Management’s Discussion and Analysis
and
Consolidated Financial Statements
Years ended January 30, 2021 and February 1, 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following Management’s Discussion and Analysis ("MD&A") of Reitmans (Canada) Limited and
its subsidiaries (“Reitmans” or the “Company”) should be read in conjunction with the audited
consolidated financial statements of Reitmans as at and for the fiscal years ended January 30, 2021
and February 1, 2020 and the notes thereto which are available on the SEDAR website at
www.sedar.com. This MD&A is dated April 19, 2021.
All financial information contained in this MD&A and Reitmans’ audited consolidated financial
statements has been prepared in accordance with International Financial Reporting Standards
(“IFRS”), also referred to as Generally Accepted Accounting Principles (“GAAP”), as issued by the
International Accounting Standards Board (“IASB”). All monetary amounts shown in the tables in
this MD&A are in millions of Canadian dollars unless otherwise indicated, except per share and strike
price amounts. The audited consolidated financial statements and this MD&A were reviewed by
Reitmans’ Audit Committee and were approved by its Board of Directors on April 19, 2021.
Unless otherwise indicated, all comparisons of results for the 13 weeks ended January 30, 2021
(“fourth quarter of 2021”) are against results for the 13 weeks ended February 1, 2020 (“fourth
quarter of 2020”) and all comparisons of results for the 52 weeks ended January 30, 2021 (“fiscal
2021”) are against the results for the 52 weeks ended February 1, 2020 (“fiscal 2020”). The
Company’s fiscal year ends on the Saturday closest to the end of January. Consolidated results
presented (including restated comparative figures) exclude the Addition Elle and Thyme Maternity
banners which have been presented as discontinued operations.
Additional
www.reitmanscanadalimited.com or on the SEDAR website at www.sedar.com.
information about Reitmans
is available on
the Company’s website at
Key Business Developments and Subsequent Events
Since the coronavirus disease (COVID-19) was declared a pandemic on March 11, 2020 by the
World Health Organization, there have been significant impacts for the Company. The measures
adopted by the Federal and provincial governments in order to mitigate the spread of the pandemic
required the Company to temporarily close all of its retail locations across the country effective March
17, 2020. During the period of closure, the Company’s only sales were derived from its e-commerce
channel; its distribution and fulfillment center remained open while the Company leveraged its ship-
from-store capabilities. In late May 2020, and in accordance with the laws and regulations of each
applicable region and province, the Company began to reopen its retail locations. By the end of June
2020, all of the Company’s stores were open for business. Shopping behaviour however has not
returned to pre-pandemic levels as consumers shifted their spending habits from non-essential items
(including apparel goods) to essential items and other product categories that help consumers work,
learn and entertain from the comfort of their home. Since September 2020, with the number of daily
cases continuing to increase, provincial governments enacted a variety of measures, ranging from
limiting the number of people allowed in retail stores at the same time to temporarily closing stores.
During the fourth quarter of 2021, as restrictions continued to increase across Canada, temporary
store closures grew to approximately 62% (at its highest point) of the Company’s total retail store
network. As at January 30, 2021, the Company had 240 out of its 415 stores (58%) closed as a
consequence of governmental lockdown directives.
2
Subsequent to fiscal 2021, the Company has further experienced some temporary retail location
closures. While stores remained closed in certain markets, the Company continued to fulfill e-
commerce orders though sales were not sufficient to offset the lost sales due to the closures. The
extent to which COVID-19 will continue to impact the Company’s business, including its supply chain,
consumer shopping behavior and consumer demand, including online shopping, will depend on
future developments, which are highly uncertain and cannot be predicted at this time. As the
Company navigates through the challenges caused by COVID-19, its focus will be to adapt to
customers’ changing product preferences, closely monitor its cash position and control its spending,
while managing its inventory levels in line with the unprecedented change in demand behavior since
COVID-19 started. Current financial information may not necessarily be indicative of future operating
results. The Company had taken many measures to protect its financial position during this
challenging situation. Such measures included:
• Furloughing a substantial number of store and head office employees;
• All other employees collectively contributing to on-going cost-cutting initiatives through temporary
salary reductions;
• Cancelling or delaying significant investments in capital expenditures for fiscal 2021;
• Adjusting inventory levels by cancelling or delaying many orders;
• Reducing all non-payroll discretionary expenses, including marketing and travel; and
• Extending payment terms and asking for temporary price concessions for both merchandise and
non-merchandise vendor invoices.
Such measures partially mitigated the impact of COVID-19 on the Company’s business. However,
with the deterioration in the Company’s financial performance and its financial position since the end
of the fiscal 2020, the continued uncertainty surrounding the pandemic, and after evaluating all its
strategic options, on May 19, 2020 the Company obtained an initial order (the “Order”) from the
Superior Court of Québec (the “Court”) to seek protection from creditors under the Companies'
Creditors Arrangement Act (the "CCAA") and Ernst & Young Inc. was appointed as the Monitor.
Since its initial filing on May 19, 2020 the Company obtained extensions of the Order, with the most
recent extension obtained until May 28, 2021. The CCAA process allows the Company to implement
an operational and commercial restructuring plan to re-position the Company for long-term success
(the “restructuring plan”). On June 1, 2020, the Company announced that, as part of its restructuring
plan and as approved by the Monitor, it was closing the Thyme Maternity and Addition Elle banners.
The restructuring plan led to the closure of all retail stores and e-commerce websites for both banners
and to the termination of approximately 1,600 employees in its retail locations and head office. See
section entitled “Discontinued Operations”.
In September 2020, the Monitor commenced the claims process for the identification, resolution and
barring of amounts owing to creditors as at May 19, 2020. Creditors had to file their proof of claim
and former employees had to file the appropriate notice of dispute document with the Monitor on or
before October 21, 2020. The Monitor is currently working on reviewing the claims filed and has been
contacting claimants where discrepant claims exist between the Company’s records and amounts
claimed. Once all claims filed have been reconciled, settlement thereof will then be addressed in a
Plan of Arrangement to be filed and communicated at a later date.
In accordance with the policies of the Toronto Stock Exchange (the “TSX”), trading in Reitmans’
Common shares and Class A non-voting shares was suspended on May 19, 2020 and the
Company’s shares were delisted from the TSX effective at the close of business on July 29, 2020.
The Company worked on a transition plan to allow trading of its shares on the TSX Venture
Exchange (the “TSX–V”) and, on September 3, 2020, its shares began trading on the TSX-V. The
3
trading symbol of the Company's Common shares and Class A shares remained "RET" and "RET-
A", respectively.
For fiscal 2021, the Company incurred a net loss of $172.2 million. As at January 30, 2021, the
Company’s current liabilities of $284.5 million exceed current assets of $216.8 million. On August
5, 2020, the Company secured interim financing (“DIP Loan”) up to a maximum amount of $60.0
million, including facilities available for securing letters of credit of up to $5.0 million, with a Canadian
financial institution. As of January 30, 2021, the Company has not drawn funds from the DIP Loan
facility, other than for the issuance of letters of credit totalling $0.4 million. With the uncertainties
surrounding the impact of COVID-19 going forward, the Company cannot guarantee that such DIP
Loan will not be utilized in the future.
These factors and conditions, combined with the unpredictability of the outcome of the matters
arising from the CCAA proceedings, indicate that a material uncertainty exists that may cast
significant doubt about the Company’s ability to continue as a going concern and, therefore, realize
its assets and discharge its liabilities in the normal course of business.
The audited consolidated financial statements have been prepared on a going concern basis, which
assumes the Company will continue its operations for the foreseeable future and will be able to
realize its assets and discharge its liabilities and commitments in the normal course of business. In
assessing whether the going concern assumption is appropriate and whether there are material
uncertainties that may cast significant doubt about the Company’s ability to continue as a going
concern, management must take into account all available information about the future, including
estimated future cash flows, for a period of at least twelve months following the end of the reporting
period. The audited consolidated financial statements as at and for the year ended January 30, 2021
do not include any adjustments to the carrying amounts and classification of assets, liabilities and
reported expenses that may otherwise be required if the going concern basis was not appropriate.
Such adjustments could be material. It is not possible to reliably estimate the length and severity of
COVID-19 and the impact on the financial results and financial condition of the Company in future
periods. The Company will take into consideration the most recent developments and impacts of the
pandemic, including updated assessments of future cash flows and any additional impacts resulting
from COVID-19 will be reflected in the financial results of the current fiscal year, if applicable.
Discontinued Operations
As part of its restructuring plan, the Company closed the Thyme Maternity and Addition Elle banners
and, as a result, their results and cash flows have been classified as discontinued operations. IFRS 5,
Non-current Assets Held for Sale and Discontinued Operations, requires that the comparative
statements of earnings and comprehensive income (loss) be presented as if the operations were
discontinued from the start of the comparative year. As a result, discontinued operations are excluded
from the loss from continuing operations and are presented as earnings (loss) from discontinued
operations, net of tax, as a separate line item in the consolidated statements of earnings (loss).
FORWARD-LOOKING STATEMENTS
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, including statements regarding the
impact of COVID-19 on the Company’s business, financial position and operations, and are based
on several assumptions which give rise to the possibility that actual results could differ materially
from the Company’s expectations expressed in or implied by such forward-looking statements and
that the objectives, plans, strategic priorities and business outlook may not be achieved.
Consequently, the Company cannot guarantee that any forward-looking statement will materialize,
or if any of them do, what benefits the Company will derive from them. Forward-looking statements
4
are provided in this MD&A for the purpose of giving information about management’s current
expectations and plans as of the date of this MD&A, and allowing investors and others to get a better
understanding of the Company’s operating environment. However, readers are cautioned that it may
not be appropriate to use such forward-looking statements for any other purpose. Forward-looking
statements are based upon the Company’s current estimates, beliefs and assumptions, which are
based on management’s perception of historical trends, current conditions and currently expected
future developments, as well as other factors it believes, are appropriate in the circumstances.
This MD&A contains forward-looking statements about the Company’s objectives, plans, goals,
expectations, aspirations, strategies, financial condition, results of operations, cash flows,
performance, prospects, opportunities and legal and regulatory matters. Specific forward-looking
statements in this MD&A include, but are not limited to, statements with respect to the Company’s
belief in its strategies and its brands and their capacity to generate long-term profitable growth, future
liquidity, planned capital expenditures, amount of pension plan contributions, status and impact of
systems implementation, the ability of the Company to successfully implement its strategic initiatives
and cost reduction and productivity improvement initiatives as well as the impact of such initiatives.
These specific forward-looking statements are contained throughout this MD&A including those
listed in the “Operating Risk Management” and “Financial Risk Management” sections of this MD&A.
Forward-looking statements are typically identified by words such as “expect”, “anticipate”, “believe”,
“foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may” and “should” and
similar expressions, as they relate to the Company and its management.
Numerous risks and uncertainties could cause the Company’s actual results to differ materially from
those expressed, implied or projected in the forward-looking statements, including:
•
•
the outcome of the CCAA proceedings and their impact upon supplier relationships and customer
behavior;
the ability to continue as a going concern;
•
foreign currency fluctuations, including high levels of volatility with respect to the US dollar
reflecting uncertainties relating to COVID-19;
• changes in economic conditions, including economic recession or changes in the rate of inflation
or deflation, employment rates, interest rates, currency exchange rates or derivative prices;
• significant economic disruptions caused by global health risks (such as COVID-19) that influence
sanitary measures (such as confinement and store closures), consumer demand and hamper the
ability to get merchandise on a timely basis;
• changes in product costs and supply channels, including disruption of the Company’s supply
chain resulting from COVID-19;
• heightened competition, whether from current competitors or new entrants to the marketplace;
•
the changing consumer preferences toward e-commerce, online retailing and the introduction of
new technologies;
• seasonality and weather;
•
the inability of the Company’s information technology (“IT”) infrastructure to support the
requirements of the Company’s business, or the occurrence of any internal or external security
breaches, denial of service attacks, viruses, worms and other known or unknown cyber security
or data breaches;
•
•
failure to realize benefits from investments in the Company’s new IT systems;
the inability of the Company to manage inventory to minimize the impact of obsolete or excess
inventory and to control shrinkage;
5
•
failure to realize anticipated results, including revenue growth, anticipated cost savings or
operating efficiencies associated with the Company’s major initiatives, including those from
restructuring; and
• changes in the Company’s income, capital, property and other tax and regulatory liabilities,
including changes in tax laws, regulations or future assessments.
This is not an exhaustive list of the factors that may affect the Company’s forward-looking
statements. Other risks and uncertainties not presently known to the Company or that the Company
presently believes are not material could also cause actual results or events to differ materially from
those expressed in its forward-looking statements. Additional risks and uncertainties are discussed
in the Company’s materials filed with the Canadian securities regulatory authorities from time to time.
The reader should not place undue reliance on any 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.
NON-GAAP FINANCIAL MEASURES
The Company has identified several key operating performance measures and non-GAAP financial
measures which management believes are useful in assessing the performance of the Company;
however, readers are cautioned that some of these measures may not have standardized meanings
under IFRS and, therefore, may not be comparable to similar terms used by other companies.
In addition to discussing earnings in accordance with IFRS, this MD&A provides adjusted earnings
before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) as a non-GAAP financial
measure. Adjusted EBITDA is defined as net earnings before income tax expense/recovery, dividend
income, interest income, net change in fair value and loss on disposal of marketable securities,
interest expense, depreciation, amortization, impairment of non-financial assets and restructuring
costs. The Company updated its definition of Adjusted EBITDA to exclude the restructuring costs
which have been incurred as a result of the restructuring plan. With the classification of the Addition
Elle and Thyme Maternity businesses as discontinued operations, Adjusted EBITDA has also been
modified to exclude discontinued operations.
The following table reconciles the most comparable GAAP measure, net earnings or loss from
continuing operations, to Adjusted EBITDA. Management believes that Adjusted EBITDA is an
important indicator of the Company’s ability to generate liquidity through operating cash flow to fund
working capital needs and fund capital expenditures and uses the metric for this purpose. The
exclusion of dividend income, interest income and expense and the net change in fair value and loss
on disposal of marketable securities eliminates the impact on earnings derived from non-operational
activities. The exclusion of depreciation, amortization and impairment charges eliminates the non-
cash impact and the exclusion of restructuring costs and discontinued operations presents the
results of the on-going businesses. The intent of Adjusted EBITDA is to provide additional useful
information to investors and analysts. The measure does not have any standardized meaning under
IFRS. Although depreciation, amortization and impairment charges are non-cash charges, the
assets being depreciated and amortized will often have to be replaced in the future, as such,
Adjusted EBITDA does not reflect any cash requirements for these replacements. Adjusted EBITDA
should not be considered either as discretionary cash available to invest in the growth of the business
or as a measure of cash that will be available to meet the Company’s obligations. Other companies
may calculate Adjusted EBITDA differently. From time to time, the Company may exclude additional
items if it believes doing so would result in a more effective analysis of underlying operating
performance. The exclusion of certain items does not imply that they are non-recurring. Adjusted
EBITDA should not be used in substitute for measures of performance prepared in accordance with
IFRS or as an alternative to net earnings, net cash provided by operating, investing or financing
6
activities or any other financial statement data presented as indicators of financial performance or
liquidity, each as presented in accordance with IFRS. Although Adjusted EBITDA is frequently used
by securities analysts, lenders and others in their evaluation of companies, it has limitations as an
analytical tool, and should not be considered in isolation, or as a substitute for analysis of the
Company’s results as reported under IFRS.
The Company uses a key performance indicator (“KPI”), comparable sales, to assess store
performance and sales growth. The Company engages in an omnichannel approach in connecting
with its customers by appealing to their shopping habits through either online or store channels. This
approach allows customers to shop online for home delivery, purchase in any of our store locations
or ship to home from another store when the products are unavailable in a particular store. Due to
customer cross-channel behavior, the Company reports a single comparable sales metric, inclusive
of store and e-commerce channels. Comparable sales are defined as sales generated by stores that
have been continuously open during both of the periods being compared and include e-commerce
sales. The comparable sales metric compares the same calendar days for each period. Although
this KPI is expressed as a ratio, it is a non-GAAP financial measure that does not have a
standardized meaning prescribed by IFRS and may not be comparable to similar measures used by
other companies. Management uses comparable sales in evaluating the performance of stores and
online sales and considers it useful in helping to determine what portion of new sales has come from
sales growth and what portion can be attributed to the opening of new stores. Comparable sales is
a measure widely used amongst retailers and is considered useful information for both investors and
analysts. Comparable sales should not be considered in isolation or used in substitute for measures
of performance prepared in accordance with IFRS.
As highlighted in the section entitled “Key Business Developments and Subsequent Events”, at
various times throughout fiscal 2021, the Company was required to temporary close its retail stores.
As at the end of fiscal 2021, 240 out of the Company’s 415-store network temporarily closed due to
government mandated restrictions. Due to the unprecedented nature of COVID-19 and its significant
impact on consumers and our ability to service our customers, management believes that
comparable sales are not currently representative of the underlying trends of our business and
consequently would not provide a meaningful metric in comparisons of year-over-year sales results.
Accordingly, this MD&A does not include a discussion of the Company’s comparable sales in respect
of the fourth quarter of and fiscal 2021. Management will continue to monitor and evaluate the effects
of COVID-19 and will resume the evaluation of comparable sales when year-over-year results are
more representative.
7
The following table reconciles net loss from continuing operations to Adjusted EBITDA from
continuing operations:
Net loss from continuing operations
Depreciation and amortization
Impairment of non-financial assets
Dividend income
Interest income
Net change in fair value and loss on disposal
of marketable securities
Interest expense on lease liabilities
Income tax (recovery) expense
Restructuring costs
Adjusted EBITDA from continuing
operations
Adjusted EBITDA from continuing operations
as % of Sales
For the fourth quarter of
For fiscal
2021
$
(10.9)
13.7
3.8
-
(0.1)
-
1.4
(0.5)
(0.8)
20201
$ (47.2)
23.9
0.2
-
(0.4)
-
1.4
30.9
-
2021
$ (100.0)
20201
$
(73.2)
52.5
16.5
-
(0.4)
-
5.7
0.2
26.5
85.9
2.6
(1.4)
(1.7)
8.3
6.0
23.8
-
$
6.6
$ 8.8
$
1.0
$ 50.3
4.6%
4.8%
0.2%
7.1%
1Comparative figures have been restated to conform to the current definition, which excludes the effect of discontinued operations.
OVERVIEW
The Company has a single reportable segment that derives its revenue primarily from the sale of
women’s specialty apparel to consumers through its retail banners. The Company’s stores are
primarily located in malls and retail power centres across Canada while also offering e-commerce
website shopping for all of its banners. The online channels provide customers convenience,
selection and ease of purchase, while enhancing customer loyalty and continuing to build the brands.
The Company currently operates under the following banners:
The Reitmans banner, operating stores averaging 4,700 sq. ft., is one of Canada’s largest women’s
apparel specialty chains and a leading fashion brand. Reitmans has developed strong customer
loyalty through superior service, insightful marketing and quality merchandise.
Penningtons is a leader in the Canadian plus-size market, offering trend-right styles and affordable
quality for plus-size fashion sizes 12–32. Penningtons operates stores averaging 6,000 sq. ft. in
power centres across Canada.
RW & CO. operates stores averaging 4,500 sq. ft. in premium locations in major shopping malls,
catering to a customer with an urban mindset by offering fashions for men and women.
8
RETAIL BANNERS
Number of
stores at
February 1,
2020
1
Q
i
s
g
n
s
o
C
l
2
Q
i
s
g
n
s
o
C
l
3
Q
i
s
g
n
n
e
p
O
3
Q
i
s
g
n
s
o
C
l
4
Q
i
s
g
n
s
o
C
l
Number of
stores at
January 30,
2021
Reitmans
Penningtons
RW&CO.
Total stores from continuing operations1
260
111
80
451
(1)
(5)
-
(6)
(4)
(1)
-
(5)
2
4
-
6
(10)
(17)
(1)
(28)
(2)
-
(1)
(3)
245
92
78
415
1 All Addition Elle and Thyme Maternity stores have been closed in connection with the restructuring plan and their results and cash flows
have been classified as discontinued operations.
Individual store closings take place for a variety of reasons as the viability of each store and its
location is constantly monitored and assessed for continuing profitability. Out of the 36 store closures
in the second to the fourth quarter of 2021, approximately 94% represent store closures associated
with disclaimed leases under the Company’s restructuring plan for its continuing operations. In most
cases when a store is closed, merchandise at that location is sold off in the normal course of business
and any unsold merchandise remaining at the closing date is generally transferred to other stores
operating under the same banner for sale in the normal course of business. With respect to the
discontinued operations of Thyme Maternity and Addition Elle, the merchandise was liquidated
through the Company’s retail network, with minimal quantities written off upon closure of the banners.
THREE-YEAR REVIEW OF SELECTED FINANCIAL INFORMATION
Fiscal 2021
Fiscal 2020 1
Fiscal 2019 1,2
Total stores at end of fiscal year
Sales
Gross profit
(Loss) earnings before income taxes
Net loss from continuing operations
(Loss) earnings from discontinued
operations, net of tax
Net (loss) earnings
(Loss) earnings per share
Basic
Diluted
(Loss) earnings per share, continuing
operations
Basic
Diluted
Total assets
Total non-current liabilities
Dividends per share
415
$ 533.4
246.3
(99.8)
(100.0)
(72.2)
(172.2)
(3.52)
(3.52)
(2.05)
(2.05)
397.2
91.0
-
$
451
$ 705.5
363.9
(49.3)
(73.2)
(14.3)
(87.5)
(1.56)
(1.56)
(1.31)
(1.31)
560.2
176.5
$ 0.15
461
$ 728.5
401.4
1.4
(1.1)
7.9
6.8
0.11
0.11
(0.01)
(0.01)
492.8
34.0
$ 0.20
1 Comparative figures have been restated to separately present continuing and discontinued operations.
2 The Company adopted IFRS 16 – Leases, using the modified retrospective approach, effective for fiscal 2020, beginning on February
3, 2019. Accordingly, comparative figures for fiscal 2019 have not been restated and continue to be reported under IAS 17.
The Canadian retail marketplace reflects consumers shopping behaviours that include traditional in-
store purchases and online shopping. To enhance the customers’ online and in-store experiences,
9
the Company invests significantly in improvements in e-commerce fulfillment and technology. The
Company is well positioned in an omnichannel shopping environment with a store portfolio that is
located in highly desirable major malls and power centres across Canada and a compelling e-
commerce offering.
The value of the Canadian dollar vis-à-vis the U.S. dollar is a significant factor that can impact
profitability of the retail operations. A focus on improved sourcing practices and reducing costs,
while maintaining a value proposition for customers, along with managing foreign exchange market
risks through U.S. dollar foreign exchange forward contract purchases allows the Company to
mitigate any negative impact.
Sales
In fiscal 2019, the Company continued its execution of an optimal mix in an omnichannel retail
landscape and invested in its e-commerce growth, by leveraging the inventory in its network of stores
via its ship from store initiative. The reduction in sales in fiscal 2019 when compared to fiscal 2018
was due to the inclusion of an additional week of sales in fiscal 2018 and the continued execution of
a strategy to close underperforming stores to optimize overall operating results.
In fiscal 2020, the reduction in sales was primarily due to lower sales performance in the Company’s
plus-size banner and the reduced number of stores. Strategic brand initiatives in the plus-size banner
implemented early in the 2020 fiscal year failed to resonate with their customer base, negatively
affecting sales. Although a variety of corrective measures were implemented, the implementation of
these corrective strategies occurred late in fiscal 2020 and did not have a positive impact for fiscal
2020. In the first half of fiscal 2020, the Company completed the deployment of its ship from store
initiative across all banners, enhancing the availability of inventory across all channels.
In fiscal 2021, the reduction in sales was primarily due to the COVID-19 outbreak as temporary
lockdown measures were implemented by governmental health authorities and the reduced number
of stores. Government mandated temporary closures of the Company’s entire store network
occurred from mid-March 2020 with stores fully reopened by the end of June 2020. Shopping
behaviour however did not return to pre-pandemic levels. Further governmental measures to
mitigate the spread of the virus in certain affected areas resulted in a majority of the Company’s
stores being temporarily closed during the fourth quarter of 2021 (see section entitled “Key Business
Developments and Subsequent Events”). In fiscal 2021, the reduction in the Company’s store sales
was partially offset by an increase in e-commerce sales as consumers shifted to online shopping
habits. The Company’s prior investments in its omnichannel strategy, including its ship from store
capabilities, were a major contributor in its ability to handle the increase in e-commerce orders.
Gross Profit
Overall, the Company’s gross profit and net earnings over the past three fiscal years have been
significantly impacted by weakness in the Canadian dollar in relation to the U.S. dollar. The
weakening of the Canadian dollar has resulted in increased merchandise costs as virtually all
merchandise payments are settled in U.S. dollars. In fiscal 2019, the Company’s gross profit declined
due to the inclusion of an extra week of operating results in fiscal 2018 and from higher promotional
activity, despite a positive foreign exchange impact on merchandise costs in cost of goods sold
resulting from the purchase of foreign exchange forward contracts with more favorable rates. In fiscal
2020, the Company’s gross profit declined primarily due to lower sales and higher promotional
activity in the Company’s plus-size banner despite a positive foreign exchange impact on U.S. dollar
denominated purchases included in cost of goods sold. In fiscal 2021, the Company’s gross profit
declined primarily due to lower sales and higher promotional activity as a result of the unprecedented
negative impact from the COVID-19 pandemic, as well as a negative foreign exchange impact on
U.S. dollar denominated purchases included in cost of goods sold.
10
Summary
As at January 30, 2021, the Company’s liquidity position consisted of $77.9 million (February 1, 2020 -
$89.4 million) in cash and cash equivalents, a negative working capital position and no long-term debt
(other than its lease liabilities). The negative working capital position consists of current liabilities of
$284.5 million (including liabilities subject to compromise of $204.1 million) exceeding current assets
of $216.8 million. As at the end of fiscal 2021, inventory levels were lower as compared to the end of
fiscal 2020 due in part to the Company’s restructuring plan to optimize its retail footprint through a
reduction in the number of its stores and from the closures of the Addition Elle and Thyme Maternity
banners; inventory levels at the end of fiscal 2020 were approximately the same as compared to the
end of fiscal 2019. The Company managed its capital expenditures, which were $26.1 million in fiscal
2019, $23.5 million in fiscal 2020 and $6.2 million in fiscal 2021. As highlighted in the section entitled
“Key Business Developments and Subsequent Events”), the Company cancelled or delayed significant
investments in capital expenditures in fiscal 2021. Capital expenditures are primarily investments
related to digital technology and retail system upgrades, distribution and handling system improvements
and existing store renovations and new store builds.
The Company, as part of its restructuring plan, closed the Thyme Maternity and Addition Elle
banners. The financial information presented within discontinued operations is directly attributable
to both banners. All administrative expenses and various selling and distribution expenses from
shared, centralized and common functions of the Company are excluded from the determination of
net (loss) earnings from discontinued operations.
OPERATING RESULTS FOR FISCAL 2021 COMPARED TO FISCAL 2020
Fiscal 2021
Fiscal 20201
$ Change
% Change
Sales
$
Cost of goods sold
Gross profit
Gross profit %
Selling, distribution and administrative
expenses2
Results from operating activities
Net finance income (costs)
Loss before income taxes
Income tax expense
Net loss from continuing operations
Loss from discontinued operations,
net of tax
Net loss
Adjusted EBITDA from continuing
operations
354.3
(108.0)
8.2
(99.8)
0.2
(100.0)
(72.2)
(172.2)
$
$
533.4
287.1
246.3
$
705.5
341.6
363.9
46.2%
51.6%
$ (172.1)
(54.5)
(117.6)
401.7
(37.8)
(11.6)
(49.4)
23.8
(73.2)
(14.3)
(87.5)
(47.4)
(70.2)
19.8
(50.4)
(23.6)
(26.8)
(57.9)
(84.7)
$
(24.4)%
(16.0)%
(32.3)%
(11.8)%
n/a
n/a
n/a
(99.2)%
(36.6)%
n/a
(96.8)%
$
1.0
$
50.3
$
(49.3)
(98.0)%
Loss per share:
Basic
Diluted
$
(3.52)
(3.52)
$
(1.56)
(1.56)
$
(1.96)
(1.96)
n/a
n/a
Loss per share, continuing operations:
Basic
Diluted
$
(2.05)
(2.05)
$
(1.31)
(1.31)
$
(0.74)
(0.74)
(56.5)%
(56.5)%
1 Comparative figures have been restated to separately present continuing and discontinued operations.
2 Includes impairment of non-financial assets and restructuring costs of $16.5 million and $26.5 million, respectively, for fiscal 2021
($2.6 million and nil, respectively, for fiscal 2020).
11
Sales
Sales for fiscal 2021 decreased by $172.1 million, or 24.4%, to $533.4 million as compared with
$705.5 million for fiscal 2020, primarily due to the impact from temporary store closures, store traffic
trends that were below pre-pandemic levels during the second to the fourth quarter of 2021 (see
section entitled “Key Business Developments and Subsequent Events”) and an overall net reduction
of 36 stores, partially offset by an increase in e-commerce sales.
Gross Profit
Gross profit for fiscal 2021 decreased $117.6 million, or 32.3%, to $246.3 million as compared with
$363.9 million for fiscal 2020. Gross profit as a percentage of sales for fiscal 2021 decreased to
46.2% from 51.6% for fiscal 2020. The decrease both in gross profit and as a percentage of sales is
primarily attributable to the Company’s merchandise selling at larger discounts than usual as
customer preferences and habits changed upon the transition to working from home during the
pandemic, lower turnover of merchandise as a result of the temporary store closures during a portion
of fiscal 2021 as well as store traffic trends that were below pre-pandemic levels, combined with a
negative foreign exchange impact in U.S. dollar denominated purchases included in cost of goods
sold.
Selling, Distribution and Administrative Expenses
Total selling, distribution and administrative expenses of $354.3 million for fiscal 2021 decreased by
$47.4 million or 11.8% as compared to fiscal 2020, while sales have decreased 24.4%. The decrease
in these expenses is primarily attributable to the following:
• decreased store operating and head office wage costs as a result of the measures taken by the
Company under its restructuring plan to mitigate the financial impact from COVID-19, temporary
store closures and fewer stores;
•
financial support from the Canada Emergency Wage Subsidy (“CEWS”) and the Canada
Emergency Rent Subsidy (“CERS”) programs of $33.9 million and $1.4 million, respectively, that
were recognized as a reduction of selling, distribution and administrative expenses;
• a decrease of $33.4 million in depreciation and amortization due primarily to the decrease in the
number of stores and associated leases, the reduction of investments in property and equipment
and intangible assets since the outbreak of the pandemic, and the associated impact of the
increase in impairment of non-financial assets (see below);
• partially offset by,
• $26.5 million of restructuring costs incurred as a result of the Company’s restructuring, primarily
related to provisions for disclaimed leases, employee termination costs, inventory cancellation
penalties, pre-filing input tax credits claimed by the Company on unpaid invoices attributed to the
creditors list and professional fees;
• a $13.9 million increase in impairment of non-financial assets associated mainly with a reduction
of the anticipated profitability of certain individual retail store locations; and
• a $15.3 million increase in overall freight costs incurred due to the growth of e-commerce sales.
Net Finance Income (Costs)
Net finance income was $8.2 million for fiscal 2021 as compared to net finance costs of $11.6 million
for fiscal 2020. This change is primarily attributable to the following:
• a foreign exchange gain of $13.4 million for fiscal 2021 compared to a loss of $0.5 million for
fiscal 2020, largely attributable to a $9.7 million realized gain on the maturity and disposal of
foreign exchange forward contracts that were no longer being designated as cash flow hedges
and to the foreign exchange impact on U.S. denominated monetary assets and liabilities;
12
• as all marketable securities had been previously disposed of during fiscal 2020, there was no
income or cost related to a change in fair value in fiscal 2021, whereas there was a $8.3 million
net decrease in fair value of marketable securities for fiscal 2020;
•
interest expense on lease liabilities decreased $0.3 million during fiscal 2021 as compared to the
fiscal 2020 due mainly to the Company disclaiming leases under the CCAA proceedings; and
• dividend income decreased $1.4 million for fiscal 2021 due to no longer having any marketable
securities, and interest income decreased $1.3 million due to both lower cash balances held
throughout the year and as interest rates were lower on cash held with banks in fiscal 2021.
Income Taxes
As a result of the uncertainties related to the Company’s ability to generate future profitable
operations and management’s assessment that it is not probable that future taxable profits will be
available in Canada, the income tax expense for fiscal 2021 was impacted by not recognizing
deferred tax assets on operating losses carried forward. The tax expense of $0.2 million for fiscal
2021 is mainly comprised of the deferred income tax impact related to the reclassification of the
accumulated unrealized gain associated with forward contracts from tax expense in other
comprehensive income to net earnings and estimated taxes related to a foreign subsidiary. The
income tax expense for fiscal 2020 amounted to $23.8 million as the Company fully unrecognized
the deferred tax assets on temporary timing differences and operating losses carried forward as at
the end of fiscal 2020.
Net Loss from Continuing Operations
Net loss from continuing operations for fiscal 2021 was $100.0 million ($2.05 basic and diluted loss
per share) as compared with a $73.2 million net loss ($1.31 basic and diluted loss per share) for
fiscal 2020. The increase in net loss from continued operations of $26.8 million is primarily
attributable to the decrease in gross profit and an increase in restructuring costs, partially offset by
an increase in net finance income, a decrease in income tax expense and a decrease in overall
operating costs, as noted above.
Adjusted EBITDA from Continuing Operations
Adjusted EBITDA from continuing operations for fiscal 2021 was $1.0 million as compared to $50.3
million for fiscal 2020. The decrease of $49.3 million is primarily attributable to the decrease of $117.6
million in gross profit, partially offset by a reduction in operating costs (excluding restructuring costs,
depreciation, amortization and impairment of non-financial assets) of $54.4 million and an increase
of $13.9 million in foreign exchange gain, as noted above.
Net Loss from Discontinued Operations
As highlighted in the section entitled “Discontinued Operations”, the Company, as part of its
restructuring plan, closed the Thyme Maternity and Addition Elle banners.
The financial information presented within discontinued operations is directly attributable to both
banners. All administrative expenses and various selling and distribution expenses from shared,
centralized and common functions of the Company are excluded from the determination of net loss
from discontinued operations.
Net loss from discontinued operations for fiscal 2021 was $72.2 million as compared to $14.3 million
for fiscal 2020. The increase in net loss of $57.9 million is primarily attributable to $51.7 million in
restructuring costs, an increase of $20.7 million in impairment of non-financial assets as a result of
the Company’s decision to close the banners, and a decrease in gross margin from the liquidation
of merchandise as the banners’ stores closed, partially offset by reduced operating costs due to
temporary store closures and the measures taken by the Company to reduce costs. In addition, there
13
was no goodwill impairment charge in fiscal 2021 compared to the impairment of goodwill of $11.8
million for the Addition Elle banner incurred in fiscal 2020.
Further financial information can be found in Note 4 of the the audited consolidated financial
statements as at and for fiscal 2021.
OPERATING RESULTS FOR THE FOURTH QUARTER OF 2021 COMPARED TO THE FOURTH
QUARTER OF 2020
Fourth Quarter
of 2021
Fourth Quarter
of 20201
$ Change
% Change
Sales
$
Cost of goods sold
Gross profit
Gross profit %
Selling, distribution and administrative
expenses2
Results from operating activities
Net finance income (costs)
Loss before income taxes
Income tax (recovery) expense
Net loss from continuing operations
Loss from discontinued operations,
net of tax
Net loss
$
144.7
79.8
64.9
44.9%
76.7
(11.8)
0.4
(11.4)
(0.5)
(10.9)
-
(10.9)
$
$
184.4
96.4
88.0
47.7%
103.3
(15.3)
(1.0)
(16.3)
30.9
(47.2)
(4.5)
(51.7)
$
(39.7)
(16.6)
(23.1)
(26.6)
3.5
1.4
4.9
(31.4)
36.3
4.5
40.8
$
(21.5)%
(17.2)%
(26.3)%
(25.8)%
22.9%
n/a
30.1%
n/a
76.9%
100.0%
78.9%
Adjusted EBITDA from continuing
operations
$
6.6
$
8.8
$
(2.2)
(25.0)%
Loss per share:
Basic
Diluted
$
(0.22)
(0.22)
$
(1.06)
(1.06)
Loss per share, continuing operations:
Basic
Diluted
$
(0.22)
(0.22)
$
(0.97)
(0.97)
$
$
0.84
0.84
0.75
0.75
79.2%
79.2%
77.3%
77.3%
1 Comparative figures have been restated to separately present continuing and discontinued operations.
2 Includes impairment of non-financial assets and restructuring costs of $3.8 million and recovery of $0.8 million, respectively, for the
fourth quarter of 2021 ($0.2 million and nil, respectively, for the fourth quarter of 2020).
Sales
Sales for the fourth quarter of 2021 decreased by $39.7 million, or 21.5%, to $144.7 million as
compared with $184.4 million for the fourth quarter of 2020, primarily attributable to temporary store
closures (see section entitled “Key Business Developments and Subsequent Events”) and a net
reduction of 36 stores in the fourth quarter of 2021, partially offset by an increase in e-commerce
sales.
Gross Profit
Gross profit for the fourth quarter of 2021 decreased $23.1 million, or 26.3%, to $64.9 million as
compared with $88.0 million for the fourth quarter of 2020, primarily attributable to lower sales and
a net reduction of 36 stores. Gross profit as a percentage of sales for the fourth quarter of 2021
decreased to 44.9% from 47.7% for the fourth quarter of 2020. The decrease is primarily attributable
to higher promotional activity during the fourth quarter of 2021, particularly with respect to men’s and
women’s work wear apparel, as customer preferences and habits quickly changed upon the
14
transition to working from home during the pandemic, combined with a negative foreign exchange
impact in U.S. dollar denominated purchases included in cost of goods sold.
Selling, Distribution and Administrative Expenses
Total selling, distribution and administrative expenses of $76.7 million for the fourth quarter of 2021
decreased by $26.6 million or 25.8%, as compared to the same period in the prior year while sales
have decreased 21.5%. The decrease in the expenses is primarily attributable to the following:
• decreased store operating and head office wage costs as a result of the measures taken by the
Company under its restructuring plan to mitigate the financial impact from COVID-19, temporary
store closures and fewer stores;
•
financial support from the Canada Emergency Wage Subsidy (“CEWS”) and the Canada
Emergency Rent Subsidy (“CERS”) programs of $7.7 million and $1.4 million, respectively, which
has been recognized as a reduction of selling, distribution and administrative expenses;
• a decrease of $10.2 million in depreciation and amortization due primarily to the decrease in the
number of stores and related right-of-use assets, the reduction of investments in property and
equipment and intangible assets since the outbreak of the pandemic, and the associated impact
of the increase in impairment of non-financial assets (see below);
• a restructuring costs recovery of $0.8 million due primarily to the net impact of gains on lease re-
measurements and professional fees incurred;
• partially offset by,
• a $3.6 million increase in impairment of non-financial assets associated mainly with a reduction
of anticipated profitability of certain individual retail store locations; and
• a $3.9 million increase in overall freight costs incurred due mainly to the growth of e-commerce
sales.
Net Finance Income (Costs)
Net finance income was $0.4 million for the fourth quarter of 2021 as compared to net finance costs
of $1.0 million for the fourth quarter of 2020. This change is primarily attributable to the foreign
exchange impact on U.S. denominated monetary assets and liabilities, partially offset by lower
interest income earned from cash held with banks.
Income Taxes
As a result of the uncertainties related to the Company’s ability to generate future profitable
operations and management’s assessment that it is not probable that future taxable profits will be
available in Canada, the income tax recovery for the fourth quarter of 2021 was impacted by not
recognizing deferred tax assets on operating losses carried forward. The income tax recovery of $0.5
million for the fourth quarter of 2021 includes the impact of the estimated taxes related to a foreign
subsidiary. The income tax expense for the fourth quarter of fiscal 2020 amounted to $30.9 million
as the Company fully unrecognized the deferred tax assets on temporary timing differences and
operating losses carried forward as at the end of the fourth quarter of 2020.
Net Loss from Continuing Operations
Net loss from continuing operations for the fourth quarter of 2021 was $10.9 million ($0.22 basic and
diluted loss per share) as compared with a $47.2 million net loss ($0.97 basic and diluted loss per
share) for the fourth quarter of 2020. The decrease in net loss of $36.3 million is primarily attributable
to the decrease in income tax expense, a decrease in overall operating costs and a decrease in net
finance costs, partially offset by a decrease in gross profit, as noted above.
15
Adjusted EBITDA from Continuing Operations
Adjusted EBITDA from continuing operations for the fourth quarter of 2021 was $6.6 million as
compared with $8.8 million for the fourth quarter of 2020. The decrease of $2.2 million is primarily
attributable to the decrease of $23.1 million in gross profit, partially offset by a reduction in operating
costs (excluding restructuring costs recovery, depreciation, amortization and impairment of non-
financial assets) of $19.2 million and an increase of $1.7 million in foreign exchange gain on U.S.
denominated monetary assets and liabilities, as noted above.
Net Earnings (Loss) from Discontinued Operations
As highlighted in the section entitled “Discontinued Operations”, the Company, as part of its
restructuring plan, closed the Thyme Maternity and Addition Elle banners.
As the discontinued banners were no longer in operation during the fourth quarter of 2021, there
were no earnings to report. Net loss from discontinued operations for the fourth quarter of 2020 was
$4.5 million. The financial information presented within discontinued operations is directly attributable
to both banners. All administrative expenses and various selling and distribution expenses from
shared, centralized and common functions of the Company are excluded from the determination of
net earnings (loss) from discontinued operations.
Further financial information can be found in Note 4 of the the audited consolidated financial
statements as at and for fiscal 2021.
FOREIGN EXCHANGE CONTRACTS
The Company imports a majority of its merchandise purchases from foreign vendors, with lead times
in some cases extending twelve months. The Company may enter into foreign exchange forward
contracts to hedge a significant portion of its exposure to fluctuations in the value of the U.S. dollar.
In early fiscal 2021, the Company temporarily paused its hedging program due to the uncertainties
surrounding future inventory purchase commitments as a result of COVID-19 and the restructuring
plan. Once the uncertainties surrounding COVID-19 cease to exist, the Company will re-evaluate its
foreign exchange risk management options, including the use of foreign exchange forward hedge
contracts.
Details of the foreign exchange forward contracts outstanding, all of which are designated as cash
flow hedges are as follows:
January 30, 2021
February 1, 2020
Average
Strike Price
$ -
$ 1.318
Notional
Amount in
U.S. Dollars
-
$
$ 175.0
Derivative
Financial
Asset
-
1.1
$
$
Derivative
Financial
Liability
$
$
-
(0.3)
Net
-
0.8
$
$
16
SUMMARY OF QUARTERLY RESULTS
Due to seasonality and the timing of holidays, the results of operations for any quarter are not
necessarily indicative of the results of operations for the fiscal year. The table below presents selected
consolidated financial data for the eight most recently completed quarters. All references to “2021” are
to the Company’s fiscal year ended January 30, 2021 and “2020” are to the Company’s fiscal year
ended February 1, 2020.
Fourth Quarter
20201
2021
Third Quarter
2021
20201
Second Quarter
20201
2021
First Quarter
2021
20201
Sales
$ 144.7
$ 184.4
$ 163.4
$ 183.6
$ 144.0
$ 188.2
$
81.3
$ 149.3
Net loss from continuing
operations
(Loss) earnings from
discontinued operations,
net of tax
Net loss
Loss per share
Basic
Diluted
Loss per share, continuing
operations:
Basic
Diluted
(10.9)
(47.2)
(14.9)
(9.4)
(27.4)
(2.4)
(46.7)
(14.2)
-
(4.5)
0.4
(10.9)2
(51.7)
(14.5)3
(13.7)
(23.1)
(44.6)
(72.0)4
2.3
(0.1)
(28.0)
1.6
(74.7) 5
(12.6)
$
(0.22)2
(0.22)2
$
(1.06)
(1.06)
$
(0.30)3 $
(0.30)3
(0.47)
(0.47)
$
(1.47)4 $
(1.47)4
(0.00)
(0.00)
$
(1.53)5 $
(1.53)5
(0.20)
(0.20)
$
(0.22)
(0.22)
$
(0.97)
(0.97)
$
(0.31)
(0.31)
$
(0.19)
(0.19)
$
(0.56)
(0.56)
$
(0.04)
(0.04)
$
(0.95)
(0.95)
$
(0.22)
(0.22)
1 Comparative figures have been restated to separately present continuing and discontinued operations.
2 Includes the impact of wage and rent subsidies totalling $9.1 million, restructuring costs recovery of $0.8 million, partially offset by $3.8
million of an impairment of non-financial assets.
3 Includes the impact of an impairment of non-financial assets of $5.2 million, restructuring costs of $4.8 million, partially offset by $6.8
million of wage subsidy.
4 Includes the impact of an impairment of non-financial assets of $9.0 million, restructuring costs of $74.2 million, partially offset by $14.8
million of wage subsidy.
5 Includes the impact of an impairment of non-financial assets of $20.6 million, additional provision for valuation of inventory of $18.3
million partially offset by $11.6 million of a net unrealized foreign exchange gain on reclassification of foreign contracts and $6.6
million of wage subsidy.
BALANCE SHEET
Selected line items from the Company’s balance sheets as at January 30, 2021 and February 1,
2020 are presented below:
Cash and cash equivalents
Trade and other receivables
Net derivative financial asset
Inventories
Prepaid expenses
Property and equipment & intangible assets
Right-of-use assets
Trade and other payables
Deferred revenue
Income taxes payable
Lease liabilities (current and non-current)
Liabilities subject to compromise
Pension Liability
$
2021
77.9
10.7
-
96.1
32.1
76.4
103.8
31.5
12.5
1.2
123.2
204.1
3.1
$
2020
89.4
6.3
0.8
147.4
9.4
108.4
198.1
109.7
15.0
3.2
213.9
-
24.2
$ Change % Change
(12.9)%
$ (11.5)
69.8%
4.4
(100.0)%
(0.8)
(34.8)%
(51.3)
n/a
22.7
(29.5)%
(32.0)
(47.6)%
(94.3)
(71.3)%
(78.2)
(16.7)%
(2.5)
(34.4)%
(2.0)
(42.4)%
(90.7)
n/a
204.1
(87.2)%
(21.1)
17
Changes in selected line items from the Company’s balance sheets at January 30, 2021 as
compared to February 1, 2020 were primarily due to the following:
• cash and cash equivalents decreased $11.5 million due to reduction of cash generated from
operations primarily caused by the impact from temporary store closures and, when stores were
open, customer shopping behaviour not returning to pre-pandemic levels due to COVID-19,
partially offset by controlling expenses and the delay of payments to suppliers while under CCAA
protection, the financial support received from the CEWS program, the continued suspension of
any payment of dividends and lower investments made in property and equipment in fiscal 2021;
•
•
•
•
trade and other receivables increased $4.4 million primarily due to Federal wages and rent
subsidies of $7.9 million receivable as at January 30, 2021, partially offset by lower credit card
trade and wholesale receivables, as well as lower insurance claims and marketing affiliation
receivables;
there was no net derivative financial asset as at end of the fiscal 2021 due to the Company’s decision
to temporarily pause its hedging program following the uncertainties surrounding future inventory
purchase commitments;
inventories are lower due in part to the Company’s restructuring plan to optimize its retail footprint
through a reduction in the number of its stores, from the closures of the Addition Elle and Thyme
Maternity banners and from an increase in the inventory reserves required on the estimated sell
through value of inventory based on customer demand and sales patterns subsequent to fiscal
2021;
the increase of $22.7 million in prepaid expenses is primarily due to required supplier deposits
and prepayments while the Company is under CCAA protection and higher prepaid insurance
premiums, partially offset by lower payments of other costs related to store leases and
maintenance contracts as a result of the Company’s restructuring plan;
• due to the significant reduction in business stemming from COVID-19, the Company cancelled
or delayed investments in capital expenditures. For fiscal 2021, $6.2 million was invested mainly
on store renovations. Depreciation and amortization of $17.8 million and impairment of $20.8
million on property and equipment and intangible assets were recognized in fiscal 2021 ($30.5
million and $2.5 million respectively, in fiscal 2020);
•
•
right-of-use assets represent the right-to-use the retail stores and certain equipment over their
lease terms. Right-of-use assets decreased by $94.3 million, of which $35.2 million was due to
the Company disclaiming leases under the CCAA proceedings and $27.0 million was due to
lease modifications primarily from the Company’s negotiations and the resulting changes to the
type of leases (i.e. fixed to variable lease) with some landlords. Right-of-use assets increased
by lease additions of $28.9 million in fiscal 2021. Depreciation and amortization of $43.3 million
in fiscal 2021 ($68.6 million in fiscal 2020) and impairment charges of $17.7 million on right-of-
use assets were recognized in fiscal 2021 ($1.4 million in fiscal 2020). The increase in impairment
on right-of-use assets relates to a reduction of the anticipated profitability of certain individual
retail store locations and in light of the economic uncertainties caused by COVID-19;
trade and other payables decreased by $78.2 million primarily due to the reclassification of pre-
filing general liabilities under the CCAA process to “liabilities subject to compromise”, partially
offset by an increase due to the timing of payments. See Note 14 of the audited consolidated
financial statements for fiscal 2021;
• deferred revenue consists of unredeemed gift cards, loyalty points and awards granted under
customer loyalty programs. Revenue is recognized when the gift cards, loyalty points and awards
are redeemed. Deferred revenue decreased by $2.5 million primarily due to a reduction in both
gift cards issued and awards granted by customer loyalty programs as gift card issuances and
18
•
•
•
awards granted were impacted by stores being temporarily closed at various times throughout
fiscal 2021 and by the closures of the Addition Elle and Thyme Maternity banners;
income taxes payable consists of estimated tax liabilities. The decrease of $2.0 million in income
taxes payable is primarily due to payments made for prior years’ taxes during fiscal 2021;
lease liabilities represent the present value of the Company’s obligations to make lease payments
for its store and equipment leases. During fiscal 2021, lease liabilities decreased by $90.7 million,
of which $41.5 million was due to the Company disclaiming leases under the CCAA proceedings
and $9.3 million was reclassified to liabilities subject to compromise. In addition, during fiscal
2021, lease liabilities decreased by lease payments of $46.8 million and lease modifications of
$28.2 million, offset by lease additions of $28.9 million and interest expense of $6.2 million;
liabilities subject to compromise consist mainly of amounts owed to creditors (including
landlords), ex-employees and beneficiaries of the Company’s Supplementary Employee
Retirement Pension (“SERP”) plan. The amounts are subject to the provisions of the CCAA and
are expected to be settled through a future Plan of Arrangement to be approved by the Monitor
and the Court. Liabilities subject to compromise represent the Company’s best estimate of
liabilities that will ultimately be subject to the Plan of Arrangement and compromise with the
Company’s creditors. See Notes 2 f) (v) and 14 of the audited consolidated financial statements
as at and for fiscal 2021;
• pension liability decreased by $21.1 million primarily as the pre-petition portion of the pension
liability relating to the SERP, which is neither registered nor pre-funded, was reclassified to
liabilities subject to compromise, as discussed above.
OPERATING RISK MANAGEMENT
Uncertainty about the Company’s Ability to Continue as a Going Concern
The deterioration of the Company’s financial position since the beginning of fiscal 2021, the
Company’s liquidity position as of the date of this MD&A and the unpredictability of the outcome of
the matters arising from the CCAA proceedings, indicate the existence of a material uncertainty that
may cast doubt about the Company’s ability to continue as a going concern. The Company’s
restructuring plan has implemented measures to conserve cash to fund its ongoing operations,
including reductions in both staffing levels and discretionary spending and has suspended the
payment of dividends. However, the Company’s ability to continue as a going concern is dependent
on obtaining creditor acceptance of a yet to be filed and proposed Plan of Arrangement for claims
submitted to the Monitor under the CCAA process, and its ability to resume normal operations,
generate future revenues and profitable operations.
Economic Environment
Economic factors that influence consumer-spending patterns could deteriorate or remain
unpredictable due to global, national or regional economic volatility. These factors could negatively
affect the Company’s revenue and margins. Inflationary trends are unpredictable and changes in the
rate of inflation or deflation will affect consumer prices, which in turn could negatively affect the
financial performance of the Company. The Company closely monitors economic conditions in order
to react to consumer spending habits and constraints in developing both its short-term and long-term
operating decisions.
19
Competitive Environment
The retail apparel business in Canada is highly competitive with competitors including department
stores, specialty apparel chains and independent retailers. If the Company is ineffective in
responding to consumer trends or in executing its strategic plans, its financial performance could be
negatively affected. There is no effective barrier to entry into the Canadian apparel retailing
marketplace by any potential competitor, foreign or domestic, as witnessed by the arrival over the
past years of a number of foreign-based competitors and additional foreign retailers continuing to
expand into the Canadian marketplace. Additionally, Canadian consumers have a significant number
of e-commerce shopping alternatives available to them on a global basis. The Company believes
that it is well positioned to compete with any competitor. The Company operates multiple banners
with product offerings that are diversified as each banner is directed to and focused on a different
niche in the Canadian women’s apparel market. The Company’s stores, located throughout Canada,
offer affordable fashions to consumers. The Company also offers an e-commerce alternative for
shoppers through each of the banner’s websites. The e-commerce retail landscape is highly
competitive with both domestic and foreign competition. The Company has invested significantly in
its e-commerce websites and social media to drive consumers to the websites and believes that it is
positioned well to compete in this environment.
Distribution and Supply Chain
The Company depends on the efficient operation of its sole distribution centre, such that any
significant disruption in the operation thereof (e.g. global supply chain delays, natural disaster,
system failures, destruction or major damage by fire), could materially delay or impair the Company’s
ability to replenish its stores on a timely, cost-efficient basis or satisfy e-commerce demand causing
a loss of sales and potential dissatisfaction amongst its customers, which could have a significant
effect on the results of operations.
Loyalty Programs
The Company’s loyalty programs are a valuable offering to customers and provide a key marketing
tool for the business. The marketing, promotional and other business activities related to possible
changes to the loyalty programs must be well managed and coordinated to preserve positive
customer perception. Any failure to successfully manage the loyalty programs may negatively affect
the Company’s reputation and financial performance.
Leases
All of the Company’s stores are held under leases, most of which can be renewed for additional
terms at the Company’s option. Any factor that would have the effect of impeding or affecting, in a
material way, the Company’s ability to lease prime locations or re-lease and/or renovate existing
profitable locations, or delay the Company’s ability to close undesirable locations could adversely
affect the Company’s operations. Any rent obligations unpaid prior to the date of the Company’s
initial CCAA filing on May 19, 2020 and any additional amounts claimed by retail landlords with
respect to disclaimed leases under the Company’s restructuring plan, will be subject to a Plan of
Arrangement, for which a date to be submitted to the Court has yet to be determined.
Consumer Shopping Patterns
Changes in customer shopping patterns could affect sales. Many 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, restrictions on customer capacity in stores
resulting from continued COVID-19 health protocols, construction and accessibility, alternative
shopping formats such as e-commerce, discount stores and lifestyle centres, among other factors.
20
Any changes in consumer shopping patterns could adversely affect the Company’s financial
condition and operating results.
Natural Disasters, Adverse Weather, Pandemic Outbreaks, Boycotts and Geopolitical Events
The occurrence of one or more natural disasters, such as earthquakes and hurricanes, unusually
adverse weather, pandemic outbreaks, boycotts and geopolitical events, such as civil unrest in
countries in which suppliers are located and acts of terrorism, or similar disruptions could materially
adversely affect the Company’s business and financial results. Furthermore, the impact of any such
events on its business and financial results could be exacerbated if they occur during the Company’s
peak selling seasons.
These events could result in physical damage to one or more of the Company’s properties, increases
in fuel or other energy prices, the temporary or permanent closure of its distribution centre or of one
or more of its stores, delays in opening new stores, the temporary lack of an adequate workforce in
a market, the temporary or long-term disruption in the supply of products from some local and
overseas suppliers, the temporary disruption in the transportation of goods from overseas, delays in
the delivery of goods to the distribution centre or stores, the temporary reduction in the availability
of products in stores, the temporary reduction of store traffic and disruption to information systems.
These factors could materially adversely affect the Company’s business and financial results.
The fallout from COVID-19 has caused a global shipping industry disruption resulting in increased
merchandise freight costs and merchandise delivery delays. In addition, containment protocols
implemented in Canada has had an impact on consumer shopping patterns and behavior that could
have further negative consequences to the Company in fiscal 2022.
Information Technology
The Company depends on information systems to manage its operations, including a full range of
retail, financial, merchandising and inventory control, planning, forecasting, reporting and distribution
systems. The Company continues to undertake investments in new IT systems to improve the
operating effectiveness of the organization. Failure to successfully migrate from legacy systems to
new IT systems or a significant disruption in or the hacking of the Company’s IT systems in general
could result in a lack of accurate data or the inability of management to effectively manage day-to-
day operations of the business or achieve its operational objectives, causing significant disruptions
to the business and potential financial losses. The Company also depends on relevant and reliable
information to operate its business. As the volume of data being generated and reported continues
to increase across the Company, data accuracy, quality and governance are required for effective
decision-making.
Failure to successfully adopt or implement appropriate processes to support the new IT systems, or
failure to effectively leverage or convert data from one system to another, may preclude the
Company from optimizing its overall performance and could result in inefficiencies and duplication
in processes, which in turn could adversely affect the reputation, operations or financial performance
of the Company. Failure to realize the anticipated strategic benefits including revenue growth,
anticipated cost savings or operating efficiencies associated with the new IT systems could adversely
affect the reputation, operations or financial performance of the Company.
Laws and Regulations
The Company is structured in a manner that management considers most effective to conduct its
business. The Company is subject to material and adverse changes in government regulation that
might affect income and sales, taxation, duties, quota impositions or re-impositions and other
legislated or government regulated matters.
Changes to any of the laws, rules, regulations or policies (collectively, “laws”) applicable to the
Company’s business, including income, capital, property and other taxes, and laws affecting the
21
importation, distribution, packaging and labelling of products, could have an adverse impact on the
financial or operational performance of the Company. In the course of complying with such changes,
the Company could incur significant costs. Changing laws or interpretations of such laws or
enhanced enforcement of existing laws could restrict the Company’s operations or profitability and
thereby threaten the Company’s competitive position and ability to efficiently conduct business.
Failure by the Company to comply with applicable laws and orders in a timely manner could subject
the Company to civil or regulatory actions or proceedings, including fines, assessments, injunctions,
recalls or seizures, which in turn could negatively affect the reputation, operations and financial
performance of the Company.
The Company is subject to tax audits from various government and regulatory agencies on an
ongoing basis. As a result, from time to time, taxing authorities may disagree with the positions and
conclusions taken by the Company in its tax filings or laws could be amended or interpretations of
current laws could change, any of which events could lead to reassessments. These reassessments
could have a material impact on the Company’s financial position, operating results or cash flows in
future periods.
Merchandise Sourcing
Virtually all of the Company’s merchandise is private label. On an annual basis, the Company
directly imports over 90% of its merchandise, largely from Asia. In fiscal 2021, no supplier
represented more than 10% of the Company’s purchases (in dollars and/or units) and there is a
variety of alternative sources (both domestic and international) for virtually all of the Company’s
merchandise. The Company has good relationships with its suppliers and has no reason to believe
that it is exposed to any material risk that would prevent the Company from acquiring, distributing
and/or selling merchandise on an ongoing basis. In fiscal 2021, the outbreak of COVID-19 caused
disruptions in the Company’s supply chain. An unprecedented increase in containerized cargo
demand and reduced vessel capacity has resulted in merchandise delivery delays and increasing
merchandise freight costs that could have negative financial consequences to the Company in fiscal
2022.
The Company endeavours to be environmentally responsible and recognizes that the competitive
pressures for economic growth and cost efficiency must be integrated with sound sustainability
management, including environmental stewardship. The Company has adopted sourcing and other
business practices to address the environmental concerns of its customers. The Company has
established guidelines that require compliance with all applicable environmental laws and
regulations. Although the Company requires its suppliers to adhere to these guidelines, there is no
guarantee that these suppliers will not take actions that could hurt the Company’s reputation, as they
are independent third parties that the Company does not control. However, if there is a lack of
apparent compliance, it may lead the Company to search for alternative suppliers. This may have
an adverse effect on the Company’s financial results, by increasing costs and potentially causing
delays in delivery.
Cyber Security, Privacy and Protection of Personal Information
The Company is subject to various laws regarding the protection of personal information of its
customers, cardholders and employees and has adopted a Privacy Policy setting out guidelines for
the handling of personal information. The Company’s IT systems contain personal information of
customers, cardholders and employees. Any failures or vulnerabilities in these systems or non-
compliance with laws or regulations, including those in relation to personal information belonging to
the Company’s customers and employees, could negatively affect the reputation, operations and
financial performance of the Company.
The Company depends on the uninterrupted operation of its IT systems, networks and services
including internal and public internet sites, data hosting and processing facilities, cloud-based
22
services and hardware, such as point-of-sale processing at stores, to operate its business. In the
ordinary course of business, the Company collects, processes, transmits and retains confidential,
sensitive and personal information (“Confidential Information”) regarding the Company and its
employees, vendors, customers and credit card holders. Some of this Confidential Information is
held and managed by third party service providers. As with other large and prominent companies,
the Company is regularly subject to cyber attacks and such attempts are occurring more frequently,
are constantly evolving in nature and are becoming more sophisticated.
The Company has implemented security measures, including employee training, monitoring and
testing, maintenance of protective systems and contingency plans, to protect and to prevent
unauthorized access of Confidential Information and to reduce the likelihood of disruptions to its IT
systems. The Company also has security processes, protocols and standards that are applicable to
its third party service providers. Despite these measures, all of the Company’s information systems,
including its back-up systems and any third party service provider systems that it employs, are
vulnerable to damage, interruption, disability or failures due to a variety of reasons, including physical
theft, fire, power loss, computer and telecommunication failures or other catastrophic events, as well
as from internal and external security breaches, denial of service attacks, viruses, worms and other
known or unknown disruptive events.
The Company or its third party service providers may be unable to anticipate, timely identify or
appropriately respond to one or more of the rapidly evolving and increasingly sophisticated means
by which computer hackers, cyber terrorists and others may attempt to breach the Company’s
security measures or those of our third party service providers’ information systems. As cyber threats
evolve and become more difficult to detect and successfully defend against, one or more cyber
threats might defeat the Company’s security measures or those of its third party service providers.
Moreover, employee error or malfeasance, faulty password management or other irregularities may
result in a breach of the Company’s or its third party service providers’ security measures, which
could result in a breach of employee, customer or credit card holder privacy or Confidential
Information.
If the Company does not allocate and effectively manage the resources necessary to build and
sustain reliable IT infrastructure, fails to timely identify or appropriately respond to cyber security
incidents, or the Company’s or its third party service providers’ information systems are damaged,
destroyed, shut down, interrupted or cease to function properly, the Company’s business could be
disrupted and the Company could, among other things, be subject to: transaction errors; processing
inefficiencies; the loss of existing customers or failure to attract new customers; the loss of sales;
the loss or unauthorized access to Confidential Information or other assets; the loss of or damage
to intellectual property or trade secrets; damage to its reputation; litigation; regulatory enforcement
actions; violation of privacy, security or other laws and regulations; and remediation costs.
Legal Proceedings
In the ordinary course of business, the Company is involved in and potentially subject to legal
proceedings. The proceedings may involve landlords, suppliers, customers, regulators, tax
authorities or other persons. The potential outcome of legal proceedings and claims is uncertain and
could result in a material adverse effect on the Company’s reputation, operations or financial
condition or performance.
Merchandising, Electronic Commerce and Disruptive Technologies
The Company may have inventory that customers do not want or need, is not reflective of current
trends in customer tastes, habits or regional preferences, is priced at a level customers are not willing
to pay or is late in reaching the market. In addition, the Company’s operations, specifically inventory
levels, sales, volume and product mix, are impacted to some degree by seasonality, including certain
23
holiday periods in the year. If merchandising efforts are not effective or responsive to customer
demand, it could adversely affect the Company’s financial performance.
Customers expect innovative concepts and a positive customer online experience, including a user-
friendly website, safe and reliable processing of payments and a well-executed merchandise pick up
or delivery process. If systems are damaged or cease to function properly, capital investment may
be required. The Company is also vulnerable to various additional uncertainties associated with e-
commerce including website downtime and other technical failures, changes in applicable federal
and provincial regulations, security breaches, and consumer privacy concerns. If these technology-
based systems do not function effectively, the Company’s ability to grow its e-commerce business
could be adversely affected. The Company’s omnichannel strategy entails digital customer
experience investments, but there can be no assurances that the Company will be able to recover
the related costs incurred.
The retail landscape demands an efficient and seamless digitally influenced shopping experience.
The emergence of disruptive technologies and the effect of increasing digital advances could have
an impact on the physical space requirements of retail businesses. Although the importance of a
retailer’s physical presence has been demonstrated, the size requirements and locations may be
subject to further disruption. Any failure to adapt the business models to recognize and manage this
shift in a timely manner could adversely affect the Company’s operations or financial performance.
Key Management and Ability to Attract and/or Retain Key Personnel
The Company’s success depends upon the continued contributions of key management, some of
whom have unique talents and experience and would be difficult to replace in the short term. The
loss or interruption of the services of a key executive could have a negative effect on the Company
during the transitional period that would be required for a successor to assume the responsibilities
of the key management position. The Company’s success will also depend on the ability to attract
and retain other key personnel. The Company may not be able to attract or retain these employees,
which could negatively affect the business.
FINANCIAL RISK MANAGEMENT
The Company is exposed to a number of financial risks, including those associated with financial
instruments, which have the potential to affect its operating and financial performance. The Company
may periodically use derivative instruments to offset certain of these risks. The Company’s policies
and guidelines prohibit the use of any derivative instrument for trading or speculative purposes. The
fair value of derivative instruments is subject to changing market conditions that could adversely
affect the financial performance of the Company.
The Company’s risk management policies are established to identify and analyze the risks faced by
the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and the Company’s activities. Disclosures relating to the Company’s 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, trade and other receivables
and foreign currency forwards exchange contracts. The Company limits its exposure to credit risk
with respect to cash and cash equivalents and foreign currency forwards contracts by dealing with
24
major Canadian financial institutions. The Company’s trade and other receivables consist primarily
of government assistance receivable and credit card receivables from the last few days of the fiscal
year, which are settled within the first days of the next fiscal year. Due to the nature of the Company’s
activities and the low credit risk of the Company’s trade and other receivables as at January 30,
2021 and February 1, 2020, expected credit loss on these financial assets is not significant.
As at January 30, 2021, the Company’s maximum exposure to credit risk for these financial
instruments was as follows:
Cash and cash equivalents
Trade and other receivables
$
$
77.9
10.7
88.6
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 trade and other payables is within twelve months.
For fiscal 2021, the Company incurred a net loss of $172.2 million. As at January 30, 2021, the
Company’s current liabilities total $284.5 million (of which $204.1 million is subject to compromise in
connection with CCAA proceedings) and current liquid assets consisting of cash and cash
equivalents total $77.9 million. During fiscal 2021, the Company’s lenders terminated the maximum
overdraft protection of $25 million, and the facilities available for letters of credit of $40 million had
been reduced to a maximum of $1 million. Given the deterioration in the Company’s financial position
during fiscal 2021, the effective elimination of its previous credit facilities and the continued
uncertainty surrounding COVID-19, on May 19, 2020, the Company obtained an initial order (the
“Order”) to seek protection from creditors under the CCAA. On August 5, 2020, the Company
secured interim (“DIP Loan”) financing with a Canadian financial institution up to a maximum amount
of $60 million, including facilities available for securing letters of credit of up to $5.0 million. Refer to
Note 23 in the audited consolidated financial statements for fiscal 2021.
Foreign Currency Risk
The Company purchases a significant amount of its merchandise with U.S. dollars and as such
significant volatility in the U.S. dollar vis-à-vis the Canadian dollar can have an adverse impact on
the Company’s gross margin. The Company has a variety of alternatives that it considers to manage
its foreign currency exposure on cash flows related to these purchases. These include, but are not
limited to, various styles of foreign currency option or forward contracts, normally not to exceed
twelve months, and U.S. dollar spot rate purchases. A foreign currency option contract represents
an option or obligation to buy a foreign currency from a counterparty. A forward foreign exchange
contract is a contractual agreement to buy or sell a specified currency at a specific price and date in
the future. The Company may enter into certain qualifying foreign exchange contracts that it
designated as cash flow hedging instruments. This results in mark-to-market foreign exchange
adjustments, for qualifying hedged instruments, being recorded as a component of other
comprehensive income. As described in Note 25 in the audited consolidated financial statements for
fiscal 2021, the uncertainty surrounding COVID-19 and the outcome of the CCAA proceedings have
reduced future purchases for which foreign exchange contracts were designated as cash flow
hedges are no longer expected to occur. Consequently, foreign exchange gains and losses on
merchandise purchases are recorded in net earnings instead of in other comprehensive income.
The Company has performed a sensitivity analysis on its U.S. dollar denominated financial
instruments, which consist principally of cash and cash equivalents of $39.8 million U.S. and trade
payables of $53.9 million U.S. to determine how a change in the U.S. dollar exchange rate would
affect net earnings. On January 30, 2021, a 10% rise or fall in the Canadian dollar against the U.S.
25
dollar, assuming that all other variables, in particular interest rates, had remained the same, would
have resulted in a $1.8 million increase or decrease, respectively, in the Company’s net earnings for
fiscal 2021.
Interest Rate Risk
Interest rate risk exists in relation to the Company’s cash and cash equivalents. Market fluctuations
in interest rates impacts the Company’s earnings with respect to interest earned on cash and cash
equivalents that are invested mainly with major Canadian financial institutions. As at January 30,
2021, the Company has a DIP loan facility of up to $60.0 million, including facilities available for
securing letters of credit of up to $5.0 million. The DIP Loan bears interest at the lender’s prime rate
plus 5.0% per annum on the outstanding principal amount of the DIP Loan. As at January 30, 2021,
the Company has not drawn funds from the DIP Loan facility, other than for the issuance of letters
of credit totalling $0.4 million.
The Company has performed a sensitivity analysis on interest rate risk at January 30, 2021 to
determine how a change in interest rates would affect net earnings. For fiscal 2021, the Company
earned interest income of $0.4 million on its cash and cash equivalents. An increase or decrease of
50 basis points in the average interest rate earned during the year would have increased or
decreased net earnings by $0.3 million respectively. This analysis assumes that all other variables,
in particular foreign currency rates, remain constant.
LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES
The Company primarily uses funds for working capital requirements and capital expenditures.
Shareholders’ equity as at January 30, 2021 amounts to $21.7 million or $0.44 per share (February
1, 2020 - $193.8 million or $3.97 per share). As at January 30, 2021, the Company has current
liabilities of $284.5 million (including liabilities subject to compromise of $204.1 million) (February 1,
2020 - $189.9 million) and cash and cash equivalents of $77.9 million (February 1, 2020 - $89.4
million) and no long-term debt (other than lease liabilities). Cash and cash equivalents are held in
interest bearing accounts mainly with a major Canadian financial institution.
On August 5, 2020, with the approval of the Court, the Company secured interim financing, also referred
to as a DIP Loan, with a Canadian financial institution consisting of a revolving credit facility of up to
$60.0 million, including facilities available for securing letters of credit of up to $5.0 million. The DIP
Loan bears interest at the lender’s prime rate plus 5.0% per annum on the outstanding principal amount
of the DIP Loan. As at January 30, 2021, the Company has not used the DIP Loan facility, other than
for the issuance of letters of credit totalling $0.4 million. The Company has taken measures to preserve
cash to the extent possible, including reducing headcount through layoffs, reducing discretionary
expenditures, and deferring capital expenditures, as described below. In order to conserve cash, the
Board of Directors of the Company has continued the suspension of the quarterly dividend.
In fiscal 2021, the Company had cancelled or delayed significant investments due to the economic
uncertainty with approximately $6.2 million in capital expenditures, on a cash basis, primarily in store
renovations. Excluding any extended economic uncertainty impact from COVID-19, the Company
expects to invest approximately $14.0 million in capital expenditures in fiscal 2022 in various areas
such as store renovations, visual capacity projects, customer service engagement and other
corporate initiatives.
26
FINANCIAL COMMITMENTS
The following table sets forth the Company’s financial commitments, excluding trade and other
payables, as at January 30, 2021:
Contractual Obligations
Lease obligations1
Purchase obligations2
Other service contracts
Total
$ 130.0
112.0
12.4
Within
1 year
$
43.6
103.0
3.8
2 to 4
years
$
60.0
9.0
7.7
5 years
and over
26.4
$
-
0.9
Total contractual obligations
$ 254.4
$ 150.4
$
76.7
$
27.3
1 Represents the undiscounted minimum lease payments for leases of retail locations and office equipment. Disclaimed leases that
are included in liabilities subject to compromise as part of the CCA process are excluded. Refer to Note 10 and 14 in the audited
consolidated financial statements for fiscal 2021.
2 Includes amounts pertaining to agreements to purchase goods or services that are enforceable and legally binding on the Company.
As at January 30, 2021, the Company’s pension liability has not been included in the table above as
the timing and amount of future payments are uncertain. Refer to Note 15 in the audited consolidated
financial statements for fiscal 2021.
OUTSTANDING SHARE DATA
At April 19, 2021, 13,440,000 Common shares and 35,427,322 Class A non-voting shares of the
Company were issued and outstanding. Each Common share entitles the holder thereof to one vote
at meetings of shareholders of the Company. The Company has 1,357,000 share options
outstanding at an average exercise price of $8.84. Each share option entitles the holder to purchase
one Class A non-voting share of the Company at an exercise price established based on the market
price of the shares at the date the option was granted.
OFF-BALANCE SHEET ARRANGEMENTS
Derivative Financial Instruments
The Company in its normal course of business must make long lead-time commitments for a
significant portion of its merchandise purchases, in some cases as long as twelve months. Most of
these purchases must be paid for in U.S. dollars. The Company considered a variety of strategies
designed to manage the cost of its continuing U.S. dollar long-term commitments, including spot rate
purchases and foreign currency forward contracts with maturities generally not exceeding twelve
months and are normally designated as cash flow hedges. Future U.S. dollar denominated
purchases, hedged by outstanding forward contracts were no longer expected to occur as a result
of the Company’s effort to reduce future inventory purchases in response to the uncertainty
surrounding COVID-19 and the restructuring plan. As a result, the Company had initially reclassified
the accumulated unrealized gain associated with these forward contracts from other comprehensive
income to net earnings. During fiscal 2021, such forward contracts with a notional amount of $15.0
million U.S. dollars matured and the Company disposed of all remaining forward contracts with a
notional amount of $115.0 million U.S. dollars, resulting in a realized foreign exchange gain of $9.7
million for fiscal 2021.
The Company has temporarily paused its hedging program due to the uncertainties surrounding
future inventory purchase commitments as a result of COVID-19 and the restructuring plan. There
are no foreign exchange contracts outstanding as at January 30, 2021, as previously described in
the “Foreign Exchange Contracts” section of this MD&A.
27
A forward foreign exchange contract is a contractual agreement to buy or sell a specified currency
at a specific price and date in the future. Credit risks exist in the event of failure by a counterparty to
fulfill its obligations. The Company was reducing this risk by dealing only with highly-rated
counterparties, normally major Canadian chartered banks.
RELATED PARTY TRANSACTIONS
Transactions with Key Management Personnel
Key management personnel are those persons (both executive and non-executive) who have the
authority and responsibility for planning, directing and controlling the activities of the entity - directly
or indirectly. The Board of Directors (which includes the Chief Executive Officer and President) has
the responsibility for planning, directing and controlling the activities of the Company and are
considered key management personnel. The members of the Board of Directors participate in the
share option plan, as described in Note 17 to the audited consolidated financial statements for fiscal
2021.
Compensation expense for key management personnel is as follows:
Salaries, Directors’ fees and short-term benefits
Share-based compensation costs
Fiscal 2021
Fiscal 2020
$ 1.3
-
$ 1.3
$ 1.6
-
$ 1.6
Other Related-Party Transactions
The Company incurred $1.3 million in fiscal 2021 (fiscal 2020 - $0.4 million) for legal services
rendered by a law firm connected to certain members of the Board of Directors.
These transactions are recorded at the amount of consideration paid as established and agreed to
by the related parties.
Liabilities subject to compromise includes pension liabilities in the amount of $7.2 million payable to
the Company’s President and Chief Executive Officer and Chief Financial Officer.
FINANCIAL INSTRUMENTS
The Company uses its cash resources to fund ongoing working capital needs along with capital
expenditures. Financial instruments that are exposed to concentrations of credit risk consist
primarily of cash and cash equivalents, trade and other receivables and foreign currency contracts.
The Company reduces this risk by dealing only with highly-rated counterparties, normally major
Canadian financial institutions. The Company closely monitors its risk with respect to short-term
cash investments.
The volatility of the U.S. dollar vis-à-vis the Canadian dollar impacts earnings and while the Company
considers a variety of strategies designed to manage the cost of its continuing U.S. dollar
commitments, such as spot rate purchases and foreign exchange contracts, this volatility can result
in exposure to risk. With the Company temporarily pausing its hedging program, the exposure to risk
is augmented subject to the U.S. dollar appreciating in value.
For further disclosure of the Company’s financial instruments, their classification, their impact on
financial statements, and determination of fair value refer to Note 25 of the audited consolidated
financial statements for fiscal 2021.
28
CRITICAL ACCOUNTING ESTIMATES, JUDGMENTS AND ASSUMPTIONS
The preparation of the consolidated financial statements in accordance with IFRS requires
management to make judgments, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, the disclosure of contingent assets
and contingent liabilities at the date of the consolidated financial statements and reported amounts
of revenues and expenses during the period. Management has made significant judgments in
connection with the potential impact of COVID-19 on the Company’s reported assets, liabilities,
revenue and expenses, and on the related disclosures, using estimates and assumptions, which are
subject to significant uncertainties. The extent to which COVID-19 will continue to impact the
Company’s business, financial condition and results of operations will depend on future
developments, which are highly uncertain and cannot be predicted at this time. These future
developments include the speed of COVID-19 vaccination rollouts across Canada, the measures
taken by various government authorities to contain the virus and its variants’ spread for potential
future waves as well as future customer shopping behavior including online sales. Accordingly,
actual results could differ materially from those estimates and assumptions made by management.
Following are the most important accounting policies subject to such judgments and the key sources
of estimation uncertainty that the Company believes could have the most significant impact on the
reported results and financial position.
Key Sources of Estimation Uncertainty
Pension Plans
The cost of defined benefit pension plans is determined by means of actuarial valuations, which
involve making assumptions about discount rates, future salary increases and mortality rates.
Because of the long-term nature of the plans, such estimates are subject to a high degree of
uncertainty.
Gift Cards
Gift cards sold are recorded as deferred revenue and revenue is recognized when the gift cards are
redeemed. If the Company expects to be entitled to a breakage amount for the gift cards, it
recognizes the expected breakage amount as revenue in proportion to the pattern of rights exercised
by the customer. Breakage is an estimate of the amount of gift cards that will never be redeemed.
The breakage rate is reviewed on an ongoing basis and is estimated based on historical redemption
patterns.
Inventories
Inventories are valued at the lower of cost and net realizable value. Estimates are required in relation
to forecasted sales and inventory balances. In situations where excess inventory balances are
identified, estimates of net realizable values for the excess inventory are made. The Company has
set up provisions for merchandise in inventory that may have to be sold below cost. The Company
has developed assumptions regarding the quantity of merchandise to be sold below cost based on
historical pattern of sales. In addition, as part of inventory valuations, provisions are accrued for
inventory shrinkage for lost or stolen items based on historical trends from actual physical inventory
counts.
COVID-19 increases the risk of uncertainty related to these estimates because they are normally
based on a historical pattern of sales. The unprecedented impact of COVID-19 required
management to apply a higher degree of judgement in determining the estimates to set up provisions
for merchandise in inventory that may have to be sold below cost.
29
Impairment of Non-Financial Assets
The Company must assess the possibility that the carrying amounts of tangible and intangible assets
(including goodwill) may not be recoverable. Impairment testing is performed whenever there is an
indication of impairment, except for goodwill and intangible assets with indefinite useful lives for
which impairment testing is performed at least once per year. Significant management estimates are
required to determine the recoverable amount of the cash-generating unit (“CGU”) including
estimates of fair value, selling costs or the discounted future cash flows related to the CGU. COVID-
19 increases the risk of uncertainty surrounding management’s estimates. Differences in estimates
could affect whether property and equipment, right-of use assets and intangible assets are in fact
impaired and the dollar amount of that impairment.
Liabilities Subject to Compromise
On August 20, 2020, the Court rendered a claims process order establishing the rules for the
creditors to submit a proof of claim. This order allowed creditors to submit their claims from
September 10, 2020 until October 21, 2020 (“claims bar date”). All claims are determined as at May
19, 2020, the date of the Initial Order and therefore, the beginning of the CCAA process. The Monitor
initiated the process for the identification, resolution and barring of claims in connection with the
CCAA proceedings. As of the date of the approval of these consolidated financial statements, it is
currently not possible to determine the quantum of the claims that will ultimately be allowed by the
Court, as the Monitor’s claims identification, resolution and barring process is not completed and
may take considerable time to resolve. Therefore, amounts identified as liabilities subject to
compromise were based on the information available, which management believes to be reasonable
under the circumstances. Such estimates and assumptions are adjusted when facts and
circumstances dictate. As future events and their effects cannot be determined with precision, actual
results could differ significantly from these estimates. Liabilities subject to compromise represent
the Company’s best estimate of liabilities that will ultimately be subject to the plan of arrangement
and compromise to the Company’s creditors.
Leases
In determining the carrying amount of right-of-use assets and lease liabilities, the Company is
required to estimate the incremental borrowing rate specific to each leased asset if the interest rate
implicit in the lease is not readily determinable. Management determines the incremental borrowing
rate of each leased asset by incorporating the Company's creditworthiness, the security, term and
value of the underlying leased asset, and the economic environment in which the leased asset
operates in. The incremental borrowing rates are subject to change mainly due to macroeconomic
changes in the environment.
Critical Judgments in Applying Accounting Policies
Operating Segments
The Company uses judgment in assessing the criteria used to determine the aggregation of
operating segments. In order to identify the Company’s reportable segments, the Company uses the
process outlined in IFRS 8, Operating Segments, which includes the identification of the Chief
Operating Decision Maker (“CODM”), being the Chief Executive Officer, the identification of
operating segments and the aggregation of operating segments. As at January 30, 2021, the
Company’s operating segments, before aggregation, have been identified as the Company’s three
brands: Reitmans, Penningtons and RW & CO. During fiscal 2021, the Company announced, as
part of its restructuring plan, the closure of the Thyme Maternity and Addition Elle brands. For fiscal
2021, the operating results directly attributable to both brands are presented as discontinued
operations.
30
Each operating segment is reviewed by the CODM in reviewing their profitability so that the
information can be used to ensure adequate resources are allocated to that part of the Company’s
operations. The CODM reviews the profitability of the banner as a whole, which includes both the
store and e-commerce channels. This is consistent with the omni-channel strategy adopted by the
Company whereby customers can shop seamlessly in retail stores and online. The Company has
aggregated its operating segments into one reportable segment because of their similar economic
characteristics, customers (mainly female) and nature of products (mainly women’s specialty
apparel). The similarity in economic characteristics reflects the fact that the Company’s operating
segments operate mainly in the women apparel business, primarily in Canada and are therefore
subject to the same economic market pressures. The Company’s operating segments are subject
to similar competitive pressures such as price and product innovation and assortment from existing
competitors and new entrants into the marketplace. The operating segments also share centralized,
common functions such as distribution and information technology.
Leases
Management exercises judgment in determining the appropriate lease term on a lease by lease
basis. Management considers all facts and circumstances that create an economic incentive to
exercise a renewal option or to not exercise a termination option, including investments in major
leaseholds and store performances. The periods covered by renewal options are only included in
the lease term if management is reasonably certain to renew.
Management considers reasonably certain to be a high threshold. Changes in the economic
environment or changes in the retail industry may influence management’s assessment of lease
term, and any changes in management’s estimate of lease terms may have a material impact on the
Company’s consolidated balance sheets and consolidated statements of earnings (loss).
Deferred tax assets
Deferred tax assets are recognized only to the extent it is considered probable that those assets will
be recoverable. This involves an assessment of when those deferred tax assets are likely to reverse
and a judgment as to whether there will be sufficient taxable profits available against which they can
be utilized.
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED IN FISCAL
2021
A new amendment to standards and interpretations entitled COVID-19-Related Rent Concessions
(Amendment to IFRS 16) for which earlier adoption was permitted was not applied in preparing the
audited consolidated financial statements for fiscal 2021.
Further information on this amendment can be found in Note 3 a) of the audited consolidated
financial statements for fiscal 2021.
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CORPORATE GOVERNANCE DISCLOSURE
The following information is provided in accordance with Form 58-101F1 – Statement of Corporate
Governance Disclosure (“Form 58-101F1”) under National Instrument 58-101 – Disclosure of
Corporate Governance Practices (in Québec, Regulation 58-101 respecting Disclosure of Corporate
Governance Practices) (“NI 58-101”), and provides details of the corporate governance practices of
Reitmans (Canada) Limited (the “Corporation”), the Board of Directors of the Corporation
(the “Board”) and various committees of the Board.
The Corporation is a “venture issuer” within the meaning of NI 58-101 since July 30, 2020. Under NI
58-101, venture issuers are subject to more streamlined disclosure on their corporate governance
practices. However, the Corporation elected to include the disclosure required by Form 58-101F1,
which is applicable to non-venture issuers only, (i) given the legacy of the Corporation as a
corporation listed on the Toronto Stock Exchange, and (ii) to provide more information to its
shareholders on its corporate governance practices.
CORPORATE GOVERNANCE
The governance practices of the Corporation are largely consistent with the guidelines set out in
National Policy 58-201 – Corporate Governance Guidelines (in Québec, Policy Statement 58-201 –
Corporate Governance Guidelines) adopted by the Canadian Securities Administrators (the
“Guidelines”) and the divergences from the Guidelines are set forth below.
The Guidelines (which are not mandatory) deal with the constitution of boards and committees, their
functions, their independence from management and other means of ensuring sound corporate
governance. The Board has reviewed its practices and, upon the recommendation of its Governance
Committee, approved the following disclosure.
Board of Directors
The Guidelines recommend that a board of directors should have a majority of independent directors
(i.e. directors that do not have any relationships that could reasonably be expected to interfere with
the exercise of their independent judgment). The Board is currently composed of eight directors.
Based on information provided by directors as to their individual circumstances, the Board has
determined that a majority of directors are “independent”, within the meaning of the Guidelines.
Mr. Stephen F. Reitman, President and Chief Executive Officer of the Corporation, is not considered
an “independent” director because he is a member of management.
The remaining directors of the Corporation, namely, Messrs. Bruce J. Guerriero, David J. Kassie,
Samuel Minzberg, Daniel Rabinowicz, Howard Stotland, Robert S. Vineberg and Ms. Terry Yanofsky
are considered “independent”. While Mr. Robert S. Vineberg is a partner of a law firm that provides
services to the Corporation, and while Mr. Daniel Rabinowicz also provides services to the
Corporation in his capacity as an independent consultant, in light of the nature of the services that
each of Mr. Vineberg and Mr. Rabinowicz is providing and the fees related thereto, the Board is of
the opinion that neither of their respective circumstances gives rise to a material relationship that
could interfere with the exercise of their respective independent judgment.
Mr. Stephen F. Reitman is a director of Michael Kors Holdings Limited, listed on the New York Stock
Exchange (the “NYSE”). Mr. David J. Kassie is Chairman of Canaccord Genuity Group Inc., listed
on the Toronto Stock Exchange (the “TSX”). Mr. Daniel Rabinowicz is a director of Alimentation
Couche-Tard Inc., listed on the TSX. Ms. Terry Yanofsky is a director of Goodfood Market Corp.,
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listed on the TSX, and Canopy Growth Corporation, listed on the TSX and the NYSE. No members
of the Board serve together on the boards of other public companies.
The independent directors hold meetings at which members of management are not in attendance
and at which non-independent directors are not present or are in the minority. In fiscal 2021, four
such meetings were held.
Mr. Daniel Rabinowicz, is currently serving as Chairman of the Board and is considered an
“independent” director.
A record of attendance of each director at meetings of the Board held in the fiscal year ended January
30, 2021 is included below:
Directors
Attendance
Bruce J. Guerriero
David J. Kassie
Samuel Minzberg
Daniel Rabinowicz
Stephen F. Reitman
Howard Stotland
Robert S. Vineberg
Terry Yanofsky
7/7
7/7
7/7
7/7
7/7
6/7
7/7
7/7
Board Mandate
The Board has adopted a mandate in which it explicitly acknowledges responsibility for the
stewardship of the Corporation. The Mandate of the Board can be found on the Corporation’s website
at www.reitmanscanadalimited.com under “Governance – Corporate Governance Documents”.
Position Descriptions
The Board has adopted written position descriptions for the Chairman of the Board and Chief
Executive Officer and the lead director of the Corporation (where the Chairman of the Board is not
considered independent), outlining the roles and responsibilities of each such office.
Orientation and Continuing Education
The Guidelines recommend that a reporting issuer have a process to orient new directors regarding
(a) the role of the board, its committees and directors and (b) the nature and operation of the issuer’s
business. The Guidelines also recommend that a reporting issuer have a continuing education
process, to ensure directors maintain the skill and knowledge necessary to fulfill their obligations.
Due to the size of the Board and the low turnover of directors, the need for these formal processes
is diminished because effective communication can be readily achieved. Nevertheless, the
33
Governance Committee of the Corporation has the responsibility for developing such processes as
may be necessary and appropriate from time to time.
Ethical Business Conduct
The Corporation has adopted a Code of Conduct and Conflict of Interest Policy (the “Code of
Conduct”), which is available under the Corporation’s profile on SEDAR at www.sedar.com.
On an annual basis, all employees are expected to review the Code of Conduct and certify that they
have done so by signing the Annual Certificate of Understanding of the Code of Conduct. The
Corporation implemented an Employee Ethics hotline, where any employee of the Corporation can
submit any concern over possible conflict of interest and/or breach of the Code of Conduct without fear
of dismissal or retaliation of any kind.
The Board has not granted any waiver from the Code of Conduct in favour of any director or officer of
the Corporation.
The Code of Conduct has specific provisions dealing with conflicts of interest and provides that no
employee should be subject, or even appear to be subject, to influences, interests or relationships which
conflict with the best interests of the Corporation. Each employee is expected to avoid any investment,
interest or association which interferes, might interfere or might be thought to interfere with the
independent exercise of his/her judgment in the Corporation’s best interest.
Disclosures of personal interests or of other circumstances which might be thought to cause actual or
potential conflicts of interest are to be made promptly by the employee to the Vice-President Human
Resources. Such disclosures will be held in confidence to the fullest extent consistent with the
circumstances. In the event a conflict is found to be present, an arrangement will be made for resolution
in a manner best suited to the interests of the Corporation and the employee.
No director votes or participates in a discussion on a matter in respect of which a director has a material
interest and the Board may also appoint a special committee of independent directors if as and when
may be necessary or appropriate from time to time.
Nomination of Directors and Corporate Governance
The Governance Committee has the responsibility to identify suitable candidates for nominees as
directors and, when and if required, does so after discussing candidacies with the President and
Chief Executive Officer. The Governance Committee consists of Messrs. Daniel Rabinowicz
(Chairman) and Bruce Guerriero, and Ms. Terry Yanofsky, all of whom are considered independent.
All the members of the Governance Committee have competencies in the corporate governance
processes, procedures and relations by which the Corporation is controlled and directed due to the
experience they acquire through their current positions or directorships, or those they have held in
the past, or due to their training.
The Board has adopted a charter of the Governance Committee which establishes the Governance
Committee’s purpose, responsibilities, member qualifications, appointment and removal, structure,
operations and manner of reporting to the Board. The charter also provides authority to the
Governance Committee to retain outside counsel and any other advisors as the Governance
Committee may deem appropriate with the approval of the Audit Committee.
The Corporation does not currently have a policy regarding time limits for directors and does not
consider time limits necessary to ensure that the Board is comprised of strong, qualified directors in
light of the mandate of the Governance Committee.
34
The Governance Committee is responsible for examining the size of the Board from time to time in
order to ensure effective decision-making and assessing the performance and effectiveness of the
directors, the committees of the Board and the contributions of individual directors.
Assessments
The Governance Committee is responsible for providing oversight of the evaluation of the
performance and effectiveness of the Board as a whole, its committees and the individual directors.
Although no formal evaluation process is in place, all directors are free to make comments and
suggestions on improvement of the practices, performance and effectiveness of the Board, its
committees and individual directors at any time and are encouraged to do so.
The Governance Committee is also responsible for assessing and making recommendations with
respect to all aspects of the Corporation’s corporate governance and monitoring compliance with the
Code of Conduct.
Compensation
The Human Resources and Compensation Committee is, notably, responsible for the oversight of
executive and director compensation. The Human Resources and Compensation Committee
consists of Messrs. Daniel Rabinowicz (Chairman), Bruce J. Guerriero, David J. Kassie and Howard
Stotland, all of whom are considered independent. All of the members of the Human Resources and
Compensation Committee have competencies in human resources, compensation and risk
management due to the experience they acquire through their current positions or directorships, or
those they have held in the past, or due to their training.
The Board has adopted a charter of the Human Resources and Compensation Committee which
establishes the Human Resources and Compensation Committee’s purpose, responsibilities,
member qualifications, appointment and removal, structure, operations and manner of reporting to
the Board. The charter also provides authority to the Human Resources and Compensation
Committee to retain outside counsel and any other advisors as the Human Resources and
Compensation Committee may deem appropriate with the approval of the Audit Committee.
The Human Resources and Compensation Committee is responsible for reviewing and
recommending to the Board compensation for directors, reviewing and approving compensation of
the President and Chief Executive Officer and the compensation of other senior executives, as well
as advising and making recommendations to the Board with respect to incentive-based
compensation plans and equity-based plans.
The Human Resources and Compensation Committee is also responsible for reviewing executive
compensation disclosures in public documents.
Strategic Planning
The Corporation formed the Strategic Planning Committee on July 30, 2020 to assist the President
and Chief Executive Officer of the Corporation and the Board in setting the strategic plan for the
Corporation and to monitor the progress in achieving that plan. The Strategic Planning Committee
consists of Ms. Terry Yanofsky (Chairperson), Mr. Bruce J. Guerriero and Mr. Daniel Rabinowicz, all
of whom are considered independent.
The Strategic Planning Committee is notably responsible for (i) ensuring that the management of the
Corporation has established an effective strategic planning process, including the development of a
vision and mission and a three-year strategic plan for each brand of the Corporation as well as the
Corporation overall, with measurable goals and time targets, (ii) focusing on critical strategic and
35
financial issues facing the Corporation and assisting in the analysis of alternative strategic options,
(iii) making recommendations to the Board related to the Corporation’s mission, vision, strategic
initiatives, major programs and services, (iv) assisting the President and Chief Executive Officer of
the Corporation by acting as a sounding board on major organizational changes, (v) meeting with
the management of the Corporation periodically to monitor the Corporation’s progress against its
strategic goals, and (vi) ensuring the Board is regularly apprised of the Corporation’s progress with
respect to implementation of any approved strategy.
Other Board Committees
The Board has no standing committees other than the Audit Committee, the Governance Committee,
the Human Resources and Compensation Committee and the Strategic Planning Committee.
Additional disclosure in respect of the Audit Committee can be found under “Audit Committee and
Accountant’s Fees and Services”.
Communications, Insider Trading, Confidential Information and Disclosure Policies
The Board is committed to an effective communications policy with all stakeholders including
shareholders, suppliers, employees, agents and members of the investment community. The
Corporation is also committed to complying with all laws, regulations and policies which are
applicable to it, as well as to industry practices in the field. This commitment is evidenced, notably,
by the adoption by the Corporation of a Trading Policy, which provides guidelines to the directors,
officers and relevant employees of the Corporation on trading of the Corporation’s securities. Among
other things, the trading policy prohibits any trading of the Corporation’s securities until material
undisclosed information has been generally disclosed and a reasonable period of time has passed
for the information to be widely disseminated to the marketplace.
The Audit Committee and the Board review in advance all press releases which disclose financial
results. Other continuous disclosure documents, including, without limitation, quarterly and annual
financial statements, management discussion & analysis and proxy materials are reviewed by
members of the Corporation’s management and, where appropriate, the Board and applicable
committees thereof and, where required, these documents are also approved by the Board.
DIVERSITY
Employment Equity and Diversity Policy
The Board has not adopted a distinct, formal employment equity policy, however, principles of
employment equity are entrenched in the language of the Conduct of Conduct. The Code of Conduct
provides that all decisions regarding the recruiting, hiring, training, compensation, evaluation,
promotion, assignment, termination, and other terms and conditions of employment, will be made
fairly, without unlawful discrimination on the basis of any prohibited grounds such as race, colour,
sex, gender, pregnancy, sexual orientation, civil status, age (except as provided by law), religion,
political conviction, language, ethnic or national origin, social condition, disability or any other factor
that the law protects. All employment decisions are made in accordance with Federal and Provincial
Laws.
The Board has not adopted a distinct, formal diversity policy, however, the Corporation strives to
foster an inclusive culture, accepting and encouraging diversity within its workforce, and strongly
believes that in order to benefit from the deepest available pools of employees, a diverse range of
candidates should be considered for any available positions.
36
The Corporation seeks to retain, promote and hire the best people it can, focusing on actual and
potential contribution in terms of their performance, competence, collaboration and professional
accountability. Employment-related decisions are based on principles of individual merit and
achievement such as job performance, skills, knowledge and abilities relevant to specific positions
and not on factors unrelated to a person’s performance or ability to do the job.
Policies Regarding the Representation of Women, Indigenous Peoples, Members of Visible
Minorities and Persons with Disabilities on the Board
Effective January 1, 2020, corporations governed by the Canada Business Corporations
Act (the “CBCA”) with publicly traded securities, such as the Corporation, are required to provide
shareholders with information on the corporation’s policies and practices related to diversity on the
board of directors and within senior management and the number and percentage of members of
the board and of senior management who are women, Indigenous peoples (First Nations, Inuit and
Métis) (“Indigenous peoples”), members of visible minorities and persons with disabilities
(collectively, the “CBCA Diversity Information”) 1.
The Board has not adopted a specific policy relating to the identification and nomination of women,
Indigenous peoples, members of visible minorities and persons with disabilities as directors of the
Corporation.
Consideration of the Representation of Women, Indigenous Peoples, Members of Visible
Minorities and Persons with Disabilities in the Director Identification and Selection Process
The Board does not specifically consider the level of representation of women, Indigenous peoples,
members of visible minorities and persons with disabilities on the Board in identifying and nominating
candidates for election or re-election to the Board. In identifying and nominating candidates for
election or re-election to the Board, the Board focuses on actual and potential contribution in terms
of performance, competence, collaboration and professional accountability. However,
the
Corporation’s view is that a diverse range of candidates should always be considered and there are
no biases that might discriminate against or for any candidates.
Consideration Given to the Representation of Women, Indigenous Peoples, Members of
Visible Minorities and Persons with Disabilities in Executive Officers Appointments
The Board does not specifically consider the level of representation of women, Indigenous peoples,
members of visible minorities and persons with disabilities in executive officer positions when making
executive officer appointments. The Corporation focuses on actual and potential contribution in
terms of performance, competence, collaboration and professional accountability. However, in order
to garner the full benefits of diversity, including the availability of the widest pool of available talent,
hiring practices are reviewed to ensure they are appropriately structured so that a diverse range of
candidates are considered and that there are no biases that might discriminate against or for any
candidates.
Issuer’s Targets Regarding the Representation of Women, Indigenous Peoples, Members of
Visible Minorities and Persons with Disabilities on the Board and in Executive Officer Positions
The Corporation has not adopted targets regarding women, Indigenous peoples, members of visible
minorities and persons with disabilities on the Board or in its executive officer positions.
_______________________
1 The Corporation has elected to provide the CBCA Diversity Information in this corporate governance disclosure
notwithstanding that it is not sending a notice of meeting and management information circular in connection with an
annual general meeting of its shareholders, as at the date of this filing.
37
Number of Women, Indigenous Peoples, Members of Visible Minorities and Persons with
Disabilities on the Board and in Executive Officer Positions
As at April 19, 2021, there is one woman (12.5%) on the Board and no Indigenous peoples, members
of visible minorities or persons with disabilities.
As at April 19, 2021, there are 23 executive officers of the Corporation (including presidents of
divisions and vice-presidents of different functions), of which 13 are women (56.5%), including one
of the two divisional Presidents (50.0%).
As at As at April 19, 2021, there are no Indigenous peoples, members of visible minorities and
persons with disabilities (0.0%) in senior executive positions.
38
AUDIT COMMITTEE AND ACCOUNTANT’S FEES AND SERVICES
The Charter of the Audit Committee may be found at www.reitmanscanadalimited.com under
the section entitled “Governance/Corporate Governance Documents.”
The mandate of the Audit Committee includes assisting the Board of Directors of the
Corporation oversight by (i) monitoring the integrity of the Corporation’s financial statements, (ii)
reviewing
legal and regulatory requirements;
(iii) evaluating the external auditor’s qualifications and independence; and (iv) monitoring the
performance of the external auditors.
the Corporation’s compliance with certain
(a)
Composition of the Audit Committee
The Audit Committee is currently composed of Bruce J. Guerriero, CPA, CA (Chairman),
David J. Kassie, and Howard Stotland, each of whom is (i) independent and (ii) financially literate,
each within the meaning of National Instrument 52-110 – Audit Committees.
(b)
Relevant Education and Experience
The following is a description of the education and experience of each member of the Audit
Committee that is relevant to the performance of his responsibilities as a member of the Committee.
BRUCE J. GUERRIERO graduated from Concordia University in 1976 with a Bachelor of
Commerce (Honours with Distinction) degree. He received a Diploma in Public Accountancy from
McGill University and in 1978 obtained his designation as a Chartered Professional Accountant.
Before retiring in September 2014, he was a senior audit partner of KPMG LLP and served as the
lead audit engagement partner for public companies in different industry segments including
consumer markets and retail. Mr. Guerriero served on KPMG Canada’s Partnership Board from 2003
to 2010. Since 2015, he has been a corporate director and business advisor. Mr. Guerriero served
on the Board of Directors of DAVIDsTEA Inc. as Chair of the Audit Committee until June 9, 2016.
Mr. Guerriero is certified by the Institute of Corporate Directors.
DAVID J. KASSIE graduated from McGill University in 1977 with a Bachelor of Commerce
degree. He received a Master of Business Administration from the University of Western Ontario in
1979 with Honours in Economics. Prior to 2004, Mr. Kassie was Chairman and Chief Executive
Officer of CIBC World Markets Inc. and the Vice Chairman of the CIBC. Mr. Kassie was Principal,
Chairman and Chief Executive Officer of Genuity Capital Markets (“Genuity”) from November 2004
to May 2010 at which time Genuity was acquired by Canaccord Financial. Mr. Kassie is currently
Chairman of Canaccord Genuity Group Inc. Mr. Kassie has extensive experience as an advisor,
underwriter and principal. He sits on a number of corporate boards.
HOWARD STOTLAND graduated from McGill University in 1966 with a degree in Civil
Engineering. He received a master’s degree in engineering from the Massachusetts Institute of
Technology in 1968. From 1972 to 2002, he was the Chief Executive Officer of STS Systems, a
manufacturer of retail technology systems. From 2002 to the present, he has served as a business
consultant.
Messrs. Guerriero, Kassie and Stotland all have the ability to read and understand financial
statements that present a breadth and complexity of accounting issues comparable to the breadth
and complexity of the issues raised by the Corporation’s own financial statements, understand the
accounting principles the Corporation uses to prepare its financial statements and have the ability to
assess the general application of such accounting principles in connection with the accounting for
estimates, accruals and reserves.
All members of the Audit Committee have an understanding of internal controls and
procedures for financial reporting.
39
(c)
Pre-Approval Policies and Procedures
The Audit Committee pre-approves every engagement by KPMG LLP (“KPMG”) to render
audit or non-audit services. All of the services described below were approved by the Audit
Committee.
(d)
External Auditor Services Fees
KPMG, the Corporation’s external auditors, provided services and billed the Corporation the
following fees in each of Fiscal 2021 and Fiscal 2020:
Audit Fees
The following sets forth the aggregate fees billed by KPMG for the audit of the annual
consolidated financial statements, quarterly reviews of the Corporation’s interim consolidated
financial statements and for services normally provided by the external auditor, such as services in
connection with statutory and regulatory filings.
Fiscal 2021
Fiscal 2020
Audit Related Fees
$569,457
$410,988
The following sets forth the aggregate fees billed for assurance and related services by KPMG
that are reasonably related to the performance of the audit or review of the financial statements and
are not reported under “Audit Fees”, such as consultations related to accounting and reporting
matters and translation services related to annual and interim consolidated financial statements:
Fiscal 2021
Fiscal 2020
Non-Audit and Tax Fees
$86,758
$88,850
The following sets forth the aggregate fees billed in each of the last two fiscal periods for
professional services rendered by KPMG for tax compliance, tax advice and consultation on sales
taxes, tax planning and other general matters:
Fiscal 2021
Fiscal 2020
$61,937
$113,499
40
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500, Tour KPMG
Montréal (Québec) H3A 0A3
Canada
Telephone
Fax
Internet
(514) 840-2100
(514) 840-2187
www.kpmg.ca
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Reitmans (Canada) Limited
Opinion
We have audited the consolidated financial statements of Reitmans (Canada) Limited (the "Entity"),
which comprise:
•
•
•
•
•
the consolidated balance sheets as at January 30, 2021 and February 1, 2020
the consolidated statements of earnings for the years then ended
the consolidated statements of comprehensive income for the years then ended
the consolidated statements of changes in shareholders’ equity for the years then ended
the consolidated statements of cash flows for the years then ended
• and notes to the consolidated financial statements, including a summary of significant accounting
policies
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Entity as at January 30, 2021 and February 1, 2020, and its
consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the "Auditors’ Responsibilities for
the Audit of the Financial Statements" section of our auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our
audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2(b) in the financial statements which indicates that the Entity obtained,
during the year, an initial order from the Superior Court of Quebec to seek protection from creditors
under the Companies’ Creditors Arrangement Act. In addition, the Entity incurred a net loss of $172.2
million for the year ended January 30, 2021, and the Entity’s current liabilities of $284.5 million as at
January 30, 2021 exceeded current assets of $216.8 million.
© 2020 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms
affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
41
Page 2
As stated in Note 2(b) in the financial statements, these events or conditions, along with other matters
as set forth in Note 2(b) in the financial statements, indicate that a material uncertainty exists that
may cast significant doubt on the Entity's ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. Other information comprise the information
included in Management’s Discussion and Analysis filed with the relevant Canadian Securities
Commissions.
Our opinion on the financial statements does not cover the other information and we do not and will
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for
indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the
work we have performed on this other information, we conclude that there is a material misstatement
of this other information, we are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with International Financial Reporting Standards (IFRS), and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Entity or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting
process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report
that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.
42
Page 3
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting
intentional omissions,
misrepresentations, or the override of internal control.
involve collusion,
from error, as
fraud may
forgery,
• Obtain an understanding of internal control relevant to the audit 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.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Entity's ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditors’ report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditors’ report. However, future events or conditions may cause the Entity to
cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
• Provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
43
Page 4
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group Entity to express an opinion on the financial statements. We
are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
The engagement partner on the audit resulting in this auditors’ report is Marie Valcourt.
Montréal, Canada
April 19, 2021
*CPA auditor, CA, public accountancy permit No. A128528
44
REITMANS (CANADA) LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the years ended January 30, 2021 and February 1, 2020
(in thousands of Canadian dollars except per share amounts)
Sales
Cost of goods sold
Gross profit
Selling and distribution expenses
Administrative expenses
Impairment of non-financial assets
Restructuring costs
Results from operating activities
Finance income
Finance costs
Loss before income taxes
Income tax expense
Net loss from continuing operations
Loss from discontinued operations, net of tax
Net loss
Loss per share:
Basic
Diluted
Loss per share from continuing operations:
Basic
Diluted
Notes
2021
2020(1)
7
8,9,10
14
$ 533,362
287,108
246,254
278,870
32,342
16,524
26,516
(107,998)
$ 705,460
341,610
363,850
353,848
45,149
2,579
-
(37,726)
19
19
11
4
20
20
13,897
5,744
(99,845)
191
(100,036)
(72,181)
3,173
14,780
(49,333)
23,829
(73,162)
(14,264)
$ (172,217)
$
(87,426)
$
$
(3.52)
(3.52)
(2.05)
(2.05)
$
$
(1.56)
(1.56)
(1.31)
(1.31)
The accompanying notes are an integral part of these consolidated financial statements.
(1) Comparative figures have been restated to separately present the results of continuing and discontinued operations. See note 4.
45
REITMANS (CANADA) LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended January 30, 2021 and February 1, 2020
(in thousands of Canadian dollars)
Net loss
Other comprehensive income (loss)
Items that may be reclassified subsequently to net earnings:
Cash flow hedges (net of tax of $273; 2020 - $401)
Foreign currency translation differences
Items that will not be reclassified to net earnings:
Actuarial gain (loss) on defined benefit plan (net of tax of $nil;
2020 - $1,227)
Total other comprehensive income (loss)
Notes
2021
2020
$ (172,217)
$
(87,426)
16
16
15
(754)
127
(627)
700
73
1,106
(49)
1,057
(4,325)
(3,268)
Total comprehensive loss
$ (172,144)
$
(90,694)
The accompanying notes are an integral part of these consolidated financial statements.
46
REITMANS (CANADA) LIMITED
CONSOLIDATED BALANCE SHEETS
As at January 30, 2021 and February 1, 2020
(in thousands of Canadian dollars)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Derivative financial asset
Inventories
Prepaid expenses
Total Current Assets
NON-CURRENT ASSETS
Property and equipment
Intangible assets
Right-of-use assets
Deferred income taxes
Total Non-Current Assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade and other payables
Derivative financial liability
Deferred revenue
Income taxes payable
Current portion of lease liabilities
Liabilities subject to compromise
Total Current Liabilities
NON-CURRENT LIABILITIES
Lease liabilities
Pension liability
Total Non-Current Liabilities
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
(Deficit) Retained earnings
Accumulated other comprehensive loss
Total Shareholders' Equity
Notes
2021
2020
5
6
25
7
12
8
9
10
11
12
25
13
10
14
10
15
16
16
$
77,915
10,668
-
96,122
32,100
216,805
66,112
10,331
103,831
151
180,425
$
89,410
6,313
1,124
147,428
9,441
253,716
88,090
20,267
198,097
-
306,454
$ 397,230
$ 560,170
$
31,522
-
12,462
1,169
35,303
204,083
284,539
87,914
3,092
91,006
27,406
10,295
(15,162)
(854)
21,685
$ 109,674
348
15,042
3,207
61,618
-
189,889
152,251
24,213
176,464
27,406
10,283
156,355
(227)
193,817
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 397,230
$ 560,170
Going concern, impact of COVID-19 and CCAA proceedings (note 2(b))
Subsequent events (note 28)
The accompanying notes are an integral part of these consolidated financial statements
On behalf of the Board,
(signed) Stephen F. Reitman, Director
(signed) Bruce J. Guerriero, Director
47
REITMANS (CANADA) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended January 30, 2021 and February 1, 2020
(in thousands of Canadian dollars)
Notes Share Capital
Contributed
Surplus
Retained
Earnings
Accumulated Other
Comprehensive
Loss
Total
Shareholders’
Equity
Balance as at February 2, 2020
$
27,406
$ 10,283
$ 156,355
$
(227)
$ 193,817
Net loss
Total other comprehensive income (loss)
Total comprehensive loss for the year
Share-based compensation costs
Total contributions by owners of the
Company
15,16
17
-
-
-
-
-
-
-
-
12
12
(172,217)
700
(171,517)
-
-
-
(627)
(627)
-
-
(172,217)
73
(172,144)
12
12
Balance as at January 30, 2021
$
27,406
$ 10,295
$
(15,162)
$
(854)
$
21,685
Balance as at February 3, 2019
$
38,397
$ 10,245
$ 292,295
$
(1,284)
$ 339,653
Net loss
Total other comprehensive (loss) income
Total comprehensive (loss) income for
15,16
the year
Share-based compensation costs
Dividends
Purchase of Class A non-voting shares
pursuant to substantial issuer bid
Excess of purchase price of Class A non-
voting shares over carrying amount
(including tax of $2,693)
Total (distributions to) contributions by
owners of the Company
17
16
16
16
-
-
-
-
-
(10,991)
-
-
-
-
38
-
-
-
(87,426)
(4,325)
(91,751)
-
(8,776)
-
(35,413)
(10,991)
38
(44,189)
-
1,057
1,057
-
-
-
-
-
(87,426)
(3,268)
(90,694)
38
(8,776)
(10,991)
(35,413)
(55,142)
Balance as at February 1, 2020
$
27,406
$ 10,283
$ 156,355
$
(227)
$ 193,817
The accompanying notes are an integral part of these consolidated financial statements.
48
REITMANS (CANADA) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended January 30, 2021 and February 1, 2020
(in thousands of Canadian dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments for:
Notes
2021
2020
$ (172,217)
$
(87,426)
Depreciation and amortization
Impairment of non-financial assets
Impairment of goodwill
Share-based compensation costs
Net change in fair value of marketable securities
Net change in transfer of realized (gain) loss on cash flow hedges to
8,9,10
8,9,10
4
17
19
inventory
Foreign exchange gain
Gain on lease re-measurements due to restructuring
Interest on lease liabilities
Interest and dividend income, net
Income tax expense
Changes in:
Trade and other receivables
Inventories
Prepaid expenses
Trade and other payables
Liabilities subject to compromise
Pension liability
Deferred revenue
Cash from operating activities
Interest received
Dividends received
Income taxes received
Income taxes paid
Net cash flows from operating activities
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES
Additions to property and equipment and intangible assets, net
Proceeds on sale of marketable securities
Cash flows (used in) from investing activities
CASH FLOWS USED IN FINANCING ACTIVITIES
Dividends paid
Payment of lease liabilities
Purchase of Class A non-voting shares for cancellation
Cash flows used in financing activities
FOREIGN EXCHANGE GAIN ON CASH HELD IN FOREIGN
CURRENCY
NET DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH,
BEGINNING OF THE YEAR
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH,
END OF THE YEAR
10,14
10,19
19
11
14
15
8,9,24
19
16
10,24
16
Supplementary cash flow information (note 24)
The accompanying notes are an integral part of these consolidated financial statements.
61,031
38,542
-
12
-
(250)
(436)
(8,216)
6,202
(436)
271
(75,497)
(4,510)
51,306
(22,659)
(78,644)
194,615
(20,421)
(2,580)
41,610
591
-
133
(2,139)
40,195
(6,164)
-
(6,164)
-
(46,818)
-
(46,818)
1,292
(11,495)
99,076
3,893
11,843
(51)
8,264
1,665
(3,597)
-
7,479
(3,173)
22,942
60,915
1,930
(619)
4,078
11,013
-
71
(167)
77,221
1,820
1,582
633
(4,080)
77,176
(23,475)
41,425
17,950
(8,776)
(69,296)
(43,711)
(121,783)
3,549
(23,108)
89,410
112,518
$
77,915
$
89,410
49
REITMANS (CANADA) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended January 30, 2021 and February 1, 2020
(all amounts in thousands of Canadian dollars except per share amounts)
1. REPORTING ENTITY
Reitmans (Canada) Limited (the “Company”) is a company domiciled in Canada and is incorporated under
the Canada Business Corporations Act. The address of the Company’s registered office is 155 Wellington
Street West, 40th Floor, Toronto, Ontario M5V 3J7. The principal business activity of the Company is the
sale of women’s wear.
2. BASIS OF PRESENTATION
a) Fiscal Year
The Company’s fiscal year ends on the Saturday closest to the end of January. All references to 2021 and
2020 represent the 52 weeks ended January 30, 2021 and February 1, 2020, respectively.
b) Going Concern, impact of COVID-19 and CCAA Proceedings
Since the coronavirus disease (COVID-19) was declared a pandemic on March 11, 2020 by the World
Health Organization, there have been significant impacts for the Company. The measures adopted by the
Federal and Provincial governments in order to mitigate the spread of COVID-19 required the Company
to close all of its retail locations across the country effective March 17, 2020. During the period of closure,
the Company’s only sales were derived from its e-commerce channel. At the end of May 2020, the
Company began re-opening its retail stores across Canada in accordance with Federal, Provincial and
Municipal regulations surrounding de-confinement.
During the months of December 2020 and January 2021, certain provinces mandated renewed lockdown
measures to mitigate the spread of COVID-19 forcing the temporary closure of retail stores in these
provinces. The Company continued to sell through its e-commerce channel to customers during the
applicable periods of closure. Subsequent to year-end, these lockdown measures were lifted and the third
wave of COVID-19 mandated new temporary store closures in certain regions and provinces. See note 28.
In addition, the Company was eligible and received government assistance during the year, primarily from
the Canada Emergency Wage Subsidy (CEWS), from programs introduced as a result of COVID-19. In
total, the Company recognized $37,369, of which $35,390 was recognized as a reduction of personnel costs
and rent related expenses in continuing operations and $1,979 was recognized in discontinued operations.
See notes 4 and 6.
CCAA Proceedings
On May 19, 2020, the Company obtained an initial order (the “Order”) from the Superior Court of Quebec
(the “Court”) to seek protection from creditors under the Companies’ Creditors Arrangement Act (the
“CCAA”). Under the terms of the Order, Ernst & Young Inc. has been appointed as the monitor (the
“Monitor”). The CCAA process allows the Company to implement an operational and commercial
restructuring plan to re-position the Company for long-term success (the “restructuring plan”). See note 14.
On May 29, 2020, the Company obtained an extension of the Order from the Court for an additional stay
period to July 27, 2020. On July 27, 2020, the Court ordered a first extension of the stay period to October
50
16, 2020. On October 16, 2020, the Court ordered a second extension of the stay period to January 22,
2021. On January 22, 2021, the Court ordered a third extension of the stay period to May 28, 2021.
On August 20, 2020, a claims process order (the “claims process”) was approved by the Court. The claims
process was initiated on September 10, 2020 and ended October 21, 2020 (“claims bar date”) as described
in note 2(f)(v).
Restructuring Plan
On June 1, 2020, the Company announced, as part of its restructuring plan and as approved by the Monitor,
the closure of the Thyme Maternity and Addition Elle brands. The restructuring plan led to the closure of
all retail stores and e-commerce for both brands and to the termination of approximately 1,600 employees
in its retail locations and head office. See notes 4 and 14.
In accordance with the policies of the Toronto Stock Exchange (the “TSX”), trading in the Company’s
Common shares and Class A non-voting shares was suspended on May 19, 2020 and the Company’s shares
were delisted from the TSX effective at the close of business on July 29, 2020. On September 3, 2020, the
Company’s shares began trading on the TSX Venture Exchange.
Going Concern
For the year ended January 30, 2021, the Company incurred a net loss of $172,217. The Company’s current
liabilities total $284,539 and exceed current assets of $216,805 as at January 30, 2021. On August 5, 2020
the Company secured interim financing (“DIP Loan”) of up to $60,000 with a Canadian financial
institution, as described in note 23.
The deterioration in the Company’s financial position since the beginning of the fiscal year, the Company’s
liquidity position as of the date of the approval of these consolidated financial statements and the
unpredictability of the outcome of the matters arising from the CCAA proceedings, indicate the existence
of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going
concern.
These consolidated financial statements have been prepared on a going concern basis in accordance with
IFRS. The going concern basis of presentation assumes that the Company will continue its operations for
the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the
normal course of business. In assessing whether the going concern assumption is appropriate and whether
there are material uncertainties that may cast significant doubt about the Company’s ability to continue as
a going concern, management must take into account all available information about the future, including
estimated future cash flows, for a period of at least twelve months following the end of the reporting period.
These consolidated financial statements as at and for the year ended January 30, 2021 do not include any
adjustments to the carrying amounts and classification of assets, liabilities and reported expenses that may
otherwise be required if the going concern basis was not appropriate. Such adjustments could be material.
c) Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were authorized for issue by the Board of Directors on April 19,
2021.
51
d) Basis of Measurement
These consolidated financial statements have been prepared on the historical cost basis except for the
following material items:
• derivative financial instruments are measured at fair value;
•
lease liabilities are initially measured at the present value of the lease payments that are not paid at the
lease commencement date;
the pension liability is recognized as the present value of the defined benefit obligation less the fair
value of the plan assets; and
liabilities for cash-settled share-based payment arrangements are measured in accordance with IFRS
2, Share-Based Payment.
•
•
e) Functional and Presentation Currency
These consolidated financial statements are presented in Canadian dollars, which is the Company’s
functional currency. All financial information presented in Canadian dollars has been rounded to the
nearest thousand, except per share and strike price amounts.
f) Estimates, Judgments and Assumptions
The preparation of the consolidated financial statements in accordance with IFRS requires management to
make judgments, estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, the disclosure of contingent assets and contingent liabilities at the
date of the consolidated financial statements and reported amounts of revenues and expenses during the
period. Management has made significant judgments in connection with the potential impact of COVID-
19 on the Company’s reported assets, liabilities, revenue and expenses, and on the related disclosures, using
estimates and assumptions, which are subject to significant uncertainties. The extent to which COVID-19
will continue to impact the Company’s business, financial condition and results of operations will depend
on future developments, which are highly uncertain and cannot be predicted at this time. These future
developments include the speed of COVID-19 vaccination rollouts across Canada, the measures taken by
various government authorities to contain the virus and its variants’ spread for potential future waves as
well as future customer shopping behavior including online sales. Accordingly, actual results could differ
materially from those estimates and assumptions made by management.
Following are the most important accounting policies subject to such judgments and the key sources of
estimation uncertainty that the Company believes could have the most significant impact on the reported
results and financial position.
Key Sources of Estimation Uncertainty
(i) Pension Plans
The cost of defined benefit pension plans is determined by means of actuarial valuations, which
involve making assumptions about discount rates, future salary increases and mortality rates. Because
of the long-term nature of the plans, such estimates are subject to a high degree of uncertainty.
52
(ii) Gift Cards
Gift cards sold are recorded as deferred revenue and revenue is recognized when the gift cards are
redeemed. If the Company expects to be entitled to a breakage amount for the gift cards, it recognizes
the expected breakage amount as revenue in proportion to the pattern of rights exercised by the
customer. Breakage is an estimate of the amount of gift cards that will never be redeemed. The
breakage rate is reviewed on an ongoing basis and is estimated based on historical redemption
patterns.
(iii) Inventories
Inventories are valued at the lower of cost and net realizable value. Estimates are required in relation
to forecasted sales and inventory balances. In situations where excess inventory balances are
identified, estimates of net realizable values for the excess inventory are made. The Company has set
up provisions for merchandise in inventory that may have to be sold below cost. The Company has
developed assumptions regarding the quantity of merchandise to be sold below cost based on
historical pattern of sales.
COVID-19 increases the risk of uncertainty related to these estimates because they are normally based
on a historical pattern of sales. The impact of COVID-19 required management to apply a higher
degree of judgement in determining the estimates to set up provisions for merchandise in inventory
that may have to be sold below cost.
(iv) Impairment of Non-Financial Assets
The Company must assess the possibility that the carrying amounts of tangible and intangible assets
(including goodwill) may not be recoverable. Impairment testing is performed whenever there is an
indication of impairment, except for goodwill and intangible assets with indefinite useful lives for
which impairment testing is performed at least once per year. Significant management estimates are
required to determine the recoverable amount of the cash-generating unit (“CGU”) including
estimates of fair value, selling costs or the discounted future cash flows related to the CGU. COVID-
19 increases the risk of uncertainty surrounding management’s estimates. Differences in estimates
could affect whether property and equipment, right-of use assets and intangible assets are in fact
impaired and the dollar amount of that impairment.
(v) Liabilities subject to compromise
On August 20, 2020, the Court rendered a claims process order establishing the rules for the creditors
to submit a proof of claim. This order allowed creditors to submit their claims from September 10,
2020 until October 21, 2020 (“claims bar date”). All claims are determined as at May 19, 2020, the
date of the Initial Order and therefore, the beginning of the CCAA process. The Monitor initiated the
process for the identification, resolution and barring of claims in connection with the CCAA
proceedings. As of the date of the approval of these consolidated financial statements, it is currently
not possible to determine the quantum of the claims that will ultimately be allowed by the Court, as
the Monitor’s claims identification, resolution and barring process is not completed and may take
considerable time to resolve. Therefore, amounts identified as liabilities subject to compromise were
based on the information available, which management believes to be reasonable under the
circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As
future events and their effects cannot be determined with precision, actual results could differ
significantly from these estimates. Liabilities subject to compromise represent the Company’s best
53
estimate of liabilities that will ultimately be subject to the plan of arrangement and compromise to the
Company’s creditors.
(vi) Leases
In determining the carrying amount of right-of-use assets and lease liabilities at lease inception and
for lease modifications, the Company is required to estimate the incremental borrowing rate specific
to each leased asset if the interest rate implicit in the lease is not readily determinable. Management
determines the incremental borrowing rate of each leased asset by incorporating the Company's
creditworthiness, the security, term and value of the underlying leased asset, and the economic
environment in which the leased asset operates. The incremental borrowing rates are subject to change
mainly due to macroeconomic changes in the environment.
Critical Judgments in Applying Accounting Policies
(i) Operating Segments
The Company uses judgment in assessing the criteria used to determine the aggregation of operating
segments. In order to identify the Company’s reportable segments, the Company uses the process
outlined in IFRS 8, Operating Segments, which includes the identification of the Chief Operating
Decision Maker (“CODM”), being the Chief Executive Officer, the identification of operating
segments and the aggregation of operating segments. As at January 30, 2021, the Company’s
operating segments, before aggregation, have been identified as the Company’s three brands:
Reitmans, Penningtons and RW & CO. During the year ended January 30, 2021, the Company
announced as part of its restructuring plan the closure of the Thyme Maternity and Addition Elle
brands. As at and for the year ended January 30, 2021, the operating results directly attributable to
both brands are presented as discontinued operations. See notes 4 and 14.
Each operating segment is reviewed by the CODM in reviewing their profitability so that the
information can be used to ensure adequate resources are allocated to that part of the Company’s
operations. The CODM reviews the profitability of the banner as a whole, which includes both the
store and e-commerce channels. This is consistent with the omni-channel strategy adopted by the
Company whereby customers can shop seamlessly in retail stores and online. The Company has
aggregated its operating segments into one reportable segment because of their similar economic
characteristics, customers (mainly female) and nature of products (mainly women’s specialty
apparel). The similarity in economic characteristics reflects the fact that the Company’s operating
segments operate mainly in the women apparel business, primarily in Canada and are therefore subject
to the same economic market pressures. The Company’s operating segments are subject to similar
competitive pressures such as price and product innovation and assortment from existing competitors
and new entrants into the marketplace. The operating segments also share centralized, common
functions such as distribution and information technology.
(ii) Leases
Management exercises judgment in determining the appropriate lease term on a lease by lease basis.
Management considers all facts and circumstances that create an economic incentive to exercise a
renewal option or to not exercise a termination option, including investments in major leaseholds and
store performances. The periods covered by renewal options are only included in the lease term if
management is reasonably certain to renew.
54
Management considers reasonably certain to be a high threshold. Changes in the economic
environment or changes in the retail industry may influence management’s assessment of lease term,
and any changes in management’s estimate of lease terms may have a material impact on the
Company’s consolidated balance sheets and consolidated statements of earnings (loss).
(iii) Deferred tax assets
Deferred tax assets are recognized only to the extent it is considered probable that those assets will be
recoverable. This involves an assessment of when those deferred tax assets are likely to reverse and a
judgment as to whether there will be sufficient taxable profits available against which they can be
utilized.
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements, except as described below for the adoption of new accounting policies:
a) New Standards and Interpretations not yet Adopted
COVID-19-Related Rent Concessions
On May 28, 2020, the IASB issued COVID-19-Related Rent Concessions (Amendment to IFRS 16). The
amendment is effective for annual periods beginning on or after June 1, 2020. Early adoption is permitted.
The amendment exempts lessees from having to consider individual lease contracts to determine whether
rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications
and allows lessees to account for such rent concessions as if they were not lease modifications. It applies
to COVID-19-related rent concessions that reduce lease payments due on or before June 30, 2021. In April
2021, the IASB extended the relief to cover rent concessions that reduce lease payments due on or before
June 30, 2022. Rent concessions granted from landlords during the year ended January 30, 2021 following
re-negotiation of certain leases did not meet the criteria required from COVID-19-Related Rent
Concessions (Amendment to IFRS 16). As a result, the practical expedient was not applied, and the
amended contracts were accounted for as modified leases. See note 10.
b) Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company and its
subsidiaries. Control exists when the Company has existing rights that give it the current ability to direct
the activities that significantly affect the entities’ returns. The Company reassesses control on an ongoing
basis. Subsidiaries are consolidated from the date on which the Company obtains control until the date that
such control ceases. The financial statements of subsidiaries are prepared as at the same reporting period
of the Company. The accounting policies of subsidiaries are aligned with the policies of the Company. All
significant inter-company balances and transactions, and any unrealized income and expenses arising from
inter-company transactions, have been eliminated in preparing the consolidated financial statements. The
Company has no subsidiaries representing individually more than 10% of the total consolidated assets and
10% of the consolidated net sales of the Company as at and for the fiscal year ended January 30, 2021.
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c) Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into
the functional currency at the exchange rate at that date. Other balance sheet items denominated in foreign
currencies are translated into Canadian dollars at the exchange rates prevailing at the respective transaction
dates. Revenues and expenses denominated in foreign currencies are translated into Canadian dollars at
average rates of exchange prevailing during the period. The resulting gains or losses on translation are
included in the determination of net earnings.
d) Foreign Operations
The assets and liabilities of foreign operations are translated to Canadian dollars at exchange rates at the
reporting date. The income and expenses of foreign operations are translated to Canadian dollars at
exchange rates at the dates of the transactions. Foreign currency differences are recognized in other
comprehensive income.
e) Discontinued operations
A discontinued operation is a component of the Company's activities that either has been disposed of, or
is classified as held for sale, and represents a separate major line of business or geographical area of
operations, is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations or is a subsidiary acquired exclusively with a view to resale. When an
operation is classified as a discontinued operation, the comparative consolidated statements of earnings
(loss) are restated as if the operation had been discontinued from the start of the comparative year. The
results from discontinued operations are excluded from the results of continuing operations and are
presented as a single amount net of tax as earnings (loss) from discontinued operations in the consolidated
statements of earnings (loss).
f) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, bank balances and short-term deposits with original
maturities of three months or less.
g) Government assistance
Government assistance is recognized when there is reasonable assurance that the Company has met the
requirements of the approved grant program and the Company is reasonably certain based on
management’s judgment that the government grant will be received. Government assistance, including
grants, related to operating expenses is accounted for as a reduction to the related expenses. Government
assistance, including monetary and nonmonetary grants related to the acquisition of property and
equipment, is accounted for as a reduction of the cost of the related property and equipment, and is
recognized in net earnings using the same methods, periods and rates as for the related property and
equipment.
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h) Property and Equipment
Items of property and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset,
including any costs directly attributable to bringing the asset to a working condition for its intended use.
Purchased software that is integral to the functionality of the related equipment is capitalized as part of
that equipment.
When parts of an item of property and equipment have different useful lives, they are accounted for as
separate items (major components) of property and equipment.
Depreciation is recognized in net earnings on a straight-line basis over the estimated useful lives of each
component of an item of property and equipment. Land is not depreciated. Assets not in service include
expenditures incurred to-date for equipment not yet available for use. Depreciation of assets not in service
begins when they are ready for their intended use. Depreciation is calculated on the cost of an asset, less
its residual value.
The estimated useful lives for the current and comparative periods are as follows:
(cid:1) Buildings
(cid:1)
Fixtures and equipment
10 to 50 years
3 to 20 years
Leasehold improvements are depreciated over the lesser of the estimated useful life of the asset and the
lease term.
Depreciation methods, useful lives and residual values are reviewed at each annual reporting date and
adjusted prospectively, if appropriate.
Disposals of property and equipment include write-offs from store closures and for fully depreciated items.
Gains and losses on disposal of items of property and equipment are recognized in net earnings.
i) Goodwill
Goodwill is measured at the acquisition date as the fair value of the consideration transferred less the net
identifiable assets of the acquired company or business activities. Goodwill is not amortized and is carried
at cost less accumulated impairment losses.
j) Intangible Assets
The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets that are acquired by the Company and have finite useful lives are measured at cost less
accumulated amortization and accumulated impairment losses. Amortization is calculated on the cost of
the asset less its residual value. Amortization is recognized in net earnings on a straight-line basis over the
estimated useful lives of the intangible assets. Amortization of intangible assets not in service begins when
they are ready for their intended use. Intangible assets with finite lives are assessed for impairment
whenever there is an indication that the intangible asset may be impaired.
Intangible assets consist of software with estimated useful lives of 3 to 5 years for the current and
comparative periods. Amortization methods, useful lives and residual values are reviewed at each annual
reporting date and adjusted prospectively, if appropriate.
Disposals of intangible assets include write-offs for fully depreciated items.
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Intangible assets with indefinite useful lives are not subject to amortization and are tested for impairment
annually or more frequently if events or changes in circumstances indicate the asset may be impaired. The
useful life of an intangible asset with an indefinite useful life is reviewed annually to determine whether
the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment
from indefinite to finite is made on a prospective basis.
k) Leases
The Company recognizes a right-of-use asset and a lease liability based on the present value of future lease
payments when the leased asset is available for use by the Company. The lease payments include fixed
and in-substance fixed payments and variable lease payments that depend on an index or rate, less any
lease incentives receivable. The lease payments are discounted using the interest rate implicit in the lease
or the lessee’s incremental borrowing rate. Generally, the Company uses the lessee’s incremental
borrowing rate for its present value calculations. Lease payments are discounted over the lease term, which
includes the fixed term and renewal options that the Company is reasonably certain to exercise. Lease
payments are allocated between the lease liability and a finance cost, which is recognized in finance costs
over the lease term in the consolidated statements of earnings (loss).
When a contract contains both lease and non-lease components, the Company will allocate the
consideration in the contract to each of the components on the basis of the relative stand-alone price of the
lease component and the aggregate stand-alone price of the non-lease components. Relative stand-alone
prices are determined by maximizing the most observable prices for a similar asset and/or service.
Lease payments for assets that are exempt through the short-term exemption and variable payments not
based on an index or rate are recognized in selling, distribution and administrative expenses as incurred.
Lease incentives received for variable payment leases are deferred and amortized as a reduction in
recognized variable rent expenses over the term of the related leases.
Right-of-use assets are measured at cost, less any accumulated depreciation and accumulated impairment
losses, and adjusted for any re-measurement of lease liabilities. Cost is calculated as the initial
measurement of the lease liability plus any initial direct costs and any lease payments made at or before
the commencement date. Right-of-use assets are depreciated on a straight-line basis over the shorter of the
lease term or the useful life.
In sublease arrangements where the Company is the intermediate lessor, it determines whether the sublease
is finance or operating by reference to the right-of-use asset. A sublease is a finance sublease if
substantially all of the risks and rewards of the head lease right-of-use asset have been transferred to the
sub-lessee and the Company accounts for the sublease as two separate contracts. The Company
derecognizes the right-of-use asset corresponding to the head lease and records a net investment in the
finance sublease with corresponding interest income recognized in finance income in the consolidated
statements of earnings (loss) and a net investment receivable recognized in trade and other receivables in
the consolidated balance sheets.
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l) Inventories
Merchandise inventories are measured at the lower of cost, determined on an average-cost-basis, and net
realizable value. Costs include the cost of purchase, transportation costs that are directly incurred to bring
inventories to their present location and condition, and certain distribution center costs related to
inventories. The Company estimates net realizable value as the amount that inventories are expected to
be sold, in the ordinary course of business, less the estimated costs necessary to make the sale, taking into
consideration fluctuations of retail prices due to seasonality.
m) Impairment of Non-Financial Assets
All non-financial assets are reviewed at each reporting date for indications that the carrying amount may
not be recoverable. When there is evidence of impairment, an impairment test is carried out. Goodwill is
tested for impairment at least annually at the year-end reporting date, and whenever there is an indication
that the asset may be impaired. For the purpose of impairment testing, assets that cannot be tested
individually are grouped together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other assets or groups of assets (defined
as “cash-generating unit” or “CGU”). Impairment losses recognized in respect of CGUs are allocated first
to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying
amount of the other assets in the CGU.
An impairment loss is recognized in net earnings if the carrying amount of an asset or its related CGU
exceeds its estimated recoverable amount. The recoverable amount is the higher of the value in use and
the fair value less costs to sell. The value in use is the present value of estimated future cash flows, using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset or CGU. The fair value less costs to sell is the amount for which an asset or CGU can
be sold in a transaction under normal market conditions between knowledgeable and willing contracting
parties, less costs to sell.
For the purpose of impairment testing of property and equipment and right-of-use assets, each store is
managed at the corporate level, with internal reporting organized to measure performance of each retail
store. Management has determined that its cash generating units are identifiable at the individual retail
store level since the assets devoted to and cash inflows generated by each store are separately identifiable
and independent of each other.
For the purposes of impairment testing, goodwill acquired in a business combination is allocated to the
CGUs that are expected to benefit from the synergies of the combination. This allocation reflects the lowest
level at which goodwill is monitored for internal reporting purposes.
The Company’s corporate assets do not generate separate cash inflows. Corporate assets are tested for
impairment at the minimum grouping of CGUs to which the corporate assets can be reasonably and
consistently allocated. If there is an indication that a corporate asset may be impaired, then the recoverable
amount is determined for the CGUs to which the corporate asset belongs.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is
reversed if there has been a change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortization, if no impairment loss had
been recognized.
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n) Employee Benefits
(i) Pension Benefit Plans
The Company maintains a contributory defined benefit plan (“Plan”) that provides benefits to
Reitmans (Canada) Limited (the “Employer”) executive employees based on length of service and
average earnings in the best five consecutive years of employment. Contributions are made by the
Plan members and Employer. A Pension Committee, as appointed under the provisions of the Plan,
is responsible for the administration of the Plan. All the investments of the Plan are deposited with
RBC Investors Services Trust, which acts as the custodian of the assets entrusted to it. The
investment manager of the Plan’s investments is SEI Investments Canada Company. The Company
also sponsors a Supplemental Executive Retirement Plan (“SERP”) for certain senior executives,
which is neither registered nor pre-funded. The costs of these retirement benefit plans are determined
periodically by independent actuaries.
Benefits are also given to employees through defined contribution plans administered by the Federal
and Québec governments. Company contributions to these plans are recognized in the periods when
the services are rendered.
The Company’s net liability in respect of defined benefits is calculated separately for each plan by
estimating the amount of future benefits that members have earned in the current and prior periods,
discounting that amount and deducting the fair value of any plan assets.
Defined benefit obligations are actuarially calculated annually by a qualified actuary as at the
reporting date. The actuarial valuations are determined based on management’s best estimate of the
discount rate, the rate of compensation increase, retirement rates, termination rates and mortality
rates. The discount rate used to value the net defined benefit obligation for accounting purposes is
based on the yield on a portfolio of Corporate AA bonds denominated in the same currency in which
the benefits are expected to be paid and with terms to maturity that, on average, match the terms of
the defined benefit plan obligations.
The fair value of plan assets is deducted from the defined benefit obligation to arrive at the net
liability. Plan assets are measured at fair value as at the reporting date. Past service costs arising from
plan amendments are recognized in net earnings in the period that they arise.
Remeasurements of the net defined benefit liability, which comprise actuarial gains or losses, the
return on plan assets, excluding interest, and the effect of the asset ceiling, if any, are recognized in
other comprehensive income in the period in which they arise and subsequently reclassified from
accumulated other comprehensive income to retained earnings.
Pension expense consists of the following:
•
the cost of pension benefits provided in exchange for members' services rendered in the period;
• net interest expense (income) on the net defined benefit liability (asset) for the period by applying
the discount rate used to measure the net defined benefit obligation at the beginning of the annual
period to the net defined benefit liability (asset), taking into account any changes in the net defined
benefit liability (asset) during the period as a result of contributions and benefit payments;
• past service costs; and
• gains or losses on settlements or curtailments.
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Expenses related to defined contribution plans are recognized in net earnings in the periods in which
the services are rendered.
(ii) Short-Term Employee Benefits
Short-term employee benefits obligations, which include wages, salaries, compensated absences and
bonuses, are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonuses or profit-
sharing plans if the Company has a present legal or constructive obligation to pay this amount as a
result of past service provided by the employee, and the obligation can be estimated reliably.
(iii) Termination Benefits
Termination benefits are recognized as an expense at the earlier of when the Company can no longer
withdraw the offer of those benefits and when the Company recognizes costs for a restructuring.
Benefits payable are discounted to their present value when the effect of the time value of money is
material.
(iv) Share-Based Compensation
Share options (equity-settled)
Share options are equity settled share based payments. The fair value of each tranche of options
granted is measured separately at the grant date using a Black-Scholes option pricing model.
Estimating fair value requires determining the most appropriate inputs to the valuation model
including making assumptions for the expected life, volatility, risk-free interest rate and dividend
yield. Compensation cost is expensed over the award's respective vesting period which is normally
up to four or five years. The amount recognized as an expense is adjusted to reflect the number of
awards for which the related service conditions are expected to be met. Compensation expense is
recognized in net earnings with a corresponding increase in contributed surplus. Any consideration
paid by plan participants on the exercise of share options is credited to share capital. Upon the
exercise of share options, the corresponding amounts previously credited to contributed surplus are
transferred to share capital.
Share Appreciation Rights (cash-settled)
The Company’s share option plan includes a Share Appreciation Rights (“SARs”) plan that entitles
key management and employees to a cash payment based on the increase in the share price of the
Company’s Class A non-voting shares from the grant date to the vesting date. A liability is recognized
for the services acquired and is recorded at the fair value of the SARs in other non-current payables,
except for the current portion recorded in trade and other payables, with a corresponding expense
recognized in selling and distribution and/or administrative expenses, over the period that the
employees become unconditionally entitled to the payment. The fair value of the employee benefits
expense of the SARs is measured using the Black-Scholes pricing model. Estimating fair value
requires determining the most appropriate inputs to the valuation model including making
assumptions for the expected life of the SARs, volatility, risk-free interest rate and dividend yield.
At the end of each reporting period until the liability is settled, the fair value of the liability is
remeasured, with any changes in fair value recognized in the consolidated statements of earnings
(loss) for the period.
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Performance Share Units (cash-settled)
The Company has a Performance Share Units (“PSUs”) plan entitling executives and key
management to a cash payment. A liability is recognized for the services acquired and is recorded at
fair value based on the share price of the Company’s Common shares in other non-current payables,
except for the current portion recorded in trade and other payables, with a corresponding expense
recognized in employee benefits expense in selling and distribution and/or administrative expenses.
The amount recognized as an expense is adjusted to reflect the number of units for which the related
service and performance conditions are expected to be met, such that the amount ultimately
recognized as an expense is based on the units of awards that meet the related service and non-market
performance conditions at the vesting date. At the end of each reporting period until the liability is
settled, the fair value of the liability is remeasured, with any changes in fair value recognized in the
consolidated statements of earnings (loss) for the period.
o) Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be
required to settle the obligation. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability. Where discounting is used,
the unwinding of the discount is recognized as finance cost.
An onerous contract provision is recognized when the expected benefits to be derived by the Company
from a contract are lower than the unavoidable cost of meeting its obligations. The provision is measured
at the present value of the lower of the expected cost of terminating the contract or the expected cost of
continuing with the contract. Before an onerous contract provision is established, the Company recognizes
any impairment loss on the assets associated with that contract.
p) Revenue
Sale of merchandise
The Company recognizes revenue when control of the goods or services has been transferred. Revenue is
measured at the amount of consideration to which the Company expects to be entitled to, including variable
consideration to the extent that it is highly probable that a significant reversal will not occur.
Customer loyalty award programs
Revenue is allocated between the customer loyalty award programs and the goods on which the awards
were earned based on their relative stand-alone selling prices. Loyalty points and awards granted under
customer loyalty award programs are recorded as deferred revenue until the loyalty points and awards are
redeemed by the customer.
Gift cards
Gift cards sold are recorded as deferred revenue and revenue is recognized when the gift cards are
redeemed. If the Company expects to be entitled to a breakage amount for the gift cards, it recognizes the
expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer.
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Sales with a right of return
The Company grants rights of return on goods sold to customers. Revenue is reduced by the amount of
expected returns, which is determined based on historical patterns of returns, and a related refund liability
is recorded within “Trade and other payables”. In addition, the Company recognizes a related asset for the
right to recover returned goods within “Inventories”.
q) Finance Income and Finance Costs
Finance income comprises interest and dividend income, net gains from changes in the fair value of
marketable securities, as well as foreign exchange gains. Finance costs comprise interest expense, net
losses from changes in the fair value of marketable securities, as well as foreign exchange losses. Interest
income is recognized on an accrual basis and interest expense is recorded using the effective interest
method. Dividend income is recognized when the right to receive payment is established. Foreign
exchange gains and losses are reported on a net basis.
r) Income Tax
Income tax expense comprises current and deferred taxes. Current income taxes and deferred income taxes
are recognized in net earnings except for items recognized directly in equity or in other comprehensive
income.
The Company’s income tax expense is based on tax rules and regulations that are subject to interpretation
and require estimates and assumptions that may be challenged by taxation authorities. Current income tax
is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to taxes payable in respect of
previous years. The Company’s estimates of current income tax assets and liabilities are periodically
reviewed and adjusted as circumstances warrant, such as for 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 income tax expense and in measuring current income tax assets and liabilities.
Deferred income tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred
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 deferred income tax assets and liabilities of a change in tax rates is
included in net earnings in the period that includes the enactment date, except to the extent that it relates
to an item recognized either in other comprehensive income or directly in equity in the current or in a
previous period.
The Company only offsets income tax assets and liabilities if it has a legally enforceable right to offset the
recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability
simultaneously.
A deferred income tax asset is recognized to the extent that it is probable that future taxable profits will be
available against which they can be utilized. Deferred income 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.
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Deferred income tax assets and liabilities are recognized on the consolidated balance sheets under non-
current assets or liabilities, irrespective of the expected date of realization or settlement.
Current and deferred taxes attributable to amounts recognized directly in equity are also recognized
directly in equity.
s) Earnings per Share
The Company presents basic and diluted earnings per share (“EPS”) data for its shares.
Basic EPS is calculated by dividing the net earnings of the Company by the weighted average number of
Class A non-voting and Common shares outstanding during the period.
Diluted EPS is determined by adjusting the weighted average number of shares outstanding to include
additional shares issued from the assumed exercise of share 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 share-based compensation, are used to purchase Class A non-voting shares at the average
market share price during the period.
t) Share Capital
Class A non-voting shares and Common shares are classified as equity. Incremental costs directly
attributable to the issue of shares are recognized as a deduction from equity, net of any tax effects.
When share capital recognized as equity is purchased for cancellation, the amount of the consideration
paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from
equity. The excess of the purchase price over the carrying amount of the shares is charged to retained
earnings.
u) Financial Instruments
The Company initially recognizes financial assets on the trade date at which the Company becomes a party
to the contractual provisions of the instrument.
Financial assets are initially measured at fair value. On initial recognition, the Company classifies its
financial assets as subsequently measured at either amortized cost, fair value through other comprehensive
income or fair value through profit or loss, depending on its business model for managing the financial
assets and the contractual cash flow characteristics of the financial assets. If the financial asset is not
subsequently accounted for at fair value through profit or loss, then the initial measurement includes
transaction costs that are directly attributable to the asset’s acquisition or origination.
(i) Financial assets measured at amortized cost
A financial asset is subsequently measured at amortized cost, using the effective interest method and
net of any impairment loss, if:
• The asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows; and
• The contractual terms of the financial asset give rise, on specified dates, to cash flows that are
solely payments of principal and/or interest.
The Company currently classifies its cash and cash equivalents and trade and other receivables as
assets measured at amortized cost.
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(ii) Financial assets measured at fair value through other comprehensive income (“OCI”)
A financial asset is measured at fair value through OCI if it meets both of the following conditions and
is not designated as measured at fair value through profit or loss:
•
It is held within a business model whose objective is achieved by both collecting contractual cash
flows and selling financial assets; and
•
Its contractual terms give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
The Company currently has no financial assets measured at fair value through OCI.
(iii)Impairment of financial assets
The Company uses the “expected credit loss” model for calculating impairment and recognizes
expected credit losses as a loss allowance in the consolidated balance sheets if they relate to a financial
asset measured at amortized cost. The Company’s trade and other receivables, typically short-term
receivables with payments received within a 12-month period, do not have a significant financing
component. Therefore, the Company recognizes impairment and measures expected credit losses as
lifetime expected credit losses. The carrying amount of these assets in the consolidated balance sheets
is stated net of any loss allowance.
(iv) Financial assets measured at fair value through profit or loss
These assets are measured at fair value and changes therein, including any interest or dividend income,
are recognized in profit or loss. Marketable securities are measured at fair value with changes in fair
value recognized in profit or loss.
(v) Financial liabilities are classified into the following categories
Financial liabilities measured at amortized cost:
The Company classifies non-derivative financial liabilities as measured at amortized cost. Non-
derivative financial liabilities are initially recognized at fair value less any directly attributable
transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost
using the effective interest method. The Company currently classifies trade and other payables as
financial liabilities measured at amortized cost.
Financial liabilities measured at fair value through profit or loss:
Financial liabilities measured at fair value are initially recognized at fair value and are re-measured at
each reporting date with any changes therein recognized in profit or loss. The Company currently has
no financial liabilities measured at fair value.
(vi) Non-hedge derivative financial instruments measured at fair value
Non-hedge derivative financial instruments, including foreign exchange contracts, are recorded as
either assets or liabilities measured initially at their fair value. Attributable transaction costs are
recognized in profit or loss as incurred. All derivative financial instruments not designated in a hedge
relationship are classified as financial instruments at fair value through profit and loss. Any subsequent
change in the fair value of non-hedge foreign exchange contracts are accounted for in cost of goods
sold for the period in which it arises.
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(vii) Hedging relationships
The Company may enter into derivative financial instruments to hedge its foreign exchange risk
exposures of part of its purchases in U.S. dollars. On initial designation of the hedge, the Company
formally documents the relationship between the hedging instruments and hedged items, including the
risk management objectives and strategy in undertaking the hedge transaction, together with the
methods that will be used to assess the effectiveness of the hedging relationship. The Company makes
an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether
the hedging instruments are expected to be effective in offsetting the changes in the fair value or cash
flows of the respective hedged items during the period for which the hedge is designated.
For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur
and should present an exposure to variations in cash flows that could ultimately affect reported net
earnings. The time value component of options designated as cash flow hedges is excluded from the
hedging relationships and recorded in other comprehensive income as a cost of hedging and, presented
separately when significant.
Derivatives used for hedging are recognized initially at fair value, and attributable transaction costs
are recognized in net earnings as incurred. Subsequent to initial recognition, derivatives are measured
at fair value, and changes therein are accounted for as described below.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows
attributable to a particular risk associated with a recognized asset or liability or a highly probable
forecasted transaction that could affect net earnings, the effective portion of changes in the fair value
of the derivative is recognized in other comprehensive income and presented in accumulated other
comprehensive income as part of equity. The amount recognized in other comprehensive income is
removed and included in net earnings under the same line item in the consolidated statements of
earnings (loss) and comprehensive income as the hedged item, in the same period that the hedged cash
flows affect net earnings. Any ineffective portion of changes in the fair value of the derivative is
recognized immediately in net earnings. If the hedging instrument no longer meets the criteria for
hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued
prospectively. The cumulative gain or loss previously recognized in other comprehensive income
remains in accumulated other comprehensive income until the forecasted transaction affects profit or
loss. If the forecasted transaction is no longer expected to occur, then the balance in accumulated other
comprehensive income is recognized immediately in net earnings.
When the hedged item is a non-financial asset, the amount recognized in other comprehensive income
is transferred directly to the initial cost of that asset.
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v) Fair Value Measurement
When measuring the fair value of an asset or liability the Company uses observable market data whenever
available. Fair values are classified within the fair value hierarchy based on the lowest level input that is
significant to the fair value measurement as a whole, as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
Fair value estimates are made at a specific point in time, using available information about the asset or
liability. These estimates are subjective in nature and often cannot be determined with precision. There
was no change in the valuation techniques applied to financial instruments during the current year. Fair
values have been determined for measurement and/or disclosure purposes based on the following methods.
When applicable, further information about the assumptions made in determining fair values is disclosed
in the notes specific to that asset or liability.
(i) Financial Assets
The Company has determined that the carrying amount of its short-term financial assets approximates
fair value at the reporting date due to the short-term maturity of these instruments.
(ii) Derivative Financial Instruments
The fair value of foreign currency option contracts is determined through a standard option valuation
technique used by the counterparty based on Level 2 inputs.
4. DISCONTINUED OPERATIONS
On June 1, 2020, the Company announced, as part of its restructuring plan and as approved by the Monitor,
the closure of the Thyme Maternity and Addition Elle brands. This announcement led to the planned closure
of all retail stores and e-commerce channels related to these brands.
The financial information presented below is directly attributable to both brands. All administrative expenses
and various selling and distribution expenses from shared, centralized and common functions of the Company
are excluded from the determination of discontinued operations.
67
The operating results are presented as discontinued operations and the prior year has been restated:
Loss from discontinued operations
Sales
Cost of goods sold(1)
Gross profit
Selling and distribution expenses(2)
Impairment of non-financial assets(3)
Restructuring costs (note 14)(4)
Impairment of goodwill(5)
Results from operating activities
Finance costs (6)
Loss before income taxes
For the years ended
January 30, 2021 February 1, 2020
$
74,086
51,684
22,402
20,307
22,018
51,720
-
(71,643)
458
(72,101)
$ 164,037
83,496
80,541
81,097
1,314
-
11,843
(13,713)
1,438
(15,151)
Income tax expense (recovery)
Net loss income from discontinued operations
80
(72,181)
$
(887)
(14,264)
$
Loss per share, discontinued operations :
Basic
Diluted
$
(1.48)
(1.48)
$
(0.25)
(0.25)
(1) During the year ended January 30, 2021, inventories recognized as cost of goods sold amounted to $50,168 ($81,292 for
the year ended February 1, 2020). In addition, for the year ended January 30, 2021, the Company recorded a loss of $1,516
($2,204 for year ended February 1, 2020) on write-downs of inventories as a result of net realizable value being lower
than cost which were recognized in cost of goods sold.
(2) The Company recognized grant income in connection with the Canada Emergency Wage Subsidy of $1,979 as a reduction of
selling and distribution expenses for the year ended January 30, 2021 (nil for the year ended February 1, 2020).
(3) As a result of the adverse impact of COVID-19 and as part of the restructuring plan resulting in the closure of Addition
Elle and Thyme Maternity, the Company performed an impairment test for its non-financial assets. The test resulted in
the recognition of impairment losses of $8,826 related to right-of-use assets, $10,102 related to property and equipment
and $3,090 related to intangible assets for the year ended January 30, 2021 (impairment losses of $454 related to right-of-
use assets and $860 related to property and equipment for the year ended February 1, 2020). See note 8 for methodology
and assumptions used in the impairment test.
(4) See note 14 for details of restructuring costs included in discontinued operations. During the year ended January 30, 2021,
right-of-use assets were reduced by $28,455 and lease liabilities were reduced by $31,478. A corresponding gain of $3,023
was recognized in restructuring costs for the year ended January 30, 2021 as lease modifications in connection with leases
that were disclaimed as part of the CCAA proceedings (nil for the year ended February 1, 2020).
68
(5) During the year ended February 1, 2020, goodwill was allocated to one of the groups of cash-generating units (“CGUs”), the
Addition Elle banner. The recoverable amount of the Addition Elle banner CGU was based on value in use and was determined
by discounting the future cash flows generated from continuing use. As a result of the decline in Addition Elle profitability
and an impairment test of goodwill, the Company recorded a goodwill impairment loss of $11,843 in the year ended February
1, 2020 reducing the carrying amount of goodwill to nil.
(6) Finance costs represent interest expense on lease liabilities.
The following table presents the effect of discontinued operations on the consolidated statements of cash
flows:
Net cash flows (used in) from discontinued operations
For the years ended
January 30, 2021 February 1, 2020
Net cash flow (used in) from operating activities
Net cash flow used in investing activities
Net cash flow used in financing activities
Net cash flow for the period
$
$
(28,077)
(762)
(5,903)
(34,742)
$
$
11,580
(3,490)
(15,025)
(6,935)
5. CASH AND CASH EQUIVALENTS
Cash
Short-term deposits (1)
Restricted cash (2)
January 30, 2021 February 1, 2020
$ 75,162
-
2,753
$ 77,915
$ 86,432
2,978
-
$ 89,410
(1) The Company’s cash held with banks bears interest at variable rates. Short-term deposits were bearing interest at 0.5% as at
February 1, 2020.
(2) Restricted cash represents cash held in trust by a Canadian financial institution as security held on a standby letter of credit.
6. TRADE AND OTHER RECEIVABLES
Trade and other receivables include an amount of $7,922 related to government grants receivable. The
Government of Canada made available to businesses affected by COVID-19 the Canada Emergency Wage
Subsidy (“CEWS”), which allows companies to claim a portion of employee wages and the Canada
Emergency Rent Subsidy (“CERS”), which allows companies to claim a portion of rent and occupancy costs
when eligibility requirements are met. As at January 30, 2021, the Company qualified to receive both the
CEWS and CERS and that there was reasonable assurance that the amount would be received from the
government. The Company also intends to apply for the CEWS and CERS in subsequent application periods,
where the qualification criteria continues to be met.
For the year ended January 30, 2021, the Company recognized grant income of $31,038 related to the CEWS
and $1,448 related to the CERS as a reduction of selling and distribution expenses, and $2,904 related to the
CEWS as a reduction of administrative expenses.
69
7. INVENTORIES
During the year ended January 30, 2021, inventories recognized as cost of goods sold amounted to $272,689
(February 1, 2020 - $332,525). In addition, for the year ended January 30, 2021, the Company recorded
$14,419 (February 1, 2020 - $9,085) of inventory write-downs as a result of net realizable value being lower
than cost which were recognized in cost of goods sold, and no inventory write-downs recognized in previous
periods were reversed.
Included in inventories is a return asset for the right to recover returned goods in the amount of $2,484 as at
January 30, 2021 (February 1, 2020 - $1,898).
8. PROPERTY AND EQUIPMENT
Cost
Balance at February 3, 2019
Additions
Disposals
Balance at February 1, 2020
Balance at February 2, 2020
Additions
Disposals
Balance at January 30, 2021
Accumulated depreciation and
impairment losses
Balance at February 3, 2019
Depreciation
Impairment loss
Disposals
Balance at February 1, 2020
Balance at February 2, 2020
Depreciation
Impairment loss
Disposals
Balance at January 30, 2021
Net carrying amounts
At February 1, 2020
At January 30, 2021
Land
Buildings
Fixtures and
Equipment
Leasehold
Improvements
Total
$ 5,860
-
-
$ 5,860
$ 5,860
-
-
$ 5,860
$
$
$
$
-
-
-
-
-
-
-
-
-
-
$ 36,828
1,375
(26)
$ 38,177
$ 38,177
326
(623)
$ 37,880
$ 14,616
1,266
-
(26)
$ 15,856
$ 15,856
1,295
133
(623)
$ 16,661
$ 102,634
9,922
(21,751)
$ 90,805
$ 74,262
5,120
(30,379)
$ 49,003
$ 90,805
3,541
(22,821)
$ 71,525
$ 49,003
2,124
(18,484)
$ 32,643
$ 56,973
13,280
350
(21,742)
$ 48,861
$ 48,861
7,344
8,255
(22,768)
$ 41,692
$ 52,074
7,218
2,125
(30,379)
$ 31,038
$ 31,038
2,923
7,958
(18,476)
$ 23,443
$ 219,584
16,417
(52,156)
$ 183,845
$ 183,845
5,991
(41,928)
$ 147,908
$ 123,663
21,764
2,475
(52,147)
$ 95,755
$ 95,755
11,562
16,346
(41,867)
$ 81,796
$ 5,860
$ 5,860
$ 22,321
$ 21,219
$ 41,944
$ 29,833
$ 17,965
9,200
$
$ 88,090
$ 66,112
70
During the year ended January 30, 2021, the Company tested for impairment certain CGUs for which there
were indications that their carrying amounts may not be recoverable. The impairment related to the property
and equipment, intangible assets and right-of-use assets is due to the reduction in profitability of CGUs such
that the estimated recoverable amount falls below the carrying amount of the CGU.
Impairment losses recognized as follows:
For the year ended January 30, 2021
For the year ended February 1, 2020
Combined
Continuing Discontinued
Combined
Continuing Discontinued
Property and equipment
Intangible assets
Right-of-use assets
$ 16,346
4,456
17,740
$ 38,542
$ 6,244
1,366
8,914
$ 16,524
$ 10,102
3,090
8,826
$ 22,018
$ 2,475
-
1,418
$ 3,893
$ 1,615
-
964
$ 2,579
$
860
-
454
$ 1,314
A reversal of impairment occurs when previously impaired individual retail store locations see increased
profitability. When determining the value in use of a retail location, the Company develops a discounted
cash flow model for each CGU. The duration of the cash flow projections for individual CGUs varies based
on the remaining useful life of the significant asset within the CGU. Sales forecasts for cash flows are based
on actual operating results, industry’s expected growth rates and management’s experiences. The recoverable
amounts of the CGUs tested for impairment were based on their value in use which was determined using a
pre-tax discount rate of 19.0% (February 1, 2020 - 13.0%). During the years ended January 30, 2021 and
February 1, 2020, no asset impairment losses were reversed following an improvement in the profitability of
certain CGUs.
Depreciation expense related to property and equipment is presented as follows:
For the year ended January 30, 2021
For the year ended February 1, 2020
Combined Continuing Discontinued Combined
Continuing Discontinued
Selling and distribution expenses
Administrative expenses
$ 10,373
1,189
$ 11,562
$ 9,223
1,189
$ 10,412
$
$
1,150
-
1,150
$ 20,565
1,199
$ 21,764
$ 17,711
1,199
$ 18,910
$ 2,854
-
$ 2,854
Property and equipment includes an amount of $120 (February 1, 2020 - $1,639) that is not being depreciated.
Depreciation will begin when the assets are available for use.
71
9. INTANGIBLE ASSETS
Intangible assets consist of software as follows:
Cost
Balance at beginning of the year
Additions
Disposals
Balance at end of the year
Accumulated amortization and impairment losses
Balance at beginning of the year
Amortization
Impairment loss (note 8)
Disposals
Balance at end of the year
January 30, 2021
February 1, 2020
$ 37,799
726
(13,075)
$ 25,450
$ 17,532
6,206
4,456
(13,075)
$ 15,119
$ 39,167
7,316
(8,684)
$ 37,799
$ 17,528
8,688
-
(8,684)
$ 17,532
Net carrying amounts
$ 10,331
$ 20,267
Depreciation expense related to intangible assets is presented as follows:
For the year ended January 30, 2021
For the year ended February 1, 2020
Combined Continuing Discontinued Combined
Continuing Discontinued
Selling and distribution expenses
Administrative expenses
$
$
3,777
2,429
6,206
$ 3,496
2,429
$ 5,925
$
$
281
-
281
$ 6,750
1,938
$ 8,688
$ 6,342
1,938
$ 8,280
$
$
408
-
408
Intangible assets include an amount of $2,570 (February 1, 2020 - $3,334) that is not being amortized.
Amortization will begin when the software is available for use.
10. LEASES
The Company leases all of its retail locations and certain office equipment. Retail locations typically have a
fixed lease term with additional renewal options available to exercise. The Company has included renewal
options in the measurement of its right-of-use assets and lease liabilities when it is reasonably certain to
exercise the options.
Right-of-use assets
Balance as at February 3, 2019
Lease additions
Depreciation
Impairment loss (note 8)
Balance as at February 1, 2020
Retail
locations
$ 208,745
55,597
(67,030)
(1,418)
$ 195,894
Office
equipment
$ 3,668
129
(1,594)
-
$ 2,203
Total
$ 212,413
55,726
(68,624)
(1,418)
$ 198,097
72
Balance as at February 2, 2020
Lease additions
Lease modifications
Disclaimed leases (1)
Depreciation
Impairment loss (note 8)
Balance as at January 30, 2021
Retail
locations
$ 195,894
28,207
(27,009)
(35,201)
(42,182)
(17,740)
$ 101,969
Office
equipment
$ 2,203
740
-
-
(1,081)
-
$ 1,862
Total
$ 198,097
28,947
(27,009)
(35,201)
(43,263)
(17,740)
$ 103,831
(1) Disclaimed leases represent the right-of-use assets related to certain leases terminated as part of the CCAA process. A
provision related to these leases was recognized in liabilities subject to compromise. See note 14.
Depreciation expenses related to right-of-use assets presented as follows:
For the year ended January 30, 2021
For the year ended February 1, 2020
Combined Continuing Discontinued Combined
Continuing Discontinued
Selling and distribution expenses
Administrative expenses
$ 42,726
537
$ 43,263
$ 35,652
537
$ 36,189
$
$
7,074
-
7,074
$ 67,341
1,283
$ 68,624
$ 56,960
1,283
$ 58,243
$ 10,381
-
$ 10,381
During the year ended January 30, 2021, right-of-use assets were reduced by $6,746 and lease liabilities were
reduced by $10,039. A corresponding gain of $3,293 was recognized in restructuring costs for continuing
operations for the year ended January 30, 2021 as lease modifications in connection with leases that were
disclaimed as part of the CCAA proceedings (nil for the year ended February 1, 2020).
Lease liabilities
Balance at the beginning of the year
Lease additions
Lease modifications
Disclaimed leases (1)
Payment of lease liabilities
Interest expense on lease liabilities (note 19)
Lease liabilities subject to compromise (note 14)
Balance at the end of the year
Current portion of lease liabilities
Non-current portion of lease liabilities
Total lease liabilities
January 30, 2021
$ 213,869
28,947
(28,182)
(41,517)
(46,818)
6,201
(9,283)
$ 123,217
$
35,303
87,914
$ 123,217
February 1, 2020
$
219,960
55,726
-
-
(69,296)
7,479
-
213,869
61,618
152,251
213,869
$
$
$
(1) Disclaimed leases represent the lease liabilities related to certain leases terminated as part of the CCAA process. A
provision related to these leases was recognized in liabilities subject to compromise. See note 14.
73
The following table presents a maturity analysis of future contractual undiscounted cash flows from lease
liabilities by fiscal year:
2022
2023
2024
2025
2026
Thereafter
Total undiscounted lease liabilities
$
43,600
28,483
18,722
12,777
8,000
18,392
$ 129,974
The Company has certain retail locations where portions of the lease payments are contingent on a percentage
of sales or where lease payments are made with no fixed term. During the year ended January 30, 2021, the
Company recognized $2,052 (February 1, 2020 - $2,402) of variable lease payments and $1,310 (February
1, 2020 - $1,011) of lease payments with no fixed term recorded in selling and distribution expenses.
During the year ended January 30, 2021, the Company recognized expenses relating to short-term leases of
$1,650 (February 1, 2020 - $78) and leases of low-value assets were nil (February 1, 2020 - $45) recorded in
selling and distribution expenses.
As at January 30, 2021, $45,437 (February 1, 2020 - $88,872) of undiscounted future lease payments are
related to extension options that were not deemed to be reasonably certain to be exercised and were not
included in lease liabilities.
11. INCOME TAX
Income tax expense
The Company’s income tax expense is comprised as follows:
Current tax expense (recovery)
Current year
Adjustment in respect of prior years
Current tax expense from continuing operations
Deferred tax expense
Origination and reversal of temporary differences
Changes in tax rates
Deferred tax expense from continuing operations
For the years ended
January 30, 2021 February 1, 2020
$
173
(23)
150
(115)
156
41
$
22
(261)
(239)
23,591
477
24,068
Total tax expense from continuing operations
$
191
$ 23,829
Deferred tax expense (recovery) from discontinued operations
Total tax expense
80
271
$
(887)
$ 22,942
74
Income tax recognized in other comprehensive income
For the years ended
January 30, 2021
Tax recovery
(expense)
Before tax
Net of tax
Before tax
February 1, 2020
Tax recovery
(expense)
Net of tax
$ (1,027)
$
272
$
(755)
$ 1,507
$
(401)
$ 1,106
700
(327)
$
-
272
700
(55)
$
$
(3,098)
$ (1,591)
(1,227)
$ (1,628)
(4,325)
$ (3,219)
Cash flow hedges
Defined benefit
plan actuarial
gains (losses)
Reconciliation of effective tax rate
Loss before income taxes
Income tax recovery using the
Company’s statutory tax rate
Changes in tax rates
Non-deductible expenses and other
adjustments
Change in unrecognized deferred tax
assets
Tax exempt income
Effect of tax in foreign jurisdictions
Adjustment in respect of prior years
Income tax expense
For the years ended
January 30, 2021
February 1, 2020
$(99,845)
$ (49,333)
(26,525)
156
26.57%
(0.16%)
(13,236)
477
26.83%
(0.97%)
221
(0.22%)
1,456
(2.95%)
26,564
-
(202)
(23)
191
$
(26.60%)
-
0.20%
0.02%
(0.19%)
36,502
(429)
(680)
(261)
$ 23,829
(73.99%)
0.87%
1.38%
0.53%
(48.30%)
Recognized deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Lease liabilities
Right-of-use assets
Property, equipment and
intangible assets
Inventories
Derivative financial asset
and liability
Other
Assets
Liabilities
Net
January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020
$ 27,026
-
$ 51,771
-
$
-
27,026
$
-
51,771
$ 27,026
(27,026)
$ 51,771
(51,771)
2,309
-
2,219
-
1,621
-
-
$ 29,335
-
-
$ 53,990
-
537
$ 29,184
-
1,947
272
-
$ 53,990
2,309
(1,621)
2,219
(1,947)
-
(537)
151
(272)
-
-
$
$
75
Changes in deferred tax balances during the year
Balance
February 2,
2019
Recognized in
Net Earnings
Recognized in
Retained
Earnings
Recognized in
Other
Comprehensive
Income
Balance
February 1,
2020
Recognized in
Other
Comprehensive
Income
Recognized in
Net Earnings
Lease liabilities
Right-of-use assets
Property, equipment
and intangible assets
Inventories
Trade and other
payables
Derivative financial
liability (asset)
Pension liability
Tax benefit of non-
capital losses
carried forward
Other
$
-
-
$ 51,771
(51,771)
$
15,819
(1,420)
(13,600)
(527)
$
-
-
-
-
2,696
(2,676)
(20)
-
-
-
-
-
129
5,649
-
(4,422)
-
-
(401)
(1,227)
$ 51,771
(51,771)
$ (24,745)
24,745
$
2,219
(1,947)
90
326
-
(272)
-
-
-
-
1,932
24
$ 24,829
(1,932)
(24)
$(23,181)
$
-
-
-
-
(20) $ (1,628)
$
-
-
-
-
(537)
(121) $
$
-
-
-
-
-
272
-
-
-
272
Balance
January 30,
2021
$ 27,026
(27,026)
2,309
(1,621)
-
-
-
-
(537)
151
$
As a result of the uncertainties related to the Company’s ability to generate future profitable operations, the
Company has determined that it is not probable that future taxable profits will be available in Canada against
which deferred tax assets can be utilized. Accordingly, no deferred tax assets have been recognized for the
Canadian operations.
Unrecognized deferred tax assets
Deferred income tax assets were not recognized on the consolidated balance sheets in respect of the following
items:
Non-capital losses carry-forward
Deductible temporary differences
Allowable capital losses carry-forward
Unrecognized deferred tax assets
January 30, 2021
February 1, 2020
$ 20,460
65,450
3,133
$ 89,043
$ 20,745
19,282
3,134
$ 43,161
The non-capital losses carry-forward expire between 2034 and 2041. The deductible temporary differences
and allowable capital losses carry-forward do not expire under current income tax legislation. Deferred
income tax assets were not recognized in respect of these items because, as at January 30, 2021, it was not
probable that sufficient future taxable income will be available from the Canadian operations to utilize the
benefits.
76
12. TRADE AND OTHER PAYABLES
Trade payables
Personnel liabilities
Other non-trade payables
Refund liability
Deferred rent and payables relating to premises
January 30, 2021 February 1, 2020
$
2,098
10,898
12,687
4,439
1,400
$ 31,522
$ 75,132
20,441
9,367
3,489
1,245
$ 109,674
Included in prepaid expenses as at January 30, 2021 is an amount of $18,382 (nil as at February 1, 2020)
representing deposits to vendors for ordered merchandise.
13. DEFERRED REVENUE
Loyalty points and awards granted under loyalty
programs
Unredeemed gift cards
January 30, 2021 February 1, 2020
$
209
12,253
$ 12,462
$
847
14,195
$ 15,042
14. LIABILITIES SUBJECT TO COMPROMISE AND RESTRUCTURING COSTS
As at January 30, 2021, in connection with the CCAA proceedings, the Company identified the following
unsecured liabilities subject to compromise:
Trade payables and accruals
Lease liabilities
Provision for disclaimed leases
Pension liabilities (note 15)
Termination benefit liabilities
Sales and income taxes payable
Other non-trade payables
$ 74,823
9,283
51,905
21,014
12,786
6,404
27,868
$ 204,083
The liabilities that are not subject to the CCAA proceedings are excluded from the liabilities subject to
compromise.
77
Restructuring costs
As described in note 2(b), as part of its restructuring plan and as approved by the Monitor, the Company
closed all retail stores and e-commerce for Thyme Maternity and Addition Elle and terminated approximately
1,600 employees at its retail locations and head office. In connection with the restructuring plan and the
CCAA proceedings, the following restructuring costs were recognized:
For the year ended January 30, 2021
Continuing
Discontinued
Combined
Provision for disclaimed leases
Gain on lease modifications and disclaimed
leases (notes 4 and 10)
Termination benefits
Inventory purchases cancellation costs and other
expenses
Legal, Monitor and other consulting fees
DIP lender fees
$ 52,455
$
9,726
$ 42,729
(8,216)
12,786
(5,193)
7,365
(3,023)
5,421
15,725
4,875
611
$ 78,236
9,132
4,875
611
$ 26,516
6,593
-
-
$ 51,720
15. PENSION LIABILITY
The following tables present reconciliations of the pension obligations, the plan assets and the funded status
of the retirement benefit plans. In connection with CCAA proceedings, the pre-petition portion of the pension
liability related to the SERP of $21,014, for which the fair value of plan assets is $nil, has been reclassified
to liabilities subject to compromise and the SERP is expected to be terminated effective with the settlement
of these liabilities through the plan of arrangement to be entered into under CCAA. See note 2(f)(v) and 14.
Funded Status
As at January 30, 2021
Plan
As at February 1, 2020
Plan
SERP
Total
Fair value of
plan assets
Defined benefit
obligation
Pension liability
$ 22,676
$ 25,768
$
(3,092)
$ 23,627
-
$ 23,627
$ 26,737
21,103
$ 47,840
$
(3,110)
(21,103)
$ (24,213)
78
Movement in the present value of the
defined benefit obligation
Defined benefit obligation, beginning
of year
Current service cost
Interest cost
Employee contributions
Actuarial gain - experience
Actuarial loss - financial
assumptions
Benefits paid from plan assets
Benefits paid directly by the Company
SERP pension liability reclassified to
liabilities subject to compromise
-
Defined benefit obligation, end of year $ 25,768
For the years ended
January 30, 2021
SERP
Plan
Total
Plan
February 1, 2020
SERP
Total
$ 26,737
1,503
694
109
(166)
173
(3,282)
-
$ 21,103
394
-
-
-
$ 47,840
1,897
694
109
(166)
-
-
(483)
173
(3,282)
(483)
$ 23,880
1,440
884
165
(300)
3,841
(3,173)
-
$ 20,143
(49)
721
-
(931)
$ 44,023
1,391
1,605
165
(1,231)
2,364
-
(1,145)
6,205
(3,173)
(1,145)
(21,014)
-
$
(21,014)
$ 25,768
-
$ 26,737
-
$ 21,103
-
$ 47,840
Movement in the fair value of plan
assets
Fair value of plan assets, beginning of
year
Return on plan assets
Interest income on plan assets
Employer contributions
Employee contributions
Benefits paid
Plan administration costs
Fair value of plan assets, end of year
$ 23,627
707
584
1,099
109
(3,281)
(169)
$ 22,676
$
$
-
-
-
483
-
(483)
-
-
$ 23,627
707
584
1,582
109
(3,764)
(169)
$ 22,676
$ 22,980
1,876
812
1,115
165
(3,173)
(148)
$ 23,627
$
$
-
-
-
1,145
-
(1,145)
-
-
$ 22,980
1,876
812
2,260
165
(4,318)
(148)
$ 23,627
For the year ended January 30, 2021, the net defined benefit obligation can be allocated to the plans’
participants as follows:
• Active plan participants 37% (2020 - 7%)
• Retired plan members 57% (2020 - 89%)
• Deferred and other plan participants 6% (2020 - 4%)
The defined benefit pension plan assets are held in trust and consisted of the following assets categories,
which are not based on quoted market prices in an active market:
Equity securities
Canadian – pooled funds
Canadian – real estate fund
Foreign – pooled funds
Total equity securities
Debt securities – fixed income pooled funds
Cash and cash equivalents
Total
January 30, 2021
February 1, 2020
$ 8,213
1,118
4,049
13,380
9,030
266
$ 22,676
36%
5%
18%
59%
40%
1%
100%
$ 7,901
1,150
4,192
13,243
10,100
284
$ 23,627
33%
5%
18%
56%
43%
1%
100%
79
The Company’s pension expense was as follows:
For the years ended
January 30, 2021
SERP
Plan
Total
Plan
February 1, 2020
SERP
Total
Pension costs recognized in
net earnings
Current service cost
Net interest cost on net pension
liability
Plan administration costs
$ 1,503
$
394
$ 1,897
$ 1,440
$
(49)
$ 1,391
110
169
-
-
110
169
72
148
721
-
793
148
Pension expense
$ 1,782
$
394
$ 2,176
$ 1,660
$
672
$ 2,332
Pension expense for the year ended January 30, 2021, has been recorded in selling and distribution expenses
for an amount of $1,207 (February 1, 2020 - $1,207) and in administrative expenses for an amount of $969
(February 1, 2020 - $1,125) in the consolidated statements of earnings (loss).
The following table presents the change in the actuarial gains and losses recognized in other comprehensive
income and subsequently reclassified from accumulated other comprehensive income to retained
earnings:
For the years ended
January 30, 2021
SERP
Plan
Total
Plan
February 1, 2020
SERP
Total
Cumulative loss in retained
earnings at the beginning of
the year
(Gain) loss recognized during
the year
Cumulative loss in retained
earnings at the end of the
year
(Gain) loss recognized during
the year, net of tax
$ 2,134
$ 5,534
$ 7,668
$
469
$ 4,101
$ 4,570
(700)
-
(700)
1,665
1,433
3,098
$ 1,434
$ 5,534
$ 6,968
$ 2,134
$ 5,534
$ 7,668
$
(700)
$ 4,325
80
Actuarial assumptions
Principal actuarial assumptions used were as follows:
Accrued benefit obligation:
Discount rate
Salary increase
Mortality
Employee benefit expense:
Discount rate
Salary increase
Sensitivity of Key Actuarial Assumptions
For the years ended
January 30, 2021
February 1, 2020
2.60%
4.00%
2014 Private Sector
Canadian
Pensioner’s
Mortality Table,
projected
generationally
using Scale MI-
2017, adjusted for
pension size
2.60%
4.00%
2014 Private Sector
Canadian
Pensioner’s
Mortality Table,
projected
generationally
using Scale MI-
2017, adjusted for
pension size
2.60%
4.00%
2.60%
4.00%
The following table outlines the key assumptions for the years ended January 30, 2021 and February 1, 2020
and the sensitivity of a 1% change in each of these assumptions on the defined benefit plan obligations and
the net defined benefit plan costs.
The sensitivity analysis provided in the table is hypothetical and should be used with caution. The
sensitivities of each key assumption have been calculated independently of any changes in other key
assumptions. Actual experience may result in changes in a number of key assumptions simultaneously.
Changes in one factor may result in changes in another, which could amplify or reduce the impact of such
assumptions.
For the years ended
January 30, 2021
Plan
February 1, 2020
SERP
Plan
Total
(Decrease) increase in defined benefit
obligation
Discount rate
Impact of increase of 1%
Impact of decrease of 1%
Salary increase or decrease
Impact of increase of 1%
Impact of decrease of 1%
Lifetime expectancy
$ (3,593)
$ 4,176
$
$
650
(634)
$ (3,504)
$ 4,032
$ (2,160)
$ 2,406
$ (5,664)
$ 6,438
$
$
619
(605)
$
$
(12)
12
$
$
607
(593)
Impact of increase of 1 year in expected
lifetime of plan members
$
689
$
700
$
617
$ 1,317
Overall return in the capital markets and the level of interest rates affect the funded status of the
Company's pension plans. Adverse changes with respect to pension plan returns and the level of interest
rates from the date of the last actuarial valuation may have an adverse effect on the funded status of the
retirement benefit plans and on the Company’s results of operations.
81
The Company expects $647 in employer contributions to be paid to the Plan in the year ending January
29, 2022. The weighted average durations of the Plan is approximately 14 years as at January 30, 2021
(February 1, 2020 - 14 and 11 years, respectively, for the Plan and SERP).
The Company measures its accrued benefit obligations and the fair value of plan assets for accounting
purposes at year-end. The most recent actuarial valuation for funding purposes was as of December 31, 2018
and the next required valuation will be as of December 31, 2021.
16. SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY
The change in share capital for each of the years listed was as follows:
Common shares
Balance at beginning and end of the year
Class A non-voting shares
Balance at beginning of the year
Purchase of shares under substantial issuer bid
Balance at end of year
For the years ended
January 30, 2021
February 1, 2020
Number
of shares
(in 000’s)
Carrying
amount
Number
of shares
(in 000’s)
Carrying
amount
13,440
$
482
13,440
$
482
35,427
-
35,427
26,924
-
26,924
49,890
(14,463)
35,427
37,915
(10,991)
26,924
Total share capital
48,867
$ 27,406
48,867
$ 27,406
Authorized Share Capital
The Company has authorized for issuance an unlimited number of Common shares and Class A non-voting
shares. Both Common shares and Class A non-voting shares have no par value. All issued shares are fully
paid.
The Common shares and Class A non-voting 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 share 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.
Purchase of shares under a substantial issuer bid
On June 17, 2019, the Company announced the terms to its substantial issuer bid (the “Offer”) to purchase
for cancellation up to 15,000,000 of its issued and outstanding Class A non-voting shares at a price of $3.00
per share. The Offer commenced on June 20, 2019 and expired on July 26, 2019. The Offer resulted in the
Company purchasing 14,462,944 Class A non-voting shares having a carrying amount of $10,991, for an
aggregate consideration of $43,711 (including related transaction costs of $322), which were subsequently
cancelled.
The excess of the purchase price over the carrying amount of the shares of $35,413 (including tax of $2,693)
was recognized as a reduction to retained earnings.
82
Accumulated Other Comprehensive Income (“AOCI”)
AOCI is comprised of the following:
Balance at February 2, 2020
Net change in fair value of cash flow hedges (net of tax
of $3,229)
Transfer of realized gain on cash flow hedges to
inventory (net of tax of $79)
Reclassification of cash flow hedges from OCI to foreign
exchange gain within finance income (net of tax of
$3,583) (note 25)
Change in foreign currency translation differences
Balance at January 30, 2021
Cash Flow
Hedges
Foreign
Currency
Translation
Differences
Total AOCI
$
754
$
(981)
$
(227)
8,815
218
-
-
8,815
218
(9,787)
-
-
$
-
127
(854)
(9,787)
127
(854)
$
$
Balance at February 3, 2019
Net change in fair value of cash flow hedges (net of tax
of $582)
Transfer of realized gain on cash flow hedges to
inventory (net of tax of $181)
Change in foreign currency translation differences
Balance at February 1, 2020
$
(352)
$
(932)
$ (1,284)
1,609
(503)
-
754
$
-
1,609
-
(49)
(981)
$
(503)
(49)
(227)
$
Dividends
The following dividends were declared and paid by the Company:
Common shares and Class A non-voting shares
Dividends per share
$
$
-
-
$
$
8,776
0.15
For the years ended
January 30, 2021 February 1, 2020
During the year ended February 1, 2020, the Board of Directors suspended the quarterly dividend declaration.
17. SHARE-BASED PAYMENTS
Share Option Plan
Under the share option plan, the Company can, at its sole discretion, grant share options and/or Share
Appreciation Rights (“SARs”). The share option plan provides that up to 10% of the Class A non-voting
shares outstanding, from time to time, may be issued pursuant to the exercise of options granted under the
plan to key management and employees. Under the plan, the granting of options and the related vesting
period, which is normally up to 4 years, are at the discretion of the Board of Directors and the options have a
maximum term of up to 7 years. The exercise price payable for each Class A non-voting share covered by a
share option is determined by the Board of Directors at the date of grant, but may not be less than the closing
83
price of the Company’s shares on the trading day immediately preceding the effective date of the grant. The
SARs entitle key management and employees to a cash payment based on the increase in the share price of
the Company’s Class A non-voting shares from the grant date to the vesting date. No SARs have been granted
or are outstanding. Subsequent to year-end, the share option plan was amended to terminate the SARs
program. The change had no impact to these consolidated financial statements.
The changes in outstanding share options were as follows:
For the years ended
January 30, 2021
February 1, 2020
Outstanding, at beginning of year
Forfeited
Outstanding, at end of year
Options exercisable, at end of year
Options
(in 000’s)
1,759
(402)
1,357
1,325
Weighted
Average
Exercise Price
$
8.20
6.03
8.84
8.90
$
$
Options
(in 000’s)
1,938
(179)
1,759
1,727
Weighted
Average
Exercise Price
$
8.06
6.66
8.20
8.23
$
$
No share option awards were granted or exercised during the years ended January 30, 2021 and February 1,
2020. The cost of granted options are expensed over their vesting period based on their estimated fair values
on the date of the grant, determined using the Black Scholes option pricing model.
The following table summarizes information about share options outstanding at January 30, 2021:
Range of
Exercise
Prices
$4.40 - $6.00
$6.31 - $6.75
$11.68 - $15.00
Number
Outstanding
(in 000’s)
357
575
425
1,357
Options Outstanding
Weighted
Average
Remaining
Contractual Life
3.18 years
3.65
1.00
2.70 years
Weighted
Average
Exercise Price
$
5.91
6.69
14.22
8.84
$
Options Exercisable
Number
Exercisable
(in 000’s)
357
543
425
1,325
Weighted
Average
Exercise Price
$
5.91
6.71
14.22
8.90
$
For the year ended January 30, 2021, the Company recognized compensation costs of $12 relating to its share
option plan (February 1, 2020 - $38), with a corresponding credit to contributed surplus.
Performance Share Units (cash-settled)
The Company has a performance share unit (“PSUs”) plan for its executives and key management that entitles
them to a cash payment. The PSUs vest based on non-market performance conditions measured over a three
fiscal-year period (“performance period”). The number of PSUs that can vest can be up to 1.5 times the actual
number of PSUs awarded if exceptional performance is achieved. Upon settlement of the vested PSUs, the
cash payment will be equal to the number of PSUs multiplied by the fair value of the Common shares
calculated using the volume weighted average trading price during the five trading days commencing five
trading days subsequent to the release of the Company’s financial results for the performance period.
No PSUs were granted during the year ended January 30, 2021 (440,000 PSUs at a weighted average share
price of $3.23 for the year ended February 1, 2020).
84
The changes in outstanding PSUs were as follows:
Outstanding, at beginning of year
Granted
Forfeited
Expired
Outstanding, at end of year
For the years ended
January 30, 2021 February 1, 2020
PSUs
(in 000’s)
760
-
(172)
(138)
450
PSUs
(in 000’s)
770
440
(267)
(183)
760
As at January 30, 2021, the Company did not expect to meet the minimum non-market performance
conditions required for all issued PSUs to vest. As a result, the Company did not recognize share-based
compensation costs related to PSUs for the year ended January 30, 2021 (recovery of $66 in selling and
distribution expenses and $23 in administrative expenses for the year ended February 1, 2020).
18. COMMITMENTS
As at January 30, 2021, financial commitments to purchase goods or services that are enforceable and legally
binding on the Company, exclusive of additional amounts based on sales, taxes and other costs are payable
as follows:
Within 1 year
Within 2 years
Within 3 years
Within 4 years
Within 5 years
Subsequent years
Total
Purchase
Obligations
$ 102,915
5,421
3,462
105
-
-
$ 111,903
Other Service
Contracts
$ 3,812
3,561
2,559
1,544
901
-
$ 12,377
Total
$ 106,727
8,982
6,021
1,649
901
-
$ 124,280
For the timing of payments under lease obligations, refer to note 10.
85
19. FINANCE INCOME AND FINANCE COSTS
Dividend income from marketable securities
Interest income
Foreign exchange gain (1)
Finance income
Interest expense on lease liabilities
Net change in fair value and loss on disposal of
marketable securities (2)
Foreign exchange loss
Finance costs
Net finance income (costs) recognized in net loss
For the years ended
January 30, 2021 February 1, 2020
$
-
436
13,461
13,897
5,744
-
-
5,744
8,153
$
$
1,427
1,746
-
3,173
6,041
8,264
475
14,780
$ (11,607)
(1) Included in foreign exchange gain for the year ended January 30, 2021, is a realized gain of $9,741 on maturity and disposal of foreign exchange contracts
(nil for the year ended February 1, 2020). See note 25.
(2) During the year ended February 1, 2020, the Company disposed of its portfolio of marketable securities for proceeds of $41,425.
20. LOSS PER SHARE
The number of shares (in thousands) used in the basic and diluted loss per share and basic and diluted loss
per share from continuing and discontinued operations calculations is as follows:
For the years ended
January 30, 2021 February 1, 2020
Weighted average number of shares per basic loss per share calculations
Weighted average number of shares per diluted loss per share calculations
48,867
48,867
55,980
55,980
As at January 30, 2021 and February 1, 2020, all share options were excluded from the calculation of diluted
loss per share as these options were deemed to be anti-dilutive.
The average market value of the Company’s shares for purposes of calculating the dilutive effect of share
options was based on quoted market prices for the period during which the options were outstanding.
21. RELATED PARTY TRANSACTIONS
Transactions with Key Management Personnel
Key management personnel are those persons (both executive and non-executive) who have the authority and
responsibility for planning, directing and controlling the activities of the entity - directly or indirectly. The
Board of Directors (which includes the Chief Executive Officer and President) has the responsibility for
planning, directing and controlling the activities of the Company and are considered key management
personnel. The Board of Directors participate in the share option plan, as described in note 17.
86
Compensation expense for key management personnel is as follows:
Salaries, directors’ fees and short-term benefits
Share-based compensation costs
Other Related-Party Transactions
For the years ended
January 30, 2021 February 1, 2020
$ 1,336
8
$ 1,344
$ 1,631
8
$ 1,639
During the year ended January 30, 2021, the Company incurred $1,262 (February 1, 2020 - $416) for legal
services rendered by a law firm connected to certain members of the Board of Directors. These transactions
are recorded at the amount of consideration paid as established and agreed to by the related parties.
Liabilities subject to compromise include pension liabilities related to the SERP of $7,194 payable to the
Company’s President and Chief Executive Officer and Chief Financial Officer. See notes 14 and 15.
22. PERSONNEL EXPENSES
Wages, salaries and employee benefits
Expenses related to defined benefit plans
Share-based compensation costs (recovery of)
For the years ended
January 30, 2021 February 1, 2020
$ 104,469
2,176
12
$ 106,657
$ 191,917
2,205
(50)
$ 194,072
23. CREDIT FACILITY AND GUARANTEES
At January 30, 2021, the Company had interim (“DIP Loan”) financing with a Canadian financial institution
consisting of a revolving credit facility of up to $60,000 ($65,000 at February 1, 2020 comprised of maximum
overdraft protection of $25,000 and $40,000 restricted to securing letters of credit, see note 26) and the
facilities available for securing letters of credit of up to $5,000 (or its U.S. dollar equivalent). As at January
30, 2021, $396 (February 1, 2020 - $2,982) of the demand operating lines of credit were committed for
documentary and standby letters of credit. The committed operating lines of credit are recorded when the
Company considers it probable that a payment has to be made to the other party of the contract. The Company
has recorded no liability with respect to these committed operating lines of credit as the Company does not
expect to make any payments for these items. The DIP Loan bears interest at the lender’s prime rate plus
5.00% per annum on the outstanding principal amount of the DIP Loan. As at January 30, 2021, no amount
was drawn down on the DIP Loan. The Company secured this DIP Loan subsequent to obtaining the Order
from the Court to seek protection from its creditors under CCAA as described in note 2(b).
87
24. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash transactions:
Additions to property and equipment and intangible assets
included in trade and other payables
Lease liabilities included in liabilities subject to compromise
Income taxes payable included in liabilities subject to
compromise
For the years ended
January 30, 2021 February 1, 2020
$ 1,874
9,283
184
$ 1,382
-
-
For the year ended January 30, 2021, payments of lease liabilities of $46,818 include interest of $6,201
(payments of lease liabilities of $69,296 including interest of $7,479 for the year ended February 1, 2020).
25. FINANCIAL INSTRUMENTS
Accounting classification and fair values
The following table shows the carrying amounts and fair values of the financial assets and financial liabilities,
including their levels in the fair value hierarchy. It does not include fair value information for financial assets
and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of the
fair value. The Company has determined that the fair value of its current financial assets and liabilities (other
than those included below) approximates their respective carrying amounts as at the reporting dates because
of the short-term nature of those financial instruments.
February 1, 2020
Carrying Amount
Fair Value
through Profit
or Loss
Fair Value of
Hedging
Instruments
Amortized
Cost
Fair Value
Total
Level 1
Level 2
Total
Financial assets measured at
fair value through profit or
loss
Derivative financial asset
$
-
$ 1,124
$
-
$ 1,124
$
-
$ 1,124
$ 1,124
Financial liabilities measured
at fair value through profit
or loss
Derivative financial liability
$
-
$
348
$
-
$
348
$
-
$
348
$
348
There were no transfers between levels of the fair value hierarchy for the year ended February 1, 2020.
Derivative financial instruments
The Company had entered into forward contracts with its banks on the U.S. dollar. These foreign exchange
contracts extended over a period normally not exceeding twelve months and were normally designated as
cash flow hedges to mitigate foreign exchange risk that is part of its U.S. dollar purchases. The Company
determined that it no longer met the criteria for these purchases as a result of the Company’s effort to reduce
future inventory purchases in response to the uncertainty surrounding COVID-19 and the restructuring plan
(notes 2(b) and 14). During the year ended January 30, 2021, $130,000 of future U.S. dollar denominated
purchases, hedged by outstanding forward contracts with an accumulated gain of $9,787 (net of tax of
$3,583), were no longer expected to occur. As a result, the Company is no longer designating these forward
88
contracts for hedge accounting and has reclassified the accumulated unrealized gain associated with these
forward contracts from other comprehensive income to net earnings as part of finance income (notes 16 and
19) during the year ended January 30, 2021.
During the year ended January 30, 2021, the Company has temporarily paused its hedging program due to
the uncertainties surrounding future inventory purchase commitments as a result of COVID-19 and the
restructuring plan (notes 2(b) and 14). During the year ended January 30, 2021, forward contracts with a
notional amount of $60,000 U.S. dollars matured and the Company disposed of all remaining outstanding
forward contracts with a notional amount of $115,000 U.S. dollars, resulting in a foreign exchange gain of
$9,741 recognized directly to net earnings as part of finance income. See note 19.
Details of the foreign exchange contracts outstanding:
January 30, 2021
February 1, 2020
Average
Strike Price
-
$
$ 1.318
Notional
Amount in
U.S. Dollars
-
$
$ 175,000
Derivative
Financial Asset
-
$
$ 1,124
Derivative
Financial Liability
$
$
-
(348)
Net
-
776
$
$
26. FINANCIAL RISK MANAGEMENT
The Company may periodically use derivative financial instruments to manage risks related to fluctuations
in foreign exchange rates. The use of derivative financial instruments is governed by the Company’s risk
management policies approved by the Board of Directors. The Company’s risk management policies are
established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls,
and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly
to reflect changes in market conditions and the Company’s activities. Disclosures relating to the Company’s
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, trade and other receivables and foreign currency forwards
contracts. The Company limits its exposure to credit risk with respect to cash and cash equivalents and
foreign currency forwards contracts by dealing with major Canadian financial institutions. The Company’s
trade and other receivables consist primarily of government assistance receivable and credit card receivables
from the last few days of the fiscal year, which are settled within the first days of the next fiscal year. Due to
the nature of the Company’s activities and the low credit risk of the Company’s trade and other receivables
as at January 30, 2021 and February 1, 2020, expected credit loss on these financial assets is not significant.
As at January 30, 2021, the Company’s maximum exposure to credit risk for these financial instruments was
as follows:
Cash and cash equivalents
Trade and other receivables
$ 77,915
10,668
$ 88,583
89
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 trade and other
payables is within twelve months.
As at January 30, 2021, the Company’s current liabilities total $284,539 (of which $204,083 is subject to
compromise in connection with CCAA proceedings (note 14)) and current liquid assets consisting of cash
and cash equivalents total $77,915. During the year ended January 30, 2021, the Company’s lenders
terminated the maximum overdraft protection of $25,000 and the facilities available for letters of credit of
$40,000 had been reduced to a maximum of $1,000. Given the deterioration in the Company’s financial
position during the year ended January 30, 2021, the effective elimination of its previous credit facilities and
the continued uncertainty surrounding COVID-19, on May 19, 2020, the Company obtained an initial order
(the “Order”) to seek protection from creditors under the CCAA (notes 2(b)). On August 5, 2020, the
Company secured interim (“DIP Loan”) financing with a Canadian financial institution. See note 23.
Foreign Currency Risk
The Company purchases a significant amount of its merchandise with U.S. dollars and as such significant
volatility in the U.S. dollar vis-à-vis the Canadian dollar can have an adverse impact on the Company’s gross
margin. The Company has a variety of alternatives that it considers to manage its foreign currency exposure
on cash flows related to these purchases. These include, but are not limited to, various styles of foreign
currency option or forward contracts, normally not to exceed twelve months, and U.S. dollar spot rate
purchases. A foreign currency option contract represents an option or obligation to buy a foreign currency
from a counterparty. A forward foreign exchange contract is a contractual agreement to buy or sell a specified
currency at a specific price and date in the future. The Company may enter into certain qualifying foreign
exchange contracts that it designated as cash flow hedging instruments. This results in mark-to-market
foreign exchange adjustments, for qualifying hedged instruments, being recorded as a component of other
comprehensive income. As described in note 25, the uncertainty surrounding COVID-19 and the outcome of
the CCAA proceedings, future purchases for which foreign exchange contracts were designated as cash flow
hedges are no longer expected to occur. Consequently, foreign exchange gains and losses on merchandise
purchases are recorded in net earnings instead of in other comprehensive income.
The Company has performed a sensitivity analysis on its U.S. dollar denominated financial instruments,
which consist principally of cash and cash equivalents of $39,849 and trade payables of $53,874 to determine
how a change in the U.S. dollar exchange rate would impact net earnings. On January 30, 2021, a 10% rise
or fall in the Canadian dollar against the U.S. dollar, assuming that all other variables, in particular interest
rates, had remained the same, would have resulted in a $1,791 increase or decrease, respectively, in the
Company’s net earnings for the year ended January 30, 2021.
Interest Rate Risk
Interest rate risk exists in relation to the Company’s cash and cash equivalents. Market fluctuations in interest
rates impacts the Company’s earnings with respect to interest earned on cash and cash equivalents that are
invested mainly with major Canadian financial institutions. See note 23 for credit facility details.
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The Company has performed a sensitivity analysis on interest rate risk at January 30, 2021 to determine how
a change in interest rates would impact net earnings. For the year ended January 30, 2021, the Company
earned interest income of $436 on its cash and cash equivalents. An increase or decrease of 50 basis points
in the average interest rate earned during the year would have increased net earnings by $309 or decreased
net earnings by $259. This analysis assumes that all other variables, in particular foreign currency rates,
remain constant.
27. CAPITAL MANAGEMENT
The Company’s objectives in managing capital are:
•
•
•
to ensure sufficient liquidity to support its operations and to enable the internal financing of capital
projects;
to maintain a strong capital base so as to maintain investor, creditor and market confidence; and
to provide an adequate return to shareholders.
The Company’s capital is composed of shareholders’ equity and its access to credit facilities described in
note 23. 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, technology infrastructure
including e-commerce, and office and distribution centre improvements. The Company traditionally funded
these requirements out of its internally-generated cash flows. The Company does not have any long-term
financing debt (other than lease liabilities). As at January 30, 2021, the Company recognized $204,083 of
liabilities subject to compromise as current liabilities as part of the CCAA claims process described in note
2(b). The timing and quantum of claims that will be allowed by the Court and ultimately paid to the
Company’s creditors is currently not possible to determine as described in note 2(f)(v). During the CCAA
process, the Monitor oversees the Company’s cash flow and capital management.
The Board of Directors does not establish quantitative return on capital criteria for management, but rather
promotes year over year sustainable profitable growth. On a quarterly basis, the Board of Directors also
reviews the level of dividends paid to the Company’s shareholders and monitors any share repurchase
program activities. In order to conserve cash to finance its ongoing operations, the Company has suspended
the declaration and payment of any dividends. The Company does not have a defined share repurchase plan
and decisions are made on a specific transaction basis and depend on market prices and regulatory restrictions.
28. SUBSEQUENT EVENTS
Temporary store closures
Subsequent to year-end, during February 2021, the mandated lockdown measures in certain regions and
provinces mentioned in note 2(b) were lifted and the Company’s stores affected by these measures were re-
opened. In March and April 2021, a third wave of COVID-19 and its variants have forced additional mandated
lockdown measures in certain regions and provinces and the Company experienced further temporary store
closures. The Company can continue to sell through its e-commerce channel to customers during the
applicable periods of closure until further extensions or changes are announced and will continue to follow
all local government and health organization guidelines.
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