THE NORTH WEST COMPANY INC. 2016
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 (1)
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (2)
Earnings from operations (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 (RONA) (2)
Return on average equity (ROE) (2)
Sales blend: Food
General Merchandise
Other
PER SHARE ($) - DILUTED
EBITDA (2)
Net earnings
Cash flow from operating activities
Market price: January 31
high
low
Year Ended
January 31, 2017
Year Ended
January 31, 2016
Year Ended
January 31, 2015
$
$
$
$
$
$
$
$
1,844,093
1.3%
166,498
118,131
77,076
126,024
$
805,821
$
229,266
367,785
1,796,035
3.8%
151,347
107,321
69,779
132,987
793,795
225,489
357,612
.62:1
20.1%
21.8%
79.6%
17.5%
2.9%
3.40
1.57
2.57
29.28
33.15
24.08
$
.63:1
19.5%
20.6%
79.3%
17.6%
3.1%
3.10
1.43
2.73
30.53
30.53
23.41
$
1,624,400
2.4%
137,838
97,466
62,883
115,086
724,299
201,396
329,283
.61:1
18.4%
19.3%
78.2%
18.3%
3.5%
2.83
1.29
2.36
26.56
26.74
21.93
(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 or annual report for further information.
(4) See Consolidated Liquidity and Capital Resources.
THE NORTH WEST COMPANY INC. 2016
Annual Report
TABLE OF CONTENTS
Management's Discussion & Analysis
Forward-Looking Statements
President & CEO Message
Chairman's Message
Our Business Today
Vision, Principles and Strategies
Key Performance Drivers and Capabilities to Deliver Results
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 and Subsequent Event
Risk Management
Critical Accounting Estimates
Accounting Standards Implemented in 2016
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
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3
4
5
6
7
8
10
12
13
17
18
18
19
19
23
24
24
25
26
27
29
29
30
31
31
32
33
34
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 2016
annual audited consolidated financial statements and accompanying
notes. The Company's annual audited consolidated
financial
statements and accompanying notes
the year ended
January 31, 2017 are in Canadian dollars, except where otherwise
indicated, and are prepared in accordance with International Financial
Reporting Standards (“IFRS”).
for
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 11, 2017 and
the information contained in this MD&A is current to April 11, 2017,
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 capital projects, strategic
transactions and integrate acquisitions, the Company's ability to realize
benefits from investments in information technology ("IT") and
systems , including IT system implementations or unanticipated results
from these initiatives 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.
and their higher expectations for product shipments to them, wherever
they live.
Our people are a competitive edge and an ongoing priority. Last year
we adapted to a difficult recruitment market for key store positions by
shifting to more internal promotions. This was a successful move and
reinforced the weighting we give to having the right fit with our remote,
small community retailing versus technical skills acquired within large
urban store settings. In 2017, we will continue to develop our learning
programs for candidates from both types of backgrounds, with a bias to
hiring and promoting based on attitude and commitment towards the
great work experiences that we can offer.
External positives in 2017 will be led by income growth within
northern Canada, stimulated by more federal spending on northern and
indigenous peoples. In 2016 we expected this effect to be more noticeable
than it turned out to be. This year, spending intentions have been confirmed
and increased. Getting funds to communities on an efficient, timely basis
now needs to be a priority for the health of northern communities that
have been neglected by too many years of underfunding.
Across our other retail banners, we expect our focus areas will offset
slower market conditions and will enable us to grow our top and bottom
lines. Reduced product shrinkage and solid management of other
controllable expenses will be added priorities within this environment. With
our reduced Top Market investment, more capital will be allocated to
acquisitions and to new store growth within our Giant Tiger division, as we
take advantage of attractive complimentary businesses and real estate.
North West is well-positioned to grow into adjacent retail markets
that leverage our remote and rural community retailing expertise. We are
also in markets where our knowledge, scale and relationships give us a
distinct ability to pursue complimentary non-retail ventures with similar
business risk and cash generating characteristics to our core operations.
This second, strategic leg will be a assessed through the course of 2017
with potential investments in the near future.
I thank all of our associates for their work over the past year and the
enterprising spirit that they bring to their roles every day. Together, we are
North West.
.
Edward S. Kennedy
President & CEO
April 27, 2017
2017 President & CEO Message
At North West we are driven to make lives better for our communities
and customers. We strive to bring our best to them by focusing on four
“Top” strengths: stores, products, logistics and our people. We worked this
plan in 2016, with adjustments to deliver better results despite facing
challenging market conditions in Alaska and western Canada, and modest
income growth in other regions. We finished short on some targets but the
overall improvement in our fresh, convenient, everyday product offer was
significant. We captured profitable sales and made our business more
resilient against fluctuations in discretionary income and competitive
pressures facing retailers today.
As a result, our financial performance was exceptional in several areas.
EBITDA, a key measure of cash-generating ability, was up 10.0% after a 9.8%
increase in 2015. Return on net assets improved by 60 basis points to 20.1%
and return on equity reached 21.8%, up 120 basis points over the previous
year. These return on investment gains stand out because our capital
investment was at record levels, reaching $77.7 million compared to $50.3
million two years ago.
Most of this investment was in our store network. Here, we are
committed to a multi-year program aimed at our top -producing and top-
growing markets. Each one presents a mix of opportunities that we treat
as if it were the only store we operate and the only customers we serve.
This approach remains a key to our success. It challenges us to be intensely
local and a true agent for the many unique communities and regions that
make up North West’s market reach.
The results from our store investment in 2016 were positive overall.
We generated well above average sales and profit growth and we achieved
improvements in cost-challenged areas like food service. We successfully
adapted our programs based on learnings from store projects completed
in 2015. With long lead times due to the physical remoteness of our
business, these changes took more time but provided valuable insight into
how to protect and grow our most critical market positions.
A downside to what we call our Top Markets work is that we spent
more than expected on replacement, sustaining-type investments. With
40% of our planned Top Markets investments now complete, we have
decided to slow down the rate of investment to better balance the amount
of capital we invest in maintaining versus growing our business. Top
Markets will still be a priority for store capital, but over a longer time period.
Top Categories emphasizes products and services that offer the most
value to our customers. Almost all of these areas were great performers in
2016 and they benefited from relentless attention to price, promotion, mix
and store execution. Top Categories was an important way to prioritize
where to allocate selling space and resources, considering the wide range
of products we sell. It’s not over, and we are well on our way to being a
leading prepared, fresh and convenience food retailer within our markets.
Going forward, we will take the Top Categories mindset to all of our
products and services as we transition to “Getting Sales” profitably, through
newness and relevance to our customers’ lifestyle needs and incomes.
The advantage of superior logistics is very compelling for North West.
Our outbound routes are long, complex and expensive. They are also
fundamentally unchanged by e-commerce and other digital innovations.
Very few new roads have been built into the remote markets we serve and,
at a cost of $2 million per kilometer, the likelihood is not high more will be
built in the foreseeable future. We recognize more than ever that we have
to actively manage and build our logistics capability to ensure our
customers receive the most reliable, fastest and cost-effective movement
of products to our stores or directly to them.
To achieve our logistics goal we have invested in and refined our
transportation management system so that we can better plan and track
shipments over multi-modes right through delivery. We have taken more
direct stakes in northern transportation through our ownership position
in NEAS, an eastern arctic shipping venture and through the chartering of
dedicated air cargo planes. Over the next several years we will continue on
the path to being a stronger logistics player on behalf of our customers
3ANNUAL REPORT
I have remarked in the past about the unique position North West
plays within many northern communities with significant indigenous
populations. The success of these communities is vital to the
continuing success of The North West Company. I have also written
about our belief that these communities require more, long overdue
support and resources to address basic needs. In recent years,
expectations have grown as various levels of government have
expressed their commitment to changing the nature of our country's
relationship with our indigenous peoples. While there has been a lot
of talk about improving matters, we are concerned that there has not
been as much action. We fear that if our governments do not act boldly,
we will squander a unique and important opportunity to address
historical issues of injustice and will dash the aspirations of young
people in these communities with far-reaching consequences for all
Canadians.
The board continues to be impressed with the resilience of our
employees, whom we call Nor'westers. The enterprising spirit of
Canada's north is now, quite literally, found around the world in all of
our operations. On behalf of the board and of our shareholders, thank
you all for another great year of performance.
H. Sanford Riley
Chairman, Board of Directors
April 27, 2017
2017 Chairman's Message
I am pleased to report to you again on the Board's perspective of
the Company's state of affairs.
At North West we view ourselves as a total return company. Our
fundamental objective is to deliver to shareholders a strong and
growing dividend, supported by consistent earnings gains. This year,
we again delivered on that commitment as EBITDA improved by 10.0%
to $166.5 million and our annual dividend increased to $1.24 per share.
We also maintained returns on equity and returns on net assets of 21.8%
and 20.1% respectively, levels that are amongst the highest of TSE listed
companies.
There are specific ways we have developed our business to help
achieve these results. We have recognized since our beginning as an
independent entity 30 years ago the capital required to sustain our
operations, the capital needed to grow our business and the capital
required to provide shareholders with a cash return. Over the past five
years, we have made capital expenditures including acquisitions of
$300.4 million and paid dividends of $279.1 million. This year, due in
large measure to our "Top" initiatives, our capital expenditures reached
a record level of $77.7 million. In keeping with our prudent approach
of capital spending, we are rebalancing this allocation based on our
results and will place a greater emphasis on those initiatives which have
"the biggest bang for the buck".
We have found that diversification into geographic markets that
play to our core strengths has provided us with earnings stability. This
year is a good example of the success of this strategy, as challenges in
our Alaskan and western Canadian markets were offset by stronger
performance in other regions. We continue to see the opportunity to
grow our business through acquisitions of compatible businesses in
smaller, remote markets that can benefit from our scale, our logistical
capabilities and our ability to treat each store on its own terms by
recognizing the unique characteristics of those markets.
Our recently closed acquisition of Roadtown Wholesale Trading
Ltd.
Islands demonstrates the accretive
in the British Virgin
opportunities we are seeking. We expect to provide better product
selection and prices to our customers in the British Virgin Islands, as
was the case with our business' in Barbados and in the Cayman Islands.
At the same time, this business should add approximately US$5 million
of annualized net income.
We also believe we can improve our financial performance by
continuing to develop our logistics capabilities. The ability to deliver
products and services on a timely basis to remote markets is more
difficult, and costly and as a result, a source of competitive advantage
when compared to other retail markets. This is accentuated by e-
commerce. To address this, we have made significant physical and
technological investments. Another key ingredient will be direct
investments in transportation, similar to NEAS, our eastern arctic
shipping venture.
Finally, we have supported our total return orientation through
our compensation policies. Annual incentives are driven by how well
management performs against income targets, adjusted for capital
efficiency. Payments quickly ratchet down to minimal levels if results
fall short. Our long-term plans center around equity awards which
recognize the importance of dividends to our shareholders. These
programs introduce a level of variability to our compensation expense
rewards
which protects shareholders
management in years of superior performance.
in difficult years, and
4THE NORTH WEST COMPANY INC. Management's
Discussion &
Analysis
OUR BUSINESS TODAY
The North West Company is a leading retailer to rural and remote
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 lifestyle needs.
North West's core strengths include: our ability to adapt to varied
community preferences and priorities; our on-the-ground presence
with hard-to-replicate operating skills, customer 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 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 have been in
operation for over 200 years. In 2017, the Alaskan retail subsidiary,
Alaska Commercial Company, will celebrate its 150th anniversary.
Today these northern stores serve communities with populations
ranging from 300 to 9,000. A typical store is 6,500 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
proprietary credit programs.
Growth at North West has come from market share expansion
within existing locations and from applying our expertise and
infrastructure to new product categories, markets and complementary
businesses. The latter includes wholesaling to independent stores,
opening Giant Tiger junior discount stores in rural communities and
urban neighbourhoods in western Canada, and retailing through Cost-
U-Less, Inc., a chain of mid-sized warehouse format stores serving the
South Pacific islands and the Caribbean.
A key strength and ongoing strategy of North West is our ability
to capture unique community-by-community 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 our enterprising culture, continued, efficient
enhancement of our execution skills in general, and our logistics and
selling skills specifically, are essential components 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(1)
•
•
•
•
•
•
•
•
•
•
•
•
120 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, apparel and
health products and services;
15 Quickstop convenience stores, offering extended hours,
ready-to-eat foods, fuel and related services in northern Canadian
markets;
37 Giant Tiger ("GT") junior discount stores, offering family
fashion, household products and food to urban neighbourhoods
and larger rural centers in western Canada;
1 Valu Lots discount center and direct-to-customer food
distribution outlet for remote communities in Canada;
1 Solo Market store, targeted at less remote, rural markets;
1 Price Chopper store, a discount food store offering a selection
of fresh food and grocery;
1 Tim Hortons stand-alone franchise restaurant located in a
northern market;
1 Wally's Drug Store, a stand-alone pharmacy and convenience
store;
2 North West Company Fur Marketing outlets, trading in furs
and offering Indigenous handicrafts and authentic Canadian
heritage products; and
Crescent Multi Foods ("CMF"), a distributor of produce and fresh
meats to independent grocery stores in Saskatchewan, Manitoba
and northwestern Ontario.
North West Telepharmacy Solutions, a provider of contract
tele-pharmacist services across Canada.
International Operations(1)
•
•
•
•
•
•
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 IGA Supermarket neighborhood food store in
Guam, offering convenience with an emphasis on fresh and
prepared foods.
9 Riteway Food Markets and a significant wholesale
operation in the British Virgin Islands were acquired February 9,
2017.
(1) Store count does not include convenience "Store within a Store" services
such as post offices or branded food service kiosks.
5ANNUAL REPORT
VISION
At North West our mission is to be a trusted provider of goods and
services within hard-to-access 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.
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 how we value 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 and sustainably in our roles
and for our customers and communities.
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 within a lower business risk profile.
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. The current LRP focus is on the
following areas: achieving further gains in operating standards and
efficiency; investing in our physical store network, local selling
capability and community relations; and building stronger logistics and
data links to our stores.
Our key priorities are detailed further below together with the
results for 2016:
Initiative #1
Top 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
Five planned Top Markets projects were completed on schedule,
including three that were finished in February, 2017. This brought the
number of completed projects to 16 as part of a multi-year investment
plan. Performance results continued to be positive overall with two
exceptions: markets that have been economically challenged and staff
costs related to expanded service in three stores. Staff costs were
restructured through the year and were back in-line by the fourth
quarter. The time horizon for the remaining Top Markets projects has
been extended to the end of 2020 based on higher maintenance
capital requirements per project and the need to balance Top Market
resources against other attractive opportunities over this time period.
Initiative #2
Top Categories
Capture market share by focusing on products with the highest
everyday convenience and service value to our customers and which
can be delivered in a superior way by North West.
Result
The Company's Top Category focus has been on fresh and prepared
food, packaged convenience products, health products and services
and "big ticket" categories of furniture, appliances and motorized. In
2016, Top Categories benefited from learnings in the prior year and
delivered sales and profit growth that were close to or above target.
Baby products and financial services were two areas that fell short of
plan. Price investments in both categories did not drive sufficient
market share growth and further refinements will be part of the
Company's plans for Top Categories in 2017.
Initiative #3
Top People
This initiative is focused on optimizing overall store performance
through highly capable store teams supported by effective
recruitment and training programs.
Result
Major gains were made in promoting internal candidates into Store
and Department Management training positions. This helped to offset
shortfalls in external recruiting and created a new, more sustainable
career path for associates best suited to the unique communities
served by North West. Work was also completed on a new flexible
benefit program for Canadian associates and a new compensation plan
for most of the Company's International Operations.
Store staffing structures in northern Canada were successfully
modified by the fourth quarter to cost effectively deliver the Company's
Top Markets and Top Category initiatives.
6THE NORTH WEST COMPANY INC.
is
Initiative #4
Replace Legacy Merchandise and Store Systems ("Project
Enterprise")
Project Enterprise
focused on replacing our point-of-sale,
merchandise management and workforce management systems. This
project is expected to deliver improvements in pricing and promotions,
more effective inventory management and store productivity gains, all
aligned with the Company's "Top" strategies.
Result
Project scoping was completed in the first half of 2016 including
custom functionality requirements. Workforce management and
Workforce
point-of-sale systems were
management is scheduled to be completed for the balance of the
stores in 2017 and the roll-out of the point-of-sale systems is expected
to be completed in 2018. Project investment is forecasted at $34 million
over 2016 to 2018, with fully annualized benefits beginning in late 2018.
in pilot by year-end.
Initiative #5
New Market and Complimentary Business Growth
Invest in new markets and complimentary businesses through
acquisitions and store openings.
Result
Acquired a full-service pharmacy in Fort Smith, Northwest Territories.
Opened three Giant Tiger stores and one QuickStop convenience store.
Subsequent to year-end completed the acquisition of Roadtown
Wholesale Trading Ltd. (RTW), the leading retail and wholesale
distribution business in the British Virgin Islands.
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
The Company continued to refine and embed Store Connect, a web-
based platform that provides stores with an easy to use, standardized
tool for reporting service issues, communicating customer requests
and identifying sales opportunities. "Get Sales" and "Get (cost) Savings"
were focus areas in 2016, together with identifying and resolving
systemic issues. Reporting visibility ensured clear accountability within
support groups and contributed to high store satisfaction ratings for
Store Connect.
KEY PERFORMANCE DRIVERS AND
CAPABILITIES REQUIRED TO DELIVER RESULTS
The ability to protect and enhance the performance of our "Top
" Markets: Our Top Markets offer the highest potential for market share
growth, improved productivity and customer satisfaction. We believe
that the effective execution of our Top Markets 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 investment priorities
center on our superior logistics, Top Categories and Top Markets while
applying higher payback learnings in areas such as energy-efficiency
and technology to all stores. Non-capital expenditures are centered on
Top People improvements to our in-store capabilities through
improved store structures, compensation, recruiting and training.
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 perceived community and
customer value 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 People 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.
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.
7ANNUAL REPORT
Consolidated Results
2016 Highlights
•
Sales increased to $1.844 billion, our 17th consecutive year of sales
growth.
Same store sales increased 1.3% driven by food sales.
EBITDA(2) increased 10.0%.
Return on average equity was 21.8% driven by a 10.5% increase
in net earnings and has averaged 21.0% over the past five years.
Return on net assets improved 60 basis points to 20.1%.
Total returns to shareholders were 0.3% for the year and were
13.7% on a compound annual basis over the past five years.
One Quickstop convenience store and three Giant Tiger stores
were opened in Canadian Operations.
A pharmacy and convenience store was acquired in Fort Smith,
NWT.
•
•
•
•
•
•
•
FINANCIAL PERFORMANCE
Some of the key performance indicators used by management to
assess results are summarized in the following table:
Key Performance Indicators and Selected Annual Information
($ in thousands,
except per share)
Sales
2016
2015
2014
$ 1,844,093
$ 1,796.035
$ 1,624,400
Same store sales % increase(1)
1.3%
3.8%
2.4%
EBITDA(2)
EBIT
Net earnings
Net earnings per share -
diluted
Cash flow from operating
activities(3)
Cash dividends per share
Total assets
$ 166,498
$ 118,131
$
$
77,076
1.57
$ 126,024
$
1.24
$ 805,821
Total long-term liabilities
$ 285,792
$
$
$
$
$
$
$
$
151,347
107,321
69,779
1.43
132,987
1.20
793,795
280,682
$
$
$
$
$
$
$
$
137,838
97,466
62,883
1.29
115,086
1.16
724,299
248,741
Return on net assets(2)
Return on average equity(2)
20.1%
21.8%
19.5%
20.6%
18.4%
19.3%
(1) All references to same store sales exclude the foreign exchange impact.
(2) See Non-GAAP Financial Measures section.
(3) See Consolidated Liquidity and Capital Resources.
Consolidated Sales Sales for the year ended January 31, 2017 (“2016”)
increased 2.7% to $1.844 billion compared to $1.796 billion for the year
ended January 31, 2016 (“2015”), and were up 13.5% compared to
$1.624 billion for the year ended January 31, 2015 (“2014”). The increase
in sales in 2016 was driven by same store food sales growth across all
of our banners, the impact of new stores in Canadian Operations and
and the positive impact of foreign exchange on the translation of
International Operations sales. Excluding the foreign exchange impact,
sales increased 2.3% from 2015 and were up 6.8% from 2014. On a
same store basis, sales increased 1.3% compared to increases of 3.8%
in 2015 and 2.4% in 2014.
Food sales increased 3.1% from 2015, and were up 2.7% excluding
the foreign exchange impact with both Canadian and International
Operations contributing to the sales gains. Same store food sales
increased 1.7% over last year with quarterly same store increases of
2.8%, 0.9%, 1.4% and 1.6% in the fourth quarter. Canadian food sales
increased 3.7% and International food sales increased 0.8% excluding
the foreign exchange impact.
General merchandise sales increased 1.7% compared to 2015 and
were up 1.6% excluding the foreign exchange impact led by sales
growth in our Canadian Operations. Same store general merchandise
sales decreased 0.4% for the year with decreases of 2.0%, 0.9% and 0.5%
in the first, second and third quarter respectively followed by an
increase of 1.3% in the fourth quarter. Canadian general merchandise
sales increased 3.0% led by sales growth in rural and urban markets
and the impact of new stores. International general merchandise sales
decreased 3.2% excluding the foreign exchange impact due to lower
sales in Alaskan markets.
Other revenue, which includes fuel sales, fur sales, tele-pharmacy
revenue and service charge revenue, decreased 3.5% compared to
2015 largely due to the closure of the Company's Inuit Art Marketing
Service in late 2015.
Sales Blend The table below shows the consolidated sales blend over
the past three years:
Food
General merchandise
Other
2016
79.6%
17.5%
2.9%
2015
79.3%
17.6%
3.1%
2014
78.2%
18.3%
3.5%
Canadian Operations accounted for 61.0% of total sales (60.7% in 2015
and 64.2% in 2014) while International Operations contributed 39.0%
(39.3% in 2015 and 35.8% in 2014).
(1) Certain 2012 figures have been restated as required by the implementation of Employee
Benefits IAS 19r. See the 2013 annual audited consolidated financial statements for
further information.
Gross Profit Gross profit increased 3.6% to $541.5 million compared
to $522.6 million last year due to sales growth and a 26 basis points
increase in the gross profit rate. Gross profit rate increased to 29.4%
from 29.1% last year largely due to food sales growth in higher margin
food service and perishable categories.
(“Expenses”)
increased 1.9%
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses
to
$423.4 million but were down 16 basis points as a percentage of sales
compared to last year. This increase in Expenses is largely due to higher
store-based employee costs, an increase in amortization costs mainly
related to capital investments in Top Markets and new stores in
Canadian Operations. The impact of foreign exchange on the
translation of International Operations expenses was also a factor.
These factors were partially offset by lower short-term incentive plan
expenses and share-based compensation costs. Further information
on share-based compensation costs and employee costs is provided
in Note 13 and Note 17 to the consolidated financial statements.
8THE NORTH WEST COMPANY INC.
Earnings from Operations (EBIT) Earnings from operations or
earnings before interest and income taxes (“EBIT”) increased 10.1% to
$118.1 million compared to $107.3 million last year as sales growth, an
increase in the gross profit rate and the impact of foreign exchange
more than offset higher Expenses. Excluding the foreign exchange
impact, earnings from operations increased $9.6 million or 9.8%
compared to last year. Earnings before interest, income taxes,
depreciation and amortization ("EBITDA") increased 10.0% to $166.5
million compared to last year. Excluding the foreign exchange impact,
EBITDA increased 9.7% and was 9.1% as a percentage of sales compared
to 8.5% last year.
Interest Expense Interest expense increased 16.3% to $7.2 million
compared to $6.2 million last year. The increase in interest expense is
due to higher average debt levels and higher average cost of borrowing
compared to last year. Average debt levels increased 10.0% compared
to last year and the average cost of borrowing was 2.7% compared to
2.5% last year. Further information on interest expense is provided in
Note 18 to the consolidated financial statements.
Income Tax Expense The provision for income taxes increased 8.0%
to $33.8 million compared to $31.3 million last year and the effective
tax rate for the year was 30.5% compared to 31.0% last year. The increase
in income tax expense is due to higher earnings, a $1.3 million non-
comparable withholding tax on dividends from subsidiaries and the
blend of earnings in International Operations across various tax rate
jurisdictions. Further information on income tax expense, the effective
tax rate and deferred tax assets and liabilities is provided in Note 9 to
the consolidated financial statements.
(1) Certain 2012 figures have been restated as required by the implementation of Employee
Benefits IAS 19r. See the 2013 annual audited consolidated financial statements for
further information.
Net Earnings Consolidated net earnings
increased 10.5% to
$77.1 million compared to $69.8 million last year and diluted earnings
per share was $1.57 per share compared to $1.43 per share last year
with both Canadian Operations and
International Operations
contributing to the net earnings growth. Excluding the impact of
foreign exchange and the non-comparable witholding tax, net
earnings increased 12.1% compared to last year. Additional information
on the financial performance of Canadian Operations and International
Operations is included on page 10 and page 12 respectively. In 2016,
the average exchange rate used to translate International Operations
sales and expenses increased to 1.3169 compared to 1.2971 last year
and 1.1148 in 2014.
The Canadian dollar's depreciation versus the U.S. dollar compared to
2015 had the following net impact on the 2016 results:
Sales.........................................................................increase of $10.8 million or 1.5%
Earnings from operations...............................................increase of $0.7 million
Net earnings............................................................................increase of $0.4 million
Diluted earnings per share..............................................increase $0.01 per share
Total Assets Consolidated total assets for the past three years is
summarized in the following table:
($ in thousands)
Total assets
2016
2015
2014
$ 805,821
$ 793,795
$ 724,299
Consolidated assets increased $12.0 million or 1.5% compared to
2015 and were up $81.5 million or 11.3% compared to 2014. The
increase in consolidated assets compared to last year and 2014 is largely
due to higher property and equipment and intangible assets. Property
and equipment increased $12.2 million or 3.5% compared to last year
and was up $46.4 million or 14.9% compared to 2014 due to
investments in new stores, major store renovations, equipment
replacements and staff housing renovations as part of our Top Markets
initiative. Intangible assets increased compared to last year and 2014
largely due to the purchase of new point-of-sale, merchandise
management system and workforce management system software,
and the investment in upgrading the transportation management
system. Deferred tax assets increased $3.8 million compared to last
year mainly due to an increase in tax assets related to property and
equipment and a decrease in the tax liability related to the deferred
limited partnership earnings. These factors were partially offset by
lower cash as noted under working capital below and the impact of
foreign exchange. The year-end exchange rate used to translate the
International Operations assets decreased to 1.3030 compared to
1.4080 last year but was up from 1.2717 in 2014.
Consolidated working capital for the past three years
is
summarized in the following table:
($ in thousands)
Current assets
Current liabilities
Working capital
2016
2015
2014
$ 327,938
$ 335,581
$ 315,840
$ (152,244)
$ (155,501)
$ (146,275)
$ 175,694
$ 180,080
$ 169,565
Working capital decreased $4.4 million or 2.4% to $175.7 million
compared to 2015 but increased $6.1 million or 3.6% compared to
2014. The decrease in current assets compared to last year is largely
due to a $7.0 million or 18.8% decrease in cash primarily related to the
timing of deposits in-transit. Partially offsetting this decrease is higher
inventories in Canadian Operations related to new stores and an
increase in inventory in stores serviced by sealift to take advantage of
lower transportation costs. The decrease in current liabilities compared
to last year is due to a $5.5 million decrease in accounts payable and
accrued liabilities largely related to lower short-term incentive plan
costs this year and the impact of software costs accrued at year-end
last year. The impact of foreign exchange on the translation of
International Operations working capital was also a factor. The increase
in working capital compared to 2014 is mainly due to higher inventories
as noted above.
Return on net assets employed improved to 20.1% compared to
19.5% in 2015 primarily due to a 10.1% increase in earnings before
interest and taxes. Additional information on net assets employed for
the Canadian Operations and International Operations is on page 11
and page 13 respectively.
9ANNUAL REPORT Return on average equity increased to 21.8% compared to 20.6%
in 2015 due to a 10.5% increase in net earnings partially offset by higher
average equity compared to last year. Further information on
shareholders' equity is provided in the consolidated statements of
changes
in the consolidated financial
statements.
in shareholders' equity
(1) Certain 2012 figures have been restated as required by the implementation of IAS 19r
Employee Benefits. See the 2013 annual audited consolidated financial statements for
further information.
Total Long-Term Liabilities Consolidated total long-term liabilities
for the past three years is summarized in the following table:
($ in thousands)
2016
2015
2014
Total long-term liabilities
$ 285,792
$
280,682
$
248,741
Consolidated long-term liabilities increased $5.1 million or 1.8%
to $285.8 million compared to 2015 and were up $37.1 million or 14.9%
from 2014. The increase in long-term liabilities compared to 2015 and
2014 is primarily due to an increase in long-term debt largely related
to the investment in property, equipment and intangible assets noted
under the total assets section and the impact of foreign exchange rates
on the translation of U.S. denominated debt. Further information on
long-term debt is included in the Sources of Liquidity and Capital
Structure sections on page 15 and page 16 respectively and in Note
11 to the consolidated financial statements.
Canadian Operations
FINANCIAL PERFORMANCE
Canadian Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
2016
2015
2014
$ 1,125,330
$ 1,089,898
$ 1,042,168
Same store sales % increase
1.7%
3.1%
1.3%
EBITDA (1)
EBIT
$
$
109,736
74,445
$
$
98,276
66,495
$ 100,896
$
70,594
Return on net assets (1)
20.7%
20.4%
21.1%
(1) See Non-GAAP Financial Measures section.
Sales Canadian Operations sales increased $35.4 million or 3.3% to
$1.125 billion compared to $1.090 billion in 2015 and were up $83.2
million or 8.0% compared to 2014. Same store sales increased 1.7%
compared to increases of 3.1% in 2015 and 1.3% in 2014. Food sales
accounted for 74.6% (74.2% in 2015) of total Canadian Operations sales.
The balance was made up of general merchandise sales at 21.2% (21.3%
in 2015) and other sales, which consists primarily of fuel sales, fur sales,
tele-pharmacy revenue and service charge revenue at 4.2% (4.5% in
2015).
Food sales increased by 3.7% from 2015 and were up 9.7%
compared to 2014. Same store food sales increased 2.0% compared to
4.0% in 2015. Same store food sales had quarterly increases of 3.7%,
0.9%, 1.6% and 2.0% in the fourth quarter. Food sales were up in most
categories led by convenience, food service, deli, meat and produce
categories. Food inflation for the year was in the 2% range largely driven
by higher commodity costs for produce and meat in the first half of
the year partially offset by nominal inflation in the back half of the year.
General merchandise sales increased 3.0% from 2015 and 5.4%
compared to 2014 led by sales gains in our urban and rural markets.
Same store sales increased 0.6% compared to a 0.3% increase in 2015.
On a quarterly basis, same store sales decreased 2.8% in the first quarter
but increased 0.1%, 3.1% and 1.7% in last three quarters of the year.
Other sales were down 3.4% from 2015 and decreased 6.8% over
2014. The decrease in other revenues is largely due to the closure of
the Company's Inuit Art Marketing Service in late 2015.
Sales Blend The table below shows the sales blend for the Canadian
Operations over the past three years:
Food
General merchandise
Other
2016
74.6%
21.2%
4.2%
2015
74.2%
21.3%
4.5%
2014
73.4%
21.7%
4.9%
10THE NORTH WEST COMPANY INC.
Same Store Sales Canadian Operations same store sales for the past
three years are shown in the following table. Food sales tend to be
impacted by changes in commodity costs, transportation costs and
promotional pricing.
Net Assets Employed Net assets employed at January 31, 2017
increased 7.5% to $372.9 million compared to $346.8 million at
January 31, 2016, and was up 19.3% compared to $312.5 million at
January 31, 2015 as summarized in the following table:
Same Store Sales
(% change)
Food
General merchandise
Total sales
2016
2.0%
0.6%
1.7%
2015
4.0%
0.3%
3.1%
2014
1.8 %
(0.5)%
1.3 %
Gross Profit Gross profit dollars for Canadian Operations increased
by 4.5% driven by sales growth and an increase in the gross profit rate
largely related to food sales growth in higher margin food service and
perishable categories. This gross profit rate improvement was partially
offset by competitive food pricing pressure and higher markdowns in
seasonal general merchandise categories in urban markets.
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) increased 2.7% from 2015
but were down 15 basis points as a percentage of sales. The increase
in Expenses is due in part to higher store-based employee costs related
to new roles to support our Top Categories initiative, new stores and
higher amortization costs mainly related to capital investments in our
Top Markets. These factors were partially offset by lower short-term
incentive plan expenses and share-based compensation costs. Further
information on share-based compensation costs is provided in Note
13 to the consolidated financial statements.
Earnings from Operations (EBIT) Earnings from operations
increased $8.0 million or 12.0% to $74.4 million compared to
$66.5 million in 2015 as the positive impact of higher sales and gross
profit more than offset higher Expenses as previously noted. Earnings
from operations as a percentage of sales was 6.6% compared to 6.1%
last year. EBITDA from Canadian Operations increased $11.5 million or
11.7% to $109.7 million and was 9.8% as a percentage of sales
compared to 9.0% in 2015.
Net Assets Employed
($ in millions at the end of the fiscal
year)
2016
2015
2014
Property and equipment
$ 247.1
$
225.5
$
198.5
Inventories
Accounts receivable
Other assets
Liabilities
130.3
65.9
82.8
125.7
65.2
84.8
127.3
59.2
70.0
(153.2)
(154.4)
(142.5)
Net assets employed
$ 372.9
$
346.8
$
312.5
Capital expenditures for the year included five new stores and Top
Markets investments related to major store renovation projects, new
equipment, staff housing improvements and energy-efficient lighting
and refrigeration upgrades. In addition to these projects, the Company
also completed "New Store Experience" upgrades in five Giant Tiger
stores.
Inventory increased compared to 2015 mainly due to new stores
and a greater investment in inventory in stores serviced by sealift to
take advantage of lower transportation costs. Average inventory levels
in 2016 increased $6.4 million or 5.0% compared to 2015 but were
down $3.8 million or 2.8% compared to 2014. The increase compared
to 2015 is largely due to new stores and higher inventory in stores
serviced by sealift as previously noted. Inventory turnover decreased
slightly to 6.0 times compared to 6.1 times in 2015 and 5.4 times in
2014.
Accounts receivable were up $0.7 million to last year and up $6.7
million or 11.3% compared to 2014. Average accounts receivable were
$2.3 million or 3.9% higher than 2015 and up $6.3 million or 11.1%
compared to 2014. The increase in accounts receivable is due in part
to higher furniture and motorized merchandise sales.
Other assets decreased $2.0 million or 2.4% compared to last year
but were up $12.8 million or 18.3% compared to 2014. The decrease
to last year is largely due to lower cash balances in stores and deposits
in-transit partially offset by an increase in intangible assets related to
new point-of-sale, merchandise management system and workforce
management system software. The increase in other assets compared
to 2014 is largely due to intangible assets as previously noted and an
increase in net deferred tax assets primarily related to property and
equipment and deferred limited partnership earnings.
Liabilities decreased $1.2 million or 0.8% from 2015 but were up
$10.7 million or 7.5% compared to 2014. The increase compared to
2014 is largely due to higher trade accounts payable related to the
timing of payment cycles and accrued share-based compensation
costs.
(1) Certain 2012 figures have been restated as required by the implementation of IAS 19r
Employee Benefits. See 2013 annual audited consolidated financial statements for
further information.
11ANNUAL REPORT
Return on Net Assets The return on net assets employed for
Canadian Operations increased to 20.7% from 20.4% in 2015 due to a
12.0% increase in EBIT partially offset by a $33.4 million or 10.3%
increase in average net assets compared to last year.
General merchandise sales decreased 3.2% from 2015 and were
down 0.3% from 2014. On a same store basis, general merchandise
sales were down 3.9% compared to an increase of 3.9% in 2015.
Quarterly same store general merchandise sales increased 1.4% in the
first quarter with decreases of 4.6%, 11.2% and 0.3% in the second, third
and fourth quarters respectively. Quarterly same store sales growth in
CUL stores was more than offset by lower sales in AC stores.
Sales in AC stores were negatively impacted by deteriorated
economic conditions, limited government infrastructure spending
and a 50.7% decrease in the Permanent Fund Dividend (“PFD”) to
$1,022 compared to $2,072 in 2015. The negative impact of the Zika
virus on tourism in the Caribbean was a factor that contributed to lower
sales growth in CUL markets compared to 2015.
Other sales, which consists of fuel sales and service charge
revenue, were down 5.3% from 2015 and 13.6% from 2014 due to fuel
price deflation.
Sales Blend The table below reflects the importance of food sales to
the total sales of International Operations:
(1) Certain 2012 figures have been restated as required by the implementation of IAS 19r
Employee Benefits. See 2013 annual audited consolidated financial statements for
further information.
Food
General merchandise
Other
2016
87.6%
11.6%
0.8%
2015
87.1%
12.0%
0.9%
2014
86.8%
12.2%
1.0%
Same Store Sales International Operations same store sales for the
past three years are shown in the following table. General merchandise
same store sales are impacted by consumer spending on big-ticket
durable goods that are largely influenced by 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
2016
1.0 %
(3.9)%
0.4 %
2015
5.4%
3.9%
5.2%
2014
4.7%
4.8%
4.7%
Gross Profit Gross profit dollars increased 0.5% driven by sales growth
and a slight increase in the gross profit rate.
Selling, Operating and Administrative Expenses Selling, operating
and administrative expenses (“Expenses”) decreased 0.9% compared
to last year and were down 23 basis points as a percentage of sales
largely due to lower incentive plan costs and fuel-related utility
expenses.
Earnings from operations
Earnings from Operations (EBIT)
increased $1.7 million or 5.4% to $33.2 million compared to 2015 due
to the increase in gross profit and lower Expenses. EBITDA increased
$2.1 million or 5.0% to $43.0 million and was 7.9% as a percentage of
sales compared to 7.5% in 2015.
International Operations
(Stated in U.S. dollars)
International Operations include Alaska Commercial Company ("AC"),
Cost-U-Less ("CUL") and Pacific Alaska Wholesale ("PAW").
FINANCIAL PERFORMANCE
International Operations results for the year are summarized by the key
performance indicators used by management as follows:
Key Performance Indicators
($ in thousands)
Sales
2016
2015
2014
$
545,799
$ 544,397
$ 522,275
Same store sales % increase
0.4%
5.2%
4.7%
EBITDA(1)
EBIT
$
$
43,049
33,173
$
$
40,991
31,475
$ 33,240
$ 24,105
Return on net assets (1)
19.2%
18.1%
13.8%
(1) See Non-GAAP Financial Measures section.
Sales International sales increased 0.3% to $545.8 million compared
to $544.4 million in 2015, and were up $23.5 million or 4.5% compared
to 2014 driven by same store sales growth in CUL stores. Same store
sales increased 0.4% compared to 5.2% in 2015 and 4.7% in 2014. Food
sales accounted for 87.6% (87.1% in 2015) of total sales with the balance
comprised of general merchandise at 11.6% (12.0% in 2015) and other
sales, which consists primarily of fuel sales and service charge revenue,
at 0.8% (0.9% in 2015).
Food sales increased 0.8% from 2015 and were up 5.4% compared
to 2014. Same store food sales were up 1.0% compared to a 5.4%
increase in 2015 with both AC and CUL contributing to the sales
increase. Quarterly same store food sales increases were 1.2% in the
first quarter followed by 1.0% in the second and third quarters and 0.8%
in the fourth quarter.
12THE NORTH WEST COMPANY INC.
Net Assets Employed International Operations net assets employed
increased $3.9 million or 2.3% to last year but were flat to 2014 as
summarized in the following table:
Net Assets Employed
($ in millions at the end of the fiscal
year)
Property and equipment
$
Inventories
Accounts receivable
Other assets
Liabilities
2016
85.2
63.6
10.0
53.1
$
2015
85.5
61.1
10.0
51.1
(40.2)
(39.9)
$
2014
89.0
60.9
10.5
51.4
(40.2)
Net assets employed
$ 171.7
$ 167.8
$ 171.6
Property and equipment decreased as amortization more than offset
capital asset additions related to equipment upgrades and minor store
renovation projects.
Inventories increased $2.5 million compared to last year and were
up $2.7 million from 2014. Average inventory levels in 2016 were down
0.2% compared to 2015 but were up $1.0 million or 1.5% compared to
2014 mainly due to higher food inventory in distribution centers.
Inventory turnover was flat to last year at 6.2 times and was up slightly
compared to 6.1 times in 2014.
Other assets increased $2.0 million compared to last year and were
up $1.7 million compared to 2014 primarily due to higher cash balances
partially offset by a decrease in deferred tax assets.
Return on Net Assets The return on net assets employed for
International Operations improved to 19.2% compared to 18.1% in
2015 due to a 5.4% increase in EBIT and a 0.5% decrease in average net
assets employed.
Consolidated Liquidity
and Capital Resources
The following table summarizes the major components of cash flow:
($ in thousands)
2016
2015
2014
Cash provided by (used in):
Operating activities before
taxes paid
Taxes paid
Operating activities
Investing activities
Financing activities
Effect of foreign exchange
$ 161,454
$ 163,646
$ 147,967
(35,430)
126,024
(77,682)
(54,398)
(944)
(30,659)
132,987
(75,813)
(50,174)
1,114
8,114
(32,881)
115,086
(50,312)
(58,950)
952
$
6,776
Net change in cash
$
(7,000)
$
Cash from Operating Activities Cash flow from operating activities
decreased $7.0 million or 5.2% to $126.0 million compared to 2015 but
was up $10.9 million or 9.5% compared to 2014. The decrease in cash
flow from operating activities is largely due to the change in non-cash
working capital and an increase in taxes paid partially offset by higher
net earnings and an increase in amortization. The change in non-cash
working capital negatively impacted cash flow from operating
activities by $10.8 million compared to an increase in cash flow of $5.9
million in 2015 and an increase in cash flow of $9.2 million in 2014. The
change in non-cash working capital is primarily due to the change in
inventories and accounts payable and accrued expenses compared to
the prior year. Further information on working capital is provided in the
Canadian and International net assets employed section on pages 11
and 13 respectively.
The change in income taxes paid was due to higher earnings, the
timing of income tax installments and the recognition of a portion of
the deferred limited partnership income related to the conversion to
a share corporation on January 1, 2011. Excluding the impact of taxes
paid, cash flow from operating activities decreased $2.2 million or 1.3%
compared to 2015.
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 2017.
13ANNUAL REPORT
The compound annual growth rate ("CAGR") for cash flow from
operating activities over the past 10 years is 4.5% as shown in the
following graph:
(1) 2011 to 2015 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 in glossary of terms for further information.
The decrease in cash flow from operating activities in 2013 is largely
due to the payment of Canadian income taxes related to the conversion
to a share corporation.
Cash Used in Investing Activities Net cash used in investing
activities was $77.7 million compared to $75.8 million in 2015 and
$50.3 million in 2014. Net investing in Canadian Operations was
$63.3 million compared to $68.1 million in 2015 and $39.5 million in
2014 reflecting investments related to the Top Markets initiative and
work started on the implementation of new point-of-sale, merchandise
management and workforce management software as part of Project
Enterprise. A summary of the Canadian Operations investing activities
is included in net assets employed on page 11. Net investing in
International Operations was $14.4 million compared to $7.7 million in
2015 and $10.8 million in 2014. A summary of the International
Operations investing activities is included in net assets employed on
page 13.
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
2016
120
2015
121
6
21
37
27
13
8
6
20
34
27
13
7
2016
701,112
134,387
36,552
611,324
278,742
369,281
62,254
2015
707,382
134,387
34,379
554,529
278,742
369,281
60,409
Total at year-end
232
228
2,193,652
2,139,109
In the Canadian Operations, one Quickstop convenience store and
three Giant Tiger stores were opened and one Northern store was
closed due to fire. Under Other Formats, the Company acquired a
pharmacy and convenience store in Fort Smith, Northwest Territories.
Total selling square footage in Canada increased to 1,517,840 from
1,463,488 in 2015 as a result of the new stores.
There was no change in the number of stores in the International
Operations but the selling square footage increased to 675,812
compared to 675,621 last year due to a store renovation.
Cash Used in Financing Activities Cash used in financing activities
was $54.4 million compared to $50.2 million in 2015 and $59.0 million
in 2014. The change compared to last year is due to an increase in
dividends and interest paid partially offset by the change in long-term
debt related to amounts drawn on the loan facilities. Further
information on dividends, interest and the loan facilities is provided in
the following sections.
Shareholder Dividends The Company paid dividends of
$60.2 million or $1.24 per share, an increase of 3.4% compared to $58.2
million or $1.20 per share paid in 2015. 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
2016
$ 0.31
0.31
0.31
0.31
2015
$ 0.29
0.29
0.31
0.31
2014
$ 0.29
0.29
0.29
0.29
$ 1.24
$ 1.20
$ 1.16
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
$ 60,169
$ 58,210
$ 56,180
2016
2015
2014
Cash flow from operating
activities
$ 126,024
$ 132,987
$115,086
Taxes paid
35,430
30,659
32,881
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
$ 161,454
$ 163,646
$147,967
47.7%
43.8 %
48.8%
37.3%
35.6 %
38.0%
The increase in dividends as a percentage of cash flow from operating
activities to 47.7% compared to 43.8% in 2015 is largely due to the
timing of payment of Canadian income tax installments. Further
information on income tax installments is provided under cash from
operating activities on page 13. Excluding the impact of income tax
installments, dividends as a percentage of cash flow from operating
activities before taxes paid was 37.3% compared to 35.6% in 2015 and
38.0% in 2014.
14THE NORTH WEST COMPANY INC.
Since converting back to a share corporation on January 1, 2011,
the Company has increased its dividend each year with a compound
annual growth rate ("CAGR") of 5.3% over the past five years as shown
in the following graph:
(1) North West Company Fund converted to a share corporation effective January 1, 2011.
In addition to the $0.96 per share dividend paid in 2011, the Company also paid a $0.09
per unit final distribution from the Fund as part of the conversion to a share corporation.
Subsequent Event - Dividends On March 15, 2017 the Board of
Directors approved a quarterly dividend of $0.32 per share to
shareholders of record on March 31, 2017, to be paid on April 17, 2017.
Post-Employment Benefits The Company sponsors defined benefit
and defined contribution pension plans covering the majority of
Canadian employees. As a result of an increase in long-term interest
rates, the Company recorded net actuarial gains on defined benefit
pension plans of $2.4 million net of deferred income taxes in other
comprehensive income. This compares to net actuarial gains on
defined benefit pension plans of $4.6 million net of deferred income
taxes in other comprehensive income in 2015 and net actuarial losses
on defined benefit pension plans of $12.0 million net of deferred
income taxes in 2014. These gains and losses in other comprehensive
income were immediately recognized in retained earnings. The net
actuarial gain in 2016 was due to higher returns on pension plan assets.
The gain in 2015 was primarily due to an increase in the discount rate
used to calculate pension liabilities from 3.5% in 2014 to 4.0% in 2015.
The actuarial loss in 2014 was due to a decrease in the discount rate
from 4.5% in 2013 to 3.5% in 2014.
In 2017, the Company will be
required to contribute
approximately $2.6 million to the defined benefit pension plans. In
addition to the cash funding, a portion of the pension plan obligation
may be settled by the issuance of a letter of credit in accordance with
pension legislation. The Company's cash contributions to the pension
plan was $1.5 million in 2016 and $1.6 million in 2015. 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 $3.6 million to the
defined contribution pension plan and U.S. employees savings plan in
2017 compared to $3.5 million in 2016 and $3.2 million in 2015.
Additional
is
provided in Note 12 to the consolidated financial statements.
information regarding post-employment benefits
Sources of Liquidity In March 2016, the Company completed the
refinancing of the $200.0 million loan facilities in the Canadian
Operations maturing December 31, 2018. The new
increased
committed revolving loan facilities provide up to $300.0 million for
general business purposes and mature on April 29, 2021. 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.
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, 2017, the Company had drawn $126.3 million on
these facilities (January 31, 2016 - $119.2 million).
At January 31, 2017, the Canadian Operations have outstanding
US$70.0 million senior notes (January 31, 2016 - US$70.0 million). The
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 U.S. 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.
In March 2016, the Company completed the refinancing of the
US$52.0 million loan facilities maturing December 31, 2018. The new
committed revolving loan facilities of US$52.0 million mature on April
29, 2021. These facilities are secured by certain assets of the Company
and rank pari passu with the US$70.0 million senior notes and the $300.0
million loan facilities. These facilities bear interest at U.S. LIBOR plus a
spread or the U.S. prime rate. At January 31, 2017, the Company had
not drawn on these facilities (January 31, 2016 - US$NIL).
The International Operations have a US$40.0 million loan facility
which matures October 31, 2020 and bears a floating rate of interest
based on U.S. LIBOR plus a spread. This facility is secured by certain
accounts receivable and inventories of the International Operations.
At January 31, 2017, the International Operations had drawn US$9.1
million on this facility (January 31, 2016 - US$5.6 million).
The loan facilities and senior notes contain covenants and
restrictions including the requirement to meet certain financial ratios
and financial condition tests. The financial covenants include a fixed
charge coverage ratio, minimum current ratio, a leverage test and a
minimum net worth test. At January 31, 2017, the Company is in
compliance with the financial covenants under these facilities. Current
and forecasted debt levels are regularly monitored for compliance with
debt covenants.
Interest Costs and Coverage
Coverage ratio
EBIT ($ in millions)
Interest ($ in millions)
2016
16.4
$ 118.1
$
7.2
2015
17.3
$ 107.3
$
6.2
2014
14.6
$ 97.5
$
6.7
The coverage ratio of earnings from operations ("EBIT") to interest
expense has decreased to 16.4 times compared to 17.3 times in 2015
largely due to a $1.0 million increase in interest expense. The
improvement in the ratio compared to 2014 is due to higher EBIT.
Additional information on interest expense is provided in Note 18 to
the consolidated financial statements.
15ANNUAL REPORT
Contractual Obligations and Other Commitments
Contractual obligations of the Company are listed in the chart below:
($ in thousands)
Total
0-1 Year 2-3 Years
4-5 Years
6 Years+
Long-term debt
(including capital
lease obligations) $229,266
$ —
$ 229,266
Operating leases
174,097
29,891
46,471
28,396
69,339
Other liabilities (1)
24,468
10,844
13,624
—
—
Total
$427,831
$ 40,735
$ 60,095
$ 257,662
$ 69,339
(1) At year-end, the Company had additional long-term liabilities of $42.0 million
which included other liabilities, defined benefit plan obligations and
deferred income tax liabilities. These have not been included as the timing
and amount of the future payments are uncertain.
Director and Officer Indemnification Agreements The Company
has agreements with its current and former directors, trustees, and
officers to indemnify them against charges, costs, expenses, amounts
paid in settlement and damages incurred from any lawsuit or any
judicial, administrative or investigative proceeding in which they are
sued as a result of their service. Due to the nature of these agreements,
the Company cannot make a reasonable estimate of the maximum
amount it could be required to pay to counterparties. The Company
has also purchased directors', trustees' and officers' liability insurance.
No amount has been recorded in the financial statements regarding
these indemnification agreements.
Other Indemnification Agreements The Company provides
indemnification agreements to counterparties for events such as
intellectual property right infringement, loss or damage to property,
claims that may arise while providing services, violation of laws or
regulations, or as a result of litigation that might be suffered by the
counterparties. The terms and nature of these agreements are based
on the specific contract. The Company cannot make a reasonable
estimate of the maximum amount it could be required to pay to
counterparties. No amount has been recorded in the financial
statements regarding these agreements.
Giant Tiger Master Franchise Agreement In 2002, the Company
signed a 30-year Master Franchise Agreement ("MFA") 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. In 2015, the MFA was
amended to extend the term to July 31, 2040 subject to meeting a
minimum store opening commitment. At January 31, 2017, the
Company is in compliance with the minimum store opening
commitment. 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
$16 million (January 31, 2016 - $13 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 $229.3 million in debt
and $367.8 million in equity at the end of the year and a debt-to-equity
ratio of 0.62:1 compared to 0.63:1 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 .55:1 to .63:1. Equity has increased
$71.5 million or 24.1% to $367.8 million over the past five years and
interest-bearing debt has increased $65.9 million or 40.3% to $229.3
million compared to $163.4 million in 2012. During this same time
frame, the Company has made capital expenditures, including
acquisitions, of $300.4 million and has paid dividends of $279.1 million.
This reflects the Company's balanced approach of investing to sustain
and grow the business while providing shareholders with an annual
cash return.
16THE NORTH WEST COMPANY INC. Consolidated debt at the end of the year increased $3.8 million
or 1.7% to $229.3 million compared to $225.5 million in 2015, and was
up $27.9 million or 13.8% from $201.4 million in 2014. As summarized
in the following table, 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$79.1 million in debt at January 31, 2017 (January 31,
2016 - US$75.6 million, January 31, 2015 - US$96.9 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, 2017 was
1.3030 compared to 1.4080 at January 31, 2016 and 1.2717 at
January 31, 2015. The change in the foreign exchange rate resulted in
a $8.3 million decrease in debt compared to 2015 and a $2.5 million
increase compared to 2014. Average debt outstanding during the year
excluding the foreign exchange impact increased $25.0 million or
13.5% from 2015 and was up $18.5 million or 9.6% compared to 2014.
The debt outstanding at the end of the fiscal year is summarized as
follows:
($ in thousands at the end of
the fiscal year)
2016
2015
2014
Senior notes
$ 91,035
$
98,350
$
88,779
Canadian revolving loan
facilities
U.S. revolving loan facilities
Notes payable
Finance lease liabilities
126,344
11,887
—
—
119,193
7,946
—
—
78,367
34,121
72
57
Total
$ 229,266
$ 225,489
$ 201,396
Shareholder Equity The Company has an unlimited number of
authorized shares and had
issued and outstanding shares at
January 31, 2017 of 48,542,514 (January 31, 2016 - 48,523,341). 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. At January 31, 2017, there were 2,525,534
options outstanding representing approximately 5.2% 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 $7.51 per share compared to $7.33 per share in 2015.
Shareholders' equity increased $10.2 million or 2.8% compared to 2015
largely due to net earnings of $77.1 million partially offset by a $7.2
million decrease in accumulated other comprehensive income
primarily related to the foreign exchange impact on the translation of
International Operations financial statements and dividends to
shareholders of $60.2 million. Further information is provided in the
consolidated statements of changes in shareholders' equity in the
consolidated financial statements.
QUARTERLY FINANCIAL INFORMATION
The following is a summary of selected quarterly financial information:
($ thousands)
Q1
Q2
Q3
Q4
Total
Sales
2016
2015
EBITDA
2016
2015
$ 438,974
$460,567
$463,959
$480,593
$1,844,093
$ 414,038
$448,736
$458,049
$475,212
$1,796,035
$ 37,640
$ 38,857
$ 51,140
$ 38,861
$ 166,498
$ 34,436
$ 38,762
$ 43,076
$ 35,073
$ 151,347
Earnings from operations (EBIT)
2016
2015
Net earnings
$ 25,613
$ 26,954
$ 39,082
$ 26,482
$ 118,131
$ 23,678
$ 28,196
$ 32,014
$ 23,433
$ 107,321
2016
2015
$ 17,794
$ 16,423
$ 27,865
$ 14,994
$ 15,699
$ 18,125
$ 20,749
$ 15,206
Earnings per share-basic
2016
2015
$
$
0.37
0.32
$
$
Earnings per share-diluted
2016
2015
$
$
0.36
0.32
$
$
0.34
0.38
0.34
0.37
$
$
$
$
0.57
0.43
0.57
0.43
$
$
$
$
0.31
0.31
0.30
0.31
$
$
$
$
$
$
77,076
69,779
1.59
1.44
1.57
1.43
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 changes in merchandise sales blend,
promotional activity in key sales periods, markdowns to reduce excess
inventories and other factors which can affect net earnings.
Fourth Quarter Highlights Fourth quarter consolidated sales
increased 1.1% to $480.6 million with both Canadian and International
Operations contributing to the sales gains. New stores sales growth in
Canadian Operations was also a factor. Excluding the foreign exchange
impact, consolidated sales increased 2.5% and were up 1.5%1 on a same
store basis. Food sales1 increased 2.6% and were up 1.6% on a same
store basis. General merchandise sales1 increased 3.2% and were up
1.3% on a same store basis led by sales growth in Canadian Operations.
Gross profit dollars were up 3.1% driven by sales growth and a 56
basis point increase in the gross profit rate compared to last year. The
increase in the gross profit rate is mainly due to product sales blend
changes.
Selling, operating and administrative expenses ("Expenses")
increased 1.0% but were down 2 basis points as a percentage of sales.
This increase was largely due to new stores, higher amortization costs
mainly related to capital investments in Top Markets and higher share-
based compensation costs. These factors were partially offset by lower
short-term incentive plan expenses.
17ANNUAL REPORT 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, 2017.
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, 2017. There have
been no changes in the internal controls over financial reporting during
the quarter and for the year ended January 31, 2017 that have
materially affected or are reasonably likely to materially affect the
internal controls over financial reporting.
Earnings from operations increased 13.0% to $26.5 million
compared to $23.4 million in the fourth quarter last year as sales growth
and an increase in the gross profit rate more than offset the impact of
higher Expenses. Excluding the impact of foreign exchange, earnings
from operations increased 17.3% to last year.
interest,
Earnings before
income taxes, depreciation and
amortization (EBITDA2) increased 10.8% to $38.9 million as EBITDA
growth in Canadian Operations more than offset lower EBITDA in
International Operations. Excluding the foreign exchange impact,
EBITDA was up 13.8% compared to last year and as a percentage to
sales was 8.2% compared to 7.4% last year.
Income tax expense increased $3.2 million to $9.7 million and the
consolidated effective tax rate was 39.3% compared to 29.9% last year.
The increase in the effective tax rate is due to a $1.3 million non-
comparable withholding tax on dividends from subsidiaries, the
impact of non-deductible share-based compensation expenses in
Canadian Operations and the blend of earnings in International
Operations across the various tax rate jurisdictions.
Net earnings decreased 1.4% to $15.0 million and diluted earnings
per share were $0.30 per share compared to $0.31 per share last year
largely due to the increase in income tax expense in the Canadian
Operations noted above. Excluding the impact of foreign exchange
and the non-comparable withholding tax, net earnings increased
11.3%.
Working capital decreased $4.4 million or 2.4% compared to the
fourth quarter last year due to decreases in cash largely related to the
timing of deposits and lower accounts payable and accrued liabilities
related to a decrease in short-term incentive plan costs.
Cash flow from operating activities in the quarter decreased
$0.8 million to $51.5 million compared to cash flow from operating
activities of $52.3 million last year. The decrease is largely due to the
change in accounts payable and accrued liabilities compared to the
prior year.
Cash used for investing activities in the quarter decreased to
$23.8 million compared to $31.0 million last year largely due to a
decrease in intangible asset additions related to the purchase of point-
of-sale, workforce management and merchandise management
software last year.
Cash used in financing activities in the quarter was $44.5 million
compared to $18.5 million last year primarily due to the change in long-
term debt related to amounts drawn on the Company's revolving loan
facilities compared to 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.
(1) Excluding the foreign exchange impact.
(2) See Non-GAAP Financial Measures Section.
18THE NORTH WEST COMPANY INC.
OUTLOOK
RISK MANAGEMENT
As noted under the strategy section, the Company's principal focus
continues to be led by its Top Markets and Top Categories initiatives.
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.
The short-term consumer income outlook remains challenging
and aligns with the Company's lower risk product and service focus,
augmented by opportunistic investments. Economic conditions in
Alaska are expected to be difficult, depending on oil prices and the
extent to which state spending cuts impact rural Alaska. Northern
Canada is seeing more monthly income from the new Child Care
Benefit payments and will gain further if infrastructure spending picks
up in 2017. The western Canadian retail environment is important for
our Giant Tiger business and we expect to continue to face low food
inflation and more food price competition within this region combined
with modest growth in competitive selling space. Our Cost-U-Less
market prospects vary significantly from island to island and overall are
expected to be comparable to 2016.
Net capital expenditures for 2017, exclusive of the Roadtown
Wholesale Trading Ltd. acquisition noted below under subsequent
events, are expected to be in the $80.0 million range (2016 - $77.7
million), reflecting major store replacements, store renovations and
investments in fixtures, equipment, staff housing and store-based
warehouse expansions as part of the Company's Top Markets initiative,
the opening of four Giant Tiger stores as well as the completion of "New
Store Experience" upgrades in two stores. In addition to these
investments, the Company is also implementing new information
systems as described under the strategy section. 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.
SUBSEQUENT EVENT
On February 9, 2017, the Company acquired 76% of the outstanding
common shares of Roadtown Wholesale Trading Ltd. (RTW), operating
primarily as Riteway Food Markets in the British Virgin Islands (BVI). RTW
is the leading retailer in BVI with seven retail outlets, two Cash and Carry
stores and a significant wholesale operation. The purchase price was
US$27.0 million consisting of cash consideration of US$24.0 million
financed through existing loan facilities and the issuance of 133,944
common shares in accordance with the form of consideration elected
to be received by RTW shareholders. The decrease in the purchase
price from the US$32.0 million previously announced is due to price
adjustments primarily related to working capital and new store
construction costs. RTW is expected to contribute approximately US
$5.0 million of annualized net income to North West. In the first quarter
of 2017, the Company expects to incur acquisition related costs of
approximately US$5.0 million, which include stamp duties payable to
the Government of the British Virgin Islands.
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:
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 as part of the Top People initiative.
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.
19ANNUAL REPORT
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.
Logistics and Supply Chain The Company relies on a complex and
elongated outbound supply chain due to the remoteness of the
Company's stores. The delivery of merchandise to a substantial portion
of the Company's stores involves multiple carriers and multiple modes
of transportation including trucks, trains, aircraft, ships and barges
through various ports and transportation hubs. The Company's
reputation and financial performance can be negatively impacted by
supply chain events or disruptions outside of the Company's control,
including changes in foreign and domestic regulations which increase
the cost of transportation; the quality of transportation infrastructure
such as roads, ports and airports; labour disruptions at transportation
companies; or the consolidation, financial difficulties or bankruptcy of
transportation companies.
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.
In 2016, the Company began the implementation of a new point-
of-sale and merchandise management system. The failure to
successfully upgrade legacy systems or to migrate from legacy systems
to the new IT systems could 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.
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,
levels of personal
unemployment rates, personal debt
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 care
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.
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.
20THE NORTH WEST COMPANY INC.
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.
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 centres 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
environmental
including
litigation and regulatory compliance costs, all of which could have an
adverse effect on the reputation and financial performance of the
Company.
remediation activities,
incidents and
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,
regulations and standards could result
financial penalties,
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.
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 80% 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 and
operators of distribution facilities to provide goods and services. Events
or disruptions affecting these suppliers outside of the Company's
control could in turn result in delays in the delivery of merchandise to
the stores and therefore negatively impact the Company's reputation
and financial performance. A portion of the merchandise the Company
sells is purchased offshore. Offshore sourcing could provide products
that contain harmful or banned substances or do not meet the required
standards. The Company uses offshore consolidators and sourcing
agents to monitor product quality and reduce the risk of sub-standard
products however, there is no certainty that these risks can be
completely mitigated in all circumstances.
Management of Inventory Success in the retail industry depends
on being able to select the right merchandise, in the correct quantities
in proportion to the demand for such merchandise. A miscalculation
of consumer demand for merchandise could result in having excess
inventory for some products and missed sales opportunities for others
which could have an adverse effect on operations and financial
performance. Excess inventory may also result in higher markdowns
or inventory shrinkage all of which could have an adverse effect on the
financial performance of the Company.
Litigation In the normal course of business, the Company is subject
to a number of claims and legal actions that may be made by its
customers, suppliers and others. The Company records a provision for
litigation claims if management believes the Company has liability for
such claim or legal action. If management's assessment of liability or
the amount of any such claim is incorrect, or the Company is
unsuccessful in defending its position, any difference between the
judgment or penalty amount and the provision would become an
expense or a recovery in the period such claim was resolved.
Post-Employment Benefits The Company engages professional
investment advisors to manage the assets in the defined benefit
pension plans. The performance of the Company's pension plans and
the plan funding requirements are impacted by the returns on plan
assets, changes
in the discount rate and regulatory funding
requirements. If capital market returns are below the level estimated
by management, or if the discount rate used to value the liabilities of
the plans decreases, the Company may be required to make
contributions to its defined benefit pension plans in excess of those
currently contemplated, which may have an adverse effect on the
Company's financial 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 15 and in Note 12 to the consolidated financial statements.
21ANNUAL REPORT 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.
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.
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.
Ethical Business Conduct The Company has a Code of Business
Conduct and Ethics policy which governs both employees and
Directors. The Business Ethics Committee monitors compliance with
the Code of Business Conduct and Ethics. The Company also has a
Whistleblower Policy that provides direct access to members of the
Board of Directors. Unethical business conduct could negatively
impact the Company's reputation and relationship with its customers,
investors and employees, which in turn could have an adverse effect
on the financial performance of the Company.
Financial Risks In the normal course of business, the Company is
exposed to financial risks that have the potential to negatively impact
its financial performance. The Company manages financial risk with
oversight provided by the Board of Directors, who also approve specific
financial transactions. The Company uses derivative
financial
instruments only to hedge exposures arising in respect of underlying
business requirements and not for speculative purposes. These risks
and the actions taken to minimize the risks are described below. Further
information on the Company's financial instruments and associated
risks are provided in Note 14 to the consolidated financial statements.
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, 2017, the Company had undrawn committed
revolving loan facilities available of $264.7 million (January 31, 2016 -
$188.9 million).
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
15. At January 31, 2017, the Company had US$79.1 million in U.S.
denominated debt compare to US$75.6 million at January 31, 2016 and
US$96.8 million at January 31, 2015. 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 16.
The Company is also exposed to currency risk relating to the
translation of International Operations earnings to Canadian dollars. In
2016, the average exchange rate used to translate U.S. denominated
earnings from the International Operations was 1.3169 compared to
1.2971 last year. The Canadian dollar's depreciation in 2016 compared
to the U.S. dollar in 2015 positively impacted consolidated net earnings
by $0.4 million. In 2015, the average exchange rate was 1.2971
compared to 1.1148 in 2014 which resulted in an increase in 2015
consolidated net earnings of $3.8 million compared to 2014.
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. As at
January 31, 2017 the Company had no outstanding interest rate swaps.
22THE NORTH WEST COMPANY INC.
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 sheets 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; (3) estimating inventory losses, or
shrinkage, occurring between the last physical count and the balance
sheet date; and (4) the impact of vendor rebates on cost.
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 sheets and a charge or
credit to cost of sales in the consolidated statements 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
increase are the most significant
the rate of compensation
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, 2017 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 rate used to measure the benefit plan obligations for fiscal
2016 and 2015 was 4.0%. Management assumed the rate of
compensation increase for fiscal 2016 and 2015 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 sheets, the defined benefit plan
expense on the consolidated statements 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 generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets. To
the extent that the carrying value exceeds the estimated recoverable
amount, an impairment charge is recognized in the consolidated
statements 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 sheets and consolidated statements
of earnings.
23ANNUAL REPORT
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
sheets and consolidated statements of earnings.
The Company performed the annual goodwill impairment test in
2016 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
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 statements 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
2016
The Company adopted amendments to IAS 1, Presentation of Financial
Statements effective February 1, 2016, as required by the IASB. The
amendments provided guidance on the application of judgment in
the preparation of financial statements and disclosure including:
materiality, order of notes to consolidated financial statements and
disclosure of accounting policies. It also clarified the aggregation and
disaggregation of items presented in the financial statements. The
amendments had no material impact on the 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,
2017, and have not been applied in preparing these consolidated
financial statements. The Company is currently assessing the potential
impacts of changes to these standards.
Financial Instruments The amended IFRS 9, Financial Instruments is
a multi-phase project with the goal of improving and simplifying
financial instrument reporting. Additional guidance was issued on:
•
•
•
fair value
New requirements for the classification and measurement of
financial assets and liabilities. 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,
through other
comprehensive income and fair value through profit or loss.
A single forward-looking "expected credit loss" impairment
model.
New general hedge accounting standard which aligns hedge
accounting more closely with risk management. This new
standard does not fundamentally change the types of hedging
relationships or the requirement to measure and recognize
effectiveness, however it will provide more strategies that may be
used for risk management to qualify for hedge accounting and
introduces more judgment to assess the effectiveness of a
hedging relationship.
These changes are effective for the Company's financial year ending
January 31, 2019, will be applied retrospectively and are available for
early adoption.
Revenue Recognition In May 2014, the IASB issued IFRS 15, Revenue
from Contracts with Customers. 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
to which the Company is entitled. A contract-based five step analysis
is used to determine whether, how much and when revenue is
recognized. New estimates and judgmental thresholds have also been
introduced. It is effective for the Company's financial year ending
January 31, 2019, will be applied retrospectively and is available for
early adoption.
24THE NORTH WEST COMPANY INC.
Leases IFRS 16, Leases replaces the current guidance in IAS 17 for
operating and finance lease accounting. This standard requires lessees
to recognize a lease liability representing the obligation for future lease
payments and a right-of-use asset in the consolidated balance sheets
for substantially all lease contracts, initially measured at the present
value of unavoidable lease payments. These changes are effective for
the Company's financial year ending January 31, 2020, with early
adoption permitted provided IFRS 15, Revenue from Contracts with
Customers is also applied. The Company continues to evaluate the
effect this standard will have on its consolidated financial statements,
and expects the impact to be material. Under the new standard the
Company will recognize new assets and liabilities for its operating
leases of property and equipment. In addition, the nature and timing
of leasing expenses will change as operating lease expenses are
replaced by a depreciation charge for right-of-use assets and interest
expense on lease liabilities.
for Unrealized Losses.
Deferred tax In January 2016, the IASB issued amendments to IAS 12,
Recognition of Deferred Tax Assets
The
amendments clarify that the existence of a deductible temporary
difference depends solely on a comparison of the carrying amount of
an asset and its tax base at the end of the reporting period, and is not
affected by possible future changes in the carrying amount or
expected manner of recovery of the asset. The amendments also clarify
the methodology to determine the future taxable profits used for
assessing the utilization of deductible temporary differences. These
amendments are applicable for the Company's financial year ending
January 31, 2018.
Cash flows In January 2016, the IASB issued amendments to IAS 7,
Statement of Cash Flows to improve disclosures regarding changes in
financing liabilities. These amendments are applicable for the
Company's financial year ending January 31, 2018.
Share based payment In June 2016, the IASB issued amendments to
IFRS 2, Share-based Payments in relation to the classification and
These
measurement of share-based payment
amendments are applicable for the Company's financial year ending
January 31, 2019.
transactions.
There are no other IFRS or IFRIC interpretations that are not yet effective
that would be expected to have a material impact on the Company.
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
2016
2015
2014
$ 77,076
$
69,779
$
62,883
48,367
7,220
33,835
44,026
6,210
31,332
40,372
6,673
27,910
$ 166,498
$ 151,347
$ 137,838
For EBITDA information by business segment, see Note 4 to the
consolidated financial statements.
(2) 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
consolidated financial statements as at January 31 for the following
fiscal years:
($ in millions)
Total assets
2016
2015
2014
$
805.8
$
793.8
$
724.3
Less: Total liabilities
Add: Total long-term debt
(438.0)
229.3
Net Assets Employed
$
597.1
$
(436.2)
225.5
583.1
(395.0)
201.4
530.7
$
(3) 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.
25ANNUAL REPORT GLOSSARY OF TERMS
Basic earnings per share Net earnings available to shareholders
divided by the weighted-average number of shares outstanding
during the period.
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.
Basis point A unit of measure that is equal to 1/100th of one percent.
Gross profit Sales less cost of goods sold and inventory shrinkage.
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.
Conversion to a Share Corporation On January 1, 2011, the North
West Company Fund (the “Fund”) completed a 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 MD&A contains references to “shareholders”, “shares” and
“dividends” which were previously referred to as “unitholders”, “units”
and “distributions” under the Fund.
Debt covenants Restrictions written into banking facilities, senior
notes and loan agreements that prohibit the Company from taking
actions that may negatively impact the interests of the lenders.
Debt loss An expense resulting from the estimated loss on potentially
uncollectible accounts receivable.
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.
EBIT (Earnings From Operations) Net earnings before interest and
income taxes provides an indication of the Company's performance
prior to interest expense and income taxes.
EBIT margin EBIT divided by sales.
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.
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.
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 Average 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.
Working capital Total current assets less total current liabilities.
Year The fiscal year ends on January 31. Each fiscal year has 365 days
of operations with the exception of a "leap year" which has 366 days
of operations as a result of February 29. The following table summarizes
the fiscal year:
Fiscal Year
Year-ended
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
January 31, 2017
January 31, 2016
January 31, 2015
January 31, 2014
January 31, 2013
January 31, 2012
January 31, 2011
January 31, 2010
January 31, 2009
January 31, 2008
January 31, 2007
26THE NORTH WEST COMPANY INC.
Eleven-Year Financial Summary
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 taxes
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 (basic shares/units outstanding 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 (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 per year)
(1) The fiscal year changed from the last Saturday in January to January 31
effective January 31, 2007.
IFRS (2)
2016
IFRS (2)
2015
IFRS (2)
2014
IFRS (2)
2013
IFRS (2)
2012
1,125,330
718,763
1,844,093
109,736
56,762
166,498
35,291
13,076
48,367
7,220
33,835
77,076
126,024
60,169
77,745
(7,000)
$ 1,089,898
706,137
1,796,035
98,276
53,071
151,347
31,781
12,245
44,026
6,210
31,332
69,779
132,987
58,210
75,983
8,114
$ 327,938
358,121
86,909
32,853
152,244
285,792
367,785
$
$
$
1.59
1.57
3.43
2.60
1.24
7.57
29.28
185
47
1,518
676
755
1,063
5,715
1,882
48,524
48,542
49,189
$
$
$
$
335,581
345,881
83,293
29,040
155,501
280,682
357,612
1.44
1.43
3.12
2.74
1.20
7.37
30.53
181
47
1,463
676
756
1,045
5,482
1,896
48,509
48,523
35,631
$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
115,086
56,180
52,329
6,776
$ 315,840
311,692
68,693
28,074
146,275
248,741
329,283
$
$
$
1.30
1.29
2.85
2.38
1.16
6.80
26.56
178
47
1,422
676
742
849
4,921
1,726
48,432
48,497
24,080
$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
79,473
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
1.64
1.12
6.66
25.42
178
48
1,386
696
741
767
4,839
1,853
48,413
48,426
17,623
$
$
$
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
17,831
8.5
6.0
18.4
19.3
.61:1
48.8
5.7
8.4
6.0
19.5
20.6
.63:1
43.8
6.2
9.0
6.4
20.1
21.8
.62:1
47.7
6.1
8.8
6.4
20.6
22.1
.55:1
39.0
5.8
(2) The financial results for 2016 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.
9.0
6.5
20.0
21.0
.57:1
68.2
5.6
27ANNUAL REPORT 2009
2008
2007
2006
IFRS (2)
2011
IFRS (2)
2010
$1,028,396 $ 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
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 $ 284,789
259,583
55,199
17,017
185,377
144,736
286,475
270,370
53,289
7,422
128,002
215,206
283,709
$
$
$
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
$ 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
$ 899,263
493,371
1,392,634
90,606
31,651
122,257
24,501
7,553
32,054
8,307
6,518
75,378
90,178
67,730
46,118
3,998
$ 285,088
248,856
68,632
6,597
172,216
162,547
274,410
$
$
$
1.58
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
8.4
6.0
18.5
20.1
.62:1
44.0
5.7
8.7
6.2
17.9
24.1
.67:1
60.0
5.6
(3) See Non-GAAP financial measures on page 25.
9.0
6.6
18.7
29.3
.72:1
62.3
5.6
8.8
6.5
19.8
28.6
.78:1
75.1
5.8
(4) Based on average basic shares/units outstanding.
$ 852,773
211,717
1,064,490
87,410
19,147
106,557
22,634
4,316
26,950
7,465
9,151
62,991
93,591
54,667
44,409
(368)
$ 254,061
223,397
50,492
1,720
134,899
138,470
256,301
$
1.32
1.31
2.24
1.96
1.13
5.37
18.42
$ 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
$
1.13
1.12
2.03
1.71
0.80
5.29
16.41
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 taxes
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 (basic shares/units outstanding at end of year)
Market price at January 31
Statistics at Year End
$
$
$
$
168
32
1,226
311
646
601
5,833
806
47,561
47,625
13,167
176
44
1,368
639
657
410
5,359
1,502
47,649
47,701
17,330
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) (%)
10.2
Earnings from operations (EBIT) (%)
7.4
Total return on net assets(3) (%)
19.7
Return on average equity(3) (%)
21.7
.43:1
Debt-to-equity
47.5 Dividends/distributions as % of cash flow from operating activities
Inventory turnover (times per year)
5.1
(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.
10.0
7.5
21.0
24.9
.62:1
58.4
5.3
28THE 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 the selection and consistent
application of appropriate 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, CPA, CA, CMA
EXECUTIVE VICE-PRESIDENT &
CHIEF FINANCIAL OFFICER
THE NORTH WEST COMPANY INC.
April 11, 2017
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, 2017 and
January 31, 2016 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, 2017 and January
31, 2016 and their financial performance and their cash flows for the
years then ended in accordance with International Financial Reporting
Standards.
CHARTERED PROFESSIONAL ACCOUNTANTS
WINNIPEG, CANADA
April 11, 2017
29CONSOLIDATED 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)
TOTAL ASSETS
CURRENT LIABILITIES
Accounts payable and accrued liabilities
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, FCPA, FCA”
DIRECTOR
“H. Sanford Riley”
DIRECTOR
January 31, 2017
January 31, 2016
$
30,243
78,931
213,217
5,547
327,938
358,121
37,752
35,394
32,853
13,763
477,883
$
37,243
79,373
211,736
7,229
335,581
345,881
37,260
32,610
29,040
13,423
458,214
$
805,821
$ 793,795
$
146,639
$ 152,136
5,605
152,244
229,266
34,078
2,661
19,787
285,792
438,036
168,283
2,647
176,003
20,852
367,785
3,365
155,501
225,489
33,853
2,630
18,710
280,682
436,183
167,910
2,620
156,664
30,418
357,612
$
805,821
$ 793,795
30THE 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, 2017
January 31, 2016
$ 1,844,093
$ 1,796,035
(1,302,596)
(1,273,421)
541,497
(423,366)
118,131
(7,220)
110,911
(33,835)
522,614
(415,293)
107,321
(6,210)
101,111
(31,332)
$
77,076
$
69,779
$
$
1.59
1.57
$
$
1.44
1.43
48,524
48,964
48,509
48,783
Consolidated Statements of Comprehensive Income
($ in thousands)
NET EARNINGS FOR THE YEAR
Other comprehensive income/(loss), net of tax:
Items that may be reclassified to net earnings:
Year Ended
Year Ended
January 31, 2017
January 31, 2016
$
77,076
$
69,779
Exchange differences on translation of foreign controlled subsidiaries
(9,566)
11,953
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/(loss), net of tax
2,413
19
(7,134)
4,583
(15)
16,521
COMPREHENSIVE INCOME FOR THE YEAR
$
69,942
$
86,300
See accompanying notes to consolidated financial statements.
31CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands)
Balance at January 31, 2016
Net earnings for the year
Other comprehensive income/(loss)
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
$ 167,910
$
2,620
$ 156,664
$ 30,418
$ 357,612
—
—
—
—
—
—
373
373
—
—
—
—
168
—
(141)
27
77,076
2,413
19
79,508
—
(60,169)
—
(60,169)
—
(9,566)
—
(9,566)
—
—
—
—
77,076
(7,153)
19
69,942
168
(60,169)
232
(59,769)
Balance at January 31, 2017
$168,283
$
2,647
$176,003
$ 20,852
$367,785
Balance at January 31, 2015
Net earnings for the year
Other comprehensive income
Other comprehensive loss of equity investee
Comprehensive income
Equity settled share-based payments
Dividends (Note 19)
Issuance of common shares (Note 15)
$ 167,460
$
2,831
$ 140,527
$ 18,465
$ 329,283
—
—
—
—
—
—
450
450
—
—
—
—
124
—
(335)
(211)
69,779
4,583
(15)
74,347
—
(58,210)
—
(58,210)
—
11,953
—
11,953
—
—
—
—
69,779
16,536
(15)
86,300
124
(58,210)
115
(57,971)
Balance at January 31, 2016
$ 167,910
$
2,620
$ 156,664
$ 30,418
$ 357,612
(1) Accumulated Other Comprehensive Income
See accompanying notes to consolidated financial statements.
32THE 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 (Note 7, 8)
Provision for income taxes (Note 9)
Interest expense (Note 18)
Equity settled share option expense (Note 13)
Taxes paid
Loss on disposal of property and equipment
Change in non-cash working capital
Change in other non-cash items
Cash from operating activities
Investing activities
Purchase of property and equipment (Note 7)
Intangible asset additions (Note 8)
Proceeds from disposal of property and equipment
Cash used in investing activities
Financing activities
Increase in long-term debt (Note 11)
Dividends (Note 19)
Interest paid
Issuance of common shares (Note 15)
Cash used in financing activities
Effect of changes in foreign exchange rates on cash
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, 2017
January 31, 2016
$
77,076
$
69,779
48,367
33,835
7,220
168
(35,430)
1,115
132,351
(10,799)
4,472
126,024
(66,180)
(11,565)
63
(77,682)
11,567
(60,169)
(6,028)
232
(54,398)
(944)
(7,000)
37,243
44,026
31,332
6,210
386
(30,659)
350
121,424
5,904
5,659
132,987
(63,179)
(12,804)
170
(75,813)
13,081
(58,210)
(5,160)
115
(50,174)
1,114
8,114
29,129
$
30,243
$
37,243
33CONSOLIDATED FINANCIAL STATEMENTS
Notes to
Consolidated
Financial
Statements
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JANUARY 31, 2017 AND 2016
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 11, 2017.
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, as applicable:
•
•
•
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.
Net Earnings or loss and each component of other
comprehensive income are attributed to the shareholders of the
Company and to the non-controlling interests, if any. Total
comprehensive income is attributed to the shareholders of the
Company and to the non-controlling interests even if this results
in the non-controlling interests having a deficit balance on
consolidation.
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
for using the acquisition method of accounting.
The
consideration transferred is measured at the fair value of the assets
given, equity instruments issued and liabilities assumed at the
date of exchange. Acquisition costs incurred are expensed and
included in selling, operating and administrative expenses. Any
contingent consideration to be transferred by the acquirer will be
recognized at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration which
is deemed to be an asset or liability will be recognized in
accordance with International Accounting Standard (IAS) 39
either in net earnings or as a change to other comprehensive
income (OCI). If the contingent consideration is classified as
equity, it will not be remeasured 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.
Non-controlling
their
proportionate share of the acquiree's identifiable net assets at the
date of acquisition.
are measured
interests
at
34THE 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
largely 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.
35NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leases in which the Company has substantially all of the risks
and rewards of ownership are accounted for as finance leases. At
commencement, finance leases are capitalized at the lower of the
fair value of the leased property and the present value of minimum
lease payments, and are recorded in property and equipment on
the consolidated balance sheets. Finance lease liabilities are
recorded in long-term debt and are reduced by the amount of
the lease payment net of imputed interest (finance charges).
(I) Borrowing Costs Borrowing costs directly attributable to the
acquisition or construction of qualifying assets are capitalized as
part of the cost of the respective asset until it is ready for its
intended use. Qualifying assets are those assets that necessarily
take a substantial period of time to prepare for their intended use.
Borrowing costs are capitalized based on the Company’s
weighted-average cost of borrowing. All other borrowing costs
are expensed as incurred.
(J) Goodwill Goodwill represents the excess of the consideration
transferred over the fair value of the identifiable assets, including
intangible assets, and liabilities of the acquiree at the date of
acquisition. Goodwill is not amortized but is subject to an
impairment test annually and whenever indicators of impairment
are detected. Goodwill is carried at cost less accumulated
impairment losses.
(K)
Intangible Assets Intangible assets with finite lives are carried
at cost less accumulated amortization and any impairment loss.
Amortization is recorded on a straight-line basis over the term of
the estimated useful life of the asset as follows:
Software
Non-compete agreements
3 – 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, Performance Share
Units, Executive Deferred Share Unit 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.
36THE NORTH WEST COMPANY INC.
(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.
(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.
Defined Benefit Pension Plan The actuarial determination of the
defined benefit obligations for pension benefits uses the
projected unit credit method prorated on services which
incorporates management’s best estimate of the discount rate,
salary escalation, retirement rates, termination rates and
retirement ages of employees. The discount rate used to value
the defined benefit obligation is derived from a portfolio of high
quality Corporate AA bonds denominated in the same currency
in which the benefits are expected to be paid and with terms to
maturity that, on average, match the terms of the defined benefit
plan obligations. Bonds included in the curve are denominated
in the currency in which the benefits will be paid that have terms
to maturity approximating the terms of the related pension
liability.
The amount recognized in the consolidated balance sheet
at each reporting date represents the present value of the defined
benefit obligation, and is reduced by the fair value of plan assets.
Any recognized asset or surplus is limited to the present value of
economic benefits available in the form of any future refunds from
the plan or reductions in future contributions. To the extent that
there is uncertainty regarding entitlement to the surplus, no asset
is recorded. The Company’s funding policy is in compliance with
statutory regulations and amounts funded are deductible for
income tax purposes.
The actuarially determined expense for current service is
recognized annually in the consolidated statement of earnings.
The actuarially determined net interest costs on the net defined
benefit plan obligation are recognized in interest expense.
All actuarial remeasurements arising from defined benefit
plans are recognized in full in the period in which they arise in the
consolidated statement of 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.
(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: financial assets or liabilities at fair value
through profit or loss (FVTPL), loans and receivables, held-to-
investments, available-for-sale financial assets, or
maturity
financial liabilities at amortized cost.
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 financial liabilities
at amortized cost
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.
Financial liabilities at amortized cost are subsequently held at
amortized cost. Interest expense relating to long-term debt is
recorded using the effective interest rate method and included
in the consolidated statement of earnings as interest expense.
The Company is exposed to financial risks associated with
movements in interest rates and exchange rates. The Company
may use derivative financial
instruments to hedge these
exposures. Qualifying hedge relationships are classified as either
fair value hedges, cash flow hedges or as a hedge of a net
investment in a foreign operation. 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.
37NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The Company has designated 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, exercised, or no longer
qualifies for hedge accounting. At that time, any cumulative gain
or
in other
comprehensive income is retained in equity until the forecasted
transaction occurs. If a hedged transaction is no longer expected
to occur, the net cumulative gain or loss recognized in other
comprehensive income is transferred to the consolidated
statements of earnings for the period.
instrument recognized
Embedded derivatives are components of hybrid
instruments that include non-derivative host contracts. These are
separated from their host contracts and recorded on the
consolidated balance sheets at fair value when certain conditions
are met. Changes in the fair value of embedded derivatives are
recognized in earnings.
(R) Cash Cash comprises cash on hand and balances with banks.
(S) Net Earnings Per Share Basic net earnings per share are
calculated by dividing the net earnings by the weighted-average
number of common shares outstanding during the period.
Diluted net earnings per share is determined by adjusting net
earnings and the weighted-average number of common shares
outstanding for the effects of all potentially dilutive shares, which
comprise shares issued under the Share Option Plan and Director
Deferred Share Unit Plan.
(T) Dividends Dividends declared and payable to the Company's
shareholders are recognized as a liability in the consolidated
balance sheets in the period in which distributions are declared.
in conformity with
financial statements
(U) Use of Estimates, Assumptions & Judgment The preparation
IFRS requires
of
management to make estimates, assumptions and judgments
that affect the application of accounting policies, the reported
amounts of revenues and expenses during the reporting period
in the
and disclosure of contingent assets and
consolidated financial statements and notes. Judgment has been
used in the application of accounting policy and to determine if
a transaction should be recognized or disclosed in these financial
statements while estimates and assumptions have been used to
measure balances recognized or disclosed.
liabilities
Estimates, assumptions and judgments are based on
management’s historical experience, best knowledge of current
events, conditions and actions that the Company may undertake
in the future and other factors that management believes are
reasonable under the circumstances. Estimates and underlying
assumptions are reviewed on an ongoing basis. Certain of these
estimates
judgments by
management about matters that are uncertain and changes in
impact the consolidated
these estimates could materially
financial statements and notes. Revisions to accounting estimates
are recognized in the period in which the estimates are reviewed
and in any future periods affected.
require subjective or complex
The areas that management believes involve a higher degree
of judgment or complexity, or areas where the estimates and
assumptions may have the most significant impact on the
amounts recognized in the consolidated financial statements
include the following:
•
•
•
•
•
•
Allowance for doubtful accounts is estimated based on
expected customer payment experience, and influenced by
specific customer behavior and regional economic factors
(Notes 5, 14)
Inventories are remeasured based on the lower of cost and
net realizable value (Note 6)
Impairment of long-lived 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)
(V) 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.
(W) New Standards
Implemented The Company adopted
amendments to IAS 1, Presentation of Financial Statements
effective February 1, 2016, as required by the IASB. The
amendments provided guidance on the application of judgment
in the preparation of financial statements and disclosure
including: materiality, order of notes to consolidated financial
statements and disclosure of accounting policies. It also clarified
the aggregation and disaggregation of items presented in the
financial statements. The amendments had no material impact
on the consolidated financial statements.
38THE NORTH WEST COMPANY INC. (X) 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, 2017, and have
not been applied in preparing these consolidated financial
statements. The Company is currently assessing the potential
impacts of changes to these standards.
Financial Instruments The amended IFRS 9, Financial Instruments
is a multi-phase project with the goal of improving and simplifying
financial instrument reporting. Additional guidance was issued
on:
•
•
•
New requirements for the classification and measurement
of financial assets and liabilities. 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
A single forward-looking "expected credit loss" impairment
model
New general hedge accounting standard which aligns
hedge accounting more closely with risk management. This
new standard does not fundamentally change the types of
hedging relationships or the requirement to measure and
recognize effectiveness, however it will provide more
strategies that may be used for risk management to qualify
for hedge accounting and introduces more judgment to
assess the effectiveness of a hedging relationship
These changes are effective for the Company's financial year
ending January 31, 2019, will be applied retrospectively and are
available for early adoption.
Revenue Recognition In May 2014, the IASB issued IFRS 15, Revenue
from Contracts with Customers. 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 to which the Company is entitled. A contract-
based five step analysis is used to determine whether, how much
and when revenue is recognized. New estimates and judgmental
thresholds have also been introduced. It is effective for the
Company's financial year ending January 31, 2019, will be applied
retrospectively and is available for early adoption.
Leases IFRS 16, Leases replaces the current guidance in IAS 17 for
operating and finance lease accounting. This standard requires
lessees to recognize a lease liability representing the obligation
for future lease payments and a right-of-use asset in the
consolidated balance sheets for substantially all lease contracts,
initially measured at the present value of unavoidable lease
payments. These changes are effective for the Company's
financial year ending January 31, 2020, with early adoption
IFRS 15, Revenue from Contracts with
permitted provided
Customers is also applied. The Company continues to evaluate
the effect this standard will have on its consolidated financial
statements, and expects the impact to be material. Under the
new standard the Company will recognize new assets and
liabilities for its operating leases of property and equipment. In
addition, the nature and timing of leasing expenses will change
as operating lease expenses are replaced by a depreciation charge
for right-of-use assets and interest expense on lease liabilities.
Deferred tax In January 2016, the IASB issued amendments to IAS
12, Recognition of Deferred Tax Assets for Unrealized Losses. The
amendments clarify that the existence of a deductible temporary
difference depends solely on a comparison of the carrying
amount of an asset and its tax base at the end of the reporting
period, and is not affected by possible future changes in the
carrying amount or expected manner of recovery of the asset. The
amendments also clarify the methodology to determine the
future taxable profits used for assessing the utilization of
deductible temporary differences. These amendments are
applicable for the Company's financial year ending January 31,
2018.
Cash flows In January 2016, the IASB issued amendments to IAS
7, Statement of Cash Flows to improve disclosures regarding
changes in financing liabilities. These amendments are applicable
for the Company's financial year ending January 31, 2018.
Share based payment In June 2016, the IASB issued amendments
to IFRS 2, Share-based Payments in relation to the classification and
measurement of share-based payment transactions. These
amendments are applicable for the Company's financial year
ending January 31, 2019.
There are no other IFRS or IFRIC interpretations that are not yet
effective that would be expected to have a material impact on
the Company.
39NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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:
January 31, 2017
January 31, 2016
Trade accounts receivable
$ 76,122
$ 78,190
Corporate and other
accounts receivable
Less: allowance for doubtful
accounts
17,193
13,566
(14,384)
(12,383)
$ 78,931
$ 79,373
Consolidated Statements of Earnings
Year Ended
Sales
Canada
International
January 31, 2017
January 31, 2016
$ 1,125,330
$ 1,089,898
718,763
706,137
Consolidated
$ 1,844,093
$ 1,796,035
The carrying values of 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. Credit risk for trade accounts receivable is discussed
in Note 14. Corporate and other accounts receivable have a lower risk
profile relative to trade accounts receivable because they are largely
due from government or corporate entities.
Earnings before amortization, interest and income taxes
Canada
International
$ 109,736
$
56,762
98,276
53,071
Movements in the allowance for doubtful accounts for customer and
commercial accounts receivables are as follows:
Consolidated
$ 166,498
$
151,347
January 31, 2017
January 31, 2016
Earnings from operations
Canada
International
$
74,445
$
43,686
66,495
40,826
Net charge
Written off
(9,425)
7,424
(7,312)
6,354
Balance, beginning of year
$
(12,383)
$
(11,425)
Consolidated
$ 118,131
$
107,321
Balance, end of year
$
(14,384)
$
(12,383)
January 31, 2017
January 31, 2016
6.
INVENTORIES
Assets
Canada
International
$ 529,807
$
501,268
276,014
292,527
Consolidated
$ 805,821
$
793,795
Canadian total assets includes goodwill of $3,271 (January 31, 2016
– $NIL). International total assets includes goodwill of $34,481
(January 31, 2016 – $37,260).
Supplemental information
Year Ended
January 31, 2017
January 31, 2016
Canada
Int'l
Canada
Int'l
Purchase of property and
equipment
$ 53,701 $ 12,479 $ 55,503 $ 7,676
Amortization
$ 35,291 $ 13,076 $ 31,781 $ 12,245
Retail inventories are valued at the lower of cost and net realizable value.
Valuing retail inventories requires the Company to use estimates
related to: adjusting to cost inventories valued at retail; 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, 2017, the Company
recorded $1,129 (January 31, 2016 – $1,392) for the write-down of
inventories as a result of net realizable value being lower than cost.
There was no reversal of inventories written down previously that are
no longer estimated to sell below cost during the year ended
January 31, 2017 or 2016.
40THE NORTH WEST COMPANY INC.
7. PROPERTY & EQUIPMENT
January 31, 2017
Cost
Land
Buildings
Leasehold
improvements
Fixtures &
equipment
Computer
equipment
Construction
in process
Total
Balance, beginning of year
$
16,935
$ 417,182
$
64,055
$ 294,922
$
77,142
$
17,075
$ 887,311
Additions
Disposals
Effect of movements in foreign exchange
120
—
(688)
35,478
(1,407)
(9,212)
7,803
(500)
(1,623)
23,949
(2,533)
(7,183)
4,186
(6,025)
(1,005)
(5,356)
—
(112)
66,180
(10,465)
(19,823)
Total January 31, 2017
$
16,367
$ 442,041
$
69,735
$ 309,155
$
74,298
$
11,607
$ 923,203
—
—
—
—
—
—
—
—
—
—
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals
Effect of movements in foreign exchange
Total January 31, 2017
Net book value January 31, 2017
$
$
$
January 31, 2016
Cost
$ 232,202
$
34,811
$ 207,004
$
67,413
$
18,944
(920)
(4,172)
$ 246,054
4,584
(472)
(971)
15,846
(1,968)
(4,686)
4,277
(5,927)
(883)
$
$
37,952
$ 216,196
31,783
$
92,959
$
$
64,880
9,418
$
$
—
—
—
—
—
$ 541,430
43,651
(9,287)
(10,712)
$ 565,082
11,607
$ 358,121
16,367
$ 195,987
Land
Buildings
Leasehold
improvements
Fixtures &
equipment
Computer
equipment
Construction
in process
Total
Balance, beginning of year
$
16,041
$ 377,061
$
51,845
$ 265,706
$
73,151
$
16,459
$ 800,263
Additions
Disposals
Effect of movements in foreign exchange
—
—
894
28,613
(365)
11,873
10,863
(747)
2,094
20,422
(367)
9,161
2,715
(13)
1,289
566
—
50
63,179
(1,492)
25,361
Total January 31, 2016
$
16,935
$ 417,182
$
64,055
$ 294,922
$
77,142
$
17,075
$ 887,311
Accumulated amortization
Balance, beginning of year
Amortization expense
Disposals
Effect of movements in foreign exchange
Total January 31, 2016
Net book value January 31, 2016
$
$
$
$ 209,584
$
30,296
$ 186,617
$
62,074
$
17,593
(206)
5,231
$ 232,202
3,806
(509)
1,218
14,591
(251)
6,047
4,226
(7)
1,120
$
$
34,811
$ 207,004
29,244
$
87,918
$
$
67,413
9,729
$
$
—
—
—
—
—
$ 488,571
40,216
(973)
13,616
$ 541,430
17,075
$ 345,881
16,935
$ 184,980
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 3.14% and 2.86% for the years ended January 31,
2017 and 2016 respectively. Interest capitalized in additions amounted to $338 (January 31, 2016 – $275). Accumulated interest capitalized in
the cost total above amounted to $1,776 (January 31, 2016 – $1,438).
41NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. GOODWILL & INTANGIBLE ASSETS
Goodwill
January 31, 2017
January 31, 2016
Balance, beginning of year
$
37,260
$
33,653
Additions
Effect of movements in foreign
exchange
3,271
(2,779)
—
3,607
Balance, end of year
$
37,752
$
37,260
Goodwill Impairment Testing
The goodwill asset balance largely relates to the Company's acquired
subsidiary, Cost-U-Less, and is allocated to the International Operations
operating segment. The value of this 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 was
estimated from the product of financial performance and trading
multiples observed for comparable public companies. Values assigned
to the key assumptions represent management's best estimates and
have been based on data from both external and internal sources. This
fair value measurement was categorized as a Level 3 fair value
measurement based on the inputs in the valuation technique used.
Key assumptions used in the estimation of enterprise value are as
follows:
•
•
•
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, 2017
Cost
Balance, beginning of year
Additions
Effect of movements in foreign exchange
Total January 31, 2017
Accumulated Amortization
Balance, beginning of year
Amortization expense
Effect of movements in foreign exchange
Total January 31, 2017
Net book value January 31, 2017
Software
Cost-U-Less banner
Other
Total
$
41,030
$
9,856
6,575
—
$
47,605
$
20,590
4,247
—
$
24,837
$ 22,768
—
(735)
9,121
—
—
—
—
9,121
$
$
$
$
$
$
$
$
$
8,364
1,719
(102)
9,981
6,050
469
(43)
6,476
3,505
$
59,250
8,294
(837)
$
66,707
$
26,640
4,716
(43)
$
31,313
$ 35,394
42THE NORTH WEST COMPANY INC. Intangible assets
January 31, 2016
Cost
Balance, beginning of year
Additions
Effect of movements in foreign exchange
Total January 31, 2016
Accumulated Amortization
Balance, beginning of year
Amortization expense
Effect of movements in foreign exchange
Total January 31, 2016
Net book value January 31, 2016
Software
Cost-U-Less banner
Other
Total
$
28,376
$
8,902
$
7,989
$
45,267
12,654
—
$
41,030
$
17,032
3,558
—
$
20,590
$ 20,440
—
954
9,856
—
—
—
—
9,856
$
$
$
$
150
225
8,364
5,750
252
48
6,050
2,314
$
$
$
$
12,804
1,179
$
59,250
$
22,782
3,810
48
$
26,640
$ 32,610
Work in process
As at January 31, 2017, the Company had incurred $10,402 (January 31,
2016 – $6,037) 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.
43NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2017
January 31, 2016
Year Ended
January 31, 2017
January 31, 2016
Current tax expense:
Current tax on earnings for
the year
Withholding taxes
$ 37,903
1,401
$ 34,656
149
Defined benefit plan
actuarial gain / (loss):
Origination and reversal of
temporary difference
$
875
$
1,679
Over provision in prior years
(87)
(1,774)
$ 39,217
$ 33,031
Impact of change in tax rates
(12)
(25)
$
863
$
1,654
Deferred tax expense:
Origination and reversal of
temporary differences
Impact of change in tax rates
Under provision in prior years
$ (5,546)
$ (3,900)
(23)
187
(5,382)
(39)
2,240
(1,699)
Income taxes
$ 33,835
$ 31,332
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, 2017
January 31, 2016
Net earnings before income
taxes
Combined statutory income
tax rate
Expected income tax
expense
$110,911
$101,111
28.9%
29.3%
$ 32,007
$ 29,646
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
Under provision in prior years
Other
$
(292)
$
650
215
1,401
(23)
100
427
327
149
(39)
466
133
Provision for income taxes
$ 33,835
$ 31,332
Income tax rate
30.5%
31.0%
Deferred tax assets of $4,500 arising from certain foreign income tax
losses were not recognized on the consolidated balance sheet. The
income tax losses expire from 2022 – 2036.
44THE NORTH WEST COMPANY INC. Income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
January 31, 2017
February 1, 2016
Deferred tax assets:
Taxes (charged)
credited to net
earnings
Taxes (charged)
credited to OCI
Other adjustments
January 31, 2017
Goodwill & intangible assets
$
721
$
(49)
$
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:
Goodwill & intangible assets
Net investment hedge
Investment in jointly controlled
entity
Deferred limited partnership
earnings
Other
13,742
2,146
3,851
9,106
4,889
102
$
34,557
$
$
$
(973)
(53)
(1,391)
(5,647)
(83)
(8,147)
26,410
2,391
459
(58)
939
(160)
(1,038)
2,484
(178)
—
21
3,050
5
2,898
5,382
$
$
$
$
$
$
$
$
$
Recorded on the consolidated balance sheet as follows:
Year Ended
Deferred tax assets
Deferred tax liabilities
—
—
—
—
(863)
—
—
(863)
—
—
—
—
—
—
(863)
$
$
$
$
$
—
(162)
(128)
(47)
—
(265)
24
(578)
74
(44)
—
—
(189)
(159)
(737)
$
672
15,971
2,477
3,746
9,182
4,464
(912)
$ 35,600
$
(1,077)
(97)
(1,370)
(2,597)
(267)
$ (5,408)
$ 30,192
January 31, 2017
January 31, 2016
$ 32,853
(2,661)
$
29,040
(2,630)
$ 30,192
$
26,410
45NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2016
February 1, 2015
Taxes (charged)
credited to net
earnings
Taxes (charged)
credited to OCI
Other adjustments
January 31, 2016
Deferred tax assets:
Goodwill & intangible assets
$
773
$
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:
Goodwill & intangible assets
Net investment hedge
Investment in jointly controlled
entity
Deferred limited partnership
earnings
Other
12,665
2,847
2,872
9,803
4,801
1,508
$
35,269
$
$
$
(648)
(34)
(1,269)
(7,570)
(66)
(9,587)
25,682
$
$
$
$
(52)
976
(862)
918
959
(241)
(1,414)
284
(236)
(19)
(124)
1,923
(17)
1,527
1,811
$
—
—
—
—
(1,656)
—
—
$
(1,656)
$
$
$
—
—
2
—
—
2
(1,654)
$
$
$
$
$
—
101
161
61
—
329
8
660
(89)
—
—
—
—
(89)
571
$
721
13,742
2,146
3,851
9,106
4,889
102
$ 34,557
$
(973)
(53)
(1,391)
(5,647)
(83)
$
(8,147)
$ 26,410
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 between the carrying value and tax value of investments in
subsidiaries. The Company is in a position to control the timing and reversal of these differences and believes it is probable that they will not
reverse in the foreseeable future. The temporary differences associated with the Company’s foreign subsidiaries are approximately $96,278 at
January 31, 2017 (January 31, 2016 – $96,731).
10. OTHER ASSETS
Investment in jointly controlled entity (Note 23)
Other
January 31, 2017
January 31, 2016
$
9,930
3,833
$
10,356
3,067
$ 13,763
$
13,423
46THE NORTH WEST COMPANY INC. 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,
2017 and January 31, 2016. 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, 2017, the Company
contributed $1,501 to its defined benefit pension plans (January 31,
2016 – $1,601). During the year ended January 31, 2017, the Company
contributed $2,890 to
its defined contribution pension plans
(January 31, 2016 – $2,594). The current best estimate of the
Company's funding obligation for the defined benefit pension plans
for the year commencing February 1, 2017 is $2,600. In addition to the
cash funding, a portion of the pension plan obligation 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:
Revolving loan facilities(1)
Non-current
Revolving loan facilities (1)
Revolving loan facilities (2)
Revolving loan facilities (3)
Senior notes (4)
January 31, 2017
January 31, 2016
—
—
$
—
—
$
$
11,887
$
7,946
—
126,344
91,035
—
119,193
98,350
$ 229,266
$ 225,489
Total
$ 229,266
$ 225,489
(1) The committed, revolving U.S.
loan facility provides the
International Operations with up to US$40,000 for working capital
requirements and general business purposes. This facility matures
October 31, 2020, bears a floating rate of interest based on U.S. LIBOR
plus a spread and is secured by certain accounts receivable and
inventories of the International Operations. At January 31, 2017, the
International Operations had drawn US$9,122 (January 31, 2016 – US
$5,643) on this facility.
(2) In March 2016, the Company completed the refinancing of the US
$52,000 loan facilities maturing December 31, 2018 which bore interest
at LIBOR plus a spread. The new committed, revolving loan facilities
mature April 29, 2021 and bear interest at U.S. 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 $300,000
Canadian Operations loan facilities. At January 31, 2017, the Company
had drawn US$NIL (January 31, 2016 – US$NIL) on these facilities.
(3) In March 2016, the Company completed the refinancing of the
$200,000 loan facilities maturing December 31, 2018 which bore a
floating interest rate based on Bankers Acceptances rates plus
stamping fees or the Canadian prime interest rate. The new increased,
committed, revolving loan facilities provide the Company's Canadian
Operations with up to $300,000 for working capital and general
business purposes. The facilities mature April 29, 2021 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 the
International Operations. These facilities bear a floating interest rate
based on Bankers Acceptances rates plus stamping fees or the
Canadian prime interest rate.
(4) The US$70,000 senior notes mature on June 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 U.S. LIBOR plus a spread. The senior notes are secured
by certain assets of the Company and rank pari passu with the $300,000
Canadian Operations loan facilities and the US$52,000 loan facilities in
the International Operations.
47NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2017
January 31, 2016
January 31, 2017
January 31, 2016
Plan assets:
Fair value, beginning of year
$
76,429
$
82,298
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 /
(less than) discount rate
2,987
(5,040)
(405)
1,501
9
2,799
2,811
(5,578)
(387)
1,601
9
(4,325)
Fair value, end of year
$
78,280
$
76,429
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
Defined benefit obligation, end of
year
$ (110,282)
$ (118,854)
(3,273)
(9)
(4,311)
5,040
477
—
(3,498)
(9)
(4,061)
5,578
163
10,399
$ (112,358)
$ (110,282)
Plan deficit
$ (34,078)
$
(33,853)
The defined benefit obligation exceeds the fair value of plan assets as
noted in the table. While the plans are not considered fully funded for
financial reporting purposes, registered plans are funded in accordance
with the applicable statutory funding rules and regulations governing
the particular plans.
Defined benefit obligation
The following actuarial assumptions were employed to measure the
plan:
January 31, 2017
January 31, 2016
Discount rate on plan liabilities
Rate of compensation increase
Discount rate on plan expense
Inflation assumption
4.0%
4.0%
4.0%
2.0%
4.0%
4.0%
3.5%
2.0%
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 17.8 years (January 31,
2016 – 17.9 years).
Male
Female
21.2
23.6
21.1
23.6
Average life expectancies at age 65 for current members aged 45:
Male
Female
22.3
24.6
22.3
24.6
Assumptions regarding future mortality experience are set based on
actuarial advice in accordance with published statistics and experience.
For the years ended January 31, 2017 and 2016, mortality assumptions
have been estimated at 106% of the base mortality rates in the
CPM2014PRIV table based on pension size and 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: 4.0%
Impact of:
1% increase
1% decrease
$ (17,484)
$
22,407
$ (1,060)
$
999
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, 2017
January 31, 2016
Plan assets:
Canadian equities (pooled)
Global equities (pooled)
Debt securities
Total
23%
40%
37%
100%
39%
24%
37%
100%
48THE NORTH WEST COMPANY INC.
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.
The following amounts have been included in other comprehensive
income:
January 31, 2017
January 31, 2016
Current Year:
Return on assets (less than)/
greater than discount rate
Actuarial remeasurement due to:
Plan experience
Financial assumptions
Taxes on actuarial remeasurement
in OCI
Net actuarial remeasurement
recognized in OCI
$
2,799
$
(4,325)
477
—
(863)
163
10,399
(1,654)
$
2,413
$
4,583
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
$ (17,427)
$ (20,703)
2,612
3,475
$ (14,815)
$ (17,228)
The actual return on the plans assets is summarized as follows:
January 31, 2017
January 31, 2016
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.
Accrued interest on assets
$
2,987
$
2,811
Return on assets (less than)/
greater than discount rate
2,799
(4,325)
Actual return on plan assets
$
5,786
$
(1,514)
Statement of earnings and comprehensive income
The following pension expenses have been charged to the
consolidated statement of earnings:
January 31, 2017
January 31, 2016
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
$
3,273
$
3,498
405
2,890
592
387
2,594
605
$
7,160
$
7,084
$ (2,987)
$ (2,811)
4,311
4,061
$
1,324
$
1,250
13. SHARE-BASED COMPENSATION
The Company offers the following share-based payment plans:
Performance Share Units (PSUs); Share Options; Director Deferred Share
Units (DDSUs); Executive Deferred Share Units (EDSUs) 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, 2017 was $7,053 (January 31, 2016 – $13,750).
The carrying amount of the Company’s share-based compensation
arrangements including PSU, share option, DDSU and EDSU plans are
recorded on the consolidated balance sheets as follows:
Accounts payable and accrued
liabilities
Other long-term liabilities
Contributed surplus
January 31, 2017
January 31, 2016
$ 10,844
13,624
1,078
$ 10,067
12,472
1,052
Total
$ 25,546
$ 23,591
49NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Share Units
The Company has granted Performance Share Units to officers and
senior management. 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 PSUs for the
year ended January 31, 2017 are $3,017 (January 31, 2016 – $6,027).
Director Deferred Share Unit Plan
This Plan is available for independent Directors. Participants are
credited with deferred share units for the amount of the annual equity
retainer, and for the portion of the annual cash retainer and fees each
participant elects to allocate to the DDSU plan. Each deferred share
unit entitles the holder to receive a share of the Company. The DDSUs
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 DDSUs ,
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. This cash payment is
in consideration for the surrender by the participant to the Company
the right to receive shares from exercising the DDSUs. Effective
December 2016, the Plan was amended for those DDSUs credited to
participants for the portion of the annual cash retainer and fees each
participant elects to allocate to the Plan. The holder of these DDSUs is
entitled to receive at the time of exercise, 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.
Compensation expense is measured at the time of the grant.
Subsequent changes in the fair value of the DDSUs based on changes
in the market value of the Company's shares are recognized at each
reporting date. The DDSU plan compensation recorded for the year
ended January 31, 2017 is an expense of $712 (January 31, 2016 –
$1,587). The total number of deferred share units outstanding at
January 31, 2017 is 212,166 (January 31, 2016 – 180,152). There were
no DDSUs exercised during the year ended January 31, 2017
(January 31, 2016 – 22,895). For the year-ended January 31, 2016, 4,595
units were settled in shares and 18,300 units were settled in cash.
Executive Deferred Share Unit Plan
The EDSU plan was implemented to assist executive management to
meet the Company's minimum share ownership guidelines. This plan
provides for the granting of deferred share units to those executives
who elect to receive a portion of their annual short-term incentive
payment in EDSUs, subject to plan limits. Effective April 2016,
participants will be credited with EDSUs based on the amount of their
annual short-term incentive payment allocated to the plan and the
fair market value of the Company's shares. The EDSUs are exercisable
at any time after the executive ceases to be an employee of the
Company, but no later than December 31 of the first calendar year
commencing after the holder ceased to be an employee. Each EDSU
entitles the holder to a cash payment equal to the market value of the
equivalent number of the Company's shares, determined based on
their closing price on the TSX on the trading day preceding the exercise
date.
Total compensation expense is measured at the time of the grant.
Subsequent changes in the fair value of the EDSUs based on changes
in the market value of the Company's shares are recognized at each
reporting date. The EDSU plan compensation recorded for the year
ended January 31, 2017 is an expense of $35 (January 31, 2016 – $NIL).
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.
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, 2017. 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, 2017 is $2,510 (January 31,
2016 – $5,408).
The fair values for options issued during the year were calculated based
on the following assumptions:
2016
2015
Fair value of options granted
$ 2.80 to 3.88
$ 2.17 to 3.42
Exercise price
Dividend yield
$ 28.81
3.9%
$ 25.63
4.6%
Annual risk-free interest rate
0.5% to 0.7%
0.4% to 0.7%
Expected share price volatility
19.8%
19.9%
The assumptions used to measure options at the balance sheet dates
are as follows:
Dividend yield
2016
4.2%
2015
4.1%
Annual risk-free interest rate
0.8% to 1.1%
0.4% to 0.7%
Expected share price volatility
19.7% to 23.3%
18.8% to 24.7%
50THE NORTH WEST COMPANY INC. The expected dividend yield is estimated based on the quarterly dividend rate and the closing share price on the date the options are granted.
the expected share price volatility is estimated based on the Company's historical volatility over a period consistent with the expected life of the
options. The risk-free interest rate is estimated based on the Government of Canada bond yield for a term to maturity equal to the expected life
of the options.
The 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
2016
2015
2016
2015
1,659,664
1,207,995
454,057
(30,829)
—
491,096
(39,427)
—
400,045
68,564
(25,967)
—
391,876
81,461
(43,137)
(30,155)
2,082,892
1,659,664
442,642
400,045
485,431
223,575
205,958
176,867
The weighted-average share price on the dates options were exercised during 2016 was $29.88 (January 31, 2016 – $27.46).
Weighted-average exercise price
Declining Strike Price Options
Standard Options
Outstanding options, beginning of year
$
23.67
$
22.79
$
21.86
$
20.88
2016
2015
2016
2015
Granted
Exercised
Forfeited or cancelled
Outstanding options, end of year
Exercisable at end of year
Summary of options outstanding by grant year
28.81
21.95
—
24.81
18.47
$
$
25.63
21.14
—
23.67
18.30
$
$
28.81
17.20
—
23.21
20.29
$
$
25.63
19.44
22.52
21.86
19.32
$
$
Outstanding
Exercisable
Range of
exercise price
Number
outstanding
Weighted-average
remaining
contractual years
Weighted-average
exercise price
Options
exercisable
Weighted-average
exercise price
$
$
$
$
$
$
$
19.11-19.11
17.19-20.62
18.87-21.86
20.86-23.21
23.09-24.79
24.60-25.63
28.48-28.81
106,700
271,462
316,121
358,830
377,243
572,557
522,621
3.2
1.5
2.2
3.2
4.2
5.2
6.2
$
$
$
$
$
$
$
19.11
17.76
19.37
21.25
23.22
24.75
28.52
106,700
271,462
200,916
112,311
NIL
NIL
NIL
$
$
$
$
19.11
17.76
19.37
21.25
N/A
N/A
N/A
Grant
year
2010
2011
2012
2013
2014
2015
2016
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, 2017 is $779 (January 31, 2016 – $728).
51NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2017, the Company had undrawn committed revolving loan facilities available of $264,657 (January 31, 2016 – $188,907)
which mature in 2020 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.
Accounts payable and accrued liabilities
Long-term debt (Note 11)
Operating leases (Note 21)
Total
2017
146,639
5,494
29,891
182,024
$
$
2018
—
5,494
25,124
30,618
2019
—
5,494
21,347
26,841
2020
—
17,324
15,738
33,062
2021
—
219,325
12,658
231,983
2022+
Total
— $ 146,639
— 253,131
69,339
174,097
69,339 $ 573,867
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 $78,931 (January
31, 2016 – $79,373). The Company does not have any individual
customers greater than 10% of total accounts receivable. At January 31,
2017, the Company’s gross maximum credit risk exposure is $93,315
(January 31, 2016 – $91,756). Of this amount, $15,444 (January 31, 2016
– $14,318) is more than 60 days past due. The Company has recorded
an allowance against its maximum exposure to credit risk of $14,384
(January 31, 2016 – $12,383) which is based on historical payment
records for similar financial assets.
As at January 31, 2017 and 2016, 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.
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 earnings to decrease by approximately $100. A
10% depreciation of the Canadian dollar against the U.S. dollar year-
end rate would cause net earnings 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.
52THE NORTH WEST COMPANY INC. 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 earnings to decrease by
approximately $1,144. A 100 basis point decrease would cause net
earnings to increase by approximately $1,144.
(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.
Assets (Liabilities) carried at
amortized cost
Maturity Carrying amount
Short-term
Short-term
Long-term
Short-term
Long-term
$
30,243
78,931
1,582
(146,639)
(229,266)
Fair value
$
30,243
78,931
1,582
(146,639)
(230,067)
Assets (Liabilities) carried at
amortized cost
Maturity Carrying amount
Fair value
Short-term
Short-term
Long-term
Short-term
Long-term
$
37,243
$
37,243
79,373
1,525
(152,136)
(225,489)
79,373
1,525
(152,136)
(228,377)
January 31, 2017
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued liabilities
Long-term debt
January 31, 2016
Cash
Accounts receivable
Other financial assets
Accounts payable and accrued liabilities
Long-term debt
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. This is considered a level 2 fair
value estimate.
53NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2017, the debt-to-equity ratio
was 0.62 compared to 0.63 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, 2017
January 31, 2016
$
$
$
—
229,266
229,266
367,785
0.62
$
$
$
—
225,489
225,489
357,612
0.63
(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, 2017 and 2016, 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, 2017.
16. EXPENSES BY NATURE
Year Ended
January 31, 2017
January 31, 2016
Employee costs (Note 17)
$ 260,891
$
260,600
Amortization
Operating lease rentals
Other income
48,367
30,207
(30,168)
44,026
29,494
(29,497)
17. EMPLOYEE COSTS
Year Ended
January 31, 2017
January 31, 2016
Wages, salaries and benefits
including bonus
Post-employment benefits (Note 12)
Share-based compensation
(Note 13)
$ 246,678
$ 239,766
7,160
7,053
7,084
13,750
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
$
3,957
1,145
3,913
$
5,055
1,155
8,580
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.
18. INTEREST EXPENSE
Year Ended
January 31, 2017
January 31, 2016
Interest on long-term debt
$ 6,326
$ 5,355
Net interest on defined benefit
plan obligation
Interest income
Less: interest capitalized
1,324
(92)
(338)
1,250
(120)
(275)
15. SHARE CAPITAL
Interest expense
$ 7,220
$ 6,210
Authorized – The Company has an unlimited number of shares.
Balance at January 31, 2016
48,523,341
$
167,910
Issued under option plans (Note 13)
19,173
373
Shares
Consideration
Balance at January 31, 2017
48,542,514
$
168,283
54THE NORTH WEST COMPANY INC. 19. DIVIDENDS
The following is a summary of the dividends recorded in retained
earnings and paid in cash:
Year Ended
January 31, 2017
January 31, 2016
Dividends recorded in retained
earnings and paid in cash
$ 60,169
$ 58,210
Dividends per share
$
1.24
$
1.20
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 15, 2017, the Board of Directors declared a dividend of
$0.32 per common share to be paid on April 17, 2017 to shareholders
of record as of the close of business on March 31, 2017.
20. NET EARNINGS PER SHARE
Basic net earnings per share is calculated based on the weighted-average shares outstanding during the year. The diluted net earnings per share
takes into account the dilutive effect of all potential ordinary shares. The average market value of the Company’s shares for purposes of calculating
the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.
($ and shares in thousands, except earnings per share)
Year Ended
Diluted earnings per share calculation:
January 31, 2017
January 31, 2016
Net earnings for the year (numerator for diluted earnings per share)
$
77,076
$
69,779
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
48,524
440
48,964
48,509
274
48,783
$
$
1.59
1.57
$
$
1.44
1.43
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, 2017
January 31, 2016
Due within 1 year
Within 2 to 5 years inclusive
After 5 years
Land and buildings
Other leases
Land and buildings
Other leases
$ 29,030
$
73,889
69,339
861
978
—
$
29,488
$
77,306
56,623
633
611
—
55NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. COMMITMENTS, CONTINGENCIES AND
GUARANTEES
Commitments
The Company has a Master Franchise Agreement (MFA) with Giant
Tiger Stores Limited, based in Ottawa, Ontario which grants the
Company the exclusive right to open Giant Tiger stores in western
Canada, subject to meeting a minimum store opening commitment.
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, 2017, the Company
owns 37 Giant Tiger stores and is in compliance with the minimum
store opening commitment. The agreement expires July 31, 2040.
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.
56THE NORTH WEST COMPANY INC.
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,
2017, the Company’s share of the net assets of its jointly controlled entity amount to $9,930 (January 31, 2016 – $10,119), comprised assets of
$11,137 (January 31, 2016 - $11,277) and liabilities of $1,207 (January 31, 2016 – $1,158). During the year ended January 31, 2017 the Company
purchased freight handling and shipping services from Transport Nanuk Inc. and its subsidiaries of $8,217 (January 31, 2016 – $7,274). The contract
terms are based on market rates for these types of services on similar arm’s length transactions.
24. SUBSEQUENT EVENT - BUSINESS ACQUISITION
On February 9, 2017, the Company acquired 76% of the outstanding common shares of Roadtown Wholesale Trading Ltd. (RTW), operating
primarily as Riteway Food Markets in the British Virgin Islands (BVI). RTW is the leading retailer in BVI with seven retail outlets, two Cash and Carry
stores and a significant wholesale operation. The purchase price was US$27,044 consisting of cash consideration of US$23,997 financed through
existing loan facilities and the issuance of 133,944 common shares, in accordance with the form of consideration elected to be received by RTW
shareholders.
Given the timing of the transaction, the preliminary purchase price allocation is not yet available.
57NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Shareholder Information
Fiscal Year
Quarter Ended
2016
April 30, 2016
July 31, 2016
October 31, 2016
January 31, 2017
2015
April 30, 2015
July 31, 2015
October 31, 2015
January 31, 2016
2014
April 30, 2014
July 31, 2014
October 31, 2014
January 31, 2015
Share
Price High
Share
Price Low
Share
Price Close
Volume
$33.15
$24.08
$29.28
49,189,285
33.15
31.13
30.89
30.23
27.56
27.70
24.58
24.08
27.89
30.50
25.60
29.28
13,914,839
9,094,678
11,714,391
14,465,377
EPS1
$1.57
0.36
0.34
0.57
0.30
$30.53
$23.41
$30.53
35,630,567
$1.43
26.80
27.98
29.90
30.53
24.27
23.41
26.15
26.20
24.76
27.51
29.00
30.53
7,604,165
11,004,187
8,843,138
8,179,077
0.32
0.37
0.43
0.31
$26.74
$21.93
$26.56
24,079,962
$1.29
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
0.26
0.35
0.37
0.31
1 Net earnings per share are on a diluted basis.
Total Return Performance (% at January 31)
illustrates
the
This chart
West Company
Inc. over
the reinvestment of dividends.
relative performance of shares of The North
incorporates
the past
five years. The
index
The North West Company Inc.
Anticipated Dividend Dates*
Record Date: March 31, 2017
Payment Date: April 17, 2017
Record Date: June 30, 2017
Payment Date: July 17, 2017
Record Date: September 29, 2017
Payment Date: October 16, 2017
Record Date: December 29, 2017
Payment Date: January 15, 2018
*Dividends are subject to approval by the
Board of Directors
The 2017 Annual General and Special Meeting
of Shareholders of The North West Company
Inc. will be held on Wednesday, June 14, 2017 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, 2017: 48,523,341
Auditors
PricewaterhouseCoopers LLP
Five Year 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
Paulina Hiebert
Vice-President, Legal and Corporate Secretary
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 CPA, CA, CMA
Executive Vice-President and
Chief Financial Officer
Daniel G. McConnell
Executive Vice-President and
Chief Development Officer
Matt D. Johnson
Vice-President, Fresh/Food Service
Procurement and Marketing
Frank J. Coleman 1, 2
Wendy F. Evans 1, 3
Laurie J. Kaminsky
Vice-President, NWC Health Products
and Services
Brett D. Marchand
Vice-President, Logistics & Distribution,
Canada
Stewart Glendinning 2, 3
Edward S. Kennedy
Robert J. Kennedy 1, 3
Annalisa King 2, 3
Scott A. McKay
Vice-President, General Merchandise
Procurement and Marketing
Violet (Vi) A. M. Konkle 2, 3
Gary Merasty 1, 3
Michael T. Beaulieu
Vice-President, Canadian Sales & Operations
Northern Canada Retail, Central Division
Walter E. Pickett
Vice-President and General Manager,
Alaska Commercial Company
Eric L. Stefanson, FCPA, FCA 1, 2
Victor Tootoo, CPA, CGA 2, 3
Steven J. Boily
Vice-President, Information Services
Christine D. Reimer
Vice-President, Canadian Sales and Operations, 1 Governance & Nominating
Northern Canada Retail, National Division
BOARD COMMITTEES
2 Audit
3 Human Resources, Compensation, and
J. Robert Cain
Vice-President, Logistics and Distribution
(International Operations)
Glenn R. Revet
Vice-President, Sales and Operations,
Giant Tiger
Pension
David M. Chatyrbok
Vice-President, Canadian Sales & Operations,
Northern Canada Retail, NorthMart/Major
Markets Division
Leanne G. Flewitt
Vice-President, Project Enterprise
Craig A. Foster
Vice-President, Human Resources
Chris J. Santschi
Vice-President, Canadian Sales and Operations, contact the Corporate Secretary:
Northern Canada Retail, National Division
For additional copies of this report or for
general information about the Company,
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
James W. Walker
Vice-President and General Manager,
Wholesale Operations (International
Operations)
Rex A. Wilhelm
Vice-Chairman, NWCI
(International Operations)
*as at April 11, 2017
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