A Time to Invest
THE NORTH WEST COMPANY INC. 2014
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)
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (3)
Earnings from operations (3) (EBIT)
Net earnings
Cash flow from operating activities (4)
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
EBITDA (3)
Net earnings
Cash flow from operating activities (4)
Market price: January 31
high
low
Year Ended
January 31, 2015
Year Ended
January 31, 2014
Year Ended
January 31, 2013(1)
$
$
1,624,400
2.4%
137,838
97,466
62,883
116,038
$
$
1,543,125
1.8%
138,336
100,060
64,263
80,036
$
$
$
724,299
$
670,512
$
201,396
329,283
182,862
322,440
.61:1
18.4%
19.3%
78.2%
18.3%
3.5%
2.83
1.29
2.38
26.56
26.74
21.93
$
.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) Certain 2012 figures have been restated as required by the implementation of IAS 19r Employee Benefits. 2011 and previous years have not been restated for
these accounting standard changes. See the 2013 annual audited consolidated financial statements or annual report for further information.
(2) Same store sales, excluding the foreign exchange impact.
(3) See Non-GAAP Financial Measures section.
(4) 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 15.
(5) 2011 to 2014 are reported in accordance with International Financial Reporting Standards (IFRS). 2010 has been restated to IFRS.
(6) Effective January 1, 2011, North West Company Fund converted to a share corporation called The North West Company Inc. The comparative information for
2010 refers to the units of the Fund. The decrease in dividends in 2011 compared to distributions from the Fund in 2010 is due to the conversion to a share
corporation. See Conversion To A Share Corporation and Consolidated Liquidity and Capital Resources sections for further information.
THE NORTH WEST COMPANY INC. 2014
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 and Fiscal Year
Consolidated Results Financial Performance
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 2014
Future Accounting Standards
Non-GAAP Financial Measures
Glossary of Terms
Eleven-Year Financial Summary
Consolidated Financial Statements
Management’s Responsibility for Financial Statements
Independent Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Shareholder Information
Corporate Governance
2
3
4
5
6
7
8
9
11
13
15
19
20
20
21
21
24
26
26
27
28
29
31
31
32
33
33
34
35
36
58
59
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 2014
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,
2015 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 this accounting standard is provided in
the Accounting Standards Implemented in 2013 section of the 2013
Annual 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, 2015 and
the information contained in this MD&A is current to April 9, 2015,
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, capital expenditures, 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 does not intend 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.
focus. Serving our stores needed the most improvement and is the
first priority in 2015, using a powerful store help and tracking system
we call “Store Connect”.
Over the past two planning cycles we’ve shifted from top line
growth to middle line cost and margin management. We put in
place sound processes and we developed better insight into what
expense and investment factors drive performance the most.
Now, North West is adapting again, with an emphasis on
customer relevance and market share. I’ve said in the past that we
have a never-ending series of sales opportunities. This time around
we have more experience on what to pursue profitably. We also
have the recent success of our market focus in Barbados and Bethel.
Most attractive to us is that we see remote and rural retailing
changing in a way that favours relationships and, products and
services that we can uniquely deliver through our store, logistics and
information networks.
At the heart of this work will continue to be the people of
North West and the sense of contribution that we can help our
customers and communities live better.
Edward S. Kennedy
President & CEO
April 9, 2015
2014 President & CEO Message
2014 was highlighted by exceptional performance from our
international store banners and solid preparation for accelerated
investment within our northern Canada business.
International EBITDA was up 26.9% with contributions from
both Alaska Commercial Company ("AC") and Cost-U-Less ("CUL"). In
Alaska we benefited from a rebound in the U.S. economy and we
made the most of our selling opportunities. Careful attention to
planning and then getting sales during the Permanent Fund
Dividend season was a prime example of this. As sales gained
momentum at AC, expense management was maintained and
helped to deliver even stronger bottom line improvement.
The key task at CUL last year was to fine tune the fundamentals
of our strategy within the Caribbean. In 2013, we stretched
ourselves with the opening of Barbados and it revealed weaknesses
in our regional sourcing ability and store operations. The work to
address this started 18 months ago and set the stage for last year’s
results. Like Alaska, we had the advantage of an economy that has
bottomed out and is moving into a recovery phase. The entire team,
from our international division to our Canadian support services,
deserves credit for intense conviction on doing the right work,
together with the pride to do it well.
The focus at CUL and AC was best demonstrated in two “Top
40” market investments: Bethel, Alaska and Barbados. In these
locations we applied our Top 40 mantra of "treating each market as if
it was the only one we did business in”. From customer insight up to
our executive team perspectives and back down again, this
approach paid dividends in the quality of our decisions and the
accountability for results.
Approximately 75% of our Top 40 markets are located in
northern Canada. From the mid-point of 2014, our work shifted to
bringing the learnings from Bethel and Barbados to this very
important business region. Market assessments have been finalized
and we expect to complete investments in 12 stores in northern
Canada under the Top 40 Markets initiative in 2015. In each location
we've uncovered opportunities to sustain and grow our business by
being an even more relevant every day needs provider with more
resiliencies from macroeconomic and competitive factors.
Closely aligned with our Top 40 work is the development of our
Top Categories. The principle is similar. Within our broad range of
product and service offerings, there are high potential categories
that deserve more attention and investment. There are also
categories that need to be downsized to free up store space and
management time. During 2014 most of our effort was spent on
getting ready for Top Category growth. We identified 30% of our
general merchandise business as being too discretionary, too trend
dependent or too vulnerable to being shopped for outside of our
market. This was good news because we have an even longer list of
“replacement” Top Categories ready to step up in 2015.
The transition we are making in our Top 40 markets and Top
Category businesses is a big one. We know the risks and the short-
term cost that we incurred last year, primarily in our Canadian
operations. Difficult decisions were made on the home office skills
and roles needed to support our new work. Expensive inventory
write-downs were taken to walk away from low profit businesses.
These were the right decisions and we are taking the right amount
of care to ensure that the change to the business is well-managed.
A key to our Top 40 and Top Category success will be the
degree to which we are a community, customer and store-driven
organization. Last year we conducted a cross-company survey to
check perceptions on these aspects. The results were positively off
the scale on community-mindedness and pretty good on customer
3ANNUAL REPORT
At times, because of our unique position, we end up in the
crossfire on issues that are far more complex than simply providing
great products and services at reasonable prices. The continuing
debate over the Nutrition North program in northern Canada is a good
example of this. North West has worked with full effort and good faith
to make this program as effective as it can be in providing more
nutritious foods to northern shoppers at better prices. However, the
issues driving up costs in the north are much more complicated than
can be addressed in any food subsidy program and yet that program,
which we think is very effective given its financial limitations, has
become the proxy for quite legitimate community concern over the
cost of living in the north.
Management continues to work to find better ways to provide a
fuller range of products and services to all of the markets we serve, at
the best possible local price. It is a related priority to ensure that we
continue to find constructive and effective methods to enhance our
relationships within all communities in order to help them achieve their
ambitions for social and economic development.
As a Board, we remain very optimistic about North West's future
and we are most appreciative of the continuing efforts of our
management and employees, across all banners, to deliver the best to
our customers and superior returns to our shareholders.
H. Sanford Riley
Chairman, Board of Directors
April 9, 2015
2014 Chairman's Message
As Chairman of the Board, I am pleased to report to you on the Board's
perspective of the current state of the Company's affairs.
2014 was a year marked by board renewal and regeneration. Over
the past several years, we have witnessed significant changes in our
Board as a number of long standing Directors have retired and a
number of talented new Directors have been added.
This year we were sorry to lose Annette Verschuren, who retired
from the Board in November 2014. Annette brought deep retail
experience to the Board and made a significant contribution to our
Company during her years of service.
At the same time, we were delighted to welcome Annalisa King
and Stewart Glendinning to our Board. Both bring deep business and
consumer products knowledge and experience to our deliberations
and we are already seeing the benefit of their contributions.
I believe that we have a diverse Board with wide-ranging
expertise, solid knowledge of our industry and the markets in which
we operate, and a sincere commitment to ensuring that the
governance practices at The North West Company are of the highest
quality.
At last year's annual general meeting ("AGM"), we received a
number of proposals from a single shareholder which were defeated
at the meeting. As a Board, we found this experience to be constructive,
because it reinforced the fundamental obligation to represent, and
listen to the concerns of all shareholders. The North West Company is
fortunate to have many long-standing shareholders whom we heard
from during the lead up to last year's AGM. We appreciate their support
for our work and results but we also recognize that we cannot take that
continuing support for granted.
Amongst the shareholder proposals raised at the AGM was a
concern about the contribution from our Cost-U-Less operations. We
have always believed that our international businesses, including Cost-
U-Less, meet the test of leveraging our unique remote market skills and
scale. While this year was challenging for our northern Canadian
markets we achieved strong performance within our international
segment, led by an improvement at Cost-U-Less. These results helped
to soften the impact of more challenging conditions in Canada and
reinforced our conviction that our current geographic reach and
portfolio of store banners is of continuing benefit to North West.
We also understand that the engine of our Company's continued
growth is our northern Canadian market. To this end, we have
embarked upon an ambitious store investment program that is heavily
weighted to northern Canada and that takes advantage of our physical
footprint to better serve the changing requirements of our customers.
Stores will be reconfigured to emphasize more of today's local everyday
shopping needs and we are refocusing our efforts on manager and
employee training - all through our Top 40 Markets and Top Categories
initiatives.
The North West Company plays an important role in all of the
communities where we do business, but particularly in the north. We
and our predecessor companies have been doing business in this area
for, in some cases, nearly 350 years.
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 neighbourhoods in the following regions:
northern Canada, western Canada, rural Alaska, the South Pacific 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 and many of our stores in northern Canada and Alaska
have been in operation for over 200 years. Today these northern stores
serve communities with populations ranging from 300 to 9,000. A
typical store is 7,500 square feet in size and offers food, family apparel,
housewares, appliances, outdoor products and services such as fuel,
post offices, pharmacies, income tax return preparation, quick-service
prepared food, commercial business sales, prepaid card products,
ATMs, cheque cashing and propriety credit programs.
Growth at North West has come from market share expansion
within existing locations and from applying our expertise and
infrastructure to new markets and complementary businesses. The
latter includes wholesaling to independent stores, opening Giant Tiger
junior discount
rural communities and urban
neighbourhoods in western Canada, and acquiring Cost-U-Less, Inc., a
chain of mid-sized warehouse format stores serving the South Pacific
islands and the Caribbean.
stores
in
A key strength and ongoing strategy of North West is to adapt to
unique local lifestyles and cultures, and capture selling opportunities
better than our competition. 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 sustain this leading market
position. We believe that continued, efficient enhancement of our
execution skills in general, and our logistics and selling skills specifically,
are essential components in to meeting customer needs within each
market we serve.
North West delivers its products and services through the
following retail banners and wholesale businesses, in two reporting
segments:
Canadian Operations
•
•
•
•
•
•
•
•
•
•
•
121 Northern stores, offering a combination of food, financial
services and general merchandise to remote northern Canadian
communities;
6 NorthMart stores, targeted at larger northern markets with an
emphasis on an expanded selection of fresh foods, fashion and
health products and services;
12 Quickstop convenience stores, offering extended hours,
ready-to-eat foods, fuel and related services in northern Canadian
markets;
32 Giant Tiger ("GT") junior discount stores, offering family
fashion, household products and food to urban neighbourhoods
and larger rural centers in western Canada;
2 Valu Lots discount centers and direct-to-customer food
distribution outlet for remote communities in Canada;
1 Solo Market store, targeted at less remote, rural markets;
1 Price Chopper store, a discount food store offering a selection
of fresh food and grocery;
1 Tim Hortons franchise restaurant located in a northern market;
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
•
•
•
•
•
27 AC Value Centers stores similar to Northern and NorthMart,
offering a combination of food and general merchandise to
communities across remote and rural regions of Alaska;
6 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 help people live better in these communities
by doing our job well, with their interests as our first priority. 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 respond by being more innovative, reliable,
convenient, locally adaptable, welcoming and by having the lowest
local price, enabled by lean, innovative processes. For our associates,
we want to be a preferred, fulfilling place to work. For our investors, we
want to deliver superior, top-quartile total returns over the long term.
5ANNUAL REPORT
PRINCIPLES
The way we work at North West is shaped by six core principles:
Customer Driven, Enterprising, Passion, Accountability, Trust, and
Personal Balance.
Customer Driven 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 as required at the senior
management and board levels. Over the previous LRP cycle, the
Company's focus 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 leading into 2014 identified that
further gains in operating standards and efficiency were still attractive
paths for North West. Even more important was our physical store
network, local selling capability and community relations. Finally, we
identified the logistics and data links to our stores as secondary, but
still important competencies that could be further leveraged.
In 2014, the Company defined its current strategic priorities aimed
at solidifying and growing market share within top markets and
product and service categories. Our key priorities reflect these findings
and are summarized below together with the results for 2014:
Initiative #1
Top 40 Markets
Invest in our largest, highest potential markets to drive above average
sales and profit growth through larger, updated store facilities with
more room for growth categories, supported by highly capable store
teams and strong community relations.
Result
The Top 40 Markets were identified in 2014 and a three to four year
investment plan was created. Market strategies with specific capital,
product and people plans have been finalized for 12 communities in
northern Canada. Due to the remoteness of store locations, the
construction completion dates for most of these projects will be in the
second half of 2015 or early 2016. Performance measures will include
time, quality and cost to complete compared to the approved plan as
well as actual store results against budget.
Initiative #2
Top Categories
Capture market share by focusing on existing and new product and
service categories which offer the highest everyday convenience and
service value to our customers and which can be delivered in a superior
way by North West.
Result
Work in 2014 focused on identifying general merchandise product
categories in our northern Canada markets that needed to be
downsized to free up space and capital for Top Categories. In total,
approximately 30% of existing general merchandise inventory was
identified for reduction. The Company incurred $3.8 million in costs
over and above normal markdown activity related to the write-down
and clearance of this inventory. This reduction in general merchandise
inventory and the reallocation of selling space will continue through
2015.
On the Top Category growth side, plans were started and
completed in Food Service and Pharmacy in 2014. Other Top Category
plans, including Produce, Meat, Baby and Children, Large-Pack Size,
Grocery, Automotive, Outdoor Living, Core Basics, Furniture and
Motorized, will be completed in the first half of 2015. These plans will
be incorporated into all Top 40 Market plans and where cost effective,
rolled out to all other applicable stores.
6THE NORTH WEST COMPANY INC.
Initiative #3
Complete the Implementation of a Transportation Management
System
Complete the investment in Transportation Management Systems
("TMS") that will deliver a competitive advantage on the cost, quality
and reliability of moving products to the remote markets we serve.
Result
The TMS project did not deliver the expected benefits in 2014 because
key processes and functions were too difficult to work with or adapt
to, especially by our transportation partners. Modifications are being
made to simplify TMS processes and functionality to enable product
visibility and tracking throughout the logistics network. This in turn will
fully enable payment, load planning and shrink reduction benefits to
be realized.
Initiative #4
Building on our Relationship with Giant Tiger Stores Limited
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.
Result
North West and GTSL have established a stronger, mutually beneficial
working relationship. This renewed relationship facilitated the
conversion of a NorthMart store in La Ronge, Saskatchewan to a Giant
Tiger format. This store featured the first Pharmacy and Financial
Services offering in a Giant Tiger store, leveraging North West's
experience in these areas. North West has plans to open three Giant
Tiger stores in 2015 and will be working with GTSL on testing other
new extensions of the Giant Tiger brand.
Initiative #5
Close Performance Gaps in Cost-U-Less Stores
Improving returns from our Cost-U-Less ("CUL") stores by continuing
to build a highly capable regional buying and store operations
structure in the South Pacific and Caribbean.
Result
CUL's 2014 performance exceeded plan led by the Caribbean region
stores. New regional buying programs were successful in reducing the
cost of goods and aligning with customer preferences. Management
changes were made at the store and regional levels to optimize market
knowledge and increase execution capability. These changes provide
a solid platform to build from in 2015 as this initiative continues under
the Top 40 Markets and Top Categories work.
Initiative #6
Customer Driven and Store Centric
Ensuring that how we work at North West, what we refer to as our
"Management System," is customer driven and store centered.
Result
A new store service process called "Store Connect" was successfully
launched in the fourth quarter of 2014. This process is enabled by a
technology platform which tracks all customer and store issues,
requests and ideas to their final resolution. Employee surveys were also
conducted in 2014 to provide a baseline for measuring customer and
store service levels.
KEY PERFORMANCE DRIVERS AND
CAPABILITIES REQUIRED TO DELIVER RESULTS
The ability to protect and enhance the performance of our "Top
40" Markets: Our Top 40 Markets offer the highest potential for market
share growth, improved productivity and customer satisfaction. We
believe that the effective execution of our Top 40 strategy will deliver
higher returns, even within muted economic conditions, and will
generate solid ideas that can be applied across all stores.
The financial capability to sustain the competitiveness of our
existing store base and to pursue growth: Our sustaining
investment priorities are to replace and renovate Top 40 Market stores
and staff housing while applying higher payback learnings in areas
such as energy-efficiency and technology to all stores. Non-capital
in-store
expenditures are centered on
capabilities through
improved store structures, compensation,
recruiting and training.
improvements to our
The ability to be a leading community store in every market we
serve: This depends on our ability to engage individual customers
and the community at large in highly constructive ways. It starts with
being able to locally 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. Investing in relationships, a broad range of products, services
and store sizes, flexible technology platforms and “best practice” work
processes, are all required to achieve this goal.
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. 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. 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 as part of our Top 40 Markets and Top Categories strategies
recognizes the important role played by our managers and other key
store-level personnel. These positions are instrumental in realizing local
selling opportunities, meeting our customer service commitments and
building and maintaining positive community relationships. It also
recognizes 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 ability
to hire locally and assist local associates to reach their full potential.
7ANNUAL REPORT
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: An ongoing goal within our stores 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 TMS, labour scheduling,
energy usage and inventory shrinkage reduction. We have developed
alliances with other non-competing retailers to provide development
and distribution services for certain products and services where we
do not have adequate scale.
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 2014 year which ended January
31, 2015 and 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 due to February 29th which resulted in the first
quarter of 2012 having 90 days of operations, compared to 89 days of
operations in the first quarters of 2014, 2013 and 2011. The estimated
impact of the extra day has been deducted from 2012 same store sales.
8THE NORTH WEST COMPANY INC. Consolidated Results
2014 Highlights
•
Sales increased to $1.624 billion, our 15th consecutive year of sales
growth.
Quarterly dividends to shareholders increased 3.6% to $0.29 per
share.
Total returns to shareholders were 9.6% for the year and were
14.0% on a compound annual basis over the past five years.
•
•
FINANCIAL PERFORMANCE
Some of the key performance indicators used by management to
assess results are summarized in the following table:
Key Performance Indicators and Selected Annual Information
($ in thousands,
except per share)
Sales
2014
2013
2012(3)
$ 1,624,400
$ 1,543,125
$ 1,513,646
Same store sales % increase(1)
2.4%
1.8%
0.5%
EBITDA(2)
EBIT(2)
Net earnings
$ 137,838
$
$
97,466
62,883
Net earnings per share - basic $
1.30
Net earnings per share -
diluted
Cash dividends per share
Total assets
$
$
1.29
1.16
$ 724,299
Total long-term liabilities
$ 244,787
Return on net assets(2)
Return on average equity(2)
18.4%
19.3%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
138,336
100,060
64,263
1.33
1.32
1.12
670,512
138,334
20.0%
21.0%
133,717
96,568
63,888
1.32
1.32
1.04
651,394
164,960
20.6%
22.1%
(1) All references to same store sales exclude the foreign exchange impact.
(2) See Non-GAAP Financial Measures section.
(3) Certain 2012 figures have been restated as required by the implementation of IAS 19r
Employee Benefits. See the 2013 annual audited consolidated financial statements for
further information.
Consolidated Sales Sales for the year ended January 31, 2015 (“2014”)
increased 5.3% to $1.624 billion compared to $1.543 billion for the year
ended January 31, 2014 (“2013”), and were up 7.3% compared to $1.514
billion for the year ended January 31, 2013 (“2012”). The increase in
sales in 2014 was driven by sales growth in our International Operations
and the positive impact of foreign exchange on the translation of
International Operations sales. Excluding the foreign exchange impact,
sales increased 2.7% from 2013 and were up 3.3% from 2012. On a
same store basis, sales increased 2.4% compared to increases of 1.8%
in 2013 and 0.5% in 2012.
Food sales increased 6.3% from 2013, and were up 3.4% excluding
the foreign exchange impact with both Canadian and International
Operations contributing to the sales gains. Same store food sales
increased 2.8% over last year with quarterly same store increases of
0.7%, 2.1%, 3.7% and 4.9% in the fourth quarter. Canadian food sales
increased 2.8% and International food sales increased 4.5% excluding
the foreign exchange impact due to same store sales growth.
General merchandise sales increased 2.0% compared to 2013 and
were up 0.4% excluding the foreign exchange impact as sales growth
in our International Operations more than offset lower sales in the
Canadian Operations. Same store general merchandise sales increased
0.6% for the year with a decrease of 1.8% in the first quarter, increases
of 1.0% and 3.6% in the second and third quarter, and a decrease of
0.4% in the fourth quarter. Canadian general merchandise sales
in northern markets and
decreased 0.6% due to lower sales
International general merchandise sales increased 4.0% excluding the
foreign exchange impact due to same store sales growth.
Other revenue, which includes fuel, fur, tele-pharmacy revenue
and service charge revenue, increased 0.5% compared to 2013 and was
up 1.8% compared to 2012 due to higher tele-pharmacy and service
charge revenues.
Sales Blend The table below shows the consolidated sales blend over
the past three years:
Food
General merchandise
Other
2014
78.2%
18.3%
3.5%
2013
77.4%
18.9%
3.7%
2012
76.8%
19.5%
3.7%
Canadian Operations accounted for 64.2% of total sales (66.3% in 2013
and 68.9% in 2012) while International Operations contributed 35.8%
(33.7% in 2013 and 31.1% in 2012).
(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 the 2013 annual audited consolidated financial statements for
further information.
Gross Profit Gross profit increased 2.0% to $464.2 million compared
to $455.1 million last year as the impact of sales growth more than
offset a 91 basis points decrease in the gross profit rate. The decrease
in the gross profit rate to 28.6% compared to 29.5% last year was largely
due to lower general merchandise gross profit rates in the Canadian
Operations related to the write-down and clearance of discontinued
under-performing general merchandise
in northern
markets. This action was part of the Company's initiative to reallocate
selling space to products and services with higher growth potential.
Investments made in lower food prices to grow market share also
contributed to the decrease in gross profit rates in the Canadian
Operations.
inventory
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) increased 3.3% to $366.8
million but were down 42 basis points as a percentage of sales
compared to last year. This increase in Expenses is largely due to the
impact of foreign exchange on the translation of International
Operations expenses, head office employee restructuring costs and
the impact of a non-comparable insurance-related gain last year. These
factors were partially offset by the impact of lower share-based
compensation costs and short-term incentive plan expense this year
and the non-recurrence of due diligence costs related to strategic
opportunities incurred last year. Further information on share-based
compensation costs is provided in Note 13 to the consolidated financial
statements.
9ANNUAL REPORT
Earnings from Operations (EBIT) Earnings from operations or
earnings before interest and income taxes (“EBIT”) decreased 2.6% to
$97.5 million compared to $100.1 million last year as the increase in
gross profit was more than offset by higher selling, operating and
administrative expenses. Excluding the foreign exchange impact and
the impact of the non-comparable general merchandise reduction
costs and employee restructuring costs this year, and the insurance
gain and due diligence costs last year, earnings from operations
increased $5.0 million or 5.1% compared to last year. Earnings before
interest, income taxes, depreciation and amortization ("EBITDA")
decreased 0.4% to $137.8 million compared to last year. Excluding the
foreign exchange impact and the non-comparable items, EBITDA
increased 4.7% and was 9.1% as a percentage of sales compared to
8.9% last year.
Interest Expense Interest expense decreased 14.3% to $6.7 million
compared to $7.8 million last year. The decrease in interest expense is
largely due to lower interest rates on the senior notes that were
refinanced during the year partially offset by higher average debt levels
compared to last year. Average debt levels increased 5.5% compared
to last year but the average cost of borrowing was 3.1% compared to
3.7% last year. Further information on interest expense is provided in
Note 18 to the consolidated financial statements.
Income Tax Expense The provision for income taxes decreased 0.4%
to $27.9 million compared to $28.0 million last year and the effective
tax rate for the year was 30.7% compared to 30.4% last year reflecting
an increase in earnings in the International Operations and lower
earnings in the Canadian 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 and
liabilities is provided in Note 9 to the consolidated financial statements.
in the
(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 the 2013 annual audited consolidated financial statements for
further information.
Net Earnings Consolidated net earnings decreased 2.1% to $62.9
million compared to $64.3 million last year and diluted earnings per
share was $1.29 per share compared to $1.32 per share last year as
earnings growth in the International Operations was more than offset
by lower earnings in the Canadian Operations. Additional information
on the financial performance of Canadian Operations and International
Operations is included on page 11 and page 13 respectively. In 2014,
the average exchange rate used to translate International Operations
sales and expenses increased to 1.1148 compared to 1.0389 last year
and 0.9976 in 2012.
The Canadian dollar's depreciation versus the U.S. dollar compared to
2013 had the following net impact on the 2014 results:
Sales............................................................................increase of $39.6 million or 2.6%
Earnings from operations...............................................increase of $1.8 million
Net earnings............................................................................increase of $1.1 million
Diluted earnings per share..............................................increase $0.02 per share
The decrease in net earnings from 2010 compared to 2011 to 2014
performance as shown in the preceding graph is largely due to the
conversion to a share corporation and the taxation of earnings in the
Canadian Operations. Prior to the conversion to a share corporation
on January 1, 2011, earnings from The North West Company LP flowed
to North West Company Fund on a pre-tax basis and were fully
distributed to unitholders. There was no income tax payable by the
Fund on these distributions. See Conversion to a Share Corporation
section for further information.
Total Assets Consolidated total assets for the past three years is
summarized in the following table:
($ in thousands)
Total assets
2014
2013
2012
$ 724,299
$ 670,512
$ 651,394
Consolidated assets increased 8.0% to $724.3 million compared
to $670.5 million in 2013 and were up 11.2% compared to $651.4 million
in 2012. The increase in consolidated assets is largely due to the impact
of foreign exchange as the year-end exchange rate used to translate
the International Operations assets increased to 1.2717 compared to
1.1119 last year and 0.9992 in 2012. The change in foreign exchange
resulted in an increase in assets of approximately $34 million compared
to last year and $58 million compared to 2012 with the most significant
impact on inventories, property and equipment and goodwill. In
addition to the foreign exchange impact, higher cash, property and
equipment additions and an increase in deferred tax assets were the
leading factors contributing to the increase in assets compared to last
year and 2012. The increase in cash compared to last year is primarily
due to the timing of deposits in-transit at year-end. The increase in
property and equipment is due to investments in new stores, major
store renovations, equipment replacements and staff housing
renovations. Deferred tax assets have increased compared to last year
and 2012 mainly due to an increase in tax assets related to defined
benefit plan obligations and property and equipment, and a decrease
in the tax liability related to the deferred limited partnership earnings.
is
Consolidated working capital for the past three years
summarized in the following table:
($ in thousands)
Current assets
Current liabilities
Working capital
2014
2013
2012
$ 315,840
$ 299,071
$ 303,896
$ (150,229)
$ (209,738)
$ (190,184)
$ 165,611
$
89,333
$ 113,712
Working capital increased $76.3 million or 85.4% to $165.6 million
compared to 2013 and $51.9 million or 45.6% compared to 2012. The
increase in working capital is primarily due to a decrease in current
liabilities largely related to the current portion of long-term debt. The
current portion of long-term debt decreased $71.5 million or 91.9%
compared to 2013 and was down $34.1 million or 84.5% compared to
2012 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 of $1.1 million decreased $1.8
million compared to $2.9 million in 2013 due to lower earnings in the
Canadian Operations. The decrease in income tax payable from $19.3
million in 2012 to $2.9 million in 2013 is due to the conversion from an
10THE NORTH WEST COMPANY INC. income trust to a share corporation on January 1, 2011 and the
payment of the 2012 accrued income taxes in 2013. Partially offsetting
these factors is an increase in accounts payable and accrued liabilities
largely related to the timing of year-end and vendor payment cycles
and the impact of foreign exchange.
Return on net assets employed was 18.4% compared to 20.0% in
2013 and return on average equity was 19.3% compared to 21.0% in
2013. Return on net assets decreased due to higher average net assets
employed largely resulting from foreign exchange and a 2.6% decrease
in earnings before interest and taxes. Additional information on net
assets employed for the Canadian Operations and International
Operations is on page 12 and page 14 respectively.
Return on average equity decreased to 19.3% due to lower net
earnings and a 6.2% increase in average equity compared to last year
due in part to higher accumulated other comprehensive income. The
decrease in the return on average equity from 2010 compared to 2011
to 2014 as shown in the graph below is largely due to the conversion
to a share corporation and the taxation of earnings in the Canadian
Operations as previously noted. Further information on shareholders'
equity is provided in the consolidated statements of changes in
shareholders' equity in the consolidated financial statements.
(1) Certain 2012 figures have been restated as required by the implementation of IAS 19r
Employee Benefits. 2011 and previous years have not been restated for these
accounting standard changes. See the 2013 annual audited consolidated financial
statements for further information.
Total Long-Term Liabilities Consolidated total long-term liabilities
for the past three years is summarized in the following table:
($ in thousands)
2014
2013
2012
Total long-term liabilities
$ 244,787
$ 138,334
$ 164,960
Consolidated long-term liabilities increased $106.5 million or
77.0% to $244.8 million compared to 2013 and were up $79.8 million
or 48.4% from 2012. The increase in long-term liabilities compared to
2013 and 2012 is primarily due to a decrease in the current portion of
long-term debt as previously noted in the consolidated working capital
section under total assets. Further information on long-term debt is
included in the Sources of Liquidity and Capital Structure sections on
page 17 and page 18 respectively and in Note 11 to the consolidated
financial statements. An increase in the defined benefit plan obligation
largely due to a lower discount rate was also a factor. Further
information on post-employment benefits is provided in Note 12 to
the consolidated financial statements.
Canadian Operations
FINANCIAL PERFORMANCE
Canadian Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
2014
2013
2012(2)
$ 1,042,168
$ 1,022,985
$ 1,043,050
Same store sales % increase
1.3%
1.7%
1.0%
EBITDA (1)
Earnings from operations (1)
(EBIT)
$
$
100,896
$ 111,225
$ 106,510
70,594
$
81,967
$
77,355
Return on net assets (1)
21.1%
25.9%
24.9%
(1) See Non-GAAP Financial Measures section.
(2) Certain 2012 figures have been restated as required by the implementation of IAS
19r Employee Benefits. See the 2013 annual audited consolidated financial statements
for further information.
Sales Canadian Operations sales increased $19.2 million or 1.9% to
$1.042 billion compared to $1.023 billion in 2013 driven by food sales
growth, but were down $0.9 million or 0.1% compared to 2012. The
decrease in sales compared to 2012 was largely due to 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. Same store sales increased 1.3% compared to increases
of 1.7% in 2013 and 1.0% in 2012. Food sales accounted for 73.4% (72.7%
in 2013) of total Canadian sales. The balance was made up of general
merchandise sales at 21.7% (22.3% in 2013) and other sales, which
consists primarily of fuel sales, fur, tele-pharmacy revenue and service
charge revenue at 4.9% (5.0% in 2013).
Food sales increased by 2.8% from 2013 and were up 1.6%
compared to 2012. Same store food sales increased 1.8% compared to
1.9% in 2013. Same store food sales had quarterly increases of 0.5%,
1.4%, 2.2% and 3.2% in the fourth quarter. Food sales were up in most
categories with our urban and rural stores contributing the largest
percentage gains over last year. Food cost inflation was minimal in the
first half of the year and increased to approximately 2% in second half
of the year.
General merchandise sales decreased 0.6% from 2013 and 5.4%
compared to 2012. Same store sales decreased 0.5% compared to a
0.9% increase in 2013. On a quarterly basis, same store sales decreased
2.6% in the first quarter followed by increases of 0.7% and 1.5% in the
second and third quarter respectively, and a 1.4% decrease in the fourth
quarter. Sales in the first half of the year were negatively impacted by
an extended winter road season in northern markets and unseasonably
cold spring weather in urban markets. In the second half of the year,
general merchandise sales were essentially flat as sales gains in urban
and rural markets were offset by lower sales in northern markets.
Other revenues, which include fuel, fur, tele-pharmacy revenue
and service charge revenue, were up 0.1% from 2013 and increased
0.7% over 2012. The increase in other revenues is largely due to higher
tele-pharmacy and service charge revenues.
11ANNUAL REPORT
Sales Blend The table below shows the sales blend for the Canadian
Operations over the past three years:
Food
General merchandise
Other
2014
73.4%
21.7%
4.9%
2013
72.7%
22.3%
5.0%
2012
72.2%
23.0%
4.8%
Same Store Sales Canadian Operations same store food sales tend
to be 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
2014
1.8 %
(0.5)%
1.3 %
2013
1.9%
0.9%
1.7%
2012
2.0 %
(2.2)%
1.0 %
Gross Profit Gross profit dollars for Canadian Operations decreased
by 2.5% as the impact of higher sales was more than offset by lower
gross profit rates. The decrease in gross profit rate was largely due to
$3.8 million in clearance costs and a write-down of discontinued
under-performing general merchandise categories as part of the
Company's Top Categories initiative to reallocate selling space to
products and services with higher growth potential. The impact of
lower food prices in northern markets was also a factor.
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) increased 1.4% from 2013
but were down 11 basis points as a percentage of sales compared to
last year. The increase in Expenses is largely due to head office
employee restructuring costs this year compared to the net impact of
an insurance-related gain and due diligence costs last year. These
factors were partially offset by lower short-term incentive plan costs
and share-based compensation expense.
Earnings from Operations (EBIT) Earnings from operations
decreased $11.4 million or 13.9% to $70.6 million compared to $82.0
million in 2013 as the positive impact of higher sales was more than
offset by lower gross profit and higher expenses that were largely due
to the non-comparable items previously noted. Excluding the non-
comparable items related to the discontinued general merchandise
inventory costs and employee restructuring costs this year, and the
insurance gain and due diligence costs last year, earnings from
operations decreased 3.5% compared to last year and was 6.8% as a
percentage of sales compared to 8.0% last year. EBITDA from Canadian
Operations decreased $10.3 million or 9.3% to $100.9 million and was
9.7% as a percentage of sales compared to 10.9% in 2013. Excluding
the impact of the non-comparable items, EBITDA decreased 1.6% and
was 10.4% as a percentage of sales compared to 10.7% last year.
(1) Certain 2012 figures have been restated as required by the implementation of IAS
19r Employee Benefits. 2011 and previous years have not been restated for these
accounting standard changes. See 2013 annual audited consolidated financial
statements for further information.
Net Assets Employed Net assets employed at January 31, 2015,
decreased 0.7% to $312.5 million compared to $314.8 million at
January 31, 2014, but was up 7.1% compared to $291.9 million at
January 31, 2013 as summarized in the following table:
Net Assets Employed
($ in millions at the end of the fiscal
year)
2014
2013
2012
Property and equipment
$ 198.5
$
189.6
$
190.8
Inventory
Accounts receivable
Other assets
Liabilities
127.3
59.2
70.0
130.6
59.1
58.8
124.2
60.0
70.0
(142.5)
(123.3)
(153.1)
Net assets employed
$ 312.5
$
314.8
$
291.9
Capital expenditures for the year included three new stores, store
replacements, major store renovation projects, equipment and
energy-efficient
staff housing
improvements.
refrigeration upgrades
and
to
to 2013 due
Inventory decreased compared
the
discontinuance of under-performing general merchandise categories
and lower food inventories in northern markets. Average inventory
levels in 2014 were $6.7 million or 5.2% higher than 2013 and were up
$8.1 million or 6.3% compared to 2012 largely due to higher inventory
purchases in stores serviced by winter road and sealift to take
advantage of lower transportation costs. Inventory turnover decreased
slightly to 5.4 times compared to 5.5 times in 2013 and 5.7 times in
2012.
Accounts receivable was flat to last year but down $0.8 million or
1.3% from 2012. Average accounts receivable was $1.6 million or 2.7%
lower than 2013 and down $4.4 million or 7.2% compared to 2012. The
decrease in accounts receivable compared to 2012 is primarily due to
a decrease in an insurance related accounts receivable resulting from
stores destroyed by fire in 2011.
Other assets increased $11.2 million or 19.0% compared to last
year but were flat compared to 2012. The increase compared to 2013
is primarily due to a net increase in deferred tax assets resulting from
defined benefit plan obligations 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. An increase in cash resulting from the timing of deposits
in-transit at year-end compared to 2013 was also a factor.
12THE NORTH WEST COMPANY INC.
Liabilities increased $19.2 million or 15.6% from 2013 but were
down $10.6 million or 6.9% compared to 2012 primarily due to an
increase in the defined benefit plan obligation and a decrease in
income tax payable. The defined benefit plan obligation increased
$18.2 million to $36.6 million compared to $18.4 million in 2013 and
was up $8.2 million compared to $28.4 million in 2012 largely due to
a decrease 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. Accounts payable and
accrued liabilities increased $7.6 million or 8.5% compared to 2013 and
were up $3.0 million or 3.2% compared to 2012 due to higher trade
accounts payable related to the timing of payment cycles. Income tax
payable decreased $20.6 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.
Return on Net Assets The return on net assets employed for
Canadian Operations decreased to 21.1% from 25.9% in 2013 due to a
13.9% decrease in EBIT and a $17.3 million or 5.5% increase in average
net assets compared to last year.
(1) Certain 2012 figures have been restated as required by the implementation of IAS 19r
Employee Benefits. 2011 and previous years have not been restated for these
accounting standard changes. See 2013 annual audited consolidated financial
statements for further information.
International Operations
(Stated in U.S. dollars)
International Operations include Alaska Commercial Company ("AC"),
Cost-U-Less ("CUL") and Pacific Alaska Wholesale ("PAW").
FINANCIAL PERFORMANCE
International Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
Same store sales %
increase (decrease)
EBITDA(1)
Earnings from operations(1)
(EBIT)
Return on net assets (1)
2014
2013
2012
$ 522,275
$ 500,665
$ 471,728
$
$
4.7%
2.1%
(0.6)%
33,240
$ 26,192
$ 27,273
24,105
$ 17,416
$ 19,259
13.8%
9.9%
12.1 %
(1) See Non-GAAP Financial Measures section.
Sales International sales increased 4.3% to $522.3 million compared
to $500.7 million in 2013, and were up 10.7% compared to 2012 driven
by strong same store sales growth in both AC and CUL stores. Same
store sales increased 4.7% compared to 2.1% in 2013 and a 0.6%
decrease in 2012. Food sales accounted for 86.8% (86.7% in 2013) of
total sales with the balance comprised of general merchandise at 12.2%
(12.2% in 2013) and other sales, which consist primarily of fuel sales
and service charge revenues, at 1.0% (1.1% in 2013).
Food sales increased 4.5% from 2013 and were up 10.4%
compared to 2012. Same store food sales were up 4.7% compared to
a 1.9% increase in 2013. Quarterly same store food sales increases were
1.0%, 3.3%, 6.4% and 7.9% in the fourth quarter.
General merchandise sales increased 4.0% from 2013 and were
up 13.7% from 2012. On a same store basis, general merchandise sales
were up 4.8% compared to an increase of 3.5% in 2013. Quarterly same
store general merchandise sales were up 1.3%, 2.5%, 11.0% and 3.5%
in the fourth quarter.
New merchandise assortments, a better in-stock position,
improved store execution, strong promotional selling activities and a
modestly improved economic environment were leading factors
contributing to the same store sales growth. The Company's CUL
stores, led by the Barbados store, continued to build sales growth
momentum throughout the year with improved same store sales
performance each quarter. In Alaska, a 109.3% increase in the
Permanent Fund Dividend (“PFD”) from $900 to $1,884, regional native
corporation dividends and other settlement payments also
contributed to the same store sales growth.
Other revenues, which consist of fuel and service charge revenue,
were down 3.2% from 2013 but were up 1.0% from 2012. The decrease
compared to last year is primarily related to lower fuel sales.
Sales Blend The table below reflects the importance of food sales to
the total sales of International Operations:
Food
General merchandise
Other
2014
86.8%
12.2%
1.0%
2013
86.7%
12.2%
1.1%
2012
87.1%
11.8%
1.1%
13ANNUAL REPORT
Same Store Sales International Operations same store sales for the
past three years are shown in the following table. General merchandise
same store sales are significantly impacted by consumer spending on
big-ticket durable goods that are largely influenced by the previously
mentioned special payments, such as the Permanent Fund Dividend
and regional native corporation dividends, which can result in greater
sales volatility.
Same Store Sales
(% change)
Food
General merchandise
Total sales
2014
4.7%
4.8%
4.7%
2013
1.9%
3.5%
2.1%
2012
0.3 %
(6.8)%
(0.6)%
Gross Profit Gross profit dollars increased 5.1% due to sales growth
and a 20 basis point increase in gross profit rate. The increase in gross
profit rate was largely due to product assortment changes and
improved merchandise sourcing, especially within the Barbados store.
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) decreased 0.1% compared
to last year and were down 93 basis points as a percentage of sales.
The decrease in Expenses is primarily due to the closure of a store in
Kodiak, Alaska in the second quarter, lower utility costs in certain
markets and a decrease in accounts receivable credit loss expense.
These factors were largely offset by head office restructuring costs.
Earnings from Operations (EBIT)
Earnings from operations
increased $6.7 million or 38.4% to $24.1 million compared to 2013 due
to higher gross profit and flat expenses. EBITDA increased $7.0 million
or 26.9% to $33.2 million and was 6.4% as a percentage of sales
compared to 5.2% in 2013.
Net Assets Employed International Operations net assets employed
were flat to last year and up $3.8 million or 2.3% compared to 2012 as
summarized in the following table:
Net Assets Employed
($ in millions at the end of the fiscal
year)
Property and equipment
$
Inventory
Accounts receivable
Other assets
Liabilities
2014
89.0
60.9
10.5
51.4
$
2013
87.5
61.4
10.3
49.7
(40.2)
(37.6)
$
2012
83.3
63.1
10.1
50.2
(38.9)
Net assets employed
$ 171.6
$ 171.3
$ 167.8
Property and equipment increased due to a major store expansion and
renovation in Bethel, Alaska and investments in energy-efficient
refrigeration and equipment upgrades.
Inventories decreased 0.8% compared to last year and were down
$2.2 million or 3.5% from 2012 due to improved inventory productivity
and the impact of a store closure in Kodiak, Alaska. Average inventory
levels in 2014 were $0.9 million or 1.3% lower than 2013 but were $4.5
million or 7.6% higher than 2012 mainly due to new stores. Inventory
turnover improved slightly to 6.1 times compared to 5.8 times in 2013.
Other assets increased $1.7 million or 3.4% compared to last year
with higher cash balances and prepaid expenses at the end of the year
partially offset by a decrease in deferred tax assets.
Liabilities increased $2.6 million or 6.9% compared to 2013 and
were up $1.3 million or 3.3% compared to 2012 due to higher income
tax payable.
Return on Net Assets The return on net assets employed for
International Operations improved to 13.8% compared to 9.9% in 2013
due to a 38.4% increase in EBIT and a 1.0% decrease in average net
assets employed.
14THE NORTH WEST COMPANY INC. Consolidated Liquidity
and Capital Resources
The following table summarizes the major components of cash flow:
($ in thousands)
2014
2013
2012
Cash provided by (used in):
Operating activities before
taxes paid
Taxes paid
Operating activities
Investing activities
Financing activities
Net change in cash
$ 148,919
$ 132,031
$ 144,475
(32,881)
116,038
(50,312)
(58,950)
(51,995)
80,036
(42,386)
(53,972)
(15,483)
128,992
(48,781)
(68,520)
$
6,776
$ (16,322)
$
11,691
Cash from Operating Activities Cash flow from operating activities
increased $36.0 million or 45.0% to $116.0 million compared to 2013.
The increase in cash flow from operating activities is due to a decrease
in income tax paid in the year and the change in non-cash working
capital.
The Company paid income taxes of $32.9 million compared to
$52.0 million in 2013 and $15.5 million in 2012. The change in income
tax payments from 2012 to 2013 is due to the conversion to a share
corporation on January 1, 2011. Following the conversion to a share
corporation 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 which
resulted in an increase in income taxes paid to $52.0 million. In 2014,
consolidated income tax payments decreased to $32.9 million based
on a normalized level of taxable income and the recognition of a
portion of the deferred
income. Further
information on the Conversion to a Share Corporation is provided on
page 8.
limited partnership
Excluding the impact of income tax installments, cash flow from
operating activities increased 12.8% to $148.9 million. Changes in non-
cash working capital positively impacted cash flow from operating
activities by $9.2 million compared to a decrease in cash flow of $10.4
million in 2013 and an increase in cash flow of $10.8 million in 2012.
The change in non-cash working capital is mainly due to the change
in inventories, accounts payable and accounts receivable compared
to the prior year. Further information on working capital is provided
in the Canadian and International net assets employed section on
pages 12 and 14 respectively.
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 2015.
The compound annual growth rate ("CAGR") for cash flow from
operating activities over the past 10 years is 9.0% as shown in the
following graph:
(1) 2011 to 2014 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 is largely due to the payment of Canadian income taxes.
Cash Used in Investing Activities Net cash used in investing
activities was $50.3 million compared to $42.4 million in 2013 and $48.8
million in 2012. Net investing in Canadian Operations was $39.5 million
compared to $28.0 million in 2013 and $31.7 million in 2012. A summary
of the Canadian Operations investing activities is included in net assets
employed on page 12. Net investing in International Operations was
$10.8 million compared to $14.4 million in 2013 and $17.1 million in
2012. 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
2014
121
2013
122
6
18
32
27
13
8
7
19
31
28
13
6
2014
693,338
130,919
31,480
510,474
278,742
369,281
83,009
2013
693,306
147,725
32,477
494,057
299,005
369,281
45,716
Total at year-end
225
226
2,097,243
2,081,567
In the Canadian Operations, a NorthMart in La Ronge, Saskatchewan
was converted to a Giant Tiger and a small Northern store and a
QuickStop were closed. Under Other Formats, the Company acquired
a store under the Price Chopper banner and opened a temporary
clearance center in Winnipeg, Manitoba, acquired a Tim Hortons
franchise in Thompson, Manitoba and closed the NorthMart Drug Store
in La Ronge, Saskatchewan. Total selling square feet in Canada
increased to1,421,622 from 1,385,683 in 2013.
In the International Operations, an AC Value Center in Kodiak,
Alaska was closed. International selling square feet decreased to
675,621 from 695,884 in 2013.
15ANNUAL REPORT Cash Used in Financing Activities Cash used in financing activities
was $59.0 million compared to $54.0 million in 2013 and $68.5 million
in 2012. The increase is primarily related to a change in amounts drawn
on the loan facilities and an increase in dividends paid. Further
information on the loan facilities is provided in the Sources of Liquidity
section below.
Shareholder Dividends The Company paid dividends of $56.2
million or $1.16 per share, an increase of 3.6% compared to $54.2 million
or $1.12 per share paid in 2013. 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
Total
Dividends
Dividends
Dividends
2014
$ 0.29
0.29
0.29
0.29
2013
$ 0.28
0.28
0.28
0.28
2012
$ 0.26
0.26
0.26
0.26
$ 1.16
$ 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 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 paid in comparison to cash
flow from operating activities for the past three years:
Dividends
$
56,180
$
54,229
$
50,320
2014
2013
2012
Cash flow from operating
activities
$ 116,038
$
80,036
$
128,992
Taxes paid
32,881
51,995
15,483
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
$ 148,919
$
132,031
$
144,475
48.4%
67.8%
39.0%
37.7%
41.1%
34.8%
The decrease in dividends as a percentage of cash flow from operating
activities to 48.4% compared to 67.8% in 2013 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 provided under cash from operating activities on page
15. Excluding the impact of income tax installments, dividends as a
percentage of cash flow from operating activities before taxes paid was
37.7% compared to 41.1% in 2013 and 34.8% in 2012.
The compound annual growth rate ("CAGR") for dividends and
distributions over the past 10 years is 6.8% 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 2004 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.
The lower dividends paid in 2011 to 2014 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, 2015, the Board of
Directors approved a quarterly dividend of $0.29 per share to
shareholders of record on March 31, 2015, to be paid on April 15, 2015.
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 a decrease in long-term interest rates, the Company
recorded net actuarial losses on defined benefit pension plans of $12.0
million net of deferred income taxes in other comprehensive income
compared to net actuarial gains on defined benefit pension plans of
$7.8 million net of deferred income taxes in other comprehensive
income in 2013 and net actuarial losses of $1.3 million net of deferred
income taxes in 2012. These gains and losses in other comprehensive
income were immediately recognized in retained earnings. The net
actuarial loss in 2014 was primarily due to a decrease in the discount
rate used to calculate pension liabilities from 4.5% in 2013 to 3.5% in
16THE NORTH WEST COMPANY INC.
2014. The actuarial gain in 2013 was due to an increase in the discount
rate from 4.25% in 2012 to 4.50% in 2013 and higher than expected
return on pension plan assets. The decrease in the discount rate was
the primary reason for the increase in the defined benefit plan
obligation to $36.6 million compared to $18.4 million in 2013.
In 2015, the Company will be
required to contribute
approximately $3.2 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 $1.7 million in 2015 compared to $2.1 million in 2014
and $3.8 million in 2013. The actual amount of the contribution 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 $3.2 million to the defined contribution
pension plan and U.S. employees savings plan in 2015 compared to
$3.0 million in 2014 and $2.7 million in 2013. 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 certain
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, 2015, the Company had drawn $78.4 million
on these facilities (January 31, 2014 - $63.6 million).
At January 31, 2015, the Canadian Operations have outstanding
US$70.0 million senior notes (January 31, 2014 - US$70.0 million).
During the year the Company completed the refinancing of the US
$70.0 million senior notes that matured June 15, 2014. The senior notes
that matured had a fixed interest rate of 6.55% on US$42.0 million and
a floating interest rate based on the U.S. three-month London Interbank
Offered Rate ("LIBOR") plus a spread on US$28.0 million. The new senior
notes, which mature June 16, 2021, have a fixed interest rate of 3.27%
on US$55.0 million and a floating interest rate on US$15.0 million based
on US LIBOR plus a spread payable semi-annually. The senior notes are
secured by certain 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. For more information on the senior notes and
financial instruments, see Note 11 and Note 14 to the consolidated
financial statements.
The Company's
International Operations have available
committed, revolving loan facilities of US$52.0 million that mature on
December 31, 2018. These facilities are secured by certain 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, 2015, the
Company had drawn US$22.0 million (January 31, 2014 - US$36.0
million) on these facilities.
The International Operations also have available a committed,
revolving
loan facility of US$30.0 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, 2015, the
International Operations had drawn US$4.8 million on this facility
(January 31, 2014 - US$1.2 million).
The Company has begun the process of refinancing the US$30.0
million revolving loan facility and does not anticipate any difficulty in
completing the refinancing however, economic conditions can
change which may negatively impact the availability of credit, interest
rates and the scope of financing covenants. For further information on
risks related to refinancing, see liquidity risk in the risk management
section on page 24.
The loan facilities and senior notes contain covenants and
restrictions including the requirement to meet certain financial ratios
and financial condition tests. The financial covenants include a fixed
charge coverage ratio, minimum current ratio, a leverage test and a
minimum net worth test. At January 31, 2015, the Company is in
compliance with the financial covenants under these facilities. Current
and forecasted debt levels are regularly monitored for compliance with
debt covenants.
Interest Costs and Coverage
Coverage ratio
EBIT ($ in millions)
Interest ($ in millions)
2014
14.6
$ 97.5
$
6.7
2013
12.8
$ 100.1
$
7.8
2012
13.8
$ 96.6
$
7.0
The coverage ratio of earnings from operations ("EBIT") to interest
expense has improved to 14.6 times compared to 12.8 times in 2013
and 13.8 times in 2012 due to lower interest expense largely related to
the refinancing of the senior notes that matured on June 15, 2014.
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) $201,396
$
6,271
$
2
$106,344
$ 88,779
Operating leases
151,348
25,851
42,584
28,197
54,716
Other liabilities (1)
14,011
9,526
4,485
—
—
Total
$366,755
$ 41,648
$ 47,071
$134,541
$143,495
(1) At year-end, the Company had additional long-term liabilities of $43.7 million
which included other liabilities, defined benefit plan obligations and
deferred income tax liabilities. These have not been included as the timing
and amount of the future payments are uncertain.
Director and Officer Indemnification Agreements The Company
has agreements with its current and former directors, trustees, and
officers to indemnify them against charges, costs, expenses, amounts
paid in settlement and damages incurred from any lawsuit or any
judicial, administrative or investigative proceeding in which they are
sued as a result of their service. Due to the nature of these agreements,
the Company cannot make a reasonable estimate of the maximum
amount it could be required to pay to counterparties. The Company
has also purchased directors', trustees' and officers' liability insurance.
No amount has been recorded in the financial statements regarding
these indemnification agreements.
17ANNUAL REPORT
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
$12 million (January 31, 2014 - $15 million).
Capital Structure The Company's capital management objectives
are to deploy capital to provide an appropriate total return to
shareholders while maintaining a capital structure that provides the
flexibility to take advantage of growth opportunities, maintain existing
assets, meet obligations and financial covenants and enhance
shareholder value. The capital structure of the Company consists of
bank advances,
long-term debt and shareholders' equity. The
Company manages capital to optimize efficiency through an
appropriate balance of debt and equity. In order to maintain or adjust
its capital structure, the Company may purchase shares for cancellation
pursuant to normal course issuer bids, issue additional shares, borrow
additional funds, adjust the amount of dividends paid or refinance debt
at different terms and conditions.
On a consolidated basis, the Company had $201.4 million in debt
and $329.3 million in equity at the end of the year and a debt-to-equity
ratio of 0.61:1 compared to 0.57:1 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 ranged from .67:1 to .55:1. Equity has increased
$42.8 million or 14.9% to $329.3 million over the past four years and
interest-bearing debt has increased $8.8 million or 4.6% to $201.4
million compared to $192.6 million in 2010. During this same time
frame, the Company has made capital expenditures, including
acquisitions, of $230.9 million and has paid distributions and dividends
of $280.2 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 $18.5 million
or 10.1% to $201.4 million compared to $182.9 million in 2013, and was
up $38.0 million or 23.3% from $163.4 million in 2012. 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$96.9 million in debt at January 31, 2015 (January 31, 2014 - US
$107.4 million, 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, 2015 was 1.2717 compared to 1.1119
at January 31, 2014 and 0.9992 at January 31, 2013. The change in the
foreign exchange rate resulted in a $15.5 million increase in debt
compared to 2013 and a $26.4 million increase compared to 2012.
Average debt outstanding during the year excluding the foreign
exchange impact increased $8.4 million or 4.4% from 2013 and was up
$20.3 million or 11.3% compared to 2012. The debt outstanding at the
end of the fiscal year is summarized as follows:
($ in thousands at the end of
the fiscal year)
2014
2013
2012
Senior notes
$ 88,779
$
77,576
$
69,461
Canadian revolving loan
facilities
U.S. revolving loan facilities
Notes payable
Finance lease liabilities
78,367
34,121
72
57
63,607
41,330
210
139
52,499
40,686
388
320
Total
$ 201,396
$ 182,862
$ 163,354
18THE NORTH WEST COMPANY INC. Shareholder Equity The Company has an unlimited number of
authorized shares and had
issued and outstanding shares at
January 31, 2015 of 48,497,199 (48,425,787 as at January 31, 2014). 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, 2015, there were 1,599,871
options outstanding representing approximately 3.3% 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 $6.76 compared to $6.63 per share in 2013. Shareholders'
equity increased $6.8 million or 2.1% compared to 2013 largely due to
net earnings of $62.9 million partially offset by dividends to
shareholders of $56.2 million. Further information is provided in the
consolidated statements of changes in shareholders' equity in the
consolidated financial statements.
QUARTERLY FINANCIAL INFORMATION
Historically, the Company's first quarter sales are the lowest and fourth
quarter sales are the highest, reflecting consumer buying patterns. Due
to the remote location of many of the Company's stores, weather
conditions are often more extreme compared to other retailers and
can affect sales in any quarter. Net earnings generally follow higher
sales, but can be dependent on markdown activity in key sales periods
to reduce excess inventories. Net earnings are historically lower in the
first quarter due to lower sales and fixed costs such as rent and
overhead that apply uniformly throughout the year.
The following is a summary of selected quarterly financial information:
($ thousands)
Q1
Q2
Q3
Q4
Total
Sales
2014
2013
EBITDA
2014
2013
$ 376,257
$401,127
$413,512
$433,504
$1,624,400
$ 364,474
$388,610
$387,173
$402,868
$1,543,125
$ 30,220
$ 36,393
$ 37,804
$ 33,421
$ 137,838
$ 30,009
$ 37,412
$ 36,543
$ 34,372
$ 138,336
Earnings from operations (EBIT)
2014
2013
Net earnings
$ 20,002
$ 26,345
$ 27,870
$ 23,249
$
97,466
$ 20,544
$ 28,023
$ 26,876
$ 24,617
$ 100,060
2014
2013
$ 12,679
$ 16,850
$ 18,401
$ 14,953
$ 12,910
$ 18,111
$ 17,387
$ 15,855
Earnings per share-basic
2014
2013
$
$
0.26
0.27
$
$
Earnings per share-diluted
2014
2013
$
$
0.26
0.27
$
$
0.35
0.37
0.35
0.37
$
$
$
$
0.38
0.36
0.37
0.36
$
$
$
$
0.31
0.33
0.31
0.32
$
$
$
$
$
$
62,883
64,263
1.30
1.33
1.29
1.32
Fourth Quarter Highlights Fourth quarter consolidated sales
increased 7.6% to $433.5 million driven by strong sales gains within the
International Operations and the impact of foreign exchange on the
translation of U.S. denominated sales. Excluding the foreign exchange
impact, consolidated sales increased 4.3% and were up 3.6%1 on a same
store basis. Food sales1 increased 6.1% and were up 4.9% on a same
store basis with all banners contributing to the sales growth. General
merchandise sales1 increased 0.3% but were down 0.4% on a same
store basis, as lower sales in Canadian Operations more than offset sales
gains in the International Operations.
Gross profit dollars were up only 1.4% as the gross profit rate
decreased 170 basis points primarily due to $3.8 million in costs related
to the write-down and clearance of discontinued under-performing
general merchandise inventory in the Northern Canada stores. This
action was part of the Company's initiative to reallocate selling space
to products and services with higher growth potential.
Selling, operating and administrative expenses ("expenses")
increased 3.2% but were down 96 basis points as a percentage to sales.
The expense increase was substantially due to the impact of foreign
exchange on the translation of International Operations expenses and
higher share-based compensation costs related to a 14.0% increase in
share price in the quarter compared to a 2.0% decrease last year. These
factors were partially offset by lower short-term incentive plan costs.
Earnings before
Earnings from operations2 decreased 5.6% to $23.2 million
compared to $24.6 million in the fourth quarter last year due to the
impact of lower gross profit rates largely related to the general
merchandise inventory reduction and higher expenses. Excluding the
impact of the general merchandise inventory reduction costs and
foreign exchange, earnings from operations were up 7.0% to last year.
income taxes, depreciation and
amortization (EBITDA2) decreased 2.8% to $33.4 million as lower EBITDA
in the Canadian Operations more than offset very strong performance
within the International Operations and the impact of foreign
exchange. Excluding the impact of the general merchandise inventory
reduction costs and foreign exchange, EBITDA was up 5.7% compared
to last year and as a percentage to sales was 8.7% compared to 8.6%
last year.
interest,
Interest expense decreased $622 or 30.2% to $1.4 million largely
due to lower interest rates on the senior notes that were refinanced in
the 2014 second quarter, partially offset by higher average debt
outstanding during the quarter compared to last year.
Income tax expense increased $0.2 million to $6.9 million and the
consolidated effective tax rate was 31.4% compared to 29.7% last year
primarily due to a higher blend of earnings from the International
Operations compared to the fourth quarter last year.
Net earnings decreased $0.9 million or 5.7% to $15.0 million and
diluted earnings per share was $0.31 per share compared to $0.32 per
share last year as higher net earnings in the International Operations
and the impact of foreign exchange was more than offset by lower
earnings in the Canadian Operations largely related to the general
merchandise inventory reduction costs. Excluding the net impact of
the general merchandise inventory reduction costs and foreign
exchange, net earnings increased 8.7% compared to last year.
(1) Excluding the foreign exchange impact.
(2) See Non-GAAP Measures Section of Management's Discussion & Analysis.
19ANNUAL REPORT
Working capital increased $76.3 million compared to the fourth
quarter last year due to a decrease in the current portion of long-term
debt as a result of refinancing the senior notes in the Canadian
Operations. Further information on long-term debt is provided in the
sources of liquidity section and in Note 11 to the Company's 2014
annual audited consolidated financial statements. Excluding the
impact of the current portion of long-term debt, working capital
increased $4.8 million or 2.9% compared to last year. The increase in
working capital is largely due to the impact of foreign exchange on the
translation of U.S. denominated working capital primarily related to
inventories and accounts payable in the International Operations
partially offset by higher trade accounts payable in the Canadian
Operations related to the timing of payments. The exchange rate used
to translate U.S. denominated assets and liabilities into Canadian dollars
at January 31, 2015 was 1.2717 compared to 1.1119 at January 31, 2014.
Cash flow from operating activities in the quarter increased $9.7
million or 20.9% to $56.2 million compared to cash flow from operating
activities of $46.5 million last year. The increase is largely due to non-
cash working capital related to the change in inventories and accounts
payable compared to the prior year.
Cash used for investing activities in the quarter increased to $18.0
million compared to $14.1 million last year. The increase for the quarter
is largely due to investments in major store renovations, store
replacements, fixtures and equipment related to the Top 40 initiative
described in the Strategies Section.
Cash used in financing activities in the quarter was $42.2 million
compared to $45.8 million last year. The Company paid dividends of
$14.0 million, an increase of 3.5%, compared to $13.6 million in 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, 2015.
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. Projections of any
evaluations of effectiveness to future periods are subject to the risk that
controls may become ineffective because of changes in conditions or
the degree of compliance with policies and procedures may
deteriorate. 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”), 2013 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, 2015. There have
been no changes in the internal controls over financial reporting during
the quarter and for the year ended January 31, 2015 that have
materially affected or are reasonably likely to materially affect the
internal controls over financial reporting.
THE NORTH WEST COMPANY INC.20
OUTLOOK
The Company incurred head office and general merchandising
restructuring charges in 2014 as part of its strategy to focus resources
on its Top 40 Markets and Top Categories. The successful execution of
this work is expected to enable North West to capture market share
and sales at a higher rate than general consumer income growth, while
focusing on lower-risk products and services.
By region, the economic outlook is most promising in the
Caribbean and Pacific regions, spurred by a slow recovery in tourism
spending and lower energy costs. In Alaska, spending momentum is
tied to an improving U.S. outlook but with a risk of softening in late
2015 if oil prices eventually force reductions in State of Alaska program
spending that effect rural areas. Margin pressures in Western Canada
are expected to ease as retailers pass through inflationary cost
increases. Income contraction in Alberta and Saskatchewan are not
expected to adversely affect the Company’s Giant Tiger discount
banner. Consumer income in Northern Canada is expected to remain
constrained by
infrastructure
investment, with some upside from lower fuel prices.
limited resource or government
Upside to the business in 2015 will depend on the timing and
success of Top 40 Markets and Top Categories work as well as the
consumer income and competitive factors noted above. Downside
exists with respect to possible continued margin pressure in food and
the transition of reducing general merchandise inventory and shifting
selling space which is expected to be substantially completed in the
third quarter.
in
investments
renovations and
Net capital expenditures
for 2015 are expected to be
approximately $65.0 million (2014 - $50.3 million) reflecting major store
replacements, store
fixtures,
equipment, staff housing and store-based warehouse expansions as
part of the Company's Top 40 Markets initiative. In 2015, the Company
expects to complete 10 to 12 stores under the Top 40 Markets initiative
in Northern Canada with most openings weighted to the third quarter.
The Company also plans to open three Giant Tiger stores and complete
"New Store Experience" upgrades in six Giant Tiger stores. Store-based
capital expenditures can be impacted by the completion of landlord
negotiations, shipment of construction materials to remote markets,
and weather-related delays and therefore, their actual amount and
timing can fluctuate.
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 annual
assessment and regular updates 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 Required to Deliver Results 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-
training programs.
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
is unable to renew
lease agreements with community-based
organizations, or is subject to punitive fees or operating restrictions, it
could have an adverse effect on the Company's reputation and
financial performance.
21ANNUAL REPORT
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
where 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
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.
in government transfers, spending on
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 or prolonged disruption in the Company's
current IT systems could negatively impact day-to-day operations of
the business which could adversely affect the Company's financial
performance and reputation.
The failure to successfully upgrade legacy systems or implement
new systems could also have an adverse effect on the Company's
operations, reputation and financial performance. There is also a risk
that the anticipated benefits, cost savings or operating efficiencies
related to upgrading or implementing new IT systems may not be
realized which could affect the Company's financial performance or
reputation. To help mitigate these risks, the Company uses a
combination of specialized internal and external IT resources as well
as a strong governance structure and disciplined project management.
The Company relies on the integrity and continuous availability
of its IT systems. IT systems are exposed to the risks of “cyber attack”,
including viruses that can paralyze IT systems or unauthorized access
to confidential Company information or customer information. Any
failure relating to IT system availability or security, or a significant loss
of data or an impairment of data integrity, could adversely affect the
financial performance and reputation of the Company.
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
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.
in
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
in remote locations, and is subject to
real estate, particularly
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
remediation activities,
incidents and
22THE NORTH WEST COMPANY INC.
adverse effect on the reputation and financial performance of the
Company.
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 78% 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
in all
certainty that these risks can be completely mitigated
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.
pension plans. The performance of the Company's pension plans and
the plan funding requirements are impacted by the returns on plan
assets, changes
in the discount rate and regulatory funding
requirements. If capital market returns are below the level estimated
by management, or if the discount rate used to value the liabilities of
the plans decreases, the Company may be required to make
contributions to its defined benefit pension plans in excess of those
currently contemplated, which may have an adverse effect on the
Company's financial 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
Ethical Business Conduct The Company has a Code of Business
Conduct and Ethics policy which governs both employees and
23ANNUAL REPORT Directors. The Business Ethics Committee monitors compliance with
the Code of Business Conduct and Ethics. The Company also has a
Whistleblower Policy that provides direct access to members of the
Board of Directors. Unethical business conduct could negatively
impact the Company's reputation and relationship with its customers,
investors and employees, which in turn could have an adverse effect
on the financial performance of the Company.
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
financial transactions. The Company uses derivative
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, 2015, the Company had undrawn committed
revolving loan facilities available of $180.5 million (January 31, 2014 -
$172.5 million).
The Company has a US$30.0 million revolving loan facility that
matures on October 31, 2015. At January 31, 2015, there was US$4.8
million drawn on this facility. The Company has begun the process of
refinancing this facility 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
17. At January 31, 2015, the Company had US$96.9 million in U.S.
denominated debt compared to US$107.4 million at January 31, 2014.
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 to Canadian dollars. In
2014, the average exchange rate used to translate U.S. denominated
earnings from the International Operations was 1.1148 compared to
1.0389 last year. The Canadian dollar's depreciation in 2014 compared
to the U.S. dollar in 2013 positively impacted consolidated net earnings
by $1.1 million. In 2013, the average exchange rate was 1.0389
compared to 0.9976 in 2012 which resulted in an increase in 2013
consolidated net earnings of $0.4 million compared to 2012.
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 fixed
and floating interest rate debt and may use interest rate swaps.
Additional information regarding interest rate swaps is provided in
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 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.
24THE NORTH WEST COMPANY INC.
Food inventories counted at retail are converted to cost by
applying a discount factor to retail selling prices. This discount factor
is calculated in relation to historical gross margins and is reviewed on
a regular basis for reasonableness. General merchandise inventories
counted at retail are converted to cost by applying average cost factors
by merchandise category. These cost factors represent the average
cost-to-retail ratio for each merchandise category based on beginning
inventory and purchases made throughout the year.
Inventory shrinkage is estimated as a percentage of sales for the
period from the date of the last physical inventory count to the balance
sheet date. The estimate is based on 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.
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, 2015 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
2014 and 2013 were 3.50% and 4.50% respectively. Management
assumed the rate of compensation increase for fiscal 2014 and 2013 at
4.0%.
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 after considering
potential impairment indicated by such factors as business and market
trends, future prospects, current market value and other economic
factors. Judgment is used to determine if a triggering event has
occurred requiring an impairment test to be completed. 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
largely
generates cash
independent of the cash inflows of other assets or groups of assets. To
inflows from continuing use that are
the extent that the carrying value exceeds the estimated recoverable
amount, an impairment charge is recognized in the consolidated
statement of earnings in the period in which it occurs.
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.
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. The operating segment's recoverable amount
was based on fair value less costs of disposal. A range of fair values was
estimated by inferring enterprise values from the product of financial
performance and comparable trading multiples. Values assigned to
the key assumptions represent management's best estimates and have
been based on data from both external and internal sources. Key
assumptions used in the estimation of enterprise value include:
budgeted financial performance, selection of market trading multiples
and costs to sell. 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
2014 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 and Other 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 is also impacted by estimates
25ANNUAL REPORT
Presentation of Financial Statements In December 2014 the IASB issued
amendments to IAS 1, Presentation of Financial Statements. The
amendments provide guidance on the application of judgment in the
preparation of financial statements and disclosure and are effective for
the Company's financial year ending January 31, 2017. The Company
is currently assessing the potential impact of changes to this standard.
of future financial results, expectations regarding the timing of reversal
of temporary differences, 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
2014
The Company adopted the amendments to IFRS listed below effective
February 1, 2014, as required by the International Accounting
Standards Board ("IASB").
The Company adopted amendments to IAS 32, Financial Instruments:
Presentation and IFRIC 21, Levies retrospectively effective February 1,
2014. IAS 32 clarified the requirements that permit offsetting certain
financial instruments. IFRIC 21 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. Neither change had an 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,
2015, and have not been applied in preparing these consolidated
financial statements.
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 by both cash flow
characteristics and how an entity manages financial impairment,
replacing the multiple classification options in IAS 39 with three
categories: amortized cost, fair value through other comprehensive
income and fair value through profit or loss. Additional guidance was
also issued on the classification and measurement of financial assets
and liabilities, hedge accounting and a single forward-looking
expected loss impairment model. These changes are effective for the
Company's financial year ending January 31, 2019, will be applied
retrospectively and are available for early adoption. The Company is
currently assessing the potential impact of changes to this standard.
Revenue Recognition In May 2014, the IASB issued IFRS 15, Revenue from
Contracts with Customers. The new standard is effective for the
Company's financial year ending January 31, 2018, will be applied
retrospectively and is available for early adoption. The IFRS 15 standard
contains a comprehensive model which specifies the criteria and
timing for recognizing revenue, and also requires additional disclosures
in the notes to the financial statements. The core principle of the
standard is that revenue is recognized at an amount that reflects the
consideration the Company is entitled to. The Company is currently
assessing the potential impact this new standard will have on its
consolidated financial statements.
26THE NORTH WEST COMPANY INC.
(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
2014
2013
2012
$
724.3
$
670.5
$
651.4
Less: Total liabilities
Add: Total long-term debt
(395.0)
201.4
Net Assets Employed
$
530.7
$
(348.1)
182.9
505.3
(355.1)
163.4
459.7
$
(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) Earnings Before Interest, Income Taxes, Depreciation and
Amortization (EBITDA) is not a recognized measure under IFRS.
Management believes that in addition to net earnings, EBITDA 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 EBITDA 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 EBITDA may differ from other companies and may not be
comparable to measures used by other companies. A reconciliation of
consolidated net earnings to EBITDA is provided below:
Reconciliation of Net Earnings to EBITDA
($ in thousands)
Net earnings
Add:
Amortization
Interest expense
Income taxes
EBITDA
2014
2013
2012
$ 62,883
$
64,263
$
63,888
40,372
6,673
27,910
38,276
7,784
28,013
37,149
6,979
25,701
$ 137,838
$ 138,336
$ 133,717
For EBITDA information by business segment, see Note 4 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
2014
2013
2012
$ 62,883
$
64,263
$ 63,888
6,673
27,910
7,784
28,013
6,979
25,701
Earnings from operations (EBIT)
$ 97,466
$ 100,060
$ 96,568
For earnings from operations (EBIT) information by business segment,
see Note 4 to the consolidated financial statements.
27ANNUAL REPORT
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 ("ROE") Net earnings divided by average
shareholders' equity. See Non-GAAP Financial Measures section.
Return on net assets ("RONA") 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 food and general merchandise sales from
stores that have been open more than 52 weeks in the periods being
compared, excluding the impact of foreign exchange.
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.
EBITDA margin EBITDA divided by sales.
Working capital Total current assets less total current liabilities.
Year The fiscal year ends on January 31. The 2014 year which ended
January 31, 2015 had 365 days of operations. 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.
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.
28THE NORTH WEST COMPANY INC.
Eleven-Year Financial Summary
IFRS (2)
2014
IFRS (2)
2013
IFRS (2)
2012
IFRS (2)
2011
IFRS (2)
2010
Fiscal Year(1)
($ in thousands )
Consolidated Statements of Earnings
Sales - Canadian Operations
Sales - International Operations
Sales - Total
EBITDA(3) - Canadian Operations
EBITDA(3) - International Operations
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
EBITDA(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 at end of year)
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
EBITDA(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.
1.30
1.29
2.85
2.40
1.16
6.80
26.56
178
47
1,422
676
742
849
4,921
1,726
48,432
48,497
24,080
8.5
6.0
18.4
19.3
.61:1
48.4
5.7
$1,042,168
582,232
1,624,400
100,896
36,942
137,838
30,302
10,070
40,372
6,673
27,910
62,883
116,038
56,180
52,329
6,776
$ 315,840
311,692
68,693
28,074
150,229
244,787
329,283
$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
$
$
$
1.33
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
$
$
$
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
$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
$
$
$
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
$
$
$
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
2009
$ 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
$
$
$
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
6.5
20.0
21.0
.57:1
67.8
5.6
8.4
6.0
18.5
20.1
.62:1
44.0
5.7
8.8
6.4
20.6
22.1
.55:1
39.0
5.8
(2) The financial results for 2014 to 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 2013
Annual Report for further information.
8.7
6.2
17.9
24.1
.67:1
60.0
5.6
9.0
6.6
18.7
29.3
.72:1
62.3
5.6
29ANNUAL REPORT 2008
2007
2006
2005
2004
$ 899,263
493,371
1,392,634
90,606
31,651
122,257
24,501
7,553
32,054
8,307
6,518
75,378
90,178
67,730
46,118
3,998
$ 285,088
248,856
68,632
6,597
172,216
162,547
274,410
$ 852,773
211,717
1,064,490
87,410
19,147
106,557
22,634
4,316
26,950
7,465
9,151
62,991
93,591
54,667
44,409
(368)
$ 254,061
223,397
50,492
1,720
134,899
138,470
256,301
$ 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
$
$
$
1.58
1.56
2.56
1.89
1.40
5.75
16.14
178
43
1,396
617
651
723
5,408
1,339
47,718
47,722
16,402
8.8
6.5
19.8
28.6
.78:1
75.1
5.8
$
$
$
1.32
1.31
2.24
1.96
1.13
5.37
18.42
176
44
1,368
639
657
410
5,359
1,502
47,649
47,701
17,330
10.0
7.5
21.0
24.9
.62:1
58.4
5.3
$
$
$
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
Fiscal Year(1)
($ in thousands )
Consolidated Statements of Earnings
Sales - Canadian Operations
Sales - International Operations
Sales - Total
EBITDA(3) - Canadian Operations
EBITDA(3) - International Operations
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
EBITDA(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 at end of year)
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
EBITDA(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 27.
(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.
30THE NORTH WEST COMPANY INC. Management’s Responsibility for Financial Statements
Independent Auditor’s Report
The management of The North West Company Inc. is responsible
for the preparation, presentation and integrity of the accompanying
consolidated financial statements and all other information in the
annual report. The consolidated financial statements have been
prepared by management in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board and include certain amounts that are based on the
best estimates and judgment by management.
In order to meet its responsibility and ensure integrity of financial
information, management has established a code of business ethics,
and maintains appropriate internal controls and accounting systems.
An internal audit function is maintained that is designed to provide
reasonable assurance that assets are safeguarded, transactions are
authorized and recorded and that the financial records are reliable.
Ultimate responsibility for financial reporting to shareholders rests
with the Board of Directors. The Audit Committee of the Board of
Directors, consisting of independent Directors, meets periodically with
management and with the internal and external auditors to review the
audit results, internal controls and accounting policies. Internal and
external auditors have unlimited access to the Audit Committee. The
Audit Committee meets separately with management and the external
auditors to review the financial statements and other contents of the
annual report and recommend approval by the Board of Directors. The
Audit Committee also recommends the independent auditor for
appointment by the shareholders.
PricewaterhouseCoopers LLP, an independent firm of auditors
appointed by the shareholders, have completed their audit and
submitted their report as follows.
Edward S. Kennedy
PRESIDENT & CEO
THE NORTH WEST COMPANY INC.
John D. King
CHIEF FINANCIAL OFFICER
THE NORTH WEST COMPANY INC.
April 9, 2015
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, 2015 and
January 31, 2014 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, 2015 and January
31, 2014 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, 2015
31CONSOLIDATED FINANCIAL STATEMENTS
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, 2015
January 31, 2014
$
29,129
72,506
204,812
9,393
315,840
311,692
33,653
22,485
28,074
12,555
408,459
$
22,353
70,527
198,856
7,335
299,071
286,875
29,424
21,514
19,597
14,031
371,441
TOTAL ASSETS
$
724,299
$ 670,512
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
“Eric L. Stefanson, FCA”
DIRECTOR
“H. Sanford Riley”
DIRECTOR
$
142,788
$ 128,999
6,271
1,170
150,229
195,125
36,556
2,392
10,714
244,787
395,016
167,460
2,831
140,527
18,465
329,283
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
$
724,299
$ 670,512
32THE NORTH WEST COMPANY INC.
Consolidated Statements of Earnings
($ in thousands, except per share amounts)
SALES
Cost of sales
Gross profit
Selling, operating and administrative expenses (Notes 16, 17)
Earnings from operations
Interest expense (Note 18)
Earnings before income taxes
Income taxes (Note 9)
NET EARNINGS FOR THE YEAR
NET EARNINGS PER SHARE (Note 20)
Basic
Diluted
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING (000's)
Basic
Diluted
See accompanying notes to consolidated financial statements.
Year Ended
Year Ended
January 31, 2015
January 31, 2014
$ 1,624,400
$ 1,543,125
(1,160,182)
(1,088,071)
464,218
(366,752)
97,466
(6,673)
90,793
(27,910)
455,054
(354,994)
100,060
(7,784)
92,276
(28,013)
$
62,883
$
64,263
$
$
1.30
1.29
$
$
1.33
1.32
48,432
48,709
48,413
48,657
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:
Year Ended
Year Ended
January 31, 2015
January 31, 2014
$
62,883
$
64,263
Exchange differences on translation of foreign controlled subsidiaries
11,384
7,898
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
See accompanying notes to consolidated financial statements.
(11,968)
30
(554)
7,804
(300)
15,402
$
62,329
$
79,665
33CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands)
Balance at January 31, 2014
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 (Note 15)
Share
Capital
Contributed
Surplus
Retained
Earnings
AOCI (1)
Total
$ 166,069
$
3,528
$ 145,762
$
7,081
$ 322,440
—
—
—
—
—
—
1,391
1,391
—
—
—
—
373
—
(1,070)
62,883
(11,968)
30
50,945
—
(56,180)
—
(697)
(56,180)
—
11,384
—
11,384
—
—
—
—
62,883
(584)
30
62,329
373
(56,180)
321
(55,486)
Balance at January 31, 2015
$167,460
$
2,831
$140,527
$ 18,465
$329,283
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 (Note 15)
$ 165,358
$
3,485
$ 128,224
$
(817)
$ 296,250
—
—
—
—
—
—
711
711
—
—
—
—
623
—
(580)
43
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
(1) Accumulated Other Comprehensive Income
See accompanying notes to consolidated financial statements.
34THE NORTH WEST COMPANY INC.
Consolidated Statements of Cash Flows
($ in thousands)
CASH PROVIDED BY (USED IN)
Operating activities
Net earnings for the year
Adjustments for:
Amortization
Provision for income taxes (Note 9)
Interest expense (Note 18)
Equity settled share option expense (Note 13)
Taxes paid
(Gain)/Loss on disposal of property and equipment
Change in non-cash working capital
Change in other non-cash items
Cash from operating activities
Investing activities
Purchase of property and equipment (Note 7)
Intangible asset additions (Note 8)
Proceeds from disposal of property and equipment
Cash used in investing activities
Financing activities
Increase in long-term debt (Note 11)
Repayments of 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
See accompanying notes to consolidated financial statements.
Year Ended
Year Ended
January 31, 2015
January 31, 2014
$
62,883
$
64,263
40,372
27,910
6,673
373
(32,881)
(294)
105,036
9,225
1,777
116,038
(49,101)
(3,228)
2,017
(50,312)
78,572
(75,950)
(56,180)
(5,713)
321
(58,950)
6,776
22,353
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
$
29,129
$
22,353
35CONSOLIDATED FINANCIAL STATEMENTS
Notes to
Consolidated
Financial
Statements
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JANUARY 31, 2015 AND 2014
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, 2015.
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 of the rights to the net assets of the
arrangement, rather than rights to its assets and obligations for
its liabilities. 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
The
for using the acquisition method of accounting.
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 and settlement is accounted for
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.
36THE NORTH WEST COMPANY INC.
(C) Revenue Recognition Revenue on the sale of goods is recorded
at the time the sale is made to the customer, being when the
significant risks and rewards of ownership have transferred to the
customer, recovery of the consideration is probable, and the
amount of revenue can be measured reliably. Sales are presented
net of tax, returns and discounts and are measured at the fair value
of the consideration received or receivable from the customer for
the products sold or services supplied. Service charges on
customer account receivables are accrued each month on
balances outstanding at each account’s billing date.
(D) Inventories Inventories are valued at the lower of cost and net
realizable value. The cost of warehouse inventories is determined
using the weighted-average cost method. The cost of retail
inventories is determined primarily using the retail method of
accounting for general merchandise inventories and the cost
method of accounting for food inventories on a first-in, first-out
basis. Cost includes the cost to purchase goods net of vendor
allowances plus other costs incurred in bringing inventories to
their present location and condition. Net realizable value is
estimated based on the amount at which inventories are
expected to be sold, taking into consideration fluctuations in retail
prices due to 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% – 20%
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).
37NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(I) Borrowing Costs Borrowing costs directly attributable to the
acquisition or construction of qualifying assets are capitalized as
part of the cost of the respective asset until it is ready for its
intended use. Qualifying assets are those assets that necessarily
take a substantial period of time to prepare for their intended use.
Borrowing costs are capitalized based on the Company’s
weighted-average cost of borrowing. All other borrowing costs
are expensed as incurred.
(J) Goodwill Goodwill represents the excess of the consideration
transferred over the fair value of the identifiable assets, including
intangible assets, and liabilities of the acquiree at the date of
acquisition. Goodwill is not amortized but is subject to an
impairment test annually and whenever indicators of impairment
are detected. Goodwill is carried at cost less accumulated
impairment losses.
(K)
Intangible Assets Intangible assets with finite lives are carried
at cost less accumulated amortization and any impairment loss.
Amortization is recorded on a straight-line basis over the term of
the estimated useful life of the asset as follows:
Software
Non-compete agreements
3 – 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.
if
(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
38THE NORTH WEST COMPANY INC.
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
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 expensed at the
earlier of when the Company can no longer withdraw the offer of
those benefits and when the Company recognizes costs for a
restructuring. If the effect is significant, benefits are discounted
to present value.
(P) Provisions A provision is recognized if, as a result of a past event,
the Company has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation.
(Q) Financial Instruments Financial assets and
liabilities are
recognized when the Company becomes a party to the
contractual provisions of the financial instrument. Financial assets
are derecognized when the contractual rights to receive cash
flows and benefits related from the financial asset expire, or the
Company transfers the control or substantially all the risks and
rewards of ownership of the financial asset to another party.
Financial liabilities are derecognized when obligations under the
contract expire, are discharged or cancelled.
initial
recognition, all financial instruments are classified into one of the
following categories: fair value through profit or loss (FVTPL), loans
and receivables, held-to-maturity investments, available-for-sale,
or other financial liabilities.
On
Financial instruments have been classified as follows:
•
•
•
Cash is designated as loans and receivables
Accounts receivable and financial assets included in other
assets are classified as loans and receivables
Long-term debt, accounts payable and accrued liabilities,
and certain other liabilities are classified as other financial
liabilities
Financial instruments are initially recognized at fair value plus
transaction costs; subsequent measurement and recognition of
changes in value depends on their initial classification. Financial
instruments classified as FVTPL are subsequently measured at fair
value, with changes in fair value recorded in net earnings. Loans
and receivables are subsequently carried at amortized cost less
impairment losses. Interest revenue, consisting primarily of
service charge income on customer accounts receivable, is
included in sales in the consolidated statement of earnings. Other
financial liabilities are subsequently held at amortized cost.
Interest expense relating to long-term debt is recorded using the
effective interest rate method and included in the consolidated
statement of earnings as interest expense.
The Company is exposed to financial risks associated with
movements in interest rates and exchange rates. The Company
instruments to hedge these
may use derivative financial
exposures. Qualifying hedge relationships are classified as either
fair value hedges, cash flow hedges or as a hedge of a net
investment in foreign operations. Fair value hedges are those
where the derivative financial instrument hedges a change in the
fair value of the financial asset or liability due to movements in
interest rates. The Company does not have any cash flow hedges.
Net investment hedges use financial liabilities to counterbalance
gains and losses arising on the retranslation of foreign operations.
To qualify for hedge accounting, the Company documents
its risk management strategy, the relationship between the
hedging instrument and the hedged item or transaction and the
nature of the risks being hedged. The Company also documents
the assessment of the effectiveness of the hedging relationship,
to show that the hedge has been and will likely be highly effective
on an ongoing basis.
To the extent that a fair value hedging relationship is
effective, a gain or loss arising from the hedged item adjusts its
carrying value and is reflected in earnings, offset by a change in
fair value of the underlying derivative. Any changes in fair value
of derivatives that do not qualify for hedge accounting are
reported in earnings. Changes in fair value relating to interest rate
swaps are included in interest expense.
The Company has designated a portion of the U.S.
denominated senior notes as a hedge of its net investment in U.S.
operations. To the extent that the hedging relationship is effective,
the foreign exchange gains and losses arising from translation of
this debt are included in other comprehensive income. These
gains and losses are subsequently recognized in earnings when
the hedged item affects earnings.
loss on the hedging
Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated, or exercised, or no longer
qualifies for hedge accounting. At that time, any cumulative gain
in other
or
comprehensive income is retained in equity until the forecasted
transaction occurs. If a hedged transaction is no longer expected
to occur, the net cumulative gain or loss recognized in other
comprehensive income is transferred to the income statement
for the period.
instrument recognized
Embedded derivatives are components of hybrid
instruments that include non-derivative host contracts. These are
separated from their host contracts and recorded on the
consolidated balance sheets at fair value when certain conditions
are met. Changes in the fair value of embedded derivatives are
recognized in earnings.
(R) Cash Cash comprises cash on hand and balances with banks.
39NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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
and disclosure of contingent assets and
in the
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
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
judgments by
estimates
management about matters that are uncertain and changes in
these estimates could materially
impact the consolidated
financial statements and notes. Revisions to accounting estimates
are recognized in the period in which the estimates are reviewed
and in any future periods affected.
require subjective or complex
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, 2014, as
required by the IASB.
The Company adopted amendments to IAS 32, Financial
Instruments: Presentation and IFRIC 21, Levies retrospectively
effective February 1, 2014. IAS 32 clarified the requirements that
permit offsetting certain financial instruments. IFRIC 21 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. Neither change had an impact on the
Company's consolidated financial statements.
(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, 2015, and have
not been applied in preparing these consolidated financial
statements.
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 by both cash flow
characteristics and how an entity manages financial impairment,
replacing the multiple classification options in IAS 39 with three
through other
categories: amortized cost,
comprehensive income and fair value through profit or loss.
Additional guidance was also issued on the classification and
measurement of financial assets and liabilities, hedge accounting
and a single forward-looking expected loss impairment model.
These changes are effective for the Company's financial year
ending January 31, 2019, will be applied retrospectively and are
available for early adoption. The Company is currently assessing
the potential impact of changes to this standard.
fair value
Revenue Recognition In May 2014, the IASB issued IFRS 15, Revenue
from Contracts with Customers. The new standard is effective for
the Company's financial year ending January 31, 2018, will be
applied retrospectively and is available for early adoption. The
IFRS 15 standard contains a comprehensive model which specifies
the criteria and timing for recognizing revenue, and also requires
additional disclosures in the notes to the financial statements. The
core principle of the standard is that revenue is recognized at an
amount that reflects the consideration the Company is entitled
to. The Company is currently assessing the potential impact this
new standard will have on its consolidated financial statements.
Presentation of Financial Statements In December 2014 the IASB
issued amendments to IAS 1, Presentation of Financial Statements.
The amendments provide guidance on the application of
judgment
in the preparation of financial statements and
disclosure and are effective for the Company's financial year
ending January 31, 2017. The Company is currently assessing the
potential impact of changes to this standard.
40THE NORTH WEST COMPANY INC. 4. 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, 2015
January 31, 2014
$ 1,042,168
$ 1,022,985
582,232
520,140
Consolidated
$ 1,624,400
$ 1,543,125
Earnings before amortization, interest and income taxes
Canada
International
$ 100,896
$
111,225
36,942
27,111
Consolidated
$ 137,838
$
138,336
Earnings from operations
Canada
International
$
70,594
$
26,872
81,967
18,093
Consolidated
$
97,466
$
100,060
Assets
Canada
International
January 31, 2015
January 31, 2014
$ 455,032
$
438,299
269,267
232,213
Consolidated
$ 724,299
$
670,512
International total assets includes goodwill of $33,653 (January 31,
2014 - $29,424).
Supplemental information
Year Ended
January 31, 2015
January 31, 2014
Canada
Int'l
Canada
Int'l
Expenditure on property and
equipment
$ 36,455 $ 12,646 $ 26,242 $ 13,354
Amortization
$ 30,302 $ 10,070 $ 29,258 $ 9,018
January 31, 2015
January 31, 2014
Current:
Trade accounts receivable
$ 72,167
$ 71,763
Corporate and other
accounts receivable
Less: allowance for doubtful
accounts
Non-current:
Long-term receivable
(Note 10)
11,764
10,188
(11,425)
(11,424)
$ 72,506
$ 70,527
$
—
$
2,517
$ 72,506
$ 73,044
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, 2015
January 31, 2014
Current:
Balance, beginning of year
$
(11,424)
$
(14,042)
Net charge
Written off
(6,120)
6,119
(7,858)
10,476
Balance, end of year
$
(11,425)
$
(11,424)
6.
INVENTORIES
Retail inventories are valued at the lower of cost and net realizable value.
Valuing retail inventories requires the Company to use estimates
related to: discount factors used to convert inventory to cost; future
retail sales prices and reductions; and inventory losses during periods
between the last physical count and the balance sheet date. Included
in cost of sales for the year ended January 31, 2015, the Company
recorded $4,223 (January 31, 2014 - $1,522) for the write-down of
inventories as a result of net realizable value being lower than cost. The
increase in the write-down of inventories is due to the clearance of
discontinued under-performing general merchandise inventory in the
northern Canada stores. There was no reversal of inventories written
down previously that are no longer estimated to sell below cost during
the year ended January 31, 2015 or 2014.
41NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PROPERTY & EQUIPMENT
January 31, 2015
Cost
Land
Buildings
Leasehold
improvements
Fixtures &
equipment
Computer
equipment
Construction
in process
Total
Balance, beginning of year
$
15,692
$ 350,924
$
45,576
$ 245,863
$
65,327
$
Additions
Disposals
Effect of movements in foreign exchange
—
(700)
1,049
16,917
(4,402)
13,622
4,001
(148)
2,416
14,363
(4,858)
10,338
6,540
(200)
1,484
9,120
7,280
—
59
$ 732,502
49,101
(10,308)
28,968
Total January 31, 2015
$
16,041
$ 377,061
$
51,845
$ 265,706
$
73,151
$
16,459
$ 800,263
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals
Effect of movements in foreign exchange
Total January 31, 2015
$
$
—
—
—
—
—
$ 191,439
$
25,798
$ 171,321
$
57,069
$
16,565
(4,047)
5,627
3,275
(82)
1,305
13,034
(4,321)
6,583
3,903
(135)
1,237
$ 209,584
$
30,296
$ 186,617
$
62,074
$
—
—
—
—
—
$ 445,627
36,777
(8,585)
14,752
$ 488,571
Net book value January 31, 2015
$ 16,041
$ 167,477
$ 21,549
$ 79,089
$ 11,077
$ 16,459
$ 311,692
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
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 3.66% and 3.68% for the years ended January 31,
2015 and 2014 respectively. Interest capitalized in additions amounted to $274 (January 31, 2014 - $192). Accumulated interest capitalized in the
cost total above amounted to $1,163 (January 31, 2014 - $889).
42THE NORTH WEST COMPANY INC.
8. GOODWILL & INTANGIBLE ASSETS
Goodwill
January 31, 2015
January 31, 2014
Balance, beginning of year
$
29,424
$
26,162
Additions
Effect of movements in foreign
exchange
—
4,229
291
2,971
Balance, end of year
$
33,653
$
29,424
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 value less costs of disposal. The recoverable amount of
this CGU was based on fair value less costs of disposal. A range of fair
values was estimated by inferring enterprise values from the product
of financial performance and comparable trading multiples. Values
assigned to the key assumptions represent management's best
estimates and have been based on data from both external and internal
sources. The fair value measurement was categorized as a Level 3 fair
value based on the inputs in the valuation technique used. Key
assumptions used in the estimation of enterprise value are set out
below.
•
•
•
Financial performance was measured with actual and
budgeted earnings based on sales and expense growth
specific to each store and the Company's administrative
offices. Financial budgets and forecasts are approved by
senior management and consider historical sales volume
and price growth;
The ratio of enterprise value to financial performance was
determined using a range of market trading multiples from
comparable companies;
Costs to sell have been estimated as a fixed percentage of
enterprise value. This is consistent with the approach of an
independent market participant.
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, 2015
Cost
Balance, beginning of year
Additions
Write off of fully amortized assets
Effect of movements in foreign exchange
Total January 31, 2015
Accumulated Amortization
Balance, beginning of year
Amortization expense
Write off of fully amortized assets
Effect of movements in foreign exchange
Total January 31, 2015
Net book value January 31, 2015
Software
Cost-U-Less banner
Other
Total
$
25,218
$
7,783
$
7,987
$
40,988
3,158
—
—
$
28,376
$
14,272
2,760
—
—
$
17,032
$ 11,344
—
—
1,119
8,902
—
—
—
—
—
8,902
$
$
$
$
70
(731)
663
7,989
5,202
835
(731)
444
5,750
2,239
$
$
$
$
3,228
(731)
1,782
$
45,267
$
19,474
3,595
(731)
444
$
22,782
$ 22,485
43NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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
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
Work in process
As at January 31, 2015 the Company had incurred $468 (January 31,
2014 - $284) 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.
44THE NORTH WEST COMPANY INC. 9.
INCOME TAXES
The following are the major components of income tax expense:
Deferred income tax charged (credited) to other comprehensive
income during the year is as follows:
Year Ended
January 31, 2015
January 31, 2014
Year Ended
January 31, 2015
January 31, 2014
Net investment hedge:
Origination and reversal of
temporary difference
$
(185)
$ (1,057)
Impact of change in tax rates
—
1
$
(185)
$ (1,056)
Current tax expense:
Current tax on earnings for
the year
Withholding taxes
Under (over) provision in
prior years
Deferred tax expense:
Origination and reversal of
temporary differences
Impact of change in tax rates
Under provision in prior years
$ 31,998
$ 35,493
263
(1,697)
69
223
$ 30,564
$ 35,785
$ (4,572)
$ (7,781)
Defined benefit plan
actuarial loss:
Origination and reversal of
temporary difference
Impact of change in tax rates
—
1,918
(2,654)
(9)
18
(7,772)
Investments:
Income taxes
$ 27,910
$ 28,013
Origination and reversal of
temporary difference
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, 2015
January 31, 2014
Net earnings before income
taxes
Combined statutory income
tax rate
Expected income tax
expense
$ 90,793
$ 92,276
29.1%
28.4%
$ 26,421
$ 26,206
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
$
(141)
$
(115)
1,090
263
—
221
56
1,674
69
(9)
241
(53)
Provision for income taxes
$ 27,910
$ 28,013
Income tax rate
30.7%
30.4%
Deferred tax assets of $4,800 arising from certain foreign income tax
losses were not recognized on the consolidated balance sheet. The
income tax losses expire from 2022 - 2024.
$ (4,379)
$
2,854
—
(4,379)
(5)
2,849
$
$
5
5
$ (4,559)
$
$
$
(47)
(47)
1,746
45NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
January 31, 2015
February 1, 2014
Deferred tax assets:
Taxes (charged)
credited to net
earnings
Taxes (charged)
credited to OCI
Foreign exchange
differences recognized
in OCI
January 31, 2015
Goodwill & intangible assets
$
456
$
(250)
$
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
12,225
1,886
3,463
4,941
4,590
1,599
$
29,160
$
(185)
(1,100)
(10,139)
(151)
$ (11,575)
$
17,585
304
779
(652)
483
(235)
(231)
198
(34)
(164)
2,569
85
2,456
2,654
$
$
$
$
$
$
$
$
Recorded on the consolidated balance sheet as follows:
Year Ended
Deferred tax assets
Deferred tax liabilities
—
—
—
—
4,379
—
—
4,379
185
(5)
—
—
180
4,559
$
$
$
$
$
(81)
136
182
61
—
446
140
884
—
—
—
—
—
$
125
12,665
2,847
2,872
9,803
4,801
1,508
$ 34,621
$
(34)
(1,269)
(7,570)
(66)
$ (8,939)
884
$ 25,682
January 31, 2015
January 31, 2014
$ 28,074
(2,392)
$
19,597
(2,012)
$ 25,682
$
17,585
46THE NORTH WEST COMPANY INC. 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
$
$
$
$
70
1,700
154
31
183
78
(222)
$
—
—
—
—
(2,849)
—
—
1,994
$
(2,849)
—
2
5,731
45
5,778
7,772
$
1,056
47
—
—
$
$
1,103
(1,746)
$
$
$
$
$
(32)
96
118
61
—
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
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 $73,285 at January 31, 2015 (January 31, 2014 –
$60,000).
10. OTHER ASSETS
Investment in jointly controlled entity (Note 23)
Long-term receivable (Note 5)
Other
January 31, 2015
January 31, 2014
$
9,482
$
—
3,073
8,223
2,517
3,291
$ 12,555
$
14,031
47NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. LONG-TERM DEBT
12. POST-EMPLOYMENT BENEFITS
incorporated
The Company sponsors defined benefit and defined contribution
pension plans covering the majority of Canadian employees. Effective
January 1, 2011, the Company entered into an amended and restated
staff pension plan, which
legislated changes,
administrative practice, and added a defined contribution provision
(the “Amended Plan”). Under the Amended Plan, all members as of
December 31, 2011 who did not meet a qualifying threshold based on
number of years in the pension plan and age were transitioned to the
defined contribution pension plan effective January 1, 2011 and no
longer accumulate years of service under the defined benefit pension
plan. The defined benefit pension previously earned by members
transitioned to the defined contribution plan, will continue to accrue
in accordance with the terms of the plan based on the member’s
current pensionable earnings. Members who met the qualifying
threshold on January 1, 2011, elected between accruing a defined
contribution benefit and continuing to accrue a defined benefit
pension in accordance with the provisions of the Amended Plan.
The defined benefit pension plans are based on years of service
and final average salary. The Company uses actuarial reports prepared
by independent actuaries for accounting purposes as at January 31,
2015 and January 31, 2014. The accrued pension benefits and funding
requirements were last determined by actuarial valuation as at
December 31, 2013. The next actuarial valuation is required as at
December 31, 2016. 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, 2015, the Company
contributed $2,132 to its defined benefit pension plans (January 31,
2014 - $3,829). During the year ended January 31, 2015, the Company
contributed $2,562 to
its defined contribution pension plans
(January 31, 2014 - $2,310). The current best estimate of the Company's
funding obligation for the defined benefit pension plans for the year
commencing February 1, 2015 is $3,165 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(1)
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, 2015
January 31, 2014
$
72
55
6,144
—
$
148
76
—
77,576
$
6,271
$
77,800
$
—
$
1,302
27,977
78,367
88,779
—
2
40,028
63,607
—
62
63
$ 195,125
$ 105,062
Total
$ 201,396
$ 182,862
(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, 2015, the International Operations had
drawn US$4,831 (January 31, 2014 – US$1,171) on this facility.
(2) The US$52,000 committed, revolving loan facilities in the
International Operations mature December 31, 2018 and bear interest
at LIBOR plus a spread. These loan facilities are secured by certain 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,
2015, the Company had drawn US$22,000 (January 31, 2014 – US
$36,000) on these facilities.
(3) These committed, revolving loan facilities provide the Company's
Canadian Operations with up to $200,000 for working capital
requirements and general business purposes. The facilities mature
December 31, 2018 and are secured by certain 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 Company refinanced the US$70,000 senior notes that matured
on June 15, 2014. The maturing senior notes had a fixed interest rate
of 6.55% on US$42,000 and a floating interest rate based on US LIBOR
plus a spread on US$28,000. The new US$70,000 senior notes, which
mature on June 16, 2021, have a fixed interest rate of 3.27% on US
$55,000 and a floating interest rate on US$15,000 based on US LIBOR
plus a spread. The new senior notes are secured by certain assets of
the Company and rank pari passu with the $200,000 Canadian
Operations loan facilities and the US$52,000 loan facilities in the
International Operations.
48THE 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, 2015
January 31, 2014
January 31, 2015
January 31, 2014
Plan assets:
Fair value, beginning of year
$
75,427
$
65,139
Average life expectancies at age 65 for current pensioners:
Accrued interest on assets
Benefits paid
Plan administration costs
Employer contributions
Employee contributions
Return on assets greater than
discount rate
3,334
(4,823)
(413)
2,132
14
6,627
2,771
(3,726)
(530)
3,829
33
7,911
Fair value, end of year
$
82,298
$
75,427
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
$ (93,844)
$
(93,570)
(2,730)
(14)
(4,115)
4,823
(2,688)
(19,324)
(962)
(2,812)
(33)
(3,897)
3,726
563
4,011
(1,832)
$ (118,854)
$ (36,556)
$
$
(93,844)
(18,417)
The defined benefit obligation exceeds the fair value of plan assets as
noted in the table. The increase in the plan deficit is primarily due to
a decrease in the discount rate used to measure plan liabilities, partially
offset by an increase in plan assets due to asset returns.
Defined benefit obligation
The following actuarial assumptions were employed to measure the
plan:
January 31, 2015
January 31, 2014
Discount rate on plan liabilities
Rate of compensation increase
Discount rate on plan expense
Inflation assumption
3.50%
4.00%
4.50%
2.00%
4.50%
4.00%
4.25%
2.00%
The assumptions used are the best estimates chosen from a range of
possible actuarial assumptions, which may not necessarily be borne
out in practice. The weighted average duration of the defined benefit
obligation at the end of the reporting period is 18.8 years (January 31,
2014 - 17.3 years).
Male
Female
21.1
23.5
20.5
22.8
Average life expectancies at age 65 for current members aged 45:
Male
Female
22.2
24.5
20.7
22.6
Assumptions regarding future mortality experience are set based on
actuarial advice in accordance with published statistics and experience.
For the year ended January 31, 2015, mortality assumptions have been
estimated at 106% of the base mortality rates in the CPM2014PNV table
based on pension size and
Mortality
assumptions in the prior year were based on 92% of the 1994 United
Pensioners Mortality Table with projections using scale AA.
industry classification.
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
Discount rate: 3.5%
Impact of:
1% increase
1% decrease
$ (19,324)
$
25,256
$ (1,112)
$
1,046
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, 2015
January 31, 2014
Plan assets:
Canadian equities (pooled)
Global equities (pooled)
Debt securities
Total
42%
21%
37%
100%
42%
20%
38%
100%
49NOTES 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, 2015
January 31, 2014
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
$
2,730
$
2,812
413
2,562
464
530
2,310
434
$
6,169
$
6,086
$ (3,334)
$ (2,771)
4,115
3,897
$
781
$
1,126
The following amounts have been included in Other Comprehensive
Income:
January 31, 2015
January 31, 2014
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
$
6,627
$
7,911
(2,688)
(19,324)
(962)
4,379
563
4,011
(1,832)
(2,849)
$ (11,968)
$
7,804
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
$ (26,940)
$ (10,593)
5,129
750
$ (21,811)
$
(9,843)
The actual return on the plans assets is summarized as follows:
January 31, 2015
January 31, 2014
Accrued interest on assets
$
3,334
$
2,771
Return on assets greater than
discount rate
6,627
7,911
Actual return on plan assets
$
9,961
$ 10,682
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, 2015 was $5,948 (January 31, 2014 - $8,934).
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, 2015
January 31, 2014
$ 9,526
$
7,688
4,485
1,262
6,593
1,959
Total
$ 15,273
$ 16,240
50THE NORTH WEST COMPANY INC.
The fair value of the Declining Strike Price Options is remeasured
at the reporting date and recognized both in net earnings and as a
liability over the vesting period. The grant date fair value of the Standard
Options is recognized in net earnings and contributed surplus over the
vesting period.
The maximum number of shares available for issuance is a fixed
number set at 4,354,020, representing 9% of the Company’s issued and
outstanding shares at January 31, 2015. 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, 2015 is $2,119 (January 31,
2014 - $1,934).
The fair values for options issued during the year were calculated based
on the following assumptions:
2014
2013
Fair value of options granted
$ 3.14 to 4.43
$ 3.28 to 4.46
Exercise price
Dividend yield
$ 24.79
4.6%
$ 23.21
4.4%
Annual risk-free interest rate
1.1% to 1.6%
1.3% to 1.4%
Expected share price volatility
23.7%
26.0%
The assumptions used to measure options at the balance sheet dates
were as follows:
Dividend yield
2014
4.4%
2013
4.4%
Annual risk-free interest rate
0.4% to 0.6%
1.0% to 1.6%
Expected share price volatility
16.7% to 19.6%
19.2% to 22.2%
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. All
outstanding grants vested January 31, 2014. 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, 2015 are $2,138 (January 31, 2014 - $5,267).
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 ("Declining Strike Price
Options"). Options issued prior to June 14, 2011 and certain options
issued subsequently are standard options ("Standard Options"). Each
option is exercisable into one share of the Company at the price
specified in the terms of the option. Declining Strike Price options allow
the employee 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.
51NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following continuity schedules reconcile the movement in outstanding options during the year:
Number of options outstanding
Declining Strike Price Options
Standard Options
Outstanding options, beginning of year
Granted
Exercised
Forfeited or cancelled
Outstanding options, end of year
Exercisable at end of year
2014
2013
2014
2013
896,694
355,795
(21,028)
(23,466)
580,015
316,679
—
—
526,380
36,631
(169,035)
(2,100)
556,932
67,580
(98,132)
—
1,207,995
896,694
391,876
526,380
73,675
—
121,333
132,301
The weighted average share price on the dates options were exercised during 2014 was $26.24 (January 31, 2014 - $24.25).
Weighted-average exercise price
Declining Strike Price Options
Standard Options
Outstanding options, beginning of year
$
21.86
$
21.12
$
19.10
$
18.07
2014
2013
2014
2013
Granted
Exercised
Forfeited or cancelled
Outstanding options, end of year
Exercisable at end of year
Summary of options outstanding by grant year
24.79
20.62
22.88
22.79
18.73
$
$
23.21
—
—
21.86
—
$
$
24.79
16.22
19.11
20.88
18.92
$
$
23.21
16.09
—
19.10
17.11
$
$
Outstanding
Exercisable
Range of
exercise price
Number
outstanding
Weighted-average
remaining
contractual years
Weighted-average
exercise price
Options
exercisable
Weighted-average
exercise price
$
$
$
$
$
$
15.25-15.25
19.11-19.74
18.73-20.62
20.41-21.86
22.39-23.21
24.30-24.79
12,867
157,834
312,929
352,971
377,647
385,623
4.4
5.2
3.5
4.2
5.2
6.2
$
$
$
$
$
$
15.25
19.13
19.05
20.67
22.54
24.64
12,867
92,136
90,005
NIL
NIL
NIL
$
15.25
19.13
19.07
N/A
N/A
N/A
Grant
year
2009
2010
2011
2012
2013
2014
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, 2015 is an expense of $930 (January 31,
2014 –$1,031). The total number of deferred share units outstanding
at January 31, 2015 is 171,443 (January 31, 2014 – 145,806). There were
3,500 DSUs exercised during the year ended January 31, 2015
(January 31, 2014 – 20,629). These DSUs were settled in cash.
52THE 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, 2015 is
$761 (January 31, 2014 – $702).
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, 2015, the Company had undrawn committed revolving loan facilities available of $180,495 (January 31, 2014 - $172,463)
which mature in 2015, 2018 and 2021 (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.
2015
2016
2017
2018
2019
2020+
Total
Accounts payable and accrued liabilities
$
142,788
Current portion of long-term debt (Note 11)
Long-term debt (Note 11)
Operating leases (Note 21)
Total
6,404
4,202
25,851
$
179,245
—
—
4,200
22,661
26,861
—
—
4,200
19,923
24,123
—
—
110,361
15,974
126,335
—
—
2,000
12,223
14,223
—
—
91,768
54,716
$ 142,788
6,404
216,731
151,348
146,484
$ 517,271
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 $72,506 (January
31, 2014 - $73,044). The Company does not have any individual
customers greater than 10% of total accounts receivable. At January 31,
2015, the Company’s gross maximum credit risk exposure is $83,931
(January 31, 2014 - $84,468). Of this amount, $13,223 (January 31, 2014
- $13,706) is more than 60 days past due.
The Company has recorded an allowance against its maximum exposure
to credit risk of $11,425 (January 31, 2014 - $11,424) which is based on
historical payment records for similar financial assets.
As at January 31, 2015 and 2014, 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.
53NOTES 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 may modify this blend
using interest rate swaps. 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 $922.
A 100 basis point decrease would cause net income to increase by
approximately $922.
(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, 2015
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued liabilities
Current portion of long-term debt
Long-term debt
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
Short-term
Long-term
Short-term
Short-term
Long-term
$
29,129
$
29,129
$
72,506
1,321
(142,788)
(6,271)
(195,125)
72,506
1,321
(142,788)
(6,271)
(197,654)
—
—
—
—
—
—
Assets (Liabilities) carried at
amortized cost
Assets (Liabilities)
carried at fair value
Maturity Carrying amount
Fair value
Carrying amount
Short-term
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
$
22,353
$
22,353
$
70,527
3,761
70,527
3,761
(128,999)
(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).
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.
54THE NORTH WEST COMPANY INC. 15. SHARE CAPITAL
Authorized – The Company has an unlimited number of shares.
Balance at January 31, 2014
48,425,787
Issued under option plans (Note 13)
71,412
$ 166,069
$
1,391
Shares
Consideration
Balance at January 31, 2015
48,497,199
$ 167,460
16. EXPENSES BY NATURE
Year Ended
January 31, 2015
January 31, 2014
Employee costs (Note 17)
$ 229,405
$
222,952
Amortization
Operating lease rentals
40,372
26,581
38,276
24,698
17. EMPLOYEE COSTS
Year Ended
January 31, 2015
January 31, 2014
Wages, salaries and benefits
including bonus
Post-employment benefits (Note 12)
Share-based compensation
(Note 13)
$ 217,288
$ 207,932
6,169
5,948
6,086
8,934
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
$
3,479
$
3,308
999
3,466
978
5,245
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.
A portion of the senior notes that matured June 15, 2014 were in an
effective fair value hedging relationship. These notes and associated
derivative financial instruments were classified as Level 2, as their values
were primarily derived from observable interest rates. There would have
been 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 held interest rate swaps with a notional value of US
$28,000 (January 31, 2014 – US$28,000) to hedge a portion of the fixed
rate senior notes that matured in June 2014. Under the terms of the
swaps, the Company received fixed interest and paid floating rate
interest at a fixed spread above three-month LIBOR. These interest rate
swaps matured June 15, 2014 and were not renewed.
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, 2015, the debt-to-equity ratio
was 0.61 compared to 0.57 last year. The debt-to-equity ratio is
within the Company’s objectives. The debt-to-equity ratio is
calculated as follows:
Current portion of
long-term debt
Long-term debt
Total debt
Total equity
Debt-to-equity ratio
January 31, 2015
January 31, 2014
$
$
$
6,271
195,125
201,396
329,283
0.61
$
$
$
77,800
105,062
182,862
322,440
0.57
(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, 2015 and 2014, 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, 2015.
55NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. INTEREST EXPENSE
19. DIVIDENDS
Year Ended
January 31, 2015
January 31, 2014
Interest on long-term debt
$ 6,143
$ 7,181
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
173
781
(150)
(274)
(3)
1,126
(328)
(192)
Interest expense
$ 6,673
$ 7,784
The following is a summary of the dividends recorded in retained
earnings and paid in cash:
Year Ended
January 31, 2015
January 31, 2014
Dividends recorded in retained
earnings and paid in cash
$ 56,180
$ 54,229
Dividends per share
$
1.16
$
1.12
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, 2015, the Board of Directors declared a dividend of
$0.29 per common share to be paid on April 15, 2015 to shareholders
of record as of the close of business on March 31, 2015.
20. NET EARNINGS PER SHARE
Basic net earnings per share is calculated based on the weighted-average shares outstanding during the year. The diluted net earnings per share
takes into account the dilutive effect of all potential ordinary shares. The average market value of the Company’s shares for purposes of calculating
the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.
($ and shares in thousands, except earnings per share)
Year Ended
Diluted earnings per share calculation:
January 31, 2015
January 31, 2014
Net earnings for the year (numerator for diluted earnings per share)
$
62,883
$
64,263
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
48,432
277
48,709
48,413
244
48,657
$
$
1.30
1.29
$
$
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, 2015
January 31, 2014
Due within 1 year
Within 2 to 5 years inclusive
After 5 years
Land and buildings
Other leases
Land and buildings
Other leases
$ 25,142
$
70,156
54,716
708
626
—
$
24,514
$
68,082
56,148
750
774
—
56THE 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, 2015,
the Company has opened 32 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
Canada
Canada
United States
United States
Netherlands
100%
100%
100% (less one unit)
100%
100%
1%
99%
The investment in jointly controlled entities comprises a 50% interest in a Canadian Arctic shipping company, Transport Nanuk Inc. At January 31,
2015, the Company’s share of the net assets of its jointly controlled entity amount to $9,244 (January 31, 2014 - $7,985), comprised assets of $10,462
(January 31, 2014 - $9,096) and liabilities of $1,218 (January 31, 2014 - $1,111). During the year ended January 31, 2015 the Company purchased
freight handling and shipping services from Transport Nanuk Inc. and its subsidiaries of $7,462 (January 31, 2014 - $6,783). The contract terms are
based on market rates for these types of services on similar arm’s length transactions.
57NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shareholder Information
Fiscal Year
Quarter Ended
2014
April 30, 2014
July 31, 2014
October 31, 2014
January 31, 2015
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
Share
Price High
Share
Price Low
Share
Price Close
Volume
$26.74
$21.93
$26.56
24,079,962
26.24
25.82
25.27
26.74
23.55
23.23
21.93
22.54
24.24
24.00
23.30
26.56
4,342,208
5,492,597
7,712,485
6,532,672
EPS1
$1.29
0.26
0.35
0.37
0.31
$29.00
$22.34
$25.42
17,622,920
$1.32
25.50
26.45
26.81
29.00
22.35
22.79
22.34
24.87
25.42
23.84
25.93
25.42
4,618,033
4,994,964
4,567,237
3,442,686
0.27
0.37
0.36
0.32
$23.88
$19.34
$23.14
17,830,631
$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
6,126,392
4,508,403
2,938,198
4,257,638
0.27
0.37
0.36
0.32
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 2013 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, 2015
Payment Date: April 15, 2015
Record Date: June 30, 2015
Payment Date: July 15, 2015
Record Date: September 30, 2015
Payment Date: October 15, 2015
Record Date: December 31, 2015
Payment Date: January 15, 2016
*Dividends are subject to approval by the
Board of Directors
The 2015 Annual General and Special
Meeting of Shareholders of The North West
Company Inc. will be held on Wednesday,
June 10, 2015 at 11:30 a.m. 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, 2015: 48,497,199
Auditors
PricewaterhouseCoopers LLP
Compound Annual Growth (%)
58THE 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
EXECUTIVES
BOARD OF DIRECTORS
Edward S. Kennedy
President and Chief Executive Officer
Debbie A. Gillis
Vice-President, Information Services
H. Sanford Riley
Chairman
Christie Frazier-Coleman
Executive Vice-President and
Chief Merchandising Officer
Craig T. Gilpin
Executive Vice-President and
Chief Operating Officer
John D. King
Executive Vice-President and
Chief Financial Officer
Daniel G. McConnell
Executive Vice-President and
Chief Development Officer
Paulina Hiebert
Vice-President, Legal and
Corporate Secretary
Matt D. Johnson
Vice-President, Fresh/Food Service
Procurement and Marketing
Laurie J. Kaminsky
Vice-President, NWC Health Products
and Services
Scott A. McKay
Vice-President, General Merchandise
Procurement and Marketing
Denise S. Allen
Interim Vice-President Logistics
and Distribution (Canadian Operations)
Walter E. Pickett
Vice-President and General Manager,
Alaska Commercial Company
Michael T. Beaulieu
Vice-President, NWC Services
Christine D. Reimer
Vice-President, Canadian Sales
and Operations
J. Robert Cain
Vice-President, Logistics and Distribution
(International Operations)
Glenn R. Revet
Vice-President, Sales and Operations,
Giant Tiger
David M. Chatyrbok
Vice-President, Grocery, Procurement
and Marketing
James W. Walker
Vice-President and General Manager,
Wholesale Operations (International
Operations)
Leanne G. Flewitt
Vice-President, Merchandise
Performance Services
Rex A. Wilhelm
Vice-Chairman, NWCI
(International Operations)
Craig A. Foster
Vice-President, Human Resources
*as at April 9, 2015
Frank J. Coleman 1, 2
Wendy F. Evans 1, 3
Stewart Glendinning 2, 3
Edward S. Kennedy
Robert J. Kennedy 1, 3
Annalisa King 2, 3
Violet (Vi) A. M. Konkle 2, 3
Gary Merasty 1, 3
Eric L. Stefanson, FCA 1, 2
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
board@northwest.ca
Company Website: www.northwest.ca
59ANNUAL REPORT Nor'Westers are associated with the vision,
perseverance, and enterprising spirit of the original
North West Company and Canada's early fur trade.
We trace our roots to 1668, and the establishment of
one of North America's early trading posts at
Waskaganish on James Bay. Today, we continue to
embrace this pioneering culture as true "frontier
merchants."
The North West Company Inc.
Gibraltar House, 77 Main Street
Winnipeg, Manitoba Canada R3C 2R1
T 204 934 1756 F 204 934 1317
Toll -free 1 800 563 0002
investorrelations@northwest.ca
www.northwest.ca