ACTIVITY DESCRIPTION

The financial statements ofThe North West Company Inc.andSobeys Inc.are presented inAppendix A and Bin your Financial Accounting Tools for Business Decision- Making 7th Edition textbook.(You may need to research some terms if they are not familiar to you)

Use the financial statements ofThe North West Company Inc.to answer the following questions:

1. Is this company a service company, merchandising company or manufacturing company? Explain why?
2. Does this company classify its operating its operating expenses on its income statement by nature or by function? Explain.
3. Are any non-operating revenues or expenses included on this company's income statement? If so, identify accounts included.
4. Calculate the company's gross profit margin for 2016 and 2015.
5. Comment on the trend in this company's gross profit margin and profit margin.
6. What comments, if any, about the company's system of internal control are included in management's report? In the independent auditors' report?
7. Who is primarily responsible for the system of internal controls - management of the auditors? Explain the responsibility of each with regard to internal control.
8. Who is primarily responsible for the preparation of the financial statements? In which report(s) are these responsibilities identified?

Using the financial statements of bothThe North West Company Inc.and Sobeys Inc., answer the following questions for both companies:

1. Determine the following values for each company as follows:

• Percentage change in sales revenue for the most recent year shown.
• Gross profit margin for Sobeys.

1. Which company had the bigger increase in sales?
2. Was that company able to maintain its gross margin?
3. What conclusion can be drawn from this?
4. In spite of increasing sales, one of the companies experienced a decreased gross margin. Explain how this could occur?

Please ensure that your response is written in full sentences and that you provide an explanation and/or a calculation to support your answers.

Appendix A Specimen Financial Statements: The North West Company Inc. In this appendix and the next, we illustrate current nancial reporting with two different sets of corporate nancial statements that are prepared in accordance with International Financial Reporting Standards. We are grateful for permission to use the actual nancial statements of The North West Companyr inc. in Appendix A. The nancial statement package for North West includes the consolidated statement of nan cial position (which North West calls balance sheet), income statement (which North West calls statement of earnings), statement of comprehensive income, statement of changes in equity (which North West calls statement of changes in shareholders equity), and statement of cash ows. The nancial statements are preceded by two reports: management's responsibility for the nancial statements and the auditor's report on these statements. Only selected notes to the nancial statements related to the topics included in this textbook have been included in this appendix. The complete set of nancial statements and annual report for North West can be found on WileyPLUS. in addition. material about working with annual reports, including the nancial statements, is included on WileyPLUS. We encourage you to scan North West's nancial statements to familiarize yourself with the contents of this appendix. You will also have the opportunity to use these nancial statements in conjunction with relevant chapter material in the textbook. As well, these statements can be used to solve the Financial Reporting and Financial Analysis cases in the Expand Your Critical Thinking section of the end of chapter material. As you near the end of your nancial accounting course, we challenge you to reread North West's nancial statements to see how much greater your understanding of them has become. A-'I A-2 APPENDIX A Specimen Financial Statements: The North West Company Inc. Management's Responsibility for Financial Statements Independent Auditor's Report pwe The management of The North West Company Inc. is responsible To the Shareholders of The North West Company Inc.: for the preparation, presentation and integrity of the accompanying We have audited the accompanying consolidated financial consolidated financial statements and all other information in the statements of The North West Company Inc. and its subsidiaries, which annual report. The consolidated financial statements have been comprise the consolidated balance sheets as at January 31, 2016 and prepared by management in accordance with International Financial January 31, 2015 and the consolidated statements of earnings, Reporting Standards as issued by the International Accounting comprehensive income, changes in shareholders' equity and cash Standards Board and include certain amounts that are based on the flows for the years then ended, and the related notes, which comprise best estimates and judgment by management. a summary of significant accounting policies and other explanatory In order to meet its responsibility and ensure integrity of financial information. information, management has established a code of business ethics, and maintains appropriate internal controls and accounting systems. Management's responsibility for the consolidated financial An internal audit function is maintained that is designed to provide statements reasonable assurance that assets are safeguarded, transactions are Management is responsible for the preparation and fair authorized and recorded and that the financial records are reliable. presentation of these consolidated financial statements in accordance Ultimate responsibility for financial reporting to shareholders rests with International Financial Reporting Standards, and for such internal with the Board of Directors. The Audit Committee of the Board of control as management determines is necessary to enable the Directors, consisting of independent Directors, meets periodically with preparation of consolidated financial statements that are free from management and with the internal and external auditors to review the material misstatement, whether due to fraud or error. audit results, internal controls and accounting policies. Internal and Auditor'sresponsibility external auditors have unlimited access to the Audit Committee. The Our responsibility is to express an opinion on these consolidated Audit Committee meets separately with management and the external financial statements based on our audits. We conducted our audits in auditors to review the financial statements and other contents of the accordance with Canadian generally accepted auditing standards. annual report and recommend approval by the Board of Directors. The Those standards require that we comply with ethical requirements and Audit Committee also recommends the independent auditor for plan and perform the audit to obtain reasonable assurance about appointment by the shareholders. whether the consolidated financial statements are free from material PricewaterhouseCoopers LLP, an independent firm of auditors misstatement. appointed by the shareholders, have completed their audit and An audit involves performing procedures to obtain audit evidence submitted their report as follows. about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to Edward S. Kennedy design audit procedures that are appropriate in the circumstances, but PRESIDENT & CEO gallnuoops lansail woy to bins not for the purpose of expressing an opinion on the effectiveness of THE NORTH WEST COMPANYINC. be ora the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion John D. King In our opinion, the consolidated financial statements present EXECUTIVE VICE-PRESIDENT & fairly, in all material respects, the financial position of The North West CHIEF FINANCIAL OFFICER Company Inc. and its subsidiaries as at January 31, 2016 and January THE NORTH WEST COMPANYINC. 31, 2015 and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting April 8, 2016 Standards. Pricewaterhouse Coopers LLP CHARTERED PROFESSIONAL ACCOUNTANTS WINNIPEG, CANADA April 8, 2016Specimen Financial Statements: The North West Company Inc. A-3 Consolidated Balance Sheets apnimall to zinamets)2 betabiloenio> bobrill ingY ($ in thousands) January 31, 2016 January 31, 2015 CURRENT ASSETS Cash $ 37,243 $ 29,129 Accounts receivable (Note 5) 79,373 72,506 Inventories (Note 6) 211,736 204,812 Prepaid expenses 7,229 9,393 335,581 15,840 NON-CURRENT ASSETS Property and equipment (Note 7) 345,881 311,692 Goodwill (Note 8) 37,260 33,653 Intangible assets (Note 8) 32,610 22,485 Deferred tax assets (Note 9) 29,040 28,074 Other assets (Note 10) 13,423 12,555 458,214 408,459 TOTAL ASSETS $ 793,795 $ 724,299 CURRENT LIABILITIES Accounts payable and accrued liabilities (2000) ONIGNATZTUO 2BRAH2 30 $ 152,136 $ 138,834 Current portion of long-term debt (Note 11) 6,27 Income tax payable 3,365 1,170 155,501 146,275 NON-CURRENT LIABILITIES Long-term debt (Note 11) 225,489 195,125 Defined benefit plan obligation (Note 12) 33,853 36,556 Deferred tax liabilities (Note 9) 2,630 2,392 Other long-term liabilities 18,710 14,668 280,682 248,741 TOTAL LIABILITIES 436,183 395,016 SHAREHOLDERS' EQUITY Share capital (Note 15) 167,910 167,460 Contributed surplus 2,620 2,831 Retained earnings 156,664 140,527 Accumulated other comprehensive income 30,418 18,465 TOTAL EQUITY 357,612 329,283 TOTAL LIABILITIES & EQUITY $ 793,795 $ 724,299 See accompanying notes to consolidated financial statements. Approved on behalf of the Board of Directors "Eric L. Stefanson, FCPA, FCA" "H. Sanford Riley" DIRECTOR DIRECTORA-4 AP PE N D | X A Specimen Financial Statements: The North West Company Inc. Consolidated Statements of Earnings Year Ended Year Ended ($ in thousands, except pershare amounts) January 31, 2016 January 31. 2015 SALES 5 1,796,035 $ 1,624,400 Cost of sales (1,273,421) (1,160.132) Gross profit 522,614 464.21 8 Selling, operating and administrative expenses (Notes I6, I7) (415,293) (366,752) Earnings from operations 107,321 97,466 Interest expense [Note 18) (6,210) (6,673) Earnings before income taxes 101,111 90,793 Income taxes (Note 9) (31.332) (27.910) NET EARNINGS FOR THE YEAR 5 69.779 5 62.883 NET EARNINGS PER SHARE (Note 20) Basic $ 1.44 S i .30 Diluted $ 1.43 S 1.29 WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING (000's) Basic 48,509 48,4 32 Diluted 48,783 48,709 See accompanying notes to consolidated nancial statements. Specimen Financial Statements: The North West Company Inc. A-5 Consolidated Statements of Comprehensive Income is12 botsbilozno?) Year Ended Year Ended ($ in thousands) January 31, 2016 January 31, 2015 NET EARNINGS FOR THE YEAR $ 69,779 $ 62,883 Other comprehensive income/(expense), net of tax: Items that may be reclassified to net earnings: (Si stori) or Exchange differences on translation of foreign controlled subsidiaries vril diups to erio 11,953 11,384 Items that will not be subsequently reclassified to net earnings: Remeasurements of defined benefit plans (Note 12) 4,583 (11,968) Remeasurements of defined benefit plan of equity investee (15) 30 Total other comprehensive income, net of tax 16,521 (554) COMPREHENSIVE INCOME FOR THE YEAR $ 86,300 $ 62,329 See accompanying notes to consolidated financial statements. E8958 OE PSESO EVE (081.82) (08182) LIKE (081 22) EsserE 2 20481 TEAS OA-6 APPENDIX A Specimen Financial Statements: The North West Company Inc. Consolidated Statements of Changes in Shareholders' Equity Jabiloeno> baball issY Share Contributed Retained ($ in thousands) Capita Surplus Earnings AOCI(1) Total Balance at January 31, 2015 $ 167,460 2,831 $ 140,527 ABY $ 18,465 $ 329,283 Net earnings for the year 59,779 69,779 Other comprehensive income (Note 12) 4,583 11,953 16,536 Other comprehensive income of equity investee (15) (15) Comprehensive income 74,347 11,953 86,300 Equity settled share-based payments 124 124 Dividends (Note 19) (58,210) (58,210) Issuance of common shares (Note 15) 450 (335) 115 450 211) (58,210) (57,971) Balance at January 31, 2016 $167,910 $ 2,620 $156,664 $ 30,418 $357,612 Balance at January 31, 2014 $ 166,069 $ 3,528 $ 145,762 7,081 $ 322,440 Net earnings for the year 62,883 52,883 Other comprehensive income (Note 12) (11,968) 11,384 (584) Other comprehensive income of equity investee 30 30 Comprehensive income 50,945 11,384 62,329 Equity settled share-based payments 373 373 Dividends (Note 19) (56,180) (56,180) Issuance of common shares 1,391 (1,070 321 1,391 (697) (56,180) (55,486) Balance at January 31, 2015 $ 167,460 $ 2,831 $ 140,527 $ 18,465 $ 329,283 (1) Accumulated Other Comprehensive Income See accompanying notes to consolidated financial statements. OSpecimen Financiai Statements: The North West Company Inc. A-7 Consolidated Statements of Cash Flows Year Ended Year Ended (5 in thousands) January 31. 2016 January 3 I , 2015 CASH PROVIDED BY {USED IN} Net earnings for the year 5 69,779 5 62,883 Adjustments for. Amortization {Note 7, 8) 44.026 40,372 Provision for income taxes (Note 9) 31,332 27,910 Interest expense (Note 18) 6.21 0 6,673 Equity settied share option expense {Note 13) 386 373 Taxes paid (30,659) (32,881) Loss / (Gain) on disposal of property and equipment 350 (294) 121,424 105,036 Change in non{ash working capital 5,904 9,225 Change in other non-cash items 5,659 83 Cash from operating activities 1 32,987 115,086 Investing activities Purchase of property and equipment (Note 7) (63,179) (49,101) .._ .. intangible asset additions (Note 8) (12,804) (3,228) Proceeds from disposai of property and equipment 170 2,017 Cash used in investing activities (75,813) (50.312) Financing activities Increase in long-term debt (None 1 1) 13,081 73,572 Repayments of Iongrterm debt (Note I I) (75,950) Dividends (Note 19) (58,210) (56,180) Interest paid (5.160) (5.71 3) Issuance of common shares "5 321 Cash used in nancing activities (50,174) (58,950} Effect 0! changes in foreign exchange rats on cash 1,1 14 952 NET CHANGE IN CASH 8,114 6,776 Cash, beginning of year 29.1 29 22.353 CASH. END OF YEAR 5 37,243 3 29,129 See accompanying notes to consolidated linana'al statements A-8 see asse (ass.E) orra esre orers E88.50 810.20 APPENDIX A Notes to 3. SIGNIFICANT ACCOUNTING POLICIES (F) Property and Equipm ment Property and equipment are stated 6. INVENTORIES at cost less accumulated amortization and any impairment losses. The accounting policies set out below have been applied to all years Cost includes any directly attributable costs, borrowing costs on Retailing Consolidated ies are valued at the lower of cost and net realizable value. presented in these sese consolidated financial statements, and have been qualifying construction projects, and the costs of dismantling and Valuing the Company to use esti lied consistently by both the Company and its subsidiaries using removing the items and restoring the site on which they are located. When major components of an item of property and related to: adjusting to co Financial uniform accounting policies for like transactions and other events in similar circumstances. equipment have different useful lives, they are accounted for as last physical count and the separate items. Amort cost of sales for the (A) Basis of Consolidation Subsidiaries are entities controlled, either available for use using the straight-line method to allocate the Statements directly or indirectly, by the Company. Control is established when cost of assets less their residual values over their estimated useful the Company has rights to an entity's variable returns, and has the lives as follows: decrea ($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ability to affect those returns through its power over the entity, Subsidiaries are fully consolidated or the date on which control Buildings discon JANUARY 31, 2016 AND 2015 Leasehold improvements 346 - 8% is transferred to the Company until the date that control ceases. written down The Company assesses control on an ongoing basis, Fixtures and equipment 896 - 20%% during the year en A joint arrangement can take the form of a joint operation Computer equipment 1296- 33% 1. ORGANIZATION of a joint venture. Joint ventures are those entities over which the Company has joint control of the rights to the net assets of the Amortization methods, useful lives and residual values are The North West Company Inc. (NWC or the Company) is a corporation arrangement, rather than rights to its assets and obligations for reviewed at each reporting date and adjusted if appropriate, amalgamated under the Canada Business Corporations Act (CBCA) and its liabilities. The Company's 50% interest in the jointly controlled Assets under construction and land are not amortized. overned by the laws of Canada. T a. The Company, through its entity Transport Nanuk Inc. has been classified as a jo d everyday products and subsidiaries, is a leading retailer of food and everyday pro he consolidated statements of earnings Its results are included in the consolidated L. . J services. The address of its registered office is 77 Main Street, Winnipeg using the equity method of accounting. The consolidated Manitoba, statements Include Company's share of both (P) Provisions A provision is recognized if, as a result of a past event, These consolidated financial statements have been approved for earnings and other comprehensive income from the date that the Company has a present legal or constructive obligation that Issue by the Board of Directors of the Company on April 8, 2016. significant influence or joint control commences until the date is probable that an outflow of that it ceases. Joint ventures are carried in the consolidated economic benefits will be required to settle the obligation. 2. BASIS OF PREPARATION eets at cost plus post-acquisition changes in the Company's share of net assets of the entity, less any impairment [. . . ] (A) Statement of Compliance These consolidated financial in value, statements have been prepared in accordance with International All significantinter-company amounts and transactions have Financial Reporting Standards (IFRS), asissued by the Internationa been eliminated. Specimen Financial Statements: The North West Company Inc. Accounting Standards Board (IASB). (B) Basis of Measurement The consolidated financial statements (C) Revenue Recognition Revenue on the sale of goods is recorded have been prepared on a going concern basis, under the historical cost convention, except for the following which are measured at at the time the sale is made to the customer, being when the fair value, as applicable: significant risks and rewards of ownership have transferred to the ner, recovery of the amount of revenue can be measured reliably. Sales are pres Liabilities for share-based payment plans (Note 13) . . . Defined benefit pension plan (Note 12) net of tax, returns and discounts and are measured at the fair Assets and liabilities acquired in a business combination of the consideration received or receivable from the customer for the products sold or services supplied. Service cha customer account receivables are accrued each month or The methods used to measure fair values are discussed further in the notes to these financial statements. balances outstanding at each account's billing date. Functional and Presentation Currency The presentation (D) Inventories Inventories are valued at the lower of cost and net currency of the consolidated financial statements is Canadian realizable value. The cost of warehouse inventories is determined dollars, which is the Company's functional currency. All financial using the weighted-average cost method. The cost of retail information is presented in Canadian dollars, unless otherwise inventories is determined primarily using the retail method of stated, and has been rounded to the nearest thousand, accounting for general merchandise inventories and the cost method of accounting for food inventories on a first-in, first-out basis. Cost includes the cost to purchase goods net of vendor allowances plus other costs incurred in bringing inventories to their present location and condition. Net realizable value is estimated based on the amount at which inventories are (Et stoll) sansqxe nollgo side baltloz liupa expected to be sold, taking into consideration fluctuations in retail prices due to obsolescence, damage or seasonality. ties are written down to net realizable value if net gig to Iszogelb rio (nica)\\ (@ stoll) asset smooninot noirivor ble value declines below carrying amount. When circumstances that previously caused inventories to be down below cost no longer exist or when there is clear evidence he pailsiago mo of an increase in selling price, the amount of the write-down (8 X 9lov9 nollExthomA previously recorded is reversed, a non jordio ni spy (I QB20) Y8 GBGIVORR HRAD bing zox51 HEAD MI BOWAND THM bozu las7. PROPERTY & EQUIPMENT 8. GOODWILL & INTANGIBLE ASSETS January 31, 2016 Land improvements equipment equipment Construction Total Goodw Financial performance was measured with actual and Cost January 31, 2016 January 31, 2015 budgeted earnings based on sales and expense growth Balance, beginning of year $ 16,041 $ 3772061 $ 51,845 $ 265,706 5 73,151 $ 16,459 5 800,263 Balance, beginning of year $ 33,653 5 29424 to each store and the Company's administrative offices. Financial budgets and forecasts are approved by Additions 28,613 10,863 20422 2,715 566 63,179 Effect of movements in foreign 3,607 Disposals (747) (367) (1492 ) exchange 4,229 or management and consider historical sales volume (365 (13) and price growth: Effect of movements in foreign exchange 11,873 2091 9,161 1.289 25,361 Balance, end of year $ 37,260 33,653 The ratio of enterprise value to financial performance was determined using a range of market trading multiples from Total January 31, 2016 $ 16.935 $ 417.182 $ 64,055 5 294,922 $ 77.142 5 17075 5 887.311 Goodwill Impairment Testing comparable companies, Costs to sell have been estimated as a fixed percentage of Accumulated amortization The goodwill asset balance relates to the Company's acquired enterprise value, This is consistent with the approach of an Balance, beginning of year $ 209,584 $ 30.296 5 186.617 5 62074 $ 485.571 st-U-Less, and is allocated to the International Operation independent marke Amortization expense 17,593 3,806 4.226 40.216 operating segment. The value of goodwill was tested by means of 14,591 comparing the recoverable amount of the operating segment to its Disposals No impairment has been identified on goodwill, and management (206) (509) (251) (973) carrying value. The recoverable amount is the greater of its value in considers reasonably foreseeable changes in key assumptions are Effect of movements in foreign exchange 5,231 1,218 6047 1,130 13616 use or its fair value less costs of disposal. Recove estimated from the product of financial performance and trading unlikely to produce a goodwill impairment. Total January 31. 2016 $ 232.202 $ 34.811 5 207,004 5 67413 $ 54143D multiples observed force Net book value January 31, 2016 5 16,935 5 184.980 5 29.244 5 87.918 5 9729 5 17.075 5 345,89 to the key assumptions represent management's best estimates and been based on data from both external and internal sources. The fair value measurement was categorized as a Level 3 fair value based on the inputs in the valuation technique used. Key assumptions used January 31, 2015 Land Buildings improvements fixtures & Computer Construction in the estimation of enterprise value are as follows; Cost Balance, beginning of year $ 15,692 5 350,924 $ 45,576 5 245,863 $ 65,327 $ 9.120 $ 732.502 Addition 16.917 4,001 14.363 6,540 7,280 49.101 Disposals (700) Intangible assets (4,402) (148) (4.858) (200) (10,308) Effect of movements in foreign exchange 13 622 2416 10.338 1.484 28,968 January 31, 2016 Software Cost U-Less banner Other $ 16041 5 377061 $ 51845 $ 265,706 $ 73,151 5 16459 5 800.263 Cost Balance, beginning of year $ 28.376 $ 8.902 5 45.267 Accumulated amortization Additions 12.654 150 12804 Balance, beginning of year $ 191,439 $ 25,796 $ 171.321 $ 57 069 $ 445/527 Effect of movements in foreign exchange 954 1.179 Amortization expense 16,565 3,275 13.034 3,903 11 1 36.777 (8585) Total January 31, 2016 $ 41,030 8.364 (135] 5 59,250 Specimen Financial Statements: The North West Company Inc. (4,047) $ 9856 Effect of movements in foreign exchange 5,627 1.305 6.583 1,237 14.752 Accumulated Amortization Total January 31, 2015 $ 209584 $ 30.296 5 186,617 $ 62,074 5 488,571 Balarice, beginning of year $ 17032 5 22,782 5 16.041 5 167477 $ 21.549 Amortization expense 3,558 252 3810 Net book value January 31, 2015 79069 $ 11077 $ 16459 5 311/692 Effect of movements in foreign exchange The Company reviewed its property and equipment for indicators of impairment. No assets were identified as impaired, Total January 31, 2016 $ 20.590 6,050 26/640 $ 20,440 $ 9,856 $ 2,314 Interest capitalized Net book value January 31, 2016 $ 32,610 Interest attributable to the construction of qualifying assets was capitalized using an average rate of 2.86% and 3.66%% for the years ended January 31, 2016 and 2015 respectively. Interest capitalized in additions amounted to $275 (January 31, 2015- $274), Accumulated interest capitalized in the cost total above amounted to $1,438 (January 31, 201 A-9A-10 APPENDIX A Intangible assets 11. LONG-TERM DEBT (2) The US$52.060 committed, revolving loan facilities in the International Operations mature December 31, 2018 and bear interest January 31, 2015 Software Cost-U-Less banner Other January 31, 2016 Jarvary 31. 2015 at LIBOR plus a spread. These loan facilities are secured by certain assets of the Company and rank pari posso with the US$70,060 senior notes Cost and the $200,000 Canadian Operations loan facilities. At January 31, Balance, beginning of year $ 25.218 $ 7,783 $ 7,987 $ 40.988 Current: Additions 3.158 70 * 3,228 Notes payable 2016, the Company had drawn US$NIL (January 31, 2015 - US$22,000) 72 on these facilities. See Note 25, Subsequent Event. Finance lease liabilities 1 1 Write off of fully amortized assets (731) (731) Effect of movements in foreign exchange 1,1 19 643 1.782 Revolving loan facilities?" 6,144 (3) These committed, revolving loan facilities provide the Company's Canadian Operations with up to $200,000 for working capital Total January 31, 2015 $ 28,376 8902 $ 2.089 45.267 5 6271 requirements and general business purposes. The facilities mature December 31, 2018 and are secured by certain assets of the Company Accumulated Amortization Non-current k part passu with the US$70,000 senior notes and the US$52,000 Balance, beginning of year $ 14,272 $ 5.202 $ 19474 Revolving loan facilities 7,946 loan facilities in international Operations. These facilities bear a floating Amortization expense 2,760 111 835 3.595 Revolving loan facilities 27.977 Interest rate based on Bankers Acceptances rates pl Write off of fully amortized assets he Canadian prime interest rate. See Note 25, Subsequent Event. (231) (731) Revolving loan facilities 119,193 78,367 Effect of movements in foreign exchange 464 414 Senior notes 98,350 88, 779 (4) The Companyrefinanced the US$70,000 senior notes that matured on June 15, 2014. The maturing senior notes had a fixed interest rate Total January 31, 2015 17/032 3 5.750 5 22782 Finance lease liabilities of 6.55% on US$42,060 and a floating interest rate based on US LIBOR Net book value January 31, 2015 $ 11,344 $ 8,902 $ 2,239 5 22,485 $ 225,489 $ 195.125 he new US$70,000 senior notes, which plus a spread on US$28000. The new US$70, a fixed interest rate of 3.27% on us $ 225,489 $ 201,196 mature on June 16, 2021, have a fixed interest $55,000 and a floa asat January 31, 2016, the Company had incurred $6,037 (January 31, plus a spread. The new senior notes are secured by certain assets of (1) in July 2015, the Company completed the refinancing of the US $200.000 Canadian 2015 - $468) for intangible assets that were not yet available for use $30,000 loan facility maturing October 31, 2015, The new increased. Operations loan facilities and the US$52,000 loan facilities in the and therefore not subject to amortization. committed, revolving U.S. loan facility provides the International International Operations. Operations with up to US$40,060 for working capital requirements and Intangible Asset Impairment Testing as the fair value of the Cast-U-Less banner fusiness purposes. This facility matures October 31, 2020, The Company determines the fair valu bears a floating rate of interest based on U.S. LIBOR plus a spread and 15. SHARE CAPITAL using the Relief from Royalty approach. This method require management to make long-term assumptions about future sales, is secured by certain accounts receivable and inventories of the International Operations. At January 31, 2016, the International Authorized - The Company has an unlimited number of shares. terminal growth rates, royalty rates and discount rates. Sales forecasts Operations had drawn US$5,643 (January 31, 2015 - US$4,831) on this Specimen Financial Statements: The North West Company Inc. for the following financial year together with medium and terminal facility. growth rates ranging from 2% to 5%% are used to estimate future sales Shares Consideration to which a royalty rate of 0.5% is applied. The present value of this Balance at January 31, 2015 48,497,199 $ 167,450 royalty stream m is compared to the carrying value of the asset. No Issued under option plans (Note 13) 26,142 450 Impairment has been identified on intangible assets and management considers reasonably foreseeable changes In key assumptions are Balance at January 31, 2016 48,523,341 unlikely to produce an intangible asset impairment. $ 167910 1. . .] [. . . ] 10, OTHER ASSETS 23. SUBSIDIARIES AND JOINTLY CONTROLLED ENTITIES The Company's principal operating sub January 31, 2016 January 31, 2015 Proportion of voting rights held by: Investment in jointly controlled entity (Note 23) $ 10,356 $ 9482 Activity Country of Organization Company Subsidiary Other 3,067 3,073 NWC GP Inc. General Partner Canada 100 $ 13,423 $ 12.555 North West Company Holdings Inc. Holding Company Canada 1001% The North West Company LP Retailing Canada 1004 (less one unit) NWC (US) Holdings Inc. Holding Company United States The North West Company International) Inc. Retailing United States 100% The North West Finance Company Cooperate U. Finance Company Netherland 90%% The Investment in jointly controlled entities comprises a 50% interest in a Canadian Arctic shipping company, Transport Nanuk Inc. At January 31. 2016, the Company's share of the net assets of its jointly controlled entity amount to $10,119 (January 31, 2015 - $9,244), comprised assets of $11.277 (January 31, 2015 - $10,462) and liabilities of $1,158 (January 31, 2015 - $1,218). During the year ended January 31, 2016 the Company purchased freight handling and shipping services from Transport Nanuk Inc, and its subsidiaries of $7,274 (January 31, 2015 - $7,462). The contract terms are based on market rates for these types of services on similar arm's length transactions. OAppendix B Specimen Financial Statements: Sobeys Inc. In this appendix, we illustrate current financial reporting using the financial statements of Sobeys Inc., one of Canada's leading grocery chains. The financial statements included in this appendix contain the consolidated statement of financial position (which Sobeys calls balance sheet), income statement (which Sobeys calls statement of earnings), statement of comprehensive income, state- ment of changes in equity (which Sobeys calls statement of changes in shareholders' equity), and statement of cash flows. The complete set of financial statements for Sobeys, including the auditor's report and notes to the financial statements, can be found on sedar.com in the Issuer Profiles/Companies/S section. We encourage you to use these financial statements in conjunction with relevant chapter material in the textbook. SOBEYS INC. Consolidated Balance Sheets As At (in millions of Canadian dollars) May 7 May 2 2016 2015 ASSETS Current Cash and cash equivalents $ 258.8 295.6 Receivables 489.4 499.7 Inventories (Note 4) 1,287.3 1,260.3 Prepaid expenses 117.2 120.3 Loans and other receivables (Note 5) 26.1 19.4 Income taxes receivable 6.4 185 Assets held for sale ( 396.2 43 9 2,581.4 2,257.7 Loans and other receivables (Note 5) 93.0 87.9 Investment in affiliate 48.0 48.0 Other assets (Note 7) 42.8 48.4 Property and equipment (Note 8) 3,096.8 3,448.4 Investment property (Note 9) 90.4 102.3 Intangibles (Note 10) 654.1 677.6 Goodwill (Note 11) 716.3 ,501.5 Deferred tax assets (Note 12) 637.8 89.2 $7,960.6 $10,261.0 LIABILITIES Current Accounts payable and accrued liabilities $2,180.2 $ 2,245.4 Income taxes payable 16.8 21.4 Provisions (Note 13) 169.0 114.3 Long-term debt due within one year (Note 14) 341.4 32.4 2,707.4 2,413.5 Provisions (Note 13) 125.1 138.5 Long-term debt (Note 14) 1,922.6 2,229.6 Other long-term liabilities (Note 15) 107.9 106.9 Employee future benefits (Note 16) 326.9 341.2 Deferred tax liabilities (Note 12) 41.0 52.9 5,230.9 5,282.6 SHAREHOLDERS' EQUITY Capital stock (Note 17) 2,752.9 2.752.9 Contributed surplus 93.0 93.0 (Deficit) retained earnings (172.1) 2,086.5 Accumulated other comprehensive loss (3.2) (7.1) 2,670.6 4,925.3 Non-controlling interest 59.1 53.1 2,729.7 4,978.4 $7,960.6 $10,261.0 See accompanying notes to the consolidated financial statements. B-1B-2 APPENDIX B Specimen Financial Statements: Sobeys Inc. SOBEYS INC. Consolidated Statements of (Loss) Earnings 53 and 52 Weeks Ended onl eyed (in millions of Canadian dollars) O May 7 May 2 goibnol ashand lo sno canlay 2016 2015 Sales $24,618.8 $23,928.8 agodo? doidw) nolliang island Other (loss) income, net (Note 18) (14.2) 88.2 -stale smogni sviarisdoigmoo Operating expenses sill awoll rlass to insmaine Cost of sales 18,661.2 17,966.3 banot ad no almomstate hin Selling and administrative expenses 5,416.1 5,403.0 Impairments of goodwill and long-lived assets (Note 8 and 11) 2,975.3 Operating (loss) income (2,448.0) 647.7 Finance costs, net (Note 20) 134.6 150.7 (Loss) earnings before income taxes (2,582.6) 497.0 Income tax (recovery) expense (Note 12) (463.4) 130.3 Net (loss) earnings $ (2, 119.2 ) $ 366.7 (Loss) earnings for the year attributable to: Non-controlling interest $ 16.4 $ 17.9 Owners of the Company (2,135.6) 348.8 $ (2,119.2) $ 366.7 See accompanying notes to the consolidated financial statements. SOBEYS INC. Consolidated Statements of Comprehensive (Loss) Income 53 and 52 Weeks Ended (in millions of Canadian dollars) May 7 May 2 2016 2015 Net (loss) earnings $(2, 119.2) $366.7 Other comprehensive income (loss) Items that will be reclassified subsequently to net (loss) earnings Unrealized gains (losses) on derivatives designated as cash flow hedges (net of taxes of $(1.5) (2015 - $1.8)) 3.8 (4.6 Reclassification of losses on derivatives designated as cash flow hedges to net (loss) earnings (net of taxes of $(0.1) (2015 - $(0.2)) 0.1 0.4 3.9 (4.2) Items that will not be reclassified subsequently to net (loss) earnings Actuarial gains (losses) on defined benefit plans (net of taxes of $(2.7) (2015 - $15.9)) (Note 16) 7.3 (45.6) Total comprehensive (loss) income $(2,108.0) $316.9 Total comprehensive (loss) income for the year attributable to: Non-controlling interest $ 16.4 $ 17.9 Owners of the Company (2,124.4) 299.0 $(2, 108.0) $316.9 See accompanying notes to the consolidated financial statements. CostsO SOBEYS INC. Consolidated Statements of Changes in Shareholders' Equity (in millions of Canadian dollars) Accumulated Total Other Retained Attributable to Non Capital Contributed Comprehensive Earnings Owners of the controlling Total Stock Surplus Loss (Deficit) Company Interest Equity Balance at May 3, 2014 $2,752.9 $93.0 $(2.9) $1,902.5 $ 4,745.5 $41.0 $ 4,786.5 Dividends declared on common shares (119.2) (119.2) (119.2) Capital transactions with structured entities (5.8 (5.8 ) Transactions with owners (119.2) (119.2) (5.8) (125.0) Net earnings 348.8 348.8 17.9 366.7 Other comprehensive loss (45.6) (49.8) (49.8 ) Total comprehensive income for the year 303.2 299.0 17.9 316.9 Balance at May 2, 2015 $2,086.5 $ 4,925.3 $53.1 $ 4,978.4 1 1 / 1 1 1 1 1 1 181 1 1 1 /1 1 1 1 1 1 1811 Dividends declared on common shares (130.3) (130.3) (130.3) Capital transactions with structured entities (10.4) (10.4) Transactions with owners (130.3) (130.3) (10.4) (140.7) Net loss (2,135.6) (2,135.6) 16.4 (2,119.2) Other comprehensive income 7.3 11.2 11.2 Total comprehensive loss for the year (2,128.3) (2,124.4) 16.4 (2,108.0) Balance at May 7, 2016 $2,752.9 $ (172.1) $ 2,670.6 $59.1 $ 2,729.7 See accompanying notes to the consolidated financial statements. B-3B-4 APPENDIX B Specimen Financial Statements: Sobeys Inc. SOBEYS INC. Consolidated Statements of Cash Flows 53 and 52 Weeks Ended (in millions of Canadian dollars) O May 7 May 2 2016 2015 Operations Net (loss) earnings $(2,119.2) $ 366.7 Adjustments for: Depreciation 380.5 393.6 Income tax (recovery) expense (463.4) 130.3 Finance costs, net (Note 20) 134.6 150.7 Amortization of intangibles 86.0 81.7 Loss (gain) on disposal of assets 45.9 (56.8) Impairment of non-financial assets, net 17.6 1.5 Impairments of goodwill and long-lived assets (Notes 8 and 11) 2,975.3 Amortization of deferred items 12.5 12.4 Employee future benefits (4.3) (4.2) Increase in long-term lease obligation 6.7 5.8 Decrease in long-term provisions (27.6) (44.5) Stock option plan 3.6 4.0 Restructuring 103.0 Net change in non-cash working capital (116.6) 6.2 Income taxes paid, net (93.9) (84.0) Cash flows from operating activities 837.7 1,066.4 Investment Property, equipment and investment property purchases (616.2 (497.2) Proceeds on disposal of property, equipment and investment property 136.7 778.8 Additions to intangibles (55.5) (39.8) Loans and other receivables (11.8) (19.8) Other assets and other long-term liabilities 5.1 (18.0) Business acquisitions (Note 21) (90.7) (11.7) nterest received 1.0 4.2 Cash flows (used in) from investing activities (631.4) 196.5 Financing Issue of long-term debt 582.7 374.4 Debt financing costs (1.4) (0.9) Repayment of long-term debt (594.4) 1,511.8) Interest paid (89.3) (117.3) Dividends paid, common shares (130.3) 119.2) Non-controlling interest (10.4) (5.8) Cash flows used in financing activities (243.1 ) (1,380.6) Decrease in cash and cash equivalents (36.8 (117.7) Cash and cash equivalents, beginning of year 295.6 413.3 Cash and cash equivalents, end of year $ 258.8 $ 295.6 See accompanying notes to notes to the consolidated financial statements