Reach
Annual Report 2016

Plain-text annual report

At tuned to WorldWide innovationS Partner in YoUr SUcceSS w w w . R i c h e l i e u . c o m 2 0 1 6 A n n u A l R e p o R t At tuned to woRldwide innovAtionS innovation is a complex process requiring creativit y, investments, and a sustained commitment on the part of manufacturers of functional and decor ative hardware products and solutions. as technology and design evolve, residential and commercial renovation and construction projects evolve along with them, constantly r aising the bar for functionalit y and qualit y. as a leader in global innovation, richelieu makes change happen. through our commitment to investing in innovation and the solid partnerships we have built with leading international manufacturers, we keep the north american market in step with global developments. through our service, we provide our customers with access to innovations that meet the highest standards of technology and design. For us, innovation is the foundation for growth, as it is for our customers. tAble of contentS f i n a n ci a l h i g h l i g h t s p r o f i l e m es s ag e to s h a r eh o l d ers d i r ec to rs a n d o f f i c er s m a n ag em en t ’s r ep o r t m a n ag em en t ’s a n d i n d ep en d en t au d i to r s ’ r ep o r t s co n s o l i dat ed stat em en t s o f f i n a n ci a l p o s i t i o n co n s o l i dat ed stat em en t s o f e a r n i n g s co n s o l i dat ed stat em en t s o f co m p r eh en s i v e i n co m e co n s o l i dat ed stat em en t s o f c h a n g es i n eq u i t y co n s o l i dat ed stat em en t s o f c a s h f lows n ot es to co n s o l i dat ed f i n a n ci a l stat em en t s 3 4 5 9 24 36 37 38 38 39 40 41 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 the annual meeting of shareholders will be held on april 6, 2017 at 10:30 a.m. at the omni mont-royal hotel, 1050 sherbrooke street west, montreal, quebec. Printed in Canada 1 Partner in SucceSS We serve over 80,000 aCtive Customers in north ameriCa. earning and keeping their satisfaction and trust is why we are in business. VISION – CRE ATIVIT Y – RIGOUR – DISCIPLINE h ave been our watchwords since day one, guiding our actions with respect to our four pill a rs of grow th: our customers, employees, suppliers, a nd sh a reholders. our vision is that of a customer-and innovation-driven corporation focused on long-term growth and value creation. Creativity is inherent to every aspect of the services, products, and solutions we provide. it’s the key to our efficiency and is what sets us apart. rigour is a value we put into practice every day through our attention to details, quality execution, ethical and transparent management, and social and environmental responsibility. DisCipline underpins our acquisition and integration strategy and enables us to meet our goals of financial stability and service quality and stay true to our corporate culture, while still respecting the identity of each company we acquire. 2 A GROWTH STRATEGY THAT ENSURES STABILITY AND SOLIDIT Y sales (in millions $) 844.5 749.7 equity Debt (in millions $) 394.3 366.8 646.9 565.8 586.8 313.6 293.1 287.9 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 2,6 2 1 0 2 3 1 0 2 1,4 5,4 4 1 0 2 5 1 0 2 3,6 6 1 0 2 4,9 net earnings per share attributable to shareholDers (DiluteD) (in $) 0.88 1.07 0.99 0.74 0.72 Cash floWs from operating aCtivities (1) (in millions $) 73.3 68.1 60.3 55.0 54.4 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 (1) Cash flows from operating activities is a non-IFRS measure, as indicated on page 26 of this report stoCk market performanCe (in $) 27 24 21 18 15 12 9 6 3 0 Appreciation: 13.7% in 2016 RCH compound annual return: 17.1% TSX compound annual return: 6.0% $26.95 (30-11-2016) Market capitalization as at November 30, 2016: $1.5 B i LLi O n Appreciation in share price (RCH) since initial stock listing: 3,6 82% Total return on share / 10 years*: 281.7% 2-for-1 share splits 3-for-1 share split Effective February 29, 2016 Average annual return on share / 10 years*: 14.3% *Including dividend reinvestment 1996 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 2016 3 FINANCIAL HIGHLIGHTS YEARS ENDED NOVEMbER 30 (in thousands of $, except per share amounts, number of shares and data expressed as a %) Sales EbITDA (1) EbITDA margin (%) Net earnings Net earnings attributable to the shareholders of the Corporation • basic per share ($) (3) • diluted per share ($) (3) Net margin attribuable to the Shareholders of the Corporation (%) Cash flows from operating activities (2) • diluted per share ($) (3) Dividends paid to shareholders • per share ($) (3) Weighted average number of shares outstanding (diluted) (in thousands) (3) As at November 30 Total assets Working capital Current ratio Equity Return on average equity (%) book value ($) Total debt Cash and cash equivalents 2016 $ 844,473 94,422 11.2 63,013 2015 $ 749,646 87,681 11.7 58,878 201 4 $ 201 3 $ 2012 $ 646,909 586,775 565,798 77,417 12.0 52,573 70,373 12.0 46,657 71,163 12.6 45,909 62,814 58,739 52,393 46,403 45,404 1.08 1.07 7.4 73,296 1.25 12,374 0.213 1.00 0.99 7.8 0.89 0.88 8.1 0.75 0.74 7.9 0.72 0.72 8.0 68,052 60,253 54,978 54,403 1.15 11,717 0.200 1.01 11,023 0.187 0.88 10,768 0.173 0.86 10,026 0.160 58,781 59,343 59,754 62,790 63,411 486,046 449,792 390,721 280,747 260,579 214,866 4.4 4.4 4.0 356,325 204,117 4.5 349,869 200,088 4.6 394,268 366,807 313,553 293,114 287,942 16.6 6.81 4,864 42,969 17.5 6.19 3,580 29,454 17.5 5.27 5,354 33,721 16.2 4.80 1,354 46,187 16.9 4.55 2,563 51,587 (1) EbITDA is a non-IFRS measure, as indicated on page 26 of this report. (2) Cash flows from operating activities and cash flows from operating activities per share are non-IFRS measures, as indicated on page 26 of this report. (3) All share data in this report have been restated to reflect the impact of the three-for-one split of all common shares effective February 29, 2016. 2012-2016 — 13 acquisitions 2016 Cabinetmakers Supply, Inc. (Houston, Texas) JFH Corporation (Memphis, Tennessee) Eveready Hardware Manufacturing Co, Inc. (Long Island City, New York) Neils Sorenson Hardware, Inc. (Portland, Maine) 2015 bD Enterprises, Inc. (Single Source Cabinet Supplies) (Dallas, Texas) 2014 Procraft Industrial Ltd. (Maritime Provinces, Canada) Pleasantside Distribution Ltd. (Western Canada) CabinetWare, Inc. (Florida) XM Export-Import Canada Inc. (Quebec) Thruway Hardwood and Plywood Corp. (New York State) 2013 Hi-Tech Glazing Supplies (Vancouver) CourterCo Savannah LLC (Georgia) 2012 CourterCo Inc. (Indiana, Kentucky, North Carolina) 4 z e h c a d r e v a X i : o t o h p NORTH AMERICAN LEADER in the import, distribution, and manufacturing of specialty hardware and complementary products PROFILE we serve over 80,000 Customers: manufacturers of kitchen and bathroom cabinets, storage and closets, and home and office furnishing; residential and commercial woodworkers; and hardware retailers, including renovation superstores. sheets and edgebanding products, a wide selection of decorative mouldings, and components for the window and door industry. in addition, many of our products are manufactured according to our specifications and those of our customers. we employ over 2,000 people approximately half of whom work in sales and marketing, and over 50% of our employees are corporate shareholders. we offer over 110,000 proDuCts (sKus) in a wide variety of categories, including decorative and functional hardware for: furniture, glass, and buildings; lighting systems; finishing and decorating products; ergonomic workstations; kitchen and closet storage solutions; sliding door systems; decorative and functional panels; high- pressure laminates; and floor protection products. our two subsidiaries, les industries cedan inc. and menuiserie des pins ltée, round out our offering with product lines boasting unique features, including a variety of veneer we operate a network of 69 Centers, including showrooms and two manufacturing plants in north america. our diversified product offering, one-stop-shop service approach, and efficient logistics, combined with the multiple advantages of our transactional website, optimize customer response time. our website, richelieu.com, is available in three languages and is the leading tool of its kind in the industry. it was designed to facilitate our customers’ projects and transactions and provide users with information on our entire range of products—the most comprehensive and innovative in north america. 5 2016: GROWTH AND FINANCIAL STABILITY are the result of our customer-driven approach and rigorous implementation of our innovation, service, market development, and acquisition strategies. riCharD lorD president and chief executive officer in 2016, We ContinueD to Deliver groWing results — With a strong balanCe sheet — anD We CompleteD four strategiC u.s. aCquisitions WhiCh are generating synergies through their integration proCess. finanCial stability is a funDamental value at riChelieu. it is What enables us to Continue investing in innovations, serviCe, anD business aCquisitions in orDer to Create long-term value for our Customers, employees, suppliers, anD shareholDers. all of our north american market segments contributed to the 12.6% increase in total sales for 2016, 10.4% of which was internal growth. our two major markets — manufacturers and retailers, including renovation superstores — saw increases of 13% and 10.9%, respectively. canadian markets produced solid internal growth of 8.8%, while u.s. sales grew by 15.1% (us$), 8.2% of which came from internal growth and 6.9% from acquisitions, representing 33.8% of total sales for the fiscal year. we paid out nearly 20% of net earnings in dividends and distributed a total of $35.5 million to shareholders, including share repurchases, while pursuing our operational and expansion investment program. with working capital of $280.7 million, $43 million in cash, and almost no debt, we have further strengthened our capacity to seize future opportunities. shareholders benefited from a 13.7% rise in the richelieu share price over the year and have seen share value grow by an average of 13% per year over the last decade, bringing our market capitalization to $1.5 billion in 2016. 6 our strategy of Constant innovation our DistinCtive serviCe is key to our alloWs us to offer our Customers groWth anD is baseD on a business moDel the very best proDuCts anD solutions aDapteD to the neeDs of our Customers available in the inDustry. anD on our ability to listen, innovate, innovation is the leaDing Driver of anD Deliver quality. our groWth, anD the CommerCial anD We take a Customer-Driven approaCh to resiDential renovation inDustry remains skills management at every level of the our main sourCe of inCome. organiZation. Innovation in functional and decorative hardware products and solutions has been driving the renovation and construction industry forward for decades now, and the future promises even more exciting changes as we look forward to new generations of products and high-quality innovative systems. our customers, manufacturers, and retailers are looking for solutions to optimize their residential and commercial projects and stay a step ahead of their clientele. they can count on richelieu’s commitment and expertise to create the added value that helps them differentiate and keeps their customers coming back for more. with our leadership and strategy of innovation, we continue to drive change in north america’s specialty hardware industry. we remain committed to our customers and attuned to worldwide innovation through our strategic partnerships with some of the world’s most innovative and demanding manufacturers, and with architects and designers who are also partners for change. our offering grew again in 2016, with new products that combine enhanced functionality with innovative and balanced styling for the residential and commercial markets. we remain the product leader in many categories, including closets, sliding door systems, retractable storage solutions for small living spaces, state-of-the- art lighting systems and products for glass, and unparalleled selection of avant-garde decorative panels and extensive range of ergonomic solutions and environmentally friendly green- certified products. As a corporation whose main business is distribution, Richelieu is service-oriented. Our team of over 2,000 employees serves, directly or indirectly depending on their position, more than 80,000 active customers across North America. our customers expect exceptional service from us at all times, no matter where they are. aligning talent and expertise is essential for achieving our goals and fulfilling our corporate vision. we regularly assess service quality using suitable metrics. the quality of our service is the result of a set of key factors that we take very seriously, including: • Our ability to listen to the customer • attention to details and quality of execution • Our close relationship with our customers, which allows us to provide personalized, expert advice and service through our decentralized network of local teams who know their market • An extensive sales network providing customers with multiple channels for accessing our products: through on-site sales staff, by phone, at our sales outlets and showrooms, and also through our website richelieu.com • a central information system that supplies a constant flow of information across our network, and a highly efficient supply chain. together they ensure interconnectivity with our suppliers and customers, reliable order processing — generally within 24 hours of order placement — and cost control • specialized training for our service and sales professionals • the commitment of our employees, over 50% of whom are corporate shareholders 7 our business aCquisition anD integration strategy inCreases our aCtive presenCe in north ameriCa, opens neW markets, anD fosters internal groWth. in 2016, we expanded our presence in texas through a second acquisition in this major market, with the purchase of Cornerstone hardware, a houston-based specialty hardware distributor whose clientele includes kitchen manufacturers and residential and commercial woodworkers. we then increased our market share in tennessee — where we already had a presence with a center in nashville — by acquiring Jfh Corporation, a specialty hardware distributor in memphis. our position in this market will help extend our reach to neighboring states, including mississippi, arkansas, and alabama. we also stepped up our presence in new york City, adding to our existing center in the city by acquiring eveready hardware, a specialty hardware distributor strategically located in long island city, near manhattan, which serves kitchen and bathroom cabinet manufacturers, woodworkers, and a significant number of storage and closet manufacturers. we completed our fourth acquisition of the financial year with neils sorenson hardware, a specialty hardware distributor serving kitchen cabinet and furniture manufacturers and woodworkers in portland, maine. in 2016, we continued to improve our processes and technological tools to get to know our customers better in order to serve them more efficiently and provide them with new business opportunities. we pride ourselves on helping customers stay competitive by effectively controlling inventory costs while at the same time offering more choice and flexibility, including for non-stock items. this is due in part to the “long tail” strategy we use in conjunction with our website to optimize our product offering and stock management, while minimizing costs. our customers truly appreciate the trilingual richelieu.com website. not only is it the most comprehensive in our industry, it is also a highly useful tool for product selection and design and for order processing. our groWth strategy remains rooteD in business aCquisitions 58 aCquisitions Canada: 36 united states: 22 8 Over the years, we have made 58 acquisitions in North America, all of which are compatible with our activities and corporate culture. of these acquisitions, nine were completed over the past three years, seven of them in the united states and two in canada, and represent approximately $50 million in sales. in addition to expanding our customer base, increasing sales, and adding to our specialized product offering, these acquisitions bring us new skills and a greater understanding of local markets, promoting close customer relationships. as part of our integration approach, we proceed with respect and care, pooling best practices and consolidating our systems. our main goals are to optimize customer service, foster internal growth, and improve profitability by developing sales synergies within our network, and operational synergies when conditions allow. to sustain our innovation anD groWth DynamiC, We Will move aheaD With our strategies in a rigorous anD f0rsight Way — While maintaining our business moDel aDapteD to our Customers’ neeDs. A consistent, high quality end-to-end customer experience is at the core of our strategy. our mission remains the same: make business easier for our customers — manufacturers and retailers — by providing them with the best product offering, optimal service, and the most effective sales tools. our extensive north american network of interconnected centers — our one-stop-shop approach — and our strategic mix of local and online service — give us the flexibility to respond in real time and reliably meet the needs of our customers, no matter where they are. Our goals for 2017 and beyond remain unchanged: achieve internal growth and conclude acquisitions that add long-term value to Richelieu. we will continue to show consistent leadership in improving operational efficiency and focus on innovation throughout our organization with a view to meeting and exceeding customer expectations. every effort will be made to meet future challenges. richelieu is here to grow and prosper with the help of all the members of our exceptional team, whom we thank for their outstanding quality of work and their commitment. we would also like to thank our customers, our suppliers, our shareholders, and all our other business partners. (Signed) richard Lord president and chief executive officer 9 DireCtors offiCers Jocelyn proteau chairman of the board richelieu hardware ltd. corporate director richard lord president and chief executive officer richelieu hardware ltd. Denyse Chicoyne (2) corporate director robert Courteau (2) president courteau mainville management inc. pierre pomerleau (1) president and chief executive officer pomerleau group mathieu gauvin (1) partner richter advisory group inc. marc poulin (1) corporate director sylvie vachon (2) president and chief executive officer montreal port authority richard lord president and chief executive officer antoine auclair vice-president and chief financial officer guy grenier vice-president, sales and marketing — industrial geneviève quevillon vice-president — logistics and supply chain Jeff Crews vice-president, business development — retailers market, canada Craig ratchford vice-president, general manager — united states Éric Daignault general manager of divisions marion kloibhofer general manager — central canada John statton general manager — western canada and western united states Christian Dion manager — human resources (1) member of the audit committee (2) member of the human resources and corporate governance committee yannick godeau legal affairs and corporate secretary 10 funCtionality ergonomy eleganCe pull-out shelf decorative hardware whether it is for an addition or a full or partial transformation, kitchen and bathroom renovations give the best return on investment in terms of resale value. all of the concepts in this report incorporate richelieu products: decorative panels, storage solutions, sliding door systems, lighting systems, knobs and pulls, and functional, finishing, and decorative hardware. RESIDENTIAL11 organiZation eff iCienCy style we are a leader in storage systems and closet hardware and we serve a large clientele of closet design specialists. revolving system 12 Our foldaway systems and specialty hardware products make even the smallest spaces more functional and comfortable. wall bed our product offering includes pull-out tables and foldaway beds paired with storage spaces, sofas convertible into bunkbeds, and wall units that maximize the layout of small spaces. our ergonomic products and systems optimize storage solution functionality with clean contemporary designs ideal for any configuration and style of decor. 13 for small and large areas alike, attractive and functional sliding door systems are excellent options. they help optimize space, add visual appeal, and do not require maintenance. 14 ARCHITECTS AND DESIGNERS Partners in expertise and innovation 15 every residential and commercial renovation project has a unique potential that architects and designers strive to showcase, using their expertise and ingenuity. we are proud to contribute to their inspiration and help their projects come to life with innovative solutions and functional products that meet the highest quality standards. 16 sustainability funCtionality esthetiCs led lighting antimicrobial pull our extensive offering for commercial and institutional renovation and construction projects includes technologically advanced products on the cutting edge of design. our resolutely inspired solutions help make these renovations functional and esthetic, whether they are classic or original. COMMERCIAL • INSTITUTIONAL17 z e h c a d r e v a X i : o t o h p inspiration trenDy style ConCept contemporary metal knob we work with the most experienced and demanding manufacturers in the world to provide our customers with inspiring and functional solutions designed to optimize their workspace concepts. 18 architecture and decor are the elements that set commercial and institutional spaces apart. to bring their ideas to life, designers and manufacturers can rely on our diversified and top-quality innovative offering which includes beautiful functional products in harmony with the spirit of the space. 19 our comprehensive specialty and decorative glass hardware offering contains high-tech products that are made from top quality raw materials and meet the most exacting industry, domestic, and commercial standards. it includes shower door hinges, specialty tools, and doors and window parts. innovative products that make it easy to create elegant, high-quality decorative surfaces. decorative acrylic panel 20 re taiLerS Every day, we proudly serve thousands of small and mid- sized stores, renovation centers, and major retail chains across Canada and the United States. we are committed to providing retailers with quality and variety through strong brands, efficient and reliable service, and a complete range of informative sales tools. SOCIAL AND ENVIRONMENTAL RESPONSIBILITY Richelieu is an environmentally friendly corporation, with a commitment to the communities we work in. 21 As a corporation, we care about our environmental impact, which is why we have implemented a waste management program that enables us to reduce our environmental footprint and promote sustainable development principles. under the program, all of our sites are analyzed for the type of waste materials they generate, and the level of waste recovery and optimization. to promote responsible behaviour, the program incorporates new waste collection equipment, clear signage, and awareness training for employees. obsolete and non-functioning computer equipment is sent for recycling, and certificates of destruction are provided for hard drives. we work closely with our suppliers and distribution centers regarding the packaging used to ship products in order to reduce waste and optimize transportation. our partnerships with transporters also enable us to collectively reduce our carbon footprint. our pool of printers optimization and sustainable printing initiative, coupled with our ink cartridge recycling program, enables us to reduce our environmental impact and printing costs through simple measures like print tracking and control and the elimination of paper reports. we use these steps to promote best practices and reduce paper waste. to minimize our greenhouse gas emissions, we encourage employees to use videoconferencing as much as possible in order to cut back on business travel. we give preference to white roofing when replacing roofs on our buildings, a measure that enhances employee comfort in the summer and reduces the urban heat island effect. We support causes that contribute to the well-being of the communities we work in. our social focus is primarily on education, youth culture and sports, health, and heritage conservation, either through financial support or volunteer initiatives by our local teams. every year, we reaffirm and broaden our commitment to community and charitable organizations that support these vital causes. throughout our north american network, we share a culture built on partnership, mutual assistance, and a set of fundamental values that guide our economic and social actions. these values include sound governance, service excellence, mutual respect, independence, and the importance of generating growth for our employees, customers, suppliers, and shareholders. we draw upon them to establish and maintain trusting relationships with our partners and a compensation policy that help us attract and retain the best people. we also prioritize professional development and the application of strict workplace safety measures. our economic and social roles are intimately linked. Richelieu offers an extensive range of eco-friendly and green-certified products that meet LEED project requirements. we select quality products that provide outstanding environmental performance in order to support our manufacturing customers in their green renovation and construction projects and help retailers and renovation superstores meet the steadily growing demand for such products. Ecological veneer LED light Ecological finishing products 22 richelieu.com ExCELLENCE IN E-COMMERCE • The only trilingual transactional site in North America in our market • Outstanding efficiency in finding and selecting products • Virtual product and project design to customer specifications with instructions on use and installation • Automated management of the overall purchasing function Our constant efforts to optimize our website have consolidated richelieu.com’s position as the leading North American e-commerce sites in our industry. Our sales through richelieu.com represent a significant portion of total sales and are growing fast every year. • an outstanding showcase for richelieu’s extensive selection of products and innovations. Visitors and customers can immediately appreciate the extensive selection in every category and quickly discover new products and innovations using the galleries and videos. • Mobile interface providing instant access to site features. • time savings for customers thanks to a complete online order history and overall management ensuring quality and reliability. 23 A STRONG NETWORK OF 69 INTERCONNECTED CENTERS A logistics function adapted to customer needs • cost effectiveness in supply, stock and distribution management • accurate management information • optimal use of resources and assets CANADA 36 DiStriButiOn centreS ba rrie C al ga r y (3) Da r tm o uth Ed m o nto n ( 2 ) Kelow na Kitch e n e r L aval ( 2 ) Lo ngu euil ( 2 ) M o n c to n M o ntreal O t tawa Q u e b e c (3) Regina S askato o n ( 2 ) St. J o h n’s Su d b ur y T h u n d e r bay To ro nto ( 2 ) Va n co u ve r (5) V ic to ria ( 2 ) Win nip eg ( 2 ) 2 M a nuFac turinG centerS Lo ngu euil N otre - Da m e - D es- Pins UNITED STATES 31 DiStriButiOn centerS Atla nta bos to n buffalo Cha rlot te Chicago Cin cin nati Dallas Da nia D etroit Ha r tfo rd Hialea h G re e nsb o ro G re e nville H o us to n In dia na p olis Jacks o nville Lin coln Pa rk Lo uisville M e m p his Nashville N ew Yo rk ( 2 ) O rla n d o Po m pa n o Po r tl a n d Rivie ra beach S a ras ota S ava n na h S eat tle Sy racus e Ta m pa bay 24 MANAGEMENT’S REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION year ended november 30, 2016 CONTENTS 2016 highlights forward-looking statements non-ifrs measures general business overview as at november 30, 2016 mission and strategy financial highlights analysis of operating results summary of quarterly results fourth quarter financial position analysis of principal cash flows analysis of financial position contractual commitments financial instruments internal control over financial reporting significant accounting policies and estimates new accounting methods risk factors share information outlook supplementary information 25 26 26 27 27 28 28 29 30 31 31 31 32 32 32 33 33 33 35 35 35 252525 Four (4) acquisitions during the year: • August 18, 2016 - Principal net assets of Neils Sorenson Hardware, Inc., a specialized hardware distributor in Portland, Maine; • May 16, 2016 - Principal net assets of Eveready Hardware Manufacturing Co., Inc., a specialized hardware distributor in Long Island City, New York; • April 18, 2016 - Principal net assets of JFH Corporation, a specialized hardware distributor in Memphis, Tennessee; • December 14, 2015 - All outstanding common shares of Cabinetmakers Supply, Inc. (doing business as Cornerstone Hardware & Supplies), a specialized hardware distributor in Houston, Texas. (1) EBITDA and cash flows from operating activities are non-IFRS measures, as indicated on page 26 of this report. HigHligHts of tHe year ended november 30, 2016 Richelieu pursued its growth and expansion in 2016, as reflected by its increased financial performance, excellent financial position, and four strategic acquisitions in the U.S. Its innovation and market development strategies, its customer approach, and the quality of its service contributed to growth in its main market segments in Canada and the U.S. Strong internal growth was complemented by acquisition- driven growth in the U.S., where Richelieu now operates 31 distribution centers generating nearly 34% of total sales. The performance posted during the year further strengthened its market positioning for the future while creating value for shareholders. In 2016, Richelieu saw its market capitalization rise to $1.5 billion. Its share price (RCH/TSX) has appreciated by 13.7% over the course of the year and by an annual average of 13% over the last decade. • Consolidated sales totalled $844.5 million, an increase of 12.6%, of which 10.4% from internal growth and 2.2% from acquisitions. • Earnings before income taxes, interest and amortization (EBITDA)(1) grew by 7.7% to $94.4 million. The EBITDA mar- gin stood at 11.2%. • Net earnings attributable to shareholders increased by 6.9% to $62.8 million or $1.08 per share (basic) and $1.07 (diluted), up by 8.0% and 8.1% respectively. • Cash flows from operating activities(1) (before net change in non-cash working capital balances) grew by 7.7% to $73.3 million. • Working capital increased by 7.7% to $280.7 million, a cur- rent ratio of 4.4:1. • Cash and cash equivalents totalled $43 million. • Total debt stood at $4.9 million, including $4.3 million in short-term debt. • Repurchase of 1,004,700 common shares for $23.1 million and payment of $12.4 million in dividends to sharehold- ers (representing 19.7% of net earnings attributable to shareholders for fiscal 2016). Richelieu thus distributed $35.5 million to shareholders in 2016 while retaining the financial resources necessary for growth in 2017. 262626 This management’s report relates to Richelieu Hardware Ltd.’s consolidated operating results and cash flows for the year ended November 30, 2016 in comparison with the year ended November 30, 2015, 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, 2016 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, 2016, is available on the website of the System 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 19, 2017, on which date the audited consolidated financial statements and annual management’s report were approved by the Corporation’s Board of Directors. Unless otherwise indicated, information presented below, including tabular amounts, is expressed in Canadian dollars and prepared in accordance with International Financial Reporting Standards (“IFRS”). financial the FORWARD-LOOKING STATEMENTS in 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, its growth outlook, Richelieu’s competitive position industry, 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. Assumptions are 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. 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 uncertainties such as industry, acquisitions, labour relations, credit, key officers, supply and product liability, as well as other factors set forth in the Corporation’s 2016 Annual Report (see the “Risk Factors” section on page 33 of the 2016 Annual Report available on SEDAR at www.sedar.com). those related the to 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 to assess Richelieu uses earnings before interest, income taxes and amortization (“EBITDA”) because this measure enables management 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 attributable to shareholders of the Corporation, as an indicator of financial performance or cash flows, or as a measure of liquidities. Since EBITDA is not a standardized measurement 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 intangible 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 management 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. 272727 MISSION AND STRATEGY Richelieu’s mission is to create shareholder value and contribute 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 strategy that has benefited it until now, with a focus on: • continuing to strengthen its product selection 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 offering a limited range of products. GENERAL BUSINESS OVERVIEW as at November 30, 2016 Richelieu is a leading North American importer, distributor and manufacturer of specialty hardware and related products. Its products are targeted to an extensive customer base of kitchen and bathroom cabinet, storage and closet, home furnishing and office furniture manufacturers, residential and commercial woodworkers, and 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 over 110,000 different items targeted to a base of more than 80,000 customers who are served by 69 centres in North America with 36 distribution centres in Canada, 31 distribution centres in the United States and two manufacturing plants in Canada. Main product categories include furniture, glass and building decorative and functional hardware, lighting systems, finishing and decorating products, ergonomic workstation components, kitchen and closet storage solutions, sliding door systems, decorative and functional panels, high-pressure laminates and floor protection products. This offering is completed by the Corporation’s two subsidiaries, Les Industries Cedan inc. and Menuiserie des Pins Ltée, which manufacture a variety of veneer sheets and edgebanding products as well as a broad selection of decorative mouldings and components for the window and door industry. In addition, many of the Corporation’s products are manufactured according to its specifications and those of its customers. The Corporation employs over 2,000 people at its head office and throughout the network, close to half of whom work in marketing, sales and customer service. More than 50% of its employees are Richelieu shareholders. 282828 FINANCIAL HIGHLIGHTS (in thousands of $, except per-share amounts, number of shares and data expressed as a %) Years ended November 30 Sales EBITDA(1) EBITDA margin (%) Net earnings Net earnings attributable to shareholders of the Corporation • basic per share ($)(3) • diluted per share ($)(3) Net margin attributable to the shareholders of the Corporation (%) Cash flows from operating activities(2) • diluted per share ($)(3) Dividends paid on shares • per share ($)(3) Weighted average number of shares outstanding (diluted) (in thousands)(3) As at November 30 Total assets Working capital Current ratio 2016 $ 844,473 94,422 11.2 63,013 62,814 1.08 1.07 7.4 73,296 1.25 12,374 0.213 2015 $ 2014 $ 2013 $ 2012 $ 749,646 646,909 586,775 565,798 87,681 11.7 58,878 58,739 1.00 0.99 7.8 77,417 12.0 52,573 52,393 0.89 0.88 8.1 68,052 60,253 1.15 11,717 0.200 1.01 11,023 0.187 70,373 12.0 46,657 46,403 0.75 0.74 7.9 54,978 0.88 10,768 0.173 71,163 12.6 45,909 45,404 0.72 0.72 8.0 54,403 0.86 10,026 0.160 58,781 59,343 59,754 62,790 63,411 486,046 280,747 4.4 449,792 260,579 4.4 390,721 214,866 4.0 356,325 204,1 1 7 4.5 349,869 200,088 4.6 Equity attributable to shareholders of the Corporation 394,268 366,807 313,553 293,114 287,942 Return on average equity (%) Book value ($) Total debt Cash and cash equivalents 16.6 6.81 4,864 42,969 17.5 6.19 3,580 29,454 17.5 5.27 5,354 33,721 16.2 4.80 1,354 46,187 16.9 4.55 2,563 51,587 (1) EBITDA is a non-IFRS measure, as indicated on page 26 of this report. (2) Cash flows from operating activities and cash flows from operating activities per share are non-IFRS measures, as indicated on page 26 of this report. (3) All share data in this report have been restated to reflect the impact of the three-for-one split of all common shares effective February 29, 2016. ANALYSIS OF OPERATING RESULTS FOR THE YEAR ENDED NOVEMBER 30, 2016 COMPARED WITH THE YEAR ENDED NOVEMBER 30, 2015 Consolidated sales (in thousands of $, except exchange rate) 2016 2015 Years ended November 30 $ $ ∆ (%) Canada 559,137 513,743 + 8.8 United States (CA$) 285,336 235,903 + 21.0 (US$) 215,028 186,815 + 15.1 Average exchange rate 1.3270 1.2628 Consolidated sales 844,473 749,646 + 12.6 Consolidated sales reached $844.5 million, an increase of $94.8 million or 12.6% over 2015, of which 10.4% from internal growth and 2.2% from acquisitions. At comparable exchange rates to 2015, the consolidated sales growth would have been 10.8% for the year ended November 30, 2016. Sales to manufacturers grew to $721.1 million, compared with $638.4 million for 2015, an increase of $82.7 million or 13.0%, of which 10.3% from internal growth and 2.7% from acquisitions. Sales to hardware retailers and renovation su- perstores grew by 10.9% or $12.1 million to total $123.4 mil- lion. In Canada, Richelieu achieved sales of $559.1 million, compared with $513.7 million for 2015, up by $45.4 million or 8.8% from internal growth resulting primarily from market development efforts and, to a lesser extent, from the increase in selling prices to mitigate the impact of the appreciation in the U.S. dollar and the euro. Sales to manufacturers rose to $450.3 million, up by $33.6 million or 8.1% from internal growth. Sales to hardware retailers and renovation super- stores reached $108.8 million, compared with $97.0 million, up by $11.8 million or 12.2% over 2015. 292929 In the United States, the Corporation recorded sales of US$215.0 million, compared with US$186.8 million for 2015, an increase of US$28.2 million or 15.1%, of which 8.2% from internal growth and 6.9% from acquisitions. Sales to manufacturers totalled US$204.1 million, compared with US$175.6 million, an increase of US$28.5 million or 16.2% over 2015, of which 8.9% from internal growth and 7.3% from acquisitions. Sales to hardware retailers and renovation superstores were down by 2.7% from the previous year. Considering exchange rates, U.S. sales expressed in Canadian dollars amounted to $285.3 million, compared with $235.9 million for 2015, an increase of 21.0%. They accounted for 33.8% of consolidated sales of 2016, whereas they had represented 31.5% of the year’s consolidated sales in 2015. Net earnings grew by 7.0%. Considering non-controlling inter- ests, net earnings attributable to shareholders of the Corpora- tion totalled $62.8 million, up by 6.9% over 2015. Net earnings per share amounted to $1.08 basic and $1.07 diluted, compared with $1.00 basic and $0.99 diluted for 2015, an increase of 8.0% and 8.1% respectively. Comprehensive income totalled $63.8 million, considering a positive adjustment of $0.8 million on translation of the financial statements of the subsidiary in the United States, compared with $71.0 million for 2015, con- sidering a positive adjustment of $12.2 million on translation of the financial statements of the subsidiary in the United States. SUMMARY OF QUARTERLY RESULTS (in thousands of $, except per-share amounts) Consolidated EBITDA and EBITDA margin (in thousands of $, unless otherwise indicated) Years ended November 30 Sales EBITDA EBITDA margin (%) 2016 $ 2015 $ 844,473 749,646 94,422 87,681 11.2 11.7 Earnings before income taxes, interest and amortization (EBITDA) totalled $94.4 million, up by $6.7 million or 7.7% over 2015. The gross margin and the EBITDA margin were mainly affected by the higher purchasing costs of certain products attributable to the appreciation of the U.S. dollar and the euro during the first semester of 2016, the higher proportion of sales in the United States where the product mix is different, and the lower margins of certain acquisitions also having a different product mix. The EBITDA margin stood at 11.2%, compared with 11.7% for 2015. Income taxes amounted to $21.8 million, an increase of $1.3 million over 2015. 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, net Income taxes Net earnings Net earnings attributable to 2016 $ 2015 $ 94,422 87,681 9,601 31 8,449 (149) 21,777 20,503 63,013 58,878 shareholders of the Corporation 62,814 58,739 Net margin attributable to the shareholders of the Corporation (%) Non-controlling interests Net earnings 7.4 199 7.8 139 63,013 58,878 Trimestres 2016 • Sales • EBITDA • Net earnings attributable to shareholders of the Corporation basic per share diluted per share 2015 • Sales • EBITDA • Net earnings attributable to shareholders of the Corporation basic per share diluted per share 2014 • Sales • EBITDA • Net earnings attributable to shareholders of the Corporation basic per share diluted per share 1 2 3 4 188,909 217,413 220,155 217,996 16,710 23,074 25,942 28,696 10,861 15,408 17,331 19,214 0.19 0.18 0.27 0.26 0.30 0.30 0.33 0.33 159,319 190,801 199,457 200,069 15,706 21,878 24,394 25,703 10,216 14,653 16,340 17,530 0.17 0.17 0.25 0.25 0.28 0.28 0.30 0.30 136,108 165,155 167,809 177,837 13,704 19,185 21,054 23,474 8,859 13,036 14,554 15,944 0.15 0.15 0.22 0.22 0.25 0.24 0.27 0.27 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 fourth quarters respectively 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 2016, the reader is referred to the interim management’s reports available on SEDAR’s website at www.sedar.com. . Income taxes amounted to $7.0 million, an increase of $1.1 million over 2015. Net earnings grew by 9.4%. Considering non-controlling interests, net earnings attributable to shareholders of the Corporation amounted to $19.2 million, up by 9.6% over the fourth quarter of 2015. Net earnings per share rose to $0.33 basic and diluted, compared with $0.30 basic and diluted for the fourth quarter of 2015, an increase of 10.0%. Comprehensive income amounted to $21.8 million, consider- ing a positive adjustment of $2.6 million on translation of the financial statements of the subsidiary in the United States, compared with $18.9 million for the fourth quarter of 2015, considering a positive adjustment of $1.3 million on trans- lation 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) amounted to $21.6 million or $0.37 per share, compared with $19.7 million or $0.33 per share for the fourth quarter of 2015, an increase of 10.0% stemming primarily from the net earnings growth. Net change in non-cash working capital balances represented a cash inflow of $6.1 million, reflecting the change in accounts receivable and payable ($1.9 million), whereas the change in inventories and other items represented a cash inflow of $8.0 million. Consequently, operating activities provided cash flows of $27.7 million, compared with $13.8 million for the fourth quarter of 2015. Financing activities used cash flows of $2.9 million, compared with $1.2 million for the fourth quarter of 2015. This change mainly reflects the common shares issued of $2.0 million in the fourth quarter of 2015 comparatively to $0.2 million for the corresponding quarter of 2016. Investing activities represented a cash outflow of $2.8 million for equipment to improve operational efficiency. 303030 FOURTH QUARTER ENDED NOVEMBER 30, 2016 Fourth-quarter consolidated sales amounted to $218.0 mil- lion, compared with $200.1 million for the corresponding quarter of 2015, an increase of $17.9 million or 9.0%, of which 6.5% from internal growth and 2.5% from acquisitions. At comparable exchange rates to the fourth quarter of 2015, the consolidated sales growth would have been 8.8% for the quarter ended November 30, 2016. Richelieu achieved sales of $187.1 million in the manufacturers market, compared with $172.4 million for the fourth quarter of 2015, an increase of $14.7 million or 8.5%, of which 5.6% from internal growth and 2.9% from acquisitions. Sales to hardware retailers and renovation superstores stood at $30.9 million, up by $3.2 million or 11.6% over the fourth quarter of 2015. In Canada, Richelieu recorded sales of $144.7 million, an increase of $8.2 million or 6% over the fourth quarter of 2015, entirely from internal growth, resulting primarily from market development efforts and, to a lesser extent, from the increase in selling prices to mitigate the impact of the appreciation in the U.S. dollar and the euro. Sales to manufacturers amounted to $117.5 million, an increase of 4.2%. Sales to hardware retailers and renovation superstores grew to $27.2 million, up by $3.5 million or 14.8%, partially due to exceptional seasonal sales. the United States, sales totalled US$55.3 million, In compared with US$48.1 million for the fourth quarter of 2015, an increase of US$7.2 million or 15%, of which 7.3% from internal growth and 7.7% from acquisitions. Sales to manufacturers amounted to US$52.5 million, an increase of US$7.4 million or 16.4% over the fourth quarter of 2015, of which 8.2% from internal growth and 8.2% from acquisitions. Sales to hardware retailers and renovation superstores were down by 6.7% from the corresponding quarter of 2015. Considering exchange rates, total U.S. sales expressed in Canadian dollars stood at $73.3 million, an increase of 15.3%. They accounted for 33.6% of consolidated sales for the fourth quarter of 2016, whereas they had represented 31.8% of the period’s consolidated sales for the fourth quarter of 2015. Earnings before income taxes, interest and amortization (EBITDA) amounted to $28.7 million, up by $3.0 million or 11.6% over the fourth quarter of 2015. The gross margin and the EBITDA margin improve slightly over the fourth quarter of 2015 which was impacted by the cost of introducing additional products in stores. The EBITDA margin stood at 13.2%, compared with 12.8% for the fourth quarter of 2015. FINANCIAL POSITION Investing activities 313131 Analysis of principal cash flows for the year ended November 30, 2016 Change in cash and cash equivalents and capital resources (in thousands of $, unless otherwise indicated) Years ended November 30 Cash flows provided by (used for): Operating activities Financing activities Investing activities 2016 $ 2015 $ 66,529 27,3 11 (33,431) (19,467) (19,749) (11,497) Effect of exchange rate fluctuations 166 (614) 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 13,515 (4,267) 29,454 33,721 42,969 29,454 2016 2015 280,747 260,579 Renewable line of credit (CA$) 26,000 26,000 Renewable line of credit (US$) 6,000 6,000 Operating activities Cash flows from operating activities (before net change in non-cash working capital balances) reached $73.3 million or $1.25 diluted per share, compared with $68.1 million or $1.15 diluted per share for 2015, an increase of 7.7% stemming primarily from the net earnings growth. Net change in non- cash working capital balances used cash flows of $6.8 million, primarily representing changes in accounts receivable ($8.9 million) whereas inventories, accounts payable and other items represented a cash inflow of $2.1 million. Consequently, operating activities provided cash flows of $66.5 million compared with $27.3 million for 2015. Financing activities Financing activities used cash flows of $33.4 million, com- pared with $19.5 million for 2015. During the year, Richelieu repurchased common shares for cancellation for $23.1 mil- lion, compared with $9.2 million in 2015. The Corporation paid dividends to shareholders of $12.4 million, up by 5.6% over 2015. Investing activities represented a total cash outflow of $19.7 million, of which $9.3 million for business acquisitions and $10.5 million for the expansion of some distribution centres, the purchase of computer hardware and equipment to improve operational efficiency. Sources of financing As at November 30, 2016, cash and cash equivalents amounted to $43.0 million, compared with $29.5 million as at November 30, 2015. The Corporation posted a working capital of $280.7 million for a current ratio of 4.4 : 1, compared with $260.6 million (4.4:1 ratio) as at November 30, 2015. Richelieu believes it has the capital resources to fulfill its ongoing commitments and obligations and to assume the funding requirements needed for its growth and the financing and investing activities between now and the end of 2017. The Corporation continues to benefit from an authorized line of credit of $26 million as well as a line of credit of US$6 million renewable annually and bearing interest respectively at prime and base rates. In addition, Richelieu considers 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 2017, and no unusual events will entail additional capital expenditures. This expectation also remains subject to the risks identified under the “Risk Factors” section. Analysis of financial position as at November 30, 2016 Summary of financial position (in thousands of $, except exchange rate) 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 translation of a subsidiary in the United States Assets 2016 $ 2015 $ 362,803 337,308 123,243 112,484 486,046 449,792 82,056 5,679 76,729 6,256 394,268 362,885 4,043 3,922 486,046 449,792 1.343 1.335 Total assets amounted to $486.0 million as at November 30, 2016, compared with $449.8 million as at November 30, 2015. Current assets increased by 7.6% or $25.5 million from November 30, 2015. This increase resulted from the Corpora- tion’s growth and the four acquisitions closed in 2016. 323232 Cash position (in thousands of $) As at November 30 Current portion of long-term debt Long term-debt Total debt 2016 $ 4,336 528 4,864 2015 $ 2,245 1,335 3,580 Cash and cash equivalents 42,969 29,454 As at November 30, 2016, the Corporation continues to benefit from a healthy and solid financial position. Total debt was $4.9 million, of which $0.5 million in long-term debt and $4.3 million in short-term debt representing balances payable on acquisitions and financing contracts for equipment. Equity attributable to shareholders of the Corporation totalled $394.3 million as at November 30, 2016, compared with $362.9 million as at November 30, 2015, an increase of $31.4 million stemming primarily from a growth of $27.9 mil- lion in retained earnings which amounted to $336.8 million, and of $2.6 million in share capital and contributed surplus, whereas accumulated other comprehensive income increased by $0.8 million. As at November 30, 2016, the book value per share was $6.81, up by 10.0% over November 30, 2015 and the return on average shareholder’s equity was 16.6%. As at November 30, 2016, the Corporation’s share capital consisted of 57,920,466 common shares (58,643,607 shares as at November 30, 2015). In 2016, upon the exercise of options under the stock option plan, Richelieu issued 281,559 common shares at an average price of $8.42 (396,549 in 2015 at an average price of $7.73). In addition, 1,004,700 common shares were repurchased for cancellation under the normal course issuer bid for a cash consideration of $23.1 million (451,800 common shares for a cash consideration of $9.2 million in 2015). The Corporation granted 356,500 stock options during the year (246,900 in 2015). Consequently, as at November 30, 2016, 1,650,086 stock options were outstanding (1,578,645 as at November 30, 2015). CONTRACTUAL COMMITMENTS Summary of contractual financial commitments as at November 30, 2016 (in thousands of $) Less than 1 year Between 1 and 5 years More than 5 years Total Long-term debt 4,336 528 — 4,864 Operating leases 10,917 23,598 4,012 38,527 Total 15,253 24,126 4,012 43,391 For 2017 and the foreseeable future, the Corporation expects cash flows from operating activities and other sources of financing to meet its ongoing contractual commitments. The expectation set forth above consists of forward-looking information based on the assumption that economic condi- tions and exchange rates will not deteriorate significantly, operating expenses will not increase considerably, deliveries will be sufficient to fulfill Richelieu’s requirements, the avail- ability of credit will remain stable in 2017, and no unusual events will entail additional capital expenditures. This ex- pectation also remains subject to the risks identified under the “Risk Factors” section. FINANCIAL INSTRUMENTS into Richelieu periodically enters foreign exchange forward contracts to fully or partially hedge the effects of foreign currency fluctuations related to foreign-currency denominated payables or to hedge forecasted purchase transactions. 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. Richelieu also uses equity swaps to reduce the effect of fluctuations in its share price on net earnings in connection with its deferred share unit plan. In notes (1) and (12) of the audited consolidated financial statements for the year ended November 30, 2016, 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, 2016. 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, 2016, management ensured 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. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES The Corporation’s audited consolidated financial statements for the year ended November 30, 2016 have been prepared by management in accordance with International Financial Reporting Standards (IFRS). The preparation of the consoli- dated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompany- ing notes. These estimates are based on management’s best knowledge of current events and actions that the Corpora- tion may undertake in the future and other factors deemed relevant and reasonable. judgments made by management The in applying the accounting 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 period that could potentially result in material adjustments to the carrying amount of assets and liabilities during the following period, are summarized as follows: including inventory impairment, Valuation of loss and obsolescence, goodwill and intangible assets with indefinite useful lives and deferred tax assets 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 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. 333333 IFRS 16, Leases IFRS 16 Leases replaces IAS 17 Leases and related interpretations. The new standard brings most leases on- balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17 Leases and related interpretations and is effective for periods beginning on or after January 1st, 2019, with earlier adoption permitted if IFRS 15 Revenue from Contracts with Customers has also been applied. The Corporation will assess the impact these new standards will have on its consolidated financial statements. 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 depend 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 competitive 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. NEW ACCOUNTING METHODS Foreign currency Recently issued IFRS 15, Revenue from contracts with customers IFRS 15 Revenue from Contracts with Customers replaces IAS 18 Revenue, IAS 11, Construction Contracts and related inter- pretations. Under IFRS 15 standard, revenue is recognized at the point in time when control of the goods or services trans- fers to the customer rather than when the significant risks and rewards are transferred. The new standard also requires additional disclosures through notes to financial statements. IFRS 15 shall be applied to fiscal years beginning on or after January 1st, 2018. Earlier application is permitted. Richelieu is exposed to the risks related to currency fluctuations, primarily foreign-currency denominated purchases and sales made abroad. regard to in The Corporation’s products are regularly sourced from abroad. Thus, any increase in foreign currencies (primarily the U.S. dollar and 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. 343434 Sales made abroad are mainly recorded in the United States and account for approximately 34% of Richelieu’s 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 assurance 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 relationships with suppliers respecting its supply criteria. The inability 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. Acquisitions Acquisitions in North America remain an important strategic 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 U.S. 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 defining 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 Corporation’s financial performance. Close to 15% 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. 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 highly qualified management team could compromise the success of Richelieu’s strategic execution and expansion, which could have an adverse impact on its financial results. To adequately 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 more than 50% of its employees, including senior officers, are Richelieu shareholders. Product liability In the normal course of business, Richelieu is exposed to various product liability claims that could result in major costs and affect 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, IT contingency plan and data security The IT structure implemented by Richelieu enables it to support its operations and contributes to ensure their efficiency. As the occurrence of a disaster, including a major interruption of its computer systems, could affect its operations and financial performance, the Corporation has implemented 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 disaster, generators in the event of power outages and a relief computer as powerful as the central computer. A breach of the Corporation’s IT security, loss of customer data or system disruption could adversely affect its business and reputation. Richelieu’s business is dependent on its payroll, transaction, financial, accounting and other data processing systems. The Corporation relies on these systems to process, on a daily basis, a large number of transactions. Any security breach in its business processes and/or systems has the potential to impact its customer information, which could result in the potential loss of business. If any of these systems fail to operate properly or become disabled, the Corporation could potentially lose control of customer data and suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention or damage to its reputation. In addition, any issue of data privacy as it relates to unauthorized access to, or loss of, customer and/or employee information could result in the potential loss of business, damage to Richelieu’s market reputation, litigation and regulatory investigation and penalties. To reduce its risk, the Corporation continuously invests in the security of its IT systems, business processes improvements and enhancements to its culture of information security. SHARE INFORMATION AS AT JANUARY 19, 2017 Issued and outstanding common shares : Outstanding stock options : 57,933,441 1,968,611 353535 OUTLOOK In 2017, as in the past, Richelieu will be customer-oriented, focusing on quality of service and innovation. Its two major sources of growth will remain innovation and business acquisition strategies in its sector. The Corporation will pursue its current market development in North America and its efforts to penetrate new territories, especially in the United States. It remains on the lookout for strategic acquisitions to further strengthen its positioning and create additional sales and operational synergies, while giving priority to operational efficiency and sound financial management. 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. (Signed) Richard Lord (Signed) Antoine Auclair President and Chief Executive Officer Vice-President and Chief Financial Officer January 19, 2017 3636 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. The Corporation 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 Report, primarily through its Audit Committee. This committee which meets periodically with the Corporation’s managers and external auditors, has reviewed the consolidated financial statements of the Corporation 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 19, 2017 (Signed) Richard Lord President and Chief Executive Officer (Signed) Antoine Auclair Vice-President and Chief Financial Officer 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, 2016 and 2015, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then 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 mis- statement 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, 2016 and 2015 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. (Signed) Ernst & Young LLP Montreal, Canada, January 19, 2017 1 CPA auditor, CA, public accountancy permit no. A120803 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As at November 30 [In thousands of dollars] Notes 3 3 4 5 5 9 3 9 7 3 7 9 8 8 11 ASSETS Current assets Cash and cash equivalents Accounts 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 Equity attributable to shareholders of the Corporation Non-controlling interests Commitments and contingencies [note 10] See accompanying notes to the consolidated financial statements. On behalf of the Board of Directors : 373737 2016 $ 2015 $ 42,969 109,867 207,803 2,164 362,803 33,258 22,881 62,256 4,848 29,454 99,975 206,449 1,430 337,308 27,963 21,325 58,329 4,867 486,046 449,792 75,764 1,956 4,336 82,056 528 3,239 1,912 87,735 36,050 1,417 336,835 19,966 394,268 4,043 398,3 1 1 486,046 71,787 2,697 2,245 76,729 1,335 3,020 1,901 82,985 33,566 1,265 308,904 19,150 362,885 3,922 366,807 449,792 (Signed) Richard Lord (Signed) Mathieu Gauvin Director Director 383838 CONSOLIDATED STATEMENTS OF EARNING Years ended November 30 [In thousands of dollars, except earnings per share] Sales Operating expenses excluding amortization 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 Impôts sur le résultat Income taxes Net earnings attributable to: Shareholders of the Corporation Non-controlling interests Notes 8, 12 9 Net earnings per share attributable to shareholders of the Corporation 8 Basic Diluted See accompanying notes to the consolidated financial statements. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended November 30 2016 $ 844,473 750,051 94,422 6,497 3,104 31 9,632 84,790 21,777 63,013 62,814 199 63,013 1.08 1.07 2015 $ 749,646 661,965 87,681 5,806 2,643 (149) 8,300 79,381 20,503 58,878 58,739 139 58,878 1.00 0.99 [In thousands of dollars] Net earnings Notes 2016 $ 2015 $ 63,013 58,878 Other comprehensive income that will be reclassified to net earnings Exchange differences on translation of foreign operations 11 Comprehensive income Comprehensive income attributable to: Shareholders of the Corporation Non-controlling interests See accompanying notes to the consolidated financial statements. 816 63,829 63,630 1 99 63,829 12,165 71,043 70,904 139 71,043 393939 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Years ended November 30 [In thousands of dollars] Attributable to shareholders of the Corporation Share capital Contributed surplus Retained earnings $ $ $ 8 Accumulated other comprehensive income $ 11 Non-controlling interests Total equity $ $ Total $ Notes Balance as at November 30, 2014 29,762 1,576 270,826 6,985 309,149 4,404 313,553 Net earnings Other comprehensive income Comprehensive income Shares repurchased Stock options exercised Share-based compensation expense Dividends [note 16] Other liabilities — — — (236) 4,040 — — — — — — — (973) 662 — — 58,739 — — 12,165 58,739 12,165 (8,944) — — (11,717) — — — — — — — 58,739 12,165 70,904 (9,180) 3,067 662 139 — 139 — — — 58,878 12,165 71,043 (9,180) 3,067 662 (11,717) (596) (12,313) — (17,168) (25) (621) (25) (17,789) 3,804 (311) (20,661) Balance as at November 30, 2015 33,566 1,265 308,904 19,150 362,885 3,922 366,807 Net earnings Other comprehensive income Comprehensive income — — — Shares repurchased (578) — — — — Stock options exercised 3,062 (692) Share-based compensation expense Dividends [note 16] Other liabilities — — — 844 — — 62,814 — 62,814 (22,509) — — (12,374) — 2,484 152 (34,883) — 816 816 — — — — — — 62,814 816 63,630 (23,087) 2,370 844 (12,374) — (32,247) 199 — 199 — — — (67) (11) (78) 63,013 816 63,829 (23,087) 2,370 844 (12,441) (11) (32,325) Balance as at November 30, 2016 36,050 1,417 336,835 19,966 394,268 4,043 398,311 See accompanying notes to the consolidated financial statements. Flux de trésorerie 404040 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 to Shareholders of the Parent Corporation Other 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 year Cash and cash equivalents, end of year Supplementary information Income taxes paid Interest paid (received), net See accompanying notes to the consolidated financial statements. Notes 2016 $ 2015 $ 63,013 58,878 8 16 8 8 3 4, 5 6,497 3,104 (525) 1,207 73,296 (6,767) 66,529 (273) (12,374) (67) 2,370 (23,087) (33,431) (9,294) (10,455) (19,749) 166 13,515 29,454 42,969 23,240 31 5,806 2,643 (399) 1,124 68,052 (40,741) 27,3 1 1 (1,041) (11,717) (596) 3,067 (9,180) (19,467) (511) (10,986) (11,497) (614) (4,267) 33,721 29,454 20,721 (149) Notes notes to Consolidated finanCial statements November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated) 41 41 NATURE OF BUSINESS Inventories Richelieu Hardware Ltd. [the “Corporation”] is incorporated under the laws of Quebec, Canada. The Corporation is a dis- tributor, importer, and manufacturer of specialty hardware and complementary products. Its products are targeted to an exten- sive customer base of kitchen and bathroom cabinet, storage and closet, home furnishing and office furniture manufacturers, residential and commercial woodworkers and hardware retailers including renovation superstores. The Corporation’s head office is located at 7900 Henri-Bourassa Blvd. West, Montreal, Quebec, Canada, H4S 1V4. 1. SIGNIFICANT ACCOUNTING POLICIES The Corporation’s consolidated financial statements, presented in Canadian dollars, have been prepared by management in accordance 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 accompanying 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 judgements made by management in applying the account- ing policies that have the most significant effect on the amounts recognized in the consolidated financial statements and the as- sumptions about the future and other major sources of estima- tion uncertainty 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 the valua- tion of inventory impairment, including loss and obsolescence, goodwill and intangible assets with indefinite useful lives and deferred tax assets require the use of judgement and assump- tions that may affect the amounts reported in the consolidated financial statements. The underlying estimates and assumptions are reviewed regularly. Revised accounting estimates, if any, are recognized in the period in which the estimates are revised, as well as in 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 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, which consist primarily of finished goods, are valued at the lower of average cost and net realizable value. Net real- izable value is the expected selling price in the normal course of business, less estimated costs to sell. The Corporation uses judgment when estimating the effect of certain factors on the net realizable value of inventory, such as inventory obsolescence and losses. The quantity, age and condition of inventory are meas- ured and assessed regularly during the year. Property, plant and equipment Property, plant and equipment are recorded at cost and amortized 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 20 years Leasehold improvements Lease terms, maximum 5 years Machinery and equipment Rolling stock Furniture and fixtures Computer equipment Intangible assets 5-10 years 5 years 3-5 years 3-5 years Intangible assets are acquired assets that lack physical sub- stance and meet the specified criteria for recognition apart from goodwill and property, plant and equipment. Intangible assets consist mainly of purchased or internally developed software, customer relationships, non-competition agreements and trade- marks. Software 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 useful life and are therefore not amortized. Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and corresponds to the development potential of the acquired businesses, combined with the Corporation’s operations and from the expected synergies and expanding of the product offering and network. Goodwill is not amortized. Impairment of non-current assets At the end of each reporting period, the Corporation determines 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 tested for impairment. When the impairment test indicates that the carrying amount of the tangible or intangible asset exceeds its recoverable amount, 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 useful lives for impairment at least once a year, whether or not indicators of impairment exist. 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 recoverable amount is the higher of value in use and fair value less costs to sell. Notes 42 42 notes to Consolidated finanCial statements November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated) 1. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Foreign currency translation 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 impairment losses related to a CGU or group of CGUs are allocated proportionately to the assets of the CGU or group of CGUs. On reversal 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 recognized in respect of the asset in prior years. In impairment testing of goodwill and intangible assets with indefinite 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 described in note 5. Other financial liabilities Accounts payable and accrued liabilities and long-term debt 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 Revenues are recognized when products are shipped to custom- ers. They are measured at the fair value of the consideration received or receivable, net of returns and discounts granted. 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 at the tax rates that are expected to apply 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 to the extent that 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 carrying forwards to be completely used up and the level of future taxable income in accordance with tax planning strategies. Leases Leases are classified as finance leases if substantially all risks and rewards incidental to ownership are transferred to the les- see. At the moment of initial recognition, the lessee records the leased item as an asset at the lower of the fair value of the asset and the present value of the minimum lease payments. A cor- responding liability to the lessor is recorded in the consolidated statement of financial position as a finance lease obligation. In subsequent periods, the asset is depreciated on a straight-line basis over the term of the lease and interest on the obligation is expensed through net earnings. Leases are classified as operating leases if substantially all risks and rewards incidental to ownership are not transferred to the lessee. The lease payments are recognized as an expense on a straight-line basis over the lease term. 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 reporting 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. Derivative financial instruments The Corporation periodically enters into foreign exchange forward contracts with financial institutions to partially hedge the effects of fluctuations in foreign exchange rates related to foreign currency liabilities, as well as to hedge anticipated purchase transactions. The Corporation enters into equity swaps to reduce its exposure on net earnings related to the fluctuations in the Corporation’s share price relating to its deferred share unit plan. The Corporation does not use derivatives for speculative purposes. The Corporation uses hedge accounting only when IFRS documentation 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 statements of financial position. Fair value measurements hierarchy Fair value measurements of assets and liabilities recognized at fair value in the consolidated statements of financial position or whose fair value is presented in the notes to the financial statements are categorized in accordance with the following hierarchy: Level 1 : Level 2 : quoted prices (unadjusted) in active markets for identical assets or liabilities; inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); Level 3 : inputs for the asset or liability that are not based on observable market data (unobservable inputs). Share-based payment 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 weighted average market price of the shares five (5) business 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. Notes notes to Consolidated finanCial statements November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated) 43 43 1. SIGNIFICANT ACCOUNTING POLICIES (cont’d) 3. BUSINESS ACQUISITIONS 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. 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 director ceases to be a member of the Board. The number of DSUs granted to a director equals the compensation amount to be converted in DSUs divided by the average closing price of the shares on the Toronto Stock Exchange for the five (5) business days immediately preceding the date of the payment. The DSU liability is measured at fair value at each closing date on the basis of the number of outstanding share units and the market price of the Company’s common shares is included in Accounts payable and accrued liabilities. The Corporation has entered into equity swaps to reduce its exposure on net earnings related to the fluctuations of the Corporation’s share price. The net effect of the equity swaps mostly offsets the impact of the change in the Corporation’s share price and is included in the Operating expenses excluding amortization. Net earnings per share Net earnings per share are calculated based on the weighted average 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. 2016 Effective August 18, 2016, the Corporation purchased the principal net assets of Neils Sorenson Hardware, Inc., a specialty hardware distributor located in Portland, Maine. Effective May 16, 2016, the Corporation purchased the principal net assets of Eveready Hardware Manufacturing Co., Inc., a specialty hardware distributor located in Long Island City, New York. Effective April 18, 2016, the Corporation purchased the principal net assets of JFH Corporation, a specialty hardware distributor located in Memphis, Tennessee. Effective December 14, 2015, the Corporation acquired all outstanding common shares of Cabinetmakers Supply, Inc. (doing business as Cornerstone Hardware & Supplies), a specialty hardware distributor located in Houston, Texas. Those 4 acquisitions jointly generated sales of $14,500. If these acquisitions had all been completed as of December 1st 2015, management considers that generated sales would have been approximately $19,000. 2015 On June 18, 2015, the Corporation purchased the principal net assets of BD Enterprises, Inc. (doing business as Single Source Cabinet Supplies) a specialty hardware distributor located in Dallas, Texas. Summary of acquisitions The purchase price allocations, at the transaction dates are summarized as follows: 2. CHANGES IN ACCOUNTING METHODS Recently issued Current assets acquired IFRS 15, Revenue from contracts with customers Non current assets acquired Current liabilities assumed Non-current liabilities assumed Net assets acquired Considerations Cash, net of cash acquired Considerations payable [note 7] IFRS 15 Revenue from Contracts with Customers replaces IAS 18 Revenue, IAS 11, Construction Contracts and related interpretations. Under IFRS 15 standard, revenue is recognized at the point in time when control of the goods or services transfers to the customer rather than when the significant risks and rewards are transferred. The new standard also requires additional disclosures through notes to financial statements. IFRS 15 shall be applied to fiscal years beginning on or after January 1st, 2018. Earlier application is permitted. IFRS 16, Leases IFRS 16 Leases replaces IAS 17 Leases and related interpretations. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17 Leases and related interpretations and is effective for periods beginning on or after January 1st, 2019, with earlier adoption permitted if IFRS 15 Revenue from Contracts with Customers has also been applied. The Corporation will assess the impact these new standards will have on its consolidated financial statements. During the year ended November 30, 2016, balances of sale were reduced by $701 as a result of purchase price adjustments on acquisitions from previous years. 2016 2015 $ 4,111 8,641 $ 977 5 1 1 12,752 1,488 1,574 784 10,394 9,294 1,100 10,394 932 — 556 511 45 556 44 44 notes to Consolidated finanCial statements November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated) 4. PROPERTY, PLANT AND EQUIPMENT Leasehold improvements Machinery and equipment Rolling stock Furniture and fixtures Computer equipment $ $ $ 5,054 2,410 2,369 1,305 2,204 1,557 $ 623 707 Total $ 22,895 10,277 53 44 17 12 159 (1,111) (998) (1,459) (450) (5,806) 111 1 1 9 144 19 438 6,517 28,587 2,839 9,861 2,463 16,047 9 1 1 27,963 10,945 100,398 — (15,426) (4,299) (22,070) (7,022) (13,584) (10,034) (72,435) 3,652 10,848 733 6,517 2,839 2,463 9 1 1 27,963 Leasehold improvements Machinery and equipment Rolling stock Furniture and fixtures Computer equipment $ $ $ $ Total $ Lands Buildings $ $ 3,652 — — — — 8,453 3,778 — (1,383) — 3,652 3,652 10,848 26,274 Lands Buildings $ $ 3,652 10,848 — — — — 1,317 — (1,462) — 3,652 3,652 10,703 27,591 Net carrying amount as at November 30th, 2014 Acquisitions Acquisitions through business combinations Amortization Effect of changes in foreign exchange rates Net carrying amount as at November 30th, 2015 Cost Accumulated amortization Net carrying amount as at November 30th, 2015 Net carrying amount as at November 30th, 2015 Acquisitions Acquisitions through business combinations Amortization Effect of changes in foreign exchange rates Net carrying amount as at November 30th, 2016 Cost Accumulated amortization Net carrying amount as at November 30th, 2016 $ 540 520 33 (405) 45 733 5,032 $ 733 1,095 191 (441) — 1,578 6,515 6,517 3,820 2,839 1,850 2,463 1,089 911 2,124 27,963 11,295 126 23 70 76 486 (1,545) (1,185) (1,226) (638) (6,497) 3 5 1 2 1 1 8,921 3,532 32,752 10,838 2,397 17,641 2,475 33,258 12,695 111,684 — (16,888) (4,937) (23,831) (7,306) (15,244) (10,220) (78,426) 3,652 10,703 1,578 8,921 3,532 2,397 2,475 33,258 $ $ Total $ Goodwill $ 14,802 4,423 20,987 57,669 Additions during the year include $1,056 of property. plant and equipment under finance contract. 5. INTANGIBLE ASSETS AND GOODWILL Softwares Non-competition agreements Customer relationships Trademarks Net carrying amount as at November 30th, 2014 Acquisitions Acquisitions through business combinations Amortization Effect of changes in foreign exchange rates Net carrying amount as at November 30th, 2015 Cost Accumulated amortization Net carrying amount as at November 30th, 2015 $ 627 709 — (458) — 878 6,451 (5,573) 878 $ 1,135 — — (461) 86 760 2,632 (1,872) 760 — 352 (1,724) 1,480 14,910 31,789 (16,879) 14,910 — — — 354 4,777 4,777 — 4,777 Net carrying amount as at November 30th, 2015 Acquisitions Acquisitions through business combinations Amortization Effect of changes in foreign exchange rates Net carrying amount as at November 30th, 2016 Cost Accumulated amortization Net carrying amount as at November 30th, 2016 Softwares Non-competition agreements Customer relationships Trademarks $ 878 216 20 (495) 1 620 6,686 (6,066) 620 $ 760 — 5 61 (602) 7 726 3,353 (2,627) 726 $ 14,910 — 3,290 (2,007) 104 16,297 35,274 (18,977) 16,297 $ 4,777 — 440 — 21 5,238 5,238 — 5,238 709 352 (2,643) 1,920 21,325 45,649 (24,324) 21,325 Total $ 21,325 216 4,311 (3,104) 133 22,881 50,551 (27,670) 22,881 — — — 660 58,329 58,329 — 58,329 Goodwill $ 58,329 — 3,844 — 83 62,256 71,023 (8,767) 62,256 Notes notes to Consolidated finanCial statements November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated) 45 45 5. INTANGIBLE ASSETS AND GOODWILL (cont’d) Issued Granted Exercised 2016 2015 Cancelled For impairment test purposes, the carrying value of goodwill and intangible assets has been allocated to CGUs or groups of CGUs. The carrying amounts of goodwill for the three CGUs that are significant in comparison with the total carrying amount of goodwill are $14.4 million, $11.2 million and $9 million respectively while $27.7 million is allocated across multiple CGUs or groups of CGUs with carrying values of goodwill that are not significant in comparison with total carrying amount of goodwill. The carrying amounts of intangible assets with indefinite useful lives is allocated across multiple CGUs or groups of CGUs and the amount allocated is not individually significant in compari- son with the total carrying amount. The recoverable value of the CGUs or groups of CGUs was determined on the basis of their value in use, which was calculated using forecasted cash flows before taxes over a period of five years, discount rates before taxes between 12.5% and 13% and a terminal value calculated at a rate of 2%. Main assumptions are based on historical data. 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 lines of credit with a Canadian banking institution with respective 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 2.70% and 4% as at November 30, 2016 [2.70% and 3.75% in 2015]. Those lines of credit are renewable annually. 7. LONG-TERM DEBT Non-interest bearing financing contract, repayable in 24 equal installments 1,056 $ Business acquisition considerations payable, not bearing interests, including US$ 2,835 [US$ 2,624 in 2015 Current portion of long-term debt Long-term debt 3,808 4,864 4,336 528 $ — 3,580 3,580 2,245 1,335 Next years’ principal payments on long-term debt are 4,336 $ in 2017 and 528 $ in 2018. 8. SHARE CAPITAL As at February 29, 2016, the Corporation carried out a 3-for-1 stock split of its common shares. All information pertaining to shares have been retroactively restated to reflect the effect of the stock split. Authorized Unlimited number of: Common shares, participating, entitling the holder to one vote per share. Non-voting first and second ranking preferred shares issuable in series, the characteristics of which are to be determined by the Board of Directors. 2016 2015 $ $ 36,050 33,566 57,920,466 common shares [58,643,607 - 2015] During 2016, the Corporation issued 281,559 common shares [396,549 in 2015] at an average price of $8.42 per share [$7.73 in 2015] pursuant to the exercise of options under the share option plan. The weighted average share price at the date of exercise of options was $25.60 [$22.23 in 2015]. In addition, during 2016, the Corporation, through a normal course issuer bid, repurchased 1,004,700 common shares for cancellation in consideration of $23,087 [451,800 common shares in consideration of $9,180 in 2015], which resulted in a premium on the redemption in the amount of $22,509 recorded in retained earnings [premium of $8,944 in 2015]. Stock option plan Changes in stock options are summarized as follows: Number of options Weighted average share price $ Outstanding, November 30, 2014 1,761,594 8.93 246,900 18.83 (396,549) 7.73 (33,300) 12.66 1,578,645 356,500 10.70 22.31 (281,559) 8.42 (3,500) 18.93 Outstanding, November 30, 2015 Granted Exercised Cancelled Outstanding, November 30, 2016 1,650,086 13.58 The table below summarizes information regarding the stock options outstanding as at November 30, 2016: Options outstanding Exercisable options Range in exercise price (in dollars) Number of options Weighted aver- age remaining period (years) Weighted average exercise price (in dollars) Weighted average exercise price (in dollars) Number of options 5.57 - 10.06 645,486 2.06 6.85 645,486 6.85 10.07 - 14.07 228,525 5.87 12.30 180,488 12.19 14.08 - 18.08 179,550 7.21 15.12 89,775 15.12 18.09 - 26.29 596,525 8.87 20.90 60,506 18.83 1,650,086 5.61 13.58 976,255 9.34 During 2016, the Corporation granted 356,500 options [246,900 in 2015] with an average exercise price of $22.31 per share [$18.83 in 2015] and an average fair value of $4.21 per option [$4.14 in 2015] as determined using the Black & Scholes option pricing model using an expected dividend yield of 1.0% [1.1% in 2015], a volatility of 20% [21% in 2015], a risk free interest rate of 1.24% [1.48% in 2015] and an expected life of 7 years [7 years in 2015] and 3,500 options were cancelled. The compensation expense related to stock options amounted to $844 [$662 in 2015] and is recognized under Operating expenses excluding amortization. Notes 46 46 notes to Consolidated finanCial statements November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated) 8. SHARE CAPITAL (cont’d) Deferred share unit plan The financial liability resulting from the DSU plan of $5,847 [$6,022 in 2015] is presented under the Accounts payable and accrued liabilities. As at November 30, 2016, the fair value of the equity swaps amounted to an asset of $467 [$57 as at November 30, 2015] and is presented under Accounts receivable. The Corporation categorized the fair value measurement in Level 2, as it is derived from observable market data. The compensation expense for the DSUs in 2016, amounted to $363 [$462 in 2015] and is recognized under Operating expenses excluding amortization. The effective income tax rate differs from the combined statutory rates for the following reasons: 2016 2015 $ $ Combined statutory rates 26.90% 26.90% Income taxes at combined statutory rates 22,809 21,353 Increase (decrease) resulting from: Impact of statutory rates changes for the subsidiary outside Canada Number of DSUs 2016 2015 Share-based compensation Outstanding, beginning of year 254,055 235,005 Non-deductible expenses Settled Granted Outstanding, end of year Share purchase plan (53,676) — 16,565 19,050 216,944 254,055 Deferred tax assets not previously recognized Other Compensation expense related to the share purchase plan amounted to $610 for 2016 [$530 in 2015] and is recognized under Operating expenses excluding amortization. Net earnings per share Basic net earnings per share and diluted net earnings per share were calculated based on the following number of shares: Deferred taxes reflect the net tax impact of temporary differences 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: 2016 2015 Deferred taxes Weighted average number of shares outstanding - Basic 58,051 58,560 Dilutive effect under stock option plan 730 783 Weighted average number of shares outstanding - Diluted 58,781 59,343 The computation of diluted net earnings per share includes all outstanding options as at November 30, 2016. 9. INCOME TAXES The main components of the income taxes expense are as follows: Translation of foreign exchange currencies, reserve recognized for tax purposes only 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 Net amount Current Deferred: 2016 2015 $ $ 22,302 20,902 Related to temporary differences 1,719 1,698 Deferred tax assets not previously recognized The net deferred taxes included the following as at November 30: Deferred tax assets Deferred tax liabilities 2016 2015 $ $ 4,848 4,867 (3,239) (3,020) 1,609 1,847 (2,244) (2,097) 21,777 20,503 The net deferred taxes for the years ended November 30 is de- tailed as follows: Balance at the beginning of the year, net In net earnings Business acquisitions Other 2016 2015 $ 1,847 525 (784) 21 $ 1,014 399 — 434 Balance at the end of the year, net 1,609 1,847 506 191 141 716 171 102 (2,244) (2,097) 374 258 21,777 20,503 2016 2015 $ $ 5,835 5,305 1,459 1,654 (5,685) (5,112) 1,609 1,847 Notes notes to Consolidated finanCial statements November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated) 47 47 9. INCOME TAXES (cont’d) Credit risk The amount of deductible temporary differences and unused tax losses for which no deferred tax assets was recognized to the consolidated statement of financial position is $15,700 as at November 30, 2016 [$18,900 in 2015]. 10. COMMITMENTS AND CONTINGENCIES [a] Leases The Corporation has commitments under operating leases for warehouse and office premises expiring on various dates up to 2026. The future minimum payments, excluding incidental costs for which the Corporation is responsible, are as follows: 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 assume their liabilities towards the Corporation. The average days outstanding of accounts receivable, as at November 30, 2016 and 2015 is deemed acceptable given the industry in which the Corporation operates. The Corporation performs ongoing credit evaluation of customers and generally does not require collateral. The allowance for doubtful accounts for the years ended November 30 are as follows: Less than a year Between 1 and 5 years More than 5 years $ 10,917 23,598 4,012 38,527 [b] Foreign exchange forward contracts As at November 30, 2016, the Corporation held the following foreign exchange forward contracts having maturity dates in December 2016 and January 2017. Type Currency in thousands Average exchange rate Purchase Purchase 3,625 euros $US 2,838 1.45 1.29 [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 consolidated net earnings. 11. ACCUMULATED COMPREHENSIVE INCOME The accumulated other comprehensive income, including the following items and their variances, were as follows: 2016 2015 $ $ Balance at the beginning of the period 19,150 6,985 Exchange differences on translation of foreign operations Balance at the end of the period 816 19,966 12,165 19,150 12. FINANCIAL INSTRUMENTS AND OTHER INFORMATION Fair value The carrying value of long-term debt approximates their fair value because of the short maturity on balances of sale payable. The Corporation categorized the fair value measurement in Level 2, as it is derived from observable market data. As at November 30, 2016, the fair value of the foreign exchange forward contracts amounted to an asset of $228 [liability of $114 as at November 30, 2015] representing the amount the Corporation would collect on settlement of these contracts at spot rates. The Corporation categorized the fair value measurement in Level 2, as it is derived from observable market data. Balance, beginning of year Allowance for doubtful accounts Write-offs 2016 2015 $ 5,854 1,337 $ 5,935 689 (1,118) (1,340) Exchange rate variations and other 250 570 Balance, end of year 6,323 5,854 The balance of accounts receivable of the Corporation that are overdue for more than 60 days, but which were not provided for, totals $563 [$568 in 2015]. As at November 30, 2016 and 2015, no customer accounted for more than 10% of the total accounts receivable. Market risk The Corporation’s foreign currency exposure arises from purchases and sales transacted mainly in US dollars and Euros. Operating expenses included, for the year ended November 30, 2016, an exchange gain of $1,057 [gain of $1,460 in 2015]. The Corporation’s policy is to maintain the purchase prices and selling prices of its commercial activities by mitigating its exposure through use of derivative financial instruments. To protect its operations from exposure to exchange rate fluctuations, foreign exchange contracts are used. Major exchange risks are covered by a centralized cash flow management. Exchange rate risks are managed in accordance with the Corporation’s policy on exchange risk management. The goal of this policy is to protect the Corporation’s profits by reducing the exposure to exchange rate fluctuations. The Corporation’s policy does not allow speculative trades. As at November 30, 2016, a decrease of 5% of the Canadian dollar against the US dollar and the euro on translation of monetary assets and liabilities, all other variables remaining the same, would have had no significant impact on consolidated net earnings [would have had no significant impact on consolidated net earnings as at November 30, 2015] and would have increased the consolidated comprehensive income by $6,154 [$5,642 as at November 30, 2015]. The exchange rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure of the Corporation’s financial instruments as at November 30, 2016. Liquidity risk The Corporation manages its risk of not being able to settle its financial liabilities when required by taking into account its operational 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. 48 48 notes to Consolidated finanCial statements November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated) 12. FINANCIAL INSTRUMENTS AND OTHER 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; and • 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, 2016 the Corporation achieved the following results regarding its capital management objectives: • Debt/equity ratio: 1.2% [1.0% in 2015] [Long-term debt/Equity] • Return on average shareholder’s equity of 16.6% over the last 12 months [17.5% as at November 30, 2015] The Corporation’s capital management objectives remained unchanged from the previous fiscal year. 16. DIVIDENDS PAID TO SHAREHOLDERS OF THE CORPORATION For the year ended November 30, 2016, the Corporation paid a quarterly dividend of $0.0533 per share to common shareholder [quarterly dividend of $0.05 per share in 2015] for a total amount of $12,374 [$11,717 in 2015]. The Board of Directors approved on January 19, 2017 the payment of a quarterly dividend of $0.0567 per common share for the 1st quarter of 2017. 17. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements for the year ended November 30, 2016 (including the comparative figures) were approved for issue by the Board of Directors on January 19, 2017. 18. COMPARATIVE FIGURES All information pertaining to shares have been retroactively restated to reflect the effect of the 3-for-1 stock split effective on February 29, 2016. INFORMATION Operating expenses excluding amortization 2016 2015 $ $ Inventories from the distribution, imports and manufacturing activities 614,003 540,768 Salaries and related charges 117,965 105,092 Other charges 18,083 16,105 750,051 661,965 An expense of $1,959 [$2,776 in 2015] for inventory obsolescence is included in Inventories from the distribution, imports and manufacturing activities. 13. RELATED PARTY INFORMATION Scope of consolidation Names Country of incorporation Richelieu America Ltd. United States Richelieu Finances Ltée (1) Canada Les industries Cedan Inc. Distributions 20/20 Inc. Canada Canada Provincial Woodproducts Ltd Canada Menuiserie des Pins Ltée Canada Equity interest Voting rights % 100 100 100 100 85 75 % 100 100 100 100 85 75 (1) Richelieu Finances Ltée is the owner of 100% of Richelieu Hardware Canada Ltd. Executive officers’ compensation 2016 2015 $ $ Short-term employee benefits 3,501 3,360 Other long-term benefits Share-based compensation 557 458 560 440 4,516 4,360 Accounts payable and accrued liabilities include a retirement allowance amounting to $2,300 payable to an executive officer. 14. GEOGRAPHIC INFORMATION During the year ended November 30, 2016, nearly 66% of sales had been made in Canada [69% in 2015]. The Corporation’s sales to foreign countries, almost entirely directed to the United States, amounted to $285,336 [$235,903 in 2015] in Canadian dollars and to $215,028 [$186,815 in 2015] in US dollars. As at November 30, 2016, out of the total amount in property, plant and equipment, $3,080 [$2,730 in 2015] are located in the United States. In addition, intangible assets located in the United States amounted to $15,410 [$12,796 in 2015] and goodwill to $13,159 [$9,231 in 2015] in Canadian dollars and to $11,476 [$9,581 in 2015] and to $9,799 [$6,913 in 2015] in US dollars. 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 Printed in Canada w w w . R i c h e l i e u . c o m R a p p oR t a n n u e l 2 0 1 6 

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