A N N U A L R E P O R T
2020
A WORLD-CLASS DISTRIBUTOR
OF ARCHITECTURAL BUILDING PRODUCTS
KEY HIGHLIGHTS
North American leader in
the distribution of architectural
building products
Trusted partner to a diverse
base of leading suppliers
in the industry
90%
of the business
operates in the US
1,329
employees
450
in sales
and marketing
With whom we have built long lasting relationships
Provides us with a wide offering of products, including
proprietary and exclusive offerings
Bringing value to
40,000+
customers
Industrial manufacturers use our products to
make end-use applications for the commercial,
residential, repair and remodel,and diversified
construction markets
Customers rely on us for tailored
and unique material supply solutions,
best-in-class service, and top quality products
2020
Sales
32%
Hardwood Plywood
Hardwood Lumber
Decorative Surfaces
Doors and Related Millwork
Composite Panels
Diversified
3
32%
32%
COVERAGE ACROSS NORTH AMERICA
LABRADOR
NN
NEWFOUNDLAND
PRINCE
EDWARD
ISLAND
NB
NOVA
SCOTIA
MAINE
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RI
CT
BRITISH
COLUMBIA
ALBERTA
WASHINGTON
D
OREGON
SASKATCHEWAN
MANITOBA
QUEBEC
ONTARIO
MONTANA
NORTH DAKOTA
MINNESOTA
IDAHO
WYOMING
SOUTH DAKOTA
WISCONSIN
NH
MA
NEW
YORK
IOWA
D
M
MICHIGAN
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PENNSYLVANIA
ILLINOIS
INDIANA
OHIO
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WEST
VIRGINIAAA
NJ
DE
MD
NEVADA
D
UTAH
M
CALIFORNIA
M
D
NEBRASKA
M
D
COLORADO
M
D
D
MISSOURI
KANSAS
D
NEW MEXICO
ARIZONA
D
HAWAII
OKLAHOMA
ARKANSAS
M
TEXAS
M
LA
KENTUCKY
D
TENNESSEE
VIRGINIA
NORTH CAROLINA
SOUTH
CAROLINA
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GEORGIA
MS
ALABAMA
FL
Multi-brand strategy, a differentiator in the marketplace
25 US LOCATIONS
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BAKERSFIELD, CA
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CHATSWORTH, CA
FRESNO, CA2
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LOS ANGELES, CA
MODESTO, CA
PHOENIX, AZ
RANCHO CORDOVA, CA
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KAPOLEI, OAHU, HI
PORTLAND, OR
PORTLAND, OR
SEATTLE, WA
SPOKANE, WA
ELKHART, IN
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DENVER, CO
DALLAS, TX
HOUSTON, TX
SAN ANTONIO, TX
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GRAND RAPIDS, MI
MATTOON, IL
SACRAMENTO, CA
MINNEAPOLIS, MN
SAN FRANCISCO, CA
SAN JOSE, CA
SAN LUIS OBISPO, CA
SANTA CRUZ, CA
8 CANADIAN LOCATIONS
CALGARY, AB
EDMONTON, AB
SASKATOON, SK
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KELOWNA, BC
VANCOUVER, BC
VICTORIA, BC
TORONTO, ON
WINNIPEG, MB
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32 LOCATIONS
ATLANTA, GA M
BIRMINGHAM, AL
CHARLOTTE, NC
CHATTANOOGA, TN
COLUMBUS, GA
KERNERSVILLE, NC
ROANOKE, VA
SAVANNAH, GA
TAMPA, FL
WILMINGTON, NC
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DALLAS, TX
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HOUSTON, TX
SAN ANTONIO, TX
ALBUQUERQUE, NM
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AMARILLO, TX
LOS ANGELES, CA
PHOENIX, AZ
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KANSAS CITY, MO
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NASHVILLE, TN
OLATHE, KS D
ROCKFORD, IL
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5 LOCATIONS
CINCINNATI, OH
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DENVER, CO
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SAN ANTONIO, TX
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CHICAGO, IL
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KANSAS CITY, MO
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BLAKESLEE, PA
BOSTON - STOUGHTON, MA M
BRONX, NY
LONG ISLAND, NY
MOONACHIE, NJ
BOISE, ID
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DENVER, CO
LAS VEGAS, NV D
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PORTLAND, OR
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SALT LAKE CITY, UT
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HEAD OFFICE
VANCOUVER (LANGLEY), BC
HDI IMPORT DIVISION VANCOUVER, BC
HDI IMPORT LUMBER DIVISION LELAND, NC
HDI IMPORT PANEL DIVISION RENTON, WA
D DOOR MANUFACTURING
M MOULDING AND MILLWORK MANUFACTURING
4
Sales Growth
Sales of $1.2 billion,
$625 million from acquired
businesses. Compound annual
sales growth rate of 17%
in the last five years.
Adjusted Earnings
Per Share (in $)
Growth leads to strong
earnings per share, and
accretive growth for
shareholders.
Compound annual
growth rate of 9%
in the last five years.
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
GROWTH
Sales (in $ millions)
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Adjusted Earnings Per Share (in $)
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
EBITDA and Cash Flows (in $ millions)1
Cash Flow
Generation
Significant cash flow
generation, and
conversion of EBITDA
to cash flow before changes
in working capital has
averaged 80%.
$80.00
$70.00
$60.0
$60.00
$50.0
$50.00
$40.0
$40.00
$30.0
$30.00
$20.0
$20.00
$10.00
$10.0
$0.00
$0
2010
2010
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
2020
EBITDA
Operating Cash Flow Before Changes in Working Capital
1 Excludes the effects of IFRS 16
5
SHAREHOLDER RETURNS
AND DIVERSIFICATION
Total Shareholder Returns to December 2020
Last 5 Years
Last Ten Years
Last Five Years
Last 3 Years
Last Year
1 Year
TSX
TSX Small Cap
HDI
70%
60%
50%
40%
30%
20%
10%
0%
150%
130%
110%
90%
70%
50%
30%
10%
-10%
Total
Shareholder
Returns
Our shareholder returns
compare favorably to the TSX
and TSX small cap indices,
and significantly exceeds
these benchmarks in 2020
and over the last 3 years.
Shareholder returns include
share repurchases and
dividends, which have been
increased every year for the
last eight years.
End Markets
We are diversified by end
market, participate in all major
architectural building
products categories, and
have no significant customer
or supplier concentration.
Residential
• New Construction
• Repair & Renovation
Commercial
Diversified
• Office Buildings
• Restaurants, Bars, Hotels
• Retail
• Schools, Hospitals, Airports
6
Residential
• New Construction
• Repair & Renovation
Commercial
• Office Buildings
• Restaurants, Bars, Hotels
• Retail
• Schools, Hospitals, Airports
Diversified
To our Shareholders,
HDI achieved record-setting results in 2020 as we executed on our strategies and created
value for shareholders in a period heavily influenced by the global pandemic.
Our team moved quickly to adapt to pandemic conditions early in the second quarter, keeping
our people safe and our operations open for business, reducing expenses and working capital,
and capturing market share. We further benefited from our proprietary global sourcing
capability in 2020, and we completed three acquisitions which added $90 million in
annualized revenues. Our strategies contributed to record financial results across key metrics,
including a 27.1% increase in profit per share to $1.78. Importantly, we were also able to
increase our dividend by 17% to an annual rate of $0.40 per share.
I am proud of our performance and I am also excited by our prospects and outlook going
forward. We are now moving into what we anticipate will be a multi-year growth
environment and HDI is as well positioned to take advantage of this today as at any time in
the 16 years I’ve been with the company. Here’s why:
Our operational execution has never been better
Our gross margin percentage is one important indicator of our operational performance, and
in 2020 we increased it to a record 19.2%, from 18.0% in 2019. Our focus on capturing
growth in the profitable door product category has been successful and we have grown this
product segment to 16% of our revenues in 2020 from nil just five years ago. In addition, our
proprietary global supply lines are operating at peak performance and contributing to our
record gross margin percentage.
On the operating expense side, we learned to do more with less in 2020 and many of the
expense savings initiatives we put in place during the pandemic have continued.
While our efforts culminated in the best sales, gross margin percentage, adjusted EBITDA
and profits in HDI’s history, keep in mind that we generally achieved these results without
HDI | Annual Report | 2020
7
the benefit of significant product price appreciation. Organic demand took many months to
recover and product prices did not start to appreciate until after the year ended. We achieved
our 2020 results on strong operational execution. Now moving into fiscal 2021, our
execution is as strong as it has ever been and it’s about to be paired with a significantly better
market conditions.
We are entering a highly favourable macro-demand environment for our products
Our customers today are the busiest they have been since the onset of the pandemic. In the
US, which accounts for approximately 90% of our sales, the outlook for residential and repair
and remodel construction is very positive. Housing starts are increasing after meaningfully
lagging population growth this past decade. Millennials represent the largest segment of the
population and are expected to further drive demand for homes. Forecasts suggest we are
entering a multi-year period of demand growth driven by record low mortgage rates and the
aging of U.S. housing stock that will need to be refurbished or replaced.
Social trends are only accelerating the demand for architectural building products. The
pandemic resulted in more people working from home, fuelling both a desire for additional
living space and a trend towards individuals spending more of their disposable income on
home renovations and repairs.
Well positioned for demand growth and have the business model to capitalize on it
As North America’s largest distributor of architectural building products, we are uniquely
positioned to capitalize on this growing demand. The pandemic reinforced for suppliers and
customers the value that our size and scale brings to the architectural building products value
chain. The investments we have made in our platform, including global sourcing, a
specification sales team targeting architects and designers to create pull through sales
demand, and technology enablement tools that make it easier to do business with us, bring an
overall offering to the market that differentiates us from our regionally focused competitors.
Our ability to benefit financially from demand growth is supported by our price pass-through
model, which keeps our selling prices closely aligned with product prices. This is especially
critical when demand-supply imbalances drive up costs as we’ve seen in recent months. And
because we maintain a strong and stable gross margin on our sales, higher product prices
HDI | Annual Report | 2020
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typically boost our profits and EBITDA, which in turn converts very efficiently to operating
cash flow.
We will accelerate growth with acquisitions
As we move forward, we see significant opportunities to complement our organic growth
with acquisitions. Our industry remains highly fragmented and our balance sheet positions us
to act on a very strong acquisition pipeline. M&A is a core competency here at HDI. In the
past 10 years, we have doubled our revenues with over $700M of new annualized sales
achieved and over 50 locations added. Every one of these transactions has been accretive to
earnings and each strengthened our market position in specific ways aligned with our
strategy. We will continue to execute on attractive acquisitions with a dedicated M&A team
and a proven formula for identifying, assessing and integrating targeted opportunities.
We are as positive about our future as we have ever been
To summarize, HDI is entering the strongest macro-demand environment we’ve seen in years
and approaching it from a place of operational, financial and competitive strength. Add to
this a business model that captures and capitalizes on organic demand, a robust acquisition
program that accelerates our growth trajectory, and our long track record of translating
topline growth into strong EBITDA and cash flow performance, and I believe we are better
positioned than ever to reward your investment in HDI.
I want to close by sincerely thanking our HDI team for their remarkable performance in the
challenging 2020 year. And I thank you our shareholders for your continued confidence in
HDI.
_______________________________________
Rob Brown
President & CEO
HDI | Annual Report | 2020
9
Management’s Discussion and Analysis
March 11, 2021
This management’s discussion and analysis (“MD&A”) has been prepared by Hardwoods
Distribution Inc. (“HDI” or the “Company”) as of March 11, 2021. This MD&A should be
read in conjunction with the audited consolidated financial statements and accompanying
notes ("Audited Financial Statements") of the Company for the years ended December 31,
2020 and 2019. Results are reported in Canadian dollars unless otherwise noted. For
additional information, readers should also refer to our Annual Information Form and other
information filed on www.sedar.com.
In this MD&A, references to “EBITDA” are to earnings before interest, income taxes,
depreciation and amortization, where interest is defined as net finance costs as per the
consolidated statement of comprehensive income. Furthermore, we discuss certain EBITDA
Ratios, such as EBITDA margin (being EBITDA as a percentage of sales), net bank debt-to-
EBITDA after rents (or "Leverage Ratio") (net bank debt as described in section 5.3 as
compared to EBITDA after rent payments), and certain Liquidity Ratios such as working
capital (as defined in section 5.2 of this report), cash provided by operating activities before
changes in working capital, per share (as defined in section 5.1 of this report); and net bank
debt-to-capitalization (net bank debt as compared to capitalization as described in section
5.3). In addition to profit, we consider EBITDA, EBITDA Ratios, and Liquidity Ratios to be
useful supplemental measures of our ability to meet debt service and capital expenditure
requirements, and we interpret trends in EBITDA and EBITDA Ratios (such as EBITDA
margin) as an indicator of relative operating performance.
In this MD&A, references to "Adjusted EBITDA" are EBITDA as defined above, before
non-cash Long Term Incentive Plan (LTIP) expense, impairment loss related to Hardwoods
of Michigan ("HMI"), transaction expenses, and duties payable. "Adjusted EBITDA margin"
and "net bank debt-to-Adjusted EBITDA after rent" (together the "Adjusted EBITDA
Ratios") are as defined above, before non-cash LTIP expense, impairment loss related to
Hardwoods of Michigan ("HMI"), transaction expenses, and duties payable. References to
"Adjusted profit", "Adjusted basic profit per share", and "Adjusted diluted profit per share"
are profit for the period, basic profit per share, and diluted profit per share, before non-cash
LTIP expense, impairment loss related to Hardwoods of Michigan ("HMI"), transaction
expenses, and duties payable. The aforementioned adjusted measures are collectively
referenced as "the Adjusted Measures". We consider the Adjusted Measures to be useful
HDI | Annual Report | 2020
10
supplemental measures of our profitability, our ability to meet debt service and capital
expenditure requirements, our ability to generate cash flow from operations, and as an
indicator of relative operating performance, before non-cash LTIP expense, transaction
expenses, and allowance for duty deposits.
EBITDA, EBITDA Ratios, Liquidity Ratios and the Adjusted Measures (collectively "the
Non-GAAP Measures") are not measures recognized by International Financial Reporting
Standards (“IFRS”) and do not have a standardized meaning prescribed by IFRS. Investors
are cautioned that the Non-GAAP Measures should not replace profit, earnings per share or
cash flows (as determined in accordance with IFRS) as an indicator of our performance. Our
method of calculating the Non-GAAP Measures may differ from the methods used by other
issuers. Therefore, our Non-GAAP Measures may not be comparable to similar measures
presented by other issuers. For a reconciliation between Non-GAAP Measures and measures
as determined in accordance with IFRS, please refer to the discussion of Results of
Operations described in section 3.0, Working Capital in section 5.2, and Revolving Credit
Facilities and Debt Management Strategy in section 5.3 of this report.
HDI | Annual Report | 2020
11
Contents
This MD&A includes the following sections:
1.0
Executive Summary
1.1 Highlights
1.2 Outlook
1.3 Recent Acquisitions
Business and Industry Overview
Results of Operations
3.1 Years ended December 31, 2020 and December 31, 2019
3.2 Three-Month Periods Ended December 31, 2020 and December 31, 2019
Quarterly Financial Information and Seasonality
Liquidity and Capital Resources
5.1 Cash Flows from Operating, Investing and Financing Activities
5.2 Working Capital
5.3
5.4
5.5
5.6
5.7
5.8
Revolving Credit Facilities and Debt Management Strategy
Contractual Obligations
Off-Balance Sheet Arrangements
Financial Instruments
Share Data
Dividends
Related-Party Transactions
Critical Accounting Estimates and Adoption of Changes in Accounting Policies
7.1 Critical Accounting Estimates
Risks and Uncertainties
Internal Control over Financial Reporting
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0 Note Regarding Forward-Looking Information
HDI | Annual Report | 2020
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1.0 Executive Summary
1.1 Highlights
We achieved record-breaking financial performance in 2020, including the highest sales in
our history and our best-ever gross margin percentage, EBITDA, and profit results. These
gains were driven by strong execution at the operating and strategic level, and were achieved
despite a significant slowdown in economic activity in the second quarter as our markets
adjusted to operating amidst the COVID-19 pandemic. Against this backdrop, we generated
the following record results:
Summary financial highlights
• Consolidated sales grew 6.3% to $1,245.3 million
• Gross margin percentage increased to 19.2%, from 18.1% in 2019
• Adjusted EBITDA grew 23.5% to $97.5 million
• Profit per share increased to $1.78, up 29.0% year-over-year
• Adjusted profit per share increased to $2.09, up 40.3% year-over-year
• Cash provided by operating activities before changes in working capital climbed to
$3.91 per share, an increase of $0.80 per share
Our success in overcoming pandemic-related challenges, including the over 20% fall off in
April 2020 sales demand, reflects a number of key strengths and strategies. First, we have an
experienced and responsive leadership team that has managed through many economic
cycles. When faced with the material disruption of the pandemic, our team moved quickly to
a) implement policies and procedures to protect our people and keep our locations open for
business; b) reduce working capital and expenses without impacting productive capacity; and
c) refocus our sales capability on taking market share. The result was a consistent
improvement in sales subsequent to April 2020. In the third quarter, organic sales recovered
to pre-pandemic levels and by the fourth quarter, we were once again achieving year-over-
year organic sales growth. We note that most of this sales recovery was volume based. While
prices in our product categories have recently begun to appreciate, this strengthening has
occurred subsequent to the fiscal year-end.
HDI | Annual Report | 2020
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Our record-setting year was further supported by the successful execution of our acquisition
strategy. We completed three transactions during the year and combined these transactions
represent approximately $90 million of new sales on an annualized basis (for further
information on acquisitions, see Section 1.3). Additionally our 2020 results benefited from
our strategies for improving gross margin percentage, including continued execution of our
proprietary global sourcing strategy. We were successful in boosting our gross margin
percentage to a record 19.2% in 2020, from 18.1% in 2019.
Our strong performance extended to our balance sheet as well. We ended the year in a strong
financial position, generating significant cash flows which we used to meet our capital
allocation priorities. These included financing the $22.8 million of acquisitions completed in
2020, returning value to shareholders in the form of $2.8 million in share repurchases and
$7.2 million in dividends, and reducing our Leverage Ratio (see Section 5.2 for definition) to
1.3 times, from 2.0 times at December 31, 2019.
1.2 Outlook
Our customers today are the busiest they have been since the onset of the COVID-19
pandemic in early 2020, and leading indicators for the US residential construction market are
very positive. Housing starts have meaningfully lagged population growth this past decade
leading to pent-up demand for housing. Millennials represent the largest segment of the
population and will further drive demand for homes. Furthermore record low mortgage rates
and a trend, resulting from the pandemic, towards population shift from urban to suburban
markets are contributing to a sharp increase in housing permits and starts. As most of our
products relate to the interior finishing of a building, there can be a six-to-nine-month lag
between positive construction data and demand for our products. Accordingly, the positive
data we saw in the latter half of 2020 should benefit us in 2021.
The repair and remodel market is benefiting from rising home equity and availability of low-
cost consumer capital, the age of the current U.S. housing stock, and social trends such as
individuals spending more of their time and disposable income on their home. These trends
are expected to drive multi-year demand for our products.
HDI | Annual Report | 2020
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The outlook for US commercial markets remains mixed. This is a diverse market for HDI,
including manufacturers of recreational vehicles and furniture, as well as builders of
healthcare, education, hospitality, and retail facilities, interiors and fixtures. We expect
certain of these commercial end-markets will perform better than others, with the diverse
nature of our participation reducing the impact of dynamics in any one geography or end-
market.
With a strong growth environment forecasted for 2021, there is a potential for demand to
outpace supply, which in turn could create supply constraints and result in rising product
prices. We generally expect to have consistent and predictable access to supply given we are
often the largest customer for our suppliers. Additionally, our price pass-through model and
ability to adjust pricing in a relatively short period of time typically enable us to translate
higher product costs into increased sales and gross margin dollars.
We believe HDI is very well positioned going forward. We are moving into 2021 with a
diversified business with no significant geographic, supplier, or customer concentration. We
are also diversified from an end-market perspective. We estimate that more than half of the
products we sell are used in residential and repair and remodel applications, and the
remainder in a wide array of commercial and other applications.
Our financial position is also strong, supported by significant cash-generating capability, no
term debt, and good liquidity. We remain well positioned to pursue our business strategies
and to continue creating value for our shareholders. Additionally, to reduce volatility from
exchange rates, effective January 1, 2021, HDI will begin reporting results in U.S. dollars.
Given 90% of the Company's revenues come from the U.S., this is considered an appropriate
currency for reporting purposes.
Our capital allocation priorities will continue to include growth through acquisitions as we
believe there are numerous accretive acquisition opportunities available. We also intend to
allocate cash to support organic growth and return value to shareholders in the form of
dividends, while remaining opportunistic in our approach to share repurchases.
HDI | Annual Report | 2020
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1.3 Recent Acquisitions
We have a robust pipeline of accretive acquisition opportunities that we have been acting
upon in order to enhance our position as North America's #1 distributor of architectural
building products. In 2020 we completed three acquisitions (the "Acquired Businesses),
adding over $90 million in annualized sales.
River City Millwork Inc.
On December 14, 2020, we acquired (through one of our wholly owned subsidiaries)
substantially all of the assets and assumed certain liabilities of River City Millwork Inc.
("River City") for a total value of US$4.3 million. Located in Rockford, Illinois, River City is
a wholesale distributor of interior and exterior doors, custom millwork, and other ancillary
products with annual sales of US$14 million. River City complements our growing presence
in the higher-margin door and related millwork product category.
Aura Hardwoods
On December 8, 2020, we acquired (through one of our wholly owned subsidiaries)
substantially all of the assets and assumed certain liabilities of Aura Hardwoods ("Aura") for
a total value of US$10.6 million. Aura is a wholesale distributor of architectural building
products with six locations in Northern California and annual sales of US$53 million. Aura
adds significant size and scale to our existing California operations.
Diamond Hardwoods
On March 9, 2020, we purchased substantially all of the assets and assumed certain liabilities
of Diamond Hardwoods ("Diamond") for a total value of US$3.0 million. Diamond is a
wholesale distributor with annual sales of US$6 million and locations in Fresno and
Bakersfield, California. The addition of Diamond broadens our service capabilities in
Northern California, while adding bench strength to our team and a customer set with
minimal overlap.
HDI | Annual Report | 2020
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HDI | Annual Report | 2020
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2.0 Business and Industry Overview
Serving customers for over 60 years, HDI is North America’s largest distributor of
architectural building products to the residential, repair and remodel and commercial
construction markets. As at March 11, 2021 we operated 73 distribution facilities across
North America. Certain of these facilities include light manufacturing capabilities, which
enable us to create custom moulding and millwork packages for our customers.
Approximately 25% of our 2020 sales were made up of decorative surfaces and composites,
such as high pressure laminates, thermally fused laminates, medium-density fiberboard, and
particleboard. Approximately 30% of our sales were of hardwood plywood, 25% of our sales
were high-grade hardwood lumber, 16% of our sales were doors, and 4% were comprised of
other ancillary architectural building products. Many of our product lines are complementary,
and our customers, industrial manufacturers, typically use a number of key products from the
categories described to manufacture their own end-use products.
Our primary role in the industry is to provide the critical link between suppliers
manufacturing large volumes of products, and small-to-mid-sized industrial customers that
require lesser quantities of many different products for their own manufacturing processes.
We provide a means for hundreds of primary manufacturers to get their product to thousands
of fabrication customers. We add value to our suppliers by buying their product in volume
and paying them promptly, by providing access to our large North American distribution
network, and by supporting their products with strong sales and marketing support. We
effectively act as their third-party sales force. We add value for our customers by providing
them with the materials they need on a just-in-time basis, selling in smaller quantities, and
offering a wider range of product selection than the customer would be able to purchase
directly from an individual mill. We also provide an important source of financing for our
customers by allowing them to buy material from us on approved credit terms.
Our customer base manufactures a range of end-use products, such as cabinetry, furniture and
custom millwork. These products, in turn, are sold into multiple sectors of the economy,
including new home construction, renovation, non-residential construction, institutional
markets and manufacturing. As a result of this diversity, it is difficult to determine with
certainty what proportion of our products end up in each sector of the economy. We estimate
that approximately half of our products are used in residential construction and repair and
remodel, in the form of cabinets, mouldings, custom finishing, and home furniture. We
HDI | Annual Report | 2020
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believe the balance of our products ends up in other sectors of the economy not associated
with new residential construction, such finishing millwork for office buildings, recreational
vehicles, restaurant and bar interiors, hotel lobbies, retail point-of-purchase displays, schools,
hospitals, custom motor coaches, yacht interiors and other specialty areas.
Our products are sourced as follows: A majority of decorative surfaces, composites, and
doors are generally supplied by large manufacturers in North America. Hardwood plywood is
produced in North America by large manufacturers using domestic hardwoods and other
materials, as well as by overseas hardwood plywood manufacturers. The majority of the
high-grade hardwood lumber we distribute is harvested from North American hardwood
forests, located principally in the Eastern United States, and is milled by hundreds of small
mills. Imported hardwood lumber is largely limited to specialty species that generally do not
compete with domestic hardwood lumber. A majority of other architectural building products
are generally sourced from North American mills or manufacturers, of varying sizes
depending on the product. Principally third parties such as us distribute the majority of the
products we carry.
HDI | Annual Report | 2020
19
3.0 Results of Operations
3.1 Years ended December 31, 2020 and December 31, 2019
Selected Consolidated Financial Information (in thousands of Canadian dollars)
For the year
For the year
ended Dec 31
ended Dec 31
$ Increase % Increase
2020
2019
(Decrease)
(Decrease)
$
1,245,312
$
1,171,921
$
73,391
Total sales
Sales in the US (US$)
Sales in Canada
Gross profit
Gross profit %
Operating expenses
Profit from operating activities
Add: Depreciation and amortization
Earnings before interest, taxes, depreciation and
amortization ("EBITDA")
EBITDA as a % of revenue
Add (deduct):
Depreciation and amortization
Net finance income (expense)
Income tax expense
Profit for the period
Basic profit per share
Diluted profit per share
$
$
$
$
$
Average Canadian dollar exchange rate for one US dollar $
821,034
144,077
239,482
19.2 %
(180,934)
58,548
$
31,229
779,203
138,100
211,979
18.1 %
41,831
5,977
27,503
(163,721)
17,213
48,258
27,953
$
10,290
3,276
6.3 %
5.4 %
4.3 %
13.0 %
10.5 %
21.3 %
11.7 %
89,777
$
76,211
$
13,566
17.8 %
7.2%
6.5%
(31,229)
(7,593)
(13,354)
37,602
1.78
1.76
1.342
$
$
$
$
(27,953)
(9,158)
(9,520)
(3,276)
1,565
(3,834)
29,581
$
8,021
27.1 %
1.38
1.38
1.327
Analysis of Specific Items Affecting Comparability (in thousands of Canadian dollars)
For the year
For the year
ended Dec 31
ended Dec 31
$ Increase % Increase
2020
2019
(Decrease)
(Decrease)
Earnings before interest, taxes, depreciation and
amortization ("EBITDA"), per table above
$
89,777
$
Non-cash LTIP expense
Impairment loss related to HMI
Duties payable
Transaction expenses
Adjusted EBITDA
Adjusted EBITDA as a % of revenue
Profit for the period, as reported
Adjustments, net of tax
Adjusted profit for the period
Basic profit per share, as reported
Net impact of above items per share
Adjusted basic profit per share
Diluted profit per share, as reported
Net impact of above items per share
Adjusted diluted profit per share
3,551
3,085
912
218
76,211
2,249
—
—
509
$
13,566
17.8 %
1,302
3,085
912
(291)
$
$
$
$
$
$
$
97,543
$
78,969
$
18,574
23.5 %
7.8 %
37,602
$
6,465
44,067
$
1.78
0.31
2.09
1.76
0.30
2.06
$
$
$
$
6.7 %
29,581
2,360
31,941
1.38
0.11
1.49
1.38
0.11
1.49
$
8,021
4,105
27.1 %
$
12,125
38.0 %
$
$
$
$
0.40
0.20
0.60
0.38
0.19
0.57
29.0 %
40.3 %
27.5 %
38.3 %
HDI | Annual Report | 2020
20
Sales
For the year ended December 31, 2020, total sales increased 6.3% to $1,245.3 million, from
$1,171.9 million in 2019, a year-over-year improvement of $73.4 million. The addition of
Acquired Businesses contributed $75.0 million of this growth, representing a 6.4% increase
in total sales, and $11.1 million of the increase related to the favorable foreign exchange
impact of a stronger US dollar when translating our US sales to Canadian dollars for
reporting purposes. These gains were partially offset by a year-over-year organic sales
decrease of $12.7 million, which represents a 1.1% decrease in total sales. Organic sales were
negatively impacted by the second quarter decline in economic activity that followed the
emergence of the COVID-19 pandemic. Our organic sales returned to more typical levels in
the third quarter, and by the fourth quarter, outpaced what we had achieved in the fourth
quarter of 2019.
Sales from our US operations increased by US$41.8 million, or 5.4%, to US$821.0 million,
from US$779.2 million in 2019. The Acquired Businesses contributed sales growth of
US$55.9 million or 7.2%, which was partially offset by a US$14.0 million reduction in US
organic sales attributable to second quarter COVID-19 related economic impacts. Sales in
Canada increased by $6.0 million, or 4.3%, year-over-year.
Gross Profit
Gross profit for the year ended December 31, 2020 increased 13.0% to $239.5 million, from
$212.0 million in 2019. This $27.5 million improvement primarily reflects the increased
sales and a higher gross profit margin, which improved year-over-year to 19.2%, from
18.1%. The increase in gross margin percentage was supported by strong performance of our
import supply lines, the inclusion of sales from the acquired Pacific Mutual Door operations
which carry a higher gross profit margin percentage relative to the rest of the business, and
higher gross margins in the door product category as a result of market demand outpacing
supply.
Operating Expenses
For the year ended December 31, 2020, operating expenses were $180.9 million as compared
to $163.7 in 2019. The $17.2 million increase includes $14.2 million of operating expenses
from the Acquired Businesses, an impairment loss relate to HMI of $3.1 million, and $1.6
million of expenses related to the impact of a stronger US dollar on translation of US
HDI | Annual Report | 2020
21
operating expenses. These increases were partially offset by a $1.7 million expense savings
primarily attributable to the cost management and cost reduction measures taken in April in
response to the COVID-19 related reduction in economic activity. As a percentage of sales,
operating expenses were 14.5%, compared to 14.0% in the same period last year.
Adjusted EBITDA
For the year ended December 31, 2020, we increased Adjusted EBITDA by $18.6 million or
23.5% to $97.5 million, from $79.0 million in 2019. Our record Adjusted EBITDA result
reflects the $27.5 million increase in gross profit, partially offset by a $8.9 million increase in
operating expenses (before changes in depreciation and amortization, non-cash LTIP
expense, the impairment loss related to HMI, duties payable, and transaction expenses).
On March 10, 2021 the Company entered into an agreement to sell substantially all of the
assets related to HMI, its sawmill and kiln drying operation in Clinton, Michigan, to a third
party. Proceeds of the sale are expected to be $11.5 million (US$9.0 million), and this
transaction resulted in a write down of property, plant and equipment of $3.1 million
(US$2.3 million). This loss was recorded in the fourth quarter of 2020.
Net Finance Income (Expense)
For the year ended December 31, 2020, net finance expense decreased $1.6 million to $7.6
million, from $9.2 million in 2019. The year-over-year decrease primarily relates to lower
interest expense as we have reduced bank indebtedness.
Income Tax Expense
Income tax expense increased to $13.4 million for the year ended December 31, 2020, from
$9.5 million during the same period in 2019. The increase was primarily driven by a higher
taxable income as compared to 2019.
Profit for the Period
Profit for the year ended December 31, 2020 grew 27.1% to $37.6 million, from $29.6
million in 2019. The $8.0 million profit improvement primarily reflects the $27.5 million
increase in gross profit and the $1.6 million decrease in finance expense, partially offset by
the $17.2 million increase in operating expenses and the $3.8 million higher income tax
expense.
HDI | Annual Report | 2020
22
Adjusted profit for the year ended December 31, 2020 grew to $44.1 million, from $31.9
million in 2019, an increase of $12.1 million or 38.0%. Adjusted diluted profit per share also
climbed to $2.06, from $1.49 in 2019.
HDI | Annual Report | 2020
23
3.2 Three Months Ended December 31, 2020 and December 31, 2019
Selected Unaudited Consolidated Financial Information (in thousands of Canadian dollars)
Total sales
Sales in the US (US$)
Sales in Canada
Gross profit
Gross profit %
Operating expenses
Profit from operating activities
Add: Depreciation and amortization
Earnings before interest, taxes, depreciation and
amortization ("EBITDA")
EBITDA as a % of revenue
Add (deduct):
Depreciation and amortization
Net finance income (expense)
Income tax expense
Profit for the period
Basic profit per share
Diluted profit per share
$
$
$
$
$
$
Average Canadian dollar exchange rate for one US dollar $
Three months
Three months
ended Dec 31
ended Dec 31
$ Increase % Increase
2020
308,394
206,295
39,439
59,052
19.1 %
(46,467)
12,585
$
7,772
2019
(Decrease)
(Decrease)
287,830
193,260
32,845
52,647
18.3 %
(42,167)
10,480
7,686
$
20,564
13,035
6,594
6,405
4,300
2,105
86
$
7.1 %
6.7 %
20.1 %
12.2 %
10.2 %
20.1 %
1.1 %
20,357
$
18,166
$
2,190
12.1 %
6.6%
6.3%
(7,772)
(1,797)
(3,260)
7,527
0.36
0.35
1.303
$
$
$
$
(7,686)
(2,756)
(1,142)
(86)
959
(2,118)
6,582
$
945
14.4 %
0.31
0.31
1.320
Analysis of Specific Items Affecting Comparability (in thousands of Canadian dollars)
Earnings before interest, taxes, depreciation and
amortization ("EBITDA"), per table above
Non-cash LTIP expense
Impairment loss related to HMI
Transaction expenses
Adjusted EBITDA
Adjusted EBITDA as a % of revenue
Profit for the period, as reported
Adjustments, net of tax
Adjusted profit for the period
Basic profit per share, as reported
Net impact of above items per share
Adjusted basic profit per share
Diluted profit per share, as reported
Net impact of above items per share
Adjusted diluted profit per share
Three months
Three months
ended Dec 31
ended Dec 31
$ Increase % Increase
2020
2019
(Decrease)
(Decrease)
20,357
$
18,166
$
2,190
12.1 %
605
3,085
218
529
—
433
76
3,085
(215)
24,265
$
19,128
$
5,136
26.9 %
7.9 %
7,527
$
3,017
10,544
$
0.36
0.14
0.50
0.35
0.14
0.49
$
$
$
$
6.6 %
6,582
780
7,362
0.31
0.04
0.35
0.31
0.04
0.35
$
$
$
$
$
$
945
2,237
3,182
0.05
0.10
0.15
0.04
0.10
0.14
14.4 %
43.2 %
16.1 %
42.9 %
12.9 %
40.0 %
$
$
$
$
$
$
$
$
HDI | Annual Report | 2020
24
Sales
For the three months ended December 31, 2020, total sales increased 7.1% to $308.4 million,
from $287.8 million during the same period in 2019, a year-over-year increase of $20.6
million. The addition of Acquired Businesses contributed $13.6 million of this increase,
representing a 4.7% increase in total sales; and organic sales growth accounted for an
additional $10.4 million, representing a 3.6% increase in total sales. These gains were
partially offset by a $3.4 million negative foreign exchange impact related to a stronger
Canadian dollar when translating our US sales to Canadian dollars for reporting purposes.
Fourth quarter sales from our US operations increased to US$206.3 million, from US$193.3
million in the same period in 2019, an increase of US$13.0 million, or 6.7%. The Acquired
Businesses contributed sales growth of US$10.4 million, or 5.4%, and organic sales growth
accounted for an additional $2.6 million, or 1.4%.
Fourth quarter sales in Canada increased to $39.4 million, from $32.8 million year-over-year,
an increase of $6.6 million or 20.1%. The increase in Canadian sales was the result of strong
performance across all locations and was generally volume driven.
Gross Profit
Gross profit for the three months ended December 31, 2020 increased 12.2% to $59.1
million, from $52.6 million during the same period in 2019. This $6.4 million improvement
primarily reflects the increased sales paired with a higher gross profit margin. As a
percentage of sales, fourth quarter gross profit margin increased to 19.1%, from 18.3% in the
same period last year, as we benefited from the strong performance of our import supply
lines and higher gross margins in the door product category.
Operating Expenses
For the three months ended December 31, 2020, operating expenses were $46.5 million, as
compared to $42.2 million during the same period in 2019. The $4.3 million increase
includes $2.4 million of added operating expenses from the Acquired Business and an
impairment loss related to HMI of $3.1 million, offset by a $0.7 million expense savings
primarily attributable to the cost management and cost reduction measures taken earlier in the
year, and a decrease of $0.5 million related to the impact of a stronger Canadian dollar on
HDI | Annual Report | 2020
25
translation of US operating expenses. As a percentage of sales, fourth quarter operating
expenses were 15.1%, compared to 14.6% in Q4 2019.
Adjusted EBITDA
For the three months ended December 31, 2020, we increased Adjusted EBITDA by 26.9%
to $24.3 million, from $19.1 million during the same period in 2019. The $5.1 million
improvement primarily reflects the $6.4 million increase in gross profit partially offset by a
$1.3 million increase in operating expenses (before changes in depreciation and amortization,
non-cash LTIP expense, the impairment loss related to HMI, and transaction expenses).
On March 10, 2021 the Company entered into an agreement to sell substantially all of the
assets related to HMI, its sawmill and kiln drying operation in Clinton, Michigan, to a third
party. Proceeds of the sale are expected to be $11.5 million (US$9.0 million), and this
transaction resulted in a write down of property, plant and equipment of $3.1 million
(US$2.3 million). This loss was recorded in the fourth quarter of 2020.
Net Finance Income (Expense)
For the three months ended December 31, 2020, net finance expense decreased to $1.8
million, from $2.8 million in Q4 2019. The $1.0 million decrease primarily relates to lower
interest expense as we have reduced our bank indebtedness.
Income Tax Expense
Income tax expense increased to $3.3 million for the year ended December 31, 2020, from
$1.1 million during the same period in 2019. The increase was primarily driven by a higher
taxable income as compared to 2019.
Profit for the Period
Profit for the three months ended December 31, 2020 grew 14.4% to $7.5 million, from $6.6
million in the same period in 2019. The $0.9 million year-over-year improvement primarily
reflects the $6.4 million increase in gross profit and $1.0 million reduction in finance
expense, partially offset by the $4.3 million increase in operating expenses and $2.1 increase
in tax expense. Fourth quarter diluted profit per share increased to $0.35, from $0.31 in Q4
2019, a gain of $0.04 per share.
HDI | Annual Report | 2020
26
Adjusted profit for the three months ended December 31, 2020 increased 43.2% to $10.5
million, from $7.4 million in the same period in 2019. Fourth quarter Adjusted diluted profit
per share grew to $0.49, from $0.35 in Q4 2019.
HDI | Annual Report | 2020
27
4.0 Selected Financial Information and Seasonality
4.1 Quarterly Financial Information
(in thousands of dollars)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
2020
2020
2020
2020
2019
2019
2019
2019
2018(1)
Total sales
Profit
$ 308,394 $ 315,813 $ 296,005 $ 325,100 $ 287,830 $ 292,459 $ 304,545 $ 287,087 $ 274,986
$ 7,527 $ 10,450 $ 10,227 $ 9,397 $ 6,582 $ 8,854 $ 8,165 $ 5,980 $ 5,804
Basic profit per share
Fully diluted profit per share
$
$
0.36 $
0.49 $
0.48 $
0.44 $
0.31 $
0.42 $
0.38 $
0.28 $
0.27
0.35 $
0.49 $
0.48 $
0.44 $
0.31 $
0.41 $
0.38 $
0.28 $
0.27
EBITDA
$ 20,357 $ 22,956 $ 23,696 $ 22,769 $ 18,165 $ 20,723 $ 20,626 $ 16,696 $ 16,227
Adjusted profit
$ 10,544 $ 12,504 $ 10,880 $ 9,397 $ 7,362 $ 9,364 $ 8,661 $ 6,494 $ 5,537
Adjusted basic profit per share $
Adjusted diluted profit per
share
$
0.50 $
0.59 $
0.51 $
0.44 $
0.35 $
0.44 $
0.40 $
0.30 $
0.26
0.49 $
0.59 $
0.51 $
0.44 $
0.35 $
0.43 $
0.40 $
0.30 $
0.26
Adjusted EBITDA
$ 24,265 $ 26,072 $ 24,427 $ 22,770 $ 19,137 $ 21,297 $ 21,185 $ 17,282 $ 15,966
(1) Restated for the adoption of IFRS 16
The preceding table provides selected quarterly financial information for our eight most recently
completed fiscal quarters. This information is unaudited, but reflects all adjustments of a normal,
recurring nature which are, in our opinion, necessary to present a fair statement of the results of
operations for the periods presented. Quarter‑to‑quarter comparisons of our financial results are
not necessarily meaningful and should not be relied upon as an indication of future performance.
Historically, the first and fourth quarters have been seasonally slower periods for our business. In
addition, net earnings reported in each quarter may be impacted by acquisitions and by changes in
the foreign exchange rate of the Canadian and US dollars.
4.2 Annual Financial Information
(in thousands of dollars except per unit amounts)
For the year
For the year
For the year
Total sales
Profit
Basic profit per share
Fully diluted profit per share
Total assets
Total non-current financial liabilities
Adjusted EBITDA
(1) Restated for the adoption of IFRS 16
ended Dec 31
ended Dec 31
ended Dec 31
2020
2019
2018
(Restated(1))
1,245,312 $
1,171,921 $
1,134,267
37,602 $
29,581 $
31,719
1.78 $
1.76 $
1.38 $
1.38 $
1.48
1.47
585,956 $
569,971 $
541,967
93,526 $
84,391 $
88,282
97,543 $
78,969 $
78,934
$
$
$
$
$
$
$
HDI | Annual Report | 2020
28
5.0 Liquidity and Capital Resources
5.1 Cash Flows from Operating, Investing and Financing Activities
Selected Unaudited Consolidated Financial Information (in thousands of Canadian dollars)
Year ended Dec 31
Three months ended Dec 31
2020
2019
$ change
2020
2019
$ change
Cash provided by operating activities before changes
in non-cash working capital
$
83,508 $
66,860 $
16,648
$
20,708 $
14,272 $
6,436
Changes in non-cash working capital
(1,651)
25,944
(27,595)
(9,173)
19,074
(28,247)
Net cash provided (used in) by operating activities
$
81,857 $
92,804 $
(10,947) $
11,535 $
33,346 $
(21,811)
Net cash used in investing activities
(32,698)
(55,907)
23,209
(20,032)
(48,177)
28,145
Net cash provided by (used in) financing activities
(64,224)
(23,326)
(40,898)
5,433
22,601
(17,168)
Increase (decrease) in cash
$
(15,065) $
13,571 $
(28,636) $
(3,064) $
7,770 $
(10,834)
Cash and cash equivalents, beginning of period
15,118
1,547
13,571
3,704
7,348
(3,644)
Cash and cash equivalents, end of the period
$
531 $
— $
531
$
(56) $
— $
(56)
Weighted average common shares - diluted
21,378
21,488
21,397
21,412
Cash provided by operating activities before changes
$
3.91 $
3.11 $
0.80
$
0.97 $
0.67 $
0.30
in non-cash working capital, per share
For the year ended December 31, 2020, net cash provided by operating activities was $81.9
million, as compared to $92.8 million in 2019, a decrease of $10.9 million. Cash provided by
operating activities before changes in non-cash working capital grew to $83.5 million, up
$16.6 million from $66.9 million in 2019. Investment in non-cash working capital decreased
by $27.6 million in 2020, as compared to 2019. An analysis of changes in working capital is
provided in section 5.2 of this report.
For the three months ended December 31, 2020, net cash provided by operating activities
was $11.5 million, as compared to $33.3 million in the same period in 2019, a decrease of
$21.8 million. Cash provided by operating activities before changes in non-cash working
capital increased to $20.7 million, from $14.3 million in the same period in 2019. Fourth
quarter investment in non-cash working capital increased by $28.2 million year-over-year.
An analysis of changes in working capital is provided in section 5.2 of this report.
Net cash used in investing activities
Net cash used in investing activities for the year and three months ended December 31, 2020
decreased by $23.2 million and $28.1 million, respectively, as compared to the same periods
in 2019. The decreases primarily relate to the purchase price of Acquired Businesses during
the year, partially offset by an increase in investments.
HDI | Annual Report | 2020
29
Capital expenditures in our distribution business have historically been low as we generally
lease our buildings and typically contract out delivery equipment. Capital expenditures in this
part of our business are principally for the replacement of forklifts, furniture and fixtures,
leasehold improvements and computer equipment. We believe we have made sufficient
expenditures to sustain productive capacity of our business as it relates to our needs for
property, plant and equipment.
Net cash provided by (used in) financing activities
For the year and three months ended December 31, 2020, net cash used in financing activities
increased by $40.9 million and $17.2 million, respectively, as compared to the same periods
in 2019. This change primarily reflects a decrease in bank indebtedness.
5.2 Working Capital
Our business requires an ongoing investment in working capital, which we consider to be
comprised of accounts receivable, inventory, and prepaid expenses, partially offset by short-
term credit provided by suppliers in the form of accounts payable and accrued liabilities.
The increase in investment in working capital for the year ended December 31, 2020 was
$1.7 million, which was in-line with our organic sales pace for the year. As compared to
2019, our investment in working capital increased by $27.6 million, however the 2019 period
included a reduction in inventory to normal levels following increased purchasing of certain
product lines in 2018 to secure supply.
Our investment in working capital may fluctuate from quarter-to-quarter based on factors
such as sales demand, strategic purchasing decisions taken by management, and the timing of
collections from customers. Historically the first and fourth quarters are seasonally slower
periods for construction activity, resulting in reduced demand for architectural building
products. A summary of changes in our non-cash operating working capital during the year
and three months ended December 31, 2020 and 2019 is provided below.
HDI | Annual Report | 2020
30
(in thousands of Canadian dollars)
Source (use) of funds
2020
2019
2020
2019
Year
Year
Three months
Three months
ended Dec 31
ended Dec 31
ended Dec 31
ended Dec 31
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
$
287
$
3,180
$
7,964
$
12,902
(2,308)
(1,475)
1,845
16,107
(5,442)
12,099
(13,459)
(1,056)
(2,622)
581
(3,397)
8,988
Change in non-cash operating working capital
$
(1,651)
$
25,944
$
(9,173)
$
19,074
Continued compliance with financial covenants under our credit facilities is important to
ensure that we have adequate financing available to meet our working capital requirements.
The terms of our revolving credit facilities are addressed in section 5.3 of this report.
5.3 Revolving Credit Facilities and Debt Management Strategy
Selected Unaudited Consolidated Financial Information (in thousands of dollars)
Cash
Bank indebtedness
Net bank debt
Shareholders' equity
Capitalization
Net bank debt to capitalization
Previous 12 months Adjusted EBITDA
Rental payments related to warehousing and trucks
Previous 12 months Adjusted EBITDA after rent
As at
As at
December 31, 2020
December 31, 2019
$
$
$
$
$
(584)
94,986
94,402
305,346
399,748
24 %
97,543
(25,797)
71,746
$
$
$
$
$
(15,118)
121,548
106,430
283,445
389,875
27 %
78,969
(24,700)
54,269
Net bank debt to previous 12 months Adjusted EBITDA after rent,
or "Leverage Ratio"
1.3
2.0
We consider our capital to be bank indebtedness (net of cash) and shareholders’ equity.
Overall net bank debt compared to total capitalization stood at 24% as at December 31, 2020,
as compared to 27% at December 31, 2019. At December 31, 2020, our ratio of net debt-to-
Adjusted-EBITDA after rent for the year was 1.3 times, down from 2.0 times at December
31, 2019. Net debt-to-Adjusted-EBITDA after rent and net bank debt-to-total capitalization
serve as indicators of our financial leverage, however they are not measures prescribed by
IFRS and our method of calculating these measures may differ from methods used by other
issuers.
HDI | Annual Report | 2020
31
We have independent credit facilities in both Canada and the US. These facilities may be
drawn down to meet short-term financing requirements such as fluctuations in non-cash
working capital, and in the case of the Canadian credit facility, to also make capital
contributions to our US operating subsidiary. The amount made available under our
Canadian and US revolving credit facilities is limited to the extent of the value of certain
accounts receivable and inventories held by our subsidiaries. Credit facilities also require
ongoing compliance with certain credit ratios. A summary of our credit facilities as at
December 31, 2020 is provided in the following table.
Selected unaudited consolidated financial information (in thousands of dollars)
Canadian Credit
Facility
US Credit
Facility
Maximum borrowings under the credit
facility
$
25.0 million
$
191.0 million (US$150.0 million)
Credit facility expiry date
August 5, 2021
October 28, 2024
Available to borrow
Credit facility borrowings
24.0 million
21.8 million
162.1 million (US$127.3 million)
73.5 million (US$57.7 million)
Unused credit facility
$
2.2 million
$
88.6 million (US$69.6 million)
Financial covenants:
Covenant does not apply
when the unused credit
facility available exceeds
$2.0 million
Covenant does not apply when the unused
credit facility available exceeds 10% of the
the credit
maximum borrowings under
facility or US$15.0 million
The terms of the agreements with our lenders provide that dividends cannot be made to our
shareholders in the event that our subsidiaries are not compliant with their financial
covenants. Our operating subsidiaries were compliant with all required credit ratios as at
December 31, 2020. Accordingly, there were no restrictions on dividends arising from non-
compliance with financial covenants.
We have a US credit facility ("the USLP II Credit Facility") and a Canadian credit facility
("the LP Credit Facility"). The USLP II Credit Facility consists of a revolving credit line of
US$150.0 million. The amounts made available under the USLP II Credit Facility are limited
based on a borrowing base determined by reference to the value of certain eligible accounts
receivable and inventories held by certain of our subsidiaries. The financial covenants under
the USLP II Credit Facility include, among others, a springing fixed charge coverage ratio of
1.0x, triggered if unused availability under the USLP II Credit Facility falls below US$15.0
million at any time.
HDI | Annual Report | 2020
32
In addition to the financial covenants, the ability of our subsidiaries to pay distributions and
dividends, complete acquisitions, make additional
investments,
take on additional
indebtedness, allow assets to become subject to liens, complete affiliate transactions and
make capital expenditures are limited and subject to the satisfaction of certain conditions. We
were in compliance with these covenants as at December 31, 2020.
The LP Credit Facility consists of a revolving credit line of $25.0 million. The amounts made
available under the LP Credit Facility are limited based on a borrowing base determined by
reference to the value of certain eligible accounts receivable and inventories held by our
Canadian subsidiary. The covenants under the LP Credit Facility relate to our Canadian
subsidiary and include, among others: (i) a springing fixed charge covenant ratio of 1.0x,
triggered if unused availability under the LP Credit Facility falls below $2.0 million, and (ii)
restrictions on our ability to pay distributions and dividends, complete acquisitions, make
additional investments, take on additional indebtedness, allow our assets to become subject to
liens, complete affiliate transactions and make capital expenditures. We were in compliance
with these covenants as at December 31, 2020.
Our debt management strategy is to roll and renew (as opposed to repay and retire) our credit
facilities as they expire. We do not intend to restrict future dividends in order to fully
extinguish our bank debt obligations upon their maturity. The amount of bank debt that will
actually be drawn on our available revolving credit facilities will depend upon the seasonal
and cyclical needs of the business, and our cash generating capacity going forward. When
making future dividend decisions, we will consider the amount of financial leverage, and
therefore bank debt, we believe is appropriate given existing and expected market conditions
and available business opportunities. We do not target a specific financial leverage amount.
We believe our current credit facilities are sufficient to finance our working capital needs and
market expansion strategy.
5.4 Contractual Obligations
There were no significant changes in our contractual commitments outside the normal course
of business, compared with those set forth in our 2020 Annual Report, available on SEDAR
at www.sedar.com.
HDI | Annual Report | 2020
33
5.5 Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements.
5.6 Financial Instruments
Financial assets include cash and current and non-current receivables, which are measured at
amortized cost. Financial liabilities include bank indebtedness, accounts payable and accrued
liabilities, income taxes payable, dividend payable, notes payable and finance lease
obligations which are measured at amortized cost. The carrying values of our cash, current
accounts receivable, income taxes payable, accounts payable and accrued liabilities, and
dividend payable approximate their fair values due to the relatively short period to maturity
of the instruments. The fair value of non-current receivables, notes payable, other liabilities
and finance lease obligations are not expected to differ materially from carrying value given
the interest rates being charged and term to maturity. The carrying values of the credit
facilities approximate their fair values due to the existence of floating market-based interest
rates.
5.7 Share Data
As at March 11, 2021, the date of this MD&A, we had 21,241,537 common shares issued
and outstanding. In addition, at March 11, 2021, we had outstanding 182,571 performance
shares and 239,123 restricted shares under the terms of our long-term incentive plan. The
performance and restricted shares can be settled in common shares of the Company issued
from treasury, common shares purchased by us in the market, or in an amount of cash equal
to the fair value of our common shares, or any combination of the foregoing. The restricted
and performance shares vest over periods of up to three years and employees have the option,
when the restricted and performance share vest, to receive up to half the fair value in cash
and the remainder in common shares. We intend to issue common shares from treasury to
settle the portion of the obligation not paid to employees in cash.
5.8 Dividends
In the fourth quarter of 2020, we declared a quarterly dividend of $0.10 per common share,
which was paid on January 29, 2021 to shareholders of record as at January 18, 2021. On
March 11, 2021, we declared a quarterly dividend of $0.10 per share, payable on April 30,
2021 to shareholders of record as at April 19, 2021.
HDI | Annual Report | 2020
34
6.0 Related-Party Transactions
There were no material related-party transactions during the three and twelve-month periods
ended December 31, 2020 or in the comparative periods in the prior year.
7.0 Critical Accounting Estimates & Adoption of Changes in
Accounting Policies
7.1 Critical Accounting Estimates
The preparation of financial statements in accordance with IFRS requires that we make
estimates and assumptions that can have a material impact on our results of operations as
reported on a periodic basis. We base our estimates and assumptions on past experience and
other factors that are deemed reasonable under the circumstances. Actual results could differ
from these estimates. The critical estimates used in preparing our financial statements are:
Leases: We are required to make estimates and assumptions related to leases, including the
discount rates used for each lease, determining the lease term, and consideration of lease
renewal options.
Goodwill impairment testing: We are required to make estimates and assumptions related to
the annual goodwill impairment test, including the cash generating unit ("CGU") to which
goodwill relates, the recoverable amount of a CGU, gross margin percentage, and the
discount rates. The value assigned to these factors is based on management's estimate of
future trends and are based on historical data from both internal and external sources.
Accounts receivable provision: Due to the nature of our business and the credit terms we
provide to our customers, we anticipate that a certain portion of required customer payments
will not be made, and we maintain an allowance for these doubtful accounts. The allowance
is based on our estimate of the potential of recovering our accounts receivable, and
incorporates current and expected collection trends.
Valuation of inventory: We are required to make estimates and assumptions regarding the
net realizable value of our inventory. The estimates and assumptions may have a material
impact on the values at which we recognize inventory.
HDI | Annual Report | 2020
35
8.0 Risks and Uncertainties
We are exposed to a number of risks and uncertainties in the normal course of business that
could have a negative effect on our financial condition or results of operations. We identify
significant risks that we were aware of in our Annual Information Form, which is available to
readers along with other disclosure documents at www.sedar.com.
9.0 Internal Control over Financial Reporting
Our management, under the supervision of our Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”), is responsible for establishing and maintaining adequate
disclosure controls and procedures (“DC&P”) and internal control over financial reporting
(“ICFR”). Any systems of DC&P and ICFR, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to information required to be disclosed and financial
statement preparation and presentation.
As required by Multilateral Instrument 52-109 issued by the Canadian Securities
Administrators, we carried out an evaluation of the effectiveness of our DC&P as of
December 31, 2020. The evaluation was carried out under the supervision of, and with the
participation of, the CEO and CFO. Based on this evaluation, our CEO and CFO concluded
that our DC&P were effective as of December 31, 2020.
As required by Multilateral Instrument 52-109 issued by the Canadian Securities
Administrators, we carried out an evaluation of the effectiveness of our ICFR as of December
31, 2020. The evaluation was carried out within the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control -
Integrated Framework (2013) (the "2013 COSO framework") and under the supervision of,
and with the participation of, our CEO and the CFO. Based on this evaluation, our CEO and
CFO concluded that our ICFR were effective as of December 31, 2020.
There have not been any changes in our ICFR during the quarter ended December 31, 2020
that have materially affected, or are reasonably likely to materially affect, our ICFR.
The CEO and CFO have limited the scope of their design of disclosure controls and
procedures and internal control over financial reporting to exclude controls, policies and
procedures of the Diamond Hardwoods, Aura Hardwoods, and River City Millwork
HDI | Annual Report | 2020
36
businesses, which we acquired in 2020. Summary financial information about the acquired
businesses can be found in note 4 of the Consolidated Financial Statements.
10.0 Note Regarding Forward Looking Information
Certain statements in this MD&A contain forward-looking information within the meaning of
applicable securities
laws
in Canada (“forward-looking
information”). The words
“anticipates”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “intends”,
“may”, “might”, “plans”, “projects”, “schedule”, “should”, “will”, “would” and similar
expressions are often intended to identify forward-looking information, although not all
forward-looking information contains these identifying words.
The forward-looking information in this MD&A includes, but is not limited to: We are now
moving into what we anticipate will be a strong multi-year growth environment and HDI is
as well positioned to take advantage of this today as at any time in the 16 years I’ve been
with the company; on the operating expense side, we learned to do more with less in 2020
and some of the expense savings initiatives we put in place during the pandemic have
continued; product prices did not start to appreciate until after the year ended; now moving
into fiscal 2021, our execution is as strong as it has ever been and it’s about to be paired with
a significantly better set of market conditions; our customers today are the busiest they have
been since the onset of the pandemic; millennials represent the largest segment of the
population and are expected to further drive demand for homes; forecasts suggest we are
entering a multi-year period of demand growth driven by record low mortgage rates and the
aging of U.S. housing stock that will need to be refurbished or replaced; social trends are
only accelerating the demand for architectural building products; the pandemic resulted in
more people working from home, fuelling both a desire for additional living space and a
trend towards individuals spending more of their disposable income on home renovations and
repairs; demand-supply imbalances drive up costs as we’ve seen in recent months, and
because we maintain a strong and stable gross margin on our sales, higher product prices
typically boost our profits and EBITDA, which in turn converts very efficiently to operating
cash flow; as we move forward, we see significant opportunities to complement our organic
growth with acquisitions; we will continue to execute on attractive acquisitions with a
dedicated M&A team and a proven formula for identifying, assessing and integrating targeted
opportunities; HDI is entering the strongest macro-demand environment we’ve seen in years;
our customers today are the busiest they have been since the onset of the COVID-19
pandemic in early 2020, and leading indicators for the US residential construction market are
HDI | Annual Report | 2020
37
very positive; housing starts have meaningfully lagged population growth this past decade
leading to pent-up demand for housing; millennials represent the largest segment of the
population and will further drive demand for homes; as most of our products relate to the
interior finishing of a building, there can be a six-to-nine-month lag between positive
construction data and demand for our products, accordingly, the positive data we saw in the
latter half of 2020 should benefit us in 2021; the repair and remodel market is benefiting
from rising home equity and availability of low-cost consumer capital, the age of the current
U.S. housing stock, and social trends such as individuals spending more of their time and
disposable income on their home, and these trends are expected to drive strong multi-year
demand for our products; the outlook for US commercial markets remains mixed; we expect
certain of these commercial end-markets will perform better than others, with the diverse
nature of our participation reducing the impact of dynamics in any one geography or end-
market; with a strong growth environment forecasted for 2021, there is a potential for
demand to outpace supply, which in turn could create supply constraints and result in rising
product prices; we generally expect to have consistent and predictable access to supply given
we are often the largest customer for our suppliers; additionally, our price pass-through
model and ability to adjust pricing in a relatively short period of time typically enable us to
translate higher product costs into increased sales and gross margin dollars; we believe HDI
is very well positioned going forward; we are moving into 2021 with a diversified business
with no significant geographic, supplier, or customer concentration; we remain well
positioned to pursue our business strategies and to continue creating value for our
shareholders; our capital allocation priorities will continue to include growth through
acquisitions as we believe there are numerous accretive acquisition opportunities available;
we also intend to allocate cash to support organic growth and return value to shareholders in
the form of dividends, while remaining opportunistic in our approach to share repurchases.
The forward-looking information is subject to risks, uncertainties and other factors that could
cause actual results to differ materially from historical results or results anticipated by the
forward-looking information. The factors which could cause results to differ from current
expectations include, but are not limited to: exchange rate fluctuations between the Canadian
and US dollar could affect our performance; our results are dependent upon the general state
of the economy; we depend on key personnel, the loss of which could harm our business;
decreases in the supply of, demand for, or market values of hardwood lumber or sheet goods
could harm our business; we may incur losses related to credit provided to our customers; our
products may be subject to negative trade outcomes; we may not be able to sustain our level
HDI | Annual Report | 2020
38
of sales or EBITDA margins; we may be unable to grow our business long term to manage
any growth; competition in our markets may lead to reduced revenues and profitability; we
may become subject to more stringent regulations; we may be subject to product liability
claims that could adversely affect our revenues, profitability and reputation; importation of
products manufactured with hardwood lumber or sheet goods may increase, and replace
products manufactured in North America; we are dependent upon our management
information systems; our insurance may be insufficient to cover losses that may occur as a
result of our operations; we are dependent upon the financial condition and results of
operations of our business; our credit facilities affect our liquidity, contain restrictions on our
ability to borrow funds, and impose restrictions on distributions that can be made by our
operating limited partnerships; our future growth may be restricted by the payout of
substantially all of our operating cash flow; and, other risks described in our Annual
Information Form our Information Circular and in this MD&A.
All forward-looking information in this MD&A is qualified in its entirety by this cautionary
statement and, except as may be required by law, we undertake no obligation to revise or
update any forward-looking information as a result of new information, future events or
otherwise after the date hereof.
HDI | Annual Report | 2020
39
Consolidated Financial Statements
(Expressed in Canadian dollars)
HARDWOODS DISTRIBUTION INC.
Years ended December 31, 2020 and 2019
40
KPMG LLP
Chartered Professional Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
www.kpmg.ca
Internet
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Hardwoods Distributions Inc.
Opinion
We have audited the consolidated financial statements of Hardwoods Distributions Inc. (the Entity),
which comprise:
•
•
•
•
the consolidated statements of financial position as at December 31, 2020 and December 31, 2019;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in shareholders’ 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 December 31, 2020 and December 31, 2019 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.
© 2021 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved.
41
Hardwoods Distribution Inc.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements for the year ended December 31, 2020. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be
communicated in our auditors’ report.
Description of the matter
We draw attention to Notes 3(j) and 12 to the financial statements. The goodwill balance is $78,089
thousand. The Entity tests goodwill for impairment on an annual basis. The Entity also performs an
impairment test whenever events or changes in circumstances indicate that the carrying value of a cash
generating unit exceeds its recoverable amount. The Entity recognizes an impairment loss if the carrying
amount of its cash generating unit exceeds its estimated recoverable amount.
The recoverable amount of an asset or cash generating unit is the greater of its value in use or its fair
value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to
their present value. Significant assumptions used in determining the recoverable amount include gross
margin percentages and discount rates.
Why the matter is a key audit matter
We identified the evaluation of the goodwill impairment assessment for the Rugby Architectural Building
Products and Pacific Mutual Door Company cash generating units to be a key audit matter. This matter
represented an area of significant risk of material misstatement as the recoverable amount is sensitive
to minor changes in certain significant assumptions. Significant auditor judgment was required in
evaluating the results of our audit procedures. Further, professionals with specialized skills and
knowledge were needed to evaluate the discount rates.
How the matter was addressed in the audit
The following are the primary procedures we performed to address this key audit matter.
We evaluated the appropriateness of the gross margin percentages assumptions by comparing
to historical results for up to three years. We considered changes in conditions and events
affecting the Entity to assess the adjustments or lack of adjustments made by the Entity in
arriving at the assumptions.
We involved valuations professionals with specialized skills and knowledge, who assisted in
evaluating the appropriateness of the discount rates. The discount rates used were compared
against a range of discount rates that were independently developed using publicly available
market data for comparable entities.
42
Hardwoods Distribution Inc.
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.
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 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.
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.
43
Hardwoods Distribution Inc.
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
44
Hardwoods Distribution Inc.
responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
• Determine, from the matters communicated with those charged with governance, those matters that
were of most significance in the audit of the financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditors’ report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated in our auditors’ report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of
such communication.
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditors’ report is Andrew James.
Vancouver, Canada
March 11, 2021
45
HARDWOODS DISTRIBUTION INC.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
Assets
Current assets:
Cash and cash equivalents
Accounts and other receivables
Income taxes receivable
Inventories
Prepaid and other assets
Total current assets
Non-current assets:
Non-current receivables and investments
Property, plant and equipment
Right of use assets
Intangible assets
Deferred income taxes
Goodwill
Total non-current assets
Total assets
Liabilities
Current liabilities:
Bank indebtedness
Accounts payable and accrued liabilities
Income taxes payable
Lease obligation
Dividend payable
Total current liabilities
Non-current liabilities:
Lease obligation
Other liabilities
Total non-current liabilities
Total liabilities
Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Shareholders’ equity
Note
December 31,
2020
December 31,
2019
$
584 $
7
15
8
7
9
10
10
15
12
118,847
—
219,386
11,082
349,899
9,109
17,168
103,066
24,557
4,068
78,089
236,057
15,118
113,740
820
207,935
9,887
347,500
2,376
20,430
93,982
28,248
4,461
72,974
222,471
$
585,956 $
569,971
13
$
15
10
5
10
14(a)
94,986 $
62,356
2,787
24,855
2,100
187,084
92,609
917
93,526
121,548
53,805
—
24,973
1,809
202,135
83,726
665
84,391
280,610
286,526
112,458
104,705
78,434
9,749
305,346
113,837
104,850
48,288
16,470
283,445
Total liabilities and shareholders’ equity
$
585,956 $
569,971
Subsequent events (note 5, 9)
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the board of directors:
(Signed) JIM C. MACAULAY Director
(Signed) WILLIAM R. SAUDER Director
46
HARDWOODS DISTRIBUTION INC.
Consolidated Statements of Comprehensive Income
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2020 and 2019
Sales
Cost of goods sold
Gross profit
Operating expenses:
Selling and distribution
Administration
Profit from operations
Finance expense
Finance income
Net finance expense
Profit before income taxes
Income tax expense:
Current
Deferred
Net profit
Other comprehensive income:
Note
17
8
$
2020
1,245,312 $
(1,005,829)
2019
1,171,921
(959,941)
239,483
211,980
(133,663)
(47,271)
(180,934)
(124,782)
(38,939)
(163,721)
58,549
48,259
(8,430)
837
(7,593)
(9,784)
626
(9,158)
50,956
39,101
(13,009)
(345)
(13,354)
(7,227)
(2,293)
(9,520)
37,602
29,581
16
16
15
15
Exchange differences translating foreign operations
(6,721)
(12,325)
Total comprehensive income
Basic net profit per share
Diluted net profit per share
$
30,881 $
17,256
14(c) $
14(c) $
1.78 $
1.76 $
1.38
1.38
The accompanying notes are an integral part of these consolidated financial statements.
47
HARDWOODS DISTRIBUTION INC.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2020 and 2019
Note
14(b)
14(a)
14(a)
Accumulated
other
comprehensive
income -
translation
reserve
Share
capital
Contributed
surplus
Retained
earnings
Total
113,837
104,850
16,470
48,288
283,445
—
1,452
(2,831)
—
—
—
1,307
(1,452)
—
—
—
—
—
—
—
—
—
(6,721)
—
—
—
37,602
(7,456)
—
1,307
—
(2,831)
37,602
(7,456)
(6,721)
Balance at January 1, 2020
Share based compensation expense
Shares issued pursuant to LTIP
Shares repurchased
Profit for the year
Dividends declared
Translation of foreign operations
Balance at December 31, 2020
$ 112,458 $ 104,705 $
9,749 $ 78,434 $ 305,346
Balance at January 1, 2019
116,524
104,467
28,795
25,653
275,439
Share based compensation expense
Shares issued pursuant to LTIP
Shares repurchased
Profit for the year
Dividends declared
Translation of foreign operations
14(b)
14(a)
—
1,016
(3,703)
—
—
—
1,399
(1,016)
—
—
—
—
—
—
—
—
—
(12,325)
—
—
—
29,581
(6,946)
—
1,399
—
(3,703)
29,581
(6,946)
(12,325)
Balance at December 31, 2019
$ 113,837 $ 104,850 $
16,470 $ 48,288 $ 283,445
The accompanying notes are an integral part of these consolidated financial statements.
48
HARDWOODS DISTRIBUTION INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Cash flow from (used in) operating activities:
Profit for the year
Adjustments for:
Depreciation and amortization
Gain on sale of property, plant & equipment and ROU
Share-based compensation expense
Income tax expense
Net finance expense
Impairment of assets
Interest received
Interest paid
Income taxes paid
Changes in non-cash working capital:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Net cash provided by operating activities
Cash flow (used in) financing activities:
(Decrease) increase in bank indebtedness
Principle payments on finance lease obligation
Repurchase of common shares
Dividends paid to shareholders
Net cash used in financing activities
Cash flow from (used in) investing activities:
Additions to property, plant & equipment
Disposal of property, plant & equipment and ROU
Business acquisitions
Additions to internally generated software
Receipt (payments) on non-current receivables
Increase in investments
Net cash used in investing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Foreign exchange gain on cash held in foreign currency
Note
2020
2019
$
37,602 $
29,581
9
14(b)
15
16
9
14(a)
5
9
4
11
31,229
(547)
3,551
13,354
7,593
3,085
459
(3,347)
(9,471)
83,508
287
(2,308)
(1,475)
1,845
(1,651)
81,857
(26,252)
(27,976)
(2,831)
(7,165)
(64,224)
(2,804)
607
(22,802)
(316)
317
(7,700)
(32,698)
27,953
(635)
2,249
9,520
9,158
—
626
(4,293)
(7,299)
66,860
3,180
16,107
(5,442)
12,099
25,944
92,804
13,317
(26,346)
(3,443)
(6,854)
(23,326)
(3,321)
664
(52,850)
(282)
(118)
—
(55,907)
(15,065)
13,571
15,118
1,547
531
—
Cash and cash equivalents, end of period
$
584 $
15,118
Supplementary information:
Property, plant & equipment acquired
under finance leases, net of disposals
Transfer of accounts receivable to non-current customer
notes receivable
Future cash settlement of LTIP's in accrued Liabilities and
non-current liabilities
The accompanying notes are an integral part of these consolidated financial statements.
36,220
18,352
—
573
2,804
1,208
49
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
1. Nature of operations:
Hardwoods Distribution Inc. (the “Company”) is incorporated under the Canada Business Corporations Act and trades on
the Toronto Stock Exchange under the symbol “HDI.” The Company operates a network of 70 distribution centers in
Canada and the US engaged in the wholesale distribution of architectural building products to customers that supply end-
products to the residential and commercial construction markets. The Company also has a sawmill and kiln drying
operation in Clinton, Michigan. The Company's principal office is located at #306, 9440 202nd Street, Langley, British
Columbia V1M 4A6.
2. Basis of preparation:
(a) Statement of compliance:
These consolidated financial statements of the Company have been prepared in accordance with International
Financial Reporting Standards (“IFRS”). The consolidated financial statements were authorized for issue by the Board
of Directors on March 11, 2021.
(b) Basis of measurement:
These consolidated financial statements have been prepared on a going concern basis under on the historical cost
method.
(c) Functional and presentation currency:
These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional
currency. The Company's subsidiaries operating in the United States have a US dollar functional currency. All
financial information presented in the consolidated financial statements, with the exception of per share amounts, has
been rounded to the nearest thousand dollar unless otherwise stated.
(d) Use of estimates and judgment:
The preparation of these consolidated financial statements in accordance with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting year. Actual amounts may differ from the estimates applied in the preparation of these
consolidated financial statements.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the year in which the estimates are revised and in any future years affected.
The potential impacts of COVID-19 on the Company's critical accounting estimates are being monitored on a regular
basis. There were no significant impact during the year ended December 31, 2020.
Information about significant areas of estimation uncertainty in applying policies that have the most significant effect
on the amounts recognized in the consolidated financial statements is included in the following notes:
•
•
•
•
Note 12 - the annual goodwill impairment test;
Note 7 - the collectability of accounts receivable and the determination of the allowance for credit loss;
Note 8 - the valuation of inventories; and
Note 15 - the recognition of deferred income taxes and utilization of tax loss carry forwards.
Critical judgments in applying policies that have the most significant effect on the amounts recognized in the
consolidated financial statements are included in the following notes:
•
Note 10 - the classification and valuation of lease obligations.
50
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
2. Basis of preparation (continued):
(d) Use of estimates and judgment (continued):
In assessing the Company’s leases, judgment is required in determining whether substantially all of the risks and
rewards of ownership are transferred to the Company. This involves assessing the term of each lease, the risk
associated with the residual value of leased vehicles and assessing the present value of the minimum lease
payments in relation to the fair value of the vehicle and forklift at the inception of the lease.
For deferred income taxes, judgment is required in determining whether it is probable that the Company’s net
deferred tax assets will be realized prior to their expiry. In making such a determination, the Company considers the
carry forward periods of losses and the Company’s projected future taxable income.
3. Significant accounting policies:
The significant accounting policies that have been used in the preparation of these consolidated financial statements are
summarized below. These accounting policies have been applied consistently by the Company and its subsidiaries to all
years presented in these consolidated financial statements.
(a) Principles of consolidation and business acquisitions:
These consolidated financial statements include the accounts of the Company and its subsidiaries. All significant
inter-company balances and transactions have been eliminated on consolidation.
The Company accounts for business combinations using the acquisition method when control is transferred to the
Company. The consideration transferred in the acquisition is measured at fair value, as are the identifiable net assets
acquired. The Company measures goodwill in business acquisitions as the fair value of the consideration transferred
less the fair value of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.
Transaction costs, other than those associated with the issuance of debt or equity securities, are expensed as
incurred.
(b) Foreign currencies:
Foreign currency transactions
Foreign currency transactions are translated into the respective functional currencies of the Company, and its
subsidiaries, using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate
in effect at the financial statement date. Non-monetary assets and liabilities that are measured at fair value in a
foreign currency are translated to the functional currency at the exchange rate when the fair value was determined.
Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange
rate at the date of the transaction. Foreign currency differences are generally recognized in the profit or loss and
presented within finance expense.
Translation of foreign operations for consolidation
For purposes of consolidation, the assets and liabilities of foreign operations with functional currencies other than the
Canadian dollar are translated to Canadian dollars using the rate of exchange in effect at the financial statement date.
Revenue and expenses of the foreign operations are translated to Canadian dollars at exchange rates at the date of
the transactions. Foreign currency differences resulting from translation of the accounts of foreign operations are
recognized directly in other comprehensive income and are accumulated in the translation reserve as a separate
component of shareholders' equity.
51
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
3. Significant accounting policies (continued):
(b) Foreign currencies (continued):
Gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of
which is neither planned nor likely in the foreseeable future, are considered to form part of the net investment in a
foreign operation and are recognized directly in other comprehensive income in the cumulative amount of foreign
currency translation differences. When a foreign operation is disposed of the amount of the associated translation
reserve is fully transferred to profit or loss.
(c) Segment reporting:
Operating segments are based on the information about the components of the business that management uses to
make decisions about operating matters. The subsidiaries of the Company engage in one main business activity
being the sourcing and distribution of architectural grade building products, hence operating segment information is
not provided. Geographical segment information is provided by country of operations in note 17.
(d) Revenue recognition:
Revenue from the sale of architectural grade building products is measured based on the consideration specified in
the invoice with a customer and excludes amounts collected on behalf of third parties. 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.
(e) Finance expense and income:
Finance expense is primarily comprised of interest on the Company’s operating lines of credit, notes payable and the
unwinding of the discount on the Company’s finance lease obligations. Interest on these liabilities is expensed using
the effective interest method.
Finance income is comprised of interest earned on cash balances, imputed interest income on employee loans
receivable, and interest charged and received or receivable on trade accounts receivable and notes receivable from
customers. Finance income is recognized as it accrues using the effective interest method.
Foreign exchange gains and losses are reported on a net basis as either finance income or finance expense.
(f) Prepaid and other assets:
Prepaid and other assets includes prepaid expenses and inventory purchases for which payment has been made but
control of the inventory has not transferred to the Company.
(g)
Inventories:
Finished goods are measured at the lower of cost and net realizable value. Raw materials are measured at the lower
of cost and replacement cost. Work-in-process and goods-in-transit are measured at cost. For purchased wood
products, cost is determined using the weighted average cost method and includes invoice cost, duties, freight, and
other directly attributable costs of acquiring the inventory. For manufactured wood products, cost is defined as all
costs that relate to bringing the inventory to its present condition and location under normal operating conditions and
includes manufacturing costs, such as raw materials and labor and production overhead.
Net realizable value is the estimated selling price in the ordinary course of business less any applicable selling
expenses.
Volume rebates and other supplier discounts are accounted for as a reduction of the cost of the related inventory and
are earned when inventory is sold.
52
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
3. Significant accounting policies (continued):
(h) Property, plant and equipment:
Items of property, plant and equipment are carried at acquisition cost less accumulated depreciation and accumulated
impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset.
Depreciation is provided at straight-line rates sufficient to depreciate the cost of the assets over their estimated useful
lives less estimated residual values as follows:
Assets
Buildings, machinery and equipment
Leased vehicles
Leasehold improvements
Estimated useful life
3 to 30 years
Over the term of the lease
Over the term of the lease
Leased assets are depreciated over the lease term unless the useful life is shorter than the lease term. If a significant
component of an asset has a useful life that is different from the remainder of the asset, then that component is
depreciated separately.
Depreciation methods, material residual value estimates and estimates of useful lives are reviewed at each financial
year end and updated as considered necessary.
Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between
the disposal proceeds and the carrying amount of the assets and are recognized in profit or loss at the time of the
disposal.
(i)
Intangible assets:
Intangible assets with finite lives consist of acquired customer relationships and costs capitalized for internally
generated software. The customer relationships are amortized on a straight-line basis over their estimated useful life
of 10 years and are measured at cost less accumulated amortization. Costs capitalized for internally generated
software consist of costs incurred in the development and implementation of the software and amortization begins
when the software is substantially completed and ready for use. Costs capitalized for internally generated software
are amortized on a straight-line basis over their estimated useful life of 10 years and are measured at cost less
accumulated amortization. Amortization methods, useful lives and residual values are reviewed at each reporting date
and adjusted if appropriate.
(j) Goodwill:
Goodwill represents the excess, at the dates of acquisition, of the purchase price over the fair value of the net
amounts assigned to individual assets acquired and liabilities assumed relating to business acquisitions. After initial
measurement in a business combination, goodwill is recorded at cost less accumulated impairment losses.
Goodwill is allocated to the cash generating unit or group of cash generating units that are expected to receive the
benefits from the business combinations. The Company tests goodwill for impairment on an annual basis. The
Company also performs an impairment test whenever events or changes in circumstances indicate that the carrying
value of a cash generating unit exceeds its recoverable amount. An impairment loss for goodwill is not reversed.
53
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
3. Significant accounting policies (continued):
(k)
Impairment:
Non-financial assets
The carrying values of the Company’s non-financial assets are reviewed at each reporting date to assess whether
there is any indication of impairment. If any such indication is present, then the recoverable amount of the assets is
estimated.
The recoverable amount of an asset or cash generating unit is the greater of its value in use or its fair value less costs
to sell. In assessing 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 the purposes of impairment testing, assets are grouped at lowest levels that generate cash inflows from
continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash
generating unit”).
An impairment loss is recognized if the carrying amount of an asset or its cash generating unit exceeds its estimated
recoverable amount. Impairment losses are recognized in profit and loss. Impairment losses recognized in prior
years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment charge is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortization, if no impairment loss had been
recognized.
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have
had a negative effect on the estimated future cash flows of that asset.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of
an amount due to the Company on terms that the Company would not consider otherwise, or indications that a debtor
or issuer will enter bankruptcy.
The Company considers evidence of impairment for financial assets, and in particular receivables, at both a specific
asset and account balance level.
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.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between
its carrying amount and the present value of the estimated future cash flows, discounted at the original effective
interest rate.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment
loss is recognized. For financial assets measured at amortized cost, this reversal is recognized in profit or loss.
(l) Financial instruments:
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual
provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the cash
flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.
A financial liability is derecognized when it is extinguished, discharged, cancelled or expires.
Financial assets and financial liabilities are measured initially at fair value including transaction costs.
The classification and measurement of the Company’s financial instruments is disclosed in note 6 of these
consolidated financial statements.
54
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
3. Significant accounting policies (continued):
(l) Financial instruments (continued):
Financial assets
Cash
The Company considers deposits in banks as cash and cash equivalents.
Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market. After initial recognition these are measured at amortized cost using the effective interest method,
less provisions for impairment, if any. Discounting is omitted where the effect of discounting is immaterial.
Individual receivables are considered for impairment when they are past due or when other objective evidence exists
that a specific counterparty will default. Impairment of trade receivables is presented within selling and distribution
expenses.
Loans receivable consist of notes from customers and loans to employees for relocation costs, discounted using the
effective interest method. Interest revenue on these loans is recognized within finance income.
Investments
IFRS 9 uses a single approach to determine whether a financial asset is classified and measured at amortized cost or
at fair value. The classification and measurement of financial assets is based on the Company’s business models for
managing its financial assets and whether the contractual cash flows represent solely payments of principal and
interest (“SPPI”). Financial assets are initially measured at fair value and are subsequently measured at either (i)
amortized cost; (ii) fair value through other comprehensive income (“FVTOCI”), or (iii) at fair value through profit or
loss (“FVTPL”).
Financial assets that are held for the purpose of collecting contractual cash flows that are SPPI are classified as
amortized cost. Amortized cost financial assets are initially recognized at their fair value and are subsequently
measured at amortized cost using the effective interest rate method. Transaction costs of financial instruments
classified as amortized cost are capitalized and amortized into the consolidated statement of comprehensive income
on the same basis as the financial instrument.
Financial assets that are held for both the purpose of collecting contractual cash flows and selling financial assets that
have contractual cash flows that are SPPI are classified as FVTOCI. FVTOCI financial instruments are recognized at
fair value at initial recognition and at each reporting date, with gains and losses accumulating in other comprehensive
income until the asset is derecognized, at which point the cumulative gains or losses are reclassified to profit or loss.
IFRS 9 provides an election to designate equity instruments at FVTOCI that would otherwise be classified as FVTPL.
Equity instruments designated at FVTOCI must be made on an instrument-by-instrument basis and if elected,
subsequent changes in fair value are recognized in other comprehensive income only and are not transferred into
profit or loss upon disposition.
Financial assets that are not measured at amortized cost or at FVTOCI are measured at FVTPL. FVTPL financial
assets are recognized at fair value at initial recognition and at each reporting date, with gains and losses recognized
in the consolidated statement of comprehensive income. Transaction costs of financial assets classified as FVTPL are
recognized in profit or loss as they are incurred.
The Company recognizes our investments at FVTPL.
Financial liabilities
Loans, payables, and lease obligations are non-derivative financial liabilities with fixed or determinable payments that
are not quoted in an active market. After initial recognition these liabilities are measured at amortized cost using the
effective interest method. Discounting is omitted when the effect of discounting is immaterial. The revolving bank line
of credit is not discounted; rather, actual interest accrued is based on the daily balances and is recorded each month.
55
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
3. Significant accounting policies (continued):
(m) Income taxes:
Income tax expense comprises current and deferred tax and is recognized in profit and loss except to the extent that
it relates to items recognized directly in equity or in other comprehensive income. Current income tax is the expected
tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date,
and any adjustment to tax payable in respect of the previous years.
Deferred tax is recognized by the Company and its subsidiaries in respect of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss; differences relating to investments in
subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and taxable differences
arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset only when the Company has a legally enforceable right and intention to
set off current tax assets and liabilities from the same taxation authority.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the
extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred 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.
(n) Provisions:
Provisions are recognized in the statement of financial position when the Company has a present legal or
constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required
to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the liability.
(o) Basic and diluted profit per share:
The Company presents basic and diluted profit per share data for its outstanding common shares. Basic profit per
share attributable to shareholders is calculated by dividing profit by the weighted average number of common shares
outstanding during the reporting year. Diluted profit per share is determined by adjusting the profit attributable to
common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive
potential common shares.
(p) Share based compensation:
The Company has a share based long-term incentive plan as described in note 14(b). At the discretion of the Board
of Directors, the Restricted Shares and Performance Shares to which a grantee is entitled may be settled by the
Company in Shares or in an amount of cash equal to the fair market value of such Shares, or a combination of the
foregoing.
56
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
3. Significant accounting policies (continued):
(p) Share based compensation (continued):
The Company is accounting for half of the Restricted Shares and Performance Shares as employee equity settled
awards whereby the compensation cost is determined based on the grant date fair value and is recognized as an
expense with a corresponding increase to contributed surplus in equity over the period that the employees
unconditionally become entitled to payment. 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. For the remaining
50% of Restricted and Performance Shares that can be settled in either cash or common shares at the employees
option, the Company accounts for the award as cash-settled share based compensation. Compensation expense is
recorded over the vesting period based on the estimated fair value at the date of grant. The fair value of this 50%
portion of the Restricted and Performance Shares is subsequently re-measured at each reporting date with any
change in fair value reflected in share based compensation expense in the statement of comprehensive income. The
liability associated with cash-settled awards is recorded in accounts payable and accrued liabilities, for amounts
expected to be settled within one year, and in non-current liabilities for amounts to be settled in excess of one year.
(q) Leases ("IFRS 16")
Under IFRS 16, a lessee is required to do the following: (i) recognize a right-of-use (ROU) asset and a lease liability,
initially measured at the present value of the lease payments, on the balance sheet; and (ii) recognize a front-loaded
pattern of expense for most leases, even when cash rentals are constant, as the right-of-use asset is depreciated and
the lease liability is accreted using the effective interest method. The Company’s operating leases, which are
principally comprised of its warehouse facilities and automobiles, are recorded in the statements of financial position
as a lease obligation with a corresponding ROU asset.
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or
contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset,
the Company assess whether:
•
•
•
the contract involves the use of an identified asset - this may be specified explicitly or implicitly, and
should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If
the supplier has a substantive substitution right, then the asset is not identified;
the Company has the right to obtain substantially all of the economic benefits from use of the asset
throughout the period of use; and
the Company has the right to direct the use of the asset. The Company has this right when it has the
decision-making rights that are most relevant to changing how and for what purpose the asset is used.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use
asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to
the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful
lives of the right-of-use assets are determined on the same basis as those of property, plant and equipment. In
addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-
measurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, the Company’s incremental borrowing rate.
57
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
3. Significant accounting policies (continued):
(q) Leases ("IFRS 16") (continued):
Lease payments included in the measurement of the lease liability comprise:
•
•
•
•
•
fixed lease payments;
amounts expected to be payable under a residual value guarantee;
the exercise price under a purchase option that the Company is reasonably certain to exercise;
lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension
option; and
penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a
change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s
estimate of the amount expected to be payable under a residual value guarantee or if the Company changes its
assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the
right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to
zero.
Some of the Company’s leases of office buildings contain extension options exercisable up to one year before the
end of the non-cancellable contract period. The extension options held are exercisable only by the Company and not
by the lessors. The Company assesses at lease commencement whether it is reasonably certain to exercise the
extension options. The Company reassesses whether it is reasonably certain to exercise the options if there is a
significant event or significant change in circumstances within its control. The assessment of whether the Company is
reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease
liabilities and right-of-use assets recognized.
(r) Future accounting pronouncements:
Several new standards, and amendments to standards and interpretations, are not yet effective for the year ended
December 31, 2020, and have not been applied in preparing these consolidated financial statements. None are
currently considered by the Company to be significant or likely to have a material impact on future financial
statements.
4. Business acquisitions:
The purchase price allocations at the transaction dates are summarized as follows:
Current assets acquired
Property, plant and equipment
Intangible assets
Goodwill
Current liabilities assumed
Net assets acquired
Consideration
December 31,
2020
December 31,
2019
$
19,916 $
20,002
1,351
—
6,703
27,970 $
6,013
14,595
19,966
60,576
(5,168)
(7,726)
22,802 $
52,850
22,802 $
52,850
$
$
$
58
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
4. Business acquisitions (continued):
(a) River City Millwork Inc.
On December 14, 2020, the Company acquired through one of its wholly owned subsidiaries substantially all of the
assets and assumed certain liabilities of River City Millwork Inc. ("River City") for a total value of $5.6 million (US$4.3
million). The acquisition was accounted for as a business combination under the acquisition method. The fair value of
River City's identified assets acquired consisted of accounts receivable and other assets of $1.9 million (US$1.5
million), inventories of $2.1 million (US$1.6 million), property, plant and equipment of $0.9 million (US$0.7 million), and
payables and accruals of $0.7 million (US$0.5 million). Goodwill of $1.4 million (US$1.1 million) was recognized as
part of this acquisition and is attributable to the skills and talent of River City's workforce, value of the customer base,
and an increase in market share. The goodwill is deductible for tax purposes.
(b) Aura Hardwoods
On December 8, 2020, the Company acquired through one of its wholly owned subsidiaries substantially all of the
assets and assumed certain liabilities of Aura Hardwoods ("Aura") for a total value of $13.5 million (US$10.6 million).
The acquisition was accounted for as a business combination under the acquisition method. The fair value of Aura's
identified assets acquired consisted of accounts receivable and other assets of $4.9 million (US$3.8 million),
inventories of $9.5 million (US$7.4 million), property, plant and equipment of $0.2 million (US$0.2 million), and
payables and accruals of $4.0 million (US$3.1 million). Goodwill of $2.9 million (US$2.3 million) was recognized as
part of this acquisition and is attributable to the skills and talent of Aura's workforce, value of the customer base, and
an increase in market share. The goodwill is deductible for tax purposes.
(c) Diamond Hardwoods
On March 9, 2020, the Company acquired through one of its wholly owned subsidiaries substantially all of the assets
and assumed certain liabilities of Diamond Hardwoods ("Diamond") for total consideration for $3.7 million (US$3.0
million). The acquisition was accounted for as a business combination under the acquisition method. The fair value of
Diamond's identified assets acquired consisted of accounts receivable and other receivables of $0.3 million (US$0.2
million), inventories of $1.2 million (US$0.9 million), property, plant and equipment of $0.1 million (US$0.1 million), and
payables and accruals of $0.3 million (US$0.2 million). Goodwill of $2.4 million (US$1.8 million) was recognized as
part of this acquisition and is attributable to the skills and talent of Diamond's workforce, value of the customer base,
and an increase in market share. The goodwill is deductible for tax purposes.
(d) Pacific Mutual Door Company
On October 28, 2019, the Company acquired through one of its wholly owned subsidiaries substantially all of the
assets and assumed certain liabilities of Pacific Mutual Door Company ("Pacific") for total estimated consideration for
$48.0 million (US$36.2 million). Pacific operates four distribution centres in the US and is engaged in the distribution of
interior and exterior doors, custom millwork, and other ancillary architectural building products to customers that supply
end products to the residential and commercial construction markets.
The acquisition was accounted for as a business combination using the acquisition method, with the Company being
the acquirer and Pacific being the acquiree, and where the assets acquired and liabilities assumed are recorded at
their fair values at the acquisition date. The fair value of Pacific's identified assets and liabilities assumed in
accordance with the acquisition method are as follows:
59
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
4. Business acquisitions (continued):
(d) Pacific Mutual Door Company (continued)
Cash consideration
Assets acquired and liabilities assumed:
Accounts and other receivables
Inventories
Prepaid expenses
Property plant and equipment
Right of use asset
Intangible assets - customer relationships
Accounts payable and accrued liabilities
Lease obligation
Identifiable net assets acquired
Goodwill
Net assets acquired
US$
$36,199
CAD$
$48,028
7,332
6,349
87
1,059
3,387
11,000
(2,137)
(3,387)
23,690
9,728
8,424
114
1,405
4,493
14,595
(2,837)
(4,493)
31,429
12,510
$36,200
16,599
$48,028
The goodwill of $16.6 million (US$12.5 million) is attributable primarily to the skills and talent of Pacific's workforce,
and synergies expected to be achieved in respect of purchasing power with vendors, increase in market share, and
operational efficiencies related to the combined operations. The goodwill is deductible for tax purposes.
The intangible assets of $14.6 million (US$11.0 million) primarily represent the value of customer relationships
acquired and are being amortized over 10 years, which is the period the Company expects to benefit from these
relationships. The intangible asset is deductible for tax purposes.
The purchase price was financed by the Company's US credit facility. In connection with the acquisition, the Company
amended its US credit facility, see note 12 for further details. Transaction costs of $0.4 million were incurred in
connection with the acquisition, and have been expensed in the consolidated statements of comprehensive income.
Had the Pacific Acquisition occurred on January 1, 2019 management estimates that the Company’s consolidated
sales would have been approximately $1,249.2 million and profit before income tax would have been approximately
$45.1 million for the year ended December 31, 2019. Included in these consolidated financial statements for the year
ended December 31, 2019 are sales of $12.7 million (US$9.6 million) and profit before income tax of $0.5 million
(US$0.4 million) relating to Pacific.
Transaction costs of $0.4 million were incurred in connection with the acquisition, and have been expensed in the
consolidated statements of comprehensive income.
(e) Far West Plywood Company
On January 28, 2019, the Company acquired through one of its wholly owned subsidiaries substantially all of the
assets and assumed certain liabilities of Far West Plywood Company ("Far West") for a total value of $4.8 million
(US$3.6 million). The fair value of Far West's identified assets acquired consisted of accounts and other receivables of
$0.5 million (US$0.4 million), inventories of $1.3 million (US$0.9 million), property, plant and equipment of $0.1 million
(US$0.1 million) and accrued liabilities of $0.4 million (US$0.3 million). Goodwill of $3.4 million (US$2.5 million) was
recognized as part of this acquisition and is attributable to the skills and talent of Far West's workforce, value of the
customer base, and an increase in market share. The goodwill is deductible for tax purposes.
60
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
5. Capital management:
The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and
to sustain future growth of the business. The Company considers its capital to be bank indebtedness (net of cash) and
shareholders’ equity.
The Company’s capitalization is as follows:
Cash
Bank indebtedness
Shareholder’s equity
Total capitalization
December 31,
2020
December 31,
2019
$
(584) $
94,986 $
305,346
(15,118)
121,548
283,445
$
399,748 $
389,875
The terms of the Company’s US and Canadian credit facilities are described in note 13. The terms of the agreements with
the Company’s lenders provide that distributions cannot be paid by its subsidiaries in the event that its subsidiaries do not
meet certain credit ratios. The Company’s operating subsidiaries were compliant with all required credit ratios under the
US and Canadian credit facilities as at December 31, 2020 and December 31, 2019, and accordingly there were no
restrictions on distributions arising from non-compliance with financial covenants.
Dividends and share repurchases are some of the ways the Company manages its capital. Dividends are declared and
shares are repurchased after consideration of a variety of factors including the outlook for the business and financial
leverage.
On November 6, 2020, the Company declared a cash dividend of $0.10 per common share to shareholders of record as of
January 18, 2021. The dividend was paid to shareholders on January 29, 2021. On March 11, 2021, the Company
declared a cash dividend of $0.10 per common share to shareholders of record as of April 19, 2021, to be paid on April 30,
2021.
6. Financial instruments:
Financial instrument assets include cash and current and non-current receivables, which are designated as subsequently
measured at amortized cost and investments which are designated as FVTPL. Non-derivative financial instrument
liabilities include bank indebtedness, accounts payable and accrued liabilities, income taxes payable, dividend payable,
notes payable and finance lease obligation. All financial liabilities are designated as subsequently measured at amortized
cost.
Fair value hierarchy
IFRS 13 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three
levels of the fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical
assets or liabilities.
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly, for substantially the full contractual term.
Level 3 - Inputs for the asset or liability are not based on observable market data.
The Company's cash and cash equivalents are classified as level 1 and all other financial instruments are classified as
level 2 of the fair value hierarchy.
61
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
6. Financial instruments (continued):
Fair values of financial instruments
The carrying values of cash and cash equivalents, accounts and other receivables, income taxes receivable, dividend
payable and accounts payable and accrued liabilities approximate their fair values due to the relatively short period to
maturity of the instruments. The fair value of non-current receivables and investments, other liabilities and finance lease
obligations are not expected to differ materially from their respective carrying values, given the interest rates applicable to
these financial instruments. The carrying values of the credit facilities approximate their fair values due to the existence of
floating market based interest rates.
Financial risk management:
The Board of Directors of the Company and its subsidiaries has the overall responsibility for the establishment and
oversight of the Company’s risk management framework. The Company’s risk management policies are established to
identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and
adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and in response to the Company’s activities. Through its standards and procedures management has
developed a disciplined and constructive control environment in which all employees understand their roles and
obligations. Management regularly monitors compliance with the Company’s risk management policies and procedures
and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.
The Company has exposure to credit, liquidity and market risks from its use of financial instruments.
(i) Credit risk:
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations. Credit risk arises principally from the Company’s cash held at banks, and current
and non-current receivables. The carrying value of these financial assets, which total $122.1 million at December 31,
2020 (December 31, 2019 - $131.0 million), represents the Company’s maximum exposure to credit risk.
Trade accounts receivable
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The
Company is exposed to credit risk in the event it is unable to collect in full amounts receivable from its customers.
The Company employs established credit approval practices and engages credit attorneys when appropriate to
mitigate credit risk. The Company attempts to secure credit advanced to customers whenever possible by registering
security interests in the assets of the customer and by obtaining personal guarantees. Credit limits are established
for each customer and are regularly reviewed. In some instances the Company may choose to transact with a
customer on a cash-on-delivery basis. The Company’s largest individual customer balance amounted to 1.4%
(December 31, 2019 - 2.0%) of trade accounts receivable and customer notes receivable at December 31, 2020. No
one customer represents more than 1.0% of sales.
More detailed information regarding management of trade accounts receivable is found in note 7 to these
consolidated financial statements.
Customer notes:
Customer notes are issued to certain customers to provide fixed repayment schedules for amounts owing that have
been agreed will be repaid over longer periods of time. The terms of each note are negotiated with the customer. For
notes issued, the Company requires a fixed payment amount, personal guarantees, general security agreements, and
security over specific property or assets. Customer notes bear market interest rates up to 10%.
Security deposits:
Security deposits are recoverable on leased premises at the end of the related lease term. The Company does not
believe there is any material credit risk associated with its security deposits.
62
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
6. Financial instruments (continued):
(i) Credit risk (continued):
Cash and investments:
Cash and investment balances are maintained with high credit quality financial institutions. The Company does not
believe there is any material credit risk associated with cash and investments.
(ii) Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company’s approach to managing liquidity is to ensure that it will have sufficient cash available to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the
Company’s reputation. At December 31, 2020, in Canada, a subsidiary of the Company had a revolving credit facility
of up to $25.0 million, and, in the US, a subsidiary of the Company had a revolving credit facility of up to $191.0
million (US$150.0 million). These credit facilities can be drawn down to meet short-term financing requirements,
including fluctuations in non-cash working capital. The amount made available under the revolving credit facilities is
limited to the extent of the value of certain accounts receivable and inventories held by subsidiaries of the Company,
as well as by continued compliance with credit ratios and certain other terms under the credit facilities. See note 13
for further information regarding the Company’s credit facilities and borrowing capacity.
The Company’s accounts payable and accrued liabilities are subject to normal trade terms and have contracted
maturities that will result in payment in the following quarter. The undiscounted contractual maturities of finance lease
obligations are presented in note 10 to these consolidated financial statements.
(iii) Market risk:
Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates, and commodity
prices will affect the Company’s net earnings or value of its holdings of financial instruments.
Interest rate risk
The Company is exposed to interest rate risk on its credit facilities which bear interest at floating market rates. Based
upon the December 31, 2020 bank indebtedness balance of $95.0 million, a 1% increase or decrease in the interest
rates charged would result in a decrease or increase to profit after tax by approximately $0.6 million.
Currency risk
As the Company conducts business in both Canada and the United States it is exposed to currency risk. Most of the
products sold by the Company in Canada are purchased in U.S. dollars from suppliers in the United States. Although
the Company reports its financial results in Canadian dollars, approximately 90% of its sales are generated in the
United States. Changes in the currency exchange rates of the Canadian dollar against the U.S. dollar will affect the
results presented in the Company’s financial statements and cause its earnings to fluctuate. Changes in the costs of
products purchased by the Company in the United States as a result of the changing value of the Canadian dollar
against the U.S. dollar are usually absorbed by the Canadian market. When the products are resold in Canada it is
generally sold at a Canadian dollar equivalent selling price, and accordingly revenues in Canada are effectively
increased by decreases in value of the Canadian dollar and vice versa.
At December 31, 2020, the primary exposure to foreign denominated financial instruments was in the Company’s
Canadian subsidiaries and relates to U.S. dollar cash balances, accounts receivable from U.S. customers (2020 -
US$0.2 million, 2019 - US$0.9 million) and accounts payable to U.S. suppliers (2020 - US$0.7 million, 2019 - US$1.3
million).
63
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
6. Financial instruments (continued):
(iii) Market risk (continued):
Based on the Company's Canadian subsidiaries exposure to foreign denominated financial instruments, the
Company estimates a $0.05 weakening or strengthening in the Canadian dollar as compared to the U.S. dollar would
not have a material effect on net profit for the years ended December 31, 2020 or December 31, 2019.
This foreign currency sensitivity is focused solely on the currency risk associated with the Company’s Canadian
subsidiaries exposure to foreign denominated financial instruments as at December 31, 2020 and December 31,
2019 and does not take into account the effect a change in currency rates will have on the translation of the balance
sheet and operations of the Company’s U.S. subsidiaries nor is it intended to estimate the potential impact changes in
currency rates would have on the Company’s sales and purchases.
Commodity price risk:
The Company does not enter in to any commodity contracts. Inventory purchases are transacted at current market
rates based on expected usage and sale requirements and increases or decreases in prices are reflected in the
Company’s selling prices to customers.
7. Accounts receivables and others:
The following is a breakdown of the Company’s current and non-current receivables and represents the Company’s
principal exposure to credit risk.
December 31,
2020
December 31,
2019
$
14,761 $
102,026
5,306
825
122,918
13,401
98,877
4,387
1,257
117,922
4,071
4,182
$
118,847 $
113,740
$
— $
473
2,153
2,626
825
1,801
7,308
9,109 $
$
$
120
1,065
2,448
3,633
1,257
2,376
—
2,376
Trade accounts receivable - Canada
Trade accounts receivable - United States
Sundry receivable
Current portion of non-current receivables
Less:
Allowance for credit loss
Non-current receivables:
Employee housing loans
Customer notes
Security deposits
Less:
Current portion, included in accounts receivable
Investments
64
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
7. Accounts and other receivables (continued):
The aging of trade receivables is:
Current
1 - 30 days past due
31 - 60 days past due
60+ days past due
December 31,
2020
December 31,
2019
86,618
19,248
5,361
5,560
77,922
20,015
8,061
6,280
$
116,787 1
1
$
112,278
The Company determines its allowance for credit loss 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 effective credit loss model for the remaining customer accounts based on historical
experience of uncollectable amounts. Accounts that are considered uncollectable are written off. The total allowance at
December 31, 2020 was $4.1 million (December 31, 2019 - $4.2 million). The amount of the allowance is determined
based on the past experience of the business, current and expected collection trends, the security the Company has in
place for past due accounts and management’s regular review and assessment of customer accounts and credit risk.
Bad debt expense, net of recoveries, for the year ended ended December 31, 2020 was $0.6 million which equates to
0.1% of sales (for the year ended December 31, 2019 - $2.2 million, being 0.2% of sales).
8.
Inventories:
Raw materials
Work in process
Goods in-transit
Finished goods
December 31,
2020
December 31,
2019
$
1,271 $
3,135
23,602
191,378
1,171
3,821
8,442
194,501
$
219,386 $
207,935
The Company regularly reviews and assesses the condition and value of its inventories and records write-downs to net
realizable value as necessary.
Inventory related expenses are included in the consolidated statements of comprehensive income as follows:
Inventory write-downs, included in cost of goods sold
$
2,069 $
2,453
Cost of inventory sold
Other cost of goods sold
Total cost of goods sold
958,275
47,554
1,005,829 $
$
913,363
46,578
959,941
2020
2019
65
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
9. Property, plant and equipment:
Cost
Balance at January 1, 2019
Additions
Acquisition of Far West and Pacific (note 4)
Disposals
Adjustments:
Foreign currency translation
Balance at December 31, 2019
Additions
Acquisition of Diamond, Aura and River (note 4)
Disposals
Adjustments:
Foreign currency translation
Balance at December 31, 2020
Accumulated depreciation
Balance at January 1, 2019
Depreciation
Disposals
Adjustments:
Foreign currency translation
Balance at December 31, 2019
Depreciation
Disposals
Impairment
Adjustments:
Foreign currency translation
Balance at December 31, 2020
Net book value:
December 31, 2019
December 31, 2020
Buildings,
machinery
and
equipment
Land
Leasehold
improvements
Total
838 $
18
—
—
36,134 $
2,952
1,520
(1,530)
1,722 $
351
—
(131)
38,694
3,321
1,520
(1,661)
(40)
(1,672)
(53)
(1,765)
816
(18)
—
—
37,404
2,148
1,351
(1,746)
1,889
674
—
(88)
40,109
2,804
1,351
(1,834)
(16)
(694)
(47)
(757)
782 $
38,463 $
2,428 $
41,673
— $
—
—
17,272 $
3,558
(1,456)
1,065 $
173
(124)
18,337
3,731
(1,580)
—
—
—
—
—
—
(770)
(39)
(809)
18,604
3,748
(1,613)
3,085
1,075
279
(79)
—
19,679
4,027
(1,692)
3,085
(588)
(6)
(594)
— $
23,236 $
1,269 $
24,505
816 $
782 $
18,800 $
15,227 $
814 $
1,159 $
20,430
17,168
$
$
$
$
$
$
On March 10, 2021 the Company entered into an agreement to sell substantially all of the assets related to it's sawmill
and kiln drying operation in Clinton, Michigan to a third party. Proceeds of the sale are expected to be $11.5 million
(US$9.0 million), and this transaction resulted in a write down of property, plant and equipment of $3.1 million (US$2.3
million). This loss was recorded in the fourth quarter of 2020.
Depreciation of property, plant and equipment for the year ended December 31, 2020 was $4.0 million (2019 - $3.7
million) and is included in the statement of comprehensive income as follows:
66
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
9. Property, plant and equipment (continued):
Cost of sales
Selling and distribution
Administration
$
2020
1,783
2,081
163
$
2019
1,766
1,708
257
$
4,027
$
3,731
Gains and losses on disposal of property, plant and equipment for the year ended December 31, 2020 was a net gain of
$0.1 million (2019 - net gain of $0.2 million) and is included in selling and distribution in the statement of comprehensive
income.
10. Leases:
The Company leases many assets including buildings, automobiles and forklifts. Information about leases for which the
Company is a lessee is presented below.
Right-of-use assets
Balance at January 1, 2019
Additions
Acquisition (Note 4)
Disposals
Depreciation charge for the year
Foreign currency transaction
Buildings Automobiles
Forklifts
Total
81,020
15,380
841
97,241
18,698
4,493
(2,857)
2,775
—
(274)
—
—
—
21,473
4,493
(3,131)
(16,693)
(4,913)
(222)
(21,828)
(3,579)
(654)
(33)
(4,266)
Balance at December 31, 2019
81,082
12,314
586
93,982
Additions
Disposals
Depreciation charge for the year
Foreign currency transaction
29,997
(1,313)
6,395
(159)
85
—
36,477
(1,472)
(18,454)
(4,901)
(221)
(23,576)
(2,043)
(295)
(7)
(2,345)
Balance at December 31, 2020
89,269
13,354
443
103,066
Lease liabilities
Maturity analysis - contractual undiscounted cash flows
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities
Lease liabilities included in the statement of financial position
Current
Non-current
December 31,
2020
December 31,
2019
28,606
90,135
10,365
129,106
117,464
24,855
92,609
25,504
82,442
13,734
121,680
108,699
24,973
83,726
67
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
11. Intangible assets:
Cost
Balance at January 1, 2019
Additions
Acquisition of Pacific (Note 4(a))
Adjustments:
Foreign currency transaction
Balance at December 31, 2019
Additions
Adjustments:
Foreign currency transaction
Balance at December 31, 2020
Accumulated amortization
Balance at January 1, 2019
Amortization
Adjustments:
Foreign currency transaction
Balance at December 31, 2019
Amortization
Adjustments:
Foreign currency transaction
Balance at December 31, 2020
Net book value:
December 31, 2019
December 31, 2020
Internally
generated
software
Customer
relationships
636 $
282
—
21,504 $
—
14,595
Total
22,140
282
14,595
(28)
(1,339)
(1,367)
890
316
34,760
—
35,650
316
(26)
(685)
(711)
1,180 $
34,075 $
35,255
6 $
36
(2)
40
39
5,306 $
2,358
5,312
2,394
(302)
(304)
7,362
3,587
7,402
3,626
(1) $
(329)
(330)
78 $
10,620 $
10,698
850 $
1,102 $
27,398 $
23,455 $
28,248
24,557
$
$
$
$
$
$
Amortization of intangible assets for the year ended December 31, 2020 was $3.6 million (2019 - $2.4 million) and is
included in selling and distribution expenses in the statement of comprehensive income.
68
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
12. Goodwill:
Balance at January 1, 2019
Acquired through acquisitions (Note 4)
Adjustments:
Foreign currency translation
Balance at December 31, 2019
Acquired through acquisitions (Note 4)
Adjustments:
Foreign currency translation
Balance at December 31, 2020
$
56,120
19,966
(3,112)
$
72,974
6,703
(1,588)
$
78,089
For the purposes of impairment testing, goodwill has been allocated to the group CGU's (operating divisions) as follows:
Other
Rugby Architectural Building Products
Pacific Mutual Door Company
2020
8,410
53,750
15,929
78,089
2019
3,300
53,426
16,248
72,974
For the year ended December 31, 2020 the Company performed an impairment test for all three CGU's. The recoverable
amount of the CGU's were based on value in use, determined by discounting the future cash flows to be generated from
their continuing use. Significant assumptions used in the estimation of the recoverable amount are set out below. The
values assigned to the key assumptions represent management's assessment of future trends and are based on historical
data from both internal and external sources.
Discount rate
Gross margin percentage
2020
8 %
2019
10 %
17% - 28%
19% - 27%
The discount rate was a post-tax measure, estimated based on the historical industry average weighted-average cost of
capital. The gross margin percentage is consistent with historical experience.
The estimate recoverable amounts for the CGU's exceeded their carrying amount, and as a result the goodwill is not
impaired as at December 31, 2020. Management has identified that a possible change in significant assumptions,
including the discount rate and the gross margin percentage, could cause the carrying amount to exceed the recoverable
amount. The discount rate would have to increase from 8% to 13% - 15% before the carrying amount exceeded the
recoverable amount. The gross margin percentage would have to to decrease from 17% - 28% to 15% - 24%.
69
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
13. Bank Indebtedness:
Cheques issued in excess of funds on deposit
Credit facility, Hardwoods LP
Credit facility, Hardwoods USLP II
(December 31, 2020 - US$56,500
December 31, 2019 - US$81,650
December 31,
2020
December 31,
2019
$
1,243 $
21,806
2,489
13,013
71,937
94,986 $
106,047
121,548
$
Bank indebtedness consists of cheques issued in excess of funds on deposit and advances under operating lines of credit
(the “Credit Facilities”) available to subsidiaries of the Company, Hardwoods Specialty Products LP (“Hardwoods LP”) and
Hardwoods Specialty Product USLP II (“Hardwoods USLP II”).
The Credit Facilities are payable in full at maturity. The Credit Facilities are revolving credit facilities which the Company
may terminate at any time without prepayment penalty. The Credit Facilities bear interest at a floating rate based on the
Canadian or US prime rate (as the case may be), LIBOR or bankers’ acceptance rates plus, in each case, an applicable
margin. Letters of credit are also available under the Credit Facilities on customary terms for facilities of this nature.
Commitment fees and standby charges usual for borrowings of this nature were and are payable.
Hardwoods LP Credit Facility ("LP Credit Facility")
The LP Credit Facility consists of a revolving credit facility of $25.0 million with the amount made available limited to the
extent of 90% of the net book value of eligible accounts receivable and the lesser of 60% of the book value or 85% of
appraised value of eligible inventories with the amount based on inventories not to exceed 60% of the total amount to be
available. Certain identified accounts receivable and inventories are excluded from the calculation of the amount available
under the LP Credit Facility. The LP Credit Facility matures in August 2021 and can be prepaid anytime with no
prepayment penalty. Hardwoods LP is required to maintain a fixed charge coverage ratio of not less than 1.0 to 1.
However, this covenant does not apply so long as the unused availability under the credit line is in excess of $2.0 million.
At December 31, 2020, the LP Credit Facility has unused availability of $2.2 million, before cheques issued in excess of
funds on deposit of $1.2 million (December 31, 2019 - $10.3 million, cheques issued in excess of funds on deposit - $2.5
million).
Hardwoods USLP II Credit Facility ("USLP II Credit Facility")
In connection with the acquisition of Pacific (note 4), on October 28, 2019 the Company amended The USLP II Credit
Facility. The amendment included an increase to the revolver from US$125 million to US$150 million, and lowered
borrowing rates. The amount made available under the credit facility is limited to 85% of the value of eligible accounts
receivable, and 60% of the value of eligible inventory plus the lesser of (i) 55% of the book value of eligible in-transit
inventory or (ii) $2.0 million. The USLP II Credit Facility matures in October 2024 and can be prepaid at any time with no
prepayment penalty. The USLP II Credit Facility is guaranteed by certain of the Company's subsidiaries.
The financial covenants under the USLP II Credit Facility include, among others, a springing fixed charge coverage ratio
of 1.0 to 1, triggered if unused availability under the USLP II Credit Facility falls below US$15.0 million at any time.
In addition to the financial covenants, the ability of the Company's US subsidiaries to pay distributions and dividends,
complete acquisitions, make additional investments, take on additional indebtedness, allow its assets to become subject
to liens, complete affiliate transactions and make capital expenditures are limited and subject to the satisfaction of certain
conditions.
70
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
13. Bank Indebtness (continued):
At December 31, 2020, the USLP II Credit Facility has unused availability of $90.2 million (US$70.8 million), before
cheques issued in excess of funds on deposit of nil. At December 31, 2019, the USLP II Credit Facility had unused
availability of $59.5 million (US$45.8 million), before cheques issued in excess of funds on deposit of nil.
The Company has letters of credit outstanding at December 31, 2020 totaling $4.4 million (US$3.4 million) (December 31,
2019 - $3.6 million (US$2.8 million)) against the USLP II Credit Facility to support self-insured benefit claims.
The average annual interest rates paid in respect of bank indebtedness for the year ended December 31, 2020 were 2.5%
and 2.8% (2019 - 4.1% and 4.4%) for the LP and USLP II Credit Facilities, respectively.
14. Share capital:
(a) Share capital
At December 31, 2020, the authorized share capital of the Company comprised an unlimited number of common
shares without par value (“Shares”).
A continuity of share capital is as follows:
Balance at December 31, 2018
Issued pursuant to long term incentive plan
Share repurchase
Balance at December 31, 2019
Issued pursuant to long term incentive plan
Share repurchase
Balance at December 31, 2020
Shares
Total
21,539,116 $
87,491
(271,280)
21,355,327
108,343
(222,133)
116,524
1,016
(3,703)
113,837
1,452
(2,831)
21,241,537 $
112,458
At December 31, 2020 the Company had nil (December 31, 2019 - 0.3 million) accrued in accounts payable related to
share repurchase obligations.
(b) Long Term Incentive Plan (“LTIP”):
The Company has an approved long term incentive plan which authorizes the issuance of a maximum of 2,100,000
Shares to qualified trustees, directors, officers, employees and consultants to align the interests of such persons with
the interests of shareholders.
The LTIP is comprised of Restricted Shares and Performance Shares. Each Restricted Share will entitle the holder to
be issued the number of Shares of the Company designated in the grant agreement for that Restricted Share. Shares
issuable pursuant to Restricted Share grants will vest and be issued on the date or dates determined by the
Company’s Compensation Committee and set out in the grant agreement, provided such date or dates are not later
than December 31st following the third anniversary of the date the Restricted Share was granted. Each Performance
Share will entitle the holder to be issued the number of Shares designated in the grant agreement for the
Performance Share multiplied by a payout multiplier which may range from a minimum of zero to a maximum of two
depending on the achievement of the defined performance criteria. Shares issuable pursuant to Performance Shares
will be issued on the date set out in the grant agreement if the performance criteria are satisfied, provided such date
is not later than December 31st following the third anniversary of the date the Performance Share was granted.
71
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
14. Share capital (continued):
(b) Long Term Incentive Plan (“LTIP”) (continued):
The Shares to which a grantee is entitled under a Restricted Share or Performance Share may, at the discretion of
the Board of Directors, be settled by the Company in Shares issued from treasury, Shares purchased by the
Company in the secondary market, in an amount of cash equal to the fair market value of such Shares, or any
combination of the foregoing. Grantees have the option to settle up to 50% of the Restricted Shares and Performance
Shares in cash. The Company has made an estimate of the amount it expects to settle in cash related to future
vestings of Restricted Shares and Performance Shares. As at December 31, 2020 the fair value of the Restricted
Shares and Performance Shares estimated to be settled in the future in cash was $2.8 million (December 31, 2019 -
$1.2 million) and this value has been classified within accounts payable and accrued liabilities and non-current
liabilities.
If any Restricted Shares or Performance Shares granted under LTIP expire, terminate or are cancelled for any reason
without the Shares issuable under the Restricted Share or Performance Share having been issued in full, those
Shares will become available for the purposes of granting further Restricted Shares or Performance Shares under the
LTIP. To the extent any Shares issuable pursuant to Restricted Shares or Performance Shares are settled in cash or
with Shares purchased in the market, those Shares will become available for the purposes of granting further
Restricted Shares or Performance Shares.
The LTIP provides for cumulative adjustments to the number of Shares to be issued pursuant to Restricted Shares or
Performance Shares on each date that dividends are paid on the Shares by an amount equal to a fraction having as
its numerator the amount of the dividends per Share and having as its denominator the fair market value of the
Shares on the trading day immediately preceding the dividend payment date. Fair market value is the weighted
average price that the Shares traded on the Toronto Stock Exchange for the five trading days on which the Shares
traded immediately preceding that date.
The LTIP provides that the number of Shares issued to insiders or employees pursuant to the plan and other Share
compensation arrangements of the Company within a one year period, or at any one time, may not exceed 10% of
the issued and outstanding Shares.
A continuity of the LTIP Shares outstanding is as follows:
Balance at December 31, 2018
LTIP shares issued during the year
LTIP shares forfeited during the year
LTIP shares settled during the year
Balance at December 31, 2019
LTIP shares issued during the year
LTIP shares forfeited during the period
LTIP shares settled during the period
Balance at December 31, 2020
Performance
Shares
Restricted
Shares
88,535
67,181
(41,648)
—
114,068
117,671
(48,420)
(748)
128,514
136,763
(1,375)
(105,427)
158,475
212,331
—
(131,683)
182,571
239,123
LTIP compensation expense of $3.6 million was recognized in the consolidated statements of comprehensive income
for year ended ended December 31, 2020 (December 31, 2019 - $2.2 million) . The equity classified portion of the
LTIP compensation expense was $1.3 million for year ended December 31, 2020 (December 31, 2019 - $1.4 million)
and the liability classified expense was $2.3 million (December 31, 2019 - $0.8 million).
72
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
14. Share capital (continued):
(b) Long Term Incentive Plan (“LTIP”) (continued):
The key estimate in determining the compensation in any period is whether the performance criteria have been met
and the amount of the payout multiplier on the Performance Shares. The payout multiplier is reviewed and approved
by the Company’s compensation committee on an annual basis. The liability associated with the cash-settled awards
is recorded in accounts payable and accrued liabilities, for amounts expected to be settled within one year, and in
other liabilities for amounts to be settled after one year.
(c) Weighted average shares:
The calculation of basic and fully diluted net profit per share is based on the net profit for the year ended
December 31, 2020 of $37.6 million (December 31, 2019 - $29.6 million). The weighted average number of common
shares outstanding in each of the reporting years was as follows:
Issued ordinary shares at
beginning of year
Effect of shares repurchased
Effect of shares issued during the year:
Pursuant to long-term incentive plan
Weighted average common shares - basic
Effect of dilutive securities:
Long-term incentive plan
December 31,
2020
December 31,
2019
21,355,327
(185,306)
21,539,116
(160,085)
1,450
240
21,171,471
21,379,271
207,098
109,652
Weighted average common shares - diluted
21,378,569
21,488,923
15.
Income taxes:
Current tax expense
Deferred tax expense
2020
2019
$
$
(13,009) $
(345)
(7,227)
(2,293)
(13,354) $
(9,520)
Under current income tax regulations, subsidiaries of the Company are subject to income taxes in Canada and the United
States. The applicable statutory rate in Canada for the year ended December 31, 2020 is 26.9% (2019 - 26.9%) and in the
United States is 26.0% (2019 - 26.0%). The majority of the Company’s tax expense is generated from its US subsidiaries,
and as such the Company reconciles its consolidated income tax expense to the statutory tax rate applicable to the United
States.
Income tax expense differs from that calculated by applying U.S. federal and state income tax rates to earnings before
income taxes for the following reasons:
73
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
15.
Income taxes (continued):
Profit before income tax
Statutory rate
Computed tax expense at statutory rate
Effect of tax rate differentials and other restructuring
Non-deductible expenses
Prior year tax true-ups
Change in unrecognized deferred tax assets
Other
2020
2019
$
50,955 $
39,101
26.0 %
26.0 %
(13,248)
836
(861)
84
—
(165)
(10,166)
1,116
(547)
127
46
(96)
Income tax expense
$
(13,354) $
(9,520)
The tax effect of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities
is as follows:
Deferred tax assets:
Accounts receivable
Accounts payable and provisions
Inventory
Finance lease obligations, net
Tax loss carry forwards and future interest deductions
Share and debt issuance costs
Other
Deferred tax liabilities:
Prepaid expenses
Property, plant and equipment
Goodwill and intangibles
Deferred tax asset
December 31,
2020
December 31,
2019
$
$
1,047 $
854
2,600
5,500
886
147
116
11,150
(761)
(4,895)
(1,426)
(7,082)
4,068 $
1,208
466
2,433
6,055
516
270
(67)
10,881
(777)
(5,643)
—
(6,420)
4,461
Deferred tax assets and liabilities are measured at the substantively enacted rates expected to apply at the time such
temporary differences are forecast to reverse. At December 31, 2020, the Company and its subsidiaries have operating
loss carry forwards for income tax purposes of approximately $nil in Canada that may be utilized to offset future taxable
income (December 31, 2019 - $1.6 million). The Company’s US subsidiaries have no operating loss carry forwards.
At December 31, 2020, the Company and its Canadian subsidiaries have capital losses of approximately $23.0 million
(December 31, 2019 - $23.0 million), and suspended capital losses of approximately $44.7 million (December 31, 2019 -
$44.7 million) available to offset future Canadian taxable capital gains. These capital losses arose as a result of internal
restructuring and inter-entity transactions during the year ended December 31, 2009. The deferred income tax asset of
$9.0 million (December 31, 2019 - $9.0 million) associated with these capital losses has not been recorded because it is
not probable that future taxable capital gains will be generated to utilize the benefit.
74
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
16. Finance income and expense:
Finance expense:
Interest on bank indebtedness
Accretion of finance lease obligation
Foreign exchange loss
Total finance expense
Finance income:
Interest on trade receivables, customer
notes, and employee loans
Unrealized gain on investments
Total finance income
Net finance expense
17. Segment reporting:
Information about geographic areas is as follows:
Revenue from external customers:
Canada
United States
Non-current assets(1):
Canada
United States
(1) Excludes financial instruments and deferred income taxes.
18. Employee renumeration:
(a) Employee benefits expense:
Expenses recognized for employee benefits are summarized below.
Wages, salaries and benefits
Pensions - defined contribution plans
LTIP share based compensation
75
Note
2020
2019
13
$
(3,347) $
(4,492)
(591)
(8,430)
(4,721)
(4,700)
(364)
(9,784)
7
7
459
378
837
626
—
626
$
(7,593) $
(9,158)
2020
2019
$
144,077 $
1,101,235
138,100
1,033,821
$
1,245,312 $
1,171,921
December 31,
2020
December 31,
2019
$
$
9,195 $
213,685
10,816
204,818
222,880 $
215,634
2020
2019
$
132,023 $
1,706
3,551
120,746
1,519
2,249
$
137,280 $
124,514
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
18. Employee renumeration (continued):
(a) Employee benefits expense (continued):
Employee benefit expenses are included in the consolidated statement of comprehensive income as follows:
Cost of sales
Selling and distribution
Administration
(b) Pensions:
2020
2019
$
27,538 $
77,457
32,285
26,260
71,235
27,019
$
137,280 $
124,514
Hardwoods USLP, Rugby Holdings LLC, Paxton Hardwoods LLC and HMI Hardwoods LLC maintain defined
contribution 401(k) retirement savings plans ("Plans"). The assets of these Plans are held and related investment
transactions are executed by the Plan's Trustees who are third parties and, accordingly, are not reflected in these
consolidated financial statements. During the year ended December 31, 2020, Hardwoods USLP, Rugby Holdings
LLC and Paxton Hardwoods LLC contributed and expensed $1.3 million (US $1.0 million) (2019 - $1.2 million (US
$0.9 million)) in relation to these Plans. There is no requirement for an employer contribution to the plan maintained
by HMI Hardwood LLC and accordingly HMI Hardwoods LLC did not make any contributions to this plan.
Hardwoods LP does not maintain a pension plan. Hardwoods LP does, however, administer a group registered
retirement savings plan (“LP Plan”) that has a matching component whereby Hardwoods LP makes contributions to
the LP Plan which match contributions made by employees up to a certain level. The assets of the LP Plan are held
and related investment transactions are executed by LP Plan's Trustee who is a third party, and, accordingly, are not
reflected in these consolidated financial statements. During the year ended December 31, 2020, Hardwoods LP
contributed and expensed $0.5 million (2019 - $0.4 million) in relation to the LP plan.
19. Related party transactions:
The Company’s related parties include key management personnel and post-employment benefit plans for the employees
of the Company’s subsidiaries.
(a) Transactions with key management personnel:
Key management of the Company includes members of the Board of Directors, the President and Chief Executive
Officer, Chief Financial Officer, Senior Vice President and Vice Presidents. Key management personnel remuneration
includes the following expenses:
Short-term employee benefits:
Salaries and benefits including bonuses
Automobile benefit
LTIP Share compensation
Total remuneration
2020
2019
$
4,749 $
34
2,501
3,583
40
1,603
$
7,284 $
5,226
76
HARDWOODS DISTRIBUTION INC.
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars)
Years ended December 31 2020 and 2019
19. Related party transactions (continued):
(b) Transactions with post-employment benefit plans:
The defined contribution plans referred to in note 18(b) are related parties of the Company. The Company’s
transactions with the pension plans include contributions paid to the plans, which are disclosed in note 18(b). The
Company has not entered into other transactions with the pension plans, nor has it any outstanding balances at
December 31, 2020 or December 31, 2019.
20. Provisions:
Legal
The Company and its subsidiaries are subject to legal proceedings from time to time that arise in the ordinary course of its
business. Management is of the opinion, based upon information presently available, that it is unlikely that any liability, to
the extent not provided for or insured, would be material in relation to the Company’s consolidated financial statements as
at December 31, 2020.
77
Corporate Information
Directors
Robert J. Brown
Director
Officers
Robert J. Brown
President & Chief Executive Officer
Peter M. Bull
President, Blenheim Realty Ltd.
Lance R. Blanco
Senior Vice President, Corporate Development
Michelle Lewis
Principal, CapStreet Group
Faiz H. Karmally
Vice President and Chief Financial Officer
Jim Macaulay
Chief Financial Officer, Marvin Companies
Jason West
Vice President, Canada
E. Lawrence Sauder
Chair, Interfor Corporation
Dan A. Besen
Senior Vice President, United States
William Sauder
President, Emax Investments Ltd.
Dan Figgins
Vice President, Imports
Rob Taylor
President, Sonepar North America
John Griffin
Vice President, Paxton
Graham Wilson
President, Grawil Consultants Inc.
Dave Hughes
Senior Vice President, Acquisitions
Drew Dickinson
President, Rugby
Head Office
Auditors
Investor Relations
#306 - 9440 202nd Street
Langley, BC Canada V1M 4A6 Vancouver, British Columbia
Telephone: 604-881-1988
Facsimile: 604-881-1995
KPMG LLP
Faiz H. Karmally
Chief Financial Officer
Telephone:604-881-1982
fkarmally@hardwoods-inc.com
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HDI | Annual Report | 2020
78