Sears 2015 Annual Report Download - page 70

NOTE 2—SEARS CANADA
Sears Canada Rights Offering
On October 2, 2014, the Company announced that its board of directors had approved a rights offering of up to
40 million shares of Sears Canada Inc. ("Sears Canada"). The subscription rights were distributed to all stockholders
of Holdings, and every stockholder had the right to participate on the same terms in accordance with its pro rata
ownership of the Company's common stock. In connection with the rights offering, each holder of Holdings'
common stock received one subscription right for each share of common stock held at the close of business on
October€16, 2014, the record date for the rights offering. Each subscription right entitled the holder thereof to
purchase their pro rata portion of the Sears Canada common shares being sold by Holdings in the rights offering at a
cash subscription price of Canadian $10.60 per whole Sears Canada share, which was the closing price of Sears
Canada's common shares on September€26, 2014, the last trading day before the Company requested Sears Canada's
cooperation with the filing of a prospectus regarding the rights offering.
On October 16, 2014, ESL Partners, L.P. and Edward S. Lampert, our Chairman and Chief Executive Officer
and Chairman and Chief Executive Officer of ESL exercised a portion of its pro rata portion of the basic
subscription rights to the offering. Accordingly, we sold a total of approximately 18 million common shares of Sears
Canada to ESL, for which we received approximately $169 million in proceeds. After the sale of Sears Canada
shares to ESL on October 16, 2014, the Company was the beneficial holder of approximately 34 million shares, or
34%, of the common shares of Sears Canada. As such, the Company no longer maintained control of Sears Canada
resulting in the de-consolidation of Sears Canada.
The Sears Canada rights offering closed on November 7, 2014 and was oversubscribed. Accordingly, the
Company sold a total of 40 million common shares of Sears Canada and received total aggregate proceeds of $380
million for the rights offering by the closing date, including $212 million received from ESL and $93 million
received from Fairholme and its affiliates. Proceeds from the rights offering provided additional liquidity to
Holdings during the 2014 holiday period and were used for general corporate purposes.
We accounted for the de-consolidation of Sears Canada in accordance with accounting standards applicable to
consolidation and de-recognized the assets, liabilities, accumulated other comprehensive income and non-controlling
interest related to Sears Canada and recognized a gain of approximately $70 million recorded within Interest and
investment income on the Consolidated Statement of Operations and within Gain on sales of investments on the
Consolidated Statements of Cash Flows for the year ended January€31, 2015, of which $42 million relates to the
remeasurement of our retained equity interest to its fair value.
Also, we determined that we have the ability to exercise significant influence over Sears Canada as a result of
our ownership interest in Sears Canada and as a result of Mr. Lampert's role as our Chairman and Chief Executive
Officer, and Chairman and Chief Executive Officer of ESL. Accordingly, we accounted for our retained investment
in the common shares of Sears Canada as an equity method investment in accordance with accounting standards
applicable to investments. We elected the fair value option for the equity method investment in Sears Canada in
accordance with accounting standards applicable to financial instruments. The fair value of our equity method
investment is recorded in other assets on the Consolidated Balance Sheet, and the change in fair value is recorded in
interest and investment income on the Consolidated Statement of Operations, and is disclosed in Note 6.
In addition, since the Company has retained an equity interest in Sears Canada, the operating results for Sears
Canada through October 16, 2014 are presented within the consolidated operations of Holdings and the Sears
Canada segment in the accompanying Consolidated Financial Statements in accordance with accounting standards
applicable to presentation of financial statements.
At both January€30, 2016 and January€31, 2015, the Company was the beneficial holder of approximately 12
million, or 12%, of the common shares of Sears Canada. Our equity method investment in Sears Canada was $52
million and $111 million at January€30, 2016 and January€31, 2015, respectively, and is included within other assets
on the Consolidated Balance Sheets. The fair value of our equity method investment in Sears Canada was
determined based on quoted market prices for its common stock. Our equity method investment in Sears Canada is
valued using Level 1 measurements as defined in Note 5.
SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
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