0
FINANCIAL HIGHLIGHTS
OPERATING RESULTS
(in thousands of dollars, except per share amounts)
2019
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
$449,587
$4,269
$3,054
$0.36
$475,207
$3,277
$2,571
$0.30
$523,659
$(3,275)
$(2,094)
$(0.25)
$565,173
$(16,294)
$(12,105)
$(1.42)
$9,775
$1.14
$113,408
$13.24
$4.82
$0.10
$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
15
10
5
0
(5)
(10)
(15)
$9
$3
$3
$(2)
2015
$(12)
2016
2017
2018
2019
2015
2016
2017
2018
2019
10.35 $
9.05 $
8.33 $
6.00 $
4.82 $
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 ..... 17
Directors and Officers .......................................... 45
Sales Offices and Distributions Centres .............. 46
HEAD OFFICE
225 Goodfellow Street
Delson, Quebec
J5B 1V5
Canada
1
ANNUAL MEETING
The annual Meeting of Shareholders
will be held on April 9, 2020 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 decrease in sales in 2019, most of which occurring in the first half of the year, can be explained almost
exclusively by the reduction of plywood and hardwood deliveries. In the past 6 months, we experienced a
small increase of our sales of products other than plywood and hardwood compared to the numbers obtained
in the second half of the previous year. This recovery enabled us to increase our gross margin from 18.5% in
2018 to 18.9% in this past year. This improvement of our margin and a better control over our expenses have
allowed us to increase our profits by 18.8%.
A tighter management of our funds has led to a reduction of our credit line of almost eleven million dollars in
2019. Management has continued improvement of our balance sheet in the course of the year and has started
a plan to renew our equipment.
Encouraged by the good results, the board of directors has declared a second dividend in November 2019, in
the amount of $0.10 per share.
In the name of the board of directors, I would like to thank our President and CEO, Mr. Patrick Goodfellow,
his management team as well as each employee for their efforts during the past year. I would also like to thank
our customers who have provided us with the opportunity to continue servicing in the course of the year.
Claude Garcia
Chairman of the Board
February 13, 2020
2
PRESIDENT’S REPORT TO THE SHAREHOLDERS
For the period of Dec 1, 2018 to Nov 30, 2019, Goodfellow had full intention and management commitment
of continuing in its positive trend to a normalized return for its shareholders. The Company’s overhead having
been right sized, as well as being able to count on a functional ERP system, were key in keeping focus on sales
revenue and gross margins. Conservative inventory management, with the objective of improving our turns,
resulted in reduced exposure to volatile commodity fluctuations in 2019.
Sales Revenue decreased in 2019 due in large part to hardwood lumber market turmoil. This was caused by
Chinese lumber tariffs imposed on American hardwoods. This factor resulted in a substantial correction in
hardwood pricing and a surplus of material availability in North America.
Regionally in Canadian Distribution we saw continued softening of demand in the GTA & Southwestern
Ontario during Q1 (Dec-Feb) and Q2 (March-May) 2019. Goodfellow’s distribution footprint remains intact
and fortunately the Company saw several encouraging revenue gains in many parts of the country, with 2019
final results were $3.1M of net earnings versus $2.6M of net earnings in 2018.
Despite challenging conditions in North America and overseas, Goodfellow’s core business activities showed
great signs of resilience in 2019 to sustain the trend of improved profitability. The Company has invested in
measures to improve its productivity and strengthen its position as the leader in custom orders & value-added
manufacturing of wood products. These initiatives will provide positive returns for years to come.
Thanks
Patrick Goodfellow
President and Chief Executive Officer
February 13, 2020
3
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 13, 2020.
The MD&A should be read in conjunction with the consolidated financial statements and the corresponding notes for the years ended November
30, 2019 and November 30, 2018.
The MD&A provides a review of the significant developments and results of operations of the Company during the years ended November 30,
2019 and November 30, 2018.
The consolidated financial statements for the years ended November 30, 2019 and November 30, 2018 are prepared in accordance with
International Financial Reporting Standards (“IFRS”). All amounts in this MD&A are in Canadian dollars unless otherwise indicated.
Additional information relating to Goodfellow Inc., including the Annual Information Form and the Annual Report can be found on SEDAR at
www.sedar.com.
FORWARD-LOOKING STATEMENTS
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.
NON-IFRS FINANCIAL MEASURES
In addition to discussing earnings in accordance with IFRS, this MD&A provides cash flow per share and earnings before interest, taxes,
depreciation and amortization [“EBITDA”] as a non-IFRS financial measure. These financial measures are 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 $9.8 million for the fiscal period ended November 30, 2019 divided by the total
number of outstanding shares of 8,562,554.
Reconciliation of net income to EBITDA
(thousands of dollars)
Net income for the year
Provision for income taxes
Financial expenses
Operating income
Depreciation and amortization
EBITDA
BUSINESS OVERVIEW
For the years ended
November 30
2019
$
3,054
1,215
3,137
7,406
3,479
10,885
November 30
2018
$
2,571
706
3,476
6,753
3,690
10,443
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 and,
9 processing plants in Canada, and 1 distribution centre in the USA.
4
OVERALL PERFORMANCE
Heading into 2019, the Company focused on the quality of its inventory levels and setting a priority on its core value-added categories. The
Company remains fully committed to strengthening its distribution footprint across Canada. Our business model continues to be aligned with
organic growth through geographic market penetration and market share gains. Distribution of new lines within our existing categories and
strengthening our core value-added niche businesses. Goodfellow is committed to being the leader in specialty wood products and offering
innovative custom job lot solutions. Fiscal 2019 was budgeted as a continuation of improved profitability. As responsible operators, management
continued in its objective of eradicating obsolete inventory and increasing turns. 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 in 2019.
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
Net earnings (loss) per share, 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, 2019 AND 2018
(In thousands of dollars, except per share amounts)
HIGHLIGHTS FOR THE YEARS ENDED
NOVEMBER 30, 2019 AND 2018
Consolidated Sales
Earnings before income taxes
Net earnings
Net earnings per share – Basic
Net earnings per share – Diluted
Cash Flow from Operations (excluding non-cash
working capital items, income tax paid and interest paid)
EBITDA
Average Bank indebtedness
Inventory average
2019
$
449,587
4,269
3,054
180,581
28
851
0.36
0.35
1.14
13.24
4.82
0.10
2018
$
475,207
3,277
2,571
190,718
43
-
0.30
0.30
1.14
13.27
6.00
-
2017
$
523,659
(3,275)
(2,094)
197,233
55
-
(0.25)
(0.25)
0.31
12.86
8.33
-
2019
$
449,587
4,269
3,054
0.36
0.35
9,775
10,885
58,074
103,698
2018
Variance
$
475,207
3,277
2,571
0.30
0.30
9,705
10,443
69,569
104,832
%
-5.4
+30.3
+18.8
+20.0
+16.7
+0.7
+4.2
-16.5
-1.1
Sales in Canada during fiscal 2019 decreased 3% compared to last year mainly due to decrease in sales of commodity panels and lumber products.
Quebec sales decreased 1% due to decrease in sales of specialty and commodity panels. Sales in Ontario decreased 7% mainly due to a decline in
sales of flooring, commodity panels and hardwood products. Sales in Western Canada increased 3% mainly due to increased sales of flooring
products. Atlantic region sales decreased 4% due to decreased sales of siding and lumber products.
5
15%(2018: 17%)14%(2018: 14%)11%(2018: 10%)28%(2018: 29%)32%(2018: 30%)US and ExportsAtlanticWestern CanadaOntarioQuebecGeographical Distribution of Sales for Fiscal 2019
Sales in the United States during fiscal 2019 decreased 14% on a Canadian dollar basis compared to last year due to lower demand of hardwood
products. On a US dollar basis, US denominated sales decreased 16% compared to last year. Finally, export sales decreased 20% compared to last
year mainly due to decreasing demand of hardwood and flooring products in the United Kingdom, and lower demand for hardwood lumber in
Asia.
In terms of the distribution of sales by product, flooring sales during fiscal 2019 remained stable compared to last year. Specialty and Commodity
Panel sales decreased 12% compared to last year. Building Materials sales decreased 1% compared to last year. Finally, Lumber sales decreased
6% compared to last year.
Cost of Goods Sold
Cost of goods sold during fiscal 2019 was $364.5 million compared to $387.3 million last year. Cost of goods sold decreased 5.9% compared to
last year. Total freight outbound cost decreased 6.6% compared to last year. Gross profits were $85.0 million compared $87.9 million last year due
to lower sales volume. Gross profits decreased 3.2% compared to last year. Gross margins were 18.9% in fiscal 2019 (18.5% last year).
Selling, Administrative and General Expenses
Selling, Administrative and General Expenses during fiscal 2019 was $77.6 million compared to $81.2 million last year. Selling, Administrative
and General Expenses decreased 4.3% compared to last year.
Net Financial Costs
Net financial costs during fiscal 2019 were $3.1 million compared to $3.5 million last year. The average Canadian prime rate increased to 3.95%
compared to 3.54% last year. The average US prime rate increased to 5.33% compared to 4.83% last year. Average bank indebtedness was $58.1
million compared to $69.6 million last year.
COMPARISON FOR THE THREE MONTHS ENDED NOVEMBER 30, 2019 AND 2018
(In thousands of dollars, except per share amounts)
HIGHLIGHTS FOR THE THREE MONTHS
ENDED NOVEMBER 30, 2019 AND 2018
Consolidated Sales
Earnings (loss) 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
Q4-2019
Q4-2018
$
107,127
406
277
0.03
1,450
1,981
42,124
93,900
$
112,742
(22)
197
0.02
1,609
1,821
56,112
99,876
Variance
%
-5.0
+1,945.5
+40.6
+50.0
-9.9
+8.8
-24.9
-6.0
Sales in Canada during the fourth quarter of fiscal 2019 remained stable compared to last year. Quebec sales increased 2% due to an increase in
sales of engineered products. Sales in Ontario decreased 2% mainly due to a decline in sales of commodity panels and hardwood products. Western
Canada sales decreased 4% due to reduced sales of siding products. Atlantic region sales increased 2% due to an increase in sales of pressure
treated wood, commodity panels and building materials.
Sales in the United States for the fourth quarter of fiscal 2019 decreased 5% on a Canadian dollar basis compared to last year due to lower demand
of lumber products. On a US dollar basis, US denominated sales decreased 6% compared to last year. Finally, export sales decreased 50% during
the fourth quarter of fiscal 2019 compared to last year mainly due to a decrease demand for hardwood products in the United Kingdom and Asia.
6
52%(2018: 52%)10%(2018: 10%)17%(2018:18%)21%(2018: 20%)LumberBuilding MaterialSpecialty & Commodity PanelFlooringProduct Distribution of Sales for Fiscal 201914%(Q4-2018 : 19%)13%(Q4-2018 : 12%)10%(Q4-2018 : 10%)30% (Q4-2018 : 29%)33% (Q4-2018 : 30%)US and ExportsAtlanticWestern CanadaOntarioQuebecGeographical Distribution of Sales for the Fourth Quarter ended November 30, 2019
In terms of the distribution of sales by product, flooring sales for the fourth quarter ended November 30, 2019 increased 1% compared to last year.
Specialty and Commodity Panel sales decreased 16% compared to last year. Building Materials sales increased 13% compared to last year. Finally,
Lumber sales decreased 6% compared to last year.
Cost of Goods Sold
Cost of goods sold for the fourth quarter of fiscal 2019 was $86.5 million compared to $91.9 million last year. Cost of goods sold decreased 5.9%
compared to last year. Total freight outbound cost decreased 3.9% compared to last year. Gross profits were $20.7 million compared $20.9 million
last year due to lower sales volume. Gross profits decreased 1.0% compared to last year. Gross margins were 19.3% for the fourth quarter of fiscal
2019 (18.5% last year).
Selling, Administrative and General Expenses
Selling, Administrative and General Expenses for the fourth quarter ended November 30, 2019 were $19.6 million compared to $20.0 million last
year. Selling, Administrative and General Expenses decreased 2.1% compared to last year.
Net Financial Costs
Net financial costs for the fourth quarter of fiscal 2019 were $0.7 million compared to $0.9 million last year. The average Canadian prime rate
increased to 3.95% during the fourth quarter of fiscal 2019 compared to 3.80% last year. The average US prime rate decreased to 4.96% compared
to 5.17% last year. Average bank indebtedness was $42.1 million compared to $56.1 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-2019
$
88,153
(1,550)
May-2019
$
123,713
1,855
Aug-2019
$
130,594
2,472
Nov-2019
$
107,127
277
Net (loss) earnings per share
(0.18)
0.22
0.29
0.03
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
(0.17)
0.21
0.24
0.02
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.
7
51%(Q4-2018: 51%)9%(Q4-2018: 8%)17%(Q4-2018: 20%)23%(Q4-2018: 21%)LumberBuilding MaterialSpecialty & Commodity PanelFlooringProduct Distribution of Sales for the Fourth Quarter ended November 30, 2019
STATEMENT OF FINANCIAL POSITION
Total Assets
Total assets at November 30, 2019 was $180.6 million compared to $190.7 million last year. Cash at November 30, 2019 closed at $2.4 million
compared to $2.6 million last year. Trade and other receivables at November 30, 2019 was $48.5 million ($50.0 million last year). Inventories at
November 30, 2019 was $87.3 million compared to $92.5 million last year. Prepaid expenses at November 30, 2019 was $2.6 million compared
to $3.1 million last year. Defined benefit plan assets was $2.2 million at November 30, 2019 compared to $2.7 million last year. Investment was
$25 thousand at November 30, 2019 (same last year), reflecting the carrying amount of the investment in the JV. Other assets was $0.8 million at
November 30, 2019 ($0.9 million last year).
Property, plant, equipment and intangible assets
Property, plant and equipment at November 30, 2019 was $32.8 million compared to $34.4 million last year. Capital expenditures during fiscal
2019 amounted to $1.0 million compared to $1.2 million last year. Property, plant and equipment capitalized during fiscal 2019 mainly included
buildings, yard equipment, computers and rolling stock. Intangible assets at November 30, 2019 was $3.9 million compared to $4.4 million last
year. Intangible expenditures during fiscal 2019 amounted to $0.2 million (same last year). Proceeds on disposal of capital assets during fiscal
2019 was $18 thousand compared to $72 thousand last year. Depreciation of property, plant, equipment and intangible assets during fiscal 2019
amounted to $3.5 million compared to $3.7 million last year. Historically, capital expenditures in general have been capped at depreciation levels.
Total Liabilities
Total liabilities at November 30, 2019 was $67.2 million compared to $77.9 million last year. Bank indebtedness was $31.2 million compared to
$42.8 million last year. Trade and other payables at November 30, 2019 was $29.0 million compared to $29.2 million last year. Income taxes
payable was $0.7 million compared to $0.4 million last year. Provision at November 30, 2019 was $1.5 million compared to $1.7 million last year.
Dividend payable at November 30, 2019 was $0.9 million (nil last year). Long-term debt at November 30, 2019 was $43 thousand compared to
$57 thousand last year. Deferred income taxes at November 30, 2019 was $3.2 million compared to $3.7 million last year. Defined benefit plan
obligation was $0.6 million at November 30, 2019 compared to $0.1 million last year.
Shareholders’ Equity
Total Shareholders’ Equity at November 30, 2019 was $113.4 million compared to $112.9 million last year. The Company generated a return on
equity of 2.7 % during fiscal 2019 compared to 2.3 % last year. The share price closed at $4.82 per share on November 30, 2019 ($6.00 on
November 30, 2018). The book value at November 30, 2019 was $13.24 per share compared to $13.27 last year. Share capital was $9.4 million
at November 30, 2019 ($9.2 million last year). A dividend of $0.10 per share, totaling $0.9 million was declared and paid in fiscal 2019. Another
dividend of $0.10 per share, totaling $0.9 million was declared in fiscal 2019 but payable in fiscal 2020. See details under SUBSEQUENT
EVENT.
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. On April 12, 2019, the
Company modified these deferred shares to allow for a cash alternative at the key executive’s discretion. The cash alternative allows the key
executive to a cash payment equal to the number of deferred shares exercised multiplied by the fair value of the shares calculated using the average
closing trading price during the preceding twenty trading days of the exercise. On April 12, 2019 (the date of the modification), based on an average
closing share price of $6.27 for the twenty trading days preceding April 12, 2019, an amount of $351 thousand was transferred from retained
earnings to Payroll related liabilities.
At the end of each reporting period until the liability is settled, the fair value of the liability is remeasured, with any changes in fair value recognized
in profit and loss for the period. On November 14, 2019, based on a closing share price of $4.85, the key executive exercised his right and received
56 000 shares of the Company. The Company recognized a share-based compensation recovery of $79 thousand in Employee benefits expense for
the twelve months ended November 30, 2019 with a corresponding change in Payroll related liabilities. All shares under this grant have been
issued. Therefore, the Payroll related liabilities is nil at November 30, 2019.
LIQUIDITY AND CAPITAL RESOURCES
Financing
In May 2019, the Company renewed its credit agreement with its present lenders, two chartered Canadian banks. The credit agreement has a
maximum revolving operating facility of $90 million maturing in May 2021. In addition, an accordion of $10 million is available once per fiscal
year for a maximum of 150 days only. 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 and immovable property of the Company. As at November 30, 2019, the Company was
compliant with its financial covenants. As at November 30, 2019, under the credit agreement, the Company was using $30.0 million of its facility
compared to $41.0 million last year.
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.
8
Cash Flow
Net cash flow from operating activities for fiscal 2019 was $13.4 million compared to $11.6 million last year. Financing activities during fiscal
2019 was $(11.9) million compared to $(10.1) million last year. Investing activities during fiscal 2019 was $(1.1) million compared to $(1.0)
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 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 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, 2019 and 2018, 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)
As at
November 30
2019
As at
November 30
2018
20.6%
3.5
2.7%
2.2
$10,885
26.6%
3.0
2.3%
2.0
$10,443
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.
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.
9
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, 2019, its total debt-to-capitalization ratio stood at 20.6% compared to 26.6% on November 30, 2018. In May 2019, the Company
renewed its credit agreement with its present lenders, two chartered Canadian banks – see details under Financing.
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, 2019 as well as in the 2019 Annual Information Form available on SEDAR
(www.sedar.com).
COMMITMENTS AND CONTINGENCIES
As at November 30, 2019, 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
Operating leases
Purchase obligations
Total Contractual Obligations
Total
Payments due by period (in thousands of dollars)
1 – 3
Years
8,267
-
8,267
Less than
1 year
5,007
197
5,204
19,115
197
19,312
4 – 5
Years
4,871
-
4,871
After
5 years
970
-
970
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, 2019, the Company did not use foreign exchange contracts
to mitigate its effect on sales and purchases. Consequently, as at November 30, 2019 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 and treatment of soil on-site was to be performed over an estimated period of 5 years. Based on current available information,
the provision as at November 30, 2019 is considered by management to be adequate to cover any projected costs that could be incurred in the
future. The remaining rehabilitation is expected to occur over the next year.
Because of the 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 5.9% and an inflation rate of 1.9%.
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.
10
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. Only one major customer exceeds 10% of total Company sales in the twelve months ended November 30, 2019 (two last year). The
following represents the total sales consisting primarily of various wood products of the major customer(s):
Years ended
(in thousands of dollars)
November 30, 2019 November 30, 2018
%
%
$
$
Sales to major customer(s) that exceeded 10% of total
Company’s sales
58,019
12.9
110,699
23.3
The loss of any major customer could have a material effect on the Company’s results, operations and financial position. 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. 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 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.
11
The following are the contractual maturities of financial liabilities as at November 30, 2019:
(in thousands of dollars)
Financial Liabilities
Bank indebtedness
Trade and other payables
Dividend payable
Long-term debt
Carrying
Amount
31,204
29,048
856
43
Contractual
cash flows
31,204
29,048
856
43
Total financial liabilities
61,151
61,151
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
Total financial liabilities
Carrying
Amount
42,835
29,192
57
72,084
Contractual
cash flows
42,835
29,192
57
72,084
0 to 12
Months
31,204
29,048
856
15
61,123
0 to 12
Months
42,835
29,192
14
72,041
12 to 36
Months
-
-
-
28
28
12 to 36
Months
-
-
43
43
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 $31.2 million in bank
indebtedness would impact interest expense annually by $0.3 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, 2019, 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
527
6,014
(2,443)
(32)
4,066
GBP
627
186
(56)
-
757
Euro
13
-
(438)
-
(425)
CAD exchange rate as at November 30, 2019
1.3282
1.7174
1.4634
Impact on net earnings based on a fluctuation of 5% on CAD
195
47
(22)
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. Based on historical payment behaviour and current credit information and experience available, the Company
believes that, apart from provision for doubtful accounts recorded, no impairment allowance is necessary in respect of trade receivables that are
current or past due. The Company does not have long-term contracts with any of its customers. Distribution agreements are usually awarded
annually and can be revoked.
12
The following table presents information on credit risk exposure and expected credit losses related to trade accounts receivable:
(in thousands of dollars)
Current
31 - 60 days past due
61 - 90 days past due
91 - 120 days past due
Over 120 days past due
Loss allowance
Balance, end of period
November 30
2019
$
42,898
3,238
735
397
564
47,832
(144)
47,688
November 30
2018
$
45,188
2,500
1,157
209
1,199
50,253
(570)
49,683
As at November 30, 2019, expected credit losses are limited to $144 thousand and therefore, the expected credit losses by trade accounts receivable
aging have not been presented separately in the table above.
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, 2019, the entities of the Company have not entered into business transactions with related parties that are not
members of the Company.
Other related party transactions
(in thousands of dollars)
Company controlled by a member of the Board – Jarislowsky Fraser Ltd.
- Management fee
November 30
2019
$
November 30
2018
$
-
87
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:
November 30
2019
$
November 30
2018
$
1,756
105
1,861
1,384
7
1,391
(in thousands of dollars)
Salaries and other short-term benefits
Post-employment benefits
13
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 expected credit losses
The Company makes an assessment of whether accounts receivable are collectable, based on an expected credit loss model which factors
in changes in credit quality since the initial recognition of trade accounts receivable based on customer risk categories. Credit quality is
assessed by taking into account the financial condition and payment history of the Company's customers, and other factors. Furthermore,
these estimates must be continuously evaluated and updated. The Company is not able to predict changes in the financial condition of its
customers, and if circumstances related to its customers’ financial condition deteriorate, the estimates of the recoverability of trade
accounts receivable could be materially affected and the Company could be required to record additional allowances. Alternatively, if
the Company provides more allowances than needed, a reversal of a portion of such allowances in future periods may be required based
on actual collection experience.
ii. Allowance for sales returns
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.
iii. 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.
iv. 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.
v. 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 for further details.
vi. 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.
SIGNIFICANT ACCOUNTING POLICIES
The new accounting policy set out below have been adopted in the audited consolidated financial statements for the year ended November 30,
2019:
-
-
IFRS 9 - Financial Instruments
IFRS 15 - Revenue from Contracts with Customers
Further information on these new accounting policies as well as all of the Company’s significant accounting policies are described in Note 3 to the
consolidated financial statements for the year ended November 30, 2019.
IMPACT OF ACCOUNTING PRONOUNCEMENTS NOT YET IMPLEMENTED
A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ended November 30, 2019 and
have not been applied in preparing the audited consolidated financial statements for the year ended November 30, 2019. New standards and
amendments to standards and interpretations that are currently under review include:
-
-
IFRS 16 – Leases
IFRIC 23, Uncertainty Over Income Tax Treatments
Further information on these modifications can be found in Note 3 of the audited consolidated financial statements for year ended November 30,
2019.
14
DISCLOSURE OF OUTSTANDING SHARE DATA
At November 30, 2019, there were 8,562,554 common shares issued compared to 8,506,554 common shares issued last year. The Company has
authorized an unlimited number of common shares to be issued, without par value. At February 13, 2020, there were 8,562,554 common shares
outstanding.
SUBSEQUENT EVENT
On November 8, 2019, the Company declared a dividend of $0.10 per share, totaling $856 thousand to shareholders of record on November 22,
2019, which was paid on December 6, 2019.
OUTLOOK
Goodfellow stayed on a path of conservative cash flow management in 2019 to mitigate the unforeseen risks domestically and overseas. The
Company’s priorities remain to increase turns, reduce the operating loan, successfully launch new lines in our existing categories as well as improve
profitability. Goodfellow reported modest profitability for fiscal 2019. Despite significant economic and political turmoil throughout its Canadian
distribution network, the United States and Overseas, Goodfellow has budgeted a significant return improvement for 2020. Aggressive initiatives
to stimulate market share gains are being executed. Proactive customer service improvement measures are also being implemented to diminish
lead times and increase productivity.
15
CERTIFICATION
Disclosure Controls
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that
all material information relating to the Company and its subsidiaries is gathered and reported to senior management on a timely basis so that
appropriate decisions can be made regarding public disclosure.
As required by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”), the Chief Executive
Officer (“CEO”) and the Chief Financial Officer (“CFO”) have caused the effectiveness of the disclosure controls and procedures to be evaluated.
Based on that evaluation, they have concluded that the design and operation of the system of disclosure controls and procedures were effective as
at November 30, 2019.
Procedures and Internal Controls Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial reports for external purposes in accordance with IFRS.
As required by NI 52-109, the CEO and the CFO have caused the effectiveness of the internal controls over financial reporting to be evaluated
using the framework established in ‘Internal Control – Integrated Framework (COSO Framework)’ published by The Committee of Sponsoring
Organizations of the Treadway Commission (COSO), 2013. Based on that evaluation, they have concluded that the design and operation of the
Company’s internal controls over financial reporting were effective as at November 30, 2019.
In designing such controls, it should be recognized that due to inherent limitations, any controls, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives and may not prevent or detect misstatements. Projections of any
evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. Additionally, management is required to use judgment in evaluating
controls and procedures.
There has been no change in the Company’s internal control over financial reporting that occurred during the three and twelve months ended
November 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Delson, February 13, 2020
Patrick Goodfellow
President and Chief Executive Officer
Charles Brisebois, CPA, CMA
Chief Financial Officer
16
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
17
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Goodfellow Inc.
Opinion
We have audited the consolidated financial statements of Goodfellow Inc. (the Entity), which comprise:
•
•
•
•
•
the consolidated statements of financial position as at November 30, 2019 and November 30, 2018;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
notes to the consolidated financial statements, including a summary of significant accounting policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at
November 30, 2019 and November 30, 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended
in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further
described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada
and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions;
the information, other than the financial statements and the auditors’ report thereon, included in a document entitled “Annual Report 2019”.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain
alert for indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions and the
information, other than the financial statements and the auditors’ report thereon, included in a document entitled “Annual Report 2019” as at the
date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement
of this other information, we are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting
Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the
Entity or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
18
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted
auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
• The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related
disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a
going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
• Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence,
and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity
to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
The engagement partner on the audit resulting in this auditors’ report is Giuseppe Funiciello.
Montréal, Canada
February 13, 2020
*CPA Auditor, CA public accountancy permit no. A122264
19
GOODFELLOW INC.
Consolidated Statements of Comprehensive Income
For the years ended November 30, 2019 and 2018
(in thousands of dollars, except per share amounts)
Sales (Note 22)
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 before income taxes
Income taxes (Note 15)
Net earnings
Items that will not subsequently be reclassified to net earnings
Remeasurement of defined benefit plan obligation,
net of taxes of $265 ($318 in 2018) (Note 16)
Total comprehensive income
Net earnings per share – Basic (Note 14 d))
Net earnings per share - Diluted (Note 14 d))
Years ended
November 30
2019
$
November 30
2018
$
449,587
475,207
364,545
77,639
(3)
3,137
445,318
387,311
81,161
(18)
3,476
471,930
4,269
3,277
1,215
706
3,054
2,571
(723)
858
2,331
3,429
0.36
0.35
0.30
0.30
The notes 1 to 22 are an integral part of these consolidated financial statements.
20
GOODFELLOW INC.
Consolidated Statements of Financial Position
(in thousands of dollars)
Assets
Current Assets
Cash
Trade and other receivables (Note 6)
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)
Dividend payable (Note 14 d))
Current portion of obligations under finance leases (Note 11)
Total Current Liabilities
Non-Current Liabilities
Provision (Note 13)
Obligations under finance leases (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 20)
Approved by the Board
As at
November 30
2019
$
As at
November 30
2018
$
2,364
48,498
87,339
2,563
140,764
32,838
3,927
2,222
25
805
39,817
180,581
31,204
29,048
734
1,470
856
15
63,327
-
28
3,209
609
3,846
67,173
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
9,424
103,984
113,408
180,581
9,152
103,711
112,863
190,718
Claude Garcia, Director
G. Douglas Goodfellow, Director
21
GOODFELLOW INC.
Consolidated Statements of Cash Flows
For the years ended November 30, 2019 and 2018
(in thousands of dollars)
Operating Activities
Net earnings
Adjustments for:
Depreciation
Accretion expense on provision
(Decrease) increase in provision
Income taxes
Gain on disposal of property, plant and equipment
Interest expense
Funding in deficit of pension plan expense
Other assets
Share-based compensation
Changes in non-cash working capital items (Note 17)
Interest paid
Income taxes (paid) recovered
Net Cash Flows from Operating Activities
Financing Activities
Proceeds from borrowings under bank loans
Repayment of borrowings under bank loans
Proceeds from borrowings under banker’s acceptances
Repayment of borrowings under banker’s acceptances
Repayment of finance lease liabilities
Dividend Paid
Investing Activities
Acquisition of property, plant and equipment
Increase in intangible assets
Proceeds on disposal of property, plant and equipment
Dividends from 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)
22
Years ended
November 30
2019
$
November 30
2018
$
3,054
3,479
14
(197)
1,215
(3)
2,134
47
111
(79)
9,775
6,856
(2,154)
(1,069)
3,633
13,408
115,000
(113,000)
40,000
(53,000)
(14)
(851)
(11,865)
(968)
(176)
18
-
(1,126)
417
743
1,160
2,364
(1,204)
1,160
2,571
3,690
50
219
706
(18)
2,502
20
(35)
-
9,705
3,391
(2,535)
1,045
1,901
11,606
88,000
(92,000)
31,000
(37,000)
(137)
-
(10,137)
(1,159)
(212)
72
260
(1,039)
430
313
743
2,578
(1,835)
743
GOODFELLOW INC.
Consolidated Statements of Change in Shareholders’ Equity
For the years ended November 30, 2019 and 2018
(in thousands of dollars)
Share
Capital
Retained
Earnings
Total
$
$
$
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
Net earnings
Other comprehensive income
Total comprehensive income
Transactions with owners of the Company
Dividend (Note 14 d))
Share-based payment (Note 14 b))
-
-
-
3,054
(723)
3,054
(723)
2,331
2,331
-
(1,707)
(1,707)
272
(351)
(79)
Balance as at November 30, 2019
9,424
103,984
113,408
23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(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, 2019 and 2018 includes 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 13, 2020.
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, and
Liabilities for cash-settled share-based payment arrangements are measured in accordance with IFRS 2, Share-Based
Payment.
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 expected credit losses
The Company makes an assessment of whether accounts receivable are collectable, based on an expected credit loss model
which factors in changes in credit quality since the initial recognition of trade accounts receivable based on customer risk
categories. Credit quality is assessed by taking into account the financial condition and payment history of the Company's
customers, and other factors. Furthermore, these estimates must be continuously evaluated and updated. The Company is not
able to predict changes in the financial condition of its customers, and if circumstances related to its customers’ financial
condition deteriorate, the estimates of the recoverability of trade accounts receivable could be materially affected and the
Company could be required to record additional allowances. Alternatively, if the Company provides more allowances than
needed, a reversal of a portion of such allowances in future periods may be required based on actual collection experience.
ii. Allowance for sales returns
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.
iii. 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.
24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
2.
Basis of preparation (Continued)
iv. 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.
v. 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 for further details.
vi. 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) Adoption of New Accounting Policies
i)
IFRS 9, Financial Instruments
IFRS 9 replaces IAS 39 relating to the recognition, classification and measurement of financial assets and financial liabilities, de-
recognition of financial instruments, impairment of financial assets and hedge accounting.
The adoption of IFRS 9 did not have a significant impact on these consolidated financial statements given the nature of the
Company's operations and the types of financial instruments that it currently holds.
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets
are managed and their cash flow characteristics. Financial assets are not reclassified subsequent to their initial recognition unless
the Company identifies changes in its business model in managing financial assets.
The following summarizes the classification and measurement changes for the Company’s financial assets and financial liabilities
as a result of the adoption of IFRS 9:
Financial assets:
Cash and cash equivalents
Trade and other receivables
Financial liabilities:
Trade and other payables
Bank indebtedness
Obligations under finance leases
IAS 39
IFRS 9
Loans and receivables
Loans and receivables
Amortized cost
Amortized cost
Other financial liabilities
Other financial liabilities
Other financial liabilities
Amortized cost
Amortized cost
Amortized cost
In accordance with the transitional provisions of IFRS 9, the financial assets and financial liabilities held at December 1, 2018 were
reclassified retrospectively without prior period restatement based on the new classification requirements and the characteristics of
each financial instrument at December 1, 2018. The accounting for these instruments and the line item in which they are included
in the consolidated statement of financial position were unaffected by the adoption of IFRS 9.
The Company also applied the expected credit loss model to the assessment of impairment on trade and other receivables. The
application of the expected credit loss model to determine the allowance for credit loss had a nominal effect. The Company's new
policy in the allowance for credit loss is determined using both specific identification of customer accounts and the expected credit
loss model. The Company uses an estimate of the net recoverable amount for specific customer accounts it has identified and the
expected credit loss model for the remaining customer accounts based on historical experience of uncollectable amounts. Accounts
that are considered uncollectable are written off.
As a result of the adoption of IFRS 9, as described above, the Company has updated its significant accounting policies for Financial
Instrument in Note 3 o) below.
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
ii) IFRS 15 - Revenue from Contracts with Customers
IFRS 15 replaces IAS 11 Construction Contracts and IAS 18 Revenue and it applies to all revenue arising from contracts with
customers, unless those contracts are in the scope of other standards. IFRS 15 contains a single model that applies to contracts with
customers and two approaches to recognizing revenue: at a point in time or over time. The new standard establishes a five-step
model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that
reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The
Company's revenue recognition accounting policy is that revenue from the sale of products is measured based on the consideration
specified in the contract with a customer. The Company recognizes revenue at a point in time when control of the goods is
transferred to the customer. The Company satisfies its performance obligation and control of the goods is transferred to the customer
generally when the customer has taken delivery of the goods. No component of the transaction price is allocated to unsatisfied
performance obligations.
The standard requires entities to exercise judgment, taking into consideration all of the relevant facts and circumstances when
applying each step of the model to contracts with their customers. In accordance with the transition provisions in IFRS 15, the
Company has adopted the new rules retrospectively. The new standard did not result in any change to the timing of revenue
recognition for the Company for previously reported periods (as a result a consolidated statement of financial position at December
1, 2017 has not been presented) and did not have a significant impact on the financial results of the Company but does, however,
result in more extensive disclosures on the Company’s revenue transactions (Note 22).
As a result of the adoption of IFRS 15, as described above, the Company has updated its significant accounting policies for Revenue
in Note 3 j) below.
b) 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.
c) Cash
Cash consists of cash on hand and highly liquid investments with an initial term of three months or less.
d) 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. The costs of conversion of inventories also include the
costs directly related to the conversion of materials to finished goods, such as direct labour and a systematic allocation of fixed and
variable production overhead. 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.
e) 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.
26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
f)
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;
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.
g) 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. 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.
h) Impairment of 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.
i) 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.
j) Revenue Recognition
Revenue from the sale of goods from activities relating to remanufacturing, distribution of lumber and wood products is recognized,
net of discounts and customer rebates, at the point in time when the transfer of control of the related products has taken place (based
on shipping or delivery terms as specified in the sales contract), and collectability is reasonably assured. Revenue is only recognized
to the extent that it is highly probable that a significant reversal will not occur.
27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
k) 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.
l)
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.
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.
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
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.
m) 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.
n) Share-based payments
Equity-settled
The grant date fair value of equity-settled 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.
Cash-settled
A liability is recognized for the services acquired and is recorded at fair value based on the share price of the Company’s shares in
other non-current payables, except for the current portion recorded in trade and other payables, with a corresponding expense
recognized in employee benefits expense in selling, general and administrative expenses. The amount recognized as an expense is
adjusted to reflect the number of awards for which the related service and performance conditions are expected to be met, such that the
amount ultimately recognized as an expense is based on the awards that meet the related service and non-market performance conditions
at the vesting date. At the end of each reporting period until the liability is settled, the fair value of the liability is remeasured, with any
changes in fair value recognized in the consolidated statements of comprehensive income for the period.
o) Financial Instruments
The Company initially recognizes financial assets on the trade date at which the Company becomes a party to the contractual provisions
of the instrument.
Financial assets are initially measured at fair value. If the financial asset is not subsequently accounted for at fair value through profit
or loss, then the initial measurement includes transaction costs that are directly attributable to the asset’s acquisition or origination. On
initial recognition, the Company classifies its financial assets as subsequently measured at either amortized cost or fair value, depending
on its business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.
i. Financial assets measured at amortized cost
A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment loss,
if:
•
•
The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal
and/or interest.
The Company currently classifies its cash and cash equivalents and trade and other receivables as assets measured at amortized
cost.
Impairment of financial assets
The Company uses the “expected credit loss” model for calculating impairment and recognizes expected credit losses as a loss
allowance if they relate to a financial asset measured at amortized cost. The carrying amount of these assets in the consolidated
statement of financial position is stated net of any loss allowance.
ii. Financial assets measured at fair value
These assets are measured at fair value and changes therein, including any interest or dividend income, are recognized in profit
or loss. There are currently no financial assets measured at fair value with changes in fair value recognized in profit or loss.
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
However, for investments in equity instruments that are not held for trading, the Company may elect at initial recognition to
present gains and losses in other comprehensive income. For such investments measured at fair value through other
comprehensive income, gains and losses are never reclassified to profit or loss, and no impairment is recognized in profit or loss.
Dividends earned from such investments are recognized in profit or loss, unless the dividend clearly represents a repayment of
part of the cost of the investment. The Company currently has no equity instruments that are not held for trading.
iii. Financial liabilities are classified into the following categories:
Financial liabilities measured at amortized cost
The Company classifies non-derivative financial liabilities as measured at amortized cost. Non-derivative financial liabilities are
initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities
are measured at amortized cost using the effective interest method. The Company currently classifies trade and other payables,
bank indebtedness and long-term debt as financial liabilities measured at amortized cost.
Financial liabilities measured at fair value
Financial liabilities measured at fair value are initially recognized at fair value and are re-measured at each reporting date with
any changes therein recognized in profit or loss. The Company currently has no financial liabilities measured at fair value.
iv. Non-hedge derivative financial instruments measured at fair value
Non-hedge derivative financial instruments, if any, are recorded as either assets or liabilities measured initially at their fair value.
Attributable transaction costs are recognized in profit or loss as incurred. All derivative financial instruments not designated in a
hedge relationship are classified as financial instruments at fair value through profit and loss. Any subsequent change in the fair
value of non-hedge foreign exchange contracts are accounted for in cost of goods sold for the period in which it arises.
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.
30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
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)
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.
v)
IFRS Standard Issued, But Not Yet Effective
i)
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. 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 intends to adopt this standard using the modified retrospective approach with the cumulative effects of initial
application recorded in opening retained earnings as at December 1, 2019 with no restatements of the comparative period. Under
the modified retrospective approach, the Company has elected to use the following practical expedients permitted on adoption of
IFRS 16:
•
•
•
•
the Company will not reassess whether a contract is, or contains, a lease at the date of initial application and instead will
apply IFRS 16 to contracts that were previously identified as leases applying IAS 17, Leases;
the Company will rely on the assessment of the onerous lease provisions under IAS 37, Provisions, contingent liabilities
and contingent assets, instead of performing an impairment review. The Company will adjust the right-of-use assets at the
date of initial application by the amount of any provision for onerous leases recognized in the consolidated balance sheet
immediately before the date of initial application;
the Company will exclude initial direct costs in the measurement of the right-of-use assets at the date of initial application;
and
the Company will use hindsight in determining the lease term at the date of initial application.
Based on the information available as at February 13, 2020, the Company anticipates recognizing approximately $16.4 million
of right-of-use assets and $ 20.3 million of lease liabilities on its consolidated balance sheet as at December 1, 2019. The right-
of-use asset will be net of prepaid rent and other payables relating to the leases recognized in the consolidated balance sheet
immediately before the date of initial application.
The actual impacts of the initial application of IFRS 16 may vary from the estimates provided, as the Company has not finalized
all its calculations.
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
3.
Significant Accounting Policies (Continued)
ii) Uncertain Income Tax Treatments
In June 2017, the IASB issued IFRIC 23, Uncertainty Over Income Tax Treatments, which clarifies how to apply the recognition
and measurement requirements in IAS 12, Income Taxes, when there is uncertainty regarding income tax treatments. The
Interpretation addresses whether an entity needs to consider uncertain tax treatments separately, the assumptions an entity should
make about the examination of tax treatments by taxation authorities, how an entity should determine taxable profit and loss, tax
bases, unused tax losses, unused tax credits, and tax rates, and how an entity considers changes in facts and circumstances in such
determinations. IFRIC 23 applies to annual reporting periods beginning on or after January 1, 2019, with earlier adoption
permitted. The Company does not expect any significant impacts from the adoption of IFRIC 23 on its consolidated financial
statements.
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
2019
$
50,608
712
974
2,505
4,948
(82)
November 30
2018
$
51,829
648
1,067
2,623
4,909
23
November 30
2019
$
2,134
14
1,000
3,148
(11)
3,137
November 30
2018
$
2,502
50
999
3,551
(75)
3,476
November 30
2019
$
47,832
(144)
47,688
810
48,498
November 30
2018
$
50,253
(570)
49,683
325
50,008
November 30
2019
$
6,393
7,309
75,410
89,112
(1,773)
87,339
November 30
2018
$
6,756
9,093
78,554
94,403
(1,859)
92,544
For the year ended November 30, 2019, $348.9 million (2018 - $370.5 million) of inventory were expensed as cost of goods sold.
Included in inventories is a return asset for the right to recover returned goods in the amount of $1.4 million as at November 30, 2019
(November 30, 2018 - $1.5 million).
32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
8.
Property, plant and equipment
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
Carrying amount
November 30,
2018
$
6,263
15,253
5,583
1,492
130
4,005
1,110
520
34,356
Additions
$
-
127
-
223
8
530
103
292
1,283
Dispositions Depreciation
Carrying amount
November 30,
2019
$
6,263
14,573
5,136
1,423
111
3,705
987
640
32,838
$
-
(807)
(447)
(292)
(27)
(816)
(226)
(171)
(2,786)
$
-
-
-
-
-
(14)
-
(1)
(15)
Cost
November 30, 2019
Accumulated
depreciation
$
-
20,486
6,206
2,461
1,052
23,433
3,751
5,934
63,323
$
6,263
35,059
11,342
3,884
1,163
27,138
4,738
6,574
96,161
Carrying
Amount
$
6,263
14,573
5,136
1,423
111
3,705
987
640
32,838
Carrying amount
November 30,
2017
$
6,263
15,842
6,069
1,267
157
4,636
1,334
630
36,198
Additions
Dispositions
$
-
250
-
474
5
275
52
136
1,192
$
-
-
-
-
-
(9)
(1)
(44)
(54)
Depreciation
Carrying amount
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
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, 2019, the net carrying amount of leased equipment was $43 thousand ($57 thousand in 2018).
There has been no impairments or recoveries recorded during the fiscal years ended November 30, 2019 and 2018.
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
9.
Intangible assets
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
Carrying amount
November 30,
2018
$
4,223
221
4,444
Additions
Depreciation
$
176
-
176
$
(587)
(106)
(693)
Carrying amount
November 30,
2019
$
3,812
115
3,927
November 30, 2019
Cost
$
6,509
530
7,039
Accumulated
depreciation
$
2,697
415
3,112
Carrying
Amount
$
3,812
115
3,927
Carrying amount
November 30,
2017
$
4,615
327
4,942
Additions
Depreciation
$
212
-
212
$
(604)
(106)
(710)
Carrying amount
November 30,
2018
$
4,223
221
4,444
November 30, 2018
Accumulated
depreciation
$
2,110
309
2,419
Cost
$
6,333
530
6,863
Carrying
Amount
$
4,223
221
4,444
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. In fiscal
2018, the Company received a $260 thousand dividend. The carrying amount of the investment in the JV at November 30, 2019 was $25
thousand (same as fiscal 2018)
In fiscal 2019, the Company had no related party transactions with the joint venture (same as last year). The Company has no outstanding
receivable balance with Traitement Lebel Goodfellow Inc. as at November 30, 2019 (nil in 2018).
11.
Bank indebtedness and obligation under finance leases
a) Bank indebtedness
Bank loans
Banker’s acceptances
Bank overdraft
November 30
2019
$
5,000
25,000
1,204
31,204
November 30
2018
$
3,000
38,000
1,835
42,835
34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
11.
Bank indebtedness and long-term debt (Continued)
In May 2019, the Company renewed its credit agreement with its present lenders, two chartered Canadian banks. The credit agreement has
a maximum revolving operating facility of $90 million maturing in May 2021. In addition, an accordion of $10 million is available once
per fiscal year for a maximum of 150 days only. 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 immovable and movable property of the Company. As at November 30,
2019, the Company was compliant with its financial covenants. As at November 30, 2019, under the credit agreement, the Company was
using $30.0 million of its facility compared to $41.0 million last year.
b) Obligations under finance leases
The Company has entered into finance leases secured by the leased lift trucks. The obligation under finance leases bear interests at a rate
of 6.1% per annum, maturing August 2022.
12.
Trade and other payables
Trade payables and accruals
Payroll related liabilities
Sales taxes payables
13.
Provision
November 30
2019
$
20,438
5,569
3,041
29,048
November 30
2018
$
22,789
6,093
310
29,192
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 was to be performed over an estimated period of 5 years. Based
on current available information, the provision as at November 30, 2019 is considered by management to be adequate to cover any projected
costs that could be incurred in the future. The remaining rehabilitation is expected to occur over the next year.
Because of the 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 5.9% and an inflation rate of 1.9%.
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
2018
$
1,384
2019
$
1,653
187
14
(384)
1,470
1,470
-
239
50
(20)
1,653
336
1,317
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.
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
14.
Share Capital
a)
Authorized
An unlimited number of common shares, without par value
Shares outstanding at the beginning of the year
Deferred shares issuance
Shares outstanding at the end of the year
November 30
2019
Number of
shares
8,506,554
56,000
8,562,554
2018
Number of
shares
8,506,554
-
8,506,554
$
9,152
272
9,424
$
9,152
-
9,152
November 30 November 30 November 30
2018
2019
b)
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. On April 12, 2019, the Company modified these deferred shares to allow for a cash alternative at the key
executive’s discretion. The cash alternative allows the key executive to a cash payment equal to the number of deferred shares
exercised multiplied by the fair value of the shares calculated using the average closing trading price during the preceding twenty
trading days of the exercise. On April 12, 2019 (the date of the modification), based on an average closing share price of $6.27 for
the twenty trading days preceding April 12, 2019, an amount of $351 thousand was transferred from retained earnings to Payroll
related liabilities.
At the end of each reporting period until the liability is settled, the fair value of the liability is remeasured, with any changes in fair
value recognized in profit and loss for the period. On November 14, 2019, based on a closing share price of $4.85, the key executive
exercised his right and received 56 000 shares of the Company. The Company recognized a share-based compensation recovery of
$79 thousand in Employee benefits expense for the twelve months ended November 30, 2019 with a corresponding change in
Payroll related liabilities. All shares under this grant have been issued. Therefore, the Payroll related liabilities is nil at November
30, 2019.
c)
Share option plan
The Company had implemented in 2002 a Key Employee Share Option Plan (SOP). Since there are no outstanding options under
the SOP and because the Company no longer intends to use it, the SOP was repealed and terminated as of July 4, 2019.
d)
Net earnings and dividend per share
The calculation of basic and diluted net earnings per share was based on the following:
Net earnings
- basic
- diluted (see Note 14b))
Weighted average number of common shares
- basic
- diluted
November 30
2019
$
November 30
2018
$
3,054
2,997
2,571
2,571
8,508,888
8,562,554
8,506,554
8,562,554
On February 14, 2019, the Company declared a dividend of $0.10 per share, totaling $851 thousand to shareholders of record on
February 28, 2019, which was paid on March 15, 2019. On November 8, 2019, the Company declared a dividend of $0.10 per
share, totaling $856 thousand to shareholders of record on November 22, 2019, which was paid on December 6, 2019. No dividends
were paid or declared in fiscal 2018.
36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
15.
Income Taxes
The income tax expenses is as follows:
Current tax expenses
Deferred tax expenses
November 30 November 30
2018
$
953
(247)
706
2019
$
1,394
(179)
1,215
The provision for income taxes is at an effective tax rate, which differs from the basic corporate statutory tax rate as follows:
Earnings 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
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
2018
$
3,277
27.0
885
2019
$
4,269
27.7
1,183
34
(3)
1
1,215
(84)
(112)
17
706
November 30 November 30
2018
$
2019
$
(432)
883
(3,631)
(29)
(3,209)
(710)
956
(3,843)
(55)
(3,652)
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, 2019, 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 was 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, 2019 was $1.3 million
(2018 - $1.4 million).
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
16.
Post-employment benefits (Continued)
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, 2018 for both plans. The next actuarial valuation for both plans for funding will be no
later than as of December 31, 2021.
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
Changes in financial assumptions
Effect of experience adjustments
Balance, end of year
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 $5.5 million in 2019 and $48 thousand in 2018.
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 (deficit)
- 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
38
November 30
2019
$
November 30
2018
$
49,369
1,881
(2,259)
6,373
(1,722)
53,642
52,832
1,806
(2,437)
(2,832)
-
49,369
November 30
2019
$
November 30
2018
$
52,016
1,982
4
(2,259)
(151)
3,663
55,255
1,613
54,324
1,857
81
(2,437)
(153)
(1,656)
52,016
2,647
November 30
2019
$
November 30
2018
$
15,325
38,317
17,547
37,708
2,222
(609)
13,630
35,739
16,334
35,682
2,704
(57)
November 30
2019
%
November 30
2018
%
2.95
3.00
3.90
3.00
3.90
3.00
3.50
3.00
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
16.
Post-employment benefits (Continued)
Net benefit plan expense:
Interest cost
Interest income
Administrative expenses
Net benefit plan expense
November 30 November 30
2018
$
1,806
(1,857)
153
102
2019
$
1,881
(1,982)
151
50
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.
The plan assets by asset category are as follows:
Equity security:
Canadian stocks
US stocks
International stocks
Debt securities:
Universal type
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 (gain) loss on plan liabilities*
- Amount
- Percentage of beginning of year liabilities
* Excluding impact of change in assumptions
November 30
2019
%
November 30
2018
%
21
19
18
42
21
19
19
41
November 30
2019
$
53,642
55,255
1,613
November 30
2018
$
49,369
52,016
2,647
(1,722)
3.49%
-
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
39
Down of 0.25%
$55,501
2.70%
Assumption used
$53,642
2.95%
Up by 0.25%
$51,885
3.20%
Up to one year Assumption used
$53,642
$55,186
23.0 years
25.5 years
22.0 years
24.5 years
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
16.
Post-employment benefits (Continued)
•
Funding policy
Goodfellow Inc. contributes amounts required to comply with provincial and federal legislation.
•
Expected contributions
The total cash payment for post-employment benefits for 2019, consisting of cash contributed by the Company to its funded
pension plans, was $4 thousand ($81 thousand in 2018). Based on the latest filed actuarial valuation for funding purposes as at
December 31, 2018, the Company expects to contribute nil in 2020.
• Duration
The weighted average duration of the defined benefit obligation is 14 years.
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
2019
$
1,510
5,205
590
(449)
6,856
November 30
2018
$
7,599
(3,684)
(254)
(270)
3,391
Non-cash transaction
The Company purchased property, plant, equipment and intangible assets for which an amount of $386 thousand was unpaid as at November
30, 2019 ($71 thousand as at November 30, 2018).
The reconciliation of movements of liabilities to cash flows arising from financing activities are as follows:
Liability related changes
Year ended November 30, 2018
Interest expense
Interest paid
Year ended November 30, 2019
Interest expense
Interest paid
Bank loans
$
Banker’s
acceptances
$
Finance
lease
$
402
381
433
443
2,095
2,149
1,698
1,708
5
5
3
3
18.
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.
40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
18.
Financial instruments and other instruments (Continued)
The following are the contractual maturities of financial liabilities as at November 30, 2019:
Financial Liabilities
Bank indebtedness
Trade and other payables
Dividend Payable
Lease obligations
Carrying
Amount
31,204
29,048
856
43
Contractual
cash flows
31,204
29,048
856
43
Total financial liabilities
61,151
61,151
0 to 12
Months
31,204
29,048
856
15
61,123
The following are the contractual maturities of financial liabilities as at November 30, 2018:
Financial Liabilities
Bank indebtedness
Trade and other payables
Lease obligations
Total financial liabilities
Carrying
Amount
42,835
29,192
57
72,084
Contractual
cash flows
42,835
29,192
57
72,084
0 to 12
Months
42,835
29,192
14
72,041
12 to 36
Months
-
-
-
28
28
12 to 36
Months
-
-
43
43
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 $31.2 million in bank indebtedness would impact interest expense annually
by $0.3 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, 2019, 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
527
6,014
(2,443)
(32)
4,066
GBP
627
186
(56)
-
757
Euro
13
-
(438)
-
(425)
CAD exchange rate as at November 30, 2019
1.3282
1.7174
1.4634
Impact on net earnings based on a fluctuation of 5% on CAD
195
47
(22)
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. Based on historical payment behaviour and current credit information
and experience available, the Company believes that, apart from provision for doubtful accounts recorded, no impairment allowance is
necessary in respect of trade receivables that are current or past due. The Company does not have long-term contracts with any of its
customers. Distribution agreements are usually awarded annually and can be revoked.
41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
18.
Financial instruments and other instruments (Continued)
The following table presents information on credit risk exposure and expected credit losses related to trade accounts receivable:
Current
31 - 60 days past due
61 - 90 days past due
91 - 120 days past due
Over 120 days past due
Loss allowance
Balance, end of year
November 30
2019
42,898
3,238
735
397
564
47,832
(144)
47,688
November 30
2018
45,188
2,500
1,157
209
1,199
50,253
(570)
49,683
As at November 30, 2019, expected credit losses are limited to $144 thousand and therefore, the expected credit losses by trade accounts
receivable aging have not been presented separately in the table above.
Economic Dependence
Only one major customer exceeds 10% of total company sales during fiscal 2019 compared to two last year. The following represents the
total sales consisting primarily of various wood products of the major customer(s):
Sales to major customer(s) that exceeded
10% of total Company’s sales
Years ended
November 30, 2019 November 30, 2018
%
%
58,019
12.9
110,699
23.3
The loss of any major customer could have a material effect on the Company’s results, operations and financial position. 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.
19.
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.
42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
19.
Capital Management (Continued)
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, 2019 and 2018, 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
As at
November 30
2019
As at
November 30
2018
20.6%
3.5
2.7%
2.2
$10,885
26.6%
3.0
2.3%
2.0
$10,443
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.
20.
Commitments and Contingent liabilities
Commitments
As at November 30, 2019, 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
5,204
13,138
970
19,312
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.
21.
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
2019
November 30
2018
-
87
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.
43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 2019 and 2018
(tabular amounts are in thousands of dollars, except per share amounts)
21.
Related party transactions (Continued)
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
2019
November 30
2018
1,756
105
1,861
1,384
7
1,391
22.
Segmented Information and Sales
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. All significant property, plant and equipment are located in Canada.
The following table presents sales disaggregated by geographic markets and by categories as this best depicts how the nature, amount,
timing and uncertainty of sales and cash flows are affected by economic factors.
Primary geographic markets
The Company’s sales to clients located in Canada represent approximately 85% (83% in 2018) of total sales, the sales to clients located in
the United States represent approximately 9% (10% in 2018) of total sales, and the sales to clients located in other markets represent
approximately 6% (7% in 2018) of total sales
Canada
US
Export
Sales categories
Flooring
Specialty & commodity panels
Building materials
Lumber
November 30
2019
381,965
41,352
26,270
449,587
November 30
2018
394,404
48,073
32,730
475,207
November 30
2019
95,808
74,305
47,313
232,161
449,587
November 30
2018
95,864
84,723
47,777
246,843
475,207
44
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
* 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
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
David Warren
Vice President,
Atlantic
Luc Pothier
Vice President,
Operations
Luc Dignard
Vice President,
Sales, Quebec
Eric Bisson
Vice President,
Quebec
Solicitors
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.
45
46