, sporting goods, and household goods, with the majority of business driven by big-ticket home appliance and lawn and garden sales. Most of our Hometown Stores carry Sears-branded products, including products branded with the KENMORE
®
, CRAFTSMAN
®
, and DIEHARD
®
marks (the "KCD Marks"), and an assortment of other national brands. Primarily independently operated, predominantly located in smaller communities and averaging approximately 8,500 square feet, Hometown Stores are designed to serve trade areas that may not support a full-service big-box retailer. As of
January 28, 2017
, there were 795 Hometown Stores in all 50 states, Puerto Rico and Bermuda. Hometown Stores also sell products and services through our website www.searshometownstores.com. Independent dealers operated 789, and we operated six, Hometown Stores.
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•
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Hardware Stores
. Our Hardware Stores and website offer products and services across a wide selection of merchandise categories with sales primarily driven by home appliances, lawn and garden equipment, tools, and other home improvement products. In addition, these stores offer certain proprietary in-store services, such as blade sharpening, key cutting, and screen repair, as well as products typically found in local hardware stores, such as fasteners, electrical supplies, and plumbing supplies. Our Hardware Stores have operated as two formats: "traditional" and "neighborhood", with size being the differentiating factor between the two formats. Our "traditional" Hardware Stores average nearly 28,000 square feet in size. Our "neighborhood" Hardware Stores are much smaller in size, averaging 16,000 to 18,000 square feet, and yet, through our multichannel capability, continue to offer the same breadth and depth of inventory as our "traditional" Hardware Stores. Our Hardware Stores, regardless of size, are primarily located in suburban trade areas and are positioned as local stores
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•
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Home Appliance Showrooms
. Our Home Appliance Showrooms and website offer home appliances and related services in stores primarily located in strip malls and lifestyle centers in metropolitan areas. Averaging 5,000 square feet with a simple, primarily appliance-showroom design, our Home Appliance Showrooms offer quality-focused customers a unique store shopping experience. Home Appliance Showroom sales are primarily driven by home appliances as well as, in certain stores, mattresses. These stores carry Kenmore and other national brands of home appliances. As of
January 28, 2017
, there were 50 Home Appliance Showrooms in 16 states. Home Appliance Showrooms also sell products and services through our website www.searshomeapplianceshowroom.com. Franchisees operated 34 of these stores, we operated 16 stores.
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Inventory procurement from third-party vendors, including KCD Products and other products which collectively account for a majority of our revenue;
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Logistical, supply chain, and inventory support services;
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Accounting and financial reporting services;
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Risk management, tax, and insurance services;
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Online, computer and information technology infrastructure (including the point-of-sale system used by the Company and our dealers and franchisees) and support;
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Our websites are partially hosted and maintained by a subsidiary of Sears Holdings and purchases made on our websites are processed by a subsidiary of Sears Holdings;
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Certain of our store leases and the leases for stores that we have subleased, or in the future may sublease, to franchisees or others are leased or subleased to us by subsidiaries of Sears Holdings until their expiration at which time we will be required to renegotiate with the landlords directly;
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Our stores continue to use the Sears brand name, and other intellectual property owned by Sears Holdings through our license agreements with Sears Holdings;
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Our stores continue to participate in the SYW program and rely on the customer data and other information provided by the SYW program; and
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Our stores continue to accept Sears-branded credit cards.
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Expansion into the suburban and rural trade areas in which many of our stores operate;
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Lower pricing, particularly with respect to new, in-box appliances;
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Expanding the offering of free delivery and installation of merchandise and other consumer benefits;
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Expanding online sales;
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Extension of credit to customers on terms more favorable than we offer; and
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Larger store size, which may result in greater operational efficiencies, or innovative store formats, and use of disruptive technology.
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Actions by our competitors, including opening of new stores in our existing trade areas or changes to the way these competitors conduct business online;
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Increases to the level of discount on promotional pricing of new-in-box appliances in the industry, which could continue to adversely impact our sales of out-of-box appliances and associated margin;
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The Extent to which we are able to generate profitable sales of merchandise and services on our transactional ecommerce websites in the amounts we have planned to generate;
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The availability on commercially reasonable terms of the various types of inventory that we need to sell for the profitable operation of our stores;
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Changes in our merchandise strategy and mix;
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Real estate and maintenance costs for our existing stores (including disagreements between SHO and Sears Holdings regarding their respective responsibilities for these costs);
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Changes in population and other demographics;
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Timing and effectiveness of our promotional events;
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Weather conditions, including level of rainfall, particularly drought, level of snowfall, average temperature, major storms, and delays in, or advances to, the start of seasonal changes;
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The availability of locations for new stores that can be operated profitability by the Company and by our dealers and franchisees; and
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The growth of online shopping in which we may not be able to fully participate
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our ability to satisfy obligations to lenders may be impaired, resulting in possible defaults on and acceleration of our indebtedness;
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our ability to obtain additional financing for refinancing of existing indebtedness, working capital, capital expenditures, product and service development, acquisitions, general corporate purposes and other purposes may be impaired;
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a substantial portion of our cash flow from operations could be dedicated to the payment of the principal and interest on our debt;
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we may be increasingly vulnerable to economic downturns and increases in interest rates;
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our flexibility in planning for and reacting to changes in our business and the retail industry may be limited; and
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we may be placed at a competitive disadvantage relative to other companies in our industry.
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Our business profile and market capitalization may not continue to fit the investment objectives of some stockholders and, as a result, these stockholders may sell our shares;
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Actual or anticipated fluctuations in our operating results due to factors related to our business;
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Our ability to decrease our reliance on products and services provided by Sears Holdings and ability to diversify our supply chain;
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Success or failure of our business strategy;
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Sears Holdings' financial performance, condition, and prospects, including the risk of insolvency proceedings;
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Our relationship with Sears Holdings;
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Actual or anticipated changes in the U.S. economy or the retailing environment;
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Our quarterly or annual earnings, or those of other companies in our industry;
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Our ability to obtain third-party financing as needed;
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Announcements by us or our competitors of significant acquisitions or dispositions;
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The failure of securities analysts to cover our common stock;
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Changes in earnings estimates by securities analysts or our ability to meet those estimates;
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The operating and stock price performance of other comparable companies;
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Overall market fluctuations;
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Changes in laws and regulations affecting our business;
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Actual or anticipated sales or distributions of our capital stock by our officers, directors or significant stockholders;
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Terrorist acts or wars; and
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General economic conditions and other external factors.
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Store Openings & Closures
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Fiscal Year
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2014
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2015
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2016
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Beginning Store Count
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1,260
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1,260
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1,160
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Store Openings
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45
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37
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20
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Store Closures
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(45
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)
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(137
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(160
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)
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Ending Store Count
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1,260
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1,160
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1,020
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Hometown
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Outlet
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Company Operated
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Dealer/Franchise
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Company Operated
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Franchise
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BR
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Bermuda
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—
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1
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—
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—
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AK
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Alaska
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—
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1
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—
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—
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AL
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Alabama
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—
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28
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1
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—
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AR
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Arkansas
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—
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33
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—
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—
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AZ
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Arizona
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—
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16
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—
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5
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CA
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California
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2
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37
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13
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6
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CO
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Colorado
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1
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16
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4
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—
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CT
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Connecticut
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1
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2
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2
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—
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DE
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Delaware
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—
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3
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1
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—
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FL
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Florida
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—
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20
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13
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—
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GA
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Georgia
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—
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30
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4
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—
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HI
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Hawaii
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—
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1
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1
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—
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IA
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Iowa
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—
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16
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—
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—
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ID
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Idaho
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—
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8
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—
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1
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IL
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Illinois
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4
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24
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8
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1
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IN
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Indiana
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1
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23
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2
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—
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KS
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Kansas
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—
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23
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1
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1
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KY
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Kentucky
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1
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20
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1
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—
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LA
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Louisiana
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—
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21
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2
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—
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MA
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Massachusetts
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—
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4
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3
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—
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MD
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Maryland
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1
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4
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3
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—
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ME
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Maine
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—
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9
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—
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—
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MI
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Michigan
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—
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32
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4
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1
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MN
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Minnesota
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—
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23
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2
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—
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MO
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Missouri
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3
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33
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|
—
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3
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MS
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Mississippi
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—
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23
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—
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—
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MT
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Montana
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—
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11
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—
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—
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NC
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North Carolina
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—
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26
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2
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3
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ND
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North Dakota
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—
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5
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—
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—
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NE
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Nebraska
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—
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10
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|
—
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—
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NH
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New Hampshire
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1
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8
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|
—
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—
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NJ
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New Jersey
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4
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2
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6
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—
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NM
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New Mexico
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—
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8
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1
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—
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NV
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Nevada
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—
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6
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3
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—
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NY
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New York
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—
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19
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3
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—
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OH
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Ohio
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3
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19
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8
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—
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OK
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Oklahoma
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—
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22
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|
—
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—
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OR
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Oregon
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—
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24
|
|
—
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2
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PA
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Pennsylvania
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9
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13
|
|
6
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—
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PR
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Puerto Rico
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—
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9
|
|
1
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—
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RI
|
Rhode Island
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—
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3
|
|
—
|
—
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SC
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South Carolina
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—
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14
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|
1
|
1
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SD
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South Dakota
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—
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5
|
|
—
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—
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TN
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Tennessee
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—
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17
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|
4
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—
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TX
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Texas
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5
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77
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|
5
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11
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UT
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Utah
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—
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6
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|
—
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—
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VA
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Virginia
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—
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14
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3
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—
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VT
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Vermont
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—
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8
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|
—
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—
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WA
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Washington
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1
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17
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|
1
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2
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WV
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West Virginia
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—
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8
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|
3
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—
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WI
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Wisconsin
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1
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24
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|
—
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—
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WY
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Wyoming
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—
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7
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|
—
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—
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Total
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38
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833
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112
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37
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Hometown
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Outlet
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Company operated stores owned
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—
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2
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Leased
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38
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110
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Total company operated
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38
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112
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Independently owned and operated
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833
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37
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Total store count as of 1/28/2017
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871
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149
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Name
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Age
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Position
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Will Powell
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46
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Chief Executive Officer and President and a Director
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Michael A. Gray
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45
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Senior Vice President, Store Operations
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Ryan D. Robinson
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51
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Senior Vice President, Chief Administrative Officer, and Chief Financial Officer
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David J. Buckley
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49
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Chief Marketing Officer and Vice President, eCommerce
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Philip M. Etter
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52
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Vice President, Human Resources
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Charles J. Hansen
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69
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Vice President, General Counsel, and Secretary
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Michael P. McCarthy
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55
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Chief Merchandising Officer and Vice President, Merchandising and Inventory
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2016
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High
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Low
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||||
First Quarter
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$
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7.04
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$
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5.30
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Second Quarter
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7.14
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5.38
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Third Quarter
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6.88
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4.75
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Fourth Quarter
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7.25
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3.70
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2015
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High
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Low
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First Quarter
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$
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13.93
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$
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6.80
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Second Quarter
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9.92
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|
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6.65
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Third Quarter
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8.95
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|
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6.50
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Fourth Quarter
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|
9.60
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|
|
6.78
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|
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2/1/13
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1/31/14
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1/30/15
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1/29/16
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1/27/17
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||||||||||
SHOS
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|
$
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131.65
|
|
|
$
|
68.42
|
|
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$
|
36.99
|
|
|
$
|
22.69
|
|
|
$
|
12.39
|
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S&P 500 INDEX
|
|
$
|
105.92
|
|
|
$
|
124.78
|
|
|
$
|
139.65
|
|
|
$
|
135.82
|
|
|
$
|
160.63
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S&P 500 RETAILING INDEX
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|
$
|
103.89
|
|
|
$
|
134.64
|
|
|
$
|
159.88
|
|
|
$
|
184.76
|
|
|
$
|
216.70
|
|
•
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The Pre-Separation Financial Information reflects the results of operations, financial positions, and cash flows of Sears Hometown and Hardware and Sears Outlet prior to their consolidation into SHO, which may not reflect the results of operations, financial positions, and cash flows of SHO had it been a single combined business entity pre-Separation;
|
•
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The Pre-Separation Financial Information does not reflect changes resulting from the Separation and the integration of the Sears Hometown and Hardware and the Sears Outlet businesses into a single combined business entity, including changes in the cost structure, personnel needs, financing, and operation of the businesses; and
|
•
|
The Pre-Separation Financial Information reflects assumptions made, and allocations for services and expenses historically provided to the Sears Hometown and Hardware and the Sears Outlet businesses, by Sears Holdings. Those assumptions and allocations may not reflect the costs and expenses we would have incurred as a single combined business entity.
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|
|
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|||||||||||||||||
Fiscal years and thousands except for per share amounts and number of stores
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
||||||||||
Consolidated Statement of Operations Data (1)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net sales
|
|
$
|
2,070,056
|
|
|
$
|
2,287,788
|
|
|
$
|
2,356,033
|
|
|
$
|
2,421,562
|
|
|
$
|
2,453,606
|
|
Net income (loss)
|
|
$
|
(131,919
|
)
|
|
$
|
(27,261
|
)
|
|
$
|
(168,805
|
)
|
|
$
|
35,550
|
|
|
$
|
60,080
|
|
Per Common Share Data (2)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
|
$
|
(5.81
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(7.45
|
)
|
|
$
|
1.55
|
|
|
$
|
2.60
|
|
Diluted
|
|
$
|
(5.81
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(7.45
|
)
|
|
$
|
1.55
|
|
|
$
|
2.60
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total assets
|
|
$
|
468,426
|
|
|
$
|
633,833
|
|
|
$
|
645,722
|
|
|
$
|
847,185
|
|
|
$
|
785,803
|
|
Long-term debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Long-term capital lease obligations
|
|
$
|
274
|
|
|
$
|
382
|
|
|
$
|
176
|
|
|
$
|
95
|
|
|
$
|
769
|
|
Other Financial and Operational Data
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Adjusted EBITDA (3)
|
|
$
|
(18,521
|
)
|
|
$
|
9,386
|
|
|
$
|
2,047
|
|
|
$
|
45,907
|
|
|
$
|
98,638
|
|
Number of stores
|
|
1,020
|
|
|
1,160
|
|
|
1,260
|
|
|
1,260
|
|
|
1,245
|
|
|||||
Sears Outlet - Comparable Store Sales %
|
|
(5.1
|
)%
|
|
(4.1
|
)%
|
|
(1.2
|
)%
|
|
1.2
|
%
|
|
(0.8
|
)%
|
|||||
Sears Hometown and Hardware - Comparable Store Sales %
|
|
(4.2
|
)%
|
|
(0.1
|
)%
|
|
(7.1
|
)%
|
|
(3.2
|
)%
|
|
1.0
|
%
|
(1)
|
Our fiscal year end is the Saturday closest to January 31 each year. Fiscal year 2012 was a 53-week year and fiscal years 2016, 2015, 2014, 2013, were 52-week years.
|
(2)
|
23,100,000 shares outstanding effective upon completion of the Separation are used for Fiscal year 2012.
|
(3)
|
Adjusted EBITDA
—In addition to our net income (loss) determined in accordance with GAAP, for purposes of evaluating operating performance, we use Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, or "adjusted EBITDA," which is adjusted to exclude certain significant items as set forth below. Our management uses adjusted EBITDA, among other metrics, to evaluate the operating performance of our business for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items, and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA should not be considered as a substitute for GAAP measurements.
|
•
|
EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and
|
•
|
Other significant items, while periodically affecting our results, may vary significantly from period to period and may have a disproportionate effect in a given period, which affects comparability of results. These items may also include cash charges such as Severance and executive transition costs and IT transformation investments that make it difficult for investors to assess the Company's core operating performance.
|
|
|
Fiscal
|
||||||||||
thousands
|
|
2016
|
|
2015
|
|
2014
|
||||||
Net Loss
|
|
$
|
(131,919
|
)
|
|
$
|
(27,261
|
)
|
|
$
|
(168,805
|
)
|
Income tax (benefit) expense
|
|
81,491
|
|
|
(15,152
|
)
|
|
(3,066
|
)
|
|||
Other income
|
|
(1,490
|
)
|
|
(2,585
|
)
|
|
(3,149
|
)
|
|||
Interest expense
|
|
4,263
|
|
|
2,826
|
|
|
3,861
|
|
|||
Operating loss
|
|
(47,655
|
)
|
|
(42,172
|
)
|
|
(171,159
|
)
|
|||
Depreciation and amortization
|
|
13,458
|
|
|
10,562
|
|
|
8,935
|
|
|||
Gain on the sale of assets
|
|
(25,203
|
)
|
|
—
|
|
|
(113
|
)
|
|||
Impairment of goodwill, property, and equipment
|
|
9,356
|
|
|
3,984
|
|
|
168,237
|
|
|||
Severance and executive transition costs
|
|
—
|
|
|
1,066
|
|
|
—
|
|
|||
Initial franchise revenues net of provision for losses
|
|
(552
|
)
|
|
25,086
|
|
|
(3,853
|
)
|
|||
IT transformation investments
|
|
14,974
|
|
|
10,860
|
|
|
—
|
|
|||
Accelerated closure of under-performing stores
|
|
17,101
|
|
|
—
|
|
|
—
|
|
|||
Adjusted EBITDA
|
|
$
|
(18,521
|
)
|
|
$
|
9,386
|
|
|
$
|
2,047
|
|
•
|
795 Hometown Stores—Primarily independently operated stores, predominantly located in smaller communities, and offering home appliances, lawn and garden equipment, tools, sporting goods, and household goods. Most of our Hometown Stores carry proprietary Sears-branded products, such as Kenmore, Craftsman, and DieHard, as well as a wide assortment of other national brands.
|
•
|
26 Hardware Stores—Hardware stores that offer primarily home appliances, lawn and garden equipment, tools, and other home improvement products, and featuring Kenmore, Craftsman, and DieHard, as well as a wide assortment of other national brands.
|
•
|
50
Home Appliance Showrooms—Stores that have a simple, primarily appliance showroom design that are located in metropolitan areas.
|
thousands
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Fiscal Year Total
|
||||||||||
|
2016
|
||||||||||||||||||
Hometown
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Outlet
|
(200
|
)
|
|
—
|
|
|
6
|
|
|
—
|
|
|
(194
|
)
|
|||||
Total
|
$
|
(200
|
)
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
(194
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
2015
|
||||||||||||||||||
Hometown
|
$
|
(6
|
)
|
|
$
|
(102
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(108
|
)
|
Outlet
|
496
|
|
|
(60
|
)
|
|
13
|
|
|
—
|
|
|
449
|
|
|||||
Total
|
$
|
490
|
|
|
$
|
(162
|
)
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
341
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
2014
|
||||||||||||||||||
Hometown
|
$
|
(194
|
)
|
|
$
|
172
|
|
|
$
|
336
|
|
|
$
|
—
|
|
|
$
|
314
|
|
Outlet
|
3,482
|
|
|
5,236
|
|
|
6,159
|
|
|
1,717
|
|
|
16,594
|
|
|||||
Total
|
$
|
3,288
|
|
|
$
|
5,408
|
|
|
$
|
6,495
|
|
|
$
|
1,717
|
|
|
$
|
16,908
|
|
Fiscal year
|
|
Ended
|
|
Weeks
|
2016
|
|
January 28, 2017
|
|
52
|
2015
|
|
January 30, 2016
|
|
52
|
2014
|
|
January 31, 2015
|
|
52
|
|
|
Fiscal
|
||||||||||
thousands
|
|
2016
|
|
2015
|
|
2014
|
||||||
NET SALES
|
|
$
|
2,070,056
|
|
|
$
|
2,287,788
|
|
|
$
|
2,356,033
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
1,661,314
|
|
|
1,769,286
|
|
|
1,803,497
|
|
|||
Gross margin
|
|
408,742
|
|
|
518,502
|
|
|
552,536
|
|
|||
Margin rate
|
|
19.7
|
%
|
|
22.7
|
%
|
|
23.5
|
%
|
|||
Selling and administrative
|
|
458,786
|
|
|
546,128
|
|
|
546,636
|
|
|||
Selling and administrative expense as a percentage of net sales
|
|
22.2
|
%
|
|
23.9
|
%
|
|
23.2
|
%
|
|||
Impairment of goodwill, property, and equipment
|
|
9,356
|
|
|
3,984
|
|
|
168,237
|
|
|||
Depreciation and amortization
|
|
13,458
|
|
|
10,562
|
|
|
8,935
|
|
|||
Gain on the sale of assets
|
|
(25,203
|
)
|
|
—
|
|
|
(113
|
)
|
|||
Total costs and expenses
|
|
2,117,711
|
|
|
2,329,960
|
|
|
2,527,192
|
|
|||
Operating loss
|
|
(47,655
|
)
|
|
(42,172
|
)
|
|
(171,159
|
)
|
|||
Interest expense
|
|
(4,263
|
)
|
|
(2,826
|
)
|
|
(3,861
|
)
|
|||
Other income
|
|
1,490
|
|
|
2,585
|
|
|
3,149
|
|
|||
Loss before income taxes
|
|
(50,428
|
)
|
|
(42,413
|
)
|
|
(171,871
|
)
|
|||
Income tax (expense) benefit
|
|
(81,491
|
)
|
|
15,152
|
|
|
3,066
|
|
|||
NET LOSS
|
|
$
|
(131,919
|
)
|
|
$
|
(27,261
|
)
|
|
$
|
(168,805
|
)
|
•
|
EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and
|
•
|
Other significant items, while periodically affecting our results, may vary significantly from period to period and may have a disproportionate effect in a given period, which affects comparability of results. These items may also include cash charges such as Severance and executive transition costs and IT transformation investments that make it difficult for investors to assess the Company's core operating performance.
|
|
|
Fiscal
|
||||||||||
thousands
|
|
2016
|
|
2015
|
|
2014
|
||||||
Net Loss
|
|
$
|
(131,919
|
)
|
|
$
|
(27,261
|
)
|
|
$
|
(168,805
|
)
|
Income tax (benefit) expense
|
|
81,491
|
|
|
(15,152
|
)
|
|
(3,066
|
)
|
|||
Other income
|
|
(1,490
|
)
|
|
(2,585
|
)
|
|
(3,149
|
)
|
|||
Interest expense
|
|
4,263
|
|
|
2,826
|
|
|
3,861
|
|
|||
Operating loss
|
|
(47,655
|
)
|
|
(42,172
|
)
|
|
(171,159
|
)
|
|||
Depreciation and amortization
|
|
13,458
|
|
|
10,562
|
|
|
8,935
|
|
|||
Gain on the sale of assets
|
|
(25,203
|
)
|
|
—
|
|
|
(113
|
)
|
|||
Impairment of goodwill, property, and equipment
|
|
9,356
|
|
|
3,984
|
|
|
168,237
|
|
|||
Severance and executive transition costs
|
|
—
|
|
|
1,066
|
|
|
—
|
|
|||
Initial franchise revenues net of provision for losses
|
|
(552
|
)
|
|
25,086
|
|
|
(3,853
|
)
|
|||
IT transformation investments
|
|
14,974
|
|
|
10,860
|
|
|
—
|
|
|||
Accelerated closure of under-performing stores
|
|
17,101
|
|
|
—
|
|
|
—
|
|
|||
Adjusted EBITDA
|
|
$
|
(18,521
|
)
|
|
$
|
9,386
|
|
|
$
|
2,047
|
|
|
|
Fiscal Year
|
||||||||||
thousands, except for number of stores
|
|
2016
|
|
2015
|
|
2014
|
||||||
Net sales
|
|
$
|
1,439,563
|
|
|
$
|
1,630,276
|
|
|
$
|
1,692,377
|
|
Comparable store sales %
|
|
(4.2
|
)%
|
|
(0.1
|
)%
|
|
(7.1
|
)%
|
|||
Cost of sales and occupancy
|
|
1,145,678
|
|
|
1,262,215
|
|
|
1,297,212
|
|
|||
Gross margin
|
|
293,885
|
|
|
368,061
|
|
|
395,165
|
|
|||
Margin rate
|
|
20.4
|
%
|
|
22.6
|
%
|
|
23.3
|
%
|
|||
Selling and administrative
|
|
318,589
|
|
|
378,141
|
|
|
403,367
|
|
|||
Selling and administrative expense as a percentage of net sales
|
|
22.1
|
%
|
|
23.2
|
%
|
|
23.8
|
%
|
|||
Impairment of goodwill, property, and equipment
|
|
4,536
|
|
|
1,983
|
|
|
167,618
|
|
|||
Depreciation and amortization
|
|
6,032
|
|
|
3,585
|
|
|
3,199
|
|
|||
(Gain) Loss on the sale of assets
|
|
69
|
|
|
—
|
|
|
(113
|
)
|
|||
Total costs and expenses
|
|
1,474,904
|
|
|
1,645,924
|
|
|
1,871,283
|
|
|||
Operating loss
|
|
$
|
(35,341
|
)
|
|
$
|
(15,648
|
)
|
|
$
|
(178,906
|
)
|
Total Sears Hometown and Hardware stores
|
|
871
|
|
|
1,001
|
|
|
1,109
|
|
|
|
Fiscal
|
||||||||||
thousands, except for number of stores
|
|
2016
|
|
2015
|
|
2014
|
||||||
Net sales
|
|
$
|
630,493
|
|
|
$
|
657,512
|
|
|
$
|
663,656
|
|
Comparable store sales %
|
|
(4.9
|
)%
|
|
(4.1
|
)%
|
|
(1.2
|
)%
|
|||
Cost of sales and occupancy
|
|
515,636
|
|
|
507,071
|
|
|
506,285
|
|
|||
Gross margin
|
|
114,857
|
|
|
150,441
|
|
|
157,371
|
|
|||
Margin rate
|
|
18.2
|
%
|
|
22.9
|
%
|
|
23.7
|
%
|
|||
Selling and administrative
|
|
140,197
|
|
|
167,987
|
|
|
143,269
|
|
|||
Selling and administrative expense as a percentage of net sales
|
|
22.2
|
%
|
|
25.5
|
%
|
|
21.6
|
%
|
|||
Impairment of goodwill, property, and equipment
|
|
4,820
|
|
|
2,001
|
|
|
619
|
|
|||
Depreciation and amortization
|
|
7,426
|
|
|
6,977
|
|
|
5,736
|
|
|||
Gain on the sale of assets
|
|
(25,272
|
)
|
|
—
|
|
|
—
|
|
|||
Total costs and expenses
|
|
642,807
|
|
|
684,036
|
|
|
655,909
|
|
|||
Operating income (loss)
|
|
$
|
(12,314
|
)
|
|
$
|
(26,524
|
)
|
|
$
|
7,747
|
|
Total Sears Outlet stores
|
|
149
|
|
|
159
|
|
|
151
|
|
thousands
|
|
Total
|
|
Within
1 Year |
|
1-3
Years |
|
4-5
Years |
|
After 5
Years |
||||||||||
Short-term borrowings
|
|
$
|
26,800
|
|
|
$
|
26,800
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Capital leases
|
|
543
|
|
|
269
|
|
|
270
|
|
|
4
|
|
|
—
|
|
|||||
Operating leases
|
|
161,400
|
|
|
52,290
|
|
|
63,265
|
|
|
32,341
|
|
|
13,503
|
|
|||||
Total Contractual Obligations
|
|
$
|
188,743
|
|
|
$
|
79,359
|
|
|
$
|
63,535
|
|
|
$
|
32,345
|
|
|
$
|
13,503
|
|
•
|
it requires assumptions to be made about matters that were highly uncertain at the time the estimate was made, and
|
•
|
changes in the estimate that are reasonably likely to occur from period to period or different estimates that could have been selected would have a material effect on our financial condition, cash flows or results of operations.
|
|
Page
|
|
|
Consolidated Statements of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
Report of Independent
Registered Public Accounting Firm
|
|
|
|
thousands
|
|
January 28, 2017
|
|
January 30, 2016
|
||||
ASSETS
|
|
|
|
|
||||
CURRENT ASSETS
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
14,104
|
|
|
$
|
18,244
|
|
Accounts and franchisee receivables, net
|
|
11,448
|
|
|
11,753
|
|
||
Merchandise inventories
|
|
373,815
|
|
|
434,846
|
|
||
Prepaid expenses and other current assets
|
|
9,370
|
|
|
22,176
|
|
||
Total current assets
|
|
408,737
|
|
|
487,019
|
|
||
PROPERTY AND EQUIPMENT, net
|
|
40,935
|
|
|
49,315
|
|
||
INTANGIBLE ASSETS, net
|
|
1,527
|
|
|
4,377
|
|
||
LONG-TERM DEFERRED TAXES
|
|
—
|
|
|
79,141
|
|
||
OTHER ASSETS, net
|
|
17,227
|
|
|
13,981
|
|
||
TOTAL ASSETS
|
|
$
|
468,426
|
|
|
$
|
633,833
|
|
LIABILITIES
|
|
|
|
|
||||
CURRENT LIABILITIES
|
|
|
|
|
||||
Short-term borrowings
|
|
$
|
26,800
|
|
|
$
|
68,300
|
|
Payable to Sears Holdings Corporation
|
|
80,724
|
|
|
54,126
|
|
||
Accounts payable
|
|
17,853
|
|
|
39,762
|
|
||
Other current liabilities
|
|
70,377
|
|
|
66,466
|
|
||
Total current liabilities
|
|
195,754
|
|
|
228,654
|
|
||
OTHER LONG-TERM LIABILITIES
|
|
1,973
|
|
|
2,670
|
|
||
TOTAL LIABILITIES
|
|
197,727
|
|
|
231,324
|
|
||
COMMITMENTS AND CONTINGENCIES (Note 11)
|
|
|
|
|
|
|
||
STOCKHOLDERS' EQUITY
|
|
|
|
|
||||
Common stock: $.01 par value;
|
|
227
|
|
|
227
|
|
||
Authorized shares: 400,000
|
|
|
|
|
||||
Issued and outstanding shares: 22,716 and 22,722, respectively
|
|
|
|
|
||||
Capital in excess of par value
|
|
555,481
|
|
|
555,372
|
|
||
Accumulated deficit
|
|
(285,009
|
)
|
|
(153,090
|
)
|
||
TOTAL STOCKHOLDERS' EQUITY
|
|
270,699
|
|
|
402,509
|
|
||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
468,426
|
|
|
$
|
633,833
|
|
|
|
Fiscal Year Ended
|
||||||||||
thousands
|
|
January 28, 2017
|
|
January 30, 2016
|
|
January 31, 2015
|
||||||
|
|
|
|
|
|
|
||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
||||||
Net Loss
|
|
$
|
(131,919
|
)
|
|
$
|
(27,261
|
)
|
|
$
|
(168,805
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities
|
|
|
|
|
|
|
||||||
Depreciation and amortization
|
|
13,458
|
|
|
10,562
|
|
|
8,935
|
|
|||
Share-based compensation
|
|
109
|
|
|
(70
|
)
|
|
866
|
|
|||
Gain on the sale of assets
|
|
(25,203
|
)
|
|
—
|
|
|
(113
|
)
|
|||
Impairment of goodwill, property, and equipment
|
|
9,356
|
|
|
3,984
|
|
|
168,237
|
|
|||
Provision (recoveries) for losses on franchisee receivables
|
|
(791
|
)
|
|
25,426
|
|
|
13,055
|
|
|||
Change in operating assets and liabilities:
|
|
|
|
|
|
|
||||||
Accounts and franchisee receivables
|
|
2,255
|
|
|
1,056
|
|
|
(12,988
|
)
|
|||
Merchandise inventories
|
|
61,031
|
|
|
7,897
|
|
|
39,364
|
|
|||
Payable to Sears Holdings Corporation
|
|
26,598
|
|
|
(6,963
|
)
|
|
(7,307
|
)
|
|||
Accounts payable
|
|
(21,909
|
)
|
|
24,874
|
|
|
(9,241
|
)
|
|||
Store closing accrual
|
|
7,659
|
|
|
—
|
|
|
—
|
|
|||
Customer deposits
|
|
(4,316
|
)
|
|
(5,982
|
)
|
|
(5,306
|
)
|
|||
Deferred income taxes
|
|
79,141
|
|
|
(6,431
|
)
|
|
(7,129
|
)
|
|||
Other operating assets
|
|
13,580
|
|
|
(13,123
|
)
|
|
1,069
|
|
|||
Other operating liabilities
|
|
(167
|
)
|
|
11,576
|
|
|
3,763
|
|
|||
Net cash provided by operating activities
|
|
28,882
|
|
|
25,545
|
|
|
24,400
|
|
|||
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
||||||
Proceeds from sales of property and investments
|
|
26,073
|
|
|
—
|
|
|
154
|
|
|||
Purchases of property and equipment
|
|
(12,198
|
)
|
|
(11,430
|
)
|
|
(12,849
|
)
|
|||
Net cash provided by (used in) investing activities
|
|
13,875
|
|
|
(11,430
|
)
|
|
(12,695
|
)
|
|||
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
||||||
Net borrowings (payments) of capital lease obligations
|
|
37
|
|
|
183
|
|
|
(434
|
)
|
|||
Net payments on short-term borrowings
|
|
(41,500
|
)
|
|
(15,800
|
)
|
|
(15,000
|
)
|
|||
Payments for refinancing fees
|
|
(5,434
|
)
|
|
—
|
|
|
—
|
|
|||
Net cash used in financing activities
|
|
(46,897
|
)
|
|
(15,617
|
)
|
|
(15,434
|
)
|
|||
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
(4,140
|
)
|
|
(1,502
|
)
|
|
(3,729
|
)
|
|||
CASH AND CASH EQUIVALENTS—Beginning of period
|
|
18,244
|
|
|
19,746
|
|
|
23,475
|
|
|||
CASH AND CASH EQUIVALENTS—End of period
|
|
$
|
14,104
|
|
|
$
|
18,244
|
|
|
$
|
19,746
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
||||||
Cash paid for interest
|
|
$
|
4,168
|
|
|
$
|
2,945
|
|
|
$
|
3,622
|
|
Cash (received) paid for income taxes
|
|
$
|
(9,788
|
)
|
|
$
|
(5,764
|
)
|
|
$
|
824
|
|
SUPPLEMENTAL NON CASH INFORMATION
|
|
|
|
|
|
|
||||||
Tax adjustment related to separation
|
|
$
|
—
|
|
|
$
|
7,554
|
|
|
$
|
—
|
|
Reacquisition rights in exchange for notes receivable
|
|
$
|
—
|
|
|
$
|
6,100
|
|
|
$
|
—
|
|
thousands
|
Number of Shares of Common Stock
|
Common Stock/Par Value
|
Capital in Excess of Par Value
|
Retained Earnings (Deficit)
|
Total Stockholders' Equity
|
|||||||||
Balance at February 1, 2014
|
22,753
|
|
$
|
228
|
|
$
|
547,021
|
|
$
|
42,976
|
|
$
|
590,225
|
|
|
|
|
|
|
|
|||||||||
Net loss
|
—
|
|
—
|
|
—
|
|
(168,805
|
)
|
(168,805
|
)
|
||||
|
|
|
|
|
|
|||||||||
Share-based compensation
|
(17
|
)
|
(1
|
)
|
867
|
|
—
|
|
866
|
|
||||
|
|
|
|
|
|
|||||||||
Balance at January 31, 2015
|
22,736
|
|
227
|
|
547,888
|
|
(125,829
|
)
|
422,286
|
|
||||
|
|
|
|
|
|
|||||||||
Net loss
|
—
|
|
—
|
|
—
|
|
(27,261
|
)
|
(27,261
|
)
|
||||
|
|
|
|
|
|
|||||||||
Share-based compensation
|
(14
|
)
|
—
|
|
(70
|
)
|
—
|
|
(70
|
)
|
||||
|
|
|
|
|
|
|||||||||
Tax adjustment related to the separation
|
—
|
|
—
|
|
7,554
|
|
—
|
|
7,554
|
|
||||
|
|
|
|
|
|
|||||||||
Balance at January 30, 2016
|
22,722
|
|
227
|
|
555,372
|
|
(153,090
|
)
|
402,509
|
|
||||
|
|
|
|
|
|
|||||||||
Net loss
|
—
|
|
—
|
|
—
|
|
(131,919
|
)
|
(131,919
|
)
|
||||
|
|
|
|
|
|
|||||||||
Share-based compensation
|
(6
|
)
|
—
|
|
109
|
|
—
|
|
109
|
|
||||
|
|
|
|
|
|
|||||||||
Balance at January 28, 2017
|
22,716
|
|
$
|
227
|
|
$
|
555,481
|
|
$
|
(285,009
|
)
|
$
|
270,699
|
|
Fiscal Year
|
Ended
|
Weeks
|
2016
|
January 28, 2017
|
52
|
2015
|
January 30, 2016
|
52
|
2014
|
January 31, 2015
|
52
|
thousands
|
|
January 28, 2017
|
|
January 30, 2016
|
||||
Land
|
|
$
|
1,741
|
|
|
$
|
2,123
|
|
Buildings and improvements
|
|
41,071
|
|
|
49,680
|
|
||
Furniture, fixtures and equipment
|
|
37,174
|
|
|
37,681
|
|
||
Capitalized leases
|
|
1,175
|
|
|
1,005
|
|
||
Total property and equipment
|
|
81,161
|
|
|
90,489
|
|
||
Less: accumulated depreciation
|
|
(40,226
|
)
|
|
(41,174
|
)
|
||
Total property and equipment, net
|
|
$
|
40,935
|
|
|
$
|
49,315
|
|
|
|
Fiscal Year
|
||||||||||
thousands
|
|
2016
|
|
2015
|
|
2014
|
||||||
Minimum rentals
|
|
$
|
69,111
|
|
|
$
|
63,336
|
|
|
$
|
63,115
|
|
Less-Sublease rentals
|
|
(13,181
|
)
|
|
(25,505
|
)
|
|
(28,457
|
)
|
|||
Total
|
|
$
|
55,930
|
|
|
$
|
37,831
|
|
|
$
|
34,658
|
|
Fiscal Year
|
|
|
Capital Leases
|
|
Operating Leases
|
||||
thousands
|
|
|
|
|
|
||||
2017
|
|
|
$
|
269
|
|
|
$
|
52,290
|
|
2018
|
|
|
164
|
|
|
37,801
|
|
||
2019
|
|
|
106
|
|
|
25,464
|
|
||
2020
|
|
|
4
|
|
|
19,851
|
|
||
2021
|
|
|
—
|
|
|
12,490
|
|
||
Thereafter
|
|
|
—
|
|
|
13,504
|
|
||
Total Minimum Lease Payments
|
|
543
|
|
|
161,400
|
|
|||
Less - Sublease Income on Leased Properties
|
—
|
|
|
(31,751
|
)
|
||||
Net Minimum Lease Payments
|
|
$
|
543
|
|
|
$
|
129,649
|
|
|
|
|
|
|
|
|
||||
Less:
|
|
|
|
|
|
||||
Implicit Interest
|
|
|
—
|
|
|
|
|||
Capital Lease Obligations
|
|
|
543
|
|
|
|
|||
Less Current Portion of Capital Lease Obligations
|
(269
|
)
|
|
|
|||||
Long-term Capital Lease Obligations
|
|
$
|
274
|
|
|
|
thousands
|
|
January 28 2017
|
|
January 30, 2016
|
||||
Short-term franchisee receivables
|
|
$
|
1,920
|
|
|
$
|
2,376
|
|
Miscellaneous receivables
|
|
10,475
|
|
|
10,754
|
|
||
Long-term franchisee receivables
|
|
18,406
|
|
|
23,068
|
|
||
Other assets
|
|
6,116
|
|
|
1,677
|
|
||
Allowance for losses on short-term franchisee receivables (1)
|
|
(947
|
)
|
|
(1,377
|
)
|
||
Allowance for losses on long-term franchisee receivables (1)
|
|
(7,295
|
)
|
|
(10,764
|
)
|
||
Total Accounts and franchisee receivables and other assets
|
|
$
|
28,675
|
|
|
$
|
25,734
|
|
thousands
|
|
January 28, 2017
|
|
January 30, 2016
|
||||
Allowance for losses on franchisee receivables, beginning of period
|
|
$
|
12,141
|
|
|
$
|
11,368
|
|
Expense (benefit) during the period
|
|
(791
|
)
|
|
25,426
|
|
||
Write off of franchisee receivables
|
|
(3,383
|
)
|
|
(24,653
|
)
|
||
Other
|
|
275
|
|
|
—
|
|
||
Allowance for losses on franchisee receivables, end of period
|
|
$
|
8,242
|
|
|
$
|
12,141
|
|
thousands
|
|
January 28, 2017
|
|
January 30, 2016
|
||||
Customer deposits
|
|
$
|
19,943
|
|
|
$
|
24,259
|
|
Sales and other taxes
|
|
11,380
|
|
|
12,880
|
|
||
Accrued expenses
|
|
27,602
|
|
|
23,865
|
|
||
Payroll and related items
|
|
5,766
|
|
|
6,563
|
|
||
Store closing, severance and executive transition costs
|
|
7,659
|
|
|
1,569
|
|
||
Total Other current and long-term liabilities
|
|
$
|
72,350
|
|
|
$
|
69,136
|
|
thousands
|
|
January 28, 2017
|
|
January 30, 2016
|
||||
Reacquisition rights
|
|
$
|
6,100
|
|
|
$
|
6,100
|
|
Less: accumulated amortization expense
|
|
(4,573
|
)
|
|
(1,723
|
)
|
||
Total intangible assets, net
|
|
$
|
1,527
|
|
|
$
|
4,377
|
|
|
|
|
|
Fiscal Year Ended
|
||||||||||
thousands
|
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Income (loss) before income taxes:
|
|
|
|
|
|
|
||||||||
|
U.S.
|
|
|
$
|
(51,588
|
)
|
|
$
|
(41,643
|
)
|
|
$
|
(172,829
|
)
|
|
Foreign
|
|
1,160
|
|
|
(770
|
)
|
|
958
|
|
||||
|
|
Total
|
|
$
|
(50,428
|
)
|
|
$
|
(42,413
|
)
|
|
$
|
(171,871
|
)
|
Income tax expense (benefit):
|
|
|
|
|
|
|
||||||||
Current:
|
|
|
|
|
|
|
|
|||||||
|
Federal
|
|
$
|
(155
|
)
|
|
$
|
(9,758
|
)
|
|
$
|
2,872
|
|
|
|
State
|
|
1,001
|
|
|
605
|
|
|
608
|
|
||||
|
Foreign
|
|
542
|
|
|
432
|
|
|
584
|
|
||||
|
|
Total
|
|
1,388
|
|
|
(8,721
|
)
|
|
4,064
|
|
|||
Deferred:
|
|
|
|
|
|
|
|
|||||||
|
Federal
|
|
67,463
|
|
|
(4,666
|
)
|
|
(6,037
|
)
|
||||
|
State
|
|
12,640
|
|
|
(1,765
|
)
|
|
(1,093
|
)
|
||||
|
Foreign
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
|
|
Total
|
|
$
|
80,103
|
|
|
$
|
(6,431
|
)
|
|
$
|
(7,130
|
)
|
|
|
|
|
|
|
|
|
|
||||||
Income tax expense (benefit)
|
|
$
|
81,491
|
|
|
$
|
(15,152
|
)
|
|
$
|
(3,066
|
)
|
|
|
Fiscal Year Ended
|
|||||||
|
|
2016
|
|
2015
|
|
2014
|
|||
Federal tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income tax (net of federal benefit)
|
|
1.7
|
%
|
|
1.8
|
%
|
|
0.2
|
%
|
Goodwill
|
|
—
|
%
|
|
—
|
%
|
|
(34.0
|
)%
|
Valuation allowance
|
|
(198.5
|
)%
|
|
(1.6
|
)%
|
|
0.1
|
%
|
Other
|
|
0.2
|
%
|
|
0.5
|
%
|
|
0.5
|
%
|
Effective tax rate
|
|
(161.6
|
)%
|
|
35.7
|
%
|
|
1.8
|
%
|
|
|
|
Fiscal Year Ended
|
||||||
thousands
|
|
January 28, 2017
|
|
|
January 30, 2016
|
|
|||
Deferred tax assets
|
|
||||||||
|
Bad Debts
|
$
|
3,487
|
|
|
$
|
4,735
|
|
|
|
Deferred Compensation
|
468
|
|
|
1,454
|
|
|||
|
Inventory
|
3,159
|
|
|
4,100
|
|
|||
|
Net Operating Loss
|
39,169
|
|
|
9,873
|
|
|||
|
Property
|
296
|
|
|
4,986
|
|
|||
|
Royalty-free License
|
44,280
|
|
|
48,513
|
|
|||
|
Other
|
11,230
|
|
|
7,063
|
|
|||
|
|
Sub-total deferred tax assets
|
$
|
102,089
|
|
|
$
|
80,724
|
|
|
|
Valuation allowance
|
(100,906
|
)
|
|
(830
|
)
|
||
|
|
Total deferred tax assets
|
$
|
1,183
|
|
|
$
|
79,894
|
|
Deferred tax liabilities
|
|
|
|
||||||
|
Property
|
—
|
|
|
—
|
|
|||
|
Other
|
(1,183
|
)
|
|
(753
|
)
|
|||
|
|
Total deferred tax liabilities
|
(1,183
|
)
|
|
(753
|
)
|
||
Net deferred tax assets
|
—
|
|
|
$
|
79,141
|
|
•
|
We are party to a Separation Agreement with Sears Holdings pursuant to which Sears Holdings consummated the Separation. The Separation Agreement, among other things, provided for the allocation and transfer, through a series of intercompany transactions, of the assets and the liabilities comprising the Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings. In the Separation Agreement SHO and Sears Holdings agree to release each other from all pre-separation claims (other than with respect to the agreements executed in connection with the Separation) and each agrees to defend and indemnify the other with respect to its post-separation business.
|
•
|
We obtain a significant amount of our merchandise inventories from Sears Holdings. This enables us to take advantage of the amount and scope of Sears Holdings' purchasing activities. The SHO-Sears Holdings Agreements include an Amended and Restated Merchandising Agreement with Sears Holdings, Kmart and SRC (the "Merchandising Agreement") pursuant to which Kmart and SRC (1) sell to us, with respect to certain specified product categories, Sears-branded products including KCD Products and vendor-branded products obtained from Kmart’s and SRC’s vendors and suppliers and (2) grant us licenses to use the trademarks owned by Kmart, SRC or other subsidiaries of Sears Holdings, or the "Sears marks," including the KCD Marks in connection with the marketing and sale of products sold under the Sears marks. The initial term of the Merchandising Agreement will expire on February 1, 2020, subject to one three-year renewal term with respect to the KCD Products. We pay, on a weekly basis, a royalty determined by multiplying our net sales of the KCD Products by specified fixed royalties rates for each brand’s licensed products, subject to adjustments based on the extent to which we feature Kenmore brand products in certain of our advertising and the extent to which we pay specified minimum commissions to our franchisees and Hometown Store owners. The SHO-Sears Holdings Agreements also provide for related logistics, handling, warehouse and transportation services, the charges for which are based generally on merchandise inventory units. We also pay fees for participation in Sears Holdings' SYW program.
|
•
|
We obtain our merchandise from Sears Holdings and other vendors. For the year ended January 28, 2017, products which we acquired from Sears Holdings, including KCD Products and other products, accounted for approximately
80%
,
82%
, and
84%
of our total purchases of inventory from all vendors for 2016, 2015, and 2014, respectively. The loss of or a reduction in the amount of merchandise made available to us by Sears Holdings could have a material adverse effect on our business and results of operations.
|
•
|
Sears Holdings provides the Company with specified corporate services pursuant to the SHO-Sears Holdings Agreements. These services include tax, accounting, procurement, risk management and insurance, advertising and marketing, loss
|
•
|
Sears Holdings has licensed the Company until October 11, 2029, on a royalty-free basis, to use under specified conditions (1) the name "Sears" in our corporate name and to promote our businesses and (2) the www.searsoutlet.com, www.searshomeapplianceshowroom.com, www.searshometownstores.com, and www.searshardwarestores.com domain names to promote our businesses. Also, Sears Holdings has licensed the Company until October 11, 2029, on an exclusive, royalty-free basis, under specified conditions to use for the purpose of operating our stores the names "Sears Appliance & Hardware," "Sears Authorized Hometown Stores," "Sears Hometown Store," "Sears Home Appliance Showroom," "Sears Hardware," and "Sears Outlet Store."
|
•
|
Sears Holdings has assigned to us leases for, or has subleased to us, many of the stores that we operate or that we have, in turn, subleased to franchisees. Generally, the terms of the subleases match the terms, including the payment of rent and expiration date, of the existing leases between Sears Holdings (or one of its subsidiaries) and the landlord. In addition, a small number of our stores are in locations where Sears Holdings currently operates one of its stores or a distribution facility. In such cases we have entered into a lease or sublease with Sears Holdings (or one of its subsidiaries) for the portion of the space in which our store will operate, and we pay rent directly to Sears Holdings on the terms negotiated in connection with the Separation. We also lease from Sears Holdings office space for our corporate headquarters.
|
•
|
SHO receives commissions from Sears Holdings for specified sales of merchandise made through www.sears.com and www.searsoutlet.com, the sale of extended-service plans, delivery and handling services and relating to the use in our stores of credit cards branded with the Sears name. For certain transactions SHO pays a commission to Sears Holdings.
|
|
|
Fiscal Year Ended
|
||||||||||
|
|
January 28, 2017
|
|
January 30, 2016
|
|
January 31, 2015
|
||||||
thousands
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
||||||
Net Commissions from Sears Holdings
|
|
$
|
82,447
|
|
|
$
|
91,291
|
|
|
$
|
99,054
|
|
Purchases related to cost of sales and occupancy
|
|
1,153,739
|
|
|
1,386,414
|
|
|
1,499,231
|
|
|||
Services included in selling and administrative
|
|
77,189
|
|
|
88,486
|
|
|
96,027
|
|
|
|
2016
|
||||||||||
thousands
|
|
Hometown
|
|
Outlet
|
|
Total
|
||||||
Net sales
|
|
|
|
|
|
|
||||||
Appliances
|
|
$
|
963,391
|
|
|
$
|
517,625
|
|
|
$
|
1,481,016
|
|
Lawn and garden
|
|
247,157
|
|
|
20,454
|
|
|
267,611
|
|
|||
Tools and paint
|
|
150,520
|
|
|
17,856
|
|
|
168,376
|
|
|||
Other
|
|
78,495
|
|
|
74,558
|
|
|
153,053
|
|
|||
Total
|
|
1,439,563
|
|
|
630,493
|
|
|
2,070,056
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
1,145,678
|
|
|
515,636
|
|
|
1,661,314
|
|
|||
Selling and administrative
|
|
318,589
|
|
|
140,197
|
|
|
458,786
|
|
|||
Impairment of goodwill, property, and equipment
|
|
4,536
|
|
|
4,820
|
|
|
9,356
|
|
|||
Depreciation and amortization
|
|
6,032
|
|
|
7,426
|
|
|
13,458
|
|
|||
Loss (Gain) on the sale of assets
|
|
69
|
|
|
(25,272
|
)
|
|
(25,203
|
)
|
|||
Total Costs and expenses
|
|
1,474,904
|
|
|
642,807
|
|
|
2,117,711
|
|
|||
Operating loss
|
|
$
|
(35,341
|
)
|
|
$
|
(12,314
|
)
|
|
$
|
(47,655
|
)
|
Total assets
|
|
$
|
303,166
|
|
|
$
|
165,260
|
|
|
$
|
468,426
|
|
Capital expenditures
|
|
$
|
7,377
|
|
|
$
|
4,821
|
|
|
$
|
12,198
|
|
|
|
|
|
|
|
|
|
|
2015
|
||||||||||
thousands
|
|
Hometown
|
|
Outlet
|
|
Total
|
||||||
Net sales
|
|
|
|
|
|
|
||||||
Appliances
|
|
$
|
1,056,175
|
|
|
$
|
529,083
|
|
|
$
|
1,585,258
|
|
Lawn and garden
|
|
286,222
|
|
|
22,166
|
|
|
308,388
|
|
|||
Tools and paint
|
|
183,591
|
|
|
17,850
|
|
|
201,441
|
|
|||
Other
|
|
104,288
|
|
|
88,413
|
|
|
192,701
|
|
|||
Total
|
|
1,630,276
|
|
|
657,512
|
|
|
2,287,788
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
1,262,215
|
|
|
507,071
|
|
|
1,769,286
|
|
|||
Selling and administrative
|
|
378,141
|
|
|
167,987
|
|
|
546,128
|
|
|||
Impairment of goodwill, property, and equipment
|
|
1,983
|
|
|
2,001
|
|
|
3,984
|
|
|||
Depreciation and amortization
|
|
3,585
|
|
|
6,977
|
|
|
10,562
|
|
|||
Total
|
|
1,645,924
|
|
|
684,036
|
|
|
2,329,960
|
|
|||
Operating loss
|
|
$
|
(15,648
|
)
|
|
$
|
(26,524
|
)
|
|
$
|
(42,172
|
)
|
Total assets
|
|
$
|
421,615
|
|
|
$
|
212,218
|
|
|
$
|
633,833
|
|
Capital expenditures
|
|
$
|
4,563
|
|
|
$
|
6,867
|
|
|
$
|
11,430
|
|
|
|
2014
|
||||||||||
thousands
|
|
Hometown
|
|
Outlet
|
|
Total
|
||||||
Net sales
|
|
|
|
|
|
|
||||||
Appliances
|
|
$
|
1,056,114
|
|
|
$
|
522,247
|
|
|
$
|
1,578,361
|
|
Lawn and garden
|
|
316,725
|
|
|
22,297
|
|
|
339,022
|
|
|||
Tools and paint
|
|
204,117
|
|
|
18,471
|
|
|
222,588
|
|
|||
Other
|
|
115,421
|
|
|
100,641
|
|
|
216,062
|
|
|||
Total
|
|
1,692,377
|
|
|
663,656
|
|
|
2,356,033
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
1,297,212
|
|
|
506,285
|
|
|
1,803,497
|
|
|||
Selling and administrative
|
|
403,367
|
|
|
143,269
|
|
|
546,636
|
|
|||
Impairment of goodwill, property, and equipment
|
|
167,618
|
|
|
619
|
|
|
168,237
|
|
|||
Depreciation and amortization
|
|
3,199
|
|
|
5,736
|
|
|
8,935
|
|
|||
Gain on the sale of assets
|
|
(113
|
)
|
|
—
|
|
|
(113
|
)
|
|||
Total Costs and expenses
|
|
1,871,283
|
|
|
655,909
|
|
|
2,527,192
|
|
|||
Operating income (loss)
|
|
$
|
(178,906
|
)
|
|
$
|
7,747
|
|
|
$
|
(171,159
|
)
|
Total assets
|
|
$
|
430,128
|
|
|
$
|
215,594
|
|
|
$
|
645,722
|
|
Capital expenditures
|
|
$
|
3,046
|
|
|
$
|
9,803
|
|
|
$
|
12,849
|
|
|
Fiscal Year Ended
|
||||||||||
|
January 28, 2017
|
|
January 30, 2016
|
|
January 31, 2015
|
||||||
thousands except income per common share
|
|
|
|
|
|
||||||
Basic weighted average shares
|
22,691
|
|
|
22,666
|
|
|
22,666
|
|
|||
Dilutive effect of restricted stock
|
—
|
|
|
—
|
|
|
—
|
|
|||
Diluted weighted average shares
|
22,691
|
|
|
22,666
|
|
|
22,666
|
|
|||
|
|
|
|
|
|
||||||
Net loss
|
$
|
(131,919
|
)
|
|
$
|
(27,261
|
)
|
|
$
|
(168,805
|
)
|
|
|
|
|
|
|
||||||
Loss per common share:
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
Basic
|
$
|
(5.81
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(7.45
|
)
|
Diluted
|
$
|
(5.81
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(7.45
|
)
|
|
|
52 Weeks Ended January 28, 2017
|
|||||
(Shares in thousands)
|
|
Shares
|
|
Weighted-Average Fair Value on Date of Grant
|
|||
Beginning of year balance
|
|
56
|
|
|
$
|
35.68
|
|
Granted
|
|
—
|
|
|
—
|
|
|
Vested
|
|
(36
|
)
|
|
44.45
|
|
|
Forfeited
|
|
(6
|
)
|
|
44.45
|
|
|
Balance at 1/28/2017, unvested
|
|
14
|
|
|
$
|
9.38
|
|
|
|
|
|
|
thousands
|
|
2016
|
|
2015
|
|
2014
|
||||||
401(k) Savings Plan
|
|
$
|
957
|
|
|
$
|
905
|
|
|
$
|
1,137
|
|
|
|
|
|
|
|
|
Item 11.
|
Executive Compensation
|
Plan Category
|
|
(a)
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1)
|
|
(b)
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (1)
|
|
(c)
Number of Securities Remaining Available for Future Issuances Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
|
Equity Compensation Plans Approved by Security Holders
|
|
--
|
|
--
|
|
3,826,754 (2)
|
Equity Compensation Plans Not Approved by Security Holders
|
|
--
|
|
--
|
|
--
|
Total
|
|
--
|
|
--
|
|
3,826,754 (2)
|
(1)
|
Financial Statements
|
|
|
|
Sears Hometown and Outlet Stores, Inc.
|
||
|
|
|
By:
|
|
/S/ RYAN D. ROBINSON
|
Name:
|
|
Ryan D. Robinson
|
Title:
|
|
Senior Vice President, Chief Administrative Officer, and Chief Financial Officer
(principal financial officer and principal accounting officer)
|
|
||
Date:
|
|
March 30, 2017
|
|
|
|
|
|
|
|
*
Will Powell
Will Powell
|
|
Director, Chief Executive Officer and
President (principal executive officer)
|
|
March 30, 2017
|
||
|
|
|
||||
|
|
|
||||
*
E.J. Bird
E.J. Bird
|
|
Chairman of the Board of Directors
|
|
March 30, 2017
|
||
|
|
|
|
|||
|
|
|
||||
*
William K. Phelan
William K. Phelan
|
|
Director
|
|
March 30, 2017
|
||
|
|
|
|
|||
|
|
|
||||
*
James F. Gooch
James F. Gooch
|
|
Director
|
|
March 30, 2017
|
||
|
|
|
|
|||
|
|
|
|
|
||
*
David Robbins
David Robbins
|
|
Director
|
|
March 30, 2017
|
||
|
|
|
|
|||
|
|
|
|
|
||
*
Josephine Linden
Josephine Linden
|
|
Director
|
|
March 30, 2017
|
||
|
|
|
|
|||
|
|
|
|
|
||
*
Kevin Longino
Kevin Longino
|
|
Director
|
|
March 30, 2017
|
||
|
|
|
||||
/
S
/Ryan D. Robinson
* By Ryan D. Robinson, Attorney in Fact
|
|
|
|
March 30, 2017
|
||
|
|
|
|
|
|
|
Exhibit
Number
|
|
Document Description
|
3.1
|
|
Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
3.2
|
|
Certificate of Amendment of Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
3.3
|
|
Amended and Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K filed December 9, 2013 (File No. 001-35641)).
|
4.1
|
|
Form of common stock certificate (incorporated by reference to Exhibit 4.1 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.1
|
|
Separation Agreement between Sears Holdings Corporation and Registrant dated as of August 8, 2012 (incorporated by reference to Exhibit 10.1 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.2
|
|
Amendment No. 1 to Separation Agreement between Registrant and Sears Holdings Corporation dated December 9, 2013 (incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 2, 2013 (File No. 001-35641)).
|
10.3
|
|
Store License Agreement between Sears, Roebuck and Co. and Sears Authorized Hometown Stores, LLC dated August 8, 2012 (incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.4
|
|
Store License Agreement between Sears, Roebuck and Co. and Sears Home Appliance Showrooms, LLC dated August 8, 2012 (incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.5
|
|
Store License Agreement between Sears, Roebuck and Co. and Sears Outlet Stores, L.L.C. dated August 8, 2012 (incorporated by reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.6
|
|
Amendment No. 1 to Store License Agreement (Outlet) between Sears, Roebuck and Co. and Sears Outlet Stores, L.L.C. dated December 9, 2013 (incorporated by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the fiscal year ended February 1, 2014 (File No. 001-35641)).
|
10.7
|
|
Amendment No. 2 to Store License Agreement (Outlet) between Sears, Roebuck and Co. and Sears Outlet Stores, L.L.C. dated May 11, 2016 (incorporated by reference to Exhibit 10.6 to Registrant's Current Report on Form 8-K filed May 17, 2016 (File No. 001-35641)).
|
10.8
|
|
Trademark License Agreement between Sears, Roebuck and Co. and Registrant dated August 8, 2012 (incorporated by reference to Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.9(1)
|
|
Amendment No. 4 to Merchandising Agreement between (1) Sears, Roebuck and Co., Kmart Corporation and Sears Holdings Corporation and (2) Registrant, Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C. dated May 11, 2016 (incorporated by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K filed May 17, 2016 (File No. 001-35641)).
|
10.10(1)(4)
|
|
Amended and Restated Merchandising Agreement between (1) Sears, Roebuck and Co., Kmart Corporation and Sears Holdings Corporation and (2) Registrant, Sears Authorized Hometown Stores, LLC, and Sears Outlet Stores, L.L.C. dated May 11, 2016.
|
10.11
|
|
Amendment to Amended and Restated Merchandising Agreement between (1) Sears, Roebuck and Co. and Kmart Corporation and (2) Registrant, Sears Authorized Hometown Stores, LLC, and Sears Outlet Stores, L.L.C. dated March 8, 2017 (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed March 9, 2017 (File No. 001-35641)).
|
10.12
|
|
Services Agreement between Sears Holdings Management Corporation and Registrant dated August 8, 2012 (incorporated by reference to Exhibit 10.7 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.13
|
|
Amendment No. 1 to Services Agreement between Registrant and Sears Holdings Management Corporation dated December 9, 2013 (incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 2, 2013 (File No. 001-35641)).
|
10.14
|
|
Amendment No. 2 to Services Agreement between Registrant and Sears Holdings Management Corporation dated April 23, 2014 (incorporated by reference to Exhibit 10 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended May 3, 2014 (File No. 001-35641)).
|
10.15
|
|
Amendment No. 3 to Services Agreement between Registrant and Sears Holdings Management Corporation dated March 11, 2015 (incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 31, 2015 (File No. 001-35641)).
|
10.16(1)
|
|
Amendment No. 4 to Services Agreement between Registrant and Sears Holdings Management Corporation dated May11, 2016 (incorporated by reference to Exhibit 10.3 to Registrant's Current Report on Form 8-K filed May 17, 2016 (File No. 001-35641)).
.
|
10.17(1)
|
|
Retail Establishment Agreement between Sears Holdings Management Corporation and Registrant (incorporated by reference to Exhibit 10.8 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.18
|
|
Amendment No. 1 to Shop Your Way Retail Establishment Agreement between Sears Holdings Management Corporation and Registrant dated May 11, 2016 (incorporated by reference to Exhibit 10.7 to Registrant's Current Report on Form 8-K filed May 17, 2016 (File No. 001-35641)).
|
10.19(2)(4)
|
|
Amendment No. 2 to the Shop Your Way Retail Establishment Agreement between Sears Holdings Management Corporation and Registrant dated February 2, 2017.
|
10.20
|
|
Tax Sharing Agreement between Sears Holdings and Registrant dated as of August 8, 2012 (incorporated by reference to Exhibit 10.9 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.21
|
|
Employee Transition and Administrative Services Agreement between Sears, Roebuck and Co., Registrant, Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C. dated as of August 31, 2012 (incorporated by reference to Exhibit 10.10 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.22
|
|
Statement of Work #1 to Employee Transition and Administrative Services Agreement between (i) Registrant, Sears Authorized Hometown Stores, LLC, and Sears Outlet Stores, L.L.C. and (ii) Sears Holdings Management Corporation dated December 9, 2013 (incorporated by reference to Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 2, 2013 (File No. 001-35641)).
|
10.23
|
|
Amendment No. 1 to Employee Transition and Administrative Services Agreement between Sears, Roebuck and Co., Registrant, Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C. dated May 11, 2016 (incorporated by reference to Exhibit 10.5 to Registrant's Current Report on Form 8-K filed May 17, 2016 (File No. 001-35641)).
|
10.24
|
|
Supplemental Agreement between Registrant and Sears Holdings Corporation dated December 9, 2013 (incorporated by reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 2, 2013 (File No. 001-35641)).
|
10.25
|
|
Amendment No. 1 to Supplemental Agreement between Registrant and Sears Holdings Corporation dated May 11, 2016 (incorporated by reference to Exhibit 10.4 to Registrant's Current Report on Form 8-K filed May 17, 2016 (File No. 001-35641)).
.
|
10.26(3)
|
|
Sears Hometown and Outlet Stores, Inc. Umbrella Incentive Program (incorporated by reference to Exhibit 10.11 to the Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.27(3)
|
|
Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (incorporated by reference to Exhibit 10.12 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.28(3)
|
|
Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (incorporated by reference to Exhibit 10.13 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.29(3)
|
|
Sears Hometown and Outlet Stores, Inc. Amended and Restated 2012 Stock Plan (incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 31, 2015 (File No. 001-35641)).
|
10.30(3)
|
|
Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.1 to Registrant's Form S-8 filed on May 16, 2013 (File No. 333-188645)).
|
10.31(3)
|
|
Form of Amended and Restated Executive Severance Agreement (incorporated by reference to Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 30, 2016 (File No. 001-35641)).
.
|
10.32(3)
|
|
Form of Cash Retention Agreement (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed April 21, 2015 (File No. 001-35641)).
|
10.33(3)
|
|
Form of Stock Units Agreement (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed February 3, 2017 (File No. 001-35641)).
|
(1)
|
The Securities and Exchange Commission granted the Company's request for confidential treatment for the omitted portions of this Exhibit. The Company has separately filed the omitted portions with the Securities and Exchange Commission.
|
(2)
|
Specified provisions of this Exhibit have been omitted and separately filed by the Company with the Securities and Exchange Commission pursuant to the Company's request for confidential treatment.
|
(3)
|
A management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 15(b) of Form 10-K.
|
(4)
|
Filed herewith.
|
(5)
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for
|
SEARS, ROEBUCK AND CO.
KMART CORPORATION
By: Sears Holdings Management Corporation, their agent
By:
/s/ ROBERT A. RIECKER
Robert A. Riecker
VP, Controller & Chief Accounting Officer
|
SEARS HOMETOWN AND OUTLET STORES, INC.
By:
/s/ WILL POWELL
William Powell
Chief Executive Officer and President
|
SEARS HOLDINGS CORPORATION
By:
/s/ ROBERT A. RIECKER
Robert A. Riecker
VP, Controller & Chief Accounting Officer
|
SEARS AUTHORIZED HOMETOWN STORES, LLC
By:
/s/ WILL POWELL
William Powell
President
|
|
SEARS OUTLET STORES, L.L.C.
By:
/s/ WILL POWELL
William Powell
President
|
Division Description and Number
|
1.
FURNITURE-IN STORE—1
|
2.
HOME OFFICE—3
|
3.
SPORTING GOODS—6
|
4.
HOUSEWARES—8
|
5.
TOOLS—9
|
6.
NURSERY—12
|
7.
HEALTH AND BEAUTY—13
|
8.
LUGGAGE—14
|
9.
FLOORCARE/SEWING—20
|
10.
COOKING & CLEANUP—22
|
11.
WINDOW SHOP—24
|
12.
HOME BIG TICKET—025
|
13.
LAUNDRY—26
|
14.
SCAN BASED TRADING—27
|
15.
AUTOMOTIVE—28
|
16.
PAINT—30
|
17.
HOME ENVIRONMENT—32
|
18.
ELECTRICAL—34
|
19.
FLOOR COVERING—37
|
20.
MENS SPORTSWEAR—41
|
21.
AIR & WATER APPLIANCES—42
|
22.
FOOD STORAGE—46
|
23.
CHILDREN’S HARDLINES—49)
|
24.
GENERAL MERCHANDISE—50
|
25.
TOYS—52
|
26.
HOME ELECTRONICS—57
|
27.
ENTERTAINMENT SOFTWARE—58
|
28.
MENS SHOES—67
|
29.
LAWN, GARDEN, PATIO—71
|
30.
OUTLET BUDGET SHOP—80
|
31.
BEDDING—82
|
32.
BATHROOM FIXTURES/PLUMBING—83
|
33.
PANTRY AND HOUSEHOLD—87
|
34.
BED AND BATH—96
|
35.
PARTS OTHER-COUNTER—98
End of Appendix
|
1.
|
Audit recoveries
|
2.
|
Carriage costs from the Vendor’s delivery point to the FOB Point;
|
3.
|
Cash discounts;
|
4.
|
Distribution-center markdowns;
|
5.
|
Distribution-center shrink;
|
6.
|
Other logistics expense;
|
7.
|
Charge for Seller Warranty for No-Vendor-Warranty Products that are HTS Products: [***]% of Core Cost (“
Core Cost
” means costs reflected in the Sears Corporate Repository of Referential Information or successor system);
|
8.
|
Source penalties;
|
9.
|
Packaging costs requested by Buyer;
|
10.
|
Vendor-compliance income; and
|
11.
|
All other charges and expenses consistent with practices in effect for Buyer and Seller immediately prior to the Effective Date.
|
Description and Seller Division
|
Percentage Off Seller’s DOS Cost
|
|
|
Furniture-In Store (Div 001, 008 and 025)
|
[***]%
|
Sporting Goods (Div 006)
|
[***]%
|
Housewares (Div 008)
|
[***]%
|
Tools (Div 009)
|
[***]%
|
Floor care, Sewing (Div 020)
|
[***]%
|
Cooking And Cleanup (Div 022)
|
[***]%
|
Laundry (Div 026)
|
[***]%
|
Plumbing & Heating (Div 042)
|
[***]%
|
Food Storage (Div 046)
|
[***]%
|
Baby Furniture – Children’s Hardlines
|
[***]%
|
Audio/Visual (Div 057)
|
[***]%
|
Lawn, Garden, Patio (Div 071)
|
[***]%
|
Mattresses* (Div 082)
|
[***]%
|
Source and Merchandise Description
|
Base Price
|
Kmart
—all items in all categories of MOS, including all product sold by Kmart.com that is returned to Kmart stores.
|
Per pallet $
[***]
|
Lands’ End
—all items in all categories of MOS (Apparel) and all items in all categories of MOS shoes, including all product sold by LandsEnd.com that is returned to Sears stores but only through April 11, 2018 subject to
Section 4(d)
.
|
Per item $
[***]
Per item $
[***]
|
Sears, Roebuck and Co. (including Sears.com)
—all items in all categories of MOS (Apparel), including all product sold by Sears.com that is returned to Sears stores. *
|
Per item $
[***]
|
ORDC Responsibility
|
•
Buyer will inspect all DRM Products within three (3) business days starting the first business day after physical receipt of the product by Buyer at Buyer’s ORDC facility (but no later than 5 business days after delivery by Seller, e.g., the product is made available at co-located facilities and for other facilities, arrival of the trailer) (the “Inspection Period”) and make an initial determination as to “Non-Saleable” status during that initial inspection. The Inspection Period will be extended on a day for day basis for SHO holidays and for Products received within three (3) business days of the start of a SHO inventory audit freeze period.
•
The Non-Saleable DRM Product will be logged by Buyer on the Non-Saleable Products Log
Form on the date of inspection and tagged with a Non-Saleable Products Form
•
All DRM Products initially determined to be Non-Saleable DRM Product will be moved by Buyer to a staging area immediately following initial non-saleable designation.
•
ORDC General Manager (GM) must approve all Non-Saleable DRM Products daily
o
Non-saleable claim cannot be made until GM or ASM Ops (Ops Lead) approves
o
If the ORDC GM
approves
Non-Saleable designation, the DRM Product Quality Inventory Control associate (PQIC) Inventory Control Lead (ICL) f
ills out the on-line Non-Saleable DRM Product Form via Seller’s Non-Saleable Products Request Tool (or Seller’s replacement therefor), and checks off the log that it was entered
•
All entries must be entered as a positive number (meaning no minus sign in front of the sell/cost values)
•
The non-saleable notification will automatically be routed to the MDO DOS Unit manager via email. The requestor (PQIC or ICL) will also receive a copy of the email which must be printed and filed in the BIRP 1-31 folder
•
ORDC must claim a DRM item as non-saleable no later than 1 business day after the end of the Inspection Period. If a Product is missing Seller’s paperwork (e.g., bill of lading or MDO DOS tag), Buyer will immediately notify Seller and segregate such Products the timelines set forth herein will be delayed until Seller provides such paperwork.
o
Upon Seller’s written request in email made to Buyer’s assigned Director of the applicable ORDCs, MDOs are to be provided weekly access to the ORDCs to verify load quality of items shipped to the ORDC by the MDO(s).
o
MDOs will send a request to verify load quality 48 hours in advance of the desired verification date. MDO load quality verification will occur on an agreed upon date between the ORDC and MDO.
o
All tags such as MDO DOS tags, 991 clearance tags (SDO, Full-Line) must remain on the DRM until expiration of Seller’s review period (and any resulting dispute resolution period; failure to do will invalidate Buyer’s right to seek reimbursement on that DRM item.
|
MDO/DOS Unit / ORDC Responsibility
|
•
The MDO/DOS unit manager has 3 business days from the time the Non–Saleable DRM Product Request Tool email was sent to request visual inspection, beginning the first business day after the ORDC completes the online non-saleable submission
o
To request visual inspection, the MDO/DOS Unit manager must email the ORDC GM at the generic email ID SGXXXX@shos.com (where XXXX is the ORDC unit number)
o
If the MDO/DOS unit does not make a request within the allotted time, the merchandise can be transferred to the salvage area.
o
ORDC will not return non-saleable products to the MDO/DOS unit
•
If a request is made by the MDO/DOS unit manager for visual inspection, within the required time, the ORDC must hold the product for 6 business days, beginning the first business day after the MDO requests a visual inspection
o
Product will be held in the HOLD for MDO inspection staging area within the ORDC while waiting for visual inspection
§
If no inspection is made within the allotted time, the ORDC may transfer the non-saleable DRM Product to the salvage area
• Co-located MDOs are those that are physically attached to an ORDC. For those instances where a co-located MDO exists, the GM of that MDO will act as inspector for all remote MDOs that ship into that particular ORDC. This means that the remote MDOs will not request pictures from the receiving ORDC and that the co-located MDO GM will inspect product on their behalf if requested to do so by the remote MDO GM. All inspections, discussions, and dispute resolutions will take place between the co-located ORDC GM and co-located MDO GM.
o
For non-co-located facilities, then the ORDC GM will, upon email request from the MDO/DOS unit manager, arrange for the delivery of photographic evidence of the non-salable condition to the MDO/DOS unit manager for remote inspection. If such a request is made, the timeline for the MDO/DOS manager will not start until such photographic evidence is sent. The MDO/DOS manager may, at his/her option, also inspect the non-saleable DRM at Buyer’s facility. If the non-co-located MDO GM does not reply back within the defined non-saleable process period (as described in the ORDC Responsibility and MDO/DOS Unit / ORDC Responsibility sections) then the item will be deemed non-salable and will be disposed of in accordance with the previously defined process.
•
Should an inspection occur, the ORDC GM or ASM-Ops must complete the inspection with the MDO/DOS unit Manager or designee
o
If both parties agree that the item is non-saleable, the process continues consistent with this process.
o
If both parties agree that the item does not meet the non-saleable criteria, the ORDC PQIC or ICL will reverse the claim using the On-line Non-Saleable DRM Products Chargeback Form via Non-Saleable Outlet Products Request Tool
§
All credits to the MDO/DOS Unit
number must be entered as a negative number (meaning a minus sign is entered in front of the sell/cost values)
§
The credit must be entered by the ORDC no later than 2 business days after inspection deeming the product saleable
§
Merchandise will be moved to appropriate stage for processing
o
If both parties do not agree on the condition of the item, the parties will follow the Dispute Resolution portion of this process.
•
After any in person or remote inspection of the non-salable product confirms its status, the ORDC will transfer the merchandise to the salvage area
o
ORDC will remove all merchandise nomenclature and follow merchandise salvage process
o
ORDC will not return the non-saleable products to the MDO/DOS unit
|
Disputes
|
•
If there is a disagreement between parties, the MDO/DOS unit District Manager and Director of Outlet Distribution Centers should be engaged to resolve dispute. For all DRM items for which the parties do not agree upon its designation as non-saleable, Buyer shall retain the product until resolution of the dispute.
•
Escalate to MDO/DOS unit region level or ORDC Vice President if the issue is not able to be resolved
|
Financial Entry Responsibilities
|
At the end of the fiscal month a spreadsheet of all the Non-Saleable Charges/Credits to the Seller Business Units (MDO/DOS unit) will be extracted from the on-line tool and Buyer will process a journal entry charging the depreciation to the CDC High Level Ledger Business and crediting the ORDC at Sell/Cost in Account 12135
|
ORDC Responsibility
Reconciling with SR02
|
•
ORDC ICL should total all the requests made through the end of the fiscal month from the Log attaching the emails in the BIRP 1-31 folder
•
Compare to the Non-Saleable entry on the final week of month’s BIRP report
•
If the sell values match, no further research is required and the emails from the 1-31 can be attached to the log and filed as documentation with the BIRP report
|
Placing a Claim for a Front Load Washer – ORDC Responsibility
|
•
Upon receipt of merchandise shipped from the MDO, determine if the required minimum of 2 shipping pins (bolts) are installed.
§
If 2 or more shipping pins (bolts)
ARE
installed, the merchandise should:
o
Move to disposition per the inspection and move document
o
During testing process, PINS (BOLTS) will be removed
o
After the testing process, PINS (BOLTS) will be re-installed and Customer Shipping Bolt Removal Form attached to the back of the merchandise (make copies on colored paper)
§
If the minimum 2 shipping pins (bolts) were not installed by the shipping MDO, then the Outlet facility takes the following action:
o
Log product on the non-saleable log as a “PENDING” credit
o
Send product to testing immediately to determine if there is drum damage
§
Testing must be complete within 60 business days
o
If drum damage exists, the merchandise is moved to the non-saleable staging area
§
Non-saleable process documented above is followed
§
ORDC PQIC or ICL files a claim Non-Saleable Products Chargeback Form via Non-Saleable Products Request Tool
§
Must use “No Shipping Bolts” reason when completing claim
§
Request Tool
Claim must be filed within 60 business days
o
If no drum damage exists and the product is deemed saleable, the merchandise can be moved to the next appropriate phase on the move document and crossed off the non-saleable pending claim log
o
Shipping pins (bolts) MUST be re-installed after the merchandise has completed ORS testing and the
Customer Shipping Bolt Removal Form
needs to be attached to the back of the merchandise
|
Installation Guide For Shipping Bolts
|
§
All front load washers must have (AT THE MINIMUM), 2 shipping pins (bolts) installed before the item can be moved to the selling floor or shipped to another Outlet selling unit
§
Make sure the ORS team has a small supply of shipping pins (bolts) on hand to be able to install as needed; These can be ordered through the On-line part system based make and model
§
Installation guide for shipping pins (bolts) is at the link below: Installation of HE3_HE3t_HE4t Transportation Bolts
IMPORTANT – DO NOT SHIP ANY FRONT LOAD WASHERS TO ANY OUTLET SELLING UNITS WITHOUT SHIPPING PINS/BOLTS
|
Placing a claim for fitness equipment
|
•
ORDCs have up to 30 business days to file a non-saleable claim on fitness equipment. This is due to the need for assembly to properly assess the product
•
Send product to the testing area for assembly and assessment
o
Assembly and assessment must be complete within 30 business days
o
If the product doesn’t pass the non-saleable criteria then it is moved to the non-saleable staging area
§
Non-saleable process documented above is followed
§
ORDC PQIC or ICL files a claim Non-Saleable Products Chargeback Form via Non-Saleable Products Request Tool
§
Use the proper reason when completing claim
§
Request Tool
Claim must be filed within 30 business days
o
If the merchandise is deemed saleable, the merchandise can be moved to the next appropriate phase on the move document and crossed off the non-saleable pending claim log
|
Puerto Rico – Mattresses and box springs
|
•
Seller will not ship mattresses and box springs to Buyer on the island of Puerto Rico
•
If in error, mattresses and box springs are shipped to Buyer then they will be immediately deemed non-saleable
|
•
|
Scan item
|
•
|
Visually inspect
|
•
|
Add gas if visual test is good
|
•
|
Startup trimmer
|
•
|
Test
|
•
|
No issues or small repair
|
•
|
Remove gas
|
•
|
Clean/ power wash unit
|
•
|
Pack
|
•
|
Scan item
|
•
|
Visually inspect
|
•
|
Add gas if visual test is good (no parts added)
|
•
|
Startup trimmer
|
•
|
Test
|
•
|
Remove gas
|
•
|
Pack
|
•
|
Visual inspection (looks good 90+% all parts)
|
•
|
Separate
|
•
|
Scan products
|
•
|
Pack into Gaylords
|
•
|
Ship
|
|
|
|
KCD-Branded Product
|
|
Royalty Rate before
Deduction of the Kenmore Royalty Credit |
Kenmore-branded
|
|
[***]#%
|
Craftsman-branded—Lawn & Garden
|
|
[***]#%
|
Craftsman-branded—all other
|
|
[***]#%
|
DieHard-branded
|
|
[***]#%
|
|
|
|
|
|
|
|
|
|
|
|
Buyer’s Balance of Sales in
the Home Appliance Category
Royalty Rates
|
|
63.2%
and
below
|
|
63.2% to
64.99% |
|
65.0% to
69.99% |
|
70.0& to
74.99% |
|
75.0% and
over |
Royalty on Step Incremental Sales
|
|
[***]#
%
|
|
[***]#
%
|
|
[***]#
%
|
|
[***]#
%
|
|
[***]#
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ millions
Total applicable Sales
Kenmore BOS
Kenmore Sales
|
|
$250.00
63.2% and below $158.00 |
|
63.2% to
65.00% $4.50 |
|
65.0% to
70.00% $12.50 |
|
70.0& to
75.00% $12.50 |
|
Over
75.0% $12.50 |
|
Total
$200.00 |
|
|
|
|
|
|
|
||||||
Kenmore Base Royalty
(% Kenmore Sales)
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]
|
#
|
|
Kenmore Base Royalty $
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
Kenmore Royalty Credit %
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]
|
#
|
[***]#
|
Kenmore Royalty Credit $
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
Kenmore Net Royalty %
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]
|
#
|
[***]#
|
Kenmore Net Royalty $
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ millions
Total HST Sales
Kenmore BOS
Kenmore Sales
|
|
$300.00
63.2% and below $189.60 |
|
63.2% to
64.99% $5.40 |
|
65.0% to
69.99% $5.10 |
|
70.0& to
74.99% $0.00 |
|
75.0%
and over $0.00 |
|
Total
$200.00 |
|
|
|
|
|
|
|
||||||
Kenmore Base Royalty
(% Kenmore Sales)
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
Kenmore Base Royalty $
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
Kenmore Royalty Credit %
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
|
Kenmore Royalty Credit $
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
Kenmore Net Royalty %
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
|
[***]#
|
Kenmore Net Royalty $
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
|
[***]
|
1.
|
Separation of Inventory
. The following applies to Product and, unless otherwise indicated below, Buyer Unique Products:
|
(a)
|
Regarding the Logical Separation of DC inventory for Seller and Buyer
|
(i)
|
Logical Separation is an operational separation, not a physical separation of inventory.
|
(A)
|
Either Seller or Buyer may at any time request a logical separation of DC inventory, which if approved by Seller IM team, will be implemented. Absent such a request by either Party, the Inventory pool for all Products will not be logically separated. Once the Inventory for a particular SKU has been logically separated, it will not be logically combined again absent approval of the Party who requested such separation.
|
(B)
|
Regardless of whether the Inventory pool is logically separated or not, Seller is not obligated to physically separate the SHO Inventory.
|
(ii)
|
Calculating logical separation of DC inventory for each Party to draw from is a function of relative demand forecasts entered into IDRP based upon
|
•
|
Using relative demand forecasts to determine IDRP stocking targets in accordance with Seller’s order feasibility logic for each Party
|
•
|
Entering relative demand forecasts by item, by week and by DC by each Party
|
•
|
Establishing how much time is required to fulfill demand is a function of order feasibility logic parameters within IDRP:
|
o
|
Varies by Vendor production point of origin
|
o
|
Determined by Vendor production planning cycle and total lead-times
|
•
|
Calculating demand forecasts is a function within IDRP generated by:
|
o
|
Establishing each store reorder points by users
|
o
|
Downloading store on hand and store on order counts from RIM
|
o
|
Entering sales forecasts by users
|
o
|
Entering floor set quantities by users
|
•
|
Allocating DC on hand inventory and inbound PO’s is performed between IDRP and DOS for the following functions:
|
o
|
Store replenishment
|
o
|
Customer orders
|
o
|
Flooring of newly assorted items
|
(iii)
|
Supplying and/or reviewing all demand forecast data is the responsibility of Buyer
|
(A)
|
IDRP will continue to provide baseline sales forecast for Buyer. Buyer IM team will review and modify forecasts where appropriate in collaboration with Buyer.
|
(B)
|
Entering forecasts into IDRP will be performed by the IDRP certified Buyer IM Team under order feasibility parameters based upon IDRP forecasting logic
|
(C)
|
Collaborating on forecasts will be performed between Buyer IM Teams and Buyer
|
(D)
|
Altering forecasts to change prevailing logic of similar item history as the default for IDRP demand forecasts in DC logical separation of inventory calculations will be completed by Buyer IM Team.
|
(1)
|
Submitting store demand and sales forecasts via IDRP is the responsibility of Buyer
|
(2)
|
Communicating demand/sales changes where the Buyer default demand forecast is deemed too high/low is the responsibility of Buyer
|
(E)
|
Forecasting store reorder point increases and decreases must occur within IDRP along with all other demand factors such as resets, seasonal buys, and promotions by Buyer IM Team
|
(F)
|
Planning demand where IDRP is not used within Seller, must be communicated to Seller IM teams based on order feasibility by Buyer
|
(G)
|
Execution of inbound DC PO’s is a function of the Seller IM teams
|
(H)
|
Supplying plans for Buyer demand that exceeds prior Buyer forecasts where typical order feasibility logic does not supply Vendors ample time to produce larger than normal volumes of product is also required
|
(I)
|
Forecasting the demand impacts of new store openings and store closings must be completed within order feasibility parameters by Buyer or prior demand forecast will dictate logical separation of inventory for Buyer
|
(iv)
|
Party ordering logic applicable to either Party at the item level:
|
(A)
|
Customer Order Parameters
|
(1)
|
Filling orders from the DC for customer orders will default to orders being filled from either Party’s specific separation of inventory.
|
(2)
|
Filling orders from the DC for customer orders will have an exception process to allow orders from each Party to only draw from a Party-specific logically separated DC inventory
|
(i)
|
Exception process to be agreed-upon between both Buyer IM Team and Seller IM team
|
(B)
|
Store Replenishment Parameters
|
(1)
|
Filling orders from the DC for store replenishment orders will default to orders being filled from either Party’s specific separation of inventory
|
(2)
|
Filling orders from the DC for store replenishment will have an exception process to allow orders from each Party to only draw from a Party-specific logically separated DC inventory.
|
(i)
|
Exception process to be agreed-upon between both Buyer IM Team and Seller IM team
|
(C)
|
Alteration of default Party ordering logic will be performed by Seller IM teams
|
(1)
|
Exception process to be agreed-upon between both Buyer IM Team and Seller IM team
|
(D)
|
Communication of adjustments by either Party to default format ordering logic will be performed by Seller IM team where:
|
(1)
|
Occurrences where Vendor supply interruptions are uncovered
|
(2)
|
Availability of items at any Vendor becomes constrained
|
(3)
|
Requirements by law for minimum availability per marketing of promotions where the demand was planned according to order feasibility logic
|
(4)
|
Overselling forecasts by either Party where the other Party’s ability to fulfill demand forecasts are at risk
|
(E)
|
Branch Transfer
|
(1)
|
Shared Inventory. The Seller IM team may, from time to time, propose the branch transfer of shared Inventory to Buyer. If Buyer doesn’t wish to participate in such transfer (and pay the related costs), Buyer must elect to have a logical separation of the Inventory for the affected SKUs; which election will be irrevocable until the current inventory is sold through. If Buyer does not elect to separate the Inventory, then Buyer shall be deemed to approve the branch transfer and will be liable for its share of the related costs.
|
(2)
|
Logically Separated and Buyer-Unique Products. Buyer may request, from time to time, branch transfers for Inventory for its portion of logically separated Inventory and for Buyer-Unique Products. Seller shall provide a quote for such moves, and if Buyer approves such quote, Seller shall perform such move and charge Buyer the agreed upon rates.
|
2.
|
Transition and Assortment Inventory Planning
|
(i)
|
Supplying annual calendars with estimated due dates to Buyer is the responsibility of Seller IM teams
|
(ii)
|
Establishing forecasts for ROIC, Seasonal and/or Annual demand according to Vendor Production Planning Lead-times including Vendor/manufacturer preseason part procurement planning according to planning calendars will be performed by Buyer, including for Buyer-Unique Products. Seller will provide Buyer with at least 10 days’ notice of the due date for Buyer’s forecast.
|
(A)
|
Determination of specific timelines and due dates for calendars will be performed by each BU Seller IM Team and communicated to the Buyer IM Team as additional information of Vendor requirements for production planning becomes available, impacting future order feasibility.
|
(1)
|
Each Seller IM team will ensure that the calendar incorporates lead times for above mentioned forecasts allow Buyer to review assortments, complete modeling and submit a forecast.
|
(B)
|
Common seasonal areas to note but not exclusive to:
|
(1)
|
Annual power lawn and garden estimates due in early fall prior to next spring season
|
(2)
|
Initial birding set up quantity due late spring prior to next spring season
|
(3)
|
Air conditioners due early fall prior to next spring season –
|
(4)
|
Outdoor Living annual estimates and floor set quantities due mid-summer prior to next spring season
|
(5)
|
Seasonal Christmas estimates early spring (trees, lights, etc.).
|
(6)
|
Planning for all products is due at the same time as Seller plans for Buyer inclusion in buy plans with Vendors and according to predetermined planning calendars with store flooring needs, replenishment points and sales forecasts established.
|
(iii)
|
Documentation of items and programs requiring CAPCON or ROIC approval where Buyer provides requests will be included in total Seller buy review are to be supplied by Buyer –
|
(A)
|
Requesting product where Buyer forecasts are not within +/- 10% tolerance of 3 year average historical Buyer sales
|
(1)
|
Negotiation of separate exit strategies is required of Buyer prior to confirmation of approvals to minimize negative impact to DC inventory levels including but not limited to:
|
(i)
|
Absorbing excess quantities into Buyer store locations determined by item by DC Logical Separation of Inventory
|
(B)
|
Exercising one of the following options is required of Buyer where requested product based on Buyer forecasts are within +/- 10% tolerance and where excess inventory remains in DC’s logically separated for Buyer
|
(1)
|
Receiving all excess quantities at store level
|
(2)
|
Complying with Seller merchandise control policies and submit appropriate “Pack Away” forms for approval. Seller shall have the right to approve or reject Pack Away requests in its reasonable discretion, which will not be unreasonably withheld or delayed.
|
(i)
|
Upon approval, Pack Away items will be held in DCs until the next season (handling, storage, etc. will be billed to Buyer).
|
(ii)
|
Upon denial, excess quantities will be receipted at Buyer store level and executed by the Buyer IM Team
|
(3)
|
Absent the Parties agreeing to a Pack-Away for specific seasonal product forecasted by Buyer, Buyer will be obligated to purchase 100% of its forecasted amount. Seller will age Inventory using generally accepted inventory-aging practices in a manner consistent with Seller’s practices. Buyer must promptly take shipment of all aged inventory of such Buyer forecasted seasonal product.
|
(iv)
|
New Product Assortment/Floor Sets
|
(A)
|
Adherence to the same lead-times as Seller IM teams is required of Buyer regarding initial flooring inventory demand, as this demand has order feasibility requirements
|
(v)
|
Following the Seller new Vendor and new item processes is required of Buyer for Buyer-Unique Products by Buyer Merchant and Buyer IM teams
|
(A)
|
All aforementioned demand forecast parameters apply to Buyer-Unique Products
|
(vi)
|
Performance of record creation activities for Buyer -unique items will be completed by Buyer‘s IM Team that has been certified in RIM. Seller will continue to use existing record Creation processes for shared items.
|
(vii)
|
Seller, in its sole discretion, will determine the flow path for all Products that are not Buyer-Unique Products
.
Flow paths for Buyer-Unique Products will be subject to mutual agreement of the Parties.
|
(viii)
|
Buyer will be obligated to Seller with respect to these forecasts. Buyer must promptly offer Seller the right to retain any Buyer-Unique Product for resale by Seller to any party (whether at wholesale or retail) other than Buyer; however, Seller’s refusal of that offer does not relieve Buyer of its obligation to purchase any forecasted Buyer-Unique Product.
|
3.
|
Emergency/Disaster Orders:
|
(i)
|
Unpredictable catastrophic event impacting localized emergency demand
|
•
|
Forecasting is the responsibility of both Seller and Buyer and includes:
|
o
|
establishing Emergency/Disaster quantities based on a 4 year average; said forecast is the basis for allocation to each Party.
|
o
|
Committing to Vendor held stock is the responsibility of the Seller IM team inclusive of aforementioned forecasting for demand for each Party.
|
o
|
Where availability is constrained, allocation will be based upon collaboration between selected delegates from Seller IM team and Buyer.
|
•
|
Forecasting when and where an Emergency/Disaster will occur is not feasible; therefore, demand will vary based upon where emergency/disasters occur
|
•
|
Planning and executing Emergency/Disaster Response is the responsibility of Seller according to the Disaster Program; this includes:
|
o
|
Disaster Program Procedures:
|
§
|
Notification of district managers responsible for each district to the disaster program coordinator is the responsibility of the field leadership team for each Party
|
§
|
Notifications of changes to district managers responsible is the responsibility of the field leadership team for each Party
|
§
|
Notification of local demand for emergency/disasters is the responsibility of the Party field district managers via the disaster hotline
|
§
|
Handling inbound disaster hotline calls is the responsibility of Seller IM team
|
§
|
Allocation of disaster merchandise both in DC’s and Vendor held stock is the responsibility of the Seller IM team based on requests from a Party’s district managers
|
•
|
Where availability is constrained, allocation will be based upon collaboration between selected delegates from Seller IM team and Buyer
|
§
|
Event examples:
|
•
|
Hurricane
|
•
|
Tornado
|
•
|
Flooding
|
•
|
Excessive snowfall
|
•
|
Infrastructure disruption
|
§
|
Items Included:
|
•
|
Wet/dry vacuums
|
•
|
Sump pumps
|
•
|
Snow throwers
|
•
|
Ice melt
|
•
|
Gas cans
|
•
|
Generators
|
•
|
Chainsaws
|
•
|
AA, AAA, C and D cell batteries
|
•
|
Flashlights
|
4.
|
Puerto Rico:
Seller’s Affiliates will provide IM services for Buyer Stores in Puerto Rico that are substantially the same in all material respects as the IM services provided by Seller’s Affiliates for Buyer Stores in Puerto Rico and Guam as of the Effective Date.
|
5.
|
Buyer-Unique Products
. The following provisions apply to Buyer-Unique Products. To the extent that the following provisions conflict with the above or other provisions of the Agreement, the following provisions shall control.
|
(a)
|
Dedicated Inventory for Buyer-Unique Products.
|
(i)
|
Buyer has prior to the Effective Date provided a list of Buyer-Unique Product with an Inventory cost of approximately $17 million. Buyer represent that the foregoing list is accurate and correct. The Parties have agreed that for 2016, Buyer may have up to $13 million in Buyer-Unique Products in Seller’s Inventory at any one time (each “
BUP Cap
”). For each Contract Year thereafter, the BUP Cap and a SKU count plan (each a “
SKU Count Plan
”) will be established based upon the amount of overall Buyer-Unique Product SHMC has agreed to purchase for a particular Contract Year and SHO’s historical inventory terms for such Products (or similar products for new Products).
|
(ii)
|
Buyer will provide weekly reports to Seller IM team listing all Buyer-Unique Products, by SKU, which Buyer desires Seller to buy for Buyer over the next 90 days, as well as all other “SHO Provided Products” (as that term is defined in
Attachment 1.01-C
(Supply Chain Services) for the HTS Product Categories to the Services Agreement that SHO intends to buy on its own, for each SKU Buyer will list the proposed vendor and whether such SKU has been purchased by Seller from such vendor previously or not. SHO will mark such information “Highly Confidential – Limited Distribution Internally.” For new vendors, Seller shall have the option of having such vendor agree to a contract with such vendor or requiring Buyer to enter into its own agreement with such vendor.
|
(iii)
|
Seller IM and Buyer IM Teams, including respective merchant teams and company designees, will meet 2 times each month to review the Buyer provided weekly reports and discuss Buyer-Unique Product purchases that Buyer desires Seller to purchase under this Agreement. Buyer will identify the Inventory to be purchased, vendor of that product, and Buyer’s desired flow path for such Inventory.
|
(iv)
|
Seller is not obligated to purchase any Buyer-Unique Product which: (I) in Seller IM teams view would cause the amount of Buyer-Unique Product to in the future exceed the BUP Cap, or (II) would violate any other restriction in this Agreement, including causing Seller to violate any applicable law in the purchase, storage, distribution or sale of such Buyer-Unique Product.
|
(v)
|
If Seller does not have the warehouse space to accommodate Buyer’s forecasted purchasing needs for Buyer-Unique Product, Seller will notify Buyer and if requested by Buyer pursuant to
Section 1.01E.
(SHO’s Requests for Services/System Changes) of the Services Agreement, Seller’s Affiliates will provide a proposal for additional warehousing space for such Products.
|
(vi)
|
New Buyer-Unique Product onboarding process
|
(A)
|
Buyer will submit new unique items that require DC stocking to Seller IM team following established flow path process:
|
(1)
|
Items must be approved under this process before the items are entered in IMA.
|
(2)
|
Buyer must provide 90 day advance notice regarding SKU additions of more than 5% over SKU Count Plan.
|
(3)
|
Buyer must provide volume forecast of new SKUs at time of submittal (inbound, outbound, storage as described under forecasting requirements
|
(4)
|
If Buyer’s change in SKU or flow paths resulting from additions or subtractions of Buyer-Unique Products and corresponding changes to needs for shared Products has a significant impact on Seller’s productivity costs and/or storage capacity, the parties will need to agree to an adjustment to the costs hereunder and the costs under the Services Agreement (each via an written amendment, subject to the necessary approvals) before Seller will be required to purchase, distribute, store and/or sell such Buyer-Unique Product.
|
(5)
|
Buyer is responsible for tracking all Buyer-Unique Product SKUs and Buyer shall designate all Buyer-Unique Products in Seller’s Inventory systems using a flag (or flags) designated by Seller from time to time.
|
(B)
|
Buyer will appoint a contact manager of supply chain operations (single point of contact) to work with Seller IM teams for planning assistance with new product launches seasonal sets, new or closing stores, flow path decisions and operational issues.
|
(C)
|
Buyer will provide feedback via digital load quality surveys
|
(D)
|
Buyer will provide complete and proper build of online items with all necessary artifacts, including using designated flags for Buyer-Unique Product.
|
(E)
|
Buyer will provide competent inventory management to drive inventory productivity and space utilization
|
(vii)
|
Tracking of Buyer-Unique Products
|
(A)
|
Seller will track all Buyer-Unique Products (using the flags set by Buyer) throughout its DC
|
(B)
|
Logical separation will not apply to Buyer-Unique Products. Buyer-Unique Products will be treated as solely owned by Buyer for purposes of any charges under this
Appendix 6.6
|
(C)
|
Buyer will adhere to the non-productive inventory targets agreed to with respect to the Inventory of Buyer-Unique Products. If a Buyer-Unique Product becomes non-productive in accordance with GAAP , Buyer shall work through that Inventory within 30 days.
|
(D)
|
Any Buyer-Unique Product inventory that has not been worked through after 30 days from becoming GT80 it shall be disposed of at Buyer’s cost. Outlet products will not be managed at Seller’s DC facilities and Buyer will take all DC discontinued Product each month as requested
|
(E)
|
Buyer may
request
Pack-Away of Buyer-Unique Product per
Section 2(iii)(B)
above, in which event Seller will include an additional charge for the inventory carrying cost in its proposal to SHO. If Buyer does not agree to such cost, then Pack-Away will not performed for such Buyer-Unique Product.
|
(viii)
|
For KCD-Branded Products, Seller is not obligated to purchase such products until they have been approved by the Seller’s Affiliates that manage KCD- Branded Products (the “
KCD Team
”). Before approaching the Seller IM Teams regarding KCD-Branded Product, Buyer will first work with the KCD Team; which KCD Team will determine whether to source such products and from which vendors.
|
(b)
|
Accommodation of Buyer-Unique Product
|
(i)
|
Seller is under no obligation to accommodate any purchase of Buyer-Unique Products if that purchase would negatively impact the business relationship Seller has with the Vendor of that Buyer-Unique Product. Buyer is responsible for any costs associated with modification of IM process to accommodate acceptance of Buyer-Unique Products, including reimbursement for any cash in advance payments or alternative payment plans required for acquisition of Buyer-Unique Product desired by Buyer.
|
(ii)
|
Buyer is not authorized to commit Seller to purchase any products, and Buyer will not claim that it is so authorized. Seller shall have no obligation to purchase any Buyer-Unique Product until Seller issues a purchase order for such Products. Seller will use commercially reasonable efforts to timely issue purchase orders for Buyer Unique Product which Seller has agreed to purchase hereunder;
provided
Buyer is fully in compliance with Buyer’s obligations under this Agreement.
|
(iii)
|
Buyer is not authorized to negotiate the purchase of KCD-Unique Products and Buyer will not claim that it is. The purchase of such products will be solely handled by Seller and its Affiliates without the involvement of Buyer.
|
(iv)
|
For Vendor—Unique Products, Buyer and Seller shall jointly discuss with the Vendor any proposed purchases and Buyer must fully disclosed to Seller all terms and conditions regarding such purchases.
|
(v)
|
Buyer’s estimates for Buyer-Unique Products will be deemed forecasted for purposes of this
Appendix 6
. Absent the Parties agreeing to a Pack-Away for specific Buyer-Unique Products, Buyer will be obligated to purchase 100% of its forecasted amount. Buyer and Seller will age Inventory using generally accepted inventory-aging practices in a manner consistent with Seller’s practices. Buyer must promptly take shipment of all aged inventory of Buyer-Unique Products. Buyer must promptly offer Seller the right to retain any such aged Buyer-Unique Product for resale by Seller to any party (whether at wholesale or retail) other than Buyer; however, Seller’s refusal of that offer does not relieve Buyer of its obligation to purchase any forecasted Buyer-Unique Product.
|
(c)
|
Transition of Product from shared Product to Buyer-Unique Product
|
(i)
|
If Buyer requests Seller to continue to purchase a Product which Seller has stated it will no longer purchase under
Section 3(a)
(Seller’s Obligation to Sell) of the Agreement, such Product shall become a Buyer-Unique Product and it shall be subject to all the same terms and restrictions as other Buyer-Unique Products.
|
1.
|
Invoices
. Except as is otherwise agreed to, in advance, and in writing by the parties:
|
2.
|
Royalties
. If after January 28, 2017 Buyer ceases using the POS, then the Payment Due Date for Royalties and CS Royalties will be the 10
th
day following the end of Buyer’s fiscal quarter in accordance with
Section 7(b)
of this Agreement.
|
3.
|
Holidays
. If the applicable payment date (i.e., the 3
rd
or 10
th
day) is a Saturday, Sunday, or bank holiday, Buyer will pay on the next banking day, which will become the Payment Due Date. Electronic fund transfers initiated on the Payment Due Date will be timely made for purposes of this Agreement.
|
4.
|
For the remainder of the Term
. Seller and Buyer will negotiate in Good Faith to determine the Payment Due Dates, which negotiations will take into account, among other things, then-current market conditions.
|
Store No.
|
Location
|
Address
|
City
|
State
|
Country
|
1992
|
TAMUNING - D
|
404 N MARINE CORPS DR
|
TAMUNING
|
GU
|
Guam
|
2151
|
ST CROIX – D
|
93A ESTATE DIAMOND
|
ST CROIX
|
VI
|
US Virgin Islands
|
2270
|
HOMEWOOD – D
|
17550 HALSTEAD
|
HOMEWOOD
|
IL
|
USA
|
9016
|
ST THOMAS – D
|
CHARLOTTE AMALIE
|
ST THOMAS
|
VI
|
US Virgin Islands
|
2725
|
LIHUE – D
|
4303 NAWILIWILI RD
|
LIHUE
|
HI
|
USA
|
1420
|
BIG BEAR LAKE – D
|
42126 BIG BEAR LAKE
|
BIG BEAR LAKE
|
CA
|
USA
|
5205
|
BRIDGEHAMPTON – D
|
2044 MONTAUK HWY
|
BRIDGEHAMPTON
|
NY
|
USA
|
5078
|
KEARNY – D
|
200 PASSAIC AVE
|
KEARNY
|
NJ
|
USA
|
5170
|
LAS VEGAS - D
|
5051 E BONANZA RD
|
LAS VEGAS
|
NV
|
USA
|
2573
|
PASSAIC - D
|
24 34 BARBOUR AVENUE
|
PASSAIC
|
NJ
|
USA
|
1.
|
The KCD Marks
|
2.
|
The feature Marks and sub-brand Marks associated with the Seller-Branded Products
|
3.
|
The trade dress related to the above Marks
|
VII.D
.
|
SHO’s Other Obligations
.
|
1.
|
SHO at each of its store locations shall display and promote, at the point of sale, marketing collateral for the SYW branded CITI credit card (“CITI Card”). SHMC at its expense will provide each SHO location with such marketing collateral to be displayed.
|
2.
|
For transactions occurring in store, SHO will maintain a process that requires inquiring of each customer whether or not the customer is a Member and if the answer is affirmative asking for the customer’s Member Number. Such process will be executed prior to transaction completion.
|
3.
|
SHO will maintain a process in its POS System 1) that requires inquiring of each customer that does not self-identify as Member if the customer would like to
|
4.
|
SHO will maintain a process in its POS System for SHO’s customers to apply for the CITI Card.
|
5.
|
SHO will allow for the earning, awarding, and redeeming of Points at the SHO Sites (defined below). In order to accomplish this, SHO will connect the SHO Sites (or, as applicable, the shopping cart at such sites) to the appropriate SHMC API’s allowing for the earning, awarding, and redeeming of Points online. “SHO Sites” means the websites, apps, and similar digital properties that SHO owns or operates where customers purchase products.
|
Sears Holdings Management Corporation
By:
/s/ ERIC JAFFE
Eric Jaffee
Senior Vice President, Shop Your Way
|
Sears Hometown and Outlet Stores, Inc.
By:
/s/ CHARLES J. HANSEN
Charles J. Hansen
Vice President, General Counsel, and Secretary
|
|
Jurisdiction of Formation
|
Sears Authorized Hometown Stores, LLC
|
Delaware
|
Sears Home Appliance Showrooms, LLC
|
Delaware
|
Sears Outlet Stores, L.L.C.
|
Delaware
|
Troy Coolidge No. 6, LLC*
|
Michigan
|
Outlet Merchandise, LLC
|
Delaware
|
Signature:
/s/ WILL POWELL
Will Powell
|
Title: Director and Chief Executive Officer and President
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Signature:
/s/ E. J. BIRD
E.J. Bird
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Title: Chairman of the Board
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Signature:
/s/ JAMES F. GOOCH
James F. Gooch
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Title: Director
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Signature:
/s/ JOSEPHINE LINDEN
Josephine Linden
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Title: Director
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Signature:
/s/ KEVIN LONGINO
Kevin Longino
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Title: Director
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Signature:
/s/ WILLIAM K. PHELAN
William K. Phelan
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Title: Director
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Signature:
/s/ DAVID ROBBINS
David Robbins
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Title: Director
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1.
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I have reviewed this Annual Report on Form 10-K of Sears Hometown and Outlet Stores, Inc.
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date:
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March 30, 2017
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/s/ WILL POWELL
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Will Powell
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Chief Executive Officer and President
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Sears Hometown and Outlet Stores, Inc.
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1.
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I have reviewed this Annual Report on Form 10-K of Sears Hometown and Outlet Stores, Inc.
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date:
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March 30, 2017
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/s/ RYAN D. ROBINSON
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Ryan D. Robinson
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Senior Vice President, Chief Administrative Officer, and Chief Financial Officer
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Sears Hometown and Outlet Stores, Inc.
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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March 30, 2017
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/s/ WILL POWELL
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Will Powell
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Chief Executive Officer and President
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/s/ RYAN D. ROBINSON
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Ryan D. Robinson
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Senior Vice President, Chief Administrative Officer, and Chief Financial Officer
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