Sears Canada Reports Third Quarter Results

TORONTO, Nov. 18, 2014 /CNW/ - Sears Canada Inc. (TSX: SCC; NASDAQ: SRSC) today announced its unaudited third quarter results.  Total revenues for the 13-week period ended November 1, 2014 were $834.5 million compared to $982.3 million for the 13-week period ended November 2, 2013.  Same store sales decreased by 9.5%.  The balance of the decrease in revenues was 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 certain joint arrangement interests in Fiscal 2013.

The net loss for the third quarter of 2014 was $118.7 million or $1.16 per share compared to a net loss of $48.8 million or 48 cents per share for the third quarter of last year.  Included in the net loss for the third quarter of this year were pre-tax impairment charges of $44.4 million, compared to pre-tax impairment charges of $22.6 million for the third quarter of last year.  Also included in the net loss for the third quarter of this year was an income tax expense of $43.7 million compared to an income tax recovery of $16.7 million for the same quarter of last year.  The third quarter of 2014 also included pre-tax transformation expenses of $4.0 million compared to $20.2 million for the same quarter of last year as well as a pre-tax gain of $14.6 million related to the sale of the Company's interest in certain joint arrangements with no comparable gain in the same quarter last year.  Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the third quarter of this year was a loss of $19.4 million compared to adjusted EBITDA of $7.3 million for the third quarter of last year.

Total revenues for the 39-week period ended November 1, 2014 were $2,452.0 million compared to $2,809.5 million for the 39-week period ended November 2, 2013.   Same store sales decreased by 8.0%. The balance of the decrease in revenues was 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 certain joint arrangement interests in Fiscal 2013.

The net loss for the 39-week period of this year was $215.2 million or $2.11 per share compared to net earnings of $72.8 million or 71 cents per share for the 39-week period of last year.  This year's net loss included a $35.1 million pre-tax gain related to the sale of the Company's interest in certain joint arrangements and a $10.6 million pre-tax gain on the settlement of certain retirement benefits.  The 39-week period of this year also included pre-tax transformation expenses of $19.5 million compared to $21.7 million in the same period of last year, pre-tax impairment charges of $62.7 million compared to $22.6 million in the same period of last year, and a pre-tax charge of $6.6 million related to SHS warranty and other costs taken in the first quarter of this year.  The 39-week period of last year also included a $185.7 million pre-tax gain on lease terminations and lease amendments.  Adjusted EBITDA for the 39-week period ending November 1, 2014 was a loss of $93.6 million compared to adjusted EBITDA of $17.7 million for the 39-week period ending November 2, 2013.

"These results are disappointing, and the management team is focused on making Sears Canada successful first and foremost by building on its relationship with Canadians by providing great fashionable product made of high quality at affordable prices," said Ron Boire, Acting President and Chief Executive Officer, Sears Canada Inc.  "This is the value proposition that resonates best with our customers, and centers on the middle market where Sears can be most successful.  The Company has done well at managing expenses year to date and maintaining a strong balance sheet, and we are now working at growing our top line to have our sales match the high level of loyalty and support that Canadians have for the Sears brand.

"In my first few weeks on the job, I have been particularly impressed by the dedication of our 20,000 Sears associates and their determination to make the Company successful," added Mr. Boire.  "We are all working together to deliver the level of value and service that have made us successful for six decades while operating within an increasingly competitive retail marketplace."

Adjusted EBITDA is a non-IFRS measure; please refer to the table attached for a reconciliation of net (loss) earnings to Adjusted EBITDA.  Same store sales is a measure of operating performance used by management, the retail industry and investors to compare retail operations, excluding the impact of store openings and closures; please refer to the table attached for a reconciliation of total merchandising revenue to same store sales.

Forward Looking Statements

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 estimates reflected in such forward-looking information are 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 Company's inability to compete effectively in the highly competitive retail industry; weaker business performance in the fourth quarter; the ability of the Company to successfully implement its strategic initiatives; changes in consumer spending; ability to retain senior management and key personnel; ability of the Company to successfully manage its inventory levels; customer preference toward product offerings; the results achieved pursuant to the Company's credit card marketing and servicing alliance with JPMorgan Chase Bank, N.A. (Toronto Branch); ability to secure an agreement with a financial institution for the management of the credit and financial services operations on terms and conditions as favorable to us as those we currently have under our credit card marketing and servicing alliance with JPMorgan Chase; disruptions to the Company's computer systems; economic, social, and political instability in jurisdictions where suppliers are located; 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 Company's reliance on third parties in outsourcing arrangements; willingness of the Company's vendors to provide acceptable payment terms; the outcome of product liability claims; any significant security compromise or breach of the Company's customer, associate or Company information; the outcome of pending legal proceedings; compliance costs associated with environmental laws and regulations; maintaining adequate insurance coverage; seasonal weather patterns; ability to make, integrate and maintain acquisitions and investments; general economic conditions; liquidity risk and failure to fulfill financial obligations; fluctuations in foreign currency exchange rates; the credit worthiness and financial stability of the Company's licensees and business partners; possible limits on our access to capital markets and other financing sources; interest rate fluctuations and other changes in funding costs and investment income; the possibility of negative investment returns in the Company's pension plan or an increase to the defined benefit obligation; the impairment of intangible and other long-lived assets; the possible future termination of certain intellectual property rights associated with the "Sears" name and brand names if Sears Holdings Corporation ("Sears Holdings") reduces its interest in the Company to less than 10.0%; potential conflict of interest of some of directors and executive officers of the Company owing to their ownership of Sears Holdings' common stock; possible changes in the Company's ownership by Sears Holdings and other significant shareholders; productivity improvement and cost reduction initiatives and whether such initiatives will yield the expected benefits; competitive conditions in the businesses in which the Company participates; new accounting pronouncements, or changes to existing pronouncements, that impact the methods the Company uses to report our financial position and results from operations; uncertainties associated with critical accounting assumptions and estimates; 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 as well as under Section 3(k) "Risk Factors" in the Company's most recent AIF, Section 11 "Risks and Uncertainties" in the MD&A in the Company's most recent annual report and under Section 11 "Risks and Uncertainties" in the MD&A in the Company's most recent interim report and elsewhere in the Company's filings with Canadian and U.S. securities regulators.

All of the forward-looking statements included in this release are qualified by these cautionary statements and those made in the "Risk Factors" section of the Company's most recent AIF, in the "Risks and Uncertainties" section of the Company's most recent annual and interim MD&A, and the Company's other filings with Canadian and U.S. securities regulators. These factors are not intended to represent a complete list of the factors that could affect the Company; however, these factors should be considered carefully, and readers should not place undue reliance on forward-looking statements made herein or in our other filings with Canadian and U.S. 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 the Company's financial position and results of operations as well as the Company's objectives and strategic priorities, and may not be appropriate for other purposes. The Company does not undertake any obligation to update publically 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 174 corporate stores, 207 Hometown stores, over 1,300 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) EARNINGS TO ADJUSTED EBITDA
For the 13 and 39-week periods ended November 1, 2014 and November 2, 2013

Unaudited

SEARS CANADA INC.
RECONCILIATION OF TOTAL MERCHANDISING REVENUE TO SAME STORE SALES
For the 13 and 39-week periods ended November 1, 2014 and November 2, 2013

Unaudited

TABLE OF CONTENTS

SEARS CANADA INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Unaudited

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 and 39-week periods ended November 1, 2014 and November 2, 2013

Unaudited

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 and 39-week periods ended November 1, 2014 and November 2, 2013

Unaudited

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 and 39-week periods ended November 1, 2014 and November 2, 2013

Unaudited

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 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 17). Licensee fee revenue is comprised of payments received from licensees, including TravelBrands, that operate within the Company's stores. The Company was 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.

2. Significant accounting policies

2.1 Statement of compliance

The unaudited condensed consolidated financial statements of the Company for the 13 and 39-week period ended November 1, 2014 (the "Financial Statements") have been prepared in accordance with IAS 34, Interim Financial Reporting 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 39-week period ended November 1, 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 Assets and 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 and 39-week periods presented in these Financial Statements are for the periods ended November 1, 2014 and November 2, 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 21).

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 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.

In May 2014, the IASB issued new standards as follows:

In May 2014, the IASB issued amendments to a previously released standard as follows:

On December 16, 2011, the IASB issued amendments to a previously released standard as follows:

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 Notes 2 and 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:

The components of restricted cash and cash equivalents are further discussed in Note 18.

Interest income

Interest income related primarily to cash and cash equivalents for the 13 and 39-week period ended November 1, 2014 totaled $0.6 million and $2.0 million (2013: $0.8 million and $1.6 million), respectively. For the same 13 and 39-week periods, the Company received $0.4 million and $1.1 million (2013: $0.6 million and $1.7 million), respectively, in cash related to interest income.

6. Inventories

The amount of inventory recognized as an expense during the 13 and 39-week period ended November 1, 2014 was $499.0 million (2013: $565.4 million) and $1,487.6 million (2013: $1,604.9 million), respectively, which included $26.5 million (2013: $16.7 million) and $75.8 million (2013: $60.2 million) of inventory write-downs. These expenses were included in "Cost of goods and services sold" in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income. Reversals of prior period inventory write-downs for the 13 and 39-week period ended November 1, 2014 were $4.0 million (2013: $1.0 million) and $4.0 million (2013: $4.9 million), respectively.

Inventory is pledged as collateral under the Company's revolving credit facility (see Note 9).

7. Property, plant and equipment

During the 13 and 39-week period ended November 1, 2014, the Company undertook a comprehensive evaluation of its logistics network for current and future needs, given its changing warehousing requirements. Accordingly, the Company determined that the Montreal distribution centre ("MDC") may be considered for disposition. The Company determined the fair value of the MDC by engaging an independent qualified third party appraiser to conduct an appraisal of the property. The valuation methods used included the direct capitalization and discounted cash flow methods, and the direct sales comparison approach. A discount rate of 8.5% and a rate of inflation of 2.5% were applied to cash flow projections over a period of 10 years. The Company assessed various scenarios provided by the appraiser to determine a fair value. As a result of the carrying amount exceeding the recoverable amount of $44.3 million for the MDC, an impairment loss of $44.4 million was included in "Selling, administrative and other expenses" (2013: nil) in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income during the 13 and 39-week period ended November 1, 2014. The Company will continue to assess the recoverable amount of the MDC at the end of each reporting period and adjust the carrying amount accordingly. To determine the recoverable amount of the MDC, the Company will consider factors such as expected future cash flows, growth rates, capitalization rates and an appropriate discount rate to calculate the fair value.

During the 13-week period ended August 2, 2014, the Company recognized an impairment loss of $12.9 million (2013: nil) on a number of Sears Home stores and an impairment loss of $2.8 million (2013: nil) on a number of Hometown Dealer stores. The impairment loss was due to indicators (such as a decrease in revenue or decrease in cash flows) that the recoverable amount was less than the carrying value. The recoverable amounts of the cash generating units ("CGUs") tested were based on the present value of the estimated cash flow over the lease term for Sears Home stores and five years for Hometown Dealer stores. A pre-tax discount rate of 10.2% was based on management's best estimate of the CGUs' weighted average cost of capital considering the risks facing the CGUs. There was no significant impact from a one percentage point increase or decrease in the applied discount rate. There was no significant impact from a ten percentage point increase or decrease in estimated cash flows. The impairment loss of $15.7 million was included in "Selling, administrative and other expenses" in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income.

8. Goodwill

Goodwill was related to the Corbeil and HIPS CGUs. In the assessment of impairment, management used historical data and past experience as the key assumptions used in the determination of the recoverable amount. The Company completed a test for goodwill impairment during the 13-week period ended August 2, 2014.

The recoverable amount of the Corbeil CGU was determined based on its estimated fair value less costs to sell. The fair value was determined based on the present value of the estimated free cash flows over a 10 year period. Cost to sell was estimated to be 2% of the fair value of the business, which reflected management's best estimate of the potential costs associated with divesting of the business. A pre-tax discount rate of 10.2% per annum was used, based on management's best estimate of the Company's weighted average cost of capital adjusted for the risks facing the Corbeil CGU. Annual growth rates of 5% for the first 2 years and 2% for the subsequent 8 years were used for Corbeil given the CGU's historical growth experience and anticipated growth. The recoverable amount was determined to be less than the carrying value including the goodwill of $2.6 million related to the Corbeil CGU in the 13-week period ended August 2, 2014, resulting in a goodwill impairment of $2.6 million (2013: nil). Impairment losses were included in ''Selling, administrative and other expenses'' in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income. This impairment loss was attributable to revenue declines experienced in the Corbeil business.

During the 13-week period ended November 2, 2013, the recoverable amount of the HIPS CGU was determined to be less than the carrying value including the goodwill of $6.1 million allocated to the HIPS CGU resulting in a goodwill impairment of $6.1 million. Impairment losses were included in ''Selling, administrative and other expenses'' in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income. This impairment loss was attributable to experienced and potential revenue declines in the HIPS business (see Note 17).

9. Long-term obligations and finance costs

Long-term obligations

Total outstanding long-term obligations were as follows: 

The Company's debt consisted of a secured credit facility, 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.

On May 28, 2014, the Company announced that it had extended the term of the Credit Facility (the "Amended Credit Facility") to May 28, 2019 and reduced the total credit limit to $300.0 million. The Amended Credit Facility is secured with a first lien on inventory and credit card receivables. The Company incurred additional transaction costs of $1.0 million in the 13-week period ended August 2, 2014 related to the Amended Credit Facility.

Availability under the Amended Credit Facility is determined pursuant to a borrowing base formula, up to a maximum availability of $300.0 million. Availability under the Amended Credit Facility was $268.1 million as at November 1, 2014 (February 1, 2014: $374.0 million, November 2, 2013: $759.8 million). In 2013, as a result of judicial developments relating to the priorities of pension liability relative to certain secured obligations, the Company provided additional security to the lenders by pledging certain real estate assets as collateral, thereby partially reducing the potential reserve amount the lenders could apply. As at November 1, 2014, three properties in Ontario have been registered under the Amended Credit Facility. 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 of real estate assets pledged as additional collateral.

The Amended Credit Facility contains covenants which are customary for facilities of this nature and the Company was in compliance with all covenants as at November 1, 2014.

As at November 1, 2014, the Company had no borrowings on the Amended Credit Facility and had unamortized transaction costs associated with the Amended Credit Facility of $4.4 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", November 2, 2013: no borrowings and unamortized transaction costs of $4.8 million included in "Other long-term assets"). In addition, the Company had $31.9 million (February 1, 2014: $24.0 million, November 2, 2013: $24.2 million) of standby letters of credit outstanding against the Amended Credit Facility. These letters of credit cover various payment obligations. Interest on drawings under the Amended 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 Amended Credit Facility are due monthly and are added to principal amounts outstanding.

As at November 1, 2014, the Company had outstanding merchandise letters of credit of U.S. $7.8 million (February 1, 2014: U.S. $9.0 million, November 2, 2013: U.S. $6.7 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 24).

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 Amended Credit Facility for the 13 and 39-week period ended November 1, 2014 totaled $1.5 million (2013: $2.9 million) and $5.6 million (2013: $8.3 million), respectively. Interest expense is included in "Finance costs" in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income. Also included in "Finance costs" for the 13 and 39-week period ended November 1, 2014 was a recovery of nil and $0.1 million (2013: expense of $0.1 million and a recovery of $0.2 million), respectively, for interest on accruals for uncertain tax positions, and an expense of nil and $0.2 million (2013: nil), respectively, 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 and 39-week period ended November 1, 2014 totaled $0.9 million (2013: $2.4 million) and $4.1 million (2013: $6.7 million).

10. Capital stock and share based compensation

Capital stock

ESL Investments, Inc., and investment affiliates including Edward S. Lampert, collectively "ESL", form the largest shareholder of the Company, both directly through ownership in the Company, and indirectly through shareholdings in Sears Holdings ("Holdings"). Prior to October 16, 2014, Holdings was the controlling shareholder of the Company.

On October 15, 2014, Holdings announced the commencement of a rights offering for 40 million common shares of the Company. Each holder of Holdings' common stock received one subscription right for each share of Holdings' common stock held as of the close of business on October 16, 2014, the record date for the rights offering. Each subscription right entitled the holder to purchase their pro rata portion of the Company's common shares being sold by Holdings in the rights offering at a price of $10.60 per share. The rights offering is further described in a prospectus filed with securities regulators in Canada and the United States on October 15, 2014, and can be accessed through the System for Electronic Document Analysis and Retrieval ("SEDAR") website at www.sedar.com, and on the U.S. Securities Exchange Commission ("SEC") website at www.sec.gov.

In connection with the rights offering, the Company listed its common shares on the NASDAQ where the rights were also listed. The subscription rights expired at the close of business on November 7, 2014. ESL exercised their pro rata portion of the rights in full prior to November 1, 2014.

As at November 1, 2014, ESL was the beneficial holder of 47,565,723 or 46.7%, of the common shares of the Company (February 1, 2014: 28,158,368 or 27.6%, November 2, 2013: 28,158,368 or 27.6%). Holdings was the beneficial holder of 23,375,779 or 22.9%, of the common shares of the Company as at November 1, 2014 (February 1, 2014: 51,962,391 or 51.0%, November 2, 2013: 51,962,391 or 51.0%). The issued and outstanding shares are fully paid and have no par value.

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") and permitted the Company to purchase for cancellation its common shares. Purchases were allowed to commence on May 24, 2013 and were to be terminated by May 23, 2014. There were no share purchases made under the 2013 NCIB. The Company did not renew the Normal Course Issuer Bid subsequent to May 23, 2014.

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.

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. As at November 1, 2014, the only shares outstanding were common shares of the Company.

Share based compensation

During the 13-week period and 39-week period ended November 1, 2014, the Company granted 225,000 restricted share units ("RSUs") (2013: nil) to an executive under an equity-based compensation plan. For equity-settled awards, the fair value of the grant of RSUs is recognized as compensation expense over the period that the related service is rendered with a corresponding increase in equity. The total amount expensed is recognized over a three-year vesting period on a tranche basis, which is the period over which all of the specified vesting conditions are to be satisfied. At each balance sheet date, the estimate of the number of equity interests that are expected to vest is reviewed. The impact of any revision to original estimates is recognized in "Selling, administrative and other expenses" in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income.

These RSUs had a grant-date fair value of $1.9 million (2013: nil). The fair value of the grant was determined based on the Company's share price at the date of grant, and is entitled to accrue common share dividends equivalent to those declared by the Company, which would be settled by a grant of additional RSUs to the executive.

Compensation expense included in "Selling, administrative and other expenses" for the 13-week period and 39-week period ended November 1, 2014 related to RSUs was less than $0.1 million (2013: nil).

11. Revenue

The components of the Company's revenue were as follows:

12. 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 Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as at January 31. The most recent actuarial valuation of the pension plan for funding purposes is dated December 31, 2013, and was filed on June 30, 2014. An actuarial valuation of the health and welfare trust is performed at least every three years, with the last valuation completed as of January 31, 2014.

The expense for the defined benefit, defined contribution and other benefit plans for the 13-week period ended November 1, 2014 was $0.9 million (2013: $2.0 million), $1.5 million (2013: $2.1 million) and $2.1 million (2013: $2.7 million), respectively. The expense for the defined benefit, defined contribution and other benefit plans for the 39-week period ended November 1, 2014 was $2.7 million (2013: $6.0 million), $5.1 million (2013: $6.4 million) and $6.7 million (2013: $8.2 million), respectively. Not included in total retirement benefit plans expense for the 13 and 39-week period are short-term disability expenses of $1.1 million and $4.4 million (2013: $1.5 million and $5.8 million), respectively, 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) Earnings and Comprehensive (Loss) Income.

Total cash contributions by the Company to its defined benefit, defined contribution and other benefit plans for the 13 and 39-week period ended November 1, 2014 were $2.1 million and $20.3 million (2013: $10.6 million and $30.0 million), respectively, which included $13.8 million to settle acceptances from the non-pension retirement plan offer mentioned below during the 13-week period ended August 2, 2014.

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, effective January 1, 2015. In addition, the Company amended its pension plan for improvements that increase portability of associates' benefits, with effect March 1, 2014, and implemented fixed indexing at 0.5% per annum for eligible retirees, effective 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 39-week period ended November 1, 2014, the Company's defined benefit pension plan offered lump sum settlements to those terminated associates who previously elected to defer the payment of the defined benefit pension until retirement. The accepted offers were settled 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 incurred expenses of $0.8 million related to these offers, during the 13-week period ended May 3, 2014 and these expenses were included in "Selling, administrative and other expenses".  The Company paid $13.8 million to settle acceptances from the non-pension retirement plan offer and recorded a pre-tax gain of $10.6 million ($11.4 million settlement gain less fees of $0.8 million) during the 13-week period ended August 2, 2014 related to these offers. To determine the settlement gain, the non-pension retirement plan was remeasured as at the date of settlement, which also resulted in a $2.0 million increase to "Other comprehensive (loss) income, net of taxes" ("OCI").

13. Depreciation and amortization expense

The components of the Company's depreciation and amortization expense, included in "Selling, administrative and other expenses" in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income, were as follows:

14. Assets and liabilities classified as held for sale

On October 29, 2013, the Company announced the future closure of its Broad Street Logistics Centre located in Regina (''Broad Street''). Broad Street, including the adjacent vacant property which is owned by the Company, is being marketed for sale and if a buyer is identified that will purchase Broad Street at a price acceptable to the Company, then it 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. The Company will continue to assess the recoverable amount of Broad Street at the end of each reporting period and adjust the carrying amount accordingly. To determine the recoverable amount of Broad Street, the Company will consider factors such as expected future cash flows using appropriate market rental rates, the estimated costs to sell and an appropriate discount rate to calculate the fair value.

As at November 1, 2014 and February 1, 2014, the assets of Broad Street 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:

On November 11, 2013, the Company announced that it had reached a definitive agreement with Montez Income Properties Corporation ("Montez") to sell its 50% joint arrangement interest in the eight properties it owned with the Westcliff Group of Companies ("Westcliff") for cash consideration of approximately $315.0 million. The joint arrangement interest had a net carrying value of approximately $229.8 million as at November 2, 2013 (total assets of $251.0 million less total liabilities of $21.2 million). As at November 2, 2013, the assets of Broad Street and the assets and liabilities of the eight properties the Company owned with Westcliff were separately classified as held for sale on the Company's unaudited Condensed Consolidated Statements of Financial Position. The major classes of assets and liabilities classified as held for sale were as follows:

The carrying value of the property, plant and equipment and investment property of Broad Street was higher than the estimated fair value less costs to sell and, as a result, the Company recognized an impairment loss of $16.5 million in the 13 and 39-week period ended November 2, 2013. The Company determined fair value by engaging an independent qualified third party appraiser to conduct an appraisal of the land and building properties of Broad Street. The valuation method used to determine fair value was the direct sales comparison approach. Impairment losses were included in ''Selling, administrative and other expenses'' in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income.

The operations of Broad Street and Westcliff are not presented as discontinued operations on the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income as they do not represent a separate geographical area of operations or a separate major line of business.

15. Gain on lease terminations and lease amendments

On June 14, 2013, the Company announced its intention to enter into a series of transactions related to its leases on two properties: Yorkdale Shopping Centre (Toronto) and Square One Shopping Centre (Mississauga). The landlords approached the Company with a proposal to enter into a series of lease amendments for a total consideration of $191.0 million, being the amount the landlords were willing to pay for the right to require the Company to vacate the two locations.

On June 24, 2013, the Company received proceeds of $191.0 million upon closing of the transaction which gave the landlords the right to require the Company to vacate the two locations by March 31, 2014. The landlords exercised such right on July 25, 2013. The transaction resulted in a pre-tax gain of $185.7 million, net of legal costs and the de-recognition of leasehold improvements of $5.3 million.

The Company also granted the owners of the Scarborough Town Centre (Toronto) property an option to enter into certain lease amendments in exchange for $1.0 million, which was paid on June 24, 2013. The option may be exercised at any time up to and including June 20, 2018, and would require the Company to complete certain lease amendments in exchange for $53.0 million. Such lease amendments would allow the owners to require the Company to close its store. As of November 1, 2014, the option had not been exercised and was included in "Accounts payable and accrued liabilities" in the unaudited Condensed Consolidated Statements of Financial Position.

16. Gain on sale of interest in joint arrangements

During the 13 and 39-week period ended November 1, 2014, the Company sold its 15% joint arrangement interest in Les Galeries de Hull shopping centre ("Hull") that it co-owned with Ivanhoé, to Fonds de placement immobilier Cominar ("Cominar") for total proceeds of $10.5 million, recognizing a pre-tax gain of $3.4 million on the sale. The sale closed on September 30, 2014. In connection with this transaction, the Company determined that because the Company had surrendered substantially all of its rights and obligations and had transferred substantially all of the risks and rewards of ownership related to the property, immediate gain recognition was appropriate. Cominar had previously entered into an agreement to acquire Ivanhoé's 85% joint arrangement interest in Hull as announced on August 26, 2014. Following the sale, the Company continues to operate its store in the shopping centre on terms and conditions unchanged from those before the sale.

During the 13 and 39-week period ended November 1, 2014, the Company sold its 20% joint arrangement interest in Kildonan Place Shopping Centre ("Kildonan") that it co-owned with Ivanhoé, to H&R Real Estate Investment Trust for total proceeds of $27.7 million, recognizing a pre-tax gain of $11.2 million on the sale. The sale closed on September 17, 2014, pursuant to an agreement entered into on August 6, 2014. In connection with this transaction, the Company determined that because it had surrendered substantially all of its rights and obligations and had transferred substantially all of the risks and rewards of ownership related to the property, immediate gain recognition was appropriate. Following the sale, the Company continues to operate its store in the shopping centre on terms and conditions unchanged from those before the sale.

During the 13-week period ended August 2, 2014, the Company sold its 15% joint arrangement interest in Les Rivières Shopping Centre that it co-owned with Ivanhoé Cambridge II Inc. ("Ivanhoé") for total proceeds of $33.5 million, recognizing a pre-tax gain of $20.5 million on the sale. The sale closed on June 2, 2014, pursuant to an agreement entered into on May 16, 2014. In connection with this transaction, the Company determined that because it had surrendered substantially all of its rights and obligations and had transferred substantially all of the risks and rewards of ownership related to the property, immediate gain recognition was appropriate.

17. 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.

17.1 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 $313.7 million as at November 1, 2014 (February 1, 2014: $605.8 million, November 2, 2013: $315.6 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 third parties as a result of ongoing credit evaluations and review of accounts receivable collectability. As at November 1, 2014, one party represented 13.8% of the Company's net accounts receivable (February 1, 2014: one party represented 11.3% of the Company's accounts receivable, November 2, 2013: one party represented 12.3% of the Company's accounts receivable).

17.2 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 November 1, 2014:

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 November 1, 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.

17.3 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 November 1, 2014, there were forward contracts outstanding with a notional value of U.S. $130.0 million (February 1, 2014: U.S. $90.0 million, November 2, 2013: U.S. $195.0 million) and a fair value of $6.5 million included in "Derivative financial assets" (February 1, 2014: $7.2 million, November 2, 2013: $2.4 million) in the unaudited Condensed Consolidated Statements of Financial Position. These derivative contracts have settlement dates extending to April 2015. The intrinsic value portion of these derivatives has been designated as a cash flow hedge for hedge accounting treatment under IAS 39. 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 November 1, 2014, the designated portion of these hedges was considered by the Company to be 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) Earnings and Comprehensive (Loss) Income. Amounts previously included in OCI are reclassified to "Cost of goods and services sold" in the same period in which the hedged item impacts Net (Loss) Earnings.

During the 13 and 39-week period ended November 1, 2014, the Company recorded a loss of $1.7 million and a loss of $1.6 million (2013: loss of $0.5 million and a loss of $3.6 million), respectively, 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 0.8872 U.S. dollar to one Canadian dollar. A 10% appreciation or depreciation of the U.S. dollar and/or the Canadian dollar exchange rate was determined to have an after-tax impact on net (loss) earnings of $2.2 million for U.S. dollar denominated balances included in cash and cash equivalents, accounts receivable and accounts payable.

17.4 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 November 1, 2014, the Company had no interest rate swap contracts in place (February 1, 2014: nil, November 2, 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 Amended Credit Facility, when applicable, are subject to interest rate risk. The total subject to interest rate risk as at November 1, 2014 was a net asset of $235.6 million (February 1, 2014: net asset of $515.1 million, November 2, 2013: net asset of $239.5 million). An increase or decrease in interest rates of 25 basis points would cause an immaterial after-tax impact on net (loss) earnings for net assets subject to interest rate risk included in cash and cash equivalents and other long-term assets as at November 1, 2014.

17.5 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

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 unaudited Condensed Consolidated Statements of Financial Position as at November 1, 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 and promissory note) for the 39-week period ended November 1, 2014.

18. Contingent liabilities

18.1 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.

18.2 Commitments and guarantees

Commitments

As at November 1, 2014, cash and cash equivalents that were restricted represented cash and investments pledged as collateral for letter of credit obligations issued under the Company's offshore merchandise purchasing program of $11.3 million (February 1, 2014: $11.1 million, November 2, 2013: $8.3 million), which was the Canadian equivalent of U.S. $10.0 million (February 1, 2014: U.S. $10.0 million, November 2, 2013: U.S. $8.0 million).

The Company has certain vendors which require minimum purchase commitment levels over the term of the contract. Refer to Note 17.2 "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 $3.5 million as at November 1, 2014 (February 1, 2014: $3.5 million, November 2, 2013: $1.0 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.

19. Net (loss) earnings per share

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

"Net (loss) earnings" as disclosed in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income was used as the numerator in calculating the basic and diluted net loss per share. For the 13 and 39-week period ended November 1, 2014, there were no outstanding dilutive instruments. For the 13-week period ended November 2, 2013, the Company incurred a net loss and therefore all potential common shares were anti-dilutive. For the 39-week period ended November 2, 2013, 5,080 outstanding options were excluded from the calculation of diluted net (loss) earnings per share as they were anti-dilutive.

20. Income taxes

The Company's total net cash income taxes for the 13 and 39-week period ended November 1, 2014 was a refund of $1.6 million and payment $74.8 million (2013: payment of $12.0 million and $27.0 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 39-week period ended November 1, 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) Earnings and Comprehensive (Loss) Income as follows:

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 November 1, 2014, were receivables of $32.5 million (February 1, 2014: $32.5 million, November 2, 2013: $27.5 million) related to payments made by the Company for disputed tax assessments.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable earnings or loss.

Deferred tax liabilities are generally recognized for taxable temporary differences. Deferred tax assets are generally recognized for deductible temporary differences to the extent that it is probable that taxable income will be available, against which deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary differences arise from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable net earnings or loss nor the accounting income or loss.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and written down to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to be applicable in the period in which the liability is settled or the asset is realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, when they relate to income taxes levied by the same taxation authority and when the Company intends to settle its current tax assets and liabilities on a net basis. Deferred tax assets and liabilities are not discounted.

The tax effects of the significant components of temporary timing differences giving rise to the Company's net deferred tax assets  are as follows:

During the 13 and 39-week period ended November 1, 2014, the Company determined that a write down of the net deferred tax assets was required, as it was no longer probable that sufficient taxable income would be available to allow part of the asset to be recovered. In assessing the need for the write down, the Company considered that recent and anticipated profitability were lower than previously planned. The Company also considered the impact on the timing of the implementation of strategic initiatives to improve profitability due to recent senior management changes. In assessing the amount of the write down, the Company considered the seasonality of profits, which are disproportionately higher in the fourth quarter.

During the 13 and 39-week period ended November 1, 2014, the Company recognized a write down of the net deferred tax assets for $98.6 million (2013: nil). $65.9 million of this charge was included in "Deferred income tax (expense) recovery", and as a portion of the net deferred tax assets originated through equity, $32.7 million of this charge was included in "Other comprehensive (loss) income, net of taxes" in the Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income in accordance with IAS 12, Income Taxes. This accounting treatment has no effect on the Company's ability to utilize deferred tax assets to reduce future cash tax payments. The Company will continue to assess the likelihood that the deferred tax assets will be realizable at the end of each reporting period and adjust the carrying amount accordingly, by considering factors such as the reversal of deferred income tax liabilities, projected future taxable income, tax planning strategies and changes in tax laws.

21. 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 revenue 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.

21.1 Segmented statements of (loss) earnings

21.2 Segmented statements of total assets

21.3 Segmented statements of total liabilities

22. Changes in non-cash working capital balances

Changes in non-cash working capital balances were comprised of the following:

23. Changes in non-cash long-term assets and liabilities

Changes in non-cash long-term assets and liabilities were comprised of the following:

24. North Hill and Burnaby agreements

On June 16, 2014, the Company announced that it entered into a binding agreement with Concord Pacific Group of Companies ("Concord") to pursue the development of the 12-acre Sears site located at the North Hill Shopping Centre in Calgary, Alberta (the "North Hill Project"). Closing under the agreement is conditional upon satisfaction of conditions such as obtaining re-zoning approval from the City of Calgary for the North Hill Project, which management expects 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 $15.0 million, subject to adjustments, and the retention of Concord or its affiliates, on customary terms, to manage most facets of the development. The purchase price is to be satisfied 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 North Hill 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 North Hill 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. Concord would be responsible for arranging debt financing to develop the North Hill Project through the arrangement. On closing, Concord would also be jointly responsible for any costs incurred to remediate on-site environmental issues associated with the North Hill Project, through their interest in the arrangement, as contained in the environmental provision described in Note 16(vi) of the 2013 Annual Consolidated Financial Statements. The estimated cost to build out the North Hill Project into a residential development as contemplated, is currently $680.0 million. Completion of the North Hill 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.

On October 11, 2013, the Company announced that it entered into a binding agreement with 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 "Burnaby Project"). Closing under the agreement is conditional upon satisfaction of conditions such as obtaining the approval from the City of Burnaby for the Burnaby Project, which management expects 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 to be satisfied 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 Burnaby 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 Burnaby 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 would be responsible for providing debt financing to develop the Burnaby Project (which would, with certain exceptions, be subordinated to the long-term note held by the Company). The estimated cost to build out the Burnaby Project into a mixed-use residential, office and retail shopping centre development as contemplated, is currently in excess of $1.0 billion. Completion of the Burnaby 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 Burnaby Project, the Company entered into a demand mortgage for $25.0 million, secured by the Burnaby Project property. Interest on drawings under the mortgage is determined based on the prime rate plus a spread, and is due monthly. As at November 1, 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 November 1, 2014, Concord has borrowed $13.3 million against the available demand loan.

25. Event after the reporting period

On November 17, 2014, the Company and JPMorgan Chase announced that their credit card marketing and servicing alliance agreement will end on November 15, 2015. JPMorgan Chase will continue to perform under the agreement to at least November 15, 2015 and will have no obligation to do so after such date. The Company is currently in the process of considering available options with respect to the future management of the credit and financial services operations. In the event that a sale of the portfolio occurs, JP Morgan Chase has agreed to pay the Company up to $174.0 million, under certain circumstances. There is no assurance that such a transaction will be achieved or that the necessary circumstances for the payment will occur.

SOURCE Sears Canada Inc.