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www.richelieu.com
2007 AnnuAl RepoRt
CONTENTS
10 . An Overview of Richelieu12 . Financial Highlights16 . Message to Shareholders24 . A Track Record of Growth26 . Directors and Officers27 . Management’s Report40 . Management’s and Auditors’ Report41 . Consolidated Balance Sheets42 . Consolidated Statements of Earnings and Retained Earnings42 . Consolidated Statements of Comprehensive Income43 . Consolidated Statements of Cash Flows44 . Notes to Consolidated Financial Statements
THE ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERSwill be held on March 27, 2008 at 11:00 a.m. at the Sheraton Centre, Rooms A and B1201 René Lévesque Boulevard West, Montreal, Quebec
Transfer Agent and RegistrarComputershare Trust Company of Canada
AuditorsErnst & Young LLP1 Place Ville-Marie
Suite 2400Montreal, Quebec, H3B 3M9
Head OfficeRichelieu Hardware Ltd.
7900 Henri-Bourassa Blvd. WestSaint-Laurent, Quebec H4S 1V4
Telephone: (514) 336-4144Fax: (514) 832-4002
www.richelieu.comR
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ADDeD VAlue tHRouGH InnoVAtIonAS A DRIVeR oF InnoVAtIonS FRoM leADInG SupplIeRS WoRlDWIDe, RICHelIeu ACKnoWleDGeS All tHe lInKS In tHe CReAtIVItY CHAIn – enGIneeRS, DeSIGneRS, ARCHIteCtS, MAnuFACtuReRS – A CHAIn to WHICH It IS CoMMItteD AS An IMpoRteR/ DIStRIButoR WItH A pASSIon FoR QuAlItY AnD SeRVICe. WE BRING ADDED VALUE TO OUR CUSTOMERS — MANUFACTURERS AND RETAILERS — BY CONTSTANTLY ENHANCING OUR PRODUCT MIX THROUGH INNOVATIONS THAT CONTRIBUTE TO THEIR CREATIVITY AND HELP SET THEM APART.
OVER THE YEARS, A PRODUCT’S VISUAL APPEAL HAS EMERGED AS A TRUE VALUE AND AS-SET. DESIGN HAS BECOME A MANDATORY STEP IN MANUFACTURING FUNCTIONAL AND DEC-ORATIVE HARDWARE — ASSERTING ITSELF EVERYWHERE, FROM A DOOR HANDLE, TO AN ASSEMBLY COMPONENT, TO ERGONOMIC WORKSTATION HARDWARE.
THE SILENT AND AUTOMATIC SLIDING OF A DRAWER, THE ERGONOMICS OF A CLOSET SOLUTION, THE FUNCTIONALITY AND BEAUTY OF DESIGN ARE ALL CLOSELY TIED TO DE-SIGNERS’ CREATIVITY, THEIR KNOWLEDGE OF WHAT A FINISHED PRODUCT SHOULD BE AND MANUFACTURING REQUIREMENTS. tHeSe All FIt toGetHeR to SHApe An eVeR-eVolVInG teCHnoloGY.
DeSIGn AnD teCHnoloGY CoMBIne to MAKe A pRoDuCt RoBuSt AnD GIVe It ItS peRSonAlItY.
Spread avec Oignon 2
Spread avec Oignon 2
BRInGInG toGetHeR tRADItIonAl AnD InnoVAtIVe MAteRIAlS.
Spread avec Oignon 3
Spread avec Oignon 3
ouR pRoDuCt VAlueS: FunCtIonAlItY, RoBuStneSS,eRGonoMICS AnD DeSIGn.
A pRoDuCt’S DeSIGn IS tHe ReSult oF teAMWoRK BetWeen DeSIGneRS, enGIneeRS, eRGonoMIStS AnD MAnuFACtuReRS.
10/11
ouR poSItIonInGRichelieu is a leading North American importer, distributor and manufacturer of specialty hardware and complemen-tary products.
ouR MISSIonRemain a top-quality customer-oriented company, respectful of the interests of our other three partners: our teams, our suppliers and our shareholders. Our roadmap is driven by results and long-term growth. It is built upon our vision as a leader, the core values of quality, loyalty, integrity and pragmatic management, providing us with a solid corporate culture and a unique organizational profile.
ouR CuStoMeRSWe serve more than 38,000 customers in North America – kitchen cabinet and bathroom furniture manufacturers, cabinet makers, residential and commercial woodworkers, office furniture and ready-to-assemble furniture manufacturers, home furnishing manufacturers, renovation superstore chains and buying groups including more than 6,000 hardware retailers.
ouR teAMSWe rely on the professionalism and know-how of our 1,250 employees – close to half working in sales and market-ing – and some 60% are Richelieu shareholders. At Richelieu, training is a priority to ensure our employees have the appropriate professional development in order to provide our customers with outstanding service and technical advice.
ouR pRoDuCtSInnovation is instrumental to our product strategy, thanks to our long-term relationships with suppliers who are among the best worldwide. Our product offering consists of more than 55,000 stock-keeping units (SKUs) in a broad mix of categories: kitchen accessories, lighting systems, finishing and decorating products, functional hardware, ergonomic workstation components, closet solutions, sliding door systems, decorative and functional panels, ceramic tiles, high-pressure lami-nates... This offering is complemented by the specialty items manufactured by our two subsidiaries, Cedan Industries Inc. and Menuiserie des Pins Ltée. These include a wide range of veneer sheets and edgebanding products, a variety of decorative mouldings and components for the window and door industry. In addition, some of our products are manu-factured in Asia according to our specifications and those of our customers. More than 50% of our overall offering is sold under our own or exclusive brands.
ouR DIStRIButIon loGIStICSOur North American distribution network extends from coast to coast, with 45 centres plus two manufacturing plants. Our network is supported by distribution logistics and showrooms tailored to our customers’ ever-evolving needs. We achieve an optimal customer service fill rate thanks to the unequalled diversity of our offering, our “Everything under one roof” approach, and our “24 hours following the receipt of an order” delivery system.
ouR GRoWtH StRAteGYWe favour a balanced growth through acquisitions meeting highly selective criteria as well as market development, supported by our specialized sales force, distribution centre start-ups and ongoing enhancement of our offering.
ouR ADDeD VAlueWe aim to earn our customers’ loyalty by bringing them added value through quality service – strategic selling tools that are unique in our market – the purchasing power provided by our organization – and the innovations integrated every year into our product offering to contribute to set them apart and give them a competitive edge.
An oVeRVIeW oF RICHelIeu
30 DIStRIButIon CentReS AnD 2 MAnuFACtuRInG CentReS In CAnADADISTRIBUTION: HAlIFAX, MonCton (2), DRuMMonDVIlle, QueBeC CItY (2), MontReAl (3), lonGueuIl, lAVAl (2), ottAWA, toRonto (3), BARRIe, WAteRloo, SuDBuRY, tHunDeR BAY, WInnIpeG, ReGInA, SASKAtoon, eDMonton, CAlGARY, KeloWnA, VAnCouVeR (3), VICtoRIA
MANUFACTURING: lonGueuIl, notRe-DAMe-DeS-pInS
15 DIStRIButIon CentReS In tHe unIteD StAteSBoSton, neW YoRK (2), CHARlotte, GReenVIlle, AtlAntA, ColuMBuS, DetRoIt, SeAttle, poRtlAnD, poMpAno, RIVIeRA BeACH, HIAleAH, DAnIA, nASHVIlle
03 04 05 06 07 03 04 05 06 07
03 04 05 06 07 03 04 05 06 07 03 04 05 06 07
285.4
320.2
350.2
385.6
436.2
0.99
1.131.20
1.38
1.47
25.9
29.831.9
36.4
39.2
10,7
116.4
139.2
162.3
7.0
186.6
10.7
7.0
3.5
13.6
209.1
22.6
26.227.7
31.9
34.0
12/13
Sales(in millions of $)
Net earnings (in millions of $)
Earnings per share (in $)
Cash flows from operating activities
(in millions of $)Shareholders’ equity
(in millions of $)
1997-2007 AVeRAGe AnnuAl GRoWtH Sales: 15.1% Net earnings: 18.7%
Interest-bearing debt (in millions of $)
AppReCIAtIon
80% oVeR 5 YeARS
978% SInCe lIStInG
AnnuAl RetuRn
12.5%oVeR tHe lASt 5 YeARS(Dec. 2002 to Nov. 30, 2007)
Richelieu’s shares (RCH) are listed on the Toronto Stock Exchange (TSX) (1993)
24.00
30.00
22.00
20.00
18.00
16.00
06/03 01/04 08/04 03/05 10/05 05/06 12/06 07/07 02/0802/03
RCH
Share price: $21.00(February 12, 2008)
24.00
22.00
20.00
18.00
16.00
ReSultS 2007 2006 2005 2004 2003
$ $ $ $ $
Sales 436,157 385,631 350,177 320,199 285,375 EBITDA 57,101 53,059 45,785 43,367 38,902 (% of sales) 13.1 13.8 13.1 13.5 13.6 Net earnings 33,954 31,931 27,688 26,150 22,556 Cash flows from operating activities* 39,244 36,400 31,923 29,823 25,909
FInAnCIAl poSItIon 2007 2006 2005 2004 2003
$ $ $ $ $
Working capital 120,995 103,909 105,927 82,364 64,665 Total assets 258,778 245,002 202,971 183,260 157,220 Interest-bearing debt 6,971 13,635 3,499 7,019 10,745 Shareholders’ equity 209,096 186,584 162,300 139,164 116,355 Weighted average number of shares outstanding (000) 23,080 23,136 23,165 23,049 22,866
peR SHARe 2007 2006 2005 2004 2003
$ $ $ $ $
Net earnings 1.47 1.38 1.20 1.13 0.99 Diluted net earnings 1.46 1.37 1.19 1.12 0.98 Cash flows from operating activities* 1.70 1.57 1.38 1.29 1.13 Book value 9.05 8.09 7.01 6.03 5.05 RAtIoS 2007 2006 2005 2004 2003
$ $ $ $ $
Return on average equity 17.2% 18.3% 18.4% 20.5% 21.2% Interest-bearing debt to equity 3.3% 7.3% 2.2% 5.0% 9.2%
* Before net change in non-cash working capital items
Growth: 83%oVeR tHe lASt 5 YeARS
815%SInCe lIStInG
MARKet CApItAlIZAtIon as at november 30, 2007$532 million
Years ended november 30(in thousands of $, except per-share amounts, number of shares and ratios)
FInAnCIAl HIGHlIGHtS
CoMMItteD to ouR CoRe VAlueS
14/15
Innovation and attention to customers’ needs were among our values back when the Company was founded. After 40 years, more than ever, Richelieu stands apart for the quality of its service and innovation at every level. Richelieu’s management success-fully put together an extraordinary team in order to achieve its ob-jectives. I congratulate Richard Lord and his team and extend my wishes for continued success.
Georges C. ForestFounder
After Richelieu Hardware Ltd. was acquired by Schroders Acquisition Fund in October 1987, I was mandated to recruit a President and to finalize Richard Lord’s hiring in June 1988. Invested with responsibility and authority and supported by his team, Mr. Lord successfully grew a modest $28 million business to a company with more than $400 million in revenues in a cli-mate of harmony and respect for customers, suppliers, directors and shareholders.
The energy and enthusiasm dedicated to objectives of growth, efficiency and customer satisfaction rank Richelieu among the top-performing public companies for the benefit of its customers and shareholders.
I consider myself truly privileged to have sat on Richelieu’s Board of Directors and, as a shareholder, I am pleased on the Company’s 40th anniversary to express my best wishes for contin-ued success.
Jean e. Douville Chairman of the Board – 1987-2005
What energy, what enthusiasm, what results! In orchestrat-ing the Company’s development, Richard Lord has set standards of excellence in customer services, and ensured that its principles of efficiency and profitability were rigorously endorsed by a highly qualified and motivated team – all while constantly raising perfor-mance and growth objectives. As a result, shareholders have been rewarded over the years. Richelieu’s competitive edge and healthy financial position set the stage for many more years of success and exceeded expectations. The future looks bright... very bright.
Robert ChevrierChairman of the Board
... FoR DeCADeS
We ARe ConVInCeD tHAt ouR CoRe VAlueS oF QuAlItY, Inno-VAtIon, loYAltY, InteGRItY AnD ReSpeCt HAVe enABleD uS to BeCoMe AnD ReMAIn A CuStoMeR-oRIenteD noRtH AMeRICAn leADeR – ReSpeCtFul oF tHe InteReStS oF ouR eMploYeeS, SHAReHolDeRS AnD SupplIeRS.
ouR AppRoACH to CuStoMeR SeRVICe IS A KeY StRenGtH Set-tInG up ApARt. It IS BuIlt on tHe VAlueS SHAReD BY ouR teAMS AnD FunDAMentAl to ouR CoRpoRAte CultuRe. At RICHelIeu, tHe MeAnS We uSe to ACHIeVe ouR GoAlS ARe AS IMpoRtAnt AS tHe ReSultS tHeMSelVeS.
16/17
MeSSAGetoSHAReHolDeRS
RICHelIeu AGAIn ACHIeVeD eXCellent ReSultS In 2007, WHICH WAS ouR tWelFtH ConSeCutIVe YeAR oF SAleS AnD net eARnInGS GRoWtH. It WAS AlSo HIGHlIGHteD BY onGoInG IMpRoVeMentS At eVeRY leVel oF ouR oRGAnIZAtIon, A StRonG peR-FoRMAnCe BY ouR opeRAtIonS In tHe unIteD StAteS, AnD tWo neW ACQuISItIonS, BRInGInG to 33 ouR totAl nuMBeR oF BuSIneSS ACQuISItIonS In noRtH AMeRICA oVeR tHe pASt 20 YeARS. AS We WIll CeleBRAte RICHelIeu’S 40tH AnnIVeRSARY In 2008, It IS tIMelY to poInt to tHe ConSIStenCY ouR CoMpAnY HAS SHoWn In ItS VISIon AnD GRoWtH StRAteGY – FoCuSeD on InnoVAtIon, SYneRGIStIC ACQuISI-tIonS, FuRtHeR MARKet DeVelopMent AnD enHAnCeD CuStoMeR SeRVICe. tHIS ConSIStenCY IS FunDAMentAl to ouR lAStInG SuCCeSS. It ReFleCtS tHe QuAlItY AnD tHe DYnAMISM oF RICHelIeu’S entIRe teAM AnD AtteStS to ouR CoMMItMent to CReAte VAlue YeAR AFteR YeAR.
Richard lordpresident and Chief executive officer
WHen RICHelIeu WAS tAKen oVeR FRoM tHe FounDeR In 1987, tHe CoMpAnY HAD A BuSIneSS BASe In QueBeC, FRoM WHICH We HAVe BuIlt A noRtH AMeRICAn oRGAnIZAtIon.
Over the past 20 years, our sales have risen from some $30 million to $436.2 million, and our network has grown in size and gained in strength, from a single warehouse in Quebec to 45 distribution centres in North America, equipped with logis-tics tailored to customers’ evolving needs, along with two manu-facturing plants. Prior to Richelieu’s listing in 1993, we had already established our presence across the country and become the Canadian leader in our speciality, serving some 10,000 customers nationwide. Since then, we have broadened our client base which now includes more than 38,000 customers – in different market segments in Canada and the United States – whom we provide with access to an offering that has grown from 10,000 products to more than 55,000 today. Our net earnings have increased from $4.6 million in 1993 to $34.0 million in 2007. Our share price (RCH) has appreciated by an average of 18.5% annually, and our market capitalization has risen from $52 million in 1993 to $532 million as at november 30, 2007. While pursuing our growth- by-acquisition strategy, we have paid quarterly dividends to our shareholders over the past five years, and in 2007 they repre-sented 19.0% of the year’s net earnings.
Instrumental to our growth in recent years has been our market penetration in the United States, where we established our presence back in 1999. Today, our U.S. network includes 15 distribution centres following six strategic acquisitions and the opening of four centres in growth markets. In 2007, our sales in the United States increased by 72.5% to US$75.1 million. We remain in intensive development mode in this high-potential market, while continuing to improve our operating profitability.
We HAVe ACHIeVeD tHIS SuStAIneD GRoWtH WHIle ReSpeCtInG ouR CoRe VAlueS, eVeRY Step oF tHe WAY, AnD tAKInG A StRuCtuReD AppRoACH to RISK.
Thus, year after year, we have been able to make stra-tegic investments to reinforce our organization, improve our efficiency and provide our customers with appreciable added value, while maintaining a healthy, almost debt-free balance sheet. As at November 30, 2007, we posted working capital of $121 million and cash and cash equivalents of $7.9 million, and had an available line of credit of $26 million.
In 2007, We ContInueD to FoCuS on tHe StRAteGIC pRIoRItIeS oF ouR ACtIon plAn. SpeCIFICAllY:
we integrated our 2006 acquisitions and created further selling synergies;
we took advantage of new expansion opportunities, making two profitable acquisitions in the united States and Canada and opening our 30th Canadian distribution centre;
we added other quality innovations to our product mix;
we optimized our logistics chain and our manage-ment information system;
we carried on our centre and showroom improve-ment program to maintain high standards of service;
we invested in the production of new strategic sales tools for our customers;
we further enhanced our website, making it even more efficient; and
we continued to concentrate on training, particularly for our frontline teams, so as to provide our customers with any technical advice about our products and solutions, and to deal with them as true business partners.
FoR uS, BuSIneSS ACQuISItIonS ARe A MAJoR StRAteGIC DRIVeR, AnD We AlWAYS BASe ouR DeCISIonS on SolID FunDAMentAlS.
Short and long-term profitability is our priority – so quality assets and human resources are key criteria because we have to grow together – and the goal of any acquisition is to foster a sharing of know-how as well as to add products and customers – that is how we developed and consolidated our organization over the years. As for the start-up of distribution centres, we give priority to regions benefiting from a dynamic economy and where we have one or more nearby centres in order to favour selling and operating synergies.
In 2007, we almost completed the integration of the five acquisitions closed in 2006 and acquired two new distributors in the second quarter. Thus, Village Square Cabinet Supply, a distributor of decorative and functional hardware, kitchen ac-cessories and related products based in Nashville, Tennessee, gave us access to a new territory near several markets where we already operated. Through this compatible and profitable acquisition, we added a 15th distribution centre to our network in the United States. By acquiring Sasco, a Dartmouth, Nova Scotia distributor of finishing products for a customer base of furniture manufacturers and kitchen cabinet makers, and inte-grating it with our Atlantic Countertops division, we achieved significant synergies in terms of operations and customers served, and secured a solid foothold in this niche market in the Atlantic Provinces. Today, this industrial product line is sold in al-most all our markets across Canada. Together, these two acqui-sitions represent additional sales of approximately $10 million annually, not to mention the selling synergies we will develop according to our usual goal of significantly increasing sales in the three years following an acquisition. In the second quarter, we also opened our eighth Ontario-based distribution centre, in the central region of Barrie, which benefits from a strong industrial and export economy.
ReGARDleSS oF tHe poSItIonS AnD ReSpon-SIBIlItIeS tHRouGHout ouR oRGAnIZAtIon, CuStoMeR SeRVICe IS A ConCeRn FoR eVeRY MeMBeR oF RICHelIeu’S teAM, StARtInG WItH tHe MAnAGeMent.
Over our decades of growth, our approach has been per-fected, but our initiatives have always been guided by a single priority: to meet and exceed the expectations of our manufacturer and retailer customers, who are entrepreneurs themselves and have to meet their own customers’ daily needs and be creative to maintain a competitive edge. Like them, we know how im-portant a customer’s loyalty and long-term value are, and that they arise directly from total customer satisfaction in regard to products, conditions and service.
We spend much time in the field to better know our customers, and to develop and select value-added products from well-known manufacturers who, themselves, require the effective participation of designers to create unique products. For our offering to remain a key success factor, it must meet a wide variety of functional and decorative needs, from the tradi-tional and classic to the most up-to-date. We add an average of more than 1,000 new products every year to our offering, in-cluding high-end solutions that combine innovative design with technological and ergonomic innovation – products that truly stand apart as competitive advantages. We did so once again in 2007, launching exclusive new lines of decorative hardware, sliding door mechanisms that combine design and cutting-edge technology, new lighting systems and an innovative line of indus-trial supplies.
18/19MeSSAGe to SHAReHolDeRS
AS A DIStRIButoR CoMMItteD to QuAlItY oF SeRVICe, ouR DIStRIButIon loGIStICS ARe GoVeRneD BY IMpeRAtIVeS oF pReCISIon In oRDeRInG DAtA, RelIABIlItY AnD JuSt-In-tIMe DelIVeRY.
Over the years, we have constantly improved our logistics chain, enabling us to achieve a response rate unequalled in the industry. In 2007, we further enhanced our customer service by upgrading our warehouse management system. In addition to optimizing our distribution and lowering our operating costs, this provides us with a measurement tool to guide us in our decisions and our actions.
We also continued to invest in expanding and modern-izing our showrooms to make them more attractive for the growing number of customers who visit them and to provide easier access to our products. Planned improvements to our Boston, Calgary, Drummondville, Edmonton, Vancouver and Victoria centres have now been completed.
oVeR tHe YeARS, RICHelIeu HAS DeVelopeD A pRoACtIVe AppRoACH AnD A unIQue ABIlItY to MARKet SpeCIAltY AnD InnoVAtIVe pRoDuCtS, So We Go Well BeYonD DIStRIButIon In SeRVInG ouR CuStoMeRS.
We give them access to programs and sales support tools that are unique in the market, such as high-end dis-plays, targeted brochures, various catalogues and the most comprehensive website with a major transactional function. These marketing tools are a key component of the added value we bring to our customers – being as important as innovation, product quality and diversity, the efficiency of our distribution logistics and the expertise provided by our sales force.
In 2007, we published the Office Solutions, Lighting Solutions, Sliding Doors and Exclusive Collection catalogues, and re-edited the Richelieu Catalogue featuring all our prod-ucts. As for our website at www.richelieu.com, it undergoes constant improvements, incorporating the best tools to simplify its use, speed up product searches and make it more efficient, well documented and comprehensive. Our monthly online sales continued to increase to reach over $2 million in 2007, attesting to our customers’ appreciation.
The yearly improvements made throughout our organiza-tion ensure we always have the right product, at the right time, in the right place, and can deliver it under the best conditions. This objective could not be achieved without the right people in the right positions with the proper qualifications.
At Richelieu, training is a priority and at the root of our relationship with our employees. We encourage the taking of initiative, innovativeness and intrapreneurship, as well as rig-orous management of detail. We also promote share owner-ship through our share purchase program, and we are proud of our employees’ participation as close to 60% of them are now Richelieu shareholders. We set up regular and one-time training programs for many levels of responsibility, including monthly training sessions for our sales teams to help them maintain technical know-how that is unique in the market and bring it on-site to our customers. For us, it is a simple mark of respect to be at our customers’ disposal and provide them with on-site expert information about our products.
20/21MeSSAGe to SHAReHolDeRS
Architects and designers are partners of choice for us, who are continually offered information sessions on our prod-ucts and innovations. Furthermore, we contribute to training programs at design schools through product seminars.
ouR GRoWtH outlooK IS pRoMISInG. We BeGAn 2008 WItH ConFIDenCe, A CleAR StRA-teGY AnD An ACtIon plAn DRAWInG on ouR KeY SuCCeSS FACtoRS.
The hardware products industry is one of the most cre-ative and ever-evolving. We have developed lasting relation-ships with top suppliers worldwide. We serve a highly diversified customer base through a unique organization, and great devel-opment potential lies ahead of us in North America.
In 2008, our growth will be driven primarily by:
the benefits of our latest acquisitions, the new dis-tribution centre opened in 2007, and the selling syn-ergies we will build with them;
the product mix innovations we will make available in our north American centres to further develop our customer accounts and intensify internal growth;
the positive impact of medium and long-term busi-ness agreements signed in 2007 with major renova-tion chains;
the opportunities arising from the new renovation superstores that are scheduled to open in Canada in 2008;
the development of greater market share in the kitchen and bathroom cabinet making — residential and commercial woodworking — and home and of-fice furniture segments; and
as we do every year, we will carefully select the best acquisition opportunities according to our criteria of profitability and long-term growth.
We would like to express our thanks to all our partners, customers, employees, suppliers and shareholders. We also thank our Board members for their contribution to our solid corporate governance practices and their valuable advice. We acknowledge our employees for their dynamism, their outstand-ing participation and their endorsement of the core values that guide us in our growth. To all of you, we renew our commitment to continue creating value.
(Signed) Richard LordPresident and Chief Executive Officer
teStIMonIAlS ACKnoWleDGInG RICHelIeu’S 40tH AnnIVeRSARY
22/23
More than ever, business today has come to be based on relationships and trust. We are very pleased with the partnership we have developed with Richelieu. These people, from the local rep, the area manager, even to the president, have all contributed to the success of our relationship. We believe that passion and determination leads to mutual accomplishments. We strive to bring forth these values daily as we know the people at Richelieu do as well.
e paul Benson, president Benson Industries Limited Victoria, British Columbia Customer
We are proud to be business partners with Richelieu. This relationship allows us to bring further added value to our cus-tomers through increasingly innovative designs and, thus, to pursue our growth.
André Bruneau, president DENIS COUTURE Cuisine x espace d’inspiration Montreal, Quebec Customer
For many years Marana has benefited from strong relationships with our many suppliers. None has been stronger or more positive than our long-standing association with Richelieu Hardware.
Richelieu has ‘been there’ for Marana, providing not only excellent product, exactly suited to our varied needs, but with advice and technical support, that has for years kept us at the forefront of our trade. In the manufacture of fine cabinetry for a highly discerning clientele, being able to fully rely on a source to provide the right hardware item for every need has been of in-estimable benefit, allowing us to boldly keep offering an ever-greater selection of quality, up-to-date, products to our customers. Whether by phone or through their remarkable website, orders are always processed promptly, and the product is on its way. I feel the staff really listens to our needs, and offers the appropriate response.
This partnership has helped Marana develop over the many years we have worked together, allowing us to attend to business without needing to worry for a moment about the hardware products so essential to our business; and for this we are truly grateful!
Mario Furtado, president Marana Kitchen & Home Design Toronto, Ontario Customer
I have long felt that Richelieu’s unmatched commitment to service has been part of Metropolitan’s success. This philoso-phy should continue to keep you at the top of the industry for many years to come. It has made us feel more like a partner than a customer. Metropolitan is proud of our relationship with Richelieu.
Stuart elfland, president Metropolitan Cabinet & Countertops Boston, MA, USA Customer
Richelieu Hardware has been our prime hardware supplier for over 20 years. We find Richelieu has a great selection of quality hardware and is able to supply us with most of our hardware needs. Richelieu usually has ample quantity of product with very few backorders which is important to us with our short lead time for orders. Our Richelieu sales rep is always available for us to talk to and has been quite helpful in finding us some specialized hardware for various custom projects. Overall we are quite happy with Richelieu.
John Rose, plant Manager Progressive Wood Inc. Stratford, Ontario Customer
We congratulate Richelieu for their 40th anniversary and are very proud that we can look back at a successful partnership of more than 20 years. Together we have brought many innovative products and services to woodworkers in North America in our long relationship. Both companies have the desire to continuously improve the business of their customers and make them successful.Richelieu is an excellent partner for Blum. Their broad North American network, their well trained sales force, their ongoing com-mitment to superior customer service and the Company’s drive to bring quality products with added value to their customers are a sound basis for success in the future.
We want to thank the whole team at Richelieu for their trust in our company and hope that we can continue our successful partnership for a long time into the future.
Gerhard e. Blum, president Blum GmbH Höchst, Austria Supplier
It is not by accident that Richelieu has become a North American leader in its specialty. Richelieu’s devotion to forging creative and lasting relationships with premier manufacturers has strongly contributed to its reputation as a superior source for functional hardware. With great excitement we look forward to continued success at collaboratively generating new means to serve and inspire our common customers.
Scott Jordan, president & Ceo Accuride International Inc. Los Angeles, California, USA Supplier
Wilsonart International’s relationship with Richelieu began nearly 20 years ago. Richelieu has a remarkable operating model and employs sound customer-first business principles.
Richelieu weaves their superior product offerings and brands together with very effective marketing presentations at the point of sale. This all comes together with sound operating discipline and effective transaction management. Often we recommend Richelieu as a benchmark for some of our other global distributors who are looking for new ideas for improving their businesses.
Bill DiGaetano, president north America Wilsonart International Temple, Texas, USA Supplier
Our relationship with Richelieu goes back some 30 years ago with the founder, Georges Forest, when Specco was a five-member team! While Specco has grown three times over the years, Richelieu has expanded beyond scale under Richard Lord’s leadership. Richard has done a great job in “squeezing” margin of Specco which is good news for shareholders of Richelieu. Despite that, I still enjoy and look forward to visiting Richelieu office every spring and enjoy the one “treat” of the year – lobster dinner. May both Richelieu and Specco work tight together in the future, and celebrate many more anniversaries to come.
Best wishes from Rocky & all at Specco Taipei, Taiwan Supplier
With over 1700 distributors around the world, Richelieu definitely ranks number one for Fastcap. Why? Because they are driven. Driven to achieve the work ahead with no excuses. It is rare to come in contact with people who have the clarity and purpose that Richelieu has. It is also refreshing to see a company that values strategic relationships and invests the necessary time and resources to develop them. My experience with Richelieu has not only been gratifying from a business standpoint, but has also served as a great learning tool for me on the fundamentals of building a strong, solid company that pursues excellence at every turn. I know that ultimately all of this is the result of strong, determined leadership at all levels. I look forward to our continued relationship.
paul Akers, president FastCap, LLC Bellingham, Wa, USA Supplier
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1968–2008 A tRACK ReCoRD oF GRoWtH
1968 – FounDInG A warehouse in Dorval, Quebec
Sale of hardware products to a customer base of kitchen cabinet makers and retailers in Quebec
DeC. 1987-1988 Sales ≈ $30 M
Schroder acquires Richelieu
June 1988 – Richard Lord is appointed President and Chief Executive Officer and becomes a major shareholder of Richelieu
Implementation of a growth plan
Vision and values:
Acquisitions — seize opportunities in a highly fragmented Canadian market using Schroder as leverage
Internal growth
Intensive market development
Specialized sales force
Diversification of product offering
Centre start-ups
professional development programs
Distribution logistics
Development of a network of north American and european suppliers
• • • 1993 Within six years, Richelieu
becomes Canada’s leading importer, distributor and manu-facturer of specialty hardware and related products
Canadian network: 7 centres from coast to coast
Customer base: ≈ 10,000 manufacturer and retailers
Offering: ≈ 10,000 products
Sales: $65 M
listing on tSX (RCH)
Market capitalization: $52 M
1988–2007 1999 • 2001 — 2 share splits
(RCH) (Two-for-one)
1999 • 2007 penetration of u.S. market 6 business acquisitions 4 centre start-ups 15 centres
33 acquisitions in north America
network: 47 centres
Customer base: ≈ 38,000 manufac-turers and retailers Further segmentation
offering: ≈ 55,000 products (SKus) New niches
“everything under one roof” strategy
orders: ≈ 6,000 daily
employees: 1,250
Sales: $436 M
Market capitalization: $532 M
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
450
400
350
300
250
200
150
100
50
0
35
30
25
20
15
10
5
0
12 YeARS oF unInteRRupteD GRoWtH(in millions of $)
SalesNet earnings
+ 50% of the product mix: Richelieu’s brands and exclusive products
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DIReCtoRS
Robert Chevrier Chairman of the BoardRichelieu Hardware Ltd.President Roche Management Company Inc.Director of Corporations Denyse Chicoyne (1) Director of Corporations
Robert Courteau (1) President and Chief Executive OfficerCourteau Mainville Management
Jean Douville (2)
Chairman of the BoardUAP Inc.Chairman of the BoardNational Bank of Canada Mathieu Gauvin (1)
Vice-President RSM Richter Inc. Richard lordPresident and Chief Executive OfficerRichelieu Hardware Ltd.
Jocelyn proteau (2)
Director of Corporations Robert l. trudeau (2)
Chairman of the BoardTrudeau Corporation (1) Member of the Audit Committee(2) Member of the Human Resources and Corporate Governance Committee
oFFICeRS
CoRpoRAte GoVeRnAnCeShareholders will find a description of Richelieu’s corporate governance practices in conformity with Form 58-101F1 of Regulation 58-101 respecting Disclosure of Corporate Governance Practices, along with the mandate on its Board of Directors and Board Committees, in the Management Proxy Circular.
Marion KloibhoferGeneral Manager, Central Canada, Central and Eastern U.S.
Richard lordPresident and Chief Executive Officer
Guy GrenierVice-President, Sales and Marketing Industrial Hardware
John StattonGeneral Manager, Western Canadaand Western U.S.
Alain GiassonVice-President and Chief Financial Officer
Éric DaignaultGeneral Manager of Divisions
Christian DionManagerHuman Resources
Hélène lévesqueCorporate Secretary (not in the photo)
MAnAGeMent’S RepoRtMANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION(Year Ended November 30, 2007)
ContentS27 . 2007 Highlights
28 . Forward-Looking Statements
28 . General Business Overview as at November 30, 2007
29 . Mission and Strategy
29 . Financial Highlights
30 . Analysis of Operating Results
32 . Summary of Quarterly Results and Fourth Quarter
33 . Financial Position Analysis of Principal Cash Flows for 2007 Balance Sheet Analysis
35 . Contractual Commitments
35 . Financial Instruments
35 . Internal Control over Financial Reporting
35 . Disclosure Controls and Procedures
35 . Principal Accounting Estimates
36 . Accounting Policies Adopted in 2007
37 . Recently Issued Accounting Policies
38 . Risk Management
39 . Share Price
39 . Share Information as at January 31, 2008
39 . Growth Outlook
39 . Supplementary Information
Consolidated sales exceeded $400 million to reach $436.2 mil-lion, an increase of 13.1% over 2006 and of 24.5% over 2005.
earnings before income taxes, interest, amortization and non-controlling interest (eBItDA) totalled $57.1 million, up 7.6% over 2006 and up 24.7% over 2005.
net earnings amounted to $34.0 million, an increase of 6.3% over 2006 and of 22.6% over 2005.
earnings per share rose to $1.47 (basic) and $1.46 (diluted), up 6.5% over 2006 and up 22.5% over 2005.
Return on average equity worked out to 17.2%, compared with 18.3% for the previous fiscal year and 18.4% for 2005.
On January 26, 2007, the Board of Directors approved a 17% increase in the quarterly dividend, raising it from $0.06 to $0.07 per share.
Acquisition of the principal net assets of Village Square Cabinet Supply, a Nashville, Tennessee based distributor of hardware and related products primarily serving a customer base of kitchen cabinet makers – March 5, 2007.
Acquisition of the principal net assets of Sasco products Inc., a Dartmouth, Nova Scotia based distributor specializing in finishing products for furniture manufacturers and kitchen cabinet makers – May 23, 2007.
opening of a new centre in Barrie, Ontario – May 1, 2007.
Medium and long-term business agreements with major Canadian renovation chains.
FISCAl 2007 HIGHlIGHtS
This management’s report relates to Richelieu’s consolidated operating results, comprehensive income and cash flows for the year ended November 30, 2007, in comparison with the year ended November 30, 2006, as well as its financial posi-tion at those dates. This report should be read in conjunction with the audited consolidated financial statements for 2007 and accompanying notes appearing in this Annual Report. In this management’s report, “Richelieu” or the “Company” designates, as the case may be, Richelieu Hardware Ltd. and its subsidiaries and divisions, or one of its subsidiaries or divisions. Various supplementary documents, such as the Annual Information Form, interim management’s reports, cer-tificates and press releases issued by Richelieu, are available on SEDAR’s website at www.sedar.com.
The information contained in this management’s report ac-counts for any major event occurring prior to January 31, 2008, on which date the audited consolidated financial state-ments and the management’s report were approved by the Company’s Board of Directors. Unless otherwise indicated, the financial information presented below, including tabular amounts, is expressed in Canadian dollars and prepared in ac-cordance with Canadian generally accepted accounting prin-ciples (“GAAP”). The consolidated financial statements for the fourth quarter ended November 30, 2007 have not been audited or reviewed by the Company’s auditors.
Richelieu uses earnings before income taxes, interest, amor-tization and non-controlling interest (“EBITDA”) because this measure enables management to assess the Company’s oper-ational performance. This measure is a widely accepted finan-cial 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 indica-tor of operating performance or cash flows, or as a measure of liquidity. Because EBITDA is not a standardized measure-ment as prescribed by GAAP, it may not be comparable to the EBITDA of other companies.
FoRWARD-looKInG StAteMentS
Certain statements set forth in this management’s report, including statements relating to the expected sufficiency of cash flows to cover contractual commitments, growth outlook and other statements not pertaining to past events, consti-tute forward-looking statements. In some cases, these state-ments 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 manage-ment and on the expectations of management, acting in good faith, regarding future events, including economic conditions, exchange rate fluctuations, changes in operating expenses, the sufficiency of the Company’s deliveries and the absence of unusual events requiring supplementary capital expendi-tures. Although management believes these assumptions and expectations to be reasonable based on the information avail-able 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 those related to the industry, acquisitions, labour relations, credit, key officers, supply and product liability, as well as other factors set forth herein (see the “Risk Management” section of this management’s report and the Annual Information Form).
Richelieu’s actual results could differ materially from those in-dicated 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.
GeneRAl BuSIneSS oVeRVIeWAS At noVeMBeR 30, 2007
Richelieu is a leading north American importer, distributor and manufacturer of specialty hardware and complemen-tary products.
Its products are targeted to an extensive customer base of kitchen and bathroom cabinet, furniture, and window and door manufacturers plus the residential and commercial woodworking industry, as well as a large customer base of hardware retailers, including renovation superstores. The residential and commercial renovation industry is the Company’s major source of growth.
Richelieu offers customers a broad mix of products sour-ced from manufacturers worldwide. The solid relationships Richelieu has built with the world’s leading suppliers enable it provide customers with the latest innovative products tailored to their business needs. The Company’s product selection consists of more than 55,000 stock-keeping units (SKus) 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 manufactur-ing plants in Canada.
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Main product categories include functional cabinet hardware and assembly products for the manufacture of furniture and kitchen cabinets, decorative hardware products, high-pressure laminates, decorative and functional panels, veneer sheets and edgebanding products, kitchen accessories, ergonomic workstation components, ceramic tiles, finishing products, whiteboards and tackboards. Richelieu also specializes in the manufacture of a wide variety of veneer sheets and edge-banding products through its subsidiary Cedan Industries Inc., and of components for the window and door industry and of mouldings through Menuiserie des Pins Ltée. In addition, some of the Company’s products are manufactured in Asia accord-ing to its specifications and those of its customers.
The Company employs over 1,250 people at its head office and throughout the network, close to half of whom work in marketing, sales and customer service. Some 60% of its em-ployees are Richelieu shareholders. MISSIon AnD StRAteGY
Richelieu’s mission is to create shareholder value and con-tribute to its customers’ growth and success, while favouring a business culture focused on quality of service and results, partnership and entrepreneurship.
To sustain its growth and remain the leader in its specialty market, the Company continues to implement the strategy that has benefited it until now, with a focus on:
continuing to strengthen its product selection by introduc-ing every year an average of over 1,000 diversified products that meet its market segment needs and position it as the specialist in functional and decorative hardware for manu-facturers 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 per-sonalized service; and
expanding in North America through the opening of distri-bution centres and through efficiently integrated, profitable acquisitions made at the right price, offering high growth po-tential 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 frag-mented market consisting mainly of a host of regional distribu-tors who distribute a limited range of products.
FInAnCIAl HIGHlIGHtSYears ended November 30(in thousands of $, except per-share amounts, number of shares and return on average equity)
2007 2006 2005
Sales 436,157 385,631 350,177
EBITDA 57,101 53,059 45,785
Net earnings 33,954 31,931 27,688
basic earnings per share ($) 1.47 1.38 1.20 diluted earnings per share ($) 1.46 1.37 1.19
Cash dividends paid on shares 6,463 5,551 4,638 per share ($) 0.28 0.24 0.20
Weighted average number of shares outstanding (in thousands) 23,080 23,136 23,165
As at November 30
Total assets 258,778 245,002 202,971Working capital 120,995 103,909 105,927Shareholders’ equity 209,096 186,584 162,300Return on average equity (%) 17.2 18.3 18.4Book value ($) 9.05 8.09 7.01Total interest-bearing debt 6,971 13,635 3,499Cash and cash equivalents 7,879 6,964 20,103Share closing price 23.04 23.79 22.24
AnAlYSIS oF opeRAtInG ReSultS FoR tHe YeAR enDeD noVeMBeR 30, 2007
Consolidated sales exceeded $400 million to reach $436.2 million in 2007, up by $50.5 million or 13.1% over 2006. This increase came from:
5.1% internal growth resulting from a combination of the initiatives taken by Richelieu all year long, specifically — targeted marketing programs backed by perfected selling tools for customers’ use — new product lines that diversified the Company’s offering and enabled it to further develop its North American markets — the optimization of its transactional website that contributed to raise its monthly online sales to over $2.0 million — and its showroom expansion and mod-ernization program to integrate its innovations and to fulfill the evolving needs of manufacturer and retailer customers and the information sessions of architects and designers. These initiatives allowed Richelieu to build further synergies with prior acquisitions, to optimize its North American network’s potential and to better benefit from the prevailing favourable conditions in the renovation market;
and 8.0% from the acquisition of Specialty Supplies Inc. (Florida) and L.B. Brass (New York) at the end of the previ-ous year, specifically on October 17 and 30, 2006 — as well as Village Square Cabinet Supply (Tennessee) and Sasco Products Inc. (Nova Scotia) in the second quarter of 2007, on March 5 and May 23. These last two acquisitions there-fore contributed to the year’s sales for nine and six months respectively.
Sales to manufacturers amounted to $364.0 million, an ex-cellent increase of $43.3 million or 13.5% over 2006, of which 4.1% came from internal growth and 9.4% from the aforemen-tioned acquisitions — such sales accounted for 83.4% of con-solidated sales for 2007. Richelieu achieved most satisfactory advances in all its market segments, posting greater increases in the kitchen cabinet makers and commercial and residential woodworkers niches throughout 2007.
Hardware retailers including renovation superstores benefited from strong sales growth in all product categories as well as the initial impact of the medium and long-term business agree-ments signed with major Canadian renovation chains. Sales to retailers thus totalled $72.2 million in 2007, up by $7.2 mil-lion or 11.1% over a year earlier, whereas in 2006, they had remained relatively stable compared with 2005. In Canada, sales totalled $355.0 million, an increase of $18.8 million or 5.6% resulting from 5.1% internal growth and Sasco’s contribution for six months. It should be noted that the business of Sasco, a Dartmouth, N.S. based distributor of industrial finishing products, has been merged with Richelieu’s Atlantic Countertops division. Canadian sales accounted for 81.4% of consolidated sales in 2007. All its markets contrib-uted to this increase, with sales growth of 4.9% in Eastern Canada, of 3.4% in Ontario and stronger growth in Western Canada where sales grew by 9.7% over 2006, reflecting the efforts made to benefit from the particularly favourable econ-omy in Western provinces.
In the united States, Richelieu achieved a strong increase of 72.5% in its sales in U.S. dollars thanks to 57.3% growth-by-acquisition (in U.S. dollars), to which was added an excellent internal growth of 15.2% (in U.S. dollars). U.S. sales totalled $81.1 million (US$75.1 million), compared with $49.4 million (US$43.5 million) for 2006, a increase of 64.4% in Canadian dollars. They accounted for 18.6% of consolidated sales in 2007, compared with 12.8% in 2006. The acquisition of Specialty Supplies and Village Square Cabinet Supply en-abled the Company to broaden its network in the markets of Florida and Tennessee, whereas the acquisition of L.B. Brass increased its presence in the New York region; Richelieu now has 15 distribution centres in the United States. During the year, the Company almost finalized the integration of its recent acquisitions, while building greater selling synergies in its net-work and further developing its markets with new product lines, backed by enhanced marketing programs and a strengthened sales team.
SAleSYears ended November 30(in thousands of $) 2007 2006 %Canada 355,012 336,260 + 5.6United States (CA$) 81,145 49,371 + 64.4 (US$) 75,137 43,546 + 72.5Consolidated sales 436,157 385,631 + 13.1
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the average annual growth in consolidated sales was 11.0% for the last five years.
earnings before income taxes, interest, amortization and non-controlling interest (eBItDA) stood at $57.1 million, up by $4.0 million or 7.6% over 2006. The Company’s eBItDA profit margin remained solid at 13.1%, despite a 0.7% de-cline from 2006 when this margin had been much higher than in previous years. The EBITDA margin has remained above 13% over the past five years. In 2007, the gross margin and the EBITDA margin were affected primarily by the major in-crease in raw material costs, the investments required to de-velop new sales in the retailers market, and the effect of the exchange rate on the profit margin on U.S. sales translated into Canadian dollars, as they represent a growing proportion of total sales. Activities in the United States are in intensive development mode, and although their performance is most satisfactory, they have not yet achieved the profitability level of Canadian operations.
Interest was up by approximately $0.7 million as a result of the increase in the debt consisting primarily of balances of purchase price payable for the previous year’s acquisitions. Amortization of intangible assets with limited useful lives ac-counted for in 2006 more than doubled to reach $0.9 million for 2007, due notably to the year’s expansion. Income taxes totalled $17.3 million, up by approximately $0.5 million over 2006, mainly reflecting the increase in the year’s earnings.
net earnings grew by 6.3% to $34.0 million, representing 7.8% of consolidated sales, compared with 8.3% in 2006. earnings per share amounted to $1.47 basic and $1.46 di-luted, up from $1.38 basic and $1.37 diluted the previous year. The number of shares and options did not vary significantly over the past 12 months.
the average annual growth in consolidated net earnings was 11.9% for the last five years.
Comprehensive income totalled $27.8 million, consisting primarily of latent foreign exchange losses of $1.9 million in-curred in the fourth quarter on translation of the financial statements of Richelieu’s subsidiary in the United States, and foreign exchange losses of $4.0 million due to the change in the method of translating the financial statements of this same subsidiary effective September 1, 2007. As indicated in the “Accounting policies adopted in 2007” and “Recently issued accounting policies” sections of this management’s report and note 2 to the financial statements appearing in this Annual Report, Richelieu changed the classification of its U.S. subsid-iary effective September 1, 2007. This subsidiary was thereby changed from integrated to self-sustaining foreign operations because of the financial and operational autonomy noted in previous months following its growth through acquisitions and market development.
ConSolIDAteD net eARnInGSYears ended November 30(in thousands of $) 2007 2006
EBITDA 57,101 53,059Amortization of capital and intangible assets 4,685 3,975Interest 842 72Income taxes 17,294 16,828Non-controlling interest 326 253
Net earnings 33,954 31,931Net profit margin 7.8 % 8.3 %
ConSolIDAteD eBItDA AnD eBItDA MARGInYears ended November 30(in thousands of $) 2007 2006
Sales 436,157 385,631EBITDA 57,101 53,059EBITDA margin 13.1 % 13.8 %
SAleS
GeoGRApHIC BReAKDoWn
BY MARKet SeGMent
1993 2007 2007
68% Eastern Canada 40% 24% Ontario 22% 6% Western Canada 19% 2% United States 19%
Manufacturers 83%Retailers 17%
Quarterly variations in earnings — The first quarter ending February 28 or 29 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 renova-tion 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 finan-cial results. The second and fourth quarters ending May 31 and November 30 respectively generally represent the most active periods and are conducive to a sharp increase in finan-cial results.
Note: For further information about the Company’s performance in the first, second and third quarters of 2007, the reader is referred to the interim management’s reports available on SEDAR’s website at www.sedar.com.
Fourth quarter ended november 30, 2007Fourth-quarter results reflect a 9.1% increase in consolidated sales which amounted to $113.4 million, compared with $103.9 million for the corresponding period of 2006. This excellent improvement came from 4.4% internal growth and the full-quarter contributions of Specialty Supplies, L.B. Brass, Village Square Cabinet Supply and Sasco.
earnings before income taxes, interest, amortization and non-controlling interest (eBItDA) grew by 5.3% to $16.3 million, up from $15.5 million in 2006. The EBITDA profit margin worked out to a very satisfactory 14.4%, although it was down by 0.5% from the fourth quarter of 2006.
During the fourth quarter of 2007, the gross margin and the EBITDA margin were affected by the investments made in the sales to retailers programs in the screws and fasteners and builders hardware categories.
Interest on interest-bearing debt and amortization of capital assets and intangible assets remained relatively stable com- pared with the fourth quarter of 2006. net earnings increased by 11.5% to $10.2 million or $0.44 per share (basic and di-luted), compared with $9.2 million or $0.40 per share (basic) and $0.39 $ (diluted) for the fourth quarter of 2006.
Cash flows from operating activities (before net change in non-cash working capital balances related to operations) to-talled $11.5 million, up by $1.4 million or 13.5% over the cor-responding period of 2006, reflecting primarily the increase in net earnings. Net change in non-cash working capital bal-ances related to operations used cash flows of $4.0 million, whereas it had provided cash flows of $1.7 million in the fourth quarter of 2006. This variation can be explained by the in-crease in inventories resulting from the opening of the centre in Barrie, Ontario, the agreements signed with major Canadian renovation chains to support the Company’s growth — and the increase in accounts receivable arising from the sales growth. Consequently, operating activities provided cash flows of $7.6 million, compared with $11.8 million for the equivalent period a year earlier.
SuMMARY oF QuARteRlY FInAnCIAl ReSultS (unaudited)(in thousands of $, except per-share amounts)Quarters 1 2 3 4
2007 Sales 94,509 116,331 111,921 113,396 eBItDA 10,470 14,784 15,514 16,333 net earnings 5,973 8,651 9,110 10,220 basic per share 0.26 0.37 0.39 0.44 diluted per share 0.26 0.37 0.39 0.44
2006 Sales 82,862 102,604 96,221 103,944 EBITDA 9,060 14,128 14,353 15,517 Net earnings 5,360 8,627 8,779 9,165 basic per share 0.23 0.37 0.38 0.40 diluted per share 0.23 0.37 0.38 0.39
2005 Sales 76,056 92,560 88,032 93,529 EBITDA 8,260 12,241 11,952 13,332 Net earnings 4,874 7,422 7,251 8,141 basic per share 0.21 0.32 0.31 0.35 diluted per share 0.21 0.32 0.31 0.35
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Financing activities used net cash flows of $7.8 million, primar-ily for a long-term debt repayment of approximately $6.3 million and the payment of shareholder dividends for a consideration of $1.6 million.
Investing activities used cash flows of $1.8 million for the pur-chase of various capital assets related primarily to the manage-ment information system.
FInAnCIAl poSItIon
Analysis of principal cash flows in 2007
operating activitiesCash flows from operating activities (before net change in non-cash working capital balances related to operations) grew by 7.7% to $39.2 million or $1.70 per share in 2007, compared with $36.4 million or $1.57 per share for 2006. This increase reflects primarily the year’s growth in net earnings. Net change in non-cash working capital balances related to operations used cash flows of $15.6 million, compared with $6.9 million the previous year. This variation can be explained by the $9.6 million or 11.0% increase in inventories following the opening of the centre in Barrie, Ontario, the medium and long-term business agreements signed with major Canadian renovation chains and to support the Company’s growth — and the $3.4 million or 6.0% increase in accounts receiv-able arising from the sales growth. Consequently, operating activities provided cash flows of $23.6 million, compared with $29.5 million a year earlier.
Financing activitiesRichelieu repaid $6.8 million in debt in 2007, up from $3.4 mil-lion in 2006. The Company paid a total of $6.5 million in share-holder dividends, an increase of $0.9 million over 2006 and representing 19.0% of 2007 net earnings; this growth mainly reflects the dividend rate increase announced on January 26, 2007, which raised the quarterly dividend from $0.06 per share to $0.07 per share. Considering a common share issue of $0.3 million versus $0.2 million in 2006, and the fact that the Company did not redeem any common shares for can-cellation during the year, as opposed to 2006 when it had redeemed shares for a consideration of $2.9 million, financing activities used total cash flows of $12.9 million in 2007, com-pared with $11.6 million the previous year.
Investing activitiesThe two acquisitions closed in the second quarter of 2007, specifically Village Square Cabinet Supply and Sasco, repre-sented an investment of $4.6 million, to which was added a balance of purchase price payable of $1.2 million. During the year, $5.1 million was invested in capital expenditures, specifi-cally for the purchase of computer equipment and warehousing equipment and the improvement of business premises. During 2006, Richelieu had invested $28.5 million in the acquisition of five distributors and $2.6 million in the improvement of busi-ness premises and the purchase of manufacturing equipment. Consequently, investing activities used total cash flows of $9.7 million in 2007, compared with $31.1 million in 2006.
Sources of financingAlso considering the effect of exchange rate fluctuations on cash and cash equivalents which totalled $0.1 million at year-end, Richelieu had cash and cash equivalents of $7.9 mil-lion as at November 30, 2007, up from $7.0 million as at November 30, 2006.
The Company had an excellent working capital of $121.0 mil- lion for a current ratio of 3.7:1 as at November 30, 2007, com-pared with $103.9 million and a 3.2:1 ratio at the end of the previous year.
Change in cash and cash equivalents and capital resourcesYears ended November 30(in thousands of $) 2007 2006
Cash flows provided by (used for): Operating activities 23,551 29,532 Financing activities (12,892) (11,609) Investing activities (9,688) (31,062) Effect of exchange rate fluctuations (56) —
Net change in cash and cash equivalents 915 (13,139)Cash and cash equivalents, beginning of year 6,964 20,103Cash and cash equivalents, end of year 7,879 6,964
Working capital 120,995 103,909Renewable line of credit 26,000 26,000
Richelieu estimates that it has the capital resources needed to fulfill its commitments and respect its ongoing obligations in 2008. Its cash flows from operating activities should suffice for the funding requirements arising from its growth strategy and its financing and investing activities planned for the year ending November 30, 2008. Furthermore, Richelieu has an authorized line of credit of $26.0 million, renewable annually and bearing interest at the bank’s prime rate, as well as easy access to other outside financing if necessary.
The expectation set forth above consists of forward-looking informa-tion based on the assumption that general economic conditions and ex-change rates will not deteriorate significantly, operating expenses will not increase considerably, deliveries will be sufficient to fulfill Richelieu’s requirements and no unusual events will entail increased capital expendi-tures. This expectation also remains subject to the risks identified under “Risk Management”.
Balance sheet analysis as at november 30, 2007
total assets amounted to $258.8 million as at November 30, 2007, up from $245.0 million a year earlier, an increase of $13.8 million or 5.6%. During 2007, the Company closed the acquisition of Village Square Cabinet Supply and Sasco, respectively representing net assets of $5.2 million and $0.7 million, as indicated in further detail in note 3 to the fi-nancial statements appearing in this Annual Report. Current assets as at November 30, 2007 were up by $13.8 million over November 30, 2006, due primarily to a $0.9 million increase in cash and cash equivalents, a $3.5 million rise in accounts receivable reflecting the business volume and a $9.2 million increase in inventories related to acquisitions, the start-up of the distribution centre in Barrie, Ontario, the innovations in-troduced during the year, the medium and long-term business agreements signed with major Canadian renovation chains and to meet future demand.
Richelieu reduced its total interest-bearing debt by $6.7 mil-lion during the year, lowering it to $7.0 million as at November 30, 2007. Deducting cash and cash equivalents, the Company had a cash/total interest-bearing debt surplus as at November 30, 2007. Richelieu remains in a healthy and solid financial posi-tion, with low indebtedness and substantial cash flows gener-ated every year, enabling it to pursue its growth and expansion, particularly through the acquisition of companies specializing in its business sector.
Shareholders’ equity totalled $209.1 million as at November 30, 2007, up from $186.6 million as at November 30, 2006, an increase of $22.5 million or 12.1% reflecting the $27.5 million rise in retained earnings which amounted to $195.5 million as at November 30, 2007, less accumulated other compre-hensive income items representing $6.2 million. At the end of 2007, the book value per share was $9.05, up from $8.09 as at November 30, 2006. the total interest-bearing debt/equity ratio stood at 3.3%, compared with 7.3% as at November 30, 2006.
As at November 30, 2007, Richelieu’s share capital consisted of 23,100,737 common shares (23,052,612 common shares as at November 30, 2006) due to the issue of 48,125 common shares under the share option plan and 640,000 options (536,200 options as at November 30, 2006) were outstanding.
SuMMARY BAlAnCe SHeetAs at November 30(in thousands of $) 2007 2006Current assets 165,558 151,732 Long-term assets 93,220 93,270Total 258,778 245,002Current liabilities 44,563 47,823Long-term liabilities 5,119 10,595Shareholders’ equity 209,096 186,584total 258,778 245,002
totAl InteReSt-BeARInG DeBtAs at November 30(in thousands of $) 2007 2006Current portion of long-term debt 6,111 7,064
Long-term debt 860 6,571
total 6,971 13,635
less cash and cash equivalents 7,879 6,964
total debt net of cash (cash-free debt) (908) 6,671
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For 2008 and the foreseeable future, the Company expects cash flows from operating activities and other sources of fi-nancing to meet its ongoing contractual commitments.
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 meet the Company’s requirements and no unusual events will entail additional capital expenditures. This expectation also remains subject to the risks identified under “Risk Management”.
FInAnCIAl InStRuMentS
Richelieu periodically enters into forward exchange contracts to fully or partially hedge the effects of foreign currency fluc-tuations related to foreign-currency denominated payables or to hedge forecasted purchase transactions. The Company has a policy of not entering into derivatives for speculative or ne-gotiation purposes and to enter into these contracts only with major financial institutions.
InteRnAl ContRol oVeR FInAnCIAl RepoRtInG
Management has designed internal controls over financial re-porting to provide reasonable assurance as to the reliability of financial reporting. The President and Chief Executive Officer and the Vice-President and Chief Financial Officer have as-sessed the design of internal controls over financial reporting as at November 30, 2007 and believe that their design is appropri-ate to provide reasonable assurance. They have also made an assessment to determine whether any changes were made to internal controls over financial reporting during the quarter ended November 30, 2007 that could have a material impact on such controls. No changes of this type have been identified. DISCloSuRe ContRolS AnD pRoCeDuReS
Management is in charge of establishing and maintaining the Company’s disclosure controls and procedures in order to ensure that the information used internally and reported ex-ternally is comprehensive and reliable. Richelieu’s President and Chief Executive Officer and Vice-President and Chief Financial Officer have assessed the effectiveness of Richelieu’s disclosure controls and procedures and have concluded that they were appropriate and effective at the end of 2007.
SIGnIFICAnt ACCountInG polICIeS AnD eStIMAteS
The preparation and presentation of the consolidated financial statements and other financial information contained in this report require management to make estimates, assumptions and enlightened judgments. The Company’s estimates are based upon assumptions which it believes to be reasonable, such as those based upon past experience. These estimates constitute the basis for the judgments regarding the carry-ing amounts of assets and liabilities that would not otherwise be readily available through other sources. Use of different methods might have yielded different amounts than those pre-sented. Actual results could differ from these estimates.
Foreign currencyThe Company follows the temporal method to translate its for-eign currency balances and transactions into Canadian dollars, excluding the accounts of its self-sustaining foreign subsid-iary. Under this method, monetary assets and liabilities are translated at the exchange rates in effect at year-end and the other items in the balance sheet and statement of earnings are translated at the exchange rates in effect at the transac-tion date. Foreign exchange gains and losses are included in net earnings for the year.
Assets and liabilities of the U.S. subsidiary classified as self-sustaining from a financial and operational standpoint are translated into Canadian dollars at the exchange rate in effect at year-end. Revenues and expenses are translated at the av-erage rate in effect during the year. Foreign exchange gains and losses are included in a separate component of accumu-lated other comprehensive income.
GoodwillGoodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is tested for impairment annually or more often if events or changes in circumstances indicate that it might be impaired. The impair-ment test consists of a comparison of the fair value of the reporting unit to which goodwill is assigned with its carrying amount. The Company uses the discounted cash flows method to determine the fair value of its reporting units, which requires estimates and assumptions regarding discount rate and cash flows. The use of different assumptions when applying the dis-counted cash flows method could result in different fair values and, consequently, different carrying amounts for goodwill as well as results of operations.
SuMMARY oF ContRACtuAl CoMMItMentS AS At noVeMBeR 30, 2007(in thousands of $) 2013 2008 2009 2010 2011 2012 and thereafter Total
Long-term debt 6,111 860 — — — — 6,971Operating leases 3,967 3,282 2,536 2,017 1,123 1,552 14,477
total 10,078 4,142 2,536 2,017 1,123 1,552 21,448
ContRACtuAl CoMMItMentS
Capital assets Capital assets are recorded at cost. Amortization is computed under the straight-line method over their useful lives for the Company, represented by the period during which it is esti-mated that an asset will contribute to future cash flows. The use of different assumptions with regard to useful life could result in different carrying amounts for these assets as well as for amortization expenses. Intangible assets Intangible assets with limited useful lives are recorded at cost and amortized on a straight-line basis over their useful lives. The amortization method and estimate of useful lives of the intangible assets are re-evaluated annually. Intangible assets with indefinite useful lives, such as trademarks, are recorded at cost and are not amortized. Non-amortizable intangible assets are tested for impairment annually or more often if events or changes in circumstances indicate that they might be impaired. When the impairment test reveals that the car-rying amount of an intangible asset exceeds its fair value, an impairment is recognized in earnings for an amount equal to the excess.
Impairment of long-lived assets Long-lived assets, excluding goodwill and intangible assets with indefinite useful lives, are reviewed for impairment when events or changes in circumstances indicate that the carry-ing amount of an asset may not be recoverable. Impairment is assessed by comparing the carrying amount of an asset with its expected future net undiscounted cash flows from use together with its residual value (net recoverable value). If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carry-ing amount of the assets exceeds the net recoverable value. The use of different assumptions in applying the discounted cash flows method could result in different fair values and, consequently, different carrying amounts for long-lived assets as well as results of operations. InventoriesFinished goods and work in progress inventories are valued at the lower of cost and net realizable value. Raw materials in-ventories are valued at the lower of cost and replacement cost. A provision for loss in value is recorded when, based on past experience and current market conditions, it is believed that certain product costs will not be recovered. The establishment of such provision requires management to make estimates that could have an impact on the inventory valuation reported in the balance sheet and the statement of earnings.
Stock-based compensation and other stock-based paymentsA stock-based compensation for stock options is calculated using the fair value method based upon the Black & Scholes model and must be recorded for all attributions after December 1, 2003. In order to establish fair value, the Company uses es-timates and assumptions to determine risk-free interest rate, expected term, anticipated volatility and anticipated dividend yield. The use of different assumptions could result in different carrying amounts for stock-based compensation. Income taxesThe Company follows the liability method of accounting for in-come taxes. Under this method, future income tax assets and liabilities are accounted for based on estimated taxes recover-able or payable that would result from the recovery or settle-ment of the carrying amount of assets and liabilities recorded in the financial statements. Future tax assets and liabilities are measured using the tax rates that are expected to be in effect in the years when the timing differences are expected to reverse. Determination of future income taxes requires the use of estimates, assumptions and judgments which, if applied differently, could result in different carrying amounts for future income taxes in the balance sheet and income taxes in the statement of earnings.
ACCountInG polICIeS ADopteD In 2007
(a) Financial instrumentsEffective December 1, 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 the recognition and measurement of finan-cial instruments, establish standards for hedge accounting and introduce a new measurement of results, comprehensive income, which is the change in an enterprise’s equity or net assets during a period from transactions from non-owner sources.
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The adoption of these standards requires classifying all the Company’s financial assets, financial liabilities and financial instruments. Depending on the financial instruments’ clas-sification, specific standards are applied. The Company has implemented the following classifications:
Cash and cash equivalents are classified as “Financial as-sets held for trading”. They are presented at their fair value and the gains or losses arising from the revaluation at the end of each period are recorded in consolidated earnings. The carrying value of cash and cash equivalents represents a reasonable estimate of fair value given the short-term ma-turity of such instruments.
Accounts receivable are classified under “Loans and receiv-ables”. They are normally measured at cost, which corre-sponds to their fair value at the initial measurement date. Subsequent evaluations are measured at amortized cost us-ing the effective interest rate method. For the Company, the measured amount generally corresponds to cost.
The 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 or 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 liabilities”. They are initially presented at their fair value. For the Company, this measurement generally corresponds to cost due to the short-term maturity of those instruments, as a result of the use of a floating rate for certain loans or because manage-ment estimates that the fair value of loans bearing interest at a fixed rate does not materially differ from their carrying amount, considering the near-term maturity of some of them and the rates that could actually be obtained by the Company for loans involving similar conditions and maturities.
Retroactive application of these new standards without restat-ing prior years involved no restatement of the opening balance of accumulated other comprehensive income relating to de-rivative financial instruments 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.
(b) translation of financial statements of self- sustaining foreign operationsEffective September 1, 2007, the Company changed the classification of its U.S. subsidiary from integrated to self- sustaining foreign operations because of the financial and oper-ational autonomy noted in previous months following its recent acquisitions in the United States and strong internal growth. Consequently, the current rate method is adopted in place of the temporal method and the foreign exchange loss due to the change in the translation of non-monetary items at the ex-change rate in effect at the change date is included in a sepa-rate component of accumulated other comprehensive income. ReCentlY ISSueD ACCountInG polICIeS
Capital and financial instruments In December 2006, the CICA issued three new Handbook sections regarding capital and financial instruments, i.e. Sections 1535, 3862 and 3863, which are effective for interim and annual financial statements relating to fiscal years begin-ning on or after October 1, 2007. The Company intends to apply these new standards in the first quarter ending February 29, 2008, and does not foresee that these new sections will have a material effect on its results, financial position and cash flows.
Section 1535, “Capital Disclosures” establishes standards for disclosing information about an entity’s capital and how it is managed. These standards require an entity to disclose the following:
its objectives, policies and processes for managing capital;
summary quantitative data about what it manages as capital; whether during the period it complied with any externally
imposed capital requirements to which it is subject; and
when the entity has not complied with such requirements, the consequences of such non-compliance. Section 3862, “Financial Instruments – Disclosures” modi-fies the disclosure requirements for financial instruments that were included in Section 3861, “Financial Instruments – Dis-closure and Presentation”. The new standards require entities to provide disclosures in their financial statements that enable users to evaluate:
the significance of financial instruments for the entity’s finan-cial position and performance; and
the nature and extent of risks arising from financial instru-ments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks.
Section 3863, “Financial Instruments – Presentation” carries for-ward unchanged the presentation requirements of the old Section 3861, “Financial Instruments – Disclosure and Presentation”.
Inventories In March 2007, the CICA issued the new Section 3031, “In-ventories” which will replace Section 3030, “Inventories”. The new Section prescribes measurement of inventories at the lower of cost and net realizable value. It provides guidance on the determination of cost, allows the use of the retail method, prohibits use in the future of the last-in, first-out (LIFO) meth-od, and requires reversal of previous write-downs when there is a subsequent increase in the value of inventories. It also requires greater disclosure regarding inventories and the cost of sales. The new standard will be effective for interim and an-nual financial statements relating to fiscal years beginning on or after January 1, 2008. The Company is currently evaluating their effect on its results, financial position and cash flows.
RISK MAnAGeMent
As indicated in its previous annual reports, Richelieu is ex-posed to different risks that can have an impact on its profit-ability. To offset them, the Company has adopted various strat-egies adapted to the major risk factors below.
Industry-related risksThe specialty hardware and renovation products market is highly competitive. Richelieu has hence developed a business strategy based on a product selection that is unmatched in the various targeted niches in North America and sourced from suppliers around the world, creative marketing and unparal-leled expertise and quality of service. Up to now, this strat-egy has enabled it to benefit from a competitive edge and to handle fluctuations in currency. It should be pointed out that Richelieu is little exposed to currency fluctuation related risks, due among others to its ability to rapidly adjust selling prices to maintain its profit margins. However, it could be affected by such risks in the case of some customers who manufacture and export a large proportion of their products to the United States. A slowdown in these customers’ business could there-fore affect the Company’s sales. Nevertheless, Richelieu continues to diversify its customer base and product selec-tion while further developing its markets, thereby reducing the overall risk associated with certain business sectors.
Economic conditions can potentially affect the Company’s business. However, Richelieu has remained profitable even during economic slowdowns. In recent years, the economy has favoured its growth, as have certain structural trends such as the aging of existing housing needing more renovations (a large number of Canadian homes are over 20 years old), the additional renovation projects carried out by baby boomers, the bathroom and kitchen renovations arising from home re-sales, the modernization of sales space and workplaces by retailers and businesses and, to a lesser extent, the recovery in housing starts. Richelieu is well equipped and positioned to take advantage of these trends, especially since it has consid-erably strengthened its organization by means of its many ac-quisitions — enabling it to grow and further develop its market segments as well as its geographic markets.
AcquisitionsAcquisitions in North America will remain an important strategic focus for Richelieu, which plans to further expand in Canada and the United States in the coming years. The Company will maintain its acquisition criteria while paying special atten-tion to the integration of its acquisitions into the overall organi-zation. As the U.S. market is highly fragmented, acquisitions in the United States are smaller sized, which reduces the inher-ent financial and operational risks.
labour relationsAbout one-quarter of Richelieu’s workforce is unionized. The Company’s policy is to negotiate collective agreements at con-ditions enabling it to maintain its competitive edge and a posi-tive and satisfactory working environment for its entire team. Richelieu has not experienced any major labour conflicts over the past five years and expects to maintain sound working relations in the future.
CreditRichelieu 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 Company sets a specific limit which is regularly reviewed. The diver-sification of its products, customers and suppliers protects Richelieu against a concentration of its credit risk. None of its customers accounts for more than 10% of its accounts receivable.
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Stability of key officersRichelieu offers a stimulating working environment and a com-petitive compensation plan, which help it retain a stable exec-utive and management team. To effectively manage its future growth, the Company adjusts its organizational structure as needed and strengthens the teams at the various levels of its business. It should be noted that approximately 60% of its em-ployees, including senior officers, are Richelieu shareholders.
SupplyRichelieu does not expect to incur any major risk related to supply due to the fact that it has built solid long-term relation-ships with numerous suppliers on several continents, most of whom are world leaders.
product liabilityRichelieu is exposed to various claims in the normal course of business. The Company has agreements with insurance compa-nies to cover the risks of claims associated with its operations.
SHARe pRICe
The share price fluctuated between $22.26 and $27.00, and the trading volume on the Toronto Stock Exchange totalled 4.4 million shares in 2007. The share price was $23.04 at the close of markets on November 30, 2007, compared with $23.79 as at November 30, 2006. It should be noted that Richelieu’s share price has increased by 80% over the past five years and by 978% since its listing on the stock market.
SHARe InFoRMAtIon AS At JAnuARY 31, 2008
Issued common shares 23,116,237Share options under share option plan 615,500
DIVIDenD InCReASe
At its meeting held on January 31, 2008, the Board of Directors approved a 14% increase in the quarterly dividend, raising it to $0.08 per common share.
GRoWtH outlooK
Richelieu enjoys a solid leadership positioning in its business sector thanks to acquisitions closed almost annually while re-specting strict criteria of compatibility and profitability as well as internal growth driven by the synergies developed with its acquisitions and the marketing of innovations through its net-work in North America. In 2008, Richelieu intends to continue expanding through acquisitions and further market develop-ment. Its primary growth drivers remain:
the residential and commercial renovation market;
kitchen and bathroom cabinet makers;
hardware superstore chains, which will continue to expand in 2008;
the home and office furniture manufacturers segment, where Richelieu could still win major market share;
the constantly evolving trends in design, technology, ergo-nomics, closet solutions and decoration worldwide, which represent a significant and sustained source of growth;
new construction; and
acquisitions in North America matching Richelieu’s criteria of complementarity, profitability and synergies as well as its objective of creating shareholder value.
The growth outlook set forth above consists of forward-looking informa-tion based on the assumption that economic conditions and exchange rate will not deteriorate significantly, operating expenses will not increase considerably, deliveries will meet the Company’s requirements and no un-usual events will entail additional capital expenditures. This expectation also remains subject to the risks identified under “Risk Management”.
SuppleMentARY InFoRMAtIon
Further information about Richelieu, including its latest Annual Information Form, is available on the System for Electro-nic Document Analysis and Retrieval (SEDAR) website at www.sedar.com.
(Signed) Alain Giasson Vice-President and Chief Financial OfficerJanuary 31, 2008
AUDITORS’ REPORTTo the Shareholders of Richelieu Hardware Ltd. We have audited the consolidated balance sheets of Richelieu Hardware Ltd. as at November 30, 2007 and 2006 and the consolidated statements of earnings and retained earnings, comprehensive income and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
Montreal, CanadaJanuary 11, 2008 (Signed) Ernst & Young LLP, Chartered Accountants
MANAGEMENT’S REPORTRelated to the consolidated financial statements
The consolidated financial statements of Richelieu Hardware Ltd. and other financial information included in this annual report are the responsability of the Company’s management. These consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles and approved by the Board of Directors.
Richelieu Hardware Ltd. maintains accounting and internal control systems which, in management’s opinion, reasonably ensure the accuracy of the financial information and maintain proper standards of conduct in the company’s activities.
The Board of Directors fulfills its responsability regarding the consolidated financial statements included in the annual report, primarily through its audit committee. This committee which meets periodically with the Company’s managers and external auditors, has reviewed the consoli-dated financial statements of Richelieu Hardware Ltd. and has recommended that they be approved by the Board of Directors.
The consolidated financial statements have been audited by the Company’s external auditors, Ernst & Young LLP, chartered accountants.
Montreal, CanadaJanuary 11, 2008 (Signed) Richard Lord (Signed) Alain Giasson President Vice-President and Chief Executive Officer and Chief Financial Officer
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2007 2006 $ $
ASSETSCurrent assetsCashandcashequivalents 7,879 6,964Accountsreceivable 60,976 57,443Inventories 95,971 86,784Prepaidexpenses 732 541 165,558 151,732Capitalassets(Note 4) 19,774 18,463Intangibleassets(Notes 3 and 5) 12,974 13,227Goodwill(Note 3) 60,472 61,580 258,778 245,002
LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilitiesAccountspayableandaccruedliabilities 37,371 38,425Incometaxespayable 1,081 2,334Currentportionoflong-termdebt(Note 7) 6,111 7,064 44,563 47,823Long-termdebt (Note 7) 860 6,571Futureincometaxes(Note 9) 1,751 1,842Non-controllinginterest 2,508 2,182 49,682 58,418
Shareholders’ equityCapitalstock (Note 8) 17,800 17,470Contributedsurplus(Note 8) 1,982 1,094Retainedearnings 195,511 168,020Accumulatedothercomprehensiveincome(Note 11) (6,197) — 209,096 186,584 258,778 245,002
Commitments(Note 10)
See accompanying notes.
OnbehalfoftheBoard:
(Signed) Richard Lord (Signed) Robert Chevrier Director Director
As at November 30 (in thousands of dollars)
ConSolIDAteD BAlAnCe SHeetS
2007 2006 $ $
Sales 436,157 385,631Costofsalesandwarehouse,sellingandadministrativeexpenses(Note 12) 379,056 332,572Earnings before the following 57,101 53,059Amortizationofcapitalassets 3,747 3,583Amortizationofintangibleassets 938 392Interestonlong-termdebt 844 187Interestonshort-termdebt,net (2) (115) 5,527 4,047Earnings before income taxes and non-controlling interest 51,574 49,012Incometaxes(Note 9) 17,294 16,828Earnings before non-controlling interest 34,280 32,184Non-controllinginterest 326 253Net earnings 33,954 31,931
Retainedearnings,beginningofyear 168,020 144,430Dividends (6,463) (5,551)Premiumonredemptionofcommonsharesforcancellation(Note 8) — (2,790)Retained earnings, end of year 195,511 168,020
Earnings per share (Note 8)Basic 1.47 1.38Diluted 1.46 1.37
See accompanying notes.
Years ended November 30 (in thousands of dollars, except earnings per share)
42/43ConSolIDAteD StAteMentS oF eARnInGS AnD RetAIneD eARnInGS
2007 2006 $ $
Net earnings 33,954 31,931
Other comprehensive income:Changeinfairvalueofderivativesdesignatedascashflowhedgesnetofincometaxesof$54(Note 11) (321) —Translationadjustmentofnetinvestmentinaself-sustainingforeignoperation (1,923) —Exchangelossduetochangeintranslationmethodofforeignoperationreclassifiedasself-sustaining(Note 2) (3,953) — (6,197) —Comprehensive income 27,757 31,931
See accompanying notes.
Years ended November 30 (in thousands of dollars)
ConSolIDAteD StAteMentS oF CoMpReHenSIVe InCoMe
2007 2006 $ $
OPERATING ACTIVITIESNetearnings 33,954 31,931Non-cashitems
Amortizationofcapitalassets 3,747 3,583Amortizationofintangibleassets 938 392Futureincometaxes (140) (369)ForeignexchangegainondebtinUSdollars (518) —Non-controllinginterest 326 253Stock-basedcompensationexpense 888 610
39,195 36,400Netchangeinnon-cashworkingcapitalbalancesrelatedtooperations (15,644) (6,868) 23,551 29,532
FINANCING ACTIVITIESDecreaseinbankloan — (1,910)Repaymentoflong-termdebt (6,759) (1,442)Dividendspaid (6,463) (5,551)Issueofcommonshares 330 188Redemptionofcommonsharesforcancellation — (2,894) (12,892) (11,609)
INVESTING ACTIVITIESBusinessacquisitions (Note 3) (4,611) (28,452)Additionstocapitalassets (5,077) (2,610) (9,688) (31,062)
Effectofexchangeratefluctuationsoncash andcashequivalents (56) —
Net change in cash and cash equivalents 915 (13,139)Cashandcashequivalents,beginningofyear 6,964 20,103Cash and cash equivalents, end of year 7,879 6,964
Supplemental informationIncometaxespaid 15,846 15,288Interestpaid 885 28
See accompanying notes.
Years ended November 30 (in thousands of dollars)
ConSolIDAteD StAteMentS oF CASH FloWS
NATURE OF BUSINESSRichelieuHardwareLtd.(the“Company”)actsasadistributor,importerandmanu-facturer of specialty hardware and complementary products. These products aretargetedtoanextensivecustomerbaseofkitchenandbathroomcabinet,furniture,and window and door manufacturers plus the residential and commercial wood-workingindustry,aswellasalargecustomerbaseofhardwareretailers,includingrenovationproductsuperstores.
1) SIGNIFICANT ACCOUNTING POLICIESTheCompany’sconsolidatedfinancialstatementshavebeenpreparedbymanage-mentinaccordancewithCanadiangenerallyacceptedaccountingprincipleswhichrequiremanagement tomakeestimatesandassumptionsthataffect theamountsreported in theconsolidatedfinancialstatements.Actual resultscoulddiffer fromtheseestimates.TheCompany’sconsolidatedfinancialstatementshavebeenpro-perlypreparedwithinthereasonablelimitsofmaterialityandinconformitywiththeaccountingpoliciessummarizedbelow:
ConsolidationTheconsolidatedfinancialstatements includetheaccountsofRichelieuHardwareLtd. and its subsidiaries. All significant intercompany balances and transactionshavebeeneliminateduponconsolidation.
Cash and cash equivalentsCashandcashequivalentsconsistofcashonhandandhighly liquid investmentswithaninitialtermofthreemonthsorlessthatarestatedatcost,whichapproxi-matesmarketvalue.
InventoriesFinishedgoodsandworkinprogressinventoriesarevaluedatthelowerofaveragecostandnetrealizablevalue.Rawmaterialsinventoriesarevaluedatthelowerofaveragecostandreplacementcost.
Capital assetsCapitalassetsarerecordedatcost.Amortizationiscomputedunderthestraightlinemethodovertheirestimatedusefullives.
Buildings 20yearsLeaseholdimprovements Overthetermsoftheleases,maximum5yearsMachineryandequipment 5to10yearsRollingstock 5yearsFurnitureandfixtures 5yearsComputerequipment 3to5years
Intangible assetsIntangibleassetsareassetsacquired that lackphysical substanceand thatmeetthespecifiedcriteriaforrecognitionapartfromgoodwill.Intangibleassetsacquiredcomprisemainlyofcustomerrelationships,non-competitionagreementsandtrade-marks.Thecustomerrelationshipsareamortizedonastraight-linebasisovertheirusefullivesof10to20yearswhilethenon-competitionagreementsareamortizedoverthetermsoftheagreements.Trademarkshaveanindefinitelifeand,therefore,arenotamortized.
Intangible assetswith indefinite lives are tested for impairment annually ormoreoftenifeventsorchangesincircumstancesindicatethattheassetmightbeimpaired.Whentheimpairmenttestindicatesthatthecarryingamountoftheintangibleas-setexceedsitsfairvalue,animpairmentlossisrecognizedinanamountequaltotheexcess.
Impairment of long-lived assetsLong-livedassets,excludinggoodwilland intangibleassetswith indefiniteusefullives,areassessedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountofanassetmaynotberecoverablebycomparingtheircarryingamountwiththeirexpectednetundiscountedfuturecashflowsfromusetogetherwiththeirresidualvalue.Theimpairmentlossistheamountbywhichthecarryingamountoftheassetexceedstheir fairvalueand, ifany, ischargedtoearnings.
Goodwill Goodwill represents the excess of the purchase price over the fair value of netassetsacquired.Goodwillistestedforimpairmentannuallyormoreoftenifeventsorchangesincircumstancesindicatethatitmightbeimpaired.Theimpairmenttestconsistsofacomparisonofthefairvalueofthereportingunittowhichgoodwillisassignedwith its carryingamount.When thecarryingamountofa reportingunitexceeds its fair value, the fair value of the reporting unit’s goodwill is comparedwithitscarryingamounttomeasuretheamountoftheimpairmentloss,ifany.Anyimpairmentlossischargedtoearningsintheperiodinwhichthelossisincurred.TheCompanyuses thediscountedcashflowsmethod todetermine the fairvalueofreportingunits.
Revenue recognitionRevenuesarerecognizedwhenthefinishedproductsareshippedtothecustomers.
Income taxesTheCompanyfollowstheliabilitymethodofaccountingforincometaxes.Underthismethod,futureincometaxassetsandliabilitiesareaccountedforbasedonestima-tedtaxesrecoverableorpayablethatwouldresultfromtherecoveryorsettlementofthecarryingamountofassetsandliabilities.Futuretaxassetsandliabilitiesaremeasuredusingtheenactedtaxratesthatareexpectedtobeineffectintheyearswhenthetemporarydifferencesareexpectedtoreverse.Changesinthesebalancesarechargedtoearningsoftheyearinwhichtheyarise.
Foreign currencyTheCompanyfollowsthetemporalmethodtotranslateitsforeigncurrencybalancesandtransactionsintoCanadiandollars,excludingtheaccountsofitsself-sustainingforeignsubsidiary.Underthismethod,monetaryassetsandliabilitiesaretranslatedat the ratesofexchange ineffectat year-endand theother items in thebalancesheetandstatementofearningsare translatedat theexchange rates ineffectatthedateoftransaction.Exchangegainsandlossesareincludedinnetearningsfortheyear.
AssetsandliabilitiesoftheUSsubsidiaryclassifiedasself-sustainingfromafinan-cialandoperationalstandpointaretranslatedintoCanadiandollarsattheexchangerateineffectatthebalancesheetdate.Revenuesandexpensesaretranslatedattheaveragerate ineffectduringtheyear.Foreignexchangegainsand lossesareincludedinaseparatecomponentofaccumulatedothercomprehensiveincome.
Forward exchange contracts TheCompanyperiodicallyentersintoforwardexchangecontractswithmajorfinan-cialinstitutionstopartiallyhedgetheeffectsofforeigncurrencyfluctuationsrelatedtoforeigncurrencydenominatedpayablesandalsotohedgeanticipatedpurchasetransactions.TheCompanydoesnotenterintoderivativesforspeculativepurposes.TheCompanyuseshedgingaccountingonlywhendocumentationcriteriarequiredunderCanadiangenerallyacceptedaccountingprinciplesaremet.Gainsandlosseson financial instruments designated as hedges are recognized in earnings in thesameperiodastheunderlyingtransactionsorincomprehensiveincomefortheyearendedNovember30,2007and if the instrumentsdonotqualifyasahedge, thederivativeisrecordedonthebalancesheetatfairvalue,withchangesinfairvaluerecognizedincurrentearnings.
44/45noteS to ConSolIDAteD FInAnCIAl StAteMentSNovember30,2007and2006(amounts are in thousands of dollars, except per-share amounts)
noteS to ConSolIDAteD FInAnCIAl StAteMentSNovember30,2007and2006
(amounts are in thousands of dollars, except per-share amounts)
1) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)Stock-based compensation and other stock-based paymentsTheCompanyrecognizesstock-basedcompensationexpenseandotherstock-basedpayments inearningsbasedon the fair valuemethod for stockoptionsgrantedsinceDecember1,2003.TheBlack&Scholesmodelisusedtodeterminethefairvalueontheawarddateofstockoptions.Thecompensationexpense isrecordedoverthevestingperiod.
Employee share purchase programTheCompanyhasanemployeesharepurchaseprogramunderwhichtheCompanycan contribute to the program based on the employees’ contribution in order toenable employees to buy the Company’s shares on the market. The employees’contribution is limited to 10% of their annual remuneration while the Company’scontributionisdeterminedbytheBoardofDirectors.TheCompany’scontributionischargedtoearningswhentheemployees’contributionismadeundertheprogram.
Earnings per share Earningspersharearecalculatedbasedontheweightedaveragenumberofcom-monsharesoutstandingduringtheyear.Dilutedearningspersharearecalculatedusingthetreasurystockmethodandtakeintoaccountalltheelementsthathaveadilutiveeffect.
2) CHANGES IN ACCOUNTING POLICIESAdopted during the reporting period(a) Financial InstrumentsAs of December 1, 2006, the Company has adopted the new recommendationsof Section 3855, Financial Instruments – Recognition and Measurement, ofSection3865,Hedges,andofSection1530,ComprehensiveIncome,issuedbytheCanadian Institute ofCharteredAccountants (CICA). Thesenewsections containstandards for recognition and measurement for financial instruments, establishstandardsforhedgeaccountingandintroduceanewmeasureofresults–compre-hensiveincome–whichisthechangeinequityornetassetsofanenterpriseduringaperiodarisingfromtransactionsfromnon-ownersources.
Theadoptionof thesestandardsrequiresclassifyingallfinancialassets, liabilitiesandderivativesof theCompany.Accounting forfinancial instruments isbasedontheirclassification.TheCompanyhasimplementedthefollowingclassifications:
Cashandcashequivalentsareclassifiedas “FinancialAssetsheld forTrading”.Theyarepresentedattheirfairvalueandthegains/lossesarisingfromtherevalua-tionateachperiodendareincludedinconsolidatedincome.
Accountsreceivableareclassifiedas“LoansandReceivables”.Aftertheirinitialfairvaluemeasurement,theyaremeasuredatamortizedcostusingtheeffectiveinte-restratemethod.FortheCompany,themeasuredamountgenerallycorrespondstocostduetotheirshort-termmaturity.
Derivativefinancialinstrumentsthataredesignatedastreasuryhedgesareinclu-ded in “Assets and liabilities available for sale”. Theyarepresented at their fairvalue,representingtheapproximateamounttheCompanywouldreceiveorpayonsettlementofthesecontractsatspotrates,andthegains/lossesarisingfromtherevaluationateachperiodendareincludedincomprehensiveincome.
Bankloan,accountspayableandaccruedliabilitiesandlong-termdebtareclassi-fiedas“Otherfinancialliabilities”.Theyareinitiallypresentedattheirfairvalue.
Retroactiveadoptionofthesenewstandardswithoutrestatingprioryearsinvolvednorestatementoftheopeningbalanceofaccumulatedothercomprehensiveincomerelatingtoderivativefinancialinstrumentsthataredesignatedastreasuryhedges.The financial liability relating toderivative financial instruments is included in“Accountspayableandaccruedliabilities”intheconsolidatedbalancesheet.
(b) Translation of financial statements of self-sustaining foreign operationsOnSeptember1,2007, theCompany changed the classification of itsUS subsi-diaryfromanintegratedtoaself-sustainingforeignoperationduetofinancialandoperationalindependancenotedduringpreviousmonthsfollowinganincreaseinitsUSactivitieswithrecentacquisitionsandsignificantinternalgrowth.Consequently,thecurrentratemethodisadoptedinplaceofthetemporalmethodandtheforeignexchangelossof$3,953duetothechangeinthetranslationmethodofassetsandliabilitiesattheexchangerateineffectatthechangedateisincludedinaseparatecomponentofaccumulatedothercomprehensiveincome.
Recently issued(a) Capital and financial instruments InDecember2006,CICAissuedthreenewHandbooksectionsregardingcapitalandfinancial instruments,i.e.Sections1535,3862and3863,whichareeffectiveforinterimandannualfinancialstatementsrelatingtofiscalyearsbeginningonorafterOctober1,2007.TheCompany intends to apply thesenewstandards in thefirstquarterendingFebruary29,2008,anddoesnotforeseethatthesenewsectionswillhaveamaterialeffectonitsresults,financialpositionandcashflows.
Section1535“Capital Disclosures”establishesstandardsfordisclosinginformationaboutanentity’scapitalandhowitismanaged.Thesestandardsrequireanentitytodisclosethefollowing: itsobjectives,policiesandprocessesformanagingcapital; summaryquantitativedataaboutwhatitmanagesascapital; whetherduringtheperioditcompliedwithallexternallyimposedcapitalrequire-
mentstowhichitissubject; when theentityhasnotcompliedwithsuch requirements, theconsequencesof
suchnon-compliance.
Section3862“Financial Instruments – Disclosures”modifiesthedisclosurerequi-rements for financial instruments thatwere included inSection3861“Financial Instruments – Disclosure and Presentation”.Thenewstandardsrequireentities toprovidedisclosuresintheirfinancialstatementsthatenableuserstoevaluate: thesignificanceoffinancialinstrumentsfortheentity’sfinancialpositionand
performance; thenatureandextentofrisksarisingfromfinancialinstrumentstowhichtheentity
isexposedduring theperiodandat thebalancesheetdate,andhow theentitymanagesthoserisks.
Section 3863 “Financial Instruments – Presentation” carries forward unchangedthepresentation requirementsof theoldSection3861“Financial Instruments – Disclosure and Presentation”.
(b) Inventories InMarch2007,CICAissuedthenewSection3031“Inventories”whichwillreplaceSection3030“Inventories”.ThenewSectionprescribesmeasurementofinventoriesatthelowerofcostandnetrealizablevalue. Itprovidesguidanceonthedetermi-nationofcost,allowstheuseoftheretailmethod,prohibitsuseinthefutureofthelast-in,first-out(LIFO)method,andrequiresreversalofpreviouswrite-downswhenthere isasubsequent increase in thevalueof inventories. Italsorequiresgreaterdisclosureregardinginventoriesandthecostofsales.Thenewstandardwillbeef-fectiveforinterimandannualfinancialstatementsrelatingtofiscalyearsbeginningonorafterJanuary1,2008.TheCompanyiscurrentlyevaluatingtheeffectofthesenewstandardsonitsresults,financialpositionandcashflows.
3) BUSINESS ACQUISITIONS2007OnMarch5,2007,theCompanyacquiredtheprincipalnetassetsofVillageSquareCabinetSupply foracashconsiderationofUS$3,527andabalanceofsaleofUS$860.Based inNashville,Tennessee, thisdistributorofhardwareandrelatedproductsmainlyservesacustomerbaseofkitchencabinetmanufacturers.
OnMay23,2007,theCompanyacquiredtheprincipalnetassetsofSascoProductsInc.foracashconsiderationof$470andabalanceofsaleof$202.Thisbusinesslocated inDarthmouth,NovaScotia,distributesfinishingproductsforkitchenandhomefurnituremanufacturers.
Thesetransactionswereaccountedforusingthepurchasemethodandtheresultsofoperationsareincludedinthefinancialstatementsfromtheacquisitiondates.Thepurchasepriceallocationsareasfollows:
Summary of acquisitions 2007 Village Square Sasco Cabinet Products Supply Inc. Total $ $ $
Net assets acquiredCurrentassets 1,352 150 1,502Capitalassets 37 78 115Non-competitionagreements 235 — 235Customerrelationships 1,402 339 1,741Goodwill 2,490 105 2,595 5,516 672 6,188Currentliabilitiesassumed 363 — 363Netassetsacquired 5,153 672 5,825
Consideration Cash 4,141 470 4,611Balancesofsalepayable(Note 7) 1,012 202 1,214
2006OnDecember5,2005, theCompanyacquired theprincipalnetassetsofAtlanticCountertopsLimited.BasedinDartmouth,NovaScotia,thisspecialistinthedistribu-tionofspecialtyhardwareproductsandmaterialsforfurnitureandkitchenoperatestwodistributionscentres,themainonelocatedinDartmouthandtheotherinMoncton,NewBrunswick.
OnFebruary8,2006,theCompanyacquiredalltheoutstandingsharesofNystromGroup Inc., an Ontario distributor of decorative hardware products and bathroomaccessoriessellingtoretailers.
OnOctober17,2006, theCompanyacquired theprincipalnetassetsofSpecialtySuppliesInc.,inPompanoBeach,Florida,adistributorofdecorativeandfunctionalhardware,kitchenaccessoriesandrelatedproductswhichservesanextensivebaseofkitchenandbathroommanufacturerswithfourdistributionscentersontheFloridaEastCoast.
On January 16, 2006, the Company acquired the principal net assets of KiikaInternationalLLC,basedinPennsylvania,USA,adistributorspecializedinergono-micofficeproducts.OnOctober30,2006,theCompanyacquiredtheprincipalnetassetsofL.B.BrassLtd.,basedinNewYork,adistributorofdecorativehardware.
Thesetransactionswereaccountedforusingthepurchasemethodandtheresultsofoperationsareincludedinthefinancialstatementsfromtheacquisitiondates.Thepurchasepriceallocationsareasfollows:
Summary of acquisitions 2006 Atlantic Nystrom Specialty Countertops GroupInc. Supplies Others Total
$ $ $ $ $
Net assets acquiredCurrentassets 4,284 2,039 3,954 1,174 11,451Capitalassets 68 217 127 50 462Trademarks 873 457 2,625 221 4,176Non-competitionagreements — 93 68 19 180Customerrelationships 2,433 756 5,886 188 9,263Goodwill 3,538 949 14,795 347 19,629 11,196 4,511 27,455 1,999 45,161Currentliabilitiesassumed 1,135 211 1,326 112 2,784Futureincometaxes — 437 — — 437Netassetsacquired 10,061 3,863 26,129 1,887 41,940
Consideration Cash 10,061 3,843 13,252 1,296 28,452Balancesofsalepayable(Note 7) — 20 12,877 591 13,488
4) CAPITAL ASSETS 2007 2006 Accumu- Accumu- lated lated Cost amortization Cost amortization
$ $ $ $
Land 3,566 — 3,566 —Buildings 13,172 5,848 12,313 5,078Leaseholdimprovements 2,191 1,604 2,531 1,800Machineryandequipment 15,175 11,255 14,571 9,676Rollingstock 3,886 2,582 3,200 2,328Furnitureandfixtures 4,279 3,364 3,102 3,019Computerequipment 8,940 6,782 7,512 6,431 51,209 31,435 46,795 28,332Accumulatedamortization (31,435) (28,332) 19,774 18,463
46/47noteS to ConSolIDAteD FInAnCIAl StAteMentSNovember30,2007and2006(amounts are in thousands of dollars, except per-share amounts)
noteS to ConSolIDAteD FInAnCIAl StAteMentSNovember30,2007and2006
(amounts are in thousands of dollars, except per-share amounts)
5) INTANGIBLE ASSETS Accumu- lated Net book Cost amortization value
$ $ $
2007Intangible assets with definite useful lifeNon-competitionagreements 514 253 261Customerrelationships 10,057 1,177 8,880 10,571 1,430 9,141
Intangible assets with indefinite useful lifeTrademarks 3,833 — 3,833 3,833 — 3,833 14,404 1,430 12,974
2006Intangible assets with definite useful lifeNon-competitionagreements 180 26 154Customerrelationships 9,263 366 8,897 9,443 392 9,051
Intangible assets with indefinite useful lifeTrademarks 4,176 — 4,176 4,176 — 4,176 13,619 392 13,227
6) BANK LOANTheCompanyhasatitsdisposalalineofcreditintheamountof$26millionasatNovember30,2007(2006–$26million).Thislineofcreditbearsinterestatthebank’sprimerate,whichwas6.25%asatNovember30,2007(2006–6%)andisrenewableannually.
7) LONG-TERM DEBT 2007 2006 $ $
6,967 13,488 4 147 6,971 13,635Less:Currentportion 6,111 7,064 860 6,571
Theprincipal instalmentsdueon long termdebt are as follows:2008–$6,111;2009–$860.
8) CAPITAL STOCKAuthorizedAnunlimitednumberof:
Commonshares.
Nonvotingfirstandsecondpreferredsharesissuableinseries,thecharacteristicsofwhicharetobedeterminedbytheBoardofDirectors.
Issued 2007 2006 $ $
23,100,737Commonshares(2006–23,052,612) 17,800 17,470
During 2007, the Company issued 48,125 common shares (2006 – 19,950) atanaveragepriceof$6.87pershare (2006–$9.41)pursuant to theexerciseofoptionsundertheshareoptionplan.Inaddition,during2007,theCompany,throughanormalcourseissuerbid,didnotpurchasecommonsharesforcancellation(2006–137,700foracashconsiderationof$2,894million).
Share option planTheCompanyhasashareoptionplanforitsdirectors,officersandkeyemployees.Thesubscriptionpriceofeachshareissuedundertheplanisequaltothemarketpriceofthesharesfivedayspriortothedaytheoptionwasgrantedandmustbepaidinfullatthetimetheoptionisexercised.Optionsmaybeexercisedoneyearaftertheyweregrantedonthebasisof25%peryearandmaynotextendbeyondtenyearsfromthedatetheyweregranted.
AsatNovember30,2007,631,275options(2006–783,200)werestillavailabletobegranted.
Inthelasttwoyears,transactionsinvolvingoptionsaresummarizedasfollows:
Exercise price Options per share Aggregate $ $Outstanding,November30,2005 478,150 4.26to22.13 7,605Granted 82,000 21.10to22.43 1,838Exercised (19,950) 4.26to14.58 (188)Cancelled (4,000) 22.13 (89)Outstanding,November30,2006 536,200 4.26to22.43 9,166Granted 171,500 24.30to24.76 4,246Exercised (48,125) 4.26to22.19 (330)Cancelled (19,575) 22.13to24.76 (467)Outstanding, November 30, 2007 640,000 4.26 to 24.76 12,615
ThetablebelowsummarizesinformationregardingtheshareoptionsoutstandingasatNovember30,2007: Options outstanding Exercisable options
Weighted Weighted Weighted average average averageRange in Number of remaining exercise Number of exerciseexercise price options period price options price(indollars) (inthousands) (years) (indollars) (inthousands) (indollars)
4.26– 9.96 85 2.72 6.86 85 6.8611.35–14.50 65 5.06 13.90 65 13.9019.20–24.76 490 7.89 22.73 159 21.48 640 6.91 19.71 309 15.85
Duringtheyear2007,theCompanygranted171,500options(2006–82,000)withanaverageexercisepriceof$24.62pershare(2006–$22.40)andanaveragefairvalueof$7.40peroption(2006–$7.70)asdeterminedusingtheBlack&Scholesoptionpricingmodelusinganexpecteddividendyieldof1%(2006–1%),avolatilityof22%(2006–25%),ariskfreeinterestrateof4.17%(2006–4.16%)andanexpectedlifeof7years(2006–8years).Thecompensationexpensechargedtoearningsamountedto$888(2006–$610).
Earnings per shareBasicearningspershareanddilutedearningspersharewerecalculatedbasedonthefollowingnumberofshares: 2007 2006 $ $ (inthousands)
Weightedaveragenumberofsharesoutstanding–Basic 23,080 23,136Dilutiveeffectunderstockoptionplan 132 129Weightedaveragenumberofsharesoutstanding–Diluted 23,212 23,265
Oustandingoptionstopurchase164,750commonshareswithexercisepriceexcee-dingtheaveragemarketpricefortheyearhasbeenexcludedfromthecomputationofdilutedearningsbecausetheireffectwouldhavebeenanti-dilutive.
BusinessacquisitionbalancespayableinUSdollars,bearinginterestatvariable ratesandmaturingatvariousdatesuntil2009(7%asatNovember30,2007)
Otherloansmaturingatvariousdatesuntil2008
9) INCOME TAXESThemaincomponentsoftheprovisionforincometaxesareasfollows: 2007 2006 $ $
Current 17,434 17,197FutureTemporarydifferences 35 (324)Impactoftaxratechanges (175) (45) 17,294 16,828
Theeffectiveincometaxratediffersfromthecombinedstatutoryratesforthefollowingreasons: 2007 2006 $ $
Combinedstatutoryrates 33.17% 33.00%Incometaxesatcombinedstatutoryrates 17,108 16,174Increase(decrease)resultingfrom:Impactoftaxratechangesonfuturetaxes (175) (45)Impactofstatutoryrateschangesforthe subsidiaryoutsideCanada 84 36Stock-basedcompensationexpense 285 196Othernon-deductibleexpenses 125 285Other (133) 182 17,294 16,828
Future income taxes in thebalancesheet reflect thenet tax impactof temporarydifferencesbetweenthevalueofcapitalassets,intangibleassetsandgoodwillforaccountingandtaxpurposes.
10) COMMITMENTS(a) LeasesThe Company is committed with respect to operating leases for warehouse andofficepremisesexpiringonvariousdatesupto2016.Thefutureminimumpayments,excludingexecutorycostsforwhichtheCompanyisresponsible,areasfollows: $
2008 3,9672009 3,2822010 2,5362011 2,0172012 1,1232013andthereafter 1,552 14,477
(b) Forward exchange contractsAsatNovember30,2007,theCompanyheldthefollowingforwardexchangecontractshavingmaturitydatesupto2008.
Type Currency in thousands Average exchange rate
Purchase US$2,847 1.1236Purchase 2,800EUROS 1.3977
11) ACCUMULATED OTHER COMPREHENSIVE INCOMEAccumulatedother comprehensive income includes the following itemsand thechangesthatoccurredduringtheyearwereasfollows: 2007 $
Adjustedopeningbalanceduetonewaccountingpolicies financialinstruments —
Changeinfairvalueofcashflowhedgesduringtheyear, netofincometaxesof$54 (321)
Translationadjustmentofnetinvestmentin self-sustainingforeignoperation (1,923)
Foreignexchangelossduetochangeintranslation methodofforeignoperationreclassified asaself-sustainingoperation(Note 2) (3,953)
Balanceatyear-end (6,197)
12) FINANCIAL INSTRUMENTSFair value Thecarryingvalueofcashandcashequivalentsareareasonableestimateoftheirfairvalueduetotheirshortmaturity.
Thecarryingvalueoftheaccountsreceivableandaccountspayableareareasonableestimateoftheirfairvaluebecauseoftheirshortmaturity.
Thecarrying valueof thebank loansand loan included in the long-termdebtap-proximatestheirfairvalueeitherbecauseofthefloatingratenatureofsomeloansorbecausemanagementestimatesthatthereisnosignificantdifferencebetweenthefairvalueandthecarryingvalueofloanspayablewithfixedinterest,basedonratescur-rentlyavailabletotheCompanyonloanswithsimilartermsandremainingmaturities.
AsatNovember30,2007,thefairvalueoftheforwardexchangecontractsresultedinalossofapproximately$169,representingtheamounttheCompanywouldincuronsettlementofthesecontractsatspotrates.
Credit riskTheCompanysells itsproductstonumerouscustomersinCanada.TheCompanyperformsongoing credit evaluations of customers andgenerally doesnot requirecollateral.AsatNovember30,2007and2006,nocustomeraccounted for over10%oftotalaccountsreceivable.
Foreign currency riskTheCompany’s foreigncurrencyexposurearises frompurchasesandsales tran-sactedmainlyinUSdollarsandthenetmonetarypositioninginUSdollarsfromitsAmericansubsidiaryuntilAugust31,2007.Administrativechargesincluded,fortheyearendedNovember30,2007,anexchangelossof$33(2006–$324loss).
13) GEOGRAPHIC INFORMATIONDuring the year endedNovember30,2007,more than81%of salesweremadeinCanada,whilesalestoforeigncountries,almostentirelyintheUS,amountedto$81,145(2006–$49,371)inCanadiandollarsandto$75,137(2006–$43,546)inUSdollars.
As at November 30, 2007, $915 (2006 –$876) of a total amount of $19,774incapital assets (2006–$18,463),are located in theUS. Inaddition, intangibleassetslocatedintheUSamountsto$8,815(2006–$8,964)andgoodwillstandsat$19,336(2006–$20,528).
48/noteS to ConSolIDAteD FInAnCIAl StAteMentSNovember30,2007and2006(amounts are in thousands of dollars, except per-share amounts)
CONTENTS
10 . An Overview of Richelieu12 . Financial Highlights16 . Message to Shareholders24 . A Track Record of Growth26 . Directors and Officers27 . Management’s Report40 . Management’s and Auditors’ Report41 . Consolidated Balance Sheets42 . Consolidated Statements of Earnings and Retained Earnings42 . Consolidated Statements of Comprehensive Income43 . Consolidated Statements of Cash Flows44 . Notes to Consolidated Financial Statements
THE ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERSwill be held on March 27, 2008 at 11:00 a.m. at the Sheraton Centre, Rooms A and B1201 René Lévesque Boulevard West, Montreal, Quebec
Transfer Agent and RegistrarComputershare Trust Company of Canada
AuditorsErnst & Young LLP1 Place Ville-Marie
Suite 2400Montreal, Quebec, H3B 3M9
Head OfficeRichelieu Hardware Ltd.
7900 Henri-Bourassa Blvd. WestSaint-Laurent, Quebec H4S 1V4
Telephone: (514) 336-4144Fax: (514) 832-4002
www.richelieu.com
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www.richelieu.com
2007 AnnuAl RepoRt
