0
FINANCIAL HIGHLIGHTS
OPERATING RESULTS
(in thousands of dollars, except per share amounts)
2018
2017
2016
2015
Sales
Earnings (loss) before income taxes
Net earnings (loss)
- per share
Cash flow
(excluding non-cash working capital,
Income tax paid and interest paid)
- per share (1)
Shareholders’ equity
- per share (1)
Share price at year-end
Dividend paid per share
$475,207
$3,277
$2,571
$0.30
$523,659
$(3,275)
$(2,094)
$(0.25)
$565,173
$(16,294)
$(12,105)
$(1.42)
$9,705
$1.14
$112,863
$13.27
$6.00
-
$2,630
$0.31
$109,434
$12.86
$8.33
-
$(10,802)
$(1.27)
$110,693
$13.01
$9.05
$0.30
$538,975
$11,874
$8,622
$1.01
$16,092
$1.89
$128,100
$15.06
$10.35
$0.35
(1) Non-IFRS financial measures – refer to “Non-IFRS Financial Measures” section of MD&A
NET EARNINGS (LOSS) (in million $)
SHARE PRICE
2014
(15 months)
$610,587
$11,128
$8,125
$0.96
$15,228
$1.79
$119,486
$14.05
$9.50
$0.65
15
10
5
0
(5)
(10)
(15)
$8
$9
$3
$(2)
2014
2015
$(12)
2016
2017
2018
2014
2015
2016
2017
2018
9.50 $
10.35 $
9.05 $
8.33 $
6.00 $
TABLE OF CONTENTS
Chairman’s Report to the Shareholders ................ 2
President’s Report to the Shareholders .................. 3
Management’s Discussion and Analysis ............... 4
Consolidated Financial Statements and Notes ..... 16
Directors and Officers .......................................... 41
Sales Offices and Distributions Centres .............. 44
HEAD OFFICE
225 Goodfellow Street
Delson, Quebec
J5B 1V5
Canada
1
ANNUAL MEETING
The annual Meeting of Shareholders
will be held on April 12, 2019 at 11:00
a.m. at the Goodfellow Inc. Head
Office: 225 Goodfellow Street,
Delson, Quebec.
Toll-Free Canada: 1-800-361-6503
Tel.: 450-635-6511
Fax: 450-635-3729
info@goodfellowinc.com
www.goodfellowinc.com
CHAIRMAN’S REPORT TO THE SHAREHOLDERS
The new federal mortgage financing rules that came into effect in January 2018 caused a significant drop in our sales in
the Toronto area beginning in June. This sales drop, combined with a sudden downfall in plywood and lumber prices,
prevented Goodfellow from achieving the profitability level that the restoration of our gross margins would normally have
produced.
These difficulties did not prevent management from continuing to improve our balance sheet during the year. Better
management of our cashflow allowed us to reduce our line of credit by nearly $ 10 million in 2018.
In closing, on behalf of the Board of Directors, I wish to thank all our employees for their efforts during this past year.
We are very grateful for their dedication.
Claude Garcia
Chairman of the Board
February 14, 2019
2
PRESIDENT’S REPORT TO THE SHAREHOLDERS
December 1, 2017 to November 30, 2018 must be evaluated and perceived as a second year of transition and correction
after the severe losses incurred in 2016. Management took hold of its transparent and accurate business information to
strive towards a profitable budget and an actual profitable result for 2018. Continued process improvements within the
Company’s ERP system made this a viable outcome.
Fiscal 2018 was budgeted as a transition into historical profitability. As responsible operators, management continued in
its objective of eradicating obsolete inventory. Cost control measures continued to be implemented through operational
efficiencies and continued process improvements within the ERP. Through pricing discipline, margins held overall despite
very volatile commodity fluctuations.
The results in Q1 2018 were $1.4 million net loss with traditional losses mitigated by decent business conditions in Jan/Feb
to end the quarter. Q2 2018 culminated with an exceptional May and a result of $1.8 million of net earnings. The beginning
of Q3 showed discrete signs of softening markets especially in Ontario and continued headwinds in Alberta/Saskatchewan.
Commodity price levels in plywood and lumber dropped at an unprecedented pace leaving those categories in distress.
Overall sales in Q3 and Q4 fell below expectations resulting nonetheless in $2.0 million of net earnings in Q3 2018 and
$0.2 million of net earnings in Q4 2018 versus $1.6 million in Q3 2017 and $2.2 million in Q4 2017. The Company was
able to continue its gradual mandate to return to profitability in 2018. 2018 final results were $2.6 million of net earnings
versus a $2.1 million net loss in 2017.
Despite challenging political conditions in North America and overseas, Goodfellow is committed to improving its net
profitability in years to come.
Patrick Goodfellow
President and Chief Executive Officer
February 14, 2019
3
MANAGEMENT’S DISCUSSION AND ANALYSIS
PROSPECTIVE FINANCIAL INFORMATION
The following Management’s Discussion and Analysis (“MD&A”) and Goodfellow Inc. (hereafter the “Company”) consolidated financial
statements were approved by the Audit Committee and the Board of Directors on February 14, 2019. The MD&A should be read in conjunction with
the consolidated financial statements and the corresponding notes for the twelve months ended November 30, 2018 and twelve months ended
November 30, 2017. The MD&A provides a review of the significant developments and results of operations of the Company during the twelve
months ended November 30, 2018 and twelve months ended November 30, 2017. The consolidated financial statements for the years ended November
30, 2018 and November 30, 2017 are prepared in accordance with International Financial Reporting Standards (“IFRS”). All amounts in this
MD&A are in Canadian dollars unless otherwise indicated.
This MD&A contains implicit and/or explicit forecasts, as well as forward-looking statements on the objectives, strategies, financial position,
operating results and activities of Goodfellow Inc. These statements are forward-looking to the extent that they are based on expectations relative to
markets in which the Company exercises its activities and on various assessments and assumptions. Although we believe that the expectations reflected
in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are
reasonable, there can be no assurance that such expectations and assumptions will prove to be correct. Readers are cautioned not to place undue
reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which
the forward-looking statements are based will occur. Our actual results could differ significantly from management’s expectations if recognized or
unrecognized risks and uncertainties affect our results or if our assessments or assumptions are inaccurate. These risks and uncertainties include,
among other things; the effects of general economic and business conditions including the cyclical nature of our business; industry competition;
inflation, credit, currency and interest rate risks; environmental risk; competition from vendors; dependence on key personnel and major customers;
laws and regulation; information systems, cost structure and working capital requirements; and other factors described in our public filings available
at www.sedar.com. For these reasons, we cannot guarantee the results of these forward-looking statements. The MD&A gives an insight into our past
performance as well as the future strategies and key performance indicators as viewed by our management team at Goodfellow Inc. The Company
disclaims any obligation to update or revise these forward-looking statements, except as required by applicable law.
Additional information relating to Goodfellow Inc., including the Annual Information Form and the Annual Report can be found on SEDAR at
www.sedar.com.
NON-IFRS FINANCIAL MEASURES
Cash flow per share and operating income before depreciation of property, plant and equipment and amortization of intangible assets (also referred
to as earnings before interest, taxes, depreciation and amortization [“EBITDA”]), are financial measures not prescribed by the IFRS and are not
likely to be comparable to similar measures presented by other issuers. Management considers it to be useful information to assist knowledgeable
investors in evaluating the cash generating capabilities of the Company. Cash flow per share is defined as Cash flow from operations (excluding
non-cash working capital, income tax paid and interest paid) of $9.7 million for the fiscal period ended November 30, 2018 divided by the total
number of outstanding shares of 8,506,554.
Reconciliation of EBITDA
and operating income to net income (loss)
(thousands of dollars)
Net income (loss) for the period
Provision for income taxes
Net financial costs
Operating income
Depreciation and amortization
EBITDA
BUSINESS OVERVIEW
For the years ended
November 30
2018
$
2,571
706
3,476
6,753
3,690
10,443
November 30
2017
$
(2,094)
(1,181)
4,199
924
4,085
5,009
Goodfellow Inc. is a distributor of lumber products, building materials, and hardwood flooring products. The Company carries on the business of
wholesale distribution of wood and associated products and remanufacturing, distribution and brokerage of lumber. The Company sells to over 7000
customers who represent three main sectors - retail trade, industrial, and manufacturing. The Company operates 13 distribution centres, 9 processing
plants in Canada, and 1 distribution centre in the USA.
4
OVERALL PERFORMANCE
Heading into 2018, the Company focused on reconciling its inventory levels and setting a focused priority on its core categories. The Company
remains committed to strengthening its distribution footprint across Canada. Our business model continues to be aligned with organic growth through
geographic market penetration, market share gains, distribution of new value-added lines and strengthening our core category niche businesses.
Goodfellow is committed to being the leader in specialty forest products and offering innovative customer service solutions.
Fiscal 2018 was budgeted as a transition into historical profitability. As responsible operators, management continued in its objective of eradicating
obsolete inventory. Cost control measures continued to be implemented through operational efficiencies and continued process improvements within
the ERP. Through pricing discipline, margins held overall despite very volatile commodity fluctuations.
The results in Q1 2018 were $1.4 million net loss with traditional losses mitigated by decent business conditions in Jan/Feb to end the quarter. Q2
2018 culminated with an exceptional May and result of $1.8 million of net earnings. The beginning of Q3 showed discrete signs of softening markets
especially in Ontario and continued headwinds in Alberta/Saskatchewan. Commodity price levels in plywood and lumber dropped at an
unprecedented pace leaving those categories in distress. Overall sales in Q3 and Q4 fell below expectations resulting nonetheless in $2.0 million of
net earnings for Q3 2018 and $0.2 million of net earnings in Q4 2018 versus $1.6 million in Q3 2017 and $2.2 million in Q4 2017. The Company
was able to continue its gradual mandate to return to profitability in 2018. 2018 final results were $2.6 million of net earnings versus a $2.1 million
net loss in 2017.
SELECTED ANNUAL INFORMATION (in thousands of dollars, except per share amounts)
Consolidated sales
Earnings (loss) before income taxes
Net earnings (loss)
Total Assets
Total Long-Term Debt
Cash Dividends
PER COMMON SHARE
Net earnings (loss) per share, Basic and Diluted
Cash Flow from Operations (excluding non-cash
working capital items, income tax paid and interest paid)
Shareholders' Equity
Share Price
Cash Dividends
COMPARISON FOR THE YEARS ENDED NOVEMBER 30, 2018 AND 2017
(In thousands of dollars, except per share amounts)
HIGHLIGHTS FOR THE YEARS ENDED
NOVEMBER 30, 2018 AND 2017
Consolidated sales
Earnings (loss) before income taxes
Net earnings (loss)
Net earnings (loss) per share, Basic and Diluted
Cash Flow from Operations (excluding non-cash
working capital items, income tax paid and interest paid)
EBITDA
Average Bank indebtedness
Inventory average
2018
$
475,207
3,277
2,571
190,718
43
-
0.30
1.14
13.27
6.00
-
2018
$
475,207
3,277
2,571
0.30
9,705
10,443
69,569
104,832
2017
$
523,659
(3,275)
(2,094)
197,233
55
-
(0.25)
0.31
12.86
8.33
-
2016
$
565,173
(16,294)
(12,105)
241,568
126
2,552
(1.42)
(1.27)
13.01
9.05
0.30
2017
Variance
$
523,659
(3,275)
(2,094)
(0.25)
2,630
5,009
80,010
105,361
%
-9,3
+200,1
+222,8
+220,0
+269,0
+108,5
-13.0
-0.5
5
Sales in Canada during fiscal 2018 decreased 10% compared to last year mainly due to decrease in sales of pressure treated wood, panels and building
materials. Sales in Quebec decreased 12% compared to last year due to decrease in sales of pressure treated wood and panels. Sales in Ontario
decreased 12% compared to last year mainly due to a decline in sales of pressure treated wood and flooring products. Sales in Western Canada
decreased 11% compared to last year mainly due to decreased sales of siding, building materials and hardwood products. Atlantic sales remained
stable compared to last year.
Sales in the United States during fiscal 2018 decreased by 6% on a Canadian dollar basis compared to last year due to lower demand of hardwood
lumber products. On a US dollar basis, US denominated sales decreased 5% compared to last year. Finally, export sales decreased 5% compared to
last year due to lower demand of hardwood and flooring products.
In terms of the distribution of sales by product, flooring sales during fiscal 2018 decreased 6% compared to last year. Specialty and Commodity
Panel sales decreased 10% compared to last year. Building Materials sales decreased 10% compared to last year. Finally, our core lumber business
sales decreased 10% compared to last year.
Cost of Goods Sold
Cost of goods sold during fiscal 2018 was $387.3 million compared to $442.2 million last year. Cost of goods sold decreased 12.4% compared to
last year. Total freight outbound cost decreased 14.3% compared to last year. Gross profits increased 8.0% compared to last year while gross margins
increased from 15.6% to 18.5%.
Selling, Administrative and General Expenses
Selling, Administrative and General Expenses during fiscal 2018 were $81.2 million compared to $81.7 million last year. Selling, Administrative
and General Expenses decreased 0.6% compared to last year.
Net Financial Cost
Net financial costs during fiscal 2018 were $3.5 million compared to $4.2 million a year ago. The average Canadian prime rate increased to 3.54%
compared to 2.87% last year. The average US prime rate increased to 4.83% compared to 4.06% last year. Average bank indebtedness was $69.6
million compared to $80.0 million last year.
COMPARISON FOR THE THREE MONTHS ENDED NOVEMBER 30, 2018 AND 2017
(In thousands of dollars, except per share amounts)
HIGHLIGHTS FOR THE THREE MONTHS
ENDED NOVEMBER 30, 2018 AND 2017
Consolidated sales
(Loss) earnings before income taxes
Net earnings
Net earnings per share, Basic and Diluted
Cash Flow from Operations (excluding non-cash
working capital items, income tax paid and interest paid)
EBITDA
Average Bank indebtedness
Inventory average
Q4-2018
Q4-2017
Variance
$
112,742
(22)
197
0.02
1,609
1,821
56,112
99,876
$
127,558
2,711
2,216
0.26
3,425
4,957
60,971
95,956
%
-11.6
-100,8
-91,1
-92.3
-53,0
-63,3
-8.0
+4.1
Sales in Canada during the fourth quarter of fiscal 2018 decreased 13% compared to last year mainly due to decreased volume of pressure treated
wood sales, building materials and panels. Quebec sales decreased 14% due to a decrease in demand for treated wood and panel products. Sales in
Ontario decreased 18% mainly due to a decline in sales of pressure treated wood and flooring products. Western Canada sales increased 1% due to
an increase in sales of flooring products and siding. Atlantic region sales decreased 8% due to a decrease in sales of timber and treated wood products.
6
17%(2017: 16%)14%(2017: 13%)10%(2017: 10%)29%(2017: 30%)30%(2017: 31%)US and ExportsAtlanticWestern CanadaOntarioQuebecGeographical Distribution of Sales for Fiscal 201852%(2017: 53%)10%(2017: 10%)18%(2017: 18%)20%(2017: 19%)LumberBuilding MaterialSpecialty & Commodity PanelFlooringProduct Distribution of Sales for Fiscal 2018
Sales in the United States for the fourth quarter of fiscal 2018 increased 2% on a Canadian dollar basis compared to last year due to an increase of
timber and flooring products. On a US dollar basis, US denominated sales decreased 3% compared to last year. Finally, export sales decreased 11%
during the fourth quarter of fiscal 2018 compared to last year mainly due to a timber project sold in 2017.
In terms of the distribution of sales by product, flooring sales for the fourth quarter ended November 30, 2018 decreased 7% compared to last year.
Specialty and Commodity Panel sales decreased 9% compared to last year. Building Materials sales decreased 27% compared to last year. Finally,
Lumber sales decreased 12% compared to last year.
Cost of Goods Sold
Cost of goods sold for the fourth quarter of fiscal 2018 was $91.9 million compared to $104.6 million last year. Cost of goods sold decreased 12.1%
compared to last year. Total freight outbound cost decreased 14.3% compared to last year. Gross profits decreased 9.2% compared to last year and
gross margins increased from 18.0% to 18.5%.
Selling, Administrative and General Expenses
Selling, Administrative and General Expenses for the fourth quarter ended November 30, 2018 were $20.0 million compared to $20.4 million last
year. Selling, Administrative and General Expenses decreased 2.0% compared to last year.
Net Financial Cost
Net financial costs for the fourth quarter of fiscal 2018 were $0.9 million compared to $1.1 million a year ago. The average Canadian prime rate
increased to 3.80% compared to 3.20% last year. The average US prime rate increased to 5.17% compared to 4.25% a year ago. Average bank
indebtedness was $56.1 million compared to $61.0 million last year.
SUMMARY OF THE LAST EIGHT MOST RECENTLY COMPLETED QUARTERS
(In thousands of dollars, except per share amounts)
Sales
Net (loss) earnings
Feb-2018
$
96,684
(1,431)
May-2018
$
133,326
1,812
Aug-2018
$
132,455
1,993
Nov-2018
$
112,742
197
Net (loss) earnings per share, Basic and Diluted
(0.17)
0.21
0.24
0.02
Sales
Net (loss) earnings
Feb-2017
$
113,490
(5,401)
May-2017
$
139,641
(541)
Aug-2017
$
142,970
1,632
Nov-2017
$
127,558
2,216
Net (loss) earnings per share, Basic and Diluted
(0.63)
(0.07)
0.19
0.26
As indicated above, our results over the past eight quarters follow a seasonal pattern with sales activities traditionally higher in the second and third
quarters.
STATEMENT OF FINANCIAL POSITION
Total Assets
Total assets at November 30, 2018 was $190.7 million compared to $197.2 million last year. Cash at November 30, 2018 was $2.6 million compared
to $1.6 million last year. Trade and other receivables at November 30, 2018 was $50.0 million compared to $57.6 million last year. Income tax
receivable was nil at November 30, 2018 compared to $1.6 million last year.
7
18%(Q4-2017: 16%)12%(Q4-2017: 12%)10%(Q4-2017: 9%)29%(Q4-2017: 31%)31%(Q4-2017: 32%)US and ExportsAtlanticWestern CanadaOntarioQuebecGeographical Distribution of Sales for the Fourth Quarter ended November 30, 201851%(Q4-2017: 51%)8%(Q4-2017: 10%)20%(Q4-2017: 19%)21%(Q4-2017: 20%)LumberBuilding MaterialSpecialty & Commodity PanelFlooringProduct Distribution of Sales for the Fourth Quarter ended November 30, 2018
Inventories at November 30, 2018 was $92.5 million compared to $88.9 million last year. Prepaid expenses at November 30, 2018 was $3.1 million
compared to $2.8 million last year. Defined benefit plan assets was $2.7 million at November 30, 2018 compared to $2.4 million last year. Investment
was $25 thousand at November 30, 2018 compared to $285 thousand last year reflecting the carrying amount of the investment in the JV. Other
assets were $0.9 million at November 30, 2018 (same last year).
Property, plant, equipment and intangible assets
Property, plant and equipment at November 30, 2018 was $34.4 million compared to $36.2 million last year. Capital expenditures during fiscal 2018
amounted to $1.2 million compared to $1.3 million last year. Property, plant and equipment capitalized during fiscal 2018 included leasehold
improvements, computers, rolling stock and yard equipment. Intangible assets at November 30, 2018 was $4.4 million compared to $4.9 million last
year. Proceeds on disposal of capital assets during fiscal 2018 amounted to $0.1 million compared to $1.6 million last year. Depreciation of property,
plant, equipment and intangible assets during fiscal 2018 was $3.7 million compared to $4.1 million last year. Historically, capital expenditures in
general have been capped at depreciation levels.
Total Liabilities
Total liabilities at November 30, 2018 was $77.9 million compared to $87.8 million last year. Bank indebtedness was $42.8 million compared to
$52.3 million last year. Trade and other payables at November 30, 2018 was $29.2 million compared to $29.4 million last year. Income taxes payable
at November 30, 2018 was $0.4 million (nil last year). Provision at November 30, 2018 was $1.7 million compared to $1.4 million last year. Long-
term debt at November 30, 2018 was $57 thousand compared to $194 thousand last year. Deferred income taxes at November 30, 2018 was $3.7
million compared to $3.6 million last year. Defined benefit plan obligations were $0.1 million at November 30, 2018 compared to $0.9 million last
year.
Shareholders’ Equity
Total Shareholders’ Equity at November 30, 2018 was $112.9 million compared to $109.4 million last year. The Company generated a return on
equity of 2.3% during fiscal 2018 compared to (1.9)% last year. Market share price closed at $6.00 per share on November 30, 2018 compared to
$8.33 last year. Share book value at November 30, 2018 was $13.27 per share compared to $12.86 last year. Share capital was $9.2 million at
November 30, 2018 (same as last year). No eligible dividend was declared and paid to the holders of participating shares for the year ended November
30, 2018 (nil for the year ended November 30, 2017).
LIQUIDITY AND CAPITAL RESOURCES
Financing
In December 2017, the Company renewed its credit agreement with its present lenders, two chartered Canadian banks. The credit agreement has a
maximum revolving operating facility of $100 million renewable in May 2019. On November 30, 2018, the available facility was $90 million which
corresponds to the low seasonality of the business. Funds advanced under these credit facilities bear interest at the prime rate plus a premium and are
secured by first ranking security on the universality of the movable property of the Company. As at November 30, 2018, the Company was compliant
with its financial covenants. As at November 30, 2018, under the credit agreement, the Company was using $41 million of its facility compared to
$51 million as at November 30, 2017.
The Company’s business follows a seasonal pattern with sales activities traditionally higher in the second and third quarter. As a result, cash flow
requirements are generally higher during these periods. The current facility is considered by management to be adequate to support its current
forecasted cash flow requirements. Source of funding and access to capital is disclosed in detail under LIQUIDITY AND RISK MANAGEMENT
IN THE CURRENT ECONOMIC CONDITIONS.
Cash Flow
Net cash flow from operating activities for fiscal 2018 was $11.6 million compared to $39.7 million last year. Financing activities during fiscal 2018
was $(10.1) million compared to $(40.6) million last year. Investing activities during fiscal 2018 was $(1.0) million compared to $3.1 million last
year (See Property, plant, equipment and intangible assets for more details).
LIQUIDITY AND RISK MANAGEMENT IN THE CURRENT ECONOMIC CONDITIONS
The Company’s objectives are as follows:
1. Maintain financial flexibility in order to preserve its ability to meet financial obligations;
2. Maintain a low debt-to-capitalization ratio to preserve its capacity to pursue its organic growth strategy;
3. Maintain financial ratios within covenants requirements;
4. Provide an adequate return to its shareholders.
The Company defines its capitalization as shareholders’ equity and debt. Shareholders’ equity includes the amount of paid-up capital in respect of
all issued and fully-paid common shares together with the retained earnings, calculated on a consolidated basis in accordance with IFRS. Debt
includes bank indebtedness reduced by the amounts of cash and cash equivalents. Capitalization represents the sum of debt and shareholders’ equity.
The Company manages its capital and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying
assets. In order to maintain or adjust its capital, the Company may adjust the amount of dividends paid to shareholders, issue new shares or repurchase
shares under the normal course issuer bid, acquire or sell assets to improve its financial performance and flexibility or return capital to shareholders.
The Company’s primary uses of capital are to finance increases in non-cash working capital and capital expenditures for capacity expansion. The
Company currently funds these requirements out of its internally-generated cash flows and credit facilities. The Company’s financial objectives and
strategy remain substantially unchanged.
8
The Company is subject to certain covenants on its credit facilities. The covenants include a Debt-to-capitalization ratio and an Interest coverage ratio.
The Company monitors the ratios on a monthly basis. The Company currently complies with all externally imposed capital requirements.
Other than the covenants required for the credit facilities, the Company is not subject to any externally imposed capital requirements. The Company
believes that all its ratios are within reasonable limits, in light of the relative size of the Company and its capital management objectives.
As at November 30, 2018 and 2017, the Company achieved the following results regarding its capital management objectives:
Capital management
Debt-to-capitalization ratio
Interest coverage ratio
Return on shareholders’ equity
Current ratio
EBITDA (in thousands of dollars)
*The interest coverage ratio was not required in fiscal 2017.
As at
November 30,
2018
As at
November 30,
2017
26.6%
3.0
2.3%
2.0
$10,443
32.8%
- *
(1.9)%
1.8
$5,009
These measures are not prescribed by IFRS and are defined by the Company as follows:
• Debt-to-capitalization ratio represents the funded debt over total shareholders’ equity. Funded debt is bank indebtedness less cash and cash
•
equivalents. Capitalization is funded debt plus shareholders’ equity.
Interest Coverage ratio represents EBITDA during the period for which the calculation is made over interest expenses for the same period
on a consolidated basis, calculated on a rolling four-quarter basis.
• Return on shareholders’ equity is the net earnings (loss) divided by shareholders’ equity.
• Current ratio is total current assets divided by total current liabilities.
•
EBITDA is earnings before interest, taxes, depreciation and amortization.
General
Management makes every effort to ensure that the Company benefits from effective risk management, which has been strengthened according to
even stricter criteria with economic fluctuations. Management is responsible for identifying and assessing the potential risks that could have a material
impact on the Company’s operations and financial position, as well as the risk management strategies implemented within the Company. It is also
responsible for setting up risk management oversight provisions, notably by developing and recommending to the Board of Directors or its Audit
Committee various policies and procedures to support effective strategies in regard to internal and external control in order to improve and reduce
the impact of business and operational risk factors.
Credit Risk
The Company strictly manages the credit granted to its customers. The accounts receivable collection period has been historically longer in the
second and third quarter of its fiscal year. A rapid weakening of the economic conditions could result in further bad debts expenses.
Supplier-Related Risk
The Company’s business model is largely built on long-term relationships with a network of international, national and local manufacturers, which
enables it to reduce the risks associated with inventory valuation and to adjust to fluctuations in demand. In addition, the Company’s practice is to
take discounts and pay its suppliers on a timely basis which results in strong relationships with our key vendors and partners.
Cost Structure, Working Capital Requirements
At November 30, 2018, its total debt to capitalization ratio decreased to 26.6% compared to 32.8% on November 30, 2017. In December 2017, the
Company renewed its credit agreement with its present lenders, two chartered Canadian banks. The credit agreement has a maximum revolving
operating facility of $100 million renewable in May 2019. On November 30, 2018, the available facility was $90 million which corresponds to the
low seasonality of the business. Funds advanced under these credit facilities bear interest at the prime rate plus a premium and are secured by first
ranking security on the universality of the movable property of the Company. As at November 30, 2018, the Company was compliant with its
financial covenants. As at November 30, 2018, under the credit agreement, the Company was using $41 million of its facility compared to $51
million as at November 30, 2017
For further information, the principal risk factors to which the Company is exposed are described in the Management’s Report contained in its Annual
Report for the twelve months ended November 30, 2018 as well as in the 2018 Annual Information Form available on SEDAR (www.sedar.com).
COMMITMENTS AND CONTINGENCIES
As at November 30, 2018, the minimum future rentals payable under long-term operating leases, for offices, warehouses, vehicles, yards and
equipment, did not materially change and are as follows:
Contractual obligations
Payments due by period (in thousands of dollars)
Operating leases
Purchase obligations
Total Contractual Obligations
Total
20,297
226
20,523
Less than
1 year
5,235
226
5,461
9
1-3
Years
7,854
-
7,854
4-5
Years
5,154
-
5,154
After
5 years
2,054
-
2,054
Contingent liabilities
During the normal course of business, certain product liability and other claims have been brought against the Company and, where applicable, its
suppliers. While there is inherent difficulty in predicting the outcome of such matters, management has vigorously contested the validity of these
claims, where applicable, and based on current knowledge, believes that they are without merit and does not expect that the outcome of any of these
matters, in consideration of insurance coverage maintained, or the nature of the claims, individually or in the aggregate, would have a material
adverse effect on the consolidated financial position, results of operations or future earnings of the Company.
RISKS AND UNCERTAINTIES
Currency Risk
Certain valuation risks exist depending on the performance of the Canadian dollar compared to the U.S. dollar, Euro and the Pound sterling. From
time-to-time, the Company enters into forward exchange contracts to hedge certain accounts payable and certain future purchase commitments
denominated in U.S. dollar and Euro. During the twelve months ended November 30, 2018, the Company did not use foreign exchange contracts to
mitigate its effect on sales and purchases. Consequently, as at November 30, 2018 there were no outstanding foreign exchange contracts.
Interest Risk
The Company uses a credit facility to finance working capital requirements. The interest cost of this facility is dependent upon Canadian and US
bank prime rates. The profitability of the Company could be adversely affected by increases in the bank prime rate.
Credit Risk
The Company is exposed to credit risks from customers. As a result of having a diversified customer mix, this risk is alleviated by minimizing the
amount of exposure the Company has to any one customer. Additionally, the Company has a system of credit management to mitigate the risk of
losses due to insolvency or bankruptcy of its customers. It also utilizes credit insurance to reduce the potential for credit losses. The loss of any major
customer could have a material effect on the Company’s results, operations and financial conditions.
Environmental Risk
The Company’s St-André (QC) site shows continued traces of surface contamination from previous treating activities exceeding existing regulatory
requirements. The Company received approval for the environmental rehabilitation plan in fiscal 2016. The Company started to implement its plan
during the fiscal 2016. Based on current available information, the provision as at November 30, 2018 is considered by management to be adequate
to cover any projected costs that could be incurred in the future. The rehabilitation is expected to occur progressively over the next 3 years.
Because of the long-term nature of the liability, the biggest uncertainty in estimating the provision is the amounts of soil to be treated and the costs
that will be incurred. In particular, the Company has assumed that the site will be restored using technology and materials that are currently available.
The Company has been provided with a reasonable estimate, reflecting different assumptions about pricing of the individual components of the cost.
The provision has been calculated using a discount rate of 5.2% and an inflation rate of 1.7%.
Competition from Vendors
The Company is exposed to competition from some of its vendors in certain markets. From time to time, vendors might decide to distribute directly
to some of our customers and therefore becoming competitors. This would adversely affect the Company’s ability to compete effectively and thereby
potentially impact its sales.
Dependence on Key Personnel
The Company is dependent on the continued services of its senior management team. Although the Company believes that it could replace such key
employees in a timely fashion should the need arise, the loss of such key personnel could have a material adverse effect on the Company.
Dependence on Major Customers
The Company does not have long-term contracts with any of its customers. Distribution agreements are usually awarded annually and can be revoked.
Two major customers exceeded 10% of total Company sales in the twelve months ended November 30, 2018 (same last year). The following
represents the total sales consisting primarily of various wood products of the major customer(s):
(in thousands of dollars)
Sales to major customers that exceeded
10% of total Company’s sales
Years ended
November 30, 2018
%
$
November 30, 2017
%
$
110,699
23.3
110,848
21.2
The loss of any major customer could have a material effect on the Company’s results, operations and financial positions. The carrying amounts of
financial assets represent the maximum credit exposure.
Dependence on Market Economic Conditions
The Company demand for products depends significantly upon the home improvement, new residential and commercial construction markets. The
level of activity in the home improvement and new residential construction markets depends on many factors, including the general demand for
housing, interest rates, availability of financing, housing affordability, levels of unemployment, shifting demographic trends, gross domestic product
growth, consumer confidence and other general economic conditions. Since such markets are sensitive to cyclical changes in the economy, future
downturns in the economy or lack of further improvement in the economy could have a material adverse effect on the Company.
Customer Agreements
The majority of the Company’s supply and customer arrangements vary significantly in length. Most arrangements are for individual purchase orders
and are satisfied upon delivery of the goods to the customer.
10
Some arrangements involve customers purchasing goods several months in advance of delivery. These arrangements, known as bookings, vary in
length but are generally less than six months long. There can be no assurance that these customers will renew their bookings or continue to place
purchase orders with the Company.
Cyclical Nature
The business of the Company is, to a significant degree, seasonal and cyclical, and fluctuates in advance of the normal building season. Inventory is
built up during the second quarter in anticipation of the building seasons, and the busy selling season begins in the last half of that second quarter
and extends to the end of the third quarter. Additionally, the Company is subject to the normal economic cycle, the housing cycle and to
macroeconomic factors, such as interest rates. Although the Company anticipates that these seasonal and cyclical fluctuations will continue in the
foreseeable future, it is seeking to reduce their impact on its operations and sales.
Supply Chain
The Company is exposed to supply chain risks relating mainly to the Asian imports from time-to-time. Management does not expect to incur any
major losses related to supply due to the fact that it has built solid long-term relationships with numerous reputable suppliers.
Laws and regulation
The Company faces multiple laws and regulations. These are laws that regulate credit practice, transporting products, importing and exporting
products and employment. New laws governing the Company’s business could be enacted or changes to existing laws could be implemented, each
of which might have a significant impact on the Company’s business. Many foreign laws and regulations constrain our ability to compete efficiently
on those foreign markets.
Information systems
The Company enterprise resource planning (“ERP”) information management system provides information to management which is used to evaluate
financial controls, reporting and sales analysis and strategies. The Company has implemented a new ERP information management system in fiscal
2016. The new ERP system should provide information to the Company's management which is expected to be used to improve financial analytics,
reporting and controls. There can be no assurance that the ERP system will provide the information and benefits expected by management. Any of
these risk factors could have a material adverse impact on the Business. The Company’s operations also depend on the timely maintenance, upgrade
and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures. Any of these
and other events could result in information system failures, delays and/or increase in capital expenses. The failure of information systems or a
component of information systems could, depending on the nature of any such failure, adversely impact the Company’s results of operations.
Furthermore, the Company relies on vendors to support, maintain and periodically upgrade ERP or other systems which are essential in providing
management with the appropriate information for decision making. The inability of these vendors to continue to support, maintain and/or upgrade
these software programs could disrupt operations if the Company were unable to convert to alternate systems in an efficient and timely manner.
Information technology system disruptions, if not anticipated and appropriately mitigated, or the failure to successfully implement new or upgraded
systems, could have a material adverse effect on our Business or results of operations.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
Risk Management
The Company is exposed to financial risks that arise from fluctuations in interest rates and foreign exchange rates and the degree of volatility of
these rates.
Financing and Liquidity Risk
The Company makes use of short-term financing with two chartered Canadian banks.
The following are the contractual maturities of financial liabilities as at November 30, 2018:
(in thousands of dollars)
Financial Liabilities
Bank indebtedness
Trade and other payables
Long-term debt
Carrying
Amount
42,835
29,192
57
Contractual
cash flows
42,835
29,192
57
Total financial liabilities
72,084
72,084
The following are the contractual maturities of financial liabilities as at November 30, 2017:
Financial Liabilities
Bank indebtedness
Trade and other payables
Long-term debt
Total financial liabilities
Carrying
Amount
52,309
29,409
194
81,912
Contractual
cash flows
52,309
29,409
194
81,912
11
0 to 12
Months
42,835
29,192
14
72,041
0 to 12
Months
52,309
29,409
139
81,857
12 to 36
Months
-
-
43
43
12 to 36
Months
-
-
55
55
Interest Rate Risk
The Company uses a credit facility to finance working capital requirements. The interest cost of this facility is dependent upon Canadian and US
bank prime rates. The profitability of the Company could be adversely affected with increases in the bank prime rate. Management does not believe
that the impact of interest rate fluctuations will be significant on its operating results. A 1% fluctuation of interest rate on the $42.8 million in bank
indebtedness would impact interest expense annually by $0.4 million.
Currency Risk
The Company could enter into forward exchange contracts to economically hedge certain trade payables and from time to time future purchase
commitments denominated in U.S. dollars, Euros and Pound sterling. Fluctuation in the Canadian dollar of 5% in relation to foreign currencies would
not have a significant effect on the Company’s net earnings. As at November 30, 2018, the Company had the following currency exposure:
Financial assets and liabilities measured at amortized costs
(in thousands of dollars)
Cash
Trade and other receivables
Trade and other payables
Long-term debt
Net exposure
USD
2,447
8,956
(2,716)
(43)
8,644
GBP
247
196
(49)
-
394
Euro
12
-
(83)
-
(71)
CAD exchange rate as at November 30, 2018
1.3292
1.6940
1.5044
Impact on net earnings based on a fluctuation of 5% on CAD
419
24
(4)
Credit Risk
The Company is exposed to credit risks from customers. As a result of having a diversified customer mix, this risk is alleviated by minimizing the
amount of exposure the Company has to any one customer. Additionally, the Company has a system of credit management to mitigate the risk of
losses due to insolvency or bankruptcy of its customers. It also utilizes credit insurance to reduce the potential for credit losses. Finally, the Company
has adopted a credit policy that defines the credit conditions to be met by its customers and specific credit limit for each customer is established and
regularly revised. Accounts receivable over 60 days past their due date and not impaired represents 4.0% (1.3% on November 30, 2017) of total trade
and other receivables at November 30, 2018.
The movement in the allowance for doubtful accounts in respect to trade and other receivables were as follows;
(in thousands of dollars)
Balance, beginning of year
Provision
Bad debt write-offs
Balance, end of year
November 30, November 30,
2017
$
2018
$
225
374
(29)
570
1,816
185
(1,776)
225
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Fair value is based on available public market information or, when such information is not available, is estimated using present
value techniques and assumptions concerning the amount and timing of future cash flows and discount rates which factor in the appropriate level of
risk for the instrument. The estimated fair values may differ in amount from that which could be realized in an immediate settlement of the
instruments. The carrying amounts of cash, trade and other receivables, bank indebtedness, trade and other payables and long-term debt approximate
their fair values.
RELATED PARTY TRANSACTIONS
Related parties include the key management and other related parties as described below. Unless otherwise noted, no related party transactions
contain special features, conditions and guarantees that have been given or received. Balances are generally settled in cash. Transactions between
the parent company and its subsidiaries and between subsidiaries themselves, which are related parties, have been eliminated upon consolidation.
These transactions and balances are not presented in this section. The details of these transactions occurred in the normal course of business between
the Company and other related parties and are presented below.
Commercial Transactions
During the year ended November 30, 2018, the entities of the Company have not entered into business transactions with related parties that are not
members of the Company.
12
Other related party transactions
(in thousands of dollars)
Company controlled by a member of the Board – Jarislowsky Fraser Ltd.
- Management fee
November 30,
2018
$
November 30,
2017
$
87
187
These transactions are in the normal course of business and measured at the exchange amount of considerations established and agreed to in the
contractual arrangements between the related parties.
Loans to related parties
No executive officers, senior officers, directors or any person related to them is indebted to the Company.
Key management personnel compensation
Key management includes members of the board of directors, senior management and key executives. The following table shows the remuneration
of key management personnel during the years ended:
(in thousands of dollars)
Salaries and other short-term benefits
Post-employment benefits
November 30,
2018
$
November 30,
2017
$
1,384
7
1,391
2,750
60
2,810
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in compliance with IFRS requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. These estimates are based on management's best knowledge of current events and actions that the Company may undertake in the
future. Estimates are volatile by their nature and are continuously monitored by management. Actual results may differ from these estimates. A
discussion of the significant estimates that could have a material effect on the financial statements is provided below:
i.Allowance for doubtful accounts and sales returns
Management reviews its trade and other receivables at the end of each reporting period and estimates balances deemed non-collectible in the
future. This review requires the use of assumptions and takes into consideration certain factors, such as historical collection trends and past due
accounts for each customer balance. In the event that future collections differ from provisions estimated, future earnings will be affected.
The Company provides for the possibility that merchandise already sold may be returned by customers. To this end, the Company has made
certain assumptions based on the quantity of merchandise expected to be returned in the future.
ii.Measurement of defined benefit plan assets and liabilities
The Company’s measurement of defined benefit plan assets and liabilities requires the use of statistical data and other parameters used to
anticipate future changes. These parameters include the discount rate, the expected rate of return on assets, the expected rate of compensation
increase, the retirement age of employees, and mortality rates. If the actuarial assumptions are found to be significantly different from the actual
data subsequently observed, it could lead to changes to the pension expense recognized in net earnings, and the net assets or net liabilities related
to these obligations presented in the consolidated statement of financial position.
iii.Valuation of inventory
Estimating the impact of certain factors on the net realizable value of inventory, such as obsolescence and losses of inventory, as well as
estimating the cost of inventory, freight accrual and inventory provisions, requires a certain level of judgment. Inventory quantities, age and
condition and average costs are measured and assessed regularly throughout the year.
iv.Environmental provisions
Environmental provisions relate to the discounted present value of estimated future expenditures associated with the obligations of restoring the
environmental integrity of certain properties. Environmental expenditures are estimated taking into consideration the anticipated method and
extent of the remediation consistent with regulatory requirements, industry practices, current technology and possible uses of the site. The
estimated amount of future remediation expenditures is reviewed periodically based on available information. The provision requires the use of
estimates and assumptions such as the estimated amount of future remediation expenditures, the anticipated method of remediation, the discount
rate and the estimated time frame for remediation. See Note 13 of our consolidated financial statements for further details.
v.Critical judgments in applying accounting policies:
The Company did not identify any other critical judgments that management has made in the process of applying accounting policies that may
have a significant effect on the amounts recognized in the consolidated financial statements.
13
SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described in Note 3 to the consolidated financial statements for the year ended November 30,
2018.
IMPACT OF ACCOUNTING PRONOUNCEMENTS NOT YET IMPLEMENTED
IFRS 15, Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. The new standard is effective to years beginning on or after January
1, 2018. Earlier application is permitted. IFRS 15 will replace IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty
Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfer of Assets from Customers, and SIC 31, Revenue –
Barter Transactions Involving Advertising Services. The standard contains a single model that applies to contracts with customers and two approaches
to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether,
how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or
timing of revenue recognized. The new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments
or lease contracts, which fall in the scope of other IFRS. The Company will adopt IFRS 15 in its consolidated financial statements for the year
beginning on December 1, 2018. The Company does not expect the standard to have a material impact on its consolidated financial statements.
IFRS 9, Financial Instruments
In July 2014, the IASB issued the complete IFRS 9 (IFRS 9 (2014)). The mandatory effective date of IFRS 9 is for years beginning on or after
January 1, 2018 and must be applied retrospectively with some exemptions. Early adoption is permitted. Prior-period restatement is not required and
is permitted only if information is available without the use of hindsight. IFRS 9 (2014) introduces new requirements for the classification and
measurement of financial assets. Under IFRS 9 (2014), financial assets are classified and measured at amortized cost based on the business model in
which they are held and the characteristics of their contractual cash flows. The standard introduces additional changes relating to financial liabilities.
It also amends the impairment model by introducing a new ‘expected credit loss’ model for calculating impairment. IFRS 9 (2014) also includes a
new general hedge accounting standard which aligns hedge accounting more closely with risk management. This new standard does not
fundamentally change the types of hedging relationships or the requirement to measure and recognize ineffectiveness. However, it will provide more
hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a
hedging relationship. Special transitional requirements have been set for the application of the new general hedging model. The Company will adopt
IFRS 9 (2014) in its consolidated financial statements for the year beginning on December 1, 2018. The Company does not expect the standard to
have a material impact on its consolidated financial statements.
IFRS 16, Leases
On January 13, 2016 the IASB issued IFRS 16, Leases. The new standard is effective for periods beginning on or after January 1, 2019. Earlier
application is permitted for entities that apply IFRS 15, Revenue from Contracts with Customers at or before the date of initial adoption of IFRS 16.
IFRS 16 will replace IAS 17, Leases. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities
for all leases with a term of more than twelve months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use
asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard
substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other
areas of the lease accounting model have been impacted, including the definition of a lease. Transitional provisions have also been provided. The
Company will adopt IFRS 16 in its consolidated financial statements for the year period beginning on December 1, 2019. The extent of the impact
of the standard has not yet been determined.
DISCLOSURE OF OUTSTANDING SHARE DATA
At November 30, 2018, there were 8,506,554 common shares issued (same last year). The Company has authorized an unlimited number of common
shares to be issued, without par value. At February 14, 2019, there were 8,506,554 common shares outstanding.
SUBSEQUENT EVENT
No subsequent events to report.
OUTLOOK
The Company stayed on a path of conservative cash flow management in 2018 in order to conserve its preferred relationship with its lenders
TD/BMO. The Company’s priorities remain to right size inventory, increase turns, reduce the operating loan and improve profitability. Goodfellow
returned to profitability for fiscal 2018 and despite significant economic headwinds throughout its Canadian distribution network, has budgeted a
historic profitable return in 2019 through market share gains and improved customer service initiatives.
14
CERTIFICATION
Disclosure Controls and Procedures and Internal Controls Over Financial Reporting
The Company’s management is responsible for establishing and maintaining appropriate control systems, procedures and information systems and
internal control over financial reporting. The Chief Executive Officer and the Chief Financial Officer together with Management, after evaluating
the design and effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of November 30,
2018 concluded that the Company’s disclosure controls and procedures and internal control over financial reporting were effective. The evaluation
was performed in accordance with the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 Framework) control
framework adopted by the Company.
As of November 30, 2017, we reported that a material weakness remained in the area of inventory controls, resulting principally from the
implementation of an ERP system on December 1, 2015. In 2017, Management undertook an extensive and thorough review of the transactions
processed in the new ERP software with the objective of resolving all design deficiencies and implementing compensating controls to mitigate the
risk of a material misstatement. Significant changes in internal controls were commenced as follows:
-
Implemented many preventive and detective controls over the inventory cycle either directly in the ERP system or through management
review controls;
- Established monitoring controls, exception reports, edits checks and other tools to improve the accuracy of the information from the ERP
system;
- Established controls over inventory management and financial reporting including management review controls over inventory costing,
valuation and inventory movements;
Increase the level of oversight and review of inventory balances;
Increased training and knowledge awareness throughout the organization.
-
-
However, as of November 30, 2017 the material weakness remained because the controls put in place to remediate the deficiency had not operated
for a sufficient length of time to properly evaluate their effectiveness. During 2018 we tested the controls put in place. We are now satisfied that the
controls have operated for a sufficient length of time to conclude that the material weakness is remediated.
Other than as described above, there has been no change in the Company’s internal control over financial reporting that occurred during the three
months and twelve months ended November 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Delson, February 14, 2019
Patrick Goodfellow
President and Chief Executive Officer
Charles Brisebois, CPA, CMA
Chief Financial Officer
15
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION
The accompanying consolidated financial statements, which have been prepared in accordance with International Financial Reporting
Standards, and the other financial information provided in the Annual Report, which is consistent with the financial statements, are the
responsibility of management and have been approved by the Board of Directors.
The consolidated financial statements include some amounts that are based on management’s best estimates and judgment and, in their
opinion, present fairly the Company’s financial position, results of operations and cash flows. The Company’s procedures and internal
control systems are designed to provide reasonable assurance that accounting records are reliable and safeguard the Company’s assets.
The Audit Committee is responsible for reviewing the consolidated financial statements and Annual Report and recommending their
approval to the Board of Directors. In order to fulfill its responsibilities, the Audit Committee meets with management and independent
auditors to discuss internal control over financial reporting process, significant accounting policies, other financial matters and the results of
the examination by the independent auditors.
These consolidated financial statements have been audited by the independent auditors KPMG LLP, Chartered Professional Accountants,
and their report is included herein.
Patrick Goodfellow
President and Chief Executive Officer
Charles Brisebois, CPA, CMA
Chief Financial Officer
16
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Goodfellow Inc.
We have audited the accompanying consolidated financial statements of Goodfellow Inc., which comprise the consolidated statements of
financial position as at November 30, 2018 and November 30, 2017, the consolidated statements of comprehensive income, change in
shareholders’ equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other
explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Goodfellow
Inc. as at November 30, 2018 and November 30, 2017, and its consolidated financial performance and its consolidated cash flows for the
years then ended in accordance with International Financial Reporting Standards.
February 14, 2019
Montreal, Canada
*CPA Auditor, CA public accountancy permit no. A122264
17
GOODFELLOW INC.
Consolidated Statements of Comprehensive Income
For the years ended November 30, 2018 and 2017
(in thousands of dollars, except per share amounts)
Sales
Expenses
Cost of goods sold (Note 4)
Selling, administrative and general expenses (Note 4)
Gain on disposal of property, plant and equipment
Net financial costs (Note 5)
Earnings (loss) before income taxes
Income taxes (Note 15)
Net earnings (loss)
Items that will not subsequently be reclassified to net earnings (loss)
Remeasurement of defined benefit plan obligation,
net of taxes of $318 ($127 in 2017) (Note 16)
Total comprehensive income (loss)
Years ended
November 30
2018
$
November 30
2017
$
475,207
523,659
387,311
81,161
(18)
3,476
471,930
442,243
81,686
(1,194)
4,199
526,934
3,277
(3,275)
706
(1,181)
2,571
(2,094)
858
341
3,429
(1,753)
Net earnings (loss) per share - Basic and diluted (Note 14)
0.30
(0.25)
The notes 1 to 22 are an integral part of these consolidated financial statements.
18
GOODFELLOW INC.
Consolidated Statements of Financial Position
(in thousands of dollars)
Assets
Current Assets
Cash
Trade and other receivables (Note 6)
Income taxes receivable
Inventories (Note 7)
Prepaid expenses
Total Current Assets
Non-Current Assets
Property, plant and equipment (Note 8)
Intangible assets (Note 9)
Defined benefit plan asset (Note 16)
Investment in a joint venture (Note 10)
Other assets
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Bank indebtedness (Note 11)
Trade and other payables (Note 12)
Income taxes payable
Provision (Note 13)
Current portion of long-term debt (Note 11)
Total Current Liabilities
Non-Current Liabilities
Provision (Note 13)
Long-term debt (Note 11)
Deferred income taxes (Note 15)
Defined benefit plan obligation (Note 16)
Total Non-Current Liabilities
Total Liabilities
Shareholders’ Equity
Share capital (Note 14)
Retained earnings
Total Liabilities and Shareholders’ Equity
Commitments and contingent liabilities (Note 21)
Approved by the Board
As at
November 30
2018
$
As at
November 30
2017
$
2,578
50,008
-
92,544
3,143
148,273
34,356
4,444
2,704
25
916
42,445
190,718
42,835
29,192
409
336
14
72,786
1,317
43
3,652
57
5,069
77,855
9,152
103,711
112,863
190,718
1,622
57,607
1,589
88,860
2,835
152,513
36,198
4,942
2,413
285
882
44,720
197,233
52,309
29,409
-
938
139
82,795
446
55
3,582
921
5,004
87,799
9,152
100,282
109,434
197,233
Claude Garcia, Director
G. Douglas Goodfellow, Director
19
GOODFELLOW INC.
Consolidated Statements of Cash Flows
For the years ended November 30, 2018 and 2017
(in thousands of dollars)
Operating Activities
Net earnings (loss)
Adjustments for:
Depreciation
Accretion expense on provision
Increase (decrease) in provision
Income taxes
Gain on disposal of property, plant and equipment
Interest expense
Funding in deficit of pension plan expense
Share of the profits of a joint venture (Note 10)
Other assets
Share-based compensation
Changes in non-cash working capital items (Note 17)
Interest paid
Income taxes recovered
Net Cash Flows from Operating Activities
Financing Activities
Net decrease in bank loans
Net decrease in banker’s acceptances
Increase in long-term debt
Reimbursement of long-term debt
Investing Activities
Acquisition of property, plant and equipment
Increase in intangible assets
Proceeds on disposal of property, plant and equipment
Dividends from joint venture
Dissolution of the joint venture
Net cash inflow
Cash position, beginning of year
Cash position, end of year
Cash position is comprised of:
Cash
Bank overdraft (Note 11)
20
Years ended
November 30
2018
$
November 30
2017
$
2,571
3,690
50
219
706
(18)
2,502
20
-
(35)
-
9,705
3,391
(2,535)
1,045
1,901
11,606
(4,000)
(6,000)
-
(137)
(10,137)
(1,159)
(212)
72
260
-
(1,039)
430
313
743
2,578
(1,835)
743
(2,094)
4,085
50
(104)
(1,181)
(1,194)
2,821
165
(202)
(210)
494
2,630
33,296
(2,614)
6,349
37,031
39,661
(4,000)
(36,500)
68
(136)
(40,568)
(1,329)
(446)
1,585
320
3,000
3,130
2,223
(1,910)
313
1,622
(1,309)
313
GOODFELLOW INC.
Consolidated Statements of Change in Shareholders’ Equity
For the years ended November 30, 2018 and 2017
(in thousands of dollars)
Balance as at November 30, 2016
9,152
101,541
110,693
Share
Capital
$
Retained
Earnings
$
Total
$
Net loss
Other comprehensive income
Total comprehensive loss
Transactions within equity
Share-based compensation
-
-
-
-
(2,094)
341
(2,094)
341
(1,753)
(1,753)
494
494
Balance as at November 30, 2017
9,152
100,282
109,434
Net earnings
Other comprehensive income
Total comprehensive income
-
-
-
2,571
858
2,571
858
3,429
3,429
Balance as at November 30, 2018
9,152
103,711
112,863
21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
1.
Status and nature of activities
Goodfellow Inc. (hereafter the “Company”), incorporated under the Canada Business Corporations Act, carries on various business activities
related to remanufacturing and distribution of lumber and wood products. The Company’s head office and primary place of business is
located at 225 Goodfellow Street in Delson (Quebec), Canada, J5B 1V5.
The consolidated financial statements of the Company as at and for the years ended November 30, 2018 and 2017 include the accounts of
the Company and its wholly-owned subsidiaries.
2.
Basis of preparation
a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Boards (“IASB”). Certain comparative figures have been reclassified to conform to the
current year’s presentation.
The financial statements were authorized for issue by the Board of Directors on February 14, 2019.
b) Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis except for the following material items:
Environmental provision is recorded at present value of the expected expenditure to be paid.
•
• Defined benefit plan assets and liabilities are measured at the present value of the defined benefit obligation less the fair value
of the plan assets.
c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial
information presented in Canadian dollars has been rounded to the nearest thousand unless otherwise noted.
d) Use of estimates and judgments
Key sources of estimation uncertainty:
The preparation of financial statements in compliance with IFRS requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions that the
Company may undertake in the future. Estimates are volatile by their nature and are continuously monitored by management. Actual
results may differ from these estimates. A discussion of the significant estimates that could have a material effect on the financial
statements is provided below:
i. Allowance for doubtful accounts and sales returns
Management reviews its trade and other receivables at the end of each reporting period and estimates balances deemed non-
collectible in the future. This review requires the use of assumptions and takes into consideration certain factors, such as historical
collection trends and past due accounts for each customer balance. In the event that future collections differ from provisions
estimated, future earnings will be affected.
The Company provides for the possibility that merchandise already sold may be returned by customers. To this end, the Company
has made certain assumptions based on the quantity of merchandise expected to be returned in the future.
ii. Measurement of defined benefit plan assets and liabilities
The Company’s measurement of defined benefit plan assets and liabilities involves making assumptions about discount rates, the
expected rate of compensation increase, the retirement age of employees, and mortality rates. If the actuarial assumptions are found
to be significantly different from the actual data subsequently observed, it could lead to changes to the pension expense recognized
in net earnings, and the net assets or net liabilities related to these obligations presented in the consolidated statement of financial
position.
iii. Valuation of inventory
Estimating the impact of certain factors on the net realizable value of inventory, such as obsolescence and losses of inventory, as
well as estimating the cost of inventory, freight accrual and inventory provisions, requires a certain level of judgment. Inventory
quantities, age and condition, average costs and standard costs are measured and assessed regularly throughout the year.
iv. Environmental provisions
Environmental provisions relate to the discounted present value of estimated future expenditures associated with the obligations of
restoring the environmental integrity of certain properties.
22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
2.
Basis of preparation (Continued)
Environmental expenditures are estimated taking into consideration the anticipated method and extent of the remediation consistent
with regulatory requirements, industry practices, current technology and possible uses of the site. The estimated amount of future
remediation expenditures is reviewed periodically based on available information. The provision requires the use of estimates and
assumptions such as the estimated amount of future remediation expenditures, the anticipated method of remediation, the discount
rate and the estimated time frame for remediation. See Note 13 for further details.
v. Critical judgments in applying accounting policies:
The Company did not identify any critical judgments that management has made in the process of applying accounting policies
that may have a significant effect on the amounts recognized in the consolidated financial statement.
3.
Significant Accounting Policies
a) Principles of Consolidation
The consolidated financial statements incorporate the Company’s accounts and the accounts of the subsidiaries, all wholly-owned, that
it controls. Control exists when the Company has the existing rights that give it the current ability to direct the activities that significantly
affect the entities’ returns. The financial statements of subsidiaries are prepared with the same reporting period of the Company. The
accounting policies of subsidiaries are aligned with the policies of the Company. All intercompany transactions, balances, revenues and
expenses were fully eliminated upon consolidation.
b) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with an initial term of three months or less.
c) Inventories
Inventories, which consist of raw materials, work in process and finished goods are recorded at the lower of cost and net realizable value.
Cost is determined using the weighted average cost method. The cost of inventories comprises all costs of purchase and other costs
incurred in bringing the inventory to its present location and condition. Net realizable value is the estimated selling price in the ordinary
course of business less any applicable estimated selling expenses. The cost of inventory is recognized as an expense when the inventory
is sold. Previous write-downs to net realizable value are reversed if there is a subsequent increase in the value of the related inventories.
d) Property, Plant, Equipment and intangible assets
Items of property, plant, equipment and intangible assets are measured at cost less accumulated depreciation and accumulated impairment
losses. Government grants received in respect of property, plant and equipment are recognized as a reduction to the cost.
Cost includes expenditures that are directly attributable to the acquisition of the asset, including any costs directly attributable to bringing
the asset to a working condition for its intended use, and borrowing costs.
When an item of property, plant, equipment and intangible assets is made up of components that have differing useful lives, cost is
allocated among the different components that are depreciated separately.
A gain or loss on the disposal or retirement of an item of property, plant, equipment and intangible assets, which is the difference between
the proceeds from the disposal and the carrying amount of the asset, is recognized in net earnings. Leasehold improvements are amortized
using the straight-line method over the terms of the leases. Other capital assets are amortized using the declining balance method with
the following rates:
Buildings
Yard improvements
Furniture and fixtures
Equipment
Computer equipment
Rolling stock
4% to 20%
8% to 10%
4% to 20%
4% to 20%
20%
30%
Estimated useful lives, depreciation methods, rates and residual values are reviewed at each annual reporting date, with the effect of any
changes accounted for on a prospective basis.
e)
Intangible assets
Costs associated with maintaining computer software programmes are recognized as an expense as incurred. Development costs that
are directly attributable to the design and testing of identifiable and unique software products controlled by the Company are recognised
as intangible assets when the following criteria are met:
it is technically feasible to complete the software product so that it will be available for use;
•
• management intends to complete the software product and use it;
•
•
there is an ability to use the software product;
it can be demonstrated how the software product will generate probable future economic benefits;
23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
•
•
adequate technical, financial and other resources to complete the development and to use the software product are available;
and
the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an
appropriate portion of relevant overheads.
Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously
recognised as an expense are not recognised as an asset in a subsequent period.
Computer software is subject to the declining balance method at a rate of 20%. Our Enterprise resource planning system is subject to a
linear amortization of 10 years and the customer relationship is subject to a linear amortization of 5 years.
f) Leases
The Company accounts for a leased asset as a finance lease when substantially all of the risks and rewards of ownership of the asset have
been transferred to the Company. The asset is initially recognized at the lower of the fair value of the leased asset at the inception of the
lease and of the present value of the minimum lease payments. The corresponding debt appears on the consolidated statement of financial
position as a financial liability in long-term debt. Assets held under finance leases are depreciated over their expected useful life on the
same basis as owned assets or, where shorter, the lease term.
All other leases are classified as operating leases. Rent is recognized in net earnings on a straight-line basis over the term of the
corresponding lease.
g) Impairment
i) Non-Financial Assets
On each reporting date, the Company reviews the carrying amounts of property, plant and equipment and intangible assets for any
indication of impairment. If there is such an indication, the recoverable amount of the asset is estimated in order to determine the
amount of any impairment loss. If the recoverable amount of the individual asset cannot be estimated, the Company estimates the
recoverable amount of the cash generating unit (CGU) to which the asset belongs. Where a reasonable and consistent basis of allocation
can be identified, corporate assets are also allocated to individual CGUs; otherwise, they are allocated to the smallest group of CGUs
for which a reasonable and consistent basis of allocation can be identified.
Recoverable amount is the higher of fair value less costs to sell and the value in use. To measure value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the estimated recoverable
amount of an asset or of a CGU is less than its carrying amount, the carrying amount of the asset or of the CGU is reduced to its
recoverable amount. An impairment loss is immediately recognized in net earnings.
When an impairment loss subsequently reverses, the carrying amount of the asset or of the CGU is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognized for the asset or the CGU in the prior periods. Reversals of impairment losses are immediately
recognized in net earnings.
ii) Financial Assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective
evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial
recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated
reliably.
An impairment loss in respect of a financial asset measured at amortized cost (loans and receivables) is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest
rate. Losses are recognized in net earnings and reflected in an allowance account against loans and receivables. Interest on the impaired
asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment
loss to decrease, the decrease in impairment loss is reversed through net earnings.
h) Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the
exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies are translated into the functional
currency at the exchange rates prevailing at the respective transaction dates. Revenues and expenses denominated in foreign currencies
are translated into the functional currency at average rates of exchange prevailing during the period. The resulting gains or losses on
translation are included in cost of goods sold in the determination of net earnings.
24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
i) Revenue Recognition
Revenues from activities relating to remanufacturing, distribution of lumber and wood products, services rendered, sales of consignment
inventory and direct shipments are net of discounts and credit notes and are recognized at the fair value of the consideration received or
receivable when all of the following conditions have been met:
i. the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
ii. the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective
control over the goods sold;
iii. the amount of revenue can be measured reliably;
iv. it is probable that the economic benefits associated with the transaction will flow to the Company; and
v. the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue is recognized from the sale of goods when a customer purchases and takes delivery of the merchandise. Sales are recorded net
of estimated volume rebates, term discount and sales returns, which is based on historical experience, current trends and other known
factors.
j) Post-Employment Benefits
a) Defined Contribution Plans
Defined contribution plans include pension plans offered by the Company that are regulated by the Régie des rentes du Québec and
by the Canada Revenue Agency and 408 Simple IRA plans (for its US employees). The Company recognizes the contributions paid
under defined contribution plans in net earnings in the period in which the employees rendered service entitling them to the
contributions. The Company has no legal or constructive obligation to pay additional amounts other than those set out in the plans.
b) Defined Benefit Plans
The Company accrues its obligations under employee benefit plans and the related costs, net of plan assets, as the services are
rendered. The Company’s net liability in respect of defined benefits is calculated separately for each plan by estimating the amount
of future benefits that plan members have earned in the current and prior periods, discounting that amount and deducting the fair
value of any plan assets.
The Company has a number of defined benefit pension plans and has adopted the following policies:
i. The cost of pensions earned by employees is actuarially determined using the projected unit credit method based on
management’s best estimate of salary escalation, retirement ages of employees, discount rates and mortality rates. Actuarial
valuations are performed by independent actuaries on each reporting date of the annual financial statements.
ii. For the purpose of calculating the costs of the plans, assets are recorded at fair value and interest on the service cost is allowed
for in the interest cost.
iii. Actuarial gains or losses are recognized, for each reporting period, through other comprehensive income. Past service costs
arising from plan amendments are recognized in net earnings in the period that they arise.
iv. The defined benefit plans are subject to minimum funding requirements which under certain circumstances could generate
an additional liability under IFRIC 14. Any variation in that liability would be recognized immediately in net earnings.
Pension expense consists of the following:
i. the cost of pension benefits provided in exchange for plan members' services rendered in the period;
ii. net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to
measure the net defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset),
taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and
benefit payments;
iii. past service costs; and
iv. gains or losses on settlements or curtailments.
k) Income taxes
Income taxes consist of current tax and deferred tax. Current tax and deferred tax are recognized in net earnings except when they are
related to items recognized directly in shareholders’ equity or in other comprehensive income, in which case the current tax and deferred
tax are recognized directly in shareholders’ equity or in other comprehensive income, in accordance with the accounting treatment of the
item to which it relates.
The Company’s income tax expense is based on tax rules and regulations that are subject to interpretation and require estimates and
assumptions that may be challenged by taxation authorities. Current income tax is the expected tax payable or receivable on the taxable
income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable
in respect of previous years. The Company’s estimates of current income tax assets and liabilities are periodically reviewed and adjusted
as circumstances warrant, such as changes to tax laws and administrative guidance, and the resolution of uncertainties through either the
conclusion of tax audits or expiration of prescribed time limits within the relevant statutes.
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
The final results of government tax audits and other events may vary materially compared to estimates and assumptions used by
management in determining the income tax expense and in measuring current income tax assets and liabilities.
Deferred tax is recognized on the temporary differences between the carrying amounts of the assets and liabilities presented in the
consolidated statement of financial position and the corresponding tax bases used for tax purposes. Deferred income tax assets and
liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax
rates is included in net earnings in the period that includes the enactment or substantively enacted date except to the extent that it relates
to an item recognized either in other comprehensive income or directly in equity in the current or in a previous period.
The Company only offsets income tax assets and liabilities if it has a legally enforceable right to set off the recognized amounts and
intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
A deferred income tax asset is recognized to the extent that it is probable that future taxable profits will be available against which they
can be utilized. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realized.
Deferred income tax assets and liabilities are recognized under non-current assets or liabilities, irrespective of the expected date of
realization or settlement.
l) Earnings per Share
Basic earnings per share (EPS) are calculated by dividing the net earnings of the Company by the weighted average number of common
shares outstanding during the period. Diluted EPS is determined by adjusting the weighted average number of shares outstanding to
include additional shares issued from the assumed exercise of share options, if dilutive. The number of additional shares is calculated by
assuming that the proceeds from such exercises, as well as the amount of unrecognized share-based payment, if any, are used to purchase
common shares at the average market share price during the reporting period.
m) Share-based payments
The grant date fair value of share-based payment awards granted to employees is recognized as an employee expense, with a
corresponding increase in equity, over the period that the employees becomes entitled to the awards. The amount recognized as an
expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be
met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and
non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair
value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and
actual outcomes.
n) Financial Instruments
All financial instruments are classified into one of the following five categories: financial assets at fair value through profit or loss, held-
to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments,
including derivatives, are included on the statement of financial position and are measured at fair value with the exception of loans and
receivables, held-to-maturity investments and other financial liabilities, which are initially measured at fair value and subsequently
measured at amortized cost using the effective interest rate method, less impairment and adjusted for transaction costs. Subsequent
measurement and recognition of changes in fair value of financial instruments depend on their initial classification. Financial instruments
classified as financial assets at fair value through profit or loss are measured at fair value and all gains and losses are included in net
earnings in the period in which they arise. Available-for-sale financial instruments are measured at fair value and changes therein, other
than impairment losses, are recognized in other comprehensive income. When an available-for-sale is derecognized, the cumulative gain
or loss in other comprehensive income is transferred to net earnings.
Financial assets and liabilities measured at fair value use a fair value hierarchy to prioritize the inputs used in measuring fair value. Level
1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own assumptions.
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument.
Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the
Company has transferred substantially all risks and rewards of ownership.
Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the
liability simultaneously. The Company has the following classifications:
Cash and cash equivalents and trade and other receivables are classified as loans and receivables.
Bank loans, banker’s acceptances, bank overdraft and trade and other payables are classified as other financial liabilities.
26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
o) Non-Interest-Bearing Debt
Non-interest-bearing debt is measured at amortized cost using the effective interest rate method. When a non-interest-bearing loan is
obtained, to the extent that it was received as a grant related to an asset, the difference between the fair value of the loan and the
consideration received is accounted for by deducting the grant from the carrying amount of the corresponding asset.
p) Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended use, are added to the cost of these assets until the assets are in the condition
necessary for them to be capable of operating in the manner intended by management. In instances where the Company does not have
borrowings directly attributable to the acquisition of qualifying assets, the Company uses the weighted average of the borrowing costs.
The borrowing costs thus added to the qualifying assets will not exceed the borrowing costs incurred during the corresponding period.
Investment revenues earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in net earnings in the period in
which they are incurred.
q) Provisions
Provisions are recognized if, as a result of past events, the Company has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The amount recognized as a
provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the
risks and uncertainties related to the obligation. If the effect of the time value of money is material, the provisions are measured at their
present value.
i) Onerous contracts
A provision for onerous contracts is measured and recognized when the Company has concluded a contract for which the
unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the
contract.
ii) Environmental provisions
Environmental provisions relate to the discounted present value of estimated future expenditures associated with the obligations of
restoring the environmental integrity of certain properties. Environmental expenditures are estimated taking into consideration the
anticipated method and extent of the remediation consistent with regulatory requirements, industry practices, current technology
and possible uses of the site. The estimated amount of future remediation expenditures is reviewed periodically based on available
information. The amount of the provision is the present value of the estimated future remediation expenditures discounted using a
pre-tax rate that reflects current market assessments of time value of money and the risks specific to the obligation. The increase
in the provision due to the passage of time is recognized as financial costs, while the revision of estimates of environmental
expenditures and discount rates are recorded in selling, administrative and general expenses in the consolidated statement of
comprehensive income.
r) Government Grants
Government grants related to depreciable assets, including investment tax credits, are recognized in the consolidated statement of
financial position as a reduction of the carrying amount of the related asset. They are then recognized in net earnings, as a deduction from
the depreciation expense, over the estimated useful life of the depreciable asset. Other government grants are recognized in net earnings
as a deduction from the related expense.
s) Presentation of Dividends and Interest Paid in Cash Flow Statements
IFRS permits dividends and interest paid to be shown as operating or financing activities, as deemed relevant for the entity. The Company
has elected to classify dividends paid as cash flows used in financing activities and interest paid as cash flows used in operating activities.
t) Financial costs
Financial costs comprise interest expense on borrowings, unwinding of the discount on provisions and other financial charges. Borrowing
costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in net earnings
using the effective interest method.
u) Business Combinations
The Company accounts for business combinations using the acquisition method when control is transferred to the Company. The
consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill
that arises is tested annually for impairment. Any gain on a purchase is recognized in profit and loss immediately. Transaction costs are
expensed as incurred, except if related to the issue of debt or equity securities.
27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
v)
Interests in equity-accounted investees
The Company’s interests in equity-accounted investees comprise interests in a joint venture. A joint venture is an arrangement in which
the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than the rights to its assets
and obligations for its liabilities. Interests in the joint venture are accounted for using the equity method. They are recognized initially
at cost, which includes transactions cost. Subsequent to initial recognition, the consolidated financial statements include the Company’s
share of the profit and loss and Other Comprehensive Income of equity-accounted investees, until the date on which significant influence
or joint control ceases.
w)
IFRS Standard Issued, But Not Yet Effective
i)
IFRS 15, Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. The new standard is effective to years beginning
on or after January 1, 2018. Earlier application is permitted. IFRS 15 will replace IAS 11, Construction Contracts, IAS 18, Revenue,
IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfer of Assets
from Customers, and SIC 31, Revenue – Barter Transactions Involving Advertising Services. The standard contains a single model
that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model
features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New
estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The
new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments or lease contracts,
which fall in the scope of other IFRS. The Company will adopt IFRS 15 in its consolidated financial statements for the year
beginning on December 1, 2018. The Company does not expect the standard to have a material impact on its consolidated financial
statements.
ii) IFRS 9, Financial Instruments
In July 2014, the IASB issued the complete IFRS 9 (IFRS 9 (2014)). The mandatory effective date of IFRS 9 is for years beginning
on or after January 1, 2018 and must be applied retrospectively with some exemptions. Early adoption is permitted. Prior-period
restatement is not required and is permitted only if information is available without the use of hindsight. IFRS 9 (2014) introduces
new requirements for the classification and measurement of financial assets. Under IFRS 9 (2014), financial assets are classified
and measured at amortized cost based on the business model in which they are held and the characteristics of their contractual cash
flows. The standard introduces additional changes relating to financial liabilities. It also amends the impairment model by
introducing a new ‘expected credit loss’ model for calculating impairment. IFRS 9 (2014) also includes a new general hedge
accounting standard which aligns hedge accounting more closely with risk management. This new standard does not fundamentally
change the types of hedging relationships or the requirement to measure and recognize ineffectiveness. However, it will provide
more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess
the effectiveness of a hedging relationship. Special transitional requirements have been set for the application of the new general
hedging model. The Company will adopt IFRS 9 (2014) in its consolidated financial statements for the year beginning on December
1, 2018. The Company does not expect the standard to have a material impact on its consolidated financial statements.
iii) IFRS 16, Leases
On January 13, 2016 the IASB issued IFRS 16, Leases. The new standard is effective for years periods beginning on or after January
1, 2019. Earlier application is permitted for entities that apply IFRS 15, Revenue from Contracts with Customers at or before the
date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17, Leases. This standard introduces a single lessee accounting model
and requires a lessee to recognize assets and liabilities for all leases with a term of more than twelve months, unless the underlying
asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a
lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting
requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model
have been impacted, including the definition of a lease. Transitional provisions have also been provided. The Company will adopt
IFRS 16 in its consolidated financial statements for the year period beginning on December 1, 2019. The extent of the impact of
the standard has not yet been determined.
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
4.
Additional information on cost of goods sold and selling, administrative and general expenses
Employee benefits expense
Obsolescence adjustment included in cost of goods sold
Depreciation included in cost of goods sold
Depreciation included in selling, administrative and general expenses
Operating lease expense
Foreign exchange losses (gains)
5.
Net financial costs
Interest expense
Accretion expense on provision (Note 13)
Other financial costs
Financial cost
Financial income
Net financial cost
6.
Trade and other receivables
Trade receivables
Allowance for doubtful accounts
Other receivables
7.
Inventories
Raw materials
Work in process
Finished goods
Provision for obsolescence
November 30,
2018
$
51,829
(432)
1,067
2,623
4,909
23
November 30,
2017
$
52,815
(1,573)
1,329
2,756
4,804
(444)
November 30,
2018
$
2,502
50
999
3,551
(75)
3,476
November 30,
2017
$
2,821
50
1,350
4,221
(22)
4,199
November 30,
2018
$
50,253
(570)
49,683
325
50,008
November 30,
2017
$
57,073
(225)
56,848
759
57,607
November 30,
2018
$
6,756
9,093
78,554
94,403
(1,859)
92,544
November 30,
2017
$
7,521
7,427
76,203
91,151
(2,291)
88,860
For the year ended November 30, 2018, $370.7 million (2017 - $422.9 million) of inventory were expensed as cost of goods sold.
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
8.
Property, plant and equipment
Carrying
amount
November 30,
2017
$
6,263
15,842
6,069
1,267
157
4,636
1,334
630
36,198
Additions
Reclassification
Dispositions
$
-
250
-
474
5
275
52
136
1,192
$
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
(9)
(1)
(44)
(54)
Carrying
amount
Depreciation November 30,
2018
$
6,263
15,253
5,583
1,492
130
4,005
1,110
520
34,356
$
-
(839)
(486)
(249)
(32)
(897)
(275)
(202)
(2,980)
Cost
November 30, 2018
Accumulated
depreciation
$
-
19,679
5,759
2,169
1,025
22,627
3,526
5,763
60,548
$
6,263
34,932
11,342
3,661
1,155
26,632
4,636
6,283
94,904
Carrying
Amount
$
6,263
15,253
5,583
1,492
130
4,005
1,110
520
34,356
Carrying
amount
November 30,
2016
$
6,359
16,706
6,597
1,264
248
5,470
1,616
433
38,693
Additions
Reclassification
Dispositions
$
-
192
-
356
65
141
48
393
1,195
$
-
-
-
-
(113)
113
-
-
-
$
(96)
(130)
-
(41)
-
(15)
(1)
(14)
(297)
Carrying
amount
Depreciation November 30,
2017
$
6,263
15,842
6,069
1,267
157
4,636
1,334
630
36,198
$
-
(926)
(528)
(312)
(43)
(1,073)
(329)
(182)
(3,393)
Cost
November 30, 2017
Accumulated
depreciation
$
-
18,839
5,273
1,920
993
21,744
3,252
5,667
57,688
$
6,263
34,681
11,342
3,187
1,150
26,380
4,586
6,297
93,886
Carrying
Amount
$
6,263
15,842
6,069
1,267
157
4,636
1,334
630
36,198
Land
Buildings
Yard improvements
Leasehold improvements
Furniture and fixtures
Equipment
Computer equipment
Rolling Stock
Land
Buildings
Yard improvements
Leasehold improvements
Furniture and fixtures
Equipment
Computer equipment
Rolling Stock
Land
Buildings
Yard improvements
Leasehold improvements
Furniture and fixtures
Equipment
Computer equipment
Rolling Stock
Land
Buildings
Yard improvements
Leasehold improvements
Furniture and fixtures
Equipment
Computer equipment
Rolling Stock
Leased equipment
The Company leases computer equipment and lift trucks under finance leases. The leased equipment secures the lease obligation (Note 11).
As at November 30, 2018, the net carrying amount of leased equipment was $57 thousand ($194 thousand in 2017).
There has been no impairments or recoveries recorded during the fiscal years ended November 30, 2018 and 2017.
30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
9.
Intangible assets
Carrying
amount
November 30,
2017
$
4,615
327
4,942
Additions
Dispositions
$
212
-
212
$
-
-
-
Carrying
amount
Depreciation November 30,
2018
$
4,223
221
4,444
$
(604)
(106)
(710)
November 30, 2018
Cost
$
6,333
530
6,863
Accumulated
depreciation
$
2,110
309
2,419
Carrying
Amount
$
4,223
221
4,444
Carrying
amount
November 30,
2016
$
4,995
433
5,428
Additions
Dispositions
$
299
-
299
$
(93)
-
(93)
Carrying
amount
Depreciation November 30,
2017
$
4,615
327
4,942
$
(586)
(106)
(692)
November 30, 2017
Cost
$
6,121
530
6,651
Accumulated
depreciation
$
1,506
203
1,709
Carrying
Amount
$
4,615
327
4,942
Software and technologies
Customer relationship
Software and technologies
Customer relationship
Software and technologies
Customer relationship
Software and technologies
Customer relationship
10.
Investment in a joint venture
In fiscal 2016, the Company and Groupe Lebel Inc. entered into a joint venture (“JV”) through the creation of Traitement Lebel Goodfellow
Inc. The Company had invested $3.0 million in the joint venture in the form of inventory of raw material in return of 40% of the shares of
the joint venture. The joint venture ceased operations on May 31st, 2017. The better part of the liquidation was done in fiscal 2017 and the
Company received back its initial investment of $3.0 million and $320 thousand of dividends as part of the dissolution in 2017. The carrying
amount of the investment in the JV at November 30, 2017 was $285 thousand. In fiscal 2018, the Company received a $260 thousand
dividend and the carrying amount of the investment in the JV at November 30, 2018 is $25 thousand.
In fiscal 2018, the Company had no related party transactions with the joint venture. In fiscal 2017, the Company had the following
transactions: $26.8 million of purchase of goods, $0.2 million of lease rental income and $0.2 million of miscellaneous charges. These
transactions were in the normal course of business and measured at the exchange amount of considerations established and agreed to in the
contractual arrangements between the related parties. The Company has no outstanding receivable balance with Traitement Lebel Goodfellow
Inc. as at November 30, 2018 ($0.2 million in 2017).
11.
Bank indebtedness and long-term debt
a) Bank indebtedness
Bank Loans
Banker’s Acceptances
Bank overdraft
November 30,
2018
$
3,000
38,000
1,835
42,835
November 30,
2017
$
7,000
44,000
1,309
52,309
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
11.
Bank indebtedness and long-term debt (Continued)
In December 2017, the Company renewed its credit agreement with its present lenders, two chartered Canadian banks. The credit agreement
has a maximum revolving operating facility of $100 million renewable in May 2019. On November 30, 2018, the available facility was $90
million which corresponds to the low seasonality of the business. Funds advanced under these credit facilities bear interest at the prime rate
plus a premium and are secured by first ranking security on the universality of the movable property of the Company. As at November 30,
2018, the Company was compliant with its financial covenants. As at November 30, 2018, under the credit agreement, the Company was using
$41 million of its facility compared to $51 million as at November 30, 2017.
b) Long-term debt
The Company has entered into finance leases secured by the leased computer equipment and lift trucks. The obligation under finance leases
bear interests at a rate of 2.7% and 6.1% per annum, maturing December 2018 and August 2022.
12.
Trade and other payables
Trade payables and accruals
Payroll related liabilities
Sales taxes payables
13.
Provision
November 30,
2018
$
22,789
6,093
310
29,192
November 30,
2017
$
22,333
5,658
1,418
29,409
The Company’s St-André (QC) site shows continued traces of surface contamination from previous treating activities exceeding existing
regulatory requirements. The Company received approval for the environmental rehabilitation plan in fiscal 2016. The Company started to
implement its plan during the fiscal 2016 and treatment of soil on-site will be performed over an estimated period of 5 years. Based on current
available information, the provision as at November 30, 2018 is considered by management to be adequate to cover any projected costs that
could be incurred in the future. The rehabilitation is expected to occur progressively over the next 3 years.
Because of the long-term nature of the liability, the biggest uncertainty in estimating the provision is the amounts of soil to be treated and
the costs that will be incurred. In particular, the Company has assumed that the site will be restored using technology and materials that are
currently available. The Company has been provided with a reasonable estimate, reflecting different assumptions about pricing of the
individual components of the cost. The provision has been calculated using a discount rate of 5.2% and an inflation rate of 1.7%.
The change in environmental provision is as follows:
Balance, beginning of year
Changes due to:
Revision of future expected expenditures
Accretion expense
Expenditures incurred
Balance, end of year
Current portion
Long-term portion
November 30, November 30,
2017
$
1,438
2018
$
1,384
239
50
(20)
1,653
336
1,317
(64)
50
(40)
1,384
938
446
Change in estimates of future expenditures are as a result of periodic reviews of the underlying assumptions supporting the provision,
including remediation costs and regulatory requirements.
14.
Share Capital
a)
Authorized
An unlimited number of common shares, without par value
Number of shares outstanding at the beginning and at the end of the year
8,506,554
8,506,554
November 30, November 30,
2017
2018
32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
14.
Share Capital (Continued)
b)
c)
Share-based payments
On January 15, 2017, the Company granted deferred shares to a key executive. Under this program, the executive was eligible to
receive shares of the Company if specific non-market performance targets were met. The Company recognized the fair value of the
shares at the grant date ($494 thousand) and the shares were vested at November 30, 2017 as the Company met the non-market
performance targets. As at November 30, 2018, no shares have been issued under this program.
Share option plan
The Company has a share option plan for directors, officers and employees, which provides for the purchase of common shares up
to a maximum number of 420,000 issuable shares. Under the plan, the exercise price of each option equals the market price of the
Company’s share on the date of grant and an option’s maximum term is five years. The rights relating to the options are vested over
five years at a rate of 50% after three years and the balance after five years.
No options were granted or exercised and there were no outstanding options in the current and prior fiscal year. As at November 30,
2018, 220 000 common shares are reserved for the granting of options.
d)
Earnings (loss) and dividend per share
The calculation of basic and diluted earnings (loss) per share was based on the following:
Net earnings (loss), basic and diluted
Weighted average number of shares, basic and diluted
November 30, November 30,
2017
$
(2,094)
8,506,554
2018
$
2,571
8,506,554
No eligible dividend was declared and paid to the holders of participating shares for the year ended November 30, 2018 (nil for the
year ended November 30, 2017).
15.
Income Taxes
The income tax expenses is as follows:
Current tax expenses
Deferred tax expenses
November 30, November 30,
2017
$
(1,340)
159
(1,181)
2018
$
953
(247)
706
The provision for income taxes is at an effective tax rate, which differs from the basic corporate statutory tax rate as follows:
Earnings (loss) before income taxes
Statutory income tax rate (%)
Income taxes based on above rates
Adjusted for:
Permanent differences
Difference in expected rate of reversal versus current rate
Other
November 30, November 30,
2017
$
(3,275)
27.1
(886)
2018
$
3,277
27.0
885
(84)
(112)
17
706
(269)
125
(151)
(1,181)
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
15.
Income Taxes (Continued)
Temporary differences that give rise to deferred income tax assets and liabilities are as follows:
Deferred income tax (liabilities) assets:
Deferred pension asset
Provisions and other
Property, plant and equipment
Intangible assets
Net deferred tax liability
November 30, November 30,
2017
$
2018
$
(710)
956
(3,843)
(55)
(3,652)
(400)
1,178
(4,273)
(87)
(3,582)
On an annual basis, the Company assesses if it is probable its deferred income tax assets will be realized based on its taxable income
projections. As at November 30, 2018, it is probable that the Company will realize its deferred income tax assets from the generation of
future taxable income.
16.
Post-employment benefits
The Company has a number of pension plans providing pension benefits to most of its employees.
The Pension Plan for the Hourly Employees of Goodfellow Inc. (“Hourly Plan”) is a hybrid pension plan funded by employer and members
contributions. Defined benefits are based on career average earnings for service up to April 30, 2008. The Hourly Plan was a pure defined
benefit plan until April 30, 2008 but has been amended effective May 1, 2008 to introduce a defined contribution (DC) component.
The Pension Plan for the Salaried Employees of Goodfellow Inc. (“Salaried Plan”) is also a hybrid pension plan funded by employer and
members contributions. Defined benefits are based on length of service up to May 31, 2007 and final average earnings calculated at the
earliest of retirement, termination or death. The Salaried Plan was a pure defined benefit plan until May 31, 2007 but has been amended
effective June 1, 2007 to introduce a defined contribution (DC) component. As for the DC components, the Company matches employee
contributions.
All employees have ceased to accrue service under the defined benefit portions of the plans.
A. Defined Contribution Plans
The Company contributes to several defined contribution plans and 408 Simple IRA plans (for its US employees). The pension expense
under these plans is equal to the Company’s contributions. The pension expense for the year ended November 30, 2018 was $1.4 million
(2017 - $1.3 million).
B. Defined Benefit Plans
The measurement date for the plan assets and obligations is November 30. The most recent actuarial valuations for funding purposes were
filed with the pension regulators on December 31, 2015 for both plans. The next actuarial valuation for both plans for funding will be as of
December 31, 2018.
Information about the Company’s defined benefit plans is as follows:
Defined benefit obligation
Balance, beginning of year
Interest cost
Benefits paid
Actuarial (gain) loss
Effect of experience adjustments and Changes in demographic
Assumptions
Changes in financial assumptions
Balance, end of year
34
November 30,
2018
$
November 30,
2017
$
52,832
1,806
51,867
1,888
(2,437)
(3,065)
-
(2,832)
49,369
313
1,829
52,832
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
16.
Post-employment benefits (Continued)
Plan assets
Fair value, beginning of year
Interest income
Employer contributions
Benefits paid
Administrative expenses paid from plan assets
Return on plan assets in excess of interest income
Fair value, end of year
Net asset
The actual return on plan assets was $48 thousand in 2018 and $4.3 million in 2017.
The funded status of the defined benefits plans are as follows:
Defined benefits obligation
- funded
- partly funded
Fair value of plan assets
- funded
- partly funded
Funded status - surplus
- funded
- partly funded
The significant actuarial weighted average assumptions used are as follows:
Defined benefit obligation:
Discount rate
Rate of compensation increase
Net benefit plan expense:
Discount rate
Rate of compensation increase
Net benefit plan expense:
Interest cost
Interest income
Administrative expenses
Net benefit plan expense
November 30,
2018
$
November 30,
2017
$
54,324
1,857
81
(2,437)
(153)
(1,656)
52,016
2,647
53,056
1,928
55
(3,065)
(261)
2,611
54,324
1,492
November 30,
2018
$
November 30,
2017
$
13,630
35,739
16,334
35,682
2,704
(57)
14,362
38,470
16,775
37,549
2,413
(921)
November 30,
2018
%
November 30,
2017
%
3.90
3.00
4.15
3.00
3.50
3.00
3.75
3.00
November 30,
2018
$
1,806
(1,857)
153
102
November 30,
2017
$
1,888
(1,928)
261
221
The net benefit plan expense is included in Cost of goods sold, and Selling, Administrative, and General Expenses in the consolidated
statement of comprehensive income.
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
16.
Post-employment benefits (Continued)
The plan assets by asset category are as follows:
Equity security:
Canadian stocks
US stocks
International stocks
Debt securities:
Universal type
Treasury
All investments are quoted on an active market.
History of deficit and of experience gains and losses:
Benefit obligation
Fair value of plan assets
Surplus
Experience loss on plan liabilities*
- Amount
- Percentage
* Excluding impact of change in assumptions
November 30,
2018
%
November 30,
2017
%
21
19
19
41
-
21
18
20
40
1
November 30,
2018
$
49,369
52,016
2,647
November 30,
2017
$
52,832
54,324
1,492
-
0.0%
-
0.0%
A one percent change in discount rate would not have a significant impact on pension expense.
Amount, timetable and uncertainty of future cash flows:
•
Sensitivity analysis
Sensitivity to the discount rate:
Defined benefit obligation
Discount rate
Sensitivity to the life expectancy:
Defined benefit obligation
Mortality rates (CPM2014Priv – MI2017)
Life expectancy of man of 65 years
Life expectancy of woman of 65 years
•
Funding policy
Down of 0.25%
$51,109
3.65%
Assumption used
$49,369
3.90%
Up by 0.25%
$47,723
4.15%
Up to one year Assumption used
$50,702
$49,369
23.0 years
25.5 years
22.0 years
24.5 years
Goodfellow Inc. contributes amounts required to comply with provincial and federal legislation.
•
Expected contributions
The total cash payment for post-employment benefits for 2018, consisting of cash contributed by the Company to its funded pension
plans, was $0.1 million ($0.1 million in 2017). Based on the latest filed actuarial valuation for funding purposes as at December 31,
2015, the Company expects to contribute nil in 2019.
• Duration
The weighted average duration of the defined benefit obligation is 15 years.
36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
17.
Additional Cash Flow Information
Changes in Non-Cash Working Capital Items
Trade and other receivables
Inventories
Prepaid expenses
Trade and other payables
November 30,
2018
$
7,599
(3,684)
(254)
(270)
3,391
November 30,
2017
$
6,148
26,531
1,537
(920)
33,296
Non-cash transaction
The Company purchased property, plant, equipment and intangible assets for which an amount of $71 thousand was unpaid as at November
30, 2018 ($38 thousand as at November 30, 2017).
18.
Segmented Information
The Company manages its operations under one operating segment. Revenues are generated from the sale of various wood products and
operating expenses are managed at the aggregate Company level. The Company’s sales to clients located in Canada represent approximately
83% (84% in 2017) of total sales, the sales to clients located in the United States represent approximately 10% (same last year) of total sales,
and the sales to clients located in other markets represent approximately 7% (6% in 2017) of total sales. All significant property, plant and
equipment are located in Canada.
19.
Financial Instruments and Financial Risk Management
Risk Management
The Company is exposed to financial risks that arise from fluctuations in interest rates and foreign exchange rates and the degree of volatility
of these rates.
Financing and Liquidity Risk
The Company makes use of short-term financing with two chartered Canadian banks.
The following are the contractual maturities of financial liabilities as at November 30, 2018:
Financial Liabilities
Bank indebtedness
Trade and other payables
Long-term debt
Carrying
Amount
42,835
29,192
57
Contractual
cash flows
42,835
29,192
57
Total financial liabilities
72,084
72,084
0 to 12
Months
42,835
29,192
14
72,041
The following are the contractual maturities of financial liabilities as at November 30, 2017:
Financial Liabilities
Bank indebtedness
Trade and other payables
Long-term debt
Carrying
Amount
52,309
29,409
194
Contractual
cash flows
52,309
29,409
194
Total financial liabilities
81,912
81,912
0 to 12
Months
52,309
29,409
139
81,857
12 to 36
Months
-
-
43
43
12 to 36
Months
-
-
55
55
Interest Rate Risk
The Company uses a credit facility to finance working capital requirements. The interest cost of this facility is dependent upon Canadian and
US bank prime rates as well as the Company’s funded debt to capitalization ratio. The profitability of the Company could be adversely
affected with increases in the bank prime rate. Management does not believe that the impact of interest rate fluctuations will be significant
on its operating results. A 1% fluctuation of interest rate on the $42.8 million in bank indebtedness would impact interest expense annually
by $0.4 million.
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
19.
Financial Instruments and Financial Risk Management (Continued)
Currency Risk
The Company could enter into forward exchange contracts to economically hedge certain trade payables and from time to time future
purchase commitments denominated in U.S. dollars, Euros and Pound sterling. Fluctuation in the Canadian dollar of 5% in relation to foreign
currencies would not have a significant effect on the Company’s net earnings. As at November 30, 2018, the Company had the following
currency exposure on:
Financial assets and liabilities measured at amortized costs
Cash
Trade and other receivables
Trade and other payables
Long-term debt
Net exposure
USD
2,447
8,956
(2,716)
(43)
8,644
GBP
247
196
(49)
-
394
Euro
12
-
(83)
-
(71)
CAD exchange rate as at November 30, 2018
1.3292
1.6940
1.5044
Impact on net earnings based on a fluctuation of 5% on CAD
419
24
(4)
Credit Risk
The Company is exposed to credit risks from customers. As a result of having a diversified customer mix, this risk is alleviated by minimizing
the amount of exposure the Company has to any one customer. Additionally, the Company has a system of credit management to mitigate
the risk of losses due to insolvency or bankruptcy of its customers. It also utilizes credit insurance to reduce the potential for credit losses.
Finally, the Company has adopted a credit policy that defines the credit conditions to be met by its customers and specific credit limit for
each customer is established and regularly revised. Accounts receivable over 60 days past their due date and not impaired represents 4.0%
(1.3% on November 30, 2017) of total trade and other receivables at November 30, 2018.
The movement in the allowance for doubtful accounts in respect to trade and other receivables were as follows:
Balance, beginning of year
Provision
Bad debt write-offs
Balance, end of year
November 30,
2018
$
225
374
(29)
570
November 30,
2017
$
1,816
185
(1,776)
225
Two major customers exceed 10% of total Company sales in the twelve months ended November 30, 2018 (same last year). The following
represents the total sales consisting primarily of various wood products of the major customer(s):
Years ended
November 30, 2018 November 30, 2017
%
%
$
$
Sales to major customer(s) that
exceeded 10% of total Company’s
sales
110,699
23.3
110,848
21.2
The loss of any major customer could have a material effect on the Company’s results, operations and financial positions. The carrying
amounts of financial assets represent the maximum credit exposure.
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Fair value is based on available public market information or, when such information is not available, is estimated
using present value techniques and assumptions concerning the amount and timing of future cash flows and discount rates which factor in
the appropriate level of risk for the instrument. The estimated fair values may differ in amount from that which could be realized in an
immediate settlement of the instruments. The carrying amounts of cash, trade and other receivables, bank indebtedness, trade and other
payables and long-term debt approximate their fair values.
38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
20.
Capital Management
The Company’s objectives are as follows:
1. Maintain financial flexibility in order to preserve its ability to meet financial obligations;
2. Maintain a low debt-to-capitalization ratio to preserve its capacity to pursue its organic growth strategy;
3. Maintain financial ratios within covenants requirements; and
4. Provide an adequate return to its shareholders.
The Company defines its capitalization as shareholders’ equity and debt. Shareholders’ equity includes the amount of paid-up capital in
respect of all issued and fully-paid common shares together with the retained earnings, calculated on a consolidated basis in accordance with
IFRS. Debt includes bank indebtedness reduced by the amounts of cash and cash equivalents. Capitalization represents the sum of debt and
shareholders’ equity.
The Company manages its capital and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of
the underlying assets. In order to maintain or adjust its capital, the Company may adjust the amount of dividends paid to shareholders, issue
new shares or repurchase shares under the normal course issuer bid, acquire or sell assets to improve its financial performance and flexibility
or return capital to shareholders. The Company’s primary uses of capital are to finance increases in non-cash working capital and capital
expenditures for capacity expansion. The Company currently funds these requirements out of its internally-generated cash flows and credit
facilities. The Company’s financial objectives and strategy remain substantially unchanged.
The Company is subject to certain covenants on its credit facilities. The covenants include a Debt-to-capitalization ratio and an Interest
coverage ratio. The Company monitors the ratios on a monthly basis. The Company current complies with all externally imposed capital
requirements. Other than the covenants required for the credit facilities, the Company is not subject to any externally imposed capital
requirements. The Company believes that all its ratios are within reasonable limits, in light of the relative size of the Company and its capital
management objectives.
As at November 30, 2018 and 2017, the Company achieved the following results regarding its capital management objectives:
Capital management
Debt-to-capitalization ratio
Interest coverage ratio
Return on shareholders’ equity
Current ratio
EBITDA
* The interest coverage ratio was not required in fiscal 2017.
As at
November 30,
2018
As at
November 30,
2017
26.6%
3.0
2.3%
2.0
$10,443
32.8%
-*
(1.9)%
1.8
$5,009
These measures are not prescribed by IFRS and are defined by the Company as follows:
• Debt-to-capitalization ratio represents the funded debt over total shareholders’ equity. Funded debt is bank indebtedness less cash
•
and cash equivalents. Capitalization is funded debt plus shareholders’ equity.
Interest Coverage ratio represents the EBITDA during the period for which the calculation is made over interest expenses for the
same period on a consolidated basis, calculated on a rolling four-quarter basis.
• Return on shareholders’ equity is the net earnings (loss) divided by shareholders’ equity.
• Current ratio is total current assets divided by total current liabilities.
•
EBITDA is earnings before interest, taxes, depreciation and amortization.
21.
Commitments and Contingent liabilities
Commitments
As at November 30, 2018, the minimum future rentals payable under long-term operating leases, for offices, warehouses, vehicles, yards,
and equipment are as follows:
Less than 1 year
More than 1 year, but less than 5 years
More than 5 years
$
5,461
13,008
2,054
20,523
39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For years ended November 30, 2018 and 2017
(tabular amounts are in thousands of dollars, except per share amounts)
21.
Commitments and Contingent liabilities (Continued)
Contingent liabilities
During the normal course of business, certain product liability and other claims have been brought against the Company and, where
applicable, its suppliers. While there is inherent difficulty in predicting the outcome of such matters, management has vigorously contested
the validity of these claims, where applicable, and based on current knowledge, believes that they are without merit and does not expect that
the outcome of any of these matters, in consideration of insurance coverage maintained, or the nature of the claims, individually or in the
aggregate, would have a material adverse effect on the consolidated financial position, results of operations or future earnings of the
Company.
22.
Related party transactions
Related parties include the key management personnel and other related parties as described below.
Other related party transactions
Company controlled by a member of the Board – Jarislowsky Fraser Ltd.
- Management fee
November 30,
2018
$
November 30,
2017
$
87
187
These transactions are in the normal course of business and measured at the exchange amount of considerations established and agreed to in
the contractual arrangements between the related parties.
Key management personnel compensation
Key management includes members of the board of directors, senior management and key executives. The following table shows the
remuneration of key management personnel during the years ended:
Salaries and other short-term benefits
Post-employment benefits
November 30,
2018
$
1,384
7
1,391
November 30,
2017
$
2,750
60
2,810
40
CORPORATE INFORMATION
BOARD OF DIRECTORS
Claude Garcia */**
Chairman of the Board
.
G. Douglas Goodfellow **
Secretary of the Board
Goodfellow Inc.
Stephen A. Jarislowsky */**
Director
Founder of Jarislowsky Fraser Ltd
Normand Morin */**
Chairman of the Audit Committee
David A. Goodfellow
Director
Alain Côté */**
Director
Partner, Deloitte LLP
* Member of the Audit Committee
** Member of the Executive Compensation Committee
OFFICERS
Patrick Goodfellow
President & Chief Executive Officer
Charles Brisebois
Chief Financial Officer
G. Douglas Goodfellow
Secretary of the Board
Mary Lohmus
Executive Vice President,
Ontario & Western Canada
David Warren
Vice President,
Atlantic
Luc Dignard
Vice President,
Sales, Quebec
Jeff Morrison
Vice President,
National accounts
OTHER INFORMATION
Head Office
225 Goodfellow Street
Delson, Quebec J5B 1V5
Tel.: 450-635-6511
Fax: 450-635-3730
Sollicitors
Bernier Beaudry
Quebec, Quebec
Auditors
KPMG LLP
Montreal, Quebec
Transfer Agent
Computershare Investor Services Inc.
Montreal, Quebec
Stock Exchange
Toronto
Trading Symbol: GDL
Wholly-owned Subsidiaries
Goodfellow Distribution Inc.
Quality Hardwoods Ltd.
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