2018 Annual Report
PFB Corporation
Letter to shareholders
The year 2018 was transformative for PFB Corporation. Consolidated net revenue for the year was a record $128,345,000, a
21.6% increase of $22,788,000 from $105,557,000 recorded in 2017. Consolidated net income was $6,189,000 for the year
ended December 31, 2018 resulting in basic earnings per share of $0.92, compared to consolidated net income of $2,281,000
and basic earnings per share of $0.34, in the year ended December 31, 2017. Adjusted EBITDA for the year ended 2018 was
$12,978,000 or $1.93 per share, compared to $7,693,000 or $1.14 per share in the comparative year ended of 2017. A complete
review of operations is available in the Management’s Discussion and Analysis.
At the 2018 Annual and General Meeting of Shareholders we announced the appointment of Robert Graham as the Chief
Executive Officer of the Corporation. As part of his previous responsibilities with the Corporation, Mr. Graham had developed
a multi-year growth strategy the effects of which are now being felt throughout our operations. Additionally Mr. Bruce
Carruthers, Chief Operating Officer, announced his intended retirement effective December 31, 2018 which has now taken
effect. Mr. Carruthers continues as a director of the Corporation and in that regard received a Restricted Share Unit award
effective January 1, 2019, the financial effects of which will be recorded in the first quarter of 2019. In late December 2018,
Mr. Gregory Mackenzie, Vice President of Manufacturing Plasti-Fab, announced his intended retirement effective March 31,
2019. These two retiring gentlemen are the longest serving employees in the history of the Corporation, both serving in various
roles from time to time, and have made significant contributions in its development for which, on behalf of all shareholders, we
are most sincerely grateful. Additionally, at the 2018 Annual General Meeting, Ms. Leslie Lundquist was elected to the board
of directors and joined the audit committee.
Our core business focus is to manufacture building insulation and insulating building products in fourteen locations in Canada
and the United States. We strive for industry leadership with our products and for a corporate culture of sustainable operations
that we report transparently on our www.pfbsustainability.com website. Strategically, it is our focus to annually increase
revenues and funds flow from our operating activities, while maintaining strong balance sheet integrity and providing a reliable
stream of dividends to our shareholders.
Quarterly dividends have been established at $0.08 per share since November 2017. The previous quarterly dividend increase
occurred in the second quarter of 2016.
We continue to pursue expansion of our USA based operations and the focus is to expand our revenue base in the United States.
Thank you to all our customers and our employees for their past and continuing support.
C. Alan Smith
Executive Chairman
1 PFB Corporation Annual Report 2018
PFB’s Commitment to Sustainability
At PFB Corporation, we are concerned with the future of the planet and the effects that modern life styles may be having on climate
change. PFB Corporation is committed to conducting its operations responsibly, mindful of the economic, environmental and social
impacts of its operations. In 2018, PFB Corporation maintained its focus on the Health and Safety performance of our operations by
continuing with safety initiatives and focusing on improving our safety culture.
Environmental Performance
PFB Corporation has taken a transparent approach and reports its performance metrics in the Annual Report. PFB measures and
reports inputs including raw materials, energy and water and our outputs; GHG, VOC’s and waste. More detailed information is
available on our web site devoted to sustainability at the following address: www.pfbsustainability.com. The following extracts are a
brief summary of some of the key metrics that we use to track our performance.
Health and Safety Performance
Occupational Health and Safety is of paramount importance at PFB Corporation. Starting in 2016, PFB Corporation introduced a new
safety program called Goal:Zero. During 2018, significant effort was made to implement safety initiatives in line with our Goal:Zero
objectives targeting a reduction to injury rates and severity. As a result of our efforts, lost time injury frequency and severity decreased
for the second consecutive year. Our objective is to establish a sustainable safety culture by encouraging all employees to be active in
our safety program and take responsibility for their safety and the safety of others. PFB’s call to action and challenge to all our
employees continues to be See It · Own It · Make It Safer.
PFB Corporation Annual Report 2018 2
PFB Corporation
Management’s discussion and analysis for 2018
1. Advisory regarding forward-looking statements
Securities laws encourage public issuers to disclose forward-looking information in their management’s discussion and
analysis (MD&A) so that investors can get a better understanding of the company’s future prospects and make informed
investment decisions.
Forward-looking information and statements included in this MD&A about PFB’s objectives and management’s
expectations, beliefs, intentions or strategies for the future are not guarantees of future performance and should not be
unduly relied upon.
All forward-looking statements reflect management’s current views as at March 8, 2019, with respect to future events, and
they are subject to certain risks, uncertainties and assumptions that may cause the actual results, performance or
achievements to be materially different from any future results, performance or achievements expressed or implied by such
forward-looking statements.
Such risks, uncertainties and assumptions include, but are not limited to: general economic conditions; the cost and
availability of capital; actions by government authorities; actions by regulatory authorities; availability of raw materials;
changes in raw materials prices; currency exchange rates; interest rates; competitor activity; industry pricing pressures;
seasonality of the construction industry; and weather related factors.
You will find a more detailed assessment of the risks that could cause actual results to materially differ from our current
expectations in the Risk Management and Assessment section of this MD&A.
2. Other advisories regarding this MD&A
The following MD&A of the operating results and financial condition of PFB Corporation (“PFB” or the “Corporation”)
for the years ended December 31, 2018 and 2017 should be read in conjunction with PFB’s audited consolidated financial
statements and related notes which is available on SEDAR at www.sedar.com and on PFB’s website at www.pfbcorp.com.
Additionally, PFB maintains a website at www.pfbsustainability.com that provides our measurement and reporting of
sustainable development data in accordance with the Global Reporting Initiative.
The audited consolidated financial statements of PFB, for the years ended December 31, 2018 and 2017, have been
prepared in accordance with International Financial Reporting Standards (“IFRS” or “GAAP”) as issued by the
International Accounting Standards Board (“IASB”).
This MD&A was reviewed by the Audit Committee and approved by PFB’s Board of Directors on March 8, 2019. Any
events occurring after that date may affect the usefulness of the information contained in this document.
The currency presented in this MD&A is Canadian dollars ($ thousands) unless otherwise stated.
3. Business overview
PFB Corporation is a Canadian publicly-traded company incorporated under the Alberta Business Corporations Act. PFB’s
corporate office is located at 300, 2891 Sunridge Way NE, Calgary, Alberta, Canada T1Y 7K7. The principal business
activity of PFB is manufacturing insulating building products made from expanded polystyrene materials and marketing
those products in North America. We report our results of operations under two segments; Canada and the United States of
America (“USA”).
Plasti-Fab Ltd., the Corporation’s Canadian wholly-owned subsidiary, operates manufacturing and sales facilities in the
provinces of British Columbia, Alberta, Saskatchewan, Manitoba, and Ontario in Canada. PFB America Corporation, the
Corporation’s wholly-owned subsidiary in the USA, operates manufacturing and sales facilities in the states of Minnesota,
Michigan, Ohio, and Idaho.
Our operations are vertically-integrated in that expandable polystyrene resin is manufactured at PFB’s polymer plant
located in Crossfield, Alberta, for use exclusively in our downstream expanded polystyrene (“EPS”) manufacturing
operations. Expandable polystyrene resin is also sourced from other suppliers to supplement internally produced raw
materials. Plasti-Fab® EPS Product Solutions® supplies EPS foam cores used to manufacture Insulspan® SIPS (Structural
3 PFB Corporation Annual Report 2018
Insulating Panel Systems). The PFB Custom Homes Group provides a complete design, supply and installation capability
for Point Zero ® Homes, Precision Craft Log & Timber Homes® and Riverbend® Timber Framing structures which are
typically sold with an accompanying Insulspan® SIPS enclosure package and Advantage ICF Systems® (Insulating
Concrete Forming System) foundation. Complete design services are provided by M.T.N. DesignSM to compliment the
product offering.
Plasti-Fab EPS Product Solutions are products manufactured using EPS as base raw materials, that are delivered to
customers’ in five market categories: rigid insulation board; insulating building systems; geotechnical engineered
applications; buoyancy, and products for packaging and display applications.
Advantage ICF Systems® are insulating concrete forming systems which, by incorporating concrete and steel, are
employed to build insulated foundations and walls in both residential and commercial construction markets. Insulspan SIPS
are used to create a building’s structural wall frame and to replace trusses on roof systems to form an energy-efficient
structural envelope.
4. Financial information
4.1 Financial highlights summary – quarterly
Years ended December 31, 2018 and 2017
$ Thousands, except per share amounts
Sales
Gross profit
Gross profit margin %1
Operating income (loss)
Net income (loss)
Earnings (loss) per share:
Basic and diluted
Adjusted EBITDA 1
Adjusted EBITDA per share 1
2018
Q4
2018
Q3
2018
Q2
2018
Q1
2017
Q4
2017
Q3
2017
Q2
2017
Q1
$ 35,283 $ 39,374
$ 32,640
$ 21,048
$ 28,045
$ 28,649 $ 29,376
$ 19,487
8,055
22.8
2,988
2,080
0.31
3,931
0.59
9,659
24.5
4,668
3,265
0.48
5,607
$ 0.83
7,428
22.8
2,361
1,545
0.23
3,309
$ 0.49
3,659
17.4
(805)
(701)
(0.10)
131
$ 0.02
6,266
22.3
1,712
1,240
0.18
2,659
$ 0.40
6,645
23.2
2,273
1,519
5,473
18.6
745
412
2,944
15.1
(1,212)
(890)
0.23
0.06
(0.13)
3,240
1,762
$ 0.48
$ 0.26
32
$ -
1 Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar
measures presented by other issuers. Definitions of non-IFRS measures used in the above table along with relevant other notes are detailed in
Section 20 of this MD&A.
PFB’s operations exhibit seasonal variations concurrent with those that generally influence the construction industry,
including variability in weather patterns. Typically, sales revenues are lowest in the first and fourth quarters and
highest in the second and third quarters of the fiscal cycle.
PFB Corporation Annual Report 2018 4
4.2 Selected annual financial information for years ended December 31, 2018, 2017, and 2016
$ Thousands except where indicated
2018
2017
2016
Operating results
Consolidated results:
Sales
Gross profit
Operating income
Net income
Adjusted EBITDA 1
Sales by operating segment:
Canada
USA
Operating income (loss) by segment:
Canada
USA
Per common share data
Earnings per share – Basic and diluted
Dividend paid per share – Regular
Adjusted EBITDA per share - Basic 1
Book value 1
Financial condition
Total assets
Current assets
Current liabilities
Non-cash working capital 1
Property, plant and equipment (net)
Intangible assets (net)
Goodwill
Finance lease obligations including current portion
Long-term debt including current portion
Other long-term liabilities
Shareholders’ equity
Financial ratios
Gross profit margin 1
Operating margin 1
Net income margin 1
Current ratio 1
Return on equity 1
$ 128,345 $ 105,557 $ 101,533
24,675
8,267
4,688
12,105
21,328
3,518
2,281
7,693
28,801
9,212
6,189
12,978
78,346
49,999
68,970
36,587
64,962
36,571
4,602
4,026
1,746
1,319
5,725
2,672
0.92
0.32
1.93
8.43
88,832
44,053
18,644
8,211
39,209
1,447
2,360
3,239
8,568
2,350
56,636
22.4%
7.2%
4.8%
2.36x
12.2%
0.34
0.29
1.14
7.57
78,771
33,363
14,522
6,913
40,099
1,405
2,217
3,232
8,906
1,874
50,825
20.2%
3.3%
2.2%
2.30x
4.4%
0.70
0.27
1.80
7.69
78,837
36,440
11,520
7,560
35,041
1,496
2,332
14,220
-
1,767
51,646
24.3%
8.1%
4.6%
3.16x
9.1%
1 Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar
measures presented by other issuers. Definitions of non-IFRS measures used in the above table along with relevant other notes are detailed in
Section 20 of this MD&A.
5 PFB Corporation Annual Report 2018
5. Consolidated results of operations
The results of PFB’s operations in the United States of America are translated into Canadian dollars on a periodic basis for
inclusion in the consolidated financial statements.
Sales
Consolidated sales in 2018 increased by 21.6% or $22,788 to $128,345 as compared to sales of $105,557 in 2017. This was
a record high of consolidated sales for the Corporation. Sales in each quarter of the current year exceeded the sales in the
comparative quarter, resulting in strong sales momentum through 2018. Sales Growth was driven by increased business
activity in both Canadian and USA segments across a broad range of product and service offerings. Price increases
implemented during 2018 also contributed to increased sales.
As described in the reportable operating segments section which follows, both the Canadian and USA segments reported
increased sales in 2018 as compared to sales in 2017.
Gross profit
Consolidated gross profit in 2018 was $28,801, an increase of 35.0% or $7,473 as compared to gross profit of $21,328
reported in 2017. The gross profit margin of 22.4% of sales in 2018 was higher than a gross profit margin of 20.2% of sales
reported in 2017. The increase in gross profit margin in the current year was predominantly influenced by operational gains
realized through increased production and sales volumes offset somewhat by higher material cost as a percent of sales
compared to prior year. The Corporation implemented resin production and procurement strategies in the first half of 2018
to mitigate the impact of rising raw material input costs. The cost of inventories recognized as an expense in cost of sales
during the year was $80,184, and contrasted with $68,263 in the prior year. The incremental increase in sales of $22,788
compared to the incremental increase in cost of goods sold of $15,315 over the course of the year resulted in increased
gross profit of $7,473.
Selling expenses
Consolidated selling expenses increased to $11,985 in 2018 from $11,424 in 2017, an increase of $561. The increases were
mainly related to additional sales staff, commissions, and marketing initiatives intended to drive top line growth. Overall,
selling expenses remain in proportion to sales and lower than prior year when expressed as a percent of sales.
Administrative expenses
Consolidated administrative expenses increased to $7,452 in 2018 from expenses of $6,399 reported in 2017, an increase of
$1,053. The increases were primarily a result of additional administrative staff, increased employee profit sharing on strong
performance and higher realized foreign currency exchange losses, compared to prior year. Administrative expenses
remain in proportion to overall sales and in line with strategic initiatives and corporate succession plans.
Other losses and gains
Other losses in 2018 of $152 versus gains of $13 in 2017 were principally currency related. Foreign currency losses in
2018 of $166 compared to losses of $16 in the comparative year. Over the last twelve months, the value of the Canadian
dollar versus the U.S. dollar has progressively weakened overall.
A gain of $58 was realized on the disposals of property, plant and equipment in the current year as compared to a small
gain on disposals of $51 in 2017.
In addition, share-based payments expenses of $44 in the current year compared to $nil in the prior year and reflect the
immediate expense related to the vested portion of options to a director and the straight-lining expense of the unvested
portion of options related to senior management.
Gain on sale of marketable securities
There were no dispositions of marketable securities in the current year. During the first quarter of 2017, 318,421 restricted
trust units were released from escrow and were sold in the open market for proceeds of $1,883, resulting in a gain of $275.
Investment income
Investment income reported in 2018 was $67 versus $114 in 2017. Investment income consisted of $19 (2017 - $74)
received on distributions of restricted marketable securities, $25 (2017 - $17) for interest earned on bank balances, and $23
(2017 - $23) of interest collected from customers on past due trade receivables. The decreased trust units held and a final
distribution in the second quarter of 2018 resulted in $55 less investment income in 2018 compared to 2017. No further
trust distributions will occur on the marketable securities held in escrow. Interest earned on bank balances increased by $8
as a result of higher cash balances in the second half of 2018.
PFB Corporation Annual Report 2018 6
Finance costs
Finance costs decreased by $66 from $832 in the prior year to $766 in the current year and are primarily related to building
lease obligations being extinguished in March 2017 and replaced by a lower interest rate and less long-term debt
attributable to a mortgage on a repurchased property.
During the first half of 2018 the operating line was drawn to fund working capital requirements in the Canadian Segment
and resulted in finance costs of $77 (2017 - $39) over the course of the year. The operating line was fully repaid during the
third quarter of 2018.
Income before taxes
Income before taxes in 2018 was $8,513 as compared to income before taxes of $3,075 in 2017, an increase of $5,438 and
primarily attributable to higher gross margin from record sales in the year.
Income taxes
Income tax expense in the current year was $2,324 as compared to income tax expense of $794 in 2017. The effective tax
rate in 2018 was 27.3% (2017 – 25.8%) and is higher in the current year due to a one-time tax recovery in 2017 which had
the effect to decrease the effective tax rate. The current tax expense increased from $401 in 2017 to $2,027 in 2018 as a
result of record sales and higher taxable income. The deferred tax expense decreased by $96 from an expense of $393 in
2017 to an expense of $297 in 2018.
On December 22, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act. The reduction of the U.S. corporate rate caused an adjustment to the USA segment’s deferred tax assets and
liabilities to the lower base rate of 21%. Based on the Corporation’s current understanding of the Tax Act, the impact of
enacted tax changes in the USA segment resulted in a tax expense of $1 for enacted rate changes. The lower US corporate
tax rate and additional deductions for bonus depreciation, is expected to have a positive effect on future earnings in the
USA. In the current year the full effect of the tax reductions were reflected in the current and deferred income taxes.
Net income and earnings per share
Consolidated net income in 2018 was $6,189 as compared to consolidated net income of $2,281 in 2017. Basic and diluted
earnings per share of $0.92 in 2018 compared to basic and diluted earnings per share of $0.34 in 2017. Increased sales from
higher volumes and selling prices, raw material supply strategies and efficiencies from economies of scale contributed to
higher net income and earnings per share in the current year.
The weighted average number of basic common shares outstanding in the current year was unchanged at 6,716,003
common shares and diluted common shares outstanding in the current year was 6,732,470 (2017 – 6,716,003).
6. Reportable operating segments
The Corporation has two reportable operating segments:
Operating segments
Canada
United States of America (USA)
Description of segments
Manufacturing and sales operations located in Canada for expanded
polystyrene (EPS) products and structural insulating panels
Brands: Plasti-Fab® EPS Product Solutions®; Advantage ICF System®;
Insulspan® SIPS; DuroFoam®
Manufacturing and sales operations located in the USA for EPS products,
building systems and structures, design services and installations
Brands: Plasti-Fab® EPS Product Solutions®; DuroSpan; Insulspan®
SIPS; Riverbend® Timber Framing; Precision Craft® Log &
Timber Homes; M.T.N. DesignSM; Total Home Solution®; Point
ZeroTM; TimberScape TM
The Corporation operates individual legal entities in Canada and the USA which are reported as operating segments and
revenue is reported in accordance with that segmentation.
Each operating segment mirrors the Corporation’s accounting policies (as described in Note 2 to the audited consolidated
financial statements for the years ended December 31, 2018 and 2017) and its internal controls and reporting systems.
Segment performance predominantly focuses on operating results and the manner in which resources are allocated based
on Canadian and USA operations, respectively. The Canadian segment primarily derives its revenues from the sale of
expanded polystyrene (“EPS”) foam products, which it manufactures at its facilities in Canada. The USA segment
7 PFB Corporation Annual Report 2018
primarily derives its revenues from the sale of EPS foam products, customized log and timber structures made at its
facilities in the United States which typically include design and installation services that together provide the basis for a
bundled sale of its manufactured products.
The chief operating decision maker evaluates performance on the basis of operating income or loss, as reported on a
periodic basis. This performance measure is considered to be the most relevant in evaluating the results of each operating
segment.
6.1 Segment sales revenues and operating income
Segment sales represent sales revenues directly attributable to each segment after inter-segment sales have been
eliminated (see supplemental disclosures in the other segment information table). There are varying levels of
integration between each segment.
Segment operating income or loss represents the income or loss reported by each segment excluding any allocations of
corporate income or expenses, and foreign exchange gains or losses arising on inter-segment settlements.
Information regarding each reportable operating segment for years ended December 31, 2018 and 2017 is set out
below:
Canada
USA
Sales revenues
2018
2017
Operating income
2018
2017
$ 78,346
$ 68,970
49,999
36,587
$ 4,602
4,026
$ 1,746
1,319
Total for segments
$ 128,345
$ 105,557
8,628
3,065
Corporate – income
Foreign exchange (loss) gain on inter-segment settlements
Consolidated operating income
586
(2)
452
1
$ 9,212
$ 3,518
Canada
Sales
Sales reported by the Canadian operating segment increased to $78,346 in 2018 from $68,970 in 2017, an increase of
$9,376 or 13.6%. In the three-month period ended December 31, 2018, the Canadian segment sales were $19,312
compared to $17,230 in the three-month period of 2017, an increase of 12.1%. Canadian sales were strongest in the oil
producing markets in which we operate as they continue to shows signs of recovery and overall stability.
Operating income
Operating income generated by the Canadian segment in the current year was $4,602, an increase of $2,856 or 164%
from operating income of $1,746 in 2017. Operating income increase was driven by operational leverage realized on
higher sales volumes as well as the positive impact of price increases implemented in the first half of 2018.
Improvements in labour, overhead and freight were offset slightly by higher average material costs compared to prior
year when measured as a percent of sales.
USA
Sales
As reported in Canadian dollars, sales in the current year were $49,999 versus sales of $36,587 in 2017, an increase of
$13,412 over prior year or 36.7%.
Year-over-year comparisons of USD sales revenue when translated into Canadian dollars for reported purposes are
impacted by currency movements. The average foreign exchange rates experienced by the Corporation in 2018 and
2017 showed no movement at an average rate of $1.30 per US$1.00 in the 2017 comparative year to an average rate of
approximately $1.30 per US$1.00 in the current year, despite an overall weakening of the Canadian dollar over the last
twelve months. Eliminating the marginal effect of foreign exchange fluctuations, sales, expressed in USA dollars, were
$38,366 for the 2018 year or 35.8% higher than sales of $28,247 in the comparative 2017 year.
In the fourth quarter of 2018, the USA segment sales showed strong growth with sales of $15,971 compared with
$10,815 in the three month period of 2017, an increase of approximately 47%, supported by a favourable foreign
currency translation adjustment during the last three months in a strengthening US dollar. The average foreign
PFB Corporation Annual Report 2018 8
exchange rates experienced by the Corporation reflected the depreciation of the Canadian currency from an average
rate of $1.27 per US$1.00 in the 2017 comparative three month period to an average rate of $1.32 per US$1.00 in the
current three month period,. Eliminating the effect of foreign exchange fluctuations, sales, expressed in USA dollars,
were $12,080 for Q4/18 or 42% higher than sales of $8,501 in the comparative quarter.
Operating income
The USA segment generated operating income in the current year of $4,026, compared to operating income of $1,319
in 2017, an increase of $2,707 on a year-over-year basis. Operating income increased primarily due to operational
efficiencies realized on higher sales. Improvements in labour and overhead were offset somewhat by increased
material and freight costs as a percent of sales, when compared to prior year.
6.2 Segment assets and liabilities
Management measures capital employed using net segmented assets. The reconciliation of segmented assets and
segmented liabilities in relation to total consolidated assets and liabilities is set out in the table below:
Assets
Liabilities
Segment assets
Assets not allocated to segments:
Cash and cash equivalents
Freehold land and buildings
Restricted marketable securities
Corporate taxes 1
Total assets
Segment liabilities
Liabilities not allocated to segments:
Finance lease obligations
Long term debt
Corporate taxes 1
Total liabilities
Net segment assets
Canada
USA
1 Current and deferred taxes.
6.3 Other segment information
Additions to non-current assets:
Canada
USA
Corporate
Total
Depreciation and amortization:
Canada
USA
Corporate
Total
Inter-segment sales
9 PFB Corporation Annual Report 2018
As at
Dec 31, 2018
As at
Dec 31, 2017
$ 47,366
$ 41,658
16,944
22,750
1,483
289
12,180
23,386
1,239
308
$ 88,832
$ 78,771
$ 20,389
$ 15,788
3,239
8,568
-
3,232
8,906
20
$ 32,196
$ 27,946
$ 19,970
7,007
$ 19,802
6,068
2018
2017
$ 795
1,007
31
$ 914
648
7,724
$ 1,833
$ 9,286
$ 2,066
627
1,073
$ 3,766
$ 2,177
675
1,048
$ 3,900
$ 7,052
$ 5,657
7. Results of operations - fourth quarters ended December 31, 2018 and 2017
$ Thousands, except where indicated
Consolidated results:
Sales
Gross profit
Operating income
Net income
Earnings per share – basic
Weighted average number of shares outstanding
Basic
Diluted
Sales by operating segment:
Canada
USA
Operating income by segment:
Canada
USA
2018
2017
$ 35,283
8,055
2,988
2,080
$ 28,045
6,266
1,712
1,240
0.31
0.18
6,716,003
6,732,470
6,716,003
6,716,003
19,312
15,971
17,230
10,815
852
2,005
544
922
Sales
Consolidated sales in the fourth quarter of 2018 were $35,283, an increase of $7,238 or 25.8% as compared to sales of
$28,045 reported in the fourth quarter of 2017. The increase in fourth quarter sales was attributed to both the Canadian and
USA operating segments, which both delivered robust sales in the final quarter of the year. Mild weather in the Canadian
and USA segments during the months of October and November resulted in favourable conditions for project activity and
continued shipments of materials.
Gross profit
Gross profit, expressed as a percentage of sales was 22.8% in the current year quarter, a slight increase from 22.3% in the
fourth quarter of 2017. The higher gross profit in the fourth quarter of 2018 is reflective of the trend experienced
throughout the year as operational efficiencies from higher sales volumes drove improvements in labour and overhead,
which were offset somewhat by higher average material costs, when expressed as a percent of sales, compared to the prior
year period.
Operating income
Operating income was $2,988 in the current quarter as compared to $1,712 in Q4/17, a favourable variance of $1,276.
Net income and earnings per share
Net income in the current quarter was $2,080 as compared to a net income of $1,240 in the comparative quarter of 2017, a
favourable variance of $840.
Basic earnings per share in the current quarter were $0.31 as compared to $0.18 reported for the fourth quarter of 2017.
8. Liquidity and capital resources
Sources of liquidity
PFB ended 2018 with cash and cash equivalents of $16,944, adjusting for increases in restricted cash in the current and
prior year. PFB’s liquidity position increased from the beginning of the current year reflecting strong sales and an efficient
cash conversion cycle from both operating segments. Net cash from operating activities increased by $2,638 compared to
the prior year. Future liquidity depends on PFB being able to sustain cash flows from operating activities; additionally the
Corporation maintains availability of bank credit facilities. The Corporation’s credit facilities and long-term debt contain
certain covenants, with which the Corporation was in compliance as at December 31, 2018 and 2017. PFB anticipates that
future liquidity will be adequate to fund its ongoing business activities including anticipated changes in non-cash working
capital, capital expenditures, payment of financial obligations, and payment of regular dividends over the next twelve
months.
PFB Corporation Annual Report 2018 10
PFB’s revolving credit facility in Canada and the USA were unused as at December 31, 2018.
Cash and cash equivalents
Cash and cash equivalent balances as at December 31, 2018 and 2017 were as follows:
Cash held with banks
Short-term investments
December 31, 2018 December 31, 2017
$ 13,744
3,200
$ 12,180
-
$ 16,944
$ 12,180
As at December 31, 2018, PFB held net cash balances of $16,944, an increase from the cash position as at December 31,
2017, which was $12,180. A significant proportion of the cash on hand, resides in the USA segment.
Cash - restricted
Restricted cash amounted to $1,347, an increase of $1,259 from $88 in 2017. Restricted cash comprises cash collected
from certain customers of the USA segment that is contractually segregated from other cash and not comingled, as it is
held exclusively for disbursements to suppliers and service providers specific to those individual customer contracts.
PFB’s cash and restricted cash balances typically fluctuate throughout the year in line with seasonality and contracts with
customers for bundled construction contracts.
Borrowings
During 2018 there were no additional borrowings of long-term debt. During 2017, the Corporation obtained long-term debt
in a form of a mortgage in the amount of $9,152 from a Canadian bank to fund the purchase of a real estate transaction.
The terms of the debt are a fixed interest rate of 3.25% for a 5-year period, with a 20-year amortization.
The Corporation is subject to certain covenants on its outstanding long-term debt, one of which is a financial covenant to
maintain a Debt Service Coverage Ratio of not less than 1.25:1. The Debt Service Coverage Ratio is defined as adjusted
EBITDA for the current year, less dividends, divided by the sum of all principal and interest payments during the course of
the year. The calculated Debt Service Coverage Ratio at December 31, 2018 and 2017 exceeded the minimum requirement
of 1.25:1.
Total balance of current and non-current portions of long-term debt was $8,568 as at December 31, 2018, which has
decreased by $338 for principal repayments.
Bank credit facilities
Canada
The Corporation’s Canadian subsidiary has a $10,000 revolving facility secured by a first ranking security interest in trade
receivables and inventories of the Canadian subsidiary. The Corporation provides a guarantee and postponement of claim
to the bank in the amount of $10,000.
The interest rate applicable on draws made against the facility is the Canadian bank’s prime rate plus 0.5% and the facility
carries a monthly standby fee when not being utilized. The credit facility was not drawn as at December 31, 2018 and
2017.
USA
In December 2018, the Corporation’s USA subsidiary renewed credit facility arrangements with a US bank for a variable
rate revolving facility in the amount of $1,250. The revolving facility is secured by all inventory and equipment of the USA
subsidiary. The interest rate applicable on draws made against the facility is a variable rate based on an index plus 0.25%.
Under the facility, the USA subsidiary is subject to certain covenants, including financial covenants to maintain an
Operating Cash Flow to Fixed Charge Coverage ratio of not less than 1.20:1 and to maintain a Total Debt to Tangible Net
Worth Ratio of less than 3.00 to 1.00. The credit facility was not drawn as at December 31, 2018 and 2017.
11 PFB Corporation Annual Report 2018
Change in non-cash working capital
Changes in the principal components of non-cash working capital in 2018 and 2017 are highlighted in the following table.
Trade receivables
Inventories
Prepaid expenses
Contract cost
Trade and other payables
Contract liabilities
2018
$ 13,082
11,638
374
475
(10,894)
(6,464)
$ 8,211
2017
$ 9,809
9,998
474
527
(8,737)
(5,158)
$ 6,913
Change
$ 3,273
1,640
(100)
(52)
(2,157)
(1,306)
$ 1,298
In 2018, non-cash working capital increased by an amount of $1,298 to $8,211 at the end of the current year from $6,913 in
2017, primarily attributed to changes in trade receivables and inventories on higher sales activity.
Trade receivables increased by $3,273 in 2018 and was commensurate with the increase experienced in fourth quarter sales
revenues.
Inventory carrying costs at the end of 2018 increased from the prior year with higher raw materials, work-in-progress and
finished goods on higher sales activity. The carrying cost of inventories at the end of 2018 was $11,638 as compared to
$9,998 at the end of 2017, an increase of $1,640.
Trade and other payables were $2,157 higher at the end 2018 as compared to at the end of 2017, consistent with a general
increase in trading activities in the latter part of the fourth quarter and higher sales activity throughout the year.
Customer deposits collected, mainly in the USA segment, represent future contract liabilities to transfer goods or services
to a customer for which consideration has been received and the Corporation remains obligated to perform. Contract
liabilities increased by $1,306 in 2018 and mirrored the increase in sales that the USA segment experienced in the fourth
quarter of 2018.
Summary of cash flows
A summary of cash flows for the years ended December 31, 2018 and 2017 are included in the following table:
Net cash flows from (used in):
Cash from operating activities, before income taxes paid
Income taxes paid, net
Net cash from operating activities
Net cash used in investing activities
Net cash used in financing activities
Effects of exchange rates on cash and cash equivalents held in foreign currencies
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents – beginning of the year
Cash and cash equivalents – end of the year
(a) Operating activities
2018
2017
$ 11,749
(1,312)
10,437
(2,943)
(3,533)
803
4,764
12,180
16,944
$ 7,943
(144)
7,799
(9,165)
(3,219)
(369)
(4,954)
17,134
$ 12,180
In 2018, cash from operating activities before income taxes paid, was $11,794 as compared to $7,943 in the
comparative year, an increase of $3,851. The year-over-year increase was primarily due to higher net income in the
current year from record sales. Income taxes paid of $1,312 in the current compared to $144 in the prior year as a
result of higher taxable income, resulting in net cash from operating activities of $10,437 in 2018 compared to $7,799
in 2017.
(b) Investing activities
Net cash used in investing activities in 2018 was $2,943 as compared to cash used in investing activities of $9,165 in
2017, a decrease of $6,222. Investing activities decreased primarily to the repurchase of net leased assets of $7,675 in
the prior year, offset by higher restricted cash balances and purchases of capital assets.
PFB Corporation Annual Report 2018 12
(c) Financing activities
Cash used in financing activities in 2018 was $3,533 as compared to $3,219 in 2017.
Financing activities were comparable in the current year to the prior year, except for the repurchase of leased assets in
the prior year. In 2017, as part of the acquisition of the Crossfield, Alberta property, the Corporation extinguished
finance lease obligations in the amount of $10,982 relating to the property. The net cash inflows from long-term debt,
net of payments, related to the Crossfield, Alberta acquisition was $8,906. Repayment of finance lease obligations in
2018, which included buildings and vehicles leases, amounted to $279 as compared to lease repayments of $246 in
2017. Finance costs incurred in 2018 declined significantly to $766 compared to finance costs of $832 incurred in
2017, a favourable reduction by $66.
As a significant one-time event in 2017, the Corporation sold 318,421 trust units resulting in cash flow from financing
activities in the amount of $1,883.
During 2018, PFB paid regular quarterly dividends of $0.08 per common share in February, May, August and in
November, resulting in dividends paid of $2,150 (2017 - $1,948).
Outstanding share data
The issued and outstanding number of common shares as at March 8, 2019 was 6,716,003.
Capital structure and capital management
PFB manages its capital structure to ensure its consolidated operations continue to operate as a going concern, to optimize
returns to shareholders, and to safeguard corporate assets.
PFB’s capital structure consists of net debt (long-term debt offset by cash and cash equivalents) and equity of the
Corporation (comprising issued share capital, reserves, and retained earnings as detailed in the consolidated statement of
changes in equity).
PFB’s capital structure, net of cash and cash equivalents, as at December 31, 2018 and 2017, is as outlined in the following
table:
Borrowings
Less: cash and cash equivalents
Surplus cash
As at
December 31, 2018
As at
December 31, 2017
$ 8,568
16,944
$ (8,376)
$ 8,906
12,180
$ (3,274)
Shareholders’ equity
$ 56,636
$ 50,825
Net borrowings to equity ratio
N/A
N/A
PFB considers the amount of capital it requires in proportion to the associated risks. Adjustments may be made to PFB’s
capital structure in light of changes in economic conditions and the risk characteristics of the underlying assets. The capital
structure can be maintained or adjusted in a variety of ways as circumstances change, including: adjusting the amount of
dividends paid to shareholders; purchasing shares for cancellation (under Normal Course Issuer Bids); issuing new shares;
and increasing or repaying debt financing.
PFB pursues its capital management objectives by prudently managing the capital generated through internal growth of its
operations, optimizing the use of lower cost capital when required, and raising share capital when deemed appropriate, to
fund significant strategic growth initiatives.
Entities within PFB’s consolidated group have non-capital tax losses carried forward to be utilized against future taxable
income that is expected to be generated by those entities.
Share-based options
The Corporation granted 400,000 share-based options in the year ended December 31, 2018, and no share options were
exercised in the year.
13 PFB Corporation Annual Report 2018
Dividends
The Board of Directors declared regular quarterly dividends of $0.08 per common share in February, May and August, and
November of 2018.
Aggregate dividends paid in the year ended December 31, 2018, amounted to $2,150 (2017 - $1,948).
Dividends paid by PFB qualify as eligible dividends and satisfy the enhanced gross-up and dividend tax credit change
enacted under Canadian tax law.
Normal course issuer bid
In January 2018, PFB obtained approval from the Toronto Stock Exchange to renew its Normal Course Issuer Bid (“issuer
bid”) for a 12-month period, which commenced on January 10, 2018, and ended January 9, 2019.
During the year ended December 31, 2018 and 2017, the Corporation did not purchase any of its common shares for
cancellation under the Normal Course Issuer Bid. The Normal Course Issuer Bid lapsed on January 11, 2019, without
renewal.
Comprehensive income
Comprehensive income consists of net income or loss, together with certain other economic gains and losses that,
collectively, are described as “other comprehensive income” and those items are excluded from the consolidated statements
of income.
A summary of comprehensive income for the three and twelve month periods ended December 31, 2018 and 2017 is as
follows:
Net income for the period
Other comprehensive income (loss)
2018
Three month periods
ended December 31
2017
$ 1,240
162
$ 2,080
1,004
Twelve month periods
ended December 31
2017
2018
$ 6,189
1,728
$ 2,281
(1,154)
Comprehensive income for the period
$ 3,084
$ 1,402
$ 7,917
$ 1,127
In the fourth quarter of 2018, comprehensive income was $3,084 as compared to a comprehensive income of $1,402 in the
comparative quarter of 2017. Other comprehensive income of $1,004 (Q4/17 – income of $162) in the current quarter
consisted of income of $1,142 (Q4/17 – income of $84) attributed to foreign currency translation when consolidating
PFB’s USA operations, a gain of $nil (Q4/17 – gain of $62) representing unrealized gain on restricted marketable
securities, net of tax, and a loss of $138 (Q4/17 – gain of $16) from pension plan valuation changes.
Included in accumulated comprehensive income at December 31, 2018, were foreign currency translation adjustments
totaling $1,689, marketable securities adjustments of $177, net of tax, and $(138) of defined benefit valuation changes, net
of tax, for total accumulated other comprehensive income of $1,728. The $2,898 increase in foreign currency translation
adjustments from December 31, 2017 loss of $1,209, to $1,689 gain, reflects the weakened Canadian dollar throughout
2018 when retranslating USA segment from US dollars into Canadian dollars. The marketable securities, in the form of
units of a Canadian REIT, represent $177 of accumulated unrealized gains since March 2013 as part of a sale-leaseback
arrangement and have decreased for 318,421 units disposed of in 2017. The $154 loss in pension plan valuation changes
from a gain of $16 at December 31, 2017, to a net loss of $138 at December 31, 2018, reflects valuation changes in
accumulated other comprehensive income.
PFB Corporation Annual Report 2018 14
9. Contractual obligations and commitments
In the normal course of business, PFB is obligated to make future contractual payments. As at December 31, 2018, PFB’s
contractual obligations and commitments are as outlined in the following table:
Contractual obligations
(Payment due periods)
Long-term debt
Finance lease obligations
Operating leases
Commitments for PP&E
and intangible assets
Total
Within
1 year
2-3
years
4–5
years
Over
5 years
$ 11,369
$ 623
$ 1,246
$ 1,246
$ 8,254
7,030
11,381
649
1,404
1,054
2,548
922
2,463
4,405
4,966
252
252
-
-
-
Total contractual obligations
$ 30,032
$ 2,928
$ 4,848
$ 4,631
$ 17,625
Long-term debt obligations are a result of significant one-time events in 2017 and represent a mortgage on the purchase of
certain leased assets in 2017. Finance lease obligations are with respect to buildings in Canada used for manufacturing
operations, automobiles used by employees, and materials handling equipment. Operating leases are with respect to leases
for land, certain facilities used in PFB’s operations, and general items of office equipment.
From time-to-time, under the terms of certain sales contracts, PFB’s subsidiaries may be required to provide performance
bonds as security. Performance bonds are considered normal practice for suppliers and contractors participating in larger
construction projects, usually of a public nature. In the USA, government agencies in certain states have requirements for
bonds to be posted when certain types of licensing applications are made in those states. As at December 31, 2018, the
USA, performance bonds in the amount of $651 (2017 - $598) were pledged to various government agencies.
10. Financial instruments and financial risks
Fair value of financial instruments
PFB’s financial assets and liabilities that are recorded at fair value on a recurring basis have been classified into one of
three categories based upon the following fair value hierarchy:
Level 1: Fair value is based on unadjusted quoted prices in active markets that are accessible at the measurement date for
identical assets or liabilities.
Level 2: Fair value is based on quoted prices in markets that are not active or model inputs that are observable either
directly or indirectly for substantially the full term of the asset or liability.
Level 3: Fair value is based on prices or valuation techniques that require inputs that are both unobservable and significant
to the overall fair value measurement.
A summary of the categories and fair values of financial instruments held by PFB as at December 31, 2018 and 2017, are
stated in the following table. The carrying costs of each financial instrument for each year in the consolidated balance
sheets are equal to their fair values.
Financial instrument
Cash and cash equivalents
Cash - restricted
Restricted marketable securities FVOCI
Trade receivables
Category
Measurement
Assets at amortized cost Amortized cost
Assets at amortized cost Amortized cost
Fair value
Hierarchy
Level 1
Level 1
Level 2
Assets at amortized cost Amortized cost N/A
Financial liabilities at
amortized cost
Financial liabilities at
amortized cost
Amortized cost
Amortized cost
N/A
Level 2
Trade and other payables
Long-term debt
15 PFB Corporation Annual Report 2018
2018
Fair Value
$ 16,944
1,347
1,483
13,082
2017
Fair Value
$ 12,180
88
1,239
9,809
(10,894)
(8,737)
(8,568)
(8,906)
Credit risk
Credit risk is defined as the risk that PFB’s counterparties in a transaction fail to meet or discharge their obligation to PFB.
The Corporation’s exposure to credit risk is associated with trade receivables and the potential risk that any customer is
unable to pay amounts when due. Allowances for doubtful accounts and bad debts are estimated and maintained as at the
balance sheet date. The amounts reported for trade receivables on the balance sheet are net of allowances for doubtful
accounts and the net carrying value represents PFB’s maximum exposure to credit risk.
The Corporation’s subsidiaries provide trade credit to their customers in the normal course of business and PFB’s credit
policy is universally adopted across all its businesses. The policy requires the credit history of each new customer to be
closely examined before credit is granted, which may involve performing solvency tests if a particular account is expected
to become significant. It is not normal practice to require customers’ to provide collateral or security as a condition of
approving trade credit. The diversity of PFB’s customer base and product offering combine to minimize overall exposures
to credit risks.
Customers ordering highly-customized manufactured products are required to make advance payments at various
predefined stages of a sales contract. All payments received in advance of invoicing are reported as contract liabilities
under the current liability section of the balance sheet. Final contract balances are typically required to be paid in full
before products are shipped.
Management diligently reviews past due trade receivables balances on a weekly basis to monitor potential credit risks.
Accounts are considered for impairment on a case-by-case basis when they are past due or when objective evidence is
received that a customer may default. A number of factors are considered in determining the likelihood of impairment. All
bad debt write-offs and changes in the doubtful trade receivables reserve are expensed or credited, as applicable, to selling
expenses in the consolidated statement of income.
PFB believes that credit risk associated with its trade receivables is limited for the following reasons:
Trade receivables balances are spread amongst a broad customer base which is dispersed across a wide geographic
range;
The aging profile of trade receivables balances are systematically monitored by management;
Larger customers are offered a discount off invoice for prompt payment which is strictly enforced; and
Payments for highly-customized orders are received in advance of products being shipped.
Potential credit risk associated with contractual holdback amounts pertaining to certain large projects is considered to be
low as the customers involved are required to provide bonding to the owners of the projects. The credit risk on cash
balances is limited because the counterparties are large commercial banks in Canada and the United States.
Payments of interest collected from customers on past due trade receivables balances is included as part of investment
income in the consolidated statement of income.
Foreign currency risk
Currency risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates.
The Corporation operates in both Canada and the United States of America and is exposed to foreign exchange risks
arising from changes in foreign exchange rates between the two countries. At the present time, the Corporation has a net
exposure to the United States dollar, as the prices of most raw materials used in its businesses are denominated in U.S.
dollars. Raw material supplies denominated in U.S. dollars are usually paid within thirty days or less of receiving actual
deliveries, which is consistent with industry practices.
Periodically, management may commit to entering into foreign exchange contracts to attempt to protect earnings against
relatively short-term fluctuations in exchange rates. In such cases, management attempts to make informed judgements in
entering such transactions but there is a possibility that markets may not respond in ways predicted. To the extent that the
Corporation does not fully hedge its foreign currency exposure and exchange rate risk, or the Corporation’s subsidiaries are
not able to or do not raise their selling prices accordingly when exchange rates are moving in an unfavourable direction, the
profitability of the business could be adversely affected. The Corporation does not enter into currency driven derivative
financial instruments for speculative purposes. The Corporation did not hold any foreign exchange contracts as at
December 31, 2018.
Historically, the Corporation has mainly financed its USA operations from internal resources with demand loans
denominated in Canadian dollars on which the USA operations is exposed to currency risk. As the exchange rate between
PFB Corporation Annual Report 2018 16
the Canadian and U.S. dollars fluctuated, unrealized gains and losses arising on the loans were recorded in the consolidated
statement of income in accordance with IFRS. In 2013, PFB refinanced its USA subsidiary by making equity investments
instead of purchasing debt instruments from it. Foreign exchange gain or losses on inter-segment settlements represent
transactions between the Canadian and USA segment are settled on a monthly basis and involve foreign currency risk.
Interest rate risk
Interest rate risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of change in market interest rates.
The Corporation’s interest rate risk is mitigated with a fixed rate of interest at 3.25% on its long-term debt until renewal in
March 2022. Management believes that the potential adverse impact of interest rate fluctuations on the current level of
borrowings exposed to interest rate risk will not be significant in relation to its expected future earnings.
As at December 31, 2018, the Corporation’s Canadian subsidiary had access to a revolving credit facility with a Canadian
bank. The revolving credit facility has a limit of $10,000 based on marginable trade receivables and inventories and the
revolving credit facility was unused. The Corporation’s USA subsidiary had access to a revolving credit facility with a US
bank. The revolving credit facility has a limit of $1,250, based on all inventory and equipment. The revolving credit facility
was unused at December 31, 2018.
Liquidity risk
Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities.
The Corporation’s liquidity risk is that it is not able to settle liabilities when due or that it can do so only at an abnormally
high cost. Accordingly, one of management’s primary goals is to maintain an optimum level of liquidity by actively
managing assets, liabilities and cash flows generated by operations. The Corporation’s future strategies can be financed
through a combination of cash flows generated by operations, borrowing under existing credit facilities, and the issuance of
equity. Management prepares regular budgets and cash flow forecasts to help predict future changes in liquidity.
11. Off-balance sheet arrangements
The Corporation does not believe it has any off balance sheet arrangements that have, or are reasonably likely to have, a
current or future material effect on its financial condition, results of operations, or liquidity, other than those disclosed in
the balance sheet as the available portion of credit facilities, outstanding letters of credit and operating leases.
12. Related party transactions
All related party transactions are constituted in the ordinary course of business and they have been measured at the agreed
exchange amounts which approximate fair value. All transactions with related parties have been approved by the
Corporation’s Board of Directors.
Balances and transactions between the Corporation and its subsidiaries, which are related parties of the Corporation, have
been eliminated on consolidation.
In the years ended December 2018 and 2017, the Corporation had the following transactions with related parties:
Related party
E. Carruthers Trucking
Aeonian Capital Corporation Management services
Nature of transactions
Transportation services
The following related party balances were outstanding at the end of the reporting years:
Related party
Nature of transactions
E. Carruthers Trucking
Transportation services
2018
$ 2,163
350
2017
$ 1,920
350
$ 2,513
$ 2,270
2018
2017
$ 81
$ 68
Aeonian Capital Corporation (“Aeonian”), and its affiliates, owned 2,991,168 (2017 - 2,967,668) common shares of the
Corporation representing 44.5% (2017 – 44.2%) of the 6,716,003 issued and outstanding shares as at December 31, 2018.
Aeonian is controlled by C. Alan Smith, President and Chairman of PFB. The Corporation is charged fees by Aeonian for
17 PFB Corporation Annual Report 2018
management services including those provided by Mr. Smith. The fees are reported under administrative expenses in the
consolidated statement of income.
E. Carruthers Trucking is owned by a sibling of a member of the Board of PFB. The transactions have occurred in the
normal course of operations at arm’s length and are based on standard commercial terms.
13. Subsequent events
Declaration of regular quarterly dividend
On February 1, 2019, the Board of Directors declared a regular quarterly dividend of $0.08 per common share, which was
paid on February 28, 2019, to shareholders of record at the close of business on February 14, 2019.
Letters of credit
Outstanding letters of credit for $1,301 remain outstanding as guarantee payments for inventory purchases.
Operating credit facility
As at January 18, 2019, the operating credit facility in Canada was increased to $17,000.
14. Outlook
The Corporation continued to build on the positive momentum in the third quarter with strong sales and margin
performance in the fourth quarter, driven by increased volumes, supported by warmer seasonal weather patterns and little
to no impact from North American extreme weather events.
As a result, the Corporation experienced record-high consolidated sales of $128,345 in 2018 while recording year-over-
year sales growth in each quarter. During 2018, performance was driven by increased business activity in both the
Canadian and USA segments across a broad range of product offerings and in accordance with several strategic initiatives
intended to drive topline growth. Management is focused on sustaining strong performance into 2019 although future
growth rates are dependent on macro and regional economic factors as well as seasonal weather patterns which can add an
element of uncertainty into the first quarter of 2019.
As expected, our principal raw material input cost softened during the fourth quarter due to higher global inventories and
lower global demand tied to uncertainty created by ongoing US - China trade disputes. In addition, there were no major
unplanned production disruptions in recent months. Going into the first quarter of 2019, raw material input costs appear
relatively stable and at levels lower than those experienced in 2018, a departure from the previous two years. This should
have positive effects on gross margins heading into the first quarter of 2019. However, uncertainty remains as a result of
continued trade and tariff disputes between the United States and China, the potential for unplanned production disruptions
and overall world oil price trends, all factors that could impact North American styrene pricing in 2019.
The Corporation’s resin strategies intended to mitigate the impact of raw material input cost volatility proved effective in
2018 and will be implemented proactively in 2019, as required. Price increases implemented in the second quarter of 2018
became effective over the course of the year and have positioned the Corporation well for 2019. These factors and
operational efficiencies realized through increased volumes and record sales resulted in 2018 gross margins of 22.4%
compared to 20.2% in 2017. The Corporation will continue to monitor raw material input pricing and other cost drivers and
adjust inventories accordingly.
The influence of world crude oil prices on the economies of North America are the largest driver in the outlook for the
Corporation. In general, the oil effect has been positive for the general economy that we operate in and in our continuing
cost structure. During the course of the year, crude oil prices have been volatile, but generally rising. We continue to see
economic recovery in the oil producing regions in which we operate.
The longer-term devaluation of the Canadian dollar against the U.S. dollar limits the ability of competitors to import their
products into Canada and increases the contribution made by USA segment revenues when expressed in Canadian dollars.
The majority of our raw materials are priced and purchased in U.S. dollars and a weaker Canadian dollar results in overall
increased cost of sales. Comparing the fourth quarter of 2018 to the fourth quarter of 2017, the Canadian dollar weakened
providing tailwinds for reporting consolidated sales in Canadian dollars. The currency impact in 2018 remained neutral as
headwinds in the first and second quarter of 2018 were offset by tailwinds in the third and fourth quarter of 2018. As a
result, sales growth for the Corporation was not materially impacted by year-over-year currency fluctuations, but instead
driven by increased volumes, increased business activity and improved pricing. Continued volatility of the Canadian dollar
is possible based on geo-political environments and ongoing global trade and tariff disputes.
PFB Corporation Annual Report 2018 18
The Corporation continues to experience strong demand for EPS product lines in both the Canadian and USA operating
segments as we enter 2019. Infrastructure activity in Canada and the USA present good opportunities for continued growth.
Generally speaking, the oil producing regions of Canada continue to recover as construction activity increases, pulling
increased demand for our nationally branded insulation and building products. The United States expansion continues to be
a strategic objective and we remain cautiously optimistic as interests by customers in our branded products that are
manufactured in the US continue to gain traction. Growth in the US housing market as well as a strong US economy is
having positive effects on our custom homes business as well as our structural insulated panel systems, but shortages of
available contractors and increasing build costs persist which can adversely impact project timing. The custom homes
group enters 2019 with a strong order book. The Corporation continues to search for suitable acquisitions to expand our US
initiatives.
15. Disclosure controls and procedures (DC&P)
DC&P are designed to provide reasonable assurance that all relevant information is gathered and reported to management,
including, the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) on a timely basis so that appropriate
decisions can be made regarding public disclosures.
An evaluation of our DC&P was conducted, as at December 31, 2018, by management under the supervision of the CEO
and the CFO. Based on this evaluation, the CEO and the CFO have concluded that, as at December 31, 2018, our DC&P,
as defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109),
was effective.
Notwithstanding the foregoing, no absolute assurances can be made that Corporation’s controls over disclosure will detect
or prevent all failures of individuals within the organization to disclose material information otherwise required to be set
forth in reports or news releases issued by the Corporation.
16. Internal controls over financial reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial reports for external
reporting purposes in accordance with IFRS.
All control systems contain inherent limitations, no matter how well designed and operated. As a result, management
acknowledges that PFB’s internal controls over financial reporting will not prevent or detect all misstatements due to error
or fraud. In addition, management’s evaluation of controls can provide only reasonable, not absolute, assurance that all
control issues that may result in material misstatements, if any, have been detected.
As at December 31, 2018, the CEO and CFO, assessed the effectiveness of the Corporation’s internal controls over
financial reporting and concluded that it was effective and that no material weaknesses in the Corporation’s internal
controls over financial reporting has been identified.
17. Risk management and assessment
PFB is subject to risks and uncertainties inherent in the operation of its business. Management defines risk as the
possibility that an event might happen in the future that could negatively affect the financial condition and/or results of
operations of the Corporation. The following section describes specific and general risks that could affect PFB. The Audit
Committee and the Board of Directors play an important role in developing risk management programs and reviewing and
monitoring them on a quarterly basis. As it is difficult to predict whether any risk will happen or its related consequences,
the actual effect of any risk on PFB’s business could be materially different from anticipated.
The following descriptions of general and specific risks do not include all possible risks, as there may be other risks
existing of which the Corporation is currently unaware.
17.1 Raw material price and supply
The price of raw materials, specifically, styrene monomer, expandable polystyrene resin, polypropylene copolymers,
oriented strand board, and raw timbers combined represent a significant portion of manufacturing costs in PFB’s
businesses. Historically, there have been considerable cyclical and other causes of volatility in the price of these
materials, which is outside the control of PFB. There are no futures markets for these materials available to PFB,
which limits the ability to lock in prices for fixed periods of time.
19 PFB Corporation Annual Report 2018
PFB may, from time-to-time, build inventories of both raw materials and finished goods which can lead to the
assumption of risk due to an inability to match carrying costs to selling prices under certain fixed price sales
contracts. Conversely, from time to time, PFB may be short of inventory that has been contracted to be delivered
under fixed price sales contracts that can lead to the assumption of risk also due to an inability to match costs to
selling prices.
Management continues to explore opportunities to minimize the impact that price swings in purchasing raw
materials has on PFB’s earnings. The changing dynamics in the petrochemical industry, primarily driven by world
oil prices and other global events, and changing dynamics affecting other industries, are difficult to predict. Such
changes may create the potential for raw material supply disruptions or shortages which would be detrimental to
PFB’s operations.
17.2 Economic and market conditions
PFB’s business is affected by prevailing general and regional economic conditions, consumer confidence and
spending, and both the demand for and prices of its EPS products and insulating building systems in those
geographic areas in which it operates. Weaker economic conditions, the impact of changing mortgage rates and
other interest rates potentially affecting the construction industry, and the possibility of slowdowns in residential
and/or commercial construction activity, typically evidenced by the change in the number of building permits issued,
may translate into lower demand for PFB’s products. Such effects may also adversely affect the financial condition
and credit risk of PFB’s customers, including their ability to obtain credit to finance their businesses, which could
create uncertainty over the collectability of trade receivables.
17.3 International Trade
PFB exports some of its products to customers outside of Canada and imports some of its raw materials to Canada
and certain of its inputs are affected by global commodity prices. PFB’s international operations are subject to
inherent risks, including: change in the free flow of goods between countries; fluctuations in currency values;
discriminatory fiscal policies; unexpected changes in local regulations and laws; and the uncertainty of enforcement
of remedies in foreign jurisdictions. In addition, trade agreements between Canada and foreign jurisdictions could
change and foreign jurisdictions could impose tariffs, quotas, trade barriers, and other similar restrictions on the
PFB’s international sales. All of these risks could result in increased costs or decreased revenues, either of which
could have a material adverse effect on the Company’s financial condition and results of operations.
17.4 Competition
As a market leader in its industry, the Corporation faces intense and growing competition from other manufacturers
of all sizes located in both Canada and the United States, new entrants into the markets we serve, along with
manufacturers of substitute products which compete with EPS. Competition can affect the Corporation’s pricing
strategies and lower its sales revenues and net income. Competition can also affect PFB’s ability to retain existing
customers and attract new ones. A competitive business climate increases the resolve to provide exceptional
customer service, quality products, and the need to be price competitive. Management continues to identify ways to
grow revenues, manage expenses and increase productivity. This requires anticipating and responding quickly to the
constant changes in its businesses and markets.
17.5 Currency
The Corporation has a net exposure to the U.S. dollar which makes it vulnerable to fluctuations in the foreign
exchange rate between the Canadian dollar and the U.S. dollar. The timing of foreign exchange rate fluctuations
between the Canadian dollar and the U.S. dollar can have a significant effect on the Corporation’s operating results,
the effect and magnitude of which depends on the product mix of sales and raw material purchases.
From time-to-time, management may commit to utilizing derivative financial instruments in the normal course of
business as a means of management of its foreign currency exposure. Management attempts to make informed
judgements in such transactions but there is the possibility that markets may respond in ways not predicted. To the
extent that PFB does not fully hedge its foreign currency exposure and exchange rate risk, or the Corporation’s
subsidiaries are not able or do not raise their selling prices accordingly when exchange rates are moving in an
unfavourable direction, the profitability of the business could be adversely affected.
17.6 Acquisitions
The Corporation’s growth strategy includes making strategic acquisitions when possible. There is no assurance that
it will find suitable companies to acquire or that it will have the financial resources needed to complete any
acquisition. There could also be challenges integrating the operations of any acquired company with existing
operations.
PFB Corporation Annual Report 2018 20
17.7 Financing and liquidity
In developing business operations to their full potential, significant capital and operating expenditures may be
required on an ongoing basis. The Corporation has historically generated sufficient cash flow from its operations to
fund its capital expenditure requirements, repay financing obligations, and maintain regular dividend payments.
Future development of new products and the growth of the Corporation’s business through internal expansion or by
acquisitions may depend on access to external financing. The Corporation’s cash position and existing credit
facilities are considered adequate to meet its current and medium-term needs. There is no guarantee that financing
for future expansion of the Corporation’s operations will be available on acceptable terms, if required.
17.8 Reputation
Negative publicity regarding the Corporation’s business practices, regardless of whether true or false, could
adversely affect the Corporation’s reputation which, in turn, could affect its operations, customers, and share value.
PFB manages reputational risk by placing the utmost importance on corporate governance and full and fair
disclosure. Good corporate governance practice emanates from an effective board of directors. Corporation’s board
of directors and its board committees have been shaped to competently perform the role of overseeing the
appropriate management of Corporation’s affairs with the objective of maximizing the long-term value of
Corporation. A detailed summary outlining Corporation’s corporate governance practices can be found in the most
recent Management Information Circular.
17.9 Trade credit
The Corporation’s subsidiaries provide trade credit to their customers in the normal course of business. The
Corporation’s credit policy is universally adopted across its businesses. The policy requires the credit history of each
new customer to be closely examined before credit is granted, which may include performing solvency tests if a
particular account is expected to become significant. Management diligently reviews past due trade receivables on a
weekly basis, which helps minimize credit risk. The diversity of the Corporation’s activities and customer base also
helps minimize the credit risk to which it may be exposed.
17.10 Environmental considerations
Environmental issues are gaining in importance for the Corporation’s stakeholders. The Corporation is committed to
responsibly managing the direct and indirect impact it has on the environment. The Corporation believes that it is in
substantial compliance with applicable environmental laws in jurisdictions where it has operations. The Corporation
takes custody of hazardous materials when the goods physically arrive at its facilities. All construction materials
must adhere to fire safety requirements during their manufacture, transportation and storage. The Corporation will
continue to work with Environment Canada and other industry partners in assessing environmental considerations.
17.11 Information technology
The Corporation makes extensive use of information technology in conducting its businesses. This involves web-
based connections, access to secure, centrally located servers and databases, and maintaining both existing and
implementing new business software applications. The security and safeguarding of information technology assets
and protocols will continue to be increasingly important to the Corporation. The Corporation minimizes its exposure
to I.T. risks by continuously reviewing its access and application controls, performing disaster recovery testing,
locating its backbone I.T. assets in an industry-leading secure location, and hiring and training specialist employees
with respect to the protection and use of I.T. assets and related intellectual property. Failure in the completeness,
accuracy, availability or security of the Corporation’s information systems or a breach of data security could
adversely affect its operations and financial results. Correspondingly, computer viruses, cyber-attacks, security
breaches, unforeseen natural disasters and related events or disruptions could result in information systems failures
that may adversely affect the Corporation’s operations and financial results.
17.12 Cyber Security
The Corporation relies on information technology and information systems in all areas of operations. These systems
are subject to an increasing number of sophisticated cyber threats. The methods used to obtain unauthorized access,
disable or degrade service or sabotage systems are constantly evolving. A successful cyber-attack may result in a
breach of sensitive information or its systems to be disrupted, the Corporation’s financial position, brand and/or its
ability to achieve strategic objectives may be negatively affected.
17.13 Seasonality and climatic factors affecting the construction industry
Due to the seasonal nature of the construction industry, the Corporation’s actual reported sales exhibit variations
when viewed on a quarter-by-quarter basis. Typically, sales are weakest in the first and fourth quarters of the year
21 PFB Corporation Annual Report 2018
and strongest in the second or third quarters. Sales in any quarter can be significantly influenced by weather events,
particularly the timing of when winter begins and ends, and the severity thereof.
17.14 Plant and facilities
The Corporation operates a number of manufacturing facilities across North America, most of which operate at or
near capacity for significant portions of the year. Any disruption to operations at any plant and facility arising from
natural or man-made causes such as fire, flood, labour disputes, interferences with access or egress, or other events,
could have a material impact on the Corporation and its business operations.
17.15 Employee future benefits
A defined benefit pension plan (the “Plan”) exists for certain Ontario-based employees who are members of the
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied industrial and Service Workers
International union. The latest accounting valuation of the Plan calculated in accordance with IAS 19 was completed
as at December 31, 2018, and it identified that the Plan had a defined benefit pension asset of $10 compared to a
defined benefit asset of $91 at the end of the comparative year. Throughout 2018 and 2017, the Corporation made
both normal service and special payment contributions to the Plan. The actual rate of return on plan assets and
changes in interest rates and other variables could result in changes in the Corporation’s funding requirements for the
Plan. The Plan assets are not immune to market fluctuations and, as a result, the Corporation may be required to
make additional cash contributions in future.
The Corporation operates group 401K plans for all qualifying employees located in Minnesota, Michigan, Ohio and
Idaho, USA, in which qualifying employees may elect to defer current wages for retirement. The Corporation has the
option to match employee contributions to the plans. The assets of the plan are held separately from those of the
Corporation by a trust company, which is governed by a custodial agreement (ERISA). The Corporation also utilizes
the services of registered investment brokers and third party administrators in the fulfillment of its actuarial and
fiduciary responsibilities with respect to the plans.
17.16 Human resources
The Corporation’s success depends on the abilities, experience, engagement, and succession of its management
teams. The loss of key employees through either attrition or retirement could adversely impact the Company’s future
business and financial results. The Corporation attempts to mitigate these risks by offering competitive compensation
and benefits packages, training, succession planning, and providing a positive cultural environment.
17.17 Off-Balance Sheet Arrangements and Operating Leases
The Corporation does not believe it has any off balance sheet arrangements that have, or are reasonably likely to
have, a current or future material effect on its financial condition, results of operations, or liquidity, other than those
disclosed in the balance sheet as the available portion of credit facilities, outstanding letters of credit and operating
leases.
17.18 Internal and Disclosure Controls
Ineffective internal controls over financial reporting or inadequate disclosure controls could result in an increased
risk of a material misstatement in financial reporting and public disclosures. In accordance with guidelines adopted
for publicly-traded companies in Canada, the Corporation assesses the effectiveness of its internal and disclosure
controls using a top-down, risk-based approach in which both qualitative and quantitative measures are considered.
An internal control system, no matter how well conceived and operated, can provide only reasonable, but not
absolute, assurance to management and the Board of Directors regarding the achievement of results. The
Corporation’s current systems of internal and disclosure controls places reliance on key personnel across the
Company to perform a variety of control functions which include performing reviews, analysis, reconciliations and
monitoring. The undetected failure of individuals performing such functions or implementing controls as designed
could adversely impact the Corporation’s financial results.
17.19 Volatility of Market Share Price
The market price of the Corporation’s common shares may be volatile and could be subject to fluctuations in
response to quarterly variations in financial results or other events or factors. Consequently, broad market
fluctuations or the failure of the Corporation’s financial results to meet expectations in a particular reporting period
may adversely affect the market price of its common shares.
PFB Corporation Annual Report 2018 22
18. Critical accounting judgements and estimates
In the application of the Corporation’s accounting policies, as described in Note 2 to the consolidated financial statements
for the years ended December 31, 2018 and 2017, management is required to make judgments, estimates and assumptions
about the carrying amounts of assets and liabilities. The estimates and associated assumptions are based on a combination
of historical experience, available knowledge of current conditions, and other factors that are considered to be reasonable
and relevant under the circumstances. Actual costs and outcomes may significantly differ from these estimates and
assumptions.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and
future years if the revision affects both current and future years.
The following are the key assumptions concerning the future and other key sources of estimating uncertainty at the end of
the reporting year, that have a significant risk of causing material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
18.1 Revenue Recognition
IFRS 15 requires management to make judgments and estimates. Judgement relates to the identification of
performance obligations in each contract. Some contracts with customers include a bundled set of goods and
services and judgement is required to determine the goods and services that are distinct performance obligations.
Judgement is required to determine any level of integration and any interdependency between goods and services
entered with customers. Allocation of the transaction price to different performance obligations may require
estimates. In instances where information is incomplete or not available, determination of selling prices include
market conditions and other observable inputs such as the scope of work and geographic region.
Judgements and estimates are also required to determine an appropriate measure of progress and pattern of delivery
when determining how control of promised goods or services transfers to a customer.
Estimates of incentives or rebates are updated regularly as information becomes available and only to the extent that
the variable consideration is constrained.
18.2 Remaining performance obligations
Many factors may lead to a change during a contract performance period, which can result in a change to contract
profitability from one financial reporting period to another. Some of the factors that can change the contract revenue
include differing site conditions, the availability of skilled labour, the performance of subcontractors, unusual
weather and the accuracy of original contracts. Judgements are required of factors that may impact remaining,
unsatisfied performance obligations. Estimates are required to determine the aggregate amount of the transaction
price allocated to performance obligations that are unsatisfied, or partially unsatisfied, as at the end of each reporting
period. Judgement is also required to determine the timing of when unsatisfied performance obligations will become
realized as revenue in future periods.
18.3 Cash-generating unit (“CGU”)
Determination of which assets constitutes a CGU is subject to management judgements. Also, the asset composition
of a CGU can directly impact the recoverability of assets included therein. The recoverable amount of a CGU is
assessed at the CGU level and is the higher of the CGU’s fair value less costs of disposal and its value in use. A
CGU may be impaired when its carrying amount exceeds its recoverable amount. Key assumptions used for the
value in use calculations are set out in note 16 of the audited consolidated financial statements for the year ended
December 31, 2018.
18.4 Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating unit(s) to
which goodwill has been allocated. The value in use calculation requires management to estimate the future cash
flows expected to arise from the cash-generating unit and determining a suitable discount rate in order to calculate
present value.
In the years ended December 31, 2018 and 2017, no impairment of goodwill was recognized. Notwithstanding,
reasonable changes in one or more of the variable assumptions or the discount rate used to estimate the present value
of future cash flows could have a bearing on the valuation outcomes and conclusions.
23 PFB Corporation Annual Report 2018
18.5 Impairment of tangible and intangible assets
Determining whether tangible and intangible assets are impaired requires an estimation of the value-in-use of the
CGUs to which they have been allocated. The value-in-use calculation requires management to estimate the future
cash flows expected to arise from the CGU and a suitable discount rate to be determined in order to calculate present
value.
In the years ended December 31, 2018 and 2017, no impairment of tangible and intangible assets was recognized.
Notwithstanding, reasonable changes in one or more of the variable assumptions or the discount rate used to
estimate the present value of future cash flows could have a bearing on the valuation outcomes and conclusions.
18.6 Valuation of inventories
Management reviews the carrying amount of finished goods inventories at the end of each reporting year and the
recorded amount is adjusted to the lower of cost or net realizable value. As part of the review, management is
required to make certain assumptions when determining expected realizable amounts.
An inventory reserve is maintained for slow-moving raw materials and work-in-progress inventories. The value of
slow-moving inventories is based on management’s assessment of market conditions for its products as determined
by historical usage and estimated future demand. Any write-downs in value may be reversed if the circumstances
which caused them no longer exist.
18.7 Allowance for doubtful accounts
Amounts included in allowance for doubtful accounts reflect the lifetime expected credit losses for trade receivables.
Management determines allowances based on best estimates of future expected credit losses, considering historical
credit loss experience, current economic conditions, and forecasts of future economic conditions. Significant or
unanticipated changes in economic conditions could impact the magnitude of future expected credit losses. The
value of the allowance for doubtful accounts reserve typically tracks the seasonality trend of trade receivables.
Specific reserves may be created for individual customers in exceptional circumstances. Bad debts are written off
against the reserve.
18.8 Income taxes
The Corporation is subject to income taxes in both Canada and the USA. When preparing current and future tax
expense at the end of each reporting year, management is required to make certain estimates and assumptions
regarding the timing of when temporary differences will reverse and tax rates that will be in force at that time.
Unknown future events and circumstances, such as changes in tax rates and laws, may materially affect the
assumptions and estimates made from one year to the next and thereby affect the consolidated financial statements.
18.9 Measurement of retirement benefits
Post-employment benefits are accounted for on an actuarial basis. The Corporation engages the services of an
independent actuary to perform valuations of the Corporation’s defined benefits plan and the actuary provides a
certified opinion thereon. For inclusion in the valuation, management is required to make certain assumptions
including an appropriate discount rate and the estimated return of plan assets. The estimates are reviewed for
reasonableness by the actuary. Due to the nature of the assumptions made and used in the valuations, there is the
potential for fluctuations of a material nature in the value of the defined benefits in future years.
18.10 Property, plant and equipment
The Corporation estimates the useful life of property plant and equipment that it owns or is held under a finance
lease. The actual useful life of assets and components of assets could vary significantly from the estimated useful
lives used in determining periodic depreciation expense. Additionally the amortization of financial lease obligations
associated with leasing these assets can be based on parameters that are notional and not precisely measured. The
effect of employing these estimates does not necessarily match cash flows from operations with costs recorded as
expense. Management reviews the useful lives of the assets at least annually to ensure that expected and actual lives
are as closely aligned as is practical.
18.11 Valuations performed during a business combination
The Corporation makes judgments, estimates and assumptions that affect the quantitative and qualitative valuation
of business combinations. These may include: estimates of future cash flows and working capital requirements;
potential acquisition synergies; costs to complete the transaction; the value of contingent consideration; strategic
direction; management effectiveness, and operating efficiencies. Fair value of assets acquired and liabilities assumed
in a business combination is estimated based on information available at the date of acquisition and involves
PFB Corporation Annual Report 2018 24
considerable judgment in determining the fair values assigned to acquired intangible assets, land, property, plant and
equipment, and other assets, and the liabilities assumed on acquisition. Unknown future events and changes in
assumptions and estimates may impact future cash flows and materially impact the valuation of each business
combination.
18.12 Finance leases
Management uses judgment in determining whether a lease should be accounted for as a finance lease. In doing so,
management considers the lease terms and, in some cases, those terms may not always conclusively support the
classification as a finance lease.
18.13 Share-based payment arrangements
The compensation costs relating to share-based payment arrangements are based on estimates of how many common
shares will actually vest and be exercised.
19. Application of new and revised International Financial Reporting Standards (IFRSs)
Effective January 1, 2018 the Corporation adopted new IFRS standards – IFRS 15, Revenue from Contracts with
Customers, IFRS 9, Financial Instruments and IFRS 2, Share-based payment. The effect of adoption of these new standards
is outlined in more detail in Note 4 of the consolidated financial statements as at December 31, 2018, which also discloses
the restated comparative financial statements for the impacts of adopting new accounting standards for the periods ended
January 1, 2017 and December 31, 2017.
In January 2016, the IASB issued IFRS 16 - Leases, which supersedes IAS 17 - Leases. IFRS 16 establishes principles for
the recognition, measurement, presentation and disclosure of leases. The standard establishes a single model for lessees to
bring leases on-balance sheet while lessor accounting remains largely unchanged and retains the finance and operating
lease distinctions. The standard requires the lessees to recognize a lease liability reflecting discounted future lease
payments and a “right-of-use asset” for all lease contracts, and record it on the balance sheet, except with respect to lease
contracts that meet limited exception criteria. IFRS 16 is effective for annual periods beginning on or after January 1, 2019
with earlier adoption permitted.
The Corporation will apply IFRS 16 retrospectively and recognize the cumulative effect of initial application on January 1,
2019, subject to permitted and elected practical expedients. The Corporation will not apply this standard to short-term
leases and leases for which the underlying asset is of low value. The Corporation has elected not to separate non-lease
components from lease components for all underlying asset classes except Property, which the Corporation has elected to
separate and exclude non-lease components from lease components.
The Corporation continues to assess and quantify the effect of this standard on the consolidated financial statements,
information systems and internal controls. During the fourth quarter, the Corporation has further reviewed existing
contracts for lease recognition, completed an analysis of discount rates and the tax-effects of leases upon retrospective
adoption.
The measurement of the total lease expense over the term of a lease will be unaffected by the new standard, however,
management expects to recognize additional right-of-use assets and lease obligations on the consolidated balance sheet.
Management also expects changes to cost of sales as operating expenses will be presented as depreciation and finance
costs. Material changes are expected to the consolidated balance sheet and immaterial changes to the consolidated
statement of income. Although total cash movement will be unchanged, the presentation in the statement of cash flows will
differ under the new Standard. The full quantification of the new standard will be disclosed in the condensed interim
consolidated financial statements for the first quarter of 2019.
25 PFB Corporation Annual Report 2018
20. Non-IFRS Financial Measures
The Corporation uses measurements primarily based on IFRS as issued by the IASB and also certain secondary non-IFRS
measurements.
The non-IFRS measures used by the Corporation are considered to be useful as complimentary measures in assessing the
Corporation’s financial performance. Non-IFRS measurements do not have a standardized meaning prescribed by IFRS and, as
such, are unlikely to be comparable in definition to similar measures presented by other companies.
The definitions of non-IFRS measurements used in this MD&A can be found in the section below:
Measure
Definition
Adjusted EBITDA
Represents earnings before interest, taxes, depreciation and amortization. Adjusted
EBITDA is an absolute measure of our operating performance and provides an
indication of the results generated by our business activities prior to how the activities
are financed, how assets are depreciated and amortized, or how results are taxed.
Adjusted EBITDA per share Adjusted EBITDA divided by the basic weighted average number of shares outstanding
in the period.
Non-cash working capital
A financial measure to monitor how much capital we have committed to the day-to-day
operations of our business. Non-cash working capital represents current assets
(excluding cash or cash equivalents, restricted cash and income taxes recoverable) less
current liabilities (excluding income taxes payable, current portions of finance lease
obligations and current portion of long-term debt).
Book value
Shareholders’ equity divided by the actual number of common shares outstanding as at
December 31 each year.
Gross profit margin
Gross profit divided by sales, expressed as a percentage.
Operating margin
Gross profit less selling expenses, administrative expenses and other gains (losses)
divided by sales.
Net income margin
Net income divided by sales.
Current ratio
Return on equity
Current assets divided by current liabilities.
A financial measure used to assist in analyzing shareholder value. Net income for the
year divided by opening shareholders’ equity.
The following table shows the reconciliation of net income to adjusted EBITDA and related per share amounts for the years
ended December 31:
Net income
Add back (deduct):
Income taxes
Finance costs
Investment income
Depreciation
Amortization
Adjusted EBITDA
Adjusted EBITDA per share
2018
2017
2016
$ 6,189
$ 2,281
$ 4,688
2,324
766
(67)
3,634
132
794
832
(114)
3,768
132
2,392
1,421
(234)
3,748
90
$ 12,978
$ 7,693
$ 12,105
$ 1.93
$ 1.14
$ 1.80
PFB Corporation Annual Report 2018 26
The following table shows the reconciliation of quarterly net income to quarterly adjusted EBITDA and related per share
amounts for each of the quarters in 2018 and 2017:
Net income (loss)
(As per financial statements)
Add back (deduct):
Income taxes (recovery)
Finance costs
Investment income
Depreciation
Amortization
Adjusted EBITDA
Adjusted EBITDA per share
2018
Q4
2018
Q3
2018
Q2
2018
Q1
2017
Q4
2017
Q3
2017
Q2
2017
Q1
$ 2,080
$ 3,265
$ 1,545
$ (701) $ 1,240
$ 1,519
$ 412
$ (890)
755
171
(18)
913
30
3,931
1,215
192
(4)
908
31
5,607
605
224
(13)
913
35
3,309
(251)
179
(32)
900
36
131
323
173
(24)
912
35
592
183
(21)
934
33
156
196
(19)
981
36
2,659
3,240
1,762
$ 0.59
$ 0.83
$ 0.49
$ 0.02
$ 0.40
$ 0.48
$ 0.26
(277)
280
(50)
941
28
32
$ -
Adjusted EBITDA was $3,931 in the three month period ended December 31, 2018, an increase of $1,272 from $2,659 in
the comparative three-month period of 2017. The increased adjusted EBITDA is primarily a result of higher sales.
For the year ended December 31, 2018, adjusted EBITDA was $12,978, an increase of $5,285 from $7,693 in 2017. The
increased adjusted EBITDA is reflective of higher net income from record sales during 2018 from higher volumes, selling
prices, raw material supply strategies and manufacturing efficiencies.
Robert Graham Mirko Papuga
Chief Executive Officer Chief Financial Officer
March 8, 2019 March 8, 2019
27 PFB Corporation Annual Report 2018
Management's Report
The accompanying consolidated financial statements of PFB Corporation and all information included therein is the
responsibility of the management of the Corporation and has been reviewed and approved by the Board of Directors upon
recommendation by the Audit Committee.
Management has prepared the consolidated financial statements based on the information available and in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The
consolidated financial statements and other financial information have been prepared using the accounting policies described in
Note 2 to the consolidated financial statements and reflect management’s best estimates and judgments based on available
information. Financial information presented throughout this report is consistent with data presented in the consolidated
financial statements.
PFB Corporation maintains systems of internal controls in order to provide reasonable assurance that the consolidated financial
statements are accurate and complete in all material respects. These systems include established policies and procedures, the
selection and training of qualified personnel, and an organization structure providing for appropriate delegation of authority and
segregation of responsibilities.
The Board of Directors discharges its duties related to the consolidated financial statements by reviewing and approving
financial information prepared by management and through the activities of its Audit Committee. The Audit Committee, made
up of four unrelated and independent directors, meets with management and its responsibilities include reviewing the
consolidated financial statements. The Audit Committee also meets with the Corporation’s independent auditors to discuss the
audit approach, and the results of their audit examination prior to recommending approval of the consolidated financial
statements to the Board of Directors.
The shareholders’ auditor, Deloitte LLP, Chartered Professional Accountants, have audited the consolidated financial
statements as at and for the years ended December 31, 2018 and 2017, in accordance with Canadian Generally Accepted
Auditing Standards. Their independent report outlines the scope of their examination and opinion on the consolidated financial
statements and is presented herein.
Robert Graham Mirko Papuga
Chief Executive Officer Chief Financial Officer
March 8, 2019 March 8, 2019
Calgary, Alberta Calgary, Alberta
PFB Corporation Annual Report 2018 28
Independent Auditor’s Report
To the Shareholders and Board of Directors of PFB Corporation
Opinion
We have audited the consolidated financial statements of PFB Corporation (the “Company”), which comprise the
consolidated balance sheets as at December 31, 2018 and 2017, and the consolidated statements of income,
comprehensive income, changes in equity and cash flows for the years then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies (collectively referred to
as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of the Company as at December 31, 2018 and 2017, and its financial performance and its 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 (“Canadian GAAS”).
Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of
the Financial Statements section of our report. We are independent of the Company in accordance with the
ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
● Management’s Discussion and Analysis
● The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.
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, or
otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s 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 this auditor’s report. We have nothing to report in this
regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the
work we will perform on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact to those charged with governance.
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 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 Company’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 Company or to cease operations,
or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
29 PFB Corporation Annual Report 2018
Auditor’s 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 auditor’s 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 GAAS will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, 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 Company’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 Company’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s 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 auditor’s report. However, future
events or conditions may cause the Company 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.
● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
We 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.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Shawn Lai.
Chartered Professional Accountants
March 8, 2019
Calgary, Alberta
PFB Corporation Annual Report 2018 30
Consolidated Balance Sheets
As at December 31, 2018 and 2017
Thousands of Canadian dollars
ASSETS
Current assets
Cash and cash equivalents
Cash – restricted
Trade receivables
Inventories
Income taxes recoverable
Prepaid expenses
Contract costs
Total current assets
Non-current assets
Marketable securities - restricted
Property, plant and equipment
Intangible assets
Goodwill
Accrued defined benefit pension plan
Deferred income tax assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Contract liabilities
Income taxes payable
Long-term debt
Finance lease obligations
Total current liabilities
Non-current liabilities
Long-term debt
Finance lease obligations
Deferred operating lease obligations
Deferred income tax liabilities
Total non-current liabilities
Total liabilities
SHAREHOLDERS’ EQUITY
Common shares
Equity-settled employee benefits reserve
Accumulated other comprehensive income
Retained earnings
Shareholders’ equity
Total liabilities and shareholders’ equity
Note
December 31, 2018
December 31, 2017
9
9
10
11
7
12
21, 25
14
15
16
17
7
18
7
19
21
21
20
7
24
$ 16,944
1,347
13,082
11,638
193
374
475
44,053
1,483
39,209
1,447
2,360
10
270
44,779
$ 88,832
$ 10,894
6,464
681
350
255
18,644
8,218
2,984
719
1,631
13,552
32,196
20,947
44
4,176
31,469
56,636
$ 88,832
$ 12,180
88
9,809
9,998
287
474
527
33,363
1,239
40,099
1,405
2,217
91
357
45,408
$ 78,771
$ 8,737
5,158
39
339
249
14,522
8,567
2,983
506
1,368
13,424
27,946
20,947
-
2,448
27,430
50,825
$ 78,771
Commitments and contingencies (Note 28), and operating leases (Note 27).
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
C. Alan Smith Gordon G. Tallman
Executive Chairman & Director Director
31 PFB Corporation Annual Report 2018
Consolidated Statements of Income
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars, except per share amounts
Sales
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other (losses) gains
Operating income
Gain on sale of marketable securities
Investment income
Finance costs
Income before taxes
Income tax expense
Net income for the year
Earnings per share - $ per share
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
Note
11
6
7
8
8
The accompanying notes are an integral part of these consolidated financial statements.
2018
2017
$ 128,345
(99,544)
$ 105,557
(84,229)
28,801
(11,985)
(7,452)
(152)
9,212
-
67
(766)
8,513
(2,324)
21,328
(11,424)
(6,399)
13
3,518
275
114
(832)
3,075
(794)
$ 6,189
$ 2,281
$ 0.92
$ 0.92
$ 0.34
$ 0.34
6,716,003
6,732,470
6,716,003
6,716,003
PFB Corporation Annual Report 2018 32
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
Net income for the year
$ 6,189 $ 2,281
Note
2018
2017
Other comprehensive income (loss):
Items that may subsequently be reclassified to income:
Foreign currency translation adjustments
Exchange differences on translating foreign operations,
net of tax
Restricted financial assets
Unrealized gain on restricted financial assets,
net of tax
21, 25
Items that will not be subsequently reclassified to income:
Defined benefit pension plan valuation change
Unrealized (loss) gain on valuation change, net of tax
1,689
(1,209)
177
39
1,866
(1,170)
(138)
(138)
16
16
Other comprehensive income (loss) for the year
Comprehensive income for the year
1,728
(1,154)
$ 7,917 $ 1,127
All comprehensive income in each year is attributable to the shareholders of the Corporation.
The accompanying notes are an integral part of these consolidated financial statements.
33 PFB Corporation Annual Report 2018
Consolidated Statements of Changes in Equity
As at December 31, 2018 and 2017
Thousands of Canadian dollars, except number of shares
Balance at January 1, 2017
Net income for the year
Other comprehensive (loss) income for the year, net of tax
Total comprehensive (loss) income for the year
Payment of dividends
Balance at December 31, 2017
Net income for the year
Other comprehensive income (loss) for the year, net of tax
Total comprehensive income (loss) for the year
Payment of dividends
Share-based payment
Common shares
Number
of shares
Share
capital
Note
Equity-
settled
employee
benefits
reserve
Accumulated other comprehensive income
Defined benefit
Unrealized
pension plan
gain on
valuation
financial
change,
assets,
net of taxes
net of taxes
Foreign
currency
translation
adjustments
Retained
earnings
Total
6,716,003 $ 20,947
$ -
$ 3,360
$ 190
$ 52
$ 27,097
$ 51,646
-
-
-
-
-
-
-
-
6,716,003
20,947
-
-
-
-
-
-
-
-
-
-
24
24
-
-
-
-
-
-
-
-
-
44
-
(1,209)
(1,209)
-
-
39
39
-
-
16
16
-
2,281
2,281
-
(1,154)
2,281
1,127
(1,948)
(1,948)
2,151
229
68
27,430
50,825
-
1,689
1,689
-
-
-
177
177
-
-
-
6,189
-
6,189
6,189
1,728
7,917
(2,150)
(2,150)
-
44
(138)
(138)
-
-
Balance at December 31, 2018
6,716,003 $ 20,947
$ 44
$ 3,840
$ 406
$ (70)
$ 31,469
$ 56,636
The accompanying notes are an integral part of these consolidated financial statements.
PFB Corporation Annual Report 2018 34
Consolidated Statements of Cash Flows
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year
Adjustments for:
Depreciation expense
Amortization expense
Gain on disposal of property, plant and equipment
Gain on sale of marketable securities
Defined benefit pension plan
Finance costs
Investment income
Income tax expense
Share-based payment expense
Unrealized foreign exchange (gains) losses
Changes in non-cash working capital
Unrealized foreign exchange relating to non-cash working capital
Changes in deferred operating lease obligations
Cash from operating activities, before income taxes
Income taxes paid, net
Net cash from operating activities
CASH FLOWS USED IN INVESTING ACTIVITIES
Increase in restricted cash balance
Purchase of leased assets
Reclassification of lease obligations related to purchase of leased assets
Non-cash deferred operating lease obligation related to purchase of leased assets
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of property, plant and equipment
Interest received
Distributions received from marketable securities
Net cash used in investing activities
CASH FLOWS USED IN FINANCING ACTIVITIES
Repayment of finance lease obligations
Settlement of finance lease obligation related to purchase of leased assets
Changes in long-term debt
Proceeds from disposal of marketable securities
Finance costs paid
Dividends paid to shareholders
Net cash used in financing activities
Effects of exchange rate changes on the balance of cash held in foreign
currencies
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Note
2018
2017
$ 6,189
$ 2,281
14
15
6, 14
7
6
29
20
22
22, 23
22
14
15
23
22
19, 23
24
9
3,634
132
(58)
-
(79)
766
(67)
2,324
44
(69)
(1,298)
17
214
11,749
(1,312)
10,437
(1,259)
-
-
-
(1,769)
(64)
82
48
19
(2,943)
(279)
-
(338)
-
(766)
(2,150)
(3,533)
3,768
132
(51)
(275)
(40)
832
(114)
794
-
25
647
(64)
8
7,943
(144)
7,799
(51)
(18,800)
10,982
143
(1,482)
(129)
58
40
74
(9,165)
(246)
(10,982)
8,906
1,883
(832)
(1,948)
(3,219)
803
4,764
12,180
$ 16,944
(369)
(4,954)
17,134
$ 12,180
The accompanying notes are an integral part of these consolidated financial statements.
35 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
1. General information
PFB Corporation (“PFB” or the “Corporation”) is a Canadian public company incorporated under the Alberta Business
Corporations Act and has its head office in Calgary, Alberta, Canada. The Corporation’s corporate office is located at 300,
2891 Sunridge Way NE, Calgary, Alberta, Canada T1Y 7K7. The Corporation’s shares are publicly traded on the Toronto
Stock Exchange (“TSX”) under the symbol PFB. The principal business activity of the Corporation is manufacturing
insulating building products made from expanded polystyrene materials and marketing these products in North America.
The Corporation’s wholly-owned subsidiaries operate manufacturing facilities and sales operations in the provinces of
British Columbia, Alberta, Saskatchewan, Manitoba and Ontario in Canada, and in the States of Minnesota, Michigan,
Idaho and Ohio, USA.
2. Significant accounting policies
2.1
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”).
2.2 Basis of preparation
The consolidated financial statements were prepared on a historical cost basis except for certain financial
instruments and contingencies which are valued at fair value through profit or loss. Historical cost is generally
based on the fair value of the consideration given in exchange for assets.
The accounting policies set out below have been applied consistently in the preparation of the consolidated financial
statements for all years presented.
Certain comparative figures have been reclassified to conform to the presentation adopted in the current year.
Sales of the Corporation’s products are driven by consumer and industrial demand for insulation and building
products. The timing of customers’ construction projects can be influenced by a number of factors including the
prevailing economic climate and weather. Seasonality of construction results in demand for the Corporation’s
products to be typically stronger in the second and third quarters and less strong in the first and fourth quarters of its
fiscal cycle.
2.3 Basis of consolidation
Subsidiaries are all entities over which the Corporation has control. The Corporation controls an entity when it is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. The consolidated financial statements incorporate the accounts of the
Corporation and its subsidiaries (entities controlled by the Corporation). All subsidiaries are wholly-owned by the
Corporation (Note 31).
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
2.4 Revenue Recognition
The Corporation enters into contracts to supply various goods, services or combinations of goods and services,
which are capable of being distinct and accounted for as separate performance obligations. Revenue is recognized
when performance obligations under the terms of a contract with customer are satisfied; generally this occurs with
the transfer of control of products or services. Control transfers to customers upon shipment or delivery of goods to
the destination and upon completion of services. Revenue is measured as the amount of consideration the
Corporation expects to receive in exchange for transferring goods or providing services. Revenue is reduced for
variable consideration attributable to customer returns, customer rebates and similar allowances. Sales, excise, and
other taxes are excluded from revenue.
2.4.1 Manufactured goods
Revenue from contracts to provide manufactured goods is recognized at the transfer of control, which occurs
upon shipment or delivery, in accordance with the terms of the contract. When contracts contain multiple
performance obligations, the Corporation allocates the transaction price to each performance obligation
identified in the contract. Revenue is recognized when each performance obligation is achieved.
PFB Corporation Annual Report 2018 36
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
2.4.2 Rendering of services
Revenue from the rendering of services includes design, advisory and installation services. Revenue from
contracts to provide services is recognized when or as the services are provided in accordance with the
performance obligations of the contract. The method to measure progress towards complete satisfaction of
performance obligations over time is determined using the output method. When contracts include a
combination of services, the Corporation allocates the transaction price to each service performance
obligation and revenue is recognized as each distinct performance obligation is delivered.
2.4.3 Freight
Freight services beyond normal freight terms incur charges that are recognized as freight revenues.
2.4.4 Construction contracts
Construction contracts include performance obligations for the construction of an asset or to supply a
bundled combination of products and services, such as full design build services and the Total Home
Solution®. As performance obligations are achieved, revenue is recognized over time or at a point in time,
depending on the nature of the performance obligation. The method to measure progress towards complete
satisfaction of performance obligations over time is determined using the output method. Performance
obligations are satisfied at a point in time upon shipment or delivery of goods.
When acting as principal for design, advisory, installation, engineering or other work, the Corporation
recognizes revenue on a gross basis.
When total costs to be incurred on a contract exceed the total estimated revenue to be earned, a provision for
the entire loss on the contract is recognized in the period the loss is determined.
Contract modifications that occur are accounted for as if they were part of the existing contract and are
recognized as a cumulative adjustment to revenue.
2.4.5 Other revenue types
Revenue from the sale of other goods or services not listed above is generally ancillary and is recognized
when control is transferred, typically on the delivery of the product or service to the customer. These
revenues include the sale of scrap material, digital media subscriptions and other revenue types.
2.4.6 Contract costs
Costs the Corporation would not have incurred if a contract had not been obtained and expected to be
recovered, are included in other current assets on the consolidated balance sheet as contract costs. Contract
costs are reduced over the life of a contract in proportion to the completion of those performance obligations.
2.4.7 Contract liabilities
Contract liabilities include cash consideration received as a deposit at the beginning of certain contracts.
Contract liabilities are reduced as performance obligations are achieved. The Corporation has determined
there are no significant financing components with customers.
Contract liabilities also include variable consideration for customer volume rebates and are accounted for
using the ‘most likely amount’ method. Retrospective price reductions are applied when a customer
purchases specified quantities of manufactured goods.
The operating cycle, or duration, of some construction contracts may exceed an annual year. All contract
liabilities are classified as current as they are expected to be realized or satisfied within the normal operating
cycle of the contract.
Refer to Note 12 – Contract costs, Note 18 – Contract liabilities and Note 13 – Remaining performance
obligations, for further information.
2.4.8 Investment income
Dividend income from investments is recognized when the Corporation’s right to receive payment has been
established (provided that it is probable that the economic benefits will flow to the Corporation and the
amount of income can be measured reliably).
37 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
Interest income from a financial asset is recognized when it is probable that the economic benefits will flow
to the Corporation and the amount of income can be measured reliably. Interest income is accrued on a time
basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life of the financial asset to that
asset's net carrying amount on initial recognition.
2.5 Cash and cash equivalents, and restricted cash
Cash and cash equivalents consist of cash in hand, deposits held at call with banks, other short-term highly liquid
investments with original maturities of 90 days or less.
Restricted cash comprises cash collected from certain customers of the USA segment which is contractually
segregated from other cash as it is held solely for disbursements to suppliers and service providers specific to those
customer’s contracts.
2.6 Inventories
Inventories, which comprise raw materials and supplies, work-in-progress and finished products, are stated at the
lower of cost and net realizable value. Costs of inventories are predominantly determined using the weighted average
cost method and includes the cost of purchase, the cost of conversion (labour and overhead) and other costs required
to bring the inventories to their present location and condition. Some customized work-in-progress and finished
product inventories are held at actual cost using the First-in, First-out (“FIFO”) method and are segregated by
customer job number. Inventories which have costs determined using the FIFO method represent a small portion of
the Corporation’s inventories on hand at any point in time and such inventories turn frequently. Net realizable value
represents the estimated selling price for inventories, less all estimated costs of completion and costs necessary to
make the sale. The cost of work-in-process and finished product inventories includes the cost of materials, the cost of
direct labour, and a systematic allocation of manufacturing overheads based on a normal range of capacity for each
production facility.
Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due
to obsolescence, damage or declining selling prices. When circumstances that previously caused inventories to be
written down below cost no longer exist or when there is clear evidence of an increase in selling prices, the amount of
write-down previously recorded is reversed.
2.7 Property, plant and equipment (“PP&E”)
PP&E are carried at cost less accumulated depreciation and any impairment losses. The cost includes expenditures
directly attributable to the acquisition of the property, plant and equipment. Assets acquired under finance leases are
recognized at an amount equal to fair value or, if lower, the present value of the minimum lease payments, less
accumulated depreciation and any impairment losses. Gains and losses, determined as the difference between net
sales proceeds and the carrying amount of the asset, arising on the disposal of individual assets are recognized in
earnings in the year of disposal.
PP&E in the course of construction for production are carried at cost, less any recognized impairment loss. Such
properties are classified to the appropriate categories of PP&E when completed and ready for intended use.
Depreciation commences when the assets are available for use and is recognized on a straight-line basis to depreciate
the capitalized cost of assets to their estimated residual values over their estimated useful lives. When significant
parts of an asset have different expected useful lives, they are accounted for as separate components of the asset and
depreciated over their estimated useful lives and depreciation method when practical. Freehold land is not
depreciated. Assets held under finance leases are depreciated over the shorter of the lease term and their expected
useful lives.
Asset class:
Freehold land
Buildings
Plant and equipment
Assets under finance lease
Assets under construction
Useful life:
Unlimited useful life, not depreciated
15 to 40 years
3 to 20 years
Lesser of the expected useful life and the term of the lease
Depreciation commences when the asset is constructed and placed in use
PFB Corporation Annual Report 2018 38
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
An item of PP&E is derecognized upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on derecognizing an item of PP&E is measured as the difference
between the net sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
PP&E is reviewed quarterly to determine whether there is any indication of impairment. Depreciation methods,
useful lives, and residual values are reviewed at least annually and adjusted as appropriate.
2.8 Leasing
Leases are classified as finance leases whenever the terms of the leases transfer substantially all of the risks and
rewards of ownership to the Corporation. All other leases are recorded as operating leases.
Assets held under a finance lease are initially recognized as assets of the Corporation at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to
the lessor is included in the consolidated balance sheets as current and long-term finance lease obligations.
Lease payments are apportioned between finance expenses and a reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in
profit and loss.
Operating lease payments are recognized in the consolidated statement of income as an expense on a straight-line
basis over the lease term. Lease incentives received and predetermined fixed escalations of the minimum rent are
recognized as an integral part of the total lease expense, over the term of the lease. The Corporation leases properties
with rental incentives and predetermined fixed escalations of the minimum rent (Note 20).
2.9 Intangible assets
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization
and any accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated
useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting year and the
effect of any changes in estimates is accounted for on a prospective basis. A summary of estimated useful life by
asset class is as follows:
Class:
Useful life:
Patents
Product development costs
Software
Registered trade names
Order backlog
Non-compete agreements
17 years
3 years
3 to 5 years
Indefinite life – not amortized
Lives of individual contracts (max. 3 years)
1 to 1.5 years
Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated
impairment losses and the carrying amounts are tested for impairment at least annually or whenever there is an
indication that an asset may be impaired. In the case of impairment, the recoverable amount of an asset is estimated
in order to determine the extent of the impairment loss, if any (Note 2.11).
Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized
at their fair value at the acquisition date, which is considered to be the asset’s deemed cost. Subsequent to their initial
recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization
and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
An intangible asset is derecognized on disposal or when no future economic benefits are expected from use. Any gain
or loss arising from de-recognition of an intangible asset, measured as the difference between the net disposal
proceeds and the carrying amount of the asset, is recognized in profit or loss when the asset is derecognized.
2.10 Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the
business less accumulated impairment losses, if any. Goodwill is not amortized.
For the purposes of impairment testing, goodwill is allocated to each of the Corporation’s cash-generating units
(“CGU”) that are expected to benefit from the synergies of the combination.
39 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an
indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit, pro-rata based on the carrying amount of each asset in the unit. Any impairment loss for
goodwill is recognized directly in the consolidated statement of income. An impairment loss recognized for goodwill
is not reversed in subsequent years.
2.11 Impairment of tangible and intangible assets other than goodwill
At the end of each reporting year, the Corporation reviews the carrying amounts of its tangible and intangible assets
to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if
any). When it is not possible to estimate the recoverable amount of an individual asset, the Corporation estimates the
recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they
are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can
be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment
at least annually, and whenever there is an indication that the asset may be impaired.
The recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows
have not been adjusted. The process of determining cash flows requires management to make estimates and
assumptions which include forecasted future sales, earnings, capital investment, and discount rates.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the
carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is
recognized immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is
increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-
generating unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
2.12 Foreign currency translation
The Corporation’s primary economic environment in which it operates its businesses is Canada. The consolidated
financial statements are presented in Canadian dollars, which is the Corporation’s functional and presentation
currency.
At the end of each reporting year, monetary items denominated in foreign currencies are retranslated at exchange
rates prevailing at that date. Gains and losses arising from this retranslation are included in profit or loss in the year in
which they arise. Non-monetary assets and liabilities that are measured at their historical cost in a foreign currency
are not retranslated.
The Corporation’s subsidiaries located in the United States have a functional currency of U.S. dollars. The assets and
liabilities of the Corporation’s foreign operations are translated into Canadian dollars using exchange rates prevailing
at the end of each reporting year. Income and expense items are translated at the average exchange rates applicable to
the years when recorded. Equity balance sheet amounts denominated in U.S. dollars are translated using historical
exchange rates. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated
in equity.
Goodwill and fair value adjustments on identifiable assets and liabilities assumed through acquisition of a foreign
operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing
at the end of each reporting year. Exchange differences arising are recognized in other comprehensive income.
2.13 Provisions
Provisions are recognized when the Corporation has a present legal or constructive obligation as a result of a past
event, it is probable that the Corporation will be required to settle the obligation, and a reliable estimate can be made
of the amount of the obligation.
PFB Corporation Annual Report 2018 40
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation
at the end of the reporting year, taking into account the risks and uncertainties surrounding the obligation. When a
provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the
present value of those cash flows (where the effect of the time value of money is material).
The Corporation’s provisions are not significant and are included in trade and other payables.
2.14 Financial instruments
Financial assets and financial liabilities are recognized initially at fair value when the Corporation or a subsidiary of
the Corporation becomes a party to the contractual provisions of the instrument (Note 25).
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from
the fair value of the financial asset or financial liabilities, as appropriate, on initial recognition. Transaction costs that
are directly attributable to the acquisition or issue of financial assets and financial liabilities at fair value through
profit or loss are recognized immediately in profit or loss.
2.15 Financial assets
Financial assets are classified and measured based on three categories: (i) assets at amortized cost; (ii) fair value
through profit or loss (“FVTPL”); or (iii) fair value through other comprehensive income (“FVOCI”). The
classification depends on the nature and purpose of the financial assets and is determined at the time of initial
recognition.
Financial assets are initially measured at fair value. Upon initial recognition, the Corporation classifies its financial
assets as subsequently measured at either amortized cost or fair value, depending on its business model for managing
the financial assets and the contractual cash flow characteristics of the financial assets. Financial assets are not
reclassified subsequent to their initial recognition, except if in the period the Corporation changes its business model
for managing financial assets.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as
FVTPL:
(i) The asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
(ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
2.15.1 Impairment of financial assets
The Corporation uses the “expected credit loss” model for calculating impairment and recognizes expected
credit losses as a loss allowance for assets measured at amortized cost. The Corporation’s trade and other
receivables are typically short-term with payments received within a twelve month period and do not have a
significant financing component, therefore the Corporation recognizes an amount equal to the lifetime
expected credit losses based on the Corporation’s historical experience. The carrying amount of these assets is
net of any loss allowance.
2.16 Financial liabilities
Financial liabilities are recognized initially at fair value and subsequently measured at either fair value or amortized
cost. The Corporation’s financial liabilities are classified as ‘financial liabilities at amortized cost’ and include any
borrowings and trade and other payables and are subsequently measured at amortized cost using the effective interest
method. The effective interest method is a method of calculating the amortized cost of a financial liability and of
allocating interest expense over the relevant year. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial liability. The Corporation does not hold any
financial liabilities designated at fair value through profit or loss.
2.17 Taxation
Income tax expense represents the sum of the tax currently payable, deferred tax and prior year adjustments.
41 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
2.17.1 Current tax
The tax currently payable is based on taxable income for the year. Taxable income differs from ‘income
before tax’ as reported in the consolidated statements of income because of items of income and expense that
are taxable or deductible in other years and items that are never taxable or deductible. The Corporation’s
current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the
reporting year.
2.17.2 Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in
the consolidated financial statements and the corresponding tax bases used in the computation of taxable
income. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax
assets are generally recognized for all deductible temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible temporary differences can be utilized. Such
deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial
recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither
the taxable income nor the accounting income. In addition, deferred tax liabilities are not recognized if the
temporary difference arises from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at the end of each reporting year and reduced to the
extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the
deferred tax assets to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the year in which
the liability is settled or the asset is realized, based on tax rates that have been enacted or substantively
enacted by the end of the reporting year. The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Corporation expects, at the end of the reporting
year, to recover or settle the carrying amount of its assets and liabilities.
Deferred income tax assets and liabilities are offset when they relate to income taxes levied by the same
taxation authority and the Corporation has a legally enforceable right to offset and intends to settle its current
tax assets and liabilities on a net basis.
2.17.3 Current and deferred tax for the year
Current, deferred and prior period tax adjustments are recognized in profit or loss, except when they relate to
items that are recognized in other comprehensive income or directly in equity, in which case, the current,
deferred and prior year tax adjustments are also recognized in other comprehensive income or directly in
equity, respectively.
2.18 Employee retirement benefit plan
The Corporation has a defined benefit plan (the “Plan”) providing pension benefits to certain eligible employees who
are members of a union which is their certified bargaining agent. The Plan is registered with the Financial Services
Commission of Ontario and with the Canada Revenue Agency and is funded in accordance with applicable
legislation. Commencing April 1, 2012, the defined benefit plan was closed to all new hires.
The cost of providing benefits under the Plan is determined using the projected unit credit method prorated based on
service, with actuarial valuations being carried out at the end of each annual reporting period. Re-measurement,
comprising actuarial gains and losses, the effect of the changes to the asset ceiling, and the return on plan assets
(excluding interest), is reflected immediately in the consolidated balance sheet with a charge or credit recognized in
other comprehensive income in the year in which they occur. Re-measurement recognized in other comprehensive
income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is
recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate
at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorized as
follows:
Service cost (including current and past service cost, as well as gains and losses on curtailments and
settlements);
Net interest expense or income; and
Re-measurement.
PFB Corporation Annual Report 2018 42
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
The Corporation presents service costs in the consolidated statements of income in the line item cost of sales.
The retirement benefit obligation recognized in the consolidated balance sheets represents the actual deficit or surplus
in the Corporation’s defined benefit plan.
2.19 Earnings per share
Basic earnings per share is determined by dividing profit attributable to common shareholders of the Corporation by
the weighted average number of common shares outstanding during the year.
The Corporation uses the treasury stock method of calculating diluted earnings per common share. The treasury stock
method is used to compute the dilutive effect of stock options, warrants and similar instruments. Under this method,
the exercise of stock options is assumed to have occurred at the beginning of the year and the related common shares
are assumed issued at that time. The proceeds from exercise are assumed to have purchased common shares of the
Corporation for cancellation at the average market value price during the year. The incremental shares (the difference
between the number of shares assumed issued and the number of shares assumed purchased) are included in the
denominator of the diluted earnings per common share calculation. Diluted earnings per common share exclude all
potential dilutive common shares where the effect is anti-dilutive.
2.20 Share-based payment arrangements
Equity-settled share-based payments to employees and others providing similar services are measured at the fair
value of the equity instruments at the grant date.
The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the
Corporation’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity.
At the end of each reporting year, the Corporation revises its estimate of the number of equity instruments expected
to vest. The impact of any revision to the original estimates, if any, is recognized in profit or loss such that the
cumulative expense reflects the revised estimate with a corresponding adjustment to the equity-settled employee
benefits reserve.
3. Critical accounting judgments and estimates
In the application of the Corporation’s accounting policies, as described in Note 2, management is required to make
judgments, estimates and assumptions about the carrying amounts of assets and liabilities. The estimates and associated
assumptions are based on a combination of historical experience, available knowledge of current conditions, and other
factors that are considered to be reasonable and relevant under the circumstances. Actual costs and outcomes may
significantly differ from these estimates and assumptions.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the year in which the estimate is revised if the revision affects only that year or in the year of the revision
and future years if the revision affects both current and future years.
The following are the key assumptions concerning the future and other key sources of estimating uncertainty at the end of
the reporting year, that have a significant risk of causing material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
3.1 Revenue recognition
IFRS 15 requires management to make judgments and estimates. Judgement relates to the identification of
performance obligations in each contract. Some contracts with customers include a bundled set of goods and services
and judgement is required to determine the goods and services that are distinct performance obligations. Judgement
is required to determine any level of integration and any interdependency between goods and services entered with
customers. Allocation of the transaction price to different performance obligations may require estimates. In
instances where information is incomplete or not available, determination of selling prices include market conditions
and other observable inputs such as the scope of work and geographic region.
Judgements and estimates are also required to determine an appropriate measure of progress and pattern of delivery
when determining how control of promised goods or services transfers to a customer.
Estimates of incentives or rebates are updated regularly as information becomes available and only to the extent that
the variable consideration is constrained.
43 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
3.2 Remaining performance obligations
Many factors may lead to a change during a contract performance period, which can result in a change to contract
profitability from one financial reporting period to another. Some of the factors that can change the contract revenue
include differing site conditions, the availability of skilled labour, the performance of subcontractors, unusual
weather and the accuracy of original contracts. Judgements are required of factors that may impact remaining,
unsatisfied performance obligations. Estimates are required to determine the aggregate amount of the transaction
price allocated to performance obligations that are unsatisfied, or partially unsatisfied, as at the end of each reporting
period. Judgement is also required to determine the timing of when unsatisfied performance obligations will become
realized as revenue in future periods.
3.3 Cash-generating unit (“CGU”)
Determination of which assets constitute a CGU is subject to management judgments. Also, the asset composition of
a CGU can directly impact the recoverability of assets included therein. The recoverable amount of a CGU is
assessed at the CGU level and is the higher of the CGU’s fair value less costs of disposal and its value in use. A
CGU may be impaired when its carrying amount exceeds its recoverable amount. Key assumptions used for the value
in use calculations are set out in Note 16.
3.4 Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the CGUs to which goodwill
has been allocated. The value in use calculation requires management to estimate the future cash flows expected to
arise from the CGU and determine a suitable discount rate in order to calculate present value.
3.5 Impairment of tangible and intangible assets
Determining whether tangible and intangible assets are impaired requires an estimation of the value-in-use of the
CGUs to which they have been allocated. The value in use calculation requires management to estimate the future
cash flows expected to arise from the CGU and a suitable discount rate to be determined in order to calculate present
value.
3.6 Valuation of inventories
Management reviews the carrying amount of finished goods inventories at the end of each reporting year and the
recorded amount is adjusted to the lower of cost or net realizable value. As part of the review, management is
required to make certain assumptions when determining expected realizable amounts.
An inventory reserve is maintained for slow-moving raw materials and work-in-progress inventories. The value of
slow-moving inventories is based on management’s assessment of market conditions for its products as determined
by historical usage and estimated future demand. Any write downs in value may be reversed if the circumstances
which caused them no longer exist.
3.7 Allowance for doubtful accounts
Amounts included in allowance for doubtful accounts reflect the lifetime expected credit losses for trade receivables.
Management determines allowances based on best estimates of future expected credit losses, considering historical
credit loss experience, current economic conditions, and forecasts of future economic conditions. Significant or
unanticipated changes in economic conditions could impact the magnitude of future expected credit losses. The value
of the allowance for doubtful accounts reserve typically tracks the seasonality trend of trade receivables. Specific
reserves may be created for individual customers in exceptional circumstances. Bad debts are written off against the
reserve.
3.8 Income taxes
The Corporation is subject to income taxes in both Canada and the USA. When preparing current and deferred tax
expense at the end of each reporting year, management is required to make certain estimates and assumptions
regarding the timing of when temporary differences will reverse and tax rates that will be in force at that time.
Unknown future events and circumstances, such as changes in tax rates and laws, may materially affect the
assumptions and estimates made from one year to the next and thereby affect the consolidated financial statements.
3.9 Measurement of retirement benefits
Post-employment benefits are accounted for on an actuarial basis. The Corporation engages the services of an
independent actuary to perform valuations of the Corporation’s defined benefits plan and the actuary provides a
certified opinion thereon. For inclusion in the valuation, management is required to make certain assumptions
PFB Corporation Annual Report 2018 44
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
including an appropriate discount rate and the estimated return of plan assets. The estimates are reviewed for
reasonableness by the actuary. Due to the nature of the assumptions made and used in the valuations, there is the
potential for fluctuations of a material nature in the value of the defined benefits in future years.
3.10 Property plant and equipment
The Corporation estimates the useful life of property, plant and equipment that it owns or is held under a finance
lease. The actual useful life of assets and components of assets could vary significantly from the estimated useful
lives used in determining periodic depreciation expense. Management reviews the useful lives of the assets at least
annually to ensure that expected and actual lives are closely aligned.
3.11 Valuations performed during a business combination
The Corporation makes judgments, estimates and assumptions that affect the quantitative and qualitative valuation of
business combinations. These may include: estimates of future cash flows and working capital requirements;
potential acquisition synergies; costs to complete the transaction; the value of contingent consideration; strategic
direction; management effectiveness, and operating efficiencies. Fair value of assets acquired and liabilities assumed
in a business combination is estimated based on information available at the date of acquisition and involves
considerable judgment in determining the fair values assigned to acquired intangible assets, land, property, plant and
equipment, and other assets, and the liabilities assumed on acquisition. Unknown future events and changes in
assumptions and estimates may impact future cash flows and materially impact the valuation of each business
combination.
3.12 Finance leases
Management uses judgment in determining whether a lease should be accounted for as a finance lease. In doing so,
management considers the lease terms and, in some cases, those terms may not always conclusively support the
classification as a finance lease.
3.13 Share-based payment arrangements
The compensation costs relating to share-based payment arrangements are based on estimates of how many common
shares will actually vest and be exercised.
4. Application of new and revised International Financial Reporting Standards (“IFRSs”)
The Corporation has adopted the following accounting standards effective for annual periods beginning on or after
January 1, 2018:
IFRS 15 - Revenue From Contracts With Customers
The core principle of IFRS 15 is to recognize revenue in accordance with the transfer of control of contracted goods
or services to customers in an amount that reflects the consideration to which the entity is, or expects to be, entitled
on the basis of principles pertaining to the nature, timing and uncertainty of revenue and cash flows arising from the
contracts. The Corporation elected to apply the standard on a retrospective method whereby all prior year statements
are restated.
Impacts to previously reported results
The Corporation identified no impacts to consolidated statement of income or loss, consolidated statement of
changes in equity, and the consolidated statements of cash flows upon the adoption of IFRS 15.
The following tables present the impact of the adoption of IFRS 15 on the Corporation’s consolidated balance sheets
as of January 1, 2017 and December 31, 2017:
45 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
Prepaid expenses
Contract costs
Trade and other payables
Deferred revenue
Contract liabilities
Prepaid expenses
Contract costs
Trade and other payables
Deferred revenue
Contract liabilities
As reported
$ 1,111
-
$ 1,111
$ 8,383
2,821
January 1, 2017
Adjustments under
IFRS 15
$ (397)
397
$ -
$ (1,024)
(2,821)
-
3,845
$ 11,204
$ -
As reported
$ 1,001
-
$ 1,001
$ 10,217
3,678
December 31, 2017
Adjustments under
IFRS 15
$ (527)
527
$ -
$ (1,480)
(3,678)
-
5,158
$ 13,895
$ -
Adjusted
$ 714
397
$ 1,111
$ 7,359
-
3,845
$ 11,204
Adjusted
$ 474
527
$ 1,001
$ 8,737
-
5,158
$ 13,895
IFRS 9 - Financial Instruments
The core principle of IFRS 9 is to introduce new requirements for the classification and measurement of financial
assets, amend hedge accounting and introduce a forward-looking expected loss impairment model. The Corporation
elected to apply the standard on a retrospective method whereby all prior year statements are restated.
Impacts of previously reported results
The Corporation identified no impacts to the consolidated financial statements upon the adoption of IFRS 9.
Upon adoption, the Corporation made an irrevocable election to account for changes in the fair value of the
marketable securities, through other comprehensive income, until derecognition. This is consistent with the
accounting treatment prior to adoption.
There are several financial instrument classification and measurement changes as a result of this change in
accounting policy. The following table summarizes the classification and measurement changes for each class of the
Corporation’s financial assets and financial liabilities upon adoption at January 1, 2018:
PFB Corporation Annual Report 2018 46
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
Financial instrument
Category
Measurement Category
Measurement
IAS 39
IFRS 9
Cash and cash equivalents FVTPL
Restricted cash
FVTPL
Fair value
Fair value
Restricted marketable
securities
Trade receivables
Available for sale
Fair value
Assets at amortized
cost
Assets at amortized
cost
FVOCI
Amortized cost
Amortized cost
Fair value
Loans and receivables
Amortized cost Assets at amortized
Amortized cost
cost
Bank indebtedness
Other financial liabilities Amortized cost Financial liabilities
Amortized cost
at amortized cost
Trade and other payables Other financial liabilities Amortized cost Financial liabilities
Amortized cost
at amortized cost
Long-term debt
Other financial liabilities Amortized cost Financial liabilities
Amortized cost
at amortized cost
As a result of adopting IFRS 9, the changes in classification categories did not result in any adjustment to the
carrying amount of the related financial assets and financial liabilities.
IFRS 2 – Share-based payment
The Corporation has adopted amendments to IFRS 2 – Share-based payment, effective January 1, 2018 on a
prospective basis. The amendments provide guidance on the effects of vesting and non-vesting conditions, a net
settlement feature for withholding tax obligations and changes to the classification of the transaction from cash-
settled to equity-settled.
The adoption of the amendment to IFRS 2 – Share-based payment, did not have any effect on the consolidated
financial statements.
4.1 New and revised accounting standards and interpretations, but not yet effective:
The International Accounting Standards Board (“IASB”) and International Financial Reporting Interpretations
Committee (“IFRIC”) have issued a number of new standards, amendments and interpretations that have not been
applied in preparing these consolidated financial statements as their effective dates fall within annual periods
beginning subsequent to the current reporting period. The new standard and amendments applicable to the
Corporation are as follows:
IFRS 16 – Leases
In January 2016, the IASB issued IFRS 16 - Leases, which supersedes IAS 17 - Leases. IFRS 16 establishes
principles for the recognition, measurement, presentation and disclosure of leases. The standard establishes a single
model for lessees to bring leases on-balance sheet while lessor accounting remains largely unchanged and retains the
finance and operating lease distinctions. The standard requires the lessees to recognize a lease liability reflecting
discounted future lease payments and a “right-of-use asset” for all lease contracts, and record it on the balance sheet,
except with respect to lease contracts that meet limited exception criteria. IFRS 16 is effective for annual periods
beginning on or after January 1, 2019, with earlier adoption permitted.
The Corporation will apply IFRS 16 retrospectively and recognize the cumulative effect of initial application on
January 1, 2019, subject to permitted and elected practical expedients. The Corporation will not apply this standard
to short-term leases and leases for which the underlying asset is of low value. The Corporation has elected not to
separate non-lease components from lease components for all underlying asset classes except Property, which the
Corporation has elected to separate and exclude non-lease components from lease components.
The Corporation continues to assess and quantify the effect of this standard on the consolidated financial statements,
information systems and internal controls. During the fourth quarter, the Corporation has further reviewed existing
contracts for lease recognition, completed an analysis of discount rates and the tax-effects of leases upon
retrospective adoption.
47 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
The measurement of the total lease expense over the term of a lease will be unaffected by the new standard, however,
management expects to recognize additional right-of-use assets and lease obligations on the consolidated balance
sheet. Management also expects changes to cost of sales as operating expenses will be presented as depreciation and
finance costs. Material changes are expected to the consolidated balance sheet and immaterial changes to the
consolidated statement of income. Although total cash movement will be unchanged, the presentation in the
statement of cash flows will differ under the new standard. The full quantification of the new standard will be
disclosed in the condensed interim consolidated financial statements for the first quarter of 2019.
5. Segment information
The Corporation operates individual legal entities in Canada and the USA which are reported as operating segments and
revenue is reported in accordance with that segmentation.
The Corporation has two reportable operating segments, Canada and the USA, and each segment applies the same
accounting policies (Note 2), internal controls and reporting systems. Segments are based on the way management
organizes the operations. Segments are identified and managed by the geographic and regulatory environment they operate
within because they require compliance with different regulations. Segment performance predominantly focuses on
operating results and the manner in which resources are allocated based on Canadian and USA operations, respectively.
The chief operating decision maker evaluates performance on the basis of operating income or loss, as reported on a
periodic basis. This performance measure is considered to be the most relevant in evaluating the results of each operating
segment.
5.1 Segment sales and operating income
Segment sales represent sales revenues directly attributable to each segment. Inter-segment sales have been
eliminated. There are varying levels of integration between each segment.
The Corporation operates individual legal entities in Canada and the USA which are reported as operating segments
and revenue is reported in accordance with that segmentation.
The Canadian segment primarily derives its revenues from the sale of expanded polystyrene (“EPS”) foam products,
which it manufactures at its facilities in Canada. The USA segment primarily derives its revenues from the sale of
EPS foam products, customized log and timber structures made at its facilities in the United States which typically
include design and installation services that together provide the basis for a bundled sale of its manufactured
products.
Segment operating income represents the income as reported by each segment excluding any allocations for
corporate income or expenses and foreign exchange gains or losses arising on inter-segment settlements.
Information regarding each reportable operating segment for years ended December 31, 2018 and 2017 are set out
below:
Canada
USA
Total for segments
Corporate – income
Sales revenues
2018
2017
Operating income
2018
2017
$ 78,346 $ 68,970
$ 4,602
$ 1,746
49,999
36,587
$ 128,345 $ 105,557
4,026
8,628
586
(2)
1,319
3,065
452
1
Foreign exchange (loss) gain on inter-segment settlements
Consolidated operating income
$ 9,212
$ 3,518
PFB Corporation Annual Report 2018 48
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
5.2 Segment assets and liabilities
Management measures capital employed using net segmented assets. The location of the capital assets and liabilities
determines the geographic areas. The reconciliation of segmented assets and segmented liabilities in relation to total
consolidated assets and liabilities is set out in the table below:
Assets
Segment assets
Assets not allocated to segments:
Cash and cash equivalents
Freehold land and buildings
Restricted marketable securities
Corporate taxes1
Total assets
Liabilities
Segment liabilities
Liabilities not allocated to segments:
Finance lease obligations
Long term debt
Corporate taxes1
Total liabilities
Net segment assets
Canada
USA
1 Current and deferred taxes.
5.3 Other segment information
Additions to non-current assets:
Canada
USA
Corporate
Total
Depreciation and amortization:
Canada
USA
Corporate
Total
Inter-segment sales
49 PFB Corporation Annual Report 2018
2018
2017
$ 47,366
$ 41,658
16,944
22,750
1,483
289
12,180
23,386
1,239
308
$ 88,832
$ 78,771
$ 20,389
$ 15,788
3,239
8,568
-
3,232
8,906
20
$ 32,196
$ 27,946
$ 19,970
$ 19,802
7,007
6,068
2018
2017
$ 795
1,007
31
$ 914
648
7,724
$ 1,833
$ 9,286
$ 2,066
$ 2,177
627
1,073
675
1,048
$ 3,766
$ 3,900
$ 7,052
$ 5,657
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
6. Other (losses) gains
Unrealized foreign exchange gains (losses)
Realized foreign exchange losses
Gain on disposals of property, plant and equipment
Share-based payment expense
7. Income taxes
7.1 Income taxes recognized in the year
Current tax expense
Deferred tax expense
Income tax expense
2018
$ 69
(235)
58
(44)
2017
$ (25)
(13)
51
-
$ (152)
$ 13
2018
$ 2,027
297
$ 2,324
2017
$ 401
393
$ 794
In the year ended December 31, 2018, deferred income tax expense of $44 (2017 - $28) was recognized directly in
other comprehensive income.
The income tax expense can be reconciled to the accounting income as follows:
Income before taxes
2018
$ 8,513
2017
$ 3,075
Income tax expense calculated at 27.4% (2017 – 27.4%)
$ 2,333
$ 842
Effect of different tax rates of subsidiaries operating in other jurisdictions
Enacted rate changes
Non-taxable portion of capital gain
Expenses not deductible in determining taxable income
Prior period adjustments and reassessments
Other
Income tax expense
(90)
-
-
57
19
5
216
1
(68)
42
(210)
(29)
$ 2,324
$ 794
The statutory tax rate in the table above is the combined Canadian federal and blended provincial income tax rate of
approximately 27.4% (2017 – 27.4%).
The Corporation’s USA segment were subject to federal and state statutory tax rates of approximately 25% for 2018
(2017 – 38%). As a result of US Tax Reform Legislation, effective January 1, 2018, the USA segment will be
subject to a combined rate of approximately 25% and deferred tax balances at December 31, 2018 of the USA
segment are measured at this enacted rate.
7.2 Current tax assets
Current tax assets
Income taxes recoverable
Current tax liabilities
Income taxes payable
As at
Dec 31, 2018
As at
Dec 31, 2017
$ 193
$ 287
681
39
PFB Corporation Annual Report 2018 50
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
7.3 Deferred tax balances
The Corporation is subject to tax in multiple jurisdictions and deferred tax assets and liabilities arising in different
jurisdictions cannot be netted against each other. The analysis of deferred tax assets and liabilities presented in the
consolidated balance sheets is as follows:
As at
Dec 31, 2018
As at
Dec 31, 2017
$ 570
$ 133
-
-
(112)
(188)
-
209
95
(112)
115
(83)
$ 270
$ 357
$ (2,099)
$ (1,673)
(141)
8
29
183
192
197
(40)
-
(16)
61
161
139
$ (1,631)
$ (1,368)
2018
2017
$ 6,189
$ 2,281
6,716,003
6,716,003
16,467
N/A
6,732,470
6,716,003
$ 0.92
$ 0.92
$ 0.34
$ 0.34
Deferred tax assets
Property, plant and equipment
Non-capital tax losses carried forward
Reserve
Land
Other
Intangible assets
Deferred tax liabilities
Property, plant and equipment
Intangible assets
Non-capital tax losses carried forward
Other
Reserves
Lease items
Deferred operating lease obligation
Non-capital tax losses carried forward expire on 2029.
8. Earnings per share
The following table sets forth the reconciliation of basic and diluted earnings per share:
Net income for the period
Weighted average number of common shares outstanding – basic
Effect of:
Dilutive stock options
Weighted average number of common shares outstanding - diluted
Earnings per share:
Basic
Diluted
51 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
9. Cash and cash equivalents
Cash held with banks
Short-term investments
As at
Dec 31, 2018
As at
Dec 31, 2017
$ 13,744
$ 12,180
3,200
-
$ 16,944
$ 12,180
Interest income earned on bank balances and short-term investments is reported as investment income in the
consolidated statements of income.
Cash - restricted
As at
Dec 31, 2018
As at
Dec 31, 2017
$ 1,347
$ 88
Restricted cash comprises cash collected from certain customers of the USA segment which is contractually segregated
from other cash as it is held exclusively for disbursements to suppliers and service providers specific to those individual
customer contracts.
10. Trade receivables
Eligible trade receivables held by the Corporation’s subsidiaries in Canada have been pledged as security with a bank in
support of a revolving credit facility. The revolving credit facility was unused as at December 31, 2018.
10.1 Current trade receivables
Aging profile
Current and past due for less than 30 days
Past due for between 31 and 90 days
Past due for 91 days or longer
Total gross current trade receivables
Allowance for doubtful accounts
Current trade receivables, net
As at
Dec 31, 2018
As at
Dec 31, 2017
$ 11,800
$ 8,764
1,343
487
13,630
(548)
572
886
10,222
(413)
$ 13,082
$ 9,809
The average trade credit allowed on the sale of goods is between 30 and 60 days from the date of shipment. For
sales of customized products and services, deposits and/or payment installments are typically incorporated into
contract terms to mitigate the potential for default. Deposits and installments received on individual accounts
which exceed the value of goods and/or services invoiced are recorded as contract liabilities on the consolidated
balance sheets.
The Corporation has recognized an allowance for doubtful trade receivables on accounts that are past due by
more than 31 days based on best estimates of future expected credit losses and estimated irrecoverable amounts
determined by reference to past experiences. As at December 31, 2018 and 2017, the allowance for doubtful
accounts reserve includes amounts to cover new accounts in the Canadian segment and continuing exposure with
several long-standing customers in the USA segment, both of which have trade receivables included in the past
due for 91 days or longer category.
In determining the recoverability of a trade receivable, the Corporation considers any change in the credit quality
of the trade receivable from the date credit was initially granted up to the end of the reporting year. The
concentration of credit risk is limited due to the fact that the customer base is large and diversified.
PFB Corporation Annual Report 2018 52
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
10.2 Change in allowance for doubtful accounts
A reconciliation of the beginning and ending carrying amounts of the Corporation’s allowance for doubtful
accounts is as follows:
Balance at beginning of year
Additional amounts provided for during the year
Trade receivables written off during the year
Balance at end of year
11. Inventories
Raw materials
Work in progress
Finished goods
2018
$ (413)
(148)
13
2017
$ (254)
(211)
52
$ (548)
$ (413)
As at
Dec 31, 2018
As at
Dec 31, 2017
$ 5,907
$ 5,186
2,404
3,327
1,979
2,833
$ 11,638
$ 9,998
Eligible inventories held by each of the Corporation’s Canadian and USA subsidiaries have been pledged as security with
a bank in support of revolving credit facilities. The revolving credit facilities were unused as at December 31, 2018.
The cost of inventories recognized as an expense in cost of sales in the year ended December 31, 2018, was $80,184 (2017
- $68,263). Included in the cost of inventories recognized as an expense were write-downs from full cost to net realizable
value in the amount of $799 (2017 - $331). There were no reversals of any write-downs in either 2018 or 2017.
12. Contract costs
Contract costs represent the incremental costs of obtaining a contract with a customer on the expectation these costs will
be recovered. Contract costs are comprised of sales commissions paid or payable to obtain certain contracts. These costs
are amortized on a proportionate basis as a selling expense over the life of the contract, as this reflects the period over
which goods or services are transferred to the customer. Amortization recognized in selling expenses during the year was
$377 (2017- $315). Amortization of contract costs follows the seasonality of operations and is typically higher in the
second and third quarter upon completion of performance obligations. Contract costs remaining to be amortized as selling
expenses are $475 (2017 - $527).
13. Remaining performance obligations
Performance obligations for certain goods manufactured, construction and design contracts generally include deposits
which are initially recorded as contract liabilities and represent obligations of work that has not yet been completed.
Revenue from unsatisfied performance obligations is recognized when services are rendered and control of the goods is
transferred to the customers. For contracts that include deposits, the total remaining performance obligations as at year end
were $17,077 (2017 - $17,256). The Corporation estimates it will recognize approximately $13,937 of revenue from the
unsatisfied performance obligations upon completion of those performance obligations over the next twelve months and
$3,140 after twelve months.
14. Property, plant and equipment
In the tables below, assets under finance leases include buildings, automobiles and materials handling equipment. As at
December 31, 2018, automobiles and materials handling equipment had a carrying amount of $473 (2017 - $486) and
buildings had a carrying value of $2,042 (2017 - $2,186) for a total amount of assets under finance lease of $2,515 (2017 -
53 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
$2,672). Automobile leases include provisions whereby the automobiles can be purchased for their residual value whereas
the individual building leases have no such rights to purchase at any residual value.
Assets under construction as at December 31, 2018 are expected to be available for use in 2019.
Cost
Freehold land
Buildings
Plant and
equipment
Assets under
finance
leases
Assets under
construction
Total
Balance at January 1, 2017
$ 3,149
$ 12,100
$ 40,266
$ 15,770
$ 2,081
$ 73,366
Additions
Purchase of leased assets
Transfer of leased assets
Disposal of PP&E assets
Transfers between asset classes
-
5,432
-
-
-
52
2,243
11,745
(77)
96
Effect of foreign currency changes
(124)
(457)
43
-
-
(291)
2,648
(469)
244
-
(11,745)
(160)
1,387
-
-
-
-
(2,744)
1,726
7,675
-
(528)
-
(32)
(26)
(1,108)
Balance at December 31, 2017
8,457
25,702
42,197
4,077
698
81,131
Additions
Disposal of PP&E assets
Transfer of leased assets
Transfers between asset classes
-
-
-
-
Effect of foreign currency changes
155
-
-
-
213
576
8
(350)
217
1,819
656
289
(247)
(217)
-
41
1,761
-
-
(2,032)
2,058
(597)
-
-
21
1,449
Balance at December 31, 2018
$ 8,612
$ 26,491
$ 44,547
$ 3,943
$ 448
$ 84,041
Accumulated Depreciation
Balance at January 1, 2017
Depreciation expense
Disposal of PP&E assets
Transfers between asset classes
Effect of foreign currency changes
$ -
$ 6,636
$ 28,268
$ 3,421
$ -
$ 38,325
-
-
-
-
1,186
2,318
(77)
(226)
2,104
478
-
(2,318)
(287)
(295)
(157)
(19)
-
-
-
-
3,768
-
(521)
(540)
Balance at December 31, 2017
-
9,837
29,790
1,405
-
41,032
Depreciation expense
Disposal of PP&E assets
Transfer of leased assets
Effect of foreign currency changes
-
-
-
-
1,201
-
-
313
2,006
(350)
201
406
427
(223)
(201)
20
-
-
-
-
3,634
(573)
-
739
Balance at December 31, 2018
$ -
$ 11,351
$ 32,053
$ 1,428
$ -
$ 44,832
Net book values
2017
2018
$ 8,457
$ 15,865
$ 12,407
$ 2,672
$ 698
$ 40,099
8,612
15,140
12,494
2,515
448
39,209
Depreciation commences when assets are available for use. Depreciation expense for the year ended December 31, 2018 in
the amount of $3,112 (2017 - $3,265) is included in cost of sales, with an amount of $377 (2017 - $345) included in selling
expenses, and an amount of $145 (2017 - $158) included in administrative expenses.
PFB Corporation Annual Report 2018 54
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
15. Intangible assets
Cost
Balance at January 1, 2017
Additions
Effect of foreign currency changes
Patents
$ 70
-
-
Product
development
costs
Registered
trade
names
Order
backlog
Non-
compete
agreement
Software
Total
$ 971
$ 2,616
$ 1,346
$ 199
$ 38
$ 5,240
-
(20)
129
(31)
-
(88)
-
(13)
-
(2)
129
(154)
Balance at December 31, 2017
70
951
2,714
1,258
186
36
5,215
Additions
Effect of foreign currency changes
-
-
-
25
64
39
-
110
-
16
-
3
64
193
Balance at December 31, 2018
$ 70
$ 976
$ 2,817
$ 1,368
$ 202
$ 39
$ 5,472
Accumulated Amortization
Balance at January 1, 2017
$ 53
$ 971
$ 2,483
$ -
$ 199
$ 38
$ 3,744
Amortization expense
Effect of foreign currency changes
5
-
-
(20)
127
(31)
Balance at December 31, 2017
58
951
2,579
Amortization expense
Effect of foreign currency changes
5
-
-
25
127
39
-
-
-
-
-
-
(13)
-
(2)
132
(66)
186
36
3,810
-
16
-
3
132
83
Balance at December 31, 2018
$ 63
$ 976 $ 2,745
$ -
$ 202
$ 39
$ 4,025
Net book values
2017
2018
$ 12
7
$ -
-
$ 135
$ 1,258
72
1,368
$ -
-
$ -
-
$ 1,405
1,447
Amortization expense for the year ended December 31, 2018 in the amount of $10 (2017 - $10) is included in cost of
goods sold, an amount of $10 (2017 - $13) is included in selling expenses, and an amount of $112 (2017 - $109) is
included in administrative expenses.
16. Goodwill
16.1 Cost
Balance at beginning of year
Effect of foreign currency exchange differences
Balance at end of year
2018
2017
$ 2,217
$ 2,332
143
(115)
$ 2,360
$ 2,217
For the purpose of impairment testing, goodwill is allocated to CGUs (Note 16.2). As at the testing date selected, the
Corporation determined that the value in use of each cash-generating unit exceeded their carrying amounts and
therefore no provision for impairment was provided. In order to determine whether impairment is incurred, the
Corporation estimates the recoverable amount of each CGU. Recoverable amounts are determined on the basis of
value in use calculations. Classification of CGUs and value in use in 2018 was determined the same way as in 2017.
55 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
16.2 Allocation of goodwill to cash-generating units
The carrying amount of goodwill has been allocated for impairment testing purposes to the following cash-
generating units:
Canada
USA
As at
Dec 31, 2018
As at
Dec 31, 2017
$ 580
1,780
$ 580
1,637
$ 2,360
$ 2,217
The recoverable amounts of the cash-generating units are determined by performing value in use calculations which
use cash flow projections based on a one-year financial budget approved by the directors plus future financial
projections covering an additional four-year period. The cash flow projections for the four year period following the
budget year are prepared in a manner consistent with past experience and reflect management’s expectation of the
medium term operating performance of the CGUs and the markets in which they operate. The valuation model also
takes into account working capital requirements and capital investments required to support the sales revenue
projections, and terminal values.
The Corporation used a discount rate of 12.0% (12.0% in 2017). The discount rate was determined based on an
estimate of the Corporation’s weighted average cost of capital. The discount rate is pre-tax.
The key assumptions used for value in use calculations in 2018 and 2017 were as follows:
Year
2018
2017
Cash generating unit
Compound annual
growth rate (5 Years)
Long-term
growth rate
Discount rate
Canada
USA
Canada
USA
2.9 %
6.9 %
4.8 %
11.0 %
2.0 %
2.0 %
2.0 %
2.0 %
12.0 %
12.0 %
12.0 %
12.0 %
17. Retirement benefits plans
17.1 Group registered retirement savings plan
The Corporation operates a group registered retirement savings plan for all qualifying employees in Canada. The
assets of each individual in the plan are held separately from those of the Corporation in investment instruments
under the control of a large Canadian insurer. An individual employee’s assets held in the plan are self-administered
by the employee. The Corporation’s obligation with respect to the group registered retirement savings plans is to
administer employee contributions via the payroll and to part-match contributions made by employees based on an
established policy.
17.2 Group 401K plan
The Corporation operates group 401K plans for all qualifying employees located in Michigan, Minnesota, Ohio and
Idaho, USA, in which qualifying employees may elect to defer current wages for retirement. The Corporation has the
option to match employee contributions to the plans.
The assets of the plans are held separately from those of the Corporation by a trust company and governed by a
custodial agreement under the Employee Retirement Income Security Act (“ERISA”). The Corporation also utilizes
the services of registered investment brokers and third party administrators in the fulfillment of its actuarial and
fiduciary responsibilities with respect to the plans.
17.3 Defined benefit pension plan
The Corporation operates a funded defined benefit pension plan for qualifying Ontario-based employees who are
members of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service
PFB Corporation Annual Report 2018 56
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
Workers International Union. Under the plan, retiring employees receive on a monthly basis a fixed benefit amount
multiplied by the number of years of eligible service. No other post-retirement benefits are provided to these
employees except for a minimal amount of life insurance coverage.
The most recent actuarial valuation of plan assets and the present value of defined benefit obligation were determined
as at December 31, 2016 and the accounting valuations were subsequently updated to December 31, 2018, by the
independent actuary. The next valuation report is required as at December 31, 2019.
The table below outlines the amounts included in the consolidated balance sheets arising from the Corporation’s
obligation in respect of its defined benefit plan:
Present value of the funded defined benefit obligation
Fair value of plan assets
Net asset arising from defined benefit obligation
As at
Dec 31, 2018
$ (1,898)
1,908
As at
Dec 31, 2017
$ (1,837)
1,928
$ 10
$ 91
The principal assumptions used for the purpose of the actuarial accounting valuations were as follows:
Discount rate (end of fiscal year)
Expected return on plan assets
2018
3.75 %
3.75 %
2017
3.75 %
3.75 %
Amounts recognized as an expense in respect of the defined benefit plan were as follows:
Current service costs
Administration costs
Interest costs
Interest income
2018
2017
$ 46
$ 42
10
69
(74)
51
69
(69)
$ 51
$ 93
The expense for the years is included in cost of sales in the consolidated statements of income.
Movements in the present value of the defined benefit obligation were as follows:
Opening defined benefit obligation
Current service costs
Interest cost on obligation
Benefit payments
Actuarial gain
Closing defined benefit obligation
Movements in the present value of the plan assets were as follows:
Opening fair value of plan assets
Actual (loss) return on plan assets
Employer contributions
Administration costs
Benefit payments
2018
2017
$ 1,837
46
69
(54)
$ 1,833
42
69
(67)
-
(40)
$ 1,898
$ 1,837
2018
2017
$ 1,928
$ 1,843
(87)
131
(10)
(54)
70
133
(51)
(67)
Closing fair value of plan assets
$ 1,908
$ 1,928
57 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
The major categories of plan assets are as follows:
Equity instruments
Fixed income securities
Total
Distribution of plan assets
As at
Dec 31, 2017
As at
Dec 31, 2018
71 %
29 %
100 %
71 %
29 %
100 %
To the best of management’s knowledge, none of the plan assets are invested in the Corporation’s shares.
The Corporation expects to make contributions of $109 to the defined benefit plan in the 2019 financial year.
18. Contract liabilities
The Corporation enters into contracts to sell its products and services in the normal course of its operations. When the
customer’s payment precedes performance, the Corporation recognizes a contract liability. A contract liability is also
recognized for the estimated rebates payable to customers associated with recognized sales at the end of the period.
Contract liabilities are reduced as performance obligations are achieved and rebates paid. The changes in contract
liabilities are set out below:
Contract liabilities
Balance,
beginning
of period 1
Current
period 2
$ 5,158
5,902
7,894
8,028
$ 4,070
6,402
8,486
8,830
Revenue related to
Current
period
deposits 3
Beginning
of period
deposits 4
$ (736)
(1,607)
(4,107)
(5,581)
$ (1,857)
(3,357)
(4,699)
(5,041)
Rebates,
net 5
Foreign
exchange
$ (772)
452
598
(34)
$ 39
102
(144)
262
Balance,
end of
period
$ 5,902
7,894
8,028
6,464
$ 3,845
4,873
5,528
6,104
$ 4,480
5,218
4,158
5,729
$ (1,263)
(2,318)
(1,409)
(3,454)
$ (1,585)
(2,527)
(2,349)
(3,667)
$ (601)
437
345
285
$ (3)
(155)
(169)
161
$ 4,873
5,528
6,104
5,158
2018
Jan 1- Mar 31
Apr 1- Jun 30
Jul 1- Sep 30
Oct 1- Dec 31
2017
Jan 1- Mar 31
Apr 1- Jun 30
Jul 1- Sep 30
Oct 1- Dec 31
1
Contract liabilities for customer deposits the Corporation has received for outstanding performance obligations and unpaid customer rebates earned and
payable by the Corporation.
2 Customer deposits that the Corporation has received during the period from new contracts with customers or additional customer deposits on existing
contracts with customers, in advance of the Corporation’s performance.
3 Revenue recognized through the completion of performance obligations related only to the extent new customer deposits are received in the same period,
excluding any amounts recognized as revenue from beginning balances. The decrease in contract liabilities is constrained to revenue recognized from
customer deposits applied to performance obligations achieved in the current period.
4 Revenue recognized through the completion of performance obligations related to either new or existing contracts, for customer deposits on hand from
prior periods, that was included in the beginning balance and excludes amounts recognized during the period in the note above.
5 Customer rebates payable by the Corporation or amounts paid to customers.
19. Borrowings
19.1 Operating credit facilities
Canada
The Canadian segment has a revolving facility that is secured by a first ranking security interest in trade receivables
and inventories of the Canadian subsidiary, with a parent guarantee.
PFB Corporation Annual Report 2018 58
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
The Corporation continues to provide a guarantee and postponement of claim to the bank in the amount of $10,000.
The interest rate applicable on draws made against the facility is the Canadian bank’s prime rate plus 0.5% and the
facility carries a monthly standby fee when not being utilized. The credit facility was not used as at December 31,
2018.
USA
The USA segment has a credit facility arrangement with a US bank for a variable rate revolving facility in the
amount of $1,250. The revolving facility is secured by all inventory and equipment of the USA subsidiary. The
interest rate applicable on draws made against the facility is a variable rate based on an index plus 0.25%.
Under the facility, the USA subsidiary is subject to certain covenants, one of which is a financial covenant to
maintain an Operating Cash Flow to Fixed Charge Coverage ratio of not less than 1.20:1. The second covenant is to
maintain a Total Debt to Tangible Net Worth Ratio of less than 3.00 to 1.00. The credit facility was not used as at
December 31, 2018.
19.2 Long-term debt
The Corporation’s long-term debt position is stated in the following table:
Balance at beginning of period
Borrowings
Repayments
Balance at end of period
Dec 31, 2018
$ 8,906
-
(338)
$ 8,568
As at February 28, 2017, the Corporation obtained long-term debt from a Canadian bank to fund the purchase of a
real estate transaction completed at a fixed interest rate of 3.25%. The long-term debt is being amortized over a 20
year amortization period and subject to renewal within 5 years. The long-term debt is eligible for prepayment
privilege, subject to certain prepayment penalties and is supported by the Corporation’s property. Borrowing and
closing costs were expensed as incurred, as amounts are not material.
The Corporation is subject to certain covenants on its long-term debt, one of which is a financial covenant to
maintain a Debt Service Coverage Ratio of not less than 1.25:1. The financial covenant ratio is tested on an annual,
year-end basis. The financial covenant ratio was tested and the Corporation was compliant with the ratio as at
December 31, 2018.
Estimated principal repayments on long-term debt through to maturity are set out in the table below:
Current within 12 months
Due within 12 to 24 months
Due within 25 to 36 months
Due within 37 to 48 months
Due within 49 to 60 months
Due after 60 months
Total
Dec 31, 2018
$ 350
361
373
385
398
6,701
$ 8,568
20. Deferred operating lease obligations
The Corporation’s Canadian subsidiary is a party to certain real estate operating lease agreements, which are used by its
operations. Rent expenses under those agreements are recognized in the consolidated statements of income on a straight-
line basis over the term of each lease. The straight-line method creates timing differences between actual rent amounts
paid to the owners of the properties and the amounts recorded as an expense. These differences arise as a result of rent-free
periods and future contractual rent escalations being recognized sooner than they are required to be paid.
59 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
As at December 31, 2018, deferred operating lease obligations were recorded in the amount of $719 as a long-term
liability on the consolidated balance sheet (2017 - $506).
21. Finance lease obligations
Finance leases exist for automobiles, equipment and buildings. Lease obligations for automobiles and equipment are
secured by the lessors’ title to the automobiles and equipment.
In March 2013, the Corporation entered into carefree triple net lease agreements as part of a sale leaseback arrangement
with a Canadian REIT for four Canadian properties, each having a lease term of twenty years. Monthly rent expenses are
fixed over the first five years of each term with predetermined rent increases after years five, ten and fifteen of the twenty-
year terms. A renewal option exists for a second term of ten years with market rates for rent to be determined at the time of
renewal. Under the terms of the lease agreements, the Corporation is responsible for the operating costs of the leased
premises including all major repairs necessary to maintain the properties in a state of good order and condition.
As part of the sale leaseback transaction, a proportion of the consideration received was in units of the Canadian REIT
which were pledged as security for the minimum rent obligations for the building leases over the first ten years of the lease
term. The Canadian REIT units are held in an escrow account until the earlier of ten years from the initial lease date or the
plan of arrangement is completed. The units had a fair value of $1,483 (2017 - $1,239) (Note 25). The Canadian REIT paid
a final monthly distribution on the units on May 15, 2018. The distributions have been included in investment income in
the consolidated statements of income.
On February 28, 2017, the Corporation repurchased one of the four properties from the Canadian REIT (Note 22).
The Corporation’s finance lease obligations as at December 31, 2018 and 2017 are stated in the following table:
Not later than one year
Later than one year and not later than five years
Later than five years
Total minimum lease payments
Less: amounts representing finance costs
Present value of minimum lease payments
Finance lease obligations are included in the consolidated balance sheets as follows:
Current
Long-term
Total
22. Purchase of leased property
Minimum lease payments
Dec 31, 2018
Dec 31, 2017
$ 649
$ 648
1,976
4,405
7,030
3,791
1,899
4,851
7,398
4,166
$ 3,239
$ 3,232
Dec 31, 2018
Dec 31, 2017
$ 255
2,984
$ 249
2,983
$ 3,239
$ 3,232
On February 28, 2017, the Corporation purchased, under a Right of First Offer (“ROFO”) a property which was previously
leased from a Canadian REIT. The lease interest in the property was recorded as an operating lease of land and a finance
lease of the buildings. The gross purchase price for the property was $18,822, of which $9,670 was paid in cash and
$9,152 was funded through a mortgage on the property obtained from a Canadian financial institution (Note 19). The
Corporation expensed $22 direct costs related to the transaction as incurred.
The transaction resulted in the elimination of all leasing obligations related to the purchased property. In determining the
transaction price allocated to land, the Corporation engaged assistance of third party specialists, to determine the fair value
related as $5,432.
For accounting purposes, the deferred operating lease obligations on the balance sheet, were eliminated in the amount of
$143.
PFB Corporation Annual Report 2018 60
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
The cost and accumulated depreciation of amounts previously classified as leasehold improvements, for property
enhancements installed from March 2013 to February 2017 were reclassified from leasehold improvements to buildings in
the amounts of $398 and $343, respectively.
At March 15, 2013, the present value of minimum lease payments relating to the finance lease asset was recorded as the
finance lease obligation in the amount of $14,220. This balance, through lease payments, decreased to $10,982 on
February 28, 2017 and was extinguished on the transaction date.
The land and building assets, along with the mortgage for buildings, have been allocated to the Corporate reportable
segment.
23. Reconciliation of liabilities arising from financing activities
The following table provides a reconciliation between the opening and closing balances for financing activities, including
cash and non-cash flows changes:
Cash changes
Non-cash changes
Bank indebtedness
$ -
$ 4,616
$ (4,616)
Dec 31, 2017 Borrowings Repayments
Additions Disposal
$ -
$ -
(338)
-
-
Foreign
exchange Dec 31, 2018
$ -
-
$ -
8,568
8,906
3,232
-
-
$ 12,138
$ 4,616
$ (5,233)
$ 289
$ (24)
$ 21
$ 11,807
(279)
289
(24)
21
3,239
Long-term debt
Finance lease
obligations
Total
24. Issued capital
24.1 Authorized
The Corporation’s authorized share capital represents:
(a) An unlimited number of voting common shares without nominal or par value which carry one vote per share
and carry a right to dividends.
(b) An unlimited number of preferred shares without nominal or par value, issuable in series at the discretion of the
directors of the Corporation of which none are outstanding.
24.2 Share-based payments
The Corporation has a stock option plan under which the maximum number of shares issuable is equal to 10% of the
number of issued and outstanding common shares. A stock option allows the grantee of the option to acquire
common shares of the Corporation, at the strike price established at the time of grant. Options may be exercised at
any time from the vesting date to the date of expiry. The strike price of each stock option is determined with
reference to the market price of the Corporation’s common shares.
Each share option converts into one ordinary common share of the Corporation upon exercising. No amounts are paid
or payable by the recipient on initial receipt of the option. The options carry neither rights to dividends nor voting
rights.
Under PFB’s stock option plan, 400,000 stock options were granted to certain directors and senior management with
an exercise price ranging from $8.05 to $8.50 per share. Options granted on May 10, 2018 to a director vest
immediately and expire on May 10, 2023. Options granted to senior management on March 8, 2018, commence to
vest after the second anniversary of the grant date, continue to vest on a graduated schedule and expire on March 8,
2028. The exercise price of the options was determined with reference to the price of PFB’s stock on the Toronto
Stock Exchange on the respective grant date.
The following table sets forth information concerning the inputs used in this model, share options granted and vested
under the stock option plan as at December 31, 2018:
61 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
Grant date
Number of
options
outstanding
Number of
options
exercisable
375,000
25,000
-
25,000
Weighted
average
exercise
price
$ 8.50
$ 8.05
Weighted
average
remaining
life
9.25
4.40
Weighted
average
risk-free
interest
rate (%)
2.11
2.11
Weighted
average
expected
life
(years)
9.69
4.92
Estimated
volatility
(%)
Expected
annual
dividend
yield (%)
18.04
18.04
3.98
3.98
Calculated
weighted
average
fair value
per option
$ 0.76
$ 0.81
400,000
25,000
$ 8.47
At the grant date, each option is measured at the fair value determined using the Black-Scholes option pricing model.
The risk-free interest rate is based on Government of Canada bonds with similar duration, at the grant date. The
weighted average expected life is based from the grant date to the date on which the option is expected to be
exercised. Expected volatility is estimated by considering historic share price volatility over the most recently
completed annual reporting period.
The fair value of options granted with immediate vesting have an aggregate fair value of $20 or $0.81 per option, and
are reported as a compensation expense on the grant date, with a corresponding increase in contributed surplus on the
balance sheet. Options with vesting requirements have an aggregate fair value of $286 or $0.76 per option and are
amortized on a straight-line basis over the ten year vesting period with the quarterly amortization amounts reported
as compensation expense included as an administrative expense on the income statement with the off-set to
contributed surplus on the balance sheet. During the period ended December 31, 2018, no options were exercised or
expired. There are 400,000 options outstanding as at December 31, 2018.
24.3 Normal Course Issuer Bid
In January 2018, the Corporation obtained approval from the Toronto Stock Exchange to renew its Normal Course
Issuer Bid (the “Bid”) program for a 12-month period, which commenced on January 10, 2018 and ends no later than
January 11, 2019.
During the year ended December 31, 2018 and 2017, the Corporation did not purchase any of its common shares for
cancellation under the Normal Course Issuer Bid. The Normal Course Issuer Bid lapsed on January 11, 2019 without
renewal.
24.4 Dividends
In the first quarter of 2018, the Corporation’s board of directors declared a regular quarterly dividend of $0.08 (2017
- $0.07) per common share which was paid in February of each year, respectively. The dividend payment in February
2018 amounted to $538 (2017 - $470).
In the second quarter of 2018, the Corporation’s board of directors declared a regular quarterly dividend of $0.08
(2017 - $0.07) per common share which was paid in May of each year, respectively. The dividend payment in May
2018 amounted to $537 (2017 - $470).
In the third quarter of 2018, the Corporation’s board of directors declared a regular quarterly dividend of $0.08 (2017
- $0.07) per common share which was paid in August of each year, respectively. The dividend payment in August
2018 amounted to $538 (2017 - $470).
In the fourth quarter of 2018, the Corporation’s board of directors declared a regular quarterly dividend of $0.08
(2017 - $0.08) per common share which was paid in November of each year, respectively. The dividend payment in
November 2018 amounted to $537 (2017 - $538).
Aggregate dividends paid in the year ended December 31, 2018, amounted to $2,150 (2017 - $1,948).
25. Financial instruments
25.1 Capital management
The Corporation manages its capital structure to ensure that the Corporation and its subsidiaries will be able to
continue as going concerns, maximizing the return to shareholders through the optimization of the debt and equity,
and to safeguard corporate assets.
PFB Corporation Annual Report 2018 62
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
The capital structure of the Corporation consists of net debt (long-term debt as detailed in Note 19 offset by cash and
cash equivalents) and equity of the Corporation (comprising issued share capital, reserves, and retained earnings as
detailed in the consolidated statement of changes in equity).
The Corporation’s capital structure, net of cash and cash equivalents, as at December 31, 2018 and 2017, is as
outlined in the following table:
Borrowings
Less: cash and cash equivalents
Surplus cash
Shareholders’ equity
As at
December 31, 2018
As at
December 31, 2017
$ 8,568
16,944
$ (8,376)
$ 8,906
12,180
$ (3,274)
$ 56,636
$ 50,825
Net borrowings to equity ratio
N/A
N/A
The Corporation considers the amount of capital it requires in proportion to the associated risks. Adjustments may be
made to the Corporation’s capital structure in light of changes in economic conditions and the risk characteristics of
the underlying assets. The capital structure can be maintained or adjusted in a variety of ways as circumstances may
change, including: adjusting the amount of dividends paid to shareholders; purchasing shares for cancellation (under
Normal Course Issuer Bids); issuing new shares; and increasing or repaying any debt financing.
The Corporation pursues its capital management objectives by prudently managing the capital generated through
internal growth of its operations, optimizing the use of lower cost capital when required, and raising share capital
when deemed appropriate, to fund significant strategic growth initiatives.
25.2 Categories of financial instruments
The Corporation, through its financial assets and liabilities, is exposed to a variety of risks that may affect the fair
value of its financial instruments with each carrying varying degrees of significance which could affect the
Corporation’s ability to achieve its strategic objectives of growing its operations and increasing shareholder returns.
The following fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value of
financial instruments classified as FVTPL. The three levels of the fair value hierarchy are described below:
Level 1: Fair value based on unadjusted quoted prices in active markets that are accessible at the measurement date
for identical assets or liabilities.
Level 2: Fair value based on quoted prices in markets that are not active or model inputs that are observable either
directly or indirectly for substantially the full term of the asset or liability.
Level 3: Fair value based on prices or valuation techniques that require inputs that are both unobservable and
significant to the overall fair value measurement.
The estimated fair value of each class of financial instruments, the methods and assumptions that were used to
determine it are as follows:
The carrying amount of cash and cash equivalents, restricted cash, trade receivables bank indebtedness,
and trade and other payables approximate fair value due to the short-term maturity of those instruments.
Marketable securities – restricted, consist of units of a Canadian REIT which are priced at $8.10 per unit
based on a plan of arrangement and remain in escrow.
Long-term debt is carried at amortized cost. The estimated fair value of long-term borrowings has been
estimated to approximate the amortized cost.
A summary of the categories, measurement basis, hierarchy, carrying values and fair values of financial instruments
held by the Corporation are stated in the following table (see Note 4):
63 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
Category
Financial
instrument
Cash and cash
equivalents
Cash - restricted Assets at
Assets at
amortized cost
Measurement
Hierarchy
December 31, 2018
Carrying
Amount
Fair
Value
December 31, 2017
Fair
Value
Carrying
Amount
Amortized cost
Level 1
$ 16,944
$ 16,944
$ 12,180
$ 12,180
Restricted
marketable
securities
Trade
receivables
Trade and other
payables
Long-term debt
amortized cost Amortized cost Level 1
1,347
1,347
88
88
Fair value
Amortized cost
FVOCI
Assets at
amortized cost
Financial
liabilities at
amortized cost
Financial
liabilities at
amortized cost Amortized cost
Amortized cost
Level 2
1,483
1,483
1,239
1,239
N/A
13,082
13,082
9,809
9,809
N/A
(10,894)
(10,894)
(8,737)
(8,737)
Level 2
(8,568)
(8,568)
(8,906)
(8,906)
During the year ending December 31, 2018, restricted marketable securities were transferred from Level 1 to Level 2
fair value measurements.
25.3 Credit risk
Credit risk is defined as the risk that the Corporation’s counterparty in a transaction fails to meet or discharge their
obligation to the Corporation.
The Corporation’s exposure to credit risk is associated with trade receivables and the potential risk that any customer
is unable to pay amounts due. Allowances for doubtful accounts and bad debts are estimated as at the balance sheet
date. The amounts reported for trade receivables on the balance sheet are net of allowances for doubtful accounts and
the net carrying value represents the Corporation’s maximum exposure to credit risk.
The Corporation’s subsidiaries provide trade credit to their customers in the normal course of business and the
Corporation’s credit policy is universally adopted across all businesses. The policy requires the credit history of each
new customer to be closely examined before credit is granted, which may involve performing solvency tests if a
particular account is expected to become significant. It is not normal practice to require customers to provide
collateral or security as a condition of approving trade credit. The diversity of the Corporation’s customer base and
product offering combine to minimize overall exposures to credit risks.
Customers ordering highly-customized manufactured products are required to make advance payments at various
predefined stages of a sales contract. All payments received in advance of invoicing are reported as contract
liabilities in the current liability section of the balance sheet. Final contract balances are typically required to be paid
in full before products are shipped.
Management diligently reviews past due trade receivables balances on a weekly basis to monitor potential credit
risks. Accounts are considered for impairment on a case-by-case basis when they are past due or when objective
evidence is received that a customer may default. A number of factors are considered in determining the likelihood of
impairment. All bad debt write-offs and changes in the doubtful trade receivables reserve are expensed or credited, as
applicable, to selling expenses in the consolidated statement of income.
PFB believes that credit risk associated with its trade receivables is limited for the following reasons:
Trade receivables balances are spread amongst a broad customer base which is dispersed across a wide
geographic range;
The aging profile of trade receivables balances is systematically monitored by management;
Larger customers are offered a discount off invoice for prompt payment which is strictly enforced; and
Payments for highly-customized orders are received in advance of products being shipped.
PFB Corporation Annual Report 2018 64
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
Potential credit risk associated with contractual holdback amounts pertaining to certain large projects is considered to
be low as the customers involved are required to provide bonding to the owners of the projects. The credit risk on
cash balances is limited because the counterparties are large commercial banks in Canada and the United States.
Payment of interest by customers arising on past due trade receivables balances is included in investment income in
the consolidated statements of income.
25.4 Foreign currency risk
Currency risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates.
The Corporation operates in both Canada and the United States of America and is exposed to foreign exchange risks
arising from changes in foreign exchange rates between the two countries. At the present time, the Corporation has a
net exposure to the U.S. dollar, as the prices for most raw materials used in its operations are denominated in that
currency. Raw material supplies denominated in U.S. dollars are usually required to be paid within thirty days or less
of receiving actual deliveries, which is consistent with industry practices.
Periodically, management may commit to entering into foreign exchange contracts to attempt to protect earnings
against relatively short-term fluctuations in exchange rates. In such cases, management attempts to make informed
judgments in entering such transactions but there is a possibility that markets may not respond in ways predicted. To
the extent that the Corporation does not fully hedge its foreign currency exposure and exchange rate risk, or the
Corporation’s subsidiaries are not able to or do not raise their selling prices accordingly when exchange rates are
moving in an unfavourable direction, the profitability of the business could be adversely affected. The Corporation
did not hold any foreign exchange contracts as at December 31, 2018.
The following tables detail the Corporation’s exposure to foreign currency risk as at December 31, 2018 and 2017,
including a sensitivity analysis to changes in foreign exchange rates:
December 31, 2018
December 31, 2017
USD
Change in
currency
Net monetary assets
Net monetary liabilities
$ 12,567
(3,981)
5.0%
5.0%
Effect on
after tax
income
(loss)
$ 478
$ (152)
Change in
currency
USD
Effect on
after tax
income (loss)
$ 8,062
5.0%
$ 307
(3,126)
5.0%
$ (119)
25.5 Interest rate risk
Interest rate risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of change in market interest rates.
The Corporation’s Canadian subsidiary had access to a revolving credit facility with a Canadian bank. The
revolving credit facility had a limit of $10,000, based on marginable trade receivables and inventories. The
revolving credit facility was repaid and unused at December 31, 2018 (December 31, 2017 - $10,000 unused). The
Corporation’s USA subsidiary had access to a revolving credit facility with a US bank. The revolving credit facility
had a limit of $1,250, based on all inventory and equipment. The revolving credit facility was unused as at
December 31, 2018 (December 31, 2017 - $1,250, unused).
25.6 Liquidity risk
Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with
financial liabilities. Financial liabilities include principal and interest payments.
The Corporation’s liquidity risk is that it is not able to settle liabilities when due or that it can do so only at an
abnormally high cost. Accordingly, one of management’s primary goals is to maintain an optimum level of liquidity
by actively managing assets, liabilities and cash flows generated by operations. The Corporation’s future strategies
can be financed through a combination of cash flows generated by operations, borrowing under existing credit
facilities, and the issuance of equity. Management prepares regular budgets and cash flow forecasts to help predict
future changes in liquidity.
65 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
The Corporation has financial liabilities with the following maturities:
As at December 31, 2018
Trade and other payables
Long-term debt
Finance lease obligations
Total
As at December 31, 2017
Trade and other payables
Long-term debt
Finance lease obligations
Total
Current
less than 12
months
$ 10, 894 $ 10,894
Total
Due within
12 to 24
months
$ -
Due within
25 to 36
months
$ -
Due within
37 to 48
months
$ -
Due after
48 months
$ -
11,369
7,030
623
649
623
575
623
479
623
453
8,877
4,874
$ 29,293
$ 12,166
$ 1,198
$ 1,102
$ 1,076
$ 13,751
$ 8,737 $ 8,737
11,992
7,398
623
648
$ 28,127 $ 10,008
$ -
623
$ -
623
559
$ 1,182
486
$ 1,109
$ -
623
429
$ -
9,500
5,276
$ 1,052 $ 14,776
26. Related party transactions
All related party transactions are constituted in the ordinary course of business and they have been measured at the agreed
to exchange amounts which approximate fair value. All transactions with related parties have been approved by the Board
of Directors.
Balances and transactions between the Corporation and its subsidiaries, which are related parties of the Corporation, have
been eliminated on consolidation and are not disclosed in this note (Note 5.3). Details of transactions between the
Corporation and other related parties are disclosed below.
26.1 Trading transactions
Related party transactions are constituted in the ordinary business and they have been measured at the agreed to
exchange amounts which closely approximate fair value.
In the years ended December 31, 2018 and 2017, the Corporation had the following trading transactions with related
parties:
Related party
Nature of transactions
E. Carruthers Trucking
Transportation services
Aeonian Capital Corporation Management services
The following related party balances were outstanding at the end of the reporting years:
Related party
Nature of transactions
E. Carruthers Trucking
Transportation services
2018
2017
$ 2,163
$ 1,920
350
350
$ 2,513
$ 2,270
2018
2017
$ 81
$ 68
Aeonian Capital Corporation (“Aeonian”), and its affiliates, owned 2,991,168 (2017 - 2,967,668) common shares of
the Corporation representing 44.5% (2017 – 44.2%) of the 6,716,003 issued and outstanding shares as at December
31, 2018. Aeonian is controlled by C. Alan Smith, Executive Chairman of PFB. The Corporation is charged fees by
Aeonian for management services including those provided by Mr. Smith. The fees are reported under administrative
expenses in the consolidated statement of income.
E. Carruthers Trucking is owned by a sibling of a member of the Board of PFB. The transactions have occurred in
the normal course of operations at arm’s length and are based on standard commercial terms.
PFB Corporation Annual Report 2018 66
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
26.2 Compensation of key management personnel
The remuneration of directors and other members of key management personnel for the year ended were as follows:
Short-term benefits 1
Post-employments benefits
Other long-term benefits
Share-based payments
Termination benefits
2018
2017
$ 1,477
-
-
44
-
$ 1,198
-
-
-
-
$ 1,521
$ 1,198
1 Short-term benefits includes the following: salaries and associated employer-related costs for payroll and health benefits;
bonuses; management and directors fees (as applicable).
The remuneration of directors and the key executives is recommended to the Board of Directors by the Human
Resources and Compensation Committee and having regard to the performance of individuals and market trends.
27. Operating lease arrangements
Operating leases generally have varying terms of between 12 months and 15 years, with options to renew in some cases.
Several leases either have rent incentives or rent escalation clauses. There are no contingent rents or sublease payments
applicable to any operating lease.
The Corporation’s future minimum payments under non-cancellable, operating lease arrangements for lands, buildings and
equipment, as at December 31, 2018 and December 31, 2017 are as stated in the table below:
Not later than one year
Later than one year and not later than five years
Later than five years
28. Commitments and contingencies
28.1 Performance bonds
2018
2017
$ 1,404
$ 1,217
5,011
4,966
3,815
5,823
$ 11,381
$ 10,855
From time to time, under the terms of certain sales contracts, the Corporation’s subsidiaries may be required to
provide a performance bond as security. Performance bonds are considered normal practice for suppliers and
contractors participating in larger construction projects, usually of a public nature. In the USA, government agencies
in certain states have requirements for bonds to be posted when certain types of licensing applications are made in
any of those states.
As at December 31, 2018, the Canadian segment did not have any performance bonds outstanding (December 31,
2017 - $nil). In the USA, performance bonds in the amount of $651 (December 31, 2017 - $598) were pledged to
various government agencies as at December 31, 2018.
28.2 Expenditures for property, plant and equipment and intangible assets
Under the terms of the carefree triple net property leases with a Canadian REIT, the Corporation’s subsidiary, Plasti-
Fab Ltd., is responsible for all major repairs necessary to maintain the leased properties in a state of good order and
condition over the duration of the leases (Note 21). As at December 31, 2018, no definitive schedule of major repairs
has been determined.
67 PFB Corporation Annual Report 2018
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
The Corporation had the following commitments for property, plant and equipment and intangible assets as at
December 31, 2018 and 2017:
Property, plant and equipment
Intangible assets
28.3 Contingent liabilities
As at
Dec 31, 2018
As at
Dec 31, 2017
$ 494
$ 273
58
-
$ 552
$ 273
In the normal course of its operations, the Corporation and/or its subsidiaries may occasionally become involved in
various claims. While the final outcome with respect to any claims pending cannot be predicted with certainty, it is
the opinion of management that their resolution will not have a material adverse effect on the consolidated financial
position, consolidated results of operations or cash flows.
28.4 Environment
The Corporation’s subsidiaries are subject to various laws, regulations, and government policies relating to health
and safety, production operations, storage and transportation of goods, disposal and environmental emissions of
various substances and materials, and to the protection of the environment in general.
29. Supplementary cash flow information
29.1 Changes in non-cash working capital
Trade receivables
Inventories
Prepaid expenses
Contract cost
Trade and other payables
Contract liabilities
29.2 Non-cash transactions excluded from the consolidated statement of cash flows
Property, plant and equipment acquired with
finance lease obligations
30. Subsequent events
Declaration of regular quarterly dividend
2018
2017
$ (3,273)
$ (2,166)
(1,640)
100
52
2,157
1,306
12
240
(130)
1,378
1,313
$ (1,298)
$ 647
2018
2017
$ 289
$ 244
On February 1, 2019, the Board of Directors declared a regular quarterly dividend of $0.08 per common share payable on
February 28, 2019, to shareholders of record at the close of business on February 14, 2019.
Letters of credit
Outstanding letters of credit for $1,301 remain outstanding as guarantee payments for inventory purchases.
Operating credit facility
As at January 18, 2019, the operating credit facility in Canada was increased to $17,000.
PFB Corporation Annual Report 2018 68
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Thousands of Canadian dollars
31. Subsidiaries
Subsidiary
Principal activities
Place of
incorporation and
operation
Proportion of ownership interest
and voting power held
by the Corporation
December 31,
2017
December 31,
2018
Canada
Plasti-Fab Ltd.
USA
Manufacturing
Alberta, Canada
100%
100%
PFB America Corporation
Holding company
PFB Custom Homes Group, LLC Design and
Delaware, USA
Delaware, USA
construction services
PFB Manufacturing, LLC
Manufacturing
Delaware, USA
PFB America Real Estate, LLC
Real estate holdings
Delaware, USA
100%
100%
100%
100%
100%
100%
100%
100%
32. Approval of financial statements
The financial statements were approved by the Board of Directors and authorized for issue on March 8, 2019.
69 PFB Corporation Annual Report 2018
DIRECTORS
Frank B. Baker
Corporate Director
Bruce M. Carruthers
Corporate Director
Donald J. Douglas
Chairman Emeritus
United Communities Inc.
John K. Read
President
Picante Capital Corp.
Leslie A. Lundquist
Director
Lundquist Investment Management Inc.
C. Alan Smith
President
Aeonian Capital Corporation
William H. Smith, Q.C.
Principal, William H. Smith Professional Corp.
Vanessa H. Rennie
Corporate Director
Gordon G. Tallman
Corporate Director
OFFICERS
Robert Graham
Chief Executive Officer
Mirko Papuga
Chief Financial Officer
William H. Smith, Q.C.
Corporate Secretary
OPERATIONS
Head Office
Calgary, Alberta
Plasti-Fab Ltd.
EPS Moulding Operations:
Delta, British Columbia
Crossfield, Alberta
Edmonton, Alberta
Saskatoon, Saskatchewan
Winnipeg, Manitoba
Kitchener, Ontario
Ajax, Ontario
Insulspan SIPS Division:
Delta, British Columbia
PFB America Corporation
PFB Custom Homes Group, LLC
Meridian, Idaho
Blissfield, Michigan
PFB Manufacturing, LLC
Lebanon, Ohio
Blissfield, Michigan
Lester Prairie, Minnesota
PFB America Real Estate, LLC
WEBSITES
www.pfbcorp.com www.advantageicf.com
www.plastifab.com www.insulspan.com
www.riverbendtf.com www.pfbsustainability.com
www.precisioncraft.com www.pfbamerica.com
www.mtndesign.com www.timberscape.com
www.pointzerohomes.com
BANKERS
Royal Bank of Canada
TRANSFER AGENT AND REGISTRAR
Alliance Trust Company
AUDITORS
Deloitte LLP
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
STOCK SYMBOL
PFB
PFB Corporation Annual Report 2018 70
300, 2891 Sunridge Way N.E.
Calgary, AB T1Y 7K7
Canada
Tel: 403.569.4300
Fax: 403.569.4075
Email: mailbox@pfbcorp.com
www.pfbcorp.com