More in Store
THE NORTH WEST COMPANY INC. 2012
Annual Report
Financial Highlights
All currency figures in this report are in Canadian dollars, unless otherwise noted
($ in thousands, except per share information)
RESULTS FOR THE YEAR
Sales
Same store sales % increase (2)
Trading profit (3) (EBITDA)
Earnings from operations (3) (EBIT)
Net earnings
Cash flow from operating activities
FINANCIAL POSITION
Total assets
Total debt
Total equity
FINANCIAL RATIOS
Debt-to-equity
Return on net assets (3) (RONA)
Return on average equity (3) (ROE)
Sales blend: Food
General Merchandise
Other
PER SHARE ($) - DILUTED (4)
Trading profit (3) (EBITDA)
Net earnings
Cash flow from operating activities
Market price: January 31
high
low
Year Ended
January 31, 2013
Year Ended
January 31, 2012
Year Ended
January 31, 2011
$
$
$
$
1,513,646
0.5%
134,267
97,118
65,148
128,992
651,394
163,354
296,250
.55:1
20.7%
22.5%
76.8%
19.5%
3.7%
2.76
1.34
2.66
23.14
23.88
19.34
$
$
$
$
1,495,136
3.3%
125,881
89,309
57,961
115,469
626,917
175,892
283,709
.62:1
18.5%
20.1%
76.4%
20.2%
3.4%
2.59
1.19
2.38
19.40
22.50
17.85
$
$
$
$
1,448,104
2.7%
125,764
90,272
69,656
114.564
616,588
192,596
286,475
.67:1
17.9%
24.1%
76.4%
20.3%
3.3%
2.59
1.44
2.36
21.09
23.00
17.02
(1) 2012 and 2011 are reported in accordance with International Financial Reporting Standards (IFRS). 2010 has been restated to IFRS. All other historical financial
information was prepared in accordance with Canadian generally accepted accounting principles (CGAAP) and has not been restated to IFRS.
(2) Same store sales, excluding the foreign exchange impact.
(3) See Non-GAAP financial measures section on page 26
(4) Effective January 1, 2011, North West Company Fund converted to a share corporation called The North West Company Inc. The comparative information refers
to the units of the Fund. See conversion to a share corporation on page 8 for further information.
THE NORTH WEST COMPANY INC. 2012
Annual Report
TABLE OF CONTENTS
Management's Discussion & Analysis
Forward-Looking Statements .......................................................................................................................
President & CEO Message ...............................................................................................................................
Chairman's Message ..........................................................................................................................................
Our Business Today and Vision .....................................................................................................................
Principles and Strategies .................................................................................................................................
Key Performance Drivers and Capabilities to Deliver Results ....................................................
Conversion to a Share Corporation ...........................................................................................................
Consolidated Results .........................................................................................................................................
Canadian Operations Financial Performance ......................................................................................
International Operations Financial Performance ..............................................................................
Consolidated Liquidity and Capital Resources ...................................................................................
Quarterly Financial Information ..................................................................................................................
Disclosure Controls .............................................................................................................................................
Internal Controls over Financial Reporting ...........................................................................................
Outlook ......................................................................................................................................................................
Risk Management ................................................................................................................................................
Critical Accounting Estimates .......................................................................................................................
Future Accounting Standards ......................................................................................................................
Non-GAAP Financial Measures ....................................................................................................................
Glossary of Terms .................................................................................................................................................
Eleven-Year Financial Summary ..................................................................................................................
Consolidated Financial Statements
Management’s Responsibility for Financial Statements ...............................................................
Independent Auditor’s Report .....................................................................................................................
Consolidated Balance Sheets .......................................................................................................................
Consolidated Statements of Earnings .....................................................................................................
Consolidated Statements of Comprehensive Income ...................................................................
Consolidated Statements of Changes in Shareholders’ Equity .................................................
Consolidated Statements of Cash Flows ................................................................................................
Notes to Consolidated Financial Statements ......................................................................................
Shareholder Information ............................................................................................................................
Corporate Governance .................................................................................................................................
2
3
4
5
6
8
8
9
11
13
14
18
19
19
19
20
23
25
26
27
28
30
30
31
32
32
33
34
35
56
57
Unless otherwise stated, this Management's Discussion & Analysis
(“MD&A”) for The North West Company Inc. (“NWC”) or its predecessor
North West Company Fund (“NWF” or “Fund”) and its subsidiaries
(collectively, “North West Company”, the “Company”, “North West”, or
“NWC”) is based on, and should be read in conjunction with the 2012
annual audited consolidated financial statements and accompanying
notes. The Company's annual audited consolidated
financial
statements and accompanying notes for the year ended January 31,
2013 are in Canadian dollars, except where otherwise indicated, and
are prepared in accordance with International Financial Reporting
Standards (“IFRS”).
Due to the transition to IFRS, comparative figures for the year
ended January 31, 2011 (“2010”) that were previously reported in the
consolidated financial statements prepared in accordance with
Canadian generally accepted accounting principles (“CGAAP”) have
been restated to conform with the accounting policies and financial
statement presentation adopted under IFRS. The financial information
for the fiscal years 2009 and prior was prepared in accordance with
CGAAP and has not been restated. Further information on the transition
to IFRS and the impact on the Company's consolidated financial
statements is provided in the 2011 Annual Financial Report available
on SEDAR at www.sedar.com or on the Company's website at
www.northwest.ca.
The Board of Directors, on the recommendation of its Audit
Committee, approved the contents of this MD&A on April 8, 2013 and
the information contained in this MD&A is current to April 8, 2013,
unless otherwise stated.
Forward-Looking Statements
This MD&A contains forward-looking statements about North West
including its business operations, strategy and expected financial
performance and condition. Forward-looking statements include
statements that are predictive in nature, depend upon or refer to future
events or conditions, or include words such as “expects”, “anticipates”,
“plans”, “believes”, “estimates”, “intends”, “targets”, “projects”, “forecasts” or
negative versions thereof and other similar expressions, or future or
conditional future financial performance (including sales, earnings,
growth rates, dividends, debt levels, financial capacity, access to capital,
and liquidity), ongoing business strategies or prospects, and possible
future action by the Company, are also forward-looking statements.
Forward-looking statements are based on current expectations and
projections about future events and are inherently subject to, among
other things, risks, uncertainties and assumptions about the Company,
economic factors and the retail industry in general. They are not
guarantees of future performance, and actual events and results could
differ materially from those expressed or implied by forward-looking
statements made by the Company due to, but not limited to, important
factors such as general economic, political and market factors in North
America and internationally, interest and foreign exchange rates,
changes in accounting policies and methods used to report financial
condition, including uncertainties associated with critical accounting
assumptions and estimates, the effect of applying future accounting
changes, business competition, technological change, changes in
government regulations and
laws,
unexpected judicial or regulatory proceedings, catastrophic events,
the Company's ability to complete strategic transactions and integrate
acquisitions and the Company's success in anticipating and managing
the foregoing risks. The reader is cautioned that the foregoing list of
important factors is not exhaustive. Other risks are outlined in the Risk
Management section of this MD&A and in the Risk Factors sections of
the Annual Information Form. The reader is also cautioned to consider
these and other factors carefully and not place undue reliance on
forward-looking statements. Other than as specifically required by
applicable law, the Company has no specific intention to update any
forward-looking statements whether as a result of new information,
future events or otherwise.
legislation, changes
in tax
Additional information on the Company, including our Annual
Information Form, can be found on SEDAR at www.sedar.com or on the
Company's website at www.northwest.ca.
2THE NORTH WEST COMPANY INC. 2012
"More in Store" will extend beyond the four walls of our stores to
our broader advantage of delivering products and services to hard-to-
reach markets. One example is financial services.
Like all our strategies, we view financial services through a lens
that applies our local insight and execution skills to create solutions. In
alliance with new partners, we've created a unique "WE Financial”
prepaid VISA card launching in the second quarter to provide
customers with expanded financial access to the world around them.
In summary, North West has a tradition of stability and consistency
helped by, but not dependent on, favourable economic conditions. I
remain optimistic about our participation in the development
potential of the North, Western Canada and the island markets we
serve. I am equally confident in our ability to continue creating and
sustaining ideas tailored to our unique geographic presence and the
"More in Store" operating strengths we've worked hard to build.
Edward S. Kennedy
President & CEO
April 8, 2013
2012 President & CEO Message
I am pleased to report that North West delivered growth in trading
profit and earnings in 2012. This gain is the outcome of a sustainable
roadmap to improved operating practices, driving down costs and
offering our customers more for less.
We accomplished this while making progress on our performance
improvement initiatives in our Cost-U-Less (CUL) and Giant Tiger (GT)
divisions and developing new products in our financial services
business. The credit goes to our people: their utmost commitment and
hard work made the difference that mattered to our customers and
ultimately, our year-end results.
Last year we made promises to deliver on the More Growth in Store
strategies that we planned, tested and rolled out. 2012 was the year
for results. Several initiatives rose to this challenge and deserve
mention, starting with our perishable category performance.
Efficiency gains in our largest perishable categories continued to
exceed expectations and demonstrated that even in our most remote,
highest-cost stores, product waste and spoilage can be minimized.
Similarly, we proved that in-stock rates well over 90% can still be
achieved in stores 1,000 miles from the nearest road, with deliveries
only by air and water. Remaining committed, we maintained our
advantage by being ready for business.
By year end, we had completed development of a system to track
and trace everything we move across our vast geography, whether by
road, rail, air, ship, barge or local handler. Once fully deployed by
mid-2013, this will be another first for our customers and a tremendous
asset to help maximize supply chain productivity.
Finally, we continued to build the strength of our front line people.
A record number of new managers graduated from our training
programs and were successfully placed in rewarding roles, ready to
fully contribute from day one. Staff housing upgrades remained a
priority to ensure that we have a complete, superior package of job
benefits for some of the most important positions in our company.
While we've executed well on delivering More Growth in Store,
several of our CUL stores faced a further deterioration in economic
conditions, most notably the U.S. Virgin
Islands where high
unemployment, margin pressures and rising utility costs impacted our
performance. In response, we shifted to lower price points and new
import and opportunity buys to bring our customers better value.
While we expect economic conditions to remain challenging, we are
confident that our sharper focus on food will improve performance in
2013.
Our priority at GT last year was to re-commit to execution, which
fit well with our More Growth in Store strategy and was equally driven
by competitive pressures and performance shortcomings. True to
beginning our GT venture 11 years ago, we still believe that urban
neighbourhoods and small towns are attractive niche markets
underserved by big-box names, and on that basis we've built a leading
junior discount position across the Canadian Prairies. Given the recent
significant investment in urban retail space by larger competitors,
especially within the discount segment, holding sales will be a priority
for GT in 2013. We will continue to use our local advantage to pursue
unique product opportunities while closing controllable performance
gaps to compete and win.
In 2012, we benefited from what we've learned after three years
of running a tighter, execution-driven business. More in Store
represents the momentum and the possibilities we've created by
digging deeper into how we work and how we can be an even more
relevant and trusted provider of food and everyday products and
services for our customers. One finding leads to another, creating new
energy and confidence in our potential.
3ANNUAL REPORT
2012 Chairman's Message
2012 was a satisfying year that delivered much of the promised
performance embedded in More Growth in Store. Trading profit grew
again to a record $134.3 million and return on equity increased to
22.5%, while investor returns remained within top quartile ranges at
25.1% for the year.
These results were accomplished amidst continued global
economic instability and lower public and private investment within
most North West markets. Business conditions demanded the very
focus that the Company has been committed to for the past three years:
efficiency gains leading to lower costs and better prices to help
improve our customers' quality of life.
At the Board level, it was gratifying to see the output of
management's work and the resulting rewards from staying a course
that emphasized “middle line” improvement while keeping an eye on
top-line growth ideas. Throughout the year, the energy of our
associates, from store staff to office support and our distribution
centres, was impressive. More Growth in Store is really about this
collective ability to innovate, adapt and achieve.
The Board's work in 2012 ran parallel to the Company's emphasis
on refining execution. Previous governance priorities centered on
Board renewal and ensuring that management planning, risk
management and incentive practices were effective and aligned. With
this in place, attention shifted to oversight and building a highly-
cohesive, dynamic Board that fully leverages the skills of our newer
members. I am pleased to report that on both counts, the progress
was noteworthy and met the high standards of effective governance
set by prior Boards.
2013 will be another important year for North West and Board
activity. Attention will continue to focus on operational excellence and
further gains despite forecasts of ongoing economic uncertainty.
Significant time will also be invested in assessing a wider range of
strategic options that can renew the Company's growth over the next
five years and beyond.
Both the Board and the Company's management team have the
insight and experience for the task at hand. This will be stimulating
and rewarding work that holds tremendous potential for serving our
customers in new ways, leading to new opportunities and setting the
stage for far More in Store at North West.
H. Sanford Riley
Chairman, Board of Directors
April 8, 2013
4THE NORTH WEST COMPANY INC. 2012
Management's
Discussion &
Analysis
OUR BUSINESS TODAY
The North West Company is a leading retailer to underserved rural
communities and urban neighbourhood markets in the following
regions: northern Canada, western Canada, rural Alaska, the South
Pacific islands and the Caribbean. Our stores offer a broad range of
products and services with an emphasis on food. Our value offer is to
be the best local shopping choice for everyday household and local
lifestyle needs.
North West's core strengths include: our ability to adapt to varied
local values and priorities to forge community partnerships; our on-
the-ground presence with hard-to-replicate skills,
insights and
facilities; our logistics expertise in moving product to, and operating
stores within, remote or difficult-to-reach markets; and our ability to
apply these strengths within complementary niche businesses.
North West has a rich enterprising legacy as one of the longest
continuing retail enterprises in the world. The Company traces its roots
back to 1668 with many of our store locations in northern Canada and
Alaska having been in operation for over 200 years. Today these
northern stores serve communities with populations from 500 to 8,000.
A typical store is 7,500 square feet in size and offers food, family apparel,
housewares, appliances, outdoor products and services such as fuel,
post offices, pharmacies, income tax return preparation, quick-service
prepared food, commercial business sales, prepaid card products,
ATMs, cheque cashing and propriety credit programs.
Growth at North West has come from market share expansion
within existing locations and from applying our expertise and
infrastructure to new markets and complementary businesses. The
latter includes wholesaling to independent stores, opening Giant Tiger
junior discount
rural communities and urban
neighbourhoods in western Canada, and our late 2007 acquisition of
Cost-U-Less, Inc., a chain of mid-sized warehouse format stores serving
the South Pacific islands and the Caribbean.
stores
in
A key strength and ongoing strategy of North West is to adapt to
unique local lifestyles and cultures, and capture selling opportunities
better than our competition. Store development flexibility, store
management selection and education, store-level merchandise
ordering, community relations and enterprising incentive plans are all
ingredients of the model we have built to support this leading market
position. We believe that continued, efficient enhancement of our
execution skills in general, and our logistics and selling skills specifically,
are essential components in to meeting customer needs within each
market we serve.
North West delivers its products and services through the
following retail banners and wholesale businesses, in two reporting
segments:
Canadian Operations
•
•
•
•
•
•
•
•
•
•
121 Northern stores, offering a combination of food, financial
services and general merchandise to remote northern Canadian
communities;
31 Giant Tiger ("GT") junior discount stores, offering family
fashion, household products and food to urban neighbourhoods
and larger rural centers in western Canada;
7 NorthMart stores, targeted at larger northern markets with an
emphasis on an expanded selection of fresh foods, fashion and
health products and services;
13 Quickstop convenience stores, offering ready-to-eat foods,
fuel and related services;
1 Valu Lots discount center and direct-to-customer food
distribution outlet for remote communities in Canada;
1 Solo Market store, targeted at less remote, rural markets;
1 NorthMart Drug Store, a stand-alone pharmacy and
convenience store combination;
Crescent Multi Foods ("CMF"), a distributor of produce and fresh
meats to independent grocery stores in Saskatchewan, Manitoba
and northwestern Ontario;
2 North West Company Fur Marketing outlets, trading in furs
and offering Aboriginal handicrafts and authentic Canadian
heritage products; and
The Inuit Art Marketing Service, Canada's largest distributor of
Inuit art.
International Operations
•
•
•
•
•
30 AC Value Centers ("AC"), stores similar to Northern and
NorthMart, offering a combination of food and general
merchandise to communities across remote and rural regions of
Alaska;
3 Quickstop convenience stores within rural Alaska;
Pacific Alaska Wholesale ("PAW"), a leading distributor to
independent grocery stores and individual households in rural
Alaska;
13 Cost-U-Less (CUL), mid-sized warehouse stores, offering
discount food and general merchandise products to island
communities in the South Pacific and the Caribbean; and
1 Island Fresh Supermarket, neighborhood store in Guam
offering convenience with an emphasis on fresh and prepared
foods.
VISION
At North West our mission is to be a trusted provider of goods and
services within hard-to-reach, underserved and less developed
markets. Our vision is to bring products and services to communities
that help people live better. At the retail level, this starts with our
customers' ability and desire to shop locally with us for the widest
possible range of products and services that meet their everyday
needs. We do this by being more accessible and convenient, more
locally adaptable, friendlier and having the lowest local cost, enabled
by lean, innovative processes. For our associates, we want to be a
preferred, fulfilling place to work. For our investors, we want to deliver
superior, top-quartile total returns over the long term.
5ANNUAL REPORT
PRINCIPLES
The way we work at North West is shaped by six core principles:
Customer Driven, Enterprising, Passion, Accountability, Trust, and
Personal Balance.
Customer Driven is our practice of always looking through the eyes
of our customers while recognizing our local presence as a supportive
community citizen.
Enterprising is our spirit of innovation, improvement and growth,
reflected in our unrelenting focus on new and better products, services
and processes.
Passion refers to our connection to our work, our privileged local
market presence and the opportunity to find solutions that make a
difference in peoples' lives.
Accountability is our management approach to getting work done
through effective roles, tasks and resources.
Trust at North West means doing what you say you will do, with
fairness, integrity and respect.
Personal Balance is our commitment to sustaining ourselves and our
organization, so that we work effectively for our customers and
communities over the long term.
STRATEGIES
The strategies at North West are aligned with a total return approach
to investment performance. We aim to deliver top quartile returns
through an equal emphasis on growth and income yield with
opportunities considered in terms of their growth potential and ability
to sustain an attractive cash return.
The Company's long-range plans (“LRP”) are developed in multi-
year cycles and are reviewed and adjusted on an annual basis or as
required at the senior management and board levels. 2009 was the
start of a LRP cycle and included an in-depth assessment of North
West's past performance, opportunity gaps within each business
segment, and new business growth potential.
The strategic rationale for this approach fully considered our past
successes and unrealized opportunities. Over the previous cycle, food
market share and margin rates had increased through better sourcing
and through more store-branded products that offered a value
alternative to national brands. Our food growth strategy was
augmented by opportunistically pursuing complimentary everyday
products and services. These included financial services, post offices,
retail gas bars and pharmacies. New store growth was achieved by
acquiring independent stores in northern Canada and Alaska, through
Giant Tiger store expansion in western Canada and through our
acquisition of CUL in late 2007.
These initiatives developed the business beyond our core
northern markets and merchandise mix but also stretched our
resources and executive attention. The effect was that other, high
potential operational elements within the “four walls” of our business
were left without the necessary degree of focus, investment and
leadership.
As a result of our 2009 LRP work, we identified operational
excellence as the first priority within our existing retail network, themed
as "More Growth in Store". This finding and subsequent direction-setting
is based on gaps that we see within our current store base which, if
effectively addressed, would deliver attractive financial returns over the
next three to five years and set the foundation for new market, product
and service growth over the long term.
The specific areas we have highlighted for attention further
protect, grow and optimize the performance of our food business,
which accounts for 77% of our sales base, the stability of our store
teams, and the strength of our supply chain.
In addition to our “More Growth in Store” emphasis, NWC will
complete an in-depth strategy assessment in 2013 to determine
possible work directions over the following three to five years. Beyond
the medium term potential of existing initiatives our scope will include
the health and future of our general merchandise business, new market
growth and complimentary business opportunities. We expect this
work to be substantially completed by December 2013. Across this
work we continue to emphasize new ideas, clear principles, execution,
and the ability to track performance and we will carefully assess the
long-term potential of any major new business, product or service, and
the probability of achieving threshold returns on a sustainable and
consistent basis.
Following is an update on the More Growth in Store strategic initiatives:
Initiative #1
Improve perishable food performance gaps
This initiative is a comprehensive reworking of products, processes and
technology required to improve the performance of categories that
attract higher activity costs and require more complex executions.
These include Produce, Meat, Chilled, Frozen Food and Food Service.
Result
The emphasis in 2012 was on Produce and Fresh Meat categories.
Findings from this work were also applied to Commercial Bakery, Fuel
and Tobacco with further gains in these latter categories expected in
2013. The key drivers continue to be more controlled assortments,
increased use of pre-packaged product, daily company-wide visibility
on product waste, simplified ordering processes, enhanced inventory
and margin management tools and training certification programs.
After a slower start in 2011 because of the shift in discipline and
attention that was required, 2012 moved at a faster, more productive
pace. This is expected to continue into 2013 as new product categories
are added. The financial impact has been very positive with Alaskan
and northern Canada Produce and Fresh Meat gross profit dollars up
26% or $11.0 million over the three years ending January 2013.
Initiative #2
Optimize in-stock position
This priority is highlighted by the fact that 87% of our sales (excluding
Giant Tiger) are in everyday consumable products that depend on a
strong in-stock position. This initiative focuses on improving in-stock
rates through technology-enabled tracking and ordering processes
that were launched in the second half of 2010 and have been further
refined by adjusting product space allocations.
Result
In 2012, the average in-stock performance at our Alaskan and northern
Canada stores improved by 470 basis points compared to the average
in-stock rate in 2011. During the year we also implemented the
processes and tracking from our in-stock initiative in our Cost-U-Less
stores which resulted in an 820 basis point improvement in their in-
stock performance over 2011. Combined with a wider range of
products now being measured under this initiative, our average in-
stock rate has generated an estimated annualized sales gain of $9.0
million or 1.1% of the food sales base of these divisions.
In 2013, our in-stock work will be integrated into the everyday
inventory focus at North West. Elements of our in-stock initiative will
carry forward within new replenishment initiatives that build on the
tracking capability of our Transportation Management System.
6THE NORTH WEST COMPANY INC. 2012
Initiative #5
Build our supply chain advantage
North West is a major shipper of merchandise and other freight into
the remote markets that we serve. This creates an opportunity to work
more collaboratively with our transportation partners to fully leverage
our knowledge and forecasted volumes. The outcomes we expect from
this strategy are improved product visibility and delivery service within
a more productive and lower cost integrated logistics network.
Result
In 2012, $1.7 million in outbound freight savings and distribution centre
efficiencies were achieved through improved routing and freight rates
implementation of
across our supply chain network and the
productivity tools in our Winnipeg Distribution Centre. A dedicated
cross-functional team is working on the implementation of the $7
million, transportation management system (“TMS”). The deployment
of TMS at North West will utilize 40% more functionality than typical
TMS implementations which speaks to the complexity of our diverse
network of freight modes and carriers. For outbound shipments the
TMS solution required the development of a custom track and trace
system, smart-labeling of all warehouse and cross dock merchandise,
enhanced warehouse management systems to facilitate load building
in one system and the ability for air carriers to plan, execute and provide
shipment status updates on shipments processed at their hubs.
We expect to have all phases of the project fully deployed by the
third quarter of 2013 and estimate that, within 24 months following
the roll-out, we will be able to further reduce our annual supply chain
costs by approximately $5 million. The net savings from TMS will be
strategically reinvested to continue to bring greater value to our
customers.
Initiative #6
Cascade our leadership principles into practices
We consider our leadership principles to be the foundation for great,
sustainable performance across all levels at North West. From our
cashiers to our buyers and store managers, we recognize that effective
management practices reflect these principles and align our work.
Result
2012 started and ended with a focus on our store management levels.
In the first half of the year our progress was slower than expected due
to personnel changes within our Human Resources team including a
vacancy at the Vice-President, Human Resources position for most of
2012. CEO-led leadership sessions were a key part of our second half
work and this will continue into 2013 assisted by the recruitment of a
Vice-President, Human Resources and a greater time commitment
from the entire senior management team.
Initiative #3
Ensure store teams stability
Within such a remote, diverse store network, our local skill and presence
is a core advantage. Through our assessment, we identified a need to
solidify our store teams so that they stay together longer in specific
locations, deepening customer and community relationships, and
building their business. For this to happen consistently, we are
revamping recruitment, retention and store work processes to ensure
we attract and retain highly capable, thoroughly trained store
personnel in key roles.
This initiative specifically addresses the opportunity to optimize
overall store performance by ensuring that a highly capable store team
is in place within each store location for an average time of at least
three years. Similar to other “More Growth in Store” work, 2012 was an
important year for building momentum and putting in place proven
methods to achieve desired stability levels.
Result
In 2012, a record number of managers were trained and placed in
rewarding roles. Our search for talented managers takes us across
Canada and the international markets we operate in. A new
recruitment platform was implemented in 2012 to reduce the time and
cost to hire candidates. The movement of management between
stores to fill critical vacancies was a barrier to achievement of overall
stability. To reduce the need to transfer employees, improved
recruitment planning was implemented, store level succession
planning was established and a pool of ready trained managers is being
created. Our staff housing upgrade program, which provides a higher-
standard housing benefit for store personnel recruited into northern
communities, included capital spending of $4.3 million in 2012. Work
continued on success profiles for all store manager and district
manager positions at North West with the development of coaching
guides and specific competency training to develop skills that are key
drivers of success at North West.
this
Initiative #4
Be “priced right”
Better price management is a strategic opportunity at North West,
especially in our more remote banners. Market-based pricing is more
difficult due to limited local shopping options in many of these
locations, and
requires a deeper, more sophisticated
understanding of true costs and purchase volumes relative to price.
Result
2012 built on the success of major price reductions on nutritious
perishable foods qualifying for Nutrition North Canada (“Nutrition
North”) freight subsidies that took effect in 2011. Air freight routing
changes in mid-2012 achieved a significant savings in transportation
costs to Baffin Island. Similar to the Nutrition North price reductions,
these savings were fully and transparently passed on in the form of
price reductions on key volume items.
Work was also completed across all food categories to ensure
correct "landed" costs and prices that reflected the optimal relationship
between like items and between national and store brands. The net
effect of this work was to improve both sales tonnage and margins.
In 2013, we expect to find further efficiencies that can further
reduce our cost of business, helping our customers realize even more
value for their dollar and attract more local shopping.
7ANNUAL REPORT
KEY PERFORMANCE DRIVERS AND
CAPABILITIES REQUIRED TO DELIVER RESULTS
The ability to protect and enhance the performance of northern
store locations: Our stores in Alaska and northern Canada represent
the highest potential for improved productivity and customer
satisfaction. We believe that the shift in our culture and capability
towards efficiency, innovation and operational excellence within our
new LRP strategies is working and is the best path to achieve these
goals.
The financial capability to sustain the competitiveness of our
existing store base and to pursue growth: Our sustaining
investments include replacement and renovated stores, staff housing,
energy-efficiency and technology. Non-capital expenditures are
centered on improvements to our in-store capabilities through more
in-depth training programs and the on-going investment in our LRP
work.
The ability to be a leading community store in every market we
serve: This depends on our ability to tailor our store formats, product/
service mix, community support and store associate employment offer,
while still realizing the scale efficiencies of our size or the size of our
alliance partners. A broad range of products, services and store sizes,
combined with flexible technology platforms and “best practice” work
processes, are all required to give us the ability to achieve this goal.
The ability to successfully add new stores and renew existing
store leases: Our new store opening success depends on finding
viable locations, communities that are interested in having our store
services, willing sellers of independent stores or chains, and being able
to integrate and accelerate their full contribution potential. Renewing
store leases, especially when the landlord is a community development
entity, depends on our track record of solid store operations, our
positive community relations and the superior attractiveness of our
retail store compared to other options. Other factors include achieving
product sourcing, operating and transportation cost savings, while
building strong, entrepreneurial store teams.
Our ability to build and maintain supportive community
relations: Our ongoing community presence depends on our ability
to be a trusted, open, respectful and adaptable organization. Our
approach is to reflect community priorities first and invest in local
causes with community development and healthy living being two
examples. We facilitate regular meetings with community and regional
leadership to build constructive relationships and to ensure that
information and ideas are shared on a proactive basis.
Our ability to attract, retain and develop highly capable store
level employees and work practices: Enhancing store stability and
capability is an on-going priority that aligns with our goal of being a
trusted local store. We continually invest in recruiting, retention and
best practice work methods. This recognizes the important role played
by our managers and other key store-level personnel in realizing local
selling opportunities, meeting our customer service commitments and
building and maintaining positive community relationships. It also
recognizes the reality that remoteness, employment competition from
other local sectors and other conditions of our markets create
challenges in attracting and retaining people. Related to this is our on-
going interest in hiring locally and assisting people to reach their
potential.
Our ability to reduce costs across all of our store banners, improve
competitiveness and create more time and skill at store level to
sell merchandise: A key goal is to shift more staff time and skill towards
selling merchandise tailored to the unique markets we serve, while
reducing costs in the non-selling facets of store work. Productivity
opportunities include labour scheduling, energy usage and inventory
shrinkage. We have developed alliances with other non-competing
retailers to provide sales and distribution services for certain products
and services where we do not have the scale to achieve a lower cost
structure on our own. Our new store banners and recent acquisitions
have further enabled us to achieve cost efficiencies in direct importing,
freight consolidation and general administration expenses while
enabling us to share our specialized retail knowledge and ideas among
our retail, wholesale and support service groups.
CONVERSION TO A SHARE CORPORATION
On January 1, 2011, the North West Company Fund (the “Fund”)
completed its previously announced conversion to a corporation
named The North West Company Inc. (the “Company”) by way of a plan
of arrangement under section 192 of the Canada Business
Corporations Act. Unitholders of the Fund received one common share
of the Company for each unit of the Fund held. Upon conversion, the
Company assumed all of the covenants and obligations of the Fund
and the common shares of the Company began trading on the Toronto
Stock Exchange under the symbol “NWC”. The details of the conversion
and the Arrangement are contained in the management information
circular dated April 29, 2010 which is available on the Company's
website at www.northwest.ca or on SEDAR at www.sedar.com.
The conversion was accounted for as a continuity of interests and
as such the carrying amounts of the assets, liabilities and unitholders'
in the consolidated financial statements of the Fund
equity
immediately before the conversion was the same as the carrying values
of the Company immediately after the conversion. The comparative
amounts in this MD&A and in the consolidated financial statements
are those of the Fund restated to conform with IFRS. The MD&A and
consolidated financial statements contain references to “shareholders”,
“shares” and “dividends” which were previously referred to as
“unitholders”, “units” and “distributions” under the Fund.
As a result of the conversion to a share corporation, the earnings
from The North West Company LP that previously flowed to the Fund
on a pre-tax basis are now subject to income taxes based on statutory
federal and provincial income tax rates commencing January 1, 2011.
On November 21, 2011, income tax legislation was enacted to
curtail income deferral by corporations with a partnership that has a
different taxation year. The new legislation requires income from these
partnerships to be reported on an accrual basis for tax purposes but
also includes transitional provisions whereby income earned from the
partnership during the initial adoption year can be deferred and
recognized over a subsequent five-year period. As a result of these
transition rules, a substantial portion of the income tax payable of the
Canadian Operations for 2011 has been deferred and will be paid over
the next five years. This deferred tax liability has been recorded as a
reduction of deferred tax assets. Further information on deferred tax
assets and deferred tax liabilities is provided in Note 9 to the
consolidated financial statements.
FISCAL YEAR
The fiscal year ends on January 31. The 2012 year which ended January
31, 2013 had 366 days of operations as a result of February 29th. The
first quarter had 90 days of operations compared to 89 days of
operations in the first quarter of 2011. The estimated impact of the
extra day has been deducted from 2012 same store sales.
8THE NORTH WEST COMPANY INC. 2012
Consolidated Results
2012 Highlights
•
Sales increased to $1.514 billion, our 13th consecutive year of sales
growth.
Net earnings increased 12.4% to $65.1 million.
Cash flow from operating activities increased 11.7% to $129.0
million and has grown 8.1% on a compound annual basis over
the past 10 years.
Quarterly dividends to shareholders increased 8.3% to $0.26 per
share.
Return on average equity was 22.5%, our seventh consecutive
year greater than 20.0%.
Return on net assets was 20.7% compared to 18.5% in 2011.
Debt-to-equity improved to .55:1.
Total returns to shareholders were 25.1% for the year and were
11.8% on a compound annual basis over the past five years.
•
•
•
•
•
•
•
FINANCIAL PERFORMANCE
Food sales increased 1.8% from 2011, and were up 1.6% excluding
the foreign exchange impact led by sales growth in our Canadian
Operations. Continued improvement in our in-stock performance and
a focus on higher growth food product categories in our northern
Canada stores contributed to the sales growth. Same store food sales
increased 1.4% over last year with quarterly same store increases of
2.8%, 2.0%, 1.0% and 0.6% in the fourth quarter. Canadian food sales
increased 1.9% and International food sales were up 1.0% excluding
the foreign exchange impact.
General merchandise sales decreased 2.1% compared to 2011
and were down 2.2% excluding the foreign exchange impact. Same
store general merchandise sales decreased by 3.1% for the year with
an increase of 4.7% in the first quarter and decreases of 0.8%, 5.8% and
6.8% in the last three quarters of the year. General merchandise sales
were weak across all of our banners due to lower spending in
discretionary categories such as electronics and home furnishings and
a weaker assortment in other categories.
Other revenue, which includes fuel, fur and service charge
revenue, increased 7.5% compared to 2011 largely due to fuel market
share gains and inflation.
Some of the key performance indicators used by management to
assess results are summarized in the following table:
Sales Blend The table below shows the consolidated sales blend over
the past three years:
Key Performance Indicators
($ in thousands,
except per share/unit)
2012
2011
2010
Sales
$ 1,513,646
$ 1,495,136
$ 1,448,104
Same store sales % increase(1)
0.5%
3.3%
2.7%
Trading profit(2) (EBITDA)
$ 134,267
EBIT(2)
Net earnings(3)
Net earnings per share/unit -
basic(3)
Net earnings per share/unit -
diluted(3)
Cash dividends/distributions
per share/unit(3)
$
$
$
$
$
97,118
65,148
1.35
1.34
1.04
Total assets
$ 651,394
Total long-term liabilities
$ 164,960
Return on net assets(2)
Return on average equity(2),(3)
20.7%
22.5%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
125,881
89,309
57,961
1.20
1.19
1.05
626,917
215,206
18.5%
20.1%
125,764
90,272
69,656
1.45
1.44
1.42
616,588
144,736
17.9%
24.1%
(1) All references to same store sales excludes the foreign exchange impact
(2) See Non-GAAP financial measures section on page 26
(3) Effective January 1, 2011 ("2010"), North West Company Fund converted
to a share corporation called The North West Company Inc. Information on
the impact of the conversion is provided in net earnings on page 10, return
on average equity on page 11 and shareholder dividends and unitholder
distributions on page 15.
Consolidated Sales Sales for the year ended January 31, 2013 (“2012”)
increased 1.2% to $1.514 billion compared to $1.495 billion for the year
ended January 31, 2012 (“2011”), and were up 4.5% compared to $1.448
billion for the year ended January 31, 2011 (“2010”). Sales for the year
were negatively impacted by store closures in the Canadian Operations
partially offset by one extra day of operations as a result of February
29th and the foreign exchange impact on the translation of U.S.
denominated sales in the International Operations. Excluding the
foreign exchange impact, sales increased 1.0% from 2011 and were up
5.5% from 2010. On a same store basis, sales increased 0.5% compared
to increases of 3.3% in 2011 and 2.7% in 2010.
Food
General merchandise
Other
2012
76.8%
19.5%
3.7%
2011
76.4%
20.2%
3.4%
2010
76.4%
20.3%
3.3%
Canadian Operations accounted for 68.9% of total sales (68.8% in 2011
and 67.6% in 2010) while International Operations contributed 31.1%
(31.2% in 2011and 32.4% in 2010).
Gross Profit Gross profit increased 3.9% to $444.7 million compared
to $428.0 million last year driven by sales growth and a 75 basis points
improvement in the gross profit rate. The gross profit rate was 29.38%
compared to 28.63% last year as food gross profit rate improvements
in both Canadian and International Operations more than offset lower
general merchandise gross profit rates. Food gross profit rate gains
were largely due to better buying and inventory management,
favourable changes in product mix and improved perishable category
performance.
Selling, operating and administrative expenses Selling, operating
and administrative expenses (“expenses”) increased 2.6% to $347.6
million and increased 31 basis points as a percentage of sales compared
to last year. The most significant factor was a $3.7 million increase in
share-based compensation costs largely due to a higher share price
compared to last year. The share price increased $3.74 per share or
9ANNUAL REPORT
information on share-based compensation
19.3% to $23.14 at January 31, 2013 compared to $19.40 at January 31,
2012. Additional
is
provided in Note 13 to the consolidated financial statements. Costs
related to store closures in the Canadian Operations and higher utility
costs and employee medical insurance expenses in the International
Operations also contributed to the increase in expenses.
Earnings from operations (EBIT) Earnings from operations or
earnings before interest and income taxes (“EBIT”) increased 8.7% to
$97.1 million compared to $89.3 million last year as sales growth and
gross profit rate improvements more than offset higher selling,
operating and administrative expenses. Excluding the foreign
exchange impact, earnings from operations increased $7.7 million or
8.6% compared to last year. Trading profit or earnings before interest,
income taxes, depreciation and amortization ("EBITDA") of $134.3
million increased 6.7% compared to last year. Excluding the foreign
exchange impact, trading profit increased 6.5% and was 8.9% as a
percentage to sales compared to 8.4% last year.
Interest expense Interest expense decreased 3.6% to $5.8 million
compared to $6.0 million last year. The decrease in interest expense is
largely due to the capitalization of interest on construction projects.
An increase in the average cost of borrowing to 3.5% compared to 3.2%
in 2011 was partially offset by a 6.4% decrease in average debt levels
compared to last year. Further information on interest expense is
provided in Note 18 to the consolidated financial statements.
Income tax expense The provision for income taxes increased to
$26.2 million compared to $25.3 million last year and the effective tax
rate for the year was 28.7% compared to 30.4% last year reflecting an
increase in earnings in the Canadian Operations and lower earnings in
the International Operations. The decrease in the effective tax rate is
due to lower statutory income tax rates in Canada and the impact of
income earned across the various tax jurisdictions in the International
Operations. A more detailed explanation of the income tax provision
and deferred tax assets is provided in Note 9 to the consolidated
financial statements.
Net earnings Consolidated net earnings increased 12.4% to $65.1
million or $1.34 per share on a diluted basis compared to $58.0 million
or $1.19 per share in 2011. The increase in Canadian earnings from
operations combined with lower income tax rates in Canada more than
offset lower earnings in the International Operations. Additional
information on the financial performance of Canadian Operations and
International Operations is included on page 11 and page 13
respectively. In 2012, the average exchange rate used to translate U.S.
denominated sales and expenses from the International Operations
was relatively flat at 0.998 compared to 0.991 last year.
The Canadian dollar's depreciation versus the U.S. dollar in 2011 had
the following net impact on the 2012 results:
Sales............................................................................increase of $3.1 million or 0.2%
Earnings from operations...............................................increase of $0.1 million
Net earnings............................................................................increase of $0.1 million
Diluted earnings per share..............................................................$0.00 per share
The decrease in net earnings from 2008 to 2010 compared to 2011 and
2012 performance as shown in the preceding graph is largely due to
the conversion to a share corporation and the taxation of earnings in
the Canadian Operations. Prior to the conversion to a share corporation
on January 1, 2011, earnings from The North West Company LP flowed
to North West Company Fund on a pre-tax basis and were fully
distributed to unitholders. There was no income tax payable by the
Fund on these distributions. See Conversion to a Share Corporation on
page 8 for further information.
Although the Company was structured as an income trust for
most of 2010, the application of different tax rates used to calculated
deferred tax assets and liabilities for income trusts under IFRS compared
to CGAAP resulted in an increase in the income tax provision from $7.3
million under CGAAP to $14.5 million under IFRS. This change in income
tax expense was the primary reason for the decrease in 2010 net
earnings reported under IFRS compared to 2009 net earnings reported
under CGAAP.
Total Assets Consolidated assets increased 3.9% to $651.4 million
compared to $626.9 million in 2011 and were up 5.6% compared to
$616.6 million in 2010. The increase in consolidated assets is largely
due to higher property and equipment and intangible assets
compared to last year and 2010 and an increase in deferred tax assets
compared to last year. The increase in property and equipment is due
to investments in new stores, major store renovations, improvements
to staff housing and equipment replacements. The increase in
intangible assets
is primarily due to the development of a
transportation management system and an upgrade to the Company's
financial management system. Deferred tax assets have increased
compared to last year mainly due to tax assets related to property and
equipment and share-based compensation.
Consolidated working capital for the past three years
is
summarized in the following table:
($ in thousands)
Current assets
Current liabilities
Working capital
2012
2011
2010
$ 303,896
$ 295,836
$ 284,789
$ (190,184)
$ (128,002)
$ (185,377)
$ 113,712
$ 167,834
$
99,412
Working capital decreased $54.1 million or 32.2% to $113.7 million
compared to 2011 and was up $14.3 million or 14.4% compared to
2010. The decrease in working capital compared to 2011 is primarily
due to an increase in current liabilities largely related to the current
portion of long-term debt and income tax payable. The current portion
of long-term debt increased to $40.4 million compared to $0.6 million
in 2011 but was down compared to $68.3 million in 2010 as a result of
the timing of the maturity of loan facilities. See Note 11 to the
consolidated financial statements for further information on long-term
debt. The increase in income tax payable is due to the conversion from
an income trust to a share corporation on January 1, 2011 and the
resulting taxation of Canadian earnings.
Return on net assets employed increased to 20.7% from 18.5% in
2011, and return on average equity increased to 22.5% from 20.1% in
2011. Return on net assets increased due to a 8.7% increase in earnings
before interest and taxes and lower average net assets employed.
10THE NORTH WEST COMPANY INC. 2012
Additional information on net assets employed for the Canadian and
International Operations is on page 12 and page 14 respectively.
Return on average equity improved to 22.5% due to a 12.4%
increase in net earnings partially offset by an increase in average equity
compared to last year. The decrease in the return on average equity
from 2008 to 2010 compared to 2011 and 2012 as shown in the graph
below is largely due to the conversion to a share corporation and the
taxation of earnings in the Canadian Operations as previously noted.
Further information on shareholder's equity is provided in the
statements of changes in shareholders' equity in the consolidated
financial statements.
long-term
Consolidated
Total long-term liabilities
liabilities
decreased $50.2 million or 23.3% to $165.0 million from 2011 and were
up $20.2 million or 14.0% compared to 2010. The decrease in long-
term liabilities from 2011 is largely due to an increase in the current
portion of long-term debt related to the International Operations loan
facilities that mature December 31, 2013. Further information on long-
term debt is included in the sources of liquidity and capital structure
sections on page 16 and page 17 respectively and in Note 11 to the
consolidated financial statements.
The increase in long-term liabilities compared to 2010 is due to
an increase in the defined benefit plan obligation largely related to a
significant decrease in the discount rate used to calculate pension
liabilities. The defined benefit obligation increased $19.4 million to
$28.4 million compared to $9.0 million in 2010. Further information on
post-employment benefits is provided in Note 12 to the consolidated
financial statements.
Canadian Operations
FINANCIAL PERFORMANCE
Canadian Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
Sales Canadian Operations sales increased $14.7 million or 1.4% to
$1.043 billion compared to $1.028 billion in 2011, and were up $64.4
million or 6.6% compared to 2010. Same store sales increased 1.0%
compared to a 3.7% increase in 2011. Food sales accounted for 72.2%
(71.8% in 2011) of total Canadian sales. The balance was made up of
general merchandise sales at 23.0% (23.6% in 2011) and other sales,
which consists primarily of fuel sales and service charge revenue at
4.8% (4.6% in 2011).
Food sales increased by 1.9% over 2011 and were up 7.1%
compared to 2010. Same store food sales increased 2.0% compared to
3.8% in 2011. Same store food sales had quarterly increases of 4.2%,
3.0%, 1.1% and 0.7%. Strong food sales growth in our northern markets
in part to product assortment changes and continued
due
improvement in our in-stock rates more than offset lower sales in less
remote stores. Food sales in stores impacted by the Nutrition North
Canada ("NNC") freight subsidy had the largest increases building on
the sales growth in 2011. The Company continued to review its supply
chain network in an effort to reduce transportation costs to the north.
In September 2012, the Company began to air freight merchandise
directly to Baffin Island from its distribution center in Winnipeg. The
savings from this initiative were invested in price reductions of 15% or
more on 175 key products sold in the Company's stores located on
Baffin Island which also contributed to the sales gain. Food inflation
resulting from higher commodity costs net of NNC freight subsidies
was approximately 1%.
General merchandise sales decreased 1.2% from 2011 but were
up 3.3% compared to 2010. Same store sales decreased 2.2% compared
to a 3.3% increase in 2011. On a quarterly basis, same store sales
increased 6.3% in the first quarter followed by decreases of 0.3% in the
second quarter and 5.4% in the last two quarters of the year. Sales were
negatively impacted by assortment challenges and lower discretionary
spending on electronics, home furnishings and other hardlines
categories.
Other revenues, which include fuel, fur and service charge
revenue, were up 7.9% from 2011 and increased 15.3% over 2010. The
increase in other revenues is largely due to fuel market share gains and
inflation.
Sales Blend The table below shows the sales blend for the Canadian
Operations over the past three years:
Food
General merchandise
Other
2012
72.2%
23.0%
4.8%
2011
71.8%
23.6%
4.6%
2010
71.8%
23.7%
4.5%
Same Store Sales Canadian Operations have consistently achieved
upper-quartile same store food sales reflecting the Company's focus
on superior food selling execution within what are generally growing
and younger markets with stable base income profiles. Same store
general merchandise sales have been more volatile because they are
heavily weighted to big-ticket durable goods that depend upon
customers' discretionary income. Same store sales for the past three
years are shown in the following table:
($ in thousands)
Sales
2012
2011
2010
$ 1,043,050
$ 1,028,396
$ 978,662
Same Store Sales
Same store sales % increase
1.0%
3.7%
4.1%
Trading profit (1) (EBITDA)
Earnings from operations (1)
(EBIT)
$
$
107,060
77,905
$
$
97,998
$ 98,781
(% change)
Food
69,253
$ 71,270
General merchandise
Return on net assets (1)
25.0%
20.7%
20.2%
Total sales
(1) See Non-GAAP financial measures section on page 26
2012
2.0 %
(2.2)%
1.0 %
2011
3.8%
3.3%
3.7%
2010
4.6%
2.6%
4.1%
11ANNUAL REPORT
Inventory decreased due to the store closures, merchandise
assortment reviews and a greater focus on inventory productivity.
Average inventory levels in 2012 were $4.1 million or 3.1% lower than
2011 and $3.0 million or 2.3% lower than 2010 due to store closures
and changes
Inventory turnover
improved to 5.7 times from 5.5 times in 2011 and 5.2 times in 2010.
in merchandise assortments.
Accounts receivable decreased $6.6 million or 9.9% from 2011 and
average accounts receivable were $0.6 million or 1.0% lower than 2011.
The decrease in accounts receivable is due to lower customer demand
for big-ticket merchandise, the timing of collections and a decrease in
an insurance related accounts receivable resulting from stores
destroyed by fire in 2011.
Other assets increased $20.1 million or 40.3% compared to last
year and were up $11.1 million or 18.9% compared to 2010 largely due
to an increase in cash, intangible assets and deferred tax assets. The
increase in cash is due to deposits in-transit at year-end and higher
cash balances to support our financial services business. Intangible
assets increased compared to last year and 2010 largely due to
investments in the development of a transportation management
system and an upgrade of the Company's financial management
system. Deferred tax assets have increased compared to last year
mainly due to tax assets related to property and equipment and share-
based compensation. Further information on deferred tax assets and
deferred tax liabilities is provided in Note 9 to the consolidated financial
statements.
Liabilities increased $24.7 million or 19.2% from 2011 and were
up $48.2 million or 45.9% compared to 2010 primarily due to higher
accounts payable and accrued liabilities, income tax payable and
defined benefit plan obligations. Accounts payable and accrued
liabilities increased due to higher trade accounts payable related to the
timing of payments and higher accrued incentive plan expenses
compared to 2010. Income tax payable increased $15.0 million over
2011 and $18.3 million over 2010 due to the conversion from an income
trust to a share corporation and the timing of income tax installment
payments. Further information on the Conversion to a Share
Corporation is provided on page 8. The defined benefit plan obligation
increased $0.8 million to $28.4 million compared to 2011 and was up
$19.4 million compared to $9.0 million in 2010 largely due to a
significant decrease in the discount rate used to calculate pension
liabilities. Further
is
information on post-employment benefits
provided in Note 12 to the consolidated financial statements.
Return on Net Assets The return on net assets employed for
Canadian Operations improved to 25.0% from 20.7% in 2011 due to a
12.5% increase in EBIT and the impact of lower average net assets
compared to last year as noted above.
Gross Profit Gross profit dollars for Canadian Operations increased by
5.0% driven by sales growth and improvement in gross profit rates. The
higher gross profit rates were due to product assortment changes,
better buying and inventory management, improved perishable
category profitability, and reduced pricing pressure in select southern
markets compared to last year. Higher gross profit rates on gasoline
was also a factor. Partially offsetting these improvements were higher
markdowns to clear slow moving general merchandise in northern
markets.
Selling, operating and administrative expenses Selling, operating
and administrative expenses (“expenses”) increased 2.9% from 2011
and were up 32 basis points as a percentage of sales compared to last
year. Higher share-based compensation costs related to an increase in
share price compared to last year as noted under the consolidated
financial results was the largest factor contributing to the increase in
expenses. A $1.3 million loss on the closure of six Giant Tiger stores and
higher pension costs were also factors. Excluding the Giant Tiger store
closure loss, expenses increased 20 basis points as a percentage of sales.
Earnings from operations (EBIT) Earnings from operations
increased $8.7 million or 12.5% to $77.9 million compared to $69.3
million in 2011 as sales growth and an improvement in gross profit
rates more than offset higher expenses. Trading profit from Canadian
Operations increased $9.1 million or 9.2% to $107.1 million and was
10.3% as a percentage of sales compared to 9.5% in 2011. Excluding
the Giant Tiger store closure loss, trading profit increased 10.6% and
was 10.4% as a percentage of sales.
Net Assets Employed Net assets employed at January 31, 2013,
decreased 7.5% to $291.9 million compared to $315.5 million at
January 31, 2012, as summarized in the following table:
($ in millions at the end of the fiscal
year)
2012
2011
2010
Property and equipment
$ 190.8
$
196.1
$
189.6
Inventory
Accounts receivable
Other assets
Liabilities
124.2
60.0
70.0
131.3
66.6
49.9
126.2
61.1
58.9
(153.1)
(128.4)
(104.9)
Net Assets Employed
$ 291.9
$
315.5
$
330.9
Property and equipment decreased compared to 2011 largely
due to the Giant Tiger store closures. Capital expenditures for the year
included new stores, store replacements and major store renovation
projects, staff housing renovations and energy-efficient refrigeration
upgrades.
12THE NORTH WEST COMPANY INC. 2012
International Operations
(Stated in U.S. dollars)
International Operations include Alaska Commercial Company ("AC"),
Cost-U-Less ("CUL") and Pacific Alaska Wholesale ("PAW").
FINANCIAL PERFORMANCE
International Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
Same store sales %
increase (decrease)
2012
2011
2010
$ 471,728
$ 470,932
$ 457,590
(0.6)%
2.3%
(0.2)%
Trading profit(1) (EBITDA)
$ 27,273
$ 28,133
$ 26,302
Sales Blend The table below reflects the growing ratio of food sales
to the total sales of International Operations:
Food
General merchandise
Other
2012
87.1%
11.8%
1.1%
2011
86.3%
12.6%
1.1%
2010
85.9%
13.1%
1.0%
Same store sales International Operations same store sales for the
past three years are shown in the following table. General merchandise
same store sales are significantly impacted by consumer spending on
big-ticket durable goods that are largely influenced by the previously
mentioned special payments, such as the Permanent Fund Dividend,
which can result in greater sales volatility.
Same store sales
(% change)
Food
General merchandise
2012
0.3 %
(6.8)%
(0.6)%
2011
2.9 %
(1.8)%
2.3 %
2010
(0.1)%
(1.0)%
(0.2)%
Earnings from operations(1)
(EBIT)
$ 19,259
$ 20,236
$ 18,522
Total sales
Gross Profit Gross profit dollars increased 0.4% reflecting sales growth
and a slight improvement in gross profit rate from 2011. An increase
in food gross profit rates, resulting in part from improved execution in
perishable departments, was largely offset by higher markdowns to
clear slow-moving general merchandise and prepare for the
repositioning of merchandise assortments in select store locations.
Selling, operating and administrative Selling, operating and
administrative expenses (“expenses”) increased 1.5% over last year and
were up 28 basis points as a percentage of sales. Higher employee
medical
leading factors
contributing to the increase in expenses. These two factors combined
increased $1.7 million or 9.1% compared to 2011 and were up $3.6
million or 21.0% over 2010. Partially offsetting these costs, were lower
incentive plan expenses compared to last year.
insurance and utility costs were the
Earnings from operations (EBIT)
Earnings from operations
decreased $1.0 million or 4.8% to $19.3 million compared to $20.2
million in 2011 as higher expenses were only partially offset by an
increase in gross profit. Trading profit decreased $0.9 million or 3.1% to
$27.3 million and was 5.8% as a percentage of sales compared to 6.0%
in 2011.
Return on net assets (1)
12.1 %
13.6%
12.6 %
(1) See Non-GAAP financial measures section on page 26
Sales International sales increased 0.2% to $471.7 million compared
to $470.9 million in 2011, and were up 3.1% compared to 2010 as food
sales growth was largely offset by lower general merchandise sales.
Same store sales decreased 0.6% compared to a 2.3% increase in 2011
and a 0.2% decrease in 2010. Food sales accounted for 87.1% (86.3%
in 2011) of total sales with the balance comprised of general
merchandise at 11.8% (12.6% in 2011) and other sales, which consist
primarily of fuel sales and service charge revenues, at 1.1% (1.1% in
2011).
Food sales increased 1.0% from 2011 and were up 4.4% compared
to 2010. Same store food sales were up 0.3% compared to a 2.9%
increase in 2011. Quarterly same store food sales increases were 0.1%,
0.2%, 0.6% and 0.3%. Our CUL stores and PAW business were the
primary contributors to the sales growth. CUL provided food sales
growth throughout the year, building on the same store sales gains in
2011. The PAW business also delivered another year of sales growth as
it continues to recapture market share after a significant sales decrease
in 2010.
General merchandise sales decreased 6.1% from 2011 and were
down 6.6% from 2010. On a same store basis, general merchandise
sales were down 6.8% compared to a decrease of 1.8% in 2011.
Quarterly same store sales were down 2.0%, 2.8% and 7.5% in the first
three quarters and decreased 12.6% in the fourth quarter compared
to a 7.1% increase in the fourth quarter last year. Lower discretionary
spending due to a weak economic environment, high unemployment
levels and increases in energy-related living expenses negatively
impacted sales, particularly in electronics, transportation, furniture and
seasonal merchandise. In Alaska, a decrease in the Permanent Fund
Dividend (“PFD”), regional native corporation dividends, and claims
settlement payments were also factors. The PFD paid to qualifying
Alaskan residents decreased 25.2% to $878 compared to $1,174 last
year and $1,281 in 2010.
Other revenues, which consist of fuel and service charge revenue,
were up 3.3% from 2011 and were up 16.0% from 2010 primarily due
to fuel inflation.
13ANNUAL REPORT
Net Assets Employed International Operations net assets employed
increased $24.4 million or 17.0% to $167.8 million compared to $143.4
million in 2011 and were up $19.8 million or 13.4% from 2010 as
summarized in the following table:
Net Assets Employed
($ in millions at the end of the fiscal
year)
Property and equipment
$
Inventory
Accounts receivable
Other assets
Liabilities
Total
2012
83.3
63.1
10.1
50.2
$
2011
73.9
54.5
9.9
43.7
$
2010
69.9
50.7
9.1
50.8
(38.9)
(38.6)
(32.5)
$ 167.8
$ 143.4
$ 148.0
Property and equipment increased reflecting a store replacement,
energy-efficient
substantial
refrigeration upgrades, and
completion of construction of a new Cost-U-Less store in Barbados
that opened on February 23, 2013.
the
Inventories increased compared to last year and 2010 largely due
to additional food inventory related to a focus on in-stock rates and
the new store in Barbados. Commodity cost increases were also a factor.
Average inventory levels in 2012 were $2.7 million or 4.8% higher than
2011 and up $4.4 million or 8.0% compared to 2010. Inventory turnover
decreased to 6.0 times in 2012 compared to 6.2 times in 2011.
Other assets increased $6.5 million or 14.9% compared to last year
largely due to higher cash balances at the end of the year and an
increase in deferred tax assets.
Liabilities were consistent with 2011 but increased compared to
2010 due primarily to higher trade accounts payable.
Return on Net Assets The return on net assets employed for
International Operations decreased to 12.1% from 13.6% in 2011 due
to lower EBIT and higher average net assets employed as noted above.
Consolidated Liquidity
and Capital Resources
The following table summarizes the major components of cash flow:
($ in thousands)
Cash flows from (used in):
Operating activities
Investing activities
Financing activities
Net change in cash
2012
2011
2010
$ 128,992
$ 115,469
$ 114,564
$ (48,781)
$ (45,948)
$ (34,124)
$ (68,520)
$ (73,768)
$ (76,487)
$
11,691
$
(4,247)
$
3,953
Cash from operating activities Cash flow from operating activities
increased 11.7% to $129.0 million. Changes in non-cash working capital
positively impacted cash flow from operating activities by $10.8 million
compared to a decrease in cash flow of $3.0 million in 2011. The change
in non-cash working capital is largely due to a decrease in accounts
receivable and an increase in accounts payable as noted in the
Canadian and International net assets employed on pages 12 and 14
respectively.
The Company paid income taxes of $15.5 million compared to
$6.2 million in 2011. Following the conversion to a share corporation
on January 1, 2011 and the deferral of the payment of Canadian income
taxes in the transition year in accordance with income tax legislation
enacted November 21, 2011, the Company began paying Canadian
income tax installments in 2012. The remaining balance of the accrued
Canadian income taxes for 2012 of approximately $19 million will be
paid in the first quarter of 2013. The Company expects its Canadian
monthly tax installments to increase in 2013 based on a normalized
level of taxable income and the recognition of a portion of the deferred
taxable income from the transition year. Further information on the
Conversion to a Share Corporation is provided on page 8.
Cash flow from operating activities and unutilized credit available
on existing loan facilities are expected to be sufficient to fund operating
requirements, pension plan contributions, and planned growth-
related capital expenditures as well as anticipated dividends during
2013.
The compound annual growth rate ("CAGR") for cash flow from
operating activities over the past 10 years is 8.1% as shown in the
following graph:
(1) 2011 and 2012 are reported in accordance with IFRS. 2010 has been restated to IFRS.
All other historical financial information was prepared in accordance with CGAAP and has
not been restated to IFRS.
14THE NORTH WEST COMPANY INC. 2012 Cash used in investing activities Net cash used in investing
activities was $48.8 million compared to $45.9 million in 2011. Net
investing in Canadian Operations was $31.7 million ($34.3 million in
2011). A summary of the Canadian Operations investing activities is
included in net assets employed on page 12. Net investing in
International Operations was $17.1 million compared to $11.6 million
in 2011. A summary of the International Operations investing activities
is included in net assets employed on page 14.
The following table summarizes the number of stores and selling
square footage under NWC's various retail banners at the end of the
fiscal year:
Northern
NorthMart
Quickstop
Giant Tiger
AC Value Centers
Cost-U-Less
Other Formats
Number of Stores
Selling square footage
2012
121
2011
123
7
16
31
30
12
6
7
15
36
30
12
6
2012
681,456
148,306
27,999
494,057
300,882
336,138
45,716
2011
690,921
148,306
26,566
577,432
295,742
336,138
45,716
Total at year-end
223
229
2,034,554
2,120,821
In the Canadian Operations, a new QuickStop convenience store was
opened in Rankin Inlet, Nunavut and a Giant Tiger store was opened
in Swift Current, Saskatchewan. New Northern stores were opened in
Taloyoak, Nunavut and Oxford House, Manitoba, replacing existing
facilities and two Northern stores and six underperforming Giant Tiger
stores were closed. Total selling square feet in Canada decreased to
1,374,647 from 1,466,054 in 2011.
In the International Operations, a new AC Value Center was
opened in Emmonak, Alaska replacing an existing facility. International
selling square feet increased to 659,907 from 654,767 in 2011.
Cash used in financing activities Cash used in financing activities
was $68.5 million compared to $73.8 million in 2011. The decrease is
mainly related to a change in amounts drawn on the loan facilities and
the repayment of a US$3.9 million note payable in the International
Operations last year. Further information on the loan facilities is
provided in the Sources of Liquidity section below.
Shareholder Dividends / Unitholder Distributions The Company
paid dividends of $50.3 million or $1.04 per share compared to $50.8
million or $1.05 per share paid in 2011, including the final distribution
from the Fund. Excluding the final distribution from the Fund, the
quarterly dividend increased 8.3% from 2011. In 2010, the last year
under the income trust structure, the Fund paid distributions of $68.7
million or $1.42 per unit. The decrease in dividends in 2012 and 2011
compared to the distributions paid in 2010 is due to the conversion to
a share corporation and the taxation of earnings of the Canadian
Operations. Prior to the conversion to a share corporation, earnings
from The North West Company LP flowed to the Fund on a pre-tax basis
and were distributed to unithholders. While higher corporate taxes
have reduced the Company's net earnings and cash available for
dividends to shareholders, the after-tax impact on personal income is
largely offset for taxable Canadian investors due to the dividend tax
credit.
The following table shows the quarterly cash dividends per share
and distributions per unit paid for the past three years:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Special distribution
Total
Dividends
Dividends Distributions
2012
$ 0.26
2011
$ 0.24
2010
$ 0.34
0.26
0.26
0.26
—
0.24
0.24
0.24
0.09
0.34
0.34
0.34
0.06
$ 1.04
$ 1.05
$ 1.42
The payment of dividends on the Company's common shares is subject
to the approval of the Board of Directors and is based on, among other
factors, the financial performance of the Company, its current and
anticipated future business needs and the satisfaction of solvency tests
imposed by the Canada Business Corporations Act (“CBCA”) for the
declaration of dividends. The dividends were designated as eligible
dividends in accordance with the provisions of the Canadian Income
Tax Act.
The determination to declare and make payable distributions
from the Fund was subject to the terms of the Fund's Declaration of
Trust and the discretion of the Board of Trustees. The Fund's distribution
policy was to make distributions to unitholders equal to the taxable
income of the Fund. The taxable income of the Fund was primarily
based on an allocation of the taxable income of The North West
Company LP less Fund expenses. In addition to the quarterly
distributions, a special year-end distribution was declared to
unitholders if the taxable income of the Fund exceeded the cumulative
distributions for the year. A special distribution of $0.09 per unit was
paid February 18, 2011 to unitholders of record on December 31, 2010.
The Fund's obligation to pay the $0.09 per unit special distribution was
assumed by the Company as part of the conversion to a share
corporation (see Conversion to a Share Corporation on page 8). Further
information on dividends is included in Note 19 to the consolidated
financial statements.
The following table shows dividends and distributions paid in
comparison to cash flow from operating activities for the past three
years:
Dividends/Distributions
$ 50,320
$ 50,797
$ 68,700
2012
2011
2010
Cash flow from operating
activities
Dividends/Distributions as a %
of cash flow from operating
activities
$128,992
$115,469
$114,564
39.0%
44.0%
60.0%
The decrease in dividends as a percentage of cash flow from operating
activities to 39.0% compared to 2010 is largely due to the conversion
to a share corporation and the taxation of earnings in the Canadian
Operations. The Canadian Operations began paying income tax
installments in 2012 which has reduced cash flow from operating
activities. The Company's income tax payments will increase in 2013
based on the payment of the remaining accrued income taxes for 2012
and higher Canadian monthly tax installments based on a normalized
level of taxable income. Further information is provided under cash
from operating activities on page 14.
15ANNUAL REPORT
The compound annual growth rate (CAGR) for dividends and
distributions over the past 10 years is 7.2% as shown in the following
graph:
(1) All per unit information has been restated to reflect the three-for-one unit split that
occurred on September 20, 2006.
(2) From 2002 to 2010, amounts paid to unitholders were distributions from the Fund. The
Fund converted to a share corporation effective January 1, 2011. The $1.05 paid to
shareholders in 2011 includes a $0.09 per unit final distribution from the Fund paid by
the Company as part of the conversion to a share corporation plus dividends of $0.96
per share.
(3) The Fund paid a special distribution of $0.11 per unit on a split adjusted basis.
Subsequent event - dividends On March 14, 2013, the Board of
Directors approved a quarterly dividend of $0.28 per share to
shareholders of record on March 28, 2013, to be paid on April 15, 2013.
This is an increase of $0.02 per share or 7.7% compared to the $0.26
per share quarterly dividend paid in 2012. On an annual basis, the
Company anticipates paying dividends of approximately $1.12 per
share compared to $1.04 per share in 2012.
Post-employment benefits The Company sponsors defined benefit
and defined contribution pension plans covering the majority of
Canadian employees. Effective January 1, 2011, the Company entered
into an amended and restated staff pension plan, which incorporated
legislated changes, administrative practice, and added a defined
contribution provision. Under the amended pension plan, all members
who did not meet a qualifying threshold based on number of years in
the pension plan and age were transitioned to the defined contribution
pension plan effective January 1, 2011 and no longer accumulate years
of service under the defined benefit pension plan. The defined benefit
pension previously earned by the members transitioned to the defined
contribution plan will continue to accrue in accordance with the
provisions of the amended plan based on the member's current
pensionable earnings. Members who met the required qualifying
threshold elected between continuing to accrue a defined benefit
pension and accruing a defined contribution benefit.
As a result of further reductions in already low long-term interest
rates, the Company recorded net actuarial losses on defined benefit
pension plans of $2.6 million net of deferred income taxes in other
comprehensive income compared to net actuarial losses of $15.3
million net of deferred income taxes in 2011. The charge to other
comprehensive income was immediately recognized in retained
earnings. The actuarial loss in 2012 was due to a decrease in the
discount rate used to calculate pension liabilities from 4.5% in 2011 to
4.3% in 2012. The net actuarial loss in 2011 was due to a decrease in
the discount rate from 5.8% in 2010 to 4.5% in 2011 and lower than
expected return on pension plan assets.
In 2013, the Company will be
required to contribute
approximately $7.2 million to the defined benefit pension plan of
which approximately $3.9 million of this obligation may be settled by
the issuance of a letter of credit in accordance with pension legislation.
The cash contribution to the pension plan is expected to be
approximately $3.3 million in 2013 compared to $5.6 million in 2012.
The actual amount of the contributions may be different from the
estimate based on actuarial valuations, plan investment performance,
volatility in discount rates, regulatory requirements and other factors.
The Company also expects to contribute approximately $2.2 million to
the defined contribution pension plan in 2013 compared to $2.0
million in 2012. Additional information regarding post-employment
benefits is provided in Note 12 to the consolidated financial statements.
Sources of liquidity The Canadian Operations have available
committed, extendible, revolving loan facilities of $170.0 million that
mature on December 31, 2015. These facilities are secured by a floating
charge on the assets of the Company and rank pari passu with the US
$70.0 million senior notes and the US$52.0 million loan facilities in
International Operations. These loan facilities bear a floating interest
rate based on Banker's Acceptances' rates plus stamping fees or the
Canadian prime interest rate. At January 31, 2013, the Company had
drawn $52.5 million on these facilities (January 31, 2012 - $68.9 million).
At January 31, 2013, the Canadian Operations have outstanding
US$70.0 million senior notes (January 31, 2012 - US$70.0 million) that
mature on June 15, 2014. The senior notes are secured by a floating
charge on the assets of the Company and rank pari passu with the
$170.0 million loan facilities and the US$52.0 million loan facilities. The
US$70.0 million senior notes have been designated as a hedge against
the U.S. dollar investment in the International Operations. Of this
amount, US$42.0 million of the senior notes are at a fixed interest rate
of 6.55%. Interest on US$28.0 million has been converted by an interest
rate swap from fixed to floating rates at the three-month London
Interbank Offered Rate (LIBOR) plus a spread. For more information on
the senior notes and financial instruments, see Note 11 and Note 14 to
the consolidated financial statements.
On October 25, 2012, the Company completed the refinancing of
its US$20 million loan facility in the International Operations. The new,
increased, committed, revolving loan facility provides the Company
with a US$30 million revolving loan facility for working capital
requirements and general business purposes. This facility, which
matures October 31, 2015, is secured by certain accounts receivable
and inventories of the International Operations and bears a floating
interest rate based on LIBOR plus a spread. At January 31, 2013, the
Company had drawn US$0.7 million on these facilities (January 31,
2012 - US$ NIL).
The Company's International Operations also have available
committed, revolving loan facilities of US$52.0 million that mature on
December 31, 2013. These facilities are secured by a floating charge
against the assets of the Company and rank pari passu with the US$70.0
million senior notes and the $170.0 million loan facilities. These facilities
bear interest at LIBOR plus a spread or the U.S. prime rate. At January 31,
2013, the Company had drawn US$40.0 million (January 31, 2012 - US
$36.0 million) on these facilities. The Company does not anticipate any
difficulty in securing financing to satisfy its maturing loan facilities
however, economic conditions can change which may negatively
impact the availability of credit, interest rates and the scope of financing
covenants. For further information on risks related to refinancing, see
liquidity risk in the risk management section on page 22.
16THE NORTH WEST COMPANY INC. 2012 The coverage ratio of earnings from operations ("EBIT") to interest has
increased to 16.7 times compared to 14.9 times in 2011.
Interest Costs and Coverage
Coverage ratio
EBIT ($ in millions)
Interest ($ in millions)
2012
16.7
$ 97.1
$
5.8
2011
14.9
$ 89.3
$
6.0
2010
14.8
$ 90.3
$
6.1
The loan facilities and senior notes contain covenants and restrictions
including the requirement to meet certain financial ratios and financial
condition tests. The financial covenants include a fixed charge
coverage ratio, minimum current ratio, a leverage test and a minimum
net worth test. At January 31, 2013, the Company is in compliance with
all covenants under these facilities. Current and forecasted debt levels
are regularly monitored for compliance with debt covenants.
Contractual Obligations and Other Commitments
Contractual obligations of the Company are listed in the chart below:
($ in thousands)
Total
0-1 Year
2-3 Years
4-5 Years
6 Years+
Long-term debt
(including capital
lease obligations) $163,354
$ 40,417
$122,937
$ — $ —
Operating leases
135,887
23,490
36,637
27,028
48,732
Other liabilities (1)
12,944
7,437
5,507
—
—
Total
$312,185
$ 71,344
$165,081
$ 27,028
$ 48,732
(1) At year-end, the Company had additional long-term liabilities of $34.7 million
which included other liabilities, defined benefit plan obligations and
deferred income tax liabilities. These have not been included as the timing
and amount of the future payments are uncertain.
Director and Officer Indemnification Agreements The Company
has agreements with its current and former directors, trustees, and
officers to indemnify them against charges, costs, expenses, amounts
paid in settlement and damages incurred from any lawsuit or any
judicial, administrative or investigative proceeding in which they are
sued as a result of their service. Due to the nature of these agreements,
the Company cannot make a reasonable estimate of the maximum
amount it could be required to pay to counterparties. The Company
has also purchased directors', trustees', and officers' liability insurance.
No amount has been recorded in the financial statements regarding
these indemnification agreements.
Other Indemnification Agreements The Company provides
indemnification agreements to counterparties for events such as
intellectual property right infringement, loss or damage to property,
claims that may arise while providing services, violation of laws or
regulations, or as a result of litigation that might be suffered by the
counterparties. The terms and nature of these agreements are based
on the specific contract. The Company cannot make a reasonable
estimate of the maximum amount it could be required to pay to
counterparties. No amount has been recorded in the financial
statements regarding these agreements.
Giant Tiger Master Franchise Agreement In 2002, the Company
signed a 30-year Master Franchise Agreement with Giant Tiger Stores
Limited, based in Ottawa, Ontario which granted the Company the
exclusive right to open Giant Tiger stores in western Canada. Under the
agreement, Giant Tiger Stores Limited provides product sourcing,
merchandising, systems and administration support to the Company's
Giant Tiger stores in return for a royalty based on sales. The Company
is responsible for opening, owning, operating and providing food
buying and distribution services to the stores. The Company's
exclusivity right required that a minimum number of Giant Tiger stores
be opened each year, based on an expected roll-out of 72 stores over
the term of the agreement. As a result of the closure of six stores during
2012, the Company has fallen below the minimum number of stores
required to maintain its exclusive right to open Giant Tiger stores in
western Canada. The loss of exclusivity does not constitute an event
of default under the Company's master franchise rights and will not
prevent the Company from continuing to operate its existing stores or
information on commitments,
open new stores. Additional
contingencies and guarantees is provided in Note 22 to the
consolidated financial statements.
Related Parties The Company has a 50% ownership interest in a
Inc. and
Canadian Arctic shipping company, Transport Nanuk
purchases freight handling and shipping services from Transport
Nanuk Inc. and its subsidiaries. The purchases are based on market rates
for these types of services in an arm's length transaction. Additional
information on the Company's transactions with Transport Nanuk Inc.
is included in Note 23 to the consolidated financial statements.
Letters of Credit In the normal course of business, the Company
issues standby letters of credit in connection with defined benefit
pension plans, purchase orders and performance guarantees. The
aggregate potential liability related to letters of credit is approximately
$14 million (January 31, 2012 - $15 million).
Capital Structure The Company's capital management objectives
are to deploy capital to provide an appropriate total return to
shareholders while maintaining a capital structure that provides the
flexibility to take advantage of growth opportunities, maintain existing
assets, meet obligations and financial covenants and enhance
shareholder value. The capital structure of the Company consists of
bank advances,
long-term debt and shareholders' equity. The
Company manages capital to optimize efficiency through an
appropriate balance of debt and equity. In order to maintain or adjust
its capital structure, the Company may purchase shares for cancellation
pursuant to normal course issuer bids, issue additional shares, borrow
additional funds, adjust the amount of dividends paid or refinance debt
at different terms and conditions.
On a consolidated basis, the Company had $163.4 million in debt
and $296.3 million in equity at the end of the year and a debt-to-equity
ratio of 0.55:1 compared to 0.62:1 last year. The improvement in the
debt-to-equity ratio is largely due to an increase in earnings and a
reduction in the amount of debt outstanding at the end of the year as
a result of positive cash flow.
17ANNUAL REPORT earnings for net actuarial losses on the Company's defined benefit
pension plan and an increase in dividends to shareholders. Further
information is provided in the statements of changes in shareholders'
equity in the consolidated financial statements.
QUARTERLY FINANCIAL INFORMATION
Historically, the Company's first quarter sales are the lowest and fourth
quarter sales are the highest, reflecting consumer buying patterns.
Weather conditions are often more extreme compared to other
retailers and can affect sales in any quarter. Net earnings generally
follow higher sales, but can be dependent on markdown activity in key
sales periods to reduce excess inventories. Net earnings are historically
lower in the first quarter due to lower sales and fixed costs such as rent
and overhead that apply uniformly throughout the year.
The following is a summary of selected quarterly financial information:
($ thousands)
Q1
Q2
Q3
Q4
Total
Sales
2012
2011
$365,517
$383,843
$377,664
$386,622
$1,513,646
$346,262
$372,945
$378,359
$397,570
$1,495,136
Trading profit (EBITDA)
2012
2011
$ 29,884
$ 36,572
$ 35,748
$ 32,063
$ 134,267
$ 28,387
$ 32,408
$ 34,476
$ 30,610
$ 125,881
Earnings from operations (EBIT)
2012
2011
$ 20,571
$ 27,361
$ 26,365
$ 22,821
$ 19,385
$ 23,408
$ 25,448
$ 21,068
Net earnings
2012
2011
$ 13,553
$ 18,277
$ 17,487
$ 15,831
$ 12,425
$ 15,035
$ 17,000
$ 13,501
Earnings per share-basic
2012
2011
$
$
0.28
0.26
$
$
Earnings per share-diluted
2012
2011
$
$
0.28
0.26
$
$
0.38
0.31
0.38
0.31
$
$
$
$
0.36
0.35
0.36
0.35
$
$
$
$
0.33
0.28
0.32
0.27
$
$
$
$
$
$
$
$
97,118
89,309
65,148
57,961
1.35
1.20
1.34
1.19
Fourth Quarter Highlights Fourth quarter consolidated sales
decreased 2.8% to $386.6 million compared to $397.6 million in 2011
primarily due to weaker performance from general merchandise
categories and the impact of previously announced store closures.
Excluding the foreign exchange impact, sales decreased 1.9% and were
down 1.2%(1) on a same store basis. Food sales(1) decreased 0.3% but
were up 0.6% on a same store basis. General merchandise sales(1)
decreased 7.3% and were down 6.8% on a same store basis.
rate
improvements and
Earnings from Operations increased 8.3% to $22.8 million
compared to $21.1 million in the fourth quarter last year due to gross
profit
lower selling, operating and
administrative expenses. The gross profit rate improvement is primarily
due to the availability of special item buys, favourable product mix
changes, and reduction in product waste within perishable food
categories. Selling, operating and administrative expenses decreased
2.4% compared to last year due in part to lower incentive plan expenses
in the International Operations and were up 8 basis points as a
percentage to sales. Excluding the foreign exchange impact, earnings
from operations increased 9.2% compared to last year.
Trading profit or earnings before
income taxes,
depreciation and amortization (EBITDA) increased 4.7% to $32.1 million
compared to $30.6 million last year as gains within Canadian
Operations more than offset a decrease in the International Operations.
interest,
(1) Excluding the foreign exchange impact.
The capacity of the Company's capital structure is reflected in the
preceding graph. Over the past five years, the Company's debt-to-
equity ratio has improved from .78:1 to .55:1. Equity has increased $21.8
million or 8.0% to $296.3 million over the past five years and interest-
bearing debt has decreased $49.7 million or 23.3% to $163.4 million
compared to $213.0 million in 2008. During this same time frame, the
Company has made capital expenditures of $224.1 million and has paid
distributions and dividends of $304.8 million. This reflects the
Company's balanced approach of investing to sustain and grow the
business while providing shareholders with an annual cash return.
Consolidated debt at the end of the year decreased $12.5 million
or 7.1% to $163.4 million compared to $175.9 million in 2011, and was
down $29.2 million or 15.2% from $192.6 million in 2010. As
summarized in the table below, the decrease in debt is due to lower
amounts drawn on the Canadian Operations and International
Operations loan facilities and the repayment of a US$3.9 million note
payable in 2011. The Company has US$111.3 million in debt at January
31, 2013 (January 31, 2012 - US$107.2 million) that is exposed to
changes in foreign exchange rates when translated into Canadian
dollars. The exchange rate used to translate U.S. denominated debt into
Canadian dollars at January 31, 2013 was 0.9992 compared to 1.0052
at January 31, 2012 and 1.0022 at January 31, 2011. The difference in
exchange rate did not have a significant impact on the translation of
U.S. denominated debt between 2010 and 2012. Average debt
outstanding during the year excluding the foreign exchange impact
decreased $13.6 million or 7.0% from 2011 and was down $34.1 million
or 15.9% compared to 2010. The debt outstanding at the end of the
fiscal year is summarized as follows:
($ in thousands at the end of
the fiscal year)
2012
2011
2010
Senior notes
$ 69,461
$
69,626
$
69,199
Canadian revolving loan
facilities
U.S. revolving loan facilities
Notes payable
Finance lease liabilities
Bank advances
Total
52,499
39,968
388
320
718
68,850
36,187
659
570
—
67,445
50,110
4,850
992
—
$ 163,354
$ 175,892
$ 192,596
Shareholder Equity The Company has an unlimited number of
authorized shares and had
issued and outstanding shares at
January 31, 2013 of 48,388,721 (48,378,000 as at January 31, 2012).
Further information on the Company's share capital is provided in Note
15 to the consolidated financial statements.
Book value per share, on a diluted basis, at the end of the year
increased to $6.10 compared to $5.85 per share in 2011. Shareholders'
equity increased $12.5 million or 4.4% compared to 2011 due to higher
net earnings, partially offset by a $2.6 million charge to retained
18THE NORTH WEST COMPANY INC. 2012
Excluding the foreign exchange impact, trading profit increased $1.7
million or 5.5% and was 8.3% as a percentage to sales compared to
7.7% last year.
Interest expense decreased $0.5 million to $1.1 million due in part
to the impact of lower average debt in the quarter and an increase in
the capitalization of interest on construction projects.
Income tax expense was flat to last year as higher earnings in the
Canadian Operations were partially offset by lower income tax rates
and the impact of income earned across the various tax jurisdictions
in the International Operations. The consolidated effective tax rate in
the quarter was 27.2% compared to 30.6% last year.
Net earnings increased 17.3% to $15.8 million and diluted
earnings per share increased to $0.32 compared to $0.27 per share last
year largely due to earnings growth in the Canadian Operations and
lower income tax rates.
The Company recorded an actuarial gain of $2.5 million, net of
deferred income tax, in other comprehensive income resulting from
an increase in the discount rate and a higher than expected return on
pension plan assets in the quarter.
Working capital decreased $54.1 million or 32.2% compared to
the fourth quarter last year largely due to the increase in the current
portion of long-term debt. The increase in the current portion of long-
term debt is due to the International Operations loan facilities that
mature December 31, 2013. Excluding the impact of the maturing loan
facilities, working capital decreased $14.1 million or 8.4% compared to
last year largely due to an increase in accounts payable and income
tax payable related to the timing of payments.
Cash flow from operating activities in the quarter decreased $1.5
million or 2.9% to $51.4 million from $52.9 million last year. The decrease
is largely due to the change in non-cash working capital related to the
change in accounts receivable and accounts payable in the quarter
compared to the prior year.
Cash used for investing activities in the quarter decreased to $14.4
million compared to $17.1 million last year due to a difference in the
timing of capital investments.
Cash used in financing activities in the quarter was $39.3 million
compared to $42.8 million last year. The change in long-term debt in
the quarter is largely due to the change in the amounts drawn on the
Company's Canadian revolving loan facilities compared to last year.
The Company paid dividends of $12.6 million, an increase of 8.4%
compared to the fourth quarter last year.
Further information on the quarterly financial performance of the
Company is provided in the interim MD&A available on the Company's
website at www.northwest.ca or on SEDAR at www.sedar.com.
DISCLOSURE CONTROLS
Management is responsible for establishing and maintaining a system
of disclosure controls and procedures to provide reasonable assurance
that material information relating to the Company is reported to senior
management, including the Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) on a timely basis so that decisions can be made
regarding public disclosure. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based on an evaluation
of the Company's disclosure controls and procedures, as required by
National Instrument 52-109 (Certification of Disclosure in Issuers'
Annual and Interim Filings), the Company's CEO and CFO have
concluded that these controls and procedures were designed and
operated effectively as of January 31, 2013.
INTERNAL CONTROLS OVER
FINANCIAL REPORTING
Management is responsible for establishing and maintaining internal
controls over financial reporting to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
International Financial Reporting Standards. All internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can only
provide reasonable assurance with respect to financial reporting. Based
on an evaluation of the Company's internal controls over financial
reporting using the framework published by The Committee of
Sponsoring Organizations of the Treadway Commission (“COSO
Framework”) as required by National
Instrument 52-109, the
Company's CEO and CFO have concluded that the internal controls
over financial reporting were designed and operated effectively as of
January 31, 2013. There have been no changes in the internal controls
over financial reporting during the quarter and for the year ended
January 31, 2013 that have materially affected or are reasonably likely
to materially affect the internal controls over financial reporting.
OUTLOOK
The Company's continued focus on merchandise productivity and
operational excellence, driven by the More Growth in Store initiatives
described in the strategy section, are expected to provide operating
margin upside within remote store markets. Overall, consumer
incomes and spending momentum is expected to be flat to 2012,
depending on the degree of improvement within the natural resource
and tourism sectors. The Company's Giant Tiger stores are expected to
come under sales and gross margin pressure due to anticipated
changes in the competitive environment from existing retailers and
new entrants forecasted in 2013. Offsetting gains are expected from
lower perishable product waste, improved general merchandise
inventory productivity and the closure of under-performing stores in
fiscal 2012.
Net capital expenditures
for 2013 are expected to be
approximately $50 million (2012 - $48.8 million) reflecting the opening
and acquisition of new stores, store replacement projects, energy
efficiency projects, and the
final phase of a transportation
management system. Actual expenditures depend upon the
completion of negotiations and shipment of construction materials to
remote locations and therefore, the actual amount and timing of
expenditures can fluctuate as it has over the past few years.
Following the conversion to a share corporation on January 1,
2011 and the deferral of the payment of Canadian income taxes in the
2011 transition year in accordance with income tax legislation enacted
November 21, 2011, the Company began paying Canadian income tax
installments in 2012 which has reduced cash flow from operating
activities. The Company will pay the remaining balance of the accrued
income taxes for 2012 of approximately $19 million in the first quarter
of 2013. The Company expects its Canadian monthly income tax
installments to increase in 2013 based on a normalized level of taxable
income in 2012 and the recognition of a portion of the deferred taxable
income from the transition year. These income tax payments will
reduce cash flow from operating activities in 2013.
The adoption of new accounting standards for defined benefit
pension plans will result in the restatement of the 2012 comparative
numbers in the 2013 consolidated financial statements. The Company
expects these new standards will result in a decrease in 2012 restated
net earnings of approximately $1.260 million. Further information on
future accounting standards is provided on page 25.
19ANNUAL REPORT
RISK MANAGEMENT
The North West Company maintains an Enterprise Risk Management
("ERM") program which assists in identifying, evaluating and managing
risks that may reasonably have an impact on the Company. An annual
ERM assessment is completed to evaluate risks and the potential
impact that the risks may have on the Company's ability to execute its
strategies and achieve its objectives. The results of this assessment are
presented to the Board of Directors who are accountable for providing
oversight of the ERM program.
The North West Company is exposed to a number of risks in its
business. The descriptions of the risks below are not the only ones
facing the Company. Additional risks and uncertainties not presently
known to the Company, or that the Company deems immaterial, may
also impair the operations of the Company. If any of such risks actually
occur, the business, financial condition, liquidity, and results of
operations of the Company could be materially adversely affected.
Readers of this MD&A are also encouraged to refer to the Key
Performance Drivers and Capabilities and Outlook sections of this
MD&A, as well as North West's Annual Information Form, which
provides further information on the risk factors facing the Company.
While the Company employs strategies to minimize these risks, these
strategies do not guarantee that events or circumstances will not occur
that could negatively impact the Company's financial condition and
performance. Careful consideration should be given to the risk factors
which include, but are not limited to, the following:
Business Model The Company serves geographically diverse markets
and sells a very wide range of products and services. Operational scale
can be difficult to achieve and the complexity of the Company's
business model is higher compared to more narrowly-focused or larger
retailers. Management continuously assesses the strength of its
customer value offer to ensure that specific market, product and
service activities are attractive. Considerable attention is also given to
streamlining processes to simplify work across the Company. To the
extent the Company is not successful in developing and executing its
strategies, it could have an adverse effect on the financial condition
and performance of the Company.
Employee Development and Retention Attracting, retaining and
developing high calibre employees is essential to effectively managing
our business, executing our strategies and meeting our objectives. Due
to the vast geography and remoteness of the Company's markets, there
is significant competition for talent and a limited number of qualified
personnel, particularly at the store management level. The degree to
which the Company is not successful in retaining and developing
employees and establishing appropriate succession plans could lead
to a lack of knowledge, skills and experience required to effectively run
our operations and execute our strategies. The Company's store
stability initiative described on page 7 is focused on having all stores
reach a targeted level of capability and stability. In addition to
compensation programs and investments in staff housing that are
designed to attract and retain qualified personnel, the Company also
continues to implement and refine initiatives such as comprehensive
store-based manager-in-training programs and the Company's in-
depth leadership development program.
Community Relations A portion of the Company's sales are derived
from communities and regions that restrict commercial
land
ownership and usage by non-indigenous or non-local owned
businesses or which have enacted policies and regulations to support
locally-owned businesses. We successfully operate within these
environments through initiatives that promote positive community
and customer relations. These include store lease arrangements with
community-based development organizations and initiatives to
recruit local residents into management positions and to incorporate
community stakeholder advice into our business at all levels. To the
extent the Company is not successful in maintaining positive
community and customer relations in these locations, or is unable to
renew lease agreements with community-based organizations, or is
subject to punitive fees or operating restrictions, it could have an
adverse effect on sales and financial performance.
Economic Environment External factors which affect customer
demand and personal disposable income, and over which the
Company exercises no influence, include government fiscal health,
general economic growth, changes in commodity prices, inflation,
unemployment rates, personal debt levels and levels of personal
disposable income, interest rates and foreign exchange rates. Changes
in the inflation rate are unpredictable and may impact the cost of
merchandise and the prices charged to consumers which in turn could
negatively impact sales and net earnings. Although our core customer
is a lower income shopper with relatively stable income sources, a
decrease in government income transfer payments to individuals, a
recession, or a significant and prolonged decline in consumer
spending could have an adverse effect on the financial condition and
results of operations. Furthermore, customers in many of the
Company's markets benefit from product cost subsidies through
programs such as Nutrition North Canada
("NNC"), the U.S.
Supplemental Nutrition Assistance Program ("SNAP") and the by-pass
mail system in Alaska. A deterioration in government fiscal health could
result in a reduction in financial support for these programs which
would have a significant impact on the price of merchandise and
consumer demand. Management regularly monitors economic
conditions and considers factors which can affect customer demand
in making operating decisions and the development of strategic
initiatives and long-range plans.
Consumer Income Our largest customer segments derive most of
their income directly or indirectly from government infrastructure
spending or direct payment to individuals in the form of social
assistance, child tax benefits and old age security. These tend to be
stable sources of income, independent of economic cycles. Other
forms of government spending such as NNC and SNAP also contribute
to lower living costs for eligible customers. A major source of
employment income is generated from local government and
spending on public infrastructure. This includes housing, schools,
health care facilities, military facilities, roads and sewers. Local
employment levels will fluctuate from year-to-year depending on the
degree of infrastructure activity and a community's overall fiscal health,
especially near the end of the government budget year. A similar
fluctuating source of income is employment related to tourism and
natural resource development. A significant or prolonged reduction in
government transfers, subsidy programs, spending on infrastructure
projects, natural resource development and tourism spending would
have a negative impact on consumer income which in turn could result
in a decrease in sales and gross profit, particularly for more discretionary
general merchandise items.
Competition We have a leading market position in a large percentage
of the markets we serve. Sustaining and growing this position depends
on our ability to continually improve customer satisfaction while
identifying and pursuing new sales opportunities. We actively monitor
competitive activity and we are proactive in enhancing our value offer
elements, ranging from in-stock position to service and pricing. The
entrance of new competitors, an increase in competition, both local
and outside the community, or the introduction of new products and
services in the Company's markets could negatively impact sales and
financial performance.
20THE NORTH WEST COMPANY INC. 2012
Fuel and Utility Costs Compared to other retailers, the Company is
more exposed to fluctuations in the price of energy, particularly oil.
Due to the vast geography and remoteness of the store network,
expenses related to aviation fuel, diesel-generated electricity, and
heating fuel costs are a more significant component of the Company's
and its customers' expenses. To the extent that escalating fuel and
utility costs cannot be offset by alternative energy sources, energy
conservation practices or offsetting productivity gains, they may result
in higher retail prices or lower operating margins which may affect the
Company's financial performance. In this scenario, consumer retail
spending will also be affected by higher household energy-related
expenses.
Information Technology The Company relies on information
technology (“IT”) to support the current and future requirements of the
business. Any significant failure or disruption in IT systems, or the failure
to successfully upgrade legacy systems or implement new systems
could have an adverse effect on the financial condition and results of
operations. In 2013, the Company will implement a transportation
management system (“TMS”). Failure by the Company to successfully
implement this system could cause disruption in the flow of
merchandise to the stores, which could negatively affect the reputation
and financial performance of the Company. Furthermore, the failure to
integrate the TMS with other IT systems and implement appropriate
processes to support the TMS may result in failing to capture planned
efficiency and effectiveness gains. To mitigate these risks, the Company
has engaged an implementation partner and instilled a strong
governance structure and disciplined project management.
Food Safety The Company is exposed to risks associated with food
safety and product handling. Food sales represent approximately 77%
of total Company sales. A significant outbreak of a food-borne illness
or increased public concerns with certain food products could have
an adverse effect on the financial performance and reputation of the
Company. The Company has food preparation, handling and storage
procedures which help mitigate these risks. The Company also has
product recall procedures in place in the event of a food-borne illness
outbreak. The existence of these procedures does not eliminate the
underlying risks and the ability of these procedures to mitigate risk in
the event of a food-borne illness is dependent on their successful
execution.
Income Taxes The Company accounts for income taxes using the
liability method of tax allocation. Under the liability method, deferred
income tax assets and liabilities are determined based on the
differences between the financial statement carrying values and tax
bases of assets and liabilities, and are measured using substantively
enacted tax rates and laws that are expected to be in effect in the
periods in which the deferred income tax assets or liabilities are
expected to be realized or settled. The provision for income taxes is
recorded in the Company at applicable statutory rates.
In the ordinary course of business, the Company is subject to
ongoing audits by tax authorities. While the Company believes that its
tax filing positions are appropriate and supportable, the possibility
exists that certain matters may be reviewed and challenged by the tax
authorities. The Company regularly reviews the potential for adverse
outcomes and the adequacy of its tax provisions. The Company
believes that it has adequately provided for these matters. If the final
outcome differs materially from the tax provisions, the Company's
income tax expense and its earnings could be affected positively or
negatively in the period in which the matters are resolved.
Laws, Regulations and Standards The Company is subject to various
laws and regulations administered by federal, provincial and foreign
regulatory authorities, including but not limited to income, commodity
and other taxes, duties, currency repatriation, zoning, health and safety,
employment standards, privacy laws and licensing requirements. New
accounting standards and pronouncements or changes in accounting
standards, may also impact the Company's financial results. These laws,
regulations and standards and their interpretation by various courts
and agencies are subject to change. In the course of complying with
such changes, the Company may incur significant costs. Failure by the
Company to fully comply with applicable laws, regulations and
standards could result in financial penalties, assessments, sanctions, or
legal action that could have an adverse effect on the reputation and
the financial performance of the Company.
Vendor and Third Party Service Partner Management The
Company relies on a broad base of manufacturers, suppliers, logistics
service providers and operators of distribution facilities to provide
goods and services. Events or disruptions affecting these suppliers
outside of the Company's control could in turn result in delays in the
delivery of merchandise to the stores and therefore negatively impact
financial performance. A portion of the merchandise the Company sells
is purchased offshore. Offshore sourcing could provide products that
contain harmful or banned substances or do not meet the required
standards. The Company uses offshore consolidators and sourcing
agents to monitor product quality and reduce the risk of sub-standard
products however, there is no certainty that these risks can be
completely mitigated in all circumstances.
Environmental The Company owns a large number of facilities and
real estate, particularly
in remote locations, and is subject to
environmental risks associated with the contamination of such facilities
and properties. The Company operates gasoline dispensing units in a
number of locations and also uses fuel to heat stores and housing.
Contamination resulting from gasoline and heating fuel is possible. The
Company employs operating, training, monitoring and testing
procedures to minimize the risk of contamination. The Company also
operates refrigeration equipment in its stores and distribution centers
which, if the equipment fails, could release gases that may be harmful
to the environment. The Company has monitoring and preventative
maintenance procedures to reduce the risk of this contamination
occurring. Even with these risk mitigation policies and procedures, the
Company could incur increased or unexpected costs related to
including
environmental
litigation and regulatory compliance costs, all of which could have an
adverse effect on the reputation and financial condition and financial
performance of the Company.
remediation activities,
incidents and
Management of Inventory Success in the retail industry depends
on being able to select the right merchandise, in the correct quantities
in proportion to the demand for such merchandise. A miscalculation
of consumer demand for merchandise could result in having excess
inventory for some products and missed sales opportunities for others.
Excess inventory may result in higher markdowns or inventory
shrinkage all of which could have an adverse effect on the financial
performance of the Company.
Insurance The Company manages its exposure to certain risks
through an integrated insurance program which combines an
appropriate level of self-insurance and the purchase of various
insurance policies. The Company's insurance program is based on
various lines and limits of coverage. Insurance is arranged with
financially stable insurance companies as rated by the professional
rating agencies. There is no guarantee that any given risk will be
mitigated in all circumstances or that the Company will be able to
continue to purchase this insurance coverage at reasonable rates.
21ANNUAL REPORT
Climate The Company's operations are exposed to extreme weather
conditions ranging from blizzards to hurricanes, typhoons, cyclones,
and tsunamis which can cause loss of life, damage to or destruction of
key stores and facilities, or temporary business disruptions. The stores
located in the South Pacific, Caribbean and coastal areas of Alaska are
also at risk of earthquakes which can result in loss of life and destruction
of assets. Such losses could have an adverse effect on the financial
condition and performance of the Company. Global warming
conditions would also have a more pronounced effect, both positive
and negative, on the Company's most northern latitude stores.
Post-Employment Benefits The Company engages professional
investment advisors to manage the assets in the defined benefit
pension plans. The performance of the Company's pension plans and
the plan funding requirements are impacted by the returns on plan
assets, changes
in the discount rate and regulatory funding
requirements. If capital market returns are below the level estimated
by management, or if the discount rate used to value the liabilities of
the plans decreases, the Company may be required to make
contributions to its defined benefit pension plans in excess of those
currently contemplated, which may have an adverse effect on the
Company's financial condition and performance.
The Company regularly monitors and assesses the performance
of the pension plan assets and the impact of changes in capital markets,
changes in plan member demographics, and other economic factors
that may impact funding requirements, benefit plan expenses and
actuarial assumptions. The Company makes cash contributions to the
pension plan as required and also uses letters of credit to satisfy a
portion of its funding obligations. Effective January 1, 2011, the
Company entered into an amended and restated staff pension plan
and added a defined contribution plan. Under the amended pension
plan, all members who did not meet a qualifying threshold based on
number of years in the pension plan and age were transitioned to the
defined contribution pension plan effective January 1, 2011 and no
longer accumulate years of service under the defined benefit pension
plan. Further information on post-employment benefits is provided on
page 16 and in Note 12 to the consolidated financial statements.
Ethical Business Conduct The Company has a Code of Business
Conduct and Ethics policy which governs both employees and
Directors. The Business Ethics Committee monitors compliance with
the Code of Business Conduct and Ethics. The Company also has a
Whistleblower policy that provides direct access to members of the
Board of Directors. Unethical business conduct could negatively
impact the Company's reputation and relationship with its customers,
investors, and employees, which in turn could have an adverse effect
on the financial performance of the Company.
Geopolitical Changes in the domestic or international political
environment may impact the Company's ability to source and provide
products and services. Acts of terrorism, riots, and political instability,
especially in less developed markets, could have an adverse effect on
the financial condition and results of operations of the Company.
Litigation In the normal course of business, the Company is subject
to a number of claims and legal actions that may be made by its
customers, suppliers and others. If management believes the
Company has liability for such claim or legal action, provisions are made
in the Company's financial statements. If management's assessment
of liability or the amount of any such claim is incorrect, or the Company
is unsuccessful in defending its position, any difference between the
judgment or penalty amount and the provision would become an
expense or a recovery in the period such claim was resolved.
Financial Services Business The financial services operations are a
part of the business of the Company. There is a risk of customer defaults
on credit accounts, particularly following deterioration in the economy.
The credit card industry is highly competitive and other credit card
issuers may seek to expand or to enter the Company's markets. New
federal, provincial and state laws, and amendments to existing laws,
may be enacted to further regulate the credit card industry or to reduce
finance charges or other fees or charges applicable to credit card
accounts. Deterioration in the financial services business could have
an adverse effect on the financial condition or performance of the
Company.
Dependence on Key Facilities There are six major distribution centres
which are located in Winnipeg, Manitoba; Anchorage, Alaska; San
Leandro, California; Port of Tacoma, Washington; and third party
managed facilities in Edmonton, Alberta and Miami, Florida. In addition,
the Company's Canadian Operations support office is located in
Winnipeg, Manitoba and the International Operations has support
offices in Anchorage, Alaska and Bellevue, Washington. A serious
disruption at any of these facilities or those of any of the corporate
alliance partners due to fire, inclement weather or otherwise could
have a material adverse effect on the financial condition or
performance of the Company.
Financial Risks In the normal course of business, the Company is
exposed to financial risks that have the potential to negatively impact
its financial performance. The Company manages financial risk with
oversight provided by the Board of Directors, who also approve specific
financial transactions. The Company uses derivative
financial
instruments only to hedge exposures arising in respect of underlying
business requirements and not for speculative purposes. These risks
and the actions taken to minimize the risks are described below. Further
information on the Company's financial instruments and associated
risks are provided in Note 14 to the consolidated financial statements.
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. The Company is exposed to credit risk primarily
in relation to individual and commercial accounts receivable. The
Company manages credit risk by performing
regular credit
assessments of its customers and provides allowances for potentially
uncollectible accounts receivable. The Company does not have any
individual customer accounts greater than 10% of total accounts
receivable.
Liquidity Risk Liquidity risk is the risk that the Company will not be
able to meet its financial obligations as they come due or can do so
only at excessive cost. The Company manages liquidity risk by
maintaining adequate credit facilities to fund operating requirements
and sustaining and planned growth-related capital expenditures and
regularly monitoring actual and forecasted cash flow and debt levels.
At January 31, 2013, the Company had undrawn committed revolving
loan facilities available of $144.1 million (January 31, 2012 - $126.4
million).
The Company's International Operations has a US$52 million loan
facility that matures December 31, 2013. The Company does not
anticipate any difficulty in refinancing this loan facility however, global
economic conditions can change which may negatively impact the
availability of credit, interest rates and covenants for companies
seeking to refinance debt. To the extent that the Company cannot meet
its obligations or refinance its debt when it comes due, or can only do
so at an excessive cost, this may have an adverse effect on the financial
condition and financial performance of the Company. For further
information on loan facilities, see Note 11 to the consolidated financial
statements.
22THE NORTH WEST COMPANY INC. 2012 Currency Risk Currency risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes in
foreign exchange rates. The Company is exposed to currency risk,
primarily the U.S. dollar, through its net investment in International
Operations and its U.S. dollar denominated borrowings. The Company
manages its exposure to currency risk by hedging the net investment
in foreign operations with a portion of U.S. dollar denominated
borrowings as described in the Sources of Liquidity section on page
16. At January 31, 2013, the Company had US$111.3 million in U.S.
denominated debt compared to US$107.2 million at January 31, 2012.
Further information on the impact of foreign exchange rates on the
translation of U.S. denominated debt is provided in the Capital
Structure section on page 18.
The Company is also exposed to currency risk relating to the
translation of International Operations earnings from U.S. dollars to
Canadian dollars. In 2012, the average exchange rate used to translate
U.S. denominated earnings from the International Operations was
relatively flat at 0.998 compared to 0.991 last year. The Canadian dollar's
depreciation versus the U.S. dollar in 2011 positively impacted
consolidated net earnings by $0.1 million. In 2011, the average
exchange rate of 0.991 was 3.4% lower than the 1.026 average
exchange rate in 2010 which decreased 2011 consolidated net
earnings by $0.4 million compared to 2010.
Interest Rate Risk Interest rate risk is the risk that the fair value or
future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Company is exposed to interest
rate risk primarily through its long-term borrowings. The Company
manages exposure to interest rate risk by using a combination of
interest rate swaps and a mixture of fixed and floating interest rate debt.
Additional information regarding interest rate swaps is provided in
Note 11 and Note 14 to the consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with IFRS
requires management to make estimates and assumptions that affect
the reported amounts and disclosures made in the consolidated
financial statements and accompanying notes. Management
continually evaluates the estimates and assumptions it uses. These
estimates and assumptions are based on management's historical
experience, knowledge of current events, expectations of future
outcomes and other factors that management considers reasonable
under the circumstances. Actual results could differ from these
estimates as confirming events occur. The estimates and assumptions
described in this section depend upon subjective or complex
judgments about matters that may be uncertain and changes in these
estimates and assumptions could materially impact the consolidated
financial statements.
Valuation of Accounts Receivable The Company records an
allowance for doubtful accounts related to accounts receivable that
may potentially be impaired. The allowance is based on the aging of
the accounts receivable, our knowledge of our customers' financial
condition, the current business environment and historical experience.
A significant change in one or more of these factors could impact the
estimated allowances for doubtful accounts recorded
in the
consolidated balance sheet and the provisions for debt loss recorded
in the consolidated statement of earnings. Additional information on
the valuation of accounts receivable is provided in Note 5 and the credit
risk section in Note 14 to the consolidated financial statements.
Valuation of Inventories Retail inventories are stated at the lower of
cost and net realizable value. Significant estimation or judgment is
required in the determination of: (1) discount factors used to convert
inventory to cost after a physical count at retail has been completed;
(2) recognizing merchandise for which the customer's perception of
value has declined and appropriately marking the retail value of the
merchandise down to the perceived value; and (3) estimating
inventory losses, or shrinkage, occurring between the last physical
count and the balance sheet date.
Food inventories counted at retail are converted to cost by
applying a discount factor to retail selling prices. This discount factor
is calculated in relation to historical gross margins and is reviewed on
a regular basis for reasonableness. General merchandise inventories
counted at retail are converted to cost by applying average cost factors
by merchandise category. These cost factors represent the average
cost-to-retail ratio for each merchandise category based on beginning
inventory and purchases made throughout the year.
Inventory shrinkage is estimated as a percentage of sales for the
period from the date of the last physical inventory count to the balance
sheet date. The estimate is based on experience and the most recent
physical inventory results. To the extent that actual losses experienced
vary from those estimated, both inventories and cost of sales may be
impacted.
Changes or differences in these estimates may result in changes
to inventories on the consolidated balance sheet and a charge or credit
to cost of sales in the consolidated statement of earnings. Additional
information regarding inventories is provided in Note 6 to the
consolidated financial statements.
Post-Employment Benefits The cost and defined benefit plan
obligations of the Company's defined benefit pension plans are
accrued based on actuarial valuations which are dependent on
assumptions determined by management. These assumptions include
the discount rate used to calculate benefit plan obligations, expected
long-term rate of return on plan assets, rate of compensation increase,
retirement ages, and mortality rates. These assumptions are reviewed
by management and the Company's actuaries.
The discount rate used to calculate benefit plan obligations,
expected long-term rate of return on plan assets and the rate of
compensation increase are the three most significant assumptions. The
discount rate used to calculate benefit plan obligations is based on
market interest rates, as at the Company's measurement date of
January 31, 2013 on a portfolio of Corporate AA bonds with terms to
maturity that, on average, matches the terms of the defined benefit
plan obligations. The discount rates used to measure the benefit plan
obligations for fiscal 2012 and 2011 were 4.3% and 4.5% respectively.
The expected long-term rate of return on plan assets is based on
historical returns, the asset mix and current investment yields. The
expected long-term rate of return on plan assets for fiscal 2012 and
2011 was 6.5%. Management assumed the rate of compensation
increase for fiscal 2012 and 2011 at 4%.
These assumptions may change in the future and may result in
material changes in the defined benefit plan obligation on the
Company's consolidated balance sheet, the defined benefit plan
expense on the consolidated statement of earnings and the net
actuarial gains or losses recognized in comprehensive income and
retained earnings. Changes in financial market returns and interest
rates could also result in changes to the funding requirements of the
Company's defined benefit pension plans. Additional information
regarding the Company's post-employment benefits is provided in
Note 12 to the consolidated financial statements.
Impairment of Long-lived Assets The Company assesses the
recoverability of values assigned to long-lived assets quarterly after
considering potential impairment indicated by such factors as business
and market trends, future prospects, current market value and other
economic factors. If there is an indication of impairment, the
23ANNUAL REPORT
Changes or differences in these estimates or assumptions may
result in changes to the current or deferred income tax balances on
the consolidated balance sheet, a charge or credit to income tax
expense in the consolidated statement of earnings and may result in
cash payments or receipts. Additional information on income taxes is
provided in Note 9 to the consolidated financial statements.
recoverable amount of the asset, which is the higher of its fair value
less costs to sell and its value in use, is estimated in order to determine
the extent of the impairment loss. Where the asset does not generate
cash flows that are independent from other assets, the Company
estimates the recoverable amount of the cash-generating unit (CGU)
to which the asset belongs. For tangible and intangible assets
excluding goodwill, the CGU is the smallest group of assets that
generates cash
largely
independent of the cash inflows of other assets or groups of assets.
Any impairment charge is recognized in the consolidated statement
of earnings in the period in which it occurs, to the extent that the
carrying value exceeds its recoverable amount.
inflows from continuing use that are
The underlying estimates for cash flows include estimates for
future sales, gross margin rates and store expenses, and are based upon
the stores' past and expected future performance. Changes which may
impact future cash flows include, but are not limited to, competition,
general economic conditions and unrecoverable
in
operating costs. To the extent that management's estimates are not
realized, future assessments could result in impairment charges that
may have a significant impact on the Company's consolidated balance
sheet and consolidated statement of earnings.
increases
Goodwill Goodwill is not amortized but is subject to an impairment
test annually and whenever indicators of impairment are detected.
Goodwill is allocated to CGU's that are expected to benefit from the
synergies of the related business combination and represents the
lowest level within the Company at which goodwill is monitored for
internal management purposes, which is the Company's International
Operating segment before aggregation.
The value of the goodwill was tested by means of comparing the
recoverable amount of the operating segment to its carrying value. To
calculate the operating segment's recoverable amount, the Company
uses the capitalized earnings method. The product of maintainable
earnings and a capitalization rate are used to determine the
recoverable amount. The capitalization rate
is based on the
International Operations weighted-average cost of capital. Key
assumptions in the capitalization rate include: equity risk premium,
debt-to-equity ratio, pre-tax cost of debt capital and company specific
risk premium. To the extent that management's estimates are not
realized, future assessments could result in impairment charges that
may have a significant impact on the Company's consolidated balance
sheet and consolidated statement of earnings.
The Company performed the annual goodwill impairment test in
2012 and determined that the recoverable amount of the International
Operations operating segment exceeded its carrying value. No
goodwill impairment was identified and management considers any
reasonably foreseeable changes in key assumptions unlikely to
produce a goodwill impairment.
Income Taxes Deferred tax assets and liabilities are recognized for the
future income tax consequences attributable to temporary differences
between the financial statement carrying values of assets and liabilities
and their respective income tax bases. Deferred income tax assets or
liabilities are measured using enacted or substantively enacted income
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The calculation of current and deferred income taxes requires
management to make estimates and assumptions and to exercise a
certain amount of judgment regarding the financial statement
carrying values of assets and liabilities which are subject to accounting
estimates inherent in those balances. The deferred income tax assets
and liabilities are also impacted by the interpretation of income tax
legislation across various jurisdictions, expectations about future
financial results and the timing of reversal of temporary differences,
and possible audits of tax filings by the regulatory agencies.
24THE NORTH WEST COMPANY INC. 2012
Financial Instruments The IASB has issued a new standard which will
eventually replace IAS 39, Financial Instruments: Recognition and
Measurement. The development of IFRS 9, Financial Instruments is a
multi-phase project with a goal of improving and simplifying financial
instrument reporting. IFRS 9 uses a single approach to determine
measurement of a financial asset based on how an entity manages
financial impairment, replacing the multiple classification options in
IAS 39 with only two categories: amortized cost and fair value through
profit or loss. This standard is effective for the Company’s financial year
beginning February 1, 2015. The Company is currently assessing the
impact of changes to this standard.
Presentation of Financial Statements The IASB has amended IAS 1,
Presentation of Financial Statements to enhance the presentation of
Other Comprehensive Income (OCI). These amendments require the
components of OCI to be presented separately for items that may be
reclassified to the statement of earnings from those that remain in
equity. This standard is not expected to have a significant impact on
the consolidated financial statements.
IFRS 13, Fair Value Measurement
Fair Value Measurement
is a
comprehensive standard for fair value measurement and disclosure
requirements for use across all IFRS. The new standard clarifies that fair
value is the price that would be received to sell an asset, or paid to
in an orderly transaction between market
transfer a
participants, at the measurement date. It also establishes disclosures
about fair value measurement. This standard is not expected to have
a significant impact on the consolidated financial statements.
liability
Financial Instruments The IASB has issued amendments to IFRS 7,
Financial Instruments: Disclosures and IAS 32, Financial Instruments:
Presentation which clarify the requirements for offsetting financial
assets and financial liabilities along with new disclosure requirements.
These amendments are effective for the Company’s financial years
beginning February 1, 2014 and February 1, 2013 respectively. These
standards are not expected to have a significant impact on the
consolidated financial statements.
FUTURE ACCOUNTING STANDARDS
The Company is currently assessing the impact of the following
standards that may apply in future periods. Unless otherwise noted,
the following revised standards and amendments are effective for the
Company's annual periods beginning February 1, 2013.
Consolidated Financial Statements The International Accounting
Standards Board ("IASB") issued IFRS 10, Consolidated Financial
Statements replacing portions of IAS 27, Consolidated and Separate
Financial Statements addressing consolidation and superseding
Standing Interpretations Committee (SIC) Interpretation 12 in its
entirety. IFRS 10 establishes principles for the presentation and
preparation of consolidated financial statements when an entity
controls one or more other entities. This standard is not expected to
have a significant impact on the consolidated financial statements.
Joint Arrangements The IASB issued IFRS 11, Joint Arrangements
superseding IAS 31, Interest in Joint Ventures and SIC-13, Jointly
Controlled Entities – Non Monetary Contributions by Venturers. IFRS 11
establishes principles for determining the type of joint arrangement by
assessing the venturers’ rights and obligations. This standard provides
guidance for financial reporting activities required by entities that have
an interest in a jointly controlled arrangement. Joint ventures will be
accounted for using the equity method of accounting, whereas for a
joint operation the venturer will recognize its share of the ventures'
assets, liabilities, revenues and expenses. The adoption of IFRS 11 is not
expected to have a significant impact on the consolidated financial
statements.
Disclosure of Interests in Other Entities The IASB issued IFRS 12, Disclosure
of Interests in Other Entities requiring extensive disclosures relating to a
company’s interest in subsidiaries, associates and certain other
arrangements. IFRS 12 enables financial statement users to evaluate
the nature and risks associated with these interests, and evaluate their
effect on the Company’s financial performance. This standard is not
expected to have a significant impact on the consolidated financial
statements.
Employee benefits The revised IAS 19, Employee Benefits issued by the
IASB eliminates the option to defer the recognition of actuarial gains
and losses on defined benefit plans. It amends the calculation of plan
assets and benefit obligations, streamlines the presentation of changes
in defined benefit plans and requires enhanced disclosure. The
requirement to calculate the expected return on plan assets with the
interest rate used to calculate the defined benefit plan obligation is the
most significant for the Company. The Company will adopt this
standard for its fiscal year beginning February 1, 2013. The
implementation of this standard in the Company's 2013 financial
statements will require the restatement of the 2012 comparative
numbers with an estimated decrease in net earnings of $1.260 million
comprised of an increase to interest expense of $1.170 million, an
increase to selling, operating and administrative expenses of $0.550
million and a deferred tax recovery of $0.460 million.
25ANNUAL REPORT
NON-GAAP FINANCIAL MEASURES
(1) Trading Profit (EBITDA) is not a recognized measure under IFRS.
Management believes that in addition to net earnings, trading profit
is a useful supplemental measure as it provides investors with an
indication of the Company's operational performance before
allocating the cost of interest, income taxes and capital investments.
Investors should be cautioned however, that trading profit should not
be construed as an alternative to net earnings determined in
accordance with IFRS as an indicator of the Company's performance.
The Company's method of calculating trading profit may differ from
other companies and may not be comparable to measures used by
other companies. A reconciliation of consolidated net earnings to
trading profit or EBITDA is provided below:
(3) Return on Net Assets (RONA) is not a recognized measure under
IFRS. Management believes that RONA is a useful measure to evaluate
the financial return on the net assets used in the business. RONA is
calculated as earnings from operations (EBIT) for the year divided by
average monthly net assets. The following table reconciles net assets
used in the RONA calculation to IFRS measures reported in the audited
consolidated financial statements as at January 31:
($ in thousands)
Total assets
Less:
Current liabilities
2012
2011
2010
$
651.4
$
626.9
$
616.6
(149.8)
(42.0)
(127.4)
(39.9)
(117.1)
(20.4)
Reconciliation of Net Earnings to Trading Profit (EBITDA)
Other long-term liabilities
($ in thousands)
Net earnings
Add:
Amortization
Interest expense
Income taxes
2012
2011
2010
$ 65,148
$
57,961
$
69,656
37,149
5,809
26,161
36,572
6,026
25,322
35,492
6,077
14,539
Net Assets Employed
$
459.6
$
459.6
$
479.1
(4) Return on Average Equity (ROE) is not a recognized measure
under IFRS. Management believes that ROE is a useful measure to
evaluate the financial return on the amount invested by shareholders.
ROE is calculated by dividing net earnings for the year by average
monthly total shareholders' equity. There is no directly comparable IFRS
measure for return on equity.
Trading profit (EBITDA)
$ 134,267
$ 125,881
$ 125,764
For trading profit information by business segment, see Note 4
“Segmented Information” in the notes to the consolidated financial
statements.
(2) Earnings From Operations (EBIT) is not a recognized measure
under IFRS. Management believes that EBIT is a useful measure as it
provides investors with an indication of the performance of the
consolidated operations and/or business segments, prior to interest
expense and income taxes. Investors should be cautioned however,
that EBIT should not be construed as an alternative to net earnings
determined in accordance with IFRS as an indicator of the Company's
performance. The Company's method of calculating EBIT may differ
from other companies and may not be comparable to measures used
by other companies. A reconciliation of consolidated net earnings to
EBIT is provided below:
Reconciliation of Net Earnings to EBIT
($ in thousands)
Net earnings
Add:
Interest expense
Income taxes
2012
2011
2010
$ 65,148
$
57,961
$ 69,656
5,809
26,161
6,026
25,322
6,077
14,539
Earnings from operations (EBIT)
$ 97,118
$
89,309
$ 90,272
For earnings from operations (EBIT) information by business segment,
see Note 4 “Segmented Information” in the notes to the consolidated
financial statements.
26THE NORTH WEST COMPANY INC. 2012
GLOSSARY OF TERMS
Basic earnings per share Net earnings available to shareholders
divided by the weighted-average number of shares outstanding
during the period.
Hedge A risk management technique used to manage interest rate,
foreign currency exchange or other exposures arising from business
transactions.
Basis point A unit of measure that is equal to 1/100th of one percent.
Interest coverage Net earnings before interest and income taxes
divided by interest expense.
CGAAP (Canadian generally accepted accounting principles) The
consolidated financial statements for the fiscal years 2009 and prior
were prepared in accordance with Canadian generally accepted
accounting principles as issued by the Canadian Institute of Chartered
Accountants.
Compound Annual Growth Rate (CAGR) The compound annual
growth rate is the year-over-year percentage growth rate over a given
period of time.
Control label or Private label A brand or related trademark that is
owned by the Company for use in connection with its own products
and services.
Debt loss An expense resulting from the estimated loss on potentially
uncollectible accounts receivable.
Debt covenants Restrictions written into banking facilities and senior
notes and loan agreements that prohibit the Company from taking
actions that may negatively impact the interests of the lenders.
Debt-to-equity ratio Provides information on the proportion of debt
and equity the Company is using to finance its operations and
calculated by total debt divided by shareholders' equity.
Diluted earnings per share The amount of net earnings for the period
available to shareholders divided by the weighted-average number of
shares outstanding during the period including the impact of all
potential dilutive outstanding shares at the end of the period.
Earnings from operations (EBIT) Net earnings before interest and
income taxes provides an indication of the Company's performance
prior to interest expense and income taxes. See Non-GAAP financial
measures on page 26.
EBIT margin EBIT divided by sales.
Fair value The amount of consideration that would be agreed upon
in an arm's length transaction between knowledgeable, willing parties
who are under no compulsion to act.
Gross profit Sales less cost of goods sold and inventory shrinkage.
Gross profit rate Gross profit divided by sales.
IFRS (International Financial Reporting Standards) Effective for the
2011 fiscal year, the consolidated financial statements were prepared
in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board. Comparative
financial information for the year ended January 31, 2011 (“2010”)
previously reported in the consolidated financial statements prepared
in accordance with CGAAP has been restated in accordance with the
accounting policies and financial statement presentation adopted
under IFRS.
Return on equity Net earnings divided by average shareholders'
equity.
Return on net assets Net earnings before interest and income taxes
divided by average net assets employed (average total assets less
accounts payable and accrued liabilities, income taxes payable and
asset retirement obligations).
Same store sales Retail sales from stores that have been open more
than 52 weeks in the periods being compared.
Trading profit (EBITDA) Net earnings before interest, income taxes,
indication of the
depreciation and amortization provides an
Company's operational performance before allocating the cost of
interest, income taxes and capital investments.
See Non-GAAP financial measures on page 26.
Trading profit margin Trading profit divided by sales.
Working capital Total current assets less total current liabilities.
Year The fiscal year ends on January 31. The 2012 year which ended
January 31, 2013 had 366 days of operations as a result of February 29th.
The 2011 year which ended January 31, 2012 had 365 days of
operations. The 2010 year which ended January 31, 2011 had 365 days
of operations. The 2009 year which ended January 31, 2010 had 365
days of operations. The 2008 year which ended January 31, 2009 had
366 days of operations as a result of the February 29 leap year.
27ANNUAL REPORT
Eleven-Year Financial Summary
Fiscal Year(1)
($ in thousands )
Consolidated Statements of Earnings
Sales - Canadian Operations
Sales - International Operations
Sales - Total
Trading profit (EBITDA)(3) - Canadian Operations
Trading profit (EBITDA)(3) - International Operations
Trading profit (EBITDA)(3) - Total Operations
Amortization - Canadian Operations
Amortization - International Operations
Amortization - Total
Interest
Income tax provision
Net earnings
Cash flow from operating activities
Dividends/distributions paid during the year
Capital expenditures
Net change in cash
Consolidated Balance Sheets
Current assets
Property and equipment
Other assets, intangible assets and goodwill
Deferred tax assets
Current liabilities
Long-term debt and other liabilities
Equity
Consolidated Dollar Per Share/Unit ($)(5)
Net earnings - basic
Net earnings - diluted
Trading profit(3),(4)
Cash flow from operating activities(4)
Dividends/distributions paid during the year(4)
Equity at end of fiscal year (basic shares/units outstanding)
Market price at January 31
Statistics at Year End
Number of stores - Canadian
Number of stores - International
Selling square feet (000's) end of year - Canadian Stores
Selling square feet (000's) end of year - International Stores
Sales per average selling square foot - Canadian
Sales per average selling square foot - International
Number of employees - Canadian Operations
Number of employees - International Operations
Average shares/units outstanding (000's)
Shares/Units outstanding at end of fiscal year (000's)
Shares/Units traded during the year (000's)
Financial Ratios
Trading profit(3) (%)
Earnings from operations(3) (EBIT) (%)
Total return on net assets(3) (%)
Return on average equity(3) (%)
Debt-to-equity
Dividends/distributions as % of cash flow from operating activities
Inventory turnover (times)
(1) The fiscal year changed from the last Saturday in January to January 31 effective
January 31, 2007. Each year includes 52 weeks of operations with the exception
of 2003, which had 53 weeks of operations.
IFRS (2)
2012
IFRS (2)
2011
IFRS (2)
2010
2009
2008
2007
$1,043,050
470,596
1,513,646
107,060
27,207
134,267
29,155
7,994
37,149
5,809
26,161
65,148
128,992
50,320
51,133
11,691
$ 303,896
274,027
60,567
12,904
190,184
164,960
296,250
$1,028,396
466,740
1,495,136
97,998
27,883
125,881
28,745
7,827
36,572
6,026
25,322
57,961
115,469
50,797
46,376
(4,247)
$ 295,836
270,370
53,289
7,422
128,002
215,206
283,709
$ 978,662
469,442
1,448,104
98,781
26,983
125,764
27,511
7,981
35,492
6,077
14,539
69,656
114,564
68,700
35,225
3,953
$ 284,789
259,583
55,199
17,017
185,377
144,736
286,475
$ 921,621
522,745
1,444,366
96,599
33,675
130,274
26,727
8,423
35,150
5,470
7,841
81,813
107,973
67,245
45,294
1,548
$ 285,843
258,928
73,177
5,852
171,946
161,928
289,926
$ 899,263
493,371
1,392,634
90,606
31,651
122,257
24,501
7,553
32,054
8,307
6,518
75,378
90,178
67,730
46,118
3,998
$ 285,088
248,856
68,632
6,597
172,216
162,547
274,410
$ 852,773
211,717
1,064,490
87,410
19,147
106,557
22,634
4,316
26,950
7,465
9,151
62,991
93,591
54,667
44,409
(368)
$ 254,061
223,397
50,492
1,720
134,899
138,470
256,301
$
$
$
1.35
1.34
2.78
2.67
1.04
6.12
23.14
177
46
1,375
660
734
716
4,768
1,568
48,384
48,389
13,539
8.9
6.4
20.7
22.5
.55:1
39.0
5.8
$
$
$
1.20
1.19
2.60
2.39
1.05
5.86
19.40
183
46
1,466
655
702
713
5,233
1,668
48,378
48,378
22,418
8.4
6.0
18.5
20.1
.62:1
44.0
5.7
$
$
$
1.45
1.44
2.61
2.38
1.42
5.92
21.09
184
46
1,445
654
682
718
5,301
1,601
48,180
48,378
24,814
8.7
6.2
17.9
24.1
.67:1
60.0
5.6
$
$
$
1.71
1.69
2.73
2.26
1.39
6.04
17.94
180
46
1,423
653
654
752
5,358
1,545
47,799
48,017
20,080
9.0
6.6
18.7
29.3
.72:1
62.3
5.6
$
$
$
1.58
1.56
2.56
1.89
1.40
5.75
16.14
178
43
1,396
617
651
723
5,408
1,339
47,718
47,722
16,402
8.8
6.5
19.8
28.6
.78:1
75.1
5.8
$
$
$
1.32
1.31
2.24
1.96
1.13
5.37
18.42
176
44
1,368
639
657
410
5,359
1,502
47,649
47,701
17,330
10.0
7.5
21.0
24.9
.62:1
58.4
5.3
(2) The financial results for 2012 and 2011 are reported in accordance with
IFRS. 2010 data has been restated to IFRS. All other financial information is
presented in accordance with CGAAP and has not been restated to IFRS.
28THE NORTH WEST COMPANY INC. 2012 2006
2005
2004
2003
2002
$ 769,633
175,291
944,924
81,730
14,639
96,369
22,248
3,924
26,172
6,844
9,693
53,660
81,486
38,702
30,136
212
$ 226,164
189,599
19,690
6,416
122,783
67,056
252,030
$ 689,340
160,313
849,653
70,561
14,941
85,502
21,103
3,910
25,013
6,120
11,479
42,890
75,289
30,317
24,833
10,450
$ 218,742
182,108
17,306
5,693
95,467
85,809
242,573
$ 629,822
158,871
788,693
62,629
13,977
76,606
19,977
3,928
23,905
5,761
9,675
37,265
48,925
29,105
22,323
(5,189)
$ 208,188
186,104
12,253
7,932
88,284
89,908
236,285
$ 615,661
167,059
782,720
57,663
15,163
72,826
18,413
3,988
22,401
6,299
8,396
35,730
66,780
30,639
33,273
6,176
$ 196,830
192,395
12,153
8,222
83,140
97,982
228,478
$ 565,747
184,012
749,759
59,163
13,108
72,271
18,976
3,696
22,672
6,681
8,449
34,469
59,360
25,157
20,128
475
$ 209,900
188,194
10,775
9,322
91,995
106,812
219,384
$
$
$
1.13
1.12
2.03
1.71
0.80
5.29
16.41
168
32
1,226
311
646
601
5,833
806
47,561
47,625
13,167
10.2
7.4
19.7
21.7
.43:1
47.5
5.1
$
$
$
0.90
0.89
1.79
1.58
0.63
5.11
12.50
164
27
1,157
272
613
608
5,175
732
47,694
47,463
6,956
10.1
7.1
16.6
18.0
.46:1
40.3
4.6
$
$
$
0.78
0.77
1.60
1.02
0.60
4.95
10.22
159
25
1,093
255
573
624
4,830
692
47,754
47,700
7,393
9.7
6.7
14.8
16.2
.51:1
59.5
4.2
$
$
$
0.75
0.74
1.52
1.40
0.63
4.78
7.88
156
25
1,106
254
566
669
4,552
736
47,820
47,799
7,207
9.3
6.4
14.1
16.0
.56:1
46.0
4.1
$
$
$
0.72
0.71
1.50
1.24
0.52
4.59
6.90
154
25
1,070
245
534
752
4,270
657
48,021
47,844
7,617
9.6
6.6
13.4
15.8
.62:1
42.4
3.7
Fiscal Year(1)
($ in thousands )
Consolidated Statements of Earnings
Sales - Canadian Operations
Sales - International Operations
Sales - Total
Trading profit (EBITDA)(3) - Canadian Operations
Trading profit (EBITDA)(3) - International Operations
Trading profit (EBITDA)(3) - Total Operations
Amortization - Canadian Operations
Amortization - International Operations
Amortization - Total
Interest
Income tax provision
Net earnings
Cash flow from operating activities
Dividends/distributions paid during the year
Capital expenditures
Net change in cash
Consolidated Balance Sheets
Current assets
Property and equipment
Other assets, intangible assets and goodwill
Deferred tax assets
Current liabilities
Long-term debt and other liabilities
Equity
Consolidated Dollar Per Share/Unit ($)(5)
Net earnings - basic
Net earnings - diluted
Trading profit(3),(4)
Cash flow from operating activities(4)
Dividends/distributions paid during the year(4)
Equity at end of fiscal year (basic shares/units outstanding)
Market price at January 31
Statistics at Year End
Number of stores - Canadian
Number of stores - International
Selling square feet (000's) end of year - Canadian Stores
Selling square feet (000's) end of year - International Stores
Sales per average selling square foot - Canadian
Sales per average selling square foot - International
Number of employees - Canadian Operations
Number of employees - International Operations
Average shares/units outstanding (000's)
Shares/Units outstanding at end of fiscal year (000's)
Shares/Units traded during the year (000's)
Financial Ratios
Trading profit(3) (%)
Earnings from operations (3) (EBIT) (%)
Total return on net assets(3) (%)
Return on average equity(3) (%)
Debt-to-equity
Dividends/distributions as % of cash flow from operating activities
Inventory turnover (times)
(3) See Non-GAAP financial measures on page 26.
(4) Based on average basic shares/units outstanding.
(5) Effective January 1, 2011, North West Company Fund converted to a share corporation called
The North West Company Inc. The comparative information refers to units of the Fund. On
September 20, 2006 the units were split on a three-for-one basis. All per unit information has
been restated to reflect the three-for-one split except trading volume.
29ANNUAL REPORT Management’s Responsibility for Financial Statements
Independent Auditor’s Report
The management of The North West Company Inc. is responsible
for the preparation, presentation and integrity of the accompanying
consolidated financial statements and all other information in the
annual report. The consolidated financial statements have been
prepared by management in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board and include certain amounts that are based on the
best estimates and judgment by management.
In order to meet its responsibility and ensure integrity of financial
information, management has established a code of business ethics,
and maintains appropriate internal controls and accounting systems.
An internal audit function is maintained that is designed to provide
reasonable assurance that assets are safeguarded, transactions are
authorized and recorded and that the financial records are reliable.
Ultimate responsibility for financial reporting to shareholders rests
with the Board of Directors. The Audit Committee of the Board of
Directors, consisting of independent Directors, meets periodically with
management and with the internal and external auditors to review the
audit results, internal controls and accounting policies. Internal and
external auditors have unlimited access to the Audit Committee. The
Audit Committee meets separately with management and the external
auditors to review the financial statements and other contents of the
annual report and recommend approval by the Board of Directors. The
Audit Committee also recommends the independent auditor for
appointment by the shareholders.
PricewaterhouseCoopers LLP, an independent firm of auditors
appointed by the shareholders, have completed their audit and
submitted their report as follows.
Edward S. Kennedy
PRESIDENT & CEO
THE NORTH WEST COMPANY INC.
John D. King
CHIEF FINANCIAL OFFICER
THE NORTH WEST COMPANY INC.
April 8, 2013
To the Shareholders of The North West Company Inc.:
We have audited the accompanying consolidated financial
statements of The North West Company Inc. and its subsidiaries, which
comprise the consolidated balance sheets as at January 31, 2013 and
January 31, 2012 and the consolidated statements of earnings,
comprehensive income, changes in shareholders’ equity and cash
flows for the years ended January 31, 2013 and January 31, 2012, and
the related notes, which comprise 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.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits in accordance with Canadian
generally accepted auditing standards. Those standards require that
we comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s
judgment,
including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and
fair
presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits
is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of The North West
Company Inc. and its subsidiaries as at January 31, 2013 and January
31, 2012 and their financial performance and their cash flows for the
years ended January 31, 2013 and January 31, 2012 in accordance with
International Financial Reporting Standards.
CHARTERED ACCOUNTANTS
WINNIPEG, CANADA
April 8, 2013
30THE NORTH WEST COMPANY INC. 2012
Consolidated Balance Sheets
($ in thousands)
CURRENT ASSETS
Cash
Accounts receivable (Note 5)
Inventories (Note 6)
Prepaid expenses
NON-CURRENT ASSETS
Property and equipment (Note 7)
Goodwill (Note 8)
Intangible assets (Note 8)
Deferred tax assets (Note 9)
Other assets (Note 10)
January 31, 2013
January 31, 2012
$
38,675
70,040
187,200
7,981
303,896
274,027
26,162
20,136
12,904
14,269
347,498
$
26,984
76,539
186,124
6,189
295,836
270,370
26,319
14,620
7,422
12,350
331,081
TOTAL ASSETS
$
651,394
$ 626,917
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Current portion of long-term debt (Note 11)
Income tax payable
NON-CURRENT LIABILITIES
Long-term debt (Note 11)
Defined benefit plan obligation (Note 12)
Deferred tax liabilities (Note 9)
Other long-term liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital (Note 15)
Contributed surplus
Retained earnings
Accumulated other comprehensive income
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
See accompanying notes to consolidated financial statements
Approved on behalf of the Board of Directors
“Gary J. Lukassen”
DIRECTOR
“H. Sanford Riley”
DIRECTOR
$
130,501
$ 122,349
40,417
19,266
190,184
122,937
28,431
2,026
11,566
164,960
355,144
165,358
3,485
128,224
(817)
296,250
629
5,024
128,002
175,263
27,616
2,440
9,887
215,206
343,208
165,133
3,180
115,991
(595)
283,709
$
651,394
$ 626,917
31CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Earnings
($ in thousands, except per share amounts)
SALES
Cost of sales
Gross profit
Selling, operating and administrative expenses (Notes 16, 17)
Earnings from operations
Interest expense (Note 18)
Earnings before income taxes
Income taxes (Note 9)
NET EARNINGS FOR THE YEAR
NET EARNINGS PER SHARE (Note 20)
Basic
Diluted
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING (000's)
Basic
Diluted
See accompanying notes to consolidated financial statements
Year Ended
Year Ended
January 31, 2013
January 31, 2012
$ 1,513,646
$ 1,495,136
(1,068,940)
(1,067,153)
444,706
(347,588)
97,118
(5,809)
91,309
(26,161)
427,983
(338,674)
89,309
(6,026)
83,283
(25,322)
$
65,148
$
57,961
$
$
1.35
1.34
$
$
1.20
1.19
48,384
48,579
48,378
48,525
Consolidated Statements of Comprehensive Income
($ in thousands)
NET EARNINGS FOR THE YEAR
Other comprehensive income/(expense):
Exchange differences on translation of foreign controlled subsidiaries, net of tax
Actuarial losses on defined benefit plans, net of tax (Note 12)
Total other comprehensive income, net of tax
COMPREHENSIVE INCOME FOR THE YEAR
See accompanying notes to consolidated financial statements
Year Ended
Year Ended
January 31, 2013
January 31, 2012
$
65,148
$
57,961
(222)
(2,595)
(2,817)
293
(15,266)
(14,973)
$
62,331
$
42,988
32THE NORTH WEST COMPANY INC. 2012
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands)
Balance at January 31, 2012
Net earnings for the year
Other comprehensive income
Comprehensive income
Equity settled share-based payments
Dividends (Note 19)
Issuance of common shares
Share
Capital
Contributed
Surplus
Retained
Earnings
AOCI (1)
Total
$ 165,133
$
3,180
$ 115,991
$
(595)
$ 283,709
—
—
—
—
—
225
225
—
—
—
471
—
(166)
305
65,148
(2,595)
62,553
—
(50,320)
—
(50,320)
—
(222)
(222)
—
—
—
—
65,148
(2,817)
62,331
471
(50,320)
59
(49,790)
Balance at January 31, 2013
$165,358
$
3,485
$128,224
$
(817)
$296,250
Balance at January 31, 2011
Net earnings for the year
Other comprehensive income
Comprehensive income
Equity settled share-based payments
Dividends (Note 19)
$ 165,133
$
2,491
$ 119,739
$
(888)
$ 286,475
—
—
—
—
—
—
—
—
—
689
—
689
57,961
(15,266)
42,695
—
(46,443)
(46,443)
—
293
293
—
—
—
57,961
(14,973)
42,988
689
(46,443)
(45,754)
Balance at January 31, 2012
$ 165,133
$
3,180
$ 115,991
$
(595)
$ 283,709
(1) Accumulated Other Comprehensive Income
See accompanying notes to consolidated financial statements
33CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Cash Flows
($ in thousands)
CASH PROVIDED BY (USED IN)
Operating activities
Net earnings for the year
Adjustments for:
Amortization
Provision for income taxes (Note 9)
Interest expense (Note 18)
Equity settled share option expense (Note 13)
Taxes paid
(Gain)/Loss on disposal of property and equipment
Change in non-cash working capital
Change in other non-cash items
Cash from operating activities
Investing activities
Purchase of property and equipment (Note 7)
Intangible asset additions (Note 8)
Proceeds from disposal of property and equipment
Cash from investing activities
Financing activities
Decrease in long-term debt (Note 11)
Repayments of long-term debt
Dividends / distributions (Note 19)
Interest paid
Issuance of common shares
Cash from financing activities
NET CHANGE IN CASH
Cash, beginning of year
CASH, END OF YEAR
See accompanying notes to consolidated financial statements
Year Ended
Year Ended
January 31, 2013
January 31, 2012
$
65,148
$
57,961
37,149
26,161
5,809
471
(15,483)
1,978
121,233
10,764
(3,005)
128,992
(42,236)
(8,897)
2,352
(48,781)
(12,285)
—
(50,320)
(5,974)
59
(68,520)
11,691
26,984
36,572
25,322
6,026
689
(6,195)
438
120,813
(2,989)
(2,355)
115,469
(45,565)
(811)
428
(45,948)
(13,360)
(3,676)
(50,797)
(5,935)
—
(73,768)
(4,247)
31,231
$
38,675
$
26,984
34THE NORTH WEST COMPANY INC. 2012 Notes to
Consolidated
Financial
Statements
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JANUARY 31, 2013 AND 2012
1. ORGANIZATION
The North West Company Inc. (NWC or the Company) is a corporation
amalgamated under the Canada Business Corporations Act (CBCA) and
governed by the laws of Canada. The Company, through its
subsidiaries, is a leading retailer of food and everyday products and
services. The address of its registered office is 77 Main Street, Winnipeg,
Manitoba.
These consolidated financial statements have been approved for
issue by the Board of Directors of the Company on April 8, 2013.
2. BASIS OF PREPARATION
(A) Statement of Compliance
These consolidated financial
statements have been prepared in accordance with International
Financial Reporting Standards (IFRS), as issued by the International
Accounting Standards Board (IASB).
(B) Basis of Measurement The consolidated financial statements
have been prepared on a going concern basis, under the historical
cost convention, except for the following which are measured at
fair value:
•
•
•
•
Derivative financial instruments
Financial instruments designated at fair value
Liabilities for share-based payment plans
Defined benefit pension plan
The methods used to measure fair values are discussed further in
the notes to these financial statements.
(C) Functional and Presentation Currency The presentation
currency of the consolidated financial statements is Canadian
dollars, which is the Company’s functional currency. All financial
information is presented in Canadian dollars, unless otherwise
stated, and has been rounded to the nearest thousand.
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied to all years
presented in these consolidated financial statements, and have been
applied consistently by both the Company and its subsidiaries using
uniform accounting policies for like transactions and other events in
similar circumstances.
(A) Basis of Consolidation Subsidiaries are entities controlled, either
directly or indirectly, by the Company. Control exists when the
Company has the power to govern the financial and operating
policies of an entity so as to obtain benefit from its activities and
is generally accompanying a shareholding of more than 50%.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Company until the date that control ceases.
Joint ventures are those entities over which the Company
has joint control, established by contractual agreement. The
Company’s share of its joint ventures has been classified as a jointly
controlled entity. Its results are included in the consolidated
statements of earnings using the equity method of accounting.
Joint ventures are carried in the consolidated balance sheets at
cost plus post-acquisition changes in the Company’s share of net
assets of the entity, less any impairment in value.
All significant inter-company amounts and transactions have
been eliminated.
(B) Business Combinations Business combinations are accounted
for using the acquisition method of accounting.
The
consideration transferred is measured at the fair value of the assets
given, equity instruments issued and liabilities assumed at the
date of exchange. Acquisition costs incurred are expensed and
included in selling, operating and administrative expenses. Any
contingent consideration to be transferred by the acquirer will be
recognized at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration which
is deemed to be an asset or liability will be recognized in
accordance with International Accounting Standard (IAS) 39
either in net earnings or as a change to other comprehensive
income (OCI). If the contingent consideration is classified as
equity, it will not be remeasured until it is finally settled within
equity.
Identifiable assets acquired, and liabilities and contingent
liabilities assumed in a business combination, are measured
initially at their fair values at the acquisition date irrespective of
the extent of any non-controlling interest. The excess of the cost
of the acquisition over the fair value of the Company’s share of
the identifiable net assets acquired is recorded as goodwill. If the
cost of acquisition is less than the fair value of the net assets of
the subsidiary acquired, the difference is recognized directly in
the consolidated statement of earnings.
(C) Revenue Recognition Revenue on the sale of goods is recorded
at the time the sale is made to the customer, being when the
significant risks and rewards of ownership have transferred to the
customer, recovery of the consideration is probable, and the
amount of revenue can be measured reliably. Sales are presented
net of tax, returns and discounts and are measured at the fair value
of the consideration received or receivable from the customer for
the products sold or services supplied. Service charges on
customer account receivables are accrued each month on
balances outstanding at each account’s billing date.
(D) Inventories Inventories are valued at the lower of cost and net
realizable value. The cost of warehouse inventories is determined
using the weighted-average cost method. The cost of retail
inventories is determined primarily using the retail method of
accounting for general merchandise inventories and the cost
method of accounting for food inventories on a first-in, first-out
basis. Cost includes the cost to purchase goods net of vendor
allowances plus other costs incurred in bringing inventories to
their present location and condition. Net realizable value is
estimated based on the amount at which inventories are
expected to be sold, taking into consideration fluctuations in retail
prices due to seasonality.
Inventories are written down to net realizable value if net
When
realizable value declines below carrying amount.
35NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
circumstances that previously caused inventories to be written
down below cost no longer exist or when there is clear evidence
of an increase in selling price, the amount of the write-down
previously recorded is reversed.
(E) Vendor Rebates Consideration received from vendors related
to the purchase of merchandise is recorded on an accrual basis
as a reduction in the cost of the vendor’s products and reflected
as a reduction of cost of sales and related inventory.
(F) Property and Equipment Property and equipment are stated
at cost less accumulated amortization and any impairment losses.
Cost includes any directly attributable costs, borrowing costs on
qualifying construction projects, and the costs of dismantling and
removing the items and restoring the site on which they are
located. When major components of an item of property and
equipment have different useful lives, they are accounted for as
separate items. Amortization is calculated from the dates assets
are available for use using the straight-line method to allocate the
cost of assets less their residual values over their estimated useful
lives as follows:
Buildings 3% – 8%
Leasehold improvements 5% – 20%
Fixtures and equipment 8% – 33%
Computer equipment 12% – 33%
Amortization methods, useful lives and residual values are
reviewed at each reporting date and adjusted if appropriate.
Assets under construction and land are not amortized.
(G) Impairment
Impairment of non-financial assets Tangible assets and definite life
intangible assets are reviewed at each balance sheet date to
determine whether events or conditions indicate that their
carrying amount may not be recoverable. If any such indication
exists, the recoverable amount of the asset, which is the higher of
its fair value less costs to sell and its value in use, is estimated in
order to determine the extent of the impairment loss. Where the
asset does not generate cash flows that are independent from
other assets, the Company estimates the recoverable amount of
the cash-generating unit (CGU) to which the asset belongs. For
tangible and intangible assets excluding goodwill, the CGU is the
smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows
of other assets or groups of assets.
Goodwill and indefinite life intangible assets are not
amortized but are subject to an impairment test annually and
whenever indicators of impairment are detected. Goodwill is
allocated to CGU’s that are expected to benefit from the synergies
of the related business combination and represents the lowest
level within the Company at which goodwill is monitored for
internal management purposes, which
is the Company’s
International operating segment before aggregation.
Any impairment charge is recognized in the consolidated
statement of earnings in the period in which it occurs, to the
extent that the carrying value exceeds its recoverable amount.
Where an impairment loss other than an impairment loss on
goodwill subsequently reverses due to a change in the original
estimate, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount. Impairment charges
on goodwill are not reversed.
Impairment of financial assets Financial assets are assessed at each
reporting date to determine whether there is any objective
evidence that they are 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. An impairment loss is calculated as the
difference between its carrying amount, and the present value of
the estimated future cash flows discounted at their original
effective interest rate.
All impairment losses are recognized in the consolidated
statement of earnings. An impairment loss, except an impairment
loss related to goodwill, is reversed if the reversal can be related
objectively to an event occurring after the impairment loss was
recognized.
(H) Leases Leases in which a significant portion of the risks and
rewards of ownership are retained by the lessor are accounted for
as operating leases. Assets leased under operating leases are not
recorded on the consolidated balance sheets. Rental payments
are recorded in selling, operating and administrative expenses in
the consolidated statements of earnings. Lease incentives
received are recognized as part of the total lease expense, over
the term of the lease.
Leases in which the Company has substantially all of the risks
and rewards of ownership are accounted for as finance leases. At
commencement, finance leases are capitalized at the lower of the
fair value of the leased property and the present value of minimum
lease payments, and are recorded in property and equipment on
the consolidated balance sheets. Finance lease liabilities are
recorded in long-term debt and are reduced by the amount of
the lease payment net of imputed interest (finance charges).
(I) Borrowing Costs Borrowing costs directly attributable to the
acquisition or construction of qualifying assets are capitalized as
part of the cost of the respective asset until it is ready for its
intended use. Qualifying assets are those assets that necessarily
take a substantial period of time to prepare for their intended use.
Borrowing costs are capitalized based on the Company’s
weighted-average cost of borrowing. All other borrowing costs
are expensed as incurred.
(J) Goodwill Goodwill represents the excess of the consideration
transferred over the fair value of the identifiable assets, including
intangible assets, and liabilities of the acquiree at the date of
acquisition. Goodwill is not amortized but is subject to an
impairment test annually and whenever indicators of impairment
are detected. Goodwill is carried at cost less accumulated
impairment losses.
(K)
Intangible Assets Intangible assets with finite lives are carried
at cost less accumulated amortization and any impairment loss.
Amortization is recorded on a straight-line basis over the term of
the estimated useful life of the asset as follows:
Software
Non-compete agreements
3 to 7 years
3 to 5 years
Intangible assets with indefinite lives comprise the Cost-U-Less
banner. This asset is not amortized but instead is tested for
impairment annually or more frequently
indicators of
impairment are identified.
if
36THE NORTH WEST COMPANY INC. 2012
(L) Share-based Payment Transactions
Equity settled plans The Share Option Plan prior to June 14, 2011
is an equity settled share-based payment plan. The fair value of
this plan was determined using an option pricing model. The
grant date fair values of this benefit is recognized as an employee
expense over the vesting period, with corresponding increases in
equity.
Cash settled plans The Share Option Plan commencing June 14,
2011, Restricted Share Units, Performance Share Units, Employee
Share Purchase Plan and Director Deferred Share Unit Plan are cash
settled share-based payments. These plans are measured at fair
value at each balance sheet date and a charge or recovery
recognized through the consolidated statement of earnings over
the vesting period. A corresponding adjustment is reflected in
accounts payable and accrued liabilities or other long-term
liabilities.
The value of the charges under both cash settled and equity
settled plans are adjusted in the consolidated statement of
earnings to reflect expected and actual levels of benefits vesting.
(M) Foreign Currency Translation The accounts of
foreign
operations have been translated into the presentation currency,
Canadian dollars. Assets and liabilities are translated at the period-
end exchange rate, and revenues and expenses at the average
rate for the period. Foreign exchange gains or losses arising from
the translation of the net investment in foreign operations and
the portion of the U.S. denominated borrowings designated as a
hedge against this investment are recorded in equity as other
comprehensive income. Foreign exchange gains or losses
recorded in accumulated other comprehensive income (AOCI) are
recognized in net earnings when there is a reduction in the net
investment in foreign operations.
Items included in the financial statements of the Company
and its subsidiaries are measured using the currency of the
primary economic environment in which the entity operates
(functional currency). Transactions in foreign currencies are
translated to the respective functional currencies at exchange
rates approximating the rates in effect at the transaction dates.
Monetary assets and liabilities denominated in foreign currencies
at the reporting date are retranslated to the functional currency
at the exchange rate ruling at that date.
(N) Income Taxes Income tax expense includes taxes payable on
current earnings and changes in deferred tax balances. Current
income tax expense is the expected tax payable on taxable
income for the period, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable
in respect of previous periods.
The Company accounts for deferred income taxes using the
liability method of tax allocation. Under the liability method,
deferred income tax assets and liabilities are determined based
on the temporary differences between the financial statement
carrying values and tax bases of assets and liabilities, and are
measured using substantively enacted tax rates and laws that are
expected to be in effect in the periods in which the deferred
income tax assets or liabilities are expected to be realized or
settled. The measurement of deferred tax reflects the tax
consequences that would follow the manner in which the
Company expects to settle the carrying amount of its assets and
liabilities. A deferred tax asset is recognized to the extent that it
is probable that future taxable earnings will be available against
which the temporary difference 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. Deferred tax assets and liabilities are offset when they
relate to income taxes levied by the same taxation authority and
there is a legally enforceable right to offset the amounts.
Income tax expense is recognized in the consolidated
statement of earnings, except to the extent that it relates to items
recognized directly in other comprehensive income or in equity,
in which case the related income tax expense is also recognized
in other comprehensive income or in equity respectively.
(O) Employee Benefits The Company maintains either a defined
benefit or defined contribution pension plans for the majority of
its Canadian employees, and an employee savings plan for its U.S.
employees. Other benefits include employee bonuses, employee
share purchase plans and termination benefits.
Defined Benefit Pension Plan The actuarial determination of the
defined benefit obligations for pension benefits uses the
projected unit credit method prorated on services which
incorporates management’s best estimate of the discount rate,
expected plan
investment performance, salary escalation,
retirement rates, termination rates and retirement ages of
employees. The discount rate used to value the defined benefit
obligation is derived from a portfolio of high quality Corporate AA
bonds denominated in the same currency in which the benefits
are expected to be paid and with terms to maturity that, on
average, match the terms of the defined benefit plan obligations.
Bonds included in the curve are denominated in the currency in
which the benefits will be paid that have terms to maturity
approximating the terms of the related pension liability. When
calculating expected returns on plan assets, assets are valued at
fair market value.
The amount recognized in the consolidated balance sheet
at each reporting date represents the present value of the defined
benefit obligation, adjusted for unvested past service costs and
reduced by the fair value of plan assets. Any recognized asset or
surplus is limited to the present value of economic benefits
available in the form of any future refunds from the plan or
reductions in future contributions. To the extent that there is
uncertainty regarding entitlement to the surplus, no asset is
recorded. The Company’s funding policy is in compliance with
statutory regulations and amounts funded are deductible for
income tax purposes.
The actuarially determined expense is recognized annually
in the consolidated statement of earnings. All actuarial gains and
losses arising from defined benefit plans are recognized in full in
the period in which they arise in the consolidated statement of
other comprehensive income, and the recognized actuarial gains
and losses are presented in retained earnings. The effect of the
asset ceiling is also recognized in other comprehensive income.
Interest costs on the defined benefit obligation and the expected
return on employee benefit plan assets are charged to the
consolidated statement of earnings as interest expense.
Defined Contribution Pension Plans The Company sponsors
defined contribution pension plans for eligible employees where
fixed contributions are paid into a registered plan. There is no
obligation for the Company to pay any additional amount into
these plans. Contributions to the defined contribution pension
plans are expensed as incurred.
Short-term Benefits An undiscounted liability is recognized for the
amount expected to be paid under short-term incentive plans or
employee share purchase plans if the Company has a present legal
or constructive obligation to pay this amount as a result of past
37NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
service provided by the employee and the obligation can be
estimated reliably.
Termination Benefits Termination benefits are recognized as an
expense when the Company is demonstrably committed,
without realistic possibility of withdrawal, to a formal detailed plan
to either terminate employment before the normal retirement
date, or to provide termination benefits as a result of an offer made
to encourage voluntary redundancy. If the effect is significant,
benefits are discounted to present value.
(P) Provisions A provision is recognized if, as a result of a past event,
the Company has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation.
(Q) Financial Instruments Financial assets and
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 receive cash
flows and benefits related from the financial asset expire, or the
Company transfers the control or substantially all the risks and
rewards of ownership of the financial asset to another party.
Financial liabilities are derecognized when obligations under the
contract expire, are discharged or cancelled.
initial
recognition, all financial instruments are classified into one of the
following categories: fair value through profit or loss (FVTPL), loans
and receivables, held-to-maturity investments, available-for-sale,
or other financial liabilities.
On
Financial instruments have been classified as follows:
•
•
•
Cash is designated as loans and receivables
Accounts receivable and financial assets included in other
assets are classified as loans and receivables
Long-term debt, accounts payable and accrued liabilities,
and certain other liabilities are classified as other financial
liabilities
Financial instruments are initially recognized at fair value plus
transaction costs; subsequent measurement and recognition of
changes in value depends on their initial classification. Financial
instruments classified as FVTPL are subsequently measured at fair
value, with changes in fair value recorded in net earnings. Loans
and receivables are subsequently carried at amortized cost less
impairment losses. Interest revenue, consisting primarily of
service charge income on customer accounts receivable, is
included in sales in the consolidated statement of earnings. Other
financial liabilities are subsequently held at amortized cost.
Interest expense relating to long-term debt is recorded using the
effective interest rate method and included in the consolidated
statement of earnings in interest expense.
The Company is exposed to financial risks associated with
movements in interest rates and exchange rates. The Company
instruments to hedge these
may use derivative financial
exposures. Qualifying hedge relationships are classified as either
fair value hedges, cash flow hedges or as a hedge of a net
investment in foreign operations. Fair value hedges are those
where the derivative financial instrument hedges a change in the
fair value of the financial asset or liability due to movements in
interest rates. The Company does not have any cash flow hedges.
Net investment hedges use financial liabilities to counterbalance
gains and losses arising on the retranslation of foreign operations.
To qualify for hedge accounting, the Company documents
its risk management strategy, the relationship between the
hedging instrument and the hedged item or transaction and the
nature of the risks being hedged. The Company also documents
the assessment of the effectiveness of the hedging relationship,
to show that the hedge has been and will likely be highly effective
on an ongoing basis.
To the extent that a fair value hedging relationship is
effective, a gain or loss arising from the hedged item adjusts its
carrying value and is reflected in earnings, offset by a change in
fair value of the underlying derivative. Any changes in fair value
of derivatives that do not qualify for hedge accounting are
reported in earnings. Changes in fair value relating to the interest
rate swaps are included in interest expense.
The Company has designated a portion of the U.S.
denominated debt as a hedge of its net investment in U.S.
operations. To the extent that the hedging relationship is effective,
the foreign exchange gains and losses arising from translation of
this debt are included in other comprehensive income. These
gains and losses are subsequently recognized in earnings when
the hedged item affects earnings.
loss on the hedging
Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated, or exercised, or no longer
qualifies for hedge accounting. At that time, any cumulative gain
in other
or
comprehensive income is retained in equity until the forecasted
transaction occurs. If a hedged transaction is no longer expected
to occur, the net cumulative gain or loss recognized in other
comprehensive income is transferred to the income statement
for the period.
instrument recognized
Embedded derivatives are components of hybrid
instruments that include non-derivative host contracts. These are
separated from their host contracts and recorded on the
consolidated balance sheets at fair value when certain conditions
are met. Changes in the fair value of embedded derivatives are
recognized in earnings.
(R) Cash Cash comprises cash on hand and balances with banks.
(S) Net Earnings Per Share Basic net earnings per share are
calculated by dividing the net earnings by the weighted-average
number of common shares outstanding during the period.
Diluted net earnings per share is determined by adjusting net
earnings and the weighted-average number of common shares
outstanding for the effects of all potentially dilutive shares, which
comprise shares issued under the Share Option Plan and Deferred
Share Unit Plan.
(T) Use of Estimates The preparation of financial statements in
conformity with IFRS requires management to make estimates
and assumptions that affect the reported amounts and
disclosures in the consolidated financial statements and notes.
These estimates and assumptions are based on
management’s historical experience, best knowledge of current
events, conditions and actions that the Company may undertake
in the future and other factors that management believes are
reasonable under the circumstances. Estimates and underlying
assumptions are reviewed on an ongoing basis. Certain of these
estimates
judgments by
management about matters that are uncertain and changes in
these estimates could materially
impact the consolidated
financial statements and notes. Revisions to accounting estimates
are recognized in the period in which the estimates are reviewed
and in any future periods affected.
require subjective or complex
38THE NORTH WEST COMPANY INC. 2012
Areas involving a higher degree of judgment or complexity,
or areas where assumptions and estimates have the most
significant effect on the amounts recognized in the consolidated
financial statements include:
•
•
•
•
•
•
Allowance for doubtful accounts (Notes 5, 14)
Inventories (Note 6)
Impairment of assets (Note 7)
Goodwill and indefinite life intangible asset impairment
(Note 8)
Income taxes (Note 9)
Defined benefit pension plan obligations (Note 12)
(U) Share capital
Common shares are classified as equity.
Incremental costs directly attributable to the issue of ordinary
shares are recognized as a deduction from equity, net of any tax
effects.
(V) New Standards Implemented The Company adopted the
amendments to IFRS listed below effective February 1, 2012, as
required by the IASB. These amendments had no material impact
on the Company's results from operations or financial condition.
Financial Instruments: Disclosures The IASB issued amendments to
IFRS 7, Financial Instruments: Disclosures to expand the disclosure
requirements for transfers of financial assets. The amendments
help financial statement users evaluate financial risks that may be
associated with these transfers.
The Company's capital
management activities do not involve the transfer of financial
assets.
Income Taxes The IASB issued an amendment to IAS 12, Income
Taxes introducing an exception to the general measurement
requirements of IAS 12 for investment properties measured at fair
value. The Company does not have any investment property
measured at fair value.
(W) Future Standards and Amendments A number of new
standards, and amendments to standards and interpretations, are
not yet effective for the year ended January 31, 2013, and have
not been applied in preparing these consolidated financial
statements. Unless otherwise noted, the following revised
standards and amendments are effective for the Company’s
annual periods beginning February 1, 2013.
Consolidated Financial Statements The IASB issued IFRS 10,
Consolidated Financial Statements replacing portions of IAS 27,
Consolidated and Separate Financial Statements addressing
consolidation and
Interpretations
Committee (SIC) Interpretation 12 in its entirety. IFRS 10
establishes principles for the presentation and preparation of
consolidated financial statements when an entity controls one or
more other entities. This standard is not expected to have a
significant impact on the consolidated financial statements.
superseding Standing
Joint Arrangements The IASB issued IFRS 11, Joint Arrangements
superseding IAS 31, Interest in Joint Ventures and SIC-13, Jointly
Controlled Entities – Non Monetary Contributions by Venturers. IFRS
11 establishes principles for determining the type of joint
arrangement by assessing the venturers’ rights and obligations.
This standard provides guidance for financial reporting activities
required by entities that have an interest in a jointly controlled
arrangement. Joint ventures will be accounted for using the
equity method of accounting, whereas for a joint operation the
venturer will recognize its share of the venture's assets, liabilities,
revenues and expenses. The adoption of IFRS 11 is not expected
to have a significant impact on the consolidated financial
statements.
Interests
Disclosure of Interests in Other Entities The IASB issued IFRS 12,
Disclosure of
in Other Entities requiring extensive
disclosures relating to a company’s interest in subsidiaries,
associates and certain other arrangements. IFRS 12 enables
financial statement users to evaluate the nature and risks
associated with these interests, and evaluate their effect on the
Company’s financial performance. This standard is not expected
to have a significant impact on the consolidated financial
statements.
Employee benefits The revised IAS 19, Employee Benefits issued by
the IASB eliminates the option to defer the recognition of actuarial
gains and losses on defined benefit plans. It amends the
calculation of plan assets and benefit obligations, streamlines the
presentation of changes in defined benefit plans and requires
enhanced disclosure. The requirement to calculate the expected
return on plan assets with the interest rate used to calculate the
defined benefit plan obligation is the most significant for the
Company. The Company will adopt this standard for its fiscal year
beginning February 1, 2013. The implementation of this standard
in the Company's 2013 financial statements will require
restatement of its 2012 comparative numbers with an estimated
decrease in net earnings of $1,260 comprised of an increase to
interest expense of $1,170, an increase to selling, operating and
administrative expenses of $550 and a deferred tax recovery of
$460.
Financial Instruments The IASB has issued a new standard which
will eventually replace IAS 39, Financial Instruments: Recognition
and Measurement.
IFRS 9, Financial
The development of
Instruments is a multi-phase project with a goal of improving and
simplifying financial instrument reporting. IFRS 9 uses a single
approach to determine measurement of a financial asset based
on how an entity manages financial impairment, replacing the
multiple classification options in IAS 39 with only two categories:
amortized cost and fair value through profit or loss. This standard
is effective for the Company’s financial year beginning February
1, 2015. The Company is currently assessing the impact of changes
to this standard.
Presentation of Financial Statements The IASB has amended IAS 1,
Presentation of Financial Statements to enhance the presentation
of Other Comprehensive Income (OCI). These amendments
require the components of OCI to be presented separately for
items that may be reclassified to the statement of earnings from
those that remain in equity. This standard is not expected to have
a significant impact on the consolidated financial statements.
Fair Value Measurement IFRS 13, Fair Value Measurement is a
comprehensive standard for fair value measurement and
disclosure requirements for use across all IFRS. The new standard
clarifies that fair value is the price that would be received to sell
an asset, or paid to transfer a liability in an orderly transaction
between market participants, at the measurement date. It also
establishes disclosures about fair value measurement. This
standard is not expected to have a significant impact on the
consolidated financial statements.
39NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments The IASB has issued amendments to IFRS 7,
Financial Instruments: Disclosures and IAS 32, Financial Instruments:
Presentation which clarify the requirements for offsetting financial
liabilities along with new disclosure
assets and financial
requirements . These amendments are effective for the Company’s
financial years beginning February 1, 2014 and February 1, 2013
respectively. These standards are not expected to have a
significant impact on the consolidated financial statements.
4. SEGMENTED INFORMATION
The Company is a retailer of food and everyday products and services
in two geographical segments, Canada and International. The
International segment consists of wholly owned subsidiaries
operating in the continental United States, Caribbean and South
Pacific. Financial information for these business segments is regularly
reviewed by the Company’s President and Chief Executive Officer to
assess performance and make decisions about the allocation of
resources.
The following key information is presented by geographic segment:
Assets
Canada
International
January 31, 2013
January 31, 2012
$ 444,848
$
443,956
206,546
182,961
Consolidated
$ 651,394
$
626,917
International total assets includes goodwill of $26,162 (January 31,
2012 - $26,319).
Supplemental information
Year Ended
January 31, 2013
January 31, 2012
Canada
Int'l
Canada
Int'l
Expenditure on property and
equipment
$ 25,128 $ 17,108 $ 33,952 $ 11,613
Amortization
$ 29,155 $ 7,994 $ 28,745 $ 7,827
Consolidated Statements of Earnings
5. ACCOUNTS RECEIVABLE
Year Ended
Sales
Canada
January 31, 2013
January 31, 2012
$ 1,043,050
$ 1,028,396
Current:
January 31, 2013
January 31, 2012
International
470,596
466,740
Trade accounts receivable
$ 72,162
$ 76,349
Consolidated
$ 1,513,646
$ 1,495,136
Earnings before amortization, interest and income taxes
Canada
International
$ 107,060
$
27,207
97,998
27,883
Consolidated
$ 134,267
$
125,881
Earnings from operations
Canada
International
Consolidated
$
77,905
19,213
$
97,118
$
$
69,253
20,056
89,309
Corporate and other
accounts receivable
Less: allowance for doubtful
accounts
Non-current:
Long-term receivable
(Note 10)
11,920
13,796
(14,042)
(13,606)
$ 70,040
$ 76,539
$
2,626
$
2,507
$ 72,666
$ 79,046
The carrying values of current accounts receivable are a reasonable
approximation of their fair values. The maximum exposure to credit
risk at the reporting date is the carrying value of each class of receivable
mentioned above (Note 14).
Movements in the allowance for doubtful accounts for customer and
commercial accounts receivables are as follows:
January 31, 2013
January 31, 2012
Current:
Balance, beginning of year
$
(13,606)
$
(13,338)
Net charge
Written off
(7,606)
7,170
(7,748)
7,480
Balance, end of year
$
(14,042)
$
(13,606)
40THE NORTH WEST COMPANY INC. 2012
6.
INVENTORIES
Retail inventories are valued at the lower of cost and net realizable value. Valuing retail inventories requires the Company to use estimates related
to: discount factors used to convert inventory to cost; future retail sales prices and reductions; and inventory losses during periods between the
last physical count and the balance sheet date. Included in inventories recognized as an expense for the year ended January 31, 2013, the Company
recorded $1,648 (January 31, 2012 - $1,851) for the write-down of inventories as a result of net realizable value being lower than cost. There was
no reversal of inventories written down previously that are no longer estimated to sell below cost during the year ended January 31, 2013 or 2012.
7. PROPERTY & EQUIPMENT
January 31, 2013
Cost
Land
Buildings
Leasehold
improvements
Fixtures &
equipment
Computer
equipment
Construction
in process
Total
Balance, beginning of year
$
12,179
$ 301,354
$
41,831
$ 211,549
$
61,667
$
17,162
$ 645,742
Additions
Disposals
Effect of movements in foreign exchange
—
(8)
(27)
21,847
(928)
(415)
954
(4,062)
(64)
15,592
(3,146)
(268)
1,738
(48)
(46)
2,105
—
(22)
42,236
(8,192)
(842)
Total January 31, 2013
$
12,144
$ 321,858
$
38,659
$ 223,727
$
63,311
$
19,245
$ 678,944
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals
Effect of movements in foreign exchange
Total January 31, 2013
$
$
—
—
—
—
—
$ 158,017
$
20,348
$ 145,054
$
51,953
$
14,885
(693)
(158)
3,003
(1,217)
(35)
12,078
(1,925)
(183)
3,855
(28)
(37)
$ 172,051
$
22,099
$ 155,024
55,743
$
—
—
—
—
—
$ 375,372
33,821
(3,863)
(413)
$ 404,917
Net book value January 31, 2013
$ 12,144
$ 149,807
$ 16,560
$ 68,703
7,568
$ 19,245
$ 274,027
January 31, 2012
Cost
Land
Buildings
Leasehold
improvements
Fixtures &
equipment
Computer
equipment
Construction
in process
Total
Balance, beginning of year
$
12,182
$ 291,234
$
37,496
$ 203,236
$
55,302
$
Additions
Disposals
Effect of movements in foreign exchange
8
(24)
13
13,890
(4,009)
239
4,682
(388)
41
10,991
(2,853)
175
6,639
(311)
37
7,801
9,355
—
6
$ 607,251
45,565
(7,585)
511
Total January 31, 2012
$
12,179
$ 301,354
$
41,831
$ 211,549
$
61,667
$
17,162
$ 645,742
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals
Effect of movements in foreign exchange
Total January 31, 2012
$
$
—
—
—
—
—
$ 146,959
$
17,766
$ 135,225
$
47,718
$
13,795
(2,856)
119
2,911
(354)
25
12,120
(2,423)
132
4,398
(187)
24
$ 158,017
$
20,348
$ 145,054
51,953
$
—
—
—
—
—
$ 347,668
33,224
(5,820)
300
$ 375,372
Net book value January 31, 2012
$ 12,179
$ 143,337
$ 21,483
$ 66,495
9,714
$ 17,162
$ 270,370
The Company reviewed its property and equipment for indicators of impairment. No assets were identified as impaired.
$
$
$
$
41NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest capitalized
Interest attributable to the construction of qualifying assets was capitalized using an average rate of 3.49% and 3.21% for the years ended January 31,
2013 and 2012 respectively. Interest capitalized included in additions amounted to $506 (January 31, 2012 - $161). Accumulated interest capitalized
included in the cost total above amounted to $697 (January 31, 2012 - $191).
8. GOODWILL & INTANGIBLE ASSETS
Goodwill
January 31, 2013
January 31, 2012
Balance at beginning of year
$
26,319
$
26,241
Effect of movements in foreign
exchange
(157)
78
Balance at end of year
$
26,162
$
26,319
Goodwill Impairment Testing
The goodwill asset balance relates to the Company's acquired
subsidiary, Cost-U-Less, and is allocated to the International Operations
operating segment. The value of the goodwill was tested by means of
comparing the recoverable amount of the operating segment to its
carrying value. To calculate the operating segment's recoverable
amount, the Company uses the capitalized earnings method. The
product of maintainable earnings and a capitalization rate are used to
determine the recoverable amount. The capitalization rate is based on
the International Operations weighted-average cost of capital. Key
assumptions in the capitalization rate include: equity risk premium,
debt-to-equity ratio, pre-tax cost of debt capital and company specific
risk premium. Cash flow forecasts for the following financial year are
used to calculate maintainable earnings, to which a terminal growth
rate of 2% has been applied. The capitalization rate implies a post-tax
discount rate of 10.9% (January 31, 2012 - 11.1%), which equates to a
pre-tax rate of approximately 14.5% (January 31, 2012 - 14.9%). No
impairment has been identified on goodwill, and management
considers reasonably foreseeable changes in key assumptions are
unlikely to produce a goodwill impairment.
Intangible assets
January 31, 2013
Balance, beginning of year
Additions
Write off of fully amortized assets
Effect of movements in foreign exchange
Total January 31, 2013
Accumulated amortization at beginning of year
Amortization expense
Write off of fully amortized assets
Effect of movements in foreign exchange
Total January 31, 2013
Net book value January 31, 2013
January 31, 2012
Balance, beginning of year
Additions
Effect of movements in foreign exchange
Total January 31, 2012
Accumulated amortization, beginning of year
Amortization expense
Effect of movements in foreign exchange
Total January 31, 2012
Net book value January 31, 2012
Software
Cost-U-Less banner
Non-compete
agreements
Total
$
15,868
$
7,027
$
8,123
$
31,018
8,684
—
—
24,552
11,996
1,930
—
—
$
$
$
13,926
$ 10,626
—
—
(42)
6,985
—
—
—
—
—
6,985
$
$
$
$
213
(1,867)
(19)
6,450
4,402
1,398
(1,867)
(8)
3,925
2,525
$
$
$
$
8,897
(1,867)
(61)
37,987
16,398
3,328
(1,867)
(8)
$
$
$
17,851
$ 20,136
Software
Cost-U-Less banner
Non-compete
agreements
Total
$
15,057
$
7,015
$
8,114
$
30,186
811
—
15,868
10,186
1,810
—
11,996
3,872
$
$
$
$
—
12
7,027
—
—
—
—
7,027
$
$
$
$
—
9
8,123
2,853
1,538
11
4,402
811
21
31,018
13,039
3,348
11
$
$
$
16,398
3,721
$ 14,620
$
$
$
$
42THE NORTH WEST COMPANY INC. 2012 Work in process
As at January 31, 2013 the Company had incurred $6,519 for intangible
assets that were not yet available for use, and therefore not subject to
amortization.
Intangible Asset Impairment Testing
The Company determines the fair value of the Cost-U-Less banner
using the Relief from Royalty approach. This method requires
management to make long-term assumptions about future sales,
terminal growth rates, royalty rates and discount rates. Sales forecasts
for the following financial year together with medium and terminal
growth rates ranging from 2% to 5% are used to estimate future sales,
to which a royalty rate of 0.5% is applied. The present value of this
royalty stream is compared to the carrying value of the asset. No
impairment has been identified on intangible assets and management
considers reasonably foreseeable changes in key assumptions are
unlikely to produce an intangible asset impairment.
9.
INCOME TAXES
The following are the major components of the income tax expense:
Income tax expense varies from the amounts that would be computed
by applying the statutory income tax rate to earnings before taxes for
the following reasons:
Year Ended
January 31, 2013
January 31, 2012
Net earnings before income
taxes
Combined statutory income
tax rate
Expected income tax
expense
$ 91,309
$ 83,283
28.2%
30.3%
$ 25,749
$ 25,235
Increase (decrease) in income taxes resulting from:
Non-deductible expenses/
non-taxable income
Withholding taxes
Impact of change in tax rates
Over provision in prior years
Other
$
(183)
$
(136)
207
(48)
(201)
637
1,443
(978)
(234)
(8)
Provision for income taxes
$ 26,161
$ 25,322
Year Ended
January 31, 2013
January 31, 2012
Income tax rate
28.7%
30.4%
$ 30,199
207
740
$
8,969
1,443
The decrease in the combined statutory income tax rate is due to a
reduction in Canadian substantively enacted tax rates and a change in
the foreign subsidiaries’ earnings.
(21)
Deferred income tax charged (credited) to other comprehensive
income during the year is as follows:
Current tax expense:
Current tax on earnings for
the year
Withholding taxes
(Over) under provision in
prior years
Deferred tax expense:
Origination and reversal of
temporary differences
Impact of change in tax rates
Over provision in prior years
$ 31,146
$ 10,391
$ (3,996)
$ 16,122
(48)
(941)
(978)
(213)
(4,985)
14,931
Income taxes
$ 26,161
$ 25,322
Year Ended
January 31, 2013
January 31, 2012
Net investment hedge:
Origination and reversal of
temporary difference
Impact of change in tax rates
Defined benefit plan
actuarial loss:
Origination and reversal of
temporary difference
Impact of change in tax rates
$
$
56
6
62
$
$
(30)
2
(28)
$
(958)
$ (5,540)
(27)
(985)
(1)
(5,541)
$
(923)
$ (5,569)
43NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
January 31, 2013
February 1, 2012
Taxes (charged)
credited to net
earnings
Taxes (charged)
credited to OCI
Foreign exchange
differences recognized
in OCI
January 31, 2013
Deferred tax assets:
Goodwill & intangible assets
$
Property & equipment
Inventory
Share-based compensation and
long-term incentive plans
Defined benefit plan obligation
Accrued expenses not
deductible for tax
Other
Deferred tax liabilities:
Net investment hedge
Investment in jointly controlled
entity
Deferred limited partnership
earnings
Other
467
8,089
1,507
1,693
7,366
3,756
898
$
23,776
$
(1,179)
(1,086)
(16,260)
(269)
$ (18,794)
$
4,982
Recorded on the consolidated balance sheet as follows:
Deferred tax assets
Deferred tax liabilities
$
(50)
$
2,337
113
1,678
(744)
430
821
4,585
—
(63)
390
73
400
4,985
$
$
$
$
$
$
$
$
—
—
—
—
985
—
—
985
(62)
—
—
—
(62)
923
$
$
$
$
$
1
3
(6)
—
—
(12)
2
(12)
—
—
—
—
—
$
418
10,429
1,614
3,371
7,607
4,174
1,721
$ 29,334
$ (1,241)
(1,149)
(15,870)
(196)
$ (18,456)
(12)
$ 10,878
$ 12,904
(2,026)
$ 10,878
44THE NORTH WEST COMPANY INC. 2012 January 31, 2012
February 1, 2011
Taxes (charged)
credited to net
earnings
Taxes (charged)
credited to OCI
Foreign exchange
differences recognized
in OCI
January 31, 2012
Deferred tax assets:
Goodwill & intangible assets
$
Property & equipment
Inventory
Share-based compensation and
long-term incentive plans
Defined benefit plan obligation
Accrued expenses not
deductible for tax
Other
Deferred tax liabilities:
Net investment hedge
Investment in jointly controlled
entity
Deferred limited partnership
earnings
Other
402
6,489
1,092
1,551
2,401
4,162
810
$
16,907
$
(1,207)
(968)
—
(302)
$
$
(2,477)
14,430
Recorded on the consolidated balance sheet as follows:
Deferred tax assets
Deferred tax liabilities
$
$
$
60
1,599
429
144
(576)
(330)
88
1,414
—
(118)
(16,260)
33
$ (16,345)
$ (14,931)
$
$
$
$
$
—
—
—
—
5,541
—
—
5,541
28
—
—
—
28
5,569
$
$
$
$
$
5
1
(14)
(2)
—
(76)
—
(86)
—
—
—
—
—
$
467
8,089
1,507
1,693
7,366
3,756
898
$ 23,776
$ (1,179)
(1,086)
(16,260)
(269)
$ (18,794)
(86)
$
4,982
$
7,422
(2,440)
$
4,982
In assessing the recovery of deferred income tax assets, management considers whether it is probable that the deferred income tax assets will be
realized. The recognition and measurement of the current and deferred tax assets and liabilities involves dealing with uncertainties in the application
of complex tax regulations and in the assessment of the recoverability of deferred tax assets. The ultimate realization of deferred income tax assets
is dependent upon the generation of future taxable income during the periods in which the temporary differences are deductible.
Actual income taxes could vary from these estimates as a result of future events, including changes in income tax laws or the outcome of
tax reviews by tax authorities and related appeals. To the extent the final outcome is different from the amounts initially recorded, such differences,
which could be significant, will impact the tax provision in the period in which the outcome is determined.
No deferred tax has been recognized in respect of temporary differences associated with investment in subsidiaries where the Company is
in a position to control the timing and reversal of the differences and it is probable that such differences will not reverse in the foreseeable future.
The temporary differences associated with the Company’s foreign subsidiaries are approximately $53,000 at January 31, 2013 (January 31, 2012 –
$41,000).
10. OTHER ASSETS
Investment in jointly controlled entity (Note 23)
Long-term receivable (Note 5)
Other
January 31, 2013
January 31, 2012
$
8,590
$
2,626
3,053
8,156
2,507
1,687
$ 14,269
$
12,350
45NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. LONG-TERM DEBT
12. POST-EMPLOYMENT BENEFITS
incorporated
The Company sponsors defined benefit and defined contribution
pension plans covering the majority of Canadian employees. Effective
January 1, 2011, the Company entered into an amended and restated
staff pension plan, which
legislated changes,
administrative practice, and added a defined contribution provision
(the “Amended Plan”). Under the Amended Plan, all members as of
December 31, 2011 who did not meet a qualifying threshold based on
number of years in the pension plan and age were transitioned to the
defined contribution pension plan effective January 1, 2011 and no
longer accumulate years of service under the defined benefit pension
plan. The defined benefit pension previously earned by members
transitioned to the defined contribution plan, will continue to accrue
in accordance with the terms of the plan based on the member’s
current pensionable earnings. Members who met the qualifying
threshold on January 1, 2011, elected between accruing a defined
contribution benefit and continuing to accrue a defined benefit
pension in accordance with the provisions of the Amended Plan.
The defined benefit pension plans are based on years of service
and final average salary. The Company uses actuarial reports prepared
by independent actuaries for funding and accounting purposes as at
January 31, 2013 and January 31, 2012. The accrued pension benefits
and the market value of the plans’ net assets were last determined by
actuarial valuation as at January 1, 2013. The next actuarial valuation
is required as at January 1, 2014. The Company also sponsors an
employee savings plan covering all U.S. employees with at least six
months of service. Under the terms of the plan, the Company is
obligated to make a 50% matching contribution up to 6% of eligible
compensation.
During the year ended January 31, 2013, the Company
contributed $5,583 to its defined benefit pension plans (January 31,
2012 - $4,340). During the year ended January 31, 2013, the Company
contributed $2,002 to
its defined contribution pension plans
(January 31, 2012 - $1,803). The current best estimate of the Company's
funding obligation for the defined benefit pension plans for the year
commencing February 1, 2013 is $3,300. The actual amount paid may
vary from the estimate based on actuarial valuations being completed,
investment performance, volatility in discount rates, regulatory
requirements and other factors.
The following significant actuarial assumptions were employed
to measure the plan:
January 31, 2013
January 31, 2012
Discount rate on plan liabilities
Rate of compensation increase
Discount rate on plan expense
Inflation assumption
Expected return on plan assets
4.3%
4.0%
4.5%
2.0%
6.5%
4.5%
4.0%
5.8%
2.0%
6.5%
January 31, 2013
January 31, 2012
Current:
Revolving loan facilities (1)
$
39,968
$
Notes payable
Finance lease liabilities
199
250
—
268
361
$
40,417
$
629
Non-current
Revolving loan facilities (1)
$
—
$
36,187
Revolving loan facilities (2)
Senior notes (3)
Revolving loan facilities (4)
Notes payable
Finance lease liabilities
52,499
69,461
718
189
70
68,850
69,626
—
391
209
$ 122,937
$ 175,263
Total
$ 163,354
$ 175,892
(1) The US$52,000 committed, revolving loan facilities mature
December 31, 2013 and bear interest at LIBOR plus a spread. The loan
facilities are secured by a floating first charge against the assets of the
Company and rank pari passu with the US$70,000 senior notes and the
$170,000 Canadian Operations loan facilities. At January 31, 2013, the
Company had drawn US$40,000 (January 31, 2012 – US$36,000) on this
facility.
(2) Canadian Operations have an extendible, committed, revolving
loan facility of $170,000 for working capital requirements and general
business purposes. This facility, which matures on December 31, 2015
is secured by a floating charge against the assets of the Company and
rank pari passu with the US$70,000 senior notes and the US$52,000
loan facilities in International Operations. These facilities bear a floating
interest rate based on Bankers Acceptances rates plus stamping fees
or the Canadian prime interest rate.
(3) The US$70,000 senior notes mature on June 15, 2014 and bear
interest at a rate of 6.55%, payable semi-annually. The notes are secured
by a floating charge against the assets of the Company and rank pari
passu with the $170,000 Canadian Operations loan facilities and the US
$52,000 loan facilities in International Operations. The Company has
entered into interest rate swaps resulting in floating interest costs on
US$28,000 of its senior notes (January 31, 2012 – US$28,000). The
interest rate swaps mature June 15, 2014.
(4) In October 2012, the Company completed the refinancing of the
committed, revolving loan facility of US$20,000 that matured on
October 31, 2012. The new committed, revolving facility provides the
Company with up to US$30,000 for working capital requirements and
general business purposes. This facility, which matures October 31,
2015, bears a floating rate of interest based on LIBOR plus a spread and
is secured by a charge against certain accounts receivable and
inventories of the International Operations. At January 31, 2013, the
International Operations had drawn US$719 (January 31, 2012 – US
$NIL) on this facility.
46THE NORTH WEST COMPANY INC. 2012 The average life expectancy in years of a member who reaches normal
retirement age of 65 is as follows:
January 31, 2013
January 31, 2012
Average life expectancies at age 65 for current pensioners:
Male
Female
19.8
22.1
19.7
22.1
Average life expectancies at age 65 for current members aged 45:
Male
Female
19.9
21.8
19.8
21.8
Assumptions regarding future mortality experience are set based on
actuarial advice in accordance with published statistics and experience.
Mortality assumptions have been based on the 1994 United Pensioners
Mortality Table with projections to 2015 using scale AA.
Information on the Company’s defined benefit plans,
in
aggregate, is as follows:
January 31, 2013
January 31, 2012
Sensitivity of key assumptions
The following table outlines the key assumptions for 2012 and the
sensitivity of a 1% change in each of the assumptions on the defined
benefit plan obligations and cost for the defined benefit pension plans.
The table reflects the impact on both the current service and interest
cost expense components.
The sensitivity analysis provided in the key table is hypothetical
and should be used with caution. The sensitivities of each key
assumption have been calculated independently of any changes in
other key assumptions. Actual experience may result in changes in a
number of key assumptions simultaneously. Changes in one factor
may result in changes in another, which could amplify or reduce the
impact of such assumptions.
Defined benefit
plan obligations
Benefit plan cost
Discount rate: 4.3%
Impact of:
1% increase
1% decrease
$ (14,669)
$
19,075
$
$
(439)
439
The major categories of plan assets as a percentage of total plan assets
are listed below. The pension plans have no investment in the shares
of the Company.
Plan assets:
Fair value, beginning of year
$
57,893
$
58,773
Expected return on plan assets
Benefits paid
Employer contributions
Employee contributions
Actuarial gains/(losses)
recognized in OCI
3,800
(4,441)
5,583
12
2,292
3,777
(5,681)
4,340
20
(3,336)
Plan assets:
Equity securities
Debt securities
Other
Total
January 31, 2013
January 31, 2012
62%
33%
5%
100%
60%
36%
4%
100%
Fair value, end of year
$
65,139
$
57,893
The following pension expenses have been charged to the
consolidated statement of earnings:
Plan obligations:
Defined benefit obligation,
beginning of year
Current service costs
Employee contributions
Accrued interest on benefits
Benefits paid
Actuarial losses recognized in
OCI
Defined benefit obligation, end of
year
Plan deficit
$ (85,509)
$
(67,773)
January 31, 2013
January 31, 2012
(2,870)
(12)
(3,748)
4,441
(5,872)
(2,192)
(20)
(3,734)
5,681
(17,471)
Employee costs (Note 17)
Defined benefit pension plan,
current service costs included
in post-employment benefits
Defined contribution pension
plan
Savings plan for U.S. employees
$ (93,570)
$ (28,431)
$
$
(85,509)
(27,616)
$
2,870
$
2,192
2,001
411
1,803
411
$
5,282
$
4,406
The defined benefit obligation exceeds the fair value of plan assets as
noted in the table.
The expected return on plan assets has been derived from the
expected returns from each of the main asset classes. The expected
return for each asset class reflects a combination of historical
performance analysis and the forward-looking view of the financial
markets. The assumptions used are the best estimates chosen from a
range of possible actuarial assumptions, which may not necessarily be
borne out in practice.
Interest expense (Note 18)
Expected return on pension plan
assets
$ (3,800)
$ (3,777)
Interest on pension plan liabilities
3,748
3,734
47NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following amounts have been included in Other Comprehensive
Income:
January 31, 2013
January 31, 2012
Current Year:
Actuarial gains/(losses)
Actuarial loss on plan obligation
Taxes on cumulative actuarial
movement in OCI
Net actuarial movement
recognized in OCI
$
2,292
(5,872)
$
(3,336)
(17,471)
985
5,541
$ (2,595)
$ (15,266)
Cumulative gains/losses recognized in OCI:
Cumulative gross actuarial
movement in OCI
Taxes on cumulative actuarial
movement in OCI
Cumulative net actuarial
movement recognized in OCI
$ (22,966)
$ (19,386)
4,059
3,074
$ (18,907)
$ (16,312)
The actual return on the plans assets is summarized as follows:
January 31, 2013
January 31, 2012
Expected return on plan assets
$
3,800
$
3,777
Actuarial movement recognized in
OCI reflecting the difference
between expected and actual
return assets
2,292
(3,336)
Actual return on plan assets
$
6,092
$
441
13. SHARE-BASED COMPENSATION
The Company offers the following share-based payment plans:
Restricted Share Units (RSU’s); Performance Share Units (PSU’s); Share
Options; Director Deferred Share Units (DSU’s); and an Employee Share
Purchase Plan. The purpose of these plans is to directly align the
interests of the participants and the shareholders of the Company by
providing compensation that is dependent on the performance of the
Company’s common shares.
The total expense relating to share-based payment plans for the
year ended January 31, 2013 was $8,440 (January 31, 2012 - $4,726).
The carrying amount of the Company’s share-based compensation
arrangements including RSU, PSU, share option and DSU plans are
recorded on the consolidated balance sheets as follows:
Accounts payable and accrued
liabilities
Other long-term liabilities
Contributed surplus
January 31, 2013
January 31, 2012
$ 7,437
$
4,611
5,506
1,916
3,207
1,611
Total
$ 14,859
$
9,429
Restricted Share Units and Performance Share Units
The Company has granted Restricted Share Units and Performance
Share Units to officers and senior management. Each RSU entitles the
participant to receive a cash payment equal to the market value of the
number of notional shares granted at the end of the vesting period.
The RSU account for each participant includes the value of dividends
from the Company as if reinvested in additional RSU’s. RSU awards vest
with the employee on the third fiscal year following the date of the
grant to which the award relates. Compensation expense is measured
initially based on the fair market value of the Company’s shares at the
grant date and subsequently adjusted for additional shares granted
based on the reinvestment of notional dividends and the market value
of the shares at the end of each reporting period. The associated
compensation expense is recognized over the vesting period based
on the estimated total compensation to be paid out at the end of the
vesting period.
Each PSU entitles the participant to receive a cash payment equal
to the market value of the number of notional units granted at the end
of the vesting period based on the achievement of specific
performance based criteria. The PSU account for each participant
includes the value of dividends from the Company as if reinvested in
additional PSU’s. PSU awards vest with the employee on the third fiscal
year following the date of the grant to which the award relates.
Compensation expense is measured initially based on the fair market
value of the Company’s shares at the grant date and subsequently
adjusted for additional shares granted based on the reinvestment of
notional dividends and the market value of the shares at the end of
each reporting period. The associated compensation expense is
recognized over the vesting period based on the estimated total
compensation to be paid out at the end of the vesting period factoring
in the probability of the performance criteria being met during that
period.
Compensation costs related to the RSU’s and PSU’s for the year
ended January 31, 2013 are $5,527 (January 31, 2012 - $2,981).
Share Option Plan
The Company has a Share Option Plan that provides for the granting
of options to certain officers and senior management. Options are
granted at fair market value based on the volume weighted-average
closing price of the Company’s shares for the five trading days
preceding the grant date. Effective June 14, 2011, the Share Option
Plan was amended and restated. The amendments afford the Board of
Directors the discretion to award options giving the holder the choice,
upon exercise, to either deduct a portion of all dividends declared after
the grant date from the options exercise price or to exercise the option
at the strike price specified at the grant date. Each option is exercisable
into one share of the Company at the price specified in the terms of
the option, or the employee may elect to acquire shares or receive a
cash payment based on the excess of the fair market value of the
Company’s shares over the exercise price. The fair value of the share-
based compensation is recognized in net earnings over the vesting
period.
The maximum number of shares available for issuance is a fixed
number set at 4,354,020, representing 9% of the Company’s issued
and outstanding shares at January 31, 2013. Fair value of these
options is determined using an option pricing model. Share options
granted vest on a graduated basis over five years and are exercisable
over a period of seven to ten years. The share option compensation
cost recorded for the year ended January 31, 2013 is $1,288
( January 31, 2012 - $867).
48THE NORTH WEST COMPANY INC. 2012
The expected dividend yield is estimated based on the quarterly
dividend rate and the closing share price on the date the options are
granted. The expected share price volatility is estimated based on the
Company’s historical volatility over a period consistent with the
expected life of the options. The risk-free interest rate is estimated
based on the Government of Canada bond yield for a term to maturity
equal to the expected life of the options.
The fair values for options issued during the year were calculated based
on the following assumptions:
2012
2011
Fair value of options granted
$ 3.35 to 4.62
$ 3.61 to 4.74
Exercise price
Dividend yield
Annual risk-free interest rate
Expected share price volatility
$ 21.86
$ 20.62
4.7%
1.7%
28.0%
4.5%
2.7%
29.2%
The assumptions used to measure options at the balance sheet dates
were as follows:
Dividend yield
Annual risk-free interest rate
2012
4.5%
1.4%
2011
5.4%
1.2%
Expected share price volatility
20.9% to 25.8%
26.9% to 29.5%
The following continuity schedules reconcile the movement in outstanding options during the year:
Number of options outstanding
Declining Strike Price Options
Standard Options
Outstanding options, beginning of year
Granted
Exercised
Forfeited or cancelled
Outstanding options, end of year
Exercisable at end of year
2012
2011
2012
2011
315,812
328,677
—
(64,474)
—
315,812
—
—
548,486
63,177
(26,430)
(28,301)
509,200
56,186
—
(16,900)
580,015
315,812
556,932
548,486
—
—
59,165
—
Weighted-average exercise price
Declining Strike Price Options
Standard Options
Outstanding options, beginning of year
$
20.34
$
—
$
17.45
$
17.10
2012
2011
2012
2011
Granted
Exercised
Forfeited or cancelled
Outstanding options, end of year
Exercisable at end of year
21.86
—
21.11
21.12
—
$
$
20.62
—
—
20.34
—
$
$
21.86
15.25
17.31
18.07
15.25
$
$
20.62
—
16.92
17.45
—
$
$
49NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary of options outstanding by grant year
Outstanding
Exercisable
Range of
exercise price
Number
outstanding
Weighted-average
remaining
contractual years
Weighted-average
exercise price
Options
exercisable
Weighted-average
exercise price
$
$
$
$
15.25
19.11-19.74
19.71-20.62
21.39-21.86
217,169
220,400
340,296
359,082
6.4
7.2
5.5
6.2
$
$
$
$
15.25
19.12
19.94
21.47
59,165
$
15.25
NIL
NIL
NIL
N/A
N/A
N/A
Grant
year
2009
2010
2011
2012
Director Deferred Share Unit Plan
The Director DSU Plan is available for independent Directors.
Participants are credited with deferred share units based on the portion
of fees each participant elects to allocate to the DSU. Each deferred
share unit entitles the holder to receive a share of the Company. The
deferred share units are exercisable by the holder at any time but no
later than December 31 of the first calendar year commencing after
the holder ceases to be a Director. A participant may elect at the time
of exercise of any deferred share units, subject to the consent of the
Company, to have the Company pay an amount in cash equal to the
aggregate current market value of the shares, determined based on
the closing price of the shares on the TSX on the trading day preceding
the exercise date, in consideration for the surrender by the participant
to the Company the right to receive shares from exercising the deferred
share units.
Compensation expense is measured based on the fair market
value at each reporting date.
The deferred share unit plan
compensation recorded for the year ended January 31, 2013 is an
expense of $969 (January 31, 2012 –$288). The total number of
deferred share units outstanding at January 31, 2013 is 136,685
(January 31, 2012 – 118,262). There were 4,698 deferred share units
exercised during the year ended January 31, 2013 (January 31, 2012 –
37,236). These deferred share units were settled in cash.
Employee Share Purchase Plan
The Employee Share Purchase Plan provides participants with the
opportunity to acquire an ownership interest in the Company. The
Company contributes an additional 33% of the amount invested,
subject to a maximum annual contribution of 2% of the participants'
base salary. The plan is administered by a trustee who uses the funds
received to purchase shares on the TSX on behalf of the participating
employees. These shares are registered in the name of the plan trustee
on behalf of the participants. The Company’s contribution to the plan
is recorded as compensation expense. The employee share purchase
plan compensation recorded for the year ended January 31, 2013 is
$656 (January 31, 2012 – $590).
14. FINANCIAL INSTRUMENTS
The Company’s activities expose it to a variety of financial risks including
liquidity risk, credit risk and market risk. The Company’s overall risk
management program focuses on minimizing potential adverse effects
on financial performance.
The Company manages funding and financial risk management
with oversight provided by the Board of Directors, who also approve
specific financial transactions. The Company uses derivative financial
instruments only to hedge exposures arising in respect of underlying
business requirements and not for speculative purposes.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due or can do so only at excessive cost. The
Company’s operational cash flow is reasonably stable and predictable. This reflects the business risk profile of the majority of markets in which the
Company operates and its product mix. Cash flow forecasts are produced regularly and reviewed against the Company’s debt portfolio capacity
and maturity profile to assist management in identifying future liquidity requirements. The Company’s funding strategy is to ensure a mix of funding
sources offering flexibility and cost effectiveness to match the business requirements.
The Company is financed by a combination of cash flow from operating activities, bank advances, senior notes and committed revolving loan
facilities. At January 31, 2013, the Company had undrawn committed revolving loan facilities available of $144,122 (January 31, 2012 - $126,445)
which mature in 2013 and 2015 (see Note 11).
The following table analyzes the Company’s financial liabilities into relevant maturity groupings based on the remaining period from the balance
sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows or an estimation in
respect of floating interest rate liabilities, and as a result may not agree to the amounts disclosed on the balance sheet.
2013
2014
2015
2016
2017
2018+
Total
Accounts payable and accrued liabilities
$ 130,501
Interest rate swap payable(1)
Current portion of long-term debt (Note 11)
Long-term debt (Note 11)
Operating leases
Total
1,113
40,864
5,766
23,490
$ 201,734
—
417
—
73,025
19,960
93,402
—
—
—
53,583
16,677
70,260
—
—
—
—
—
—
—
—
—
—
—
—
14,380
14,380
12,648
12,648
48,732
48,732
$ 130,501
1,530
40,864
132,374
135,887
$ 441,156
(1) Based on variable pay interest. This will be partially offset by a fixed interest receipt.
50THE NORTH WEST COMPANY INC. 2012
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. The Company’s exposures to credit risk arise primarily from
holdings of cash and its customer and commercial accounts receivable.
To mitigate credit risk, the Company maintains deposits with
financial institutions with minimum equivalent short-term credit ratings
of “A1.” The maximum exposure on cash is equal to the carrying amount
of these instruments.
It is the Company’s policy that customers who wish to trade on
credit terms are subject to credit verification procedures including
policies governing: credit approvals, limits, collections and fraud
prevention. The Company provides impairment allowances for
potentially uncollectible accounts receivable. Receivable balances are
comprised of approximately forty thousand customers spread across a
wide geography, substantially reducing the Company’s risk through the
diversity of its customer base. Further, receivables are centrally
monitored on an ongoing basis with the result that the Company’s
exposure to individual customers is generally not significant. The
maximum exposure is $72,666 (January 31, 2012 - $79,046). The
Company does not have any individual customers greater than 10% of
total accounts receivable. At January 31, 2013, the Company’s
maximum credit risk exposure is $86,708 (January 31, 2012 - $92,652).
Of this amount, $17,850 (January 31, 2012 - $18,614) is more than 60
days past due. The Company has recorded an allowance against its
maximum exposure to credit risk of $14,042 (January 31, 2012 - $13,606)
which is based on historical payment records for similar financial assets.
As at January 31, 2013 and 2012, the Company has no significant
credit risk related to derivative financial instruments.
Market risk
(a) Currency risk
The Company operates internationally and is
exposed to foreign exchange risk arising from various currency
exposures, primarily with respect to the U.S. dollar. Foreign
exchange risk arises from U.S. dollar denominated borrowings and
net investments in foreign operations.
Management is responsible for managing foreign currency
risk. The Company’s U.S. dollar net investment is exposed to foreign
currency translation risk. A significant portion of this risk has been
hedged with U.S. dollar denominated borrowings.
In respect of recognized foreign currency assets and liabilities
the Company has limited exposure. Procurement and related
borrowing activity are generally conducted in currencies matching
cash flows generated by underlying operations, providing an
economic hedge without sophisticated treasury management.
(b)
Short-term imbalances in foreign currency holdings are rectified
by buying or selling at spot rates when necessary.
Management considers a 10% variation in the Canadian dollar
relative to the U.S. dollar reasonably possible. Considering all major
exposures to the U.S. dollar as described above, a 10% appreciation
of the Canadian dollar against the U.S. dollar in the year-end rate
would cause net income to decrease by approximately $100. A
10% depreciation of the Canadian dollar against the U.S. dollar year-
end rate would cause net income to increase by approximately
$100.
Interest rate risk Interest rate risk is the risk that the fair value of future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Company is exposed to
interest rate risk primarily through its long-term borrowings. The
Company manages exposure to interest rate risk by monitoring its
blend of fixed and floating interest rates, and modifying this blend
using interest rate swaps. Under the terms of the swaps, the
Company receives fixed interest and pays floating rate interest at
a fixed spread above three-month LIBOR. The goal of management
is to manage the trade-off between obtaining the most beneficial
effective rates of interest, while minimizing the impact of interest
rate volatility on earnings.
Management considers a 100 basis point change in interest
rates reasonably possible. Considering all major exposures to
interest rates as described above, a 100 basis point increase in the
risk-free rate would cause net income to decrease by approximately
$1,170. A 100 basis point decrease would cause net income to
increase by approximately $1,170.
(c) Accounting classifications and fair value estimation The following
table comprises the carrying amounts of the Company’s financial
instruments. Financial instruments are either carried at amortized
cost using the effective interest rate method or fair value.
The Company uses a three-level hierarchy to categorize financial
instruments carried at fair value as follows:
• Level 1 – Fair values measured using quoted prices (unadjusted) in
active markets for identical instruments
• Level 2 – Fair values measured using directly or indirectly
observable inputs, other than those included in Level 1
• Level 3 – Fair values measured using inputs that are not based on
observable market data
These amounts represent point-in-time estimates and may not reflect fair value in the future. These calculations are subjective in nature, involve
uncertainties and are a matter of significant judgment.
January 31, 2013
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued liabilities
Financial derivative instruments(1)
Current portion of long-term debt
Long-term debt(1)
Assets (Liabilities) carried at
amortized cost
Assets (Liabilities)
carried at fair value
Maturity Carrying amount
Fair value
Carrying amount
Short-term
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
$
38,675
$
38,675
$
70,040
3,664
70,040
3,664
(130,501)
(130,501)
—
(40,417)
(123,882)
—
(40,417)
(125,046)
—
—
—
—
945
—
—
(1) These items total $122,937 which comprise the carrying amount of debt presented as long-term (Note 11).
51NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2012
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued liabilities
Financial derivative instruments(1)
Current portion of long-term debt
Long-term debt(1)
Assets (Liabilities) carried at
amortized cost
Assets (Liabilities)
carried at fair value
Maturity Carrying amount
Fair value
Carrying amount
Short-term
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
$
26,984
$
26,984
$
76,539
3,552
76,539
3,552
(122,349)
(122,349)
—
(629)
—
(629)
(176,779)
(178,759)
—
—
—
—
1,516
—
—
(1) These items total $175,263 which comprise the carrying amount of debt presented as long-term (Note 11).
The methods and assumptions used in estimating the fair value of the
Company’s financial instruments are as follows:
•
•
•
financial
The fair value of short-term financial instruments approximates
their carrying values due to their immediate or short-term period
to maturity. Any differences between fair value and book values
of short-term
instruments are considered to be
insignificant.
The fair value of long-term debt with fixed interest rates is estimated
by discounting the expected future cash flows using the current
risk-free interest rate on an instrument with similar terms adjusted
for an appropriate risk premium for the Company’s credit profile.
The derivative financial instruments have been measured using a
generally accepted valuation technique. The pricing model
incorporates current market measures for interest rates, credit
spreads, volatility levels and other market-based pricing factors.
The portion of long-term debt in an effective fair value hedging
relationship and derivative financial instruments are classified as Level
2, as they are primarily derived from observable interest rates. There
would be no significant effect on net income if one or more of the
assumptions used to fair value these instruments were changed to other
reasonably possible alternatives. No financial instruments have been
classified as Level 1 or Level 3.
Financial derivative instruments
The Company holds interest rate swaps with a notional value of US
$28,000 (January 31, 2012 – US$28,000) to hedge a portion of the fixed
rate senior notes due in 2014. Under the terms of the swaps, the
Company receives fixed interest and pays floating rate interest at a fixed
spread above three-month LIBOR.
The following table summarizes the Company’s outstanding financial
derivative instruments at January 31:
January 31, 2013
Notional value
Interest rate
Fair value
Interest rate swaps in
effective fair value
hedging relationship
US$28,000
(2011 - US$28,000)
LIBOR plus
3.67%
$945
(2011 - $1,516)
Capital management
The Company’s objectives in managing capital are to deploy capital to
provide an appropriate total return to shareholders while maintaining
a capital structure that provides the flexibility to take advantage of the
growth opportunities of the business, maintain existing assets, meet
obligations and financial covenants and enhance shareholder value. The
capital structure of the Company consists of bank advances, long-term
debt and shareholders’ equity. The Company manages capital to
optimize efficiency through an appropriate balance of debt and equity.
In order to maintain or adjust its capital structure, the Company may
purchase shares for cancellation pursuant to normal course issuer bids,
issue additional shares, borrow additional funds, adjust the amount of
dividends paid or refinance debt at different terms and conditions.
The Company’s process and policies for managing capital are
monitored by management and are reflected in the following measures:
(a) Debt-to-equity ratio At January 31, 2013, the debt-to-equity ratio
was 0.55 compared to 0.62 last year. The debt-to-equity ratio is
within the Company’s objectives. The debt-to-equity ratio is
calculated as follows:
Current portion of long-term
debt
Long-term debt
Total debt
Total equity
Debt-to-equity ratio
January 31, 2013
January 31, 2012
$
$
$
40,417
122,937
163,354
296,250
0.55
$
$
$
629
175,263
175,892
283,709
0.62
(b) Financial covenants As a result of borrowing agreements entered
into by the Company, there are certain financial covenants that
must be maintained. Financial covenants include a fixed charge
coverage ratio, minimum current ratio, a leverage test and a
minimum net worth test. Compliance with financial covenants is
reported quarterly to the Board of Directors. During the years
ended January 31, 2013 and 2012, the Company is in compliance
with all financial covenants. Other than the requirements imposed
by these borrowing agreements and solvency tests imposed by
the CBCA, the Company is not subject to any externally imposed
capital requirements.
Capital management objectives are reviewed on an annual basis. The
capital management objectives were substantially unchanged for the
year ended January 31, 2013.
52THE NORTH WEST COMPANY INC. 2012 15. SHARE CAPITAL
18. INTEREST EXPENSE
Authorized – The Company has an unlimited number of shares.
Year Ended
January 31, 2013
January 31, 2012
Shares
Consideration
Interest on long-term debt
$ 6,637
$ 6,484
Balance at January 31, 2012
48,378,000
Issued under option plans (Note 13)
10,721
$ 165,133
$
225
Balance at January 31, 2013
48,388,721
$ 165,358
16. EXPENSES BY NATURE
Year Ended
January 31, 2013
January 31, 2012
Employee costs (Note 17)
$ 220,070
$
210,893
Amortization
Operating lease rentals
Foreign exchange loss
37,149
24,304
106
36,572
23,391
20
17. EMPLOYEE COSTS
Year Ended
January 31, 2013
January 31, 2012
Wages, salaries and benefits
including bonus
Post-employment benefits (Note 12)
Share-based compensation
(Note 13)
$ 206,348
$ 201,761
5,282
8,440
4,406
4,726
Included in the above are the following amounts in respect of key
management compensation:
Wages, salaries and benefits
including bonus
Post-employment benefit expense
Share-based compensation
$
4,238
$
3,893
646
5,234
420
2,777
Key management personnel are those individuals who have the
authority and responsibility for planning, directing and controlling the
activities of the Company. The Company’s key management personnel
are comprised of the Board of Directors, Chief Executive Officer, and
the four senior officers.
Fair value movement of derivative
financial instruments in
effective fair value hedging
relationships
Expected return on pension plan
assets
Interest on pension plan liabilities
Interest income
Less: interest capitalized
26
(3,800)
3,748
(296)
(506)
(10)
(3,777)
3,734
(244)
(161)
Interest expense
$ 5,809
$ 6,026
19. DIVIDENDS
The following is a reconciliation of the dividends and distributions
recorded in retained earnings to those paid in cash:
Year Ended
January 31, 2013
January 31, 2012
Dividends recorded in retained
earnings
Special distribution paid February
18, 2011 to unitholders of
record on December 31, 2010
Dividends/distributions paid in
cash
$ 50,320
$ 46,443
—
4,354
$ 50,320
$ 50,797
Dividends/distributions per share
$
1.04
$
1.05
The payment of dividends on the Company’s common shares is subject
to the approval of the Board of Directors and is based upon, among
other factors, the financial performance of the Company, its current
and anticipated future business needs, and the satisfaction of solvency
tests imposed by the CBCA for the declaration of dividends. Dividends
are recognized as a liability in the consolidated financial statements in
the year in which the dividends are approved by the Board of Directors.
The declaration of distributions from the Fund was subject to the
terms of the Fund’s Declaration of Trust and the discretion of the Board
of Trustees.
On March 14, 2013, the Board of Directors declared a dividend of
$0.28 per common share to be paid on April 15, 2013 to shareholders
of record as of the close of business on March 28, 2013.
53NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. NET EARNINGS PER SHARE
Basic net earnings per share is calculated based on the weighted-average shares outstanding during the year. The diluted net earnings per share
takes into account the dilutive effect of all potential ordinary shares. The average market value of the Company’s shares for purposes of calculating
the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.
($ and shares in thousands, except earnings per share)
Year Ended
Diluted earnings per share calculation:
January 31, 2013
January 31, 2012
Net earnings for the year (numerator for diluted earnings per share)
$
65,148
$
57,961
Weighted-average shares outstanding (denominator for basic earnings per share)
Dilutive effect of share-based compensation
Denominator for diluted earnings per share
Basic earnings per share
Diluted earnings per share
21. OPERATING LEASE COMMITMENTS
48,384
195
48,579
48,378
147
48,525
$
$
1.35
1.34
$
$
1.20
1.19
The Company leases various retail stores, offices, warehouses and equipment under non-cancellable operating leases. The leases have varying
terms, escalation clauses and renewal rights. The future minimum lease payments are as follows:
Year Ended
January 31, 2013
January 31, 2012
Due within 1 year
Within 2 to 5 years inclusive
After 5 years
Land and buildings
Other leases
Land and buildings
Other leases
$ 22,739
$
62,755
48,732
751
910
—
$
23,636
$
67,950
55,792
738
1,015
—
22. COMMITMENTS, CONTINGENCIES AND
GUARANTEES
Commitments
In 2002, the Company signed a 30-year Master Franchise Agreement
with Giant Tiger Stores Limited, based in Ottawa, Ontario which grants
the Company the exclusive right to open Giant Tiger stores in western
Canada. Under the agreement, Giant Tiger Stores Limited provides
product sourcing, merchandising, systems and administration support
to the Company’s Giant Tiger stores in return for a royalty based on
sales. The Company is responsible for opening, owning, operating and
providing distribution services to the stores. The Company’s exclusivity
right requires that a minimum number of Giant Tiger stores be opened
each year, based on an expected roll-out of 72 stores over the term of
the agreement. As at January 31, 2013, the Company has opened 31
Giant Tiger stores.
As a result of store closures during the year, the Company has
fallen below the minimum number of stores required to maintain its
exclusive right to open Giant Tiger stores in western Canada. The loss
of exclusivity does not constitute an event of default under the
Company's master franchise rights and will not prevent the Company
from continuing to operate its existing stores.
Contingencies
In the ordinary course of business, the Company is subject to audits by
taxation authorities. While the Company believes that its filing
positions are appropriate and supportable, the possibility exists that
certain matters may be reviewed and challenged by the taxation
authorities. The Company regularly reviews the potential for adverse
outcomes and the adequacy of its tax provisions. The Company
believes that it has adequately provided for these matters. If the final
outcome differs materially from the provisions, the Company’s income
tax expense and its earnings could be affected positively or negatively
in the period in which the matters are resolved.
The Company is involved in various legal matters arising in the
normal course of business. The occurrence of the confirming future
events is not determinable or it is not possible to determine the
amounts that may ultimately be assessed against the Company. The
resolution of these matters is not expected to have a material adverse
effect on the Company’s financial position, results of operations or cash
flows.
54THE NORTH WEST COMPANY INC. 2012
Guarantees
The Company has provided the following significant guarantees to third parties:
The Company has entered into indemnification agreements with its current and former directors and officers to indemnify them, to the
extent permitted by law, against any and all charges, costs, expenses, amounts paid in settlement and damages incurred by the directors and
officers as a result of any lawsuit or any judicial, administrative or investigative proceeding in which the directors and officers are sued as a result
of their service. These indemnification claims will be subject to any statutory or other legal limitation period. The nature of the indemnification
agreements prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to
counterparties. The Company has purchased director and officer liability insurance. No amount has been recorded in the financial statements
with respect to these indemnification agreements.
In the normal course of operations, the Company provides indemnification agreements to counterparties for various events such as intellectual
property right infringement, loss or damages to property, claims that may arise while providing services, violation of laws or regulations, or as a
result of litigation that might be suffered by the counterparties. The terms and nature of these indemnification agreements prevents the Company
from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. No amount has been recorded
in the financial statements with respect to these indemnification agreements.
23. SUBSIDIARIES AND JOINTLY CONTROLLED ENTITIES
The Company’s principal operating subsidiaries are set out below:
Activity Country of Organization
Company
Subsidiary
Proportion of voting rights held by:
NWC GP Inc.
North West Company Holdings Inc.
The North West Company LP
NWC (U.S.) Holdings Inc.
The North West Company (International) Inc.
General Partner
Holding Company
Retailing
Holding Company
Retailing
The North West Finance Company Cooperatie U.A.
Finance Company
Canada
Canada
Canada
United States
United States
Netherlands
100%
100%
100% (less one unit)
100%
100%
100%
The investment in jointly controlled entities comprises a 50% interest in a Canadian Arctic shipping company, Transport Nanuk Inc. The Company’s
share of its earnings for the year ended January 31, 2013 and 2012 was $434 and $797 respectively. At January 31, 2013, the Company’s share of
the net assets of its jointly controlled entity amount to $7,970 (January 31, 2012 - $7,646), comprised assets of $9,355 (January 31, 2012 - $9,227)
and liabilities of $1,385 (January 31, 2012 - $1,581).
During the course of the year the Company purchased freight handling and shipping services from Transport Nanuk Inc. and its subsidiaries
of $6,517 (January 31, 2012 - $7,144). The contract terms are based on market rates for these types of services on similar arm’s length transactions.
55NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Shareholder Information
Fiscal Year
Quarter Ended
2012
April 30, 2012
July 31, 2012
October 31, 2012
January 31, 2013
2011
April 30, 2011
July 31, 2011
October 31, 2011
January 31, 2012
2010
April 30, 2010
July 31, 2010
October 31, 2010
January 31, 20112
Share/Unit
Price High
Share/Unit
Price Low
Share/Unit
Price Close
Volume
$23.88
$19.34
$23.14
13,539,464
22.54
22.47
23.62
23.88
19.34
20.20
21.01
21.56
22.24
21.57
23.40
23.14
5,115,051
2,997,845
2,175,850
3,250,718
EPS/
EPU1
$1.34
0.28
0.38
0.36
0.32
$22.50
$17.85
$19.40
22,417,768
$1.19
22.50
20.85
20.63
20.72
19.65
18.51
17.85
18.28
19.78
20.23
18.78
19.40
5,885,378
5,802,416
4,020,971
6,709,003
0.26
0.31
0.35
0.27
$23.00
$17.02
$21.09
24,813,768
$1.44
19.50
20.22
21.99
23.00
17.60
17.02
19.27
19.93
18.75
19.78
20.68
21.09
4,899,200
4,148,526
5,118,932
10,647,110
0.37
0.42
0.46
0.19
1 Net earnings per share (unit) are on a diluted basis. 2010 has been restated for IFRS.
2 Effective January 1, 2011, North West Company Fund converted to a share corporation, called
The North West Company Inc.
Total Return Performance (% at January 31)
This chart
illustrates the relative performance of shares/units of The North
West Company Inc. and its predecessor, North West Company Fund, over the past
five years. Effective January 1, 2011, North West Company Fund converted to a
share corporation called The North West Company Inc. The index incorporates
the reinvestment of dividends and income distributions.
The North West Company Inc.
Anticipated Dividend Dates*
Record Date: March 28, 2013
Payment Date: April 15, 2013
Record Date: June 28, 2013
Payment Date: July 15, 2013
Record Date: September 30, 2013
Payment Date: October 15, 2013
Record Date: December 31, 2013
Payment Date: January 15, 2014
*Dividends are subject to approval by the
Board of Directors
2013 Annual General Meeting
The Annual General Meeting of Shareholders
of The North West Company Inc. will be held
on Wednesday, June 5, 2013 at 11:30 am
in the Muriel Richardson Auditorium,
Winnipeg Art Gallery,
300 Memorial Boulevard,
Winnipeg, Manitoba
Transfer Agent and Registrar
Canadian Stock Transfer Company Inc.
(acts as administrative agent for
CIBC Mellon Trust Company)
Calgary and Toronto
Toll-free: 1 800 387 0825
www.cibcmellon.ca
Stock Exchange Listing
The Toronto Stock Exchange
Stock Symbol NWC
ISIN #: CA6632781093
CUSIP #: 663278109
Number of shares issued and outstanding at
January 31, 2013: 48,388,721
Auditors
PricewaterhouseCoopers LLP
Compound Annual Growth (%)
56THE NORTH WEST COMPANY INC. 2012 Corporate Governance
Complete disclosure of The North West Company Inc's. corporate governance is provided in the Company’s Management Information Circular,
which is available on the Canadian Securities Administrators’ website at www.sedar.com or in the investor section of the Company’s website at
www.northwest.ca.
Executives
International Operations*
Directors
The North West Company Inc.
Executives
Canadian Operations*
Edward S. Kennedy
President & CEO
Craig T. Gilpin
Executive Vice-President
& Chief Corporate Officer
John D. King
Chief Financial Officer
Michael T. Beaulieu
Vice-President,
NWC Services
Edward S. Kennedy
Chairman & CEO
Rex A. Wilhelm
President &
Chief Operating Officer
John D. King
Chief Financial Officer
J. Robert Cain
Vice-President,
Logistics & Supply Chain Services
David M. Chatyrbok
Vice-President,
Canadian Procurement & Marketing
Christie A. Frazier-Coleman
Vice-President,
Food Procurement & Marketing
Leanne Flewitt
Vice-President,
Merchandise Performance Services
Paulina Hiebert
Vice-President,
Legal & Corporate Secretary
Debbie A. Gillis
Vice-President,
Information Services
Paulina Hiebert
Vice-President,
Legal & Corporate Secretary
Daniel G. McConnell
Vice-President,
Real Estate & Store Development
Christine Reimer
Vice-President,
Canadian Sales & Operations
Michael E. Sorobey
Vice-President,
Logistics & Supply Chain Services
*as at April 8, 2013
Thomas M. Kallio
Vice-President & General Manager,
Cost-U-Less
Scott A. McKay
Vice-President,
General Merchandise
Procurement & Marketing
Kina Perez
Vice-President,
Human Resources
Walter E. Pickett
Vice-President & General Manager,
Alaska Commercial Company
James W. Walker
Vice-President & General Manager,
Wholesale Operations
H. Sanford Riley
Chairman
Edward S. Kennedy
Frank J. Coleman 1, 2
Wendy F. Evans 2, 3
Robert J. Kennedy 1, 3
Gary J. Lukassen 1, 2
Gary Merasty 1, 3
Eric L. Stefanson 1, 2
Annette M. Verschuren 2, 3
Board Committees
1 Governance & Nominating
2 Audit
3 Human Resources, Compensation, and
Pension
For additional copies of this report or for
general information about the Company,
contact the Corporate Secretary:
The North West Company Inc.
Gibraltar House, 77 Main Street
Winnipeg, Manitoba Canada R3C 2R1
T 204 934 1756 F 204 934 1317
investorrelations@northwest.ca
www.northwest.ca
57ANNUAL REPORT Nor'Westers are associated with the vision,
perseverance, and enterprising spirit of the original
North West Company and Canada's early fur trade.
We trace our roots to 1668, and the establishment of
one of North America's early trading posts at
Waskaganish on James Bay. Today, we continue to
embrace this pioneering culture as true "frontier
merchants."
The North West Company Inc.
Gibraltar House, 77 Main Street
Winnipeg, Manitoba Canada R3C 2R1
T 204 934 1756 F 204 934 1317
Toll -free 1 800 563 0002
investorrelations@northwest.ca
www.northwest.ca