Reitmans (Canada) Limited Announces Year-End ResultsApr 2, 2008
MONTREAL, APRIL 2 /CNW Telbec/ - Sales for the year ended
February 2, 2008 (52 weeks) increased to $1,057,720,000 or 1.5% as compared
with $1,042,509,000 for the year ended February 3, 2007 (53 weeks). Comparable
store sales for the 52 weeks decreased 2%. Operating earnings before
depreciation and amortization (EBITDA(1)) increased 6.6% to $199,176,000 as
compared with $186,812,000 last year. Net earnings and diluted EPS increased
39% to $114,902,000 or $1.60 a share. Last year, net earnings were $82,469,000
or $1.15 per share after recording a charge for retroactive Québec income tax
reassessments of $20,054,000 or $0.28 per share. Net earnings and diluted EPS
for last year would have been $102,523,000 or $1.43 per share excluding the
retroactive Québec income tax reassessments.
As previously announced, the Company entered into an agreement to settle
all matters arising from the retroactive Québec income tax reassessments for
an amount determined to be $12,905,000, which amount was paid on March 31,
2008. The settlement is reflected as a reduction of $7,149,000 in the tax
provision for the year and a reduction of $8,541,000 for the fourth quarter.
Before giving effect to the settlement, net earnings for the year were
$107,753,000 or $1.50 per share.
The weakness in sales in fiscal 2008 resulted from the prolonged
unseasonable weather conditions in virtually all significant markets, cross
border shopping, which gained significant momentum due to the continuing
strength of the Canadian dollar and significant cost increases in certain
commodities, most notably oil and gas. These factors led to a decline in
consumer confidence and reduced traffic in malls, power centres and street
store locations, as consumers cut back on spending for apparel. Inventory
increased as consumer demand softened, which resulted in all banners taking
more markdowns to sell the merchandise. Nevertheless, the Company maintained
its gross margin during the year. The Company has an employee incentive bonus
plan that is based on operating performance targets and the related expense is
recorded in relation to the attainment of such targets. The incentive bonus
expense in fiscal 2008 was $20,750,000 less than the incentive bonus expense
in fiscal 2007 due to a shortfall in attaining operating performance targets
set for fiscal 2008.
Sales for the fourth quarter ended February 2, 2008 (13 weeks) decreased
4.4% to $269,618,000 as compared with $282,110,000 for the fourth quarter
ended February 3, 2007 (14 weeks). Comparable store sales for the thirteen
weeks decreased 2.5% in the period. Operating earnings before depreciation and
amortization (EBITDA(1)) for the quarter increased 24.3% to $52,125,000 as
compared with $41,921,000 last year. Net earnings for the quarter increased
61.4% to $37,047,000 and diluted EPS amounted to $0.52 per share. Last year,
fourth quarter net earnings amounted to $22,957,000 and diluted EPS of
$0.32 per share after recording an additional interest charge of $476,000 or
$0.01 per share for retroactive Québec income tax reassessments. Net earnings
and diluted EPS for the period would have been $23,433,000 or $0.33 per share
excluding the effect of the retroactive Québec income tax reassessments.
Before giving effect to the settlement of the retroactive income tax
reassessments referred to above, net earnings in the period were $28,506,000
or $0.40 per share.
Pressure due to cross border shopping, excess merchandise caused by
weakened consumer demand attributable to weather issues and a more competitive
retail environment combined to adversely affect sales and impacted gross
margin dollars. Despite the strengthening of the Canadian dollar, gross margin
for the fourth quarter did not change significantly year over year. The
incentive bonus expense in the fourth quarter of fiscal 2008 was $13,050,000
less than the incentive bonus expense in the fourth quarter of fiscal 2007 due
to a shortfall in attaining operating performance targets set for fiscal 2008.
During the year, the Company opened 65 new stores and closed 27.
Accordingly, at year-end, there were 958 stores in operation, consisting of
369 Reitmans, 162 Smart Set, 53 RW & CO., 73 Thyme Maternity, 162 Penningtons,
125 Addition Elle and 14 Cassis as compared with a total of 920 stores last
year.
At the Board of Directors meeting held on April 2, 2008, a quarterly cash
dividend (constituting eligible dividends) of $0.18 per share on all
outstanding Class A non-voting and Common shares of the Company was declared,
payable April 30, 2008 to shareholders of record on April 16, 2008.
Financial statements are attached.
Montreal, April 2, 2008
Jeremy H. Reitman, President
Telephone: (514) 385-2630
Corporate Website: www.reitmans.ca
All of the statements contained herein, other than statements of fact
that are independently verifiable at the date hereof, are forward-looking
statements. Such statements, based as they are on the current expectations of
management, inherently involve numerous risks and uncertainties, known and
unknown, many of which are beyond the Company's control. Such risks include
but are not limited to: the impact of general economic conditions, general
conditions in the retail industry, seasonality, weather and other risks
included in public filings of the Company. Consequently, actual future results
may differ materially from the anticipated results expressed in
forward-looking statements. The reader should not place undue reliance on the
forward-looking statements included herein. These statements speak only as of
the date made and the Company is under no obligation and disavows any
intention to update or revise such statements as a result of any event,
circumstances or otherwise, except to the extent required under applicable
securities law.
(1) This release includes reference to certain Non-GAAP Financial
Measures such as operating earnings before depreciation and
amortization and EBITDA, which are defined as earnings before
interest, taxes, depreciation and amortization and investment income.
The Company believes such measures provide meaningful information on
the Company's performance and operating results. However, readers
should know that such Non-GAAP Financial Measures have no
standardized meaning as prescribed by GAAP and may not be comparable
to similar measures presented by other companies. Accordingly, they
should not be considered in isolation.
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(in thousands except per share amounts)
For the twelve For the three
months ended months ended
February 2, February 3, February 2, February 3,
2008 2007 2008 2007
Sales $ 1,057,720 $ 1,042,509 $ 269,618 $ 282,110
Cost of goods
sold and selling,
general and
administrative
expenses 858,544 855,697 217,493 240,189
----------- ----------- ----------- -----------
199,176 186,812 52,125 41,921
Depreciation and
amortization 50,098 44,946 13,598 12,448
----------- ----------- ----------- -----------
Operating earnings
before the undernoted 149,078 141,866 38,527 29,473
Investment income
(note 15) 11,128 12,556 1,451 3,178
Interest on long-term
debt 990 1,056 241 258
----------- ----------- ----------- -----------
Earnings before
income taxes 159,216 153,366 39,737 32,393
Income taxes (note 9):
Current 54,614 52,693 11,282 8,911
Future (3,151) (1,850) (51) 49
----------- ----------- ----------- -----------
51,463 50,843 11,231 8,960
Québec tax
reassessments -
current (7,149) 20,054 (8,541) 476
----------- ----------- ----------- -----------
44,314 70,897 2,690 9,436
----------- ----------- ----------- -----------
Net earnings $ 114,902 $ 82,469 $ 37,047 $ 22,957
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share
(note 11):
Basic $ 1.61 $ 1.17 $ 0.52 $ 0.32
Diluted 1.60 1.15 0.52 0.32
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the twelve months For the three months
ended ended
(in thousands) February 2, February 3, February 2, February 3,
2008 2007 2008 2007
CASH FLOWS (USED IN)
FROM OPERATING
ACTIVITIES
Net earnings $ 114,902 $ 82,469 $ 37,047 $ 22,957
Adjustments for:
Depreciation and
amortization 50,098 44,946 13,598 12,448
Future income
taxes (3,151) (1,850) (51) 49
Stock-based
compensation 932 1,314 161 330
Amortization
of deferred
lease credits (4,625) (4,042) (1,209) (1,071)
Deferred lease
credits 5,233 5,875 978 1,638
Pension
contribution (307) - (307) -
Pension expense 1,533 1,800 333 792
(Gain) loss on sale
of marketable
securities (474) (2,289) 1,517 (9)
Unrealized foreign
exchange (gain)
loss (1,011) (21) (910) 501
Changes in non-cash
working capital
relating to
operations (29,952) 17,206 11,422 8,036
----------- ----------- ----------- -----------
133,178 145,408 62,579 45,671
CASH FLOWS (USED IN)
FROM INVESTING
ACTIVITIES
Purchases of
marketable
securities - (4,170) - (188)
Proceeds on
sale of
marketable
securities 21,900 13,916 9,054 146
Additions to
capital assets (73,402) (63,152) (17,284) (16,200)
----------- ----------- ----------- -----------
(51,502) (53,406) (8,230) (16,242)
CASH FLOWS (USED IN)
FROM FINANCING
ACTIVITIES
Dividends paid (46,930) (40,893) (12,761) (11,341)
Purchase of
Class A non-
voting shares
for
cancellation (11,021) (735) - -
Repayment of
long-term debt (1,076) (1,010) (276) (258)
Proceeds from issue
of share capital 2,150 3,707 618 2,708
----------- ----------- ----------- -----------
(56,877) (38,931) (12,419) (8,891)
EFFECT OF FOREIGN
EXCHANGE ON CASH AND
CASH EQUIVALENTS 1,011 21 910 (501)
NET INCREASE IN CASH
AND CASH EQUIVALENTS 25,810 53,092 42,840 20,037
CASH AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD 188,491 135,399 171,461 168,454
----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS,
END OF PERIOD $ 214,301 $ 188,491 $ 214,301 $ 188,491
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental disclosure of cash flow information (note 15)
Cash and cash equivalents consist of cash balances with banks and
investments in short-term deposits.
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
For the twelve For the three
months ended months ended
(in thousands) February 2, February 3, February 2, February 3,
2008 2007 2008 2007
SHARE CAPITAL
Balance, beginning
of period $ 21,323 $ 17,374 $ 23,135 $ 18,361
Cash consideration
on exercise of stock
options 2,150 3,707 618 2,708
Ascribed value
credited to share
capital from
exercise of stock
options 514 254 24 254
Cancellation of
shares pursuant to
stock repurchase
program (210) (12) - -
----------- ----------- ----------- -----------
Balance, end of
period 23,777 21,323 23,777 21,323
----------- ----------- ----------- -----------
CONTRIBUTED SURPLUS
Balance, beginning
of period 3,583 2,523 3,864 3,507
Stock option
compensation costs 932 1,314 161 330
Ascribed value
credited to share
capital from
exercise of stock
options (514) (254) (24) (254)
----------- ----------- ----------- -----------
Balance, end of
period 4,001 3,583 4,001 3,583
----------- ----------- ----------- -----------
RETAINED EARNINGS
Balance, beginning
of period 411,213 370,360 444,088 399,597
Net earnings 114,902 82,469 37,047 22,957
Dividends (46,930) (40,893) (12,761) (11,341)
Premium on
repurchase of
Class A non-voting
shares (10,811) (723) - -
----------- ----------- ----------- -----------
Balance, end of
period 468,374 411,213 468,374 411,213
----------- ----------- ----------- -----------
ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
Balance, beginning
of period - - (769) -
Adjustment to
opening balance
due to the new
accounting
policies adopted
regarding
financial
instruments
(net of tax of $523) 2,883 - - -
Net unrealized loss
on available-for-sale
financial assets
arising during the
period (net of tax
of $611; $274 for
the three months
ended February 2,
2008) (3,517) - (1,611) -
Reclassification
adjustment for net
(gains) losses
included in net
earnings (net of
tax of $75; $257
for the three
months ended
February 2,
2008) (399) - 1,347 -
----------- ----------- ----------- -----------
Balance, end of
period(1) (1,033) - (1,033) -
----------- ----------- ----------- -----------
Total Shareholders'
Equity $ 495,119 $ 436,119 $ 495,119 $ 436,119
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(1) Available-for-sale financial investments constitute the sole item in
accumulated other comprehensive income (loss).
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
For the twelve For the three
months ended months ended
(in thousands) February 2, February 3, February 2, February 3,
2008 2007 2008 2007
Net earnings $ 114,902 $ 82,469 $ 37,047 $ 22,957
Other comprehensive
income (loss):
Net unrealized
loss on available-
for-sale financial
assets arising
during the period
(net of tax of
$611; $274 for the
three months ended
February 2, 2008) (3,517) - (1,611) -
Reclassification
adjustment for net
(gains) losses
included in net
earnings (net of
tax of $75; $257
for the three months
ended February 2,
2008) (399) - 1,347 -
----------- ----------- ----------- -----------
(3,916) - (264) -
----------- ----------- ----------- -----------
Comprehensive income $ 110,986 $ 82,469 $ 36,783 $ 22,957
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
February 2, February 3,
2008 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents (note 15) $ 214,301 $ 188,491
Marketable securities (note 5) 30,053 52,675
Accounts receivable 3,546 3,439
Merchandise inventories 52,441 61,834
Prepaid expenses 22,847 21,405
Future income taxes (note 9) 1,772 -
----------- -----------
Total Current Assets 324,960 327,844
CAPITAL ASSETS (note 6) 247,963 226,734
GOODWILL 42,426 42,426
FUTURE INCOME TAXES (note 9) 5,611 3,407
----------- -----------
$ 620,960 $ 600,411
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued items $ 69,189 $ 85,317
Income taxes payable 16,546 40,289
Future income taxes (note 9) 761 248
Current portion of long-term debt (note 8) 1,146 1,076
----------- -----------
Total Current Liabilities 87,642 126,930
DEFERRED LEASE CREDITS 21,466 20,858
LONG-TERM DEBT (note 8) 13,951 15,097
FUTURE INCOME TAXES (note 9) 261 112
ACCRUED PENSION LIABILITY (note 7) 2,521 1,295
SHAREHOLDERS' EQUITY
Share capital (note 10) 23,777 21,323
Contributed surplus 4,001 3,583
Retained earnings 468,374 411,213
Accumulated other comprehensive loss (1,033) -
----------- -----------
Total Shareholders' Equity 495,119 436,119
----------- -----------
Commitments (note 12)
$ 620,960 $ 600,411
----------- -----------
----------- -----------
On behalf of the Board,
JEREMY H. REITMAN, Director STEPHEN J. KAUSER, Director
The accompanying notes are an integral part of these consolidated
financial statements.
REITMANS (CANADA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended February 2, 2008 and February 3, 2007
(all amounts in thousands except per share amounts)
Reitmans (Canada) Limited ("the Company") is incorporated under the
Canada Business Corporations Act and its principal business activity is
the sale of women's wear at retail.
1. BASIS OF PRESENTATION
The financial statements and accompanying notes have been prepared on
a consolidated basis and reflect the consolidated financial position
of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated from these
financial statements. The Company's fiscal year ends on the Saturday
closest to the end of January. All references to 2008 and 2007
represent the fiscal years ended February 2, 2008 and February 3,
2007, respectively. Fiscal 2007 includes 53 weeks instead of the
normal 52 weeks. The inclusion of an extra week occurs every fifth or
sixth fiscal year due to the Company's floating year-end date.
2. CHANGES IN ACCOUNTING POLICIES
On February 4, 2007, the Company adopted the following new accounting
standards issued by the Canadian Institute of Chartered Accountants
("CICA"). As provided under the standards, the adoption of these
recommendations was done without restatement of prior period
consolidated financial statements. The transitional adjustments
resulting from these standards are recognized in the opening balance
of accumulated other comprehensive income.
CICA Section 1506 - Accounting Changes
This CICA Handbook section establishes criteria for changing
accounting policies, together with the accounting treatment and
disclosure of changes in accounting policies, changes in accounting
estimates and corrections of errors. In particular, this section
allows for voluntary changes in accounting policies only when they
result in the financial statements providing reliable and more
relevant information. Furthermore, this section requires disclosure of
when an entity has not applied a new source of generally accepted
accounting principles that have been issued but are not yet effective.
CICA Section 1530 - Comprehensive Income
This CICA Handbook section introduced a statement of comprehensive
income which is included in the full set of interim and annual
financial statements. Comprehensive income represents the change in
equity during a period from transactions and other events and
circumstances from non-owner sources and will include all changes in
equity other than those resulting from investments by owners and
distributions to owners.
CICA Section 3251 - Equity
This CICA Handbook section, which replaced Section 3250 - Surplus,
establishes standards for the presentation of equity and changes in
equity during the reporting period and requires the Company to present
separately equity components and changes in equity arising from (i)
net earnings; (ii) other comprehensive income; (iii) other changes in
retained earnings; (iv) changes in contributed surplus; (v) changes in
share capital; and (vi) changes in reserves. New consolidated
statements of changes in shareholders' equity are included in these
financial statements.
CICA Section 3855 - Financial Instruments - Recognition and
Measurement
This CICA Handbook section establishes standards for recognition and
measurement of financial assets, financial liabilities and non-
financial derivatives. All financial instruments must be classified
into a defined category, namely, held-to-maturity investments, held-
for-trading financial assets and financial liabilities, available-for-
sale financial assets, loans and receivables or other financial
liabilities. The standard requires that financial instruments within
scope, including derivatives, be included on the Company's balance
sheet and measured at fair value, except for loans and receivables,
held-to-maturity investments and other financial liabilities which are
measured at amortized cost. Gains and losses on held-for-trading
financial assets and financial liabilities are recognized in net
earnings in the period in which they arise. Unrealized gains and
losses, including changes in foreign exchange rates on available-for-
sale financial assets are recognized in other comprehensive income
until the financial assets are derecognized or impaired, at which time
any unrealized gains or losses are recorded in net earnings.
Transaction costs on available-for-sale financial assets are added to
the financial asset on initial recognition and are recognized in net
earnings when the asset is derecognized or impaired.
Fair values of available-for-sale financial assets are based on
published market prices at month end.
CICA Section 3861 - Financial Instruments - Disclosure and
Presentation
This CICA Handbook section, which replaced Section 3860 of the same
name, establishes standards for presentation of financial instruments
and non-financial derivatives, and identifies the information that
should be disclosed about them.
The adoption of these new standards resulted in the following changes
in the classification and measurement of the Company's financial
instruments, previously recorded at cost:
Cash and cash equivalents are classified as "financial assets held-
for-trading" and are measured at fair value. These financial assets
are marked-to-market through net earnings and recorded as investment
income at each period end. This change had no impact on the Company's
consolidated financial statements.
Accounts receivable are classified as "loans and receivables" and are
recorded at cost which at initial measurement corresponds to fair
value. After their initial fair value measurement, they are measured
at amortized cost using the effective interest rate method. This
change had no impact on the Company's consolidated financial
statements.
Marketable securities, which consist primarily of preferred shares of
Canadian public companies, are classified as "available-for-sale
securities". These financial assets are marked-to-market through other
comprehensive income at each period end. The initial impact of
measuring the available-for-sale securities at fair value was a net
unrealized gain of $2,883, net of tax of $523, which was recorded in
opening accumulated other comprehensive income.
Accounts payable and accrued items and long-term debt are classified
as "other financial liabilities". They are initially measured at fair
value and subsequent revaluations are recorded at amortized cost using
the effective interest rate method. This change had no impact on the
Company's consolidated financial statements.
The Company uses a variety of strategies, such as foreign exchange
option contracts, with maturities not exceeding three months, to
manage its exposure to fluctuations in the US dollar. These derivative
financial instruments are not used for speculative purposes. These
financial assets are marked-to-market through net earnings at each
period end. This change had no impact on the Company's consolidated
financial statements.
Embedded derivatives (elements of contracts whose cash flows move
independently from the host contract) are required to be separated and
measured at fair values if certain criteria are met. Under an election
permitted by the new standard, management reviewed contracts entered
into or modified subsequent to February 2, 2003 and determined that
the Company did not have any significant embedded derivatives in these
contracts that require separate accounting and disclosure.
Effective for the year ended February 2, 2008, the Company has early
adopted the CICA Handbook Section 1535, Capital Disclosures, CICA
Handbook Section 3862, Financial Instruments - Disclosure, and CICA
Handbook Section 3863, Financial Instruments - Presentation, as
described below.
CICA Section 1535 - Capital Disclosures
Section 1535, Capital Disclosures, establishes guidelines for
disclosure of both qualitative and quantitative information that
enables users of financial statements to evaluate the entity's
objectives, policies and processes for managing capital.
CICA Section 3862 - Financial Instruments - Disclosure, and
CICA Section 3863 - Financial Instruments - Presentation
Section 3862, Financial Instruments - Disclosure, describes the
required disclosure for the assessment of the significance of
financial instruments for an entity's financial position and
performance and of the nature and extent of risks arising from
financial instruments to which the entity is exposed and how the
entity manages those risks. Section 3863, Financial Instruments -
Presentation, establishes standards for presentation of the financial
instruments and non-financial derivatives. It carries forward the
presentation related requirements of Section 3861, Financial
Instruments - Disclosure and Presentation.
These sections relate to disclosure and presentation only and did not
have an impact on our financial results. See Notes 17 and 18.
3. RECENT ACCOUNTING PRONOUNCEMENTS
CICA Section 3031 - Inventories
In June 2007, the CICA issued Section 3031, Inventories, which
replaces Section 3030 and harmonizes the Canadian standards related to
inventories with International Financial Reporting Standards ("IFRS").
This section provides changes to the measurement and more extensive
guidance on the determination of cost, including allocation of
overhead; narrows the permitted cost formulas; requires impairment
testing; and expands the disclosure requirements to increase
transparency. This section applies to interim and annual financial
statements for fiscal years beginning on or after January 1, 2008. The
Company will adopt this section standard in the first quarter of its
fiscal year ending January 31, 2009. The Company has not yet
determined what the impact of adopting this new standard will have on
its consolidated financial statements.
CICA Section 3064 - Goodwill and Intangible Assets
In February 2008, the CICA issued Handbook Section 3064, Goodwill and
Intangible Assets, in replacing Section 3062, Goodwill and Other
Intangible Assets, and amended Section 1000, Financial Statement
Concepts. The new section establishes standards for the recognition,
measurement, presentation and disclosure of goodwill and other
intangible assets subsequent to its initial recognition. Standards
concerning goodwill are unchanged from the standards included in the
previous Section 3062. This new standard is applicable to fiscal years
beginning on or after October 1, 2008. The Company has evaluated the
new section and determined that there is no impact of its adoption on
its consolidated financial statements.
International Financial Reporting Standards
The Canadian Accounting Standards Board has confirmed that the use of
IFRS will be required for publicly accountable profit-oriented
enterprises. IFRS will replace Canada's current GAAP for those
enterprises. These new standards are applicable to fiscal years
beginning on or after January 1, 2011. Companies will be required to
provide comparative IFRS information for the previous fiscal year. The
Company will implement this standard in its first quarter of fiscal
year ending January 28, 2012 and is currently evaluating the impact of
their adoption on its consolidated financial statements.
4. SIGNIFICANT ACCOUNTING POLICIES
a) Revenue Recognition
Sales are recognized when a customer purchases and takes delivery of
the product. Reported sales are net of returns and an estimated
allowance for returns and excludes sales taxes. Gift certificates
sold are recorded as a liability and revenue is recognized when the
gift certificate is redeemed. Customers may receive a credit voucher
in exchange for returned goods. Credit vouchers are recorded as a
liability until redeemed.
b) Cash and Cash Equivalents
Cash and cash equivalents are classified as "financial assets held-
for-trading" and are measured at fair value. These financial assets
are marked-to-market through net earnings and recorded as investment
income at each period end. Cash and cash equivalents consist of cash
and short-term deposits with original maturities of three months or
less.
c) Marketable Securities
Marketable securities, which consist primarily of preferred shares of
Canadian public companies, are classified as "available-for-sale
securities". These financial assets are marked-to-market through other
comprehensive income at each period end.
d) Inventories
Merchandise inventories are valued at the lower of cost, determined
principally on an average basis using the retail inventory method and
net realizable value.
e) Capital Assets
Capital assets are recorded at cost and are depreciated at the
following annual rates applied to their cost, commencing with the year
of acquisition:
Buildings and improvements 4% to 15%
Fixtures and equipment 10% to 33 1/3%
Leasehold interests 15%
Leasehold improvements are depreciated at the lesser of the estimated
useful life of the asset and the lease term. Tenant allowances are
recorded as deferred lease credits and amortized as a reduction of
rent expense over the term of the related leases.
Expenditures associated with the opening of new stores, other than
fixtures, equipment and leasehold improvements, are expensed as
incurred.
The Company carries on its operations in premises under leases of
varying terms, which are accounted for as operating leases.
Depreciation and amortization expense includes the write-off of assets
associated with store closings and renovations.
Long-lived assets are reviewed for recoverability whenever events
indicate an impairment may exist. An impairment loss is measured as
the amount by which the carrying value of an asset or a group of
assets exceeds its fair value. If such assets or group of assets are
considered impaired, an impairment loss is recognized and the carrying
value of the long-lived asset is adjusted.
f) Goodwill
Goodwill is not amortized but is tested for impairment annually, or
more frequently if events or changes in circumstances indicate that
the asset might be impaired. The impairment test is carried out in two
steps. In the first step the carrying amount of the reporting unit is
compared with its fair value. When the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
considered not to be impaired and the second step of the impairment
test is unnecessary. The second step is carried out when the carrying
amount of a reporting unit exceeds its fair value, in which case the
implied fair value of the reporting unit's goodwill is compared with
its carrying amount to measure the amount of the impairment loss, if
any.
The Company conducted the annual impairment test on February 2, 2008
and concluded that there was no indication of impairment in the
carrying value of goodwill.
g) Income Taxes
The Company uses the asset and liability method when accounting for
income taxes. Under this method, future income taxes are recognized
for the future income tax consequences attributable to differences
between the financial statement carrying values and their respective
income tax basis (temporary differences). Future income tax assets and
liabilities are measured using enacted or substantively enacted income
tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. The
effect on future income tax assets and liabilities of a change in tax
rates is included in income in the period that includes the enactment
date. Future income tax assets are evaluated and if realization is not
considered to be more likely than not, a valuation allowance is
provided.
The Company's income tax provision is based on tax rules and
regulations that are subject to interpretation and require estimates
and assumptions that may be challenged by taxation authorities. The
Company's estimates of income tax assets and liabilities are
periodically reviewed and adjusted as circumstances warrant, such as
changes to tax laws and administrative guidance, and the resolution of
uncertainties through either the conclusion of tax audits or
expiration of prescribed time limits within the relevant statutes. The
final results of government tax audits and other events may vary
materially compared to estimates and assumptions used by management in
determining the provision for income taxes and in valuing income tax
assets and liabilities.
h) Pension
The Company maintains a contributory defined benefit plan that
provides for pensions based on length of service and average earnings
in the best five consecutive years. The Company also sponsors a
Supplemental Executive Retirement Plan ("SERP"), which is neither
registered nor pre-funded. The costs of these retirement plans are
determined periodically by independent actuaries. Pension
expense/income is included annually in operations.
The Company records its pension costs according to the following
policies:
- The cost of pensions is actuarially determined using the projected
benefit method prorated on service.
- For the purpose of calculating expected return on plan assets, the
valuation of those assets are based on quoted market values.
- Past service costs from plan amendments are amortized on a straight-
line basis over the average remaining service period of employees
active at the date of the amendment.
- Experience gains or losses arising on accrued benefit obligations
and plan assets are recognized in the period in which they occur.
The difference between the cumulative amounts expensed and the funding
contributions is recorded on the balance sheet as an accrued pension
asset or an accrued pension liability as the case may be.
i) Stock-Based Compensation
The Company accounts for stock-based compensation and other stock-
based payments using the fair value based method. Compensation cost is
measured at the fair value at the date of grant and is expensed over
the vesting period, which is normally five years. The Company accounts
for forfeitures as they occur.
j) Earnings per Share
Basic earnings per share is determined using the weighted average
number of Class A non-voting and Common shares outstanding during the
year. The treasury stock method is used for calculating diluted
earnings per share. In calculating diluted earnings per share, the
weighted average number of shares outstanding are increased to include
additional shares issued from the assumed exercise of options, if
dilutive. The number of additional shares is calculated by assuming
that the proceeds from such exercises, as well as the amount of
unrecognized stock-based compensation, are used to purchase Class A
non-voting shares at the average market share price during the
reporting period.
k) Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at the year-end exchange rate. Other
balance sheet items denominated in foreign currencies are translated
into Canadian dollars at the exchange rates prevailing at the
respective transaction date. Revenues and expenses denominated in
foreign currencies are translated into Canadian dollars at average
rates of exchange prevailing during the year. The resulting gains or
losses on translation are included in the determination of net
earnings.
l) Financial Instruments
The Company makes use of foreign exchange option contracts to manage
its US dollar exposure. These derivative financial instruments are not
used for trading or speculative purposes and are reported on a mark-
to-market basis. The related gains and losses are included in the
determination of net earnings.
The Company does not separately account for embedded US dollar foreign
exchange derivatives in its purchase contracts of merchandise from
suppliers in China because the US dollar has been determined to be
commonly used in that country's economic environment.
m) Use of Estimates
In preparing the Company's financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the period. Financial results
as determined by actual events may differ from these estimates.
Significant areas requiring the use of management estimates and
assumptions include the key assumptions used in determining the useful
life and recoverability of capital assets, stock-based compensation
costs, future income tax assets and liabilities, inventory valuation,
sales returns provision and gift certificate and credit voucher
liabilities.
5. MARKETABLE SECURITIES
At February 2, 2008, marketable securities amounted to $30,053
reported at fair value (cost of $31,249) as compared with $52,675 last
year reported at cost (with a market value of $56,081). Due to new
accounting standards with respect to financial instruments that were
adopted by the Company in the first quarter of fiscal 2008, marketable
securities have been measured and reported at their fair value at
February 2, 2008 while the comparative year is reported at cost.
6. CAPITAL ASSETS
2008
---------------------------------
Accumulated
Depreciation
and Amorti- Net Book
Cost zation Value
---------------------------------
Land $ 4,615 $ - $ 4,615
Buildings and improvements 49,507 11,671 37,836
Fixtures and equipment 187,333 79,282 108,051
Leasehold improvements 175,457 78,608 96,849
Leasehold interests 910 298 612
---------------------------------
$ 417,822 $ 169,859 $ 247,963
---------------------------------
---------------------------------
2007
---------------------------------
Land $ 4,615 $ - $ 4,615
Buildings and improvements 46,671 8,256 38,415
Fixtures and equipment 166,739 68,799 97,940
Leasehold improvements 151,245 66,097 85,148
Leasehold interests 890 274 616
---------------------------------
$ 370,160 $ 143,426 $ 226,734
---------------------------------
---------------------------------
During the year, due to various store closings and renovations, the
Company wrote-off assets with a net book value of $1,793 (2007 - $4,216).
The write-offs are included in depreciation and amortization expense.
7. PENSION
The Company's contributory defined benefit plan ("Plan") was
actuarially valued as at December 31, 2004 and the obligation was
projected to December 31, 2007. An actuarial valuation is scheduled to
take place with a valuation date of December 31, 2007.
Assumptions, based upon data as of December 31, 2007, used in
developing the net pension expense (income) and projected benefit
obligation are as follows:
2008 2007
---- ----
Discount rate 5.17% 4.95%
Rate of increase in salary levels 3.00% 3.00%
Expected long-term rate of return on plan assets 7.50% 7.50%
In addition, the Company sponsors a Supplemental Executive Retirement
Plan ("SERP") covering certain pension plan members. This special plan
is subject to the same actuarial assumptions and methods as the Plan.
The following tables present reconciliations of the pension
obligations, the plan assets and the funded status of the benefit
plans:
2008
---------------------------------
Pension Obligation Plan SERP Total
---------------------------------
Pension obligation, beginning
of year $ 10,734 $ 9,717 $ 20,451
Employee contributions 138 - 138
Current service cost 493 217 710
Interest cost 551 492 1,043
Benefits paid (444) - (444)
Plan amendments - - -
Actuarial (gains) losses (292) (312) (604)
--------- --------- ---------
Pension obligation, end of year $ 11,180 $ 10,114 $ 21,294
--------- --------- ---------
--------- --------- ---------
Plan Assets
Market value of plan assets,
beginning of year $ 11,391 $ - $ 11,391
Employer contributions 307 - 307
Employee contributions 138 - 138
Actual return on plan assets 291 - 291
Benefits paid (444) - (444)
--------- --------- ---------
Market value of plan assets,
end of year $ 11,683 $ - $ 11,683
--------- --------- ---------
--------- --------- ---------
Plan (deficit) surplus 503 (10,114) (9,611)
Unamortized past service cost - 7,090 7,090
--------- --------- ---------
Pension asset (liability), end
of year $ 503 $ (3,024) $ (2,521)
--------- --------- ---------
--------- --------- ---------
2007
---------------------------------
Pension Obligation Plan SERP Total
---------------------------------
Pension obligation, beginning
of year $ 10,104 $ 8,508 $ 18,612
Employee contributions 130 - 130
Current service cost 465 180 645
Interest cost 517 429 946
Benefits paid (470) - (470)
Plan amendments - - -
Actuarial (gains) losses (12) 600 588
--------- --------- ---------
Pension obligation, end of year $ 10,734 $ 9,717 $ 20,451
--------- --------- ---------
--------- --------- ---------
Plan Assets
Market value of plan assets,
beginning of year $ 10,677 $ - $ 10,677
Employer contributions - - -
Employee contributions 130 - 130
Actual return on plan assets 1,054 - 1,054
Benefits paid (470) - (470)
--------- --------- ---------
Market value of plan assets,
end of year $ 11,391 $ - $ 11,391
--------- --------- ---------
--------- --------- ---------
Plan (deficit) surplus 657 (9,717) (9,060)
Unamortized past service cost - 7,765 7,765
--------- --------- ---------
Pension asset (liability),
end of year $ 657 $ (1,952) $ (1,295)
--------- --------- ---------
--------- --------- ---------
The Company's net annual benefit plans expense consists of the
following:
2008
---------------------------------
Pension Expense Plan SERP Total
---------------------------------
Current service cost $ 493 $ 217 $ 710
Past service cost - 675 675
Interest cost 551 492 1,043
Actual return on plan assets (291) - (291)
Actuarial (gains) losses (292) (312) (604)
--------- --------- ---------
Net pension (income) expense $ 461 $ 1,072 $ 1,533
--------- --------- ---------
--------- --------- ---------
2007
---------------------------------
Pension Expense Plan SERP Total
---------------------------------
Current service cost $ 465 $ 180 $ 645
Past service cost - 675 675
Interest cost 517 429 946
Actual return on plan assets (1,054) - (1,054)
Actuarial (gains) losses (12) 600 588
--------- --------- ---------
Net pension (income) expense $ (84) $ 1,884 $ 1,800
--------- --------- ---------
--------- --------- ---------
The asset allocation of the major asset categories for each of the years
was as follows:
Allocation
Asset Category 2008 2007
-------- --------
Equity securities 64% 67%
Debt securities 34% 32%
Cash 2% 1%
--------- --------
100% 100%
--------- --------
--------- --------
8. LONG-TERM DEBT
2008 2007
---- ----
Mortgage bearing interest at 6.40%, payable
in monthly instalments of principal and
interest of $172, due November 2017 and
secured by the Company's distribution centre $ 15,097 $ 16,173
Less current portion 1,146 1,076
--------- --------
$ 13,951 $ 15,097
--------- --------
--------- --------
Principal repayments on long-term debt are
as follows:
Fiscal years ending
2009 $ 1,146
2010 1,220
2011 1,300
2012 1,384
2013 1,474
Subsequent years 8,573
---------
$ 15,097
---------
---------
9. INCOME TAXES
a) In fiscal 2007, the Québec National Assembly enacted legislation
(Bill 15) that retroactively changed certain tax laws that subject
the Company to additional taxes and interest for the 2003, 2004 and
2005 years. In accordance with Canadian generally accepted
accounting principles, as a result of Québec income tax
reassessments received, amounts of $20,054 for retroactive taxes
and interest were expensed in the fiscal year 2007 and an
additional amount of $1,877 of interest was expensed in the year
ended February 2, 2008. In January 2008, the Company entered into
an agreement with the Canada Revenue Agency, Alberta Finance, the
Ontario Ministry of Revenue and Revenue Québec to settle all
matters arising from the reassessments. The final agreement called
for the Company to pay $12,905 to settle all related outstanding
matters and as such a reduction in the Company's income tax expense
in the amount of $7,149, net of the reversal of the current year's
interest charges of $1,877, has been recognized. The Company
expects to make payments to settle the outstanding liability by
March 31, 2008.
b) In fiscal 2008, the Company released $2,504 of contingent income
tax liabilities based upon the outcome of certain tax audits of
prior year periods resulting in an equivalent decrease in the tax
provision for fiscal 2008.
c) Future income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's future tax
assets (liabilities) are as follows:
2008 2007
---- ----
Current assets
Marketable securities $ 163 $ -
Inventory 1,609 -
--------- --------
$ 1,772 $ -
--------- --------
--------- --------
Long-term assets
Capital assets $ 4,861 $ 2,925
Pension liability 690 408
Other 60 74
--------- --------
$ 5,611 $ 3,407
Current liabilities
Accrued liabilities $ (761) $ (248)
--------- --------
--------- --------
Long-term liabilities
Marketable securities $ (27) $ (112)
Capital assets (234) -
--------- --------
$ (261) $ (112)
--------- --------
--------- --------
d) The Company's provision for income taxes is made up as follows:
2008 2007
---- ----
Provision for income taxes based on combined
statutory rate of 34.37% (2007 - 33.83%) $ 54,723 $ 51,884
Changes in provision resulting from:
Reserve for tax contingencies (2,504) -
Difference in tax rates of subsidiaries (826) (888)
Tax exempt investment income (810) (871)
Stock-based compensation 320 444
Tax rate differences 502 -
Permanent and other differences 58 274
Québec tax reassessments (7,149) 20,054
--------- --------
Income taxes $ 44,314 $ 70,897
--------- --------
--------- --------
Represented by:
Current $ 54,614 $ 52,693
Future (3,151) (1,850)
Québec tax reassessments - current (7,149) 20,054
--------- --------
$ 44,314 $ 70,897
--------- --------
--------- --------
10. SHARE CAPITAL
a) The Class A non-voting shares and the Common shares of the Company
rank equally and pari passu with respect to the right to receive
dividends and upon any distribution of the assets of the Company.
However, in the case of stock dividends, the holders of Class A
non-voting shares shall have the right to receive Class A
non-voting shares and the holders of Common shares shall have the
right to receive Common shares.
b) The Company has authorized an unlimited number of Class A non-
voting shares.
The following table summarizes Class A non-voting shares issued for
each of the years listed:
Class A
---------------------
Number Book
of Shares Value
--------- --------
Balance January 28, 2006 56,747 $ 16,892
Shares issued pursuant to exercise
of stock options 1,111 3,961
Shares purchased under issuer bid (41) (12)
--------- --------
Balance February 3, 2007 57,817 20,841
Shares issued pursuant to exercise
of stock options 217 2,664
Shares purchased under issuer bid (561) (210)
--------- --------
Balance February 2, 2008 57,473 $ 23,295
--------- --------
--------- --------
The amounts credited to share capital from the exercise of stock
options include a cash consideration of $2,150 (2007 - $3,707) as
well as an ascribed value from contributed surplus of $514
(2007 - $254).
The Company has authorized an unlimited number of Common shares. At
February 2, 2008, there were 13,440 Common shares issued
(2007 - 13,440) with a book value of $482 (2007 - $482).
c) The Company has reserved 5,520 Class A non-voting shares for
issuance under its Share Option Plan of which, as at February 2,
2008, 975 Class A non-voting shares remain authorized for future
issuance. The granting of options and the related vesting period
are at the discretion of the Board of Directors and have a maximum
term of 10 years. The exercise price payable for each Class A non-
voting share covered by a stock option is determined by the Board
of Directors at the date of grant, but may not be less than the
closing price of the Company's shares on the trading day
immediately preceding the effective date of the grant.
The Company granted 50 stock options during 2008 (2007 - 105), the
cost of which will be expensed over their vesting period based on
their estimated fair values on the date of grant, determined using
the Black-Scholes option-pricing model, while 28 (2007 - 40) stock
options were cancelled.
Compensation cost related to stock option awards granted during the
year under the fair value based approach was calculated using the
following assumptions:
Expected option life 4.6 years
Risk-free interest rate 3.55%
Expected stock price volatility 31.79%
Average dividend yield 4.53%
Weighted average fair value of options granted $3.20
Changes in outstanding stock options were as follows:
2008 2007
--------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
--------------------------------------------------
Outstanding, at
beginning of year 1,812 $ 12.08 2,858 $ 8.33
Granted 50 15.90 105 20.37
Exercised (217) 9.91 (1,111) 3.34
Forfeited (28) 11.95 (40) 9.04
--------------------------------------------------
Outstanding, at end
of year 1,617 $ 12.49 1,812 $ 12.08
--------------------------------------------------
--------------------------------------------------
Options exercisable
at end of year 772 $ 12.18 555 $ 12.24
--------------------------------------------------
--------------------------------------------------
The following table summarizes information about share options
outstanding at February 2, 2008:
Options Outstanding Options Exercisable
--------------------------------------------------
Weighted-
Remaining Average
Contract- Weighted- Weighted
Range of ual Average Number Average
Exercise Number Life Exercise Exercis- Exercise
Prices Outstanding (years) Price able Price
------------------------------------------------------------------------
$ 4.25 - $ 5.68 139 2.00 $ 4.41 50 $ 4.48
$12.23 - $15.90 1,305 4.08 12.37 675 12.23
$19.23 - $22.02 173 4.61 19.92 47 19.74
--------------------------------------------------
1,617 3.95 $12.49 772 $12.18
--------------------------------------------------
--------------------------------------------------
For the year ended February 2, 2008, the Company recognized
compensation cost of $932 (2007 - $1,314) with an offsetting credit
to contributed surplus.
d) The Company purchased, under the prior year's normal course issuer
bid, 561 Class A non-voting shares having a book value of $210
under its stock repurchase program for a total cash consideration
of $11,021. The excess of the purchase price over book value of the
shares in the amount of $10,811 was charged to retained earnings.
e) The Company received, in November 2007, approval from the Toronto
Stock Exchange to proceed with a normal course issuer bid. Under
the bid, the Company may purchase up to 2,871 Class A non-voting
shares of the Company, representing 5% of the issued and
outstanding Class A non-voting shares as at November 9, 2007. The
bid commenced on November 28, 2007 and may continue to November 27,
2008.
11.EARNINGS PER SHARE
The number of shares used in the earnings per share calculation is as
follows:
2008 2007
---- ----
Weighted average number of shares per
basic earnings per share calculations 71,152 70,442
Effect of dilutive options outstanding 654 1,359
--------- --------
Weighted average number of shares per
diluted earnings per share calculations 71,806 71,801
--------- --------
--------- --------
12.COMMITMENTS
Minimum lease payments under operating leases for retail stores,
offices, automobiles and equipment, exclusive of additional amounts
based on sales, taxes and other costs are payable as follows:
Fiscal years ending
2009 $ 98,998
2010 87,534
2011 70,775
2012 54,239
2013 40,556
Subsequent years 91,213
--------
$443,315
--------
--------
13.CREDIT FACILITY
At February 2, 2008, the Company had unsecured operating lines of
credit available with Canadian chartered banks to a maximum of
$125,000 or its US dollar equivalent. As at February 2, 2008, $48,274
(February 3, 2007 - $68,830) of the operating lines of credit was
committed for documentary and standby letters of credit.
14.GUARANTEES
The Company has granted irrevocable standby letters of credit, issued
by highly-rated financial institutions, to third parties to indemnify
them in the event the Company does not perform its contractual
obligations. As at February 2, 2008, the maximum potential liability
under these guarantees was $3,550. The standby letters of credit
mature at various dates during fiscal 2009. The Company has recorded
no liability with respect to these guarantees, as the Company does not
expect to make any payments for these items. Management believes that
the fair value of the non-contingent obligations requiring performance
under the guarantees in the event that specified triggering events or
conditions occur approximates the cost of obtaining the standby
letters of credit.
15.OTHER INFORMATION
a) Included in determination of the Company's net earnings is a
foreign exchange gain of $504 (2007 - loss of $915).
b) Supplementary cash flow information:
2008 2007
---- ----
Balance with banks $ 2,474 $ 6,239
Short-term deposits, bearing interest at 4.00%
(February 3, 2007 - 4.3%) 211,827 182,252
--------- --------
$214,301 $188,491
--------- --------
--------- --------
Non-cash transactions:
Capital asset additions included in accounts
payable $ 1,329 $ 3,404
Cash paid during the period for:
Income taxes $ 73,305 $ 48,730
Interest 1,045 1,339
Investment income:
Available-for-sale financial assets:
Interest income 62 79
Dividends 2,398 3,258
Realized gain on disposal 474 2,289
Held-for-trading financial assets:
Interest income 8,194 6,930
--------- --------
$ 11,128 $ 12,556
--------- --------
--------- --------
16.RELATED PARTY TRANSACTIONS
The Company leases two retail locations which are owned by a related
party. The leases for such premises were entered into on commercial
terms similar to those for leases entered into with third parties for
similar premises. The annual rent payable under these leases is, in
the aggregate, approximately $182 (2007 - $188).
The Company incurred $302 in fiscal 2008 (2007 - $304) with a firm
connected to outside directors of the Company for fees in conjunction
with general legal advice. The Company believes that such remuneration
was based on normal terms for business transactions between unrelated
parties.
These transactions are recorded at the amount of consideration paid as
established and agreed to by the related parties.
17.FINANCIAL INSTRUMENTS
a) Fair Value Disclosure
Fair value estimates are made at a specific point in time, using
available information about the financial instrument. These
estimates are subjective in nature and often cannot be determined
with precision.
The Company has determined that the carrying value of its short-
term financial assets and liabilities approximates fair value at
the year-end dates due to the short-term maturity of these
instruments. The fair values of the marketable securities are based
on published market prices at year-end.
The fair value of long-term debt is not significantly different
from its carrying value.
The fair value of the Company's long-term debt bearing interest at
a fixed rates was calculated using the present value of future
payments of principal and interest discounted at the current market
rates of interest available to the Company for the same or similar
debt instruments with the same remaining maturities.
b) Risk Management
For the year ended February 2, 2008, the Company has early adopted
the requirements of the CICA Handbook Section 3862, Financial
Instruments-Disclosure, which apply to fiscal years beginning on
or after October 1, 2007. This new Handbook section requires
disclosures to enable users to evaluate the significance of
financial instruments for the entity's financial position and
performance, and the nature and extent of an entity's exposure to
risks arising from financial instruments, including how the entity
manages those risks. Disclosures relating to exposure to risks, in
particular credit risk, liquidity risk, foreign currency risk,
interest rate risk and equity price 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
cash equivalents, marketable securities, accounts receivable and
foreign exchange option contracts. The Company limits its exposure
to credit risk with respect to cash equivalents by investing
available cash in short-term deposits with Canadian financial
institutions and commercial paper with a rating not less than R1.
Marketable securities consist primarily of preferred shares of
highly rated Canadian public companies. The Company's receivables
consist primarily of credit card receivables from the last day of
the fiscal year which are settled on the first two days of the new
fiscal year.
As at February 2, 2008 the Company's exposure to credit risk for
these financial instruments was as follows:
Cash and cash equivalents $ 214,301
Marketable securities 30,053
Accounts receivable 3,546
---------
$ 247,900
---------
---------
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Company's
approach to managing liquidity risk is to ensure, as far as
possible, that it will always have sufficient liquidity to meet
liabilities when due. The contractual maturity of the majority of
accounts payable is within six months. As at February 2, 2008, the
Company had a high degree of liquidity with $244,354 in cash and
cash equivalents and marketable securities. In addition, the
Company has unsecured credit facilities of $125,000, subject to
annual renewals. The Company has financed its store expansion
through internally-generated funds and its unsecured credit
facilities are used to finance seasonal working capital
requirements for US dollar merchandise purchases. The Company's
long-term debt consists of a mortgage bearing interest at 6.40%,
due November 2017, which is secured by the Company's distribution
centre.
Foreign Currency Risk
The Company purchases a significant amount of its merchandise with
US dollars. The Company uses a combination of foreign exchange
option contracts and spot purchases to manage its foreign exchange
exposure on cash flows related to these purchases. These option
contracts generally do not exceed three months. A foreign exchange
option contract represents an option to buy a foreign currency from
a counterparty to meet its obligations. The Company reduces this
risk by dealing only with highly-rated counterparties, normally
major Canadian financial institutions.
As at February 2, 2008 and February 3, 2007 there were no
outstanding foreign exchange option contracts.
The Company has performed sensitivity analysis on its US dollar
denominated financial instruments, which consist principally of
cash and cash equivalents of $24,138 at February 2, 2008, to
determine how a change in the US dollar exchange rate would impact
net earnings. On February 2, 2008, a 10% rise or fall in the
Canadian dollar against the US dollar, assuming that all other
variables, in particular interest rates, had remained the same,
would have resulted in a $1,577 decrease or increase, respectively,
in the Company's net earnings for the year ended February 2, 2008.
Interest Rate Risk
The Company's exposure to interest rate fluctuations is primarily
related to any overdraft denominated in Canadian or US dollars
drawn on its bank accounts and interest earned on its cash and cash
equivalents. The Company has unsecured borrowing and working
capital credit facilities available that it utilizes for
documentary and standby letters of credit, and the Company funds
the drawings on these facilities as the payments are due.
The Company has performed sensitivity analysis on interest rate
risk at February 2, 2008 to determine how a change in interest
rates would impact equity and net earnings. During fiscal 2008, the
Company earned $8,194 of interest income on its cash and cash
equivalents. An increase or decrease of 100 basis points in the
average interest rate earned during the year would have increased
or decreased equity and net earnings by $1,208. This analysis
assumes that all other variables, in particular foreign currency
rates, remain constant.
Equity Price Risk
Equity price risk arises from available-for-sale equity securities.
The Company monitors the mix of equity securities in its investment
portfolio based on market expectations. Material investments within
the portfolio are managed on an individual basis and all buy and
sell decisions are approved by the Chief Executive Officer.
The Company has performed sensitivity analysis on equity price risk
at February 2, 2008 to determine how a change in the market price
of the Company's marketable securities would impact equity and
other comprehensive income. The Company's equity investments
consist principally of preferred shares of Canadian public
companies. The Company believes that changes in interest rates
influence the market price of these securities. A 5% increase or
decrease in the market price of the securities at February 2, 2008
would result in a $1,244 increase or decrease in equity and other
comprehensive income. A significant portion of the Company's equity
securities are subject to more significant downward market risk
and, as a result, the impact on equity and other comprehensive
income may ultimately be greater than that indicated above.
18.CAPITAL DISCLOSURES
The Company's objectives in managing capital are:
- to ensure sufficient liquidity to enable the internal financing
of capital projects thereby facilitating its expansion.
- to maintain a strong capital base so as to maintain investor,
creditor and market confidence.
- to provide an adequate return to shareholders.
The Company's capital is composed of long-term debt, including the
current portion and shareholders' equity. The Company's primary
uses of capital are to finance increases in non-cash working
capital along with capital expenditures for new store additions,
existing store renovation projects and office and distribution
centre improvements. The Company currently funds these requirements
out of its internally-generated cash flows. The Company's long-term
debt constitutes a mortgage on the distribution centre facility.
The Company maintains an unsecured operating line of credit that it
uses to satisfy commitments for US dollar denominated merchandise
purchases. The Company does not have any long-term debt, other than
the mortgage related to the distribution centre, and therefore net
earnings generated from operations are available for reinvestment
in the Company or distribution to the Company's shareholders. The
Board of Directors does not establish quantitative return on
capital criteria for management; but rather promotes year over year
sustainable profitable growth. The Board of Directors also reviews
on a quarterly basis the level of dividends paid to the Company's
shareholders and monitors the share repurchase program activities.
The Company does not have a defined share repurchase plan and buy
and sell decisions are made on a specific transaction basis and
depend on market prices and regulatory restrictions. The Company is
not subject to any externally imposed capital requirements.
19.COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with
the presentation adopted in the current year.
%SEDAR: 00002316EF
For further information: Jeremy H. Reitman, President, (514) 385-2630, www.reitmans.ca |