Sears Financial Statements

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2009 ANNUAL REPORT Sears Canada Inc.

TABLE OF CONTENTS

1 2 5 6 7 9 52 53 54 55

Financial Highlights/Common Share Market Information Letter to Our Shareholders Letter from the Chief Financial Officer Eleven Year Summary Quarterly Summary Management’s Discussion and Analysis Management’s Responsibility for Financial Statements Auditors’ Report Consolidated Statements of Financial Position Consolidated Statements of Earnings and Comprehensive Income / Consolidated Statements of Retained Earnings and Accumulated Other Comprehensive Income Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Directors and Officers Corporate Information

56 57 82 83

FINANCIAL HIGHLIGHTS
Fiscal 2009 Results for the year (in millions) Total revenues Interest expense, net Earnings before non-operating activities, unusual items and income taxes Non-operating activities Restructuring expense Unusual items – gain Income taxes Net earnings Year end position (in millions) Inventories Working capital Total assets Total long-term obligations, including principal payments on long-term obligations due within one year Shareholders’ equity Per share of capital stock Net earnings (basic reported) Net earnings (basic operating) Dividends declared Shareholders’ equity *

Restated 2008* $ 5,733.2 10.0 383.2 – (38.8) 131.3 290.7 $ 968.3 1,148.8 3,237.3

Comparable 2007** $ 5,844.9 11.5 376.7 – (82.2) 152.1 306.8 $ 879.7 739.8 2,974.7

$ 5,200.6 25.2 355.0 9.3 (1.9) 112.9 234.7 $ 852.3 1,114.7 3,404.8

350.7 1,657.5 $ $ $ 2.18 2.23 – 15.40 $ $ $

364.6 1,483.2 2.70 2.43 – 13.78 $ $ $

372.1 1,066.4 2.85 2.25 – 9.91

Restated 2008 represents the 52-week period ended January 31, 2009, adjusted for the new accounting standard issued under The Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3064, “Goodwill and Intangible Assets”. ** Comparable 2007 represents the 52-week period ended February 2, 2008, adjusted to reflect the change in fiscal year end; the adoption of the new accounting standards for inventories, goodwill and intangible assets and the reversal of the impact of the restatement resulting from the change to the Company’s financial instruments accounting policy choice regarding recognition of embedded derivatives.

COMMON SHARE MARKET INFORMATION
(Toronto Stock Exchange – Trading Symbol SCC)

First Quarter 2009 2008 High Low Close Average daily trading volume $ 21.54 $ 17.74 $ 19.96 56,805 $ 24.19 $ 19.00 $ 23.23 41,277

Second Quarter 2009 2008 $ 24.48 $ 18.86 $ 20.73 29,324 $ 25.20 $ 19.98 $ 20.20 39,925

Third Quarter 2009 2008 $ 22.41 $ 20.05 $ 22.15 22,488 $ 21.99 $ 15.22 $ 16.80 101,950

Fourth Quarter 2009 2008 $ 26.18 $ 22.00 $ 24.08 21,920 $ 20.39 $ 16.11 $ 20.39 45,049

Certain information in the accompanying “Letter to Our Shareholders” and “Letter from the Chief Financial Officer” is forward-looking and is subject to important risks and uncertainties, which are described in the “Cautionary Statement Regarding Forward-looking Information” on page 9 of this Annual Report. 2009 Annual Report 1

LETTER TO OUR SHAREHOLDERS
A Message from Dene Rogers, President and Chief Executive Officer

“Improving the Lives of Canadians”
2009 was a challenging year marked by a deep recession. The year began with the highest job losses since 1976 and the lowest consumer confidence index in almost three decades. Sears was prepared for the recession’s effect on sales and adjusted inventories accordingly, which were lowered by $116 million at year-end versus 2008. While same store sales were -6.8%, margins were flat to 2008 and expenses were $215.6 million less. Operating EBITDA declined 4.3% to $497.6 million, and the marginal rate to revenue of 9.57% was 50 basis points higher than 2008. Total revenues (MM) Same store sales Gross margin rate Operating EBITDA (MM) Cash, restricted cash, investments (MM) (Year-end) Cash to debt ratio 2009 $5,200.6 -6.8% 38.93% $497.6...
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