RONA INC.
TSX : RON

RONA INC.

November 10, 2010 08:38 ET

RONA Grows Market Share and Improves Efficiency in a Challenging Environment

BOUCHERVILLE, QUEBEC--(Marketwire - Nov. 10, 2010) - RONA inc. (TSX:RON), the largest Canadian distributor and retailer of hardware, renovation and gardening products, today reported its financial results for the 13-week and 39-week periods ended September 26, 2010 (third quarter and first nine months of 2010). All figures in this release are in Canadian dollars.

FINANCIAL HIGHLIGHTS

  • Compared to the third quarter of 2009:

    • Total sales decreased 0.5%, same-store sales down 2.25%

    • Gross margin was up 32 basis points and adjusted gross margin up 26 basis points to 29.58%

    • EBITDA was up 0.8%, excluding 2009 unusual items down 4.6%

    • Net earnings of $50.2 million, up 2.2%, excluding 2009 unusual items down 5.8%

    • Earnings per share (diluted) unchanged at $0.38, excluding 2009 unusual items down $0.03

OPERATIONAL HIGHLIGHTS

  • Expansion and diversification of the Distribution segment with the acquisition of TruServ Canada

  • The Commercial and Professional Market division experienced strong organic growth and took further steps toward establishing a national platform for its services with the announcement of three acquisitions

  • 5% growth in private-brand and control-labelled products and achievement of 22% penetration rate

  • Issuance of RONA cards under the RONAdvantages program doubled over last year

  • Continued development of the affiliated dealer network with year-to-date addition of 230,000 square-feet of selling space, representing close to $90 million in annual retail sales, and selection of five projects under RONA's unique succession-planning program for store ownership

"Declining consumer confidence has made it difficult to achieve customer growth over the past two quarters, however, we have been able to make gains with respect to other objectives, such as growing market share, expanding our distribution, commercial and professional businesses and improving efficiency," stated Robert Dutton, President and CEO of RONA. "Taking into account recently announced acquisitions, we are at 19% market share, up from 17.5% at the beginning of the year and on target to reach our 20% objective by the end of 2011. The benefits of efficiency improvement initiatives are also being reflected in the 26 basis point improvements in gross margin this past quarter."

"We expect economic recovery to be slower than our initial assumptions and consumer confidence to remain a challenge," said Mr. Dutton. "In response, we intend to take appropriate short-term actions to minimize the financial impact of slower customer growth on our results, while pursuing new development opportunities. Our industry is undergoing important changes, especially in the distribution, and in the commercial and professional wholesale businesses, and we intend to use our financial flexibility to play a very active role in the consolidation of these markets."

FINANCIAL RESULTS

Consolidated results for the three-month period ended September 26, 2010

The results discussed and analyzed in this section are for the three-month period ended September 26, 2010 and, when compared, are compared to the results for the three-month period ended September 27, 2009, unless otherwise indicated.

Sales were $1,313.7 million, down $6.8 million, or 0.5%, including a 2.25% decrease in same-store sales. The decrease was the result of a 0.2% decrease in Corporate and Franchised Stores segment sales and a 1.7% decrease in Distribution segment sales. The decline in same-store sales reflects mainly the continued decline in consumer confidence over the quarter, lower housing activity compared to last year, unfavourable weather (particularly in Western Canada) and tax credits that were available to consumers last year, but not this year. Sales growth relating to acquisitions, new stores and the Commercial and Professional Market division helped to offset this downward pressure.

Retail consumers are being more prudent and selective in their spending as they are worried about the economy, job creation and their debt levels. This behaviour was reflected in less traffic through the stores and lower weekend and install sales. However, for those who did shop, the average size of the basket was up slightly, suggesting that the merchandising and in-store service initiatives were having good success.

While this consumer malaise is affecting all regions, it was more evident in Western Canada than in the rest of Canada and weather conditions have been particularly unfavourable again this quarter. Atlantic Region sales saw some strengthening as the integration of the Pierceys acquisition is progressing smoothly. Quebec stores, particularly those that had expanded from the RONA Le Régional to the RONA L'entrepôt banner, did reasonably well, while commercial and professional market sales were particularly strong in Ontario.

In the retail segment, HVAC (heating, ventilation and air conditioning) category was strong due to a heat wave in July. We also gained market share in the lighting category following a complete remerchandising of the category and strong imported product assortment at competitive prices. However, the kitchen, paint and flooring categories were weak due to tax credits that were available to consumers last year, but not this year, as well as a special kitchen truckload sale realized last year. The Commercial and Professional Market division continued to experience strong sales growth in the plumbing, HVAC, lumber and building material segments.

Net of intersegment activities, Distribution sales decreased 1.7% to $309.5 million. The decrease represents pressure on same-store sales from our affiliated dealers which was reflected in their purchases.

The gross margin was 27.08%, up 32 basis points, while the adjusted gross margin was up by 26 basis points, to 29.58%. Growth comes from optimisation of product categories, better conditions from vendors, shrink reduction, as well as increased imports and private and controlled brand sales.

EBITDA amounted to $106.7 million, an increase of $0.9 million, or 0.8%, as the result of a 0.2% increase in Corporate and Franchised Stores segment EBITDA and a 3.2% increase in Distribution segment EBITDA. The EBITDA margin increased 11 basis points to 8.12% due to a 3 basis point increase for the Corporate and Franchised Stores segment and a 35 basis point increase for the Distribution segment. Excluding unusual items, EBITDA was down $5.1 million, or 4.6%, and the EBITDA margin was down 34 basis points. This decrease is attributable to a decline in same-store sales partly offset by efficiency improvement measures. Charges for unusual items were incurred in 2009 and were attributable to the re-evaluation of commitments related to store closures in the Corporate and Franchised Stores segment.

Interest expenses on long-term debt and bank loans were up only $0.1 million, or 1.3%, reflecting a share issue in June 2009 and a more disciplined management of the balance sheet and capital investments, which compensated for a slight increase in short-term rates.

Amortization and depreciation costs totalled $27.1 million, an increase of $1.2 million or 4.7%. This increase can be attributed to the opening of new corporate stores, the renovation program for existing corporate stores, acquisitions and ongoing improvements to information systems.

Net earnings were up $1.1 million to $50.2 million, and earnings per share (diluted) were unchanged at $0.38. Net earnings were up due primarily to the contribution of the Distribution segment. Excluding unusual items recorded in 2009, net earnings were down $3.1 million, or 5.8%, and earnings per share (diluted) were down $0.03, or 7.3%.

Consolidated results for the nine-month period ended September 26, 2010

The results discussed and analyzed in this section are for the nine-month period ended September 26, 2010 and, when compared, are compared to the results for the nine-month period ended September 27, 2009, unless otherwise indicated.

Sales were $3,663.3 million, up $126.9 million, or 3.6%. Sales growth is attributable to a 3.8% increase in Corporate and Franchised Stores segment sales and a 3.0% increase in Distribution segment sales. Corporate and Franchised Stores segment sales were $2,763.6 million, an increase of $100.7 million, or 3.8%. This growth is attributable to new store openings and same-store sales growth of 4.6% in the first half of the year, offset by a same-store sales decline of 2.25% in the third quarter. After nine months, same-store sales were up 1.98%. Six stores were opened in the first nine months of the year, two in Ontario, one in Alberta, one in Saskatchewan, and two in Quebec. The strong growth in same-store sales during the early part of 2010 to a large extent mirrors the recovery in the Canadian economy, which started the year at a strong pace, but more recently appears to be slowing down, particularly in the area of housing activity. Unfavourable weather patterns have also had some impact on sales. Within the segment, the Commercial and Professional Market division has recorded strong sales growth throughout the period for all product lines, especially in the plumbing and HVAC segments. Net of intersegment activities, Distribution segment sales increased 3.0% to $899.7 million. This sales increase is the result of 13.4% growth in the first quarter of 2010, tempered somewhat by slower growth in the second quarter of 0.2%, and a decline in the third quarter of 1.7%, reflecting the slowdown in economic and housing market activity over the course of the period, as well as unfavourable weather conditions and delays in imports from China.

The gross margin improved by 25 basis points, to 27.54%. The gross margin also improved on a quarterly basis, going from a 4 basis point year-over-year improvement in the first quarter of 2010, to a 25 basis point improvement in the second quarter, to a 32 basis point improvement in the third quarter. The adjusted gross margin rose by 37 basis points, to 30.45%. Growth comes from optimisation of product categories, better conditions from vendors, shrink reduction, as well as increased imports and private and controlled brand sales, partly offset by increases in overseas shipping costs and changes in product mix.

EBITDA was $276.5 million, up $22.3 million, or 8.8%, as the result of a 12.4% increase in Corporate and Franchised Stores segment EBITDA, partly offset by a 1.9% decrease in Distribution segment EBITDA. The EBITDA margin increased to 7.55%, a rise of 36 basis points due to a 59 basis point increase for the Corporate and Franchised Stores segment, partly offset by a 35 basis point decrease for the Distribution segment. Excluding unusual items, EBITDA was up $8.1 million, or 3.0%, and the EBITDA margin was down 4 basis points. The charges for unusual items in the first nine months of 2009 were $14.2 million relating to store closures. In addition to reflecting improved gross margins, this EBITDA increase also reflects benefits of efficiency improvement measures, in spite of additional costs associated with new store openings.

Interest expenses on long-term debt and bank loans were reduced by $0.7 million, or 4.1%. This decline is attributable to a share issue in June 2009 and a continued effort to maintain a more disciplined management of the balance sheet and capital investments, resulting in lower debt levels.

Amortization and depreciation costs totalled $82.4 million, an increase of $5.0 million or 6.5%. This increase can be attributed to an impairment charge in the second quarter 2010, the opening of new corporate stores, the renovation program for existing corporate stores, acquisitions and ongoing improvements to information systems.

Net earnings were up $13.6 million, or 12.7%, to $121.1 million, and earnings per share (diluted) were up $0.04, or 4.5%, to $0.92. Excluding unusual items, net earnings were up $3.8 million, or 3.2%, and earnings per share (diluted) were down $0.04, or 4.2%, from $0.96 in 2009. The difference between net earnings growth and earnings per share growth is explained by the differences in average shares outstanding during the respective periods. The increase in net earnings is due primarily to the contribution of the Corporate and Franchised Stores segment over the first nine months of the year driven mainly by strong results in the Commercial and Professional Market division.

CASH FLOWS AND FINANCIAL POSITION

Operations generated $73.1 million of cash flow in the third quarter of 2010, compared to $80.0 million in the third quarter of 2009. Net of changes in working capital, operations generated $58.2 million of cash flow compared to $100.1 million generated in the third quarter of 2009. For the nine-month period ended September 26, 2010, operations generated $209.7 million, compared to $194.0 million in 2009. Net of changes in working capital, operations generated $44.2 million, compared to $216.7 million in 2009. The differences in cash flow relating to changes in working capital items are mainly attributable to a $90.2 million increase in inventory reflecting the opening of new stores, acquisitions, new HVAC lines of products introduced in our Commercial and Professional Market division as well as new products introduced at our Calgary Distribution Centre to support our growth in this part of the country. The decreases are also attributable to an increase in accounts receivable coming from a higher proportion of lumber and building material sales to the commercial and professional clientele as well as a decrease in accounts payable coming from higher imports and changes in product mix. In spite of the increase in overall inventory level, inventory turns increased slightly.

Over the past year, the Company exercised disciplined financial management and strictly monitored investments in fixed assets. In the third quarter of 2010, RONA invested $34.0 million in capital and intangible assets compared to $33.1 million invested in the third quarter of 2009. These investments were devoted to the expansion of our retail network, including the construction of new stores, renovations and upgrades of existing stores, as well as maintenance. We also allotted part of these investments to ongoing improvements in our information systems, in order to increase our operational efficiency. For the nine-month period ended September 26, 2010, RONA invested $91.5 million in capital and intangible assets, $32.6 million less than the $124.1 million invested in 2009. The Company now expects its total investment in 2010 to be about $165 million.

While cash has been used to fund acquisitions and capital expenditures over the past year, RONA's balance sheet has remained strong. On September 26, 2010, the ratio of total net debt to capital was 13.4%, compared to 11.9% as at September 27, 2009. The ratio of equity to assets was 63.9% at the end of the third quarter of 2010, compared to 61.2% as at September 27, 2009.

As at September 26, 2010, the Company had $150.4 million of cash, which will be used over forthcoming quarters to realize various growth projects in Phase 2 of the Company's 2008–2011 strategic plan. RONA also has an undrawn committed credit facility of up to $650 million.

UPDATE ON THE COMPANY'S STRATEGIC ORIENTATION

On February 27, 2008, RONA released its strategic plan for 2008-2011. The plan comprised two phases. Phase 1 of the plan focused on productivity, efficiency, and profitability (the "PEP program"), over the 2008-2009 period. On January 25, 2010, RONA unveiled Phase 2 of its strategic plan (the "New World program"), which places renewed emphasis on growth over the 2010-2011 period.

RONA's management made a commitment to provide quarterly updates of the plan's progress in its management report, and an annual update in its annual report and at its annual general meeting. The information below is an update of the plan's progress.

1. Customer growth:

Customer growth will be stimulated by numerous initiatives to improve the customer experience – innovative store concepts, new product categories, new private brand and controlled-label products, new tools and programs to improve customer loyalty, and new training programs for store employees.

  • Last spring, RONAdvantages was improved and made into a permanent program that is now one of the most advantageous customer programs in the industry in Canada. The number of new RONA cards issued during 2010 under this program was double what was issued under the previous program during the whole year in 2009.

  • RONA's private-brand and controlled-label product sales for the quarter were up 5% over last year, bringing the penetration level of these products to over 22%, up from 19% at the beginning of the year, and just two percentage points short of the 24% target for 2011.

  • The ability to meet the needs of commercial and professional customers is growing rapidly as the Commercial and Professional Market division makes significant strides to develop a national platform, largely through strategic acquisitions (for more information on the acquisitions see below) and strong organic growth.

  • Ten stores are being renovated to improve the shopping experience: eight in Ontario (Mississauga, Lindsay, Barrie, Windsor, Peterborough, Sheppard, Simcoe and Kingston) and two in Quebec (Anjou and Mascouche). They are expected to be completed by year-end.

  • As part of its efforts to promote Canadian values of fair play, teamwork, social responsibility and perseverance, RONA has entered into an exclusive partnership with the Calgary Flames of the NHL (National Hockey League) and a major junior hockey team, the Calgary Hitmen of the WHL (Western Hockey League). RONA and the Flames together will explore creative ideas that will include renovating community youth facilities. RONA will contribute labour, materials and expertise to every project selected. The Company will benefit from having permanent, camera-visible RONA branding at the teams' home games, including two in-ice logos as well as signage behind the boards on the home net side. Additionally, a visible patch will be added to all Calgary Flames practice jerseys, a brand new initiative to the NHL this year. Part of the RONA network, TOTEM Building Supplies, an Alberta-based company, will also share in some visibility on the boards and within the arena.

2. Construction of new corporate and franchised stores:

RONA has several different store concepts to meet the specific needs of the communities it serves, big or small, urban or not. Be it a totally new store, or the expansion or transformation of an existing one, RONA has a design to meet the needs.

  • To date this year, new store construction has resulted in the addition of about 300,000 square-feet.

  • Just following the end of the quarter, the corporate RONA Le Régional store located in St-Luc, Quebec completed expansion plans to become a RONA L'entrepôt big-box store. The Upper Richelieu region, which it serves, has grown considerably in the last ten years and is still growing. The expansion adds an extra 20,000 square feet to the store, which now offers the full line of services provided by the RONA L'entrepôt concept, including specialized boutiques. Unique in the home improvement sector, RONA boutiques are designed to support the renovation process and make it more efficient. The store has an inventory of over 45,000 different items.

3. Development of the affiliated dealer network:

In addition to recruiting new dealers to the group and helping existing dealers to improve and expand their stores, a key element of development in this area is RONA's newly-minted succession-planning program. It was designed to secure RONA's leadership in the market and sustain the growth of its network. The Company's new succession-planning program will help RONA attract next-generation dealer-owners and continue to be the company that offers independent dealer-owners in Canada the best development support.

  • In the first nine months of this year, 230,000 square-feet of store space has been added through the recruitment of new dealers and the expansion of existing dealer stores (63,000 square-feet through recruitment and 167,000 square-feet through expansion projects). This represents close to $90 million in annual retail sales (about $50 million relating to new dealers and $40 million to expansion projects, which includes 49,500 square-feet associated with the new Blainville store detailed below). RONA dealers have also completed 84 projects in total, which include 23 expansions projects and 61 remerchandising projects. These projects represent close to $35 million in investments by our dealers. Counting on the recruitment and all projects completed by RONA dealers, the Company is close to achieving its objective of adding $100 million to $150 million of annual retail sales to its dealer network and expects to end the year in line with this objective.

  • In Blainville, Quebec, this past August, RONA dealer André Lespérance completed the conversion of an existing building into a new 49,500-square-foot proximity store, offering more than 25,000 products, and representing an investment of more than $6 million in the local community. Renovation of the building that would become the new RONA store included measures to protect air quality and reduce energy consumption.

  • In September, less than a year after the introduction of the innovative succession-planning program, five young leaders, representing four different projects, were the first selected to receive support from the Development Fund and recently two new projects were presented to the selection committee. This new program combined with the summer retreat described below is really gaining traction as more than 20 projects are currently under study by our young dealers and could potentially be presented to the selection committee in the coming year.

  • In August, a youth forum was held in Kananaskis, Alberta for a number of young people representing the next generation of RONA leaders. This was the second such event. Led by Robert Dutton, RONA's President and CEO, the retreat consisted of active working sessions with senior members of RONA's Management Committee, as well as exchanges with industry experts and Canadian business leaders.

4. Acquisitions:

Through targeted acquisitions in retail, distribution and commercial and professional segments, the Company may quickly grow different aspects of its operations and capabilities, such as market coverage, brand extension, leverage of existing infrastructure, product offerings, and purchasing power, while also reducing the cyclical nature of the retail business.

  • To date this year, nine acquisitions have been completed and/or announced, four of which were announced around the end of the third quarter: TruServ Canada Inc., Don Park Limited Partnership in Canada (to be acquired through Noble, a RONA subsidiary), Boiseries Signées (acquired through Matériaux Coupal, a RONA subsidiary), and MPH Supply Limited (acquired through Noble, a RONA subsidiary).

  • TruServ Canada Inc. is a dealer-owned distributor headquartered in Winnipeg, Manitoba, which operates two warehousing and distribution centres, one of 400,000 square feet in Winnipeg and one of 250,000 square feet in Kitchener, Ontario, from where it supplies over 40,000 products (SKUs). It generates hardware distribution sales of over $100 million and serves more than 650 independent dealers across Canada, including 250 stores under the True Value, V&S, Country Depot and other specialized banners, as well as 400 non-bannered stores. The transaction closed on November 3, 2010.

  • Don Park Limited Partnership in Canada is specialized in the distribution and manufacturing of heating, ventilation and air conditioning products (HVAC). They operate 14 branches, as well as three manufacturing facilities and one distribution centre in Ontario. Founded in 1972, Don Park has a strong growth profile, generating more than $90 million in sales. The transaction is expected to close by year-end and is waiting for regulatory approvals.

  • Boiseries Signées is a Quebec-based manufacturer of made-to-measure prefabricated, factory-built staircases. It enhances the presence of the Commercial and Professional Market division in the indoor staircase systems market and puts its finishing services in a more advantageous position. At the same time, it makes RONA the only company offering a complete line of indoor finishing products, hardwood floors and staircases, including a tailormade installation option, to its customers in the building trades. This really strengthens the appeal to housing and homebuilding professionals in the Greater Montreal Area and enables penetration of the Quebec City market.

  • MPH Supply Limited is specialized in the distribution of plumbing products and operates five branches located in Vancouver and the Lower Mainland. The transaction also includes the acquisition of related company Better Bathrooms Limited, a retail outlet specialized in sales of finishing plumbing products (www.better-bathrooms.ca). MPH Supply and Better Bathrooms generate close to $15 million in sales. It provides instant access to a new geographical area in the specialized plumbing market and adds critical mass to RONA's existing product and service offering in the specialized plumbing market, thus generating important procurement synergies with Noble. This transaction represents another step toward achieving RONA's objective of establishing a national platform in the commercial and professional market.

  • In October, RONA exercised its right of first refusal to acquire Matériaux R. M. Bibeau Ltée. one of RONA's long-time affiliated dealers who wanted to sell its business. Following this transaction, their six hardware stores, located in Sorel, Tracy, Varennes, Contrecœur, Longueuil and Ste-Julie, have become part of RONA's corporate store network.

Outlook

While an economic recovery is underway, the pace of recovery seen in the first part of the year does not appear to be sustainable and is now expected to be even more gradual than previously anticipated. The Bank of Canada, for example, reduced its estimates for 2010 Canadian economic growth in April, July and, once again, in October, to reflect a more gradual recovery.

So economic growth continues to be anticipated, but at a slower rate, one which will likely be slower than what was anticipated when the Company unveiled its New World program in January. Consumer confidence is also much lower than expected and should continue to be a challenge. Given this context, management now expects that achievement of the financial objectives of the New World Program will likely be delayed.

However, the assumptions about retail sales growth relating to the development of the affiliated dealer network, market penetration for private-brand and controlled-label products, and acquisitions, remain unchanged for 2010 and 2011. Year-to-date, the Company has made very good progress on this front, adding more than $550 million in annual retail sales, and there are still plenty of opportunities to sustain this level of growth.

RONA will continue to exercise disciplined financial management in order to maintain an investment grade profile while vigorously pursuing opportunities in the other growth vectors, as management believes the Company should take advantage of the current conditions to rapidly consolidate its market.

The objective of increasing RONA's market share in Canada from 17.5% to 20% also remains unchanged. In fact, the Company is well on its way to achieving this one as it is estimated to be 19% as of the third quarter when taking into consideration recently announced acquisitions. This growth in market share will gradually contribute to earnings and will be highly beneficial when market conditions improve.

Finally, with the acquisitions of MPH Supply in British Columbia, Boiseries Signées in Quebec and Don Park Limited Partnership Canada in Ontario announced just recently, as well as the acquisitions earlier this year of Plomberie Payette & Perreault and LGC in Quebec, we are making significant advances towards our objective of developing a national platform for our Commercial and Professional Market division.

The acquisition of TruServ Canada is also providing instant geographical penetration in many Canadian communities, particularly in Ontario and Western Canada, thus creating important growth opportunities. The acquisition also diversifies the network of dealer stores we serve by adding hardware, general merchandising and agriculture specialized stores.

This strategic acquisition also enables us to offer three different solutions to the benefit of independent dealers in Canada: the RONA-bannered dealer store, the TruServ specialized banners, and distribution services for dealers without banners. Now that we have all the complementary tools necessary to serve any type of dealer in Canada, we will launch a vast recruitment campaign targeting the 5,000 independent dealers across the country. More than half of these dealers are part of buying groups with no marketing plans and no succession program.

These strategic transactions, focused on the commercial and professional market and on the distribution market, will reduce the cyclical nature of our operations while providing strong growth potential and synergies. It will also open up opportunities for further acquisitions.

ADDITIONAL INFORMATION

The Management's Discussion and Analysis (MD&A) and unaudited financial statements for the third quarter of 2010 can be found in the "Investor Relations" section of the Company's website at www.rona.ca and on the SEDAR website at www.sedar.com. The Company's Annual Report, along with other information about RONA, including its Annual Information Form, can also be found on the RONA and SEDAR websites.

TELEPHONE CONFERENCE WITH THE FINANCIAL COMMUNITY

On Wednesday, November 10, 2010, at 11:00 a.m. (EST), RONA will hold a telephone conference for the financial community. To join the conference, please call 514-861-4190 or 1 877-677-7769. To listen to the call online, please go to: http://www.gowebcasting.com/2090.

NON-GAAP PERFORMANCE MEASURES

In this Press Release, as in our internal management, we use the concept of "earnings before interest, taxes, depreciation, amortization and non-controlling interest" (EBITDA). This measure corresponds to "Earnings before the following items" in our consolidated financial statements. We also use the concept of "adjusted gross margin," which corresponds to sales less the cost of goods sold including all vendor rebates.

While EBITDA does not have a definition that is standardized by GAAP, it is widely used in our industry and in financial circles to measure the profitability of operations, excluding tax considerations and the cost and use of capital. Adjusted gross margin is used by RONA's management to analyze the profitability of its network, including all vendor rebates. Given that these measures are not standardized, EBITDA and adjusted gross margin cannot be compared from one company to the next. Still, we establish them in the same way for each of the segments identified, and, unless expressly mentioned, our method does not change over time. EBITDA and adjusted gross margin must not be considered separately or as a substitute for other performance measures calculated according to GAAP, but rather as additional information.

FORWARD-LOOKING STATEMENTS

This Press Release includes "forward-looking statements" that involve risks and uncertainties. All statements other than statements of historical facts included in this Press Release, including statements regarding the prospects of the industry and prospects, plans, financial position and business strategy of the Company may constitute forward-looking statements within the meaning of the Canadian securities legislation and regulations. Investors and others are cautioned that undue reliance should not be placed on any forward-looking statements.

For more information on the risks, uncertainties and assumptions that would cause the Company's actual results to differ from current expectations, please also refer to the Company's public filings available at www.sedar.com and www.rona.ca. In particular, further details and descriptions of these and other factors are disclosed in the MD&A under the "Risks and uncertainties" section and in the "Risk factors" section of the Company's current Annual Information Form.

The forward-looking statements in this Press Release reflect the Company's expectations as at November 10, 2010, and are subject to change after this date. The Company expressly disclaims any obligation or intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by the applicable securities laws.

ABOUT RONA

RONA is the largest Canadian distributor and retailer of hardware, home renovation and gardening products. RONA operates a network of nearly 700 corporate, franchise and affiliate stores of various sizes and formats. With close to 30,000 employees working under its family of banners in every region of Canada and more than 16 million square feet of retail space, the RONA store network generates over $6 billion in annual retail sales. Visit www.rona.ca.

RONA
 
Consolidated Financial Statements
 
September 26, 2010 and September 27, 2009
RONA inc.
Consolidated Earnings
For the thirteen and thirty-nine-week periods ended September 26, 2010 and September 27, 2009
(Unaudited, in thousands of dollars, except earnings per share)
     
  Third Quarter Year-to-date
  2010 2009 2010 2009
         
         
Sales $ 1,313,708 $ 1,320,510 $ 3,663,298 $ 3,536,427
         
Earnings before the following items (Note 4) 106,674 105,815 276,471 254,183
         
Interest on long-term debt 5,275 5,143 15,272 15,674
Interest on bank loans 588 645 1,428 1,731
Depreciation and amortization (Note 7) 27,098 25,893 82,421 77,416
  32,961 31,681 99,121 94,821
Earnings before income taxes and non-controlling interest 73,713  
74,134
 
177,350
 
159,362
Income taxes 21,772 22,537 52,141 48,446
Earnings before non-controlling interest 51,941 51,597 125,209 110,916
Non-controlling interest 1,727 2,449 4,140 3,489
Net earnings and comprehensive income $ 50,214 $ 49,148 $ 121,069 $ 107,427
         
Net earnings per share (Note 14)        
  Basic $ 0.38 $ 0.38 $ 0.93 $ 0.88
  Diluted $ 0.38 $ 0.38 $ 0.92 $ 0.88
The accompanying notes are an integral part of the interim consolidated financial statements.
 
 
 
RONA inc.
Consolidated Retained Earnings
Consolidated Contributed Surplus
For the thirty-nine-week periods ended September 26, 2010 and September 27, 2009
(Unaudited, in thousands of dollars)
         
  2010   2009  
         
Consolidated Retained Earnings        
Balance, beginning of period $ 1,161,808   $ 1,028,876  
Net earnings 121,069   107,427  
Expenses relating to the issue of common shares, net of income tax recovery of $2,042   (5,320 )
Excess of purchase price over stated capital of repurchased common shares and related contributed surplus (Note 9) (17,666 )  
Balance, end of period $ 1,265,211   $ 1,130,983  
         
Consolidated Contributed Surplus        
Balance, beginning of period $ 13,475   $ 12,563  
Compensation cost relating to stock option plans 910   709  
Repurchase of common shares – normal course issuer bid (Note 9) (3,153 )  
Exercise of stock options (19 )  
Balance, end of period $ 11, 213   $ 13,272  
         
The accompanying notes are an integral part of the interim consolidated financial statements.
 
 
 
RONA inc.
Consolidated Cash Flows
For the thirteen and thirty-nine-week periods ended September 26, 2010 and September 27, 2009
(Unaudited, in thousands of dollars)
     
  Third Quarter Year-to-date
  2010 2009 2010 2009
         
Operating activities        
Net earnings $ 50,214   $ 49,148   $ 121,069   $ 107,427  
Non-cash items                
  Depreciation and amortization 27,098   25,893   82,421   77,416  
  Derivative financial instruments (351 ) (67 (168 )  (1,188
  Future income taxes (5,761 ) (1,446 (113 )  2,726  
  Net loss (gain) on disposal of assets (147 )  101   (1,240 )  (1,835
  Impairment charge on fixed assets held for sale   2,050     2,050  
  Stock-based compensation (Note 10) 28   1,528   2,907   2,556  
  Non-controlling interest 1,727   2,449   4,140   3,489  
  Other items 312   328   716   1,399  
  73,120   79,984   209,732   194,040  
Changes in working capital items (14,883 )  20,142   (165,525 )  22,614  
Cash flows from operating activities 58,237   100,126   44,207   216,654  
Investing activities                
Business acquisitions (Note 6) (2,003 )    (12,151 )  (3,214
Advances to joint ventures and other advances   955     (52
Other investments (2,440 ) (2,970 (3,081 )  (3,496
Fixed assets (29,874 )  (20,826 (72,353 )  (91,757
Intangible assets (4,162 )  (12,286 (19,169 )  (32,342
Other assets (670 )  (1,952 (3,098 )  (4,762
Disposal of fixed assets 371   1,207   1,701   4,695  
Disposal of investments 2,159   740   6,839   1,905  
Cash flows from investing activities (36,619 )  (35,132 (101,312 )  (129,023
Financing activities                
Bank loans and revolving credit (1,328 )  (6,194 6,807   (42,236
Other long-term debt 650     650   188  
Repayment of other long-term debt and redemption of preferred shares  
(2,241
 
) 
 
(3,628
 
 
(10,148
 
) 
 
(9,585
 
Issue of common shares 1,006   23,769   2,562   175,795  
Expenses relating to the issue of common shares   (1,244   (7,362
Repurchase of common shares (26,824 )    (31,609 )   
Cash flows from financing activities (28,737 )  12,703   (31,738 )  116,800  
                 
Net increase (decrease) in cash (7,119 )  77,697   (88,843 )  204,431  
Cash, beginning of period 157,533   139,079   239,257   12,345  
Cash, end of period $ 150,414   $ 216,776   $ 150,414   $ 216,776  
Supplementary information                
Interest paid $ 11,372   $ 11,638   $ 22,725   $ 24,958  
Income taxes paid $ 7,785   $ 9,166   $ 32,822   $ 30,326  
The accompanying notes are an integral part of the interim consolidated financial statements.
 
 
 
RONA inc.
Consolidated Balance Sheets
September 26, 2010, September 27, 2009 and December 27, 2009
(In thousands of dollars)
       
  September 26, September 27, December 27,
  2010 2009 2009
  (Unaudited) (Unaudited)  
Assets      
Current assets      
  Cash $ 150,414 $ 216,776 $ 239,257
  Accounts receivable 338,538 303,867 250,845
  Income taxes receivable 2,436
  Inventory (Note 3) 898,442 808,233 726,262
  Prepaid expenses 24,306 25,078 18,114
  Derivative financial instruments 1,231 297 801
  Future income taxes 14,692 17,502 15,914
  1,427,623 1,371,753 1,253,629
Investments 10,912 12,328 11,978
Fixed assets 884,248 831,814 868,359
Fixed assets held for sale (Note 8) 8,839 47,581 13,242
Goodwill 495,458 455,662 455,572
Intangible assets 97,077 79,539 89,828
Other assets 30,196 28,867 29,682
Future income taxes 30,376 26,808 27,593
  $ 2,984,729 $ 2,854,352 $ 2,749,883
       
Liabilities      
Current liabilities      
  Bank loans $ 11,573 $ 6,021 $ 5,211
  Accounts payable and accrued liabilities 511,048 556,201 427,817
  Income taxes payable 17,002 8,918
  Derivative financial instruments 1,038 200 776
  Future income taxes 4,309 5,189 4,900
  Instalments on long-term debt 8,503 13,197 9,996
  553,473 589,726 448,700
Long-term debt 424,777 433,189 430,524
Other long-term liabilities 32,597 30,563 31,317
Future income taxes 29,570 21,618 27,542
Non-controlling interest 37,190 32,420 32,761
  1,077,607 1,107,516 970,844
Shareholders' equity      
Capital stock (Note 9) 630,698 602,581 603,756
Retained earnings 1,265,211 1,130,983 1,161,808
Contributed surplus 11,213 13,272 13,475
  1,907,122 1,746,836 1,779,039
  $ 2,984,729 $ 2,854,352 $ 2,749,883
The accompanying notes are an integral part of the interim consolidated financial statements.
 
 
 
RONA inc.
Notes to Interim Consolidated Financial Statements
September 26, 2010 and September 27, 2009
(Unaudited, in thousands of dollars, except amounts per share)

1. Basis of presentation

The accompanying unaudited interim consolidated financial statements are in accordance with Canadian generally accepted accounting principles for interim financial statements and do not include all the information required for complete financial statements. They are also consistent with the policies outlined in the Company's audited financial statements for the year ended December 27 , 2009. The interim financial statements and related notes should be read in conjunction with the Company's audited financial statements for the year ended December 27 , 2009. The interim operating results do not necessarily reflect the results for the full fiscal year. Accordingly, the comparative balance sheet as at September 27, 2009 is also included to reflect seasonal fluctuations that characterize the hardware, renovation and home garden industry. When necessary, the financial statements include amounts based on estimated information and management's best judgments.

2. Effect of new accounting standards not yet implemented

International financial reporting standards (IFRS)

In 2009, the Accounting Standards Board of Canada confirmed that Canadian GAAP for publicly accountable enterprises will be replaced by IFRS, which will go into effect during 2011. When converting from Canadian GAAP to IFRS, the Company will prepare both current and comparative information using IFRS. The Company expects this transition to have an impact on its accounting policies, financial reporting and information systems. Preparations for the transition to IFRS are advancing rapidly and according to the plan prepared by the Company.

3. Inventory

For the thirteen and thirty-nine-week periods ended September 26, 2010, amounts of $957,998 and $2,654,538 of inventory were expensed in the consolidated results ($967,171 and $2,571,525 in 2009). These amounts include inventory write-down charges of $9,873 and $26,511 ($11,351 and $30,248 in 2009). 

4. Store closing costs

Exit and disposal costs and write-down of assets

In April 2008, management approved a detailed plan to close four of its stores included in the corporate and franchised stores segment. Three of these stores were closed in 2008 and one was closed in the second quarter of 2009. During the second quarter of 2010, the Company settled a lease obligation to one of these stores by a cash payment and reversed a related provision.

During the thirteen and thirty-nine-week periods ended September 26, 2010, the Company recognized the following costs:

  Third Quarter Year-to-date
  2010 2009 2010 2009
Lease obligations $ – $ 6,400 $ – $ 14,355
Reversal of provision (2,944)
Inventory write-down 525
Total recorded in earnings before the following items $ – $ 6,400 $ (2,944) $ 14,880

The liability for exit and disposal costs and write-down of assets, included in accounts payable and accrued liabilities, is as follows:

  2010   2009  
Balance, beginning of period $ 14,340   $ 3,575  
Costs recognized:        
  Lease obligations   14,355  
  Accretion expense 197    
Reversal of provision (2,944 )  
Cash payments (7,568 ) (2,770 )
Balance, end of period $ 4,025   $ 15,160  

Other closing costs

In 2009, during the thirteen and thirty-nine-week periods ended September 27, the Company also recorded operating costs, including interest and depreciation, for the liquidation of the assets of these stores in the amounts of $0 and $1,230. 

5. Vendor rebates

In accordance with EIC-144, Accounting by a customer (including a reseller) for certain consideration received from a vendor, the Company must disclose the amount recognized for which the full requirements for vendor rebate entitlement have not yet been met. For the thirty-nine-week period ended September 26, 2010, the Company recognized an amount of $8,619 ($5,320 in 2009) which was estimated based on the attainment of specified requirements to receive the rebates.

6. Business acquisitions

During the thirty-nine-week period ended September 26, 2010, the Company acquired four companies (one company in 2009), operating in the corporate and franchised stores segment, by way of share or asset purchases. Taking direct acquisition costs into account, these acquisitions were for a total consideration of $49,385 ($3,821 in 2009). The Company financed these acquisitions either by an offering of RONA's treasury stock or from its existing credit facilities. The results of operations of these companies are consolidated from their date of acquisition.

The preliminary purchase price allocation of these acquisitions was established as follows:

  2010   2009  
         
Accounts receivable $ 11,324   $ 1,145  
Inventory 12,546   1,224  
Other current assets 467    
Fixed assets 1,988   105  
Goodwill 40,074   1,357  
Intangible assets 418    
Current liabilities (17,390 ) (10 )
Long-term debt (42 )  
  49,385   3,821  
Less: Issuance of common shares (35,000 )  
  Accrued direct acquisition costs (319 )  
  Balances of purchase prices (1,915 ) (607 )
Cash consideration paid $ 12,151   $ 3,214  

The Company expects that an amount of $1,333 ($944 in 2009) of goodwill will be deductible for tax purposes.

7. Impairment of long-term assets

During the thirty-nine-week period ended September 26, 2010, the Company recorded an impairment charge of $2,000 to reduce the carrying value of a building. This charge, recognized in the second quarter, is included in depreciation and amortization in the consolidated statement of earnings.

8. Fixed assets held for sale

The Company has decided to dispose of land and buildings in the corporate and franchised store segment which are no longer used in operations, and accordingly, established a detailed plan to sell. 

During the third quarter of 2010, the Company reclassified $4,725 from fixed assets held for sale to fixed assets since these assets no longer meet the criteria for presentation as fixed assets held for sale. This reclassification had no impact on the Company's results.

During the third quarter of 2009, the Company disposed of one parcel of land and a building which had been held for sale and two parcels of land and two buildings in the first quarter of 2009 and recorded gains on disposition of $446 and $1,521 respectively. In addition, in the third quarter of 2009, the Company recorded an impairment charge of $2,050 for the write-down of fixed assets held for sale to their market values less costs to sell. There were no disposals in the period ended September 26, 2010.

9. Capital stock

Issued and fully paid:

The following tables present changes in the number of outstanding common shares and their aggregate stated value:

  September 26, 2010  
  Number of shares   Amount  
Balance, beginning of period 129,653,383   $ 600,459  
Issuance in exchange for common share subscription deposits 250,979   3,842  
Issuance under stock option plans 34,500   176  
Issuance in exchange for cash 25,661   340  
Issuance as payment for a business acquisition (Note 6) 2,230,067   35,000  
Repurchased and cancelled (2,230,067 ) (10,790 )
Balance before elimination of reciprocal shareholdings 129,964,523   629,027  
Elimination of reciprocal shareholdings (73,334 ) (424 )
Balance, end of period 129,891,189   628,603  
Deposits on common share subscriptions, net of eliminations of joint ventures (a)     2,095  
      $ 630,698  
     
  September 27, 2009  
  Number of shares   Amount  
Balance, beginning of period 115,819,699   $ 423,477  
Issuance in exchange for common share subscription deposits 328,692   3,744  
Issuance under stock option plans 107,000   371  
Issuance in exchange for cash (b) 13,390,568   172,726  
Balance before elimination of reciprocal shareholdings 129,645,959   600,318  
Elimination of reciprocal shareholdings (80,251 ) (524 )
Balance, end of period 129,565,708   599,794  
Deposits on common share subscriptions, net of eliminations of joint ventures (a)     2,787  
      $ 602,581  
     
  December 27, 2009  
  Number of shares   Amount  
Balance, beginning of year 115,819,699   $ 423,477  
Issuance in exchange for common share subscription deposits 328,692   3,744  
Issuance under stock option plans 113,775   502  
Issuance in exchange for cash (b) 13,391,217   172,736  
Balance before elimination of reciprocal shareholdings 129,653,383   600,459  
Elimination of reciprocal shareholdings (80,251 ) (524 )
Balance, end of year 129,573,132   599,935  
Deposits on common share subscriptions, net of eliminations of joint ventures (a)     3,821  
      $ 603,756  

(a) Deposits on common share subscriptions represent amounts received during the period from affiliated and franchised merchants in accordance with commercial agreements. These deposits are exchanged for common shares on an annual basis. If the subscription deposits had been exchanged for common shares as at September 26, 2010, the number of outstanding common shares would have increased by 161,802.

(b) In June 2009, the Company issued 13,374,500 common shares at a price of $12.90 per share for total gross proceeds of $172,531.

Normal course issuer bid

On June 16, 2010, the Board of Directors approved a normal course issuer bid to repurchase for cancellation, from June 21, 2010 to June 20, 2011, up to 3,250,000 common shares representing approximately 2.5 % of the common shares outstanding. Under this issuer bid approved by the Toronto Stock Exchange, the repurchases will be made at market prices in accordance with the rules and by-laws of the Toronto Stock Exchange. The Company ceases to consider shares as outstanding on the date of the Company's repurchase of its shares although the actual cancellation of the shares by the transfer agent and registrar occurs on a timely basis on a date shortly thereafter.

For the thirteen and thirty-nine-week periods ended September 26, 2010, the Company repurchased for cancellation a total of 1,936,867 and 2,230,067 common shares for a total cost of $26,824 and $31,609 respectively. Of the total cost of $31,609, $10,790 represents stated capital and $3,153 represents a reduction of the contributed surplus attributable to these common shares. The remaining $17,666 was charged to retained earnings.

10. Stock-based compensation

Stock option plans

Stock option plan of May 1, 2002

The Company adopted a stock option plan for designated senior executives which was approved by the shareholders on May 1, 2002. A total of 2,920,000 options were granted at that date. Options granted under the plan may be exercised since the Company made a public share offering on November 5, 2002. The Company could grant options for a maximum of 3,740,000 common shares. As at September 26, 2010, the 2,920,000 options granted have an exercise price of $3.47 and of this number, 1,675,500 options (1,645,500 options in 2009) were exercised.

The fair value of each option granted was estimated at the grant date using the Black-Scholes option-pricing model. Calculations were based upon a market price of $3.47, an expected volatility of 30%, a risk-free interest rate of 4.92%, an expected life of four years and 0% expected dividend. The fair value of options granted was $1.10 per option according to this method.

No compensation cost was expensed with respect to this plan for the thirteen and thirty-nine-week periods ended September 26, 2010 and September 27, 2009.

Stock option plan of October 24, 2002

On October 24, 2002, the Board of Directors approved another stock option plan for designated senior executives of the Company and for certain designated directors. The total number of common shares which may be issued pursuant to the plan will not exceed 10% of the common shares issued and outstanding less the number of shares subject to options granted under the stock option plan of May 1, 2002. These options become vested at 25% per year, if the market price of the common share has traded, for at least 20 consecutive trading days during the twelve-month period preceding the grant anniversary date, at a price equal to or higher than the grant price plus a premium of 8% compounded annually.

On March 8, 2007, the Board of Directors approved certain modifications to the plan. These modifications, approved by the shareholders at the annual shareholders' meeting on May 8, 2007, establish that this plan is no longer applicable to the designated directors of the Company and provide for the replacement of the terms and conditions for granting options under the plan by a more flexible mechanism for setting the terms and conditions for granting options. The Board of Directors will adopt the most appropriate terms and conditions relative to each type of grant. For the options granted on March 8, 2007 and subsequently, the Board approved the option grants with vesting over a four-year period following the anniversary date of the grants at 25% per year.

As at September 26, 2010, the 2,857,452 options (2,475,752 options in 2009) granted have exercise prices ranging from $10.62 to $26.87 (same range in 2009) and of this number, 96,375 options (85,100 options in 2009) have been exercised and 1,051,408 options (646,875 options in 2009) have been forfeited.

The fair value of stock options granted of $5.32 ($4.11 in 2009) was estimated at the grant date using the Black-Scholes option-pricing model on the basis of the following assumptions for the stock options granted during the period:

         
  2010   2009  
Risk-free interest rate 2.9 % 1.98 %
Expected volatility in stock price 28.5 % 35 %
Expected annual dividend 0 % 0 %
Expected life (years) 6   6  

Compensation cost expensed with respect to this plan amounts to $304 and $910 for the thirteen and thirty-nine-week periods ended September 26, 2010 ($236 and $709 in 2009).

A summary of the situation of the Company's stock option plans and the changes that occurred during the periods then ended is presented below:

  September 26, 2010
  Options   Weighted average exercise price
Balance, beginning of period 2,966,852   $ 10.47
Granted 381,700   15.44
Exercised (34,500 ) 4.54
Forfeited (359,883 ) 20.83
Balance, end of period 2,954,169   9.91
Options exercisable, end of period 2,079,244   $ 8.36
   
  September 27, 2009
  Options   Weighted average exercise price
Balance, beginning of period 2,981,002   $ 11.46
Granted 516,700   10.62
Exercised (107,000 ) 3.47
Forfeited (372,425 ) 19.86
Balance, end of period 3,018,277   10.56
Options exercisable, end of period 1,912,894   $ 7.76
   
  December 27 , 2009
  Options   Weighted average exercise price
Balance, beginning of year 2,981,002   $ 11.46
Granted 516,700   10.62
Exercised (113,775 ) 4.11
Forfeited (417,075 ) 19.47
Balance, end of year 2,966,852   10.47
Options exercisable, end of year 1,906,969   $ 7.72

The following table summarizes information relating to stock options outstanding as at September 26, 2010:

Exercise price Expiration date Options outstanding Options exercisable
$ 3.47 January 1, 2012 1,244,500 1,244,500
$ 10.62 March 11, 2019 478,050 119,900
$ 10.86 December 9, 2018 15,000 3,750
$ 14.18 March 1, 2018 194,400 98,550
$ 14.29 December 16, 2013 404,650 404,650
$ 15.44 March 9, 2020 374,400
$ 20.27 December 22, 2014 96,000 96,000
$ 21.78 September 1, 2016 4,394 4,394
$ 23.58 March 8, 2017 142,775 107,500
    2,954,169 2,079,244

Share unit plan for officers

The Company offers a share unit plan to officers and key employees of the Company and its subsidiaries under which restricted share units (RSUs) are granted. The RSUs are vested over a maximum term of three years based on performance targets. The RSUs are recognized as a compensation expense on a straight-line basis over the vesting period based on the forecasted attainment of targets. The RSUs are revalued at fair market value at the end of each reporting period until the vesting date using the market price of the Company's common shares. Fair market value changes are accounted for as compensation expense with a corresponding charge to accounts payable and accrued liabilities. RSUs that have been vested will be payable, at the Company's option, in cash or common shares, purchased on the secondary market, with an aggregate value equal to the amount that would have been paid in cash.

  Third Quarter Year-to-date  
  2010   2009 2010   2009  
Number of restricted share units:              
  Balance, beginning of period 1,121,340   703,720 682,540   229,360  
  Granted 5,125   443,925   486,150  
  Forfeited (75,540 ) (75,540 ) (11,790 )
  Balance, end of period 1,050,925   703,720 1,050,925   703,720  

The expense recorded in the consolidated statement of earnings for the thirteen and thirty-nine-week periods ended September 26, 2010 amounts to $94 and $1,849 ($793 and $919 in 2009).

Share unit plan for directors

The Company offers a deferred share unit (DSU) plan for external directors. Under this plan, directors may elect to receive in the form of DSUs any percentage up to 100% of their fees payable in respect of serving as director. When a director elects to participate in this plan, the Company credits the director's account for a number of units equal to the deferred compensation divided by the average closing market price of the common shares of the Company during the five trading days immediately preceding the last day of each reporting period of the Company. Fair market value changes are accounted for as a compensation expense with a corresponding charge to accounts payable and accrued liabilities in the consolidated balance sheet. DSUs granted under this plan will be redeemable and the value of the units will be payable only when the unitholder ceases to be a director.

  Third Quarter Year-to-date
  2010 2009 2010   2009
Number of deferred share units:          
  Balance, beginning of period 159,144 134,692 149,139   103,421
  Directors' compensation 12,846 10,661 36,205   41,932
  Units paid (13,354 )
  Balance, end of period 171,990 145,353 171,990   145,353
           

The expense (recovery) recorded in the consolidated statement of earnings for the thirteen and thirty-nine-week periods ended September 26, 2010 amounts to ($370) and $148 ($499 and $928 in 2009).

11. Guarantees

In the normal course of business, the Company reaches agreements that could meet the definition of "guarantees" in AcG-14.

The Company guarantees mortgages for an amount of $861. The terms of these loans extend until 2012 and the net carrying amount of the assets held as security, which mainly include land and buildings, is $5,574.

Pursuant to the terms of inventory repurchase agreements, the Company is committed towards financial institutions to buy back the inventory of certain customers at an average of 61% of the cost of the inventories to a maximum of $75,496. In the event of recourse, this inventory would be sold in the normal course of the Company's operations. These agreements have undetermined periods but may be cancelled by the Company with a 30-day advance notice. In the opinion of management, the likelihood that significant payments would be incurred as a result of these commitments is low.

12. Employee future benefits

As at September 26, 2010, the Company has seven defined contribution pension plans (nine in 2009) and four defined benefit pension plans (four in 2009). The net pension expense for the benefit plans is as follows:

  Third Quarter Year-to-date
  2010 2009 2010 2009
         
Cost recognized for defined contribution pension plans $ 2,749 $ 2,358 $ 7,888 $ 7,166
Cost recognized for defined benefit pension plans 409 434 1,223 1,239
Net employee future benefit costs $ 3,158 $ 2,792 $ 9,111 $ 8,405

13. Segmented information

The Company has two reportable segments: distribution and corporate and franchised stores. The distribution segment relates to the supply activities to affiliated, franchised and corporate stores. The corporate and franchised stores segment relates to the retail operations of the corporate stores and the Company's share of the retail operations of the franchised stores in which the Company has an interest.

The accounting policies that apply to the reportable segments are the same as those described in accounting policies. The Company evaluates performance according to earnings before interest, depreciation and amortization, rent, income taxes and non-controlling interest, i.e. sales less chargeable expenses. The Company accounts for intersegment operations at fair value.

  Third Quarter   Year-to-date  
  2010   2009   2010   2009  
                 
Segment sales                
  Corporate and franchised stores $ 1,004,200   $ 1,005,738   $ 2,763,583   $ 2,662,923  
  Distribution 617,474   620,492   1,873,025   1,790,575  
  Total 1,621,674   1,626,230   4,636,608   4,453,498  
Intersegment sales and royalties                
  Corporate and franchised stores        
  Distribution (307,966 ) (305,720 ) (973,310 ) (917,071 )
  Total (307,966 ) (305,720 ) (973,310 ) (917,071 )
Sales                
  Corporate and franchised stores 1,004,200   1,005,738   2,763,583   2,662,923  
  Distribution 309,508   314,772   899,715   873,504  
  Total 1,313,708   1,320,510   3,663,298   3,536,427  
Earnings before interest, depreciation and amortization, rent, income taxes and non-controlling interest                
  Corporate and franchised stores 114,119   113,407   304,484   278,232  
  Distribution 28,643   27,598   80,276   80,646  
  Total 142,762   141,005   384,760   358,878  
Earnings before interest, depreciation and amortization, income taxes and non-controlling interest                
  Corporate and franchised stores 83,545   83,400   213,272   189,773  
  Distribution 23,129   22,415   63,199   64,410  
  Total 106,674   105,815   276,471   254,183  
Acquisition of fixed assets and intangible assets                
  Corporate and franchised stores 28,812   18,508   69,850   86,358  
  Distribution 5,224   14,605   22,613   37,847  
  Total 34,036   33,113   92,463   124,205  
Goodwill                
  Corporate and franchised stores 74     40,074   1,357  
  Distribution        
  Total $ 74   $ –   40,074   1,357  
Total assets                
  Corporate and franchised stores         2,322,182   2,170,535  
  Distribution         662,547   683,817  
  Total         $ 2,984,729   $ 2,854,352  

14. Net earnings per share

The table below shows the calculation of basic and diluted net earnings per share:

  Third Quarter Year-to-date
  2010 2009 2010 2009
         
         
Net earnings $ 50,214 $ 49,148 $ 121,069 $ 107,427
         
Number of shares (in thousands)        
  Weighted average number of shares used to compute basic net earnings per share 130,805.1 129,455.1 130,214.3 121,646.7
  Effect of dilutive stock options (a) 1,027.3 1,006.8 1,130.1 1,008.1
  Weighted average number of shares used to compute diluted net earnings per share 131,832.4 130,461.9 131,344.4 122,654.8
         
         
         
Net earnings per share - basic $ 0.38 $ 0.38 $ 0.93 $ 0.88
Net earnings per share - diluted $ 0.38 $ 0.38 $ 0.92 $ 0.88
         
(a)   As at September 26, 2010, 617,569 common share stock options (1,728,777 options in 2009) were excluded from the calculation of diluted net earnings per share since these options have an antidilutive effect.

15. Comparative figures

Certain comparative figures have been reclassified to conform to the presentation adopted in the current year.

16. Subsequent events

On October 1, 2010, the Company announced an agreement with TruServ Canada Inc., a private company operating in the distribution segment, for the acquisition of all of its issued and outstanding shares. This company generates distribution sales of over $100 million and serves more that 650 independent dealers across Canada. The transaction closed on November 3, 2010.

On October 7, 2010, the Company announced an agreement to acquire the assets of Don Park Limited Partnership, an entity operating in the corporate and franchised stores segment. The entity operates 14 branches, three manufacturing facilities and one distribution centre in Ontario and generates annual revenues of more than $90 million. The transaction is subject to certain conditions, including approval by regulatory authorities and is expected to close by the end of the current fiscal year.

Contact Information

  • Media:
    RONA Inc.
    Daniel Richard
    Director, Corporate Communications
    514-599-5900 ext. 5751
    daniel.richard@rona.ca
    or
    Financial Community:
    RONA Inc.
    Stephane Milot
    Senior Director, Investor Relations
    514-599-5951
    stephane.milot@rona.ca