enriching
our
offering
5N Plus Inc.
4385 garand street
montreal, québec
h4r 2b4
canada
www.5nplus.com
annual
report
2010
our vision
5n plus aT a glance
financial and operaTional highlighTs
leTTer To shareholders
managemenT’s reporT
consolidaTed financial sTaTemenTs
noTes To consolidaTed financial sTaTemenTs
corporaTe informaTion
1
2
3
12
16
34
38
56
100%
Table
of
contents
5n plus is a fully integrated producer and closed-loop recycler of highly purifi ed metals and compounds, that
customers use in a range of electronic applications, including solar modules and medical devices. 5n plus draws its
name from the purity of its products — 99.999%, or 5 nines and more — which consist primarily of tellurium, cadmium,
germanium, indium, antimony, selenium and related compounds such as cadmium telluride (cdTe), cadmium sulphide
(cds) and indium antimonide (insb). The company employs nearly 200 people and operates state-of-the-art production,
r&d and recycling facilities in montréal, canada (adjacent to its head offi ces) and eisenhüttenstadt, germany. it also
operates a production facility in Trail, british columbia, canada, and a recycling centre in near madison, wisconsin, u.s.
5n plus is listed on the Toronto stock exchange under the ticker symbol vnp.
Printed in Canada
design: www.ardoise.com
Our
vision
To grow TogeTher in an environmenTally
responsible way, Through The innovaTion
and producT excellence made possible
by our employees’ know-how and
commiTmenT, Thereby enabling 5n plus
To become The world’s leading producer
of high-puriTy maTerials.
operational highlights
▪ Extended and strengthened supply agreements with world’s leading
manufacturer of CdTe thin-film solar modules.
▪ Acquired Firebird Technologies ("Firebird"), a manufacturer of high
purity metals and semiconductor for electronic applications.
▪ Entered into long-term agreement with Calyxo to supply
semiconductor compounds and recycling services in Europe.
▪ Entered into long-term agreement with Teck Metals to supply
germanium and indium feedstocks to Firebird.
▪ Signed a photovoltaic module recycling agreement with Abound
Solar and a MOU for semiconductor compounds supply.
5N Plus
at a glance
seizing precious opportunities for growth
5N Plus significantly expanded its geographic footprint and product portfolio in 2009,
while consolidating its leading position as a producer of essential products for the thin-
film solar power generation industry.
Our new facilities are the wholly owned Canadian subsidiary, Firebird, which adds
strategic products to our portfolio, and a recycling plant in Wisconsin that enables
us to better serve U.S. customers.
seizing
a precious
opportunity
for growth
Among the industries it serves, 5N Plus occupies the vanguard in the thin-film solar
module value chain, producing essential products for two of the leading technologies.
Equally important, we provide customers with a closed-loop recycling solution.
In a world where every industry is expected by its stakeholders to look hard at their
products’ total life cycle, this is an important differentiator for 5N Plus.
By offering closed-loop recycling services for manufacturing waste, defective and
spent products, 5N Plus transcends the supplier-customer relationship and becomes
an essential business partner.
a n n u a l r e p o r T 2 0 1 0
5N Plus
values
ThE rIgOUr ANd
SCIENCE ThAT
SUPPOrT OUr
PrOdUCTS ANd
SErvICES ArE
MATChEd By ThE
rIgOUr OF OUr
APPrOACh TO dOINg
BUSINESS. WE ArE AN
EThICAl COMPANy
WhOSE PEOPlE
“lIvE” ThE vAlUES OF
ThEIr OrgANIzATION.
commitment
Transforming our vision
into reality is possible only
through the commitment and
effort of our employees. We
therefore aim to develop a
stimulating work environment
that values teamwork
and excellence.
continuous
improvement
We promote excellence
in everything we do, with
the ultimate goal of being
recognized as the industry
leader. We therefore
continually seek to improve
our skills, along with the
quality of our products
and services.
customer focus
Our goal is to exceed
customer expectations
by delivering outstanding
services and products
shaped by the customer’s
needs. To achieve this, we
have the confidence and
resourcefulness to propose
solutions that establish
lasting relationships of trust.
health and safety
Employee health and safety
guides all our operations. We
act responsibly to minimize
risks and promote prevention,
with the goal of continually
improving our health and
safety performance.
integrity
We adhere to the highest
standards of integrity, which
means keeping our word,
complying with the letter and
spirit of the law, and treating
every person with whom we
do business with respect
and dignity.
sustainable
development
We encourage individual
and corporate initiatives
that help to protect the
environment. This includes
promoting — both internally
and with clients and
suppliers — the recycling
of products and industrial
waste, and setting
objectives that reduce our
environmental footprint.
5N Plus
at a glance
Sales
EBITdA
(in millions of canadian dollars)
(in millions of canadian dollars)
Net earnings
from continued
operations
(in millions of canadian dollars)
Shareholders’
equity
(in millions of canadian dollars)
69.4
70.8
80
60
40
20
0
31.0
31.4
24.1
11.3
40
30
20
10
0
20.9
15.1
7.2
25
20
15
10
5
0
125
100
75
50
25
0
125.7
112.4
91.0
2008
2009
2010
2008
2009
2010
2008
2009
2010
2008
2009
2010
Financial
and
operational
highlights
a n n u a l r e p o r T 2 0 1 0
3
cadmium telluride
production is
5n plus’s main
growth engine,
as we occupy
a commanding
market position
in the industry
Consolidating
our lead
cadmium Telluride Thin-
film solar modules
represenT The leading
edge of The solar power
indusTry, wiTh annual
producTion surging from
1 gw (1 billion waTTs)
in 2009 To 2 gw by 2012.
dazzling prospects for cdTe thin-film
solar modules
Cadmium telluride production is 5N Plus’s main growth
engine, as we occupy a commanding market position in
the industry, supplying several manufacturers of CdTe
thin-film solar modules with products and recycling
services. Among these is the largest producer in the
world, which operates plants on several continents.
With their low manufacturing costs and environmental
advantages versus conventional crystalline silicon
modules, CdTe thin-film solar modules represent the
fastest-growing photovoltaic technology.
We currently provide primary and secondary refining
of CdTe at our Montreal and german plants. Both our
Montreal and our wholly owned german facilities also
produce cadmium sulfide, another high-purity compound
essential to the production of thin-film CdTe and CIgS
solar modules. germany is the European centre for thin-
film solar module production.
5N Plus is therefore well positioned indeed. Potential
competitors face significant barriers to entry, including
a well protected patent portfolio, strategic agreements
with primary producers, highly developed recycling
services and, not least, mature relationships with the
world’s leading CdTe solar module manufacturers.
The CdTe thin-film solar module industry is extremely
robust, enjoying an annual growth rate in production
of 90%.
Jens Peschke
Plant Manager,
5N Pv gmbh
a n n u a l r e p o r T 2 0 1 0
5
The acquisition
of firebird
generates a series
of new growth
opportunities
Spreading
our wings
firebird kindles value
The acquisition of Firebird generates a series of new growth opportunities for 5N Plus,
chiefly in the semiconductor industry, where Firebird’s specialized expertise in crystal
growth has made it a key player.
The Firebird acquisition dovetails with our strategy to accelerate our deployment into
emerging and therefore underserved markets. As part of this strategy, plans call for
ramping up production at Firebird, securing larger orders from more customers, and
expanding the product portfolio.
These plans also include turning Firebird into an integrated supplier of germanium for
optical and solar module applications. We took two significant steps toward this goal early in 2010. First, we entered
into a long-term agreement with Teck Metals to supply critical feedstocks to Firebird. And second, we committed
to building a plant dedicated to advanced semiconductor processing, metal purification and recycling. The $10 million,
40,000 square-foot plant, announced at a groundbreaking ceremony on March 29, 2010, is scheduled for completion
in 2010. The plant has been designed for rapid expansion, to accommodate the expected growth in business.
locaTed in briTish
columbia, canada, firebird
enhances 5n plus’s
offering wiTh specialiZed
experTise in crysTal
growTh for The also
produces high puriTy
anTimony, indium and
Tin. firebird is expecTed
To begin large-scale
processing of indium and
germanium feedsTocks
inTo high-value producTs
in The fall of 2010, once
consTrucTion of iTs new
faciliTy is compleTed.
don Freschi
general Manager,
Firebird Technologies Inc.
New
capability
in semi-
conductor
industry
a n n u a l r e p o r T 2 0 1 0
7
To diversify
its customer base
and thereby reduce
overall business risk
Diversifying
our offering
Taking the inside track on cigs
In order to diversify its customer base and thereby reduce overall business risk, 5N Plus is accelerating its efforts
to become a key supplier to more than one thin-film solar module technology.
For example, we currently provide several products to manufacturers of CIgS (copper, indium, gallium, selenium) solar
modules. like other thin-film technologies, the business model supporting CIgS solar modules is based on delivering
a lower cost-per-watt.
Our long-term agreements with suppliers of primary materials are expected to further enhance our competitive
position and attractiveness to existing and potential customers. Together with its closed-loop recycling, this strongly
differentiates 5N Plus in the CIgS solar module industry.
Based on
delivering a
lower cost-
per-watt
cigs
a n n u a l r e p o r T 2 0 1 0
9
Sustainable
solutions
In many respects, 5N Plus occupies a unique position within the solar power generating
industry. In an age when regulatory and public pressures to provide total lifecycle
solutions are increasing, our closed-loop recycling service gives us a significant
competitive edge.
5N Plus is indeed gaining a reputation for sustainable solutions that enhance our
customers’ and suppliers’ own reputations. For example, the primary metals industry
and solar module makers ship various concentrates and residues to 5N Plus. Using our
advanced refining techniques on these “raw materials” we’re able to extract metals of
interest that become part of our product portfolio.
In short, we’re able to transform what would otherwise be an environmental liability
into a significant source of supply. We offer recycling services at our Canadian and german
manufacturing facilities, and soon at our dedicated U.S. recycling plant in Wisconsin.
our corporate
commitment is to
supply customers
with sustainable
solutions, while
also championing
sustainability within
our own operations
a n n u a l r e p o r T 2 0 1 0
cradle to cradle solutions
5N Plus
Metallurgical
Processes
other
materials
metals
re-use
Purification /
Synthesis
product
customers
manufacturing process
collection
production
process
residue
eol
product
use
product
sustainability begins at home
Our recycling services represent just one facet of our
commitment to the principles of sustainability, and to
supporting our overall corporate social responsibility.
In addition to being ISO 14001 (environmental
management) and ISO 9001 (quality management)
certified, we invite employees to sit on our 5N Plus
Sustainability Committee. Active in the communities
where we live, 5N Plus has won honours and notice
for its sustainability efforts. We have participated in
drafting Montreal’s former strategic plan for sustainable
development, and are currently helping to draft the
current one, which will be in effect until 2015.
We have programs in place to reduce our drinking water
and energy consumption, encouraging employees to car-
pool or, better still, commute by company-supplied bikes.
Our bicycle program won an award from vélo-Québec.
In 2009, we have started using life Cycle Assessment
to give a ‘cradle to cradle’ evaluation of the environmental
impact of our product manufacturing and recycling activities.
As a result of all these efforts, 5N Plus was listed for
the second consecutive year on the Corporate Knights
Cleantech 10™ list of Canada’s best publicly held
companies in clean technologies, and listed on the Jantzi-
Maclean’s Corporate Social responsibility report 2009 of
the 50 Most Socially responsible Canadian Corporations.
Closer to home, in 2009 we were honoured with the
Ecosustainable Production and design Competition
award, presented by the Chamber of Commerce and
Industry of St-laurent, in partnership with the Centre
d’expertise sur les matières residuelles. The award,
which recognizes waste and pollution reduction at
source, in manufacturing, transportation and at the
end of the product’s life cycle, cites our efforts to tailor
our recycling solutions to customers’ needs.
a n n u a l r e p o r T 2 0 1 0
11
noTching up anoTher highly profiTable year, we’re celebraTing
our 10Th anniversary and seTTing The sTage for long Term
susTainable growTh
There is much To celebraTe in 2010, even beyond our TenTh
year of operaTion — capping a period during which revenues
and neT profiTs grew more Than Tenfold. consider ThaT
over The pasT decade Thin-film cadmium Telluride-based
phoTovolTaic modules emerged as The dominanT Technology.
This in Turn led To ever increasing demand for our flagship
producT, cadmium Telluride. we expanded our global
fooTprinT from monTreal inTo germany To meeT The need,
and mosT recenTly enTered The uniTed sTaTes wiTh a new
recycling faciliTy in wisconsin. 2010 also saw us begin To
implemenT our “growTh by acquisiTion” sTraTegy, acquiring
firebird Technologies, a leading producer of semiconducTor
wafers. wiThin weeks of The acquisiTion, we broke ground
on a new faciliTy To expand firebird’s capaciTy and
producT porTfolio.
letter to
shareholders
we added
more products
and more
capabilities
to expand
our client base
In terms of financial performance, we’re celebrating our
first decade with equally spectacular results. despite
some currency headwinds, we again turned in record
revenues and net profit margins exceeded 20% for a
third consecutive year. More to the point, we believe
we have now laid the foundation for sustainable growth.
We made great strides to strengthen our business,
leveraging our existing facilities and positioning ourselves
to play a larger role in recycling. At the same time, we
broadened our product portfolio to include semiconductor
wafers, germanium and products for other thin film
photovoltaic technologies.
cdTe photovoltaic modules
leading the way
led by the remarkable progress of First Solar, the world’s
largest photovoltaic module manufacturer, thin film
CdTe-based solar modules are now widely recognized
as the most cost efficient technology available. But this
12
a n n u a l r e p o r T 2 0 1 0
is only the beginning. CdTe technology is rapidly growing
its share of an expanding market, fueled by financial
support from a number of new jurisdictions beyond
germany’s pioneering position. This includes the
United States, China, France and Italy. With its recent
capacity increase announcements, to reach over 2 gW
in production by early 2012, First Solar is signaling its
intention to continue growing aggressively, and to do
so using thin film CdTe technology. At the same time,
a number of competitors using similar technology,
including Abound Solar, Calyxo and general Electric,
through its PrimeStar subsidiary, are also making steady
progress. More exciting yet is the stated objective of
all of these companies to eventually compete in an
unsubsidized market on the basis that grid parity using
this technology is within reach. Indeed, as this relatively
new technology continues to develop, we expect further
improvements in the cost structure of CdTe modules,
driven mainly by improvements in conversion efficiency.
A growing number of academic groups are in fact working
on the efficiency front, including 5N Plus through
a consortium led by Colorado State University. This
should ultimately translate into significant increases
in demand for CdTe and continue to generate significant
business opportunities.
broadening our product portfolio
As our goal is to diversify into other electronic materials
markets and expand our activities, growing our product
portfolio remains a key priority. In this respect 2010 was
a watershed year, as we acquired Firebird Technologies
and entered the semiconductor wafer business. Firebird is
the leading producer of indium antimonide (InSb) wafers,
which are used for infrared imaging. We subsequently
announced a major investment in Trail, B.C. to expand
Firebird’s production capacity and leverage their unique
skills in crystal growth and refining. This will enable us
to enter the germanium metals and optics business.
Concurrently, we entered into a long-term supply
agreement for germanium and indium with Teck Metals,
also located in Trail. Teck is the leading producer of
these critical feedstocks.
Taken together, we expect these measures will enable
Firebird to develop into a significant business over the
next three years. More specifically, Firebird’s supply
agreement with Teck Metals will expand our offering to
customers producing solar cells based on copper indium
gallium diselenide (CIgS).
From left to right:
Jacques l'Écuyer
and dennis Wood
a n n u a l r e p o r T 2 0 1 0
13
new wisconsin facility strengthens
recycling offer
We are positioning 5N Plus to play a leading role in
the world’s recycling of solar modules. To that end,
we announced agreements during the year with two
customers, Abound and Calyxo, and set up a new module
recycling facility near Madison, Wisconsin. We also
expanded our recycling capabilities in germany.
As CdTe module production grows, so does the need
to recycle manufacturing waste, along with spent
and defective products. The photovoltaic industry
is proactively adopting a cradle-to-grave approach,
based on comprehensive life cycle analysis. As for
CdTe module manufacturers, they’re leveraging the
economic and environmental benefits of closed loop
recycling to recover cadmium and tellurium. given our
extensive operational experience with cadmium and
tellurium-bearing substances, given the depth of our
environmental and health and safety activities, and given
the support we already provide to our customers, we’re
positioning 5N Plus as the ideal partner for recycling.
a bright future
With demand for CdTe products expected to sharply
increase in the coming years, and as our new facility in
Trail ramps up, we see a bright and exciting future for
5N Plus. We remain committed to a growth strategy
of acquisitions, in addition to organic growth, and
have a healthy balance sheet and sizeable amounts
of cash to execute on this strategy. Indeed, we recently
announced an investment in the form of convertible
debt in Sylarus, a manufacturer of germanium wafers,
which will soon be an important customer of Firebird.
Through our germanium supply agreements and a
potential minority ownership in Sylarus, should we chose
to exercise the conversion feature of our loan, we are
thereby positioning 5N Plus in the germanium wafer
business. germanium wafers are used to manufacture
very high efficiency solar cells for space and terrestrial
applications — another exciting market that we believe
harbours great opportunity for 5N Plus.
All of these accomplishments would not have been
possible without our employees’ support and dedication.
I would like to thank them for another great year. At this
time, I also welcome the Firebird employees who joined
the 5N Plus team and have already made positive
contributions to our top and bottom lines.
Providing value-added and sustainable electronic
material solutions to our customers is now more than
ever what our company is all about. This is a mission we
can all be proud of and passionate about. As we continue
to build and grow our business, let’s remember that by
continuing to do what we’re best at, we’ll contribute to
making this world a better place to live.
Jacques L’Écuyer
President and Chief Executive Officer
Dennis Wood
Chairman of the Board of directors
14
a n n u a l r e p o r T 2 0 1 0
5N Plus Inc.
4385 garand Street
Montreal, Québec
h4r 2B4
Canada
5N PV GmbH
Oderlandstrasse 104
d-15890
Eisenhüttenstadt
germany
Firebird Techonologies Inc.
2950 highway drive
Trail, British-Columbia
v1r 2T3
Canada
5N Plus Corp.
6474 Blanchar's Crossing
deforest, Wisconsin, 53598
USA
Our
facilities
a n n u a l r e p o r T 2 0 1 0
15
This Management’s report of the operating results and the financial position is intended to assist readers in
understanding 5N Plus Inc. (“the Company”), its business environment and future prospects. This Management’s report
should be read while referring to the audited consolidated financial statements and the accompanying notes for the
fiscal year ended May 31, 2010. Information contained herein includes any significant developments to August 10, 2010,
the date on which the Management’s report was approved by the Company’s board of directors. The financial information
presented in this Management’s report is based on the Company’s accounting policies that are in compliance with
Canadian generally accepted accounting principles (“gAAP”). It also includes some figures that are not performance
measures consistent with gAAP. Information regarding these non-gAAP financial measures is provided under the
heading Non-gAAP Measures of this Management’s report. All amounts are expressed in Canadian dollars. Unless
otherwise indicated, the terms “we”, “us” and “our” as used herein refer to the Company together with its subsidiaries.
notice regarding forward-looking statements
Certain statements in this Management’s report may be forward-looking within the meaning of securities
legislation. Forward-looking information and statements are based on the best estimates available to the
Company at the time and involve known and unknown risks, uncertainties or other factors that may cause
the Company’s actual results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such forward-looking statements. Factors
of uncertainty and risk that might result in such differences include the risk related to the reliance on
major customer, credit, interest rate, pricing and currency fluctuation, fair value, source of supply, market
acceptance and reliance on thin-film and photovoltaic technologies, environmental regulations, competition,
dependence on key personnel, business interruptions, business acquisition, protection of intellectual property
and the option granted to First Solar to purchase our german manufacturing facility. As a result, we cannot
guarantee that any forward-looking statements will materialize. Forward-looking statements can generally
be identified by the use of terms such as “may”, “should”, “would”, “believe”, “expect”, or any terms of similar
nature. Except as required under applicable securities legislation, management does not undertake to
update these forward-looking statements as a result of new information, future events or other changes.
In evaluating these statements, the reader should consider various factors, including the risks outlined above.
The reader is warned against giving undue reliance on these forward-looking statements.
corporate overview and business
5N Plus Inc. draws its name from the purity of its products, 99.999% (five nines or 5N) and more. We have our
head office in Montreal, Québec, and own two material subsidiaries which are 5N Pv gmbh (“5N Pv”) located in
Eisenhüttenstadt, germany and Firebird Technologies Inc. (“Firebird”) located in Trail, Canada. 5N Plus is a fully
integrated producer and closed-loop recycler of highly purified metals and compounds. We use a range of proprietary
and proven technologies to produce metals such as tellurium, cadmium, germanium, indium, antimony, selenium and
related compounds such as cadmium telluride (“CdTe”), cadmium sulphide (“CdS”) and indium antimonide (“InSb”).
Our products are critical precursors that customers use in a number of electronic applications, including the rapidly-
expanding solar (thin-film photovoltaic) market, for which we are a major supplier of CdTe, as well as the radiation
detector and infrared markets.
Management’s
report
16
m a n a g e m e n T ’ s r e p o r T
a n n u a l r e p o r T 2 0 1 0
business strategy
To deliver on our vision of becoming the leading provider of sustainable material solutions to the electronic industry which is aimed at providing
all stakeholders with long-term value, our strategy is aligned along three main axis namely organic growth via an expansion of our production
capabilities, an increase in our product portfolio mainly through acquisitions, and a strong emphasis on recycling.
Business Strategy
Organic growth
Implemented measures and accomplishments in fiscal year 2010
▪ On June 24, 2009, increased and extended supply agreements with main customer First Solar, Inc.
Increase product portfolio
▪ On december 1, 2009, announced the acquisition of Firebird and subsequently the construction of a new
▪ Signed MOU with Abound Solar, Inc. on January 25, 2010 and with Calyxo gmbh on March 18, 2010.
facility in Trail, British Columbia to expand semiconductor wafer and germanium activities.
Focus on recycling
▪ Setting up of a solar module recycling plant in Wisconsin to better serve U.S. customers which should be
operational in the second quarter of fiscal year 2011.
▪ On March 9, 2010, entered into long-term supply agreements for germanium and indium feedstock with
Teck Metals ltd.
▪ Entered into recycling agreements with Abound Solar in January 2010 and with Calyxo, a Q-Cells’
Subsidiary in March 2010.
▪ Second consecutive year on the Corporate Knights Cleantech 10 list featuring Canada’s ten best publicly
held companies in the cleantech technology.
setting the stage for long-term sustainable growth
We are proudly celebrating our 10th anniversary and 40th consecutive profitable quarter. despite some currency headwinds, we turned in record
revenues in fiscal year 2010 and net profit margins exceeded 20% for a third consecutive year. More to the point, we believe we have now laid the
foundation for sustainable growth. We made great strides to strengthen our business, leveraging our existing facilities and positioning ourselves
to play a larger role in recycling. At the same time, we broadened our product portfolio to include semiconductor wafers, germanium and products
for other thin-film photovoltaic technologies.
All of these accomplishments would not have been possible without the support and dedication of our employees. Many thanks to them again for
another great year and a special welcome to the Firebird employees who not only recently joined the 5N Plus team but also managed to make a
positive contribution to both our top and bottom lines.
Providing value added electronic material solutions to our customers in a highly sustainable way is now more than ever what our company is all
about. As we continue to build and grow our business, this is what we must remain best at doing if we are to contribute in our own special way in
making this world a better place.
Jacques L’Écuyer
President and Chief Executive Officer
a n n u a l r e p o r T 2 0 1 0
m a n a g e m e n T ’ s r e p o r T
17
selected financial information
Years ended May 31
Consolidated Results
Sales
EBITdA1
Net earnings from continuing operations
Basic earnings per share from continuing operations
diluted earnings per share from continuing operations
Net loss from discontinued operations
Net earnings
Basic earnings per share
diluted earnings per share
dividend per common share
Cash flow from continuing operating activities
Balance Sheet Data
Total assets
long-term debt
Shareholders’ equity
1 Calculated on continued operations earnings – See Non-gAAP Measures
selected quarterly financial information
2010
2009
2008
$ 70,763,345
$ 69,373,117
$ 30,972,941
$ 24,109,939
$ 31,409,878
$ 11,318,178
$ 15,143,310
$ 20,868,124
$ 0.33
$ 0.33
$
495,770
$
$
$
0.46
0.45
–
$ 14,647,540
$ 20,868,124
$ 0.32
$ 0.32
$
$
0.46
0.45
–
$ 16,828,300
–
$ 16,239,645
$
$
$
$
$
$
$
$
$
7,175,011
0.20
0.19
–
7,175,011
0.20
0.19
0.034
(2,163,317)
$ 138,521,308
$ 128,168,856
$ 107,743,063
$
4,197,803
$ 125,678,537
$
3,997,923
$ 112,368,764
$
4,674,934
$ 90,962,804
in thousands of dollars except per share amounts
(unaudited)
Sales
gross profit2
EBITdA
Net earnings from continuing operations
Net loss from discontinued operations
Net earnings
Basic earnings per share from
continuing operations
diluted earnings per share from
continuing operations
Basic earnings per share
diluted earnings per share
Backlog2
2 See Non-gAAP Measures
Average Exchange rates
Q4
Q3
Q2
FY2010
Q1
Q4
Q3
Q2
FY2009
Q1
19,730
19,227
15,753
16,053
18,057
19,150
18,136
14,030
8,671
6,742
4,363
23
4,339
8,204
6,783
4,362
287
4,076
7,359
5,535
3,403
186
3,217
7,618
5,050
3,015
–
3,015
8,497
8,576
5,708
–
5,708
9,840
8,012
5,190
–
5,190
9,230
8,799
5,876
–
5,876
7,632
6,023
4,094
–
4,094
$
$
$
$
0.10
$
0.10
$
0.07
$
0.07
0.09
0.09
0.09
52,651
$
$
$
0.09
0.09
0.09
53,791
$
$
$
0.07
0.07
0.07
53,268
$
$
$
0.07
0.07
0.07
56,964
$
$
$
$
0.13
$
0.11
$
0.13
$
0.09
0.12
0.13
0.12
52,224
$
$
$
0.11
0.11
0.11
52,024
$
$
$
0.13
0.13
0.13
54,722
$
$
$
0.09
0.09
0.09
53,647
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1
ca$ /€
ca$ /us$
q1
q2
q3
q4
q1
q2
q3
q4
2009
2010
18
m a n a g e m e n T ’ s r e p o r T
a n n u a l r e p o r T 2 0 1 0
highlights of fiscal year 2010
$70.8
million
$68.0
million
$16.8
million
Sales
Net Cash Position
Cash flows provided
by continuing activities
▪ Sales reached a record level of $70,763,345 over sales of $69,373,117 in fiscal year 2009.
▪ Net earnings from continuing operations were $15,143,310 ($0.33 per share), compared to net earnings of $20,868,124 ($0.46 per share) for
the previous fiscal year.
▪ EBITdA were $24,109,939 or 34.1% of sales compared to $31,409,878 or 45.3% of sales for the previous fiscal year.
▪ The Company’s balance sheet position remained solid, with cash and cash equivalents of $67,992,321 as at May 31, 2010 compared to
$65,066,530 for the previous fiscal year. Cash flow provided by continuing operating activities were $16,828,300 compared to $16,239,645 for
the previous fiscal year. Shareholders’ equity increased during the fiscal year to $125,678,537 up from $112,368,764 one year earlier.
▪ As at May 31, 2010 our backlog of orders expected to translate into sales over the following twelve months stood at $52,650,764 compared
to $52,224,368 one year earlier. Changes in currency exchange rates had an adverse impact of approximately $4,300,000 on the
backlog comparisons.
▪ Announced on december 1, 2009, the acquisition of Firebird, a leading manufacturer of compound semiconductor products and pure metals
located in Trail, British Columbia.
highlights of the fourth quarter 2010
▪ For a second consecutive quarter, sales reached a record level and stood at $19,729,553 compared to sales of $18,057,223
for the same period last year.
▪ Net earnings from continuing operations were $4,362,612 ($0.10 per share), compared to net earnings of $5,708,451 ($0.13 per share)
for the same period last year.
▪ EBITdA were $6,742,096 or 34.2% of sales compared to $8,576,126 or 47.5% of sales for the same period last year.
▪ In March 2010, 5N Plus sold its entire interest in zT Plus, a joint venture with BSST, a subsidiary of Amerigon Incorporated.
business acquisition
On december 1, 2009, the Company acquired Firebird Technologies Inc. for an amount of $7,912,055 including acquisition costs of $61,078. Firebird
is a manufacturer of pure metals and semiconductor compounds. Firebird’s main products include indium antimonide wafers as well as purified
metals such as antimony, indium and tin, sold worldwide and used in a number of electronic and optical applications.
The Company has accounted this transaction using the purchase method. The results of Firebird have been consolidated in the Company’s
consolidated financial statements starting december 1, 2009.
discontinued operation
On September 1, 2009, the Company had established a joint venture called zT Plus with BSST, a subsidiary of Amerigon Incorporated in which
the Company had a 50% ownership interest. The contribution of each partner in cash or in kind was expected to be US$5,500,000. zT Plus was
accounted for using the proportionate consolidation method. The commercial progress of zT Plus was slower to develop than anticipated and on
March 26, 2010, the Company sold its interest for an amount of US$1,600,000 ($1,632,000). This sale was classified as a discontinued operation
and financial results for the second and third quarters have been recalculated.
a n n u a l r e p o r T 2 0 1 0
m a n a g e m e n T ’ s r e p o r T
19
results of operations
introduction
Our sales are generated through the development and production of high-purity metals and compounds which are used in various electronic
applications, including solar cells, radiation detectors, infrared optics and systems, thermoelectric and optical storage. We also provide recycling
services to our customers where residues from their manufacturing operations are refined and converted back into a usable product. We have one
reportable segment, namely refining and recycling of metals.
Our customer base includes manufacturers of thin-film solar cells, original equipment manufacturers (OEM), and Tier 1 and 2 suppliers which
provide consumables, components or sub-assemblies. Our customers are located primarily in the United States, Europe, Israel and Asia. One
customer accounted for 65% of our sales during the quarter and 74% during the fiscal ended May 31, 2010.
sales, gross profit, net earnings and earnings per share
(from continuing operations)
Three months ended May 31
Twelve months ended May 31
2010
2009
Increase (Decrease)
2010
2009
Increase (Decrease)
Sales
$ 19,729,553
$ 18,057,223
gross profit
gross profit ratio1
Net earnings from continuing operations
Earnings per share from continuing
operations (basic)
1 See Non-gAAP Measures
$
8,671,360
44.0%
$
4,362,612
$
0.10
$
$
$
8,496,616
47.1%
5,708,451
9.3% $ 70,763,345
2.1% $ 31,852,704
45.0%
$ 69,373,117
$ 35,198,886
50.7%
2.0%
(9.5%)
(23.6%)
$ 15,143,310
$ 20,868,124
(27.4%)
0.13
$
0.33
$
0.46
In comparison with the same periods last year and despite the significant appreciation of the Canadian dollar, sales for the fourth quarter and year
ended May 31, 2010 both reached a record level. Sales for the fourth quarter were $19,729,553 up by 9.3% over sales of $18,057,223. For the fiscal
year, sales reached $70,763,345 representing a 2.0% increase over sales of $69,373,117 for the previous fiscal year.
The growth was driven primarily by higher sales of products aimed at non-solar applications and the positive contribution of Firebird. The appreciation
of the Canadian dollar in relation to the U.S. dollar and the Euro had an adverse impact on the Company’s sales of approximately $3,500,000 during
the quarter and $5,800,000 for the year ended May 31, 2010.
Sales in the solar market represented 70.4% for the fourth quarter and 78.3% for the fiscal year ended May 31, 2010 of total sales compared with
80.2% and 79.5% for the corresponding periods of the previous fiscal year. Overall, volumes of products sold for solar applications increased in the
current fiscal year with the corresponding sales numbers being partially offset by a reduction in the average unit price and the adverse impact of
the foreign exchange rates.
gross profit increased to $8,671,360 in the fourth quarter from $8,496,616 for the same period last year mainly reflecting the positive impact
of Firebird. For the fiscal year ended May 31, 2010, gross profit reached $31,852,704 compared to $35,198,886 a year ago with gross profit ratios
of 45.0% and 50.7% respectively. The decrease observed in gross profit and gross profit ratios are mainly due to the negative impact on the
Company’s sales of the strengthening of the Canadian dollar in relation to the U.S. dollar and Euro. To a lesser extent, the decrease in average
selling unit price also accounts for the gross profit and gross profit ratio decreases together with higher operating costs.
Net earnings from continuing operations for the fourth quarter ended May 31, 2010 were $4,362,612 ($0.10 per share) representing a 23.6% decrease
over net earnings from continuing operations of $5,708,451 ($0.13 per share) for the same period last year. lower foreign exchange gain is mainly
responsible for the decrease in net earnings for the quarter as it represented only $532,954 compared to $2,175,813 for the same period last year.
Net earnings from continuing operations for the fiscal year 2010 were $15,143,310 ($0.33 per share) compared to $20,868,124 ($0.46 per
share) representing a 27.4% decrease. This decrease was driven by the same factors described above along with acquisition-related charges for
uncompleted acquisition projects, and lower interest income. Earnings per share for the current fiscal year are calculated based on a weighted
average number of common shares outstanding of 45,625,024 for the fourth quarter and of 45,578,992 for the fiscal year ended May 31, 2010.
Earnings per share of the previous fiscal year are calculated based on a weighted average number of common shares of 45,515,577 for the fourth
quarter and of 45,505,213 for the fiscal year ended May 31, 2009.
20
m a n a g e m e n T ’ s r e p o r T
a n n u a l r e p o r T 2 0 1 0
selling and administrative and research and development expenses
Selling and administrative expenses
Percentage of sales for the period
research and development expenses (net of tax credits)
Percentage of sales for the period
Three months ended May 31
Twelve months ended May 31
2010
2009
2010
$
1,783,426
$
9.0%
678,792
3.44%
$
$
1,670,869
$
7,068,705
9.3%
423,277
2.3%
$
10.0%
1,858,038
2.6%
$
$
2009
5,277,745
7.6%
1,241,142
1.8%
Selling and administrative expenses were $1,783,426 for the fourth quarter compared to $1,670,869 for the corresponding period of the previous
year. As a percentage of sales, selling and administrative expenses decreased from 9.3% to 9.0%. Selling and administrative expenses for the
fiscal year were $7,068,705 or 10.0% of sales compared to $5,277,745 or 7.6% of sales for the previous fiscal year. The Company is maintaining
an appropriate level of selling and administrative expenses in order to achieve its growth objectives. during the first quarter of fiscal year 2010,
$1,165,000 was incurred relating to acquisition charges for uncompleted acquisition projects.
r&d expenses, net of tax credits were $678,792 in the fourth quarter compared to $423,277 in the same period last year, representing 3.44%
and 2.3% of sales respectively. For the fiscal year ended May 31, 2010, r&d expenses, net of tax credits, were $1,858,038 compared to $1,241,142
for the previous fiscal year representing 2.6% and 1.8% of sales respectively. Current levels of r&d are consistent with our continued effort to
proactively support the recycling activities and to develop new products.
reconciliation of ebiTda
Net earnings from continuing operations
$
4,362,612
$
5,708,451
2010
2009
(Decrease)
(23.6%)
2010
2009
$ 15,143,310
$ 20,868,124
(Decrease)
(27.4%)
Three months ended May 31
Twelve months ended May 31
Add (deduct):
Income taxes
Financial expenses & Interest income
depreciation and amortization
1,734,901
(60,442)
705,025
2,345,056
(78,822)
601,441
6,512,004
(278,166)
2,732,791
9,128,634
(741,432)
2,154,552
ebiTda
$
6,742,096
$
8,576,126
(21.4%)
$ 24,109,939
$ 31,409,878
(23.2%)
EBITdA decreased by 21.4% for the fourth quarter of fiscal year 2010 when compared to the same period last year reaching $6,742,096, down
from $8,576,126. EBITdA for the fiscal year ended May 31, 2010 decreased by 23.2% when compared to the same period last year reaching
$24,109,939, down from $31,409,878. EBITdA were negatively impacted by the lower net earnings, higher selling and administrative expenses
and lesser foreign exchange gains.
financial expenses, interest income, depreciation, amortization and income Taxes
The combined financial expenses and interest income netted a gain of $60,442 for the fourth quarter and of $278,166 for the fiscal year ended
May 31, 2010. This compares with a gain of $78,822 and $741,432 for the corresponding periods of previous fiscal year. This decrease is consistent
with lower interest rates offered by banks on cash and cash equivalents.
depreciation and amortization expenses for the quarter ended May 31, 2010 were $705,025 compared to $601,441 for same period last year.
For the fiscal year ended May 31, 2010, depreciation and amortization expenses were $2,732,791 compared to $2,154,552 in fiscal year 2009.
The increase in depreciation and amortization expenses are due to additions of capital assets made over the last fiscal year mainly related to
our german facility. The amortization of the intellectual property related to Firebird which started on december 1st, 2009 also accounted for
the increase.
Income taxes were $1,734,901 for the fourth quarter ended May 31, 2010, compared to $2,345,056 for the same period last year. These figures
correspond to effective tax rates of 28.6% and 29.1% respectively. The reclassification of zT Plus as discontinued operation is responsible for the
decrease of the effective income tax rates in the fourth quarter of fiscal year 2010. Income taxes for the fiscal year ended May 31, 2010 were
$6,512,004 compared to $9,128,634 for the previous fiscal year representing effective tax rates of 30.0% and 30.4% respectively. The increase in
the effective tax rate is primarily due to adjustments related to prior year and the impact of non-deductible expenses associated with uncompleted
acquisition projects.
a n n u a l r e p o r T 2 0 1 0
m a n a g e m e n T ’ s r e p o r T
21
liquidity and capital resources
Working capital1
Current ratio1
Property, plant and equipment and intangible assets
Total assets
Total debt1
Shareholders’ equity
1 See Non-gAAP Measures
As at May 31, 2010
As at May 31, 2009
97,817,431
90,558,261
18.0
9.5
28,208,215
26,178,423
138,521,308
128,168,856
4,820,623
125,678,537
4,589,570
112,368,764
working capital and current ratio
As at May 31, 2010, working capital were $97,817,431 compared to $90,558,261 as at May 31, 2009. The increase in the current ratio mainly
reflects a more than $5,000,000 decrease in income taxes payable, accounts payable and accrued liabilities combined with higher cash and
cash equivalents.
property, plant and equipment, intangible assets and other assets
We incurred $947,424 of capital expenditures during the quarter ended May 31, 2010 mostly in line with $1,014,632 during the same period
last year. Capital expenditures for the fiscal year 2010 were $4,837,107 compared to $7,140,343 for the same period last year as we finalized
commissioning of our german facility. Capital expenditures in fiscal year 2010 include $1,648,295 related to the construction of Firebird’s new
plant in Trail. This 40,000 square-foot facility will be dedicated to advanced semiconductor processing, metal purification and recycling activities.
The construction of the facility will represent an investment of over $10 million and should be completed early September.
goodwill
As at May 31, 2010, goodwill related to the acquisition of Firebird amounted to $4,381,762.
accounts payable and accrued liabilities
daily cash management reflects the decrease in accounts payable and accrued liabilities from $6,791,675 as at May 31, 2009, to $4,646,220 as at
May 31, 2010.
Total debt and deferred revenue
Total debt increased from $4,589,570 as at May 31, 2009 to $4,820,623 as at May 31, 2010 reflecting the inclusion of Firebird’s long-term debt.
during the year ended May 31, 2010, an amount of $173,000 was recognized as revenue associated with a €540 000 subsidy provided to our
german subsidiary 5N Pv to promote employment in the city of Eisenhüttenstadt.
shareholders’ equity
Shareholders’ equity was $125,678,537 or 90.7% of total asset as at May 31, 2010 compared to $112,368,764, or 87.7% of total assets as at
May 31, 2009, illustrating the positive impact of net earnings of the current fiscal year. Foreign exchange losses arising from the translation of
foreign subsidiaries’ accounts into Canadian dollars are deferred and reported as accumulated other comprehensive income in the Consolidated
Statements of Comprehensive Income as well as a portion of the foreign exchange gain related to certain foreign exchange forward contracts
designated as cash flow hedges.
22
m a n a g e m e n T ’ s r e p o r T
a n n u a l r e p o r T 2 0 1 0
cash flows
Cash flow provided by continuing operating activities
Investing activities
Financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents from continuing activities
Three months ended May 31
Twelve months ended May 31
2010
6,188,039
(784,603)
(169,334)
(280,794)
4,953,308
$
$
2009
4,965,655
(1,129,436)
(756,927)
(200,325)
2,878,967
$
$
2010
2009
$ 16,828,300
(12,577,665)
(295,299)
(533,775)
3,421,561
$
$ 16,239,645
(8,660,804)
(2,257,973)
168,919
$
5,489,787
Cash flow provided by continuing operating activities generated $6,188,039 in the fourth quarter ended May 31, 2010 compared to $4,965,655 for the
same period last year. For the fiscal year ended May 31, 2010, cash provided by continuing operating activities generated $16,828,300 compared to
$16,239,645 for the previous fiscal year. These increases reflect lesser non-cash working capital requirements in the corresponding periods.
Cash flow from investing activities consumed $784,603 for the fourth quarter compared to $1,129,436 for the same period last year. Cash flow
from investing activities consumed $12,577,665 for the fiscal year compared to $8,660,804 for the previous fiscal year. This increase mainly
reflects the disbursement of $7,747,997 related to the acquisition of Firebird.
reconciliation of capital expenditures and cash flows from investing activities
Three months ended May 31
Twelve months ended May 31
Additions to property, plant and equipment, intangible assets and other assets
$
947,424
$
1,014,632
$
4,837,107
$
7,137,342
Acquisition of a business (net of cash and cash equivalents)
–
–
7,747,997
–
2010
2009
2010
2009
Additions to property, plant and equipment, intangible assets and other assets
not paid and included in accounts payable and accrued liabilities:
Beginning of the period
End of the period
Cash flows from investing activities
37,071
(199,892)
784,603
$
307,257
(192,453)
1,129,436
192,453
(199,892)
$ 12,577,665
$
1,715,915
(192,453)
8,660,804
$
Financing activities consumed $169,334 during the fourth quarter and $295,299 in fiscal year 2010 reflecting the repayment of scheduled
instalments on our long-term debt partly offset by the proceeds from the exercise of stock options. For the corresponding periods of the previous
fiscal year, financing activities consumed $756,927 during the fourth quarter of fiscal year 2009 and $2,257,973 in fiscal year 2009 as we reimbursed
our bank loan while continuing to pay back long-term debt and other long term liabilities.
Our cash position increased by $6,519,565 in the fourth quarter and $2,925,791 for the fiscal year ended May 31, 2010, reaching a level of
$67,992,321 compared to an increase of $2,878,967 and $5,489,787 for the same periods last fiscal year. We are very confident that this amount
of cash combined with the cash flow from our operations will be sufficient to fund our working capital and capital expenditure requirements, and
enable us to pursue our growth plan including acquisition opportunities.
share capital
authorized
The Company has an unlimited number of common shares, participating, with no par value, entitling the holder to one vote per share.
The Company has an unlimited number of preferred shares that may be issued in one or more series with specific terms, privileges and restrictions
to be determined for each class by the Board of directors.
Issued and fully paid
Common shares
Outstanding
As at May 31, 2010
As at May 31, 2009
Number
Amount
Number
Amount
45,627,450
$ 82,389,870
45,520,225
$ 81,881,914
a n n u a l r e p o r T 2 0 1 0
m a n a g e m e n T ’ s r e p o r T
23
stock option plan
In October 2007, the Company adopted a Stock Option Plan (“the Plan”) for directors, officers and employees. The aggregate number of shares
which may be issued upon the exercise of options granted under the Plan may not exceed 10% of the issued shares of the Company at the time
of granting the options. Options granted under the Plan may be exercised during a period not exceeding ten years from the date of the grant.
The outstanding stock options as at May 31, 2010 may be exercised during a period not exceeding six years from their date of grant. Options vest
at a rate of 25% (100% for directors) per year, beginning one year following the grant date of the options.
As at May 31
Beginning of period
granted
Cancelled
Exercised
End of period
Number of options
1,439,055
436,500
(171,715)
(107,225)
1,596,615
2010
Weighted average
exercise price
3.78
5.38
4.00
3.09
4.24
Number of options
1,032,500
466,430
(39,650)
(20,225)
1,439,055
2009
Weighted average
exercise price
3.00
5.42
3.00
3.00
3.78
Under the plan, a total of 2,966,130 stock options remained authorized for issuance as at May 31, 2010.
order backlog
The backlog of orders which are expected to translate into sales within the next 12 months was of $52,650,764 as at May 31, 2010 which is higher
than the corresponding backlog of $52,224,368 as at May 31, 2009. Changes in currency exchange rates had an adverse impact of approximately
$4,300,000 on the backlog comparisons.
off-balance sheet arrangements
The Company has certain off-balance sheet arrangements, consisting of leasing certain premises and equipment under the terms of
operating leases.
The Company’s germany subsidiary is committed to a number of conditions in its supply agreement with its major client. The reader will find
more details related to this agreement in Note 14 to the consolidated financial statements as well as in the risks and Uncertainties section of this
Management’s report.
The Company is exposed to currency risk on sales of Canadian-made products in US dollars and in Euros therefore periodically enters into foreign
currency forward contracts to protect itself against currency fluctuation. The reader will find more details related to these contracts in Note 14 to
the consolidated financial statements as well as in the risks and Uncertainties section of this Management’s report.
contractual obligations
The following table summarizes our principal contractual obligations for our normal business operations as at May 31, 2010:
Payment due by period
Total debt and interest
leases
Purchase obligations
2011
2012
2013
2014
$
$
622,820
910,453
55,535
1,588,808
$
$
655,000
827,377
–
1,482,377
$
$
850,000
748,021
–
1,598,021
$
$
694,920
476,371
–
1,171,291
$
$
2015
and thereafter
1,997,883
970,104
–
2,967,987
Total
$
$
4,820,623
3,932,326
55,535
8,808,484
24
m a n a g e m e n T ’ s r e p o r T
a n n u a l r e p o r T 2 0 1 0
critical accounting policies
use of estimates
The preparation of financial statements in conformity with gAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates include estimating
the useful lives of long-lived assets, as well as assessing the recoverability of accounts receivable, research tax credits and future income taxes
and the valuation of intangible assets, goodwill and other long-lived assets. reported amounts and note disclosure reflect the overall economic
conditions that are most likely to occur and anticipated measures to be taken by management. Actual results could differ from those estimates.
intangible assets
Intangible assets are recorded at cost and amortized on a straight-line method on their estimated useful life at the following rates:
Software
Intellectual property
Periods
5 years
10 years
goodwill
goodwill represents the excess of the purchase price of an acquired business over the fair value assigned to assets acquired and liabilities assumed.
goodwill is assessed for impairment at least annually or more frequently if events or changes in circumstances indicate that the goodwill might be
impaired. The assessment of impairment is based on fair values derived from certain valuation models, which may consider various factors such as
normalized and estimated future earnings, price earnings multiples, terminal values and discount rates. The Company has designated May 31 as
the date for its annual impairment test. As at May 31, 2010, goodwill was not considered to be impaired.
cash flow hedges
derivative financial instruments designated as cash flow hedges are measured at fair value. The effective portion of the change in fair value of the
derivative financial instruments is recorded in other comprehensive income, while the ineffective portion, if any is recognized in net income.
cash flow hedges related to the purchase of raw materials
The Company also designated as cash flow hedges a portion of its cash denominated in US dollars for future purchase of raw materials.
The designated cash denominated in US dollars is accounted for at fair value in the Company’s balance sheet. Foreign exchange gain or loss on this
designated US cash and cash equivalents is recorded in other comprehensive income. When raw material is purchased, the foreign exchange gain or
loss is accounted as part of the cost of the raw material in the inventory.
future changes in accounting policies
business combination and consolidated financial statements
In January 2009, the CICA approved three new accounting standards handbook Section 1582, “Business Combinations”, Section 1601,
“Consolidated Financial Statements”, and Section 1602, “Non-Controlling Interests”.
Section 1582 replaces former Section 1581 “Business Combinations” and establishes standards for the accounting of a business combination.
Section 1582 provides the Canadian equivalent to IFrS 3 — “Business Combinations. Section 1582 requires additional use of fair value measurements,
recognition of additional assets and liabilities, and increased disclosure for the accounting of a business combination and that acquisition costs will
be recognized as expenses.
Sections 1601 and 1602 replace former Section 1600, “Consolidated Financial Statements”. Section 1601 establishes standards for the preparation
of consolidated financial statements and Section 1602, which converges with the requirements of International Accounting Standard 27 (“IAS 27”),
“Consolidated and Separate Financial Statements”, establishes standards for accounting of a non-controlling interest resulting from a business acquisition,
recognized as a distinct component of shareholders’ equity. Net income will present the allocation between the controlling and non-controlling interests.
All three standards are effective at the same time Canadian public companies will have adopted IFrS, for fiscal year beginning on or after
January 1, 2011 but early adoption is permitted. As of today, we have not evaluated the impact of these new standards.
a n n u a l r e p o r T 2 0 1 0
m a n a g e m e n T ’ s r e p o r T
25
adoption of international financial reporting standards (ifrs)
On February 13, 2008, the Canadian Accounting Standards Board (“AcSB”) confirmed that publicly accountable entities will be required to
prepare financial statements in accordance with IFrS, in full and without modification, for interim and annual financial statements for fiscal years
beginning on or after January 1, 2011. For the Company, this represents that its financial statements will be prepared in accordance with IFrS
standards starting June 1, 2011 (the “Changeover date”). In the Company’s reporting for those periods following the Changeover date, comparative
data for equivalent periods in the previous fiscal year will be required, making June 1, 2010 (“date of transition”) for the Company. IFrS uses a
conceptual framework similar to Canadian gAAP, but presents significant differences on certain recognition, measurement and disclosure principles.
In the period leading up to the Changeover, the AcSB will continue to issue accounting standards that are better aligned with IFrS thus mitigating
the impact of conversion to IFrS. Further, the International Accounting Standards Board (IASB) will also continue to issue new, or amend existing
accounting standards during the conversion period, and as a result, the final impact on the Company’s consolidated financial statements of applying
IFrS in full will only be entirely measurable once all applicable IFrS requirements at the final changeover date are known. To ensure adequate
management of this process, the Company has developed a plan, assessed the resource requirements for its implementation, and commenced to
work with its auditors to confirm positions. Above are the steps the Company needs to achieve in order to be ready for this important transition.
Phase 1 — Preliminary Study
This phase involves performing a high-level assessment to identify areas of accounting differences and their impact that may arise from the
transition to IFrS.
Phase 2 — Evaluation
during this phase, the Company prioritizes the areas identified in Phase 1 (high, medium or low) and performs an evaluation of the key areas that
may be impacted by the transition to IFrS. A detailed conversion plan has been developed. Since changes are expected to IFrS standards during
the conversion period and could impact the conversion plan, a monitoring process is established.
Phase 3 — Conversion
In this phase, the Company designs and develops solutions to address the differences identified in phase 2. Changes required to the existing
accounting policies, information systems, business processes and internal controls over financial reporting will be identified in order to perform
conversion to IFrS. Impacts on contractual arrangements are evaluated and reported appropriately; modifications will be made as required. It also
involves the development of a communication and training program for the Company’s finance and other staff, as necessary.
Phase 4 — Implementation
The objective of this final phase is to enable continued IFrS reporting and to facilitate knowledge sharing. Changes identified in phase 3 are
implemented and tested to ensure that any difference is addressed prior to the changeover date. Implementation also involves further training of
staff as revised systems begin to take effect and will continue until completion of the implementation.
The project will culminate in the collection of financial information necessary to compile IFrS-compliant financial statements, embedding IFrS
in business processes, eliminating unnecessary data collection processes and submitting IFrS financial statements to the Audit Committee
for approval. Progress reporting to the Audit Committee on the status of the IFrS implementation project has been instituted. The Company
completed the Phase 1 in February 2010 and phase 2 in May 2010. The IFrS team is now focusing on the detailed conversion plan.
potential impact of implementation on 5n plus
The comparisons of IFrS with Canadian gAAP have helped identify a number of areas of differences. IFrS 1, First-Time Adoption of International
Financial reporting Standards, provides entities adopting IFrS for the first time with a number of optional exemptions and mandatory exceptions,
in certain areas, to the general requirement for full retrospective application of IFrS. The Company is analyzing the various accounting policy
choices available and will implement those determined to be most appropriate in the circumstances.
Most adjustments required on transition to IFrS will be made, retrospectively, against opening retained earnings as of the date of the first
comparative balance sheet presented based on standards applicable at that time. Transitional adjustments relating to those standards where
comparative figures are not required to be restated will only be made as of the first day of the year of adoption. The following are selected key
areas of accounting differences where changes in accounting policies in conversion to IFrS may impact the Company’s consolidated financial
statements. The list and comments should not be construed as a comprehensive list of changes that will result from transition to IFrS but rather
highlights those areas of accounting differences the Company currently believes to be most significant. Notwithstanding, analysis of changes
is still in progress and certain decisions remain to be made where choices relating to accounting policies are available. The areas of differences
highlighted below are based on existing Canadian gAAP and IFrS effective at May 31, 2010. At this stage, the Company is not able to reliably
quantify the full impact of these and other differences on 5N Plus’ consolidated financial statements.
26
m a n a g e m e n T ’ s r e p o r T
a n n u a l r e p o r T 2 0 1 0
Functional currency
IAS 1 and IAS 21 — According to IFrS, an entity must measure its assets, liabilities, revenues and expenses in its functional currency, which is the
currency of the primary economic environment in which it operates. Preliminary assessment by management is that the functional currency will
be the US dollar.
Hedge accounting
IAS 39 — Since the Company will change its functional currency, the actual hedge accounting would have to be reassessed to meet IFrS rules.
Property, plant and equipment
IAS 16 — Property, plant and equipment, requires a more rigorous and broader separation accounting for the asset’s components. Other differences
between IFrS and Canadian gAAP exist in relation to the guidance when accounting for the replacement of components and the capitalization of
administration and services costs is not allowed under IFrS. At the date of Transition, the fair value can be used as deemed cost under IFrS 1.
Business combinations
IFrS 3 — Business combinations, requirements differ from the actual Canadian gAAP. See the new CICA hB 1582 at the beginning of this section.
Stock-based compensation
IFrS 2 — IFrS requires different method of amortization of the expense related to stock options. Also, in evaluating the fair value of the stock option
issued, the Company has to determine the expected forfeiture of options. This will change the calculation of the fair value of the options issued.
Impairment of assets
Mainly IAS 36 — impairment of assets. IFrS contains a single comprehensive impairment standard under which assets are tested for impairment
either individually or within cash-generating units (CgUs). CgUs will have to be established and are typically identified at a lower level within the
Company than an operating unit under Canadian gAAP. differences also exist in the measurement methods of impairment charges and rules may
more frequently conclude to an impairment charge.
Provisions
IAS 37 — Provisions, contingent liabilities and contingent assets, requires a provision to be recognized when: there is a present obligation as a
result of a past transaction or event; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate
can be made of the obligation “Probable” in this context means more likely than not. Under Canadian gAAP, the criterion for recognition in the
financial statements is “likely”, which is a higher threshold than “probable”. Therefore, it is possible that there may be some provisions or contingent
liabilities which would meet the recognition criteria under IFrS that were not recognized under Canadian gAAP.
Other differences between IFrS and Canadian gAAP exist in relation to the measurement of provisions, such as the methodology for determining
the best estimate where there is a range of equally possible outcomes (IFrS uses the mid-point of the range, whereas Canadian gAAP uses the
low-end of the range), and the requirement under IFrS for provisions to be discounted where material.
The Company will continue to review all proposed and ongoing projects of the IASB and assess their impact on its conversion process.
risks and uncertainties
The Company is subject to a number of risk factors which may limit our ability to execute our strategy and achieve our long-term growth
objectives. Management analyses these risks and implements strategies in order to minimize their impact on the Company’s performance.
reliance on major customer
For the year ended May 31, 2010, 74% of our sales were made to one customer. The loss of, or a decrease in the amount of business, from this
customer, could significantly reduce our net sales and harm our operating results.
credit risk
The Company is exposed to credit risk that is mainly associated with its accounts receivable, arising from its normal commercial activities.
The Canadian Company concluded an agreement with Export development Canada under which it will assume a portion of losses for certain export
clients in case of non-payment, for an annual amount up to a maximum of $1,500,000. The Company does not require additional guarantee or
other securities from its clients in regard to its accounts receivable. however, credit is granted only to clients after a credit analysis is performed.
a n n u a l r e p o r T 2 0 1 0
m a n a g e m e n T ’ s r e p o r T
27
The Company conducts ongoing evaluation of its clients and establishes provisions for doubtful accounts should an account be considered non
recoverable. One costumer represented 33% of accounts receivable as at May 31, 2010.
interest rate risk
The Company’s level of debt is currently low and bears interest at floating rate. Should its indebtedness increase, the Company’s policy would be
to limit its exposure to interest rate risk variations by ensuring that a reasonable portion of its debt is at fixed rates. Management does not believe
that the impact of interest rate fluctuations will be significant on its operating results.
price risk
The Company is exposed to metals’ market price fluctuation risk. This risk is managed adequately by forecasting and scheduling the acquisition of
inventories to meet its customers’ contractual obligations. Financial instruments do not expose the Company to raw material price risk.
currency risk
Currency translation and transaction risk may negatively affect our net sales, cost of sales and gross margins, and could result in significant
exchange losses. We report our financial results in Canadian dollars, while most of our sales are denominated in foreign currencies. We also incur
most of our costs in the local currency, which means the Canadian dollar for our Montreal facility and the Euro for our german manufacturing
facility. Although the purchases of raw materials are denominated in US dollars, thus reducing exchange rate fluctuations, we are subject to
currency translation risk which can negatively impact our sales and operating margins. Management has implemented a policy for managing
foreign exchange risk against the relevant functional currency. The company manages the foreign exchange risk by entering into various foreign
exchange forward contracts.
fair value
The Company has determined that the carrying value of its short-term financial assets and liabilities, including cash and cash equivalents,
accounts receivable and other receivable, as well as accounts payable and accrued liabilities, approximates their carrying value due to the short-
term maturities of these instruments.
sources of supply
We may not be able to secure the critical tellurium and selenium feedstock on which we depend for our operations. In particular, tellurium supply
is essential to the production of CdTe. We currently procure our raw materials from a number of suppliers with whom we have had long-term commercial
relationships. The loss of any one of these suppliers or a reduction in the level of deliveries to us may reduce our production capacity and impact our
deliveries to customers. This would in turn negatively impact our sales, net margins and may lead to liabilities with respect to our supply contracts.
market acceptance and reliance on Thin-film and photovoltaic Technologies
We depend on market acceptance of our customers’ products and the technology associated therewith. Any delay or failure by our customers to
successfully penetrate their respective markets could lead to a reduction in our sales and operating margins. Most of our products are sold either
in emerging markets or, alternatively, in existing markets, for which they are used to manufacture replacement products intended to represent new
and improved technologies. If our customers are unable to meet the performance and cost targets required for commercial viability, their products
are subject to regulations which limit their use, or the new or improved technology associated with their products proves unsuitable for widespread
adoption, it may have an adverse effect on our sales and operating margins.
environmental regulations
Our operations involve the use, handling, generation, processing, storage, transportation, recycling and disposal of hazardous materials and are
subject to extensive environmental laws and regulations at the national, provincial, local and international level. These environmental laws
and regulations include those governing the discharge of pollutants into the air and water, the use, management and disposal of hazardous
materials and wastes, the clean-up of contaminated sites and occupational health and safety. We have incurred and will continue to incur capital
expenditures in order to comply with these laws and regulations. In addition, violations of, or liabilities under, environmental laws or permits
may result in restrictions being imposed on our operating activities or in our being subject to substantial fines, penalties, criminal proceedings,
third party property damage or personal injury claims, clean-up costs or other costs. While we believe that we are currently in compliance with
applicable environmental requirements, future developments such as more aggressive enforcement policies, the implementation of new, more
stringent laws and regulations, or the discovery of currently unknown environmental conditions may require expenditures that could have a
material adverse effect on our business, results of operations and financial condition.
28
m a n a g e m e n T ’ s r e p o r T
a n n u a l r e p o r T 2 0 1 0
competition
The forecasted growth in demand for high-purity metals, especially those used by the solar power industry, is expected to attract more metal
refiners into this industry and increase competition. Competition could arise from new low-cost metal refiners or from certain of our customers
who could decide to integrate backward. We may not be able to compete with lower-cost competitors who operate in developing countries. Our
operations are currently based in Canada and in Europe. While the labour component of our cost structure remains relatively small, it may be
difficult for us to compete on equal footing with competitors based in developing countries. Although we believe that proximity to our customers’
operations will be an important competitive advantage because of environmental and recycling considerations, our competitors may gain market
share, which could have an adverse effect on our sales and operating margins, should we not be able to compensate for the volume lost to
our competition.
dependence on key personnel
We are dependent on the services of our senior management team and the loss of any member of this team could have a material adverse
effect on us. Our future success also depends on our ability to retain our key employees and attract, train, retain and successfully integrate new
talent into our management and technical teams. recruiting and retaining talented personnel, particularly those with expertise in the electronic
materials industry, refining technology and cadmium, tellurium- and selenium-based compounds is vital to our success and may prove difficult.
business interruptions
We may incur losses resulting from business interruptions. In many instances, especially those related to our long-term contracts, we have
contractual obligations to deliver product in a timely manner. Any disruption in our activities which leads to a business interruption could harm our
customers’ confidence level and lead to the cancellation of our contracts and legal recourse against us. Although we believe that we have taken
the necessary precautions to avoid business interruptions and carry business interruption insurance, we could still experience interruptions which
would adversely impact our financial results.
acquisition-related risk
The Company’s growth strategy is built notably on business acquisitions aimed at broadening its products portfolio and increasing its presence
in its targeted markets. Therefore, any new acquisition may involve new challenges liable to slow down the integration process or reduce the
economic or operational advantages.
protection of intellectual property
Protection of our proprietary processes, methods and other technologies is critical to our business. We rely almost exclusively on a combination
of trade secrets and employee confidentiality agreements to safeguard our intellectual property. We have deliberately chosen to limit our patent
position to avoid disclosing valuable information. Failure to protect and monitor the use of our existing intellectual property rights could result in
the loss of valuable technologies and processes.
option to first solar to purchase our german manufacturing facility
One of our supply agreements with First Solar contains a “call” option under which First Solar may, if we are unable to comply with our contractual
obligations, purchase all of our equity interests in our german subsidiary. As a result, we may be obligated to sell our german subsidiary for a fixed
price, which would adversely impact our growth prospects and have an adverse material effect on our results of operations.
In addition, the fact that the purchase option may be triggered upon a change of control adversely affecting First Solar could reduce our
attractiveness for potential take-over bids and business combinations, correspondingly affecting our share price. It could also limit our ability
to raise funds through the issuance of additional common shares, depending on the level of dilution resulting therefore.
As at May 31, 2010, the Company complied with the terms and conditions of the agreement.
a n n u a l r e p o r T 2 0 1 0
m a n a g e m e n T ’ s r e p o r T
29
controls and procedures
As required by Multilateral Instrument 52-109 of the Canadian Securities Administrators (“ MI 52-109 ”), 5N Plus has filed certificates signed by the
Chief Executive Officer and that Chief Financial Officer that, among others, attest to the design and effectiveness of the disclosure controls and
procedures and the design and effectiveness of internal control over financial reporting.
disclosure controls and procedures
The Chief Executive Officer and the Chief Financial Officer have designed disclosure controls and procedures, or have caused them to be designed
under their supervision, in order to provide reasonable assurance that:
▪ material information relating to the Company has been made known to them; and
▪ information required to be disclosed in the Company’s filings is recorded, processed, summarized and reporting within the time periods specified
in securities legislation.
An evaluation was carried out, under the supervision of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
Company’s disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that
the disclosure controls and procedures are effective.
internal control over financial reporting
The Chief Executive Officer and the Chief Financial Officer have also designed internal controls over financial reporting, or have caused them to
be designed under their supervision, in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with Canadian gAAP.
An evaluation was carried out, under the supervision of the Chief Executive Officer and the Chief Financial Officer, of the design and effectiveness
of the Company’s internal controls over financial reporting. Based on this evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that the internal controls over financial reporting are effective, using the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
changes in internal control over financial reporting
No changes were made to the Company’s internal controls over financial reporting that occurred during the fourth quarter ended May
31, 2010 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.
non-gaap measures
In this Management’s report, the Company’s management uses certain measures which are not in accordance with gAAP. Non-gAAP measures
are useful supplemental information but may not have a standardized meaning according to gAAP. These non-gAAP measures include EBITdA,
gross profit and gross profit ratio, working capital and current ratio and total debt.
EBITdA means earnings from continuing operations before financing costs, interest income, income taxes, depreciation and amortization and is
presented on a consistent basis from period to period. We use EBITdA because we believe it is a meaningful measure of the operating performance
of our ongoing business without the effects of certain expenses. The definition of this non-gAAP measure used by the Company may differ from
that used by other companies.
gross profit is a financial measure equivalent to the sales excluding cost of sales. gross profit ratio is displayed as a percentage of sales.
Working capital is a measure that shows us how much cash we have available for the growth of our Company. We use it as an indicator of our
financial strength and liquidity. We calculate it by taking current assets and subtracting current liabilities.
Total debt is a measure we use to monitor how much debt we have and calculate it by taking our total long-term debt and including the current
portion. We use it as an indicator of our overall indebtedness.
Backlog is also a non-gAAP measure that represents the expected value of orders we have received but have not yet executed and that are
expected to translate into sales within the next 12 months.
30
m a n a g e m e n T ’ s r e p o r T
a n n u a l r e p o r T 2 0 1 0
comparative figures
Certain comparative figures have been reclassified to conform to the current period presentation.
additional information
Our common shares trade on the Toronto Stock Exchange (TSX) under the ticker symbol vNP. Additional information relating to the Company,
including the Company’s annual information form is available under the Company’s profile on SEdAr at www.sedar.com.
subsequent event
On June 18, 2010, the Company acquired, for an amount of US$3,000,000 (approximately $3,072,000), a convertible note of Sylarus Technologies, llC
(“Sylarus”) a leading producer of germanium substrates for solar cells located in Saint george, Utah. This convertible note bears interest at 6%
annually and is repayable on May 31, 2015 at the latest. This note, including accrued interest, is convertible into 18% of voting and participating
units of Sylarus. The Company has the possibility, until September 30, 2011, to subscribe to additional convertible notes for a maximum amount
of US$4,000,000 (approximately $4,185,000) which would bear interest at the same rate and with the same maturity to the initial note convertible
and can be converted into 15% of additional voting and participating units of Sylarus. Concurrently, 5N Plus and Sylarus have also entered into a
long-term supply and recycling agreement under which 5N Plus will provide high-purity germanium feedstock to Sylarus and will recycle various
germanium containing residues.
a n n u a l r e p o r T 2 0 1 0
m a n a g e m e n T ’ s r e p o r T
31
management’s report to the shareholders of 5n plus inc.
The accompanying consolidated financial statements are the responsibility of the management of 5N Plus Inc., and
have been reviewed by the Audit Committee and approved by the Board of directors.
The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in Canada and include certain estimates that reflect management’s best judgment.
Management is also responsible for all other information included in this Annual report and for ensuring that this
information is consistent with the Company’s consolidated financial statements and business activities.
The Management of the Company is responsible for the design, establishment and maintenance of appropriate
internal controls and procedures for financial reporting, to ensure that financial statements for external purposes
are fairly presented in conformity with generally accepted accounting principles. Such internal controls systems
are designed to provide reasonable assurance on the reliability of the financial information and the safeguarding of
assets.
External auditors have free and independent access to the Audit Committee, which is comprised of outside
independent directors. The Audit Committee, which meets regularly throughout the year with members of
management reviews the consolidated financial statements and recommends their approval to the Board of
directors.
The consolidated financial statements have been audited by KPMg llP.
SIgNEd
Jacques L’Écuyer
President and Chief Executive Officer
SIgNEd
David Langlois, CA
Chief Financial Officer
Montréal, Canada
August 10, 2010
32
a n n u a l r e p o r T 2 0 1 0
auditors’ report to the shareholders of 5n plus inc.
We have audited the consolidated balance sheets of 5N Plus Inc. as at May 31, 2010 and 2009 and the consolidated
statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the years
then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position
of the Company as at May 31, 2010 and 2009 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
SIgNEd
KPMG LLP 1
Chartered Accountants
Montréal, Canada
July 23, 2010
1 CA Auditor permit no 13381
a n n u a l r e p o r T 2 0 1 0
33
consolidated statements of income
Years ended May 31
(in Canadian dollars, except number of shares)
Sales
Cost of sales
gross profit
Expenses
Selling and administrative
depreciation of property, plant and equipment
Amortization of intangible assets
research and development
Foreign exchange gain
Financial
Interest income
Earnings before the following:
Start-up costs, new plant
Earnings before income taxes from continuing operations
Income taxes
Current
Future
Net earnings from continuing operations
Net loss from discontinued operations
Net earnings
Earnings per share from continuing operations
Basic
diluted
Earnings per share
Basic
diluted
Weighted average number of common shares outstanding
Basic
diluted
The accompanying notes are an integral part of these consolidated financial statements.
Note
13
4
15a
16
12
22
20
20
20
2010
$
70,763,345
38,910,641
31,852,704
7,068,705
2,544,542
188,249
1,858,038
(1,183,978)
185,512
(463,678)
10,197,390
2009
$
69,373,117
34,174,231
35,198,886
5,277,745
2,154,552
–
1,241,142
(3,441,588)
377,449
(1,118,881)
4,490,419
21,655,314
30,708,467
–
711,709
21,655,314
29,996,758
6,441,776
70,228
6,512,004
15,143,310
(495,770)
14,647,540
7,727,016
1,401,618
9,128,634
20,868,124
–
20,868,124
0.33
0.33
0.32
0.32
0.46
0.45
0.46
0.45
45,578,992
45,833,291
45,505,213
45,876,122
Consolidated
financial
statements
34
c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
a n n u a l r e p o r T 2 0 1 0
consolidated statements of comprehensive income
Years ended May 31
(in Canadian dollars)
Net earnings
Other comprehensive income
Note
2010
$
2009
$
14,647,540
20,868,124
Net gain on derivative financial instruments designated
as cash flow hedges
15b
1,255,048
–
Net loss on translating financial statements of self-sustaining
foreign operations
Other comprehensive income
Comprehensive income
(3,675,494)
(2,420,446)
12,227,094
(343,467)
(343,467)
20,524,657
The accompanying notes are an integral part of these consolidated financial statements.
consolidated statements of shareholders’ equity
Years ended May 31
(in Canadian dollars)
Share Capital
Beginning of year
Shares issued under stock option plan
End of year
Contributed Surplus
Beginning of year
Stock option compensation cost
Shares issued under stock option plan
End of year
Accumulated other comprehensive income
Beginning of year
Net gain on derivative financial instruments designated
Note
11a
11b
2010
$
2009
$
81,881,914
81,788,694
507,956
93,220
82,389,870
81,881,914
797,800
750,879
(176,156)
1,372,523
(111,048)
242,136
588,209
(32,545)
797,800
–
–
as cash flow hedges
15b
1,255,048
Net loss on translating financial statements of self-sustaining
foreign operations
Translation from temporal method to current rate method
End of year
Retained earnings
Beginning of year
Net earnings
End of year
Shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
(3,675,494)
–
(2,531,494)
(343,467)
232,419
(111,048)
29,800,098
14,647,540
44,447,638
8,931,974
20,868,124
29,800,098
125,678,537
112,368,764
a n n u a l r e p o r T 2 0 1 0
c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
35
consolidated balance sheets
As at May 31
(in Canadian dollars)
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and deposits
derivative financial instruments
Income taxes recoverable
Future income taxes
Property, plant and equipment
Intangible assets
goodwill
Future income taxes
Other assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities
Income taxes payable
Current portion of long-term debt
Current portion of other long-term liabilities
Future income taxes
long-term debt
deferred revenues
Future income taxes
Shareholders’ equity
Share capital
Contributed surplus
Accumulated other comprehensive income
retained earnings
Note
2
3
15c
12
4
5
6
12
8
9
12
9
10
12
11
2010
$
2009
$
67,992,321
4,774,460
27,705,149
1,073,025
1,362,804
516,602
150,598
103,574,959
26,437,302
1,770,913
4,381,762
2,311,191
45,181
138,521,308
4,646,220
43,826
622,820
–
444,662
5,757,528
4,197,803
553,578
2,333,862
12,842,771
65,066,530
6,702,197
27,054,960
516,391
1,685,076
–
249,958
101,275,112
25,823,473
354,950
–
662,639
52,682
128,168,856
6,791,675
3,021,632
549,922
41,725
311,897
10,716,851
3,997,923
641,618
443,700
15,800,092
82,389,870
1,372,523
(2,531,494)
44,447,638
125,678,537
138,521,308
81,881,914
797,800
(111,048)
29,800,098
112,368,764
128,168,856
Commitments (note 19)
Subsequent event (note 23)
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board:
SIgNEd
Jacques L’Écuyer
director
SIgNEd
Jean-Marie Bourassa
director
36
c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
a n n u a l r e p o r T 2 0 1 0
consolidated statements of cash flows
Years ended May 31
(in Canadian dollars)
Operating activities
Net earnings
Net loss from discontinued operations
Net earnings from continuing operations
Non-cash items:
depreciation of property, plant and equipment
Amortization of intangible assets
Future income taxes
Unrealized gain on derivative financial instruments
realized gain on cash flow hedges, net of taxes
Foreign exchange loss on cash and cash equivalents
deferred revenues
Stock option compensation
Other
Net changes in non-cash working capital items
Accounts receivable
Inventories
Prepaid expenses and deposits
Income taxes recoverable
derivative financial instruments
Accounts payable and accrued liabilities
Income taxes payable
Investing activities from continuing operations
Acquisition of property, plant and equipment
Acquisition of intangible assets
Acquisition of a business net of cash acquired
Other
Financing activities from continuing operations
Net change in bank loan
repayment of long-term debt
Net change in other long-term liabilities
Proceeds from exercise of stock options
Effect of foreign exchange rates changes on cash and cash equivalents
from continuing operations
Net increase from continuing operations in cash and cash equivalents
Net decrease from discontinued operations in cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplementary information
Property, plant and equipment unpaid and included in accounts payables
and accrued liabilities
Interest paid
Income taxes paid
The accompanying notes are an integral part of these consolidated financial statements.
Note
22
4
11b
6
22
2010
$
2009
$
14,647,540
495,770
15,143,310
2,544,542
188,249
70,228
–
1,177,489
–
(2,980)
750,879
81,168
19,952,885
2,011,130
(290,107)
(398,131)
(1,291,971)
438,614
(616,314)
(2,977,806)
(3,124,585)
16,828,300
(4,587,910)
(249,258)
(7,747,997)
7,500
(12,577,665)
–
(585,374)
(41,725)
331,800
(295,299)
(533,775)
3,421,561
(495,770)
2,925,791
65,066,530
67,992,321
20,868,124
–
20,868,124
2,154,552
–
1,401,618
(1,685,076)
–
(168,919)
(115,986)
588,209
84,525
23,127,047
6,107,602
(14,438,064)
(165,501)
–
–
323,341
1,285,220
(6,887,402)
16,239,645
(8,663,805)
–
–
3,001
(8,660,804)
(1,384,111)
(578,105)
(356,432)
60,675
(2,257,973)
168,919
5,489,787
–
5,489,787
59,576,743
65,066,530
199,892
121,138
8,902,980
192,453
278,088
6,111,194
a n n u a l r e p o r T 2 0 1 0
c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
37
1. summary of significant accounting policies
The consolidated financial statements of 5N Plus Inc., the (“Company”) are expressed in Canadian dollars and have
been prepared in accordance with Canadian generally accepted accounting principles (“gAAP”).
basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant
intercompany transactions and balances have been eliminated.
use of estimates
The preparation of the consolidated financial statements in conformity with Canadian gAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates
include estimating the useful life of long-lived assets, as well as assessing the recoverability of accounts receivable,
research tax credits, future income taxes and the valuation of intangible assets, goodwill and other long-lived
assets. reported amounts and note disclosure reflect the overall economic conditions that are most likely to occur
and anticipated measures to be taken by management. Actual results could differ from these estimates.
foreign exchange
revenues and expenses denominated in foreign currencies are recorded at the rate of exchange prevailing at the
transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at exchange
rates prevailing at the balance sheet date. realized and unrealized translation gains and losses are reflected in
net earnings.
All assets and liabilities of self-sustaining foreign subsidiaries are accounted for using the current rate method.
Under this method, assets and liabilities of subsidiaries denominated in a foreign currency are translated into
Canadian dollars at exchange rates in effect at the consolidated balance sheet date. revenues and expenses are
translated at average exchange rates prevailing during the period. Foreign exchange gain and loss on translation of
self-sustaining subsidiaries’ financial statements are presented under “Accumulated other comprehensive income”
which have no impact on the consolidated statements of income, unless the Company reduces its net investment
in these foreign operations.
cash and cash equivalents
Cash and cash equivalents consist of cash and highly liquid investments held with investment-grade financial
institutions having an initial maturity of 90 days or less. Cash and cash equivalents are designated as held for
trading and accounted for at fair value.
inventories
raw materials are valued at the lower of cost and net realizable value, cost being determined using the average
cost method. Finished goods are valued at the lower of cost and net realizable value, cost being determined under
the average cost method and representing the value of raw materials, direct labour and a reasonable proportion
of factory overhead.
From time to time, when substantially all required raw material is in inventory, the Company may choose to enter
into long-term sales contracts at fixed prices. The quantity of raw material required to fulfill these contracts is
specifically assigned and the average cost of the raw material of this inventory is accounted for throughout the
duration of the contract.
years ended
May 31, 2010 and 2009
(in Canadian dollars)
Notes to
Consolidated
financial
statements
38
n o T e s T o c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
a n n u a l r e p o r T 2 0 1 0
1. summary of significant accounting policies (continued)
property, plant and equipment
Property, plant and equipment are recorded at cost, net of government assistance. depreciation is calculated under
the straight-line method at the following annual rates:
Buildings
leasehold improvements
Production equipment
rolling stock
Furniture and office equipment
Computer equipment
Periods
25 years
10 to 20 years
10 years
10 years
3 and 10 years
3 years
intangible assets
Intangible assets are recorded at cost and amortized on a straight-line method on their estimated useful life at the
following rates:
Software
Intellectual property
Periods
5 years
10 years
goodwill
goodwill represents the excess of the purchase price of an acquired business over the fair value assigned to assets
acquired and liabilities assumed. goodwill is assessed for impairment at least annually or more frequently if events
or changes in circumstances indicate that the goodwill might be impaired. The assessment of impairment is based
on fair values derived from certain valuation models, which may consider various factors such as normalized
and estimated future earnings, price earnings multiples, terminal values and discount rates. The Company has
designated May 31 as the date for its annual impairment test. As at May 31, 2010, goodwill was not considered
to be impaired.
impairment and disposal of long-lived assets
long-lived assets, including property, plant and equipment and intangible assets subject to amortization and
depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of long-lived assets may not be recoverable. recoverability of assets to be held and used is measured by
comparing the carrying value of an asset to the estimated undiscounted future cash flows expected to be generated
by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be
disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or
fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposed group classified
as held-for-sale would be presented separately in the appropriate asset and liability section of the balance sheet.
revenue recognition
revenues are recognized when products are shipped or delivered in accordance with the customer contract and the
ability to collect is reasonably assured.
revenues from custom refining activities are recognized when products are delivered and all the material risks and
advantages inherent in ownership are transferred to the customers.
research and development
research expenditures are expensed as incurred. They include a reasonable proportion of indirect costs. development
expenditures are deferred when they meet the capitalization criteria provided for by Canadian gAAP, and it is considered
reasonably certain that future advantages will be realized. As at May 31, 2010 and 2009, no development expenses
have been deferred.
a n n u a l r e p o r T 2 0 1 0
n o T e s T o c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
39
1. summary of significant accounting policies (continued)
income taxes
The Company uses the liability method of accounting for income taxes. Under this method, temporary differences
between carrying amount and the income tax bases of assets and liabilities are recorded using the substantively
enacted tax rates expected to be in effect for the year in which the temporary differences are expected to reverse.
A valuation allowance is recorded against any future tax asset if it is more likely than not that the asset will not
be realized.
guarantees
In the normal course of business, the Company enters into various agreements that may contain features that
meet the definition of a guarantee. A guarantee is defined to be a contract (including an indemnity) that contingently
requires the Company to make payments to a third party based on (i) changes in an underlying interest rate, foreign
exchange rate, equity or commodity instrument, index or other variable that is related to an asset, a liability or an
equity security of the guaranteed party, (ii) failure of another party to perform under an obligating agreement, or (iii)
failure of another party to pay its indebtedness when due.
stock-based compensation and other stock-based payments
All awards granted to employees and directors are recorded using the fair value method. Under this method, the
estimated fair value of the options is determined using the Black-Scholes option pricing model. The value of the
compensation expense is recognized over the vesting period of the stock options with a corresponding increase in
contributed surplus.
earnings per share
Basic and diluted earnings per share have been determined by dividing the consolidated net income for the year by
the basic and diluted weighted average number of shares outstanding, respectively.
The diluted weighted average number of common shares outstanding is calculated as if all dilutive options had been
exercised and that proceeds from the exercise of such dilutive options were used to repurchase common shares at
the average market price for the period.
government assistance
government assistance, consisting of research tax credits and grants, is recorded as a reduction of the related
expense or cost of the asset acquired. government grants are recognized when there is reasonable assurance that
the Company has met the requirements of the approved grant program. research tax credits are recorded when
there is reasonable assurance of realization.
financial instruments
Financial instruments are contracts that give rise to a financial asset or a financial liability. Financial assets and
liabilities are recognized on the consolidated balance sheet at fair value and their subsequent measurement
depends on their classification, as described in Note 14. Classification depends on the purpose for which the financial
instruments were acquired or issued, their characteristics and the Company’s designation of such instruments.
The accounting policy the Company has elected to apply to each of its categories of financial instruments is as follows:
Assets and liabilities
Cash and cash equivalents
Trade accounts receivable
Accounts payable and accrued liabilities
long-term debt
Category
held for trading
loans and receivables
Other liabilities
Other liabilities
Measurement
Fair value
Amortized cost
Amortized cost
Amortized cost
40
n o T e s T o c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
a n n u a l r e p o r T 2 0 1 0
1. summary of significant accounting policies (continued)
The amortized cost is established using the effective interest method. The Company has elected to account
for transaction costs related to the issuance of the financial instruments as a reduction of the carrying value of
the related financial instruments. The credit facility includes revolving credit, a term loan and standby letter of
credit. The costs related to the issuance of these financial instruments are presented as a reduction of the financial
instrument it relates to. Transaction costs are amortized using the straight-line method over the expected life of
the facilities.
derivative instruments
The Company enters into derivative instruments, namely forward exchange contracts to manage risk against
the fluctuations in foreign exchange rates. These instruments are carried at fair value at each balance sheet date.
Short-term and long-term derivative assets have been included as part of accounts receivable and other assets,
respectively. Short-term and long-term derivative liabilities have been included as part of accounts payable and
accrued liabilities, and deferred gains and other long-term liabilities, respectively.
hedging
Cash flow hedges
derivative financial instruments designated as cash flow hedges are measured at fair value. The effective portion of
the change in fair value of the derivative financial instruments is recorded in other comprehensive income, while the
ineffective portion, if any, is recognized in net income.
Cash flow hedges related to the purchase of raw materials
The Company also designated as cash flow hedges a portion of its cash denominated in US dollar for future purchase
of raw materials. The designated cash denominated in US dollar is accounted for at fair value in the Company’s
balance sheet. Foreign exchange gain or loss on this designated in US cash and cash equivalents is recorded in other
comprehensive income. When raw material is purchased, the foreign exchange gain or loss is accounted as part of
the cost of the raw material in the inventory.
futures changes in accounting policies
International Financial Reporting Standards (IFRS)
In February 2008, the Canadian Accounting Standards Board confirmed that all publicly accountable enterprises
would be required to report under IFrS for fiscal years beginning on or after January 1, 2011. The Company will
apply IFrS commencing June 1, 2011. It will present its consolidated financial statements for the quarter ending
August 31, 2011 prepared on an IFrS basis and will present comparatives for the year commencing June 1, 2010.
The Company is currently evaluating the impact of adopting IFrS on its information technology systems, education
and training requirements, internal control over financial reporting and impact of business activities. The Company is
unable to quantify how the transition to IFrS will impact its consolidated financial statements, but believes that the
impact could be significant. In the periods preceeding the first fiscal year in which IFrS will be applied, the impacts of
the transition to IFrS on the Company’s consolidated financial statements will be disclosed as they become known.
Business combination and Consolidated Financial Statements
In January 2009, the CICA approved three new accounting standards handbook Section 1582, “Business
Combinations”, Section 1601, “Consolidated Financial Statements”, and Section 1602, “Non-Controlling Interests”.
Section 1582 replaces former Section 1581 “Business Combinations” and establishes standards for the accounting
of a business combination. Section 1582 provides the Canadian equivalent to IFrS 3 — “Business Combinations.
Section 1582 requires additional use of fair value measurements, recognition of additional assets and liabilities,
and increased disclosure for the accounting of a business combination and that acquisition costs will be recognized
as expenses.
a n n u a l r e p o r T 2 0 1 0
n o T e s T o c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
41
1. summary of significant accounting policies (continued)
Sections 1601 and 1602 replace former Section 1600, “Consolidated Financial Statements”. Section 1601 establishes
standards for the preparation of consolidated financial statements and Section 1602, which converges with the
requirements of International Accounting Standard 27 (“IAS 27”), “Consolidated and Separate Financial Statements”,
establishes standards for accounting of a non-controlling interest resulting from a business acquisition, recognized
as a distinct component of shareholders’ equity. Net income will present the allocation between the controlling and
non-controlling interests.
All these standards are effective at the same time Canadian public companies will have adopted IFrS, for fiscal year
beginning on or after January 1, 2011 but early adoption is permitted. As of today, we have not evaluated the impact
of these new standards.
2. accounts receivable
As at May 31
Trade accounts receivable
Commodity taxes
Other
grant receivable
Allowance for doubtful accounts
Chronological history of trade accounts receivable:
As at May 31
Current
0 to 30 days overdue
31 to 60 days overdue
61 to 120 days overdue
3. inventories
As at May 31
raw materials
Finished goods and work in process
2010
$
2009
$
3,913,429
3,826,686
416,031
470,000
–
(25,000)
4,774,460
2010
$
3,757,582
25,453
52,989
77,405
417,073
39,508
2,518,930
(100,000)
6,702,197
2009
$
3,327,781
301,225
1,915
195,765
3,913,429
3,826,686
2010
$
15,634,041
12,071,108
27,705,149
2009
$
18,183,623
8,871,337
27,054,960
42
n o T e s T o c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
a n n u a l r e p o r T 2 0 1 0
4. property, plant and equipment
As at May 31
land
Buildings
Cost
$
998,715
Accumulated
depreciation
$
–
2010
Net book
value
$
Cost
$
998,715
534,632
Accumulated
depreciation
$
–
2009
Net book
value
$
534,632
11,176,387
1,209,335
9,967,052
11,425,865
824,312
10,601,553
leasehold improvements
1,697,888
433,667
1,264,221
1,545,668
335,958
1,209,710
Production equipment
19,716,633
5,877,203
13,839,430
17,266,938
4,259,315
13,007,623
rolling stock
Furniture and office equipment
Computer equipment
9,677
263,033
448,855
2,296
80,271
271,114
7,381
182,762
177,741
47,441
278,802
493,892
39,093
89,995
221,092
8,348
188,807
272,800
34,311,188
7,873,886
26,437,302
31,593,238
5,769,765
25,823,473
depreciation expense on property, plant and equipment presented in the consolidated statement of income are
related to the following activities:
Years ended May 31
Cost of goods sold
Administrative expenses
research and development expenses
5. intangible assets
As at May 31
Software
Intellectual property
As at May 31
Software1
1 Under development in 2009
2010
$
2009
$
2,364,629
2,002,747
166,713
13,200
145,141
6,664
2,544,542
2,154,552
2010
Cost
$
Accumulated
amortization
Net book value
$
$
604,208
120,499
483,709
1,354,954
1,959,162
67,750
1,287,204
188,249
1,770,913
2009
Accumulated
amortization
Net book value
$
–
–
$
354,950
354,950
Cost
$
354,950
354,950
a n n u a l r e p o r T 2 0 1 0
n o T e s T o c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
43
6. business acquisition
firebird Technologies inc.
On december 1st, 2009, the Company acquired Firebird Technologies Inc. (“Firebird”) for an amount of $7,912,055
including acquisition costs of $61,078. Firebird is a manufacturer of pure metals and semiconductor compounds.
Firebird’s main products include indium antimonide wafers as well as purified metals such as antimony, indium and
tin, sold worldwide and used in a number of electronic and optical applications.
The Company has accounted for this transaction using the purchase method. The results of Firebird have been
consolidated in the Company’s consolidated financial statements starting december 1, 2009. The purchase price
was allocated to the net identifiable assets acquired and liabilities assumed based on their estimated fair values
as follows:
Cash and cash equivalents
Accounts receivable
Prepaid expenses and deposits
Inventories
Property, plant and equipment
Intangible assets
Accounts payable and accrued liabilities
long-term debt
Future income taxes
Net assets of business acquired
goodwill
Total purchase price
less: cash and cash equivalents at acquisition
Cash consideration paid for the acquisition of a business presented on
consolidated statements of cash flows
7. bank loan
$
164,058
424,958
226,742
1,229,535
1,521,520
1,354,954
(16,443)
(858,152)
(516,879)
3,530,293
4,381,762
7,912,055
164,058
7,747,997
On November 30, 2009, the Company renewed its credit facility which consists of a $7,500,000 revolving facility, a
$10,000,000 term facility and a $7,500,000 credit letter. With the exception of a €540,000 letter of credit (note 10)
this facility was undrawn as at May 31, 2010.
The revolving facility is available for general corporate purposes. The term facility is used for financing capital projects
and requires equal quarterly capital repayments based on a seven year amortization schedule. This agreement also
includes an accordion feature allowing the Company to have access to an additional amount of $5,000,000.
8. accounts payable and accrued liabilities
As at May 31
Trade accounts payable and accrued liabilities
Salaries and vacations
Commodity taxes
2010
$
3,564,152
1,082,068
–
4,646,220
2009
$
5,336,843
1,324,469
130,363
6,791,675
44
n o T e s T o c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
a n n u a l r e p o r T 2 0 1 0
9. long-Term debt
As at May 31
2010
$
2009
$
Term loan, lender’s floating rate less 1.40%, monthly repayment of $41,667, principal
only, maturing in June 2018, secured by a building.
3,997,883
4,497,923
Term loan, bearing no interest, repayment of 2.6% of sales in excess of $1,200,000
of the subsidiary Firebird , maturing in 2023. If the loan has not been repaid in full by
the end of 2023, the remaining balance will be forgiven.
loan from a supplier, bearing no interest and repayable in instalments of US$20 per
kilogram of germanium purchased by Firebird, maturing no later than July 31, 2010.
loan, effective interest rate of 5%, repaid in April 2010.
Current portion of long-term debt
772,740
50,000
–
4,820,623
(622,820)
4,197,803
Principal repayments of the long-term debt over the forthcoming years are as follows:
2011
2012
2013
2014
2015
Thereafter
Total principal payments on long-term debt
–
–
49,922
4,547,845
(549,922)
3,997,923
$
622,820
655,000
850,000
694,920
500,000
1,497,883
4,820,623
The term loan contains restrictive covenants that require the Company to maintain financial ratios. As at May 31, 2010
these restrictive covenants were respected.
10. deferred revenue
deferred revenues partially consist of amounts billed to clients in excess of revenue recognized according to the
corresponding revenue recognition method.
In 2008, the wholly-owned german subsidiary 5N Pv gmbh, received €540,000 from a german company in support
of job creation. This deferred revenue is amortized according to each job created over a period of three years. Under
the terms of the agreement, a letter of credit of €540,000 (approximately $694,000) was issued to the german
company, should 5N Pv be unable to fulfill its commitment. An amount of €115,416 was recognized as revenue
in 2010 and €102 083 in 2009 (approximately $173,000 and $163,000 respectively).
a n n u a l r e p o r T 2 0 1 0
n o T e s T o c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
45
11. share capital
authorized
An unlimited number of common shares, participating, with no par value, entitling the holder to one vote per share.
An unlimited number of preferred shares may be issued in one or more series with specific terms, privileges and
restrictions to be determined for each class by the Board of directors.
a) issued and fully paid
Common shares
Outstanding as at May 31, 2008
Shares issued under stock option plan
Outstanding as at May 31, 2009
Shares issued under stock option plan
Outstanding as at May 31, 2010
Number
$
45,500,000
81,788,694
20,225
93,220
45,520,225
81,881,914
107,225
507,956
45,627,450
82,389,870
b) stock option plan
In October 2007, the Company adopted a Stock Option Plan (“the Plan”) for directors, officers and employees.
The aggregate number of shares which may be issued upon the exercise of options granted under the Plan may not
exceed 10% of the issued shares of the Company at the time of granting the options. Options granted under the Plan
may be exercised during a period not exceeding ten years from the date of the grant. The stock options outstanding
as at May 31, 2010 may be exercised during a period not exceeding six years from their date of grant. Options vest
at a rate of 25% (100% for directors) per year, beginning one year following the grant date of the options.
The following table presents the weighted average assumptions used to establish the stock option compensation cost,
using the Black-Scholes option price model:
As at May 31
Expected stock price volatility
dividend
risk-free interest rate
risk-free interest rate (directors)
Expected option life
Expected option life (directors)
Fair value–weighted average of options issued
As at May 31
Beginning of period
granted
Cancelled
Exercised
End of period
Number of options
2010
Weighted average
exercise price
1,439,055
436,500
(171,715)
(107,225)
1,596,615
$
3.78
5.38
4.00
3.09
4.24
Stock-based compensation cost is allocated as follows:
Years ended May 31
Cost of goods sold
Selling and administrative
research and development expense
2010
40%
None
2.325%
2.325%
4 years
4 years
1.89
2009
68%
None
2.50%
2.25%
3.5 years
1 year
2.46
2009
Number of options
Weighted average
exercise price
1,032,500
466,430
(39,650)
(20,225)
1,439,055
2010
$
250,695
351,949
148,235
750,879
$
3.00
5.42
3.00
3.00
3.78
2009
$
133,276
370,254
84,679
588,209
46
n o T e s T o c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
a n n u a l r e p o r T 2 0 1 0
12. income Taxes
The following table presents the reconciliation between the income tax expense calculated using statutory Canadian
tax rates to the effective income tax expense in the Company’s consolidated statements of income.
Years ended May 31
Income tax expense at statutory tax rates
6,601,189
Increase (decrease) resulting from:
2010
$
30.5%
9,268,998
Non-deductible expenses for tax purposes
112,365
0.5%
217,935
Non-taxable research and development tax
credits
(17,942)
-0.1%
(83,221)
Effect of difference of foreign tax rates
compared to Canadian tax rates
Adjustments of preceding taxation years and
others
(26,840)
-0.1%
(112,232)
(156,768)
6,512,004
-0.7%
30.1%
(162,846)
9,128,634
Significant components of the Company’s future income tax assets and liabilities were as follows:
As at May 31
Future income tax assets
Inventory
Property, plant and equipment
Share issue expenses and professional fees
Others
Future income tax liabilities
Property, plant and equipment
Intangible assets
Non-taxable research and development tax credits
Unrealized foreign exchange gain
Other
Net future income tax (liabilities) assets
Future income taxes are classified as follows:
As at May 31
Current future income tax assets
long-term future income tax assets
Current future income tax liabilities
long-term future income tax liabilities
Net future income taxes
2010
$
431,869
995,086
1,034,834
–
2,461,789
(1,971,788)
(359,074)
(102,584)
(35,174)
(309,904)
(2,778,524)
(316,735)
2010
$
150,598
2,311,191
(444,662)
(2,333,862)
(316,735)
2009
$
30.9%
0.7%
-0.3%
-0.4%
-0.5%
30.4%
2009
$
249,958
662,639
1,051,210
62,586
2,026,393
(1,263,303)
–
(93,380)
(512,710)
–
(1,869,393)
157,000
2009
$
249,958
662,639
(311,897)
(443,700)
157,000
a n n u a l r e p o r T 2 0 1 0
n o T e s T o c o n s o l i d a T e d f i n a n c i a l s T a T e m e n T s
47
13. cost of sales
The following table presents the inventories recognized as cost of sales:
Years ended May 31
Cost of sales
depreciation of property, plant and equipment related to the
transformation of inventories
2010
$
2009
$
38,910,641
34,174,231
2,364,629
2,002,747
41,275,270
36,176,978
14. financial instruments
fair value of financial instruments
All financial assets classified as held-to-maturity or loans and receivables, as well as financial liabilities classified
as other liabilities, are initially measured at their fair values and subsequently at their amortized cost using the
effective interest rate method. All financial assets and liabilities classified as held for trading are measured at their
fair values. gains and losses related to periodic revaluations are recorded in net earnings.
The Company has determined that the carrying value of its short-term financial assets and liabilities, including cash
and cash equivalents, accounts receivable and other receivable, as well as accounts payable and accrued liabilities,
approximates their carrying value due to the short-term maturities of these instruments.
As at May 31, 2010, the fair value of the long-term debt is $4,820,623 ($4,547,845 as at May 31, 2009) and is calculated
using the present value of future cash flows at year-end rates for similar debt with same terms and maturities.
The fair value of financial assets by level of hierarchy was as follows as at May 31, 2010:
Cash and cash equivalents
derivative financial instruments1
Level 2
Level 3
Level 1
$
67,992,321
$
–
–
1,362,804
67,992,321
1,362,804
Total
financial
assets
$
67,992,321
1,362,804
69,355,125
$
–
–
–
1 derivative financial instruments consist of forward exchange contracts.
financial risk management
In the normal course of its operations, the Company is exposed to credit risk, liquidity and funding risk, interest rate
risk as well as currency risk. Management analyses these risks and implements strategies in order to minimize their
impact on the Company’s performance.
credit risk and significant customers
The Company has a conservative approach with regard to the management of its cash and cash equivalents.
Its investment policy requires the funds to be entirely guaranteed by the financial institution and to be allocated
amongst three recognized financial institutions.
The Company is exposed to credit risk that is mainly associated with its accounts receivable, arising from its normal
commercial activities. The Company considers its credit risk to be limited for the following reasons:
a) The Canadian Company concluded an agreement with Export development Canada under which it will assume
a portion of losses for certain export clients in case of non-payment, for an annual amount up to a maximum
of $1,500,000;
b) The Company does not require additional guarantee or other securities from its clients in regard to its accounts
receivable. however, credit is granted only to clients after a credit analysis is performed. The Company conducts
ongoing evaluation of its clients and establishes provisions for doubtful accounts should an account be considered
non recoverable;
48
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a n n u a l r e p o r T 2 0 1 0
14. financial instruments (continued)
c) One customer represented approximately 74% (78% in 2009) of the sales in the fiscal year 2010 and 33% of accounts
receivable as of May 31, 2010 (79% in 2009).
liquidity and financing risk
liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so
only at excessive cost. One of management’s primary goals is to maintain an optimal level of liquidity through the
active management of its assets and liabilities as well as the cash flows.
As at May 31, 2010, the Company’s cash and cash equivalents amounted to $67,992,321 ($65,066,530 as at
May 31, 2009). The Company also has available up to $30,000,000 in credit facility (Note 7). given the Company’s
available liquid resources as compared to the timing of the payments of liabilities, management assesses the
Company’s liquidity risk to be low.
The contractual maturities of financial liabilities as at May 31, 2010 are as follows:
Carrying
Amount
$
Contractual
Cash Flows
0 to
6 months
6 to
12 months
12 to
24 months
After
24 months
$
$
$
Accounts payable and accrued
liabilities
long-term debt
4,646,220
4,646,220
4,352,930
4,820,623
5,532,850
379,713
9,466,843
10,179,070
4,732,643
293,290
515,515
808,805
Contractual cash flows include interest charges.
$
–
$
–
1,072,404
3,565,218
1,072,404
3,565,218
interest rate risk
The Company’s level of debt is currently low and bears interest at floating rate. Should its indebtedness increase,
the Company’s policy would be to limit its exposure to interest rate risk variations by ensuring that a reasonable
portion of its debt is at fixed rates.
Interest revenue on cash and cash equivalents are at variable rate. For each $10,000,000 in cash and cash equivalents,
a fluctuation in interest rate of 0.50% would annually impact interest income by $50,000. Therefore, management
believes that the impact on net earnings would not be significant on its operating results.
price risk
The Company is exposed to metals’ market price fluctuation risk. This risk is managed adequately by forecasting and
scheduling the acquisition of inventories to meet its customers contractual obligations. Financial instruments do not
expose the Company to raw material price risk.
exchange risk
The Company is exposed to risk from changes in foreign currency rates on sales of Canadian-made products in
US dollars and in Euros. The Company mitigates this risk principally through forward contracts and by the natural
hedging provided by purchasing raw materials in US dollars.
On September 25, 2009, the Company concluded a €10,500,000 foreign exchange forward contract (€500,000
per month) to hedge its sales made by its german subsidiary 5N Pv. This foreign exchange forward contract was
effective from October 1, 2009 to June 30, 2011, at an average conversion rate of 1.6.
On January 13, 2010, the Company terminated prior to maturity this foreign exchange forward contract for cash
proceeds of $800,000. The effective portion of gain was recorded under accumulated other comprehensive income
and is amortized through earnings as if the previously hedged transactions occur. The ineffective portion of the gain
was accounted for in the consolidated statement of income.
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49
14. financial instruments (continued)
On January 13, 2010, the Company concluded a €8,500,000 foreign exchange forward contract (€500,000 per
month) to hedge its sales made by its german subsidiary 5N Pv. This foreign exchange forward contract is effective
from January 13, 2010 until May 31, 2011, at an average exchange rate of 1.4975. The fair value of the foreign
exchange forward contract is $1,246,462 as at May 31, 2010, and was accounted for in the consolidated statements
of income.
On May 25, 2010, the Company concluded a US$4,500,000 foreign exchange forward contract (US$750,000 per
month) to hedge a portion of its US dollar sales. This foreign exchange forward contract will be effective from
June 1, 2010 to November 30, 2010 at an average conversion rate of 1.07. The fair value of the foreign exchange
forward contract is $116,342 as at May 31, 2010. This contract has been designated as cash flow hedges and the
change in its fair value was recorded in the consolidated statement of comprehensive income.
The Company designated as cash flow hedges a portion of its cash denominated in US dollar for future purchase
of raw materials until April 2011. The designated cash denominated in US dollar is accounted for at fair value in the
Company’s balance sheet. Foreign exchange gain or loss on the designated US cash and cash equivalents is recorded
in other comprehensive income. When raw material is purchased which is anticipated to be recorded in the next twelve
months, the foreign exchange gain or loss is accounted for as part of raw material in the inventory. The amount
of US cash and cash equivalents designated under this strategy amounted to $28,075,353 as at May 31, 2010.
Foreign exchange gains related to this cash and cash equivalents included in comprehensive income amounted to
$1,208,826 as at May 31, 2010.
The Company had the following exposure on May 31, 2010:
Financial assets and liabilities measured at amortized costs 1:
Cash and cash equivalents 2
Accounts receivable
receivable from the wholly-owned subsidiary
Accounts payable and accrued liabilities
Total exposure from above
US$
€
10,544,970
3,019,111
–
(867,238)
12,696,843
608,564
1,100
3,477,716
(4,349)
4,083,031
1 Amounts above do not include the wholly-owned subsidiary account balances as it is using the Euro as functional currency. however,
intercompany account balances in Euros are included in these amounts.
2 US$28,075,353 designated for future purchases of raw materials not included.
Scenario of the Canadian dollar exchange rate fluctuation with regard to gross amount at risk:
Exchange rate as at May 31, 2010
Impact on net earnings based on a fluctuation of five cents in the
Canadian dollar exchange rate
15. foreign exchange gain
Years ended May 31
Foreign exchange loss (gain) related to operations
realized foreign exchange gain on derivative financial instruments
Unrealized foreign exchange gain on derivative financial instruments
CA$ / US$
1.046
CA$ / €
1.284
458,943
181,175
2010
$
194,296
(131,812)
(1,246,462)
2009
$
(1,523,887)
(232,625)
(1,685,076)
a) Included in the consolidated statement of income
(1,183,978)
(3,441,588)
50
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15. foreign exchange gain (continued)
Years ended May 31
2010
2009
realized foreign exchange gain on designated derivative financial instruments
realized foreign exchange gain on cash designated
Unrealized foreign exchange gain on derivative financial instruments
Income tax on the above
b) Included in the consolidated statement of comprehensive income
As at May 31
c) Reported in the consolidated balance sheet
16. financial expenses
Years ended May 31
Interest and banking fees
Interest on long-term debt
Amortization of other assets
17. capital management
The Company’s objectives when managing its capital are:
$
(491,110)
(1,208,826)
(116,342)
(1,816,278)
561,230
(1,255,048)
$
–
–
–
–
–
–
2010
$
2009
$
1,362,804
1,685,076
2010
$
50,964
134,548
–
185,512
2009
$
112,560
195,732
69,157
377,449
▪ To optimize its capital structure in order to reduce costs and strengthen its ability to seize strategic opportunities;
▪ To ensure that operations remain competitive and stable and to sustain future development of the Company,
including research and development activities, expansion of existing facilities or construction of new facilities
and potential acquisitions of complementary businesses or products and;
▪ To provide the Company’s shareholders an appropriate return on their investment.
The Company defines its capital as its shareholders’ equity.
The capital of the Company amounted to $125,678,537 as at May 31, 2010 and $112,368,764 as at May 31, 2009.
The increase reflects principally the current year’s net earnings.
18. government assistance
during the years ended May 31, 2010 and 2009, the Company recorded research and development tax credits amounting
to $478,755 and $423,603 respectively. These tax credits are subject to review and approval of taxation authorities.
19. commitments
a) The Company rents certain premises and equipment under the terms of operating leases. The maturity of the
premises leases ranges from May 2011 to May 2017 with options to extend, and for the equipment in June 2013.
The rental expenses related to operating leases for the year ended May 31, 2010 were $758,187.
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51
19. commitments (continued)
Future minimum payments excluding operating costs for the next years are as follows:
2011
2012
2013
2014
2015 and thereafter
$
910,453
827,377
748,021
476,371
970,104
b) As at May 31, 2010, the Company had placed orders in the amount of $55,535 ($239,321 in 2009) with suppliers
for the purchase of fixed assets.
c) The Company’s german subsidiary is committed to a number of conditions in its supply agreement with its client
First Solar. These conditions include minimum quantities of products to be sold and certain recycling obligations.
Should the subsidiary be unable to fulfill these conditions within prescribed time frame, the Company could
be forced to transfer its ownership of the german facility to First Solar for a consideration approximating the
Company’s acquisition cost.
20. earnings per share
Years ended May 31
Numerator
Net earnings from continuing operations
Net earnings
Denominator
2010
$
2009
$
15,143,310
14,647,540
20,868,124
20,868,124
Weighted average number of common shares
45,578,992
45,505,213
Effect of dilutive securities
Stock options
Earnings per share from continuing operations
Basic
diluted
Earnings per share
Basic
diluted
254,299
370,909
45,833,291
45,876,122
0.33
0.33
0.32
0.32
0.46
0.45
0.46
0.45
21. segment information
The Company has only one reportable segment, namely the refining and recycling of metals.
geographical information
Years ended May 31
Sales to customers located in the following geographical areas:
United States
Europe
Asia
Canada
Other countries
2010
$
2009
$
47,393,186
18,969,244
3,654,303
669,354
77,258
40,559,556
20,774,725
6,431,033
1,591,612
16,191
70,763,345
69,373,117
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21. segment information (continued)
Sales are geographically allocated based on the customer’s country of origin with whom the agreement has
been signed.
As at May 31
Property, plant and equipment and intangible assets in the following countries:
Canada
germany
2010
$
2009
$
22,695,350
9,894,627
32,589,977
13,424,454
12,753,969
26,178,423
22. discontinued operation
On September 1, 2009, the Company had established a joint venture called zT Plus with BSST, a subsidiary of
Amerigon Incorporated. The Company had a 50% ownership interest in zT Plus. The contribution of each partner in
cash or in kind was expected to be US$5,500,000. zT Plus was accounted for using the proportionate consolidation
method. On March 26, 2010, the commercial progress of zT Plus was slower to develop than anticipated and the
Company sold its interest for an amount of US$1,600,000 ($1,632,000). This sale was classified as a discontinued operation.
Loss of discontinued operation
revenues
research and development expenses
loss before income tax
recovery of income taxes
Net loss
loss on sale net of tax of $133,963
Net loss from discontinued operation
23. subsequent event
2010
$
–
886,997
886,997
(545,110)
341,887
153,883
495,770
On June 18, 2010, the Company acquired, for an amount of US$3,000,000 (approximately $3,072,000), a convertible
note of Sylarus Technologies, llC (“Sylarus”) a leading producer of germanium substrates for solar cells located
in Saint george, Utah. This convertible note bears interest at 6% annually and is repayable on May 31, 2015 at the
latest. This note, including accrued interest, is convertible into 18% of voting and participating units of Sylarus.
The Company has the possibility, until September 30, 2011, to subscribe to additional convertible notes for a
maximum amount of US$4,000,000 (approximately $4,185,000) which would bear interest at the same rate
and with the same maturity as the initial note convertible and can be converted into 15% of additional voting and
participating units of Sylarus. Concurrently, 5N Plus and Sylarus have also entered into a long-term supply and
recycling agreement under which 5N Plus will provide high-purity germanium feedstock to Sylarus and will recycle
various germanium containing residues.
24. comparative figures
Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.
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Board of directors
1
2
3
4
5
pierre shoiry
Administrateur
Member of the
Compensation Committee
Independent
Pierre Shoiry is President
and Chief Executive Officer of
GENIVAR, a leading Canadian
engineering company.
Mr. Shoiry has been a member
of the Ordre des Ingénieurs du
Quebec since 1980. He holds
a Bachelor’s degree in applied
science with a major in civil
engineering, as well as a
Master’s degree in applied
science from Université de
Laval in Québec City.
Jacques l’Écuyer
Director
Non independent
Mr. L’Écuyer is one of our
founders and has served
as President and Chief
Executive Officer and as a
director since the company’s
inception in June 2000.
Mr. L’Écuyer previously acted
as the pure metals and
compounds Business Unit
Manager within Noranda Inc.
and, subsequently, ANRAD
Corporation. Mr. L’Écuyer
holds BS and MS degrees
in metallurgical engineering
from École Polytechnique
de Montréal and a PhD in
materials science from the
University of Birmingham
in England.
Jean-marie
bourassa
Director
President of the
Audit Committee
Independent
Mr. Bourassa is Founding
President and CEO of
Bourassa Boyer inc., an
accounting firm. He also
serves on the Board
of Directors of Savaria
Corporation, which is
listed on the TSX, and is
involved with various private
companies as a shareholder
and director. Mr. Bourassa has
been a chartered accountant
since 1976 and attained
corporate governance
certification at Université
Laval in 2009.
dennis wood
Chairman of the Board
Member of the Audit and
Compensation Committees
Independent
Mr. Wood is President and Chief
Executive Officer of DWH Inc.,
a position he has held since
1973. A highly respected
businessman, Mr. Wood is
a board member of many
companies, including National
Bank Trust, Transat A.T. Inc.,
the Jean Coutu Group (PJC)
Inc., Rite Aid Corporation and
Azimut Exploration Inc. and
GBO Inc. (formerly Le Groupe
Bocenor Inc.). He received in
1987 an honorary PhD from
the Université de Sherbrooke,
and was awarded the Order of
Canada, the country’s highest
civilian award.
John h. davis
President of the
Compensation Committee
Member of the Audit
Committee Independent
John Davis retired from
Noranda Inc.
after twenty-five years in
technical development and
management. As Director,
Strategic Planning and
Coordination, he led Noranda
to develop new businesses in
several advanced technologies,
including those that are now
the basis for 5N Plus, and
was involved in assessments
for a number of successful
investment initiatives.
Mr. Davis has a Bachelor’s
degree in Chemistry
from Imperial College,
University of London. He is
an Associate of the Royal
College of Science and has
completed the Management
Development Program at
Northeastern University.
3
1
2
4
5
54
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Management team
1
2
3
4
5
Jean bernier
General Manager
Mr. Bernier joined 5N Plus in
2007 and serves as General
Manager of the Montréal
head office and our German
subsidiary 5N PV. During
his more than 20 years
experience in operations
management and business
management, Mr. Bernier
held the position of Manager
at ABB, Avestor Corporation
Inc., BPB Westroc Inc., and
Tioxide Americas, a division
of ICI Chemicals. Mr. Bernier
holds a BS degree in
mechanical engineering
from the Université Laval
in Québec City.
Jacques l’Écuyer
President and Chief
Executive Officer
Mr. L’Écuyer has served
as President and Chief
Executive Officer and as a
director since the company’s
inception in June 2000.
Mr. L’Écuyer previously acted
as the Pure Metals and
Compounds Business Unit
Manager within Noranda Inc.
and, subsequently, ANRAD
Corporation. Mr. L’Écuyer
holds BS and MS degrees
in metallurgical engineering
from École Polytechnique
de Montréal and a PhD in
materials science from the
University of Birmingham
in England.
david langlois
Chief Financial Officer
Mr. Langlois has nearly
20 years experience from
the banking, financial and
auditing sectors. Prior to
joining 5N Plus in November
2009, Mr. Langlois was the
Vice President of Corporate
Accounting and Information
Management at National
Bank Financial, one of the top
investment dealers in Canada.
Mr. Langlois is a Chartered
Accountant and holds a
degree from the Université
du Québec in Montréal.
nicholas audet
Vice President
Mr. Audet joined 5N Plus in
2003 as Process Engineer.
He was subsequently appointed
Product Manager and then
promoted to Manager of
Research and Development.
Previously, Mr. Audet acted
as a lead engineer for EMS
Technologies Inc. and as
a Process Development
Engineer for Amistar
Technologies. Mr. Audet
holds a BS in mechanical
engineering from the
Université Laval in Québec
City as well a M.Eng. degree
from the University of Victoria
in British Columbia.
marc suys
Vice President Sustainable
Development and
Environmental Affairs
Mr. Suys has occupied
various functions since
the company’s inception,
including Environment,
Health and Safety Manager,
and was recently promoted
to Vice President Sustainable
Development and
Environmental Affairs.
Mr. Suys acted as the
General Manager during
the construction and
commissioning of our
subsidiary 5N PV and is one
the key players responsible
for its success. Mr. Suys
holds BS and MS degrees
in engineering physics
from École Polytechnique
de Montréal.
2
3
4
1
5
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55
Corporate information
Si vous souhaitez obtenir
une copie en français
de ce rapport annuel,
communiquez avec :
Relations avec
les investisseurs
5N Plus inc.
4385, rue Garand
Montréal (Québec) H4R 2B4
Aussi disponible à l’adresse :
www.5nplus.com
Stock Exchange
5N Plus is listed on the
Toronto Stock Exchange,
under the symbol VNP.
Transfer Agent And Registrar
Computershare Investor
Services Inc.
Auditors
KPMG LLP
Head Office
4385 Garand Street
Montreal, Québec
H4R 2B4
Annual Meeting
The annual shareholders
meeting will be held on
Thursday, October 7, 2010
at 10:00 a.m.
McCord Museum
J. Armand Bombardier
Amphitheatre
690 Sherbrooke Street West
Montreal, Québec
For more information,
please contact:
INVESTOR RELATIONS
5N Plus Inc.
4385 Garand Street
Montreal, Québec
H4R 2B4
T: 514-856-0644
F: 514-856-9611
invest@5nplus.com
56
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our vision
5n plus aT a glance
financial and operaTional highlighTs
leTTer To shareholders
managemenT’s reporT
consolidaTed financial sTaTemenTs
noTes To consolidaTed financial sTaTemenTs
corporaTe informaTion
1
2
3
12
16
34
38
56
100%
Table
of
contents
5n plus is a fully integrated producer and closed-loop recycler of highly purifi ed metals and compounds, that
customers use in a range of electronic applications, including solar modules and medical devices. 5n plus draws its
name from the purity of its products — 99.999%, or 5 nines and more — which consist primarily of tellurium, cadmium,
germanium, indium, antimony, selenium and related compounds such as cadmium telluride (cdTe), cadmium sulphide
(cds) and indium antimonide (insb). The company employs nearly 200 people and operates state-of-the-art production,
r&d and recycling facilities in montréal, canada (adjacent to its head offi ces) and eisenhüttenstadt, germany. it also
operates a production facility in Trail, british columbia, canada, and a recycling centre in near madison, wisconsin, u.s.
5n plus is listed on the Toronto stock exchange under the ticker symbol vnp.
Printed in Canada
design: www.ardoise.com
enriching
our
offering
5N Plus Inc.
4385 garand street
montreal, québec
h4r 2b4
canada
www.5nplus.com
annual
report
2010