Sears Canada Reports First Quarter Results

TORONTO, May 21, 2014 /CNW/ - Sears Canada Inc. (TSX: SCC) today announced its 
unaudited first quarter results.  Total revenues for the 13-week period ended 
May 3, 2014 was $771.7 million compared to $867.1 million for the 13-week 
period ended May 4, 2013, a decrease of 11.0%.  Same store sales decreased 
7.6%.  The balance of the change in revenues is primarily attributable to 
revenues from stores closed as a result of early termination and amendment of 
certain full-line store leases and the sale of joint arrangement interests in 
Fiscal 2013. 
The net loss for the quarter this year was $75.2 million or 74 cents per share 
compared to a net loss of $31.2 million or 31 cents per share for the same 
period last year.  Included in the net loss for the first quarter this year 
were pre-tax transformation expenses of $7.6 million related primarily to 
severance costs incurred during the quarter.  Also included in net loss for 
the quarter were pre-tax lease exit costs, warranty and other costs related to 
SHS and costs for the future settlement of retirement benefits, totaling $11.2 
million.  Included in the net loss for the first quarter last year were 
pre-tax transformation expenses of $1.5 million, related primarily to 
severance costs incurred during the quarter. Adjusted EBITDA (Earnings Before 
Interest, Taxes, Depreciation and Amortization) for the 13-week period ended 
May 3, 2014 was a loss of $58.1 million compared to a loss of $9.8 million for 
the 13-week period ended May 4, 2013. 
"The unseasonable weather had an adverse effect on our revenues," said Douglas 
C. Campbell, President and Chief Executive Officer, Sears Canada Inc.  "Sales 
of Spring merchandise were below last year, as winter-like weather was 
prevalent in most parts of the country well into the new season with cooler 
temperatures and significantly more snow in many areas.  However, we took 
advantage of the extended winter and cleared a significant quantity of fall 
and winter carryover, virtually emptying our stockrooms and getting it in 
front of the customer.  As a result, although our same store sales in Apparel 
& Accessories (A&A) were comparable to last year in dollars, same store sales 
in A&A increased 4.0% from a units standpoint.  We strategically reduced 
ending inventory by $99.0 million compared to the end of the same quarter last 
year. 
"We are pleased with the progress we are making in re-establishing retail 
fundamentals in the business so that we can have a solid foundation on which 
to implement new initiatives and build sustainable growth," continued Mr. 
Campbell.  "Our procurement of a new retail merchandising system and order 
management platform, which we announced in April, is designed to take us into 
the future with tools that we believe will greatly enhance the customer 
experience across all channels over the next several years.  We are making 
investments with long-term benefits like this with confidence as we are 
committed to providing customers with an unparalleled multi-channel experience 
now and in the decades to come." 
Adjusted EBITDA is a non-IFRS measure; please refer to the table attached for 
a reconciliation of net loss to Adjusted EBITDA. 
This release contains information which is forward-looking and is subject to 
important risks and uncertainties. Forward-looking information concerns, among 
other things, the Company's future financial performance, business strategy, 
plans, expectations, goals and objectives.  Often, but not always, 
forward-looking information can be identified by the use of words such as 
"plans", "expects" or "does not expect", "is expected",  "scheduled", 
"estimates", "intends", "anticipates" or "does not anticipate" or "believes", 
or variations of such words and phrases, or statements that certain actions, 
events or results "may", "could", "would", "might" or "will" be taken, occur 
or be achieved.  Although the Company believes that the forward-looking 
information presented with respect to the quarter's earnings is reasonable, 
such forward-looking information involves known and unknown risks, 
uncertainties and other factors which may cause actual results, performance or 
achievements to be materially different from any future results, performance 
or achievements expressed or implied by the forward-looking information and 
undue reliance should not be placed on such information.  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 strategic initiatives; productivity improvement and cost reduction 
initiatives and whether such initiatives will yield the expected benefits;  
the results achieved pursuant to the Company's long-term credit card marketing 
and servicing alliance with JPMorgan Chase Bank, N.A. (Toronto Branch);  
general economic conditions; competitive conditions in the businesses in which 
the Company participates; changes in consumer spending; seasonal weather 
patterns; weaker business performance in the subsequent quarter; customer 
preference toward product offerings; ability to retain senior management and 
key personnel; ability of the Company to successfully manage its inventory 
levels; disruptions to the Company's computer systems; economic, social, and 
political instability in jurisdictions where suppliers are located; the 
Company's reliance on third parties in outsourcing arrangements; structural 
integrity and fire safety of foreign factories; increased shipping costs, 
potential transportation delays and interruptions; damage to the reputations 
of the brands the Company sells; changes in the Company's relationship with 
its suppliers; the outcome of product liability claims; any significant 
security compromise or breach of the Company's customer, associate or Company 
information; the credit worthiness and financial stability of tenants, 
partners and co-arrangers, with respect to the Company's real estate joint 
arrangement interests; the credit worthiness and financial stability of the 
Company's licensees and business partners; possible changes in the Company's 
ownership by Sears Holdings Corporation ("Sears Holdings") and other 
significant shareholders; interest rate fluctuations and other changes in 
funding costs and investment income; fluctuations in foreign currency exchange 
rates; the possibility of negative investment returns in the Company's pension 
plan or an unexpected increase to the defined benefit obligation; the 
impairment of goodwill and other assets; new accounting pronouncements, or 
changes to existing pronouncements, that impact the methods the Company uses 
to report our financial condition and results from operations; uncertainties 
associated with critical accounting assumptions and estimates; the outcome of 
pending legal proceedings; compliance costs associated with environmental laws 
and regulations; maintaining adequate insurance coverage; the possible future 
termination of certain intellectual property rights associated with the 
"Sears" name and brand names if Sears Holdings reduces its interest in the 
Company to less than 25%; and changes in laws, rules and regulations 
applicable to the Company.  Information about these factors, other material 
factors that could cause actual results to differ materially from expectations 
and about material factors or assumptions applied in preparing forward-looking 
information, may be found in this release and in the Company's 2013 Annual 
Report under Section 11 "Risks and Uncertainties" and elsewhere in the 
Company's filings with securities regulators. The forward-looking information 
in this release is, unless otherwise indicated, stated as of the date hereof 
and is presented for the purpose of assisting investors and others in 
understanding our financial position and results of operations as well as our 
objectives and strategic priorities, and may not be appropriate for other 
purposes.  The Company does not undertake any obligation to update publicly or 
to revise any forward-looking information, whether as a result of new 
information, future events or otherwise, except as required by law. 
About Sears Canada 
Sears Canada is a multi-channel retailer with a network that includes 176 
corporate stores, 229 Hometown stores, over 1,400 catalogue and online 
merchandise pick-up locations, 96 Sears Travel offices and a nationwide repair 
and service 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 LOSS TO ADJUSTED EBITDA
For the 13-week periods ended May 3, 2014 and May 4, 2013 
Unaudited 


                                                         First Quarter
    (in CAD millions, except per share amounts)      2014         2013   
    Net loss                                      $ (75.2)     $ (31.2)  
      Transformation expense1                          7.6          1.5  
      Lease exit costs2                                3.8      —  
      SHS warranty and other costs3                    6.6      —  
      Costs for future settlement of retirement        0.8      —  
      benefits4
      Depreciation and amortization expense           23.6         30.2  
      Finance costs                                    2.5          2.3  
      Interest income                                (0.7)        (0.4)  
      Income tax expense                            (27.1)       (12.2)  
    Adjusted EBITDA5                                (58.1)        (9.8)  
    Basic net loss per share                      $ (0.74)     $ (0.31)
    1 Transformation expense during 2014 and 2013 relates primarily to
      severance costs incurred during the quarter.
    2 Lease exit costs relate primarily to costs incurred to exit certain
      properties during Q1 2014.
    3 SHS warranty and other costs represent the estimated costs to the
      Company related to potential claims for work
      that had been performed, prior to SHS announcing it was in
      receivership.
    4 Costs for future settlement of retirement benefits represent the
      expenses incurred during the quarter, related
      to the Company's voluntary offer to settle non-pension retirement
      benefits.
    5 Adjusted EBITDA is a 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. Adjusted EBITDA is a non-IFRS measure.
                                                            First Quarter
    (in CAD millions)                                   2014        2013   
    Total merchandising revenue                       $ 770.0     $ 856.4  
      Non-comparable store sales                        203.6       217.0  
      Same store sales                                  566.4       639.4  
    Percentage change in same store sales               (7.6) %     (2.6) %
    Percentage change in same store sales by category                      
      Apparel & Accessories                           — %       4.7 %
      Home & Hardlines                                 (12.3) %     (6.9) %

TABLE OF CONTENTS
    Unaudited Condensed Consolidated Financial
    Statements                                                                                                          
          
       Condensed Consolidated Statements of Financial Position
       Condensed Consolidated Statements of Net Loss and Comprehensive Loss
       Condensed Consolidated Statements of Changes in Shareholders' Equity
       Condensed Consolidated Statements of Cash Flows
     
    Notes to the Unaudited Condensed Consolidated Financial Statements
                
      Note 1:    General information
      Note 2:    Significant accounting policies
      Note 3:    Issued standards not yet adopted
      Note 4:    Critical accounting judgments and key sources of
               estimation uncertainty
      Note 5:    Cash and cash equivalents and interest income
      Note 6:    Inventories
      Note 7:    Long-term obligations and finance costs
      Note 8:    Capital stock
      Note 9:    Revenue
      Note 10:   Retirement benefit plans
      Note 11:   Depreciation and amortization expense
      Note 12:   Assets classified as held for sale
      Note 13:   Financial instruments
      Note 14:   Contingent liabilities
      Note 15:   Net loss per share
      Note 16:   Income taxes
      Note 17:   Segmented information
      Note 18:   Changes in non-cash working capital balances
      Note 19:   Changes in long-term assets and liabilities
      Note 20:   Burnaby arrangement
      Note 21:   Event after the reporting period

SEARS CANADA INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited
    (in CAD                        As at              As at         As at
    millions)       Notes     May 3,2014   February 1, 2014   May 4, 2013
    ASSETS                                                               
    Current                                                              
    assets
    Cash and cash      5     $   270.2     $   513.8          $   109.7  
    equivalents
    Accounts           13         71.0          83.3               79.2  
    receivable,
    net
    Income taxes                  21.4           0.8               10.1  
    recoverable
    Inventories        6         792.1         774.6              891.1  
    Prepaid                       29.2          23.8               28.6  
    expenses
    Derivative         13          2.0           7.2            —  
    financial
    assets
    Assets             12         26.8          13.3            —  
    classified as
    held for sale
    Total current              1,212.7       1,416.8            1,118.7  
    assets
                                                                         
    Non-current                                                          
    assets
    Property,                    762.7         785.5            1,098.4  
    plant and
    equipment
    Investment                    19.3          19.3               21.7  
    property
    Intangible                    26.2          28.2               26.0  
    assets
    Goodwill                       2.6           2.6                8.7  
    Deferred tax                 119.1          88.7               98.2  
    assets
    Other           7, 13,        49.3          51.2               45.8  
    long-term         16
    assets
    Total assets             $ 2,191.9     $ 2,392.3          $ 2,417.5  
                                                                         
    LIABILITIES                                                          
    Current                                                              
    liabilities
    Accounts           13    $   421.5     $   438.7          $   463.3  
    payable and
    accrued
    liabilities
    Deferred                     181.6         187.7              200.1  
    revenue
    Provisions                   100.5         109.4               53.2  
    Income taxes                   0.3          52.2            —  
    payable
    Other taxes                   22.5          53.9               19.2  
    payable
    Current         7, 13          4.7           7.9                9.2  
    portion of
    long-term
    obligations
    Total current                731.1         849.8              745.0  
    liabilities
                                                                         
    Non-current                                                          
    liabilities
    Long-term       7, 13         26.9          28.0               47.8  
    obligations
    Deferred                      81.0          87.3               86.8  
    revenue
    Retirement         10        291.9         286.0              415.5  
    benefit
    liability
    Deferred tax                   4.0           4.2                5.0  
    liabilities
    Other                         62.0          63.2               72.2  
    long-term
    liabilities
    Total                      1,196.9       1,318.5            1,372.3  
    liabilities
                                                                         
    SHAREHOLDERS'                                                        
    EQUITY
    Capital stock      8          14.9          14.9               14.9  
    Retained           8       1,070.1       1,145.3            1,177.0  
    earnings
    Accumulated                 (90.0)        (86.4)            (146.7)  
    other
    comprehensive
    loss
    Total                        995.0       1,073.8            1,045.2  
    shareholders'
    equity
    Total                    $ 2,191.9     $ 2,392.3          $ 2,417.5  
    liabilities
    and
    shareholders'
    equity

The accompanying notes are an integral part of these unaudited condensed 
consolidated financial statements.

SEARS CANADA INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS
For the 13-week periods ended May 3, 2014 and May 4, 2013
Unaudited
    (in CAD millions, except per share     Notes        2014         2013  
    amounts)
                                                                           
    Revenue                                   9     $  771.7     $  867.1  
    Cost of goods and services sold        6, 13       518.5        537.7  
    Selling, administrative and other    10,11,13      353.7        370.9  
    expenses
    Operating loss                                   (100.5)       (41.5)  
                                                                           
    Finance costs                           7,16         2.5          2.3  
    Interest income                           5          0.7          0.4  
    Loss before income taxes                         (102.3)       (43.4)  
                                                                           
    Income tax (expense) recovery                                          
      Current                                          (2.2)        (2.9)  
      Deferred                                          29.3         15.1  
                                                        27.1         12.2  
    Net loss                                        $ (75.2)     $ (31.2)  
                                                                           
    Basic net loss per share                 15     $ (0.74)     $ (0.31)  
    Diluted net loss per share               15     $ (0.74)     $ (0.31)  
                                                                           
    Net loss                                        $ (75.2)     $ (31.2)  
                                                                           
    Other comprehensive loss, net of                                       
    taxes:
                                                                           
    Items that may subsequently be                                         
    reclassified to net income:
      Loss on foreign exchange               13        (0.4)      —  
      derivatives
      Reclassification to net loss of                  (3.2)      —  
      gain on foreign exchange
      derivatives
                                                                           
    Total other comprehensive loss                     (3.6)      —  
    Comprehensive loss                              $ (78.8)     $ (31.2)  

The accompanying notes are an integral part of these unaudited condensed 
consolidated financial statements.

SEARS CANADA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the 13-week periods ended May 3, 2014 and May 4, 2013
Unaudited
                                                                  Accumulated other comprehensive (loss) income         
            
                                                                     Foreign                               Total        
            
                                                                    exchange                         accumulated
                                                                 derivatives                               other


                            Capital      Retained     designated as cash     Remeasurement     comprehensive     
Shareholders' 


    (in CAD millions)   Notes     stock      earnings            flow hedges              loss              loss        
    equity


Balance as at               $  14.9     $ 1,145.3     $              6.0     $      (92.4)     $      (86.4)     $   
1,073.8   


    February 1, 2014
       Net loss                                (75.2)                —           —           —            (75.2)  
    Other comprehensive                                                                                                 
            
    loss
       Loss on foreign    13                                                                                            
            
       exchange
       derivatives,
       net of income
       tax recovery of


   $0.2                                                            (0.4)           —             (0.4)            
 (0.4) 


       Reclassification                                                                                                 
            
       of gain on
       foreign exchange
       derivatives,
       net of income
       tax expense of


   $1.2                                                            (3.2)           —             (3.2)            
 (3.2) 


    Total other                 —       —                  (3.6)           —             (3.6)             (3.6)  
    comprehensive loss


Total comprehensive         —        (75.2)                  (3.6)           —             (3.6)            
(78.8)   


    loss
    Balance as at May           $  14.9     $ 1,070.1     $              2.4     $      (92.4)     $      (90.0)     $  
     995.0  
    3, 2014
                                                                                                                        
            


Balance as at               $  14.9     $ 1,208.2     $          —     $     (146.7)     $     (146.7)     $     
1,076.4   


    February 2, 2013
       Net loss                                (31.2)                —           —           —            (31.2)  
    Total comprehensive         —        (31.2)                —           —           —            (31.2)  
    loss


Balance as at May           $  14.9     $ 1,177.0     $          —     $     (146.7)     $     (146.7)     $     
1,045.2   


    4, 2013

The accompanying notes are an integral part of these unaudited condensed 
consolidated financial statements.

SEARS CANADA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the 13-week periods ended May 3, 2014 and May 4, 2013
Unaudited
    (in CAD millions)                       Notes       2014         2013  
    Cash flow used for operating                                           
    activities
       Net loss                                     $ (75.2)     $ (31.2)  
       Adjustments for:                                                    
        Depreciation and amortization         11        23.6         30.2  
        expense
        Gain on disposal of property,                  (0.4)        (0.2)  
        plant and equipment
        Finance costs                       7, 16        2.5          2.3  
        Interest income                        5       (0.7)        (0.4)  
        Retirement benefit plans expense      10         5.7          6.9  
        Short-term disability expense         10         2.1          2.5  
        Income tax recovery                   16      (27.1)       (12.2)  
       Interest received                       5         0.5          0.5  
       Interest paid                           7       (1.2)        (1.5)  
       Retirement benefit plans               10       (2.2)        (9.7)  
       contributions
       Income tax payments, net               16      (64.4)        (8.0)  
       Other income tax deposits              16      (10.3)      —  
       Changes in non-cash working            18      (85.5)       (92.5)  
       capital
       Changes in long-term assets and        19         4.2        (6.3)  
       liabilities
                                                     (228.4)      (119.6)  
    Cash flow used for investing                                           
    activities
       Purchases of property, plant and               (10.5)        (6.7)  
       equipment and intangible assets
       Proceeds from sale of property,                   0.6          0.3  
       plant and equipment
                                                       (9.9)        (6.4)  
    Cash flow used for financing                                           
    activities
       Interest paid on finance lease          7       (0.6)        (0.6)  
       obligations
       Repayment of long-term obligations              (5.8)        (3.4)  
       Proceeds from long-term                           1.5          1.1  
       obligations
                                                       (4.9)        (2.9)  
    Effect of exchange rate on cash and                (0.4)          0.1  
    cash equivalents at end of period
    Decrease in cash and cash equivalents            (243.6)      (128.8)  
    Cash and cash equivalents at                    $  513.8     $  238.5  
    beginning of period
    Cash and cash equivalents at end of             $  270.2     $  109.7  
    period

The accompanying notes are an integral part of these unaudited condensed 
consolidated financial statements.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General information

Sears Canada Inc. is incorporated in Canada. The address of its registered 
office and principal place of business is 290 Yonge Street, Suite 700, 
Toronto, Ontario, Canada M5B 2C3. The principal activities of Sears Canada 
Inc. and its subsidiaries (the "Company") include the sale of goods and 
services through the Company's Retail channels, which includes its Full-line, 
Sears Home, Hometown Dealer, Outlet, Appliances and Mattresses, Corbeil 
Electrique Inc. ("Corbeil") stores, and its Direct (catalogue/internet) 
channel. It also includes service revenue related to product repair and 
logistics. Commission revenue includes travel, home improvement services, 
insurance, and performance payments received from JPMorgan Chase Bank, N.A. 
(Toronto Branch) ("JPMorgan Chase") under the Company's long-term credit card 
marketing and servicing alliance with JPMorgan Chase. The Company has a 
multi-year licensing arrangement with TravelBrands Inc. ("TravelBrands") 
(formerly known as Thomas Cook Canada Inc.), under which TravelBrands manages 
the day-to-day operations of all Sears Travel offices and provides commissions 
to the Company. The Company also entered in a multi-year licensing agreement 
with SHS Services Management Inc. ("SHS"), under which SHS oversaw the 
day-to-day operations of all Sears Home Installed Products and Services 
business ("HIPS"). On December 13, 2013, SHS announced it was in receivership, 
and all offers of services provided by SHS ceased (see Note 13). Licensee fee 
revenues are comprised of payments received from licensees, including 
TravelBrands, that operate within the Company's stores. The Company is a party 
to a number of real estate joint arrangements which have been classified as 
joint operations and accounted for by recognizing the Company's share of joint 
arrangements' assets, liabilities, revenues and expenses for financial 
reporting purposes.

The indirect parent of the Company is Sears Holdings Corporation ("Sears 
Holdings"), incorporated in the U.S. in the state of Delaware. The ultimate 
controlling party of the Company is ESL Investments, Inc. (incorporated in the 
U.S. in the state of Florida) through Sears Holdings.

2. Significant accounting policies

2.1 Statement of compliance

The unaudited condensed consolidated financial statements of the Company for 
the 13-week period ended May 3, 2014 (the "Financial Statements") have been 
prepared in accordance with IAS 34, Interim Financial Reporting ("IAS 34") 
issued by the International Accounting Standards Board ("IASB"), and 
therefore, do not contain all disclosures required by International Financial 
Reporting Standards ("IFRS") for annual financial statements. Accordingly, 
these Financial Statements should be read in conjunction with the Company's 
most recently prepared annual consolidated financial statements for the 
52-week period ended February 1, 2014 (the "2013 Annual Consolidated Financial 
Statements"), prepared in accordance with IFRS.

2.2 Basis of preparation and presentation

The principal accounting policies of the Company have been applied 
consistently in the preparation of these Financial Statements for all periods 
presented. These Financial Statements follow the same accounting policies and 
methods of application as those used in the preparation of the 2013 Annual 
Consolidated Financial Statements, except as noted below. The Company's 
significant accounting policies are described in Note 2 of the 2013 Annual 
Consolidated Financial Statements.

The Company adopted the following amendments and interpretations which became 
effective "in" or "for" the 13-week period ended May 3, 2014:
        --  IAS 32, Financial Instruments: Presentation ("IAS 32")
            The IASB has amended IAS 32 to provide clarification on the
            requirements for offsetting financial assets and liabilities.
            These amendments are effective for annual periods beginning on
            or after January 1, 2014. Based on the Company's assessment of
            these amendments, there is no impact on its Financial
            Statements; and
        --  IFRIC 21, Levies ("IFRIC 21")
            IFRIC 21 provides guidance on when to recognize a liability for
            a levy imposed by a government, both for levies that are
            accounted for in accordance with IAS 37, Provisions, Contingent
            Liabilities and Contingent Assetsand those where the timing and
            amount of the levy is certain. This interpretation is
            applicable for annual periods on or after January 1, 2014.
            Based on the Company's assessment of this interpretation, there
            is no impact on its Financial Statements.

2.2.1 Basis of consolidation

The Financial Statements incorporate the financial statements of the Company 
as well as all of its subsidiaries. Real estate joint arrangements are 
accounted for by recognizing the Company's share of the joint arrangements' 
assets, liabilities, revenues and expenses. Subsidiaries include all entities 
where the Company has the power to govern the financial and operating policies 
of the entity so as to obtain benefits from its activities. All intercompany 
balances and transactions, and any unrealized income and expenses arising from 
intercompany transactions, are eliminated in the preparation of these 
Financial Statements.

The fiscal year of the Company consists of a 52 or 53-week period ending on 
the Saturday closest to January 31. The 13-week periods presented in these 
Financial Statements are for the periods ended May 3, 2014 and May 4, 2013.

These Financial Statements are presented in Canadian dollars, which is the 
Company's functional currency. The Company is comprised of two reportable 
segments, Merchandising and Real Estate Joint Arrangements (see Note 17).

2.3 Seasonality

The Company's operations are seasonal in nature. Accordingly, merchandise and 
service revenues, as well as performance payments received from JPMorgan Chase 
under the long-term credit card marketing and servicing alliance, will vary by 
quarter based on consumer spending behaviour. Historically, the Company's 
revenues and earnings are highest in the fourth quarter 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.

3. Issued standards not yet adopted

The Company monitors the standard setting process for new standards and 
interpretations issued by the IASB that the Company may be required to adopt 
in the future. Since the impact of a proposed standard may change during the 
review period, the Company does not comment publicly until the standard has 
been finalized and the effects have been determined.

On December 16, 2011, the IASB issued amendments to a previously released 
standard as follows:
              IFRS 9, Financial Instruments ("IFRS 9")
              This standard will ultimately replace IAS 39, Financial
              Instruments: Recognition and Measurement in phases. The first
              phase of IFRS 9 was issued on November 12, 2009 and addresses
              the classification and measurement of financial assets. The
              second phase of IFRS 9 was issued on October 28, 2010
              incorporating new requirements on accounting for financial
              liabilities. On December 16, 2011, the IASB amended the
              mandatory effective date of IFRS 9 to fiscal years beginning
              on or after January 1, 2015. The amendment also provides
              relief from the requirement to recast comparative financial
              statements for the effect of applying IFRS 9. In subsequent
              phases, the IASB will address hedge accounting and impairment
              of financial assets. In November 2013, the IASB withdrew the
              mandatory effective date of IFRS 9. The Company will evaluate
              the overall impact on the Company's consolidated financial
              statements when the final standard, including all phases, is
              issued.
               

4. Critical accounting judgments and key sources of estimation uncertainty

In the application of the Company's accounting policies, management is 
required to make judgments, estimates and assumptions with regards to the 
carrying amounts of assets and liabilities that are not readily apparent from 
other sources. The estimates and underlying assumptions are based on 
historical experience and other factors that are considered to be relevant. 
Actual results may differ from these estimates. The estimates and underlying 
assumptions are reviewed on an ongoing basis. Revisions to accounting 
estimates are recognized in the period in which the estimate is revised, if 
the revision affects only that period, or in the period of the revision and 
future periods, if the revision affects both current and future periods.

Critical judgments that management has made in the process of applying the 
Company's accounting policies, key assumptions concerning the future and other 
key sources of estimation uncertainty that have the potential to materially 
impact the carrying amounts of assets and liabilities within the next 
financial year are described in Note 4 of the 2013 Annual Consolidated 
Financial Statements and are consistent with those used in the preparation of 
these Financial Statements.

5. Cash and cash equivalents and interest income

Cash and cash equivalents

The components of cash and cash equivalents were as follows:
    (in CAD millions)         As at                As at           As at  
                        May 3, 2014     February 1, 2014     May 4, 2013
    Cash                $     145.2     $          192.4     $      64.4  
    Cash equivalents                                                      
      Government               90.0                299.9         —  
      treasury bills
      Bank term                13.0              —            15.0  
      deposits
      Investment               10.4                 10.4            20.6  
      accounts
    Restricted cash            11.6                 11.1             9.7  
    and cash
    equivalents
    Total cash and      $     270.2     $          513.8     $     109.7  
    cash equivalents

The components of restricted cash and cash equivalents are further discussed 
in Note 14.

Interest income

Interest income related primarily to cash and cash equivalents for the 13-week 
period ended May 3, 2014 totaled $0.7 million  (2013: $0.4 million). For the 
same 13-week period, the Company received $0.5 million (2013: $0.5 million) in 
cash related to interest income.

6. Inventories

The amount of inventory recognized as an expense during the 13-week period 
ended May 3, 2014 was $468.8 million (2013: $489.0 million), which includes 
$28.6 million (2013: $24.4 million) of inventory write-downs. These expenses 
are included in "Cost of goods and services sold" in the unaudited Condensed 
Consolidated Statements of Net Loss and Comprehensive Loss. There were no 
reversals of prior period inventory write-downs for the 13-week period ended 
May 3, 2014 (2013: $3.5 million).

Inventory is pledged as collateral under the Company's revolving credit 
facility (see Note 7).

7. Long-term obligations and finance costs

Long-term obligations

Total outstanding long-term obligations were as follows:
    (in CAD millions)         As at                As at           As at  
                        May 3, 2014     February 1, 2014     May 4, 2013
    Real estate joint   $   —     $            2.9     $       4.1  
    arrangement
    obligations -
    Current
    Finance lease               4.7                  5.0             5.1  
    obligations -
    Current
    Total current       $       4.7     $            7.9     $       9.2  
    portion of
    long-term
    obligations
    Real estate joint   $   —     $        —     $      18.2  
    arrangement
    obligations -
    Non-current
    Finance lease              26.9                 28.0            29.6  
    obligations -
    Non-current
    Total non-current   $      26.9     $           28.0     $      47.8  
    long-term
    obligations
                                     

The Company's debt consists of a secured credit facility and finance lease 
obligations and the Company's share of its real estate joint arrangement 
obligations. In September 2010, the Company entered into an $800.0 million 
senior secured revolving credit facility (the "Credit Facility") with a 
syndicate of lenders with a maturity date of September 10, 2015. The Credit 
Facility is secured with a first lien on inventory and credit card 
receivables. Availability under the Credit Facility is determined pursuant to 
a borrowing base formula. Availability under the Credit Facility was $475.2 
million as at May 3, 2014 (February 1, 2014: $374.0 million, May 4, 2013: 
$606.5 million). The current availability may be reduced by reserves currently 
estimated by the Company to be approximately $197.0 million, which may be 
applied by the lenders at their discretion pursuant to the Credit Facility 
agreement. As a result of judicial developments relating to the priorities of 
pension liability relative to certain secured obligations, the Company has 
executed an amendment to its Credit Facility agreement which would provide 
additional security to the lenders by pledging certain real estate assets as 
collateral, thereby partially reducing the potential reserve amount the 
lenders could apply by up to $150.0 million. As at May 3, 2014, three 
properties in Ontario have been registered under the amendment to the Credit 
Facility agreement. The additional reserve amount may increase or decrease in 
the future based on changes in estimated net pension deficits in the event of 
a wind-up, and based on the amount, if any, of real estate assets pledged as 
additional collateral.

The Credit Facility contains covenants which are customary for facilities of 
this nature and the Company was in compliance with all covenants as at May 3, 
2014.

As at May 3, 2014, the Company had no borrowings on the Credit Facility and 
had unamortized transaction costs incurred to establish the Credit Facility of 
$3.8 million included in "Other long-term assets" in the unaudited Condensed 
Consolidated Statements of Financial Position (February 1, 2014: no borrowings 
and unamortized transaction costs of $4.4 million included in "Other long-term 
assets", May 4, 2013: no borrowings and unamortized transaction costs of $5.7 
million included in "Other long-term assets"). In addition, the Company had 
$24.0 million (February 1, 2014: $24.0 million, May 4, 2013: $24.2 million) of 
standby letters of credit outstanding against the Credit Facility. These 
letters of credit cover various payments primarily relating to utility 
commitments and defined benefit plan deficit funding (see Note 10 for 
additional information on retirement benefit plans). Interest on drawings 
under the Credit Facility is determined based on bankers' acceptance rates for 
one to three month terms or the prime rate plus a spread. Interest amounts on 
the Credit Facility are due monthly and are added to principal amounts 
outstanding.

As at May 3, 2014, the Company had outstanding merchandise letters of credit 
of U.S. $8.5 million (February 1, 2014: U.S. $9.0 million, May 4, 2013: U.S. 
$9.5 million) used to support the Company's offshore merchandise purchasing 
program with restricted cash and cash equivalents pledged as collateral.

The Company has entered into a mortgage on land that it owns in Burnaby, 
British Columbia. In accordance with the Burnaby development project with 
Concord, the land has been allocated as security for future borrowings (see 
Note 20).

Finance costs

Interest expense on long-term obligations, including the Company's share of 
interest on long-term obligations of its real estate joint arrangements, 
finance lease obligations, the current portion of long-term obligations, 
amortization of transaction costs and commitment fees on the unused portion of 
the Credit Facility for the 13-week period ended May 3, 2014 totaled $2.3 
million (2013: $2.7 million). Interest expense is included in "Finance costs" 
in the unaudited Condensed Consolidated Statements of Net Loss and 
Comprehensive Loss. Also included in "Finance costs" for the 13-week period 
ended May 3, 2014 was an expense of nil (2013: expense reversal of $0.4 
million) for interest on accruals for uncertain tax positions, and an expense 
of $0.2 million (2013: nil) for interest on the settlement of a sales tax 
assessment.

The Company's cash payments for interest on long-term obligations, including 
the Company's share of interest on long-term obligations of its real estate 
joint arrangements, finance lease obligations, the current portion of 
long-term obligations and commitment fees on the unused portion of the Credit 
Facility for the 13-week period ended May 3, 2014 totaled $1.8 million (2013: 
$2.1 million).

8. Capital stock

On May 22, 2013, the Toronto Stock Exchange ("TSX") accepted the Company's 
Notice of Intention to make a Normal Course Issuer Bid ("2013 NCIB"). The 2013 
NCIB permits the Company to purchase for cancellation up to 5% of its issued 
and outstanding common shares, representing 5,093,883 of the issued and 
outstanding common shares as at May 10, 2013. Under the 2013 NCIB, purchases 
were allowed to commence on May 24, 2013 and must terminate by May 23, 2014 or 
on such earlier date as the Company may complete its purchases pursuant to the 
2013 NCIB. The total purchase of common shares by the Company pursuant to the 
2013 NCIB will not exceed, in the aggregate, 5% of all outstanding common 
shares, and is subject to the limits under the TSX rules, including a daily 
limit of 25% of the average daily trading volume (which, cannot exceed 19,689 
common shares a day), and a limit of one block purchase per week.

There were no share purchases during the 13-week period ended May 3, 2014 
(2013: no share purchases).

During the 52-week period ended February 1, 2014 ("Fiscal 2013"), the Company 
distributed $509.4 million to holders of common shares as an extraordinary 
cash dividend. Payment in the amount of $5.00 per common share was made on 
December 6, 2013.

ESL Investments, Inc., and investment affiliates including Edward S. Lampert, 
collectively "ESL", together form the ultimate controlling party of the 
Company. ESL is the beneficial holder of 28,158,368 or 27.6%, of the common 
shares of the Company as at May 3, 2014 (February 1, 2014: 28,158,368 or 
27.6%, May 4, 2013: 28,158,368 or 27.6%). Sears Holdings, the controlling 
shareholder of the Company, is the beneficial holder of 51,962,391 or 51.0%, 
of the common shares of the Company as at May 3, 2014 (February 1, 2014: 
51,962,391 or 51.0%, May 4, 2013: 51,962,391 or 51.0%). The issued and 
outstanding shares are fully paid and have no par value.

The authorized common share capital of the Company consists of an unlimited 
number of common shares without nominal or par value and an unlimited number 
of class 1 preferred shares, issuable in one or more series (the "Class 1 
Preferred Shares"). As at May 3, 2014, the only shares outstanding were common 
shares of the Company.

9. Revenue

The components of the Company's revenue were as follows:
                                     13-Week                               
                         Period Ended May 3,                      13-Week
    (in CAD millions)                   2014     Period Ended May 4, 2013
    Apparel &            $             264.1     $                  280.3  
    Accessories1
    Home & Hardlines1                  356.0                        413.3  
    Other merchandise                   46.6                         57.1  
    revenue
    Services and other                  74.3                         83.7  
    Commission and                      30.7                         32.7  
    licensee revenue
                         $             771.7     $                  867.1  
    1 Certain product lines have been reclassified from the Apparel &
      Accessories category, to the Home and Hardlines category. 
      Also, the Major Appliances category is now included in the Home and
      Hardlines category. 
      Prior year comparative figures have been restated to reflect these
      changes.
       

10. Retirement benefit plans

In July 2008, the Company amended its defined benefit plan by introducing a 
defined contribution component and closing the defined benefit component to 
new participants. As such, the defined benefit plan continues to accrue 
benefits related to future compensation increases but no further service 
credit is earned, and no contributions are made by employees.

The expense for the defined benefit, defined contribution and other benefit 
plans for the 13-week period ended May 3, 2014 was $1.4 million (2013: $2.0 
million), $1.9 million (2013: $2.2 million) and $2.4 million (2013: $2.7 
million), respectively. Not included in total retirement benefit plans expense 
for the 13-week period are short-term disability expenses of $2.1 million 
(2013: $2.5 million) that were paid from the other benefit plan. These 
expenses are included in "Selling, administrative and other expenses" in the 
unaudited Condensed Consolidated Statements of Net Loss and Comprehensive Loss.

Total cash contributions by the Company to its defined benefit, defined 
contribution and other benefit plans for the 13-week period ended May 3, 2014 
were $2.2 million (2013: $9.7 million).

In the fourth quarter of Fiscal 2013, the Company amended the early retirement 
provision of its pension plan to eliminate a benefit for associates who 
voluntarily resign prior to age of retirement, with effect January 1, 2015. In 
addition, the Company amended its pension plan for improvements that increase 
portability of associates' benefit, with effect March 1, 2014, and implemented 
fixed indexing at 0.5% per annum for eligible retirees, with effect January 1, 
2014. The Company also froze the benefits offered under the non-pension 
retirement plan to benefit levels as at January 1, 2015. In the fourth quarter 
of Fiscal 2013, the Company recorded a pre-tax gain on amendments to 
retirement benefits of $42.5 million ($42.8 million net of $0.3 million of 
expenses). Refer to the 2013 Annual Consolidated Financial Statements for more 
details.

During the 13-week period ended May 3, 2014, the Company offered lump sum 
settlements to those terminated associates who previously elected to defer the 
payment of the defined benefit pension until retirement. The Company expects 
to settle accepted offers by the end of October 2014. In addition, the Company 
made a voluntary offer to settle health and dental benefits of eligible 
members covered under the non-pension retirement plan. The Company expects to 
settle any acceptances from the offer by the end of June 2014, and expects to 
pay approximately $13.0 million. The Company has incurred $0.8 million in 
expenses during the 13-week period ended May 3, 2014 related to the 
settlement. Upon settlement, the Company will remeasure the liability on the 
non-pension retirement plan and record a settlement gain.

11. Depreciation and amortization expense

The components of the Company's depreciation and amortization expense, 
included in "Selling, administrative and other expenses", were as follows:
                                      13-Week                 13-Week  
                          Period Ended May 3,     Period Ended May 4,
    (in CAD millions)                    2014                    2013
    Depreciation of       $              20.9     $              27.4  
    property, plant and
    equipment
    Amortization of                       2.7                     2.8  
    intangible assets
    Total depreciation    $              23.6     $              30.2  
    and amortization
    expense
                                                                       

12. Assets classified as held for sale

On October 29, 2013, the Company announced the future closure of one of its 
Regina Logistics Centres (''RLC''). The RLC including the adjacent vacant 
property, which are owned by the Company, is being marketed for sale and if a 
buyer is identified that will purchase the RLC at a price acceptable to the 
Company, then the RLC will be sold. This process has been approved by senior 
management of the Company, and based on these factors, the Company has 
concluded that the sale is highly probable.

On May 16, 2014, the Company announced that it had reached a definitive 
agreement with Ivanhoé Cambridge II Inc. ("Ivanhoé") to sell its 15% joint 
arrangement interest in the Les Rivières Shopping Centre ("Les Rivières") it 
owns with Ivanhoé for cash consideration of approximately $33.5 million. The 
joint arrangement interest had a net carrying value of approximately $13.5 
million as at May 3, 2014. The agreement is subject to customary closing 
conditions including representations and warranties given on signing of the 
agreement continuing to be true on closing. The transaction is scheduled to 
close on June 2, 2014, and the ultimate amount of gain to be recognized will 
be determined during the second quarter of the 52-week period ended January 
31, 2015. Following the sale, the Company will continue to operate its store 
in the shopping centre.

As at May 3, 2014, the assets of RLC and the assets of the property owned with 
Ivanhoé were separately classified as held for sale on the Company's 
unaudited Condensed Consolidated Statements of Financial Position. The major 
classes of assets classified as held for sale were as follows:
    (in CAD millions)                         RLC   Les Rivières    Total  
      Accounts receivable, net          $ —   $        0.1   $  0.1  
      Prepaid expenses                    —            0.2      0.2  
    Current assets classified as held     —            0.3      0.3  
    for sale
      Property, plant and equipment          10.9           13.0     23.9  
      Investment property                     2.4        —      2.4  
      Other long-term assets              —            0.2      0.2  
    Non-current assets classified as         13.3           13.2     26.5  
    held for sale
    Assets classified as held for       $    13.3   $       13.5   $ 26.8  
    sale
                                         

The major classes of assets classified as held for sale as of February 1, 2014 
were as follows:
    (in CAD millions)                                 RLC  
      Property, plant and equipment                $ 10.9  
      Investment property                             2.4  
    Assets classified as held for sale             $ 13.3  
                                                    

There were no assets classified as held for sale as at May 4, 2013.

The operations of the RLC and Les Rivières are not presented as discontinued 
operations on the unaudited Condensed Consolidated Statements of Net Loss and 
Comprehensive Loss as they do not represent a separate geographical area of 
operations or a separate major line of business.

13. 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 is exposed to credit, liquidity and market risk as a result of 
holding financial instruments. Market risk consists of foreign exchange and 
interest rate risk.

13.1 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 cash equivalents, accounts receivable and other 
long-term assets.

Cash and cash equivalents, accounts receivable, derivative instruments and 
investments included in other long-term assets totaling $344.7 million as at 
May 3, 2014 (February 1, 2014: $605.8 million, May 4, 2013: $190.4 million) 
expose the Company to credit risk should the borrower default on maturity of 
the instruments. 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 3, 2014, one party represented 13.0% of the Company's net accounts 
receivable (February 1, 2014: one party represented 11.3% of the Company's 
accounts receivable, May 4, 2013: two parties represented 38.1% of the 
Company's accounts receivable).

13.2 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 3, 2014:
                                                       Contractual Cash Flow Maturities
    (in CAD        Carrying                  Within     1 year to     3 years to        Beyond  
    millions)        Amount       Total      1 year       3 years        5 years       5 years
    Accounts      $ 421.5     $   421.5     $ 421.5     $ —     $  —     $ —  
    payable and
    accrued
    liabilities
    Finance          31.6          41.1         6.8          11.1           10.0          13.2  
    lease
    obligations
    including
    payments
    due within
    one year 1
    Operating           n/a       465.9        99.2         150.7          104.6         111.4  
    lease
    obligations
    2
    Royalties 2         n/a         3.2         0.5           1.5            1.2       —  
    Purchase            n/a        15.7         8.2           7.5        —       —  
    agreements
    2,4
    Retirement      291.9         101.0        22.8          58.7           19.5       —  
    benefit
    plans
    obligations
    3
                  $ 745.0     $ 1,048.4     $ 559.0     $   229.5     $    135.3     $   124.6  
    1 Cash flow maturities related to finance lease obligations, including
      payments due within one year, include annual interest on
      finance lease obligations
      at a weighted average rate of 7.6%. The Company had no borrowings on
      the Credit Facility at May 3, 2014.
    2 Purchase agreements, operating lease obligations, and royalties are
      not reported in the unaudited Condensed Consolidated Statements of
      Financial Position.
    3 Payments beyond 2013 are subject to a funding valuation as at
      December 31, 2013 to be completed by September 30, 2014. Until then,
      the Company is obligated to fund in accordance with the most recent
      valuation completed as at December 31, 2010.
    4 Certain vendors require minimum purchase commitment levels over the
      term of the contract.
       

Management believes that cash on hand, future cash flow generated from 
operations and availability of current and future funding will be adequate to 
support these financial liabilities. As at May 3, 2014, the Company does not 
have any significant capital expenditure commitments.

Market risk

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

13.3 Foreign exchange risk

The Company enters into foreign exchange contracts to reduce the foreign 
exchange risk with respect to U.S. dollar denominated assets and liabilities 
and purchases of goods or services. As at May 3, 2014, there were forward 
contracts outstanding with a notional value of US $64 million (February 1, 
2014: US $90 millions, May 4, 2013: nil) and a fair value of $2.0 million 
included in "Derivative financial assets" (February 1, 2014: $7.2 million, May 
4, 2013: nil) in the unaudited Condensed Consolidated Statements of Financial 
Position. These derivative contracts have settlement dates extending to July 
2014. The intrinsic value portion of these derivatives has been designated as 
a cash flow hedge for hedge accounting treatment under IAS 39, Financial 
Instruments: Recognition and Measurement. 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 3, 2014, the designated portion of these hedges was 
considered effective.

While the notional principal of these outstanding financial instruments is not 
recorded in the unaudited Condensed Consolidated Statements of Financial 
Position, the fair value of the contracts is included in "Derivative financial 
assets" or "Derivative financial liabilities", depending on the fair value, 
and classified as current or long-term, depending on the maturities of the 
outstanding contracts. Changes in the fair value of the designated portion of 
contracts are included in OCI for cash flow hedges, to the extent the 
designated portion of the hedges continues to be effective, with any 
ineffective portion included in "Cost of goods and services sold" in the 
unaudited Condensed Consolidated Statements of Net Loss and Comprehensive 
Loss. Amounts previously included in OCI are reclassified to "Cost of goods 
and services sold" in the same period in which the hedged item impacted Net 
Loss.

During the 13-week period ended May 3, 2014, the Company recorded a loss of 
$0.1 million (2013: loss of $0.8 million) in "Selling, administrative and 
other expenses", relating to the translation or settlement of U.S. dollar 
denominated monetary items consisting of cash and cash equivalents, accounts 
receivable and accounts payable.

The period end exchange rate was 0.9107 U.S. dollar to Canadian dollar. A 10% 
appreciation or depreciation of the U.S. and or the Canadian dollar exchange 
rate was determined to have an after-tax impact on net loss of $0.6 million 
for U.S. dollar denominated balances included in cash and cash equivalents, 
accounts receivable and accounts payable.

13.4 Interest rate risk

From time to time, the Company enters into interest rate swap contracts with 
approved financial institutions to manage exposure to interest rate risks. As 
at May 3, 2014, the Company had no interest rate swap contracts in place 
(February 1, 2014: nil, May 4, 2013: nil).

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.

Cash and cash equivalents and borrowings under the secured revolving credit 
facility, when applicable, are subject to interest rate risk. The total 
subject to interest rate risk as at May 3, 2014 was a net asset of $271.5 
million (February 1, 2014: net asset of $515.1 million, May 4, 2013: net asset 
of $111.0 million). An increase or decrease in interest rates of 25 basis 
points would cause an immaterial after-tax impact on net loss for net assets 
subject to interest rate risk included in cash and cash equivalents and other 
long-term assets as at May 3, 2014.

13.5 Classification and fair value of financial instruments

The estimated fair values of financial instruments presented are based on 
relevant market prices and information available at those dates. The following 
table summarizes the classification and fair value of certain financial 
instruments as at the specified dates. The Company determines the 
classification of a financial instrument when it is initially 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.

The fair value of financial instruments are classified and measured according 
to the following three levels, based on the fair value hierarchy.
        --  Level 1: Quoted prices in active markets for identical assets
            or liabilities
        --  Level 2: Inputs other than quoted prices in active markets that
            are observable for the asset or liability either directly (i.e.
            as prices) or indirectly (i.e. derived from prices)
        --  Level 3: Inputs for the asset or liability that are not based
            on observable market data
    (in CAD                                                                      
    millions)
                                    Fair Value   As at        As at       As at  
                     Balance        Hierarchy2     May     February      May 4,
                     Sheet                          3,      1, 2014        2013
    Classification   Category                     2014
    Available for                                                                
    sale
      Cash               Cash and      Level 1   100.4        310.3        20.6  
      equivalents            cash
                     equivalents1
    Fair value                                                                   
    through profit
    or loss
      Long-term      Other             Level 1     0.2          0.2         0.2  
      investments    long-term
                     assets
      U.S. $         Derivative        Level 2     2.0          7.2     —  
      derivative     financial
      contracts      assets
      Long-term      Other             Level 3     1.3          1.3         1.3  
      investments    long-term
                     assets
    1 Interest income related to cash and cash equivalents is disclosed in
                                                                   Note 5.
    2 Classification of fair values relates to 2014
       

All other assets that are financial instruments not listed in the chart above 
have been classified as "Loans and receivables". All other financial 
instrument liabilities have been classified as "Other liabilities" and are 
measured at amortized cost in the unaudited Condensed Consolidated Statements 
of Financial Position. The carrying value of these financial instruments 
approximate fair value given that they are short-term in nature.

Effective March 3, 2013, the Company finalized an exclusive, multi-year 
licensing arrangement with SHS, which resulted in SHS overseeing the 
day-to-day operations of HIPS. The Company provided SHS an interest-bearing 
loan which allowed SHS to pay the final purchase price of $5.3 million over 6 
years. SHS repaid this loan on September 30, 2013, and shortly afterwards, 
issued the Company an interest-bearing promissory note for $2.0 million, 
secured by certain assets of SHS, repayable by July 16, 2015. The promissory 
note asset is included in "Other long-term assets" in the Consolidated 
Statements of Financial Position as at May 3, 2014.

On December 13, 2013, SHS announced that it was in receivership. All offers of 
services provided by SHS ceased, and the Company is working with the Receiver, 
PricewaterhouseCoopers Inc., on options for completing pending orders. As a 
result of the announcement, the Company recorded a warranty provision of $2.0 
million in the fourth quarter of Fiscal 2013 related to potential future 
claims for work that had been performed by SHS, as well as assuming the 
warranty obligations with respect to work previously performed by the Company 
which had been assumed by SHS.

As a result of an announcement made by the Company on March 21, 2014 regarding 
certain obligations of SHS, the Company recorded an additional provision of 
$4.4 million for warranty, and a $2.2 million allowance for doubtful accounts 
against the net receivable (including outstanding commissions receivable) for 
the 13-week period ended May 3, 2014.

14. Contingent liabilities

14.1 Legal proceedings

The Company is involved in various legal proceedings incidental to the normal 
course of business. The Company takes into account all available information, 
including guidance from experts (such as internal and external legal counsel) 
at the time of reporting to determine if it is probable that a present 
obligation (legal or constructive) exists, if it is probable that an outflow 
of resources embodying economic benefit will be required to settle such 
obligation and whether the Company can reliably measure such obligation at the 
end of the reporting period. The Company is of the view that, although the 
outcome of such legal proceedings cannot be predicted with certainty, the 
final disposition is not expected to have a material adverse effect on the 
Financial Statements.

14.2 Commitments and guarantees

Commitments

As at May 3, 2014, cash and cash equivalents that are restricted represent 
cash and investments pledged as collateral for letter of credit obligations 
issued under the Company's offshore merchandise purchasing program of $11.0 
million (February 1, 2014: $11.1 million, May 4, 2013: $9.7 million), which is 
the Canadian equivalent of U.S. $10.0 million (February 1, 2014: U.S. $10.0 
million, May 4, 2013: U.S. $9.6 million).

The Company has certain vendors which require minimum purchase commitment 
levels over the term of the contract. Refer to Note 13.2 "Liquidity risk".

Guarantees

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

Royalty License Agreements

The Company pays royalties under various merchandise license agreements, which 
are generally based on the sale of products. Certain license agreements 
require a minimum guaranteed payment of royalties over the term of the 
contract, regardless of sales. Total future minimum royalty payments under 
such agreements were $3.2 million as at May 3, 2014 (February 1, 2014: $3.5 
million, May 4, 2013: $1.8 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 and 
director and officer indemnification agreements. 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 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 amounts have been accrued in the 
Financial Statements with respect to these indemnification commitments.

15. Net loss per share

A reconciliation of the number of shares used in the net loss per share 
calculation is as follows:
    (Number of shares)                    13-Week                 13-Week  
                              Period Ended May 3,     Period Ended May 4,
                                             2014                    2013
    Weighted average number           101,877,662             101,877,662  
    of shares per basic net
    loss per share
    calculation
    Effect of dilutive                    —                 —  
    instruments outstanding
    Weighted average number           101,877,662             101,877,662  
    of shares per diluted
    net loss per share
    calculation
                                                                           

"Net loss" as disclosed in the unaudited Condensed Consolidated Statements of 
Net Loss and Comprehensive Loss was used as the numerator in calculating the 
basic and diluted net loss per share. For the 13-week period ended May 3, 
2014, there were no outstanding dilutive instruments. For the 13-week period 
ended May 4, 2013, the Company incurred a net loss and therefore all potential 
common shares were anti-dilutive.

16. Income taxes

The Company's total net cash payments of income taxes for the 13-week period 
ended May 3, 2014 were $74.7 million (2013: $8.0 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. During the 13-week period ended May 3, 2014, the Company 
recorded benefits for interest on prior period tax re-assessments and accruals 
for uncertain tax positions as described in the table below, all included in 
the unaudited Condensed Consolidated Statements of Net Loss and Comprehensive 
Loss as follows:
                                          13-Week          13-Week  
                                     Period Ended     Period Ended
    (in CAD millions)                 May 3, 2014      May 4, 2013
    Finance costs recovery           $    —     $        0.4  
    Income tax recovery (expense):                                  
      Current                                 0.1              0.5  
      Deferred                              (0.1)            (0.1)  
    Net benefits on uncertain tax    $    —     $        0.8  
    positions

The Company routinely evaluates and provides for potentially unfavourable 
outcomes with respect to any tax audits, and believes that the final 
disposition of tax audits will not have a material adverse effect on its 
liquidity.

Included in "Other long-term assets" in the unaudited Condensed Consolidated 
Statements of Financial Position as at May 3, 2014, were receivables of $32.5 
million (February 1, 2014: $32.5 million, May 4, 2013: $14.7 million) related 
to payments made by the Company for disputed tax assessments.

17. Segmented information

In order to identify the Company's reportable segments, the Company uses the 
process outlined in IFRS 8, Operating Segments which includes the 
identification of the Chief Operating Decision Maker, the identification of 
operating segments, which has been done based on Company formats, and the 
aggregation of operating segments. The Company has aggregated its operating 
segments into two reportable segments: Merchandising and Real Estate Joint 
Arrangements. The Merchandising segment includes revenues from the sale of 
merchandise and related services to customers. The Real Estate Joint 
Arrangement segment includes income from the Company's joint arrangement 
interests in shopping centres across Canada, all of which contain a Sears 
store.

17.1 Segmented statements of (loss) earnings
                                      13-Week                 13-Week  
                          Period Ended May 3,     Period Ended May 4,
    (in CAD millions)                    2014                    2013
    Total revenue                                                      
      Merchandising       $             770.0     $             856.4  
      Real Estate Joint                   1.7                    10.7  
      Arrangements
    Total revenue         $             771.7     $             867.1  
    Segmented operating                                                
    (loss) income
      Merchandising       $           (100.7)     $            (44.4)  
      Real Estate Joint                   0.2                     2.9  
      Arrangements
    Total segmented       $           (100.5)     $            (41.5)  
    operating loss
    Finance Costs                                                      
      Merchandising       $               2.5     $               1.9  
      Real Estate Joint               —                     0.4  
      Arrangements
    Total finance costs   $               2.5     $               2.3  
    Interest Income                                                    
      Merchandising       $               0.7     $               0.2  
      Real Estate Joint               —                     0.2  
      Arrangements
    Total interest income $               0.7     $               0.4  
    Income tax recovery                                                
      Merchandising       $              27.1     $              12.2  
      Real Estate Joint               —                 —  
      Arrangements
    Total income tax      $              27.1     $              12.2  
    recovery
    Net loss              $            (75.2)     $            (31.2)
                                                   

17.2 Segmented statements of total assets
                                  As at           As at           As at  
    (in CAD                 May 3, 2014     February 1,     May 4, 2013
    millions)                                      2014
    Merchandising           $   2,154.3     $   2,354.2     $   2,121.7  
    Real Estate                    37.6            38.1           295.8  
    Joint
    Arrangements
    Total assets            $   2,191.9     $   2,392.3     $   2,417.5  
                                                                         

17.3 Segmented statements of total liabilities
                            As at                As at           As at  
    (in CAD millions) May 3, 2014     February 1, 2014     May 4, 2013
                                                          
    Merchandising     $   1,195.2     $        1,314.4     $   1,345.5  
    Real Estate Joint         1.7                  4.1            26.8  
    Arrangements
    Total liabilities $   1,196.9     $        1,318.5     $   1,372.3  
                                                                        

18. Changes in non-cash working capital balances

Cash used for non-cash working capital balances were comprised of the 
following:
                                              13-Week          13-Week  
                                         Period Ended     Period Ended
    (in CAD millions)                     May 3, 2014      May 4, 2013
    Accounts receivable, net             $       12.2     $      (1.5)  
    Inventories                                (17.5)           (39.7)  
    Prepaid expenses                            (5.6)              0.1  
    Accounts payable and accrued               (18.4)           (25.9)  
    liabilities
    Deferred revenue                            (6.1)              2.3  
    Provisions                                  (8.9)           (13.5)  
    Income and other taxes payable and         (41.6)           (14.2)  
    recoverable
    Effect of foreign exchange rates              0.4            (0.1)  
    Cash used for non-cash working       $     (85.5)     $     (92.5)
    capital balances
                                                             

19. Changes in long-term assets and liabilities

Cash generated from (used for) long-term assets and liabilities were comprised 
of the following:
                                            13-Week          13-Week  
                                       Period Ended     Period Ended
    (in CAD millions)                   May 3, 2014      May 4, 2013
    Other long-term assets             $       11.5     $        0.2  
    Other long-term liabilities               (7.5)            (5.9)  
    Other                                       0.2            (0.6)  
    Cash generated from (used for)     $        4.2     $      (6.3)
    long-term assets and liabilities
                                                           

20. Burnaby arrangement

On October 11, 2013, the Company announced that it entered into a binding 
agreement with Concord Pacific Group of Companies ("Concord") to pursue the 
development of nine acres of the Company's property on and adjacent to the 
Company's store located at the Metropolis at Metrotown in Burnaby, British 
Columbia (the "Project"). Closing under the agreement is contingent upon 
obtaining the approval from the City of Burnaby for the Project, which is 
expected to occur over an extended period of time.

This agreement contemplates the sale of a 50% interest in the site for a value 
of approximately $140.0 million subject to adjustments, and the retention of 
Concord on customary terms to manage the development. $15.0 million of the 
purchase price is to be paid in cash on closing, with the balance represented 
by an interest-free long term note secured by Concord's 50% interest in the 
property, the principal of which is expected to be repaid out of cash flow 
generated from the Project over time. It is contemplated that this note will 
be subordinated to other debt financing expected to be raised and used to 
develop the Project. The note will be guaranteed by a Concord affiliate. 
Following the sale of the 50% interest, it is contemplated that the parties 
will enter into a co-ownership arrangement. If third party debt financing 
cannot be obtained, Concord will be responsible for providing debt financing 
to develop the Project (which would, with certain exceptions, be subordinated 
to the long-term note held by the Company). The estimated cost to fully 
develop and build out the Project as contemplated is currently in excess of 
$1.0 billion. Completion of the Project as contemplated is subject to 
strategic considerations, including, but not limited to, potential shifts in 
the Canadian economy and the condition of the real estate market now and in 
the future.

In January 2014, in conjunction with Concord obtaining financing to develop 
the Project, the Company entered into a demand mortgage for $25.0 million, 
secured by the Project property. Interest on drawings under the mortgage is 
determined based on the prime rate plus a spread, and is due monthly. As at 
May 3, 2014, the Company had no borrowings on the mortgage. In January 2014, 
Concord entered into a demand loan agreement for $20.0 million. The loan is 
guaranteed by Concord's parent company, One West Holdings Ltd., and the 
Company's undrawn $25.0 million mortgage has been pledged as collateral. As at 
May 3, 2014, Concord has borrowed $13.6 million against the available demand 
loan.

21. Event after the reporting period

On May 16, 2014, the Company announced that it had reached a definitive 
agreement with Ivanhoé to sell its 15% joint arrangement interest in Les 
Rivières that it owns with Ivanhoé, for cash consideration of approximately 
$33.5 million. The joint arrangement interest had a net carrying value of 
approximately $13.5 million as at May 3, 2014. The agreement is subject to 
customary closing conditions including representations and warranties given on 
signing of the agreement continuing to be true on closing. The transaction is 
scheduled to close on June 2, 2014, and the ultimate amount of gain to be 
recognized will be determined during the second quarter of the 52-week period 
ended January 31, 2015. Following the sale, the Company will continue to 
operate its store in the shopping centre.



SOURCE  Sears Canada Inc. 
Contact for Media:Vincent Power Sears Canada, Corporate Communications 
416-941-4422 vpower@sears.ca 
To view this news release in HTML formatting, please use the following URL: 
http://www.newswire.ca/en/releases/archive/May2014/21/c9174.html 
CO: Sears Canada Inc.
ST: Ontario
NI: RET ERN  
-0- May/21/2014 11:00 GMT
 
 
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