Sears Canada Reports Fourth Quarter Earnings and Full-Year Results

TORONTO, Feb. 22, 2012 /CNW/ - Sears Canada Inc. (TSX: SCC) today announced its unaudited fourth quarter and full-year results. Total revenues for the 13-week period ended January 28, 2012 were $1.366 billion versus $1.459 billion for the comparable 13-week period ended January 29, 2011, a decrease of 6.4%.  Same store sales decreased 7.4%.

Operating EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the same 13-week period was $98.5 million versus $132.6 million last year.  Net earnings for the quarter this year were $38.7 million or 36 cents per share versus $82.7 million or 77 cents per share in the quarter of the prior year.

Total revenues for the 52-week period ended January 28, 2012 were $4.619 billion versus $4.939 billion for the 52-week period ended January 29, 2011, a decrease of 6.5%.  Same store sales decreased 7.5%.  Operating EBITDA for the same 52-week period was $110.8 million versus $293.3 million last year.  Net losses for the year ending January 28, 2012 were $60.1 million or 58 cents per share versus net earnings of $115.2 million or $1.07 per share for the year ending January 29, 2011.  Cash flow generated from operating activities for the year ending January 28, 2012 was $85.0 million versus $71.3 million last year, an increase of 19.2%.

Commenting on the quarter and full year performance, Calvin McDonald, President and Chief Executive Officer, Sears Canada Inc., said, "While we are disappointed with our performance for 2011, including the fourth quarter, we believe we have begun to stabilize the business and create a foundation for returning the business to historical performance levels.  Because of our actions to reduce unproductive inventory, we had higher cash flow in 2011 than the prior year, and enter 2012 with a much cleaner inventory position.

"The senior leadership team and all of our associates are focused on the transformation initiatives which we have undertaken.  Our plan for the coming year involves the implementation of initiatives to show Sears customers that we genuinely want to make Sears a place where they can find exceptional service coupled with affordable products and services that meet their needs in a way no other retailer can provide.  For example, last week we introduced to customers nationwide that we had lowered prices on a significant portion of our merchandise in stores and online to provide outstanding value to customers on a more consistent basis, day-in and day-out.

"As we turn the page on 2011, I would like to acknowledge the hard work of the more than 30,000 associates that comprise Sears Canada and thank them for their ongoing commitment to making our Company successful.  I look forward to working through our transformation with this team of dedicated associates who serve and support our customers from coast to coast."

Due to the transition to International Financial Reporting Standards ("IFRS") effective January 30, 2011, all comparative figures for 2010 that were previously reported in the consolidated financial statements prepared in accordance with Canadian generally accepted accounting principles have been restated to conform to the new standards adopted.  Further information on the transition to IFRS and its effect on the Company's reporting of its financial position, financial performance and cash flows are included in the first quarter 2011 unaudited condensed consolidated financial statements which are filed on the System for Electronic Document Analysis and Retrieval website, available at www.sedar.com.  .

This release contains information which is forward-looking and is subject to important risks and uncertainties. Forward-looking information concerns the Company's future financial performance, business strategy, plans, goals and objectives.  Factors which could cause actual results to differ materially from current expectations include, but are not limited to: the ability of the Company to successfully implement its cost reduction, productivity improvement and strategic initiatives and whether such initiatives will yield the expected benefits; the results achieved pursuant to the Company's long-term marketing and servicing alliance with JPMorgan Chase Bank, N.A.;  general economic conditions; competitive conditions in the businesses in which the Company participates; changes in consumer spending; seasonal weather patterns; customer preference toward product offerings; changes in the Company's relationship with its suppliers; interest rate fluctuations and other changes in funding costs; fluctuations in foreign currency exchange rates; the possibility of negative investment returns in the Company's pension plan;  the outcome of pending legal proceedings; and changes in laws, rules and regulations applicable to the Company.  While the Company believes that its forecasts and assumptions are reasonable, results or events predicted in this forward-looking information may differ materially from actual results or events.

Operating EBITDA (Operating net earnings before interest, taxes, depreciation and amortization) is a non-IFRS measure, and excludes finance costs, interest income, share of income or loss from joint ventures, income tax expense or recovery, depreciation and amortization and income or expenses of a non-recurring, unusual or one-time nature.

Sears Canada is a multi-channel retailer with a network that includes 196 corporate stores, 285 hometown dealer stores, 30 home services showrooms, over 1,700 catalogue merchandise pick-up locations, 108 Sears Travel offices and a nationwide home maintenance, repair, and installation network. The Company also publishes Canada's most extensive general merchandise catalogue and offers shopping online at www.sears.ca.

                   

SEARS CANADA INC.
                 
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                  
                   
Unaudited                  
                   
 
(in CAD millions)
 
 

As at
January 28, 2012


As at
January 29, 2011


As at
January 30, 2010
                   
ASSETS                  
Current assets                  
Cash and cash equivalents    $  $ 397.4   $  $ 432.3   $  $ 226.9
Short-term investments     -     -     1,165.5
Accounts receivable, net      116.2     144.0     132.9
Income taxes recoverable      4.1     4.5     5.7
Inventories     823.9     953.2     852.3
Prepaid expenses      27.9     31.8     34.8
Derivative financial assets     -     -     9.9
      1,369.5     1,565.8     2,428.0
Non-current assets                  
Property, plant and equipment     872.0     900.7     961.0
Investment property     21.7     21.7     21.7
Retirement benefit asset      187.7     197.4     207.4
Intangible assets     23.6     23.5     22.6
Goodwill      8.7     11.2     11.2
Investment in joint ventures      301.4     313.3     321.0
Deferred income tax assets      0.6     0.5     0.6
Other long-term assets      49.2     38.1     42.2
    $   2,834.4   $   3,072.2   $   4,015.7
                   
LIABILITIES                  
Current liabilities                  
Accounts payable and accrued liabilities   $   576.8   $   665.6       698.3
Deferred revenue     208.0     224.0     235.9
Provisions      64.8     65.3     69.4
Income and other taxes payable     43.8     66.3     72.6
Derivative financial liabilities     -     3.0     -
Principal payments on long-term obligations due within one year      5.1     4.7     305.4
      898.5     1,028.9     1,381.6
Non-current liabilities                  
Long-term obligations      117.6     124.4     26.1
Deferred revenue      89.2     77.4     67.5
Retirement benefit liability      144.1     120.9     98.8
Deferred income tax liabilities     48.9     76.5     97.6
Other long-term liabilities      75.8     84.7     93.5
      1,374.1     1,512.8     1,765.1
                   
SHAREHOLDERS' EQUITY                  
Capital stock      15.0     15.4     15.7
Retained earnings     1,445.1     1,546.8     2,227.7
Accumulated other comprehensive income (loss)     0.2     (2.8)     7.2
      1,460.3     1,559.4     2,250.6
    $   2,834.4   $   3,072.2   $   4,015.7
                   

SEARS CANADA INC.                        
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS)                        
  AND COMPREHENSIVE INCOME (LOSS)                        
For the 13 and 52-week periods ended January 28, 2012 and January 29, 2011                        
                           
Unaudited                        
                           
          13-Week Period       52-Week Period
(in CAD millions, except per share amounts)     2011     2010     2011     2010
                           
Revenue   $   1,365.9   $   1,459.4   $   4,619.3   $   4,938.5
Cost of goods and services sold     864.6     888.1     2,932.3     2,997.7
Gross profit     501.3     571.3     1,687.0     1,940.8
                           
Selling, administrative and other expenses     446.0     452.0     1,751.1     1,757.7
Finance costs      4.0     3.9     16.0     16.6
Interest income      (0.4)     (1.1)     (1.7)     (4.2)
Share of income from joint ventures     (1.5)     (1.5)     (8.3)     (3.2)
Expenses before income taxes     448.1     453.3     1,757.1     1,766.9
                           
Earnings (loss) before income taxes     53.2     118.0     (70.1)     173.9
                           
Income tax expense (recovery)                        
  Current     (12.3)     40.0     18.7     75.4
  Deferred     26.8     (4.7)     (28.7)     (16.7)
        14.5     35.3     (10.0)     58.7
Net earnings (loss)     $   38.7   $ 82.7   $   (60.1)   $ 115.2
                           
Basic net earnings (loss) per share   $   0.36   $   0.77   $ (0.58)   $   1.07
Diluted net earnings (loss) per share    $ 0.36   $ 0.77   $   (0.58)   $ 1.07
                           
Net earnings (loss)   $   38.7   $   82.7   $   (60.1)   $   115.2
Other comprehensive income (loss), net of taxes:                        
  Mark-to-market adjustment related to short-term investments within cash and cash equivalents, net of income tax recovery of less than $0.1 and less than $0.1 (2010: recovery of less than $0.1 and $0.1)     -     -     -     (0.2)
  Gain (loss) on foreign exchange derivatives designated as cash flow hedges, net of income tax expense of $0.4 and income tax recovery of $1.7  (2010: recovery of $1.3 and $3.4)     0.9     (2.9)     (4.1)     (7.5)
  Reclassification to net earnings (loss) of loss (gain) on foreign exchange derivatives designated as cash flow hedges, net of income tax recovery of $0.1 and $2.8 (2010: recovery of less than $0.1 and expense of $1.1)     0.2     0.1     7.1     (2.3)
Other comprehensive income (loss)     1.1     (2.8)     3.0     (10.0)
Comprehensive income (loss)   $   39.8   $ 79.9   $ (57.1)   $ 105.2
                           
                           

 

SEARS CANADA INC.                        
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN                        
  SHAREHOLDERS' EQUITY                        
For the 13 and 52-week periods ended January 28, 2012 and January 29, 2011                        
                               
Unaudited                        



(in CAD millions)
 
.

Capital stock
 

Retained
earnings
  Mark-to-market on
short-term
investments within
cash and cash
equivalents
  Foreign exchange
derivatives
designated as
cashflow hedges
 
Accumulated other
comprehensive
income (loss)
 

Shareholders'
equity
Balance as at October 29, 2011   15.1   1,417.1   -   (0.9)   (0.9)   1,431.3
                           
Comprehensive income                        
  Net earnings       38.7           -   38.7
                           
Other comprehensive income                        
  Mark-to-market loss, net of income tax recovery of less than $0.1           -       -   -
  Gain on foreign exchange derivatives, net of income tax expense of $0.4               0.9   0.9   0.9
  Reclassification of loss on foreign exchange derivatives, net of income tax recovery of $0.1               0.2   0.2   0.2
Total other comprehensive income   -   -   -   1.1   1.1   1.1
Total comprehensive income    -   38.7   -   1.1   1.1   39.8
                           
  Repurchases of common shares   (0.1)   (10.7)           -   (10.8)
                           
Balance as at January 28, 2012   15.0   1,445.1   -   0.2   0.2   1,460.3
                           
Balance as at October 30, 2010   15.7   1,502.0   -   -   -   1,517.7
                           
Comprehensive income (loss)                        
  Net earnings       82.7           -   82.7
                           
Other comprehensive (loss) income                        
  Mark-to-market gain (loss), net of income tax recovery of less than $0.1           -       -   -
  Loss on foreign exchange derivatives, net of income tax recovery of $1.3               (2.9)   (2.9)   (2.9)
  Reclassification of loss on foreign exchange derivatives, net of income tax recovery of less than $0.1               0.1   0.1   0.1
Total other comprehensive loss   -   -   -   (2.8)   (2.8)   (2.8)
Total comprehensive income (loss)   -   82.7   -   (2.8)   (2.8)   79.9
                           
  Repurchases of common shares   (0.3)   (37.9)           -   (38.2)
                           
Balance as at January 29, 2011   15.4   1,546.8   -   (2.8)   (2.8)   1,559.4
                           
Balance as at January 29, 2011   15.4   1,546.8   -   (2.8)   (2.8)   1,559.4
                           
Comprehensive (loss) income                        
  Net loss       (60.1)           -   (60.1)
                           
Other comprehensive (loss) income                        
  Mark-to-market loss, net of income tax recovery of less than $0.1           -       -   -
  Loss on foreign exchange derivatives, net of income tax recovery of $1.7               (4.1)   (4.1)   (4.1)
  Reclassification of loss on foreign exchange derivatives, net of income tax recovery of $2.8               7.1   7.1   7.1
Total other comprehensive income   -   -   -   3.0   3.0   3.0
Total comprehensive (loss) income   -   (60.1)   -   3.0   3.0   (57.1)
                           
  Repurchases of common shares   (0.4)   (41.6)           -   (42.0)
                           
Balance as at January 28, 2012   15.0   1,445.1   -   0.2   0.2   1,460.3
                           
Balance as at January 30, 2010   15.7   2,227.7   0.2   7.0   7.2   2,250.6
                           
Comprehensive income (loss)                        
  Net earnings       115.2           -   115.2
                           
Other comprehensive loss                        
  Mark-to-market loss, net of income tax recovery of $0.1           (0.2)       (0.2)   (0.2)
  Loss on foreign exchange derivatives, net of income tax recovery of $3.4               (7.5)   (7.5)   (7.5)
  Reclassification of gain on foreign exchange derivatives, net of income tax expense of $1.1               (2.3)   (2.3)   (2.3)
Total other comprehensive loss   -   -   (0.2)   (9.8)   (10.0)   (10.0)
Total comprehensive income (loss)   -   115.2   (0.2)   (9.8)   (10.0)   105.2
                           
  Repurchases of common shares   (0.3)   (42.7)           -   (43.0)
  Dividends declared         (753.4)           -   (753.4)
                           
Balance as at January 29, 2011   15.4   1,546.8   -   (2.8)   (2.8)   1,559.4
                           
                           

 

SEARS CANADA INC.            
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS          
For the 13 and 52-week periods ended January 28, 2012 and January 29, 2011          
     
Unaudited            
          13-Week Period     52-Week Period
(in CAD millions)         2011     2010     2011     2010
Cash flow generated from operating activities                            
  Net earnings (loss)     $   38.7   $   82.7   $   (60.1)   $   115.2
  Adjustments for:                          
    Depreciation and amortization expense       28.8     26.7     114.9     123.6
    Impairment losses       2.5     3.3     2.5     3.3
    Loss (gain) on disposal of property, plant and equipment       0.3     (13.9)     1.1     (13.7)
    Finance costs       4.0     3.9     16.0     16.6
    Interest income       (0.4)     (1.1)     (1.7)     (4.2)
    Share of income from joint ventures       (1.5)     (1.5)     (8.3)     (3.2)
    Retirement benefit plans expense       10.8     10.0     43.4     39.8
    Short-term disability expense       2.4     2.2     8.4     7.7
    Income tax expense (recovery)       14.5     35.3     (10.0)     58.7
  Net interest (paid) received       (3.6)     0.7     (3.0)     (11.5)
  Retirement benefit plans contributions       (2.9)     (2.9)     (17.9)     (13.8)
  Income and other tax refunds (payments), net       16.1     (5.4)     (21.6)     (79.8)
  Changes in non-cash working capital       42.5     17.5     29.6     (156.6)
  Changes in long-term assets and liabilities       (1.0)     1.5     (8.3)     (10.8)
            151.2     159.0     85.0     71.3
Cash flow (used for) generated from investing activities                           
  Purchases of property, plant and equipment and intangible assets       (28.3)     (25.0)     (84.3)     (60.0)
  Changes in short-term investments       -     20.0     -     1,165.5
  Investment in note receivable from parent       -     400.0     -     -
  Interest received from note receivable from parent       -     1.2     -     1.2
  Proceeds from sale of property, plant and equipment       0.1     14.2     0.7     14.6
  Dividends received from joint ventures        6.0     7.9     20.1     16.6
            (22.2)     418.3     (63.5)     1,137.9
Cash flow generated from (used for) financing activities                           
  Interest paid on finance lease obligations       (0.6)     (0.7)     (2.2)     (2.2)
  Repayment of long-term obligations       (1.5)     (376.5)     (117.1)     (687.0)
  Proceeds from long-term obligations       101.1     -     105.0     482.8
  Dividend payments       -     -     -     (753.4)
  Repurchases of common shares       (10.8)     (38.2)     (42.0)     (43.0)
            88.2     (415.4)     (56.3)     (1,002.8)
                               
Increase (decrease) in cash and cash equivalents       $   217.2   $   161.9   $   (34.8)   $   206.4
                               
Effect of exchange rate on cash and cash equivalents at end of period         0.1     (0.3)     (0.1)     (1.0)
                               
Cash and cash equivalents at beginning of period       $   180.1   $   270.7   $   432.3   $   226.9
Cash and cash equivalents at end of period       $   397.4   $   432.3   $   397.4   $   432.3

 

 

                               
                               
SEARS CANADA INC.                              
RECONCILIATION OF NET EARNINGS (LOSS) TO OPERATING EBITDA        
For the 13 and 52-week periods ended January 28, 2012 and January 29, 2011        
                                 
Unaudited                              
                                 
        13-Week Period       52-Week Period
(in CAD millions, except per share amounts)     2011       2010       2011       2010
Net earnings (loss)   $    38.7     $   82.7     $   (60.1)     $   115.2
                                 
  Transformation expense*     14.4       -       60.0       -
  Depreciation and amortization expense     28.8       26.7       114.9       123.6
  Finance costs     4.0       3.9       16.0       16.6
  Interest income     (0.4)       (1.1)       (1.7)       (4.2)
  Share of income from joint ventures     (1.5)       (1.5)       (8.3)       (3.2)
  Income tax expense (recovery)     14.5       35.3       (10.0)       58.7
  Unusual gains**     -       (13.4)       -       (13.4)
                                 
Operating EBITDA    $   98.5     $   132.6     $   110.8     $   293.3
                                 
                                 
Basic net earnings (loss) per share   $   0.36     $   0.77     $   (0.58)     $   1.07

Operating EBITDA is measure used by management, the retail industry and investors as an indicator of the Company's performance, ability to incur and service debt, and as a valuation metric.  Operating EBITDA is a non-IFRS measure.
*Transformation expense includes costs related to internal reorganization and the disposition of excess inventory.
**Unusual gains in Fiscal 2010 represent the gain on sale of real estate property.

 

 

SEARS CANADA INC.

NOTES TO SELECTED CONDENSED CONSOLIDATED FINANCIAL INFORMATION

JANUARY 28, 2012

Unaudited

1. Basis of presentation

The selected condensed consolidated financial information of Sears Canada Inc. (the "Company") presented in these notes have been prepared in accordance with International Financial Reporting Standards ("IFRS"), including IFRS 1, First-time Adoption of International Financial Reporting Standards ("IFRS 1").

2. IFRS 1 reconciliations

IFRS 1 requires reconciliations between Canadian Generally Accepted Accounting Principles ("GAAP") and IFRS equity and comprehensive income for the comparative fiscal 2010 period, including equity for opening fiscal 2010. These reconciliations are presented below:

2.1     Reconciliation of Canadian GAAP to IFRS Opening and Fiscal 2010 Equity

(in CAD millions)     Ref       As at
January 29, 2011
      As at
January 30, 2010
Total equity under Canadian GAAP           $   1,000.5     $   1,657.5
                       
Property, plant and equipment     a       375.8       400.4
Investment property     a       16.6       16.6
Joint ventures     b       264.0       278.3
Leases     c       (0.3)       1.0
Provisions     e       (0.6)       (0.9)
Employee benefits     f       97.4       105.8
Intangible assets     g       (33.7)       (33.7)
Loyalty program     h       (17.1)       (19.7)
Total IFRS adjustments before taxes             702.1       747.8
Income taxes     i       (143.2)       (154.7)
Total adjustment to equity             558.9       593.1
Total equity under IFRS           $   1,559.4     $   2,250.6

 

2.2     Reconciliation of Canadian GAAP to IFRS 2010 Comprehensive Income

(in CAD millions)     Ref       13-Week
Period Ended
January 29, 2011
      52-Week
Period Ended
January 29, 2011
Net earnings under Canadian GAAP           $   92.2     $   149.8
                       
Property, plant and equipment     a       (3.1)       (24.6)
Joint ventures     b       (2.1)       (14.0)
Leases     c       (0.3)       (1.3)
Financial instruments     d       (2.6)       (0.4)
Provisions     e       0.1       0.3
Employee benefits     f       (2.1)       (8.4)
Intangible assets     g       (4.2)       -
Loyalty program     h       2.3       2.6
Total IFRS adjustments before taxes             (12.0)       (45.8)
Income taxes     i       2.5       11.2
Net earnings under IFRS           $   82.7     $   115.2
                       
Other comprehensive loss under Canadian GAAP             (4.7)       (10.4)
Financial instruments, net of taxes     d       1.9       0.4
Other comprehensive loss under IFRS             (2.8)       (10.0)
                       
Comprehensive income under IFRS           $   79.9     $   105.2

 

2.3 Explanation of significant IFRS adjustments to Equity and Comprehensive Income

The following is an explanation of the adjustments disclosed in the reconciliations in Note 2.1 to 2.2:

(a)   Property, plant and equipment and investment property: On transition, the Company elected to measure certain of its land and buildings at fair value, and set the fair value as the deemed cost at that date, in accordance with the IFRS 1 fair value as deemed cost election option. As a result, the cost of the Company's property, plant and equipment and its investment property increased materially on transition. Due to the increased building cost, subsequent building depreciation also increased. The adjustment made to equity represents the increase to the cost of the land and buildings. The adjustment to net earnings represents the increase in depreciation in the period due to the increased building cost and the impact of componentization.
   
  Investment property has been recognized at fair value at the date of transition.  Under Canadian GAAP, investment property was previously measured on a depreciated cost basis and classified as property, plant and equipment.  The adjustment to fair value for property, plant and equipment and investment property was based on third party valuations performed using various valuation methods.
   
(b)      Joint ventures: The Company selected the equity method to account for its joint ventures. As such, the difference between the end of the reporting periods of the joint ventures and that of the Company can be no more than three months. As a result, the Company has advanced the joint venture reporting periods used in applying the equity method of accounting. In addition, on transition, the Company elected to measure its investments in the joint venture land and buildings at fair value and set the fair value as deemed cost at that date in accordance with the IFRS 1 fair value as deemed cost election option. The adjustment to equity is the result of the advancement of the joint venture reporting periods and the increase to the cost of the land and buildings due to the application of the IFRS 1 election. The adjustment to net earnings represents the increased depreciation in the period due to the increase made to the joint venture building cost.
   
(c)     Leases: There are minor differences in the criteria used to evaluate whether a lease is a finance lease between IAS 17, Leases ("IAS 17"), and the Canadian GAAP equivalent.  Under IFRS, minimum lease payments are allocated between land and building components for leases which contain both.  Under IFRS, professional judgment is required to assess the facts and circumstances of a lease to determine if the lease transfers substantially all the risks and rewards incidental to ownership of assets, in which case, the lease would be accounted for as a finance lease.   As a result of these differences, a number of leases classified as operating leases under Canadian GAAP were reclassified as finance leases under IFRS. In addition, on transition, the Company elected to measure certain of its finance leased assets at fair value and set the fair value as deemed cost at that date in accordance with the IFRS 1 fair value as deemed cost election option. The adjustment to equity results from the reclassification of these leases to finance leases and the IFRS 1 fair value as deemed cost election. The adjustment to net earnings represents the difference between the depreciation and interest expense under IFRS and the rental expense recognized under Canadian GAAP for the leases classified as finance leases under IFRS.
   
(d)   Financial instruments: The Company holds foreign exchange option contracts. Under Canadian GAAP, these derivatives were fully designated for hedge accounting. Under IAS 39, Financial Instruments: Recognition and Measurement ("IAS 39"), only the intrinsic portion of these contracts can be designated for hedge accounting. As a result, changes in the value of the undesignated component of these derivatives are required to be recognized in the Consolidated Statements of Net Earnings (Loss) and Comprehensive Income (Loss). The adjustment to retained earnings represents the recognition of the value of the undesignated portion of the outstanding derivatives which were previously recognized in accumulated other comprehensive income ("AOCI") under Canadian GAAP.  The adjustment to retained earnings is therefore offset by the adjustment to AOCI, and the net impact to equity is Nil. The adjustment to net earnings represents the recognition of the change in value of the undesignated portion of the outstanding derivatives in the period.
   
(e)   Provisions: IAS 37, Provisions, contingent liabilities and contingent assets ("IAS 37"), requires onerous contracts to be recognized as liabilities. The Company has onerous contracts relating to leased space which are not fully occupied or sub-leased space which generate less rental income than the costs associated with carrying on the lease. The adjustment to equity reduces equity by the outstanding onerous contract liabilities. The adjustment to net earnings represents the impact of new onerous contract liabilities and the amortization of existing onerous contract liabilities recorded on transition.
   
(f)    Employee benefits: The Company has selected the corridor method to recognize actuarial gains and losses on its defined benefit plans under IAS 19, Employee Benefits ("IAS 19"). This selection requires the Company to apply the corridor method retrospectively from each plan's inception date. Equity is increased due to adjusted plan asset and obligation values resulting from the retrospective application of IAS 19. The adjustment to net earnings represents the change required to the pension expense resulting from the application of the corridor approach under IAS 19.
   
(g)  Intangible assets: Under IAS 38, Intangible Assets ("IAS 38"), costs related to internally generated intangible assets may only be capitalized if they meet specific criteria. The adjustments to equity represent the recognition of expenses that had previously been deferred under Canadian GAAP but do not meet the criteria of intangible assets under IFRS. The adjustment to net earnings represents the change in timing of recognition of expenses incurred in the period that were deferred under Canadian GAAP.
   
(h)  Loyalty program: Under Canadian GAAP, loyalty points granted under the Sears Club program were expensed at issuance. Under IFRIC 13, Customer Loyalty Programs ("IFRIC 13"), the fair value of the consideration received or receivable at the initial sale is allocated between the merchandise sold and the Sears Club points granted. Revenue related to the fair value of the points granted is deferred at the time of the initial sale transaction and is recognized when the points have been redeemed and the Company's obligations have been fulfilled. The adjustment to equity as well as net earnings reflects the difference between the policy followed under Canadian GAAP and the policy required by IFRIC 13.
   
(i)   Income taxes: Under Canadian GAAP and IFRS, deferred income tax assets and liabilities are recorded for temporary differences, which are the differences between when an amount is recognized for accounting and tax purposes. The adjustment to equity as well as net earnings reflects changes to temporary differences, and thus the deferred income tax assets and liabilities, required by adjustments (a) to (h) listed above.

 

SOURCE Sears Canada Inc.

For further information:

Media Relations Contact:  

Vincent Power
Sears Canada Inc.
416-941-4422
vpower@sears.ca


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