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Annual Report 2013

Plain-text annual report

OUR CORE PURPOSE IS TO CREATE VALUE Annual Report 2013 TABLE OF CONTENTS FINANCIAL HIGHLIGHTS PROFILE MESSAGE TO SHAREHOLDERS DIRECTORS AND OFFICERS SERVICE | PRODUCTS MANAGEMENT’S REPORT MANAGEMENT’S AND INDEPENDENT AUDITORS’ REPORTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 3 4 5 9 10 20 33 34 CONSOLIDATED STATEMENTS OF EARNINGS 35 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 35 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 36 CONSOLIDATED STATEMENTS OF CASH FLOWS 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 38 The annual general meeting of shareholders will be held on April 3, 2014 at 10:30 a.m., at the Omni Mont-Royal Hotel, 1050 Sherbrooke Street West, Montreal, Quebec. PRIORITY No. 1:  UNDERSTAND CUSTOMER NEEDS1968 2013  45 years serving our customers with CoMMITMENT, QUALITY AND PRIDE 1988 2013 25 years of GRoWTH and EXPANSIoN marked by 49 ACQUISITIoNS in North America 1993 2013 20 years of SUCCESS as a TSX-listed corporation in which the share price (RCH) appreciated 20-FoLD $50 $40 $30 $20 $10 $0 $44.68 Compound annual return ≈ 16% RCH 2-for-1 share splits 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 RIChELIEU Annual Repor t 2013 1 A Profitable Growth Strategy Internal growth and expansion-by-acquisition SALES (in millions of $) Ventes Ventes Ventes 586.8 Ventes 565.8 523.8 447.0 415.6 Résultat net... NET EARNIN gS PER S hARE ATTRIBUTABLE TO S hAREhOLDERS Résultat net... (DILUTED) (in $) Résultat net... Résultat net... 2.15 1.87 1.78 1.39 CASh FLOwS FROM OPER ATIN g ACTIVITIES (in millions of $) Flux monétaires Flux monétaires Flux monétaires Flux monétaires 55.0 2.22 54.4 50.2 45.1 37.3 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Capitaux propres Dette Capitaux propres EqUITY/DEBT Capitaux propres Dette (in millions of $) Capitaux propres Dette Dette 293.1 288.0 Equity 256.2 253.9 240.5 Debt 5.6 2.9 0.7 2.6 1.4 2009 2010 2011 2012 2013 2 Our latest acquisitions2013Hi-Tech Glazing Supplies (Vancouver)CourterCo Savannah LLC (Georgia)2012CourterCo Inc. (Indiana, Kentucky, North Carolina)2011Outwater Hardware (New Jersey)Madico Inc. (Quebec)Provincial Woodproducts Ltd (Newfoundland)2010Woodland Specialties Inc. (New York State)Raybern Company, Inc. (Connecticut)Gordon Industrial Materials Ltd. (Quebec, Ontario)New Century Distributors Group LLC (New Jersey)E. Kinast Distributors Inc. (Chicago region)PJ White Hardwoods Ltd (Alberta, B.C.)Financial Highlights Years ended November 30 (in thousands of $, except per-share amounts, number of shares and ratios) Sales EBITDA (3) EBITDA margin (%) Net earnings Net earnings attributable to shareholders of the Corporation ■ basic per share ($) ■ diluted per share ($) Net margin attributable to shareholders of the Corporation (%) Cash flows from operating activities (5) ■ diluted per share ($) Cash dividends paid on shares ■ per share ($) Average number of shares outstanding (diluted) (in thousands) As at November 30 Total assets Working capital Current ratio Equity Return on average equity (%) Book value ($) Total debt Cash and cash equivalents 2013 (1) 2012 (1) 2011 (1) 2010 (2) 2009 (2) $ $ $ $ $ 586,775 565,798 523,786 446,963 415,592 70,373 12.0 46,657 46,403 2.25 2.22 7.9 54,978 2.63 10,768 0.52 71,163 12.6 45,909 45,404 2.17 2.15 8.0 54,403 2.57 10,026 0.48 67,149 12.8 40,105 39,726 1.89 1.87 7.6 50,183 2.36 9,267 0.44 63,832 14.3 39,233 38,574 (4) 1.79 1.78 8.6 45,059 2.08 7,768 0.36 51,588 12.4 30,404 30,605 (4) 1.39 1.39 7.4 37,310 1.69 7,032 0.32 20,930 21,137 21,262 21,705 22,019 356,325 204,117 4.5 293,114 16.2 14.41 1,354 46,187 349,869 200,088 4.6 287,942 16.9 13.65 2,563 51,587 318,676 166,897 4.0 256,187 16.5 12.11 5,544 29,095 320,816 162,727 3.7 253,869 15.9 12.01 2,858 39,289 286,928 150,485 4.7 240,500 13.0 11.04 668 48,442 (1) The financial statements for 2013, 2012 and 2011 have been prepared in accordance with IFRS. (2) The financial statements for 2010 and 2009 have been prepared in accordance with GAAP. (3) EBITDA is a non-IFRS measure, as described on page 22 of this report. (4) Net earnings from continuing operations. (5) Cash flows from operating activities and cash flows per share are non-IFRS measures, as described on page 22 of this report. RIChELIEU Annual Repor t 2013 3 Market capitalization as at November 30, 2013: $896 millionAppreciation in share price (RCH) since initial stock listing: 1,990%Total return on share/10 years*: 186%Average annual return on share/10 years*: 11.1%*Including dividend reinvestment Profile Montego Club (Quebec City) Importer, distributor and manufacturer of specialty hardware and complementary products — North american leader Richelieu is: 44 Over 100,000 prOducts (SKUs) in a wide variety of categories including: kitchen accessories, lighting systems, finishing and decorating pro-ducts, functional hardware, ergonomic workstations, closet and kitchen sto-rage solutions, sliding door systems, decorative and functional panels, glass hardware, high-pressure laminates, floor protection products and window and door hardware. This offering is comple-mented by the specialty items manu-factured by our two subsidiaries Cedan Industries Inc. and Menuiserie des Pins Ltée. Those include a broad range of veneer sheets and edgebanding pro-ducts, along with an extensive selection of decorative moldings and compo-nents for the window and door industry. Many of our products are manufactured according to our specifications and tho-se of our customers.Some 70,000 cuStomerS — kitchen and bathroom cabinet manufacturers, kitchen designers, resi-dential and commercial woodworkers, home furnishing manufacturers, office and ready-to-assemble furniture manu-facturers, renovation superstore chains and purchasing groups including over 6,000 hardware retailers.cloSe to 1,700 employeeS of whom close to half are directly in-volved in sales and marketing, and nearly 65% are Richelieu shareholders.62 centres IncLUDInG 60 sHOWrOOMs AnD 2 MAnU-FActUrInG PLAnts In nOrtH AMerIcA Our wide array of products, one-stop shop service approach, efficient logis-tics and the many advantages of our transactional website richelieu.com translate into an optimal response rate for our customers.A trILInGUAL trAnsActIOnAL WebsIte richelieu.com unrivalled in the industry, designed to facilitate customers’ projects and transactions and inform any visitor about the most comprehensive functional and decorative hardware offering in North America. Richard Lord President and Chief Executive Officer w hen i joined Richelieu as President and chief executive Officer and major shareholder, the company employed some 80 people and posted approximately $30 million in sales, oper- ating from a single distribution centre in Quebec. 25 years later, our sales stand at $586.8 million. We serve some 70,000 manufacturers and retailers in North America, whom we pro- vide with easy access to an offering of over 100,000 products thanks to the one-stop shop strategy in our centres and show- rooms, and to richelieu.com — a trilingual website unique in our market for its broad scope and convenience for customers. We can count on a specialized team of nearly 1,700 people, about 65% are also shareholders, and a reliable relationship with many world leading manufacturers renowned for their technological expertise and strong innovativeness. 2013 is also our 20th year as a TSX-listed company. Over the course of these 20 years, our share has appreciated 20-fold, yielding a 16% compound annual return. During these years of growth, we focused primarily on Canada to establish and maintain our leadership in that market, before successfully penetrating the U.S. market in 1999. Through its vision and business model, Richelieu has emerged as the leader in its specialty market in North America. These achievements can be attributed to team work and commitment, thanks to people whose expertise, quality execution and outstanding service set us apart in our industry. Together, we share the vision and core values of a customer- oriented corporation resolutely focused on innovation, sustained growth, respect, integrity and entrepreneurship. We are proud of the steps taken thus far, with the trust and support of our customers, suppliers, shareholders and all our business partners. RIChELIEU Annual Repor t 2013 RIChELIEU Annual Repor t 2013 5 5 25 years of commitment and growth In 2013, we created further value through initiatives focused primarily on growth, expansion, innovation and customer service. In December 2013, we acquired Procraft Industrial Ltd, a distributor of finishing products operating three centres in the Maritime Provinces where we were already present. These three acquisitions add sales of approximately $11 million on an annualized basis and will yield future synergies. Over the past 25 years, we have thus closed 49 acquisitions in North America. Use of funds for the benefit of the Corporation and its shareholders Our financial position remains impeccable and almost debt-free, posting cash of $46.2 million and working capital of $204.1 million, for a current ratio of 4.5:1. We paid $10.8 million in dividends, equivalent to 23.2% of net earnings attributable to shareholders, and repurchased common shares for $36.6  million under our normal course issuer bid. As at Novem- ber  30, 2013, our share price was up 33.2% over a year earlier. Thus, in 2013, we distributed a total of $47.4 million to shareholders, while retaining our flexibility and the financial resources to pursue our growth and expansion in 2014. Sustained growth Our sales and our earnings diluted per share attributable to shareholders increased by 3.7% and 3.3% respectively. In the United States, where we have closed 15 acquisitions since entering that market, we maintained a dynamic and targeted innovation and development strategy. We enjoy a solid positioning and differentiating strengths that enabled us to take advantage of more favour- able economic conditions. In 2013, our sales in the United States grew by 19% in U.S. dollars, of which 13.8% internal grow th, thereby of fset ting the slowdown witnessed year-long in the Canadian market. In Canada, our effective business model and leadership were clear advantages in helping us achieve a strong performance under challen- ging market conditions. We intensified selling syn- ergies and our operational efficiency, cost control and expense reduction initiatives, while carrying on our innovation strategy — so customers benefit from enhanced service conditions and the best offering of innovative products and solutions. New strategic acquisitions From the beginning, our acquisition strategy has aimed to ensure that every company acquired is fully compatible with our activ- ities, and contributes to growth and optimal customer service. In 2013, we closed the acquisition of CourterCo Savannah LLC, a distributor of specialt y and decorative hardware active in the strategic Georgia coas tal region, followed by Hi-Tech Glazing Supplies, a distributor of window and door hard- ware well established in British Columbia. This ac- quisition strengthens our presence in a specialized customer base and further expands our product offering. 6 With creativity and dynamism, Richelieu contributes to the evolution of the North American specialty hardware market, and will continue to do so. An ever-more innovative offering We do not wait for demand, we anticipate and create it, and are always one step ahead of the competition to provide better service. innovation is a continuous cycle essential to our growth and that of our customers. Richelieu is a key specialty hardware products pro- vider — diversified, innovative and one of the most complete suppliers of functional and decorative hardware in North America. In 2013, we further enhanced our offering with a broad selection of innovations, including a complete range of weather-resistant materials and accessories for outdoor solutions, a new line of decorative panels, a complementary offering of sinks and faucets, innovative sliding systems and new eco-friendly products. Technology and design combine to fuel innovations and improve existing products. We are always on the lookout for new products to introduce any that could drive our customers’ sales growth and differentiation. Waiting until we are 100% certain of a product’s success before bringing it to market is to be 100% certain of being left behind. A unique evolving service concept In 2013, we continued to invest to enhance customer service, in accordance with: a product strategy promoting the most compre- hensive, innovative and available offering; an efficient logistics chain adapted to customer needs; multi-access service; and a complete range of attractive selling tools for our customers to facilitate their sales. Our team of sales and service professionals com- prises nearly 50% of our employees. With their ex- pertise, we provide our customers with proximity service including advice on the use of products. Our strong sales force is backed by the most powerful market intelligence tools, and we continuously work to develop strategies and programs in order to pro- vide our customers with the best possible support. We consider it a must to offer the one-stop shop advantage in all our product categories. As far as possible, we expand our product lines by re- sponding to orders for non-inventory items, by way of our site at richelieu.com and the collaboration we maintain with our suppliers. By managing our offering that way, we are able to provide unrivalled service meeting our customers’ specific needs without burde- ning inventories. in 2013, our website gained further efficiency and popularity. Much more than a trilingual catalogue, it is an indispensable search, se- lection, product configuration and complete paperless transactional tool for our custom- ers. An ever-increasing percentage of our B2B sales now go through richelieu.com. RIChELIEU Annual Repor t 2013 7 our customers, team, suppliers and shareholders are the four growth pillars with and for whom we create value. We wish to thank all our par tners, customers, employees, suppliers and shareholders for their trust and support. We remain committed to and passionate about achieving further advances in the future. Richard Lord President and Chief Executive Officer Opportunities to create and seize We remain firmly customer-oriented and make sure our business model is always well adapted to customer needs and our operational efficiency objectives. We will continue to respect our principles and core values, such as innovation as the spearhead of our growth, quality execution and differentiation in everything we do. In Canada, we have the fundamentals and strengths to maintain our leadership in a market that remains a major source of growth — and the fragmentation of which still holds acquisition opportunities. We will continue to look for targets best matching our operational and financial objectives. In the United States where there is great potential for us to pursue our growth, we are confident we can take other steps forward and further consolidate our positioning. We will do so through potential acquisitions, innovations, synergies and dynamic development of the manufacturers and retailers markets. 8 Directors Jocelyn Proteau Chairman of the Board Richelieu Hardware Ltd. Director of Corporations Richard lord President and Chief Executive Officer Richelieu Hardware Ltd. Mathieu Gauvin (1) Partner Richter Groupe Conseil Inc. Jean Douville (2) Chairman of the Board UAP Inc. Chairman of the Board National Bank of Canada Director of Corporations Pierre Bourgie (1) President and Chief Executive Officer Bourgie Financial Corporation (1996) Inc. President, Ipso Facto Director of Corporations Officers Richard lord President and Chief Executive Officer Antoine Auclair Vice-President and Chief Financial Officer Guy Grenier Vice-President, Sales and Marketing — Sales to Manufacturers Division Éric Daignault General Manager of Divisions Marion Kloibhofer General Manager — Central Canada John statton General Manager — Western Canada and Western United States charles White General Manager — United States Denyse chicoyne (2) Director of Corporations christian Dion Manager — Human Resources Geneviève Quevillon Manager — Logistics and Supply Chain Yannick Godeau Manager — Legal Affairs and Corporate Secretary Robert courteau (2) President and Chief Executive Officer SPI Health and Safety Inc. Marc Poulin (1) President and Chief Executive Officer Empire Company Limited President and Chief Executive Officer Sobeys Inc. (1) Member of the Audit Committee (2) Member of the Human Resources and Corporate Governance Committee RIChELIEU Annual Repor t 2013 9 10 One of our priorities is to ensure that all our customers have the easiest, most practical access to our products, either through our on-site specialists, or in our centres and showrooms, by telephone or richelieu.com.Our quality service reflects the mutual trust we maintain with each customer. Whether they are manufacturers or retailers, we must know their business well, understand and exceed their expectations and, when needed, maintain specific collaboration to provide them with optimal support. expert Multi-access serviceSolutions search and selection Product configuration Paperless transactional site RIChELIEU Annual Repor t 2013 11 wE DO NOT wAIT FOR DEMAND, wE ANTICIPATE IT, wE CREATE IT.wELCOME TO richelieu.comefficient logistics that coordinate all purchasing and distribution operations and optimize customer service. 12 CAnAdA 35 distRibution CentRes St. John’s, Dartmouth, Moncton, Drummondville, Quebec City (3), Montreal, Longueuil (2), Laval (2), Ottawa, Toronto (2), Barrie, Kitchener, Sudbury, Thunder Bay, Winnipeg, Regina, Saskatoon, Edmonton (2), Calgary (3), Kelowna, Vancouver (5), Victoria (2) + 2 mAnufACtuRing CentRes Longueuil, Notre-Dame-Des-Pins united stAtes 25 distRibution CentRes Boston, Hartford, New York, Avenel, Lincoln Park, Syracuse, Detroit, Columbus, Cleveland, Cincinnati, Raleigh, Greensboro, Charlotte, Greenville, Atlanta, Savannah, Riviera Beach, Hialeah, Dania, Pompano, Nashville, Chicago, Indianapolis, Louisville, Seattle A NORTh AMERICAN NETwORk wITh ThE ONE-STOP ShOP ADVANTAgEIn a strongly competitive context, our customers can count on our PROACTIVE INNOVATION APPROACH for their commercial and residential concepts. Our decade-long relationships with the most reliable and innovative manufacturers worldwide provide us with a significant DIFFERENTIATION capacity that benefits our customers. Architects and designers are benchmark partners we keep regularly up-to-date on our innovations. RIChELIEU Annual Repor t 2013 13 ONgOINg INNOVATIONS TO DRIVE ThE MARkETInnovation gives us and our customers a major competitive edge. We understand the current challenges faced by entre- preneurs and retailers. We are therefore present to as- sist our customers in their competitiveness. Our role is to support their business strategies by providing them with the most appropriate cutting-edge products and solutions, the top tools to favour their sales, and the best service to facilitate their purchasing processes. 14 We offer the most diversified selection of functional and decorative hardware in North America. For instance, we are distinguished by our offering of sli- ding doors, which is the most innovative and complete in North America by far, such as high-end design concepts, closet solutions or storage furniture, and an incompara- ble variety of functional and ergonomic office products. RIChELIEU Annual Repor t 2013 RIChELIEU Annual Repor t 2013 15 15 We offer the most complete range of closet hardware products, including integrated LED lighting systems. outdoor cooking and entertainment areas require a selection of cutting-edge, functional and esthetic weather- resistant hardware products. our new offering launched in 2013 includes innovative and sustainable solutions combining easy-to- maintain weather- resistant materials such as polymer and stainless steel. 16 Private brands and exclusive products targeted to manufacturers and retailers comprise some 60% of our offering We are a frontline supplier for renovation superstores and more than 6,000 independent retailers operating under different banners and purchasing groups. Standard PMS Variation Black-Only Reversed Setup We can provide more than 200 linear feet of hardware displays by store. RIChELIEU Annual Repor t 2013 17 From the beginning, the principles of economic, social and environmental responsibility have been incorporated into our strategies and operations. They contribute to improve our ways of doing busi- ness, our responsible and sustainable integration into communities and our overall efficiency. 18 CREATE VALUE wITh RIgOROUS ECO-RESPONSIBLE PRACTICESHoneycomb panels LED lighting our business model is one of proximity. The posi- tive difference we aim for in the communities where we operate is built on the competencies and commitment of our local teams. They con- tribute to an accurate understanding of the busi- ness environment and community outreach. In addition to the social and recreational activities we organize locally, our commitment is targeted primarily to educational institutions. We take an eco-responsible approach at every level of our organization. Even though our distribution and manufacturing activities have no material impact on the environment, we strive to incorporate eco- responsible measures into our day-to-day operations. Considering the significance of packaging in our distribution business, we use as little paper as possible. Also, we regularly transmit our manage- ment reports electronically, and our meetings and training ses- sions are held by teleconference. The use of vegetable-based inks and recycled paper is generalized organization-wide. Popular with many customers, our website at richelieu.com is an efficient paper- less administrative management tool. Furthermore, we aim con- stantly to increase the energy-efficiency of our offices, warehouses and showrooms. We offer our customers a diversified offering of FSC and Greenguard certified eco-friendly products. Our “green” product line continues to expand. We now offer several thousand products that guarantee a sound environmental performance, including water-based finishing products and glues, formaldehyde-free decorative panels, items made from recycled materials such as the sturdy lightweight honeycomb panels used in the manufacturing of tables and storage furniture, and LED-lighting systems. RIChELIEU Annual Repor t 2013 19 Management’s Report Management’s Discussion and Analysis of operating Results and Financial Position Year Ended November 30, 2013 Contents 2013 Highlights Forward-Looking Statements Non-IFRS Measures General Business Overview as at November 30, 2013 Mission and Strategy Financial Highlights Analysis of Operating Results Summary of Quarterly Results and 2013 Fourth Quarter Financial Position Analysis of Principal Cash Flows Analysis of Financial Position Event Subsequent to Year-End Contractual Commitments Financial Instruments Internal Control over Financial Reporting Significant Accounting Policies and Estimates New Accounting Methods Risk Factors Share Price Share Information as at January 23, 2014 Outlook Supplementary Information 21 22 22 23 23 24 24 26 27 27 28 29 29 29 29 30 30 31 32 32 32 32 20 HigHligHts of tHe Year ended november 30, 2013 Richelieu pursued its growth and expansion in 2013, ending the year with excellent liquidities and an impeccable financial position. Sales and net earnings were up over 2012 despite the market slowdown throughout 2013 in Canada. The Corporation continued to reinforce its positioning in the United States, where it achieved strong growth thanks to its market penetration initiatives and sustai- ned innovation strategy, enabling it to take further advantage of more favourable economic conditions. Two acquisitions were closed during the year, in the United States and Canada respectively: CourterCo Savannah LLC (“Savannah”) and Hi-Tech Glazing Supplies (“Hi-Tech”). Subsequent to year-end, Richelieu finalized another acquisition in Canada, specifically Procraft Industrial Ltd (“Procraft”). Thanks to its financial position, its effective business model and its specialized team, the Corporation remains well positioned to carry on its North American business strategy in 2014. ■ Consolidated sales totalled $586.8 million, up 3.7% over 2012. ■ U.S. sales grew by 19.0% (in US$) in 2013, of which 13.8% from internal growth. ■ Earnings before income taxes, interest and amortization (EBITDA) decreased by 1.1% to $70.4 million. The EBITDA margin stood at 12.0%, compared with 12.6% in 2012. ■ Net earnings attributable to shareholders increased by 2.2% to $46.4 million. Earnings per share amounted to $2.25 (basic) and $2.22 (diluted), up from $2.17 (basic) and $2.15 (diluted) in 2012, an increase of 3.7% and 3.3% respectively. ■ Cash flows from operating activities (before net change in non-cash working capital balances) grew by 1.1% to $55.0 million. ■ As at November 30, 2013, working capital totalled $204.1 million for a current ratio of 4.5:1, up by 2.0% over November 30, 2012. ■ Cash and cash equivalents stood at $46.2 million. ■ Total debt amounted to $1.4 million, consisting entirely of the current portion of long-term debt. ■ Richelieu repurchased 873,000 outstanding common shares (RCH) under its normal course issuer bid for a consideration of $36.6 million and paid dividends of $10.8 million to its shareholders in 2013, an increase of 7.4%, representing 23.2% of net earnings attributable to shareholders for the year. While retaining the financial resources needed to pursue its growth in 2014, the Corporation thereby distributed a total of $47.4 million to its shareholders. ■ Effective March 21, 2013, the Corporation acquired the principal net assets of Savannah (Georgia, U.S.), a distributor of specialty and decorative hardware products. ■ Effective September 3, 2013, the Corporation acquired the principal net assets of Hi-Tech, a distributor of window and door hardware located in Vancouver (B.C.). ■ Event subsequent to year-end: On December 2, 2013, Richelieu acquired all the outstanding common shares of Procraft, a finishing products distributor with three distribution centres in the Maritime Provinces, specifically in Halifax, N.S., Moncton and Fredericton, N.B. This acquisition will add approximately $4 million to the Corporation’s total sales. Richelieu Annual Repor t 2013 21 Although management believes these assumptions and expectations to be reasonable based on the information available at the time they are written, they could prove inaccurate. Forward-looking statements are also subject, by their very nature, to known and unknown risks and uncer- tainties such as those related to the industry, acquisitions, labour relations, credit, key officers, supply and product liability, as well as other factors set forth in the Corpora- tion’s 2013 Annual Report (see the “Risk Factors” section of this management’s report and the 2013 Annual Information Form available on SEDAR at www.sedar.com). Richelieu’s actual results could differ materially from those indicated or underlying these forward-looking statements. The reader is therefore recommended not to unduly rely on these forward-looking statements. Forward-looking statements do not reflect the potential impact of special items, any business combination or any other transaction that may be announced or occur subsequent to the date hereof. Richelieu undertakes no obligation to update or revise the forward-looking statements to account for new events or new circumstances, except where provided for by applicable legislation. NON-iFRS MeASuReS Richelieu uses earnings before interest, income taxes and amortization (“EBITDA”) because this measure enables management to assess the Corporation’s operational performance. This measure is a widely accepted financial indicator of a Corporation’s ability to service and incur debt. However, EBITDA should not be considered by an investor as an alternative to operating income or the net earnings at- tributable to shareholders of the Corporation, as an indicator of financial performance or cash flows, or as a measure of liquidities. Because EBITDA is not a standardized measure- ment as prescribed by IFRS, it may not be comparable to the EBITDA of other companies. Richelieu also uses cash flows from operating activities and cash flows from operating activities per share. Cash flows from operating activities are based on net earnings plus amortization of property, plant and equipment and intan- gible assets, deferred tax expense (or recovery) and share- based compensation expense. These additional measures do not account for net change in non-cash working capital items to exclude seasonality effects and are used by man- agement in its assessments of cash flows from long-term operations. Therefore, cash flows from operating activities may not be comparable to the cash flows from operating activities of other companies. This management’s report relates to Richelieu Hardware Ltd.’s consolidated operating results and cash flows for the year ended November 30, 2013 in comparison with the year ended November 30, 2012, as well as the Corporation’s financial position at those dates. This report should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended November 30, 2013 appearing in the Corporation’s Annual Report. In this management’s report, “Richelieu” or the “Corporation” designates, as the case may be, Richelieu Hardware Ltd. and its subsidiaries and divisions, or one of its subsidiaries or divisions. Supplementary information, such as the Annual Information Form, interim management’s reports, Management Proxy Circular, certificates signed by the Corporation’s President and Chief Executive Officer and Vice-President and Chief Financial Officer, as well as press releases issued during the year ended November 30, 2013, is available on the website of the Sys tem for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. The information contained in this management’s report accounts for any major event occurring prior to January 23, 2014, on which date the audited consolidated financial statements and annual management’s report were appro- ved by the Corporation’s Board of Directors. Unless other- wise indicated, the financial information presented below, including tabular amounts, is expressed in Canadian dollars and prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements for the fourth quarter ended November 30, 2013 have not been audited or reviewed by the Corpora- tion’s auditors. FORWARD-lOOKiNG STATeMeNTS Certain statements set forth in this management’s report, including statements relating to the expected sufficiency of cash flows to cover contractual commitments, to maintain growth and to provide for financing and investing activities, growth outlook, Richelieu’s competitive position in its in- dustry, Richelieu’s ability to weather the current economic context and access other external financing, the closing of new acquisitions, and other statements not pertaining to past events, constitute forward-looking statements. In some cases, these statements are identified by the use of terms such as “may”, “could”, “might”, “intend” “should”, “expect”, “project”, “plan”, “believe”, “estimate” or the negative form of these expressions or other comparable variants. These statements are based on the information available at the time they are written, on assumptions made by management and on the expectations of management, acting in good faith, regarding future events, including the assumption that economic conditions and exchange rates will not significantly deteriorate, the Corporation’s deliveries will be sufficient to fulfill Richelieu’s needs, the availability of credit will remain stable during the year and no extraordinary events will require supplementary capital expenditures. 22 MiSSiON AND STRATeGY Richelieu’s mission is to create shareholder value and con- tribute to its customers’ growth and success, while favouring a business culture focused on quality of service and results, partnership and entrepreneurship. To sustain its growth and remain the leader in its specialty market, the Corporation continues to implement the stra- tegy that has benefited it until now, with a focus on: ■ continuing to strengthen its produc t selec tion by annually introducing diversified products that meet its market segment needs and position it as the specialist in functional and decorative hardware for manufacturers and retailers; ■ further developing its current markets in Canada and the United States with the support of a specialized sales and marketing force capable of providing customers with personalized service; and ■ expanding in North America through the opening of distribution centres and through efficiently integrated, profitable acquisitions made at the right price, offering high growth potential and complementary to its product mix and expertise. Richelieu’s solid and efficient organization, highly diversified product selection and long-term relationships with leading suppliers worldwide position it to compete effectively in a fragmented market consisting mainly of a host of regional distributors who distribute a limited range of products. GeNeRAl BuSiNeSS OVeRVieW as at November 30, 2013 richelieu Hardware ltd. is a leading north american im- porter, distributor and manufacturer of specialty hardware and related products. Its products are targeted to an extensive customer base of kitchen and bathroom cabinet, furniture, and window and door manufacturers plus the residential and commercial woodworking industry, as well as a large customer base of hardware retailers, including renovation superstores. The residential and commercial renovation industry is the Corporation’s major source of growth. Richelieu offers customers a broad mix of products sourced from manufacturers worldwide. The solid relationships Richelieu has built with the world’s leading suppliers enable it to provide customers with the latest innovative products tailored to their business needs. The Corporation’s product selection consists of some 100,000 different items targeted to a base of nearly 70,000 customers who are served by 62 centres in north america — 35 distribution centres in Canada, 25 in the United States and two manufacturing plants in Canada. Main product categories include functional cabinet hard- ware and assembly products for the manufacture of furni- ture and kitchen cabinets, window and door hardware, de- corative hardware products, glass hardware, sliding door systems, high-pressure laminates, decorative and functional panels, kitchen accessories, ergonomic workstation com- ponents, finishing products, whiteboards and tackboards. Richelieu also specializes in the manufacture of a wide var- iety of veneer sheets and edgebanding products through its subsidiary Cedan Industries Inc., and of components for the window and door industry and mouldings through Menuiserie des Pins Ltée. In addition, many of the Cor p- oration’s products are manufactured according to its speci- fications and those of its customers. The Corporation employs about 1,700 people at its head office and throughout the network, close to half of whom work in marketing, sales and customer service. Approximately 65% of its employees are Richelieu shareholders. Richelieu Annual Repor t 2013 23 FiNANciAl hiGhliGhTS (in thousands of $, except per-share amounts, number of shares and data expressed as a %) Years ended November 30 Sales EBITDA (3) EBITDA margin (%) Net earnings Net earnings attributable to shareholders of the Corporation ■ basic per share ($) ■ diluted per share ($) 2013 (1) 2012 (1) 2011 (1) 2010 (2) 2009 (2) $ $ $ $ $ 586,775 565,798 523,786 446,963 415,592 70,373 12.0 71,163 12.6 67,149 12.8 63,832 14.3 51,588 12.4 46,657 45,909 40,105 39,233 30,404 46,403 2.25 2.22 45,404 2.17 2.15 39,726 1.89 1.87 38,574 (4) 1.79 1.78 30,605 (4) 1.39 1.39 Net margin attributable to shareholders of the Corporation (%) 7.9 8.0 7.6 8.6 7.4 Cash flows from operating activities (5) ■ diluted per share ($) Cash dividends paid on shares ■ per share ($) 54,978 2.63 10,768 0.52 54,403 2.57 10,026 0.48 50,183 2.36 9,267 0.44 45,059 2.08 7,768 0.36 37,310 1.69 7,032 0.32 Weighted average number of shares outstanding (diluted) (in thousands) 20,930 21,137 21,262 21,705 22,019 As at November 30 Total assets Working capital Current ratio Equity Return on average equity (%) Book value ($) Total debt Cash and cash equivalents 356,325 204,117 4.5 293,114 16.2 14.41 1,354 46,187 349,869 200,088 4.6 287,942 16.9 13.65 2,563 51,587 318,676 166,897 4.0 256,187 16.5 12.11 5,544 29,095 320,816 162,727 3.7 253,869 15.9 12.01 2,858 39,289 286,928 150,485 4.7 240,500 13.0 11.04 668 48,442 (1) The financial statements for 2013, 2012 and 2011 have been prepared in accordance with IFRS. (2) The financial statements for 2010 and 2009 have been prepared in accordance with GAAP. (3) EBITDA is a non-IFRS measure, as described on page 22 of this report. (4) Net earnings from continuing operations. (5) Cash flows from operating activities and cash flows per share are non-IFRS measures, as described on page 22 of this report. ANAlYSiS OF OPeRATiNG ReSulTS FOR The YeAR eNDeD NOVeMBeR 30, 2013 cOMPAReD WiTh The YeAR eNDeD NOVeMBeR 30, 2012 Consolidated sales (in thousands of $ except exchange rate) Years ended November 30 Canada (CA$) United States (CA$) (US$) Average exchange rate Consolidated sales 2013 $ 2012 $ ∆ % 439,834 445,140 – 1.2 146,941 120,658 + 21.8 143,337 120,403 + 19.0 1.0251 1.0021 586,775 565,798 + 3.7 Consolidated sales totalled $586.8 million, an increase of $21 million or 3.7% over 2012, of which 2.3% from internal growth and 1.4% from acquisitions. Richelieu achieved sales of $497.3 million in the manufac- turers market, compared with $476.2 million for 2012, an increase of $21.1 million or 4.4%, of which 2.8% from inter- nal growth and 1.6% from acquisitions. Most of the Corpo- ration’s market segments contributed to this growth. Sales to hardware retailers and renovation superstores remained relatively stable at $89.5 million, thanks notably to the U.S. retailers market, which compensated for the decline in this market in Canada. 24 in Canada, the Corporation witnessed a sustained market slowdown throughout the year, to which was added the negative effect of the strike in the Quebec construction industry last June. Sales amounted to $439.8 million, compared with $445.2 million for 2012, a decline of 1.2% reflecting an internal decrease of 1.6% and a growth of 0.4% stemming from Hi-Tech’s contribution. In the manufacturers market, Richelieu recorded sales of $360.1 million, a decline of 0.9%, on account of an internal decrease of 1.3% and a growth of 0.4% from the aforementioned acquisition. Sales to hardware retailers and renovation superstores decreased to $79.7 million, down by 2.4% from $81.7 million for 2012. in the United states, Richelieu continued to benefit from its positioning and its growth and innovation strategy, enabling it to take advantage of more favourable economic conditions. Sales grew to US$143.3 million, up by US$22.9 million or 19.0% over 2012. To an internal growth of 13.8% was added an increase of 5.2% from acquisitions. Sales to manufactu- rers amounted to US$133.8 million, an increase of 19.0%, of which 13.7% from internal growth and 5.3% from acquisitions. Sales to hardware retailers and renovation superstores grew by 21.0% (in US$). Expressed in Canadian dollars, U.S. sales totalled $146.9 million, compared with $120.7 million for 2012, an increase of 21.8%, of which 16.6% from internal growth and 5.2% from acquisitions. They accounted for 25.0% of 2013 consolidated sales, whereas in 2012, U.S. sales had represented 21.3% of the year’s consolidated sales. Consolidated EBITDA and EBITDA margin (in thousands of $, unless otherwise indicated Years ended November 30 Sales EBITDA EBITDA margin (%) 2013 $ 2012 $ 586,775 565,798 71,163 12.6 70,373 12.0 earnings before interest, income taxes and amortization (ebitda) amounted to $70.4 million, down by 1.1% from 2012. The gross margin declined slightly from 2012 due primarily to the following factors: the more challenging economic context in Canada and competitive environment, the lower margins of certain prior acquisitions having a different product mix, the higher proportion of sales in the United States where the product mix also differs, and the increase in the supply costs of certain products stemming from the rapid appreciation of currencies before the adjustment of selling prices. To these factors were added the impact of the significant share price appreciation on the compensation expense related to the current deferred share unit plan and two less business days in the first and third quarters of 2013 than in 2012. Consequently, the ebitda margin stood at 12.0%, which nevertheless reflected cost and expense control efforts throughout the year. Income taxes amounted to $16.9 million, down by $1.0 million from 2012. This reduction is due to fluctuations in results by region where the Corporation and its subsidiaries are subject to tax rates and tax regulations differing from one another and to the use of operating losses carried forward. Consolidated net earnings attributable to shareholders (in thousands of $, unless otherwise indicated) Years ended November 30 EBITDA Amortization of property, plant and equipment and intangible assets Financial costs, nets Income taxes Net earnings Net earnings attributable to shareholders of the Corporation Net margin attributable to shareholders of the Corporation (%) Non-controlling interests Net earnings 2013 $ 2012 $ 70,373 71,163 7,278 (464) 16,902 7,513 (198) 17,939 46,657 45,909 46,403 45,404 7.9 254 8.0 505 46,657 45,909 net earnings grew by 1.6% over 2012. Considering non- controlling interests, net earnings attributable to sharehol- ders of the Corporation totalled $46.4 million, up by 2.2% over 2012. the net margin attributable to shareholders was 7.9%. earnings per share rose to $2.25 basic and $2.22 diluted, compared with $2.17 basic and $2.15 diluted for 2012, an increase of 3.7% and 3.3% respectively. Comprehensive income amounted to $49.9 million, consi- dering a positive adjustment of $3.3 million on translation of the financial statements of the subsidiary in the United States, compared with $44.8 million for 2012, considering a negative adjustment of $1.2 million on translation of the financial statements of the subsidiary in the United States. Richelieu Annual Repor t 2013 25 FOuRTh QuARTeR eNDeD NOVeMBeR 30, 2013 During the fourth quarter, Richelieu achieved good growth in consolidated sales which totalled $155.3 million, an increase of $9.5 million or 6.5% over the corresponding quarter of 2012, including 5.1% from internal growth and 1.4% from acquisitions. Sales to manufacturers amounted to $133.7 million, com- pared with $125.3 million for the corresponding period of 2012, an increase of $8.4 million or 6.7%, of which 5.1% from internal growth and 1.6% from acquisitions. Sales to hardware retailers and renovation superstores grew to $21.6 million, compared with $20.5 million for the same quarter of 2012, an increase of $1.1 million or 5.4%. in Canada, the Corporation recorded sales of $115.9 million, compared with $114.6 million for the fourth quarter of 2012, an increase of $1.3 million or 1.1% stemming from the 1.4% contribution of Hi-Tech, whereas the internal decrease was 0.3%. Richelieu’s sales to manufacturers grew by 0.3% to $96.6  million, compared with $96.3 million for the fourth quarter of 2012. Sales to hardware retailers and renovation superstores increased to $19.3 million, up by 5.5% over $18.3 million for the corresponding quarter of 2012. in the United states, constant market penetration efforts and the launch of new product lines continued to pay off, thanks especially to more favourable economic condi- tions. The Corporation achieved sales of US$37.9 million, compared with US$31.6 million for the corresponding quar- ter of 2012, an increase of US$6.3 million or 20.0%, of which 18.7% from internal growth and 1.3% from Savannah’s contribution. The Corporation’s sales to manufacturers grew to US$35.2  million, an increase of 20.1%, of which 18.7% from internal growth and 1.4% from Savannah. Sales to hardware retailers and renovation superstores were stable with those for the same quarter of 2012; note that in 2012, the introduction of additional products in stores resulted in exceptional sales. In Canadian dollars, U.S. sales amounted to $39.4 million, compared with $31.2 million for the corresponding quarter of 2012, an increase of 26.3%, of which 25.0% from internal growth and 1.3% from the afore- mentioned acquisition. They accounted for 25.4% of the quarter’s consolidated sales, whereas for the fourth quar- ter of 2012, U.S. sales had represented 21.4% of the period’s consolidated sales. SUMMARY OF QUARTERLY RESULTS (unaudited) (in thousands of $, except per-share amounts) Quarters 1 2 3 4 2013 ■ sales ■ ebitda ■ net earnings attributable to shareholders of the Corporation basic per share diluted per share 2012 ■ Sales ■ EBITDA ■ Net earnings attributable to shareholders of the Corporation basic per share diluted per share 2011 ■ Sales ■ EBITDA ■ Net earnings attributable to shareholders of the Corporation basic per share diluted per share 126,084 156,240 149,163 155,288 12,893 18,207 19,050 20,223 8,158 12,140 12,821 13,284 0.65 0.64 0.62 0.62 0.59 0.58 0.39 0.39 124,083 147,107 148,782 145,826 13,280 18,617 19,636 19,630 8,004 11,997 12,761 12,642 0.61 0.60 0.61 0.60 0.38 0.38 0.57 0.57 113,192 139,178 136,132 135,284 12,018 17,075 19,153 18,903 6,989 10,015 11,411 11,311 0.54 0.54 0.54 0.54 0.33 0.33 0.48 0.47 Quarterly variations in earnings — The first quarter closed at the end of February is generally the year’s weakest for Richelieu in light of the smaller number of business days due to the end-of-year holiday period and a wintertime slowdown in renovation and construction work. The third quarter ending August 31 also includes a smaller number of business days due to the summer holidays, which can be reflected in the period’s financial results. The second and four th quar ters respec tively ending May 31 and November  30 generally represent the year’s most active periods. Note: For further information about the Corporation’s performance in the first, second and third quarters of 2013, the reader is referred to the interim management’s reports available on SEDAR’s website at www.sedar.com. 26 earnings before interest, income taxes and amortization (ebitda) totalled $20.2 million, up by 3.0% over the corresponding quarter of 2012 due primarily to the sales growth. The gross margin was down slightly from the fourth quarter of 2012 due mainly to the competitive environment and the more difficult economic context in Canada, the appreciation of currencies which raised the supply costs of certain products before the adjustment of selling prices, and the higher proportion of U.S. sales. The ebitda margin was therefore 13.0% for the fourth quarter of 2013. inves ting ac tivities represented a c ash out f low of $5.4 million for the fourth quarter, of which $4.2 million for the acquisition de Hi-Tech and $1.2 million for equipment needed for operations, whereas the Corporation had invested $2.3  million in property, plant and equipment during the same quarter of 2012. FiNANciAl POSiTiON Analysis of principal cash flows for the year ended November 30, 2013 Income taxes amounted to $5.2 million, an increase of $0.3 million over the fourth quarter of 2012. change in cash and cash equivalents and capital resources Fourth-quarter net earnings rose 4.4%. Considering non- controlling interes t s, net earnings at tribut able to shareholders of the Corporation grew to $13.3 million, up by 5.1% over the corresponding quarter of 2012. the net margin attributable to shareholders remained relatively stable at 8.6%. earnings per share amounted to $0.65 basic and $0.64 diluted, compared with $0.61 basic and $0.60 diluted for the fourth quarter of 2012, an increase of 6.6% and 6.7% respectively. Comprehensive income totalled $13.9 million, considering a positive impact of $0.5 million on translation of the financial statements of the subsidiary in the United States, compared with $13.2 million for the corresponding quarter of 2012, considering a positive impact of $0.4 million on translation of the financial statements of the subsidiary in the United States. Cash flows from operating activities (before net change in non-cash working capital balances) grew to $15.2 million or $0.73 diluted per share, up by 3.0% and 4.3% over the fourth quarter of 2012. Net change in non-cash working capital balances provided cash flows of $4.3 million, compared with $2.8 million in the fourth quarter of 2012. Changes in accounts payable and inventories represented a cash inflow of $4.9 million, whereas changes in accounts receivable represented a cash outflow of $0.6 million. Consequently, operating activities provided cash flows of $19.5 million, compared with $17.6 million for the fourth quarter of 2012. financing ac tivities represented a c ash out f low of $24.7 million, compared with $5.6 million for the corresponding quarter of 2012. Richelieu repurchased common shares under its normal course issuer bid for $22.0 million, compared with $3.1 million in the fourth quarter of 2012. The Corporation also paid shareholder dividends of $2.7 million, up by 6.8%, on account of the dividend increase announced in January 2013. In addition, it issued common shares for $0.1 million upon the exercise of options under its stock option plan, compared with $0.3 million in the same quarter of 2012. (in thousands of $) Years ended November 30 Cash flows provided by (used for): Operating activities Financing activities Investing activities Effect of exchange rate changes Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year As at November 30 Working capital Renewable line of credit (CA$) Renewable line of credit (US$) Operating activities 2013 $ 2012 $ 48,365 (45,816) (7,898) (51) 45,622 (16,214) (7,183) 267 (5,400) 22,492 51,587 29,095 46,187 51,587 2013 2012 204,117 200,088 26,000 6,000 26,000 6,000 Cash flows from operating activities (before net change in non-cash working capital balances related to operations) totalled $55.0 million or $2.63 diluted per share, compared with $54.4 million or $2.57 diluted per share for 2012, pri- marily reflecting the increase in net earnings. Net change in non-cash working capital balances used cash flows of $6.6  million, reflecting changes in accounts receivable, inventories, accounts payable and other items, compared with $8.8 million for 2012. Consequently, operating activi- ties provided cash flows of $48.4 million, compared with $45.6 million for 2012. Richelieu Annual Repor t 2013 27 Financing activities Analysis of financial position at as November 30, 2013 Richelieu repurchased common shares under its normal course issuer bid for $36.6 million, compared with $5.9  million in 2012. In addition, it paid shareholder divi- dends of $10.8  million, up by 7.4% over 2012, on account of the dividend increase announced in January 2013, and issued common shares for $2.3 million upon the exerci- se of options under its stock option plan, compared with $2.6  million during 2012. The Corporation also repaid $0.7 million on its long-term debt, compared with $2.9 million in 2012. Consequently, financing activities represented a cash outflow of $45.8 million, compared with $16.2 million in 2012. investing activities In 2013, the Corporation invested a total of $7.9 million, of which $4.4 million in the acquisition of the net assets of Savannah and Hi-Tech and $3.5 million in equipment nee- ded for operations. Note that in 2012, the Corporation had invested $7.2 million, of which $2.4 million in the acquisi- tion of the net assets of CourterCo and $4.8 million pri- marily in software and equipment needed for operations. Sources of financing As at November 30, 2013, cash and cash equivalents totalled $46.2 million, compared with $51.6 million a year earlier. The Corporation posted a working capital of $204.1 million for a current ratio of 4.5:1, compared with $200.1 million (4.6:1 ratio) as at November 30, 2012. Richelieu believes it has the capital resources to fulfill its on- going commitments and obligations and to assume the fun- ding requirements needed for its growth and the financing and investing activities planned for 2014. The Corporation continues to benefit from an authorized line of credit of CA$26 million as well as a line of credit of US$6 million re- newable annually and bearing interest respectively at pri- me and base rates. In addition, the Corporation estimates it could obtain access to other outside financing if necessary. The expectation set forth above consists of forward-looking information based on the assumption that economic conditions and exchange rates will not deteriorate significantly, operating expenses will not increase considerably, deliveries will be sufficient to fulfill Richelieu’s requirements, the availability of credit will remain stable in 2014, and no usual events will entail additional capital expenditures. This expectation also remains subject to the risks identified under “Risk Factors”. Summary of financial position (in thousands of $) As at November 30 Current assets Non-current assets Total Current liabilities Non-current liabilities Equity attributable to shareholders of the Corporation Non-controlling interests Total Exchange rate on a translation of a subsidiary in the United States Assets 2013 $ 2012 $ 262,251 256,210 93,659 349,869 56,122 5,805 94,074 356,325 58,134 5,077 288,845 283,835 4,107 349,869 4,269 356,325 1.062 0.9936 to t a l a s s e t s a m o u n t e d t o $ 3 5 6 . 3 m i l l i o n a s a t November 30, 2013, compared with $349.9 million a year earlier, up by 1.8% or $6.5 million. This increase resulted from the Corporation’s growth and the two acquisitions closed in 2013. Current assets grew by 2.4% or $6.0 million over November 30, 2012, notably reflecting the increases of $9.1 million in inventories, $2.6 million in accounts recei- vable and $0.2 million in prepaid expenses, whereas cash and cash equivalents decreased by $5.4 million and income taxes receivable by $0.5 million. Net cash (in thousands of $) As at November 30 Current portion of long-term debt Long-term debt total Cash and cash equivalents total cash net of debt 2013 $ 1,354 — 1,354 46,187 44,833 2012 $ 1,743 820 2,563 51,587 49,024 The Corporation benefits from an excellent financial position to pursue its business strategy. As at November 30, 2013, total debt, consisting entirely of the current portion of long- term debt, amounted to $1.4 million, representing balances payable on prior acquisitions. 28 equity reached $293.1 million as at November 30, 2013, compared with $287.9 million as at November 30, 2012, an increase of 1.8% stemming mainly from the growth of $1.9 million in share capital and the change of $3.3 million in accumulated other comprehensive income, less the change of $0.4 million in contributed surplus. Retained earnings varied by $0.2 million, reflecting the effect of the year’s net earnings, less share repurchases and dividends paid during the year. As at November 30, 2013, the book value per share was $14.41, compared with $13.65 as at November 30, 2012. For 2014 and the foreseeable future, the Corporation expects cash flows from operating activities and other sources of financing to meet its ongoing contractual com- mitments. The expectation set forth above consists of forward-looking information based on the assumption that economic conditions and exchange rates will not deteriorate significantly, operating expenses will not increase conside- rably, deliveries will be sufficient to fulfill the Richelieu’s requirements, the availability of credit will remain stable in 2014, and no usual events will entail additional capital expenditures. This expectation also remains subject to return on average equity stood at 16.2% as at November 30, 2013, compared with 16.9% a year earlier. the risks identified under “Risk Factors”. FiNANciAl iNSTRuMeNTS At 2013 year-end, the Corporation’s share capital consisted of 20,046,061 common shares (20,794,484 shares as at November 30, 2012). The Corporation issued 124,577 common shares at an average price of $18.34 (121,375 in 2012 at an average price of $21.22) upon the exercise of options under its stock option plan in 2013. Also during the year, 873,000 common shares were purchased for cancellation under the Corporation’s normal course issuer bid for a cash consideration of $36.6 million (173,600 common shares for a cash consideration of $5.9 million in 2012), resulting in a premium on the redemption of $35.4 million recorded as a reduction in retained earnings (premium of $5.7 million in 2012). Finally, the Corporation granted 78,000 stock options during the year (41,000 in 2012). Consequently, as at November 30, 2013, 711,673 stock options were out- standing (762,000 as at November 30, 2012). eVeNT SuBSeQueNT TO YeAR-eND On December 2, 2013, Richelieu acquired all of the out- standing common shares of Procraft, a distributor of fin- ishing products serving a customer base of residential and commercial woodworkers and kitchen cabinet manufac- turers in the Maritime Provinces from its three distribution centres located in Halifax (N.S.), Moncton and Fredericton (N.B.). This acquisition will add approximately $4 million to the Corporation’s total sales. cONTRAcTuAl cOMMiTMeNTS Summary of contractual financial commitments as at November 30, 2013 (in thousands of $) less than a year 1,354 7,265 8,619 1 to 5 years — 15,292 15,292 more than 5 years total — 1,354 469 23,026 469 24,380 Long-term debt Operating leases total Richelieu periodically enters into for ward exchange contracts to fully or partially hedge the effects of foreign currency fluctuations related to foreign-currency denomi- nated payables or to hedge forecasted purchase trans- actions. The Corporation has a policy of not entering into derivatives for speculative or negotiation purposes and to enter into these contracts only with major financial institutions. In notes (1) and (12) of the audited consolidated financial statements for the year ended November 30, 2013, the Corporation presents the information on the classification and fair value of its financial instruments, as well as on their value and management of the risks arising from their use. iNTeRNAl cONTROl OVeR FiNANciAl RePORTiNG Management has designed and evaluated internal controls over financial reporting (ICFR) and disclosure controls and procedures (DC&P) to provide reasonable assurance that the Corporation’s financial reporting is reliable and that its publicly-disclosed financial statements are prepared in accordance with IFRS. The President and Chief Executive Officer and the Vice-President and Chief Financial Officer have assessed, within the meaning of National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings, the design and the effectiveness of internal controls over financial reporting as at November 30, 2013. In light of this assessment, they concluded that the design and the effectiveness of internal controls over financial reporting (ICFR and DC&P) were effective. During the year ended November 30, 2013, management verified that there were no material changes in the Corporation’s procedures that were reasonably likely to have a material impact on its internal control over financial reporting. No such changes were identified. Due to their intrinsic limits, internal controls over financial reporting only provide reasonable assurance and may not prevent or detect misstatements. In addition, projections of an assessment of effectiveness in future periods carry the risk that controls will become inappropriate as a result of changes in conditions or if the degree of conformity with standards and methods should deteriorate. Richelieu Annual Repor t 2013 29 SiGNiFicANT AccOuNTiNG POlicieS AND eSTiMATeS The Corporation’s audited consolidated financial state- ments for the year ended November 30, 2013 have been pre- pared by management in accordance with IFRS. The prep- aration of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are based on management’s best knowledge of current events and actions that the Corporation may undertake in the fu- ture and other factors deemed relevant and reasonable. The judgments made by management in applying the ac- counting policies that have the most significant effect on the amounts recognized in the consolidated financial statements and the assumptions about the future and other major sources of estimation uncertainty as at the end of the reporting per- iod that could potentially result in material adjustments to the carrying amount of assets and liabilities during the fol- lowing period, are summarized as follows: Valuation of inventory impairment, including loss and ob- solescence, customer rebates, contingent liabilities, allow- ance for doubtful accounts, goodwill and intangible assets with indefinite useful lives, deferred tax assets and stock options requires the use of judgment and assumptions that may affect the amounts reported in the consolidated fi- nancial statements. The underlying estimates and assump- tions are reviewed regularly. Revised accounting estimates, if any, are recognized in the period in which the estimates are revised, as well as in the future periods affected by the revisions. Actual results could differ from those estimates. NeW AccOuNTiNG MeThODS Adopted in 2013 ias 1, Presentation of financial statements In June 2011, the IASB issued amendments to IAS 1, Pres- entation of Financial Statements. Items of other comprehen- sive income and the corresponding tax are required to be grouped into those that will and will not subsequently be reclassified to earnings. These amendments are in effect since July 1st, 2013 and had no impact on the presentation of the consolidated financial statements of the Corporation. Recently issued The IASB recently issued new standards with effective dates for fiscal years 2014 and thereafter, as presented below. ifrs 9, financial instruments In November 2009, the International Accounting Standards Board [“IASB”] published IFRS 9, Financial Instruments. This new standard simplifies the classification and measurement of financial assets set out in IAS 39, Financial Instruments: Recognition and Measurement. Financial assets are to be measured at amortized cost or fair value. They are to be measured at amortized cost if the following two conditions are met: (a) the assets are held within a business model whose ob- jective is to collect contractual cash flows; and (b) the contractual cash flows are solely payments of principal and interest on the outstanding principal. All other financial assets are to be measured at fair value through earnings. The entity may, if certain conditions are met, elect to use the fair value option instead of measurement at amortized cost. As well, the entity may choose upon initial recognition to measure non-trading equity investments at fair value through comprehensive income. Such a choice is irrevocable. In October 2010, the IASB issued revisions to IFRS 9, add- ing the requirements for classification and measurement of financial liabilities contained in IAS 39. For financial liabilities measured at fair value through earnings using the fair value option, the amount of change in a liability’s fair value at- tributable to changes in its credit risk is recognized directly in other comprehensive income. In December 2011, the IASB deferred the mandatory ef- fective date of IFRS 9 to fiscal years beginning on or after January 1st, 2015. Early adoption is permitted under certain conditions. An entity is not required to restate comparative financial periods for its first time application of IFRS 9, but must comply with the new disclosure requirements. ifrs 10, Consolidated financial statements In May 2011, the IASB published IFRS 10, Consolidated Financial Statements, which supersedes SIC-12, Consolida- tion – Special Purpose Entities and certain parts of IAS 27, Consolidated and Separate Financial Statements. IFRS 10 uses control as the single basis for consolidation, irrespec- tive of the nature of the investee, employing the following factors to identify control: (a) power over the investee; (b) exposure or rights to variable returns from involvement with the investee; and (c) the ability to use power over the investee to affect the amount of the investor’s returns. IFRS 10 is applied to fiscal years beginning on or after January 1st, 2013. 30 ifrs 12, disclosure of interests in other entities In May 2011, the IASB published IFRS 12, Disclosure of Inter- ests in Other Entities, which requires that an entity disclose information on the nature of and risks associated with its interests in other entities (i.e., subsidiaries, joint arrange- ments, associates and unconsolidated structured entities) and the effects of those interests on its financial statements. IFRS 12 is applied to fiscal years beginning on or after January 1st, 2013. ifrs 13, fair value measurement In May 2011, the IASB published IFRS 13, Fair Value Meas- urement to establish a single framework for fair value meas- urement of financial and non-financial items. IFRS 13 de- fines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also requires disclosure of certain information on fair value measurements. IFRS 13 is applied to fiscal years beginning on or after January 1st, 2013. ias 32, financial instruments: Presentation In December 2011, the IASB issued amendments to IAS 32, Financial Instruments: Presentation clarifying the require- ments for offsetting financial assets and liabilities. The amendments shall be applied to fiscal years beginning on or after January 1st, 2014. The IASB also issued amendments to IFRS 7, Financial Instruments: Disclosure improving disclo- sure on offsetting of financial assets and liabilities. These amendments shall be applied to annual and interim per- iods beginning on or after January 1st, 2013. ias 36, impairment of assets In May 2013, the IASB issued amendments to IAS 36, Impair- ment of Assets to require disclosures about assets or cash generating units for which an impairment loss was recog- nized or reversed during the period. IAS 36 will be applied to fiscal years beginning on or after January 1st, 2014 with earlier adoption permitted. The Corporation assesses that the above-mentioned amendments will not significantly impact its income, finan- cial position and cash flows. RiSK FAcTORS Richelieu is exposed to different risks that can have a material adverse effect on its profitability. To offset such risks, the Corporation has adopted various strategies adapted to the major risk factors below. economic conditions The Corporation’s business and financial results partly de- pend on general economic conditions and the economic factors specific to the renovation and construction industry. Any economic downturn could lead to a decline in sales and have an adverse impact on the Corporation’s financial performance. Market and competition The specialty hardware and renovation products segment is highly competitive. Richelieu has developed a business strategy rooted in a diversified product offering in various targeted niche markets in North America and sourced from suppliers around the world, in creative marketing and in unparalleled expertise and quality of service. Up to now, this strategy has enabled it to benefit from a solid competi- tive edge. However, if Richelieu were unable to implement its business strategy with the same success in the future, it could lose market shares and its financial performance could be adversely affected. Foreign currency Richelieu is exposed to the risks related to currency fluctua- tions, primarily in regard to foreign-currency denominated purchases and sales made abroad. The Corporation’s products are regularly sourced from abroad through its import business. Thus, any increase in foreign currencies (U.S. dollar and the Euro) compared with the Canadian dollar tends to raise its supply cost and thereby affect its consolidated financial results. These currency fluctuations related risks are mitigated by the Corporation’s ability to adjust its selling prices within a relatively short timeframe so as to protect its profit margins although significant volatility in foreign currencies may have an adverse impact on its sales. Sales made abroad are mainly recorded in the United States and account for approximately 25% of total sales. Any volatility in the Canadian dollar therefore tends to affect consolidated results. This risk is partially offset by the fact that major purchases are denominated in U.S. dollars. To manage its currency risk, the Corporation uses derivative financial instruments, more specifically forward exchange contracts in U.S. dollars and Euros. There can be no assur- ance that the Corporation will not sustain losses arising from these financial instruments or fluctuations in foreign currency. Supply and inventory management Richelieu must anticipate and meet its customers’ supply needs. To that end, Richelieu must maintain solid relation- ships with suppliers respecting its supply criteria. The inabil- ity to maintain such relationships or to efficiently manage the supply chain and inventories could affect the Corporation’s financial position. Similarly, Richelieu must track trends and its customers’ preferences and maintain inventories meeting their needs, failing which its financial performance could be adversely affected. To mitigate its supply-related risks, Richelieu has built solid long-term relationships with numerous suppliers on several continents, most of whom are world leaders. Richelieu Annual Repor t 2013 31 Acquisitions Product liability Acquisitions in North America remain an important stra- tegic focus for Richelieu. The Corporation will maintain its strict acquisition criteria and pay particular attention to the integration of its acquisitions. Nevertheless, there is no guarantee that a business matching Richelieu’s acquisition criteria will be available and there can be no assurance that the Corporation will be able to make acquisitions at the same pace as in the past. However, the fact that the North American market remains highly fragmented and that acquisitions are generally of limited size reduces the inherent financial and operational risks. credit The Corporation is exposed to the credit risk related to its accounts receivable. Richelieu has adopted a policy defin- ing the credit conditions for its customers to safeguard against credit losses arising from doing business with them. For each customer, the Corporation sets a specific limit that is regularly reviewed. The diversification of its products, customers and suppliers reasonably safeguards the Corporation against a concentration of its credit risk. No customer of the Corporation accounts for more than 10% of its revenues. labour relations and qualified employees To achieve its objectives, Richelieu must attract, train and retain qualified employees while controlling its payroll. The inability to attract, train and retain qualified employees and to control its payroll could have an impact on the Corpora- tion’s financial performance. Close to 20% of Richelieu’s workforce is unionized. The Corporation’s policy is to negotiate collective agreements at conditions enabling it to maintain its competitive edge and a positive and satisfactory working environment for its entire team. Richelieu has not experienced any major labour conflicts over the past five years and expects to maintain sound working relations. Any interruption in operations as a result of a labour conflict could have an adverse impact on the Corporation’s financial results. Stability of key officers Richelieu offers a stimulating working environment and a competitive compensation plan, which help it retain a stable management team. Failure to retain the services of a high- ly qualified management team could compromise the suc- cess of Richelieu’s strategic execution and expansion, which could have an adverse impact on its financial results. To ad- equately manage its future growth, the Corporation adjusts its organizational structure as needed and strengthens the teams at the various levels of its business. It should be noted that approximately 65% of its employees, including senior officers, are Richelieu shareholders. In the normal course of business, Richelieu is exposed to various product liability claims that could result in major costs and af fec t the Corporation’s financial position. Richelieu has agreements containing the usual limits with insurance companies to cover the risks of claims associated with its operations. crisis management and iT contingency plan The IT structure implemented by Richelieu enables it to support its operations and contributes to ensure their effi- ciency. As the occurrence of a disaster, including a major interruption of its computer systems, could affect its oper- ations and financial performance, the Corporation has im- plemented a crisis management and IT contingency plan to reduce the extent of such a risk. This plan provides among others for an alternate physical location in the event of a dis- aster, generators in the event of power outages and a relief computer as powerful as the central computer. BOOK VAlue In 2013, the share price fluctuated between $33.75 and $46.21, and the volume traded on the Toronto Stock Exchange totalled approximately 4.8 million shares. The closing price was $44.68 on November 30, 2013, compared with $33.54 as at November 30, 2012. Richelieu’s share price has increased by 1,990% since its 1993 listing on the stock market. It should also be pointed out that the Corporation has paid shareholder dividends since 2002 and that the dividends paid in 2013 represented 23.2% of net earnings attributable to shareholders. ShARe iNFORMATiON AS AT JANuARY 23, 2014 Issued and outstanding common shares: 20,047,061 Stock options under stock option plan: 710,673 OuTlOOK During 2014, Richelieu will pursue its growth initiatives in accordance with its two strategic drivers, consisting of acquisitions in North America and internal growth fuelled by innovations, targeted market development, the creation of synergies with its acquisitions, and further operating ef- ficiency improvements. SuPPleMeNTARY iNFORMATiON Further information about Richelieu, including its latest Annual Information Form, is available on the System for Electronic Document Analysis and Retrieval (SEDAR) website at www.sedar.com. richard lord President and Chief Executive Officer January 23, 2014 antoine auclair Vice-President and Chief Financial Officer 32 Management’s Report Related to the consolidated financial statements The consolidated financial statements of Richelieu Hardware Ltd. (the “Corporation”) and other financial information included in this Annual Report are the responsibility of the Corporation’s management. These consolidated financial statements have been prepared by management in accordance with IFRS and approved by the Board of Directors. Richelieu Hardware Ltd. maintains accounting and internal control systems which, in management’s opinion, reasonably ensure the accuracy of the financial information and maintain proper standards of conduct in the Corporation’s activities. The Board of Directors fulfills its responsibility regarding the consolidated financial statements included in the Annual Repor t, primarily through its Audit Commit tee. This commit tee which meets periodically with the Corporation’s managers and external auditors, has reviewed the consolidated financial statements of Richelieu Hardware Ltd. and has recommended that they be approved by the Board of Directors. The consolidated financial statements have been audited by the Corporation’s external auditors, Ernst & Young LLP, Chartered Professional Accountants. Montreal, Canada January 23, 2014 richard lord President and Chief Executive Officer Vice-President and Chief Financial Officer antoine auclair Independent Auditors’ Report To the Shareholders of richelieu Hardware ltd. We have audited the accompanying consolidated financial statements of Richelieu Hardware Ltd., which comprise the consolidated statements of financial position as at November 30, 2013 and 2012 and the consolidated statements of earnings, comprehensive income, changes in equity and cash flows for the years the ended, and a summary of significant accounting policies and other explanatory information. management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Richelieu Hardware Ltd. as at November 30, 2013 and 2012 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. 1 Montreal, Canada January 23, 2014 1 CPA auditor, CA, public accountancy permit no. A120803 Richelieu Annual Repor t 2013 33 Consolidated Statements of Financial Position As at November 30 (In thousands of dollars) Notes 3 3, 4 3, 5 3, 5 9 3 7 7 9 8 8 11 2013 $ 2012 $ 46,187 78,343 — 136,746 975 262,251 22 291 15 661 52 788 3 334 356 325 56,462 318 1,354 58,134 — 3,246 1,831 63,211 25,288 2,356 258,965 2,236 288,845 4,269 293,114 356,325 51,587 75,721 514 127,607 781 256,210 23 740 15 601 51 405 2 913 349 869 54,379 — 1,743 56,122 820 3,246 1,739 61,927 23,349 2,761 258,775 (1,050) 283,835 4,107 287,942 349,869 Director Director assets Current assets Cash and cash equivalents Accounts receivable Income taxes receivable Inventories Prepaid expenses non-current assets Property, plant and equipment Intangible assets Goodwill Deferred taxes liabilities and eQUitY Current liabilities Accounts payable and accrued liabilities Income taxes payable Current portion of long-term debt non-current liabilities Long-term debt Deferred taxes Other liabilities equity Share capital Contributed surplus Retained earnings Accumulated other comprehensive income (loss) Equity attributable to shareholders of the Corporation Non-controlling interests Commitments and contingencies [note 10] Subsequent event [note 17] See accompanying notes to the consolidated financial statements. On behalf of the Board: 34 Consolidated Statements of Earnings Years ended November 30 (In thousands of dollars, except earnings per share) sales Cost of goods sold, warehousing, selling and administrative expenses earnings before amortization, financial costs and income taxes Amortization of property, plant and equipment Amortization of intangible assets Financial costs, net earnings before income taxes Income taxes net earnings net earnings attributable to: Shareholders of the Corporation Non-controlling interests net earnings per share attributable to shareholders of the Corporation Basic Diluted See accompanying notes to the consolidated financial statements. Notes 9 8 2013 $ 586,775 516,402 70,373 5,060 2,218 (464) 6,814 63,559 16,902 46,657 46,403 254 46,657 2.25 2.22 Consolidated Statements of Comprehensive Income Years ended November 30 (In thousands of dollars, except earnings per share) net earnings other comprehensive income (loss) Exchange differences on translation of foreign operations Comprehensive income Comprehensive income attributable to: Shareholders of the Corporation Non-controlling interests See accompanying notes to the consolidated financial statements. Notes 11 2013 $ 46,657 3,286 49,943 49,689 254 49,943 2012 $ 565,798 494,635 71,163 5,162 2,351 (198) 7,315 63,848 17,939 45,909 45,404 505 45,909 2.17 2.15 2012 $ 45,909 (1,153) 44,756 44,251 505 44,756 Richelieu Annual Repor t 2013 35 Consolidated Statements of Changes in Equity Years ended November 30 [In thousands of dollars] attributable to shareholders of the Corporation Notes Balance as at November 30, 2011 Net earnings Other comprehensive income (loss) Comprehensive income Shares repurchased Stock options exercised Share-based compensation expense Dividends [note 16] Other liabilities balance as at november 30, 2012 Net earnings Other comprehensive income (loss) Comprehensive income Shares repurchased Stock options exercised Share-based compensation expense Dividends [note 16] Other liabilities share capital $ 8 19,714 — — — (188) 3,823 — — — 3,635 23,349 — — — (1,151) 3,090 — — — 1,939 Contributed surplus $ retained earnings $ 3,586 — — — — (1,247) 422 — — (825) 229,064 45,404 — 45,404 (5,667) — — (10,026) — (15,693) (1,153) (1,153) — — — — — — 2,761 — 258,775 46,403 (1,050) — — — — (805) 400 — — (405) — 46,403 (35,445) — — (10,768) — (46,213) 3,286 3,286 — — — — — — accumulated other comprehensive income (loss) $ 11 103 — non- controlling interests $ total equity $ total $ 252,467 45,404 3,720 505 256,187 45,909 (1,153) 44,251 (5,855) 2,576 422 (10,026) — (12,883) 283,835 46,403 3,286 49,689 (36,596) 2,285 400 (10,768) — (44,679) — 505 — — — — (118) (118) (1,153) 44,756 (5,855) 2,576 422 (10,026) (118) (13,001) 4,107 254 287,942 46,657 — 254 — — — — (92) (92) 3,286 49,943 (36,596) 2,285 400 (10,768) (92) (44,771) balance as at november 30, 2013 25,288 2,356 258,965 2,236 288,845 4,269 293,114 See accompanying notes to the consolidated financial statements. 36 Notes 8 16 8 8 3 Consolidated Statements of Cash Flows Years ended November 30 [In thousands of dollars] oPerating aCtivities Net earnings Items not affecting cash: Amortization of property, plant and equipment Amortization of intangible assets Deferred taxes Share-based compensation expense Net change in non-cash working capital balances finanCing aCtivities Repayment of long-term debt Dividends paid Common shares issued Common shares repurchased for cancellation investing aCtivities Business acquisitions Additions to property, plant and equipment and intangible assets Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period supplementary information Income taxes paid Interest received, net See accompanying notes to the consolidated financial statements. 2013 $ 46,657 5,060 2,218 (354) 1,397 54,978 (6 613) 48 365 (737) (10,768) 2,285 (36,596) (45,816) (4,447) (3,451) (7,898) (51) (5,400) 51,587 46,187 16,351 (464) 2012 $ 45,909 5,162 2,351 — 981 54,403 (8 781) 45 622 (2,909) (10,026) 2,576 (5,855) (16,214) (2,386) (4,797) (7,183) 267 22,492 29,095 51,587 16,647 (335) Richelieu Annual Repor t 2013 37 NOTe S TO c ONSOliDATe D FiNANciAl STATe MeNTS November 30, 2013 and 2012 (Amounts are in thousands of dollars, except per-share amounts) NATuRe OF BuSiNeSS Accounts receivable Richelieu Hardware Ltd. [the “Company”] is incorporated under the laws of Quebec, Canada. The Corporation is a distributor, im- porter, and manufacturer of specialty hardware and complement- ary products. Its products are targeted to an extensive customer base of kitchen and bathroom cabinet, furniture, and window and door manufacturers plus the residential and commercial woodwork- ing industry, as well as a large customer base of hardware retailers, including renovation superstores. The Corporation’s head office is located at 7900 Henri-Bourassa Blvd, W., Saint-Laurent, Quebec, Canada, H4S 1V4. 1. SiGNiFicANT AccOuNTi NG POlicieS The Corporation’s consolidated financial statements, presented in Canadian dollars, have been prepared by management in accord- ance with International Financial Reporting Standards [“IFRS”]. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and ac- companying notes. These estimates are based on management’s best knowledge of current events and actions that the Corporation may undertake in the future and other factors deemed relevant and reasonable. The judgments made by management in applying the accounting policies that have the most significant effect on the amounts rec- ognized in the consolidated financial statements and the assump- tions about the future and other major sources of estimation uncer- tainty as at the end of the reporting period that could potentially result in material adjustments to the carrying amount of assets and liabilities during the following period, are summarized as follows: Valuation of inventory impairment, including loss and obsoles- cence, customer rebates, contingent liabilities, allowance for doubtful accounts, goodwill and intangible assets with indefinite useful lives, deferred tax assets and stock options requires the use of judgment and assumptions that may affect the amounts reported in the consolidated financial statements. The underlying estimates and assumptions are reviewed regularly. Revised accounting esti- mates, if any, are recognized in the period in which the estimates are revised, as well as in the future periods affected by the revisions. Actual results could differ from those estimates. The Corporation’s consolidated financial statements have been properly prepared within the reasonable limits of materiality in accordance with the accounting policies summarized below: Consolidation The consolidated financial statements include the accounts of Richelieu Hardware Ltd. and its subsidiaries described in note 13. All significant intercompany balances and transactions have been eliminated upon consolidation. Cash and cash equivalents Cash and cash equivalents consist of cash on hand and highly liquid investments with an initial term of three months or less. Cash and cash equivalents were classified in “financial assets at fair value through net earnings” and measured at fair value. Gains (losses) arising from remeasurement at each period-end are recorded in the consolidated statement of earnings. Accounts receivable are classified in “loans and receivables” and carried at cost, which is equivalent to fair market value on initial recognition. Subsequent measurements are recorded at amortized cost using the effective interest method. For the Corporation, this measurement is usually equivalent to cost due to their short-term maturities. Inventories Inventories, which consist primarily of finished goods, are valued at the lower of average cost and net realizable value. Net realizable value is the expected selling price in the normal course of business, less estimated costs to sell. The Corporation uses significant judgment when estimating the effect of certain factors on the net realizable value of inventory, such as inventory obsolescence and loss. The quantity, age and condition of inventory are measured and assessed regularly during the year. Property, plant and equipment Property, plant and equipment are recorded at cost and amor- tized on a straight-line basis over their estimated useful lives. The main components have different useful lives and are amortized separately. The amortization method and useful life estimates are reviewed annually. Buildings Leasehold improvements Machinery and equipment Rolling stock Furniture and fixtures Computer equipment Intangible assets 20 years Lease terms, maximum 5 years 5-10 years 5 years 3-5 years 3-5 years Intangible assets are acquired assets that lack physical substance and that meet the specified criteria for recognition apart from good- will and property, plant and equipment. Intangible assets consist mainly of purchased or internally developed software, customer relationships, non-competition agreements and trademarks. Soft- ware and customer relationships are amortized on a straight-line basis over their useful lives of 3 and 10-20 years, respectively, while non-competition agreements are amortized over the terms of the agreements. Trademarks have an indefinite life and are therefore not amortized. Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired. The goodwill arising from the acquisi- tions corresponds to the development potential of the acquired businesses, combined with the Corporation’s operations. Goodwill is not amortized. Impairment of non-current assets At the end of each reporting period, the Corporation must deter- mine whether indicators of impairment exist for its non-current assets, excluding goodwill and intangible assets with indefinite useful lives. If such indicators exist, the non-current assets are test- ed for impairment. When the impairment test indicates that the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in net earnings in an amount equal to the excess. The Corporation is required to test goodwill and intangible assets with indefinite lives for impairment at least once a year, whether or not indicators of impairment exist. 38 NOTe S TO c ONSOliDATe D FiNANciAl STATe MeNTS November 30, 2013 and 2012 (Amounts are in thousands of dollars, except per-share amounts) 1. SiGNiFicANT AccOuNTi NG POlicieS [cont’d] Foreign currency translation Impairment tests are carried out on the asset itself, the cash- generating unit [“CGU”] or group of CGUs as at November 30. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill and the supporting assets that cannot be wholly allocated to a single CGU are tested for impairment at the group of CGUs level. Impairment tests consist in a comparison between the carrying and recoverable amounts of an asset, CGU or group of CGUs. The re- coverable amount is the higher of value in use and fair value less costs to sell. Where the carrying amount exceeds the recoverable amount, an impairment loss equal to the excess is recognized in net earnings. Impairment losses related to CGUs or groups of CGUs are allocated proportionately to the assets of the CGU or group of CGUs; however, the carrying amount of the assets is not reduced below the higher of their fair value less costs to sell and their value in use. Other than for goodwill, if a reversal of an impairment loss occurs, it must be recognized immediately in net earnings. Reversals of im- pairment losses related to a CGU or group of CGUs are allocated proportionately to the assets of the CGU or group of CGUs. On re- versal of an impairment loss, the increased recoverable amount of an asset must not exceed the carrying amount that would have been determined, net of amortization, if no impairment loss had been rec- ognized in respect of the asset in prior years. In impairment testing of goodwill and intangible assets with in- definite useful lives, value in use is estimated using a discounted future cash flow model. The application of this method is based on different assumptions such as estimated future cash flows as de- scribed in notes 5. Other financial liabilities Accounts payable and accrued liabilities are classified in “other financial liabilities” and are initially recorded at fair value. They are subsequently measured at amortized cost using the effective interest method. For the Corporation, this measurement is usually equivalent to cost. Options to purchase non-controlling interests that correspond to the definition of a financial liability are measured at fair value and presented under other liabilities. Revenue recognition The consolidated financial statements are presented in the Corporation’s functional currency, which is the Canadian dollar. Monetary assets and liabilities of the Corporation are translated at the exchange rate in effect at the end of the reporting period and the other items in the statements of financial position and earnings are translated at the exchange rates in effect at the date of transaction. Foreign exchange gains and losses are recognized in net earnings in the year in which they arise. The assets and liabilities of the U.S. subsidiary are translated into Canadian dollars at the exchange rate in effect at the end of the re- porting period. Revenues and expenses are translated at the rate in effect at the date of transaction. Foreign exchange gains and losses are recognized in the consolidated statements of comprehensive income. Foreign exchange forward contracts The Corporation periodically enters into foreign exchange forward contracts with major financial institutions to partially hedge the ef- fects of changes in foreign exchange rates related to foreign curren- cy liabilities, as well as to hedge anticipated purchase transactions. The Corporation does not use derivatives for speculative purposes. The Corporation uses hedge accounting only when IFRS documen- tation criteria are met. Derivative financial instruments designated as cash flow hedges are classified as available-for-sale financial assets and liabilities and are measured at fair value, which is the instruments’ approximate settlement value at market rates. Gains and losses on remeasurement at each year-end are recorded in comprehensive income. If the instrument is not designated and documented as a hedge, changes in fair value are recognized in the statement of consolidated earnings for the year. Assets or liabilities related to financial instruments are included in accounts receivable or accounts payable and accrued liabilities in the consolidated state- ments of financial position. Share-based payment The Corporation recognizes stock-based compensation and other share-based payments in net earnings using the fair value method for stock options granted. The Black & Scholes model is used to determine the grant date fair value of stock options. The application of this method is based on different assumptions such as risk free interest rate, expected life, volatility and dividend yield as described in note 8. Revenues are recognized when finished products are shipped to customers. Net earnings per share Income taxes The Corporation follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are accounted for based on estimated taxes recoverable or payable that would result from the recovery or settlement of the carrying amount of assets and liabilities. Deferred tax assets and liabilities are measured using substantially enacted tax rates expected to be in effect in the years in which the temporary differences are expected to reverse. Changes in these balances are recognized in net earnings in the year in which they arise. Deferred tax assets are recognized when it is probable that the Corporation will have future taxable income against which these tax assets may be offset. In determining these deferred tax assets, assumptions are considered, such as the period for tax loss carry forwards to be completely used up and the level of future taxable income in accordance with tax planning strategies. Net earnings per share are calculated based on the weighted aver- age number of common shares outstanding during the year. Diluted earnings per share are calculated using the treasury stock method and take into account all the elements that have a dilutive effect. 2. chANGeS iN A ccOuNTiNG MeThODS Adopted in 2013 IAS 1, Presentation of Financial Statements In June 2011, the IASB issued amendments to IAS 1, Presentation of Financial Statements. Items of other comprehensive income and the corresponding tax are required to be grouped into those that will and will not subsequently be reclassified to earnings. These amendments are in effect since July 1st 2013 and had no impact on the presentation of the consolidated financial statements of the Corporation. Richelieu Annual Repor t 2013 39 NOTe S TO c ONSOliDATe D FiNANciAl STATe MeNTS November 30, 2013 and 2012 (Amounts are in thousands of dollars, except per-share amounts) 2. chANGeS iN A ccOuNTiNG MeThODS [cont’d] IFRS 13, Fair Value Measurement In May 2011, the IASB published IFRS 13, Fair Value Measurement to establish a single framework for fair value measurement of fi- nancial and non-financial items. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also requires disclosure of certain in- formation on fair value measurements. IFRS 13 is applied to fis- cal years beginning on or after January 1st, 2013. IAS 32, Financial Instruments: Presentation In December 2011, the IASB issued amendments to IAS 32, Financial Instruments: Presentation clarifying the requirements for offsetting financial assets and liabilities. The amendments shall be applied to fiscal years beginning on or after January 1st, 2014. The IASB also issued amendments to IFRS 7, Financial Instruments: Disclosure im- proving disclosure on offsetting of financial assets and liabilities. These amendments shall be applied to annual and interim periods beginning on or after January 1st, 2013. IAS 36, Impairment of Assets In May 2013, the IASB issued amendments to IAS 36, Impairment of Assets to require disclosures about assets or cash generating units for which an impairment loss was recognized or reversed during the period. IAS 36 will be applied to fiscal years beginning on or after January 1st, 2014 with earlier adoption permitted. The Corporation assesses the above-mentioned amendments will not significantly impact its income, financial position and cash flows. 3. BuSiNeSS AcQuiSiTiONS 2013 On September 3, 2013, the Corporation purchased the net assets of Hi-Tech Glazing Supplies [“Hi-Tech”] for a cash consideration of $4,150 and a balance of sale of $500. This Corporation based in Vancouver is a distributor of door and window hardware, which serves the British Columbia market. On March 21, 2013, the Corporation purchased the net assets of CourterCo Savannah LLC [“Savannah”] for a cash consideration of $297 [$290 US]. This distributor of speciality and decorative hard- ware product operates a distribution center based in Savannah [Georgia, United-States] and serves a base of residential and com- mercial woodworkers customers and kitchen, bathroom cabinet and furniture manufacturers. Since their acquisition, Hi-Tech and Savannah jointly generated sales of $2,700. If these acquisitions had been completed on December 1st 2012, management estimates that generated sales would have been approximately $7,000. 2012 On May 1st, 2012, the Corporation purchased the net assets of CourterCo Inc. [“CourterCo”] for a cash consideration of $2,386 [$2,415 US], and a balance of sale of $606 [$613 US]. From its 3 locations in the United States, Indianapolis [Indiana], Louisville [Kentucky], and Greensboro [North Carolina], this business serves a base of residential and commercial woodworkers customers and kitchen, bathroom cabinet and furniture manufacturers. Recently issued The IASB recently issued new standards with effective dates for fiscal years 2014 and thereafter, as presented below. IFRS 9, Financial Instruments In November 2009, the International Accounting Standard Board [“IASB”] published IFRS 9, Financial Instruments. This new standard simplifies the classification and measurement of financial assets set out in IAS 39, Financial Instruments: Recognition and Measurement. Financial assets are to be measured at amortized cost or fair va- lue. They are to be measured at amortized cost if the two following conditions are met: [a] The assets are held within a business model whose objective is to collect contractual cash flows; and [b] The contractual cash flows are solely payments of principal and interest on the outstanding principal. All other financial assets are to be measured at fair value through earnings. The entity may, if certain conditions are met, elect to use the fair value option instead of measurement at amortized cost. As well, the entity may choose upon initial recognition to measure non-trading equity investments at fair value through comprehensive income. Such a choice is irrevocable. In October 2010, the IASB issued revisions to IFRS 9, adding the re- quirements for classification and measurement of financial liabilities contained in IAS 39. For financial liabilities measured at fair value through earnings using the fair value option, the amount of change in a liability’s fair value attributable to changes in its credit risk is re- cognized directly in other comprehensive income. In December 2011, the IASB deferred the mandatory effective date of IFRS 9 to fiscal years beginning on or after January 1st 2015. Early adoption is permitted under certain conditions. An entity is not required to restate comparative financial periods for its first time application of IFRS 9, but must comply with the new disclosure requirements. IFRS 10, Consolidated Financial Statements In May 2011, the IASB published IFRS 10, Consolidated Financial Statements, which supersedes SIC-12, Consolidation – Special Purpose Entities and certain parts of IAS 27, Consolidated and Separate Financial Statements. IFRS 10 uses control as the single basis for consolidation, irrespective of the nature of the investee, employing the following factors to identify control: [a] Power over the investee; [b] Exposure or rights to variables returns from involvement with the investee; [c] The ability to use power over the investee to affect the amount of the investor’s returns. IFRS 10 is applied to fiscal years beginning on or after January 1st, 2013. IFRS 12, Disclosure of Interests in Other Entities In May 2011, the IASB published IFRS 12, Disclosure of Interests in Other Entities which requires that an entity disclose information on the nature of and risks associated with its interests in other entities (i.e., subsidiaries, joint arrangements, associates and unconsolida- ted structured entities) and the effects of those interests on its fi- nancial statements. IFRS 12 is applied to fiscal years beginning on or after January 1st, 2013. 40 NOTe S TO c ONSOliDATe D FiNANciAl STATe MeNTS November 30, 2013 and 2012 (Amounts are in thousands of dollars, except per-share amounts) 3. BuSiNeSS AcQuiSiTiONS [cont’d] These transactions were accounted for using the acquisition method and the results of operations are included in the consolidated financial statements as of the respective acquisition date for each acquisition. Summary of acquisitions The preliminary purchase price allocations for Hi-Tech and Savannah and the final purchase price allocation of CourterCo, at the transaction dates, are summarized as follows: net assets acquired Accounts receivable Inventories Prepaid expenses Property, plant and equipment Customer relationships Non-competition agreements Trademark Goodwill Current liabilities assumed net assets acquired Considerations Cash, net of cash acquired Considerations payable 2013 $ 694 2,253 — 2,947 137 1,332 162 96 1,117 5,791 844 4,947 4,447 500 4,947 2012 $ 1,509 1,930 24 3,463 66 439 57 205 316 4,546 1,556 2,990 2,384 606 2,990 During the year ended November 30, 2013, the Corporation paid balances of sale amounting to $737 and reduced the balances of sales by $972 as a result of purchase price adjustments on acquisitions from previous years. 4. PROPeRTY, PlANT AND eQuiPMeNT land buildings leasehold improvements machinery and equipment rolling stock furniture and fixtures Computer equipment $ $ $ $ $ 3,652 10,702 281 — (1,274) (1) 1,310 181 31 (435) (18) 5,302 1,070 9 (1,548) (14) 1,469 605 — (588) (5) $ 1,565 1,507 26 (801) (8) total $ 24,927 3,956 66 $ 927 312 — (516) (5,162) (1) (47) Net carrying amount as at November 30th 2011 Acquisitions Acquisitions through business combinations Amortization Effect of changes in foreign exchange rates Net carrying amount as at November 30th, 2012 Cost Accumulated amortization Net carrying amount as at November 30th, 2012 — — — — 3,652 3,652 — 9,708 1,069 4,819 1,481 2,289 722 23,740 21,170 (11,462) 4,262 (3,193) 23,164 (18,345) 6,272 (4,791) 12,076 (9,787) 9,262 79,858 (8,540) (56,118) 3,652 9,708 1,069 4,819 1,481 2,289 722 23,740 Richelieu Annual Repor t 2013 41 NOTe S TO c ONSOliDATe D FiNANciAl STATe MeNTS November 30, 2013 and 2012 (Amounts are in thousands of dollars, except per-share amounts) 4. PROPeRTY, PlANT AND eQuiPMeNT [cont’d] land buildings leasehold improvements machinery and equipment rolling stock furniture and fixtures Computer equipment net carrying amount as at november 30th 2012 acquisitions acquisitions through business combinations amortization effect of changes in foreign exchange rates net carrying amount as at november 30th, 2013 Cost accumulated amortization net carrying amount as at november 30th, 2013 $ $ $ $ $ $ 3,652 9,708 1,069 4,819 1,481 — — — — 797 — (1,275) — 6 — 371 33 (395) 36 (1,267) 44 862 57 (586) 21 2,289 879 47 (1,015) 80 total $ 23,740 3,287 137 $ 722 372 — (522) (5,060) 6 187 3,652 9,230 716 4,000 1,835 2,280 578 22,291 3,652 21,967 4,322 23,670 — (12,737) (3,606) (19,670) 7,156 (5,321) 13,118 (10,838) 9,663 83,548 (9,085) (61,257) 3,652 9,230 716 4,000 1,835 2,280 578 22,291 Customer relationships trademarks $ $ total $ goodwill $ 11,421 3,295 16,639 50,748 33 439 — (1,303) (165) 10,425 20,288 (9,863) 10,425 — 205 — — (34) 3,466 815 701 — (2,351) (203) 15,601 3,466 30,144 — (14,543) — 316 396 — (55) 51,405 51,405 — 3,466 15,601 51,405 10,425 3,466 15,601 — 1,332 (1,374) 411 10,794 22,494 (11,700) 10,794 — 96 — 104 3,666 164 1,590 (2,218) 524 15,661 51,405 — 1,117 — 266 52,788 3,666 33,066 52,788 — (17,405) — 3,666 15,661 52,788 5. iNTANGiBle ASSeTS AND GOODWill Net carrying amount as at November 30th, 2011 Acquisitions Acquisitions through business combinations Adjustment for business combinations Amortization Effect of changes in foreign exchange rates Net carrying amount as at November 30th, 2012 Cost Accumulated amortization Net carrying amount November 30th, 2012 net carrying amount as at november 30th, 2012 acquisitions acquisitions through business combinations amortization effect of changes in foreign exchange rates net carrying amount as at november 30th, 2013 Cost accumulated amortization net carrying amount november 30th, 2013 non- competition agreements software $ 1,250 749 — — (831) — 1,168 5,044 (3,876) 1,168 1,168 164 — (717) — 615 5,209 (4,594) 615 $ 673 33 57 — (217) (4) 542 1,346 (804) 542 542 — 162 (127) 9 586 1,697 (1,111) 586 42 NOTe S TO c ONSOliDATe D FiNANciAl STATe MeNTS November 30, 2013 and 2012 (Amounts are in thousands of dollars, except per-share amounts) 5. iNTANGiBle ASSeTS AND GOODWill [cont’d] For impairment test purposes, the carrying value of goodwill and intangible assets has been allocated to CGUs or groups of CGUs. The recoverable value of the CGUs or groups of CGUs was deter- mined on the basis of their value in use, which was calculated using forecasted cash flows before taxes over a period of five years. The discount rates before taxes used as at November 30, 2013 and 2012 are between 13% and 14%, considering a terminal value of 2%. No reasonably possible change to the main assumptions used for the impairment tests would result in a carrying amount higher than the recoverable amount. 6. BANK iNDeBTeDNeSS The Corporation has a line of credit with a Canadian banking insti- tution with an authorized amount of $26 million in Canadian dollar and $6 million in US dollar, bearing interest at the bank’s prime and base rates, which were respectively 3% and 3.75% as at November 30, 2013 and 2012. The line of credit is renewable annually. 7. DeBT lONG-TeRM Business acquisition considerations payable not bearing interests, including US$181 [US$1,017 in 2012]; Current portion of long-term debt Long-term debt 2013 2012 $ $ 1,354 2,563 1,354 — 1,743 820 8. ShARe cAPiTAl authorized Unlimited number of: Common shares. Non voting first and second ranking preferred shares issuable in series, the characteristics of which are to be determined by the Board of Directors. 20,046,061 common shares [2012 – 20,794,484] issued 2013 2012 $ $ 25,288 23,349 During 2013, the Corporation issued 124,577 common shares [2012 – 121,375] at an average price of $18.34 per share [2012 – $21.22] pursuant to the exercise of options under the stock option plan. In addition, during 2013, the Corporation, through a normal course issuer bid, purchased 873,000 common shares for cancel- lation in consideration of $36,596 [2012 – 173,600 for a considera- tion of $5,855] which resulted in a premium on the redemption in the amount of $35,445 recorded in the consolidated statements of retained earnings [premium of $5,667 in 2012]. Stock option plan The Corporation offers a stock option plan to its directors, officers and key employees. The subscription price of each share issuable under the plan is equal to the market price of the shares five days prior to the day the option was granted and must be paid in full at the time the option is exercised. Options vest at a rate of 25% per year starting one year after grant date and expire on the tenth anniversary of the grant date. As at November 30, 2013, 145,650 options [2012 – 219,900] were still available to be granted. Changes in stock options are summarized as follows: number of options exercise price per share $ aggregate $ 883,000 11.35 to 30.68 41,000 27.43 (121,375) 11.35 to 30.68 (40,625) 15.89 to 30.68 762,000 14.50 to 30.68 78,000 38.14 (124,577) 14.50 to 30.45 (3,750) 27.43 to 38.14 18,759 1,125 (2,576) (1,034) 16,274 2,975 (2,285) (127) 711,673 15.89 to 38.14 16,837 Outstanding, November 30, 2011 Granted Exercised Cancelled outstanding, november 30, 2012 granted exercised Cancelled outstanding, november 30, 2013 The table below summarizes information regarding the stock options outstanding as at November 30, 2013 : range in exercise price [in dollars] options outstanding exercisable options Weighted Weighted average average remaining exercise Weighted average exercise number of options period [years] price number of price [in dollars] options [in dollars] 15.89 – 21.69 286,500 21.70 – 24.76 287,173 24.77 – 30.44 30.45 – 38.14 38,500 99,500 711,673 3.83 2.32 8.14 8.73 4.14 19.18 23.25 27.44 36.32 286,500 285,298 9,875 11,750 19.18 23.25 27.46 30.45 23.67 593,423 21.50 During 2013, the Corporation granted 78,000 options [2012 – 41,000] with an average exercise price of $38.14 per share [2012 – $27.43] and an average fair value of $9.95 per option [2012 – $6.56] as determined using the Black & Scholes option pricing model using an expected dividend yield of 1.34% [2012 – 1.75%], a volatility of 25% [2012 – 25%], a risk free interest rate of 2.04% [2012 – 2.31%] and an expected life of 7 years [2012 – 7 years]. The compensa- tion expense charged to earnings for the options granted in 2013 amounted to $400 [2012 – $422]. Deferred share unit plan The Corporation offers a deferred share unit (“DSU”) plan to its directors who can elect to receive part or all of their compensation in DSUs. The value of DSUs is redeemable for cash only when a di- rector ceases to be a member of the Board. The financial liability re- sulting from the plan of $3,156 [2012 – $2,159] is presented under the Accounts payable and accrued liabilities. The compensation expense charged to earnings for the DSU in 2013 amounted to $997 [2012 – $559] and is recognized under Cost of goods sold, warehousing, selling and administrative expenses. Richelieu Annual Repor t 2013 43 NOTe S TO c ONSOliDATe D FiNANciAl STATe MeNTS November 30, 2013 and 2012 (Amounts are in thousands of dollars, except per-share amounts) 8. ShARe cAPiTAl[cont’d] Share purchase plan The Corporation has a share purchase plan entitling any employees to purchase shares up to a maximum percentage of their total com- pensation in cash. The Corporation contributes an amount equiv- alent to a percentage of any amounts invested by the employee to the purchase of additional shares. The Corporation’s contribu- tion is determined annually. Compensation expense related to the share purchase plan amounted to $413 for 2013 [2012 – $391] and is recognized under Cost of goods sold, warehousing, selling and administrative expenses. Earnings per share Basic earnings per share and diluted earnings per share were calcu- lated based on the following number of shares: Deferred taxes reflect the net tax impact of temporary differ- ences between the value of assets and liabilities for accounting and tax purposes. The major components of deferred tax assets and liabilities of the Corporation were as follows: deferred taxes Translation of foreign exchange currencies, other reserves only recognized for tax purposes upon disbursement and other tax attributes Excess of the tax value of Property, plant and equipment over their net carrying value Excess of the net carrying value of intangible assets and goodwill over their tax value 2013 2012 $ $ 3,080 2,545 1,593 1,607 (4,585) (4,485) 88 (333) 2013 2012 net amount Weighted average number of shares outstanding – Basic Dilutive effect under stock option plan 20,632 20,885 298 252 Weighted average number of shares outstanding – Diluted 20,930 21,137 The computation of diluted net earnings per share includes all out- standing options as at November 30, 2013 and 2012. 9. iNcOMe TAXeS The main components of the provision for income taxes are as follows: The net deferred taxes included the following as at November 30: Deferred tax assets Deferred tax liabilities net amount 2013 2012 $ $ 3,334 2,913 (3,246) (3,246) 88 (333) The variations of deferred taxes for the years ended November 30 are detailed as follows : Current Deferred Temporary differences 772 Deferred tax assets not previously recognized (1,126) — — 16,902 17,939 The effective income tax rate differs from the combined statutory rates for the following reasons: 2013 2012 $ $ Balance at the beginning of the year, net 17,256 17,939 In net earnings Other Balance at the end of the year, net 2013 2012 $ (333) 354 67 88 $ (168) — (165) (333) The amount of deductible temporary differences and unused tax losses for which no deferred tax assets is recognised in the state- ment of financial position amounts to $29,600 as at November 30, 2013 [$31,900 – 2012]. Combined statutory rates 2013 2012 $ $ 26.87% 26.96% 10. cOMMiTMeNTS AND cONTiNGeNcieS [a] Leases Income taxes at combined statutory rates 17,076 17,212 Increase (decrease) resulting from: Impact of statutory rates changes for the subsidiary outside Canada Share-based compensation Other non-deductible expenses 353 108 115 Deferred tax assets not previously recognized (1,126) Other 376 (21) 265 103 — 380 16,902 17,939 The Corporation has commitments under operating leases for ware- house and office premises expiring on various dates up to 2019. The future minimum payments, excluding incidental costs for which the Corporation is responsible, are as follows: Less than a year Between 1 and 5 years More than 5 years $ 7,265 15,292 469 23,026 44 NOTe S TO c ONSOliDATe D FiNANciAl STATe MeNTS November 30, 2013 and 2012 (Amounts are in thousands of dollars, except per-share amounts) 10. cOMMiTMeNTS AND cONTiNGeNcieS [cont’d] [b] Forward exchange contracts The balance of accounts receivable of the Corporation that are overdue for more than 60 days, but which were not provided for, totals $863 [$1,513 in 2012]. As at November 30, 2013, the Corporation held the following ex- change forward contracts having maturity dates in December 2013. As at November 30, 2013 and 2012, no customer accounted for more than 10% of the total accounts receivable. Type Currency in thousands Average exchange rate Market risk Purchase 3,300 Euros 1.42 [c] Claims In the normal course of business, various proceedings and claims are instituted against the Corporation. Management believes that any forthcoming settlement in respect of these claims will not have a material effect on the Corporation’s financial position or net con- solidated earnings. 11. AccuMulATeD OTheR cOMPReheNSiVe iNcOMe (lOSS) The accumulated other comprehensive income, including the fol- lowing items and the changes that occurred during the year, were as follows: Balance at the beginning of the year Exchange differences on translation of foreign operations balance at the end of the year 2013 2012 $ (1,050) $ 103 3,286 2,236 (1,153) (1,050) The Corporation’s foreign currency exposure arises from purchases and sales transacted mainly in U.S. dollars and Euros. Administra- tive charges included, for the year ended November 30, 2013, an exchange gain of $600 [2012 – loss of $9]. The Corporation’s policy is to maintain its purchase price and sell- ing prices by mitigating its exposure by use of derivative financial instruments. To protect its operations from exposure to exchange rate fluctuations, foreign exchange contracts are used. Major ex- change risks are covered by a centralized cash flow management. Exchange rate risks are managed in accordance with the Corpora- tion’s policy on exchange risk management. The goal of this policy is to protect the Corporation’s profits by eliminating the exposure to exchange rate fluctuations. The Corporation’s policy does not allow speculative trades. As at November 30, 2013 and 2012, a decrease of 1% of the Cana- dian dollar against the U.S. dollar and the Euro, all other variables remaining the same, would have had no significant effect on con- solidated net earnings and would have increased the consolidat- ed comprehensive income by $838 [$731 – 2012]. The exchange rate sensitivity is calculated by aggregation of the net foreign ex- change rate exposure of the Corporation’s financial instruments as of November 30, 2013 and 2012. 12. FiNANciAl iNSTRuMeNTS AND OTheR iNFORMATiON Liquidity risk Fair values The carrying value of the cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities are a rea- sonable estimate of their fair value because of their short maturity. The carrying value of long-term debt approximates their fair value because of the short maturity on balances of sale payable. As at November 30, 2013, the fair value of the forward exchange contracts resulted in a gain of approximately $75 [gain of approx- imately $25 as at November 30, 2012], representing the amount the Corporation would collect on settlement of these contracts at spot rates. Credit risk The Corporation sells its products to numerous customers in Canada, and in a lesser proportion in the United States. The credit risk refers to the possibility that customers will be unable to as- sume their liabilities towards the Corporation. The average days outstanding of accounts receivable, as at November 30, 2013 and 2012 is acceptable given the industry in which the Corporation operates. The Corporation performs ongoing credit evaluations of custom- ers and generally does not require collateral. The allowance for doubtful accounts for the years ended November 30, 2013 and 2012 is as follows: 2013 2012 $ 5,032 1,797 $ 5,006 2,152 (1,940) (2,061) 135 5,024 (65) 5,032 Balance at the beginning of the year Allowance for doubtful accounts Write-offs Exchange rate variations Balance at the end of the year Richelieu Annual Repor t 2013 The Corporation manages its risk of not being able to settle its financial liabilities when required by taking into account its oper- ational needs and by using different financing tools, if required. During the previous years, the Corporation has financed its growth, its acquisitions, and its payout to shareholders by using the cash generated by the operating activities. Current fiscal year expenses During the year ended November 30, 2013, the amount relating to inventories recorded as expenses from the distribution, imports and manufacturing activities totals $419,846 [2012 – $398,957]. An expense of $1,750 [2012 – $2,123] for inventory obsolescence is in- cluded in this amount. Salaries and related charges of $85,984 [2012 – $81,992] are included in the Cost of goods sold, warehousing, sell- ing and administrative expenses. 13. RelATeD PARTY iNFORMATiONS Scope of consolidation names Country of incorporation equity interest % voting rights % Richelieu America Ltd. U.S. Richelieu Finances Ltd. Canada Richelieu Hardware Canada Ltd. Cedan Industries Inc. Distributions 20/20 inc. Provincial Woodproducts Ltd. Menuiserie des Pins Ltd. Canada Canada Canada Canada Canada 100 100 100 100 100 85 75 100 100 100 100 100 85 75 45 NOTe S TO c ONSOliDATe D FiNANciAl STATe MeNTS November 30, 2013 and 2012 (Amounts are in thousands of dollars, except per-share amounts) 13. RelATeD PARTY iNFORMATiONS [cont’d] 16. DiViDeNDS For the year ended November 30, 2013, the Corporation paid a quarterly dividend of $0.13 per common share [2012 – quarterly dividend of $0.12 per share] for a total amount of $10,768 [2012 – $10,026]. For 2014, the Board of Directors approved on January 23, 2014 the payment of a quarterly dividend of $0.14 per common share. 17. SuBSeQueNT eVeNT On December 2, 2013, the Corporation acquired all of the out- standing common shares of Procraft Industrial Ltd., a distributor of finishing products, serving a customer base of residential and commercial woodworker and kitchen cabinet manufac turers in the Maritimes Provinces from its three distribution centers. This acquisition will add sales of approximately $4 million to the Corporation’s total revenues. 18. APPROVAl OF FiNANciAl STATeMeNTS The consolidated financial s tatement s for the year ended November  30, 2013 (including the comparative figures) were approved for issue by the Board of Directors on January 23, 2014. Executive officers’ compensation Short-term employee benefits Other long-term benefits Share-based compensation 2013 2012 $ $ 2,473 2,669 509 16 228 17 2,998 2,914 Accounts payable include a retirement allowance amounting to $2,000 payable to a senior executive officer. 14. GeOGRAPhic iNFORMATiON During the year ended November 30, 2013, near 75% of sales had been made in Canada [2012 – 79%]. The Corporation’s sales to foreign countries, almost entirely directed to the United States, amounted to $ 146,941 [2012 – $120,658] in Canadian dollars and to $143,337 [2012 – $120,403] in U.S. dollars. As at November 30, 2013, out of a total amount of $22,291 in capital assets [2012 – $23,740], $3,019 [2012 – $3,301] are located in the United States. In addition, intangible assets located in the United States amounted to $7,841 [2012 – $7,996 ] and goodwill to $4,154 [2012 – $3,835] in Canadian dollars and to $7,384 [2012 – $8,047] and goodwill to $3,911 [2012 – $3,860] in US dollars. 15. cAPiTAl MANAGeMeNT The Corporation’s objectives are: ■ Maintain a low debt ratio to preserve its capacity to pursue its growth both internally and through acquisitions; ■ Provide an adequate return to shareholders. The Corporation manages and makes adjustments to its capital structure in light of changes in economic conditions and the risk characteristics of underlying assets. To maintain or adjust its capital structure, the Corporation may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares. For the year ended November 30, 2013, the Corporation achieved the following results regarding its capital management objectives: ■ Debt/equity ratio: 0.5% [2012 – 0.9%] [Long-term debt/Equity] ■ Return on average shareholder’s equity of 16.2% over the last 12 months [2012 – 16.9% for the last 12 months] The Corporation’s capital management objectives remained un- changed from the previous fiscal year. 46 Transfer Agent and Registrar Computershare Trust Company of Canada Auditors Ernst & Young LLP 800 René-Lévesque Blvd. West Suite 1900 Montreal, Quebec, H3B 1X9 head Office Richelieu Hardware Ltd. 7900 Henri-Bourassa Blvd. West Montreal, Quebec, H4S 1V4 Telephone: 514 336-4144 Fax: 514 832-4002 pour position Printed in Canada n g i s e d a t o i : n o i t c u d o r P / 3 n i z U : n g i s e D c i h p a r G / . c n I s n o i t a c i n u m m o C l a i i c n a n F e r v b e f e L : n o i t a z i l a e R www.richelieu.com 

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