rapport annuel 2007 - le châteaurapport annuel 2007 annual report 2007 rapport annuel 2007 annual...

RAPPORT ANNUEL 2007ANNUAL REPORT 2007

RA

PP

OR

T A

NN

UE

L 2

007

AN

NU

AL

RE

PO

RT

20

07

STORES AND SQUARE FOOTAGEJANUARY 26, 2008 JANUARY 27, 2007

STORES SQUARE STORES SQUAREFOOTAGE FOOTAGE

ONTARIO 69 330,986 61 261,616

QUEBEC 62 296,280 61 288,923

BRITISH COLUMBIA 24 109,308 24 101,222

ALBERTA 24 102,055 20 89,466

MANITOBA 7 34,254 7 30,351

NOVA SCOTIA 7 26,428 6 19,898

NEW BRUNSWICK 5 19,292 4 14,092

SASKATCHEWAN 4 16,200 4 14,803

NEWFOUNDLAND 2 9,203 2 9,203

P.E.I. 1 3,480 1 3,480

TOTAL CANADA 205 947,486 190 833,054

TOTAL UNITED STATES 4 17,591 5 20,713

TOTAL LE CHÂTEAU STORES 209 965,077 195 853,767

CORPORATE PROFILE

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

05 06 070

30,000

60,000

90,000

120,000

150,000

05 06 07

0

10,000

20,000

30,000

40,000

50,000

60,000

05 06 07

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

05 06 07

SALES

(in ‘000)

NET

EARNINGS

(in ‘000)

SHAREHOLDERS’

EQUITY

(in ‘000)

CASH FLOW

FROM

OPERATIONS

(in ‘000)

Le Château is a leading Canadian

specialty retailer offering fashion-

forward apparel, accessories and

footwear to style-conscious women

and men. Our brand’s success is built

on quick identification of and

response to fashion trends through

our design, product development and

vertically integrated operations.

Le Château brand name merchan dise

is sold exclusively through our 209

retail locations. All stores are in

Canada, except for four locations in

the New York City area.

Le Château, committed to research,

design and product development,

manufactures approximately 40% of

the Company’s apparel in its own

Canadian production facilities. MAGASINS ET SUPERFICIE EN PIEDS CARRÉS26 JANVIER 200827 JANVIER 2007

MAGASINSPIEDSMAGASINSPIEDSCARRÉSCARRÉS

ONTARIO69330 98661261 616

QUÉBEC62296 28061288 923

COLOMBIE-BRITANNIQUE24109 30824101 222

ALBERTA24102 0552089 466

MANITOBA734 254730 351

NOUVELLE-ÉCOSSE726 428619 898

NOUVEAU-BRUNSWICK519 292414 092

SASKATCHEWAN416 200414 803

TERRE-NEUVE29 20329 203

ÎLE-DU-PRINCE-ÉDOUARD13 48013 480

TOTAL CANADA205947 486190833 054

TOTAL ÉTATS-UNIS417 591520 713

TOTAL MAGASINS LE CHÂTEAU209965 077195853 767

PROFIL

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

0506070

30 000

60 000

90 000

120 000

150 000

050607

0

10 000

20 000

30 000

40 000

50 000

60 000

0506070

5 000

10 000

15 000

20 000

25 000

30 000

35 000

050607

CHIFFRE

D’AFFAIRES

(en ‘000)

BÉNÉFICE

NET

(en ‘000)

CAPITAUX

PROPRES

(en ‘000)

FLUX DE

TRÉSORERIE

D’EXPLOITATION

(en ‘000)

Chef de file au Canada, Le Château

est un détaillant spécialisé offrant

des vêtements, des chaussures et

des accessoires avant-gardistes aux

femmes et aux hommes soucieux de

la mode. Le succès de notre marque

repose sur notre capacité d’identifier

rapidement les tendances de la mode

et d’y réagir immédiatement grâce à

nos forces en conception et en

développement de produits, ainsi qu’à

notre approche verticale.

Les vêtements de marque Le Château

sont vendus exclusivement par

l’entremise des 209 magasins de détail

de la Société. Tous ses magasins sont

situés au Canada, à l’exception de

quatre dans la région de New York.

Le Château, qui accorde une grande

importance à la recherche, à la

conception et au développement de

produits, fabrique environ 40 % de ses

vêtements dans ses installations de

production au Canada.

13395 Covers Qx7:Layout 1 5/15/08 4:49 PM

2007 annual report 1

FINANCIAL HIGHLIGHTS

January 26, January 27, January 28, January 29, January 31,

FISCAL YEARS ENDED 2008 2007 2006 2005 2004

(53 weeks)

RESULTS

Sales 336,070 303,879 279,064 241,131 226,766

Earnings before income taxes 52,004 38,406 35,963 24,336 17,123

Net earnings 33,604 24,751 23,513 15,886 10,648

• Per share (basic) 1.35 1.02 0.99 0.74 0.52

Dividends per share

• Ordinary 0.50 0.28 0.20 0.16 0.10

• Special — 0.75 — — —

Average number of shares outstanding (000) 24,978 24,181 23,812 21,448 20,536

FINANCIAL POSITION

Working capital 72,414 45,928 60,491 47,781 24,987

Shareholders’ equity 131,635 108,174 105,245 85,244 61,162

Total assets 203,979 185,709 166,236 128,198 94,546

FINANCIAL RATIOS

Current ratio 2.54 1.75 2.52:1 2.61:1 1.99:1

Quick ratio 1.62 1.08 1.63:1 1.62:1 0.96:1

Long-term debt to equity (1) 0.17:1 0.14:1 0.20:1 0.16:1 0.11:1

OTHER STATISTICS (units as specified)

Cash flow from operations (in ‘000) 51,606 40,374 36,311 25,291 18,311

Capital expenditures (in ‘000) 24,091 27,701 27,655 16,491 14,438

Number of stores at year-end 209 195 185 174 165

Square footage 965,077 853,767 762,093 686,830 645,362

Sales per square foot (2) 408 407 416 394 386

(in thousands of dollars except per share data and ratios)

Ticker symbol: CTU.A

Listing: TSX

Number of participating shares outstanding (as of May 8, 2008):

18,502,964 Class A Subordinate Voting Shares

6,560,000 Class B Voting Shares

Float: (3)

15,726,684 Class A Shares held by the public

SHAREHOLDERS’ INFORMATION

As of May 8, 2008:

High/low of Class A Shares (12 months ended May 8, 2008):

$17.87 / $11.05

Recent price: $13.29

Dividend yield: 3.8%

Price/earnings ratio: 9.8 X

Price/book value ratio: 2.5 X

Earnings per share: (4) $1.35

Book value per share: (5) $5.25

(1) Including capital leases and current portion of debt. Excluding deferred leaseinducements.

(2) Excluding Le Château outlet stores.

(3) Excluding shares held by officers and directors of the Company.(4) For the year ended January 26, 2008.(5) As at January 26, 2008.

13395 LeChateau ENG 5/12/08 5:11 PM Page 1

2 le château

MESSAGE TO SHAREHOLDERS

I am delighted to report another year of record sales and profits. Our dedicated team remained true to Le Château’s

brand promise of unique fashion collections at sensible prices.

Despite a challenging retail environment, our earnings increased 36% from $24.7 million to $33.6 million and our

annual dividend rate increased from $0.375 to $0.50 per share plus a special one-time dividend of $0.75.

In 2008, the current economic conditions produce a hesitant consumer in the marketplace. It is therefore

important for us to remember our core strengths of design and product development that generate wanted

fashion collections.

We remain focused on continuing to improve our inventory management controls, which combined with

vertically-integrated operations, provide the flexibility and speed-to-market needed in today’s environment.

In 2007, the Company opened 18 stores and intends to open 12 to 15 new stores in the current year. In the first

quarter of 2008 we have achieved our previous set goal of 1,000,000 square feet of total floor space and we

continue to expand our target customer base. Our four divisions of ladieswear, menswear, accessories and

footwear continue to expand, with menswear showing the strongest increase of 13% last year.

We would again like to thank all our team members in every department of the Company, for their talent,

commitment and contribution to our ongoing success. Thank you as well to our shareholders and our

devoted customers.

(Signed)

JANE SILVERSTONE SEGAL, B.A.LLL

Vice-Chairman and Chief Executive Officer



MANAGEMENT’S DISCUSSION AND ANALYSISApril 25, 2008The 2007, 2006 and 2005 years refer, in all cases, to the 52 week periods ended January 26, 2008, January 27, 2007 and January 28, 2006,respectively. Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the audited consolidated financialstatements and notes to the consolidated financial statements for the 2007 fiscal year of Le Château Inc. All amounts in this report areexpressed in Canadian dollars and all amounts in the tables of this report are in thousands of Canadian dollars, unless otherwise indicated.

SELECTED ANNUAL INFORMATION (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

2007 2006 2005$ $ $

Sales 336,070 303,879 279,064Earnings before income taxes 52,004 38,406 35,963Net earnings 33,604 24,751 23,513Net earnings per share

Basic 1.35 1.02 0.99Diluted 1.33 1.00 0.96

Total assets 203,979 185,709 166,236Long term debt (1) 13,697 8,222 14,665Dividends per share

Ordinary 0.50 0.28 0.20Special — 0.75 —

Cash flow from operations 51,606 40,374 36,311Comparable store sales increase % 5.6 % 3.8 % 11.2 %Square footage of gross store space at year-end 965,077 853,767 762,093Sales per square foot, excluding fashion outlet stores (in dollars) 408 407 416

(1) Including capital lease obligations. Excluding current portion of debt and deferred lease inducements.

SALESSales increased 10.6% in 2007 to reach a record level of $336.1 million, compared to $303.9 million the previous year. Comparable store salesincreased 5.6% in the year.

Sales per square foot of retail space - excluding fashion outlets – increased to $408 from $407 in 2006. Although sales per square foot is animportant performance indicator, the Company maintains its focus on profit contribution per square foot which remained strong in 2007.

Profit optimization continued to be a key component of our business strategies as we remained focused on broadening our customer base andbrand differentiation by offering the most innovative blend of quality fashion and value on a timely and continuous basis. Our verticallyintegrated approach to retailing enables us to reduce product risk and enhance speed to market.

13395 LeChateau ENG:Layout 1 5/9/08 1:14 PM Page 3

4 le château

In 2007 we continued with the rollout of our new store concept, a remodeling program implemented in approximately seventy percent ofour stores to date. This store design concept reflects our efforts to elevate the quality of our brand and broaden our customer basethrough a cleanly designed and clearly merchandised store environment that allows each division to become a distinct destination withgreater visibility and impact.

Pilot Licensing: During the third quarter of 2005, Le Château entered into a pilot licensing agreement with a retail developer in the Middle Eastregarding the opening of Le Château branded stores in the region. As at January 26, 2008, there were eight stores under licensee arrangementin this region. The Company will seek to further expand its offering and brand awareness internationally, to accelerate revenue generationthrough foreign licensing and franchising opportunities.

TOTAL SALES BY DIVISION (IN THOUSANDS OF DOLLARS)

% CHANGE2007 2006 2005 2007-2006 2006-2005

$ $ $

Ladies’ Clothing 191,549 170,160 153,362 12.6 % 11.0 %Men’s Clothing 52,053 45,970 38,019 13.2 % 20.9 %Accessories 52,700 48,870 51,560 7.8 % (5.2) %Footwear 39,579 36,905 25,128 7.2 % 46.9 %JUNIOR GIRL Clothing 189 1,974 10,995 (90.4) % (82.0) %

336,070 303,879 279,064 10.6 % 8.9 %

Stronger in Ladies’Wear: The Ladies’ clothing division posted margin expansion in 2007 and recorded a sales increase of 12.6%; it continuesto be the main revenue driver among the Company’s divisions, accounting for 57.0% of total sales as compared to 56.0% the previous year.Our continued focus on a broader customer base, an extended range of clothing sizes and a continuous flow of unique and quality product allcontributed to the sales growth.

Growth and Expansion in Menswear: The highest percentage sales increase in 2007 came from the Men’s division with an increase of 13.2%.During the year four more existing stores were expanded to provide adjacent, but distinct, premises for menswear, bringing the total number ofstores with a separate men’s entrance to fifty-five. Altogether, 10% more footage was added to this division in 2007.

Footwear: Sales increased 7.2% in 2007, accounting for 11.8% of total sales as compared to 12.1% the previous year. The footage dedicatedto footwear expanded by approximately 4.9%. Furthermore, we continued to coordinate our footwear offering more closely with our clothing andoverall lifestyle brand. We recognize that this division has still further growth potential and we plan on strengthening our product offering tocapture a larger market share. Our footwear offering is typically a “shop within a shop,” but in some larger markets we are introducing fullconcept shoe stores, adjacent to our ladies store, with their own separate entrance (similar to the separate entrances for Menswear that haveproven successful). We now have nine such footwear operations, all contiguous to existing stores.

Accessories: Sales in the Accessories division increased 7.8% in 2007 and accounted for 15.7% of total sales.



TOTAL SALES BY REGION (IN THOUSANDS OF DOLLARS)

% CHANGE

2007 2006 2005 2007-2006 2006-2005

$ $ $

Ontario 114,395 104,358 98,127 9.6 % 6.3 %

Quebec 89,677 82,265 75,833 9.0 % 8.5 %

Prairies 61,776 53,352 47,746 15.8 % 11.7 %

British Columbia 45,281 40,317 36,371 12.3 % 10.8 %

Atlantic 17,559 15,316 13,271 14.6 % 15.4 %

United States 7,382 8,271 7,716 (10.7) % 7.2 %

336,070 303,879 279,064 10.6 % 8.9 %

In 2007, all regions in Canada improved in terms of sales performance. The strongest growth came from the Prairies with an increase of 15.8%

in total sales and 11.1% in comparable stores sales. British Columbia also had a strong showing with an increase of 12.3% in sales and

8.1% in same store sales. Same store sales also increased 5.1% in the Atlantic provinces and 3.9% in Ontario. In Quebec, total sales

increased 9.0% while comparable store sales increased 4.9%.

The Company’s U.S. stores reported a decrease in comparable store sales of 10.7% (4.4% in US$).The Company closed one store in January 2008

at the end of its lease term, leaving the Company with four stores in the New York City area.

During the year, Le Château opened 18 new stores and renovated 12 existing stores. As at January 26, 2008, the Company operated 209 stores

(including 25 fashion outlet stores) compared to 195 (including 19 fashion outlets) at the end of the previous year. Total floor space at the end of

the year was 965,000 square feet compared to 854,000 square feet at the end of the preceding year, an increase of 111,000 square feet

or 13.0%. Of the 111,000 square feet added during year, 84,000 square feet was attributable to new stores, net of closures, and 27,000 square

feet to the expansion of 11 existing stores. In 2008, the Company expects to add approximately 80,000 to 100,000 square feet. This footage will

result from the addition of 12 to 15 new stores, as well as from the expansion (where possible) of existing stores.

EXPENSES

Cost of sales and selling, general and administrative expenses totalled $266.4 million for the year or 79.3% of sales, as compared to $251.1 million

or 82.6% of sales the previous year. Included in expenses for 2007 was stock-based compensation expense of $829,000 (2006 – $929,000).

Interest expense increased to $1.4 million in 2007 from $1.1 million in 2006, due to additional long-term financing of $16.3 million obtained

during the first quarter of 2007.

Depreciation and amortization increased to $16.0 million from $13.8 million in 2006, due to the additional investments in fixed assets of $24.1 million.

The $18.4 million provision for income taxes in 2007 represents an effective income tax rate of 35.4%, compared to 35.6% the previous year.


6 le château

EARNINGSNet earnings reached a record level of $33.6 million or $1.35 per share (basic) in 2007 compared to $24.8 million or $1.02 per share in 2006.Earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the year increased 32.0% to $69.7 million or 20.7% ofsales, compared to $52.8 million or 17.4% of sales last year.

Net earnings attributable to Canadian operations amounted to $35.7 million or $1.43 per share (basic) in 2007 compared to $25.9 million or$1.07 per share in 2006. The Company’s U.S. operations recorded a net loss of $2.1 million Cdn or $(0.08) Cdn per share in 2007 as comparedto $1.2 million or $(0.05) Cdn per share the previous year. Included in the net loss for 2007 is an amount of $1.2 million Cdn related to the write-offof certain assets located in the United States.

LIQUIDITY AND CAPITAL RESOURCESThe Company has a high level of liquidity, more than sufficient to cover its operating requirements, as well as a strong financial position. TheCompany’s liquidity follows a seasonal pattern based on the timing of inventory purchases and capital expenditures, with liquidity being at itshighest level at year-end and the lowest at the end of the second quarter.

The Company’s cash position, including short-term investments, increased to $70.2 million or $2.80 per share in 2007 from $61.6 million or$2.48 per share in 2006. Short-term cash is conservatively invested in bank bearer deposit notes and bank term deposits with major Canadianchartered banks. The Company closely monitors in short-term cash investments and does not hold any asset backed commercial paper. Cashflows from operating activities (excluding net changes in non-cash working capital items) increased to $51.6 million in 2007, compared to $40.4 millionthe previous year, mainly as a result of higher net earnings before depreciation. Cash flows from operating activities (including net changes innon-cash working capital items) increased to $54.1 million from $38.4 million in 2006.

Cash provided by operating and financing activities was used in the following financing and investing activities:

• Capital expenditures of the $24.1 million, consisting of:

CAPITAL EXPENDITURES (IN THOUSANDS OF DOLLARS)

2007 2006 2005$ $ $

New Stores (18 stores; 2006 – 10 stores; 2005 – 13 stores) 8,180 4,658 5,943Renovated Stores (12 stores; 2006 – 32 stores; 2005 – 27 stores) 10,878 19,234 16,768Information Technology 1,887 1,657 2,213Other 3,146 2,152 2,731

24,091 27,701 27,655

• Dividend payments of $30.4 million, including a special dividend of $18.7 million

• Capital lease and long-term debt repayments of $8.8 million



The following table identifies the timing of contractual obligation amounts due after January 26, 2008

CONTRACTUAL OBLIGATIONS (IN THOUSANDS OF DOLLARS)

Less thanTotal 1 year 1-3 years 4-5 years After 5 years

$ $ $ $ $

Long-term debt 19,802 7,113 8,772 3,917 —Capital Lease Obligations 2,392 1,384 1,008 — —Operating leases (1) 232,807 34,624 64,542 55,963 77,678

255,001 43,121 74,322 59,880 77,678

(1) Minimum rentals payable under long-term operating leases excluding percentage rentals.

For 2008, projected capital expenditures are $25.0 million, of which $22.0 million is expected to be used for the opening of 12 to 15 stores and therenovation of 15 to 20 existing stores, with the balance of $3.0 million to be used for investments in information technology and infrastructure.

Management expects to be able to continue financing the Company’s operations and a portion of its capital expenditure requirements throughcash flow from operations. If necessary, it can also draw upon its financial resources, which include cash and cash equivalents (includingshort-term investments) of $70.2 million at year-end, as well as a revolving line of credit of $16.0 million with its bank.

In addition, the Company has a credit facility totalling $35 million available until June 30, 2008 to finance the renovation and re-fixturing ofvarious stores throughout Canada. Drawdowns under this facility are repayable over 60 months and bear interest at a fixed rate based on thethree year Government of Canada bond interest rate. The facility is collateralized by the store fixtures and equipment financed. The Company’soutstanding debt with this institution, in the amount of $16.1 million, reduces the amount available under this facility thereby leaving a balanceavailable of $18.9 million as at January 26, 2008.

The Company does not have any off-balance sheet financing arrangements.

FINANCIAL POSITIONWorking capital stood at $72.4 million at the end of the fiscal year, compared to $45.9 million at the end of 2006. Last year’s working capital balancewas net of a special dividend in the amount of $18.7 million, which was declared on November 30, 2006 and paid February 13, 2007.

Inventories increased 5.0% to $43.0 million from $41.0 million a year earlier, due primarily to the addition of 111,000 square feet or 13.0% inthe year and the earlier receipts of our spring collections.

Long-term debt and capital lease obligations, including the current portions, increased to $22.2 million from $14.7 million in 2006, due to theadditional long-term debt financing of $16.3 obtained in the first quarter, net of repayment of $8.8 million during the year. The long-term debt toequity ratio remained conservative at 0.17:1, compared to 0.14:1 the previous year.

Shareholders’ equity increased to $131.6 million at year-end, after deducting $12.5 million in dividends. Book value per share increased to $5.25 atyear-end, compared to $4.35 as at January 27, 2007, and included $2.80 per share in cash and cash equivalents (including short-term investments).


8 le château

DIVIDENDS AND OUTSTANDING SHARE DATAIn 2007, Le Château continued – for the fourteenth consecutive year – its policy of paying quarterly dividends on the Class A subordinate votingand Class B voting shares. Total regular dividends per Class A and Class B share amounted to $0.50 in 2007 as compared to $0.28 in 2006. Inaddition, there was a special dividend of $0.75 per share declared in 2006.

In May 2007, the principal shareholder of the Company converted 1,600,000 Class B voting shares with a paid-up capital of $140,922 intoClass A subordinate voting shares.

At the annual meeting of shareholders held on June 27, 2007, the shareholders approved the split of the Class A subordinate voting shares andClass B voting shares on a four-for-one basis. The record date for the split was July 18, 2007 and shares began trading on an “as split” basis atthe opening of business on July 16, 2007. All share and per share information presented in the MD&A and the audited consolidated financialstatements reflect the effects of the stock split retroactively.

On April 3, 2008, the Board of Directors declared a quarterly dividend of $0.125 per Class A subordinate voting share and Class B votingshare. The dividend is payable on May 19, 2008 to shareholders of record at the close of business on May 5, 2008. The dividend yield, basedon the April 23, 2008 closing price of $13.25 per share, was 3.8%.

The Company designated the above dividends to be eligible dividends pursuant to the Income Tax Act (Canada) and its provincial equivalents.

As at April 23, 2008, there were 18,502,964 Class A subordinate voting and 6,560,000 Class B voting shares outstanding. Further, there were1,267,000 options outstanding with exercise prices ranging from $7.56 to $15.14, of which 273,840 were exercisable.

NON-GAAP MEASURES In addition to discussing earnings measures in accordance with Canadian generally accepted accounting principles (“GAAP”), this MD&Aprovides EBITDA as a supplementary earnings measure. Depreciation and amortization include the write-off of fixed assets. EBITDA isprovided to assist readers in determining the ability of the Company to generate cash from operations and to cover financial charges. It is alsowidely used for valuation purposes for public companies in our industry.

The following table reconciles EBITDA to GAAP measures disclosed in the audited consolidated statements of earnings for the years endedJanuary 26, 2008 and January 27, 2007:

2007 2006(In thousands of dollars) $ $

Earnings before income taxes 52,004 38,406Depreciation and amortization 16,048 13,798Write-off of fixed assets 2,220 1,244Interest on long-term debt and capital lease obligations 1,429 1,079Interest income (2,028) (1,738)EBITDA 69,673 52,789



This MD&A also discloses cash flow from operations as a supplementary measure. Cash flow from operations is defined as cash flow fromoperating activities before the net change in non-cash working capital items related to operations. This measure provides an indication of theCompany’s ability to generate cash flows without considering certain timing and other factors causing variations in non-cash items.

The Company also discloses comparable store sales which are defined as sales generated by stores that have been opened for at least one year.

The above measures do not have a standardized meaning prescribed by GAAP and may not be comparable to similar measures presented byother companies.

ACCOUNTING STANDARDS IMPLEMENTED IN 2007On January 28, 2007, the Company retroactively adopted, without restatement of prior periods, the following new accounting standards issuedby the Canadian Institute of Chartered Accountants [“CICA”]:

Section 1530, Comprehensive Income, introduces a new financial statement which shows the change in equity of an enterprise fromtransactions and other events and circumstances from non-owner sources. Section 3251 establishes standards for the presentation of equityand changes in equity as a result of the new requirements in Section 1530.

Section 3855, Financial Instruments — Recognition and Measurement and Section 3861 “Financial Instruments – Disclosure and Presentation”,establishes standards for recognizing and measuring financial instruments, namely financial assets, financial liabilities and derivatives.

The new standard lays out how financial instruments are to be recognized depending on their classification. Depending on a financialinstrument’s classification, changes in subsequent measurements are recognized in net earnings or other comprehensive income [“OCI”].

The Company has made the following classifications:

• Cash and cash equivalents are classified as “Financial Assets Held for Trading” and measured at fair value. Changes in fair value arerecorded in net earnings.

• Short-term investments are classified as “Available for Sale”. After their initial fair value measurement, unrealized gains and losses arerecognized in other comprehensive income, except for impairment losses which are recognized immediately in net earnings. Uponderecognition of the financial asset, the cumulative gains or losses previously recognized in accumulated other comprehensive incomeare reclassified to net earnings.

• Accounts receivable are classified as “Loans and Receivables”. After their initial fair value measurement, they are measured at amortizedcost using the effective interest rate method.

• Accounts payable, dividend payable, long-term debt and capital lease obligations are classified as “Other Financial Liabilities”. After theirinitial fair value measurement, they are measured at amortized cost using the effective interest rate method.


10 le château

Upon initial application on January 28, 2007, there was no impact on the consolidated financial statements of measuring the financial assetsand liabilities at fair value or amortized cost using the effective interest rate method.

In adopting this section the Company selected January 26, 2003 as its transition date for embedded derivatives. An embedded derivative is acomponent of a financial instrument or another contract, the characteristics of which are similar to a derivative. This had no impact on theconsolidated financial statements.

Section 3865, Hedges, whose application is optional, establishes how hedge accounting may be applied. The Company, in keeping with its riskmanagement strategy, continues to apply hedge accounting for its foreign exchange contracts and designates them as cash flow hedges. In acash flow hedge relationship, the portion of the gains or losses on the hedging item that is determined to be an effective hedge is recognized inOCI, while the ineffective portion is recorded in net earnings. The amounts recognized in OCI are reclassified to net earnings when the hedgeditem affects earnings.

Upon initial application on January 28, 2007, the Company recognized a derivative asset of $320,000, a future tax liability of $108,000 and anadjustment to the opening balance of accumulated other comprehensive income of $212,000 related to foreign exchange contracts designatedas cash flow hedges.

In July 2006, the CICA issued changes to the CICA Handbook Section 1506 entitled “Accounting Changes”. The changes to this sectionparticularly affect the following items: an entity would be permitted to change an accounting policy only when it is required by a primary sourceof GAAP, or when the change results in a more reliable and relevant presentation in the financial statements; changes in accounting policyshould be applied retroactively, except in cases where specific transitional provisions in a primary source of GAAP permit otherwise or whereapplication to comparative information is impractical [the standard provides specific guidance as to what is considered impractical]; expandeddisclosures about the effects of changes in accounting policies, estimates and errors to the financial statements; and, disclosure of new primarysources of GAAP that have been issued but have not yet come into effect and have not yet been adopted by the entity. The adoption of thisstandard did not have a significant impact on the Company’s consolidated results of operations or financial position.

RECENTLY ISSUED ACCOUNTING STANDARDSInventoriesIn June 2007, the CICA issued the new Section 3031, “Inventories” which will replace Section 3030 “Inventories”. The new Section prescribesmeasurement of inventories at the lower of cost and net realizable value. It provides guidance on the determination of costs and theirsubsequent recognition as an expense and provides guidance on the cost formulas used to assign costs to inventories. These standards mustbe adopted by the Company for the fiscal year beginning on January 27, 2008. The Company is currently assessing the impact of these newrecommendations on its fiscal 2008 financial statements.

Capital DisclosuresThe CICA issued a new accounting standard, Section 1535, “Capital Disclosures”, which requires the disclosure of both qualitative andquantitative information that enables users of financial statements to evaluate the entity’s objectives, policies and processes for managingcapital. The Company will adopt this standard beginning January 27, 2008 and is currently evaluating the effect of adopting this standard.



Financial InstrumentsThe CICA issued two new accounting standards, Section 3862, “Financial Instruments – Disclosures”, and Section 3863, “FinancialInstruments – Presentation”, which apply to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.These new standards revise and enhance the disclosure requirements, and carry forward, substantially unchanged, the presentationrequirements. These new standards emphasize the significance of financial instruments to the entity’s financial position and performance, thenature and extent of risks arising from financial instruments, and how these risks are managed. The Company will adopt this standardbeginning January 27, 2008 and is currently evaluating the effect of adopting this standard.

International Financial Reporting StandardsThe CICA plans to converge Canadian GAAP with International Financial Reporting Standards [“IFRS”] over a transition period ending in 2011.The Company is reviewing the transition to IFRS on its financial statements and has not yet determined the impact.

CONTROLS AND PROCEDURESIn compliance with the Canadian Securities Administrators’ Multilateral Instrument 52-109 (“MI 52-109”), the Corporation has filed certificates signedby the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) that, among other things, report on the design and effectiveness ofdisclosure controls and procedures and the design of internal controls over financial reporting. The implementation of MI 52-109 represents acontinuous improvement process, which has prompted the Corporation to ensure that all relevant processes and controls were formalized.

Disclosure control and proceduresThe CEO and the CFO have designed disclosure controls and procedures, or have caused them to be designed under their supervision, toprovide reasonable assurance that material information relating to the Corporation has been made known to them and has been properlydisclosed in the annual regulatory filings.

As of January 26, 2008, an evaluation was carried out, under the supervision of the CEO and CFO, of the effectiveness of the Corporation’sdisclosure controls and procedures as defined in MI 52-109. Based on this evaluation, the CEO and the CFO concluded that the design andoperation of these disclosure controls and procedures were effective.

Internal controls over financial reportingThe CEO and CFO have designed internal controls over financial reporting (“ICFR”), or have caused them to be designed under their supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes inaccordance with GAAP. The CEO and CFO have evaluated whether there were changes to its ICFR during the year ended January 26, 2008 thathave materially affected, or are reasonably likely to materially affect, its ICFR. No such changes were identified through their evaluation.

CRITICAL ACCOUNTING ESTIMATESThe preparation of financial statements requires the Company to estimate the effect of various matters that are inherently uncertain as of thedate of the financial statements. Each of these required estimates varies in regard to the level of judgement involved and its potential impact onthe Company’s reported financial results. Estimates are deemed critical when a different estimate could have reasonably been used or wherechanges in the estimates are reasonably likely to occur from period to period, and would materially impact the Company’s financial condition,changes in financial condition or results of operations. The Company’s significant accounting policies are discussed in note 1 of the “Notes toConsolidated Financial Statements”; critical estimates inherent in these accounting policies are discussed in the following paragraphs.


12 le château

Inventory Valuation The Company records a provision to reflect management’s best estimate of the net realizable value less normal profit margin on its finishedgoods inventory. In addition, a provision for shrinkage and obsolescence is calculated based on historical experience. Management continuallyreviews the entire provision, to assess whether it is adequate, based on economic conditions and an assessment of past sales trends.

Fixed Asset ImpairmentManagement evaluates the ongoing value of assets associated with retail stores. Impairment is assessed by comparing the carrying amount ofan asset with its expected future net undiscounted cash flows from use. If such assets are considered impaired, the impairment to berecognized is measured by the amount by which the carrying amount of the assets exceeds their fair value, generally determined on adiscounted expected cash flow basis.

Stock-based CompensationA stock based compensation expense for stock options is calculated based on the fair value method using the Black-Scholes model and isrecorded for all options granted after January 25, 2003. In order to establish fair value, the Company uses estimates and assumptions todetermine risk-free interest rate, expected term, anticipated volatility and anticipated dividend yield. The use of different assumptions couldresult in different stock-based compensation amounts.

RISKS AND UNCERTAINTIESCompetitive and Economic EnvironmentFashion is a highly competitive global business that is subject to rapidly changing consumer demands. In addition, there are several externalfactors that affect the economic climate and consumer confidence over which the Company has no influence.

This environment intensifies the importance of in-store differentiation, quality of service and continually exceeding customer expectations,thereby delivering an outstanding total customer experience.

With this view, Le Château believes that its distinctive edge in fashion, its innovative store design and merchandising, its strong financialposition and its winning team of vibrant employees dedicated to providing the best whole store experience will facilitate continued success.

LeasesAll of the Company’s stores are held under long-term leases, except for the Company owned St. Jean street store in Quebec City. Any increasein retail rental rates would adversely impact the Company.

Foreign Exchange The Company’s foreign exchange risk mainly relates to currency fluctuations between the Canadian and U.S. dollar. In order to protect itselffrom the risk of losses should the value of the Canadian dollar decline compared to the foreign currency, the Company uses forward contractsto fix the exchange rate of a substantial portion its expected U.S. dollar requirements. The contracts are matched with anticipated foreigncurrency purchases. As at January 26, 2008, the Company had $14.9 million of contracts outstanding to buy US dollars (2006 – $7.6 million).The Company only enters into foreign exchange contracts with Canadian chartered banks to minimize credit risk.



SeasonalityThe Company offers many seasonal goods. The Company sets budgeted inventory levels and promotional activity in accordance with itsstrategic initiatives and expected consumer spending changes. Businesses that generate revenue from the sale of seasonal merchandise aresubject to the risk of changes in consumer spending behaviour as a result of unseasonable weather patterns.

QUARTERLY RESULTS (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL

2007 2006 2007 2006 2007 2006 2007 2006 2007 2006$ $ $ $ $ $ $ $ $ $

Sales 70,385 61,187 83,609 71,892 82,103 77,841 99,973 92,959 336,070 303,879Earnings before

income taxes 7,083 4,219 10,977 8,482 15,122 12,847 18,822 12,858 52,004 38,406Net earnings 4,583 2,719 6,902 5,432 9,897 8,352 12,222 8,248 33,604 24,751Net earnings per share

Basic 0.18 0.11 0.28 0.22 0.40 0.35 0.49 0.34 1.35 1.02Diluted 0.18 0.11 0.27 0.22 0.39 0.34 0.49 0.33 1.33 1.00

The Company’s business follows a seasonal pattern, with retail sales traditionally being higher in the third and fourth quarters due to theback-to-school period and the Christmas season, respectively. In addition, fourth quarter earnings results are usually reduced by postChristmas sale promotions.

Fourth Quarter ResultsThe Company recorded a sales increase of 7.5% to $100.0 million for the 13 week period ended January 26, 2008, compared with sales of$93.0 million for the same period ended last year. Comparable stores sales increased by 2.4% over the same period a year ago. The salesgrowth achieved during the fourth quarter resulted from a combination of the strong appeal of the Company’s product offerings, as well asincreased footage arising from new store openings and the expansion of certain stores.

Net earnings rose 48.8% to $12.2 million or $0.49 per share for the fourth quarter, as compared with $8.2 million or $0.34 per share last year.EBITDA for the fourth quarter increased 34.5% to $23.0 million or 23.0% of sales, compared to $17.1 million or 18.3% of sales last year,resulting primarily from continued improvements in gross margins due to a higher yielding product mix and in part to the Canadian dollar whichcontinued to remain relatively strong.

Cash flows from operating activities (excluding net changes in non-cash working capital items) increased to $16.7 million for the fourth quarterof 2007, compared to $13.2 million the previous year, mainly as a result of higher net earnings reported for the period.


14 le château

OUTLOOKThe Company believes it is well positioned to compete effectively in the specialty retail apparel market with its vertically integrated approach toretailing. The Company continues to expand its customer base and remains committed to enhancing the customer experience by elevating ourservice standards and by focusing on product innovation. We will remain centered on improving all aspects of our business through ongoingbrand-building efforts, better inventory management, tighter cost controls, and continued investments in research, design and development,renovations, and new technologies. The Company will also continue to study and draw on opportunities for revenue generation through foreignlicensing of its offering and brand.

Additional information relating to the Company, including the Company’s Annual Information Form, is available online at www.sedar.com.

FORWARD-LOOKING STATEMENTSThis MD&A along with the Annual Report may contain forward-looking statements relating to the Company and/or the environment in which itoperates that are based on the Company’s expectations, estimates and forecasts. These statements are not guarantees of future performanceand involve risks and uncertainties that are difficult to predict and/or are beyond the Company’s control. A number of factors may cause actualoutcomes and results to differ materially from those expressed. These factors include those set forth in other public filings of the Company.Therefore, readers should not place undue reliance on these forward-looking statements. In addition, these forward-looking statements speakonly as of the date made and the Company disavows any intention or obligation to update or revise any such statements as a result of anyevent, circumstance or otherwise.

Factors which could cause actual results or events to differ materially from current expectations include, among other things: the ability of theCompany to successfully implement its business initiatives and whether such business initiatives will yield the expected benefits; competitiveconditions in the businesses in which the Company participates; changes in consumer spending; general economic conditions and normalbusiness uncertainty; customer preferences towards product offerings; seasonal weather patterns; fluctuations in foreign currency exchangerates; changes in the Company’s relationship with its suppliers; interest rate fluctuations and other changes in borrowing costs; and changes inlaws, rules and regulations applicable to the Company.



CONSOLIDATED FINANCIAL STATEMENTSMANAGEMENT’S RESPONSIBILITYFor Financial Information

The accompanying consolidated financial statements of Le Château Inc. and all the information in this annual report are the responsi bility of management.

The financial statements have been prepared by management in accor dance with Canadian generally accepted accounting principles. When alternative accountingmethods exist, management has chosen those it deems most appropriate in the circumstances. Financial statements are not precise since they include certainamounts based on estimates and judgement. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements arepresented fairly, in all material respects. Management has prepared the financial information presented elsewhere in the Annual Report and has ensured that it isconsistent with that in the financial statements.

The Company maintains systems of internal accounting and admin istrative controls of high quality, consistent with reasonable cost. Such systems are designed to providereasonable assurance that the financial information is relevant, reliable and accurate and the Company’s assets are appropriately accounted for and adequately safeguarded.

The Board of Directors is responsible for ensuring that management fulfills its responsi bilities for financial reporting and is ultimately responsible for reviewing andapproving the financial statements. The Board carries out this responsibility principally through the Audit Committee which consists of three outside directorsappointed by the Board. The Committee meets quarterly with management as well as with the independent external auditors to discuss internal controls over thefinancial reporting process, auditing matters and financial reporting issues. The Committee reviews the consolidated financial statements and the external auditors’ reportthereon and reports its findings to the Board for consid eration when the Board approves the financial statements for issuance to the Company’s share holders. TheCommittee also considers, for review by the Board and approval by the shareholders, the engagement or re-appointment of the external auditors. The externalauditors have full and free access to the Audit Committee.

On behalf of the shareholders, the financial statements have been audited by Ernst & Young LLP, the external auditors, in accordance with Canadian generallyaccepted auditing standards.

(Signed) (Signed)Jane Silverstone Segal, B.A.LLL Emilia Di Raddo, CAVice-Chairman and Chief Executive Officer President and Secretary

AUDITORS’ REPORT

To the Shareholders ofLe Château Inc.

We have audited the consolidated balance sheets of Le Château Inc., as at January 26, 2008 and January 27, 2007 and the consolidated statements of retainedearnings, earnings, comprehensive income and cash flows for the years then ended. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtainreasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at January 26, 2008 andJanuary 27, 2007 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Montréal, CanadaMarch 24, 2008 Chartered Accountants


16 le château

CONSOLIDATED BALANCE SHEETS As at January 26, 2008 and January 27, 2007[In thousands of Canadian dollars]

2008 2007$ $

ASSETS [note 2]CurrentCash and cash equivalents 3,846 2,743Short-term investments [note 3] 66,354 58,899Accounts receivable and prepaid expenses 6,307 4,457Inventories [note 4] 43,006 40,967Total current assets 119,513 107,066Fixed assets [notes 5, 6 and 7] 84,466 78,643

203,979 185,709

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrentAccounts payable and accrued liabilities 30,377 32,870Dividend payable 3,133 20,992Income taxes payable 5,092 833Current portion of capital lease obligations [note 6] 1,384 2,051Current portion of long-term debt [note 7] 7,113 4,392Total current liabilities 47,099 61,138Capital lease obligations [note 6] 1,008 2,288Long-term debt [note 7] 12,689 5,934Future income taxes [note 9] 2,975 2,891Deferred lease inducements 8,573 5,284Total liabilities 72,344 77,535

Shareholders’ equityCapital stock [note 8] 31,794 30,221Contributed surplus [note 8] 1,761 1,139Retained earnings 97,914 76,814Accumulated other comprehensive income [note 16] 166 —Total shareholders’ equity 131,635 108,174

203,979 185,709

Commitments, contingencies and guarantees [notes 11 and 15]See accompanying notes

On behalf of the Board:[Signed] [Signed]Jane Silverstone Segal, B.A.LLL Emilia Di Raddo, CADirector Director

Le Château Inc. Incorporated under the Canada Business Corporations Act



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Years ended January 26, 2008 and January 27, 2007[In thousands of Canadian dollars]

2008 2007$ $

Balance, beginning of year 76,814 77,577Net earnings 33,604 24,751

110,418 102,328Dividends declared [note 8] 12,504 25,514Balance, end of year 97,914 76,814

See accompanying notes

CONSOLIDATED STATEMENTS OF EARNINGS Years ended January 26, 2008 and January 27, 2007[In thousands of Canadian dollars]

2008 2007$ $

Sales 336,070 303,879Cost of sales and expensesCost of sales and selling, general and administrative 266,397 251,090Depreciation and amortization 16,048 13,798Write-off of fixed assets 2,220 1,244Interest on long-term debt and capital lease obligations 1,429 1,079Interest income (2,028) (1,738)

284,066 265,473Earnings before income taxes 52,004 38,406Provision for income taxes [note 9] 18,400 13,655Net earnings 33,604 24,751

Net earnings per share [note 10]Basic 1.35 1.02Diluted 1.33 1.00Weighted average number of shares outstanding 24,977,824 24,181,368


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year ended January 26, 2008[In thousands of Canadian dollars]

2008$

Net earnings 33,604Other comprehensive incomeChange in fair value of forward foreign exchange contracts (1,825)Realized forward exchange contracts reclassified to net earnings 1,755Income tax recovery 24

(46)Comprehensive income 33,558



18 le château

CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended January 26, 2008 and January 27, 2007[In thousands of Canadian dollars]

2008 2007$ $

OPERATING ACTIVITIESNet earnings 33,604 24,751Adjustments to determine net cash from operating activities

Depreciation and amortization 16,048 13,798Write-off of fixed assets 2,220 1,244Amortization of deferred lease inducements (1,095) (874)Future income taxes — 526Stock-based compensation 829 929

51,606 40,374Net change in non-cash working capital items

related to operations [note 13] (1,873) (3,939)Deferred lease inducements 4,384 1,958Cash flows related to operating activities 54,117 38,393

FINANCING ACTIVITIESRepayment of capital lease obligations (1,947) (2,634)Proceeds of long-term debt 16,344 —Repayment of long-term debt (6,868) (4,212)Issue of capital stock 1,366 2,763Dividends paid (30,363) (6,029)Cash flows related to financing activities (21,468) (10,112)

INVESTING ACTIVITIESIncrease in short-term investments (7,455) (15,816)Additions to fixed assets (24,091) (27,701)Cash flows related to investing activities (31,546) (43,517)

Increase (decrease) in cash and cash equivalents during the year 1,103 (15,236)Cash and cash equivalents, beginning of year 2,743 17,979Cash and cash equivalents, end of year 3,846 2,743

Supplementary information:Interest paid during the year 1,429 1,079Income taxes paid during the year 14,203 15,437




NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJANUARY 26, 2008 AND JANUARY 27, 2007[Tabular amounts in thousands of Canadian dollars except per share amounts and where otherwise indicated.]

1. SIGNIFICANT ACCOUNTING POLICIESUse of estimatesThe consolidated financial statements of Le Château Inc. [the “Company”] have been prepared by Management in accordance with Canadiangenerally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires Management tomake estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results coulddiffer from those estimates. The financial statements have, in Management’s opinion, been properly prepared within reasonable limits ofmateriality and within the framework of the accounting policies summarized below.

Principles of consolidationThe consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactionshave been eliminated. The Company has no interests in variable interest entities.

Foreign currency translationTransactions denominated in foreign currencies and those of an integrated foreign operation are translated using the temporal method.Monetary assets and liabilities are translated into Canadian dollars at the rates in effect at the balance sheet date. Other assets and liabilitiesare translated at the rates prevailing at the transaction dates. Revenues and expenses are translated at the average exchange rates prevailingduring the year, except for the cost of inventory used and depreciation and amortization, which are translated at exchange rates prevailingwhen the related assets were acquired. Gains and losses arising from the fluctuations in exchange rates are reflected in earnings.

Revenue recognitionRevenue from merchandise sales are net of estimated returns and allowances, exclude sales taxes and are recorded upon delivery to thecustomer. Revenue from gift cards or gift certificates [collectively referred to as “gift cards”] is recognized at the time of redemption or inaccordance with the Company’s accounting policy for breakage. Breakage income is included in other income and represents the estimatedvalue of gift cards that are not expected to be redeemed by customers and is estimated based on the terms of the gift cards and historicalredemption patterns, including available industry data.

Cash and cash equivalentsCash consists of cash on hand and balances with banks. Cash equivalents are restricted to investments that are readily convertible into aknown amount of cash, that are subject to minimal risk of changes in value and which have a maturity of three months or less at acquisition.Cash equivalents are carried at fair value.

Short-term investmentsShort-term investments include investments with original maturity terms of 90 days or more. Short-term investments are classified asavailable-for-sale and are carried at fair value. All short-term investments are denominated in Canadian dollars.

InventoriesRaw materials and work-in-process are valued at the lower of average cost and net realizable value. Finished goods are valued, using the retailinventory method, at the lower of average cost and net realizable value less normal profit margin.


20 le château

1. SIGNIFICANT ACCOUNTING POLICIES [Cont’d]Fixed assets Fixed assets are recorded at cost. Depreciation and amortization are charged to earnings on the following bases:

Building 4% to 10% diminishing balancePoint-of-sale cash registers and computer equipment 3 to 10 years straight-lineOther furniture and fixtures 5 to 10 years straight-lineAutomobiles 30% diminishing balance

Leasehold improvements are amortized on the straight-line basis over the initial term of the leases, plus one renewal period, not to exceed 10 years.

Gains and losses arising on the disposal of individual assets are recognized in income in the period of disposal.

Impairment of long-lived assetsLong-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset maynot be recoverable. Impairment is assessed by comparing the carrying amount of an asset with its expected future net undiscounted cash flowsfrom use together with its residual value [net recoverable value]. If such assets are considered impaired, the impairment to be recognized ismeasured by the amount by which the carrying amount of the assets exceeds their fair value, generally determined on a discounted expectedcash flow basis. Any impairment results in a write-down of the asset and a charge to earnings during the year.

Deferred lease inducementsDeferred lease inducements are amortized on the straight-line basis over the initial term of the leases, plus one renewal period, not to exceed 10 years.

Stock-based compensationAll awards granted or modified after January 25, 2003, are accounted for under the fair value method. Under this method, the value of thecompensation is measured at the grant date using an option pricing model. The value of the compensation expense is recognized over thevesting period of the stock options as an expense included in cost of sales and selling, general and administrative expenses, with acorresponding increase to contributed surplus in shareholders’ equity.

All awards granted or modified prior to January 26, 2003 are accounted for as capital transactions. No compensation expense is recorded in theconsolidated financial statements for these awards. Had the Company used the fair value method, the earnings would not have been materially different.

Any consideration paid by plan participants on the exercise of stock options is credited to share capital.

Store opening costsStore opening costs are expensed as incurred.

Income taxes The Company uses the liability method of accounting for income taxes, which requires the establishment of future tax assets and liabilities, asmeasured by enacted or substantively enacted tax rates, for all temporary differences caused when the tax bases of assets and liabilities differfrom those reported in the financial statements. A valuation allowance is recorded to the extent that it is more likely than not that future incometax assets will not be realized.



1. SIGNIFICANT ACCOUNTING POLICIES [Cont’d]Earnings per shareBasic earnings per share are calculated using the weighted average number of shares outstanding for the year.

The diluted earnings per share are calculated using the treasury stock method. Under the treasury stock method, the diluted weighted averagenumber of shares outstanding is calculated as if all dilutive options had been exercised at the later of the beginning of the reporting period ordate of issuance, and the proceeds from the exercise of such dilutive options are used to repurchase common shares at the average marketprice for the period.

LeasesA lease which transfers substantially all of the benefits and risks incidental to ownership of property is classified as a capital lease and recordedas the acquisition of an asset and the assumption of an obligation. All other leases are accounted for as operating leases wherein rentalpayments are expensed as incurred.

Year EndThe Company’s fiscal year ends on the last Saturday in January. The years ended January 26, 2008 and January 27, 2007 cover a 52-week fiscal period.

Changes in Accounting Policies

On January 28, 2007, the Company retroactively adopted, without restatement of prior periods, the following new accounting standards issuedby the Canadian Institute of Chartered Accountants [“CICA”]:

Section 1530, Comprehensive Income, introduces a new financial statement which shows the change in equity of an enterprise fromtransactions and other events and circumstances from non-owner sources. Section 3251 establishes standards for the presentation of equityand changes in equity as a result of the new requirements in Section 1530.

Section 3855, Financial Instruments — Recognition and Measurement and Section 3861 “Financial Instruments – Disclosure and Presentation”,establishes standards for recognizing and measuring financial instruments, namely financial assets, financial liabilities and derivatives.

The new standard lays out how financial instruments are to be recognized depending on their classification. Depending on a financialinstrument’s classification, changes in subsequent measurements are recognized in net earnings or other comprehensive income [“OCI”].

The Company has made the following classifications:

• Cash and cash equivalents are classified as “Financial Assets Held for Trading” and measured at fair value. Changes in fair value arerecorded in net earnings.

• Short-term investments are classified as “Available for Sale”. After their initial fair value measurement, unrealized gains and losses arerecognized in other comprehensive income, except for impairment losses which are recognized immediately in net earnings. Uponderecognition of the financial asset, the cumulative gains or losses previously recognized in accumulated other comprehensive incomeare reclassified to net earnings.

• Accounts receivable are classified as “Loans and Receivables”. After their initial fair value measurement, they are measured at amortizedcost using the effective interest rate method.

• Accounts payable, dividend payable, long-term debt and capital lease obligations are classified as “Other Financial Liabilities”. After theirinitial fair value measurement, they are measured at amortized cost using the effective interest rate method.


22 le château

1. SIGNIFICANT ACCOUNTING POLICIES [Cont’d]

Upon initial application on January 28, 2007, there was no impact on the consolidated financial statements of measuring the financial assetsand liabilities at fair value or amortized cost using the effective interest rate method.

In adopting this section the Company selected January 26, 2003 as its transition date for embedded derivatives. An embedded derivative is acomponent of a financial instrument or another contract, the characteristics of which are similar to a derivative. This had no impact on theconsolidated financial statements.

Section 3865, Hedges, whose application is optional, establishes how hedge accounting may be applied. The Company, in keeping with its riskmanagement strategy, continues to apply hedge accounting for its foreign exchange contracts and designates them as cash flow hedges. In a cash flowhedge relationship, the portion of the gains or losses on the hedging item that is determined to be an effective hedge is recognized in OCI, while theineffective portion is recorded in net earnings. The amounts recognized in OCI are reclassified to net earnings when the hedged item affects earnings.

Upon initial application on January 28, 2007, the Company recognized a derivative asset of $320,000, a future tax liability of $108,000 and an adjustmentto the opening balance of accumulated other comprehensive income of $212,000 related to foreign exchange contracts designated as cash flow hedges.

In July 2006, the CICA issued changes to the CICA Handbook Section 1506 entitled “Accounting Changes”. The changes to this sectionparticularly affect the following items: an entity would be permitted to change an accounting policy only when it is required by a primary sourceof GAAP, or when the change results in a more reliable and relevant presentation in the financial statements; changes in accounting policyshould be applied retroactively, except in cases where specific transitional provisions in a primary source of GAAP permit otherwise or whereapplication to comparative information is impractical [the standard provides specific guidance as to what is considered impractical]; expandeddisclosures about the effects of changes in accounting policies, estimates and errors to the financial statements; and, disclosure of new primarysources of GAAP that have been issued but have not yet come into effect and have not yet been adopted by the entity. The adoption of thisstandard did not have a significant impact on the Company’s consolidated results of operations or financial position.

Recently issued accounting standardsInventoriesIn June 2007, the CICA issued the new Section 3031, “Inventories” which will replace Section 3030 “Inventories”. The new Section prescribesmeasurement of inventories at the lower of cost and net realizable value. It provides guidance on the determination of costs and theirsubsequent recognition as an expense and provides guidance on the cost formulas used to assign costs to inventories. These standards mustbe adopted by the Company for the fiscal year beginning on January 27, 2008. The Company is currently assessing the impact of these newrecommendations on its fiscal 2009 financial statements.

Capital DisclosuresThe CICA issued a new accounting standard, Section 1535, “Capital Disclosures”, which requires the disclosure of both qualitative andquantitative information that enables users of financial statements to evaluate the entity’s objectives, policies and processes for managingcapital. The Company will adopt this standard beginning January 27, 2008 and is currently evaluating the effect of adopting this standard.

Financial InstrumentsThe CICA issued two new accounting standards, Section 3862, “Financial Instruments – Disclosures”, and Section 3863, “Financial Instruments– Presentation”, which apply to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. These newstandards revise and enhance the disclosure requirements, and carry forward, substantially unchanged, the presentation requirements. Thesenew standards emphasize the significance of financial instruments to the entity’s financial position and performance, the nature and extent ofrisks arising from financial instruments, and how these risks are managed. The Company will adopt this standard beginning January 27, 2008and is currently evaluating the effect of adopting this standard.



1. SIGNIFICANT ACCOUNTING POLICIES [Cont’d]International Financial Reporting StandardsThe CICA plans to converge Canadian GAAP with International Financial Reporting Standards [“IFRS”] over a transition period ending in 2011.The Company is reviewing the transition to IFRS on its financial statements and has not yet determined the impact.

2. CREDIT FACILITIES

The Company has an operating line of credit totalling $16 million which is collateralized by the Company’s accounts receivable, inventories, theshares of its subsidiary company and a moveable hypothec providing a charge on the Company’s assets. This credit agreement is renewableannually. Amounts drawn under this line of credit are payable on demand and bear interest at rates based on the prime bank rate for loans inCanadian dollars, U.S. base rate for loans in U.S. dollars and banker’s acceptance plus 1.25% for banker’s acceptances in Canadian dollars.Furthermore, the terms of the banking agreement require the Company to meet certain non-financial covenants. As at January 26, 2008, theCompany had outstanding letters of credit in the amount of $8,133,000 of which $3,165,000 had been accepted at year-end. The letters ofcredit represent guarantees for payment of purchases from foreign suppliers and reduce available credit under this facility. Aside from theoutstanding letters of credit, no other amounts were drawn under this facility as at January 26, 2008.

The Company has a credit facility in the amount of $35 million available until June 30, 2008 to finance the renovation and re-fixturing of variousstores throughout Canada. Drawdowns under this facility are repayable over 60 months and bear interest at a fixed rate based on the three yearGovernment of Canada bond interest rate at the drawdown date. This facility is collateralized by the store fixtures and equipment financed. TheCompany’s outstanding debt with this institution, in the amount of $16.1 million, reduces the amount available under this facility thereby leavinga balance available of $18.9 million as at January 26, 2008. As at March 24, 2008, no further amounts were drawn under this facility.

In addition, the Company has a credit facility in the amount of $18 million available until February 15, 2008 to finance the renovation andre-fixturing of various stores throughout Canada. Drawdowns under this facility are repayable over 60 months and bear interest at a fixed ratebased on the three year Government of Canada bond interest rate at the drawdown date. This facility is collateralized by the store fixtures andequipment financed. Subsequent to year end on February 15, 2008, $18 million was drawn under this facility [note 17].

3. SHORT-TERM INVESTMENTS As at January 26, 2008, the carrying value of the Company’s short-term investments approximated their fair value and their average effectiveinterest rate was 4.53% [2007 – 4.25%] with maturity dates varying over the period ending June 12, 2008 [2007 – June 25, 2007].

4. INVENTORIESJanuary 26, January 27,

2008 2007$ $

Raw materials 5,668 4,029Work-in-process 1,684 2,113Finished goods 35,654 34,825

43,006 40,967


24 le château

5. FIXED ASSETSAccumulateddepreciation

and Net bookCost amortization value

$ $ $January 26, 2008Land and building 1,651 664 987Leasehold improvements 48,863 15,483 33,380Point-of-sale cash registers and computer equipment 16,179 9,600 6,579Other furniture and fixtures 64,372 20,881 43,491Automobiles 163 134 29

131,228 46,762 84,466

January 27, 2007Land and building 990 630 360Leasehold improvements 43,134 13,664 29,470Point-of-sale cash registers and computer equipment 15,432 7,968 7,464Other furniture and fixtures 60,794 19,486 41,308Automobiles 163 122 41

120,513 41,870 78,643

An amount of $4,943,000 [2007 – $10,595,000] of the fixed assets is held under capital leases. Accumulated depreciation relating to thesefixed assets amounts to $1,488,000 [2007 – $3,114,000].

During the year ended January 26, 2008, the Company determined that certain of its fixed assets located in the United States were no longerrecoverable. Consequently, fixed assets with a carrying value of $1,150,000 were written-off and included in write-off of fixed assets.

6. CAPITAL LEASE OBLIGATIONSThe future minimum lease payments required under the capital lease agreements are as follows:

$2009 1,4912010 1,032Total minimum lease payments 2,523Amount representing interest at a rate of 5.6% 131

2,392Less: current portion 1,384

1,008

The fair value of fixed rate capital leases is based on estimated future cash flows discounted using the current market rate for debt of the sameremaining maturities. The fair value of these capital leases approximates the carrying value.



7. LONG-TERM DEBTJanuary 26, January 27,

2008 2007$ $

Loans bearing interest at rates varying from 5.09% to 5.98%and maturing between July 2008 and July 2009 2,198 4,407

6.05% Specific Security Agreement, maturing November 1, 2009 3,942 5,9195.30% Specific Security Agreement, maturing February 7, 2012 13,662 —

19,802 10,326Less: current portion 7,113 4,392

12,689 5,934

The loans are collateralized by the fixed assets acquired with the long-term debt proceeds.

Principal repayments are due in the following fiscal years: $

2009 7,1132010 5,3512011 3,4222012 3,6072013 309

19,802

The fair values of the loans described above approximate their carrying values.

8. CAPITAL STOCKAuthorized

An unlimited number of non-voting First, Second and Third Preferred Shares issuable in series

An unlimited number of Class A subordinate voting shares

An unlimited number of Class B voting shares

Principal features

[a] With respect to the payment of dividends and the return of capital, the shares rank as follows:

First PreferredSecond PreferredThird PreferredClassA and Class B


26 le château

8. CAPITAL STOCK [Cont’d]

[b] Subject to the rights of the Preferred shareholders, the Class A subordinate voting shareholders are entitled to a non-cumulativepreferential dividend of $0.0125 per share, after which the Class B shareholders are entitled to a non-cumulative dividend of $0.0125 pershare; any further dividends declared in a fiscal year must be declared and paid in equal amounts per share on all the Class A andClass B Shares then outstanding without preference or distinction.

[c] Subject to the foregoing, the Class A and Class B Shares rank equally, share for share, in earnings.

[d] The Class A subordinate voting shares carry one vote per share and the Class B Shares carry 10 votes per share.

[e] The Articles of the Corporation provide in effect that if there is an accepted or completed offer for more than 20% of the Class B Shares oran accepted or completed offer to more than 14 holders thereof at a price in excess of 115% of their market value [as defined in theArticles of the Corporation], each Class A subordinate voting share will be, at the option of the holder, converted into one Class B Sharefor the purposes of accepting such offer, unless at the same time an offer is made to all holders of the Class A subordinate voting sharesfor a percentage of such shares at least equal to the percentage of Class B Shares which are the subject of the offer and otherwise onterms and conditions not less favourable. In addition, each Class A subordinate voting share shall be converted into one Class B Share ifat any time the principal shareholder of the Company or any corporation controlled directly or indirectly by him ceases to be the beneficialowner, directly or indirectly, and with full power to exercise in all circumstances the voting rights attached to such shares, of shares of theCorporation having attached thereto more than 50% of the votes attached to all outstanding shares of the Corporation.

Issued and outstandingJanuary 26, 2008 January 27, 2007

Number Numberof shares $ of shares $

Class A subordinate voting sharesBalance – beginning of year 16,719,764 29,502 15,944,804 26,491Conversion of multiple voting shares 1,600,000 141 — —Issuance of subordinate voting shares upon exercise of options 183,200 1,366 774,960 2,763Reclassification from contributed surplus due

to exercise of share options — 207 — 248Balance, end of year 18,502,964 31,216 16,719,764 29,502

Class B multiple voting sharesBalance, beginning of year 8,160,000 719 8,160,000 719Conversion to subordinate voting shares (1,600,000) (141) — —Balance, end of year 6,560,000 578 8,160,000 719

25,062,964 31,794 24,879,764 30,221



8. CAPITAL STOCK [Cont’d]At the annual meeting of shareholders held on June 27, 2007, the shareholders approved the split of the Class A subordinate voting shares andClass B voting shares on a four-for-one basis. The record date for the split was July 18, 2007 and shares began trading on an “as split” basis atthe opening of business on July 16, 2007. All share and per share information presented in the audited consolidated financial statements reflectthe effects of the stock split retroactively.

In May 2007, the principal shareholder of the Company converted 1,600,000 Class B voting shares with a paid-up capital of $140,922 intoClass A subordinate voting shares.

DividendsOn November 30, 2006, the Board of Directors declared a one-time dividend of $3.00 (pre-split) per Class A subordinate share and Class B voting share.The dividend amounting to $18,660,000 was paid on February 13, 2007 to shareholders of record at the close of business on January 30, 2007.

Stock option planUnder the provisions of the stock option plan, the Company may grant options to key employees, directors and consultants to purchase ClassA subordinate voting shares. The maximum number of Class A subordinate voting shares issuable from time to time under the Plan is 12% ofthe aggregate number of Class A subordinate voting shares and Class B Shares issued and outstanding from time to time. The option pricemay not be less than the closing price for the Class A subordinate voting shares on the Toronto Stock Exchange on the last business daybefore the date on which the option is granted. The stock options may be exercised by the holder progressively over a period of 5 years fromthe date of granting. Under certain circumstances, the vesting period can be accelerated.

A summary of the status of the Company’s stock option plan as of January 26, 2008 and January 27, 2007, and changes during the years thenended is presented below:

January 26, 2008 January 27, 2007Weighted Weighted

average averageShares exercise Shares exercise

price price$ $

Outstanding at beginning of year 1,171,000 9.14 1,949,160 6.92Granted 643,200 15.14 — —Exercised (183,200) 7.45 (774,960) 3.57Cancelled / Expired (363,400) 9.70 (3,200) 7.56Outstanding at end of year 1,267,600 12.26 1,171,000 9.14Options exercisable at end of year 145,600 9.86 103,800 7.70


28 le château

8. CAPITAL STOCK [Cont’d]The following table summarizes information about the stock options outstanding at January 26, 2008.

Number of Number Weighted Weighted options Weighted

Range of outstanding at average average exercisable at averageexercise January 26, remaining exercise January 26, exercise

prices 2008 life price 2008 price$ # $ # $

7.56 364,400 2.3 years 7.56 65,600 7.5611.75 – 13.37 262,000 2.9 years 11.76 80,000 11.75

15.14 641,200 4.2 years 15.14 — —7.56 – 15.14 1,267,600 3.4 years 12.26 145,600 9.86

Compensation expense recorded in the consolidated financial statements during the year for stock options amounted to $829,000 [2007 – $929,000].

January 26, January 27,2008 2007

$ $Contributed surplus, beginning of year 1,139 458Stock-based compensation expense 829 929Exercise of share options (207) (248)Contributed surplus, end of year 1,761 1,139

During the year ended January 26, 2008, the Company granted 643,200 stock options [2007 – NIL]. The weighted-average grant date fair valueof stock options granted during 2008 was $3.13 per option. The fair value of each option granted was determined using an option pricing modeland the following weighted-average assumptions:

AssumptionsRisk-free interest rate 4.04%Expected life 3.3 yearsExpected volatility in the market price of the shares 34.8%Expected dividend yield 3.3%

Stock purchase planUnder the provisions of the stock purchase plan, the Company may grant the right to key employees to subscribe for Class A Shares. The plan,which was amended on May 28, 1997, provides that the maximum number of shares that may be issued thereunder, from and after May 28, 1997,is 10,000 Class A Shares. The subscription price may not be less than the closing price for the Class A Shares on the Toronto Stock Exchangeon the last business day before the date on which the right to subscribe is granted. Since May 28, 1997, no shares have been issued under thestock purchase plan.



9. INCOME TAXESAs at January 26, 2008, a U.S. subsidiary has accumulated losses amounting to $6.8 million [US $6.7 million] which expire during the years2009 to 2028. A full valuation allowance has been taken against the related future income tax asset and accordingly, the tax benefits pertainingto these loss carry-forwards have not been recognized in the financial statements.

The U.S. tax losses expire in the following years:$

2009 762010 1922011 4142012 —2013 —2014 – 2028 6,094

6,776

A reconciliation of the statutory income tax rate to the actual effective tax rate is as follows:

2008 2007% %

Statutory tax rate 33.6 33.8Increase (decrease) in income tax rate resulting from:

Unrecognized benefit on U.S. tax losses 1.4 0.9Non-deductible items and translation adjustment 0.2 1.5Effect of change in income tax rate (0.5) (0.4)Other 0.7 (0.2)

Effective tax rate 35.4 35.6

The details of the provision for income taxes are as follows:2008 2007

$ $Current income taxes 18,400 13,129Future income taxes — 526Provision for income taxes 18,400 13,655


30 le château

9. INCOME TAXES [Cont’d]The tax effects of temporary differences and net operating losses that give rise to future income tax assets and liabilities are as follows:

2008 2007$ $

Future income tax liabilities Carrying values of capital assets in excess of tax bases 6,186 6,084Unrealized foreign exchange gain on forward contracts 84 —Total future income tax liabilities 6,270 6,084

Future income tax assetsOperating leases 687 1,406Deferred lease inducements 2,574 1,712Share issue costs 34 75U.S. tax losses 2,957 2,940Valuation allowance (2,957) (2,940)Total future income tax assets 3,295 3,193Net future income taxes 2,975 2,891

10. EARNINGS PER SHAREThe following is a reconciliation of the numerators and the denominators used for the computation of the basic and diluted earnings per share:

2008 2007$ $

Net earnings (numerator) 33,604 24,751Weighted average number of shares

outstanding(denominator)Weighted average number of shares outstanding – basic 24,978 24,181Dilutive effect of stock options 312 688Weighted average number of shares outstanding – diluted 25,290 24,869

11. COMMITMENTS AND CONTINGENCIESThe minimum rentals payable under long-term operating leases are as follows:

$2009 34,6242010 33,5992011 30,9432012 28,9722013 26,9912014 and thereafter 77,678

232,807

Certain of the operating leases provide for additional annual rentals based on store sales and for annual increases in operating charges of the landlord.

The Company is involved in various legal actions which are normal to the Company’s business. In the opinion of the Company, potential liabilities thatmay result from these actions are not expected to have a material adverse effect on the Company’s financial position or its results of operations.



12. SEGMENTED INFORMATIONThe Company’s only operating segment is the retail of apparel, accessories and footwear aimed at young spirited, fashion conscious men and women.

Segmented information is attributed to geographic areas based on the locations of the Company’s stores. The following is a summary of theCompany’s operations and assets by geographic area:

January 26, January 27, 2008 2007

$ $

Sale to customersCanada 328,688 295,609United States 7,382 8,270

336,070 303,879

Depreciation and amortizationCanada 15,360 13,086United States 688 712

16,048 13,798

Net earnings (loss)Canada 35,714 25,912United States (2,110) (1,161)

33,604 24,751

Net earnings (loss) per share (basic)Canada 1.43 1.07United States (0.08) (0.05)

1.35 1.02

Identifiable assetsCanada 201,440 180,736United States 2,539 4,973

203,979 185,709

Capital expendituresCanada 24,082 27,283United States 9 418

24,091 27,701

Fixed assetsCanada 83,222 75,503United States 1,244 3,140

84,466 78,643


32 le château

12. SEGMENTED INFORMATION [Cont’d]The following table summarizes the Company’s sales by division:

January 26, January 27,2008 2007

$ $Ladies Clothing 191,549 170,160Men’s Clothing 52,242 47,944Footwear 39,579 36,905Accessories 52,700 48,870

336,070 303,879

The Company completely phased out the JUNIOR GIRL division during the first half of fiscal 2007.

13. CHANGES IN NON-CASH WORKING CAPITALThe cash generated from (used for) non-cash working capital items is made up of changes related to operations in the following accounts:

2008 2007$ $

Accounts receivable and prepaid expenses (1,600) (711)Inventories (2,039) (5,523)Accounts payable and accrued liabilities (2,493) 5,202Income taxes payable 4,259 (2,907)Net change in non-cash working capital items related to operations (1,873) (3,939)

14. FINANCIAL INSTRUMENTSInterest rate riskThe Company’s capital leases and long-term debt bear interest at a fixed rate and therefore are not exposed to interest rate risk.

Credit riskManagement considers the credit risk related to its cash equivalents and short term investments to be low because they are investment gradeand short term in nature.



14. FINANCIAL INSTRUMENTS [Cont’d]Fair valuesThe estimated fair values of financial instruments as at January 26, 2008 and January 27, 2007 are based on the relevant market prices and informationavailable at the time. The fair value estimates may not be indicative of the amounts that the Company might receive or pay in actual market transactions.

Current financial assets and liabilitiesThe carrying amounts of current financial assets and liabilities are reasonable estimates of their fair values due to the current nature of theseinstruments. Current financial assets consist of cash and cash equivalents and accounts receivable, while current financial liabilities consist ofaccounts payable and accrued liabilities and dividend payable.

Foreign exchange forward contractsThe Company enters into foreign exchange forward contracts that oblige it to purchase specific amounts of foreign currencies at set future dates atforward predetermined exchange rates. The contracts are matched with anticipated foreign currency purchases. The Company enters into the foreignexchange forward contracts to hedge itself from the risk of losses should the value of the Canadian dollar decline compared to the foreign currency.

The amount of anticipated future purchases in foreign currencies are projected in light of current conditions in the Company’s markets and itspast experience in similar circumstances.

Some foreign exchange forward contracts that qualify as hedges have become favorable to the Company since their inception and accordingly,constitute financial assets. Other contracts have become unfavorable and accordingly constitute financial liabilities. These outstanding contractsare to be settled during the next fiscal period. Their nominal values and contract values as at January 26, 2008 are as follows:

Average Nominalcontractual foreign Contract

exchange rate currency value value[000’s] [000’s]

Purchase contractsU.S. dollar 0.9916 15,000 14,874

The range of maturity of these contracts is from February 25, 2008 to June 30, 2008. As at January 26, 2008, the fair value of these contractsamounted to an unrealized foreign exchange gain of $250,000 [2007 – unrealized foreign exchange gain of $320,000].


34 le château

15. GUARANTEESGenerally, it is not the Company’s policy to issue guarantees to non-controlled affiliates or third parties, with limited exceptions.

Many of the Company’s agreements include indemnification provisions where the Company may be required to make payments to a vendor orpurchaser for breach of fundamental representation and warranty terms in the agreements with respect to matters such as corporate status,title of assets, environmental issues, consents to transfer, employment matters, litigation, taxes payable and other potential material liabilities.The maximum potential amount of future payments that the Company could be required to make under these indemnification provisions is notreasonably quantifiable as certain indemnifications are not subject to a monetary limitation. At January 26, 2008, Management does not believethat these indemnification provisions would require any material cash payment by the Company.

The Company indemnifies its directors and officers against claims reasonably incurred and resulting from the performance of their services tothe Company, and maintains liability insurance for its directors and officers.

16. ACCUMULATED OTHER COMPREHENSIVE INCOME Changes in accumulated other comprehensive income were as follows:

2008$

Balance, beginning of year —Adjusted opening balance due to the new accounting policies

adopted regarding financial instruments, net of income taxes of $108 212Other comprehensive income for the period, net of income taxes of $24 (46)Balance, end of year 166

17. SUBSEQUENT EVENT Credit facilitiesOn February 15, 2008, the Company borrowed $18,000,000, under an existing credit facility, at an interest rate of 5.18%, repayable over60 months. The borrowing is collateralized by an equivalent amount of equipment and the store fixtures financed as part of the credit facility.

18. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform to the presentation adopted in the current year.



BOARD OF DIRECTORS

Richard CherneyNon-executive Chairman of the BoardCo-managing Partner ofDavies Ward Phillips & Vineberg LLP

Herschel H. SegalFormer Chairman of the Board andChief Executive Officer of the Company

Jane Silverstone Segal, B.A.LLLVice-Chairman of the Board and Chief Executive Officer of the Company

Emilia Di Raddo, CAPresident and Secretary

Herbert E. Siblin, CM, FCA*PresidentSiblin and Associates Ltd.

David Martz*Management Consultant

Maurice Tousson*President and Chief Executive Officer of CDREM Group Inc.

*Member of the Audit Committee

OFFICERS

Jane Silverstone Segal, B.A.LLLVice-Chairman of the Board and Chief Executive Officer

Emilia Di Raddo, CAPresident and Secretary

Franco RocchiSenior Vice-PresidentSales and Operations

Johnny Del Ciancio, CAVice-PresidentFinance

Enza AllegroVice-PresidentManufacturing

AuditorsErnst and Young LLPChartered Accountants

Registrar and Transfer AgentComputershare Investor Services Inc.

Corporate CounselDavies Ward Phillips & Vineberg LLP

BankersRoyal Bank of Canada

Annual Meeting of ShareholdersThursday, June 19, 2008at 10:00 am at our head office

Produced by: MaisonBrison Inc.

HEAD OFFICE

8300 Decarie Boulevard, Montreal, Quebec H4P 2P5Telephone: 514.738.7000, www.lechateau.com

25%

Cert no. FSC-COC-004429


rapport annuel 2007 - le châteaurapport annuel 2007 annual report 2007 rapport annuel 2007 annual...

Documents