------------------------------------------------------------------------- - Third-quarter sales totalled $111.9 million, an increase of 16.3%, of which 7.1% came from internal growth and 9.2% from acquisitions. - U.S. sales almost doubled (in U.S. dollars), with 76.4% coming from acquisitions and 15.5% from internal growth - accounting for 19% of the quarter's total sales. - Earnings per share increased to 0.39$, compared with 0.38$ for the same period in 2006. - Excellent financial position - the interest-bearing debt/shareholders' equity ratio stands at 6.6% and working capital at $120.0 million. ------------------------------------------------------------------------- TSX: RCH
MONTREAL, Oct. 3 /CNW Telbec/ - Richelieu achieved very satisfactory growth for its third quarter ended August 31, 2007, which represented its 47th consecutive quarter of sales and earnings growth (over comparable periods). The third quarter brought the strongest sales increase since the beginning of the year, yielding sales of $111.9 million, up by 16.3% or $15.7 million, thanks to excellent internal growth of 7.1% and the four acquisitions closed in the past 12 months which generated 9.2% growth for the quarter.
Sales to manufacturers increased by 15.8%, of which 5.0% came from internal growth and 10.8% from acquisitions. Sales to retailers including renovation superstores were up by 19.2% due to significant growth in all product categories and the initial benefits of the agreement Richelieu recently concluded with a major Canadian renovation chain, to whom it will supply a line of functional hardware products over several years.
In Canada, the Company posted a solid performance in its three geographic markets, especially in Western Canada where economic conditions are particularly strong. Its Canadian sales increased by 7.3%, due entirely to internal growth. In the United States, its sales in U.S. dollars almost doubled, with 15.5% coming from internal growth and 76.4% from acquisitions.
For the third quarter, Richelieu achieved an excellent EBITDA profit margin of 13.9%, although it declined slightly from the corresponding quarter of 2006 when the EBITDA profit margin had been exceptionally high. This variation is also due to the investments required to develop new sales in the retailers market and to the effect of the exchange rate on the gross margin on its U.S. operations converted into Canadian dollars, as they account for a growing proportion of its total sales and have not yet reached the profitability level of its Canadian activities given their stage of development. The Company recorded net earnings of $9.1 million or $0.39 per share (basic and diluted) in the third quarter and ended the period with an excellent level of available cash and a healthy and solid financial position.
OPERATING RESULTS FOR THE THIRD QUARTER ENDED AUGUST 31, 2007 COMPARED TO
THE THIRD QUARTER ENDED AUGUST 31, 2006
Consolidated sales totalled $111.9 million, an increase of $15.7 million or 16.3%, of which 7.1% was due to internal growth and 9.2% to the acquisition of Specialty Supplies Inc. (Florida), L.B. Brass (New York), Village Square Cabinet Supply (Tennessee) and Sasco Products Inc. (Nova Scotia), respectively on October 17 and 30, 2006, March 5 and May 23, 2007.
Sales to manufacturers amounted to $94.7 million, an excellent increase of $12.9 million or 15.8%, of which 5.0% came from internal growth and 10.8% from the aforementioned acquisitions - they accounted for 84.6% of consolidated sales for the third quarter of 2007. The cabinet makers and commercial and residential woodworking markets brought the strongest contribution to the period's sales growth. The hardware retailers market including renovation superstores made significant progress during the third quarter, benefiting from vigorous sales growth in all product categories and the initial benefits of the agreement recently concluded with a major Canadian renovation chain, to whom Richelieu will supply a line of functional hardware products over several years. Thus, sales to retailers increased by $2.8 million or 19.2% from the corresponding period of 2006, to $17.2 million in the third quarter of 2007.
Sales in Canada reached $90.8 million, up by $6.2 million or 7.3% due entirely to internal growth. They accounted for 81.2% of the period's consolidated sales. All markets contributed to this increase, with a greater contribution by Western Canada. In the United States, Richelieu almost doubled its sales in U.S. dollars, with 76.4% coming from acquisitions (U.S. dollars) and 15.5% from internal growth (U.S. dollars). U.S. sales amounted to $21.1 million (US$19.9 million), compared with $11.6 million (US$10.4 million) for the corresponding period of 2006.
Earnings before income taxes, amortization and non-controlling interest (EBITDA) stood at $15.5 million, up by $1.2 million or 8.1%. The EBITDA profit margin remained excellent at 13.9%, despite a 1.0% decline from the same period in 2006 when the EBITDA profit margin had been exceptionally high. This variation is mainly due to two factors influencing the gross margin: the initial costs required to develop new sales in the retailers market and to the effect of the exchange rate on the profit margin on U.S. sales converted into Canadian dollars, as they account for a growing proportion of total sales, while not yet having achieved the profitability level of Canadian activities given their stage of development.
Interest was up by $0.2 million as a result of the increase in debt consisting primarily of balances of purchase price payable for the previous year's acquisitions. Amortization of intangible assets with limited useful lives accounted for as of last year amounted to $0.3 million for the third quarter of 2007. Income taxes totalled $4.9 million, up by approximately $0.2 million from the third quarter of 2006.
Net earnings increased by 3.8% to $9.1 million, representing 8.1% of consolidated sales, compared with 9.1% for the third quarter of 2006. Earnings per share amounted to $0.39 basic and diluted, compared with $0.38 basic and diluted for the same period in 2006. It should be noted that the number of share and options outstanding did not vary significantly over the past 12 months.
THIRD-QUARTER LIQUIDITY AND FINANCIAL RESOURCES
Operating activities - Cash flows from operating activities (before net change in non-cash working capital balances related to operations) increased by 7.6% to $10.7 million or $0.46 per share, up from $10.0 million or $0.43 per share for the third quarter of 2006. Net change in non-cash working capital balances related to operations used cash flows of $0.8 million, whereas they provided cash flows of $2.0 million in the equivalent period of the previous year. This variation came from the increase in inventory compared with the third quarter of 2006 to meet the needs of the new centre in Barrie, Ontario, of the agreement recently signed with a major Canadian renovation chain, and of the Company's growth, as well as the increase in accounts receivable due to the significant sales increase over the same quarter of 2006. Consequently, operating activities provided cash flows of $9.9 million, compared with $11.9 million for the equivalent period of the previous year.
Financing activities - Richelieu paid dividends totalling $1.6 million to shareholders in the third quarter, up from $1.4 million for the corresponding quarter of 2006. This growth mainly reflects the 16.7% increase in the dividend rate announced on January 26, 2007. The Company also repaid $0.3 million in long-term debt, compared with $0.5 million in the third quarter of 2006. Accordingly, financing activities used cash flows of $1.7 million, compared with $1.9 million for the equivalent quarter of 2006.
Investing activities - Richelieu invested $0.9 million in various capital expenditures during the third quarter, up from $0.7 million for the corresponding quarter of 2006. This amount was allocated to the purchase of equipment and improvement of business premises.
OPERATING RESULTS FOR THE FIRST NINE MONTHS ENDED AUGUST 31, 2007
COMPARED TO THE FIRST NINE MONTHS ENDED AUGUST 31, 2006
Consolidated sales totalled $322.8 million, an increase of 14.6%, of which 5.3% came from internal growth and 9.3% from the four acquisitions closed since October 2006. All of Richelieu's markets, particularly cabinet makers and residential and commercial woodworkers, as well as furniture manufacturers, made a solid contribution to this sales increase, which was also driven by the sales and marketing programs in which the Company has significantly invested over the past two years.
Sales to manufacturers amounted to $269.0 million, a strong increase of $35.3 million or 15.1% from the same period in 2006, of which 4.3% came from internal growth and 10.8% from the aforementioned acquisitions - they accounted for 83.3% of consolidated sales for the first nine months of 2007. Sales to hardware retailers including renovation superstores were up by $5.8 million or 12.0% from the corresponding period of 2006. This major increase mainly reflects the solid performance posted in this market during the third quarter of 2007, whereas sales grew significantly in all product categories, to which were added the new orders obtained subsequent to the agreement recently concluded with a major Canadian renovation chain.
For the first nine months of 2007, Richelieu recorded sales of $260.7 million in Canada, up by $12.6 million or 5.1% from the same period in 2006, due mainly to internal growth. These revenues accounted for 80.8% of the period's sales. In the United States, sales reached $62.0 million (US$55.7 million), compared with $33.5 million (US$29.5 million) for the first nine months of 2006, an increase of 85.1% in Canadian dollars and 88.9% in U.S. dollars, of which 15.3% came from internal growth and 73.6% from acquisitions.
Earnings before income taxes, interest, amortization and non-controlling interest (EBITDA) stood at $40.8 million, up by $3.2 million or 8.6%. The EBITDA profit margin and gross profit margin remained satisfactory despite a slight decline from the same period in 2006. This decrease is attributable mainly to the factors described in the second and third quarters, specifically - the major increase in raw material costs - the sudden devaluation of the Canadian dollar in relation to the U.S. dollar and the Euro in late 2006 and early 2007, when the Company had acquired products for which selling prices were not rapidly adjusted accordingly - the investments required to develop new sales in the retailers market - and the effect of the exchange rate on the profit margin on U.S. sales converted into Canadian dollars, as they represent a growing proportion of total sales while not yet having achieved the profitability level of Canadian activities given to their stage of development.
Interest was up by $0.8 million as a result of the increase in debt consisting primarily of balances of purchase price payable for the previous year's acquisitions. Amortization of intangible assets with limited useful lives accounted for in 2006 amounted to $0.7 million for the first nine months of the current year.
Income taxes amounted to $12.6 million, compared with $12.0 million for the first nine months of the previous year.
Net earnings increased by 4.3% to $23.7 million, representing 7.4% of consolidated sales, compared with 8.1% for the same period in 2006. Earnings per share amounted to $1.03 ($1.02 diluted), an increase of 5.1%, whereas the number of shares and options outstanding did not vary significantly over the past 12 months.
LIQUIDITY AND FINANCIAL RESOURCES FOR THE FIRST NINE MONTHS OF 2007
Operating activities - Cash flows from operating activities (before net change in non-cash working capital balances related to operations) were up by 5.4% to $27.7 million or $1.19 per share, compared with $26.3 million or $1.13 per share for the first nine months of 2006. This increase primarily reflects the period's net earnings growth, the amortization of intangible assets, whereas it was not recognized in 2006, and an exchange gain on the debt in U.S. dollars. Net change in non-cash working capital balances related to operations used cash flows of $11.7 million, compared with $8.5 million for the same period in 2006. This variation came from the increase in inventory to meet the needs of the new centre in Barrie, Ontario, of the agreement recently signed with a major Canadian renovation chain, and of the Company's growth, as well as the increase in accounts receivable due to the strong sales growth. Consequently, operating activities provided cash flows of $16.0 million, compared with $17.7 million for the equivalent period of 2006.
Financing activities - Richelieu paid dividends totalling $4.8 million to shareholders for the first nine months of 2007, up from $4.2 million for the corresponding period of 2006. This $0.6 million growth reflects the increase in the dividend rate announced in January 2007. During the period, Richelieu issued new shares for approximately $0.3 million under its share option plan, compared with $0.1 million for the first nine months of 2006. Furthermore, it did not purchase any common shares, as opposed to 2006 when it redeemed shares for an amount of $0.7 million. The Company repaid $0.5 million in long-term debt, compared with repayments of bank indebtedness and long-term debt totalling $2.8 million in 2006. Accordingly, financing activities used cash flows of $5.1 million, compared with $7.6 million for the corresponding period of 2006.
Investing activities - Since the beginning of the year, Richelieu has invested $4.6 million in the acquisition of two distributors, specifically the principal net assets of Village Square Cabinet Supply and Sasco Products Inc., and $3.3 million in various capital expenditures, specifically for the purchase of information technology, improvement of business premises and warehousing equipment. Investing activities therefore used cash flows of $7.9 million in the first nine months of 2007, down from $16.3 million in the corresponding period of 2006, of which $14.4 million had been allocated to the acquisition of three distributors.
As at August 31, 2007, the Company had cash and cash equivalents of $9.9 million.
FINANCIAL POSITION AS AT AUGUST 31, 2007
Richelieu remains in a healthy and solid financial position, with low indebtedness and substantial cash flows regularly generated by its operations, which should enable it to meet its financial obligations and to pursue its expansion and growth. Principal changes in balance sheet items as at August 31, 2007 mainly reflect the growth and expansion-by-acquisition achieved since the beginning of the year. Total assets amounted to $267.3 million, an increase of 9.1% from $245.0 million as at November 30, 2006.
As at August 31, 2007, Richelieu had an excellent working capital of $120.0 million for a current ratio of 3.4:1, up from $103.9 million and a ratio of 3.2:1 as at November 30, 2006.
Total interest-bearing debt amounted to $13.6 million as at August 31, 2007, at the same level as at November 30, 2006. As previously indicated, this debt consists primarily of balances of purchase price payable on acquisitions closed in 2006, composed of a current portion of $6.5 million and a long-term portion of $7.1 million bearing interest at rates of up to 7.25% and maturing on various dates until 2008.
Shareholders' equity totalled $206.3 million as at August 31, 2007, compared with $186.6 million as at November 30, 2006, up by 10.5% due to the $18.9 million increase in retained earnings which amounted to $186.9 million as at August 31, 2007. The book value per share grew to $8.93, compared with $8.09 as at November 30, 2006. The interest-bearing debt/equity ratio stood at 6.6%, versus 7.3% as at November 30, 2006.
As at August 31, 2007, Richelieu's share capital consisted of 23,095,587 common shares (23,052,612 common shares as at November 30, 2006) due to the issue of 42,875 common shares under the share option plan, and 644,500 options (536,200 options as at November 30, 2006) were outstanding.
NEXT DIVIDEND PAYMENT
The payment of a quarterly dividend of $0.07 per share was approved by the Board of Directors at its meeting on October 3, 2007. This dividend is payable on October 31, 2007 to shareholders of record on October 17, 2007.
GROWTH OUTLOOK
"We expect to continue achieving a solid performance across Canada, especially since economic conditions should remain relatively favourable. In the U.S., where we are present in dynamic markets, we will further expand our product mix, penetrate new markets and take advantage of development opportunities that arise, in accordance with our long-term profitability and growth criteria. A further improvement in profitability throughout our organization, as well as the quality of our customer service and innovation in our product mix, will remain major drivers of our growth," indicated Richard Lord, President and Chief Executive Officer of Richelieu.
Richelieu is currently pursuing various operational improvement projects, such as optimizing its distribution management system and its transactional website, which is gaining more and more users. The Company expects to achieve satisfactory growth for the year ending November 30, 2007. This expectation is based on the assumptions that economic conditions and exchange rate will not deteriorate significantly, operating expenses will not increase considerably, deliveries will meet Richelieu's requirements and no unusual events will entail additional capital expenditures. This expectation also remains subject to the risks set forth in the "Risk Management" section of the management report included in the 2006 Annual Report.
PROFILE as at August 31, 2007
Richelieu Hardware Ltd. is Canada's leading distributor, importer and manufacturer of specialty hardware and complementary products. The Company also ranks among the top players in its specialty in North America. Its products are targeted to an extensive customer base of kitchen and bathroom cabinet, furniture, and window and door manufacturers plus the residential and commercial woodworking industry, as well as a large customer base of hardware retailers, including renovation superstores. Richelieu offers customers a broad mix of high-end products sourced from manufacturers around the world. Its product selection consists of close to 50,000 different items targeted to a base of over 38,000 customers who are served by 47 centres in North America - 30 distribution centres across Canada, 15 in the United States and two manufacturing plants in Canada, specifically Cedan Industries Inc. which specializes in the manufacture of a wide variety of veneer sheets and edgebanding products, and Menuiserie des Pins Ltee which manufactures components for the window and door industry, a broad selection of mouldings, and various types of tackboards and whiteboards.
Notes to readers - Richelieu uses earnings before income taxes, interest, amortization and non-controlling interest ("EBITDA") because this measure enables management to assess the Company's operational performance. This measure is a widely accepted financial indicator of a company's ability to service and incur debt. However, EBITDA should not be considered by an investor as an alternative to operating income or net earnings, an indicator of operating performance or cash flows, or as a measure of liquidity. Because EBITDA is not a standardized measurement as prescribed by GAAP, it may not be comparable to the EBITDA of other companies. Certain statements set forth in this press release 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 and relate, by their very nature, to known and unknown risks and uncertainties such as economic conditions, exchange rate fluctuations and other factors set forth in the Management's Report included in the Company's 2006 Annual Report as well as its Annual Information Form, which are available on the System for Electronic Document Analysis and Retrieval (SEDAR) website at www.sedar.com. Richelieu's actual results could differ materially from those indicated or underlying these forward-looking statements. The reader is therefore recommended not to unduly rely on these forward-looking statements. Forward-looking statements do not reflect the potential impact of special items, any business combination or any other transaction that may be announced or occur subsequent to the date hereof. Richelieu undertakes no obligation to update or revise the forward-looking statements to account for new events or new circumstances, except where provided for by applicable legislation.
CONFERENCE CALL ON OCTOBER 3, 2007 AT 2:30 P.M.
-----------------------------------------------
Financial analysts and investors interested in participating in the
conference call on Richelieu's results to be held at 2:30 p.m. on October 3,
2007, can dial 1-866-249-1964 a few minutes before the start of the call. For
those unable to participate, a taped rebroadcast will be available as of
4:30 p.m. on Wednesday, October 3, 2007, until midnight on Wednesday,
October 10, 2007, by dialing 1-877-289-8525, access code: 21247588(number sign). Member of
the media are invited to listen in.
Consolidated statements of earnings and retained earnings (unaudited)
(in thousands of dollars, except per-share amounts)
For the For the
nine months three months
ended August 31, ended August 31,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
$ $ $ $
Sales 322,761 281,687 111,921 96,221
Cost of sales, warehouse, selling
and administrative expenses 281,993 244,145 96,408 81,868
-------------------------------------------------------------------------
Earnings before the following 40,768 37,542 15,513 14,353
Interest on short-term debt, net 30 (70) (54) (72)
Interest on long-term debt 737 65 238 21
Amortization of capital assets 2,754 2,614 958 874
Amortization of intangible assets 699 - 298 -
-------------------------------------------------------------------------
Earnings before income taxes and
non-controlling interest 36,548 34,933 14,073 13,530
Income taxes 12,609 11,971 4,855 4,668
-------------------------------------------------------------------------
Earnings before non-controlling
interest 23,939 22,962 9,218 8,862
Non-controlling interest 205 196 108 83
-------------------------------------------------------------------------
Net earnings 23,734 22,766 9,110 8,779
---------------
---------------
Retained earnings, beginning of
period 168,020 144,430
Premium on redemption of common
shares for cancellation - (713)
Dividends (4,847) (4,168)
-------------------------------------------------------
Retained earnings, end of period 186,907 162,315
-------------------------------------------------------
-------------------------------------------------------
Earnings per share (Note 5)
Basic 1.03 0.98 0.39 0.38
Diluted 1.02 0.98 0.39 0.38
Consolidated statements of comprehensive income (unaudited)
(in thousands of dollars)
For the For the
nine months three months
ended August 31, ended August 31,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
$ $ $ $
Net earnings 23,734 22,766 9,110 8,779
Other comprehensive income, net of
income tax
Change in fair value of derivatives
designated as cash flow edge (129) - 134 -
-------------------------------------------------------------------------
Comprehensive income 23,605 22,766 9,244 8,779
-------------------------------------------------------------------------
See accompanying notes.
Consolidated statements of cash flows (unaudited)
(in thousands of dollars)
For the For the
nine months three months
ended August 31, ended August 31,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
$ $ $ $
OPERATING ACTIVITIES
Net earnings 23,734 22,766 9,110 8,779
Non-cash items
Amortization of capital assets 2,754 2,614 958 874
Amortization of intangible assets 699 - 298 -
Future income taxes 140 225 79 75
Exchange loss (gain) on US debt (518) - (64) -
Non-controlling interest 205 196 108 83
Stock-based compensation expense 655 452 236 161
-------------------------------------------------------------------------
27,669 26,253 10,725 9,972
Net change in non-cash working
capital balances related to
operations (11,688) (8,541) (786) 1,975
-------------------------------------------------------------------------
15,981 17,712 9,939 11,947
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) of bank loans - (1,910) - -
Repayment of long-term debt (501) (925) (253) (545)
Dividends paid (4,847) 4,168 (1,617) (1,389)
Issue of common shares (Note 4) 255 145 107 63
Redemption of common shares for
cancellation - (741) - (63)
-------------------------------------------------------------------------
(5,093) (7,599) (1,708) (1,934)
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Business acquisitions (Note 3) (4,611) (14,391) (12) (116)
Additions to capital assets (3,292) (1,927) (862) (659)
-------------------------------------------------------------------------
(7,903) (16,318) (874) (775)
-------------------------------------------------------------------------
Net change in cash and cash
equivalents 2,985 (6,205) 7,357 9,238
Cash and cash equivalents at
beginning 6,964 20,103 2,592 4,660
-------------------------------------------------------------------------
Cash and cash equivalents at the end 9,949 13,898 9,949 13,898
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental information
Income taxes paid 14,680 13,531 3,721 5,711
Interest paid (received) 1,332 3 580 (42)
See accompanying notes.
Consolidated balance sheets
(in thousands of dollars)
As at As at As at
August 31, August 31, November 30,
2007 2006 2006
-------------------------------------------------------------------------
$ $ $
(unaudited) (unaudited) (audited)
ASSETS
Current assets
Cash and cash equivalents 9,949 13,898 6,964
Accounts receivable 59,800 53,502 57,443
Inventories 98,678 84,070 86,784
Prepaid expenses 1,100 1,157 541
-------------------------------------------------------------------------
169,527 152,627 151,732
-------------------------------------------------------------------------
Capital assets 19,088 18,613 18,463
Intangible assets 14,504 9,767 13,227
Goodwill 64,174 41,951 61,580
-------------------------------------------------------------------------
267,293 222,958 245,002
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
liabilities 42,849 35,880 38,425
Income taxes payable 196 425 2,334
Current portion of long term debt 6,491 1,759 7,064
-------------------------------------------------------------------------
49,536 38,064 47,823
-------------------------------------------------------------------------
Long-term debt 7,136 16 6,571
Future income taxes 1,982 1,999 1,842
Non-controlling interest 2,387 2,125 2,182
-------------------------------------------------------------------------
61,041 42,204 58,418
-------------------------------------------------------------------------
Shareholders' equity
Capital stock (Note 4) 17,725 17,503 17,470
Contributed surplus (Note 4) 1,749 936 1,094
Retained earnings 186,907 162,315 168,020
Accumulated other comprehensive
income (Note 6) (129) - -
-------------------------------------------------------------------------
206,252 180,754 186,584
-------------------------------------------------------------------------
267,293 222,958 245,002
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2007 and 2006 (in thousands of dollars, except per-share amounts)
(unaudited)
NATURE OF BUSINESS
Richelieu Hardware Ltd. (the "Company") acts as a distributor, importer,
and manufacturer of specialty hardware and complementary products. These
products are targeted to an extensive customer base of kitchen and bathroom
cabinet, furniture, and window and door manufacturers plus the residential and
commercial woodworking industry, as well as a large customer base of
retailers, including hardware and renovation products superstores.
During the three-month and nine-month periods ended August 31, 2007, the
Company's sales to foreign countries, almost entirely directed to the United
States, amounted to $21,085 (2006 - $11,604) and to $62,026 (2006 - $33,515)
respectively in Canadian dollars compared to $19,884 (2006 - $10,362) and to
$55,726 (2006 - $29,496) respectively in US dollars.
As at August 31, 2007, out of a total amount of $19,088 in capital assets
($18,463 as at November 30, 2006), $947 ($876 as at November 30, 2006) are
located in the USA. In addition, intangible assets located in the USA amounted
to $10,230 ($8,964 as at November 30, 2006) and goodwill at $23,040 ($20,528
as at November 30, 2006).
1) ACCOUNTING POLICIES
The unaudited interim consolidated financial statements have been prepared
by management in accordance with accounting principles generally accepted in
Canada and follow the same accounting principles and methods of application as
the recent audited annual consolidated financial statements, except for the
new accounting policies described in note 2. In the management opinion, these
interim financial statements reflect all the adjustments required to fair
presentation. These adjustments consist only of normal recurring adjustments.
Operating results for the period are not necessarily indicative of the results
that may be expected for the full year as the operating level of the Company
is subject to seasonal fluctuations. These interim financial statements should
be read in conjunction with the audited consolidated annual financial
statements and the accompanying notes included in Company's annual report for
the fiscal year 2006.
2) CHANGES IN ACCOUNTING POLICIES
Since December 1st, 2006, the Company adopted the new recommendations of
Section 3855, Financial Instruments - Recognition and Measurement, Section
3865, Hedges, and Section 1530, Comprehensive Income, issued by the Canadian
Institute of Chartered Accountants (CICA). These new sections contain
standards for recognition and measurement for financial instruments, establish
standards for hedge accounting and introduce a new measurement of results -
comprehensive income - which is the change in equity or net assets of an
enterprise during a period from transactions from non-owner sources.
The adoption of these standards requires classifying all financial assets,
liabilities and derivatives of the Company for which clearly defined rules
determine the standards to be applied. In accordance with the standards in
these new CICA handbook sections, all derivative financial instruments used
will be recorded in the balance sheet at their fair value. Depending on
financial instruments' classification, specific standards are applied. The
Company has implemented the following classifications:
- Cash and cash equivalents are classified as "Financial Assets held
for Trading". They are presented at their fair value and the
gains/losses arising on the revaluation at each period end are
included in consolidated income. The carrying value of cash and cash
equivalents is a reasonable estimate of their fair value due to their
short term maturity.
- Accounts receivable are classified as "Loans and Receivables". After
their initial fair value measurement, they are measured at amortized
cost using the effective interest rate method. For the company, the
measured amount generally corresponds to cost due to their short term
maturity.
- Derivative financial instruments that are designated as treasury
hedges are included in "Assets and liabilities available for sale".
They are presented at their fair value, representing the approximate
amount the Company would receive or pay on settlement of these
contracts at spot rates, and the gains/losses arising from the
revaluation at the end of each period are included in comprehensive
income.
- Bank loan, accounts payable and accrued liabilities and long-term
debt are classified as "Other financial Instruments". They are
initially presented at their fair value. Subsequent measurements are
at cost, net of amortization, using the effective interest rate
method. For the company, that value corresponds to cost either as a
result of their short term maturity or the floating rate nature of
some loans or because management estimates that the loans payable
with fixed interest rates have no significant difference between
their fair value and their carrying value, based on rates currently
available to the Company on loans with similar terms and remaining
maturities.
Retroactive adoption of these new standards without restating prior years
involved no restatement of the opening balance of accumulated other
comprehensive income relating to derivative financial instruments that are
designated as treasury hedges. The financial liability relating to derivative
financial instruments is included in "Accounts payable and accrued
liabilities" in the consolidated balance sheet.
3) BUSINESS ACQUISITIONS
On March 5, 2007, the Company acquired the principal net assets of Village
Square Cabinet Supply for a consideration in cash of US $3,527 and a balance
of sale of US $860. Based in Nashville, Tennessee, this distributor of
hardware and related products mainly serves a customer base of kitchen cabinet
manufacturers.
On May 23, 2007, the Company acquired the principal net assets of Sasco
Products Inc. for a consideration in cash of $470 and a balance of sale of
$202. This business located in Darthmouth, Nova Scotia, distributes finishing
products for kitchen and home furniture manufacturers.
These transactions were accounted using the purchase method and the
results of operations are included in the financial statements from the
acquisition dates. The purchase price allocations are as follows:
Summary of acquisitions
-------------------------------------------------------------------------
2007 2006
$ $
-------------------------------------------------------------------------
Net assets acquired
Current assets 1,501 6,708
Capital assets 115 326
Provisional intangible assets 1,976 -
Provisional goodwill 2,596 9,767
-------------------------------------------------------------------------
6,188 16,801
Current liabilities assumed 363 1,299
-------------------------------------------------------------------------
Net assets acquired 5,825 15,502
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consideration
Cash 4,611 14,391
Balance of sale 1,214 1,111
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4) CAPITAL STOCK
Issued
As at August 31, 2007, capital stock outstanding amounted to 23,095,587
common shares (23,052,612 common shares as at November 30, 2006).
During the nine-month period ended August 31, 2007, the Company issued
42,875 common shares (2006 - 16,550) at a weighted average price of $5.96 per
share (2006 - $8.69) under the share option plan.
Stock option plan
During the nine-month period ended August 31, 2007, the Company granted
170,500 options (2006 82,000) with a weighted average exercise price of $24.76
(2006 - $22.40) and an average fair value of $7.40 per option (2006 - $7.70)
as determined using the Black & Scholes option pricing model using an expected
dividend yield of 1% (2006 - 1%), a volatility of 22% (2006 - 25%), a risk
free interest rate of 4.17% (2006 - 4.16%) and an expected life of 7 years
(2006 - 8 years). As at August 31, 2007, 644,500 share options were
outstanding (2006 - 539,600) with exercise prices varying from $4.26 to $24.76
(2006 - $4.26 to $22.43) for a weighted average of $19.66 (2006 - $17.07).
For the three-month and nine-month periods ended August 31, 2007, the
stock-based compensation expense amounted to $236 (2006 - $161) and to $655
(2006 - $452) respectively.
5) EARNINGS PER SHARE
3-MONTH PERIOD ENDED AUGUST 31
2007 2006
---------------------------- ----------------------------
---------------------------- ----------------------------
Weighted Weighted
average average
number Earnings number Earnings
of shares per of shares per
Earnings (in thou- share Earnings (in thou- share
$ sands) $ $ sands) $
Basic net
earnings 9,110 23,089 0.39 8,779 23,151 0.38
Dilutive
effect of
stock
options - 125 (0.00) - 120 (0.00)
---------------------------- ----------------------------
Diluted net
earnings 9,110 23,214 0.39 8,779 23,271 0.38
---------------------------- ----------------------------
---------------------------- ----------------------------
9-MONTH PERIOD ENDED AUGUST 31
2007 2006
---------------------------- ----------------------------
---------------------------- ----------------------------
Weighted Weighted
average average
number Earnings number Earnings
of shares per of shares per
Earnings (in thou- share Earnings (in thou- share
$ sands) $ $ sands) $
Basic net
earnings 23,734 23,074 1.03 22,766 23,156 0.98
Dilutive
effect of
stock
options - 136 (0.01) - 126 (0.00)
---------------------------- ----------------------------
Diluted net
earnings 23,734 23,210 1.02 22,766 23,282 0.98
---------------------------- ----------------------------
---------------------------- ----------------------------
For the three-month and nine-month periods ended August 31, 2007,
outstanding options to puchase 158,500 common shares with an exercise price of
$24.76 were excluded from the computation of diluted earnings because their
effect would have been anti-dilutive.
6) ACCUMULATED OTHER COMPREHENSIVE INCOME
Derivative financial instruments that are designated as treasury hedges
constitute the sole item of Accumulated other Comprehensive Income. The change
that occurred during the period was as follows:
Three months Nine months
-------------- -------------
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2007 2006 2007 2006
-------------------------------------------------------------------------
Adjusted opening balance due to
the new accounting policies
regarding financial instruments,
net of income taxes (263) - - -
-------------------------------------------------------------------------
Change in fair value during the
period, net of income taxes 134 - (129) -
-------------------------------------------------------------------------
Balance-end of period (129) - (129) -
-------------------------------------------------------------------------
7) FOREIGN CURRENCY RISK
The Company's foreign currency exposure arises from purchases and sales
transacted mainly in US dollars and the net positioning in US dollars from its
American subsidiary. During the three-month and the nine-month periods ended
August 31, 2007, foreign exchange gain of $4 (2006 - $206 loss) and of $523
(2006 - $213 loss ) respectively were recorded in administrative charges.