A N N UA L R E P ORT 2 0 12
C O R P O R AT E P R O F I L E
Le Château is a leading Canadian specialty retailer offering
contemporary fashion apparel, accessories and footwear
to style-conscious women and men. Our brand’s success
is built on quick identification of and response to fashion
trends through our design, product development and
vertically integrated operations.
Le Château brand name merchandise is sold exclusively
through our 235 retail locations, of which 234 are located
in Canada. In addition, the Company has 5 stores under
license in the Middle East and Asia. Le Château’s webbased marketing is further broadening the Company’s
customer base among Internet shoppers in both Canada
and the United States.
Le Château, committed to research, design and product
development, manufactures approximately 40% of the Company’s
apparel in its own Canadian production facilities.
2012 annual report
1
TORONTO - Sherway Gardens
QUEBEC - ST-BRUNO
TORONTO - Sherway Gardens
QUEBEC - ST-BRUNO
S T O R E S A N D S Q U A R E F O O TA G E
JA N UA RY 26, 2013
JANUARY 28, 2012
STORES
SQUARE FOOTAGE
STORES
SQUARE FOOTAGE
ONTARIO
79
430,890
79
414,175
QUEBEC
68
380,934
71
385,944
ALBERTA
29
174,118
30
179,530
BRITISH COLUMBIA
26
140,300
27
143,339
9
42,571
9
42,571
MANITOBA
NOVA SCOTIA
7
38,625
9
39,570
SASK ATCHEWAN
7
29,957
7
29,957
NEW BRUNSWICK
5
20,738
5
19,441
NEWFOUNDL AND
3
15,314
3
15,314
P.E.I.
1
3,480
1
3,480
234
1,276,927
241
1,273,321
1
5,027
2
10,927
235
1,281,954
243
1,284,248
TOTAL CANADA
TOTAL UNITED STATES
TOTAL LE CHÂTEAU STORES
SALES
(in ‘000)
SHAREHOLDERS’ EQUITY
(in ‘000)
350,000
200,000
300,000
160,000
250,000
120,000
200,000
150,000
80,000
100,000
40,000
50,000
0
0
10
11
12
10
11
12
NET EARNINGS (LOSS)
(in ‘000)
CASH FLOW FROM OPERATIONS
(in ‘000)
50,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
-5,000
40,000
30,000
20,000
10,000
0
-10,000
10
11
12
10
11
12
2012 annual report
3
FINANCIAL HIGHLIGHTS
FISCAL YEARS ENDED
January 26,
2013
January 28,
2012
January 29,
2011
January 30,
2010 (1)
Januar y 31,
2009 (1)
( 52 weeks)
( 52 weeks)
( 52 weeks)
( 52 weeks)
( 53 weeks)
Sales
274,827
302,707
319,039
321,733
345,614
Earnings (loss) before income taxes
Net earnings (loss)
• Per share - basic
(12,186 )
( 8,717)
( 0.34)
( 2,982)
( 2,386 )
( 0.10 )
27,566
19,557
0.79
43,246
29,837
1.23
57,706
38,621
1.56
( 0.34)
( 0.10 )
0.79
1.22
1.55
—
—
25,659
0.43
—
24,789
0.70
—
24,668
0.70
—
24,339
0.625
0.25
24,796
84,841
139,798
220,210
90,345
143,105
233,794
96,381
155,653
246,146
91,853
157,221
236,032
85,620
142,414
216,431
2.79
0.19
0.17:1
3.13
0.32
0.32:1
2.89
1.09
0.23:1
3.13
1.71
0.21:1
3.03
1.75
0.20 :1
6,602
9,237
235
1,281,954
252
(11,304)
23,755
243
1,284,248
277
8,074
26,969
238
1,221,795
311
41,643
20,075
230
1,145,992
335
41,821
21,467
221
1,047,529
385
RESULTS
• Per share - diluted
Dividends per share
• Ordinary
• Special
Average number of shares outstanding ( 000 )
FINANCIAL POSITION
Working capital
Shareholders’ equity
Total assets
FINANCIAL RATIOS
Current ratio
Quick ratio
Long-term debt to equity
( 2)
OTHER STATISTICS (units as specified)
Cash flow from operations (in ‘000 )
Capital expenditures (in ‘000 )
Number of stores at year-end
Square footage
Sales per square foot ( 3 )
SHAREHOLDERS’ INFORMATION
Ticker symbol: CTU. A
Listing : TSX
Number of participating shares outstanding
(as of May 30, 2013 ):
22 ,682 ,961 Class A Subordinate Voting Shares
4,560,000 Class B Voting Shares
Float: (4)
14,203,884 Class A Shares held by the public
As of May 30, 2013:
High /low of Class A Shares
(12 months ended May 30, 2013 ):
Recent price: Dividend yield: Price /book value ratio: Earnings (loss) per share (diluted):
Book value per share: ( 6 ) ( 5)
$4.30 / $1.10
$ 2.60
—%
0.49X
(1) The selected information presented for the years ended January 30, 2010 and
(4) Excluding shares held by officers and directors of the Company.
(5) For the year ended January 26, 2013.
January 31, 2009 do not reflect the impact of the adoption of IFRS.
$ ( 0.34)
$ 5.13
(2) Including capital leases and current portion of debt.
(6) As at January 26, 2013.
(3) Excluding Le Château outlet stores.
2012 annual report
5
MESSAGE TO SHAREHOLDERS
The retail clothing market remained challenging in 2012. Le Château continued to be affected by lingering recessionary
conditions, as consumers were cautious with their discretionary spending. In addition, with the emphasis placed on inventory
reduction, Le Château was impacted by lower average selling prices. The Company also rationalized operations with a net
closing of eight stores.
Sales for the fiscal year ended January 26, 2013 totaled $274.8 million, a decrease of 9.2% from the previous year.
Comparable store sales declined by 9.1%. Le Château’s EBITDA amounted to $12.7 million or 4.6% of sales, compared to
$20.2 million or 6.7% of sales in 2011. Net loss for the year came to $8.7 million or $(0.34) per share, compared to a net loss of
$2.4 million or $(0.10) per share in 2011.
During the year, in response to continuing uncertainty in the economy, the Company focused on efficiency enhancement in every
aspect of its operations. We implemented a cost saving plan that yielded more than $16.5 million in expense reductions.
During the second half of 2012 the Company saw an increasing number of its stores posting positive comparable sales
figures, and this momentum has been sustained in the early months of 2013. Several factors contributed to the positive shift in
comparable sales in upwards of 40% of our stores. They include product assortment improvements, some regional strengths,
the performance of new concept stores, and steady gains in the performance of top-tier performing stores.
Le Château’s new concept stores are consistent with the brand repositioning which we set in motion several years ago. Our
brand now emphasizes superior quality, European-style fashion designed to appeal to a wider demographic and support a higher
price point. The new stores provide an enhanced, more elegant experience for the customer through use of more sophisticated
materials, furniture and fixtures.
Le Château is looking ahead with confidence. We believe renewed growth will follow two principal paths. First, it should resume
in tandem with improvements in the general economy. Additionally, we expect to widen our market base and secure many new
customers as we realize the full potential of our brand repositioning and new concept stores.
In 2012, growth in sales from e-commerce surpassed expectations and should continue to expand in 2013. Accordingly, our
e-commerce initiative represents an ongoing opportunity to profitably expand the Company’s activities well beyond Canada, and
well beyond the traditional brick and mortar business model.
As well, the Company remains committed to the licensing model abroad, and expects to add four new stores this year under
licensee arrangements for a total of eight franchise stores.
We believe all of Le Château’s current initiatives will stimulate increased sales and contribute to shareholder value.
My sincere thanks to all employees of Le Château for their dedication to the Company, and to all our shareholders for their
confidence and support.
JANE SILVERSTONE SEGAL, B.A.LLL
Chairman and Chief Executive Officer
2012 annual report
7
MANAGEMENT’S DISCUSSION AND ANALYSIS
April 12, 2013
The 2012, 2011 and 2010 years refer, in all cases, to the 52-week periods ended January 26, 2013, January 28, 2012 and January 29, 2011,
respectively. Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the audited consolidated financial
statements and notes to the consolidated financial statements for the 2012 fiscal year of Le Château Inc. All amounts in this report and in
the tables are expressed in Canadian dollars, unless otherwise indicated.
The audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”),
as issued by the International Accounting Standards Board (“IASB”), and with the accounting policies included in the notes to the audited
consolidated financial statements for the year ended January 26, 2013.
Additional information relating to the Company, including the Company’s Annual Information Form, is available online at www.sedar.com.
SELECTED ANNUAL INFORMATION (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
2012
20112010
$
$$
(52 weeks)
(52 weeks)
(52 weeks)
Sales
274,827
302,707319,039
Earnings (loss) before income taxes
(12,186)
(2,982)
27,566
Net earnings (loss)
(8,717)
(2,386)
19,557
Net earnings (loss) per share
Basic
(0.34)
(0.10)
0.79
Diluted
(0.34)
(0.10)
0.79
Total assets
220,210
233,794
246,146
Long term debt (1)
24,134
45,46836,180
Dividends per share
—
0.43
0.70
Cash flow from (used for) operations (2)
6,602 (11,304)8,074
Comparable store sales decrease %
(9.1)%
(7.9)%
(4.2)%
Square footage of gross store space at year end
861,771
868,383
878,416
Regular stores
Outlet stores
420,183
415,865
343,379
Total
1,281,954
1,284,248
1,221,795
Number of stores at year end
Regular stores
187
194
198
Outlet stores
Total
48
235
49
243
Sales per square foot (in dollars) Regular stores
252
277
Outlet stores
125
139
(1)
(2)
40
238
311
152
Includes current and long-term portion of long-term debt.
After net change in non-cash working capital items related to operations.
2012 annual report
9
SALES
Comparable store sales, which are defined as sales generated by stores that have been open for at least one year, decreased 9.1% based
on the year ended January 26, 2013. Taking into account the 2 new stores and 10 closures, total sales for the year ended January 26, 2013
decreased 9.2% to $274.8 million, compared to $302.7 million for the year ended January 28, 2012.
Sales were negatively impacted throughout 2012 by several factors including: reduced store traffic as consumers remained cautious on
discretionary spending within a soft retail environment, lower average selling prices as a result of the emphasis on inventory reduction and
the net closure of eight stores when compared to 2011.
A positive trend was observed in the second of half of 2012 as an increasing number of regular stores presented positive comparable
sales over last year. This reflects product assortment improvements, some regional strengths, the performance of new concept stores and
momentum of top-tier performing stores.
In October 2011, the Company introduced the first new concept store in St-Bruno, Quebec. New concept stores are designed to provide an
elevated experience consistent with the evolving brand through more sophisticated materials, furniture and fixtures. A more spacious feel
showcases collections more compellingly and more comfortably. The new concept has now been rolled out to seven stores.
During the year, Le Château opened 2 new stores, and, as planned, closed 10 stores. As at January 26, 2013, the Company operated
235 stores (including 48 fashion outlet stores) compared to 243 stores (including 49 fashion outlets) at the end of the previous year. Total
floor space at the end of the year was 1,282,000 square feet compared to 1,284,000 square feet at the end of the preceding year.
Le Château’s vertically integrated approach makes it unique, as a major Canadian retailer that not only designs and develops, but also
manufactures its own brand name clothing. The Company currently manufactures approximately 40% of the Company’s apparel (excluding
footwear and accessories) in its state-of-the-art production facilities located in Montreal, which have long provided it with several key
competitive advantages – short lead times and flexibility; improved cost control; the ability to give its customers what they want, when they
want it; and allowing the Company to remain connected to the market throughout changing times.
TOTAL SALES BY DIVISION (IN THOUSANDS OF DOLLARS)
Ladies’ Clothing
Men’s Clothing
Footwear
Accessories
% CHANGE
2012
2011 20102012-20112011-2010
$$
$%%
(52 weeks)
(52 weeks)
(52 weeks)
158,609
50,386
27,422
38,410
172,221
53,360
31,480
45,646
185,490
53,128
32,865
47,556
274,827 302,707319,039
(7.9)
(5.6)
(12.9) (15.9) (9.2)
(7.2)
0.4
(4.2)
(4.0)
(5.1)
Ladies’ wear: The Ladies’ clothing division posted a sales decrease of 7.9%, accounting for 57.7% of total sales as compared to 56.9% the
previous year. Sales in the second half of the year point to strengthening consumer response to our improved product assortment with the
fourth quarter reporting an increase of 3.5% in comparable store sales. This improvement includes gains from the evolution of the casual
offering into a well-priced, higher quality coordinates business consistent with the new brand.
10
Menswear: Sales in the Men’s division decreased 5.6% and accounted for 18.3% of total sales compared to 17.6% last year. Despite
softness in the men’s market in the first part of the year, comparable store sales edged positively in the fourth quarter during the important
holiday period. The brand remains well positioned in its mission to become one of Canada’s leading provider of well-priced fashion suiting.
Footwear: Sales decreased 12.9% in 2012, accounting for 10.0% of total sales as compared to 10.4% the previous year. The fourth quarter
similarly witnessed an improving trend in this division as the deficit was reduced to a decline of 4.4% in comparable store sales. We remain
poised to benefit from the marketplace changes, and consumers demonstrating an increasing interest in the footwear offering of integrated
lifestyle brands.
Accessories: Sales in the Accessories division decreased 15.9% in 2012 and accounted for 14.0% of total sales compared to 15.1% last
year. Performance was affected by deliberate purchasing reduction as this division went through a year of re-alignment and re-adjustment.
Licensing: The Company is currently involved in several licensing arrangements with retail developers in the Middle East and in Asia to
expand the number of Le Château branded stores in the region. As at January 26, 2013, there were 11 stores under licensee arrangement
of which 8 are expected to be closed in the first half of 2013 based on a mutual agreement to terminate a master licensing agreement with
a partner. In March 2013, a second store was opened in Vietnam and the plan is to open another 4 stores in the Middle East and in Asia
before the end of the current fiscal year.
E-commerce: The e-commerce business with its cross channel capabilities exceeded expectations in 2012. While the contribution from
online sales remains a relatively small percentage of overall sales, the e-commerce platform continues to gain traction and is expanding
customer reach. Included in comparable store sales for the year ended January 26, 2013, online sales increased 93% compared to the same
period last year.
TOTAL SALES BY REGION (IN THOUSANDS OF DOLLARS)
Ontario Quebec
Prairies British Columbia
Atlantic
United States
% CHANGE
2012
2011 20102012-20112011-2010
$$
$%%
(52 weeks)
(52weeks)
(52weeks)
93,182
104,597
109,774
72,244 80,99085,401
61,482
62,064
65,202
32,370
36,851
38,908
14,401 16,34016,872
1,148
1,865
2,882
274,827 302,707319,039
(10.9)
(10.8)
(0.9)
(12.2)
(11.9)
(38.4)
(9.2)
2012 annual report
(4.7)
(5.2)
(4.8)
(5.3)
(3.2)
(35.3)
(5.1)
11
EARNINGS
Net loss for the 2012 year amounted to $8.7 million or $(0.34) per share (diluted), compared to a net loss of $2.4 million or $(0.10) per share
in 2011. Earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the year amounted to $12.7 million or 4.6% of
sales, compared to $20.2 million or 6.7% of sales last year. The decrease of $7.5 million in EBITDA for the 2012 year was primarily attributable
to a decline of $24.3 million in gross margin dollars offset by cost reduction initiatives in selling, general and administrative expenses of
$16.8 million. The decrease in gross margin dollars was the result of a 9.2% reduction in sales in 2012, combined with a decrease in
the Company’s gross margin percentage from 68.2% to 66.3%, due to increased promotional activity. The decrease in selling, general
and administrative expenses was mainly due to (a) a decrease of $8.3 million in store compensation costs resulting from operational
improvements, and (b) $5.8 million in non-recurring expenses incurred in 2011 associated with the temporary ramp-up in marketing
expenses to accelerate the brand repositioning efforts and start-up costs related to the e-commerce initiative, and offset by (c) an increase
in store occupancy costs of $1.4 million as a result of increases in occupancy rates.
Depreciation and amortization increased to $19.6 million from $19.4 million in 2011. Write-off and impairment of property and equipment
relating to store closures, store renovations and underperforming stores increased slightly to $2.1 million in 2012 from $2.0 million last year.
Finance income for 2012 decreased to $23,000 from $217,000 in 2011, primarily the result of lower balances in cash and cash equivalents
held by the Company as compared to last year.
Finance costs increased to $3.1 million in 2012 from $2.0 million in 2011, due to the increased use of the Company’s asset based credit
facility in 2012.
The income tax recovery of $3.5 million in 2012 represents an effective income tax recovery rate of 28.5%, compared to an income tax
recovery of $596,000 or 20.0% the previous year.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s liquidity follows a seasonal pattern based on the timing of inventory purchases and capital expenditures.
The Company’s bank indebtedness, net of cash and cash equivalents, amounted to $11.3 million as at January 26, 2013, compared with
cash and cash equivalents of $7.2 million as at January 28, 2012. Cash flows from operating activities amounted to $6.6 million in 2012,
compared with cash flow used for operating activities of $11.3 million the previous year. The increase of $17.9 million was primarily the result
of a decrease of $26.2 million in non-cash working capital requirements for the year, offset by (a) the higher net loss of $6.3 million for 2012
compared to 2011, and (b) an increase of $2.9 million in income tax recovery.
Long-term debt, including the current portion, decreased to $24.1 million in 2012 from $45.4 million in 2011, due to the repayment of
$16.3 million during 2012 and the conversion into share capital of a $5.0 million loan payable to a company directly controlled by a director.
As at January 26, 2013, the long-term debt to equity ratio decreased to 0.17:1 from 0.32:1 the previous year.
On April 25, 2012, the Company entered into a Credit Agreement for an asset based credit facility of $70.0 million, replacing its previous
credit facility of $22.0 million. The revolving credit facility is collateralized by the Company’s credit card accounts receivable and inventories,
as defined in the agreement. The facility has a term of 3 years and consists of revolving credit loans, which include both a swing line loan
facility limited to $15.0 million and a letter of credit facility limited to $15.0 million. The available borrowings bear interest at a rate based on
the Canadian prime rate, plus an applicable margin ranging from 0.75% to 1.50%, or a banker’s acceptance rate, plus an applicable margin
ranging from 2.0% to 2.75%. The Company is required to pay a standby fee ranging from 0.25% to 0.375% on the unused portion of the
revolving credit. The Credit Agreement requires the Company to comply with certain covenants, including restrictions with respect to the
payment of dividends and the purchase of the Company’s shares under certain circumstances. As at January 26, 2013, the Company had
drawn $13.6 million under this credit facility and in addition had an outstanding standby letter of credit totaling $500,000 which reduced
the availability under this credit facility. Financing costs related to obtaining the above facility have been deferred and netted against the
amounts drawn under the facility, and are being amortized over the term of the facility.
12
In addition, in September 2012, the Company renewed its import line of credit of $25.0 million which includes a $1.0 million loan facility. The
import line is for letters of credit which guarantee the payment of purchases from foreign suppliers. Amounts drawn under these facilities
are payable on demand and bear interest at rates based on the bank’s prime rate plus 0.50% for loans in Canadian and U.S. dollars. As at
January 26, 2013, the Company had outstanding letters of credit totaling $7.5 million. Aside from the outstanding letters of credit, no other
amounts were drawn under this loan facility.
Cash provided by operating activities was used in the following financing and investing activities:
1. Capital expenditures of $9.2 million, consisting of:
CAPITAL EXPENDITURES (IN THOUSANDS OF DOLLARS)
2012
$
2011
$
2010
$
New Stores (2 stores; 2011 – 6 stores; 2010 – 13 stores)
Renovated Stores (8 stores; 2011 – 19 stores; 2010 – 22 stores)
Information Technology
Warehousing Equipment
Other
1,102
3,853
5,195
6,102
12,896
13,584
1,276
2,660
5,196
396
2,534
1,582
361 1,8121,412
9,237
23,755
26,969
2. Long-term debt repayments of $16.3 million
The following table identifies the timing of contractual obligation amounts due after January 26, 2013:
CONTRACTUAL OBLIGATIONS (IN THOUSANDS OF DOLLARS)
Total
$
Less than
1 year
$
1-3
years
$
4-5
years
$
After
5 years
$
Long-term debt and finance
lease obligations
Operating leases (1)
24,134
229,680
9,844
13,442
848
—
45,314 78,695 53,21252,459
253,814
55,158
(1)
92,137
54,060
52,459
Minimum rentals payable under long-term operating leases excluding percentage rentals.
For 2013, the projected capital expenditures are between $10.0 to $10.5 million, of which $5.0 to $5.5 million is expected to be used for the
opening of 1 store and the renovation of 5 to 8 existing stores, with $5.0 million to be used for investments in information technology as well
as manufacturing and distribution centre enhancements. In 2013, the Company is planning to close 2 to 5 stores in Canada and expects its
total square footage to decline slightly to 1,265,000 square feet.
Management expects to be able to continue financing the Company’s operations and a portion of its capital expenditure requirements
through cash flow from operations and long-term debt as well as the asset backed credit facility of up to $70.0 million.
2012 annual report
13
Aside from the letters of credit outstanding, the Company did not have any other off-balance sheet financing arrangements as at
January 26, 2013.
FINANCIAL POSITION
Working capital amounted to $84.8 million as at January 26, 2013, compared to $90.3 million as at January 28, 2012.
Total inventories as at January 26, 2013 increased 3.3% to $123.2 million from $119.3 million as at January 28, 2012. Total finished goods
inventory at year end was up 3.3% in dollars and down 3.1% on a unit basis, year over year. The increase in carrying value is primarily
attributable to (a) higher average unit costs due to changes in product mix as a result of the Company’s investments in the higher value
men’s and ladies’ suiting and footwear categories, (b) weaker than expected sales experienced during 2012, and (c) an earlier Chinese New
Year resulted in the acceleration of import spring receipts by $1.8 million. For the year ended January 26, 2013, the Company recorded net
write-downs of inventory totalling $4.3 million, compared to $6.9 million the previous year.
As part of the Company’s inventory reduction plan, the Company continues to use 48 outlets (420,000 square feet) in its network to sell prior
season discounted merchandise. On-line selling of these goods was enabled in the first quarter of 2012 through an on-line outlet division.
Shareholders’ equity amounted to $139.8 million at year-end compared to $143.1 million the previous year. Book value per share amounted
to $5.13 as at January 26, 2013, compared to a book value per share of $5.77 as at January 28, 2012.
DIVIDENDS AND OUTSTANDING SHARE DATA
In 2012, the Company did not declare any dividends on the Class A subordinate voting and Class B voting shares (2011 - $0.43 per
share). The Company designated the dividends paid in 2011 to be eligible dividends pursuant to the Income Tax Act (Canada) and its
provincial equivalents.
As at April 12, 2013, there were 22,682,961 Class A subordinate voting and 4,560,000 Class B voting shares outstanding. Furthermore, there
were 2,255,700 options outstanding with exercise prices ranging from $1.44 to $13.25, of which 178,900 options were exercisable.
On September 20, 2012, a $5.0 million loan payable to a company that is directly controlled by a director was converted into 2,454,097 Class A
subordinate voting shares.
The Company did not purchase any Class A subordinate voting shares in 2012 pursuant to the normal course issuer bid announced on
July 7, 2011.
NON-GAAP MEASURES
In addition to discussing earnings measures in accordance with IFRS, this MD&A provides EBITDA as a supplementary earnings measure.
Depreciation and amortization includes write-off and impairment of property and equipment. EBITDA is provided to assist readers in
determining the ability of the Company to generate cash from operations and to cover financial charges. It is also widely used for valuation
purposes for public companies in our industry.
14
The following table reconciles EBITDA to loss before income tax recovery for the years ended January 26, 2013 and January 28, 2012:
20122011
(In thousands of dollars) $$
Loss before income tax recovery (12,186)(2,982)
Depreciation and amortization
19,574
19,364
Write-off and impairment of property and equipment
2,142
2,033
108
—
Loss on disposal of property and equipment
3,063
1,974
Finance costs (23)
(217)
Finance income EBITDA 12,67820,172
The Company also discloses comparable store sales which are defined as sales generated by stores that have been open for at least one year.
The above measures do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented
by other companies.
RELATED PARTY TRANSACTIONS
The consolidated financial statements include the financial statements of Le Château Inc. and its wholly-owned U.S. subsidiary, Château
Stores Inc, incorporated under the laws of the State of Delaware.
Key management of the Company includes the Chief Executive Officer, President and Vice-Presidents, as well as the non-executive
Directors. The compensation earned by key management in aggregate was as follows:
20122011
(In thousands of dollars) $$
Salaries and short-term benefits
Stock-based compensation
Termination benefits 3,067
161
142
2,814
211
—
3,3703,025
Companies that are directly or indirectly controlled by a director sublease real estate from the Company. Total amounts earned under the
sublease during the year amounted to $259,000 (2011 – $176,000).
Goods purchased during the year on behalf of companies that are directly or indirectly controlled by a director amounted to $85,000
(2011 – $94,000).
During the year ended January 28, 2012, the Company borrowed $10.0 million from a company that is directly controlled by a director of the
Company. During the third quarter of 2012, $5.0 million of the loan was converted into 2,454,097 Class A subordinate voting shares. The loan
amount outstanding as at January 26, 2013 was $5.0 million. For the year ended January 26, 2013, the Company recorded interest expense
of $614,000 (2011 – $56,000).
Amounts payable to related parties as at January 26, 2013 totalled $31,000 (2011 – $56,000).
These amounts are recorded at their exchange value and are made at terms equivalent to those that prevail in arms’ length transactions.
There are no guarantees provided or received with respect to these transactions.
2012 annual report
15
NEW STANDARDS NOT YET EFFECTIVE
IAS 1, “Presentation of Financial Statements”, has been amended to require entities to separate items presented in other comprehensive
income (“OCI”) into two groups, based on whether or not items may be recycled in the future. Entities that choose to present OCI items
before tax will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods
beginning on or after July 1, 2012 with earlier application permitted. The Company does not believe that this new standard will have a
material impact on the consolidated financial statements.
IFRS 9, “Financial Instruments”, partially replaces the requirements of IAS 39, “Financial Instruments: Recognition and Measurement”. This
standard is the first step in the project to replace IAS 39. The IASB intends to expand IFRS 9 to add new requirements for the classification
and measurement of financial liabilities, derecognition of financial instruments, impairment and hedge accounting to become a complete
replacement of IAS 39. These changes are applicable for annual periods beginning on or after January 1, 2015, with earlier application
permitted. The Company has not yet assessed the future impact of this new standard on its consolidated financial statements.
IFRS 13, “Fair Value Measurement”, is a comprehensive standard for fair value measurement and disclosure requirements for use across
all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a
liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value
measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring
fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. The Company does not
believe that this new standard will have a material impact on the consolidated financial statements.
CONTROLS AND PROCEDURES
In compliance with the Canadian Securities Administrators’ National Instrument 52-109 (“NI 52-109”), Certification of Disclosure in Issuers’
Annual and Interim Filings, the Company will file certificates signed by the Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”) that, among other things, report on the design and effectiveness of disclosure controls and procedures (“DC&P”) and the design
and effectiveness of internal controls over financial reporting (“ICFR”).
Disclosure controls and procedures
The CEO and the CFO have designed DC&P, or have caused them to be designed under their supervision, to provide reasonable assurance that
material information relating to the Company has been made known to them and has been properly disclosed in the annual regulatory filings.
As of January 26, 2013, an evaluation of the effectiveness of the Company’s DC&P, as defined in NI 52-109, was carried out under the
supervision of the CEO and CFO. Based on this evaluation, the CEO and the CFO concluded that the design and operation of these DC&P
were effective.
Internal controls over financial reporting
The CEO and CFO have designed ICFR, or have caused them to be designed under their supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS.
The CEO and CFO have evaluated whether there were changes to its ICFR during the year ended January 26, 2013 that have materially
affected, or are reasonably likely to materially affect, its ICFR. No such changes were identified through their evaluation.
As of January 26, 2013, an evaluation of the effectiveness of the Company’s ICFR, as defined in NI 52-109, was carried out under the
supervision of the CEO and CFO. Based on this evaluation, the CEO and the CFO concluded that the design and operation of these ICFR
were effective.
The evaluations were conducted in accordance with the framework and criteria established in Internal Control - Integrated Framework,
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), a recognized control model, and the
requirements of NI 52-109.
16
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements requires the Company to estimate the effect of various matters that are inherently uncertain as of
the date of the financial statements. Each of these required estimates varies in regard to the level of judgment involved and its potential
impact on the Company’s reported financial results. Estimates are deemed critical when a different estimate could have reasonably been
used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact the Company’s
financial condition, changes in financial condition or results of operations. The Company’s significant accounting policies are discussed in
notes 3 and 4 of the “Notes to Consolidated Financial Statements”; critical estimates inherent in these accounting policies are discussed in
the following paragraphs.
Inventory valuation
The Company records a provision to reflect management’s best estimate of the net realizable value of inventory which includes assumptions
and estimates for future sell-through of units, selling prices, as well as disposal costs, where appropriate, based on historical experience.
Management continually reviews the provision, to assess whether it is adequate, based on current economic conditions and an assessment
of sales trends.
Impairment of non-financial assets
Non-financial assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be
recoverable. A review for impairment is conducted by comparing the carrying amount of the cash generating unit’s (“CGU”) assets with their
respective recoverable amounts based on value in use. Value in use is determined based on management’s best estimate of expected future
cash flows, which includes estimates of growth rates, from use over the remaining lease term and discounted using a pre-tax weighted
average cost of capital.
Management is required to make significant judgments in determining if individual commercial premises in which it carries out its activities
are individual CGUs, or if these units should be aggregated at a district or regional level to form a CGU.
Deferred revenue
The Company measures the gift card liability and breakage income by estimating the value of gift cards that are not expected to be
redeemed by customers, based on historical redemption patterns.
Provisions
When a provision for onerous contracts is recorded, the provision is determined based on management’s best estimate of the present value
of the lower of the expected cost of terminating the contract and the expected net cost of operating under the contract. Assumptions and
estimates are made in relation to discount rates, the expected cost to terminate a contract and the related timing of those costs.
Stock-based compensation
The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at
the date on which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation
model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the
most appropriate inputs to the valuation model including the assumptions with respect to the expected life of the option, volatility and
dividend yield.
RISKS AND UNCERTAINTIES
The risks presented below are not exhaustive and are in addition to other risks mentioned herein or in Le Château’s publicly filed documents.
A more complete list of the risks and uncertainties can be found in the Company’s most recent Annual Information Form. Le Château
operates in a competitive and rapidly changing environment. New risk factors may emerge from time to time and it is not possible for
management to predict all such risk factors, nor can it assess the impact of all such risk factors on Le Château’s business.
2012 annual report
17
Business initiatives
The Company is implementing a re-alignment of all of its product categories under one clear, focused lifestyle brand targeting contemporary
fashion for today’s modern man and woman. There can be no guarantee that the business initiatives the Company is implementing to improve
its results will be successful, and if they do, there can be no guarantee as to the timing, duration or significance of such improvements.
Competitive and economic environment
Fashion is a highly competitive global business that is subject to rapidly changing consumer demands. In addition, there are several external
factors that affect the economic climate and consumer confidence over which the Company has no influence.
This environment intensifies the importance of in-store differentiation, quality of service and continually exceeding customer expectations,
thereby delivering a total customer experience. There is no effective barrier to entry into the Canadian apparel retailing marketplace by
any potential competitor, foreign or domestic, and in fact the Company has witnessed the arrival over the past few years of a number of
foreign-based competitors in virtually all of the Company’s Canadian retail sectors.
Changes in customer spending
The Company must anticipate and respond to changing customer preferences and merchandising trends in a timely manner. Although the
Company attempts to stay abreast of emerging lifestyle and consumer preferences affecting its merchandise, failure by the Company to
identify and respond to such trends could have a material effect on the Company’s business. Changes in customer shopping patterns could
also affect sales. The majority of the Company’s stores are located in enclosed shopping malls. The ability to sustain or increase the level of
sales depends in part on the continued popularity of malls as shopping destinations and the ability of malls, tenants and other attractions to
generate a high volume of customer traffic. Many factors that are beyond the control of the Company may decrease mall traffic, including,
economic downturns, closing of anchor department stores, weather, concerns of terrorist attacks, construction and accessibility, alternative
shopping formats such as e-commerce, discount stores and lifestyle centres, among other factors. Any changes in consumer shopping
patterns could adversely affect the Company’s financial condition and operating results.
General economic conditions and normal business uncertainty
Shifts in the economic health of the environment in which the Company operates – such as economic growth, inflation, exchange rates and
levels of taxation – can impact consumer confidence and spending and could also impact the Company’s ability to source products at a
competitive cost. Increases in the cost of raw materials (including cotton and other fabrics) could also impact the Company’s profitability.
Some other external factors over which the Company exercises no influence, including interest rates, personal debt levels, unemployment
rates and levels of personal disposable income, may also affect economic variables and consumer confidence.
Seasonality and other factors
The Company’s business is seasonal, as are most retail businesses. The Company’s results of operations depend significantly upon the
sales generated during some specific periods. Any material decrease in sales for such periods could have a material adverse effect upon
the Company’s profitability. The Company’s results of operations may also fluctuate as a result of a variety of other factors, including the
timing of new store openings and net sales contributed by new stores, the impact of new stores on existing stores within the same trade
area, changes in general traffic levels in its shopping centers, new store concepts, other retail channels, merchandise mix and the timing
and level of markdowns and promotions by competitors, as well as consumer shopping patterns and preferences.
Weather
Extreme changes in weather can affect the timing of consumer spending and may have an adverse effect upon the Company’s results
of operations.
18
Changes in the Company’s relationship with its suppliers
The Company is dependant, to a certain extent, on its suppliers’ support of the Company’s operations. The Company has no guaranteed
supply arrangements with its principal merchandising sources. Accordingly, there can be no assurance that such sources will continue to
meet the Company’s quality, style and volume requirements. In addition, should suppliers refuse or be unable to extend normal credit terms,
refuse to ship manufactured goods within a reasonable period of time or refuse to purchase goods to fill orders made by the Company, the
Company would have insufficient inventory for future seasons. The inability of the Company to obtain quality and fashionable merchandise
in a timely manner could have a material adverse effect on the Company’s business and the results of its operations.
Leases
All of the Company’s stores are held under long-term leases, except for the Company owned St. Jean street store in Quebec City. In
connection with the expiration of leases, the Company will have to renegotiate new leases, which could result in higher rental rates. Any
increase in retail rental rates would adversely impact the Company.
Foreign exchange
The Company’s foreign exchange risk mainly relates to currency fluctuations between the Canadian and U.S. dollar. In order to protect
itself from the risk of losses should the value of the Canadian dollar decline compared to the foreign currency, the Company uses
forward contracts to fix the exchange rate of a substantial portion of expected U.S. dollar requirements. The contracts are matched with
anticipated foreign currency purchases. As at January 26, 2013 the Company had $9.9 million of contracts outstanding to buy U.S. dollars
(2011 – $14.9 million). The Company only enters into foreign exchange contracts with Canadian chartered banks to minimize credit risk.
QUARTERLY RESULTS (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
The table below presents selected financial data for the eight most recently reported quarters. This unaudited quarterly information
has been prepared under IFRS. The operating results for any quarter are not necessarily indicative of the results to be expected for any
future period.
FIRST QUARTER
20122011 2012 201120122011 20122011 20122011
$$ $ $$$ $$ $$
SECOND QUARTER
THIRD QUARTER
FOURTH QUARTER
TOTAL
(13 weeks) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks) (52 weeks)
Sales
57,777 64,959
Earnings (loss)
before income taxes
72,514 84,810 63,736 70,412 80,800 82,526 274,827302,707
(9,072)
(4,039)
2,042
4,904
(5,565)
(5,833)
409
1,986
(12,186)
(2,982)
Net earnings (loss)
(6,532)
(2,869)
1,282
3,484
(3,625)
(4,143)
158
1,142
(8,717)
(2,386)
Net earnings (loss)
per share
Basic
(0.26) (0.12)
0.05
0.14 (0.14) (0.17)
0.01
0.05
(0.34) (0.10)
Diluted
(0.26) (0.12)
0.05
0.14 (0.14) (0.17)
0.01
0.05
(0.34) (0.10)
Retail sales are traditionally higher in the fourth quarter due to the holiday season. In addition, fourth quarter earnings results are usually
reduced by post holiday sale promotions.
Fourth quarter results
The Company recorded a sales decrease of 2.1% to $80.8 million for the fourth quarter ended January 26, 2013, compared with sales of
$82.5 million for the fourth quarter ended January 28, 2012. Comparable store sales decreased by 0.6% versus the same period a year ago.
Although the comparable store sales trend improved significantly in the fourth quarter when compared to the first nine months of 2012, store
traffic continued to be impacted by consumers remaining cautious with discretionary spending.
2012 annual report
19
Net earnings for the fourth quarter of 2012 amounted to $158,000 or $0.01 per share (diluted), compared to net earnings of $1.1 million
or $0.05 per share the previous year. EBITDA for the fourth quarter amounted to $7.1 million or 8.8% of sales, compared to $8.8 million
or 10.6% of sales last year. The decrease of $1.7 million in EBITDA for the fourth quarter was primarily attributable to the decrease of
$6.8 million in gross margin offset by cost reduction initiatives in selling, general and administrative expenses of $5.1 million. The Company’s
gross margin for the fourth quarter of 2012 decreased to 62.0% from 68.9% in 2011, due to increased promotional activity during the quarter
and due to the higher gross margin achieved in 2011 as a result of a larger proportion of sales from prior season goods at better than
expected recoveries.
Depreciation and amortization for the fourth quarter decreased to $4.8 million from $5.0 million last year, due to the reduced investments
in non-financial assets of $9.2 million in 2012 compared to $23.8 million in 2011. Write-off and impairment of property and equipment
relating to store closures, store renovations and underperforming stores amounted to $1.2 million in the fourth quarter of 2012, compared to
$1.3 million in 2011.
Cash flows from operating activities amounted to $19.2 million for the fourth quarter of 2012, compared to $6.3 million in 2011, mainly the
result of a decrease of $17.8 million in non-cash working capital requirements, offset by a decrease in income taxes refunded of $3.3 million.
OUTLOOK
The Company enters 2013 with confidence following the implementation of an important cost saving plan in 2012, which yielded more than
$16.5 million in expense reductions. Furthermore, in the second half of 2012, an increasing number of stores reported positive comparable
same store results. In the fourth quarter of 2012, approximately 40% of the Company’s regular stores reported positive comparable same
store results over the same period last year.
Over the years, Le Château has undergone several shifts in brand positioning and strategy to adapt to changes in demographics and
evolving competitive and market conditions. The most recent shift was set in motion more than five years ago with a clear and unwavering
focus on contemporary fashion for today’s modern man and woman. With the consumer responding well to our well-priced and better
quality fashion offering, our efforts must now be extended to enhance the omni-channel brand experience for our customer in-store, on-line
and in social media. These include continued roll out of new concept stores and investments in technology that enable full optimization of
all aspects of today’s marketplace.
The higher inventory levels remain one of the key issues still being addressed. As indicated last year, the retail outlet network footprint was
temporarily expanded to facilitate a reduction of inventory. Once the inventory returns to more normal levels, the retail outlet network will be
realigned to address more modest needs in terms of inventory clearance.
Throughout 2013 the Company will continue to carefully evaluate and monitor the performance of its network of stores. The Company is
planning to close 2 to 5 stores during the year. For 2013, the projected capital expenditures are between $10.0 to $10.5 million, of which
$5.0 to $5.5 million is expected to be used for the opening of 1 store and the renovation of 5 to 8 existing stores, with $5.0 million to be used
for investments in information technology as well as manufacturing and distribution centre enhancements.
In terms of new business opportunities, Le Château remains committed to the licensing model despite the setback involving a partner in
the Middle East (see the “Licensing” section). In March 2013, a second store was opened in Vietnam and the plan is to open another 4
stores in the Middle East and in Asia by the end of 2013. At the end of the current fiscal year, the Company expects to have under licensee
arrangements a total of eight franchised stores.
In October 2011, the Company introduced the first new concept store in St-Bruno, Quebec and has since rolled out this new concept to
seven stores. The Company expects to integrate the new concept into four additional stores this year.
Le Château’s e-commerce initiative represents a significant opportunity to profitably expand the Company’s activities well beyond Canada,
and well beyond a traditional business model that relied exclusively on brick and mortar locations. Growth in sales from e-commerce
surpassed expectations in 2012 and should remain healthy in 2013.
20
FORWARD-LOOKING STATEMENTS
This MD&A along with the Annual Report may contain forward-looking statements relating to the Company and/or the environment
in which it operates that are based on the Company’s expectations, estimates and forecasts. These statements are not guarantees of
future performance and involve risks and uncertainties that are difficult to predict and/or are beyond the Company’s control. A number of
factors may cause actual outcomes and results to differ materially from those expressed. These factors include those set forth in other
public filings of the Company. Therefore, readers should not place undue reliance on these forward-looking statements. In addition, these
forward-looking statements speak only as of the date made and the Company disavows any intention or obligation to update or revise any
such statements as a result of any event, circumstance or otherwise except to the extent required under applicable securities law.
Factors which could cause actual results or events to differ materially from current expectations include, among other things: the ability
of the Company to successfully implement its business initiatives and whether such business initiatives will yield the expected benefits;
competitive conditions in the businesses in which the Company participates; changes in consumer spending; general economic conditions
and normal business uncertainty; seasonal weather patterns; fluctuations in foreign currency exchange rates; changes in the Company’s
relationship with its suppliers; interest rate fluctuations; and changes in laws, rules and regulations applicable to the Company.
2012 annual report
21
MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL INFORMATION
The accompanying consolidated financial statements of Le Château Inc. and all the information in this annual report are the responsibility
of management.
The consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards.
When alternative accounting methods exist, management has chosen those it deems most appropriate in the circumstances. Financial
statements are not precise since they include certain amounts based on estimates and judgment. Management has determined such
amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly, in all material respects.
Management has prepared the financial information presented elsewhere in the Annual Report and has ensured that it is consistent with that
in the consolidated financial statements.
The Company maintains systems of internal accounting and administrative controls of high quality, consistent with reasonable cost. Such
systems are designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and the Company’s
assets are appropriately accounted for and adequately safeguarded.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately
responsible for reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally
through the Audit Committee which consists of three outside directors appointed by the Board. The Audit Committee meets quarterly
with management as well as with the independent external auditors to discuss internal controls over the financial reporting process,
auditing matters and financial reporting issues. The Audit Committee reviews the consolidated financial statements and the external
auditors’ report thereon and reports its findings to the Board for consideration when the Board approves the consolidated financial
statements for issuance to the Company’s shareholders. The Audit Committee also considers, for review by the Board and approval
by the shareholders, the engagement or re-appointment of the external auditors. The external auditors have full and free access to the
Audit Committee.
On behalf of the shareholders, the consolidated financial statements have been audited by Ernst & Young LLP, the external auditors, in
accordance with Canadian generally accepted auditing standards.
(Signed)(Signed)
Emilia Di Raddo, CPA, CA
Jane Silverstone Segal, B.A.LLL
President and Secretary
Chairman and Chief Executive Officer 22
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of
Le Château Inc.
We have audited the accompanying consolidated financial statements of Le Château Inc., which comprise the consolidated balance sheets
as at January 26, 2013 and January 28, 2012, and the consolidated statements of loss, comprehensive loss, changes in shareholders’ equity
and cash flows for the years ended January 26, 2013 and January 28, 2012, and a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Le Château Inc. as at
January 26, 2013 and January 28, 2012, and its financial performance and its cash flows for the years ended January 26, 2013 and January
28, 2012 in accordance with International Financial Reporting Standards.
1
Montreal, Canada
April 12, 2013
Ernst & Young LLP
1
CPA auditor, CA, public accountancy permit no. A120254
2012 annual report
23
Le Château Inc. Incorporated under the Canada Business Corporations Act
CONSOLIDATED BALANCE SHEETS
As at January 26, 2013 and January 28, 2012
[in thousands of Canadian dollars]
2013
$
2012
$
ASSETS
Current assets
Cash and cash equivalents [note 6]
1,783
7,193
Accounts receivable [note 5]
1,906
2,358
Income taxes refundable
3,211
2,137
Derivative financial instruments 215
129
Inventories [notes 5 and 7]
123,218
119,325
Prepaid expenses
1,890
1,564
Total current assets
Property and equipment [notes 8 and 12]
Intangible assets [note 9]
132,223
83,315
4,672
132,706
95,744
5,344
220,210
233,794
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Bank indebtedness [note 5]
13,034
—
20,718
21,820
Trade and other payables [note 10]
Deferred revenue
3,558
3,918
Current portion of provisions [note 11]
228
300
Current portion of long-term debt [note 12]
9,844
16,323
Total current liabilities
Long-term debt [note 12]
Provisions [note 11]
Deferred income taxes [note 14]
Deferred lease credits
47,382
42,361
14,290
29,145
530120
2,298
2,954
15,912
16,109
Total liabilities
80,412
90,689
Shareholders’ equity
Share capital [note 13]
42,740
37,729
Contributed surplus
2,664
2,328
Retained earnings
94,239
102,956
155
92
Accumulated other comprehensive income
Total shareholders’ equity
139,798
143,105
220,210
233,794
Contingencies, commitments and guarantees [notes 11, 18 and 24]
See accompanying notes­
On behalf of the Board:
[Signed]
[Signed]
Jane Silverstone Segal, B.A.LLL
Emilia Di Raddo, CPA, CA
DirectorDirector
24
CONSOLIDATED STATEMENTS OF LOSS
Years ended January 26, 2013 and January 28, 2012
[in thousands of Canadian dollars, except per share information]
2013 2012
$ $
Sales [note 20]
274,827 302,707
Cost of sales and expenses
Cost of sales [note 7]
92,565 96,145
155,561 168,035
Selling [note 8]
General and administrative [notes 8 and 9]
35,847 39,752
283,973 303,932
Results from operating activities
Finance costs
Finance income
(9,146)
3,063 (23)
(1,225)
1,974
(217)
Loss before income taxes
Income tax recovery [note 14]
(12,186)
(3,469)
(2,982)
(596)
Net loss
(8,717)
(2,386)
(0.34)
(0.34)
(0.10)
(0.10)
Weighted average number of shares outstanding
See accompanying notes
25,658,585 24,788,864
Net loss per share [note 17]
Basic
Diluted
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years ended January 26, 2013 and January 28, 2012
[in thousands of Canadian dollars]
2013 2012
$ $
Net loss
(8,717)
(2,386)
Other comprehensive income (loss)
Change in fair value of forward exchange contracts
223 (949)
Income tax recovery (expense)
(62)
275
161 (674)
Realized forward exchange contracts reclassified to net loss
Income tax recovery (expense)
(137)
39 1 196
(347)
(98)
849
Total other comprehensive income
63 175
Comprehensive loss
(8,654)
(2,211)
See accompanying notes
2012 annual report
25
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended January 26, 2013 and January 28, 2012
[in thousands of Canadian dollars]
2013 2012
$ $
SHARE CAPITAL
Balance, beginning of year
37,729 37,729
5,011 —
Issuance of subordinate voting shares upon conversion of long-term debt [note 19]
Balance, end of year
42,740 37,729
CONTRIBUTED SURPLUS
Balance, beginning of year
Stock-based compensation expense
2,328 336 2,006
322
Balance, end of year
2,664 2,328
RETAINED EARNINGS
Balance, beginning of year 102,956 116,001
(8,717)
(2,386)
Net loss
Dividends declared
—
(10,659)
Balance, end of year
94,239 (102,956)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of year
92 (83)
63 175
Other comprehensive income for the year
Balance, end of year
155 92
139,798
143,105
Total shareholders’ equity
See accompanying notes
26
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended January 26, 2013 and January 28, 2012
[in thousands of Canadian dollars]
2013 2012
$ $
OPERATING ACTIVITIES
Net loss
Adjustments to determine net cash from operating activities
Depreciation and amortization [notes 8 and 9]
Write-off and impairment of property and equipment [note 8]
Loss on disposal of property and equipment [note 8]
Amortization of deferred lease credits
Deferred lease credits
Stock-based compensation
Provisions
Finance costs
Finance income
Interest paid
Interest received
Income tax recovery
(8,717)
(2,386)
19,574 2,142 108 (1,285) 1,088 336 338 3,063 (23)
(2,863)
28
(3,469)
19,364
2,033
—
(1,127)
1,300
322
(1,054)
1,974
(217)
(1,998)
513
(596)
10,320 18,128
Net change in non-cash working capital items related to operations [note 21](5,774) (31,976)
Income taxes refunded
4,546
2,056 (13,848)
2,544
Cash flows related to operating activities
6,602 (11,304)
FINANCING ACTIVITIES
Proceeds of long-term debt
—
27,546
(16,323)
(18,258)
Repayment of long-term debt
Dividends paid
—
(14,997)
Cash flows related to financing activities
(16,323)
(5,709)
INVESTING ACTIVITIES
Decrease in short-term investments
—
30,300
Additions to property and equipment and intangible assets [notes 8 and 9]
(9,237) (23,755)
Proceeds from disposal of property and equipment [note 8]
514 —
Cash flows related to investing activities
(8,723)
6,545
Decrease in cash and cash equivalents, net of bank indebtedness
Cash and cash equivalents, net of bank indebtedness, beginning of year
(18,444)
7,193 (10,468)
17,661
Cash and cash equivalents, net of bank indebtedness, end of year
(11,251)
7,193
See accompanying notes
2012 annual report
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 26, 2013 and January 28, 2012
[Tabular amounts in thousands of Canadian dollars except per share amounts and where otherwise indicated]
1. CORPORATE INFORMATION
The consolidated financial statements of Le Château Inc. [the “Company”] for the year ended January 26, 2013 were authorized for issue
in accordance with a resolution of the Board of Directors on April 12, 2013. The Company is incorporated and domiciled in Canada and its
shares are publicly traded. The registered office is located in Montreal, Quebec, Canada. The Company’s principal business activity is the
retail of fashion apparel, accessories and footwear aimed at style-conscious women and men.
Retail sales are traditionally higher in the fourth quarter due to the holiday season. In addition, fourth quarter earnings results are usually
reduced by post holiday sale promotions.
2. BASIS OF PREPARATION
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards
[“IFRS”] as issued by the International Accounting Standards Board [“IASB”].
The consolidated financial statements have been prepared on a historical cost basis, except as disclosed in the accounting policies set out
in note 3.
The Company’s fiscal year ends on the last Saturday in January. The years ended January 26, 2013 and January 28, 2012 cover a 52-week
fiscal period.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. The financial statements of
the subsidiary are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany
transactions, balances and unrealized gains or losses have been eliminated. The Company has no interests in special purpose entities.
3. SIGNIFICANT ACCOUNTING POLICIES
Foreign currency translation
The consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the Company and its
subsidiary. The functional currency is the currency of the primary economic environment in which each entity operates.
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rates in effect as at the
balance sheet date. Non-monetary items that are measured in terms of historical cost denominated in a foreign currency are translated at
the rates prevailing at the initial transaction dates. Foreign currency transactions are translated into Canadian dollars using the exchange
rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in net
earnings, except when deferred in accumulated other comprehensive income as qualifying cash flow hedges.
Revenue recognition
Revenue from merchandise sales is net of estimated returns and allowances, excludes sales taxes and is recorded upon delivery to
the customer.
Gift cards or gift certificates [collectively referred to as “gift cards”] sold are recorded as deferred revenue and revenue is recognized at the
time of redemption or in accordance with the Company’s accounting policy for breakage. Breakage income represents the estimated value
of gift cards that is not expected to be redeemed by customers and is estimated based on historical redemption patterns.
Finance income
Interest income is recognized as interest accrues [using the effective interest method].
28
3. SIGNIFICANT ACCOUNTING POLICIES [Cont’d]
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that takes a substantial period of time to get
ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are recognized in the
consolidated statements of loss in the period during which they occur. Borrowing costs consist of interest and other costs that an entity
incurs in connection with the borrowing of funds. No borrowing costs have been capitalized by the Company as there are no assets which
take a substantial period of time to get ready for their intended use or sale.
Cash and cash equivalents
Cash consists of cash on hand and balances with banks. Cash equivalents are restricted to investments that are readily convertible into a
known amount of cash, that are subject to minimal risk of changes in value and which have a maturity of three months or less at acquisition.
Cash equivalents are carried at fair value.
Bank indebtedness
Financing costs related to obtaining the credit facility have been deferred and netted against the amounts drawn under the facility, and are
being amortized over the term of the facility.
Inventories
Raw materials, work-in-process and finished goods are valued at the lower of average cost, which include vendor rebates, and net realizable
value. Net realizable value is the estimated selling price of inventory in the ordinary course of business, less any estimated selling costs.
Property and equipment
Property and equipment are recorded at cost, net of accumulated depreciation and impairment losses, if any. Cost includes expenditures
that are directly attributable to the acquisition of the asset, including any costs directly related to bring the asset to a working condition for
its intended use. All repair and maintenance costs are recognized in the consolidated statement of loss as incurred.
Depreciation is charged to earnings on the following bases:
Building
Point-of-sale cash registers and computer equipment
Other furniture and fixtures
Automobiles
4% to 10% diminishing balance
5 years straight‑line
5 to 10 years straight‑line
30% diminishing balance
Leasehold improvements are depreciated on the straight‑line basis over the initial term of the leases, plus one renewal period, not to exceed
10 years.
Gains and losses arising on the disposal or derecognition of individual assets, or a part thereof, are recognized in the consolidated statement
of loss in the period of disposal.
The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively,
if appropriate.
Intangible assets
Intangible assets, consisting of software, are recorded at cost, net of accumulated amortization and impairment losses, if any. Intangible
assets are amortized on a straight-line basis over periods ranging from 3 to 5 years.
2012 annual report
29
3. SIGNIFICANT ACCOUNTING POLICIES [Cont’d]
Gains and losses arising on the disposal of individual intangible assets are recognized in earnings in the period of disposal.
The assets’ residual values, useful lives and methods of amortization are reviewed at each financial year end and adjusted prospectively,
if appropriate.
Impairment of non-financial assets
The Company assesses at each reporting date whether there is an indication that non-financial assets may be impaired. If any indication
exists, impairment is assessed by comparing the carrying amount of an asset or cash generating unit [“CGU”] with its recoverable amount,
which is the higher of the asset’s or CGU’s value in use or fair value less costs to sell. Value in use is based on expected future cash flows
from use, together with its residual value, discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. The fair value less costs to sell is the amount for which an asset or
related CGU can be sold in a transaction under normal market conditions between knowledgeable and willing contracting parties, less costs
to sell. Recoverable amount is determined for an individual asset, unless the asset does not generate largely independent cash inflows, in
which case the recoverable amount is determined for the CGU to which the asset belongs.
Based on the management of operations, the Company has defined each of the commercial premises in which it carries out its activities as
a CGU, although where appropriate these premises are aggregated at a district or regional level to form a CGU. Company assets which are
not clearly assignable under this scheme, for example, head office assets, are treated separately within the context of this general policy
according to their specific nature.
An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no
longer exist or may have decreased and if there has been a change in the assumptions used to determine the asset’s recoverable amount.
The reversal is limited to the extent that an asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortization, had no impairment loss been recognized.
Impairment losses and reversals are recognized in earnings during the year.
Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an
outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate,
the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a
finance cost.
A provision for onerous contract is recognized when the unavoidable costs of meeting the obligations under the contract exceed the
economic benefits expected to be received under the contract. The provision is determined based on the present value of the lower of the
expected cost of terminating the contract and the expected net cost of operating under the contract. Before a provision is established, the
Company recognizes any impairment loss on the assets associated with the contract.
Stock-based compensation
The fair value of stock-based compensation awards granted to employees is measured at the grant date using the Black Scholes option
pricing model. The value of the compensation expense is recognized over the vesting period of the stock options as an expense included in
general and administrative expenses, with a corresponding increase to contributed surplus in shareholders’ equity. The amount recognized
as an expense is adjusted to reflect the Company’s best estimate of the number of awards that will ultimately vest. No expense is recognized
for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting
irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied.
30
3. SIGNIFICANT ACCOUNTING POLICIES [Cont’d]
Any consideration paid by plan participants on the exercise of stock options is credited to share capital.
Store opening costs
Store opening costs are expensed as incurred.
Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net earnings except to the extent
that it relates to items recognized directly in equity or in other comprehensive income.
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered or paid. The
tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
The Company uses the liability method of accounting for deferred income taxes, which requires the establishment of deferred tax assets
and liabilities for all temporary differences caused when the tax bases of assets and liabilities differ from their carrying amounts reported in
the consolidated financial statements. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply
to the temporary differences when they reverse, based on tax rates that have been enacted or substantively enacted at the end of the
reporting period.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realized.
Government assistance
Government assistance, including investment tax credits and design tax credits, is recognized where there is reasonable assurance that the
assistance will be received. When the assistance relates to an expense item, it is recognized as income over the period necessary to match
the assistance on a systematic basis to the costs that it is intended to compensate.
Earnings per share
Basic earnings per share are calculated using the weighted average number of shares outstanding during the period.
The diluted earnings per share are calculated by adjusting the weighted average number of shares outstanding to include additional shares
issued from the assumed exercise of stock options, if dilutive. The number of additional shares is calculated by assuming that the proceeds
from such exercises are used to purchase common shares at the average market price for the period.
Leased assets
Leases are classified as either operating or finance, based on the substance of the transaction at inception of the lease. Classification is
re-assessed if the terms of the lease are changed.
Leases in which a significant portion of the risks and rewards of ownership are not assumed by the Company are classified as operating
leases. The Company carries on its operations in premises under leases of varying terms and renewal options, which are accounted for as
operating leases. Payments under an operating lease are recognized in net earnings on a straight-line basis over the term of the lease. When
a lease contains a predetermined fixed escalation of the minimum rent, the Company recognizes the related rent expense on a straight-line
basis and, consequently, records the difference between the recognized rental expense and the amounts payable under the lease as a
deferred lease credit. Contingent [sales-based] rentals are recognized as an expense when incurred.
2012 annual report
31
3. SIGNIFICANT ACCOUNTING POLICIES [Cont’d]
Tenant allowances are recorded as deferred lease credits and amortized as a reduction of rent expense on a straight-line basis over the
initial term of the leases, plus one renewal period, not to exceed 10 years.
Financial instruments
Financial instruments are recognized depending on their classification with changes in subsequent measurements being recognized in net
earnings or other comprehensive income [“OCI”].
The Company has made the following classifications:
•Cash and cash equivalents are classified as “Fair Value through Profit or Loss”, and measured at fair value. Changes in fair value are
recorded in net earnings.
•Short and long-term investments are classified as “Available-for-Sale”. After their initial fair value measurement, unrealized gains and
losses are recognized in OCI, except for impairment losses which are recognized immediately in net earnings. Upon derecognition of
the financial asset, the cumulative gains or losses previously recognized in accumulated other comprehensive income are reclassified to
net earnings.
•Accounts receivable are classified as “Loans and Receivables”. After their initial fair value measurement, they are measured at amortized
cost using the effective interest rate method.
•Bank indebtedness, trade and other payables and long-term debt are classified as “Other Financial Liabilities”. After their initial fair value
measurement, they are measured at amortized cost using the effective interest rate method.
The Company assesses at the end of each reporting period whether there is any objective evidence that a financial asset is impaired. A
financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that
has occurred after the initial recognition of the asset [an incurred “loss event”] and that loss event has an impact on the estimated future
cash flows of the financial asset or the group of financial assets that can be reliably estimated. The losses arising from an impairment are
recognized in net earnings as a finance cost.
Impairment losses on available-for-sale investment securities are recognized by transferring the cumulative loss that has been recognized
in equity to net earnings. The cumulative loss that is removed from other comprehensive income and recognized in net earnings is the
difference between the acquisition cost, net of any principal repayment and amortization, and the current fair value, less any impairment
loss previously recognized.
Hedges
The Company, in keeping with its risk management strategy, applies hedge accounting for its forward exchange contracts and designates
them as cash flow hedges. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship.
Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to
determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. In a cash
flow hedge relationship, the effective portion of the gains or losses on the hedged item is recognized directly in OCI, while the ineffective
portion is recorded in net earnings. The amounts recognized in OCI are reclassified to net earnings when the hedged item affects earnings.
Standards issued but not yet effective
IAS 1, “Presentation of Financial Statements”, has been amended to require entities to separate items presented in OCI into two groups,
based on whether or not items may be recycled in the future. Entities that choose to present OCI items before tax will be required to show
the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on or after July 1, 2012
with earlier application permitted. The Company does not believe that this new standard will have a material impact on the consolidated
financial statements.
32
3. SIGNIFICANT ACCOUNTING POLICIES [Cont’d]
IFRS 9, “Financial Instruments”, partially replaces the requirements of IAS 39, “Financial Instruments: Recognition and Measurement”. This
standard is the first step in the project to replace IAS 39. The IASB intends to expand IFRS 9 to add new requirements for the classification
and measurement of financial liabilities, derecognition of financial instruments, impairment and hedge accounting to become a complete
replacement of IAS 39. These changes are applicable for annual periods beginning on or after January 1, 2015, with earlier application
permitted. The Company has not yet assessed the future impact of this new standard on its consolidated financial statements.
IFRS 13, “Fair Value Measurement”, is a comprehensive standard for fair value measurement and disclosure requirements for use across
all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a
liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value
measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring
fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. The Company does not
believe that this new standard will have a material impact on the consolidated financial statements.
4. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions in the
application of the accounting policies, that affect the amounts reported in the consolidated financial statements and accompanying notes.
Estimates and assumptions are reviewed regularly and are based on historical experience and other factors including expectations of future
events. Actual results could differ from those estimates.
The judgments, estimates and assumptions which could result in a material adjustment to the carrying amount of assets and liabilities are
discussed below:
Inventory valuation
The Company records a provision to reflect management’s best estimate of the net realizable value of inventory which includes assumptions
and estimates for future sell-through of units, selling prices as well as disposal costs, where appropriate, based on historical experience.
Management continually reviews the provision, to assess whether it is adequate, based on current economic conditions and an assessment
of sales trends.
Impairment of non-financial assets
Non-financial assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be
recoverable. A review for impairment is conducted by comparing the carrying amount of the CGU’s assets with their respective recoverable
amounts based on value in use. Value in use is determined based on management’s best estimate of expected future cash flows, which
includes estimates of growth rates, from use over the remaining lease term and discounted using a pre-tax weighted average cost of capital.
Management is required to make significant judgments in determining if individual commercial premises in which it carries out its activities
are individual CGUs, or if these units should be aggregated at a district or regional level to form a CGU.
Deferred revenue
The Company measures the gift card liability and breakage income by estimating the value of gift cards that are not expected to be
redeemed by customers, based on historical redemption patterns.
2012 annual report
33
4. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS [Cont’d]
Provisions
When a provision for onerous contracts is recorded, the provision is determined based on management’s best estimate of the present value
of the lower of the expected cost of terminating the contract and the expected net cost of operating under the contract. Assumptions and
estimates are made in relation to discount rates, the expected cost to terminate a contract and the related timing of those costs.
Stock-based compensation
The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at
the date on which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation
model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the
most appropriate inputs to the valuation model including the assumptions with respect to the expected life of the option, volatility and
dividend yield.
5. CREDIT FACILITIES
On April 25, 2012, the Company entered into a Credit Agreement for an asset based credit facility of $70.0 million, replacing its previous
banking facility of $22.0 million. The revolving credit facility is collateralized by the Company’s credit card accounts receivable and inventories,
as defined in the agreement. The facility has a term of 3 years, and consists of revolving credit loans, which include both a swing line loan
facility limited to $15.0 million and a letter of credit facility limited to $15.0 million. The available borrowings bear interest at a rate based on
the Canadian prime rate, plus an applicable margin ranging from 0.75% to 1.50%, or a banker’s acceptance rate, plus an applicable margin
ranging from 2.00% to 2.75%. The Company is required to pay a standby fee ranging from 0.25% to 0.375% on the unused portion of the
revolving credit. The Credit Agreement requires the Company to comply with certain covenants, including restrictions with respect to the
payment of dividends and the purchase of the Company’s shares under certain circumstances. As at January 26, 2013, the Company had
drawn $13.6 million under this credit facility and in addition had an outstanding standby letter of credit totaling $500,000 which reduced the
availability under this credit facility.
In addition, in September 2012, the Company renewed its import line of credit of $25.0 million which includes a $1.0 million loan facility. The
import line is for letters of credit which guarantee the payment of purchases from foreign suppliers. Amounts drawn under these facilities
are payable on demand and bear interest at rates based on the bank’s prime rate plus 0.50% for loans in Canadian and U.S. dollars.
Furthermore, the terms of the banking agreement require the Company to meet certain non-financial covenants. As at January 26, 2013, the
Company had outstanding letters of credit totaling $7.5 million. Aside from the outstanding letters of credit, no other amounts were drawn
under this loan facility.
6. CASH AND CASH EQUIVALENTS
Cash and cash equivalents as at January 26, 2013 and January 28, 2012 consist of cash on hand and balances with banks.
7. INVENTORIES
January 26, 2013
January 28, 2012
$$
Raw materials
9,033
11,998
Work-in-process 2,7451,039
Finished goods
106,017
102,656
Finished goods in transit
5,423
3,632
123,218119,325
34
7. INVENTORIES [Cont’d]
The cost of inventory recognized as an expense and included in cost of sales for the year ended January 26, 2013 is $92.6 million
[2012 – $96.1 million], including write-downs recorded of $6.8 million [2012 – $9.3 million], as a result of net realizable value being lower than
cost and reversals of inventory write-downs recognized in prior periods of $2.5 million [2012 – $2.4 million].
8. PROPERTY AND EQUIPMENT
Point‑of‑
sale cash
registers
Other
Leasehold
and furniture
Land and
improve-
computer
and
Auto-
building ments equipment fixtures mobiles
$
$
$
$
$
Total
$
Cost
Balance, January 28, 2012
1,651 74,451
9,298
84,110
197169,707
Acquisitions
Disposals
— 4,671
(661) (2,929)
Balance, January 26, 2013
990
Accumulated depreciation and impairment
Balance, January 28, 2012
785 28,989
6,680 37,396
11373,963
Depreciation Impairment
Disposals
24
8,079
— 577
(39) (2,782)
970
8,753
—
788
(1,937) (3,311)
27
17,853
—1,365
(16)(8,085)
Balance, January 26, 2013
770 34,863
5,713 43,626
12485,096
76,193
226 3,279
(1,954) (3,921)
7,570
83,468
128,188
(19)(9,484)
190168,411
Net carrying value
Balance, January 28, 2012
866
45,462
2,618
46,714
84
95,744
Balance, January 26, 2013
220 41,330
1,857 39,842
6683,315
An amount of $7.5 million [2012 – $7.5 million] of the leasehold improvements and furniture and fixtures is held under finance lease.
Accumulated depreciation relating to this property and equipment amounts to $1.4 million [2012 – $588,000].
Property and equipment with a net book value of $885,000 [2012 – $1.2 million] were written-off during the year. The cost of this property
and equipment amounted to $9.5 million [2012 – $8.8 million] with accumulated depreciation of $8.1 million [2012 – $7.6 million] and
proceeds received of $514,000. This property and equipment was primarily related to leasehold improvements and furniture and fixtures,
which are no longer in use as a result of store renovations and closures.
Included in property and equipment are fully depreciated assets still in use with an original cost of $4.3 million [2012 – $4.3 million].
2012 annual report
35
8. PROPERTY AND EQUIPMENT [Cont’d]
Depreciation for the year is reported in the consolidated statement of loss as follows:
January 26, 2013
January 28, 2012
$$
Selling expenses
General and administrative expenses
14,621
3,232
14,466
3,302
17,85317,768
During the year ended January 26, 2013, an assessment of impairment indicators was performed which caused the Company to review
the recoverable amount of the property and equipment for certain CGU’s with an indication of impairment. The CGU’s reviewed included
non-performing stores that no longer met the Company’s criteria for the brand repositioning.
An impairment loss of $1.4 million [2012 – $846,000] related to store leasehold improvements and furniture and fixtures was determined
by comparing the carrying amount of the CGU’s assets with their respective recoverable amounts based on value in use and is included in
selling expenses in the consolidated statement of loss. Value in use was determined based on management’s best estimate of expected
future cash flows from use over the remaining lease terms, considering historical experience as well as current economic conditions, and
was then discounted using a pre-tax weighted average cost of capital of 17.4% [12.5% after-tax].
9. INTANGIBLE ASSETS
Accumulated
Net carrying
Costamortization
values
$ $$
Balance, January 28, 2012
Acquisitions
Amortization
Disposals
Balance, January 26, 2013
15,51810,1745,344
1,049
—1,049
— 1,721(1,721)
(10)(10) —
16,55711,885 4,672
Amortization for the year is reported in the consolidated statement of loss under general and administrative expenses.
Included in intangible assets are fully depreciated assets still in use with an original cost of $7.7 million [2012 – $7.2 million].
10. TRADE AND OTHER PAYABLES
January 26, 2013
January 28, 2012
$$
Trade payables
Other non-trade payables due to related parties
Other non-trade payables
Accruals related to employee benefit expenses
11,250
31
4,223
5,214
12,505
56
3,492
5,767
20,71821,820
36
11. PROVISIONS
$
Balance, January 28, 2012
420
Arising during the year
672
Reversed during the year
(70)
Amortization(264)
Balance, January 26, 2013
Less: current portion
758
(228)
530
Onerous contracts
Provisions for onerous contracts have been recognized in respect of store leases where the unavoidable costs of meeting the obligations
under the lease agreements exceed the economic benefits expected to be received from the contract. The provision was determined based
on the present value of the lower of the expected cost of terminating the contract and the expected net cost of operating under the contract.
Contingent liabilities
In the normal course of doing business, the Company is involved in various legal actions. In the opinion of management, potential liabilities
that may result from these actions are not expected to have a material adverse effect on the Company’s financial position or its results
of operations.
12. LONG-TERM DEBT
January 26, 2013
January 28, 2012
$
$
5.30% Specific Security Agreement, payable monthly
over 60 months, maturing February 7, 2012
5.89% Specific Security Agreement, payable monthly
over 36 months, maturing October 30, 2012
5.18% Specific Security Agreement, payable monthly
over 60 months, maturing February 15, 2013
4.70% Specific Security Agreement, payable monthly
over 48 months, maturing December 16, 2014
4.45% Specific Security Agreement, payable monthly
over 48 months, maturing March 23, 2015
7.5% Unsecured loan from a related party, payable monthly
over 36 months starting February 1, 2013,
maturing January 31, 2016 [note 19]
4.12% Obligation under finance lease, payable monthly
over 60 months, maturing October 31, 2016
—
310
—
4,435
340
4,304
7,539
11,211
5,650
8,080
4,98910,000
5,616
7,128
Less: current portion
24,134
9,844
45,468
16,323
14,290
29,145
2012 annual report
37
12. LONG-TERM DEBT [Cont’d]
The secured loans are collateralized by property and equipment, with a net carrying value of $27.9 million as at January 26, 2013, acquired
with the long-term debt proceeds.
The finance lease agreement includes a purchase option for a nominal amount.
Principal repayments are due as follows:
Loans
payable
$
Obligation
under finance
lease
$
Total
$
Within one year
After one year but not more than five years
8,269
10,249
1,575
4,041
9,844
14,290
18,518
5,616
24,134
The balance of minimum lease payments is as follows:
Future
minimum
Less
lease payments
interest
$
$
Present value
of future
minimum
lease payments
$
Within one year
After one year but not more than five years
1,777
4,259
202
218
1,575
4,041
6,036
420
5,616
13. SHARE CAPITAL
Authorized
An unlimited number of non-voting first, second and third preferred shares issuable in series, without par value
An unlimited number of Class A subordinate voting shares, without par value
An unlimited number of Class B voting shares, without par value
Principal features
[a]With respect to the payment of dividends and the return of capital, the shares rank as follows:
First preferred
Second preferred
Third preferred
Class A subordinate voting and Class B voting
38
13. SHARE CAPITAL [Cont’d]
[b]Subject to the rights of the preferred shareholders, the Class A subordinate voting shareholders are entitled to a non-cumulative
preferential dividend of $0.0125 per share, after which the Class B voting shareholders are entitled to a non-cumulative dividend
of $0.0125 per share; any further dividends declared in a fiscal year must be declared and paid in equal amounts per share on all the
Class A subordinate voting and Class B voting shares then outstanding without preference or distinction.
[c]Subject to the foregoing, the Class A subordinate voting and Class B voting shares rank equally, share for share, in earnings.
[d]The Class A subordinate voting shares carry one vote per share and the Class B voting shares carry 10 votes per share.
[e]The Articles of the Company provide that if there is an accepted or completed offer for more than 20% of the Class B voting shares or
an accepted or completed offer to more than 14 holders thereof at a price in excess of 115% of their market value [as defined in the
Articles of the Corporation], each Class A subordinate voting share will be, at the option of the holder, converted into one Class B voting
share for the purposes of accepting such offer, unless at the same time an offer is made to all holders of the Class A subordinate voting
shares for a percentage of such shares at least equal to the percentage of Class B voting shares which are the subject of the offer and
otherwise on terms and conditions not less favourable. In addition, each Class A subordinate voting share shall be converted into one
Class B voting share if at any time the principal shareholder of the Company or any corporation controlled directly or indirectly by him
ceases to be the beneficial owner, directly or indirectly, and with full power to exercise in all circumstances the voting rights attached
to such shares, of shares of the Company having attached thereto more than 50% of the votes attached to all outstanding shares of
the Company.
Issued and outstanding
January 26, 2013
Number of shares
January 28, 2012
$
Number of shares
$
Class A subordinate voting shares
Balance – beginning of year
20,228,864
37,327
20,228,864
37,327
Issuance of subordinate voting shares
upon conversion of long-term debt
2,454,097
5,011
—
—
Balance, end of year
Class B voting shares
Balance, end of year
22,682,96142,338
4,560,000 402
27,242,96142,740
20,228,86437,327
4,560,000402
24,788,86437,729
All issued shares are fully paid.
During the year, a $5.0 million loan payable to a company that is directly controlled by a director was converted into 2,454,097 Class A
subordinate voting shares [note 19].
Dividends
During the year, the Company did not declare any dividends [2012 – $10.7 million [$0.43 per Class A subordinate voting share and Class B
voting share]].
2012 annual report
39
13. SHARE CAPITAL [Cont’d]
Stock option plan
Under the provisions of the stock option plan [the “Plan”], the Company may grant options to key employees, directors and consultants to
purchase Class A subordinate voting shares. The maximum number of Class A subordinate voting shares issuable from time to time under
the Plan is 12% of the aggregate number of Class A subordinate voting shares and Class B voting shares issued and outstanding from time
to time. The option price may not be less than the closing price for the Class A subordinate voting shares on the Toronto Stock Exchange
on the last business day before the date on which the option is granted. The stock options may be exercised by the holder progressively
over a period of 5 years from the date of granting. Under certain circumstances, the vesting period can be accelerated. There are no cash
settlement alternatives for the employees.
A summary of the status of the Company’s Plan as of January 26, 2013 and January 28, 2012, and changes during the years then ended is
presented below:
January 26, 2013
January 28, 2012
WeightedWeighted
average average
exercise exercise
Sharesprice Shares price
$ $
Outstanding at beginning of year
Granted
Expired
Forfeited
1,039,800
13.56
1,050,400
13.55
1,945,0002.09
— —
(638,000)15.14
—
—
(91,100) 3.52 (10,600)12.06
Outstanding at end of year
2,255,700
3.63
1,039,800
13.56
178,900
10.93
739,400
14.57
Options exercisable at end of year
The following table summarizes information about the stock options outstanding at January 26, 2013:
Number
NumberWeightedWeighted of optionsWeighted
Range of
outstanding at
average
average
exercisable at
average
exercise
January 26, remaining
exercise
January 26, exercise
2013
life
price
2013
price
prices
$
#
$
#
$
1.44 – 3.00
9.40
12.25 – 13.25
1,872,500
169,700
213,500
4.5 years
1.2 years
2.5 years
2.12
9.40
12.34
—
87,500
91,400
—
9.40
12.40
2,255,700
4.0 years
3.63
178,900
10.93
40
13. SHARE CAPITAL [Cont’d]
During the year ended January 26, 2013, the Company granted 1,945,000 stock options [2012 – nil] to purchase Class A subordinate voting
shares. The weighted-average grant date fair value of stock options granted during 2013 was $0.48 per option. The fair value of each option
granted was determined using the Black-Scholes option pricing model and the following weighted-average inputs and assumptions:
Assumptions
Risk-free interest rate
Expected option life
Expected volatility in the market price of the shares
Expected dividend yield
Share price at grant date
1.23%
2.9 years
66.1%
0%
$1.45
Stock purchase plan
Under the provisions of the stock purchase plan, the Company may grant the right to key employees to subscribe for Class A subordinate
voting shares. The plan, which was amended on May 28, 1997, provides that the maximum number of shares that may be issued thereunder,
from and after May 28, 1997, is 10,000 Class A subordinate voting shares. The subscription price may not be less than the closing price
for the Class A subordinate voting shares on the Toronto Stock Exchange on the last business day before the date on which the right to
subscribe is granted. Since May 28, 1997, no shares have been issued under the stock purchase plan.
14. INCOME TAXES
As at January 26, 2013, the Company’s U.S. subsidiary has accumulated losses amounting to $11.4 million [US $11.3 million] which expire
during the years 2018 to 2033. A full valuation allowance has been taken against the related deferred income tax asset and accordingly, the
tax benefits pertaining to these loss carry-forwards have not been recognized in the consolidated financial statements.
A reconciliation of the statutory income tax rate to the effective tax rate is as follows:
January 26, 2013
January 28, 2012
%
%
Statutory tax rate
Increase (decrease) in income tax rate resulting from: Unrecognized benefit on U.S. tax losses
Non-deductible items and translation adjustment
Benefit of current year loss carried back to a prior year with higher income tax rates
Other
26.4
28.0
(0.9)
(1.1)
3.3
0.8
(4.7)
(4.6)
2.0
(0.7)
Effective tax rate 28.520.0
The change in the statutory tax rate was as a result of a decrease in the Canadian corporate tax rate.
2012 annual report
41
14. INCOME TAXES [Cont’d]
The details of the provision (recovery) for income taxes are as follows:
January 26, 2013
January 28, 2012
$
$
Current income taxes
Income tax recovery for the year
Adjustments in respect of previous years
(2,790)
—
(550)
(80)
Total current income taxes
(2,790)
(630)
Deferred income taxes
Origination and reversal of temporary differences
Changes in tax rates
(701)
22
34
—
Total deferred income taxes
(679)
34
Income tax recovery(3,469) (596)
Deferred tax related to items charged or credited directly to OCI during the year:
January 26, 2013
January 28, 2012
$
$
Unrealized foreign exchange gain in forward contracts
23
72
Income tax charged directly to OCI 2372
The tax effects of temporary differences that give rise to deferred income tax assets and liabilities are as follows:
Consolidated balance sheets
Consolidated statements of loss
January 26,
January 28,
January 26,
January 28,
2013 201220132012
$ $$$
Deferred income tax liabilities Property, equipment and intangible assets
8,091
9,060
60
37
Unrealized foreign exchange gain on forward contracts
(969)
—
1,795
—
Total deferred income tax liabilities
(969)
1,795
8,151
9,097
Deferred income tax assets
Obligations under finance lease
1,484
1,870
(386)
1,870
Deferred lease credits
4,185
4,198
(13)
17
54
57
(3)
(5)
Eligible capital expenditures
Provisions 108 18 90(121)
Other22 —22 —
U.S. tax losses
4,882
4,057
825
169
Valuation allowance
(4,882)
(4,057)
(825)
(169)
Total deferred income tax assets
Net deferred tax liability
5,853
6,143
(290)
1,761
2,298 2,954
Deferred tax expense(679) 34
42
15. EMPLOYEE BENEFIT EXPENSES
January 26, 2013
January 28, 2012
$
$
Wages, salaries and employee benefits
Stock-based compensation
78,535
336
89,557
322
78,871
89,879
16. GOVERNMENT ASSISTANCE
Government assistance, consisting mainly of income tax credits of $374,000 [2012 – $420,000], has been recorded in relation to certain
wages and eligible expenses and is included in general and administrative expenses or cost of sales. There are no unfulfilled conditions or
contingencies attached to the assistance received.
17. LOSS PER SHARE
The following is a reconciliation of the numerators and the denominators used for the computation of the basic and diluted loss per share:
January 26, 2013
January 28, 2012
$
$
Net loss (numerator) (8,717)(2,386)
Weighted average number of shares outstanding (denominator)
25,658
Weighted average number of shares outstanding – basic
Dilutive effect of stock options
301
24,789
7
Weighted average number of shares outstanding – diluted 25,95924,796
As at January 26, 2013, a total of 383,200 stock options [2012 – 1,039,800] were excluded from the calculation of diluted loss per share as
these were deemed to be anti-dilutive because the exercise prices were greater than the average market price of the shares.
18.COMMITMENTS
The commercial premises from which the Company carries out its retail operations and its head office and warehouse locations are
leased from third parties. These rental contracts are classified as operating leases since there is no transfer of risks and rewards inherent
to ownership.
These leases have varying terms and renewal rights. In many cases the amounts payable to the lessor include a fixed rental payment as
well as a percentage of the sales obtained by the Company in the leased premises. These contingent rental payments may have minimum
guaranteed amounts or certain rules of calculation attached.
Many leases include escalating rental payments, whereby cash outflows increase over the lease term. Free rental periods are also sometimes
included. The expense is recognized on a straight-line basis.
2012 annual report
43
18. COMMITMENTS [Cont’d]
The minimum rent payable under non-cancellable operating leases are as follows:
January 26, 2013
$
Within one year
After one year but not more than five years
More than five years
45,314
131,907
52,459
229,680
The total future minimum sublease payments to be received are $1.5 million.
During the year ended January 26, 2013 an amount of $43.2 million was recognized as an expense in respect of operating leases
[2012 – $42.9 million]. Contingent rentals recognized as an expense for the year amounted to $978,000 [2012 – $1.2 million]. An amount of
$1.2 million was recognized in respect of subleases [2012 – $1.1 million].
19. RELATED PARTY DISCLOSURES
The consolidated financial statements include the financial statements of Le Château Inc. and its wholly-owned U.S. subsidiary,
Château Stores Inc., incorporated under the laws of the State of Delaware.
Key management of the Company includes the Chief Executive Officer, President and Vice-Presidents, as well as the non-executive
Directors. The compensation earned by key management in aggregate was as follows:
January 26, 2013
January 28, 2012
$
$
Salaries and short-term benefits
Stock-based compensation
Termination benefits
3,067
161
142
2,814
211
—
3,370
3,025
Companies that are directly or indirectly controlled by a director sublease real estate from the Company. Total amounts earned under the
sublease during the year amounted to $259,000 [2012 – $176,000].
Goods purchased during the year on behalf of companies that are directly or indirectly controlled by a director amounted to $85,000
[2012 – $94,000].
During the year ended January 28, 2012, the Company borrowed $10.0 million from a company that is directly controlled by a director of the
Company. During the year ended January 26, 2013, $5.0 million of the loan was converted into 2,454,097 Class A subordinate voting shares.
The loan amount outstanding as at January 26, 2013 was $5.0 million. For the year ended January 26, 2013, the Company recorded interest
expense of $614,000 [2012 – $56,000].
44
19. RELATED PARTY DISCLOSURES [Cont’d]
Amounts payable to related parties as at January 26, 2013 totalled $31,000 [2012 – $56,000].
These amounts are recorded at their exchange value and are made at terms equivalent to those that prevail in arms’ length transactions.
There are no guarantees provided or received with respect to these transactions.
20. SEGMENTED INFORMATION
The Company operates in a single business segment which is the retail of apparel, accessories and footwear aimed at fashion-conscious
women and men. The Company’s assets are located in Canada.
The following table summarizes the Company’s sales by division:
January 26, 2013
January 28, 2012
$
$
Ladies’ clothing
158,609
172,221
Men’s clothing
50,386
53,360
Footwear 27,42231,480
Accessories 38,41045,646
274,827
302,707
21. CHANGES IN NON-CASH WORKING CAPITAL
The cash generated from (used for) non-cash working capital items is made up of changes related to operations in the following accounts:
January 26, 2013
January 28, 2012
$
$
Accounts receivable
447
(215)
Income taxes refundable
(340)
(422)
Inventories (3,893)(27,552)
Prepaid expenses
(326)
50
Amortization of finance costs
(189)
—
Trade and other payables
(1,113)
(3,494)
Deferred revenue
(360)
(343)
Net change in non-cash working capital items related to operations
(5,774) (31,976)
2012 annual report
45
22. FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are measured on an ongoing basis at fair value or amortized cost. The disclosures in the “Financial
Instruments” section of note 3 describe how the categories of financial instruments are measured and how income and expenses, including
fair value gains and losses, are recognized. The classification of financial instruments, as well as their carrying values and fair values, are
shown in the tables below:
January 26, 2013
January 28, 2012
Carrying value
Fair value
Carrying value
Fair value
$$
$$
Financial assets
Fair value through profit or loss
1,783
1,783
7,193
Cash and cash equivalents
Loans and receivables
Accounts receivable 1,906
1,906
2,358
Derivatives
Derivative financial instruments
215
215
129
3,904
3,904
9,680
7,193
2,358
129
9,680
Financial liabilities
Other financial liabilities
13,600
13,600
—
—
Bank indebtedness
Trade and other payables1 16,53116,531
18,35018,350
Long-term debt
24,134
24,014
45,468
45,502
1
54,265
54,145
63,818
63,852
Excludes commodity taxes and other provisions
Fair values
The Company has determined the estimated fair values of its financial instruments based on appropriate valuation methodologies; however,
considerable judgment is required to develop these estimates. Accordingly, the estimated fair values are not necessarily indicative of the
amounts the Company could realize or would pay in a current market exchange. The estimated fair value amounts can be materially affected
by the use of different assumptions or methodologies. The methods and assumptions used to estimate the fair value of financial instruments
are described below:
•The fair values of derivative financial instruments have been determined by reference to quoted market prices of instruments with similar
characteristics [Level 2].
•Given their short-term maturity, the fair value of cash, accounts receivable and trade and other payables approximates their carrying value.
•The estimated fair value of long-term debt was determined by discounting expected cash flows at rates currently offered to the Company
for similar debt.
There were no significant transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended January 26, 2013 and
January 28, 2012.
46
22. FINANCIAL INSTRUMENTS [Cont’d]
Financial instrument risk management
There has been no change with respect to the Company’s overall risk exposure during the year ended January 26, 2013. Disclosures relating
to exposure to risks, in particular credit risk, liquidity risk, foreign exchange risk and interest rate risk are provided below.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
The Company’s financial instruments that are exposed to concentrations of credit risk are primarily cash and forward exchange contracts.
The Company limits its exposure to credit risk with respect to cash by investing available cash with major Canadian chartered banks. The
Company only enters into forward exchange contracts with Canadian chartered banks to minimize credit risk.
The Company’s cash is not subject to any external restrictions. The Company has an investment policy that monitors the safety and
preservation of principal and investments, which limits the amount invested by issuer.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach
to managing liquidity risk is to ensure, to the extent possible, that it will always have sufficient liquidity to meet liabilities when due. The
Company’s liquidity follows a seasonal pattern based on the timing of inventory purchases and capital expenditures. As at January 26, 2013,
the Company had $1.8 million in cash and cash equivalents. In addition, as outlined in note 5, the Company had a committed asset based
credit facility of $70.0 million of which $13.6 million was drawn as at January 26, 2013, as well as an import line of credit of $25.0 million,
which includes a $1.0 million loan facility. The Company expects to finance its store renovation program through cash flows from operations
and long-term debt as well as its asset based credit facility. The Company expects that its trade and other payables will be discharged within
90 days and its long-term debt discharged as contractually agreed and as disclosed in note 12.
Market risk – foreign exchange risk
The Company’s foreign exchange risk is primarily limited to currency fluctuations between the Canadian and U.S. dollar.
The significant balances in U.S. dollars as at January 26, 2013 consist of cash and cash equivalents of $176,000, accounts receivable of
$47,000 and trade and other payables of $4.3 million. Assuming that all other variables remain constant, a revaluation of these monetary
assets and liabilities due to a 5% rise or fall in the Canadian dollar against the U.S. dollar would have resulted in an increase or decrease to
net earnings (loss) in the amount of $150,000.
In order to protect itself from the risk of losses should the value of the Canadian dollar decline compared to the foreign currency, the
Company uses forward contracts to fix the exchange rate of a substantial portion of its expected U.S. dollar requirements. The contracts
are matched with anticipated foreign currency purchases.
Their nominal values and contract values as at January 26, 2013 are as follows:
Average contractual
Nominal foreign
Contract
exchange rate
currency value
value
$
Purchase contracts
U.S. dollar
0.9857
9,915
9,773
2012 annual report
47
22. FINANCIAL INSTRUMENTS [Cont’d]
The range of maturity of these contracts is from February 25, 2013 to April 29, 2013. As at January 26, 2013, the fair value of these contracts
amounted to an unrealized foreign exchange gain of $215,000 [2012 – unrealized foreign exchange gain of $129,000], all of which is expected
to be reclassified to earnings within the next 12 months.
Market risk – interest rate risk
Financial instruments that potentially subject the Company to cash flow interest rate risk include financial assets and liabilities with variable
interest rates and consist of cash and cash equivalents and bank indebtedness. As at January 26, 2013, cash and cash equivalents consisted
of cash on hand and balances with banks.
Financial assets and financial liabilities that bear interest at fixed rates are subject to fair value interest rate risk. The Company’s long-term
debt is the only financial liability bearing a fixed interest rate. It is recorded at amortized cost.
23. MANAGEMENT OF CAPITAL
The Company’s objectives in managing capital are:
• To ensure sufficient liquidity to enable the internal financing of capital projects;
• To maintain a strong capital base so as to maintain investor, creditor and market confidence;
• To provide an adequate return to shareholders.
As at January 26, 2013, the Company’s capital is composed of long-term debt, including the current portions, and shareholders’ equity
as follows:
$
Long-term debt
Shareholders’ equity [excluding accumulated other comprehensive income]
24,134
139,643
163,777
The Company’s primary uses of capital are to finance increases in non-cash working capital along with capital expenditures for its store
expansion and renovation program as well as information technology and infrastructure improvements.
The Company currently funds these requirements from cash flows related to operations as well as its financial resources, which include
cash and cash equivalents of $1.8 million as at January 26, 2013 and its lines of credit [note 5]. The Board of Directors does not establish
quantitative return on capital criteria for management; but rather promotes year over year sustainable profitable growth. The Company is
not subject to any externally imposed capital requirements.
The Company is subject to certain non-financial covenants related to its credit facilities and long‑term debt, all of which were met as at
January 26, 2013 and January 28, 2012. There has been no change with respect to the overall capital risk management strategy during the
year ended January 26, 2013.
48
24.GUARANTEES
Generally, the Company does not issue guarantees to non-controlled affiliates or third parties, with limited exceptions.
Many of the Company’s agreements include indemnification provisions where the Company may be required to make payments to
a vendor or purchaser for breach of fundamental representation and warranty terms in the agreements with respect to matters such
as corporate status, title of assets, environmental issues, consents to transfer, employment matters, litigation, taxes payable and
other potential material liabilities. The maximum potential amount of future payments that the Company could be required to make under
these indemnification provisions is not reasonably quantifiable as certain indemnifications are not subject to a monetary limitation.
At January 26, 2013, management does not believe that these indemnification provisions would require any material cash payment by
the Company.
The Company indemnifies its directors and officers against claims reasonably incurred and resulting from the performance of their services
to the Company, and maintains liability insurance for its directors and officers.
2012 annual report
49
BOARD OF DIRECTORS
Jane Silverstone Segal, B.A.LLL
Chairman of the Board and
Chief Executive Officer of the Company
Herschel H. Segal
Founder of the Company
Emilia Di Raddo, CPA, CA
President and Secretary
David Martz*
Management Consultant
Andrew M. Cohen
Partner, Heenan Blaikie LLP
Norman Daitchman, FCPA, FCA*
Consultant
Michael Pesner, CPA, CA*
President, Hermitage
Canada Finance Inc.
*Member of the Audit Committee
OFFICERS
Jane Silverstone Segal, B.A.LLL
Johnny Del Ciancio, CPA, CA
Courtenay Fishman
Chairman of the Board and Vice-President, Finance
Vice-President
Chief Executive Officer
Creative Direction
Catriona Belsham
Emilia Di Raddo, CPA, CA
Vice-President
Wendy Stapleford
President and SecretaryDesign & Merchandising, Ladies
Vice-President
Human Resources
Franco Rocchi
Senior Vice-President
Sales and Operations
Auditors
Ernst and Young LLP
Corporate Counsel
Stikeman Elliott LLP
Registrar and Transfer Agent
Computershare Investor Services Inc.
Bankers
GE Capital Canada
HSBC Bank Canada
Royal Bank of Canada
Annual Meeting of Shareholders
Wednesday, July 10, 2013
at 10:00 am at our head office
Produced by:
MaisonBrison Inc.
HEAD OFFICE
8300 Decarie Boulevard, Montreal, Quebec H4P 2P5
Telephone: 514.738.7000, www.lechateau.com
50
FSC
position