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| Sears Canada Releases Third Quarter Results |
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TORONTO, Oct 21, 2004 (Canada NewsWire via COMTEX) -- Sears Canada (TSX: SCC) today announced its unaudited third quarter results. Total revenues for the 13 week period ended October 2, 2004 were $1.497 billion compared to $1.433 billion for the 13 weeks ended September 27, 2003, an increase of 4.5%. Same store sales on a comparable week basis increased 1.1%. Net earnings for the quarter, excluding non-comparable items were $19.4 million or 18 cents per share compared to $12.1 million or 11 cents per share in the quarter last year. Net earnings including non-comparable items were $14.0 million or 13 cents per share compared to $13.4 million or 12 cents per share in the quarter last year. Commenting on the quarter, Brent Hollister, President and Chief Executive Officer stated, "While the third quarter showed earnings improvement, it did not meet our expectations. Due to the retail calendar, last year was a 53 week year, therefore this year's quarter was one week later than last year's quarter. This shifting of weeks resulted in an estimated $60 million additional revenue in the quarter. We estimate that on a comparable week basis our earnings excluding non-comparable items were flat to last year." Hollister continued, "Apparel sales continue to be negatively impacted by weather. August was unseasonably cool which hurt clearance of summer apparel, while September was unseasonably warm which impacted the sale of fall merchandise. Sales were strong in furniture and sporting goods, whereas sales were weak in women's and children's apparel. Gross margins were down 179 basis points in the quarter largely as a result of a higher promotional and clearance balance of sale. Inventory remains well controlled with strong markdown action taken in the quarter to clear trailing season merchandise. Inventory levels at the end of the quarter were 6% less than last year. Expenses also remain well controlled. Expenses as a percent of revenue were down 183 basis points in the quarter, largely due to tight control of payroll and marketing expense." Total revenues for the 39 week period ended October 2, 2004 were $4.315 billion compared to $4.184 billion for the 39 week period ended September 27, 2003, an increase of 3.1%. Same store sales on a comparable week basis increased 3.1%. Net earnings for the nine months, excluding non-comparable items were $40.7 million or 38 cents per share compared to $38.3 million or 36 cents per share last year. Net earnings for the nine months including non-comparable items were $39.1 million or 37 cents per share compared to $37.8 million or 35 cents per share last year. With respect to the Company's outlook for the remainder of the year, Mr. Hollister stated, "We are cautious given that apparel sales and gross margins in the third quarter were below our expectation. We are therefore lowering our full year guidance for earnings before non-comparable items to a range of $1.15 to $1.35 per share." This release contains discussion of forward-looking information and potential future circumstances and developments. The discussion of such matters is qualified by the inherent risks and uncertainties surrounding future expectations generally, and may materially differ from the Company's actual experience. Sears Canada is a multi-channel retailer with a network of 122 full-line department stores, 47 Sears Home stores, over 2,200 catalogue merchandise pick-up locations, 151 dealer stores, 12 outlet stores, 52 floor covering centres, 112 Sears Travel offices and a nationwide 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 earnings before non-comparable items to net earnings
(in millions, except per share amounts)
Unaudited
13 Week Period Ended Oct 2, 2004 and Sept 27, 2003 ------------------------------------------------
Earnings
Before Tax After tax per share
------------------------------------------------
2004 2003 2004 2003 2004 2003
------------------------------------------------
Earnings before
non-comparable items $ 32.0 $ 27.1 $ 19.4 $ 12.1 $ 0.18 $ 0.11
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Effect from sale of
receivables (3.7) 1.3 (2.4) 1.3 (0.02) 0.01
Auto Centre operations 0.4 - 0.3 - - -
Restructuring
activities (5.0) - (3.3) - (0.03) -
Store closures - - - - - -
Sale of real estate
joint venture - - - - - -
Conversion of Eatons
stores - - - - - -
Sale of real estate - - - - - -
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Net earnings 23.7 28.4 14.0 13.4 0.13 0.12
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39 Week Period Ended Oct 2, 2004 and Sept 27, 2003 ------------------------------------------------
Earnings
Before Tax After tax per share
------------------------------------------------
2004 2003 2004 2003 2004 2003
------------------------------------------------
Earnings before
non-comparable items $ 68.3 $ 74.3 $ 40.7 $ 38.3 $ 0.38 $ 0.36
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Effect from sale of
receivables (2.7) (0.7) (1.8) (0.5) (0.02) (0.01)
Auto Centre operations (13.6) - (8.8) - (0.08) -
Restructuring
activities (14.6) - (9.5) - (0.08) -
Store closures (2.4) - (1.6) - (0.02) -
Sale of real estate
joint venture 16.0 - 12.9 - 0.12 -
Conversion of Eatons
stores 8.0 - 5.2 - 0.05 -
Sale of real estate 3.1 - 2.0 - 0.02 -
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Net earnings 62.1 73.6 39.1 37.8 0.37 0.35
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SEARS CANADA INC.
Consolidated Statements of Financial Position
As at As at As at
October 2, September 27, January 3,
(in millions) 2004 2003 2004
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(unaudited) (unaudited) (audited)
ASSETS
Current Assets
Cash and short-term investments $ 76.7 $ 65.2 $ 82.6
Accounts receivable (Notes 3
and 4) 1,283.8 1,129.8 1,249.1
Income taxes recoverable - 13.2 11.8
Inventories 902.3 960.9 801.3
Prepaid expenses and other assets 141.8 118.8 110.6
Current portion of future income
tax assets 140.2 163.7 149.7
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2,544.8 2,451.6 2,405.1
Investments and other assets
(Note 5) 79.4 70.3 76.8
Capital assets 1,005.9 1,061.5 1,042.8
Deferred charges 272.9 296.6 293.6
Future income tax assets 38.7 57.8 17.5
Other long-term assets 86.4 83.7 229.9
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$ 4,028.1 $ 4,021.5 $ 4,065.7
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LIABILITIES
Current liabilities
Accounts payable $ 771.1 $ 864.3 $ 728.2
Accrued liabilities 393.7 400.8 447.4
Income and other taxes payable 49.0 39.4 95.9
Principal payments on long-term
obligations due within one year 7.0 6.3 7.3
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1,220.8 1,310.8 1,278.8
Long-term obligations (Note 6) 750.7 769.6 763.1
Accrued benefit liability (Note 14) 190.4 183.4 173.9
Other long-term liabilities 42.6 37.5 39.0
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2,204.5 2,301.3 2,254.8
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SHAREHOLDERS' EQUITY
Capital stock (Note 11) 458.5 458.6 458.8
Retained earnings 1,365.1 1,261.6 1,352.1
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1,823.6 1,720.2 1,810.9
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$ 4,028.1 $ 4,021.5 $ 4,065.7
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SEARS CANADA INC.
CONSOLIDATED STATEMENTS OF EARNINGS
For periods ended October 2, 2004 and September 27, 2003
Unaudited
(in millions, except 13 Week Period 39 Week Period
per share amounts) 2004 2003 2004 2003
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Total Revenues $ 1,497.3 $ 1,433.3 $ 4,315.4 $ 4,183.6
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Cost of merchandise sold,
operating, administrative
and selling expenses 1,419.6 1,352.6 4,101.1 3,953.3
Depreciation and
amortization 35.2 37.5 107.7 112.5
Interest expense, net 14.2 14.8 41.0 44.2
Unusual items - expense
(Note 7) 4.6 - 3.5 -
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Earnings before income
taxes 23.7 28.4 62.1 73.6
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Income taxes
Current 16.9 (25.1 ) 34.7 (14.1)
Future (7.2) 40.1 (11.7 ) 49.9
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9.7 15.0 23.0 35.8
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Net earnings $ 14.0 $ 13.4 $ 39.1 $ 37.8
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Earnings per share $ 0.13 $ 0.12 $ 0.37 $ 0.35
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Diluted earnings per share $ 0.13 $ 0.12 $ 0.36 $ 0.35
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CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For periods ended October 2, 2004 and September 27, 2003
Unaudited 13 Week Period 39 Week Period
(in millions) 2004 2003 2004 2003
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Opening Balance $ 1,364.4 $ 1,254.6 $ 1,352.1 $ 1,188.8
Adoption of new accounting
policy for Business
Combinations - - - 54.2
Net earnings 14.0 13.4 39.1 37.8
Dividends declared (6.4) (6.4) (19.2) (19.2)
Repurchase of shares
(Note 11) (6.9) - (6.9) -
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Closing Balance $ 1,365.1 $ 1,261.6 $ 1,365.1 $ 1,261.6
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CONSOLIDATED STATEMENTS OF CASH FLOWS
For periods ended October 2, 2004 and September 27, 2003
Unaudited 13 Week Period 39 Week Period
(in millions) 2004 2003 2004 2003
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CASH FLOW GENERATED FROM
(USED FOR) OPERATIONS
Net earnings $ 14.0 $ 13.4 $ 39.1 $ 37.8
Non-cash items included
in net earnings,
principally depreciation,
amortization and future
income taxes 42.8 75.4 119.2 182.0
Changes in non-cash
working capital balances
related to operations (44.6) 13.3 (161.9) (315.5)
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12.2 102.1 (3.6) (95.7)
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CASH FLOW GENERATED FROM
(USED FOR) INVESTMENT
ACTIVITIES
Purchases of capital
assets (51.1) (101.8) (93.9) (146.4)
Proceeds from sale of
capital assets 3.3 1.5 41.9 8.7
Charge account receivables (104.4) (15.4) 93.5 186.7
Deferred charges - 0.3 - -
Investments and other
assets 4.6 (0.7) (2.6) (10.6)
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(147.6) (116.1) 38.9 38.4
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CASH FLOW GENERATED FROM
(USED FOR) FINANCING
ACTIVITIES
Repayment of long-term
obligations (0.4) (0.4) (12.7) (1.1)
Share repurchase (9.3) - (9.3) -
Dividends paid (6.4) (6.4) (19.2) (19.2)
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(16.1) (6.8) (41.2) (20.3)
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DECREASE IN CASH AND
SHORT-TERM INVESTMENTS (151.5) (20.8) (5.9) (77.6)
CASH AND SHORT-TERM
INVESTMENTS AT BEGINNING
OF PERIOD 228.2 86.0 82.6 142.8
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CASH AND SHORT-TERM
INVESTMENTS AT END OF
PERIOD $ 76.7 $ 65.2 $ 76.7 $ 65.2
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Sears Canada Inc.
Notes to the Interim Consolidated Financial Statements
October 2, 2004
Unaudited 1. DISCLOSURE These interim consolidated financial statements (the "financial
statements") do not contain all disclosures required by Canadian
generally accepted accounting principles for annual financial statements
and, accordingly, the financial statements should be read in conjunction
with the most recently prepared annual financial statements for the
53 week period ended January 3, 2004. Figures for the 13 week and 39 week
periods ended October 2, 2004 and September 27, 2003 and the balances at
those dates are unaudited.
The Company's business follows a seasonal pattern, with merchandise sales
traditionally being higher in the fourth quarter than in other quarterly
periods due to consumer holiday buying patterns. As a result, a
disproportionate amount of total revenues is typically earned in the
fourth quarter. The business seasonality results in performance for the
39 week period ended October 2, 2004 which is not necessarily indicative
of performance for the balance of the year.
2. ACCOUNTING POLICIES These financial statements follow the same accounting policies and
methods of their application as the most recent annual financial
statements for the 53 week period ended January 3, 2004, except as
follows:
a) Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts The Company has adopted, on a prospective
basis, the new Canadian Institute of Chartered Accountants (CICA)
guidance regarding revenue recognition for separately priced
extended warranty and product maintenance contracts. The new
guidance requires companies to defer and recognize revenue and
incremental direct contract acquisition costs on a straight-line
basis over the life of the contract. This change in policy has had
no material effect on the Company's financial statements.
b) Impairment of Long-lived Assets Effective January 4, 2004, the
Company adopted the new recommendations of the CICA for impairment
of long-lived assets. The standard provides guidance on
recognizing, measuring and disclosing the impairment of long-lived
assets and replaces the previous standard regarding write-down
provisions. The Company will test for recoverability whenever
events or changes in circumstances indicate that the carrying
value of long-lived assets may not be recoverable. During the
first quarter, the Company applied this guidance to assets being
disposed of in connection with the restructuring of auto centres,
see Note 7.
c) Asset Retirement Obligations Effective January 4, 2004, the
Company adopted the new recommendations of the CICA for asset
retirement obligations. The standard focuses on the recognition
and measurement of legal obligations associated with the
retirement of property, plant and equipment when those obligations
result from the acquisition, construction, development or normal
operation of the asset. The adoption of this new standard has had
no material effect on the Company's financial statements.
d) Hedging Relationships Effective January 4, 2004, the Company
adopted the new recommendations of the CICA for hedging
relationships. This guidance deals with the identification,
documentation, designation and effectiveness of hedges. The
adoption of this new standard has had no material effect on the
Company's financial statements.
e) Accounting for consideration received from a vendor Effective August 15, 2004, the Company adopted the new
recommendations of the CICA regarding accounting for consideration
received from a vendor. The new guidance requires companies to
classify rebates as a reduction to the cost of inventory unless
the rebate clearly relates to the reimbursement of a specific
expense. Compliance with this standard was required retroactively
for all annual and interim periods ending after August 15, 2004.
As the new guidance is consistent with the Company's historical
policy, the adoption of this standard has had no material effect
on the Company's financial statements.
3. ACCOUNTS RECEIVABLE Details of accounts receivable are as follows: As at As at As at
October 2, September 27, January 3,
(in millions) 2004 2003 2004
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Customer accounts receivable
- current $ 1,742.7 $ 1,710.3 $ 2,101.4
Customer accounts receivable
- deferred $ 872.3 $ 853.4 $ 743.9
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Managed accounts 2,615.0 2,563.7 2,845.3
Less : Co-ownership held by
third parties (1,280.9) (1,422.5) (1,419.0)
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Co-ownership retained by the
Company 1,334.1 1,141.2 1,426.3
Less: long term portion of
deferred customer accounts
receivable (72.8) (69.3) (215.6)
Interest-only strip receivable
(Note 4) 21.6 21.7 26.3
Miscellaneous receivables 0.9 36.2 12.1
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Total $ 1,283.8 $ 1,129.8 $ 1,249.1
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The total credit losses on managed accounts, net of recoveries, for the
13 week and 39 week periods ended October 2, 2004 were $22.3 million
(2003 - $27.2 million) and $66.4 million (2003 - $76.6 million),
respectively.
Miscellaneous receivables includes the reduction to Customer accounts
receivable related to sales transacted for which the merchandise has yet
to be delivered.
4. TRANSFERS OF RECEIVABLES Securitization is an important financial vehicle which provides the
Company with access to funds at a low cost. The Company sells undivided
co-ownership interests in its portfolio of current and deferred charge
account receivables to three separate trusts and retains the right to
receive the income generated by the undivided co-ownership interests sold
to the trusts in excess of the trusts' stipulated share of service charge
revenues. The Company does not control the trusts and, therefore, these
financial statements do not include the assets, liabilities, and results
of operations of the trusts. The trusts have financed the purchase of the
co-ownership interests primarily through the issuance of debt to
independent third party investors totalling $1,280.9 million (2003 -
$1,422.5 million).
The undivided co-ownership interest is sold on a fully serviced basis and
the Company receives no fee for ongoing servicing responsibilities. The
Company receives proceeds equal to fair value for the assets sold and
retained rights to future cash flows arising after the investors in the
securitization trusts have received the return for which they contracted.
The co-owners have no recourse to the Company's retained interest in the
receivables sold other than in respect of amounts in the cash reserve
account (Note 5) and the interest-only strip receivable. The co-owners
have no recourse to the Company's other assets.
The Company recognized a pre-tax reduction in revenue of $3.7 million and
$2.7 million for the 13 and 39 week periods ended October 2, 2004,
respectively (2003 - pre-tax gain of $1.3 million and pre-tax reduction
in revenue of $0.7 million), related to the timing of recognition of
income on the sale of charge account receivables. As at October 2, 2004,
the interest-only strip receivable was recorded at $21.6 million (2003 -
$21.7 million). The following table shows the key economic assumptions
used in measuring the interest-only strip receivable. The table also
displays the sensitivity of the current fair value of residual cash flows
to immediate 10% and 20% adverse changes in yield, payment rate, net
charge-off rate and discount rate assumptions:
Effects of Adverse Changes (in millions) Assumptions 10% 20%
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Yield (annual rate) 24.52% $ 3.7 $ 7.4
Principal payment rate (monthly) 24.56% 3.1 5.7
Net charge-off rate (annual rate) 5.30% 0.7 1.5
Discount rate (annual rate) 12.00% - -
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The table below summarizes certain cash flows related to the transfer of
receivables:
13 Week 39 Week 13 Week 39 Week
Period Ended Period Ended Period Ended Period Ended
October 2, October 2, September 27, September 27,
(in millions) 2004 2004 2003 2003
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Proceeds from new
transfers $ 51.8 $ 438.8 $ 124.7 $ 214.5
Proceeds from
collections 352.4 1,231.5 175.3 561.6
Other cash flows
relating to
retained interests (3.9) 0.7 2.5 1.3
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5. INVESTMENTS AND OTHER ASSETS As at As at As at
October 2, September 27, January 3,
(in millions) 2004 2003 2004
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Unsecured debentures $ 41.8 $ 41.8 $ 41.8
Subordinated loans 3.4 2.2 1.8
Other term investments 4.5 4.8 4.3
Retained interest in transferred
receivables
- cash reserve account 29.7 21.5 28.9
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Total $ 79.4 $ 70.3 $ 76.8
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6. LONG-TERM OBLIGATIONS The Company's net cash interest payments in the 13 week and 39 week
periods ended October 2, 2004 were $12.4 million (2003 - $13.3 million)
and $38.4 million (2003 - $41.5 million), respectively. Interest expense
on long-term debt for the 13 week and 39 week periods ended October 2,
2004 amounted to $14.9 million (2003 - $15.2 million) and $44.6 million
(2003 - $45.7 million), respectively.
7. UNUSUAL ITEMS The Company recorded a pre-tax expense in the 13 week and 39 week periods
ended October 2, 2004 of $4.6 million (2003 - $Nil) and $3.5 million
(2003 - $Nil), respectively.
13 Week 39 Week
Period Ended Period Ended
October 2, October 2,
(in millions) 2004 2004
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Auto centre operations $ 0.4 $ (13.6)
Restructuring activities (5.0) (14.6)
Store closures - (2.4)
Sale of real estate joint venture - 16.0
Conversion of Eatons stores - 8.0
Sale of real estate - 3.1
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Total unusual items - expense $ (4.6) $ (3.5)
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Auto Centre Operations During the first quarter the Company entered into three separate
licensing and asset sale agreements with third parties ('the Licensees')
to assume the operation of 39 auto centres. Pursuant to these agreements,
the licensees will purchase the inventory and certain equipment related
to the auto centre operations and occupy and operate the premises. The
Company plans to close or convert for use in the merchandise operations
the remaining 13 locations. These activities are expected to be complete
by the end of fiscal 2004.
Details relating to this transaction are outlined in the table below: 13 Week 39 Week
Period Ended Period Ended
October 2, October 2,
(in millions) 2004 2004
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Severance expense $ 0.5 $ (9.5)
Non-cash impairment loss on long-lived
assets, primarily leasehold improvements - (2.0)
Other closure-related costs, net of liabilities
assumed by Licensees (0.1) (2.1)
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Total pre-tax (expense)/ gain $ 0.4 $ (13.6)
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The impairment loss is attributed to the restructuring transaction, and
relates to those assets that are unable to be sold or otherwise yield any
further service potential to the Company.
Details of the accrued liability related to this transaction are outlined
below:
Facility
Employee Closure & Accrued
(in millions) Severance Other Costs Liability
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Provision April 3, 2004 $ 8.2 $ 1.4 $ 9.6
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Cash payments (2.4) (0.2) (2.6)
Adjustments 1.8 2.1 3.9
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Provision July 3, 2004 $ 7.6 $ 3.3 $ 10.9
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Cash payments (4.4) (0.9) (5.3)
Adjustments (0.5) 0.1 (0.4)
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Provision October 2, 2004 $ 2.7 $ 2.5 $ 5.2
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Adjustments for the 13 week period ended July 3, 2004 primarily relate to
additional severance accrued in compliance with CICA Emerging Issues
Committee Abstract 134 and an increase in the accrual for environmental
remediation at certain auto centres.
During the 13 week period ended October 2, 2004, an adjustment was made
to the severance accrual to reflect the impact of re-deploying within the
Company, employees previously identified to be severed.
Restructuring Activities
A non-operating, pre-tax cash charge of $4.1 million and $13.7 million
and a non-cash charge of $0.9 million and $0.9 million were recorded in
the 13 and 39 week periods ended October 2, 2004, respectively. The
charges relate to severance payments as a result of restructuring certain
departments and positions to better align the corporate structure to
Sears strategic and productivity initiatives. Approximately $1.2 million
was paid during the third quarter ($8.7 million during the 39 week period
ended October 2, 2004).
Store Closures
During the second quarter of 2004, the Company incurred $2.4 million in
lease exit costs and non-cash fixed asset impairment charges relating to
the closure of a value centre and an outlet store. Both stores were
located in Ontario.
Sale of Real Estate Joint Venture
During the first quarter of 2004, a $14.6 million pre-tax gain was
recognized on the sale of the Company's interest in a joint venture.
During the second quarter the Company revised its estimate for expected
closure costs resulting in an increase to income of $1.4 million.
Conversion of Eatons Stores
A recovery of $8.0 million was recorded in the second quarter of 2004
relating to the reversal of the remaining accrued costs associated with
the conversion of the Eatons stores to the Sears banner. The conversion
expense of $180.0 million was originally recorded in fiscal 2002.
Sale of Real Estate
During the second quarter of 2004, the Company realized a pre-tax gain of
$3.1 million on the sale of real estate.
8. EARNINGS PER SHARE A reconciliation of the number of shares used in the earnings per share
calculation is as follows:
13 Week 13 Week 39 Week 39 Week
Period Ended Period Ended Period Ended Period Ended
October 2, September 27, October 2, September 27,
2004 2003 2004 2003
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Number Number Number Number
of shares of shares of shares of shares
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Average number of
shares per basic
earnings (loss)
per share
calculations 106,683,358 106,796,115 106,772,084 106,788,057
Effect of dilutive
options outstanding 422,637 278,047 412,344 273,987
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Average number of
shares per diluted
earnings (loss)
per share
calculation 107,105,995 107,074,162 107,184,428 107,062,044
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9. SEGMENTED INFORMATION Segmented Statement of Earnings 13 Week 13 Week 39 Week 39 Week
Period Ended Period Ended Period Ended Period Ended
October 2, September 27, October 2, September 27,
(in millions) 2004 2003 2004 2003
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Total revenues
Credit
Operating $ 105.8 $ 102.2 $ 323.9 $ 318.2
Securitization
gain/(loss) (3.7) 1.3 (2.7) (0.7)
Securitization
funding cost (17.5) (19.7) (57.5) (59.9)
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84.6 83.8 263.7 257.6
Merchandising 1,399.5 1,335.6 4,012.1 3,883.4
Real Estate Joint
Ventures 13.2 13.9 39.6 42.6
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Total revenues $ 1,497.3 $ 1,433.3 $ 4,315.4 $ 4,183.6
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Earnings before
interest and taxes
Credit
Operating $ 42.9 $ 29.9 $ 138.6 $ 120.6
Securitization
gain/(loss) (3.7) 1.3 (2.7) (0.7)
Securitization
funding cost (17.5) (19.7) (57.5) (59.9)
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21.7 11.5 78.4 60.0
Merchandising 14.0 24.2 7.6 35.0
Real Estate Joint
Ventures 6.8 7.5 20.6 22.8
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Earnings before
interest, unusual
items and taxes 42.5 43.2 106.6 117.8
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Interest expense,
net 14.2 14.8 41.0 44.2
Unusual items
- loss 4.6 - 3.5 -
Income tax expense 9.7 15.0 23.0 35.8
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Net earnings $ 14.0 $ 13.4 $ 39.1 $ 37.8
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Segmented Statement of Capital Employed(x) As at As at As at
October 2, September 27, January 3,
(in millions) 2004 2003 2004
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Merchandising $ 1,006.1 $ 1,169.5 $ 902.9
Credit 1,419.7 1,153.1 1,510.1
Real Estate Joint Ventures 155.5 173.5 168.3
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Total $ 2,581.3 $ 2,496.1 $ 2,581.3
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(x) Capital Employed represents total of long-term obligations, including
principal payments on long-term obligations due within one year, and
Shareholders' Equity.
Segmented Statement of Total Assets As at As at As at
October 2, September 27, January 3,
(in millions) 2004 2003 2004
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Merchandising $ 2,398.8 $ 2,665.4 $ 2,356.4
Credit 1,463.2 1,170.0 1,529.6
Real Estate Joint Ventures 166.1 186.1 179.7
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Total $ 4,028.1 $ 4,021.5 $ 4,065.7
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10. INCOME TAXES The Company's total net cash payments of income taxes in the 13 week and
39 week periods ended October 2, 2004 were $4.7 million (2003 - net cash
refund of $12.6 million) and $8.6 million (2003 - $5.7 million),
respectively.
11. CAPITAL STOCK 106,253,663 common shares were issued and outstanding as at October 2,
2004.
On March 4, 2004, the Company renewed its Normal Course Issuer Bid. Under
the renewed Normal Course Issuer bid, the Company may purchase for
cancellation up to 5% of its issued and outstanding common shares,
representing up to 5,340,405 of the issued and outstanding common shares.
The purchases were eligible to commence on March 4, 2004 and must
terminate by March 3, 2005, pursuant to the Notice of Intention filed
with the Toronto Stock Exchange. The price that the Company will pay for
any such common shares will be the open market price at the time of
acquisition.
The Company has renewed its agreement with Sears, Roebuck and Co.
("Sears Roebuck") pursuant to which Sears Roebuck may elect to sell to
the Company up to the number of common shares sufficient to ensure that
Sears Roebuck's percentage interest in the Company does not increase as a
result of the Company's purchases pursuant to the Normal Course Issuer
Bid. The price for such common share purchases from Sears Roebuck will be
the weighted average price at which the Company bought back shares during
the relevant quarter.
By purchasing common shares under the Normal Course Issuer Bid announced
on March 4, 2004, the Company intends to offset the dilutive effect of
common shares issued as equity-based compensation to associates and
directors. The Company may purchase additional common shares up to the
maximum stated if, in the opinion of management, the additional purchases
can be made on terms that enhance the value of the remaining common
shares.
During the quarter the Company purchased 573,301 common shares, (311,501
from Sears Roebuck), at a weighted average price of $16.22. The Company
did not purchase any common shares for cancellation during the first half
of 2004.
12. STOCK-BASED COMPENSATION During the quarter ended October 2, 2004, 50,000 tandem award stock
options were granted under the Employees Stock Plan (622,050 were granted
in the 39 week period ended October 2, 2004). The Company recognizes a
liability equal to the amount by which the market price of shares at the
end of the period exceeds the exercise price of the vested tandem awards.
Compensation expense of less than $0.1 million was recorded in the
13 week and 39 week periods ended October 2, 2004 (2003 - $0.1 million)
related to tandem awards.
During the quarter ended October 2, 2004, 25,000 Special Incentive shares
were awarded under the Employees Stock Plan (215,000 were awarded in the
39 week period ended October 2, 2004). Awards of shares under the Plan
are measured at fair value on grant date and expensed over the vesting
period. A compensation cost of $1.2 million and $2.1 million has been
recognized as an expense and credited to capital stock for the 13 and
39 week periods ended October 2, 2004, respectively. As at October 2,
2004, a total of 224,998 Special Incentive shares were awarded but
unearned under the Plan.
13. GUARANTEES The Company has provided the following significant guarantees to third
parties:
Sub-leases agreements
The Company has entered into a number of agreements to sub-lease premises
to third parties. The Company retains ultimate responsibility to the
landlord for payment of amounts under the lease agreements should the
sub-lessee fail to pay. The total future lease payments under such
agreements are $17.4 million.
Other indemnification agreements
In the ordinary course of business, the Company provides indemnification
commitments to counterparties in transactions such as leasing
transactions, royalty agreements, service arrangements, investment
banking agreements, securitization agreements and indemnification of
trustees under indentures for outstanding public debt. These
indemnification agreements require the Company to compensate the
counterparties for costs incurred as a result of change in laws and
regulations or as a result of litigation claims or statutory claims or
statutory sanctions that may be suffered by a counterparty as a
consequence of the transaction. The terms of these indemnification
agreements will vary based on the contract and typically do not provide
for any limit on the maximum potential liability. Historically, the
Company has not made any significant payments under such indemnifications
and no amount has been accrued in the financial statements with respect
to these indemnification commitments.
14. ASSOCIATE FUTURE BENEFITS Information about the Company's defined benefit plans are contained in
Note 8 of the annual financial statements for the 53 week period ended
January 3, 2004. The net benefit plan expense for the 13 week and 39 week
periods ended October 2, 2004 was $11.2 million (2003 - $8.5 million) and
$33.8 million (2003 - $25.6 million), respectively.
15. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the
current period's presentation.
VIEW ADDITIONAL COMPANY-SPECIFIC INFORMATION: http://www.newswire.ca/en/releases/orgDisplay.cgi?okey=58312 For further information: Media Relations Contact: Vincent C. Power, Sears Canada Inc., (416) 941-4422, vpower(at)sears.ca; Investor Relations Contact: Sean MacCormack, Sears Canada Inc., (416) 941-4372, sean.maccormack(at)sears.ca News release via Canada NewsWire, Toronto 416-863-9350 |
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