HARDWOODS DISTRIBUTION INC.
2015
Annual Report
To Shareholders
Profile
Hardwoods Distribution Inc. (“Hardwoods” or “the Company”) is listed on the Toronto Stock
Exchange and trades under the symbol HWD. We are one of North America’s largest wholesale
distributors of hardwood lumber and related sheet good and specialty wood products. In addition
to our core distribution business, we create custom moulding and millwork packages for
customers and produce and export high-quality lumber products.
Our Customers: Our business serves over 10,000 customers in North America, primarily
manufacturers of cabinets, mouldings, custom finishing, home furniture, home renovations,
finishing millwork for office buildings, restaurant and bar interiors, hotel lobbies, retail point-
of-purchase displays, schools, hospitals, custom motor coaches, yacht interiors and other
specialty areas.
Our End-Markets: We estimate that approximately 60% of the products we sell to our
manufacturing customers end up in new residential construction, 20% in the commercial/
institutional construction sector, and 20% in renovation/remodeling and other markets.
Our Products and Services: In 2015 our sales mix was 52% sheet good products, 38% hardwood
lumber products, and 10% other specialty goods. We provide custom milling services to our
customers from five of our locations in Chicago, Cincinnati, Denver, Kansas City, and San
Antonio. We also produce and export high-quality hardwood lumber from our hardwood lumber
mill in Michigan to customers in Europe and Asia.
Our People: We employ over 450 dedicated employees and maintain a pronounced professional
and entrepreneurial sales and service culture.
Our Strategy: We are focused on capturing the benefit from a steadily recovering US residential
housing market. In addition to capturing market growth, our strategy is to (i) continue to leverage
our established expertise in import products, which account for approximately 30% of our sales
mix measured by product source; and (ii) grow our sales into commercial markets, which
represent a significant demand opportunity but comprises just 20% of our total revenue. We
will also pursue acquisitions that complement our strategies. We have added seven new locations
which now account for over $150 million in new annual sales from acquisitions made in the
past four and a half years.
Hardwoods Distribution Inc. | 2015 | Annual Report
1
Our Network: Approximately 75% of our sales are in the United States and 25% in Canada.
We operate from 33 locations as follows:
Table of Contents
Message to Shareholders
Management’s Discussion and Analysis
Consolidated Financial Statements
Page
3
6
34
Hardwoods Distribution Inc. | 2015 | Annual Report
2
To Our Shareholders
2015 brought the best financial results in Hardwoods’ history and our sixth consecutive year of
both top and bottom line growth. Our results, which included record sales, EBITDA and profit
performance, benefited from a strengthening US dollar and generally favorable market
conditions. The other key factor driving our performance was the continued successful execution
of our business strategy.
Hardwoods’ strategy is designed to capture the growth potential of the recovering US market
by leveraging our import program and strengthening our commercial business. In a year when
US housing starts grew by a moderate 10.4% year-over-year and average hardwood lumber
prices softened compared to 2014, the combination of a stronger US dollar and our strategic
initiatives helped us achieve total sales growth of 25.4%. This growth was profitable from a
top and bottom line perspective. Our operating expenses as a percentage of sales improved to
11.8% in 2015 from 12.2% in 2014, while our EBITDA margin grew to 6.1% from 5.6% year-
over-year.
Realizing our Strategic Objectives
Our import product program remained a key contributor to our performance. As a one-step
importer, Hardwoods works closely with international manufacturers to develop high-quality
proprietary product offerings that respond to current market needs and trends. This offering
enables us to provide an attractive combination of unique products, excellent quality and
competitive prices that attract a loyal following among our customers. Sales of our import
products increased again in 2015 as we continued to develop our supply lines from a broad
range of overseas markets including China, Africa, Southeast Asia, Russia and parts of Europe.
We also accelerated our growth in the commercial market during the year. Part of our strategy
for balancing the cyclicality of the residential construction market, our expansion into the large
and more stable commercial market has presented numerous avenues for growth.
During 2015 we continued to increase our commercial selling capability with a specific emphasis
on growing target customer accounts and continuing to equip our sales force with the training
and product knowledge needed to succeed in the commercial arena. The Hardwoods of
Michigan, or “HMI” acquisition, which we completed in 2014, further increased our market
Hardwoods Distribution Inc. | 2015 | Annual Report
3
exposure and enhanced our capabilities. A fully integrated producer and exporter of high-quality,
value-added hardwood lumber, HMI brought us a broader base of customers and contributed
to our sales to the commercial sector in 2015.
The Path to Continued Growth
As we look forward, we see continued opportunities for profitable growth. At 1.1 million, US
housing starts remain well below the 1.5 million level considered sustainable for the industry.
Accordingly most forecasters predict a continued multi-year strengthening trend for the US
residential construction market. The commercial construction market is also enjoying healthy
growth as the US economy strengthens and key segments like retail, office and hospitality-
related construction projects benefit. Hardwoods is still in the relatively early stages of tapping
the commercial market, and accordingly, we see significant growth potential ahead.
Going forward, we will continue to pursue our growth through both organic and, when
appropriate, acquisition-based initiatives. Our balance sheet enables us to pursue a full range
of opportunities and I am pleased to report that we further strengthened our financial position
in 2015 with strong cash generation and the continued reduction of our debt. At the same time,
we enhanced our operational and corporate infrastructure with a number of strategic moves that
better prepare us for the future. During 2015, we augmented our 32 location distribution network
with the move to larger hub facilities in Texas and Ontario.
We also strengthened our executive structure with the appointments of Jason West as Vice
President, Canada; Brian Graham as Vice President, Pacific Northwest, Rocky Mountain and
Texas; and Dan Figgins as Vice President, Imports. Concurrent with these appointments, Dan
Besen, who previously served as Vice President of the California Group, assumed expanded
duties to include oversight of our Lake States operation. This new managerial capacity enhances
our ability to achieve the next phase of our market expansion plans.
Early in 2016 we announced another change to our management team when Lance Blanco, for
health reasons related to his bicycling accident in July of 2014, stepped down as Hardwoods’
President and Chief Executive Officer . Lance joined the company in 2010 and set us on the
strategic path that is the foundation for the success we are achieving today. I am delighted that
he will continue to help guide the Company’s strategy going forward as Senior Vice President,
Corporate Development, with responsibility for strategy, acquisitions and special projects.
Hardwoods Distribution Inc. | 2015 | Annual Report
4
Overall, the future looks very promising for Hardwoods and I want to thank you, our
shareholders, for your continued support of our business. During 2015 we rewarded your
confidence in Hardwoods with a total return of 58.2% generated through a combination of
annual dividends and continued share price appreciation. We look forward to creating value for
you again in 2016.
Sincerely,
Rob Brown
President and Chief Executive Officer
Hardwoods Distribution Inc. | 2015 | Annual Report
5
Management’s Discussion and Analysis
March 11, 2016
This management’s discussion and analysis (“MD&A”) has been prepared by Hardwoods
Distribution Inc. (“HDI” or the “Company”) as of March 11, 2016. This MD&A should be read
in conjunction with the audited consolidated financial statements and accompanying notes
(“Audited Financial Statements”) of the Company for the years ended December 31, 2015 and
2014. Results are reported in Canadian dollars unless otherwise stated. For additional
information, readers should also refer to our Annual Information Form and other information
filed on www.sedar.com.
In this MD&A, references to “EBITDA” are to earnings before interest, income taxes,
depreciation and amortization, where interest is defined as net finance costs as per the
consolidated statement of comprehensive income. Furthermore in this MD&A we discuss
certain EBITDA ratios, such as EBITDA margin (being EBITDA as a percentage of revenues),
net debt-to-EBITDA (net debt as per section 5.3 as compared to EBITDA), and net debt-to-total
capitalization (net debt as compared to total capitalization as per section 5.3). In addition to
profit, we consider EBITDA and EBITDA ratios (such as net debt-to-EBITDA and net debt-to-
total capitalization) to be useful supplemental measures of the Company’s ability to meet debt
service and capital expenditure requirements, and we interpret trends in EBITDA and EBITDA
ratios (such as EBITDA margin) as an indicator of relative operating performance.
EBITDA is not an earnings measure recognized by International Financial Reporting Standards
(“IFRS”) and does not have a standardized meaning prescribed by IFRS. Investors are cautioned
that EBITDA should not replace profit or cash flows (as determined in accordance with IFRS)
as an indicator of our performance. Our method of calculating EBITDA may differ from the
methods used by other issuers. Therefore, our EBITDA may not be comparable to similar
measures presented by other issuers. For reconciliation between EBITDA and profit as
determined in accordance with IFRS, please refer to the discussion of Results of Operations
described in section 3.0 of this report.
Hardwoods Distribution Inc. | 2015 | Annual Report
6
Contents
This MD&A includes the following sections:
1.0
Executive Summary
1.1
1.2
1.3
Overview
Strategy
Outlook
2.0
Background
2.1
2.2
Company Overview
Business and Industry Overview
3.0
Results of Operations
3.1
3.2
Years Ended December 31, 2015 and December 31, 2014
Three-Month Periods Ended December 31, 2015 and December 31, 2014
4.0
Selected Financial Information and Seasonality
4.1
4.2
Quarterly Financial Information
Annual Financial Information
5.0
Liquidity and Capital Resources
5.1 Cash Flows from Operating, Investing and Financing Activities
5.2 Working Capital
5.3
5.4
5.5
5.6
5.7
5.8
Revolving Credit Facilities and Debt Management Strategy
Contractual Obligations
Off-Balance Sheet Arrangements
Financial Instruments
Share Data
Dividends
6.0
7.0
8.0
9.0
Related Party Transactions
Critical Accounting Estimates and Adoption of Changes in Accounting Policies
7.1
7.2
Critical Accounting Estimates
Adoption of New Accounting Policies
Risks and Uncertainties
Disclosure Controls and Procedures and Internal Control over Financial Reporting
10.0 Note Regarding Forward Looking Information
Hardwoods Distribution Inc. | 2015 | Annual Report
7
1.0 Executive Summary
1.1 Overview
We established new records for sales, EBITDA and profit in 2015 as we executed our “strengthen
commercial” and “leverage imports” strategies, responded to market opportunities and
continued to benefit from a strengthening US dollar. For the year ended December 31, 2015,
sales increased 25.4% to $571.6 million, EBITDA grew 36.6% to $34.8 million, and profit
climbed 43.7% to $20.1 million.
Organic and Acquisition-Based Growth
Our strong sales growth reflects a $102.2 million increase in sales as a result of a combination
of organic growth related to increased residential and commercial market sales, higher sales of
import products, and favorable foreign exchange influences, partially offset by lower average
prices for hardwood lumber products. The balance of our sales growth was acquisition driven
and reflects a full year of operations from the HMI business we acquired on April 28, 2014.
Market Conditions
The US residential market continued its gradual recovery in 2015, with housing starts increasing
10.4% to 1,107,000 based on information from the US Census Bureau. Canadian housing starts
were flat in 2015 according to the Canada Mortgage and Housing Corporation.
The US non-residential or "commercial" construction market strengthened by 8.9% in 2015
according to the American Institute of Architects. This growth was supported by improving
economic conditions in a number of regional markets.
Product pricing was generally weaker in 2015 than in 2014 according to the Hardwood Review
Express, with average prices for hardwood lumber declining by approximately 17% compared
to 2014. Panel pricing remained generally stable year-over-year.
Hardwoods Distribution Inc. | 2015 | Annual Report
8
Our business continued to benefit from a stronger US dollar relative to the Canadian dollar as
the US dollar strengthened from $1.16 at the start of the year to $1.38 at year end. A stronger
US dollar benefits us by: i) increasing the value of sales and profits earned in our US operations
when translated into Canadian dollars for financial reporting purposes; ii) increasing the selling
price of US dollar-denominated products sold to our Canadian customers; and iii) improving
the export competitiveness of our Canadian industrial customers.
Profitability and Efficient Operations
Our gross profit margin remained relatively stable at 17.4% in 2015, up from 17.3% in 2014.
We consider a profit margin in this range to be sustainable based on recent product pricing,
competition levels and our current revenue mix.
Operating expenses increased year-over-year as we supported growth in our business, however
as a percentage of sales, operating expenses improved to 11.8% in 2015 from 12.2% last year,
reflecting the efficiency of our business model. Bad debt for the 2015 year was 0.3% of sales,
below our long-term average of 0.5%. EBITDA as a percentage of sales increased to 6.1%,
from 5.6%, a strong performance for our business.
Balance Sheet
Cash from operating activities increased by $8.3 million year-over-year, primarily due to higher
EBITDA and efficient management of working capital. The increased cash flow enabled us to
internally finance our 2015 organic growth, while also funding dividends and reducing debt.
As at December 31, 2015, our net debt-to-EBITDA ratio was a conservative 0.8 times, our debt-
to-capital ratio was just 16.8% and we had $60.8 million of unused borrowing capacity.
Hardwoods Distribution Inc. | 2015 | Annual Report
9
1.2 Strategy
Our strategy remains focused in two areas.
Leverage Imports
Import products continue to be a major growth engine for Hardwoods. We have built a strong
competitive advantage by working directly with overseas manufacturers to create high-quality,
proprietary products that provide a strong value offering to our customers.
During 2015, we continued to leverage this program, increasing our product offering and
expanding our supply lines in Africa, Southeast Asia, Russia and parts of Europe. Sales of import
products currently represent approximately 30% of our total sales.
Strengthen Commercial
Our “strengthen commercial” strategy focuses on expanding our base of customers in the
commercial and institutional sectors as we work to balance our exposure to residential
construction. Currently comprising about 20% of our sales we continue to view the commercial
market as a significant opportunity for the Company and we intend to become a more significant
participant. During 2015 we continued to grow our supply of first-tier quality product supply
for commercial customers and capitalized on our import capabilities to offer both domestic and
off-shore product solutions to the commercial sector. We also continued to expand our sales
capabilities with training and other initiatives focused on the commercial market.
1.3 Outlook
Job growth and income levels are gaining momentum in the US and are expected to help propel
the continuing recovery in the US residential construction market in 2016 and beyond. Home
improvement spending is also projected to pick up pace as housing markets continue their
gradual recovery. In addition, forecasts from the American Institute of Architects predict overall
growth of 8.2% for the US non-residential building segment in 2016, with the strongest gains
anticipated in the commercial sector, which includes office buildings, hotels and retail.
With approximately 75% of our business in the US and approximately 60% of our products
going into the residential construction market and 20% into the commercial market, we are well
positioned to capitalize on the US market growth.
Hardwoods Distribution Inc. | 2015 | Annual Report
10
The outlook for the Canadian market remains neutral, with 2016 housing starts expected to
remain consistent with 2015 levels and commercial construction expected to remain in line with
inflation.
Industry forecasts predict overall hardwood lumber prices will generally remain soft through
the balance of 2016 as increased supply works its way through the market and demand from
export markets remains less predictable. Prices for hardwood plywood are expected to remain
steady and prices for some composite panel products are expected to decrease modestly.
Our focus in 2016 will be on continuing to expand our share of the US residential and commercial
construction markets. Our priorities will be to build on our “leverage imports” and “strengthen
commercial” strategies, while pursuing well-priced, acquisition opportunities that support our
objectives.
The Board will continue to review our financial performance and assess dividends on a regular
basis. However in terms of cash utilization our primary focus in 2016 will remain on retaining
the financial flexibility to finance the market growth opportunity in the US and to keep our
balance sheet strong to support strategic acquisitions.
Hardwoods Distribution Inc. | 2015 | Annual Report
11
2.0 Background
2.1 Company Overview
Hardwoods Distribution Inc. is a publicly traded company that holds, indirectly, a 100%
ownership interest in Hardwoods Specialty Products LP and Hardwoods Specialty Products US
LP (collectively, “Hardwoods” or the “Business”). Hardwoods Distribution Inc. is listed on the
Toronto Stock Exchange and trades under the symbol HWD.
2.2 Business and Industry Overview
Serving customers for over 50 years, Hardwoods is one of North America’s largest distributors
of high-grade hardwood lumber and specialty sheet goods to the cabinet, moulding, millwork,
furniture and specialty wood products industries. As at March 11, 2016 we operated 33 facilities
located in 17 states and 5 provinces throughout North America. Five of these facilities include
light manufacturing capabilities which enable us to create custom moulding and millwork
packages for our customers; and one facility, HMI is a fully integrated producer and exporter
of high-quality, value-added hardwood lumber. To maximize inventory management, we utilize
a hub-and-spoke distribution system. Our major hub distribution centres hold the bulk of our
inventory and we make regular truck transfers to replenish stock in surrounding satellite
distribution centres located in smaller markets.
Approximately 52% of our 2015 sales were made up of hardwood plywood and non-structural
sheet goods such as medium-density fiberboard, particleboard and melamine-coated stock.
Approximately 38% of our sales were of high-grade hardwood lumber. Our sheet goods and
lumber are complementary product lines; customers typically use both of these key products in
the manufacture of their own end-use products. The balance of our product sales, about 10%,
was made up of other specialty products.
Our primary role in the industry is to provide the critical link between mills that manufacture
large volumes of hardwood lumber and sheet goods, and industrial customers that require smaller
quantities of many different hardwood products for their own manufacturing processes. We
provide a means for hundreds of hardwood mills to get their product to thousands of small-to-
mid-sized industrial manufacturers. We add value to our suppliers by buying their product in
volume and paying them promptly, effectively acting as their third-party sales force. We add
value for our customers by providing them with the materials they need on a just-in-time basis,
Hardwoods Distribution Inc. | 2015 | Annual Report
12
remanufacturing materials to customer specifications when required, selling in smaller
quantities, and offering a wider range of product selection than the customer would be able to
purchase directly from an individual mill. We also provide an important source of financing
for our customers by allowing them to buy material from us on approved credit.
Our customer base manufactures a range of end-use products, such as cabinetry, furniture and
custom millwork. These products, in turn, are sold into multiple sectors of the economy,
including new home construction, renovation, non-residential construction and institutional
markets. As a result of this diversity, it is difficult to determine with certainty what proportion
of our products end up in each sector of the economy. We estimate about 60% of our products
are used in new residential construction, in the form of cabinets, mouldings, custom finishing,
and home furniture. We believe the balance of our products ends up in other sectors of the
economy not associated with new residential construction, such as home renovations, finishing
millwork for office buildings, recreational vehicles, restaurant and bar interiors, hotel lobbies,
retail point-of-purchase displays, schools, hospitals, custom motor coaches, yacht interiors and
other specialty areas.
The majority of the hardwood lumber distributed in North America is harvested from North
American hardwood forests, located principally in the Eastern United States, and is milled by
hundreds of small mills. Imported hardwood lumber is largely limited to specialty species that
generally do not compete with domestic hardwood lumber. Sheet goods are generally produced
in North America by large manufacturers using domestic hardwoods and other materials,
although imported hardwood plywood volumes have been increasing. Both domestic and
imported hardwood lumber and plywood are distributed principally by third parties such as us.
Hardwoods Distribution Inc. | 2015 | Annual Report
13
3.0 Results of Operations
3.1 Years Ended December 31, 2015 and December 31, 2014
Selected Unaudited Consolidated Financial Information (in thousands of Canadian dollars)
For the year
For the year
ended December 31
ended December 31
$ Increase % Increase
Total sales
Sales in the US (US$)
Sales in Canada
Gross profit
Gross profit %
Operating expenses
Profit from operating activities
Add: Depreciation and amortization
Earnings before interest, taxes, depreciation and
amortization ("EBITDA")
Add (deduct):
Depreciation and amortization
Net finance income (expense)
Income tax expense
Profit for the period
Basic profit per share
Diluted profit per share
$
$
$
$
$
Average Canadian dollar exchange rate for one US dollar $
Sales
$
2015
571,598
355,724
116,805
99,633
17.4%
(67,422)
32,211
2,593
2014
(Decrease)
(Decrease)
455,694
318,089
104,334
78,767
17.3%
(55,427)
23,340
2,138
$ 115,904
37,635
12,471
20,866
11,995
8,871
455
25.4 %
11.8 %
12.0 %
26.5 %
21.6 %
38.0 %
21.3 %
34,804
$
25,478
$
9,326
36.6 %
(2,593)
143
(12,208)
20,146
1.21
1.20
1.28
$
$
$
$
(2,138)
(381)
(8,944)
14,015
0.85
0.84
1.10
(455)
524
(3,264)
$
6,131
43.7 %
For the year ended December 31, 2015, total sales increased 25.4% to $571.6 million, from
$455.7 million in 2014. Of the $115.9 million year-over-year increase, $51.9 million was due
to stronger underlying sales and $64.0 million reflects the positive impact of a stronger US
dollar when translating our US sales to Canadian dollars for reporting purposes.
Sales from our US operations, which comprise approximately three quarters of our revenues,
increased by US$37.6 million, or 11.8%, to US$355.7 million, from US$318.1 million in 2014.
Organic growth accounted for US$26.9 million of the US sales uplift as we increased sales
volumes in response to higher demand and yielded sales gains from our efforts to leverage
import products and strengthen our sales into commercial construction accounts. HMI, acquired
on April 28, 2014, contributed US$10.7 million.
Sales in Canada, which comprise approximately one quarter of our revenues, increased by $12.5
million, or 12.0%, year-over-year. The increase in Canadian sales reflects our success in winning
new business, as well as the positive impacts of a stronger US dollar as described in Section
1.1.
Hardwoods Distribution Inc. | 2015 | Annual Report
14
Gross Profit
Gross profit for the year ended December 31, 2015 increased 26.5% to $99.6 million, from
$78.8 million in 2014. This $20.9 million improvement reflects the higher sales for the year,
together with a slightly higher gross profit margin. As a percentage of sales, gross profit margin
increased to 17.4% in 2015, from 17.3% in 2014.
Operating Expenses
For the year ended December 31, 2015 operating expenses increased to $67.4 million, from
$55.4 million in 2014. The $12.0 million increase primarily reflects $7.3 million of higher
expense due to the impact of a stronger US dollar on translation of US operating expenses, $4.1
million of added costs to support our organic growth and $0.6 million in incremental costs from
the acquired HMI business. As a percentage of sales, operating expenses improved to 11.8%
from 12.2% in 2014.
EBITDA
EBITDA grew 36.6% to $34.8 million in 2015, an increase of $9.3 million from $25.5 million
in 2014. The significant growth in EBITDA reflects the $20.9 million increase in gross profit,
partially offset by the $11.5 million increase in operating expenses before depreciation and
amortization.
Hardwoods Distribution Inc. | 2015 | Annual Report
15
Net Finance Income (Cost)
(in thousands of Canadian dollars)
For the year
ended
December 31
2015
For the year
ended
December 31
2,014
$ Increase
(Decrease)
Finance expense:
Interest on bank indebtedness
Accretion of finance lease obligation
Total finance expense
Finance income:
Interest on trade receivables, customer
notes, and employee loans
Foreign exchange gain
Total finance income
$
(1,217) $
(116)
—
(1,333)
(1,189) $
(110)
(1,299)
421
1,055
1,476
389
529
918
Net finance income (expense)
$
143
$
(381) $
(28)
(6)
(34)
32
526
558
524
For the year ended December 31, 2015, net finance income was $0.1 million, compared to a
net finance cost of $0.4 million in 2014. The year-over-year improvement primarily reflects the
impact of changes in the Canadian/US dollar exchange rate on translation for reporting purposes
of intercompany debt held by subsidiaries of the Company.
Income Tax Expense
Income tax expense increased to $12.2 million for the year ended December 31, 2015, from
$8.9 million in 2014. This increase primarily reflects higher taxable income.
Profit for the Period
Profit for the year ended December 31, 2015 increased 43.7% to $20.1 million, from $14.0
million in 2014. The $6.1 million increase reflects the $9.3 million increase in EBITDA and
the $0.5 million increase in net finance income, partially offset by the $3.3 million increase in
income tax expense, and a $0.5 million increase in depreciation and amortization.
Hardwoods Distribution Inc. | 2015 | Annual Report
16
3.2 Three-Month Periods Ended December 31, 2015 and December 31,
2014
Selected Unaudited Consolidated Financial Information (in thousands of Canadian dollars)
Three months
Three months
ended December 31
ended December 31
$ Increase % Increase
2015
2014
(Decrease)
(Decrease)
$
141,017
$
114,324
$
26,693
84,384
28,058
24,988
17.7%
(18,039)
6,949
702
78,872
24,716
19,087
16.7%
(14,452)
4,635
603
5,512
3,342
5,901
3,587
2,314
99
23.3 %
7.0 %
13.5 %
30.9 %
24.8 %
49.9 %
16.4 %
$
$
$
$
7,651
$
5,238
$
2,413
46.1 %
(702)
83
(2,571)
4,461
0.27
0.27
1.34
$
$
$
$
(603)
(39)
(1,788)
2,808
0.17
0.14
1.14
(99)
122
(783)
$
1,653
58.9 %
Total sales
Sales in the US (US$)
Sales in Canada
Gross profit
Gross profit %
Operating expenses
Profit from operating activities
Add: Depreciation and amortization
Earnings before interest, taxes, depreciation and
amortization ("EBITDA")
Add (deduct):
Depreciation and amortization
Net finance income (expense)
Income tax expense
Profit for the period
Basic profit per share
Diluted profit per share
Average Canadian dollar exchange rate for one US dollar $
Sales
For the three months ended December 31, 2015, total sales increased 23.3% to $141.0 million,
from $114.3 million during the same period in 2014. Of the $26.7 million year-over-year
increase, $9.8 million was due to organic growth in our business and $16.9 million reflects the
positive impact of a stronger US dollar when translating our US sales to Canadian dollars for
reporting purposes.
Sales from our US operations, which comprise approximately three quarters of our revenues,
increased by US$5.5 million, or 7.0%, to US$84.4 million, from US$78.9 million in the same
period in 2014. This growth was entirely organic and reflects our success in winning new
business. Sales in Canada, which comprise approximately one quarter of our revenues, increased
by $3.3 million, or 13.5%, year-over-year. The increase in Canadian sales reflects organic
growth and overall higher product prices in Canada resulting from the stronger US dollar, and
other positive foreign exchange impacts as described in Section 1.1.
Hardwoods Distribution Inc. | 2015 | Annual Report
17
Gross Profit
Gross profit for the three months ended December 31, 2015 increased 30.9% to $25.0 million,
from $19.1 million in the fourth quarter of 2014. This $5.9 million improvement reflects the
higher sales for the period, combined with a higher gross profit margin. As a percentage of
sales, fourth quarter gross profit margin increased to 17.7%, from 16.7% last year. Our margin
results are within the range we consider sustainable at this point in the business cycle.
Operating Expenses
Operating expenses increased to $18.0 million in the fourth quarter of 2015, from $14.5 million
during the same period last year. The $3.6 million increase primarily reflects $2.1 million of
higher expense due to the impact of a stronger US dollar on translation of US operating expenses
and $1.5 million of added costs to support growth. As a percentage of sales, operating expenses
remained stable at approximately 12.8% in the fourth quarter of 2015 compared to 12.6% in
the fourth quarter of 2014.
EBITDA
We generated fourth quarter EBITDA of $7.7 million, an increase of $2.4 million, or 46.1%,
from $5.2 million in the same period last year. The increase reflects the $5.9 million increase
in gross profit, partially offset by the $3.5 million increase in operating expenses before
depreciation and amortization.
Hardwoods Distribution Inc. | 2015 | Annual Report
18
Net Finance Income (expense)
(in thousands of Canadian dollars)
Three months
ended
December 31
2015
Three months
ended
December 31
2014
$ Increase
(Decrease)
Finance expense:
Interest on bank indebtedness
Accretion of finance lease obligation
Foreign exchange losses
Total finance expense
Finance income:
Interest on trade receivables, customer
notes, and employee loans
Foreign exchange gain
Total finance income
$
$
(234)
(30)
(264)
$
(314)
(28)
(342)
123
224
348
64
239
303
Net finance income (expense)
$
83
$
(39)
$
80
(2)
78
59
(15)
45
122
Fourth quarter net finance income increased by $0.1 million primarily as a result of lower interest
on bank indebtedness arising from lower debt balances in 2015. There were no significant
changes in the composition of net finance income.
Income Tax Expense
Income tax expense increased to $2.6 million in the fourth quarter of 2015, from $1.8 million
in the same period in 2014. The $0.8 million increase primarily reflects higher taxable income.
Profit for the Period
Profit for the three months ended December 31, 2015 increased 58.9% to $4.5 million, from
$2.8 million during the same period in 2014. The $1.7 million improvement primarily reflects
the $2.4 million increase in EBITDA partially offset by the $0.8 million increase in income tax
expense.
Hardwoods Distribution Inc. | 2015 | Annual Report
19
4.0 Selected Financial Information and Seasonality
4.1 Quarterly Financial Information
(in thousands of dollars)
Q4
2015
Q3
2015
Q2
2015
Q1
2015
Q4
2014
Q3
2014
Q2
2014
Q1
2014
Total sales
Profit
$ 141,017 $ 152,114
143,351 $ 135,116 $ 114,324 $ 121,398 $ 119,038 $ 100,934
4,461
5,963
5,009
4,713
2,808
4,246
3,996
2,965
Basic profit per share
Fully diluted profit per share
0.27
0.27
0.36
0.35
0.30
0.30
0.28
0.28
0.17
0.17
0.26
0.25
0.24
0.24
0.18
0.18
EBITDA
7,651
10,227
9,280
7,646
5,238
7,594
7,543
5,103
The preceding table provides selected quarterly financial information for our eight most recently
completed fiscal quarters. This information is unaudited, but reflects all adjustments of a normal,
recurring nature which are, in our opinion, necessary to present a fair statement of the results of
operations for the periods presented.
comparisons of our financial results are
not necessarily meaningful and should not be relied upon as an indication of future performance.
Historically, the first and fourth quarters have been seasonally slower periods for our business. In
addition, net earnings reported in each quarter may be impacted by acquisitions, such as our
acquisition of the HMI business in the second quarter of 2014, and by changes in the foreign exchange
rate of the Canadian and US dollars.
4.2 Annual Financial Information
(in thousands of dollars except per unit amounts)
For the year
For the year
For the year
Total sales
Profit
Basic profit per share
Fully diluted profit per share
Total assets
Total non-current financial liabilities
EBITDA
Dividends per share
ended December
31
ended December
31
ended December
31
2015
2014
$
571,598 $
455,694
20,146
14,015
1.21
1.20
0.85
0.84
2013
371,215
13,067
0.80
0.79
190,004
160,813
128,264
696
34,804
4,120
25,478
$
0.21 $
0.18 $
828
21,368
0.14
Hardwoods Distribution Inc. | 2015 | Annual Report
20
5.0 Liquidity and Capital Resources
5.1 Cash Flows from Operating, Investing and Financing Activities
Selected Unaudited Consolidated Financial Information (in thousands of Canadian dollars)
Years ended December 31
Three months ended December 31
2015
2014
$ change
2015
2014
$ change
Cash provided by operating activities before
changes in non-cash working capital
$
26,788 $
19,687 $
7,101
$
6,707 $
3,624 $
Changes in non-cash working capital
(6,044)
(7,232)
Net cash provided by operating activities
20,744
12,455
1,188
8,289
Net cash used in investing activities
(1,352)
(17,175)
15,823
10,688
17,395
(389)
5,460
9,084
(264)
3,083
5,228
8,311
(125)
Net cash provided by (used in) financing
activities
Increase (decrease) in cash
Cash, beginning of period
Cash, end of the period
(19,405)
4,655
(24,060)
(17,006)
(8,823)
(8,183)
(13)
13
(65)
78
52
(65)
—
—
(3)
16
$
— $
13 $
(13) $
— $
13 $
3
(16)
(13)
Net cash used in operating activities
For the year ended December 31, 2015, net cash provided by operating activities was $20.7
million, compared to $12.5 million in 2014. Cash provided by operating activities before changes
in non-cash working capital increased by $7.1 million primarily reflecting an increase in
EBITDA of $9.3 million and a foreign exchange gain of $0.5 million, partially offset by an
increase in income taxes paid of $2.7 million. Investment in non-cash working capital decreased
by $1.2 million in 2015 compared to 2014. An analysis of changes in working capital is provided
in section 5.2 of this report.
For the three months ended December 31, 2015, net cash provided by operating activities
increased to $17.4 million, from $9.1 million in the same period in 2014, an improvement of
$8.3 million. Cash provided by operating activities before changes in non-cash working capital
increased by $3.1 million period-over-period, primarily reflecting an increase in EBITDA of
$2.4 million, a decrease in income taxes paid of $0.4 million, and a change in share based
compensation expense of $0.3 million. Investment in non-cash working capital decreased by
$5.2 million in the fourth quarter of 2015 compared to the fourth quarter of 2014. An analysis
of changes in working capital is provided in section 5.2 of this report.
Hardwoods Distribution Inc. | 2015 | Annual Report
21
Net cash used in investing activities
Net cash used in investing activities decreased by $15.8 million to $1.4 million in 2015, from
$17.2 million in 2014. The decrease primarily relates to the $16.5 million paid on acquisition
of HMI on April 28, 2014.
Capital expenditures in our traditional distribution business have historically been low as we
lease our buildings and typically contract out all freight delivery services. Capital expenditures
in this part of our business are principally for the replacement of forklifts, furniture and fixtures,
leasehold improvements and computer equipment.
Our Paxton business, which includes five branches, requires some additional ongoing investment
in moulders and other light manufacturing equipment. Paxton also buys trailers and leases tractor
units for use in delivery of product to customers, whereas other Hardwoods operations contract
out this freight delivery service to third-party carriers.
Our HMI business requires ongoing investment in machinery and equipment. We anticipate
incurring $0.6 million annually to maintain the productive capacity of the HMI business.
We believe we have made sufficient expenditures to sustain productive capacity of our business
as it relates to our needs for property, plant and equipment.
For the three months ended December 31, 2015 cash used in investing activities increased by
$0.1 million. The increase primarily relates to purchases of equipment.
Net cash provided by financing activities
For the year and three months ended December 31, 2015 net cash from financing activities
decreased $24.1 million and $8.2 million respectively as compared to the same periods in 2014.
There were no significant changes in the composition of cash provided by financing activities,
with changes in the Company’s credit facilities and dividends paid to shareholders being the
main financing activities during the period.
Hardwoods Distribution Inc. | 2015 | Annual Report
22
5.2 Working Capital
Our business requires an ongoing investment in working capital, which we consider to be
comprised of accounts receivable, inventory, and prepaid expenses, partially offset by provisions
and short-term credit provided by suppliers in the form of accounts payable and accrued
liabilities. We had working capital of $149.4 million as at December 31, 2015, compared to
$123.8 million at December 31, 2014. Most of this increase is attributable to increased
investment in accounts receivable and inventory to support sales growth and the impact of a
strengthening US dollar when translating the working capital of our US operations.
Our investment in working capital fluctuates from quarter-to-quarter based on factors such as
seasonal sales demand, strategic purchasing decisions taken by management, and the timing of
collections from customers and payments made to our suppliers. Historically the first and fourth
quarters are seasonally slower periods for construction activity, resulting in reduced demand
for hardwood products. As a result, sales and working capital requirements may be lower in
these quarters. A summary of changes in our non-cash operating working capital during the
twelve and three months ended December 31, 2015 and 2014 is provided below.
(in thousands of Canadian dollars)
Source (use) of funds
2015
2014
2015
2014
Years ended
ended
December 31
Years ended
ended
December 31
Three months
ended
December 31
Three months
ended
December 31
Accounts receivable
Inventory
Prepaid expenses
Accounts payable, accrued liabilities and provisions
$
(2,930)
$
3,257
$
(4,499)
39
1,346
(11,783)
(255)
1,549
$
9,242
3,775
282
(2,612)
7,784
(1,780)
329
(873)
Increase in non-cash operating working capital
$
(6,044)
$
(7,232)
$
10,688
$
5,460
Continued compliance with financial covenants under our credit facilities is important to ensure
that we have adequate financing available to meet our working capital requirements. The terms
of our revolving credit facilities are addressed in section 5.3 of this report.
Hardwoods Distribution Inc. | 2015 | Annual Report
23
5.3 Revolving Credit Facilities and Debt Management Strategy
Selected Unaudited Consolidated Financial Information (in thousands of dollars)
Cash
Bank indebtedness
Net Debt
Shareholders' equity
Total Capitalization
Net debt to total capitalization
Previous 12 months EBITDA
Net debt to previous 12 months EBITDA
As at
As at
December 31, 2015
December 31, 2014
$
$
$
—
28,894
28,894
142,948
171,842
16.8%
34,804
0.8
$
$
$
(13)
38,742
38,729
108,489
147,218
26.3%
25,478
1.5
We consider our capital to be bank indebtedness (net of cash) and shareholders’ equity. As
shown above, our net debt balance decreased by $9.8 million to $28.9 million at December 31,
2015, from $38.7 million at December 31, 2014. The decrease in net debt reflects an increase
in cash provided by operating activities. Overall net debt compared to total capitalization stood
at 16.8% as at December 31, 2015, compared to 26.3% at December 31, 2014. At December 31,
2015 our ratio of net debt-to-EBITDA for the previous 12 months was 0.8 times, compared to
1.5 times at December 31, 2014. Net debt-to-EBITDA and net debt to total capitalization serve
as indicators of our financial leverage, however they are not measures prescribed by IFRS and
our method of calculating these measures may differ from methods used by other issuers.
We have independent credit facilities in both Canada and the U.S. These facilities may be drawn
down to meet short-term financing requirements such as fluctuations in non-cash working
capital, and in the case of the Canadian credit facility, to also make capital contributions to our
US operating subsidiary. The amount made available under our Canadian and US revolving
credit facilities is, from time-to-time, limited to the extent of the value of certain accounts
receivable and inventories held by subsidiaries of the Company. Credit facilities also require
ongoing compliance with certain credit ratios. A summary of our credit facilities as at
December 31, 2015 is provided in the following table.
Hardwoods Distribution Inc. | 2015 | Annual Report
24
Selected unaudited consolidated financial information (in thousands of dollars)
Maximum borrowings under the credit
facility
Credit facility expiry date
Available to borrow
Credit facility borrowings
Unused credit facility
Financial covenants:
Canadian Credit
Facility
US Credit
Facility
$
$
$
$
15.0 million
August 7, 2016
15.0 million
5.3 million
9.7 million
Covenant does not apply
when the unused credit
facility available exceeds
$2.0 million, which it did at
December 31, 2015
$
$
$
$
103.8 million (US$75.0 million)
April 27, 2017
71.5 million (US$51.6 million)
20.4 million (US$14.7 million)
51.1 million (US$36.9 million)
Covenant does not apply when the unused
credit facility available exceeds US$7.5
million, which it did at December 31, 2015
In the second quarter of 2014, we amended our US credit facility to extend its term to April
27, 2017 and to increase the maximum borrowings available under the credit facility. The revised
credit facility was comprised of US$75.0 million available under revolving credit facilities and
US$4.1 million under a term loan that would have matured on April 27, 2017, with monthly
payments based on a five-year amortization. During the quarter ended September 30, 2015 we
settled the term loan in full thus the credit facility as at December 31, 2015 is comprised of US
$75 million available under revolving credit facilities. At December 31, 2015 we had total
borrowing capacity of $60.8 million.
The terms of the agreements with our lenders provide that dividends cannot be made to our
shareholders in the event that our subsidiaries are not compliant with their financial covenants.
Our operating subsidiaries were compliant with all required credit ratios as at December 31,
2015. Accordingly there were no restrictions on dividends arising from non-compliance with
financial covenants.
Our debt management strategy is to roll and renew (as opposed to repay and retire) our revolving
credit facilities in Canada and the US when they expire in August 2016 and April 2017,
respectively. We do not intend to restrict future dividends in order to fully extinguish our bank
debt obligations upon their maturity. The amount of bank debt that will actually be drawn on
our available revolving credit facilities will depend upon the seasonal and cyclical needs of the
business, and our cash generating capacity going forward. When making future dividend
decisions, we will consider the amount of financial leverage, and therefore bank debt, we believe
is appropriate given existing and expected market conditions and available business
Hardwoods Distribution Inc. | 2015 | Annual Report
25
opportunities. We do not target a specific financial leverage amount. We believe our current
credit facilities are sufficient to finance our working capital needs and market expansion strategy.
5.4 Contractual Obligations
The table below sets forth our contractual obligations as at December 31, 2015. These obligations
relate to leases on various premises and automobiles and become due in the fiscal years indicated.
(in thousands of dollars)
2016
$8,209
2017
$5,387
2018
$4,377
2019
$3,606
2020
$2,581
thereafter
Total
$9,468
$33,628
5.5 Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
5.6 Financial Instruments
Financial assets include cash and current and non-current receivables, which are measured at
amortized cost. Financial liabilities include bank indebtedness, accounts payable and accrued
liabilities, income taxes payable, dividend payable and finance lease obligations which are
measured at amortized cost. The carrying values of our cash, current accounts receivable, income
taxes payable, accounts payable and accrued liabilities, and dividend payable approximate their
fair values due to the relatively short period to maturity of the instruments. The fair value of
non-current receivables and finance lease obligations are not expected to differ materially from
carrying value given the interest rates being charged and term to maturity. The carrying values
of the credit facilities approximate their fair values due to the existence of floating market-based
interest rates.
5.7 Share Data
As at March 11, 2016, the date of this MD&A, we had 16,762,071 common shares issued and
outstanding. In addition, at March 11, 2016, we had outstanding 49,209 performance shares
and 86,827 restricted shares under the terms of our long-term incentive plan. The performance
and restricted shares can be settled in common shares of the Company issued from treasury,
common shares purchased by the Company in the market, or in an amount of cash equal to the
fair value of our common shares, or any combination of the foregoing. The restricted and
Hardwoods Distribution Inc. | 2015 | Annual Report
26
performance shares vest over periods of up to three years and we intend to issue common shares
from treasury to settle these obligations as they vest.
5.8 Dividends
In the fourth quarter of 2015, we declared a quarterly dividend of $0.055 per share, which was
paid on January 29, 2016 to shareholders of record as at January 19, 2016. On March 11, 2016
we declared a quarterly dividend of $0.055 per share, payable on April 29, 2016 to shareholders
of record as at April 19, 2016. The Board regularly assesses our dividend strategy, giving due
consideration to anticipated cash needs for additional working capital to support growing the
business, appropriate debt levels, acquisition opportunities which may be available, expected
market conditions, demand for our products, and other factors.
6.0 Related Party Transactions
There were no material related party transactions in the three and twelve months ended
December 31, 2015 or in the comparative periods in the prior year.
7.0 Critical Accounting Estimates & Adoption of Changes in
Accounting Policies
7.1 Critical Accounting Estimates
The preparation of financial statements in accordance with IFRS requires that we make estimates
and assumptions that can have a material impact on our results of operations as reported on a
periodic basis. We base our estimates and assumptions on past experience and other factors
that are deemed reasonable under the circumstances. Actual results could differ from these
estimates. The critical estimates used in preparing our financial statements are:
Accounts receivable provision: Due to the nature of our business and the credit terms we provide
to our customers, we anticipate that a certain portion of required customer payments will not
be made, and we maintain an allowance for these doubtful accounts. The allowance is based
on our estimate of the potential of recovering our accounts receivable, and incorporates current
and expected collection trends.
Deferred income taxes: We are required to make estimates and assumptions regarding future
business results, as well as the amount and timing of certain future discretionary tax deductions
Hardwoods Distribution Inc. | 2015 | Annual Report
27
available to us. These estimates and assumptions can have a material impact upon the amount
of deferred income tax assets and liabilities that we recognize.
Valuation of inventory: We are required to make estimates and assumptions regarding the net
realizable value of our inventory. The estimates and assumptions may have a material impact
on the values at which we recognize inventory.
7.2 Adoption of New Accounting Policies
There were no new standards effective January 1, 2015 that have an impact on our consolidated
financial statements.
A number of new standards, amendments to standards and interpretations, are not yet effective
for the year ended December 31, 2015, and have not been applied in preparing these consolidated
financial statements. We consider the following pronouncements to be the most significant of
several pronouncements that may affect the consolidated financial statements in future periods.
IFRS 9, Financial Instruments (“IFRS 9”)
IFRS 9 will replace the multiple classification and measurement models in IAS 39 Financial
Instruments: Recognition and Measurement, with a single model that has only two classification
categories: amortized cost and fair value. The new standard also requires a single impairment
method to be used, provides additional guidance on the classification and measurement of
financial liabilities, and provides a new general hedge accounting standard.
The mandatory effective date has been set for January 1, 2018, however early adoption of the
new standard is permitted. We do not intend to early adopt IFRS 9. The adoption of IFRS 9 is
currently not expected to have a material impact on our consolidated financial statements given
the nature of our operations and the types of financial instruments that we currently hold;
however, we will continue to assess the extent of impact as the mandatory adoption date
approaches.
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
IFRS 15 is effective for fiscal years commencing on or after January 1, 2018 and will replace
IAS 18, Revenue and a number of revenue related standards and interpretations. IFRS 15
contains a single model that applies to contracts with customers and two approaches to
recognizing revenue: at a point in time or over time. The model features a contract-based five-
Hardwoods Distribution Inc. | 2015 | Annual Report
28
step analysis of transactions to determine whether, how much and when revenue is recognized.
New estimates and judgmental thresholds have also been introduced, which may affect the
amount and/or timing of revenue recognized.
We intend to adopt IFRS 15 in our consolidated financial statements for the annual period
beginning on January 1, 2018. We are assessing the impact of this new standard, but do not
expect the amendments to have a material impact on our consolidated financial statements
Amendments to IAS 1, Presentation of Financial Statements (“IAS 1”)
On December 18, 2014, the IASB issued amendments to IAS 1 as part of its major initiative to
improve presentation and disclosure in financial reports. The amendments are effective for
annual periods beginning on or after January 1, 2016 with early adoption permitted. We intends
to adopt these amendments in our consolidated financial statements for the annual period
beginning on January 1, 2016. The impact of the adoption of this amendment is not expected
to have a significant impact on the consolidated financial statements.
IFRS 16, Leases ("IAS 16")
On January 13, 2016, the IASB published a new standard, IFRS 16, Leases, eliminating the
current dual accounting model for lessees, which distinguishes between on-balance sheet finance
leases and off-balance sheet operating leases. Under the new standard, a lease becomes an on-
balance sheet liability that attracts interest, together with a new right-of-use asset. In addition,
lessees will recognize a front-loaded pattern of expense for most leases, even when cash rentals
are constant. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with
earlier adoption permitted. We are assessing the impact of this new standard and the impact of
adopting this standard has not yet been determined.
8.0 Risks and Uncertainties
We are exposed to a number of risks and uncertainties in the normal course of business that
could have a negative effect on our financial condition or results of operations. We identify
significant risks that we were aware of in our Annual Information Form which is available to
readers along with other disclosure documents at www.sedar.com.
Hardwoods Distribution Inc. | 2015 | Annual Report
29
9.0 Disclosure Controls and Procedures and Internal Control over
Financial Reporting
Our management, under the supervision of our Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”), is responsible for establishing and maintaining adequate disclosure
controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”). Any
systems of DC&P and ICFR, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with
respect to information required to be disclosed and financial statement preparation and
presentation.
As required by Multilateral Instrument 52-109 issued by the Canadian Securities Administrators,
we carried out an evaluation of the effectiveness of our DC&P as of December 31, 2015. The
evaluation was carried out under the supervision of, and with the participation of, the CEO and
CFO. Based on this evaluation, our CEO and CFO concluded that our DC&P were effective
as of December 31, 2015.
As required by Multilateral Instrument 52-109 issued by the Canadian Securities Administrators,
we carried out an evaluation of the effectiveness of our ICFR as of December 31, 2015. The
evaluation was carried out within the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated
Framework (2013) (the "2013 COSO framework") and under the supervision of, and with the
participation of, our CEO and the CFO. Based on this evaluation, our CEO and CFO concluded
that our ICFR were effective as of December 31, 2015.
There have not been any changes in our ICFR during the quarter ended December 31, 2015 that
have materially affected, or are reasonably likely to materially affect, our ICFR.
Hardwoods Distribution Inc. | 2015 | Annual Report
30
10.0 Note Regarding Forward Looking Information
Certain statements in this MD&A contain forward-looking information within the meaning of
applicable securities laws in Canada (“forward-looking information”). The words “anticipates”,
“believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “intends”, “may”, “might”,
“plans”, “projects”, “schedule”, “should”, “will”, “would” and similar expressions are often
intended to identify forward-looking information, although not all forward-looking information
contains these identifying words.
The forward-looking information in this MD&A includes, but is not limited to: We estimate
that approximately 60% of the products we sell to our manufacturing customers end up in new
residential construction, 20% in the commercial/institutional construction sector, and 20% in
renovation/remodeling and other markets; US housing starts remain well below the 1.5 million
level considered sustainable for the industry; most forecasters predict a continued multi-year
strengthening trend for the US residential construction market; we see significant growth
potential ahead with respect to the commercial market; we consider a profit margin in the current
range to be sustainable based on recent product pricing, competition levels and our current
revenue mix; we intend to become a more significant participant in the commercial market; job
growth and income levels are gaining momentum in the US and are expected to help propel the
continuing recovery in the US residential construction market in 2016 and beyond; home
improvement spending is also projected to pick up pace as housing markets continue their
gradual recovery; forecasts predict overall growth of 8.2% for the US non-residential building
segment in 2016, with the strongest gains anticipated in the commercial sector, which includes
office buildings, hotels and retail; the outlook for the Canadian market remains neutral, with
2016 housing starts expected to remain consistent with 2015 levels and commercial construction
expected to remain in line with inflation; forecasts predict overall hardwood lumber prices will
generally remain soft through the balance of 2016 as increased supply works its way through
the market and demand from export markets remains less predictable; prices for hardwood
plywood are expected to remain steady and prices for some composite panel products are
expected to decrease modestly;
comparisons of our financial results are not
necessarily meaningful and should not be relied upon as an indication of future performance;
historically, the first and fourth quarters have been seasonally slower periods for our business;
we anticipate that additional annual capital expenditure requirements of approximately $0.6
million will be required to maintain the productive capacity of the HMI business; our investment
in working capital fluctuates from quarter-to-quarter based on factors such as seasonal sales
Hardwoods Distribution Inc. | 2015 | Annual Report
31
demand, strategic purchasing decisions taken by management, and the timing of collections
from customers and payments made to our suppliers; historically the first and fourth quarters
are seasonally slower periods for construction activity, resulting in reduced demand for
hardwood products potentially lower levels of sales and working capital requirements in these
quarters; we do not intend to restrict future dividends in order to fully extinguish our bank debt
obligations upon their maturity; the amount of bank debt that will actually be drawn on our
available revolving credit facilities will depend upon the seasonal and cyclical needs of the
business, and our cash generating capacity going forward; we believe our current credit facilities
are sufficient to finance our working capital needs and market expansion strategy; due to the
nature of our business and the credit terms we provide to our customers, we anticipate that a
certain portion of required customer payments will not be made; we are required to make
estimates and assumptions regarding future business results, as well as the amount and timing
of certain future discretionary tax deductions available to us; and we are required to make
estimates and assumptions regarding the net realizable value of our inventory.
The forecasts and projections that make up the forward-looking information are based on
assumptions which include, but are not limited to: there are no material exchange rate fluctuations
between the Canadian and US dollar that affect our performance; the general state of the economy
does not worsen; we do not lose any key personnel; there are no decreases in the supply of,
demand for, or market values of hardwood lumber or sheet goods that harm our business; we
do not incur material losses related to credit provided to our customers; our products are not
subjected to negative trade outcomes; we are able to sustain our level of sales and EBITDA
margins; we are able to grow our business long term and to manage our growth; there is no new
competition in our markets that leads to reduced revenues and profitability; we do not become
subject to more stringent regulations; we do not become subject to product liability claims that
could adversely affect our revenues, profitability and reputation; importation of products
manufactured with hardwood lumber or sheet goods does not increase and replace products
manufactured in North America; our management information systems upon which we are
dependent are not impaired; our insurance is sufficient to cover losses that may occur as a result
of our operations; and, the financial condition and results of operations of our business upon
which we are dependent is not impaired.
The forward-looking information is subject to risks, uncertainties and other factors that could
cause actual results to differ materially from historical results or results anticipated by the
forward-looking information. The factors which could cause results to differ from current
Hardwoods Distribution Inc. | 2015 | Annual Report
32
expectations include, but are not limited to: exchange rate fluctuations between the Canadian
and US dollar could affect our performance; our results are dependent upon the general state of
the economy; we depend on key personnel, the loss of which could harm our business; decreases
in the supply of, demand for, or market values of hardwood lumber or sheet goods could harm
our business; we may incur losses related to credit provided to our customers; our products may
be subject to negative trade outcomes; we may not be able to sustain our level of sales or EBITDA
margins; we may be unable to grow our business long term to manage any growth; competition
in our markets may lead to reduced revenues and profitability; we may become subject to more
stringent regulations; we may be subject to product liability claims that could adversely affect
our revenues, profitability and reputation; importation of products manufactured with hardwood
lumber or sheet goods may increase, and replace products manufactured in North America; we
are dependent upon our management information systems; our insurance may be insufficient
to cover losses that may occur as a result of our operations; we are dependent upon the financial
condition and results of operations of our business; our credit facilities affect our liquidity,
contain restrictions on our ability to borrow funds, and impose restrictions on distributions that
can be made by our operating limited partnerships; our future growth may be restricted by the
payout of substantially all of our operating cash flow; and, other risks described in our Annual
Information Form our Information Circular and in this MD&A.
All forward-looking information in this MD&A is qualified in its entirety by this cautionary
statement and, except as may be required by law, we undertake no obligation to revise or update
any forward-looking information as a result of new information, future events or otherwise after
the date hereof.
Hardwoods Distribution Inc. | 2015 | Annual Report
33
Management’s Statement of Responsibilities
The accompanying consolidated financial statements are the responsibility of management and
have been reviewed and approved by the Boards of Directors. The consolidated financial
statements have been prepared by management, in accordance with International Financial
Reporting Standards and, where appropriate, reflect management’s best estimates and
judgments. Management has also prepared financial and all other information in the annual
report and has ensured that this information is consistent with the consolidated financial
statements.
The Company maintains appropriate systems of internal control, policies and procedure, which
provide management with reasonable assurance that assets are safeguarded and the financial
records are reliable and form a proper basis for preparation of financial statements.
The Boards of Directors ensure that management fulfills its responsibilities for financial
reporting and internal control through an Audit Committee. This committee reviews the
consolidated financial statements and is comprised of independent Directors. The auditors have
full and direct access to the Audit Committee.
The consolidated financial statements have been independently audited by KPMG LLP, in
accordance with Canadian generally accepted auditing standards. Their report herewith
expresses their opinion on the consolidated financial statements of the Company.
Robert J. Brown
President and Chief Executive Officer
Hardwoods Distribution Inc. | 2015 | Annual Report
34
Independent auditors’ Report
To the Shareholders of Hardwoods Distribution Inc.
We have audited the accompanying consolidated financial statements of Hardwoods Distribution Inc.,
which comprise the consolidated statements of financial position as at December 31, 2015 and 2014,
the consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows
for the years then ended, and notes, comprising a summary of significant accounting policies and other
explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, we consider internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Hardwoods Distribution Inc. as at December 31, 2015 and 2014, and
its consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards.
KPMG LLP (signed)
Chartered Professional Accountants
March 11, 2016
Vancouver, Canada
Hardwoods Distribution Inc. | 2015 | Annual Report
35
Consolidated Financial Statements
(Expressed in Canadian dollars)
HARDWOODS DISTRIBUTION INC.
Years ended December 31, 2015 and 2014
36
HARDWOODS DISTRIBUTION INC.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
Note
December 31,
2015
December 31,
2014
Assets
Current assets:
Cash
Accounts receivable
Inventories
Prepaid expenses
Total current assets
Non-current assets:
Non-current receivables
Property, plant and equipment
Deferred income taxes
Intangible asset
Total non-current assets
Total assets
Liabilities
Current liabilities:
Bank indebtedness
Accounts payable and accrued liabilities
Income taxes payable
Finance lease obligation
Dividend payable
Total current liabilities
Non-current liabilities:
Bank indebtedness
Finance lease obligation
Total non-current liabilities
Total liabilities
Shareholders’ equity
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive income
Shareholders’ equity
7
8
7
9
13
10
11(a)
5
10
11(a)
12(a)
$
— $
56,156
103,476
2,193
161,825
969
16,200
10,974
36
28,179
13
46,127
85,401
1,951
133,492
1,253
13,764
12,277
27
27,321
$
$
190,004
$
160,813
$
28,894
12,438
2,987
1,119
922
46,360
—
696
696
35,371
9,682
1,383
1,024
744
48,204
3,371
749
4,120
47,056
52,324
46,859
105,547
(33,361)
23,903
142,948
45,830
105,154
(49,999)
7,504
108,489
Total liabilities and shareholders’ equity
$
190,004
$
160,813
Subsequent event (note 5)
Commitments (note 11)
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the board of directors:
(Signed) GRAHAM M. WILSON Director
(Signed) WILLIAM R. SAUDER Director
37
HARDWOODS DISTRIBUTION INC.
Consolidated Statements of Comprehensive Income
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
Note
15
8
$
2015
571,598
(471,965)
$
2014
455,694
(376,927)
99,633
78,767
Sales
Cost of sales
Gross profit
Operating expenses:
Selling and distribution
Administration
Profit from operations
Finance expense
Finance income
Net finance income (expense)
Profit before income taxes
Income tax expense:
Current
Deferred
Profit
14
14
13
13
(52,965)
(14,457)
(67,422)
32,211
(1,333)
1,476
143
(43,441)
(11,986)
(55,427)
23,340
(1,299)
918
(381)
32,354
22,959
(9,732)
(2,476)
(12,208)
20,146
16,399
36,545
1.21
1.20
$
$
$
(7,188)
(1,756)
(8,944)
14,015
5,999
20,014
0.85
0.84
Other comprehensive income:
Exchange differences translating foreign operations
Total comprehensive income
Basic profit per share
Diluted profit per share
12(c)
12(c)
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
38
HARDWOODS DISTRIBUTION INC.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
Note
Share
capital
Contributed
surplus
Accumulated
other
comprehensive
income -
translation
reserve
Deficit
Total
Balance at January 1, 2014
Share based compensation
expense
12 (b)
Share based compensation tax
adjustment
Shares issued pursuant to LTIP 12 (b)
Profit for the year
Dividends declared
Translation of foreign operations
$ 45,298
$ 104,911
$
1,505
$ (61,031) $ 90,683
—
—
532
—
—
—
694
81
(532)
—
—
—
—
—
694
—
—
—
—
5,999
—
—
14,015
(2,983)
—
81
—
14,015
(2,983)
5,999
Balance at December 31, 2014
45,830
105,154
7,504
(49,999)
108,489
Share based compensation
expense
12 (b)
—
1,299
—
—
1,299
Share based compensation tax
adjustment
Shares issued pursuant to LTIP 12 (b)
Profit for the year
Dividends declared
Translation of foreign operations
—
1,029
—
—
—
123
(1,029)
—
—
—
—
—
—
16,399
—
20,146
(3,508)
—
123
—
20,146
(3,508)
16,399
Balance at December 31, 2015
$ 46,859
$ 105,547
$
23,903
$ (33,361) $ 142,948
The accompanying notes are an integral part of these consolidated financial statements.
39
HARDWOODS DISTRIBUTION INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
Note
2015
2014
9
9
12(b)
13
14
Cash flow from operating activities:
Profit for the year
Adjustments for:
Depreciation
Loss (gain) on sale of property, plant
and equipment
Share-based compensation expense
Income tax expense
Net finance expense (income)
Interest received
Interest paid
Income taxes paid
Changes in non-cash working capital:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Net cash provided by operating activities
Cash flow from financing activities:
Increase (decrease) in bank indebtedness
Principle payments on finance lease obligation
Dividends paid to shareholders
Net cash provided by (used in) financing activities
Cash flow from investing activities:
Additions to property, plant and equipment
Proceeds on disposal of
property, plant and equipment
Business acquisition
Payments received on non-current receivables
Net cash used in investing activities
5
4
Decrease in cash
Cash, beginning of year
Cash, end of year
Supplementary information:
Property, plant and equipment acquired
under finance leases, net of disposals
Transfer of accounts receivable to non-current
customer notes receivable, being a
non-cash transaction
$
20,146
$
14,015
2,593
2,138
(29)
1,299
12,208
(143)
421
(1,333)
(8,374)
26,788
(2,930)
(4,499)
39
1,346
(6,044)
20,744
(15,030)
(1,045)
(3,330)
(19,405)
(1,850)
140
—
358
(1,352)
(13)
13
— $
126
694
8,944
381
386
(1,299)
(5,698)
19,687
3,257
(11,783)
(255)
1,549
(7,232)
12,455
8,348
(881)
(2,812)
4,655
(1,507)
100
(16,467)
699
(17,175)
(65)
78
13
860
$
859
192
99
$
$
The accompanying notes are an integral part of these consolidated financial statements.
40
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
1. Nature of operations:
Hardwoods Distribution Inc. (the “Company”) is incorporated under the Canada Business Corporations Act
trading on the Toronto Stock Exchange under the symbol “HWD.” Subsidiaries of the Company operate a
network of 32 distribution centers in Canada and the US engaged in the wholesale distribution of hardwood
lumber and related sheet goods and specialty products. The Company also has a sawmill and kiln drying
operation in Clinton, Michigan (note 4).
The Company's principal office is located at #306, 9440 202nd Street, Langley, British Columbia V1M 4A6.
2. Basis of preparation:
(a) Statement of compliance:
These consolidated financial statements of the Company have been prepared in accordance with
International Financial Accounting Standards (“IFRS”) as issued by the International Accounting Standards
Board. The consolidated financial statements were authorized for issue by the Board of Directors on
March 11, 2016.
(b) Basis of measurement:
These consolidated financial statements have been prepared on the historical cost basis.
(c) 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 the financial statements, with the exception of
per share amounts, has been rounded to the nearest thousand dollar.
(d) Use of estimates and judgment:
The preparation of 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 and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting year. Actual amounts may differ from the estimates applied in the preparation
of these financial statements.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the year in which the estimates are revised and in any future years affected.
Information about significant areas of estimation uncertainty in applying policies that have the most
significant effect on the amounts recognized in the consolidated financial statements is included in the
following notes:
• Note 4 - the estimate of fair value of assets acquired and liabilities assumed and proforma sales and
profitability associated with the Hardwoods of Michigan Inc. (“HMI”) business combination;
• Notes 6 and 7 - the collectability of accounts receivable and the determination of the allowance for
credit loss; and
• Note 8 - the valuation of inventories;
Critical judgments in applying policies that have the most significant effect on the amounts recognized in
the consolidated financial statements are included in the following notes:
• Note 11 - the classification of lease obligations; and
• Note 13 - the valuation of deferred income taxes and utilization of tax loss carry forwards.
41
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
2. Basis of preparation (continued):
(d) Use of estimates and judgment (continued):
In assessing the Company’s vehicle leases judgment is required in determining whether substantially all
of the risks and rewards of ownership are transferred to the Company. This involves assessing the term
of each lease, the risk associated with the residual value of leased vehicles and assessing the present
value of the minimum lease payments in relation to the fair value of the vehicle at the inception of the
lease. For deferred income taxes, judgment is required in determining whether it is probable that the
Company’s net deferred tax assets will be realized prior to their expiry. In making such a determination,
the Company considers the carry forward periods of losses and the Company’s projected future taxable
income.
3. Significant accounting policies:
The significant accounting policies that have been used in the preparation of these consolidated financial
statements are summarized below. These accounting policies have been applied consistently by the Company
and its subsidiaries to all years presented in these consolidated financial statements.
(a) Principles of consolidation:
These consolidated financial statements include the accounts of the Company and its subsidiaries. All
significant inter-company balances and transactions have been eliminated on consolidation.
Wholly owned subsidiaries of the Company are Hardwoods Specialty Products LP, Hardwoods Specialty
Products GP, Hardwoods Specialty Products USLP, Hardwoods Specialty Products USGP, Paxton
Hardwoods LLC, Hardwoods Specialty Products (Washington) Corp., and HMI Hardwoods LLC.
(b) Foreign currencies:
Foreign currency transactions
Foreign currency transactions are translated into the respective functional currencies of the Company, and
its subsidiaries, using the exchange rates prevailing at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies at the reporting date are translated to the functional currency
at the exchange rate in effect at the financial statement date. The foreign currency gain or loss on monetary
items is the difference between the amortized cost in the functional currency at the beginning of the year,
adjusted for effective interest and payments during the year, and the amortized cost in the foreign currency
translated at the exchange rate at the end of the year. Such exchange gains or losses arising from
translation are recognized in profit and loss for the reporting year in net finance costs.
Translation of foreign operations for consolidation
For purposes of consolidation, the assets and liabilities of foreign operations with functional currencies
other than the Canadian dollar are translated to Canadian dollars using the rate of exchange in effect at
the financial statement date. Revenue and expenses of the foreign operations are translated to Canadian
dollars at exchange rates at the date of the transactions. Foreign currency differences resulting from
translation of the accounts of foreign operations are recognized directly in other comprehensive income
and are accumulated in the translation reserve as a separate component of shareholders' equity.
Gains or losses arising from a monetary item receivable from or payable to a foreign operation, the
settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of
the net investment in a foreign operation and are recognized directly in other comprehensive income in
the cumulative amount of foreign currency translation differences.
When a foreign operation is disposed of the amount of the associated translation reserve is fully transferred
to profit or loss.
42
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
3. Significant accounting policies (continued):
(c) Segment reporting:
Operating segments are based on the information about the components of the business that management
uses to make decisions about operating matters. The subsidiaries of the Company engage in one main
business activity being the sourcing and distribution of hardwood lumber and related sheet goods and
specialty products, hence operating segment information is not provided. Geographical segment
information is provided by country of operations in note 15.
(d) Revenue recognition:
Revenue from the sale of hardwood lumber, sheet goods and specialty products is measured by reference
to the fair value of consideration received or receivable by the operating subsidiaries of the Company,
excluding taxes, rebates, and trade discounts. Revenue is recognized when persuasive evidence exists
that the Company has transferred to the buyer the significant risks and rewards of ownership of the goods
supplied, collection of the consideration is probable and the revenue and associated costs can be measured
reliably. Significant risks and rewards are generally considered to be transferred when the customer has
taken undisputed delivery of the goods.
(e) Finance expense and income:
Finance expense is primarily comprised of interest on the Company’s operating lines of credit and the
unwinding of the discount on the Company’s finance lease obligations. Interest on bank indebtedness
and accretion of the lease obligation is expensed using the effective interest method.
Finance income is comprised of interest earned on cash balances, imputed interest income on employee
loans receivable, and interest charged and received or receivable on trade accounts receivable and notes
receivable from customers. Finance income is recognized as it accrues using the effective interest method.
Foreign exchange gains and losses are reported on a net basis as either finance income or finance expense.
(f)
Inventories:
Finished goods are measured at the lower of cost and net realizable value. Raw materials are measured
at the lower of cost and replacement cost. Work-in-process and goods-in-transit are measured at cost.
For purchased wood products, cost is determined using the weighted average cost method and includes
invoice cost, duties, freight, and other directly attributable costs of acquiring the inventory. For manufactured
wood products, cost is defined as all costs that relate to bringing the inventory to its present condition and
location under normal operating conditions and includes manufacturing costs, such as raw materials, labor
and production overhead, and depreciation and amortization costs.
Net realizable value is the estimated selling price in the ordinary course of business less any applicable
selling expenses.
Volume rebates and other supplier discounts are included in income when earned. Volume rebates and
supplier trade discounts are accounted for as a reduction of the cost of the related inventory and are earned
when inventory is sold.
(g) Property, plant and equipment:
Items of property, plant and equipment are carried at acquisition cost less accumulated depreciation and
accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition
of the asset. Depreciation is provided at straight-line rates sufficient to depreciate the cost of the assets
over their estimated useful lives less estimated residual values as follows:
43
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
3. Significant accounting policies (continued):
(g) Property, plant and equipment (continued):
Assets
Buildings, machinery and equipment
Leased vehicles
Leasehold improvements
Estimated useful life
3 to 30 years
Over the term of the lease
Over the term of the lease
Leased assets are depreciated over the lease term unless the useful life is shorter than the lease term. If
a significant component of an asset has a useful life that is different from the remainder of the asset, then
that component is depreciated separately.
Depreciation methods, material residual value estimates and estimates of useful lives are reviewed at each
financial year end and updated as considered necessary.
Gains or losses arising on the disposal of property, plant and equipment are determined as the difference
between the disposal proceeds and the carrying amount of the assets and are recognized in profit or loss
at the time of the disposal.
(h) Impairment:
Non-financial assets
The carrying values of the Company’s non-financial assets are reviewed at each reporting date to assess
whether there is any indication of impairment. If any such indication is present, then the recoverable
amount of the assets is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use or its fair
value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. For the purposes of impairment testing, assets are grouped at
lowest levels that generate cash inflows from continuing use that are largely independent of the cash
inflows of other assets or groups of assets (the “cash-generating unit”).
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds
its estimated recoverable amount. Impairment losses are recognized in profit and loss. Impairment losses
recognized in prior years are assessed at each reporting date for any indications that the loss has decreased
or no longer exists. An impairment charge 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.
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence
that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one
or more events have had a negative effect on the estimated future cash flows of that asset.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor,
restructuring of an amount due to the Company on terms that the Company would not consider otherwise,
or indications that a debtor or issuer will enter bankruptcy.
The Company considers evidence of impairment for financial assets, and in particular receivables, at both
a specific asset and account balance level.
44
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
3. Significant accounting policies (continued):
(h) Impairment (continued):
Financial assets (continued)
All individually significant receivables are assessed for specific impairment. Receivables that are not
individually significant are collectively assessed for impairment by grouping together receivables with similar
risk characteristics. In assessing collective impairment of receivables, management considers the aging
of receivables, the nature and extent of security held, historical trends of default, and current economic
and credit conditions to estimate impairments.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows, discounted at the
original effective interest rate.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the
impairment loss is recognized. For financial assets measured at amortized cost, this reversal is recognized
in profit or loss.
(i) Financial instruments:
Financial assets and financial liabilities are recognized when the Company becomes a party to the
contractual provisions of the financial instrument. Financial assets are derecognized when the contractual
rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks
and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged,
cancelled or expires.
Financial assets and financial liabilities are measured initially at fair value plus transaction costs, except
for financial assets and financial liabilities carried at fair value through profit or loss, which are measured
initially at fair value.
The classification and measurement of the Company’s financial instruments is disclosed in note 6 of these
consolidated financial statements.
Financial assets
Cash and cash equivalents
The Company considers deposits in banks, certificates of deposit and short-term investments with original
maturities of three months or less when acquired as cash and cash equivalents.
Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. After initial recognition these are measured at amortized cost using the
effective interest method, less provisions for impairment, if any. Discounting is omitted where the effect
of discounting is immaterial.
Individual receivables are considered for impairment when they are past due or when other objective
evidence exists that a specific counterparty will default. Impairment of trade receivables is presented within
selling and distribution expenses.
Loans receivable consist of notes from customers and loans to employees for relocation costs, discounted
using the effective interest method. Interest revenue on these loans is recognized within finance income.
45
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
3. Significant accounting policies (continued):
(i) Financial instruments (continued):
Financial liabilities
Loans and payables are non-derivative financial liabilities with fixed or determinable payments that are not
quoted in an active market. After initial recognition these liabilities are measured at amortized cost using
the effective interest method. Discounting is omitted when the effect of discounting is immaterial. The
revolving bank line of credit is not discounted; rather, actual interest accrued is based on the daily balances
and is recorded each month.
(j)
Income taxes:
Income tax expense comprises current and deferred tax and is recognized in profit and loss except to the
extent that it relates to items recognized directly in equity or in other comprehensive income. Current
income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of the previous
years.
Deferred tax is recognized by the Company and its subsidiaries in respect of temporary differences between
the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is not recognized for the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse
in the foreseeable future; and taxable differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when
they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset only when the Company has a legally enforceable right and
intention to set off current tax assets and liabilities from the same taxation authority.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences,
to the extent that it is probable that future taxable profits will be available against which they can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized.
(k) Leases:
Automobile leases for which the Company assumes substantially all the risks and rewards of ownership
are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal
to the lower of its fair value and the present value of the minimum lease payments and a lease obligation
is recorded equal to the present value of the minimum lease payments.
Subsequent to initial recognition, the leased asset is accounted for in accordance with the accounting
policies applicable to property, plant and equipment. Minimum lease payments made under finance leases
are apportioned between finance expense and the reduction of the outstanding liability. The finance
expense is allocated to each period during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
Other leases are operating leases and as such the leased assets are not recognized in the Company’s
statement of financial position. Payments made under operating leases are recognized in profit or loss
on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral
part of the total lease expense, over the term of the lease.
46
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
3. Significant accounting policies (continued):
(l) Provisions:
Provisions are recognized in the statement of financial position when the Company has a present legal or
constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will
be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
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.
(m) Basic and diluted profit per share:
The Company presents basic and diluted profit per share data for its outstanding common shares. Basic
profit per share attributable to shareholders is calculated by dividing profit by the weighted average number
of common shares outstanding during the reporting year. Diluted profit per share is determined by adjusting
the profit attributable to common shareholders and the weighted average number of common shares
outstanding for the effects of all dilutive potential common shares.
(n) Share based compensation:
The Company has a share based long-term incentive plan as described in note 12(b). The Company is
accounting for the Restricted Shares and Performance Shares as employee equity settled awards whereby
the compensation cost is determined based on the grant date fair value and is recognized as an expense
with a corresponding increase to contributed surplus in equity over the period that the employees
unconditionally become entitled to payment. The amount recognized as an expense is adjusted to reflect
the number of awards for which the related service and non-market vesting conditions are expected to be
met.
(o) New accounting policies:
(i) Change in accounting policy:
There were no new standards effective January 1, 2015 that had an impact on the Company’s
consolidated financial statements.
(ii) New standards and interpretations not yet adopted:
A number of new standards, amendments to standards and interpretations, are not yet effective for
the year ended December 31, 2015, and have not been applied in preparing these consolidated
financial statements. The following pronouncements are considered by the Company to be the most
significant of several pronouncements that may affect the consolidated financial statements in future
periods.
IFRS 9, Financial Instruments (“IFRS 9”)
IFRS 9 will replace the multiple classification and measurement models in IAS 39 Financial Instruments:
Recognition and Measurement, with a single model that has only two classification categories:
amortized cost and fair value. The new standard also requires a single impairment method to be used,
provides additional guidance on the classification and measurement of financial liabilities, and provides
a new general hedge accounting standard.
The mandatory effective date has been set for January 1, 2018, however early adoption of the new
standard is permitted. The Company does not intend to early adopt IFRS 9. The adoption of IFRS 9
is currently not expected to have a material impact on the consolidated financial statements given the
nature of the Company’s operations and the types of financial instruments that it currently holds;
however, the Company will continue to assess the extent of impact as the mandatory adoption date
approaches.
47
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
3. Significant accounting policies (continued):
(o) New accounting policies (continued):
(ii) New standards and interpretations not yet adopted (continued):
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
IFRS 15 is effective for fiscal years commencing on or after January 1, 2018 and will replace IAS 18,
Revenue and a number of revenue related standards and interpretations. IFRS 15 contains a single
model that applies to contracts with customers and two approaches to recognizing revenue: at a point
in time or over time. The model features a contract-based five-step analysis of transactions to determine
whether, how much and when revenue is recognized. New estimates and judgmental thresholds have
also been introduced, which may affect the amount and/or timing of revenue recognized.
The Company intends to adopt IFRS 15 in its consolidated financial statements for the annual period
beginning on January 1, 2018. The Company is assessing the impact of this new standard, but does
not expect the amendments to have a material impact on the consolidated financial statements.
Amendments to IAS 1, Presentation of Financial Statements (“IAS 1”)
On December 18, 2014, the IASB issued amendments to IAS 1 as part of its major initiative to improve
presentation and disclosure in financial reports. The amendments are effective for annual periods
beginning on or after January 1, 2016 with early adoption permitted. The Company intends to adopt
these amendments in its consolidated financial statements for the annual period beginning on
January 1, 2016. The impact of adoption of the amendments is not expected to have a significant
impact on the consolidated financial statements.
IFRS 16, Leases ("IFRS 16")
On January 13, 2016, the IASB published a new standard, IFRS 16, eliminating the current dual
accounting model for lessees, which distinguishes between on-balance sheet finance leases and
off-balance sheet operating leases. Under the new standard, a lease becomes an on-balance sheet
liability that attracts interest, together with a new right-of-use asset. In addition, lessees will
recognize a front-loaded pattern of expense for most leases, even when cash rentals are constant.
IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier adoption
permitted. The Company is assessing the impact of adopting this standard on its consolidated
financial statements.
4. Business acquisitions:
Hardwoods of Michigan Acquisition
On April 28, 2014, a subsidiary of the Company purchased the business operations of Hardwoods of Michigan
Inc., a fully integrated producer and distributor of high quality hardwood lumber from its sawmill and kiln drying
operations located on 23 acres in Clinton, Michigan. The Company’s subsidiary purchased the accounts
receivable, inventory, prepaid expenses, and property, plant and equipment of HMI for cash consideration of
$16.5 million (US$15.0 million) and hired HMI’s employees to continue operating the business. The purchase
price was satisfied with cash consideration, funded by the draw-down of the Hardwoods USLP Credit Facility
(note 10).
48
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
4. Business acquisitions (continued):
The allocation of the purchase price to identified assets acquired and liabilities assumed is as follows:
Accounts receivable
Inventories
Prepaid expenses
Property, plant and equipment
Accrued liabilities
Cash paid
$
4,679
6,175
392
5,386
(165)
$
16,467
Had the acquisition occurred on January 1, 2014, management estimates that the Company’s consolidated
sales would have been approximately $471.6 million and profit would have been approximately $14.8 million
for the year ended December 31, 2014. Included in these consolidated financial statements for the year ended
December 31, 2014 are sales of $24.1 million (US$21.8 million) and profit before tax of $1.1 million (US1.0
million) relating to HMI.
5. Capital management:
The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future growth of the business. The Company considers its capital to be bank
indebtedness (net of cash) and shareholders’ equity.
The Company’s capitalization is as follows:
Cash
Bank indebtedness
Shareholder’s equity
Total capitalization
December 31,
2015
December 31,
2014
$
$
— $
28,894
142,948
(13)
38,742
108,489
171,842
$
147,218
The terms of the Company’s US and Canadian credit facilities are described in note 10. The terms of the
agreements with the Company’s lenders provide that distributions cannot be paid by its subsidiaries in the event
that its subsidiaries do not meet certain credit ratios. The Company’s operating subsidiaries were compliant
with all required credit ratios under the US and Canadian credit facilities as at December 31, 2015 and
December 31, 2014, and accordingly there were no restrictions on distributions arising from compliance with
financial covenants.
Dividends are one way the Company manages its capital. Dividends are declared having given consideration
to a variety of factors including the outlook for the business and financial leverage. There were no changes to
the Company’s approach to capital management during the year ended December 31, 2015.
On November 9, 2015, the Company declared a cash dividend of $0.055 per common share to shareholders
of record as of January 19, 2016. The dividend was paid to shareholders on January 29, 2016. On March 11,
2016, the Company declared a cash dividend of $0.055 per common share to shareholders of record as of
April 19, 2016, to be paid on April 29, 2016.
49
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
6. Financial instruments:
Financial instrument assets include cash and current and non-current receivables, which are designated as
loans and receivables and measured at amortized cost. Non-derivative financial instrument liabilities include
bank indebtedness, accounts payable and accrued liabilities, income taxes payable, dividend payable and
finance lease obligation. All financial liabilities are designated as other liabilities and are measured at amortized
cost. There are no financial instruments classified as available-for-sale or held-to-maturity.
Fair value hierarchy
IFRS 13 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
The three levels of the fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical assets or liabilities.
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly, for substantially the full contractual term.
Level 3 - Inputs for the asset or liability are not based on observable market data.
The Company has no financial assets or financial liabilities measured in the statement of financial position at
fair value or included in Level 3 of the fair value hierarchy.
Fair values of financial instruments
The carrying values of cash, accounts receivable, income tax payable, dividend payable and accounts payable
and accrued liabilities approximate their fair values due to the relatively short period to maturity of the instruments.
The fair value of non-current receivables and finance lease obligations are not expected to differ materially
from their respective carrying values, given the interest rates being charged. The carrying values of the credit
facilities approximate their fair values due to the existence of floating market based interest rates. The fair
value of these non-derivative financial assets and liabilities has been estimated based on the present value of
future cash flows, discounted at a market rate of interest at the reporting date, being level 2 of the fair value
hierarchy.
Financial risk management:
The Board of Directors of the Company and its subsidiaries has the overall responsibility for the establishment
and oversight of the Company’s risk management framework. 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 in response to the Company’s activities. Through its standards
and procedures management has developed a disciplined and constructive control environment in which all
employees understand their roles and obligations. Management regularly monitors compliance with the
Company’s risk management policies and procedures and reviews the adequacy of the risk management
framework in relation to the risks faced by the Company.
The Company has exposure to credit, liquidity and market risks from its use of financial instruments.
(i) Credit risk:
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument
fails to meet its contractual obligations. Credit risk arises principally from the Company’s current and non-
current receivables from its customers. Cash held at banks, employee housing loans and security deposits
also present credit risk to the Company. The carrying value of these financial assets, which total $57.1
million at December 31, 2015 (December 31, 2014 - $47.4 million), represents the Company’s maximum
exposure to credit risk.
50
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
6. Financial instruments (continued):
Financial risk management (continued):
(i) Credit risk (continued):
Trade accounts receivable
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each
customer. The Company is exposed to credit risk in the event it is unable to collect in full amounts receivable
from its customers. The Company employs established credit approval practices and engages credit
attorneys when appropriate to mitigate credit risk. The Company attempts to secure credit advanced to
customers whenever possible by registering security interests in the assets of the customer and by obtaining
personal guarantees. Credit limits are established for each customer and are regularly reviewed. In some
instances the Company may choose to transact with a customer on a cash-on-delivery basis. The
Company’s largest individual customer balance amounted to 3.9% (December 31, 2014 - 3.9%) of trade
accounts receivable and customer notes receivable at December 31, 2015. No one customer represents
more than 1.4% of sales.
More detailed information regarding management of trade accounts receivable is found in note 7 to these
consolidated financial statements.
Employee housing loans:
Employee loans are non-interest bearing and are granted to employees who are relocated. Employee
loans are secured by a deed of trust or mortgage depending upon the jurisdiction. Employee loans are
repaid in accordance with the loan agreement. These loans are measured at their fair market value upon
granting the loan and subsequently measured at amortized cost.
Customer notes:
Customer notes are issued to certain customers to provide fixed repayment schedules for amounts owing
that have been agreed will be repaid over longer periods of time. The terms of each note are negotiated
with the customer. For notes issued the Company requires a fixed payment amount, personal guarantees,
general security agreements, and security over specific property or assets. Customer notes bear market
interest rates ranging from 5%-10%.
Security deposits:
Security deposits are recoverable on leased premises at the end of the related lease term. The Company
does not believe there is any material credit risk associated with its security deposits.
(ii) 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 is to ensure that it will have sufficient cash available to
meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Company’s reputation. At December 31, 2015, in Canada, a subsidiary
of the Company had a revolving credit facility of up to $15.0 million, and, in the US, a subsidiary of the
Company had a revolving credit facility of up to $103.8 million (US$75.0 million). These credit facilities
can be drawn down to meet short-term financing requirements, including fluctuations in non-cash working
capital. The amount made available under the revolving credit facilities from time to time is limited to the
extent of the value of certain accounts receivable and inventories held by subsidiaries of the Company, as
well as by continued compliance with credit ratios and certain other terms under the credit facilities. See
note 10 for further information regarding the Company’s credit facilities and borrowing capacity.
51
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
6. Financial instruments (continued):
Financial risk management (continued):
(ii) Liquidity risk (continued):
The Company’s accounts payable and accrued liabilities are subject to normal trade terms and have
contracted maturities that will result in payment in the following quarter. The undiscounted contractual
maturities of finance lease obligations are presented in note 11 to these consolidated financial statements.
(iii) Market risk:
Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates, and
commodity prices will affect the Company’s net earnings or value of its holdings of financial instruments.
Interest rate risk
The Company is exposed to interest rate risk on its credit facilities which bear interest at floating market
rates.
Based upon the December 31, 2015 bank indebtedness balance of $28.9 million, a 1% increase or decrease
in the interest rates charged would result in a decrease or increase to profit after tax by approximately $0.2
million.
Currency risk
As the Company conducts business in both Canada and the United States it is exposed to currency risk.
Most of the hardwood lumber sold by the Company in Canada is purchased in U.S. dollars from suppliers
in the United States. Although the Company reports its financial results in Canadian dollars, approximately
three-quarters of its sales are generated in the United States. Changes in the currency exchange rates
of the Canadian dollar against the U.S. dollar will affect the results presented in the Company’s financial
statements and cause its earnings to fluctuate. Changes in the costs of hardwood lumber purchased by
the Company in the United States as a result of the changing value of the Canadian dollar against the U.S.
dollar are usually absorbed by the Canadian market. When the hardwood lumber is resold in Canada it
is generally sold at a Canadian dollar equivalent selling price, and accordingly revenues in Canada are
effectively increased by decreases in value of the Canadian dollar and vice versa. Fluctuations in the
value of the Canadian dollar against the U.S. dollar will affect the amount of cash available to the Company
for distribution to its shareholders.
At December 31, 2015, the primary exposure to foreign denominated financial instruments was in the
Company’s Canadian subsidiaries and relates to US dollar cash balances, accounts receivable from U.S.
customers (2015 - US$0.1 million, 2014 - US$0.3 million) and accounts payable to U.S. suppliers (2015 -
$0.3 million, 2014 - US$0.9 million).
Based on the Company's Canadian subsidiaries exposure to foreign denominated financial instruments,
the Company estimates a $0.05 weakening or strengthening in the Canadian dollar as compared to the
U.S. dollar would not have a material effect on net income for the years ended December 31, 2015 or
December 31, 2014.
This foreign currency sensitivity is focused solely on the currency risk associated with the Company’s
Canadian subsidiaries exposure to foreign denominated financial instruments as at December 31, 2015
and December 31, 2014 and does not take into account the effect of a change in currency rates will have
on the translation of the balance sheet and operations of the Company’s U.S. subsidiaries nor is it intended
to estimate the potential impact changes in currency rates would have on the Company’s sales and
purchases.
52
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
6. Financial instruments (continued):
Financial risk management (continued):
(iii) Market risk (continued):
Commodity price risk:
The Company does not enter in to any commodity contracts. Inventory purchases are transacted at
current market rates based on expected usage and sale requirements and increases or decreases in
prices are reflected in the Company’s selling prices to customers.
7. Accounts receivable:
The following is a breakdown of the Company’s current and non-current receivables and represents the
Company’s principal exposure to credit risk.
December 31,
2015
December 31,
2014
$
11,937
47,586
726
751
61,000
10,490
37,960
786
369
49,605
4,844
3,478
56,156
$
46,127
$
546
631
543
1,720
751
969
$
429
679
514
1,622
369
1,253
December 31,
2015
December 31,
2014
$
44,377
9,142
3,122
2,882
35,428
8,041
2,752
2,229
59,523
$
48,450
$
$
$
$
$
$
Trade accounts receivable - Canada
Trade accounts receivable - United States
Sundry receivable
Current portion of non-current receivables
Less:
Allowance for credit loss
Non-current receivables:
Employee housing loans
Customer notes
Security deposits
Less:
Current portion, included in accounts receivable
The aging of trade receivables is:
Current
1 - 30 days past due
31 - 60 days past due
60+ days past due
53
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
7. Accounts receivable (continued):
The Company determines its allowance for credit loss based on its best estimate of the net recoverable amount
by customer account. Accounts that are considered uncollectable are written off. The total allowance at
December 31, 2015 was $4.8 million (December 31, 2014 - $3.5 million). The amount of the allowance is
considered sufficient based on the past experience of the business, current and expected collection trends,
the security the Company has in place for past due accounts and management’s regular review and assessment
of customer accounts and credit risk.
The change in the allowance for credit loss can be reconciled as follows:
Balance as at January 1
Additions during the year
Use during the year
Changes due to currency rate fluctuations
Balance as at December 31
2015
3,478 $
1,922
(1,217)
661
2014
2,988
1,178
(967)
279
4,844 $
3,478
$
$
Bad debt expense, net of recoveries, for the year ended December 31, 2015 was $1.5 million which equates
to 0.3% of sales (year ended December 31, 2014 - $1.0 million, being 0.2% of sales).
8.
Inventories:
Raw materials
Work in process
Goods in-transit
Finished goods:
Lumber
Sheet goods
Specialty
December 31,
2015
December 31,
2014
$
$
1,265
5,054
7,611
38,649
42,102
8,795
1,624
5,044
9,594
31,059
31,127
6,953
$
103,476
$
85,401
The Company regularly reviews and assesses the condition and value of its inventories and records write-
downs to net realizable as necessary.
Inventory related expenses are included in the consolidated statement of comprehensive income as follows:
Inventory write-downs, included in cost of sales
Cost of inventory sold
Other cost of sales
Total cost of sales
2015
1,530
$
455,544
16,421
471,965
$
2014
1,149
363,275
13,652
376,927
$
$
54
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
9. Property, plant and equipment:
Leased
vehicles
(note 11(a))
Land
Buildings,
machinery
and
equipment
Leasehold
improvements
Total
Cost
Balance at January 1, 2014
Additions
Disposals
Adjustments:
Foreign currency transaction
Balance at December 31, 2014
Additions
Disposals
Adjustments:
Foreign currency transaction
$
— $
548
—
32
580
—
—
112
2,807 $
1,070
(902)
11,085 $
6,288
(357)
774 $
29
(2)
14,666
7,935
(1,261)
174
1,140
23
1,369
3,149
1,200
(1,088)
18,156
1,695
(277)
824
155
(119)
22,709
3,050
(1,484)
432
3,151
49
3,744
Balance at December 31, 2015
$
692 $
3,693 $
22,725 $
909 $
28,019
Accumulated depreciation
Balance at January 1, 2014
Depreciation
Disposals
Adjustments:
Foreign currency transaction
Balance at December 31, 2014
Depreciation
Disposals
Adjustments:
Foreign currency transaction
$
— $
—
—
981 $
811
(621)
5,500 $
1,268
(205)
64
1,235
962
(747)
387
6,950
1,584
(173)
—
—
—
—
—
693 $
50
(2)
19
760
47
(113)
7,174
2,129
(828)
470
8,945
2,593
(1,033)
176
1,097
41
1,314
Balance at December 31, 2015
$
— $
1,626 $
9,458 $
735 $
11,819
Net book value:
December 31, 2014
December 31, 2015
$
$
580 $
692 $
1,914 $
2,067 $
11,206 $
13,267 $
64 $
174 $
13,764
16,200
Depreciation of property, plant and equipment for the year ended December 31, 2015 was $2.6 million (2014
- $2.1 million) and is included in the statement of comprehensive income as follows:
Selling and distribution
Cost of sales
Administration
Balance as at December 31
55
2015
1,447 $
1,080
66
2,593 $
2014
1,211
866
52
2,129
$
$
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
9. Property, plant and equipment (continued):
Gains and losses on disposal of property, plant and equipment for the year ended December 31, 2015 was a
net gain of $28,566 (2014 - net loss of $126,415) and is included in selling and distribution in the statement of
comprehensive income.
10. Bank indebtedness:
Checks issued in excess of funds on deposit
Credit facility, Hardwoods LP
Credit facility, Hardwoods USLP
(December 31, 2015 - US$14,835
December 31, 2014 - US$24,004)
Term loan, Hardwoods USLP
December 31, 2014 - US$3,625)
Less: non-current portion of term loan
December 31,
2015
December 31,
2014
$
$
3,049
5,314
1,368
5,318
20,531
27,851
—
28,894
—
4,205
38,742
3,371
$
28,894
$
35,371
Bank indebtedness consists of checks issued in excess of funds on deposit and advances under operating
lines of credit (the “Credit Facilities”) available to subsidiaries of the Company, Hardwoods Specialty Products
LP (“Hardwoods LP”) and Hardwoods Specialty Product USLP (“Hardwoods USLP”).
Each of the Credit Facilities is separate, is not guaranteed by the other partnership, and does not contain cross
default provisions to the other Credit Facility. The Credit Facility made available to Hardwoods LP is secured
by a first security interest in all of the present and after acquired property of Hardwoods LP and the Hardwoods
LP partnership units held directly and indirectly by the Company. The Credit Facility made available to
Hardwoods USLP is secured by a first security interest in all of the present and after acquired property of
Hardwoods USLP, Paxton Hardwoods LLC and HMI Hardwoods LLC, and the Hardwoods USLP partnership
units held indirectly by the Company.
The Hardwoods LP Credit Facility, which has a maturity date of August 7, 2016, provides financing up to $15.0
million. On April 28, 2014, the Company amended the credit facility of its subsidiary Hardwoods USLP
concurrently with completing the acquisition of Hardwoods of Michigan, Inc. (note 4). The term of the Hardwoods
USLP Credit Facility was extended to April 27, 2017, and the maximum available borrowing under the Credit
Facility increased from US$50.0 million to US$79.1 million, comprised of US$75.0 million available under
revolving credit facilities, and US$4.1 million under a term loan that matures April 27, 2017, with monthly
payments based on a five year amortization. During the quarter ended September 30, 2015, the Company
settled the term loan in full and thus the Hardwoods USLP Credit Facility at December 31, 2015 is comprised
of US$75.0 million available under revolving credit facilities.
The Credit Facilities are payable in full at maturity. The Credit Facilities are revolving credit facilities which the
Company may terminate at any time without prepayment penalty. The Credit Facilities and term loan bear
interest at a floating rate based on the Canadian or US prime rate (as the case may be), LIBOR or bankers’
acceptance rates plus, in each case, an applicable margin. Letters of credit are also available under the Credit
Facilities on customary terms for facilities of this nature. Commitment fees and standby charges usual for
borrowings of this nature were and are payable.
56
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
10. Bank indebtedness (continued):
The amount made available under the Credit Facility to Hardwoods LP from time to time is limited to the extent
of 85% of the book value of accounts receivable and the lesser of 60% of the book value or 85% of appraised
value of inventories with the amount based on inventories not to exceed 60% of the total amount to be available.
Certain identified accounts receivable and inventories are excluded from the calculation of the amount available
under the Credit Facility. Hardwoods LP is required to maintain a fixed charge coverage ratio (calculated as
the ratio of earnings before interest, tax, depreciation and amortization (“EBITDA”) less cash taxes, capital
expenditures and distributions, divided by interest plus principal payments on finance lease obligations) of not
less than 1.1 to 1. However, this covenant does not apply so long as the unused availability under the credit
line is in excess of $2.0 million. At December 31, 2015, the Hardwoods LP Credit Facility has unused availability
of $9.7 million, before checks issued in excess of funds on deposit of $0.9 million (December 31, 2014 - $8.2
million, checks issued in excess of funds on deposit - $nil).
As part of the amendment on April 28, 2014, the amount made available under the Credit Facility to Hardwoods
USLP from time to time was increased to 90% of the book value of accounts receivable and 65% of the book
value of inventories (with certain accounts receivable and inventory being excluded). During the quarter ended
June 30, 2015, the Company reduced the advanced rates back to those previously available to Hardwoods
USLP of 85% of the book value of accounts receivable, and 55% of the book value of inventories. Hardwoods
USLP is required to maintain a fixed charge coverage ratio (calculated as EBITDA less cash taxes and capital
expenditures, divided by the sum of interest, principal payments on finance lease obligations and distributions)
of 1.0 to 1. This covenant of the Hardwoods USLP Credit Facility does not need to be met, however, unless
the unused availability under the Credit Facility is in excess of certain thresholds. The minimum unused
availability that must be maintained for the fixed charge coverage ratio not to apply at December 31, 2015 is
US$7.5 million. At December 31, 2015, the Hardwoods USLP Credit Facility has unused availability of $51.1
million (US$36.9 million), before checks issued in excess of funds on deposit of $2.1 million (US$1.5 million).
At December 31, 2014, the Hardwoods USLP Credit Facility had unused availability of $28.7 million (US$24.8
million), before checks issued in excess of funds on deposit of $1.3 million (US$1.1 million).
The average annual interest rates paid in respect of bank indebtedness for the year ended December 31, 2015
were 3.4% and 2.7% (2014 - 3.3% and 2.7%) for the Hardwoods LP and Hardwoods USLP credit facilities,
respectively.
11. Leases:
(a) Finance leases as lessee:
Subsidiaries of the Company lease vehicles with terms ranging from 18 to 36 months. Hardwoods LP
guarantees a residual value under the terms of the leases in Canada, and any difference between the
amount realized and the guaranteed residual value is either paid to or paid by Hardwoods LP. In the US,
the lease payments cover the full capitalized cost over the term of the lease, and any proceeds from the
sale of the vehicle are paid to Hardwoods USLP. The Company and its subsidiaries have determined that
these vehicle leases are considered finance leases and are recorded on the statement of financial position.
57
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
11. Leases (continued):
(a) Finance leases as lessee (continued):
Finance lease liabilities are payable as follows:
Minimum lease payments due
Within one year
One to three
years
December 31, 2015:
Future minimum lease payments
Interest
Present value of minimum payments
December 31, 2014:
Future minimum lease payments
Interest
Present value of minimum payments
$
$
$
$
1,190 $
71
1,119 $
1,100 $
76
1,024 $
719 $
23
696 $
777 $
28
749 $
Total
1,909
94
1,815
1,877
104
1,773
The present value of the lease payments is calculated using the interest rate implicit in the lease, which
range from 4.1% - 7.1%.
(b) Operating leases as lessee:
The Company’s subsidiaries are obligated under various operating leases, including building and trucking
equipment leases that require future minimum rental payments as follows:
Minimum lease payments due
With
one year
One to
five years
After
five years
Total
Minimum lease payments due:
December 31, 2015
$
7,019 $
17,683 $
7,017 $
31,719
Minimum lease payments recognized as an expense during the year ended December 31, 2015 amounted
to $7.3 million (2014 - $6.5 million).
The Company’s warehouse leases are combined leases of the land and building; however both the land
and building elements are considered operating leases as the risk and reward of ownership remains
with the landlord. The Company’s operating lease agreements do not contain any contingent rent
clauses. Some operating warehouse lease agreements contain renewal options. Renewal options are
reviewed regularly by management. The operating lease agreements do not contain any restrictions
regarding distributions, further leasing or additional debt.
12. Share capital:
(a) Share capital
At December 31, 2015, the authorized share capital of the Company comprised an unlimited number of
common shares without par value (“Shares”).
58
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
12. Share capital (continued):
(a) Share capital (continued)
A continuity of share capital is as follows:
Balance at December 31, 2013
Issued pursuant to long term incentive plan
Balance at December 31, 2014
Issued pursuant to long term incentive plan
Shares
16,539,378
112,036
$
16,651,414
110,657
Total
45,298
532
45,830
1,029
Balance at December 31, 2015
16,762,071
$
46,859
(b) Long Term Incentive Plan (“LTIP”):
The Company has an approved long term incentive plan which authorizes the issuance of a maximum of
1,650,000 Shares to qualified trustees, directors, officers, employees and consultants to align the interests
of such persons with the interests of shareholders.
The LTIP is comprised of Restricted Shares and Performance Shares. Each Restricted Share will entitle
the holder to be issued the number of Shares of the Company designated in the grant agreement for that
Restricted Share. Shares issuable pursuant to Restricted Share grants will vest and be issued on the date
or dates determined by the Company’s Compensation Committee and set out in the grant agreement,
provided such date or dates are not later than December 31st following the third anniversary of the date
the Restricted Share was granted. Each Performance Share will entitle the holder to be issued the number
of Shares designated in the grant agreement for the Performance Share multiplied by a payout multiplier
which may range from a minimum of zero to a maximum of two depending on the achievement of the
defined performance criteria. Shares issuable pursuant to Performance Shares will be issued on the date
set out in the grant agreement if the performance criteria are satisfied, provided such date is not later than
December 31st following the third anniversary of the date the Performance Share was granted.
The Shares to which a grantee is entitled under a Restricted Share or Performance Share may, at the
discretion of the Board of Directors, be settled by the Company in Shares issued from treasury, Shares
purchased by the Company in the secondary market, in an amount of cash equal to the fair market value
of such Shares, or any combination of the foregoing.
If any Restricted Shares or Performance Shares granted under LTIP expire, terminate or are cancelled for
any reason without the Shares issuable under the Restricted Share or Performance Share having been
issued in full, those Shares will become available for the purposes of granting further Restricted Shares
or Performance Shares under the LTIP. To the extent any Shares issuable pursuant to Restricted Shares
or Performance Shares are settled in cash or with Shares purchased in the market, those Shares will
become available for the purposes of granting further Restricted Shares or Performance Shares.
The LTIP provides for cumulative adjustments to the number of Shares to be issued pursuant to Restricted
Shares or Performance Shares on each date that dividends are paid on the Shares by an amount equal
to a fraction having as its numerator the amount of the dividends per Share and having as its denominator
the fair market value of the Shares on the trading day immediately preceding the dividend payment date.
Fair market value is the weighted average price that the Shares traded on the Toronto Stock Exchange
for the five trading days on which the Shares traded immediately preceding that date.
The LTIP provides that the number of Shares issued to insiders pursuant to the plan and other Share
compensation arrangements of the Company within a one year period, or at any one time, may not
exceed 10% of the issued and outstanding Shares.
59
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
12. Share capital (continued):
(b) Long Term Incentive Plan (“LTIP”) (continued):
A continuity of the LTIP Shares outstanding is as follows:
Balance at December 31, 2013
LTIP shares issued during the year
LTIP shares settled by exchange for free-trading Shares
Balance at December 31, 2014
LTIP shares issued during the year
LTIP shares settled by exchange for free-trading Shares
Balance at December 31, 2015
Performance
Shares
Restricted
Shares
30,618
7,383
(17,049)
20,952
43,005
(14,748)
49,209
108,719
63,356
(73,162)
98,913
70,588
(82,674)
86,827
On December 31, 2015, 14,748 (December 31, 2014 - 17,049) Performance Shares and 82,674
(December 31, 2014 - 73,162) Restricted Shares became fully vested and were settled by the issuance
of 110,657 (December 31, 2014 - 112,036) Shares. On issuance of the Shares, the accumulated share-
based compensation expense of $1.0 million (December 31, 2014 - $0.5 million) associated with the settled
Performance Shares and Restricted Shares was transferred from contributed surplus to share capital.
Non-cash LTIP compensation expense of $1.3 million was recognized in the consolidated statement of
comprehensive income for the year ended December 31, 2015 (2014 - $0.7 million). The key estimate in
determining the compensation in any period is whether the performance criteria have been met and the
amount of the payout multiplier on the Performance Shares. The payout multiplier is reviewed and approved
by the Company’s compensation committee on an annual basis.
(c) Weighted average shares:
The calculation of basic and fully diluted profit per share is based on the profit for the year ended
December 31, 2015 of $20.1 million (December 31, 2014 - $14.0 million). The weighted average number
of common shares outstanding in each of the reporting years was as follows:
December 31,
2015
December 31,
2014
16,651,414
16,539,378
815
307
16,652,229
16,539,685
128,649
85,182
16,780,878
16,624,867
Issued ordinary shares at
beginning of year
Effect of shares issued during the year
pursuant to long-term incentive plan
Weighted average common shares - basic
Effect of dilutive securities:
Long-term incentive plan
Weighted average common shares -
diluted
60
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
13. Income taxes:
Current tax expense
Deferred tax expense
2015
(9,732) $
(2,476)
2014
(7,188)
(1,756)
(12,208) $
(8,944)
$
$
Under current income tax regulations, subsidiaries of the Company are subject to income taxes in Canada and
the United States. The applicable statutory rate in Canada for the year ending December 31, 2015 is 26.3%
(2014 - 26.0%) and in the United States is 39.4% (2014 - 39.4%). The majority of the Company’s tax expense
is generated from its US subsidiaries, and as such the Company reconciles its consolidated income tax expense
to the statutory rate applicable in the United States.
Income tax expense differs from that calculated by applying U.S. federal and state income tax rates to earnings
before income taxes for the following reasons:
Profit before income tax
Statutory rate
Computed tax expense at statutory rate
Effect of lower tax rates in Canada and other rate changes
Non-deductible expenses
State tax
Other
2015
2014
$
32,354
$
22,959
39.4%
39.4%
(12,747)
697
(484)
(143)
469
(9,046)
278
(200)
(227)
251
Income tax expense
$
(12,208) $
(8,944)
61
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
13. Income taxes (continued):
The tax effect of temporary differences that give rise to significant portions of the deferred income tax assets
and liabilities is as follows:
Deferred tax assets:
Accounts receivable
Accounts payable and provisions
Inventory
Finance lease obligations
Goodwill
Tax loss carry forwards and future interest deductions
Other
$
Deferred tax liabilities:
Prepaid expenses
Property, plant and equipment
Employee house loans
December 31,
2015
December 31,
2014
1,902 $
556
1,539
654
7,797
1,209
224
13,881
(248)
(2,659)
—
(2,907)
1,349
534
1,230
624
8,427
2,109
51
14,324
(195)
(1,846)
(6)
(2,047)
Deferred tax asset
$
10,974 $
12,277
Deferred tax assets and liabilities are measured at the substantively enacted rates expected to apply at the
time such temporary differences are forecast to reverse.
At December 31, 2015, the Company and its subsidiaries have operating loss carry forwards for income tax
purposes of approximately $4.3 million in Canada that may be utilized to offset future taxable income
(December 31, 2014 - $7.8 million). These losses, if not utilized, expire between 2026 and 2031. The Company’s
US subsidiaries have no operating loss carry forwards.
At December 31, 2015, the Company and its Canadian subsidiaries have capital losses of approximately
$24.1 million (December 31, 2014 - $24.1 million), and suspended capital losses of approximately $44.7
million (December 31, 2014 - $44.7 million) available to offset future Canadian taxable capital gains. These
capital losses arose as a result of internal restructuring and inter-entity transactions during the year ended
December 31, 2009. The deferred income tax asset of $8.9 million (December 31, 2014 - $8.9 million)
associated with these capital losses has not been recorded because it is not probable that future taxable
capital gains will be generated to utilize the benefit.
62
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
14. Finance income and expense:
Finance expense:
Interest on bank indebtedness
Accretion of finance lease obligation
Total finance expense
Finance income:
Interest on trade receivables, customer
notes, and employee loans
Foreign exchange gain
Total finance income
Note
10
11(a)
7
2015
2014
$
(1,217) $
(116)
(1,333)
(1,189)
(110)
(1,299)
421
1,055
1,476
389
529
918
Net finance income (expense)
$
143
$
(381)
15. Segment reporting:
Information about geographic areas is as follows:
Revenue from external customers:
Canada
United States
Non-current assets(1):
Canada
United States
(1) Excludes financial instruments and deferred income taxes.
16. Employee remuneration:
(a) Employee benefits expense:
Expenses recognized for employee benefits are summarized below.
Wages, salaries and benefits
Pensions - defined contribution plans
LTIP share based compensation
63
2015
2014
116,805
454,793
$
104,334
351,360
571,598
$
455,694
December 31,
2015
December 31,
2014
$
1,347
14,889
991
12,800
16,236
$
13,791
2015
45,116 $
831
1,300
2014
36,832
703
694
47,247 $
38,229
$
$
$
$
$
$
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
16. Employee remuneration (continued):
(a) Employee benefits expense: (continued)
Employee benefit expenses are included in the consolidated statement of comprehensive income as
follows:
Cost of sales
Selling and distribution
Administration
(b) Pensions:
2015
7,400 $
31,232
8,615
2014
4,908
26,576
6,745
47,247 $
38,229
$
$
Hardwoods USLP, Paxton Hardwoods LLC and HMI Hardwoods LLC maintain defined contribution 401
(k) retirement savings plans (the “USLP Plan”, the “Paxton Plan” and the “HMI Hardwoods Plan”). The
assets of the USLP Plan are held and related investment transactions are executed by the Plan’s Trustee,
ING National Trust, and, accordingly, are not reflected in these consolidated financial statements. During
the year ended December 31, 2015, Hardwoods USLP contributed and expensed $0.4 million (US$0.3
million) (2014 - $0.3 million (US $0.3 million)) in relation to the USLP Plan.
The assets of the Paxton Plan are held and related investment transactions are executed by the Plan’s
Trustee, PNC Bank, and, accordingly, are not reflected in these consolidated financial statements. During
the year ended December 31, 2015, Hardwoods USLP contributed and expensed $0.1 million (US $0.1
million) (2014 - $0.1 million (US $0.1 million)) in relation to the Paxton Plan.
The assets of the HMI Hardwoods Plan are held and related investment transactions are executed by the
Plan’s Trustee, Voya Financial (Voya Institutional Trust Company) and, accordingly, are not reflected in
these consolidated financial statements. There is no requirement for an employer contribution to this plan
and accordingly HMI Hardwoods LLC did not contribute any contributions to this plan.
Hardwoods LP does not maintain a pension plan. Hardwoods LP does, however, administer a group
registered retirement savings plan (“LP Plan”) that has a matching component whereby Hardwoods LP
makes contributions to the LP Plan which match contributions made by employees up to a certain level.
The assets of the LP Plan are held and related investment transactions are executed by LP Plan’s
Trustee, Sun Life Trust Inc., and, accordingly, are not reflected in these consolidated financial
statements. During the year ended December 31, 2015, Hardwoods LP contributed and expensed $0.3
million (2014 - $0.3 million) in relation to the LP plan.
17. Related party transactions:
The Company’s related parties include key management personnel and post-employment benefit plans for the
employees of the Company’s subsidiaries.
(a) Transactions with key management personnel:
Key management of the Company includes members of the Board of Directors, the President and Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, and Regional Vice Presidents. Key
management personnel remuneration includes the following expenses:
64
HARDWOODS DISTRIBUTION INC.
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2015 and 2014
17. Related party transactions (continued):
(a) Transactions with key management personnel (continued):
Short-term employee benefits:
Salaries and benefits including bonuses
Company car
LTIP Share compensation
Total remuneration
2015
2014
$
$
2,915 $
39
932
3,886 $
2,255
38
244
2,537
The Company offers housing loans to employees required to relocate. Key management personnel had
no loans outstanding at either December 31, 2015 or December 31, 2014.
(b) Transactions with post-employment benefit plans:
The defined contribution plans referred to in note 16(b) are related parties of the Company. The Company’s
transactions with the pension plans include contributions paid to the plans, which are disclosed in note 16
(b). The Company has not entered into other transactions with the pension plans, nor has it any outstanding
balances at December 31, 2015 or December 31, 2014.
18. Provisions:
Legal
The Company and its subsidiaries are subject to legal proceedings from time to time that arise in the ordinary
course of its business. Management is of the opinion, based upon information presently available, that it is
unlikely that any liability, to the extent not provided for or through insurance, would be material in relation to
the Company’s consolidated financial statements as at December 31, 2015.
Decommissioning
The Company and its subsidiaries are not obligated in a material way for decommissioning or site restoration.
65
Corporate Information
Directors
Robert J. Brown
Director
Officers
Robert J. Brown
President & Chief Executive Officer
Graham M. Wilson
President, Grawil Consultants Inc.
Lance R. Blanco
Senior Vice President, Corporate Development
E. Lawrence Sauder
Chair, Interfor Corporation
Faiz Karmally
Vice President and Chief Financial Officer
William Sauder
President, Emax Investments Ltd.
Jason West
Vice President, Canada
Peter M. Bull
President, Blenheim Realty Ltd.
Dan A. Besen
Vice President, California and Lake States
Brian D. Graham
Vice President, Pacific Northwest, Rocky
Mountain and Texas
Dan Figgins
Vice President, Imports
John Griffin
Vice President, Paxton
Head Office
Auditors
Investor Relations
#306 - 9440 202nd Street
Langley, BC Canada V1M 4A6 Vancouver, British Columbia
Telephone: 604-881-1988
Facsimile: 604-881-1995
KPMG LLP
Faiz Karmally
Chief Financial Officer
Telephone:604-881-1982
Email: fkarmally@hardwoods-inc.com
Listings
The Toronto Stock Exchange
Trades under HWD
Transfer Agent
Computershare Trust
Hardwoods Distribution Inc. | 2015 | Annual Report
66