Sears Canada Reports First Quarter Results



    TORONTO, May 20 /CNW/ - Sears Canada Inc. (TSX: SCC) today announced its
unaudited first quarter results. Total revenues for the 13 week period ended
May 2, 2009 were $1.117 billion compared to $1.254 billion for the 13 week
period ended May 3, 2008, a decrease of 10.9%. Same store sales decreased
10.4%.
    Operating EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) for the quarter was $62.3 million compared to $94.4 million for
the same period last year. Operating EBITDA is a non-GAAP measure; please
refer to the table attached for a reconciliation of net earnings to operating
EBITDA.
    Net earnings for the quarter were $10.3 million or 10 cents per share
compared to net earnings of $70.8 million or 66 cents per share for the same
period last year. Operating net earnings for the first quarter, excluding the
charge related to a staff severance which the Company announced in February,
were $16.8 million or 16 cents per share, compared to operating net earnings
of $42.5 million or 40 cents per share last year, which excludes the gain on
the sale of the Company property in Calgary, Alberta. Operating net earnings
is a non-GAAP measure; please refer to the table attached for a reconciliation
of net earnings to operating net earnings.
    Commenting on the quarter, Dene Rogers, President and Chief Executive
Officer, Sears Canada Inc., said, "The economic recession deepened during the
first quarter, unemployment increased to 8.0% and the Consumer Confidence
Index averaged 22 percentage points below last year. Considering the economic
conditions, Sears delivered solid results and I commend our 33,000 associates
for their contribution to these results. Together we continue towards our goal
to become Canada's No. 1 retailer. To take more steps to become the No. 1
retailer we focused on long term value building initiatives including rolling
out an improved and expanded gift registry program, introducing a no-fee
travel loyalty point redemption program, launching Liz and Co., a new brand
from Liz Claiborne, and reducing product returns by providing a higher level
of service to customers."

    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 impact of the sale of the Company's Credit and Financial
Services operations and 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.

    Sears Canada is a multi-channel retailer with a network of 197 corporate
stores, 193 dealer stores, 43 home improvement showrooms, over 1,800 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.
    RECONCILIATION OF NET EARNINGS TO OPERATING EBITDA

    Unaudited

                                                           First Quarter
    (in millions)                                        2009         2008
    -------------------------------------------------------------------------
    Net earnings(1)                                  $     10.3   $     70.8
    -------------------------------------------------------------------------
    Operating activities, net of taxes
      Restructuring expense                                 6.5            -
      Unusual items - Sale of real estate/
       joint venture                                          -        (28.3)
    -------------------------------------------------------------------------
    Operating net earnings(1)                        $     16.8   $     42.5
    -------------------------------------------------------------------------
    Depreciation and amortization                          30.1         32.2
    Interest expense, net                                   6.1          0.5
    Income taxes expense excluding operating
     adjustments(1)                                         9.3         19.2
    -------------------------------------------------------------------------
    Operating EBITDA(2)                              $     62.3   $     94.4
    -------------------------------------------------------------------------
    Net earnings per share                           $     0.10   $     0.66
    -------------------------------------------------------------------------
    Operating net earnings per share                 $     0.16   $     0.40
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Net earnings and income tax expense for the first quarter of 2008
        have been restated as a result of the retrospective application of
        the change in accounting policy related to the adoption of Goodwill
        and Intangible Assets.
    (2) The first quarter of 2009 and 2008 represents the 13 weeks ended
        May 2, 2009 and May 3, 2008, respectively.



    SEARS CANADA INC.
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

    Unaudited
                                                          As at        As at
                                                          May 3,  January 31,
                                             As at         2008         2009
                                             May 2,   (Restated    (Restated
    (in millions)                             2009     - Note 2)    - Note 2)
    -------------------------------------------------------------------------

    ASSETS
    Current Assets
    Cash and short-term investments     $    745.0   $    766.4   $    819.8
    Restricted cash and investments
     (Note 14)                               128.4          7.0        144.8
    Accounts receivable                      133.3        142.2        138.7
    Income taxes recoverable                  48.2         22.3         16.6
    Inventories                            1,036.1      1,026.0        968.3
    Prepaid expenses and other assets        136.7         76.7        147.9
    Current portion of future income
     tax assets                               13.7         36.9          8.7
    -------------------------------------------------------------------------
                                           2,241.4      2,077.5      2,244.8

    Capital assets                           673.7        720.4        696.0
    Deferred charges                         181.6        195.2        185.2
    Intangible Assets                         14.8          9.4         16.8
    Goodwill                                  11.2         11.2         11.2
    Future income tax assets                  32.1         23.8         28.4
    Other long-term assets                    49.6         33.4         54.9
    -------------------------------------------------------------------------
                                        $  3,204.4   $  3,070.9   $  3,237.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current Liabilities
    Accounts payable                    $    591.1   $    669.2   $    640.9
    Accrued liabilities                      408.2        442.6        383.6
    Income and other taxes payable            41.4         56.9         39.4
    Principal payments on long-term
     obligations due within one year          32.1         15.7         32.1
    -------------------------------------------------------------------------
                                           1,072.8      1,184.4      1,096.0

    Long-term obligations                    332.3        355.7        332.5
    Accrued benefit liability (Note 13)      160.8        166.5        158.5
    Other long-term liabilities              164.1        167.2        167.1
    -------------------------------------------------------------------------
                                           1,730.0      1,873.8      1,754.1
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
    Capital stock (Note 10)                   15.7         15.7         15.7
    Retained earnings                      1,409.4      1,179.2      1,399.1
    Accumulated other
     comprehensive income                     49.3          2.2         68.4
    -------------------------------------------------------------------------
                                           1,474.4      1,197.1      1,483.2
    -------------------------------------------------------------------------
                                        $  3,204.4   $  3,070.9   $  3,237.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    SEARS CANADA INC.
    CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
    For the 13-weeks ended May 2, 2009 and May 3, 2008

    Unaudited

                                                                        2008
                                                                   (Restated
    (in millions, except per share amounts)                2009     - Note 2)
    -------------------------------------------------------------------------

    Total revenues                                   $  1,116.5   $  1,254.4
    -------------------------------------------------------------------------

    Cost of merchandise sold, operating,
     administrative and selling expenses                1,063.5      1,160.0
    Depreciation and amortization                          30.1         32.2
    Interest expense, net (Note 5)                          6.1          0.5
    Unusual items - (gain) (Note 6)                           -        (37.2)
    -------------------------------------------------------------------------
    Earnings before income taxes                           16.8         98.9
    -------------------------------------------------------------------------
    Income taxes expense (recovery)
      Current                                               6.4         51.4
      Future                                                0.1        (23.3)
    -------------------------------------------------------------------------
                                                            6.5         28.1
    -------------------------------------------------------------------------
    Net earnings                                     $     10.3   $     70.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per share                           $     0.10   $     0.66
    -------------------------------------------------------------------------
    Diluted net earnings per share                   $     0.10   $     0.66
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings                                     $     10.3   $     70.8
    Other comprehensive income (loss), net of taxes:
      Mark-to-market adjustment related to
       short-term investments, net of income taxes
       expense of less than $0.1 (2008: recovery
       of less than $0.1)                                   0.1         (0.1)
      Loss on derivatives designated as cash flow
       hedges, net of income taxes recovery of
       $4.6 (2008: expense of $1.1)                        (9.9)         2.2
      Reclassification to net earnings of gain on
       derivatives designated as cash flow hedges,
       net of income taxes expense of $4.3
       (2008: recovery less than $0.1)                     (9.3)         0.1
    -------------------------------------------------------------------------
    Other comprehensive (loss) income (Note 16)           (19.1)         2.2
    -------------------------------------------------------------------------
    Comprehensive (loss) income                      $     (8.8)  $     73.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS AND ACCUMULATED OTHER
    COMPREHENSIVE INCOME
    For the 13-weeks ended May 2, 2009 and May 3, 2008

    Unaudited

                                                                        2008
                                                                   (Restated
    (in millions)                                          2009     - Note 2)
    -------------------------------------------------------------------------

    Retained earnings
    Opening balance                                  $  1,424.0   $  1,135.4
    Adjustment to opening retained earnings
     resulting from adoption of new accounting
     standards for goodwill and intangible assets,
     net of income taxes of $12.4 (Note 2)                (24.9)       (27.0)
    Net earnings                                           10.3         70.8
    -------------------------------------------------------------------------

    Closing balance                                  $  1,409.4   $  1,179.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive income
    Opening balance                                  $     68.4   $        -
    Other comprehensive (loss) income                     (19.1)         2.2
    -------------------------------------------------------------------------

    Closing balance                                  $     49.3   $      2.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Retained earnings and accumulated other
     comprehensive income                            $  1,458.7   $  1,181.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    SEARS CANADA INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    For the 13-weeks ended May 2, 2009 and May 3, 2008

    Unaudited

                                                                        2008
                                                                   (Restated
    (in millions)                                          2009     - Note 2)
    -------------------------------------------------------------------------

    Cash flow generated from (used for) operating
     activities
      Net earnings                                   $     10.3   $     70.8
      Non-cash items included in net earnings,
       principally depreciation, pension expense,
       future income taxes and gain on sale of
       real estate and real estate joint ventures          36.5        (26.7)
      Changes in non-cash working capital balances
       related to operations                             (119.3)      (146.2)
      Other, principally pension contributions and
       changes to long-term assets and liabilities         (4.3)        (2.3)
    -------------------------------------------------------------------------
                                                          (76.8)      (104.4)
    -------------------------------------------------------------------------

    Cash flow generated from (used for) investing
     activities
      Purchases of capital assets                         (18.3)       (31.4)
      Proceeds from sale of capital assets                  0.4         40.1
      Changes in restricted cash and investments
       (Current and Long-term)                             20.1         (1.8)
      Acquisition, net of cash acquired                       -         (7.0)
    -------------------------------------------------------------------------
                                                            2.2         (0.1)
    -------------------------------------------------------------------------

    Cash flow used for financing activities
      Repayment of long-term obligations                   (0.2)        (0.7)
    -------------------------------------------------------------------------

    Increase (decrease) in cash and short-term
     investments                                          (74.8)      (105.2)
    Cash and short-term investments at
     beginning of period                                  819.8        871.6
    -------------------------------------------------------------------------
    Cash and short-term investments at end
     of period                                       $    745.0   $    766.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash at end of period                            $    105.9   $     75.5
    Short-term investments at end of period               639.1        690.9
    -------------------------------------------------------------------------
    Total cash and short-term investments at
     end of period                                   $    745.0   $    766.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    SEARS CANADA INC.
    NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    MAY 2, 2009

    Unaudited

    1.  BASIS OF PRESENTATION

    These unaudited interim consolidated financial statements (the "Financial
    Statements") of Sears Canada Inc. (the "Company") have been prepared in
    accordance with Canadian generally accepted accounting principles
    ("GAAP") but do not contain all disclosures required by Canadian GAAP for
    annual financial statements. Accordingly, these Financial Statements
    should be read in conjunction with the most recently prepared audited
    annual consolidated financial statements for the 52-week period ended
    January 31, 2009 ("2008 Annual Financial Statements"). These Financial
    Statements for the first quarter ended May 2, 2009 follow the same
    accounting policies and methods of application as those used in the
    preparation of the 2008 Annual Financial Statements, except as described
    in Note 2 Accounting Policies and Estimates.

    The Company's operations are seasonal in nature. Accordingly, merchandise
    and service revenues, as well as performance payments received from
    JPMorgan Chase & Co, N.A. (Toronto Branch) ("JPMorgan Chase") under the
    long-term credit card marketing and servicing alliance, will vary by
    quarter based upon consumer spending behaviour. Historically, the
    Company's revenues and earnings are higher in the fourth quarter than in
    any of the other three quarters due to the holiday season. The Company is
    able to adjust certain variable costs in response to seasonal revenue
    patterns; however, costs such as occupancy are fixed, causing the Company
    to report a disproportionate level of earnings in the fourth quarter.
    This business seasonality results in quarterly performance that is not
    necessarily indicative of the year's performance.

    2.  ACCOUNTING POLICIES AND ESTIMATES

    New Policies:

    These Financial Statements follow the same accounting policies and
    methods of application as the 2008 Annual Financial Statements, with the
    following exceptions:

    Goodwill and Intangible Assets

    In February 2008, the Canadian Institute of Chartered Accountants
    ("CICA") issued Handbook Section 3064, "Goodwill and Intangible Assets"
    ("Section 3064"), which replaced Section 3062, "Goodwill and Other
    Intangible Assets" and Section 3450, "Research and Development Costs".
    The new standard is effective for interim and annual financial statements
    issued for fiscal years beginning on or after October 1, 2008. The new
    standard provides further guidance on the recognition and treatment of
    internally developed intangibles and requires elimination of the practice
    of deferring costs that do not meet the definition and recognition
    criteria of assets. Section 3064 reinforces a principle-based approach to
    the recognition of costs as assets in accordance with the definition of
    an asset and criteria for the recognition of an asset in CICA Handbook
    Section 1000, "Financial Statement Concepts".

    The company has adopted the new accounting standard issued by the CICA
    Section 3064, effective fiscal 2009. The primary impact of implementing
    this standard was with respect to the accounting policy for Catalogue
    Production Costs ("CPC"). On adoption of the standard, CPC will be
    expensed once the catalogue has been mailed to the customer. Prior to
    adoption of the standard CPC costs were capitalized and amortized over
    the life of the catalogue. As a result, certain figures from the prior
    year have been restated due to the retrospective application of a change
    in accounting policy, as required under CICA Handbook Section 1506,
    "Accounting Changes". As a result of this retrospective restatement the
    following table summarizes the increase (decrease) to the 2008
    comparative figures contained herein as at and for the 13-week period
    ended May 3, 2008 and the year ended January 31, 2009 from the figures
    previously reported:

                                                      As at and    As at and
                                                        for the      for the
                                                        13-week      52-week
                                                         Period       Period
                                                          Ended        Ended
                                                          May 3,  January 31,
    (increase (decrease) in millions)                      2008         2009
    -------------------------------------------------------------------------
    Prepaid expenses and other assets                $    (26.1)  $    (34.6)
    Current portion of future income tax asset              8.8          8.4
    Deferred charge                                        (2.0)        (1.7)
    Future income tax asset                                   -          0.5
    Future income tax liability                               -         (2.5)
    Net earnings                                            7.7          2.1
    Opening retained earnings                             (27.0)       (27.0)
    Closing retained earnings                             (19.3)       (24.9)
    -------------------------------------------------------------------------

    The Company's intangible assets are comprised of software costs. These
    costs were previously recorded as a Capital Asset prior to adoption of
    Section 3064. Intangible assets are amortized on a straight-line basis
    over their estimated useful lives, and are reported separately as
    "Intangible Assets" in the interim Consolidated Balance Sheet. Intangible
    Assets are tested for impairment annually or more frequently if changes
    in circumstances indicate a potential impairment. Impairment is
    recognized in net earnings and is measured as the amount by which the
    carrying amount exceeds its fair value.

    Goodwill represents the excess of the cost of acquisition over the fair
    value of the identifiable assets acquired, resulting from the acquisition
    of a duct cleaning business in 2008, Cantrex Group Inc. ("Cantrex") in
    2005 and a home services operation in 2001. Goodwill is not amortized,
    and is reported separately as "Goodwill" in the interim Consolidated
    Balance Sheet. Goodwill is tested for impairment annually or more
    frequently if changes in circumstances indicate a potential impairment.
    Impairment is recognized in net earnings and is measured as the amount by
    which the carrying amount of the goodwill exceeds its fair value. No
    impairment has been recognized on the Company's goodwill since
    acquisition.

    Credit Risk and the Fair Value of Financial Assets and Financial
    Liabilities

    The Company adopted Emerging Issues Committee "EIC"-173, "Credit Risk and
    the Fair Value of Financial Assets and Financial Liabilities". The EIC
    reached a consensus that the Company's credit risk and the credit risk of
    the counterparty should be taken into account in determining the fair
    value of financial assets and financial liabilities. The abstract is to
    be applied retrospectively without restatement of prior periods to
    interim and annual financial statements for periods ending on or after
    January 20, 2009. The implementation of the new abstract has had no
    material impact on the Company's result of operations, financial position
    or disclosures.

    Future Accounting Policies:

    International Financial Reporting Standards ("IFRS")

    The Canadian Accounting Standards Board confirmed, in February 2008, that
    it will require all public companies to adopt IFRS for interim and annual
    financial statements relating to fiscal years beginning on or after
    January 1, 2011. In the year of adoption, companies will be required to
    provide comparative information as if IFRS had been used in the preceding
    fiscal year. The transition from Canadian GAAP to IFRS will be applicable
    to the Company's first quarter of operations for fiscal 2011, at which
    time the Company will prepare both its fiscal 2011 and fiscal 2010
    comparative financial information using IFRS. The Company expects the
    transition to IFRS to impact financial reporting, business processes,
    internal controls and information systems. The Company is currently
    assessing the impact of the transition to IFRS on these areas and will
    continue to invest in training and resources throughout the transition
    period to facilitate a timely conversion.

    3.  INVENTORIES

    The amount of inventories recognized as an expense during the 13-week
    period ended May 2, 2009 was $565.3 million (2008: $630.4 million),
    including $26.9 million (2008: $21.1 million), related to write-downs. A
    negligible amount of write-downs were reversed during this period ended
    May 2, 2009.

    With the exception of $35.6 million (2008: $28.9 million) of inventories
    from the Company's parts and service and home improvement businesses, the
    Company's entire inventories balance consists of merchandise finished
    goods.

    4.  VENDOR REBATES

    The Company has recognized $0.4 million, as a reduction in the cost of
    purchases for the 13-week period ending May 2, 2009 related to binding
    agreements for which full entitlement has not yet been met but is
    probable.

    5.  LONG-TERM OBLIGATIONS

    The Company has a corporate credit rating of BB and BB- from Dominion
    Bond Ratings Service and Standard and Poor's respectively and a corporate
    family rating of Ba1 from Moody's Investors Service, Inc.

    The Company is no longer subject to any financial covenants and the
    Company's long-term debt consists of unsecured medium-term notes with
    fixed interest rates and payment terms. As at May 2, 2009 the Company had
    outstanding letters of credit of U.S. $62.8 million used to support the
    Company's offshore merchandise purchasing program with restricted cash
    and investments pledged as collateral.

    Interest expense on long-term debt for the 13-week period ended May 2,
    2009 amounted to $7.0 million (2008: $7.3 million). The Company's cash
    payments for interest on long-term debt in the 13-week period ended
    May 2, 2009 totalled $5.0 million (2008: $5.2 million).

    In the 13-week period ended May 2, 2009, the Company recorded
    $0.9 million (2008: $6.8 million) of interest revenue, net of short-term
    interest expense, primarily related to cash and short-term investments.
    The company received cash in the amount of $1.4 million (2008:
    $9.1 million) in respect of short-term interest revenue, net of short-
    term interest expense.

    6.  UNUSUAL ITEMS

    There were no unusual items for the first quarter of 2009.

    Sale of real estate

    In the first quarter of 2008, the Company completed the sale of property
    in Calgary, Alberta where it operated a full-line store, receiving
    proceeds of approximately $40.0 million. A pre-tax gain of $37.2 million,
    net of transaction costs, was recorded in the quarter.

    7.  NET EARNINGS PER SHARE

    A reconciliation of the number of shares used in the net earnings per
    share calculation is as follows:

                                                        13-week      13-week
                                                         Period       Period
                                                          Ended        Ended
                                                          May 2,       May 3,
    (Number of shares)                                     2009         2008
    -------------------------------------------------------------------------

    Average number of shares per basic net
     earnings per share calculation                 107,620,995  107,620,995

    Effect of dilutive instruments outstanding            3,302       10,514
    -------------------------------------------------------------------------

    Average number of shares per diluted net
     earnings per share calculation                 107,624,297  107,631,509
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the 13-week period ended May 2, 2009, 129,951 options (2008: 173,231
    options) were excluded from the calculation of diluted net earnings per
    share as they were anti-dilutive.

    8.  SEGMENTED INFORMATION

    Segmented Statements of Earnings

                                                                     13-Week
                                                                      Period
                                                        13-Week        Ended
                                                         Period        May 3,
                                                          Ended         2008
                                                          May 2,   (Restated
    (in millions)                                          2009     - Note 2)
    -------------------------------------------------------------------------
    Total revenues
      Merchandising                                  $  1,104.8   $  1,242.3
      Real Estate Joint Ventures                           11.7         12.1
    -------------------------------------------------------------------------
    Total revenues                                   $  1,116.5   $  1,254.4
    -------------------------------------------------------------------------
    Segmented operating profit
      Merchandising                                  $     17.9   $     56.5
      Real Estate Joint Ventures                            5.0          5.7
    Interest expense, net                                   6.1          0.5
    Unusual items - (gain)                                    -        (37.2)
    Income taxes                                            6.5         28.1
    -------------------------------------------------------------------------
    Net earnings                                     $     10.3   $     70.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Segmented Statements of Capital Employed(1)

                                                          As at        As at
                                                          May 3,  January 31,
                                             As at         2008         2009
                                             May 2,   (Restated    (Restated
    (in millions)                             2009     - Note 2)    - Note 2)
    -------------------------------------------------------------------------
      Merchandising                     $  1,736.3   $  1,467.8   $  1,743.5
      Real Estate Joint Ventures             102.5        100.7        104.3
    -------------------------------------------------------------------------
    Total                               $  1,838.8   $  1,568.5   $  1,847.8
    -------------------------------------------------------------------------
    (1) Capital Employed represents the total of long-term obligations,
        including principal payments on long-term obligations due within one
        year, and shareholders' equity, which includes capital stock,
        retained earnings and accumulated other comprehensive income
        ("AOCI").


    Segmented Statements of Total Assets

                                                          As at        As at
                                                          May 3,  January 31,
                                             As at         2008         2009
                                             May 2,   (Restated    (Restated
    (in millions)                             2009     - Note 2)    - Note 2)
    -------------------------------------------------------------------------
      Merchandising                     $  3,090.0   $  2,961.1   $  3,120.9
      Real Estate Joint Ventures             114.4        109.8        116.4
    -------------------------------------------------------------------------
    Total                               $  3,204.4   $  3,070.9   $  3,237.3
    -------------------------------------------------------------------------

    9.  INCOME TAXES

    The Company's total net cash payments of income taxes in the 13-week
    period ended May 2, 2009 were $38.9 million (2008: $109.4 million).

    In the ordinary course of business, the Company is subject to ongoing
    audits by tax authorities. While the Company believes that its tax filing
    positions are appropriate and supportable, periodically, certain matters
    are challenged by tax authorities. As the Company routinely evaluates and
    provides for potentially unfavourable outcomes with respect to any tax
    audits, the Company believes that the final disposition of tax audits
    will not have a material adverse effect on its liquidity, consolidated
    financial position or results of operations. If the result of a tax audit
    materially differs from the existing provisions, the Company's effective
    tax rate and its net earnings may be affected positively or negatively in
    the period in which the tax audits are completed. Included in other long
    term assets is a receivable of $17.1 million in respect of payment on a
    disputed tax assessment.

    10. CAPITAL STOCK

    As at May 2, 2009, 107,620,995 common shares were issued and outstanding.
    Sears Holdings Corporation, the controlling shareholder of the Company,
    is the beneficial holder of 78,680,790, or 73.1%, of the common shares of
    the Company as at May 2, 2009. The number of outstanding common shares
    and stated value did not change from the end of fiscal 2008.

    11. STOCK-BASED COMPENSATION

    The Employees Stock Plan expired on April 19, 2008 however; the
    expiration of the plan does not affect the rights of current option
    holders. Options were last granted in 2004 which are exercisable within
    10 years from the grant date. All options currently outstanding will
    expire by February 2014. As at May 2, 2009 there were 170,531 stock
    options outstanding under the Employees Stock Plan.

    At the end of each fiscal period, the Company records a liability for
    previously issued tandem awards equal to the amount by which the market
    price of its shares at the end of the period exceeds the exercise price
    of the vested tandem awards. Stock compensation expense is recorded to
    adjust the liability for changes in the market price of the Company's
    shares and for awards exercised in the period. Total stock-based
    compensation expense related to tandem awards issued from the Employees
    Stock Plan during the 13-week period ended May 2, 2009 was less than
    $0.1 million (2008: $0.1 million).

    12. GUARANTEES

    The Company has provided the following significant guarantees to third
    parties:

    Sub-lease agreements

    The Company has a number of sub-lease agreements with third parties. The
    Company retains ultimate responsibility to the landlord for payment of
    amounts under the lease agreements should the sub-lessee fail to pay. The
    total future lease payments under such agreements are $18.4 million.

    Other indemnification agreements

    In the ordinary course of business the Company has provided
    indemnification commitments to counterparties in transactions such as
    leasing transactions, royalty agreements, service arrangements,
    investment banking agreements, director and officer indemnification
    agreements and indemnification of trustees under indentures for
    outstanding public debt. The Company has also provided certain
    indemnification agreements in connection with the sale of the Credit and
    Financial Services operations in November 2005. The foregoing
    indemnification agreements require the Company to compensate the
    counterparties for costs incurred as a result of changes in laws and
    regulations or as a result of litigation claims or statutory claims or
    statutory sanctions that may be suffered by a counterparty as a
    consequence of the transaction. The terms of these indemnification
    agreements will vary based on the contract and typically do not provide
    for any limit on the maximum potential liability. Historically, the
    Company has not made any significant payments under such indemnifications
    and no amount has been accrued in the Financial Statements with respect
    to these indemnification commitments.

    13. ASSOCIATE FUTURE BENEFITS

    The net expense for the defined benefit, defined contribution and other
    benefit plans for the 13-week period ended May 2, 2009 were less than
    $0.1 million (2008: $2.8 million), $4.8 million (2008: Nil) and
    $2.8 million (2008: $3.0 million), respectively. The Company introduced
    the defined contribution plan on July 1, 2008.

    14. COMMITMENTS AND CONTINGENCIES

    The Company is involved in various legal proceedings incidental to the
    normal course of business. The Company is of the view that although the
    outcome of such litigation cannot be predicted with certainty, the final
    disposition is not expected to have a material adverse effect on the
    Company's consolidated financial position or results of operations.

    Restricted Cash and Investments

    Cash and investments are considered to be restricted when it is subject
    to contingent rights of a third party customer, vendor, or government
    agency. As at May 2, 2009, the Company recorded $128.4 million (2008:
    $144.8 million) of restricted cash and investments recorded as current
    assets and $3.1 million (2008: $6.9 million) of restricted cash deposits
    recorded in other long-term assets. These balances represent cash and
    investments pledged as collateral for letter of credit obligations issued
    under the Company's offshore merchandise purchasing program of
    $92.5 million (2008: $110.4 million), current and long-term cash deposits
    pledged as collateral with counterparties related to outstanding
    derivative contracts of $32.0 million (2008: $28.3 million) and
    $3.1 million (2008: $6.9 million), respectively, and funds held in trust
    in accordance with regulatory requirements governing advance ticket sales
    related to Sears Travel of $3.9 million (2008: $6.1 million).

    15. CAPITAL DISCLOSURES

    The Company's objectives when managing capital are:

    -   Maintain financial flexibility thus allowing the Company to preserve
        its ability to meet financial objectives and continue as a going
        concern;
    -   Provide an appropriate return to shareholders; and
    -   Maintain a capital structure that allows the Company to obtain
        financing should the need arise.

    The Company manages and makes adjustments to its capital structure, when
    necessary, in light of changes in economic conditions, the objectives of
    its shareholders, the cash requirements of the business and the condition
    of capital markets. In order to maintain or adjust the capital structure
    the Company may pay a dividend or return capital to shareholders,
    increase/decrease debt or sell assets.

    The Company defines capital as follows:

    -   Long-term obligations, including the current portion ("Long-term
        obligations"); and
    -   Shareholders' equity.

    The following table presents summary quantitative data with respect to
    the Company's capital:

                                                          As at        As at
                                                          May 3,  January 31,
                                             As at         2008         2009
                                             May 2,   (Restated    (Restated
    (in millions)                             2009     - Note 2)    - Note 2)
    -------------------------------------------------------------------------
    Long-term obligations               $    364.4   $    371.4   $    364.6
    Shareholders' equity                   1,474.4      1,197.1      1,483.2
    -------------------------------------------------------------------------
                                        $  1,838.8   $  1,568.5   $  1,847.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at May 2, 2009, the Company is not subject to any financial covenants
    or ratios and the outstanding notes are unsecured. The Company has a U.S.
    $120.0 million letter of credit facility with restricted cash and
    investments pledged as collateral against outstanding amounts.

    16. FINANCIAL INSTRUMENTS

    In the ordinary course of business, the Company enters into financial
    agreements with banks and other financial institutions to reduce
    underlying risks associated with interest rates and foreign currency. The
    Company does not hold or issue derivative financial instruments for
    trading or speculative purposes.

    Financial instrument risk management

    The Company's adoption of Section 3862, "Financial Instruments-
    Disclosure" and Section 3863, "Financial Instruments-Presentation" on
    February 3, 2008, has resulted in additional disclosure relating to the
    Company's exposure to risks arising from financial instruments. The
    Company is exposed to credit, liquidity and market risk as a result of
    holding financial instruments. Market risk consists of foreign exchange,
    interest rate and commodity price risk.

    Credit risk

    Credit risk refers to the possibility that the Company can suffer
    financial losses due to the failure of the Company's counterparties to
    meet their payment obligations. Exposure to credit risk exists for
    derivative instruments, cash and short-term investments, restricted cash
    and investments and accounts receivable.

    As at May 2, 2009, the Company's only exposure to counterparty risk as it
    relates to derivative instruments is represented by the fair value of the
    derivative contracts of $64.7 million. These contracts are placed with
    financial institutions with secure credit ratings.

    Cash and short-term investments, restricted cash and investments and
    other long-term assets of $768.3 million also expose the Company to
    credit risk should the borrower default on maturity of the investment.
    The Company manages this exposure through policies that require borrowers
    to have a minimum credit rating of A, and limiting investments with
    individual borrowers at maximum levels based on credit rating.

    The Company is exposed to minimal credit risk from customers as a result
    of ongoing credit evaluations and review of accounts receivable
    collectability. As at May 2, 2009, approximately 51% of the Company's
    accounts receivable are due from two customers and both are in good
    standing.

    Liquidity risk

    Liquidity risk is the risk that the Company may not have cash available
    to satisfy financial liabilities as they come due. The Company actively
    maintains access to adequate funding sources to ensure it has sufficient
    available funds to meet current and foreseeable financial requirements at
    a reasonable cost.

    The following table summarizes the carrying amount and the contractual
    maturities of both the interest and principal portion of significant
    financial liabilities as at May 2, 2009:


                                     Contractual Cash Flow Maturities
                            -------------------------------------------------
                                                  1 year   3 years
                  Carrying              Within        to        to    Beyond
    (in millions)   Amount     Total    1 year   3 years   5 years   5 years
    -------------------------------------------------------------------------
    Accounts
     payable      $  591.1  $  591.1  $  591.1  $      -  $      -  $      -
    Accrued
     liabilities     408.2     408.2     408.2         -         -         -
    Long-term
     obligations
     and payments
     due within
     1 year          364.4     413.4      59.4     330.0       8.9      15.1
    Operating
     lease
     obligations(2)      -     688.4     108.6     179.1     136.9     263.8
    -------------------------------------------------------------------------
                  $1,363.7  $2,101.1  $1,167.3  $  509.1  $  145.8  $  278.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (2) Operating lease obligations are not reported on the consolidated
        statement of financial position.


    Management believes that cash on hand, future cash flows generated from
    operations and availability of current and future funding will be
    adequate to support these financial liabilities.

    Market risk

    Market risk exists as a result of the potential for losses caused by
    changes in market factors such as interest rates, foreign currency
    exchange rates and commodity prices.

    Foreign exchange risk

    When advantageous to do so, the Company enters into foreign exchange
    contracts to reduce the foreign exchange risk with respect to U.S. dollar
    denominated assets, liabilities, goods or services. As at May 2, 2009,
    there were option contracts outstanding with a notional value of U.S.
    $385.4 million and a combined carrying value of $60.4 million, included
    in prepaid expenses and other assets. These option contracts have
    settlement dates extending to August 2010 and have been designated as a
    cash flow hedge for hedge accounting treatment under CICA Handbook
    Section 3865, "Hedges" ("Section 3865"). These contracts are intended to
    reduce the foreign exchange risk with respect to anticipated purchases of
    U.S. dollar denominated goods and services, including goods purchased for
    resale ("hedged item"). As at May 2, 2009 all hedges were considered
    effective with no ineffectiveness recognized in income.

    The Company is also subject to foreign exchange risk on U.S. dollar
    denominated short-term investments pledged as collateral for letter of
    credit obligations issued under the Company's offshore merchandise
    purchasing program. As at May 2, 2009, there were swap contracts
    outstanding with a notional value of U.S. $90.0 million and a carrying
    value of $4.1 million, included in prepaid expenses and other assets.
    These contracts are short-term to match the duration of the outstanding
    obligations.

    While the notional principal amounts of these outstanding financial
    instruments are not recorded on the consolidated statements of financial
    position, the fair value of the contracts is included on the consolidated
    statements of financial position in one of the following categories,
    depending on the derivative's maturity and value: prepaid expenses and
    other assets, other long-term assets, accrued liabilities or other long-
    term liabilities. Changes in fair value of those contracts designated as
    hedges are included in other comprehensive income ("OCI") for cash flow
    hedges to the extent the hedges continue to be effective. Amounts
    previously included in OCI are reclassified to net earnings in the same
    period in which the hedged item impacts net earnings.

    For the quarter ended May 2, 2009, the Company recorded a gain of
    $4.4 million, relating to the translation or settlement of U.S. dollar
    denominated monetary items.

    Based on historic movements, volatilities in foreign exchange and
    management's current assessment of the financial markets, the Company
    believes a variation of +10% (appreciation of the Canadian dollar) and
    -10% (depreciation of the Canadian dollar) in foreign exchange rate
    against the U.S. dollar is reasonably possible over a 12 month period.
    The period end rate was 0.8432 U.S. dollar to Canadian dollar.

    Cash and short-term investments (other than those discussed above),
    accounts receivable and accounts payable include U.S. dollar denominated
    balances which net to an insignificant balance, therefore, any changes in
    the U.S./Canadian dollar exchange rates would have an immaterial impact
    on net earnings.

    Interest rate risk

    From time to time the Company enters into interest rate swap contracts
    with Schedule I banks, to manage exposure to interest rate risks. As at
    May 2, 2009, the Company had no interest rate swap contracts in place.

    Interest rate risk reflects the sensitivity of the Company's financial
    condition to movements in interest rates. Financial assets and
    liabilities which do not bear interest or bear interest at fixed rates
    are classified as non-interest rate sensitive. Based on historic
    movements, volatilities in interest rates and management's current
    assessment of the financial markets, the Company believes a variation of
    +1%/-1% in the interest rates applicable to the Company's cash and
    short-term investments and restricted cash and investments are reasonably
    possible over a 12 month period.

    Cash and short-term investments and restricted cash and investments are
    subject to interest rate risk. The total subject to interest rate risk at
    quarter end was $874.1 million. A movement in interest rate of +/-1%
    would cause a variance in net earnings in the amount of $6.1 million.

    Fuel price risk

    The Company entered into a fuel derivative contract to manage the
    exposure to diesel fuel prices to help mitigate volatility in cash flow
    for the transportation service business. As at May 2, 2009 there was a
    fixed to floating rate swap contract outstanding for a notional volume of
    8.2 million litres and a carrying value of less than $0.1 million. This
    derivative contract has settlement dates extending to February 2010 and a
    portion has been designated as a cash flow hedge for hedge accounting
    treatment under Section 3865. Changes in the fair value of the effective
    portion of the designated component of the derivative contract that
    qualifies as a cash flow hedge is recognized in accumulated other
    comprehensive income. Upon maturity of the designated component of the
    swap contract, the effective gains and losses are recorded in net
    earnings. Any gain or loss in fair value relating to the ineffective
    portion is recognized immediately in net earnings.

    Classification and fair value of financial instruments

    The estimated fair values of financial instruments as at May 2, 2009 and
    January 31, 2009 are based on relevant market prices and information
    available at those dates. The following tables summarize the
    classification and fair value ("FV") of certain financial instruments as
    at May 2, 2009 and January 31, 2009 and the pre-tax change in fair value
    of those instruments during the first quarter of 2009 and 2008 with the
    offset included in either OCI or net earnings. The Company determines the
    classification of a financial instrument when it is originally recorded,
    based on the underlying purpose of the instrument. As a significant
    number of the Company's assets and liabilities, including inventories and
    capital assets, do not meet the definition of financial instruments,
    values in the tables below do not reflect the fair value of the Company
    as a whole.

                                                           First quarter 2009
                                                           Pre-tax change in
    (in millions)                                            FV included in
    -------------------------------------------------------------------------
                                         As at     As at
                      Balance Sheet      May 2,  January                 Net
    Classification    Category            2009  31, 2009       OCI  earnings
    -------------------------------------------------------------------------
    Available
     for sale

    Short-term        Cash and
     investments       short-term
                       investments(3)  $ 639.1   $ 753.4   $  (0.1)  $     -
    Long-term         Other long-
     investments       term assets         1.5       1.6         -       0.1
    -------------------------------------------------------------------------

    Held for
     trading

    Cash              Cash and short-
                       term investments  105.9      66.4         -         -
    Cash and          Restricted
     investments       cash and
                       investments(3)    128.4     144.8         -         -
    U.S. $
     derivative       Prepaid expenses
     contracts         & other assets     64.5      91.1      28.1      (1.5)
    Cash              Other long-term
                       assets              3.1       6.9         -         -
    Fixed price
     energy           Accrued
     contracts         liabilities           -         -         -         -
    Commodity
     derivative       Accrued
     contracts         liabilities         0.1      (0.1)        -      (0.2)
    -------------------------------------------------------------------------
                                                           $  28.0   $  (1.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                           First quarter 2008
                                                           Pre-tax change in
    (in millions)                                            FV included in
    -------------------------------------------------------------------------
                                         As at     As at
                      Balance Sheet      May 3, February                 Net
    Classification    Category            2008   2, 2008       OCI  earnings
    -------------------------------------------------------------------------
    Available
     for sale

    Short-term        Cash and
     investments       short-term
                       investments(3)  $ 690.9   $ 806.9   $   0.1   $     -
    Long-term         Other long-
     investments       term assets         2.2       2.6         -       0.4
    -------------------------------------------------------------------------

    Held for
     trading

    Cash              Cash and short-
                       term investments   75.5      64.7         -         -
    Cash and          Restricted
     investments       cash and
                       investments(3)      7.0       5.2         -         -
    U.S. $            Prepaid expenses
     derivative        & other assets
     contracts         (Accrued
                       liabilities)        3.9      (0.2)     (3.4)     (0.7)
    Cash              Other long-term
                       assets                -         -         -         -
    Fixed price
     energy           Accrued
     contracts         liabilities           -      (0.1)        -      (0.1)
    Commodity
     derivative       Accrued
     contracts         liabilities           -         -         -         -
    -------------------------------------------------------------------------
                                                           $  (3.3)  $  (0.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (3) Interest revenue related to short-term investments is disclosed in
        Note 5 Long-term Obligations.


    All other assets that are financial instruments, excluding long-term
    notes discussed below, have been classified as "loans and receivables"
    and all other financial instrument liabilities have been classified as
    "other liabilities" and are measured at amortized cost on the
    consolidated statements of financial position. The carrying value of
    these financial instruments, with the exception of long-term obligations,
    approximates fair value. Long-term obligations with a carrying value of
    $361.6 million, including the portion due within one year, but excluding
    all capital lease obligations, have a fair value as at May 2, 2009 of
    $359.9 million. The fair value of the Company's proportionate share of
    long-term debt of joint ventures, with a carrying value of $61.6 million
    as at May 2, 2009, was calculated using a valuation technique based on
    assumptions that are not supported by observable market prices or rates.
    The term and interest rate applicable to each joint venture's debt
    together with management's estimate of a risk-adjusted discount rate were
    used to determine the fair value of $62.0 million. The fair value of the
    Company's medium term notes, with a carrying value of $300.0 million as
    at May 2, 2009, is $297.9 million and was determined with reference to
    observable market prices and rates.

    Included in other long-term assets on the consolidated statement of
    financial position is an investment in long-term notes, with an original
    cost of $3.0 million and a fair value as at May 2, 2009 of $1.5 million,
    which has been classified as available for sale. The fair value as at
    May 2, 2009, has been calculated using a valuation technique based on
    assumptions that are not supported by observable market prices or rates.
    Information disclosed in the Master Asset Vehicle 2 (MAV2) trust
    indenture together with management's estimates based thereon regarding
    interest rate, risk-adjusted discount rate and expected term of the
    various classes of restructured notes, resulted in a $0.1 million
    reduction in the investment's fair value during the first quarter of
    2009. The Company does not intend to dispose of the investment within the
    year.
    





For further information:

For further information: Media Relations Contact: Vincent Power, Sears
Canada Inc., (416) 941-4422, vpower@sears.ca


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