North West Co. Fund Annual Report 2013

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FY2013 Annual Report · North West Co. Fund

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THE NORTH WEST COMPANY INC. 2013

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 (6)
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
Trading profit (3) (EBITDA)
Net earnings
Cash flow from operating activities (6)

Market price: January 31

high
low

Year Ended
January 31, 2014

Year Ended
January 31, 2013 (5)

Year Ended
January 31, 2012(5)

1,543,125

1.8%

138,336

100,060

64,263

80,036

670,512

182,862

322,440

.57:1

20.0%

21.0%

77.4%

18.9%

3.7%

2.84
1.32
1.64

25.42
29.00
22.34

1,513,646

0.5%

133,717

96,568

63,888

128,992

651,394

163,354

296,250

.55:1

20.6%

22.1%

76.8%

19.5%

3.7%

2.75
1.32
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) 2013, 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.
(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 section for further information.

(5) Certain 2012 figures have been restated as required by the implementation of Employee Benefits IAS 19r. 2011 and previous years have not been restated for

these accounting standard changes. See Accounting Standards Implemented in 2013 section for further information.

(6) The decrease in cash flow from operating activities in 2013 is largely due to the payment of Canadian income taxes. Further information is provided under Cash

from Operating Activities on page 14.

THE NORTH WEST COMPANY INC. 2013

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 .......................................................................................................................

Accounting Standards Implemented in 2013 .....................................................................................

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

35
56

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 2013
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,
2014 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 Company adopted the revised IAS 19 Employee Benefits (IAS
19r) effective February 1, 2013. The implementation of this standard
required the restatement of certain 2012 comparative numbers. 2011
and previous years have not been restated for these accounting
standard changes as they were effective for the Company February 1,
2013 with retrospective adjustments as at February 1, 2012. Further
information on the impact of new accounting standards is provided
in the Accounting Standards Implemented in 2013 section of this
report or in Note 3 to the Company's 2013 annual audited consolidated
financial statements.

The Board of Directors, on the recommendation of its Audit
Committee, approved the contents of this MD&A on April 9, 2014 and
the information contained in this MD&A is current to April 9, 2014,
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. 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, in the Risk Factors sections of the
Annual Information Form and in our most recent consolidated financial
statements, management
information circular, material change
reports and news releases. 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.
2013 was a busy year for takeover activity in Canadian retail and
we invested considerable resources assessing a number of attractive
opportunities. Through the due diligence process we identified
synergy and scale value that can be elusive for a company of our size
and relative complexity. We were able to model structures that may
work in the future and while we did not complete a transaction the
time was well spent in light of the few prospects that actually fit with
our business and that we are prepared to look at.

At heart, North West has always been an “unconventional” retailer
and our success depends on continuing to find enterprising ways to
serve our customers outside of the mainstream. Through northern
market re-investment, Giant Tiger store growth and CUL improvement,
we see real potential to accomplish this on the foundation of our
superior physical stores and logistics network.

Through our store presence, we are committed to delivering
lower costs, more innovative products and services, more local
employment and more reasons for our customers to reward us with
their spending. I am confident in these priorities, supported by a total
company alignment. They make us a compelling choice with results
that we can deliver on in 2014 and beyond.

Edward S. Kennedy
President & CEO
April 9, 2014

2013 President & CEO Message

While our financial results were mixed, 2013 was very productive on
setting priorities and getting our business back to delivering superior
returns.

Our people worked exceptionally hard, with focus and enterprise
that matched up to the best work in retailing today. We learned a great
deal about what we do well, what we need to do better and what we
need to simply stop doing, so that we win for our customers, every day.
In late 2012, we completed the sale of six underperforming Giant
Tiger ("GT") stores, leaving us with a healthy core of 31 locations to build
from. Within the western Canadian market we faced competition from
new discount food space with no offsetting growth in consumer
demand. Under this pressure, the GT advantages stood out:
convenience, unwavering commitment to great prices and the
newness of our apparel and niche hardlines categories. GT delivered
one of its best profit years ever and demonstrated the resiliency we
expect from all of our banners.

In addition to Giant Tiger, our Alaska Commercial (“AC”) store
division stood out in 2013. The Alaskan economy picked up
momentum through the summer and our buying teams delivered
great seasonal programs. Over the past 10 years, AC’s operating margin
growth has averaged in the mid to high single digits. We have
consistently added new stores through community partnerships and
we’ve helped bring a needed retail service to lower income rural
Alaskans. During this period, AC has been led by Rex Wilhelm, President
and Chief Operating Officer of The North West Company (International)
Inc. (NWCI). This spring Rex will be transitioning to a part-time role as
Vice-Chairman, NWCI, after 30 years of service. I and all Nor‘ Westers
are indebted to Rex for the contribution he has made and will continue
to provide in his new position.

In the first quarter we opened our Barbados Cost-U-Less ("CUL")
store, which was our first significant investment since acquiring CUL
five years ago. While the initial performance did not meet expectations,
we gained solid insights into what it takes to grow a profitable business
in this market. Building on what we have learned in Barbados and our
past success in improving performance in markets like the Cayman
Islands, we are localizing more of our merchandise buying and steadily
raising store standards. Many of these refinements will benefit our
other Cost-U-Less stores, starting with the Caribbean. Overall we
recognize that CUL, even as a profitable North West banner, needs
more work before it becomes a growth platform.

Another

longer range
important first half activity was a
assessment of North West's business. Through this process, our
physical store network emerged as the number one opportunity to
sustain and grow profitable sales. This lens identified two priorities. The
first was to shift to being more store and customer centered.
Technology, processes and, above all, the people in our stores are now
clearly ranked ahead of other support activities for attention and
investment. Second, more capital will be spent on upgrading store
facilities with the highest opportunity to defend and grow sales.

Our store-centered strategy is a sharper tuning of the “More
Growth in Store” work we started in 2010. We now have the benefit of
three years’ worth of execution practice and we know how to bring
the right changes to our stores faster and more effectively. More than
a productivity gain, we see our expanded store capacity as a path to
growth. We plan to introduce more new products and services that
require on-site shopping, service and delivery or ongoing after-sales
care, all supported by community relations that ensure continued
market access.

3ANNUAL REPORT

2013 Chairman's Message

As expected, 2013 was a demanding year for North West. We
challenged the company to deliver more ongoing “In Store”
improvements while assessing a wider range of strategic options
within our core markets. We also invested significant time in pursuing
investment opportunities that arose over the past six months, as part
of what turned out to be a very active period of transactional
restructuring within the Canadian retail sector.

The results from last year’s “In Store” work were better than the
financial numbers indicate and set us up for improved future
performance. Staying the course on execution and operational
excellence in our existing business is proving to be the best focus for
short and longer range returns. Within the higher cost, and increasingly
complex environment of most North West markets, there remains
much to be gained from leaner and more innovative work processes.
Going forward, the strategic overlay that was largely completed
in the first half of the year reinforces the fundamental importance of
our stores and the people who run them. The confirmation of this core
competency is causing us to place even more emphasis on the need
for investment in our store network, both in capital and operating
resources. It is also helping management and the Board to
appropriately prioritize the projects that we are considering.

includes a significant amount of

The pace of new ideas in retail continues to accelerate and, as we
industry
in 2013, this
saw
consolidation, accompanied by aggressive financial engineering.
While the Company has and will continue to consider larger scale
investments on a very selective basis, we believe the more likely path
to success will be to build on what we know works, for example our
focus on improving perishable performance and community relations,
and to fix or discard practices and strategies that fall short of our
expectations.

Our focus continues to be on building a better business, which
understands and meets the needs of our customers and the
communities in which we do business. We are seeing a slow shift of
economic momentum as income grows within the remote markets
we serve. As this gains traction, we are confident that we will be ready
with the products and services our customers want.

On behalf of the Board and all Nor’ Westers, I would like to
acknowledge the exemplary contribution of Gary Lukassen who will
be retiring from the Board in June. Gary became a founding member
of the Board in 1987, when the Hudson’s Bay Company, of which he
was CFO, sold its Northern Stores Division to create today’s North West
Company. For most of these twenty-seven years Gary led the
Company’s Audit Committee, bringing his deep retail and accounting
expertise to this role. Above all, Gary has been dedicated to governance
and Board oversight standards that are reflected in North West’s
impressive success over his years on our Board.

H. Sanford Riley
Chairman, Board of Directors
April 9, 2014

4THE NORTH WEST COMPANY INC.
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 300 to 9,000.
A typical store is approximately 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

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. Flexible store development models, 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

•

•
•

•

122 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 extended hours,
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;
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;
4 Quickstop convenience stores within rural Alaska;
Pacific Alaska Wholesale ("PAW") a leading distributor to
independent grocery stores, commercial accounts 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 food 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 reliable, convenient, locally adaptable,
friendlier and by 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

Our strategic priorities are now focused on achievable, higher
performance levels within our existing store base. This includes the
following areas:

Investing in markets that can drive above average sales and
profit growth through new, larger stores, highly capable
store teams and strong community relations;

2. Completing the investment in Transportation Management
Systems (“TMS”) that will deliver a competitive advantage
on the cost, quality and reliability of moving products,
services and information to the remote markets we serve;

3. Delivering greater returns from merchandise categories that
will benefit from better inventory control practices, building
on the successes from 2010 to 2013;
Renewing our Giant Tiger store base through a stronger
partnership with our Master Franchisor, Giant Tiger Stores
Limited (“GTSL”), so store growth accelerates in western
Canada and both companies achieve more cost and scale
synergies from working together;
Improving returns from our Cost-U-Less stores by continuing
to build a highly capable regional buying and store
operations structure in the South Pacific and Caribbean and;
Ensuring that how we work at North West - what we refer
to as our “Management System” -- is store and customer
centered.

Following is an update on the More Growth in Store strategic initiatives
for 2013:

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 execution.
These include Produce, Meat, Chilled, Frozen Food and Food Service.
Result
The emphasis in 2013 was on Fresh Meat, Chilled and Tobacco
categories. The key drivers continue to be more controlled
assortments, updated plan-o-grams, centralized pricing, simplified
ordering processes and tools, enhanced inventory and margin
management tools and training certification programs.

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 refers to 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 our customers' 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. 2013 was a
transition year. It 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. It was
also a year that required significant attention to unique strategic
opportunities

Over the previous LRP cycle, the Company's focus had been on
"More Growth in Store". The key initiatives were related to being better
at the basic elements of our value offer, including our in-stock
performance and the profitability of our perishable and other high-
convenience categories. The logistics side of our business was also an
investment priority.

The strategic planning work in 2013 identified that further gains
in operating standards and efficiency were still attractive for North
West. A rigorous review of our business also reinforced the importance
of our physical store network, local selling capability and community
relations as fundamental competencies. Finally, we also identified the
logistics and data links to our stores as secondary, but still important
competencies that could be further leveraged.

In total, these findings supported a continued focus on "More
Growth in Store" as the best path to optimizing our existing and future
business potential.

During the second half of 2013, LRP work was redirected to
assessing time-sensitive strategic opportunities that were presented
to us. While this work did not result in completed transactions, it was
a very valuable investment of management time.

6THE NORTH WEST COMPANY INC.

Initiative #2
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.
Result
In 2013, six best practice stores were established in Canada to seek
input and feedback as store structures and work practices were
evaluated. The best practice stores were used to test better operating
practices prior to full implementation. A workforce planning review
was completed to determine where talent gaps exist, define
recruitment needs and create development plans for existing
managers. Recruitment continues to be a major focus to ensure that
key role vacant days are minimized and that highly capable and fully
trained employees are available. The number of stores with stable key
role staffing in both northern Canada and Alaska met our objective for
the year.

Initiative #4
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 2013, we continued the development of the transportation
management system
including a customized
application to be used to track and trace cases and pallets moving
through our supply chain. The deployment of the TMS solution is six
months behind schedule as the complexity of our supply chain posed
unique challenges. Once fully deployed in 2014 the TMS solution will
provide all the functionality originally planned; including load
planning, case/pallet tracking, and carrier management which
includes freight settlement and inbound freight management.
Outbound freight savings were achieved through improved freight
rates as contracts with carriers were negotiated and new arrangements
were entered into.

(TMS) platform

We expect to have all phases of the project fully deployed in 2014
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 the TMS will be strategically reinvested
to continue to bring greater value to our customers.

Initiative #3
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
In 2013, we continued to invest savings generated through supply
chain efficiencies that further reduced our cost of business, helping
our customers realize even more value for their dollar and attract more
local shopping.

this

Initiative #5
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
In 2013, we continued working on cascading our management system
practices throughout the organization with a particular emphasis on
our store operations and procurement and marketing. A key
component of this work is driving efficiencies and a customer centric
focus through all of our store operations and merchandise buying
processes. A comprehensive employee engagement survey has also
been developed to measure the effectiveness of the management
system practices, specifically applied to effective store support across
the organization.

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 in 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. 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'
equity
in the consolidated financial statements of the Fund
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 2013 year which ended on
January 31, 2014 had 365 days of operations. The 2012 year which
ended January 31, 2013 had 366 days of operations as a result of
February 29th. The first quarter of 2012 had 90 days of operations
compared to 89 days of operations in the first quarter of 2011 and the
first quarter of 2013. The estimated impact of the extra day has been
deducted from 2012 same store sales.

8THE NORTH WEST COMPANY INC.
Consolidated Results

2013 Highlights
•

Sales increased to $1.543 billion, our 14th consecutive year of sales
growth.
Trading profit increased $4.6 million or 3.5% to $138.3 million.
Net earnings increased 0.6% to $64.3 million.
Quarterly dividends to shareholders increased 7.7% to $0.28 per
share.
Return on average equity was 21.0%, our eighth consecutive year
greater than 20.0%.
Total returns to shareholders were 15.1% for the year and were
16.2% on a compound annual basis over the past five years.

•
•
•

•

FINANCIAL PERFORMANCE

Some of the key performance indicators used by management to
assess results are summarized in the following table:

Key Performance Indicators

decreased 1.2% due to the store closures and International food sales
increased 5.7% excluding the foreign exchange impact due to same
store sales growth and new store sales.

General merchandise sales decreased 1.3% compared to 2012
and were down 2.1% excluding the foreign exchange impact. Same
store general merchandise sales increased by 1.4% for the year with a
decrease of 2.5% in the first quarter and increases of 1.7%, 1.3% and
4.1% in the last three quarters of the year. Sales growth in apparel
categories in southern markets and strong motor sports sales in
northern markets were the leading factors contributing to this increase.
Canadian general merchandise sales decreased 4.8% due to the store
closures and International general merchandise sales increased 9.3%
excluding the foreign exchange impact due to same store sales growth
and new store sales.

Other revenue, which includes fuel, fur, tele-pharmacy revenue
and service charge revenue, increased 1.3% compared to 2012 and was
up 8.9% compared to 2011 largely due to new tele-pharmacy contracts
and higher fur sales.

Sales Blend The table below shows the consolidated sales blend over
the past three years:

($ in thousands,
except per share)

Sales

2013

2012(3)

2011(3)

Food

$ 1,543,125

$ 1,513,646

$ 1,495,136

General merchandise

Same store sales % increase(1)

1.8%

0.5%

3.3%

Other

2013

77.4%

18.9%

3.7%

2012

76.8%

19.5%

3.7%

2011

76.4%

20.2%

3.4%

Trading profit(2) (EBITDA)

EBIT(2)

Net earnings

$ 138,336

$ 100,060

64,263

Net earnings per share - basic $

1.33

Net earnings per share -
diluted

Cash dividends per share

Total assets

1.32

1.12

$ 670,512

Total long-term liabilities

$ 138,334

133,717

96,568

63,888

1.32

1.04

651,394

164,960

125,881

89,309

57,961

1.20

1.19

1.05

626,917

215,206

Return on net assets(2)

Return on average equity(2)

20.0%

21.0%

20.6%

22.1%

18.5%

20.1%

(1) All references to same store sales excludes the foreign exchange impact.
(2) See Non-GAAP Financial Measures section.
(3) Certain 2012 figures have been restated as required by the implementation of Employee
Benefits IAS 19r. 2011 and previous years have not been restated for these accounting
standard changes. See Accounting Standards Implemented in 2013 section for further
information.

Consolidated Sales Sales for the year ended January 31, 2014 (“2013”)
increased 1.9% to $1.543 billion compared to $1.514 billion for the year
ended January 31, 2013 (“2012”), and were up 3.2% compared to $1.495
billion for the year ended January 31, 2012 (“2011”). The increase in
sales in 2013 was driven by same store sales growth and new store
sales in our International Operations which more than offset the impact
of store closures in the Canadian Operations in the fourth quarter of
2012. The positive impact of foreign exchange on the translation of
U.S. denominated sales in the International Operations was partially
offset by the impact of one extra day of operations in 2012 as a result
of February 29th. Excluding the foreign exchange impact, sales
increased 0.6% from 2012 and were up 1.6% from 2011. On a same
store basis, sales increased 1.8% compared to increases of 0.5% in 2012
and 3.3% in 2011.

Food sales increased 2.8% from 2012, and were up 1.3% excluding
the foreign exchange impact led by same store sales growth in our
Canadian and International Operations. Same store food sales
increased 1.9% over last year with quarterly same store increases of
1.5%, 2.3%, 2.5% and 1.3% in the fourth quarter. Canadian food sales

Canadian Operations accounted for 66.3% of total sales (68.9% in 2012
and 68.8% in 2011) while International Operations contributed 33.7%
(31.1% in 2012 and 31.2% in 2011).

(1) Certain 2012 figures have been restated as required by the implementation of Employee
Benefits IAS 19r. 2011 and previous years have not been restated for these accounting
standard changes. See Accounting Standards Implemented in 2013 section for further
information.

Gross Profit Gross profit increased 2.3% to $455.1 million compared
to $444.7 million last year driven by sales growth and an 11 basis points
improvement in the gross profit rate. The gross profit rate was 29.49%
compared to 29.38% last year as general merchandise gross profit rate
improvements in both Canadian and International Operations more
than offset lower food gross profit rates in the International Operations.
The general merchandise gross profit rate improvements were due to
lower product costs, higher sales within trend categories and lower
markdowns.

Selling, operating and administrative expenses Selling, operating
and administrative expenses (“expenses”) increased 2.0% to $355.0
million but were flat as a percentage of sales compared to last year. The
increase in expenses is largely due to new stores, due diligence and
strategic planning costs and higher utility costs in remote markets. The

9ANNUAL REPORT
impact of foreign exchange on the translation of U.S. denominated
expenses also contributed to the increase in expenses. These cost
factors were partially offset by costs related to the store closures last
year, a non-comparable insurance gain and lower incentive plan costs.
The insurance-related gain is the result of a final settlement of claims
on stores in the Canadian Operations destroyed by fire in 2011. A
portion of the gain was recognized last year due to a partial settlement
of the claim.

Earnings from operations (EBIT) Earnings from operations or
earnings before interest and income taxes (“EBIT”) increased 3.6% to
$100.1 million compared to $96.6 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, and the non-comparable items related to due
diligence and strategic planning costs the insurance gains and the
asset impairment charge resulting from the store closures last year,
earnings from operations increased $1.6 million or 1.7% compared to
last year. Trading profit or earnings before interest, income taxes,
depreciation and amortization ("EBITDA") of $138.3 million increased
3.5% compared to last year. Excluding the foreign exchange impact
and the non-comparable items, trading profit increased 1.9% and was
9.0% as a percentage of sales compared to 8.8% last year.

Interest expense Interest expense increased 11.5% to $7.8 million
compared to $7.0 million last year. The increase in interest expense is
largely due to higher average debt compared to last year and a
decrease in the capitalization of interest on construction projects.
Average debt levels increased 7.3% compared to last year but the
average cost of borrowing was flat to last year at 3.7%. Further
information on interest expense is provided in Note 18 to the
consolidated financial statements.

Income tax expense The provision for income taxes increased 9.0%
to $28.0 million compared to $25.7 million last year and the effective
tax rate for the year was 30.4% compared to 28.7% last year reflecting
an increase in earnings in the Canadian Operations and lower earnings
in the International Operations. The increase in the effective tax rate is
due to the variability of income earned across the various tax
jurisdictions
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.

in the

Net earnings Consolidated net earnings increased 0.6% to $64.3
million compared to $63.9 million last year and diluted earnings per
share of $1.32 per share was flat to last year as earnings growth in the
Canadian Operations was largely offset by 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 2013, the average
exchange rate used to translate U.S. denominated sales and expenses
from the International Operations increased to 1.0389 compared to
0.9976 last year and 0.9911in 2011.

The Canadian dollar's depreciation versus the U.S. dollar compared to
2012 had the following net impact on the 2013 results:

Sales............................................................................increase of $20.7 million or 1.3%
Earnings from operations...............................................increase of $0.7 million
Net earnings............................................................................increase of $0.4 million
Diluted earnings per share..............................................increase $0.01 per share

The decrease in net earnings from 2009 and 2010 compared to the
2011 to 2013 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 section for further information.

Although the Company was structured as an income trust for
most of 2010, the application of different tax rates used to calculate
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 2.9% to $670.5 million
compared to $651.4 million in 2012 and were up 7.0% compared to
$626.9 million in 2011. The increase in consolidated assets is largely
due to the impact of foreign exchange as the year-end exchange rate
used to translate the U.S. denominated assets in the International
Operations increased to 1.1119 compared to 0.9992 last year and
1.0052 in 2011. In addition to the foreign exchange impact, higher
inventories, property and equipment additions and an increase in
deferred tax assets were the leading factors contributing to the increase
in assets compared to last year and 2011. The increase in inventories is
due in part to new stores and higher inventories in stores serviced by
sealift and winter road in the Canadian Operations. The increase in
property and equipment is due to investments in new stores, major
store renovations, equipment replacements and staff housing
renovations. Deferred tax assets have increased compared to last year
and 2011mainly due to an increase in tax assets related to property
and equipment and a decrease in the tax liability related to the deferred
limited partnership earnings. An increase in intangible assets primarily
due to the development of a transportation management system also
contributed to the increase in assets compared to 2011.

Consolidated working capital for the past three years

summarized in the following table:

($ in thousands)

Current assets

Current liabilities

Working capital

2013

2012

2011

$ 299,071

$ 303,896

$ 295,836

$ (209,738)

$ (190,184)

$ (128,002)

89,333

$ 113,712

$ 167,834

10THE NORTH WEST COMPANY INC.Working capital decreased $24.4 million or 21.4% to $89.3 million
compared to 2012 and $78.5 million or 46.8% compared to 2011. The
decrease in working capital is primarily due to an increase in current
liabilities largely related to the current portion of long-term debt. The
current portion of long-term debt increased $37.4 million or 92.5%
compared to 2012 and was $77.8 million compared to $0.6 million in
2011 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. Income tax payable increased from $5.0 million in 2011
to $19.3 million in 2012 due to the conversion from an income trust to
a share corporation on January 1, 2011 and the resulting taxation of
Canadian earnings. The decrease in income tax payable from $19.3
million in 2012 to $2.9 million in 2013 is due to the payment of the
2012 accrued income taxes in 2013.

Return on net assets employed was 20.0% compared to 20.6% in
2012 and return on average equity was 21.0% compared to 22.1% in
2012. Return on net assets decreased as the 3.6% increase in earnings
before interest and taxes was more than offset by higher average net
assets employed. Additional information on net assets employed for
the Canadian and International Operations is on page 12 and page 14
respectively.

Return on average equity decreased to 21.0% as the increase in
net earnings of 0.6% was more than offset by a 6.0% increase in average
equity compared to last year due in part to higher accumulated other
comprehensive income. The decrease in the return on average equity
from 2009 and 2010 compared to 2011 to 2013 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 shareholders' 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 $26.6 million or 16.1% to $138.3 million compared to 2012
and were down $76.9 million or 35.7% from 2011. The decrease in long-
term liabilities compared to 2012 and 2011 is primarily due to an
increase in the current portion of long-term debt. 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. A decrease in the defined
benefit plan obligation as a result of a higher than expected return on
pension plan assets and an increase in the discount rate was also a
factor. 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

($ in thousands)

Sales

2013

2012(2)

2011(2)

$ 1,022,985

$ 1,043,050

$ 1,028,396

Same store sales % increase

1.7%

1.0%

Trading profit (1) (EBITDA)

Earnings from operations (1)
(EBIT)

111,225

$ 106,510

81,967

77,355

Return on net assets (1)

25.9%

24.9%

3.7%

97,998

69,253

20.7%

(1) See Non-GAAP Financial Measures section.
(2) Certain 2012 figures have been restated as required by the implementation of Employee
Benefits IAS 19r. 2011 and previous years have not been restated for these accounting
standard changes. See Accounting Standards Implemented in 2013 section for further
information.

Sales Canadian Operations sales decreased $20.1 million or 1.9% to
$1.023 billion compared to $1.043 billion in 2012, and were down $5.4
million or 0.5% compared to 2011 largely due to the the closure of two
Northern stores and six Giant Tiger stores in the fourth quarter of 2012
and the impact of one extra day of operations as a result of February
29th last year. Same store sales increased 1.7% compared to a 1.0%
increase in 2012 and 3.7% in 2011. Food sales accounted for 72.7%
(72.2% in 2012) of total Canadian sales. The balance was made up of
general merchandise sales at 22.3% (23.0% in 2012) and other sales,
which consists primarily of fuel sales, fur, tele-pharmacy revenue and
service charge revenue at 5.0% (4.8% in 2012).

Food sales decreased by 1.2% from 2012 but were up 0.7%
compared to 2011. Same store food sales increased 1.9% compared to
2.0% in 2012. Same store food sales had quarterly increases of 1.4%,
2.5%, 2.5% and 1.2%. Food sales were up in most categories with
perishable departments and food service, led by new Tim Hortons
kiosks, contributing to sales growth. The Company continued to
reinvest savings from supply chain efficiencies in lower prices on key
products. This improved tonnage growth and market share but had a
deflationary impact on sales. Food cost inflation was minimal
compared to last year.

General merchandise sales decreased 4.8% from 2012 and 6.0%
compared to 2011. Same store sales increased 0.9% compared to a
2.2% decrease in 2012. On a quarterly basis, same store sales decreased
3.6% in the first quarter followed by increases of 1.9%, 0.7%, and 3.5%
in the last three quarters of the year. Strong apparel sales in our Giant
Tiger stores along with growth in motor sports sales in remote markets
were the leading factors contributing to the sales increase.

Other revenues, which include fuel, fur, tele-pharmacy revenue
and service charge revenue, were up 0.5% from 2012 and increased
8.5% over 2011. The increase in other revenues is largely due to new
tele-pharmacy contracts and strong fur sales.

Sales Blend The table below shows the sales blend for the Canadian
Operations over the past three years:

Food

General merchandise

Other

2013

72.7%

22.3%

5.0%

2012

72.2%

23.0%

4.8%

2011

71.8%

23.6%
4.6%

11ANNUAL REPORT

Same Store Sales Canadian Operations same store food sales are
more stable because of the everyday customer needs they fulfill. 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:

Same Store Sales

(% change)

Food

General merchandise

Total sales

2013

1.9%

0.9%

1.7%

2012

2.0 %

(2.2)%

1.0 %

2011

3.8%

3.3%
3.7%

Gross Profit Gross profit dollars for Canadian Operations increased
by 0.2% as an improvement in gross profit rates was largely offset by
lower sales. The gross profit rate improvement was largely due to
favourable product mix changes, improved perishable category
profitability and lower markdowns in general merchandise categories.

Selling, operating and administrative expenses Selling, operating
and administrative expenses (“expenses”) decreased 1.7% from 2012
but were up 6 basis points as a percentage of sales compared to last
year. The decrease in expenses is largely due to the impact of the store
closures in the fourth quarter of 2012. Lower incentive plan costs, a
non-comparable insurance-related gain and a decrease in debt loss
expense were also factors. These factors were partially offset by due
diligence and strategic planning costs and an increase in utility costs
in remote markets.

Earnings from operations (EBIT) Earnings from operations increased
$4.6 million or 6.0% to $82.0 million compared to $77.4 million in 2012
as an improvement in gross profit rates and lower expenses more than
offset the impact of lower sales. Excluding the non-comparable items
related to due diligence and strategic planning costs the insurance
gains and the asset impairment charge resulting from the store closures
last year, earnings from operations increased 4.5% compared to last
year. Trading profit from Canadian Operations increased $4.7 million
or 4.4% to $111.2 million and was 10.9% as a percentage of sales
compared to 10.2% in 2012. Excluding the impact of the non-
comparable items, trading profit increased 3.4% and was 10.8% as a
percentage of sales compared to 10.2% last year.

Net Assets Employed Net assets employed at January 31, 2014,
increased 7.8% to $314.8 million compared to $291.9 million at
January 31, 2013, as summarized in the following table:

($ in millions at the end of the fiscal
year)

2013

2012

2011

Property and equipment

$ 189.6

190.8

196.1

Inventory

Accounts receivable

Other assets

Liabilities

130.6

59.1

58.8

124.2

60.0

70.0

131.3

66.6

49.9

(123.3)

(153.1)

(128.4)

Net Assets Employed

$ 314.8

291.9

315.5

Capital expenditures for the year included a new store, store
replacements and major store renovation projects, staff housing
improvements and energy-efficient refrigeration upgrades. The
decrease in property and equipment in 2012 compared to 2011 is
largely due to the store closures in 2012.

Inventory increased largely due to higher inventories in stores
serviced by sealift and winter road to take advantage of lower
transportation costs. Expanded assortments in new and renovated
stores were also a factor. Average inventory levels in 2013 were $1.3
million or 1.0% higher than 2012, but $2.8 million or 2.1% lower than
2011. The decrease compared to 2011 is due to store closures in 2012.
Inventory turnover decreased slightly to 5.5 times compared to 5.7
times in 2012 but was equal to 2011.

Accounts receivable decreased $0.9 million or 1.5% from 2012 and
average accounts receivable were $2.8 million or 4.6% lower than 2012.
The decrease in accounts receivable is primarily due to a decrease in
an insurance related accounts receivable resulting from stores
destroyed by fire in 2011.

Other assets decreased $11.2 million or 16.0% compared to last
year but were up $8.9 million or 17.8% compared to 2011. The decrease
compared to 2012 is mainly due to a decrease in cash resulting from
lower deposits in-transit at year-end and a decrease in intangible assets
due to amortization partially offset by an increase in deferred tax assets.
Deferred tax assets have increased compared to 2012 and 2011 mainly
due to tax assets related to property and equipment and a decrease
in deferred limited partnership earnings. Further information on
deferred tax assets and deferred tax liabilities is provided in Note 9 to
the consolidated financial statements. The increase in other assets
compared to 2011 is also due to higher intangible assets related to the
development of a transportation management system and an upgrade
of the Company's financial management system in 2012.

Liabilities decreased $29.8 million or 19.5% from 2012 and were
down $5.1 million or 4.0% compared to 2011 primarily due to a
decrease in income tax payable and the defined benefit plan
obligation. Income tax payable decreased $15.8 million from 2012 due
to the conversion from an income trust to a share corporation and the
timing of income tax installment payments which resulted in the 2012
accrued income taxes being paid in 2013. Further information on the
Conversion to a Share Corporation is provided on page 8. The defined
benefit plan obligation decreased $10.0 million to $18.4 million
compared to 2012 and decreased $9.2 million compared to $27.6
million in 2011 largely due to higher returns on plan assets and an
increase in the discount rate used to calculate pension liabilities.
Further information on post-employment benefits is provided in Note
12 to the consolidated financial statements. A decrease in trade
accounts payable related to the timing of payments and lower
incentive plan accruals compared to 2012 was also a factor.

12THE NORTH WEST COMPANY INC.

Return on Net Assets The return on net assets employed for
Canadian Operations improved to 25.9% from 24.9% in 2012 due to a
6.0% increase in EBIT partially offset by an increase in average net assets
compared to last year as noted in the Net Assets Employed table.

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)

Trading profit(1) (EBITDA)

Earnings from operations(1)
(EBIT)

Return on net assets (1)

2013

2012

2011

Total sales

$ 500,665

$471,728

$ 470,932

2.1%

(0.6)%

2.3%

26,192

$ 27,273

$ 28,133

17,416

$ 19,259

$ 20,236

9.9%

12.1 %

13.6%

(1) See Non-GAAP Financial Measures section.

Sales International sales increased 6.1% to $500.7 million compared
to $471.7 million in 2012, and were up 6.3% compared to 2011 driven
by new store sales and same store sales growth in both AC and CUL
stores. Same store sales increased 2.1% compared to a 0.6% decrease
in 2012 and a 2.3% increase in 2011. Food sales accounted for 86.7%
(87.1% in 2012) of total sales with the balance comprised of general
merchandise at 12.2% (11.8% in 2012) and other sales, which consist
primarily of fuel sales and service charge revenues, at 1.1% (1.1% in
2012).

Food sales increased 5.7% from 2012 and were up 6.8% compared
to 2011. Same store food sales were up 1.9% compared to a 0.3%
increase in 2012. Quarterly same store food sales increases were 1.6%,
2.0%, 2.3% and 1.5%.

General merchandise sales increased 9.3% from 2012 and were
up 2.7% from 2011. On a same store basis, general merchandise sales
were up 3.5% compared to a decrease of 6.8% in 2012. Quarterly same
store general merchandise sales were up 2.3%, 0.9%, 3.6% and 6.7%
compared to a 12.6% decrease in the fourth quarter last year.

New merchandise assortments, a strong in-stock position and
better execution of promotional selling activities were leading factors
contributing to the same store sales growth. In general merchandise,
apparel sales in CUL stores and transportation sales in AC stores were
the main driver for the sales increase. In Alaska, general merchandise
also benefited from an increase in the Permanent Fund Dividend
(“PFD”), regional native corporation dividends and a healthier
commercial and sport fishing industry.

Other revenues, which consist of fuel and service charge revenue,
were up 4.3% from 2012 and were up 7.7% from 2011 primarily due to
fuel inflation.

Sales Blend The table below reflects the importance of food sales to
the total sales of International Operations:

Food

General merchandise

Other

2013

86.7%

12.2%

1.1%

2012

87.1%

11.8%

1.1%

2011

86.3%

12.6%

1.1%

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 Permanent Fund and regional
native corporation dividends, which can result in greater sales volatility.

Same store sales

(% change)

Food

General merchandise

2013

1.9%

3.5%

2.1%

2012

0.3 %

(6.8)%

(0.6)%

2011

2.9 %

(1.8)%

2.3 %

Gross Profit Gross profit dollars increased 3.6% as sales growth more
than offset a 63 basis point decrease in gross profit rate. The decrease
in gross profit rate was largely due to lower rates in food resulting from
the impact of new stores partially offset by lower markdowns in general
merchandise.

Selling, operating and administrative Selling, operating and
administrative expenses (“expenses”) increased 6.0% over last year but
were down 2 basis points as a percentage of sales. The increase in
expenses is primarily due to new stores and higher utility costs partially
offset by lower employee medical insurance costs arising from
favourable claims experience.

Earnings from operations (EBIT)
Earnings from operations
decreased 9.6% to $17.4 million compared to 2012 due to lower gross
profit rates and higher expenses largely related to the new CUL store
in Barbados. Trading profit decreased $1.1 million or 4.0% to $26.2
million and was 5.2% as a percentage of sales compared to 5.8% in
2012.

13ANNUAL REPORT

Net Assets Employed International Operations net assets employed
increased $3.5 million or 2.1% to $171.3 million compared to $167.8
million in 2012 and were up $27.9 million or 19.5% from 2011 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

2013

87.5

61.4

10.3

49.7

2012

83.3

63.1

10.1

50.2

2011

73.9

54.5

9.9

43.7

(37.6)

(38.9)

(38.6)

$ 171.3

$ 167.8

$ 143.4

Property and equipment increased due to a new convenience store in
Nome, Alaska, store renovations, investments in solar power and
energy-efficient refrigeration upgrades and the completion of
construction of the new Cost-U-Less store in Barbados that opened on
February 23, 2013.

Inventories decreased 2.7% compared to last year but were up
$6.9 million or 12.7% from 2011 largely due to new stores. Average
inventory levels in 2013 were $5.4 million or 9.1% higher than 2012 and
up $8.1 million or 14.3% compared to 2011 mainly due to new stores.
Inventory turnover was similar to last year at 5.8 times compared to 5.9
times in 2012.

Other assets decreased $0.5 million or 1.0% compared to last year
with lower cash balances and prepaid expenses at the end of the year
slightly offset by an increase in deferred tax assets.

Liabilities decreased $1.3 million compared to 2012 and
decreased $1.0 million compared to 2011 due to lower income tax
payable and deferred income tax liabilities.

Return on Net Assets The return on net assets employed for
International Operations decreased to 9.9% from 12.1% in 2012 due to
lower EBIT and higher average net assets employed largely related to
new stores as noted above.

Consolidated Liquidity
and Capital Resources

The following table summarizes the major components of cash flow:

($ in thousands)

2013

2012

2011

Cash provided by (used in):

Operating activities before
taxes paid

Taxes paid

Operating activities

Investing activities

Financing activities

Net change in cash

$ 132,031

$ 144,475

$ 121,664

(51,995)

80,036

(42,386)

(53,972)

(15,483)

128,992

(48,781)

(68,520)

(6,195)

115,469

(45,948)

(73,768)

$ (16,322)

11,691

(4,247)

Cash from operating activities Cash flow from operating activities
decreased 38.0% to $80.0 million. The change in cash flow from
operating activities is primarily due to an increase in income tax paid
in the year. Excluding the impact of income tax installments, cash flow
from operating activities decreased by 8.6% to $132.0 million. Changes
in non-cash working capital negatively impacted cash flow from
operating activities by $10.4 million compared to an increase in cash
flow of $10.8 million in 2012 and a decrease in cash flow of $3.0 million
in 2011. The change in non-cash working capital is mainly due to the
change in accounts payable, accounts receivable and inventories
compared to the prior year as noted in the Canadian and International
net assets employed on pages 12 and 14 respectively.

The Company paid income taxes of $52.0 million compared to
$15.5 million in 2012 and $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 was paid in the first quarter of 2013 in
addition to making the required Canadian monthly installments for
income taxes related to the 2013 tax year. Further information on the
Conversion to a Share Corporation is provided on page 8.

14THE NORTH WEST COMPANY INC.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, sustaining and planned
growth-related capital expenditures as well as anticipated dividends
during 2014.

The compound annual growth rate ("CAGR") for cash flow from
operating activities over the past 10 years is 1.8% as shown in the
following graph:

(1) 2011, 2012, and 2013 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. In the 2010 fiscal year, North West Company Fund
converted from an income trust to a share corporation effective January 1, 2011. See
Conversion To A Share Corporation for further information.

As previously noted, the decrease in cash flow from operating activities
in 2013 compared to 2012 is largely due to the payment of Canadian
income taxes. Excluding the impact of taxes paid, cash flow from
operating activities has increased 6.4% on a compound annual basis
over the past 10 years.

Cash used in investing activities Net cash used in investing
activities was $42.4 million compared to $48.8 million in 2012 and $45.9
million in 2011. Net investing in Canadian Operations was $28.0 million
compared to $31.7 million in 2012 and $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
$14.4 million compared to $17.1 million in 2012 and $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

2013

122

2012

121

2013

693,306

147,725

30,168

494,057

301,314

369,281

45,716

2012

681,456

148,306

27,999

494,057

300,882

336,138

45,716

Total at year-end

226

223

2,081,567

2,034,554

Cash used in financing activities Cash used in financing activities
was $54.0 million compared to $68.5 million in 2012 and $73.8 million
in 2011. The decrease is primarily related to a change in amounts drawn
on the loan facilities. Further information on the loan facilities is
provided in the Sources of Liquidity section below.

Shareholder Dividends / Unitholder Distributions The Company
paid dividends of $54.2 million or $1.12 per share, an increase of 7.7%
compared to $50.3 million or $1.04 per share paid in 2012. In 2011, the
Company paid $50.8 million or $1.05 per share, which includes the final
special distribution under the income trust structure. 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 the quarterly cash dividends per share

paid for the past three years:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Special distribution

Total

Dividends

2013

$ 0.28

2012

$ 0.26

2011

$ 0.24

0.28

—

0.26

—

0.24

0.09

$ 1.12

$ 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 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 following table shows dividends and distributions paid in
comparison to cash flow from operating activities for the past three
years:

Dividends

54,229

50,320

50,797

2013

2012

2011(1)

Cash flow from operating
activities

80,036

128,992

115,469

Taxes paid

51,995

15,483

6,195

Operating activities before
taxes paid

Dividends as a % of cash flow
from operating activities

Dividends as a % of cash flow
from operating activities
before taxes paid

$ 132,031

144,475

121,664

67.8%

39.0%

44.0%

41.1%

34.8%

41.8%

In the Canadian Operations, a new Northern store was opened in York
Landing, Manitoba. Total selling square feet in Canada increased to
1,385,683 from 1,374,647 in 2012.

In the International Operations, a new Cost-U-Less store was
opened in Barbados and a new convenience store was opened in
Nome, Alaska. International selling square feet increased to 695,884
from 659,907 in 2012.

(1) In 2011, the $50,797 included dividends of $46,443 and the final special distribution

under the income trust structure of $4,354.

The increase in dividends as a percentage of cash flow from operating
activities to 67.8% compared to 2012 is largely due to the conversion
to a share corporation and the timing of payment of Canadian income
tax installments. Further information on income tax installments is

15ANNUAL REPORT
provided under cash from operating activities on page 14. Excluding
the impact of income tax installments, dividends as a percentage of
cash flow from operating activities before taxes paid was 41.1% in 2013
compared to 34.8% in 2012 and 41.8% in 2011.

The compound annual growth rate (CAGR) for dividends and
distributions over the past 10 years is 5.9% 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.

The lower dividends paid in 2011 to 2013 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.

Subsequent event - dividends On March 12, 2014, the Board of
Directors approved a quarterly dividend of $0.29 per share to
shareholders of record on March 31, 2014, to be paid on April 15, 2014.
This is an increase of $0.01 per share or 3.6% compared to the $0.28
per share quarterly dividend paid in 2013. On an annual basis, the
Company anticipates paying dividends of approximately $1.16 per
share in 2014 compared to $1.12 per share in 2013.

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 an increase in long-term interest rates and a higher
than expected return on pension plan assets, the Company recorded

net actuarial gains on defined benefit pension plans of $7.8 million net
of deferred income taxes in other comprehensive income compared
to net actuarial losses on defined benefit pension plans of $1.3 million
net of deferred income taxes in other comprehensive income in 2012
and net actuarial losses of $15.3 million net of deferred income taxes
in 2011. These gains and losses in other comprehensive income were
immediately recognized in retained earnings. The actuarial gain in
2013 was due to an increase in the discount rate used to calculate
pension liabilities from 4.25% in 2012 to 4.50% in 2013 and higher than
expected return on pension plan assets. The actuarial loss in 2012 was
due to a decrease in the discount rate used to calculate pension
liabilities from 4.50% in 2011 to 4.25% in 2012. The net actuarial loss in
2011 was due to a decrease in the discount rate from 5.75% in 2010 to
4.50% in 2011 and lower than expected return on pension plan assets.
The return on plan assets and the increase in the discount rate were
the primary reasons for the decrease in the defined benefit plan
obligation to $18.4 million compared to $28.4 million in 2012.

In 2014, the Company will be

required to contribute
approximately $3.3 million to the defined benefit pension plans of
which approximately $1.5 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 $1.8 million in 2014 compared to $3.8 million in 2013
and $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 $2.8 million to the defined contribution
pension plan and U.S. employees savings plan in 2014 compared to
$2.7 million in 2013 and $2.4 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 $200.0 million that
mature on December 31, 2018. 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, 2014, the Company had
drawn $63.6 million on these facilities (January 31, 2013 - $52.5 million).

At January 31, 2014, the Canadian Operations have outstanding
US$70.0 million senior notes (January 31, 2013 - 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
$200.0 million Canadian Operations 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.

The

International Operations have available a committed,
revolving loan facility of US$30 million 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, 2014, the International
Operations had drawn US$1.2 million on these facilities (January 31,
2013 - US$0.7 million).

16THE NORTH WEST COMPANY INC.
The Company's International Operations also have available
committed, revolving loan facilities of US$52.0 million that mature on
December 31, 2018. 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 $200.0 million loan facilities. These facilities
bear interest at LIBOR plus a spread or the U.S. prime rate. At January 31,
2014, the Company had drawn US$36.0 million (January 31, 2013 -
US$40.0 million) on these facilities.

The Company has begun the process of refinancing the US$70
million senior notes and does not anticipate any difficulty in
completing the refinancing 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 23.

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, 2014, the Company is in
compliance with all covenants under these facilities. Current and
forecasted debt levels are regularly monitored for compliance with
debt covenants.

Interest Costs and Coverage

Coverage ratio

EBIT ($ in millions)

Interest ($ in millions)

2013

12.8

$ 100.1

7.8

2012

13.8

$ 96.6

7.0

2011

14.9

$ 89.3

6.0

The coverage ratio of earnings from operations ("EBIT") to interest
expense has decreased to 12.8 times compared to 13.8 times in 2012
and 14.9 times in 2011. The increase in interest expense in 2013 and
2012 compared to 2011 is largely due to the implementation of the
revised IAS 19r, Employee Benefits accounting standard which resulted
in a change in the calculation of net interest on defined benefit plan
obligations. The implementation of this standard required the
restatement of certain 2012 comparative numbers including EBIT and
interest. Further information on the impact of this change in
accounting standard is provided in the Accounting Standards
Implemented in 2013 section of this report or in Note 3 to the
Company's consolidated financial statements. Additional information
on interest expense is provided in Note 18 to the consolidated financial
statements.

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) $182,862

$ 77,800

$ 1,427

$103,635

$ —

Operating leases

150,268

25,264

39,677

29,179

56,148

Other liabilities (1)

14,281

7,688

6,593

—

Total

$347,411

$110,752

$ 47,697

$132,814

$ 56,148

(1) At year-end, the Company had additional long-term liabilities of $24.9 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. 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 open new stores. Additional information on
commitments, contingencies and guarantees is provided in Note 22
to the consolidated financial statements.

Related Parties The Company has a 50% ownership interest in a
Canadian Arctic shipping company, Transport Nanuk
Inc. and
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
$15 million (January 31, 2013 - $14 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

17ANNUAL REPORTpursuant 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 $182.9 million in debt
and $322.4 million in equity at the end of the year and a debt-to-equity
ratio of 0.57:1 compared to 0.55:1 last year.

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 .72:1 to .57:1. Equity has increased
$32.5 million or 11.2% to $322.4 million over the past five years and
interest-bearing debt has decreased $26.3 million or 12.6% to $182.9
million compared to $209.2 million in 2009. During this same time
frame, the Company has made capital expenditures, including
acquisitions, of $238.5 million and has paid distributions and dividends
of $291.3 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 increased $19.5 million
or 11.9% to $182.9 million compared to $163.4 million in 2012, and was
up $7.0 million or 4.0% from $175.9 million in 2011. As summarized in
the table below, the increase in debt is due to higher amounts drawn
on the Canadian Operations loan facilities and the impact of foreign
exchange on the translation of U.S. denominated debt. The Company
has US$107.4 million in debt at January 31, 2014 (January 31, 2013 - US
$111.3 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,
2014 was 1.1119 compared to 0.9992 at January 31, 2013 and 1.0052
at January 31, 2012. The change in the foreign exchange rate resulted
in a $12.1 million increase in debt compared to 2012 and an $11.5
million increase compared to 2011. Average debt outstanding during
the year excluding the foreign exchange impact increased $12.0 million
or 6.6% from 2012 and was down $1.6 million or 0.8% compared to
2011. The debt outstanding at the end of the fiscal year is summarized
as follows:

($ in thousands at the end of
the fiscal year)

2013

2012

2011

Senior notes

$ 77,576

69,461

69,626

Canadian revolving loan
facilities

U.S. revolving loan facilities

Notes payable

Finance lease liabilities

63,607

41,330

210

139

52,499

40,686

388

320

68,850

36,187

659

570

Total

$ 182,862

$ 163,354

$ 175,892

Shareholder Equity The Company has an unlimited number of
authorized shares and had
issued and outstanding shares at
January 31, 2014 of 48,425,787 (48,388,721 as at January 31, 2013). The
Company has a Share Option Plan that provides for the granting of
options to certain officers and senior management. Each option is
exercisable into one common share of the Company at a price specified
in the option agreement. As at January 31, 2014, there were 1,423,074
options outstanding representing approximately 2.9% of the issued
and outstanding shares. Further information on share options is
provided in Note 13 and additional 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 $6.63 compared to $6.10 per share in 2012. Shareholders'
equity increased $26.2 million or 8.8% compared to 2012 due to higher
net earnings, a $7.8 million increase to retained earnings for net
actuarial gains on the Company's defined benefit pension plan, a
$7.9 million increase for exchange differences on translation of foreign
controlled subsidiaries partially offset by an increase in dividends to
shareholders. Further information is provided in the statements of
changes
in the consolidated financial
statements.

in shareholders' equity

QUARTERLY FINANCIAL INFORMATION

Historically, the Company's first quarter sales are the lowest and fourth
quarter sales are the highest, reflecting consumer buying patterns. Due
to the remote location of many of the Company's stores, 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)

Total

Sales

2013

2012

$364,474

$388,610

$387,173

$402,868

$1,543,125

$365,517

$383,843

$377,664

$386,622

$1,513,646

Trading profit (EBITDA)

2013

2012

$ 30,009

$ 37,412

$ 36,543

$ 34,372

$ 138,336

$ 29,746

$ 36,435

$ 35,611

$ 31,925

$ 133,717

Earnings from operations (EBIT)

$ 20,544

$ 28,023

$ 26,876

$ 24,617

$ 100,060

$ 20,433

$ 27,224

$ 26,228

$ 22,683

2013

2012

Net earnings

2013

2012

$ 12,910

$ 18,111

$ 17,387

$ 15,855

$ 13,238

$ 17,962

$ 17,172

$ 15,516

Earnings per share-basic

2013

2012

0.27

Earnings per share-diluted

2013

2012

0.27

0.37

0.36

0.33

0.32

96,568

64,263

63,888

1.33

1.32

18THE NORTH WEST COMPANY INC.
Fourth Quarter Highlights Fourth quarter consolidated sales
increased 4.2% to $402.9 million compared to $386.6 million in the
fourth quarter last year. Same store sales growth in food and general
merchandise and new store sales in our International Operations more
than offset the sales impact of the store closures in the Canadian
Operations in the fourth quarter of 2012. Excluding the foreign
exchange impact, sales increased 1.7% and were up 1.9%(1) on a same
store basis. Food sales(1) increased 1.8% and were up 1.3% on a same
store basis and general merchandise sales(1) increased 1.5% and were
up 4.1% on a same store basis.

Gross profit dollars increased 4.7% due to sales growth and a 15
basis point increase in gross profit rate on a consolidated basis. The
gross profit rate improvement was largely due to lower markdowns in
general merchandise resulting from better balanced seasonal
assortments.

Selling, operating and administrative expenses increased 3.8%
compared to last year but were down 9 basis points as a percentage
to sales. The increase in expenses is primarily due to expenses related
to new stores in the International Operations and the impact of foreign
exchange on the translation of U.S. denominated expenses. The impact
of new store expenses was partially offset by lower employee medical
insurance expenses in the International Operations and a decrease in
debt loss expense in the Canadian Operations.

Earnings from Operations increased 8.5% to $24.6 million
compared to $22.7 million in the fourth quarter last year as sales growth
and an increase in gross profit rates more than offset higher expenses.
Excluding the foreign exchange impact, earnings from operations
increased 7.2% compared to last year.

interest,

Trading profit or earnings before

income taxes,
depreciation and amortization (EBITDA) increased 7.7% to $34.4 million
compared to $31.9 million last year with both the Canadian Operations
and International Operations contributing to the increase. Excluding
the foreign exchange impact, trading profit increased 6.3% compared
to last year and as a percentage to sales was 8.6% compared to 8.3%
last year.

Interest expense increased $0.7 million to $2.1 million compared
to $1.4 million last year due to higher average debt in the quarter
compared to last year, an increase in interest on defined benefit plan
obligations and a decrease in capitalized interest.

Income tax expense increased $0.9 million to $6.7 million
compared to $5.8 million last year due to an increase in earnings and
a higher effective tax rate. The increase in the consolidated effective
tax rate to 29.7% compared to 27.2% in the quarter last year is due to
the variability of income earned across the various tax jurisdictions.

Net earnings increased 2.2% to $15.9 million and diluted earnings

per share were flat to last year at $0.32 per share.

Working capital decreased $24.4 million or 21.4% compared to
the fourth quarter last year largely due to an increase in the current
portion of long-term debt. The increase in the current portion of long-
term debt is due to the senior notes that mature June 15, 2014
compared to last year's current portion of debt, which included the
International Operations loan facilities that were refinanced on
December 9, 2013. Excluding the impact of the maturing debt, working
capital increased $13.2 million or 8.6% compared to last year largely
due to an increase in inventories and lower income tax payable as a
result of installments made in the year, partially offset by a lower cash
position. The increase in inventories is due to higher inventories in
stores serviced by sealift and winter roads in the Canadian Operations
to take advantage of lower transportation costs and the impact of
foreign exchange on the translation of U.S. denominated inventories.

(1) Excluding the foreign exchange impact.

Cash flow from operating activities in the quarter decreased $4.9
million to $46.5 million compared to cash flow from operating activities
of $51.4 million last year. The change in cash flow from operating
activities is primarily due to an increase in income tax installments paid
in the quarter. Excluding the impact of income tax installments, cash
flow from operating activities decreased $0.7 million or 1.4% compared
to the fourth quarter last year due to the change in non-cash working
capital largely related to the change in accounts payable in the quarter
due to the timing of payments. The change in other non-cash items is
mainly due to the change in other long-term liabilities compared to
the prior year.

Cash used for investing activities in the quarter decreased to $14.1
million compared to $14.4 million last year. The decrease in the quarter
is due to a decrease in intangible asset additions primarily related to
the transportation management system and a difference in the timing
of capital investments.

Cash used for financing activities in the quarter was $45.8 million
compared to $39.3 million last year. The decrease in long-term debt in
the quarter is due to the change in amounts drawn on the Company's
revolving loan facilities compared to last year. The Company paid
dividends of $13.6 million, an increase of 7.8% 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. 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, 2014.

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 and
may not prevent or detect misstatements. Furthermore, management
is required to use judgment in evaluating controls and procedures.
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”), 1992 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, 2014. There have been no changes in the internal controls
over financial reporting during the quarter and for the year ended
January 31, 2014 that have materially affected or are reasonably likely
to materially affect the internal controls over financial reporting.

19ANNUAL REPORT

OUTLOOK

The Company's focus in 2014 will be on enhancing store sales and
operations capability, recognizing this as a core, ongoing advantage.
Productivity improvements, transportation efficiencies, improved
shrink and loss controls, more finely tuned product and service
offerings and capital reinvestment in high opportunity locations are
key features of this focus. Within the various markets served by the
Company, the consumer income environment is expected to range
from flat in northern Canada and the southern island markets to
modestly positive in Alaska and western Canada.

New store growth will be limited in 2014 as the Company
continues to see favorable returns from optimizing existing market
performance. Two new Giant Tiger locations are planned together with
the possibility of smaller acquisitions. Upside to the business will be
generated by the success of new merchandise and service programs
and the maturation of new stores, specifically in Barbados. Downside
exists with respect to margin pressure in Canada's retail food sector.

Net capital expenditures

for 2014 are expected to be
approximately $55.0 million (2013 - $42.4 million) reflecting the
opening or acquisition of new stores, major store replacements and
the final phase of a transportation management system which is
expected to be fully deployed in 2014. Capital expenditures depend
upon the completion of landlord negotiations and shipment of
construction materials to remote markets and therefore, their actual
amount and timing can fluctuate.

As previously noted, the Company paid the remaining balance of
the Canadian accrued income taxes for 2012 of approximately $19
million in the first quarter of 2013 in addition to making the required
monthly installments for income taxes related to the 2013 tax year. The
Company expects its Canadian monthly income tax installments to
decrease in 2014 compared to 2013 based on a normalized level of
taxable income in 2013 and the recognition of a portion of the deferred
limited partnership income. Actual installments paid may vary from
anticipated payments due to a variety of factors including changes in
expected or actual earnings across various tax jurisdictions.

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 markets, products and
services are financially 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 caliber 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 and could negatively affect
financial performance. The Company's overall priority on building and
sustaining store competency reflects the importance of mitigating
against this risk.
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-
leadership
training programs and
development program.

the Company's

in-depth

Competition The Company has a leading market position in a large
percentage of the markets it serves. 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. To the extent that the Company is not effective in
responding to consumer trends or enhancing its value offer, it could
have a negative impact on financial performance. Furthermore, 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 also negatively affect the
Company's financial performance.

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 these relations or
lease agreements with community-based
is unable to renew
organizations, or is subject to punitive fees or operating restrictions, it
could have an adverse effect on the Company's reputation and
financial performance.

20THE NORTH WEST COMPANY INC.

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 of personal
disposable income, interest rates and foreign exchange rates. Changes
in the inflation rate and foreign exchange 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.

levels,

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. While these tend to be stable sources of income,
independent of economic cycles, 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 Company's operations and financial performance.

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
which contribute to lower living costs for eligible customers. A change
in government policy 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.

A major source of employment income in the remote markets the
Company operates 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. A similar
fluctuating source of income is employment related to tourism and
natural resource development. A significant or prolonged reduction in
government transfers, 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.

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.

Information Technology The Company relies on information
technology (“IT”) to support the current and future requirements of the
business. A significant loss of data or an impairment of data integrity,
a failure or prolonged disruption in IT systems, or the failure to
successfully upgrade legacy systems or implement new systems could
have an adverse effect on the Company's operations , reputation and
financial performance.

In 2014, the Company will implement the final phases of 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 help mitigate
these risks, the Company engaged an implementation partner and
instilled a strong governance structure and disciplined project
management.

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, this 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.

Income Taxes In the ordinary course of business, the Company is
routinely subject to audits by tax authorities. The Company regularly
reviews its compliance with tax legislation, filing positions, the
adequacy of its tax provisions and the potential for adverse outcomes.
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. 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 outcome is determined.

Laws, Regulations and Standards The Company is subject to various
laws, regulations and standards administered by federal, provincial and
foreign regulatory authorities, including but not limited to income,
commodity and other taxes, duties, currency repatriation, health and
safety, employment standards,
licensing requirements, product
packaging and labeling regulations and zoning. 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,
financial penalties,
regulations and standards could result
assessments, sanctions or legal action that could have an adverse effect
on the reputation and the financial performance of the Company.

The Company is also subject to various privacy laws and
regulations regarding the protection of personal information of its
customers and employees. Any failure in the protection of this
information or non-compliance with laws or regulations could
negatively affect the Company's reputation and financial performance.

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 retail fuel outlets in a number
of locations and 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 performance of the
Company.

remediation activities,

incidents and

21ANNUAL REPORT
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 performance of the Company.

Food and Product Safety The Company is exposed to risks associated
with food safety, product handling and general merchandise product
defects. 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 reputation and financial performance 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 or
product defect. 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 or product recall is dependent on
their successful execution.

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
the Company's reputation and 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.

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
which could have an adverse effect on operations and financial
performance. Excess inventory may also result in higher markdowns
or inventory shrinkage all of which could have an adverse effect on the
financial performance 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. The Company records a provision for
litigation claims if management believes the Company has liability for
such claim or legal action. 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.

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 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.

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 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.

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 operations
and financial 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.

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 significant or
prolonged disruption at any of these facilities due to fire, inclement
weather or otherwise could have a material 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 performance of the Company.

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
in the discount rate and regulatory funding
assets, changes

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

22THE NORTH WEST COMPANY INC.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.

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 both planned sustaining and growth-related capital expenditures
and regularly monitoring actual and forecasted cash flow and debt
levels. At January 31, 2014, the Company had undrawn committed
revolving loan facilities available of $172.5 million (January 31, 2013 -
$144.1 million).

The Company has US$70.0 million senior notes that mature on
June 15, 2014. The Company has begun the process of refinancing the
senior notes and does not anticipate any difficulty in completing the
refinancing 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 a
material adverse effect on the financial performance of the Company.
For further information on loan facilities, see Note 11 to the
consolidated financial statements.

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, 2014, the Company had US$107.4 million in U.S.
denominated debt compared to US$111.3 million at January 31, 2013.
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 2013, the average exchange rate used to translate
U.S. denominated earnings from the International Operations was
1.0389 compared to 0.9976 last year. The Canadian dollar's depreciation

in 2013 compared to the U.S. dollar in 2012 positively impacted
consolidated net earnings by $0.4 million. In 2012, the average
exchange rate of 0.9976 was slightly higher than the 0.9911 average
exchange rate in 2011 which increased 2012 consolidated net earnings
by $0.1 million compared to 2011.

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, assumptions and judgments
that affect the application of accounting policies and the reported
amounts and disclosures made
in the consolidated financial
statements and accompanying notes. Judgment has been used in the
application of accounting policy and to determine if a transaction
should be recognized or disclosed in the financial statements while
estimates and assumptions have been used to measure balances
recognized or disclosed. These estimates, assumptions and judgments
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. Certain
of these estimates and assumptions require subjective or complex
judgments by management about matters that are uncertain and
changes in these estimates could materially impact the consolidated
financial statements and disclosures. Management regularly evaluates
the estimates and assumptions it uses and revisions are recognized in
the period in which the estimates are reviewed and in any future
periods affected. The areas that management believes involve a higher
degree of judgment or complexity, or areas where the estimates and
assumptions may have the most significant impact on the amounts
recognized in the consolidated financial statements include the
following:

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: (1) the determination of 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

23ANNUAL REPORT

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 historical 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.

Various assumptions and estimates are used to determine the
recoverable amount of a CGU. The Company determines fair value less
costs of disposal using estimates such as market rental rates for
comparable properties, property appraisals and capitalization rates.
The Company determines value in use based on estimates and
assumptions regarding future financial performance. 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 increases in operating costs that can not be offset by
other productivity improvements. 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.

Post-Employment Benefits The defined benefit plan obligations 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, the 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 and
the rate of compensation
increase are the most significant
assumptions. The discount rate used to calculate benefit plan
obligations and plan asset returns is based on market interest rates, as
at the Company's measurement date of January 31, 2014 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
2013 and 2012 were 4.50% and 4.25% respectively. Management
assumed the rate of compensation increase for fiscal 2013 and 2012 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
recoverable amount of the asset, which is the higher of its fair value
less costs of disposal 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, judgment is required to determine the CGU
based on 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. To the extent that the carrying value exceeds
the estimated recoverable amount, an
is
recognized in the consolidated statement of earnings in the period in
which it occurs.

impairment charge

Goodwill Goodwill is not amortized but is subject to an impairment
test annually or whenever indicators of impairment are detected.
Judgment is required to determine the appropriate grouping of CGUs
for the purpose of testing for impairment. Judgment is also required
in evaluating indicators of impairment which would require an
impairment test to be completed. Goodwill is allocated to CGUs 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 Operations 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.
The recoverable amount is the greater of its value in use or its fair value
less costs of disposal. To calculate the operating segment's value in
use, 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. Fair value less costs of disposal may be determined using
market trading multiples for comparative enterprises. 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
2013 and determined that the recoverable amount of the International
Operations 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 use judgment regarding the interpretation and
application of tax legislation in the various jurisdictions in which the
Company operates. The calculation of deferred income tax assets and
liabilities are also impacted by estimates of future financial results,
expectations regarding the timing of reversal of temporary differences,

24THE NORTH WEST COMPANY INC.

Financial Instruments Amendments to IFRS 7 Financial Instruments:
Disclosures and IAS 32 Financial Instruments: Presentation are not
expected to have any significant
impact on the Company's
consolidated financial statements.

Levies In May 2013, the IASB issued International Financial Reporting
Interpretations Committee (IFRIC) 21, Levies. IFRIC 21 is effective for
annual periods beginning on or after January 1, 2014 and applied
retrospectively. The interpretation defines a levy as an outflow from
an entity imposed by a government in accordance with legislation and
confirms a levy liability is recognized only when the triggering event
specified in the legislation occurs. The Company is currently assessing
the potential impact of these changes, if any.

Offsetting Financial Assets and LIabilities The amended IAS 32, Financial
Instruments: Presentation clarifies the requirements that permit
offsetting certain financial instruments. The Company is currently
assessing the significance of these amendments to determine the
potential impact, if any.

and assessing the possible outcome of audits of tax filings by the
regulatory agencies.

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.

ACCOUNTING STANDARDS IMPLEMENTED IN
2013

The Company adopted the amendments to IFRS listed below effective
February 1, 2013, as required by the International Accounting
Standards Board ("IASB").

Employee benefits The revised IAS 19, Employee Benefits (IAS 19r) issued
by the IASB eliminates the option to defer the recognition of actuarial
gains and losses on defined benefit plans. It amended the calculation
of plan assets and benefit obligations, streamlined the presentation of
changes in defined benefit plans and required enhanced disclosure.
The requirement to calculate the expected return on plan assets with
the interest rate used to calculate the defined benefit plan obligation
was the most significant for the Company. Implementation of this
standard in these financial statements required restatement of certain
of the 2012 comparative numbers. The impact for the year ended
January 31, 2013 is a decrease in net earnings of $1.3 million comprised
of an increase to interest expense of $1.2 million, an increase to selling,
operating and administrative expense of $0.6 million, and a deferred
tax recovery of $0.5 million. There was a corresponding increase in
other comprehensive income of $1.3 million. Financial information for
2011 and previous years have not been restated for these accounting
standard changes as they were effective for the Company February 1,
2013 with retrospective adjustments as at February 1, 2012.

In addition to IAS 19r, the Company adopted the following standards
and amendments effective February 1, 2013: IFRS 10, Consolidated
Financial Statements; IFRS 11, Joint Arrangements; IFRS 12, Disclosure of
Interests in Other Entities; IAS 28r, Investments in Associates and Joint
Ventures; IAS 1, Presentation of Financial Statements; and IFRS 13, Fair
Value Measurement. These amendments had no significant impact on
the Company's consolidated financial statements.

FUTURE ACCOUNTING STANDARDS

A number of new standards, and amendments to standards and
interpretations, are not yet effective for the year ended January 31,
2014, 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, 2014.

Financial Instruments The amended IFRS 9, Financial Instruments is a
multi-phase project with the 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. Additional guidance was also issued on the
classification and measurement of financial assets and liabilities and
hedge accounting. The mandatory effective date of this standard has
been deferred. The Company is currently assessing the potential
impact of changes to this standard.

25ANNUAL REPORT(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 for the following
fiscal years:

($ in millions)

Total assets

2013

2012

2011

670.5

651.4

626.9

Less: Total liabilities

Add: Total long-term debt

(348.1)

182.9

Net Assets Employed

505.3

(355.1)

163.4

459.7

(343.2)

175.9

459.6

(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.

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:

Reconciliation of Net Earnings to Trading Profit (EBITDA)

($ in thousands)

Net earnings

Add:

Amortization

Interest expense

Income taxes

2013

2012

2011

$ 64,263

63,888

57,961

38,276

7,784

28,013

37,149

6,979

25,701

36,572

6,026

25,322

Trading profit (EBITDA)

$ 138,336

$ 133,717

$ 125,881

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

2013

2012

2011

$ 64,263

63,888

$ 57,961

7,784

28,013

6,979

25,701

6,026

25,322

Earnings from operations (EBIT)

$ 100,060

96,568

$ 89,309

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.
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. See Non-GAAP Financial Measures section.

Return on net assets Net earnings before interest and income taxes
divided by average net assets employed (total assets less accounts
payable and accrued liabilities, income taxes payable, defined benefit
plan obligations, deferred tax liabilities, and other long-term liabilities).
See Non-GAAP Financial Measures section.

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,
depreciation and amortization provides an
indication of the
Company's operational performance before allocating the cost of
interest, income taxes and capital investments. See Non-GAAP
Financial Measures section.

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 2013 year which ended
January 31, 2014 had 365 days of operations. 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.

GLOSSARY OF TERMS

Basic earnings per share Net earnings available to shareholders
divided by the weighted-average number of shares outstanding
during the period.

Basis point A unit of measure that is equal to 1/100th of one percent.

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 is
calculated as 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 section.

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.

Hedge A risk management technique used to manage interest rate,
foreign currency exchange or other exposures arising from business
transactions.

Interest coverage Net earnings before interest and income taxes
divided by interest expense.

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 and intangible asset 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)
2013

IFRS (2)
2012

IFRS (2)
2011

2010

2009

2008

$1,022,985
520,140
1,543,125
111,225
27,111
138,336
29,258
9,018
38,276
7,784
28,013
64,263
80,036
54,229
43,207
(16,322)

$ 299,071
286,875
64,969
19,597
209,738
138,334
322,440

$1,043,050
470,596
1,513,646
106,510
27,207
133,717
29,155
7,994
37,149
6,979
25,701
63,888
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
37,814
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

$
$

1.33
1.32
2.86
1.65
1.12
6.66
25.42

178
48
1,386
696
741
767
4,839
1,853
48,413
48,426
12,731

9.0
6.5
20.0
21.0
.57:1
67.8
5.6

$
$

1.32
1.32
2.76
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

8.8
6.4
20.6
22.1
.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

(2) The financial results for 2013, 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. Certain 2012 figures have been restated as required by
the implementation of Employee Benefits IAS 19r. See Accounting
Standards Implemented in 2013 section for further information.

28THE NORTH WEST COMPANY INC.2007

2006

2005

2004

2003

$ 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

$ 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

$
$

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

$
$

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

Fiscal Year(1)
($ in thousands )
Consolidated Statements of Earnings

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 REPORTManagement’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 9, 2014

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, 2014 and
January 31, 2013 and the consolidated statements of earnings,
comprehensive income, changes in shareholders’ equity and cash
flows for the years then ended, 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. We conducted our audits in
accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s
including the assessment of the risks of material
judgment,
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, 2014 and January
31, 2013 and their financial performance and their cash flows for the
years then ended in accordance with International Financial Reporting
Standards.

CHARTERED ACCOUNTANTS
WINNIPEG, CANADA

April 9, 2014

30THE NORTH WEST COMPANY INC.

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, 2014

January 31, 2013

22,353

70,527

198,856

7,335

299,071

286,875

29,424

21,514

19,597

14,031

371,441

38,675

70,040

187,200

7,981

303,896

274,027

26,162

20,136

12,904

14,269

347,498

TOTAL ASSETS

670,512

$ 651,394

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

128,999

$ 130,501

77,800

2,939

209,738

105,062

18,417

2,012

12,843

138,334

348,072

166,069

3,528

145,762

7,081

322,440

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

670,512

$ 651,394

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

Year Ended

January 31, 2014

January 31, 2013

$ 1,543,125

$ 1,513,646

(1,088,071)

(1,068,940)

455,054

(354,994)

100,060

(7,784)

92,276

(28,013)

444,706

(348,138)

96,568

(6,979)

89,589

(25,701)

64,263

63,888

1.33

1.32

48,413

48,657

48,384

48,579

See accompanying notes to consolidated financial statements. Certain prior year figures have been restated as required by IAS 19r - see Note 3.

Consolidated Statements of Comprehensive Income

($ in thousands)

NET EARNINGS FOR THE YEAR

Other comprehensive income/(expense), net of tax:

Items that may be reclassified to net earnings:

Exchange differences on translation of foreign controlled subsidiaries

Items that will not be subsequently reclassified to net earnings:

Remeasurements of defined benefit plans (Note 12)

Remeasurements of defined benefit plan of equity investee

Total other comprehensive income, net of tax

COMPREHENSIVE INCOME FOR THE YEAR

Year Ended

January 31, 2014

January 31, 2013

64,263

63,888

7,898

7,804

(300)

15,402

(222)

(1,335)

—

(1,557)

79,665

62,331

See accompanying notes to consolidated financial statements. Certain prior year figures have been restated as required by IAS 19r - see Note 3.

32THE NORTH WEST COMPANY INC.

Consolidated Statements of Changes in Shareholders' Equity

($ in thousands)

Balance at January 31, 2013

Net earnings for the year

Other comprehensive income (Note 12)

Other comprehensive income of equity investee

Comprehensive income

Equity settled share-based payments

Dividends (Note 19)

Issuance of common shares

Share
Capital

Contributed
Surplus

Retained
Earnings

AOCI (1)

Total

$ 165,358

3,485

$ 128,224

(817)

$ 296,250

—

711

—

623

—

(580)

64,263

7,804

(300)

71,767

—

(54,229)

—

(54,229)

—

7,898

—

7,898

—

64,263

15,702

(300)

79,665

623

(54,229)

131

(53,475)

Balance at January 31, 2014

$166,069

3,528

$145,762

7,081

$322,440

Balance at January 31, 2012

Net earnings for the year

Other comprehensive income (Note 12)

Comprehensive income

Equity settled share-based payments

Dividends (Note 19)

Issuance of common shares

$ 165,133

3,180

$ 115,991

(595)

$ 283,709

—

225

—

471

—

(166)

305

63,888

(1,335)

62,553

—

(50,320)

—

(50,320)

—

(222)

—

63,888

(1,557)

62,331

471

(50,320)

(49,790)

Balance at January 31, 2013

$ 165,358

3,485

$ 128,224

(817)

$ 296,250

(1) Accumulated Other Comprehensive Income

See accompanying notes to consolidated financial statements. Certain prior year figures have been restated as required by IAS 19r - see Note 3.

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

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 used in investing activities

Financing activities

Increase / (Decrease) in long-term debt (Note 11)

Dividends (Note 19)

Interest paid

Issuance of common shares

Cash used in financing activities

NET CHANGE IN CASH

Cash, beginning of year

CASH, END OF YEAR

Year Ended

January 31, 2014

January 31, 2013

64,263

63,888

38,276

28,013

7,784

623

(51,995)

164

87,128

(10,446)

3,354

80,036

(39,596)

(3,611)

821

(42,386)

6,895

(54,229)

(6,769)

131

(53,972)

(16,322)

38,675

37,149

25,701

6,979

471

(15,483)

1,978

120,683

10,764

(2,455)

128,992

(42,236)

(8,897)

2,352

(48,781)

(12,285)

(50,320)

(5,974)

(68,520)

11,691

26,984

22,353

38,675

See accompanying notes to consolidated financial statements. Certain prior year figures have been restated as required by IAS 19r - see Note 3.

34THE NORTH WEST COMPANY INC.
Notes to
Consolidated
Financial
Statements

($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JANUARY 31, 2014 AND 2013

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 9, 2014.

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 (Note 14)
Financial instruments designated at fair value (Note 14)
Liabilities for share-based payment plans (Note 13)
Defined benefit pension plan (Note 12)
Assets and liabilities acquired in a business combination

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 is established when

the Company has rights to an entity's variable returns, and has the
ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Company until the date that control ceases.
The Company assesses control on an ongoing basis.

A joint arrangement can take the form of a joint operation
or a joint venture. Joint ventures are those entities over which the
Company has joint control, established by contractual agreement.
The Company’s 50% interest in the jointly controlled entity
Transport Nanuk Inc. has been classified as a joint venture. Its
results are included in the consolidated statements of earnings
using the equity method of accounting. The consolidated
financial statements include the Company's share of both
earnings and other comprehensive income from the date that
significant influence or joint control commences until the date
that it ceases. 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

35NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 obsolescence, damage or seasonality.

Inventories are written down to net realizable value if net
realizable value declines below carrying amount.
When
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 when it is
probable they will be received and the amount can be reliably
estimated.

(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 of disposal 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 CGUs 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. The goodwill asset balance
relates to the Company's acquired subsidiary, Cost-U-Less, and is
allocated to the International Operations operating segment.

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.

36THE NORTH WEST COMPANY INC.
(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 – 7 years
3 – 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.

(L) Share-based Payment Transactions

Equity settled plans Certain stock options settled in common
shares are equity settled share-based payment plans. The fair
value of these plans is 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 Certain stock options, Restricted Share Units,
Performance Share Units, Employee Share Purchase Plan and the
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 plan 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,
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.

The amount recognized in the consolidated balance sheet
at each reporting date represents the present value of the defined
benefit obligation, and is 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 for current service is
recognized annually in the consolidated statement of earnings.
The actuarially determined net interest costs on the net defined
benefit plan obligation are recognized in interest expense.

All actuarial remeasurements 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 are
immediately recognized in retained earnings. The effect of the
asset ceiling is also recognized in other comprehensive income.

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

37NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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
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.

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 as interest expense.

The Company is exposed to financial risks associated with
movements in interest rates and exchange rates. The Company
may use derivative financial
instruments to hedge these
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
or
in other
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.

in conformity with

financial statements

(T) Use of Estimates, Assumptions & Judgment The preparation
of
IFRS requires
management to make estimates, assumptions and judgments
that affect the application of accounting policies, the reported
amounts of revenues and expenses during the reporting period
in the
and disclosure of contingent assets and
consolidated financial statements and notes. Judgment has been
used in the application of accounting policy and to determine if
a transaction should be recognized or disclosed in these financial
statements while estimates and assumptions have been used to
measure balances recognized or disclosed.

liabilities

38THE NORTH WEST COMPANY INC.

Consolidated Financial Statements; IFRS 11, Joint Arrangements;
IFRS 12, Disclosure of Interests in Other Entities; IAS 28r, Investments
in Associates and Joint Ventures; IAS 1, Presentation of Financial
These
Statements; and
amendments had no material impact on the Company's results
from operations or financial condition. The Company did not have
any significant new disclosure as a result of adopting these
amendments.

IFRS 13, Fair Value Measurement.

(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, 2014, 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, 2014.

Financial Instruments The amended IFRS 9, Financial Instruments
is a multi-phase project with the 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. Additional guidance was
also issued on the classification and measurement of financial
assets and liabilities and hedge accounting. The mandatory
effective date of this standard has been deferred. The Company
is currently assessing the potential impact of changes to this
standard.

Amendments to

Financial Instruments
Financial
Financial Instruments:
Instruments: Disclosures and
Presentation are not expected to have any significant impact on
the Company's consolidated financial statements.

IAS 32

IFRS 7

Levies In May 2013, the IASB issued International Financial
Reporting Interpretations Committee (IFRIC) 21, Levies. IFRIC 21
is effective for annual periods beginning on or after January 1,
2014 and applied retrospectively. The interpretation defines a levy
as an outflow from an entity imposed by a government in
accordance with legislation and confirms a levy liability is
recognized only when the triggering event specified in the
legislation occurs. The Company is currently assessing the
potential impact of these changes, if any.

Offsetting Financial Assets and LIabilities The amended IAS 32,
Financial Instruments: Presentation clarifies the requirements that
permit offsetting certain financial instruments. The Company is
currently assessing the significance of these amendments to
determine the potential impact, if any.

Estimates, assumptions and judgments 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
impact the consolidated
these estimates could materially
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

The areas that management believes involve a higher degree
of judgment or complexity, or areas where the estimates and
assumptions may have the most significant impact on the
amounts recognized in the consolidated financial statements
include the following:

•

Allowance for doubtful accounts is estimated based on
expected customer payment experience, and influenced by
specific customer behavior and regional economic factors
(Notes 5, 14)
Inventories are remeasured based on the lower of cost and
net realizable value (Note 6)
Impairment of capital assets is influenced by judgment in
determining indicators of impairment and estimates used to
measure impairment losses, if any (Note 7)
Goodwill and indefinite life intangible asset impairment is
dependent on judgment used to identify indicators of
impairment and estimates used to measure impairment
losses, if any (Note 8)
Income taxes have judgment applied to determine when tax
losses, credits and provisions are recognized based on tax
rules in various jurisdictions (Note 9)
Defined benefit pension plan obligation and expense
depends on assumptions used in the actuarial valuation
(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, 2013, as
required by the IASB.

Employee benefits The revised IAS 19, Employee Benefits (IAS 19r)
issued by the IASB eliminates the option to defer the recognition
of actuarial gains and losses on defined benefit plans. It amended
the calculation of plan assets and benefit obligations, streamlined
the presentation of changes in defined benefit plans and required
enhanced disclosure. The requirement to calculate the expected
return on plan assets with the interest rate used to calculate the
defined benefit plan obligation was the most significant for the
Company. Implementation of this standard in these financial
statements required restatement of the 2012 comparative
numbers. The impact for the year ended January 31, 2013 is a
decrease in net earnings of $1,260 comprised of an increase to
interest expense of $1,170, an increase to selling, operating and
administrative expense of $550, and a deferred tax recovery of
$460. There was a corresponding increase in OCI of $1,260.

In addition to IAS 19r, the Company adopted the following
standards and amendments effective February 1, 2013: IFRS 10,

39NOTES TO CONSOLIDATED FINANCIAL STATEMENTS4. SEGMENTED INFORMATION

5. ACCOUNTS RECEIVABLE

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:

Consolidated Statements of Earnings

Year Ended

Sales

Canada

International

January 31, 2014

January 31, 2013

$ 1,022,985

$ 1,043,050

520,140

470,596

Consolidated

$ 1,543,125

$ 1,513,646

Earnings before amortization, interest and income taxes

Canada

International

$ 111,225

106,510

27,111

27,207

Consolidated

$ 138,336

133,717

Earnings from operations

Canada

International

Consolidated

81,967

18,093

$ 100,060

77,355

19,213

96,568

Assets

Canada

International

January 31, 2014

January 31, 2013

$ 438,299

444,848

232,213

206,546

Consolidated

$ 670,512

651,394

International total assets includes goodwill of $29,424 (January 31,
2013 - $26,162).

Supplemental information

Year Ended

January 31, 2014

January 31, 2013

Canada

Int'l

Canada

Int'l

Expenditure on property and
equipment

$ 26,242 $ 13,354 $ 25,128 $ 17,108

Amortization

$ 29,258 $ 9,018 $ 29,155 $ 7,994

January 31, 2014

January 31, 2013

Current:

Trade accounts receivable

$ 71,763

$ 72,162

Corporate and other

accounts receivable

Less: allowance for doubtful

accounts

Non-current:

Long-term receivable
(Note 10)

10,188

11,920

(11,424)

(14,042)

$ 70,527

$ 70,040

2,517

2,626

$ 73,044

$ 72,666

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, 2014

January 31, 2013

Current:

Balance, beginning of year

(14,042)

(13,606)

Net charge

Written off

(7,858)

10,476

(7,606)

7,170

Balance, end of year

(11,424)

(14,042)

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 cost of sales for the year ended January 31, 2014, the Company
recorded $1,522 (January 31, 2013 - $1,648) 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, 2014 or 2013.

40THE NORTH WEST COMPANY INC.

7. PROPERTY & EQUIPMENT

January 31, 2014

Cost

Land

Buildings

Leasehold
improvements

Fixtures &
equipment

Computer
equipment

Construction
in process

Total

Balance, beginning of year

12,144

$ 321,858

38,659

$ 223,727

63,311

19,245

$ 678,944

Additions

Disposals

Effect of movements in foreign exchange

2,852

(5)

701

20,719

(695)

9,042

5,999

(558)

1,476

16,330

(787)

6,593

4,354

(3,324)

986

(10,658)

—

533

39,596

(5,369)

19,331

Total January 31, 2014

15,692

$ 350,924

45,576

$ 245,863

65,327

Accumulated amortization

Balance, beginning of year

Amortization expense

Disposals

Effect of movements in foreign exchange

Total January 31, 2014

—

$ 172,051

22,099

$ 155,024

55,743

16,142

(509)

3,755

2,909

(8)

798

12,633

(631)

4,295

$ 191,439

25,798

$ 171,321

9,120

$ 732,502

—

$ 404,917

35,441

(4,384)

9,653

$ 445,627

9,120

$ 286,875

3,757

(3,236)

805

57,069

8,258

Net book value January 31, 2014

$ 15,692

$ 159,485

$ 19,778

$ 74,542

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

The Company reviewed its property and equipment for indicators of impairment. No assets were identified as impaired.

Interest capitalized
Interest attributable to the construction of qualifying assets was capitalized using an average rate of 3.68% and 3.49% for the years ended January 31,
2014 and 2013 respectively. Interest capitalized included in additions amounted to $192 (January 31, 2013 - $506). Accumulated interest capitalized
included in the cost total above amounted to $889 (January 31, 2013 - $697).

41NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. GOODWILL & INTANGIBLE ASSETS

Goodwill

January 31, 2014

January 31, 2013

Balance, beginning of year

26,162

26,319

Additions

Effect of movements in foreign
exchange

291

2,971

—

(157)

Balance, end of year

29,424

26,162

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. The recoverable amount is the greater of its value in
use or its fair vale less costs of disposal. To calculate the operating
segment's value in use, 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 10.6% (January 31, 2013 - 10.9%),
which equates to a pre-tax rate of approximately 14.0% (January 31,
2013 - 14.5%). 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, 2014

Cost

Balance, beginning of year

Additions

Write off of fully amortized assets

Effect of movements in foreign exchange

Total January 31, 2014

Accumulated Amortization

Balance, beginning of year

Amortization expense

Write off of fully amortized assets

Effect of movements in foreign exchange

Total January 31, 2014

Net book value January 31, 2014

January 31, 2013

Cost

Balance, beginning of year

Additions

Write off of fully amortized assets

Effect of movements in foreign exchange

Total January 31, 2013

Accumulated Amortization

Balance, 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

Software

Cost-U-Less banner

Other

Total

24,552

6,985

2,211

(1,545)

—

25,218

13,926

1,891

(1,545)

—

14,272

$ 10,946

—

798

7,783

—

7,783

6,450

1,109

—

428

7,987

3,925

944

—

333

5,202

2,785

37,987

3,320

(1,545)

1,226

40,988

17,851

2,835

(1,545)

333

19,474

$ 21,514

Software

Cost-U-Less banner

Other

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

42THE NORTH WEST COMPANY INC.Work in process
As at January 31, 2014 the Company had incurred $284 (January 31,
2013 - $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.

INCOME TAXES

The following are the major components of 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, 2014

January 31, 2013

Net earnings before income
taxes

Combined statutory income
tax rate

Expected income tax
expense

$ 92,276

$ 89,589

28.4%

28.2%

$ 26,206

$ 25,264

Increase (decrease) in income taxes resulting from:

Non-deductible expenses/
non-taxable income

Unrecognized income tax
losses

Withholding taxes

Impact of change in tax rates

Over provision in prior years

Other

(115)

(183)

1,674

(9)

241

(53)

638

207

(48)

(201)

Provision for income taxes

$ 28,013

$ 25,701

Year Ended

January 31, 2014

January 31, 2013

Income tax rate

30.4%

28.7%

Current tax expense:

Current tax on earnings for
the year

Withholding taxes

Under provision in
prior years

Deferred tax expense:

Origination and reversal of
temporary differences

Impact of change in tax rates

Under (over) provision in prior
years

$ 35,493

$ 30,199

223

207

740

$ 35,785

$ 31,146

$ (7,781)

$ (4,456)

(9)

(48)

(941)

(7,772)

(5,445)

Income taxes

$ 28,013

$ 25,701

Deferred tax assets of $2,800 arising from certain foreign income tax
losses were not recognized on the consolidated balance sheet. The
income tax losses expire from 2022 - 2024.

Deferred income tax charged (credited) to other comprehensive
income during the year is as follows:

Year Ended

January 31, 2014

January 31, 2013

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

Investments:

Origination and reversal of
temporary difference

$ (1,057)

$ (1,056)

$ 2,854

(498)

(5)

2,849

(27)

(525)

(47)

$ 1,746

—

(463)

43NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIncome tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:

January 31, 2014

February 1, 2013

Taxes (charged)
credited to net
earnings

Taxes (charged)
credited to OCI

Foreign exchange
differences recognized
in OCI

January 31, 2014

Deferred tax assets:

Goodwill & intangible assets

418

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

10,429

1,614

3,371

7,607

4,174

1,721

29,334

(1,241)

(1,149)

(15,870)

(196)

$ (18,456)

10,878

1,700

154

183

(222)

—

(2,849)

—

1,994

(2,849)

—

5,731

5,778

7,772

1,056

—

1,103

(1,746)

(32)

118

—

338

100

681

—

456

12,225

1,886

3,463

4,941

4,590

1,599

$ 29,160

(185)

(1,100)

(10,139)

(151)

$ (11,575)

681

$ 17,585

Recorded on the consolidated balance sheet as follows:

Year Ended

Deferred tax assets

Deferred tax liabilities

January 31, 2014

January 31, 2013

$ 19,597

(2,012)

12,904

(2,026)

$ 17,585

10,878

44THE NORTH WEST COMPANY INC.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

(284)

430

821

5,045

—

(63)

390

400

5,445

—

525

—

525

(62)

—

(62)

463

(6)

—

(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

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 investments 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 $60,000 at January 31, 2014 (January 31, 2013 –
$53,000).

10. OTHER ASSETS

Investment in jointly controlled entity (Note 23)

Long-term receivable (Note 5)

Other

January 31, 2014

January 31, 2013

8,223

2,517

3,291

8,590

2,626

3,053

$ 14,031

14,269

45NOTES TO CONSOLIDATED FINANCIAL STATEMENTS11. 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, 2014 and January 31, 2013. The accrued pension benefits
and the market value of the plans’ net assets were last determined by
actuarial valuation as at January 1, 2014. The next actuarial valuation
is required as at January 1, 2017. 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, 2014, the Company
contributed $3,829 to its defined benefit pension plans (January 31,
2013 - $5,583). During the year ended January 31, 2014, the Company
contributed $2,310 to
its defined contribution pension plans
(January 31, 2013 - $2,001). The current best estimate of the Company's
funding obligation for the defined benefit pension plans for the year
commencing February 1, 2014 is $3,288 of which approximately $1,500
may be settled by the issuance of a letter of credit in accordance with
pension legislation. 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.

Current:

Notes payable

Finance lease liabilities

Revolving loan facilities(2)

Senior notes(4)

Non-current

Revolving loan facilities (1)

Revolving loan facilities (2)

Revolving loan facilities (3)

Senior notes (4)

Notes payable

Finance lease liabilities

January 31, 2014

January 31, 2013

148

—

77,576

199

250

39,968

—

77,800

40,417

1,302

40,028

63,607

—

718

—

52,499

69,461

189

$ 105,062

$ 122,937

Total

$ 182,862

$ 163,354

(1) This 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, 2014, the International Operations had
drawn US$1,171 (January 31, 2013 – US$719) on this facility.

(2) On December 9, 2013, the Company completed the refinancing
of the US$52,000 loan facilities in the International Operations. The
new, committed, revolving loan facilities mature December 31, 2018
and bear interest at LIBOR plus a spread. The loan facilities are secured
by a floating charge against the assets of the Company and rank pari
passu with the US$70,000 senior notes and the $200,000 Canadian
Operations loan facilities. At January 31, 2014, the Company had drawn
US$36,000 (January 31, 2013 – US$40,000) on these facilities.

(3) On December 9, 2013, the Company completed the refinancing
of the $170,000 loan facilities in the Canadian Operations. The new,
increased, committed, revolving loan facilities provide the Company
with up to $200,000 for working capital requirements and general
business purposes. The new facilities mature December 31, 2018 and
are 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.

(4) 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 $200,000 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, 2013 – US$28,000). The
interest rate swaps mature June 15, 2014.

46THE NORTH WEST COMPANY INC.Movement in plan assets and defined benefit obligation
Information on the Company’s defined benefit plans, in aggregate, is
as follows:

The average life expectancy in years of a member who reaches normal
retirement age of 65 is as follows:

January 31, 2014

January 31, 2013

January 31, 2014

January 31, 2013

Plan assets:

Average life expectancies at age 65 for current pensioners:

Fair value, beginning of year

65,139

57,893

Accrued interest on assets

Benefits paid

Plan administration costs

Employer contributions

Employee contributions

Return on assets greater than
discount rate

2,771

(3,726)

(530)

3,829

7,911

2,630

(4,441)

(550)

5,583

4,012

Fair value, end of year

75,427

65,139

Plan obligations:

Defined benefit obligation,
beginning of year

Current service costs

Employee contributions

Interest on plan liabilities

Benefits paid

Actuarial remeasurement due to:

Plan experience

Financial assumptions

Mortality assumptions

Defined benefit obligation, end of
year

Plan deficit

$ (93,570)

(85,509)

(2,812)

(33)

(3,897)

3,726

563

4,011

(1,832)

(2,870)

(12)

(3,748)

4,441

(2,567)

(3,305)

—

$ (93,844)

$ (18,417)

(93,570)

(28,431)

Male

Female

20.5

22.8

19.8

22.1

Average life expectancies at age 65 for current members aged 45:

Male

Female

20.7

22.6

19.9

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 92% of the 1994 United
Pensioners Mortality Table with projections using scale AA.

Sensitivity of key assumption
The following table outlines the sensitivity of a 1% change in the
discount rate used to measure the defined benefit plan obligation 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 assumption table is
hypothetical and should be used with caution. The sensitivities have
been calculated independently of any changes in other 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 obligation

Benefit plan cost

The defined benefit obligation exceeds the fair value of plan assets as
noted in the table. The decrease in the plan deficit is primarily due to
an increase in plan assets attributed to asset returns. An increase in the
discount rate used to measure plan liabilities was also a factor.

Defined benefit obligation
The following significant actuarial assumptions were employed to
measure the plan:

Discount rate: 4.5%

Impact of:

1% increase

1% decrease

$ (14,151)

18,267

$ (1,015)

1,065

Plan assets
The major categories of plan assets as a percentage of total plan assets
are listed below. The pension plans have no direct investment in the
shares of the Company.

January 31, 2014

January 31, 2013

January 31, 2014

January 31, 2013

Discount rate on plan liabilities

Rate of compensation increase

Discount rate on plan expense

Inflation assumption

4.50%

4.00%

4.25%

2.00%

4.25%

4.00%

4.50%

2.00%

Plan assets:

Equity securities

Debt securities

Other

Total

The assumptions used are the best estimates chosen from a range of
possible actuarial assumptions, which may not necessarily be borne
out in practice.

62%

38%

—

100%

62%

33%

100%

47NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Governance and plan management
The Company's Pension Committees oversee the pension plans. These
committees are responsible for assisting the Board of Directors to fulfill
its governance responsibilities for the plans. The committees assist with
plan administration, regulatory compliance, pension investment and
monitoring responsibilities.

Plan assets are subject to the risk that changes in market prices,
such as interest rates, foreign exchange and equity prices will affect
their value. A Statement of Investment Policy and Procedures ("SIPP")
guides the investing activity of the defined benefit pension plans to
mitigate market risk. Assets are expected to achieve, over moving three
to four-year periods, a return at least equal to a composite benchmark
made up of passive investments in appropriate market indices. These
indices are consistent with the policy allocation in the SIPP.

Periodically, an Asset-Liability Modeling study is done to update
the policy allocation between liability hedging assets and return
seeking assets. This is consistent with managing both the funded status
of the defined benefit pension plans and the Company's long-term
costs. It assists with adequately securing benefits and mitigating year-
to-year fluctuations in the Company's cash contributions and pension
expense. The defined benefit plans are subject to, and actively manage,
the following specific market risks:

Interest rate risk: is managed by allocating a portion of plan investments
to liability hedging assets, comprised of a passive universe bond fund.

Currency risk: is managed through asset allocation. A significant portion
of plan assets are denominated in the same currency as plan
obligations.

Equity price risk: The defined benefit pension plans are directly exposed
to equity price risk on return seeking assets. Fair value or future cash
flows will fluctuate due to changes in market prices because they may
not be offset by changes in obligations. Investment management of
plan assets is outsourced to independent managers.

Statement of earnings and comprehensive income
The following pension expenses have been charged to the
consolidated statement of earnings:

January 31, 2014

January 31, 2013

Employee costs (Note 17)

Defined benefit pension plan,
current service costs included
in post-employment benefits

Plan administration costs

Defined contribution pension
plan

Savings plan for U.S. employees

Interest expense (Note 18)

Accrued interest on assets

Interest on plan liabilities

2,812

2,870

530

2,310

434

550

2,001

411

6,086

5,832

$ (2,771)

$ (2,630)

3,897

3,748

1,126

1,118

The following amounts have been included in Other Comprehensive
Income:

January 31, 2014

January 31, 2013

Current Year:

Return on assets greater than
discount rate

Actuarial remeasurement due to:

Plan experience

Financial assumptions

Mortality assumptions

Taxes on actuarial remeasurement
in OCI

Net actuarial remeasurement
recognized in OCI

7,911

4,012

563

4,011

(1,832)

(2,849)

(2,567)

(3,305)

—

525

7,804

(1,335)

Cumulative gains/losses recognized in OCI:

Cumulative gross actuarial
remeasurement in OCI

Taxes on cumulative actuarial
remeasurement in OCI

Total actuarial remeasurement
recognized in OCI, net

$ (10,593)

$ (21,246)

750

3,599

$ (9,843)

$ (17,647)

The actual return on the plans assets is summarized as follows:

January 31, 2014

January 31, 2013

Accrued interest on assets

2,771

2,630

Return on assets greater than
discount rate

7,911

4,012

Actual return on plan assets

$ 10,682

6,642

13. SHARE-BASED COMPENSATION

The Company offers the following share-based payment plans:
Restricted Share Units (RSUs); Performance Share Units (PSUs); Share
Options; Director Deferred Share Units (DSUs); 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, 2014 was $8,934 (January 31, 2013 - $8,440).
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, 2014

January 31, 2013

$ 7,688

7,437

6,593

1,959

5,506

1,916

Total

$ 16,240

$ 14,859

48THE NORTH WEST COMPANY INC.

outstanding shares at January 31, 2014. Fair value of the Company's
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, 2014 is $1,934 (January 31,
2013 - $1,288).

The fair values for options issued during the year were calculated based
on the following assumptions:

2013

2012

Fair value of options granted

$ 3.28 to 4.46

$ 3.35 to 4.62

Exercise price

Dividend yield

$ 23.21

4.4%

$ 21.86

4.7%

Annual risk-free interest rate

1.3% to 1.4%

1.6% to 1.7%

Expected share price volatility

26.0%

28.0%

The assumptions used to measure options at the balance sheet dates
were as follows:

Dividend yield

2013

4.4%

2012

4.5%

Annual risk-free interest rate

1.0% to 1.6%

1.3% to 1.5%

Expected share price volatility

19.2% to 22.2%

20.9% to 25.8%

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.

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. This plan was discontinued in July 2011. The
RSU account for each participant includes the value of dividends from
the Company as if reinvested in additional RSUs. 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 PSUs. 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 RSUs and PSUs for the year

ended January 31, 2014 are $5,267 (January 31, 2013 - $5,527).

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

49NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe 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

2013

2012

2013

2012

580,015

316,679

—

315,812

328,677

—

(64,474)

556,932

67,580

(98,132)

—

548,486

63,177

(26,430)

(28,301)

896,694

580,015

526,380

556,932

—

132,301

59,165

Weighted-average exercise price

Declining Strike Price Options

Standard Options

Outstanding options, beginning of year

21.12

20.34

18.07

17.45

2013

2012

2013

2012

Granted

Exercised

Forfeited or cancelled

Outstanding options, end of year

Exercisable at end of year

Summary of options outstanding by grant year

23.21

—

21.86

—

21.86

—

21.11

21.12

—

23.21

16.09

—

19.10

17.11

21.86

15.25

17.31

18.07

15.25

Outstanding

Exercisable

Range of
exercise price

Number
outstanding

Weighted-average
remaining
contractual years

Weighted-average
exercise price

Options
exercisable

Weighted-average
exercise price

15.25-17.18

17.19-19.74

19.94-21.24

21.25-22.53

22.54-23.21

140,437

199,000

340,296

359,082

384,259

5.4

6.2

4.5

5.2

6.2

15.25

19.13

20.40

21.86

23.21

68,900

63,401

NIL

15.25

19.13

N/A

Grant
year

2009

2010

2011

2012

2013

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
DSUs 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 DSUs, 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 DSUs.

Compensation expense is measured based on the fair market
value at each reporting date. The DSU plan compensation recorded
for the year ended January 31, 2014 is an expense of $1,031 (January 31,
2013 –$969). The total number of deferred share units outstanding at
January 31, 2014 is 145,806 (January 31, 2013 – 136,685). There were
20,629 DSUs exercised during the year ended January 31, 2014
(January 31, 2013 – 4,698). These DSUs were settled in cash.

50THE NORTH WEST COMPANY INC.

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, 2014 is
$702 (January 31, 2013 – $656).

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, 2014, the Company had undrawn committed revolving loan facilities available of $172,463 (January 31, 2013 - $144,122)
which mature in 2015 and 2018 (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.

2014

2015

2016

2017

2018

2019+

Total

Accounts payable and accrued liabilities

128,999

Interest rate swap payable(1)

Current portion of long-term debt (Note 11)

Long-term debt (Note 11)

Operating leases (Note 21)

Total

457

79,893

2,042

25,264

236,655

—

3,275

21,233

24,508

—

1,952

18,444

20,396

—

1,952

15,999

17,951

—

105,424

13,180

118,604

—

56,148

$ 128,999

457

79,893

114,645

150,268

$ 474,262

(1) Based on variable pay interest. This will be partially offset by a fixed interest receipt.

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 net of impairment allowances is $73,044 (January
31, 2013 - $72,666). The Company does not have any individual
customers greater than 10% of total accounts receivable. At January 31,
2014, the Company’s gross maximum credit risk exposure is $84,468
(January 31, 2013 - $86,708). Of this amount, $13,706 (January 31, 2013
- $17,850) is more than 60 days past due.

The Company has recorded an allowance against its maximum exposure
to credit risk of $11,424 (January 31, 2013 - $14,042) which is based on
historical payment records for similar financial assets.

As at January 31, 2014 and 2013, 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.
Short-term imbalances in foreign currency holdings are rectified
by buying or selling at spot rates when necessary.

51NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

(b)

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 $1,332.
A 100 basis point decrease would cause net income to increase by
approximately $1,332.

(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, 2014

Cash

Accounts receivable

Other financial assets

Accounts payable and accrued liabilities

Financial derivative instruments(1)

Current portion of long-term debt(1)

Long-term debt

Assets (Liabilities) carried at
amortized cost

Assets (Liabilities)
carried at fair value

Maturity Carrying amount

Fair value

Carrying amount

Short-term

Long-term

Short-term

Long-term

Short-term

Long-term

22,353

70,527

3,761

70,527

3,761

(128,999)

—

(78,102)

(105,062)

—

(77,994)

(105,062)

—

302

—

(1) These items total $77,800 which comprise the carrying amount of debt presented as current (Note 11).

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

Long-term

Short-term

Long-term

Short-term

Long-term

38,675

70,040

3,664

70,040

3,664

(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).

The methods and assumptions used in estimating the fair value of the
Company’s financial instruments are as follows:

•

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.

financial

•

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.

52THE NORTH WEST COMPANY INC.The portion of 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, 2013 – 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, 2014

Notional value

Interest rate

Fair value

Interest rate swaps in
effective fair value
hedging relationship

US$28,000

(2012 - US$28,000)

LIBOR plus
3.67%

302

(2012 - $945)

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, 2014, the debt-to-equity ratio
was 0.57 compared to 0.55 last year. The debt-to-equity ratio is
within the Company’s objectives. The debt-to-equity ratio is
calculated as follows:

(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, 2014 and 2013, 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, 2014.

15. SHARE CAPITAL

Authorized – The Company has an unlimited number of shares.

Balance at January 31, 2013

48,388,721

Issued under option plans (Note 13)

37,066

$ 165,358

711

Consideration

Balance at January 31, 2014

48,425,787

$ 166,069

16. EXPENSES BY NATURE

Year Ended

January 31, 2014

January 31, 2013

Employee costs (Note 17)

$ 222,952

220,620

Amortization

Operating lease rentals

Foreign exchange (gain) / loss

38,276

25,251

(14)

37,149

24,304

106

17. EMPLOYEE COSTS

January 31, 2014

January 31, 2013

Year Ended

January 31, 2014

January 31, 2013

Current portion of
long-term debt

Long-term debt

Total debt

Total equity

Debt-to-equity ratio

77,800

105,062

182,862

322,440

0.57

40,417

122,937

163,354

296,250

0.55

Wages, salaries and benefits
including bonus

Post-employment benefits (Note 12)

Share-based compensation
(Note 13)

$ 207,932

$ 206,348

6,086

8,934

5,832

8,440

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

3,308

4,238

978

5,245

646

5,234

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.

53NOTES TO CONSOLIDATED FINANCIAL STATEMENTS18. INTEREST EXPENSE

19. DIVIDENDS

Year Ended

January 31, 2014

January 31, 2013

Interest on long-term debt

$ 7,181

$ 6,637

Fair value movement of derivative
financial instruments in
effective fair value hedging
relationships

Net interest on defined benefit
plan obligation
Interest income

Less: interest capitalized

(3)

1,126

(328)

(192)

1,118

(296)

(506)

Interest expense

$ 7,784

$ 6,979

The following is a summary of the dividends recorded in retained
earnings and paid in cash:

Year Ended

January 31, 2014

January 31, 2013

Dividends recorded in retained
earnings and paid in cash

$ 54,229

$ 50,320

Dividends per share

1.12

1.04

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.
On March 12, 2014, the Board of Directors declared a dividend of
$0.29 per common share to be paid on April 15, 2014 to shareholders
of record as of the close of business on March 31, 2014.

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, 2014

January 31, 2013

Net earnings for the year (numerator for diluted earnings per share)

64,263

63,888

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

48,413

244

48,657

48,384

195

48,579

1.33

1.32

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, 2014

January 31, 2013

Due within 1 year

Within 2 to 5 years inclusive

After 5 years

Land and buildings

Other leases

Land and buildings

Other leases

$ 24,514

68,082

56,148

750

774

—

22,739

62,755

48,732

751

910

—

54THE NORTH WEST COMPANY INC.
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. As at January 31, 2014,
the Company has opened 31 Giant Tiger stores.

As a result of store closures during the year ended January 31,
2013, 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
open new 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.

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

United States

Netherlands

100%

100% (less one unit)

100%

99%

The investment in jointly controlled entities comprises a 50% interest in a Canadian Arctic shipping company, Transport Nanuk Inc. At January 31,
2014, the Company’s share of the net assets of its jointly controlled entity amount to $7,985 (January 31, 2013 - $7,970), comprised assets of $9,096
(January 31, 2013 - $9,355) and liabilities of $1,111 (January 31, 2013 - $1,385). During the year ended January 31, 2014 the Company purchased
freight handling and shipping services from Transport Nanuk Inc. and its subsidiaries of $6,783 (January 31, 2013 - $6,517). 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

2013

April 30, 2013

July 31, 2013

October 31, 2013

January 31, 2014

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

Share
Price High

Share
Price Low

Share
Price Close

Volume

$29.00

$22.34

$25.42

12,731,441

25.50

26.45

26.81

29.00

22.35

22.82

22.34

24.87

25.42

23.84

25.93

25.42

3,455,748

3,715,206

3,189,197

2,371,290

EPS1

$1.32

0.27

0.37

0.36

0.32

$23.88

$19.34

$23.14

13,539,464

$1.32

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

0.27

0.37

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

1 Net earnings per share are on a diluted basis. Certain prior year figures have been restated as

required by IAS 19r - See Note 3 to the Consolidated Financial Statements.

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 31, 2014
Payment Date: April 15, 2014

Record Date: June 30, 2014
Payment Date: July 15, 2014

Record Date: September 30, 2014
Payment Date: October 15, 2014

Record Date: December 31, 2014
Payment Date: January 15, 2015

*Dividends are subject to approval by the
Board of Directors

2014 Annual General Meeting
The Annual General Meeting of Shareholders
of The North West Company Inc. will be held
on Wednesday, June 11, 2014 at 11:30 am
in the Muriel Richardson Auditorium,
Winnipeg Art Gallery,
300 Memorial Boulevard,
Winnipeg, Manitoba

Transfer Agent and Registrar
CST Trust Company
2001 University Street
Suite 1600
Montreal, QC
Toll-free: 1 800 387 0825
www.canstockta.com

Stock Exchange Listing
The Toronto Stock Exchange

Stock Symbol NWC
ISIN #: CA6632781093
CUSIP #: 663278109

Number of shares issued and outstanding at
January 31, 2014: 48,425,787

Auditors
PricewaterhouseCoopers LLP

Compound Annual Growth (%)

56THE NORTH WEST COMPANY INC.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
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

Executives
International Operations*

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

Craig A. Foster
Vice President,
Human Resources

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

Thomas M. Kallio
Vice-President & General Manager,
Cost-U-Less

Scott A. McKay
Vice-President,
General Merchandise
Procurement & Marketing

Walter E. Pickett
Vice-President & General Manager,
Alaska Commercial Company

James W. Walker
Vice-President & General Manager,
Wholesale Operations

*as at April 9, 2014

Directors*

H. Sanford Riley
Chairman

Edward S. Kennedy

Frank J. Coleman 1, 2

Wendy F. Evans 2, 3

Robert J. Kennedy 1, 3

Violet (Vi) A. M. Konkle 2, 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 REPORTNor'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