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Sears Canada Reports First Quarter Results

TORONTO, May 22, 2013 /CNW/ - Sears Canada Inc. (TSX: SCC) today announced its unaudited first quarter results.  Total revenue for the 13-week period ended May 4, 2013 was $867.1 million compared to $928.0 million for the 13-week period ended April 28, 2012, a decrease of 6.6%.  Same store sales decreased 2.6%.

The net loss for the quarter this year was $31.2 million or $0.31 cents per share compared to net earnings of $93.1 million or $0.91 cents per share for the same period last year.  Included in the net earnings for the first quarter last year was a pre-tax gain of $164.3 million related to the lease terminations of three stores as announced by the Company on March 2, 2012.  Excluding the gain from lease terminations, the net loss in the first quarter last year was $44.9 million.  Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the 13-week period ended May 4, 2013 was a loss of $9.8 million compared to a loss of $22.7 million for the 13-week period ended April 28, 2012, an improvement of $12.9 million.

"We are encouraged to see significant improvements in areas that we have targeted with our Transformation, particularly in the soft lines businesses," said Calvin McDonald, President and Chief Executive Officer, Sears Canada Inc.  "We experienced year over year growth in Apparel and Accessories for the second quarter in a row, the first time this has happened in over six years.  The Bed and Bath category has also improved this quarter compared to the same period last year.  Our Major Appliances business maintained market share but experienced sales declines, as did our Furniture and Mattress businesses all of which suffered in a very tough quarter of trading because of unfavourable economic conditions and low consumer confidence.  The unseasonable cool spring in most parts of the country had an adverse impact on sales of outdoor power equipment, patio, and other seasonal lines.

"We are continuing to make progress in our Transformation, and we believe the growth in Apparel and Accessories is an indicator that we are on the right track," continued Mr. McDonald.  "At the same time our rate management initiatives have positively impacted gross margin by 50 basis points, while our focus on controlling costs has reduced expenses by 7.9% compared to the same period last year.  Factoring out the gains from the return of the three leases to the landlord last year, we are seeing an overall improvement in our bottom line for the quarter as compared to the first quarter last year.

"The efforts of our 29,000 associates are a key component in making the Company's three-year Transformation a success.  While their hard work is starting to bear fruit, there is still work to do," added Mr. McDonald.

Adjusted EBITDA is a non-IFRS measure, and excludes finance costs, interest income, share of income or loss from joint ventures, income tax expense or recovery, depreciation and amortization and income or expenses of a non-recurring, unusual or one-time nature.  Please refer to the table attached for a reconciliation of net earnings (loss) to Adjusted EBITDA.

Normal Course Issuer Bid

The Company also announced today that it intends to file with the Toronto Stock Exchange ("TSX") a Notice of Intention to make a Normal Course Issuer Bid that 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 ("Shares").  There are 101,877,662 Shares issued and outstanding, as at May 10, 2013.

Under the Normal Course Issuer Bid, which is subject to TSX approval, purchases may commence on May 24, 2013 and must terminate by May 23, 2014 or on such earlier date as Sears Canada may complete its purchases pursuant to the Notice of Intention filed with the TSX.  The total purchase of Shares by Sears Canada pursuant to its Normal Course Issuer Bid will not exceed, in the aggregate, 5% of all outstanding Shares, and will be subject to the limits under the Toronto Stock Exchange rules, including a daily limit of 25% of the average daily trading volume (which, based on the prior six months trading volumes, cannot exceed 19,689 Shares a day), and a limit of one block purchase per week (which is not subject to an average daily trading volume limit).

The Board of Directors believes that, if the Company is able to purchase Shares at attractive prices, such purchases will create value for the Company and its continuing shareholders while providing additional liquidity to shareholders who desire to sell their Shares.  The Company may not purchase Shares under the Normal Course Issuer Bid if Shares cannot be purchased at prices that the Company considers attractive and decisions regarding the timing of purchases will also be based on market conditions and other factors. Therefore, there is no assurance that any Shares will be purchased under the Normal Course Issuer Bid and the Company may elect to suspend or discontinue the bid at any time.

Sears Canada will report to its shareholders in its quarterly and annual reports as to the status of the Normal Course Issuer Bid.  All purchases of Shares pursuant to its Normal Course Issuer Bid will be made by Sears Canada in accordance with the rules of the TSX and effected through the facilities of the TSX. Moreover, Sears Canada will make no purchases of Shares other than open market purchases. Any Shares purchased will be cancelled.

In the twelve month period preceding May 10, 2013, Sears Canada purchased 634,870 common shares for cancellation at a weighted average purchase price of $10.84 per share.

Sears Canada may, from time to time, enter into an automatic purchase plan with a designated broker to allow for the repurchase of its common shares under the Normal Course Issuer Bid at times when Sears Canada ordinarily would not be active in the market due to its own internal trading blackout periods, insider trading rules, or otherwise.

Sears Canada Appoints Chief Financial Officer

The Company is also announcing today that the Board of Directors of the Corporation has appointed E.J. Bird as Executive Vice-President and Chief Financial Officer.  Mr. Bird was appointed Interim Chief Financial Officer on March 12, 2013.  Mr. Bird will also continue to serve as a Director of Sears Canada, a role he has held since 2006.

"I'm pleased to have E.J. join Sears Canada on a permanent basis as our CFO," said Mr. McDonald.  "He brings a significant amount of experience to the role, and having served as Interim CFO for the past two months, he will be able to step into the role in what is expected to be a seamless transition.  I thank him for the leadership he has demonstrated to date and look forward to working with him on a permanent basis."

As mentioned in the Company's March 12 release, Mr. Bird attended Baylor University in Waco, Texas where he graduated summa cum laude with a Bachelor of Business Administration, majoring in Accounting.  He earned his MBA at Stanford's Graduate School of Business in California where he was an Arjay Miller Scholar.  In between degrees Mr. Bird worked in the audit department of Price Waterhouse's Houston office.  He has worked extensively in the investment arena, is a director at Sears Hometown and Outlet Stores, Inc. of Hoffman Estates, Illinois and has most recently led his own company business providing consulting services.

In addition, the Company is also announcing that Donald C. Ross has been appointed Lead Director of the Corporation and that Deborah E. Rosati has been appointed Chair of the Audit Committee.

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

Sears Canada is a multi-channel retailer with a network that includes 181 corporate stores, 248 hometown dealer stores, over  1,400 catalogue and online merchandise pick-up locations, 101 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 (LOSS) TO ADJUSTED EBITDA
For the 13-week period ended May 4, 2013 and April 28, 2012
 
Unaudited
    First Quarter
(in CAD millions, except per share amounts)   2013     2012
Net (loss) earnings   $ (31.2)   $ 93.1
   Transformation expense1   1.5    
   Gain on lease terminations2       (164.3)
  Depreciation and amortization expense   30.2     32.3
  Finance costs   2.3     4.5
  Interest income   (0.4)     (0.6)
   Income tax (recovery) expense   (12.2)     12.3
Adjusted EBITDA3   (9.8)     (22.7)
Basic net (loss) earnings per share   $ (0.31)   $ 0.91

1 Transformation expense during 2013 relates to severance costs incurred during the year.
2 Gain on lease terminations represents the pre-tax gain on the early surrender and return of leases on three properties during Q1 2012.
3 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.
   

 

 
TABLE OF CONTENTS
Exhibit 99.2
 
Unaudited Condensed Consolidated Financial Statements
  Condensed Consolidated Statements of Financial Position  
  Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income
  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: Gain on lease terminations
  Note 13: Assets and liabilities held for sale
  Note 14: Financial instruments
  Note 15: Contingent liabilities
  Note 16: Net (loss) earnings per share
  Note 17: Income taxes
  Note 18: Segmented information
  Note 19: Changes in non-cash working capital balances
  Note 20: Changes in long-term assets and liabilities
  Note 21: Event after reporting period
     

 

 
SEARS CANADA INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited
(in CAD millions)   Notes     As at 
May 4, 2013
      As at
February 2, 2013
(Note 2.4)
      As at
April 28, 2012
(Note 2.4)
      As at
January 28, 2012
(Note 2.4)
ASSETS                                  
Current assets                                  
Cash and cash equivalents   5   $ 109.7     $ 238.5     $ 364.9     $ 400.2
Accounts receivable, net   14     79.2       77.7       97.8       117.6
Income taxes recoverable   17     10.1       5.5       1.5       4.1
Inventories   6     891.1       851.4       883.7       823.9
Prepaid expenses         28.6       28.6       32.1       27.9
Assets classified as held for sale   13                 31.9      
Total current assets         1,118.7       1,201.7       1,411.9       1,373.7
                                   
Non-current assets                                  
Property, plant and equipment         1,098.4       1,118.5       1,176.1       1,196.1
Investment property         21.7       21.7       21.7       21.7
Intangible assets         26.0       27.2       22.5       23.6
Goodwill         8.7       8.7       8.7       8.7
Deferred tax assets   17     98.2       83.8       75.4       84.6
Other long-term assets         45.8       43.1       64.7       59.0
Total assets       $ 2,417.5     $ 2,504.7     $ 2,781.0     $ 2,767.4
                                   
LIABILITIES                                  
Current liabilities                                  
Accounts payable and accrued liabilities   14   $ 463.3     $ 483.7     $ 582.8     $ 580.8
Deferred revenue         200.1       197.8       213.7       208.0
Provisions         53.2       66.3       54.4       64.8
Income taxes payable   17                 10.9       1.0
Other taxes payable         19.2       34.0       31.5       42.9
Current portion of long-term obligations   7,14     9.2       9.2       9.1       9.2
Liabilities classified as held for sale   13                 28.4      
Total current liabilities         745.0       791.0       930.8       906.7
                                   
Non-current liabilities                                  
Long-term obligations   7,14     47.8       50.2       49.3       144.8
Deferred revenue         86.8       90.7       88.5       89.2
Retirement benefit liability   10     415.5       415.7       450.0       452.3
Deferred tax liabilities   17     5.0       6.0       5.6       5.6
Other long-term liabilities         72.2       74.7       74.5       76.8
Total liabilities         1,372.3       1,428.3       1,598.7       1,675.4
                                   
SHAREHOLDERS' EQUITY                                  
Capital stock   8     14.9       14.9       15.0       15.0
Retained earnings   8     1,177.0       1,208.2       1,308.8       1,218.5
Accumulated other comprehensive loss         (146.7)       (146.7)       (141.5)       (141.5)
Total shareholders' equity         1,045.2       1,076.4       1,182.3       1,092.0
Total liabilities and shareholders' equity       $ 2,417.5     $ 2,504.7     $ 2,781.0     $ 2,767.4

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

 

 
SEARS CANADA INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET (LOSS) EARNINGS AND COMPREHENSIVE (LOSS) INCOME
For the 13-week periods ended May 4, 2013 and April 28, 2012
Unaudited 
 
(in CAD millions, except per share amounts)   Notes     2013       2012 (Note 2.4)
                     
Revenue   9   $ 867.1     $ 928.0
Cost of goods and services sold   6     537.7       580.4
Selling, administrative and other expenses   10,11,14     370.9       402.6
Operating loss         (41.5)       (55.0)
                     
Gain on lease terminations   12           164.3
Finance costs   7,17     2.3       4.5
Interest income   5     0.4       0.6
(Loss) earnings before income taxes         (43.4)       105.4
                     
Income tax recovery (expense)                    
  Current   17     (2.9)       (3.0)
  Deferred   17     15.1       (9.3)
          12.2       (12.3)
Net (loss) earnings       $ (31.2)     $ 93.1
                     
Basic net (loss) earnings per share   16   $ (0.31)     $ 0.91
Diluted net (loss) earnings per share   16   $ (0.31)     $ 0.91
                     
Net (loss) earnings       $ (31.2)     $ 93.1
                   
Other comprehensive income, net of taxes:                  
                     
Items that may subsequently be reclassified to net income                  
  Mark-to-market adjustment on cash equivalents               0.1
  Reclassification to net (loss) earnings of loss (gain) on
foreign exchange derivatives
              (0.1)
                     
Total other comprehensive income              
Comprehensive (loss) income       $ (31.2)     $ 93.1

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 4, 2013 and April 28, 2012
Unaudited 
                        Accumulated other comprehensive loss (income)
           
(in CAD millions) Note     Capital
stock
      Retained
earnings
      Mark-to-market on short-term investments within cash and cash equivalents       Foreign 
exchange
derivatives
designated
 as cash
flow hedges
      Remeasurement
loss
      Total accumulated
other
comprehensive
loss (income)
      Shareholders'
equity
Balance as at February 2, 2013     $ 14.9     $ 1,208.2     $     $     $ (146.7)     $ (146.7)     $ 1,076.4
  Net loss               (31.2)                               (31.2)
  Change in fair value of call option 14                                                      
Total other comprehensive income                                          
Total comprehensive loss             (31.2)                               (31.2)
Balance as at May 4, 2013     $ 14.9     $ 1,177.0     $     $     $ (146.7)     $ (146.7)     $ 1,045.2
                                                         
Balance as at January 28, 2012     $ 15.0     $ 1,218.5     $     $ 0.2     $ (141.7)     $ (141.5)     $ 1,092.0
  Net earnings               93.1                               93.1
Other comprehensive income (loss)                                                        
  Mark-to-market gain                       0.1                     0.1        0.1
  Reclassification of gain on foreign exchange derivatives                             (0.1)             (0.1)        (0.1)
Total other comprehensive income (loss)                   0.1       (0.1)               —      
Total comprehensive income (loss)             93.1       0.1       (0.1)               —       93.1
  Repurchases of common shares             (2.8)                                       (2.8)
Balance as at April 28, 2012     $ 15.0     $ 1,308.8     $ 0.1     $ 0.1     $ (141.7)     $ (141.5)     $ 1,182.3

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 4, 2013 and April 28, 2012
Unaudited
                   
(in CAD millions)   Notes     2013       2012 (Note 2.4)
Cash flow used for operating activities                  
  Net (loss) earnings       $ (31.2)     $ 93.1
  Adjustments for:                  
    Depreciation and amortization expense   11     30.2       32.3
    Gain on disposal of property, plant and equipment         (0.2)       (0.3)
    Gain on lease terminations   12           (164.3)
    Finance costs   7     2.3       4.5
    Interest income   5     (0.4)       (0.6)
    Retirement benefit plans expense   10     6.9       7.8
    Short-term disability expense   10     2.5       2.5
    Income tax (recovery) expense   17     (12.2)       12.4
  Interest received   5     0.5       0.5
  Interest paid   7     (1.5)       (1.9)
  Retirement benefit plans contributions   10     (9.7)       (12.4)
  Income tax (payments) refunds, net   17     (8.0)       7.8
  Changes in non-cash working capital   19     (92.5)       (61.7)
  Changes in long-term assets and liabilities   20     (6.3)       (2.8)
          (119.6)       (83.1)
Cash flow (used for) generated from investing activities                    
  Purchases of property, plant and equipment and intangible assets         (6.7)       (15.7)
  Proceeds from sale of property, plant and equipment         0.3       0.5
  Proceeds from lease terminations   12           170.0
          (6.4)       154.8
Cash flow used for financing activities                    
  Interest paid on finance lease obligations   7     (0.6)       (0.5)
  Repayment of long-term obligations         (3.4)       (135.1)
  Proceeds from long-term obligations         1.1       31.7
  Repurchases of common shares   8           (2.9)
          (2.9)       (106.8)
Effect of exchange rate on cash and cash equivalents at end of period         0.1       (0.2)
Decrease in cash and cash equivalents         (128.8)       (35.3)
Cash and cash equivalents at beginning of period       $ 238.5     $ 400.2
Cash and cash equivalents at end of period       $ 109.7     $ 364.9

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 channel, which includes its Full-line, Sears Home, Hometown Dealer, Outlet, Appliances and Mattresses, Corbeil Electrique Inc. 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 partnered with Thomas Cook Canada Inc. ("Thomas Cook") in a multi-year licensing arrangement, under which Thomas Cook manages the day-to-day operations of all Sears Travel offices and provides commissions to the Company. The Company has also partnered with SHS Services Management ("SHS") in a multi-year licensing arrangement, under which SHS oversees the day-to-day operations of all Sears Home Improvements Product Services business ("HIPS"). Licensee fee revenues are comprised of payments received from licensees, including Thomas Cook and SHS, that operate within the Company's stores. The Company is a party to a number of real estate joint ventures which have been classified as joint operations and accounted for using proportionate consolidation 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 4, 2013 (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 53-week period ended February 2, 2013 (the "2012 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 2012 Annual Consolidated Financial Statements, except as noted below.  The Company's significant accounting policies are described in Note 2 of the 2012 Annual Consolidated Financial Statements.

The Company adopted the following new standards and amendments which became effective "in" or "for" the 13-week period ended May 4, 2013 ("Q1 2013"):

  • IAS 1, Presentation of Financial Statements ("IAS 1") 

    The IASB has amended IAS 1 to require additional disclosures for items presented in Other Comprehensive Income ("OCI") on a before-tax basis and requires items to be grouped and presented in OCI based on whether they are potentially reclassifiable to earnings or loss subsequently (i.e. items that may be reclassified and those that will not be reclassified to earnings or loss). These amendments are effective for annual periods beginning on or after July 1, 2012 and require full retrospective application. As a result of the adoption of the IAS 1 amendment, the Company modified its presentation of other comprehensive income in these unaudited condensed consolidated financial statements;
  • IAS 28, Investments in Associates and Joint Ventures ("IAS 28") 

    IAS 28 (as amended in 2011) supersedes IAS 28 (2003), Investments in Associates and outlines how to apply, with certain limited exceptions, the equity method to investments in associates and joint ventures. The standard also defines an associate by reference to the concept of "significant influence", which requires power to participate in financial and operating policy decisions of an investee (but not joint control or control of those policies). Based on the Company's assessment of this amendment, there is no impact on its unaudited condensed consolidated financial statements;
  • IFRS 7, Financial Instruments: Disclosures ("IFRS 7") 

    The IASB has amended IFRS 7.  The amendment establishes disclosure requirements to help users better assess the effect or potential effect of offsetting arrangements on a company's financial position. These amendments are effective for annual periods beginning on or after January 1, 2013 and must be applied retrospectively. Based on the Company's assessment of this amendment, there is no impact on its unaudited condensed consolidated financial statements;
  • IFRS 10, Consolidated Financial Statements ("IFRS 10") 

    IFRS 10 establishes the standards for the presentation and preparation of consolidated financial statements when an entity controls one or more entities. Based on the Company's assessment of this amendment, there is no impact on its unaudited condensed consolidated financial statements;
  • IFRS 11, Joint Arrangements ("IFRS 11") 

    IFRS 11, along with IFRS 12 described below, replaces IAS 31, Interests in Joint Ventures ("IAS 31") and requires that a party in a joint arrangement assess its rights and obligations to determine the type of joint arrangement and account for those rights and obligations accordingly. The adoption of this standard has impacted the Company as described in Note 2.4;
  • IFRS 12, Disclosure of Involvement with Other Entities ("IFRS 12") 

    IFRS 12, along with IFRS 11 described above, replaces IAS 31. IFRS 12 requires the disclosure of information that enables users of financial statements to evaluate the nature of and the risks associated with, the entity's interests in joint ventures and the impact of those interests on its financial position, financial performance and cash flows. These  amendments are effective for annual periods beginning on or after January 1, 2013 and must be applied retrospectively. The adoption of these amendments did not have an impact on the Company's unaudited condensed consolidated financial statements; and
  • IFRS 13, Fair Value Measurement ("IFRS 13") 

    IFRS 13 provides guidance to improve consistency and comparability in fair value measurements and related disclosures through a 'fair value hierarchy'. This standard applies when another IFRS requires or permits fair value measurements or disclosures.  Disclosures required under IFRS 13 for unaudited condensed consolidated financial statements have been included in Note 14.5.

2.2.1 Basis of Consolidation

The Company's Financial Statements incorporate the financial statements of the Company as well as all of its subsidiaries. Real estate joint venture investments are accounted for using the proportionate consolidation method of accounting. 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 ending May 4, 2013 and April 28, 2012.

These Financial Statements are presented in Canadian dollars, which is the Company's functional currency. The Company reports as two operating segments, Merchandising and Real Estate Joint Ventures (see Note 18).

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.

2.4 Changes in Accounting Policy

IFRS 11, Joint Arrangements

The Company adopted IFRS 11 in Q1 2013. On May 12, 2011, the IASB issued IFRS 11 which replaced IAS 31,Interests in Joint Ventures, and required that a party in a joint arrangement assess its rights and obligations to determine the type of joint arrangement and account for those rights and obligations accordingly. The Company has determined that the joint arrangements with its real estate joint ventures are joint operations and will be recognized in proportion to the Company's ownership percentage in these arrangements.

IFRS 11 is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The amendments are required to be applied retrospectively in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors.

As the Company implemented IFRS 11 in Q1 2013, the Company has retrospectively adjusted the assets and liabilities as at February 2, 2013, April 28, 2012 and January 28, 2012 and the income, expenses and cash flow for the 13-week period ended April 28, 2012 and 53-week period ended February 2, 2013.

A summary of the impact arising from the application of the change in accounting policy is as follows: 

Consolidated Statements of Financial Position  
(Increase (decrease) in CAD millions)     As at
February 2, 2013
      As at
April 28, 2012
      As at
January 28, 2012
  Cash and cash equivalents   $ 1.5     $ 3.3     $ 2.8
  Accounts receivable, net     1.5       1.6       1.4
  Prepaid expenses     (1.5)       (1.2)      
Net change to current assets     1.5       3.7       4.2
                         
  Property, plant and equipment     278.5       322.4       324.1
  Investment in joint ventures     (263.4)       (298.8)       (301.4)
  Other long-term assets     9.0       9.1       9.8
Net change to total assets     25.6       36.4       36.7
                           
  Accounts payable and accrued liabilities     1.7       5.1       4.0
  Deferred revenue     0.3            
  Other taxes payable     0.1             0.1
  Current portion of long term obligations     4.0       0.6       4.1
Net change to current liabilities     6.1       5.7       8.2
                           
  Long-term obligations     19.3       29.6       27.2
  Deferred tax liabilities     0.2       0.2       0.3
  Other long-term liabilities           0.9